SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section
14(c) of the Securities Exchange Act of 1934
Check the appropriate box:
[X] Preliminary Information Statement
[ ] Definitive Information Statement
WHITESTONE INDUSTRIES, INC.
(Name of Registrant As Specified In Charter)
WHITESTONE INDUSTRIES, INC.
(Name of Person(s) Filing the Information Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
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<CAPTION>
Title of each Per unit price or other
class of securities Aggregate number of underlying value of Proposed maximum
to which securities to which transaction computed pursuant aggregate value Amount of
transaction applies transaction applies to Exchange Act Rule 0-11 of transaction(1) filing fee
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____________________________________________________________________________________________________________
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(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
________________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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WHITESTONE INDUSTRIES, INC.
19200 Von Karmen Avenue
Irvine, California 92715
Information Statement
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY
This Information Statement is being furnished to the holders of outstanding
shares of the Common Stock, $.0001 par value ("Common Stock"), of Whitestone
Industries, Inc., a Delaware Corporation ("Company") as of July 8, 1997 ("Record
Date"), for the purposes of approving (i) a name change of the Company to
Proformix, Inc.; (ii) a one-for-137 reverse stock split ("Reverse Split") on all
of the issued and outstanding shares of Common Stock; and (iii) the
establishment of a stock option plan.
The Board of Directors of the Company (the "Board") has determined that the
name change, the Reverse Split, and the establishment of a stock option plan are
in the best interests of the shareholders of the Company and has recommended
that the shareholders approve, adopt and/or ratify such transactions.
As of the Record Date, the Company had outstanding ____________ shares of
Common Stock and 100,000 shares of Series A Preferred Stock, $.001 par value
("Preferred Stock"). Each share of Common Stock is entitled to one vote per
share. Each share of Preferred Stock is entitled to 48 votes. Accordingly, as of
the Record Date, the Company had outstanding securities possessing an aggregate
of ____________ ("Votes"). In order to approve and/or ratify the transactions
identified in this Information Statement an aggregate of ______________ Votes
are required. The Company has been advised by certain shareholders ("Consenting
Holders") representing approximately ____% of the Votes that they will consent
to the transactions described in this Information Statement.
Although no further action is required by shareholders other than the
Consenting Holders in connection with the transactions discussed in this
Information Statement, this Information Statement is being mailed to the
shareholders of the Company pursuant to Rule 14c-2 and Rule 14f-1 of the
Exchange Act, which rule requires the mailing of the information set forth in
this Information Statement to all of the Company's shareholders prior to July
18, 1997, the date on which the written consent of a few security holders who
have enough shares to approve the transactions set forth above is to be used to
implement the name change, the Reverse Split and the approval of the stock
option plan.
Questions and requests for assistance or additional copies of documents
referred to in this Information Statement and previously mailed to holders of
shares should be directed to the Company at its address set forth at the top of
this Information Statement. This Information Statement was mailed by certified
mail on the date set forth below.
June ___, 1997
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AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements and
other information with the Securities and Exchange Commission ("Commission").
The Company's reports, proxy statements and other information, can be inspected
and copied at the public reference room of the Commission at 450 Fifth Street
N.W., Washington, D.C. 20549 and at the Commission's regional offices at 7 World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material can
be obtained from the public reference section of the Commission at its
Washington address at prescribed rates.
DOCUMENTS INCORPORATED BY REFERENCE
The Company will provide without charge to each person to whom a copy of
this Information Statement is delivered upon the written or oral request of such
person, a copy of any or all of the documents incorporated by reference herein
(including exhibits to such documents). Requests should be directed to:
Whitestone Industries, Inc., 19200 Von Karmen Avenue, Irvine, California 92715.
The Company's Annual Report on Form 10-K for the year ended December 31, 1996,
as amended, (without exhibits) is being delivered to shareholders simultaneously
with this Information Statement.
The following documents filed with the Commission by the Company are hereby
incorporated by reference into this Information Statement:
(1) The Company's Annual Report on Form 10-K, as most recently amended,
for the fiscal year ended December 31, 1996; and
(3) The Company's Current Report on Form 8-K, as amended, as filed with
the Commission on June ____, 1997.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Information Statement to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies, supersedes or replaces
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Information
Statement.
