SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Conversion Technologies International, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Merrill Corporation
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CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
82 Bethany Road, Suite 6
Hazlet, New Jersey 07730
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
---------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of Conversion Technologies International, Inc., a Delaware
corporation (the "Company"), will be held at the Radisson Hotel, Newark Airport,
128 Frontage Road, Newark, New Jersey, on Monday, November 25, 1996, at 10:00
a.m. (local time) for the following purposes:
1. to elect directors of the Company to serve until the next Annual
Meeting of Stockholders of the Company and until their successors are
duly elected and qualified;
2. to ratify the selection of Ernst & Young LLP as auditors for the
Company for the fiscal year ending June 30, 1997; and
3. to transact such other business as may properly come before the
Meeting or any adjournments thereof.
Only stockholders of record at the close of business on October 21, 1996,
are entitled to notice of and to vote at the Meeting.
By Order of the Board of Directors,
Harvey Goldman
Chairman of the Board, President
and Chief Executive Officer
Hazlet, New Jersey
October 28, 1996
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE READ THE
ENCLOSED PROXY STATEMENT AND COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
IN THE ENVELOPE PROVIDED.
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CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
82 Bethany Road, Suite 6
Hazlet, New Jersey 07730
---------------
PROXY STATEMENT
---------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 25, 1996
This Proxy Statement is being mailed to you in connection with the
solicitation of proxies by the Board of Directors (the "Board") of Conversion
Technologies International, Inc., a Delaware corporation (the "Company"), for
use at the Annual Meeting of Stockholders (the "Meeting") of the Company, to be
held on Monday, November 25, 1996, at 10:00 a.m. (local time) at the Radisson
Hotel, Newark Airport, 128 Frontage Road, Newark, New Jersey, and at any
adjournments thereof.
SOLICITATION OF PROXIES
All shares represented by duly executed proxies in the form enclosed
herewith that are received by the Company prior to the Meeting will be voted at
the Meeting as instructed in such proxies. There are boxes on the proxy card to
vote for or to withhold authority to vote for the director nominees, and there
are also boxes to vote for or against or to abstain on each proposal described
in this Proxy Statement. If no instructions are given, the persons named in the
accompanying proxy intend to vote FOR the eight nominees named herein as
directors of the Company and FOR each proposal described in this Proxy
Statement.
A stockholder may revoke a previously executed proxy at any time prior to
its exercise by (i) delivering a later-dated proxy, (ii) giving written notice
of revocation to the Secretary of the Company at the address set forth above at
any time before such proxy is voted or (iii) voting in person at the Meeting. No
proxy will be voted if the stockholder attends the Meeting and elects to vote in
person. If a stockholder does not intend to attend the Meeting, any proxy or
notice should be returned to the Company for receipt by the Company not later
than the close of business on Friday, November 22, 1996.
A copy of the Annual Report on Form 10-KSB of the Company containing
financial statements for the fiscal year ended June 30, 1996 (sometimes called
"Fiscal Year 1996" in this Proxy Statement), is enclosed herewith. This Proxy
Statement and the form of proxy enclosed herewith were first mailed to
stockholders on or about October 28,
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1996. The mailing address of the Company's principal executive offices is 82
Bethany Road, Suite 6, Hazlet, New Jersey 07730.
The Board does not know of any matter other than as set forth herein that
is expected to be presented for consideration at the Meeting. If other matters
properly come before the Meeting, however, the persons named in the accompanying
proxy (each of whom is an officer of the Company) intend to vote thereon in
accordance with their judgment.
RECORD DATE, OUTSTANDING VOTING
SECURITIES AND VOTES REQUIRED
The Company's Common Stock, $.00025 par value (the "Common Stock"), is the
only outstanding class of voting securities of the Company. The record date for
determining the holders of Common Stock entitled to vote on the actions to be
taken at the Meeting is the close of business on October 21, 1996 (the "Record
Date"). As of the Record Date, 5,539,745 shares of Common Stock were
outstanding. Each holder of Common Stock on the Record Date is entitled to cast
one vote per share held at the Meeting. There are no cumulative voting rights.
Holders of a majority of the shares entitled to vote must be present at the
Meeting, in person or by proxy, so that a quorum may be present for the
transaction of business. The affirmative vote of the holders of a majority of
the shares of Common Stock present at the Meeting, in person or by proxy, is
necessary for the election of directors of the Company and for the approval of
each proposal described in this Proxy Statement. Broker non-votes will not be
counted as present at the Meeting. Abstentions will be counted as present and,
accordingly, will have the effect of a negative vote.
ELECTION OF DIRECTORS
At the Meeting, eight persons will be elected to serve as directors until
the Company's next Annual Meeting of Stockholders and until their successors
have been duly elected and qualified as provided in the Company's Restated
Certificate of Incorporation and By-laws. The following persons have been
nominated and, if elected, have consented to serve as directors of the Company.
All nominees are presently members of the Board. Information about each such
nominee is set forth below.
Harvey Goldman, 50, joined the Company in March 1994 as President and Chief
Executive Officer and was elected Chairman of the Board in October 1994. From
June 1991 through March 1994, Mr. Goldman served as Executive Vice President and
as a director of Air & Water Technologies Corporation, a publicly held
environmental technologies company (and successor to Research-Cottrell, Inc.),
and as its Chief Financial Officer from June 1987 through June 1991. Prior to
joining Research-Cottrell, Inc. in 1985, Mr. Goldman was a partner at Arthur
Young & Co. (now Ernst & Young LLP), where he served as Director of Financial
Consulting in New York City and
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National Director of Environmental Consulting. Mr. Goldman received his B.A.
from Duke University and his M.B.A. from Harvard Business School.
Eckardt C. Beck, 53, has been a director of the Company since February
1995. Mr. Beck served as the Chairman and Chief Executive Officer of Air & Water
Technologies Corporation from October 1987 through June 1994 and as a director
from June 1990 through November 1994. Mr. Beck served as Chairman and Chief
Executive Officer of other environmental technologies companies prior to 1987.
Mr. Beck also served as the Assistant Administrator of the United States
Environmental Protection Agency in charge of the national water and waste
programs and as the Regional Administrator of EPA Region 2.
Norman L. Christensen, Jr., Ph.D., 49, has been a director of the Company
since June 1994 and is the Board of Directors' liaison to the Company's
Scientific Advisory Board. Dr. Christensen is the Dean of the Nicholas School of
the Environment at Duke University, a position he has held since its founding in
July 1991. From January 1990 to July 1991, Dr. Christensen was Professor and
Chair of Botany at Duke University. Dr. Christensen has held other academic
positions and has served as an advisor to the USDA Forest Service, the National
Science Foundation and NASA, and he is a Fellow of the American Association for
the Advancement of Science and the National Association of Environmental
Professionals.
Scott A. Katzmann, 40, has been a director of the Company since October
1994. Mr. Katzmann is a Managing Director and the head of Capital Markets at
Paramount Capital, Inc. Prior to joining Paramount Capital, Inc. in March 1993,
Mr. Katzmann spent over 10 years with The First Boston Corporation, where he
specialized in early stage venture capital financings, leveraged acquisition
financings, investment partnerships, oil and gas transactions, expansion capital
financings and project financings. Prior to that, he was an Investment Officer
in the Investment Department of Aetna Life & Casualty, where he specialized in
private placements.
