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
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
U.S. AUTOMOTIVE MANUFACTURING, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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 transactions applies:
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(3) Per unit price of other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11: 1*
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
|_| Fee paid previously with preliminary materials.
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|_| 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:
(4) Date filed:
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1* Set forth the amount on which the filing fee is calculated and state how it
was determined.
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U.S. AUTOMOTIVE MANUFACTURING, INC.
Route 627, Airport Drive
Tappahannock, VA 22560
May 22, 1998
Dear Fellow Stockholders:
You are cordially invited to attend our Annual Meeting of Stockholders
which will be held on June [30], 1998 at 10:00 A.M., local time, at 711 Fifth
Avenue, 11th Floor, New York, New York 10022.
The Notice of Annual Meeting and Proxy Statement which follow describe the
business to be conducted at the meeting.
Whether or not you plan to attend the meeting in person, it is important
that your shares be represented and voted. After reading the enclosed Notice of
Annual Meeting and Proxy Statement, may I urge you to complete, sign, date and
return your proxy card in the envelope provided. If the address on the
accompanying material is incorrect, please advise our Transfer Agent, Securities
Transfer Corporation, in writing, at 16910 Dallas Parkway, Suite 100, Dallas,
Texas 75248.
Your vote is very important, and we will appreciate a prompt return of your
signed proxy card. We hope to see you at the meeting.
Cordially,
John W. Kohut
Chairman of the Board
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U.S. AUTOMOTIVE MANUFACTURING, INC.
Route 627, Airport Drive
Tappahannock, VA 22560
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE [30], 1998
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To the Stockholders of U.S. AUTOMOTIVE MANUFACTURING, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of U.S.
Automotive Manufacturing, Inc. (the "Company") will be held on Tuesday,
June [30], 1998, at 10:00 A.M., local time, at 711 Fifth Avenue, 11th Floor, New
York, New York 10022 for the following purposes:
1. To elect four (4) directors to hold office until the next Annual Meeting
of Stockholders and until their respective successors have been duly elected and
qualified;
2. To consider and vote upon a proposal to approve the Company's 1998 Stock
Option Plan;
2. To consider and vote upon a proposal to amend the Company's Certificate
of Incorporation to authorize the Board of Directors of the Company to issue
Preferred Stock; and
3. To transact such other business as may properly come before the Annual
Meeting or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on May 22, 1998 are
entitled to notice of and to vote at the Annual Meeting or any adjournments
thereof.
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IF YOU DO NOT EXPECT TO BE PRESENT AT THE ANNUAL MEETING:
PLEASE FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE
PROVIDED FOR THAT PURPOSE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO EXERCISE, AND IF YOU ARE
PRESENT AT THE MEETING YOU MAY, IF YOU WISH, REVOKE YOUR PROXY AT THAT TIME AND
EXERCISE THE RIGHT TO VOTE YOUR SHARES PERSONALLY.
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By Order of the Board of Directors,
John W. Kohut
Chairman of the Board
May 22, 1998
<PAGE>
PROXY STATEMENT
U.S. AUTOMOTIVE MANUFACTURING, INC.
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE [30], 1998
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of U.S. AUTOMOTIVE MANUFACTURING, INC. (the
"Company") for use at the Annual Meeting of Stockholders to be held on June 30,
1998, including any adjournment or adjournments thereof (the "Annual Meeting"),
for the purposes set forth in the accompanying Notice of Meeting.
Management intends to mail this proxy statement and the accompanying form
of proxy to stockholders on or about May 22, 1998.
Proxies in the accompanying form, duly executed and returned to the
management of the Company and not revoked, will be voted at the Annual Meeting.
Any proxy given pursuant to such solicitation may be revoked by the stockholder
at any time prior to the voting of the proxy by a subsequently dated proxy, by
written notification to the Secretary of the Company, or by personally
withdrawing the proxy at the Annual Meeting and voting in person.
The address and telephone number of the principal executive offices of the
Company are:
Route 627, Airport Drive
Tappahannock, VA 22560
Telephone No.: (800) 446-3032
OUTSTANDING STOCK AND VOTING RIGHTS
Only stockholders of record at the close of business on May 22, 1998 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. As
of the Record Date, there were issued and outstanding [15,724,893] shares of the
Company's common stock, $.001 par value per share (the "Common Stock"), the
Company's only class of voting securities. Each share entitles the holder to one
vote on each matter submitted to a vote at the Annual Meeting.
VOTING PROCEDURES
The directors will be elected by the affirmative vote of a plurality of the
shares of Common Stock, present in person
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or represented by proxy at the Annual Meeting, provided a quorum exists. A
quorum is present if, as of the Record Date, at least a majority of the
outstanding shares of Common Stock are present in person or by proxy at the
Annual Meeting. All other matters at the meeting will be decided by the
affirmative vote of the holders of a majority of the shares of Common Stock cast
with respect thereto, provided a quorum exists. Votes will be counted and
certified by one or more Inspectors of Election who are expected to be employees
of the Company. In accordance with Delaware law, abstentions and "broker
non-votes" (i.e. proxies from brokers or nominees indicating that such persons
have not received instructions from the beneficial owner or other persons
entitled to vote shares as to a matter with respect to which the brokers or
nominees do not have discretionary power to vote) will be treated as present for
purposes of determining the presence of a quorum. For purposes of determining
approval of a matter presented at the meeting, abstentions will be deemed
present and entitled to vote and will, therefore, have the same legal effect as
a vote "against" a matter presented at the meeting. Broker non-votes will be
deemed not entitled to vote on the subject matter as to which the non-vote is
indicated and will, therefore, have no legal effect on the vote on that
particular matter.
The enclosed proxies will be voted in accordance with the instructions
thereon. Unless otherwise stated, all shares represented by such proxy will be
voted as instructed. Proxies may be revoked as noted above.
The entire cost of soliciting proxies, including the costs of preparing,
assembling, printing and mailing this Proxy Statement, the proxy and any
additional soliciting material furnished to shareholders, will be borne by the
Company. Arrangements will be made with brokerage houses and other custodians,
nominees and fiduciaries to send proxies and proxy materials to the beneficial
owners of stock, and such persons may be reimbursed for their expenses by the
Company. Proxies may also be solicited by directors, officers or employees of
the Company in person or by telephone, telegram or other means. No additional
compensation will be paid to such individuals for these services.
ELECTION OF DIRECTORS
At this year's Annual Meeting of Stockholders, four (4) directors will be
elected to hold office for a term expiring at the Annual Meeting of Stockholders
to be held in 1999. Each director will be elected to serve until a successor is
elected and qualified or until the director's earlier resignation or removal.
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At this year's Annual Meeting of Stockholders, the proxies granted by
stockholders will be voted individually for the election, as directors of the
Company, of the persons listed below, unless a Proxy specifies that it is not to
be voted in favor of a nominee for director. In the event any of the nominees
listed below shall be unable to serve, it is intended that the Proxy will be
voted for such other nominees as are designated by the Board of Directors. Each
of the persons named below has indicated to the Board of Directors of the
Company that he or she will be available to serve.
Name Position
---- --------
Martin Chevalier Chief Executive Officer, President
and Director
John W. Kohut Chairman of the Board, Primary
Financial Officer, Director(1)
David Love Director(1)
Mandel Sherman Director(1)
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(1) Member, Audit Committee
John W. Kohut, age 51, has been a director of the Company since August 1997
and has served as the Chairman of the Board of the Company since Quality
Automotive Company ("Quality"), a wholly-owned subsidiary of the Company as of
the date of this Proxy, was acquired, by merger, on August 29, 1997. Mr. Kohut
also has served since August, 1997 as the primary financial officer of the
Company. Prior to the Merger, he was a substantial equity owner in Quality.
Since January 1991 Mr. Kohut has served as President of RamKo Venture
Management, Inc. ("RamKo"), an investment banking and consulting firm. He
currently continues to serve in such capacity. The Company has engaged RamKo as
a consultant to the Company since December 1996.
Martin Chevalier, age 52, has been a director of the Company since August
1997 and has served as President and Chief Executive Officer of the Company
following the Merger. He also has served as President of Quality since December
1988. Prior to the Merger, he was also a principal equity owner of Quality.
David Love, age 63, has been a director of the Company since July 1996. He
has served as Chairman of the Audit Committee since August 1997. Over the past
five plus years, Mr. Love has been a practicing independent Certified Public
Accountant and attorney in the
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<PAGE>
greater Boston area. In addition, Mr. Love is a practicing arbitrator and
mediator. Mr. Love is currently the Chief Financial Officer of Quality
Microwave, Inc., a private corporation located in Wilmington, MA, which office
he has held since April 1995.
