<PAGE>
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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:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
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(Name of Registrant as Specified In Its Charter)
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
ADVANCED ENVIRONMENTAL RECYCLING
TECHNOLOGIES, INC.
Notice of Annual Meeting of Stockholders
----------------------------------------
To the Stockholders of Advanced Environmental Recycling Technologies, Inc.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of A.E.R.T. Inc.
will be held at the Northwest Arkansas Holiday Inn located at Springdale,
Arkansas on the 25th day of July, 1997 at 10:00 a.m. for the following purposes:
1. The election of seven directors of the Company.
2. Proposed 1-for-6 reverse stock split.
3. Proposed 1997 securities plan.
4. To act on such other matters as may properly come before the meeting.
Only stockholders of record on the books of the Company at the close of business
on May 28, 1997 will be entitled to notice of, and to vote at the meeting.
Stockholders are cordially invited to attend the meeting in person. Every
stockholder (whether he owns one or more shares and whether or not he intends to
attend the meeting in person) who wishes to vote with respect to matters to come
before the meeting is urged to sign, date and promptly return the enclosed
Proxy. Your compliance with this request will enable the Company to avoid
unnecessary expenses and delay. A return envelope requiring no postage if mailed
in the United States is enclosed for your convenience in replying.
By Order of the Board of Directors
/s/ Jake M. Bushey
Jake M. Bushey
Corporate Controller
Date June 20, 1997
PLEASE MAIL YOUR PROXY......NOW!
IMPORTANT
WE HOPE THAT YOU CAN ATTEND THIS MEETING
IN PERSON, BUT IF YOU CANNOT DO SO PLEASE MARK,
DATE, SIGN AND RETURN THE ENCLOSED PROXY.
<PAGE>
CAUTIONARY STATEMENT
The Company (AERT) operates in a relatively new industry using several new
technologies and is manufacturing and marketing into an established, highly
competitive marketplace. This involves a number of significant risks, some of
which may be beyond the Company's control. Statements contained in the
Company's marketing section of its 1996 AERT Annual Report, Results of
Operations included in the Management's Discussion and Analysis of Financial
Condition, and Liquidity and Capital Resources of the Company's 1996 10K, which
are not historical facts are forward looking statements that involve several
-------
significant risks and uncertainties that could cause actual results to differ
- -----------------------------------
from projected results. This could limit, impede, or prevent the Company from
improving its operating performance and achieving its financial objectives.
Factors that could cause actual results to differ materially include, among
others, the following:
(1) Continued manufacturing difficulties and setbacks, such as the arson and
other suspicious acts of potential industrial sabotage which have occurred in
the past, and the success of the Company's increased security efforts to prevent
or eliminate these problems.
(2) The Company's timely settlement of its remaining fire insurance claim and
its subsequent rebuilding of its internal plastic reclamation facility.
(3) The ability to improve manufacturing efficiencies, to reduce costs to attain
efficiencies of scale and to generate positive cash flows and profitability from
operations.
(4) The unpredictable results of the pending intellectual property patent
litigation and stayed claim against the company by Mobil Oil for substantial
attorney's fees (see litigation).
These and other risk factors are detailed in the Company's 10K and other
Securities and Exchange Commission filings.
<PAGE>
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
206 1/2 East Emma Avenue
Springdale, Arkansas 72764
PROXY STATEMENT
---------------
SOLICITATION AND REVOCABILITY OF PROXIES
The enclosed proxy is solicited on behalf of the Board of Directors of Advanced
Environmental Recycling Technologies, Inc., a Delaware Corporation (the
"Company"), for use at the Annual Meeting of Stockholders to be held at the
Northwest Arkansas Holiday Inn, Springdale, Arkansas, at 10:00 a.m. local time,
Friday, July 25, 1997 and at any adjournments thereof. The notice of meeting,
proxy statement and form of proxy are being mailed to stockholders on or about
June 20, 1997.
A proxy may be revoked by delivering a written notice of revocation to the
principal office of the Company or in person at the meeting at any time prior to
the voting thereof.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
At April 15, 1997, the Company had outstanding 19,201,148 shares of Class A
Common Stock and 1,465,530 shares of Class B Common Stock. The holders of
record of the Class A Common Stock and Class B Common Stock outstanding on May
28, 1997, will vote together as a single class on all matters submitted to
stockholders and such other matters as may properly come before the Annual
Meeting and any adjournments. Each outstanding share of Class A Common Stock
entitles the holder thereof to one vote on matters submitted to the stockholders
and each share of Class B Common Stock entitles the holder thereof to five votes
on matters submitted to the stockholders.
The enclosed form of proxy provides a method for stockholders to withhold
authority to vote for any one or more nominees (See "Proposal for Election of
Directors" for the method of withholding authority to vote for directors). By
withholding authority, shares will not be voted either for or against a
particular matter but will be counted for quorum purposes. Broker "non-votes,"
are not relevant to the determination of a quorum or whether the proposal to
elect directors has been approved.
The Company's officers and directors own approximately 30.6% of the currently
outstanding shares of Class A Common Stock (disregarding 12,468,373 shares
subject to warrants and 1,329,000 shares subject to options which have not been
exercised) and 92.7% of the shares of Class B Common Stock, and collectively own
shares representing approximately 44.6% of the votes entitled to be cast upon
matters submitted at the Annual Meeting. Marjorie S. Brooks and corporations
controlled by her own shares representing approximately 38.4% of the votes
entitled to be cast and may be in a position to control the Company.
1
<PAGE>
The following table sets forth, as of April 15, 1997, certain information with
regard to the beneficial ownership of the Company's capital stock by each holder
of 5% or more of the outstanding stock, by each director of the Company, and by
all officers and directors as a group:
<TABLE>
<CAPTION>
Percentage of
Name and Address Title of Number of Shares Percentage of Class Voting Power
of Beneficial Owner Class(1) of Common Stock(2) Outstanding (2)(9) (2)(9)
- ------------------- -------- ------------------ ------------------- -------------
<S> <C> <C> <C> <C>
Marjorie S. Brooks Class A 9,525,331(3) 26.7% 38.4%
P.O. Box 1237 Class B 837,588(4) 57.2%
Springdale, AR 72764
Joe G. Brooks Class A 505,601(5) 1.4% 5.1%
950 North 2nd Street Class B 266,896 18.2%
Rogers, AR 72756
J. Douglas Brooks Class A 429,666(6) 1.2% 3.0%
950 North 2nd Street Class B 131,051 8.9%
Rogers, AR 72756
Jerry B. Burkett Class A 84,000(7) * *
1908 Oak Class B 33,311 *
Stuttgart, AR 72160
Sal Miwa Class A 53,000(8) * *
P.O. Box 1667
Pearl River, NY 10965-8667
Stephen W. Brooks Class A 326,616 1.0% 2.2%
P.O. Box 291 Class B 89,311 6.1%
Springdale, AR 72765
All officers and directors Class A 10,924,214 30.6% 44.6%
as a group (six persons) Class B 1,358,157 92.7%
* Less than 1%
</TABLE>
(1) The Class B Common Stock is substantially identical to the Class A Common
Stock, except that each share of Class B Common Stock has five votes per share
and each share of Class A Common Stock has one vote per share.
(2) Beneficial ownership of shares determined in accordance with Rule
13d-3(d)(1) of the Exchange Act and includes shares underlying outstanding
warrants and options which the named individual has the right to acquire within
sixty days of June 20, 1997.
2
<PAGE>
(3) Includes 2,523,251 shares owned directly, 200,000 shares issuable upon
exercise of stock options, 3,000 shares issuable upon exercise of Class B
Warrants, 325,000 shares issuable upon exercise of Class C Warrants issued in
connection with a $225,000 Bridge Note purchased in 1993, 5,306,304 shares
issuable upon exercise of Class F and Class G Warrants issued in connection with
a private placement of Class A Common Stock in May of 1994 and 2,000,000 shares
issuable upon exercise of Class H Warrants.
(4) Includes 403,946 shares owned directly by Mrs. Brooks and 433,642 shares
owned by two corporations controlled by Mr. and Mrs. Brooks. (Razorback Farms,
Inc. is the record owner of 312,320 shares and Southern Minerals and Fiber(SMF)
is the record owner of 121,322 shares, representing approximately 21.3% and
8.3%, respectively, of the Class B Common Stock). Excludes additional shares
owned by adult children of Mr. and Mrs. Brooks, including Joe G. Brooks and J.
