VERTEX INDUSTRIES, INC.
23 Carol Street
Clifton, New Jersey 07014-0996
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Wednesday, January 15, 1997 at 10:00 A.M.
To the Stockholders:
The Annual Meeting of Stockholders of Vertex Industries, Inc. ("the
Company") will be held at the Clifton Ramada Hotel, 265 Route 3 West,
Clifton, New Jersey, on Wednesday, January 15, 1997 at 10:00 A.M., for
the following purposes:
1. To elect five directors for the ensuing one year term (Page 2
of proxy statement);
2. To amend the Company's Incentive Stock Option Plan to increase
the number of shares of Common Stock available under such plan
from 1,000,000 shares to 1,500,000 shares (Page 7).
3. To act upon the ratification of the selection by the Board of
Directors of Arthur Andersen LLP as independent auditors (Page
9).
4. To transact any other business which properly may be brought
before the meeting (page 10).
All stockholders are cordially invited to attend, although only
stockholders of record at the close of business on November 27, 1996 will
be entitled to vote at the meeting.
By order of the Board of Directors,
Barbara H. Martorano
Secretary
Clifton, New Jersey
December 16, 1996
YOUR VOTE IS IMPORTANT
You are urged to date, sign and promptly return the accompanying form of proxy
to Securities Transfer Corporation, Box 701629, Dallas, Texas 75370 or fax to
(972) 248-4797, Attn: Proxy Dept., so that if you are unable to attend the
meeting, your shares may nevertheless be voted.
VERTEX INDUSTRIES, INC.
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of Vertex
Industries, Inc. (the "Company" or "Vertex") for use at the Annual
Meeting of Stockholders (the "Annual Meeting") on January 15, 1997.
The Company's principal executive office is located at 23 Carol
Street, Clifton, New Jersey 07014-0996. The approximate date on which
this Proxy Statement is first being sent to stockholders is December 18,
1996.
You may revoke the proxy at any time prior to its use by delivering
a written notice to the Secretary of the Company, by executing a later-
dated proxy or by attending the meeting and voting in person. Proxies in
the form enclosed, unless previously revoked, will be voted at the
meeting in accordance with the specifications made by you thereon, or, in
the absence of such specifications for, (i) the election of directors
nominated herein for one year, (ii) the increase of the Company's
Incentive Stock Option Plan from 1,000,000 shares to 1,500,000 shares,
(iii) the proposal to ratify the selection of Arthur Andersen LLP as
independent auditors for the fiscal year ending July 31, 1997.
Holders of record of shares of Common Stock, par value $.005 per
share, ("Common Stock") of the Company at the close of business on
November 27, 1996, will be entitled to one vote per share. The Common
Stock will be voted together as one class. On December 2, 1996, there
were approximately 5,100,107 outstanding shares of Common Stock of the
Company. Other than the Common Stock, there are no other voting
securities outstanding.
ELECTION OF DIRECTORS
At the Annual Meeting, five directors are to be elected to serve
for a term of one year or until their successors are elected and
qualified. It is intended that proxies will be voted for the nominees
set forth herein. Although it is expected that all candidates will be
able to serve, if one or more is unable to do so, the proxy holders will
vote the proxies for the remaining nominees and for substitute nominees
chosen by the Board of Directors unless it reduces the number of
directors to be elected.
The table below presents information as of November 30, 1996 on
the nominees for election as directors of the Company for a one year term
expiring in 1997:
Principal Occupation/ Director Other
Name Business Experience Age Since Directorships
James Q. Chairman of Vertex (from 1974 64 1974 --
Maloy to date) and President and CEO
(from 1983 to 7/31/95).
-2-
Ronald C. President of Vertex (7/13/95 to 63 1976 --
Byer date), CEO of Vertex (1/17/96 to
date), Vice President of
Marketing and Sales of Vertex
(from 1979 to 7/31/95),
Treasurer thereof (from 1983 to
1/17/96). Executive Vice
President (1985 - 7/31/95)
Wilbur Chairman of Netweave Corp. 63 1985 NetWeave Corp,
Highleyman (from 1993 to date), Chairman of NetWeave (Europe)
The Sombers Group (from 1992 Limited, The
to date), Chiarman of Mini-Data Sombers Group,
Services, Inc. (from 1969 to 1991). Mini-Data Services,
Inc., Science
Dynamics Inc.
