<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/x/ Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MICROTEL INTERNATIONAL, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / 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:
Common Stock
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
$125
/ / 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:
Registrant
(4) Date Filed:
June 10, 1996
<PAGE>
MICROTEL INTERNATIONAL, INC.
2040 Fortune Drive
San Jose, California 95131
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY , 1996
To the Stockholders of MicroTel International, Inc.:
You are hereby notified that the annual meeting of stockholders of
MicroTel International, Inc., a Delaware corporation (the "Company") will be
held at the offices of Schneck Weltman Hashmall & Mischel LLP, 1285 Avenue of
the Americas, New York, New York 10019, on Wednesday, July , 1996, at 3:00
p.m. local time, for the following purposes:
1. To elect three members to the Board of Directors of the Company to
serve until the 1999 annual meeting of stockholders and until their
respective successors are elected and qualified;
2. To approve an amendment to the Company's Certificate of
Incorporation to reverse split (the "Reverse Stock Split") the
issued and outstanding shares of common stock, par value $.0033 per
share (the "Common Stock") of the Company;
3. To approve an amendment to the Company's Certificate of
Incorporation to increase to 10,000,000 the number of shares of
preferred stock the Company may issue from time to time in such
series and to have such designations, preferences, limitations and
relative rights as the Board of Directors may determine;
4. To ratify the selection by the Company of BDO Seidman, independent
public accountants, to audit the financial statements of the
Company for the year ending December 31, 1996; and
5. To transact such other matters as may properly come before the
meeting or any adjournment thereof.
Only stockholders of record at the close of business on July 3,
1996 (the "Record Date"), are entitled to notice of and to vote at the meeting.
A proxy statement and proxy are enclosed herewith. If you are
unable to attend the meeting in person you are urged to sign, date and return
the enclosed proxy promptly in the enclosed addressed envelope which requires no
postage if mailed within the United States. If you attend the meeting in
person, you may withdraw your proxy and vote your shares. Also enclosed
herewith is the Company's Annual Report for 1995.
By Order of the Board
of Directors
Barry Reifler, Secretary
San Jose, California
June , 1996
<PAGE>
PRELIMINARY PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS OF
MICROTEL INTERNATIONAL, INC.
INTRODUCTION
This Proxy Statement is furnished in connection with the
solicitation of proxies for use at the annual meeting (the "Annual Meeting") of
stockholders of MicroTel International, Inc. (the "Company"), to be held on
Wednesday, July , 1996, and at any adjournments thereof. The accompanying
proxy is solicited by the Board of Directors of the Company and is revocable by
the stockholder by notifying the Company's secretary at any time before it is
voted, or by voting in person at the Annual Meeting. This proxy statement and
accompanying proxy will be distributed to stockholders beginning on or about
June , 1996. The principal executive offices of the Company are located at
2040 Fortune Drive, San Jose, California 95131, and its telephone number is
(408) 435-8520.
OUTSTANDING SHARES AND VOTING RIGHTS
Only stockholders of record at the close of business on June ,
1996, are entitled to receive notice of, and vote at the Annual Meeting. As of
July 3, 1996, the number and class of stock outstanding and entitled to vote at
the meeting was [ ] shares of common stock, par value $.0033 per share
(the "Common Stock"). Each share of Common Stock is entitled to one vote on all
matters. No other class of securities will be entitled to vote at the meeting.
There are no cumulative voting rights.
The nominees receiving the highest number of votes cast by the
holders of Common Stock will be elected as the Company's directors and
constitute Class II and Class III members of the Board of Directors of the
Company. The affirmative vote of at least a majority of the shares represented
and voting at the Annual Meeting at which a quorum is present (which shares
voting affirmatively also constitute at least a majority of the required quorum)
is necessary for approval of Proposal Nos. 2, 3 and 5. A quorum is
representation in person or by proxy at the Annual Meeting of at least one-
third of the outstanding shares of the Company.
<PAGE>
PROPOSALS TO STOCKHOLDERS
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Board of Directors of the Company is divided into three
classes. The term of office of each class of directors is three years, with one
class expiring each year at the Annual Meeting of Stockholders. There are
currently four directors, one of which is in Class I, one of which is in Class
II and two of which are in Class III. At the Annual Meeting, the Class I
director will be elected to serve until the 1998 Annual Meeting and the Class
III directors will elected to serve until the 1999 Annual Meeting. The nominees
receiving the greatest number of vote at the Annual Meeting will be elected.
Each nominee to the Board of Directors will serve until the Annual
Meeting of Stockholders at the expiration of his term, or until his earlier
resignation, removal from office, death or incapacity.
The Board of Directors intends to cause the nomination of Mr. Talan
as a Class II director and Messrs. Dror and Lewisham as Class III directors and
the enclosed proxy will be voted in favor of the election of such persons.
Information is furnished below with respect to all nominees, as well as the
Class I director whose term of office expires at the 1997 Annual Meeting.
The following information with respect to the principal occupation
or employment of the nominees, the name and principal business of the
corporation or other organization in which such occupation or employment is
carried on and other affiliations and business experience during the past five
years has been furnished to the Company by the respective nominees:
Class I Director
Henry Mourad, 49, has been the President of the Company since July
1992 and a director since 1988. Mr. Mourad was also the Chief Executive Officer
of the Company until April 1994, when he was succeeded by Mr. Dror. Mr. Mourad
continues as the Company's President. Prior to 1992 he served for more than
five years as the Company's Vice President.
Class II Director
Jack Talan, 69, was elected to the Board of Directors in 1995.
