<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Consolidated Stainless, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / 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>
CONSOLIDATED STAINLESS, INC.
1601 EAST AMELIA STREET
ORLANDO, FLORIDA 32803
---------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 25, 1997
To the Shareholders of
CONSOLIDATED STAINLESS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting (the "Annual Meeting") of
Shareholders of Consolidated Stainless, Inc. (the "Company" or the
"Corporation") will be held at the manufacturing facility of the Company located
at 95 Bennett Street, Auburndale, Florida on Thursday, September 25, 1997, at
10:00 a.m. local time for the following purposes:
i. To elect four (4) directors to hold office until the next Annual
Meeting;
ii. To ratify the selection of BDO Seidman, LLP as auditors of the
Company for the Fiscal Year ending December 31, 1997;
iii. To authorize an amendment to the Company's Certificate of
Incorporation to increase the Company's authorized capital by (i)
redesignating the shares the Company's authorized voting Common Stock as
Class A Voting Common Stock and (ii) creating a new class of Non-Voting
Class B Common Stock, of which 300,000 shares of Non-Voting Class B Common
Stock will be authorized;
iv. To approve the increase of the number of available shares
underlying the Corporation's Stock Option Plan from 800,000 shares of voting
Common Stock to 1,100,000 shares of voting Common Stock; and
v. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed August 14, 1997 as the record date for the
determination of shareholders entitled to notice of and to vote at the meeting
or any adjournment thereof. The stock transfer books of the Company will not be
closed, but only shareholders of record at the close of business on August 14,
1997 will be entitled to vote at the meeting or any adjournment or adjournments
thereof.
Dated: August 18, 1997 By Order of the Board of Directors
Harvey B. Adams, Chairman of the Board
WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE COMPLETE, SIGN AND
RETURN YOUR PROXY CARD PROMPTLY IN THE ENCLOSED
STAMPED ENVELOPE PROVIDED FOR YOUR USE.
<PAGE>
CONSOLIDATED STAINLESS, INC.
1601 East Amelia Street
Orlando, Florida 32803
----------------------------
PROXY STATEMENT
----------------------------
GENERAL INFORMATION CONCERNING SOLICITATION
This proxy statement is furnished in connection with the solicitation of
proxies by and on behalf of the Board of Directors of Consolidated Stainless,
Inc. (hereinafter referred to as the "Company" or the "Corporation"), for its
Annual Meeting of Shareholders (the "Meeting") to be held at 10:00 A.M. on
Thursday, September 25, 1997, or any adjournments thereof, at the main
manufacturing facility of the Company, 95 Bennett Street, Auburndale, Florida.
Shares cannot be voted at the meeting unless their owner is present in person or
represented by proxy. Copies of this proxy statement and the accompanying
form of proxy shall be mailed to the shareholders of the Company on or about
August 18, 1997, accompanied by a copy of the Annual Report of the Company
containing financial statements as of and for the Fiscal Years ended December
31, 1996, 1995 and 1994, together with other information respecting the Company.
If a proxy is properly executed and returned, the shares represented thereby
will be voted in accordance with the specifications made, or if no specification
is made the shares will be voted to approve each proposition and to elect each
nominee for director identified on the proxy. Any shareholder giving a proxy has
the power to revoke it at any time before it is voted by filing with the
Secretary of the Company a notice in writing revoking it. A proxy may also be
revoked by any shareholder present at the Meeting who expresses a desire in
writing to revoke a previously delivered proxy and to vote his or her shares in
person. The mere presence at the Meeting of the person appointing a proxy does
not revoke the appointment. In order to revoke a properly executed and returned
proxy, the Company must receive a duly executed written revocation of that proxy
before it is voted. A proxy received after a vote is taken at the Meeting will
not revoke a proxy received prior to the Meeting; and a subsequently dated proxy
received prior to the vote will revoke a previously dated proxy.
All expenses in connection with the solicitation of proxies, including the
cost of preparing, handling, printing and mailing the Notice of Annual Meeting,
Proxies and Proxy Statements will be borne by the Company. Directors, officers
and regular employees of the Company, who will receive no additional
compensation therefor, may solicit proxies by telephone or personal call, the
cost of which will be nominal and will be borne by the Company. In addition, the
Company will reimburse brokerage houses and other institutions and fiduciaries
for their expenses in forwarding proxies and proxy soliciting material to their
principals.
<PAGE>
As of August 14, 1997, the following shareholders holding 2,028,813 of the
votes represented by shares of the voting stock of the Company, in the aggregate
constituting approximately 44% of the total votes represented by shares entitled
to vote at the Meeting, have indicated their intention to vote in person or by
proxy in favor of all nominees for director and all other matters to be
submitted for consideration at the Meeting: Harvey B. Adams (1,662,319 shares),
Ronald J. Adams (338,844 shares), Michael A. Sigmon (15,400 shares), Burton R.
Chasnov (9,250 shares) and Robert J. Gamson (3,000 shares).
(The remainder of this page has been intentionally left blank)
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<PAGE>
DIRECTORS, NOMINEES FOR DIRECTOR AND
EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE COMPANY
The executive officers, directors, nominees for director and key employees
of the Company are as follows:
NAME AGE POSITION
- ------------------- ----- -------------------------------------
Harvey B. Adams 50 Chairman of the Board of Directors, Nominee
for Director and Chief Executive Officer
Ronald J. Adams 48 President, Director, Nominee for Director and
Chief Operating Officer
Burton R. Chasnov 50 Executive Vice President and Chief
Financial Officer
Michael A. Sigmon 48 Vice President
James Read Boles 43 Chief Operating Officer and General
Manager--Flow Components division
Robert J. Gamson 61 Director
David M. Barnes 54 Director and Nominee for Director
Stephen A. Weiss 56 Director and Nominee for Director
- -----------
HARVEY B. ADAMS. Mr. Adams is the founder of the Company which he started in
1973. For approximately six years prior thereto he was employed in chemical
sales by Drew Chemical, Tampa, Florida and started a ship's chandler business.
Harvey Adams is a 1970 graduate of the United States Merchant Marine Academy and
holds a Bachelor of Science degree in Marine Engineering. He is the brother of
Ronald J. Adams, the President of the Company.
RONALD J. ADAMS. Mr. Adams is a principal shareholder of, and has been
continuously employed in senior executive capacities with the Company since
1978. For approximately five years prior thereto he held sales positions with
small privately-owned corporations. Mr. Ronald Adams is a 1971 graduate of the
United States Merchant Marine Academy and holds a Bachelor of Science degree in
Marine Engineering. He is the brother of Harvey B. Adams, the Chief Executive
Officer of the Company.
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<PAGE>
BURTON R. CHASNOV. Mr. Chasnov, as of July 1, 1996, became an Executive Vice
President and the Chief Financial Officer of the Company. Mr. Chasnov had been
the Company's and its predecessors' tax accountant and outside consultant for
the past 15 years and had operated his own public accounting practice since
1978. Concurrently during the period 1978 through 1987, Mr. Chasnov served as
the Vice President of Finance for Ploss Hotels Corporation, a hotel management
company. Prior to that time, Mr. Chasnov worked for three public accounting
firms, Arthur Andersen & Co., Clarence Rainess & Co. and Laventhol and Horwath,
CPAs.
MICHAEL A. SIGMON. Mr. Sigmon, together with his wife, started Alloy Piping
Supply, Inc. in Jacksonville, Florida in August 1974 as a distributor of
stainless steel welded pipe and related products; which corporation was merged
with the Company as of May 1992. From 1970 to 1974, Mr. Sigmon was a sales
representative for Camalloy, Inc., a stainless steel distributor in
Pennsylvania. For approximately five years prior thereto he was in the sales
department for Bristol Metal Products, Inc., a subsidiary of Synalloy
Corporation.
JAMES READ BOLES. Mr. Boles joined the Company as the Chief Operating
Officer and General Manager of the Flow Components division in January 1996,
when the Company acquired Flow Components, Inc. From 1991 to January 1996, Mr.
Boles served as President and a principal stockholder of Flow Components, Inc.,
a manufacturer and distributor of stainless steel flanges. Prior to his
acquisition of Flow Components, Mr. Boles was a principal in the acquisition and
operation of certain privately-owned businesses.
ROBERT J. GAMSON. From 1968 to 1991, Mr. Gamson was the founder, President
and principal stockholder of Aaron Scrap Metals, Inc., a dealer in ferrous and
non-ferrous metals purchased primarily from industrial plants and government
agencies. Such commodities were resold in both the domestic and foreign metals
markets. In 1991, Mr. Gamson sold Aaron Scrap Metals, Inc. to Commercial Metals
Co. located in Dallas, Texas. Mr. Gamson presently serves as President of
Surplus Steel and Supply, Inc. located in Orlando, Florida.
