UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14C
INFORMATION STATEMENT
PURSUANT TO SECTION 14(C) OF THE SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14c-5(d)(2))
[x] Definitive Information Statement
ENVIRONMENTAL SOLUTIONS WORLDWIDE, INC.
(Name of Registrant as Specified in its Charter)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computer pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction: (5) Total fee paid:
[ ] Fee paid previously by written preliminary materials
[ ] 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 statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
ENVIRONMENTAL SOLUTIONS WORLDWIDE, INC.
335 CONNIE CRESCENT
CONCORD ONTARIO CANADA L4K 5R2
NOTICE OF SHAREHOLDER ACTION BY WRITTEN CONSENT
IN LIEU OF A MEETING OF SHAREHOLDERS OF
ENVIRONMENTAL SOLUTIONS WORLDWIDE, INC.
We are circulating the accompanying Information Statement to notify
stockholders of Environmental Solutions Worldwide Inc. (the "Company", "we",
"us" or "our") that on or about August 20, 2010 the Company received written
consent ("Written Consent") in lieu of a meeting of stockholders of the majority
of the Company's voting securities. Pursuant to the Written Consent,
stockholders approved from the following actions:
1. Electing a Board of five (5) Directors, to serve until their respective
successor shall be elected and shall qualify.
2. Ratification of the selection of independent public accountants.
3. Ratification of the adoption of the Environmental Solutions Worldwide 2010
Stock Incentive Plan.
4. Amendment of the Company's Articles of Incorporation to increase the
Company's authorized shares of common stock from 125,000,000 to 250,000,000
shares.
5. Amendment of the Company's Articles of Incorporation at the discretion of the
Board of Directors to effect a combination of shares of common stock of the
Company, or reverse stock split, at a ratio of up to eight (8) shares of common
stock converted into one (1) share of common stock with the par value remaining
the same.
The foregoing actions are collectively referred to as the Corporate Action.
Environmental Solutions Worldwide, Inc.'s common stock currently is traded on
the OTC Bulletin Board under the symbol "ESWW" and on the Frankfurt Stock
Exchange under the symbol "EOW." The most recent reported closing price of ESW
common stock on September 2, 2010 was $0.50 per share on the OTC Bulletin Board.
The holders of a majority of our outstanding common stock, owning approximately
50.03% of the outstanding shares of our common stock, have executed written
consents in favor of the action described above that is described in greater
detail in the Information Statement accompanying this notice. This consent
satisfies the shareholder approval requirement for the proposed action and
allows us to take the proposed actions on or about September 27, 2010.
Stockholders of record at the close of business on August 20, 2010 are being
furnished with this Information Statement. We attach to the Information
Statement the Written Consent, which stockholder action was taken pursuant to
Section 607.0704 of the Florida Business Corporation Act, which permits any
action that may be taken at a meeting of the stockholders to be taken by written
consent of the holders of the number of shares of voting stock required to
approve the action in a meeting. No action is required by you. The Information
Statement is being furnished to stockholders of the Company on the Record Date,
pursuant to Section 14(c) of the Securities Exchange Act of 1934, as amended,
and the rules thereunder solely for the purpose of informing stockholders of
these corporate actions before they take effect. Please read the accompanying
Information Statement carefully. In accordance with Rule 14c-2 under the
Exchange Act, the stockholder action approving the Corporate Action is expected
to become effective twenty (20) calendar days following the mailing of the
Information Statement, or as soon thereafter as is reasonably practicable.
WE ARE NOT ASKING FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY. Because the written consent of the holders of a majority of our common
stock satisfies any applicable shareholder voting requirement of the Florida
Revised Statutes and our Articles of Incorporation and by-laws, we are not
asking for a proxy and you are not requested to send one.
By Order of the Board of Directors,
/s/ DAVID J. JOHNSON
--------------------
David J. Johnson
Chief Executive Officer and President
September 3, 2010
THIS INFORMATION STATEMENT IS DATED SEPTEMBER 3, 2010, AND IS BEING FIRST MAILED
TO ESW SHAREHOLDERS ON OR ABOUT SEPTEMBER 7, 2010.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14C PROMULGATED THERETO
ENVIRONMENTAL SOLUTIONS WORLDWIDE, INC.
CONTENTS
Section Page
Introduction
About the Information Statement 1
Item 1. Information Required by Items of Schedule 14A
A. Action 1 - Election of Directors 5
B. Action 2 - Ratification of Independent Auditors 24
C. Action 3 - Approval of the 2010 Stock Incentive Plan 25
D. Action 4 - Approval in the Increase of Authorized Capital Stock 29
E. Action 5 - Approval of Authorization to Undertake a Reverse Stock Split 31
F. Dissenters' Rights 35
G. Voting Securities and Principal Shareholders Approving the Actions Ex. A
Item 2. Statements that Proxies are not Solicited 35
Item 3. Interest of Certain Persons or Opposition to Matters to Be Acted Upon 35
Item 4. Proposals by Security Holders 35
Item 5. Delivery of Documents to Security Holders Sharing an Address 35
Signatures 36
Exhibits
Form of
Exhibit A Written
Consent
Exhibit B Articles of
Amendment
HOW TO OBTAIN ADDITIONAL INFORMATION
This Information Statement incorporates important business and financial
information about the Company that is not included in or delivered with this
Information Statement. Upon written or oral request, this information can be
provided. For an oral request, please contact the Company at 905-695-4142. For a
written request, mail request to 335 Connie Crescent, Concord Ontario L4K 5R2.
Attn: Chief Accounting Officer.
-i-
ENVIRONMENTAL SOLUTIONS WORLDWIDE, INC.
335 CONNIE CRESCENT
CONCORD ONTARIO CANADA L4K 5R2
INFORMATION STATEMENT
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
This Information Statement is being mailed on or about September 7, 2010 to the
shareholders of record of Environmental Solutions Worldwide, Inc. ("ESW" or the
"Company") at the close of business on August 20, 2010 in connection with the
Written Consent ("Written Consent") in lieu of a meeting delivered to the
Company on or about August 20, 2010 by holders of the majority of the Company's
voting securities. Pursuant to the Written Consent, the Company's stockholders
approved: (i) the slate of five (5) directors (Messrs. Elbert O. Hand, Nitin
Amersey, John D. Dunlap, III, David J. Johnson and Bengt G. Odner); (ii)
ratified MSCM LLP as the Company's independent auditors; (iii) approved the
Company's 2010 Stock Incentive Plan; (iv) an amendment to the Company's Articles
of Incorporation increasing the Company's authorized shares of Common Stock from
125,000,000 to 250,000,000 shares; and (v) authorization permitting the Board of
Directors of the Company ("Board") to undertake at its discretion a reverse
split of the Company's issued and outstanding Common Stock at a ratio of up to
eight (8) shares of common stock into one (1) share of common stock with the par
value remaining unchanged. The Board approved the foregoing corporate actions
and all actions necessary to effect same. This Information Statement is being
sent to you for information purposes only. No action is requested or required on
your part.
We have selected August 20, 2010 as the record date in accordance with Section
607.0707 of the Florida Revised Statutes. As of the close of business on the
record date, we had 123,588,099 shares of common stock outstanding. The common
stock is our only class of securities entitled to vote. Each outstanding share
of common stock is entitled to one vote per share. The Written Consent was
authorized by the Company's holders of 61,835,755 shares of Common Stock which
constitutes a majority of votes that may be cast to approve such corporate
action which is sufficient under Florida Business Corporation Act (the "Act") to
approve such actions.
This Information Statement is first being mailed on or about September 7, 2010.
This Information Statement constitutes notice to our shareholders of corporate
action consented to by shareholders and is being furnished solely for the
purpose of informing stockholders of the Company in the manner required under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and under
the Act of these corporate actions before they take effect. These actions have
been approved by our Board. The Corporate Actions described below will not be
effective until at least 20 days after the mailing.
The expenses incidental to the preparation and mailing of this Information
Statement are being paid by the Company.
The principal executive offices of the Company are located at 335 Connie
Crescent, Concord Ontario Canada L4K 5R2.
1
INTRODUCTION
This Information Statement is being furnished to all holders of common stock of
ESW.
The Board of Directors has recommended, and the majority shareholders of ESW
have adopted resolutions to effect the actions listed below in Items 1, 2, 3, 4
and 5 of this Information Statement. This Information Statement is being filed
with the Securities and Exchange Commission and is provided to ESW's
shareholders pursuant to Section 14(c) of the Securities Exchange Act of 1934,
as amended.
We are a corporation organized under the laws of Florida. We are a 1934 Act
reporting company with securities registered pursuant to Section 12(g), quoted
on the Over the Counter Bulletin Board (OTCBB) under the symbol "ESWW" and on
the Frankfurt Stock Exchange under the symbol "EOW." Additional information
about us can be found in our public filings that can be accessed electronically
by means of the Securities and Exchange Commission's (SEC) website on the
internet at http://www.sec.gov, or at other internet sites such as
http://www.freeedgar.com, as well as by such other means from the offices of the
SEC.
ABOUT THE INFORMATION STATEMENT
WHAT IS THE PURPOSE OF THE INFORMATION STATEMENT?
This Information Statement is being provided pursuant to Section 14 of the
Securities and Exchange Act of 1934 to notify the Company's shareholders as of
the close of business on the Record Date of corporate action to be taken
pursuant to the consents or authorizations of principle shareholders.
Shareholders holding a majority of the Company's outstanding common stock have
consented to certain corporate matters outlined in this Information Statement,
which action is expected to take place; consisting of the election of five (5)
members to the Company's Board of Directors, ratification of the Company's
independent public accountants, approval of the Company's proposed 2010 Stock
Incentive Plan, approval of an increase in authorized common stock and
authorization to permit the Board of Directors to reverse split the Company's
issued and outstanding common stock should the Board of Directors determine that
a reverse split is beneficial to the Company and its shareholders for potential
business opportunities in the future or for qualification for listing on a new
exchange.
WHO IS ENTITLED TO NOTICE?
Each holder of an outstanding share of common stock of record on the close of
business on the Record Date, August 20, 2010, will be entitled to notice of each
matter to be voted upon pursuant to consents or authorizations. Shareholders as
of the close of business on the Record Date that hold in excess of fifty percent
(50%) of the Company's 123,588,099 outstanding shares of common stock have
consented to the Proposals. No action by the minority shareholders in connection
with the Proposals is required.
WHAT CORPORATE MATTERS HAVE THE PRINCIPAL SHAREHOLDERS CONSENTED TO
Shareholders holding a majority of the outstanding stock have consented to the
following matters:
o FOR the approval of the slate of directors as proposed by the Board of
Directors. (see page 5).
o FOR the ratification of MSCM LLP as the Company's independent auditors for
the current fiscal year. (see page 24).
2
o FOR the approval of the Company's 2010 Stock Incentive Plan. (see page
25).
o FOR the increase of authorized common stock. (see page 29).
o FOR authorization to permit the Board of Directors to undertake at its
discretion a reverse split of the Company's issued and outstanding common
stock at a ratio of up to eight (8) shares of common stock converted into
one (1) share of common stock with par value remaining the same should the
Board of Directors determine that a reverse split is beneficial to the
Company and its shareholders for potential business opportunities in the
future or for qualification for listing on a new exchange. (see page 31).