Since March 1993, Mr. Talan has been the President and a Director of World Wide
Collectibles, a public company which markets a system designed to assure and
protect the integrity of limited edition collectibles. Since 1990, Mr. Talan
has been the Principal and President of Jack Talan, Inc., a sales and marketing
consulting company. Additionally, Mr. Talan was the co-founder, a major
shareholder, director and Senior Vice President of Arista Corp., a publisher and
distributor of educational materials until it was sold in 1985.
Class III Directors
Daniel Dror, 54, is the Chairman of the Board and Chief Executive
Officer of the Company. He is also President of Daniel Dror & Company, Inc., an
investment and business management company.
2
<PAGE>
He served as Chairman of the Board and Chief Executive Officer of Kleer-Vu
Industries, Inc., a public company from 1982 until he disposed of his
controlling interest in that company in 1993. Mr. Dror succeeded Henry Mourad
as Chief Executive Officer of the Company in April 1994 when he also became a
director.
William Lewisham, 45, a telecommunications executive was a
shareholder and director of Carricke Communications, a distributor of satellite
dishes, from 1985 to 1990. In 1989 he was a founder of Kirklees Cable, a cable
franchise company which was acquired by International Cable Tel in 1993. In
1990 he was a founder of White Rose Television Ltd., a regional television
franchisee. Mr. Lewisham served as a director of Kleer-Vu Industries, Inc. from
1983 until 1993. Mr. Lewisham has been a director of the Company since 1994.
Directors' Meetings and Committees
The Board of Directors met four times during fiscal year ended
December 31, 1995. All of the directors named above attended at least 75% of
the meetings of the Board of Directors and of the committees, if any, of which
they were members. The Board has three standing committees: an Audit Committee,
a Compensation Committee and an Investment Committee. These committees met
two times during fiscal year ended December 31, 1995.
The Audit Committee is comprised of Messrs. Dror and Lewisham.
Among its principal functions are making recommendations to the Board of
Directors concerning the engagement of independent auditors, reviewing the
Company's financial management and financial results, and reviewing the adequacy
of the Company's system of internal accounting controls.
The Compensation Committee is comprised of Messrs. Dror, Talan and
Lewisham. Its principal function is to search for, analyze and recommend to the
Board of Directors appropriate investments for the Company.
The Investment Committee is comprised of Messrs. Dror and Talan.
It's principal function is to search for, analyze and recommend to the Board of
Directors appropriate investments for the Company.
Remuneration of Executive Officers
The Cash compensation paid by the Company during the year ended
December 31, 1995 to executive officers exceeding $100,000 is presented in the
Summary Compensation Table below.
3
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Principal Other Annual Restricted Stock Options/SAR LTIP Payouts All Other
Position Year Salary Bonus$ Compensation$ Award Shares Shares $ Compensation$
- - - -------- ---- ------ ------ ------------- ------------ ------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Daniel Dror, Ended
CEO 12/31/95 174,417 125,000 125,000
Six Months
Ended
12/31/94 11,077(2)
Henry Mourad, Ended
President 12/31/95 150,000 25,000 25,000
Six Months
Ended
12/31/94 72,263 200,000
Ended
6/30/94 150,000 100,000
Ended
6/30/93 143,827
Jacques Ended
Moisset, VP(1) 12/31/95 181,132 240,000
Six Months
Ended
12/31/94 76,478
Ended
6/30/94 139,132(1)
Ended
6/30/93 166,233
</TABLE>
(1) Paid in French Francs translated at annual average exchange rates.
(2) The Board of Directors awarded Daniel Dror $144,000 per year beginning
July 1, 1994. Mr. Dror received four weeks payment of $11,077 and
waived the remaining 1994 payments.
Henry Mourad has an Employment Agreement with the Company for an initial period
of two years expiring on April 11, 1996, which will be automatically extended
for additional one-year periods, unless terminated by either party 30 days prior
to the expiration of the initial two-year period or each additional one-year
renewal period. The Agreement provides for Mr. Mourad's employment as President
of the Company. Mr. Mourad is entitled to a salary of $150,000 per annum plus
such incentive bonus, if any, as may be amended by the Company from time to
time.
Jacques Moisset has an Employment Agreement with the Company for an initial
period of three years expiring on June 30, 1998 with an option to renew for an
additional three years. The Agreement provides for Mr. Moisset's employment as
President of CXR S.A., the French subsidiary and is entitled to a salary of
885,000 FF (approximately $180,000).
4
<PAGE>
The following two tables depict stock option grants to named executives
for the year ended December 31, 1995 and the status of outstanding stock
options to these individuals at December 31, 1995. No stock options were
exercised by named executives during the year ended December 31, 1995.