DAVID M. BARNES. Mr. Barnes has been a Director of the Company since June
21, 1994. Mr. Barnes has been Chief Financial Officer of American United Global,
Inc. since May 15, 1996, and Vice President Finance and director of American
United Global, Inc. since November 8, 1996. American United Global, Inc. is a
Nasdaq/NMS listed company that owns software development, telecommunications
consulting and construction equipment distribution companies, since May 15,
1996. From April 1990 until July 1990, Mr. Barnes also served as an officer and
director of Intelcom Data Systems, Inc., which engages in the design and
development of software for the foreign currency exchange and banking
industries. From October 1987 until May 1989, Mr. Barnes was Vice President of
Finance at U.S. Home Care Corp., a home health care provider. From April 1983
until September 1987, Mr. Barnes was Vice President of Finance and
Administration of Lifetime Corporation. From 1975 to 1983, Mr. Barnes was
Executive Vice President of Beefsteak Charlies, Inc. Mr. Barnes served as a
Director of Universal Self Care, Inc., a distributor and retailer of products
and services principally for diabetics, from May 1991 to June 1995 and he is a
director, President and a
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<PAGE>
minority stockholder of American Complex Care, Incorporated, a public company
formerly engaged in providing on-site health care services, including
intradermal infusion therapies. In April 1995, American Complex Care,
Incorporated's operating subsidiaries made assignments of their assets for
the benefit of creditors without resort to bankruptcy proceedings.
STEPHEN A. WEISS. Mr. Weiss has been a director of the Company since June
21, 1994. Mr. Weiss is a stockholder of Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, counsel to the Company, and has been a lawyer in private
practice in New York, New York for more than 25 years. Mr. Weiss is a director
of Lanxide Corporation, a developer of patented materials technology related to
the fabrication of ceramic-reinforced composite products.
The Company has Audit and Compensation Committees, and it is the Board's
Compensation Committee which administers the Company's Stock Option Plan. The
responsibilities of the Audit Committee include recommending to the Board of
Directors the firm of independent accountants to be retained by the Company,
reviewing with the Company's independent accountants the scope and results of
their audits, and reviewing with the independent accountants and Management the
Company's accounting and reporting principles, policies and practices, as well
as the Company's accounting, financial and operating controls and staff. The
Compensation Committee will have responsibility for establishing and reviewing
employee compensation plans. The Compensation Committee administers the
Company's stock option plan.
Non-management directors of the Company will receive directors' fees of $500
per meeting for attendance at Board of Directors meetings, and are reimbursed
for actual expenses incurred in respect of such attendance. The Company does not
intend to separately compensate employees for serving as directors.
Compliance with Section 16(a) Of the Exchange Act.
To the knowledge of the Company, no officers, directors, beneficial owners
of more than 10 percent of any class of equity securities of the Company
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any other person subject to Section 16 of the
Exchange Act with respect to the Company, failed to file on a timely basis
reports required by Section 16(a) of the Exchange Act during the most recent
fiscal year, which ended December 31, 1996, other than Michael Sigmon, who had a
late filing of his Form 5 for the 1996 fiscal year.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the amount of all compensation paid by the
Company for services rendered during each of 1994, 1995 and 1996 to the person
serving as the Company's Chief Executive Officer at any time during such periods
and to each of the Company's executive officers whose total salary and bonus
compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------
ANNUAL COMPENSATION(1) AWARDS PAYOUTS
------------------------------------ ------------------- -------
ALL
OTHER (2) RESTRICTED OTHER
ANNUAL STOCK OPTIONS/ LTIP COMPEN
NAME AND FISCAL COMPENSATION AWARDS SARS ($) SATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) ($) (#) PAYOUTS ($)
- ------------------ ------ ---------- --------- ------------ ---------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Harvey B. Adams
Chairman of the 1994 312,500 0 30,617 0 45,000 0 0
Board and Chief 1995 312,500 360,000 32,855 0 30,000 0 0
Executive Officer 1996 312,500 0 55,080 0 150,000 0 0
Ronald J. Adams 1994 187,500 0 35,085 0 45,000 0 0
President and Chief 1995 187,500 240,000 47,161 0 30,000 0 0
Operating Officer 1996 187,500 120,000 36,805 0 150,000 0 0
1994 26,842 0 0 0 0 0 0
Christopher B. Cole 1995 125,000 0 7,318 0 0 0
Executive V.P. (3) 1996 121,362 0 9,304 0 15,000 0 95,096
1994 140,000 0 11,467 0 7,500 0 0
Michael Sigmon 1995 160,000 24,000 8,736 0 5,000 0 0
Vice President 1996 196,000 0 9,012 0 0 0 0
</TABLE>
- ------------------------
(1) Does not include an aggregate of $93,238, $33,072, and $54,954 paid in
respect of the 1996 fiscal year, $93,238, $33,072 and $55,108 paid in respect of
the 1995 fiscal year, and $94,138, $33,072 and $54,954 paid in respect of the
1994 fiscal year, in rent to Harvey Adams, Ronald Adams and Michael and
Barbara Sigmon, respectively, for warehouse and office facilities leased by
the Company from such persons.
(2) Represents the cost of additional employee benefits to the particular
executive officer (e.g., health insurance, automobile) other than cash
compensation.
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<PAGE>
STOCK OPTION GRANTS
The Company has granted (net of forfeitures and cancellations) an
aggregate of 769,350 stock options under its 1993 stock option plan, as
amended, of which 56,050 stock options have been exercised through August 14,
1997. The following table sets forth information concerning the granting of
stock options during fiscal 1996 to each of the executive officers named in
the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------- POTENTIAL REALIZED VALUE AT
% OF TOTAL ASSUMED ANNUAL RATES OF
OPTIONS/SARS EXERCISE STOCK PRICE APPRECIATION
GRANTED TO OR BASE FOR OPTION TERM
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---- ------------ ------------ -------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Harvey B. Adams 150,000 37.6 5.125 9/03/01 981,141 1,238,080
Ronald J. Adams 150,000 37.6 5.125 9/03/01 981,141 1,238,080
Christopher B. Cole 15,000 3.8 11.875 8/31/00 227,338 286,872
</TABLE>
The following table sets forth information concerning the number of
unexercised options, and the value of such unexercised options, for each of the
executive officers named in the Summary Compensation Table.
AGGREGATED OPTIONS/SARS EXERCISED IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY
ACQUIRED ON VALUE OPTIONS/SARS AT FISCAL OPTIONS/SARS AT
NAME EXERCISE (#) REALIZED ($) YEAR-END (#) FISCAL YEAR-END ($)
- ---- --------------- ------------- ----------------------- ----------------------
(a) (b) (c) (d) (e)
<S> <C> <C> <C> <C>
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
--------------- --------------
Harvey B. Adams -0- -0- 75,000/150,000 $0
(exercisable/unexercisable)
Ronald J. Adams -0- -0- 75,000/150,000 $0
(exercisable/unexercisable)
Michael Sigmon -0- -0- 12,500 (exercisable) $0
Christopher B. Cole -0- -0- 15,000 (exercisable) $0
</TABLE>
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<PAGE>
The following table sets forth information concerning option replacement
grants for each of the executive officers named in the Summary Compensation
Table.
10-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF ORIGINAL OPTION
SECURITIES TERM
UNDERLYING MARKET PRICE OF EXERCISE PRICE REMAINING AT
OPTIONS/SARS STOCK AT TIME OF AT TIME OF NEW DATE OF
REPRICED OR REPRICING OR REPRICING OR EXERCISE REPRICING
NAME DATE AMENDMENT (#) AMENDMENT ($) AMENDMENT ($) PRICE ($) AMENDMENT ($)
- ------------------------- --------- --------------- ----------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
(A) (B) (C) (D) (E) (F) (G)
Harvey B. Adams.......... 9/4/96 150,000 5.125 8.25 5.125 4 yrs 2.5 mos
Ronald J. Adams.......... 9/4/96 150,000 5.125 10.25 5.125 4 yrs
</TABLE>
On September 4, 1996, the Compensation Committee elected to replace 150,000
stock options each, granted in 1995 to Harvey Adams and Ronald Adams at a per
share price of $8.25 and $10.25, respectively, with the same number of stock
options priced at $5.125 each (market price at date of grant). This option
replacement was in consideration for personal guarantees placed on the Company's
revolving line of credit with the Former Lenders and loans made to the Company.
