<PAGE>
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
[ X ] Filed by Registrant
[ ] Filed by a Party other than the Registrant
CHECK THE APPROPRIATE BOX:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use
[ X ] Definitive Proxy Statement of the Commission Only
[ ] Definitive Additional Materials (as permitted by Rule
[ ] Soliciting Material Pursuant to 14a-6(e)(2))
Rule 14a-11(c) or Rule 14a-12
ROTARY POWER INTERNATIONAL, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than 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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (SET FORTH THE AMOUNT ON WHICH
THE FILING FEE IS CALCULATED AND STATE HOW IT WAS DETERMINED):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the form or schedule and the
date of its filing.
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(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
ROTARY POWER INTERNATIONAL, INC.
POST OFFICE BOX 128
WOOD-RIDGE, NEW JERSEY 07075-0128
-----------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD TUESDAY, JULY 11, 2000
-----------------------------------
TO THE SHAREHOLDERS OF ROTARY POWER INTERNATIONAL, INC.:
NOTICE IS HEREBY GIVEN that the Annual Shareholders Meeting of Rotary
Power International, Inc. (the "Company") will be held at the Company's offices
located at One Passaic Street, Wood-Ridge, New Jersey 07075-0128, on July 11,
2000, at 2:00 p.m. Eastern Time, for the purpose of considering the voting upon:
(1) A proposal to elect four (4) Directors to hold office until
the next Annual Meeting or until a successor is duly elected
and qualified.
(2) A proposal to approve and adopt an amendment to the Company's
Amended Certificate of Incorporation whereby the authorized
capitalization of the Company will be increased to 100,000,000
shares of Common Stock, $.01 par value per share, and
5,000,000 shares of Preferred Stock, $.01 par value per share.
(3) A proposal to approve and adopt the Company's 2000 Stock
Option Plan.
(4) A proposal to ratify the appointment of Demetrius & Company,
L.L.C., as the independent accountants for the Company's 2000
fiscal year.
(5) Such other business as may properly come before the meeting
and any adjournment thereof.
The above items are more fully described in the attached Proxy
Statement, which is hereby made a part of this Notice. Only shareholders of
record at the close of business on Wednesday, May 31, 2000 are entitled to
notice of and to vote at the meeting or any adjournment or postponement thereof
By Order of the Board of Directors
/s/ Douglas M. Drew
DOUGLAS M. DREW
CORPORATE SECRETARY
June 16, 2000
IMPORTANT
===============================================================================
Whether or not you expect to be present at the meeting, PLEASE FILL IN, SIGN,
DATE AND MAIL THE ENCLOSED PROXY as promptly as possible in order to save the
Company further solicitation expense. Shareholders of record attending the
meeting may revoke their proxies at that time and personally vote all matters
under consideration. There is an addressed envelope enclosed with the Proxy for
which no postage is required if mailed in the United States.
===============================================================================
<PAGE>
ROTARY POWER INTERNATIONAL, INC.
-----------------------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 11, 2000
-----------------------------------
This Proxy Statement is furnished to the shareholders of Rotary Power
International, Inc. (the "Company") in connection with the solicitation of
proxies by the Board of Directors of the Company to be voted at the Annual
Meeting of Shareholders (the "Annual Meeting") and at any adjournments thereof.
The Annual Meeting will be held at the Company's offices located at One Passaic
Street, Wood-Ridge, New Jersey 07075-0128, at 2:00 p.m. Eastern Time on Tuesday,
July 11, 2000.
The approximate date on which this Proxy Statement and the accompanying
Proxy Card are first being sent or given to shareholders is June 16, 2000.
VOTING
GENERAL
The securities that may be voted at the Annual Meeting consist of
common stock of the Company, $.01 par value per share (the "Common Stock"), with
each share entitling its owner to one vote on each matter submitted to the
shareholders. The record date for determining the holders of Common Stock who
are entitled to notice of and to vote at the Annual Meeting was May 31, 2000. On
the record date, 8,700,000 shares of Common Stock were outstanding and eligible
to be voted at the Annual Meeting.
QUORUM AND VOTE REQUIRED
The presence, in person or by proxy, of a majority of the outstanding
shares of Common Stock of the Company is necessary to constitute a quorum at the
Annual Meeting. Under Delaware law, abstentions and broker non-votes will not
have the effect of votes in opposition and, therefore, will not affect the
outcome of such matter, but shall be counted for quorum purposes. The
affirmative vote of the holders of a plurality of the shares of the Company,
present in person or represented by proxy and entitled to vote at the Annual
Meeting, is required to elect each of the nominees for the Board of Directors
set forth in this proxy statement. The affirmative vote of the holders of not
less than a majority of the outstanding shares of the Company, present in person
or represented by proxy and entitled to vote at the Annual Meeting, is required
to approve the Amendment to the Certificate of Incorporation as detailed in this
proxy statement. The affirmative vote of the holders of the majority of the
shares of the Company, present in person or represented by proxy and entitled to
vote at the Annual Meeting, is required to approve all other proposals described
in this proxy statement.
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<PAGE>
VOTING BY PROXY
The Company's Common Stock represented by properly executed proxies
received at or before the Annual Meeting that have not been revoked will be
voted at the Annual Meeting in accordance with the instructions contained
therein. The Company's Common Stock represented by properly executed proxies for
which no instruction is given will be voted "FOR" approval of the herein
referenced proposals. If any other matters properly come before the Annual
Meeting, the persons named as proxies will vote upon such matters according to
their judgment. The Company's shareholders are requested to complete, sign, date
and promptly return the enclosed Proxy Card in the postage-prepaid envelope
provided for this purpose to ensure that their shares are voted. A shareholder
may revoke a proxy at any time before it is voted by signing and returning a
later-dated proxy with respect to the same shares, by filing with the Secretary
of the Company, a written revocation bearing a later date or by attending and
voting in person at the Annual Meeting. Mere attendance at the Annual Meeting
will not in and of itself revoke a proxy.
If the Annual Meeting is postponed or adjourned for any reason, at any
subsequent reconvening of the Annual Meeting, all proxies (except for any
proxies that have theretofore effectively been revoked or withdrawn) will be
voted in the same manner as such proxies would have been voted at the original
convening of the Annual Meeting.
The accompanying proxy is solicited by and on behalf of the Company's
Board of Directors. The Company will bear the cost of soliciting proxies from
its shareholders. In addition to solicitation by mail, directors and officers of
the Company may solicit proxies by telephone, telegram or otherwise. Such
directors and officers will not receive additional compensation for such
solicitation. Brokerage firms, nominees, custodians and fiduciaries also may be
requested to forward proxy materials to beneficial owners of shares held of
record by them.
PROPOSAL I
ELECTION OF DIRECTORS
Pursuant to the Company's By-Laws, the Board of Directors appointed
Douglas M. Drew in November, 1999, Conway Davis in April, 2000 and Virgil Wenger
in May, 2000 to fill new directorships until the upcoming Annual Meeting and
until each of their successors shall have been elected and qualified. The Board
has nominated Messrs. Drew, Davis and Wenger to be elected as Directors and to
serve on the Board of Directors until the next Annual Meeting and until their
successors shall have been elected and qualified. Additionally, the Board has
nominated William E. Partanen to be elected to the Board of Directors.
The Board of Directors recommends that you vote FOR the election of
these four nominees to serve on the Board of Directors until the next Annual
Meeting.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
<S> <C>
Conway Davis 62 Chief Executive Officer, President and Director
Virgil E. Wenger 69 Chairman of the Board and Director
Douglas M. Drew 65 Vice President, Finance, Corporate Secretary,
Treasurer and Director
William E. Partanen 57 Nominee for Director
</TABLE>
-2-
<PAGE>
The following is biographical information about each of the nominees.
Mr. Davis has extensive managerial and manufacturing experience in the
large construction and manufacturing industry and in particular, the
shipbuilding sector. Since September, 1998, Mr. Davis was the President of Davis
International, a management consulting firm. From 1986 to 1998, he was the Vice
President of J.D. Irving Limited of Saint John, New Brunswick. He has held other
executive positions in the past with Ingalls Shipbuilding Division of Litton
Industries. Mr. Davis has managed large construction and manufacturing projects
such as the Landing Helicopter Assault Ships as Program Manager and directed the
engineering and software development of Canada's modern fleet of combat
warships, the Canadian Patrol Frigate Class (City Class). Mr. Davis is a
resident of Saint John, New Brunswick, Canada and is a graduate of the
University of Illinois, a registered professional engineer, and a member of the
Defence Science Advisory Board of Canada.
