Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting materials pursuant to Rule 14a-11(c) or Rule 14a-12
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
(Name of Registrant as Specified in its Charter)
CONSOLIDATED HEALTH CARE ASSOCIATES, INC.
(Name of Person(s) Filing Proxy Statement
Payment of filing fee (Check the appropriate box):
[X} $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rules 14a-6(i)(3)
[ ] Fee computed on table per Exchange Act Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transaction applies:
N.A.
(2) Aggregate number of securities to which transaction applies:
N.A.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11.
N.A.
(4) Proposed maximum aggregate value of transaction:
N.A.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration number, or the form or
schedule and the date of its filing.
(1) Amount previously paid.
N.A.
(2) Form, schedule or registration no.:
N.A.
(3) Filing party:
N.A.
(4) Date filed:
N.A.
-2-
Consolidated Health Care Associates, Inc.
38 Pond Street
Franklin, Massachusetts 02038
--------------------------------------------------
Notice of Annual Meeting of Stockholders
to be Held June 14, 1996
--------------------------------------------------
The Annual Meeting of the Stockholders of Consolidated Health Care Associates,
Inc., (the "Company") will be held at 200 Madison Avenue, Second Floor, New
York, New York at 9:00 a.m., New York City time for the following purposes:
(1) To elect six directors to hold office until the next Annual Meeting of
Stockholders or until their successors have been duly elected and
qualified.
(2) To authorize the Board to effect a single reverse stock split, without
further stockholder action, of not less than one-for-two nor greater
than one-for-ten (or to effect no reverse stock split) if the Board
believes that a decrease in the number of shares of Common Stock may
improve the trading market for the Common Stock and in order to
satisfy the rules of The NASDAQ Small Cap Market.
(3) To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on May 20, 1996, as the
record date for determining the stockholders entitled to notice of and to vote
at the meeting and any adjournment thereof.
Your attention is directed to the accompanying Proxy Statement for further
information regarding each proposal to be made.
All stockholders are asked to complete, sign and date the enclosed proxy and
return it promptly by mail in the enclosed self-addressed envelope, which does
not require postage if mailed in the United States.
By Order of the Board of Directors
Joel Friedman
Chairman of the Board
-3-
Consolidated Health Care Associates, Inc.
38 Pond Street
Franklin, Massachusetts 02038
--------------------------------------------------
Proxy Statement For Annual Meeting
--------------------------------------------------
This Proxy Statement is furnished by the Board of Directors (the "Board of
Directors") of Consolidated Health Care Associates, Inc., a Nevada corporation
(the "Company"), in connection with the solicitation of proxies to be used at
the Annual Meeting of Stockholders (the "Meeting") to be held at 200 Madison
Avenue, New York, New York, Second Floor on June 14, 1996 at 9:00 a.m. New York
City time, and at any adjournment thereof. This Proxy Statement and the
accompanying Annual Report, Notice and Proxy are being mailed to stockholders on
or about May 21, 1996. The principal executive offices of the Company are
located at the address indicated above.
Only stockholders of record at the close of business on the record date,
May 20, 1996, will be entitled to vote at the Meeting and at all adjournments
thereof.
On May 20, 1996, there were outstanding and entitled to vote14,002,306
shares of the Company's common stock, $.012 par value per share (the "Common
Stock"). Each outstanding share of Common Stock is entitled to one vote on each
matter to be voted upon. A majority of the shares of Common Stock entitled to
vote at the Meeting will constitute a quorum for the transaction of business.
Holders of Common Stock have no cumulative voting rights.
Voting Of Proxies
If a proxy is properly signed by a stockholder and is not revoked, the
shares represented thereby will be voted at the Meeting in the manner specified
on the proxy, or if no manner is specified with respect to any matter therein,
such shares will be voted by the persons designated therein (with respect to the
matters as to which the stockholder is entitled to vote) (a) "FOR" the election
of each of Joel Friedman, Alan Mantell, James Kenney, Paul W. Frankel, Goodhue
W. Smith, III and Sidney Dworkin as directors of the Company ("Proposal Number
1"), (b) "FOR" the approval to authorize the Board to effect a single reverse
stock split, without further stockholder action, of not less than one-for-two
nor greater than one-for-ten (or to effect no reverse stock split) if the Board
believes that a decrease in the number of shares of Common Stock may improve the
trading market for the Common Stock and in order to satisfy the Rules of the
Nasdaq Small Cap Market ("Proposal Number 2") and (c) in connection with the
transaction of such other business as may properly be brought before the
Meeting, in accordance with the judgment of the person or persons voting the
proxy. If any of the nominees for director is unable to serve or for good cause
will not serve, an event that is not anticipated by the Company, the shares
represented by the accompanying proxy will be voted for a substitute nominee
designated by the Board of Directors thereof or the Board of Directors may
determine to reduce the size of the Board of Directors. The total vote cast on
Proposal Number 2 must represent over 50% of the Common Stock of the Company
outstanding.
