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RECONDITIONED SYSTEMS, INC.
444 WEST FAIRMONT
TEMPE, ARIZONA 85282
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 8, 1997
To the Stockholders of Reconditioned Systems, Inc.:
The 1997 Annual Meeting of the Stockholders of Reconditioned
Systems, Inc., an Arizona corporation ("the Company"), will be held at
Reconditioned Systems, Inc., 444 West Fairmont, Tempe, Arizona 85282,
on Friday, August 8, 1997 at 8:00 a.m., Mountain Standard Time, for
the following purposes:
1. To elect three directors to the Board of Directors;
2. To consider and act upon a proposal to adopt the
Reconditioned Systems, Inc. 1997 Stock Option Plan;
3. To consider and act upon a proposal to ratify the
appointment of Semple & Cooper, PLC as the Company's
independent public accountants for the fiscal year ending
March 31, 1998; and
4. To transact such other business as may properly come before
the meeting.
Only Stockholders of record at the close of business on June 27,
1997 are entitled to notice of and to vote at the Annual Meeting.
Holders of Common Stock as of such date are entitled to vote on all of
the above proposals. Shares can be voted at the meeting only if the
holder is present or represented by proxy. A list of Stockholders
entitled to vote at the Annual Meeting will be open for inspection at
the Annual Meeting and will be open for inspection at the office of
Reconditioned Systems, Inc., 444 West Fairmont, Tempe, Arizona 85282
during ordinary business hours for ten days prior to the meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THIS MEETING.
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE COMPLETE, DATE,
SIGN AND PROMPTLY MAIL THE ENCLOSED PROXY CARD IN THE ACCOMPANYING
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
By Order of the Board of Directors,
/s/ Dirk D. Anderson
---------------------------
Dirk D. Anderson, Secretary
Tempe, Arizona
July 8, 1997
2 PROXY STATEMENT
OF
RECONDITIONED SYSTEMS, INC.
444 WEST FAIRMONT
TEMPE, ARIZONA 85282
-----------------------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of Reconditioned Systems, Inc.,
an Arizona corporation ("the Company"), of proxies for use at the 1997
Annual Meeting of Stockholders to be held on August 8, 1997, at 8:00
a.m., Mountain Standard Time. The Annual Meeting will be held at
Reconditioned Systems, Inc., 444 West Fairmont, Tempe, Arizona 85282.
This Proxy Statement and the accompanying form of proxy are being
first mailed to Stockholders on or about July 8, 1997. The Stockholder
giving the proxy may revoke it at any time before it is exercised at
the meeting by: (i) delivering to the Secretary of the Company a
written instrument of revocation bearing a date later than the date of
the proxy; (ii) duly executing and delivering to the Secretary a
subsequent proxy relating to the same shares; or (iii) attending the
meeting and voting in person (attendance at the meeting will not in
and of itself constitute revocation of a proxy). Any proxy which is
not revoked will be voted in accordance with the recommendations of
the Board of Directors as to such items. The proxy card gives
authority to the proxies to vote shares in their discretion on any
other matter properly presented at the Annual Meeting.
Proxies will be solicited from the Company's Stockholders by
mail. The Company will pay all expenses in connection with the
solicitation, including postage, printing and handling, and the
expenses incurred by brokers, custodians, nominees and fiduciaries in
forwarding proxy material to beneficial owners. It is possible that
directors, officers and regular employees of the Company may make
further solicitation personally or by telephone, telegraph or mail.
Directors, officers and regular employees of the Company will receive
no additional compensation for any such further solicitation.
Only holders (the "Stockholders") of the Company's Common Stock,
no par value (the "Common Stock") at the close of business on June 27,
1997 (the "Record Date"), are entitled to notice of, and to vote at,
the Annual Meeting. On the Record Date, there were 1,473,950 shares of
Common Stock outstanding. Each share of Common Stock is entitled to
one vote on each matter to be considered at the Annual Meeting. A
majority of the outstanding shares of Common Stock, present in person
or represented by proxy at the Annual Meeting, will constitute a
quorum for the transaction of business at the Annual Meeting.
The affirmative vote of holders of a plurality of the outstanding
shares of Common Stock of the Company entitled to vote and present in
person or by proxy at the Annual Meeting is required for approval of
election of directors pursuant to Proposal One. The affirmative vote
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of holders of a majority of the outstanding shares of Common Stock of
the Company entitled to vote and present in person or by proxy at the
Annual Meeting is required for approval of Proposals Two, Three and
Four. Votes that are withheld will have the effect of a negative vote.
Abstentions may be specified on all proposals except Proposal One
relating to the election of directors. Abstentions are included in the
determination of the number of shares represented for a quorum.
Abstentions will have the effect of a negative vote on a proposal.
Broker non-votes are not counted for purposes of determining whether a
quorum is present or whether a proposal has been approved. With regard
to the election of directors, votes may be cast in favor of or
withheld from each nominee. Stockholders voting on the election of
directors may cumulate their votes and give one candidate a number of
votes equal to the number of directors to be elected multiplied by the
number of votes to which the Stockholder's shares are entitled, or may
distribute their votes on the same principle among as many candidates
as being solicited. In order to cumulate votes, at least one
Stockholder must announce, prior to the casting of votes for the
election of directors, that he or she intends to cumulate votes.