ACTION BY BOARD OF DIRECTORS AND
CONSENTING STOCKHOLDERS
The Board received the Written Consent on approximately August 20, 2010, to take
all actions to: approve the slate of five (5) directors (Messrs. Hand, Amersey,
Dunlap, Johnson and Odner); ratify MSCM LLP as the Company's independent
auditors; approve the Company's 2010 Stock Incentive Plan; approve an amendment
to the Company's Articles of Incorporation increasing the Company's authorized
shares of Common Stock from 125,000,000 to 250,000,000 shares; approve
permitting the Board of Directors of the Company to undertake at its discretion
a reverse split of the Company's issued and outstanding Common Stock at a ratio
of up to eight (8) shares of common stock into one (1) share of common stock
with the par value remaining unchanged. (the "Corporate Actions").
The elimination of the need for a meeting of stockholders to approve the
Corporate Actions is made possible by Section 607.704 of the Florida Business
Corporations Act (the "Act") which provides that the written consent of the
holders of outstanding shares of voting capital stock, having not less than the
minimum number of votes which would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted, may be substituted for such a meeting.
Also, pursuant to the Act, we are required to provide prompt notice of the
taking of the Corporate Action without a meeting to the stockholders of record
who have not consented in writing to such action and who if the action had been
taken at a meeting, would have been entitled to notice of the meeting if the
record date for such meeting had been the date that written consents signed by a
sufficient number of holders to take the action were delivered to the
corporation.
The Company received the Written Consent of a majority of the voting securities
of the Company.
The Corporate Actions, and general effect, are described below in Action Items I
- - V.
The Board knows of no other matters other than those described in this
Information Statement which have been recently approved or considered by the
holders of our Common Stock.
3
VOTING SECURITIES AND INFORMATION
ON CONSENTING STOCKHOLDERS
Under the Act a vote by the holders of a majority of the outstanding stock of
the Company entitled to vote thereon is required to approve the actions
described herein. The holders of a majority of our outstanding Common Stock have
consented regarding approval of the Corporate Actions described in greater
detail herein. Accordingly, your approval is not required and is not being
sought.
Pursuant to Rule 14c-2 under the Securities and Exchange Act, each of the
Corporate Actions will not become effective until a date at least 20 days after
the date on which this Information Statement has been mailed to the
stockholders. We anticipate that the actions contemplated herein will be
effected on or about the close of business on September 27, 2010.
As of August 20, 2010, the Record Date selected by our Board of Directors there
were outstanding 123,588,099 shares of Common Stock issued and outstanding. The
aggregate number of votes for the Corporate Action of which a majority of issued
and outstanding shares are required, is at least 61,794,050. The Written
Consents are attached hereto as EXHIBIT A. The consenting stockholders are
collectively the record and beneficial owners of shares of Common Stock
entitling them to an aggregate of 61,835,755 votes, representing approximately
50.03% of the of the total number of votes which could be cast regarding the
approval of the Corporate Actions.
The following table sets forth the names of the consenting stockholders, the
number of shares of Common Stock held by the consenting stockholders with
respect to which such consent was given, the total number of votes for which
consent was given by the consenting stockholders and the percentage that such
total number of votes represents out of the total votes which could be cast by
all holders of Common Stock.
NUMBER OF
SHARES OF PERCENTAGE OF
COMMON ALL VOTES
STOCK PER WHICH COULD
NAME CONSENT BE CAST
- --------------------------------------------------------------------------------
Sedam Limited 22,337,120 18.07%
Black Family 1997 Trust 14,834,698 12.00%
Mr. Leon D. Black 5,729,253 4.64%
Leon D. Black Trust UAD 11/30/92 FBO Joshua Black 4,259,317 3.45%
Leon D. Black Trust UAD 11/30/92 FBO Benjamin Black 4,259,317 3.45%
Leon D. Black Trust UAD 11/30/92 FBO Victoria Black 4,259,317 3.45%
Leon D. Black Trust UAD 11/30/92 FBO Alexander Black 4,859,317 3.93%
Mr. John J. Hannan 1,088,095 0.88%
Mr. Rodney Jones 209,321 0.17%
- --------------------------------------------------------------------------------
TOTAL 61,835,755 50.03%
4
ITEM 1. INFORMATION REQUIRED BY ITEMS OF SCHEDULE 14A
ACTION 1. - ELECTION OF DIRECTORS
Five (5) directors will be elected to serve for a term of one (1) year or until
their successor is elected and qualified.
Set forth below is the age and business experience of each of the nominees; each
of the nominees is a current director and has been nominated for election.
NAME POSITION DATE
ELECTED/APPOINTED
- --------------------------------------------------------------------------------
Elbert O. Hand Chairman January 2010
Nitin Amersey Director January 2003
David J. Johnson Director, President and September 2000
Chief Executive Officer
John D. Dunlap III Director February 2007
Bengt G. Odner Director September 2000
Set forth below is information relating to the business experience of each of
the director-nominees.
ELBERT O. HAND. Age 69, has extensive experience in corporate management. Mr.
Hand was appointed as a director and Chairman of the Board of Environmental
Solutions Worldwide on January 25, 2010. Prior to his appointment as a director
of ESW, Mr. Hand became President of Hartmarx Corporation in 1985 and Chairman
and Chief Executive Officer from 1992 through 2004 and thereafter retired as
Chairman and remained as a director though 2009. Mr. Hand has also served on the
Main Board of Austin Reed PLC, London from 1993 to 2002 and currently serves on
the board of Arthur J. Gallagher Inc. and has been a director from 2002 through
the present. Mr. Hand also serves on the advisory board of Terlato Wines
International and is a board member of the Savannah Music Festival, Savannah
Georgia and Chicago's Music of the Baroque Chorus and Orchestra of which he was
Chairman from 1995 to 2004. Mr. Hand attended The Kellog School of Management's
Executive Development Program at Northwestern University and received a
bachelor's degree from Hamilton College, Clinton, New York State.
Nitin M. Amersey, age 58, has over thirty-six years of experience in
international trade, marketing and corporate management. Mr. Amersey was elected
as a director of Environmental Solutions Worldwide and has served as a member of
the board since January 2003. Mr. Amersey was appointed interim Chairman of the
Board in May 2004 and subsequently was appointed Chairman of the Board in
December 2004 and served as Chairman of ESW's Board through to January 2010. In
addition to his service as a board member of Environmental Services Worldwide,
Mr. Amersey has been Chairman of Scothalls Limited, a private trading firm since
1978. Mr. Amersey has also served as President of Circletex Corp., a financial
consulting management firm since 2001 and has served as chairman of Midas Touch
Global Media Corp. from 2005 to the present. He is also Chairman of Hudson
Engineering Industries Pvt. Ltd. and of Trueskill Technologies Pvt. Ltd.,
private companies domiciled in India. He is a director and CFO of the Trim
Holding Group, and the Chairman of ABC Acquisition Corp. 1502, both public
5
corporations. From 2003 to 2006 Mr. Amersey was Chairman of RMD Entertainment
Group and also served during the same period as chairman of Wide E-Convergence
Technology America Corp. Mr. Amersey is also the owner of Langford Business
Services LLC. Mr. Amersey has a Master of Business Administration Degree from
the University of Rochester, Rochester, N.Y. and a Bachelor of Science in
Business from Miami University, Oxford, Ohio. He graduated from Miami University
as a member of Phi Beta Kappa and Phi Kappa Phi. He is the sole member manager
of Amersey Investments LLC. Mr. Amersey is listed as a control person with the
Securities and Exchange Commission of Bay City Transfer Agency Registrar Inc. He
has no ownership equity in Bay City Transfer Agency Registrar Inc. nor is he an
officer or a director of Bay City Transfer Agency Registrar Inc. Mr. Amersey
also holds a Certificate of Director Education from the NACD Corporate
Director's Institute.
DAVID J. JOHNSON, age 48, has 27 years experience in the automotive industry in
various aspects of advanced engineering, systems development, manufacturing of
components, and as an entrepreneur. Mr. Johnson has served as the Company's
Chief Operating Officer from August 2000 through November 2001 and was elected
to the Board Of Directors in September 2000. In addition to serving as a
Director of the Company, Mr. Johnson has served as Senior Vice President of
Sales and Marketing from November 2001 until May 2004 and served as acting Chief
Financial Officer from December 2004 through May 2005. Mr. Johnson was appointed
as the Interim Chief Executive Officer and President in May 1, 2004 and was
subsequently appointed President, Chief Executive Officer in June of 2005. Mr.
Johnson attended Tollgate Tech. Secondary, Mohawk College, Devry Institute of
Technologies and is an active member of the Society of Automotive Engineers
(SAE).
JOHN DUNLAP, III, 51, served as Chairman of the Board of Directors of the
California Air Resources Board ("CARB") from 1994 to 1999. In this post, Mr.
Dunlap promoted advanced technological solutions to achieve air quality and
public health protection gains. During his tenure as Chairman, Mr. Dunlap
oversaw the development and implementation of the most far-reaching air quality
regulations in the world aimed at fuels, engines and over 200 consumer products.
Prior to Mr. Dunlap's tenure at CARB, he served as the Chief Deputy Director of
the California Department of Toxic's Substances Control where his
responsibilities included, crafting the state's technology advancement program,
serving as the lead administration official in securing congressional and U.S.
Department of Defense/Executive Branch support and funding for military base
closure environmental clean-up and in creating a network of ombudsman staff to
assist the regulated businesses in demystifying the regulatory process. In
addition, Mr. Dunlap spent more than a decade at the South Coast Air Quality
Management District in a host of regulatory, public affairs and advisory
positions where he distinguished himself as the principle liaison with the
business and regulatory community. Mr. Dunlap is currently the owner of a
California-based advocacy and consulting firm called the Dunlap Group. He has
served on the Board of Director's of Environmental Solutions Worldwide, Inc.
since 2007. Mr. Dunlap has a BA degree in Political Science and Business from
the University of Redlands (California) and a Master's degree in Public Policy
from Claremont Graduate University (California).
BENGT G. ODNER, age 57, has served as a director since September 2000. He served
as the Company's Chairman from September 2000 through October 2002. Mr. Odner
has also served as our Chief Executive Officer from August 1999 through
September 2000 and as interim Chief Executive Officer from February 2002 to July
2002. Mr. Odner was a director of Crystal Fund Ltd., a Bermuda mutual fund, and
was a director of Crystal Fund Managers, Ltd. from 1996 until January 2003. From
1990 through 1995, Mr. Odner was the Chairman of Altus Nord AB, a property
holding company specializing in Scandinavian properties and a wholly owned
subsidiary of Credit Lyonais Bank Paris. Mr. Odner is also the sole beneficiary
of a trust which controls Sedam Limited a corporation organized under the laws
of Cyprus and which currently is the holder of 23,837,120 shares of ESW Common
Stock. Mr. Odner holds a masters degree in Business Administration from Babson
College.