Mandel Sherman, age 59, has been a director of the Company since July,
1996. Mr. Sherman has also provided consulting services to the Company through
Baroque Investments, Inc. ("Baroque"), a consulting firm engaged in December
1995 by the Company, terminating December 31, 2000. Since 1983, Mr. Sherman has
served as an investor and manager in a variety of privately-held real estate
ventures and more recently, investment firms and companies, including without
limitation First Providence Financial Association Inc., a member of NASD. Since
1996, he has served as President and principal stockholder of Miss Sloan Capital
Ltd., an investment company and general partner of Elmgrove Associates II, L.P.
("Elmgrove"), which partnership is a principal stockholder of the Company. In
the past, Mr. Sherman served as an executive officer in both public and private
companies engaged in the precious metals industry. He has also served as
President of Westbury Alloys, LLC. and Manager of Wingate Financial Associates,
LLC since 1996.
During the fiscal year ended December 31, 1997, the Board of Directors held
3 meetings which were attended by all of the directors. The Board also took
various actions by unanimous written consent in lieu of a meeting. The Company
does not have standing nominating or compensation committees of the Board of
Directors or committees performing similar functions.
All directors of the Company hold office until the next annual meeting of
the stockholders and the election and qualification of their successors.
Officers of the Company are elected annually by the Board of Directors and serve
at the discretion of the Board.
Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10 percent of a registered
class of the Company's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission ("SEC").
Officers, directors, and greater than 10 percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on the Company's review of the copies of such forms received
by the Company, or within representations from certain reporting persons that no
Forms 5 were required for those persons, the Company believes that, during the
year ended December 31, 1997, all filing requirements applicable to its
officers, directors, and greater than 10 percent beneficial owners were complied
with except that (1)
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Form 4's, covering January 1997, June 1997 and March 1998, were filed late by
Elmgrove; (2) Form 4's, covering March 1996, January 1997, June 1997 and March
1998, were filed late by Mr. Mandel Sherman, the President and principal
stockholder of Elmgrove's General Partner; and (3) Form 3, covering July 1996,
and Form 4, covering March 1998, were filed late by Mr. David Love.
Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION
OF THE NOMINEES.
EXECUTIVE COMPENSATION
The following table discloses the compensation for the person who served as
the Company's principal executive officer during the fiscal year ended December
31, 1997 and for the only other executive officers of the Company whose salaries
exceeded $100,000 for the fiscal year ended December 31, 1997 (the "Named
Executives"):
Summary Compensation Table
Other Annual
Name/Position Year Salary Compensation
Martin Chevalier, 1997 $ 75,000(1) none
President/Chief
Executive Officer
John W. Kohut, 1997 N/A $ 60,000(2)
Chairman of the Board
John K. Kenney(3) 1997 $110,000 $ 36,000
1996 $110,000 $ 18,000
1995 $ 22,856(4) none
(1) Based on four months employment at an annual rate of $ 225,000. Mr.
Chevalier was employed by the Company effective August 29, 1997, following
the Merger.
(2) Based on distributions to RamKo, pro-rated over 4 months. The Company
engaged RamKo as a consultant on August 29, 1997, at a rate of $ 45,000 per
quarter. Mr. Kohut is the President of RamKo. He also became Chairman of
the Board of the Company on August 29, 1997. RamKo was initially engaged in
December, 1996.
(3) Mr. Kenney served as President and Chief Executive Officer of the Company
from mid-October, 1995, until September 2, 1997, at which time he was
employed by the Company as Treasurer and Secretary. His effective annual
salary rate of $ 110,000 did not change. Mr. Kenney resigned from his
position as Treasurer and Secretary, effective March 27, 1998.
(4) Based on two and one-half months employment at an annual rate of $ 110,000.
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Options/SARs
No options/SARs were granted to, or exercised by, the Named Executives
during the fiscal year ended December 31, 1997 or were owned by the Named
Executives at December 31, 1997.
Director Fees and Other Remuneration
All directors shall receive a director's fee of $25,000 per annum in
connection with their participation on the Board of Directors; provided,
however, that each director shall be deemed to have waived such fee, or portion
thereof during that year, to the extent that during such year such director
otherwise receives compensation from the Company for services rendered in excess
of such aggregate fee. Currently, only Mr. Love receives the $25,000 annual
director's fee.
In addition to his director fees, Mr. Love receives an additional $11,000
for serving as Chairman of the Audit Committee.
Employment and Consulting Arrangements
The Company has entered into a three-year employment agreement with Martin
Chevalier, whereby Mr. Chevalier serves as President and Chief Executive Officer
of each of the Company and Quality. The employment agreement provides for an
annual base compensation of $ 225,000 plus annual bonuses of (i) five percent
(5%) of the first $ 1,000,000 in audited pre-tax consolidated profits of the
Company and Quality and (ii) ten percent (10%) of audited pre-tax consolidated
profits of the Company and Quality in excess of $ 1,000,000 but not to exceed $
500,000 in any given year. The employment agreement provides for Mr. Chevalier's
employment on a full-time basis and contains a provision that the employee will
not compete or engage in a business competitive with the current or anticipated
business of the Company during the term of the employment agreement and for a
period of two years thereafter. Mr. Chevalier's employment under the employment
agreement may be terminated for "cause" by the Company or Quality.
The Company has entered into a three-year consulting agreement, commencing
August 29, 1997, with RamKo, of which Mr. Kohut is the President, pursuant to
which RamKo has agreed to provide general business and financial advice to the
Company. The agreement provides for quarterly payments of $ 45,000 plus
reasonable and necessary expenses. The agreement also provides that services
rendered by RamKo shall not exceed twenty-five (25) days in any given calendar
quarter (otherwise, the Company is liable to RamKo for an additional charge). In
addition, RamKo and its directors, shareholders, agents, officers and employees
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<PAGE>
have agreed not to perform services or engage in any business deemed to be in
competition with the Company. The agreement may be terminated for "cause" by the
Company.
The Company has entered into a consulting agreement, terminating December
31, 2000, with Baroque Investments Inc. ("Baroque"), of which Mr. Sherman is the
President, pursuant to which Baroque has agreed to provide overall strategic
advice and planning in connection with the acquisition and/or development of
complementary products and businesses and the finances of the Company. The
agreement provides for an annual rate of $ 60,000, payable in monthly
installments of $ 5,000, plus reasonable and necessary expenses.
Audit Committee of the Board of Directors
In August 1997, the Company established an Audit Committee comprised of
Messrs. Love, Kohut and Sherman. The Audit Committee, among other things, makes
recommendations to the Board of Directors with respect to the engagement of the
Company's independent certified public accountants and the review of the scope
and effect of the audit engagement.
Stock Plans
On March 13, 1992, the Company's Board of Directors and stockholders
approved the Company's Employee Stock Option Plan (the "ESO Plan"). Under the
ESO Plan, in the discretion of the Compensation Committee of the Board of
Directors, options may be granted to key employees (including officers) of the
Company and its subsidiaries for the purchase of shares of the Company's common
stock. Options granted may be (a) incentive stock options within the meaning of
the U.S. Internal Revenue Code Section 422(b) or (b) non-qualified options. The
ESO Plan does not limit the number of options which may be granted to an
employee or the number of shares which may be subject to any option, except that
(y) the aggregate fair market value (as determined at the time the option is
granted) of the Company's common stock with respect to which incentive stock
options are exercisable for the first time by any employee during any calendar
year may not exceed $ 100,000, and (z) no incentive stock options or
non-qualified stock options may be granted to any employee who owns (at the time
the option is granted) stock possessing more than 10% of the total combined
voting power of all classes of stock of his employer corporation or any of its
parent corporations or subsidiary corporations. If any option expires,
terminates or is canceled for any reason without having been exercised in full,
the shares which were reserved for issuance upon its exercise again become
available for the purposes of the ESO Plan. The ESO Plan terminates in March
2002. Each option under the ESO Plan is granted pursuant to an agreement with
the optionee. The
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incentive options are subject to anti - dilution protection. The Company is
authorized to issue up to 60,000 options under the ESO Plan. During the period
of June 12, 1992, through September 30, 1994 options were granted to various
employees of the Company at prices ranging from $3.75 to $17.1875. Such options
become exercisable at various dates and expire at the end of not more than 10
years from the date of the grant or within sixty days of termination of
employment with the Company, which ever is earlier. As of the Record Date, only
1,400 options were outstanding under the ESO Plan.
