SCHEDULE 14C
(RULE 14C-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE
SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
|X| Preliminary proxy statement |_| Confidential, for Use of the
Commission Only (as permitted
Definitive proxy statement by Rule 14a-6(e)(2))
|_| Definitive additional materials
BIG SMITH BRANDS, INC.
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(Name of Registrant as Specified in Its Charter)
Payment of filing fee (Check the appropriate box):
|X| No Fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
<PAGE>
BIG SMITH BRANDS, INC.
7100 WEST CAMINO REAL
SUITE 402
BOCA RATON, FLORIDA 33433
(407) 367-8283
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INFORMATION STATEMENT
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GENERAL INFORMATION
GENERAL
This Information Statement (the "Information Statement") is furnished to
the holders of Common Stock, $0.01 par value per share (the "Common Stock"), of
Big Smith Brands, Inc. (the "Company") in connection with certain actions
approved by a Written Consent of Stockholders in Lieu of Special Meeting dated
June 3, 1998 (the "Written Consent"). WE ARE NOT ASKING YOU FOR A PROXY AND YOU
ARE REQUESTED NOT TO SEND US A PROXY. This Information Statement is being
provided pursuant to the requirements of Rule 14c-2 promulgated under Section 14
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to
inform holders of Common Stock entitled to vote or give an authorization or
consent in regard to the actions authorized by the Written Consent, of the
actions having been taken by the Written Consent.
By executing and delivering the Written Consent to the Company,
stockholders holding no less than a majority of the outstanding shares of the
Company's Common Stock (the "Majority Stockholders") authorized the following
actions previously recommended by the Board of Directors of the Company (the
"Board"): (i) the amendment and restatement (the "Plan Amendment") of the
Company's 1994 Stock Incentive Plan (the "1994 Plan") (a) to increase to
[1,800,000] the number of shares reserved for issuance under the 1994 Plan, and
to 1,000,000 the number of shares of Common Stock with respect to which options
may be granted to any one employee in any calendar year to 1,000,000 shares, and
(b) to bring the 1994 Plan into compliance with certain provisions of the
Internal Revenue Code of 1986, as amended (the "Code") and the Exchange Act;
(ii) the amendment and restatement (the "Charter Amendment") of the Company's
Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") to create a new class of "blank check" preferred stock, $0.01
par value per share (the "Preferred Stock") consisting of 1,000,000 shares; and
(iii) a reverse stock split of the Common Stock of the Company pursuant to which
each [three] shares of Common Stock of the Company presently issued and
outstanding will be changed into one share of Common Stock and any fractional
number of shares due to any holder of record resulting from such reverse stock
split will be rounded up to the next whole number of shares.
RECORD DATE
On June 3, 1998 (the "Record Date"), there were 7,099,842 shares of
Common Stock outstanding and entitled to one vote each on the matters approved
by the Written Consent. On the Record Date, the Majority Stockholders owned or
had the right to vote 4,883,000 shares of Common Stock, constituting
approximately 68.8% of the Company's outstanding Common Stock. All of the shares
of Common Stock which the Majority Stockholders owned or had the right to vote
on the Record Date consented to the actions authorized or taken by the Written
Consent. Only stockholders of record of the Company at the close of business on
the Record Date are entitled to receive this Information Statement. This
Information Statement is being mailed to such stockholders of record on or about
June 3, 1998.
ITEM 1. INFORMATION REQUIRED BY
ITEMS OF SCHEDULE 14A
1. Date, time and place information:
(a) The Written Consent was executed as of June 3, 1998 and delivered by
the Majority Stockholders to the Company's principal executive offices at 7100
West Camino Real, Suite 402, Boca Raton, Florida 33433.
6. Voting Securities and Principal Holders Thereof:
<PAGE>
(a) As of June 3, 1998, there were 7,099,842 outstanding shares of
Common Stock, each entitled to one vote on the matters put to a vote of
stockholders of the Company.
(b) Holders of Common Stock entitled to vote were calculated, as of the
Record Date, to determine the number of shares constituting a majority of the
outstanding shares of Common Stock (required to approve the Written Consent).
(d) The following table sets forth, as of June 3, 1998, the number of
shares of Common Stock (and the percentage of the Company's Common Stock)
beneficially owned by (i) each person known (based solely on Schedules 13D or
13G filed with the Securities and Exchange Commission (the "Commission") to the
Company to be the beneficial owner of more than 5% of the Common Stock, (ii)
each Director of the Company, (iii) the Named Executive Officers (as defined in
"Executive Compensation" below), and (iv) all Directors and Executive Officers
of the Company as a group (based upon information furnished by such persons).