George Powch President & CEO of Huber+Suhner 47 1987 --
(North America) Inc., Vice
President of CINCH Connectors,
Division of Labinal Components
& Systems, Inc. (1993 to 1995).
President of BFI-IBEXSA
International,
(from 1987 to 1993), President
of Diffracto Ltd. (from 1984 to
1986). General Manager and
other positions with Bendix
Corp. (1974 to 1983).
Irwin Dorros Currently retired, Vice President 67 1987 --
of Bell Communications
Research (from 1982 - 1993).
Assistant Vice President of
AT&T (from 1978 to 1982).
-3-
OPERATION OF BOARD OF DIRECTORS AND COMMITTEES
During 1996 the Board of Directors held 4 meetings and each
incumbent director attended 100% of the meetings with the exception of
two directors, one attending 75% and the other attending 50% of the
meetings, and each director attending all meetings of the committees
of the Board of Directors on which he served.
The Stock Option Committee, consisting of Messrs. Maloy and Byer,
met twice in 1996. This Committee makes awards to Vertex employees of
stock options under its incentive stock option plan. It is
anticipated that both Messrs. Maloy and Byer will be re-appointed to
such Committee. The Audit Committee, consisting of Messrs.
Highleyman, Powch and Dorros, met once in fiscal 1996. It is
expected that these individuals will be re-appointed to such
Committee. Vertex does not have Nominating or Compensation
Committees.
All directors hold office until the next Annual Meeting of Vertex
or until their successors have been elected and qualified. Directors,
who are not officers, receive $1,000/year compensation and are
reimbursed for all related expenses.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company
for the fiscal years ended July 31, 1994, 1995 and 1996 of those
persons who were, at July 31, 1996, executive officers of the
Company earning annually $100,000 or more:
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation Compensation
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted All
Name and Annual Stock LTIP Other
Principal Salary Bonus Compensation Award(s) Options/ Payouts Compensation
Position Year ($) ($) ($) ($) SARs(#) ($) ($)
James Q. 1996 $ 56,520 - $ 5,210 - - - -
Maloy 1995 $ 96,852 - $ 6,506 - - - -
Chairman 1994 $104,104 - $ 6,714 - - - -
Ronald C. 1996 $106,480 - $ 6,055 - - - -
Byer 1995 $ 87,901 - $ 6,506 - - - -
CEO 1994 $107,504 - $ 6,714 - - - -
President
<FN>
(1) All Officers and non-union employees of Vertex are covered by a pension plan
that is financed by voluntary employee and Company contributions. See "401(k) Savings and
Retirement Plan" and Note 8 of Notes to Financial Statements.
(2) Messrs. Maloy and Byer are each provided with an automobile by the Company; a
portion of which may represent the personal use thereof estimated at $2,500 per year and is
excluded.
-4-
On November 13, 1995 Mr. McLaughlin was granted 50,000 stock
options at an exercise price of $.75 which vest over five years and
expire on November 13, 2005. These shares were granted under the
Company's Incentive Stock Option Plan. Stock appreciation rights are
not granted under the Incentive Stock Option Plan. The Company does
not currently have in effect a Long-Term Incentive Plan ("LTIP") and,
consequently, no such awards were granted to Vertex's executive
officers in fiscal years covered above.
There were no unexercised options, under the incentive stock
option plan, to purchase the Company's common stock in fiscal 1996 by
the above named officers. None of the above named officers exercised
stock options during fiscal 1996.
The Company had no other executive officers other than Mr. Maloy,
Mr. Byer, Mr. McLaughlin and Mrs. Martorano.