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APPROVAL OF THE AMENDMENT TO THE
COMPANY'S ARTICLES OF INCORPORATION
Background
The Company's Board of Directors has unanimously authorized, and recommends
that the shareholders approve and adopt, an amendment to the Company's
Certificate of Incorporation changing the Company's name to Proformix Corp. If
the Shareholders approve the name change, an amendment to the Certificate of
Incorporation will be filed with the Department of State of the State of
Delaware.
Reasons for the Name Change
The primary reason for the name change is to reflect the Company's recent
acquisition of up to 90% of Proformix, Inc.
No Right of Appraisal
Under the General Corporation Law of Delaware, the state in which the
Company is incorporated, the Amendment to the Articles of Incorporation
effecting the name change does not require the Company to provide dissenting
shareholders with the right of appraisal and the Company will not provide
shareholders with such right.
Recommendation of the Board
The Board of Directors of the Company has unanimously voted in favor of the
name change and corresponding amendment to the certificate of incorporation and
recommends to the shareholders of the Company that they similarly approve the
filing of the Amendment.
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RATIFICATION OF THE COMPANY'S
1997 STOCK OPTION PLAN
General
On June 16, 1997, the Board of Directors ("Board" or "Board of Directors")
of the Company approved the 1997 Stock Option Plan ("Plan"), a copy of which
plan is annexed as Exhibit A to this Information Statement. The Plan is intended
to comply with the requirements of Section 422 of the Internal Revenue Code of
1986, as amended. Approval of the Plan is subject to the ratification by the
shareholders at the Annual Meeting. The Plan provides for the issuance of up to
1,000,000 employee stock options ("Stock Options" or "Options") over a 10 year
period commencing on the date the Plan is ratified by the Company's
shareholders.
The class of employees eligible for participation in the Plan consist of
the Company's (including subsidiaries) employees, key consultants and
professionals, and non-employee directors. Once the Plan has been approved by
the Shareholders, the Board of Directors has the ability to allocate the Options
among the various eligible employees at the Board's discretion except to the
extent that the Company has previously entered into employment agreements with
such employees providing for the issuance of the Options.
The Plan provides for the grant of both incentive and non-statutory Stock
Options. Incentive Stock Options ("Incentive Stock Options") granted under the
Plan are intended to qualify as "Incentive Stock Options" within the meaning of
Section 422 of the Internal Revenue Code ("Code"). Non-statutory Stock Options
("Non-statutory Stock Options") granted under the Plan are not intended to
qualify as Incentive Stock Options under the Code. See "Federal Income Tax
Information" for a discussion of the tax treatment of incentive and
Non-statutory Stock Options. The Plan also authorizes the issuance of stock
appreciation rights to eligible parties.
The Board of Directors believes that its ability to grant Options under the
Plan will advance the interests of the Company by strengthening its ability to
attract and retain in its employ people of desired training, experience and
ability, and to furnish additional incentives to its eligible employees upon
whose judgment, initiative and efforts the Company is largely dependent for the
successful conduct of its operations.
Administration
The Plan is administered by the Board of Directors of the Company and by
the Company's Stock Option Committee. The Board and the committee have the power
to construe and interpret the Plan and, subject to the provisions of the Plan,
to determine the persons to whom and the dates on which Options will be granted,
the number of shares to be subject to each Option, the time or times during the
term of each Option within which all or a portion of such Option may be
exercised, the exercise price, the type of consideration and other terms of the
Option. The Board of Directors is authorized to delegate administration of the
Plan to a committee composed of not fewer than two members of the Board.
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Eligibility
Employees, officers, directors, professionals and consultants are eligible
to receive Stock Options under the Plan. No Incentive Stock Option may be
granted under the Plan to any person who at the time of the grant, owns (or is
deemed to own) stock possessing more than 10% of the total combined voting power
of the Company or any affiliate of the Company, unless the Option exercise price
is at least 110% of the fair market value of the Common Stock subject to the
Option on the date of grant, and the term of the Option does not exceed five
years from the date of grant. For Incentive Stock Options granted under the
Plan, the aggregate fair market value, determined at the time of grant, of the
shares of Common Stock with respect to which such Options are exercisable for
the first time by an Optionee during any calendar year (under all such plans of
the Company and its subsidiaries) may not exceed $100,000.