On January 14, 1998, the Company's Board of Directors approved for
submission to the stockholders at the annual meeting the 1998 Stock Option Plan,
which plan is more particularly described and set forth in Proposal I of this
Proxy Statement.
Potential Legal Proceedings
Although there are no legal proceedings currently pending against the Company,
the Company received notice in December 1997 from five former employees of the
Company who claimed that in June 1995 they were granted stock options from the
Company under a stock option plan which allegedly entitled them to purchase
shares of the Common Stock and that the Company had not fulfilled certain
obligations with respect to registering for sale under the Securities Act of
1933 the shares of Common Stock issuable upon exercise of such options. These
former employees further claimed that as a result of the Company's failure they
have been damaged collectively in the amount of approximately $ 1,500,000.
Although a formal action has not commenced, the Company intends to vigorously
defend any action that may be brought by such former employees. In addition,
while the Company is not in a position at this time to evaluate the likelihood
of an unfavorable outcome to the Company in the event that such former employees
commence any such action, nor to estimate the amount or range of potential loss
to the Company, if any, that it could sustain as a result of an unfavorable
outcome, it currently believes, although there can be no assurance, that the
potential loss, if any, from such action would not have a material effect on the
operations of the Company.
VOTING SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the Record Date, based on information
obtained from the persons named below, with respect to the beneficial ownership
of shares of Common Stock by (i) each director of the Company; (ii) each person
who is known by the Company to beneficially own 5% or more of the outstanding
Common Stock; (iii) the Named Executives; and (iv) all of the Company's current
directors and executive officers as a group.
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<PAGE>
Amount and
Nature of
Name and Address of Beneficial Beneficial
Owner(1) Ownership(2) Percent
- ---------------------------------------------- --------------- ---------
Elmgrove Associates II., L.P(3) .............. 2,027,500(4) 11.9%
Mandel Sherman ............................... 2,027,500(4)(5) 11.9%
John W. Kohut ................................ 736,228(6) 4.6%
Martin Chevalier ............................. 1,102,503(7) 7.0%
David Love ................................... 12,500(8) *
All executive officers and 3,878,731(5)(6)
directors as a group (4 persons) ............. 21.8%
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* less than 1%
(1) Unless otherwise indicated, the address of each beneficial owner of more
than 5% of the Common Stock is c/o the Company.
(2) A person is deemed to be the beneficial owner of voting securities that can
be acquired by such person within 60 days from May 22, 1998 upon the
exercise of options, warrants or convertible securities. Each beneficial
owner's percentage ownership is determined by assuming that convertible
securities, options or warrants that are held by such person (but not those
held by any other person) and which are exercisable within 60 days of May
22, 1998 have been exercised. Unless otherwise noted, the Company believes
that all persons named in the table have sole voting and investment power
with respect to all shares of Common stock beneficially owned by them.
(3) Elmgrove has an address at 210 Dartmouth Avenue, Pawtucket, Rhode Island
02860.
(4) Includes 1,277,500 shares issuable upon exercise of currently exercisable
warrants. 750,000 shares of Common Stock held by Elmgrove are also subject
to a lock-up agreement, dated August 29, 1997, whereby Elmgrove has agreed
to certain volume restrictions and limitations on the sale of its shares
over a 5 year period.
(5) Represents shares beneficially owned by Elmgrove. Mr. Sherman may also be
deemed to be the beneficial owner of the share by virtue of his position as
President of the General Partner of Elmgrove. Mr. Sherman expressly
disclaims beneficial ownership of these securities except to the extent of
his pecuniary interest therein.
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(6) All of the shares are subject to a lock-up agreement, dated August 29,
1997, restricting the sale of shares over a 5 year period.
(7) All of the shares are subject to a lock-up agreement, dated August 29,
1997, restricting the sale of shares over a 5 year period.
(8) Represents shares issuable upon exercise of currently exercisable warrants.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1995, the Company entered into a consulting agreement, terminating
December 31, 2000, with Baroque, of which Mr. Sherman (a director of the
Company) is the President. Such consulting agreement provides for Baroque to
render overall strategic advice and planning in connection with the acquisition
and/or development of complementary products and businesses and the finances of
the Company. The agreement provides for an annual rate of $60,000, payable in
monthly installments of $5,000, plus reasonable and necessary expenses.
In March 1997, the Company repaid a Promissory Note, in the principal
amount of $100,000, plus interest at a rate of 12% per annum, evidencing an
indebtedness to Elmgrove, a principal stockholder of the Company, for a loan
made by Elmgrove to the Company in 1996. Mandel Sherman, a director of the
Company, is the President and principal stockholder of Miss Sloan Capital, Inc.,
the general partner of Elmgrove.
In connection with the foregoing loan from Elmgrove and an additional loan,
in the amount of $490,000 made by Elmgrove to the Company (which was repaid
during 1996), the Company granted Elmgrove 10 year warrants to purchase up to an
aggregate of 1,180,000 shares of the Company's common stock at an exercise price
of $2.28 per share, subject to adjustment under certain conditions. The Company
also provided Elmgrove with piggyback and demand registration rights with
respect to the shares issuable upon exercise of the warrants, under certain
conditions. The Company may redeem such warrants at a redemption price of $0.05
per warrant.
On May 31, 1997, the Company borrowed from Elmgrove $350,000, evidenced by
a non-negotiable promissory note, bearing interest at a rate of 8% per annum,
which was repaid in August 1997. In connection with the loan, the Company
granted to Elmgrove 10 year warrants to purchase 10,000 shares of the Common
Stock at an exercise price of $3.75 per share.
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In connection with the consummation of the Merger with Quality on August
29, 1997, each of Messrs. Chevalier and Kohut, as shareholders of Quality,
received promissory notes from the Company, in the amounts of $2,697,841.73 and
$1,802,158.27, respectively, as well as 1,102,503 and 736,228 shares of Common
Stock, respectively. Such notes bear interest at a rate of 8% per annum, payable
quarterly commencing August 1, 1998, and are payable in full on August 29, 1999.
Such notes are the direct obligation of Quality and are guaranteed by the
Company, which also pledged all of its stock in Quality as additional
collateral. The stock pledge is subordinated to Quality's credit facility with
LaSalle Business Credit, Inc. Messrs. Chevalier and Kohut currently serve as
directors and, in the case of Chevalier, an officer of the Company.
On August 29, 1997, the Company also entered into a three-year consulting
agreement with RamKo, of which Mr. Kohut (a director and Chairman of the Board
of the Company) is the President. Such consulting agreement provides for
quarterly payments to RamKo of $ 45,000 plus reasonable and necessary expenses.
The consulting agreement also provides that RamKo and its directors,
shareholders, agents, officers and employees shall not perform services or
engage in any business deemed to be in competition with the Company. The
agreement may be terminated for "cause" by the Company.
On February 27, 1998, the Company sold debt and equity securities to
Elmgrove and David Love, an affiliate and a director of the Company,
respectively. The sale was made pursuant to a private placement and consisted of
(i) two (2) unsecured non-negotiable promissory notes, in the aggregate
principal amount of $400,000, plus interest at the rate of 10.5% per annum and
(ii) five (5) year warrants ("Warrants") to purchase up to an aggregate of
100,000 shares of the Common Stock, maturing in February 2003, at a conversion
price of $2.00 per share, subject to adjustment in certain conditions. The net
proceeds to the Company were approximately $370,000. The Warrants are redeemable
by the Company, upon notice of not less than 30 days at a price of $ 0.05 per
Warrant, provided that the closing bid quotation of the Common Stock on all 20
trading days ending on the third day prior to the day of which the Company gives
notice of redemption has been at least 150% of the then effective exercise price
of the Warrants. The holders of the Warrants shall have the right to exercise
them until the close of business on the date fixed for redemption. The exercise
price and number of shares of Common Stock or other securities issuable on
exercise of the Warrants are subject to adjustment in certain circumstances,
including in the event of a stock dividend, recapitalization, reorganization,
merger or consolidation of the Company.
