<PAGE> 1
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SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[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 sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
Sel-Drum International, 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):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
================================================================================
<PAGE> 2
SEL-DRUM INTERNATIONAL, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 1, 1998
The Annual Meeting of Shareholders of Sel-Drum International, Inc. (the
"Company") will be held at the Venture Inn Burlington-on-the-Lake, 2020
Lakeshore Road, Burlington, Ontario, Canada L7S 1Y2, on Tuesday, December 1,
1998 at 1:00 p.m. local time, for the following purposes more fully described in
the accompanying proxy statement:
1. To elect three directors of the Company.
2. To consider and act upon a proposal to approve and adopt a
Certificate of Amendment of the Company's Certificate of
Incorporation to effect a reverse stock split of up to
0.33-for-one.
3. To consider and act upon a proposal to approve and ratify an
amendment to the Sel-Drum International, Inc. 1995 Employee
and Non-Employee Director Stock Option Plan to increase the
number of shares available for option grants under the Plan
from 500,000 to 700,000.
4. To consider and act upon a proposal to approve and ratify the
selection of Mengel, Metzger, Barr & Co. LLP as the Company's
independent auditors for the fiscal year ending July 31, 1999.
5. To transact such other business as may properly come before
the Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on October 16,
1998 as the record date for the determination of shareholders entitled to notice
of and to vote at the Meeting and any adjournments thereof.
BY ORDER OF THE BOARD OF DIRECTORS
Brian F. Turnbull
Chairman of the Board
Dated: November 16, 1998
<PAGE> 3
SEL-DRUM INTERNATIONAL, INC.
501 AMHERST STREET
BUFFALO, NEW YORK 14207-2913
PROXY STATEMENT
GENERAL INFORMATION
This proxy statement is furnished to shareholders in connection with
the solicitation of proxies by the Board of Directors of Sel-Drum International,
Inc. (the "Company") to be used at the Annual Meeting of Shareholders of the
Company which will be held on Tuesday, December 1, 1998, and at any adjournments
thereof (the "Meeting"). This proxy statement and accompanying form of proxy are
being first mailed to shareholders on or about November 16, 1998. The proxy,
when properly executed and received by the Secretary of the Company prior to the
Meeting, will be voted as therein specified unless revoked by filing with the
Secretary prior to the Meeting a written revocation or a duly executed proxy
bearing a later date. Unless authority to vote for one or more of the director
nominees is specifically withheld according to the instructions, a signed proxy
will be voted FOR the election of the three director nominees named herein and,
unless otherwise indicated, FOR each of the other three proposals described in
this proxy statement and the accompanying notice of meeting.
The cost of soliciting proxies will be borne by the Company. In
addition to solicitation by use of the mails, directors, officers or regular
employees of the Company, without extra compensation, may solicit proxies
personally or by telephone or other telecommunication. The Company has requested
persons holding stock for others in their names or in the names of nominees to
forward soliciting material to the beneficial owners of such shares and will, if
requested, reimburse such persons for their reasonable expenses in so doing.
VOTING
As of October 16, 1998, the record date for the Meeting, there were
7,542,500 shares of the Company's Common Stock, $.01 par value (the "Common
Stock"), issued and outstanding. Only shareholders of record on the books of the
Company at the close of business on October 16, 1998 are entitled to notice of
and to vote at the Meeting.
Each shareholder of record is entitled to one vote for each share of
Common Stock registered in his name. A majority of the outstanding Common Stock,
represented in person or by proxy at the Meeting, will constitute a quorum for
the transaction of all business.
Once a quorum is present, directors will be elected by a plurality of
the votes cast, in person or by proxy, at the Meeting. The affirmative vote of a
majority of issued and outstanding shares entitled to vote at the Meeting is
required for approval of the reverse stock split and a majority of the votes
cast, in person or by proxy, at the Meeting is required for approval of the
other two proposals described in this proxy statement and the accompanying
notice of meeting.
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information as of October 16,
1998 regarding the Common Stock held by (i) each person known to the Company to
be the beneficial owner of more than 5% of the Common Stock, (ii) each director
of the Company, (iii) each "Named Executive" (see "EXECUTIVE COMPENSATION"), and
(iv) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME AND ADDRESS OF OF COMMON STOCK OF
BENEFICIAL OWNER(1) BENEFICIALLY OWNED (2) CLASS (2)
------------------- ---------------------- ---------
<S> <C> <C>
Robert E. Asseltine 1,769,680 (3) 23.46 %
Brian F. Turnbull 4,514,000 (4) 59.85
Robert M. Orr 9,000 (5) 0.12
Raymond C. Sparks 250,000 (6) 3.20
All directors and executive 6,559,347 83.90
officers as a group (5 persons)
</TABLE>
(1) The address of each of the directors and executive officers is c/o
Sel-Drum International, Inc., 501 Amherst Street, Buffalo, New York
14207-2913.
(2) As reported by such persons as of October 16, 1998, with percentages
based on 7,542,500 shares issued and outstanding, except where the
issuance of shares pursuant to presently exercisable options indicated
in the other footnotes hereto would increase the number of shares owned
by such person and the number of shares outstanding.
(3) Includes 237,000 shares owned of record by Mr. Asseltine's wife.
(4) Shares owned of record by 547118 Ontario Ltd., an Ontario corporation
controlled by Mr. Turnbull.
(5) On April 24, 1998, Mr. Orr was granted an option to purchase 40,000
shares at an exercise price of $.50 per share. The option, which was
granted under the 1995 Employee and Non-Employee Director Stock Option
Plan, is vested with respect to 20,000 shares, and is presently
exercisable by Mr. Orr with respect to 9,000 of such shares. Of the
40,000 shares underlying Mr. Orr's option, 31,000 shares are subject to
a conditional grant, which is conditioned upon shareholder approval of
the amendment to the 1995 Plan which increases the authorized number of
shares available for grants under the Plan from 500,000 to 700,000. See
"PROPOSAL TO APPROVE AND RATIFY AN AMENDMENT TO THE STOCK OPTION PLAN
TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR OPTION GRANTS."
(6) A presently exercisable option to purchase 250,000 shares of Common
Stock at $.40 per share.
ELECTION OF DIRECTORS
Three directors are to be elected by the shareholders at the Meeting,
each to hold office for a term expiring in 1999 or until his successor is duly
elected and qualifies.
The Board of Directors recommends the election of the three nominees
named below, all of whom are currently directors of the Company. Unless
authority to vote for one or more of the nominees is specifically withheld
according to the instructions, proxies in the enclosed form will be voted FOR
the election of each of the three nominees named below.
-2-
<PAGE> 5
The Board of Directors does not contemplate that any of the nominees
will be unable to serve as a director, but if that contingency should occur
prior to the voting of the proxies, the persons named in the enclosed proxy
reserve the right to vote for such substitute nominee or nominees as they, in
their discretion, shall determine.