Under the rules of the Commission, a person is deemed to be a beneficial owner
of a security if such person has or shares the power to vote or direct the
voting of such security or the power to dispose of or to direct the disposition
of such security. In general, a person is also deemed to be a beneficial owner
of any securities of which that person has the right to acquire beneficial
ownership within 60 days. Accordingly, more than one person may be deemed to be
a beneficial owner of the same securities.
NUMBER OF SHARES PERCENTAGE (%)
NAME AND ADDRESS BENEFICIALLY OWNED OF COMMON STOCK
S. Peter Lebowitz 1,509,000 21.3%
c/o Big Smith Brands, Inc.
7100 West Camino Real, Suite 402
Boca Raton, Florida 33433
Theresa Lebowitz and Michael S. Nelson, 474,000 6.7%
Esq., as trustees (1)
c/o Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Glen Freeman (2) 15,000 *
c/o Big Smith Brands, Inc.
7100 West Camino Real, Suite 402
Boca Raton, Florida 33433
Theodore Listerman (2) 25,000 *
c/o Big Smith Brands, Inc.
7100 West Camino Real, Suite 402
Boca Raton, Florida 33433
Jack Schultz (2) (3) 17,000 *
c/o Big Smith Brands, Inc.
7100 West Camino Real, Suite 402
Boca Raton, Florida 33433
Julian Shaps (2) 15,000 *
c/o Big Smith Brands, Inc.
7100 West Camino Real, Suite 402
Boca Raton, Florida 33433
John Bagdasian (4) 8,500 *
c/o Big Smith Brands, Inc.
7100 West Camino Real, Suite 402
Boca Raton, Florida 33433
All directors and officers
as a group (6 persons) 1,589,500 22.2%
(5)
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<PAGE>
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* Indicates beneficial ownership of less than one (1%) percent.
(1) Represents shares held in trust for the benefit of Barbara Lynn Van Achte,
Karen Sue Hart and Wendy Ann Lebowitz, with respect to which Mrs. Lebowitz
and Mr. Nelson, a partner at the law firm of Kramer, Levin, Naftalis &
Frankel, the Company's outside corporate counsel, serve as trustees. Under
the Trust Agreement, Mrs. Lebowitz and Mr. Nelson share voting and
dispositive power, subject only to the beneficiaries' right to withdraw the
shares under certain circumstances. Mrs. Lebowitz is the wife, and the
three trust beneficiaries are the daughters, of Mr. Lebowitz.
(2) Includes 15,000 shares issuable upon exercise of options exercisable within
60 days.
(3) Includes 2,000 shares issuable upon exercise of warrants exercisable within
60 days.
(4) Includes 2,500 shares issuable upon exercise of options exercisable within
60 days.
(5) Includes options and warrants to purchase 64,500 shares exercisable within
60 days.
8. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS.
The following table sets forth information concerning the compensation
for services in all capacities for the fiscal years ended December 31, 1997,
December 31, 1996 and December 31, 1995, of S. Peter Lebowitz the Chief
Executive Officer of the Company and John Bagdasian, Vice President and General
Manager of the Big Smith sportswear line, the only other executive officer of
the Company who earned over $100,000 during the most recently completed fiscal
year (the "Named Executive Officers").
<TABLE>
<CAPTION>
======================================================================================================
Annual Compensation Long Term Compensation
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Other Annual Awards All Other
Name and Fiscal Salary Bonus Compensation Options Compensation
Principal Position Year ($) ($) ($) (1) (#) ($)
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<S> <C> <C> <C> <C>
S. Peter Lebowitz-Chief 1997 $300,000 -- $ 10,996 -- --
Executive Officer 1996 $300,000 -- $ 9,973 -- --
1995 $250,000 -- $ 8,700 175,000(2) --
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John Bagdasian 1997 $110,000 -- -- 10,000(3) --
======================================================================================================
</TABLE>
(1) Represents the valuation of certain club membership dues and
automobile lease payments of approximately $10,996, $9,973 and $8,700 for 1997,
1996 and 1995, respectively.
(2) Represents grants of options in connection with the Company's
initial public offering, the vesting of which was contingent upon the Company
achieving a certain level of net income during the fiscal year ended December
31, 1995, which level was not achieved.
