SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED
IN PROXY STATEMENT.
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to
Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X] Filed by a party other than the Registrant [ ] Check
the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant toss.240.14a-11(c) orss.240.14a-12
LS CAPITAL CORPORATION
................................................................................
(Name of Registrant as Specified In Its Charter)
................................................................................
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] 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:
................................................................................
(2) Aggregate number of securities to which transaction applies:
................................................................................
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
................................................................................
(4) Proposed maximum aggregate value of transaction:
................................................................................
(5) Total fee paid:
................................................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
................................................................................
(2) Form, Schedule or Registration Statement No.:
................................................................................
(3) Filing Party:
................................................................................
(4) Date Filed:
................................................................................
<PAGE>
LS CAPITAL CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 14, 2000
To All Stockholders in
LS Capital Corporation
A Special Meeting of Stockholders (the "Special Meeting") of LS Capital
Corporation, a Delaware corporation (the "Company"), will be held on Monday
August 14, 2000 at the offices of Pearson & Pearson, LLC located at 1330 Post
Oak Blvd., Suite 2900, Houston, Texas, at 10:00 a. m. local time, for the
purpose of considering and voting on the following matters:
1. An amendment of the Certificate of Incorporation of the
Company to change the name of the Company to "Eurobid.com,
Inc." (the "Corporate Name Change").
2. An amendment of the Certificate of Incorporation of the
Company to effect a 1-for-25 reverse stock split (the "Reverse
Stock Split") of the Company's Common Stock, $.01 par value
per share ("Common Stock"), in which every twenty-five shares
of Common Stock outstanding as of the effective date of the
amendment will be converted into one share of Common Stock.
3. The approval of issuances of Common Stock, in the discretion
of the Board of Directors, to creditors of the Company
(including officers and directors of the Company) in
satisfaction of amounts owed by the Company (the
"Discretionary Stock Issuances").
4. A fourth amendment (the "Amendment No. 4") to the Company's
1993 Stock Option Plan authorizing an increase to 6,000,000
shares in the number of shares of the Company's Common Stock
available for issuance of new grants under such plan, of which
1,000,000 shares would be reserved for grants or replacement
or reload options.
5. A first amendment (the "Amendment No. 1") to the Company's
1994 Stock Plan for Non-Employee Directors, authorizing an
increase to 500,000 shares in the number of shares of the
Company's Common Stock available for issuance of new grants
under such plan.
6. A second amendment (the "Amendment No. 2") to the Company's
1994 Stock Plan for Non-Employee Directors, modifying the
timing of grants under such plan and deleting requirements
that grants under such plan for a fiscal year be for a fixed
number of shares and be conditioned upon an increase in the
Company's net income from the previous fiscal year.
7. Such other business as may properly come before the Special
Meeting and any adjournment thereof.
The Corporate Name Change, the Reverse Stock Split, the Discretionary
Stock Issuances, Amendment No. 4, Amendment No. 1, Amendment No. 2 and other
related matters are more fully described in the accompanying Proxy Statement and
the exhibits thereto, which form a part of this Notice. All stockholders will be
entitled to vote on all matters submitted for a vote at the Special Meeting. The
Board of Directors has fixed the close of business on July 19, 2000 as the
record date for determining the stockholders entitled to notice of and to vote
at the Special Meeting and any adjournment thereof.
All stockholders of the Company are cordially invited to attend the
Special Meeting. Whether or not you plan to attend the Special Meeting, it is
important that your shares be represented. Accordingly, please sign and date the
enclosed Proxy Card and return it promptly in the envelope provided herewith.
Even if you return a Proxy Card, you may revoke the proxies appointed thereby at
any time prior to the exercise thereof by filing with the Chief Executive
Officer of the Company a written revocation or duly executed Proxy Card bearing
a later date or by attendance and voting at the Special Meeting. Attendance at
the Special Meeting will not, in itself, constitute revocation of the proxies.
By Order of the Board of Directors,
Paul J. Montle,
Chief Executive Officer
Dublin, Ireland
July 24, 2000
PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY
IN THE ENCLOSED POST-PAID ENVELOPE.
PLEASE DO NOT SEND ANY STOCK CERTIFICATES AT THIS TIME.
<PAGE>
LS CAPITAL CORPORATION
Rivercourt
17 - 19 Sir John Rogersons Quay
Dublin 2
Ireland
(01) 3531-679-0222
PROXY STATEMENT
GENERAL
This Proxy Statement and the accompanying Proxy Card are furnished in
connection with the solicitation of proxies by order of the Board of Directors
of LS Capital Corporation (the "Company") to be voted at the Special Meeting of
Stockholders (the "Special Meeting"), to be held at the time and place, and for
the purposes set forth in the accompanying notice. Such notice, this Proxy
Statement and the Proxy Card are being mailed to Stockholders beginning on or
about July 24, 2000.
The Company will bear the costs of soliciting proxies. In addition to
the solicitation made hereby, proxies may also be solicited by telephone,
telegram or personal interview by officers of the Company. The Company will
reimburse brokers or other persons holding stock in their names or in the names
of their nominees for their reasonable expenses in providing beneficial
ownership information and in forwarding proxy material to beneficial owners of
stock who have objected to the disclosure of information regarding them.
All duly executed Proxy Cards received prior to the Special Meeting
will be voted in accordance with the choices specified thereon, unless revoked
in the manner provided hereinafter. As to any matter for which no choice has
been specified on a Proxy Card, except with respect to broker non-votes, the
related shares will be voted by the persons named therein (1) for each of the
proposals described herein, and (2) in the discretion of such persons in
connection with any other business that may properly come before the Special
Meeting. Stockholders may revoke their proxy at any time prior to the exercise
thereof by written notice to Paul J. Montle, Chief Executive Officer of the
Company, at the address of the Company stated above, by the execution and
delivery of a later dated Proxy Card, or by attendance at the Special Meeting
and voting their shares in person.
As of the close of business on July 19, 2000, the record date (the
"Record Date") for determining Stockholders entitled to vote at the Special
Meeting, the Company had outstanding and entitled to vote 34,293,000 shares of
Common Stock, and these shares are the only outstanding shares of the Company
entitled to vote. Each share of Common Stock is entitled to one vote with
respect to each matter to be acted upon at the meeting. Stockholders personally
present, or represented by proxy, and holding more than one-third of the
outstanding Common Stock will constitute a quorum.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of the Record
Date concerning the beneficial ownership of the Common Stock (i) by each
stockholder who is known by the Company to own beneficially in excess of 5% of
the outstanding Common Stock; (ii) by each director; (iii) by each executive
officer; and (iv) by all executive officers and directors as a group. Except as
otherwise indicated, all persons listed below have (i) sole voting power and
investment power with respect to their shares of Common Stock, except to the
extent that authority is shared by spouses under applicable law, and (ii) record
and beneficial ownership with respect to their shares of Common Stock.
<TABLE>
<CAPTION>
Shares of
Common Stock Beneficially Owned (1)
Name and Address of Beneficial Owner Number Percent
<S> <C> <C>
Paul J. Montle 5,707,351(2) 14.27%
Rivercourt
17 - 19 Sir John Rogersons Quay
Dublin 2
Ireland
Roger W. Cope 969,398(3) 3.93%
5663 East Nine Mile Rd.
Warren, Michigan 48901
C. Thomas Cutter 2,200(4) (5)
82 Olympia Ave.
Woburn, Massachusetts 01801
All directors and officers
as a group (three persons) 6,678,949(6) 16.58%
</TABLE>
---------------------
(1) Includes shares of Common Stock beneficially owned pursuant to
options and warrants exercisable on the July 24, 2000 or within 60
days thereafter.
(2) Includes 17,351 shares of Common Stock held by Travis Partners, G.P., a
general partnership in which Mr. Montle has a 51.67% interest and a
trust for the benefit of Mr. Montle's children has a 15% interest, and
5,690,000 shares of Common Stock beneficially owned pursuant to
non-qualified stock options currently exercisable.
(3) Does not include 12,000 shares owned by Elizabeth Cope, Mr. Cope's
wife, all such shares of which Mr. Cope disclaims beneficial
ownership.
(4) Includes 200 shares directly owned, and 2,000 shares beneficially owne
pursuant to stock options immediately exercisable.
(5) Less than 1%
(6) Includes 969,598 shares directly owned; 5,692,000 shares beneficially
owned pursuant to stock options currently exercisable; and 17,351
shares beneficially owned indirectly through affiliated entities.
EXECUTIVE COMPENSATION.