PROPOSED FOR ELECTION AS DIRECTORS
AT THE 1998 ANNUAL MEETING
<TABLE>
<CAPTION>
DIRECTOR
NAME AND BACKGROUND SINCE
------------------- -----
<S> <C>
ROBERT E. ASSELTINE, age 67, has served as a Director of the Company since 1995
1995. He also served as Chairman of the Board from February 1995 until January
1998. February Mr. Asseltine was the founder and Chief Executive Officer of
Micron Imaging Corp., the photocopier drum manufacturer which was amalgamated
with Sel-Drum Corporation in November 1996, now owned by the Company. Prior to
founding Micron Imaging Corp. in 1991, Mr. Asseltine founded Copytron (formerly
Western Canada's largest independent copier dealer) and Photofax (a
photoconductor facility), both of which were sold to Savin Canada, Inc.
BRIAN F. TURNBULL, age 63, the Company's founder, began his career in the 1995
reprographics 1995 industry with Nashua in the U.K. and later in Canada. Prior
to founding Sel-Drum Corporation in 1978, Mr. Turnbull owned an independent
copier dealership in Hamilton, Ontario, Canada. Mr. Turnbull resigned as Chief
Executive Officer and President of the Company effective January 1, 1998,
assuming the position of Chairman of the Board and focusing his efforts in
developing sales outside of North America.
ROBERT M. ORR, age 54, is a former partner in the law firm of Ross & McBride, the 1998
Company's Canadian corporate counsel. Mr. Orr's 25 years of practice experience
includes representation of small to medium sized corporations in connection with
corporate restructuring, financing and commercial real estate.
</TABLE>
BOARD MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors held three meetings during the fiscal year ended
July 31, 1998 ("Fiscal 1998"). Each current director who was in office during
Fiscal 1998 attended all Board meetings and meetings of Board Committees on
which he served.
The Board of Directors has established, among other Committees, an
Audit Committee, a Compensation and Benefits Committee, and a Nominating
Committee of the Board.
-3-
<PAGE> 6
The current members of the Audit Committee are Mr. Orr and Mr.
Asseltine. The Committee has been established to review with Mengel, Metzger,
Barr & Co. LLP, the Company's independent auditors, the Company's financial
statements and internal accounting procedures, Mengel, Metzger, Barr & Co. LLP's
auditing procedures and fees, and the possible effects of professional services
upon the independence of Mengel, Metzger, Barr & Co. LLP. The Committee held
three meetings during Fiscal 1998 in conjunction with the Company's Board
meetings. Mengel, Metzger, Barr & Co. LLP did not participate in these meetings.
The current members of the Compensation and Benefits Committee are Mr.
Asseltine and Mr. Orr. The Committee makes recommendations to the Board with
respect to compensation and benefits paid to the Company's management (see
"EXECUTIVE COMPENSATION"). The Compensation and Benefits Committee held three
meetings during Fiscal 1998 in conjunction with the Company's Board meetings.
The current members of the Nominating Committee are Mr. Asseltine and
Mr. Turnbull. The Nominating Committee makes nominations to the Board and
considers and establishes procedures regarding nominations to the Board
submitted by shareholders. The Committee held no meetings during Fiscal 1998.
Shareholder recommendations for nomination to the Board should be sent to the
Company, to the attention of the President.
DIRECTORS' COMPENSATION
Directors are reimbursed for their reasonable expenses incident to
travel and attendance at meetings. Directors do not receive any other
compensation for attendance at meetings.
DIRECTOR'S OPTIONS
On April 24, 1998, Robert M. Orr was granted an option to purchase
40,000 shares of Common Stock at an exercise price of $.50 per share. The
option, which was granted under the 1995 Employee and Non-Employee Director
Stock Option Plan (the "1995 Plan"), is vested with respect to 20,000 shares,
and is presently exercisable by Mr. Orr with respect to 9,000 of such shares. Of
the 40,000 shares underlying Mr. Orr's option, 31,000 shares are subject to a
conditional grant, which is conditioned upon shareholder approval of the
amendment to the 1995 Plan which increases the authorized number of shares
available for grants under the Plan from 500,000 to 700,000. See "PROPOSAL TO
APPROVE AND RATIFY AN AMENDMENT TO THE STOCK OPTION PLAN TO INCREASE THE NUMBER
OF SHARES AVAILABLE FOR OPTION GRANTS."
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that all reports required to be filed during or
with respect to Fiscal 1998 by its directors and executive officers were made on
a timely basis. In making this statement, the Company has relied on the written
representations of its directors and executive officers.
-4-
<PAGE> 7
EXECUTIVE OFFICERS
The Company is currently served by three executive officers, who are
elected annually by the Board of Directors and serve until their successors are
elected and qualify:
BRIAN F. TURNBULL, age 63, is Chairman of the Board and the Company's
founder. Mr. Turnbull began his career in the reprographics industry with Nashua
in the U.K. and later in Canada. Prior to founding Sel-Drum Corporation in 1978,
Mr. Turnbull owned an independent copier dealership in Hamilton, Ontario,
Canada. Mr. Turnbull resigned as Chief Executive Officer and President of the
Company effective January 1, 1998, assuming the position of Chairman of the
Board and focusing his efforts in developing sales outside of North America.
RAYMOND C. SPARKS, age 48, has been the Company's President and Chief
Executive Officer since November 1, 1997. From 1993 to 1997, Mr. Sparks was the
President, Chairman of the Board and Chief Executive Officer of The Village
Green Bookstores, Inc., a publicly-held specialty retailer. Mr. Sparks has eight
years of public accounting experience in South Africa with Ernst & Young and
later, with Webb & Company. Since 1979, Mr. Sparks has been engaged in the
retail industry, primarily in supermarket and specialty stores, in both
operational and financial capacities. Mr. Sparks was Financial Director for
Burlington Industries in Cape Town until 1983. From 1983 to 1987, Mr. Sparks was
Divisional Financial Manager for Checkers Supermarkets Ltd. in Cape Town. Mr.
Sparks moved to the United States in 1987, and became Chief Financial Officer of
Checkers Restaurants, Brooklyn, New York. In 1989, he was named Vice President
of Finance at Tie Rack (U.S.) Inc. Mr. Sparks was the Chief Operating and Chief
Financial Officer of Burke & Burke (New York) in 1991. Mr. Sparks was Vice
President of Conston Corporation, an apparel retailer located in Philadelphia
before he joined Village Green in June 1993. Mr. Sparks holds the professional
qualification of Chartered Accountant (C.A.(S.A.)), and was awarded a Bachelor
of Commerce (with honors) degree in Financial Accounting by the University of
Cape Town, South Africa.
JOHN C. HALL, age 56, joined the Company in 1985 as the Financial
Manager. On February 1, 1995, he was appointed Director of Finance, and on
November 1, 1997 he was elected Vice President of Finance. Previously, he was
employed for five years by Butler Metals Co., an automotive related company in
the position of Manager of Accounting. Prior to his employment with Butler, he
was employed by T.R.W. in Canada in the capacity of Chief Accountant. Mr. Hall
earned his C.M.A. in 1972.