Peter H. Gardner, 30, was elected as a director of the Company in October
1995. Mr. Gardner is an Investment Officer at Technology Funding Inc., the
Managing General Partner of two investment funds which are stockholders of and
consultants to the Company. See "Security Ownership of Certain Beneficial
Owners, Directors and Management" and "Certain Relationships and Related
Transactions." Mr. Gardner joined Technology Funding Inc. in July 1994. Mr.
Gardner held the position of Project Leader and Project Scientist at Roy F.
Weston, Inc., an environmental engineering firm, from June 1990 through August
1993. During the period September 1993 through June 1995, Mr. Gardner earned an
M.B.A. from the Anderson School at UCLA.
Alexander P. Haig, 44, was appointed as a director of the Company in May
1996. Since February 1996, Mr. Haig has been President and Chief Operating
Officer of Sky Station International, Inc., a telecommunications company. Mr.
Haig has also served since 1988 as a principal and legal counsel to Worldwide
Associates, Inc., a business adviser to
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both U.S. and foreign countries for marketing and sales activities. Prior to
1988, Mr. Haig was an attorney in private practice. Mr. Haig received his B.A.
and J.D. from Georgetown University.
Donald R. Kendall, Jr., 44, has been a director of the Company since June
1994. From May 1993 through the present, Mr. Kendall has served as the President
of Cogen Technologies Capital Company, L.P., a power cogeneration company, the
general partner of which is owned by an affiliate of Cogen Technologies, Inc., a
privately-held corporation engaged in the business of, among other things, the
development of cogeneration power plants. Also from May 1993 through the
present, Mr. Kendall has served as the Chairman and Chief Executive Officer of
Palmetto Partners, Ltd., a privately-held partnership engaged in the business of
making investments, the general partner of which is also an affiliate of Cogen
Technologies, Inc. From May 1992 to May 1993, Mr. Kendall was a Managing
Director at CS First Boston Corporation. From February 1990 to May 1992, Mr.
Kendall served as President of Kendall Capital Partners, L.P. Mr. Kendall is a
director of Cogen Technologies, Inc.
Irwin M. Rosenthal, 67, was appointed as a director of the Company in May
1996. Mr. Rosenthal is an attorney and since 1960 has specialized in securities
law. He is currently a senior partner at Rubin Baum Levin Constant & Friedman.
From January 1990 to November 1991, Mr. Rosenthal was a senior partner at Baer,
Marks and Upham and prior thereto he was an attorney at various other law firms.
Mr. Rosenthal serves as Secretary and as a director of Magar Inc., a private
investment firm, of which he is a principal stockholder. He is also a director
of Magna-Lab, Inc., a publicly-traded medical technology company, Symbollon
Corporation, a publicly-traded chemical and medical technology company, Life
Medical Sciences, Inc., a publicly-traded medical technology company, and
Echocath, Inc., a publicly-traded medical technology company, and is a general
partner of Alliance which is a partnership which invests in companies and may
take on a management role in such companies.
MEETINGS OF THE BOARD AND COMMITTEES
During the fiscal year ended June 30, 1996, the Board met seven times and
acted by written consent in lieu of a meeting four times. Norman L. Christensen,
Jr. attended less then 75% of the meetings of the Board held during Fiscal Year
1996. The Board of Directors has established three committees -- the Executive
Committee, the Audit Committee and the Compensation Committee. The Executive
Committee generally has all of the powers of the Board of Directors, subject to
limitations provided by the Delaware General Corporation Law, and was comprised
of Mr. Goldman and Mr. Katzmann during Fiscal Year 1996. The Executive Committee
was expanded in August 1996 to include Eckardt C. Beck and Peter H. Gardner. The
Audit Committee was comprised of Mr. Kendall and Mr. Christensen until October
12, 1995 and Mr. Gardner and Mr. Katzmann for the balance of Fiscal Year 1996
through the present. The Audit Committee oversees the activities of the
Company's independent auditors and reviews the Company's internal accounting
procedures and controls. The Compensation Committee was comprised of Mr.
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Goldman and Mr. Katzmann until October 12, 1995 and Mr. Gardner and Mr. Katzmann
for the balance of Fiscal Year 1996 through the present. The Compensation
Committee makes recommendations to the Board of Directors with respect to
general compensation and benefit levels, determines the compensation and
benefits for the Company's executive officers and administers the Company's
stock option and incentive plans. The Compensation Committee met three times
during Fiscal Year 1996, the Executive Committee did not meet during Fiscal Year
1996 and the Audit Committee met one time during Fiscal Year 1996.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS, DIRECTORS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of the Common Stock as of September 30, 1996, by (i) each person known
by the Company to own beneficially more than 5% of the outstanding Common Stock,
(ii) each of the Company's directors and nominees for director and the Named
Executive Officers (as defined herein) and (iii) all directors and executive
officers of the Company as a group.
Number of Shares
Name of Beneficial Owner (1) Beneficially Owned (2) Percentage
- ---------------------------- ---------------------- ----------
Harvey Goldman (2)(3)...................... 105,964 1.9%
Norman L. Christensen, Jr. (4)............. 2,615 *
Eckardt C. Beck (5)........................ 15,050 *
Scott A. Katzmann (2)(6)................... 36,829 *
Donald R. Kendall, Jr. (7)................. 175,953 3.2
Peter H. Gardner (8)....................... 324,653 5.9
Alexander P. Haig (9)...................... 4,871 *
Irwin M. Rosenthal (10).................... - -
Perry A. Pappas (11)....................... 8,931 *
Technology Funding Venture Partners V,
An Aggressive Growth Fund, L.P.
("TFVP V") (12).......................... 324,653 5.9
All officers and directors as a group (10
persons)................................. 683,721 12.1
- ----------
* Less than one percent.
(1) Unless otherwise indicated and subject to applicable community property
laws, each stockholder has sole voting and investment power with respect to all
shares of Common Stock beneficially owned by such stockholder. Unless otherwise
indicated, the address of each stockholder is c/o the Company, Bethany Crossing
Office Center, 82 Bethany Road, Hazlet, New Jersey 07730.
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(2) Includes 100,725 Escrow Shares (as defined herein) beneficially owned by
Harvey Goldman and 12,179 Escrow Shares beneficially owned by Scott A. Katzmann.
(3) Includes currently exercisable warrants to purchase 5,239 shares of Common
Stock. Excludes options to purchase 90,000 shares of Common Stock which are not
exercisable within 60 days, 50,000 of which options are Escrow Options (as
defined herein). Also excludes 80,000 shares of restricted Common Stock granted
pursuant to the 1996 Employee Incentive Plan in October 1996, which vest in
January 1998.
(4) Includes currently exercisable options to purchase 2,615 shares of Common
Stock. Excludes options to purchase 5,121 shares of Common Stock which are not
exercisable within 60 days. The address of such stockholder is Nicholas School
of the Environment, Duke University, Box 90328, Durham, North Carolina
27708-0328.
(5) Includes currently exercisable options to purchase 1,217 shares of Common
Stock. Excludes options to purchase 10,121 shares of Common Stock which are not
exercisable within 60 days. The address of such stockholder is 6345 NW 26th
Terrace, Boca Raton, Florida 33496.
