<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934 (AMENDMENT NO. __)
<TABLE>
<S> <C>
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-b(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
</TABLE>
VSI ENTERPRISES, INC.
-----------------------------------------------
(Name of Registrant as Specified in Its Charter)
NOT APPLICABLE
------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than 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.
<TABLE>
<S> <C>
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- 11:1
--------------------------------------
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:
---------------------------------------------------------------------------
</TABLE>
- ------------------------------
(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE> 2
VSI ENTERPRISES, INC.
5801 GOSHEN SPRINGS ROAD
NORCROSS, GEORGIA 30071
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 16, 1997
The annual meeting of shareholders of VSI Enterprises, Inc. (the
"Company") will be held on Wednesday, April 16, 1997 at 10:00 a.m., at the
Company's offices, 5801 Goshen Springs Road, Norcross, Georgia 30071, for the
following purposes:
(1) To elect seven (7) directors to constitute the Board of
Directors, to serve for a term of one year and until their successors are
elected and qualified;
(2) To approve an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of common stock from
46,000,000 shares to 60,000,000 shares;
(3) To approve an amendment to the Certificate of Incorporation of
the Company to effect a 1-for-2 reverse split of the Company's Common Stock;
and
(4) To transact such other business as may properly come before
the meeting or any adjournments or postponements thereof.
Only shareholders of record at the close of business on March 3, 1997
will be entitled to notice of and to vote at the meeting or any adjournments or
postponements thereof.
A Proxy Statement and a proxy solicited by the Board of Directors are
enclosed herewith. Please sign, date and return the proxy promptly. If you
attend the meeting, you may, if you wish, withdraw your proxy and vote in
person.
By Order of the Board of Directors,
Richard K. Snelling, Chairman of the Board
Norcross, Georgia
March 17, 1997
PLEASE COMPLETE AND RETURN THE ENCLOSED PROXY PROMPTLY SO THAT YOUR
VOTE MAY BE RECORDED AT THE MEETING IF YOU DO NOT ATTEND PERSONALLY.
<PAGE> 3
VSI ENTERPRISES, INC.
5801 GOSHEN SPRINGS ROAD
NORCROSS, GEORGIA 30071
ANNUAL MEETING OF SHAREHOLDERS
APRIL 16, 1997
-----------------
PROXY STATEMENT
-----------------
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of VSI Enterprises, Inc. (the "Company")
for the Annual Meeting of Shareholders to be held on Wednesday, April 16, 1997,
and any adjournments or postponements thereof, at the time and place and for
the purposes set forth in the accompanying notice of the meeting. The expense
of this solicitation, including the cost of preparing and mailing this Proxy
Statement, will be paid by the Company. In addition to solicitations by mail,
officers and regular employees of the Company, at no additional compensation,
may assist in soliciting proxies by telephone. This Proxy Statement and the
accompanying proxy are first being mailed to shareholders on or about March 17,
1997. The address of the principal executive offices of the Company is 5801
Goshen Springs Road, Norcross, Georgia 30071.
Any proxy given pursuant to this solicitation may be revoked by any
shareholder who attends the meeting and gives oral notice of his election to
vote in person, without compliance with any other formalities. In addition,
any proxy given pursuant to this solicitation may be revoked prior to the
meeting by delivering to the Secretary of the Company an instrument revoking it
or a duly executed proxy for the same shares bearing a later date. Proxies
which are returned properly executed and not revoked will be voted and will be
voted in accordance with the shareholder's directions specified thereon. Where
no direction is specified, proxies will be voted for the election of the
nominees named below to constitute the entire Board of Directors, for adoption
of the increase of number of authorized shares of Common Stock and for adoption
of the reverse stock split. Abstentions and broker non-votes will not be
counted as votes either in favor of or against the proposal to increase the
number of authorized shares of Common Stock or the proposal to effect the
reverse stock split.
The record of shareholders entitled to vote at the annual meeting was
taken on March 3, 1997. On that date the Company had outstanding and entitled
to vote 40,954,739 shares of common stock, $.00025 per share (the "Common
Stock"), with each share of Common Stock entitled to one vote.
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of March 1, 1997 by (i)
each person known by the Company to be the beneficial owner of more than five
percent (5%) of the outstanding Common Stock; (ii) each director of the
Company; (iii) the Named Executive Officers (as defined herein); and (iv) all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES
NAME OF BENEFICIALLY PERCENT
BENEFICIAL OWNER OWNED OF CLASS(1)
---------------- ----- -----------
<S> <C> <C>
Richard K. Snelling ............................. 1,134,721 (2) 2.8%
Carleton A. Brown ............................... 195,000 (3) *
Leo M. Cortjens ................................. 260,927 (4) *
Larry M. Carr ................................... 1,908,880 (5) 4.7%
Andre van den Bogaert ........................... 110,000 (6) *
Edward S. Redstone .............................. 2,477,500 (7) 6.0%
Mark E. Munro ................................... 1,130,626 (8) 2.8%
Bill R. Brewer .................................. 177,977 (9) *
Roger K. Tapke .................................. 87,000 (10) *
All Directors and Executive Officers
as a Group (9 persons) .......................... 7,395,631 17.6%
</TABLE>
- ------------------------
* Less than 1% of outstanding shares.
(1) "Beneficial Ownership" includes shares for which an individual,
directly or indirectly, has or shares voting or investment power or
both and also includes options which are exercisable within sixty days
of the date of this Proxy Statement. All of the listed persons have
sole voting and investment power over the shares listed opposite their
names unless otherwise indicated in the notes below. Beneficial
ownership as reported in the above table has been determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934.
The percentages are based upon 40,954,739 shares outstanding, except
for certain parties who hold options to purchase shares which are
exercisable within the next sixty days. The percentages for those
parties who hold presently exercisable options are based upon the sum
of 40,954,739 shares plus the number of options held by them which are
exercisable within the next sixty days, as indicated in the following
notes.
(2) Includes 186,666 shares of Common Stock subject to stock options which
are exercisable within the next sixty days and 433,919 shares of
Common Stock owned by ShellTel, a company controlled by Mr. Snelling.
Also includes 100,000 shares of Common Stock owned by Richard K. and
Barbara M. Snelling Charitable Remainder Unitrust.
(3) Includes 75,000 shares of Common Stock subject to presently
exercisable stock options.
(4) Includes 75,000 shares of Common Stock subject to stock options which
are exercisable within the next sixty days.
-2-
<PAGE> 5
(5) Includes 65,000 shares of Common Stock subject to presently
exercisable stock options and 250,000 shares of Common Stock subject
to presently exercisable Common Stock Purchase Warrants.
(6) Includes 85,000 shares of Common Stock subject to presently
exercisable stock options.
(7) Includes 15,000 shares of common stock subject to stock options which
are exercisable within the next sixty days, and 2,500 shares owned by
Mr. Redstone's spouse.
(8) Includes 1,003,670 shares of common stock owned by Mr. Munro's spouse.
Includes 876,713 shares owned by Mark E. Munro Charitable Remainder
Unitrust, with respect to which Mr. Munro disclaims beneficial
ownership.