Stock Subject to the Plan
If Options granted under the Plan expire or otherwise terminate without
being exercised, the Common Stock not purchased pursuant to such Options again
becomes available for issuance under the Plan.
Terms of Options
The following is a description of the permissible terms of Options under
the Plan. Individual Option grants may be more restrictive as to any or all of
the permissible terms described below.
Exercise Price; Payment. The exercise price of Incentive Stock Options
under the Plan may not be less than the fair market value of the Common
Stock subject to the Option on the date of the Option grant, and in some
cases (see "Eligibility" above), may not be less than 110% of such fair
market value. The exercise price of nonstatutory Options under the Plan may
not be less than 85% of the fair market value of the Common Stock subject
to the Option on the date of the Option grant.
The exercise price of Options granted under the Plan must be paid either:
(a) in cash at the time the Option is exercised; or (b) at the discretion
of the Board, (i) by delivery of other Common Stock of the Company, (ii)
pursuant to a deferred payment arrangement or (c) in any other form of
legal consideration acceptable to the Board.
Option Exercise. Options granted under the Plan may become exercisable in
cumulative increments ("vest") as determined by the Board. The Board has
the power to accelerate the time during which an Option may be exercised,
provided that no Incentive Stock Option shall be exercisable within one
year from the date of grant. To the extent provided by the terms of an
Option, an Optionee may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such Option by a cash payment upon
exercise, by authorizing the Company to withhold a portion of the Common
Stock otherwise issuable to the Optionee, by delivering already-owned stock
of the Company or by a combination of these means.
Term. The maximum term of Options under the Plan is ten years, except that
in certain cases (see "Eligibility") the maximum term is five years.
Options under the Plan terminate three months after the Optionee ceases to
be employed by or serve as a director or
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consultant to the Company or any affiliate of the Company, unless (a) the
termination of such relationship is due to such person's permanent and
total disability (as defined in the Code), in which case the Option may be
exercised at any time within one year of such termination; (b) the Optionee
dies while employed by or serving as a director or consultant to the
Company or any affiliate of the Company, in which case the Option may be
exercised (to the extent the Option was exercisable at the time of the
Optionee's death) within one year of the Optionee's death by the person or
persons to whom the rights to such Option pass by will or by the laws of
descent and distribution; or (c) the Option by its terms specifically
provides otherwise.
Adjustment Provisions
If there is any change in the Common Stock subject to the Plan or subject
to any Option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure of otherwise), the Plan and Options
outstanding thereunder will be appropriately adjusted as to the class and the
maximum number of shares subject to such plan, the maximum number of shares
which may be granted to any person during a calendar year, and the class, number
of shares and price per share of Common Stock subject to such outstanding
Options.
Duration, Amendment and Termination
The Board may amend, suspend or terminate the Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the Plan will terminate on ______________, 2007 if approved by the
shareholders.
The Board may also amend the Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company within twelve months before or after its adoption by the Board if
the amendment would: (a) increase the number of shares reserved for Options
under the plan; (b) materially modify the requirements as to eligibility for
participation under the plan; or (c) materially increase the benefits accruing
to participants under the plan. The Board may submit any other amendment to the
Plan for stockholder approval.
Restrictions on Transfer
Under the Plan, an Option may not be transferred by the Optionee otherwise
than by will or by the laws of descent and distribution. During the lifetime of
an Optionee, an Option may be exercised only by the Optionee.
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Federal Income Tax Information
Incentive Stock Options. Incentive Stock Options under the Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"Incentive Stock Options" under the Code
There generally are no federal income tax consequences to the Optionee or
the Company by reason of the grant or exercise of an Incentive Stock Option.
However, the exercise of an Incentive Stock Option may increase the Optionee's
alternative minimum tax liability, if any.