The following directors of Vertex were granted qualified stock
options on January 20, 1993 at an option price of $4.25 (1):
Initial
Name of Number of Options Options
Director Option Shares (1) Exercised Exercisable
Wilbur Highleyman 40,000 8,000 32,000
Irwin Dorros 40,000 8,000 32,000
George Powch 40,000 16,000 24,000
<FN>
(1) Adjusted for 2 for 1 stock split effective April 19, 1993.
(2) No options were granted to Directors in Fiscal 1996, 1995 and 1994.
(3) The above options were granted under the incentive stock option plan as
discussed on page 6.
The Company entered into a three (3) year employment contract with Carlo
Pastore commencing on May 14, 1993 to serve as its Sales and Marketing
Director. Under this contract, Mr. Pastore was to receive as compensation:
(a) an annual salary of $80,000 plus one percent (1%) commission on all
Vertex's bar code product sales; (b) reimbursement of business expenses
incurred; (c) grant of a five (5) year stock option to purchase up to 75,000
shares of Vertex's Common Stock under its Incentive Stock Option Plan at an
exercise price of $7.625; (d) the same group benefits received by other Vertex
executives and (e) use of a leased automobile costing up to $750 per month and
a right of first refusal to purchase such vehicle at the end of the lease term.
On October 6, 1995 the Company terminated Mr. Pastore's employment. Among
other things Mr. Pastore received fourteen weeks compensation, 35,000
non-qualified stock options at $1.25 per share which expire October 6, 2000,
the use of a Company paid auto with the option to buy at the end of the lease
term, reimbursement for medical coverage through December 31, 1995 and a line
of credit with Vertex Industries to establish his own value added reseller
business.
On May 19, 1993, Vertex also entered into a three (3) year
employment contract with Kevin R. Halloran, its Technical Director.
Pursuant to the terms of this agreement, Mr. Halloran will earn an
annual base salary of $95,000, which increases by 3% on each November
6th from 1993 through 1995. Under this contract, Mr. Halloran
receives reimbursement for business expenses and normal group benefits
-5-
available to other Company executives. This contract also provides Mr.
Halloran with the grant of a 10 year non-qualified stock option agreement to
purchase up to 300,000 shares of Vertex's common stock at an exercise price of
$7.875 per share. Such options vest in 75,000 share increments on or after
each November 6th from 1993 through 1996. Should the market price for the
Company's common stock decline below the exercise price of the options, the
Employee may chose to retire all unexercised options and have new ones granted
to the extent of the number of unexpired options outstanding with a new
exercise price at the then market price. On December 29, 1995 Mr. Halloran
retired all unexercised options (300,000 options) and had new options granted
at $.50, the market price of the common stock on December 29, 1995.
INCENTIVE STOCK OPTION PLAN
Under the Company's Incentive Stock Option Plan ("The Plan"), options to
purchase a maximum of 1,000,000 shares of its Common Stock may be granted to
officers and other key employees of the Company. Options granted under the Plan
are intended to qualify as incentive stock options under the Economic Recovery
Tax Act of 1981 (the "1981" Act) as amended.
The Plan is administered by the Board of Directors and a committee presently
consisting of two members of the Board which determines which persons are to
receive options, the number of shares that may be purchased under each option
and the exercise prices. In the event an optionee voluntarily terminates his
employment with the Company, he has the right to exercise his accrued options
within 30 days of such termination. However, the Company may redeem any
accrued options held by each optionee by paying him the difference between the
option price and the then fair market value. If an optionee's employment is
involuntarily terminated, other than because of death, he also has the right
to exercise his accrued options within 30 days of such termination. Upon death,
his estate or heirs have one year to exercise his accrued options. The maximum
term of any option is ten years, and the option price per share may not be less
than the fair market value of the Company's shares on the date the option is
granted. However, options granted to persons owning more than 10% of the
voting shares of the Company may not have a term in excess of five years and
the option price per share may not be less than 110% of the fair market value
on the date the option is granted. If the aggregate fair market value of the
shares of Common Stock (determined at the time the option is granted) with
respect to which incentive stock options are exercisable for the first time by
such optionee during any calendar year (under all such plans) exceeds $100,000,
then only the first $100,000 of such shares so purchased will be treated as
exercised under the Plan and any excess over $100,000 so purchased shall be
treated as options which are not incentive stock options. This rule shall be
applied by taking options into account in the order or sequence in which they
are granted. Options must be granted within ten years from the effective date
of the Plan.