(9) Includes 87,000 shares of Common Stock subject to stock options which
are exercisable within the next sixty days.
(10) Mr. Tapke served as Vice President-Operations of the Company until
June 1996 and remained as an employee of the Company until his
resignation in January 1997. His total of shares beneficially owned
are excluded from the total shares owned by all directors and
executive officers as a group.
AGENDA ITEM ONE
ELECTION OF DIRECTORS
The Board of Directors of the Company consists of seven directors.
The Company's By-Laws provide that the Board of Directors shall consist of not
less than three nor more than seven members, the precise number to be
determined from time to time by the Board of Directors. The number of
directors has been set at seven by the Board. Andre van den Bogaert is not
standing for reelection to the Board of Directors of the Company. B. R. Brewer
has been nominated by the Company to fill Mr. van den Bogaert's position on the
Board. The Board of Directors recommends the election of the seven nominees
listed below.
Each of the nominees has consented to being named in this Proxy
Statement and to serve as a director of the Company if elected. In the event
that any nominee withdraws or for any reason is not able to serve as a
director, the proxy will be voted for such other person as may be designated by
the Board of Directors, but in no event will the proxy be voted for more than
seven nominees. The affirmative vote of a majority of all votes cast at the
meeting by the holders of the Common Stock is required for the election of the
seven nominees standing for election. Management of the Company has no reason
to believe that any nominee will not serve if elected.
Each of the following persons has been nominated by management for
election to the Board of Directors to succeed themselves for a term of one year
and until their successors are elected and qualified:
Richard K. Snelling. Mr. Snelling, age 64, has been a director of the
Company since 1993 and currently serves as Chairman of the Board and Chief
Executive Officer. From 1956 to 1991, Mr. Snelling served with BellSouth
Corporation, a telecommunications company, including most recently as Executive
Vice President. From March 1992 to January 1993, Mr. Snelling served as a
founding director and the Chief Executive Officer of the Center for Advanced
Telecommunications Technology, a non-profit organization, and served as its
Chairman from January 1993 to February 1994. Mr. Snelling is a director of
Boston Technology, Inc., a central office based intelligent peripheral company,
and Digital Wireless, a spread spectrum wireless company.
-3-
<PAGE> 6
Bill R. Brewer, CPA. Mr. Brewer joined the Company in June 1994 and
serves as President, Chief Operating Officer, Chief Financial Officer and
Secretary. From 1976 to June 1994, Mr. Brewer served in various capacities
with BellSouth Corporation and its affiliates, including most recently as
Assistant Vice President - Controllers, where he functioned as chief accountant
and controller.
Leo M. Cortjens. Mr. Cortjens, age 42, has been a director of the
Company since June 1994 and has served as President of Corporate and Product
Development and Chief Technical Officer of the Company since August 1996. Mr.
Cortjens served as President and Chief Operating Officer of the Company from
September 1994 to August 1996, and as Vice President-Technology of the Company
from 1992 to September 1994. From 1990 to 1992, Mr. Cortjens served as a
Network Integration Sales Consultant for Harris Adacom, a data communications
company. From 1987 to 1990, Mr. Cortjens was a key accounts sales manager for
Harris Data Communications Division. From 1976 to 1987, he held various
management-level positions with Harris-Lanier, including Director of Technical
Marketing and Director of Software Development.
Carleton A. Brown. Mr. Brown, age 54, has been a director of the
Company since 1993. Mr. Brown has served as Senior Vice President of Intergram
Corp., an international unified messaging service, since January 1997. From
March 1995 to April 1996, Mr. Brown served as President of ADC Video Systems,
Inc. (formerly American Light Wave Systems, Inc.), a telecommunications
subsidiary of ADC Telecommunications, Inc. From May 1994 to March 1995, Mr.
Brown served as Vice President of Amoco Technology Company, a technology-based
subsidiary of Amoco Corporation, a petroleum and chemical company. He served
as Senior Vice President and Group Executive of Teleport Communication Group,
an alternate local exchange carrier, from 1992 to May 1994. From 1991 to 1992,
Mr. Brown served as President of Sigma Group, Inc., a telecommunications
consulting company. He served as President and Chief Operating Officer of
Alcatel Network Systems, Inc., a network telecommunications equipment
manufacturer, from 1990 to 1991. From 1988 to 1990, Mr. Brown served as
President of the Southwest Division of MCI Telecommunications Corporation, a
telecommunications company, and from 1981 to 1988, he served as Vice President
and General Manager of Wang Laboratories, Inc.
Larry M. Carr. Mr. Carr, age 52, has been a director of the Company
since June 1994. Mr. Carr founded Nursefinders, Inc., a temporary services
company in the healthcare industry in 1974. Although Mr. Carr's interest in
this company has now been acquired by Adia Services, Inc., Mr. Carr still owns
and operates numerous Nursefinders franchises and assists in the administration
and management of several other franchises through an entity known as
Nursefinders Management Corporation. Mr. Carr is Chairman of the Board of
Northwest National Bank, located in Arlington, Texas, and several privately
held companies, including New Vandergriff Chevrolet, Inc., Professional
Telephone Answering Services, Inc. and Taconic Partners, Inc. In addition, Mr.
Carr is a director of One Hour Acceptance Corp. and sits on the Advisory Board
of the North Central Texas Cancer Research Foundation. In connection with the
extension of credit to the Company by Mr. Carr in July 1994, the Company has
agreed to take any and all necessary or appropriate action to nominate and
elect Mr. Carr as a director of the Company until the maturity of said credit
facility. The credit facility, as amended, is due in full in June 1996. See
"Executive Compensation - Compensation Committee Interlocks and Insider
Participation."
Mark E. Munro. Mr. Munro, age 34, has been a director of the Company
since November 1996 and served as President - Sales/Marketing and Distribution
of the Company from October 1996 to February 1997. Mr. Munro has served as
President of Eastern Telecom, Inc., a telecommunications company acquired by
the Company in October 1996, since 1987.
Edward S. Redstone. Mr. Redstone, age 68, has been a director of the
Company since July 1996. Mr. Redstone has been a private investor since 1994.
From 1984 to 1994, he served as Chairman of the Board of Martha's Vineyard
National Bank.
-4-
<PAGE> 7
There are no family relationships between any director or executive
officer and any other director or executive officer of the Company.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and persons who own more than 10% of
the outstanding Common Stock of the Company to file with the Securities and
Exchange Commission reports of changes in ownership of the Common Stock of the
Company held by such persons. Officers, directors and greater than 10%
shareholders are also required to furnish the Company with copies of all forms
they file under this regulation. To the Company's knowledge, based solely on a
review of the copies of such reports furnished to the Company and
representations that no other reports were required, during the year ended
December 31, 1996, all Section 16(a) filing requirements applicable to its
officers, directors and greater than 10% shareholders were complied with.
Although it is not the Company's obligation to make filings pursuant
to Section 16 of the Securities Exchange Act of 1934, the Company has adopted a
policy requiring all Section 16 reporting persons to report monthly to the
Chief Financial Officer of the Company as to whether any transactions in the
Company's securities occurred during the previous month.