(3) Represents options granted in 1997.
COMPENSATION OF DIRECTORS
Non-employee directors of the Company receive one thousand dollars plus
expenses for each meeting of the Board of Directors that they attend and,
pursuant to the Company's 1994 Stock Incentive Plan (the "1994 Plan") are
automatically granted 10,000 options annually upon election at the Annual
Meeting. On June 12, 1997, each non-employee Director received an option to
purchase 20,000 shares of the Company's common stock at an exercise price of
$0.42. On February 11, 1998, each non-employee Director was granted an option to
purchase 10,000 shares of the Company's Common Stock at an exercise price of
$0.53. Each grant under the 1994 Plan vests in four substantially equal parts on
each of the first four anniversaries of the date of the grant. To the extent the
options are unexercised, they expire on the fifth anniversary of the date of the
grant.
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<PAGE>
EMPLOYMENT ARRANGEMENTS
S. Peter Lebowitz is employed as the Company's President and Chief
Executive Officer under an employment agreement, expiring on December 31, 2003.
Pursuant to the employment agreement, Mr. Lebowitz receives annual compensation
of $300,000 and an annual bonus of up to $200,000 if the Company achieves a
certain specified levels of net income. The employment agreement with Mr.
Lebowitz further provided that if his employment were terminated by the Company
without cause or at any time following a change of control, or by Mr. Lebowitz
within twelve months after a change of control, the Company would pay to Mr.
Lebowitz salary, bonus and benefits in the amount and kind then in effect
subject to certain adjustments for three years following such termination. The
payment of the salary and bonus would be made in a lump sum 30 days after the
date of such termination.
On February 11, 1998, in connection with his entry into the employment
agreement, Mr. Lebowitz was granted options for the purchase of 1,000,000 shares
of Common Stock pursuant to the terms and conditions of the Company's 1994 Plan,
subject to stockholder approval with respect to the 873,200 shares for which the
grant exceeded the shares then available for grant under the 1994 Plan and
approval of an increase in the maximum number of shares which may be subject to
options granted to any employee in a single year. The options are exercisable at
$0.53 per share, the high ask price on the laste date on which trading took
place prior to the date of grant and vest in equal annual installments on the
first four anniversaries of the date of grant.
10. COMPENSATION PLANS:
The Board of Directors and the Stockholders in the Written Consent
approved the Plan Amendment which as, if and when implemented will (a) increase
the number of shares reserved for issuance and options available to be granted
under the Plan to [1,800,000] shares from 500,000 shares and increase the number
of shares of Common Stock with respect to which options may be granted to any
one employee in any calendar year to 1,000,000 shares from 400,000 shares and
(b) bring the 1994 Plan into compliance with certain new requirements of Section
16 of the Exchange Act and the requirements of Section 162(m) of the Code. Prior
to the approval of the Plan Amendment, taking into account certain grants of
options at the February 11, 1998 meeting of the Board of Directors, options to
purchase 873,200 shares of Common Stock in excess of those reserved under the
1994 Plan had been granted by the Board of Directors, contingent upon
stockholder approval.
DESCRIPTION OF THE PROPOSED AMENDMENT
This description of the Plan Amendment is qualified by reference to the
text of the Plan Amendment, which is available upon written request from the
Company at its executive offices and will be filed as an exhibit to the
Company's next periodic filing.
Increase in share reserved for issuance under the 1994 Plan. The Plan Amendment
increases the number of shares authorized for issuance under the 1994 Plan to
[1,800,000] shares from 500,000 shares, and the number of shares that can be
awarded to any one employee during the term of the Plan to 1,000,000 shares from
400,000 shares. Prior to the Plan Amendment the Company had exhausted the shares
of Common Stock reserved for issuance under the 1994 Plan and had granted to S.
Peter Lebowitz, Chief Executive Officer of the Company, options to purchase an
additional 873,200 shares under the 1994 Plan, contingent upon the approval of
the Plan Amendment by the stockholders. Following approval of the Plan Amendment
426,800 shares will be available for issuance upon exercise of options not yet
granted under the 1994 Plan.
