<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
MotorVac Technologies, 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)(4) 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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5. Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
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paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
6. Amount Previously Paid:
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9. Date Filed:
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MOTORVAC TECHNOLOGIES, INC.
1431 SOUTH VILLAGE WAY
SANTA ANA, CALIFORNIA 92705
(714) 558-4822
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, MAY 13, 1999
AND NOTICE OF STOCKHOLDER ACTION BY WRITTEN CONSENT
TO THE STOCKHOLDERS OF MOTORVAC TECHNOLOGIES, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of MOTORVAC
TECHNOLOGIES, INC., a Delaware corporation (the "Company"), will be held on
Thursday, May 13, 1999 at 2:00 p.m., local time, at the Crown Plaza Hotel,
located at 17941 Von Karman Avenue, Irvine, California 92614 for the following
purpose:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To approve the Company's 1998 Employee Stock Purchase Plan.
3. To approve the Company's 1998 Stock Compensation Plan.
4. To ratify the selection of Deloitte & Touche LLP as independent auditors
of the Company for its fiscal year ending December 31, 1999.
5. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
Notice is also hereby given that in March 1999, holders of a majority of
the Company's Common Stock approved, by written consent, an amendment to the
Company's 1996 Stock Incentive Award Plan, as amended ("1996 Plan"), to increase
the number of shares authorized under the 1996 Plan from 325,000 to 550,000.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on March 30, 1999,
as the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
DAVID P. NELSON
Secretary
Santa Ana, California
April 13, 1999
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 3
MOTORVAC TECHNOLOGIES, INC.
1431 SOUTH VILLAGE WAY
SANTA ANA, CALIFORNIA 92705
(714) 558-4822
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 13, 1999
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
MotorVac Technologies, Inc., a Delaware corporation (the "Company"), for use at
the Annual Meeting of Stockholders to be held on Thursday, May 13, 1999, at 2:00
p.m. local time (the "Annual Meeting"), or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting. The Annual Meeting will be held at the Crown Plaza Hotel,
located at 17941 Von Karman Avenue, Irvine, California 92614. The Company
intends to mail this proxy statement and accompanying proxy card on or about
April 13, 1999, to all stockholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company.
No additional compensation will be paid to directors, officers or other regular
employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on March
30, 1999 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on March 30, 1999, the Company had outstanding and entitled to
vote 4,464,918 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 1431 South
Village Way, Santa Ana, California 92705, a written notice of revocation or a
duly executed
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proxy bearing a later date, or it may be revoked by attending the meeting and
voting in person. Attendance at the meeting will not, by itself, revoke a proxy.
STOCKHOLDER PROPOSALS
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2000 annual
meeting of stockholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission is December 15, 1999. Unless a stockholder who wishes to bring a
matter before the stockholders at the Company's 2000 annual meeting of
stockholders notifies the Company of such matter prior to February 28, 2000,
management will have discretionary authority to vote all shares for which it has
proxies in opposition to such matter.
PROPOSAL 1
ELECTION OF DIRECTORS
There are six nominees for the nine Board positions presently authorized in
the Company's Bylaws. Each director to be elected will hold office until the
next annual meeting of stockholders and until his successor is elected and has
qualified, or until such director's earlier death, resignation or removal. Each
nominee listed below is currently a director of the Company, all directors
having been elected by the stockholders. Three vacancies on the Board will
remain after the Annual Meeting. The Board intends to fill these vacancies with
suitable candidates when they are found.
Shares represented by executed proxies will be voted, if authority to do so
is not withheld, for the election of the six nominees named below. In the event
that any nominee should be unavailable for election as a result of an unexpected
occurrence, such shares will be voted for the election of such substitute
nominee as management may propose. Each person nominated for election has agreed
to serve if elected and management has no reason to believe that any nominee
will be unable to serve.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote.
NOMINEES
The names of the nominees and certain information about them are set forth
below:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
---- --- --------------------
<S> <C> <C>
Grant Ferrier(1)(3)........ 37 President, Environmental Business
International, Inc.
Stephen L. Greaves (2)..... 40 President and General Manager, Erin Mills
International Investment Corporation
Lee W. Melody.............. 57 President and Chief Executive Officer,
MotorVac Technologies, Inc.
Ronald J. 59 Chairman of the Board, MotorVac
Monark(1)(2)(3).......... Technologies, Inc.
Gerald C. Quinn(1)(3)...... 50 President, The Erin Mills Investment
Corporation
Daniel P. Whelan(2)........ 48 President and Chief Executive Officer,
Evergreen Holdings, Inc.
</TABLE>
- ---------------
(1) Member of Nominating Committee of the Board of Directors.
(2) Member of Audit Committee of the Board of Directors.
(3) Member of Compensation Committee of the Board of Directors.
Grant Ferrier. Mr. Ferrier has been a member of the Board of Directors of
the Company since January 1998. Since 1988, Mr. Ferrier has been President and
Chief Executive Officer of Environmental Business
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International, Inc., a business research, management consulting and publishing
company serving the environmental industry. Mr. Ferrier also serves as Chief
Executive Officer of Nutrition Business International LLC. Mr. Ferrier holds
B.S. degrees in Mechanical Engineering and Conservation and Resource Studies
from the University of California, Berkeley.
Stephen L. Greaves. Mr. Greaves has been a member of the Board of Directors
of the Company since August 1994. Mr. Greaves has served as General Manager and
a director of Erin Mills International Investment Corporation ("EMIIC") since
March 1993, and was appointed President in February 1997. Mr. Greaves also
serves as President of Imperial Trading Limited. Between September 1985 and
December 1991, Mr. Greaves held key marketing positions with ESSO, Standard
Oil's regional office in Barbados. From January 1992 to February 1993, he was a
self-employed marketing consultant. Mr. Greaves is also a director of
Highwaymaster Communications, Inc., a manufacturer and distributor of cellular
truck tracking systems, and several private companies. Mr. Greaves holds a B.A.
in Economics from the University of Western Ontario, London, Canada, and an MBA
in Marketing/Finance from Concordia University, Montreal, Canada.
Lee W. Melody. Mr. Melody joined the Company in October 1994 as Vice
President -- Marketing, assumed the position of Chief Operating Officer in
December 1994, was appointed President effective March 1, 1995 and was appointed
Chief Executive Officer in February 1997. Mr. Melody has been a member of the
Board of Directors of the Company since March 1995. Mr. Melody's prior
experience involved sales, marketing and manufacturing. Prior to joining the
Company, from March 1993 to July 1994, Mr. Melody was a principal in an
automotive after-market franchise and Mr. Melody was President and CEO of
McGuire Nicholas, a consumer goods product company in hardware sales, from
October 1991 to February 1993. Prior to that time, he was Vice President of
Marketing and Sales of RSI Home Products, a manufacturer of bath products,
vanities and medicine cabinets, from January 1990 to December 1990, and Senior
Vice President of Allegretti & Company, a manufacturer of electrical lawn and
garden products, from 1987 to 1990. Mr. Melody served in the U.S. Navy Submarine
Service from 1960 to 1966 and graduated from the Executive Program of the UCLA
Graduate School of Management in 1989.
Ronald J. Monark. Mr. Monark, currently an independent consultant, has been
a member of the Board of Directors of the Company since May 1997 and has served
as Chairman of the Board of Directors of the Company since November 1997. From
January 1, 1997 to December 31, 1997, Mr. Monark served on the Managing
Committee and was President and Chief Executive Officer of Mitchell Repair
Information Company LLC, a limited liability company jointly-owned by Snap-on,
Inc. and The Thomson Corporation. From June 1989 to December 1996, Mr. Monark
was President and Chief Executive Officer of Mitchell International, an
automotive information company. Mr. Monark's previous experience includes
positions with KLM Automotive Publishing, Inc., an automotive publishing
company, and Morgan Yacht, a yacht builder, division of Beatrice Foods, and five
years as a Management Consultant with McKinsey & Company and Peat, Marwick,
Mitchell. Mr. Monark graduated Phi Beta Kappa from the College of William and
Mary in Williamsburg, Virginia, and holds an MBA from the University of Chicago.