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PROPOSAL I
ADOPTION OF 1998 STOCK OPTION PLAN
The Board of Directors has adopted the Company's 1998 Stock Option Plan
(the "Plan"), subject to approval by the stockholders at the Annual Meeting.
The Board of Directors believes that it is in the best interest of the
Company and its stockholders to provide to officers, directors, key employees,
consultants and other independent contractors who perform services for the
Company the opportunity to participate in the value and/or appreciation in value
of the Company's Common Stock through the granting of stock options. The Board
of Directors believes that the Plan (i) will provide the Company with
significant means to attract and retain talented personnel, (ii) will result in
saving cash, which otherwise would be required to retain current key employees,
and adequately attract and reward key personnel, and (iii) consequently will
prove beneficial to the Company's ability to be competitive. In view of the
substantial growth of the Company and the need to continue to expand, the Board
of Directors recommends that the Plan should be approved.
The following summary of the Plan does not purport to be complete, and is
subject to and qualified in its entirety by reference to the full text of the
Plan, set forth as Exhibit "A" attached hereto and made a part hereof.
Summary of the 1998 Stock Option Plan
In January 1998, the Board approved, subject to stockholder approval, the
Plan authorizing the granting of options to purchase up to 1,000,000 shares of
Common Stock subject to adjustment as described below. Any person, including,
but not limited to, employees, directors, independent agents, consultants and
attorneys believed by the Board of Directors, or if applicable, the Plan's Stock
Option Committee, as the case may be, to have contributed to the success of the
Company, are eligible to be granted Non-Qualified Stock Options (as defined
below) under the Plan. Incentive Stock Options (as defined below) may be granted
only to employees of the Company or any subsidiary of the Company.
The Plan will be administered by either the Board of Directors or a Stock
Option Committee (the "Committee") consisting of two or more members of the
Board of Directors, appointed by the Board of Directors, who must be
"Non-Employee Directors" (as defined in Rule 16b-3 of the Securities Exchange
Act of 1934) and an "outside director" (as defined in Section
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162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The Board
of Directors or the Committee, as the case may be, will determine, among other
things, the persons to whom options will be granted, the type of options to be
granted, the number of shares subject to each option and the share price. The
Board of Directors, or Committee, as the case may be, will also determine the
term of each option, the restrictions or limitations thereon, and the manner in
which each such option may be exercised. Unless sooner terminated, the Plan will
expire at the close of business on January 13, 2008.
Stock Options
The Plan provides for the grant of "incentive stock options" as defined in
Section 422 of the Code ("Incentive Stock Options"), and for options not
qualifying as Incentive Stock Options ("Non-Qualified Stock Options"). The Board
of Directors or the Committee, as the case may be, shall determine those persons
to whom stock options may be granted.
Under the Plan the maximum number of shares that may be covered by stock
options granted hereby to any person for the duration of the Plan is 200,000
shares.
Incentive Stock Options granted pursuant to the Plan are nontransferable by
the optionee during his lifetime. All options granted under the Plan, will,
unless a shorter term is established by the Board of Directors or the Committee,
expire if not exercised within ten years of the grant (five years in the case of
Incentive Stock Options granted to an eligible employee owning stock possessing
more than 10% of the total combined voting power of all classes of stock of the
Company or a parent or subsidiary of the Company immediately before the grant
("10% Stockholder")), and under certain circumstances set forth in the Plan, may
be exercised within 3 months following termination of employment (one year in
the event of death of the optionee). Options may be granted to optionees in such
amounts and at such prices as may be determined, from time to time, by the Board
of Directors or the Committee. The exercise price of an Incentive Stock Option
will not be less than the fair market value of the shares underlying the
Incentive Stock Option on the date the Incentive Stock Option is granted,
provided, however, that the exercise price of an Incentive Stock Option granted
to a 10% Stockholder may not be less than 110% of such fair market value. The
Company may not, in the aggregate, grant Incentive Stock Options that are first
exercisable by any optionee during any calendar year (under all such plans of
the optionee's employer corporation and its "parent" and "subsidiary"
corporations, as those terms are defined in Section 424 of the Code) to the
extent
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that the aggregate fair market value of the underlying stock (determined at the
time the option is granted) exceeds $100,000.
The Plan contains anti-dilution provisions authorizing appropriate
adjustments in certain circumstances. Shares of Common Stock subject to options
which expire without being exercised or which are cancelled as a result of the
cessation of employment are available for further grants. No shares of Common
Stock of the Company may be issued to any optionee until the full option price
has been paid. The Board of Directors or Committee, as the case may be, may
grant individual options under the Plan that contain "cashless exercise"
provisions. The Board of Directors or the Committee may also grant individual
options containing more stringent provisions than those specified in the Plan.
Any stock options granted shall become exercisable in such amounts, at such
intervals and upon such terms and conditions as the Board of Directors or the
Committee shall provide. Stock options granted under the Plan are exercisable
until the earlier of (i) a date set by the Board of Directors or the Committee
at the time of grant or (ii) the close of business on the day before the tenth
anniversary of the stock option's date of grant (the day before the fifth
anniversary in the case of an Incentive Stock Option granted to a 10%
Stockholder). The Plan shall remain in effect until all stock options are
exercised or terminated. Notwithstanding the foregoing, no options may be
granted after January 13, 2008.
Certain Federal Income Tax Consequences of the Plan
The following is a brief summary of the Federal income tax aspects of
grants made under the Plan based upon statutes, regulations and interpretations
in effect on the date hereof. This summary is not intended to be exhaustive, and
does not describe state or local tax consequences.
1. Incentive Stock Options. The participant will recognize no taxable
income upon the grant or exercise of an Incentive Stock Option. Upon a
disposition of the shares after the later of two years from the date of grant
and one year after the transfer of the shares to the participant, (i) the
participant will recognize the difference, if any, between the amount realized
and the exercise price as long-term capital gain or long-term capital loss (as
the case may be) if the shares are capital assets in his or her hands; and (ii)
the Company will not qualify for any deduction in connection with the grant or
exercise of the options. The excess, if any, of the fair market value of the
shares on the date of exercise of an Incentive Stock Option over the exercise
price will be treated as an item of
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adjustment for his or her taxable year in which the exercise occurs and may
result in an alternative minimum tax liability for the participant. In the case
of a disposition of shares in the same taxable year as the exercise where the
amount realized on the disposition is less than the fair market value of the
shares on the date of exercise, there will be no adjustment since the amount
treated as an item of adjustment, for alternative minimum tax purposes, is
limited to the excess of the amount realized on such disposition over the
exercise price which is the same amount included in regular taxable income.
If Common Stock acquired upon the exercise of an Incentive Stock Option is
disposed of prior to the expiration of the holding periods described above, (i)
the participant will recognize ordinary compensation income in the taxable year
of disposition in an amount equal to the excess, if any, of the lesser of the
fair market value of the shares on the date of exercise or the amount realized
on the disposition of the shares, over the exercise price paid for such shares;
and (ii) the Company will qualify for a deduction equal to any such amount
recognized, subject to the requirements that the compensation be reasonable and
not be limited under Section 162(m) of the Code. The participant will recognize
the excess, if any, of the amount realized over the fair market value of the
shares on the date of exercise, if the shares are capital assets in his or her
hands, as short-term or long-term capital gain, depending on the length of time
that the participant held the shares, and the Company will not qualify for a
deduction with respect to such excess.
Subject to certain exceptions for disability or death, the Code provides
that if an Incentive Stock Option is exercised more than three months following
the termination of the participant's employment, the option will generally be
taxed as a Non-Qualified Stock Option. See "Non-Qualified Stock Options."
2. Non-Qualified Stock Options. With respect to NonQualified Stock Options
(i) upon grant of the option, the participant will recognize no income; (ii)
upon exercise of the option (if the shares are not subject to a substantial risk
of forfeiture), the participant will recognize ordinary compensation income in
an amount equal to the excess, if any, of the fair market value of the shares on
the date of exercise over the exercise price, and the Company will qualify for a
deduction in the same amount, subject to the requirement that the compensation
be reasonable and not be limited under Section 162(m) of the Code; (iii) the
Company will be required to comply with applicable Federal income tax
withholding requirements with respect to the amount of ordinary compensation
income recognized by the participant; and (iv) on a sale of the shares, the
participant will recognize gain or loss equal to the difference, if any, between
the amount realized and the sum of the exercise
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price and the ordinary compensation income recognized. Such gain or loss will be
treated as short-term or long-term capital gain or loss if the shares are
capital assets in the participant's hands depending upon the length of time that
the participant held the shares.