A proxy may be revoked by the stockholder at any time prior to the voting
thereof by giving notice of revocation in writing to the Secretary of the
Company, by duly executing and delivering to the Secretary of the Company a
proxy bearing a later date or by voting in person at the Meeting.
-4-
Directors of the Company will be elected by a plurality of the vote of the
outstanding shares of Common Stock present, in person or by proxy, and entitled
to vote at the Meeting. The affirmative vote of the holders of at least a
majority of the outstanding shares of Common Stock present, in person or by
proxy, and entitled to vote at the Meeting is required for the ratification and
approval of, unless otherwise required by the Nevada General Corporation Law or
the Company's Restated Certificate of Incorporation, any other matter which may
be put to a stockholder vote at the Meeting. Except for the election of
directors, as to any particular proposal, abstentions will have the same effect
as a vote against that proposal, and broker non-votes will not be counted as
votes for or against the proposal, and will not be included in counting the
number of votes necessary for approval of the proposal. Votes cast, either in
person or by proxy, will be tabulated by The American Stock Transfer Company,
the Company's transfer agent.
Voting Securities and Principal Holders Thereof
Security Ownership Of Certain Beneficial Owners
The following table sets forth information at March 31, 1996 based on
information obtained from the persons named below, with respect to the
beneficial ownership of shares of Common Stock by (i) each person known by the
Company to be the owner of more than 5% of the outstanding shares of Common
Stock, (ii) each director, and (iii) all executive officers and directors as a
group. Unless otherwise noted, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them.
Name & Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
---------------- -------------------- --------
Healthcare Partners, Inc. 757,669 (1) 5.26%
31 Old Orchard Circle
Boylston, MA 01505
Joel Friedman 828,935 (2) 5.64%
Christopher Harkins 142,208 1.01%
James Kenney 60,000 (3) *
Paul Frankel 60,000 (4) *
Goodhue W. Smith, III 15,000 (4) *
Alan M. Mantell 0 *
Robert M. Whitty 0 *
Sidney Dworkin 246,951(5) 1.74%
Renaissance Capital 8,094,645(6) 47.35%
Partners II, Ltd.
8080 N. Central Exwy.
Suite 210-LB 59
Dallas, TX 75206
All executive officers and 1,353,094(7) 8.81%
directors as a group (7 persons)
- ----------
* less than 1%
-5-
The Company is not aware of any contractual arrangements which may at a
subsequent date result in a change of control of the Company.
(1) Includes 357,669 shares held of record, and 400,000 shares underlying
options that the Company granted to Healthcare Partners, Inc. Deidre
Benson, the wife of Arnold Benson is the sole stockholder of Healthcare
Partners, Inc. See "Certain Relationships and Transactions".
(2) Includes 666,625 shares subject to currently exercisable non-qualified
stock options and the right to acquire 20,881 shares upon conversion of
Series A Preferred Stock. Does not include options to acquire 833,375
shares which have not vested.
(3) Includes 60,000 shares subject to currently exercisable non-qualified stock
options.
(4) Includes 10,000 shares subject to currently exercisable non-qualified stock
options.
(5) Includes 106,667 shares issuable upon conversion of convertible promissory
notes. Also includes 53,333 shares beneficially owned by a partnership
which Dr. Dworkin is a partner.
(6) Includes 5,000,000 shares and the right to acquire 3,094,645 shares
issuable upon conversion of outstanding Series A Preferred Stock and Series
B Preferred Stock.
(7) Includes 746,625 shares subject to currently exercisable non-qualified
stock options, the right to acquire 20,881 shares upon conversion of
outstanding Series A Preferred Stock, 50,000 shares subject to Common Stock
purchase warrants and 160,000 shares issuable upon the conversion of
convertible notes.
-6-
PROPOSAL 1. ELECTION OF DIRECTORS.
At this year's Annual Meeting of Stockholders, six directors will be
elected to hold office for a term expiring at the next Annual Meeting of
Stockholders. 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 Annual Meeting of Stockholders, the proxies granted by
stockholders will be voted individually 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 director. 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 has indicated to the Board of Directors of the
Company that he will be available to serve.
The Board of Directors recommends that each of the nominees be elected as a
director.
The name and age of each of the nominees and each of the incumbent
directors whose term will continue following the Meeting, their respective
positions with the Company are set forth below. Additional biographical
information concerning each of the nominees and each of the incumbent directors
of the Company follows the table.
Name Age Position
---- --- --------
Joel Friedman 55 Chairman of the Board and Chief
Executive Officer
Alan Mantell 49 Chief Operating Officer
James Kenney 53 Director
Paul W. Frankel, M.D., Ph.D. 46 Director
Goodhue W. Smith, III 45 Director
Sidney Dworkin 74 Director
Joel Friedman, became a director of the Company in December 1991 and
Chairman and Chief Executive Officer in July 1994. Mr. Friedman, a graduate of
Columbia College, has been involved for the past twenty-five years in the
financing and management of several public and private companies and real estate
ventures, most recently, and for at least the past five years through Friedman
Enterprises, Inc. and Founders Capital Corporation and its affiliates.