Compliance with certain regulatory provisions. In order to maintain the
qualification of compensation paid by the Company to certain executive officers
in the form of options under the 1994 Plan as "performance based compensation"
which is excluded from the limits on the deductibility of employment
compensation under Section 162(m) of the Code, the Plan Amendment adds to the
1994 Plan a requirement that, to the extent necessary for compliance with
Section 162(m), the Stock Option Committee will be composed solely of "outside
directors."
Additionally, in order to conform the 1994 Plan to the new regulations
under Section 16 of the Exchange Act, the amendment modifies the 1994 Plan's
provisions relating to stockholder approval of amendments to provide, among
other things, that such approval will be required for any amendment to the 1994
Plan for which shareholder approval is required by other applicable law or
regulation and adds a requirement that, to the extent necessary for compliance
with the regulations under Section 16, the Stock Option Committee will be
composed solely of "non-employee directors."
The following is a summary of the other principal provisions of the
1994 Plan.
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<PAGE>
SUMMARY OF 1994 PLAN
In 1994, the Company's Board of Directors adopted and the stockholders
approved the Big Smith Brands, Inc. 1994 Stock Incentive Plan (the "1994 Plan")
to provide officers and other employees of the Company an incentive to enter
into and remain in the service of the Company, to enhance the long-term
performance of the Company and to acquire a proprietary interest in the success
of the Company.
General. The 1994 Plan provides for the grant of (i) stock options
which are intended to qualify as "incentive stock options" under Section 422 of
the Code and (ii) nonqualified stock options (incentive and nonqualified stock
options are referred to collectively as "options"). Options may be granted under
the 1994 Plan to such officers, directors, other employees and consultants of
the Company as the Stock Option Committee in its discretion selects, provided
that only employees may receive grants of incentive stock options. The 1994 Plan
also provides for automatic grants of nonqualified options to directors who are
not employees, as described further below. In 1997, options were granted under
the 1994 Plan to a total of [seven] individuals; the group of individuals who
receive grants in future years may be larger or smaller.
Administration. The 1994 Plan is administered by the Stock Option
Committee, which must be composed of not less than two directors. The Stock
Option Committee is authorized to construe, interpret and implement the
provisions of the 1994 Plan, to select the individuals to whom awards will be
granted, and to determine the number of shares of Common Stock covered by such
awards and the other terms and provisions of such awards. The determinations of
the Stock Option Committee are made in its sole discretion and are conclusive.
Option Grants Under the 1994 Plan. Options granted under the 1994 Plan
are exercisable during the period fixed by the Stock Option Committee, provided
that no option will be exercisable less then one year after the date of grant
except as expressly provided in the 1994 Plan and no incentive stock option will
be exercisable more than ten years after the date of grant. The purchase price
per share payable upon the exercise of an option under the 1994 Plan (the
"option exercise price") will be established by the Stock Option Committee,
provided that the option exercise price of an incentive stock option will not be
less than 100% of the fair market value of a share of Common Stock on the date
of the grant. The option exercise price is payable in cash, or, with the consent
of the Stock Option Committee, by surrender of Common Stock of the Company
having a fair market value on the date of the exercise equal to part or all of
the option exercise price. No option granted under the 1994 Plan may be assigned
or transferred other than upon the grantee's death. All such options are
exercisable during the grantee's life only by the grantee.
The 1994 Plan provides for the automatic grants of nonqualified options
to directors who are not employees of the Company (each, an "eligible
director"). Each eligible director who is appointed to fill a vacancy on the
Board of Directors subsequent to January 1, 1995 will automatically receive a
grant of an option to purchase 20,000 shares, effective as of the last day of
the fiscal quarter of the Company in which the eligible director was appointed.
At each annual stockholders' meeting commencing with the 1995 annual meeting,
each eligible director elected to serve at such meeting also automatically
receives a grant of an option to purchase 10,000 shares, effective as of the
date of the annual meeting. The option exercise price of each nonqualified
option granted to an eligible director will be the fair market value of a share
of the shares subject to the option on the date of grant.
Termination of Employment or Service . The 1994 Plan provides that
unless the Stock Option Committee otherwise specifies: (i) all options not yet
exercised will terminate upon termination of the grantee's employment or service
by reason of discharge for cause; (ii) if a grantee's employment or service
terminates for reasons other than cause or death, the grantee's options
generally will be exercisable for 90 days after termination to the extent
exercisable on the date of termination, but not after the expiration date of the
options; and (iii) if a grantee dies while in the Company's employ or service or
during the 90 day period provided in clause (ii) above, the grantee's options
will, to the extent exercisable on the date of death, generally remain
exercisable for one year after the date of death, but not after the expiration
date of the award.
