SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement [ ] Confidential, for use of
the Commission Only (as
Permitted by
Rule 14a-6(c)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11 (c) or
Rule 14a-12
LEAK-X ENVIRONMENTAL CORPORATION
(Name of Registrant as Specified In Its Charter)
LEAK-X ENVIRONMENTAL CORPORATION
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act
Rules 14a-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 is determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a) (2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or
schedule and the date of its filing.
(1) Amount Previously Paid: $
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
PROXY STATEMENT
LEAK-X ENVIRONMENTAL CORPORATION
790 East Market Street, Suite 270
West Chester, Pennsylvania 19382
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held August 21, 1997
To the Stockholders of LEAK-X ENVIRONMENTAL CORPORATION:
Notice is hereby given that the Annual Meeting of Stockholders of Leak-X
Environmental Corporation (the "Company") will be held at the offices of the
Company at 790 East Market Street, Suite 270, West Chester, Pennsylvania 19382
on August 21, 1997 at 11:00 a.m. to consider and vote on the following matters:
1. To elect six Directors of the Company to serve for the ensuing year
and until their successors are elected and qualified.
2. To approve the Company's 1997 Stock Option Plan.
3. To authorize the amendment of the Company's Certificate of
Incorporation to decrease the authorized number of shares of Common
Stock and Preferred Stock in order to reduce the franchise tax
currently assessed on the corporation by the state of Delaware.
4. To ratify the appointment of Mazars and Guerard LLP as independent
auditors of the Company's 1997 financial statements.
5. To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on July 18, 1997
as the record date for the determination of stockholders entitled to notice of
and to vote at the meeting.
By Order of the Board of Directors
/s/ Robert D. Goldman
Robert D. Goldman, Secretary
West Chester, Pennsylvania
July 21, 1997
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE PROMPTLY
COMPLETE, SIGN, AND DATE THE ENCLOSED PROXY, WHICH IS SOLICITED BY THE BOARD
OF DIRECTORS OF THE COMPANY, AND RETURN IT TO THE COMPANY. THE PROXY MAY BE
REVOKED AT ANY TIME BEFORE IT IS VOTED, AND STOCKHOLDERS EXECUTING PROXIES MAY
ATTEND THE MEETING AND VOTE THERE IN PERSON SHOULD THEY SO DESIRE.
LEAK-X ENVIRONMENTAL CORPORATION
790 East Market Street, Suite 270
West Chester, Pennsylvania 19382
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is being furnished in connection with the
solicitation of proxies by Leak-X Environmental Corporation (the "Company") to
be voted at the Annual Meeting of Stockholders to be held at the offices of
the Company, 790 East Market Street, Suite 270, West Chester, Pennsylvania
19382 on August 21, 1997, at 11:00 a.m., and at any and all adjournments
thereof. This Proxy Statement and accompanying Notice of Meeting and form of
proxy are to be first mailed on or about July 21, 1997 to the holders of
record of the Company's Common Stock ("Common Stock") as of the close of
business on July 18, 1997. At the close of business on July 18, 1997, there
were issued and outstanding and entitled to vote 1,219,645 shares of Common
Stock of the Company. Each share of Common Stock of the Company is entitled
to one vote per share on any matter which may properly come before the
Meeting.
The affirmative vote by holders of a majority of the shares of Common
Stock represented at the Meeting is required for the election of Directors,
for the approval of the 1997 Stock Option Plan, and for the ratification of
Mazars and Guerard LLP as the Company's independent auditors. The affirmative
vote by holders of a majority of the shares of Common Stock outstanding is
required for the reduction of the authorized number of Common Stock and
Preferred Stock.
Common Stock represented by a valid unrevoked proxy will be voted at the
Meeting and any adjournment thereof as specified therein by the person giving
the proxy. If no specification is made, the Common Stock represented by such
proxy will be voted in favor of Proposals 1, 2, 3 and 4, and at the discretion
of such proxy agents, upon any other matters which may properly come before
the Meeting. Shares of Common Stock represented by proxies which are marked
"abstain" for Items 2, 3 and 4 on the proxy card and proxies which are marked
to deny discretionary authority on all other matters will not be included in
the vote totals, and, therefore, will have no effect on the vote. In
addition, where brokers are prohibited from exercising discretionary authority
for beneficial owners who have not provided voting instructions (commonly
referred to as "broker non-votes"), those shares will not be included in the
vote totals. A proxy may be revoked by the person executing the same, at any
time before the authority thereby granted is exercised, upon written notice of
revocation received by the Company's Secretary, by executing and delivering a
later dated proxy, or by attending the meeting and voting in person.
A list of stockholders entitled to vote at the meeting will be open to
examination by any stockholder, for any purpose germane to the meeting, at the
offices of the Company, 790 East Market Street, Suite 270, West Chester,
Pennsylvania 19382 during ordinary business hours for ten (10) days prior to
the meeting. Such list shall also be available during the meeting.
Proposal I
ELECTION OF DIRECTORS
At the Meeting, six Directors are to be elected for the ensuing year and
until their successors are duly elected and qualified. If, at the time of
election, any of the nominees should be unavailable for election, a
circumstance which is not expected by the Company, it is intended that the
proxies will be voted for such substitute nominee as may be selected by the
Company. Proxies not marked to the contrary will be voted for the election of
the following six persons, all of whom are standing for re-election:
Name Age Position with the Company
John S. Gelles 61 Chairman of the Board of
Directors
Joyce A. Rizzo 48 Chief Executive Officer and
Director
William H. Gelles, Jr. 55 President, Treasurer and
Director
George A. Nolan 50 Director
James G. Warburton 39 Director
Robert D. Goldman 41 Secretary and Director
John S. Gelles co-founded and has been Chairman of the Board of Directors
of the Company since its inception. From inception until May 1992, he was
also Chief Executive Officer and until December 1995, the Secretary. Mr.
