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 [_]
[X] Preliminary Proxy Statement [_] Confidential, For Use of the
[_] Definitive Proxy Statement Commission Only (as permitted
[_] Definitive Additional Materials by Rule 14a-6(e)(2))
[_] 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, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(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 transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total Fee Paid:
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[_] Fee paid previously with preliminary materials.
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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:
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(4) Date filed:
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<PAGE>
[U.S. Automotive Manufacturing, Inc. Letterhead]
June 26, 2000
Dear Fellow Stockholders:
You are cordially invited to attend our Annual Meeting of Stockholders
which will be held on Wednesday, August 16, 2000 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.
Please take special note of stockholders Proposal III. As outlined therein,
your vote is being solicited to authorize the Board of Directors to increase the
authorized shares of the Company's common stock. This action is necessitated by
the pending conversion or redemption of approximately $2,019,000 principal
amount together with interest thereon of outstanding 8% Redeemable Convertible
Debentures of the Company for shares of common stock of the Company as well as
the potential conversion of the Affiliated Notes (as described herein) into
shares of common stock of the Company. Failure to approve such proposal could
result in the Company having an insufficient number of authorized but unissued
shares of common stock available should the foregoing conversions and or
redemption occur, as well as for other corporate purposes including, without
limitation, potential financings, acquisitions and employee stock option and
benefit plans. Approval of the increase requires approval by holders of over 50%
of our outstanding common stock (not just a majority of those voting). The Board
of Directors reserves the right, irrespective of authority granted by
stockholders pursuant to an affirmative vote in favor of Proposal III, to
refrain from filing an amendment to its Articles of Incorporation recording an
increase in authorized shares, if, in its sole discretion, it determines that an
increase and, consequently, such filing is not in the best interest of the
Company.
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,
/s/
---------------------
John W. Kohut
Chairman of the Board
<PAGE>
U.S. AUTOMOTIVE MANUFACTURING, INC.
Route 627, Airport Drive
Tappahannock, VA 22560
--------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 16, 2000
--------------------
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 Wednesday, August
16, 2000, 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 authorization for the Company to reserve, make
available for issuance and issue shares of common stock, par value $.01 of the
Company ("Common Stock"), in excess of the Maximum Conversion Allotment, as set
forth in the 8% Redeemable Convertible Debentures, upon either: (i) conversion
of the debentures by the holders thereof, or (ii) redemption by the Company, in
lieu of cash, of the principal amount of outstanding debentures together with
accrued but unpaid interest thereon.
3. To consider and vote upon a proposal to authorize the Board of Directors, at
any time through March 31, 2001, to amend the Company's Certificate of
Incorporation to increase the number of authorized shares of Common Stock of the
Company from 5,000,000 shares to an amount to be determined by the Board not to
exceed a maximum of 100,000,000 shares; and
4. 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 Friday, June 23,
2000 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.
By Order of the Board of Directors,
/s/
----------------------------------
John W. Kohut
Chairman of the Board
June 26, 2000
<PAGE>
PRELIMINARY PROXY STATEMENT
U.S. AUTOMOTIVE MANUFACTURING, INC.
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 16, 2000
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
Wednesday, August 16, 2000, 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 June 26, 2000.
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 Friday, June 23,
2000 (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 1,329,492
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 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. The proposal to amend the Company's
Certificate of Incorporation will be approved upon receiving the affirmative
vote of the holders of a majority of the shares of Common Stock outstanding on
the Record Date. 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. It is currently anticipated that
votes will be counted and certified by an Inspector of Election who is currently
expected to be an employee of the Company or its legal counsel. 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. Because of the requirement for an
absolute majority of the outstanding Common Stock to approve the proposed
<PAGE>
amendment to the Certificate of Incorporation, broker non-votes will also have
the same effect as a vote "against" the proposed amendment to the Certificate of
Incorporation. Broker non-votes will, however, have no legal effect on the vote
on any other particular matter which requires the affirmative vote of the
holders of a majority of the shares of Common Stock represented at the Annual
Meeting.
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 stockholders, 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, four (4) directors will be elected to hold
office for a term expiring at the Annual Meeting of Stockholders to be held in
the year 2001. Each director will be elected to serve until a successor is
elected and qualified or until the director's earlier resignation or removal.
At this year's Annual Meeting, 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
---- --------
John W. Kohut Chairman of the Board, Director(1)
Martin Chevalier Chief Executive Officer, President and Director
Jerry W. Perry Director
Mandel Sherman Director(1)
- ------------------------
(1) Member, Audit Committee
2
<PAGE>
John W. Kohut, 53, 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") was acquired by the Company, by merger, on August 29, 1997
(the "Merger"). Mr. Kohut also has served, since August 1997, as the principal
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, 54, has been a director of the Company since August 1997
and has served as President and Chief Executive Officer of the Company since 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.
Jerry W. Perry, has been a director of the Company since September 1999.
Mr. Perry has been Executive Vice President and Chief Operating Officer of the
Company since August 1999. From June 1992 to August 1999, Mr. Perry served as
Vice President-Operations of Quality Automotive Company. Prior to joining
Quality, Mr. Perry was General Manager for Akebono America, a manufacturer of
brake parts.
Mandel Sherman, 61, has been a director of the Company since July, 1996.
Mr. Sherman has also provided consulting services to the Company through Baroque
Investments, Inc., a consulting firm engaged in December 1995 by the Company
which terminated on January 31, 1999. 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.
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.
