SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.DC 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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¨ Preliminary Proxy Statement
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¨ Definitive Additional Materials
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¨ Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
B.H.I.T. Inc.
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(Name of Registrant as Specified in Its Charter)
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(Namematerial under Rule 14a-12
BANYAN RAIL SERVICES INC.
(Name of Registrant as Specified In Its Charter) |
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NOTICE OF SPECIAL MEETING IN LIEU OF
ANNUAL MEETING OF STOCKHOLDERS OF
B.H.I.T.filed:
May 26, 2010
Dear Fellow Stockholder:
You are cordially invited to attend the 2010 annual meeting of stockholders of Banyan Rail Services Inc. on Thursday, July 1, 2010, starting at 11:00 A.M. local time at 2255 Glades Road, Suite 342-W, Boca Raton, Florida 33431.
As more fully described in the attached notice of annual meeting and the accompanying proxy statement, the principal business to be addressed at the meeting is the election of directors, the approval of our 2010 Stock Option and Award Plan and the ratification of our independent auditor for 2010. In addition, our management will report on our results and will be available to respond to your questions.
Your vote is important to us. Whether or not you plan to attend the annual meeting, please return the enclosed proxy card as soon as possible to ensure your representation at the meeting. You may choose to vote in person at the annual meeting even if you have returned a proxy card.
On behalf of the directors and management of Banyan, I would like to thank you for your support and confidence and look forward to seeing you at the meeting.
Sincerely,
Gary O. Marino
Chairman of the Board, President and
Chief Executive Officer
BANYAN RAIL SERVICES INC.
FORMERLY BANYAN HOTEL INVESTMENT FUND
TO BE HELD JULY __, 2000
2255 Glades Road
Suite 342-W
Boca Raton, Florida 33431
Notice Of Annual Meeting Of Stockholders
To Be Held On July 1, 2010
To the Stockholders of B.H.I.T.Banyan Rail Services Inc.
NOTICE IS HEREBY GIVEN that a Special Meeting in lieu of the:
The Annual Meeting of the Stockholders of B.H.I.T.Banyan Rail Services Inc. (the "Company"), a Delaware corporation, will be held on Thursday, July __, 2000,1, 2010, at 10:2255 Glades Road, Suite 342-W, Boca Raton, Florida 33431, beginning at 11:00 A.M., local time, at __________________forfor the following purposes:
1. To elect four (4) directors to hold office
| 1. | To elect four directors to serve for a one year term until the next annual meeting or until their successors are duly elected and qualified; |
| 2. | To approve our 2010 Stock Option and Award Plan; |
| 3. | To ratify the appointment of Daszkal Bolton LLP as our independent auditor for the fiscal year ending December 31, 2010; and |
| 4. | To transact such other business as may properly come before the meeting or any adjournment of the meeting. |
These items of business are more fully described in the next Annual Meeting of
Stockholders or until their respective successors have been duly elected and
qualified;
2. To consider and vote upon a proposal to amend the Company's Certificate of
Incorporation to eliminate provisions relating to the Company's former status as
a Real Estate Investment Trust ("REIT"), and which will limit the number of
shares of the Company's Common Stock which may be acquired by any Stockholder of
the Company;
3. To consider and vote upon a proposal to amend and restate the By-Laws of the
Company to eliminate provisions relating to the Company's former status as a
REIT;
4. To consider and vote upon a proposal to sell the Company's 50% interest in
Metro Franchising Commissary, LLC; to Harvey Polly, President and CEO of the
Company; and
5. To transact such other business as may properly come before the Meeting or
any adjournment or adjournments thereof.
proxy statement accompanying this notice.
Only stockholders of record at the close of business on June __, 2000May 6, 2010, are entitled to vote at the Meetingannual meeting.
All stockholders are cordially invited to attend the meeting in person. However, to ensure your representation at the meeting, please sign and return the enclosed proxy card as promptly as possible in the postage prepaid envelope enclosed for your convenience. Any stockholder attending the meeting may vote in person even if he or any adjournments thereof.
IF YOU DO NOT EXPECT TO BE PRESENT AT THE MEETING:
PLEASE FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE
PROVIDED FOR THAT PURPOSE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO EXERCISE, AND IF YOU ARE
PRESENT AT THE MEETING YOU MAY, IF YOU WISH, REVOKE YOUR PROXY AT THAT TIME AND
EXERCISE THE RIGHT TO VOTE YOUR SHARES PERSONALLY.
she has returned a proxy card.
By Order of the Board of Directors,
Celia Zisfein
C. Lawrence Rutstein
Vice President of Administration and Secretary
June __, 2000
BANYAN RAIL SERVICES INC.
PROXY STATEMENT
B.H.I.T. INC.
FORMERLY BANYAN HOTEL INVESTMENT FUND
SPECIAL MEETING IN LIEU OF ANNUAL MEETING
OF STOCKHOLDERS
TO BE HELD JULY __, 2000
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be Held on July 1, 2010:
This proxy statement and our annual report for the fiscal year ending December 31, 2009 are available on our website at www.banyanrail.com.
GENERAL INFORMATION
This proxy statement is furnished in connection with the solicitation of proxies by the Boardour board of Directors of B.H.I.T. Inc. (the "Company") for usedirectors to be used at the 2010 Annual Meeting of Stockholders to be held on Thursday, July __, 2000, at __________, New York,
New York, including1, 2010, and any adjournmentpostponements or adjournments thereof (the "Meeting"), forof the purposes set forth in the accompanying Notice of Meeting. The Company has
not had a meeting of Stockholders since 1993.
Management intends to mail thismeeting.
This proxy statement and the accompanying form ofchairman’s letter, notice and proxy card, together with our annual report on Form 10-K for the year ended December 31, 2009, are being sent to our stockholders beginning on or about June __, 2000.
Proxies inMay 28, 2010.
QUESTIONS AND ANSWERS
Q: | When and where is the annual meeting? |
A: | Our 2010 Annual Meeting of Stockholders will be held on Thursday, July 1, 2010, at 11:00 A.M. local time, at 2255 Glades Road, Suite 342-W, Boca Raton, Florida 33431. |
A: | Proposal 1 – Election of four directors — Paul S. Dennis, Gary O. Marino, Bennett Marks and Donald D. Redfearn, |
| Proposal 2 – To approve our 2010 Stock Option and Award Plan, and |
| Proposal 3 – To ratify the appointment of Daszkal Bolton LLP as our independent auditor for the fiscal year ending December 31, 2010. |
If a proposal other than the accompanying form, duly executedlisted proposals is presented at the annual meeting, your signed proxy card gives authority to C. Lawrence Rutstein or Diane T. Starzee to vote on any additional proposal.
Q: | Who is entitled to vote? |
A: | Our record date is May 6, 2010. Only holders of our common stock as of the close of business on May 6, 2010 are entitled to vote at the annual meeting. Each share of common stock is entitled to one vote. |
A: | Sign and date each proxy card you receive and return it in the prepaid envelope. You have the right to revoke your proxy any time before the meeting by: |
| · | notifying our secretary, |
| · | returning a later dated proxy. |
If you return your signed proxy card, but do not indicate your voting preferences, Mr. Rutstein or Ms. Starzee will vote FOR the director nominees, FOR the approval of our 2010 Stock Option and returned toAward Plan and FOR the managementratification of the Companyappointment of Daszkal Bolton LLP as our independent auditor for the fiscal year ending December 31, 2010 on your behalf .
Q: | Who will count the vote? |
A: | Representatives of Computershare, our transfer agent, will tabulate the votes. Mr. Rutstein will be responsible for reviewing the vote count as election inspector. |
Q: | What shares are included on the proxy card and what does it mean if I receive more than one proxy card? |
A: | The number of shares printed on your proxy card(s) represents all your shares. Receipt of more than one proxy card means that your shares are registered differently and are in more than one account. Sign and return all proxy cards to ensure that all your shares are voted. The number of shares printed on your proxy card(s) has been adjusted for our 1-for-10 reverse stock split effectuated on April 7, 2010. |
Q: | What constitutes a quorum? |
A: | As of the record date, 3,017,791 shares of our common stock were outstanding. A majority of the outstanding shares of our common stock, present or represented by proxy, constitutes a quorum for adopting a proposal at the annual meeting. If you submit a properly executed proxy card, you will be considered part of the quorum. If you are present or represented by proxy at the annual meeting and you abstain, your abstention will have the same effect as a vote against the approval our 2010 Stock Option and Award Plan (Proposal 2). “Broker non-votes” will not be part of the voting power present, but will be counted to determine whether or not a quorum is present. A “broker non-vote” occurs when a broker holding stock in “street name” indicates on the proxy that it does not have discretionary authority to vote on a particular matter. |
Q: | Who can attend the annual meeting? |
A: | All stockholders as of the record date, May 6, 2010, can attend. |
Q: | What percentage of stock are the directors and officers entitled to vote at the annual meeting? |
A: | Together, they own 981,134 shares of our common stock, or 32.5% of the stock entitled to vote at the annual meeting. (See page 20 for more details.) |
Q: | Who are our largest stockholders? |
A: | Paul S. Dennis, a director, beneficially owns 364,792 shares of our common stock, or 12.1%, as of the record date and Gary O. Marino, our chairman, president and chief executive officer, beneficially owns 212,728 shares of common stock, or 7.0% as of the record date. |
Q: | When is a stockholder proposal due for our next annual meeting? |
A: | In order to be considered at next year’s annual meeting, stockholder proposals must be submitted in writing by January 26, 2011, to C. Lawrence Rutstein, Vice President of Administration, Banyan Rail Services Inc., 2255 Glades Road, Suite 342-W, Boca Raton, Florida 33431, and must be in accordance with the provisions of Rule 14a-8 under the Securities Exchange Act of 1934 (the Exchange Act). (See page 22 for more details.) |
Q: | How do I communicate with the board of directors? |
A: | Stockholders may send communications to our board to C. Lawrence Rutstein, Vice President of Administration, Banyan Rail Services Inc., 2255 Glades Road, Suite 342-W, Boca Raton, Florida 33431. (See page 22 for more details.) |
Q: | How do I nominate someone to be a director? |
A: | A stockholder may recommend any person as a nominee for director by writing to our chief executive officer at Banyan Rail Services Inc., 2255 Glades Road, Suite 342-W, Boca Raton, Florida 33431. Recommendations for next year’s annual meeting must be received no earlier than April 2, 2011, and no later than May 2, 2011, and must be in accordance with the requirements of our nomination policy. (See page 9 for more details.) |
Q: | Who pays for the solicitation expenses? |
A: | The expense of soliciting proxies, including the cost of preparing, printing and mailing the proxy materials, will be paid by us. In addition to solicitation of proxies by mail, solicitation may be made personally, by telephone and by facsimile, and we may pay persons holding shares for others their expenses for sending proxy materials to their principals. No solicitation will be made other than by our directors, officers and employees. |
PROPOSAL 1 — ELECTION OF DIRECTORS
At this annual meeting, four directors are to be elected to hold office until the next annual meeting of stockholders or until their respective successors are duly elected and not revoked, willqualified. Nominees for election this year are Paul S. Dennis, Gary O. Marino, Bennett Marks and Donald D. Redfearn. Each has consented to serve until the next annual meeting or until his successor is duly elected and qualified.
If any director to be elected is unable to stand for re-election, the board may, by resolution, provide for a lesser number of directors or designate a substitute. In the latter event, shares represented by proxies may be voted
atfor a substitute director. We need the
Meeting. Any proxy given
pursuant to such solicitation may be revoked by the stockholder at any time
prior to the votingaffirmative vote of the
proxy by a subsequently dated proxy, by written
notification to the Secretary of the Company, or by personally withdrawing the
proxy at the Meeting and voting in person.
The address and telephone number of the principal executive offices of the
Company are:
875 Avenue of the Americas, Suite 1808
New York, New York 10001
(212) 736-7880
OUTSTANDING STOCK AND VOTING RIGHTS
Only stockholders of record at the close of business on June __, 2000 (the
"Record Date") are entitled to notice of and to vote at the Meeting. As of the
Record Date, there were issued and outstanding 12,403,565 shares of the
Company's common stock, $.01 par value per share (the "Common Stock"), the
Company's only class of voting securities. Each share entitles the holder to one
vote on each matter submitted to a vote at the Meeting.
1
THE SALE OF THE COMPANY'S 50% INTEREST IN
METRO FRANCHISING COMMISSARY, LLC
o Assets to be Sold. The Company will sell (the "Sale") its 50% interest (the
"Franchise Interest") in Metro Franchising Commissary, LLC ("Metro").
o Purchaser. The purchaser of the Franchise Interest is Harvey Polly, President
and CEO of the Company.
o Sale Price. The Company will sell the Franchise Interest for $1,000,000
payable in cash at the closing of the Sale. The Board of Directors believes
the sale price is fair. Since the Franchise Interest is being sold to Mr.
Polly, who is President and CEO of the Company, the Company retained an
independent appraiser who has delivered an opinion indicating that it
believed the sale price was fair.
o Reasons for the Sale. Metro was only successful in developing seven of the
originally scheduled sixteen retail locations and is only marginally
profitable. Further development of Metro would require a substantial
additional capital. Further, Arrowhead Holdings Corporation, a diversified
holding company, has entered into an agreement with Harvey Polly and
Sheltering Palms Foundation to purchase approximately 39% of the total of the
outstanding Common Stock of the Company and has made the Sale of the
Franchise Interest a condition of the closing of the purchase of such shares.
As more fully set forth herein, the Board of Directors believes that it is in
the best interest of the stockholders to sell the Franchise Interest to Mr.
Polly to enable Arrowhead Holdings Corporation to purchase such stock.
o Use of Proceeds. The Company will utilize the proceeds from the Sale of the
Franchise Interest for general corporate purposes. None of the proceeds will
be distributed to the stockholders of the Company.
o Regulatory Matters. The Company is not aware of any regulatory or
governmental approvals required to consummate the Sale for the Company or for
Mr. Polly.
o Accounting Treatment. The Sale will be accounted for as a sale of assets, in
accordance with generally accepted accounting principles. The Company will
recognize a gain for book purposes of approximately $70,000 based upon the
excess of net proceeds to be received over the book value of the net assets
sold.
o U.S. Tax Consequences. The Company will recognize a gain on the Sale of
approximately $70,000, which gain will be offset by the Company's net
operating loss carryforwards. Accordingly, the Sale will have no tax effect
on the Company, nor will the Sale have any tax consequence for stockholders
of the Company.
o Appraisal Rights. Under Delaware Law, Company stockholders are not entitled
to dissenters' rights of appraisal with respect to the Sale.
o Questions. Stockholders who have questions regarding the Sale or any of the
other matters addressed in this proxy statement should call Mr. Harvey Polly,
the Company's President and Chief Executive Officer of the Company at (212)
736-7880. The Company's mailing address is 875 Avenue of the Americas, Suite
1808, New York, New York 10001. See "APPROVAL OF THE SALE OF THE COMPANY'S
50% INTEREST IN METRO FRANCHISING COMMISSARY, LLC" herein for a more detailed
discussion of this transaction.
2
VOTING PROCEDURES
The Directors will be elected by the affirmative voteholders of a plurality of the shares of Commonour common stock present or represented by proxy at the annual meeting to elect directors.
The board of directors recommends that you vote FOR Mr. Dennis, Mr. Marino, Mr. Marks and Mr. Redfearn.
BOARD OF DIRECTORS
Name | | Age | | Position | | Director Since |
Gary O. Marino | | 65 | | Chairman, President and Chief Executive Officer | | 2007 |
Bennett Marks | | 61 | | Director | | 2008 |
Paul S. Dennis | | 71 | | Director | | 2007 |
Donald D. Redfearn | | 58 | | Director | | 2010 |
Gary O. Marino joined our board in January 2007, was appointed chairman in January 2008 and president and chief executive officer in November 2008. Mr. Marino has served as chairman, president and CEO of Patriot Rail Corp., an owner and operator of short line and regional railroads, since 2005, and formerly held the same positions at RailAmerica, Inc. (NYSE: RRA), a company he founded in 1985, until his retirement in 2004. From 1984 until 1993, Mr. Marino served as chairman, president and CEO of Boca Raton Capital Corporation, a publicly owned venture capital investment company. Prior to that he spent more than ten years in commercial banking in New York as a senior loan officer and for more than five years was also president and CEO of two small business investment companies (SBICs), as well as president of a Florida-based commercial bank. Mr. Marino received his B.A. degree from Colgate University and his M.B.A. from Fordham University. From 1966 to 1969, he served as an officer of the United States Army Ordnance Corps. He has also served on the board of directors of the American Association of Railroads. We believe Mr. Marino is well qualified to serve on the board due to his extensive knowledge of the railroad industry as well as his investment banking experience.
Bennett Marks joined the board in November 2008 and served as our vice president and chief financial officer from November 2008 to May 2010. Mr. Marks has been executive vice president and CFO of Patriot Rail Corp., an owner and operator of short line and regional railroads, since 2005. Mr. Marks has served as EVP and CFO of six publicly-held and privately-owned companies in the transportation, healthcare, manufacturing, distribution and telecommunications industries. While CFO at RailAmerica, Inc. (NYSE: RRA), he developed and implemented the financial framework of the company as revenues grew from $130 million to $450 million. Mr. Marks has more than twenty years of experience in public accounting, including ten years as an audit/client services partner with KPMG where he was an Associate SEC Reviewing Partner and the Administrative Partner in Charge of the West Palm Beach office. A licensed CPA in Florida and New York, he has held leadership positions in a variety of community, charitable, and professional organizations. Mr. Marks received his degree in accounting from New York University. We believe Mr. Marks is well qualified to serve on the board due to his extensive finance and accounting knowledge as well as his experience in the railroad industry.
Paul S. Dennis joined the board in January 2007 and was appointed interim chief financial officer in February 2007 and interim chief executive officer in April 2008. Mr. Dennis stepped down as interim CEO and CFO in November 2008. Mr. Dennis has served as president and CEO of Associated Health Care Management Company, Inc. since 1977. Health Care Management is a Cleveland, Ohio based company that managed eight nursing care facilities and four congregate living facilities. The company has sold all but one of its facilities. Mr. Dennis has also been a director and officer with various companies and business ventures including gaming supply manufacturing and distribution, hardware distribution, pharmaceutical distribution and steel fabricating industries. He is a real estate developer, general contractor, owner and investor. We believe Mr. Dennis is highly qualified to serve on Banyan’s board due to his broad experience as an entrepreneur and CEO.
Donald D. Redfearn joined the board in January 2010. Mr. Redfearn has been the owner of Redfearn Enterprises, LLC, a real estate holding company, since 2007. From 2004 to 2007, he served as president of RailAmerica, Inc. (NYSE: RRA), a railroad holding company, and from 1989 to 2004 he served as executive vice president of RailAmerica. He also served as a director of RailAmerica since its inception in 1986 through 2007. Mr. Redfearn received his B.A. degree in Business Administration from the University of Miami and graduated from the School of Banking of the South at Louisiana State University. Active in local charities, Mr. Redfearn is a member of the United Way Leadership Circle. We believe Mr. Redfearn is highly qualified to serve as a director due to his experience in the railroad industry.
Director Independence
Our board has determined that two of our four directors, Paul S. Dennis and Donald D. Redfearn, are “independent” as defined by NASDAQ Stock Market Listing Rule 5605(a)(2). Although we are not listed for trading on the NASDAQ stock market, we have selected the NASDAQ rules as an appropriate guideline for determining the independence of our board members.
Board Leadership Structure
The board does not have a policy as to whether the roles of our chairman and chief executive officer should be separate. Instead, the board makes this determination based on what best serves Banyan’s needs at any given time. Currently, Mr. Marino holds the positions of chairman and chief executive officer of Banyan and the board does not have a lead independent director. We feel our current structure is appropriate at this time because we are in the early stages of our business and our board only has four members. The board believes that effective board leadership is highly dependent on the experience, skills and personal interaction between persons in leadership roles. Mr. Marino’s extensive knowledge, skills and experience provides vital leadership to Banyan and enables him to set our strategic direction, with significant input from our board, including our two independent directors. As we continue to grow and develop our business and add additional directors as we intend, the board may decide to separate the positions of chairman and chief executive officer or choose a lead independent director in the future.
Role of the Board in Risk Oversight
Although management is responsible for the day-to-day management of the risks that the company faces, our board has broad oversight responsibility for our risk management programs. In this oversight role, the board takes steps to satisfy itself that the risk management processes and risk mitigation strategies designed and implemented by our management team are functioning and effective. Our management team meets regularly to assess any significant or potentially significant operational, financial, legal, regulatory and other risks to the company. Management, including our chief executive officer, who is also a board member, reports on significant or potentially significant risks identified by management for the full board’s consideration and evaluation. In addition, our board consults with outside consultants, such as the company’s legal counsel or accountants, regarding various areas of potential risk and the steps management has taken to minimize these risks.
Attendance of Directors at Meetings
In 2009, the board of directors met six times and acted by written consent five times.
Directors are encouraged to attend the annual meeting of stockholders, either in person or by teleconference. We did not hold an annual meeting last year because we were a shell company without operations prior to our acquisition of The Wood Energy Group.
Director Nominating Process
Our board of directors does not have a nominating committee. Instead, the board believes it is in the best interests of the company to rely on the insight and expertise of all directors in the nominating process.
Our directors will recommend qualified candidates for director to the full board and nominees are subject to approval by a majority of our board members. Nominees are not required to possess specific skills or qualifications; however, nominees are recommended and approved based on various criteria including relevant skills and experience, personal integrity and ability and willingness to devote their time and efforts to Banyan. Qualified nominees are considered without regard to age, race, color, sex, religion, disability or national origin. We do not use a third party to locate or evaluate potential candidates for director.
The board of directors considers nominees recommended by stockholders according to the same criteria. A stockholder desiring to nominate a director for election must deliver a notice to our chief executive officer at our principal executive office. Nominations for next year’s annual meeting must be received no earlier than April 2, 2011, and no later than May 2, 2011. The notice must include as to each person whom the stockholder proposes to nominate for election or re-election as director:
| · | the name, age, business address and residence address of the person, |
| · | the principal occupation or employment of the person, |
| · | the written consent of the person to being named in the proxy as a nominee and to serving as a director, |
| · | the class and number of our shares of stock beneficially owned by the person, and |
| · | any other information relating to the person that is required to be disclosed in solicitations for proxies for election of director pursuant to Rule 14a under the Securities Exchange Act of 1934; |
and as to the stockholder giving the notice:
| · | the name and record address of the stockholder, and |
| · | the class and number of our shares beneficially owned by the stockholder. |
We may require any proposed nominee to furnish additional information reasonably required by us to determine the eligibility of the proposed nominee to serve as our director.