See "Certain Transactions" for information concerning additional option
repricings in 1997.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Harvey B. Adams,
effective as of January 1, 1993 and expiring on December 31, 1997, pursuant to
which he serves as Chairman of the Board and Chief Executive Officer of the
Company and provides the Company with his full-time business and professional
services, and for which he receives a base annual salary of $312,500.
The Company also entered into an employment agreement with Ronald J. Adams,
effective as of January 1, 1993 and expiring on December 31, 1997, pursuant to
which he serves as President and Chief Operating Officer of the Company and
provides the Company with his full-time services, for which he receives a base
annual salary of $187,500.
Under the terms of an Employment Agreement dated April 15, 1996, effective
July 1, 1996 and expiring June 30, 2001, Burton Chasnov serves as Executive Vice
President and Chief Financial Officer of the Company. Mr. Chasnov's base salary
is $187,500 for the annual period ending June 30, 1997; $195,000 for the annual
period ending June 30, 1998; $205,000 for the annual period ending June 30,
1999; $215,000 for the annual period ending June 30, 2000; and $225,000 for the
annual period ending June 30, 2001. Additionally, Mr. Chasnov operated
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<PAGE>
under the terms of a written consulting agreement with the Company during the
period April 15, 1996 through June 30, 1996 in consideration for the grant of
options outside of the 1993 stock option plan to acquire 50,000 shares of
Company Common Stock at $11.00 per share (fair market at April 15, 1996)
during a five year period. On September 4, 1996, these options were forfeited
and replaced with 50,000 new options which were granted at $5.125 (fair
market at grant date) in consideration for his personal guarantee of an
automobile lease and a loan to the Company. See "Certain Transactions" for
information concerning additional option repricings in 1997.
Michael A. Sigmon entered into an employment agreement with the Company,
effective as of May 1, 1993 and expiring on December 31, 1995. Under such
agreement, Mr. Sigmon served as Vice President of the Company and was in charge
of the Jacksonville, Florida distribution center. On January 15, 1995, the
Company increased Mr. Sigmon's base annual salary to $160,000. In January 1996,
the Company increased Mr. Sigmon's base salary to $196,000 per annum, and agreed
to extend the term of his employment agreement to December 31, 1997.
Christopher B. Cole entered into an employment agreement with the
Company, effective as of October 1, 1994 and expiring on September 30, 1996,
at a base salary of $125,000 per annum. Under such agreement, Mr. Cole served
as Executive Vice President of the Company and was in charge of the initial
phase of the Company's relocation to the Auburndale Facility. Following
completion of such relocation, he had been responsible for the management and
review of the manufacturing operations of the Auburndale Facility. In March
1996, the Company negotiated a 5-year extension of Mr. Cole's employment
agreement at a base salary of $150,000 per annum. Mr Cole's employment with
the Company was terminated in November 1996, at which time he received a
severance package totaling approximately $95,000.
James Read Boles entered into an employment agreement with Flow Components
and the Company expiring on December 31, 1998. Under such agreement, Mr. Boles
serves as Chief Operating Officer and General Manager of the Company's Flow
Components subsidiary. The Company currently pays Mr. Boles a base salary of
$125,000 per annum, which is subject to annual cost-of-living increases and
annual review by the Company's Board of Directors. Additionally, the Company
granted to Mr. Boles options to purchase 50,000 shares of Company Common Stock
under the Company's Stock Option Plan at an exercise price of $8.50 per share
(i.e. equal to the last sale price of the Company's Common Stock, as reported on
Nasdaq on the effective date of the consummation of the Flow Components
acquisition).
Each of the employment agreements with Messrs. Harvey B. Adams, Ronald J.
Adams, Burton R. Chasnov, Michael A. Sigmon, and James Read Boles contain
covenants restricting the employee from engaging in any activities competitive
with the business of the Company during the term of his respective employment
agreement and for limited periods thereafter.
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors has an Audit Committee and a Compensation
Committee. The Compensation Committee also administers the Company's Stock
Option Plan. The responsibilities of the Audit Committee include recommending to
the Board of Directors the firm of independent accountants to be retained by the
Company, reviewing with the Company's independent accountants the scope and
results of their audits, and reviewing with the independent accountants and
management of the Company's accounting and reporting principles, policies and
practices, as well as the Company's accounting, financial and operating controls
and staff. The Compensation Committee has responsibility for establishing and
reviewing employee compensation plans, including the grant of options under the
Company's stock option plan.
Non-management directors of the Company will receive directors' fees of $500
per meeting for attendance at Board of Directors meetings, and are reimbursed
for actual expenses incurred in respect of such attendance. The Company does not
intend to separately compensate employees for serving as directors.
EXECUTIVE OFFICER BONUS PLAN
In order to provide certain of its senior executive officers with additional
incentives for enhanced performance, the Company adopted an Executive Officer
Bonus Plan (the "Bonus Plan") for the benefit of the Company's senior executive
officers from time to time. This Bonus Plan is administered by the Compensation
Committee of the Board of Directors of the Company (the "Committee"), which has
full and final authority to make all calculations of bonuses under the Bonus
Plan, the amount of advances available under the Bonus Plan to such officers,
and all other matters relating to the administration of the Bonus Plan and the
payment of any and all bonuses thereunder.
Only the President and the Chief Executive Officer of the Company (the
"Participants") during the subject fiscal years shall be eligible to
participate in and receive bonuses under the Bonus Plan. Any bonuses paid out
under this plan shall be allocated 60% of the Aggregate Bonus (as defined
herein) to the Chief Executive Officer and 40% of the Aggregate Bonus to the
President. The Aggregate Bonus (as defined in the below table) shall be
deemed earned under the Bonus Plan provided that the Company has achieved
EBITD (as hereinafter defined) equal to or in excess of the following income
levels:
EBITD AGGREGATE BONUS
------------------------- ---------------
$2,000,001--$2,500,000........ $ 200,000
$2,500,001--$3,000,000........ $ 350,000
$3,000,001--$3,500,000........ $ 500,000
$3,500,001 or more............ $ 600,000
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<PAGE>
The term "EBITD" means, with respect to the any full fiscal year subject to
the terms of the Bonus Plan, the net income of the Company for such fiscal year
(after all expenses, excluding the executive officer bonus, and before provision
for taxes based on income) calculated in accordance with generally accepted
accounting principles consistently applied, with the amount of any depreciation
to be added back to increase the net income (provided that, in such calculation,
there shall be excluded, and no effect shall be given to, (A) any net gains or
losses realized or incurred by reason of any extraordinary or non-recurring
transactions not in the ordinary course of business, and (B) any net gain
arising from the collection of the proceeds of any insurance policy or policies,
calculations of EBITD for any applicable fiscal year shall be based upon the
Company's annual audited financial statements for such fiscal year, as prepared
by the independent public accountants regularly engaged by the Company. All
bonuses earned under the Bonus Plan shall be paid to the Eligible Employees no
later than March 31 of the year following the fiscal year in which such bonus
was earned. No Bonuses were earned by Messrs. Harvey and Ronald Adams for 1996.
However, the Compensation Committee awarded Ronald Adams a bonus outside of the
Executive Officer Bonus Plan of $120,000 for 1996. In consideration of the 1996
bonus, Ronald Adams agreed to waive any bonus he might be entitled to for 1997
under the Executive Officer Bonus Plan.
The Bonus Plan shall remain in effect for the Company's fiscal year
beginning January 1, 1995 and ending December 31, 1997, without prejudice to the
Company's right to extend the Bonus Plan or its ability to provide compensation
to the Company's executive officers under other plans or in other ways. Advances
may be paid quarterly to eligible employees in anticipation of future bonus
compensation.
Effective January 1, 1996, the Company adopted a 401K retirement savings
plan. The Plan covers all employees with more than three months of service and
allows employees to contribute up to 15% of their income to the Plan. The
Company may contribute to the plan at its discretion. As of December 31, 1996,
the Company had not made a qualified matching contribution to the Plan.
The Compensation Committee of the Board of Directors established in June
1994 consists of Robert J. Gamson, Stephen A. Weiss and David M. Barnes. The
Audit Committee consists of Ronald J. Adams and Messrs. Weiss and Barnes. Such
persons were members of the Board of Directors of the Company for the entire
fiscal year ended December 31, 1996.
For a description of certain transactions involving the Company and its
officers and directors, see "Certain Transactions" below.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
The Company has included in its Certificate of Incorporation and/or By-laws
provisions to (i) eliminate the personal liability of its directors and officers
for monetary damages resulting from breaches of their fiduciary duty (provided
that such provisions do not eliminate liability for breaches of the duty of
loyalty, acts or omissions not in good faith or which involve intentional
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misconduct or a knowing violation of law, violations under Section 174 of the
Delaware Law, or for any transaction from which the director and/or officer
derived an improper personal benefit), and (ii) indemnify its directors and
officers to the fullest extent permitted by the Delaware Law, including
circumstances in which indemnification is otherwise discretionary. The Company
believes that these provisions are necessary to attract and retain qualified
persons as directors and officers.