Mr. Wenger retired in 1990 after a thirty-seven year career with Ernst
& Young LLP and Arthur Young & Company, where he was a partner in the New York
International office with responsibility for the firm's investments and
operations in nineteen countries throughout Southeast Asia and the Middle East.
Since 1990, he has been an independent consultant and financial advisor for both
domestic and international matters. He has also served as a Trustee of the
Pittsburgh and West Virginia Railroad. Mr. Wenger is a graduate of the
University of Kansas and the Harvard Business School Advanced Management
Program. He is a Certified Public Accountant and a member of the American
Institute of Certified Public Accountants.
Mr. Drew is an independent financial consultant in Canada and has been
the President and sole shareholder of First Drew Financial Corp since 1980. He
was a Director of Med-Tech Environmental Limited, a subsidiary of Stericycle,
Inc. and a former Vice President of Smith, Barney and Company. He has been
involved in several business reorganizations. Mr. Drew is a resident of Toronto
and is a graduate of the University of Western Ontario, School of Business.
Mr. Partanen is the President, Chief Executive Officer and Director of
BG Technologies USA, Inc. ("BGT") and has been with BGT since 1998. From 1986 to
1998, he was the Executive Vice President of Engineering and Operations of Power
Generating, Inc. He is a registered professional engineer and is a graduate of
Western New England College.
Should any nominee become unable or unwilling to accept nomination or
election, the Board of Directors will either select a substitute nominee or will
reduce the size of the Board. If you have submitted a proxy and a substitute
nominee is selected, the holders of the proxy will vote your shares FOR the
election of the substitute nominee.
BOARD COMMITTEES
The Board of Directors approved the creation of both an Audit and
Compensation committee on June 1, 2000.
The Audit Committee will be responsible for the Company's relations
with the independent accountants. Specifically, the Audit Committee recommends
the appointment of the Company's independent accountants and determines the
appropriateness of their fees, reviews the scope and results of the audit plans
of the independent accountants, oversees the scope and adequacy of the Company's
internal accounting control and record-keeping systems and confers independently
with the independent accountants. The Audit Committee will initially be
comprised of Mr. Wenger.
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<PAGE>
The Compensation Committee will be responsible for the Company's
management and employee compensation. Specifically, the Compensation Committee
determines the adequacy of management and employee compensation including the
administration of any Stock Option Plan. The Compensation Committee will be
comprised of Messrs. Wenger and Davis.
During fiscal year ended December 31, 1999, the Board of Directors held
two meetings. There were no committee meetings during 1999 since the committees
were only created in June, 2000.
DIRECTOR COMPENSATION
See the description under "Executive Compensation."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ABOVE
NOMINEES FOR DIRECTOR. THE FOUR NOMINEES RECEIVING THE GREATEST NUMBER OF
AFFIRMATIVE VOTES SHALL BE THE DIRECTORS. SHARES OF COMMON STOCK REPRESENTED AT
THE MEETING BY EXECUTED BUT UNMARKED PROXIES WILL BE VOTED "FOR" EACH OF THE
ABOVE NOMINEES.
PROPOSAL II
PROPOSAL TO AMEND THE AMENDED CERTIFICATE OF
INCORPORATION TO INCREASE THE AUTHORIZED
SHARES OF COMMON AND PREFERRED STOCK OF THE COMPANY
The Board of Directors recommends the approval of an increase in the
authorized shares of Common Stock of the Company, $.01 par value per share, from
10,000,000 to 100,000,000, and Preferred Stock, $.01 par value, from 500,000 to
5,000,000. As of May 31, 2000, the Company has 8,700,000 issued and outstanding
shares of its Common Stock and 225,000 shares of its Series 3 (non-voting)
Preferred Stock.
REASONS FOR AND EFFECTS OF THE PROPOSAL
The Board of Directors has proposed an increase in the number of
authorized shares of Common and Preferred Stock for several reasons. The Company
currently has 10,000,000 shares of Common Stock authorized, $.01 par value, of
which 8,700,000 are issued and outstanding, and 500,000 shares of Preferred
Stock, of which 225,000 shares of its Series 3 (non-voting) Preferred Stock are
outstanding. The Board wishes to have available a sufficient reserve of such
shares in the future for issuance from time to time at the discretion of the
Board of Directors, and without further authorization by the shareholders, in
furtherance of the Company's business purposes. Such purposes might include,
without limitation, the issuance and sale of Common and Preferred Stock (i) in
public or private offerings as a means of obtaining additional capital for the
Company's business; (ii) as part or all of the consideration required to be paid
for the acquisition of ongoing businesses or other assets; (iii) to satisfy any
current or future financial obligations of the Company; (iv) in connection with
the exercise of options, warrants or rights, or the conversion of convertible
securities that may be issued by the Company; or (v) pursuant to any benefit,
option or stock ownership plan or employment agreement.
-4-
<PAGE>
The proposed increase in the number of authorized shares of Common and
Preferred Stock will not change the number of shares of Common Stock outstanding
or the rights of the holders of such stock. However, the Company anticipates
that it will need to raise additional equity capital in the near future through
the issuance of Common Stock or other securities that are convertible into or
otherwise grant the holder thereof the right to purchase Common Stock.
Any issuance of additional shares of Common and/or Preferred Stock
could reduce the current shareholders' proportionate interests in the Company,
depending on the number of shares issued and the purpose, terms and conditions
of the issuance. Moreover, the issuance of additional shares of Common and/or
Preferred Stock could discourage attempts to acquire control of the Company by
tender offer or other means. In such a case, shareholders might be deprived of
benefits that could result from such an attempt, such as realization of a
premium over the market price of their shares in a tender offer or the temporary
increase in market price that could result from such an attempt. Also, the
issuance of stock to persons supportive of the Board of Directors could make it
more difficult to remove incumbent management and directors from office.
Although the Board of Directors intends to issue Common and/or Preferred Stock
only when it considers such issuance to be in the best interest of the Company,
the issuance of additional shares of Common and/or Preferred Stock may have,
among others, a dilutive effect on earnings per share of Common Stock and on the
equity and voting rights of holders of shares of Common Stock. The Board of
Directors believes, however, that the benefits of providing the flexibility to
issue shares without delay for any business purpose outweigh any such possible
disadvantages.
Ownership of shares of Common Stock entitles each shareholder to one
vote per share of Common Stock. Holders of Series 3 Preferred Stock have no
voting rights. Holders of shares of Common Stock and Series 3 Preferred Stock do
not have preemptive rights to subscribe to additional securities that may be
issued by the Company, which means that current shareholders do not have a prior
right to purchase any new issue of capital stock of the Company in order to
maintain their proportionate ownership. Shareholders wishing to maintain their
interest, however, may be able to do so through normal market purchases.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF
THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION THEREBY INCREASING THE NUMBER
OF AUTHORIZED SHARES OF COMMON STOCK FROM 10,000,000 TO 100,000,000 AND THE
NUMBER OF AUTHORIZED SHARES OF PREFERRED STOCK FROM 500,000 TO 5,000,000, AS SET
FORTH ABOVE. THE AFFIRMATIVE VOTE OF HOLDERS OF A MAJORITY OF THE OUTSTANDING
SHARES OF COMMON STOCK REPRESENTED AT THE MEETING IS REQUIRED TO APPROVE THE
AMENDMENT TO THE CERTIFICATE OF INCORPORATION. SHARES OF COMMON STOCK
REPRESENTED AT THE MEETING BY EXECUTED BUT UNMARKED PROXIES WILL BE VOTED "FOR"
APPROVAL OF THE AMENDED CERTIFICATE OF INCORPORATION.
PROPOSAL III
PROPOSAL TO APPROVE AND ADOPT THE 2000 STOCK OPTION PLAN
On June 1, 2000, the Board of Directors adopted the Rotary Power
International, Inc. 2000 Stock Option Plan (the "Plan"), subject to shareholder
approval. Accordingly, at the Annual Meeting, shareholders will be asked to
approve and adopt the Plan. 5,000,000 shares of Common Stock, $.01 par value per
share, shall be reserved for grants from time to time under the Plan.
-5-
<PAGE>
The purposes of the Plan are to advance the interests of the Company
and its stockholders by providing significant incentives to members of the Board
of Directors of the Company, officers and key employees of the Company, and
consultants providing services to the Company, who contribute and are expected
to contribute to the success of the Company, and to enhance the interest of such
directors, officers, employees and consultants in the Company's continued
success and progress by providing them with an opportunity to become
stockholders of the Company. Further, the Plan is designed to enhance the
Company's ability to attract and retain qualified directors and other personnel
necessary for the continued success and progress of the Company.