Recommendation
THE BOARD OF DIRECTORS BELIEVES THAT THE 1998 STOCK OPTION PLAN IS IN THE
BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS A
VOTE FOR ITS APPROVAL.
PROPOSAL II
PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE
OF INCORPORATION TO AUTHORIZE A PREFERRED STOCK
The Board of Directors has adopted a resolution unanimously approving and
recommending to the Company's stockholder's for their approval of an amendment
to the Certificate of Incorporation of the Company which would authorize the
issuance of 5,000,000 shares of Preferred Stock. Listed on Exhibit A hereto and
incorporated herein by reference is the complete text of the proposed additional
language to be substituted in its entirety in lieu of Article FOURTH.
The proposed amendment will authorize the issuance of 5,000,000 shares of
Preferred Stock, par value $0.01 per share ("Preferred Stock"). The Company
currently has no authorized stock other than common stock. Upon adoption of the
amendment, the Board of Directors will, without further action by the
stockholders, unless otherwise required by law or any applicable stock exchange
rules, be authorized to issue up to 5,000,000 shares of Preferred Stock at such
times, for such purposes and for such consideration as it may determine.
The authorized shares of Preferred Stock that would be available for
issuance if the proposed amendment is approved, could be issued for any proper
corporate purpose by the Board at any time without further stockholder approval,
subject to applicable law and to the rules of the NASDAQ Stock Market, Inc.
("NASDAQ") that apply to the Company as a result of the quotation of the
Company's Common Stock on the NASDAQ SmallCap Market so long as the Company's
Common Stock is so quoted. Except as described above, further authorization from
the Company's stockholders will be solicited prior to the issuance of Preferred
Stock.
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Although it has no present plans or commitments to issue any shares of
Preferred Stock, management believes that the availability of such a security
may prove useful in connection with financing the capital needs of the
corporation, possible future acquisitions and mergers, employee incentive or
compensation plans, or other purposes. The authorization will enable the Company
to act promptly if appropriate circumstances arise which require the issuance of
such shares.
The proposed amendment would authorize the Board of Directors to provide
for the issuance, from time to time, of Preferred Stock in one or more series
and to fix the terms of each series. Each series of Preferred Stock could, as
determined by the Board of Directors at the time of issuance, rank, in respect
of dividends and liquidation, senior to the Common Stock.
In establishing the terms of a series of Preferred Stock, the Board of
Directors would be authorized to set, among other things, the number of shares,
the dividend rate and preferences, the cumulative or non-cumulative nature of
dividends, the redemption provisions, the sinking fund provisions, the
conversion rights, the amounts payable, and preferences, in the event of the
voluntary or involuntary liquidation of the Company, and the voting rights in
addition to those required by law. Such terms could include provisions
prohibiting the payment of Common Stock dividends or purchases by the Company of
Common Stock in the event dividends or sinking fund payments on the Preferred
Stock were in arrears. In the event of liquidation, the holders of Preferred
Stock of each series might be entitled to receive an amount specified for such
series by the Board of Directors before any payment could be made to the holders
of Common Stock.
The authorization of new shares of Preferred Stock will not, by itself,
have any effect on the rights of the holders of shares of Common Stock.
Nonetheless, the issuance of one or more series of Preferred Stock could affect
the holders of shares of the Common Stock in a number of respects, including the
following: (a) if voting rights are granted to any newly issued series of
Preferred Stock, the voting power of the Common Stock will be diluted, (b) the
issuance of Preferred Stock may result in a dilution of earnings per share of
the Common Stock, (c) dividends payable on any newly issued series of Preferred
Stock will reduce the amount of funds available for payment of dividends on the
Common Stock, (d) future amendments to the Certificate of Incorporation
affecting the Preferred Stock may require approval by the separate vote of the
holders of the Preferred Stock or in some cases the holders of shares of one or
more series of Preferred Stock (in addition to the approval of the holders of
shares of the Common Stock) before action can be taken by the Company, and (e)
make more difficult or discourage an attempt to obtain control of
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the Company by means of a merger, tender offer, proxy consent or otherwise.
The Board of Directors has unanimously determined that the proposed
amendment to Article FOURTH of the Company's Certificate of Incorporation is in
the best interest of the Company and its stockholders. The Board of Directors
therefore recommends a vote FOR adoption of the proposed amendment to Article
FOURTH. The affirmative vote of the holders of at least a majority of the issued
and outstanding shares of the Company's Common Stock entitled to vote at the
1998 Annual Meeting of Stockholders is required for the amendment to Article
FOURTH to be effective.
Recommendation
THE BOARD BELIEVES THAT THE PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE
OF INCORPORATION IS IN THE BEST INTEREST OF THE COMPANY AND UNANIMOUSLY
RECOMMENDS A VOTE FOR ITS APPROVAL.
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INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Arthur Andersen, LLP has audited and reported upon the financial statements
of the Company for the fiscal year ended December 31, 1997 and the Board of
Directors currently anticipates that it will select Arthur Andersen, LLP to
examine and report upon the financial statements of the Company for the fiscal
year ending December 31, 1998. A representative of Arthur Andersen, LLP is
expected to be present at the Annual Meeting with the opportunity to make a
statement if he or she desires to do so and is expected to be available to
respond to appropriate questions.
STOCKHOLDER PROPOSALS FOR ANNUAL MEETING
FOR FISCAL YEAR ENDING DECEMBER 31, 1999
Stockholders who wish to present proposals appropriate for consideration at
the Company's Annual Meeting of Stockholders with respect to the Company's
fiscal year ending December 31, 1999 must submit the proposal in proper form to
the Company at its address set forth on the first page of this Proxy Statement
not later than [January 31, 1999] in order for the proposition to be considered
for inclusion in the Company's proxy statement and form of proxy relating to
such annual meeting. Any such proposals, as well as any questions related
thereto, should be directed to the Secretary of the Company.
OTHER INFORMATION
Proxies for the Annual Meeting will be solicited by mail and through
brokerage institutions and all expenses involved, including printing and
postage, will be paid by the Company.
A COPY OF THE COMPANY'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER
31, 1997 IS BEING FURNISHED HEREWITH TO EACH STOCKHOLDER OF RECORD AS OF THE
CLOSE OF BUSINESS ON MAY [22], 1998. COPIES OF THE COMPANY'S ANNUAL REPORT ON
FORM 10-KSB WILL BE PROVIDED TO EACH SUCH STOCKHOLDER WITHOUT CHARGE UPON
WRITTEN REQUEST TO:
U.S. AUTOMOTIVE MANUFACTURING, INC.
ROUTE 627, AIRPORT DRIVE
TAPPAHANNOCK, VA 22560
The Board of Directors is aware of no other matters, except for those
incident to the conduct of the Annual Meeting, that are to be presented to
stockholders for formal action at the
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Annual Meeting. If, however, any other matters properly come before the Annual
Meeting or any adjournments thereof, it is the intention of the persons named in
the proxy to vote the proxy in accordance with their judgment.
By order of the Board of Directors,
John W. Kohut
Chairman of the Board
May 22, 1998
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EXHIBIT A
1998 STOCK OPTION PLAN
OF
U.S. Automotive Manufacturing, Inc.
1. Purpose
U.S. Automotive Manufactuirng, Inc. (the "Company") desires to attract and
retain the best available talent and encourage the highest level of performance
in order to continue to serve the best interests of the Company, and its
stockholder(s). By affording personnel, as well as other individuals and
entities who provide services to the Company and its Subsidiaries, the
opportunity to acquire proprietary interests in the Company and by providing
them incentives to put forth maximum efforts for the success of the business,
the 1998 Stock Option Plan of U.S. Automotive Manufacturing, Inc. (the "1998
Plan") is expected to contribute to the attainment of those objectives.
The word "Subsidiary" or "Subsidiaries" as used herein, shall mean any
corporation, fifty percent or more of the voting stock of which is owned by the
Company.