Douglas Brooks, as to which she disclaims a beneficial interest.
(5) Includes 86,552 shares owned directly, 3,000 shares owned as custodian for
Mr. Brook's minor child, 43,500 shares issuable upon exercise of Class B
Warrants owned directly and as custodian for Mr. Brook's minor child and 33,333
shares issuable upon exercise of stock options.
(6) Includes 34,997 shares owned directly, 7,620 shares issuable upon exercise
of Class B Warrants and 33,333 shares issuable upon exercise of stock options.
(7) Includes 3,000 shares owned directly, 2,000 shares owned by Mr. Burkett as
custodian for his minor child, 10,000 shares owned by a partnership controlled
by Mr. Burkett, 19,000 shares issuable upon exercise of Class B Warrants
directly and indirectly owned by Mr. Burkett and 50,000 shares issuable upon
exercise of stock options.
(8) Includes 3,000 shares owned directly and 50,000 shares issuable upon
exercise of stock options.
(9) Calculated based on 35,736,853 shares outstanding as of December 31, 1996,
which includes 12,468,373 and 1,329,000 shares which directors and executive
officers in the aggregate have the right to acquire through the exercise of
warrants and options, respectively, within 60 days of June 20, 1997 (See also
"Proposal No. 3 1997 Securities Plan" for additional prposed grants).
At April 15, 1997, there were 19,201,148 shares of Class A Common Stock and
1,465,530 shares of Class B Common Stock issued and outstanding. At that date,
the directors and officers as a group directly owned shares representing
approximately 49.6% of the votes entitled to be cast upon matters submitted to a
vote of the Company's stockholders, and Marjorie S. Brooks and corporations
controlled by her owned shares representing approximately 38.4% of the votes
entitled to be cast and may be in a position to control the Company.
3
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
NAME AGE POSITION
---- --- --------
Sal Miwa 40 Chairman of the Board
Stephen W. Brooks 40 Chief Executive Officer and Director
Joe G. Brooks 41 President and Director
Grant Martin 49 Chief Operating Officer
Phillip W. Hyde 54 Vice President of Composites
J. Douglas Brooks 37 Vice President of Recycled Plastics
Marjorie S. Brooks 61 Director
Jerry B. Burkett 41 Director
Dr. James H. Culp 51 Director and Special Board Assistant to the
CEO
On January 30, 1996, Sal Miwa was elected as its Chairman by the Company's Board
of Directors to serve the remaining term of the late Jim Brooks. Mr. Miwa has
been an outside director of the Company for the past three years. Sal Miwa is
President of Optro-Mechanics (USA) Corporation, an import-export firm located in
Pearl River, New York. For the past 20 years he has been engaged in various
international businesses and serves as a director and an officer of various
other family owned businesses located in U.S., Japan, and Europe. He received
his Science Master degree in Aerospace Engineering from the Massachusetts
Institute of Technology.
Stephen W. Brooks was appointed to the Board of Directors of the Company on
January 30, 1996 and elected Chief Executive Officer on August 26, 1996. Mr.
Brooks is President of Razorback Farms, Inc., a Springdale, Arkansas based firm
that specializes in vegetables for processing. Mr. Brooks also serves on the
Boards of Razorback Farms, Inc. and The Ozark Food Processors Association.
Joe G. Brooks has served as President, Chief Executive Officer (until September
28, 1993) and a director since the Company's inception in December 1988. From
July 1985 to December 1988, Mr. Brooks also served as President and a director
of Juniper Products, Inc. (July 1985 - February 1987) and served as an
independent consultant to Juniper Industries, Inc. (February 1987 - December
1988), artificial firelog manufacturing entities in Junction, Texas. From
October 1984 to July 1985, Mr. Brooks served as President of Southern Minerals
and Fibers, Inc. ("SMF"), a producer of drilling mud and fluid additives.
J. Douglas Brooks has served as a Vice President and a director of the Company
from inception in December 1988 until June 17,1994, and continues to serve as
Vice President of Recycled Plastics. Mr. Brooks also served as an independent
consultant to Juniper Industries, Inc. from April 1987 to December 1988 and as a
Vice President of SMF from September 1984 to April 1987.
J. Grant Martin joined the Company on February 24, 1997. As Chief Operating
Officer, he assumes day-to-day control and operating responsibilities over the
Company's composite manufacturing facility in Junction, Texas. Mr. Martin has
extensive technical and manufacturing experience with companies in the United
States and overseas. Mr. Martin was previously employed from 1994 - 1997 as
Vice-President of Operations of Mrs. Crockett's Kitchens, a large Texas
manufacturing facility and prior to that served from 1982 - 1994 as a Vice-
President of Operations for PSI, Inc., a national engineering testing company.
4
<PAGE>
Marjorie S. Brooks served as Secretary and Treasurer and a director since the
Company's inception in December 1988. On March 9, 1993, Mrs. Brooks submitted
her resignation as a director for personal health reasons. Mrs. Brooks also
serves as a director of Juniper Industries, Inc. and Razorback Farms, Inc., has
served as Secretary and Treasurer of the Brooks Investment Co., a holding
company for the Brooks' family investments, for more than the past thirty years,
and has served as President of Haskell Foods, Inc. from 1981 to the present.
Jerry B. Burkett was appointed to the Board of Directors of the Company on May
17, 1993. Mr. Burkett has been a rice and grain farmer since 1979 and has been
a principal in other closely held businesses. He is currently the President of
the Arkansas County Farm Bureau.
Dr. Culp received a B.S. Degree in Chemistry from the University of Alabama and
Ph.D. Degree in Analytical and Nuclear Chemistry from Texas A&M University. Dr.
Culp was an Assistance Professor at Texas A&M University Chemical Oceanography
for two years before joining The Dow Chemical Company. Dr. Culp worked at Dow
in research, manufacturing, business development, and supply chain for 23 years.
His last responsibility at Dow was North American Supply Chain Director for
Engineering Thermoplastics and North American Recycle Plastics Director. Dr.
Culp retired from Dow in April, 1996. He joined the AERT Board as Director of
Technology in July, 1996 and joined AERT as Special Board Assistant to the Chief
Executive Officer in October, 1996.
Joe G. Brooks, Stephen W. Brooks, and J. Douglas Brooks are brothers and are
sons of Marjorie S. Brooks. There are no other familial relationships between
the current directors and executive officers.
Each of the Company's directors have been elected to serve until the next annual
meeting of stockholders or until their successors are elected and qualified.
Officers serve at the discretion of the Board of Directors.
The Audit Committee of the Board of Directors consists of Jerry B. Burkett
(Chairman), James H. Culp, and Sal Miwa. The Audit Committee recommends
engagement of the Company's independent accountants and is primarily responsible
for approving the services performed by the Company's independent accountants
and for reviewing and evaluating the Company's accounting principles and its
system of internal accounting controls.
The Stock Option Committee, consists of Jerry B. Burkett (Chairman), Sal Miwa,
and Marjorie S. Brooks. The Stock Option Committee administers the Company's
stock option plans on behalf of the Board of Directors and approves stock
options granted thereunder.
EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash compensation paid by the
Company during the three years ended December 31, 1996 to each executive officer
of the Company whose aggregate cash compensation exceeded $100,000, and to the
chief executive officer.
5
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Restricted Securities Long-term
Name and Other Annual Stock Underlying Incentive All Other
Principal Position Year Salary Bonus Compensation Awards Options Payouts Compensation
- ------------------ ---- ------ ----- ------------ ------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stephen W.Brooks 1996 $0 $0 $0 $0 0 $0 $0
Jim G. Brooks, 1995 $0 $0 $0 $0 0 $0 $0
Chief Executive 1994 $0 $0 $0 $0 500,00 $0 $0
Officer (9/28/93)
and Chairman of
the Board of
Directors
</TABLE>
AGGREGATED OPTION EXERCISES IN YEAR ENDED DECEMBER 31, 1995
AND OPTION VALUES AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
Number Number of Value of Unexercised
of Unexercised Options In-the-Money Options
Shares at December 31, 1995 at December 31, 1995
Acquired Value Exercisable/ Exercisable/
Name on Realized Unexercisable Unexercisable
Exercise
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stephen W. Brooks 0 $0 25,000/25,000 $0/$0
</TABLE>
DIRECTOR COMPENSATION
Non-employee directors do not receive cash compensation for serving on the
Company's Board of Directors, however, such persons are reimbursed for out-of-
pocket expenses in connection with their attendance at meetings. Directors are
paid long-term compensation in the form of stock option grants under the
Company's Non-Employee Director Stock Option Plan. Such plan provides for
annual grants of options to purchase 25,000 shares of Class A Common Stock at
the fair market value of said stock on the date of such grant.