(6) Includes currently exercisable options and warrants to purchase 24,650
shares of Common Stock. Excludes options to purchase 10,121 shares of Common
Stock which are not exercisable within 60 days. The address of such stockholder
is c/o Paramount Capital, Inc., 375 Park Avenue, Suite 1501, New York, New York
10152.
(7) Includes currently exercisable options and warrants to purchase 11,699
shares of Common Stock. Also includes 51,588 shares of Common Stock and
warrants, exercisable within 60 days, to purchase an aggregate of 105,435 shares
of Common Stock owned by Palmetto Partners Ltd., of which Mr. Kendall is
Chairman and Chief Executive Officer. Excludes warrants to purchase an aggregate
of 608 shares of Common Stock owned by Palmetto Partners, Ltd., which are not
exercisable within 60 days. Mr. Kendall disclaims beneficial ownership of all
securities of the Company owned by Palmetto Partners, Ltd., other than 30,000
shares of Common Stock issuable upon exercise of warrants held by Palmetto
Partners, Ltd. in which Mr. Kendall has a pecuniary interest.. Excludes options
to purchase 5,121 shares of Common Stock which are not exercisable within 60
days. The address of such stockholder is c/o Palmetto Partners, Ltd., 1600 Smith
Street, 50th Floor, Houston, Texas 77002
(8) Includes shares beneficially owned by Technology Funding Partners III, L.P.
("TFP III") and TFVP V. Mr. Gardner is an Investment Officer at Technology
Funding Inc., the Managing General Partner of TFP III and TFVP V. Mr. Gardner
disclaims beneficial ownership of all securities of the Company owned by TFP III
and TFVP V. Includes currently exercisable options to purchase 1,217 shares of
Common Stock. Excludes options to purchase 10,121 shares of Common Stock which
are not exercisable within 60 days. The address of such stockholder is c/o
Technology Funding Inc., 2000 Alameda de las Pulgas, San Mateo, California
94403.
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(9) Excludes options to purchase 5,121 shares of Common Stock which are not
exercisable within 60 days.
(10) Excludes options to purchase 5,121 shares of Common Stock which are not
exercisable within 60 days.
(11) Includes currently exercisable options to purchase 8,931 shares of Common
Stock which are Escrow Options. Excludes options to purchase an additional
27,992 shares of Common Stock which are not exercisable within 60 days, 12,992
of which options are Escrow Options. Also excludes 10,000 shares of restricted
Common Stock granted pursuant to the 1996 Employee Incentive Plan in October
1996, which vest in January 1998.
(12) Includes (i) 207,547 shares of Common Stock, (ii) warrants, exercisable
within 60 days, to purchase 35,024 shares of Common Stock, (iii) 69,180 shares
of Common Stock held by TFP III and (iv) warrants, exercisable within 60 days,
to purchase 11,685 shares of Common Stock. Includes currently exercisable
options issued to Peter Gardner to purchase 1,217 shares of Common Stock.
Excludes options issued to Peter Gardner to purchase 10,121 shares of Common
Stock which are not exercisable within 60 days. Excludes warrants to purchase
(i) 16,860 shares of Common Stock held by TFVP V and (ii) 5,608 shares of Common
Stock held by TFP III, in each case, which are not exercisable within 60 days.
EXECUTIVE OFFICERS
The following table sets forth the executive officers of the Company. See
"Election of Directors" for a description of the business experience of Mr.
Goldman.
Name Age Position
---- --- --------
Harvey Goldman.......... 50 Chairman, Chief Executive Officer and President
Robert Dejaiffe......... 59 Vice President - Technology
Perry A. Pappas......... 35 Vice President and General Counsel
Catherine Susan Kirby... 37 Vice President and Secretary
David L. Sanders........ 62 Chief Accounting Officer
Robert Dejaiffe is the Company's Vice President - Technology and has been
Vice President and Technical Director of the Company's wholly-owned subsidiary,
Dunkirk International Glass and Ceramics Corporation ("Dunkirk"), since joining
Dunkirk in July 1992. His career started as an engineer with Corning
Incorporated where he was responsible for the design and construction of several
specialty glass furnaces. Mr. Dejaiffe then became Manager of Research and
Development for the 48 Insulations Division of Foster Wheeler Corporation, where
he developed a new electric furnace design and
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worked with high temperature industrial insulations using reduced glass. From
1981 to 1989, he was at Potters Industries as Manager of Advanced Technology and
Manager of Process Development Engineering, and from October 1989 until joining
the Company, he managed a research and testing facility at Penn State
University. He holds several patents on glass composites, furnace accessories
and refractory treatments. Mr. Dejaiffe received his B.S. in Ceramics
Engineering from Penn State University and M.B.A. from Syracuse University.
Perry A. Pappas is Vice President and General Counsel of the Company. Mr.
Pappas joined the Company in September 1995. Prior to joining the Company, Mr.
Pappas was an attorney with O'Sullivan Graev & Karabell, LLP, a New York law
firm, where he specialized in venture capital and mergers and acquisitions.
Prior to joining O'Sullivan Graev & Karabell, LLP in October 1989, Mr. Pappas
was an attorney with the firm of Weil Gotshal & Manges. Mr. Pappas received his
B.S. in Psychology and Master's degree in Labor and Industrial Relations from
Michigan State University and his J.D. from the University of Michigan.
Catherine Susan Kirby is Vice President and Secretary of the Company. Ms.
Kirby has over 10 years of marketing experience, including the positions of
Creative Services Manager and Account Executive with the public relations firm
of Stern & Associates, where she worked from October 1987 to April 1990 and
focused on new product introductions and product innovations. Ms. Kirby then
worked on a consulting basis for various clients including divisions of AT&T,
until joining the Company in March 1994. Ms. Kirby received her B.A. in
Communications and Advertising and M.A. in Communications and Public Relations
from Rowan College of New Jersey.
David L. Sanders is the Company's Chief Accounting Officer. Mr. Sanders
began working for the Company in October 1994 and held the position of
Controller from April 1995 through October 1995. Mr. Sanders has held various
financial positions, including Controller, for the Roy Jacobs Company, a Dallas,
Texas distribution subsidiary of Grow Group, Inc. of New York, NY, Corporate
Controller for Oxirane Corporation, a petrochemical manufacturing subsidiary of
ARCO Chemical Company, Group Controller for BASF Chemicals U.S. and Division
Controller for the textile manufacturing division of Johnson & Johnson. From the
period January 1990 until joining the Company, Mr. Sanders worked as a
consultant on various accounting and computer related projects. Mr. Sanders
holds a B.A. from Columbia University.
OTHER SIGNIFICANT EMPLOYEES
John G. Murchie is the Controller and Chief Administrative Officer of
Dunkirk. Mr. Murchie joined Dunkirk in February 1994 as a consultant in
accounting and became a full-time employee of Dunkirk in February 1995. From
1986 through February 1994, Mr. Murchie was the controller for a privately-held
food products company. Mr. Murchie received his B.S. in Business Administration
from Miami University of Ohio.
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Mark R. Geise is Project Manager at Dunkirk, and serves as a member of the
product marketing team, specializing in technical applications. From February
1992 until joining Dunkirk in February 1993, Mr. Geise served as Director of
Development for the City of Dunkirk, New York. Prior to that, Mr. Geise spent
over four years with a housing and development agency in Buffalo, New York. Mr.
Geise received his B.S. in Environmental Design and his M.S. in Urban Planning
from the State University of New York at Buffalo.