The Company has entered into separate but identical indemnity agreements
(the "Indemnity Agreements") with each director and executive officer of the
Company (the "Indemnitees"). The Indemnity Agreements provide that the Company
will indemnify each Indemnitee against any amounts that he becomes legally
obligated to pay in connection with any claim against him based upon any act,
omission, neglect or breach of duty that he may commit, omit or suffer while
acting in his capacity as a director and/ or officer of the Company; provided,
that such claim: (i) is not based upon the Indemnitee's gaining any personal
profit or advantage; (ii) is not for an accounting of profits made from the
purchase or sale by the Indemnitee of securities of the Company within the
meaning of Section 16(b) of the Exchange Act or similar provisions of any state
law; and (iii) is not based upon the Indemnitee's knowingly fraudulent,
deliberately dishonest or willful misconduct. The Indemnity Agreements also
provide that all costs and expenses incurred by the Indemnitee in defending or
investigating such claim shall be paid by the Company in advance of the final
disposition thereof, unless the Company's disinterested directors, independent
legal counsel, the stockholders of the Company or a court of competent
jurisdiction determines that: (x) the Indemnitee did not act in good faith and
in a manner that he reasonably believed to be in or not opposed to the best
interests of the Company; or (y) in the case of any criminal action or
proceeding, the Indemnitee had reasonable cause to believe his conduct was
unlawful. Each Indemnitee has undertaken to repay the Company for any costs or
expenses so advanced if it shall ultimately be determined by a court of
competent jurisdiction in a final, nonappealable adjudication that he is not
entitled to indemnification under an Indemnity Agreement.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Board of Directors of the Company has decided that the best way to
attract and retain highly capable employees on a basis that will encourage them
to perform at increasing levels of effectiveness and to use their best efforts
to promote the growth and profitability of the Company, is to enter into
employment agreements with its senior executive officers. During the fiscal year
ended December 31, 1996, Messrs. Harvey Adams, Ronald Adams and Chasnov were all
under contract with the Company. This enabled the Board to concentrate on the
negotiation of particular employment contracts rather than on the formulation of
more general compensation policies for all management and other personnel. See,
"Employment Agreements" above. The Company believes that its compensation levels
as to all of its employees were comparable to industry standards. As of August
14, 1997, Messrs. Harvey Adams, Ronald Adams and Chasnov are the Company's only
senior executive officers which are employed under contracts approved by the
full Board of Directors. The Company's Compensation Committee has not had to
determine the compensation of senior executive officers other than under its
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administration of the Executive Officer Bonus Plan, and will not do so until
such officers' employment contracts expire or additional senior executive
officers are engaged by the Company. See "Employment Agreements" and "Executive
Officer Bonus Plan," above.
In setting levels of compensation under such employment contracts, and in
approving management's compensation of all other Company employees, the Board of
Directors evaluates the Company's overall profitability, the contribution of
particular individuals to Company performance and industry compensation
standards. A significant percentage of the total compensation paid to each of
Messrs. Harvey Adams and Ronald Adams in 1995 was earned under the Executive
Officer Bonus Plan which is tied to the Company's achievement of prescribed
levels of pre-tax income by the Company. Currently, a significant percentage of
the compensation that can be earned by Mr. Harvey Adams may be awarded under the
Company's Executive Officer Bonus Plan, which is administered by the
Compensation Committee, based upon the achievement of specified earnings targets
achieved by the Company. Mr. Ronald Adams has waived his right to receive
additional compensation under the Executive Officer Bonus Plan for 1997. See,
"Employment Agreements" and "Executive Officer Bonus Plan," above.
The members of the Company's Board of Directors are Messrs. Harvey B. Adams,
Ronald J. Adams, Robert J. Gamson, David M. Barnes and Stephen A. Weiss.
HARVEY B. ADAMS RONALD J. ADAMS ROBERT J. GAMSON
DAVID M. BARNES STEPHEN A. WEISS
PERFORMANCE GRAPH
The following performance graph compares the yearly percentage change in the
Company's cumulative total shareholder return on its common stock since 1993 as
compared to the NASDAQ National Market as a whole and as compared to a peer
group of similar industries all of whom which have been publicly held since 1993
(the "Peer Group").
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG CONSOLIDATED STAINLESS, INC.,
NASDAQ MARKET INDEX AND PEER GROUP INDEX
- --------------------------------FISCAL YEAR ENDING-----------------------
[TO FOLLOW]
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table identifies each person or entity known to the Company to
be the beneficial owner of more than five percent of the Company's Common Stock
on August 14, 1997, each director and nominee for director of the Company and
all the directors, nominees for director and executive officers of the Company
as a group, and sets forth the number of shares of the Company's Common Stock
beneficially owned by each such person and such group and the percentage of the
shares of the Company's outstanding Common Stock owned by each such person and
such group. In all cases, the named person has sole voting power and sole
investment power of the securities.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK PERCENTAGE OF
NAME AND ADDRESS OF OF THE COMPANY OUTSTANDING
BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) COMMON STOCK OWNED
- ----------------------------------- ----------------------- ------------------
<S> <C> <C>
Harvey B. Adams 1,887,319(3)(5) 39.0%
Ronald J. Adams 563,844(4) 11.7%
Burton R. Chasnov 68,750(6) 1.5%
Michael A. Sigmon 27,900(7) *
8035 Pebble Creek Lane West
Ponte Vedra, FL 32082
Stephen A. Weiss 7,000(8) *
50 West Branch Road
Weston, CT 06883
Robert J. Gamson 12,750(9) *
1501 The Oaks Drive
Maitland, FL 32751
David M. Barnes 3,500(10) *
c/o American United Global, Inc.
11130 NE 33rd Place, Suite 250
Bellevue, WA 98004-1448
All executive officers and 2,571,063(3)(4)(5)(6)(7) 49.9%
directors as a group (7 persons) (8)(9)(10)
</TABLE>
- ------------------------
* Less than 1%.
(1) The addresses of each of Harvey B. Adams, Ronald J. Adams, and Burton R.
Chasnov is c/o Consolidated Stainless, Inc., 1601 East Amelia Street,
Orlando, Florida 32803. Harvey B. Adams and Ronald J. Adams are brothers.
(2) As used herein, the term beneficial ownership with respect to a security is
defined by Rule 13d-3 under the Securities Exchange Act of 1934 as
consisting of sole or shared voting power (including the power to vote or
direct the vote) and/or sole or shared investment power (including the power
to dispose or direct the disposition of) with respect to the security
through any contract, arrangement, understanding,
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relationship or otherwise, including a right to acquire such power(s) during
the next 60 days. Unless otherwise noted, beneficial ownership consists of
sole ownership, voting and investment rights.
(3) Includes non-qualified options to purchase 225,000 shares of the Company's
common stock at $2.25 per share granted under the Company's 1993 Stock
Option Plan. Also includes 3,000 shares held for the benefit of Mr. Adams'
children.
(4) Includes 16,500 shares held by a trust for the benefit of Mr. Adams' two
nieces and which Mr. Adams serves as trustee, and non-qualified options to
purchase 225,000 shares of the Company's common stock at $2.25 per share
granted under the Company's 1993 Stock Option Plan.
(5) Under a Stipulation and Property Settlement Agreement dated February 8,
1993, as amended (the "Marital Settlement Agreement"), as security for the
payment by Harvey B. Adams of a lump sum alimony payment to Candice V.
Adams, his former wife ("Ms. Adams"), of $2,000,000, plus accrued interest
at 6% per annum (the "Alimony Amount"), Mr. Adams agreed (i) to assign to
Ms. Adams, all proceeds payable by the Company to Mr. Adams under the terms
of a stock redemption agreement, dated April 30, 1993 (the "Redemption
Agreement"), (ii) to deliver into escrow with counsel to the Company stock
certificates evidencing all but 387,000 shares of Company Common Stock owned
by Mr. Adams, and (iii) to pledge to Ms. Adams 180,000 shares out of such
387,000 shares of Company Common Stock to secure accrued interest on the
Alimony Amount. Under the terms of this escrow arrangement, Mr. Adams
retains the sole right to vote all shares held in escrow, and to sell all or
any portions of such shares provided that 50% of the net proceeds of each
sale are paid to Ms. Adams as a reduction of the Alimony Amount. The shares
held in escrow will be released and redelivered to Mr. Adams upon full
payment of the Alimony Amount. However, if any balance of the Alimony Amount
is outstanding on January 1, 2000, and the Company fails to repurchase
shares of Company Common Stock in accordance with the terms of the
Redemption Agreement, Ms. Adams will be delivered out of escrow such number
of shares as to which the then market value equals the Alimony Amount
balance. The Company has granted to Ms. Adams "piggyback" registration
rights with respect to any shares so transferred to her out of escrow (see
"Certain Transactions").