6
<PAGE>
SECTION 16 REPORTING
Section 16(a) of the Exchange Act requires the Company's executive officers and
directors, and persons who own more than ten percent of a registered Class of
the Company's securities to file reports of ownership and changes in ownership
with the Securities and Exchange Commission, National Association of Securities
Dealers and the Boston Stock Exchange. Officers, directors and greater than
ten-percent shareholders are required by SEC regulation to furnish the Company
with copies of all forms filed pursuant to Section 16(a). Based on a review of
the copies of such forms received by it and written representations from certain
reporting persons that no Forms 4 or Forms 5 were required for those persons,
the Company believes that during the year ended December 31, 1996, its executive
officers, directors and greater than ten-percent beneficial owners were in
compliance with applicable requirements of Section 16(a).
BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION
Although the Company's Bylaws allow for a Compensation Committee of the Board,
such a committee has not been appointed. Accordingly, all decisions regarding
executive compensation are reviewed and approved by the full Board, except for
those relating to grants under the Company's employee stock option plan which
are approved by a special stock option committee of outside directors.
The overall compensation policy of the Company is to maximize shareholder return
by combining annual and long-term compensation to executives based upon
corporate and individual performance. Annual compensation is paid in the form of
base salary which is subjectively determined by the Board based upon senior
management's recommendation. Additionally, although no cash bonuses have been
paid to executives, the Board reserves the right to grant such bonuses if the
Company's performance so warrants. Long-term compensation to executives is
built around the Company's stock option programs.
Base salaries are reviewed and approved by the full Board at the time an officer
is hired and thereafter on a periodic basis as determined appropriate by the
Board and senior management. Base salaries are subjectively determined based
upon a number of factors, including level and scope of responsibility, salaries
paid for comparable positions at similarly situated companies and individual and
corporate performance. No base salary increases were effected for executives
during 1996, primarily as a result of the Company's performance and cash-flow
position.
The Company effects stock option grants from time-to-time as a mechanism for
providing long-term, non-cash compensation to executives. The Board believes
that stock options are (especially in the context of an emerging growth company)
an effective incentive for executives and managers to create value for the
Company and its shareholders since the value of an option bears a direct
relationship to appreciation in the Company's stock price. By utilizing stock-
based compensation, the Company can focus much needed cash-flow, which would
otherwise be paid out as compensation, back into the daily operations of the
business. Individual stock option grants are subjectively determined based upon
a number of factors, including individual performance and prior year's grants.
Based upon these factors, during 1996, options to purchase an aggregate of
25,000 shares of Class A stock were granted to employees of the Company as a
whole with 25,000 options being granted specifically to executive officers. All
option grants were made at an exercise price equal to the fair market value of
the underlying stock on the date of grant.
During 1996 Steve Brooks, the Company's Chief Executive Officer, did not receive
any base salary or long-term compensation awards. Mr. Brooks has chosen to
defer salaried compensation as to which time the Company has achieved positve
cash flow and profitability.
7
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted, the Board of Directors does not currently maintain a standing
compensation committee. All decisions regarding executive compensation are
reviewed and approved by the full Board. During 1996, three members of the Board
of Directors, Stephen W. Brooks, Dr. James H. Culp, and Joe G. Brooks also
served as executive officers of the Company.
Neither of said persons participated in any deliberations or decisions
concerning compensation issues in which they had a personal interest, nor did
they vote on any such matter.
Sal Miwa Joe G. Brooks Peter S. Lau
Marjorie S. Brooks Jerry B. Burkett
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 29, 1993 the Company circulated a private placement offering of up to
$1,200,000 in Bridge Notes and Class C Warrants. The Notes are secured by
certain equipment of the Company's composite production division, bear interest
at the rate of 8% per annum, and mature June 29, 1994. The face amount of each
Bridge Note is accompanied with an equal number of Class C Warrants which are
exercisable ratably into one share of Class A Common Stock at an exercise price
of $3.00 per share. The Warrants expire on June 29, 1998. Jim G. and Marjorie
Brooks participated in the Bridge Offering in the amount of $225,000.
In April 1994, the Company renewed an agreement with an affiliate whereby the
Company agreed to sell certain of its trade receivables which the affiliate
deems acceptable, up to $700,000 at any one time. Upon acceptance of a sale of
a receivable, the affiliate will remit to the Company 100% of the receivable, as
defined in the agreement, and the Company shall remit to the affiliate .88% as a
factoring charge. The Company will indemnify the affiliate for any loss arising
out of rejections or returns of any merchandise, or any claims asserted by the
Company's customers. During 1996, the Company sold an aggregate of
approximately $7,200,000 in receivables under this agreement, of which $552,732
remains to be collected. During 1995, 1994 and 1993, the Company sold an
aggregate of approximately $5,852,000, $3,726,000 and $1,018,000, respectively,
in receivables under this agreement, none of which remains to be collected.
Costs of approximately $51,000, $32,800 and $9,000 associated with the factoring
agreement are included in selling, production, general and administrative
expenses at December 31, 1995, 1994 and 1993, respectively.
In July 1994, the Company obtained a $1,000,000 secured line of credit bearing
interest at the rate of 8.5% per annum from Jim G. and Marjorie S. Brooks at
December 31, 1994 the Brooks had advanced the $1,000,000 plus an additional
$411,903. In February 1995, the line of credit was increased to $2,000,000 of
which $1,566,903 is a term-note to be amortized at 9.75% over five years
beginning April 1, 1995 and the balance of $433,097 is a revolving credit line
expiring in February 2000 available as needed by the Company.
In May 1994, the Company completed a Private Placement Offering at market price
to certain affiliated stockholders and bridge note holders with the issuance of
3,468,400 shares of Class A Common Stock, 3,468,400 Class F Warrants, and
3,468,400 Class G Warrants. Net offering proceeds of approximately $2,065,000
consisted of $2,020,000 conversion of debt and accrued interest and $45,000 in
cash. The Class F and Class G Warrants expire five years from the date of
issuance and are exercisable at a price of $.61 and $.92 per share of Class A
Common Stock for each Class F or Class G Warrants exercised.
8
<PAGE>
In 1995, in connection with an extension of a line of credit to the Company by
a related party, the Company's Board of Directors authorized the issuance of up
to 2,000,000 Class H Warrants on a one-for-one basis for each dollar advanced
under the loan agreement and having an exercise price equal to the per share
market value of the Company's Class A Common Stock on the date of such advances.
While no warrants have been issued as of the date of this filing, all authorized
Class H Warrants are currently issuable. Upon issue, the warrants will be
exercisable at prices from $.39 to $.49 per share of Class A Common Stock for
each Class H Warrant exercised. The Class H Warrants will expire in February
2005.
On November 1, 1995, the Major Stockholders and certain non-affiliated
shareholders exercised 1,630,496 Class F Warrants. The proceeds from the
exercise of these warrants, which amounted to $994,603, reduced the working
capital deficit of the Company and were used to reduce current liabilities. In
January 1996, the major stockholder exercised 500,000 Class F Warrants which
provided an additional $305,000 which reduced current liabilities and the
working capital deficit of the Company.
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
The Bylaws of the Company provide that the number of directors constituting the
Board of Directors shall be determined from time to time by resolution of the
Board of Directors. The Board of Directors has set the number of directors at
seven. During 1996 the Board appointed Dr. James H. Culp to the Board and in
1997 appointed Peter S. Lau, accordingly the Company currently has seven
directors and at the meeting seven directors are to be elected by the holders of
shares of outstanding Class A and Class B Common Stock voting together as a
single class. To be elected, each director must receive a plurality of the
votes cast at the Annual Meeting. All directors serve for a term of one year
and until their successors are duly elected and qualified. Each outstanding
share of Class A Common Stock entitles the holder thereof to one vote with
respect to the election of each of the seven director positions to be filled and
each outstanding share of Class B Common Stock entitles the holder thereof to
five votes with respect to the election of each of the seven director positions
to be filled.
The enclosed form of proxy provides a method for stockholders to withhold
authority to vote for any one or more of the nominees for director while
granting authority to vote for the remaining nominees. If you wish to grant
authority to vote for all nominees, check the box marked "FOR." If you wish to
withhold authority to vote for all nominees, check the box marked "WITHHOLD."