-5-
<PAGE> 8
EXECUTIVE COMPENSATION
Shown on the table below is information on the annual and long-term
compensation for services rendered to the Company in all capacities, for the
fiscal years ended July 31, 1998, 1997 and 1996, paid by the Company to those
persons who were, at July 31, 1998, the Chief Executive Officer and each other
executive officer of the Company whose salary and bonus exceeded $100,000
(collectively, the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
--------------------------------------------- ------------
Other
Annual
Compen- All Other
Name and Salary Bonus sation Option Compensation
Principal Position Year ($)(1) ($)(1) ($) Grants (#) ($)
- --------------------------- --------- --------------- ------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Brian Turnbull, Chairman, 1998 $ 161,000(2) $ 29,944(2) -0- -0- $16,760(3)
Former President and Chief 1997 $ 210,000 $ 55,535 -0- -0- $16,760(3)
Executive Officer 1996 $ 210,000 $ 47,438 -0- -0- $16,760(3)
Raymond C. Sparks, 1998 $ 93,750(4) -0- -0- 250,000 -0-
President and Chief
Executive Officer
</TABLE>
(1) Does not include the value of perquisites and other personal
benefits because the aggregate amount of such compensation for any
year does not exceed 10% of the total amount of annual salary and
bonus for any Named Executive.
(2) On January 1, 1998, the Company and Mr. Turnbull terminated Mr.
Turnbull's employment contract. In his capacity as Chairman and a
full-time consultant, Mr. Turnbull receives annual compensation of
$126,000 as well as existing fringe benefits including the lease
of a car by the Company and annual golf membership.
(3) Represents the payment of annual premiums for a life insurance
policy covering Mr. Turnbull. The named beneficiary under the
policy is the Company, and the face amount of the policy is
$2,000,000.00 (CDN). Mr. Turnbull and the Company have entered
into an Insurance Policy Agreement dated as of February 1, 1998,
that provides that the Company will use any proceeds it receives
under the policy to fund a repurchase of shares of the Company
owned by Mr. Turnbull or any corporation controlled by him. The
Insurance Policy Agreement does not require the Company to
repurchase any of Mr. Turnbull's shares in excess of the number
that would be adequately funded by the proceeds of the policy.
(4) Mr. Sparks has served as President and Chief Executive Officer of
the Company since November 1, 1997. Mr. Sparks' Employment
Agreement with the Company provides for a term of three years,
subject to termination as provided in the Agreement, and provides
that as compensation under the Agreement, Mr. Sparks will be paid
$125,000 (U.S.) annual salary. The Employment Agreement also
provides for a $25,000 relocation allowance, fringe benefits,
including health insurance, on terms which may be agreed to from
time to time by the Company and Mr. Sparks. Pursuant to the terms
of the Agreement, Mr. Sparks was granted a non-incentive option to
purchase 250,000 shares of the Company's $.01 par value Common
Stock, at an exercise price of forty cents ($.40) per share.
-6-
<PAGE> 9
STOCK OPTIONS
Raymond C. Sparks was granted a non-incentive option to purchase
250,000 shares of the Company's Common Stock pursuant to an Employment
Agreement between the Company and Mr. Sparks. The option is presently
exercisable at forty cents ($.40) per share and expires on November 3,
2002. This option was not issued under the 1995 Plan.
No other stock options were granted to or exercised by the Named
Executives during Fiscal 1998, and the Company has no provision for stock
appreciation rights.
Shown below is information with respect to all unexercised options to
purchase Common Stock held by the Named Executives at July 31, 1998.
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of All Unexercised
Unexercised Options Held In-the-Money Options at
at FY-End (#) FY-End ($) (2)
Shares ----------------------------------- --------------------
Acquired Value
on Realized
Name Exercise (#) ($) (1) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ ------------ ----------- ------------------ --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Raymond C. Sparks -0- - 250,000 (1) -0- $71,900 (1) -0-
</TABLE>
(1) Expressed as the excess of the market value of the Common Stock at July
31, 1998 ($.6876 per share) over the exercise price of the option.
RELATED TRANSACTIONS
SHAREHOLDER LOANS
The Company is owed $160,000 by 547117 Ontario Ltd. and 547118 Ontario
Ltd., both of which are controlled by Brian F. Turnbull, Chairman of the Board,
in the form of an interest-free loan from the Company's subsidiary, Sel-Drum
Corporation. The loan was used to provide leasehold and structural improvements
to the Company's Burlington, Ontario facility, which is leased to the Company by
a company controlled by Mr. Turnbull.
On November 4, 1997, the Company loaned $117,742, with interest at 10%
per annum, to Mr. Asseltine in connection with the purchase of 293,680 shares of
Common Stock pursuant to a private transaction with Stephen Dadson, a former
officer and director. The loan, which was due and payable on May 2, 1998, has
been paid in full.
-7-
<PAGE> 10
PREFERRED STOCK
The Company's Sel-Drum Imaging Corporation subsidiary has issued to
Brian F. Turnbull and Robert E. Asseltine, Preferred Stock which is redeemable
at the Company's option at $727.30 per share. Mr. Asseltine currently owns 1,588
Class C Preferred Shares and Mr. Turnbull currently owns 4,599 Class D Preferred
Shares. These shares were issued to Messrs. Turnbull and Asseltine in connection
with Sel-Drum Imaging Corporation's reorganization in February 1995. On January
15, 1998, the Company repurchased 172 Shares of the Class C Preferred Stock and
241 Shares of the Class D Preferred Stock held by Messrs. Asseltine and
Turnbull. The total purchase price was $300,000, of which approximately $175,000
was delivered during the quarter ended January 31, 1998, and the remainder
during the quarter ended April 30, 1998. The Company does not anticipate funding
additional repurchases of Sel-Drum Imaging Corporation's Preferred Stock at any
time in the foreseeable future.
INSURANCE POLICIES
The Company pays the annual premiums to maintain a policy of life
insurance covering Brian F. Turnbull (the "Policy"). The named beneficiary under
the Policy is the Company, and the face amount of the policy is $2,000,000.00
(CDN). Mr. Turnbull and the Company have entered into an Insurance Policy
Agreement dated as of February 1, 1998, that provides that the Company will use
any proceeds it receives under the Policy to fund a repurchase of shares of the
Company owned by Mr. Turnbull or any corporation controlled by him. The
Insurance Policy Agreement does not require the Company to repurchase any of Mr.
Turnbull's shares in excess of the number that would be adequately funded by the
proceeds of the Policy. See "EXECUTIVE COMPENSATION."
LEASES
Mr. Asseltine, through Reaton Leasing Ltd., a corporation he controls,
leases to the Company a 12,000 square foot facility at 1890 Dayton Street for
one of the Company's facilities in Kelowna, British Columbia. Annual lease
payments are approximately $52,000 per year.