Proxies will be tabulated by the Company with the assistance of the
Company's transfer agent. The Company will, in advance of the Annual
Meeting, appoint one or more Inspectors of Election to count all votes
and ballots at the Annual Meeting and make a written report thereof.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of June 1,
1997, with respect to the number of shares of the Company's equity
securities beneficially owned by individual directors, by all
directors and officers of the Company as a group and by persons known
by the Company to own more than 5% of the Company's Common Stock.
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Percent
Name and Address of Common of
Beneficial Owner Shares Total**
------------------ ------ -------
Quota Fund N V Balto 481,481 27.1%
888 Seventh Avenue
33rd Floor
New York, NY 10106
Granite Capital 231,117 13.0%
126 East 56th Street
25th Floor
New York, NY 10022
Scott W. Ryan 197,996* 11.2%
111 Presidential Boulevard
Suite 246
Bala Cynwyd, PA 19004
E. & W. Zachs Partnership 144,443 8.1%
40 Woodland Street
Hartford, CT 06105
Dirk Anderson 101,500* 5.7%
444 W. Fairmont
Tempe, AZ 85282
Wayne Collignon 100,017* 5.6%
444 W. Fairmont
Tempe, AZ 85282
All directors and officers as 399,513** 22.5%
a group (three persons)
_____________
* Includes options to purchase 100,000 shares that are
presently exercisable.
** Includes options to purchase 300,000 shares that are
presently exercisable.
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5 PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
The Board of Directors currently consists of three members
holding seats to serve as members until the next Annual Meeting of
Stockholders or until their respective successors are duly elected and
qualified, unless they earlier resign or are removed from office. The
Company's Articles of Incorporation presently provide for a Board of
Directors of not less than three (3) nor more than nine (9) in number,
with the exact number to be fixed as provided by the Company's Bylaws.
The term of office of all directors will expire at the 1997 Annual
Meeting of Stockholders.
On May 6, 1997, the Company's Board of Directors nominated
Messrs. Wayne R. Collignon, Dirk D. Anderson, and Scott W. Ryan for
election to the Board of Directors. Each of the nominees is currently
serving as a director, and a brief description of the business
experience of each nominee is set forth below in the table under the
heading "Directors and Executive Officers". UNLESS OTHERWISE
INSTRUCTED, THE PERSONS NAMED IN THE ACCOMPANYING PROXY WILL VOTE FOR
THE ELECTION OF SUCH NOMINEES. All of the nominees have consented to
being named herein and have indicated their intention to serve if
elected. If for any reason any nominee should become unable to serve
as a director, the accompanying proxy may be voted for the election of
a substitute nominee designated by the Board of Directors.
VOTING REQUIREMENTS
The affirmative vote of holders of a plurality of the outstanding
shares of Common Stock entitled to vote and present in person or by
proxy at the Annual Meeting is required for approval of the election
of directors. Proxies solicited by the Board of Directors will be
voted for approval of the election of directors. Stockholders are
entitled to cumulate their votes with respect to the election of
directors and give one candidate a number of votes equal to the number
of directors to be elected multiplied by the number of votes to which
the Stockholders shares are entitled, or may distribute their votes on
the same principle among as many candidates as they choose, provided
that votes cannot be cast for more than the total number of directors
to be elected. In order to cumulate votes, at least one Stockholder
must announce, prior to the casting of votes for the election of
directors, that he or she intends to cumulate votes. As is indicated
in the proxy, discretionary power to cumulate votes is being
solicited. With regard to the election of directors, votes may be
cast in favor of or withheld from each nominee.
For this purpose, a Stockholder voting through a proxy who abstains
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with respect to approval of the election of directors is considered to
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be present and entitled to vote on the approval of the election of
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directors at the meeting and is in effect a negative vote, but a
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Stockholder, (including a broker) who does not give authority to a
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proxy to vote on the election of directors shall not be considered
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present and entitled to vote on the election of directors.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL ONE.
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DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect
to the directors and executive officers of the Company as of July 8,
1997.
NAME AGE POSITION, TENURE AND EXPERIENCE
- -------- --- --------------------------------
Wayne R. Collignon 43 Mr. Collignon has been the
Company's President and Chief
Executive Officer since August 10,
1995 and a Director since August 31,
1995. He was the Company's general
manager from June, 1993 through
August 10, 1995. Previously, he
served as Vice President at All
Makes Office Furniture in Omaha,
Nebraska where his career spanned
nineteen years.
Dirk D. Anderson 33 Mr. Anderson has been the Company's
Chief Financial Officer since August
10, 1995 and a Director since
December, 1995. He was the
Company's controller from August,
1993 through August 10, 1995.
Previously, he served as an Audit
Manager at Semple & Cooper, PLC
where his career spanned seven
years.
Scott W. Ryan 51 Mr. Ryan has been a Director since
December, 1995. He was appointed to
the Board by the Company's Preferred
Stockholders. Mr. Ryan is the
President of S.W. Ryan & Company,
Inc. which is a securities brokerage
and asset management firm located in
Bala Cynwyd, Pennsylvania founded by
Mr. Ryan in 1988. Previously, Mr.
Ryan was with other securities
brokerage firms including Walsh
Greenwood & Co., Merrill Lynch and
Goldman, Sachs & Co. Mr. Ryan is
also a Board Member of NASD District
#9.
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BOARD MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended March 31, 1997, the Board of
Directors met six times. The Board of Directors has established an
Audit Committee and a Compensation Committee. The Board does not have
a Nominating Committee, and the entire Board is responsible for
recommending nominees to serve on the Board.