("Founders"). Mr. Friedman is also a member of the Board of Directors of 3D
Geophysical, Inc.
Alan Mantell, was elected Chief Operating Officer in November, 1995. From
March 1994 until March 1995, Mr Mantell was a Managing Director of Barclay's
deZoete Wed Securities, Inc, the investment banking arm of Barclay's PLC. Since
1979, Mr. Mantell has shared responsibilities with Mr. Friedman as an officer,
director and shareholder of Founders. From 1980 through 1987, Mr. Mantell was
the sole stockholder of Stuyvesant Capital Corporation, an N.A.S.D. member firm.
In 1992, he formed Guardian Capital Group, Ltd., an early participant in the
commercial mortgage-backed securities markets which operated one of the first
multi-family mortgage conduits in the U.S.
-7-
James Kenney became a director in March 1993. Mr. Kenney is currently an
Executive Vice President of San Jacinto Securities in Dallas, TX. From February
1992 until June 1993, he had been a partner of Renaissance Capital Group, Inc.,
a Dallas money management firm. From 1989 to February 1992, Mr. Kenney was
Senior Vice President of Capital Institutional Services, Inc., a brokerage firm
located in Dallas, Texas that provides third-party financial and business
research. From 1987 to 1989, Mr. Kenney was employed as a senior vice president
and registered representative at the Dallas office of Rauscher Pierce Refsnes,
Inc., a securities brokerage firm. Mr. Kenney is also a director of Amerishop
Corp., Coded Communications Corp., Industrial Holdings, Inc., Prism Group, Inc.,
Scientific Measurement Systems, Inc., Appoint Technologies, Inc., Technol
Medical Products, and Tricom, Inc.
Paul W. Frankel, M.D., Ph.D., has been a member of the Board of Directors
since July 1994. Dr. Frankel is currently, and since August 1993 has been the
President of Life Extension Institute, Inc., a New York company specializing in
preventive health services. From April 1992 to August 1993, Dr. Frankel was a
Partner and the National Medical Director of Coopers & Lybrand. For the period
May 1988 to February 1992, Dr. Frankel served in various positions for
Metropolitan Life Insurance Company, ultimately serving as its Vice President
and National Medical Director.
Goodhue W. Smith, III has been a member of the Board of Directors since
July 1994. In 1978, Mr. Smith founded Duncan-Smith Co., an investment banking
firm in San Antonio, Texas and has since such time served as its Secretary and
Treasurer. Mr. Smith is also a Director of Citizens National Bank, Ray Ellison
Mortgage Acceptance Co. and L&H Housing Corp.
Sidney Dworkin, was elected to the Board of Directors in March 1996. Dr.
Dworkin was a founder, former President, Chief Executive Officer and Chairman of
Revco, Inc. Between 1987 and the present, Dr. Dworkin has also served as Chief
Executive Officer of Stonegate Trading, Inc., an importer and exporter of
various health, beauty aids, groceries and sundries. Between 1988 and the
present, Dr. Dworkin has served as Chairman of the Board of Advanced Modular
Systems, which is engaged in the sale of modular buildings. Between June 1993
and the present, Dr. Dworkin has also served as Chairman of the Global
International, Inc., which is involved in the sale and leasing of modular
buildings to hospitals and Chairman of the Board of Comtrex Systems, which is
engaged in the provision of data processing services. In addition, between July
1988 and the present, Dr. Dworkin has served as Chairman of the Board of General
Computer Corp., which is engaged in the marketing of data processing equipment.
Dr. Dworkin also serves on the Board of Directors of CCA Industries, Inc.,
Interactive Technologies, Inc. and Northern Technologies International
Corporation, all of which are publicly-traded companies.
Renaissance Capital Partners II Ltd. ("Renaissance") is currently entitled
to designate two directors for nomination to the Company's Board of Directors.
Messrs. Kenney and Smith are designees of Renaissance.
In 1995, the Board of Directors held five regularly scheduled and special
meetings. All directors attended at least seventy-five percent (75%) of the
total number of meetings of the Board of Directors and the committees on which
they served. The Audit Committee met once during the Company's last fiscal year.
This Committee recommends to the Board of Directors a firm of independent public
accountants to audit the books and accounts of the Company. The Committee
reviews the reports prepared by the independent public accountants and
recommends to the Board any actions deemed appropriate in connection with the
reports. The Compensation Committee is comprised of Messrs. Kenney and Frankel.