Ashvin Srivastava, Ph.D. is Director of Research at Dunkirk. Dr. Srivastava
joined Dunkirk in August 1994. From February 1992 until September 1992, Dr.
Srivastava worked in different capacities, including Vice President-Electronic
Ceramics, with Crest Ultrasonics Corporation, a publicly held company based in
Trenton, New Jersey. Dr. Srivastava held the position of Research Assistant at
Penn State University from September 1987 until December 1992. From December
1992 until joining the Company, Dr. Srivastava was in India attending to
personal affairs. Dr. Srivastava has also served as a member of the Advanced
Technology Department for General Electric Company and Teaching Assistant at
Alfred University. Dr. Srivastava received his Bachelors degree from the
Institute of Technology, B.H.U., India, an M.S. in Ceramic Engineering from
Alfred University and a Ph.D. in Solid State Science from Penn State University.
Kimberly K. Lotter, Ph.D. joined Dunkirk in July 1995 as Laboratory
Director. Dr. Lotter was an Assistant Professor at the State University of New
York at Fredonia from August 1994 until joining Dunkirk. Prior to August 1994,
Dr. Lotter was pursuing her graduate studies at the State University of New York
at Buffalo and held various teaching and research positions. Dr. Lotter received
her B.S. in Chemistry from the State University of New York at Fredonia and
Ph.D. in Inorganic Chemistry from the State University of New York at Buffalo.
Andrew C. Cannon joined the Company in May 1995 as Product Marketing
Specialist, focusing on telemarketing, generation of leads and direct sales.
From February 1988 through June 1994, Mr. Cannon was employed with Air & Water
Technologies Corporation, working in various sales and marketing capacities,
including managing telemarketing efforts, developing lead tracking database
systems and key account management. Mr. Cannon received his B.A. in Economics
from St. Frances College in Loretto, Pennsylvania.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Employment Agreements
The Company has entered into employment agreements with Harvey Goldman, the
Chairman, President and Chief Executive Officer of the Company, and Perry A.
Pappas, Vice President and General Counsel of the Company. See "Executive
Compensation - Employment Contracts and Employment Termination Agreements"
below.
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Consulting Agreements
In April 1995, the Company entered into a Project Development Assistance
Agreement (the "Paramount Assistance Agreement") with Paramount Capital, Inc.
the placement agent for Series A Preferred Stock which was converted into Common
Stock at the closing of the Company's initial public offering (the "IPO").
Pursuant to the Paramount Assistance Agreement, principals of Paramount having
experience in foreign project development will, among other things, introduce
the Company to potential strategic partners, assist in obtaining requisite
regulatory approvals and otherwise facilitate project development activities.
The Company agreed to pay to Paramount or its designees a success fee of $75,000
for completed projects and a fee of 7% on any funds invested in the Company by a
foreign partner introduced by Paramount (together with warrants to purchase that
number of shares of Common Stock of the Company as is equal to 5% of the amount
invested divided by the Common Stock share purchase price, at an exercise price
equal to 110% of such Common Stock purchase price). The term of the Paramount
Assistance Agreement is one year, subject to renewal, cancelable by either party
upon 30 days' prior written notice. Scott A. Katzman, a director of the Company,
is a Managing Director of Paramount.
In May 1995, the Company entered into a Consulting Agreement (the "TFI
Consulting Agreement") with TFP III and TFVP V, which collectively hold 276,727
shares of Common Stock. Pursuant to the TFI Consulting Agreement, the
consultants will, among other things, introduce the Company to strategic
partners and potential customers, provide strategic marketing advice, identify
complementary technologies with strategic synergies, and identify and assist in
procuring appropriate media channels for the Company's products. As compensation
for their services, the consultants received warrants which were amended as of
the effective date of the IPO (the "Effective Date") to become warrants to
purchase 69,177 shares of Common Stock, at an exercise price of $5.28 per share.
Peter H. Gardner, a director of the Company, is an Investment Officer at
Technology Funding Inc. ("TFI"), the Managing General Partner of TFP III and
TFVP V, and serves as TFI's designee on the Board of Directors of the Company.
In July 1995, the Company entered into a Project Development Assistance
Agreement (the "TFI Assistance Agreement") with TFI. Pursuant to the TFI
Assistance Agreement, certain designated principals of TFI will, among other
things, assist the Company in project development efforts both in the United
States and abroad by identifying potential strategic partners, assisting in
obtaining regulatory approvals and providing regulatory guidance and otherwise
facilitating project development activities. The Company will pay to TFI or its
designees a success fee of $75,000 for completed projects and a fee of 7% on any
funds invested in the Company by a strategic partner introduced by TFI (together
with warrants to purchase that number of shares of Common Stock of the Company
as is equal to 5% of the amount invested divided by the Common Stock share
purchase price, at an exercise price equal to 110% of such purchase price).
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The term of the TFI Assistance Agreement is one year, subject to renewal,
cancelable by either party upon 30 days' prior written notice.
In July 1995, the Company entered into a Consulting Agreement with Palmetto
Partners, Ltd. ("Palmetto"), a stockholder of the Company and an affiliate of
Donald Kendall, a director and stockholder of the Company. Pursuant to the
Consulting Agreement, Palmetto, among other things, will provide assistance in
identifying and developing project finance opportunities for new facilities in
the United States and abroad, present the Company's products to certain
affiliates and provide product testimonials. Pursuant to the Consulting
Agreement, Palmetto received warrants to purchase an aggregate of 1,217 shares
of Common Stock subject to vesting over a three-year period. The price of such
warrants was amended, effective as of the Effective Date, to be $5.28 per share.
In March 1995, the Company entered into a Consulting Agreement with Eckardt
C. Beck, a director and stockholder of the Company, pursuant to which Mr. Beck
receives $1,000 per month for his services and is eligible to receive additional
compensation on a project basis if approved by the Company. The Consulting
Agreement expires in March 1997.
In September, October and November 1995, the Company borrowed an aggregate
of $650,000 from stockholders of the Company or their affiliates for working
capital. Of such amount, an aggregate of $250,000 was provided by TFP III and
TFVP V, $200,000 was provided by Palmetto and an aggregate of $200,000 was
provided by the Aries Domestic Fund L.P. and the Aries Trust, two funds in which
Lindsay Rosenwald, the Chairman of Paramount, is the sole stockholder and
President of the general partner and investment manager, respectively. The
principal amount of such loans was exchanged at the closing of the 1995 Bridge
Financing for $650,000 principal amount of new notes and warrants to purchase
325,000 shares of Common Stock (which warrants were exchanged automatically on
the closing of the IPO for Redeemable Class A Warrants to purchase 325,000
shares of Common Stock). Such warrants were registered for resale pursuant to
the Registration Statement relating to the IPO. The notes received by such
stockholders were repaid at the closing of the IPO.
In December 1995, the Company completed a bridge financing, placed through
the underwriter of the Company's IPO, of an aggregate of $2,225,000 principal
amount of notes and 1,112,500 warrants in which it received net proceeds of
approximately $1,849,750 (after expenses of such offering). The notes, together
with interest at the rate of 10% per annum, were repaid upon the closing of the
IPO. The warrants were exchanged automatically on the closing of the IPO for
Redeemable Class A Warrants. Such warrants were registered for resale pursuant
to the Registration Statement relating to the IPO.