(6) Includes 3,500 shares indirectly owned through Burton R. Chasnov, CPA,
Profit Sharing Plan and 2,250 shares of Company Common Stock indirectly
owned through Burton R. Chasnov, CPA, Money Purchase Pension Plan. Includes
non-qualified options to purchase (i) 9,500 shares of Company Common Stock
at $2.25 per share granted under the Company's 1993 Stock Option Plan and
(ii) 50,000 shares of Company Common Stock at $2.25 per share.
(7) Includes non-qualified options to purchase 12,500 shares of the Company's
common stock at $2.25 per share granted under the Company's 1993 Stock
Option Plan. Does not include 500 shares of the Company's common stock held
for the benefit of Mr. Sigmon's child.
(8) Includes non-qualified options to purchase 7,000 shares of the Company's
common stock at $2.25 per share granted under the Company's 1993 Stock
Option Plan.
(9) Includes non-qualified options to purchase 9,750 shares of the Company's
common stock at $2.25 per share granted under the Company's 1993 Stock
Option Plan.
(10) Includes non-qualified options to purchase 3,500 shares of the Company's
common stock at $2.25 per share granted under the Company's 1993 Stock
Option Plan.
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CERTAIN TRANSACTIONS
The Company leases two warehouses and office facilities located in Apopka,
Florida under a month-to-month lease with R & H Partners, a partnership
consisting of Harvey and Ronald Adams. Annual net rental under the Apopka lease
is $62,400. These facilities were previously leased from R & H Partners under a
lease which commenced in May 1992 and expired in April 1997, at the same rental
rate. The Company also leases from Harvey B. Adams a second warehouse/storage
facility in Mulberry, Florida under a month-to month lease. Annual net rental on
this 5,000 square foot facility is $56,760. This facility was previously leased
from Mr. Adams under a lease which commenced in May 1992 and expired in April
1997, at the same rental rate.
The Company leases a 27,500 square foot warehouse and office facility
located in Jacksonville, Florida under a month-to-month lease from Michael and
Barbara Sigmon. Mr. Sigmon is a Vice President and a minority stockholder of the
Company. Annual net rental under the Jacksonville lease is $54,180. The Company
previously leased this facility from Mr. and Mrs. Sigmon under a lease which
commenced in May 1992 and expired April 1997, at an annual net rental rate of
$51,600.
The Company leases its principal executive offices in Orlando, Florida from
Burton and Barbara Chasnov on a month-to-month basis, Mr. Chasnov is an
Executive Vice President and Chief Financial Officer of the Company. Annual net
rental on this 4,500 square foot facility is $33,638.
On June 26, 1997, Harvey Adams was indebted to the Company in the amount of
$138,115, including $101,075 borrowed prior to 1993, inclusive of accrued
interest at the rate of 10% per annum. Additionally, the Company owed Mr. Adams
$363,158 pursuant to a prior loan made to the Company in 1996. On June 26, 1997,
the net difference between the amount that Mr. Adams owed to the Company and the
amount that was owed to him by the Company, $225,043, was converted by Mr. Adams
into 100,019 unregistered shares of Company Common Stock at a rate of
indebtedness per share issued equal to the closing sale price of a share of
Company Common Stock reported on the Nasdaq/NMS on such date, $2.25.
On June 26, 1997, Ronald Adams was indebted to the Company in the amount of
$124,412, including $25,725 borrowed prior to 1993, inclusive of accrued
interest at the rate of 10% per annum. Additionally, the Company owed Mr. Adams
$75,000 as a bonus payable from 1996 and $100,000 pursuant to a prior loan made
to the Company in 1996.
On June 26, 1997, the $100,000 owed by the Company to Mr. Adams was
converted by Mr. Adams into 44,444 unregistered shares of Company Common Stock
at a rate of indebtedness per share issued equal to the closing sale price of a
share of Company Common Stock reported on the Nasdaq/NMS on such date, $2.25.
In 1996, Burton R. Chasnov loaned the Company $100,000. Interest on this
loan is paid monthly at the interest rate of 12% per annum. The loan is
subordinated to the revolving line
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of credit with Mellon Bank and the Convertible Subordinated Debt Agreement
with SunTrust Banks.
To assist him in paying a $2,000,000 obligation incurred in connection
with a marital settlement, the Company entered into a stock redemption
agreement with Harvey B. Adams in 1993 (the "Redemption Agreement"), pursuant
to which the Company agreed under certain conditions to redeem and repurchase
from Mr. Adams, upon his request, shares having a then market value equal to
up to $2,500,000 at any time during the three month period commencing January
1, 2000 and ending March 31, 2000. The Company may satisfy its obligations to
repurchase shares from Mr. Adams by registering such shares for resale on
behalf of Mr. Adams at the Company's expense. To the extent that Mr. Adams
has received proceeds from sales of, or has otherwise transferred, Company
Common Stock on or prior to such repurchase or registration, the Company's
obligations under the Redemption Agreement will be reduced proportionately.
See, "Security Ownership of Certain Beneficial Owners and Management."
Net proceeds of the Company's 1993 initial public offering in the amount
of $1,100,000 were distributed to Harvey B. Adams and other stockholders
prior to such public offering to enable them to pay their respective federal
income tax obligations on earnings of the Company taxable to such
stockholders but not distributed in cash to them under its former S
Corporation election. Of such amount, over $1,000,000 in the aggregate was
distributed to Harvey B. Adams, Ronald J. Adams and Michael Sigmon. The
Company, Harvey B. Adams, Ronald J. Adams, Michael Sigmon and certain other
stockholders also entered into a tax indemnity agreement under which such
stockholders agreed to indemnify the Company from any tax liabilities on any
undistributed S corporation earnings prior to such initial public offering.
The Company agreed to indemnify Harvey B. Adams and the other stockholders in
the event that Harvey B. Adams and the other stockholders are required to pay
additional federal income taxes on certain undistributed income of the
Company for periods prior to 1993, to the extent that such taxes result from
a change by the Company in the method of reporting inventory for income tax
purposes.
Harvey B. Adams included on his personal federal income tax return filed for
1992 amounts that were includable in the income of the Company for the year
ended January 31, 1990 relating to the change in the Company's method of
reporting inventory for income tax purposes. In December 1993 the Company
reimbursed Mr. Adams by offsetting the $390,000 against the then aggregate
balance of Messrs. Harvey and Ronald Adams's promissory notes payable to the
Company (aggregating $346,255 principal), with the remainder ($43,775) being
applied against other amounts owed to the Company by Harvey B. Adams. Harvey B.
Adams has indemnified the Company for the full amount of such offsets
($390,000), and to the extent of any additional taxes on income earned during
the fiscal year ended January 31, 1990, in the event that the Company's manner
of filing its tax returns as concerns such method of reporting inventory is not
accepted and the Company incurs a federal income tax liability with respect
thereto.
On June 26, 1997, the Company repriced certain outstanding options granted
to members of management, directors and other consultants and employees,
including those granted to
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<PAGE>
Messrs. Harvey Adams, Ronald Adams, Burton Chasnov, Robert Gamson, Stephen
Weiss and David Barnes, whether such options were granted under the Company's
1993 Stock Option Plan or granted outside such plan. The repricing was
effected by reducing the exercise price of such options to $2.25 per share,
the closing sale price of a share of Company Common Stock reported on the
Nasdaq/NMS on such date.
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<PAGE>
ACTION TO BE TAKEN UNDER THE PROXY
Unless otherwise directed by the grantor of the proxy, the persons acting
under the accompanying proxy will vote the shares represented thereby: (a) for
the election of the persons named in the next succeeding table as nominees for
directors of the Company; (b) for the proposal to ratify the appointment of BDO
Seidman, LLP as the Company's auditors for the current fiscal year ending
December 31, 1996; (c) for the proposal to authorize an amendment to the
Company's Certificate of Incorporation to increase the Company's authorized
capital by (i) redesignating the shares the Company's authorized voting Common
Stock as Class A Voting Common Stock and (ii) creating a new class of Non-Voting
Class B Common Stock, of which 300,000 shares of Non-Voting Class B Common Stock
will be authorized; (d) for the proposal to increase the number of available
shares underlying the Company's Stock Option Plan by 300,000 shares, from
800,000 shares of voting Common Stock to 1,100,000 shares of voting Common
Stock; and (e) in connection with the transaction of such other business that
may be brought before the Annual Meeting, in accordance with the judgment of the
person or persons voting the proxy.
