AQUAGENIX, INC.
6500 N.W. 15th Avenue
Fort Lauderdale, Florida 33309
INFORMATION STATEMENT
WE ARE NOT ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
GENERAL
This Information Statement is being furnished to the stockholders of
Aquagenix, Inc. (the "Company"), a Delaware corporation, in connection with
proposals to (i) increase the number of shares reserved for issuance pursuant to
the Company's 1994 Stock Option Plan (the "Employee Stock Option Plan"), and;
(ii) adopt an Amended and Restated Directors Stock Option Plan (the "Directors
Stock Option Plan"), which Directors Stock Option Plan, among other things
increases the number of shares reserved for issuance pursuant thereto, by the
written consent of the holders of a majority in interest of the Company's
outstanding Common Stock ("Common Stock"). The Company's Board of Directors on
May 3, 1996, approved and recommended a resolution to increase to 1,000,000
shares the number of shares of the Company's Common Stock in the Company's
Employee Stock Option Plan that are reserved for issuance and to amend the
Company's Directors Stock Option Plan which plan, among other things increases
to 250,000 shares the number of shares of Common Stock reserved for issuance
pursuant thereto. Each of the proposals will become effective upon the written
consent of the holders of not less than a majority of the Company's outstanding
Common Stock and the filing of the Written Consent with the Secretary of the
Company. The Company anticipates that the filing of the written consents will
occur on or about __________, 1997 (the "Effective Date"). If the proposals were
not adopted by written consent, it would have been required to be considered by
the Company's stockholders at a special stockholders' meeting convened for the
specific purpose of approving the proposals.
The elimination of the need for a special meeting of stockholders to
approve the proposals is made possible by Section 228 of the Delaware General
Corporation Law (the "Delaware Law") which provides that the written consent of
the holders of outstanding shares of common stock, having not less than the
minimum number of votes which would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
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and voted, may be substituted for such a special meeting. In order to eliminate
the costs and management time involved in holding a special meeting and in order
to effect the proposals as early as possible in order to accomplish the purposes
of the Company, as hereafter described, the Board of Directors of the Company
voted to utilize the written consent of the holders of a majority in interest of
the Company's Common Stock of the Company. As discussed hereafter, the Board of
Directors has recommended the proposals in order to increase the number of
shares available for issuance pursuant to the Company's Employee Stock Option
Plan and Directors Stock Option Plan to provide additional incentives to attract
and retain qualified and competent employees and non-employee directors, and
with respect to the Directors Stock Option Plan to restructure the former plan
to provide the Director Stock Option Committee the authority to issue any number
of options as it deems appropriate at any time, which option will vest over a
two year period in order to entice long term commitments from the Company's
directors.
The date on which this Information Statement was first sent to the
stockholders is on or about ______, 1997. The record date established by the
Company for purposes of determining the number of outstanding shares of Common
Stock of the Company is December 31,1996 (the "Record Date").
Pursuant to Section 228 of the Delaware Law, the Company is required to
provide prompt notice of the taking of the corporate action without a meeting to
stockholders who have not consented in writing to such action. Inasmuch as the
Company will have provided to its stockholders of record this Information
Statement, the Company will notify its stockholders at the time of distribution
of its next Quarterly Report on Form 10-QSB or Annual Report on Form 10-KSB of
the effective date of the proposals. No additional action will be undertaken
pursuant to such written consents, and no dissenters' rights under the Delaware
Law are afforded to the Company's stockholders as a result of the adoption of
the proposals.
EXECUTIVE OFFICES
The Company's principal executive offices are located at 6500 N.W. 15th
Avenue, Fort Lauderdale, Florida 33309. Its telephone number is (954) 975-7771.
OUTSTANDING VOTING STOCK OF THE COMPANY
As of the Record Date, there were 4,163,391 shares of Common Stock
outstanding, representing all of the voting capital stock of the Company
outstanding and entitled to vote on matters submitted to the stockholders of the
Company. Each share of Common Stock entitles the holder thereof to one vote on
all matters submitted to stockholders.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth Common Stock ownership information as of
December 31, 1996 with respect to (i) each person known to the Company to be the
beneficial owner of more than 5% of the Company's Common Stock; (ii) each
director of the Company; and (iii) all directors, executive officers and
designated stockholders of the Company as a group. This information as to
beneficial ownership was furnished to the Company by or on behalf of the persons
named. Information with respect to the percent of class is based on 4,163,391
issued and outstanding shares of Common Stock as of December 31, 1996.