The full text of the Plan is set forth as Appendix A hereto, and
shareholders are urged to refer to it for a complete description of the proposed
Plan. The summary description of the Plan which follows is qualified entirely by
such reference.
DESCRIPTION OF THE PLAN
The Plan shall become effective only if, within twelve (12) months from
the date the Plan is adopted by the Board, the Plan is approved by the
affirmative vote of the holders of a majority of the voting securities of the
Company.
The Company will reserve 5,000,000 shares of Common Stock which may be
issued upon the exercise of either Incentive Stock Options or Nonqualified
Options granted under the Plan, subject to increase or decrease. If any Option
granted under the Plan shall expire, terminate or be cancelled for any reason
without having been exercised in full, the number of shares as to which such
Option was not exercised shall again be available for purposes of the Plan.
An Option under the Plan may be granted to any current or contingent
director of the Company and any employee of, or consultant to, the Company or a
subsidiary who performs services for the Company or a subsidiary. The
Compensation Committee may from time to time in its discretion grant
Nonqualified Stock Options to directors and consultants and Incentive Stock
Options and/or Nonqualified Stock Options to employees who may or may not be
executive officers. Each Option granted under the Plan shall be evidenced by an
Option Agreement between the Company and the Optionee (as that term is defined
in the Plan) in such form as the Committee shall approve. No Option granted
under the Plan shall be transferable by the Optionee otherwise than by will or
the laws of descent and distribution, and each such Option shall be exercisable
during the Optionee's lifetime only by him.
Nothing in the Plan or in any Option Agreement shall give any right to
an employee or consultant to remain employed or retained by the Company or a
subsidiary thereof in any particular position or at any particular rate of
compensation.
The exercise price, subject to adjustment, of each (i) Incentive Stock
Option shall not be less than the higher of the par value or 100% of the Fair
Market Value of the shares of Common Stock subject to the Option on the date the
Option is granted; and (ii) Nonqualified Stock Option shall be the amount
determined by the Committee as set forth in the applicable Option Agreement,
provided that such amount shall not be less than the higher of the par value or
85% of the Fair Market Value of Common Stock subject to the Option on the date
the Option is granted.
The term during which an Option is exercisable shall be that period and
such date determined by the Compensation Committee as set forth in the
applicable Option Agreement, provided that no Option shall have
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<PAGE>
a term that exceeds a period of ten (10) years from the date of its grant.
All Options under the Plan shall be granted within ten (10) years from the
date the Plan is adopted by the Board or the date the Plan is approved by
stockholders of the Company, whichever is earlier. Notwithstanding, no
Incentive Stock Option may be granted that would cause the Incentive Stock
Option limits to be exceeded with respect to an Optionee. The Compensation
Committee, in its sole discretion, may prescribe a different vesting schedule
for any Incentive Stock Option granted under this Plan if necessary to
prevent the Option from violating the limitation on Incentive Stock Options.
When an installment of Options has become exercisable, the Optionee may
exercise that installment, in whole or in part, at any time prior to the
expiration or termination of the Options. The Compensation Committee may
accelerate the time at which outstanding Options may be exercised.
Notwithstanding, any Option will become immediately exercisable in full
upon the occurrence of particular events or as the Compensation Committee may
thereafter determine to be advisable; provided that: (i) at the time such
occurrence or determination, the Optionee has remained continuously employed by
the Company or any subsidiary for at least six (6) months from the date of grant
of such Option, and (ii) in the case of an incentive stock option, such
acceleration would not cause the incentive stock option limits of to be
violated. Without limitation, those particular events include the following: (i)
a change in control of the Company in a transaction or occurrence, or a related
series of transactions or occurrences, resulting from a material change in
ownership of Common Stock and evidenced by cessation in service as directors of
a majority of those persons theretofore serving as members of the Board; (ii)
the sale by the Company of all or substantially all of its assets and the
discontinuance of its business, or the merger or consolidation of the Company
with another entity, or the liquidation of the Corporation in connection with
those events, any of which results in a change of control described in (i); or
(iii) a Board determination that immediate exercisability would be in the best
interests of the Company and advisable for protection of the rights intended to
be granted under the Option.
No Incentive Stock Option shall be granted to any employee who owns,
directly or indirectly within the meaning of Section 424(d) of the IRS Code,
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company or any subsidiary, unless at the time the Incentive
Stock Option is granted, the exercise price of the Incentive Stock Option is at
least 110% of the Fair Market Value of the Common Stock subject to such
Incentive Stock Option and such Incentive Stock Option, by its terms, is not
exercisable after the expiration of five years from the date such Incentive
Stock Option is granted.
To the extent that the aggregate Fair Market Value of the Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by an Optionee during any calendar year (under Plans of the Company and its
parent and subsidiary corporations) exceeds $100,000, such Options shall be
treated as Nonqualified Stock Options. For this purpose, Options shall be taken
into account in the order in which they are granted and the Fair Market Value of
the Common Stock shall be determined as of the time the Option with respect to
such Common Stock is granted.
Each Option shall be exercised by delivery of a written notice to the
Company in such form as the Compensation Committee shall approve stating the
number of whole and fractional shares of Common Stock as to which the Option is
being exercised and accompanied by payment therefor by (i) cash, (ii) certified
check payable to the order of the Company, (iii) outstanding shares of Common
Stock duly endorsed to the Company (which shares of Common Stock shall be valued
at their Fair Market Value as of the day preceding the day of
-7-
<PAGE>
such exercise), (iv) any combination of the foregoing, or (v) such other
method of payment as may be provided in the applicable Option Agreement.
Neither any Optionee nor the legal representatives, heirs, legatees or
distributees of any Optionee, shall be deemed to be the holder of, or to have
any of the rights of a holder with respect to, any shares of Common Stock
issuable upon exercise of an Option granted hereunder unless and until such
person or persons have received a certificate or certificates therefor.
If an Optionee's position as a director or employee of, or a consultant
to, the Company or a subsidiary terminates for any reason other than death,
Disability (as that term is defined in the Plan) or for Cause (as that term is
defined in the Plan), he may, unless the applicable Option Agreement provides
otherwise, exercise an Option previously granted at any time during the three
month period after the date of such termination. If an Optionee's position as
director or employee of, or a consultant to, the Company or a subsidiary is
terminated for Cause, any Option theretofore granted to him shall expire and
cease to be exercisable on the earlier of the date of such termination or the
date notice of such termination is provided to the Optionee.
If an Optionee's position as a director or employee of, or a consultant
to, the Company or a subsidiary terminates by reason of Disability, he may,
unless the applicable Option Agreement provides otherwise, exercise an Option
previously granted at any time during the one-year period after the date of such
termination.
If an Optionee dies (i) while he is a director or employee of, or a
consultant to, the Company or a subsidiary, or (ii) during the three month
period after the termination of his position as a director or employee of, or a
consultant to, the Company or a subsidiary other than by reason of Disability or
for Cause, or (iii) during the one-year period after the termination of his
position as a director or employee of, or consultant to, the Company or a
subsidiary by reason of Disability, and at the time of his death the Optionee
was entitled to exercise an Option theretofore granted to him, such Option
shall, unless the applicable Option Agreement provides otherwise, expire one
year after the date of his death, but in no event later than the date on which
the Option would have expired if the Optionee had lived. During such one-year
period the Option may be exercised by the Optionee's executor or administrator
or by any person or persons who shall have acquired the Option directly from the
Optionee by bequest or inheritance.
Notwithstanding the foregoing, with respect to any Option granted to an
employee in connection with the commencement of employment of such employee by
the Company or any subsidiary, the Compensation Committee may provide for terms
as to retirement, death, disability or other termination of employment that are
different from the terms provided in the Plan if such different terms are set
forth in a written employment agreement with such employee.
The Plan shall be administered by the Compensation Committee consisting
of two or more Directors appointed by the Board of Directors. The Compensation
Committee shall have the exclusive authority and sole responsibility to
administer the Plan and make all determinations thereunder with respect to the
participation therein as well as the terms of each Option Agreement. The
Compensation Committee may waive any provisions of any Option Agreement
previously approved by such Compensation Committee, provided such waiver is not
inconsistent with the terms of the Plan as then in effect.
-8-
<PAGE>
The Plan may be amended at any time and from time to time by the Board,
but no amendment shall be effective unless and until the same is approved by the
affirmative vote of the holders of a majority of the voting securities of the
Company. No amendment to the Plan shall, without the consent of an Optionee,
affect such Optionee's rights under an Option previously granted.