If you wish your shares to be voted for some nominees and not for one or more of
the others, check the box marked "FOR" and indicate the names(s) of the
nominee(s) for whom you are withholding the authority to vote by drawing a line
through the name(s) of such nominee(s). If you withhold authority to vote your
shares, such vote will be treated as an abstention and accordingly your shares
will neither be voted for or against a director but will be counted for quorum
purposes.
The seven nominees for director are: Sal Miwa, Joe G. Brooks, Jerry B. Burkett,
Steve Brooks, Dr. James H. Culp, Peter S. Lau, and Marjorie S. Brooks. All of
the nominees are presently directors of the Company. Steve Brooks is currently
Chief Executive Officer, Joe G. Brooks is President, and Sal Miwa is Chairman
of the Board of the Company.
The enclosed proxy, if properly signed and returned, will be voted for the
election of the seven nominees named above, unless authority to vote is
withheld. Management recommends that the stockholders vote in favor of the seven
nominees named above. In the event one or more nominees become unavailable for
election, votes will be cast, pursuant to authority granted by the enclosed
proxy, for such substitute nominees as may be designated by the Board of
Directors. The Board of Directors has no reason to believe that any nominee will
be unable to serve, if elected.
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PROPOSAL NO. 2:
REVERSE STOCK SPLIT
The Board of Directors has unanimously adopted a resolution declaring the
advisability of, and submits to the stockholders for approval, a proposal to
amend the Company's Certificate of Incorporation to effect a reverse split of
the Company's issued and outstanding Class A and Class B Common Stock
(collectively, the "Common Stock") on the effective date of the amendment on the
basis that each 6 shares then outstanding will be converted into one share
(the "Reverse Split"). The proposal may be abandoned by the Board of Directors
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
Reverse Split will be effected by an amendment of the Certificate of
Incorporation. The number of shares of capital stock authorized by the
Certificate of incorporation and the $.01 per share par value of the Company's
authorized capital stock will not change as a result of the proposed Reverse
Split.
The Effect of the proposed Reverse Split on the holders of Common Stock will be
as follows:
(1) Holders of record of fewer than 6 shares of Common Stock on the Effective
Date of the Reverse Split will have their shares automatically converted in the
Reverse Split into the right to receive scrip in lieu of fractional shares as
set for the below. (See "Scrip in Lieu of Fractional Shares").
(2) Holders of record of 6 or more shares on the Effective Date will have their
shares automatically converted to the Reverse Split into the number of whole
shares equal to the number of their shares divided by 6 and the right to receive
scrip in lieu of any fractional shares. (See "Scrip in Lieu of Fractional
Shares").
SCRIP IN LIEU OF FRACTIONAL SHARES
Stockholders who hold fewer than 6 shares of record on the Effective Date will
be entitled to receive in lieu of fractional shares arising as a result of the
Reverse split, scrip representing the number of shares of Common Stock held
prior to the Reverse Split. Stockholders who hold more than 6 shares on the
Effective Date will be entitled to receive in lieu of fractional shares arising
as a result of the Reverse Split, scrip representing the number of shares of
Common Stock held prior to the Reverse Split that are not evenly divisible by 6.
The Company, as agent for holders of rights to receive scrip, will, in lieu of
issuing scrip to those entitled to receive scrip, hold and combine scrip into
full shares of Common Stock, sell such shares, and distribute the net proceeds
therefrom to holders of rights to receive scrip. The Company intends to sell
the full shares of Common Stock immediately after the Effective Date. The net
proceeds will be prorated among holders of rights to receive scrip in proportion
to the value of such rights to receive scrip; however, no actual distribution
will be made until a stockholder surrenders his outstanding certificates and
letter of transmittal. References herein to "the right to receive scrip" will
be deemed to be subject to the condition that the Company has the right, which
right will be exercised, to hold and combine scrip into full shares and sell
such shares. As a result, holders of a right to receive scrip will effectively
have a right to receive cash proceeds in lieu thereof.
Under Delaware law, scrip may be issued in registered or bearer form and shall
entitle the holder to receive a certificate for a full share of Common Stock
upon the surrender of scrip aggregating a full share of Common Stock. Delaware
law further provides that scrip may be issued subject to any conditions which
the board of directors may determine advisable. The Board of Directors has
determined that the Company, as agent for holders of rights to receive scrip,
will, in lieu of issuing scrip to those entitled to receive scrip, issue scrip
to
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itself (as agent), hold and combine such scrip into full shares of Common Stock,
sell such shares, and distribute the net proceeds therefrom to holders of rights
to receive scrip. Accordingly, holders of rights to receive scrip will not
actually receive scrip but will instead receive their respective proportionate
interests in the net proceeds derived from the sale of full shares of Common
Stock representing the combined scrip. A holder of a right to receive scrip will
not be entitled to vote as a stockholder or share in the assets or any future
earnings of the Company.
Any stockholder owning of record fewer than 6 shares of Common Stock who desires
not to be entitled to receive scrip may avoid such result by purchasing prior to
the Effective Date sufficient additional shares of the Company's outstanding
Common Stock in the open market to increase the number of shares held in his
name to 6 shares or more.
As soon as practicable after the Effective Date, the Company will mail letters
of transmittal to each holder of record of the stock certificate or certificates
which represent issued shares of the Company's Common Stock outstanding on the
Effective Date. The letter of transmittal will contain instructions for the
surrender of such certificate or certificates to the Exchange Agent in exchange
for cash proceeds derived from the sale by the Company, as agent, of the
combined scrip (to be issued in lieu of fractional shares) and/or certificates
representing the number of whole shares of commons stock into which the shares
of commons stock have been converted as result of the proposed Reverse Split.
Net cash proceeds derived form the sale by the Company, as agent, of the
combined scrip or new certificate will be issued to the stockholder until he has
surrendered his outstanding certificates together with either letter of
transmittal to the Exchange Agent. (See "Exchange of Stock Certificates"). The
Company will be required to pay a transfer fee of approximately $7.00 for each
new certificate issued with the stockholder required to pay any related charges
(such as postage estimated not to exceed $3.00) in connection with the exchange
of old certificates for new certificates. Stockholders holding whole shares
after the proposed Reversed Split do not need to surrender old certificates
unless desirous of receiving new certificates. Until surrendered such old
certificates shall be deemed to represent the number of whole shares to which
holders are entitled as a result of the Reverse split.
AMENDMENT TO CERTIFICATE OF INCORPORATION
An amendment to the Certificate of Incorporation, assuming approval of the
proposed Reverse Split by the stockholders at the Annual Meeting, will be filed
with the Secretary of State of Delaware and the Reverse Split will become
effective on the date of such filing. It is expected that such filing will take
place on August 15, 1997, or shortly thereafter. Without any further action on
the part of the Company or the stockholders, stockholders of record will have
their shares of issued and outstanding Common Stock converted, on the Effective
Date, into the right to receive the number of whole shares equal to the number
of their shares divided by 6 and/or the right to receive scrip in lieu of any
fractional shares.
EFFECT OF THE PROPOSED REVERSE SPLIT
The proposed Reverse Split will be effected by means of an amendment to the
Certificate of Incorporation. Stockholders have no right to dissent from the
proposed Reverse Split of Common Stock, or to dissent form the issuance of scrip
in lieu of fractional shares, or to dissent from the payment of cash proceeds
(in lieu of issuing scrip to holders entitled to receive scrip) derived from the
sale by the Company, as agent, of the combined scrip, under Delaware law.
On the Effective Date, each stockholder of record who owns fewer than 6 shares
of Common Stock will have only the right to receive scrip in lieu of receiving
fractional shares. The interest of each such stockholder in the
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Company will thereby be terminated, and he will have no right to vote as a
stockholder or share in the assets or any future earnings of the Company. A
holder of a right to receive scrip will only be entitled to receive his
proportionate interest in the net proceeds derived from the sale by the Company,
as agent, of full shares of commons stock representing the combined scrip. The
full shares of commons stock will be sold in the open market or privately at
prices relating to prevailing market prices at the time of sale. Approval of the
proposed Reverse Split will be deemed approval for the Company to act as agent
for holders of rights to receive scrip for the purpose of holding and combining
the scrip into full shares of Common Stock for sale, as discussed above.
