SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
ECOTYRE TECHNOLOGIES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12
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>
ECOTYRE TECHNOLOGIES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 29, 1997
To the Stockholders of
ECOTYRE TECHNOLOGIES, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of EcoTyre
Technologies, Inc. will be held at Gurney's Inn located at 290 Old Montauk
Highway, Montauk, New York 11954 on Thursday, May 29, 1997 at 10:00 a.m., or at
any adjournment thereof, for the following purposes:
1. To elect two directors to the Board of Directors;
2. To consider and act upon a proposal to amend the Company's Certificate
of Incorporation to authorize an increase in the Company's authorized
capital from 20,000,000 shares of Common Stock, par value $.001 per
share (the "Common Stock") to 30,000,000 shares of Common Stock, par
value $.001 per share, as set forth in Exhibit A.
3. To consider and act upon a proposal to grant the Board of Directors
authority to amend the Company's Certificate of Incorporation to
authorize a one-for-three, one-for-five-or one-for-seven reverse
stock split of the Common Stock, as set forth in Exhibit B.
4. To consider and act upon such other business as may properly come
before this meeting or any adjournment thereof.
The above matters are set forth in the Proxy Statement attached to this
Notice to which your attention is directed.
Only stockholders of record on the books of the Company at the close of
business on April 23, 1997 will be entitled to vote at the Annual Meeting of
Stockholders or at any adjournment thereof. You are requested to sign, date and
return the enclosed Proxy at your earliest convenience in order that your shares
may be voted for you as specified.
By Order of the Board of Directors,
Robert E. Munyer, Jr.
Secretary
April 24, 1997
Holtsville, New York
<PAGE>
EcoTyre Technologies, Inc.
895 Waverly Avenue
Holtsville, New York 11742
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
May 29, 1997
The Annual Meeting of Stockholders of EcoTyre Technologies, Inc. (the
"Company") will be held on Thursday, May 29, 1997 at Gurney's Inn, 290 Old
Montauk Highway, Montauk, New York 11954, at 10:00 a.m. for the purposes set
forth in the accompanying Notice of Annual Meeting of Stockholders. The enclosed
proxy is solicited by and on behalf of the Board of Directors of the Company for
use at the Annual Meeting of Stockholders to be held on May 29, 1997 and at any
adjournments of such meeting. The approximate date on which this proxy statement
and the enclosed proxy are being first mailed to stockholders is April 24, 1997.
If a proxy in the accompanying form is duly executed and returned, the shares
represented by such proxy will be voted as specified. Any person executing the
proxy may revoke it prior to its exercise either by letter directed to the
Company or in person at the Annual Meeting.
Voting Rights
Only stockholders of record on April 23, 1997 (the "Record Date") will be
entitled to vote at the Annual Meeting or any adjournment thereof. As of the
Record Date, the Company had outstanding one class of voting capital stock,
namely ___________ shares of Common Stock, $.001 par value per share. Each share
of Common Stock issued and outstanding on the Record Date is entitled to one
vote at the Annual Meeting of Stockholders.
The affirmative vote of a majority of the votes cast at the Annual Meeting
of Stockholders is required for approval of the election of directors. The
affirmative vote of a majority of the outstanding shares on the Record Date is
required for the approval of the amendments to the Certificate of Incorporation
increasing the number of authorized shares and authorizing a reverse stock
split. For purposes of determining whether proposals have received a majority
vote, abstentions will not be included in the vote totals and, in instances
where brokers are prohibited from exercising discretionary authority for
beneficial owners who have not returned a proxy (so called "broker non-votes"),
those votes will not be included in the vote totals. Therefore, abstentions and
broker non-votes will have no effect on the vote, but will be counted in the
determination of a quorum.
<PAGE>
SECURITY OWNERSHIP
The following table sets forth the beneficial ownership of shares of voting
stock of the Company, as of April ___, 1997, of (i) each person known by the
Company to beneficially own 5% or more of the shares of outstanding Common
Stock, (ii) each of the Company's executive officers and directors, and (iii)
all of the Company's executive officers and directors as a group. Except as
otherwise indicated, all shares are beneficially owned, and investment and
voting power is held by, the persons named as owners.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of of Shares Percentage
Beneficial Owner Beneficially Owned Ownership
- --------------------- ------------------- -----------
<S> <C> <C>
Steven A. Cantor (1) 772,000 (3) ____%
Vito F. Alongi (1) 190,000 (4)
John W. King (1) 123,750 (5)
Robert E. Munyer, Jr. (1) 70,000 (6)
Theresa Mari (1) 99,450 (7) *
Patrick Tracey 20,000 *
Maxwell G. Parsons (2) 15,000 (8) *
Arthur Rosenberg 0 (9) *
Marc de Logeres 0 (10) *
All officers and directors
as a group (8 persons) 1,290,200 ____%
_______
* Less than 1%
<FN>
(1) The address for each of these persons is 895 Waverly Avenue, Holtsville,
New York 11742.
(2) The address for this person is 3714 Woodlake Drive, Bonita Springs, Florida
33923.
(3) Does not include an aggregate of 285,000 shares of Common Stock owned by
Annette Cantor, Mr. Cantor's mother and Cindy Bermingham, Mr. Cantor's
sister, as to which Mr. Cantor disclaims beneficial ownership.
(4) Includes options to purchase 50,000 shares of Common Stock at an
exercise price of $1.25 per share granted pursuant to the Company's 1995
Long Term Incentive Plan, which are exercisable within 60 days of the
Record Date. Does not include options to purchase 25,000 shares of
Common Stock at an exercise price of $.75 per share granted pursuant to
the Company's 1995 Long Term Incentive Plan and 200,000 shares of
Common Stock at an exercise price of $1.00 per share granted pursuant to
the Company's 1997 Long Term Incentive Plan which are not exercisable
within 60 days of the Record Date and five year warrants to purchase
500,000 shares of Common Stock at $1.00 per share which are not
exercisable within 60 days of the Record Date.
(5) Includes options to purchase 25,000 shares of Common Stock at an
exercise price of $1.25 per share granted pursuant to the Company's 1995
Long Term Incentive Plan, which are exercisable within 60 days of the
Record Date. Does not include options to purchase 25,000 shares of
Common Stock at an exercise price of $.75 per share under the Company's
1997 Long Term Incentive Plan which are not exercisable within 60 days
of the Record Date and five year warrants to purchase 100,000 shares of
Common Stock at an exercise price of $1.00 per share which are not
exercisable within 60 days of the Record Date.
<PAGE>
(6) Does not include options to purchase 25,000 shares of Common Stock at
an exercise price of $.75 per share granted pursuant to the Company's
1997 Long Term Incentive Plan which are not exercisable within 60 days
of the Record Date and five year warrants to purchase 25,000 shares of
Common Stock at $1.00 per share which are not exercisable within 60 days
of the Record Date.
(7) Includes options to purchase 50,000 shares of Common Stock at an
exercise price of $1.25 per share granted pursuant to the Company's 1995
Long Term Incentive Plan, which are exercisable within 60 days of the
Record Date. Includes 1,500 shares of Common Stock owned by Ms. Mari's
husband. Does not include options to purchase 125,000 shares of Common
Stock at an exercise price of $.75 per share granted pursuant to the
Company's 1997 Long Term Incentive Plan which are not exercisable within
60 days after the Record Date and five year warrants to purchase
150,000 shares of Common Stock at $1.00 per share which are not
exercisable within 60 days of the Record Date.
(8) Does not include options to purchase 25,000 shares of Common Stock at an
exercise price of $.75 per share granted pursuant to the Company's 1997
Long Term Incentive Plan which are not exercisable within 60 days of the
Record Date.
(9) Does not include options to purchase 75,000 shares of Common Stock at an
exercise price of $.75 per share granted pursuant to the Company's 1997
Long-Term Incentive Plan which are not exercisable within 60 days of the
Record Date.