Options granted under the Plan are not transferable other than by will or by
the laws of descent and distribution. Options granted under the Plan are
protected by anti-dilution provisions increasing the numbers of shares
issuable thereunder and reducing the exercise price of such options, under
certain conditions. The Plan terminated on October 9, 1995. Any option
outstanding at the termination date will remain outstanding until it expires
or is exercised in full, whichever occurs first. At the Company's annual
meeting in the second quarter of fiscal 1995 the Company's shareholders
approved the incentive stock option plan for the issuance of up to 1,000,000
shares of common stock commencing on October 9, 1995 and expiring on October 9,
2005. The terms and conditions of this new plan are identical to the old plan
which expired on October 9, 1995.
-6-
As of July 31, 1996, options to acquire 616,000 shares of the Company's Common
Stock at exercise prices of $.475 to $8.12 per share have been granted under
the Plan to ten employees and three directors of the Company. As of July 31,
1996 274,400 options have been exercised and 341,600 options are outstanding,
with 99,400 options presently exercisable.
AMENDMENT TO INCENTIVE STOCK OPTION PLAN
TO INCREASE AVAILABLE SHARES
The Board of Directors is submitting for stockholder approval an
increase of 500,000 shares in the authorized number of shares in the
incentive stock option plan ("the Plan) from 1,000,000 shares to
1,500,000 shares. Stockholders have approved two increases in the
Plan, one for 150,000 on January 20, 1993 and one for 700,000 shares
on January 19, 1994, respectively. The purpose of the Plan is to
advance the interests of the Company and its stockholders by providing
employees of the Company with a larger personal and financial interest
in the success of the Company through the grant of stock options. The
Board of Directors believes that the increase in the Plan of 500,000
shares from 1,000,000 shares to 1,500,000 shares will benefit the
Company and its Stockholders and, thus recommends the approval of the
increase in the Plan.
As of July 31, 1996 options to acquire 616,000 shares of the
Company's common stock at exercise prices of $.475 to 8.12 per share
have been granted under the plan. As of July 31, 1996 274,400 options
have been exercised and 341,600 options outstanding, with 99,400
options presently exercisable. The Company feels that as the Company
continues to grow and with the proposed business combination with
NetWeave, additional stock options will be required to attract and
retain qualified personnel. On September 25, 1996 all members of the
Company's Board of Directors approved to amend the Plan to increase
the number of shares of the Company's Common Stock available
thereunder from 1,000,000 shares to 1,500,000 shares.
OTHER STOCK OPTIONS
The Company has granted non-qualified options to a public
relations firm for the purchase of up to a total of 210,000 shares of
its Common Stock, registered under the Securities Act of 1933 on Form
S-8. These options were granted under the terms of two separate
contracts; the first, dated February 10, 1994, was for a total of
120,000 shares priced from $5.00 - $10.00 per share exercisable over a
period of 3 years; the second, dated July 1, 1994, was for a total of
90,000 shares priced at $1.875 per share exercisable over a period of
3 years. These options were granted in connection with certain
services to be rendered to the Company by such firm. Also during
1994, the Company granted a consulting firm an option to purchase
12,000 shares of common stock at an option price of $1.875 per share,
expiring on June 20, 1998. The option is currently exercisable and
was in payment for consulting services. During fiscal 1996 the
Company granted 35,000 options to two service firms as partial payment
for financial, legal and consulting services. The options are
exercisable at 20,000 options at $.91 and 15,000 options at $.75 and
expire at various dates through February, 2001. These options are
currently exercisable. These stock options have been registered under
the Securities Act of 1933 on form S-8.