The Board may at any time terminate the Plan as of any date specified
in a resolution adopted by the Board. If not earlier terminated, the Plan shall
terminate on the day prior to the tenth anniversary of the date on which the
Plan is adopted by the Board or the date on which the Plan is approved by
stockholders of the Company, whichever is earlier. No Options may be granted
after the Plan has terminated but the Compensation Committee shall continue to
supervise the administration of Options previously granted.
The number of shares of Common Stock of the Company authorized for
issuance under the Plan, as well as the price to be paid and the number of
shares of Common Stock issued upon exercise of outstanding Options, shall be
subject to adjustment by the Compensation Committee, in its sole discretion, to
reflect any stock split, stock dividend, recapitalization, merger,
consolidation, reorganization, combination or exchange of shares or other
similar event. The Compensation Committee may, with the consent of the holder of
any Option granted under the Plan, cancel such Option and grant a new Option in
substitution therefor, provided that the Option as so substituted shall satisfy
all of the requirements of the Plan as of the date such new Option is granted.
Each Optionee who exercises a Nonqualified Stock Option shall agree
that no later than the date of such exercise or the receipt of shares of Common
Stock pursuant thereto he will pay to the Company, or make arrangements
satisfactory to the Compensation Committee regarding payment of, any Federal,
state or local taxes of any kind required by law to be withheld with respect to
the transfer to him of such shares of Common Stock.
In the event that the Company has not registered the shares underlying
the Options under the Securities Act of 1933, the certificates representing
shares of Common Stock delivered pursuant to the exercise of Options shall bear
an appropriate legend referring to certain terms, conditions and restrictions of
this Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF
THE 2000 STOCK OPTION PLAN AS SET FORTH ABOVE. THE AFFIRMATIVE VOTE OF HOLDERS
OF A MAJORITY OF THE SHARES OF COMMON STOCK ENTITLED TO VOTE AT THE MEETING IS
REQUIRED TO APPROVE THE ADOPTION OF THE PLAN. SHARES OF COMMON STOCK REPRESENTED
AT THE MEETING BY EXECUTED BUT UNMARKED PROXIES WILL BE VOTED "FOR" APPROVAL OF
THE 2000 STOCK OPTION PLAN.
-9-
<PAGE>
PROPOSAL IV
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Company has engaged Demetrius & Company, L.L.C. ("Demetrius"),
certified public accountants having offices in Wayne, New Jersey, as the
Company's independent accountants for the fiscal year ending December 31, 2000.
Demetrius has audited the Company's operations for the year ended December 31,
1999. It is anticipated that representatives of such firm will be present at the
Annual Meeting, will have an opportunity to make a statement if they desire to
do so and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION
OF APPOINTMENT OF DEMETRIUS & COMPANY, L.L.C. AS THE INDEPENDENT ACCOUNTANTS FOR
THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000. THE AFFIRMATIVE VOTE
OF HOLDERS OF A MAJORITY OF THE SHARES OF COMMON STOCK REPRESENTED AT THE
MEETING IS REQUIRED TO RATIFY THE APPOINTMENT OF THE INDEPENDENT ACCOUNTANTS.
SHARES OF COMMON STOCK REPRESENTED AT THE MEETING BY EXECUTED BUT UNMARKED
PROXIES WILL BE VOTED "FOR" RATIFICATION OF DEMETRIUS & COMPANY, L.L.C.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
A certain individual who serves as a director and executive officer of
the Company has been offered options to purchase shares of the Company's Common
Stock, the grant of which are conditional upon the approval of the increase in
the authorized capital of the Company. Accordingly, if the increase in the
number of authorized shares of Common Stock is not approved as requested in
Proposal II hereof and such officer is unable to exercise such options, such
officer may have claims against the Company for breach of contract or otherwise.
-10-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock by each person or group that
is known by the Company to be the beneficial owner of more than five percent
(5%) of its outstanding Common Stock, each director of the Company, each person
named in the Summary Compensation Table, and all directors and executive
officers of the Company as a group as of May 31, 2000. Unless otherwise
indicated, the Company believes that the persons named in the table below, based
on information furnished by such owners, have sole voting and investment power
with respect to the Common Stock beneficially owned by them, subject to
community property laws, where applicable.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES OF COMMON PERCENTAGE OWNERSHIP OF
BENEFICIAL OWNER(1) STOCK BENEFICIALLY OWNED COMMON STOCK OUTSTANDING(2)
<S> <C> <C>
Conway Davis -0- 0%
Virgil E. Wenger 123,000 1.41%
Douglas M. Drew -0- 0%
PowerCold Corporation 1,935,000 22.24%
103 Guadalupe Drive
Cibolo, Texas 78108
Loeb Investors 104(3) 1,133,074 13.02%
61 Broadway
New York, New York 10006
Londonderry Capital Structuring Ltd. RR#4, 690,000 7.93%
22 International Parkway Stouffville,
Ontario L4A7X5
All Executive Officers and Directors as a 123,000 1.41%
Group (3 Persons)
------------------------------
</TABLE>
(1)Unless otherwise indicated, the address of each beneficial owner is c/o
Rotary Power International, Inc., Post Office Box 128, Wood-Ridge, New
Jersey 07075-0128.
(2)Unless otherwise indicated, the Company believes that all persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them. The percentage for
each beneficial owner listed above is based on 8,700,000 shares
outstanding on May 31, 2000. In accordance with the rules of the
Securities and Exchange Commission, options to purchase shares of
Common Stock that are exercisable within 60 days after May 31, 2000,
are deemed to be outstanding and beneficially owned by the person
holding such options for the purpose of computing such person's
percentage ownership, but are not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person.
(3)Includes (i) 435,325 shares of Common Stock owned by Loeb Investors Co.
104; (ii) 214,731 Common Shares owned by Loeb Partners Corporation;
(iii) 298,918 Common Shares owned by Warren D. Bagatelle, Managing
Director of Loeb Partners Corporation; (iv) 28,221 Common Shares owned
by Loeb Holdings Corp.; (v) 13,566 Common Shares owned by HSB Capital;
(vi) 14,104 Common Shares owned by Loeb Investors Co. 105; (vii) 24,686
Common Shares owned by Pinpoint Partners 1; and (viii) 103,523 Common
Shares owned by the Kempner/Perlmuth Trust.
-11-
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the
Company to, as well as any other compensation paid to or earned by, the Chief
Executive Officer of the Company and those executive officers compensated at or
greater than $100,000 for services rendered to the Company in all capacities
during the fiscal year ended December 31, 1999 and for the two previous fiscal
years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------
RESTRICTED UNDERLYING
NAME OF INDIVIDUAL STOCK AWARD(S) OPTIONS/SARS
AND PRINCIPAL POSITION YEAR SALARY BONUS (SHARES) (SHARES)
---------------------- ---- ------ ----- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth L. Brody,(1) 1999 $113,759 -- -- --
President, Chief Executive 1998 104,000 -- -- --
Officer and Director 1997 7,500 -- -- --
------------------------------
</TABLE>
(1)Mr. Brody tendered his resignation to the Board of Directors and the
Board accepted his resignation on April 27, 2000. He was, however, an
officer of the Company during the entire fiscal year ended December 31,
1999.
Mr. Brody did not receive pre-requisites or non-cash compensation during
the years indicated which exceeded the lesser of $50,000 or an amount equal to
10% of his salary. No other executive officer received compensation and bonuses
that exceeded $100,000 during any years set forth above.
STOCK OPTIONS
The Company had a 1992 Stock Option Plan (the "1992 Plan"), but no options
were issued under the 1992 Plan in 1999 and the sole option remaining expired in
the first quarter of 1999. The Company has decided to terminate the 1992 Plan
and adopt the 2000 Stock Option Plan as described above under Proposal III.
COMPENSATION OF DIRECTORS
In November, 1999 the Board approved compensation to outside directors for
their attendance of meetings of $1,000 per quarter.
EMPLOYMENT AGREEMENTS
Mr. Davis, the President and Chief Executive Officer of the Company since
April, 2000, has an employment agreement with the Company pursuant to which he
shall receive monthly compensation of $5,000 for the first six months of his
employment, and $7,000 for the next six months of his employment. Additionally,
he shall receive a bonus in the amount of $25,000 at the end of the year, and an
additional $25,000 if he is successful in obtaining $1,000,000 in financing for
the Company during the term of his
-12-
<PAGE>
employment. The Board of Directors also approved the grant of a option to
purchase 1,000,000 shares of the Company's Common Stock at $.25 for a period of
five years from the date of grant, which grant is subject to the approval of the
increase in the authorized shares of Common Stock proposed in this proxy
statement.