Report for Compensation Committee
on Executive Compensation
The Compensation Committee of the Board of Directors is responsible for
reviewing and approving the Company's compensation policies and the compensation
paid to its executive officers (including the executive officers named below).
The Company's compensation program for its executive officers (including the
Chief Executive Officer) is designed to provide levels of compensation required
to assist the Company in attracting and retaining qualified executive officers.
The Compensation Committee attempts to set an executive officer's compensation
at a level which is similar to such officer's peers in the Company's industry.
Generally, executive officer compensation (including the Chief Executive
Officer) is not directly related to the Company's performance. Instead, the
Compensation Committee has a philosophy which recognizes individual initiative
and achievement which can significantly influence an officer's compensation
level. The executive compensation program is comprised of salary, annual cash
incentives and stock options. The following is a discussion of each of the
elements of the executive compensation program.
Salary. Generally, base salary for each executive officer is similar to
levels within the industry and comparable to the level which could be attained
for equal positions elsewhere. Also taken into account are benefits, years of
service, responsibilities, Company growth, future plans and the Company's
current ability to pay.
Annual Cash Incentives. The annual cash incentive plan is a cash bonus
program designed to reward significant corporate accomplishments and individual
initiatives demonstrated by executive officers during the prior fiscal year. The
amount of each cash bonus is determined by the Compensation Committee at the end
of the fiscal year and is paid in cash in a single payment.
Stock Options. The 1993, 1994 and 2000 Stock Option Plans were adopted
for the purpose of promoting the interests of the Company and its stockholders
by attracting and retaining executive officers and other key employees of
outstanding ability. Options are granted to eligible participants based upon
their potential impact on corporate results and on their individual performance.
Generally, options are granted at market value, vest over a number of years, and
are dependent upon continued employment. The Committee believes that the grant
of time-vested options provides an incentive that focuses the executive
officers' attention on managing the business from the perspective of owners with
an equity stake in the Company. It further motivates executive officers to
maximize long-term growth and profitability because value is created in the
options only as the Company's stock price increases after the option is granted.
The Compensation Committee:
Roger W. Cope
C. Thomas Cutter
Summary Compensation Table
The following table sets forth the compensation paid by the Company and
its subsidiaries to the Chief Executive Officer. No other executive officer
whose total annual salary and bonus for the fiscal year ended June 30, 1999,
1998 or 1997 exceeded $100,000 for services in all capacities to the Company and
its subsidiaries.
<TABLE>
<CAPTION>
Summary Compensation Table (1)
Annual Long-Term
Compensation Compensation
(a) (b) (c) (g)
Name and Fiscal Securities Underlying
Principal Year Stock Options
Position Ended Salary (Number of Shares)
-------------------------- ---------------------------------- ------------------
<S> <C> <C> <C>
Paul J. Montle 6/30/99 $124,019(2) -0-
Chairman and 6/30/98 $183,225 290,000
Chief Executive 6/30/97 $200,912 500,000
Officer
-----------------
</TABLE>
(1) The Columns designated by the SEC for the reporting of certain annual
compensation (including bonuses and other annual compensation) and
certain long-term compensation (including awards of restricted stock,
long term incentive plan payouts, and all other compensation) have been
eliminated as no such bonuses, other annual compensation, awards,
payouts or compensation were awarded to, earned by or paid to any
specified person during any fiscal year covered by the table.
(2) Of this amount, only $29,673 was actually paid while the remaining
$94,346 was accrued.
Stock Option Grants
The Company did not grant any stock options during the fiscal year
ended June 30, 1999.
Option Exercises/Value of Unexercised Options
The following table sets forth the number of securities underlying
options exercisable at June 30, 1999, and the value at June 30, 1999 of
exercisable in-the-money options remaining outstanding as to the Chief Executive
Officer of the Company. No SAR's of any kind have been granted.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last
Fiscal Year and Fiscal Year End Option Values
(a) (d) (e)
Number of Securities
Underlying Unexercised Value of Unexercised
Options at June 30, 1999 In-the-Money Options at
(Numbers of Shares) June 30, 1999
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Paul J. Montle 591,600 200,000 (2) (2)
---------------------
</TABLE>
(1) The Columns designated by the SEC for the reporting of the number of
shares acquired on exercise, the value realized, and the number and
value of unexercisable options have been eliminated as no options were
exercised and no unexercisable options existed during the fiscal year
covered by the table.
(2) The average of the closing bid and ask prices of the Common Stock on
June 30, 1999 on the NASDAQ Stock Market was $.04, which was less
than the exercise price of all options reported in the table.
Other Plans
The Company has no other deferred compensation, pension or retirement
plans in which executive officers participate.
Compensation Agreements
The Company currently has no written employment contracts or other
written compensation agreements with any of its current executive officers.
Compliance with Section 16(a) of
the Securities Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended,
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 of ownership with the Securities and Exchange
Commission. Officers, directors and greater than 10 percent stockholders are
required to furnish the Company with copies of all Section 16(a) reports they
file. Based solely on its review of the forms received by the Company, or
written representations from certain reporting persons that no Form 5 reports
were required for those persons, the Company believes that during the year ended
June 30, 1999, all filing requirements applicable to the Company's officers,
directors and greater than 10 percent shareholders were satisfied.
<PAGE>
PROPOSAL 1
APPROVAL OF CORPORATE NAME CHANGE
At the Special Meeting, holders of shares of Common Stock will be asked
to consider and vote upon a proposal to change the name of the Company from "LS
Capital Corporation" to "Eurobid.com, Inc." (the "Corporate Name Change"), by
means of an amendment to the Company's Certificate of Incorporation. The Board
of Directors has adopted resolutions approving the Corporate Name Change and
recommending that the Corporate Name Change be submitted to the Stockholders for
their approval at the Special Meeting. If the proposed amendment to the
Certificate of Incorporation is approved by the requisite number of shares of
Common Stock entitled to vote at the Special Meeting, the Corporate Name Change
and the proposed amendment to the Company's Certificate of Incorporation will
become effective upon the filing of a Certificate of Amendment of Certificate of
Incorporation with the Secretary of State of Delaware, which is expected to
occur shortly after Stockholder approval.
At a special meeting of stockholders held on June 17, 1996, the
stockholders of the Company approved the Company's current corporate name.
Shortly after the adoption of the Company's current name, the Company began the
pursuit of a number of precious metals prospects with proprietary technologies
then still under development. The Company continued this activity until February
1999. At that time, primarily due to the unavailability of capital to develop
the Company's technologies further, the Company decided to discontinue its
mineral activities and furlough its remaining personnel in the U.S. The Company
allowed its mineral interests to lapse. The Company intends to dispose of its
remaining precious mineral property and equipment as purchasers can be procured.
Since ceasing its efforts in the precious minerals industry, the
Company has been exploring opportunities to develop or acquire one or more
businesses in other industries. The Company has been focusing specifically on
Internet-related businesses, and has considered certain Internet-related
businesses focused on the European market. However, he Company does not now any
particular prospect under consideration in any meaningful sense, and the nature
of the business in which the Company will engage in the future, the terms and
circumstances under which the Company will engage in such business and even
whether or not the Company will engage in a future business, are now uncertain.
Nonetheless, the Company believes that the possibility of eventually pursuing an
Internet-related business focused on Europe is so that great that a change of
the Company's corporate name to one suggesting the Internet and Europe is very
appropriate. Accordingly, the Board of Directors has decided that Article One of
the Company's Certificate of Incorporation should be amended to change the
Company's corporate name to "Eurobid.com, Inc.", a name that will better reflect
the Company's possible future entry into an Internet-related business focused on
Europe.
The Board of Directors believes that the Corporate Name Change, and
accordingly the proposed amendment, are in the best interests of the Company and
its Stockholders and recommends that the Stockholders approve the Corporate Name
Change and the proposed amendment of the Company's Certificate of Incorporation.
The affirmative vote of the holders of at a majority of the outstanding
shares of Common Stock is required for approval of the Corporate Name Change and
the proposed amendment of the Certificate of Incorporation.
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
CORPORATE NAME CHANGE AND THE RELATED AMENDMENT TO THE CERTIFICATE OF
INCORPORATION
PROPOSAL 2
APPROVAL OF THE REVERSE STOCK SPLIT
GeneralGeneral
At the Special Meeting, holders of shares of Common Stock will be asked
to consider and vote upon a proposal to effect a 1-for-25 reverse stock split of
the Common Stock (the "Reverse Stock Split"), by means of an amendment to the
Company's Certificate of Incorporation. The Board of Directors has adopted
resolutions approving the Reverse Stock Split and recommending that the Reverse
Stock Split be submitted to the Stockholders for their approval at the Special
Meeting. A copy of the Board of Director resolutions approving Reverse Stock
Split is annexed to this Proxy Statement as Exhibit A. If approved by the
stockholders of the Company, the Reverse Stock Split and related amendment to
the Company's Certificate of Incorporation will become effective upon the filing
of a Certificate of Amendment of Certificate of Incorporation with the Secretary
of State of Delaware, which is expected to occur shortly after Stockholder
approval.