6
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information about transactions involving related parties is assessed by the
directors on ESW's Board. Related parties include directors and executive
officers, as well as immediate family members of directors and officers, and
beneficial owners of more than five percent of the Company's common stock. If
the determination is made that a related party has a material interest in any
Company transaction, then the Company's directors would review, approve or
ratify it, and the transaction would be required to be disclosed in accordance
with the SEC rules. If the related party at issue is a director, then that
director would not participate in the review, approval or ratification process.
In general, ESW believes that some transactions with related parties are not
significant to investors because they take place under the Company's standard
policies and procedures, such as: the sale or purchase of products or services
in the ordinary course of business and on an arm's length basis; the employment
by the Company where the compensation and other terms of employment are
determined on a basis consistent with the Company's human resources policies.
7
RELATED TRANSACTIONS
NOTES PAYABLE TO RELATED PARTY
On January 5, 2007 the Company extended the maturity date of the unsecured
subordinated promissory note originally issued on June 26, 2006 in the principal
amount of $1.2 million; and the August 29, 2006 unsecured subordinated
promissory note in the principal amount of $1.0 million, through to January 31,
2007. On February 9, 2007, the Company's two unsecured subordinated promissory
notes in the principal amount of $1.2 million and $1.0 million and accrued
interest were consolidated into one unsecured subordinated demand note with
principal amount of $2,308,148 (the "Consolidated Note"). The Consolidated Note
was payable to Ledelle Holdings Limited (the "Holder") a company controlled by a
trust of which Mr. Bengt George Odner, a director and shareholder of the Company
is a beneficiary.
In accordance with the terms of the Consolidated Note it was due and payable to
Holder upon demand. The Consolidated Note bore interest at a rate of 9% per
annum if principal and interest were paid by the Company in cash, or if
principal and interest were paid in shares of restricted common stock of the
Company, the Consolidated Note would bear interest at a rate of 12% per annum.
The Company could repay the Consolidated Note without penalty at any time. The
holder of the Note had the option to receive payment of principal and all
accrued interest in the form of restricted shares of the Company's common stock
with cost free registration rights. Under this repayment option, interest would
be calculated at 12% per annum.
On February 15, 2007 the Company issued a $500,000 unsecured subordinated demand
promissory note to Mr. Bengt George Odner, a member of the Company's Board of
Directors. On March 7, 2007 the Company issued a second $500,000 unsecured
subordinated demand promissory note to Mr. Odner and consolidated this sum with
the principal and accrued interest of the $500,000 unsecured demand promissory
note previously issued on February 15, 2007 (the "Consolidated Subordinate
Note"). The Consolidated Subordinate Note was in the principal amount of
$1,002,589. The Consolidated Subordinate Note bore interest at a rate of 9% per
annum and was payable upon demand. The Company could repay the Consolidated
Subordinated Note without penalty at any time.
Effective June 2, 2008 the Company entered into a Credit Facility Agreement with
Mr. Bengt George Odner, a director and shareholder of the Company. Pursuant to
the Agreement, the Company could request draw down(s) under the facility of up
to $1,500,000 in the aggregate with funds to be used for general working capital
purposes (the "Facility"). All request(s) to draw down under the Facility were
subject to the debt holders consent and approval. An approved draw down by the
Company under the Facility was represented by a 9% unsecured subordinated demand
promissory note issued by the Company to the holder or his designee. The Company
could repay the Note at anytime without penalty. At the option of the Note
holder, in lieu of cash, principal and interest earned on the Note could be
repaid in restricted Common Stock of the Company. If the Note holder had elected
to receive stock of the Company, interest on principal was to be calculated at a
rate of 12% per annum. The number of shares of Common Stock to be issued in
satisfaction of interest and principal would be determined by dividing the
principal and accrued interest by the greater of 105% of the twenty (20) day
average closing price of the Company's Common Stock immediately preceding the
date the Note holder elected to have the Note satisfied with Common Stock, or
the Closing Price on that date. Under no circumstance could the conversion price
be below the fair market price of the Company's Common Stock on the date the
Note holder elected to have the Note satisfied with Common Stock. The Company
was able to request draw down(s) under the Facility through December 31, 2008.
8
Subsequently, from June 2008 to October 2008 a total of nine unsecured
subordinated promissory notes were issued under the Facility totaling to
$1,253,000 in principal. These nine notes are part of a series of draw downs
against the Facility. Of the nine notes the Company repaid one note in the
amount of $150,000 in principal and $ 4,475 interest, this note was due to
another shareholder of the Company who by separate agreement with the above debt
holder and the Company agreed to provide funding to the Company under the credit
facility.
In November 2008 the Company recorded $275,922 in its Consolidated Statements of
Changes In Stockholders' Equity (Deficit) towards loss on extinguishment of debt
as a payment to Mr. Bengt George Odner a director and shareholder of the Company
to surrender the right to convert the existing notes payable into common stock
of the Company. Also, on November 7, 2008 the February 9, 2007 Consolidated Note
with principal amount of $2,308,148, the March 7, 2007 Consolidated Subordinate
Note with principal amount of $1,002,589 and all notes issued under the Facility
agreement of June 2, 2008 in the principal amount of 1,103,000 were extinguished
through a repayment of $2,200,000 the principal portion only of the $2,308,148
Consolidated Note and $48,214 as taxes withholding to Ledelle Holdings Limited.
The balance of principal and interest was converted into a convertible debenture
(See Convertible Debentures Issued to Related Parties).
On December 29, 2009, the Company issued a $500,000 unsecured subordinated
promissory note to Mr. Bengt George Odner, a director and shareholder of the
Company with interest accruing at the annual rate of 9%. Upon completion of the
Company's $3 million financing in March of 2010, this Note was repaid by the
Company.
As at June 30, 2010, principal and interest on notes payable to related parties
was $nil.
CONTRACTS AND AGREEMENTS
Mr. Amersey a director of the Company is the owner of Langford Business Services
LLC, a company that is party to a sales representative agreement dated March 15,
2002, with the Company's wholly owned subsidiary, ESW Canada, Inc. whereby
Langford and its subagent, Hudson Engineering Industries Pvt. Ltd. (Bombay),
also owned by Mr. Amersey and his family, serve as ESW Canada's exclusive
representative in India for the sale and after sale support of certain products
of the Company in India. To date, no sales transactions have taken place under
the agreement between ESW Canada and Langford.
Mr. Amersey is also listed as a control person with the Securities and Exchange
Commission of Bay City Transfer Agency Registrar Inc. the Company's transfer
agent. He has no ownership equity in Bay City Transfer Agency Registrar Inc. nor
is he an officer or a director of Bay City Transfer Agency Registrar Inc.
In 2008, Mr. Joey Schwartz, a director and shareholder of the company provided
consulting services to the company under a consulting agreement. The agreement
provided for a monthly retainer of $12,500 per month. In December 2008 the
agreement was terminated.
CONVERTIBLE DEBENTURE ISSUED TO RELATED PARTY
On November 3, 2008, the Company completed a transaction whereby it issued $6.0
million of 9% convertible debentures to six accredited investors. Based on the
beneficial ownership position, The Leon Black 1997 Family Trust is included as a
related party all other entities disclaim beneficial ownership. The Leon Black
1997 Family Trust participated in the November convertible debenture offering
with a principal investment of $2,000,000. From the proceeds of the $6.0 million
convertible debentures, the Company elected to repay $2.2 million, the principal
portion only, of a previously issued Consolidated Note in the principal amount
of $2,308,148 to Ledelle Holdings Limited a company controlled by a trust to
which Mr. Bengt George Odner, a director and shareholder of the Company is the
beneficiary. The debt holder previously agreed to have the remaining amount of
$433,923, due under the note, to be applied to a subscription to a Debenture
under the November 3, 2008 offering.
9
Concurrently, the Company agreed to repay a Consolidated Subordinate Note that
it had previously issued to Mr. Bengt George Odner, a director and shareholder
of the Company, in the principal amount of $1,002,589. Mr. Odner agreed to have
the full amount of principal and accumulated interest, in the amount of
$1,158,024 due under the note, applied to a subscription of a Debenture under
the November 3, 2008 offering. Additionally the Company's $1.5 million Facility
also provided by Mr. Odner, from which the Company had drawn down the sum of
$1,103,000 as of November 3, 2008, was satisfied by way of issuance of
Debentures under the November 3, 2008 offering. With the agreement to settle all
the notes previously issued, the debt holder Mr. Odner subscribed to an
aggregate of $2,566,077 of Debentures under the offering.
The Debentures were for a term of three (3) years and were convertible into
shares of the Company's common stock at the option of the holder anytime after
six (6) months of the date of issuance by dividing the principal amount of the
Debenture to be converted by $0.25. The Debentures earned interest at a rate of
9% per annum payable in cash or in shares of the Company's common stock at the
option of the holder. If the holder elected to receive interest in shares of
common stock, the number of shares of common stock to be issued for interest
would be determined by dividing accrued interest by $0.25. Subject to the
holder's right to convert, the Company has the right to redeem the Debentures at
a price equal to one hundred and ten percent (110%) multiplied by the then
outstanding principal amount plus unpaid interest to the date of redemption.
Upon maturity, the Debenture and interest is payable in cash or common stock at
the option of the Holder. The Debentures contained customary price adjustment
protections.
On August 28, 2009, the Company completed a transaction whereby it issued $1.6
million of 9% convertible debentures (the " 2009 Debentures") to six accredited
investors. Of the $1.6 million received by the Company, $500,000 was received
from Mr. Bengt George Odner a director of the Company through the exchange of a
$300,000 unsecured 9% subordinated demand short term loan previously provided to
the Company on August 11, 2009 and an additional $200,000 investment made by Mr.
Odner in the offering. The 2009 Debentures were for a term of three (3) years
and were convertible into shares of the Company's common stock at the option of
the holder by dividing the principal amount of the 2009 Debenture to be
converted by $0.50. The 2009 Debentures earned interest at a rate of 9% per
annum payable in cash or in shares of the Company's common stock at the option
of the holder. If the holder elected to receive interest in shares of common
stock, the number of shares of common stock to be issued for interest would be
determined by dividing accrued interest by $0.50. Subject to the holder's right
to convert, the Company had the right to redeem the 2009 Debentures at a price
equal to one hundred and ten percent (110%) multiplied by the then outstanding
principal amount plus unpaid interest to the date of redemption. Upon maturity,
the 2009 Debenture and interest was payable in cash or common stock at the
option of the Holder. The 2009 Debentures contained customary price adjustment
protections.
As at December 31, 2009, the principal amount of Convertible Debenture net of
accretion due to related parties amounted to $5,428,443 with a corresponding
accrued interest of $540,128, and debt discount of $71,557. At December 31,
2008, Convertible Debenture due to related party amounted to $5,000,000 with a
corresponding accrued interest of $68,548.