(10) Does not include options to purchase 25,000 shares of Common stock at an
exercise price of $.75 per share granted pursuant to the Company's 1997
Long-Term Incentive Plan which are not exercisable within 60 days of the
Record Date.
</FN>
</TABLE>
ELECTION OF DIRECTORS
The Company's By-Laws provides for a Board of Directors consisting of not
less than three nor more than nine directors, classified into three classes as
nearly equal in number as possible, whose terms of office expire in successive
years. The Company's Board of Directors now consists of seven directors as set
forth below.
Class I Class II Class III
(To Serve Until the (To Serve Until the (To Serve Until the
Annual Meeting of Annual Meeting of Annual Meeting of
Stockholders in 1996) Stockholders in 1997) Stockholders in 1998)
Vito F. Alongi Marc de Logeres Maxwell G. Parsons (1)(2)
John W. King Robert E. Munyer, Jr.(2) Arthur G. Rosenberg (1)
Theresa A. Mari (1)
- -------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
<PAGE>
Vito F. Alongi and John W. King, directors in Class I, are to be elected to
hold office until the Annual Meeting of Stockholders in 1999 or until their
successors are chosen and qualified. Shares represented by executed proxies in
the form enclosed will be voted, if authority to do so is not withheld, for the
election as directors of the aforesaid nominees unless any such nominee shall be
unavailable, in which case such shares will be voted for a substitute nominee
designated by the Board of Directors. The Board of Directors has no reason to
believe that any of the nominees will be unavailable or, if elected, will
decline to serve.
Directors, other than Arthur G. Rosenberg, receive no cash compensation for
their services to the Company as directors, but are reimbursed for expenses
actually incurred in connection with attending meetings of the Board of
Directors.
There were six meetings of the Board of Directors during the fiscal year
ended March 31, 1996. For the fiscal year ended March 31, 1996, there was one
meeting of the Audit Committee and one meeting of the Compensation Committee.
Each director attended or participated in at least 75% of the meetings of the
Board of Directors and the committees thereof on which he served. The Company's
Audit Committee is involved in discussions with the Company's independent public
accountants with respect to the scope and results of the Company's year-end
audit, the Company's internal accounting controls and the professional services
furnished by the independent auditors to the Company. The Compensation Committee
recommends to the Board of Directors executive compensation and the granting of
stock options to key employees. See "Compensation Committee Report on Executive
Compensation." The Company has no standing nominating committee.
<PAGE>
Principal Occupations of Directors
Set forth below is a brief description of the background of the directors
of the Company based on information provided by them to the Company.
Marc de Logeres has been Co-Chairman of the Board of Directors of the
Company since November 1995 and a consultant to the Company since June 1995.
From 1970 through 1995, Mr. de Logeres was Chairman of the Board of Michelin
Tyres plc, the United Kingdom subsidiary of the Michelin Group, and from 1962 to
1992 was chief executive officer, president and later chairman of Michelin Tire
Company in the United States and Michelin Tire Company Ltd., in Canada. Mr. de
Logeres is a director of Cobra Industries, Inc., a director of France Growth
Fund, a $100,000,000 closed-end mutual fund and is also a director of Nova
Scotia Power, Inc., a $650,000,000 per year electricity supplier.
Maxwell G. Parsons was Chairman of the Board of the Company from February
1995 until November 1995 and has been Co-Chairman of the Board since that time.
From 1986 to the present, Mr. Parsons has been the president of M.G.
Enterprises, Inc., a consulting firm. From 1982 through 1986, Mr. Parsons was
president of K-Mart Enterprises, Inc. and was responsible for managing the
automotive and sporting goods departments of K-Mart stores nationwide, with
approximately $1 billion of automotive sales annually, including over $100
million of automobile tires. From 1975 through 1980, Mr. Parsons was the
consulting managing director of K-Mart Australia, Inc. and a director of G.J.
Coles, a part owner of K-Mart Australia, Inc.
Vito F. Alongi has been President, Principal Executive, Financial and
Accounting Officer, Treasurer and a director of the Company since its inception.
Since September 1991, he has been engaged on a substantially full time basis in
the Company's business. From 1989 until August 1993, Mr. Alongi was a principal
of Nestegg Associates, Inc., a financial planning firm and from 1989 through
1993 was a broker/dealer agent for Nathan & Lewis Securities, Inc.
Robert E. Munyer, Jr. has been Vice President of Procurement and Facilities
and Secretary of the Company since October 1996. Prior thereto, Mr. Munyer was
Vice President-Manufacturing and Distribution of the Company and its predecessor
from April 1993 through September 1996. From 1986 until 1992, Mr. Munyer was
employed by Raytheon Corporation in its Electromagnetic Systems Division holding
the positions of Plant Manager and Director of Material Procurement. From 1975
to 1986, he was employed in various management positions by Fairchild Republic
Company.
John W. King has been Vice President-Sales for the Company since November
1994, acted as a consultant to the Company's business since September 1991 and
has been a director of the Company since May 1995. From 1990 through 1991, Mr.
King was the managing director of B.T.S. Monarch Tires, plc., a leading United
Kingdom-based manufacturer and distributor of remolded automobile tire products
which was placed in receivership in 1991. From 1978 through 1995, Mr. King has
been President of W. B. McVicker Company, a specialty chemical company. For more
than 18 years prior thereto, he was employed by Goodyear International, holding
several senior management positions including Director of Marketing for Europe.
Theresa Mari, Esq. has been a director of the Company since May 1994. Ms.
Mari is an attorney admitted to practice in the States of New York and
Connecticut and is currently a solo practicing attorney. Prior to that, Ms. Mari
was an attorney with the firm of Jaeger, Mari & Block from 1992 through December
1995, and as a solo practitioner from 1989 through 1992.
<PAGE>
Arthur Rosenberg, Esq. has been a director of the Company since February
1996. Mr. Rosenberg has been the Vice President of Acquisitions for The
Associated Companies, a real estate developer, in Bethesda, Maryland since June
1987. Mr. Rosenberg is an attorney admitted to practice in the State of New York
and has practiced law for over 30 years.
MANAGEMENT
Officers of the Company
The executive officers of the Company are as follows:
Name Age Office Held
---- --- -----------
Vito F. Alongi 41 President, Principal Executive,
Financial and Accounting Officer,
Treasurer and Director
Robert E. Munyer, Jr. 53 Vice President-Procurement and
Facilities, Secretary and Director
John W. King 62 Vice President and Director
Patrick A. Tracey 58 Vice President-Sales and Marketing
- --------
Patrick A. Tracey has been Vice President-Sales and Marketing for the Company
and its predecessor since August 1993. From 1974 to 1991, Mr. Tracey was
President of Patrick A. Tracey, Inc., a real estate investment firm. From 1965
until 1974, Mr. Tracey was employed by Goodyear International, holding several
senior management positions including manager of worldwide product marketing.
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash and other compensation paid in
fiscal 1996, 1995 and 1994 to the Company's Chief Executive Officer. No other
executive officer of the Company has earned $100,000 in any fiscal year.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
-------------------- -------------
Securities
Name and Underlying
Principal Position Year Salary Bonus Compensation(1) Options Compensation
- ------------------ ---- ------- ----- --------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Vito Alongi 1996 100,103 - - - -
President 1995 69,252 - - 50,000 -
(Chief Executive 1994 11,496 - - - -
Officer)
- -----------
<FN>
(1) The value of all perquisites provided to the Company's officers did not
exceed the lesser of $50,000 or 10% of the officer's salary and bonus.