Principal EffectsPrincipal Effects
The Reverse Stock Split would reduce the number of outstanding shares
of Common Stock to approximately four percent (4%) of the number of shares
outstanding prior to the Reverse Stock Split. Accordingly the Reverse Stock
Split would decrease the number of outstanding shares of Common Stock to
approximately 1.37 million shares. The Reverse Stock Split will not affect the
proportionate equity interest in the Company of any holder of the Common Stock,
subject to the provisions for the elimination of fractional shares as described
below. If the Reverse Stock Split is approved, each outstanding share of Common
Stock will be entitled to one vote at each meeting of stockholders of the
Company, as is the case with each currently outstanding share. While a reduced
number of outstanding shares of Common Stock could adversely affect the
liquidity of the Common Stock, the Board of Directors does not believe that this
is likely to happen.
The Reverse Stock Split is not intended as an anti-takeover device and
it is not expected to function unintentionally as one. The Company is not aware
of any present efforts by any person to obtain control of the Company.
Reasons for the Reverse Stock SplitReasons for the Reverse Stock Split
The Board of Directors believes that the current market value of the
Common Stock impairs the Company's ability to access the capital markets, and
impairs the acceptability of the Common Stock by members of the investing
public. Theoretically, the price of a stock should not (by itself) affect its
marketability, the type of investor who acquires it, or the Company's reputation
in the financial community. In practice this is not necessarily the case, as
many institutional investors look upon low-priced stock as unduly speculative in
nature and, as a matter of policy, avoid investment in such stocks. Further, the
Board of Directors believes that a lower per-share price will reduced the
effective marketability of the Common Stock because of the reluctance of many
leading brokerage firms to recommend low-priced stock to their clients. In
addition, a variety of brokerage house policies and practices tend to discourage
individual brokers within those firms from dealing in low-priced stocks. Some of
those policies and practices pertain to the payment of brokers' commissions and
to time-consuming procedures that function to make the handling of low-priced
stocks unattractive to brokers from an economic standpoint. Many brokerage firms
also prohibit investors from purchasing on margin stocks that are trading below
certain prices per share. Additionally, the structure of trading commissions
also tends to have an adverse impact upon holders of low-priced stock because
the brokerage commission on a sale of low-priced stock generally represents a
higher percentage of the sales price than the commission on a relatively higher
priced stock. Therefore, lower prices for the Common Stock may adversely affect
anyone who wishes to acquire shares and holders who wish to liquidate their
holdings.
The Reverse Stock Split is intended to result in a higher per-share
market price for the Common Stock, both now and in the future. Hopefully this
will increase investor interest and eliminate the resistance of brokerage firms.
However, there can be no assurance that the market price of a share of Common
Stock after the Reverse Stock Split will be twenty-five times the market price
before the Reverse Stock Split, that the marketability of the Common Stock will
increase, or that the Reverse Stock Split will otherwise have the desired
effects described.
The Board of Directors desires to enhance the value of the Common
Stock. The Board of Directors believes that the value of the Common Stock will
be significantly less, and efforts to enhance the value of the Common Stock will
be impaired, if the Reverse Stock Split is not approved and implemented.
Exchange of Stock Certificates and Elimination of Fractional Share Interests
If the Reverse Stock Split is approved by the requisite number of
shares of Common Stock entitled to vote at the Special Meeting, a Certificate of
Amendment effecting the Reverse Stock Split will be filed in the Office of the
Secretary of State of Delaware promptly after such approval. The Reverse Stock
Split would become effective as of the close of business on the date of the
filing of the Certificate of Amendment (such filing is referred to hereinafter
as the "Filing"). Stockholders of the Company of record as of the Filing will
then be furnished the necessary materials and instructions to effect the
exchange of their certificates representing Common Stock outstanding prior to
the Reverse Stock Split (referred to hereinafter as "Pre-Split Shares") for new
certificates representing Common Stock after the Reverse Stock Split (referred
to hereinafter as "Post-Split Shares"). Certificates representing Pre-Split
Shares subsequently presented for transfer will not be transferred on the books
and records of the Company but will be returned to the tendering person for
exchange. Stockholders of the Company should not submit any certificates until
requested to do so. In the event any certificate representing Pre-Split Shares
is not presented for exchange upon request, any dividends which may be declared
after August 31, 2000 with respect to the shares represented by such certificate
will be withheld by the Company until such certificate has been properly
presented for exchange, at which time all such withheld dividends which have not
yet been paid to a public official pursuant to the abandoned property laws will
be paid to the holder thereof or his designee, without interest.
No fractional shares will be issued. Accordingly, holders of Pre-Split
Shares, both of record and beneficial, who would otherwise be entitled to
receive a fractional Post-Split Share will be entitled to receive cash in lieu
thereof. The amount of cash to which such a holder will be entitled will be the
product of the closing sale price of the Common Stock on the OTC Bulletin Board
on the last trading day prior to the Filing, multiplied by the number of shares
of Pre-Split Shares that would otherwise be converted into a fractional
Post-Split Share. Checks representing payment for fractional shares may be
obtained by sending a written request to LS Capital Corporation, Rivercourt, 17
- 19 Sir John Rogersons Quay, Dublin 2 Ireland, Attention: Corporate Secretary.
Dissenters' RightsDissenters' Rights
Under Delaware corporation law and the Company's Certificate of
Incorporation and bylaws, holders of Common Stock will not be entitled to
dissenters' rights with respect to the Reverse Stock Split.
Federal Income Tax ConsequencesFederal Income Tax Consequences
This discussion is for general information only and does not discuss
consequences which may apply to special classes of taxpayers (e.g., non-resident
aliens, broker-dealers, or insurance companies). Stockholders are urged to
consult their own tax advisors to determine the particular consequences to them
of the Reverse Stock Split.
The exchange of Pre-Split Shares for Post-Split Shares will not result
in recognition of gain or loss for federal income tax purposes (except in the
case of cash received for fractional shares as described below). Provided that a
stockholder held the Pre-Split Shares as a capital asset, the Post-Split Shares
received in exchange therefor will also be held as a capital asset and the
holding period of the Post-Split Shares will include the stockholder's holding
period for the Pre-Split Shares. The tax basis of the Post-Split Shares will be
same as the tax basis of the Pre-Split Shares exchanged therefor.
Holders of Pre-Split Shares who receive cash in lieu of a fractional
share interest will be treated as if the Company had redeemed their fractional
share interest. Provided that such redemption results in a reduction of such
holder's percentage ownership interest in the Company (including for this
purpose shares constructively owned), such holder will recognize gain or loss,
as the case may be, measured by the difference between the amount of cash
received and the basis of the fractional share interest determined as described
above. Such gain or loss will be capital gain or loss if such holder's Pre-Split
Shares were held as a capital asset, and any such capital gain or loss will
generally be long-term capital gain or loss to the extent such holder's holding
period for his Pre-Split Shares exceeds twelve months.
The Board of Directors believes that the Reverse Stock Split, and the
proposed amendment, are in the best interests of the Company and its
Stockholders and recommends that the Stockholders approve the Reverse Stock
Split and the proposed amendment of the Company's Certificate of Incorporation.
The affirmative vote of the holders of at a majority of the outstanding
shares of Common Stock is required for approval of the Reverse Stock Split and
the proposed amendment of the Certificate of Incorporation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
REVERSE STOCK SPLIT AND THE PROPOSED AMENDMENT TO THE CERTIFICATE OF
INCORPORATION
PROPOSAL 3
APPROVAL OF ISSUANCES OF COMMON STOCK
At the Special Meeting, holders of shares of Common Stock will be asked
to consider and vote upon a proposal to approve issuances of Common Stock (the
"Discretionary Stock Issuances"), in the discretion of the Board of Directors
but subject to certain restrictions, to creditors of the Company (including
officers and directors of the Company) in satisfaction of amounts owed by the
Company to such creditors. Specifically, holders of shares of Common Stock will
be asked to consider and approve resolutions (the "Discretionary Stock Issuances
Resolutions"), a copy of which is annexed to this Proxy Statement as Exhibit B.