I. ELECTION OF DIRECTORS
NOMINEES
At the Annual Meeting four directors are to be elected, each to hold
office until the next Annual Meeting of Stockholders or until his or her
successor shall be elected and shall qualify. The names of the nominees for
election as directors, all of whom are now serving as director of the
Company, and certain information furnished to the Company by such nominees
with respect to them, as of August 14, 1997, are set forth below. Unless
authority to vote for one or more nominees is withheld, it is intended that
shares represented by proxies in the accompanying form will be voted for the
election of all of the following nominees. With respect to any such nominee
who may become unable or unwilling to accept nomination or election, it is
intended that the proxies will be voted for the election in his stead of such
person as the Board of Directors may recommend, but the Board does not know
of any reason why any nominee will be unable or unwilling to serve if elected.
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PRINCIPAL
OCCUPATION
DIRECTOR DURING LAST
NAME AGE SINCE FIVE YEARS
- ------------------------ --- ------------- -------------
Harvey B. Adams......... 50 1976(1) *
Ronald J. Adams......... 48 1992(1) *
David M. Barnes......... 54 1994 *
Stephen A. Weiss........ 56 1994 *
- ------------------------
(1) Includes time served as a director of Gulf Flange & Fitting Corporation, the
predecessor to the Company
* See "Directors, Nominees for Director, Executive Officers and Key Employees
of the Company" on pages 3 through 5.
COMMITTEES AND MEETINGS OF THE BOARD
At present the Board of Directors has two committees, the Audit and
Compensation Committees, which consist of the following individuals,
respectively: Messrs. Ronald Adams, Barnes and Weiss (Audit); and Messrs.
Gamson, Barnes and Weiss (Compensation). The function of the Audit Committee
includes responsibility for review of the financial control procedures put into
place by the Company and periodic review of the Company's preliminary results of
operations. The function of the Compensation Committee includes responsibility
for reviewing the compensation for all of the Corporation's employees, including
the granting of options granted under all of the Company's stock option plans
that may exist and be in effect from time to time. During the fiscal year ended
December 31, 1996, the Board of Directors met 14 times, including 9 actions
taken by unanimous written consent of the directors; the Audit Committee did not
meet, but rather conducted its operations through meetings of the full Board of
Directors; and the Compensation Committee did not meet, but rather conducted its
operations through meetings of the full Board of Directors or by 4 actions taken
by unanimous written consent. All of the nominated directors who served as
directors during the fiscal year ended December 31, 1996 attended more than 75%
of all of the meetings of the Board held during period of their tenure during
such year. See "Directors, Nominees for Director and Executive Officers and Key
employees of the Company" at page 5 above for information concerning fees
payable to directors.
II. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS FOR THE
FISCAL YEAR ENDING DECEMBER 31, 1997
At the Annual Meeting a vote will be taken on a proposal to ratify the
appointment by the Board of Directors of BDO Seidman, LLP independent certified
public accountants, as the independent auditors of the Company for the fiscal
year ending December 31, 1997. BDO
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Seidman, LLP was the Company's independent auditor for the Company's 1996
fiscal year, and it has no interest in or any relationship with the Company
except as its auditors.
If stockholders do not approve such selection or if prior to the 1997
Annual Meeting BDO Seidman, LLP shall decline to act or otherwise become
incapable of acting, or if their engagement shall be otherwise discontinued
by the Board of Directors, pursuant to the recommendation of the Audit
Committee, the Board of Directors shall select other independent certified
public accountants whose selection for any period subsequent to the fiscal
year ending December 31, 1996 will be subject to approval by stockholders at
the 1998 Annual Meeting.
Management believes the appointment to be in the best interest of the
Company and recommends that it be ratified.
A representative of BDO Seidman, LLP will be present at the Annual Meeting
and will be given an opportunity to make a statement to the stockholders if he
so desires. The representative will be available to respond to questions from
stockholders.
III. TO AMEND THE CORPORATION'S CERTIFICATE OF INCORPORATION TO
REDESIGNATE VOTING COMMON STOCK AS CLASS A COMMON STOCK AND CREATE
A CLASS OF NON-VOTING CLASS B COMMON STOCK
At the Annual Meeting a vote will be taken on a proposal to authorize the
amendment of the Company's Certificate of Incorporation to redesignate the
Company's existing authorized voting common stock as Class A Common Stock and to
create a new class of non-voting common stock designated as Class B Common
Stock, with 300,000 shares Class B Common Stock being authorized for issuance
(the "Charter Amendment"). A copy of the Charter Amendment is annexed to this
Proxy Statement as Exhibit A. The Company is required to create the Class B
Common Stock under the terms of the Convertible Subordinated Note Purchase
Agreement, dated as of October 18, 1996, by and between the Company and SunTrust
Banks, Inc. (the "Purchase Agreement"). Pursuant to the Purchase Agreement,
SunTrust Banks, Inc. purchased a convertible note in the aggregate principal
amount of $2,500,000 (the "Note"), with principal and accrued interest under the
Note being convertible at the option of SunTrust Banks, Inc. into Common Stock
prior to and following effectiveness of the Charter Amendment, and being
convertible at the option of SunTrust Banks, Inc. into Class B Common Stock
thereafter under certain circumstances. The Company is required to submit the
Charter Amendment to Company stockholders for their approval at a meeting of
stockholders to be held prior to September 30, 1997, and the number of shares of
Class B Common Stock to be authorized under the Charter Amendment is intended to
be equal to the number of such shares deemed necessary solely to meet the
Company's obligations under the Purchase Agreement. IT IS AN EVENT OF DEFAULT
UNDER THE TERMS OF THE PURCHASE AGREEMENT FOR THE STOCKHOLDERS OF THE COMPANY TO
FAIL TO APPROVE THE CHARTER AMENDMENT AT THE 1997 ANNUAL MEETING AND FOR THE
CHARTER AMENDMENT NOT TO BE FILED WITH THE SECRETARY OF STATE OF THE STATE OF
DELAWARE AND NOT BE EFFECTIVE ON OR BEFORE SEPTEMBER 30, 1997. In
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the event that an Event of default occurs under the Purchase Agreement,
SunTrust Banks, Inc. may, among other available remedies, declare the unpaid
principal and any accrued interest under the Note due and payable immediately
by the Company. Should the Company be in default under the Purchase Agreement
due to a failure of Company stockholders to approve the Charter Amendment at
the 1997 Annual Meeting, and were SunTrust Banks, Inc. to thereafter declare
all unpaid principal and accrued interest under the Note immediately due and
payable, such default would have a material, adverse effect upon the Company
and its ongoing business operations.
Management believes approval of the Charter Amendment, which amends the
Company's Certificate of Incorporation to create a class of non-voting common
stock, is in the best interest of the Company and recommends that it be
authorized and ratified.
IV. TO APPROVE THE INCREASE OF THE NUMBER OF AVAILABLE SHARES OF
VOTING COMMON STOCK UNDERLYING THE COMPANY'S 1993 STOCK OPTION PLAN
FROM 800,000 TO 1,100,000 SHARES
At the Annual Meeting a vote will be taken on a proposal to approve the
Second Amendment to the Company's 1993 Stock Option Plan (the "1993 Plan"),
which increases the number of shares of Common Stock underlying stock options
available for grant thereunder from the existing 800,000 shares of voting Common
Stock to 1,100,000 shares of voting Common Stock. As of August 14, 1997, stock
options to purchase 769,350 shares of voting Common Stock, out of the currently
available 800,000 shares of voting Common Stock underlying 1993 Plan stock
options, have been granted (net of forfeitures and cancellations) to the
Company's employees, directors and consultants.
The 1993 Plan was authorized and adopted by the stockholders and the
directors of the Company in 1993, and was previously amended in 1995 to increase
the number of shares of voting Common Stock available for option grant from
500,000 shares to 800,000 shares. The purpose of the 1993 Plan is to provide
additional incentive to the directors, officers, employees and consultants of
the Company who are primarily responsible for the management and growth of the
Company. Each option granted pursuant to the 1993 Plan shall be designated at
the time of grant as either an "incentive stock option" or as a "non-qualified
stock option."