Gerald C. Quinn. Mr. Quinn has been a member of the Board of Directors of
the Company since August 1992, and served as Chairman of the Board of Directors
of the Company until November 1997. Mr. Quinn is President of The Erin Mills
Investment Corporation ("TEMIC") and Executive Vice President of The Erin Mills
Development Corporation ("EMDC") and has been since 1989. TEMIC is associated
with EMDC by way of common ownership and was formed by five of Toronto's largest
land developers and builders. In 1989, the owners of EMDC decided to diversify
their investments and formed TEMIC. TEMIC is a private corporation with over
$100 million in venture capital investments. Mr. Quinn is a Chartered Accountant
and has a B.S. in Chemistry. He is a former partner in the Insolvency Practice
of Ernst & Young and, prior to joining TEMIC and EMDC, was a senior officer of
two publicly-traded corporations. Mr. Quinn is also a director of EMIIC, Synsorb
Biotech, Inc., a biotechnology research and development company, and
Highwaymaster Communications, Inc.
Daniel P. Whelan. Mr. Whelan has been a member of the Board of Directors of
the Company since January 1998. Since 1996, Mr. Whelan has been President and
Chief Executive Officer of Evergreen Holdings, Inc. ("Evergreen"), a
privately-held company that refines used motor oil. From 1995 to 1996,
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Mr. Whelan served as Vice President and Chief Financial Officer of Evergreen.
From 1994 to 1995, Mr. Whelan was self-employed as a consultant. From 1989 to
1994, Mr. Whelan served as Vice President, Chief Financial Officer and Secretary
of Birtcher Medical Systems, Inc., a manufacturer of electronic surgical
devices. Mr. Whelan holds a B.S. degree in Business Administration/Finance from
San Jose State University.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1998 the Board of Directors held
ten meetings. The Board has established an Audit Committee, a Compensation
Committee and a Nominating Committee.
The Audit Committee meets with the Company's independent auditors
concerning their engagement, audit plan and report and management letter and,
with the assistance of the independent auditors, monitors the adequacy of the
Company's internal accounting controls and financial management practices. The
Audit Committee is composed of: Messrs. Greaves, Whelan and Monark. It met three
times during such fiscal year.
The Compensation Committee is responsible for reviewing the compensation
and benefits of the Company's executive officers, making recommendations to the
Board of Directors concerning the compensation and benefits of the Company's
executive officers and administering the Company's Stock 1994 and 1996 Incentive
Award Plans and 1998 Employee Stock Purchase Plan (as discussed below). The
Compensation Committee is composed of: Messrs. Quinn, Monark and Ferrier. It met
one time during such fiscal year.
The Nominating Committee interviews, evaluates, nominates and recommends
individuals for membership on the Company's Board of Directors. No procedure has
been established for the consideration of nominees recommended by stockholders.
The Nominating Committee is composed of: Messrs. Monark, Quinn and Ferrier. It
met one time during such fiscal year.
During the fiscal year ended December 31, 1998, each Board member attended
75% or more of the aggregate of the meetings of the Board and of the committees
on which he served, held during the period for which he was a director or
committee member, respectively.
PROPOSAL 2
APPROVAL OF 1998 EMPLOYEE STOCK PURCHASE PLAN
In November 1998, the Board of Directors of the Company ("Board") adopted
the Company's 1998 Employee Stock Purchase Plan ("Purchase Plan"), subject to
stockholder approval. There are 331,492 shares of Common Stock reserved for
issuance under the Purchase Plan.
As of March 15, 1999, no purchase rights had been granted under the
Purchase Plan and 331,492 shares of Common Stock remained available for future
grant under the Purchase Plan. The first offering period under the Purchase Plan
is scheduled to close on March 31, 1999.
Stockholders are requested in this Proposal 2 to approve the Purchase Plan.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the meeting will be
required to approve the Purchase Plan. Abstentions will be counted toward the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether this matter
has been approved.
The essential features of the Purchase Plan are outlined below:
PURPOSE
The purpose of the Purchase Plan is to provide a means by which employees
of the Company (and any parent or subsidiary of the Company designated by the
Board to participate in the Purchase Plan) may be
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given an opportunity to purchase Common Stock of the Company through payroll
deductions, to assist the Company in retaining the services of its employees, to
secure and retain the services of new employees, and to provide incentives for
such persons to exert maximum efforts for the success of the Company. All of the
Company's approximately 42 employees are eligible to participate in the Purchase
Plan.
The rights to purchase Common Stock granted under the Purchase Plan are
intended to qualify as options issued under an "employee stock purchase plan" as
that term is defined in Section 423(b) of the Internal Revenue Code of 1986, as
amended (the "Code").
ADMINISTRATION
The Board administers the Purchase Plan and has the final power to construe
and interpret both the Purchase Plan and the rights granted under it. The Board
has the power, subject to the provisions of the Purchase Plan, to determine when
and how rights to purchase Common Stock of the Company will be granted, the
provisions of each offering of such rights (which need not be identical), and
whether employees of any parent or subsidiary of the Company will be eligible to
participate in the Purchase Plan.
The Board has the power to delegate administration of the Purchase Plan to
a committee composed of not fewer than two members of the Board. The Board has
delegated administration of the Purchase Plan to the Compensation Committee of
the Board. As used herein with respect to the Purchase Plan, the "Board" refers
to any committee the Board appoints as well as to the Board itself. The Board
may abolish any such committee at any time and revest the administration of the
Purchase Plan in itself at any time.
OFFERINGS
The Purchase Plan is implemented by offerings of rights to all eligible
employees from time to time by the Board. Generally, each offering is three
months long, except for the initial offering, which was four months long.
ELIGIBILITY
Any person who is customarily employed at least 20 hours per week and five
months per calendar year by the Company (or by any parent or subsidiary of the
Company designated by the Board) on the first day of an offering is eligible to
participate in that offering. Officers of the Company who are "highly
compensated" as defined in the Code are eligible to participate in the Purchase
Plan; provided, however, that the Board may provide in an offering that such
"highly compensated" employees are not eligible to participate.
However, no employee is eligible to participate in the Purchase Plan if,
immediately after the grant of purchase rights, the employee would own, directly
or indirectly, stock possessing 5% or more of the total combined voting power or
value of all classes of stock of the Company or of any parent or subsidiary of
the Company (including any stock which such employee may purchase under all
outstanding rights and options). In addition, no employee may purchase more than
$25,000 worth of Common Stock (determined at the fair market value of the shares
at the time such rights are granted) under all employee stock purchase plans of
the Company and its affiliates in any calendar year.
PARTICIPATION IN THE PLAN
Eligible employees enroll in the Purchase Plan by delivering to the
Company, prior to the date selected by the Board as the offering date for the
offering, an agreement authorizing payroll deductions of up to 10% of such
employees' base total compensation during the offering.
PURCHASE PRICE
The purchase price per share at which shares of Common Stock are sold in an
offering under the Purchase Plan is the lower of (i) 85% of the fair market
value of a share of Common Stock on first day of the offering or (ii) 85% of the
fair market value of a share of Common Stock on the last day of the offering.
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PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions over
the offering. A participant may not increase or decrease his or her payroll
deductions during an offering. At any time prior to fifteen days preceding the
purchase date, a participant may terminate his or her payroll deductions as the
Board provides in the offering. A participant may begin such payroll deductions
after the beginning of the offering, except, if the Board provides, in the case
of an employee who first becomes eligible to participate as of a date specified
during the offering. All payroll deductions made for a participant are credited
to his or her account under the Purchase Plan and deposited with the general
funds of the Company. A participant may not make additional payments into such
account.