Resignation of Director
Effective May 8, 2000, David Love submitted his resignation from the Board
of Directors, which was accepted by resolution adopted by the Board at a special
meeting on May 9, 2000.
Committees of the Board of Directors
In August 1997, the Company established an Audit Committee which is
currently comprised of Messrs. 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.
The Company does not have standing compensation or nomination committees or
other committees performing similar functions.
During the fiscal year ended December 31, 1999, the Board of Directors held
12 meetings which were attended by all of the directors. The Board also took
various actions by unanimous written consent in lieu of a meeting. During the
fiscal year ended December 31, 1999, the Audit Committee of the Board of
Directors held [three] meetings which were attended by all of the members of the
Audit Committee. The Audit Committee also took various actions by unanimous
written consent in lieu of a meeting.
3
<PAGE>
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 stockholders 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, the Company believes that, during the year ended
December 31, 1999, all filing requirements applicable to its officers,
directors, and greater than 10 percent beneficial owners were complied with,
except that (i) a Form 3 for August 1999 covering one officer of the Company
elected to an executive office of the Company during that month, was not timely
filed; (ii) a Form 4 for March 1999 covering four directors in connection with
options granted and shares of Common Stock issued during that month, was not
timely filed; (iii) a Form 4 for June 1999 covering four directors in connection
with options granted and shares of Common Stock issued during that month, was
not timely filed; and (iv) a Form 4 for December 1999 covering two directors in
connection with shares of Common Stock issued during that month, was not timely
filed.
Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION
OF THE NOMINEES STATED ABOVE.
4
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth for the fiscal years ended December 31,
1999, 1998 and 1997 the compensation of the Company's Chief Executive Officer
(the "Named Executive"). No other executive officer of the Company received
aggregate compensation in excess of $100,000 during the year ended December 31,
1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Securities All Other
Principal Fiscal Underlying Compen
Name Position Year Salary($) Bonus($) Options (#) sation
- ---- -------- ---- --------- -------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Martin Chevalier President and
Chief Executive 1999 $225,000 0 3,600 16,440
Officer
1998 $225,000 0 6,666 21,900
1997 75,000(1) 0 0 --
</TABLE>
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(1) Based on four months employment at an annual rate of $225,000. Mr.
Chevalier was employed by the Company effective August 29, 1997, following
the Merger.
The following table sets forth information concerning stock options granted
in the year ended December 31, 1999 to the Named Executive:
Options Grants in Fiscal Year Ended December 31, 1999
Individual Grants
-------------------------------
Number of
Securities Percent of Total
Underlying Options Granted Exercise
Options to Employees in Price Expiration
Name Granted (#) Fiscal Year (%) ($/Sh) Date
- ---- ----------- --------------- ------ ----
Martin Chevalier 1,800(1) 4.6% $1.06 3/31/2009
1,800(1) 4.6% 2.25 6/30/2009
- ----------
(1) Represents options granted under the Company's 1992 Stock Option Plan.
These options vested in full and were immediately exercisable upon the date
of grant.
The following table sets forth information concerning the value of options
exercised during the year ended December 31, 1999 and the value of unexercised
stock options held by the Named Executive as of December 31, 1999. No options
were exercised by the Named Executive during the fiscal year ended December
31,1999:
5
<PAGE>
Aggregated Option Exercises and Year End Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options
Shares at December 31, 1999(#) At December 31, 1999($)*
Acquired ---------------------- ----------------------
on
Name Exercise(#) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Martin Chevalier 0 6,266(1) 4,000 -- --
</TABLE>
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* Year-end values for unexercised in-the-money options represent the positive
spread between the exercise price of such options and the fiscal year-end
market value of the Common Stock, which was $0.87 on December 31, 1999.
(1) Includes (i) 2,666 shares underlying options granted under the Company's
1998 Stock Option Plan and (ii) 3,600 shares underlying options granted
under the Company's 1992 Stock Option Plan.
Employment and Consulting Agreements
The Company has entered into a three-year employment agreement dated August
29, 1997, 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, stockholders, agents, officers and employees
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 had entered into a consulting agreement, which terminated
January 31, 1999, with Baroque Investments Inc. ("Baroque"), of which Mr.
Sherman is the President, pursuant to which Baroque had 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 provided for an annual rate of $60,000, payable in
monthly installments of $5,000, plus reasonable and necessary expenses.
6
<PAGE>
Director Fees and Other Remuneration
All directors 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 is 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. Mr. Love received the $25,000 annual director's fee and Mr. Sherman,
effective with the expiration of the Baroque consulting contract on January 31,
1999, likewise received the annual director's fee.
The Company issued or authorized for issuance, shares of common stock to
certain directors of the Company during the year ended December 31, 1999 and the
quarter ended March 31, 2000, as follows: (i) on March 31, 1999, 22,734 and
11,759 shares, respectively, to Messrs. Sherman and Love; (ii) on June 30, 1999,
2,777 shares to each of Messrs. Sherman and Love, (iii) on December 31, 1999,
11,590 shares to each of Messrs. Sherman and Love, and (iv) on March 31, 2000,
4,166 shares to each of Messrs. Sherman and Love. The issuances were made and
are to be made in lieu of payment of accrued directors' fees and the number of
shares of Common Stock issued and to be issued to each director as of each such
date was determined by dividing the amount of accrued and unpaid directors' fees
owed to each director by the closing price per share of the Company's Common
Stock on the Nasdaq SmallCap market on or about the date of issuance or
authorization for issuance.