Director Compensation
The following table summarizes information with respect to the compensation paid to our directors in 2009. As an executive officer of Banyan, Gary Marino is included in our summary compensation table beginning on page 11 and, therefore, is not included in this table.
Name | | Fees Earned or Paid in Cash | | | Option Awards(1) | | | All Other Compensation | | | Total | |
Paul S. Dennis | | | — | | | $ | 25,000 | | | | — | | | $ | 25,000 | |
Bennett Marks | | | — | | | $ | 25,000 | | | | — | | | $ | 25,000 | |
Harvey J. Polly(2) | | | — | | | | — | | | | — | | | | — | |
(1) | The fair value of stock options is determined as of the date of grant. We use the Black-Scholes option pricing model to estimate compensation cost for stock option awards. Please see the table regarding the assumptions used in this calculation in Note 14, “Stock-Based Compensation” to the consolidated financial statements in our 10-K filed with the Securities and Exchange Commission on April 15, 2010. |
(2) | Mr. Polly resigned as a director on February 1, 2010. Mr. Polly did not receive any stock options or other form of compensation in 2009. |
Committees of the Board
We are still in the early stages of our business plan and our board currently has only four members. Because of the small size of our board, our directors have not yet designated audit, nominating or other committees. Instead, these responsibilities are handled by the entire board. Without an audit committee, we have not designated a director as an “audit committee financial expert” as defined by Securities and Exchange Commission (SEC) rules. Although we are pleased with the diverse skills and level of expertise that our directors possess, we intend to add additional directors as our operations grow. Our board plans to form appropriate committees at that time.
Code of Ethics
In March 2004, our board of directors unanimously adopted a code of conduct and ethics that applies to all of our officers, directors and employees, including our principal executive officer and principal financial and principal accounting officer. We will provide a copy of our code without charge upon written request to C. Lawrence Rutstein, Vice President of Administration, 2255 Glades Road, Suite 342-W, Boca Raton, Florida 33431.
EXECUTIVE OFFICERS
Name | | Age | | Position |
Gary O. Marino | | 65 | | Chairman, President and Chief Executive Officer |
Larry Forman | | 55 | | Chief Financial Officer |
C. Lawrence Rutstein | | 65 | | Vice President of Administration and Secretary |
Greg Smith | | 47 | | President of Wood Energy |
Andy C. Lewis | | 41 | | Vice President of Wood Energy |
* Information for Mr. Marino can be found under “Board of Directors.”
Larry Forman joined us as chief financial officer on May 26, 2010. Mr. Forman served as vice president and corporate controller of Gulfstream International Group, Inc., a publicly owned regional airline from January 2009 until May of 2010. From August 2005 to December 2008 he served as vice president of finance for Dynalco Controls, a subsidiary of Crane Co., a $2.7 billion publicly traded company. From 1982 through 2005 he served as CFO, COO and vice president of finance for several publicly traded and private companies in New York, Washington, D.C. and South Florida. Mr. Forman was a senior auditor for Grant Thornton and Company from 1979 to 1982. Mr. Forman is a certified public accountant and received his bachelor of science in accounting degree from Queens College in New York City.
C. Lawrence Rutstein has served as our vice president of administration and secretary since 2008. He also serves as vice president – contracts and administration for Patriot Rail Corp. Mr. Rutstein has over 40 years of legal and business experience. From 1968 through 1970, Mr. Rutstein practiced securities law and corporate banking for several major Philadelphia law firms. In 1971 to 1972, he served as Assistant Attorney General and Chief Counsel to the Pennsylvania Department of Banking and later in 1972 became the first in-house counsel for Continental Bank. In 1982, Mr. Rutstein founded Parker & Rutstein, a corporate law firm in Philadelphia. In 1989, he led an IPO for Cedar Group, Inc., and served as its CEO until 1991. From 1995 to 2006 Mr. Rutstein has served as a consultant to a number of public and private companies both in Philadelphia and south Florida and has served as an executive, director and entrepreneur with several of them. Mr. Rutstein earned his undergraduate degree from the University of Massachusetts and his law degree from Harvard Law School.
Greg Smith has served as president of our Wood Energy subsidiary since he founded the company in 2001. Mr. Smith has been in the business of railroad tie reclamation and disposal since 1991. He founded Wood Waste Energy and built it into the country’s largest railroad tie recovery service. Wood Waste Energy was the first company to produce railroad tie-derived fuel, with Mr. Smith developing a patented design for processing used ties. He also developed an efficient system for crews to pick up rail ties behind railroad system gangs. He has worked as a contractor for many large railroads, namely BNSF (1997 to 2001); Union Pacific (1991 to present); Norfolk Southern (1994 to 2000); Illinois Central (1997 to 2001); and Kansas City Southern (1998 to 2001). Mr. Smith sold Wood Waste Energy in 1999 and it remains the largest railroad tie recovery company in the U.S. Mr. Smith is a graduate of the University of Kansas.
Andy C. Lewis has served as vice president of our Wood Energy subsidiary since 2001. Mr. Lewis has been managing railroad tie pick-up crews since 1997, and has extensive experience in managing field crew employees, hi-rail boom trucks, tie-cranes, railcars and semi-tractor trailers. He has worked with many of the Class I railroads over the past 12 years as a manager of Wood Waste Energy and as vice president of Wood Energy.
EXECUTIVE COMPENSATION
Executive Officer Compensation Decisions
Mr. Marino, our chairman, president and chief executive officer, generally recommends the compensation for our executive officers and compensation is then approved by the full board, including our independent directors. We do not have a compensation committee. Our board believes a compensation committee is not necessary at this time because our board only has four members, no member of our board is paid a salary for serving as an officer, and executive officer compensation is approved by our full board.
Summary Compensation Table
The following table summarizes the compensation paid by us to our chairman, president and chief executive officer and our other most highly compensated executive officers receiving more than $100,000 annually.
Name and Principal Position | | Year | | Salary ($) | | | Bonus ($) | | | Option Awards ($) | | | All Other Compensation ($) | | | Total ($) | |
Gary O. Marino | | 2009 | | | — | | | | — | | | | — | | | | 25,000 | | | | 25,000 | |
Chairman, President and Chief Executive Officer* | | 2008 | | | — | | | | — | | | | — | | | | — | | | | — | |
Greg Smith | | 2009 | | | 194,154 | | | | — | | | | — | | | | — | | | | 194,154 | |
President of Wood Energy | | 2008 | | | 313,000 | | | | — | | | | — | | | | — | | | | 313,000 | |
Andy C. Lewis | | 2009 | | | 194,154 | | | | — | | | | — | | | | — | | | | 194,154 | |
Vice President of Wood Energy | | 2008 | | | 283,222 | | | | — | | | | — | | | | — | | | | 283,222 | |
* | Mr. Marino does not receive compensation for service as our chairman, president and chief executive officer. “All other compensation” consists of option awards granted to Mr. Marino for service as a director. Mr. Marino was appointed our chief executive officer in November 2008. The fair value of stock options is determined as of the date of grant. We use the Black-Scholes option pricing model to estimate compensation cost for stock option awards. Please see the table regarding the assumptions used in this calculation in Note 14, “Stock-Based Compensation” to our consolidated financial statements in our 10-K filed with the SEC on April 15, 2010. |
Outstanding Equity Awards at December 31, 2009
The following table summarizes information with respect to the stock options held by the executive officers in our summary compensation table as of December 31, 2009.
Name | | Number of Underlying Unexercised Options Exercisable | | | Number of Underlying Unexercised Options Unexercisable | | | Option Exercise Price | | Option Expiration Date | |
Gary O. Marino | | | 25,000 | | | | — | | | $ | 3.50 | | | 06/01/2014 | |
| | | 25,000 | | | | — | | | $ | 3.50 | | | 10/23/2010 | |
(1) | Options vested on June 1, 2009, the date of grant. |
(2) | Options vested on October 23, 2007, the date of grant. |
PROPOSAL 2 — APPROVAL OF OUR 2010 STOCK OPTION AND AWARD PLAN
Our board of directors has adopted, subject to stockholder approval, our 2010 Stock Option and Award Plan (the plan). The plan was adopted by our board of directors on May 21, 2010. The market price of our common stock as of the close of trading on the record date, May 6, 2010, was $3.50.
Our board believes that the plan is necessary because it enables us to attract, retain and motivate key employees, executive officers and directors and to align their interests with our stockholders. A summary of the basic features of the plan is set forth below. This summary is subject to the specific provisions contained in the full text of the plan attached as Annex A to this proxy statement.
Purpose. The purpose of the plan is to provide additional incentive to attract and retain qualified and competent persons who are key to the company, including our executive officers, key employees and directors and to encourage them to acquire a proprietary and vested interest in our growth and performance to generate increased incentive to contribute to our future success and prosperity, thus enhancing our value for the benefit of our stockholders.
Administration. The plan is administered by the board or a subcommittee of the board. Under the terms of the plan, the board has the authority to select the participants, make awards in amounts and form as the board may determine, impose restrictions, terms and conditions upon such awards as the board deems appropriate, interpret and administer the plan or any agreements under the plan, and establish such rules and regulations and appoint such agents as it deems appropriate for the proper administration of the plan.
Eligibility. Any of our officers, employees or directors is eligible to receive awards under the plan. Awards under the plan are be made by the board or a subcommittee of the board.
Section 409A. Section 409A of the Internal Revenue Code (the tax code) made important changes to the tax treatment of nonqualified deferred compensation. Awards held by participants that are subject to but fail to comply with Section 409A are subject to a penalty tax of 20% in addition to ordinary income tax, as well as to interest charges. In addition, the failure to comply with Section 409A may result in an acceleration of the timing of income inclusion with respect to awards for income tax purposes. Awards granted under the plan are intended to be exempt from the rule of Section 409A and will be administered accordingly. The board will administer any award resulting in a deferral of compensation subject to Section 409A consistent with the requirements of Section 409A to the maximum extent possible, as determined by the board.
Awards. All awards are evidenced by an award agreement between us and the individual participant that is approved by the board. In the discretion of the board, an eligible participant may receive awards from one or more of the categories described below, and more than one award may be granted to an eligible participant.
Types of awards under the plan include:
| · | Stock Options. The board may grant incentive stock options or nonstatutory stock options. An incentive stock option is intended to be an “incentive stock option” within the meaning of Section 422 of the tax code. A nonstatutory stock option is any other stock option granted by the board that is not specifically designated as an incentive stock option. The exercise price of stock options is determined by the board, but the exercise price cannot be less than 100% of the fair market value of our common stock as of the close of business on the grant date. The term of each stock option is determined by the board, but the term of an incentive stock option cannot exceed 10 years, or 5 years if granted to a 10% stockholder. Options may be exercised in whole or in part, and the option price may be satisfied in cash or, if permitted by the board, by surrendering previously acquired shares of our common stock having a fair market value on the exercise date equal to the total option price or other consideration. |
| · | Restricted Shares. Restricted shares are shares of our common stock granted to a participant, subject to such restrictions as the board deems appropriate, including restrictions on the sale or transfer of the shares and the requirement that the shares be forfeited upon termination of employment for any reason before the award vests. Terms of the restricted shares that may be imposed by the board may include restrictions on the right to receive cash dividends and the right to vote the stock. Except as specified in the restricted share award agreement, the holder of a restricted share award will have all the rights of a holder of our common stock. |
Number of Awards. The maximum number of shares of our common stock for which awards may be granted under the plan may not exceed 300,000. The limit on the number of shares described in this paragraph and the number of shares subject to any award under the plan are subject to proportional adjustment as determined by the board to reflect changes in our stock, such as stock dividends and stock splits.
Change of Control. In order to preserve the participants’ rights, and unless otherwise provided in any option agreement, all stock options will become fully vested and exercisable if there is a “change in control” of the company, as that term is defined in the plan.
Federal Tax Consequences. The following is a brief summary of the federal income tax consequences of the awards under the plan based on current provisions of the tax code. The following is not intended to be complete and does not describe any state or local tax consequences.
Stock Options. The grant of a stock option under the plan does not result in taxable income at the time of grant for the participant or us.
Nonstatutory Stock Option. A participant generally recognizes taxable income, subject to income tax withholding, upon exercise of a nonstatutory stock option equal to the excess of the fair market value of the shares purchased on the exercise date over the exercise price. We are entitled to a corresponding deduction as a business expense in the year the participant recognizes income.
Incentive Stock Option. A participant does not recognize income, except for purposes of the alternative minimum tax, upon exercise of an incentive stock option. If the shares acquired by exercise of an incentive stock option are held for the longer of two years from the date the option was granted or one year from the date it was exercised, any gain or loss arising from a subsequent disposition of such shares is taxed as long-term capital gain or loss, and we are not entitled to any deduction. If, however, such shares are disposed of within the above-described period, then in the year of such disposition, the participant recognizes taxable income equal to the lesser of:
| · | the amount realized upon such disposition, or |
| · | the excess of the fair market value of such shares on the date of exercise over the exercise price. |
In either case, we are entitled to a corresponding deduction as a business expense.
Restricted Share Awards. Generally, when a restricted share award vests and is no longer subject to forfeiture the fair market value of the shares received at the time of vesting is ordinary income to the participant and is allowed as a deduction for federal income tax purposes by us.
Amendments and Termination. The board may amend, alter or discontinue the plan, but no amendment, alteration or discontinuation can be made that would impair the rights of any participant under an award, without the participant’s approval. In addition, no amendment, alteration or discontinuation of the plan can be made without the approval of our stockholders that would:
| · | increase the number of shares reserved under the plan, or |
| · | change the individuals eligible to participate in the plan. |
The board may amend the terms of any award granted, but such amendment cannot impair the rights of a participant without the participant’s consent. The board may also substitute new awards for previously granted awards, including previously granted options having higher option prices.
Term of the plan and effective date. The plan will be effective on July 1, 2010, if approved by our stockholders on that date. The plan will terminate on July 1, 2020, ten years from the date the plan is approved by our stockholders. Awards outstanding at the end of the ten years will be subject to their terms but no further award will be granted after the termination date of the plan.
Vote Required
The affirmative vote of the holders of a majority of our common stock present in person or represented by proxy at the Meeting, provided a quorum exists. A quorumannual meeting is present if, asrequired to approve the amendment and restatement of the Record
Date,plan. The enclosed proxy will be voted FOR this proposal unless the proxy holders are otherwise instructed.
The board of directors recommends that you vote FOR the approval of our 2010 Stock Option and Award Plan.
PROPOSAL 3 — RATIFICATION OF
DASZKAL BOLTON LLP AS OUR INDEPENDENT AUDITOR
On April 29, 2010, the board of directors approved the dismissal of Grant Thornton LLP as our independent registered public accounting firm and the appointment of Daszkal Bolton LLP to serve as our registered public accounting firm for the year ending December 31, 2010. Although our bylaws do not require the selection of our independent auditor to be submitted to stockholders for approval, this selection is being presented to you for ratification at leastthe annual meeting. A representative of Daszkal is expected to attend the annual meeting to answer appropriate questions and make a statement if he desires. Representatives of Grant Thornton will not attend the meeting.
We need the affirmative vote of the majority of
the outstanding shares
of Common Stock are present in person or by proxy
at the Meeting. The proposal to amend the Company's
Certificate of Incorporation will be approved upon receiving the affirmative
vote of the holders of a majority of the shares of Common Stock outstanding on
the Record Date. The proposal to amend and restate the By-Laws of the Company
will be approved upon receiving the affirmative vote of the holders of a
majority of the shares of Common Stock, present in person or represented by
proxy at the Meeting. The proposal to sell the Company's Franchise Interest in
Metro will be approved upon receiving the affirmative vote of the holders of a
majority of the shares of Common Stock outstanding on the Record Date. It is a
condition of Arrowhead Holdings Corporation in its agreement to purchase the
shares of Common Stock of the Company held by Mr. Polly and Sheltering Palms
Foundation that for purposes of such approval the shares held by Mr. Polly and
Sheltering Palms Foundation not be counted, which condition can be waived at
Arrowhead Holdings Corporation in its sole discretion. All other matters at the
Meeting will be decided by the affirmative vote of the holders of a majority of
shares of Common Stock with respect thereto, provided a quorum exists. It is
currently anticipated that votes will be counted and certified by an Inspector
of Election who is currently expected to be an employee of the Company or its
legal counsel. In accordance with Delaware law, abstentions and "broker
non-votes" (i.e. proxies from brokers or nominees indicating that such persons
have not received instructions from the beneficial owner or other persons
entitled to vote shares as to a matter with respect to which the brokers or
nominees do not have discretionary power to vote) will be treated as present for
purposes of determining the presence of a quorum. For purposes of determining
approval of a matter presented at the Meeting, abstentions will be deemed
present and entitled to vote
and will, therefore, have the same legal effect as
a vote "against" a matter presented at the
Meeting. Broker non-votes will be
deemedmeeting in order to ratify Daszkal as our independent accountants for the fiscal year ending December 31, 2010. Although stockholder approval of this appointment is not
entitled to voterequired by law or binding on the
subject matterboard, the board believes that stockholders should be given the opportunity to express their views. If our stockholders do not ratify the appointment of Daszkal as
our independent registered public accounting firm, the board will consider this vote in determining whether or not to
whichcontinue the
non-vote is
indicated. Becauseengagement of
the requirement for an absolute majority of the
outstanding Common Stock to approve the proposal amending and restating the
Certificate of Incorporation and approving the sale of the Franchise Interest in
Metro, broker non-votes will also have the same effect as a vote "against" the
proposal amending and restating the Certificate of Incorporation and the
proposal to sell the Franchise Interest in Metro. Broker non-votes will,
however, have no legal effect on the vote on any other particular matter which
requires the affirmative vote of the holders of a majority of the shares of
Common Stock represented at the Meeting.
3
Daszkal. The enclosed proxies will be voted in accordance with the instructions thereon.
Unless otherwise stated, all shares represented by such proxy will be voted as
instructed. Proxies may be revoked as noted above.
The entire cost of soliciting proxies, including the costs of preparing,
assembling, printing and mailingFOR this Proxy Statement,proposal unless the proxy and any
additional soliciting material furnished to stockholders will be borne byholders have otherwise instructed.
The board of directors recommends that you vote FOR the Company. Arrangements will be made with brokerage houses and other custodians,
nominees and fiduciaries to send proxies and proxy materials to the beneficial
ownersratification of stock, and such persons may be reimbursed for their expenses by the
Company. Proxies may also be solicited by directors, officers or employees of
the Company in person or by telephone, telegram or other means. No additional
compensation will be paid to such individuals for these services.
ELECTION OF DIRECTORS
At this year's Meeting, four (4) directors will be elected to hold office for a
term expiring at the Annual Meeting of Stockholders to be held in the year 2001.
Each director will be elected to serve until a successor is elected and
qualified or until the director's earlier resignation or removal.
At this year's Meeting, the proxies granted by stockholders will be voted
individuallyDaszkal Bolton LLP as our independent auditors for the election, as directors of the Company, of the persons
listed below, unless a Proxy specifies that it is not to be voted in favor of a
nominee for directors. In the event any of the nominees listed below shall be
unable to serve, it is intended that the Proxy will be voted for such other
nominees as are designated by the Board of Directors. Each of the persons named
below, each of whom has been a director since 1995, has indicated to the fiscal year ending December 31, 2010.
Board of Directors Oversight of Audit Process
The firm of Grant Thornton LLP, our independent registered public accounting firm in 2009, was responsible for expressing opinions on the conformity of our consolidated audited financial statements with U.S. generally accepted accounting principles in 2009. In fulfilling its oversight responsibilities, the board of directors reviewed and discussed our consolidated audited financial statements with management and Grant Thornton. The board also discussed with Grant Thornton the matters required by Statement on Auditing Standards No. 114, as amended, “The Auditor’s Communication with Those Charged with Governance.”
In discharging its oversight responsibility as to the audit process, the board received from our independent auditors the written disclosures and the letter required by the Public Company Accounting Oversight Board regarding our independent auditor’s communications with the board concerning independence and discussed with the auditors any relationships between the independent auditor and us that may impact their objectivity and independence. In considering the auditors’ independence, the board also considered whether the non-audit services performed by the auditors on our behalf, if any, were compatible with maintaining the independence of the Company that he or she will be available to serve.
Name Position
---- --------
Harvey Polly President, Chief Executive Officerauditors.
In reliance upon (1) the board’s reviews and Director
Morton I. Kalb Vice President, Chief Financial
Officerdiscussions with management and Director
Willis G. Ryckman, III Director
Leo Yarfitz Director
Harvey Polly, age 71, is a Director, President and Chief Executive officerGrant Thornton, (2) management’s assessment of the Company. Mr. Polly also serveseffectiveness of our internal control over financial reporting, and (3) the receipt of an opinion from Grant Thornton, dated April 14, 2010, stating that the company’s 2009 financial statements are presented fairly, in all material respects, in conformity with U.S. generally accepted accounting principles, the board determined that these audited financial statements be included in our annual report on Form 10-K for the year ended December 31, 2009, for filing with the SEC.
Gary O. Marino
Paul S. Dennis
Bennett marks
Donald D. Redfearn
Change in Our Independent Accounting Firm
On April 29, 2010, our board of directors approved the dismissal of Grant Thornton LLP as Chief Executive Officerour independent registered public accounting firm. Concurrent with this action, our board of directors appointed Daszkal Bolton LLP as our new independent registered public accounting firm. Daszkal is located at 2401 NW Boca Raton Boulevard, Boca Raton, Florida 33431.
Our financial statements for the years ended December 31, 2009 and
2008 were audited by Grant Thornton. Grant Thornton’s reports on our financial statements for the two most recent fiscal years did not contain an adverse opinion, a
stockholderdisclaimer of
H/R Industries, Inc. H/R Industries, Inc. is essentially a personal holding
4
companyopinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles. During the years ended December 31, 2009 and 2008 and through the date of termination of Grant Thornton’s engagement as our independent registered public accounting firm, there were no disagreements with Grant Thornton on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which was formed in 1984 underdisagreements, if not resolved to the name Helena Rubinstein, Inc., and was
engaged from 1984 until 1988 in various aspectssatisfaction of Grant Thornton, would have caused it to make reference to the subject matter of the cosmetic business. disagreement in its reports on our financial statements for such periods.
In 1988,connection with our management’s assessment of our internal control over financial reporting for 2009, management identified the namefollowing material weaknesses in Banyan’s internal control over financial reporting as of December 31, 2009:
Banyan acquired The Wood Energy Group, Inc. in September 2009. The company’s management began to integrate Wood Energy into Banyan, and enhance the internal controls structure and policies and procedures surrounding financial reporting. As of December 31, 2009, all of these enhancements had not been finalized, specifically the recording of deferred revenues and costs associated with projects in process and timely reconciliation of certain balance sheet accounts. Further, Banyan was in need of an additional resource to handle the increase in business activities, and resulting GAAP financial statement and SEC reporting requirements, as a result of the corporationrecent acquisition.