PURCHASE OF STOCK
By executing an agreement to participate in the Purchase Plan, the employee
is entitled to purchase shares under the Purchase Plan. In connection with
offerings made under the Purchase Plan, the Board specifies a maximum number of
shares of Common Stock an employee may be granted the right to purchase and the
maximum aggregate number of shares of Common Stock that may be purchased
pursuant to such offering by all participants. If the aggregate number of shares
to be purchased upon exercise of rights granted in the offering exceeds the
maximum aggregate number of shares of Common Stock available, the Board will
make a pro rata allocation of available shares. Unless the employee's
participation is discontinued, his or her right to purchase shares is exercised
automatically at the end of the offering at the applicable price. See
"Withdrawal" below.
WITHDRAWAL
While each participant in the Purchase Plan is required to sign an
agreement authorizing payroll deductions, the participant may withdraw from a
given offering by terminating his or her payroll deductions and by delivering to
the Company a notice of withdrawal from the Purchase Plan. Such withdrawal may
be elected at any time up to fifteen days prior to the end of the applicable
offering.
Upon any withdrawal from an offering by the employee, the Company will
distribute to the employee his or her accumulated payroll deductions without
interest, less any accumulated deductions previously applied to the purchase of
shares of Common Stock on the employee's behalf during such offering, and such
employee's interest in the offering will be automatically terminated. The
employee is not entitled to again participate in that offering. However, an
employee's withdrawal from an offering will not have any effect upon such
employee's eligibility to participate in subsequent offerings under the Purchase
Plan.
TERMINATION OF EMPLOYMENT
Rights granted pursuant to any offering under the Purchase Plan terminate
immediately upon cessation of an employee's employment for any reason, and the
Company will distribute to such employee all of his or her accumulated payroll
deductions, without interest.
RESTRICTIONS ON TRANSFER
Rights granted under the Purchase Plan are not transferable and may be
exercised only by the person to whom such rights are granted.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Purchase Plan at any time. Unless
terminated earlier, the Purchase Plan will terminate on November 4, 2008.
The Board may amend the Purchase Plan at any time. Any amendment of the
Purchase Plan must be approved by the stockholders within 12 months of its
adoption by the Board if the amendment would (i) increase the number of shares
of Common Stock reserved for issuance under the Purchase Plan, (ii) modify the
requirements relating to eligibility for participation in the Purchase Plan, or
(iii) modify any
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other provision of the Purchase Plan in a manner that would materially increase
the benefits accruing to participants under the Purchase Plan, if such approval
is required in order to comply with the requirements of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended, or under Section 423 of the Code.
Rights granted before amendment or termination of the Purchase Plan will
not be altered or impaired by any amendment or termination of the Purchase Plan
without consent of the employee to whom such rights were granted.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a dissolution, liquidation or specified type of merger of
the Company, the surviving corporation either will assume the rights under the
Purchase Plan or substitute similar rights, or the exercise date of any ongoing
offering will be accelerated such that the outstanding rights may be exercised
immediately prior to, or concurrent with, any such event.
STOCK SUBJECT TO PURCHASE PLAN
An aggregate of 331,492 shares of Common Stock is reserved for issuance
under the Purchase Plan. If rights granted under the Purchase Plan expire, lapse
or otherwise terminate without being exercised, the shares of Common Stock not
purchased under such rights again becomes available for issuance under the
Purchase Plan.
FEDERAL INCOME TAX INFORMATION
Rights granted under the Purchase Plan are intended to qualify for
favorable federal income tax treatment associated with rights granted under an
employee stock purchase plan which qualifies under provisions of Section 423 of
the Code.
A participant will be taxed on amounts withheld for the purchase of shares
of Common Stock as if such amounts were actually received. Other than this, no
income will be taxable to a participant until disposition of the acquired
shares, and the method of taxation will depend upon the holding period of the
acquired shares.
If the stock is disposed of at least two years after the beginning of the
offering period and at least one year after the stock is transferred to the
participant, then the lesser of (i) the excess of the fair market value of the
stock at the time of such disposition over the exercise price or (ii) the excess
of the fair market value of the stock as of the beginning of the offering period
over the exercise price (determined as of the beginning of the offering period)
will be treated as ordinary income. Any further gain or any loss will be treated
as a long-term capital gain or loss. Such capital gains currently are generally
subject to lower tax rates than ordinary income.
If the stock is sold or disposed of before the expiration of either of the
holding periods described above, then the excess of the fair market value of the
stock on the exercise date over the exercise price will be treated as ordinary
income at the time of such disposition. The balance of any gain will be treated
as capital gain. Even if the stock is later disposed of for less than its fair
market value on the exercise date, the same amount of ordinary income is
attributed to the participant, and a capital loss is recognized equal to the
difference between the sales price and the fair market value of the stock on
such exercise date. Any capital gain or loss will be short-term or long-term,
depending on how long the stock has been held.
There are no federal income tax consequences to the Company by reason of
the grant or exercise of rights under the Purchase Plan. The Company is entitled
to a deduction to the extent amounts are taxed as ordinary income to a
participant (subject to the requirement of reasonableness and the satisfaction
of tax reporting obligations).
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
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<PAGE> 10
PROPOSAL 3
APPROVAL OF 1998 STOCK COMPENSATION PLAN
The Board of Directors has adopted, subject to Stockholders approval, the
1998 Stock Compensation Plan.
In September 1998, the Board of Directors of the Company adopted the
Company's 1998 Stock Compensation Plan (the "Plan"), subject to stockholder
approval. There are 120,000 shares of Common Stock reserved for issuance under
the Plan.
Stockholders are requested in this Proposal 3 to approve the Plan. The
affirmative vote of the holders of a majority of the shares present in person or
represented by proxy and entitled to vote at the meeting will be required to
approve the Plan. Abstentions will be counted toward the tabulation of votes
cast on proposals presented to the stockholders and will have the same effect as
negative votes. Broker non-votes are counted towards a quorum, but are not
counted for any purpose in determining whether this matter has been approved.
The essential features of the Plan are outlined below:
PURPOSE
The purpose of the Plan is to provide a means by which non-employee
directors of the Company may be given an opportunity to exchange compensation
for shares of Common Stock of the Company, to assist the Company in retaining
the services of its non-employee directors, to secure and retain the services of
new non-employee directors, and to provide incentives for such persons to exert
maximum efforts for the success of the Company.
ADMINISTRATION
The Board administers the Plan and has the final power to construe and
interpret the Plan. The Board has the power, which it has not yet exercised, to
delegate administration of the Plan to a committee composed of not fewer than
two members of the Board. As used herein with respect to the Plan, the "Board"
refers to any committee the Board appoints as well as to the Board itself. The
Board may abolish any such committee at any time and revest the administration
of the Plan in itself at any time.
ELIGIBILITY
Any person who is director of the Company and is not otherwise an employee
or consultant of the Company is eligible to participate.
PARTICIPATION IN THE PLAN
Eligible directors enroll in the Plan by delivering to the Company an
enrollment form authorizing the exchange of compensation for shares of Common
Stock. Compensation is defined as annual retainer and meeting attendance fees
paid by the Company.
RECEIPT OF STOCK
By executing an agreement to participate in the Plan, the eligible director
is entitled to receive shares under the Plan. Each eligible director receives a
number of shares determined by dividing the cash value of the compensation
elected to be exchanged by the fair market value of the shares on the date the
compensation otherwise would have been paid in cash.
WITHDRAWAL
An eligible director may withdraw from the Plan at anytime upon thirty days
notice to the Company.
8
<PAGE> 11
TERMINATION OF STATUS AS A DIRECTOR
In the event an eligible director ceases to be director for any reason, his
or her participation in the Plan will terminate.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Plan at any time.
The Board may amend the Plan at any time. Any amendment of the Plan must be
approved by the stockholders within 12 months of its adoption by the Board if
the amendment would (i) increase the number of shares of Common Stock reserved
for issuance under the Plan, (ii) modify the requirements relating to
eligibility for participation in the Plan, or (iii) modify any other provision
of the Plan in a manner that would materially increase the benefits accruing to
participants under the Plan, if such approval is required in order to comply
with the requirements of Rule 16b-3 under the Securities Exchange Act of 1934,
as amended.