Each stockholder on the Effective Date who owns of record 6 or more shares of
Common Stock will, with respect to any fractional shares that such stockholder
might otherwise be entitle to receive in the Reverse Split, have only the right
to receive scrip. Any such stockholder will continue as a stockholder of the
Company with respect to the whole share or shares resulting form the Reverse
Split. Each such stockholder will continue to share in the future growth and
earnings of the Company, if any, to the extent of his ownership of shares of
Common Stock following the proposed Reverse Split.
The Company has authorized capital stock of 57,500,000 shares of Common Stock
consisting of 50,000,000 Class A, and 7,500,00 Class B. In addition, the
Company has 5,000,000 shares of Preferred stock authorized with none issued.
The authorized capital stock will not be changed by reason of the proposed
Reverse Split. As of April 15, 1997, the number of issued and outstanding
shares of Common Stock was 19,201,148 of Class A, 1,465,530 Class B for a total
of 20,666,678 issued and outstanding. Based upon 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 20,666,678 to approximately 3,444,446.
There will be approximately 54,055,554 authorized but unissued shares of Common
Stock following the proposed Reverse Split.
The $.01 per share par value of the Company's authorized capital stock will not
be changed by reason of the proposed Reverse Split. As a result, the Company's
stated capital (defined generally under Delaware law as the sum of the par value
of all shares that have been issued) will be reduced from $206,667 to
approximately $34,444. A reduction in stated capital will, under Delaware law,
create a corresponding increase in surplus (defined under Delaware law as the
excess of net assets [net assets meaning the amount by which total assets exceed
total debts], assuming a corporation has a surplus prior to the reduction in
stated capital. Delaware law provides that a corporation may make
distributions, such as the payment of dividends, up to the amount of its surplus
provided that the distribution does not cause the corporation to be insolvent.
The Company is presently precluded under Delaware law (and will remain so after
giving effect to the reduction of stated capital) from making any distributions
in as much as it has (and will have) no surplus since its total debts exceed,
and will continue to exceed, its total assets (leaving the Company with net
debts as opposed to net asserts).
The number of stockholders of record who hold odd-lots (assuming that an odd-lot
is something other than 6 shares or a multiple thereof, which is generally the
case) will be approximately 1,260 (at May 28, 1997) as a result of the proposed
Reverse Split. There is generally increased expense associated with the
marketing of odd-lots usually in the form of a proportionately higher
commission. Furthermore, odd-lots may be more difficult to market in inactively
traded stocks such as the Company's.
The Common Stock is currently registered under Section 12 (g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and as a result, the
Company is subject to the periodic reporting and other requirements of the
Exchange Act. The proposed Reverse Split will not affect the registration of
the Common Stock under the Exchange Act and the Company has no present intention
of terminating the registration under the Exchange Act in order to become a
"private" company.
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PURPOSE OF THE PROPOSED REVERSE SPLIT
A reduction in the number of issued and outstanding shares caused by the effect
of the proposed Reverse Split will increase proportionately the Company's
earnings per share and book value per share. Such an increase, in turn, may
make the Common Stock more attractive to a broader group of investors.
There is, however, no assurance that the market for the company's Common Stock
will be improved. Stockholders should note that the Board of Directors cannot
predict what effect the proposed Reverse Split will have on the market price of
the Common Stock. However, a higher price may diminish the adverse impact that
very low prices have upon the efficient operation of the trading market for the
stock. Also, the brokerage commission on the purchase or sale of a stock with a
relatively low price generally tends to represent a higher percentage of the
sales price than the brokerage commission charged on a stock with a relatively
higher price, to the detriment of the Company's stockholders and the market for
the Company's Common Stock.
In view of the foregoing factors, the Board of Directors of the Company
recommends approval of the proposed Reverse Split.
Based on the aggregate number of shares owned by record holders with fewer than
6 shares, and the recent market price of the Common Stock, the Company estimates
that the value of the amount of scrip to be issued (or the amount of cash
payments to be made as result of the sale of the combined scrip) for fractional
shares resulting from the Reverse Split will be insignificant.
EXCHANGE OF STOCK CERTIFICATES
It is expected that the amendment of the Company's Certificate of Incorporation
effecting the Reverse Split will be filed on August 15, 1997, or shortly
thereafter. Pursuant to the terms of the amendment, the Reverse Split will
become effective on the Effective Date.
As soon as practicable after the Effective Date, the Company will send letters
of transmittal to all stockholders of record on the Effective Date for use in
transmitting stock certificates ("old certificates") to the Exchange Agent.
Upon proper completion and execution of the letter of transmittal and return
thereof to the Exchange Agent, together with old certificates, each stockholder
who holds of record fewer than 6 shares on the Effective Date will receive cash
proceeds derived from the sale by the Company, as agent, of outstanding old
certificate held by a stockholder who holds of record fewer than 6 shares will
be deemed for all purposes to represent only the right to receive scrip to which
the holder is entitled as a result of the Reverse Split.
Upon proper completion and execution of the letter of transmittal and return
thereof to the Exchange Agent, together with old certificates (and payment of
the transfer fee and any related charges), holders of record of more than 6
shares on the Effective Date will receive 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 more than 6 shares on the Effective Date whose shares are not evenly
divisible by 6 will receive cash proceeds derived from the sale by the Company,
as agent, of the combined scrip to which they are entitled in lieu of scrip,
which scrip will be issued in lieu of any fractional shares resulting from the
Reverse Split. Until surrendered, each outstanding old certificate held by a
stockholder who holds of record more than 6 shares shall be deemed for all
purposes to represent the number of whole shares and the right to receive scrip
(or cash proceeds derived from the sale by the Company, as agent, of the
combined scrip), if any, to which the holder is entitled as a result of the
Reverse Split. (See "Scrip in Lieu of Fractional Shares")
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FEDERAL INCOME TAX CONSEQUENCES OF THE PROPOSED REVERSE SPLIT
The following discussion describes certain federal income tax consequences of
the proposed Reverse Split to stockholders of the Company who are citizens or
residents of the United States, other than stockholders who receive their Common
Stock as compensation. The following discussion assumes that the Company, as
agent for holders of rights to receive scrip, will hold and combine all scrip
into full shares of the company's commons stock, sell such common shares either
in the open market or privately (at prices related to prevailing market prices
at the time of sale) and distribute the proceeds therefrom to holders of rights
to receive scrip (the "Scrip Sale"). In general, the federal income tax
consequences of the proposed Reverse Split will vary among stockholders
depending upon whether they receive (1) solely cash for rights to receive scrip
as a result of the Scrip Sale, (2) solely new certificates, or (3) new
certificates plus cash for rights to receive scrip as a result of the Scrip
Sale, in exchange for old certificates. In addition, the actual consequences
for each stockholder 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
stockholders and recommends that each stockholder consult with his tax advisor
concerning the tax consequences (including federal, state and local income or
other tax) of the proposed Reverse Split. The Company has not sought and will
not seek an opinion of counsel or a ruling from the Internal Reverse Service
regarding the federal income tax consequences of the proposed Reverse Split.
However, the Company believes that because the proposed Reverse Split is not
part of a plan to periodically increase a stockholder's proportionate interest
in the assets or earnings and profits of the Company, the proposed Reverse Split
probably will have the following federal income tax effects:
(1) A stockholder who owns fewer than 6 shares of the Common Stock before the
Reverse Split, and who therefore receives only cash for a right to receive scrip
as a result of the Reverse Split, will be treated as having sold his shares of
Common Stock represent by old certificates and will recognize gain to the extent
that the cash received exceeds his basis in such Common Stock. If the shares
are a capital asset in the hands of the stockholder, then the gain will be taxed
either as a long-term or a short-term capital gain depending on whether the
shares were held for more than one year. If the stockholder's basis in the
shares is greater than the ash received, and if the shares are a capital asset
in the hands of the stockholder, the stockholder will recognize a long-term or a
short-term capital loss.
(2) A stockholder who holds 6 or more shares and whose shares are evenly
divisible by 6 before the Reverse Split (i.e., a stockholder who is entitled to
receive solely new certificates), will not recognize gain or loss on the
exchange. In the aggregate, the Stockholder's basis in the shares of Common
Stock represented by new certificates will equal his basis in the shares of
Common Stock represented by old certificates.