Mr. Drew, a director and the Vice President of Finance of the Company since
November, 1999, has a consulting agreement with the Company that was extended
through July 31, 2000, pursuant to which he receives compensation for his time
spent providing advisory services to the Company and for his services as a
Director of the Company, which includes attendance of Board meetings, up to
$2,000 per month. Mr. Drew also receives reimbursement for any out-of-pocket
expenses subject to the Company's prior approval for any amount over $100.
There are no other executive officers or directors of the Company that have
an employment agreement with the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company will not enter into any transactions with officers, directors
or other affiliates unless the transactions are approved by a majority of
disinterested directors. No such transactions were in effect or entered into
during 1999.
Mr. Partanen, a nominee to the Board of Directors, is the President, Chief
Executive Officer and Director of BGT, a Columbia, Maryland company controlled
by Swiss Re Investors of Zurich, Switzerland. In February, 2000, the Company
entered into a letter of intent to form a joint venture with BGT to set up a
pilot plan to demonstrate the technology and economics of a BGT biogasification
system producing low BTU gases to fuel one of the Company's rotary engines
through which it would generate electricity for industrial and domestic
applications. In April, 2000, the Company announced that they successfully
completed an onsite demonstration of the BGT biogasification system created
through the joint venture.
SHAREHOLDERS PROPOSALS FOR THE 2001 ANNUAL MEETING
Shareholders who may wish to present proposals for inclusion in the
Company's proxy materials and for consideration at the 2001 Annual Meeting of
Shareholders must submit such proposals in writing to the Secretary of the
Company in accordance with all applicable rules and regulations of the SEC for
receipt by the Company no later than February 4, 2001.
COST OF SOLICITATION
All expenses incurred in the solicitation of the proxies will be borne by
the Company. In addition to the use of the mails, proxies may be solicited on
behalf of the Company by directors, officers and employees of the Company or by
telephone or telecopy. The Company will reimburse brokers and others holding
Common Stock as nominees for their expenses in sending proxy material to the
beneficial owners of such Common Stock and obtaining their proxies.
-13-
<PAGE>
APPRAISAL RIGHTS
Under Delaware law and the Company's Certificate of Incorporation, no
appraisal rights are available to dissenting stockholders with regard to the
corporate actions contemplated by the above Proposals.
ADDITIONAL INFORMATION
A copy of the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1999, is being provided to all shareholders with this Proxy
Statement. In addition, the Company's Annual Report on Form 10-KSB with exhibits
is available on the SEC's website at http://www.sec.gov.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors knows of no
matters which will be presented for consideration at the Annual Meeting other
than the proposals set forth in this Proxy Statement. If any other matters
properly come before the meeting, it is intended that the persons named in the
Proxy will act in respect thereof in accordance with their best judgment.
By Order of the Board of Directors
DOUGLAS M. DREW
CORPORATE SECRETARY
Wood-Ridge, New Jersey
June 16, 2000
-14-
<PAGE>
APPENDIX A
----------
ROTARY POWER INTERNATIONAL, INC.
2000 STOCK OPTION PLAN
ARTICLE I
PURPOSES
1.1. PURPOSES OF PLAN. The purposes of the Rotary Power
International, Inc. 2000 Stock Option Plan (the "Plan") are to advance the
interests of Rotary Power International, Inc., a Delaware corporation (the
"Company") and its stockholders by providing significant incentives to members
of the Board of Directors of the Company, officers and key employees of the
Company, and consultants providing services to the Company, who contribute and
are expected to contribute to the success of the Company, and to enhance the
interest of such directors, officers, employees and consultants in the Company's
continued success and progress by providing them with an opportunity to become
stockholders of the Company. Further, the Plan is designed to enhance the
Company's ability to attract and retain qualified directors and other personnel
necessary for the continued success and progress of the Company.
ARTICLE II
DEFINITIONS
2.1. DEFINITIONS. Certain terms used herein shall have the
meanings set forth below.
(a) "BOARD" or "BOARD OF DIRECTORS" means the Board of
Directors of the Company.
(b) "CAUSE" means (i) the willful and continued failure
by an Optionee substantially to perform his or her duties with the Company or a
Subsidiary (other than any such failure resulting from his or her incapacity due
to physical or mental illness substantiated to the satisfaction of the
Committee) as determined by the Committee in its sole discretion, (ii) the
knowing and willful engaging by the Optionee in misconduct determined by the
Committee in its sole discretion to be materially injurious to the Company or a
Subsidiary, (iii) conviction of the Optionee for commission of a felony after a
trial and final judgment thereon by a court of competent jurisdiction or a plea
of guilty of nolo contendere to a felony indictment, (iv) habitual alcohol abuse
or controlled substance abuse by the Optionee either during business hours or if
such abuse in the sole judgment of the Committee materially impairs the ability
of the Optionee to perform his or her duties for the Company or a Subsidiary, or
(v) a breach by the Optionee of any employment, management, consulting,
confidentiality or other written agreement between the Optionee and the Company
or a Subsidiary, including any Option Agreement.
(c) "CODE" means the Internal Revenue Code of 1986, as
amended.
(d) "COMMITTEE" means the Compensation Committee.
(e) "COMPENSATION COMMITTEE" means the committee of
directors appointed by the Board to administer the Plan in accordance with the
provisions of Article VII of the Plan.
(f) "COMMON STOCK" means, subject to the provisions of
Section 9.3, the authorized common stock of the Company.
<PAGE>
(g) "COMPANY" means Rotary Power International, Inc., a
Delaware corporation.
(h) "CONSULTANT" means an individual who performs
services for the Company or a Subsidiary other than an Employee or Director of
the Company or a Subsidiary.
(i) "DIRECTOR" means a member of the Board of Directors
who is not also an Employee of the Company.
(j) "DISABILITY" means the inability of an Optionee to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months.
(k) "EMPLOYEE" means an officer or other common law
employee of the Company or a Subsidiary, including a member of the Board who is
also a common law employee.
(l) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
(m) "EXECUTIVE" means any Employee or Director who is
subject to Section 16 of the Exchange Act or who would be subject to such
Section if any class of the Company's equity securities were registered under
Section 12(b) or 12(g) of the Exchange Act.
(n) "FAIR MARKET VALUE" means, with respect to a share of
Common Stock on any date, the last reported sale price for Common Stock on such
date or, in case no such reported sale takes place on such date, the last
reported sale price on the day next preceding such date on which a reported sale
of Common Stock occurred, in either case on the New York Stock Exchange or, if
at the time the Common Stock is not listed or admitted to trading on such
Exchange, on the principal national securities exchange on which the Common
Stock is listed or admitted to trading or, if at the time the Common Stock is
not listed or admitted to trading on any national securities exchange, in the
National Association of Securities Dealers Automated Quotations National Market
System or, if at the time the Common Stock is not listed or admitted to trading
on any national securities exchange or quoted on such National Market System,
the average of the closing bid and asked prices in the over-the-counter market
as furnished by any New York Stock Exchange member firm selected from time to
time by the Committee for that purpose or, if the Common Stock is not traded
over-the-counter, as determined by the Committee in good faith using any
reasonable valuation method.
(o) "INCENTIVE STOCK OPTION" means an Option to purchase
Common Stock, granted by the Company to an Employee pursuant to Section 5.1
hereof, which meets the requirements of Section 422 of the Code.
(p) "NONQUALIFIED STOCK OPTION" means an Option to
purchase Common Stock, granted by the Company to a Director, Employee or
Consultant pursuant to Section 5.1 hereof, which does not meet the requirements
of Section 422 of the Code or which provides, as of the time the Option is
granted, that it will not be treated as an Incentive Stock Option.
(q) "OPTION" means an Incentive Stock Option or a
Nonqualified Stock Option.
(r) "OPTION AGREEMENT" means an agreement between the
Company and an Optionee evidencing the terms of an Option granted under the
Plan.
A-2
<PAGE>
(s) "OPTIONEE" means a Director, Employee or Consultant
to whom an Option has been granted under the Plan.
(t) "PLAN" means the Rotary Power International, Inc.
2000 Stock Option Plan as set forth herein and as from time to time hereafter
amended.
(u) "SUBSIDIARY" means a subsidiary of the Company within
the meaning of Section 424(f) of the Code.
ARTICLE III
STOCKHOLDER APPROVAL; RESERVATION OF SHARES
3.1. STOCKHOLDER APPROVAL. The Plan shall become effective
only if, within twelve (12) months from the date the Plan is adopted by the
Board, the Plan is approved by the affirmative vote of the holders of a majority
of the voting securities of the Company in accordance with the applicable
provisions of the charter and bylaws of the Company and applicable state law.