STOCK SUBJECT TO PLAN
An aggregate of 120,000 shares of Common Stock is reserved for issuance
under the Plan.
FEDERAL INCOME TAX INFORMATION
A participant will be taxed on shares received under the Plan. Other than
this, no income will be taxable to a participant until disposition of the
acquired shares. On disposition of the shares the participants will recognize
long-term or short-term capital gain or loss.
There are no federal income tax consequences to the Company by reason of
the exchange of cash compensation for shares under the Plan. The Company is
entitled to a deduction to the extent amounts are taxed as ordinary income to a
participant (subject to the requirement of reasonableness and the satisfaction
of tax reporting obligations).
The following table presents certain information with respect to shares
purchased under the Plan as of December 31, 1998 by non-employee directors.
Employee directors, executive officers and non-executive officer employees are
not eligible to receive shares under the Plan.
1998 STOCK COMPENSATION PLAN
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND POSITION DOLLAR VALUE(1) RECEIVED
----------------- --------------- ----------------
<S> <C> <C>
Grant Ferrier................................. $ 3,750 3,750
Stephen Greaves............................... $ 1,750 1,750
Gerald Quinn.................................. $ 1,750 1,750
Ronald Monark................................. $ 3,750 3,750
All Non-Executive Directors as a Group........ $11,000 11,000
All Executive Officers as a Group............. 0 0
All Non-Executive Officer Employees as a
Group....................................... 0 0
</TABLE>
- ---------------
(1) Fair market value on the date of purchase multiplied by the number of shares
purchased.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Deloitte & Touche LLP as the Company's
independent auditors for the fiscal year ending December 31, 1999, and has
further directed that management submit the selection of
9
<PAGE> 12
independent auditors for ratification by the stockholders at the Annual Meeting.
Deloitte & Touche LLP has audited the Company's financial statements since the
fiscal year ended March 31, 1995. Representatives of Deloitte & Touche LLP are
expected to be present at the Annual Meeting, will have an opportunity to make a
statement if they so desire and will be available to respond to appropriate
questions.
Stockholder ratification of the selection of Deloitte & Touche LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Deloitte & Touche
LLP to the stockholders for ratification as a matter of good corporate practice.
If the stockholders fail to ratify the selection, the Board will reconsider
whether or not to retain that firm. Even if the selection is ratified, the Board
in its discretion may direct the appointment of different independent auditors
at any time during the year if they determine that such a change would be in the
best interests of the Company and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Deloitte & Touche LLP. Abstentions will
be counted toward the tabulation of votes cast on proposals presented to
stockholders and will have the same effect as negative votes. Broker non-votes
are counted towards a quorum, but are not counted for any purpose in determining
whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
NOTICE OF STOCKHOLDER ACTION
APPROVAL OF AMENDMENT TO THE 1996 STOCK INCENTIVE AWARD PLAN
In February 1996, the Board of Directors adopted, and the stockholders
subsequently approved, the 1996 Stock Incentive Award Plan, as amended (the
"1996 Plan"). Under the 1996 Plan, 325,000 shares of the Company's Common Stock
were reserved for issuance pursuant to the exercise of stock awards granted to
employees, directors and consultants.
In March 1999, the Board approved an amendment to the 1996 Plan, subject to
stockholder approval, to increase the number of shares authorized for issuance
under the 1996 Plan to 550,000 shares. The Board adopted this amendment to
ensure that the Company can continue to grant stock options to employees,
consultants and directors at levels determined appropriate by the Board and the
Compensation Committee. In March 1999, the holders of a majority of the Common
Stock of the Company approved by written consent the amendment to the 1996 Plan.
Because the amendment to the 1996 Plan has already been approved, this
disclosure is intended to provide stockholders with notice of the action that
has been taken. Thus, we are not asking you for a proxy in connection with the
amendment to the 1996 Plan, and you are requested not to send the Company a
proxy in connection with the amendment to the 1996 Plan.
ADDITIONAL INFORMATION
MANAGEMENT
Set forth below is information regarding the executive officers and key
employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Executive Officers
Lee W. Melody................ 57 President, Chief Executive Officer and Director
Michael G. Arkell............ 52 Vice President -- Sales
David P. Nelson.............. 57 Vice President of Finance, Chief Financial
Officer, Treasurer and Secretary
John A. Rome................. 60 Vice President -- Operations
</TABLE>
10
<PAGE> 13
Lee W. Melody. Biographical information regarding Mr. Melody is set forth
under Proposal 1 above.
Michael G. Arkell. Mr. Arkell joined the Company in November 1995 and
currently serves as Vice President of Sales. Mr. Arkell has over 25 years of
management experience in sales and marketing in the automotive, heavy duty and
industrial industries. Prior to joining the Company, from 1989 through 1995, Mr.
Arkell was Director, Domestic Sales for Korody-Colyer, a manufacturer and
remanufacturer of diesel internal engine parts. Mr. Arkell holds a B.S. in
Business Administration from the University of Washington.
David P. Nelson. Mr. Nelson joined the Company in November 1997 and
currently serves as Vice President of Finance, Chief Financial Officer,
Treasurer and Secretary of the Company. From 1990 to 1997, Mr. Nelson served as
Vice President of Finance of Geodynamics Corp., a publicly-traded aerospace
company that was acquired by Logicon Inc. in 1996. Mr. Nelson holds B.A. and
M.A. degrees in Economics from the University of California Los Angeles.
John A. Rome. Mr. Rome joined the Company in July 1995 as Vice President of
Operations. Mr. Rome is responsible for the design of new products, the redesign
of production techniques, the implementation of inventory controls, and
manufacturing methods, production, materials management and environmental
control for the Company. Mr. Rome's prior experience includes operations
management, manufacturing engineering and quality assurance. Prior to joining
the Company, from October 1993 through July 1995, Mr. Rome was self employed and
wrote technical, operational and instructional manuals, which are currently
being implemented at the Company. From 1992 through October 1993, he served as
the Manager of Operations for Sierracin/Harrison, a manufacturer of aerospace
fasteners. From 1990 through 1992, Mr. Rome was Vice President -- Operations and
Director of Quality Assurance for Robertshaw Controls Company, a manufacturer of
thermostats and gas valves for the heating and air conditioning industries. Mr.
Rome holds a B.S. degree in Mechanical Engineering from Barrow-In-Furness of
Cumbria, England.
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 as of March 15, 1999 by: (i) each
Director and nominee for Director; (ii) each of the Named Executive Officers
(defined below); (iii) all executive officers and Directors of the Company as a
group; and (iv) all those known by the Company to be beneficial owners of more
than five percent of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-----------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
------------------------------------ ---------------- ----------------
<S> <C> <C>
Erin Mills International Investment Corporation(2)(3)....... 2,771,012 62.1%
Radley Court, Suite 200
Collymore Rock
St. Michael, Barbados, West Indies
Lee W. Melody(4)............................................ 136,852 3.0%
Michael G. Arkell(4)........................................ 12,784 *
Gerald C. Quinn(3)(4)....................................... 2,786,490 62.3%
Stephen L. Greaves(4)(5).................................... 2,780,526 62.2%
Ronald J. Monark(4)......................................... 54,750 1.2%
Daniel P. Whelan(4)......................................... 2,000 *
Grant Ferrier(4)............................................ 11,750 *
David P. Nelson(4).......................................... 8,928 *
All Directors and Executive Officers, as a group (9
persons).................................................. 3,045,432 65.8%
</TABLE>
- ---------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G, if any, filed with the
Securities and Exchange Commission. Unless otherwise indicated in the
footnotes to this table and subject to community property laws where
applicable, the
11
<PAGE> 14
Company believes that each of the stockholders named in this table has sole
voting and investment power with respect to the shares indicated as
beneficially owned. Applicable percentages are based on 4,464,918 shares
outstanding on March 15, 1999. Shares of Common Stock subject to options or
warrants currently exercisable or convertible, or exercisable or convertible
within 60 days of March 15, 1999, are deemed outstanding for computing the
percentage of the persons holding such options but are not deemed
outstanding for computing the percentage of any other person. Share numbers
include the following number of shares subject to options exercisable within
60 days of March 15, 1999 for each of the following persons: Mr. Melody,
109,772; Mr. Arkell, 11,464; Mr. Quinn, 8,728; Mr. Greaves, 7,464; Mr.