If an Optionee holds Common Stock acquired through exercise of an Incentive
Stock Option for at least two years from the date on which the Option is granted
and at least one year from the date on which the shares are transferred to the
Optionee upon exercise of the Option, any gain or loss on a disposition of such
Common Stock will be long-term capital gain or loss. Generally, if the Optionee
disposes of the Common Stock before the expiration of either of these holding
periods (a "disqualifying disposition"), at the time of disposition the Optionee
will realize taxable ordinary income equal to the lesser of (a) the excess of
the Common Stock's fair market value on the date of exercise over the exercise
price, or (b) the Optionee's actual gain, if any, on the purchase and sale. The
Optionee's additional gain, or any loss, upon the disqualifying disposition will
be a capital gain or loss which will be long-term or short-term depending on
whether the Common Stock was held for more than one year. Long term capital
gains currently are generally subject to lower tax rates than ordinary income.
Slightly different rules may apply to Optionees who acquire stock subject to
certain repurchase Options or who are subject to Section 16(b) of Exchange Act.
To the extent the Optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will be entitled (subject to the
requirement of reasonableness, the provisions of Section 162(m) of the Code and
the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Non-statutory Stock Options. Non-statutory Stock Options granted under the
Plan generally have the following federal income tax consequences.
There are no tax consequences to the Optionee or the Company by reason of
the grant of a Non-statutory Stock Option. Upon exercise of a Non-statutory
Stock Option, the Optionee normally will recognize taxable ordinary income equal
to the excess of the Common Stock's fair market value on the date of exercise
over the Option exercise price. Generally, with respect to employees, the
Company is required to withhold from regular wages or supplemental wage payments
an amount based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the Optionee. Upon disposition of the Common Stock, the Optionee
will recognize a capital gain or loss equal to the difference between the
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selling price and the sum of the amount paid for such Common Stock plus any
amount recognized as ordinary income upon exercise of the Option. Such gain or
loss will be long or short-term depending on whether the Common Stock was held
for more than one year. Slightly different rules apply to the Optionees who
acquire Common Stock subject to certain repurchase Options or who are subject to
Section 16(b) of the Exchange Act.
Potential Limitation on Company Deductions. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section
162(m), which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a table year to the extent that
compensation exceeds $1,000,000 for a covered employee. It is possible that
compensation attributable to Stock Options, when combined with all other types
of compensation received by a covered employee from the Company, may cause this
limitation to be exceeded in any particular year. The Company does not currently
anticipate that Section 162(m) will be applicable to its operations. However, in
the event that the Company determines that 162(m) may become applicable with
respect to compensation to be paid to an officer of the Company, the Company may
choose to administer the Plan and make grants under the Plan in a manner which
would exempt compensation related to an Option granted under the Plan exempt
from the Section 162(m) limitation.
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THE REVERSE STOCK SPLIT
Background
The Company's Board of Directors unanimously authorized the Reverse Split
pursuant to which each 137 outstanding shares of Common Stock will be
automatically converted into one (1) share of Common Stock. As of June 9, 1997,
there were 5,924,320 shares of Common Stock issued and outstanding. After giving
effect to the Reverse Split, the Company will have outstanding approximately
43,244 shares of Common Stock. The Reverse Split will not change the par value
of any outstanding shares of Common Stock.
Reasons for the Reverse Split
The primary reason for the Reverse Split is to reflect the relative
contribution of Proformix, Inc., a viable business, which is being acquired by
the Company, an inactive shell. In order to consummate this acquisition, the
Company must recapitalize and the Board believes that this recapitalization and
acquisition will ultimately provide for greater shareholder value. Moreover, it
is necessary in order to convey to the present Proformix, Inc. stockholders
additional shares constituting control of the Company.
The Reverse Split will be effected by reducing the number of issued and
outstanding shares of Common Stock at the ratio of 137-for-one. The par value of
such securities will not be altered.
The Reverse Split will not in and of itself alter the percentage interest
in the Company of any shareholder, except to the extent that the Reverse Split
results in a shareholder of the Company owning a fractional share. In lieu of
issuing fractional shares, the Company will issue to any shareholder who
otherwise would have been entitled to receive a fractional share as a result of
the Reverse Split, an additional full share of Common Stock.
Effect of the Reverse Stock Split
The principal effect of the Reverse Split is that the number of shares of
the Company's issued and outstanding Common Stock will be reduced from
approximately 5,924,320 to 43,244 prior to the issuance of approximately
3,150,000 new shares to Proformix, Inc. shareholders.