-7-
401(k) SAVINGS AND RETIREMENT PLAN
Vertex maintains a 401(k) savings plan (the "401(k) Plan") for
the benefit of all employees age 18 or over who have worked for at
least six months and who are not covered by a collective bargaining
agreement. The 401(k) Plan is qualified under Section 401(a) of the
Code and is intended to qualify under Section 401(k) of the Code.
Under the current terms of the 401(k) Plan, employees may elect
to defer from Federal income tax from 1% to 17% of their annual
compensation, not to exceed Internal Revenue Code limits and have it
contributed to the 401(k) Plan on their behalf. In addition, Vertex
makes a contribution of up to 3% of a contributing employee's salary.
The salary deferrals are fully vested, while the Company's
contributions vest 20% upon the completion of the second year of
service with the Company or its subsidiaries, 20% upon completion of
the third year of service, 20% upon the completion of the fourth year
of service, 20% upon the completion of the fifth year of service and
the remaining 20% upon the completion of the sixth year of service or,
if earlier, upon the death, disability or retirement of the
participant. Benefits under the 401(k) Plan are generally distributed
in a lump sum following the participant's retirement, death,
disability or termination of employment, or in a case of hardship,
prior to the termination of the participant's employment.
The assets accumulated by the 401(k) Plan are held in a trust,
the trustees of which are Messrs. Maloy and Byer, who are officers and
directors of the Company. Under the terms of the 401(k) Plan, Vertex
has agreed to indemnify the trustees to the fullest extent permitted
by law against any liability whatsoever for any action taken or
omitted by them in good faith in connection with the 401(k) Plan
unless it results from their own willful misconduct.
The charge against income for matching contributions for fiscal
1996 and 1995 were $14,865, and $5,342, respectively. For fiscal
1994, Vertex made no contributions for its employees to the 401(k)
Plan.
OWNERSHIP OF EQUITY SECURITIES OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information table sets forth certain information regarding
the Company's Common Stock owned on December 2, 1996 by (i) each who is known
by the Company's to own beneficially more than 5% of its outstanding Common
Stock, (ii) each director and officer, and (iii) all officers and directors as
a group:
Names and Address of
Directors, Officers and Shares Owned (1) (2)
5% Shareholders Number Percent
James Q. Maloy 1,202,208 23.5
23 Carol Street
Clifton, New Jersey
Ronald C. Byer 448,422 8.8
23 Carol Street
Clifton, New Jersey
-8-
All officers and director 1,688,630 33.1
as a group (4 persons)
(1) Does not give effect to the issuance of up to 1,000,000 shares of
Common Stock reserved for issuance under the Company's incentive
stock option plan and, 592,000 shares under non-qualified stock
options.
(2) Gives effect to a 2 for 1 stock split effective April 19, 1993
(3) Includes 8,000 shares of Common Stock owned by Dr. Dorros and
30,000 shares of common stock owned by Mr. Powch.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 23, 1996, the Company entered into a contingent and
conditional Memorandum of Agreement (the "Memorandum"), as amended by
letters of July 15, 1996 and Board Resolution of September 25, 1996,
with Netweave Corp. ("NetWeave"), pursuant to which the parties could
enter into a business combination, proposed generally as an exchange
of all of Netweave's stock for a portion of the Company's common stock
and warrants to purchase the Company's common stock. The proposed
business combination is subject to fulfillment of certain conditions
set forth in the Memorandum relating principally to the achievement of
specific business goals and objectives by Netweave Corp. The failure
to fulfill any condition jeopardizes the potential business
combination.
Dr. Wilbur H. Highleyman, Chairman of Netweave Corp., has
been a director of Vertex since 1985 and presently owns 25.5% of
Netweave Corp. Ronald C. Byer, Jr., the President of Netweave Corp.,
is the son of Ronald C. Byer, the President of the Company. Ronald C.