3.2. SHARES RESERVED UNDER PLAN. The aggregate number of
shares of Common Stock which may be issued upon the exercise of Options granted
under the Plan shall not exceed 5,000,000 shares, all or any part of which may
be issued pursuant to Incentive Stock Options or Nonqualified Stock Options or
any combination thereof. Shares of Common Stock issued upon the exercise of
Options granted under the Plan may consist of either authorized but unissued
shares or shares which have been issued and which shall have been heretofore or
shall be hereafter reacquired by the Company. The total number of shares
authorized under the Plan shall be subject to increase or decrease in order to
give effect to the provisions of Section 9.3 and to give effect to any amendment
adopted pursuant to Article VIII. If any Option granted under the Plan shall
expire, terminate or be cancelled for any reason without having been exercised
in full, the number of shares as to which such Option was not exercised shall
again be available for purposes of the Plan. The Company shall at all times
while the Plan is in effect reserve such number of shares of Common Stock as
will be sufficient to satisfy the requirements of the Plan.
ARTICLE IV
PARTICIPATION IN PLAN
4.1. ELIGIBILITY. An Option under the Plan may be granted to
any Director of the Company and any Employee of, or Consultant to, the Company
or a Subsidiary who performs services for the Company or a Subsidiary. An Option
may also be granted to any individual contingent upon his or her becoming a
Director, Employee or Consultant, provided that any such contingent grant of an
Incentive Stock Option shall not be effective earlier than the date on which
such individual becomes an Employee of the Company or a Subsidiary.
4.2. PARTICIPATION. Subject to the following provisions of
the Plan, the Committee shall determine those Directors, Employees and
Consultants to whom Options shall be granted, the type of Option to be granted
to each such person, and, subject to Section 3.2 hereof, the number of shares of
Common Stock subject to each such Option; provided, however, that no Director or
Consultant shall be granted an Incentive Stock Option.
A-3
<PAGE>
4.3. PARTICIPATION NOT GUARANTEE OF EMPLOYMENT OR RETENTION.
Nothing in this Plan or in any Option Agreement shall in any manner be construed
to limit in any way the right of the Company or any Subsidiary to terminate an
Employee's employment or a Consultant's constancy at any time, without regard to
the effect of such termination on any rights such Employee or Consultant would
otherwise have under this Plan, or give any right to an Employee or Consultant
to remain employed or retained by the Company or a Subsidiary thereof in any
particular position or at any particular rate of compensation.
ARTICLE V
GRANT AND EXERCISE OF OPTIONS
5.1. GRANT OF OPTIONS. Subject to the provisions of Article
VII, the Compensation Committee may from time to time in its discretion grant
Nonqualified Stock Options to Directors and Incentive Stock Options and/or
Nonqualified Stock Options to Employees who are Executives. The Compensation
Committee may also from time to time in its discretion grant Nonqualified
Options to Consultants and Incentive Stock Options and/or Nonqualified Stock
Options to Employees who are not Executives. All Options under the Plan shall be
granted within ten (10) years from the date the Plan is adopted by the Board or
the date the Plan is approved by stockholders of the Company, whichever is
earlier.
5.2. OPTION AGREEMENTS. Each Option granted under the Plan
shall be evidenced by an Option Agreement between the Company and the Optionee
in such form as the Committee shall approve and containing such provisions and
conditions not inconsistent with the provisions of the Plan, including the term
during which the Option may be exercised and whether in installments or
otherwise, as the Committee shall determine.
5.3. OPTION TERMS. Options granted under the Plan shall be
subject to the following requirements:
(a) OPTION PRICE. The exercise price of each Incentive
Stock Option shall not be less than the higher of the par value or 100% of the
Fair Market Value of the shares of Common Stock subject to the Option on the
date the Option is granted. The exercise price of each Nonqualified Stock Option
shall be the amount determined by the Committee as set forth in the applicable
Option Agreement, provided that such amount shall not be less than the higher of
the par value or 85% of the Fair Market Value of the shares of Common Stock
subject to the Option on the date the Option is granted. The exercise price of
an Option may be subject to adjustment pursuant to Section 9.3 hereof.
(b) TERM OF OPTION. The term during which an Option is
exercisable shall be that period determined by the Committee as set forth in the
applicable Option Agreement, provided that no Option shall have a term that
exceeds a period of ten (10) years from the date of its grant.
(c) NONTRANSFERABILITY OF OPTION. No Option granted under
the Plan shall be transferable by the Optionee otherwise than by will or the
laws of descent and distribution, and each such Option shall be exercisable
during the Optionee's lifetime only by him. No transfer of an Option by an
Optionee by will or by the laws of descent and distribution shall be effective
to bind the Company unless the Company shall have been furnished with written
notice thereof and a copy of the will and/or such other evidence as the
Committee may determine necessary to establish the validity of the transfer.
A-4
<PAGE>
(d) VESTING SCHEDULE. Options granted on a given date
shall become exercisable at such times and in such amounts as the Committee
shall determine. Notwithstanding this vesting schedule, no incentive stock
option may be granted that would cause the limits of Section 5.4 to be exceeded
with respect to an Optionee. The Committee, in its sole discretion, may
prescribe a different vesting schedule for any incentive stock option granted
under this Plan if necessary to prevent the Option from violating the
requirements of Section 5.4.
When an installment of Options has become exercisable,
the Optionee may exercise that installment, in whole or in part, at any time
prior to the expiration or termination of the Options. Subject to the terms
herein, the Committee may accelerate the time at which outstanding Options may
be exercised.
Notwithstanding any schedule for vesting stated above or
other exercise schedule or entitlement which effectively precludes full and
immediate exercise of the related Option, any Option will become immediately
exercisable in full upon the occurrence of particular events or as the Committee
may thereafter determine to be advisable; provided that: (i) at the time such
occurrence or determination, the Optionee has remained continuously employed by
the Company or any Subsidiary for at least six (6) months from the date of grant
of such Option, and (ii) in the case of an incentive stock option, such
acceleration would not cause the limits of Section 5.4 to be violated. Without
limitation, those particular events include the following: (i) a change in
control of the Company in a transaction or occurrence, or a related series of
transactions or occurrences, resulting from a material change in ownership of
Common Stock and evidenced by cessation in service as directors of a majority of
those persons theretofore serving as members of the Board; (ii) the sale by the
Company of all or substantially all of its assets and the discontinuance of its
business, or the merger or consolidation of the Company with another entity, or
the liquidation of the Company in connection with those events, any of which
results in a change of control described in (i); or (iii) a Board determination
that immediate exercisability would be in the best interests of the Company and
advisable for protection of the rights intended to be granted under the Option.
(e) INCENTIVE STOCK OPTIONS GRANTED TO TEN PERCENT
STOCKHOLDERS. No Incentive Stock Option shall be granted to any Employee who
owns, directly or indirectly within the meaning of Section 424(d) of the Code,
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company or any Subsidiary, unless at the time the Incentive
Stock Option is granted, the exercise price of the Incentive Stock Option is at
least 110% of the Fair Market Value of the Common Stock subject to such
Incentive Stock Option and such Incentive Stock Option, by its terms, is not
exercisable after the expiration of five years from the date such Incentive
Stock Option is granted.
5.4. LIMITATION ON INCENTIVE STOCK OPTIONS. To the extent
that the aggregate Fair Market Value of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by an Optionee during
any calendar year (under Plans of the Company and its parent and subsidiary
corporations) exceeds $100,000, such Options shall be treated as Nonqualified
Stock Options. For this purpose, Options shall be taken into account in the
order in which they are granted and the Fair Market Value of the Common Stock
shall be determined as of the time the Option with respect to such Common Stock
is granted.
5.5. NOTICE AND PAYMENT FOR SHARES. Each Option shall be
exercised by delivery of a written notice to the Company in such form as the
Committee shall approve stating the number of whole and fractional shares of
Common Stock as to which the Option is being exercised and accompanied by
payment therefor. No Option shall be deemed exercised in the event that payment
therefor is not received and shares of Common Stock shall not be issued upon the
exercise of an Option unless the exercise price is paid. Payment for shares of
Common Stock purchased upon the exercise of an Option shall be made by (i)
A-5
<PAGE>
cash, (ii) certified check payable to the order of the Company, (iii)
outstanding shares of Common Stock duly endorsed to the Company (which shares of
Common Stock shall be valued at their Fair Market Value as of the day preceding
the day of such exercise), (iv) any combination of the foregoing, or (v) such
other method of payment as may be provided in the applicable Option Agreement.