2. Scope and Duration
Options under the 1998 Plan may be granted in the form of incentive stock
options ("Incentive Options") as provided in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), or in the form of nonqualified stock
options ("Non-Qualified Options"). (Unless otherwise indicated, references in
the 1998 Plan to "options" include Incentive Options and Non-Qualified Options.)
The maximum aggregate number of shares as to which options may be granted from
time to time under the 1998 Plan is 1,000,000 shares of the common stock of the
Company ("Common Stock"), which shares may be, in whole or in part, authorized
but unissued shares or shares reacquired by the Company. The maximum number of
shares with respect to which options may be granted to any employee during the
term of the 1998 Plan is 200,000. If an option shall expire, terminate or be
surrendered for cancellation for any reason without having been exercised in
full, the shares represented by the option or portion thereof not so exercised
shall (unless the 1998 Plan shall have been terminated) become available for
subsequent option grants under the 1998 Plan. As provided in paragraph 13, the
1998 Plan shall become effective on January 14, 1998, and unless terminated
sooner pursuant to paragraph 14, the 1998 Plan shall terminate on January 13,
2008, and no option shall be granted hereunder after that date.
<PAGE>
3. Administration
The 1998 Plan shall be administered by the Board of Directors of the
Company, or, at their discretion, by a committee which is appointed by the Board
of Directors to perform such function (the "Committee"). The Committee, if
appointed, shall consist of not less than two members of the Board of Directors,
each of whom shall serve at the pleasure of the Board of Directors and shall be
a "Non-Employee Director" as defined in Rule l6b-3 pursuant to the Securities
Exchange Act of 1934 (the "Act"). Vacancies occurring in the membership of the
Committee shall be filled by appointment by the Board of Directors.
The Board of Directors or the Committee, as the case may be, shall have
plenary authority in its discretion, subject to and not inconsistent with the
express provisions of the 1998 Plan, to grant options, to determine the purchase
price of the Common Stock covered by each option, the term of each option, the
persons to whom, and the time or times at which, options shall be granted and
the number of shares to be covered by each option; to designate options as
Incentive Options or Non-Qualified Options; to interpret the 1998 Plan; to
prescribe, amend and rescind rules and regulations relating to the 1998 Plan; to
determine the terms and provisions of the option agreements (which need not be
identical) entered into in connection with options under the 1998 Plan; and to
make all other determinations deemed necessary or advisable for the
administration of the 1998 Plan. The Board of Directors or the Committee, as the
case may be, may delegate to one or more of its members or to one or more agents
such administrative duties as it may deem advisable, and the Board of Directors
or the Committee, as the case may be, or any person to whom it has delegated
duties as aforesaid may employ one or more persons to render advice with respect
to any responsibility the Board of Directors or the Committee, as the case may
be, or such person may have under the 1998 Plan.
4. Eligibility; Factors to be Considered in Granting Options
Incentive Options shall be limited to persons who are employees of the
Company or its present and future Subsidiaries and at the date of grant of any
option are in the employ of the Company or its present and future Subsidiaries.
In determining the employees to whom Incentive Options shall be granted and the
number of shares to be covered by each Incentive Option, the Board of Directors
or the Committee, as the case may be, shall take into account the nature of
employees' duties, their present and potential contributions to the success of
the Company and such other factors as it shall deem relevant in connection with
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accomplishing the purposes of the 1998 Plan. An employee who has been granted an
option or options under the 1998 Plan may be granted an additional option or
options, subject, in the case of Incentive Options, to such limitations as may
be imposed by the Code on such options. Except as provided below, a
Non-Qualified Option may be granted to any person or entity, including, but not
limited to, employees, directors, independent agents, consultants and attorneys,
who the Board of Directors or the Committee, as the case may be, believes has
contributed, or will contribute, to the success of the Company. Notwithstanding
the foregoing, no member of the Board of Directors of the Company or any
Subsidiary shall be granted options under the 1998 Plan which entitle the
director to purchase more than 20,000 shares of Common Stock (subject to
adjustment as provided in paragraph 12 below) in any single calendar year.
5. Option Price
The purchase price of the Common Stock covered by each option granted under
the 1998 Plan shall be determined by the Board of Directors or the Committee, as
the case may be, and, in the case of Incentive Options and Non-Qualified
Options, shall not be less than 100% of the Fair Market Value (as defined in
paragraph 15 below) of a share of the Common Stock on the date on which the
option is granted. Such purchase prices shall be subject to adjustment as
provided in paragraph 12 below. The Board of Directors or the Committee, as the
case may be, shall determine the date on which an option is granted; in the
absence of such a determination, the date on which the Board of Directors or the
Committee, as the case may be, adopts a resolution granting an option shall be
considered the date on which such option is granted.
6. Term of Options
The term of each option shall be not more then 10 years from the date of
grant, as the Board of Directors or the Committee, as the case may be, shall
determine, subject to earlier termination as provided in paragraphs 10 and 11
below.
7. Exercise of Options
(a) Subject to the provisions of the 1998 Plan and unless otherwise
provided in the option agreement, options granted under the 1998 Plan shall
become exercisable as determined by the Board of Directors or Committee. In its
discretion, the Board of Directors or the Committee, as the case may be, may, in
any case or cases, prescribe that options granted under the 1998 Plan become
exercisable in installments or provide that an option may be exercisable in full
immediately upon the date of its grant. The
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Board of Directors or the Committee, as the case may be, may, in its sole
discretion, also provide that an option granted pursuant to the 1998 Plan shall
immediately become exercisable in full upon the happening of any of the
following events; (i) the first purchase of shares of Common Stock pursuant to a
tender offer or exchange offer (other than an offer by the Company) for all, or
any part of, the Common Stock, (ii) the approval by the stockholder(s) of the
Company of an agreement for a merger in which the Company will not survive as an
independent, publicly owned corporation, a consolidation, or a sale, exchange or
other disposition of all or substantially all of the Company's assets, (iii)
with respect to an employee, on his 65th birthday, or (iv) with respect to an
employee, on the employee's involuntary termination from employment, except as
provided in Section 10 herein. In the event of a question or controversy as to
whether or not any of the events hereinabove described has taken place, a
determination by the Board of Directors or the Committee, as the case may be,
that such event has or has not occurred shall be conclusive and binding upon the
Company and participants in the 1998 Plan.
(b) Any option at any time granted under the 1998 Plan may contain a
provision to the effect that the optionee (or any persons entitled to act under
Paragraph 11 hereof) may, at any time at which Fair Market Value is in excess of
the exercise price and prior to exercising the option, in whole or in part,
request that the Company purchase all or any portion of the option as shall then
be exercisable at a price equal to the difference between (i) an amount equal to
the option price multiplied by the number of shares subject to that portion of
the option in respect of which such request shall be made and (ii) an amount
equal to such number of shares multiplied by the fair market value of the
Company's Common Stock (within the meaning of Section 422 of the Code and the
treasury regulations promulgated thereunder) on the date of purchase. The
Company shall have no obligation to make any purchase pursuant to such request,
but if it elects to do so, such portion of the option as to which the request is
made shall be surrendered to the Company. The purchase price for the portion of
the option to be so surrendered shall be paid by the Company, less any
applicable withholding tax obligations imposed upon the Company by reason of the
purchase, at the election of the Board of Directors or the Committee, as the
case may be, either in cash or in shares of Common Stock (valued as of the date
and in the manner provided in clause (ii) above), or in any combination of cash
and Common Stock, which may consist, in whole or in part, of shares of
authorized but unissued Common Stock or shares of Common Stock held in the
Company's treasury. No fractional share of Common Stock shall be issued or
transferred and any fractional share shall be disregarded. Shares covered by
that portion of any option purchased by the Company pursuant hereto and
surrendered to the Company shall not be available for the granting of further
options
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under the 1998 Plan. All determinations to be made by the Company hereunder
shall be made by the Board of Directors or the Committee, as the case may be.
An option at any time granted under the 1998 Plan may also contain a
provision to the effect that the payment of the exercise price may be made by
delivery to the Company by the optionee of an executed exercise form together
with irrevocable instructions to a broker-dealer to sell or margin a sufficient
portion of the shares sold or margined and deliver the sale or margin loan
proceeds directly to the Company to pay for the exercise price.