(3) A stockholder who holds 6 or more shares and whose shares are not evenly
divisible by 6 before the Reverse Split (i.e., a stockholder who is entitled to
receive both new certificates and cash for a right to receive scrip, in exchange
for his old certificates), will not recognize gain or loss on the exchange of
old certificates for new certificates. In the aggregate, the stockholder's basis
in the shares of Common Stock represented by new certificates will equal his
basis in the highest number of shares of Common Stock represented by old
certificates that was evenly divisible by 6. A stockholder will be treated as
having sold the shares not evenly divisible by 6, and will recognize gain to the
extent the cash received exceeds the stockholder's basis in the shares. If the
shares are a capital asset in the hands of the stockholder, then the gain will
be taxed either as a long-term or a short-term capital gain depending on whether
the shares were held for more than one year. If the stockholder's basis in the
shares is greater than the cash received, then no gain or loss will be
recognized, and the stockholder's basis in the shares of Common Stock
represented by new certificates will equal the stockholder's basis in the shares
of Common Stocks represented by old certificates less the amount of cash
received.
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The proposed Reverse Split will constitute a reorganization within the meaning
of Section 368 (a)(1)(E) of the Internal Revenue Code of 1986 and the Company
will not recognize any gain or loss as a result of the proposed Reverse Split.
RECOMMENDATION AND VOTE
The proposed Reverse Split must be approved by the holders of a majority of the
outstanding shares of the company's Common Stock. The Company's officers and
directors, or their affiliates own of record approximately 45% of the Company's
Common Stock voting power, all of which are intended to be voted in favor of the
proposal.
The Board of Directors of the Company unanimously recommends that stockholders
vote in favor of the proposed Reverse Split.
PROPOSAL NO. 3:
1997 SECURITIES PLAN
OVERVIEW AND OBJECTIVES
- -----------------------
On May 30, 1997, the Board of Directors of the Company approved and recommends a
Vote "For" the proposed Advanced Environmental Recycling Technologies, Inc. 1997
Securities Plan. Effective this 25th day of July, 1997 (the "Effective Date")
described herein, Advanced Environmental Recycling Technologies, Inc. (the
"Company") adopts the Advanced Environmental Recycling Technologies, Inc. 1997
Securities Plan (the "Plan") to benefit the Company's stockholders by creating a
flexible vehicle to provide a variety of medium and long-term incentive
compensation opportunities to senior and executive management of the Company.
In doing so, the Plan provides an important link between the compensation of
senior and executive management and Company performance. The Awards under the
Plan will compensate management for the creation of shareholder value. In this
way the Plan is intended to encourage and reward superior performance by
individuals whose performance is a key element in achieving the Company's
continued financial and operational success. In addition, the Plan will assist
the Company's recruiting, rewarding, retaining, and motivating management to
achieve the Company's mission of being a top performer in its industry by
rewarding the creation of shareholder value.
ELIGIBILITY
- -----------
Awards may be granted only to Employees who are designated as Participants from
time to time by the Committee. The Committee shall consider an individual's
position, responsibilities, and importance to the Company among other factors in
determining which Employees shall be Participants. The types of Awards to be
made to Participants and the terms, conditions, and limitations applicable to
the Awards are left to the sole discretion of the Committee, subject to the
terms of the Plan. The Committee's decision as to eligibility and the nature
and timing of Awards under the Plan is final.
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TYPES OF AWARDS
- ---------------
Awards shall be made in the form of Stock Options, Restricted Stock, Performance
Awards, and other types of Awards described below. Subject to the other
provisions of this Plan, Awards may also be granted individually, in
combination, or in tandem with, in replacement of, or as alternatives to, grants
or rights under this Plan and any other employee plan of the Company.
(1) A Stock Option is a right to purchase a specified number of Shares at a
specified price during such specified time as the Committee shall determine.
(a) Stock Options granted may be either of a type that complies with the
requirements of incentive stock options as defined in Section 422 of the
Code ("Incentive Stock Options") or of a type that does not comply with
such requirements ("Non Qualified Stock Options"); provided, however, that
the aggregate number of Shares which may be offered for purchase pursuant
to Incentive Stock Options under this Plan shall not exceed three million
(3,000,000), the aggregate number of Shares which may be offered for
purchase pursuant to Non-Qualified Stock Options under this Plan shall not
exceed five-hundred thousand (500,000) Shares and at any time after a
Qualified Public Offering that the aggregate number of Shares which may be
offered to any Employee during any calendar year shall not exceed three-
hundred fifty thousand (350,000) Shares.
(b) The exercise price per Share of any Stock Option shall be determined by
the Committee and set forth in the Award Agreement. However, a Stock Option
granted to a "covered employee" as defined in Section 162(m) of the Code
shall not have an exercise price less than the Fair Market Value of a Share
on the date the Stock Option is granted.
(c) A Stock Option may be exercised, in whole or in part, by the giving of
written notice of exercise to the Company specifying the number of Shares
to be purchased.
(d) The exercise price of the Shares subject to the Stock Option may be
paid in cash or may also be paid by the tender of Shares already owned by
the Participant (to the extent permitted by Rule 16b-3), or through a
combination of cash and Shares, or through such other means the Committee
determines are consistent with the Plan's purpose and applicable law. No
fractional Shares will be issued or accepted.
(e) If an Incentive Stock Option is granted to a Participant who owns or is
deemed to own (by reason of the attribution rules of Section 424 (d) of the
Code) more than ten percent (10%) of the combined voting power of all
classes of stock of the Company (or any parent or subsidiary), the exercise
price shall be at least one hundred ten percent (110%) of the Fair Market
Value per Share on the date such stock option is granted.
No portion of any Incentive Stock Option may be exercised after the
expiration of ten (10) years from the date such stock option is granted.
However, if a Participant owns or is deemed to own (by reason of the
attribution rules of Section 424 (d) of the Code) more than ten percent
(10%) of the combined voting power of all classes of stock of the Company
(or any parent or subsidiary) and an Incentive Stock Option is granted to
such Participant, the term of such Incentive Stock Option (to the extent
required by the Code at the time of grant) shall be no more than five (5)
ears from the date such option is granted.
Upon termination of Participant's employment, the Participant may not
exercise any Incentive Stock Option later than three (3) months after his
termination of employment, except in the case of death or disability.
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If Shares acquired upon exercise of an Incentive Stock Option are
disposed of by a Participant prior to the expiration of either two (2)
years form the date such Incentive Stock Option is granted or one (1) year
from the transfer of Shares to the Participant pursuant to the exercise of
such Incentive Stock Option or in any other disqualifying disposition
within the meaning of Section 422 of the Code, such Participant shall
notify the Company in writing of the date and terms of such disposition. A
disqualifying disposition by a Participant shall not affect the statutes
for any other Stock Option granted under the Plan as an Incentive Stock
Option within the meaning of Section 422 of the Code.
The Committee may not grant Incentive Stock Options under the Plant to
any Participant which would permit the aggregate Fair Market Value
(determined on the date such Stock Option is granted) of the Shares with
respect to which Incentive Stock Options under this and any other plan of
the Company and its subsidiaries) are exercisable for the first time by
such Participant during any calendar year to exceed two hundred and fifty
thousand dollars ($250,000).
(2) Shares of Restricted Stock are Shares that are issued to a Participant and
are subject to such terms, conditions, and restrictions as the Committee
deems appropriate, which may include, but are not limited to, restrictions
upon the sale, assignment, transfer, or other disposition of the Restricted
Stock and the requirement of forfeiture of the Restricted Stock upon
termination of employment under certain specified conditions. As a
condition to any Award hereunder, the Committee may require a Participant
to pay to the Company an amount equal to, or in excess of, the par value of
the shares of Restricted Stock awarded to him or her. Any such Restricted
Stock Award shall automatically expire if not purchased in accordance with
the Committee's requirements, if any, within thirty (30) days after the
date of grant. The Committee may provide for the lapse of any such term or
condition or waive any term or condition based on such factors or criteria
as the Committee may determine. The Participant shall have, with respect to
awards of Restricted Stock for which the Participant is the holder of
record, all of the rights of a shareholder of the Company, including the
right to vote the Restricted Stock and the right to receive any cash or
stock dividends on such Restricted Stock. The Committee shall have the
discretionary authority to determine the total number of Shares available
for Awards under the Plan as Restricted Stock to be issued during the
duration of the Plan, however, the maximum number of Shares that may be
issued to any Participant or Participants as Restricted Stock under the
Plan shall not exceed five hundred thousand (500,000) Shares.