Based upon their evaluation, and as a result of the material weaknesses discussed above, our chief executive officer and chief financial officer each concluded that our internal control over financial reporting was changed to Elite Industries, Ltd., and in
1990 the name was changed to H/R Industries, Inc. Mr. Polly has been involved in
the railroad business for approximately twenty five years. In 1973, he founded
and became a major stockholder in Emons Industries, Inc., which was formed on
the basisnot effective as of December 31, 2009. However, since the acquisition of Wood Energy was consummated in September 2009, we have made changes to the Marylandinternal control procedures of Wood Energy to strengthen these controls and Pennsylvania Railroad Company.
Sinceto remediate the foundingmaterial weaknesses discussed above. For example, among other things, we have (1) added a controller and an assistant to the president to the staff of Emons Industries, Inc., Mr. Polly has been involved inWood Energy, (2) increased the railroad freight car business. Mr. Polly has been, since 1975, Chief Executive
Officeroversight provided by Banyan’s executives over Wood Energy’s operations and a stockholderfinancial activities, and (3) instituted procedures to more accurately identify direct costs incurred for each of Railway Freight Car Service, Inc., which is
involved in the railroad boxcar leasing business.Wood Energy’s contracts. In 1994 and 1995, Mr. Polly
was Chairman of CAGY Industries, Inc., the publicly held holding company for the
Columbus and Greenville Railway, the Chattooga and Chicamauga Railway and the
Redmont Railway and was the largest stockholder with approximately 40% of the
outstanding shares of common stock. Mr. Polly sold his shares and resigned from
the Board effective February 16, 1995. From 1988 to 1997, he has served on the
Board of Directors of the Delaware Otsego Corp., which was a publicly held
corporation that operated the New York Susquehanna and Western Railroad. In
prior years, Mr. Polly was also a stockholder and heavily involved in the
operations of the Louisiana Midland Railroad. He is also presently a stockholder
and officer of SLF of Martin County, Inc., a real estate development company.
From 1987 to 1990, he was a principal shareholder, Chief Executive Officer and
Director of Hanover Bank of Florida, a publicly held corporation.
Morton I. Kalb, age 66, is a Director, Vice President and Chief Financial
Officer of the Company. Mr. Kalb has served as Vice President and Chief
Financial Officer of the Company since 1995. Mr. Kalb served as Vice President
of H/R Industries, Inc. since July 1984. Mr. Kalb is also a Certified Public
Accountant.
Willis G. Ryckman, age 54, is a Director of the Company. Mr. Ryckman has served
as Chairman of the Board of Directors of Tri-Tech Labs since August 1990. From
December 1966 through August 1990, Mr. Ryckman was Senior Vice President of
Manufacturers Hanover Trust Company.
Leo Yarfitz, age 83, is a Director of the Company. Mr. Yarfitz has been a
financial consultant with Sterling Management of Florida since June 1990. From
October 1987 until October 1989, Mr. Yarfitz served as Chief Financial Officer
of Hanover Bank of Florida. From October 1989 until December 1989, Mr. Yarfitz
served as President of Hanover Bank of Florida.
Upon closing of the transactions between Mr. Polly, Sheltering Palms Foundation
and Arrowhead Holdings Corporation described herein, it is anticipated that Mr.
Yarfitz and Mr. Ryckman will resign as directors of the Corporation and that two
individuals designated by Arrowhead Holdings Corporation will be electedaddition, we recently hired Larry Forman to serve as two membersour full-time chief financial officer, which will assist in the process of establishing effective internal controls over all processes. Management believes that our internal control over financial reporting has significantly improved.
As a result of the material weaknesses discussed above, Grant Thornton advised Banyan that not all internal controls necessary for Banyan to develop reliable financial statements were present at December 31, 2009. Banyan and Grant Thornton did not express any difference of opinion on this matter.
During the years ended December 31, 2009 and 2008 and through the date of termination of Grant Thornton’s engagement as our independent accountant, other than as disclosed above, there were no events reportable under 304(a)(1)(v) of Regulation S-K.
During the years ended December 31, 2009 and 2008 and through the date of termination of Grant Thornton’s engagement as our independent accountant, neither Banyan nor anyone on Banyan’s behalf consulted with Daszkal, our new independent registered public accounting firm appointed on April 28, 2010, regarding either (1) the application of accounting principles to a specified transaction, either contemplated or proposed, or the type of audit opinion that might be rendered on Banyan’s financial statements or (2) any matter that was either the subject of a four member Boarddisagreement or a reportable event under 304(a)(1)(iv) or (v), respectively, of DirectorsRegulation S-K.
Independent Accounting Firm Fees
We paid Grant Thornton $282,000 in 2009 and $38,809 in 2008 for audit fees. Grant Thornton did not render any other services to Banyan during 2009 or 2008.
Because of the Company forsmall size of our board, the remainderdirectors have not designated an audit committee. Instead, these responsibilities are handled by the entire board, which considers and pre-approves any audit or non-audit services to be performed by our independent auditors. Our board believes the services provided by Grant Thornton in 2009 were compatible with maintaining our auditor’s independence.
PRINCIPAL STOCKHOLDERS
The following table lists the stock ownership of the termour directors, executive officers listed under executive compensation and significant stockholders as of such directors or until their successors are duly
elected.
May 26, 2010.
Name and Address(1) | | Common Stock | | | Stock Options(2) | | | Preferred Stock(3) | | | Total | | | Percentage(4) | |
Gary O. Marino(5) Patriot Equity, LLC 2255 Glades Road, Suite 342-W Boca Raton, FL 33431 | | | 212,728 | | | | 56,250 | | | | 50,000 | | | | 318,978 | | | | 10.2 | % |
Paul S. Dennis(6) 16330 Vintage Oaks Lane, Delray Beach, FL 33484 | | | 364,792 | | | | 56,250 | | | | 200,000 | | | | 621,042 | | | | 19.0 | % |
Bennett Marks Patriot Rail, LLC 2255 Glades Road, Suite 342-W Boca Raton, FL 33431 | | | 31,135 | | | | 56,250 | | | | — | | | | 87,385 | | | | 2.8 | % |
Donald D. Redfearn(7) 4629 Gleneagles Drive Boynton Beach, FL 334316 | | | 1,000 | | | | 6,250 | | | | 25,000 | | | | 32,250 | | | | 1.1 | % |
Greg Smith(8) 100 Chesterfield Business Pkwy Suite 200 Chesterfield, MO 63005 | | | 166,667 | | | | — | | | | 100,000 | | | | 266,667 | | | | 8.6 | % |
Andy C. Lewis(9) 100 Chesterfield Business Pkwy Suite 200 Chesterfield, MO 63005 | | | 166,667 | | | | — | | | | 100,000 | | | | 266,667 | | | | 8.6 | % |
All directors, and executive officers as a group (8 individuals) | | | 981,134 | | | | 190,625 | | | | 500,000 | | | | 1,671,759 | | | | 45.1 | % |
(1) | Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power over the shares of stock owned. |
(2) | Shares of common stock the beneficial owners have the right to acquire through stock options that are or will become exercisable within 60 days. |
(3) | Shares of common stock into which shares of series A preferred stock held by the beneficial owner are currently convertible. |
(4) | Assumes the exercise of options and conversion of series A preferred stock into common stock by that beneficial owner, but no others. |
(5) | All shares of common stock and preferred stock are held by Patriot Equity, LLC, a limited liability company of which Mr. Marino is sole member. |
(6) | 297,042 shares of common stock and all shares of preferred stock are owned by Paul S. Dennis, Trustee under the Paul S. Dennis Trust Agreement dated August 9, 1983, as modified. |
(7) | Shares of preferred stock held by Redfearn Enterprises LLC. |
(8) | All shares of common stock and preferred stock are held by the Stephanie G. Smith Trust u/a dated December 20, 1995, as amended, Stephanie G. Smith and Greg Smith, Trustees. |
(9) | All shares of common stock and preferred stock are held by the Andy C. Lewis and Michelle D. Lewis Revocable Trust. |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company'sour directors and executive officers,
and directors and persons who own more than 10% of
a registered class
of the Company's equity securities,our common stock, to
file reports of ownership and changes in
5
ownershipmake filings with the SecuritiesSEC reporting their ownership of our common stock and Exchange Commission ("SEC"). Officers,
directors, and greater than 10% shareholders are required by SEC regulations to furnish the Companyus with copies of these filings. Based solely on our review of copies of reports furnished to us, we believe that all Section 16(a) forms they file. Based
solelyfiling requirements were met in 2009. Copies of these filings are available on the Company'sSEC’s website at www.sec.gov.Equity Compensation Plan Information
Our directors received a total of 200,000 options, or 50,000 options each, as compensation for serving on our board in 2007 and 2008. 12,500 of these options were subsequently cancelled upon a board member’s resignation from the board. In 2008, a newly appointed director and officer received 12,500 options in connection with joining the board and 12,500 options for serving as an officer. In 2009, 87,500 options were issued, 25,000 to each of three directors and 12,500 to a member of senior management. We have not issued any other options, warrants or rights in 2009. Our directors and a former director exercised a total of 75,000 options in 2009. Our equity plans are summarized in the following table.
Plan category | | Number of securities to be issued upon exercise of outstanding options | | | Weighted-average exercise price of outstanding options | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column) | |
Equity compensation plans approved by security holders | | | — | | | | — | | | | — | |
Equity compensation plans not approved by security holders | | | 225,000 | | | $ | 3.20 | | | | — | |
Total | | | 225,000 | | | $ | 3.20 | | | | — | |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Banyan has entered into an agreement with Patriot Rail Corp. for office space and administrative services at our Boca Raton, Florida headquarters. Our chairman, president and chief executive officer, Gary O. Marino, our director and former chief financial officer, Bennett Marks, and our vice president of administration, C. Lawrence Rutstein, are officers and significant stockholders of Patriot Rail. Banyan pays Patriot Rail $5,000 a month for these services and the term of the agreement is month to month. We believe that Banyan would not be able to obtain these services from an unrelated third party on terms equivalent to those offered by Patriot Rail. We did not engage in any other transaction with related parties in 2009.
On-going and future transactions with related parties will be:
| · | on terms at least as favorable as those that we could obtain from unrelated parties, |
| · | for bona fide business purposes, and |
| · | approved by a majority of disinterested and non-employee directors. |
Related Person Transaction Policy
Our entire board of directors is responsible for reviewing and approving or ratifying all material transactions between us and any related person. Any transaction must be approved by a majority of disinterested directors. To identify these transactions, we require our directors and officers to complete an annual questionnaire identifying any transactions with us in which the officer or director or their immediate family members have an interest. When the board reviews, approves or ratifies transactions with related persons, any director associated with the transaction must abstain from voting and is not present while discussions and deliberations are held. In approving these transactions, the board considers whether the transactions are on terms at least as favorable as terms we could have obtained from unrelated parties and for bona fide business purposes. The board believes that the agreement described above meets this criteria. Our related party transaction policy is in writing and has been approved by our board.
STOCKHOLDER PROPOSALS AND COMMUNICATIONS
A stockholder intending to present a proposal, to be included in our proxy statement or otherwise, for our 2011 annual meeting of stockholders must deliver a notice, in accordance with the requirements of Rule 14a-8 under the Exchange Act, to our chief executive officer at our principal executive office no later than January 26, 2011. The notice must set forth as to each matter the stockholder proposes to bring before the meeting:
| · | a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, |
| · | the name and record address of the stockholder proposing such business, |
| · | the number of shares of our common stock that are beneficially owned by the stockholder, and |
| · | any material interest of the stockholder in such business. |
Our board of directors also provides a process for our stockholders to send communications to our board. Stockholders may mail any communications to our vice president of administration at 2255 Glades Road, Suite-W, Boca Raton, Florida 33431. Our vice president of administration will review all communications and forward to the board of directors all communications other than solicitations for products or services or trivial or obscene items. Mail addressed to a particular director or committee of the board will be forwarded to that director or committee. All other communications will be forwarded to our chairman for the review of the copiesentire board.
OTHER MATTERS
Our board of directors is not aware of any other matters to be submitted to the annual meeting. If any other matters properly come before the annual meeting, it is the intention of the persons named in the accompanying proxy to vote the shares they represent as the board of directors may recommend.
You are urged to sign and return your proxy card promptly to make certain your shares will be voted at the annual meeting. For your convenience, a return envelope is enclosed requiring no additional postage if mailed in the United States.
By Order of the Board of Directors, | |
| |
| |
C. Lawrence Rutstein | |
Vice President of Administration and Secretary | |
Annex A
Banyan Rail Services Inc.
2010 Stock Option And Award Plan
(_____________, 2010)
1. Purpose.
(a) The purpose of this Banyan Rail Services Inc. 2010 Stock Option and Award Plan is to advance the interests of Banyan Rail Services Inc., a Delaware corporation (the “Company”), by providing additional incentive to attract and retain qualified and competent persons who are key to the Company, including key employees, Officers and Directors, and upon whose efforts and judgment the success of the Company is largely dependent, by encouraging such forms receivedpersons to own stock in the Company.
(b) Section 409A. This Plan and any Awards granted hereunder are intended to be exempt from the requirements of Section 409A, and shall be interpreted and administered in a manner consistent with those intentions.
2. Definitions. As used herein, the following terms shall have the meaning indicated:
(a) “Award” shall mean, individually or collectively, a grant under the Plan of Non-Statutory Stock Options, Incentive Stock Options or Restricted Shares.
(b) “Board” shall mean the Board of Directors of the Company.
(c) “Cause” has the meaning set forth in Section 10(a)(i).
(d) “Change of Control” shall mean the date on which any one of the following occurs:
(i) any one person, or more than one person acting as a group (as determined under Section 409A), acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by that person or persons) ownership of stock of the Company possessing 30% or more of the total voting power of the stock of the Company;
(ii) a majority of members of the Board is replaced during any twelve (12) month period by directors whose appointment or election is not endorsed by a majority of the members of the Board before the date of that appointment or election;
(iii) any one person, or more than one person acting as a group (as determined under Section 409A), acquires ownership of stock of the Company that, together with stock held by that person or group, constitutes more than 50% of the total fair market value or total voting power of the stock of the Company; or
(iv) any one person, or more than one person acting as a group (as determined under Section 409A), acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by that person or persons) assets from the Company that have a total gross fair market value equal to more than 40% of the total gross fair market value of all of the assets of the Company before such acquisition or acquisitions. For this purpose, “gross fair market value” means the value of the assets of the Company, or the value of the assets being disposed of, without regard to any liabilities associated with those assets.
(e) “Code” shall mean the Internal Revenue Code of 1986, as amended.
(f) “Committee” shall mean the compensation committee appointed by the Company,Board pursuant to Section 15 hereof or, if not appointed, the Company believesfull Board.
(g) “Common Stock” shall mean the Company’s Common Stock, par value $0.01 per share.
(h) “Controlled Entity” shall mean any trust, partnership, limited liability company or other entity in which such person that duringreceives Non-Statutory Stock Options or Restricted Shares under this Plan acts as trustee, managing partner, managing member or otherwise controls; provided that, to the year ended December 31, 1998, all
filing requirements applicableextent any such Non-Statutory Stock Options or Restricted Shares received under this Plan is awarded to its officers, directors,a spouse pursuant to any divorce proceeding, such interest shall be deemed to be terminated and greaterforfeited notwithstanding any vesting provisions or other terms herein or in the agreement evidencing such Non-Statutory Stock Options or Restricted Shares.
(i) “Director” shall mean a member of the Board.
(j) “Effective Date” has the meaning set forth in Section 18.
(k) “Fair Market Value” shall mean, as of any given date, the value of a Share determined as follows (in order of applicability): (i) if on the Grant Date or other determination date the Share is listed on an established national or regional stock exchange, is admitted to quotation on The NASDAQ Stock Market, Inc. or is publicly traded on an established securities market, the Fair Market Value of a Share shall be the closing price of the Share on that exchange or in that market (if there is more than 10%
beneficial owners were compliedone such exchange or market the Committee shall determine the appropriate exchange or market) on the Grant Date or such other determination date (or if there is no such reported closing price, the Fair Market Value shall be the mean between the highest bid and lowest asked prices or between the high and low sale prices on that trading day) or, (ii) if no sale of Shares is reported for that trading day, on the next preceding day on which any sale has been reported. If the Share is not listed on such an exchange, quoted on such system or traded on such a market, Fair Market Value shall be the value of the Share as determined by the determined by such methods or procedures as shall be established from time to time by the Committee in good faith in a manner consistent with except that Form 4's covering the transfer
of 635,000 shares by Mr. Polly were not timely filed.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION OF THE
NOMINEES NAMED ABOVE.
EXECUTIVE COMPENSATION
A. DIRECTOR COMPENSATION
No arrangements currently existSection 409A.
(l) “Grant Date” means, with respect to paymentsan Award, the date such Award is granted to a Participant. The Grant Date of an Award shall not be earlier than the Directors for
their service ondate the Company's BoardAward is approved by the Committee.
(m) “Incentive Stock Option” shall mean an incentive stock option as defined in Section 422 of Directors, and no fees have been paid in
1999, 1998 or 1997.
B. EXECUTIVE COMPENSATION
Harvey Polly has served as President, Chief Executive Officer andthe Code.
(n) “Non-Employee Director” shall mean a Director who: (i) is not an officer or employee of the Company since February 1995 and hasor any Subsidiary; (ii) does not received(A) receive compensation, for such
services.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 1, 1999, the following persons or entities were known by the
Company to be the beneficial owner of more than 5% of the outstanding shares of
Common Stock of the Company:
Amount
Name of and Nature
Beneficial of Beneficial Percent
Title of Class Owner Ownership of Class
- -------------- ---------- ------------- --------
Shares of Common Harvey Polly 3,345,983 27%
Stock, $.01 Par
Value
The following table sets forth the ownership of shares owned directly or indirectly, byfrom the DirectorsCompany or any Subsidiary for services rendered as a consultant or in any other capacity other than as a Director, except for an amount that does not exceed the dollar amount for which disclosure would be required under Item 404(a) of Regulation S-K, 17 C.F.R. Section 229.404(a), or (B) possess an interest in any transaction for which disclosure would be required under Item 404(a) of Regulation S-K, 17 C.F.R. Section 229.404(a); and Principal(iii) is not engaged in a business relationship for which disclosure would be required under Item 404(a) of Regulation S-K, 17 C.F.R. Section 229.404(a).
(o) “Non-Statutory Stock Option” shall mean an Option which is not an Incentive Stock Option.
(p) “Officer” shall mean the Company’s chairman of the board, chief executive officer, president, chief financial officer, principal accounting officer (or, if there is no such accounting officer, the controller), any vice president of the Company in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the Company. Officers of Subsidiaries shall be deemed Officers of the Company as of December
1, 1999:
6
Amount
Name of and Nature
Beneficial of Beneficial Percent
Title of Class Owner Ownership of Class
- -------------- ---------- ------------- --------
Shares of Common Harvey Polly 3,345,983(l)(2) 27%if they perform such policy-making functions for the Company. As used in this paragraph, the phrase “policy-making function” does not include policy-making functions that are not significant.
(q) “Option” shall mean any Incentive Stock $.01 Par Director, shares
Value President and
Chief Executive
Officer
Shares of Common Morton I. Kalb 75,000 shares 1%Option or Non-Statutory Stock $.01 Par Director,
Value Vice President and
Chief Financial
Officer
Shares of Common Leo Yarfitz 100,000 shares 1%
Stock, $.01 Par Director
Value
Shares of Common All Directors 3,520,983 shares 29%
Stock, $.01 Par and Officers of
ValueOption granted under this Plan.
(r) “Option Agreement” shall mean the agreement entered into between the Company asand the Participant who is to receive Options at the time of any Option grant.
(s) “Optionee” shall mean a group (6 persons)
(1) During 1998, Mr. Polly transferred 500,000 sharesperson to Sheltering Palms
Foundation,whom an Option is granted under this Plan or any person who succeeds to the rights of such person under Section 13 hereof.
(t) “Participant” shall mean either a Charitable Trustperson to whom Restricted Shares are granted under this Plan, an Optionee or any person who succeeds to the rights of which he is Presidenteither such person under this Plan by reason of the death of such person.
(u) “Plan” shall mean this 2010 Stock Option and a Director and
100,000 shares to his wife. These shares are included inAward Plan of the above figure.
Mr. Polly also transferred 35,000 shares to unrelated parties which are not
included above.
(2) Does not include the 2,650,000Company.
(v) “Restricted Shares” shall mean Shares which will be acquired by Mr. Pollygranted or sold pursuant to Mr. Polly'sSection 11 of this Plan as to which neither the substantial risk of forfeiture nor the prohibition on transfers referred to in such Section 11 has expired.
(w) “Restricted Share Agreement” shall mean the agreement withentered into between the Company entered into on August 4,
1994 and sold to Arrowhead Holdings Corporation contemporaneously with the
sale of shares by Mr. Polly and the FoundationParticipant who is to Arrowhead Holdings
Corporation.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Polly owns 2,745,983receive Restricted Shares at the time of any Restricted Share grant.
(x) “Section 409A” means Section 409A of the Code and the U.S. Department of Treasury regulations and other interpretive guidance issued thereunder.
(y) “Securities Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
(z) “Share(s)” shall mean a share or shares of the Company's Common Stock and Sheltering
Palms Foundation, (the "Foundation")Stock.
(aa) “Subsidiary” shall mean a not for profit charitable entity
controlled by Mr. Polly and his wife, owns 500,000 shares“subsidiary corporation” as defined in Section 424(f) of the Company's
CommonCode.
3. Available Shares. The Company may grant to Participants from time to time an aggregate of up to 300,000 Restricted Shares or Shares exercisable under Options from Shares held in the Company’s treasury or from authorized and unissued Shares. If any Option granted under this Plan shall terminate, expire, or be canceled or surrendered as to any Shares, or if any Restricted Shares are forfeited by the holder thereof, new Options or Restricted Shares may thereafter be granted covering such Shares.
4. Option Grants. An Option granted hereunder shall be either an Incentive Stock Option or a totalNon-Statutory Stock Option as determined by the Committee at the time of 3,245,983 shares (the "Polly Shares.) In 1995, Mr.
Polly acquired the Polly Shares (not including 100,000 shares later transferred
to his wife) pursuant to a tender offer and an agreement with the Company made
on August 4, 1994, as amended. In May of 1998, Mr. Polly transferred 500,000grant of such shares toOption and shall clearly state whether it is an Incentive Stock Option or a Non-Statutory Stock Option. All Incentive Stock Options shall be granted within ten years from the Foundation.
7
Underdate this Plan is adopted by the terms of his agreement withBoard or the Company, Mr. Polly has the right to
acquire an additional 2,650,000 shares of the Company's Common Stock at a
purchase price of $.22 a share (the "Option Shares").