MEETINGS OF THE BOARD OF DIRECTORS
AND COMMITTEES OF THE BOARD
The Board of Directors held 12 meetings during the year ended December
31, 1996. Each director attended at least 75% or more of the aggregate number
of meetings held by the Board of Directors and the committees on which he
served. The Company's Board of Directors has three standing committees -- the
Audit Committee, the Compensation Committee and the Stock Option Committee.
The Board of Directors does not have a standing nominating committee, such
function being reserved to the full Board of Directors.
The Audit Committee presently consists of Carleton A. Brown, Larry M.
Carr and Andre van den Bogaert. The Audit Committee has been assigned the
principal functions of: (i) recommending the independent auditors; (ii)
reviewing and approving the annual report of the independent auditors; (iii)
approving the annual financial statements; and (iv) reviewing and approving
summary reports of the auditors' findings and recommendations. The Audit
Committee held one meeting during the year ended December 31, 1996.
The Compensation Committee presently consists of Carleton A. Brown,
Larry M. Carr and Andre van den Bogaert. The Compensation Committee has been
assigned the functions of approving and monitoring the remuneration
arrangements for senior management and establishing the targets that determine
awards payable under the Company's incentive compensation plan. The
Compensation Committee held one meeting during the year ended December 31,
1996.
The Stock Option Committee presently consists of Larry M. Carr and
Andre van den Bogaert. The Stock Option Committee has been assigned the
functions of administering the Company's Stock Option Plans and Employee Stock
Purchase Plan and granting options thereunder. The Stock Option Committee held
six meetings during the year ended December 31, 1996.
-5-
<PAGE> 8
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
- ---- --- -------------
<S> <C> <C>
Richard K. Snelling 65 Chairman of the Board and Chief Executive
Officer
Bill R. Brewer 50 President, Chief Operating Officer, Chief
Financial Officer and Secretary
Leo M. Cortjens 43 President of Corporate and Product
Development and Chief Technical Officer
John R. Evans 47 Vice President - Operations
</TABLE>
Executive officers are chosen by and serve at the discretion of the
Board of Directors of the Company. Executive officers will devote their full
time to the affairs of the Company. See "Election of Directors" for
information with respect to Richard K. Snelling, Bill R. Brewer and Leo M.
Cortjens.
John R. Evans. Mr. Evans joined the Company in June 1996 and serves as
Vice President - Operations. From May 1995 to June 1996, Mr. Evans served as
Southeastern Sales Director of the Company. Mr. Evans served in various
capacities with BellSouth Corporation from 1974 to 1994, including most
recently as its Director of Broadband Planning.
-6-
<PAGE> 9
EXECUTIVE COMPENSATION
The following table provides certain summary information for the fiscal
years ended December 31, 1996, 1995 and 1994 concerning compensation paid or
accrued by the Company to or on behalf of the Company's Chief Executive Officer
and the other executive officers of the Company whose total annual salary and
bonus exceeded $100,000 during the year ended December 31, 1996 (the "Named
Executive Officers").
<TABLE>
<CAPTION>
Summary Compensation Table Long Term
Annual Compensation Compensation
---------------------------------------------------------------- ------------
Other Number of
Name and Annual Options
Principal Position Year Salary Bonus Compensation Awarded
- ------------------ ---- ------ ----- ------------ -------
<S> <C> <C> <C> <C> <C>
Richard K. Snelling.................. 1996 $ -- (1) $ -- $ -- 100,000
Chairman of the Board and 1995 124,000 (1) 13,178 -- 151,546
Chief Executive Officer 1994 86,272 (1) -- -- 200,000
Bill R. Brewer....................... 1996 $100,703 $ 3,780 $ 923 25,000
President and Chief Operating 1995 91,099 10,452 -- 36,000
Officer 1994(2) 41,698 -- -- 75,000
Leo M. Cortjens...................... 1996 $131,280 $ 6,088 $ 1,192 11,000
President of Corporate and 1995 116,405 10,921 -- 75,000
Product Development 1994 108,451 (3) -- -- 175,000
Roger K. Tapke(4).................... 1996 $ 96,836 $ 3,375 $ 1,730 --
1995 91,099 10,452 -- 36,000
1994 91,730 -- -- 100,000
</TABLE>
- --------------------------------
(1) In connection with his service as Chairman of the Board and Chief
Executive Officer of the Company, Mr. Snelling did not receive any cash
compensation in 1996; his 1996 compensation conisisted of options to
purchase 51,546 shares of Common Stock granted in November 1995 at an
exercise price of $4.312 per share, which options were fully vested on
March 16, 1997. Mr. Snelling agreed to defer payment of his 1995 and
1994 compensation (base salary of $124,000 for 1995 and $138,750 for
1994) until January of the following year, and to receive shares of
Common Stock in lieu of his deferred cash compensation. Accordingly,
104,421 shares of Common Stock were issued to Mr. Snelling in January
1996 and 172,576 shares of Common Stock were issued to Mr. Snelling in
January 1995. Amounts for 1994 also include outside directors fees of
$4,000 paid to Mr. Snelling by the Company prior to June 10, 1994, when
Mr. Snelling became an executive officer of the Company, and wellness
pay of $1,334 which has been deferred at the election of Mr. Snelling.
(2) Mr. Brewer joined the Company in June 1994.
(3) Includes $7,000 paid to Mr. Cortjens in the form of Common Stock of the
Company. This compensation was awarded to Mr. Cortjens effective
September 8, 1994, with payment deferred until January 1995.
Accordingly, 11,200 shares of Common Stock were issued to Mr. Cortjens
in January 1995.
(4) Mr. Tapke served as Vice President - Operations of the Company until
June 1996 and remained as an employee of the Company until his
resignation in January 1997.
-7-
<PAGE> 10
DIRECTORS' FEES
The Company's present policy is not to pay any cash compensation to
directors who are also employees of the Company for their services as
directors. Each non-employee director of the Company receives an automatic
grant of options to purchase 15,000 shares of Common Stock on each January 5.
Each non-employee director of the Company also receives $500 for each Board
meeting attended, plus reimbursement of travel and other expenses incurred in
connection with the performance of their duties.
In addition, all new non-employee directors of the Company will
receive a one-time grant of an option to purchase 20,000 shares of Common Stock
at an exercise price equal to the fair market value of such stock on the date
of grant. Such options expire, unless previously exercised or terminated, ten
years from the date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors is currently
comprised of Carleton A. Brown, Andre van den Bogaert and Larry M. Carr. None
of the members of the Compensation Committee served as an officer or employee
of the Company or any of its subsidiaries during fiscal 1996. Except as set
forth below, there were no material transactions between the Company and any of
the members of the Compensation Committee during fiscal 1996.