OPTIONS GRANTED DURING THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Potential
Realizable
Value at
Assumed
Annual
Individual Grants Rates of Alternative
Stock Price (f) and (g):
Appreciation Grant Date
for Option Value
Term
(a) (b) (c) (d) (e) (f) (g) (f)
Name Options % of Exercise Expiration 5% ($) 10% ($) Grant Date
/SAR's Total or Base Date Present
Granted Options, Price Value
(#) SARs ($/Sh)
Granted
to
Employees
in Fiscal
Year
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Daniel
Dror 125,000 8.4% 1.00 3-16-98 90,439 103,984
CEO
Henry 25,000 1.7% 1.00 3-16-98 18,669 21,462
Mourad
Jacques
Moisset 240,000 16.2% .625 6-30-2005 211,065 292,308
VP
</TABLE>
AGGREGATED OPTIONS/SAR EXERCISED DURING THE YEAR ENDED DECEMBER 31, 1995
AND OPTION/SAR VALUES AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Name Shares Value Number of Value of
Acquired Realized Unexercised Unexercised
on Exercise ($) Options/SAR's in-the-Money
(#) at FY-End Options/SAR's
(#) at FY-End ($)
Exercisable/ Exercisable/
Unexercisable Unexercisable
- - - ------------- ------------ --------- ------------- -------------
<S> <C> <C> <C> <C>
Daniel
Dror 125,000/0 31,250/0
CEO
Henry
Mourad 351,667/33.333 128,917/20,833
President
Jacques
Moisset 108,000/192,000 30,000/120,000
VP
</TABLE>
5
<PAGE>
Report of the Compensation Committee
The Compensation Committee of the Board of Directors (the "Compensation
Committee" is composed of the following two independent non-employee directors:
Jack Talon and William Lewisham.
Compensation Policies. Policies governing the compensation of the
Company's executives are established and monitored by the Compensation
Committee. All decisions relating to the compensation of the Company's
executives during the year ended December 31, 1995 were made by the Compensation
Committee.
In administering its compensation program, the Compensation Committee
attempts to adhere to its belief that compensation should reflect the value
created for shareholders while supporting the Company's strategic goals. In
doing so, the compensation programs reflect the following themes:
l. The Company's compensation programs should be effective in
attracting, motivating, and retaining key executives.
2. There should be a correlation between the compensation
awarded to an executive, the performance of the company as a whole,
and the executive's individual performance.
3. The Company's compensation programs should provide to the
executives a financial interest in the Company similar to the
interests of the Company's shareholders; and
4. The Company's compensation program should strike an
appropriate balance between short and long-term performance
objectives.
The Company's executives are compensated through a combination of salary
and grants of stock options under the Company's stock option plans. The annual
salaries of the executives are reviewed from time to time and adjustments are
made where necessary in order for the salaries of the Company's executives to be
competitive with the salaries paid by similar companies. Stock option grants
are considered by the Compensation Committee from time to time.
Chief Executive Officer's Compensation. Mr. Dror's compensation (as
Chief Executive Officer) is determined pursuant to the principles noted above.
Performance Graph
The following table represents the 66 month cumulative total return
among the Company, the American Stock Exchange Market Value Index ("AMEX") and
the Nasdaq Telecom Index ("Nasdaq"), assuming $100 was invested on June 30,
1990, including reinvestment of dividends:
June 30, June 30, June 30, June 30, Dec. 31, Dec. 31,
1991 1992 1993 1994 1994 1995
---- ---- ---- ---- ---- ----
Company 50 50 17 25 21 38
AMEX 99 105 120 117 120 152
Nasdaq 87 104 160 160 160 193
6
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of March 18, 1996 with
respect to the shares of Common Stock beneficially owned by persons known to the
Company to own 5% or more of the outstanding shares of Common stock.
Name and Address of Number of shares Percent of
Beneficial Owner Beneficially Owned Class
---------------- ------------------ -----
Elk International 4,943,623(1,2,3) 34.2%
Corporation Limited
P. O. Box N.3247
Nassau, Bahamas
Daniel Dror 4,943,623(1,2,3) 34.2%
1412 North Blvd
Houston, TX 77006
Daniel Dror & Co, Inc. 4,943,623(1,2,3) 34.2%
601 Hanson Road
Kemah, TX 77565
Henry A. Mourad 612,667(2,3) 4.3%
14300 Saddle Mtn. Dr.
Los Altos Hills, CA 94022
William Lewisham 250,000(2,3) 1.8%
No. 16 Westbourne Terrace
London W23UW
England
Jack Talan 50,000(2,3) .4%
26 E. 63rd, #llE
NY, NY 10021
Jacques Moisset 109,824(2) .8%
76-80 Avenue de La
Republique
92320 Chatillon
France
Barry Reifler 150,000(2) 1.1%
3071 Green Fairway
Cove So.
Collierville, TN 38017
All officers and 6,116,114(1,2,3) 39.9%
directors as a
group (6 persons)
7
<PAGE>
(1) Includes 4,243,623 shares owned by Elk International Corporation Limited
("Elk") and 450,000 shares issuable to Elk upon the exercise of warrants to
purchase shares of the common stock of the Company at $.50 per share, which
are currently exercisable, as well as the ownership interests of the
Company's Chairman, Daniel Dror, as outlined in Footnotes (2) and (3)
below. Elkana Faiwuszewicz, President and control person of Elk, is the
brother of Mr. Dror. Further, Mr. Dror is President and a director of
Daniel Dror & Company, Inc. ("DDC"). Based upon information contained in
Elk's Schedule l3D filed with the SEC dated January 25, 1994, Mr,. Dror
may be deemed a "control" person of Elk and Mr. Dror, DDC and Elk may be
deemed to be a "group" as those terms are defined under the Securities Act
of 1993, as amended and the Securities Exchange Act of 1934, as amended
and the rules promulgated thereunder. Mr. Dror and DDC each disclaim any
beneficial ownership in Elk and the Company's common stock owned by it.
(2) Includes, as applicable, shares covered by options exercisable within 60
days of 125,000, 351,667, 225,000, 25,000, 108,000 and 150,000 for Messrs.
Dror, Mourad, Lewisham, Talan, Moisset and Reifler, respectively.
(3) Includes, as applicable, shares authorized on March 16, 1995 to be issued as
incentive awards of 125,000 to Mr. Dror and 25,000 each to Messrs. Mourad,
Lewisham and Talan. The shares are to be earned for continuing service over
a three-year period on a prorata basis.