(3) Performance Awards may be granted under this Plan from time to time based
on the terms and conditions as the Committee deems appropriate provided
that such Awards shall not be inconsistent with the terms and purposes of
this Plan. Performance Awards may be in the form of performance units,
performance shares and such other forms of Performance Awards which the
Committee shall determine. For this purpose, "performance shares" are
grants of Shares based on satisfying preestablished Company performance
criteria set by the Committee. "Performance Units" are cash allotments of
dollar-denominated units whose payment or value is contingent on
performance as measured against predetermined objectives over a multi-year
period of time. The Committee shall determine the performance measurements
and criteria for such Performance Awards.
(4) The Committee may from time to time grant (I) Shares, (ii) other stock-
based and nonstock-based Awards under the Plan including, without
limitation, those Awards pursuant to which Shares are or may in the future
be acquired, (iii) Awards denominated in Share units, (iv) securities
convertible into Shares, (v) phantom securities (whereby Participants can
take advantage in the appreciation of Share prices without actual ownership
of Shares), (vi) dividend equivalents (whereby a Participant becomes
entitled through the
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use of a derivative security attached to an option to dividends and other
rights derived form the underlying Shares had the Participant owned such
Shares), and (vii) other forms or derivative related to the Shares as it
deems appropriate. The Committee shall determine the terms and conditions
of such other stock, stock-based, and non-stock based Awards provided that
such Awards shall not be consistent with the terms and purposes of this
Plan.
SHARES SUBJECT TO THE PLAN
- --------------------------
The number of Shares for which Awards may be granted under the Plan shall not
exceed three million (3,000,000) Shares. To the extent permitted by Section 16,
any unexercised or undistributed portion of any terminated, expired, exchanged,
or forfeited Awards, or Awards settled in cash in lieu of Shares, shall be
available for further Awards.
Additional rules for determining the number of Shares granted under the Plan may
be made by the Committee, as it deems necessary or appropriate.
The Shares or other stock which may be issued pursuant to an Award under the
Plan may be treasury or authorize, but unissued stock, or stock may be acquired,
subsequently or in anticipation of the transaction, in the open market or in
private transactions to satisfy the requirements of the Plan.
ADMINISTRATION
- --------------
"Committee" means the Compensation Committee of the Board, which shall be
comprised solely of no less than two outside directors. For this purpose, the
term "outside director" means a director of the Board who (i) is not an Employee
or a former Employee of the Company, (ii) has never served as an officer of an
entity currently affiliated with the Company, and (iii) is not paid compensation
from the Company, directly or indirectly, in any capacity other than as a
director. Each member of the Committee at the time of his appointment to the
Committee and while he is a member thereof, must also be a "disinterested
person," as that term is defined in Rule 16b-3 promulgated under the Exchange
Act.
The Committee shall have the power to interpret and administer the Plan. All
questions of interpretation with respect to the Plan, the number of Shares or
other securities, or units granted, and the terms of any Award Agreements shall
be determined by the Committee and its determination shall be final and
conclusive upon all parties in interest. In the event of any conflict between an
Award Agreement and the Plan, the terms of the Plan shall govern.
The Committee may delegate to the officers or employees of the Company the
authority to execute and deliver such instruments and documents, to do all such
acts and things, and to take all such other steps deemed necessary, advisable or
convenient for the effective administration of the Plan in accordance with its
terms and purpose, except that the Committee may not delegate any discretionary
authority with respect to substantive decisions or functions regarding the Plan
or Awards thereunder as these relate to Insiders including but not limited to
decisions regarding the timing, eligibility, pricing, amount or other material
terms of such Awards.
A majority of the members of the Committee shall constitute a quorum. The vote
of a majority of a quorum shall constitute action by the committee. The
Committee will be responsible for declaring the material terms under which the
Performance Awards are to be paid, including performance goals. Prior to the
payment of a performance-based Award, the Committee shall certify that the
predetermined performance goals and any other material terms were in fact
satisfied. The Committee shall periodically determine the Participants in the
Plan and the nature, amount, pricing, timing, and other terms of Awards to be
made to such individuals. However, the committee must ratify all awards under
the program to the Company's chief executive officer.
18
<PAGE>
CHANGES IN CAPITALIZATION
- -------------------------
If, while any Awards are outstanding, the outstanding Shares have increased,
decreased, changed into, or been exchanged for a different number or kind of
shares or securities of the Company through reorganization, merger,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or similar transaction, appropriate and proportionate adjustments shall be
made by the Committee in the number and/or kind of shares which are subject to
purchase or award under outstanding Awards and in the purchase price or prices
applicable to such outstanding Awards in order to prevent the dilution or
enlargement of rights, to the end that the same proportion of the Company's
common stock in each instance shall remain subject to purchase at the same
aggregate purchase price. In addition, in any such event, the number and/or
kind of Shares which may be offered under the Plan shall also be proportionately
adjusted to the same end.
To the extent that the foregoing adjustments relate to Awards, Shares, or
securities of the Company, such adjustments shall be made by the committee and
its determination in that respect shall be final, binding, and conclusive. The
grant of an Award pursuant to this Plan shall not affect in any way the right or
power of the Company to make adjustments, reclassifications, reorganizations, or
changes of its capital or business structure or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all or any part of its business or
assets.
CHANGE OF CONTROL
- -----------------
The Committee shall determine the effect of Change of Control and specify such
effect in Award Agreements that are issued pursuant to the Plan. These effects
may include, but are not limited to:
(a) Offering to purchase any outstanding Award made pursuant to this Plan from
the holder for its Fair Market Value or such value established under the Award
Agreement, as determined by the Committee, as of the date of the Change of
Control; or
(b) Making adjustments or modifications to outstanding Awards as the Committee
deems appropriate to maintain and protect the rights and interests of
Participants following such Change of Control.
For the purposes of this Section, a "Change of Control" shall mean the earliest
date on which any of the following events shall occur:
(a) there shall be consummated any consolidation or merger of the Company in
which the stockholders own 70% or less of a newly-merged entity;
(b) the stockholders of the Company approve any plan or proposal for the
liquidation or dissolution of the Company;
(c) The acquisition by a third party of twenty percent (20%) or more of the
Company's then outstanding securities having the right to vote in the election
of directors; or
(d) during any period of two consecutive years, individuals who, at the
beginning of such period constituted the entire Board, cease of any reason
(other than death) to constitute a majority of the directors, unless the
election, or the nomination for election, by the Company's stockholders, of each
new director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period.
19
<PAGE>
AMENDMENT AND TERMINATION
- -------------------------
The Board may at any time amend, suspend, or terminate the Plan. The Committee
may at any time alter or amend any or all Award Agreements under the Plan to
comply with any laws that govern such agreements. However, no such action may,
without further approval of the stockholders of the Company, be effective if
such approval is required in order that transactions in Company securities under
the Plan, as they relate to Insiders, be exempt form the operation of Section
16(b) of the Exchange Act, and the Board may not amend the Plan so as to:
(a) increase the number of Shares which may be issued under the Plan, except as
provided for in Article VIII;
(b) materially modify the requirements as to eligibility for participation in
the Plan;
(c) materially increase the benefits accruing to Participants under the Plan; or
(d) extend the duration of the Plan beyond the date approved by the stockholders
of the Company.
DESCRIPTION AND PROPOSED INITIAL GRANT
- --------------------------------------
Under the program, the initial grant of options to each covered participant will
be divided into equal parts with the exercise price based on the market value of
the Class A Common Stock as of July 25, 1997(the date the stockholders approve
the plan). The first portion will be vested in ten months (May 25, 1998) at
125% of the closing price of the Class A Common Stock on the stockholder
approval date. The next portion will be vested in twenty-two months (May 25,
1999) at 150% of the closing price of the Class A Common Stock on the approval
date and this shall continue until such time as the initial grants have been
completed.
Nothing contained in the Plan (or in any option granted pursuant to the Plan)
shall confer upon any employee, director or consultant any right to continue in
the service of the Company or any Subsidiary or constitute any contract or
agreement of employment or interfere in any way with the right of the Company or
any Subsidiary to reduce any person's compensation from the rate in existence at
the time of the granting of an option or to terminate such person's employment.
Nothing contained herein or in any Option Agreement shall affect any other
contractual rights of an employee, director or consultant.
Proposed initial distribution from the plan for senior and executive mangement
of the Company follows:
TITLE NAME AWARD TYPE
- -----------------------------------------------------------------------------
Chairman of the Board Sal Miwa 350,000 Stock Options
Chief Executive Officer Steve Brooks 350,000 Stock Options
President Joe Brooks 300,000 Stock Options
Chief Operating Officer Grant Martin 300,000 Stock Options
Director Dr. James H. Culp 300,000 Stock Options
Vice President Recycled Plastics J. Douglas Brooks 300,000 Stock Options
Corporate Controller Jake Bushey 300,000 Stock Options
Although the program allows the the Committee to grant market price options, the
Company intends to structure current and future plans to avoid deferred
compensation expense. It is the intention of the Company to make an initial
grant of options that will have a grant value calculated to deliver three years'
worth of competitive long-term compensation.
