VERTEX INDUSTRIES, INC.
23 Carol Street
Clifton, New Jersey 07014-0996
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Wednesday, January 21, 1998 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 East,
Clifton, New Jersey, on Wednesday, January 21, 1998 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 1,500,000 shares to 2,000,000 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 10).
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 December 3, 1997 will
be entitled to vote at the meeting.
By order of the Board of Directors,
s/Barbara H. Martorano
Barbara H. Martorano
Secretary
Clifton, New Jersey
December 5, 1997
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.
1
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 21, 1998.
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 22,
1997.
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 1,500,000 shares to 2,000,000 shares,
(iii) the proposal to ratify the selection of Arthur Andersen LLP as
independent auditors for the fiscal year ending July 31, 1998.
Holders of record of shares of Common Stock, par value $.005 per
share, ("Common Stock") of the Company at the close of business on
December 3, 1997 will be entitled to one vote per share. The Common
Stock will be voted together as one class. On December 3, 1997, there
were approximately 5,135,107 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, 1997 on
the nominees for election as directors of the Company for a one year term
expiring in 1999:
Principal Occupation/ Director Other
Name Business Experience Age Since Directorships
James Q. Maloy Chairman of Vertex (from 1974 65 1974 --
to date), CEO (from 1983 to
1/17/96 and President
(from 1983 to 7/31/95).
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Ronald C. Byer President of Vertex (from to 64 1976 --
7/31/97 to date), Vice President
of Marketing nd Sales of Vertex
(from 1979 to 7/31/95), Treasurer
thereof (from 1983 to 1/17/96).
Executive Vice President (from
1985 - 7/31/95)
Wilbur Highleyman Chairman of NetWeave Corp. 64 1985 NetWeave Corp.
(from 1993 to date), Chairman NetWeave (Europe) Limited,
of The Sombers Group (from 1992 The Sombers Group
to date), Chairman of Mini-Data Mini-Data Services, Inc.
Services, Inc. (from 1969 to 1991). Science Dynamics, Inc.
George Powch President & CEO of Huber + Suhner 48 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 of 68 1987 --
Bell Communications Research (from
1982 to 1993). Assistant Vice
President of AT&T (from 1978 to 1982).
3
OPERATION OF BOARD OF DIRECTORS AND COMMITTEES
During 1997 the Board of Directors held 5 meetings and each
incumbent director attended 100% of the meetings with the exception of
one director who attended 60% of the meetings, and each director
attended 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 1997. This Committee makes awards of stock options to
Vertex employees 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 twice fiscal 1997. 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, 1995, 1996 and 1997 of those
persons who were, at July 31, 1997, executive officers of the
Company earning annually $100,000 or more:
SUMMARY COMPENSATION TABLE
All Other
Annual Compensation Long-Term Compensation Compensation
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted All
Name and Annual Stock LTIP Other
Principal Salary Bonus Compensation Award(s) Options/ Payouts Compensation
Position Year ($) ($) ($) ($) SARs(#) ($) ($)
James Q. 1997 $ 54,571 - $ 2,765 - - - -
Maloy 1996 $ 56,502 - $ 5,210 - - - -
Chairman 1995 $ 96,852 - $ 6,506 - - - -
Ronald C. 1997 $115,000 - $ 6,150 - - - -
Byer 1996 $106,480 - $ 6,055 - - - -
CEO 1995 $ 87,901 - $ 6,506 - - - -
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.
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On November 13, 1995 Mr. Robert McLaughlin, Chief Financial Officer/Treasurer,
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 1997 by the above named
officers. On March 31, 1997 Mr. McLaughlin exercised an option for 10,000
shares of common stock.
The Company had no other executive officers other than Mr. Maloy,
Mr. Byer, Mr. McLaughlin and Mrs. Martorano, Corporate Secretary.
The following directors of Vertex were granted qualified stock options in the
amount specified opposite their names at exercise prices so indicated on the
dates specified:
Initial Exercise
Name of Date of Number of Price Options Options
Director Grant Option Shares (1)(3) Per Option Exercised Exercisable
Wilbur Highleyman 6/11/97 10,000 1.00 -- --
1/20/93 40,000 4.25 8,000 32,000
Irwin Dorros 6/11/97 10,000 1.00 -- --
1/20/93 40,000 4.25 8,000 32,000
George Powch 6/11/97 10,000 1.00 -- --
1/20/93 40,000 4.25 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, and 1995.
(3) The above options were granted under the incentive stock option plan as
discussed on page 6.
On May 19, 1993, Vertex entered into a three (3) year employment contract with
Kevin R. Halloran, its Technical Director. Pursuant to the terms of this
agreement, Mr. Halloran earned an annual base salary of $95,000, which
increased by 3% on each November 6th from 1993 through 1995. Under this con-
tract, Mr. Halloran received reimbursement for business expenses and normal
group benefits available to other Company executives. This contract also
provided 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 vested 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 had the right 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. On April 3, 1997 Mr. Halloran terminated his employment
with the Company. The Company waived the 30 day termination clause on the
above mentioned options.