No. of Shares Percent of
Name and Address or of Common Stock Outstanding
Identity of Group Beneficially Owned(2) Shares Owned(2)
- ----------------- --------------------- ---------------
Andrew P. Chesler 753,378 (3) 18.1%
H&H Investments, Inc. 219,082 (4)(11) 5.3
Abraham S. Fischler. 7,500 (5) 0.2
Fred S. Katz 7,500 (6) 0.2
Jeffrey T. Katz 20,000 (7) 0.5
Allen H. Stern - (8) --
Helen Chia - (9) --
Tarragona Fund, Inc. _________ (10) ______
Alpha Atlas Holdings, LDC _________ (10) ______
Ray and Shirley Spirnock _________ ______
All directors and executive officers 0.5
as a group (six persons)
788,378 (3)(5)(11) 18.9
______________________________________
(1) Unless otherwise indicated, the address of each beneficial owner is
Aquagenix, Inc., 6500 N.W. 15th Avenue, Fort Lauderdale, Florida 33309.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date hereof upon exercise
of options and warrants. Each beneficial owner's percentage ownership is
determined by assuming that options and warrants that are held by such
person (but not those held by any other person) and that are exercisable
within 60 days from the date hereof have been exercised.
(3) Andrew P. Chesler is Chairman of the Board, Chief Executive Officer,
President and Treasurer of the Company. Includes (i) 1,600 shares of
Common Stock held by Mr. Chesler's wife, (ii) 3,900 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Chesler's wife, (iii)
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12,195 shares of Common Stock subject to an option granted to Robert A.
Radler, and (iv) 8,000 shares of Common Stock held pursuant to the grant
of stock options. Does not include 72,000 shares of Common Stock issuable
upon the exercise of options granted to Mr. Chesler under the Company's
1994 Employee Stock Option Plan, which options are not presently
exercisable.
(4) Represents shares of Common Stock held by the seller of Haas Environmental
Services, Inc. ("Seller") (now known as H&H Investments, Inc.), of which
Mr. Robert E. Haas and Mr. Eugene M. Haas ("the Haas Shareholders") are
directors, executive officers and principal shareholders, which shares
were issued to the Seller pursuant to the acquisition of Haas
Environmental Services, Inc. in partial payment of the purchase price for
the assets of Haas and as compensation for the termination of the
employment agreements with the Haas Shareholders. The address of H&H
Investments, Inc. is 1812 Route 206, Vincetown, New Jersey 08088.
(5) Abraham S. Fischler is a director of the Company. Includes 7,500 shares of
Common Stock issuable upon the exercise of options granted to Mr. Fischler
under the Company's Directors Stock Option Plan. Does not include 25,000
shares of Common Stock issuable upon exercise of options granted under the
Company's Amended and Restated Directors Stock Option Plan, subject to the
approval by the Company's stockholders of such Amended and Restated Plan,
which options are not presently exercisable.
(6) Fred S. Katz is a director of the Company. Includes 7,500 shares of Common
Stock issuable upon the exercise of options granted to Mr. Katz under the
Company's Directors Stock Option Plan. Does not include 40,000 shares of
Common Stock issuable upon exercise of options granted under the Company's
Amended and Restated Directors Stock Option Plan, subject to the approval
by the Company's stockholders of such Amended and Restated Plan, which
options are not presently exercisable.
(7) Jeffrey T. Katz is a director of the Company. Includes 16,000 shares of
Common Stock and 2,000 Warrants of the Company. Does not include 10,000
shares of Common Stock issuable upon the exercise of options granted under
the Company's Amended and Restated Directors Stock Option Plan, subject to
the approval by the Company's stockholders of such Amended and Restated
Plan, which options are not presently exercisable.
(8) Allen H. Stern is a director of the Company. Does not include 10,000
shares of Common Stock issuable upon the exercise of options granted under
the Company's Amended and Restated Directors Stock Option Plan, subject to
the approval by the Company's stockholders of such Amended and Restated
Plan, which options are not presently exercisable.
(9) Helen Chia is Chief Financial Officer and Secretary of the Company. Does
not include 25,000 shares of Common Stock issuable upon the exercise of
options granted pursuant to the 1994 Employee Stock Option Plan, which
options are not properly exercisable.