During each of fiscal 1998 and 1999, the Company paid to RamKo, of which
Mr. Kohut is the President, the sum of $180,000, pursuant to the Company's
consulting agreement with RamKo.
Stock Option Plans
1992 Stock Option Plan
On March 13, 1992, the Company's Board of Directors and stockholders
approved the Company's 1992 Employee Stock Option Plan (the "1992 Plan"). Under
the 1992 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. The Company is authorized to issue up to 4,000 options under the 1992
Plan. The 1992 Plan terminates in March 2002.
As of December 31, 1999, options to purchase an aggregate of 3,943 shares
under the 1992 Plan have been granted at exercise prices ranging from $1.06 per
share to $2.25 per share. Of such options, 3,600 options have been granted to an
officer and director of the Company.
1998 Stock Option Plan
On June 30, 1998, the Company's Board of Directors and stockholders
approved the 1998 Employee Stock Option Plan (the "1998 Plan"), pursuant to
which 66,666 shares of Common Stock were reserved for issuance upon exercise of
options eligible for grant under the 1998 Plan. Unless sooner terminated, the
1998 plan will expire at the close of business on January 13, 2008.
Any person, including, but not limited to, employees, directors,
independent agents, consultants and attorneys believed by the Board of
Directors, or if applicable, a Stock Option Committee, to have contributed to
the success of the Company, are eligible to be granted non-qualified stock
options under the 1998 Plan. Incentive stock options as defined in Section 422
of the Code may be granted only to employees of the Company or any subsidiary of
the Company. Under the 1998 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 13,333 shares.
Incentive stock options granted pursuant to the 1998 Plan are
nontransferable by the optionee during his or her lifetime. All options granted
under the 1998 Plan, will, unless a shorter term is established by the Board of
Directors or the Committee, if applicable, 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 1998 Plan, may be exercised within 3 months
following termination of employment (one year in the event of death of the
optionee).
7
<PAGE>
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 that the aggregate fair market value of
the underlying stock (determined at the time the option is granted) exceeds
$100,000.
As of December 31,1999, options to purchase up to an aggregate of 51,231
shares of Common Stock were outstanding under the 1998 Plan, at exercise prices
ranging from $1.06 per share to $14.53 per share. Of such options, (i) an
aggregate of 20,331 options have been granted to officers and directors at an
exercise price of $14.53 per share, (ii) an aggregate of 8,800 options have been
granted to officers and directors at an exercise price of $1.06 per share, and
(iii) an aggregate of 4,800 options have been granted to officers and directors
at an exercise price of $2.25 per share. Such options become exercisable at
various dates and expire at the end of not more than ten (10) years from the
date of the grant or within sixty days of termination of employment with the
Company, which ever is earlier. For purposes of such options, the Company shall
at all times reserve and keep available, free from preemptive rights, out of its
authorized but unissued Common Stock, the full number of shares of Common Stock
issuable upon the exercise of the options.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of the Record Date, the number of shares
of the Company's outstanding Common Stock beneficially owned 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
Executive; and (iv) all of the Company's directors and executive officers as a
group (based on information furnished by such persons). Unless otherwise
indicated, the beneficial owners exercise sole voting and/or investment power
over their shares.
<TABLE>
<CAPTION>
Beneficial
Name and Address of Beneficial Amount and Nature of Percent
Owner (1) Beneficial Ownership(2)
- ------------------------------- ---------------------- ---------------
<S> <C> <C>
Elmgrove Associates II., L.P.(3) 135,166(4) 9.6%
Mandel Sherman(5) 184,132(4)(6) 12.9%
Martin Chevalier 79,758(7) 6.0%
John W. Kohut 55,344(8) 4.1%
Jerry W. Perry 6,500(9) *
All executive officers and directors 325,734(10) 22.6%
as a group (4persons)
</TABLE>
- ----------
* 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 the Record Date 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
8
<PAGE>
within 60 days of the Record Date 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's address is 210 Dartmouth, Pawtucket, RI 02860. Mandel Sherman, a
director of the Company, is President of the General Partner of Elmgrove.
(4) Includes (i) 85,166 shares of Common Stock issuable upon exercise of
currently exercisable warrants, and (ii) 50,000 shares of Common Stock held
by Elmgrove which are subject to a lock-up agreement, dated August 29,
1997, whereby Elmgrove has agreed to certain volume restrictions and
limitations on the sale of these shares over a 5 year period.
(5) Mr. Sherman's address is c/o Elmgrove Associates II, L.P. at 210 Dartmouth,
Pawtucket, RI 02860.
(6) Includes (i) 41,267 shares of Common Stock beneficially owned by Mr.
Sherman, (ii) 1,866 shares of Common Stock issuable upon exercise of
currently exercisable options, (iii) 5,833 shares of Common Stock issuable
upon exercise of currently exercisable warrants, and (iv) 135,166 shares
beneficially owned by Elmgrove Associates II, L.P., for which Mr. Sherman
may also be deemed to be the beneficial owner by virtue of his position as
President of the General Partner of Elmgrove. Does not include 2,800 shares
of Common Stock underlying issued and outstanding options which are not
currently exercisable.
(7) Includes (i) 73,492 shares of Common Stock beneficially owned by Mr.
Chevalier, and (ii) 6,266 shares of Common Stock issuable upon exercise of
currently exercisable options. Except for the aforementioned option shares,
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. Does not include
4,000 shares of Common Stock underlying issued and outstanding options
which are not currently exercisable.