</FN>
</TABLE>
Stock Option Grants in Last Fiscal Year
The following table sets forth all stock options grants to the executive
officers named in the Executive Compensation table during the fiscal year ended
March 31, 1996:
<TABLE>
<CAPTION>
Individual Grants
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARS
Underlying Granted to
Options/SARS Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
- ---- ------------ ------------ ------------------ ------------
<S> <C> <C> <C> <C>
Vito F. Alongi 50,000 66-2/3% $5.00 (2) June 2005
President
(Chief Executive
Officer)
- -------
<FN>
(1) Represents ten year non-qualified options granted in June 1995, exercisable
June 11, 1997.
(2) See "Executive Compensation - Ten Year Options/SAR Repricings."
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ten-Year Option/SAR Repricings
Number of Length of
Securities Market Price Exercise Original
Underlying of Stock at Price at OptionTerm
Options/ Time of Time of Remaining
SARs Repricing or Repricing or New Date of
Repriced or Amendment Amendment Exercise Repricing or
Name Date Amended (#) ($) ($) Price ($) Amendment
- ---- ---- ------------- ------------ ------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Vito F. Alongi 2/28/97 50,000 $1.25 $5.00 $1.25 8 years, 3 months
- --------
</TABLE>
Aggregate Option/Sar Exercises in Last Fiscal Year and
Fiscal Year-End Option/Sar Values
During fiscal 1996, no stock options were exercised by the executive
officer named in the "Summary Compensation Table" above.
Employment Agreements
The Company has entered into employment agreements with each of Vito Alongi
and John W. King pursuant to which Mr. Alongi serves as the President of the
Company, and Mr. King serves as a Vice President of the Company, at minimum
annual base salaries of $95,000 and $85,000, respectively. These employment
agreements are for an initial term of three years which commenced on December
18, 1995. The agreements with Mr. Alongi and Mr. King also provide that they
will each be paid 3% of the Company's pre-tax earnings (up to a maximum payment
of $150,000 per year) during the term thereof upon the Company achieving certain
financial results. The employment agreements provide that if the employee is
terminated after the initial term other than for "cause" (as defined), or dies
or becomes permanently disabled, the Company will pay to the employee certain
severance.
Each of the above-described agreements contains restrictions on the
employee engaging in competition with the Company for the term thereof and for
one year thereafter and provisions protecting the Company's proprietary rights
and information. Each agreement also provides for the payment of three times the
employee's previous year's total compensation, less $1.00, upon the termination
of his employment in the event of a change in control of the Company which
adversely affects his working conditions. For those purposes, a change in
control is defined to mean (a) a person (as such term is defined in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) other than a
current director or officer of the Company becoming the beneficial owner,
directly or indirectly, of 30% of the voting power of the
Company's outstanding securities or (b) the members of the Board of Directors at
the beginning of any two-year period ceasing to constitute at least a majority
of the Board of Directors unless the election of any new director during such
period has been approved in advance by two-thirds of the directors in office at
the beginning of such two-year period.
The Company also has entered into an employment agreement with Patrick
Tracey. This agreement provides that Mr. Tracey will serve as a Vice-President
of the Company, and will receive as compensation therefor an annual base salary
of $40,000 per year, plus commissions equal to approximately 2% of the Company's
net sales to Martino which Mr. Tracey obtains for the Company. This agreement is
for an initial term of two years which commenced December 18, 1995, and provides
that if the employee is terminated after the initial term other than for "cause"
(as defined), or dies or becomes permanently disabled, the Company will pay to
the employee certain severance. This agreement also contains restrictions on the
employee engaging in competition with the Company for the term thereof and for
one year thereafter and provisions protecting the Company's proprietary rights
and information.
<PAGE>
Consulting Agreements
The Company has entered into a consulting agreement with Marc de Logeres.
Under this agreement, the Consultant provides business operations and management
consulting services to the Company. Mr. de Logeres receives an aggregate
consulting fee of $84,000 per year. Mr. de Logeres is considered an independent
contractor. The Company may terminate the services of Mr. de Logeres under this
consulting agreement if he cannot adequately perform his duties thereunder
because of mental or physical disability, death or for "Just Cause" (as
defined). The above-described agreement expires in July 1998 and contains
restrictions on Mr. de Logeres from engaging in competition with the Company for
the term thereof and for one year thereafter and provisions protecting the
Company's trade secrets and proprietary rights and information.
The Company has entered into a consulting agreement with Maxwell Parsons.
Under this agreement, the Consultant provides business operations and management
consulting services to the Company and acts as the Company's Co-Chairman of the
Board, and as compensation therefor receives $3,500 per month. In addition, the
Company issued 25,000 shares of Common Stock to Mr. Parsons at a price of $.001
(par value) per share, in June 1997. Mr. Parsons is considered an independent
contractor and not an employee of the Company. The Company may terminate the
services of Mr. Parsons under this consulting agreement if he cannot adequately
perform his duties thereunder because of mental or physical disability, death or
for "Just Cause" (as defined). The above-described agreement expires in July
1998 and contains restrictions on Mr. Parsons from engaging in competition with
the Company for the term thereof and for one year thereafter and provisions
protecting the Company's trade secrets and proprietary rights and information.
Stock Plans
1995 Long Term Incentive Plan
In June 1995, the Company adopted The EcoTyre Technologies, Inc. 1995 Long
Term Incentive Plan (the "1995 Incentive Plan") in order to motivate qualified
employees of the Company, to assist the Company in attracting employees and to
align the interests of such persons with those of the Company's stockholders.
The 1995 Incentive Plan provides for the grant of "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, "non-qualified stock options," restricted stock, performance grants and
other types of awards to officers, key employees, consultants and independent
contractors of the Company and its affiliates.
The 1995 Incentive Plan, which is administered by the Compensation
Committee Administrative Committee of the Board of Directors, authorizes the
issuance of a maximum of 1,000,000 shares of Common Stock which may be either
newly issued shares, treasury shares, reacquired shares, shares purchased in the
open market or any combination thereof. If any award under the 1995 Incentive
Plan terminates, expires unexercised, or is canceled, the shares of Common Stock
that would otherwise have been issuable pursuant thereto will be available for
issuance pursuant to the grant of new awards. To date, the Company has granted
an aggregate of 360,000 options to purchase shares of Common Stock under the
1995 Incentive Plan, of which 75,000 options have been granted to each of Vito
F. Alongi and Theresa Mari, 50,000 options have been granted to John W. King,
and 50,000 options have been granted to Marc de Logeres.
<PAGE>
1997 Long Term Incentive Plan
In February 1997, the Company adopted The EcoTyre Technologies, Inc. 1997
Long Term Incentive Plan (the "1997 Incentive Plan") in order to motivate
qualified employees of the Company, to assist the Company in attracting
employees and to align the interests of such persons with those of the Company's
stockholders.
The 1997 Incentive Plan provides for the grant of "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, "non-qualified stock options," restricted stock, performance grants and
other types of awards to officers, key employees, consultants and independent
contractors of the Company and its affiliates.
The 1997 Incentive Plan, which is administered by the Compensation
Committee of the Board of Directors, authorizes the issuance of a maximum of
1,700,000 shares of Common Stock which may be either newly issued shares,
treasury shares, reacquired shares, shares purchased in the open market or any
combination thereof. If any award under the 1997 Incentive Plan terminates,
expires unexercised, or is canceled, the shares of Common Stock that would
otherwise have been issuable pursuant thereto will be available for issuance
pursuant to the grant of new awards. To date, the Company has granted an
aggregate of 325,000 non-qualified stock options to purchase shares of Common
Stock under the 1997 Incentive Plan, of which 200,000 options have been granted
to Vito F. Alongi and 125,000 options have been granted to Theresa Mari. Each of
these options is exercisable for ten years for a price of $.66 per share. These
options become exercisable on February 24, 1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 24, 1994, Mr. Vito Alongi, the Company's President, borrowed
$25,000 from the Company. This loan is represented by an unsecured promissory
note due October 21, 1999 bearing interest at 7% per annum, with interest
payable annually. The note may be prepaid at any time without penalty.