In March 1996, the Company borrowed an aggregate of $200,000 pursuant to
promissory notes bearing interest at the rate of 10% per annum, payable on the
earlier of
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the closing of the IPO and September 1996. Of such amount, Dr. Rosenwald
provided $150,000, Scott Katzmann provided $18,750 and Harvey Goldman provided
$12,500. Such notes were repaid at the closing of the IPO.
In May 1996, the Company borrowed $200,000 from Dr. Rosenwald pursuant to
promissory notes bearing interest at the rate of 10% per annum, which were
repaid at the closing of the IPO.
Indemnification of Former Officer; Non-Compete
In December 1995, the Company agreed to indemnify and hold harmless Gerald
Balcar, a founder of Dunkirk, a former officer of Dunkirk and the Company and a
principal stockholder of the Company, with respect to guarantees made by Mr.
Balcar and his wife of obligations of Dunkirk. Mr. Balcar has agreed not to
compete with the Company for a two-year period ending August 31, 1997.
Issuances of Securities to Executive Officers and Directors
From the period from inception (June 23, 1993) to December 1995, the
Company granted options to purchase an aggregate of 48,891 shares of Common
Stock to executive officers and directors of the Company with exercise prices
ranging from $13.55 to $20.53 per share. Such options were repriced as of the
Effective Date at $4.40 per share.
In April 1996, the Company issued non-qualified stock options outside of
the Employee Stock Option Plan, all of which are Escrow Options, to Mr. Goldman,
to purchase 50,000 shares of Common Stock. Such options have an exercise price
of $4.40 per share and vest ratably over three years on an annual basis.
On July 1, 1996, each director received an option to purchase 121 shares of
Common Stock pursuant to an automatic grant under the Company's Stock Option
Plan for Non-Employee Directors. Such options have an exercise price of $5.00
per share and vest one year from the date of grant.
On October 11, 1996, Mr. Goldman and Mr. Pappas purchased 80,000 and 10,000
shares, respectively, of Common Stock for a purchase price of $.00025 per share,
pursuant to restricted stock grant awards under the 1996 Employee Incentive
Plan. Such shares vest in January 1998.
On October 15, 1996 the Board of Directors granted options to its
non-employee directors pursuant to the Stock Option Plan for Non-Employee
Directors to purchase an aggregate of 50,000 shares of Common Stock. Such
options have an exercise price of $3.125 per share and vest one year from the
date of grant.
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<PAGE>
Board Designee and Other TFI Covenants
The Company, TFP III and TFVP V entered into a Series A Preferred Stock
Purchase Agreement in May 1995. The agreement, as amended in December 1995,
provides that the Company will (i) use its best efforts to nominate a designee
of TFI to the Board of Directors and (ii) sell shares of stock and grant options
to employees, officers, directors and consultants only pursuant to Board
approved plans and agreements containing three-year vesting provisions (except
in the case of sales of stock or grants of options to new employees where the
Board determines otherwise for valid business reasons). Such covenants terminate
upon the earlier of (a) May 1999 and (b) such time as TFP III and TFVP V cease
to hold approximately 18,270 shares of Common Stock in the aggregate.
The terms of the transactions described above were negotiated by the
parties thereto, and the Company believes that such transactions were on terms
no less favorable to the Company than could have been obtained from unaffiliated
third parties. All future transactions between the Company and any of its
officers, directors, principal stockholders and affiliates will be on terms no
less favorable than could be obtained from unaffiliated third parties and will
be approved by a majority of the disinterested members of the Board of the
Directors.
Escrow Securities
In connection with the IPO, 740,559 shares of Common Stock (the "Escrow
Shares") and 71,923 options to purchase Common Stock (the "Escrow Options" and,
together with the Escrow Shares, the "Escrow Securities") were deposited into
escrow by the holders thereof. The Escrow Shares include shares held by Harvey
Goldman (100,725) and Scott A. Katzmann (12,179 shares). The Escrow Options
include options held by Harvey Goldman (50,000) and Perry Pappas (21,923). The
Escrow Securities are not assignable or transferable. The holders thereof have
the power to vote the Escrow Shares while such shares are held in escrow.
Holders of any options in escrow may exercise their options prior to their
release from escrow; however, the shares issuable upon any such exercise will
continue to be held in escrow as Escrow Shares. The Escrow Securities will be
released from escrow, on a pro rata basis, if, and only if, one or more of the
following conditions is/are met:
(a) the Company's net income before provision for income taxes and
exclusive of any extraordinary earnings or charges which would result from the
release of the Escrow Securities (all as audited by the Company's independent
public accountants) (the "Minimum Pretax Income") amounts to at least $4.7
million for the fiscal year ending June 30, 1998;
(b) the Minimum Pretax Income amounts to at least $7.0 million for the
fiscal year ending June 30, 1999;
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<PAGE>
(c) the Minimum Pretax Income amounts to at least $9.3 million for the
fiscal year ending June 30, 2000;
(d) the Closing Price (as defined) of the Company's Common Stock averages
in excess of $11.25 per share for 60 consecutive business days during the
18-month period commencing on the Effective Date;
(e) the Closing Price of the Company's Common Stock averages in excess of
$15.00 per share for 60 consecutive business days during the 18-month period
commencing 18 months from the Effective Date; or
(f) during the periods specified in (d) or (e) above, the Company is
acquired by or merged into another entity in a transaction in which the value of
the per share consideration received by the stockholders of the Company on the
date of such transaction or at any time during the applicable period set forth
in (d) or (e), respectively, equals or exceeds the applicable levels set forth
in (d) or (e), respectively.
The Minimum Pretax Income amounts set forth above shall (i) be calculated
exclusive of any extraordinary earnings or any charges to income resulting from
release of the Escrow Securities and (ii) be increased proportionately, with
certain limitations, in the event additional shares of Common Stock or
securities convertible into, exchangeable for or exercisable into Common Stock
are issued after completion of the IPO. The Closing Price amounts set forth
above are subject to adjustment in the event of any stock splits, reverse stock
splits or other similar events.
Any money, securities, rights or property distributed in respect of the
Escrow Securities, including any property distributed as dividends or pursuant
to any stock split, merger, recapitalization, dissolution or total or partial
liquidation of the Company, shall be held in escrow until release of the Escrow
Securities. If none of the applicable Minimum Pretax Income or Closing Price
levels set forth above have been met by October 15, 2000, the Escrow Securities,
as well as any dividends or other distributions made with respect thereto, will
be canceled and contributed to the capital of the Company. The Company expects
that the release of any Escrow Securities to officers, directors, employees and
consultants of the Company will be deemed compensatory and, accordingly, will
result in a charge to reportable earnings, which would equal the fair market
value of such shares on the date of release. Such charge could increase the loss
or reduce or eliminate the Company's net income for financial reporting purposes
for the period(s) during which such shares are, or become probable of being,
released from escrow. Although the amount of compensation expense recognized by
the Company will not affect the Company's total stockholders' equity, it may
have a negative effect on the market price of the Company's securities.