The Company currently owes certain amounts to various persons,
including Paul J. Montle, the Chief Executive Officer of the Company. With
regard to amounts owed to Mr. Montle, from time to time from August 1998 through
the present, Mr. Montle loaned an aggregate total of $35,000 to the Company.
These loaned amounts are due upon demand, bear interest at a rate of 12% per
annum and are unsecured. No amounts have been paid on these loans. Currently,
the outstanding balance of these loans (including accrued interest) totals
approximately $40,000. The proceeds from the loans were use by the Company for
general working capital. In addition to the loaned amounts, from August 1998
through the present, the Company has accrued but not paid Mr. Montle's salary.
The accrued and unpaid amount of Mr. Montle's salary during this period totals
approximately $197,000. Currently, Mr. Montle is not indebted to the Company for
any amounts.
Mr. Montle legally could at any time demand payment of amounts loaned
by him to the Company and payment of his accrued and unpaid salary. As of the
date hereof, Mr. Montle has not demanded payment of the amounts owed to him or
otherwise threatened litigation. However, Mr. Montle has no legal duty to
refrain from exercising his legal rights to collect amounts owed to him. While
management does not believe that the enforcement of Mr. Montle's rights to
receive payment of the aforementioned amounts would have a material adverse
effect on the Company, such enforcement could constrain the Company to take
action that it would otherwise prefer to avoid. Moreover, these amount owed
increase the liabilities on the Company's balance sheet.
The Company currently has, and may for the foreseeable future have,
only limited amounts of cash. The Board of Directors believes that the issuance
of Common Stock is a preferable approach for satisfying the amounts owed to the
Company's creditors (including Mr. Montle) rather than attempting to satisfy
these amounts by the payment of cash. The satisfaction of these amounts would
eliminate the possible future assertion of claims and would reduce the level of
liabilities on the Company's balance sheet.
The Discretionary Stock Issuances Resolutions approve the issuance by
the Company of shares of Common Stock to persons owed amounts by the Company,
including Mr. Montle. The persons to be issued Common Stock, the number of
shares to be issued to them, the terms, provisions and conditions upon which the
Common Stock will be issued and the documentation memorializing the issuance are
all within the sole discretion of the Board of Directors, subject to certain
restrictions described in the following paragraph.
The Discretionary Stock Issuances Resolutions require that any issuance
of Common Stock to a director of the Company be approved by a majority of
directors other than the director to be issued the Common Stock. Moreover, the
Discretionary Stock Issuances Resolutions restrict the discretion of the Board
of Directors by requiring that the number of shares of Common Stock being issued
not have an aggregate market value at the time of issuance exceeding the amount
being satisfied by the Common Stock if the Common Stock being issued is freely
tradeable immediately after issuance, or not have an aggregate market value at
the time of issuance twice the amount being satisfied by such issuance if the
Common Stock being issued is not freely tradeable immediately after issuance.
The rationale for distinguishing between freely and non-freely tradeable stock
is that in the case of non-freely tradeable stock the holder bears the risk of a
decline in the value of the stock for a much greater period of time. As a
consequence, non-freely tradeable stock generally is sold at a significant
discount to freely tradeable stock. This has been the experience of the Company
when it has sold Common Stock in private transactions, of which the
Discretionary Stock Issuances is one. In previous private transactions, the
Company has generally received for the sale only 50% of the then current market
value of the Common Stock being sold. The restriction on the amount of Common
Stock that may be issued places only a maximum amount of Common Stock that may
be issued and does not require the Company to issue up to the maximum amount of
the restriction. Once a person receives a Discretionary Stock Issuance, such
person will not be issued any more Common Stock if the market value of the
Common Stock declines, nor will such person be required to reconvey or otherwise
forfeit any of the Common Stock issued to him if the market value of the Common
Stock increases.
If approved by the stockholders of the Company, the Discretionary Stock
Issuances (if any) are expected to occur after the effectiveness of the Reverse
Stock Split. If the Discretionary Stock Issuances Resolutions are approved and
non-freely tradeable Common Stock in the maximum amount permitted by the
Discretionary Stock Issuances is issued sufficient to satisfy all of the
Company's obligations to Mr. Montle, Mr. Montle is expected to then own
approximately 25% of the outstanding Common Stock. This is based on the recent
market aggregate market value of the Common Stock of approximately $1.4 million,
and the issuance of Common Stock having an aggregate market value of
approximately $500,000, the maximum amount that may be issued under the
restrictions of the Discretionary Stock Issuances Resolutions. The percentage
ownership interest of management resulting from the Discretionary Stock
Issuances would be greater than the foregoing example if the market price of the
Common Stock were to decline from its currents level. Regardless of the ultimate
percentage ownership interest of management resulting from the Discretionary
Stock Issuances, any increase in such ownership interest resulting from such
issuances would diminish stockholders' current ability to remove management. In
addition, the subsequent sale of the Common Stock issued in connection with the
Discretionary Stock Issuances could have the effect of reducing the market price
of the Common Stock.
While the Discretionary Stock Issuances are expected to increase
significantly the percentage ownership of Mr. Montle, the issuance of Common
Stock to Mr. Montle in the manner contemplated by the Discretionary Stock
Issuances Resolutions may be required to continue his involvement in the
Company. For several years, Mr. Montle has been the person who has devoted a
significant portion of his business time working for the success of the Company.
The continued involvement of Mr. Montle in the Company is viewed as essential to
the future prospects of the Company. However, neither the approval of the
Discretionary Stock Issuances Resolutions nor the continued involvement of Mr.
Montle in the Company can guarantee the future success of the Company. In
addition, the example given in the preceding paragraph as to the percentage
ownership of Mr. Montle after the Discretionary Stock Issuances represents the
largest percentage ownership of Mr. Montle, and the maximum amount of dilution
of existing shareholders, that may result from the Discretionary Stock
Issuances, based on the current market price of the Common Stock.
The Common Stock is traded on the OTC Bulletin Board under the symbol
"CHIP.OB". On June 21, 2000, the last reported sale of the Common Stock was
$.053 per share.
The Discretionary Stock Issuances Resolutions need not be approved
before the Company may legally issue Common Stock. However, the Discretionary
Stock Issuances Resolutions are being submitted to the stockholders of the
Company to comply with certain provisions of Section 144 of the Delaware General
Corporation Law.
Section 144 provides in relevant part that no transaction, between a
corporation and one or more of its directors and officers in which the directors
and officers involved have a financial interest, shall be void or voidable (1)
solely for this reason, or (2) solely because the director or officer is present
at or participates in the meeting of the board that authorizes the transaction,
or (3) solely because their votes are counted for such purposes, so long as the
material facts as to their interests and the transaction are disclosed or known
to shareholders entitled to vote thereon and the transaction is specifically
approved in good faith by vote of the shareholders. The Discretionary Stock
Issuances are transactions in which certain officers and directors of the
Company have a financial interest. At common law, transactions in which officers
and directors had a financial interest were automatically void or could be
automatically voided by shareholders, with little or no proof as to the
unfairness of the transaction. Without compliance with Section 144, officers and
directors involved in an interested transaction would bear a burden of clearly
proving their utmost good faith and the most scrupulous inherent fairness of the
transaction. Compliance with Section 144 shifts to objecting shareholders the
burden of proving the unfairness of the interested transaction. The objecting
shareholders' burden of proof may be a difficult burden to meet. Essentially,
compliance or non-compliance with Section 144 affects the procedure as to who
bears the burden of proof as to the fairness or unfairness of interested
transaction. Delaware courts have stated that compliance with Section 144
removes an "interested director cloud" or "taint", but it will not make a
transaction immune to judicial scrutiny, sanction unfairness, or prevent the
transaction from being declared void on other grounds such as waste, illegality
or fraud.
The Board of Directors believes that the Discretionary Stock Issuances,
upon the terms and conditions of Discretionary Stock Issuances Resolutions, will
be in the best interests of the Company and its Stockholders and recommends that
the Stockholders approve the Discretionary Stock Issuances and the Discretionary
Stock Issuances Resolutions. If the Discretionary Stock Issuances Resolutions
are not approved by stockholders, the Board of Directors may resubmit them to
stockholders for their approval in the future or the Board of Directors may
proceed to authorize issuance of Common Stock in the manner contemplated by the
Discretionary Stock Issuances Resolutions without stockholder approval if the
Board of Directors determines that the interests of the Company require this
course of action.
The affirmative vote of the holders of a majority of the shares of
Common Stock voting on this proposal is required for approval of the
Discretionary Stock Issuances and the Discretionary Stock Issuances Resolutions.