(c) An option may be exercised, at any time or from time to time (subject,
in the case of Incentive Options, to such restrictions as may be imposed by the
Code), as to any or all full shares as to which the option has become
exercisable until the expiration of the period set forth in paragraph 6 hereof,
by the delivery to the Company, at its principal place of business, of (i)
written notice of exercise in the form specified by the Board of Directors or
the Committee, as the case may be, specifying the number of shares of Common
Stock with respect to which the option is being exercised and signed by the
person exercising the option as provided herein, (ii) payment of the purchase
price; and (iii) in the case of Non-Qualified Options, payment in cash of all
withholding tax obligations imposed on the Company by reason of the exercise of
the option. Upon acceptance of such notice, receipt of payment in full, and
receipt of payment of all withholding tax obligations, the Company shall cause
to be issued a certificate representing the shares of Common Stock purchased. In
the event the person exercising the option delivers the items specified in (i)
and (ii) of this Subsection (c), but not the item specified in (iii) hereof, if
applicable, the option shall still be considered exercised upon acceptance by
the Company for the full number of shares of Common Stock specified in the
notice of exercise but the actual number of shares issued shall be reduced by
the smallest number of whole shares of Common Stock which, when multiplied by
the Fair Market Value of the Common Stock as of the date the option is
exercised, is sufficient to satisfy the required amount of withholding tax.
(d) The purchase price of the shares as to which an option is exercised
shall be paid in full at the time of exercise. Payment shall be made in cash,
which may be paid by check or other instrument acceptable to the Company; in
addition, subject to compliance with applicable laws and regulations and such
conditions as the Board of Directors or the Committee, as the case may be, may
impose, the Board of Directors or the Committee, as the case may be, in its sole
discretion, may on a case-by-case basis elect to accept payment in shares of
Common Stock of the Company which are
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already owned by the option holder, valued at the Fair Market Value thereof (as
defined in paragraph 15 below) on the date of exercise; provided, however, that
with respect to Incentive Options, no such discretion may be exercised unless
the option agreement permits the payment of the purchase price in that manner.
(e) Except as provided in paragraphs 10 and 11 below, no option granted to
an employee may be exercised at any time by such employee, unless such employee
is then an employee of the Company or a Subsidiary.
8. Incentive Options
(a) With respect to Incentive Options granted, the aggregate Fair Market
Value (determined in accordance with the provisions of paragraph 15 at the time
the Incentive Option is granted) of the Common Stock or any other stock of the
Company or its current or future Subsidiaries with respect to which incentive
stock options, as defined in Section 422 of the Code, are exercisable for the
first time by any employee during any calendar year (under all incentive stock
option plans of the Company and its parent and subsidiary corporation's, as
those terms are defined in Section 424 of the Code) shall not exceed $100,000.
(b) No Incentive Option may be awarded to any employee who immediately
prior to the date of the granting of such Incentive Option owns more than 10% of
the combined voting power of all classes of stock of the Company or any of its
Subsidiaries unless the exercise price under the Incentive Option is at least
110% of the Fair Market Value and the option expires within 5 years from the
date of grant.
(c) In the event of amendments to the Code or applicable regulations
relating to Incentive Options subsequent to the date hereof, the Company may
amend the provisions of the 1998 Plan, and the Company and the employees holding
options may agree to amend outstanding option agreements, to conform to such
amendments.
9. Non-Transferability of Options
Except as otherwise provided in the option agreement with respect to the
grant of a Non-Qualified Option, options granted under the 1998 Plan shall not
be transferable otherwise than by will or the laws of descent and distribution,
and options may be exercised during the lifetime of the optionee only by the
optionee. No transfer of an option by the optionee by will or by the laws of
descent and distribution shall be effective to bind the Company unless the
Company shall have been furnished with written notice thereof and a copy of the
will and such other evidence as the Company may deem necessary to establish the
validity of the
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transfer and the acceptance by the transferor or transferees of the terms and
conditions of such option.
10. Termination of Employment
In the event that the employment of an employee to whom an option has been
granted under the 1998 Plan shall be terminated (except as set forth in
paragraph 11 below), such option may be, subject to the provisions of the 1998
Plan, exercised (to the extent that the employee was entitled to do so at the
termination of his employment) at any time within three (3) months after such
termination, but not later than the date on which the option terminates;
provided, however, that any option which is held by an employee whose employment
is terminated for cause or voluntarily without the consent of the Company shall,
to the extent not theretofore exercised, automatically terminate as of the date
of termination of employment. As used herein, "cause" shall mean conduct
amounting to fraud, dishonesty, negligence, or engaging in competition or
solicitations in competition with the Company and breaches of any applicable
employment agreement between the Company and the optionee. Options granted to
employees under the 1998 Plan shall not be affected by any change of duties or
position so long as the holder continues to be a regular employee of the Company
or any of its current or future Subsidiaries. Any option agreement or any rules
and regulations relating to the 1998 Plan may contain such provisions as the
Board of Directors or the Committee, as the case may be, shall approve with
reference to the determination of the date employment terminates and the effect
of leaves of absence. Nothing in the 1998 Plan or in any option granted pursuant
to the 1998 Plan shall confer upon any employee any right to continue in the
employ of the Company or any of its Subsidiaries or parent or affiliated
companies or interfere in any way with the right of the Company or any such
Subsidiary or parent or affiliated companies to terminate such employment at any
time.
11. Death or Disability of Employee
If an employee to whom an option has been granted under the 1998 Plan shall
die while employed by the Company or a Subsidiary or within three (3) months
after the termination of such employment (other than termination for cause or
voluntary termination without the consent of the Company), such option may be
exercised, to the extent exercisable by the employee on the date of death, by a
legatee or legatees of the employee under the employee's last will, or by the
employee's personal representative or distributees, at any time within one year
after the date of the employee's death, but not later than the date on which the
option terminates. In the event that the employment of an employee to whom an
option has been granted under the 1998 Plan shall be
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terminated as the result of a disability, such option may be exercised, to the
extent exercisable by the employee on the date of such termination, at any time
within one year after the date of such termination, but not later than the date
on which the option terminates.
12. Adjustments Upon Changes in Capitalization, Etc.
Notwithstanding any other provision of the 1998 Plan, the Board of
Directors or the Committee, as the case may be, may, at any time, make or
provide for such adjustments to the 1998 Plan, to the number and class of shares
issuable thereunder or to any outstanding options as it shall deem appropriate
to prevent dilution or enlargement of rights, including adjustments in the event
of changes in the outstanding Common Stock by reason of stock dividends,
split-ups, recapitalizations, mergers, consolidations, combinations or exchanges
of shares, separations, reorganizations, liquidations and the like. In the event
of any offer to holders of Common Stock generally relating to the acquisition of
their shares, the Board of Directors or the Committee, as the case may be, may
make such adjustment as it deems equitable in respect of outstanding options and
rights, including in its discretion revision of outstanding options and rights
so that they may be exercisable for the consideration payable in the acquisition
transaction. Any such determination by the Board of Directors or the Committee,
as the case may be, shall be conclusive. Any fractional shares resulting from
such adjustments shall be eliminated.
13. Effective Date
The 1998 Plan shall become effective on January 14, 1998, the date of
adoption by the Board of Directors of the Company, subject to approval by the
stockholders of the Company on or before January 13, 1999.
14. Termination and Amendment
The Board of Directors of the Company may suspend, terminate, modify or
amend the 1998 Plan, provided that any amendment that would increase the
aggregate number of shares which may be issued under the 1998 Plan, materially
increase the benefits accruing to participants under the 1998 Plan, or
materially modify the requirements as to eligibility for participation in the
1998 Plan, shall be subject to the approval of the Company's stockholder(s),
except that any such increase or modification that may result from adjustments
authorized by paragraph 12 does not require such approval. No suspension,
termination, modification or
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<PAGE>
amendment of the 1998 Plan may, without the consent of the employee to whom an
option shall theretofore have been granted, effect the rights of such employee
under such option.
15. Miscellaneous
As said term is used in the 1998 Plan, the "Fair Market Value" of a share
of Common Stock on any day means: (a) if the principal market for the Common
Stock is a national securities exchange or the National Association of
Securities Dealers Automated Quotations System ("NASDAQ), the closing sales
price of the Common Stock on such day as reported by such exchange or market
system, or on a consolidated tape reflecting transactions on such exchange or
market system, or (b) if the principal market for the Common Stock is not a
national securities exchange and the Common Stock is not quoted on NASDAQ, the
mean between the highest bid and lowest asked prices for the Common Stock on
such day as reported by NASDAQ or the National Quotation Bureau, Inc.; provided
that if clauses (a) and (b) of this paragraph are both inapplicable, or if no
trades have been made or no quotes are available for such day, the Fair Market
Value of the Common Stock shall be determined by the Board of Directors or the
Committee, as the case may be, which determination shall be conclusive as to the
Fair Market Value of the Common Stock.