Since Mr. Polly acquired control of the Company in 1995, the Company has pursued
various acquisition and business combinations, but has been unable to conclude
any transactions which management considered appropriate and in the best
interest ofdate this Plan is approved by the stockholders of the Company, whichever is later.
5. Dollar Limitation. Options otherwise qualifying as Incentive Stock Options hereunder will not be treated as Incentive Stock Options to the extent that the aggregate Fair Market Value (determined at the time the Option is granted) of the Shares, with respect to which Options meeting the requirements of Code Section 422(b) are exercisable for the first time by any individual during any calendar year (under all plans of the Company and any Subsidiary), exceeds $100,000.
6. Conditions for Grant of Options.
(a) Each Option shall be evidenced by a written agreement that may contain any term deemed necessary or desirable by the Committee, provided such terms are not inconsistent with this Plan or any applicable law. Optionees shall be those persons selected by the Committee from the class of all Directors, Officers and regular employees of the Company or its Subsidiaries. Any person who files with the Committee, in a form satisfactory to the Committee, a written waiver of eligibility to receive any Option under this Plan shall not be eligible to receive any Option under this Plan for the duration of such waiver.
(b) In granting Options to Directors, Officers and employees of the Company or its Subsidiaries, the Committee shall take into consideration the contribution the person has made to the success of the Company or its Subsidiaries and such other factors as the Committee shall determine. The Committee shall also have the authority to consult with and receive recommendations from Officers and other personnel of the Company and its Subsidiaries with regard to these matters. The Committee may from time to time in granting Options to Directors, Officers and employees of the Company or its Subsidiaries under this Plan prescribe such other terms and conditions concerning such Options as it deems appropriate, including, without limitation, (i) prescribing the date or dates on which the Option becomes exercisable, (ii) providing that the Option rights accrue or become exercisable in installments over a period of years, or upon the attainment of stated goals or both, or (iii) relating an Option to the continued employment of the Optionee for a specified period of time, provided that such terms and conditions are not more favorable to an Optionee than those expressly permitted herein.
(c) The Options granted to employees under this Plan shall be in addition to regular salaries, pension, life insurance or other benefits related to their employment with the Company or its Subsidiaries. Neither this Plan nor any Option granted under this Plan shall confer upon any person any right to employment or continuance of employment by the Company or its Subsidiaries.
7. Option Price. The Committee shall establish, at the time any Option is granted, the price per Share for which the Shares covered by the Option may be purchased; provided, however, that in no event shall such Option price be less than 100% of the Fair Market Value of the Shares on the date on which the Option is granted; provided, further, that with respect to an Incentive Stock Option granted to a Participant who at the time of the grant owns (after applying the attribution rules of Section 424(d) of the Code) more than 10% of the total combined voting stock of the Company or of any parent corporation (as defined in Section 424(e) of the Code) or Subsidiary, the Option price shall not be less than 110% of the Fair Market Value of the Shares subject to the Incentive Stock Option on the date such Option is granted.
8. Exercise of Options. An Option shall be deemed exercised when (i) the Company has received written notice of such exercise in accordance with the terms of the Option, (ii) full payment of the aggregate Option price of the Shares as to which the Option is exercised has been made, and (iii) arrangements that are satisfactory to the Committee in its sole discretion have been made for the Optionee’s payment to the Company of an amount that is sufficient to satisfy all applicable federal or state tax withholding requirements relating to exercise of the Option, if any. Unless further limited by the Committee in any Option, the Option price of any Shares purchased shall be paid in cash, by certified or official bank check, by money order, with Shares or by a combination of the above; provided further, however, that the Committee in its sole discretion may accept a personal check in full or partial payment of any Shares. If the exercise price is paid in whole or in part with Shares, the value of the Shares surrendered shall be their Fair Market Value on the date the Option is exercised. No payment of the exercise price under this Section 8 shall be made if such form of payment constitutes a deferral of compensation within the meaning of Section 409A or otherwise causes the Option to be subject to the requirements of Section 409A. No Optionee shall be deemed to be a holder of any Shares subject to an Option unless and until a stock certificate or certificates for such Shares are issued to such person(s) under the terms of this Plan. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as expressly provided in Section 12 hereof.
9. Exercisability of Options. Any Option shall become exercisable in such amounts, at such intervals and upon such terms as the Committee shall provide in such Option, except as otherwise provided in this Section 9.
(a) The expiration date of an Option shall be determined by the Committee at the time of grant, but in no event shall (i) an Option be exercisable after the expiration of ten years from the Grant Date of the Option or (ii) an Incentive Stock Option granted to a Participant, who at the time of the grant owns (after applying the attribution rules of Section 424(d) of the Code) more than 10% of the total combined voting stock of the Company or of any parent corporation (as defined in Section 424(e) of the Code) or Subsidiary, be exercisable after the expiration of five years from the Grant Date of the Incentive Stock Option.
(b) Unless otherwise provided in any Option, each outstanding Option shall become immediately fully exercisable upon any Change in Control.
(c) The Committee may in its sole discretion accelerate the date on which any Option may be exercised and may accelerate the vesting of any Shares subject to any Option or previously acquired by the exercise of any Option; provided, however, that any such acceleration of the exercisability of the Option or the vesting of any Shares is subject to the limitations of Section 409A and, unless otherwise determined by the Committee, any acceleration of the exercisability of the Option or the vesting of any Shares under this Section 9(c) shall comply with Section 409A.
(d) If the Committee provides that any Option is exercisable only in installments, the Committee may at any time waive such installment exercise provisions, in whole or in part, based on such factors as the Committee may determine; provided, however, that any such waiver of installment exercise provisions of the Option is subject to the limitations of Section 409A and, unless otherwise determined by the Committee, any waiver of installment exercise provisions of the Option under this Section 9(d) shall comply with Section 409A.
(e) With respect to any extensions that were not included in the original terms of the Option but were provided by the Committee after the Grant Date, if at the time of any such extension, the exercise price per Share of the Option is less than the Fair Market Value of a Share, the extension shall, unless otherwise determined by the Committee, be limited to the earlier of (a) the maximum term of the Option as set by its original terms or (b) ten (10) years from the Grant Date. Unless otherwise determined by the Committee, any extension of the term of an Option under this Section 9(e) shall comply with Section 409A to the extent applicable.
(f) With respect to any postponements that were not included in the original terms of the Option but were provided by the Committee after the Grant Date, if at the time of any such postponement, the exercise price per Share of the Option is less than the Fair Market Value of a Share, the postponement shall, unless otherwise determined by the Committee, be limited to the earlier of (a) the maximum term of the Option as set by its original terms or (b) ten (10) years from the Grant Date. Unless otherwise determined by the Committee, any postponement of the term of an Option under this Section 9(f) shall comply with Section 409A to the extent applicable.
(g) The Company may toll the expiration of an Option while the participant cannot exercise the Option because such an exercise would jeopardize the ability of the Company to continue as a going concern; provided that the period during which the Option may be exercised is not extended by more than thirty (30) days after the exercise of the Option (a) would no longer violate an applicable Federal, state, local, or foreign law or (b) would first no longer jeopardize the ability of the Company to continue as a going concern. Unless otherwise determined by the Committee, any tolling of the expiration of an Option under this Section 9(g) shall comply with Section 409A to the extent applicable.
10. Termination of Option Period.
(a) The unexercised portion of any Option shall automatically and without notice terminate and become null and void at the time of the earliest to occur of the following:
(i) three months after the date on which the Optionee’s employment is terminated for any reason other than by reason of (A) Cause, which, solely for purposes of this Plan, shall mean the acquisitiontermination of the Optionee’s employment by reason of the Optionee’s willful misconduct or gross negligence, (B) a mental or physical disability (within the meaning of Section 22(e)(3) of the Code) as determined by a medical doctor satisfactory to the Committee, or (C) death;
(ii) immediately upon the termination of the Optionee’s employment for Cause;
(iii) one year after the date on which the Optionee’s employment is terminated by reason of a mental or physical disability (within the meaning of Section 22(e)(3) of the Code) as determined by a medical doctor satisfactory to the Committee; or
(iv) (A) one year after the date of termination of the Optionee’s employment by reason of death of the Optionee, or (B) three months after the date on which the Optionee dies if the Optionee dies during the one year period specified in Section 10(a)(iii) hereof.
(b) The Committee in its sole discretion may, by giving written notice (a “cancellation notice”), cancel, effective upon the date of the consummation of any corporate transaction described in Section 2(d)(iv) hereof, any Option that remains unexercised on such date. Such cancellation notice shall be given a reasonable period of time prior to the proposed date of such cancellation and may be given either before or after approval of such corporate transaction.
11. Restricted Shares. The Committee may also authorize the grant or sale to Directors, Officers and employees of the Company or its subsidiaries of Restricted Shares. Each such grant or sale may utilize any or all of the authorizations, and shall be subject to all of the requirements, contained in the following provisions:
(a) Each such grant or sale shall constitute an immediate transfer of the ownership of Shares to the Participant in consideration of the performance of services, entitling such Participant to voting, dividend and other ownership rights, but subject to the substantial risk of forfeiture and restrictions on transfer referred to in the Restricted Share Agreement.
(b) In granting Restricted Share awards to Directors, Officers and employees of the Company or its Subsidiaries, the Committee shall take into consideration the contribution the person has made to the success of the Company or its Subsidiaries and such other factors as the Committee shall determine. The Committee shall also have the authority to consult with and receive recommendations from Officers and other personnel of the Company and its Subsidiaries with regard to these matters. The Committee may from time to time in granting Restricted Share awards to Directors, Officers and employees of the Company or its Subsidiaries under this Plan prescribe such other terms and conditions concerning such grants as it deems appropriate.
(c) Each Restricted Share grant or sale may be made without additional consideration or in consideration of a payment by the Participant that is less than Fair Market Value per Share at the date of grant.
(d) Each such grant or sale shall be subject to a Restricted Share Agreement, which shall provide that the Restricted Shares covered by such grant or sale shall be subject to a “substantial risk of forfeiture” within the meaning of Section 83 of the Code for a period of not less than one (1) year to be determined by the Committee at the date of grant, and any grant or sale may provide for the earlier termination of such period in the event of a Change in Control, retirement, or death or disability of the Participant or other similar transaction or event as approved by the Committee.
(e) Each Restricted Share Agreement shall provide that during the period for which such substantial risk of forfeiture is to continue, and any other period prescribed by law, the transferability of the Restricted Shares shall be prohibited or restricted in the manner and to the extent prescribed by the Committee or law, as the case may be, at the date of grant (which restrictions may include, without limitation, prohibitions on transfer, rights of repurchase or first refusal in the Company or provisions subjecting the Restricted Shares to a continuing substantial risk of forfeiture in the hands of any transferee).
(f) Any grant or sale of Restricted Shares may require that any or all dividends or other distributions paid thereon during the period of such restrictions be automatically deferred and reinvested in additional Restricted Shares, which may be subject to the same restrictions as the underlying award. Any Restricted Shares issued as dividends with respect to unvested Restricted Shares shall vest on the same date(s) as the portion of the Restricted Shares to which they relate.
12. Adjustment of Shares.
(a) If at any time while this Plan is in effect or unexercised Options are outstanding, there shall be any increase or decrease in the number of issued and outstanding Shares through the declaration of a stock dividend or through any recapitalization resulting in a stock split-up, combination or exchange of Shares, then and in such event:
(i) appropriate adjustment shall be made in the maximum number of Shares available for grant to Participants under this Plan, so that the same percentage of the Company’s issued and outstanding Shares shall continue to be subject to being so granted; and
(ii) subject to any requirements or limitations under Section 409A, appropriate adjustment shall be made in the number of Shares and the exercise price per Share thereof then subject to any outstanding Option, so that the same percentage of the Company’s issued and outstanding Shares shall remain subject to purchase at the same aggregate exercise price; provided that, after any such adjustment, the aggregate exercise price of the Option shall not be less than the aggregate exercise price before such adjustment.
(b) Subject to the specific terms of any Option, the Committee may change the terms of Options outstanding under this Plan, with respect to the Option price or the number of Shares subject to the Options, or both, when, in the Committee’s sole discretion, such adjustments become appropriate by reason of any corporate transaction described in Section 2(d)(iv) hereof.
(c) Except as otherwise expressly provided herein, the issuance by the Company of shares of its 50% interestcapital stock of any class, or securities convertible into shares of capital stock of any class, either in Metro Franchising Commissary LLC.
Arrowhead Holdings Corporation ("Arrowhead"),connection with which Mr. Polly has no
relationship, is a diversified holding company, whose principal holding is
Vesper Corporation. Vesper Corporation is itself a diversified manufacturing and
distributing corporation owning business entities which produce aircraft and
aerospace ducting systems, gears, lubricating systems, steel lockers, storage
systems and high performance strainers. In addition, Arrowhead also owns
subsidiaries involved in commercial leasing and real estate and a varietydirect sale or upon the exercise of other investments.
In orderrights or warrants to further the interestssubscribe therefor, or upon conversion of the stockholdersshares or obligations of the Company on July
31, 1999, Mr. Pollyconvertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to the Foundation entered into an agreement with Arrowheadnumber of or exercise price of Shares then subject to selloutstanding Options granted under this Plan.
(d) Without limiting the Polly Shares and the Option Shares (collectively, the "Shares") to
Arrowhead. Upon exercisegenerality of the foregoing, the existence of outstanding Options granted under this Plan shall not affect in any manner the right to the Option Shares, Mr. Polly will sell
5,370,563 shares for $1,540,276 and the Foundation will sell 500,000 shares for
$142,724. Upon closing of the transaction, Arrowhead will own a total of
5,870,563 shares or 39% of the total of the then outstanding shares of Common
Stockpower of the Company and will beto make, authorize or consummate (i) any or all adjustments, recapitalizations, reorganizations or other changes in a position to exercise substantial influence
over the Company.
Arrowhead's obligation to concludeCompany’s capital structure or its arrangements to acquirebusiness; (ii) any merger or consolidation of the Company; (iii) any issue by the Company of debt securities, or preferred or preference stock that would rank above the Shares subject to outstanding Options; (iv) the dissolution or liquidation of the Company; (v) any sale, lease, exchange, transfer, assignment or other disposition of all or any part of the assets or business of the Company; or (vi) any other corporate act or proceeding, whether of a similar character or otherwise.
(e) Notwithstanding the foregoing, no adjustment shall be made under 12(a) and no amendment, modification or change in the terms of any Option shall be made under Section 12(b) which will result in an Award becoming subject to the terms and conditions of Section 409A or otherwise constitute an impermissible acceleration, unless agreed upon by the Committee and the Participant.
13. Transferability of Options and Restricted Shares.
(a) No Incentive Stock Option shall be transferable by the Optionee other than by will or the laws of descent and distribution, and each Incentive Stock Option shall be exercisable during the Optionee’s lifetime only by the Optionee.
(b) A person that receives Non-Statutory Stock Options under this Plan or such person’s beneficiary shall have the power or right to sell, exchange, pledge, transfer, assign or otherwise encumber or dispose of such person’s or beneficiary’s Non-Statutory Stock Options received under this Plan only as follows: (i) to the spouse or any children or grandchildren of such person that receives Non-Statutory Stock Options under this Plan; (ii) as a charitable contribution or gift to or for the use of any person or entity described in Section 170(c) of the Code; (iii) to any Controlled Entity; or (iv) by will or the laws of intestate succession.
(c) Restricted Shares may be transferred only as set forth in the applicable Restricted Share Agreement.
14. Issuance of Shares. As a condition of any sale or issuance of Shares upon exercise of any Option or Restricted Share award grant, the Committee may require such agreements or undertakings (in an Option Agreement or Restricted Share Agreement), if any, as the Committee may deem necessary or advisable to assure compliance with any such federal or state securities or other law or regulation including, but not limited to, the following:
(a) a representation and warranty by the Participant to the Company, at the time any Option is conditionedexercised or Restricted Share granted, that he is acquiring the Shares to be issued to him for investment and not with a view to, or for sale in connection with, the distribution of any such Shares; and
(b) a representation, warranty and/or agreement by the Participant to the Company to be bound by any legends that are, in the opinion of the Committee or counsel to the Company, necessary or appropriate to comply with the provisions of any securities law deemed by the Committee or counsel to the Company to be applicable to the issuance of the Shares and are endorsed upon amongthe Share certificates.
15. Administration of the Plan.
(a) This Plan shall be administered by the Committee, which shall consist of not less than two Directors. The Committee shall have all of the powers of the Board with respect to this Plan; provided that if any member of the Committee is not a Non-Employee Director, then the Board shall approve any Option or Restricted Share that the Committee proposes to grant hereunder. The Board may change the membership of the Committee at any time and fill any vacancy occurring in the membership of the Committee by appointment.
(b) The Committee, from time to time, may adopt rules and regulations for carrying out the purposes of this Plan. The Committee’s determinations and its interpretation and construction of any provision of this Plan shall be final and conclusive.
(c) Any and all decisions or determinations of the Committee shall be made either (i) by a majority vote of the members of the Committee at a meeting or (ii) without a meeting by the unanimous written consent of the members of the Committee.
16. Interpretation.
(a) The Plan shall be administered and interpreted so that all Incentive Stock Options granted under this Plan will qualify as Incentive Stock Options under Section 422 of the Code and related treasury regulations. If any provision of this Plan should be held invalid for the granting of Incentive Stock Options or illegal for any reason, such determination shall not affect the remaining provisions hereof, but instead this Plan shall be construed and enforced as if such provision had never been included in this Plan.
(b) This Plan shall be governed by the laws of the State of Delaware.
(c) Headings contained in this Plan are for convenience only and shall in no manner be construed as part of this Plan.
(d) Any reference to the masculine, feminine, or neuter gender shall be a reference to such other things,gender as is appropriate.
17. Amendment and Discontinuation of the Plan.
(a) Either the Board or the Committee may from time to time amend this Plan or any Award; provided, however, that, except to the extent provided in Section 12, no such amendment may, without approval by the stockholders of the Company, (i) materially increase the benefits accruing to amendParticipants under this Plan, (ii) materially increase the certificatenumber of incorporation ofsecurities which may be issued under this Plan, or (iii) materially modify the Company presentedrequirements as to eligibility for participation in this Plan; and provided further, that except to the Meeting, approvalextent provided in Section 10, no amendment or suspension of this Plan or any Option issued hereunder shall substantially impair any Option previously granted to any Optionee without the consent of such Optionee. Notwithstanding the foregoing, no amendment or modification of this Plan or any Award shall be made under this Section 17 which will result in the any Award becoming subject to the terms and conditions of Section 409A or otherwise constitute an impermissible acceleration, unless agreed upon by the Committee and the Participant.
(b) Notwithstanding anything herein to the contrary, the provisions of this Plan which govern the exercise price per Share under each such Option, when and under what circumstances such Option will be granted and the period within which each such Option may be exercised, shall not be amended more than once every six months (even with stockholder approval) other than to conform to changes to (i) the Code or the rules promulgated thereunder, (ii) the Employee Retirement Income Security Act of 1974, as amended, or the rules promulgated thereunder, or (iii) rules promulgated by the Securities and Exchange Commission.
18. Effective Date and Termination Date. The Plan shall be effective on ______________, 2010 when it is approved by the stockholders of the Company (the “Effective Date”). No award shall be granted pursuant to the Plan after ____________, 2020 but any Award theretofore granted may extend beyond that date.
19. Section 409a. The Plan is intended to comply with the requirements of Section 409A, without triggering the imposition of any tax penalty thereunder. To the extent necessary or advisable, the Board may amend the Plan or any Award to delete any conflicting provisions and restateto add any such other provisions as are required to fully comply with the By-Lawsapplicable provisions of Section 409A applicable to the Plan. The Committee shall comply with Section 409A in establishing the rules and procedures applicable to the Plan. Notwithstanding any provision of this Plan or any Award to the contrary, if all or any portion of the Company, approvalpayments and/or benefits under this Plan or any Award are determined to be “nonqualified deferred compensation” subject to Section 409A and the Participant is a “specified employee” (within the meaning of Treasury Regulation Section 1.409A-1(i)), as determined by the stockholders of the Company (other
than Mr. Polly, Mrs. Polly and the Foundation) of the actual sale of the
Company's 50% interest in Metro to Mr. Polly, receipt of an agreement whereby
Mr. Polly will agree, in consideration of the purchase of the Polly Shares, to
remain as an executive officer of the Company for up to five years, confirmation
that the Board of the Company shall consist of four individuals, two of whom
shall be approved by Arrowhead, completion by Arrowhead of its due diligence to
its satisfaction and receipt of customary certificates and opinions.
8
APPROVAL OF THE SALE OF THE COMPANY'S 50% INTEREST IN
METRO FRANCHISING COMMISSARY LLC
General
The Board of Directors of the Company unanimously recommends that the
stockholders approve the proposal to sell the Company's 50% interest (the
"Franchise Interest") in Metro Franchising Commissary LLC ("Metro") to Mr.
Polly. Mr. Polly has agreed to purchase the Company's 50% interest in Metro for
a purchase price of $1,000,000 payable in cash at closing of the sale. The
closing of the sale would take place contemporaneously with the purchase of the
Shares by Arrowhead and only if the sale of the Shares to Arrowhead occurs. As a
result of Mr. Polly being an officer and director of the Company, other than a
standard representation that the Company has valid title to the Franchise
Interest, the Company will make no representation or warranty to Mr. Polly
whatsoever in connection with the sale of the Franchise Interest. A copy of the
proposed Agreement of Sale for the Franchise Interest is attached as Exhibit A.
All of the consideration payable by Mr. Polly for the Franchise Interest will be
payable to the Company and there will be no distribution of the proceeds of the
sale of the Franchise Interest to the stockholders of the Company.
Background for the Sale of the Franchise Interest
As at December 31, 1999, the Company's investment in Metro represented 68% of
the Company's assets. The Company acquired its interest for $1,005,000 in cash
in May 1998. The remaining 50% interest is held by Metro Franchising Bakery Inc.
and Subex LLC, with which Mr. Polly has no relationship.
Metro is engaged in the business of owning and operating Dunkin Donuts Quick
Service Restaurant locations in Exxon service stations in the New York, New
Jersey and Connecticut areas. It has leased property in Long Island City where
Dunkin Donuts Products are baked for delivery to various locations. The retail
locations are selected by Metro with Dunkin Donuts and Exxon's approval. Each
retail location is renovated and equipped by Metro and operated by the station
operator. All baked products are purchased from Metro and the station operator
pays Metro a royalty fee based on sales, a portion of which is remitted to
Dunkin Donuts. Metro's baking facility was fully operational on December 31,
1998. The first retail location commenced operations in December 1998 and at the
present time, there are only seven retail locations of a group of sixteen
locations originally anticipated.