Broker non-votes and abstentions will not be counted in tabulations of the total
votes cast on this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
DISCRETIONARY STOCK ISSUANCES AND THE DISCRETIONARY STOCK ISSUANCES RESOLUTIONS.
PROPOSAL 4
APPROVAL OF INCREASE IN SHARES ISSUABLE
UNDER THE 1993 STOCK OPTION PLAN
At the Special Meeting, holders of shares of Common Stock will be asked
to consider and vote upon a proposal to amend the Company's 1993 Stock Option
Plan (the "Option Plan") to increase the number of shares of Common Stock
available for grants of stock options thereunder to 6,000,000 shares (regardless
of whether the Reverse Stock Split is or is not approved by the stockholders),
of which 1,000,000 shares would be reserved for grants of replacement or reload
options. Thus, 6,000,000 Pre-Split Shares would be available for the Option Plan
(if the Reverse Stock Split is not approved), or 6,000,000 Post-Split Shares
would be available for the Option Plan (if the Reverse Stock Split is approved).
A general description of the terms of the Option Plan is also set forth herein
under the heading "Description of Option Plan" below. Specifically, holders of
shares of Common Stock will be asked to consider and approve Amendment No. 4 to
the Option Plan ("Amendment No. 4"), a copy of which is annexed to this Proxy
Statement as Exhibit C, and the description of Amendment No. 4 in this Proxy
Statement is qualified in its entirety by reference to the text of Amendment No.
4.
As amended to date and after taking into account the Company's 1-for-25
reverse stock split approved at a special stockholder meeting in June 1996, the
Option Plan provides for the grant of options to acquire up to 280,000 shares of
Common Stock, 40,000 of which are reserved for the issuance of replacement or
reload options. As of July 24, 2000, all options granted pursuant to the Option
Plan had lapsed, thus leaving all of the preceding numbers of shares of Common
Stock available for future grants under the Option Plan. If the Reverse Stock
Split is approved and no other action is taken, only 14,000 shares of Common
Stock will be available for future grants under the Option Plan, 2,000 of which
will be reserved for the issuance of replacement or reload options. Amendment
No. 4 would provide for the continued operation of the Option Plan by increasing
the number of shares of Common Stock available for grants of stock options
thereunder to 6,000,000 shares (regardless of whether or not the Reverse Stock
Split is approved and implemented). One million (1,000,000) of the 6,000,000
shares would be reserved for the issuance of replacement or reload options. The
Board of Directors has adopted resolutions approving Amendment No. 4 and
recommending that Amendment No. 4 be submitted to the Stockholders for their
approval at the Special Meeting. The Company believes that, to attract highly
qualified personnel for the Company's future business, the Company must be able
to use option grants. Because of the reduced number of option shares currently
available through the Option Plan, the usefulness of the Option Plan as a
continuing source of employee incentives is severely impaired absent the
increased number of shares available under the Option Plan.
It is anticipated that Options to purchase shares under the Option Plan
will be granted in the future to executive officers and employees of the
Company. As of July 24, 2000, the Board of Directors had determined that only
one employee of the Company was eligible to receive grants of options under the
Option Plan. If the Stockholders approve Amendment No. 4, the Company expects to
grant options pursuant to the Option Plan to Paul J. Montle, the Chief Executive
Officer of the Company. The reason for this is that over the past few years the
Company has granted to Mr. Montle certain non-qualified options. These
non-qualified options were not granted pursuant to the Option Plan because at
the times of their grants the Option Plan did not have sufficient shares
available for grants. The options proposed to be granted to Mr. Montle pursuant
to the Option Plan would be substituted for the non-qualified options granted to
him outside of the Option Plan. The table set forth below contains certain
information regarding the option granted to Mr. Montle.
<TABLE>
<CAPTION>
Date of Grant Number of Optioned Shares Exercise Price Per Share
<S> <C> <C> <C>
December 20, 1996 500,000 $.625
February 3, 1998, 290,000 $.341
July 1, 1999 3,000,000 $.033
January 1, 2000 2,000,000 $.05
</TABLE>
If the Stockholders approve Amendment No. 4, the Company expects to
grant to Mr. Montle options pursuant to the Option Plan in substitution for the
non-plan options reflected in the table above. The new Option Plan options would
have terms (such as number of optioned shares, exercise price, and option
period) such that (in the aggregate) the new Option Plan options would
approximate the non-plan options being surrendered. Also, the new Option Plan
options could possibly be ISO's, giving more favorable tax treatment to Mr.
Montle. Other than as described above with respect to Mr. Montle, the Company
has no plans to grant any options pursuant to the Option Plan, and future grants
are not now determinable.
The Board of Directors believes that Amendment No. 4 will be in the
best interests of the Company and its Stockholders and recommends that the
Stockholders approve Amendment No. 4.
The affirmative vote of the holders of a majority of the shares of
Common Stock voting on this proposal is required for approval of Amendment No.
4. Broker non-votes and abstentions will not be counted in tabulations of the
total votes cast on this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF AMENDMENT NO. 4.
Description of Option Plan
The following description of the Option Plan sets forth certain terms
in effect prior to proposed Amendment No. 4.
General. On December 31, 1992, the Board of Directors and the Company's
sole stockholder approved the Option Plan. On November 2, 1993, the stockholders
of the Company at the 1993 Annual Meeting approved an amendment to the Option
Plan increasing the number of shares of Common Stock available for grant under
the Option Plan from 1,000,000 shares to 2,000,000 shares. On January 24, 1995,
the stockholders of the Company at the 1994 Annual Meeting approved an amendment
to the Option Plan increasing the number of shares of Common Stock available for
grant under the Option Plan from 2,000,000 shares to 6,000,000 shares. By
operation of the provisions of the Option Plan, the Company's 1-for-25 reverse
stock split approved at a special stockholder meeting in June 1996 reduced the
number of share available for grant under the Option Plan to 280,000 shares of
Common Stock, 40,000 of which are reserved for the issuance of replacement or
reload options. The Option Plan provides for the grant of incentive stock
options qualifying under the Internal Revenue Code of 1986, as amended (the
"Code"), to officers and other employees of the Company ("ISO"), the grant of
nonequalized options to directors, officers, employees and consultants of the
Company ("Non-Qualified Options"), awards of stock in the Company to directors,
officers, employees and consultants of the Company ("Awards"), and opportunities
for directors, officers, employees and consultants of the Company to make
purchases of stock in the Company ("Purchases"). The Option Plan is administered
by the Board of Directors or, at the Board's election, by a committee composed
of members of the Board (the Board and the Committee are referred to herein
collectively as the "Board"). The Company currently has three directors, one
officer and one employee. The number of consultants varies.
Eligibility. The Board has substantial discretion pursuant to the
Option Plan to determine the persons to whom ISO's, Non-Qualified Options,
Awards and Purchases may be granted or authorized and also to determine the
amounts, time, price, exercise terms, and restrictions imposed in connection
therewith. ISO's may be granted to any employee (which may include officers and
directors who are also employees) of the Company or its subsidiaries.
Non-Qualified Options, Awards and authorizations to make Purchases may he
granted to any employee, officer or director of the Company or its subsidiaries.
Two hundred eighty thousand (280,000) shares of Common Stock are authorized to
be issued pursuant to the Option Plan, 40,000 of which are reserved for the
issuance of replacement or reload options. The Board of Directors has proposed
to increase the number of authorized shares pursuant to the Option Plan to 6.0
million Post-Split Shares (if the Reverse Stock Split is approved by the
stockholders) or to 6.0 million Pre-Split Shares (if the Reverse Stock Split is
not approved by the stockholders). One million of the Post-Split Shares or the
Pre-Split Shares (as the case may be) would be reserved for grants of
replacement or reload options. This proposal will be voted upon at the Special
Meeting. Rights under the Option Plan, including ISO's, Non-Qualified Options,
Awards and authorizations to make Purchases, may be granted for ten years
pursuant to the Option Plan.
Exercise Price. Certain statutory requirements with respect to ISO's
are set forth in the Option Plan. These requirements provide that the exercise
price per share in connection with ISO's shall be not less than the fair market
value of Common Stock on the date of the grant, and with respect to an ISO
granted to an employee owning stock possessing more than 10% of the total
combined voting power of all classes of stock in the Company and subsidiaries,
shall be not less than 110% of the fair market value per share of Common Stock
on the date of grant. In addition, an employee may be granted ISO's under the
Option Plan and any other incentive stock option plans of the Company and its
subsidiaries only to the extent that such ISO's do not become exercisable for
the first time by such employee during any calendar year in a manner which would
entitle the employee to purchase more than $100,000 in fair market value
(determined at the time the ISO's were granted) of Common Stock in that year.