In June 1995, Steven Cantor pledged 50,000 shares of Common Stock to secure
the obligations of the Company to ProTect Business Management Corp. relating to
the letter of credit facility to the Company by The Bank of New York. This
pledge replaced a pledge of the Common Stock by all of the Company's officers
and directors. The letter of credit was to secure purchases by the Company from
a foreign supplier of up to $150,000 and expired in September 1995, at which
time the pledge agreement was terminated and Mr. Cantor's shares were released.
In November 1995 Steven Cantor loaned $100,000 to the Company as part of interim
financing pending completion of the Company's initial public offering. The loan,
which provided for interest at the annual rate of 14% payable quarterly, was
paid in December 1995.
<PAGE>
In March 1997, the Company issued to Steven Cantor 567,000 shares of Common
Stock. The consideration for this issuance was the prepayment of Mr. Cantor's
three year Consulting Agreement which commenced in July 1995 and provided for an
annual payment of $60,000, none of which had been paid by the Company. As
further consideration, the Company cancelled 130,000 options exercisable at
$1.25 previously issued to Mr. Cantor as well as 20,000 shares of Common Stock
which he owned.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Company's Board of Directors consisted
during fiscal 1996 of Messrs. Parsons and Munyer. Except as otherwise disclosed
herein, none of these persons had any relationship requiring disclosure in this
Proxy Statement.
In accordance with rules promulgated by the Securities and
Exchange Commission, the information included under the captions "Compensation
Committee Report on Executive Compensation" and "Company Stock Performance"
will not be deemed to be filed or to be proxy soliciting material or
incorporated by reference in any prior or future filings by the Company under
the Securities Act of 1933 or the Securities Exchange Act of 1934.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation of the Company's executive officers is generally determined
by the Compensation Committee of the Board of Directors. Except for Robert E.
Munyer, Jr., each member of the Compensation Committee is a director who is not
an employee of the Company or any of its affiliates.
General Policies
The Company's compensation programs are intended to enable the Company to
attract, motivate, reward and retain the management talent required to achieve
aggressive corporate objectives in a rapidly changing industry, and thereby
increase stockholder value. It is the Company's policy to provide incentives to
its senior management to achieve both short-term and long-term objectives and to
reward exceptional performance and contributions to the development of the
Company's business. To attain these objectives, the Company's executive
compensation program includes a competitive base salary, coupled with a
substantial cash incentive component which is "at risk" based on the performance
of the Company's business, primarily as reflected in the achievement of
financial goals. As a general matter, as an executive officer's level of
management responsibility in the Company increases, a greater portion of his or
her potential total compensation depends upon the Company's performance as
measured by objective standards over one or more years.
Stock options are granted to employees, including the Company's executive
officers, by the Compensation Committee under the Company's 1995 Long-Term
Incentive Plan and 1997 Long-Term Incentive Plan. The Committee believes that
stock options provide an incentive that focuses the executive's attention on
managing the Company from the perspective of an owner with an equity stake in
the business. Options are awarded with an exercise price equal to the market
value of Common Stock on the date of grant, have a maximum term of five to ten
years and generally become exercisable for half of the option shares one year
from the date of grant and for all of the option shares two years from the date
of grant. Among the Company's executive officers, the number of shares subject
to options granted to each individual generally depends upon the level of that
officer's responsibility. The largest grants are awarded to the most senior
officers who, in the view of the Compensation Committee, have the greatest
potential impact on the Company's profitability and growth. Previous grants of
stock options are reviewed but are not considered the most important factor in
determining the size of any executive's stock option award in a particular year.
<PAGE>
Relationship of Compensation to Performance
The Compensation Committee annually establishes, subject to the approval of
the Board of Directors and any applicable employment agreements, the salaries
which will be paid to the Company's executive officers during the coming year.
In setting salaries, the Compensation Committee takes into account several
factors, including competitive compensation data, the extent to which an
individual may participate in the incentive compensation and stock option plans
maintained by the Company and its affiliates, and qualitative factors bearing on
an individual's experience, responsibilities, management and leadership
abilities, and job performance.
The Compensation Committee also determines the terms of the Company's
executive management incentive program. In doing so, the Compensation Committee
reviews management's plans for the Company's growth and profitability,
determines the criteria to be used for the determination of bonus awards under
the executive management incentive program and fixes the levels of target and
maximum awards for participants and the level of attainment of financial
performance objectives necessary for awards to be made under each incentive
compensation plan.
Stock options are granted to key employees, including the Company's executive
officers, by the Compensation Committee under the Long-Term Incentive Plan.
Among the Company's executive officers, the number of shares subject to options
granted to each individual generally depends upon his or her base salary and the
level of that officer's management responsibility. The largest grants are
awarded to the most senior officers who, in the view of the Compensation
Committee, have the greatest potential impact on the Company's profitability and
growth.
Compensation of President and Chairman of the Board
For fiscal 1996, pursuant to the terms of his employment agreement with the
Company, Mr. Vito F. Alongi, the Company's President, received a base salary of
$100,103. See "Executive Compensation-Employment Agreements". In light of this
employment agreement, the Compensation Committee was not required to make any
decision regarding the base compensation of Mr. Alongi. The Compensation
Committee determined that no bonus was appropriate in light of the Company's
financial results for the 1997 fiscal year, notwithstanding the substantial
contribution Mr. Alongi has made to the Company's operating performance and
future prospects. In fiscal 1996, the Compensation Committee granted to Mr.
Alongi options to purchase an aggregate of 50,000 shares of Common Stock
initially exercisable at $5.00 per share under the 1995 Long-Term Incentive
Plan. Each of these options were granted at exercise prices equal to the market
value of the Company's Common Stock on the date of grant. The Compensation
Committee believes that these options provide an incentive for Mr. Alongi to
maximize long-term shareholder value.
The Compensation Committee
Maxwell G. Parsons
Robert E. Munyer, Jr.
<PAGE>
Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the Exchange Act requires the Company's executive officers,
directors and persons who own more than ten percent of a registered class of the
Company's equity securities ("Reporting Persons") to file reports of ownership
and changes in ownership on Forms 3, 4, and 5 with the Securities and Exchange
Commission (the "SEC") and the National Association of Securities Dealers (the
"NASD"). These Reporting Persons are required by SEC regulation to furnish the
Company with copies of all Forms 3, 4 and 5 they file with the SEC and NASD.
Based solely on the Company's review of the copies of the forms it has received,
the Company believes that all Reporting Persons complied on a timely basis with
all filing requirements applicable to them with respect to transactions during
fiscal year 1996, except that Maxwell G. Parsons filed one report relating to
one purchase and one sale of the Company's Common Stock late and during fiscal
1997, Theresa Mari filed one report relating to one purchase of the Company's
Common Stock late.
PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED SHARES OF COMMON STOCK
General
The Board of Directors has proposed and recommended to its stockholders a
proposal which authorizes the Board in its discretion to file an amended
Certificate of Incorporation which, among other things, amends Article Fourth of
the Certificate of Incorporation to increase the total number of shares of
Common Stock which the Company has authority to issue from 20,000,000 shares of
Common Stock, par value $.001 per share (the "Common Stock") to 30,000,000
shares of Common Stock, par value $.001 per share.
Purpose of Increasing Authorized Shares of Common Stock
The increased authorization of 10,000,000 shares of Common Stock is intended
to provide additional flexibility to the Company for possible capital
reorganization, acquisitions, refinancing, exchange of securities, public
offerings and other corporate purposes. In recent years, the Company has issued
a substantial number of shares of Common Stock, which has significantly
decreased the number of shares of Common Stock presently available for issuance
for such purposes.
The Board of Directors, which recommends approval of this amendment, believes
it would be advantageous to the Company to be in a position to issue additional
Common Stock without the necessary delay of calling a stockholders' meeting or
seeking written consents in lieu thereof if one or more suitable opportunities
present themselves to the Company.