No Right of Appraisal
Under the General Corporation Law of the State of Delaware, the state in
which the Company is incorporated, the Reverse Split does not require the
Company to provide dissenting shareholders with the right of appraisal and the
Company will not provide shareholders with any such right.
Recommendation of the Board
The Board of Directors of the Company unanimously voted in favor of the
Reverse Split and the Board recommends that the shareholders of the Company
ratify the Reverse Split.
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Security Ownership of Certain Beneficial
Owners and Management
The following table sets forth, as of June 9, 1997, the record and
beneficial ownership of Common Stock of the Company by each officer and
director, all officers and directors as a group, and each person known to the
Company to own beneficially or of record five percent or more of the outstanding
shares of the Company:
Shares
Officers, Directors and Beneficially Percent of Shares
Principal Stockholders Owned Beneficially Owned (1)
Donald R. Yu 0 **
George Eshoo 85,000(2) 1.4%
Marianne Rossi 20,000 **
International Exchange Ltd. 2,183,750(3) 36.9%
c/o Baltic Trust Co., Ltd.
Matisa Iela 65-4
LV-10009 Riga, Latvia
Royal Capital Inc. 5,920,000(4) 55.2%
75 Claremont Road
Bernardsville, New Jersey
Jean Yu 1,120,000(5)
All directors, 105,000 1.8%
executive officers
as a group (3 persons)
**Less than 1%
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of Common Stock which such person has
the right to acquire within 60 days of June 9, 1997. For purposes of
computing the percentage of outstanding shares of Common Stock held by each
person or group of persons named above, any security which such person or
persons has or have the right to acquire within such date is deemed to be
outstanding but is not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person. Except as indicated
in the footnotes to this table and pursuant to applicable community
property laws, the Company believes based on information supplied by such
persons, that the persons named in this table have sole voting and
investment power with respect to all shares of Common Stock which they
beneficially own.
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(2) Includes 50,000 shares beneficially owned by Eshoo Corp., of which Mr.
Eshoo is President.
(3) These shares of Common Stock are currently in dispute as to ownership and
the transfer of these shares has been enjoined by the United States
District Court for the Northern District of California pending resolution.
The Company has challenged the record owner's entitlement to the shares in
question.
(4) Includes 4,800,000 shares of Common Stock underlying Preferred Stock. Each
share of Preferred Stock is convertible into 48 shares of Common Stock.
Also includes 1,120,00 shares of Common Stock beneficially owned by Jean
Yu, for which Royal Capital, Inc. has obtained voting power.
(5) Ms. Yu has granted an irrevocable proxy to Donald R. Yu for voting
purposes. Mr. Yu subsequently entered into an agreement with Royal Capital
which grants Royal Capital voting power over the shares.
CHANGE IN CONTROL
On June 16, 1997, the Company and the Company's president, Donald R. Yu
entered into stock purchase agreement ("Purchase Agreement") with Royal Capital,
Inc. ("Royal") wherein Royal purchased 100,000 shares of Preferred Stock
beneficially owned by Mr. Yu and was assigned an irrevocable proxy to vote
1,120,000 shares beneficially owned by Jean Yu in consideration of $100,000.
Upon consummation of the Purchase Agreement, Royal controls a voting majority of
the outstanding capital stock of the Company. Royal has agreed to cause a
controlling interest in the Company to be assigned to Proformix, Inc. The
Purchase Agreement with Royal also provided for, among other things, (i) a
Golden Bear Enteratainment Corp., the Company's wholly owned subsidiary, stock
dividend of 5% to the existing Company shareholders; and (ii) upon the filing of
all delinquent Exchange Act reports, the Company's current Board of Directors
and officers will resign and be replaced by the officers and directors listed
below:
Company officers and directors who resigned:
1. Donald R. Yu - President and Director
2. George Eshoo - Director
3. Marianne Rossi - Director
Newly appointed officers and directors:
1. Michael G. Martin - President and Director
2. Joerg H. Klaube - Executive Vice President
3. Anthony W. Schweiger - Director
4. Paul Chernis - Director
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OTHER MATTERS
The Board of Directors knows of no other matter other than those described
in this Information Statement which have been acted upon by virtue of the
Written Consents.
By Order of the Board of Directors
/s/ Donald R. Yu
-----------------------------------------
Donald R. Yu, President
June 30, 1997
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