On June 30, 1994, Larry M. Carr, a director of the Company, purchased
from Technology Funding Secured Investors III ("Tech Funding") the secured note
under the secured credit facility between Tech Funding and the Company's
subsidiary, VSI. As a consequence, as of June 30, 1994, VSI was indebted to
Mr. Carr for $327,642 under this secured credit facility, which includes the
amount previously due to Tech Funding, as well as an additional $20,000 to
cover Mr. Carr's transactional costs in acquiring and refinancing the secured
note. In addition, as consideration for the purchase and refinancing of the
secured note, the Company has issued to Mr. Carr 150,000 shares of Common Stock
and 150,000 Common Stock Purchase Warrants. The Common Stock Purchase Warrants
are exercisable over a term of ten years at an exercise price of $.40 per
share. The secured note bears interest at the greater of 12 1/2% or prime plus
2% and was originally due on December 31, 1994. In January 1995, the Company
repaid $77,642 of the secured note in exchange for the issuance of 194,105
shares of common stock to Mr. Carr. In connection therewith, the maturity of
the remaining balance on the secured note ($250,000) was extended to July 12,
1995. On June 5, 1995, the secured note was cancelled and replaced with an
unsecured note which bears interest the greater of 12 1/2% per year or prime
plus 2%. On June 5, 1996, the Company retired the credit facility by issuing
to Mr. Carr 244,817 shares of Common Stock, including 27,202 shares issued with
respect to accrued interest.
STOCK OPTION PLANS
The Company, by action of its Board of Directors, adopted the 1986
Incentive Stock Option Plan (the "1986 Plan") for officers, directors and
employees of the Company or of a wholly-owned subsidiary of the Company. The
1986 Plan, which was originally the plan of VSI, was adopted as the plan of the
Company on January 22, 1991. The 1986 Plan provides for the grant of options
to purchase up to an aggregate of 337,943 shares of the Company's Common Stock.
Under the terms of the 1986 Plan, the Board of Directors of the Company or a
committee thereof may grant options to purchase shares of Common Stock to
officers, directors and employees of the Company or of a wholly-owned
subsidiary of the Company.
The Company, by action of its Board of Directors, has also adopted the
1991 Stock Option Plan (the "1991 Plan") for officers, directors and employees
of the Company or of a wholly-owned subsidiary of the Company. The 1991 Plan
was approved by the shareholders of the Company on October 10, 1991. In July
1992, the 1991 Plan was amended to, among other things, provide for the
automatic grant of options to the
-8-
<PAGE> 11
Company's non-employee directors, to increase the number of shares of Common
Stock available for grant thereunder and to expand the class of persons
eligible to receive options under the 1991 Plan to include employees of
majority-owned subsidiaries of the Company. In November 1993, the 1991 Plan
was further amended to expand the class of persons eligible to receive options
under the 1991 Plan and to increase the number of shares of Common Stock
available for grant thereunder. The 1991 Plan provides for the grant of
options to purchase up to an aggregate of 2,762,057 shares of the Company's
Common Stock. Under the terms of the 1991 Plan, the Stock Option Committee of
the Board of Directors may grant options to purchase shares of Common Stock to
officers, directors and employees of the Company or of a subsidiary of the
Company.
The following table provides certain information concerning individual
grants of stock options under the Company's 1986 and 1991 Stock Option Plans
made during the year ended December 31, 1996 to the Named Executive Officers:
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Individual Grants
--------------------------------------------------------- Potential Realizable
% of Total Value at Assumed
Options Exercise Annual Rates of Stock
Granted to or Base Price Appreciation for
Options Employees Price Option Term(1)
Granted in Fiscal ($ Per Expiration ------------------------
Name (#) Year Share) Date 5% 10%
---- ------- ----------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Richard K. Snelling......... 100,000(2) 40% $2.310 11/11/06 $145,275 $368,154
Bill R. Brewer.............. 25,000(3) 10% 2.310 11/11/06 36,319 92,039
Leo M. Cortjens............. 11,000(4) 4% 3.687 6/13/06 25,506 64,637
Roger K. Tapke.............. -- -- -- -- -- --
</TABLE>
(1) The dollar amounts under these columns represent the potential realizable
value of each grant of option assuming that the market price of the
Company's Common Stock appreciates in value from the date of grant at the
5% and 10% annual rates prescribed by the SEC and therefore are not
intended to forecast possible future appreciation, if any, of the price of
the Company's Common Stock.
(2) Options vest in full on January 1, 1998.
(3) Option is fully vested.
(4) Options vest as follows: 33 1/3% on each of June 13, 1997, 1998 and 1999.
-9-
<PAGE> 12
The following table provides certain information concerning options
exercised during fiscal 1996 and the value of unexercised options held by the
Named Executive Officers under the Company's Stock Option Plans as of December
31, 1996.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-
Options at Fiscal Year the-Money Options at
Name End Fiscal Year-End (a)
---- ---------------------- -------------------------
Shares Acquired Value Exer- Unexer- Exer- Unexer-
on Exercise(#) Realized($) cisable cisable cisable cisable
-------------- ------------ ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Richard K. Snelling.............. -- -- 186,666 284,880 $214,399 $127,801
Bill R. Brewer................... -- -- 87,000 49,000 80,194 47,513
Leo M. Cortjens.................. 75,000 187,500 75,000 111,000 85,550 95,850
Roger K. Tapke................... 87,000 139,134 -- 49,000 -- 47,513
</TABLE>
- --------------------------------
(a) Dollar values were calculated by determining the difference between the
fair market value of the underlying securities at year-end ($2.13 per
share) and the exercise price of the options.
CERTAIN TRANSACTIONS
Reference is made to "Executive Compensation - Compensation Committee
Interlocks and Insider Participation" for information regarding certain
transactions between the Company and Larry M. Carr, a director of the Company,
during fiscal 1996.
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<PAGE> 13
STOCKHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total stockholder return on the Company's Common Stock against
the cumulative total return of the Nasdaq Stock Market Index and the Nasdaq
Electronics Components Stock Index for the period commencing on March 31, 1992
and ending December 31, 1996. The graph assumes that the value of the
investment in the Company's Common Stock and each index was $100 on March 31,
1992. The yearly change in cumulative total return is measured by dividing 1)
the sum of (i) the cumulative amount of dividends for each fiscal year,
assuming dividend reinvestment, and (ii) the change in share price between the
beginning and end of the Measuring Period, by (ii) the share price at the
beginning of the Measuring Period. The Company has not paid any cash
dividends.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
VSI ENTERPRISES, INC., NASDAQ STOCK MARKET INDEX AND
NASDAQ ELECTRONICS COMPONENTS STOCK INDEX
[GRAPH]
<TABLE>
<CAPTION>
3/31/92 3/31/93 12/31/93 12/30/94 12/29/95 12/31/96
<S> <C> <C> <C> <C> <C> <C>
VSI Enterprises, Inc. $100 $ 66 $ 40 $ 30 $ 90 $ 50
NASDAQ Stock Market Index $100 $115 $130 $127 $179 $220
NASDAQ Elect. Components S.I. $100 $165 $189 $209 $346 $598
</TABLE>
* ON OCTOBER 20, 1993, THE COMPANY CHANGED ITS FISCAL YEAR END FROM MARCH 31
TO DECEMBER 31.