The Board of Directors or the Committee, as the case may be, may require,
as a condition to the exercise of any options granted under the 1998 Plan, that
to the extent required at the time of exercise, (i) the shares of Common Stock
reserved for purposes of the 1998 Plan shall be duly listed, upon official
notice of issuance, upon stock exchange(s) on which the Common Stock is listed,
(ii) a Registration Statement under the Securities Act of 1933, as amended, with
respect to such shares shall be effective, and/or (iii) the person exercising
such option deliver to the Company such documents, agreements and investment and
other representations as the Board of Directors or the Committee, as the case
may be, shall determine to be in the best interests of the Company.
During the term of the 1998 Plan, the Board of Directors or the Committee,
as the case may be, in its discretion, may offer one or more option holders the
opportunity to surrender any or all unexpired options for cancellation or
replacement. If any options are so surrendered, the Board of Directors or the
Committee, as the case may be, may then grant new Non-Qualified or Incentive
Options to such holders for the same or different numbers of shares at higher or
lower exercise prices than the surrendered options. Such new options may have a
different term and shall be subject to the provisions of the 1998 Plan the same
as any other option.
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<PAGE>
Anything herein to the contrary notwithstanding, the Board of Directors or
the Committee, as the case may be, may, in their sole discretion, impose more
restrictive conditions on the exercise of an option granted pursuant to the 1998
Plan; however, any and all such conditions shall be specified in the option
agreement limiting and defining such option.
16. Compliance with SEC Regulations.
It is the Company's intent that the 1998 Plan comply in all respects with
Rule 16b-3 of the Act and any regulations promulgated thereunder. If any
provision of the 1998 Plan is later found not to be in compliance with said
Rule, the provisions shall be deemed null and void.
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<PAGE>
EXHIBIT B
Proposed Language to be added to the end
of Article FOURTH of the Certificate of Incorporation
of U.S. Automotive Manufacturing, Inc.
FOURTH: The total number of shares of capital stock which the Company shall
have authority to issue is Thirty-Five Million (35,000,000) shares, of which
Thirty Million (30,000,000) shares shall be Common Stock, par value $.001 per
share, and Five Million (5,000,000) shares shall be Preferred Stock, par value
$.001 per share.
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors of the Company is hereby expressly authorized to provide,
by resolution or resolutions duly adopted by it prior to issuance, for the
creation of each such series and to fix the designation and the powers,
preferences, rights, qualifications, limitations and restrictions relating to
the shares of each such series. The authority of the Board of Directors with
respect to each series of Preferred Stock shall include, but not be limited to,
determining the following:
(a) the designation of the series and the number of shares to
constitute such series (which number may be increased or decreased from
time to time unless otherwise provided by the Board of Directors);
(b) the dividend rate (or method of determining such rate), any
conditions on which and times at which dividends are payable, the
preference or relation which such dividends shall bear to the dividends
payable on any other class or classes or of any other series of capital
stock including the Preferred Stock, and whether such dividends shall be
cumulative or non-cumulative;
(c) whether the series will be redeemable (at the option of the
Company or the holders of such shares or both, or upon the happening of a
specified event) and, if so, the redemption prices and the conditions and
times upon which redemption may take place and whether for cash, property
or rights, including securities of the company or another corporation;
(d) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and
manner in which any such retirement or sinking fund shall be applied to the
purchase or redemption of the shares of such series for retirement or other
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<PAGE>
corporate purposes and the terms and provisions relating to the operation
thereof;
(e) the conversion or exchange rights (at the option of the Company or
the holders of such shares or both, or upon the happening of a specified
event), if any, including the conversion or exchange times, prices, rates,
adjustments and other terms of conversion or exchange;
(f) whether the shares of such series shall have voting rights in
addition to any voting rights provided as a matter of law and, if so, the
terms of such voting rights, which may be general or limited;
(g) the conditions or restrictions, if any, upon the creation of
indebtedness of the Company or upon the issue or reissue or sale of any
additional stock, including additional shares of such series or of any
other series of Preferred Stock or of any other class;
(h) the rights of the holders upon voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company or
upon any dissolution of the assets of the Company (including preferences
over the Common Stock or other class or classes or series of capital stock
including the Preferred Stock);
(i) the preemptive rights, if any, to subscribe to additional issues
of stock or securities of the Company;
(j) the limitations and restrictions, if any, to be effective while
any shares of such series are outstanding upon the payment of dividends or
the making of other distributions on, and upon the purchase, redemption or
other acquisition by the Company of, the Common Stock or shares of stock of
any other class or any other series of Preferred Stock; and
(k) such other special rights and privileges, if any, for the benefit
of the holders of the Preferred Stock, as shall not be inconsistent with
the provisions of the Certificate of Incorporation, as amended, or
applicable law.
All shares of Preferred Stock of the same series shall be identical in all
respects, except that shares of any one series issued at different times may
differ as to dates, if any, from which dividends thereon may accumulate. All
shares of Preferred Stock redeemed, purchased or otherwise acquired by the
Company (including share surrendered for conversion) shall be cancelled and
thereupon restored to the status of authorized but unissued shares of Preferred
Stock undesignated as to series.
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Except as otherwise may be required by law, and except as otherwise may be
proved int he Certificate of Incorporation, as amended, or in the resolution of
the Board of Directors of the Company creating any series of Preferred Stock,
the Common Stock shall have the exclusive right to vote for the election of
directors and for all other purposes, each holder of the Common Stock being
entitled to one vote for each share thereof held.
Except as may be stated and expressed in any resolution or resolutions of
the Board of Directors providing for the issue of any series of Preferred Stock,
(i) any amendment to the Certificate of Incorporation which shall increase or
decrease the number of shares of any class or classes of authorized capital
stock of the Company (but not below the number of shares thereof then
outstanding) may be adopted by the affirmative vote of the holders of a majority
of the outstanding shares of the voting stock of the Company, and (ii) no holder
of capital stock shall be entitled as a matter of right to subscribe for or
purchase, or have any preemptive right with respect to, any apart of any new or
additional issue of stock of any class whatsoever, or of securities convertible
into any stock of any class whatsoever, whether now or hereafter authorized and
whether issued for cash or other consideration or by way of dividend.
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<PAGE>
U.S. AUTOMOTIVE MANUFACTURING, INC.
Route 627, Airport Drive
Tappahannock, VA 22560
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE [30], 1998 THIS PROXY IS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints JOHN KOHUT and MARTIN CHEVALIER, and each
of them, Proxies, with full power of substitution in each of them, in the name,
place and stead of the undersigned, to vote at the Annual Meeting of
Stockholders of U.S. Automotive Manufacturing, Inc. on Monday, June [30], 1998,
at 711 Fifth Avenue, 11th Floor, New York, New York 10022, or at any adjournment
or adjournments thereof, according to the number of votes that the undersigned
would be entitled to vote if personally present, upon the following matters:
ELECTION OF DIRECTORS:
|_| FOR all nominees listed below
(except as marked to the contrary below).
|_| WITHHOLD AUTHORITY
to vote for all nominees listed below.
Martin Chevalier, John W. Kohut, David Love and Mandel Sherman,
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space below.)
- --------------------------------------------------------------------------------
1. Adoption of 1998 Stock Option Plan
|_| For |_| Against |_| Abstain
- --------------------------------------------------------------------------------
2. Adoption of Amendment to Certificate of Incorporation Authorizing Preferred
Stock
|_| For |_| Against |_| Abstain
- --------------------------------------------------------------------------------
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
(continued and to be signed on reverse side)
<PAGE>
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN ABOVE. IF NO
INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR THOSE NOMINEES AND THE
PROPOSALS LISTED ABOVE.
DATED: ________________________________, 1998
Please sign exactly as name appears hereon. When shares are
held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name
by authorized person.
_____________________________________________
(Signature)
Name:
_____________________________________________
(Signature if held jointly)
Name:
Please mark, sign, date and return this proxy card promptly using the
enclosed envelope.