Common Stock can be authorized to be issued in the discretion of the Board of
Directors without stockholder approval of each issuance. After this proposal is
approved by the stockholders, the Board does not intend to solicit further
stockholder approval prior to the issuance of any additional shares of Common
Stock. If applicable law or regulation does not require stockholder approval as
a condition to the issuance of such shares in any particular transaction, it is
expected that such approval will not be sought. The Company may fund its
existing obligations by raising capital through the sale of shares of Common
Stock. Any increase in the number of shares authorized or outstanding shares of
Common Stock may depress the price of shares and impair the liquidity of
stockholders. In addition, the issuance may be on terms that are dilutive to
stockholders. Issuance of additional shares also could have the effect of
diluting the earnings per share and book value per share of shares outstanding.
<PAGE>
The following table sets forth as of April ___, 1997, the approximate
number of shares of Common Stock authorized, outstanding, reserved and available
for issuance. The table further sets forth the approximate number of shares
which will be available for issuance if this amendment is approved.
<TABLE>
<CAPTION>
Available for
Available Issuance upon
for Approval of
Authorized Outstanding Reserved(1) Issuance Amendment(2)
----------- ----------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
Common Stock. . . . . 20,000,000
- -------
<FN>
(1) Includes only that portion of the shares of Common Stock issuable upon
exercise of outstanding stock options, warrants and other rights, which
equals the difference between the Company's 20,000,000 authorized
shares of Common Stock and the number of shares of Common Stock issued
and outstanding.
(2) Without giving effect to Proposal 3.
</FN>
</TABLE>
Board Position and Required Vote
The proposal will be adopted only if it receives the affirmative vote of a
majority of the outstanding shares of Common Stock. The Board of Directors
believes that the proposed amendment is in the best interests of the Company and
its stockholders and recommends a vote FOR its adoption. Proxies received will
be voted in favor of the proposed amendment unless otherwise indicated.
PROPOSAL TO AMEND CERTIFICATE OF INCORPORATION
TO EFFECT A REVERSE STOCK SPLIT
The Board of Directors has proposed and recommended to the stockholders a
proposal which authorizes the Board of Directors to file a Certificate of
Amendment (the "Amendment") to the Company's Amended and Restated Certificate of
Incorporation which amends Article Fourth to effect a reverse stock split (the
"Reverse Stock Split"). The intent of the Board of Directors insofar as
recommending the Reverse Stock Split is to increase the long-term marketability
and liquidity of the Common Stock.
The Board of Directors believes that the relatively low per share market
price of the Common Stock impairs the marketability of the Common Stock to
institutional investors and members of the investing public and creates a
negative impression with respect to the Company when compared with the Company's
competitors. Further, except under certain circumstances, a minimum per share
price of $1.00, among other things, is required for the Common Stock to maintain
authorization for trading on the National Association of Securities Dealers Inc.
Automated Quotation System ("NASDAQ") SmallCap Market, which the Board of
Directors believes enhances the market for the Common Stock and improves
stockholders' liquidity; and future NASDAQ rules may impose even more stringent
requirements. Thus, any increase in trading price resulting from a reverse split
is intended to be attractive to the Company's stockholders, the financial
community, the investing public, and to consumers of the Company's products.
While the number of shares of Common Stock outstanding should not materially
affect the marketability of the Common Stock, the type of investor who acquires
it or the Company's reputation in the financial community, in practice many
investors look upon low priced stock and/or a stock which is not traded on
NASDAQ as unduly speculative in nature and, as a matter of policy, avoid
investing in these stocks. The foregoing factors are believed to adversely
affect not only the liquidity of the Common Stock, but also the Company ability
to raise additional capital through a sale of equity securities or other similar
transactions. However, no assurance can be given that even after the approval
and occurrence of the proposed Reverse Stock Split, that the Company's Common
Stock will be traded for prices that will satisfy continuing NASDAQ
requirements.
<PAGE>
If a reverse stock split is approved by the stockholders of the Company,
the Board will select, in its discretion, a number of shares of old common stock
("Old Common Stock") to be reclassified into one each share of new common stock
("New Common Stock") (the "ratio"). Its determination of the reverse-split ratio
must be a whole-number ratio within the stated limits of one-for-three to
one-for-five or one-for-seven. The stockholders are requested to approve a
Reverse Stock Split in each of the following ratios of: one-for-three;
one-for-five; or one-for-seven (individually the "Reverse Stock Split" and
collectively the "Reverse Stock Splits"), and the Board can choose any one or
none of these alternatives in its discretion; and the remaining alternative
Reverse Stock Splits would be abandoned by the Board pursuant to Section 242(c)
of the General Corporation Law of Delaware without further action by the
stockholders of the Company. A Reverse Stock Split will be effected only upon
determination by the Board of Directors that a Reverse Stock Split is in the
best interests of the Company and the Stockholders. A Reverse Stock Split would
become effective on any date (the "Effective Date") selected by the Board of
Directors after authorization by stockholders.
The Board currently expects to effect a Reverse Stock Split in the ratio of
one-for-five, and intends to reexamine the ratio in light of all relevant
requirements for continued authorization of the New Common Stock for trading on
the NASDAQ SmallCap Market. The Board may consider the advice of financial
advisors and factors deemed relevant by the Board, which may include but not be
limited to belief as to future marketability and liquidity of the Common Stock,
prevailing market conditions, the likely effect on the market price of the
Common Stock and factors deemed relevant by the Board, which may include, but
not be limited to, belief as to future marketability and liquidity of the Common
Stock, prevailing market conditions, the likely effect on the market price of
the Common Stock and other relevant factors. The Board of Directors reserves the
right, notwithstanding stockholder approval of this proposal and without further
action by the stockholders, to abandon the Reverse Stock Split, if, at any time
prior to filing the Amendment with the Delaware Secretary of State, the Board of
Directors, in its sole discretion, determines that the Reverse Stock Split is no
longer in the best interests of the Company and its stockholders. Conversely,
the Board reserves the right to effectuate the Reverse Stock Split under less
than favorable conditions based on any factors deemed material by the Board, in
its sole discretion. The Board of Directors believes that leaving the discretion
to the Board of Directors in these regards will permit flexibility so as to
effectuate the Reverse Stock Split in an appropriate and well-planned manner.
For example, one of the most important factors that the Board will consider will
be the effect of the Reverse Stock Split on the market price of the Common
Stock. If the Board of Directors determines that even after giving effect to the
Reverse Stock Split, the Common Stock would be likely to fall below the NASDAQ
requirements for continued listing, the Board may determine not to effect such a
Reverse Stock Split because it would not have the long term effects which the
Board believes would be beneficial to stockholders. Notwithstanding the
foregoing, a determination by the Board that the Reverse Stock Split will not
create a per share trading price sufficient for continued NASDAQ listing will
not automatically prompt a decision by the Board to refrain from effecting the
Reverse Stock Split. Other factors may also cause the Board of Directors to
effect a Reverse-Stock-Split whether or not it would be likely to cause the
Common Stock to trade above the NASDAQ continued listing requirements. These
factors may include an effort to make the Common Stock more attractive to
members of the financial community and certain types of investors who may have a
tendency to avoid purchasing low-priced stock.
<PAGE>
Effects of the Reverse Stock Split
Consummation of a Reverse Stock Split will not alter the number of authorized
shares of Common Stock, which will remain at 20,000,000 shares, unless the
Stockholders approve Proposal 2 to increase the authorized shares and the Board
of Directors acts on such proposal, which would increase the authorized shares
to 30,000,000 shares. Consummation of the Reverse Stock Split will not alter the
par value of Common Stock, which will remain at $.001 per share of Common Stock.