Expiration; Vesting. Each option, which term includes ISO's and
Non-Qualified Options, expires not more than ten years and one day from the date
of grant in the case of Non-Qualified Options, ten years from the date of grant
in the case of most ISO's, and five years from the date of grant in the case of
ISO's granted to an employee owning stock possessing more than 10% of the total
combined voting power of all combined classes of stock in the Company and its
subsidiaries. Options may expire earlier as determined by the Board. The Board
may determine vesting provisions in its discretion.
Termination of Options. Generally, when an ISO optionee ceases to be an
employee of the Company or a subsidiary other than by reason of death or
disability, his ISO's shall terminate on the date of termination of his
employment in the case of voluntary termination, and shall terminate on the date
30 days after the termination of his employment in the case of involuntary
termination of employment (but not later than their specified expiration dates).
In the case of death, an ISO optionee's ISO's may be exercised by his estate,
personal representative or beneficiary at any time prior to the earlier of the
specified expiration date of the ISO's or 180 days from the date of the
optionee's death. If an ISO optionee's employment is terminated by reason of
disability, the optionee may exercise his ISO's at any time prior to the earlier
of the specified expiration date of the ISO's or 180 days from the date of the
termination of employment.
Restrictions; Anti-Dilution; Other Matters. Options are, in general,
non-assignable. The Board may place restrictions on Non-Qualified Options which
are the same as those provided with respect to ISO's, in connection with any
particular grant, in its discretion. Options carry certain anti-dilution
provisions concerning stock dividends, stock splits, consolidations, mergers,
recapitalizations and reorganizations. The Board has the right, pursuant to the
Option Plan, to terminate Options in the event of dissolution or liquidation of
the Company. In addition, at any time, non-exercised ISO's may be converted into
Non-Qualified Options at the Board's discretion.
Outstanding Options. No options to purchase shares of Common Stock
pursuant to the Option Plan remain outstanding as of July 24, 2000.
Federal Income Tax Consequences. The following brief summary of the
principal Federal income tax consequences of transactions under the Option Plan
is based on current Federal income tax laws. This summary is not intended to
constitute tax advice and, among other things, does not address possible state
or local tax consequences. Accordingly, a participant in the Option Plan should
consult a tax advisor with respect to the tax aspects of transactions under the
Option Plan.
Generally, under applicable provisions of the Code, the amount of
profit realized by an optionee upon exercise of Non-Qualified Options or SAR's
is taxed as ordinary income to the optionee in the year of exercise. The Company
is entitled to a compensation deduction in the same amount in the same year.
An optionee who holds the stock received upon exercise of an ISO for at
least two years from the date the option was granted and at least one year from
the receipt of the stock upon exercise generally pays no tax until the stock is
sold, at which time any profit or loss realized is long-term capital gain or
loss, as the case may be; and the Company is not entitled to a corresponding tax
deduction at any time. The spread at exercise of an ISO is effectively treated
as a tax preference item in the exercise year for purposes of calculating the
optionee's alternative minimum tax.
An optionee who sells the stock received upon exercise of an ISO within
two years after the option was granted or within one year of receipt of shares
upon exercise is taxed on the profit up to the date of exercise (which is
ordinary income) and the Company is entitled to a corresponding tax deduction;
the income and deduction items are recognized by the optionee and the Company,
respectively, in the year the stock is sold. Appreciation or depreciation after
the date of exercise is taxable to the optionee as capital gain or loss,
respectively, and is nondeductible by the Company.
The Company may be required to withhold tax on the amount of the income
recognized by the optionee upon exercise of a Non-Qualified Option and upon
transfer of stock received upon exercise of an ISO.
PROPOSAL 5
APPROVAL OF INCREASE IN SHARES ISSUABLE
UNDER THE 1994 STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
At the Special Meeting, holders of shares of Common Stock will be asked
to consider and vote upon a proposal to amend the Company's 1994 Stock Plan for
Non-Employee Directors (the "Stock Plan") to increase the number of shares of
Common Stock available for grants of stock options thereunder to 500,000 shares
(regardless of whether the Reverse Stock Split is or is not approved by the
stockholders). Thus, 500,000 Pre-Split Shares would be available for the Stock
Plan (if the Reverse Stock Split is not approved), or 500,000 Post-Split Shares
would be available for the Stock Plan (if the Reverse Stock Split is approved).
A general description of the terms of the Stock Plan is also set forth herein
under the heading "Description of Stock Plan" below. Specifically, holders of
shares of Common Stock will be asked to consider and approve Amendment No. 1 to
the Stock Plan ("Amendment No. 1"), a copy of which is annexed to this Proxy
Statement as Exhibit D, and the description of Amendment No. 1 in this Proxy
Statement is qualified in its entirety by reference to the text of Amendment No.
1.
As amended to date and after taking into account the Company's 1-for-25
reverse stock split approved at a special stockholder meeting in June 1996, the
Stock Plan provides for the grant of options to acquire up to 20,000 shares of
Common Stock. As of July 24, 2000, no options had been granted pursuant to the
Stock Plan. If the Reverse Stock Split is approved and no other action is taken,
only 1,000 shares of Common Stock will be available for future grants under the
Stock Plan. Amendment No. 1 would provide for the continued operation of the
Stock Plan by increasing the number of shares of Common Stock available for
grants of stock options thereunder to 500,000 shares (regardless of whether or
not the Reverse Stock Split is approved and implemented). The Board of Directors
has adopted resolutions approving Amendment No. 1 and recommending that
Amendment No. 1 be submitted to the Stockholders for their approval at the
Special Meeting. The Company believes that, to retain and properly motive the
current members of the Company's Board of Directors and to attract highly
qualified persons to serve as future directors, the Company must be able to use
option grants. Because of the reduced number of option shares currently
available through the Stock Plan, the usefulness of the Stock Plan as a
continuing source of director incentives is severely impaired absent the
increased number of shares available under the Stock Plan.
As of July 24, 2000, only two directors of the Company were eligible to
receive grants of options under the Stock Plan. The Company has no present
intention to grant any specific options to any particular person pursuant to the
Stock Plan, even if the Stockholders approve Amendment No. 1. However, the Board
of Directors is seeking the approval of Amendment No. 1 in the event that future
option grants become advisable.
The Board of Directors believes that Amendment No. 1 will be in the
best interests of the Company and its Stockholders and recommends that the
Stockholders approve Amendment No. 1.
The affirmative vote of the holders of a majority of the shares of
Common Stock voting on this proposal is required for approval of Amendment No.
1. Broker non-votes and abstentions will not be counted in tabulations of the
total votes cast on this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF AMENDMENT NO. 1.
PROPOSAL 6
APPROVAL OF CERTAIN AMENDMENTS TO
THE 1994 STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
At the Special Meeting, holders of shares of Common Stock will be asked
to consider and vote upon a proposal to amend the Stock Plan to modify the
timing of grants under the Stock Plan and to delete requirements that grants
under the Stock Plan for a fiscal year be for a fixed number of shares and be
conditioned upon an increase in the Company's net income from the previous
fiscal year. Specifically, holders of shares of Common Stock will be asked to
consider and approve Amendment No. 2 to the Stock Plan ("Amendment No. 2"), a
copy of which is annexed to this Proxy Statement as Exhibit E, and the
description of Amendment No. 2 in this Proxy Statement is qualified in its
entirety by reference to the text of Amendment No. 2.
Currently, Section 7 of the Stock Plan provides that, at the conclusion
of each annual meeting of stockholders of the Company, each elected or incumbent
Director shall automatically be granted a stock option to purchase 25,000 shares
of Common Stock, but only if the Company's net income for the fiscal year just
ended improved over the net income for the prior fiscal year, determined in
accordance with generally accepted accounting principals. Amendment No. 2 would
change Section 7 in several respects. First, Amendment No. 2 would change the
timing of grants pursuant to the Stock Plan. Instead of the grants automatically
occurring at the conclusion of each annual meeting of stockholders of the
Company, the grants would be made whenever believed appropriate by a majority of
the members of the Company's Board of Directors who are not eligible for grants
pursuant to this Plan (such members are referred to hereinafter as the
"Non-Eligible Director Majority". The reason for this change is that, due to
extreme limitations on the Company's available funds, the Company has not been
able to hold regular annual meetings, and there can be no assurance that the
Company will be able to resume holding regular annual meetings in the near
future. The holding of annual stockholder meetings entails considerable costs
(particularly those pertaining to the printing and mailing of materials required
by applicable law). This is especially true for a small company such as the
Company. For a number of years, the Company has not had sufficient funds
available for the holding of an annual stockholders meeting. A possible
interpretation of Section 7 of the Stock Plan as currently in effect would
prevent the grant of stock options pursuant to the Stock Plan unless an annual
stockholders meeting were held. The effect of this operation of Section 7 would
practically eliminate the effectiveness of the Stock Plan. Thus, Amendment No. 2
would change the timing of grants under the Stock Plan from automatic grants at
the conclusion of annual stockholders meeting to flexible grants as times
believed appropriate by the Non-Eligible Director Majority.