In order to assist an Optionee in paying the exercise price of an Option and, if
applicable, any taxes resulting therefrom, the Committee may in its sole
discretion permit an Optionee to pay the exercise price in installments or
authorize the extension by the Company of a loan to the Optionee or a guarantee
by the Company of a loan obtained by the Optionee from a third party. The terms
of any such installment payment, loan or guarantee, including the interest rate
and terms of repayment, shall be established by the Committee.
5.6. RIGHTS OF OPTIONEE IN STOCK. Neither any Optionee nor the
legal representatives, heirs, legatees or distributees of any Optionee, shall be
deemed to be the holder of, or to have any of the rights of a holder with
respect to, any shares of Common Stock issuable upon exercise of an Option
granted hereunder unless and until such shares are issued to him or them and
such person or persons have received a certificate or certificates therefor.
Upon the issuance and receipt of such certificate or certificates, such Optionee
or the legal representatives, heirs, legatees or distributees of such Optionee
shall have absolute ownership of the shares of Common Stock evidenced thereby,
including the right to vote such shares, to the same extent as any other owner
of shares of Common Stock, and to receive dividends thereon, subject, however,
to the terms, conditions and restrictions of this Plan and the applicable Option
Agreement.
ARTICLE VI
TERMINATION AND DEATH
6.1. TERMINATION OTHER THAN BY DEATH, DISABILITY OR FOR
CAUSE. If an Optionee's position as a Director or Employee of, or a Consultant
to, the Company or a Subsidiary terminates for any reason other than death,
Disability or for Cause, he may, unless the applicable Option Agreement provides
otherwise, exercise an Option previously granted at any time during the three
month period after the date of such termination, but in no event later than the
date on which the Option would have expired in accordance with its terms. During
such three month period the Optionee may exercise the Option only to the extent
that the Optionee was entitled to do so at the date of his termination and, to
the extent the Option is not so exercised, it shall expire at the end of such
three month period.
6.2. TERMINATION FOR CAUSE. If an Optionee's position as
Director or Employee of, or a Consultant to, the Company or a Subsidiary is
terminated for Cause, any Option theretofore granted to him shall expire and
cease to be exercisable on the earlier of the date of such termination or the
date notice of such termination is provided to the Optionee.
6.3. DISABILITY. If an Optionee's position as a Director
or Employee of, or a Consultant to, the Company or a Subsidiary terminates by
reason of Disability, he may, unless the applicable Option Agreement provides
otherwise, exercise an Option previously granted at any time during the one-year
period after the date of such termination, but in no event later than the date
on which the Option would have expired in accordance with its terms. During such
one-year period the Optionee may exercise the Option only to the extent that the
Optionee was entitled to do so at the date of his termination and, to the extent
the Option is not so exercised, it shall expire at the end of such one-year
period.
6.4. DEATH. If an Optionee dies (i) while he is a
Director or Employee of, or a Consultant to, the Company or a Subsidiary, or
(ii) during the three-month period after the termination of his position as a
Director or Employee of, or a Consultant to, the Company or a Subsidiary other
than by
A-6
<PAGE>
reason of Disability or for Cause, or (iii) during the one-year period after
the termination of his position as a Director or Employee of, or Consultant
to, the Company or a Subsidiary by reason of Disability, and at the time of
his death the Optionee was entitled to exercise an Option theretofore granted
to him, such Option shall, unless the applicable Option Agreement provides
otherwise, expire one year after the date of his death, but in no event later
than the date on which the Option would have expired if the Optionee had
lived. During such one-year period the Option may be exercised by the
Optionee's executor or administrator or by any person or persons who shall
have acquired the Option directly from the Optionee by bequest or
inheritance, but only to the extent that the Optionee was entitled to
exercise the Option at the date of his death and, to the extent the Option is
not so exercised, it shall expire at the end of such one-year period.
6.5. EMPLOYMENT CONTRACTS. Notwithstanding the foregoing
provisions of this Article VI, with respect to any Option granted to an Employee
in connection with the commencement of employment of such Employee by the
Company or any Subsidiary, the Committee may provide for terms as to retirement,
death, disability or other termination of employment that are different from the
terms provided in Sections 6.1, 6.2, 6.3 and 6.4 if such different terms are set
forth in a written employment agreement with such Employee.
ARTICLE VII
ADMINISTRATION OF PLAN
7.1. COMPENSATION COMMITTEE.
(a) ADMINISTRATION. The Plan shall be administered by the
Compensation Committee having the authority and responsibilities herein
provided.
(b) COMPENSATION COMMITTEE. The Compensation Committee
shall consist of two or more Directors appointed by the Board of Directors. The
Compensation Committee shall be constituted so as to meet the requirements of
Rule 16b-3 under the Exchange Act in order to permit transactions pursuant to
the Plan to be exempt from the restrictions of Section 16(b) of the Exchange
Act.
7.2. COMMITTEE ORGANIZATION. A majority of the members of the
Compensation Committee shall constitute a quorum thereof and the actions of a
majority of the members of such Committee at a meeting at which a quorum is
present, or actions unanimously approved in writing by all members of either
such Committee, shall be the actions of such Committee; provided that, if the
Compensation Committee consists of fewer than three members, all such members
shall be required to constitute a quorum and to act at a meeting or approve
actions in writing. Vacancies occurring on the Compensation Committee shall be
filled by the Board.
7.3. ADMINISTRATION OF PLAN. The Compensation Committee shall have
the exclusive authority and sole responsibility to administer the Plan and make
all determinations thereunder with respect to the participation of Optionees
therein, including the selection of those Directors, Executives, Employees and
Consultants who shall be granted Options as well as the terms of each Option
Agreement entered into by the Company with each Optionee who is granted an
Option by the Compensation Committee. It is the intention of the Company that
the Plan shall comply in all respects with Rule 16b-3 under the Exchange Act
and, if any Plan provision is found not to be in compliance with such Rule
16b-3, that provision shall be deemed null and void, and the Plan shall be
construed in favor of its meeting the requirements of Rule 16b-3.
A-7
<PAGE>
7.4. DETERMINATIONS. In making its determinations concerning the
Directors, Executives, Employees and Consultants who shall receive Options as
well as the number of shares to be covered thereby and the time or times at
which they shall be granted, the Compensation Committee shall take into account
the nature of the services rendered by the respective Directors, Executives,
Employees and Consultants, their past, present and potential contribution to the
Company's success and such other factors as the Committee may deem relevant.
Subject to the foregoing provisions of this Article VII, the Compensation
Committee shall determine the form of Option Agreements under the Plan and the
terms and conditions to be included therein, provided such terms and conditions
are not inconsistent with the terms of the Plan. The Compensation Committee may
waive any provisions of any Option Agreement previously approved by such
Committee, provided such waiver is not inconsistent with the terms of the Plan
as then in effect. The determinations of the Compensation Committee under the
Plan need not be uniform and may be made selectively among persons who receive,
or are eligible to receive, Options under the Plan, whether or not such persons
are similarly situated.
7.5. AUTHORITY OF COMMITTEE. Subject to the foregoing provisions
of this Article VII, the Compensation Committee, to the extent such Committee is
administering the Plan, shall have full and final authority (i) to interpret the
Plan and each of the Option Agreements, (ii) to prescribe, amend and rescind
rules and regulations, if any, relating to the Plan, (iii) to make all
determinations necessary or advisable for the administration of the Plan and
(iv) to correct any defect, supply any omission and reconcile any inconsistency
in the Plan and any Option Agreement. The determinations of the Compensation
Committee in all matters referred to herein shall be conclusive and binding for
all purposes and upon all persons including, but without limitation, the
Company, the stockholders of the Company, the Compensation Committee and each
member of such Committee, Directors and Employees of the Company, Consultants to
the Company, and their respective successors in interest.
7.6. LIABILITY. No member of the Compensation Committee shall be
liable for anything done or omitted to be done by him or her or by any other
member of such Committee in connection with the Plan, except for his or her own
willful misconduct or gross negligence (unless the Company's certificate of
incorporation or bylaws, or any indemnification agreement between the Company
and such person, in each case in accordance with applicable law, provides
otherwise). The Compensation Committee shall have power to engage outside
consultants, auditors or other professional help to assist in the fulfillment of
its duties under the Plan at the Company's expense.
ARTICLE VIII
AMENDMENT AND TERMINATION OF PLAN
8.1. AMENDMENT OF PLAN. (a) GENERALLY. The Plan may be amended at
any time and from time to time by the Board, but no amendment shall be effective
unless and until the same is approved by the affirmative vote of the holders of
a majority of the voting securities of the Company in accordance with the
applicable provisions of the charter and bylaws of the Company and applicable
state law, if such approval is required by law or is necessary to comply with
any rule or regulation under Section 16(b) of the Exchange Act or Section 422 of
the Code. No amendment to the Plan shall, without the consent of an Optionee,
affect such Optionee's rights under an Option previously granted.