Other Features of the 1994 Plan. The Stock Option Committee may amend
any outstanding option, including, without limitation, by amendment which would
accelerate the time or times at which the option may be exercised or extend the
scheduled expiration date of the option. The Board of Directors may suspend,
discontinue, revise or amend the 1994 Plan at any time or from time to time;
provided, however, that stockholder approval will be obtained for any amendment
to the extent necessary to comply with Section 422 of the Code (i.e., any
amendment which increases the number of shares which may be issued pursuant to
incentive stock options or changes the class of employees eligible to receive
such options) or other applicable law. Unless sooner terminated by the Board of
Directors, the provisions of the 1994 Plan respecting the grant of incentive
stock options will terminate on the tenth anniversary of the adoption of the
1994 Plan by the Board of Directors. All awards made under the 1994 Plan prior
to its termination will remain in effect until such awards have been satisfied
or terminated.
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<PAGE>
Federal Income Tax Consequences of 1994 Plan Options. The following
summary of the tax consequences of options under the 1994 Plan is based on
present Federal tax laws, and does not purport to be a complete description of
the Federal tax consequences of the 1994 Plan.
There are generally no Federal tax consequences either to the optionee
or to the Company upon the grant of an option. On exercise of an incentive stock
option, the optionee will not recognize any income, and the Company will not be
entitled to a deduction for tax purposes, although such exercise may give rise
to liability for the optionee under the alternative minimum tax provisions of
the Code. Generally, if the optionee disposes of shares acquired upon exercise
of an incentive stock option within two years of the date of grant or one year
of the date of exercise, the optionee will recognize compensation income, and
the Company will be entitled to a deduction for tax purposes, in the amount of
the excess of the fair market value of the shares of Common Stock on the date of
exercise over the option exercise price (or the gain on sale, if less).
Otherwise, the Company will not be entitled to any deduction for tax purposes
upon disposition of such shares, and the entire gain for the optionee will be
treated as a capital gain. On exercise of a nonqualified stock option, the
amount by which the fair market value of the Common Stock on the date of
exercise exceeds the option exercise price will generally be taxable to the
optionee as compensation income, and will generally be deductible for tax
purposes by the Company. The disposition of shares of Common Stock acquired upon
exercise of a nonqualified stock option will generally result in a capital gain
or loss for the optionee, but will have no tax consequences for the Company.
As discussed above, Section 162(m) of the Code limits the deduction
which the Company may take for otherwise deductible compensation payable to
certain executive officers to the extent that the compensation exceeds $1
million, unless the compensation qualifies as "performance-based compensation."
The Company believes that, subject to stockholder approval of the proposed
amendments to the 1994 Plan, compensation recognized upon the exercise of
options will generally satisfy the requirements of Section 162(m).
NEW PLAN BENEFITS
On February 11, 1998, the Board of Directors and Stock Option Committee
approved the grant of options to purchase 1,000,000 shares to S. Peter Lebowitz
and the additional option grants to employees and directors of the Company
indicated in the chart below. Of the 1,000,000 options granted to Mr. Lebowitz,
873,200 are subject to stockholder approval of the Plan Amendment. All options
were granted with a per share exercise price equal to the [value/closing
price/etc.] of the Common Stock on the date of grant ($XX). As awards other than
automatic annual awards to non-employee directors under the 1994 Plan are
authorized by the Committee in its discretion, it is not possible to determine
the additional benefits or amounts, if any, that will be received by any
individual or group in 1998, or the benefits or amounts that will be received by
any individual or group in future years.
NAME OF INDIVIDUAL OR GROUP NUMBER OF OPTIONS
S. Peter Lebowitz 1,000,000
Chief Executive Officer
John Bagdasian
Vice President and General Manager of the Big Smith
sportswear line 0
Executive Group (3 persons) 1,010,000
Non-Executive Director Group 40,000
Non-Executive Officer Employee Group (104 persons) 23,000
19. AMENDMENT OF CHARTER, BY-LAWS OR OTHER DOCUMENTS:
GENERAL
The Board of Directors and the Majority Stockholder acting in the
Written Consent approved the amendment and restatement of Article Fourth of the
Company's Certificate of Incorporation to create a new class of "blank check"
preferred stock consisting of 1,000,000 shares (the "Charter Amendment"), on May
19, 1998 voted to file a Certificate of Amendment and Restatement to the Amended
and Restated Certificate of Incorporation to effect the Charter Amendment.