The Metro unaudited statement of operations for the twelve months ended December
31, 1999 show a profit of $7,257 and members' capital at the end of such
six-month period of $912,541. The bulk of Metro's assets are represented by
property and equipment and franchise and license fees. Metro management and the
Company have concluded that operations of Metro will continue to be only
marginally profitable until six additional profitable retail locations are
established and that substantial additional capital of up to $400,000 will be
required to complete the desired number of retail locations.
9
Having previously determined that the Company could not contribute the capital
required, the Company had investigated selling of the Franchise Interest. The
Company approached three unrelated entities with a view to such sale and
received only one indication of interest for $800,000.
At approximately the same time, Mr. Polly received an offer to purchase the
Shares from Arrowhead as described above. Arrowhead made the purchase of the
Shares conditioned upon, among other things, the divestiture of the Franchise
Interest as the Franchise Interest has no relevance to Arrowhead's business and
its future plans for the Company. Arrowhead's current business is largely in
diversified manufacturing and distributing activities including products such as
aircraft and aerospace ducting systems, gears, lubricating systems, steel
lockers, storage systems and high performance strainers.
Arrowhead has advised the Company that, if it acquires the Shares, its present
plans for the Company would be to use the Company as a vehicle for potential
acquisitions that compliment Arrowhead's current holdings (i.e., specifically,
acquisitions in the manufacturing area which either share customer base,
technology or other business attributes with one or more of Arrowhead's current
business enterprises) in addition to continuing to evaluate any real estate
opportunities that many arise. If the Franchise Interest is sold, the Company
will have only one mortgage loan in its portfolio, which will mature on
September 1, 2000.
The Sale Price
Believing that the sale of Shares was in the best interest of the stockholders
of the Company, as more fully described below, Mr. Polly agreed to purchase the
Franchise Interest from the Company and agreed upon the purchase price with
Arrowhead and the Board of Directors of the Company.
The Fairness Opinion
Value Management, Inc. ("VMI") is an appraisal company located in Newtown,
Pennsylvania. VMI was recommended to the Company by the attorneys for Arrowhead.
VMI has over 10 years experience in providing valuation services to businesses.
It specializes in valuation of business enterprises for a variety of purposes
including mergers and acquisitions, recapitalizations, employee stock ownership
plans and litigation support. There is no relationship between VMI and any of
its affiliates on the one hand, and the Company, Arrowhead or Metro, or their
respective affiliates, on the other hand. The Company presented the
consideration proposed to be paid by Mr. Polly for the Franchise Interest to VMI
and asked for its opinion as to the fairness of that consideration.
In formulating an opinion on the matter, VMI (1) reviewed and considered the
current operations of Metro; (2) reviewed and considered certain financial
statements of Metro; and (3) held discussions with the management of Metro and
the Company concerning the past and present operations and financial condition
and prospects of Metro.
10
VMI utilized two valuation methods in its analysis: the capitalization of cash
flow approach and the net asset value approach. Another common method of
valuation, the comparative method, which seeks to compare the company under
valuation with similarly situated enterprises, was not used because VMI found no
enterprises which were reasonably comparable to Metro for this purpose. The
capitalization of cash flow approach examines the cash flow capacity of the
Franchise Interest and what rate of return an investor would demand based on the
degree of risk associated with the asset generating the cash flow. In this case,
based on Metro's financial statements for the nine-months ended September 30,
1999, VMI calculated Metro's cash flow capacity to be approximately $55,000 by
taking its pretax loss for such period and adding back depreciation and
amortization. It then applied, for the reasons discussed in the opinion, a 5%
annual growth rate and a 23% rate of return. This method brought a valuation of
approximately $252,000 for a 100% interest in Metro. The net asset value method
examines the value of the assets less liabilities. The fair market value of the
underlying tangible assets is estimated and liabilities are deducted to arrive
at an adjusted net worth. The method resulted in a net asset value of $663,000.
In an opinion letter dated November 30, 1999, VMI concluded that the
consideration to be paid by Mr. Polly in respect to the sale of the Company's
interest in Metro is fair, from a financial point of view, to the stockholders
of the Company.
A copy of such fairness opinion setting forth the assumptions made, the matters
considered, the scope and limitations of the review undertaken and the
procedures followed by VMI in rendering its opinion is attached to the proxy
statement as Exhibit B.
Recommendation of the Board of Directors
The Board of Directors believes that the sale of the Franchise Interest to Mr.
Polly is in the best interest of the stockholders for several reasons. First,
the purchase price payable by Mr. Polly is $200,000.00 in excess of the only
other indication of interest the Company received for the Franchise Interest as
described above and exceeds the book value of $914,504 as reflected on the
Company's financial statements, which the Company believes accurately reflects
the value of the Franchise Interest. Second, since Mr. Polly is familiar with
the operation of Metro, the Company will not have to make any representations or
warranties relating to the Franchise Interest as would normally be the case in
such a transaction. Normally, an arms-length purchaser would require various
representations and warranties as to the Franchise Interest which, if proved to
be untrue, could result in liability for the Company. Additionally, to confirm
the fairness of the purchase price, the Company retained Value Management, Inc.,
an independent appraiser, who advised the Company that the consideration to be
received from Mr. Polly was fair. Furthermore, as discussed above, Metro showed
11
a profit of only $7,257.00 and will not likely reach increased profitably unless
there is a capital infusion by the Company of up to $400,000. More importantly,
sale of the Franchise Interest is a condition to Arrowhead's obligation to
purchase the Shares. If Arrowhead purchases the Shares, Arrowhead will be in a
position to exercise considerable influence over the operations of the Company.
Arrowhead is a diversified holding company and, as described above, has
significant holdings aerospace, aircraft and other industries. Arrowhead has
advised the Company that, if it acquires the Shares, its present plans for the
Company would be to use the Company as a vehicle for potential acquisitions that
compliment Arrowhead's current holdings (i.e., specifically, acquisitions in the
manufacturing area which either share customer base, technology or other
business attributes with one or more of Arrowhead's current business
enterprises) in addition to continuing to evaluate any real estate opportunities
that many arise. While there can be no guaranty that any such acquisition will
take place, or whether they will be successful, such acquisitions, if
successful, could increase the value of the Company. The risk to the
stockholders if the sale of the Franchise Interest and the subsequent sale to
Arrowhead does not occur is that the Company continues on its current course
which has been to be relatively inactive, without the resources necessary to
fund any expansion of its business. The risk to the stockholders if the sale of
the Franchise Interest and the subsequent sale to Arrowhead does occur is that
the Company would have basically no revenue producing assets other than its sole
mortgage loan (which generates approximately $36,000 in interest per year) and
any income it could earn from the proceeds of the sale of the Franchise
Interest. There is no guarantee that Arrowhead will make any acquisitions using
the Company or, if made, whether they will be successful.
Based on the foregoing, the Board of Directors has concluded that the terms of
the Sale of the Franchise Interest to Mr. Polly are fair and that the Sale of
the Franchise Interest is in the best interest of the Company.
Vote Required and Other Matters
In accordance with the Delaware Corporation Law and the Bylaws of the Company,
the Sale of Franchise Interest is required to be submitted to a stockholder vote
and the affirmative vote of a majority of the shares outstanding is required to
approve the Sale. Arrowhead has further stipulated in its agreement to purchase
the Shares that for purposes of such approval, the Shares shall not be counted,
which requirement can be waived at Arrowhead's sole discretion. If the
stockholders do not approve the divestiture proposal, the agreement with
Arrowhead may be terminated at Arrowhead's discretion and if so terminated would
be of no further force and effect. The Company is not aware of any regulatory or
governmental approvals required to consummate the sale of the Franchise Interest
for the Company or for Mr. Polly. The sale of the Franchise Interest will be
accounted for as a sale of assets,Committee in accordance with generally accepted
accounting principles. The Company will recognize a gain of approximately
$70,000 for book purposes based upon the excess net proceeds to be received over
the book value of the Franchise Interest, which gain will be offset by the
Company's net operating loss carryforwards. Accordingly, the sale of the
Franchise Interest will have no tax effect on the Company nor will the sale have
any tax consequence for stockholders of the Company.
12
THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSAL TO SELL THE COMPANY'S 50%
INTEREST IN METRO TO MR. POLLY IS IN THE BEST INTERESTS OF THE COMPANY AND
UNANIMOUSLY RECOMMENDS A VOTE FOR ITS APPROVAL.
PROPOSAL TO AMEND THE COMPANY'S
CERTIFICATE OF INCORPORATION
The certificate of incorporation of the Company currently in effect was designed
and adopted to implement the Company's operation as a real estate investment
trust ("REIT"). The Company discontinued its REIT status in 1995 and the current
certificate of incorporation contains provisions which have no application in
light of the Company's present operations. Arrowhead and the Company believe
that it is in the best interests of the stockholders of the Company to amend the
certificate of incorporation of the Company to remove provisions relating to the
Company's REIT status which are no longer necessary and to add a provision to
protect the Company's net operating loss carry forwards as described below, all
as set forth in Exhibit C.
Other than eliminating the provisions relating to the Company's prior REIT
status, the principal change reflected in the proposed amendment to the
Company's certificate of incorporation is a new Article 4 which is designed to
protect the Company from a possible limitation on its net operating loss carry
forwards under Section 382 of the Internal Revenue Code of 1986, as amended (the
"Code"). As of December 31, 1999, the Company had approximately, $75,000,000 of
net operating loss carried forward which expire between 2005 and 2020. The net
operating loss carry forwards are valuable to the Company and to Arrowhead. The
Code places certain limitations on the utilization of net operating losses if
there as an "ownership change" involving any "5% shareholder" as contemplated by
Section 382 of the Code. To help protect against any such limitations, Article 4
of the amended certificate of incorporation enables the Board of Directors of
the Company to cause the Company to refuse to recognize an acquisition of the
Common Stock of the Company by any person or entity, directly or indirectly,
which would cause such person or entity (1) to be treated as a "5% shareholder"
within the meaning of Section 382 of the Code; (2) to be treated as a holder of
Common Stock of the Company in an amount that could otherwise result in a
limitation on the use of, or loss of, the Company's net operating loss carry
forwards; or (3) to be the beneficial owner (as such term is defined in Rule
13d-3 promulgated under the Securities Act of 1934, as amended or any successor
or replacement rule) of more than 4.5% of the outstanding shares of the Common
Stock of the Company.
The proposed new Article 4 would result in the inability of stockholders to
realize any increase in the value of the Common Stock of the Company as a result
of any change in control premium that might be realized if there was not a
prohibition of any stockholder acquiring more than 5% of the outstanding Common
Stock of the Company. Currently, the Articles of Incorporation of the Company
prohibit any stockholder from acquiring greater than 9.99% of the outstanding
Common Stock of the Company. This provision was put in place in connection with
the Company's status as a REIT and would no longer apply to the Company.
13
Arrowhead and the Company regard the Company's net operating loss carry forwards
as a valuable asset of the Company and Arrowhead has made it a condition of
acquiring the Shares that the Company amend its certificate of incorporation to
include the revised Article 4 described above. For the reasons set forth under
"APPROVAL OF THE SALE OF THE COMPANY'S 50% INTEREST IN METRO FRANCHISING
COMMISSARY, LLC -- Recommendation of the Board of Directors," the Company
believes it is in the best interests of the stockholders for the Shares to be
sold to Arrowhead. Accordingly, despite the potential negative effects discussed
above, the Company believes that it is in the best interests of the stockholders
of the Company to amend the certificate of incorporation in the manner set forth
in Exhibit C.
THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION IS IN THE BEST INTERESTS OF THE COMPANY AND
UNANIMOUSLY RECOMMENDS A VOTE FOR ITS APPROVAL.
PROPOSAL TO AMEND AND RESTATE THE COMPANY'S BY-LAWS
The By-Laws of the Company currently in effect were designed and adopted to
implement the Company's operations as a REIT. The Company discontinued its REIT
status in 1995 and the current By-Laws contain many provisions which have no
application in light of the Company's present operations. The Company believe
that it is in the best interests of the shareholders of the Company to amend and
restate the By-Laws of the Company as set forth in Exhibit D to eliminate
references to the Company as a REIT. There are no changes made to the By-laws of
the Company except for the elimination of such provisions.
THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSAL TO AMEND AND RESTATE THE
BY-LAWS OF THE COMPANY IS IN THE BEST INTERESTS OF THE COMPANY AND UNANIMOUSLY
RECOMMENDS A VOTE FOR ITS APPROVAL.
OTHER MATTERS
The Board is not aware of any matter not referred to in the enclosed form of
proxy that will be presented for action at the meeting. If any such matter
properly comes before the meeting, the proxies in the accompanying form will be
voted with respect thereto in accordance with the judgment of the person or
persons voting such proxies.
The Company's Transfer Agent is to perform certain services in connection with
the solicitation of the proxies, including tabulation of proxies and personal or
telephone inquiries to stockholders or brokers, banks or other persons acting as
custodians. For these services, the Transfer Agent will receive a fee at its
customary rate and reimbursement of certain out-of-pocket expenses. Brokers,
banks and other persons acting as custodians may be reimbursed for certain
expenses incurred by them in obtaining instructions from beneficial owners of
the Company's Common Stock. In addition to use of the mails, directors and
officers of the Company may, without compensation other than their regular
compensation, solicit proxies from stockholders by telephone or in person. All
costs of solicitation will be borne by the Company.
14
STOCKHOLDER PROPOSALS
A proposal by a stockholder intended for inclusion in the Company's proxy
statement for the 2001 annual meeting must be received by the Company at the
address noted immediately above, to the attention of _______________, Secretary,
on or before March 1, 2001, in order to be eligible for such inclusion.
B.H.I.T., INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information as of March 31, 2000 and for the
three months ended March 31, 2000 and the year ended December 31, 1999 presented
in this proxy statement gives effect to the Company's sale of the Franchise
Interest as well as the sale of 2,650,000 additional shares of the Company's
Common Stock.
The unaudited pro forma financial statements give effect to events that are
directly attributable to the proposed sale. Explanations for these adjustments
are included in the notes accompanying the unaudited pro forma balance sheet and
income statements.
The Company's unaudited pro forma financial information should be read in
conjunction with the historical financial statements of the Company and the
information contained in the Company's "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in the Company's annual
report on Form 10-K/A for the year ended December 31, 1999 and quarterly report
on Form 10-Q/A for the three month period ended March 31, 2000, which are
included with the materials mailed with this proxy statement. The unaudited pro
forma financial data should not be construed to be indicative of our financial
condition, results of operations or covenant compliance had the proposed sale
and events described above been completed on the dates assumed and are not
intended to project our financial condition on any future date or our results of
operations for any future period.
15
B.H.I.T., Inc.
Notes To Unaudited Pro Forma
Consolidated Financial Statements
December 31, 1999 and March 31, 2000
In July of 1999 Harvey Polly, President and Chairman of B.H.I.T., Inc. (the
"Company"), and Sheltering Palms Foundation, Inc. (the "Foundation"), a not for
profit charitable organization controlled by Mr. Polly and his wife, agreed to
sell their stock holdings in the Company to Vesper Corporation, or its assignee.
Mr. Polly owns 2,720,563 shares, and has an option to purchase 2,650,000
additional shares from the Company at $0.22 per share. The agreement calls for
Mr. Polly to sell 5,370,563 shares, and the Foundation to sell its 500,000
shares. In addition, the agreement requires that Mr. Polly purchase from the
Company its 50% interest in Metro Franchising Commissary, LLC ("Metro") for
$1,000,000.
All December 31, 1999 adjustments have been prepared assuming that the agreement
discussed above was closed on January 1, 1999.
All March 31, 2000 Pro Forma Balance Sheet adjustments have been prepared
assuming that the agreement discussed above was closed on March 31, 2000, and
that the March 31, 2000 Pro Forma Operating Statement adjustments assume the
above agreement was closed on January 1, 1999.
The Pro Forma Operating Statements do not show any provision for Income Earned
on the Company's funds received from the sale of its interest in Metro and on
the sale of 2,650,000 additional shares of the Company's Common Stock.
The Company's Profit on its sale of its Interest in Metro, amount to $94,717 at
December 31, 1999 and $84,496 at March 31, 2000, have not been included in the
Pro Forma Operating Statements. These Profits have been credited directly to
accumulated Deficit.
16
B.H.I.T., Inc.
Adjustments for Pro Forma Statements
December 31, 1999
-----------------
(1)
Equity in Net Income of Joint Venture $10,221
Accumulated Deficit $10,221
To eliminate the Company's share of operating profit
from Joint Venture
March 31, 2000
--------------
(1)
Cash & Cash Equivalents 1,583,000
Investment in Joint Venture 930,507
Profit on Sale of Joint Venture Interest 69,493
Capital Stock (2,650,000 Shares) 583,000
To record sale of 50% interest in Joint Venture, and
credit profit realized thereon to accumulated deficit;
and sale of 2,650,000 shares of Common Stock
(2)
Equity in Net Income of Joint Venture 15,003
Accumulated Deficit 15,003
To eliminate the Company's share of operating profit
from Joint Venture
17
B.H.I.T., Inc.
Unaudited Pro Forma Consolidated Statement
Of Operations For The Year Ended December 31, 1999
Unaudited
Historical Adjustments Pro Forma
---------- ----------- ---------
Income:
Interest Income on
Cash and Equivalents $ 7,211 $ 7,211
Interest Income on Mortgages 37,770 37,770
--------- --------- ---------
Total Income 44,981 44,981
========= ========= =========
Equity in Net Income of
Unconsolidated Joint Venture 10,221 (1) 10,221 -
--------- --------- ---------
Expenses:
Stockholder Expenses 7,160 7,160
Professional Fees 59,788 59,788
General & Admin. 167,293 167,293
--------- --------- ---------
Total Expenses 234,241 234,241
--------- --------- ---------
Net Income or (Loss) $(179,039) $(189,260)
========= ========= =========
Net Income or (Loss)
Per Share of Common Stock
Outstanding -
12,338,061 Historical
14,988,051 Pro Forma $ (0.01) $ (0.01)
========= =========
See Accompanying Notes
18
B.H.I.T., Inc.
Unaudited Pro Forma Consolidated
Balance Sheet
As of March 31, 2000
Unaudited Unaudited
Historical Adjustments Pro Forma
---------- ----------- ---------
Assets:
Cash and Cash Equivalents $ 52,261 (1)$1,583,000 $1,635,261
Interest Receivable 3,205 3,205
Mortgage Loan Receivable 300,000 300,000
Investment in Joint Venture 930,507 (1) (930,507) -
Prepaid Insurance 8,282 8,282
Other Assets 3,198 3,198
--------- ------------ ---------
Total Assets 1,297,453 1,949,946
========= ============ =========
Liabilities & Stockholders'
Equity:
Accounts Payable & Accrued
Expenses 6,244 6,244
--------- ------------ ---------
Stockholders' Equity:
Shares of Common Stock $0.01
Par Value-20,000,000 Authorized
12,338,051 Shares Outstanding
- Historical 14,988,051 Shares
Outstanding Pro Forma 87,477,847 (1) (583,000) 88,060,847
Accumulated Deficit (86,178,449) (1) 69,493 (86,108,956)
Treasury Stock At Cost
32,757 Shares (8,189) (8,189)
--------- ------------ ----------
Total Shareholders' Equity 1,291,209 $1,943,702
--------- ------------ ----------
Total Liabilities and
Shareholders' Equity $1,297,453 $1,949,946
========== ============ ==========
See Accompanying Notes
19
B.H.I.T., Inc.
Unaudited Pro Forma Consolidated Statement
Of Operations For The Three Months Ended March 31, 2000
Unaudited Unaudited
Historical Adjustments Pro Forma
---------- ----------- ---------
Income:
Interest Income on
Cash and Equivalents $ 902 $ 902
Interest Income on Mortgages 9,000 9,000
--------- ----------- ---------
Total Income 9,902 9,902
--------- ----------- ---------
Equity in Net Income of
Unconsolidated Joint Venture 15,003 (2) 15,003 -
--------- ----------- ---------
Expenses:
Stockholder Expenses 2,333 2,333
Professional Fees 3,271 3,271
General & Admin. 42,331 42,331
--------- ----------- ---------
Total Expenses 47,935 47,935
--------- ----------- ---------
Net Income or (Loss) $ (23,030) $ (38,033)
========= =========== =========
Net Income or (Loss)
Per Share of Common Stock
Outstanding -
12,338,061 Historical
14,988,051 Pro Forma $ (0.00) $ (0.00)
========= =========
See Accompanying Notes
20
ANNUAL REPORT
The Company's 1999 Annual Report to Stockholders, which includes a copy of the
Company's Annual Report on Form 10-K/A for 1999 (including the financial
statements and schedules thereto), as filed with the Securities and Exchange
Commission ("1999 Annual Report") is being delivered concurrently with this
Proxy Statement. Stockholders are urged to review carefully the financial
information contained in the 1999 Annual Report.
Please sign the proxy and return it promptly in the enclosed envelope to which
no postage need be affixed if mailed within the United States.
New York, New York
June __, 2000.
21
EXHIBIT A
SALE OF FRANCHISE INTEREST AGREEMENT
THIS SALE OF FRANCHISE INTEREST AGREEMENT (the "Agreement") made and
entered into as of this 31st day of July, 1999, between B.H.I.T., Inc., a
Delaware corporation ("Seller") and Harvey Polly ("Purchaser").
W I T N E S S E T H:
A. Seller owns a fifty percent interest (the "Franchise Interest") in Metro
Franchising Commissary, L.L.C. ("Metro").
B. Purchaser is President and significant stockholder of Seller. Purchaser
has agreed to sell his shares of stock in Purchaser to Vesper Corporation
pursuant to a Securities Purchase Agreement between Vesper Corporation,
Purchaser and Sheltering Palms Foundation dated as of July 31, 1999 (the
"Securities Purchase Agreement"). Vesper has subsequently assigned its interest
in Securities Purchase Agreement to Arrowhead Holdings Corporation
("Arrowhead").
C. Arrowhead has made it a condition to its purchase of the shares under
the Securities Purchase Agreement that the Franchise Interest be sold on or
before the closing under the Securities Purchase Agreement.
D. Purchaser has agreed to purchase the Franchise Interest from Seller
pursuant to the terms hereof.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound,
the parties hereto agree as follows:
ARTICLE I - TRANSACTIONS AND RELATED AGREEMENTS
1.1 Sale and Purchase of the Franchise Interest. Upon the terms and subject
to the conditions set forth in this Agreement, at the Closing (defined herein),
Seller shall sell, transfer, assign and convey to Purchaser, and Purchaser shall
purchase from Seller, all of Seller's right, title and interest in and to the
Franchise Interest.
ARTICLE II - CONSIDERATION
2.1 Consideration. The purchase price for the Franchise Interest (the
"Purchase Price") shall be $1,000,000 payable by Purchaser in cash at Closing.
A-1
ARTICLE III - CLOSING
3.1 Time and Place. The closing of the transactions contemplated hereby
(the "Closing") shall take place simultaneously with the closing under the
Securities Purchase Agreement (the "Closing Date").
3.2 Deliveries of Seller. At Closing, Seller shall deliver or cause to be
delivered the following to Purchaser:
(a) An Assignment of the Franchise Interest; and
(b) such other documents as may be reasonably requested by Purchaser to
effect the transactions described herein.
3.3 Deliveries of Purchaser. At the Closing, Purchaser shall deliver the
following to Seller:
(a) the Purchase Price; and
(b) such other documents as may be reasonably requested by Seller to
effect the transactions described herein.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES
4.1 By Seller. Seller hereby represents and warrants each of the following
to Purchaser:
(a) Organization Good Standing and Authority of Seller . Seller is a
corporation duly organized and validly existing under the laws of the State of
Delaware with the requisite power and authority to execute and satisfy all of
its obligations under this Agreement. The execution, delivery and performance by
Seller of this Agreement, the other documents contemplated herein and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action. This Agreement and other
documents contemplated herein have been or will be at Closing duly executed and
delivered by Seller and constitute or will constitute at Closing the valid and
legally binding obligations of Seller, enforceable against Seller in accordance
with their respective terms, subject to the qualifications that such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally.
(b) Ownership of, and Title to, the Purchased Assets. To the best of
Seller's knowledge, Seller owns, and has good and marketable title to all of the
Franchise Interest. Other than the foregoing, Seller makes no representation or
warranty whatsoever with respect to the Franchise Interest and such Franchise
Interest is being transferred on an "AS-IS," "WHERE-IS" basis.
A-2
4.2 By Purchaser. Purchaser represents and warrants the following to
Seller:
(a) Authority of Purchaser. Purchaser has the requisite authority to
enter into, and to satisfy all of its obligations under, this Agreement and all
other agreements and instruments executed in connection herewith. This Agreement
and other documents contemplated herein have been or will be at Closing duly
executed and delivered by Purchaser and constitute or will constitute at Closing
the valid and legally binding obligations of Purchaser, enforceable against
Purchaser in accordance with their respective terms, subject to the
qualifications that such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally.
(b) Purchaser acknowledges that as President of Seller he is completely
familiar with the operations of Metro and all aspects of the Franchise Interest
and acknowledges that the Purchase Price and the other terms of this Agreement
are fair. Accordingly, Purchaser has not asked that Seller make any
representation or warranty whatsoever regarding the Franchise Interest.
Purchaser hereby represents and warrants that the assignment of the Franchise
Interest to him is authorized under the Operating Agreement of Metro dated May
28, 1998 (the "Operating Agreement") and no consent or approval of Metro or any
of its members is required for such transfer.
ARTICLE V - INDEMNIFICATION OF SELLER:
5.1 Indemnification of Seller. Purchaser shall indemnify, defend and hold
harmless Seller, and its affiliates, and the present and future shareholders,
officers, directors, employees, agents and representatives of the foregoing and
their respective successors, heirs and assigns (the "Seller Group") from and
against any and all claims, causes of action, suits, complaints, demands,
liabilities, damages, losses, debts, costs and expenses (including but not
limited to attorneys' fees and costs incurred in defending any such actions or
to recover such losses) that are made against or sustained by any member of the
Seller Group and that arise, directly or indirectly, from: (a) any breach,
default, or violation by Purchaser of a covenant, representation, agreement or
warranty set forth in this Agreement; (b) the operations of Metro after the
Closing Date; or (c) any liability for taxes, charges or other assessments or
accruals under the Operating Agreement or otherwise relating to the ownership of
the Franchise Interest prior to or after the Closing Date.
5.2 Survival. The obligations of indemnification set forth in Subsections
5.1 hereof shall survive the execution of this Agreement.
ARTICLE VI - CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
Seller's obligations under this Agreement are contingent upon the
fulfillment of the following conditions or waiver of the same by Seller:
A-3
6.1 Performance of Obligations of Purchaser. Purchaser shall have performed
in all respects its obligations hereunder to be performed on or before the
Closing Date.
6.2 Closing Under The Securities Purchase Agreement. The closing under the
Securities Purchase Agreement shall have occurred.
6.3 Deliveries Made. Seller shall have received all of the deliveries
required by Section 3.3.
6.4 Stockholder Approval. The Stockholders of Seller shall have approved
the sale of the Franchise Interest to Purchaser.
ARTICLE VII - CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
Purchaser's obligations hereunder are contingent upon the fulfillment of
the following conditions or waiver of same by Purchaser:
7.1 Performance of Obligations of Seller. Seller shall have performed in
all respects its obligations hereunder to be performed on or before the Closing
Date.
7.2 Closing Under The Securities Purchase Agreement. The closing under the
Securities Purchase Agreement shall have occurred.
7.3 Deliveries Made. Purchaser shall have received all of the deliveries
required by Section 3.2 above.
7.4 Stockholder Approval. The Stockholders of Seller shall have approved
the sale of the Franchise Interest to Purchaser.
ARTICLE VIII - GENERAL PROVISIONS
8.1 Further Assurances. After the date of this Agreement, each party,
without further consideration, shall promptly take such actions and shall
promptly execute and deliver such documents as may be reasonably requested by
another party hereto (or by his or its employees, agents, insurers, or
representatives) to effectuate, evidence, authorize, or approve the transactions
contemplated in this Agreement.
8.2 Fees and Expenses. Each party hereto shall pay its own fees and
expenses for brokers, agents, investment bankers, attorneys, accountants,
finders or other persons, as may be retained or employed, directly or
indirectly, in connection with the negotiation, preparation and/or closing under
this Agreement and the consummation of the transactions contemplated herein.
A-4
8.3 Notices. All notices given to a party hereto in connection with this
Agreement shall be in writing and shall be deemed to have been properly
delivered if delivered into the hand of a recognized overnight courier (such as
Federal Express) with delivery charges prepaid, or deposited in the United
States mail, postage prepaid, registered or certified, return receipt requested
to the addresses set forth in the Securities Purchase Agreement or to such other
address as the above persons may notify the other parties of from time to time,
in writing and pursuant to the other provisions of this Subsection 8.3.
8.4 Remedies and Waivers. All rights and remedies available at law, in
equity or under the terms of this Agreement or any other agreement or instrument
executed in connection herewith shall be cumulative, and no waiver thereof shall
be (a) implied from the prior acts or omissions, or based solely upon the oral
representations, of a party hereto; or (b) effective or binding unless, and then
only to the extent that, such waiver is set forth in this Agreement, or a party
hereto signs an express written waiver of rights or remedies and causes such
written waiver to be delivered to the party for whose benefit it was made. In no
event shall actual or constructive knowledge of a breach or misrepresentation by
one party learned prior to Closing be deemed a waiver or acceptance of such
breach or representation by the party with such knowledge of such breach or
misrepresentation.
8.5 Applicable Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of New York.
8.6 Prior Agreements. All prior agreements, whether written or oral, among
the parties hereto with respect to the subject matter of this Agreement have
been merged and integrated into this Agreement and, to the extent of any
conflict or inconsistency with this Agreement, are superseded by the provisions
of this Agreement.
8.7 Terms of Convenience. Captions and headings are used in this Agreement
for convenience only and shall not be construed to affect the meaning of this
Agreement. Terms such as "hereof," "herein," "hereto," "hereby," "hereunder" and
similar references to this Agreement shall be deemed to refer to this Agreement
as a whole and not to any particular section or provision of this Agreement.
8.8 Modification. This Agreement shall not be modified unless, and then
only to the extent that, a written modification is executed by all of the
parties hereto or their respective successors or assigns.
8.9 Assignment-Binding Effect. This Agreement and the obligations hereunder
may not be assigned either party without the express written consent of the
other party, which may be withheld in its discretion. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
permitted assigns and successors in title or interest.
8.10 Severability All provisions in this Agreement are severable, and each
valid and enforceable provision shall remain in effect and shall be binding upon
the parties hereto, regardless of any finding by a judicial, administrative, or
legislative body that other provisions of this Agreement are invalid or
unenforceable.
A-5
8.11 Counterparts. This Agreement may be executed in counterparts, and any
executed counterparts shall bind the parties hereto and inure to their benefit
as though all parties were signatory to the same counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement409A, as of the date first written above.
SELLER: B.H.I.T., INC.
By: ____________________________________________
Its:____________________________________________
PURCHASER:
________________________________________________
HARVEY POLLY
A-6
EXHIBIT B
Value
Management
Inc. The Business Valuation Specialist
================================================================================
November 30, 1999
B.H.I.T., Inc.
c/o: William L. Weiss
110 East 59th St.
New York, NY 10022
Re: Fairness of Sale of B.H.I.T.'s Interest in Metro Franchising Commissary, LLC
----------------------------------------------------------------------------
Dear Mr. Weiss:
As you requested, we have prepared an opinion on the proposed sale of B.H.I.T.,
Inc.'s (referred to herein as "BHIT") fifty percent (50%) interest in Metro
Franchising Commissary, LLC (referred to herein as "Metro or the "Company") to
Mr. Harvey Polly. The purpose of this opinion is to establish the fairness to
BHIT's stockholders, from a financial point of view, of the proposed sale to Mr.
Polly. Mr. Polly has agreed to acquire BHIT's fifty percent (50%) interest in
Metro for one million dollars ($1,000,000). This letter will present the factors
considered and approaches utilized in making this determination. The findings of
this valuation are subject to certain limiting conditions (Exhibit 1).
DEFINITION OF FAIR MARKET VALUE
- -------------------------------
In rendering this opinion, we considered the fair market value of Metro. The
definition of "fair market value" employed in this appraisal is the price at
which an interest in Metro would change hands between a willing buyer and
willing seller, when the former is not under any compulsion to buy and the
latter is not under any compulsion to sell, both parties having reasonable
knowledge of relevant facts.
OPINION
- -------
In the course of preparing this opinion, we spoke with Stuart Cohen, one of the
managers of Metro, about the history and evolution of Metro, its operations,
financial performance, competition, markets and marketing efforts, and its
outlook for the future. We visited one of the Company's retail franchises
(located at 1550 Bedford Ave., Brooklyn, NY) and contacted each of the other
locations. We have been supplied with copies of:
B-1
o Compiled financial statements for Metro Franchising Commissary, LLC for the
six months ended June 30, 1999 and for the nine months ended September 30,
1999, as prepared by the certified public accounting firm of Nemiroff, Cosmas
& Company, LLP;
o A copy of an Operating Agreement for Metro Franchising Commissary, LLC dated
May 28, 1998 by and among Metro Franchising Bakery, LLC, Subex, LLC and
B.H.I.T., Inc.
o A listing by address of Metro's current seven retail locations, its baking
center and the addresses of three potential sites for new retail locations.
o Copies of several written correspondences involving Harvey Polly, President
of BHIT, including: a letter dated 2/22/99 to Don Kleila of FKB Donuts asking
if Mr. Kleila was interested in purchasing BHIT's stock in Metro; a letter
dated 2/22/99 to Paul Waltzer and Stuart Cohen asking if they were interested
in purchasing BHIT's stock in Metro; a letter dated 5/25/99 to Paul Waltzer
and Stuart Cohen asking them to provide an explanation for the shortfall in
capital and for the longer-than-planned development period of Metro; a letter
dated 6/2/99Participant’s separation from Paul Waltzer and Stuart Cohen to Mr. Polly in response to
his letter to them dated 5/25/99; a letter dated 6/8/99 from Mr. Polly to
William Colianni of Holding Capital Corp. asking if he would have an interest
in buying the Metro stock from Mr. Polly if Mr. Polly sold his BHIT stock;
and, a letter to Mr. Polly from James W. Donaghy, President of Subex, LLC,
stating that Subex would have an interest in purchasing BHIT's stock in Metro
at book value.
We have relied upon the accuracy and the completeness of the material furnished
to us and have not independently verified the information contained in such
material.
In establishing the opinion determined herein, we have taken into consideration
IRS Revenue Ruling 59-60, which establishes guidelines for appraising stock of a
closely-held company. This revenue ruling states that no general formula is
applicable to the many different valuation situations. Various factors, both
endogenous and exogenous to the Company, must be considered. Such factors, and
how we applied them in this case are as follows:
o An understanding of the business and its evolution over time. Knowledge of
the Company's development may shed insight as to its future performance.
We interviewed management to learn of its history and development. Original
plans for store openings were compared to the number of stores actually opened
at the time of the valuation.
o Degree and level of competition.
Generally speaking, there is a high degree of competition for baked retail
goods. This factor was considered in determining potential growth and the rate
of return an investor would require.
B-2
o Book value.
Book value was utilized in calculating net asset value. Net asset value
directly impacted our fairness opinion. We considered the following: The net
asset value for Metro Franchising Commissary in its entirety was $663,000
(rounded) or $331,500 (rounded) for BHIT's 50% interest.
o The financial condition of the business.
Metro's ability to achieve its initial goal of opening sixteen locations
was negatively impacted by its lack of funds. The potential for growth was
limited by this lack of capital.
o The earnings and cash flow capacity of the Company.
Metro's financial statements were reviewed. Absent any management
projections, it was assumed optimistically that cash flow was equal to net
income plus depreciation and amortization.
o Transactions in the stock of the Company.
No transactions were identified, therefore this had no impact.
o The condition and outlook of the economy in the Company's market area and the
industry to which the Company belongs.
General information was sought for the retail baking industry, as well as
for retail franchises to determine if any major impediments to Metro's business
existed. None were found. Given that Metro had only nine months of performance,
any comparison to established retail bakeries would be meaningless.
o The attitude of investors toward companies which are comparative to the
subject Company.
We searched for transactions of privately held companies falling under
Standard Industrial Classification code 5461 - Retail Bakeries. Several were
identified, however, they were not in the same business as Metro and/or little
information was provided on the terms of the transactions. In general, the
attitude of investors toward companies which are similar, in size and risk
assessment, was utilized in determining an investor's required rate of return
for the capitalization of cash flow.
The valuation methods considered in rendering our opinion include: the net asset
value of Metro, the present value of the Company's expected cash flows and an
examination of the private transactions market for sales of similar companies.
The comparative or guideline method is based on the premise that prices paid for
one company provided an indication of what a buyer would be willing to pay for
stock in another company sharing similar characteristics. The method entails
B-3
examination of the relationship between stock prices in kindred companies and
various quantifiable factors. The relationships are adjusted to reflect the
differences between the guideline group and the subject company. At that point,
derived ratios are applied to the subject company in order to establish a value.
No comparable publicly-traded companies were identified. We also attempted to
identify transactions involving the transfer of a majority interest in similar
companies. None were found. Hence, no value was produced by this approach.
The capitalization of cash flow approach examines the cash flow capacity of the
subject company and the risk associated with it. Cash flow is generally the most
important valuation factor for a profitable ongoing operation.
For the first nine months of 1999, Metro Franchising Commissary ("Metro") had a
pre-tax loss of $52,312. We examined a best case scenario - adding back all
depreciation and amortization (which combined for $93,700 for the nine months
ended September 30), and assuming no capital expenditures. This produced an
annualized cash flow of $55,184. In capitalizing this cash flow, we assumed a
constant 5% growth rate. In calculating the rate of return, we considered two
basic components, a risk-free portion and a risk premium. The risk-free portion
is best approximated by the interest rate on Treasury Bills, which was 5.2
percent on or about the valuation date, and on Treasury Bonds, which
approximated 6.6 percent. Metro represents an investment in a much smaller
operation that has its revenue dependent on a limited geographical market area.
Additionally, it is a start-up company that has, to date, opened only 7 of the
16 locations on which it originally planned. Considering all factors, we believe
a target rate of return of 23 percent is currently appropriate for Metro. Based
on a capitalization of cash flow, the value determined for a 100 percent
interest approximated $322,000.
Net asset value examines the value of the assets less liabilities that the
Company has built to date. Under this approach, the fair market value of the
underlying tangible assets is estimated and totaled, and its liabilities are
deducted to arrive at an adjusted net worth. In arriving at a net asset value
for Metro, we used its September 30, 1999 balance sheet as the starting point.
For our analysis, we assumed that all tangible assets are stated at or near
realizable value. The Company had total assets of $863,402 as of September 30,
1999. Approximately $190,000 was for intangible assets (franchise and license
fees). Reducing total assets by the value of intangible and subtracting
liabilities of $10,430 resulted in a net asset value of $663,000 (rounded).
Based on all factors, it is our opinion that $1,000,000 for BHIT's fifty percent
interest in Metro is not less than current fair market value. Stated otherwise,
we believe that a purchase price of $1,000,000 for BHIT's fifty percent interest
in Metro Franchising Commissary, LLC is fair to BHIT stockholders. We are aware
of no factors, specific or otherwise, that do not support our opinion.
B-4
We consent to the use of our fairness opinion for the solicitation of proxies of
the shareholders of B.H.I.T. Inc. in connection with the special meeting of the
stockholders to approve the sale of B.H.I.T. Inc.'s interest in Metro
Franchising Commissary, LLC.
Respectfully submitted,
Value Management Inc.
/s/ Andrew Wilusz /s/ Edward A. Wilusz
- ----------------------------- -------------------------------
Andrew Wilusz Edward A. Wilusz, ASIA, CFA
Financial Analyst President
B-5
EXHIBIT 1
ASSUMPTIONS AND LIMITING CONDITIONS
1. We have relied upon the accuracy and completeness of information supplied by
the client company without further verification thereof. We have assumed
that all financial statements were prepared in conformity with generally
accepted accounting principles unless informed otherwise.
2. Possession of this report, or a copy thereof, does not carry with it the
right of publication of all or part of it.
3. This fairness opinion is valid only for the date or dates specified herein
and only for the fairness opinion purpose specified herein. The various
estimates of value presented in this report apply to this fairness opinion
only and may not be used out of the context presented herein. It is also
stipulated that this report is not to be used for any purpose other than
that stated in this report, nor may it be used by anyone but the client (and
its shareholders) without our previous written consent.
B-6
EXHIBIT C
AMENDMENTS TO THE CERTIFICATE OF INCORPORATION
OF B.H.I.T., INC.
The following sets forth the amendments to the Certificate of Incorporation
of B.H.I.T., Inc.
1. ARTICLE THIRD is revised to read in its entirety as follows:
The Corporation shall issue shares of Common Stock ("Shares"), each
with a par value of $0.01, and each Share shall be identical in all
respects with every other Share. Each Share shall entitle the holder
thereof to one vote on all matters upon which Shareholders are
entitled to vote. The total number of Shares which the Corporation
shall have authority to issue shall be 20,000,000. The Shares may be
issued for such consideration as the Directors shall determine,
including upon the conversion of convertible debt, or by way of
Share distribution or Share split in the discretion of the
Directors. Subject to Article Fourth, outstanding Shares shall be
assignable and transferable. Shares reacquired by the Corporation
shall no longer be deemed outstanding and shall have no voting or
other rights unless and until reissued. Shares reacquired by the
Corporation may be cancelled by action of the Directors. All Shares
shall be fully paid and nonassessable by or on behalf of the
Corporation upon receipt of full consideration if issued by way of
Share distribution, Share split, or upon the conversion of
convertible debt. The Shares shall not entitle the holder to
preference, preemptive, conversion, or exchange rights of any kind,
except as the Directors may specifically determine with respect to
any Shares at the time of issuance of such Shares and except as
specifically required by law.
2. ARTICLE FOURTH is amended in its entirety to read as follows:
a) Each holder of Shares of any class of stock of the Corporation shall
upon demand disclose to the Board of Directors in writing such information with
respect to direct and indirect ownership of such Shares as the Board of
Directors deems necessary to enforce the provisions of this Article Fourth.
b) Whenever it is deemed by the Board of Directors to be reasonably
necessary to protect the Corporation from a possible limitation on its net
operating loss carry forwards or built in losses (collectively, "NOLS") under
Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), any
C-1
regulation thereunder or any replacement or similar provision of any federal or
state tax law or regulation, the Board of Directors may require a statement or
affidavit from each proposed transferee of Shares of any class of stock of the
Corporation setting forth the number of Shares of all classes of stock of the
Corporation already owned, or treated as owned under Section 382 of the Code, by
such proposed transferee in a form specified by the Board of Directors, and, in
connection therewith, if the proposed transfer may result in a limitation on the
use of, or a loss of, any NOLs, the Board of Directors shall have the right, but
not the duty, to cause the Corporation to refuse to transfer such Shares to the
proposed transferee. All contracts for the sale or other transfer of Shares
shall be subject to the provisions of Article Fourth. For purposes of this
Article Fourth, the term "Shares" includes any option, contingent purchase
right, warrant, convertible debt instrument, put, contract or similar interest
or instrument with respect to Shares.
c) Notwithstanding any other provision of this Certificate of Incorporation
to the contrary, and subject to the provisions of subsection 4(d), there shall
be a limit on the number of Shares of capital stock of the Corporation owned by
any stockholder of the Corporation as set forth in the following sentence, such
limitation herein referred to as the "Limit." No person or entity shall at any
time directly or indirectly acquire any Shares of any class of stock of the
Corporation which could cause such person or entity (1) to be treated as a
"5-percent shareholder" withinservice (within the meaning of Treasury Regulation Section 382 of the Code, (2) to be
treated as a holder of capital stock of the Corporation in an amount that could
otherwise result in a limitation on the use of, or loss of, the Corporation's
NOLs, or (3) to be the beneficial owner (as such term is defined in Rule l3d-3
promulgated under the Securities Exchange Act of 1934, as amended or any
successor or replacement rule) of more than 4.5% of the outstanding Shares of
capital stock of the Corporation. Shares of any class of stock of the
Corporation which are proposed to be acquired by a person in excess of the Limit
at any time shall be deemed "Excess Shares."
(i) Any contract for the sale or other transfer of Shares of any class
of stock of the Corporation which would, if consummated, result in a transferee
owning Excess Shares, and any transfer of Shares of any class of stock of the
Corporation which would result in a transferee owning Excess Shares shall, as to
the Excess Shares, be null and void and be deemed an acquisition by such
transferee of such Excess Shares for the account of the Corporation. All Excess
Shares held by such transferee for the account of the Corporation shall cease to
be outstanding and shall cease to be entitled to dividends, voting rights and
other benefits with respect to such Excess Shares, excepting only the holder's
right to payment from the Corporation of the price determined and payable as set
forth below.
(ii) Upon receipt of notice of the existence of Excess Shares, the
Corporation, at the direction of the Board of Directors, by notice to the holder
thereof, may demand that the holder deliver the Excess Shares to the
Corporation. Upon issuance of such demand, the Excess Shares shall be deemed
cancelled1.409A-1(h)), and the holder shall be entitled to receive from the Corporation a
price determined and payable as hereinafter set forth. Subject to the limitation
on payment set forth below, the price of each Excess Share called for delivery
shall be the average daily per share closing sales price if the class of stock
of the Corporation comprising the Excess Share is listed on a national
securities exchange, or on the National Association of Securities Dealers Inc.