The Executive Committee of the Board of Directors of the Company was formed in
1995 to take such action and carry out such duties and responsibilities as may
be undertaken in the
-8-
discretion of such Committee by the Board of Directors. During 1995, such
committee met one time. The Board of Directors has no standing nominating
committee, or other committee performing similar functions. However, the Board
of Directors, meeting as a whole, constitutes a committee for the issuance of
options and other awards under the Company's Stock Incentive plan. The
non-employee directors were entitled to receive directors fees in the amount of
$500 per meeting throughout 1995 although no fees were paid during the year.
Executive Compensation
The following summary compensation table sets forth, for the three fiscal
years ended December 31, 1995, the cash compensation of each of the Chief
Executive Officer and eachexecutive officer of the Company whose total salary
and bonuses exceeded $100,000 (the "Named Executive Officers").
Summary Compensation Table
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Restricted
Name and Principal Other Annual Stock Options/ LTIP All other
Position Year Salary Bonus Compensation Awards SARs Payouts Compensation
Joel Friedman 1995 $ 75,000 0 0 0 0 0 0
Chairman of the 1994 0 0 0 0 1,250,000 0 0
Board and Chief 1993 0 0 0 0 0 0 0
Executive Officer(1)
Christopher Harkins 1995 $135,000 0 0 0 0 0 0
1994 $136,750 0 0 0 250,000 0 0
1993 $112,823 0 0 20,000(32) 0 0 0
Robert W. Whitty 1995 $106,000(3) 0 0 0 0 0 0
President
(1) Joel Friedman was elected Chairman of the Board and Chief Executive Officer
in July 1994. Mr. Friedman, who has been a director since 1991, received no
compensationthrough July 1994.
(2) Mr. Harkins served as president through November 1995. Represents issuance
of Stock Bonus to Mr. Harkins.
(3) Mr. Whitty was elected President of the Company in November 1995.
The aggregate amount of any miscellaneous compensation not set forth in the
table or the description of benefit plans, including any personal benefits
valued at their incremental cost to the Company, received in 1995 by any
executive officers included in the above table did not exceed 10% of such
person's 1995 cash compensation.
Employment Agreements
In March 1993, the Company entered into a three-year employment agreement
with Christopher Harkins, the President of the Company. Under this agreement,
Mr. Harkins was entitled to receive $135,000 per year for the term of the
Agreement. In November 1995, Mr. Harkin's employment was
-9-
terminated by the Company. Subsequently, in an arbitration proceeding between
the Company and Mr. Harkins, Mr. Harkins was awarded severance pay at the
contract rate for the duration of the three year term of his original contract.
Joel Friedman, the Company's Chairman and Chief Executive Officer is
currently compensated at the rate of $75,000 per year. Mr. Friedman provides his
services to the Company, as needed, on a part-time basis and will receive
additional compensation, to be determined by the compensation committee of the
Board of Directors.
1989 Stock Incentive Plan
Under its 1989 Stock Incentive Plan (the "Plan"), the Company grants awards
of Common Stock to those persons determined by the Board of Directors to be key
employees who are responsible for the management and growth of the Company. The
size of the award is generally determined on the basis of the level of
responsibility of the employee. Types of awards include non-statutory stock
options, incentive options (qualifying under Section 422A of the Internal
Revenue Code of 1986), restricted stock awards and stock appreciation rights
(SARs). Options and stock appreciation rights generally expire ten years from
the grant date and unless otherwise provided, are exercisable on a cumulative
basis with respect to 20% of the optioned shares on each of the five
anniversaries after the grant date. Restrictions on restricted stock awards
generally lapse with respect to 20% of the shares subject to the award after the
expiration of each year following the grant date and the portions of such awards
for which restrictions have not lapsed are subject to forfeiture upon
termination of employment. The Company may grant options to purchase an
aggregate of 500,000 shares of Common Stock under the Plan, 380,000 of which are
currently available for grant. No stock options or other awards under the Plan
were granted during 1995, nor were any options exercised by the individuals
named in the Summary Compensation Table during 1995.
1994 Stock Option Plan
The Company adopted, effective November 3, 1994 the 1994 Stock Option Plan
(the "1994 Plan"). The terms and conditions of the 1994 Plan are similar to the
1989 Plan, except that the 1994 Plan does not provide for grant of SAR's. The
Company may grant options to purchase an aggregate of 3,000,000 shares of Common
Stock under the Plan,1,866,667 of which are currently available for grant. No
options were granted in 1995.
-10-
The following table sets forth information concerning any exercise of stock
options during the Company's fiscal year ended December 31, 1995 by the Named
Executive Officers, the number and value of options owned by the named
individuals and the value of any in-the-money unexercised stock options as of
December 31, 1995:
Number of Unexercised Options Value of Unexercised
Held at In-the-money Options at
December 31, 1995 December 31, 199 5(a)
----------------- ---------------------
Shares
Acquired Value
on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
----------- -------- ----------- ------------- ----------- -------------
Joel Friedman 0 0 666,625 416,667 0 0
Christopher T. Harkins 0 0 0 0 0 0
Robert M. Whitty 0 0 0 0 0 0
(a) Based on the average Bid and Ask price on NASDAQ of the Company's common
stock on that date ($.31).