To the knowledge of management, no other person owns beneficially as
much as 5% of the outstanding stock of the Company.
Certain Relationships and Related Transactions
Pursuant to an agreement dated January 5, 1994 the Company issued
l,500,000 shares of the Company's common stock to the designees Daniel Dror &
Company, Inc. ("DDC") for $600,000 (or $.40 per share) including l,050,000
shares to Elk International Corporation Ltd. ("Elk"). Additionally, pursuant to
the agreement, the Company issued to Elk warrants to purchase 500,000 shares for
$.50 per share, exercisable at any time prior to December 25, 1995. The Company
also entered into a common stock purchase agreement with DDC on March 10, 1994
whereby DDC, or its designee, was to acquire 6,300,000 shares of the Company's
common stock for an aggregate of $2,520,000 (or $.40 per share), payable in
cash, or at the option of the Company, in cash, cash equivalents, or marketable
securities or any combination thereof. The stockholders of the Company approved
the common stock purchase agreement (the Agreement) on April 16, 1994. The
agreement provided for a closing by June 30, 1994 contingent upon all conditions
to closing being fulfilled.
As permitted under the terms of the Agreement the Board of Directors on
July 27, 1994 amended the Agreement, following claims by DDC and its designee
raised prior to June 30, 1994 that certain closing conditions had not been
satisfied. The amended Agreement required the Company to issue and sell
4,557,417 shares to Elk as designee of DDC, for an aggregate purchase price of
$l,882,967 (based on the previously agreed price of $.40 per share), in cash,
cash equivalents or marketable securities. In September 1994, Elk tendered the
assignment of an interest-free promissory note in the amount of $805,555 secured
by shares of another public company and transferred a brokerage account to the
Company consisting of cash and common stock of $l,077,412 amounting to an
aggregate of $l,882,967 (the Company assumed the liability for certain financial
instruments amounting to $506,250 which were secured by the cash and common
stock investments in the brokerage account). Subsequent to this
8
<PAGE>
transfer, a loan of $226,000 was made from the brokerage account to another
entity controlled by DDC which loan was payable with 15% interest on December
31, 1995. Although no formal agreements were signed, DDC indicated its intent to
reimburse the Company for any loss resulting from the settlement of the
financial instruments and indebtedness from the related party. The acceptance
of the consideration received and subsequent loan were authorized by Daniel Dror
in his capacity as Chairman of the Company's investment committee prior to
formal review by the Board of Directors.
The Board of Directors subsequently reviewed the consideration tendered
under the amended Agreement and determined that it would be in the best
interests of the Company to accept payment from Elk with securities less likely
to experience significant fluctuations in value. On November 8, 1994 the
Company executed a second amendment as approved by the Board of Directors to the
Agreement dated October 16, 1994 with DDC whereby the transactions under the
previous amendment were effectively rescinded and the Company agreed to issue
and sell 3,343,623 shares to Elk as designees of DDC, for the aggregate purchase
price of $l,337,449 (or $.40 per share) on or before December 3l, 1994.
In payment of the purchase price under the second amendment to the
Agreement the Company has accepted assignment of a promissory note payable to
Elk from a limited partnership in the aggregate amount of $l,444,444 payable on
December 3l, 1995. The face amount of the promissory note includes the purchase
price of $l,337,449 plus $106,995, representing interest on the purchase price
at an interest rate of 8% per annum for the period commencing on December 3l,
1994 through December 3l, 1995. Payment of the promissory note is secured by
escrowed shares of another public company. The 3,343,623 shares issued to Elk
are being held in escrow and will be delivered to Elk when the promissory note
has been fully satisfied. Elkana Faiwuszeiwicz, the President and control
person of Elk, is the brother of Daniel Dror. Based upon information contained
in Elk's Schedule l3D filed with the Securities and Exchange Commission dated
January 25, 1994, Mr. Dror may be deemed a "control" person of Elk and, Mr.
Dror, DDC and Elk may be deemed to constitute a "group" as those terms are
defined under the Securities Act of 1933, as amended, and Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder.
Mr. Dror and DDC each disclaim any beneficial ownership in Elk and in the
Company's stock beneficially owned by Elk.
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 and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission and the American Stock Exchange initial
reports of ownership and reports of changes in ownership of Common stock and
other equity securities of the company. Officers, directors and greater than
ten-percent shareholders are required by Securities and Exchange Commission
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended December 31, 1995, the
following Section 16(a) reports were not filed on a timely basis: Daniel Dror -
two transactions, one report; Henry Mourad - three transactions, two reports;
William Lewisham - three transactions, two reports; Jack Talon - two
transactions, one report; and Jacques Moisset - one transaction, one report.
9
<PAGE>
PROPOSAL NO. 2
Background
The Company's Board of Directors has unanimously authorized the Reverse
Stock Split pursuant to which each two to four of the (13,890,913) currently
outstanding shares of Common Stock (the "Old Shares") would be automatically
converted into one share of Common Stock (the "New Shares"). The Reverse Stock
Split, if authorized, will become effective within 60 days of its
authorization. The exact ratio of the Reverse Stock Split will be determined
by the Board of Directors based upon the market price of the Common Stock at
the time of the Reverse Stock Split and will be in the range from two-to-one
to four-to-one.