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(10) Tarragona Fund, Inc. and Alpha Atlas Holdings, LDC, collectively owning
___% of the Company's Common Stock, are each beneficially owned by
____________.
(11) H&H Investments,Inc. has granted to Andrew P. Chesler an irrevocable proxy
to vote the 219,082 shares held by H&H Investments, Inc. until the earlier
of April 25, 1997, or divestment of interest therein.
PROPOSAL TO INCREASE THE NUMBER OF SHARES RESERVED FOR
ISSUANCE PURSUANT TO THE COMPANY'S 1994 EMPLOYEE STOCK OPTION PLAN
Generally
It is proposed to increase to 1,000,000 shares the number of shares of
Common Stock in the Company's Employee Stock Option Plan that are reserved for
issuance. The Employee Stock Option Plan presently authorizes 500,000 shares for
issuance upon exercise of stock options. The current text of the Employee Stock
Option Plan, as modified pursuant to this amendment, is attached hereto as
Exhibit A. The material features of the Employee Stock Option Plan are discussed
below, but the description is subject to, and is qualified in its entirety by,
the full text of the Employee Stock Option Plan, as amended.
The purpose of the Employee Stock Option Plan is to provide additional
incentives to attract and retain qualified and competent employees, upon whose
efforts and judgment the success of the Company is largely dependent, through
the encouragement of stock ownership in the Company by such persons. In
furtherance of this purpose, the Employee Stock Option Plan authorizes (a) the
granting of incentive or non-statutory stock options to purchase Common Stock to
employees of the Company satisfying the description above, (b) the provision of
loans for the purpose of financing the exercise of options and the amount of
taxes payable in connection therewith, and (c) the use of already owned Common
Stock as payment of the exercise price for options granted under the Employee
Stock Option Plan (such provisions being at times referred to herein as the
"Stock Swap").
Approval of the increase in the number of shares reserved for issuance
under the Employee Stock Option Plan by the Company's stockholders pursuant to
the Employee Stock Option Plan is one of the conditions of Rule 16b-3, a rule
promulgated by the Securities and Exchange Commission (the "SEC") that provides
an exemption from the operation of the "short-swing profit" recovery provisions
of Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), with respect to the acquisition of options, the use of the
Stock Swap and certain transactions by officers and directors of the Company.
The Employee Stock Option Plan provides that it shall be administered by a
committee consisting of two or more directors designated by the Board of
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Directors, or in the absence of such a committee the full Board of Directors (in
either case, the "Committee"). The Committee in its sole discretion, determines
the persons to be awarded options, the number of shares subject thereto and the
exercise price and other terms thereof. In addition, the Committee has full
power and authority to construe and interpret the Employee Stock Option Plan,
and the acts of the Committee are final, conclusive and binding upon all
interested parties, including the Company, its stockholders, its officers and
employees, recipients of grants under the Employee Stock Option Plan and all
persons or entities claiming by or through such persons. The Board of Directors
has established the Employee Stock Option Committee to administer the Employee
Stock Option Plan. The Employee Stock Option Committee is currently comprised of
Jeffrey T. Katz and Allen H. Stern.
Options are intended to be granted primarily to those persons who possess
a capacity to contribute significantly to the successful performance of the
Company. Because persons to whom grants of options are to be made are to be
determined from time to time by the Committee, in its discretion, it is
impossible at this time to indicate the precise number, name or positions of
persons who will receive options or the number of shares for which options will
be granted to any such employee, except to the extent already granted or
conditionally granted.
Assuming approval of the proposed amendment, an aggregate of 1,000,000
shares of Common Stock (subject to adjustment as discussed below) will be
reserved for sale upon exercise of options granted under the Employee Stock
Option Plan. As of November, 1996, options to purchase 381,730 shares of Common
Stock were issued and outstanding under the Employee Stock Option Plan. In
November, 1996, the Company issued options to purchase an aggregate of 240,000
shares of Common Stock under the Employee Stock Option Plan, subject to the
approval by the shareholders to increase the amount of shares available for
issuance pursuant to said plan. The shares acquired upon exercise of options
granted under the Employee Stock Option Plan will be authorized and unissued
shares of Common Stock. The Company's stockholders will not have any preemptive
rights to purchase or subscribe for the shares reserved for issuance under the
Employee Stock Option Plan. If any option granted under the Employee Stock
Option Plan should expire or terminate for any reason other than having been
exercised in full, the unpurchased shares subject to that option will again be
available for purposes of the Employee Stock Option Plan.