ADMINISTRATION OF THE PLAN. The 1993 Plan is administered by the
Compensation Committee, which determines whom among those eligible will be
granted options, the time or times at which options will be granted, the number
of shares to be subject to options, the durations of options, any conditions to
the exercise of options and the manner in and price at which options may be
exercised. The Compensation Committee is authorized to amend, suspend or
terminate the 1993 Plan, except that it is not authorized without stockholder
approval (except with regard to adjustments resulting from changes in
capitalization) to (i) increase the maximum number of shares that may be issued
pursuant to the exercise of options granted under the 1993 Plan; (ii) permit the
grant of a stock option under the 1993 Plan with an option price less than 85%
of the fair market value of the shares at the time such option is granted; (iii)
change the
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eligibility requirements for participation in the 1993 Plan; (iv)
extend the term of any option or the period during which any option may be
granted under the 1993 Plan; or (v) decrease an option exercise price (although
an option may be canceled and a new option granted at a lower exercise price).
SHARES SUBJECT TO THE PLAN. The 1993 Plan currently provides that options
may be granted with respect to a total of 800,000 shares of voting Common Stock,
subject to adjustment upon certain changes in capitalization without receipt of
consideration by the Company. In addition, if the Company is involved in a
merger, consolidation, dissolution or liquidation, the options granted under the
1993 Plan will be adjusted or, under certain conditions, will terminate, subject
to the right of the option holder to exercise his option or a comparable option
substituted at the discretion of the Company prior to such event. If any option
expires or terminates for any reason, without having been exercised in full, the
unpurchased shares subject to such option will be available again for the
purposes of the 1993 Plan.
PARTICIPATION. Any employee, consultant or representative of the Company is
eligible to receive incentive stock options or non-qualified stock options
granted under the 1993 Plan. Non-employees may only receive non-qualified stock
options.
OPTION PRICE. The exercise price of each option shall be determined by
the Compensation Committee. However, the exercise price of each option on the
date the option is granted may not be less than (i) 100% of the fair market
value of the shares of voting Common Stock covered by an incentive stock
option, or (ii) 85% of the fair market value of the shares of Common Stock
covered by a non-qualified stock option. If an incentive stock option is to
be granted to an employee who owns over 10% of the total combined voting
power of all classes of the Company's stock, then the exercise price may not
be less than 110% of the fair market value of the voting Common Stock covered
by the option on the date the option is granted.
TERMS OF OPTIONS. The Compensation Committee shall, in its discretion, fix
the term of each option, provided that the maximum term of each option shall be
10 years. Incentive options granted to an employee who owns over 10% of the
total combined voting power of all classes of stock of the Company shall expire
not more than five years after the date of grant. The 1993 Plan will provide for
the earlier expiration of options of a participant in the event of certain
terminations of employment.
RESTRICTIONS ON GRANT AND EXERCISE. An Option may not be transferred other
than by will or the laws of descent and distribution and, during the lifetime of
the option holder, may be exercised solely by him. The aggregate fair market
value (determined at the time the option is granted) of the shares as to which
an employee may first exercise incentive stock options in any one calendar year
may not exceed $100,000. The Compensation Committee may impose other conditions
to exercise as it deems appropriate.
-23-
<PAGE>
OPTION GRANTS. The Company has granted an aggregate of 769,350 options
under the 1993 Plan (net of forfeitures and cancellations).
TERMINATION. The 1993 Plan, unless sooner terminated by the Board of
Directors or Compensation Committee, will terminate on December 31, 2003.
TAX TREATMENT OF OPTIONS. The Federal income tax treatment of non-qualified
stock options under the 1993 plan is generally less favorable to employees than
the treatment accorded incentive stock options under the 1993 Plan. The option
grantee realizes taxable income, if any, upon his exercise of a non-qualified
stock option, not only upon sale of the shares acquired upon option exercise as
would be the case for incentive stock options granted under the 1993 Plan. The
tax treatment of non-qualified stock options is more favorable to the Company
than the treatment accorded to the Company with respect to incentive stock
options, because the Company is entitled to a tax deduction with respect to the
grant of a non-qualified stock option, the Company would be entitled to a tax
deduction and the optionee would realize taxable income upon being granted a
non-qualified stock option, equal to the difference between the option exercise
price and the fair market value of the underlying stock on the date of grant.
The Company currently has no plans for the specific grant of additional
options under the 1993 Plan to any person, including any members of the
Company's management.
As of the close of business on July 29, 1997, the market value of the shares
of Common Stock underlying all options outstanding under the 1993 Plan was
approximately $1,515,763.
As of July 29, 1997, the persons or groups listed below hold outstanding
stock options granted under the 1993 Plan to acquire shares of Common Stock, as
follows:
- --------------------------------------------------------------------
Harvey B. Adams-- 225,000 shares;
- --------------------------------------------------------------------
Ronald J. Adams-- 225,000 shares;
- --------------------------------------------------------------------
Burton R. Chasnov-- 9,500 shares;
- --------------------------------------------------------------------
Michael A. Sigmon-- 12,500 shares;
- --------------------------------------------------------------------
All current executive officers
of the Company as a group-- 472,000 shares;
- --------------------------------------------------------------------
All non-employee directors
and nominees for director as a
group-- 20,250 shares;
- --------------------------------------------------------------------
All employees, including all
current officers who are not
executive officers
of the Company, as a group-- 221,050 shares.
- --------------------------------------------------------------------
-24-
<PAGE>
Management believes approval of the Second Amendment of the Company's 1993
Stock Option Plan is in the best interest of the Company and recommends that it
be authorized and ratified.
V. OTHER BUSINESS
While management of the Company does not know of any matters which may be
brought before the Annual Meeting other than as set forth in the Notice of
Annual Meeting, the proxy confers discretionary authority with respect to the
transaction of any other business. It is expected that the proxies will be voted
in support of management on any question which may properly be submitted to the
meeting.
INCLUSION OF STOCKHOLDER PROPOSALS
IN THE COMPANY'S PROXY STATEMENT
If any stockholder desires to put forth a proposal to be voted on at the
1998 Annual Meeting of Stockholders and wishes that proposal to be included in
the Company's Proxy Statement to be delivered to stockholders in connection with
such meeting, that stockholder must cause such proposal to be received by the
Company at its principal executive office no later than April 11, 1998. The
Company intends to hold its 1998 Annual Meeting of Stockholders on or before
September 30, 1998. Any request for such a proposal, should be accompanied by a
written representation that the person making the request is a record or
beneficial owner of the lesser of at least 1% of the outstanding shares of the
Company's Common Stock or $1,000 in market value of the Company's common shares
and has held such shares for at least one year as required by the Proxy Rules of
the Securities and Exchange Commission.
AVAILABILITY OF FORM 10-K
The Company will provide, without charge, to any stockholder, upon written
request of such stockholder, a copy of the Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 as filed with the Securities and Exchange
Commission, including all financial statements and financial statement schedules
required to be filed therewith.
Any request for a copy of the Form 10-K should include a representation that
the person making the request was the beneficial owner, as of the record date,
of securities entitled to vote at the Annual Meeting of Stockholders. Such
request should be addressed to: Consolidated Stainless, Inc., 1601 East Amelia
Street, Orlando, Florida 32803 Attention: Daniel Rashy, Secretary.
------------------------------------------
PLEASE SIGN, DATE AND RETURN THE ENCLOSED
-25-
<PAGE>
PROXY IN THE ENVELOPE PROVIDED FOR SUCH PURPOSE
------------------------------------------
-26-
<PAGE>
EXHIBIT A
CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF INCORPORATION
OF
CONSOLIDATED STAINLESS, INC.
I.
The name of the corporation is Consolidated Stainless, Inc. (the
"Corporation").
II.
The Corporation's Certificate of Incorporation is hereby amended by
deleting Article FOURTH in its entirety and inserting the following so that
Article FOURTH shall hereafter read as follows:
"FOURTH:
A. Authorized Stock. The aggregate number of shares of capital stock that
may be issued by the Corporation is 17,300,000, consisting of 15,000,000 shares
of Class A Voting Common Stock, par value $.01 per share ("Voting Common
Stock"); 300,000 shares of Class B Nonvoting Common Stock, par value $.01 per
share ("Nonvoting Common Stock"); and 2,000,000 shares of Preferred Stock, par
value $.01 per share ("Preferred Stock").
B. Common Stock.
1. Rights and Privileges.
(a) Except as provided in Section B.2 below, all shares of
Voting Common Stock and Nonvoting Common Stock (collectively "Common
Stock") shall be identical and shall entitle the holders thereof to
the same rights and privileges, and no dividends shall be paid on any
shares of Common Stock unless the same dividend is paid on all shares
of Common Stock outstanding at the time of such payment.