Compensation of Directors
Directors received no compensation during the fiscal year ended December
31, 1995 for serving on the Board. Non-employee directors are entitled to
receive $500 per meeting of the Board of Directors attended, which fees were
waived during 1995.
Under the Company's stock option plans, directors who are not employees of
the Company (other than directors who are members of the Stock Option Committee
of the particular plan) are eligible to be granted nonqualified options under
such plan. The Board of Directors or the Stock Option Committee (the
"Committee") of each plan, as the case may be, has discretion to determine the
number of shares subject to each nonqualified option (subject to the number of
shares available for grant under the particular plan), the exercise price
thereof (provided such price is not less than the par value of the underlying
shares of Common Stock), the term thereof (but not in excess of 10 years from
the date of grant, subject to earlier termination in certain circumstances), and
the manner in which the option becomes exercisable (amounts, intervals and other
conditions). Directors who are employees of the Company (but not members of the
Committee of the particular plan) are eligible to be granted incentive stock
options under such plans. The Board or Committee of each plan, as the case may
be, also has discretion to determine the number of shares subject to each
incentive stock option ("ISO"), the exercise price and other terms and
conditions thereof, but their discretion as to the exercise price, the term of
each ISO and the number of ISOs that may vest in any year is limited by the
Internal Revenue Code of 1986, as amended.
Certain Transactions
Effective June 30, 1994, certain holders of the Company's convertible debt,
converted their notes into Common Stock of the Company and into a newly issued
Series A Preferred Stock. Directors and affiliates of the Company who
participated in the conversion were as follows:
Renaissance Capital Partners, II, Ltd. ("Renaissance"): Convertible debt
and accrued interest of $3,695,984 was converted into 5,000,000 shares of Common
Stock and 1,195,984 shares of Series A
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Preferred Stock. The Series A Preferred Stock may be converted into 1,590,658
shares of Common Stock of the Company.
Joel Friedman: Convertible debt and accrued interest of $51,375 was
converted into 71,429 shares of Common Stock and 15,661 shares of Series A
Preferred Stock. The Series A Preferred Stock may be converted into 20,881
shares of Common Stock of the Company.
Christopher Harkins: Convertible debt and accrued interest of $25,688 was
converted into 51,375 shares of Common Stock of the Company.
Diedre Benson: Convertible debt and accrued interest of $555,722 was
converted into 1,111,444 shares of Common Stock of the Company.
On September 8, 1994, effective November 11, 1994, the Company entered into
a Termination Agreement with Arnold E. Benson ("the Termination Agreement"), the
former Chairman of the Board and Chief Executive Officer of the Company. In
November 1994, Mr. Benson and his wife Diedre Benson sold an aggregate of
2,500,000 shares of Common Stock owned by Diedre Benson for an aggregate of
$1,075,000. Mr. Benson received a payment from the Company of $175,000 as
severance in consideration of the termination of his Employment Agreement.
The Company has also granted to Healthcare Partners, Inc., a designee of
Mr. Benson, on the Effective Date of the Termination Agreement, an option to
purchase up to an aggregate of 400,000 shares of Common Stock for $.50 per share
for a period of three years. The Company has also agreed to provide Mr. Benson
with other benefits, including the payment of health insurance and disability
insurance costs and certain expenses in connection with the negotiation of the
Termination Agreement. Mr. Benson and Mrs. Benson have entered into a
non-competition agreement with the Company with respect to certain activities
effective for a period of two years from the effective date of the agreement.
Mr. Benson resigned from the Board of Directors of the Company on November 11,
1994.
On September 8, 1994, Renaissance loaned the Company $100,000 pursuant to a
Convertible Promissory Note, convertible at the option of Renaissance at $.33
per share of Common Stock. On October 24, 1994, the Company exchanged the
Convertible Promissory Note for 100,000 shares of Series B Preferred Stock.
Additionally, Renaissance acquired 400,000 shares of Series B Preferred Stock.
The Series B Preferred Stock may be converted at any time, at the option of the
holder thereof at $.33 per share of Common Stock. James Kenney, a Director of
the Company was, until June 1993 a general partner of Renaissance. Renaissance
has the right to designate two members for nomination to the Board of Directors
of the Company. Mr. Kenney and Goodhue W. Smith, III are currently the designees
of Renaissance to the Board.
Under the terms of the Series A Preferred Stock and the Series B Preferred
Stock, the Company has agreed that it will not issue in excess of 1,500,000
additional shares of Common Stock of the Company in any single transaction or
related series of transactions without the consent of the majority holders of
the Series A Preferred Stock and the Series B Preferred Stock, together.
Renaissance owns a substantial majority of the Series A Preferred Stock and is
the sole holder of the outstanding shares of Series B Preferred Stock of the
Company.