(b) AMENDMENTS RELATING TO INCENTIVE STOCK OPTIONS. To the
extent applicable, the Plan is intended to permit the issuance of Incentive
Stock Options to Employees in accordance with the provisions of Section 422
of the Code. Subject to paragraph 8.1 (a) above, the Plan and Option
Agreements may be modified or amended at any time, both prospectively and
retroactively, and in a manner that may affect Incentive Stock Options
previously granted, if such amendment or modification is
A-8
<PAGE>
necessary for the Plan and any Incentive Stock Options granted hereunder to
qualify under said provisions of the Code.
8.2. TERMINATION. The Board may at any time terminate the Plan as
of any date specified in a resolution adopted by the Board. If not earlier
terminated, the Plan shall terminate on the day prior to the tenth anniversary
of the date on which the Plan is adopted by the Board or the date on which the
Plan is approved by stockholders of the Company, whichever is earlier. No
Options may be granted after the Plan has terminated but the Committee shall
continue to supervise the administration of Options previously granted.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1. RESTRICTIONS UPON GRANT OF OPTIONS. If the listing upon any
stock exchange or the registration or qualification under any federal or state
law of any shares of Common Stock to be issued on the exercise of Options
granted under this Plan (whether to permit the grant of Options or the resale or
other disposition of any such shares of Common Stock by or on behalf of the
Directors, Employees and Consultants receiving such shares) should be or become
necessary or desirable (as determined by the Board in its sole discretion), the
Board, in its sole discretion, may determine that delivery of the certificates
for such shares of Common Stock shall not be made until such listing,
registration or qualification shall have been completed. The Company agrees that
it will use its best efforts to effect any such listing, registration or
qualification, provided, however, that the Company shall not be required to use
its best efforts to effect such registration under the Securities Act of 1933,
as amended, other than on Form S-8 or such other forms as may be in effect from
time to time calling for information comparable to that presently required to be
furnished under Form S-8.
9.2. RESTRICTIONS UPON RESALE OF UNREGISTERED STOCK. Each Optionee
shall, if the Company deems it advisable, represent and agree in writing (i)
that any shares of Common Stock acquired by such Optionee pursuant to this Plan
will not be sold except pursuant to an effective registration statement under
the Securities Act of 1933, as amended, or pursuant to an exemption from
registration under said Act, (ii) that such Optionee is acquiring such shares of
Common Stock for his own account and not with a view to the distribution
thereof, and (iii) to such other customary matters as the Company may request.
In such case, no shares of Common Stock shall be issued to such Optionee unless
such Optionee provides such representations and agreements and the Company is
reasonably satisfied that such representations and agreements are correct.
9.3. ADJUSTMENTS. The number of shares of Common Stock of the
Company authorized for issuance under the Plan, as well as the price to be paid
and the number of shares of Common Stock issued upon exercise of outstanding
Options, shall be subject to adjustment by the Committee, in its sole
discretion, to reflect any stock split, stock dividend, recapitalization,
merger, consolidation, reorganization, combination or exchange of shares or
other similar event.
9.4. WITHHOLDING OF TAXES. Each Optionee who exercises a
Nonqualified Stock Option shall agree that no later than the date of such
exercise or the receipt of shares of Common Stock pursuant thereto he will pay
to the Company, or make arrangements satisfactory to the Committee regarding
payment of, any Federal, state or local taxes of any kind required by law to be
withheld with respect to the transfer to him of such shares of Common Stock.
A-9
<PAGE>
9.5. USE OF PROCEEDS. The proceeds from the sale of Common Stock
pursuant to Options granted under the Plan shall constitute general funds of the
Company and may be used for such corporate purposes as the Company may
determine.
9.6. SUBSTITUTION OF OPTIONS. (a) The Committee may, with the
consent of the holder of any Option granted under the Plan, cancel such Option
and grant a new Option in substitution therefor, provided that the Option as so
substituted shall satisfy all of the requirements of the Plan as of the date
such new Option is granted.
(b) Options may be granted under this Plan in substitution
for Options held by individuals who are employees of another corporation and
who become Employees of the Company or any Subsidiary and eligible to receive
Options pursuant to the Plan as a result of a merger, consolidation,
reorganization or similar event. The terms and conditions of any Options so
granted may vary from those set forth in the Plan to the extent deemed
appropriate by the Committee in order to conform the provisions of Options
granted pursuant to the Plan to the provisions of the Options in substitution
for which they are granted.
9.7. RESTRICTIVE LEGENDS. (a) In the event that the Company has
not registered the shares underlying the Options under the Securities Act of
1933, the certificates representing shares of Common Stock delivered pursuant to
the exercise of Options shall bear an appropriate legend referring to certain
terms, conditions and restrictions of this Plan. Any attempt to dispose of any
such shares of Common Stock in contravention of the terms, conditions and
restrictions of this Plan shall be ineffective, null and void and the Company
shall not effect any such transfer on its books.
(b) Any shares of Common Stock received by an Optionee
(or his heirs, legatees,distributees or representative) as a stock dividend on,
or as a result of a stock split, combination, exchange of shares,
reorganization, merger, consolidation or otherwise with respect to, shares of
Common Stock received pursuant to the exercise of Options, shall be subject to
the terms and conditions of this Plan and bear the same legend as the shares of
Common Stock received pursuant to the exercise of Options.
9.8. NOTICES. Any notice required or permitted hereunder shall be
sufficiently given only if sent by registered or certified mail, return receipt
requested, postage prepaid, addressed to the Company at its principal place of
business, and to the Optionee at the address on file with the Company at the
time of grant hereunder, or to such other address as either party may hereafter
designate in writing by notice similarly given by one party to the other.
-A-10-
<PAGE>
APPENDIX B
ROTARY POWER INTERNATIONAL, INC.
PROXY
The undersigned hereby appoints Douglas M. Drew and Conway Davis, or either
of them individually, with full power of substitution, to act as proxy and to
represent the undersigned at the Annual Meeting of Shareholders and to vote all
shares of Common Stock of Rotary Power International, Inc. which the undersigned
is entitled to vote and would possess if personally present at said meeting to
be held at the Company's offices located at One Passaic Street, Wood-Ridge, New
Jersey 07075-0128, on Tuesday, July 11, 2000 at 2:00 p.m. and at all
postponements or adjournments upon the matters described herein.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THIS PROXY,
WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4 LISTED
ON THE REVERSE SIDE. PROXIES ARE ALSO GRANTED THE DISCRETION TO VOTE UPON ALL
OTHER MATTERS THAT MAY PROPERLY BE BROUGHT BEFORE THE MEETING OR ANY
POSTPONEMENT OR ADJOURNMENT THEREOF.
(Continued, and to be signed on reverse side)
<PAGE>
ANNUAL MEETING OF SHAREHOLDERS
ROTARY POWER INTERNATIONAL, INC.
TUESDAY, JULY 11, 2000
2:00 P.M.
--------------------------------------------------
<TABLE>
<CAPTION>
[ X ] Please mark your votes as in this example.
<S> <C> <C> <C> <C>
THE BOARD OF DIRECTORS RECOMMENDS 1. Election of Conway Davis, Virgil Wenger, FOR AGAINST ABSTAIN
A VOTE "FOR" EACH OF THE PROPOSALS Douglas Drew and William E. Partanen [ ] [ ] [ ]
AT RIGHT. as Directors of the Board until the next
annual meeting
2. Approval of an amendment to the FOR AGAINST ABSTAIN
Certificate of Incorporation whereby the [ ] [ ] [ ]
capitalization of the Company will be
increased to 100,000,000 shares of Common
Stock, $.01 par value per share, and
5,000,000 shares of Preferred Stock, $.01
par value per share
3. Approval and adoption of the 2000 FOR AGAINST ABSTAIN
Stock Option Plan [ ] [ ] [ ]
4. Approval of the Company's independent FOR AGAINST ABSTAIN
accountants, Demetrius & Company, L.L.C. [ ] [ ] [ ]
for the fiscal year ended December 31, 2000
Change of Address
New Address: [ ]
---------------------------
---------------------------
---------------------------
I plan to attend the meeting [ ] I do not plan to attend the meeting [ ]
SIGNATURE(S) DATE
------------------------ ---------------------------------
Note: Please sign exactly as your name appears hereon. Joint owners should each sign. When signing as
attorney, executor, administrator, trustee, or guardian, please give full titles as such.
</TABLE>