(b) Except for and subject to those rights expressly granted to
the holders of the Preferred Stock or except as may be provided by the
Delaware General Corporation Law, the holders of Common Stock shall
have exclusively all other rights of stockholders including, but not
by way of limitation, (i) the right to receive dividends, when, as and
if declared by the Board of Directors out of assets lawfully available
therefore, and (ii) in the event of a distribution of assets upon
liquidation, dissolution or winding up of the Corporation or
otherwise, the right to receive ratably and equally all the assets and
funds of the
<PAGE>
Corporation remaining after payment to the holders of the Preferred
Stock of the Corporation of the specific amounts which they are
entitled to receive upon such liquidation, dissolution or winding up
of the Corporation as herein provided.
(c) In the event that the holder of any share of Common Stock
shall receive any payment of any dividend on, liquidation of or other
amounts payable with respect to, any shares of Common Stock which he
is not then entitled to receive, he will forthwith deliver the same to
the holders of shares of the Preferred Stock, if in existence, in the
form received, and until it is so delivered will hold the same in
trust for such holders of the Preferred Stock.
2. Voting Rights. Each share of Voting Common Stock shall have one
vote on each matter submitted to a vote of the stockholders of the Corporation.
The shares of Nonvoting Common Stock shall not be entitled to any vote on any
matters upon which stockholders of the Corporation may vote, but each holder
thereof shall be entitled to notification of any meeting of the Board of
Directors or stockholders and shall be permitted to cause a representative to
attend any such meetings.
3. Conversion.
(a) Subject to the terms and conditions of this Section B.3, the
holder of any shares of Nonvoting Common Stock shall have the right at
any time, at such holder's option, to convert all or a portion of the
shares of the Nonvoting Common Stock so held into the same number of
shares of Voting Common Stock. Such right of conversion shall be
exercised (i) by giving written notice (the "Notice") to the
Corporation at least ten (10) days prior to the Conversion Date (as
defined below) that the holder elects to convert a stated number of
shares of Nonvoting Common Stock into shares of Voting Common Stock on
the date specified in such notice (the "Conversion Date") and (ii) by
surrendering the certificate or certificates representing at least the
number of shares of Nonvoting Common Stock to be converted to the
Corporation at its principal office at any time during its usual
business hours on or before the Conversion Date, duly endorsed in
blank by the owner of the certificate so surrendered, together with a
statement of the name(s) (with addresses) of the person(s) in whose
name(s) the certificates for shares of Voting Common Stock issued on
conversion should be registered.
(b) Promptly after the Conversion Date and the surrender of such
certificate or certificates representing the shares of Nonvoting
Common Stock to be converted, the Corporation shall issue and deliver,
or cause to be issued and delivered, to the holder requesting
conversion, registered in such name(s) as such holder may direct, a
certificate or certificates for the number of such shares of Voting
Common Stock issuable upon the conversion, together with a certificate
evidencing any balance of the shares of Nonvoting Common Stock
surrendered
-2-
<PAGE>
to the Corporation but not then being converted. To the extent
permitted by law, such conversion shall be deemed to have been
effected on the later of the Conversion Date or the date on which the
Corporation shall have received the certificate(s) representing the
shares to be converted, and at such time the rights of the holder of
such shares as such holder shall cease, and the person(s) in whose
name(s) any certificate(s) for shares shall be issuable upon such
conversion shall be deemed to have become the holder of record of such
shares of Voting Common Stock.
4. Reserved for Issuance. The Corporation shall at all times
reserve and keep available, out of its authorized but unissued shares of Voting
Common Stock, shares of Voting Common Stock in a quantity sufficient to provide
for the conversion of all outstanding shares of Nonvoting Common Stock into
Voting Common Stock.
C. Preferred Stock. Authority is hereby vested in the Board of Directors
of the Corporation to provide for the issuance of Preferred Stock and in
connection therewith to fix by resolution providing for the issue of such
series, the number of shares to be included and such of the preferences and
relative participating, optional or other special rights and limitations of such
series, including, without limitation, rights of redemption or conversion into
Common Stock, to the fullest extent now or hereafter permitted by the Delaware
General Corporation Law."
III.
The amendment to the Corporation's Certificate of Incorporation set forth
herein was duly adopted in accordance with Section 242 of the Delaware General
Corporation Law.
IV.
Upon the filing in the Office of the Secretary of State of the State of
Delaware of this Certificate of Amendment, the shares of Common Stock, par value
$.01 per share, of the Corporation (the "Old Common") issued and outstanding
immediately prior to such filing of this Certificate of Incorporation are hereby
automatically reclassified and changed without any action on the part of the
stockholders of the Corporation so that each share of Old Common becomes one
share of Voting Common Stock.
-3-
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Ronald J. Adams, its President, and attested to by Peter W.
Rothberg, its Assistant Secretary, this __th day of September, 1997.
CONSOLIDATED STAINLESS, INC.
By:__________________________
Ronald J. Adams
President
ATTEST:
By:__________________________
Peter W. Rothberg,
Assistant Secretary
-4-
<PAGE>
CONSOLIDATED STAINLESS, INC.
PROXY-ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 25, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS IN CONNECTION WITH THE
ANNUAL MEETING OF SHAREHOLDERS OF CONSOLIDATED STAINLESS, INC. TO BE HELD ON
SEPTEMBER 25, 1997. THE SHAREHOLDER HAS THE RIGHT TO APPOINT AS HIS PROXY A
PERSON (WHO NEED NOT BE A SHAREHOLDER) OTHER THAN ANY PERSON DESIGNATED BELOW,
BY INSERTING THE NAME OF SUCH OTHER PERSON IN ANOTHER PROPER FORM OF PROXY.
The undersigned, a shareholder of Consolidated Stainless, Inc. (the
"Corporation"), hereby revoking any proxy hereinbefore given, does hereby
appoint Harvey B. Adams and Ronald J. Adams, or either of them, as his proxy
with full power of substitution, for and in the name of the undersigned to
attend the Annual Meeting of the Shareholders to be held on September 25, 1997
at 95 Bennett Street, Auburndale, Florida, at 10:00 a.m., local time, and at any
adjournments thereof, and to vote upon all matters specified in the notice of
said meeting, as set forth herein, and upon such other business as may properly
come before the meeting, all shares of stock of said Corporation which the
undersigned would be entitled to vote if personally present at the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, SUCH SHARES
WILL BE VOTED FOR ALL NOMINEES FOR DIRECTOR IDENTIFIED BELOW AND FOR ALL
PROPOSALS.
<TABLE>
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS
Election of the following proposed directors to hold office until the next Annual Meeting of
Shareholders or until their successors shall be elected and shall qualify: Harvey B. Adams, Ronald J.
Adams, David M. Barnes and Stephen A. Weiss.
FOR ALL NOMINEES (EXCEPT AS MARKED TO THE CONTRARY) / / WITHHOLD ALL NOMINEES / /
AUTHORITY TO WITHHOLD A VOTE FOR ANY OF THE ABOVE NAMED INDIVIDUALS SHOULD BE INDICATED BY LINING
THROUGH OR OTHERWISE STRIKING OUT THE NAME OF THE NOMINEE.
2. Ratify the Appointment of BDO Seidman, LLP as independent auditors for the Corporation for the fiscal
year ending December 31, 1997.
/ / FOR / / AGAINST / / ABSTAIN
To authorize an amendment to the Company's Certificate of Incorporation to increase the Company's
3. authorized capital by (i) redesignating the shares of the Company's authorized voting Common Stock as
Class A Voting Common Stock and (ii) creating a new class of Non-Voting Class B Common Stock, of which
300,000 shares of Non-Voting Class B Common Stock will be authorized.
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
4. To authorize an amendment to the Company's 1993 Stock Option Plan to increase the number of shares of
voting Common Stock available for the granting of options thereunder from 800,000 shares to 1,100,000
shares.
/ / FOR / / AGAINST / / ABSTAIN
5. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE MEETING.
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>
<TABLE>
<S> <C>
Dated: ----------------------------------------------------, 1997
-----------------------------------------------------------
Signature
-----------------------------------------------------------
Print Name
-----------------------------------------------------------
Signature, if Jointly Held
-----------------------------------------------------------
Print Name
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREIN. If signing
as attorney, executor, administrator, trustee or guardian,
indicate such capacity. All joint tenants must sign. 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.
The Board of Directors requests that you fill in the date
and sign the Proxy and return it in the enclosed envelope.
IF THE PROXY IS NOT DATED IN THE ABOVE SPACE, IT IS DEEMED
TO BE DATED ON THE DAY ON WHICH IT WAS MAILED BY THE
CORPORATION.
</TABLE>