(8) Includes (i) 49,078 shares of Common Stock beneficially owned by Mr. Kohut,
and (ii) 6,266 shares of Common Stock issuable upon exercise of currently
exercisable options. Except for the aforementioned option shares, 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. Does not include 4,000
shares of Common Stock underlying issued and outstanding options which are
not currently exercisable.
(9) Includes 6,500 shares of Common Stock issuable upon exercise of currently
exercisable options. Does not include 3,500 shares underlying issued and
outstanding options which are not currently exercisable.
(10) Includes and aggregate of 111,897 shares of Common Stock issuable upon
exercise of currently exercisable options and warrants. Does not include an
aggregate of 14,300 shares of Common Stock underlying issued and
outstanding options which are not currently exercisable.
Certain Relationships and Related Transactions
In 1995, the Company entered into a consulting agreement, which terminated
on January 31, 1999, with Baroque Investments Inc. ("Baroque"), of which Mr.
Sherman (a director of the Company) is the President. Such consulting agreement
provided 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 provided for an annual
rate of $60,000, payable in monthly installments of $5,000, plus reasonable and
necessary expenses.
On August 29, 1997, a wholly-owned subsidiary of the Company acquired, by
merger, Quality Automotive Company and its two subsidiaries from the
stockholders of Quality Automotive Company (the "Merger"). In connection with
the consummation of the Merger each of Messrs. Chevalier and Kohut, as
stockholders of Quality Automotive Company, received promissory notes from the
Company, in the amounts of $2,697,841.73 and $1,802,158.27, respectively, as
well as 73,492 and 49,078 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
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October 31, 2002. Such notes are the direct obligation of Quality and are
guaranteed by U.S. Automotive, which also pledged all of its stock in Quality as
additional collateral. Mr. Kohut currently serves as a director and principal
financial officer of the Company and Mr. Chevalier serves as a director and
President of the Company. The holders of the notes have agreed to subordinate
their rights under the notes to the rights of the lenders under the IBJ Credit
Facility.
On August 29, 1997, the Company 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. The 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,
stockholders, 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 consisting of
two (2) unsecured non-negotiable promissory notes in the aggregate principal
amount of $400,000, bearing interest at the rate of 10.5% per annum, and
warrants to purchase up to an aggregate of 6,666 shares of the Common Stock,
maturing in February 2003, at a conversion price equal to the greater of $30.00
per share or the last sales price of the Common Stock as reported on NASDAQ
SmallCap Market for the trading date immediately preceding the exercise date,
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 $0.75 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. On each of July 23, 1998 and February 28, 1999, the Company paid in
full the outstanding balances and accrued interest thereon, with respect to the
promissory notes to David Love and Elmgrove, respectively.
The Company issued or authorized for issuance, shares of common stock to
certain directors of the Company during the year ended December 31, 1999 and the
quarter ended March 31, 2000, as follows: (i) on March 31, 1999, 22,734 and
11,759 shares, respectively, to Messrs. Sherman and Love; (ii) on June 30, 1999,
2,777 shares to each of Messrs. Sherman and Love, (iii) on December 31, 1999,
11,590 shares to each of Messrs. Sherman and Love, and (iv) on March 31, 2000,
4,166 shares to each of Messrs. Sherman and Love. The issuances were made and
are to be made in lieu of payment of accrued directors' fees and the number of
shares issued and to be issued to each director as of each such date was
determined by dividing the amount of accrued and unpaid directors' fees owed to
each director by the closing price per share of the Company's Common Stock on
the Nasdaq SmallCap market on or about the date of issuance or authorization for
issuance.
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PROPOSAL II
AUTHORIZATION FOR COMPANY TO ISSUE SHARES OF COMMON STOCK IN EXCESS OF
THE "MAXIMUM CONVERSION ALLOTMENT" AS SET FORTH IN THE COMPANY'S 8%
REDEEMABLE CONVERTIBLE DEBENTURES ("REG S DEBENTURES") PURSUANT TO
EITHER (i) CONVERSION BY HOLDERS OF OUTSTANDING REG S DEBENTURES
OF THE OUTSTANDING PRINCIPAL AND INTEREST ACCRUED THEREON INTO
SHARES OF COMMON STOCK OF THE COMPANY, OR (ii) REDEMPTION BY
THE COMPANY, IN LIEU OF CASH, OF THE PRINCIPAL AMOUNT OF
OUTSTANDING REG S DEBENTURES TOGETHER WITH
ACCRUED BUT UNPAID INTEREST THEREON
General
The Board of Directors of the Company has unanimously adopted a resolution
declaring the advisability of, and submits to the stockholders for approval, a
proposal to authorize the Company to issue, from time to time, as needed, from
its authorized but unissued share capital, shares of Common Stock in excess of
the "Maximum Conversion Share Allotment" as set forth in the 8% Redeemable
Convertible Debentures ("Reg S Debenture") and described herein below, in
connection with either: (i) receipt by the Company of notice of conversion by
holders of outstanding Reg S Debentures of all or a portion of the outstanding
principal amount together with accrued but unpaid interest, into shares of
Common Stock of the Company, or (ii) redemption by the Company, in lieu of cash,
of the principal amount of outstanding Reg S Debentures together with accrued
but unpaid interest thereon. The proposal may be abandoned by the Board of
Directors at any time before the Annual Meeting. Subsequent to the date on which
such authorization is given, the Board of Directors may determine, in its
discretion, not to issue such shares of Common Stock.
Reg S Debentures
In June 1998, the Company obtained financing through the sale of Reg S
Debentures, in the aggregate principal amount of $2,250,000. The Reg S
Debentures represent unsecured obligations of the Company and outstanding Reg S
Debentures must be converted into shares (the "Conversion Shares") of the
Company's Common Stock at the Maturity Date (December 31, 2000) unless they have
been converted earlier, at the option of the holder. The conversion price of the
Reg S Debentures will be equal to 80% of the average closing bid price of the
shares of Common Stock as quoted on the Nasdaq SmallCap Market for the five (5)
trading days immediately preceding the date of conversion (the "Conversion
Rate"). Notwithstanding the foregoing, the Company is not obligated to, but with
an affirmative vote of the Board of Directors can, issue more than 209,660
Conversion Shares (the "Maximum Conversion Share Allotment") without obtaining
approval of its stockholders.
As of March 31, 2000 an aggregate of $229,204 principal amount of Reg S
Debentures plus accrued but unpaid interest thereon of $41,035 had been
converted into 206,324 shares of the Company's Common Stock at an average
conversion price of $1.265 per share.
The Reg S Debentures provided for interest at 8% per annum (subject to
increase under certain circumstances), payable upon conversion or redemption of
the Reg S Debentures, in cash or shares of Common Stock, at the option of the
Company. The interest rate increased to 20% per annum for the period commencing
January 1, 1999 since the underlying Conversion Shares were not covered by a
registration statement filed with the SEC. At such time as the underlying shares
are tradable, without regard to registration, the interest rate will revert to
the 8% per annum.
On May 3, 2000, the holders of outstanding Reg S Debentures each delivered
a conversion notice to the Company requesting the conversion of an aggregate
principal amount of $90,000 and accrued but unpaid interest thereon into
approximately 192,948 shares of the Company's Common Stock at an average
conversion price, pursuant to the Conversion Rate of $.61 per share. The Company
issued an aggregate of 3,336 shares to the converting holders on a pro-rata
basis of 1,112 to each such holder. Such shares in the aggregate, represented
the remaining shares available for issuance by the Company under the Maximum
Conversion Allotment. The Company
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has notified the holders of the Reg S Debentures that the Company has,
contemporaneously with the issuance of the 3,336 shares, reached the Maximum
Conversion Allotment and that any further issuances of share of common stock by
the Company, pursuant to notices to convert, would require the prior
authorization of the stockholders.
As a result of the notices of conversion noted immediately above, the
interest rate on the Reg S Debentures has, effective as of the issuance of the
Maximum Conversion Allotment, increased to 25% per annum with respect to the
outstanding and unconverted aggregate principal amount Reg S Debentures. At May
2, 2000, an aggregate of approximately $2,019,000 of principal together with
approximately $622,000 of accrued and unpaid interest was outstanding.
Redemption of Reg S Debentures
The Company may redeem the Reg S Debentures at any time, upon three days
notice for redemption (a "Redemption Notice"), at a redemption price equal 100%
of the principal amount of, plus accrued interest on, the Reg S Debentures. In
addition, if the Company redeems the Reg S Debentures for cash any time after
the Company has issued the Maximum Conversion Share Allotment, the Company has
also agreed to issue to the holders of the Reg S Debentures to be redeemed a
number of warrants (the "Redemption Warrants") equal to one-half of the
principal amount of Reg S Debentures to be redeemed. If issued, the Redemption
Warrants will be exercisable for a period of five years from the date of
issuance at an exercise price equal to either (i) the greater of (A) $15.00 per
share; (B) 115% of the average of the closing bid price of the Common Stock for
the five trading days immediately preceding the Redemption Date or (ii) in the
event that an exercise price under alternative (i) is determined by Nasdaq to be
an issuance below the then current market price within the meaning of NASD Rule
4310(c)(25)(H) (or any successor rule), the exercise price will be equal to the
closing bid price of the Common Stock on June 30, 1998 and the number of Warrant
Shares issuable will be subject to adjustment as provided in the Redemption
Warrant. The Redemption Warrants, if any, will be redeemable by the Company upon
notice of not less than 30 days, at a price of $.05 per Redemption Warrant but
only to the extent that the shares of Common Stock underlying the Redemption
Warrants are transferable either pursuant to an effective registration statement
or pursuant to Rule 144 of the Act and the closing bid price of the Common Stock
on all 15 trading days ending on the day on which the Company gives notice has
been at least 150% of the then effective exercise price of the Redemption
Warrants. If issued, the Redemption Warrants will be exercisable either on a
cash or "cashless" basis and the holders will have certain registration rights
with respect to the shares of Common Stock issuable upon exercise of the
Redemption Warrants.
The outstanding principal amount of Reg S Debentures represents a
significant burden on the Company's ability to obtain additional financing.
Moreover, as a result of the recent issuance by the Company of Conversion Shares
equaling the Maximum Conversion Allotment, the effective interest rate on the
outstanding principal amount of Reg S Debentures is 25%. The Company does not
have the cash reserves necessary to effectuate a cash redemption of the Reg S
Debentures and does not anticipate having such reserves available prior to the
Maturity Date of the Reg S Debentures. Authorization by stockholders for the
Company to reserve and, if warranted, issue from its authorized share capital
such number of shares as would be necessary to redeem the outstanding Reg S
Debentures, in lieu of cash, would (a) provide the Company with flexibility in
connection with negotiations with third parties for financing, and (b) reduce
the effective interest rate upon outstanding principal amount of Reg S
Debentures from 25% to 8%.
Convertible Notes of Affiliated Persons
Two current officers and directors of the Company hold promissory notes
from the Company (the "Affiliated Notes"), issued by the Company in connection
with the Merger with Quality Automotive Products, aggregating approximately
$4,500,000 in principal together with approximately $1,020,000 of accrued and
unpaid interest as of June, 2000. The Affiliated Notes are convertible by the
holders thereof, at their option, at a conversion rate substantially similar to
the Conversion Rate set forth in the Debentures, at any time after the Company
issues shares to holders of the Reg S Debentures in excess of the Maximum
Conversion Allotment. As of May 16, 2000, giving effect to a conversion rate of
$.5952 (representing the 5-day average closing bid price of the Company's common
stock as reported on the Nasdaq SmallCap Market) the Company would be required
to issue approximately 9,275,000 shares if the holders of the Affiliated Notes
determined to convert the entire portion of principal and interest outstanding
under such notes.
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Dilution to Stockholders
If the Company were to issue shares upon conversion or redemption of all or
a significant portion of the outstanding principal and accrued and unpaid
interest of the Reg S Debentures, the existing stockholders may experience
substantial dilution to the value of their shares in the Company. Furthermore,
the issuance of such shares would trigger the option with the holders of the
Affiliated Notes to convert all or a portion of such notes, further diluting the
value of the shares held by existing stockholders. As of May 16, 2000, giving
effect to the Conversion Rate described above, if the holders of the Reg S
Debentures were to convert or the Company were to redeem, in lieu of cash, all
of the outstanding principal and accrued but unpaid interest thereon, the
Company would be required to issue approximately 4,061,000 shares to such
holders. Moreover, if the closing bid price of the Company's common stock as
quoted on the Nasdaq Stock Market were to fall, the number of shares issuable by
the Company in connection with a conversion or redemption of the outstanding
principal and interest on the Reg S Debentures would increase, resulting in
further dilution to the existing stockholders of the Company.
Nasdaq Requirements
Pursuant to Rule 4460(i)(1)(D) of the Nasdaq Stock Market, Inc. ("Rule
4460(i)(1)(D)"), the Company is required to obtain stockholder approval in
connection with any transaction other than a public offering, which involves the
issuance by the Company of Common Stock (or securities convertible into or
exercisable for Common Stock) at a price below market value which equals 20% or
more of the Common Stock of the Company outstanding before the issuance of such
securities. The amount of shares underlying the Reg S Debentures, calculated as
Maximum Conversion Allotment at the time the Company entered into the
transaction in which it sold the Reg S Debentures, was less than 20% of the
shares then outstanding on the date of such transaction. The shares of common
stock of the Company to be issued in excess of the Maximum Conversion Allotment
pursuant to a conversion and/or redemption of the Reg S Debentures, while
subject to a conversion factor calculated upon the market price of the Company's
common stock, will exceed such 20% limitation.
Accordingly, stockholder approval of this Proposal II will be deemed as a
ratification and confirmation of the shares issuable in excess of the Maximum
Conversion Allotment and, therefore not conflict with Rule 4460(i)(1)(D). Absent
stockholder approval, issuance of shares beyond the Maximum Conversion Allotment
could possibly result in the removal of the Company's Common Stock from
inclusion on the Nasdaq SmallCap Market.
Irrespective of the foregoing, in May 2000 the Company was notified by
Nasdaq that, among other things, the Company was not in compliance with the new
net tangible asset/market capitalization/net income requirements for continued
listing on the Nasdaq SmallCap Market. If the Company's response to such notice
is not accepted by Nasdaq, Nasdaq may commence delisting proceedings against the
Company.
Event of Default
Pursuant to the terms of the Reg S Debentures, if the Company is unable to
obtain stockholder authorization for the issuance of shares in excess of the
Maximum Conversion Allotment at the Annual Meeting to which this proxy statement
relates, or within four (4) months of such Annual Meeting, an event of default
will have occurred giving the holders of the Reg S Debenture the right to
accelerate the repayment of the Reg S Debentures at the rate of 125% of the
principal and interest then outstanding. As noted above, the Company does not
have the cash reserves available to repay the outstanding principal and accrued
but unpaid interest on the Reg S Debentures nor has it been able to raise
financing to enable it to repay the outstanding principal and interest on the
Reg S Debentures and the Company does not contemplate that it will be able to
obtain financing to repay the Reg S Debentures prior to their Maturity Date.
Although the conversion and/or redemption (with shares in lieu of cash) of
the outstanding principal and accrued but unpaid interest on the Reg S
Debentures may result in substantial dilution to the value of shares held by
existing stockholders of the Company, the Board of Directors believes that
authorization by the stockholders for the Company to issue such shares in
connection with such conversion and/or redemption outweighs such concern by
virtue of allowing the Company to reduce the financial burden caused by such Reg
S Debentures and by allowing the Company to pursue much needed financing from
third parties.