The Company leases its 21,600 square foot Burlington facility from a
company controlled by Mr. Turnbull pursuant to a lease terminating in February
2002. Annual lease payments are approximately $78,000.
PROPOSAL TO APPROVE AND ADOPT AN AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT
OF UP TO 0.33-FOR-ONE
INTRODUCTION
On September 21, 1998, the Board of Directors approved and adopted,
subject to approval and adoption by the shareholders, an amendment to the
Company's Certificate of Incorporation (the "Amendment"), to effect a reverse
stock split of up to 0.33-for-one of the Common Stock (the
-8-
<PAGE> 11
"Reverse Split"). If the Amendment is approved by the shareholders at the
Meeting, the Amendment and the Reverse Split will be effective on the date the
Amendment is filed with the New York Department of State (the "Effective Date").
The full text of the proposed Certificate of Amendment to effect the Reverse
Split is attached to this proxy statement as Appendix A.
If the Amendment is approved and adopted by the shareholders, the Board
of Directors reserves the right to file the Amendment and effect the Reverse
Split, at any time and for a lesser amount than 0.33-for-one, during an 18 month
period after approval by the shareholders, or to determine, in its sole
judgement during such 18 month period, that the Reverse Split would be
inadvisable and not in the best interests of the Company and its shareholders.
In that case, the Board would not file the Amendment and not effect the Reverse
Split.
REVERSE SPLIT
DESCRIPTION. On the Effective Date of the Reverse Split, at the
discretion of the Board of Directors, each share of Common Stock issued and
outstanding will be converted into 0.33 of one share (the "New Common Stock").
No fractional shares or scrip will be issued; rather, shareholders who would
otherwise be entitled to a fractional share as a result of the Reverse Split
will receive cash in the amount described below. The price for a fractional
share will be based upon the average bid and asked prices of the Common Stock on
the OTC Electronic Bulletin Board for the ten trading days immediately preceding
the Effective Date.
REASONS FOR THE REVERSE SPLIT. The Company's Common Stock currently
trades on the National Association of Securities Dealers, Inc. OTC Electronic
Bulletin Board. It is not listed on The Nasdaq Stock Market or on any national
or regional stock exchange. Although dealer prices for the Company's Common
Stock are listed on the OTC Bulletin Board, trading has been sporadic and
limited. The Company recognizes that it is substantially more difficult for
investors to buy and sell securities or to obtain accurate quotations for
securities traded in the OTC Bulletin Board Service.
In late 1997, the Company initiated a strategic plan which was designed
to focus on the longer term growth prospects of the Company. In an effort to
enhance the marketability of the Common Stock, part of the Company's strategic
plan included listing on The Nasdaq Stock Market ("Nasdaq"), or a national or
regional exchange. In order to obtain listing on Nasdaq or an exchange, however,
the Company must meet certain requirements. The Company believes that the
increase in the per share value of the Common Stock effected through a reduction
in the number of outstanding shares caused by the Reverse Split, should improve
the Company's eligibility to apply for listing on Nasdaq or a national or
regional exchange.
The Board of Directors believes that the implementation of the Reverse
Split will improve the market for the Common Stock in part because the Common
Stock may trade above $5.00 per share following the Reverse Split. Many
brokerage firms are reluctant to recommend lower price stocks (especially those
trading for under $5.00 per share) for their clients, and the policies and
practices of a number of brokerage houses tend to discourage individual brokers
within those firms from dealing in lower price stocks. Also, the brokerage
commission on the purchase or sale of a stock with a relatively low per share
price generally tends to represent a higher percentage of the
-9-
<PAGE> 12
sales price than the brokerage commission charged on a stock with a relatively
high per share price, to the detriment of the holders of the Common Stock and
the market for the Common Stock. The Board of Directors believes that these
issues are best addressed by an increase in the price per share of Common Stock
that is anticipated as a result of the Reverse Split, and that it is unlikely
that the Company will be able to successfully apply for listing on Nasdaq or an
exchange without the Reverse Split.
The Company is not aware of any present efforts by any person to
accumulate a block of the Common Stock, and the Reverse Split is not intended to
prevent or deter a non-negotiated change in control of the Company.
ADDITIONAL CONSIDERATIONS. There can be no assurance that the price of
the Common Stock will rise following the Reverse Split, or that such price, if
it does rise, will rise in proportion to the Reverse Split or will continue to
escalate or be sustained for a significant period. In addition, there can be no
assurance that listing on Nasdaq or a national or regional exchange will be
obtained. Nevertheless, the Board of Directors believes that shareholder
approval of the Amendment to effect the Reverse Split is in the best interest of
the Company and the shareholders and is advisable at this time.
GENERAL EFFECT OF REVERSE SPLIT. The New Common Stock will not be
different from the Common Stock and the holders of the New Common Stock or
options to purchase the New Common Stock will have the same relative rights
following the Effective Date as they had prior to the Reverse Split.
The effect of the Reverse Split on the aggregate number of shares of
the Common Stock as of October 16, 1998 is set forth in the table below. Except
for the following data, the Reverse Split will not have any effect on the
shareholders' equity section of the Company's balance sheet.
<TABLE>
<CAPTION>
Prior to
Proposed After Proposed
Reverse Split Reverse Split
----------------------- ----------------------
Number of Shares
Common Stock
<S> <C> <C>
Authorized 100,000,000 33,000,000
Issued and Outstanding (1) 7,542,500 2,489,025
Available for Issuance 92,357,500 30,477,975
Par Value Per Share $.01 $.03
</TABLE>
(1) The number of shares issued and outstanding as of October 16, 1998.
Does not include 100,000 shares held by the Company as treasury stock.
Shares issued and outstanding after the Reverse Split do not reflect
any adjustments that may result from the repurchase of fractional
shares.
-10-
<PAGE> 13
EFFECT ON REGISTRATION. The Common Stock is currently registered under
Section 12(g) of the Exchange Act, and as a result, the Company is subject to
the periodic reporting and other requirements of the Exchange Act. The Reverse
Split will not affect the registration of the Common Stock under the Exchange
Act.
EFFECT ON THE MARKET FOR THE COMMON STOCK. The Company's Annual Report
on Form 10-KSB for the year ended July 31, 1998 sets forth the high and low bid
quotations for shares of Common Stock for each quarter within the last two
fiscal years, as reported by the OTC Electronic Bulletin Board.
The Company anticipates that after the Effective Date, the market price
of shares of New Common Stock will rise as a result of the decrease in the
number of shares outstanding. However, it cannot be predicted whether any
increase in market price will be in proportion to the Reverse Split. If the
market price of the Common Stock were not to adjust proportionately, a
significant loss of aggregate market value of the outstanding Common Stock could
result. In addition, a Reverse Split reduces the number of shares of Common
Stock outstanding, thereby adversely affecting liquidity and possibly depressing
the price of the Common Stock.