The following table sets forth, as of December 31, 1996, certain
information regarding options granted under the Employee Stock Option Plan to
the persons and groups indicated. None of such options are currently exercisable
except as indicated.
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Value of
Number of Shares Exercise Price Options at
Name and Position Subject to Options Per Share December 31, 1996(1)
----------------- ------------------ --------- --------------------
Andrew P. Chesler 230,000(2) $3.88-$7.50 $_______
Chairman of the Board, Chief
Executive Officer and
Treasurer
Helen Chia 45,000 $3.88 $_______
Chief Financial Officer and
Secretary
All current executive officers 275,000 $3.88-$7.50 $_______
as a group (two persons)
All employees as a group 621,730(3) $3.88-$7.13 $_______
_________________________
(1) The closing sale price of the Common Stock on December 31, 1996 was $6.25
per share as reported by NASDAQ. Value is calculated by multiplying (a)
the difference between $6.25 and the option exercise price by (b) the
number of shares of Common Stock underlying the option.
(2) Includes 8,000 shares of Common Stock subject to Options presently
exercisable.
(3) Includes 38,820 shares of Common Stock subject to Options presently
exercisable.
Terms and Conditions
All options granted under the Employee Stock Option Plan are, and shall
be, evidenced by a written agreement between the Company and the grantee. Such
agreements do or shall contain such terms and conditions, consistent with the
Employee Stock Option Plan, relating to the grant, the time or times of exercise
and other terms of the options as the Committee prescribes.
Under the Employee Stock Option Plan, the option price per share for
incentive stock options may not be less than the fair market value of the
underlying shares on the date of grant. For purposes of the Employee Stock
Option Plan and subject to the Committee's sole discretion to determine
otherwise in a fair and uniform manner, the term "fair market value" means (i)
the closing price of the Common Stock as reported on a national securities
exchange or by the National Association of Securities Dealers Automated
Quotation National Market System or (ii) the mean between the closing high bid
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and low quotation for the Common Stock on the National Association of Securities
Dealers Automated Quotation System (the "NASDAQ"), on the business day
immediately preceding the date of grant. The exercise price of an option may be
paid in cash, or at the sole discretion of the Committee, by delivery of already
owned shares of Common Stock having a fair market value equal to the exercise
price, or by a combination of the foregoing. The Employee Stock Option Plan also
authorizes the Company to make loans to optionees to enable them to exercise
their options. Such loans must (i) provide for recourse to the optionee, (ii)
bear interest at a rate no less than the prime rate of interest of the Company's
principal lender, and (iii) be secured by the shares of Common Stock purchased.
Cash payments will be used by the Company for general corporate purposes.
The use of already owned shares of Common Stock applies to payment for the
exercise of an option in a single transaction and to the "pyramiding" of already
owned shares in successive, simultaneous option exercises. In general,
pyramiding permits an option holder to start with as little as one share of
Common Stock and exercise an entire option to the extent then exercisable (no
matter what the number of shares subject thereto). By utilizing already owned
shares of Common Stock, no cash (except for fractional share adjustments) is
needed to exercise an option. Consequently, the optionee would receive Common
Stock equal in value to the spread between the fair market value of the shares
subject to the option and the exercise price of the option.
No option granted under the Employee Stock Option Plan is assignable or
transferable, other than by will or by the laws of descent and distribution.
During the lifetime of an optionee, an option is exercisable only by such
optionee. The expiration date of an option will be determined by the Committee
at the time of the grant, but in no event will an option be exercisable after
the expiration of ten years from the date of grant. An option may be exercised
at any time or from time to time or only after a period of time or in
installments, as the Committee determines. The Committee may in its sole
discretion accelerate the date on which any option may be exercised.
The unexercised portion of any option granted to an employee under the
Employee Stock Option Plan shall automatically be terminated (a) three months
after the date on which the optionee's employment is terminated for any reason
other than (i) Cause (as defined in the Employee Stock Option Plan); (ii) mental
or physical disability; or (iii) death; (b) immediately upon the termination of
the optionee's employment for Cause; (c) one year after the date on which the
optionee's employment is terminated by reason of mental or physical
disabilities; or (d) one year after the date on which the optionee's employment
is terminated by reason of the death of the employee; or one year after the date
on which the optionee shall die if such death shall occur during the one year
period following the termination of the optionee's employment by reason of
mental or physical disability.