During the fiscal year ended March 31, 1997, the Board of
Directors appointed Scott W. Ryan to the Audit Committee. The
functions of the Audit Committee are to receive reports with respect
to loss contingencies, the public disclosure through financial
statement notation of which may be legally required; annually review
and examine those matters that relate to the financial audit of the
Company; recommend to the Company's Board of Directors the selection,
retention and termination of the Company's independent accountants;
review the professional services, proposed fees and independence of
such accountants; and provide for the periodic review and examination
of management performance in selected aspects of corporate
responsibility. The Audit Committee met once during the fiscal year
ended March 31, 1997.
During the fiscal year ended March 31, 1997, the Board of
Directors appointed Scott W. Ryan and Wayne R. Collignon to the
Compensation Committee. The functions of the Compensation Committee
are to review annually the performance of the Chief Executive Office
and President and of the other principal officers whose compensation
is subject to the Committee's review and reports thereon to the
Company's Board of Directors. In addition, the Compensation Committee
reviews the compensation of outside directors for their services on
the Board of Directors and report thereon to the Board of Directors.
The Compensation Committee met once during the fiscal year ended March
31, 1997.
During the fiscal year ended March 31, 1997, each incumbent
director attended 75% or more of the aggregate of (i) the total number
of meetings of the Board of Directors (held during the period for
which such person was a director) and (ii) the total number of
meetings held by all committees on which such director served (during
the period for which such person was a director).
COMPENSATION OF DIRECTORS
The Company provides for annual compensation to its non-employee
directors of $5,000. In addition, the Company reimburses them for
reasonable expenses incurred in attending meetings.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to the
current Chief Executive Officer (Named Executive Officer) of the
Company. Compensation for each of the Company's other executive
officers was less than $100,000 during fiscal 1997.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- AWARDS
--------------------
NAME AND PRINCIPAL SECURITIES UNDERLYING
POSITION YEAR ENDED SALARY ($) BONUS ($) OPTIONS (#)
- ------------- ----------- ---------- -------- --------------------
Wayne R. Collignon March 31, 1997 $105,000 $14,281 83,334
CEO and President(1) March 31, 1996 105,000 0 16,666 (2)
March 31, 1995 80,000 25,000 0
- -------------------------------
(1) Mr. Collignon became Chief Executive Office and President of the
Company in August 1995. From June 1993 through August 1995, Mr.
Collignon was the Company's general manager.
(2) Restated to reflect 1-for-6 reverse split.
OPTION GRANTS
The Company has not adopted any stock option plan, although the
Board is requesting the stockholders to approve such a plan in
Proposal Two. The following table provides information with respect
to non-qualified stock option grants made to the named Executive
Officer during the periods indicated.
OPTION GRANTS IN LAST FISCAL YEAR
NUMBER OF PERCENT OF TOTAL EXERCISE
SECURITIES OPTIONS GRANTED OR BASE
UNDERLYING OPTIONS TO EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE
- ------- ----------- ------------ --------- -----
Wayne R. 83,334 (1) 50% $1.00 August 10, 2005
Collignon
- -----------------------
(1) Such options are presently exercisable; provided, however, that Mr.
Collignon may not sell or otherwise transfer any shares upon
exercise of the option until August 19, 1997. The Company has
agreed to register the shares issuable upon exercise of the option
by filing a registration statement on Form S-8 with the Securities
and Exchange Commission. The option exercise price equals the fair
market value of the underlying common stock on the date of grant.
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AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the
number of unexercised options held by the Named Executive Officer at
March 31, 1997. No options were exercised by the named Executive
Officer during the fiscal year ended March 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED
NAME OPTIONS AT FY-END (#) -- EXERCISABLE/UNEXERCISABLE
- ------------ --------------------------------------------------
Wayne R. Collignon 100,000/0
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
On August 10, 1996, the Company entered into an employment
agreement with Wayne Collignon pursuant to which he serves as the
Company's President and Chief Executive Officer. Unless sooner
terminated, the agreement continues through August 10, 1998, and is
automatically extended for successive one year periods unless either
the Board of Directors or Mr. Collignon gives written notice to the
other at least ninety days prior to the end of the initial or any
renewal term of its or his intention not to renew. Under the
agreement, Mr. Collignon receives a base annual salary of $105,000.
Increases to Mr. Collignon's base salary and bonuses are at the
discretion of the Company's Board of Directors. Mr. Collignon is
entitled to participate in all retirement and employee benefit plans
that the Company may adopt for the benefit of its senior executives,
and is entitled to a car allowance of $300 per month. The agreement
also entitled Mr. Collignon to receive the options described above
under the heading "Option Grants".
Under the agreement, if Mr. Collignon's employment is terminated
by reason of death, Disability or Retirement, upon expiration of the
term of the agreement, by the Company for Cause or by Mr. Collignon
without Good Reason (in each case as such terms are defined in the
agreement), the Company shall: (i) pay Mr. Collignon any base salary
which has accrued but not been paid as of the termination date (the
"Accrued Base Salary" ); (ii) reimburse Mr. Collignon for expenses
incurred by him prior to termination which are subject to
reimbursement pursuant to applicable Company policies (the" Accrued
Reimbursable Expenses"); (iii) provide to Mr. Collignon any accrued
and vested benefits required to be provided by the terms of any
Company-sponsored benefit plans (the "Accrued Benefits"); (iv) pay Mr.
Collignon any discretionary bonus with respect to a prior fiscal year
which has accrued and been earned but has not been paid (the "Accrued
Bonus"); (v) permit Mr. Collignon to exercise all vested, unexercised
stock options outstanding at the termination date; and (vi) to the
extent permitted by the terms of the policies then in effect, give Mr.