If the Reverse Stock Split takes place, a number of outstanding shares will
resume the status of authorized and unissued shares, and these shares will again
be available for issuance. Effective with the Reverse Stock Split, the
conversion rate of certain outstanding options and warrants will be adjusted
proportionately, so that, for example, if a one-for-five Reverse Split is
effected, each such outstanding option or warrant would thereafter cover
one-fifth as many shares of Common Stock, or if a one-for-three Reverse Stock
Split is effected, each outstanding option or warrant would thereafter cover
one-third as many shares of Common Stock. Shares that are no longer necessary
for issuance upon conversion or exercise will become unreserved and available
for future issuance or reservation. Proportionate voting rights and other rights
of stockholders will not be altered by any Reverse Stock Split (other than as a
result of payment in cash in lieu of fractional shares.)
Consummation of a Reverse Stock Split should have no material federal tax
consequences to most stockholders; however, tax effects, which are especially
dependent upon a stockholder's individual circumstances, may be material to you;
and each stockholder must obtain his or her own tax advice; and this general
description is not tax advice.
The Common Stock is listed for trading on the NASDAQ SmallCap Market. On the
Record Date, the reported closing price of the Common Stock on the NASDAQ
SmallCap Market was $_____ per share. No assurance can be made as to the future
price of shares of Common Stock.
Possible Advantages
The Board believes that a decrease in the number of shares of Common Stock
outstanding without any corresponding alteration of the proportionate economic
interest in the Company represented by individual shareholdings may increase the
trading price of such shares and such higher price would be more appropriate for
the Common Stock. The Board of Directors believes that if the Common Stock
trades at $1.00 per share or more, it will meet one of the minimum criteria for
continued listing on NASDAQ Common Stock. However, no assurance can be given
that the market price of the Common Stock will rise in proportion to the
reduction in the number of shares outstanding resulting from any Reverse Stock
Split or that even if the Common Stock trades at $1.00 per share or more, that
the Common Stock will be authorized for trading on NASDAQ, especially in view of
the possibility of new NASDAQ maintenance requirements.
<PAGE>
Additionally, the Board believes that a more appropriate price for shares of
Common Stock should promote greater interest by the brokerage community in
marketing shares of Common Stock to their customers. The current per share price
of the Common Stock may limit the effective marketability of the Common Stock
because of the reluctance of many brokerage firms and institutional investors to
recommend lower-priced stocks to their clients or to hold them in their own
portfolios. Certain policies and practices of the securities industry may tend
to discourage individual brokers within those firms from dealing in lower-priced
stocks. Some of those policies and practices involve time-consuming procedures
that make the handling of lower-priced stocks economically unattractive. The
brokerage commission on a sale of lower-priced stock may also represent a higher
percentage of the sale price than the brokerage commission on a higher-priced
issue.
Any reduction in brokerage commissions resulting from a Reverse Stock Split
may be offset, however, in whole or in part, by increased brokerage commissions
which will be required to be paid by stockholders selling "odd lots" created by
such Reverse Stock Split.
The increase in the difference between the authorized number of shares of
Common Stock and the number of shares outstanding or committed could have an
advantage of permitting the Company to issue shares for acquisition, sale of
equity, conversion of convertible debt, and other purposes that could improve
the financial position of the Company.
If the Reverse Stock Split is approved by stockholders, the Board will have
authority without further stockholder approval to effect a Reverse Stock Split
of one share for each outstanding three, five or seven, corresponding to the
ratios shown in the following table.
The following table sets forth the number of shares of Common Stock that
would be outstanding (based on the ____________ shares outstanding as of April
23, 1997) immediately after the Reverse Stock Split. The reduction of the number
of shares outstanding in the Reverse Stock Split has the inverse effect on
authorized and unissued shares. The table does not attempt to account for
cashing out fractional shares, nor does it account for the proposed increase in
the Company's authorized capital stock.
<TABLE>
<CAPTION>
Ratio of Reverse Common Stock Authorized and
Stock Split Outstanding Unissued Common Stock
- ----------------- --------------- ---------------------
Before Reverse After Reverse
Stock Split Stock Split
--------------- --------------
<S> <C> <C> <C>
None
1-for-3
1-for-5
1-for-7
</TABLE>
Upon determination of the exact ratio of the Reverse Stock Split and the
filing of appropriate documents to effect such Reverse Stock Split, the Board
will notify Stockholders that the Reverse Stock Split has been effected. In
addition, the Board shall have authority to determine the exact timing of the
Reverse Stock Split.
<PAGE>
The Company's reporting obligations under the Securities Exchange Act of
1934 should not be affected by the changes in capitalization contemplated
pursuant to the Reverse Stock Split. No significant reduction should be
anticipated in the number of record holders of the Common Stock below its Record
Date level of _____, which is and will continue to be below the Securities
Exchange Act of 1934's (the "Exchange Act") going-private threshold of fewer
than 300. However, the Company has no intention of terminating the registration
of the Common Stock under the Exchange Act.
Possible Disadvantages
The Board of Directors is hopeful that the decrease in the number of shares
of Common Stock outstanding will stimulate interest in the Company's Common
Stock and possibly promote greater liquidity. However, the possibility does
exist that such liquidity may be adversely affected by the reduced number of
shares which would be outstanding if the proposed Reverse Stock Split is
effected. The Reverse Stock Split will reduce the number of shares outstanding
to between ___________ (if a 1-for-7 Reverse Stock Split is effected) and
___________ (if a 1-for-3 Reverse Stock Split is effected). Fewer publicly held
shares may result in lower trading volume which may reduce financial community
interest in the Common Stock. A lower trading volume for the Common Stock may
also depress the Common Stock market price.
The Board of Directors is hopeful that the proposed Reverse Stock Split
will result in a price level for the shares that will mitigate any reluctance of
brokerage firms to recommend the Common Stock to their clients and diminish the
adverse impact of trading commissions on the potential market for the Company's
shares. However, there can be no assurance that the proposed Reverse Stock Split
will achieve these desired results, nor can there be any assurance that the
price per share of the Common Stock immediately after the proposed Reverse Stock
Split will increase proportionately with the reverse split or that any increase
can be sustained for a prolonged period of time.
Although the Board of Directors is optimistic that the Reverse Stock Split
will increase the market price of the Common Stock above the minimum $1.00 bid
price required by the NASDAQ listing standards, no assurance can be made that
the Reverse Stock Split will have this affect or that even if it does that the
Company will satisfy the remaining quantitative requirements for NASDAQ listing
of the Common Stock.
If the Reverse Stock Split takes place, a number of outstanding shares will
resume the status of authorized and unissued shares, which shares will again be
available for issuance. As a result of this increase in authorized and unissued
shares of the Company's Common Stock, additional shares will be available in the
event the Board of Directors determines that it is necessary and appropriate to
raise additional capital through the sale of securities in the public or private
market, enter into a strategic partnership with another company, grant options
to the Company's employees or acquire another company, business or assets, or in
other events. Common Stock would be authorized to be issued in the discretion of
the Board of Directors without stockholder approval of each issuance. If
Proposal 2 is approved by the stockholders, the Board does not intend to solicit
further stockholder approval prior to the issuance of any additional shares of
Common Stock, unless applicable law or regulation requires otherwise. In the
event the Company issues additional shares of Common Stock, such issuance may
depress the price of currently outstanding shares of Common Stock or impair the
liquidity of such shares. In addition, the issuance may be on terms that are
dilutive to stockholders. Issuance of additional shares may also have the effect
of diluting the earnings per share and book value per share of shares currently
outstanding.
2
<PAGE>
Except for currently outstanding preferred stock, warrants, options and
option plans, there are no existing agreements or agreements in principle which
call for the issuance of any shares of Common Stock or Preferred Stock.
Additionally, the Company has no existing agreements or agreements in principle
which call for the issuance of any shares of Common Stock or Preferred Stock in
connection with any new financing.