Reasons for the Reverse Stock Split
The primary reason for the Reverse Stock Split is to increase the per
share stock price. The Company anticipates the proposed Reverse Stock Split
will result in the bid price for the shares of Common Stock being in excess of
$3.00 per share, although there can be no assurance that the stock price, in
fact, will reach such level. The Company believes that, if it is successful in
maintaining the stock price of the Common Stock above $3.00 per share, the stock
will generate greater interest among professional investors and institutions.
If the Company is successful in generating interest among such entities, it is
anticipated that the shares of Common Stock would have greater liquidity and a
stronger investor base.
The Reverse Stock Split is being effectuated by reducing the number of
issued and outstanding shares; however, the number of authorized shares of
Common Stock (25,000,000 shares) will remain the same. Assuming a one-for-
three rate of reverse, as a result of the Reverse Stock Split the Company will
have [ ] authorized but unissued shares. The Reverse Stock Split has
potentially dilutive effects on each of the stockholders. Each of the
stockholders may be diluted to the extent that any of the [ ]
authorized but unissued shares are subsequently issued.
The Reverse Stock Split will not alter the percentage interests in the
Company of any stockholder, except to the extent that the Reverse Stock Split
results in a stockholder of the Company owning a fractional share. In lieu of
issuing fractional shares, the Company will issue to any stockholder who
otherwise would have been entitled to receive a fractional share as a result of
the Reverse Stock Split an additional full share of Common Stock.
Effect of the Reverse Split
The principal effects of the Reverse Stock Split will be that the number
of shares of Common Stock issued and outstanding will be reduced from [
] to approximately [ ], assuming a one-for-three reverse. The Company's
stated capital will not be affected.
No Right of Appraisal
Under the Delaware Corporation Law, the state in which the Company is
incorporated, the Reverse Stock Split does not require the Company to provide
dissenting stockholders with a right of appraisal and the Company will not
provide stockholders with such right.
10
<PAGE>
Federal Income Tax Consequences
The Company believes that the Federal income tax consequences of the
Reverse Stock Split to holders of Old Shares and holders of New Shares will be
as follows:
(i) Except as explained in (v) below, no income gain or loss will be
recognized by a stockholder on the surrender of the Old Shares or
receipt of the certificate representing New Shares.
(ii) Except as explained in (v) below, the tax basis of the New Shares
will equal the tax basis of the Old Shares exchanged therefor.
(iii) Except as explained in (v) below, the holding period of the New
Shares will include the holding period of the Old Shares if such
Old Shares were held as capital assets.
(iv) The conversion of the Old Shares into the New Shares will produce
no taxable income or gain or loss to the Company.
(v) The Federal income tax treatment of the receipt of the additional
fractional interest by a stockholder is not clear and may result in
tax liability not material in amount in view of the low value of
such fractional interest.
The Company's opinion is not binding upon the Internal Revenue Service
or the courts, and there can be no assurance that the Internal Revenue Service
or the courts will accept the positions expressed above.
The state and local tax consequences of the Reverse Stock split may vary
significantly as to each stockholder, depending upon the state in which he/she
resides. Stockholders are urged to consult their own tax advisors with respect
to the Federal, State and local tax consequences of the reverse stock split.
PROPOSAL NO. 3
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED SHARES OF PREFERRED STOCK
The Board of Directors of the Company has adopted a resolution approving
and recommending to the Company stockholders for their approval, an Amendment to
Article Fourth of the Company's Certificate of Incorporation to provide therein
for an increase from 5,000,000 to 10,000,000 in the number of shares of
preferred stock to be issuable from time to time in such series and to have such
designations, preferences, limitations and relative rights as the Board of
Directors may determine (i.e., "blank check" preferred stock). Proposal No. 3
would amend the Certificate of Incorporation to increase the number of such
shares available for possible issuance in connection with such activities as,
among other things, public or private offerings of shares, dividends payable in
stock of the Company, acquisitions of other companies, and implementation of
employee benefit plans.
Under Delaware law, the Company may issue one or more classes of stock
and one or more series of stock within any class. Each class or series may have
full, limited or no voting powers, and such designations, preferences and
relative, participating, optional and other special rights, and
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qualifications, or restriction thereof, as is stated in the Company's
Certificate of Incorporation, or in resolutions providing for the issue of such
stock adopted by the Board of Directors pursuant to authority expressly vested
in it by the provisions of the Company's Certificate of Incorporation.
The term "blank check" preferred stock refers to stock for which the
designations, preferences, conversion rights, cumulative rights, cumulative,
relative, participating, optional or other rights, including voting rights,
qualifications, limitations or restrictions thereof, are determined by the
Company's Board of Directors. If the proposed amendment to Article Fourth of
the Company's Certificate of Incorporation is adopted by the stockholders, the
Board of Directors will be empowered, without the necessity of further action or
authorization by the stockholders (unless required in a specific case by
applicable law, regulation or stock exchange rule), to cause the Company to
issue up to 10,000,000 shares of preferred stock from time to time in one or
more series, and to fix by resolution the relative rights and preferences of
each series. Each series of preferred stock may rank senior to the Company's
common stock with respect to dividends and liquidation rights. No preferred
stock is presently issued.