Collignon a right of first refusal to cause the transfer of the
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ownership of all key-man life insurance policies maintained by the
Company on Mr. Collignon to Mr. Collignon at Mr. Collignon s expense
(the "Right of First Refusal"). If Mr. Collignon's employment is
terminated by the Company without cause or by Mr. Collignon for Good
Reason, the Company shall: (i) pay Mr. Collignon the Accrued Base
Salary; (ii) pay Mr. Collignon the Accrued Reimbursable Expenses;
(iii) pay Mr. Collignon the Accrued Benefits; (iv) pay Mr. Collignon
the Accrued Bonus; (v) pay Mr. Collignon his base salary, as and when
it would have been paid had the termination not occurred, for a period
of six months following the termination date; (vi) maintain in effect,
until the first to occur of (vii) his attainment of comparable
benefits upon alternative employment or (ii) six months following the
termination date, the employee benefits in which he was entitled to
participate immediately prior to such termination; (iix) permit Mr.
Collignon to exercise all vested, unexercised stock options in
accordance with the terms of the plans and agreements pursuant to
which they were issued; and (ix) give Mr. Collignon the Right of First
Refusal.
On August 19, 1996, the Company amended the employment agreement
to include compensation pursuant to a change in control. Under this
agreement, if Mr. Collignon's employment is terminated by the Company
subsequent to a Change of Control of the Company either by the new
controlling party or by the Executive for Good Reason, Mr. Collignon
will receive a two-year consulting agreement at $100,000 per year in
addition to the severance pay detailed above.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), requires the Company's directors and officers,
and persons who own more than 10% 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 the
Company's equity securities. Officers, directors and greater than 10%
stockholders are required by SEC regulations to provide the Company
with the copies of such reports furnished to the Company and written
representations that no other reports were required. Based solely
upon a review of such reports and representations, the Company
believes that all Section 16(a) filing requirements applicable to the
Company's officers, directors and greater than 10% stockholders were
timely satisfied during the fiscal year ended March 31, 1997.
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APPROVAL OF 1997 STOCK OPTION PLAN
On March 6, 1997, the Board of Directors, subject to Stockholder
approval, unanimously adopted the Reconditioned Systems, Inc. 1997
Stock Option Plan (the "Plan"). Under the Plan, up to 50,000 shares
of Common Stock could be issued upon the exercise of options under the
Plan. At the Annual Meeting, the Stockholders are being asked to
approve the Plan.
The Board of Directors believes that the Plan will assist the
Company in the recruitment, retention and motivation of key employees
and consultants who are highly qualified and in a position to make
material contributions to the Company's success. The Plan is intended
to offer these individuals a significant incentive through awards of
Incentive Stock Options and Nonqualified Options. Non-employee
directors are eligible to participate in the Plan.
The Company's continued employment growth and need for highly
qualified employees make the Plan essential to the Company's ability
to recruit and retain its employees. The Board of Directors believes
that the Plan is necessary to enable it to compete with other
companies to secure and retain valuable employees.
The Company intends to register the 100,000 shares issuable upon
the exercise of options under the Plan on Form S-8 under the
Securities Act of 1933, as amended, as soon as is practicable after
receiving Stockholder approval.
SUMMARY OF THE PROVISIONS OF THE PLAN
The description of the Plan set forth below is a summary only and
is qualified in its entirety by reference to the text of the proposed
Plan, a copy of which is attached to this Proxy Statement as Exhibit
1. Capitalized terms not otherwise defined shall have the meanings
assigned to such terms in the Plan.
ELIGIBILITY AND PARTICIPATION. Participants in the Plan are
selected by the Board of Directors, which administers the Plan. The
Plan contemplates that options will be granted from time to time to
officers, key employees and certain consultants and advisors of the
Company. Usually, the only consideration received by the Company for
the grant of an award will be past services and/or the expectation of
future services. The Plan does not confer on any Participant any right
with respect to continued employment or other service to the Company
and will not interfere in any manner with the right of the Company to
terminate a Participant's employment or other service at any time.
ADMINISTRATION. The Plan is administered by the Board. The Board
is authorized to: (i) select Participants in the Plan; (ii) determine
the type and amount of awards, including the number of shares of
Common Stock covered by any awards; (iii) determine the vesting and
exercise provisions of awards; (iv) determine whether, when and to
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what extent awards are to be made, subject to the restrictions of the
Plan; (v) determine the terms and conditions of any award; (vi) adjust
the terms and conditions of any award, unless otherwise prohibited or
restricted under the Plan; (vii) prescribe forms; (viii) issue Common
Stock within the provisions of the Plan; (ix) assist any Participant
in the exercise of one or more awards; (x) determine to what extent
and under what circumstances loans extended under any financial
assistance arrangement would be forgiven by the Company in whole or in
part; (xi) accelerate the benefits of an award in the event of a
Corporate Transaction or Change of Control, as defined below, or in
the event of termination of employment or consulting services by
reason of death, disability, normal retirement, early retirement with
the consent of the Company, entry into public or military service with
a related leave of absence from the Company, hardship or other special
circumstances; (xii) make such adjustments in the number, option
prices and kind of shares or other rights covered by outstanding
awards or otherwise issuable under the Plan, to be equitably required
in order to prevent dilution or expansion of the rights of
Participants that otherwise would result from any stock dividend,
stock split, exchange or combination of shares, recapitalization or
other change in the capital structure of the Company, merger,
consolidation, spin-off, split-off, split-up, reorganization,
liquidation of assets or issuance of warrants in any corporate
transaction; (xiii) interpret the provisions of the Plan and any award
issued thereunder; and (xiv) delegate certain decisions to officers of
the Company, provided that no delegation may be made that would cause
any award to cease to be exempt from Section 16(b) of the Exchange
Act. All determinations by the Board are final and binding. No member
of the Board is liable for any action or determination made in good
faith and the Company must indemnify each Board member against any
losses incurred in connection with any action taken or failure to act
under the Plan.