Potential Anti-Takeover Effect of Authorized but
Unissued Securities and Bylaw Provision
The Reverse Stock Split would result in a greater spread between the number
of authorized shares and the number of outstanding shares. The issuance of
shares of Common Stock or Preferred Stock under particular circumstances may
have the effect of discouraging an attempt to change control of the Company,
especially in the event of a hostile takeover bid. The increase in the spread
between authorized and issued (and committed) Common Stock recommended by the
Board of Directors could have the overall effect of rendering more difficult the
accomplishment of an acquisition of the Company, and to make more difficult the
removal of incumbent management of the Company. Common Stock would be authorized
to be issued in the discretion of the Board of Directors without stockholder
approval of each issuance. The proportionate increase in the authorized number
of shares of Common Stock could have an advantage of permitting the Company to
issue shares for other purposes that could improve the financial position of the
Company. However, the proportionately larger spread between authorized shares
and outstanding (or committed) shares might be used to increase the stock
ownership or voting rights of persons seeking to obtain control of the Company;
and this anti-takeover effect could benefit incumbent management at the expense
of the stockholders. Issuance of additional shares also could have the effect of
diluting the earnings per share and book value per share of shares of Common
Stock outstanding.
The Company may issue new securities without first offering them to
stockholders. The holders of Common Stock of the Company have no preemptive
rights. Preemptive rights would have given stockholders a right to purchase pro
rata new securities issued by the Company. Preemptive rights protect such
holders from dilution to some extent by allowing holders to purchase shares
according to their percentage ownership in each issuance of new securities.
Therefore, the Company may issue its shares in a manner that dilutes current
stockholders.
Accounting for Reverse Stock Split
The Reverse Stock Split will cause the number of "odd-lot" holders to go up
and cause the number of "round-lot" holders of the Common Stock to go down. The
number of round-lot holders is a common measure of a stock's distribution, and a
lower number may reflect more negatively on the Company's shares. Higher numbers
of odd-lot holders may become reluctant to trade their shares because of any
stigma or higher commissions associated with odd-lot trading. This may
negatively impact the average trading volume and thereby diminish interest in
Common Stock by some investors and advisors.
If a Reverse Stock Split is declared, it will require that an amount equal
to the number of fewer shares issued times such shares' par value transferred to
the Company's Surplus Account (specifically, its Capital Surplus Account) from
its Capital Account. The number of shares of Common Stock outstanding will be
reduced. As a consequence, the aggregate par value of the outstanding Common
Stock will be reduced, while the aggregate capital in excess of par value
attributable to the outstanding Common Stock for statutory and accounting
purposes will be increased correspondingly. The resolutions approving the
Reverse Stock Split provide that this increase in capital in excess of par value
will be treated as capital for statutory purposes. However, under Delaware law,
the Board of Directors of the Company will have the authority, subject to
various limitations, to transfer some or all of such increased capital in excess
of par value from capital to surplus, which additional surplus could be
distributed to stockholders as dividends or used by the Company to repurchase
outstanding stock. The Company currently has no plans to use any surplus so
created to pay any such dividend or to repurchase stock.
<PAGE>
The following tables illustrate, by way of example, the principal effects
of the Reverse Stock Split to the Company's capital accounts on a pro forma
basis as at April ___, 1997 in the event of a one-for-three, one-for-five and
one-for-seven Reverse Stock Split:
<TABLE>
<CAPTION>
Prior to After a 1-for-3 After a 1-for-5 After 1-for-7
Reverse Stock Reverse Stock Reverse Stock Reverse Stock
Number of Shares Split Split Split Split
- ---------------- -------------- ---------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Common Stock:
Authorized. . . . . .
Outstanding . . . . .
Reserved. . . . . . .
Available for Future
Issuance . . . . .
</TABLE>
<TABLE>
<CAPTION>
Prior to After a 1-for-3 After a 1-for-5 After 1-for-10
Reverse Stock Reverse Stock Reverse Stock Reverse Stock
Financial Data Split Split Split Split
- --------------- -------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Stockholders' equity
Common Stock,
$.001 par value . .
Additional paid-in
capital . . . . . .
Retained earnings. .
Total stockholders'
equity . . . . .
Book value per common
share . . . . . . .
</TABLE>
Liquidation of Fractional Shares
At the effective date of the Reverse Stock Split (the "Effective Date"),
each share of old Common Stock issued and outstanding immediately prior thereto,
will be reclassified as and changed into the appropriate fraction of a share of
the Company's New Common Stock. All fractional share interests that are not
combined into whole shares will be subject to the treatment of fractional share
interests as described below. Shortly after the Effective Date, the Company will
send transmittal forms to the holders of the Old Common Stock to be used in
forwarding their certificates formerly representing shares of Old Common Stock
for (i) surrender and exchange for certificates representing whole shares of New
Common Stock and (ii) cash in lieu of any fraction of a share of New Common
Stock to which such holders would otherwise be entitled.
<PAGE>
American Stock Transfer & Trust Company will act as the Company's exchange
agent (the "Exchange Agent") to act for holders of Old Common Stock in
implementing the exchange of their certificates. Do not send stock certificates
until you receive a notice requesting you to transmit them to the Exchange
Agent.
If this proposal is approved by stockholders and the Company files the
Amended Certificate of Incorporation, stockholders will be notified and
requested to surrender their certificates representing shares of Old Common
Stock to the Exchange Agent in exchange for certificates representing New Common
Stock. Beginning on the Effective Date, each certificate representing shares of
the Company's Old Common Stock will be deemed for all corporate purposes to
evidence ownership of a proportionate number of shares of New Common Stock and a
right to payment in cash for fractional interests.
The Company will either deposit sufficient cash with its Exchange Agent or
set aside sufficient cash for the purchase of the above-referenced fractional
interests. Stockholders are encouraged to surrender their certificates to the
exchange agent for certificates evidencing whole shares of the New Common Shares
and to claim the sums, if any, due them for fractional interests, as promptly as
possible following the Effective Date. No interest will accrue or be payable to
stockholders on account of such deposit. The Company shall be entitled to
earnings, if any, on funds deposited.
The ownership of a fractional interest will not give the holder thereof any
voting, dividend, or other rights except to receive payment therefor as
described herein. No service charge will be payable by stockholders in
connection with the exchange of certificates or the issuance of cash for
fractional interests, all of which will be borne and paid by the Company.
The number of record holders of the Common Stock on the Record Date was
_____. The Company does not anticipate that the payment in cash in lieu of
fractional shares following any Reverse Stock Split would result in a
significant reduction in the number of such holders. Holders of New Common Stock
will continue to be entitled to receive such dividends as may be declared by the
Board of Directors. To date no dividends on the Common Stock have been paid by
the Company.
Board Position and Required Vote
The proposal will be adopted only if it receives the affirmative vote of a
majority of the outstanding shares of Common Stock. The Board of Directors
believes that the proposed amendment is in the best interests of the Company and
its stockholders and recommends a vote FOR each of the proposed atlernative
ratios. Proxies received will be voted in favor of the proposed amendment unless
otherwise indicated.
INDEPENDENT PUBLIC ACCOUNTANTS
BDO Seidman LLP acted as the Company's independent auditors for the year
ended March 31, 1996.
A representative of BDO Seidman LLP plans to be present at the Annual
Meeting with the opportunity to make a statement if he desires to do so, and
will be available to respond to appropriate questions.
<PAGE>
FINANCIAL STATEMENTS
The Company has enclosed its Annual Report of Stockholders for the fiscal
year ended March 31, 1996 with this Proxy Statement. Stockholders are referred
to the report for financial and other information about the Company, but such
report is not incorporated in this Proxy Statement and is not a part of the
proxy soliciting material.
MISCELLANEOUS INFORMATION
As of the date of this Proxy Statement, the Board of Directors does not
know of any business other than specified above to come before the meeting, but,
if any other business does lawfully come before the meeting, it is the intention
of the persons named in the enclosed Proxy to vote in regard thereto, in
accordance with their judgment.