ASSUMES $100 INVESTED ON MARCH 31, 1992 IN VSI ENTERPRISES, INC.
COMMON STOCK, NASDAQ STOCK MARKET INDEX AND
NASDAQ ELECTRONICS COMPONENTS STOCK INDEX
-11-
<PAGE> 14
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
During the year ended December 31, 1996, the Compensation Committee of the
Board of Directors was comprised of four non-employee members of the Board.
The Compensation Committee is responsible for: (i) setting the Company's
compensation philosophy and policies; (ii) setting the terms and the
administration of compensation plans for officers of the Company; (iii) review
and approval of pay recommendations for the executive officers of the Company;
and (iv) initiation of all compensation actions for the Chief Executive Officer
of the Company.
The Company's compensation policies have been designed to align the
financial interests of the Company's management with those of its stockholders,
and reflect the nature of the Company by taking into account the Company's
operating environment and the expectations for growth and enhanced
profitability. Compensation for each of the Company's executive officers
consists of a base salary, discretionary performance bonus, stock options and
performance warrants. The Company does not currently provide executive
officers with other long term incentive compensation other than the ability to
contribute their earnings to the Company's 401(k) Plan.
The Compensation Committee's philosophy is that the predominant portion of
an executive's compensation should be based directly upon the value of
long-term incentive compensation in the form of stock options and performance
warrant awards. The Compensation Committee believes that providing executives
with the opportunities to acquire significant stakes in the growth and
prosperity of the Company (through grants of stock options and performance
warrants), while maintaining other elements of the Company's compensation
program at conservative levels, will enable the Company to attract and retain
executives with the outstanding management abilities and entrepreneurial spirit
which are essential to the Company's ongoing success. Furthermore, the
Compensation Committee believes that this approach to compensation motivates
executives to perform to their full potential.
At least annually, the Compensation Committee reviews salary
recommendations for the Company's executives (other than the Chief Executive
Officer) and then approves such recommendations, with any modifications it has
deemed appropriate. The annual salary recommendations are made under the
ultimate direction of the Chief Executive Officer, based on peer group and
national industry surveys of total compensation packages, as well as
evaluations of the individual executive's past and expected future performance.
Similarly, the Compensation Committee fixes the base salary of the Chief
Executive Officer based on a review of competitive compensation data, the Chief
Executive Officer's overall compensation package, and the Compensation
Committee's assessment of his past performance and its expectation as to his
future performance in leading the Company. Generally, such salaries have been
below levels paid to executives with comparable qualifications, experience and
responsibilities at other similarly situated companies.
The Compensation Committee also determines, based upon the recommendation
of the Chief Executive Officer, the annual bonus, if any, to be paid to
executive officers (other than the Chief Executive Officer). The amount of
each individual bonus is determined based upon an evaluation of such factors as
individual performance, increases in the Company's revenue, net income, net
income per share and market penetration, as well as improvements in operating
efficiencies. The assessment of performance achievement is considered in
relation to the maximum normal bonus opportunity, which is paid for achieving
outstanding levels of performance. The Compensation Committee applies similar
criteria in setting the amount of annual bonus, if any, earned by the Chief
Executive Officer.
Stock options represent a substantial portion of compensation for the
Company's executive officers, including the Chief Executive Officer. Stock
options are granted at the prevailing market price on the date of grant, and
will only have value if the Company's stock price increases. Generally, option
grants vest in
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<PAGE> 15
equal amounts over a period of three years (although certain special types of
grants may vest either immediately or over a shorter period) and executives
must be employed by the Company at the time of vesting in order to exercise the
options. Grants of stock options generally are based upon the level of the
executive's position with the Company and an evaluation of the executive's past
and expected future performance. The Compensation Committee believes that
dependence on stock options for a significant portion of executives'
compensation more closely aligns such executives' interests with those of the
Company's stockholders, since the ultimate value of such compensation is linked
directly to stock price.
At the request of the Chief Executive Officer and with the approval of the
Compensation Committee, no cash compensation was paid to the Chief Executive
Officer during the year ended December 31, 1996. Rather, Mr. Snelling received
options to purchase 51,546 shares of Common Stock granted in November 1995 at
an exercise price of $4.312 per share, which options were fully vested on March
16, 1997. This request was made by Mr. Snelling in order to tie his
compensation directly to the performance of the Company.
In the year ended December 31, 1996, the Company granted the Chief
Executive Officer options to purchase 100,000 shares of the Company's Common
Stock. These stock option awards were based upon an evaluation of individual
performance criteria and is consistent with the philosophy of providing
incentives based on the Company's future performance. During 1996, the Company
also granted to Leo M. Cortjens and to Bill R. Brewer, executive officers of
the Company, options to purchase an aggregate of 36,000 shares of Common Stock
of the Company.
The Compensation Committee continually evaluates the Company's compensation
policies and procedures with respect to executives. Although the Compensation
Committee believes that current compensation policies have been successful in
aligning the financial interests of executive officers with those of the
Company's stockholders and with Company performance, it continues to examine
what modifications, if any, should be implemented to further link executive
compensation with both individual and Company performance.
Andre van den Bogaert
Carleton A. Brown
Larry M. Carr
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Proxy Statement, in whole or in part, the foregoing
Report of Compensation Committee on Executive Compensation and the Stockholder
Return Performance Graph shall not be incorporated by reference into any such
filings.
-13-
<PAGE> 16
AGENDA ITEM TWO
PROPOSAL TO AMEND CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK
At a meeting of the Board of Directors of the Company on February 25, 1997,
the directors approved an amendment to Section 5.01 of the Company's
Certificate of Incorporation, as amended (the "Certificate of Incorporation"),
to increase the number of authorized shares of Common Stock of the Company from
46,000,000 to 60,000,000 shares. In connection therewith, the following
resolution will be introduced at the Annual Meeting:
RESOLVED: That Section 5.01 of the Certificate of Incorporation, as
heretofore added to or amended by certificates filed pursuant to law, is
amended to read in its entirety as follows:
"5.01 Authorized Shares. The aggregate number of shares which the
Company shall have authority to issue is Sixty Million Eight Hundred
Thousand (60,800,000). Sixty Million (60,000,000) shares shall be
designated 'Common Stock' and shall have a par value of $.00025.
Eight Hundred Thousand (800,000) shares shall be designated 'Preferred
Stock' and shall have a par value of $.00025. All shares of the
Company shall be issued for such consideration, as expressed in
dollars, as the Board of Directors may from time to time determine."
The Board of Directors recommends that shareholders approve the proposed
amendment to the Company's Certificate of Incorporation because it considers
the proposal to be in the best long-term and short-term interests of the
Company, its shareholders and its other constituencies. The proposed increase
in the number of shares of authorized Common Stock will ensure that additional
shares of Common Stock will be available, if needed, for issuance in connection
with any possible future transactions approved by the Board of Directors,
including, among others, stock splits, stock dividends, acquisitions,
financings and other corporate purposes.