AMENDMENT AND TERMINATION. The Board may amend the Plan,
provided, however, that no such amendment may increase the maximum
number of shares of Common Stock issuable in the aggregate or to any
one Participant, or cause the Plan to cease to satisfy any applicable
condition of Rule 16b-3 of the Exchange Act, without the approval of
the Stockholders. The Plan will terminate on the earlier of May 6,
2007, or the date on which all awards available for issuance during
the last year of the Plan shall have been issued or canceled.
LIMITATIONS ON AWARDS. Subject to adjustment under certain
circumstances, the total number of shares of Common Stock available
for purchase pursuant to grants under the Plan is 100,000. Any grants
are in the discretion of the Board and no grants are required to be
made during any calendar year. In no event shall the total number of
shares of Common Stock covered by grants to any one individual exceed
5,000 per year or 50,000 over the term of the Plan. No Incentive Stock
Option or Nonqualified Option may be exercised more than 10 years from
the date of grant (or more than 5 years from the date of grant of an
Incentive Stock Option in the case of an Optionee who owns, directly
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or indirectly, 10% or more of the outstanding voting power of all
classes of stock of the Company).
PRICING AND PAYMENT OF OPTIONS. The per-share exercise price of
each stock option granted under the Plan will be established by the
Board at the time of award. Subject to the provisions of the Code,
stock option grants to Participants may be either Incentive Stock
Options or Nonqualified Stock Options. In the case of an Incentive
Stock Option, the per share exercise price may be no less than 100% of
the market value of a share of Common Stock on the date of grant (110%
in the case of an Optionee who owns, directly or indirectly, 10% or
more of the outstanding voting power of all classes of stock of the
Company). In the case of a Nonqualified Stock Option, the per share
exercise price may be no less than 85% of the market value of the
Common Stock on the date of grant. With respect to Incentive Stock
Options, the aggregate market value of the Common Stock for which one
or more options granted to any Optionee may become exercisable during
any one calendar year may not exceed $100,000. Under the Plan, the
market value of the Common Stock presently equals an amount determined
by the Board after taking into account such factors as it deems
appropriate. The Board deems the market value of the Common Stock on
the Record Date to be $1.87 per share.
Under the Plan, the purchase price of an option is payable upon
exercise (i) in cash; (ii) in nonforfeitable, unrestricted Common
Stock already owned by a Participant; (iii) through a sale and
remittance procedure by which a Participant delivers concurrent
written instructions to a Company-designated brokerage firm to
immediately sell the purchased Common Stock and remit to the Company
sufficient funds to pay for the options exercised and by which the
Company delivers the certificates for the purchased Common Stock
directly to the brokerage firm; or (iv) in any other legal
consideration that the Board may deem appropriate. For a Nonqualified
Option, a grant may also provide that payment may be made in the form
of shares that are subject to risk of forfeiture or restrictions on
transfer, provided that such risks of forfeiture and restrictions on
transfer shall apply to the same number of shares of Common Stock
received by the Participant as applied to the forfeitable or
restricted Common Stock surrendered by the Participant.
The Board may, in its discretion, assist any Participant in the
exercise of one or more awards under the Plan, including the
satisfaction of any federal, state, local and foreign income and
employment tax obligations arising therefrom, by extending a loan to
such Participant, by permitting the Participant to pay the exercise
price in installments or by granting a cash bonus to the Participant
to permit the Participant to pay tax obligations. Loans or installment
payments may be authorized either with or without collateral; however,
the maximum loan or installment available may not exceed the exercise
price (less the par value of such Common Stock) plus applicable
federal, state and local income and employment tax obligations
incurred by the Participant in connection with the acquisition. In
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addition, the Board at its discretion may forgive one or more loans
extended to a Participant (but not that portion of a loan equal to the
par value of the Common Stock acquired).
Under the Plan, a stock option grant may provide for the
automatic grant to a participant of Reload Option Rights upon the
exercise of Incentive Stock Options or Nonqualified Options, provided
that the term of any Reload Option Right shall not extend beyond the
term of the option originally exercised.
INCENTIVE STOCK OPTIONS. Incentive Stock Options, within the
meaning of Section 422 of the Internal Revenue Code ("ISOs"), may be
granted at the discretion of the Board under the Plan. No provision of
the Plan relating to ISOs may be interpreted or authority exercised so
as to disqualify the awards or the Plan under Section 422 of the Code.
VESTING OF AWARDS. The Board has the authority to determine the
vesting and exercise provisions of all awards granted under the Plan.
The Board, in its sole discretion, may accelerate the benefits of
any award under the Plan in the event of a Corporate Transaction or
Change of Control, with such acceleration rights being granted in
connection with an award pursuant to an agreement evidencing the same
or at any time after an award has been granted to a Participant.