In January 1995, Sidney Dworkin, Ph.D., a director of the Company loaned
the Company $100,000 pursuant to a convertible promissory note and received
warrants to purchase 50,000 shares of Common Stock for $.75 per share. In August
1995, Mr. Dworkin converted the note into 106,667 shares of Common
-12-
Stock. In addition, a partnership in which Mr. Dworkin is a partner loaned the
Company $50,000 under the same terms and received a warrant to purchase 25,000
shares of Common Stock for $.75 per share. In August, 1995, the note was
converted into 53,333 shares of Common Stock.
In November 1995, Joel Friedman, the Chairman and Chief Executive of the
Company and Robert M. Whitty, the President of the Company, jointly and
severally guaranteed the validity of the Company's accounts receivable that were
pledged to Capital Factors, Inc., a lender to the Company. The amount of the
line of credit secured by the Company's accounts receivables is $500,000. In
January 1996, additional guarantees were provided by Messers. Friedman and
Whitty in connection with an additional line of credit secured by receivables in
the amount of $750,000.
Compliance With Section 16(a)
of the Securities Exchange Act of 1934
Section 16 (a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission ("SEC"), initial reports of ownership and
reports of changes in ownership of Common Stock of the Company. Officers,
directors and ten-percent stockholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company, during the fiscal year ended December 31,
1994, none of the officers, directors and ten-percent beneficial owners of the
Company failed to file timely any such reports under Section 16(a) of the
Securities Exchange Act of 1934.
PROPOSAL 2: THE PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION TO EFFECT A
REVERSE STOCK SPLIT
Introduction
The Board of Directors has approved and directed that the proposed Reverse
Stock Split, authorizing the amendment to the Article of Incorporation set forth
in Exhibit A hereto, be submitted to the Company's stockholders for
consideration and action.
If the Reverse Stock Split Proposal is approved by Stockholders, the Board
of Directors will be given the discretion to effect a reverse stock split,
without further shareholders action, of not less than One-For-Two nor greater
than One-for-Ten (the "Split Proportion"), or to effect no reverse stock split.
The Board of Directors believes that this latitude is necessary, given the
changing market price of the Common Stock, to increase the trading price of
Common Stock to levels commensurate with the minimum share price level imposed
by the NASDAQ Small Cap Market, and more acceptable to investors and the
securities industry. If the trading price of Common Stock increases, a Reverse
Stock Split of lesser proportions might be required than would be necessary if
the trading price decreases or remains constant.
If the Reverse Stock Split Proposal is approved by the stockholders of the
Company at the Annual Meeting, a Reverse Stock Split will be effected only upon
a determination by the Board of Directors that a Reverse Stock Split is
necessary or in the best interests of the Company and the stockholders. In
connection
-13-
with any determination by the Board of Directors to such effect, the Board will
also select, in its discretion, terms of the Reverse Stock Split based on its
determination of which Split Proportion will result in the greatest
marketability and liquidity of the Common Stock, on prevailing market
conditions, on the likely effect on the market price of the Common Stock and on
other relevant factors.
Stockholders may approve or reject the proposed Reverse Stock Split in
whole but not in part. If approved by the stockholders of the Company, a Reverse
Stock Split would become effective on any date (the "Effective Date") selected
by the Board of Directors on or prior to the Company's next Annual Meeting of
Stockholders. If no Reverse Stock Split is effected by such date, the Board of
Directors will take action to abandon the Reverse Stock Split pursuant to the
Nevada General Corporation Law. The procedures for consummation of the Reverse
Stock Split are set forth in Exhibit A hereto.
Votes Required
The approval of each of the Reverse Stock Split Proposal requires the
affirmative vote of the majority of the outstanding shares of Common Stock.
Purposes and Effects of the Reverse Stock Split
The effect of the proposed Reverse Split upon holders of Common Stock will
be that the total number of shares of the Company's Common Stock held by each
stockholder will be automatically converted into the number of whole shares of
Common Stock equal to the number of shares of Common Stock owned immediately
prior to the Reverse Split divided by the Split Proportion, adjusted, as
described below, for any fractional shares upon the Effective Date.
Assuming the Reverse Split Proposal is approved by the Company's
stockholders at the Special Meeting, and upon the determination of the Board of
Directors to effect a reverse Stock Split, each stockholder's percentage
ownership interest in the Company and proportional voting power will remain
unchanged, except for minor differences resulting from adjustments for
fractional shares. The rights and privileges of the holders of the shares of
Common Stock will be substantially unaffected by a Reverse Split.
No certificates or scrip representing fractional shares of the Company's
Common Stock will be issued to stockholders because of any Reverse Split. All
fractional shares of one-half share or more will be increased to the next higher
whole number of shares, and all fractional shares of less than one-half share
will be decreased to the next lower whole number of shares, respectively.