Following the Reverse Split, and until the Common Stock is listed on
Nasdaq or a national or regional exchange, the Company believes that trading in
New Common Stock will continue in the over-the-counter market in transactions
handled through the market makers of the Common Stock.
Holders of Common Stock are entitled to receive such dividends as may
be declared by the Company's Board of Directors. No dividends have ever been
paid on the Common Stock. The Company presently intends to retain all future
earnings for the expansion of its business and consequently does not presently
intend to pay any cash dividends on the Common Stock or the New Common Stock.
EFFECT ON OPTIONS. If the Reverse Split is approved by the shareholders
at the Meeting, the number of shares that may be issued under the Sel-Drum
International, Inc. 1995 Employee and Non-Employee Director Stock Option, and
the number of shares issuable upon the exercise of any options outstanding on
the Effective Date will be decreased in proportion to the Reverse Split.
Conversely, the exercise price per share of any such outstanding option will be
proportionately increased on the Effective Date. Any such outstanding option
will be rounded to the nearest whole share, and no cash payment will be made in
respect of any fractional share so rounded.
EXCHANGE OF STOCK CERTIFICATES AND LIQUIDATION OF FRACTIONAL SHARES. As
soon as practicable after the Effective Date, the shareholders will be notified
and requested to surrender their certificates representing shares of Common
Stock to the Company's transfer agent so that certificates representing the
appropriate number of shares of New Common Stock, together with a cash payment
in lieu of any fractional share, may be issued in exchange therefor.
FEDERAL INCOME TAX CONSEQUENCES. A summary of the principal federal
income tax consequences of the proposed Reverse Split is set forth below. The
following discussion is based upon present federal tax law and does not purport
to be a complete discussion of such consequences for all shareholders in all
circumstances, nor does it address state, local or foreign tax consequences
-11-
<PAGE> 14
or considerations. ACCORDINGLY, SHAREHOLDERS ARE ADVISED TO CONSULT THEIR OWN
TAX ADVISORS FOR MORE DETAILED INFORMATION REGARDING THE EFFECTS OF THE PROPOSED
REVERSE SPLIT ON THEIR INDIVIDUAL TAX STATUS.
1. The proposed Reverse Split will not be a taxable transaction to the
Company.
2. A shareholder will not recognize any gain or loss as a result of the
Reverse Split unless the shareholder receives cash in lieu of a fractional
share. The position taken by the Internal Revenue Service ("IRS") has varied
from time to time with respect to the receipt of cash in lieu of a fractional
share. Under certain circumstances, the IRS has treated such receipt as a
dividend. However, because the payment of cash in lieu of a fractional share of
stock is being done for administrative convenience and does not represent
separately bargained for consideration, the Company believes it is appropriate
for a minority shareholder to treat such receipt of cash as a gain or loss equal
to the difference in the amount received and his or her adjusted basis in the
fractional share. Such gain or loss will be capital in nature if the stock is
held as a capital asset on the day of the payment of cash.
3. The aggregate tax basis of the New Common Stock received by a
shareholder pursuant to the Reverse Split will equal the aggregate tax basis of
the shareholder's Common Stock prior to the Effective Date (except that such
basis will be reduced by any basis allocated to a fractional share redeemed by
the Company with respect to which the shareholder recognizes gain or loss as
described in Paragraph 2 above). The holding period of the New Common Stock
received by the shareholder will include the holding period of the shareholder's
Common Stock before the Reverse Split, provided the shares of Common Stock were
a capital asset in the hands of such shareholder.
Special taxation and withholding rules may apply to any
shareholder that is a non-resident alien or a foreign corporation. Those rules
are beyond the scope of this discussion and should be discussed with a personal
tax advisor. Shareholders will be required to provide their social security or
other taxpayer identification numbers (or, in some instances, certain other
information) to the transfer agent in connection with the Reverse Split to avoid
backup withholding requirements that might otherwise apply in connection with
the receipt of cash in lieu of fractional shares. See "Exchange of Certificates
and Liquidation of Fractional Shares." The letter of transmittal will require
each shareholder to deliver such information when the Common Stock certificates
are surrendered following the Effective Date. Failure to provide such
information may result in backup withholding.
NO DISSENTERS' RIGHTS. Under New York law, shareholders are not
entitled to dissenters' rights with respect to the Reverse Split.
REQUIRED VOTE AND BOARD RECOMMENDATION
The affirmative vote of a majority of the votes entitled to vote at the
Meeting is required for the approval and adoption of the Certificate of
Amendment to effect the Reverse Split. The Board of Directors recommends a Vote
in favor of this proposal, and the persons named in the enclosed proxy (unless
otherwise instructed therein) will vote such proxies FOR such proposal.
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<PAGE> 15
PROPOSAL TO APPROVE AND RATIFY AN AMENDMENT TO
THE STOCK OPTION PLAN
TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR OPTION GRANTS
BACKGROUND OF PLAN AND DESCRIPTION OF AMENDMENT
On November 24, 1995, the Company's shareholders approved the 1995
Employee and Non-Employee Director Stock Option Plan (the "1995 Plan"). The 1995
Plan is designed to create an incentive for key employees, non-employee
directors and advisors of the Company and its subsidiaries to remain in the
employ of the Company and its subsidiaries and to contribute to their success by
providing the opportunity for stock ownership.
As of the date hereof, options to purchase 500,000 shares of the
Company's Common Stock have been granted under the 1995 Plan, of which 166,667
are presently exercisable. As of the date hereof, no options to purchase any
shares have been exercised.
The shares underlying options granted under the 1995 Plan and to Mr.
Sparks (See "EXECUTIVE COMPENSATION -- Stock Options") have been registered with
the Securities and Exchange Commission on the Company's Registration Statement
on Form S-8 (Registration No. 333-57885).
The Company has adopted a policy of granting options to purchase shares
of Common Stock to non-employee directors and a large number of key employees at
various levels of employment, and the Board of Directors believes that such
grants have helped to motivate the Company's non-employee directors and
employees to excel in their work by aligning their prospects with those of the
Company's shareholders. In furtherance of this policy, the Company has to date
granted to 64 key employees and 1 non-employee director, options to purchase an
aggregate of 500,000 shares of Common Stock currently available under the 1995
Plan, leaving no shares remaining for future grants. (Of the 40,000 shares
underlying the option granted to Robert M. Orr, one of the Company's
non-employee directors, 31,000 shares are subject to a conditional grant, which
is conditioned upon shareholder approval of this Amendment to the 1995 Plan).
Therefore, the Company is presently unable to make significant additional option
grants to new key employees, or as further incentive to existing key employees.
The Board of Directors believes that increasing the number of shares available
for options granted under the 1995 Plan will assist the Company in continuing to
attract, hire, retain and motivate superior employees and directors and thus
continue to contribute to the success of the Company.
On April 24, 1998, in an effort to ensure that the Company continues to
receive the benefits of the 1995 Plan, the Board of Directors approved and
adopted Amendment No. 1 to the 1995 Plan, which amends Section 4 of the Option
Plan to increase the number of shares of Common Stock available for option
grants thereunder from 500,000 to 700,000, and directed that Amendment No. 1 be
submitted to shareholders for their approval and ratification at the Meeting.