"Corporate Transaction" means (i) a merger or consolidation in which
the Company is not the surviving entity, except for a transaction the
principal purpose of which is to change the state in which the Company
is incorporated; (ii) the sale, transfer or other disposition of all
or substantially all of the assets of the Company in complete
liquidation or dissolution of the Company; or (iii) any reverse merger
in which the Company is the surviving entity but in which securities
possessing more than 50% of the total combined voting power of the
Company's outstanding securities are transferred to a person or
persons different from the persons holding those securities
immediately prior to such merger. "Change of Control" means a change
in ownership or control of the Company either by (i) the direct or
indirect acquisition by any person or related group of persons other
than the Company or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Company of
beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Act of 1934, as amended) of securities
possessing more than 50% of the total combined voting power of the
Company's outstanding securities pursuant to a tender or exchange
offer made directly to the Company's Stockholders or other
transaction, in each case which the Company's Board of Directors does
not recommend such Stockholders to accept; or (ii) a change in the
composition of the Company's Board of Directors over a period of 36
consecutive months or less such that a majority of the Board members
(rounded up to the next whole number) ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either have been Board members continuously since the
beginning of such period or have been elected or nominated for
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election as Board members during such period by at least a majority of
the Board members continuously serving at the beginning of such period
who were still in office at the time such election or nomination was
approved by the Board.
RESTRICTIONS ON RESALE. Any grant made under the Plan may provide
that all or any part of the shares to be issued upon the exercise of
options shall be subject to restrictions upon transfer. In addition,
the Company shall not be obligated to recognize the exercise of an
option or otherwise issue or sell shares of Common Stock if such
exercise, issuance or sale would result in a violation of any federal
or state law, rule or regulation (including without limitation any
registration requirement) or exchange requirement. Generally, no
person who acquires shares of Common Stock under the Plan may offer to
sell such shares of Common Stock unless such offer is made (i)
pursuant to an effective registration statement under the Securities
Act of 1933, as amended (the "Securities Act"); or (ii) pursuant to an
appropriate exemption from the registration requirements of the
Securities Act, such as the one set forth in Rule 144 promulgated
thereunder.
Under Section 16 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), any person who is a beneficial owner of
more than 10% of any equity security of the Company registered under
the Exchange Act (such as the Common Stock of the Company), or an
executive officer or director of the Company, is deemed to be an
"affiliate" of the Company and may be liable to the Company for any
profit realized from any sale of Common Stock or any other equity
security of the Company within a period of less than six months before
or after any purchase of an equity security of the Company,
irrespective of the intention on the part of such person in entering
into the transaction.
FEDERAL INCOME TAX CONSIDERATIONS. The discussion that follows
is a summary, based upon current law, of some of the significant
federal income tax considerations relating to awards under the Plan.
The following discussion does not address state, local or foreign tax
consequences.
A Participant will not recognize taxable income upon the grant or
exercise of an ISO except under certain circumstances when the
exercise price is paid with already-owned shares of Common Stock that
were acquired through the previous exercise of an ISO. However, upon
the exercise of an ISO, the excess of the fair market value of the
shares received on the date of exercise over the exercise price of the
shares will be treated as a tax preference item for purposes of the
alternative minimum tax. For the exercise of an ISO to qualify for
the foregoing tax treatment, the Participant generally must be an
employee of the Company from the date the ISO is granted through the
date three months before the date of exercise, except in the case of
death or disability, where special rules apply. The Company will not
be entitled to any deduction with respect to the grant or exercise of
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an ISO.
If shares acquired upon exercise of an ISO are not disposed
of by the Participant within two years from the date of grant or
within one year after the transfer of such shares to the Participant
(the "ISO Holding Period"), then (i) no amount will be reportable as
ordinary income with respect to such shares by the Participant and
(ii) the Company will not be allowed a deduction in connection with
such ISO or the Common Stock acquired pursuant to the exercise of the
ISO. If a sale of such Common Stock occurs after the ISO Holding
Period has expired, then any amount recognized in excess of the
exercise price will be reportable as a long-term capital gain, and any
amount recognized below the exercise price will be reportable as a
long-term capital loss. The exact amount of tax payable on a long-term
capital gain will depend upon the tax rates in effect at the time of
the sale. The ability of a Participant to utilize a long-term capital
loss will depend upon the Participant's other tax attributes and the
statutory limitations on capital loss deductions not discussed herein.
To the extent that alternative minimum taxable income was recognized
on exercise of the ISO, the basis in the Common Stock acquired may be
higher for determining a long-term capital gain or loss for
alternative minimum tax purposes.
A "disqualifying disposition" will result if Common Stock
acquired upon the exercise of an ISO (except in the circumstances of a
decedent's ISO as described below) is sold before the ISO Holding
Period has expired. In such case, at the time of a disqualifying
disposition (except in the case of a Participant subject to
restrictions under Section 16 of the Exchange Act, as noted below),
the Participant will recognize ordinary income in the amount of the
difference between the exercise price and the lesser of (i) the fair
market value on the date of exercise or (ii) the amount realized on
disposition. If the amount realized on the sale is less than the
exercise price, then the Participant will recognize no ordinary
income, and the recognized loss will be reportable as a short-term
capital loss. The Participant will report as a short-term capital
gain, as applicable, any amount recognized in excess of the fair
market value on the date of exercise, and the Company will be allowed
a deduction on its federal income tax return in the year of the
disqualifying disposition equal to the ordinary income recognized by
the Participant. To the extent that alternative minimum taxable income
was recognized on exercise of the ISO, the basis in the Common Stock
acquired may be higher for determining a short-term capital gain or
loss for alternative minimum tax purposes.