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To prevent dilution of the rights of a holder of an option, the Employee
Stock Option Plan provides for adjustment of the number of shares for which
options may be granted, the number of shares subject to outstanding options and
the exercise price of outstanding options in the event of any increase or
decrease in the number of issued and outstanding shares through the declaration
of a stock dividend or through any recapitalization resulting in a stock
split-up, combination or exchange of shares. Provisions governing the effect
upon options of a merger, consolidation or other reorganization of the Company
are also included in the Employee Stock Option Plan.
Amendments
No option may be granted under the Employee Stock Option Plan after May
11, 2004. The Board of Directors may amend, suspend or terminate the Employee
Stock Option Plan at any time, provided that such amendment may not adversely
affect the rights of an optionee under an outstanding option without the
affected optionee's written consent. In addition, the Board of Directors may not
amend the Employee Stock Option Plan to (a) without first obtaining stockholder
approval, increase the number of shares of Common Stock reserved for issuance or
change the class of persons eligible to receive options, (b) permit the granting
of options that expire beyond the maximum 10-year period, or (c) extend the
termination date of the Employee Stock Option Plan.
FEDERAL INCOME TAX CONSEQUENCES OF THE EMPLOYEE STOCK OPTION PLAN
The Employee Stock Option Plan is not qualified under the provisions of
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
nor is it subject to any of the provisions of the Employee Retirement Income
Security Act of 1974, as amended.
The following discussion is based on federal income tax laws and
regulations in effect on December 31, 1996. It does not purport to be a complete
description of the federal income tax consequences of the Employee Stock Option
Plan, nor does it describe the consequences of state, local or foreign tax laws
which may be applicable. Accordingly, any person receiving a grant under the
Plan should consult with his own tax adviser.
NON-STATUTORY STOCK OPTIONS. An optionee granted a non-statutory stock
option under the Stock Option Plan will generally recognize, at the date of
exercise of such non-statutory stock option, ordinary income equal to the
difference between the exercise price and the fair market value of the shares of
Common Stock subject to the non-statutory stock option. This taxable ordinary
income will be subject to federal income tax withholding. A federal income tax
deduction will be allowed to the Company in an amount equal to the ordinary
income to be recognized by the optionee, provided that such amount constitutes
an ordinary and necessary business expense to the Company and is reasonable, and
the Company satisfies its withholding obligation with respect to such income.
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The federal income tax treatment is somewhat different for officers and
directors of the Company ("Reporting Persons") as a result of the short-swing
profit recovery provisions of Section 16(b) of the Exchange Act. If a Reporting
Person exercises an option prior to the expiration of the holding period
required by Rule 16b-3 (which holding period lasts for six months following the
acquisition of the option), unless the Reporting Person makes an 83(b) Election,
as described below, the Reporting Person will recognize ordinary income upon the
expiration of the holding period or such earlier date on which the person ceases
to be a Reporting Person. The amount of ordinary income will be equal to the
difference between the exercise price of the option and the fair market value of
the shares at the time that the income is recognized. A Reporting Person,
however, is entitled to elect under Section 83(b) of the Code (the "83(b)
Election"), within 30 days after exercising an option, to treat as ordinary
income the excess of the fair market value of the shares covered by the option
on the date of exercise over the exercise price and no further ordinary income
will be recognized, irrespective of whether the fair market value of the shares
has increased or decreased at the expiration of the applicable period under
Section 16(b). The Company's deduction is dependent upon when a Reporting Person
recognizes ordinary income.
If an optionee exercises a non-statutory stock option by delivering other
shares, the optionee will not recognize gain or loss with respect to the
exchange of such shares, even if the then fair market value of the shares is
different from the optionee's tax basis. The optionee, however, will be taxed as
described above with respect to the exercise of the non-statutory stock option
as if he had paid the exercise price in cash, and the Company likewise generally
will be entitled to an equivalent tax deduction. Provided a separate
identifiable stock certificate is issued therefor, the optionee's tax basis in
that number of shares received on such exercise which is equal to the number of
shares surrendered on such exercise will be equal to his tax basis in the shares
surrendered, and his holding period for such number of shares received will
include his holding period for the shares surrendered. The optionee's tax basis
and holding period for the additional shares received on exercise of a
non-statutory stock option paid for, in whole or in part, with shares will be
the same as if the optionee had exercised the non-statutory stock option solely
for cash.