Monark, 6,000; Mr. Ferrier, 2,000; Mr. Whelan, 2,000; and Mr. Nelson, 4,000.
(2) Erin Mills International Investment Corporation, a Barbadian corporation
("EMIIC"), is a majority-owned subsidiary of The Erin Mills Investment
Corporation, a corporation organized under the laws of the province of
Ontario, Canada ("TEMIC"). TEMIC is a wholly-owned subsidiary of The Erin
Mills Development Corporation, a corporation organized under the laws of the
province of Ontario, Canada ("EMDC"). Consequently, TEMIC and EMDC, by
virtue of their control of EMIIC, would be deemed to share voting and
investment power of the shares of Common Stock owned by EMIIC. The members
of the board of directors of EMIIC may also be deemed to have beneficial
ownership of the shares of Common Stock owned by EMIIC. The members of the
board of directors of EMIIC are Gerald C. Quinn (who is also the Chairman of
the Board of the Company), Humphrey Metzger, Andrew C. Ferreira, Dr. Trevor
A. Carmichael and Stephen L. Greaves (who is also a director of the
Company). In addition, the members of the boards of directors of TEMIC and
EMDC may be deemed to have beneficial ownership of the shares of Common
Stock of the Company owned by EMIIC by virtue of TEMIC and EMDC's control of
EMIIC. The members of the boards of directors of TEMIC and EMDC are Rudy
Bratty, John H. Daniels, Peter Daniels, Alfredo DeGasperis, Marco Muzzo,
Elly Reisman, and Larry Robbins, none of whom are officers or directors of
the Company. Stephen L. Greaves, a member of the Board of Directors of the
Company, is General Manager of EMIIC. Gerald C. Quinn, a member of the Board
of Directors of the Company, is President of TEMIC and Executive Vice
President of EMDC. None of the Company's officers or directors beneficially
owns any equity securities of EMIIC, TEMIC or EMDC. One individual, John H.
Daniels, who is neither an officer nor director of the Company, owns
approximately 12 1/2% of the outstanding ownership interests of EMIIC and
TEMIC, and no other person beneficially owns more than 5% of the outstanding
ownership interests of EMIIC, TEMIC or EDMC. Each of the members of the
boards of directors of EMIIC, TEMIC and EDMC disclaims beneficial ownership
of any of the shares of the Company's Common Stock beneficially owned by
EMIIC, TEMIC or EMDC.
(3) Includes 2,771,012 shares of Common Stock beneficially held by EMIIC. See
Note (2) above. Mr. Quinn beneficially owns 1,000 Class Q Preference shares
of EMIIC, constituting 100% of the issued and outstanding Class Q Preference
shares of EMIIC, which are non-voting (except in the case of a proposed
dissolution of EMIIC) and entitle him to receive a priority distribution
upon the liquidation or dissolution of EMIIC equal to approximately 3% of
EMIIC's return on invested capital for investments where the initial capital
investment was made by EMIIC prior to May 1, 1994. As of March 15, 1999, Mr.
Quinn's stock purchase rights through EMIIC entitled him to receive 83,130
shares of Common Stock of the Company at the original purchase price paid by
EMIIC. At March 15, 1999, EMIIC beneficially owned 2,771,012 shares of
Common Stock of the Company, or 62.1% of the outstanding shares of Common
Stock. The above table reflects EMIIC's ownership at March 15, 1999,
inclusive of Mr. Quinn's right to acquire 83,130 shares from EMIIC. Except
with respect to the shares subject to his purchase rights, Mr. Quinn
disclaims beneficial ownership of any of the shares of the Company's Common
Stock held by EMIIC.
(4) The address of such stockholder is c/o MotorVac Technologies, Inc., 1431
South Village Way, Santa Ana, California 92705.
(5) Includes 2,771,012 shares of Common Stock beneficially held by EMIIC. See
Note (2) above. Mr. Greaves disclaims beneficial ownership of any of the
shares of the Company's Common Stock held by EMIIC.
12
<PAGE> 15
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the SEC initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten percent stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1998, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each of the Company's non-employee directors receives monthly directors'
fees of $1,000 (the "Monthly Fee") and receives $750 for attendance at each
meeting of the Board of Directors. Mssrs. Greaves and Quinn commenced receiving
the Monthly Fee in December 1998. Non-employee directors of the Company who are
also members of the Audit or Compensation Committees of the Board of Directors
will receive $375 for attendance at each meeting of such committees that are
held on days other than those on which meetings of the Board of Directors are
held. Non-employee directors are also reimbursed for expenses incurred in
connection with attendance at meetings of the Board of Directors or committees
thereof.
Certain non-employee directors who elect to participate in the 1998 Stock
Compensation Plan may receive the Monthly Fee and the attendance fee in Common
Stock of the Company in lieu of cash compensation. As of March 15, 1999, Messrs.
Ferrier and Monark have each received 3,750 shares of Common Stock of the
Company under the 1998 Stock Compensation Plan and Messrs. Quinn and Greaves
have each received 1,750 shares of Common Stock of the Company under the 1998
Stock Compensation Plan. On May 12, 1998, Mr. Monark was granted options to
purchase 2,000 shares of the Company's Common Stock at an exercise price of
$1.75 per share pursuant to the 1996 Plan as discussed below. Such options
become exercisable at the rate of 20% per year.
1996 DIRECTOR STOCK PLAN
The Company's 1996 Director Stock Plan (the "Director Plan") was adopted by
the Board of Directors and the Company's stockholders in February 1996, and
became effective on April 25, 1996. A total of 50,000 shares of Common Stock
have been reserved for issuance under the Director Plan. The purpose of the
Director Plan is to attract and retain qualified non-employee directors of the
Company and more closely align the interests of such directors with that of the
stockholders through increased stock ownership by non-employee directors.