The Board of Directors is required to make any determination to issue
shares of preferred stock based on its judgment as to the best interests of the
stockholders and the Company. This provision of the Amendment to the
Certificate of Incorporation will authorize the Board of Directors to determine
among other things, with respect to each series of preferred stock which may be
issued: (i) the distinctive designation of such series and the number of shares
constituting such series, (ii) whether or not shares have voting rights and the
extent of such voting rights, if any, (iii) the election, term of office,
filling of vacancies, and other terms of the directorship of directors, if any,
to be elected by the holders of any one or more series of such preferred stock,
(iv) the dividend rights, if any, including the dividend rates, preferences with
respect to other series or classes of stock, the times of payment and whether
dividends shall be cumulative, (v) the redemption price, terms of redemption,
the amount of and provisions regarding any sinking fund for the purchase or
redemption thereof, (vi) the liquidation preferences and the amounts payable on
dissolution or liquidation, and (vii) the terms and conditions, if any, under
which shares of the series may be converted into any other series or class of
stock or debt of the Company. Holders of common stock have no preemptive rights
to purchase or otherwise acquire any preferred stock that may be issued in the
future.
This provision of the Amendment to the Certificate of Incorporation will
increase the Company's financial flexibility. The Board believes that the
complexity of modern business financing and acquisition transactions require
greater flexibility in the Company's capital structure than now exists.
Preferred stock will be available for issuance from time to time as determined
by the Board for any proper corporate purpose. Such purposes could include,
without limitation, issuance in public or private sales for cash as a means of
obtaining capital for use in the Company's business and operations, issuance as
part or all of the consideration required to be paid by the Company for
acquisitions of other businesses or properties, and issuance under employee
benefit plans. The preferred stock could, depending on the terms of such
series, make more difficult or discourage an attempt to obtain control of the
Company by means of a merger, tender offer, proxy contest, or other means. For
example, such shares could be used to create voting or other impediments or to
discourage persons seeking to gain control of the Company. Such shares could be
privately placed with purchasers favorable to the Board of Directors in opposing
such action. In addition, the Board of Directors could authorize holders of a
series of preferred stock to vote either separately as class or with the holders
of the Company's common stock, on any merger, sale, or exchange of assets by the
Company or any other extraordinary corporate transaction. The existence of the
additional authorized shares could have the effect of discouraging unsolicited
takeover attempts. The issuance of new shares also could be used to dilute the
stock ownership of a person or entity seeking to
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obtain control of the Company should the Board of Directors consider an action
of such entity or person not to be in the best interests of the stockholders
and the Company.
The Company does not presently have any plans, intentions, agreements,
understandings or arrangements that will or could result in the issuance of any
preferred stock.
Until the Board determines the respective rights of the holders of one
or more series of preferred stock, it is not possible to state the actual effect
of the authorization of the preferred stock upon the rights of holders of common
stock. Typical effects of such issuance could include, however: (a) reduction
of the amount otherwise available for payment of dividends on common stock if
dividends are payable on preferred stock, (b) restrictions on dividends on
common stock if dividends on the preferred stock are in arrears, (c) dissolution
of the voting power of common stock if the preferred stock has voting rights,
and (d) restriction of the rights of holders of common stock to share in the
Company's assets upon liquidation until satisfaction of any liquidation
preference granted to the holders of preferred stock.
The full text of the provisions of the Certificate of Amendment to the
Certificate of Incorporation increasing the class of "blank check" preferred
stock is set forth in Exhibit "A" annexed hereto.
The affirmative votes of a majority of the common stock represented and
voting at the meeting is required to approve the Amendment to the Company's
Certificate of Incorporation to create a "blank check" preferred stock.
PROPOSAL NO. 4
RATIFICATION OF APPOINTMENT OF ACCOUNTANTS FOR THE COMPANY
The independent certified public accountants for the Company for the
fiscal year ended June 30, 1994 were Deloitte & Touche resigned as the Company's
public accountant on December 22, 1994. Deloitte & Touche's formal resignation
memorializes the Company's and Deloitte & Touche's discussions that they
mutually agreed that their auditor-client relationship would cease.
Contemporaneously, the Board of Directors took steps to engage BDO Seidman to
act as the Company's principal accountant.
The reports of Deloitte on the financial statements for the fiscal years
ended June 30, 1994 and 1993 contained an emphasis paragraph that the financial
statements and financial statement schedules were prepared assuming the Company
will continue as a going concern. The 1993 auditor's report stated that the
Company's recurring losses from operations and its noncompliance with debt
covenants raised substantial doubts about its ability to continue as a going
concern. The 1994 report stated that the Company's declining revenues and
recurring losses from operations raised substantial doubt about its ability to
continue as a going concern. The 1994 report also included an emphasis
paragraph describing certain amendments to the Common Stock Purchase Agreement
between the Company, and Daniel Dror & Co. ("DDC"), and designees. These
amendments resulted from certain transaction (i) between the Company and DDC and
designees, and (ii) initiated by Daniel Dror as Chairman of the Company's
investment committee, which were rescinded, amended or voided at various dates
during the subsequent interim period to the fiscal June 30, 1994 year end.
The decision to change accountants was approved by the Board of
Directors of the Company, including the Audit Committee of the Board of
Directors.
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During the Company's two most recent fiscal years and subsequent interim
periods preceding the cessation of the relationship between the Company and
Deloitte there were no disagreements with Deloitte on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure. However, Deloitte believes that there is reportable event under
Regulation S-K Item 304(a)(1)(v) which requires disclosure.
On November 18, 1994 Deloitte advised the Company that it believed that
significant transactions executed by individual Board members or executive
officers prior to the Board of Directors deliberation and approval or without
safeguards such as shared responsibilities, results in a material weakness in
the Company's internal control structure and potentially exposes the Company to
material loss of assets or assumption of liability. Deloitte advised that the
Company should institute procedures to insure that the Board of Directors
approved significant transactions before they are consummated or there is a
prior approved guideline addressing the transaction. In its November 18, 1994
letter, Deloitte added that such control procedures will enhance effective
corporate governance and insure that the Company's assets and resources are
adequately safeguarded.