INCENTIVE STOCK OPTIONS. Incentive stock options are "incentive stock
options" as defined in Section 422 of the Code. Under the Code, an optionee
generally is not subject to ordinary income tax upon the grant or exercise of an
incentive stock option. However, an employee who exercises an incentive stock
option by delivering shares of Common Stock previously acquired pursuant to the
exercise of an incentive stock option is treated as making a Disqualifying
Disposition (defined below) of such shares if the employee delivers such shares
before the expiration of the holding period applicable to such shares. The
applicable holding period is the longer of two years from the date of grant or
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one year from the date of exercise. The effect of this provision is to prevent
"pyramiding" the exercise of an incentive stock option (i.e., the exercise of
the incentive stock option for one share and the use of that share to make
successive exercises of the incentive stock option until it is completely
exercised) without the imposition of current income tax.
If, subsequent to the exercise of an incentive stock option (whether paid
for in cash or in shares), the optionee holds th e shares received upon exercise
for a period that exceeds (a) two years from the date such incentive stock
option was granted or, if later (b) one year from the date of exercise (the
"Required Holding Period"), the difference (if any) between the amount realized
from the sale of such shares and the tax basis to the holder will be taxed as
long-term capital gain or loss.
In general, if, after exercising an incentive stock option, an employee
disposes of the shares so acquired before the end of the Required Holding Period
(a "Disqualifying Disposition"), such optionee would be deemed in receipt of
ordinary income in the year of the Disqualifying Disposition in an amount equal
to the excess of the fair market value of the shares at the date the incentive
stock option was exercised over the exercise price. If the Disqualifying
Disposition is a sale or exchange which would permit a loss to be recognized
under the Code (were a loss in fact to be sustained), and the sales proceeds are
less than the fair market value of the shares on the date of exercise, the
optionee's ordinary income would be limited to the gain, (if any) from the sale.
If the amount realized upon disposition exceeds the fair market value of the
shares on the date of exercise, the excess would be treated as short-term or
long-term capital gain, depending on whether the holding period for such shares
exceeded one year.
An income tax deduction is not allowed to the Company with respect to the
grant or exercise of an incentive stock option or the disposition, after the
Required Holding Period, of shares acquired upon exercise. In the event of a
Disqualifying Disposition, a federal income tax deduction will be allowed to the
Company in an amount equal to the ordinary income to be recognized by the
optionee, provided that such amount constitutes an ordinary and necessary
business expense to the Company and is reasonable, and the Company satisfies any
applicable withholding obligation with respect to such income.
REASONS FOR THE PROPOSED INCREASE OF THE NUMBER OF SHARES RESERVED FOR ISSUANCE
PURSUANT TO THE COMPANY'S EMPLOYEE STOCK OPTION PLAN
The Board of Directors of the Company believes that the increase in the
number of shares reserved for issuance pursuant to the Company's Employee Stock
Option Plan is necessary to provide the Company with additional incentives to
attract and retain qualified and competent employees and non-employee directors.
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No Dissenter's Rights.
Under Delaware law, stockholders are not entitled to dissenter's rights of
appraisal with respect to the Company's proposed increase of shares reserved for
issuance pursuant to the Company's Employee Stock Option Plan.
PROPOSAL TO ADOPT AN AMENDED AND RESTATED DIRECTORS
STOCK OPTION PLAN AND TO INCREASE THE NUMBER OF
SHARES RESERVED FOR ISSUANCE PURSUANT THERETO
Generally
It is proposed to adopt an amendment to the Company's Directors Stock
Option Plan and to adopt a resolution to increase to 250,000 shares the number
of shares of Common Stock reserved for issuance pursuant thereto. A copy of the
proposed Directors Stock Option Plan is attached hereto as Exhibit B. The
material features of the Directors Stock Option Plan are discussed below, but
the description is subject to, and is qualified in its entirety by the full text
of the Directors Stock Option Plan, as amended.
The purpose of the Directors Stock Option Plan is to advance the interests
of the Company by providing additional incentives to attract and retain
qualified and competent non-employee directors, upon whose efforts and judgment
the success of the Company is largely dependent, through the encouragement of
stock ownership in the Company by such persons.
Description of Current Director Stock Option Plan
GENERAL. Currently, the Board of Directors administers the Directors Stock
Option Plan and may grant options (the "Director Options") to any non-employee
director of the Company pursuant to the terms of the Directors Stock Option
Plan. The total number of shares of Common Stock issuable under the Directors
Stock Option Plan currently may not exceed 50,000 shares. In the event any
change is made to the Common Stock issuable under the Directors Stock Option
Plan (by reason of any stock split, stock dividend, combination of shares,
merger, consolidation, reorganization or other change in the capitalization of
the Company), an appropriate adjustment would be made as necessary to
reflect/adjust (i) the aggregate number of shares of Common Stock and/or the
kind of securities available for issuance under the Directors Stock Option Plan,
(ii) the number of shares of Common Stock and/or the kind of securities to be
made the subject of each subsequent grant, (iii) the exercise price, and (iv)
the number of shares of Common Stock and/or the kind of securities available for
purchase under each outstanding Director Options and the exercise price payable
per share so that no dilution or enlargement of benefits will occur under such
Director Options.
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PRICE AND EXERCISABILITY OF DIRECTORS OPTIONS. The exercise price of
Director Options is the fair market value of the Company's Common Stock on the
day preceding the date the Director Option is granted. For purposes of the
Directors Stock Option Plan and subject to, currently, the Board of Directors
sole discretion to determine otherwise in a fair and uniform manner, the term
"fair market value" means (i) the closing price of the Common Stock as reported
on the National Securities Exchange or by the National Association of Securities
Dealers Automated Quotation National Market System or (ii) the mean between the
closing high bid and low quotation for the Common Stock on NASDAQ, on the
business day immediately preceding the date of grant. The exercise price of an
option may be paid in cash, or at the sole discretion of the Board of Directors,
by delivery of already owned shares of Common Stock having a fair market value
equal to the exercise price, or by a combination of the foregoing. See "Proposal
to Increase the Number of Shares Reserved for Issuance Pursuant to the Company's
1994 Employee Stock Option Plan" for further description of payment by delivery
of already owned shares of Common Stock. Currently under the terms of the
Directors Stock Option Plan, each non-employee director is granted an initial
option to purchase 5,000 shares of Common Stock and thereafter each non-employee
director is granted an additional option to purchase 2,500 shares of Common
Stock upon each re-election to the Board of Directors. Any options granted
pursuant to the Directors Stock Option Plan have a term of five (5) years and
may be exercised only after the expiration of one (1) year from the date of
grant.
ASSIGNABILITY. Director Options are nonassignable or transferable other
than by will or the laws of descendant and distribution and, during the
optionees lifetime, the Director Option may be exercised only by such optionee.
AMENDMENTS. Currently the Board of Directors may amend or discontinue the
Director Stock Option Plan at anytime, provided that no such amendment may be
made without the requisite approval of the stockholders of the Company if
stockholder approval is required as a condition to the Directors Stock Option
Plan continuing to comply with the provisions of Rule 16b-3 under the Exchange
Act or Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code").
TERMINATION. The unexercised portion of any Director Option granted under
the Director Stock Option Plan currently shall automatically be terminated (a)
three (3) months after the date on which the optionee ceases to be a director
for the Company for any reason other than (i) Cause (as defined in the Directors
Stock Option Plan); (ii) mental or physical disability; or (iii) death; (b)
immediately upon the date the optionee ceases to be a director of the Company
for Cause; (c) one (1) year after the date on which the optionee ceases to be a
director of the Company by reason of mental or physical disabilities; (d) one
(1) year after the date on which the optionee ceases to be a director of the
Company by reason of the death of the director; or (e) or one (1) year after the
date on which the optionee shall die if such death shall occur during the one
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(1) year period following the termination of the date that the optionee ceases
to be a director of the Company by reason of mental or physical disability.
The following table sets forth, as of December 31, 1996, certain
information regarding options granted under the Directors Stock Option Plan to
the persons and groups indicated. None of such options are currently
exercisable. As of March 1996, options to purchase 5,000 shares of Common Stock
were issued and outstanding under the Directors Stock Option Plan. In March
1996, the Company issued options to purchase an aggregate of 85,000 shares of
Common Stock under the Employee Stock Option Plan, subject to the approval by
the shareholders to increase the amount of shares available for issuance
pursuant to said plan.
Value of
Number of Shares Exercise Price Options at
Name of Director Subject to Options Per Share December 31, 1996(1)
---------------- ------------------ --------- --------------------
Abraham S. Fischler(2) 32,500 $3.88-5.75 $66,750
Fred S. Katz(3) 47,500 $3.88-5.75 $102,300
Allen H. Stern(4) 10,000 $3.88 $23,700
Jeffrey T. Katz(5) 10,000 $3.88 $23,700
All current eligible Directors as
a group (Four persons) 100,000 $3.88-5.75 $216,450
____________________
(1) The closing sale price of the Common Stock on December 31, 1996 was $6.25
per share as reported by NASDAQ. Value is calculated by multiplying (a)
the difference between $6.25 and the option exercise price by (b) the
number of shares of Common Stock underlying the option.
(2) Includes 25,000 shares of Common Stock issuable upon exercise of options
granted under the Company's Amended and Restated Directors Stock Option
Plan, subject to the approval by the Company's stockholders of such
Amended and Restated Plan, which options are not presently exercisable.
(3) Includes 40,000 shares of Common Stock issuable upon exercise of options
granted under the Company's Amended and Restated Directors Stock Option
Plan, subject to the approval by the Company's stockholders of such
Amended and Restated Plan, which options are not presently exercisable.
(4) Includes 10,000 shares of Common Stock issuable upon exercise of options
granted under the Company's Amended and Restated Directors Stock Option
Plan, subject to the approval by the Company's stockholders of such
Amended and Restated Plan, which options are not presently exercisable.
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(5) Includes 10,000 shares of Common Stock issuable upon exercise of options
granted under the Company's Amended and Restated Directors Stock Option
Plan, subject to the approval by the Company's stockholders of such
Amended and Restated Plan, which options are not presently exercisable.
Federal Income Tax Aspects
The Director Options do not constitute incentive stock options, within the
meaning of Section 422(b) of the Code. See "Proposal to Increase the Number of
Shares Reserved for Issuance Pursuant to the Company's 1994 Employee Stock
Option Plan Federal Income Tax Consequences of the Stock Option Plan -
Non-Statutory Stock Options" for a description of the federal income tax
consequences of the Director Options.
Proposed Amendments to the Directors Option Plan
The Directors and the Directors Stock Option Committee has adopted an
Amended and Restated Directors Stock Option Plan to effect the following
amendments to the Directors Stock Option Plan:
(a) To increase the number of shares of Common Stock eligible for issuance
thereunder from the current limit of 50,000 shares to 250,000 shares;
(b) To provide the Directors Stock Option Committee with the authority to
administer the Directors Stock Option Plan;
(c) The annual amount of Director Options granted to a non-employee
director under the Directors Stock Option Plan shall be determined by the
Directors Stock Option Committee and shall be exercisable in two (2) equal
installments each on the first and second anniversary date following the date of
the grant; and
(d) Any unexercised portion of any Director Option shall automatically and
without notice terminate and become null and void on the date on which the
optionee ceases to be a director of the Company for any reason except upon death
of a director whereupon the exercise portion of any option shall automatically
and without notice terminate and become null and void sixty (60) days after the
date on which such Director ceases to be a director by reason of death.
REASONS FOR THE PROPOSED ADOPTION OF THE AMENDED AND RESTATED DIRECTORS STOCK
OPTION PLAN AND THE INCREASE OF THE NUMBER OF SHARES RESERVED FOR ISSUANCE
PURSUANT THERETO.
The Board of Directors of the Company believes that an Amended and
Restated Directors Stock Option Plan and the increase of the number of shares
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reserved for issuance pursuant thereto is necessary to provide additional
incentives to attract and retain qualified and competent non-employee directors
and to restructure the former plan to provide the Director Stock Option
Committee the authority to issue any number of options as it deems appropriate
at any time, which option will vest over a two year period in order to entice
long term commitments from the Company's directors.
No Dissenter's Rights.
Under Delaware law, stockholders are not entitled to dissenter's rights of
appraisal with respect to the Company's proposed increase of shares reserved for
issuance pursuant to the Company's Employee Stock Option Plan.
BY ORDER OF THE BOARD OF DIRECTORS
/s/Andrew P. Chesler
--------------------------------------------
Andrew P. Chesler, Chairman of the Board
BY ORDER OF THE BOARD OF DIRECTORS
--------------------------------------------
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