10
Effective March 19, 2010, the Company issued $3,000,000 of its 9% convertible
debentures (the "Debentures") to five (5) accredited investors under Rule 506 of
Regulation D. The Debentures were for a term of three (3) years and convertible
into shares of the Company's common stock at the option of the holder by
dividing the principal amount of the Debenture to be converted by $0.50. The
Debentures earned interest at a rate of 9% per annum payable in cash or in
shares of the Company's common stock at the option of the holder. If the Holder
elected to receive interest in shares of common stock, the number of shares of
common stock to be issued for interest would be determined by dividing accrued
interest by $0.50. The Debentures contained a mandatory conversion feature that
required the holders to convert in the event a majority of the Company's
pre-existing outstanding 9% convertible debentures convert. Subject to the
holder's right to convert and the mandatory conversion feature, the Company had
the right to redeem the Debentures at a price equal to one hundred and ten
percent (110%) multiplied by the then outstanding principal amount plus unpaid
interest to the date of redemption. Upon maturity, the debenture and interest is
payable in cash or common stock at the option of the Holder. The Company also
has provided the holders of the Debentures registration rights. The Debentures
contain customary price adjustment protections.
As of March 25, 2010, the November 2008 and the August 2009 debenture holders
agreed to convert all outstanding convertible debentures as per the terms of the
respective debenture agreements. The early conversion of the debentures was a
condition precedent to the Company's wholly owned subsidiary ESW Canada entering
into a new credit facility with Canadian Imperial Bank of Commerce ("CIBC"). A
total of $10,600,000 in principal and $1,176,445 of accrued interest was
converted into 43,756,653 shares of restricted common stock. The conversion of
the November 2008 and the August 2009 debentures also triggered the mandatory
conversion feature on the March 19, 2010 debentures. A total of $3,000,000 in
principal and $3,797 in accrued interest was converted into 6,007,595 shares of
restricted common stock. With these transactions effective March 25, 2010 the
Company has $0 of convertible debentures and accrued interest on convertible
debenture. As part of the agreement to convert all existing convertible
debentures the Company has proposed a premium on the conversion transaction
payable to all converting debenture holders subject to a positive Fairness
opinion, approval by a Fairness Committee consisting of independent Directors of
the Company's Board of Directors and an increase in the share capital of the
Company (see Action Item 4 herein). The proposed premium consists of 4,375,665
shares of Common Stock. As the Company did not have sufficient authorized shares
as of the date of conversion of the debentures to fulfill the premium, the
proposed premium has been recorded as an advance share purchase agreement at
fair market value, the agreement will be without interest, subordinated to the
banks position and payable in a fixed number of common shares of the Company
subject to adjustment in the event of a stock split. At June 30, 2010, the
Company did not have sufficient authorized and unissued shares to fulfill the
advance share subscription. Under these conditions, FASB ASC Subtopic 815-40
Contracts in Entity' Own Equity precludes equity classification of this
obligation. As such, the advance share subscription is classified as a liability
and periodically marked to market. The fair value of the obligation was
determined to be $2,187,833 at June 30, 2010. The fair value of the obligation
is determined by the cash settlement value at the end of each period based on
the closing price of the Company's common stock. The decrease in fair value of
this liability of $722,039 is recorded as a mark to market adjustment on advance
share subscription in the consolidated condensed statement of operations and
comprehensive income / (loss). Of the total amount $1,032,849 (fair market value
of 2,065,697 shares of common stock) was attributed to related parties.
Effective March 25, 2010, a total of $5,500,000 in principal and $634,024 of
accrued interest due to related parties on account of Convertible Debentures was
converted into 23,489,494 shares of restricted common stock. As at June 30,
2010, principal and interest on Convertible Debenture due to related parties was
$0.
11
Effective June 21, 2010, Bengt George Odner a director and beneficial owner of
24,337,120 shares of Common Stock transferred 14,507,177 shares of Common Stock
to Sedam Limited a corporation organized under the laws of Cyprus controlled by
a trust which Mr. Odner is the sole beneficiary.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Under the securities laws of the United States, the Company's directors,
executive officers, and any persons holding more than ten percent of the
Company's common stock are required to report their initial ownership of the
Company's common stock and any subsequent changes in their ownership to the
Securities and Exchange Commission. Specific due dates have been established by
the Commission, and the Company is required to disclose any failure to file by
those dates. Based upon (1) the copies of Section 16 (a) reports that the
Company received from such persons for their 2009 fiscal year transactions, the
Company believes there has been compliance with all Section 16 (a) filing
requirements applicable to such officers, directors and ten-percent beneficial
owners for such fiscal year.
BOARD OF DIRECTORS MEETINGS AND ATTENDANCE
The Board of Directors has responsibility for establishing broad corporate
policies and reviewing overall performance of the Company rather than day-to-day
operations. The primary responsibility of ESW's Board of Directors is to oversee
the management of the Company and, in doing so, serve the best interests of the
Company and its stockholders. The Board of Directors selects, evaluates and
provides for the succession of executive officers and, subject to stockholder
approval, the election of directors. The Board also reviews and approves
corporate objectives and strategies, and evaluates significant policies and
proposed major commitments of corporate resources as well as participates in
decisions that have a potential major economic impact on our Company. Management
keeps the directors informed of Company activity through regular communication,
including written reports and presentations at Board of Directors and committee
meetings.
We have no formal policy regarding director attendance at the annual meeting of
stockholders. The Board of Directors held ten (10) meetings in 2009, all of
which were telephonic. All board members were in attended at least eighty
percent (80%) of the board meetings.
AUDIT COMMITTEE COMPOSITION
The Company has a separately designated standing audit committee comprised of
Nitin M. Amersey (Chairman), Elbert O. Hand and John D. Dunlap III. Nitin M.
Amersey, qualifies as a "financial expert" as defined by SEC rules. The
Company's Board has also determined that Nitin M. Amersey meets the SEC
definition of an "independent" director. The Audit Committee met 6 times during
2009.
12
COMPENSATION COMMITTEE COMPOSITION
The Compensation Committee is currently comprised of Elbert O. Hand, who serves
as Chairman, Nitin M. Amersey and John D. Dunlap, III. In accordance with its
charter, the Compensation Committee is responsible for establishing and
reviewing the overall compensation philosophy of the Company, establishing and
reviewing the Company's general compensation policies applicable to the chief
executive officer and other officers, evaluating the performance of the chief
executive officer and other officers and approving their annual compensation,
reviewing and recommending the compensation of directors, reviewing and
recommending employment, consulting, retirement and severance arrangements
involving officers, and directors of the Corporation and reviewing and
recommending proposed and existing incentive-compensation plans and equity-based
compensation plans for the Corporation's directors, officers, employees and
consultants. The Compensation Committee met 2 times during 2009.
COMPENSATION POLICY:
The objective of the Compensation Committee with respect to compensation for
executive officers is to ensure that compensation packages are designed and
implemented to align compensation with both short-term and long-term key
corporate objectives and employee performance and to ensure that the Corporation
is able to attract, motivate and retain skilled and experienced executives in an
effort to enhance Environmental Solutions' success and shareholder value.
The compensation policies are designed to align the interests of management with
Environmental Solutions' shareholders. In order to do so, the committee takes
into consideration the experience, responsibility and performance of each
individual over the longer term and considers a range of short-and long-term
cash, and non-cash compensation elements. The Company believes that this serves
the goals of compensating Environmental Solutions' executive officers
competitively on a current basis, tying a significant portion of the executives'
compensation to company performance, and allowing the executive officers and key
employees to gain an ownership stake in Environmental Solutions commensurate
with their relative levels of seniority and responsibility. Each year, a review
of the executive compensation program, compensation philosophy, committee
mission and performance is completed. In addition, each year the committee
reviews the nature and amounts of all elements of the executive officers'
compensation, both separately and in the aggregate, to ensure that the total
amount of compensation is competitive with respect to Environmental Solutions'
peer companies, and that there is an appropriate balance for compensation that
is tied to the short- and long-term performance of the Company.
NOMINATION AND CORPORATE GOVERNANCE COMMITTEE:
The Nomination and Corporate Governance Committee is currently comprised of John
D. Dunlap III, who serves as Chairman, and Elbert O. Hand. The Committee
develops and recommends to the full Board of Directors guidelines and criteria
for selecting new directors, enabling stockholders to send communications to the
Board of Directors. Additionally the Committee recommends various Board of
Director committee structures, develops corporate governance guidelines and
monitors director independence.
CODE OF ETHICS
ESW's Board of Directors has adopted a Code of Business Conduct and Ethics which
provides a framework for directors, officers and employees on the conduct and
ethical decision-making integral to their work. The Audit Committee is
responsible for monitoring compliance with this code of ethics and any waivers
or amendments thereto can only be made by the Board or a Board committee. The
Code of Ethics is available on www.sec.gov as an exhibit with the Company's Form
10KSB filed with the Securities and Exchange Commission on April 3, 2006. The
Company can provide a copy of such Code of Ethics, upon receipt of a written
request to the attention of the CAO's Office, at ESW, 335 Connie Crescent,
Concord, Ontario, Canada, L4K 5R2. The written request should include the
Company name, contact person and full mailing address and/or email address of
the requestor.
13
EXECUTIVE COMPENSATION
The following table sets forth the compensation for each of the last two (2)
fiscal years earned by the Chief Executive Officer and each of the most highly
compensated executive officers (the "Named Executives").
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------------------------------------------------------
NON-EQUITY NON-QUALIFIED
NAME OPTION INCENTIVE DEFERRED
/ PRINCIPAL STOCK AWARDS PLAN COMPENSATION ALL OTHER
POSITION YEAR SALARY BONUS AWARDS (5) COMPENSATION EARNINGS COMPENSATION TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
David J. Johnson (1) 2009 $240,000 -- -- -- -- -- $34,998 $274,998
Director,
Chief Executive Officer 2008 $240,000 -- -- -- -- -- $37,558 $277,558
And President
- -------------------------------------------------------------------------------------------------------------------------------
Joey Schwartz (2) 2009 $0
Director and
Chief Financial Officer 2008 $147,500 -- -- $4,992 -- -- $55,558 $208,050
- -------------------------------------------------------------------------------------------------------------------------------
Stefan Boekamp (3) 2009 $100,709 -- -- -- -- -- $10,421 $111,130
Vice President Of
Operations 2008 $95,335 -- -- $2,391 -- -- $16,140 $113,866
- -------------------------------------------------------------------------------------------------------------------------------
Praveen Nair (4) 2009 $105,088 -- -- -- -- -- $8,282 $113,370
Chief Accounting Officer
2008 $62,175 -- -- $2,391 -- -- $8,262 $72,828
- -------------------------------------------------------------------------------------------------------------------------------
1. Mr. David J. Johnson effective January 1, 2010 is paid at the annual rate of
$360,000. Previously Mr. Johnson received an annual base salary of $240,000. In
2009 Mr. Johnson received the following compensation: $240,000 as salary and
fees, $18,000 pay in lieu of vacation, a car allowance of $12,000 per annum and
standard medical and dental benefits provided by the Company totaling $4,998. In
2008 Mr. Johnson received the following compensation: $240,000 as salary and
fees, $20,000 pay in lieu of vacation, a car allowance of $12,000 per annum and
standard medical and dental benefits provided by the Company totaling $5,558.