A second respect in which Amendment No. 2 changes Section 7 involves
the deletion of the requirement that stock options granted pursuant to the Stock
Plan cover a fixed number of shares (currently 25,000). Amendment No. 2 would
enable the Non-Eligible Director Majority to grant options pursuant to the Stock
Plan covering such number of shares as the Non-Eligible Director Majority
believes appropriate. The numbers of optioned shares could be greater than or
less than the 25,000 shares currently fixed by the Stock Plan. However, the
aggregate number of optioned shares covered by stock options granted pursuant to
the Stock Plan could never exceed the maximum number of shares permitted by the
Stock Plan (500,000 shares if Amendment No. 1 is approved by the Stockholders).
A third respect in which Amendment No. 2 changes Section 7 involves the
deletion of the requirement that the Company's net income for the fiscal year
just ended must have improved over the net income for the prior fiscal year. The
reason for this change is that not only has the Company not been profitable for
many years, but also the Company has not had funds available to pay any form of
remuneration to its directors. As a consequence, not only has the Company not
been able to make grants under the Stock Plan, the Company has also not been
able to compensate its non-employee directors in any other way as well. The
consequence of this is that the Company lacks any ability to give any incentive
to retain or to motivate its directors. Within the last two years, one of the
Company's directors resigned. Although none of the Company's current three
directors has indicated that he may resign, further resignations could occur
absent any incentives to remain, and the recruiting of replacement directors can
not be assured. As a means to provide some incentive for directors to remain in
service as such, Amendment No. 2 proposes to delete the improved profitability
requirement of Section 7 of the Stock Plan so that grants pursuant to the Plan
could be made regardless of profitability. As long as grants under the Stock
Plan are conditioned upon improved profitability and the Company's profitability
remains uncertain, the effectiveness of the Stock Plan can be expected to be
limited.
The Board of Directors believes that Amendment No. 2 will be in the
best interests of the Company and its Stockholders and recommends that the
Stockholders approve Amendment No. 2.
The affirmative vote of the holders of a majority of the shares of
Common Stock voting on this proposal is required for approval of Amendment No.
2. Broker non-votes and abstentions will not be counted in tabulations of the
total votes cast on this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF AMENDMENT NO. 2.
Description of Stock Plan
The following description of the Stock Plan sets forth certain terms
in effect prior to proposed Amendment No. 1 and Amendment No. 2.
General. On January 24, 1995, the Stockholders of the Company at the
1994 Annual Meeting approved the Stock Plan covering up to 500,000 shares of the
Company's Common Stock (subject to adjustment for any stock dividend, stock
split or other relevant change in the Company's capitalization). By operation of
the provisions of the Stock Plan, the Company's 1-for-25 reverse stock split
approved at a special stockholder meeting in June 1996 reduced the number of
share available for grant under the Stock Plan to 20,000 shares of Common Stock.
The foregoing shares are available for option grants and stock grants in
accordance with the terms of the Stock Plan. The Board of Directors has proposed
to increase the number of authorized shares pursuant to the Stock Plan to
500,000 Post-Split Shares (if the Reverse Stock Split is approved by the
stockholders) or to 500,000 million Pre-Split Shares (if the Reverse Stock Split
is not approved by the stockholders). The Stock Plan is administered by the
Board of Directors of the Company.
Eligibility. All non-employee Directors of the Company participate
in the Stock Plan. The Company now has two non-employee Directors eligible
for participation in the Stock Plan.
Option Grants; Exercise Price. The Stock Plan provides that at the
conclusion of each Annual Meeting of Stockholders of the Company, each elected
or incumbent non-employee Director shall automatically be granted an option to
purchase 25,000 shares of the Company's Common Stock but only if the Company's
net income for the fiscal year just ended was improved over the net income for
the prior fiscal year. The Board of Directors has proposed to amend the Stock
Plan to delete the improved profitability precondition and to substitute a
discretionary number of optioned shares for the fixed number of optioned shares
currently required by the Stock Plan. Whether such amendment is approved or not
approved, the exercise price per share for options granted under the Stock Plan
must not be less than the fair market value of the Common Stock on the date of
the grant of the option.
Option Period; Termination. Each option granted under the Stock Plan is
immediately exercisable and expires 10 years after the date of grant, provided,
however, that each option automatically terminates 90 days after a participant
ceases to be a Director (other than for termination due to death or disability);
except that an option automatically terminates on the date a Director is removed
for cause. If a participant is permanently and totally disabled at the time he
ceases to be a Director, then the 90 day period is extended to 180 days. If a
participant dies prior to termination of his right to exercise an option,
generally the option may be exercised by the participant's estate or heirs,
provided the option is exercised within 180 days of the participant's death.
Replacement or "reload" options. The Stock Plan provides that a
participant shall be granted a replacement or "reload" option to purchase a
number of shares of Common Stock equal to the number of shares of Common Stock
used to pay the exercise price or the withholding taxes subject to the following
conditions. First, a reload option shall have a price per share equal to the
fair market value of the Common Stock on the date of grant of the reload option.
Second, no reload option shall be granted if the exercised option is itself a
reload option or the participant is not a Director on the date of exercise.
Finally, the reload option shall be subject to all of the other terms and
conditions set forth in the agreement evidencing the original option.
Stock Grants. The Stock Plan also provides that as of the second
Tuesday in July of each year, each then sitting non- employee Director shall
automatically receive a grant of Common Stock (a "Stock Grant") equal to
$10,000.00 valued as of the close of business on the date of grant for services
rendered but only so long as the non-employee Director attended in the prior
fiscal year (a) at least two regular or special meetings of the Board of
Directors and (b) at least 75% of all regular and special meetings held during
his service as a Director.
Restrictions; Other Matters. Options are, in general non- assignable.
No Common Stock held by a participant, whether received by virtue of a Stock
Grant or exercise of an option, may be sold or otherwise disposed of within six
months from the date of receipt. Generally, the Stock Plan may be amended or
discontinued by the Board of Directors, provided, however, that in no event may
the Stock Plan be amended more than once every six months as it pertains to
participation, amount of grants, option price and time of grant except to comply
with changes in the Code or the Employee Retirement Income Security Act or the
rules thereunder. Amendment or discontinuation of the Stock Plan will not affect
the rights of any participant under any option previously granted without his or
her consent.
Previous Option and Stock Grants. No options to purchase shares of
Common Stock and no Stock Grants have been granted pursuant to the Stock Plan as
of July 24, 2000.
Federal Income Tax Consequences. The following brief summary of the
principal income tax consequences of transactions under the Stock Plan is based
on current federal income tax laws. This summary is not intended to constitute
tax advice and, among other things, does not address possible state or local tax
consequences. Accordingly, a participant in the Stock Plan should consult a tax
advisor with respect to the tax aspects of transactions under the Stock Plan.
Options granted under the Stock Plan will be non-qualified stock
options. Generally, under applicable provisions of the Code, the amount of
profit realized by an optionee upon the exercise of a non-qualified stock option
is taxed as ordinary income to the optionee in the year of exercise. The Company
is entitled to a compensation deduction in the same amount in the same year.
A non-employee Director will generally recognize ordinary income upon
issuance of a Stock Grant. The amount included in such person's income will be
the fair market value of the shares received on the date of grant. The Company
will be entitled to a tax deduction in the same amount in the same year.
OTHER MATTERS
The Board of Directors does not know of any other business to be
presented at the Special Meeting. If any other matter properly comes before the
Special Meeting, however, it is intended that the persons named in the enclosed
Proxy Card will vote said Proxy in accordance with the discretion and
instructions of the Board of Directors.
VOTING PROCEDURES
The votes of holders of Common Stock present in person or represented
by proxy at the meeting will be tabulated by an inspector of elections appointed
by the Company. The inspector's duties include determining the number of shares
represented at the meeting, counting all votes and ballots and certifying the
determination of the number of shares represented and the outcome of the
balloting.