The Company will provide without charge to any stockholder as of the Record
Date, copies of the Company's Annual Report on Form 10-KSB, upon written request
delivered Robert E. Munyer, Jr., Secretary, at the Company's offices at 895
Waverly Avenue, Holtsville, New York 11742.
The Company will pay the cost of soliciting proxies in the accompanying
form. In addition to solicitation by use of the mails, certain officers and
regular employees of the Company may solicit proxies by telephone, telegraph or
personal interview. The Company may also request brokerage houses and other
custodians, and, nominees and fiduciaries, to forward soliciting material to the
beneficial owners of stock held by record by such persons, and may make
reimbursement for payments made for their expense in forwarding soliciting
material to the beneficial owners of the stock held of record by such persons.
Stockholder proposals with respect to the Company's next Annual Meeting of
Stockholders must be received by the Company no later than July 31, 1997 to be
considered for inclusion in the Company's next Proxy Statement.
By Order of the Board of Directors,
Robert E. Munyer, Jr.
Secretary
April 24, 1997
Holtsville, New York
<PAGE>
Exhibit A
If Proposal 2 is approved, the following will be included in an amendment to
the Amended and Restated Certificate of Incorporation of the Company, in Article
FOURTH thereof:
FOURTH: (a) The total number of shares of all classes of stock which the
Corporation shall have authority to issue is THIRTY FOUR MILLION (34,000,000)
shares. Of these (i) THIRTY MILLION (30,000,000) shares shall be shares of
Common Stock of the par value of $.001 per share; (ii) TWO MILLION (2,000,000)
shares shall be shares of Class A Convertible Preferred Stock of the par value
of $.001 per share; and (iii) TWO MILLION (2,000,000) shares shall be shares of
Serial Preferred Stock of the par value of $.001 per share.
<PAGE>
Exhibit B
PROPOSED REVERSE STOCK SPLIT
If proposal 3 is approved, the following will be included in an amendment to
the Amended and Restated Certificate of Incorporation of the Company, in article
FOURTH, subsection (a), third paragraph thereof:
Each issued and outstanding share of Common Stock of the par value of $.001
per share of the Corporation (the "Old Common Stock") as of the date of filing
of this amended and restated certificate of incorporation (the "Effective Date")
shall automatically and without any action on the part of the holder thereof, be
reclassified as and changed into one-x(1/x) [x is to be completed with a whole
number which shall be either three(3), five(5) or seven (7), inclusive,
hereafter approved by the Board of Directors] of one share of Common Stock of
the par value of $.001 per share (the "New Common Stock"), subject to the
treatment of fractional share interests as described below. Each holder of a
certificate or certificates which immediately prior to the Effective Date
represented outstanding shares of Old Common Stock (the "Old Certificates",
whether one or more) shall be entitled to receive upon surrender of such Old
Certificates to the Company's Transfer Agent for cancellation, a certificate or
certificates (the "New Certificates", whether one or more) representing the
number of whole shares of the New Common Stock into which any for which the
shares of the Old Common Stock formerly represented by such Old Certificates so
surrendered, are reclassified under the terms hereof. From and after the
Effective Date, Old Certificates shall represent only the right to receive New
Certificates (and, where applicable, cash in lieu of fractional shares, as
provided below) pursuant to the provisions hereof. No certificates or scrip
representing fractional share interests in New Common Stock will be issued, and
no such fractional share interest will entitle the holder thereof to vote, or to
any rights of a stockholder of the Company. A holder of Old Certificates shall
receive, in lieu of any fraction of a share of New Common Stock to which the
holder would otherwise be entitled, a cash payment therefor on the basis of the
average of the last reported "bid" and "asked" prices of the Old Common Stock on
the NASDAQ SmallCap Market on the Effective Date (or in the event the Company's
Common Stock is not so traded on the Effective Date, such average of the last
reported "bid" and "asked" prices on the next preceding day on which such stock
was traded on the NASDAQ SmallCap Market). If more than one Old Certificate
shall be surrendered at one time for the account of the same Stockholder, the
number of full shares of New Common Stock for which New Certificates shall be
issued shall be computed on the basis of the aggregate number of shares
represented by the Old Certificates so surrendered. In the event that the
Company's Transfer Agent determines that a holder of Old Certificates has not
tendered all his certificates for exchange, the Transfer Agent shall carry
forward any fractional share until all certificates of that holder have been
presented for exchange such that payment for fractional shares to any one person
shall not exceed the value of one share. If any New Certificate is to be issued
in a name other than that in which the Old Certificates surrendered for exchange
are issued, the Old Certificates so surrendered shall be properly endorsed and
otherwise in proper form for transfer, and the person or persons requesting such
exchange shall affix any requisite stock transfer tax stamps to the Old
Certificates surrendered, or provide funds for their purchase, or establish to
the satisfaction of the Transfer Agent that such taxes are not payable. From and
after the Effective Date, the amount of capital represented by the shares of the
New Common Stock into which and for which the shares of the Old Common Stock are
reclassified under the terms hereof shall be the same as the amount of capital
represented by the shares of Old Common Stock so reclassified, until thereafter
reduced or increased in accordance with applicable law.
<PAGE>
ECOTYRE TECHNOLOGIES, INC. The undersigned hereby appoints Marc de Logeres and
Board of Directors Theresa Mari , or either of them, attorneys and
Proxies with full power of substitution in
each of them, in the name and stead of the
undersigned to vote as Proxy all the stock of the
undersigned in EcoTyre Technologies, Inc., a
Delaware corporation, at the Annual Meeting of
Stockholders scheduled to be held May 29, 1997
and any adjournments thereof.
The Board of Directors recommends a vote FOR the following proposals:
1. Election of the following nominees, as set forth in the proxy statement:
Vito F. Alongi and John W. King
[ ] FOR all nominees listed below [ ] WITHHOLD authority to vote
(Instruction: To withhold authority to vote for any individual nominee,
print the nominee's name on the line provided below)
2. Proposal to amend the Company's Certificate of Incorporation to
authorize an increase in the Company's authorized capital from
20,000,000 shares of Common Stock, par value $.001 per share to
30,000,000 shares of Common Stock, par value $.001 per share, as set
forth in Exhibit A to the Proxy Statement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Proposal to grant the Board of Directors authority to amend the Company's
Certificate of Incorporation to effect a reverse stock split of the Common
Stock, in the proportion determined by the Board of Directors, as set forth
in Exhibit B to the Proxy Statement.
You may vote for, vote against or abstain from voting on any one or more of
the following. The Board will select one and only one fo the approved ratios:
A. To authorize a three-for-one reverse stock split:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
B. To authorize a five-for-one reverse stock split:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
C. To authorize a seven-for-one reverse stock split:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Upon such other business as may properly come before the meeting or any
adjournment thereof.
(Continued and to be signed on reverse side)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
THE SHARES REPRESENTED HEREBY SHALL BE VOTED BY PROXIES, AND EACH OF THEM, AS
SPECIFIED AND, IN THEIR DISCRETION, UPON SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING. SHAREHOLDERS MAY WITHHOLD THE VOTE FOR ONE OR MORE
NOMINEE(S) BY WRITING THE NOMINEE(S) NAME(S) IN THE BLANK SPACE PROVIDED ON THE
REVERSE HEREOF. IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR THE
PROPOSALS SET FORTH ON THE REVERSE HEREOF.
Dated: _____________, 1997
________________________[L.S.]
________________________[L.S.]
(Note: Please sign exactly as your name appears hereon.
Executors, administrators, trustees, etc. should so indicate
when signing, giving full title as such. If signer is a
corporation, execute in full corporate name by authorized
officer. If shares are held in the name of two or more
persons, all should sign.)
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE