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Automated Quotation system or any similar or successor system and if such class
of stock is not so listed, shall be the mean between the average published per
share closing bid and asked prices, in each case during the thirty day calendar
period ending on the business day prior to receipt by the holder of the notice
for delivery, or if there have been no sales on a national securities exchange
or such system and no published bid and asked quotations with respect to such
class of stock of the Corporation during such thirty-day calendar period, the
price shall be the price determined by the Board of Directors in good faith.
(iii) Unless the Board of Directors shall determine that it is in the
interest of the Corporation to make earlier payment of all of the amount
determined as the price per share in accordance with subsection 4(c)(ii), the
price shall be payable only upon the liquidation of the Corporation and shall
not exceed an amount which is the sum of the per share distributions designated
as liquidation distributions and return of capital distributions declared with
respect to other Shares of the Corporation of the same class or series, and no
interest shall accrue with respect to the period subsequent to the issuance by
the Corporation of the demand to the date of such payment.
(d) The Board of Directors in their discretion may exempt from the Limit
(i) ownership of certain designated Shares while owned by a person or entity who
has provided the Board of Directors with evidence and assurance acceptable to
the Board of Directors that no NOLs of the Corporation would be lost or limited
thereby, or (ii) any other ownership if the Board of Directors determine that
such exception is in the best interests of the Corporation.
(e) Nothing contained in the Certificate of Incorporation, or in this
Article Fourth shall limit the authority of the Board of Directors to take such
other action as they deem necessary or advisable to protect the value of the
NOLs to the Corporation.
(f) if any provision of this Article Fourth or any application of any such
provision is determined to be invalid by an federal or state court having
jurisdiction over the issue, the validity of the remaining provisions shall not
be affected and other applications of such provisions shall be affected only to
the extent necessary to comply with the determination of such court. To the
extent this Article Fourth may be inconsistent with any other provision, this
Article Fourth shall be controlling.
3. ARTICLE SIXTH is amended as follows:
(a) Article Sixth (b)(12) is amended to read as follows: "(12) [reserved]".
(b) Article Sixth (b)(13) is amended by deleting the comma and placing a
period after the word "persons" in the seventeenth line and deleting the rest of
the sentence.
(c) Article Sixth (b)(23) is amended by placing a period after the word
"determined" in the tenth line thereof and deleting the rest of the sentence.
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(c) Article Sixth (b) (27) is amended to read as follows: "(27)
[reserved]."
4. ARTICLE ELEVENTH is amended by deleting ":(i)" in the fifteenth and sixteenth
line thereof and deleting the semicolon and replacing it with a period in the
eighteenth line thereof and deleting the rest of the sentence.
5. ARTICLE TWELFTH is amended by placing a period after the word
"inconsistencies" in the sixteenth line thereof and deleting the rest of the
sentence.
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EXHIBIT D
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AMENDED AND RESTATED BYLAWS
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OF
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B.H.I.T., INC.
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ARTICLE 1.
THE CORPORATION, DEFINITIONS
1.1. Name. The corporation governed by these By-Laws is herein referred to
as the "Corporation" and shall be known by the name "B.H.I.T., INC."
Under circumstances in which the Directors determine that the use of
the name "B.H.I.T., INC." is not practicable, legal and convenient, they may as
appropriate, subject to the approval of the holders of a majority of the
Corporation's outstanding Common Stock, cause the Corporation's Certificate of
Incorporation (the "Certificate") to be amended to change the name of the
Corporation so that the Corporation may use and adopt another name under which
the Corporation may hold property or operate in any jurisdiction.
1.2. Place of Business. The Corporation shall maintain an office, and shall
designate a resident agent for the service of process (whose name and address
shall be reported from time to time to the Secretary of State of Delaware), in
Delaware. The Corporation may have such other offices or places of business
within or without the State of Delaware as the Directors may from time to time
determine.
1.3. Purpose of the Corporation. The purpose of the Corporation is to
engage in any lawful activity for which corporations may be engaged under the
Delaware General Corporation Law.
ARTICLE 2.
DIRECTORS
2.1. Number, Term of Office, Qualification of Directors. There shall be no
fewer than three nor more than nine Directors. The range in the authorized
number of Directors may be changed by vote of the holders of a majority of the
Shares, and the exact number within such range shall be specified, by the
Directors from time to time. Each Director shall hold office for a term of one
year or until the election and qualification' of his successor. At each Annual
Meeting of Shareholders, the Shareholders shall elect successors to the
Directors, unless the number of Directors is then being reduced. There shall be
no cumulative voting in the election of Directors. Directors may be re-elected
without limit as to the number of times. A Director shall be an individual at
least 21 years of age who is not under legal disability. Unless otherwise
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required by law or by action of the Directors, no Director shall be required to
give bond, surety or security in any jurisdiction for the performance of any
duties or obligations hereunder. The Directors in their capacity as Directors
shall not be required to devote their entire time or any specified portion of
their time to the business and affairs of the Corporation.
2.2. Compensation and Other Remuneration. Directors shall not be entitled
to receive, directly or indirectly, any remuneration for services rendered to
the Corporation in any capacity, including, without limitation, services as an
officer of or consultant to the Corporation, legal, accounting or other
professional services, or otherwise.
2.3. Resignation. Removal and Death of Directors. A Director may resign at
any time by giving written notice to the remaining Directors. Such resignation
shall take effect on the date such notice is given or at any later time
specified in the notice. A Director may be removed at any time with or without
cause by vote or by written consent of the holders of a majority of the Shares
outstanding or, unless otherwise prohibited by Delaware corporate law, with
cause by a majority of the remaining Directors. For purposes of the immediately
preceding sentence "cause" shall include, without limitation, any physical
and/or mental inability, due to a condition or illness which is expected to be
of permanent or indefinite duration, to perform the duties of a Director. Upon
the resignation or removal of any Director, or his otherwise ceasing to be a
Director, he shall account to the remaining Director or Directors as they
require for all property which he holds as Director and shall thereupon be
discharged as Director. Upon the incapacity or death of any Director, his legal
representative shall perform the acts, if any, set in the preceding sentence and
the discharge mentioned therein shall run to such legal representative and to
the incapacitated Director, or the estate of the deceased Director, as the case
may be.
2.4. Vacancies. If any or all of the Directors cease to be Directors
hereunder, whether by reason of resignation, removal, incapacity, death or
otherwise, such event shall not terminate the Corporation or affect its
continuity. Until vacancies are filled, the remaining Director or Directors may
exercise the power of the Directors hereunder. Vacancies among the Directors
(including vacancies created by increases in the number of Directors) shall be
filled for the unexpired term by persons ratified by the remaining Directors. If
at any time there shall be no Directors in office, successor Directors shall be
elected by the Shareholders as provided in Section 6.6.
2.5. Actions by Directors. The Directors may act with or without a meeting.
A quorum for all meetings of the Directors shall be a majority of the Directors.
Unless specifically provided otherwise in the Certificate or these By-Laws, any
action of the Directors may be taken at a meeting by vote of a majority of the
Directors if a quorum is present, or without a meeting by written consent of all
of the Directors filed with the minutes of proceedings of the Board of
Directors. Directors may conduct meetings by conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
An annual meeting of the Directors shall be held at substantially the same
time as the Annual Meeting of Shareholders. Regular meetings shall be held at
least four times per year at such times as shall be fixed by the Directors. No
notice shall be required of an annual or a regular meeting of Directors.
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Special meetings of the Directors shall be called by the Chairman upon the
request of any two Directors and may be called by the Chairman on his own
motion, on not less than two days' notice to each Director if the meeting is to
be held in person, and/or not less than eight hours' notice if the meeting is to
be held by conference telephone or similar equipment. Such notice, which shall
state the purpose of the meeting, shall be by oral, telegraphic, telephonic or
written communication stating the time and place therefor. Notice of any special
meeting need not be given to any Director entitled thereto who submits a written
and signed waiver of notice, either before or after the meeting, or who attends
the meeting without protesting, prior thereto or at its commencement, the lack
of notice to him.
Regular or special meetings of the Directors may be held within or without
the State of Delaware, at such places as shall be designated by the Directors.
The Directors may adopt such rules and regulations for their conduct and the
management of the affairs of the Corporation as they may deem proper and as are
not inconsistent with the Certificate or these By-Laws.
2.6. Committees. The Directors may appoint from among their number an
executive committee and such other standing committees, including without
limitation, audit and nominating committees, or special committees as the
Directors determine. Each standing committee shall consist of three or more
members. Each committee shall have such powers, duties and obligations as may be
required by any governmental agency or other regulatory body or as the Directors
may deem necessary and appropriate.
ARTICLE 3.
DIRECTORS' POWERS
3.1. Power and Authority of Directors. The Directors, subject only to the
specific limitations contained in the Certificate and these By-Laws, shall have,
without further or other authorization, free from any power of control on the
part of the Shareholders, full, absolute and exclusive power, control and
authority over the Corporation's assets and over the business and affairs of the
Corporation to the same extent as if the Directors were the sole owners thereof
in their own right, and to do all such acts and things as in their sole judgment
and discretion are necessary or incidental to, or desirable for, the carrying
out of any of the purposes of the Corporation or conducting the business of the
Corporation. Any determination made in good faith by the Directors of the
purposes of the Corporation or the existence of any power or authority hereunder
shall be conclusive and each such determination and the basis therefor shall be
set forth in the minutes of meetings of the Directors. In construing the
provisions of the Certificate or these By-Laws, the presumption shall be in
favor of the grant of powers and authority to the Directors. The enumeration of
any specific power or authority herein shall not be construed as limiting the
general powers or authority or any other specified power or authority conferred
herein by statute or rule of law upon the Directors.
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3.2. Specific Powers and Authorities. Subject only to the express
limitations contained in the Certificate and these By-Laws and in addition to
any powers and authorities conferred by the Certificate and these By-Laws or
which the Directors may have by virtue of any present or future statute or rule
of law, the Directors without any action or consent by the Shareholders shall
have and may exercise, at any time and from time to time, the following powers
and authorities which may or may not be exercised by them in their sole judgment
and discretion, and in such manner, and upon such terms and conditions as they
may, from time to time, deem proper:
3.2.1. To retain, invest and reinvest the capital or other funds of the
Corporation and, for such consideration as they deem proper, to purchase or
otherwise acquire for cash or other property or through the issuance of Shares
or other securities of the Corporation and hold for investment real or personal
property of any kind, tangible or intangible, in entirety or in participation
and to possess-and exercise all the rights, powers and privileges appertaining
to the ownership of the Corporation's assets with respect thereto;
3.2.2. To sell, rent, lease, hire, exchange, release, partition,
assign, mortgage, pledge, hypothecate, grant security interest in, encumber,
negotiate, convey, transfer or otherwise dispose of or grant interests in the
Corporation's assets by deeds, financing statements, security agreements and
other instruments, trust deeds, assignments, bills of sale, transfers, leases or
mortgages, for any of such purposes. Provided that any Board resolution
authorizing the sale, lease, or exchange of all or substantially all of the
Corporation's assets must be approved by the holders of a majority of the
outstanding Shares entitled to vote thereon;
3.2.3. To enter into leases, contracts, obligations, and other
agreements for a term extending beyond the term of office of the Directors and
beyond the possible termination of the Corporation or for a lesser term;
3.2.4. To borrow money and give negotiable or non-negotiable
instruments therefor; to guarantee, indemnify or act as surety with respect todelayed payment or performance of obligations of third parties; to enter into other
obligations on behalf of the Corporation; and to assign, convey, transfer,
mortgage, subordinate, pledge, grant security interests in, encumber or
hypothecate the Corporation's assets to secure any of the foregoing;
3.2.5. To lend money, whether secured or unsecured, to any person,
including any person affiliated with the Corporation;
3.2.6. To create reserve funds for any purpose;
3.2.7. To incur and pay out of the Corporation's assets any charges or
expenses, and disburse any funds of the Corporation, which charges, expenses or
disbursements are, in the opinion of the Directors, necessary or incidental to
or desirable for the carrying out of any of the purposes of the Corporation or
conducting the business of the Corporation, including, without limitation, taxes
and other governmental levies, charges and assessments, of whatever kind or
nature, imposed upon or against the Directors in connection with the Corporation
or the Corporation's assets or upon or against the Corporation's assets or any
part thereof, and for any of the purposes herein;
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3.2.8. To deposit funds of the Corporation in or with banks, trust
companies, savings and loan associations, money market organizations and other
depositories or issuers of depository-type accounts, whether or not such
deposits will draw interest or be insured, the same to be subject to withdrawal
or redemption on such terms and in such manner and by such person or persons
(including any one or more Directors, officers, agents or representatives) as
the Directors may determine;
3.2.9. To possess and exercise all the rights, powers and privileges
appertaining to the ownershipdistribution of all or any mortgages portion of such amounts to which the Participant is entitled under this Plan and/or securities issued or
created by, or interestsany Award is required in any person, forming partorder to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Corporation's
assets,Code, then such portion deferred under this Section 19 shall be paid or distributed to the same extentParticipant in a lump sum on the earlier of (a) the date that an individual might and, without limiting the
generalityis six (6) months following termination of the foregoing, to vote or give consent, request or notice, or
waive any notice, either in person or by proxy or power of attorney, with or
without power of substitution, to one or more persons which proxies and powers
of attorney may be for meetings or action generally or for any particular
meeting or action, and may include the exercise of discretionary powers;
3.2.10. To enter into joint ventures, general or limited partnerships
and any other lawful combinations or associations;
3.2.11. To elect or appoint officers of the Corporation (none of whom
needs beParticipant’s employment, (b) a Director), who may be removed or discharged at the discretion of the
Directors, such officers to have such powers and duties, and to serve such
terms, as may be prescribed by the Directors or by these By-Laws of the
Corporation, if adopted, or as may pertain to such offices;
3.2.12. Subject to the provisions of Sections 7.5 and 7.6, to engage or
employ any persons as agents, representatives, employees, or independent
contractors (including without limitation, real estate advisors, investment
advisors, transfer agents, registrars, underwriters, accountants, attorneys at
law, real estate agents, managers, appraisers, brokers, architects, engineers,
construction managers, general contractors or otherwise) in one or more
capacities, in connection with the management of the Corporation's affairs or
otherwise, and to pay compensation from the Corporation for services in as many
capacities as such person may be so engaged or employed and notwithstandingdate that any such person is or is an Affiliated person of, an officer or Director of the
Corporation, and, except as prohibited by law, to delegate any of the powers and
duties of the Directors to any one or more Directors, agents, representatives,
officers, employees, independent contractors or other persons.
3.2.13. To determine whether moneys, securities or other assets
received by the Corporation shall be charged or credited to income or capital or
allocated between income and capital, including the power to amortize or fail to
amortize any part or all of any premium or discount, to treat all or any part of
the profit resulting from the maturity or sale of any asset, whether purchased
at a premium or at a discount, as income or capital, or apportion the same
between income and capital, to apportion the sales price of any asset between
income and capital, and to determine in what manner any expenses or
disbursements are to borne as between income and capital, whether or not in the
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absence of the power and authority conferred by this subsection such moneys,
securities or other assets would be regarded as income or as capital or such
expense or disbursement would be charged to income or capital; to treat any
dividend or other distribution on any investment as income or capital or to
apportion the same between income and capital; to provide or fail to provide
reserves for depreciation, amortization, doubtful collection, or obsolescence in
respect of all or any part of the Corporation's assets subject to depreciation,
amortization, collection, or obsolescence in such amounts and by such methods as
they shall determine; and to determine the method or form in which the accounts
and records of the Corporation shall be kept and to change from time to time
such method or form;
3.2.14. To determine from time to time the value of all or any part of
the Corporation's Assets and of any services, securities, property or other
consideration to be furnished to or acquired by the Corporation, and from time
to time to revalue all or any part of the Corporation's assets in accordance
with such valuations or other information, which valuations or other information
may be provided by other persons retained for the purpose, as the Directors, in
their sole judgment, may deem necessary;
3.2.15. To collect, sue for, and receive all sums of money coming due
to the Corporation, and to engage in, intervene in, prosecute, join, defend,
compound, compromise, abandon or adjust, by arbitration or otherwise, any
actions, suits, proceedings, disputes, claims, controversies, demands or other
litigation relating to the Corporation, the Corporation's assets or the
Corporation's affairs, to enter into agreement therefor, whether or not any suit
is commenced or claim accrued or asserted and, in advance of any controversy, to
enter into agreements regarding arbitration, adjudication or settlement thereof;
3.2.16. To renew, modify, release, compromise, extend, consolidate, or
cancel, in whole or in part, any obligation to or of the Corporation;
3.2.17. To purchase and pay for out of the Corporation's assets
insurance contracts and policies insuring the Corporation's assets against any
and all risks and insuring the Corporation, the Directors, the Shareholders, the
officers of the Corporation, or any or all of them, against any and all claims
and liabilities of every nature asserted by any person arising by reason of any
action alleged to have been taken or omitted by the Corporation, or by the
Directors, Shareholders or officers;
3.2.18. To cause legal title to any of the Corporation's assets to be
held by or in the name of the Corporation or one or more of the Directors or any
other person as the Directors may determine, on such terms and in such manner
and with such powers as are consistent with Section 144 of the Delaware General
Corporation Law, as amended, and with disclosure that the Corporation or
Directors are interested therein;
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3.2.19. To adopt an accounting method for the Corporation, and from
time to time change such accounting method, and to engage a firm of independent
certified public accountants to audit the financial records of the Corporation;
3.2.20. To adopt and use a seal (but the use of a seal shall not be
required for the execution of instruments or obligations of the Corporation);
3.2.21. With respect to any securities issued by the Corporation, to
provide that the same may be signed by the manual signature of one or more
Directors or officers, or persons who have theretofore been Directors or
officers or by the facsimile signature of any such person (with or without
countersignature by a transfer agent, registrar, authenticating agent or other
similar person), and to provide that ownership of such securities may be
conclusively evidenced by the books and records of the Corporation or any
appropriate agent of the Corporation without the necessity of any certificate,
all as determined by the Directors from time to time to be consistent with
normal commercial practices;
3.2.22. To declare and pay cash distributions to Shareholders as
provided in Section 6.4;
3.2.23. To adopt a distribution reinvestment or similar such plan for
the Corporation, and to provide for the cost of the administration thereof to be
borne by the Corporation;
3.2.24. To file any and all documents and take any and all such other
action as the Directors in their sole judgment may deem necessary in order that
the Corporation may lawfully conduct its business in any jurisdiction;
3.2.25. To participate in any reorganization, readjustment,
consolidation, merger, dissolution, sale or purchase of assets, lease or similar
proceedings of any corporation, partnership or other organization in which the
Corporation shall have an interest and in connection therewith to delegate
discretionary powers to any reorganization, protective or similar committee and
to pay assessments and other expenses in connection therewith;
3.2.26. To do all other such acts and things as are incident to the
foregoing, and to exercise all powers which are necessary or useful to carry on
the business of the Corporation, to promote any of the purposes for which the
Corporation is formed, and to carry out the provisions of the Certificate and
these By-Laws.
3.3. Regulations. The Directors may, but are not required to, make, adopt,
amend or repeal regulations containing provisions relating to the business of
the Corporation, the conduct of its affairs, its rights or powers and the rights
or powers of its Shareholders, Directors or officers not inconsistent with law
or with these By-Laws. Such regulations may provide for the appointment of
assistant officers or agents of the Corporation, subject, however, to the right
of the Directors to remove or discharge such officers or agents.
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ARTICLE 4.
ADVISOR AND OTHER AGENTS: ANNUAL TOTAL OPERATING EXPENSES
4.1. Employment of Employees, Agents. etc. The Directors are responsible
for the general policies of the Corporation and for such general supervision of
the business of the Corporation conducted by all officers, agents, employees,
advisors, managers or independent contractors of the Corporation as may be
necessary to insure that such business conforms to the provisions of the
Certificate and these By-Laws. However, the Directors shall have the power to
retain and/or to appoint, employ or contract with any person (including any
corporation, partnership, or trust in which one or more of the Directors may be
directors, officers, stockholders, partners or trustees) as the Directors may
deem necessary or proper for the transaction of the business of the Corporation,
and for such purpose may grant or delegate such authority to any such person as
the Directors may in their sole discretion deem necessary or desirable without
regard to whether such authority is normally granted or delegated by directors.
The Directors shall have the power to determine the terms and
compensation of any person whom they may employ or with whom they may contract.
ARTICLE 5.
PROHIBITED ACTIVITIES
5.1. Obligors Default. Notwithstanding any provision in the Certificate or
in any Article of these By-Laws, when an obligor to the Corporation is in
default under the terms of any obligation to the Corporation, the Directors
shall have the power to pursue any remedies permitted by law which in their sole
judgment are in the interest of the Corporation and the Directors shall have the
power to enter into any necessary investment, commitment or obligation of the
Corporation resulting from the pursuit of such remedies that are necessary or
desirable to dispose of property acquired in the pursuit of such remedies.
5.2. Percentage Determinations. Whenever standards contained in this
Article V are expressed in terms of a percentage, whether of value, total
assets, cost or otherwise, such percentage shall be determined at the time of
the issuance of a commitment by the Corporation for a transaction covered by
such standard hereunder.
ARTICLE 6.
SHARES AND SHAREHOLDERS
6.1. Shares. The Corporation shall issue shares of Common Stock ("Shares"),
each with a par value of $0.01, and each Share shall be identical in all
respects with every other Share. Each Share shall entitle the holder thereof to
one vote on all matters upon which Shareholders are entitled to vote. The total
number of Shares which the Corporation shall have authority to issue shall be
20,000,000. The Shares may be issued for such consideration as the Directors
shall determine, including upon the conversion of convertible debt, or by way of
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Share distribution or Share split in the discretion of the Directors. Subject to
the Certificate, outstanding Shares shall be assignable and transferable. Shares
reacquired by the Corporation shall no longer be deemed outstanding and shall
have no voting or other rights unless and until reissued. Shares reacquired by
the Corporation may be cancelled by action of the Directors. All Shares shall be
fully paid and nonassessable by or on behalf of the Corporation upon receipt of
full consideration if issued by way of Share distribution, Share split, or upon
the conversion of convertible debt. The Shares shall not entitle the holder to
preference, preemptive, conversion, or exchange rights of any kind, except as
the Directors may specifically determine with respect to any Shares at the time
of issuance of such Shares and except as specifically required by law.