The Corporate Name Change and the Reverse Stock Split must be approved
by a majority of the outstanding shares of Common Stock. The approval of the
Discretionary Stock Issuances, Amendment No. 4, Amendment No. 1 and Amendment
No. 2 by a majority of the shares of Common Stock voting on these proposals will
also constitute valid stockholder approval of these proposals. Under Delaware
law and the Company's Certificate of Incorporation, as amended, and by-laws,
abstentions will have no effect on the outcome of the proposals described
herein. In the event a broker that is a record holder of Common Stock does not
return a signed proxy, the shares represented by such proxy will not be
considered present at the meeting, and therefore will not be counted towards a
quorum. With respect to the Discretionary Stock Issuances, Amendment No. 4,
Amendment No. 1 and Amendment No. 2, broker non-votes will not be considered
shares entitled to vote, will be excluded entirely from the tabulation, and will
not affect the outcome of the vote. With respect to the Corporate Name Change
and the Reverse Stock Split, broker non-votes will have the effect of a negative
vote. A broker non-vote occurs if a holder or other nominee does not have
discretionary authority and has not received instructions with respect to a
particular proposal.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Stockholders wishing to submit proposals for consideration by the
Company's Board of Directors at the Company's next Annual Meeting of
Stockholders should submit them in writing to the attention of the Chief
Executive Officer of the Company a reasonable time before the Company begins to
print and mail its proxy materials, so that the Company may consider such
proposals for inclusion in its proxy statement and form of proxy for that
meeting. The Company does not now have any plans regarding the holding and
possible date of its next Annual Meeting.
By Order of the Board of Directors,
Paul J. Montle
Chief Executive Officer
Dublin, Ireland,
July 24, 2000
<PAGE>
PROXY CARD
PROXY LS CAPITAL CORPORATION PROXY
SPECIAL MEETING OF STOCKHOLDERS ON AUGUST 14, 2000
The undersigned hereby appoints Paul J. Montle and C. Thomas Cutter (to
act by unanimous decision if more than one shall act), each with the power to
appoint his substitute, and hereby authorizes them to represent as designated
below, all the shares of common stock of LS Capital Corporation held on record
by the undersigned on June 30, 2000 at the special meeting of shareholders to be
held on August 14, 2000 or any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSALS 1, 2, 3, 4, 5
AND 6.
1. Proposal to approve the Corporate Name Change.
_____ FOR _____ AGAINST _____ ABSTAIN
2. Proposal to approve the Reverse Stock Split.
_____ FOR _____ AGAINST _____ ABSTAIN
3. Proposal to approve the Discretionary Stock Issuances.
_____ FOR _____ AGAINST _____ ABSTAIN
4. Proposal to approve Amendment No. 4
_____ FOR _____ AGAINST _____ ABSTAIN
5. Proposal to approve Amendment No. 1
_____ FOR _____ AGAINST _____ ABSTAIN
6. Proposal to approve Amendment No. 2
_____ FOR _____ AGAINST _____ ABSTAIN
7. In their discretion the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
(Please Sign and Date on Reverse Side)
<PAGE>
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this
proxy will be voted for Proposals 1, 2, 3, 4, 5, and 6.
YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO VOTE THEREON.
The undersigned hereby revokes any proxy or proxies heretofore given to
vote such shares, and acknowledges receipt of the Notice of Special
Meeting and Proxy Statement relating to the August 14, 2000 Special
Meeting.
Please sign exactly as name appears below. When shares are held by
joint tenants, both should sign. When signing as 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.
DATE _________________________ 2000 ____________________________________
Signature
PLEASE MARK SIGN DATE AND
RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE ____________________________________
Signature if held jointly
This Proxy is Solicited on Behalf of the Board of Directors.
<PAGE>
EXHIBIT A
Reserve Stock Split Resolutions
BE IT RESOLVED, that the Article Fourth of the Certificate of
Incorporation of the Company be and hereby is amended to add a last
paragraph, which shall read as follows:
"Upon the effectiveness of the filing with the
Secretary of State of Delaware of Articles of Amendment to the
Certificate of Incorporation adding this paragraph to the
Certificate of Incorporation, each twenty-five (25) shares of
Common Stock issued and outstanding immediately prior to the
filing of such Articles of Amendment as aforesaid shall be
combined into one (1) share of validly issued, fully paid and
non-assessable Common Stock. As soon as practicable after such
date, the corporation shall request holders of the Common
Stock to be combined in accordance with the preceding to
surrender certificates representing their Common Stock to the
corporation's authorized agent, and each such stockholder
shall receive upon such surrender one or more stock
certificates to evidence and represent the number of shares of
Common Stock to which such stockholder is entitled after the
combination of shares provided for herein; provided, however,
that this corporation shall not issue fractional shares of
Common Stock in connection with this combination, but, in lieu
thereof, shall make a cash payment equal to the product of the
closing sale price of the Common Stock on the last trading day
prior to the effective date of the filing of this instrument,
multiplied by the number of shares of Common Stock issued and
outstanding immediately prior to the filing of this instrument
that would otherwise comprise the fractional share of Common
Stock."
<PAGE>
EXHIBIT B
Discretionary Stock Issuances Resolutions
BE IT RESOLVED, that the stockholders of the Company hereby
approve the issuance by the Company at any time and from time to time
of such number of shares of the Company's Common Stock, $.01 par value
per share ("Common Stock"), to such persons (including officers and
directors of the Company) upon such terms, provisions and conditions
and memorialized by such documentation, all as the Board of Directors
of the Company shall in its sole discretion approve, for the purpose of
satisfying any or all indebtedness of the Company to such persons;
provided, however, that (a) the number of shares of Common Stock to be
issued to such persons shall not have an aggregate market value at the
time of issuance exceeding the amount being satisfied by such issuance
if the Common Stock being issued is freely tradeable immediately after
issuance, or an aggregate market value at the time of issuance twice
the amount being satisfied by such issuance if the Common Stock being
issued is not freely tradeable immediately after issuance, and (b) any
issuance of Common Stock to a director of the Company shall be approved
by a majority of directors other than the director to be issued the
Common Stock.
<PAGE>
EXHIBIT C
Amendment No. 4 Resolutions
BE IT RESOLVED, that the second sentence of Section 4 of the
Company's 1993 Stock Option Plan be and hereby is deleted and restated
in its entirety as follows:
"The aggregate number of shares which may be issued pursuant
to the Plan is 6,000,000 (regardless of whether the 1-for-25
reverse stock split of the Company's shares of common stock is
or is not approved at the special meeting of stockholder
scheduled for August 14, 2000), subject to adjustment as
provided in Section 13, of which 1,000,000 shares shall be
reserved for grants of replacement or reload Options in
accordance with Section 22 of the Plan."
AND FURTHER RESOLVED, that this Amendment shall be effective
immediately upon receipt of approval of Stockholders of the Company (in
accordance with the requirements of applicable law and the Company's
By-Laws) at the Special Meeting of Stockholders or any adjournment or
postponement thereof.
<PAGE>
EXHIBIT D
Amendment No. 1 Resolutions
BE IT RESOLVED, that the first sentence of Section 6 of the
Company's 1994 Stock Plan for Non-Employee Directors be and hereby is
deleted and restated in its entirety as follows:
"The Board shall reserve for the purposes of this Plan 500,000
shares of Common Stock of the Company (regardless of whether
the 1-for-25 reverse stock split of the Company's shares of
common stock is or is not approved at the special meeting of
stockholder scheduled for August 14, 2000), but this number
may be adjusted, if deemed appropriate by the Board, as
provided in paragraph 13 hereof."
AND FURTHER RESOLVED, that this Amendment shall be effective
immediately upon receipt of approval of Stockholders of the Company (in
accordance with the requirements of applicable law and the Company's
By-Laws) at the Special Meeting of Stockholders or any adjournment or
postponement thereof.
<PAGE>
EXHIBIT E
Amendment No. 2 Resolutions
BE IT RESOLVED, that the first sentence of Section 7 of the
Company's 1994 Stock Plan for Non-Employee Directors be and hereby is
deleted and restated in its entirety as follows:
"Whenever believed appropriate by a majority of the members of
the Company's Board of Directors who are not eligible for
grants pursuant to this Plan, a Director may be granted an
Option to purchase such number of Common Stock as such
majority shall believe appropriate; provided, however, that
the number of shares covered by such grant (and all other
grants previously made) shall not exceed the number of shares
reserved pursuant to Section 6 above."
AND FURTHER RESOLVED, that this Amendment shall be effective
immediately upon receipt of approval of Stockholders of the Company (in
accordance with the requirements of applicable law and the Company's
By-Laws) at the Special Meeting of Stockholders or any adjournment or
postponement thereof.