-13-
<PAGE> 16
DESCRIPTION OF OPTION PLAN AS PROPOSED TO BE AMENDED
The following is a summary of the principal features of the Option
Plan.
INCREASE OF SHARES AVAILABLE. The 1995 Plan currently provides for the
granting of stock options to purchase up to an aggregate of 500,000 shares of
Common Stock (subject to adjustment as described below). If any option granted
under the 1995 Plan is cancelled, expires or terminates without having been
exercised in full, shares subject to the unexercised portion of such option may
again be available for other option grants under the 1995 Plan. Amendment No. 1
to the 1995 Plan, if approved by the shareholders, would increase the number of
shares of Common Stock available for option grants thereunder from 500,000 to
700,000.
NATURE OF OPTIONS. The Company may grant under the 1995 Plan both
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, ("Incentive Stock Options") and stock options
that do not qualify for treatment as Incentive Stock Options ("Nonstatutory
Stock Options"). The Company receives no consideration for the grant of any
options under the 1995 Plan.
TERM. If not previously terminated upon the dissolution of the Company
or upon the adoption of an amendment to terminate, the 1995 Plan will
terminate on November 23, 2005.
ADMINISTRATION. The 1995 Plan is administered by the Stock Option
Committee of the Board (the "Committee"). Two members of the Committee must be
disinterested directors within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended. Subject to the express provisions
of the 1995 Plan, the Committee has authority in its discretion and without
limitation: (i) to determine the recipients of options, whether an option is
intended to be an Incentive Stock Option or Nonstatutory Stock Option, the times
of option grants, the number of shares subject to each option, the exercise
price of each option, the term of each option, the date(s) when each option
becomes exercisable, and the vesting schedule (if any) of each option, (ii) to
accelerate the vesting of any option, irrespective of its vesting schedule, and
(iii) to make all other determinations necessary or advisable for administering
the 1995 Plan, which determinations will be final and binding on all persons.
ELIGIBILITY. Options under the 1995 Plan may be granted to those
persons selected from time to time by the Committee from the full-time employees
of the Company and its subsidiaries, including employees who are also officers
of the Company and non-employee directors. As of October 16, 1998, the Company
had approximately 68 full-time employees.
TERMS AND CONDITIONS OF OPTIONS; OPTION PRICE. Except as described
below, the option price is determined by the Committee, and the term of the
option, which is determined by the Committee, may not exceed ten years from the
grant date.
Notwithstanding the foregoing, in the case of an Incentive Stock Option
granted to any person owning stock possessing more than 10% of the voting power
of the Company, the option price must be at least 110% of the fair market value
of the Common Stock on the grant date, and the term of the option may not exceed
five years from the grant date. In addition, the aggregate fair
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<PAGE> 17
market value (determined as of the grant date) of the shares with respect to
which Incentive Stock Options are exercisable for the first time by any
optionee during any calendar year may not exceed $100,000.
An optionee may pay for the shares subject to the option by one or any
combination of the following methods, as determined by the Committee on the
option grant date: (i) in cash, or (ii) by delivery of shares of Common Stock
(valued at its then market value) already owned by the optionee.
NON-TRANSFERABILITY; EFFECT OF DEATH OR TERMINATION OF EMPLOYMENT.
During the lifetime of an optionee, an option may be exercised only by the
optionee. Options that are not exercisable as of the date of death or
termination of employment terminate, and options that are exercisable as of the
date of death or termination of employment lapse within stated periods following
the death or termination of the optionee's employment with the Company. During
the lifetime of an optionee, options issued under the 1995 Plan may not be
transferred, whether voluntarily or otherwise.
VESTING ACCELERATION. Under the 1995 Plan, all outstanding options not
then exercisable become immediately exercisable in full upon the occurrence of
certain defined events constituting a change in control of the Company.
ADJUSTMENTS. In the event of a merger, consolidation, recapitalization,
stock split or similar event, the aggregate number and kind of shares available
for options under the 1995 Plan, and the number and kind of shares covered by
each outstanding option and the per share exercise price thereof, will be
appropriate adjusted by the Committee.
AMENDMENTS. The Board of Directors, without further shareholder
approval, may at any time further amend the 1995 Plan, provided that (except for
amendments made pursuant to the adjustment provisions described above), no
amendment may be made without the approval of the shareholders which would: (i)
increase the maximum number of shares that may be issued under the 1995 Plan;
(ii) materially modify the eligibility requirements for participation; (iii)
materially increase the benefit accruing to participants; or (iv) amend the
requirements of (i), (ii) and (iii). In the event that any amendment to the 1995
Plan so requires approval by the shareholders, prior to such approval, the
Committee may grant conditional options, which may not be exercised, transferred
or encumbered prior to such approval, and which will be automatically cancelled
if the shareholders fail to approve such amendment at their next meeting.
SECURITIES ACT REGISTRATION. The Company has filed with the SEC a
Registration Statement on Form S-8 registering the 500,000 shares currently
issuable upon exercise of options granted under the 1995 Plan and the
nonstatutory option granted to Mr. Sparks. If Amendment No. 1 to the 1995 Plan
is approved and ratified by the shareholders at the Meeting, the Company intends
to register the additional shares issuable upon exercise of options granted and
to be granted under the 1995 Plan, pursuant to a Registration Statement on Form
S-8, as soon as practicable.
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<PAGE> 18
FEDERAL INCOME TAX CONSEQUENCES. The following summarizes the federal
income tax consequences to participants and the Company of the grant and
exercise of Nonstatutory Stock Options and Incentive Stock Options under the
1995 Plan. This discussion is merely a summary and does not purport to be a
complete description of the federal income tax consequences of the 1995 Plan.
This description does not cover state and local tax treatment of participation
in the 1995 Plan.
NONSTATUTORY STOCK OPTIONS: The grant of a Nonstatutory Stock Option
under the 1995 Plan will not result in the recognition of gross income to the
optionee or a deduction to the Company at the time of the grant. Upon the
exercise of a Nonstatutory Option, the optionee will recognize ordinary income
for federal income tax purposes in an amount equal to the excess of the fair
market value of the shares purchased over the exercise price, unless he could be
subject to liability under Section 16(b) of the Exchange Act if he were to sell
the shares at a profit at such time, in which case, unless the optionee makes a
special election under the Code within 30 days after exercise to be taxed upon
exercise, the optionee will recognize ordinary income at the time he is no
longer subject to liability under Section 16(b) of the Exchange Act.
The Company is required to withhold tax on the amount of
income recognized by the optionee and is entitled to a tax deduction equal to
the amount of such income for the fiscal year of the Company in which ends the
taxable year of the optionee in which such amount is included in the optionee's
gross income.