Directors eligible to receive options under the Director Plan include those
individuals who are not employees of the Company nor any Participating Company
(as defined in the Director Plan), including EMIIC, TEMIC and EMDC ("Eligible
Directors"). Pursuant to the Director Plan, each individual first elected or
appointed as an Eligible Director is automatically granted a non-qualified stock
option to purchase 2,000 shares of Common Stock on the date of the annual
meeting of stockholders occurring on or after the date of such election or
appointment ("Initial Grant"). In addition, at each subsequent annual meeting of
stockholders, each Eligible Director is automatically granted a non-qualified
stock option to purchase an additional 2,000 shares of Common Stock. To be
eligible to receive such automatic grants, the stockholders must elect or
reelect the Eligible Director at the annual meeting of stockholders coinciding
with the date such director is to receive such automatic grant. The purchase
price of each share subject to options granted under the Director Plan is equal
to 100% of the fair market value of a share of Common Stock on the automatic
grant date. All options granted pursuant to the Director Plan are immediately
exercisable in full for fully vested shares of Common Stock. Each option will
have a term of ten years minus one day, subject to
13
<PAGE> 16
earlier termination following the Eligible Director's cessation of Board
service. Options granted under the Director Plan are nontransferable and
generally expire three months after termination of the Eligible Director's
service to the Company. In general, if an Eligible Director is permanently
disabled or dies during his or her service to the Company, such option may be
exercised up to twelve months following such disability or death. Unless
terminated earlier by the Board of Directors, the Director Plan will terminate
on April 25, 2006. Pursuant to the Director Plan, on May 12, 1998, Mssrs. Quinn,
Greaves, Whelan, Ferrier and Monark were each granted options to purchase 2,000
shares of the Company's Common Stock at an exercise price of $1.75 per share.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table sets forth, for the twelve-month fiscal years ended
December 31, 1996, 1997 and 1998, certain compensation awarded to or earned by
the Company's Chief Executive Officer and the other most highly compensated
executive officers of the Company who earned in excess of $100,000 in salary and
bonus (collectively, the "Named Executive Officers") for services rendered to
the Company:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------
------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS(#) COMPENSATION
- --------------------------- ---- -------- ------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Lee W. Melody............... 1996 $155,833 $15,845 $14,573 168,400 -0-
President, Chief Executive 1997 166,650 15,794 15,267 -0- -0-
Officer and Director 1998 175,000 -0- 18,270 -0- -0-
Michael G. Arkell........... 1996 100,000 795 16,712 17,320 -0-
Vice President of Sales 1997 100,000 1,000 15,465 2,680 -0-
1998 110,000 -0- 16,116 -0- -0-
David P. Nelson............. 1997 $ 13,750 -0- 700 -0- -0-
Chief Financial Officer, 1998 115,000 5,000 15,303 20,000 -0-
Treasurer and Secretary
</TABLE>
- ---------------
(1) The amounts indicated under the heading "Other Annual Compensation"
represent automobile allowances and health insurance benefits provided to
the Named Executive Officers for the twelve months ended December 31, 1996,
1997 and 1998 as follows: (i) with respect to Mr. Melody, an automobile
allowance in the amount of $6,000 for each year and benefits aggregating
$8,573, $9,267 and $12,270, respectively, (ii) with respect to Mr. Arkell,
an automobile allowance in the amount of $5,214, $6,000, and $6,000,
respectively, and benefits aggregating $11,498, $9,465, and $10,116,
respectively, and (iii) with respect to Mr. Nelson, who commenced employment
in November 1997, an automobile allowance in the amount of $750 in 1997 and
$6,000 for 1998, and benefits aggregating $9,303 for 1998.
CASH BONUS PLAN
The Board of Directors of the Company adopted a Cash Bonus Plan (the "Cash
Bonus Plan") in April 1996. The purpose of the Cash Bonus Plan is to attract and
retain qualified personnel, provide incentives to employees and officers of the
Company and promote the success of the Company's business. Pursuant to the Cash
Bonus Plan, the Company is authorized to create a bonus pool in an amount equal
to 10% of the Company's net income after taxes for each fiscal year as set forth
in the Company's audited financial statements for such fiscal year, subject to
certain adjustments by the Board of Directors or the Compensation Committee. All
employees and officers of the Company are eligible to participate in the Cash
Bonus Plan; however, only those persons recommended by the President of the
Company and selected by the Board of Directors or Compensation Committee of the
Company are entitled to receive bonuses from the bonus pool for any fiscal year.
Each employee or officer of the Company selected to participate in the Cash
Bonus Plan for any fiscal year is entitled to receive a bonus from the bonus
pool in an amount determined in the sole and
14
<PAGE> 17
absolute discretion of the Board or Compensation Committee, after due
consideration of the recommendation of the President of the Company.
Participants in the Cash Bonus Plan have the right to defer receipt of all or
any portion of any bonus earned. The Cash Bonus Plan is administered by the
Board of Directors, or at the option of the Board of Directors, by the
Compensation Committee of the Company. In the event that the employment or
officer status of any person is terminated during any fiscal year, then that
person generally will not be entitled to receive any bonus from the bonus pool
for the fiscal year in which the termination of employment or officer status
change occurred. The Board of Directors has the power to amend, suspend, alter
or terminate the Cash Bonus Plan at any time, and the Cash Bonus Plan shall
continue in effect until such time as it is terminated by the Board of
Directors. On June 6, 1996, the Board of Directors resolved that Lee W. Melody
will be entitled to receive at least 50% of any amount to be paid under the Cash
Bonus Plan.
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its 1994 Stock
Incentive Award Plan (the "1994 Plan") and its 1996 Stock Incentive Award Plan
(the "1996 Plan"; together with the 1994 Plan, the "Plans"). As of March 15,
1999, a total of 126,400 shares of Common Stock were reserved for issuance under
the 1994 Plan, 104,373 were subject to outstanding options, and a total of
550,000 shares of Common Stock were reserved for issuance under the 1996 Plan,
523,636 of which were subject to outstanding options.
The 1994 Plan was adopted by the Board of Directors and was approved by the
written consent of the stockholders in February 1994. The 1996 Plan was adopted
by the Board of Directors and was approved by the written consent of the
stockholders in February 1996. The purpose of the Plans is to attract and retain
qualified personnel, provide additional incentives to employees, officers,
directors and consultants of the Company and promote the success of the
Company's business. Pursuant to the Plans, the Company may grant incentive and
nonqualified stock options, restricted stock, stock appreciation rights,
dividend equivalents, stock payments and/or performance awards (collectively
"Incentive Awards") to key employees, officers, directors, and consultants of
the Company.
The Board of Directors has delegated to the Compensation Committee the
discretionary authority to designate the persons to whom Incentive Awards may be
granted (provided that incentive stock options can only be granted to employees
of the Company), determine the time when Incentive Awards will be granted, the
amounts, terms and conditions of such grants (consistent with the terms of the
Plans), interpret the Plans, and adopt rules for the operation of the Plans.
The maximum term of Incentive Awards granted under the Plans is ten years.
Incentive Awards granted under the Plans are non-transferable and generally
expire three months after the termination of the grantee's service to the
Company. In general, if a grantee is permanently disabled or dies during his or
her service to the Company, such Incentive Award may be exercised up to twelve
months following such disability or death.
Stock Options. Under the Plans, the exercise price of incentive and
non-qualified stock options must equal at least the fair market value of the
Common Stock on the date of grant. In addition, the exercise price of incentive
stock options granted to any person who at the time of grant owns stock
possessing more than 10% of the total combined voting power of all classes of
stock must be at least 110% of the fair market value of such stock on the date
of grant and the term of those options cannot exceed five years. The aggregate
fair market value of the stock with respect to which incentive stock options are
first exercisable in any calendar year may not exceed $100,000 per optionee.
Stock Appreciation Rights. Stock appreciation rights awarded under the Plan
vest or become exercisable as determined by the Compensation Committee. Upon
exercise of a stock appreciation right, the grantee is entitled to receive an
amount equal to the excess of the fair market value of a share of Common Stock
on the exercise date of such stock appreciation right over the fair market value
of a share of Common Stock on the date of grant of such stock appreciation
right.
Restricted Stock. Restricted stock granted under the Plans generally may
not be sold, transferred or otherwise hypothecated until the restrictions on
transferability imposed by the Compensation Committee are removed or expire.
Generally, holders of restricted stock have all the rights of a stockholder with
respect to the
15
<PAGE> 18
restricted stock granted, including the right to vote the shares and receive all
dividends and other distributions paid or made with respect thereto.
Performance Awards. Performance awards may be granted by the Compensation
Committee based on the performance of the Company's stock over a period
determined by the Compensation Committee or any other measures determined
appropriate by the Compensation Committee. Payment of performance awards
generally will be in cash unless replaced by a stock payment in full or in part
as determined by the Compensation Committee.
Stock Payments and Dividend Equivalents. The Compensation Committee may
grant stock payments to eligible persons for all or any portion of the
compensation (other than base salary) that would otherwise become payable to
such eligible person in cash. The Compensation Committee may also grant dividend
equivalent rights based on the dividends declared on the stock of the Company on
record dates during the period between the date an option or stock appreciation
right is granted and the date such option or stock appreciation right is
exercised or such other periods as determined by the Compensation Committee.
Dividend equivalents are converted into additional shares of stock or cash in
accordance with a formula determined by the Compensation Committee.