The Board of Directors believes that the availability of the additional
shares of Common Stock for such purposes without delay or the necessity for a
special shareholders' meeting (except as may be required by applicable law or
regulatory authorities or by the rules of any stock exchange on which the
Company's securities may then be listed) will be beneficial to the Company by
providing it with the flexibility required to consider and respond to future
business opportunities and needs as they arise. The availability of additional
authorized shares of Common Stock will also enable the Company to act promptly
when the Board of Directors determines that the issuance of additional shares
of Common Stock is advisable. It is possible that shares of Common Stock may
be issued at a time and under circumstances that may increase or decrease
earnings per share and increase or decrease the book value per share of shares
presently held.
In connection with the issuance in September 1996 of $5.0 million of 5%
Convertible Debentures due September 27, 1999 (the "Debentures"), the Company
agreed to amend its Certificate of Incorporation to increase the number of
shares of Common Stock which the Company is authorized to issue to at least
56,000,000 shares and to include in this Proxy Statement a resolution
requesting shareholder approval of the increase in authorized shares. The
Company currently has sufficient authorized and unissued shares of Common Stock
to satisfy all Debenture conversions. Because the conversion ratio is based on
the trading price of the Company's Common Stock, however, a significant
decrease in the price of the Company's Common Stock may result in the number of
shares issuable upon the conversion of Debentures exceeding the number of
shares available for issuance.
Although the Company will require additional capital or other financing to
fund its operations and continued growth, except as set forth above, the
Company does not have any immediate agreements, arrangements, commitments or
understandings with respect to the issuance of any of the additional shares of
Common Stock which would be authorized by the proposal to increase the number
of authorized shares.
On March 3, 1997, 40,954,739 shares of Common Stock were issued and
outstanding and an aggregate of 4,368,020 shares of Common Stock were reserved
for issuance under outstanding stock options, warrants and Debentures.
-14-
<PAGE> 17
It should be noted that the availability of additional shares could render
more difficult or discourage a takeover attempt. For example, additional
shares of Common Stock could be issued and sold to purchasers who oppose a
takeover bid which is not in the best long-term and short-term interests of the
Company, its shareholders and its other constituencies or could be issued to
increase the aggregate number of outstanding shares of Common Stock and thereby
dilute the interest of parties attempting to obtain control of the Company. In
connection with any issuance of shares of Common Stock, the Board of Directors
is required to determine that such issuance would be in the best long-term and
short-term interests of the Company, its shareholders and its other
constituencies. The Board of Directors is presently unaware of any specific
effort to accumulate the shares of Common Stock of the Company or obtain
control of the Company.
The approval of the holders of a majority of the issued and outstanding
shares of Common Stock of the Company is required for the adoption of the
proposed amendment to the Certificate of Incorporation. THE BOARD OF DIRECTORS
RECOMMENDS THAT THE COMPANY'S SHAREHOLDERS APPROVE THE PROPOSED AMENDMENT TO
THE CERTIFICATE OF INCORPORATION.
AGENDA ITEM THREE
PROPOSAL TO AMEND CERTIFICATE OF INCORPORATION
TO EFFECT 1-FOR-2 REVERSE STOCK SPLIT
GENERAL
On February 25, 1997, the Company's Board of Directors unanimously
approved, and recommends that shareholders approve, an amendment to Section
5.01 of the Company's Certificate of Incorporation, as amended (the
"Certificate of Incorporation") to implement a Reverse Split of the Common
Stock of the Company at the ratio of 1-for-2, to be effective at the time a
Certificate of Amendment is filed with the Secretary of State of the State of
Delaware. The proposal may be abandoned by the Board of Directors, without
further action by the shareholders, at any time before or after the Annual
Meeting and prior to the date and time at which the Reverse Split becomes
effective (the "Effective Date") if for any reason the Board of Directors deems
it advisable to abandon the proposal.
The shareholders of the Company approved a 1-for-2 reverse stock split at
the Company's 1995 annual shareholders' meeting. In the judgment of the Board
of Directors, however, at no time subsequent to the 1995 annual shareholders'
meeting were conditions advantageous to the Company or its shareholders to
effect the reverse stock split. Moreover, because the bid price of the Common
Stock has been in excess of $1.00 since December 29, 1994, concerns regarding
the eligibility for continued listing of the Company's Common Stock on the
Nasdaq SmallCap Market have been ameliorated. For the reasons set forth below,
however, a reverse stock split proposal is being resubmitted for shareholder
approval.
The Reverse Split will be effected by an amendment to the Certificate of
Incorporation in the form as set forth in full as Appendix A to this Proxy
Statement. The number of shares of Common Stock authorized by the amendment to
the Certificate of Incorporation will be 30,000,000 as a result of the proposed
Reverse Split if Agenda Item 2 is approved by the shareholders of the Company
(23,000,000 shares if Agenda Item 2 is not approved). The effect of the
proposed Reverse Split on the holders of Common Stock will be as follows:
holders of record of two or more shares of Common Stock on the Effective Date
will receive a number of whole new shares equal to 1/2 of the number of shares
held on the Effective Date. No fractional shares will be issued. In the event
a shareholder holds a number of shares which is not evenly divisible by two,
such shareholder will receive cash in the amount to which he is entitled in
lieu of any fractional shares. Holders of record of fewer than two shares of
Common Stock on the Effective Date will have their shares automatically
converted into the right to receive cash in lieu of fractional shares in the
amount set forth below.
CASH PAYMENT IN LIEU OF FRACTIONAL SHARES
In lieu of issuing fractional shares resulting from the Reverse Split, the
Company will redeem all fractional shares for cash. The Company will value
each outstanding share of Common Stock held on the Effective Date
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<PAGE> 18
of the Reverse Split at a price per share ("Market Price") equal to the closing
bid price of the Common Stock on the trading day preceding the Effective Date,
as reported on the Nasdaq SmallCap Market. No brokerage commission will be
payable by holders who receive cash in lieu of fractional shares. The Company
will not issue certificates representing fractional shares and will pay the
Market Price to redeem fractional shares resulting from the Reverse Split upon
presentation to the Company's transfer agent of the certificates representing
such shares. The holders of Common Stock prior to the Reverse Split will not
have the right to offer to the Company for cash redemption any shares other
than fractional shares resulting from the Reverse Split.
EFFECT OF REVERSE SPLIT
If Agenda Item 2 is approved by the shareholders of the Company, the
Company will have authorized capital stock of 60,800,000 shares, consisting of
60,000,000 shares of Common Stock and 800,000 shares of Preferred Stock. The
authorized capital stock will be reduced to 30,800,000 shares by reason of the
proposed Reverse Split, consisting of 30,000,000 shares of Common Stock and
800,000 shares of Preferred Stock. If Agenda Item 2 is not approved by the
shareholders of the Company, the number of authorized shares of Common Stock
will be reduced to 23,000,000 by reason of the proposed reverse split. As of
March 3, 1997, the number of issued and outstanding shares of Common Stock was
40,954,739 and no shares of Preferred Stock were issued and outstanding. Based
on the Company's best estimates, the number of issued and outstanding shares of
Common Stock will be reduced as a result of the proposed Reverse Split from
40,954,739 to approximately 20,477,000. There will be approximately 9,523,000
authorized but unissued shares of Common Stock following the proposed Reverse
Split if Agenda Item 2 is approved by the shareholders of the Company
(2,523,000 authorized but unissued shares if Agenda Item 2 is not approved by
the Company's shareholders).