The Company does not believe that Deloitte's November 18, 1994 advice to
the Company was an event described in Item 304(a)(1)(v)(A) or (B) in that, in
management's opinion, Deloitte's November 18, 1994 letter does not address the
existence of those events, i.e., Deloitte has never advised the Company that the
internal controls necessary to develop reliable financial statements do not
exist or that information has come to Deloitte's attention that has made it
unwilling to be associated with the financial statements prepared by management.
It is anticipated that BDO Seidman will be appointed by the Company's
Board of Directors as the Company's independent certified public accountants for
the fiscal year ending December 31, 1996, subject to stockholders'
ratification. It is further anticipated that representatives of BDO Seidman
will be present at the Annual Meeting. Such representatives will have the
opportunity to make a statement if they desire to do so and will be prepared to
respond to appropriate questions from stockholders.
Accordingly, the Board of Directors will offer the following resolution
at the Annual Meeting:
RESOLVED, that the appointment by the Board of Directors of
BDO Seidman, independent public accountants, to audit the
financial statements of the Company for the year ended
December 31, 1996 be, and hereby is, ratified and approved.
BOARD OF DIRECTORS RECOMMENDATIONS
The Board of Directors believes that (i) the election of Jack Talon,
Daniel Dror and William Lewisham as directors for terms expiring at the annual
meeting in 1998, 1999 and 1999, respectively, (ii) the amendment of the
Company's Certificate of Incorporation to effect the Reverse Stock Split, (iii)
the amendment of the Company's Certificate of Incorporation to increase the
class of "blank check" preferred stock to 10,000,000 shares, and (iv) the
ratification of the appointment of BDO Seidman as independent certified public
accountants for the Company's fiscal year ending December 31, 1996 is in the
best interests of the Company and its stockholders and unanimously recommends a
vote "FOR" each of the proposals set forth and described in this Proxy
Statement. If not otherwise specified Proxies will be voted "FOR" each proposal.
14
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the United
States Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files report, proxy statements and other information with
the United States Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549; Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center,
New York, New York 10048. Copies of such materials can also be obtained from
the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement incorporates certain documents by reference which
ar not presented herein or delivered herewith. These documents are available
upon request from MicroTel International, Inc., Corporate Secretary, 2040
Fortune Drive, San Jose, California 95121, telephone number (408) 435-8520.
The Company hereby undertakes to provide without charge to each person
to whom a copy of this Proxy Statement has been delivered, on the written or
oral request of such person, a copy of any or all of the documents incorporated
by reference in this Proxy Statement, other than the exhibits to such documents,
unless such exhibits are specifically incorporated herein by reference.
Requests for these documents should be directed to the office indicated above.
The following documents heretofore filed by the Company under the
Exchange Act with the Commission are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 (a copy of which accompanies this Proxy Statement).
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Proxy Statement and prior to
the Annual Meeting of Stockholders shall be deemed to be incorporated in this
Proxy Statement by reference and to be incorporated by reference herein modifies
or supersedes such statement. Any such statement so modified or superseded
shall not be deemed to constitute a part of this Proxy Statement except as so
superseded or modified.
The information contained in this Proxy Statement does not purport to be
comprehensive and should be read together with the information and financial
statements (including the notes thereto) appearing in the documents
incorporated herein by reference.
A copy of the Company's Annual Report for the fiscal year ended December
31, 1995 accompanies this Proxy Statement.
STOCKHOLDERS' PROPOSALS
It is anticipated that the Company's next Annual Meeting of Stockholders
will be held in May 1997. Stockholders who sought to present proposals at the
Company's Annual Meeting of
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Stockholders must have submitted their proposals to the Secretary of the
Company on or before March 1, 1997.
GENERAL
The Company does not intend to hire a proxy solicitor. In addition to
the use of mails, proxies may be solicited by personal interview, telephone and
telegraph, by directors, officers and regular employees of the Company, without
special compensation therefor. The Company expects to reimburse banks, brokers
and other persons for their reasonable out-of-pocket expenses in handling proxy
materials for beneficial owners of the Company's Common Stock.
The Board of Directors knows of no business other than that set forth
above to be transacted at the meeting, but if other matters requiring a vote of
the stockholders arise, the persons designated as proxies will vote the shares
of Common Stock represented by the proxies in accordance with their judgment on
such matters. If a stockholder specifies a different choice on the proxy, his
or her shares of Common Stock will be voted in accordance with the specification
so made.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WE URGE YOU TO FILL
IN, SIGN AND RETURN THE ACCOMPANYING FORM OF PROXY IN THE PREPAID ENVELOPE
PROVIDED, NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE.
BY ORDER OF THE BOARD OF DIRECTORS
Barry Reifler
Secretary
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MICROTEL INTERNATIONAL, INC.
Annual Meeting of Stockholders -- Wednesday, July , 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints DANIEL DROR and BARRY REIFLER and each
of them, with power of substitution, as proxies to represent the undersigned at
the Annual Meeting of Stockholders to be held at Schneck Weltman Hashmall &
Mischel LLP, 1285 Avenue of the Americas, New York, New York 10019, Wednesday,
July , 1996 at 3:00 p.m. local time and at any adjournment thereof, and to
vote the shares of stock the undersigned would be entitled to vote if personally
present, as indicted on the reverse side hereof.
The shares represented by the proxy will be voted as directed. If no
contrary instruction is given, the shares will be voted FOR Proposal Nos. 2, 3
and 4 and for the election of Daniel Dror, William Lewisham and Jack Talan as
Directors.