Byer, Jr., presently owns 2.1% of Netweave Corp.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The independent accountants for the Company for the fiscal year
ended July 31, 1996 were Arthur Andersen LLP. The Company's Board of
Directors has selected the firm of Arthur Andersen LLP as the
Company's independent public accountants for the fiscal year ended
July 31, 1997. Accordingly, the Board of Directors recommends that
the stockholders ratify the appointment by the Board of Directors of
the firm of Arthur Andersen LLP as the Company's independent public
accountants for the fiscal year ended July 31, 1997.
Representatives of Arthur Andersen LLP are expected to be present
at the Annual Meeting and will be afforded the opportunity to make a
statement, if they so desire and to respond to appropriate questions.
-9-
OTHER MATTERS
The Board of Directors knows of no other matters to come before
the meeting. Should any unanticipated business properly come before
the meeting, the persons named in the enclosed form of proxy will vote
in accordance with their best judgment.
The cost of preparing and mailing this Proxy Statement and the
accompanying proxy and the cost of solicitation of proxies on behalf
of the Board of Directors will be borne by the Company. Solicitation
will be made by mail. Such costs are estimated to be less than
$30,000. Some personal solicitation may be made by directors,
officers and employees without special compensation, other than
reimbursement for expenses.
Proposals which stockholders wish to include in the Company's
proxy materials relating to the 1998 Annual Meeting of Stockholders
must be received by the Company no later than September 15, 1997.
It is important that proxies be returned promptly. Stockholders
are urged to sign and date the enclosed proxy and return it promptly
in the accompanying envelope.
By order of the Board of Directors,
Barbara H. Martorano
Secretary
Clifton, New Jersey
December 16, 1996
PROXY
VERTEX INDUSTRIES, INC.
23 Carol Street, Clifton, New Jersey 07014-0996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints JAMES Q. MALOY, RONALD C. BYER and
BARBARA H. MARTORANO and each of them as proxies with power of
substitution to vote all shares of the Company which the undersigned
is entitled to vote at the Annual Meeting of Stockholders on January
15, 1997 at the Clifton Ramada Hotel, 265 Route 3, Clifton, New Jersey
at 10:00 a.m., or any adjournment thereof, with all the powers the
undersigned would have if personally present, as specified, respecting
the following matters described in the accompanying Proxy Statement
and, in their discretion, on other matters which come before the
meeting.
A vote FOR Items 1, 2 and 3 is recommended by the Board of Directors:
(1) ELECTION OF DIRECTORS
FOR all nominees listed below (except as HOLD AUTHORITY
marked to the contrary below) _____ to vote for all nominees listed below _____
James Q. Maloy, Ronald C. Byer, Wilbur Highleyman, George Powch and Irwin Dorros
(INSTRUCTIONS: To withhold authority to vote for any individual nominee write
that nominee's name in the space provided below)
_________________________________________________________________________________
(2) AMENDMENT OF THE COMPANY'S INCENTIVE STOCK OPTION PLAN TO
INCREASE THE NUMBER OF AVAILABLE SHARES OF COMMON STOCK:
FOR _____ AGAINST _____ ABSTAIN _____
(3) APPROVAL OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE
INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY:
FOR _____ AGAINST _____ ABSTAIN _____
This proxy will be voted in accordance with stockholder
specifications. Unless directed to the contrary, this proxy will be
voted for Items 1, 2 and 3. A majority (or if only one, then that
one) of the proxies or substitutes acting at the meeting may exercise
the powers conferred herein. Receipt of accompanying Notice of
Meeting and Proxy Statement is hereby acknowledged.
Date________________________________________ 19_______
______________________________________________________
Signature______________________________________________
(Please sign name as fully and exactly as it appears opposite. When
signing in a fiduciary or representative capacity, please give full
title as such. Where more than one owner, each owner should sign.
Proxies executed by a Company should be signed in full corporate
name by duly authorized officers.)
PLEASE MARK, SIGN, DATE AND MAIL IN ENCLOSED ENVELOPE TO:
SECURITIES TRANSFER CORPORATION
P.O. BOX 701629
DALLAS, TEXAS 75370-001
ATTN: PROXY DEPARTMENT
FAX NUMBER: (972) 248 - 4797