By implementing the Reverse Split, management does not intend to take the
Company "private" by decreasing the number of shareholders of the Company below
300. Management currently believes that there are approximately 9,000
shareholders who beneficially own shares of Common Stock of the Company.
Management does not believe that a 1-for-2 Reverse Split will result in a
significant number of shareholders being cashed out by virtue of holding less
than one share after the Reverse Split.
The Reverse Split, if adopted, will also increase the par value per share
of the Company's Common Stock from $.00025 to $.0005. The increase in the par
value per share is intended to maintain the Company's capital stock accounts at
current levels.
If the Reverse Split is approved, the rights of the holders of the Common
Stock as shareholders will not be affected adversely. Except for the receipt
of cash in lieu of fractional interests, the Reverse Split will not affect any
shareholder's proportionate equity interest in the Company. The existing
Certificate of Incorporation does not provide for a preference to be given to
the holders of Common Stock in the event of liquidation, and as a result, there
are no liquidation rights or preferences to lose.
PURPOSE OF THE PROPOSED REVERSE SPLIT
The Board of Directors believes that the Reverse Split should enhance the
acceptability of the Company's Common Stock by the financial community and the
investment public. Many leading brokerage firms are reluctant to recommend
low-price stocks to their clients. Additionally, since brokers' commissions on
low-price stocks generally represent a higher percentage of the stock price
than commissions on higher priced stocks, the current share price of the Common
Stock can result in individual stockholder's paying transaction costs that are
a higher percentage of their total share value than would be the case if the
Company's share price were substantially higher. This factor may also limit
willingness of institutions to purchase the Company's stock. In addition, a
variety of brokerage house policies and practices tend to discourage individual
brokers within those firms from dealing in low priced stocks. Some of those
policies and practices pertain to the payment of brokers' commissions and to
time-consuming procedures that function to make the handling of low priced
stocks unattractive to brokers from an economic standpoint.
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<PAGE> 19
The Common Stock has been trading at a low price for several years, and
recently below $2.00. With the shares trading in such a range, small moves in
absolute terms in the price-per-share of Common Stock translate into
disproportionately large swings in the price on a percentage basis, and these
swings tend to bear little relationship to the financial condition and results
of the Company. In the Board's view, these factors have resulted in an
unjustified, relatively low level of interest in the Company on the part of
investment analysts, brokers and professionals, and individual investors, which
tends to depress the market for the Common Stock. The Board has thus proposed
the Reverse Split as a means of increasing the per-share market price of the
Common Stock in the hope that these problems will thereby be addressed.
The decrease in the number of shares of Common Stock outstanding as a
consequence of the proposed Reverse Split should increase the per share price
of the Common Stock, which may encourage greater interest in the Common Stock
and possibly promote greater liquidity for the Company's shareholders.
However, the increase in the per share price of the Common Stock as a
consequence of the proposed Reverse Split may be proportionately less than the
decrease in the number of shares outstanding. In addition, any increased
liquidity due to any increased per share price could be partially or entirely
offset by the reduced number of shares outstanding after the proposed Reverse
Split. Moreover, the Reverse Split is expected to increase the number of
"odd-lot" Common Stock holdings (i.e., holdings of a number of shares that are
not divisible by 100), which may be more difficult to sell and may also result
in increased selling costs. Nevertheless, the proposed Reverse Split could
result in a per share price that adequately compensates for the adverse impact
of the market factors noted above. There can, however, be no assurance that
the favorable effects described above will occur, or that any increase in per
share price of the Common Stock resulting from the proposed reverse stock split
will be maintained for any period of time.
In addition, there can be no assurance that the market price of the Common
Stock after the proposed Reverse Split will be two times the market price
before the proposed Reverse Split, or that such price will either exceed or
remain in excess of the current market price.
OPTIONS, WARRANTS AND CONVERTIBLE DEBENTURES
The Company has outstanding or is authorized to issue various warrants and
options exercisable to acquire up to an aggregate of approximately 2,522,082
shares of Common Stock at various exercise prices. The amount of Common Stock
issuable pursuant to these options and warrants will be reduced to one-half the
previous amounts and the per share exercise prices will be increased by a
factor of two.
The Company also has outstanding $2,116,000 of Debentures which are
convertible into Common Stock at the option of the Debenture holders. As the
amount of Common Stock issuable pursuant to conversions of Debentures depends
on the market price of the Common Stock, any increase in market price resulting
from the Reverse Split will have the effect of reducing the number of shares
issuable upon conversions of the Debentures.
PROCEDURE FOR IMPLEMENTING THE REVERSE SPLIT
As soon as practicable after the Effective Date, the Company will send
letters of transmittal to all shareholders of record on the Effective Date for
use in transmitting stock certificates ("Old Certificates") to the transfer
agent, who will act as the exchange agent. Upon proper completion and
execution of the letter of transmittal and return thereof to the transfer
agent, together with the Old Certificates, each shareholder who holds of record
fewer than two shares on the Effective Date will receive cash in the amount to
which he is entitled. Until surrendered, each outstanding Old Certificate held
by a shareholder who holds of record fewer than two shares shall be deemed for
all purposes to represent only the right to receive the amount of cash to which
the holder is entitled.
Upon proper completion and execution of the letter of transmittal and
return thereof to the transfer agent, together with the Old Certificates,
holders of record of two or more shares on the Effective Date will receive new
certificates ("New Certificates") representing the number of whole shares of
Common Stock into which their shares of Common Stock have been converted as a
result of the Reverse Split. Holders of record of two
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<PAGE> 20
or more shares on the Effective Date whose shares are not evenly divisible by
two will receive cash in the amount to which they are entitled in lieu of any
fractional shares. Until surrendered, each outstanding Old Certificate held
by a shareholder who holds of record two or more shares shall be deemed for
all purposes to represent the number of whole shares and the right to receive
the amount of cash, if any, to which the holder is entitled.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion generally describes certain federal income tax
consequences of the proposed Reverse Split to shareholders of the Company. The
federal income tax consequences of the Reverse Split will vary among
shareholders depending upon whether they receive (1) solely cash for their
shares, (2) solely New Certificates, or (3) New Certificates plus cash for
fractional shares, in exchange for Old Certificates. In addition, the actual
consequences for each shareholder will be governed by the specific facts and
circumstances pertaining to his acquisition and ownership of the Common Stock.