The general rules discussed above are different if the
Participant disposes of the shares of Common Stock in a disqualifying
disposition in which a loss, if actually sustained, would not be
recognized by the Participant. Examples of these dispositions include
gifts or sales to related parties such as members of the Participant's
family and corporations or entities in which the Participant owns a
majority equity interest. In such circumstances, the Participant would
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recognize ordinary income equal to the difference between the exercise
price of the Common Stock and the fair market value of the Common
Stock on the date of exercise. The amount of ordinary income would not
be limited by the price at which the Common Stock was actually sold by
the Participant.
If the Participant retires or otherwise terminates employment
with the Company, other than by reason of death or permanent and total
disability, an ISO must be exercised within three months of such
termination in order to be eligible for the tax treatment of the ISOs
described above, provided the ISO Holding Period requirements are met.
If a Participant terminates employment because of a permanent and
total disability, the ISO will be eligible for such treatment if it is
exercised within one year of the date of termination of employment,
provided the ISO Holding Period requirements are met. In the event of
a Participant's death, the ISO will be eligible for such treatment if
exercised by the Participant's legatees, personal representatives or
distributees within one year from the date of death, provided that the
death occurred while the Participant was employed, within three months
of the date of termination of employment or within one year following
the date of termination of employment because of permanent and total
disability.
In general, a Participant to whom a Nonqualified Option is
granted will recognize no taxable income at the time of the grant.
Upon exercise of a Nonqualified Option, the Participant will recognize
ordinary income in an amount equal to the amount by which the fair
market value of the Common Stock on the date of exercise exceeds the
exercise price of the Nonqualified Option, and the Company will
generally be entitled to a deduction equal to the ordinary income
recognized by the Participant in the year the Participant recognizes
ordinary income, subject to the limitations of Section 162(m) of the
Code.
For purposes of the alternative minimum tax applicable to
individuals, the exercise of an ISO is treated in the same manner as
the exercise of a Nonqualified Option. Thus, a Participant must, in
the year of option exercise, include the difference between the
exercise price and the fair market value of the stock on the date of
exercise in alternative minimum taxable income. The alternative
minimum tax is imposed upon an individual's alternative minimum
taxable income currently, but only to the extent that such tax exceeds
the taxpayer's regular income tax liability for the taxable year.
The Company is required to withhold certain income taxes from
Participants upon exercises of Nonqualified Options. The Company will
be entitled to a business expense deduction for both financial
statement and federal income tax purposes equal to the ordinary income
recognized by the Participant in the year the Participant recognizes
ordinary income from the exercise of Nonqualified Options.
In addition to the foregoing federal tax consequences, the
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exercise, ultimate sale or other disposition of awards by Participants
will in most cases be subject to state income taxation.
PLAN BENEFIT ANALYSIS
Because the Plan is a new plan, no grants have been made
thereunder. Further, because grants are determined in the discretion
of the Board, benefits to executive officers and other employees that
will be received, or that would have been received during the previous
year had the Plan been in effect, are not yet determinable. Because
they are eligible to participate in the Plan, the Company's executive
officers and employee directors have an interest in the Plan proposed
for Stockholder approval.
VOTING REQUIREMENTS
Each holder of Common Stock is entitled to one vote per share
held. The affirmative vote of holders of a majority of the
outstanding shares of Common Stock of the Company entitled to vote and
present in person or by proxy at the Annual Meeting is required for
approval of Proposal Two. Stockholders are not entitled to cumulate
votes.
For this purpose, a Stockholder voting through a proxy who
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abstains with respect to approval of Proposal Two is considered to be
- ---------------------------------------------------------------------
present and entitled to vote on the approval of Proposal Two at the
- ---------------------------------------------------------------------
meeting, and is in effect a negative vote, but a Stockholder
- ---------------------------------------------------------------
(including a broker) who does not give authority to a proxy to vote on
- --------------------------------------------------------------------
the approval of Proposal Two shall not be considered present and
- ------------------------------------------------------------------
entitled to vote on Proposal Two.
- ----------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL TWO.
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PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
CHANGES IN THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS
On March 21, 1996, the Company, acting on the direction of its
Board of Directors, informed McGladrey & Pullen LLP that is would be
seeking additional fee proposals for its March 31, 1996 audit. On
March 22, 1996, McGladrey & Pullen, LLP notified the Company that the
firm would not be submitting a proposal. Accordingly, on March 22,
1996, the client-auditor relationship between the Company and
McGladrey & Pullen, LLP ceased.
McGladrey & Pullen, LLP's reports on the Company's financial
statements for the years ended March 31, 1994 and 1995 did not contain
an adverse opinion or a disclaimer of opinion and were not qualified
or modified as to uncertainty, audit scope, or accounting principles.
There were no disagreements with McGladrey & Pullen, LLP on any matter
of accounting principles, financial disclosures, or auditing scope or
procedure through McGladrey & Pullen, LLP's issuance of their report
in connection with their audit of the Company's financial statement
for the years ended March 31, 1995 or 1994.
The only disagreement in connection with the Company's interim
reports on Form 10-QSB filed subsequent to the Company's Form 10-KSB
filing for the year ended March 31, 1995 is discussed in the following
paragraph.