20
<PAGE>
MISCELLANEOUS
- -------------
The Plan shall, subject to stockholder approval, continue from its Effective
Date until December 31, 2007, unless the Plan is terminated in accordance with
the provisions. The laws of the State of Delaware shall govern all matters
relating to this Plan except to the extent superseded by the laws of the United
States.
The Plan shall be submitted to the stockholders of the Company for their
approval and adoption. The Plan shall not be effective and no Award shall be
made hereunder, unless and until the Plan has been so approved and adopted at a
meeting of the Company's stockholders.
The Company may require that there be presented to and filed with it by any
Participant under the Plan, such evidence as it may deem necessary to establish
that the options granted or Shares to be purchased or transferred are being
acquired for investment and not with a view to their distribution.
ADDITIONAL INFORMATION AVAILABLE
UPON WRITTEN REQUEST OF ANY SHAREHOLDER, THE COMPANY WILL FURNISH, WITHOUT
CHARGE, A COPY OF THE COMPANY'S 1996 ANNUAL REPORT ON FORM 10-K, AS FILED WITH
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE FINANCIAL
STATEMENTS AND SCHEDULES THERETO. THE WRITTEN REQUEST SHOULD BE SENT TO THE
SECRETARY, AT THE COMPANY'S EXECUTIVE OFFICE. THE WRITTEN REQUEST MUST STATE
THAT AS OF MAY 28, 1997, THE PERSON MAKING THE REQUEST WAS A BENEFICIAL OWNER OF
CAPITAL STOCK OF THE COMPANY.
AUDITORS TO BE PRESENT
A representative of Arthur Andersen LLP, the Company's auditors for 1996 and the
current year, is expected to be in attendance at the Annual Meeting and will be
afforded the opportunity to make a statement. The representative will also be
available to respond to questions.
OTHER MATTERS
The Board of Directors has no knowledge of any other matters which may come
before the meeting and does not intend to present any other matters. However,
if any other matters should properly come before the meeting, or any
adjournments thereof, the persons named as proxies will have discretionary
authority to vote the shares represented by the accompanying proxy in accordance
with their best judgment.
COST AND METHOD OF PROXY SOLICITATION
The cost of proxy solicitation will be paid by the Company. In addition to
solicitation by mail, arrangements will be made with brokers and other
custodians, nominees and fiduciaries to send proxies and proxy material to their
principals, and the Company will, upon request, reimburse them for their
reasonable expenses in so doing. Officers and other regular employees of the
Company may, if necessary, request the return of proxies by telephone, telegram,
or in person.
21
<PAGE>
STOCKHOLDER PROPOSALS
Stockholder proposals for the next Annual Meeting of Stockholders anticipated to
be held in July, 1998, must be received at the Company's corporate offices, 206
1/2 East Emma Avenue, P.O. Box 1237, Springdale, Arkansas 72765, on or before
December 31, 1997.
The foregoing Notice and Proxy Statement are sent by order of the Board of
Directors.
/s/ JAKE M. BUSHEY
Jake M. Bushey
Corporate Controller
Dated: June 20, 1997
22
<PAGE>
Supplement No. 1
to
Proxy Statement
of
Advanced Environmental Recycling Technologies, Inc.
This Supplement No. 1 (the "Supplement") to the Proxy Statement (the "Proxy
Statement") of Advanced Environmental Recycling Technologies, Inc. (the
"Company") for its Annual Meeting of Stockholders scheduled for Friday, July 25,
1997 is being distributed to stockholders concurrently with the Proxy Statement.
Capitalized terms used and not otherwise defined herein shall have the same
meaning ascribed to them in the Proxy Statement. With respect to the treatment
of fractional share interests which result from the Reverse Split to be voted
upon by stockholders at the Annual Meeting (and in lieu of the procedures
otherwise described in the Proxy Statement with respect to the issuance,
combination, sale, and distribution of proceeds of the sale of scrip
representing fractional share interests), the Company will instead repurchase
and redeem such fractional interests for cash at a price related to the then-
prevailing fair market value of the Common Stock as described in this
Supplement.
Accordingly, stockholders who hold fewer than six shares of record on the
Effective Date or who hold a number of shares of record on the Effective Date
which is not evenly divisible by six will be entitled to receive in lieu of
fractional shares arising as a result of the Reverse Split, and in redemption
and repurchase thereof, a cash payment from the Company equal to the product of
(i) the average of the closing bid and asked price for the Company's Common
Stock as reported by NASDAQ for the business day immediately preceding the date
of the Annual Meeting, multiplied by (ii) the number of fractional interests
held by each such stockholder (expressed in units equal to one-sixth of a whole
share on a post-Reverse Split basis).
The Company believes that the number of stockholders who may hold some
fractional share interests as a result of the Reverse Split is approximately
4,200 and that the aggregate price for such redemption should not exceed
approximately $8,000 (based upon current market prices for the Common Stock),
although there can be no assurance that the aggregate repurchase will not exceed
such estimate.
Any stockholder owning of record fewer than six shares of Common Stock who
desires not to be entitled to receive cash in lieu of fractional interests may
avoid such result by purchasing prior to the Effective Date sufficient
additional shares of the Company's outstanding Common Stock in the open market
to increase the number of shares held in his name to six shares or more.
As soon as practicable after the Effective Date, the Company will mail
letters of transmittal to each holder of record of the stock certificate or
certificates which represent issued shares of the Company's Common Stock
outstanding on the Effective Date. The
<PAGE>
letter of transmittal will contain instructions for the surrender of such
certificate or certificates to the Exchange Agent in exchange for cash (to be
paid in lieu of fractional shares) and/or certificates representing the number
of whole shares of Common Stock into which the shares of Common stock have been
converted as a result of the proposed Reverse Split. Cash to be paid with
respect to fractional share interests and new certificates will not be issued to
the stockholder until he has surrendered his outstanding certificates together
with the letters of transmittal to the Exchange Agent. The Company will be
required to pay a transfer fee of approximately $7.00 for each new certificate
issued, with the stockholder required to pay any related charges (such as
postage estimated not to exceed $3.00) in connection with the exchange of old
certificates for new certificates. Stockholders holding whole shares after the
proposed Reverse Split do not need to surrender old certificates unless desirous
of receiving new certificates. Until surrendered such old certificates shall be
deemed to represent the number of whole shares to which holders are entitled as
a result of the Reverse Split.
<PAGE>
Please mark your |
A [X] votes as in this |
example. |_______
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR all nominees
list at right (except WITHHOLD authorization Nominees: Sal Miwa
as marked to the to vote for all nominees Joe G. Brooks
contrary below) listed at right Marjorie S. Brooks
1. Election ___ ___ Jerry B. Burkett
of | | | | Steve Brooks
Directors |___| |___| Peter S. Lau
Dr. James H. Culp
</TABLE>
To withhold authority to vote for any individual
nominee, strike a line through the nominee's
name in the list at right.
2. Proposed 1-for-6 Reverse Stock Split
3. Proposed 1997 Securities Plan
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
ON JULY 25, 1997.
The undersigned hereby appoints Sal Miwa as Proxy, with full power to
appoint his substitute, and hereby authorizes to represent and vote, as
designated on this proxy, all shares of common stock of Advanced
Environmental Recycling Technologies, Inc. held of record by the
undersigned on the record date May 28, 1997 at the Annual Meeting of
Stockholders of the Company to be held at the Northwest Arkansas Holiday
Inn, Springdale, Arkansas on Friday, July 25, 1997 at 10:00 AM, and at any
adjournment thereof.
This proxy, when properly executed, will be voted in the manner directed herein.
If no direction is made, this proxy will be voted FOR Item 1.
The undersigned acknowledges receipt of the formal notice of such meeting and
the 1996 Annual Report of the Company.
PLEASE MARK, DATE, EXECUTE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED
ENVELOPE.
SIGNATURE(S) DATE 1997
----------------------------------------- ----------------
Note: Please sign above exactly as name appears on the certificate. When shares
are held by joint tenants both should sign. If a corporation or partnership,
sign in corporate or partnership name by authorized person or partner.