Thus, the Company makes no representations concerning the tax consequences for
any of its shareholders and recommends that each shareholder consult with his
own tax advisor concerning the tax consequences of the Reverse Split, including
federal, state and local or other income tax. The Company has not sought and
will not seek an opinion of counsel or a ruling from the Internal Revenue
Service regarding the federal income tax consequences of the proposed Reverse
Split. However, the Company believes that because the Reverse Split is not
part of a plan to periodically increase a shareholder's proportionate interest
in the assets or earnings and profits of the Company, and because the cash
payment to be made in lieu of the issuance of fractional shares represents a
mechanical rounding off of the fractions in the exchange rather than separately
bargained for consideration, the proposed Reverse Split will have the following
federal income tax effects:
1. A shareholder will not recognize taxable gain or loss on the receipt
of New Certificates in exchange for Old Certificates in the Reverse Split. In
the aggregate, the shareholder's basis in the Common Stock represented by New
Certificates will equal his basis in the shares of Common Stock represented by
Old Certificates exchanged therefor (but not including the basis of any share
of Common Stock represented by an Old Certificate to which a fractional share
interest in Common Stock after the Reverse Split would be attributable), and
such shareholder's holding period for the New Certificates will include the
holding period for the Old Certificates exchanged therefor if the shares of
Common Stock represented by such certificates are capital assets in the hands
of such shareholder.
2. To the extent that a shareholder receives cash in the Reverse Split in
lieu of the issuance of a fractional share by the Company (whether or not in
addition to receiving New Certificates in exchange for Old Certificates), such
shareholder will generally be treated as having received a fractional interest
in a share of Common Stock represented by a New Certificate which is then
redeemed by the Company. Such shareholder generally will recognize taxable
gain or loss, as the case may be, equal to the difference, if any, between the
amount of cash received and such shareholder's aggregate basis in the
pre-Reverse Split share of Common Stock to which such fractional share interest
is attributable. If such share is a capital asset in the hands of such
shareholder, the gain or loss will be long-term gain or loss if the share was
held for more than one year.
3. The proposed Reverse Split will constitute a reorganization within the
meaning of Section 368(a)(1)(E) of the Internal Revenue Code of 1986, as
amended, and the Company will not recognize any gain or loss as a result of the
proposed Reverse Split.
VOTE REQUIRED
The Reverse Split must be approved by the holders of a majority of the
issued and outstanding shares of the Company's Common Stock. THE BOARD OF
DIRECTORS RECOMMENDS THAT THE COMPANY'S SHAREHOLDERS APPROVE THE REVERSE SPLIT.
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<PAGE> 21
INDEPENDENT PUBLIC ACCOUNTANTS
Grant Thornton has served as independent auditors of the Company for the
fiscal year ended December 31, 1996 and have been selected by the Board of
Directors to serve as independent auditors of the Company for the fiscal
year ending December 31, 1997. Representatives of Grant Thornton are
expected to be present at the shareholders' meeting and will have the
opportunity to make a statement if they desire to do so and to respond to
appropriate questions.
ANNUAL REPORT ON FORM 10-K
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996, as filed with the Securities and Exchange Commission, is available to
shareholders who make written request therefor to the Company's Investor
Relations Department, 5801 Goshen Springs Road, Norcross, Georgia 30071.
Copies of exhibits and basic documents filed with that report or referenced
therein will be furnished to shareholders of record upon request.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the Company's 1998
annual meeting must be received at the Company's principal executive offices by
December 30, 1997 in order to be eligible for inclusion in the Company's proxy
statement and form of proxy for that meeting.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before the
annual meeting. However, if other matters should come before the annual
meeting it is the intention of the persons named in the enclosed form of Proxy
to vote the Proxy in accordance with their judgment of what is in the best
interest of the Company.
By Order of the Board of Directors,
Richard K. Snelling, Chairman of the Board
Norcross, Georgia
March 17, 1997
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<PAGE> 22
APPENDIX A
AMENDMENT TO CERTIFICATE OF INCORPORATION
OF VSI ENTERPRISES, INC.
Section 5.01 of the Certificate of Incorporation, as heretofore added
to or amended by certificates filed pursuant to law, is amended to read in its
entirety as follows:
"5.01 Authorized Shares. The aggregate number of shares which
the Company shall have authority to issue is Twenty Three Million
Eight Hundred Thousand (23,800,000).
* Twenty Three Million (23,000,000)
shares* shall be designated 'Common Stock' and shall have a par value
of $.0005. Eight Hundred Thousand (800,000) shares shall be
designated 'Preferred Stock' and shall have a par value of $.0005.
All shares of the Company shall be issued for such consideration, as
expressed in dollars, as the Board of Directors may from time to time
determine.
Effective with the filing of this Amendment, each one share of
the Company's Common Stock issued and outstanding on the Effective
Date of this Amendment shall be automatically changed without further
action into one-half ( 1/2) of a fully paid and nonassessable share of
the Company's Common Stock, provided that no fractional shares shall
be issued pursuant to such change. The Company shall pay to each
shareholder who would otherwise be entitled to a fractional share as a
result of such change the cash value of such fractional share based
upon the closing bid price per share of the Common Stock on the
trading day preceding the Effective Date of this Amendment as quoted
by The Nasdaq SmallCap Market."
_____________________________
* If Agenda Item Two is approved by the shareholders of the Company, the
number of shares of Common Stock authorized as a result of the Reverse Stock
Split will be 30,000,000.
A-1
<PAGE> 23
APPENDIX B
VSI ENTERPRISES, INC.
5801 GOSHEN SPRINGS ROAD
NORCROSS, GEORGIA 30071
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE 1997
ANNUAL MEETING OF SHAREHOLDERS.
The undersigned hereby appoints Richard K. Snelling and Bill R. Brewer or
either of them, with power of substitution to each, the proxies of the
undersigned to vote the Common Stock of the undersigned at the Annual Meeting
of Shareholders of VSI ENTERPRISES, INC. to be held on Wednesday, April 16,
1997, at 10:00 a.m., at the Company's offices, 5801 Goshen Springs Road,
Norcross, Georgia 30071, and any adjournments or postponements thereof:
1. To elect seven (7) directors for a term of one year and until their
successors are elected and have qualified.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the to vote for all
contrary below) nominees listed below
BILL R. BREWER, CARLETON A. BROWN, LARRY M. CARR, LEO M.
CORTJENS, MARK E. MUNRO, EDWARD S. REDSTONE and RICHARD K.
SNELLING
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE WRITE THE NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.
_________________________________________
2. To approve an amendment to the Company's Certificate of Incorporation
to increase the number of authorized shares of common stock from
46,000,000 shares to 60,000,000 shares;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve an amendment to the Certificate of Incorporation of the
Company to effect a 1-for-2 reverse split of the Company's Common
Stock;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To vote in accordance with their best judgment with respect to any
other matters that may properly come before the meeting or any
adjournments or postponements thereof.
<PAGE> 24
THE BOARD OF DIRECTORS FAVORS A VOTE "FOR" THE ABOVE PROPOSALS AND UNLESS
INSTRUCTIONS TO THE CONTRARY ARE INDICATED IN THE SPACE PROVIDED, THIS PROXY
WILL BE SO VOTED.
Please date and sign this Proxy exactly
as name(s) appears on the mailing label.
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Print Name(s):
--------------------------
NOTE: When signing as an attorney,
administrator or guardian, please give
your title as such. If a corporation or
partnership, give full name by
authorized officer. In the case of
joint tenants, each joint owner must
sign.
Dated:
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