During March, 1996, the Company requested that McGladrey &
Pullen, LLP reissue their report on the Company's 1995 and 1994
financial statements for inclusion in the 1996 Proxy Statement. In
connection with that engagement, McGladrey & Pullen, LLP determined
that the Company had accrued dividends on its 9% Series A Convertible
Preferred Stock in its last three Form 10-QSB filings. McGladrey &
Pullen, LLP advised the Company that, inasmuch as such dividends had
not been declared, in their opinion, accrual of these dividends was
not in accordance with generally accepted accounting principles. The
Company originally disagreed, but eventually acquiesced and, on March
19, 1996, amended its Form 10-QSB filings for the quarters ended June
30, 1995, September 30, 1995, and December 31, 1995.
On March 28, 1996, the Company selected Semple & Cooper, PLC as
its new independent accountants.
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Company's Board of Directors has selected, and is submitting
to the Stockholders for ratification, the appointment of Semple &
Cooper, PLC to serve as independent public accountants to audit the
financial statements of the Company for the fiscal year ending March
31, 1998 and to perform other accounting services as may be requested
by the Company. Semple & Cooper, PLC has acted as independent public
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accountants for the Company since its appointment effective March 28,
1996.
The Company does not expect that representatives of Semple &
Cooper, PLC will be present at the 1997 Annual Meeting, that they will
have the opportunity to make a statement, or that they will be
available to respond to appropriate questions.
Although it is not required to do so, the Board of Directors has
submitted the selection of Semple & Cooper, PLC to the Stockholders
for ratification.
VOTING REQUIREMENTS
Each holder of Common Stock is entitled to one vote per share
held. The affirmative vote of holders of a majority of the
outstanding shares of Common Stock of the Company entitled to vote and
present in person or by proxy at the Annual Meeting is required for
approval of Proposal Three. Proxies solicited by the Board of
Directors will be voted for approval of Proposal Three. Stockholders
are not entitled to cumulate votes.
For this purpose, a Stockholder voting through a proxy who abstains
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with respect to approval of Proposal Three is considered to be present
- --------------------------------------------------------------------
and entitled to vote on the approval of Proposal Three at the meeting,
- --------------------------------------------------------------------
and is in effect a negative vote, but a Stockholder (including a
- -------------------------------------------------------------------
broker) who does not give authority to a proxy to vote on the approval
- ---------------------------------------------------------------------
of Proposal Three shall not be consider present and entitled to vote -
- ------------------------------------------------------------------
on Proposal Three.
- ------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL THREE.
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OTHER MATTERS
The Company's Board of Directors is not aware of any other
business to be considered or acted upon at the Annual Meeting of the
Stockholders other than those described above. If other business
requiring a vote of the Stockholders is properly presented at the
meeting, proxies will be voted in accordance with the judgment on such
matters of the person or persons acting as proxy. If any matter not
appropriate for action at the Annual Meeting should be presented, the
holder of the proxies will vote against consideration thereof or
action thereon.
STOCKHOLDER PROPOSALS
The Company welcomes comments or suggestions from its
Stockholders. If a Stockholder desires to have a proposal formally
considered at the 1998 Annual Meeting of Stockholders, and evaluated
by the Board for possible inclusion in the Proxy Statement for that
meeting, the proposal (which must comply with the requirements of Rule
14a-8 promulgated under the Exchange Act) must be received in writing
by the Secretary of the Company at the address set forth on the first
page hereof on or before March 15, 1998.
ANNUAL REPORT
The Company's Annual Report to Stockholders, with audited
financial statements, accompanies this Proxy Statement and was mailed
this date to all Stockholders of record as of the Record Date. The
Company will furnish to any Stockholder submitting a request, without
charge, a copy of the Company's Annual Report on Form 10-KSB. Any
exhibit to the Annual Report on Form 10-KSB will be furnished to any
Stockholder of the Company. The fee for furnishing a copy of any
exhibit will be 25 cents per page plus $3.00 for postage and handling.
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[FRONT OF CARD]
RECONDITIONED SYSTEMS, INC. PROXY
444 WEST FAIRMONT, TEMPE, ARIZONA 85282
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned appoints Wayne Collignon and Dirk Anderson,
and each of them, as proxies, each with the power of
substitution, and authorizes them to represent and vote, as
designated on the reverse side hereof, all shares of Common Stock
of Reconditioned Systems, Inc. held by the undersigned on June
27, 1997. In their discretion, the proxies are authorized to
vote such shares upon such other business as may properly come
before the Annual Meeting and are authorized to cumulate votes
with respect to the election of directors.
THIS PROXY, WHEN PROPERLY EXECUTED , WILL BE VOTED IN THE
MANNER DIRECTED BY THE UNDERSIGNED STOCKHOLDER(S). IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR EACH OF THE
LISTED PROPOSALS.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(Continued and to be SIGNED on the reverse side.)
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[REVERSE OF CARD]
Please mark boxes X in blue or black ink. This Board of
Directors recommends a vote FOR each of the proposals listed
below.
1. Elector of Directors: Wayne R. Collignon, Dirk D. Anderson,
and Scott W. Ryan
/ / FOR the nominees listed above.
/ / Withhold authority to vote for the following nominees: _____
2. Approval to adopt the Reconditioned Systems, Inc. 1997 Stock
Option Plan. / / FOR / / AGAINST / / ABSTAIN
3. Ratification of the appointment of Semple & Cooper, PLC as
independent public accountants.
/ / FOR / / AGAINST / / ABSTAIN
Please sign exactly as name appears on reverse
side. When shares are held by joint tenants,
both should sign. When signing as an attorney,
executor, administator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full corporate name
by president or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.
Dated: __________________, 1997
Signature(s) _________________________________
Signature if held jointly ____________________