Reasons for the Reverse Stock Split Proposal
The Company's shares of Common Stock have been listed, and have traded on
the Nasdaq Small Cap Market ("NASDAQ") system since prior to 1991.. For
continued listing on the NASDAQ system, it is necessary that, among other
things, the minimum bid price of the Company's shares of Common Stock exceed
$1.00 per share. The $1.00 per share minimum bid price need not be maintained if
the market value of the public float of the Company's shares of Common Stock
exceeds $1,000,000 and the Company's capital and surplus exceed $2,000,000.
Over the past several months, the bid price of the Company's shares of
Common Stock has fluctuated widely. On numerous occasions, and for protracted
periods, the bid price of the Company's shares of Common Stock has fallen below
$1.00. While the public float of the Company's shares of Common Stock has
exceeded $1,000,000 at all times since the Company's initial public offering, at
December 31, 1995, the Company's capital and surplus was $1,978,252.
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As a result, the Company's shares of Common Stock are in danger of being
delisted from the NASDAQ system. Management believes that if the Reverse Stock
Split Proposal is approved by the stockholders at the Annual Meeting, and the
appropriate Reverse Stock Split is effectuated, then the Company's shares of
Common Stock will have a minimum bid price in excess of $1.00 per share and,
therefore, continue to be listed and traded in the NASDAQ system.
If the Reverse Stock Split Proposal is not approved by the stockholders at
the Special Meeting, and the Board of Directors is not able to effectuate a
reverse stock split, then it is highly likely that the Company's shares of
Common Stock will cease to be listed and traded on the NASDAQ system. In such
event, the shares of Common Stock will likely be quoted in the "pink sheets"
maintained by the National Quotation Bureau, Inc., the spread between the bid
and ask price of the shares of Common Stock is likely to be greater than at
present and stockholders may experience a greater degree of difficulty in
engaging in trades of shares of Common Stock.
Stockholders have no right under Nevada law or under the Company's Articles
of Incorporation or Bylaws to dissent from a Reverse Split or to dissent from
the rounding to the nearest whole share of any fractional share resulting from a
Reverse Split in lieu of issuing fractional shares.
The Company had an authorized capital of 10,000,000 shares of Preferred
Stock, par value $.012 per share, and 50,000,00 shares of Common Stock, par
value $.012 per share, as of March 31, 1996. The authorized capital stock of the
Company will not be reduced or otherwise affected by any Reverse Split.
The Reverse Split may result in some stockholders owning "odd lots" of less
than 100 shares of Common Stock. Brokerage commissions and other costs of
transactions in odd-lots are generally somewhat higher than the costs of
transactions in "round-lots" of the even multiples of 100 shares.
The Company has suffered recurring losses from operations. The Company may
be required to issue additional shares of its Common Stock on an ongoing basis
in order to satisfy all or a portion of its need for cash. If and to the extent
that the Company issues additional shares of its Common Stock, either prior or
subsequent to the implementation of a Reverse Split, each stockholder's
percentage ownership interest in the Company and proportional voting power will
be proportionately reduced.
The Company has previously issued, and has outstanding, various options,
convertible debt, warrants and rights to purchase 6,997,254 shares of its Common
Stock. If the Reverse Stock Split Proposal is approved by the stockholders and a
Reverse Split is implemented, in general, both the exercise price and the number
of shares subject to each such options, warrants and rights will be adjusted in
connection with any Reverse Split.
A Reverse Stock Split, if undertaken in the discretion of the Board, would
have the following effects upon the number of shares of Common Stock outstanding
(14,002,306 shares as of the Record Date) and the number of authorized and
unissued shares of Common Stock, assuming that no additional shares of Common
Stock are issued by the Company after the Record Date and without taking into
account any reduction in the number of outstanding shares resulting from the
procedures for treatment of fractional shares described below. Because a Reverse
Stock Split, if effected, may range from one-for-two to one-for-ten, existing
shareholders cannot now predict the total number of shares of Common Stock that
will be outstanding after the Reverse Stock Split. However, with the limited
exception of small shareholders who own only fractional share interests after a
Reverse Stock Split, the proportionate ownership interests of holders of Common
Stock will not be affected by Reverse Stock Split.
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Common Stock Authorized and
Reverse Stock Split Outstanding Unissued Common Stock
- ------------------- ------------ ---------------------
1 for 2 7,001,153 42,998,847
1 for 3 4,667,435 45,332,565
1 for 4 3,500,576 46,499,424
1 for 5 2,800,461 47,199,539
1 for 6 2,333,719 47,666,283
1 for 7 2,000,329 47,999,671
1 for 8 1,750,288 48,249,712
1 for 9 1,555,811 48,444,189
1 for 10 1,400,230 48,599,770
At the Effective Date, each share of the Common Stock issued and
outstanding immediately prior thereto (the "Old Common Stock"), will be
reclassified as and changed into the appropriate fraction of a share of the
Company's Common Stock, par value $.012 (the "New Common Stock"). Shortly after
the Effective Date, the Company will send transmittal forms to the holders of
the Old Common Stock to be used in forwarding their certificates formerly
representing shares of Old Common Stock for surrender and exchange for
certificates representing whole shares of New Common Stock.