The Minimum Pretax Income and Closing Price levels set forth above were
determined by negotiation between the Company and the underwriter of the IPO and
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<PAGE>
should not be construed to imply or predict any future earnings by the Company
or any increase in the market price of its securities.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth a summary of the compensation earned by
Harvey Goldman, the Company's Chairman, President and Chief Executive Officer,
and Perry A. Pappas, the Company's Vice President and General Counsel
(collectively, the "Named Executive Officers"), for services rendered in all
capacities to the Company during the Company's fiscal years ended June 30, 1995
and 1996. No other executive officer of the Company received salary and bonus
compensation in excess of $100,000 during Fiscal Year 1996.
Annual Compensation
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary ($) Bonus ($) Compensation ($) Options/SARs (#) Compensation ($)
-------- ---- ---------- --------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Harvey Goldman 1995 $180,000 -- -- -- --
Chairman of the 1996 $180,000 -- -- 50,000 (1) --
Board, President
and Chief
Executive Officer
Perry A. Pappas 1996 $104,167 -- -- 21,923 (3) --
Vice President and
General Counsel (2)
</TABLE>
- ----------
(1) Non-qualified options to purchase Common Stock issued outside of the
Company's Employee Stock Option Plan. Such options have an exercise price of
$4.40 per share and vest over three years. All of such options are Escrow
Options.
(2) Mr. Pappas joined the Company on September 1, 1995. Mr. Pappas' current
annual salary is $125,000.
(3) Incentive Stock Options to purchase Common Stock issued pursuant to the
Employee Stock Option Plan. Such options have an exercise price of $4.40 per
share and vest over three years. All of such options are Escrow Options.
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<PAGE>
Option Grants in Fiscal Year 1996
The following table sets forth the number of individual stock option grants
made to each Named Executive Officer during Fiscal Year 1996.
Individual Grants
Number of Percent of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price
Name Granted (#)(1) Fiscal Year (2) ($/sh) Expiration Date
---- -------------- --------------- ------ ---------------
Harvey Goldman 50,000 (3) 56.5% $4.40 5/16/03
Perry A. Pappas 7,307 (4) 8.2% $4.40 9/01/02
14,616 (4) 16.5% $4.40 9/19/02
- ----------
(1) All options vest in three equal annual installments, and have a term of 7
years.
(2) The Company granted options to purchase an aggregate of 88,424 shares of
Common Stock during fiscal year 1996.
(3) Non-qualified Options granted outside of the Company's Employee Stock
Option Plan.
(4) Incentive Stock Options granted pursuant to Company's Employee Stock Option
Plan.
None of the Named Executive Officers exercised options in Fiscal Year 1996. As
of the end of Fiscal Year 1996, none of the options held by the Named Executive
Officers were in-the-money.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee makes recommendations to the full Board with
respect to compensation and benefit levels, determines the compensation and
benefits for the Company's executive officers and administers the Company's
stock option and incentive plans. The Compensation Committee is comprised of
Messrs. Gardner and Katzmann. Neither Mr. Gardner nor Mr. Katzmann is an officer
or employee of the Company or any of its subsidiaries.
Compensation Committee Report on Executive Compensation
The Company's compensation program requires that a substantial portion of
any executive's compensation (including that of the Chief Executive Officer) be
in the form of incentive compensation. In addition, the Company believes that
tying an employee's compensation to stock performance enables the Company to
align employee interests more closely with those of its stockholders.
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<PAGE>
To implement these policies, the Company's executive compensation program
consists of two main elements: (i) annual compensation, consisting of base
salary and benefits; and (ii) long-term incentives that provide a financial
opportunity through stock options or stock grants. Each component of
compensation has an integral role in the total executive compensation program.
The base salary component of annual compensation is based on competitive
salaries earned by executives with similar experience in companies similar in
size to the Company. Increases in base salary will be the direct result of
individual achievements within a fiscal year.
Long-term incentive compensation, rather than reflecting a single year's
results, is intended to focus management's attention on the Company's future.
The Compensation Committee believes strongly that executive pay should relate
directly to Company performance. Long-term incentives are intended to provide
financial opportunities for executives based on the Company's performance over a
number of years.
Long-term incentive compensation is achieved through grants of stock
options, which may be either incentive stock options ("ISOs") or stock options
that are non-qualified for Federal income tax purposes ("NQSOs") under the
Company's 1994 Employee Stock Option Plan. Options provide executives with the
opportunity to buy and maintain an equity interest in the Company and to share
in the appreciation of the value of the Company's stock. Under the Employee
Stock Option Plan, the exercise price of ISOs may not be less than 100% of the
fair market value of the Common Stock at the time of grant and the exercise
price of NQSOs is determined by the Compensation Committee at the time such
option is granted, except that the exercise price of NQSOs issued pursuant to
the Employee Stock Option Plan may not be less than 85% of the fair market value
of the Common Stock at the time of grant. Options granted under the Employee
Stock Option Plan typically vest in equal installments over a three-year period.
These features result in (i) enhancing the Company's ability to retain, for an
extended period of time, those individuals who are key to the creation of
stockholder value and (ii) ensuring that executives gain when stockholders gain
through appreciation in the market price of the Company's Common Stock.
Long-term incentive compensation is also achieved through the Company's
1996 Long-term Employee Incentive Plan (the "1996 Employee Incentive Plan"),
which allows participants to receive restricted stock grants and other incentive
compensation. Executive officers and employees are eligible to participate in
the 1996 Employee Incentive Plan. Awards under the plan have typically been
subject to vesting over at least a 12-month period.
Peter H. Gardner
Scott A. Katzmann
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<PAGE>
Compensation of Directors
Directors who are full-time employees of the Company receive no additional
compensation for services rendered as members of the Board or committees
thereof. Directors who are not full-time employees of the Company receive
reimbursement of out-of-pocket expenses for attendance at Board meetings. The
Company maintains a Stock Option Plan for Non-Employee Directors, pursuant to
which options to purchase an aggregate of 1,217 shares of Common Stock were
issued during Fiscal Year 1996. Such options vest one year from the date of
grant and have an exercise price of $4.40 per share.
On July 1, 1996, each director received an option to purchase 121 shares of
Common Stock pursuant to an automatic grant under the Company's Stock Option
Plan for Non-Employee Directors. Such options have an exercise price of $5.00
per share and vest one year from the date of grant.
On October 15, 1996 the Board of Directors granted options to its
non-employee directors pursuant to the Stock Option Plan for Non-Employee
Directors to purchase an aggregate of 50,000 shares of Common Stock. Such
options have an exercise price of $3.125 per share and vest one year from the
date of grant.
Employment Contracts and Employment Termination Arrangements
Harvey Goldman is employed with the Company under a four-year employment
agreement, which contains a one-year renewal option, effective as of March 1,
1994. Under the terms of the employment agreement, which includes
confidentiality and non-competition provisions, Mr. Goldman receives an annual
salary of $180,000, subject to increase at the discretion of the Board of
Directors. Pursuant to the employment agreement, Mr. Goldman was issued 27,194
shares of Common Stock at a price of $.002 per share as additional compensation.
Under the employment agreement, Mr. Goldman is eligible to receive an annual
bonus at the discretion of the Compensation Committee. Either the Company or Mr.
Goldman may terminate the employment agreement at any time by providing written
notice to the other party. If the termination is initiated by the Company
without cause, Mr. Goldman is entitled to receive a one-time severance payment
equal to three times his then effective base salary.