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Effect of Failure to Approve
If the Company fails to obtain stockholder approval to this Proposal II at
the Annual Meeting the Company may, as authorized by the Board and provided
there are sufficient shares authorized, issue shares in excess of the Maximum
Conversion Allotment in connection with a conversion or redemption of the Reg S
Debentures. Any such issuance, however, without prior stockholder approval,
could conflict with Nasdaq Rule 4460(i)(I)(D) and subject the Company to
delisting from Nasdaq. Furthermore, under the terms of the Debentures, at the
Maturity Date the outstanding principal and interest must be repaid or subject
to mandatory conversion. As stated herein, the Company does not have and does
not anticipate having sufficient cash reserves to effectuate such repayment at
the Maturity Date. Consequently, at such time as the Reg S Debentures become
subject to mandatory conversion, the Board of Directors may, irrespective of
failure to obtain stockholder approval, authorize the issuance of such number of
authorized and available shares to satisfy the mandatory conversion. In the
event that the Company has not obtained stockholder approval at such time as the
Company issues shares to satisfy the mandatory conversion the Company will most
likely be in conflict with Rule 4460(i)(I)(D) and subject to delisting from
Nasdaq. Moreover, if the Company does not have sufficient authorized shares to
issue in satisfaction of the mandatory conversion, the Company will be subject
to a penalty payment calculated based upon the principal amount of those
Debentures that remain unconverted. Such penalty payment will continue to accrue
until such time as authorization is obtained for a sufficient number of shares
to effect the conversion of such unconverted Reg S Debentures.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
AUTHORIZATION FOR THE COMPANY TO ISSUE, FROM TIME TO TIME, SHARES OF COMMON
STOCK IN EXCESS OF THE MAXIMUM CONVERSION ALLOTMENT IN CONNECTION WITH EITHER:
(I) THE CONVERSION BY HOLDERS OF ALL OR A PORTION OF THE OUTSTANDING PRINCIPAL
AND INTEREST ACCRUED AND UNPAID ON THE REG S DEBENTURES, OR (II) REDEMPTION BY
THE COMPANY, IN LIEU OF CASH, OF ALL OR A PORTION OF THE OUTSTANDING PRINCIPAL
AND ACCRUED AND UNPAID INTEREST ON THE REG S DEBENTURES.
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PROPOSAL III
PROPOSAL TO AUTHORIZE THE BOARD OF DIRECTORS, AT ANY TIME THROUGH
MARCH 31, 2001, TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM 5,000,000 SHARES
TO AN AMOUNT TO BE DETERMINED BY THE BOARD NOT TO EXCEED A MAXIMUM OF
100,000,000 SHARES
The Board of Directors has adopted a resolution unanimously approving and
recommending to the Company's stockholders, for their approval, the
authorization for the Board, at anytime through March 31, 2001, to amend the
Certificate of Incorporation of the Company to provide for an increase in the
authorized number of shares of Common Stock of the Company from 5,000,000 shares
to an amount to be determined by the Board not to exceed a maximum of
100,000,000 shares.
As of the Record Date there were 1,329,492 shares of the Company's Common
Stock issued and outstanding and outstanding options, warrants and other
convertible securities to acquire approximately 516,811 shares of Common Stock.
If the stockholders approve Proposal II above, authorizing the Company to issue,
from time to time, such number of shares in connection with (i) the conversion
by holders of the outstanding Reg S Debentures or (ii) redemption by the
Company, in lieu of cash, of the outstanding principal and accrued but unpaid
interest on such Reg S Debentures, the Company may, based upon the Conversion
Rate then applicable, issue such number of shares that, when added to the issued
and outstanding shares noted above, equal or exceed the number of shares
currently authorized for issuance by the Company. In such event, the Company
will not have authorized shares available for issuance upon conversion, if any,
of the Affiliated Notes, exercise of currently outstanding option and warrants,
and for potential future offerings and financings by third parties.
By way of example only, as of May 16, 2000 the Conversion Rate (calculated
under the terms of the Reg S Debentures as 80% of the average closing bid price
of the Company's common stock as reported on the Nasdaq SmallCap Market for the
five (5) trading days immediately preceding May 16, 2000) is $.5952. Giving
effect to the conversion by the holders of the Reg S Debentures or a redemption
by the Company, in lieu of cash, of all of the outstanding principal and accrued
but unpaid interest thereon, in the aggregate amount of approximately
$2,641,000, the Company would be required to issue 4,437,000 shares to such
holders upon such conversion or redemption. Such issuance, giving effect to
shares then outstanding, would exceed the 5,000,000 shares currently authorized
for issuance under the Company's Certificate of Incorporation and could subject
the Company to certain penalty payments under the Reg S Debentures for failure
to have sufficient authorized shares available for issuance. Moreover, if the
closing bid price of the Company's common stock as reported on the Nasdaq
SmallCap Market were to fall immediately prior to a conversion or redemption of
the Reg S Debentures, the number of shares to be issued upon such conversion
and/or redemption would increase substantially thereby increasing a potential
penalty payment under the Reg S Debentures as a result of even fewer authorized
shares available for issuance in response to such conversion.
On an immediate basis, the Company must consider the shares which may be
issued pursuant to the conversion and/or redemption of the Reg S Debentures as
well as the shares which may be issued in connection with the possible
conversion of the Affiliated Notes by the holders thereof, which option to
convert triggers at such time as the Company issues shares in excess of the
Maximum Conversion Allotment. At May 16, 2000 the aggregate amount of
outstanding principal and interest on the Affiliated Notes was approximately
$5,520,000. Since these notes convert at substantially the same rate as the Reg
S Debentures, giving effect to a Conversion Rate of $.5952, the Company would be
required to issue approximately 9,275,000 shares of common stock upon conversion
in full of such notes. Additionally, the Company is currently negotiating a
strategic investment by a third party in the Company. As consideration for such
investment the Company may issue shares of common stock to such third party
representing up to an approximate 66% equity interest in the Company on a fully
diluted basis. If the shares issuable pursuant to the conversion and/or
redemption of the Reg S Debentures and pursuant to the conversion of the
Affiliated Notes have been issued in the amounts noted above, the Company
(assuming it agreed to the 66% equity interest) would be required to issue
approximately 30,000,000 shares to such strategic investor in connection such
financing. In all, the Company would have approximately 45,000,000 shares
outstanding upon completion of the foregoing issuances. If the Company's share
price, as reported on the Nasdaq SmallCap Market were to fall, the amount of
shares issuable in connection with such conversions/redemption and financing
would increase substantially. The Company believes that the authorization of the
Board to increase the authorized shares should provide the
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Company with a sufficient number of shares available for issuance upon such
conversion and/or redemption of the Reg S Debentures, conversion of the
Affiliated Notes and for other corporate and related matters.