Board Recommendation
The Board unanimously recommends a vote FOR the adoption of the proposal to
authorize the Board to effect a Reverse Stock Split or to effect no Reverse
Stock Split and the resolution with respect thereto set forth in Exhibit A
hereto.
Stockholder Proposals For Next Annual Meeting
Any stockholder proposals intended to be presented at the Company's next
annual meeting of stockholders must be received by the Company at its offices,
on or before February 20, 1997, for consideration for inclusion in the proxy
material for such annual meeting of stockholders.
Expenses Of Solicitation
The cost of the solicitation of proxies will be borne by the Company. In
addition to the use of the mails, proxies may be solicited by regular employees
of the Company, either personally or by telephone or telegraph. The Company does
not expect to pay any compensation for the solicitation of proxies, but may
reimburse brokers and other persons holding shares in their names or in the
names of nominees for expenses in sending proxy material to beneficial owners
and obtaining proxies of such owners.
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Other Matters
A representative of Price Waterhouse will be available by telephone at the
Meeting to respond to appropriate questions and will be given the opportunity to
make a statement if he desires to do so. The Board of Directors does not intend
to bring any matters before the Meeting other than as stated in this Proxy
Statement, and is not aware that any other matters will be presented for action
at the Meeting. If any other matters come before the Meeting, the persons named
in the enclosed form of proxy will vote the proxy with respect thereto in
accordance with their best judgment, pursuant to the discretionary authority
granted by the proxy. Whether or not you plan to attend the Meeting in person,
please complete, sign, date and return the enclosed proxy card promptly.
By Order of the Board of Directors
Joel Friedman
Chairman of the Board
Dated: May 20, 1996
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EXHIBIT A
THE REVERSE STOCK SPLIT PROPOSAL
RESOLVED, that, prior to the Company's next Annual Meeting of Shareholders,
Article FOURTH of the Company's Articles of Incorporation be amended by the
addition of the following provision:
Simultaneously with the effective date of this amendment (the "Effective
Date"), each share of the Company's Common Stock par value $.12 per share,
issued and outstanding immediately prior to the Effective Date (the "Old Common
Stock") shall automatically and without any action on the part of the holder
thereof be reclassified as and changed into a smaller number of shares to be
determined by the Board of Directors, in its discretion, ranging from one-half
to one-tenth of the Company's Common Stock, par value equal to the par value of
the Old Common Stock (the "New Common Stock"), subject to the treatment of
fractional share interests as described below. Each holder of a certificate or
certificates which immediately prior to the Effective Date represented
outstanding shares of Old Common Stock (the "Old Certificates," whether one or
more) shall be entitled to receive upon surrender of such Old Certificates to
the Company's Transfer Agent for cancellation, a certificate or certificates
(the "New Certificates," whether one or more) representing the number of whole
shares of the New Common Stock into which the shares of the Old Common Stock
formerly represented by such Old Certificates so surrendered, are reclassified
under the terms hereof. From and after the Effective Date, Old Certificates
shall represent only the right to receive New Certificates (and, where
applicable, cash in lieu of fractional shares, as provided below) pursuant to
the provisions hereof. No certificates or scrip representing fractional share
interests in New Common Stock will be issued, and no such fractional share
interest will entitle the holder thereof to vote, or to any rights of
shareholder of the Company. All fractional shares for one-half share or more
shall be increased to the next higher whole number of shares and all fractional
shares of less than one-half share shall be decreased to the next lower whole
number of shares, respectively. If more than one Old Certificate shall be
surrendered at one time for the account of the same stockholder, the Transfer
Agent shall carry forward any fractional shares to any one person. If any New
Certificate is to be issued in a name other than that in which the Old
Certificates surrendered for exchange are issued, the Old Certificates
surrendered shall be properly endorsed and otherwise in proper form for
transfer, and the person or persons requesting such exchange shall affix any
requisite stock transfer tax stamps to the Old Certificates surrendered, or
provide funds for their purchase, or establish to the satisfaction of the
Transfer Agent that such taxes are not payable. From and after the Effective
Date the amount of capital represented by the shares of New Common Stock into
which the shares of the Old Common Stock are reclassified under the terms hereof
shall be the same as the amount of the capital represented by the shares of Old
Common Stock so reclassified, until thereafter reduced or increased in
accordance with applicable laws.
FURTHER RESOLVED, that at any time prior to the filing of the foregoing
amendment to the Company's Certificate of Incorporation effecting a Reverse
Stock Split, notwithstanding authorization of the proposed amendment by the
stockholders of the Company, the board of directors may abandon such proposed
amendment without further action by the stockholders.