2. In 2009 Mr. Joey Schwartz was not an executive officer of the Company and did
not receive any remuneration. Mr. Joey Schwartz currently serves as a Director
for the Company. Mr. Schwartz served as the Chief Financial Officer for the
Company from May 2005 through to February 2008. Effective February 4, 2008
through to December 2008, Mr. Schwartz served as a consultant per an agreement
with the Company. In 2008, Mr. Schwartz received the following compensation:
$147,500 as salary and consulting fees, and standard medical and dental benefits
provided by the Company totaling $5,558. In February 2008, Mr. Schwartz received
options for 100,000 shares of Common Stock with a per share exercise price of
$1.00 (exercise price greater than the fair market value on the date of grant)
the compensation expense for this stock option grant was $4,992. In December
2008 as per the terms of the separation clauses under the consulting agreement
with Mr. Schwartz, the Company recognized a $50,000 expenses. This separation
payment was made in eight equal bi-monthly installments from December 2008
through to April 2009.
3. Mr. Stefan Boekamp is paid at the annual rate of $115,000 Canadian Dollars
(which translates to United State Dollar $100,709 for the year ended December
31, 2009). In 2009 Mr. Boekamp received the following compensation: $100,709 as
salary, $5,423 pay in lieu of vacation, and standard medical and dental benefits
provided by the Company totaling $4,998. In 2008 Mr. Boekamp received the
following compensation: $95,335 as salary, $10,582 pay in lieu of vacation, and
standard medical and dental benefits provided by the Company totaling $5,558. In
February 2008, Mr. Boekamp received options for 50,000 shares of Common Stock
with a per share exercise price of $0.71(exercise price greater than the fair
market value on the date of grant) the compensation expense for this stock
option grant was $2,391.
14
4. Mr. Praveen Nair is paid at the annual rate of $120,000 Canadian Dollars
(which translates to United State Dollar $105,088 for the year ended December
31, 2009). In 2009 Mr. Nair received the following compensation $105,088 as
salary, $3,284 pay in lieu of vacation, and standard medical and dental benefits
provided by the Company totaling $4,998. In 2008 Mr. Nair received the following
compensation $62,175 as salary, $2,704 pay in lieu of vacation, and standard
medical and dental benefits provided by the Company totaling $5,558. In February
2008, Mr. Nair received options for 50,000 shares of Common Stock with a per
share exercise price of $0.71(exercise price greater than the fair market value
on the date of grant) the compensation expense for this stock option grant was
$2,391.
5. Represents the cost of the compensation expense recorded by the Company for
option grants in 2009 and 2008.
EMPLOYMENT AGREEMENTS
In February 2007, the Company entered into an employment agreement with Mr.
Johnson as President and Chief Executive Officer. The agreement provides, among
other things, for an annual salary of $240,000, as well as an award of 600,000
options exercisable for a term of five (5) years at an exercise price of $0.71
per share (fair market value of the Company's stock as of the date of grant). In
May of 2010, the Board approved an amendment to Mr. Johnson's employment
agreement whereby his annual salary was increased to $360,000 retroactive to
January 1, 2010. The agreement also provides that, other than in connection with
Mr. Johnson's employment being terminated other than for death, disability,
conviction of a felony or non-performance of duties, he will be paid severance
up to one year under the terms of his agreement. The employment agreement
provides for participation in benefit plans ESW offers to its employees.
In 2009 Mr. Schwartz was not an executive officer of the company. In 2008 Mr.
Schwartz acting as the Company's Chief Financial Officer received total
compensation of $120,000 on an annual basis plus benefit plans ESW offers to its
employees. Effective February 4, 2008, the Company and Mr. Schwartz entered into
a consulting agreement whereby Mr. Schwartz would serve as a consultant to the
Company and would no longer serve as the Company's Chief Financial Officer.
Under the consulting agreement, Mr. Schwartz received a $12,500 monthly fee and
served as a consultant to the Company on special projects and provided advice on
compliance, due diligence, regulatory and business matters. Effective December
2008 the consulting agreement with Mr. Schwartz was terminated.
Effective February 4, 2008, the Company entered into an employment agreement
with Mr. Stefan Boekamp as Vice President of Operations. The agreement provides,
among other things, for an annual salary of $115,000 Canadian, as well as an
award of 50,000 options exercisable for a term of five (3) years at an exercise
price of $0.71 per share (the exercise price being greater than the fair market
value of the Company's stock as of the date of grant). The employment agreement
also provides for participation in benefit plans ESW offers to its employees.
15
Effective February 4, 2008, the Company entered into an employment agreement
with Mr. Praveen Nair as Chief Accounting Officer. The agreement provides, among
other things, for an annual salary of $75,000 Canadian, as well as an award of
50,000 options exercisable for a term of five (3) years at an exercise price of
$0.71 per share (the exercise price being greater than the fair market value of
the Company's stock as of the date of grant). The employment agreement also
provides for participation in benefit plans ESW offers to its employees.
Effective January 1, 2009, the agreement was amended and Mr. Nair's annual
salary has been increased to $120,000 Canadian Dollars.
OUTSTANDING EQUITY AWARDS The following table shows certain information
regarding the outstanding equity awards held by the Named Executives.
On April 15, 2010 the Board of Directors granted an aggregate award of 600,000
stock options to one executive officer and director. The options vest over a
period of three years with exercise prices of $0.65 (fair market value of the
Company's common stock as of the date of grant) with expiry five years from the
date of award.
No stock options were granted in 2009. In February 2008 the Board of Directors
granted an award of 100,000 stock options to Mr. Schwartz. The options have
immediate vesting with an exercise price of $1.00 per share (exercise price
greater than fair-market value at the date of grant) with an exercise period of
five years from the date of award. An award of 50,000 stock options to Mr.
Boekamp and 50,000 stock options to Mr. Nair with immediate vesting and an
exercise price of $0.71 per share (exercise price greater than fair-market value
at the date of grant) with an exercise period of three years from the date of
award.
NUMBER OF SECURITIES OPTION OPTION
UNDERLYING EXERCISE EXPIRATION
NAME UNEXERCISED OPTIONS(#) PRICE DATE
- --------------------------------------------------------------------------------
David J. Johnson 200,000 $1.00 12/30/2010
700,000 $0.71 02/16/2012
150,000 $0.27 08/06/2013
600,000 $0.65 04/15/2015
- --------------------------------------------------------------------------------
Stefan Boekamp 50,000 $1.00 12/30/2010
50,000 $0.71 02/06/2011
- --------------------------------------------------------------------------------
Praveen Nair 20,000 $1.00 12/30/2010
50,000 $0.71 02/06/2011
- --------------------------------------------------------------------------------
THE 2002 STOCK OPTION PLAN
On June 23, 2005, the Company, with shareholder approval, amended its 2002 Stock
Option Plan (the "Plan"), to increase the underlying shares of common stock
available under the plan to 5,000,000 shares. Currently the Company has issued
3,495,000 options under the Plan. The 2002 Stock Option Plan is the successor
plan to the 2000 Nonqualified Stock Option Plan. All stock options outstanding
under the 2000 Nonqualified Stock Option Plan remain in effect according to
their terms and conditions (including vesting requirements). Under the Company's
2002 Stock Option Plan, the compensation committee may grant equity incentive
awards to directors, officers, employees and service providers of the Company,
in the form of incentive stock options, non-qualified stock options, and other
performance-related or non-restricted stock awards. The selection of
16
participants in the 2002 Plan, the determination of the award vehicles to be
utilized and the number of stock options or shares subject to an award are
determined by the Company compensation committee, in its sole discretion, within
the approved allocation of shares. The committee shall determine any service
requirements and/or performance requirements pertaining to any stock awards
under the 2002 Plan. The Plan permits the Company to provide its employees with
incentive compensation opportunities which are motivational and which afford the
most favorable tax and accounting treatments to the Company. The exercise price
of any option granted under the 2002 Plan shall not be less than the fair market
value of the common stock of the Company on the date of grant.
The Board of Directors has adopted the 2010 Stock Incentive Plan under Action
Item 3 of this Information Statement. While previously granted options under the
Company's 2002 Stock Option Plan will remain in effect in accordance with the
terms of the individual options, the 2010 Stock Incentive Plan is intended to
replace the Company's 2002 Plan for future grants. For further information
please see Action Item 3 herein.
17
COMPENSATION OF NON-MANAGEMENT DIRECTORS
During the fiscal year 2009 and 2008, outside directors were compensated at the
rate of $2,500 a month. The Chairman of the Board of Directors received an
additional $2,000 per month and the Chair of the audit committee received an
additional $1,000 per month.
FEES EARNED OPTIONS
NAME OF OUTSIDE OR PAID IN AWARDS (1)
DIRECTOR YEAR CASH $ TOTAL
- -------------------------------------------------------------------------
Elbert O. Hand (2) 2009 $ -- $ -- $ --
2008 $ -- $ -- $ --
- -------------------------------------------------------------------------
Nitin M. Amersey 2009 $49,500 $ -- $49,500
2008 $54,000 $ -- $54,000
- -------------------------------------------------------------------------
Michael F. Albanese 2009 $38,500 $ -- $38,500
2008 $42,000 $ -- $42,000
- -------------------------------------------------------------------------
John D. Dunlap III 2009 $27,500 $ -- $27,500
2008 $30,000 $ -- $30,000
- -------------------------------------------------------------------------
Bengt G. Odner 2009 $27,500 $ -- $27,500
2008 $30,000 $ -- $30,000
- -------------------------------------------------------------------------
Joey Schwartz 2009 $27,500 $ -- $27,500
2008 $ 1,250 $ -- $ 1,250
- -------------------------------------------------------------------------
(1) Represents the cost of the compensation expense recorded by the Company in
accordance with FAS123R (ASC 718-10-10). In 2009 and 2008 no stock option
awards were issued to Outside Directors.
(2) Effective January 25, 2010, ESW's Board of Directors unanimous elected
Elbert O. Hand to serve as a member of the Board of Directors and
appointed Mr. Hand Interim Chairman until the next annual meeting of
shareholders. Mr. Hand did not receive any compensation from the Company
in 2009 and 2008.
The following table shows certain information regarding the outstanding equity
awards held by the outside Directors.
On April 15, 2010 the Board of Directors granted an aggregate award of 300,000
stock options to one director. The options vest over a period of three years
with exercise prices of $0.65 (fair market value of the Company's common stock
as of the date of grant) with expiry five years from the date of award.
No stock awards or stock options were granted to the outside Directors in 2009
and 2008.
18
OPTION
NUMBER OF EXERCISE OPTION
OPTIONS (#) PRICE EXPIRATION
NAME OUTSTANDING ($) DATE
-------------------------------------------------------------------
Elbert O. Hand 300,000 $ 0.65 04/15/2015
-------------------------------------------------------------------
50,000 $ 0.27 08/06/2013
Nitin M. Amersey 150,000 $ 1.00 12/30/2010
300,000 $ 0.71 02/16/2012
-------------------------------------------------------------------
Michael F. Albanese 450,000 $ 0.71 02/16/2012
-------------------------------------------------------------------
John D. Dunlap III 300,000 $ 0.71 02/16/2012
-------------------------------------------------------------------
50,000 $ 0.27 08/06/2013
Bengt G. Odner 150,000 $ 1.00 12/30/2010
300,000 $ 0.71 02/16/2012
-------------------------------------------------------------------
200,000 $ 1.00 12/30/2010
Joey Schwartz (1) 100,000 $ 0.71 02/16/2012
100,000 $ 1.00 02/08/2013
-------------------------------------------------------------------
(1) Mr. Schwartz's status changed to an Outside Director in December 2008. As
an Outside Director, Mr. Schwartz has not received any stock option awards.