While the Company did not envision its current position at the time it
issued the Affiliated Notes or sold the Reg S Debentures, it has set the maximum
amount for the increase of authorized shares at 100,000,000 in order to avoid
having to repeatedly seek stockholder approval for authorized share increases in
the event that the foregoing transactions take place at a time when the
Company's share price is further depressed. The approval sought by this Proposal
III is for authority to be vested in the Board to increase the authorized shares
in an amount up to the 100,000,000 maximum. Depending on the then existing
business conditions the Board may, in its discretion, determine that it is in
the best interest of the Company to increase the authorized shares by a lesser
amount or not to increase the authorized shares at all.
The Company's Board of Directors has determined that it is in the best
interest of the Company to authorize the Board to increase the number of shares
of Common Stock that are authorized for issuance by the Company in an amount to
be determined by the Board not to exceed a maximum of 100,000,000 shares.
Delaware, the state in which the Company is incorporated, assesses franchise
taxes on the basis of the number of authorized shares. Consequently, an increase
in the Company's authorized shares would cause the Company to incur additional
annual franchise taxes payable to the State of Delaware. Such franchise tax
obligation, however, may be reduced by the shares issued by the Company. Any
increase in the number of authorized shares by the Board will be in response to
pending conversion and/or redemption of the Reg S Debentures, conversion of the
Affiliated Notes or third party financings based upon the then current market
conditions. As a result, a substantial number of increased authorized shares
would be issued to meet the Company's obligations under such transactions. The
increased franchise tax obligation resulting form the increase in authorized
shares would most likely be reduced by the issuance of shares by the Company in
connection with such conversion, redemption or other corporate related matter.
Moreover, the Company, would have sufficient authorized shares available to meet
the Company's needs, including for potential issuance in connection with any
possible future sales of Common Stock or Common Stock equivalents or issuances
of Common Stock or Common Stock equivalents in any acquisition transaction which
may arise in the future, as well as for the issuance of Common Stock pursuant to
the exercise of outstanding stock options, warrants and other convertible
securities as well as options that may be granted in the future under the 1992
Plan or the 1998 Plan.
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock of the Company is required for the approval of an amendment of
the Company's Certificate of Incorporation to increase the number of authorized
shares of Common Stock of the Company.
Recommendation
THE BOARD BELIEVES THAT THE PROPOSAL TO AUTHORIZE THE BOARD, AT ANY TIME
THROUGH MARCH 31, 2001, TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM 5,000,000 SHARES
TO AN AMOUNT TO BE DETERMINED BY THE BOARD NOT TO EXCEED A MAXIMUM OF
100,000,000 SHARES IS IN THE BEST INTEREST OF THE COMPANY AND UNANIMOUSLY
RECOMMENDS A VOTE FOR ITS APPROVAL.
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, 1999 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, 2000. 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, 2000
Stockholders who wish to present proposals appropriate for consideration at
the Company's Annual Meeting of Stockholders with respect to the Company's
annual meeting to be held in the year 2001 must submit the proposal in proper
form and in satisfaction of all conditions established by the Securities and
Exchange Commission
16
<PAGE>
to the Company at its address set forth on the first page of this Proxy
Statement not later than February 26, 2001 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.
After the February 26, 2001 deadline, a stockholder may present a proposal
at the Company's next Annual Meeting if it is submitted to the Company's
Secretary at the address set forth above no later than May 11, 2001. If timely
submitted, the stockholder may present the proposal at the next Annual Meeting
but the Company is not obligated to present the matter in its proxy statement.
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, 1999 IS BEING FURNISHED HEREWITH TO EACH STOCKHOLDER OF RECORD AS OF THE
CLOSE OF BUSINESS ON JULY 23, 2000. 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 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,
/s/
--------------------------
John W. Kohut
Chairman of the Board
June 26, 2000
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U.S. AUTOMOTIVE MANUFACTURING, INC.
Route 627, Airport Drive
Tappahannock, VA 22560
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 18, 2000 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 Wednesday, August 18,
2000, 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:
1. 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, Jerry W. Perry and Mandel
Sherman
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space below.)
2. To authorize the Company to issue shares of Common Stock in excess of the
"Maximum Conversion Allotment" as set forth in the Company's Reg S Debentures
pursuant to either (I) conversion by holders of outstanding Reg S Debentures of
the outstanding principal and accrued but unpaid interest thereon into share of
common stock, or (ii) redemption by the Company, in lieu of cash, of the
principal amount of the outstanding Reg S Debentures together with accrued but
unpaid interest thereon.
[_] For [_] Against [_] Abstain
3. To authorize the Board of Directors of the Company, at any time through March
31, 2001, to amend the Company's Certificate of Incorporation to increase the
number of authorized shares of common stock from 5,000,000 shares to an amount
to be determined by the Board not to exceed a maximum of 100,000,000.
[_] For [_] Against [_] Abstain
4. 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: ________________________________, 2000
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.