Gelles had been President of Gaservice Maintenance Corporation ("Gaservice"),
a wholly owned subsidiary of the Company for 28 years. Since the
discontinuation of Gaservice in March 1995, Mr. Gelles has been serving in a
sales and marketing capacity for the Company.
Joyce A. Rizzo has been a Director of the Company since September 1989,
President and an employee of Lexicon Environmental Associates, Inc.
("Lexicon") since October 1989, and Chief Executive Officer of the Company
since May 1992. Prior thereto, Ms. Rizzo held executive positions with
environmental engineering companies for six years after having spent twelve
years as a chemical engineer and environmental manager in the petroleum
refining industry with Sun Company.
William H. Gelles, Jr. co-founded and has been President, Treasurer, and
a Director of the Company since its inception. Mr. Gelles had been
Secretary-Treasurer of Gaservice for 28 years. Since the discontinuation of
Gaservice in March 1995, Mr. Gelles has been serving in a sales and marketing
capacity for the Company.
George A. Nolan has been a Director of the Company since September 1995.
Mr. Nolan is co-founder and has been President of GRS since its inception in
1986. Mr. Nolan directs the administration of GRS, as well as its sales and
marketing efforts.
James G. Warburton has been a Director of the Company since September
1995. Mr. Warburton is co-founder and has been Vice President of GRS since
its inception in 1986. Mr. Warburton has 20 years of experience in the design
and manufacture of remediation equipment and he is one of the inventors of the
Company's registered patents.
Robert D. Goldman has been Secretary of the Company since December 1995
and a Director since February 1997. Mr. Goldman has been Vice President of
Lexicon since November 1989. As a certified professional geologist, Mr.
Goldman has worked performing environmental and geologic consulting for the
past 18 years.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of July 18, 1997, certain information
with respect to: i) those persons who owned, to the Company's knowledge,
beneficially (as such term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934) more than 5% of the Company's Common Stock; ii) each
Director of the Company and each Executive Officer named in the Summary
Compensation Table; and (iii) all Directors and Executive Officers as a
group:
<TABLE>
<CAPTION>
Percentage of
Name and Number of shares of Outstanding
Address of Common Stock Common Stock
Beneficial Owner Owned (1) Owned (2)
<S> <C> <C>
John S. Gelles (3) 226,083 (4) 18.3%
William H. Gelles, Jr. (5) 227,618 (6) 18.4%
Joyce A. Rizzo 22,947 (7) 1.8%
790 E. Market Street, Suite 270
West Chester, PA 19382
George A. Nolan 115,384 9.0%
299B National Road
Exton, PA 19341
James G. Warburton 115,384 9.0%
299B National Road
Exton, PA 19341
Robert D. Goldman 24,364 (8) 2.0%
790 E. Market Street, Suite 270
West Chester, PA 19382
All Executive Officers and 731,924 (9) 57.0%
Directors as a Group
(consisting of seven persons)
</TABLE>
(1)Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all Common Stock
beneficially owned by them. A person is deemed to be the beneficial owner of
securities that can be acquired by such person within 60 days from the date
hereof upon the exercise of options. Each beneficial owner's percentage
ownership is determined by assuming that options and warrants held by such
person (but not those held by any other person) and which are exercisable
within 60 days from the date hereof have been exercised.
(2)Based on 1,219,645 shares of common stock outstanding plus 60,545
exercisable options and 3,922 exercisable warrants outstanding.
(3)The address of this person is 75 Birchall Dr., Scarsdale, NY 10583.
(4)Includes 76 shares and 1,000 warrants to purchase 76 shares held of record
by Mr. Gelles' wife but excludes 153 shares held of record by Mr. Gelles's
adult children as to which Mr. Gelles disclaims beneficial ownership.
Includes 15,384 incentive stock options granted to Mr. Gelles on July 1, 1996
pursuant to the Company's 1995 Stock Option Plan at an exercise price of
$3.445. These options were subsequently canceled and regranted at a price of
$1.56 per share in May 1997.
(5)The address of this person is 15 Stornoway, Chappaqua, NY 10514.
(6)Excludes 153 shares owned of record by Mr. Gelles's adult children as to
which Mr. Gelles disclaims beneficial ownership. Includes 15,384 incentive
stock options granted to Mr. Gelles on July 1, 1996 pursuant to the Company's
1995 Stock Option Plan at an exercise price of $3.445. These options were
subsequently canceled and regranted at a price of $1.56 per share in May
1997.
(7)Includes 21,576 incentive stock options granted to Ms. Rizzo pursuant to
the Company's 1988 and 1992 Stock Option Plans at an exercise price of $3.90.
Excludes 20,346 incentive stock options which are not currently exercisable.
(8)Includes 50,000 warrants to purchase 3,846 shares and 8,057 incentive stock
options granted to Mr. Goldman pursuant to the Company's 1992 Stock Option
Plans at an exercise price of $3.90. Excludes 3,557 incentive stock options
which are not currently exercisable.
(9)Includes an aggregate of 64,323 incentive stock options and warrants
described in Notes 4, 6, 7 and 8 above, and 144 incentive stock options owned
by Eileen E. Bartoli, Chief Financial Officer.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following tables set forth all compensation awarded to, earned by, or
paid for all services rendered to the Company, for the fiscal years ended
December 31, 1994, 1995, and 1996, by the Chief Executive Officer and each
other executive officer whose total compensation exceeded $100,000.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation Awards
Name and Options/
Principal SARs
Position Year Salary Bonus ($) (#)
<S> <C> <C> <C> <C>
Joyce A. Rizzo, 1996 $150,000 -0- -0-
Chief Executive 1995 $136,000 -0- 31,923(1)
Officer 1994 $129,435 -0- 24,076(1)
Robert D. Goldman 1996 $107,000 $1,150 -0-
Secretary (2) 1995 $102,000 $1,000 11,615(3)
</TABLE>
(1) Represents 31,923 options exercisable at a range from $35.75 to $18.6875
which were originally granted in prior years (including the 24,076 listed for
1994), but which were subsequently canceled and regranted in 1995 and 1997.