The option awards shown in the table above reflect Mr. Schwartz's prior
awards which are still effective until their expiration date.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, to the best knowledge of the Company, as of July
14, 2010, certain information with respect to (1) beneficial owners of more than
five percent (5%) of the outstanding common stock of the Company, (2) beneficial
ownership of shares of the Company's common stock by each director and named
executive, (3) beneficial ownership of shares of common stock of the Company by
all directors and officers as a group.
Unless otherwise noted, all shares are beneficially owned and the sole voting
and investment power is held by the persons/entities indicated.
Calculations are based upon the aggregate of all shares of common stock issued
and outstanding as of July 14, 2010 in addition to shares issuable upon exercise
of options currently exercisable or becoming exercisable within 60 days and
which are held by the individuals named on the table.
As a result of the Company's March 2010 debenture financing and subsequent
conversion of the debentures, the combined ownership position held by Leon D.
Black , The Black Family 1997 Trust, The Leon D. Black Trust UAD 11/30/92 FBO
Alexander Black, The Leon D. Black Trust UAD 11/30/92 FBO Benjamin Black, The
Leon D. Black Trust UAD 11/30/92 FBO Joshua Black and The Leon D. Black Trust
UAD 11/30/92 FBO Victoria Black has decreased from a potential ownership of
44.39% in 2008 to an actual ownership of 32.11% on a fully diluted basis,
however these entities disclaim beneficial ownership (see beneficial ownership
table below) . Also the potential ownership position held by Mr. Bengt G. Odner,
a director and shareholder of the Company has decreased from to 25.29% in 2008
to 19.61% in 2009 (actual ownership 19.29% - 2009) on a fully diluted basis. The
reason for ownership interest decrease on a fully diluted basis is due to the
company's recent finance offerings and a minor decrease caused by the issuance
of stock options.
19
TOTAL
BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) CLASS
- --------------------------------------------------------------------------------
Bert Hand, Chairman
c/o 335 Connie Crescent 500,000(2) 0.40%
Concord, ON L4K 5R2
- --------------------------------------------------------------------------------
Nitin M. Amersey, Director
c/o 335 Connie Crescent 500,000(3) 0.40%
Concord, ON L4K 5R2
- --------------------------------------------------------------------------------
David J. Johnson
Chief Executive Officer, President and Director 1,650,000(4) 1.32%
c/o 335 Connie Crescent
Concord, ON L4K 5R2
- --------------------------------------------------------------------------------
Bengt G. Odner, Director
c/o 335 Connie Crescent 24,337,120(5) 19.61%
Concord, ON L4K 5R2
- --------------------------------------------------------------------------------
Sedam Ltd
15 Rue Du Cendrier, 6TH Floor 23,837,120(5) 19.29%
Geneva V8 1211
- --------------------------------------------------------------------------------
Joey Schwartz, Director
c/o 335 Connie Crescent 410,000(6) 0.33%
Concord, ON L4K 5R2
- --------------------------------------------------------------------------------
Michael F. Albanese, Director
c/o 335 Connie Crescent 450,000(7) 0.36%
Concord, ON L4K 5R2
- --------------------------------------------------------------------------------
John D. Dunlap, III, Director
c/o 335 Connie Crescent 300,000(8) 0.24%
Concord, ON L4K 5R2
- --------------------------------------------------------------------------------
Stefan Boekamp, Vice President of Operations
c/o 335 Connie Crescent 100,000(9) 0.08%
Concord, ON L4K 5R2
- --------------------------------------------------------------------------------
Praveen Nair, Chief Accounting Officer
c/o 335 Connie Crescent 70,900(10) 0.06%
Concord, ON L4K 5R2
- --------------------------------------------------------------------------------
Black Family 1997 Trust
c/o 9 West 57TH Street, Suite 4300 14,834,698(11) 12.00%
New York NY 10019
- --------------------------------------------------------------------------------
Leon D. Black
c/o 9 West 57TH Street, Suite 4300 5,879,253(12) 4.76%
New York NY 10019
- --------------------------------------------------------------------------------
Leon D. Black Trust UAD
11/30/92 FBO Alexander Black 4,743,140(13) 3.84%
c/o 9 West 57TH Street, Suite 4300
New York NY 10019
- --------------------------------------------------------------------------------
20
Leon D. Black Trust UAD
11/30/92 FBO Benjamin Black 4,743,140(14) 3.84%
c/o 9 West 57TH Street, Suite 4300
New York NY 10019
- --------------------------------------------------------------------------------
Leon D. Black Trust UAD
11/30/92 FBO Joshua Black 4,743,140(15) 3.84%
c/o 9 West 57TH Street, Suite 4300
New York NY 10019
- --------------------------------------------------------------------------------
Leon D. Black Trust UAD
11/30/92 FBO Victoria Black 4,743,140(16) 3.84%
c/o 9 West 57TH Street, Suite 4300
New York NY 10019
- --------------------------------------------------------------------------------
All current directors and executive 28,318,020 22.15%
officers as a group (Nine persons)
- --------------------------------------------------------------------------------
(1) On the basis of 123,588,099 shares of common stock outstanding, plus, in
the case of any person deemed to own shares of common stock as a result of
owning options or rights to purchase common stock exercisable within 60
days of August 20, 2010.
(2) Includes 200,000 shares of common stock. Includes options to purchase
300,000 shares of common stock, at $0.65 per share expiring April 15, 2015.
Mr. Hand has agreed to stand back on exercise of the 300,000 options until
the Company has sufficient authorized shares available for issuance.
(3) Includes options to purchase 50,000 shares of common stock at $0.27 per
share expiring August 6, 2013, options to purchase 150,000 shares of common
stock at $1.00 per share expiring December 30, 2010, and options to
purchase 300,000 shares of common stock at $0.71 per share expiring
February 16, 2012. Mr. Amersey has agreed to stand back on exercise of the
500,000 options until the Company has sufficient authorized shares
available for issuance.
(4) Includes options to purchase 150,000 shares of common stock at $0.27 per
share expiring August 6, 2013, includes options to purchase 200,000 shares
of common stock at $1.00 per share expiring December 30, 2010 options to
purchase 700,000 shares of common stock at $0.71 per share expiring
February 16, 2012 and options to purchase 600,000 shares of common stock at
$0.65 per share expiring April 15, 2015. Mr. Johnson has agreed to stand
back on exercise of the 1,650,000 options until the Company has sufficient
authorized shares available for issuance.
(5) Mr. Bengt George Odner is a director of Environmental Solutions Worldwide,
Inc. and the beneficiary of a trust that controls Sedam Limited. Includes
indirect ownership of 23,837,120 shares of common stock owned by Sedam
Limited a corporation organized under the laws of Cyprus which is
controlled by a trust of which Mr. Bengt Odner is the sole beneficiary.
Also with respect to Mr. Odner individually, includes 500,000 shares
underlying director stock options that may be exercised as follows: 50,000
shares at $0.27 per share, 150,000 shares at $1.00 per share and 300,000
shares at $0.71 per share. Mr. Odner has agreed to stand back on exercise
of the 500,000 options until the Company has sufficient authorized shares
available for issuance.
(6) Includes 10,000 shares of common stock and includes options to purchase
200,000 shares of common stock at $1.00 per share expiring December 30,
2010, options to purchase 100,000 shares of common stock at $0.71 per share
expiring February 16, 2012, and options to purchase 100,000 shares of
common stock at $1.00 per share expiring February 8, 2013.
(7) Includes 450,000 options to purchase 450,000 shares of common stock at
$0.71 per share expiring February 16, 2012.
(8) Includes 300,000 options to purchase 300,000 shares of common stock at
$0.71 per share expiring February 16, 2012.
21
(9) Includes options to purchase 50,000 shares of common stock at $1.00 per
share expiring December 30, 2010, and options to purchase 50,000 shares of
common stock at $0.71 per share expiring February 3, 2011.
(10) Includes 900 shares of common stock and includes options to purchase 20,000
shares of common stock at $1.00 per share expiring December 30, 2010, and
options to purchase 50,000 shares of common stock at $0.71 per share
expiring February 3, 2011. Mr. Nair has agreed to stand back on exercise of
the 70,000 options until the Company has sufficient authorized shares
available for issuance.
(11) Includes 14,834,698 shares of common stock Beneficially Owned by the Black
Family 1997 Trust (the "1997 Trust") represented by 5,852,381 shares of
common stock directly beneficially owned by the 1997 Trust and 8,982,317
shares of common stock acquired upon conversion of convertible debentures
directly beneficially owned by the 1997 Trust. Does not include: 5,879,253
shares of common stock directly beneficially owned, by Leon D. Black,
4,743,140 shares of common stock directly beneficially owned, in each case
by each of (A) the Leon D. Black Trust UAD 11/30/92 FBO Alexander Black,
(B) the Leon D. Black Trust UAD 11/30/92 FBO Benjamin Black, (C) the Leon
D. Black Trust UAD 11/30/92 FBO Joshua Black, and (D) the Leon D. Black
Trust UAD 11/30/92 FBO Victoria Black, and (E) 1,088,095 shares of common
stock directly beneficially owned by John J. Hannan. The 1997 Trust
expressly disclaims beneficial ownership of each of the referenced
securities in the preceding sentence.
(12) Includes 5,879,253 shares of common stock Beneficially Owned by Leon D.
Black represented by 1,388,095 shares of common stock directly beneficially
owned by Leon D. Black and 4,491,158 shares of common stock acquired upon
conversion of convertible debentures directly beneficially owned by Leon D.
Black. Also includes 5,852,381 shares of common stock directly beneficially
owned by the Black Family 1997 Trust and 8,982,317 shares of common stock
acquired upon conversion of convertible debentures directly beneficially
owned by the 1997 Trust. Although Mr. Black may be deemed to be the
indirect beneficial owner of the securities referenced in the preceding
sentence, Mr. Black disclaims beneficial ownership. Does not include:
4,743,140 shares of common stock directly beneficially owned, by each of
(A) the Leon D. Black Trust UAD 11/30/92 FBO Alexander Black, (B) the Leon
D. Black Trust UAD 11/30/92 FBO Benjamin Black, (C) the Leon D. Black Trust
UAD 11/30/92 FBO Joshua Black, and (D) the Leon D. Black Trust UAD 11/30/92
FBO Victoria Black, and (E) 1,088,095 shares of common stock directly
beneficially owned by John J. Hannan. Mr. Black expressly disclaims
beneficial ownership of each of the referenced securities in the preceding
sentence.