Subject to certain limitations on the deductibility of capital
losses, if an optionee disposes of any shares acquired upon the exercise of a
Nonstatutory Stock Option, the optionee will recognize a capital gain or loss
equal to the difference between the fair market value of such shares at the time
ordinary income was recognized and the amount realized on disposition of such
shares. The gain or loss will be either long-term or short-term, depending on
whether the shares have been held for more than 12 months from the date of
exercise. The Company is not entitled to any tax deduction in connection with
such disposition of shares. Short-term capital gain is taxed at ordinary income
rates and long-term capital gain is taxed at a maximum rate of 20%.
INCENTIVE STOCK OPTIONS: In general, no income will be recognized by
the optionee and no deduction will be allowed to the Company at the time of the
grant or exercise of an Incentive Stock Option. The difference between the
exercise price and the fair market value of the shares on the date the Incentive
Stock Option is exercised is, however, an item of tax preference to the optionee
for purposes of the alternative minimum tax. Depending upon the optionee's
individual tax circumstances, there may be minimum tax liability in the year of
exercise as a result of the tax preference item. Further, depending upon the
optionee's individual tax circumstances, a credit against regular tax
corresponding to this minimum tax liability may be allowed in a subsequent year.
In computing alternative minimum taxable income in the year in which the
optionee disposes of shares acquired through the exercise of an Incentive Stock
Option, the basis of the shares so acquired will be increased by the excess of
the fair market value of the shares on the date of exercise over the exercise
price.
Subject to certain limitations on deductibility of capital
losses, when the shares acquired upon exercise of an Incentive Stock Option are
sold, the optionee will recognize long-term capital gain or loss equal to the
difference between the amount realized and the exercise price of the Incentive
Stock Option, provided that the sale of the shares is not made within two years
from the
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<PAGE> 19
date of grant of the Incentive Stock Option or within one year of the date of
issuance of such shares to the optionee. If such holding period requirements of
the Code are not met, the sale of the shares acquired upon exercise of an
Incentive Stock Option is a "disqualifying disposition" and, in general, at the
time of such disposition, the optionee will recognize (i) ordinary income in an
amount equal to the difference between the exercise price and the lesser of the
fair market value of the shares on the date the Incentive Stock Option is
exercised or the amount realized on such disqualifying disposition, and (ii)
capital gain to the extent the amount realized on such disqualifying disposition
exceeds the fair market value of the shares on the date the Incentive Stock
Option is exercised. Alternatively, if the amount realized on such disqualifying
disposition is less than the exercise price, the optionee will recognize a
capital loss in the amount of the difference. Any capital gain or loss will be
long-term or short-term depending upon the holding period of the shares sold.
Short-term capital gain is taxed at ordinary income rates and long-term capital
gains is taxed at a maximum rate of 20%. In the event of a disqualifying
disposition, the Company may claim a deduction in the taxable year of the
disqualifying disposition equal to the amount taxable to the optionee as
ordinary income. In the absence of any disqualifying disposition, the Company is
denied any deduction in respect of shares transferred upon the exercise of an
Incentive Stock Option.
NEW PLAN BENEFITS
Each of the Named Executives and other executive officers of the
Company is eligible to be granted options under the 1995 Plan if Amendment No. 1
to the 1995 Plan is approved by the shareholders. The following table sets forth
the amount and dollar value of all option grants actually received to date under
the 1995 Plan by certain groups of individuals. To date, the Named Executives
have not been granted any options under the 1995 Plan. The benefits or amounts
to be received by or allocated to the Named Executives or such groups in the
future are not determinable, because option grants under the 1995 Plan are in
the discretion of the Committee.
SEL-DRUM INTERNATIONAL, INC. 1995 PLAN
<TABLE>
<CAPTION>
DOLLAR VALUE NUMBER
NAME AND POSITION ($) (1) OF UNITS
------------------ -------------
<S> <C> <C>
ALL EXECUTIVE OFFICERS $ 9,380 50,000
ALL DIRECTORS WHO ARE NOT EXECUTIVE OFFICERS $ 7,540(2) 40,000(2)
ALL EMPLOYEES WHO ARE NOT
EXECUTIVE OFFICERS OR DIRECTORS $82,732 441,000
</TABLE>
(1) Expressed as the excess of the market value of the Common
Stock at July 31, 1998 ($.6876 per share) over the exercise
price of each option.
(2) On April 24, 1998, Mr. Orr was granted an option to purchase
40,000 shares at an exercise price of $.50 per share. The
option is vested with respect to 20,000 shares, and is
presently exercisable by Mr. Orr with respect to 9,000 of such
shares. Of the 40,000 shares underlying Mr. Orr's option,
31,000 shares are subject to a conditional grant, which is
conditioned upon shareholder approval of the amendment to the
1995 Plan which increases the authorized number of shares
available for grants under the Plan from 500,000 to 700,000.
-17-
<PAGE> 20
REQUIRED VOTE AND BOARD RECOMMENDATION
The affirmative vote of at least a majority of the votes cast, in
person or by proxy, at the Meeting by shareholders is required for the approval
and ratification of Amendment No. 1 to the 1995 Plan. The Board of Directors
recommends a vote in favor of this proposal, and the persons named in the
enclosed proxy (unless otherwise instructed therein) will vote such proxies FOR
such proposal.
SELECTION OF INDEPENDENT AUDITORS
The firm of Mengel, Metzger, Barr & Co. LLP, certified public
accountants, served as the independent auditors of the Company for Fiscal 1998.
The Board of Directors has selected Mengel, Metzger, Barr & Co. LLP as
the Company's independent auditors for the fiscal year ending July 31, 1999.
This selection will be presented to the shareholders for their approval at the
Meeting. The Board of Directors recommends a vote in favor of the proposal to
approve and ratify this selection, and the persons named in the enclosed proxy
(unless otherwise instructed therein) will vote such proxies FOR such proposal.
If the shareholders do not approve this selection, the Board of Directors will
reconsider its choice.
The Company has been advised by Mengel, Metzger, Barr & Co. LLP that a
representative will be present at the Meeting and will be available to respond
to appropriate questions. In addition, the Company intends to give such
representative an opportunity to make any statements if he should so desire.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
In order for any shareholder proposal to be included in the Company's
proxy statement to be issued in connection with the 1999 Annual Meeting of
Shareholders, such proposal must be received by the Company no later than
July 17, 1999.
OTHER MATTERS
The Board of Directors does not know of any other matters that are to
be presented for action at the Meeting. Should any other matter come before the
Meeting, however, the persons named in the enclosed proxy will have
discretionary authority to vote all proxies with respect to such matter in
accordance with their judgment.
BY ORDER OF THE BOARD OF DIRECTORS
Brian F. Turnbull
Chairman of the Board
Dated: November 16, 1998
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<PAGE> 21
Appendix A
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
SEL-DRUM INTERNATIONAL, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
The undersigned, Raymond C. Sparks and James M. Jenkins, being the
President and the Assistant Secretary, respectively, of Sel-Drum International,
Inc., hereby certify that:
A. The name of the Corporation is Sel-Drum International, Inc.
B. The Certificate of Incorporation of the Corporation was filed by the
Department of State on November 21, 1997.