The Board of Directors may amend, suspend, alter or terminate the Plans at
any time provided that the Board of Directors shall not amend the Plans to
reduce the minimum option price requirements set forth in the Plans, to increase
the maximum number of stock appreciation rights or shares of stock subject to
Incentive Awards available for grant under the Plans, to provide for the
administration of the Plans other than by the Board of Directors or the
Compensation Committee, to change the classes of persons eligible to receive
Incentive Awards, to extend the maximum period during which Incentive Awards may
be exercised or to extend the term of the Plans, without the approval of a
majority of the outstanding voting stock of the Company. The Board of Directors
adopted an amendment on August 15, 1996 to the Plans to comply with recent
changes in Rule 16b-3 promulgated under the Securities and Exchange Act of 1934,
as amended, and to provide that, upon the consummation of certain events,
including the dissolution or liquidation of the Company, the merger or
consolidation of the Company, the sale of all or substantially all of the assets
of the Company, the acquisition of equity securities of the Company representing
20% or more of the aggregate voting power of the outstanding equity securities
of the Company or a change in the composition of a majority of the Board of
Directors (collectively, a "Terminating Transaction"), that all outstanding
Incentive Awards shall become immediately exercisable.
The following table sets forth certain information regarding options
granted by the Company during fiscal year ended December 31, 1998 to the Named
Executive Officers, if any:
OPTIONS GRANTED IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
EXERCISE
NUMBER OF SECURITIES % OF TOTAL OPTIONS GRANTED PRICE EXPIRATION
NAME UNDERLYING OPTIONS GRANTED TO EMPLOYEES IN FISCAL YEAR ($/SH) DATE
---- -------------------------- --------------------------- ---------- ----------
<S> <C> <C> <C> <C>
David P. Nelson............... 20,000(1) 37% $1.88 3/25/08
</TABLE>
- ---------------
(1) The exercise price of such option is equal to the fair market value of the
Common Stock on the date of grant. Such option becomes exercisable at the
rate of 20% per year.
16
<PAGE> 19
The following table sets forth information regarding the aggregate value of
unexercised options held by the Named Executive Officers of the Company at
December 31, 1998.
AGGREGATED FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Lee W. Melody.................................... 87,900 112,100 -- --
Michael G. Arkell................................ 8,096 11,904 -- --
David P. Nelson.................................. 4,000 16,000 -- --
</TABLE>
- ---------------
(1) Calculated based on the estimated fair market value of the Company's Common
Stock as of December 31, 1998, less the exercise price payable upon the
exercise of such options. Such estimated fair market value as of December
31, 1998 was $1.00, the last price posted at the close of trading on
December 31, 1998. Because the value of unexercised in-the-money options at
December 31, 1998 was less than zero in all cases of Named Executive
Officers, no amount is shown.
EMPLOYMENT AGREEMENTS
The Company and Lee W. Melody have entered into an Employment Agreement
dated October 24, 1994, as amended by that certain First Amendment to Employment
Agreement dated as of November 3, 1995 (collectively, the "Melody Employment
Agreement"). The Melody Employment Agreement expires on February 19, 2001 and
provides for payment to Mr. Melody of an annual salary of not less than
$135,000, subject to annual review and potential adjustment, and bonuses based
upon his performance during each fiscal year of the Company in an amount
determined in the sole and absolute discretion of the Board of Directors. In
addition to salary and bonuses, Mr. Melody receives an automobile allowance in
the amount of $500 per month and is reimbursed for all reasonable and necessary
travel and other business expenses incurred in connection with performance of
his duties. The Company also pays the annual cost of premiums for health
insurance coverage for Mr. Melody and his dependents. If Mr. Melody's employment
with the Company is terminated for cause (as defined in the Melody Employment
Agreement), then Mr. Melody is entitled to receive his base salary through the
date of termination. If Mr. Melody's employment with the Company is terminated
without cause (including on account of non-renewal of the Melody Employment
Agreement), then he is entitled to receive payment of his base salary for a
period of 12 months from the date of such termination and the Company is
required to continue to pay the annual premiums for health care benefits for him
and his dependents for such 12-month period. In the event that Mr. Melody's
employment is terminated without cause or Mr. Melody resigns from his employment
for "good reason" (as defined in the Melody Employment Agreement) following a
change in control of the Company (as defined in the Melody Employment
Agreement), then Mr. Melody is entitled to receive payment of his base salary in
a lump sum payment within ten days of the date of his termination and the
Company is required to pay the annual premiums for health benefits for him and
his dependents for a period of twelve months following the date of such
termination.
On November 20, 1995, the Company hired Michael G. Arkell as its Vice
President -- Marketing and Sales under an employment agreement (the "Arkell
Employment Agreement") that expires on February 17, 2000 and provides for an
annual salary of $100,000 subject to annual review and potential adjustment,
plus an incentive bonus based upon the Company achieving certain sales and
operating profit goals. In addition to salary and incentive bonus, Mr. Arkell
receives an automobile allowance in the amount of $500 per month and is
reimbursed for all reasonable and necessary travel and other business expenses
incurred in connection with performance of his duties. The Company also pays the
annual cost of premiums for health insurance coverage for Mr. Arkell and his
dependents. If Mr. Arkell's employment with the Company is terminated for cause
(as defined in the Arkell Employment Agreement), then Mr. Arkell would be
entitled to receive his base salary through the date of termination. If Mr.
Arkell's employment with the Company is terminated without cause, then he is
entitled to receive payment of his base salary for a period of six months from
the date of such
17
<PAGE> 20
termination and the Company is required to continue to pay the annual premiums
for health care benefits for him and his dependents for such six-month period.
On November 13, 1997, the Company hired David P. Nelson as its Vice
President, Finance and Chief Financial Officer under an employment agreement
(the "Nelson Employment Agreement") that expires February 10, 2001. The Nelson
Employment Agreement automatically renews for successive one-year terms unless
the Company delivers to Mr. Nelson written notice of its intent not to renew at
least 60 days prior to the expiration date of the then current term. The Nelson
Employment Agreement provides for payment to Mr. Nelson of an annual salary of
$110,000, subject to annual review and potential adjustment, and bonuses based
upon his performance during each fiscal year of the Company in an amount
determined in the sole and absolute discretion of the President of the Company.
For the fiscal year ending December 31, 1999, Mr. Nelson is entitled to receive
a bonus of not less than $5,000. In addition to salary and bonuses, Mr. Nelson
receives an automobile allowance in the amount of $500 per month and is
reimbursed for all reasonable and necessary travel and other business expenses
incurred in connection with the performance of his duties. The Company also pays
the annual cost of premiums for health insurance coverage for Mr. Nelson and his
dependents. Pursuant to and in connection with the execution of the Nelson
Employment Agreement, Mr. Nelson was granted an option under the Company's 1996
Stock Incentive Award Plan to purchase 20,000 shares of the Company's Common
Stock at an exercise price of $1.875 per share. Such option vests over five (5)
years at a rate of 20% per year. Under the terms of the Nelson Employment
Agreement, if Mr. Nelson's employment with the Company is terminated for cause
(as defined in the Nelson Employment Agreement), Mr. Nelson will be entitled to
receive his base salary through the date of termination and, if Mr. Nelson's
employment with the Company is terminated without cause (including on account of
non-renewal of the Nelson Employment Agreement), he will be entitled to receive
payment of his base salary for a period of 6 months from the date of termination
and the Company will be required to pay the premiums for health care benefits
for him and his dependents for such 6-month period. Under the terms of the
Nelson Employment Agreement, in the event that Mr. Nelson's employment is
terminated without cause or Mr. Nelson resigns from his employment for "good
reason" (as defined in the Nelson Employment Agreement) following a change in
control of the Company (as defined in the Nelson Employment Agreement), then Mr.
Nelson will be entitled to receive payment of twelve months worth of his base
salary in a lump sum payment within ten days of the date of his termination and
the Company will be required to pay the annual premiums for health benefits for
him and his dependents for a period of twelve months following the date of
termination.