(13) Includes 851,470 shares of common stock directly beneficially owned by the
Leon D. Black Trust UAD 11/30/92 FBO Alexander Black (the "Alexander
Trust") and 3,891,670 shares of common stock acquired upon conversion of
convertible debentures directly beneficially owned by the Alexander Trust.
Does not include: 1,388,095 shares of common stock directly beneficially
owned, and 4,491,158 shares of common stock acquired upon conversion of
convertible debentures directly beneficially owned by Leon D. Black,
851,470 shares of common stock directly beneficially owned, and 3,891,670
shares of common stock acquired upon conversion of convertible debentures
directly beneficially owned, in each case by each of (A) the Leon D. Black
Trust UAD 11/30/92 FBO Benjamin Black, (B) the Leon D. Black Trust UAD
11/30/92 FBO Joshua Black, and (C) the Leon D. Black Trust UAD 11/30/92 FBO
Victoria Black, (D) 5,852,381 shares of common stock directly beneficially
owned, and 8,982,317 shares of common stock acquired upon conversion of
convertible debentures directly beneficially owned, by the Black Family
1997 Trust, and (E) 1,088,095 shares of common stock directly beneficially
owned by John J. Hannan. The Alexander Trust expressly disclaims beneficial
ownership of each of the referenced securities in the preceding sentence.
(14) Includes 851,470 shares of common stock directly beneficially owned by the
Leon D. Black Trust UAD 11/30/92 FBO Benjamin Black (the "Benjamin Trust")
and 3,891,670 shares of common stock acquired upon conversion of
convertible debentures directly beneficially owned by the Benjamin Trust.
Does not include: 1,388,095 shares of common stock directly beneficially
owned, and 4,491,158 shares of common stock acquired upon conversion of
convertible debentures directly beneficially owned, by Leon D. Black,
851,470 shares of common stock directly beneficially owned, and 3,891,670
shares of common stock acquired upon conversion of convertible debentures
directly beneficially owned, in each case by each of (A) the Leon D. Black
Trust UAD 11/30/92 FBO Alexander Black, (B) the Leon D. Black Trust UAD
11/30/92 FBO Joshua Black, and (C) the Leon D. Black Trust UAD 11/30/92 FBO
Victoria Black, (D) 5,852,381 shares of common stock directly beneficially
owned, and 8,982,317 shares of common stock acquired upon conversion of
convertible debentures directly beneficially owned, by the Black Family
1997 Trust, and (E) 1,088,095 shares of common stock directly beneficially
owned by John J. Hannan. The Benjamin Trust expressly disclaims beneficial
ownership of each of the referenced securities in the preceding sentence.
22
(15) Includes 851,470 shares of common stock directly beneficially owned by the
Leon D. Black Trust UAD 11/30/92 FBO Joshua Black (the "Joshua Trust") and
3,891,670 shares of common stock acquired upon conversion of convertible
debentures directly beneficially owned by the Joshua Trust. Does not
include: 1,388,095 shares of common stock directly beneficially owned, and
4,491,158 shares of common stock acquired upon conversion of convertible
debentures directly beneficially owned, by Leon D. Black, 851,470 shares of
common stock directly beneficially owned, and 3,891,670 shares of common
stock acquired upon conversion of convertible debentures directly
beneficially owned, in each case by each of (A) the Leon D. Black Trust UAD
11/30/92 FBO Alexander Black, (B) the Leon D. Black Trust UAD 11/30/92 FBO
Benjamin Black, and (C) the Leon D. Black Trust UAD 11/30/92 FBO Victoria
Black, (D) 5,852,381 shares of common stock directly beneficially owned,
and 8,982,317 shares of common stock acquired upon conversion of
convertible debentures directly beneficially owned, by the Black Family
1997 Trust, and (E) 1,088,095 shares of common stock directly beneficially
owned by John J. Hannan. The Joshua Trust expressly disclaims beneficial
ownership of each of the referenced securities in the preceding sentence.
(16) Includes 851,470 shares of common stock directly beneficially owned by the
Leon D. Black Trust UAD 11/30/92 FBO Victoria Black (the "Victoria Trust")
and 3,891,670 shares of common stock acquired upon conversion of
convertible debentures directly beneficially owed by the Victoria Trust.
Does not include: 1,388,095 shares of common stock directly beneficially
owned, and 4,491,158 shares of common stock acquired upon conversion of
convertible debentures directly beneficially owned, by Leon D. Black,
851,470 shares of common stock directly beneficially owned, and 3,891,670
shares of common stock acquired upon conversion of convertible debentures
directly beneficially owned, in each case by each of (A) the Leon D. Black
Trust UAD 11/30/92 FBO Alexander Black, (B) the Leon D. Black Trust UAD
11/30/92 FBO Benjamin Black, and (C) the Leon D. Black Trust UAD 11/30/92
FBO Joshua Black, (D) 5,852,381 shares of common stock directly
beneficially owned, and 8,982,317 shares of common stock acquired upon
conversion of convertible debentures directly beneficially owned, by the
Black Family 1997 Trust, and (E) 1,088,095 shares of common stock directly
beneficially owned by John J. Hannan. The Victoria Trust expressly
disclaims beneficial ownership of each of the referenced securities in the
preceding sentence.
23
ACTION 2 - RAIFICATION OF INDEPENDENT AUDTIORS
MSCM LLP has been selected as the Company's independent auditors for the Fiscal
Year ending December 31, 2010.
CHANGE OF AUDITORS
Effective May 15, 2009, the Company dismissed the firm of Deloitte & Touche LLP
("Deloitte") who was previously engaged as the Company's principal auditor.
Deloitte's audit report on the Company's consolidated financial statements for
the fiscal year ended December 31, 2008 and December 31, 2007, did not contain
any adverse opinion or disclaimer of opinion, and was not qualified or modified
as to audit scope or accounting principles, except that the aforementioned
report for the year ended December 31, 2008 included was modified for an
uncertainty relating to the Company's ability to continue as a going concern.
The decision to dismiss Deloitte has been approved by the Company's Audit
Committee and Board of Directors.
Effective May 15, 2009 the Company upon approval of its Audit Committee and
Board of Directors elected to retain the firm of MSCM LLP as its principal
independent accountants. During the Company's two most recent fiscal years and
through May 15, 2009, the Company has not consulted with MSCM LLP regarding
either (i) the application of accounting principles to a specified transaction,
either completed or proposed; or the type of audit opinion that might be
rendered on the Company's financial statements, and neither a written report nor
oral advise was provided that was an important factor considered by the Company
in reaching a decision as to the accounting, auditing or financial reporting
issue; or (ii) any matter that was either the subject of a disagreement, as that
term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related
instructions to Item 304 of Regulation S-K.
AUDIT FEES:
The Company paid its principal accountant MSCM LLP, $58,252 to date in audit
fees for the audit of the Company's annual financial statements for 2009.
The Company paid its principal accountant MSCM LLP $24,524 in audit fees for
review of the financial statements included in its Form 10-QSB for the three
quarterly reports in 2009
The Company paid its former principal accountant Deloitte $94,286 to date in
audit fees for the audit of the Company's annual financial statements for 2008.
The Company paid its former principal accountant Deloitte $19,704 in audit fees
for review of the financial statements included in its Form 10-QSB for the three
quarterly reports in 2008
TAX AND OTHER FEES:
The Company paid its principal accountant MSCM LLP $nil and $29,971 for tax and
compliance services for 2009.
The Company paid its former principal accountant Deloitte $Nil for tax and
compliance services for 2008 respectively.
24
ACTION 3 - 2010 STOCK INCENTIVE PLAN
The 2010 Stock Incentive Plan (the "Stock Incentive Plan" or the "Plan") will
replace the Company's 2002 Stock Option Plan. While previously granted options
under the Company's 2002 Stock Option Plan will remain in effect in accordance
with the terms of the individual options, the 2010 Stock Incentive Plan will
replace the Company's 2002 Plan for future grants. The purposes of the Stock
Incentive Plan are to enable the Company to attract, retain and reward employees
by offering employees an equity interest in the Company, to enable the Company
to offer equity incentives to employees of entities which the Company may
acquire, and to enable the Company to pay part of the compensation of its
outside directors or consultants in options to purchase common stock.
PRINCIPAL PROVISIONS OF THE STOCK INCENTIVE PLAN
The Stock Incentive Plan is to be capitalized with 5,000,000 shares.
GENERAL PROVISIONS
The Stock Incentive Plan authorizes the granting of awards to employees
(including officers) of the Company and certain related companies in the form of
any combination of (1) options to purchase shares of common stock, (2) stock
appreciation rights ("SARs"), (3) shares of restricted common stock ("restricted
stock"), (4) shares of deferred common stock ("deferred stock"), (5) bonus
stock, and (6) tax-offset payments with respect to any of such awards. The Stock
Incentive Plan also authorizes the granting of awards to directors who are not
employees or officers of the Company ("Outside Directors") to purchase shares of
common stock and related limited SARs and tax-offset payments.
Administration - The Stock Incentive Plan is administered by a committee of the
Company's Board of Directors, which consists of at least two Outside Directors.
The Committee has authority to interpret the Stock Incentive Plan, adopt
administrative regulations, and determine and amend the terms of awards to
employees. The Board of Directors has similar authority with respect to Outside
Directors (although the Stock Incentive Plan may also provide for certain
automatic grants to Outside Directors).
Eligibility - The Committee may make awards under the Stock Incentive Plan to
employees (including officers) of the Company or of any entity in which the
Company owns at least a 20% interest. All employees and Outside Directors
(currently numbering 7) are eligible to receive awards under the Stock Incentive
Plan.
Limitations on Awards - The aggregate number of shares of common stock which may
be issued under the Stock Incentive Plan is 5,000,000. Such shares may consist
of authorized but unissued shares or treasury shares. The exercise of a SAR for
cash or for the settlement of any other award in cash will not count against
this share limit. Shares subject to lapsed, forfeited or canceled awards,
including options canceled upon the exercise of tandem SARs for cash, will not
count against this limit and can be re-granted under the Stock Incentive Plan.
If the exercise price of an option is paid in common stock or if shares are
withheld from payment of an award to satisfy tax obligations with respect to the
award, such shares also will not count against the above limit. Under the Plan,
SARs, restricted stock, deferred stock, or bonus stock can be granted with a
limitation of no more than 1,500,000 shares or derivatives granted in the
aggregate in any fiscal year. No employee or Outside Director may be granted
tax-offset payments with respect to more than the number of shares of common
stock covered by awards held by such employee. The Stock Incentive Plan does not
limit awards which may be made under other plans of the Company.
25
AWARDS
The Stock Incentive Plan authorizes the Committee (or, with respect to awards to
Outside Directors, the Board) to grant the following types of awards:
1. Stock Options. The Committee (or, with respect to awards to Outside
Directors, the Board) is authorized to grant incentive stock options ("ISOs")
and non-qualified stock options to purchase such number of shares of common
stock as the Committee (or, with respect to awards to Outside Directors, the
Board) determines. An option will be exercisable at such times, over such term
and subject to such terms and conditions as the Committee (or, with respect to
awards to Outside Directors, the Board) determines, and at an exercise price
determined by the Committee, which may be less than the fair market value of the
common stock at the date of grant of the option. The Committee (or, with respect
to awards to Outside Directors, the Board) has authority to waive any vesting
conditions it may have imposed.