Please mark boxes in blue or black ink.
1. Proposal No. 1 - Election of Directors.
Nominees: Daniel Dror, William Lewisham and Jack Talan.
AUTHORITY
FOR withheld
all as to all
nominees nominees
/ / / /
For, except authority withheld as to the following nominee(s):
--------------------------------------------------------
2. Proposal No. 2 to approve an amendment to the Company's Certificate of
Incorporation to effect the Reverse Stock Split.
FOR AGAINST ABSTAIN
/ / / / / /
3. Proposal No. 3 to approve an amendment to the Company's Certificate of
Incorporation to increase to 10,000,000 the number of shares of
preferred stock the Company may issue from time to time in such series
and to have such designations, preferences, limitations and relative
rights as the Board of Directors may determine.
FOR AGAINST ABSTAIN
/ / / / / /
<PAGE>
4. Proposal No. 4 to ratify the selection by the Company of BDO Seidman,
independent public accountants, to audit the financial statements of the
Company for the year ending December 31, 1996.
FOR AGAINST ABSTAIN
/ / / / / /
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
(Please date, sign as name appears at left, and return promptly. If the stock
is registered in the name of two or more persons, each should sign. When
signing as Corporate Officer, Partner, Executor, Administrator, Trustee, or
Guardian, please give full title. Please note any change in your address
alongside the address as it appears in the Proxy.
Dated:
--------------
-----------------------------
(Signature)
-----------------------------
(Print Name)
SIGN, DATE AND RETURN PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
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EXHIBIT A
PROPOSED AMENDMENT TO CERTIFICATE OF INCORPORATION
TO CREATE "BLANK CHECK" PREFERRED STOCK
"FOURTH: The aggregate number of shares of all classes of capital stock
which the Company has the authority to issue is thirty (35,000,000), which is
divided into two classes as follows:
Twenty-Five Million (25,000,000) shares of Common Stock (Common
Stock) with a par value of 1/3 cent per share, and
Ten Million (10,000,000) shares of Preferred Stock (Preferred
Stock) with a par value of $.01 per share.
The designations, voting powers, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions of the Preferred Stock is as follows:
(1) Issuance in Series.
Shares of Preferred Stock may be issued in one or more series at such
time or times, and for such considerations as the Board of Directors may
determine. All shares of any one series of Preferred Stock will be identical
with each other in all respects, except that shares of one series issued at
different times may differ as to dates from which dividends thereon may be
cumulative. All series will rank equally and be identical in all respects,
except as permitted by the following provisions of paragraph 2 of this
Article FOURTH.
(2) Authority of the Board with Respect to Series.
The Board of Directors is authorized, at any time and from time to time,
to provide for the issuance of the shares of Preferred Stock in one or more
series with such designations, preferences and relative, participating,
optional or other special rights and qualifications, limitations or
restrictions thereof as are stated and expressed in the resolution or
resolutions providing for the issue thereof adopted by the Board of
Directors, and as are not stated and expressed in this Certificate of
Incorporation or any amendment hereto including, but not limited to,
determination of any of the following:
(i) The number of shares constituting that series and the
distinctive designation of that series;
(ii) The dividend rate or rates on the shares of that series,
whether dividends shall be cumulative, and, if so, from which date or dates,
the payment date or dates for dividends and the relative rights of priority,
if any, of payment of dividends on shares of that series;
(iii) Whether that series shall have voting rights, in addition
to the voting rights provided by law, and, if so, the terms of such voting
rights;
(iv) Whether that series shall have conversion privileges and, if
so, the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
(v) Whether or not the share of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the date
or date upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(vi) Whether that series shall have a sinking or retirement fund
for the redemption or purchase of shares of that series, and, if so, the
terms and amount of such sinking or retirement fund;
<PAGE>
(vii) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Company, and the relative rights of priority, if any, of payment of shares of
that series;
(viii) Any other preferences, privileges and powers, and relative
participating, optional or other special rights, and qualifications,
limitations or restrictions of a series, as the Board of Directors may deem
advisable and are not inconsistent with the provisions of this Certificate of
Incorporation.
(3) Dividends.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment in accordance with their respective
preferential and relative rights before any dividends shall be paid or
declared and set apart for payment on the outstanding shares of Common Stock
with respect to the same dividend period.
(4) Liquidation.
If upon any voluntary or involuntary liquidation, dissolution or winding
up of the Company, the assets available for distribution to holders of shares
of Preferred Stock of all series shall be insufficient to pay such holders
the full preferential amount to which they are entitled, then such assets
shall be distributed ratably among the shares of all series of Preferred
Stock in accordance with the respective preferential and relative amounts
(including unpaid cumulative dividends, if any) payable with respect thereto.
(5) Reacquired Shares.
Shares of Preferred Stock which have been issued and reacquired in any
manner by the Company (excluding, until the Company elects to retire them,
shares which are held as treasury shares but including shares redeemed,
shares purchased and retired, and shares which have been converted into
shares of Common Stock) will have the status of authorized and unissued
shares of Preferred Stock and may be reissued.
(6) Voting Rights.
Shares of Preferred Stock shall each have the number of votes provided
in the resolution or resolutions of the Broad of Directors creating any
series of Preferred Stock, or as otherwise required by law. Unless and
except to the extent otherwise required by law or provided in the resolution
or resolutions of the Board of Directors creating any series of Preferred
Stock, the holders of the Preferred Stock shall have no voting power with
respect to any matter whatsoever."
20