Perry A. Pappas is employed with the Company under a three-year employment
agreement which contains a one-year renewal option, effective as of September 1,
1995. Under the terms of the employment agreement, which includes
confidentiality and non-competition provisions, Mr. Pappas receives an annual
salary of $125,000, subject to increase at the discretion of the Board of
Directors. In addition, pursuant to the agreement Mr. Pappas was issued options
to purchase 7,307 shares of Common Stock, which options have an exercise price
of $4.40 per share. Mr. Pappas is also entitled to receive performance bonuses
upon recommendation of the President and approval by the Board of
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<PAGE>
Directors. The employment agreement permits either Mr. Pappas or the Company to
terminate the employment agreement by providing written notice to the other
party. If the termination is initiated by the Company without cause, Mr. Pappas
is entitled to receive a one-time severance payment equal to his base salary and
continuation of benefits for a period of one year.
Stock Option Plans
Employee Stock Option Plan
In June 1994, the Board of Directors adopted, and in April 1995 the
stockholders of the Company approved, the Company's 1994 Employee Stock Option
Plan (the "Employee Stock Option Plan"). The Employee Stock Option Plan provides
for the grant to consultants, officers and employees of both "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code, and
stock options that are non-qualified for Federal income tax purposes. Effective
upon the closing of the IPO, the total number of shares which may be issued upon
exercise of options granted pursuant to the Employee Stock Option Plan was
increased from 79,170 shares to 440,000 shares pursuant to an amendment to the
Employee Stock Option Plan adopted by the Board and approved by the holders of a
majority of the outstanding voting capital stock of the Company in November
1995.
As of October 15, 1996, the Company had options to purchase an aggregate of
217,502 shares of Common Stock outstanding under the Employee Stock Option Plan,
all of which have an exercise price of $4.40 per share.
The Employee Stock Option Plan will terminate in June 2004, unless
terminated earlier by the Board of Directors. The Compensation Committee
administers the Employee Stock Option Plan and determines which of the Company's
consultants, officers and employees will receive options, the time when options
are granted, whether the options are incentive stock options or non-qualified
stock options, the terms of such options, the exercise date of any options and
the number of shares subject to options. Members of the Compensation Committee
are not eligible to receive options under the Employee Stock Option Plan.
Directors who are also employees are eligible to receive options under the
Employee Stock Option Plan. Non-employee directors are not eligible to receive
options under the Employee Stock Option Plan.
The exercise price of incentive stock options granted under the Employee
Stock Option Plan may not be less than 100% of the fair market value of the
Common Stock at the time of grant, and the term of any option may not exceed 10
years. With respect to any employee who owns stock representing more than 10% of
the voting power of the outstanding capital stock of the Company, the exercise
price of any incentive stock option may not be less than 110% of the fair market
value of such shares at the time of grant, and the term of such option may not
exceed five years. The exercise price of a non-qualified stock option is
determined by the Compensation Committee on the date the option is
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<PAGE>
granted. However, in the case of options granted after the date of this
Prospectus, the exercise price of a non-qualified stock option may not be less
than 100% of the fair market value of the Common Stock at the time of grant.
Subsequent to the date of the grant of a non-qualified stock option, the
Compensation Committee may, at its discretion and with the consent of the
optionee, establish a new price for such non-qualified stock option.
Options granted under the Employee Stock Option Plan are nontransferable
and, with certain exceptions in the event of the death or disability of an
optionee, may be exercised by the optionee only during the term of his or her
employment. Options granted under the Employee Stock Option Plan typically vest
over a three-year period and expire after seven years.
Stock Option Plan for Non-Employee Directors
In June 1994, the Board of Directors adopted, and in April 1995 the
stockholders of the Company approved, the Company's 1994 Stock Option Plan for
Non-Employee Directors (the "Stock Option Plan for Non-Employee Directors"). The
purpose of the Stock Option Plan for Non-Employee Directors is to attract and
retain the services of experienced and knowledgeable independent directors of
the Company for the benefit of the Company and its stockholders and to provide
additional incentive for such directors to continue to work for the best
interests of the Company and its stockholders through continuing ownership of
Common Stock. Effective upon the closing of the IPO, the total number of shares
which may be issued upon exercise of options granted pursuant to the Stock
Option Plan for Non-Employee Directors was increased from 24,360 shares to
70,400 shares pursuant to an amendment to the Stock Option Plan for Non-Employee
Directors adopted by the Board and approved by the holders of a majority of the
outstanding voting capital stock of the Company in November 1995.
As of October 15, 1996, the Company had options to purchase an aggregate of
57,483 shares of Common Stock outstanding under the Stock Option Plan for
Non-Employee Directors, all of which have an exercise price of $4.40 per share.
The Stock Option Plan for Non-Employee Directors is administered by the
Board of Directors. Subject to the terms of the Stock Option Plan for
Non-Employee Directors, the Board of Directors has the sole authority to
determine questions arising under, and to adopt rules for the administration of,
the Stock Option Plan for Non-Employee Directors.
Directors of the Company who are not, and who have not been during the
immediately preceding 12-month period, employees of the Company or any
subsidiary of the Company (a "Non-Employee Director") are automatically
participants in the Stock Option Plan for Non-Employee Directors.
Pursuant to the Stock Option Plan for Non-Employee Directors, each eligible
director automatically receives an option to purchase 121 shares of Common Stock
on July 1 of each year. On October 15, 1996, the Board of Directors amended the
Stock
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<PAGE>
Option Plan for Non-Employee Directors to provide that grants of options to
eligible directors shall be on a discretionary, rather than automatic basis. The
price of shares that may be purchased upon exercise of an option is the fair
market value of the Common Stock on the date of grant, as evidenced by the
average of the high and low sales prices of Common Stock on such date as
reported on the Nasdaq SmallCap Market or the closing price, if applicable, or
the average of the last bid and asked prices on the date of the grant as
reported on the Nasdaq SmallCap Market. If there is no public trading market for
such shares, the fair value of such shares shall be determined in good faith by
the Board of Directors of the Company. The term of each option, except as
discussed below, is for a period not exceeding ten years from the date of grant.
Options may not be assigned or transferred except by will or by operation of the
laws of descent and distribution. The Stock Option Plan for Non-Employee
Directors may be terminated at any time by the Board of Directors, but such
action will not affect options previously granted pursuant thereto.
In the event of a Change in Control of the Company (as defined below), an
option granted to a Non-Employee Director will become fully exercisable if,
within one year of such Change in Control, such Non-Employee Director ceases for
any reason to be a member of the Board of Directors. A Change in Control will be
deemed to have occurred if (a) there is consummated any consolidation or merger
of the Company in which the Company is not the continuing or surviving
corporation or any sale of all, or substantially all, of the assets of the
Company; (b) the stockholders approve any plan or proposal for the liquidation
or dissolution of the Company; (c) any person or entity becomes the beneficial
owner of 50% or more of the outstanding Common Stock; or (d) during any period
of two consecutive years, individuals who at the beginning of such period
constitute the entire Board of Directors cease for any reason to constitute a
majority thereof unless the election, or the nomination for election by the
Company's stockholders, of each new director was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of the period. Any exercise of an option permitted in the event of a
Change of Control must be made within 180 days of the relevant Non-Employee
Director's termination as a director of the Company.
1996 Long-Term Employee Incentive Plan
The Board of Directors adopted the 1996 Long-Term Employee Incentive Plan
(the "1996 Employee Incentive Plan") as of August 26, 1996. The purpose of the
1996 Employee Incentive Plan is to assist the Company and its subsidiaries in
attracting and retaining individuals to serve as officers and key employees who
will contribute to the success of the Company and its subsidiaries and to
provide incentives to such individuals to achieve long-term objectives which
will inure to the benefit of all stockholders of the Company.
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<PAGE>
The 1996 Employee Incentive Plan became effective on August 26, 1996. No
awards may be granted under the 1996 Employee Incentive Plan after August 26,
2006. The Board may at any time terminate or amend the 1996 Employee Incentive
Plan. No such termination or amendment may adversely affect any outstanding
awards under the 1996 Employee Incentive Plan without the consent of the holder
of such award.
The 1996 Employee Incentive Plan is administered by the Compensation
Committee. Consistent with the terms of the 1996 Employee Incentive Plan, the
Compensation Committee determines which of the Company's officers and employees
will be granted awards under the Plan and the terms, conditions and restrictions
of such awards.
The capital stock with respect to which awards may be granted are shares of
authorized but unissued Common Stock. The aggregate number of shares of Common
Stock which may be issued under the 1996 Employee Incentive Plan may not exceed
200,000. Shares of Common Stock issuable pursuant to the 1996 Employee Incentive
Plan which have been forfeited or otherwise surrendered are available for future
grants. The Compensation Committee may grant awards under the 1996 Employee
Incentive Plan to any person who is an officer or employee of the Company or any
subsidiary at the time of such grant. Non-employee directors of the Company are
not eligible to receive awards under the 1996 Employee Incentive Plan.
The number of shares of Common Stock subject to, and price for, awards
granted under the 1996 Employee Incentive Plan are determined in each case by
the Compensation Committee and set forth in an Award Agreement (as defined in
the 1996 Employee Incentive Plan) between the Company and the participant. Each
Award Agreement also sets forth the terms and conditions of each award, as
determined by the Compensation Committee.
In the event of a Change in Control of the Company (as defined below), (a)
any restriction periods and restrictions imposed on restricted shares awarded
shall lapse; and (b) the target values attainable under all performance awards
shall be deemed to have been fully earned as of the effective date of the Change
in Control.
A "Change of Control' means any of the events set forth below; provided,
however, that the Compensation Committee, in its sole discretion, may specify a
more restrictive definition of Change in Control in any Award Agreement, which
shall apply to the award granted under such Award Agreement:
(i) the acquisition in one or more transactions, other than from the
Company, by any individual, entity or group (with in the meaning of Section 13
(d) (3) or 14 (d) (2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of a number of Company Voting Securities (as
defined in the 1996 Employee
22
<PAGE>
Incentive Plan) in excess of 50% of the Company Voting Securities unless such
acquisition has been approved by the Board; or
(ii) any election has occurred of persons to the Board that causes
two-thirds of the Board to consist of persons other than (A) persons who were
members of the Board on August 16, 1996, and (B) persons who were nominated for
election as members of the Board at a time when two-thirds of the Board
consisted of persons who were members of the Board on August 16, 1996, provided,
however, that any person nominated for election by a Board at least two-thirds
of whom constituted persons described in clauses (A) and /or (B) or by persons
who were themselves nominated by such Board shall, for this purpose, be deemed
to have been nominated by a Board comprised of persons described in this clause
(A); or
(iii) approval by the stockholders of the Company of a reorganization,
merger or consolidation, unless following such reorganization, merger or
consolidation, all or substantially all of the individuals and entities who were
the respective beneficial owners of the Outstanding Shares (as defined in the
1996 Employee Incentive Plan) and Company Voting Securities immediately prior to
such reorganization, merger or consolidation, following such reorganization,
merger or consolidation beneficially own, directly or indirectly, more than 50%,
respectively, of the then outstanding shares of Common Stock and the combined
voting power of the then outstanding Company Voting Securities entitled to vote
generally in the election of directors of the entity resulting from such
reorganization, merger or consolidation in substantially the same proportions as
their ownership of the Outstanding Shares and Company Voting Securities
immediately prior to such reorganization, merger or consolidation, as the case
may be; or
(iv) approval by the stockholders of the Company of (A) a complete
liquidation or dissolution of the Company or (B) a sale or other disposition of
all or substantially all the assets of the Company.
RATIFICATION OF SELECTION OF AUDITORS
The Board has selected the firm of Ernst & Young LLP to serve as
independent auditors for the Company for the fiscal year ending June 30, 1997.
Ernst & Young LLP has served as the Company's auditors since 1994. It is
expected that a representative of Ernst & Young LLP will be present at the
Meeting and will be available to make a statement (if he or she desires to do
so) and to respond to appropriate questions at the Meeting. If the stockholders
do not ratify the selection of Ernst & Young LLP, the Board may consider
selection of other independent auditors, but no assurances can be made that the
Board will do so or that any other independent auditors would be willing to
serve. The vote of a majority of the shares of Common Stock represented in
person or by proxy at the Meeting is required to ratify the selection of
auditors. THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THIS
SELECTION.
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DISCLOSURE PURSUANT TO SECTION 16 OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
directors and persons who are beneficial owners of ten percent or more of the
Company's Common Stock to file reports of ownership and changes in ownership of
the Company's securities with the Securities and Exchange Commission. Such
officers, directors and beneficial owners are required by applicable regulations
to provide to the Company copies of all forms they file under Section 16(a).
Based solely upon a review of the copies of forms furnished to the Company,
and written representations from certain reporting persons that no Forms 5 were
required, the Company believes that during the fiscal year ended June 30, 1996,
all filing requirements applicable to its officers, directors and ten percent
beneficial owners were complied with.
STOCKHOLDER PROPOSALS
It is presently contemplated that the 1997 Annual Meeting of Stockholders
will be held on or about November 1, 1997. Proposals by stockholders intended
for inclusion in the proxy statement to be furnished to all stockholders
entitled to vote at the next annual meeting of the Company must be received at
the Company's principal executive offices not later than June 30, 1997. In order
to curtail controversy as to the date on which a proposal was received by the
Company, it is suggested that proponents submit their proposals by certified
mail, return receipt requested. Any such proposal must also meet the other
requirements of the rules of the Securities and Exchange Commission relating to
stockholder proposals.
EXPENSES AND SOLICITATION
The Company will bear the cost of soliciting proxies, including expenses in
connection with the preparation and mailing of this Proxy Statement and all
papers which now accompany or may hereafter supplement it. Solicitation of
proxies will be primarily by mail. However, proxies may also be solicited by
directors, officers and regular employees of the Company (who will not be
specifically compensated for such services) by telephone or otherwise. Brokerage
houses and other custodians, nominees and fiduciaries will be requested to
forward proxies and proxy material to the beneficial owners of Common Stock, and
the Company will reimburse them for their expenses.
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The Company will provide without charge to each person being solicited by
this Proxy Statement, upon written request, a copy of the Company's Annual
Report on Form 10-KSB for the fiscal year ended June 30, 1996, filed with the
Securities and Exchange Commission. All such requests should be directed to
Perry A. Pappas, Conversion Technologies International, Inc., 82 Bethany Road,
Suite 6, Hazlet, New Jersey 07730.
By Order of the Board of Directors
Harvey Goldman
Chairman of the Board,
Chief Executive Officer and President
Hazlet, New Jersey
October 28, 1996