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<PAGE>
Creation of "Blank Check" Preferred Stock
The Board of Directors on May 19, 1998 adopted a resolution unanimously
approving and recommending to the stockholders for their approval an amendment
to the Certificate of Incorporation to provide therein for the creation of
1,000,000 shares of "Blank Check" Preferred Stock. The text of Article Fourth of
the Certificate of Incorporation, as amended and restated is included in Annex A
to this Information Statement. The Written Consent approved such amendment. The
Board of Directors believes that having such Blank Check Preferred Stock
available for, among other things, possible issuance in connection with such
activities as public or private offerings of shares for cash, dividends payable
in stock of the Company, acquisitions of other companies or businesses, and
otherwise, is in the best interest of the Company and its stockholders.
The term "Blank Check" Preferred Stock refers to stock for which the
designations, preferences, conversion rights, cumulative, relative,
participating, optional or other rights, including voting rights,
qualifications, limitations or restrictions thereof (collectively, the
"Limitations and Restrictions") are determined by the board of directors of a
company. As such, the Board of Directors of the Company will be entitled to
authorize the creation and issuance of 1,000,000 shares of Preferred Stock in
one or more series with such Limitations and Restrictions as may be determined
in the Board of Director's sole discretion, with no further authorization by
stockholders required for the creation and issuance thereof.
The Board of Directors is required to make any determination to issue
shares of Common Stock or Preferred Stock based on its judgment as to the best
interests of the stockholders and the Company. Although the Board of Directors
has no present intention of doing so, it could issue shares of Common Stock or
Preferred Stock that may, depending on the terms of such series, make more
difficult or discourage an attempt to obtain control of the Company by means of
a merger, tender offer, proxy contest or other means. When, in the judgment of
the Board of Directors, this action will be in the best interest of the
stockholders and the Company, such shares could be used to create voting or
other impediments or to discourage persons seeking to gain control of the
Company. Such shares could be privately placed with purchasers favorable to the
Board of Directors in opposing such action. In addition, the Board of Directors
could authorize holders of a series of Common or Preferred Stock to vote either
separately as a class or with the holders of the Company's Common Stock, on any
merger, sale or exchange of assets by the Company or any other extraordinary
corporate transaction. The existence of the additional authorized shares could
have the effect of discouraging unsolicited takeover attempts. The issuance of
new shares also could be used to dilute the stock ownership of a person or
entity seeking to obtain control of the Company should the Board of Directors
consider the action of such entity or person not to be in the best interest of
the stockholders and the Company.
While the Company may consider effecting an equity offering of
Preferred Stock in the future for purposes of raising additional working capital
or otherwise, the Company, as of the date hereof, has no agreements or
understandings with any third party to effect any such offering, to purchase any
shares offered in connection therewith, and no assurances are given that any
offering will in fact be effected.
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<PAGE>
20. REVERSE STOCK SPLIT
The Board of Directors, and the Majority Stockholders acting in the
Written Consent, approved one-for-[three] reverse stock split, pursuant to which
each [three] shares of Common Stock of the Company presently issued and
outstanding be changed into one share of Common Stock and any fractional number
of shares due to any holder of record resulting from such reverse stock split
shall be rounded up to the next whole number.
The Board of Directors recommended the reverse stock split in order to
make available authorized shares of Common Stock for use in the Company's
efforts to raise capital through a private placement or public offering, and to
increase the trading price of the Company's Common Stock to a range more
appropriate for such efforts and for meeting the initial listing requirements of
the Nasdaq Stock Market's SmallCap Market in connection with any application to
restore the Common Stock to trading in such market. There can be no assurance,
however, that such efforts will be successful or that the Company will meet the
necessary qualifications to submit such application, or if it does, that such
application will be approved.
In order to ensure that the Company has the flexibility to gain the
greatest benefit possible from the reverse split, the Board of Directors
recommended and the Majority Stockholders approved in the Written Consent giving
the Board of Directors the authority to change the ratio of the reverse stock
split or to abandon the reverse stock split as they, in their business judgment,
deem to be in the best interests of the Company and its stockholders.
By Order of the Board of Directors
----------------------
S. PETER LEBOWITZ
Chairman of the Board
Boca Raton, Florida
June 3, 1998
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