C. The Certificate of Incorporation of the Corporation is hereby
amended to effect the amendment specified below, which is authorized by the
Business Corporation Law:
Paragraph 4 of the Certificate of Incorporation is hereby
amended to decrease the aggregate number of shares which the
Corporation shall have the authority to issue from 110,000,000 shares,
consisting of 100,000,000 shares of Common Stock, par value $.01 per
share and 10,000,000 shares of Preferred Stock, par value to $.01 per
share, to 36,300,000 shares, consisting of 33,000,000 shares of Common
Stock, $.03 par value per share and 3,300,000 shares of Preferred
Stock, $.03 par value per share, so that said Paragraph 4 shall provide
in its entirety as follows:
"4. The aggregate number of shares which the Corporation shall
have authority to issue is thirty six million three hundred thousand
(36,300,000) shares, of which a portion shall be common stock and a portion
shall be preferred stock, all as described below.
A. COMMON STOCK. The aggregate number of common shares which
the Corporation shall have the authority to issue is thirty three million
(33,000,000), each with a par value of $.03 per share, which shares shall be
designated "Common Stock." Subject to all the rights of the Preferred Stock as
expressly provided herein or by law, the Common Stock of the Corporation shall
possess all such rights and privileges as are afforded to capital stock by
applicable law.
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<PAGE> 22
B. PREFERRED STOCK. The aggregate number of preferred shares
which the Corporation shall have the authority to issue is three million three
hundred thousand (3,300,000) shares, each with a par value of $.03 per share,
which shares shall be designated "Preferred Stock". Shares of Preferred Stock
may be issued from time to time in one or more series as determined by the Board
of Directors. The Board of Directors is hereby authorized, by resolution or
resolutions, to provide from time to time, out of the unissued shares of
Preferred Stock not then allocated to any series of Preferred Stock, for a
series of the Preferred Stock. Each such series shall have distinctive serial
designations. Before any shares of any such series of Preferred Stock are
issued, the Board of Directors shall fix and determine, and is hereby expressly
empowered to fix and determine by resolution or resolutions, the voting powers,
full or limited, or no voting powers, and the designations, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations and restrictions thereof. Before the issue of any
shares of a series established by the Board, a Certificate of Amendment amending
the Certificate of Incorporation adding a provision stating the number,
designation, relative rights, preferences, and limitations of the shares of the
series as fixed by the Board, will be filed as required by applicable law.
The Corporation is presently authorized to issue 100,000,000 shares of
Common Stock, $.01 par value, of which 7,542,500 shares are issued and
outstanding; 100,000 shares of Common Stock, $.01 par value are held as treasury
shares. The 7,542,500 shares of Common Stock, $.01 par value which are presently
issued and outstanding shall be changed into 2,489,025 shares of Common Stock,
$.03 par value at the rate of 0.33 share of Common Stock, par value $.03 for
each share of Common Stock, $.01 par value. The 100,000 shares of Common Stock,
$.01 par value held as treasury shares shall be changed into 33,000 shares of
Common Stock, $.03 par value. The 92,357,500 shares of Common Stock, $.01 par
value which are presently authorized but unissued shall be changed into
30,477,975 shares of authorized but unissued shares of Common Stock, $.03 par
value at the rate of 0.33 share of Common Stock, $.03 par value for each share
of Common Stock, $.01 par value.
D. This Amendment of the Certificate of Incorporation was authorized by
the vote of the Board of Directors of the Corporation, followed by the vote of
the holders of at least a majority of all outstanding shares entitled to vote
thereon at a meeting of shareholders of the Corporation.
IN WITNESS WHEREOF, we have signed this Certificate this __ day of
___________________, 199_, and hereby affirm the truth of the statements
contained herein under penalties of perjury.
------------------------
Raymond C. Sparks,
President
-------------------------
James M. Jenkins,
Assistant Secretary
<PAGE> 23
PROXY
SEL-DRUM INTERNATIONAL, INC.
The undersigned hereby appoints RAYMOND C. SPARKS and JOHN C. HALL,
and each of them, proxies for the undersigned with full power of
substitution, to vote all shares of the Common Stock of SEL-DRUM
INTERNATIONAL, INC. (the "Company") owned by the undersigned at the
Annual Meeting of Shareholders to be held at the Venture Inn
Burlington-on-the-Lake, 2020 Lakeshore Road, Burlington, Ontario,
Canada L7S 1Y2, on Tuesday, December 1, 1998 at 1:00 p.m., local time,
and at any adjournment or adjournments thereof.
1. Election of Directors.
<TABLE>
<S> <C>
[ ]FOR all nominees listed below [ ]WITHHOLD AUTHORITY
(except as marked to the contrary). to vote for all nominees listed below.
</TABLE>
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THOUGH THE NOMINEE'S NAME LISTED BELOW.
Robert E. Asseltine Brian F. Turnbull Robert M. Orr
2. Proposal to approve and adopt a Certificate of Amendment of the
Company's Certificate of Incorporation to effect a reverse stock
split of up to 0.33-for-one.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to approve and ratify an amendment to the Sel-Drum
International, Inc. 1995 Employee and Non-Employee Director Stock
Option Plan to increase the number of shares available for option
grants under the Plan from 500,000 to 700,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to approve and ratify the selection of Mengel, Metzger,
Barr & Co. LLP as the Company's independent auditors for the year
ending July 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the Meeting.
(Continued and to be signed on reverse side)
(Continued from other side)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE
COMPANY. This Proxy will be voted as specified by the undersigned.
This proxy revokes any prior proxy given by the undersigned. UNLESS
AUTHORITY TO VOTE FOR ONE OR MORE OF THE NOMINEES IS SPECIFICALLY
WITHHELD ACCORDING TO THE INSTRUCTIONS, A SIGNED PROXY WILL BE VOTED
FOR THE ELECTION OF THE NOMINEES FOR DIRECTORS AND, UNLESS OTHERWISE
SPECIFIED, FOR EACH OF THE OTHER THREE PROPOSALS LISTED HEREIN AND
DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT. The undersigned
acknowledges receipt with this Proxy of a copy of the Notice of Annual
Meeting and Proxy Statement dated November 16, 1998, describing more
fully the proposals set forth herein.
Dated , 1998
------------------------------
------------------------------
Signature(s) of shareholder(s)
PLEASE DATE AND SIGN NAME
EXACTLY AS IT APPEARS HEREON.
EXECUTORS, ADMINISTRATORS,
TRUSTEES, ETC. SHOULD SO
INDICATE WHEN SIGNING. IF THE
SHAREHOLDER IS A CORPORATION,
THE FULL CORPORATE NAME SHOULD
BE INSERTED AND THE PROXY
SIGNED BY AN OFFICER OF THE
CORPORATION, INDICATING HIS
TITLE.