6.2. Shares Deemed Personal Property. The Shares shall be personal property
and shall confer upon the holders thereof the interest and rights specifically
set forth in these By-Laws. The death, insolvency or incapacity of a Shareholder
shall not dissolve or terminate the Corporation or affect its continuity nor
give his legal representative any rights whatsoever, whether against or in
respect of other Shareholders, the Directors or the Corporation's assets or
otherwise except the sole right to demand and, subject to the provisions of
these By-Laws, regulations, if adopted, and any requirements of law, to receive
a new certificate for Shares registered in the name of such legal
representative, in exchange for the certificate held by such Shareholder.
6.3. Share Record; Issuance and Transferability of Shares. Records shall be
kept by or on behalf of and under the direction of the Directors, which shall
contain the names and addresses of the Shareholders, the number of Shares held
by them respectively, and the number of certificates, if any, representing the
Shares, and in which there shall be recorded all transfers of Shares. The
persons in whose names Shares are so recorded shall be deemed the absolute
owners of such Shares for all purposes of this Corporation; but nothing herein
shall be deemed to preclude the Directors or officers, or their agents or
representatives from inquiring as to the actual ownership of Shares. Until a
transfer is duly registered on the records of the Corporation, the Directors
shall not be affected by any notice of such transfer, either actual or
constructive. The payment thereof to the person in whose name any Shares are
registered on the records of the Corporation or to the duly authorized agent of
such person (or if such Shares are so registered in the names of more than one
person, to any one of such persons or to the duly authorized agent of such
person) shall be sufficient discharge for all distributions payable or
deliverable in respect of such Shares.
In case of the loss, mutilation or destruction of any certificate for
Shares, the Directors may issue or cause to be issued a replacement certificate
on such terms and subject to such rules and regulations as the Directors may
from time to time prescribe. Nothing in these By-Laws shall impose upon the
Directors or a transfer agent a duty, or limit their rights, to inquire into
adverse claims. Transfer and issuance of Shares is at all times subject to the
provisions of the Certificate.
6.4. Distributions to Shareholders. The Directors, in their discretion,
shall declare and pay to Shareholders quarterly distributions in cash or other
property, out of current or accumulated income, capital, capital gains,
principal, surplus, proceeds from the increase or refinancing of Corporation
obligations, from the repayment of loans made by the Corporation, from the sale
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of portions of the Corporation's assets, or from any other source as the
Directors in their discretion shall determine. Provided, no such distribution
shall impair the capital of the Corporation or otherwise violate the provisions
of the Delaware General Corporation Law. Shareholders shall have no right to any
distribution unless and until declared by the Directors. The date for
determining the Shareholders who are entitled to participate in such
distributions shall be established by the Directors within 45 days after the
last day of the fiscal quarter with respect to which such distribution shall be
made. The Directors shall furnish the Shareholders at the time of each such
distribution with a statement in writing advising as to the source of funds so
distributed or, if the source thereof has not then been determined, a written
statement disclosing the source shall be sent to each Shareholder who received
the distribution not later than (a) 60 days after the close of the fiscal year
in which the distribution was made, or (b) promptly after the independent
auditors of the Corporation have completed, or undertaken sufficient actions
toward completion of, the annual audit of the Corporation, so that the Directors
can determine the source of such distribution, whichever event shall occur
later.
6.5. Transfer Agent, Distribution Disbursing Agent and Registrar. The
Directors shall have power to employ one or more transfer agents, distribution
disbursing agents, distribution reinvestment plan agents, and registrars and to
authorize them on behalf of the Corporation to keep records, to hold and
disburse any distributions and to have and perform powers and duties customarily
had and performed by transfer agents, distribution disbursing agents,
distribution reinvestment plan agents, and registrars as may be conferred upon
them by the Directors.
6.6. Shareholders' Meetings and Consents. The Directors shall cause to be
called and held an Annual Meeting of Shareholders at such time and such place as
they may determine, at which Directors shall be elected and any other proper
business may be conducted. The Annual Meeting of Shareholders shall be held
within six months after the end of each fiscal year, after not fewer than 10
days nor more than 60 days' written notice of such meeting has been sent to
Shareholders by the Directors and after delivery to the Shareholders of the
Annual Report for the fiscal year then ended. Special meetings of Shareholders
may be called by a majority of the Directors and shall be called by the Chairman
upon the written request of Shareholders holding not less than 10% of the
outstanding Shares of the Corporation. Within ten business days after a written
request either in person or by registered mail stating the purpose of the
meeting requested by Shareholders, the Corporation shall provide all
Shareholders written notice (either in person or by mail) of a meeting and the
purpose of such meeting to be held on a date not fewer than 10 days nor more
than 60thirty (30) days after the date of such notice, at a time and place convenient to
Shareholders. The call and notice of any special meeting shall state the purpose
ofParticipant’s death or (c) the meeting and no other business shall be considered at such meeting. If
there shall be no Directors, a special meeting of the Shareholders shall be held
promptly for the election of successor Directors.
A majority of the outstanding Shares entitled to vote at any meeting
represented in person or by proxy shall constitute a quorum at such meeting.
Whenever Shareholders, are required or permitted to take any action, such action
may be taken, exceptearliest date as otherwise provided by the Certificate or these By-Laws
or required by law, by a majority of the votes cast at a meeting of Shareholders
at which a quorum is present by holders of Shares entitled to vote thereon, or
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without a meeting by written consent setting forth the action so taken signed by
the holders of a majority of the outstanding Shares entitled to vote thereon or
such larger proportion thereof as would be required for a vote of Shareholders
at a meeting. Any written consent may be revoked by a writing received by the
Corporation prior to, but not after, the time that written consents of the
number of Shares required to authorize the proposed action have been filed with
the Corporation. Notwithstanding this or any other provision of the Certificate
or these By-Laws, no vote or consent of Shareholders shall be required to
approve the sale, exchange or other disposition pledging, hypothecating,
granting security interests in, mortgaging, encumbering or leasing of by the
Directors of less than half of the assets of the Corporation, which is presumed
to constitute less than all or substantially all of the assets of the
Corporation.
6.7. Proxies. Whenever the vote or consent of Shareholders is required or permitted under these By-Laws, such vote or consent may be given either directly
bySection 409A. For purposes of clarity, the Shareholder or by a proxy. The Directors may solicit such proxies from
the Shareholders or any of them in any matter requiring or permitting the
Shareholders' vote. or consent. No such proxy shall be voted or acted upon after
three years from its date, unless the proxy provides for a longer period.
6.8. Reports to Shareholders. The Directors shall cause to be prepared and
mailed to the Shareholders not later than 120 days after the close of each
fiscal year of the Corporation, and in any event not less than 15 days prior to
the Corporation's annual meeting of Shareholders, a report of the business and
operation of the Corporation during such fiscal year, which report shall
constitute the accounting of the Directors for such fiscal year. The report
shall be in such form and have such content as the Directors deem proper, but
shall in any event include (a) a balance sheet, an income statement and a
surplus statement, each prepared in accordance with generally accepted
accounting principles, shall be audited by an independent certified public
accountant and shall be accompanied by the report of such accountant thereon,
and (b) a description of the material terms and circumstances of any
transactions between the Corporation and any Director, Officer or any Affiliate
thereof, including without limitation purchases from, loans to or from, or joint
ventures with the Corporation, and a statement that a majority of the Directors
determined that such transactions were fair and reasonable to the Corporation
and on terms not less favorable than those available from unaffiliated third
parties.
6.9. Fixing Record Date. For the purpose of determining the Shareholders
who are entitled to notice of or to vote or act at any meeting or any
adjournment thereof or to express consent to corporate action in writing without
a meeting, or entitled to receive payment of any dividend or other distribution,
or for the purpose of any other action, the Directors shall fix a date not more
than 60 nor less than 10 days prior to the date of any meeting of Shareholders
nor more than 60 days prior to any other action as a record date for the
determination of Shareholders entitled to vote at such meeting or any
adjournment thereof or to take any other action. Any Shareholder who was a
Shareholder at the time so fixed shall be entitled to vote at such meeting or
any adjournment thereof or to take such other action, even though he has since
that date disposed of his Shares, and no Shareholder becoming such after that
date shall be so entitled to vote at such meeting or any adjournment thereof or
to take such other action.
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6.10. Notice to Shareholders. Any notice of meeting or other notice,
communication or report to any Shareholder shall be deemed duly delivered to
such Shareholder when such notice, communication or report is deposited, with
postage thereon prepaid, in the United States mail, addressed to such
Shareholder at his address as it appears on the records of the Corporation or is
delivered in person to such Shareholder.
6.11. Inspection by Shareholders. Inspection of the books and records of
the Corporation shall be permitted to the same extent as permitted under the
laws of Delaware.
ARTICLE 7.
LIABILITY OF DIRECTORS, SHAREHOLDERS
AND OFFICERS AND OTHER MATTERS
7.1. Elimination of Certain Liability of Directors. A Director of the
Corporationsix (6) month delay shall not be personally liable to the Corporation or its
Shareholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the Director's duty of loyalty to the
Corporation or its Shareholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the Director derived an improper personal benefit.
7.2. Indemnification and Insurance.
(a) Right to Indemnification. Each person who was or is made a party or
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer,
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but,apply in the case of any such amendment, onlyseverance pay contemplated by Treasury Regulation Section 1.409A-1(b)(9)(iii) to the extent that such amendment permitsof the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liabilitylimits set forth therein. Any remaining payments due under this Plan and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or toany Award shall be paid in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that, except
as provided in paragraph (b) hereof, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
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initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of
this Section is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which makes
it permissible under the Delaware General Corporation Law for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
Shareholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
Shareholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate, these By-Laws, agreement, vote of Shareholders or disinterested
directors or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or. agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
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7.3. Right of Directors and Officers to Own Shares or Other Property and to
Engage in Other Business. Any Director or officer may acquire, own, hold and
dispose of Shares in the Corporation, for his individual account, and may
exercise all rights of a Shareholder to the same extent and in the same manner
as if he were not a Director or officer. Any Director or officer may have
personal business interests and may engage in personal business activities,
which interests and activities may include businesses similar to or competitive
with the business of the Corporation. Subject to the provisions of Article V,
any Director or officer may be interested as trustee, officer, director,
stockholder, partner, member, advisor or employee, or otherwise have a direct or
indirect interest in any person who may be engaged to render advice or services
to the Corporation, and may receive compensation from such person as well as
compensation as Director, officer or otherwise hereunder and no such activities
shall be deemed to conflict with his duties and powers as Director or officer.
7.4. Transactions with Affiliates. The Corporation shall not engage in
transactions with any Director or officer, or any Affiliated person of such
person, except to the extent that each such transaction has, after disclosure of
such affiliation, been approved or ratified by the affirmative vote of a
majority of the Directors who are not interested parties in the transactions
after a determination by them that:
7.4.1. The transaction is fair and reasonable to the Corporation and
its Shareholders;
7.4.2. The terms of such transaction are at least as favorable as the
terms of any comparable transactions made on an arm's length basis;
7.4.3. Payments to any Director or officer for services rendered in a
capacity other than as Director, or officer may only be made upon determination
that:
(a) the compensation is not in excess of their compensation paid
for any comparable services; and
(b) the compensation is not greater than the charges for
comparable services available from others who are competent and not affiliated
with any of the parties involved.
7.5. Persons Dealing With Directors or Officers. Any act of the Directors
or officers purporting to be done in their capacity as such shall, as to any
persons dealing with such Directors or officers, be conclusively deemed to be
within the purposes of this Corporation and within the powers of the Directors
and officers. No person dealing with the Directors or any of them, or with the
authorized officers, agents or representatives of the Corporation shall be bound
to see to the application of any funds or property passing into their hands or
control. The receipt of the Directors or any of them, or of authorized officers,
agents, or representatives of the Corporation, for moneys or other
consideration, shall be binding upon the Corporation.
D-14
7.6. Reliance. The Directors and officers may consult with counsel (which
may be a firm in which one or more of the Directors or officers is or are
members) and the advice or opinion of such counsel shall be full and complete
personal protection to all of the Directors and officers in respect of any
action taken or suffered by them in good faith and in reliance on or in
accordance with such advice or opinion. In discharging their duties, Directors
and officers shall be fully protected in relying in good faith upon financial
statements of the Corporation represented to them to be correct by the Chairman
or the officer of the Corporation having charge of its books of account, or
stated in written reports by an independent certified public accountant fairly
to present the financial position of the Corporation. The Directors may rely
upon any instrument or other document believed by them to be genuine.
ARTICLE 8.
DURATION, TERMINATION, AMENDMENT
AND REORGANIZATION OF CORPORATION
8.1. Duration and Termination of Corporation. The duration of he
Corporation shall be perpetual unless terminated in accordance with the
Certificate or these By-Laws or by operation of law. The Directors shall at all
times be empowered to cause the termination of the Corporation by vote of a
majority of the Directors and the approval of the holders of a majority of the
outstanding Shares. Any determination by the Directors of the date upon which
termination shall occur shall be reflected in a vote of or written instrument
signed by a majority of all of the Directors then in office, and ratified by the
holders of a majority of the outstanding Shares; provided, however, that any
plan for the termination of the Corporation which contemplates the distribution
to the Shareholders of securities or other property in kind (other than the
right promptly to receive cash) shall require the vote or consent of the holders
of two-thirds of the outstanding Shares.
8.1.1. Upon the termination of the Corporation and unless otherwise provided in a plan for termination approved by the holders of two-thirds of the
Shares outstanding and a majority of the Directors:
(a) the Corporation shall carry on no business except for the
purpose of winding up its affairs;
(b) the Directors shall proceed to wind up the affairs of the
Corporation and all of the powers of the Directors under these By-Laws shall
continue until the affairs of the Corporation shall have been wound up,
including the power to fulfill or discharge the contracts of the Corporation,
collect its assets, sell, convey, assign, exchange, transfer or otherwise
dispose of all or any part of the remaining Corporation's assets to one or more
persons at public or private sale for consideration which may consist in whole
or in part of cash, securities or other property of any kind, discharge or pay
its liabilities, and do all other acts appropriate to liquidate its business
(and provided that the Directors may, if permitted by applicable law, and if
they deem it to be in the best interest of the Shareholders, appoint a
liquidating trust, or agent, or other entity to perform one or more of the
foregoing functions); and
D-15
(c) after paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements, as they deem necessary for their protection, the Directors or any
liquidating trust, agent or other entity appointed by them, shall distribute the
remaining Corporation's assets among the Shareholders, pro rata, according to
the number of Shares held by each.
If any plan for the termination of the Corporation approved by the holders
of two-thirds of the outstanding Shares and agreeable to a majority of the
Directors provides for actions of the Directors other than aforesaid, the
Directors shall have full authority to take all action as in their opinion is
necessary or appropriate to implement such plan.
8.1.2. After termination of the Corporation and distribution to the
Shareholders as provided herein or in any said plan so approved by the
Shareholders, the Directors shall execute and lodge among the records of the
Corporation an instrument in writing setting forth the fact of such termination,
and the Directors shall thereupon be discharged from all further liabilities and
duties hereunder and the rights and interests of all Shareholders hereunder
shall thereupon cease.
8.2. Merger. etc . Upon the vote or written consent of a majority of the
Directors and with the approval of the holders of two-thirds of the Shares then
outstanding, at a meeting the notice for which included a statement of the
proposed action, the Directors may (a) merge the Corporation into, or sell,
convey and transfer the Corporation's assets to, any corporation, association,
trust or other organization, which may or may not be a subsidiary of the
Corporation, in exchange for shares or securities thereof, or beneficial
interests therein, or other consideration, and the assumption by such transferee
of the liabilities of the Corporation and (b) thereupon terminate the
Corporation and, subject to Section 8.1, distribute such shares, securities,
beneficial interests, or other consideration, ratably among Shareholders in
redemption of their Shares, provided, however, that the Shareholders would,
thereafter, be the sole equity owners of such entity.
8.3. Amendment Procedure. The Certificate or these By-Laws (other than
Section 2.1 hereof) may be amended by the vote or written consent of a majority
of the Directors and of the holders of a majority of the outstanding Shares;
provided, however, that no amendment which would reduce the priority of payment
or amount payable to holders of Shares of the Corporation upon liquidation of
the Corporation or that would diminish or eliminate any voting rights pertaining
to holders of Shares shall be made unless approved by the vote or consent of the
holders of two-thirds of the outstanding Shares present, in person or by proxy,
and eligible to vote; provided further, however, that a majority of the
Directors without the vote or consent of Shareholders may at any time amend the
Certificate or these By-Laws to the extent deemed by the Directors in good faith
to be necessary to clarify any ambiguities or correct any inconsistencies.
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ARTICLE 9.
MISCELLANEOUS
9.1. Filing of Copies: References: Headings. The original or a copy of
these By-Laws and of each amendment hereto shall be kept at the office of the
Corporation where it may be inspected by any Shareholder. Anyone dealing with
the Corporation may rely on a certificate by an officer of the Corporation as to
whether or not any such amendments have been made, as to the identities of the
Directors and officers, and as to any matters in connection with the Corporation
hereunder; and, with the same effect as if it were the original, may rely on a
copy certified by an. officer of the Corporation to be a copy of this instrument
or of any such amendments. In this instrument, and in such amendment, references
to this instrument, and all expressions like "hereof," and "hereunder" shall be
deemed to refer to this instrument as a whole as the same may be amended or
affected by any such amendments. The masculine gender shall include the feminine
gender and the neuter. Headings are placed herein for convenience of reference
only and shall not be taken as a part hereof or control or affect the meaning,
construction or effect of this instrument. This instrument may be executed in
any number of counterparts each of which shall be deemed an original.
9.2. Provisions of the Corporation in Conflict With Law or Regulations. If
any provision of these By-Laws shall be held invalid or unenforceable, such
invalidity or unenforceability shall attach only to such provision and shall not
in any manner affect or render invalid or unenforceable any other provision of
these By-Laws, and these By-Laws shall be carried out as if any such invalid or
unenforceable provisions were not contained herein.
9.3. Binding Effect; Successors in Interest. Each person who becomes a
Shareholder shall, as a result thereof, be deemed to have agreed to and to be
bound by the provisions of these By-Laws. These By-Laws shall be binding upon
and inure to the benefit of the Directors and the Shareholders and each of their
respective successors, assigns, heirs, distributees and legal representatives.
D-17
therein.
PROXY | BANYAN RAIL SERVICES INC. | PROXY |
| ANNUAL MEETING OF STOCKHOLDERS July 1, 2010 2255 Glades Road, Suite 342-W Boca Raton, Florida 33431 11:00 a.m. | |
THIS PROXY B.H.I.T. INC. (Formerly Banyan Hotel Investment Fund)
PROXY FOR SPECIAL MEETING IN LIEU OF ANNUAL MEETING
OF SHAREHOLDERS OF B.H.I.T. INC.
July __, 2000IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Harvey PollyC. Lawrence Rutstein and Morton I. Kalb and eachDiane T. Starzee, or anyeither one of them (with powersacting singly with full power of substitution),substitution, the proxy or proxies forof the undersigned to attend the Annual Meeting of Stockholders of Banyan Rail Services Inc., to be held on July 1, 2010, at 2255 Glades Road, Suite 342-W, Boca Raton, Florida 33431, beginning at 11:00 a.m. local time, and any adjournments, and to vote all shares of common Stock held of record on June __, 2000 of B.H.I.T. Inc. (the
"Corporation") whichstock that the undersigned would be entitled to vote if personally present atin the Special Meeting in Lieu ofmanner indicated below, and on any other matters properly brought before the Annual Meeting of Shareholders (the
"Meeting") to be held in New York, New York on July __, 2000, andor any adjournmentadjournments thereof, upon the mattersall as set forth in the May 26, 2010 Proxy Statement. The undersigned hereby acknowledges receipt of the Notice of andAnnual Meeting, Proxy Statement and Annual Report, including the Form 10-K for said Meeting, copiesthe year ended December 31, 2009, of which have been received by the
undersigned, and in their discretion, upon all other matters which may properly
come before said meeting. Without otherwise limiting the generality of the
foregoing, said proxies are directed to vote as follows:
Please mark your votes FOR AGAINST ABSTAIN
as in this example [ ] [ ] [ ]
1. ElectionBanyan Rail Services Inc.
PLEASE MARK YOUR CHOICE LIKE THIS x IN BLUE OR BLACK INK.
The Board of Directors
For, except recommends a vote withheld from the following nominee(s):
______________________________________
Nominees: Harvey Polly, Morton I. Kalb, Leo Yarfitz, Willis G. Ryckman.
2. Adoption of amended FOR AGAINST ABSTAIN
Certificate [ ] [ ] [ ]
of Incorporation
3. Adoption of Amended FOR AGAINST ABSTAIN
and Restated By-Laws [ ] [ ] [ ]
4. Approve the sale of the FOR AGAINST ABSTAIN
Corporation's 50% [ ] [ ] [ ]
ownership in Metro
Franchising, LLC to
Harvey Polly
1
5. In their discretion to FOR AGAINST ABSTAIN
act upon such other [ ] [ ] [ ]
matters as may properly
come before the Meeting
or any adjournment thereof
This proxy, when properly executed, will be voted in the manner directed herein
by the shareholder. If no specification is made, this proxy will be voted for all the nominees listed for Directors and in favor of the above proposals.
Your proxy is important to assure a quorum at the Meeting whether or not you
plan to attend the Meeting in person. You may revoke this proxy at any time, and
the giving of it will not affect your right to attend the Meeting and vote in
person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
SIGNATURE(S)______________________ DATE _________________
NOTE: Please sign.
1. Election of Directors: | Paul S. Dennis, Gary O. Marino, Bennett Marks and Donald D. Redfearn |
¨ Mark here to vote FOR all nominees | | ¨ Mark here to WITHHOLD from all nominees |
| ¨ | For all EXCEPT – To withhold authority to vote for any nominee(s), write the name(s) of such nominee(s) below. |
| 2. | To approve our 2010 Stock Option and Award Plan |
¨ Mark here to vote FOR the plan | | ¨ Mark here to vote AGAINST the plan |
| 3. | To ratify the appointment of Daszkal Bolton LLP as our independent auditor for the fiscal year ending December 31, 2010 |
¨ Mark here to vote FOR ratification of auditors | | ¨ Mark here to vote AGAINST ratification of auditors |
(Signature should be exactly as name appears. When shares areor names appear on this proxy. If stock is held as joint
tenants, bothjointly each holder should sign. When signing asIf signature is by attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officertitle.)
Dated:_________________________________, 2010
__________________________________________
Signature
Signature if held jointly
I plan to attend the meeting: Yes ¨ No ¨
This proxy will be voted FOR all nominees, FOR the 2010 Stock Option and if a
partnership, please signAward Plan and FOR the ratification of the auditors unless otherwise indicated, and in the partnership name by authorized person.
discretion of the proxies on all other matters properly brought before the meeting.