Such options were canceled by the Board of Directors because the Board
believed that the options as previously priced did not provide an adequate
incentive for Ms. Rizzo.
(2) Mr. Goldman became Secretary in December 1995.
(3) Represents 11,615 options exercisable at a range from $35.75 to
$18.6875 which were originally granted in prior years, but were subsequently
canceled and regranted in 1995 and 1997. Such options were canceled by the
Board of Directors because the Board believed that the options as previously
priced did not provide an adequate incentive for Mr. Goldman.
Aggregated Option Exercises in Last Fiscal Year and FY End Option Values
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised In-The-Money
Shares Options at Options
Acquired FY-End (#) at FY-End ($)
on Exer- Value Exercisable/ Exercisable/
Name cise (#) Realized Unexercisable Unexercisable (1)
<S> <C> <C> <C> <C>
Joyce A. Rizzo -0- $ 0.00 21,576/10,346 $0.00/$0.00
Robert D. Goldman -0- $ 0.00 8,057/ 3,557 $0.00/$0.00
</TABLE>
(1) The closing price for the Company's Common Stock on December 31, 1996 was
$2.03 per share (post-reverse split price)
The Company has no long-term incentive plan awards.
Directors currently receive no cash compensation for serving on the Board
of Directors other than reimbursement of reasonable expenses incurred in
attending meetings.
Employment Agreements
In March 1995, the Company entered into an agreement with Messrs. John S.
Gelles and William H. Gelles, Jr. which provides that each of such persons
shall receive the following through December 31, 1995 for their services to
the Company: base salary of $6,500 per month; reimbursement of reasonable
business-related expenses including operation of company automobiles; the
option to purchase a Company vehicle at fair market value at December 31,
1995; and medical insurance equivalent to preexisting coverage.
The Company entered into a five-year employment contract with Joyce A.
Rizzo on March 31, 1995 to serve as Chief Executive Officer of the Company and
President of Lexicon. Under the agreement, Ms. Rizzo's current salary is
$154,500 until December 31, 1997 and she is entitled to receive minimum annual
increases in base salary of three percent (3%) over the preceding year's
salary and maximum increases of ten percent (10%) depending on whether the
Company attains certain pre-tax income levels. Under the agreement, Ms. Rizzo
is entitled to receive incentive stock options if the Company attains pre-tax
income goals, as established by the Board of Directors. Under this contract,
Ms. Rizzo received 41,924 stock options at $1.56 in May 1997(former options
totaling 31,924 were canceled on May 22, 1997). The Company has agreed to
provide Ms. Rizzo with an automobile allowance or in lieu thereof, will pay
her an equal monthly cash stipend. If Ms. Rizzo's employment is terminated
without cause, the agreement provides that she will be entitled to receive her
then current compensation for the lesser of two years or the remainder of the
term. The agreement provides that Ms. Rizzo will not compete with the Company
during the term of the agreement, nor for a period of two years thereafter.
The agreement also provides that if Ms. Rizzo, as both a director and
shareholder of the Company, opposes a "change of control" (as defined below)
of the Company and such change of control shall occur at any time during
full-time employment, Ms. Rizzo shall within six months of such change of
control be entitled to terminate her employment agreement and the Company
shall promptly pay either 2.9 times her then current compensation, if a
majority of the Company's Board opposed the change of control, or 2.5 times
the then current compensation if a majority of the Board voted in favor of the
change of control. The agreement defines a "change of control" to occur when
any person, corporation, partnership, association or entity, directly or
indirectly (through a subsidiary or otherwise), (i) acquires or is granted the
right to acquire, directly through a merger or similar transaction, a majority
of the Company's outstanding voting securities, or (ii) acquires all or
substantially all of the Company's assets.
On September 29, 1995, the Company entered into five year employment
agreements with George A. Nolan to serve as President and James G. Warburton
to serve as Vice President of GRS each at an annual salary of $148,000. Such
salary is subject to automatic annual increases commencing January 1, 1997 of
between three percent (3%) and ten (10%) dependent upon achievement of net
income targets to be established. Under the agreement, each is entitled to
receive incentive stock options if the Company attains pretax income goals, as
established by the Board of Directors. The Company has agreed to provide an
automobile allowance or in lieu thereof, will pay an equal monthly cash
stipend and will provide other fringe benefits that the Company makes
available to its executives. If employment is terminated without cause, the
agreement provides that the then current compensation will be paid for the
lessor of two years or the remainder of the term. The agreement provides for
no competition with the Company during the term of the agreement nor for a
period of two years thereafter. For the year ended December 31, 1996, George
A. Nolan and James G. Warburton each waived a total of $8,633 in salary and
$2,275 of home office allowance to which they were entitled to under these
agreements. On May 12, 1997, George A. Nolan and James G. Warburton entered
into an agreement to waive a total of $52,005 each in salary for the period
January 1, 1997 through September 30, 1997. In consideration of this waiver,
the Company agreed to make payments totaling $61,770 on the notes payable to
Directors during this same period. The Company also granted 15,000 stock
options each to Mssrs. Nolan and Warburton at an exercise price of $1.50 per
share.
On July 1, 1996, the Company entered into thirty-month employment
agreements with John S. Gelles and William H. Gelles, Jr. to serve as
employees of the Company, each at an monthly salary of $6,250 through December
31, 1996 and $4,167 thereafter. The Company also granted 15,385 incentive
stock options each to John and William Gelles pursuant to the Company's 1995
Stock Option Plan at an exercise price of $3.445. These options were
subsequently canceled and regranted on May 22, 1997 at an exercise price of
$1.56 per share.
MEETING OF THE BOARD OF DIRECTORS
AND INFORMATION REGARDING COMMITTEES
The Board of Directors held 3 meetings in 1996 which were attended by all
Directors.
The Board of Directors does not currently maintain any committees.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Until December 31, 1995, the Company was a party to a lease with JWB
Associates, a partnership controlled by John S. Gelles and William H. Gelles,
Jr. for three separate premises located in the Bronx, New York. With the
discontinuation of Gaservice's operations as of March 31, 1995, the Company
required the use of the properties until December 31, 1995. The premises were
used to house the inventory and property, plant and equipment of Gaservice
until the liquidation process was completed. The rent was $5,833 per month,
net of all expenses, through December 31, 1995 under an agreement with JWB
Associates entered into in March 1995.
In connection with the acquisition of GRS, the Company signed two
one-year promissory notes for $125,000 each bearing an interest rate of ten
percent (10%) per annum with Messrs. George A. Nolan and James G. Warburton.
The notes have subsequently been adjusted in accordance with their terms to a
total of $161,770. On September 29,1996, the Company converted the Old Notes
Payable to Messrs. Nolan and Warburton (the "Old Notes") in the aggregate of
$161,770 into long-term debt (the "New Notes"). The only changes in the terms
of the New Notes as compared to the terms of the Old Notes are: extension of
the maturity to March 31, 1998; addition of the requirement of quarterly
interest payments commencing December 31, 1996 (at the same interest rate of
ten percent (10%) per annum provided in the Old Notes); and subordination of
the New Notes, as to principal, to the Revolving Credit Agreement with the
Company's bank. On April 9, 1997, the Company received a waiver from its bank
for failing to meet the covenants of its Revolving Credit Agreement and Term
Loan Agreement as of December 31, 1996. Included in the waiver are revised
subordination agreements for the New Notes which allow the payment of
principal on the New Notes to Messrs. Nolan and Warburton according to an
agreed upon schedule. The subordination agreements do not allow for the total
subordinated debt to be reduced to less than an aggregate of $100,000.
On July 1, 1996, the Company entered into an agreement with John S.
Gelles and William H. Gelles, Jr., Officers and Directors of the Company, to
convert their 1,688,888 shares of Preferred Stock into 115,479 shares of
Common Stock in exchange for certain registration rights. In accordance with
the agreement, John and William Gelles irrevocably waived any and all rights
to dividends to which they may have been entitled in accordance with the terms
of the Preferred Stock.
See "Executive Compensation" for a description of certain options granted
to Joyce A. Rizzo, John S. Gelles, William H. Gelles, Jr. and Robert D.
Goldman, executive officers of the Company. In addition, see "Executive
Compensation" for employment contracts for Joyce A. Rizzo, Chief Executive
Officer, John S. Gelles, Chairman of the Board, William H. Gelles, Jr.,
President, George A. Nolan, a Director and James G. Warburton, a Director.
During the fiscal years ended December 31, 1996 and December 31, 1995
(Fiscal 1996 and Fiscal 1995, respectively), GRS had revenues of approximately
$60,092 and $1,883, respectively, from one entity that is primarily owned by
the President of GRS. In Fiscal 1996, GRS also had purchases of $9,583 from
the same entity. As of December 31, 1996 and 1995, GRS had accounts
receivable from this related entity of $50,612 and 11,105, respectively. This
entity competes in some of the same markets and geographic areas as the
Company's environmental consulting services business. The Company has
implemented certain procedures with regard to this entity to ensure that there
is no conflict of interest with the Company's businesses. The Chief Executive
Officer is now responsible for reviewing and negotiating terms with this
entity, as well as managing the credit limits and outstanding receivables on
an on-going basis.
Proposal II
APPROVAL OF LEAK-X ENVIRONMENTAL CORPORATION
1997 STOCK OPTION PLAN
The Board of Directors of the Company, subject to the approval of
stockholders, adopted the Leak-X Environmental Corporation 1997 Stock Option
Plan (the "Plan"), which authorizes the grant of options to purchase an
aggregate of 100,000 shares of Common Stock.
The Board of Directors has deemed it in the best interest of the Company
to establish the Plan so as to provide employees and other persons involved in
the continuing development and successes of the Company and its subsidiaries
an opportunity to acquire a proprietary interest in the Company by means of
grants of options to purchase Common Stock. The Plan is in addition to the
1988 Stock Option Plan, which presently has no shares remaining of the 52,885
authorized thereunder for issuance, the 1992 Stock Option Plan which has no
shares of the 57,692 authorized thereunder remaining for issuance, the 1995
Stock Option Plan which has no shares of the 57,692 authorized thereunder
remaining for issuance and the 1996 Stock Option Plan which has 20,478 shares
of the 57,692 authorized thereunder remaining for issuance. All number of
shares authorized under the aforementioned Plans have been adjusted to reflect
the one for thirteen reverse stock split effected on January 31, 1997. It is
the opinion of the Board of Directors that by providing the Company's
employees and other individuals contributing to the Company and its
subsidiaries the opportunity to acquire an equity investment in the Company,
the Plan will maintain and strengthen their desire to remain with the Company,
stimulate their efforts on the Company's behalf, and also attract other
qualified personnel to the Company's employ. The affirmative vote by holders
of a majority of the shares of Common Stock represented at the meeting is
required for approval of the Plan.
The following statements summarize certain provisions of the Plan. All
statements are qualified in their entirety by reference to the text of the
Plan, copies of which are available for examination at the Securities and
Exchange Commission and at the principal office of the Company, 790 East
Market Street, Suite 270, West Chester, Pennsylvania 19382.
The Plan allows the Company to grant incentive stock options ("ISOs"), as
defined in Section 422(b) of the Internal Revenue Code of 1986, as amended
(the "Code"), Non-Qualified Stock Options ("NQSOs") not intended to qualify
under Section 422(b) of the Code and Stock Appreciation Rights ("SARs"),
together with ISOs and NQSOs, collectively referred to herein as "Options".
The vesting of one or more Options granted hereunder may be based in whole or
in part on the attainment of specified performance goals of the participant or
the performance of the Company or one or more subsidiaries or divisions
thereof. The Plan is intended to provide the employees, directors,
independent contractors and consultants of the Company with an added incentive
to continue their services to the Company and to induce them to exert their
maximum efforts toward the Company's success. The Board has deemed it in the
best interest of the Company to establish the Plan so as to provide employees
and the other persons listed above the opportunity to acquire a proprietary
interest in the Company by means of grants of Options to purchase Common
Stock. The Plan is not subject to ERISA.
Eligibility for Participation
Under the Plan, ISOs or ISOs in tandem with SARs, subject to the
requirements set forth in Temp. Reg. Section 14a.422A-1, A-39 (a)-(e), may be
granted, from time to time, to employees of the Company, including officers,
provided however, that ISOs and ISOs in tandem with SARs may not be granted
under the Plan to any person for whom shares first become exercisable under
the Plan or any other stock option plan of the Company in any calendar year
having an aggregate fair market value (measured at the respective time of
grant of such options) in excess of $100,000. Any grant in excess thereof
will be deemed a grant of a NQSO. NQSOs and NQSOs in tandem with SARs may be
granted from time to time, under the Plan, to employees of the Company,
officers, Directors, independent contractors, consultants and other
individuals who are not employees of, but are involved in the continuing
development and success of the Company (persons entitled to receive ISOs,
NQSOs, and/or SARs are hereinafter referred to as "Participants"). At such
time, if ever, as the Plan is administered by a Compensation Committee, as
defined below, the maximum number of Options which can be granted a
participant in any calendar year is 20,000. To date, the Company has
seventeen employees (including six directors), who are eligible for grants of
one or more types of Options under the Plan. The Company cannot presently
compute the number of non-employees who may be entitled to NQSOs and NQSOs in
tandem with SARs.
Administration
The Plan is to be administered by the Board of Directors of the Company,
a compensation committee comprised solely of at least two outside directors
(the term "outside directors" having the meaning ascribed to it under Section
162(m) of the Code ("Compensation Committee")), and/or other stock option
committee formed by the Board of Directors (the administrator of the Plan,
whether the Board of Directors itself or a committee thereof is hereafter
referred to as the "Committee" unless the context otherwise requires). The
Company currently does not have any outside directors. The Board of Directors
and/or a committee thereof will have the authority, in its discretion, to
determine the persons to whom, Options shall be granted, the character of such
Options and the number of shares of Common Stock to be subject to each
Option. Presently, the Plan will be administered by the entire Board of
Directors. At such time, if ever, the Board of Directors has at least two
outside directors, grants to persons who may be "covered employees" under
Section 162(m) of the Code shall be administered by the Compensation
Committee.
Terms of Options
The terms of Options granted under the Plan are to be determined by the
Committee. Each Option is to be evidenced by a stock option agreement between
the Company and the person to whom such Option is granted, and is subject to
the following additional terms and conditions:
(a) Exercise of the Option: The Committee will determine the time
periods during which Options granted under the Plan may be exercised. An
Option must be granted within ten (10) years from the date the Plan was
adopted or the date the Plan is approved by the stockholders of the Company,
whichever is earlier. Options will be exercisable in whole or in part at any
time during the period but will not have an expiration date later than ten
(10) years from the date of grant. Unless otherwise provided in any option
agreement issued under the Plan, any Option granted under the Plan may be
exercisable in whole or in part at any time during the exercise period and,
except for performance based options, must become fully exercisable within
five years from the date of its grant, and no less than 20% of the Option
shall become exercisable on an aggregate basis in any of the first five years
of the Option. Notwithstanding the above, ISOs or SARs granted in tandem with
ISOs granted to holders of more than 10% of the Company's Common Stock are
subject to the additional restriction that the expiration date shall not be
later than five (5) years from the date of grant. An Option is exercised by
giving written notice of exercise to the Company specifying the number of full
shares of Common Stock to be purchased and tendering payment of the purchase
price to the Company in cash or certified check, or if permitted by the
instrument of grant, with respect to an ISO, or at the discretion of the
Committee with respect to NQSOs, by delivery of Common Stock having a fair
market value equal to the Option price, by delivery of an interest bearing
promissory note having an original principal balance equal to the Option Price
and an interest rate not below the rate which would result in imputed interest
under the Code or by a combination of cash, shares of Common Stock and
promissory notes. Furthermore, in the case of a NQSO, at the discretion of
the Committee, the Participant may have the Company withhold from the Common
Stock to be issued upon exercise of the Option that number of shares having a
fair market value equal to the exercise price and/or the withholding amount
due.
(b) Option Price: The option price of a NQSO or an SAR granted in
tandem with an NQSO granted pursuant to the Plan, is determined by the
Committee at its sole discretion, but not less than 85% of the fair market
value at the date of grant.
In no event may the option price of an ISO or an SAR granted in tandem
with an ISO be less than the fair market value on the date of grant. Such
fair market value of an ISO shall be determined by the Committee and, if the
Common Stock is listed on a national securities exchange or traded on the
over-the-counter market, the fair market value shall be the closing price on
such exchange, or the mean of the reported bid and asked prices of the Common
Stock on the over-the-counter market as reported by NASDAQ, the NASD OTC
Bulletin Board or the National Quotation Bureau, Inc., as the case may be, on
such date. ISOs or SARs granted in tandem with ISOs, granted to holders of
more than 10% of the Company's Common Stock are subject to the additional
restriction that the option price must be at least 110% of the fair market
value of the Company's Common Stock on the date of grant.
(c) Termination of Employment; Consulting Relationships; Death:
Except as provided in the Plan, or otherwise determined by the Board of
Directors or the Committee in its sole discretion, upon termination of
employment or consulting relationship with the Company for any reason, a
holder of an Option under the Plan may exercise such Option to the extent such
Option was exercisable as of the date of termination or at any time within
three (3) months after the date of such termination. However, unless
otherwise determined by the Board of Directors or the Committee in its sole
discretion, any Options granted under the Plan shall immediately terminate in
the event the optionee is terminated for cause.
If the holder of an Option granted under the Plan dies (i) while employed
by or providing consulting services for the Company or a subsidiary or parent
corporation or (ii) within three (3) months after the termination of such
holder's employment or consulting relationship, such Option may be exercised
within twelve months of death by a legatee or legatees of such Option under
such individual's last will or by such individual's estate, to the extent such
Option was exercisable as of the date of death or date of termination of
employment or consulting relationship, whichever date is earlier.
If the holder of an Option under the Plan becomes disabled within the
definition of section 22(e)(3) of the Code while employed by or providing
consulting services for the Company or a subsidiary or parent corporation,
such Option may be exercised at any time within six months less one day after
such holder's termination of employment or consulting relationship due to the
disability.
Except as otherwise determined by the Committee in its sole discretion,
an Option may not be exercised except to the extent that the holder was
entitled to exercise the Option at the time of termination of employment or
death, and in any event it may not be exercised after the original expiration
date of the Option.
(d) Transferability of Options; No Liens: ISOs and SARs granted in
tandem with ISOs shall be nontransferable and non-assignable by the optionee,
other than by will or the laws of descent and distribution, and any ISO or SAR
in tandem with an ISO is exercisable during the lifetime of the optionee and
only by the optionee, or in the event of his or her death, by a person who
acquires the right to exercise the Option by bequest or inheritance or by
reason of the death of the optionee. The Committee has the right to grant
NQSOs or SARs in tandem with NQSOs which may or may not be transferable or
assignable.
The option agreement may contain such other terms, provisions and
conditions not inconsistent with the Plan as may be determined by the Board of
Directors or its committee.
Termination; Modification and Amendment
The Plan (but not Options previously granted under the Plan) shall
terminate ten years from the earlier of the date of its adoption by the Board
of Directors or the date the Plan is approved by the Stockholders of the
Company. No Option will be granted after termination of the Plan.
The Board of Directors of the Company may terminate the Plan at any time
prior to its expiration date, or from time to time make such modifications or
amendments of the Plan as it deems advisable. However, the Board may not,
without the approval of a majority of the then outstanding shares of the
Company voting thereon, except under conditions described under "Adjustments
Upon Changes in Capitalization," increase the maximum number of shares as to
which Options may be granted under the Plan or materially change the standards
of eligibility under the Plan.
No termination, modification or amendment of the Plan may adversely
affect the terms of any outstanding Options without the consent of the holders
of such Options.
Adjustments Upon Changes in Capitalization
In the event that the number of outstanding shares of Common Stock of the
Company is changed by reason of recapitalization, reclassification, stock
split, stock dividend, combination, exchange of shares, or the like, the Board
of Directors of the Company will make an appropriate adjustment in the
aggregate number of shares of Common Stock available under the Plan, in the
number of shares of Common Stock reserved for issuance upon the exercise of
then outstanding Options and in the exercise prices of such Options. Any
adjustment in the number of shares will apply proportionately only to the
unexercised portion of Options granted under the Plan. Fractions of shares
resulting from any such adjustment shall be revised to the next higher whole
number of shares.
In the event of the proposed dissolution or liquidation of substantially
all of the assets of the Company, all outstanding Options will automatically
terminate, unless otherwise provided by the Board.
Federal Income Tax Consequences
The following discussion is only a summary of the principal Federal
income tax consequences of the Options granted under the Plan and is based on
existing Federal law, which is subject to change, in some cases
retroactively. This discussion is also qualified by the particular
circumstances of individual optionees, which may substantially alter or modify
the Federal income tax consequences herein discussed.
Generally, under present law, when an option qualifies as an ISO under
Section 422 of the Code (i) an employee will not realize taxable income either
upon the grant or the exercise of the option, (ii) the amount by which the
fair market value of the shares acquired by the exercise of the option at the
time of exercise exceeds the option price is included in alternative minimum
taxable income for purposes of determining the employee's alternative minimum
tax, (iii) any gain or loss (the difference between the net proceeds received
upon the disposition of the shares and the option price paid therefor) upon a
qualifying disposition of the shares acquired by the exercise of the option
will be treated as capital gain or loss if the stock qualifies as a capital
asset in the hands of the employee, and (iv) no deduction will be allowed to
the Company for Federal income tax purposes in connection with the grant or
exercise of an incentive stock option or a qualifying disposition of the
shares. A disposition by an employee of shares acquired upon exercise of an
ISO will constitute a qualifying disposition if it occurs more than two years
after the grant of the option and one year after the issuance of the shares to
the employee. If such shares are disposed of by the employee before the
expiration of those time limits, the transfer would be a "disqualifying
disposition" and the employee, in general, will recognize ordinary income (and
the Company will receive an equivalent deduction) equal to the lesser of (i)
the aggregate fair market value of the shares as of the date of exercise less
the option price, or (ii) the amount realized on the disqualifying disposition
less the option price. Ordinary income from a disqualifying disposition will
constitute compensation for which withholding may be required under Federal
and state law. In addition, holders of Options granted after August 10, 1993
may be entitled to exclude up to 50% of the gain on any such sale occurring 5
years after the date of exercise. The availability of such exclusion is
dependant upon, among other things, the Company not having in excess of $50
million of aggregate gross assets at any time before the exercise of the
respective Options. No assurance can be given as to the amount of the
Company's gross assets at any time in the future. Currently under the Code,
the maximum rate of tax on ordinary income is greater than the rate of tax on
long-term capital gains. Legislation has passed the House of Representatives
and Senate to decrease the marginal rate of tax on capital gains. The
provisions enacted by the House and Senate differ. It is unknown whether the
legislation will eventually be enacted into law. Furthermore, in the future,
the rate of tax on such gains may be increased. No assurance can be given of
when, if ever, new tax legislation will be enacted into law, and the effective
date of any such legislation.
In the case of a non-qualified stock option granted under the Plan, no
income generally is recognized by the optionee at the time of the grant of the
option assuming such non-qualified stock option does not have a readily
ascertainable fair market value. The optionee generally will recognize
ordinary income when the non-qualified stock option is exercised equal to the
aggregate fair market value of the shares acquired less the option price.
However, if the sale of any shares received would be subject to Section 16(b)
of the Securities Exchange Act of 1934, ordinary income attributable to such
shares received will be recognized on the date such sale would not give rise
to a Section 16(b) action, valued at the fair market value at such later time,
unless the optionee has made a Section 83(b) election within 30 days after the
date of exercise to recognize ordinary income as of the date of exercise based
on the fair market value at the date of exercise. Ordinary income from
non-qualified stock options will constitute compensation for which withholding
may be required under Federal and state law, and the Company will receive an
equivalent deduction, subject to the limitations of Section 162(m) of the Code
which limits the amount a publicly held corporation may deduct with respect to
remuneration generally paid to an executive officer of the Corporation to
$1,000,000. Income recognized by such executive officer on the exercise of a
NQSO or SAR would be deemed remuneration. There are certain exceptions
excluding income from the exercise of a NQSO or SAR which the Company may
avail itself if the Plan is administered by two outside directors. The
Company does not currently have any such directors.
Shares acquired upon exercise of non-qualified stock options will have a
tax basis equal to their fair market value on the exercise date or other
relevant date on which ordinary income is recognized and the holding period
for the shares generally will begin on the date of the exercise or such other
relevant date. Upon subsequent disposition of the shares, the optionee will
recognize capital gain or loss if the stock is a capital asset in his hands.
Provided the shares are held by the optionee for more than one year prior to
disposition, such gain or loss will be long-term capital gain or loss. As set
forth above, the maximum rate of tax on ordinary income is currently greater
than the rate of tax on long-term capital gains. To the extent an optionee
recognizes a capital loss, such loss may currently generally offset capital
gains and $3,000 of ordinary income. Any excess capital loss is carried
forward indefinitely.
The grant of an SAR is generally not a taxable event for the optionee.
Upon the exercise of an SAR the optionee will recognize ordinary income in an
amount equal to the amount of cash received upon such exercise, and the
Company will be entitled to a deduction equal to the same amount.
The foregoing discussion is only a brief summary of the applicable
Federal income tax laws as in effect on this date and should not be relied
upon as being a complete statement. The Federal tax laws are complex, and
they are subject to legislative changes and new or revised judicial or
administrative interpretations at any time. In addition to the Federal income
tax consequences described herein, an optionee may also be subject to state
and/or local income tax consequences in the jurisdiction in which the grantee
works and/or resides.
New Plan Benefits
As of June 30, 1997, no Options have been granted or allocated under the
Plan. Accordingly, any benefits or amounts that will be received by
management of the Company under the Plan are not presently determinable.
Management recommends voting "FOR" the proposal to approve the Leak-X
Environmental Corporation 1997 Stock Option Plan.
Proposal III
DECREASE IN THE AUTHORIZED COMMON AND PREFERRED STOCK
The Company is presently authorized to issue 30,000,000 shares of Common
Stock, par value $.001 per share and 5,000,000 shares of Preferred Stock, par
value $.01 per share. As of July 1, 1997, of the 30,000,000 shares of Common
Stock authorized, approximately 1,219,645 shares were issued and outstanding,
and approximately 191,209 shares of Common Stock were reserved for issuance
under the Company's 1988 Stock Option Plan, 1992 Stock Option Plan, 1995 Stock
Option Plan and 1996 Stock Option Plan. As of July 1, 1997, of the 5,000,000
shares of Preferred Stock authorized, none were issued and outstanding. As of
July 1, 1997, the Company had a 2,668,000 Common Stock Purchase Warrants
outstanding which may be converted into 293,480 shares of Common Stock. As of
July 1, 1997, the Company had an additional 38,461 options outstanding which
may be converted into 38,461 shares of Common Stock. As of July 1, 1997, the
Company had 1,450,000 private placement warrants outstanding which may be
converted into 111,538 shares of Common Stock. Accordingly, approximately
28,145,667 shares of Common Stock are currently available for issuance by the
Company.
The Board of Directors of the Company has adopted a resolution subject to
shareholder approval, to decrease the number of shares of Common Stock and
Preferred Stock which the Company may issue pursuant to its Certificate of
Incorporation from 30,000,000 shares of Common Stock, par value $,001, to
5,000,000 shares of Common Stock, par value $.001 and from 5,000,000 shares of
Preferred Stock, par value $.01, to 500,000 shares of Preferred Stock, par
value $.01 per share. Article FIFTH (a) of the Certificate of Incorporation,
as proposed to be amended, is set forth in full as follows:
FIFTH:
(a)The total number of shares of all classes of stock which the
Corporation has the authority to issue is 5,500,000 shares, consisting of:
(1)5,000,000 shares of Common Stock, par value, $.001 per share
("Common Stock"); and
(2)500,000 shares of Preferred Stock, par value, $.01 per share
("Preferred Stock").
Approval of this amendment requires the favorable vote of the holders of a
majority of all outstanding shares of the Company's Common Stock entitled to
vote at the Annual Meeting.
The reduction of authorized shares of stock will allow the Company to
reduce certain franchise tax expenses. The Company is a Delaware corporation
and is subject to an annual franchise tax payment under Delaware law.
Delaware's annual franchise tax payment is calculated by one of two methods -
the authorized number of shares method or the assumed capital (par and no-par)
method. Between the two methods the lesser tax is payable. The assumed par
value method produces the lower tax for the Company. The tax payment under
the assumed par value method is determined by multiplying the calculated par
value of the stock by the number of authorized shares of stock. A reduction
in authorized shares will, ipso facto, reduce the amount of tax due as
calculated by the assumed par value method.
The Directors of the Company believe that following approval of the
reduction in the authorized shares of Common and Preferred Stock of the
Company there will be sufficient authorized, but unissued, shares in each
category to provide the Company with the flexibility it might need in the
future. The Board of Directors of the Company currently has no negotiations,
understandings, agreements, or arrangements concerning the issuance of any
equity securities.
Management recommends voting "FOR" the decrease in the authorized number
of shares of Common Stock and Preferred Stock.
Proposal IV
RELATIONSHIP WITH INDEPENDENT
PUBLIC ACCOUNTANTS
Mazars & Guerard LLP have been the independent auditors of the Company's
accounts since January 1996. They have no financial interest, either direct
or indirect, in the Company. Selection of auditors is made by the Company's
Board of Directors, subject to stockholder ratification. A representative of
Mazars & Guerard LLP is expected to attend the Annual Meeting and to have an
opportunity to make a statement or respond to appropriate questions from
stockholders.
Management recommends voting "FOR" the ratification of the appointment of
the auditors.
OTHER MATTERS
The Board of Directors is not aware of any business to be presented at
the Annual Meeting except the matters set forth in the Notice and described in
this Proxy Statement. Unless otherwise directed, all shares represented by
Board of Directors' proxies will be voted in favor of the proposals of the
Board of Directors described in this Proxy Statement. If any other matters
come before the Annual Meeting, the person named in the accompanying proxy
will vote on those matters according to their best judgment.
EXPENSES
The entire cost of preparing, assembling, printing and mailing this Proxy
Statement, the enclosed proxy and other materials, and the cost of soliciting
proxies with respect to the Annual Meeting will be borne by the Company. The
Company will request banks and brokers to solicit their customers who
beneficially own shares listed of record in names of nominees, and will
reimburse those banks and brokers for the reasonable out-of-pocket expenses of
such solicitations. The original solicitation of proxies by mail may be
supplemented by telephone and telegram by Officers and other regular employees
of the Company, but no additional compensation will be paid to such
individuals.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten 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. Officers, directors and greater than ten-percent shareholders are
required by regulations to furnish the Company with copies of all Section
16(a) forms they file. Based solely on its review of the copies of such forms
received by it, or written representations from certain reporting persons that
no Forms 5 were required for those persons, the Company believes that, during
the period from January 1, 1996 through December 31, 1996, all filing
requirements applicable to its officers, directors, and greater than
ten-percent beneficial owners were complied with.
STOCKHOLDER PROPOSALS
No person who intends to present a proposal for action at a forthcoming
stockholders' meeting of the Company may seek to have the proposal included in
the Proxy Statement or form of proxy for such meeting unless that person (a)
is a record or beneficial owner of at least 1% or $1,000 in market value of
Common Stock, has held such Common Stock for at least one year at the time the
proposal is submitted, and such person shall continue to own such Common Stock
through the date on which the meeting is held, (b) provides the Company in
writing with his name, address, the number of shares held by him and the dates
upon which he acquired such shares with documentary support for a claim of
beneficial ownership, (c) notifies the Company of his intention to appear
personally at the meeting or by a qualified representative under Delaware law
to present his proposal for action, and (d) submits his proposal timely. A
proposal, to be included in the Proxy Statement or proxy for the Company's
next annual meeting of stockholders, will be submitted timely only if the
proposal has been received at the Company's principal executive office no
later than April 21, 1998. If the date of such meeting is changed by more
than 30 calendar days from the date such meeting is scheduled to be held this
year, or if the proposal is to be presented at any meeting other than the next
annual meeting of stockholders, the proposal must be received at the Company's
principal executive office at a reasonable time before the solicitation of
proxies for such meeting is made.
Even if the foregoing requirements are satisfied, a person may submit
only one proposal of not more than 500 words with a supporting statement if
the latter is requested by the proponent for inclusion in the proxy materials,
and under certain circumstances enumerated in the Securities and Exchange
Commission's rules relating to the solicitation of proxies, the Company may be
entitled to omit the proposal and any statement in support thereof from its
proxy statement and form of proxy.
By order of the Board of Directors
/s/ Robert D. Goldman
Robert D. Goldman, Secretary
West Chester, Pennsylvania
July 18, 1997
Copies of the Company's 1996 Annual Report on Form 10-KSB for the year
ended December 31, 1996 as filed with the Securities and Exchange Commission,
including the financial statements, can be obtained without charge by
shareholders (including beneficial owners of the Company's Common Shares) upon
written request to Joyce A. Rizzo, the Company's Chief Executive Officer,
Leak-X Environmental Corporation, 790 East Market Street, Suite 270, West
Chester, Pennsylvania 19382.