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INCENTIVE STOCK OPTION PLAN
Under the Company's Incentive Stock Option Plan ("The Plan"), options to
purchase a maximum of 1,500,000 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 expires on October 9, 2005. 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 1997 the Company's shareholders
approved an additional 500,000 shares of common stock to be issued under the
Plan for a total of 1,500,000 shares of common stock in the plan.
As of July 31, 1997, options to acquire 966,000 shares of the Company's Common
Stock at exercise prices of $.475 to $8.12 per share have been granted under
the Plan to 13 employees and three directors of the Company. As of July 31,
1997 298,400 options have been exercised and 667,600 options are outstanding,
with 144,600 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 1,500,000 shares to
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2,000,000 shares. Stockholders have approved three increases in the Plan, one
for 150,000 on January 20, 1993, one for 700,000 shares on January 19, 1994 and
one for 500,000 shares on January 15, 1997, respectively. The purpose of the
Plan is to advance the interests of the Company and its Stockholders by provid-
ing 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
1,500,000 shares to 2,000,000 shares will benefit the Company and its Stock-
holders and, thus recommends the approval of the increase in the Plan.
As of July 31, 1997 options to acquire 966,000 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, 1997 298,400 options have been exercised and
667,600 options outstanding, with 144,600 options presently exercisable. The
Company feels that as the Company continues to grow, additional stock options
will be required to attract and retain qualified personnel. On September 24,
1997 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 1,500,000 shares to 2,000,000 shares.
OTHER STOCK OPTIONS
On October 6, 1995 the Company granted 35,000 nonqualified stock options at
$1.25 per share which expire October 6, 2000, as part of a termination agree-
ment with a former employee. These options are currently exercisable. 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. During fiscal 1997 the Company granted 140,000 options to two service
firms as partial payment for financial, legal and consulting services. The
options are exercisable at 20,000 options at $1.00, 20,000 options at $1.25,
20,000 options at $1.75, 40,000 options at $3.00 and 40,000 options at $4.00
and expire at various dates through February 2001.
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.
7
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
1997, 1996 and 1995 were $5,787, $14,865, and $5,342, respectively.
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 3, 1997 by (i) each who is known
by the Company 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 23.4
23 Carol Street
Clifton, New Jersey
Ronald C. Byer 448,422 8.7
23 Carol Street
Clifton, New Jersey
All officers and director 1,700,630 33.2
as a group (6 persons)
(1) Does not give effect to the issuance of up to 1,500,000 shares of
Common Stock reserved for issuance under the Company's incentive
stock option plan and,522,000 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,
40,000 shares of common stock owned by Mr. Powch and 2,000 shares
of common stock owned by Dr. Highleyman's pension plan.
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 was subject to fulfillment of certain conditions
set forth in the Memorandum relating principally to the achievement of
8
specific business goals and objectives by Netweave Corp. NetWeave did
not attain the necessary financial ratios and operating results
required within the Memorandum for the Company to acquire NetWeave. In
connection with the planned transaction the Company advanced NetWeave
$100,000 for working capital purposes and received a promissory note.
The note bears interest at 6%. In July 1996 the Company entered into
a factoring agreement with NetWeave whereby the Company would factor
certain accounts receivable of NetWeave. NetWeave has defaulted on
the $100,000 note and no interest has been paid. NetWeave has
defaulted on the factored receivables which have a balance of $81,369
as of July 31, 1997. The Company is in the process of restructuring
the repayment of the note and the factored receivables amounts from
NetWeave.
On February 17, 1997 the Company entered into a License
Agreement with NetWeave Corporation to develop, market, sell and
support the NetWeave product worldwide. The Company will pay NetWeave
a royalty on the initial licenses sold and on annual license fees paid
by the customer for maintenance and support of the NetWeave product.
Under terms of the License Agreement, NetWeave Corporation assigns its
existing customer base to the Company along with the existing sales
representative agreements in the U.S. and the master distributor
agreement with SX Consultancy for Europe and Asia. SX Consultancy is
a European software distributor and developer of custom software based
in the UK with ties to distributors in Asia. The Company is closing the
current NetWeave Corporation facility in Philadelphia, Pennsylvania and
is consolidated the operations of the NetWeave License Agreement into
the Company's Clifton, New Jersey location. The License Agreement replaces
the conditional acquisition agreement which the Company announced in May,
1996. The Sombers Group, Inc. custom software portion of the original
agreement remains part of NetWeave Corporation. For the year ended
July 31, 1997, the NetWeave License Agreement generated revenues of
$105,000. For the year ended July 31, 1997 the Company paid NetWeave
Corporation $20,000 in royalty payments.
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, 1997 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, 1998. 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, 1998.
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 1999 Annual Meeting of Stockholders
must be received by the Company no later than September 21, 1998.
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,
s/ Barbara H. Martorano
Barbara H. Martorano
Secretary
Clifton, New Jersey
December 5, 1997
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