CERTAIN TRANSACTIONS
On September 26, 1997, the Company entered into a letter agreement with
Allan T. Maguire, the former Vice President, Finance, Chief Financial Officer,
Secretary and Treasurer of the Company, pursuant to which Mr. Maguire resigned
as Vice President, Finance, Chief Financial Officer, Secretary and Treasurer of
the Company effective September 5, 1997, and the Company agreed to continue
payment of Mr. Maguire's regular base salary until the earlier to occur of (i)
April 10, 1998 or (ii) "New Employment" (as defined in the letter agreement).
Such continuation of base salary resulted in additional payments to Mr. Maguire
of approximately $39,000. The Company also agreed to pay Mr. Maguire a monthly
car allowance of $500.00 until April 10, 1998, and agreed to pay for Mr.
Maguire's health premiums for him and his existing dependents until the earlier
to occur of (i) April 10, 1998 or (ii) "New Employment". The letter agreement
also provided for reimbursement of up to $1,000 in legal fees and costs incurred
by Mr. Maguire in connection with his review of the letter agreement. In
addition, under the letter agreement, vested options held by Mr. Maguire to
acquire up to approximately 30,994 shares of the Company's Common Stock were
extended to remain exercisable through October 10, 1999. As of the date hereof,
Mr. Maguire has not exercised any of the options that were extended under the
letter agreement.
Certain Directors of the Company from time to time perform consulting
services for the Company. Such Directors are paid an hourly or per diem rate for
their services. It is the Company's policy that such hourly and per diem rates
be no greater than those which are generally from similarly qualified third
parties.
18
<PAGE> 21
Commencing in December 1997, the Company has advanced loans to senior
employees, including four executive officers, to purchase shares of Company
Common Stock on the open market. The loans, which carry an interest rate of
5.69%, are due upon the earlier to occur of three years from the date of advance
or the date the executive's employment with the Company terminates for any
reason. The notes are collateralized by the shares purchased. The Company has
agreed to finance up to an aggregate of $215,000 of such loans, subject to
certain maximum amounts for each senior employee as set forth below.
<TABLE>
<CAPTION>
SHARES AMOUNT PURCHASED POTENTIAL
OFFICER PURCHASED AND FINANCED MAXIMUM AMOUNT
------- --------- ---------------- --------------
<S> <C> <C> <C>
Lee W. Melody....................... 24,980 $42,533 $100,000
John A. Rome........................ 12,356 $18,340 $ 40,000
David P. Nelson..................... 4,928 $ 8,811 $ 25,000
Michael G. Arkel.................... 1,220 $ 3,105 $ 10,000
</TABLE>
The Company has entered into indemnity agreements with certain officers and
directors which provide, among other things, that the Company will indemnify
such officer or director, under the circumstances and to the extent provided for
therein, for expenses, damages, judgments, fines and settlements he may be
required to pay in actions or proceedings which he is or may be made a party by
reason of his position as a director, officer or other agent of the Company, and
otherwise to the full extent permitted under Delaware law and the Company's
Bylaws.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
/s/ David P. Nelson
--------------------
David P. Nelson
Secretary
April 13, 1999
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 IS
AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO: CORPORATE SECRETARY, MOTORVAC
TECHNOLOGIES, INC., 1431 S. VILLAGE WAY, SANTA ANA, CALIFORNIA 92705.
19
<PAGE> 22
MOTORVAC TECHNOLOGIES, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 13, 1999
The undersigned stockholder of MotorVac Technologies, Inc., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, with respect to the Annual Meeting of
Stockholders, and hereby appoints Lee W. Melody and David P. Nelson, and each of
them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of MotorVac Technologies, Inc.
which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders of MotorVac Technologies, Inc. to be held at the Crown Plaza Hotel
located at 17941 Von Karman Avenue, Irvine, California 92614 on Thursday, May
13, 1999 at 2:00 p.m., local time, and at any and all postponements,
continuations and adjournments thereof, with all powers that the undersigned
would possess if personally present, upon and in respect of the following
matters and in accordance with the following instructions, with discretionary
authority as to any and all other matters that may properly come before the
meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3, AND 4, AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT, AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING. IF
SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE
THEREWITH
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
PROPOSAL 1: To elect directors to hold office until the next Annual Meeting of
Stockholders and until their successors are elected.
<TABLE>
<S> <C>
[ ]FOR all nominees listed below (except as marked to the [ ] WITHHOLD AUTHORITY to vote for all nominees listed
contrary below) below.
</TABLE>
NOMINEES: Grant Ferrier, Stephen L. Greaves, Lee W. Melody, Gerald C. Quinn,
Ronald J. Monark and Daniel P. Whelan
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S), WRITE SUCH NOMINEE(S)'
NAME(S) BELOW:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Continued on other side)
<PAGE> 23
(Continued from the other side)
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 2, 3, AND 4.
PROPOSAL 2: To approve the Company's 1998 Employee Stock Purchase Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 3: To approve the Company's 1998 Stock Compensation Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 4:To ratify selection of Deloitte & Touche LLP as independent auditors
of the Company for its fiscal year ending December 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
DATED
----------------------------
Signature(s)
Please sign exactly as your
name appears hereon. If the
stock is registered in the
names of two or more
persons, each should sign.
Executors, administrators,
trustees, guardians and
attorneys-in-fact should add
their titles. If signer is a
corporation, please give
full corporate name and have
a duly authorized officer
sign, stating title. If
signer is a partnership,
please sign in partnership
name by authorized person.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
<PAGE> 24
SECOND AMENDMENT TO MOTORVAC TECHNOLOGIES, INC.
1996 STOCK INCENTIVE AWARD PLAN
THIS SECOND AMENDMENT TO MOTORVAC TECHNOLOGIES, INC. 1996 STOCK
INCENTIVE AWARD PLAN (the "Second Amendment") is hereby adopted by MotorVac
Technologies, Inc., a Delaware corporation (the "Company"), effective as of
March 11, 1999.
R E C I T A L S
A. The MotorVac Technologies, Inc. 1996 Stock Incentive Award Plan (the
"Plan") was adopted by the Board of Directors of the Company (the "Board") and
approved by the written consent of the stockholders of the Company in February
1996, and was amended by that certain First Amendment to MotorVac Technologies,
Inc. 1996 Stock Incentive Award Plan as of August 15, 1996.
B. Article XIII of the Plan provides that the Board may amend the Plan
at any time, subject to the approval of the stockholders of the Company in
certain circumstances.
C. The Board has determined that it is in the best interests of the
Company and its stockholders to amend the Plan in order to increase the number
of shares of Common Stock reserved for issuance pursuant to the Plan from
325,000 to 550,000 in the aggregate.
AMENDMENT
1. CAPITALIZED TERMS.
Capitalized terms used herein without definition shall have the same
meanings given to such terms in the Plan.
2. AMENDMENT.
Section 4.01 of the Plan is hereby amended as follows:
4.01 Maximum Number of Rights or Shares in the Aggregate. Subject to
Sections 4.02 and 14.08 hereof, the maximum number of Rights and shares of
Common Stock which may become subject to Incentive Awards granted under the Plan
shall be five hundred fifty thousand (550,000) shares in the aggregate.
3. MISCELLANEOUS.
Except to the extent set forth herein, the Plan shall remain unchanged
and in full force and effect. This Second Amendment shall be governed by and
construed in accordance with the laws of the State of California and may only be
amended by a written instrument executed on behalf of the Company. In the event
of any inconsistency between the terms of this Second Amendment and the terms of
the Plan, the terms of this Second Amendment shall control.
1.
<PAGE> 25
I hereby certify that the foregoing Second Amendment was duly adopted by
the Board of Directors of the Company on March 11, 1999.
Executed as of this 11th day of March, 1999.
--------------------------------------
David P. Nelson, Secretary
2.