2. Stock Appreciation Rights. Upon exercise of a SAR the holder is
entitled to receive, for each share with respect to which the SAR is exercised,
an amount (the "appreciation") equal to the excess of the fair market value of a
share of common stock on the exercise date over the "base amount" determined by
the Committee. The appreciation is payable in cash, common stock, or a
combination of both, as determined by the Committee. The Committee (or, with
respect to awards to Outside Directors, the Board) may grant a SAR which can
only be exercised within the 60-day period following a Change of Control (as
such term is defined in the Stock Incentive Plan and summarized below). The
Committee (or, with respect to awards to Outside Directors, the Board) may also
provide that in the event of a Change of Control, the amount to be paid by the
Company upon the exercise of the SAR will be based on the Change of Control
Price (as defined in the Stock Incentive Plan and summarized below). Such a SAR
is sometimes referred to as a limited SAR.
3. Restricted Stock. The Committee is authorized to award restricted stock
subject to such terms and conditions as the Committee may determine in its sole
discretion. The Committee has authority to determine the number of shares of
restricted stock to be awarded, the price, if any, to be paid by the recipient
of the restricted stock, and the date or dates on which (or conditions under
which) the restricted stock will vest. The Committee has authority to waive any
vesting conditions it may have imposed. The Committee also has authority to
determine whether the employee will have the right to vote and/or receive
dividends on shares of restricted stock, and whether the certificates for such
shares will be held by the Company or delivered to the employee bearing legends
to restrict their transfer.
4. Deferred Stock. A deferred stock award is a commitment to deliver a
specified number of shares of common stock (or their cash value) at a future
date. The award may be made subject to vesting, based on future service or
satisfaction of other conditions. The Committee has authority to waive any
vesting conditions it may have imposed. During the deferral period set by the
Committee, the employee may not sell, transfer, pledge or assign the deferred
stock award.
5. Bonus Stock. The Committee may award bonus stock subject to such terms
and conditions as it may determine. Such awards may be conditioned upon
attainment of specific performance goals or such other criteria as the Committee
may determine, and the Committee may waive such conditions in its discretion.
26
6. Tax-Offset Payments. The Committee (or, with respect to awards to
Outside Directors, the Board) is authorized to provide for a tax-offset payment
by the Company not in excess of the amount necessary to pay the federal, state,
local, and other taxes payable with respect to any award and the receipt of the
tax-offset payment, assuming the recipient is taxed at the maximum tax rate
applicable to such income.
7. Performance Awards. The Committee can designate any awards to employees
under the Stock Incentive Plan as "Performance Awards." Awards so designated are
to be granted and administered so as to qualify as "performance-based
compensation" under Section 162(m) of the Code. The grant or vesting of a
Performance Award will be subject to the achievement of performance objectives
(the "Performance Objectives") established by the Committee.
8. Deferral of Awards. The Committee may permit an employee to defer
receipt of any award for a specified period or until a specified event.
PROVISIONS RELATING TO A CHANGE OF CONTROL
As a general matter, upon the occurrence of a Change of Control, (1) all
outstanding stock options, SARs, and limited SARs, including those held by
Outside Directors, will become fully exercisable and vested, (2) all
restrictions applicable to outstanding restricted stock and deferred stock
awards under the Stock Incentive Plan will lapse, and such awards will be deemed
fully vested, and (3) to the extent the cash payment of any award is based on
the fair market value of stock, such fair market value will be the Change of
Control Price. The Committee may provide exceptions from the above rule with
respect to grants to employees and consultants.
A "Change of Control" is deemed to occur on a date following a grant (1) any
person or group (with certain exceptions) acquires beneficial ownership of
securities representing 19% or more of the Company's total voting power, (2)
individuals who constitute the "Incumbent Directors" (as defined in the Stock
Incentive Plan) fail to constitute at least two-thirds of the Board of
Directors, (3) a merger or consolidation becomes effective unless the
transaction is approved by the Board of Directors, a majority of the members of
which were in place prior to the transaction or, following such transaction, (a)
the beneficial owners of the Company's common stock before the transaction own
securities representing more than 50% of the total voting power of the company
resulting from the transaction, and (b) at least a majority of members of the
board of directors of the Company resulting from the transaction were members of
the Company's Board of Directors immediately prior to the transaction, or (4)
the shareholders of the Company approve a liquidation of the Company or a sale
of substantially all of its assets.
The Change of Control Price is the highest price per share of common stock paid
in any open market transaction, or paid or offered to be paid in any transaction
related to a Change of Control, during the 90-day period ending with the Change
of Control, except that for a SAR granted in tandem with an ISO, such price is
the highest price paid on the date the SAR is exercised.
OTHER PROVISIONS
o Tax Withholding - The Stock Incentive Plan permits participants to satisfy
all or a portion of their minimum statutory federal, state, local or other
tax liability with respect to awards under the Stock Incentive Plan by
delivering previously-owned shares held at least six months or by having
the Company withhold from the shares otherwise deliverable to such
participant shares having a value equal to the liability to be so
satisfied.
27
o Adjustments - In the event of specified changes in the Company's capital
structure, the Committee will have the power to adjust the number and kind
of shares or other property authorized by the Stock Incentive Plan
(including any limitations on individual awards), and the number, option
price and kinds of shares or other property covered by outstanding awards
(including those held by Outside Directors), and to make such other
adjustments in awards under the Stock Incentive Plan as it deems
appropriate, provided that no such adjustment may increase the aggregate
value of outstanding awards. In addition, if the Company is dissolved or
liquidated, of if there is a reorganization, merger or consolidation where
the Company is not the surviving corporation, or if the Company sells
substantially all of its assets, the Board will have the power to provide
that outstanding stock options shall be (i) cashed out, (ii) assumed by
the surviving corporation, and/or (iii) exercised within ten (10) days of
any such event.
o Amendments - The Board of Directors may amend the Stock Incentive Plan
without shareholder approval, unless such approval is required by law.
Amendment or discontinuation of the Stock Incentive Plan cannot adversely
affect any award previously granted without the holder's written consent.
o The Committee may amend any grant under the Stock Incentive Plan, except
that no award can be modified in a manner unfavorable to the holder
without the written consent of the holder. In addition, the Committee may,
without shareholder approval, cancel an option or other awards granted to
a holder and grant a new option or award to the employee on more favorable
terms and conditions than the canceled award. The Stock Incentive Plan
shall continue in effect for an unlimited period, but may be terminated by
the Board of Directors in its discretion at any time. No ISOs may be
granted under the Stock Incentive Plan after July 6, 2020.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain federal income tax aspects of
awards made under the Stock Incentive Plan, based upon the laws in effect on the
date hereof.
o Non-Qualified Stock Options - With respect to non-qualified stock options,
(a) no income is recognized by the participant at the time the option is
granted; (b) upon exercise of the option, the participant recognizes
ordinary income in an amount equal to the difference between the option
price and the fair market value of the shares on the date of exercise; and
(c) at disposition, any appreciation after the date of exercise is treated
either as long-term or short-term capital gain, depending on whether the
shares were held for more than one year by the participant.
o Incentive Stock Options - No taxable income is recognized by the
participant upon the grant of an ISO or upon the exercise of an ISO during
the period of his or her employment with the Company or one of its
subsidiaries or within three months after termination (12 months after
termination, in the event of permanent and total disability, or the term
of the option, in the event of death). However, the exercise of an ISO may
result in an alternative minimum tax liability to the participant.
o Stock Appreciation Rights - No income will be recognized by a participant
in connection with the grant of a SAR. When the SAR is exercised, the
participant will generally recognize as ordinary income in the year of
exercise an amount equal to the amount of cash received plus the fair
market value on the date of exercise of any shares received. If the
participant receives common stock upon exercise of an SAR, rules similar
to those described above under "Non-Qualified Stock Options" will apply
with respect to the post-exercise appreciation.
28
o Restricted Stock - A participant receiving restricted stock generally will
recognize ordinary income in the amount of the fair market value of the
restricted stock at the time the stock vests, less the consideration paid
for the stock.
o Deferred Stock - A participant receiving deferred stock generally will
recognize ordinary income equal to the amount of cash received in
settlement of the award or the fair market value on the settlement date of
the stock distributed to the participant. The capital gain holding period
for such stock will also commence on that date.
o Dividends and Dividend Equivalents - Dividends paid on restricted stock
prior to the date on which the forfeiture restrictions lapse generally
will be treated as compensation that is taxable as ordinary income to the
participant.
o Bonus Stock - A participant receiving bonus stock generally will recognize
ordinary income on the date of grant equal to the fair market value of the
bonus stock on such date, less the amount paid for such stock.
o Tax-Offset Payments - A participant receiving a cash tax-offset payment
will recognize ordinary income on the date of payment.
Company Deductions - As a general rule, the Company will be entitled to a
deduction for federal income tax purposes at the same time and in the same
amount that an employee or Outside Director recognizes ordinary income from
awards under the Stock Incentive Plan; to the extent such income is considered
reasonable compensation under the Code. The Company will not, however, be
entitled to a deduction to the extent compensation in excess of $1 million is
paid to an executive officer who was employed by the Company at year-end, unless
the compensation qualifies as "performance-based" under Section 162(m) of the
Code or certain other exceptions apply. In addition, the Company will not be
entitled to a deduction with respect to payments to employees which are
contingent upon a change of control if such payments are deemed to constitute
"excess parachute payments" under Section 280G of the Code and do not qualify as
reasonable compensation pursuant to that Section; such payments will subject the
recipients to a 20% excise tax.
ACTION 4 - INCREASE IN AUTHORIZED SHARES OF COMMON STOCK
The Company's Articles of Incorporation will be amended to increase the number
of authorized shares of common stock from 125,000,000 to 250,000,000 (the
"Amendment").
DESCRIPTION OF THE AMENDMENT
In June 2005, the Company had requested and received shareholder approval for an
increase in authorized shares of common stock from 100,000,000 to 125,000,000
shares. The Company's Amended Articles of Incorporation currently authorizes the
issuance of up to 125,000,000 shares of common stock. As of August 20, 2010 the
Company had 123,588,099 shares of common stock outstanding. In addition, as of
that date, the Company had approximately 3,495,000 shares of common stock
reserved for issuance under its 2002 Stock Option Plan, of these shares the
Company signed agreements with certain option holders to stand back on exercise
of their options (3,020,000 shares subject to such agreements) until authorized
shares are available . The exercise price of currently outstanding options
granted to non-officer employees or consultants ranges from $0.27 to $1.00 per
share. Of the Company's 125,000,000 shares of common stock currently authorized,
124,963,099 shares of common stock are either outstanding or reserved for future
issuance under existing benefit plans or financing arrangements as of the record
date, leaving the Company with 36,901 authorized shares for future issuance.
29
EFFECTS OF THE INCREASE OF AUTHORIZED SHARES OF COMMON STOCK
In connection with the Company's recent convertible debenture financing, the
Company did not have sufficient shares of common stock available on a fully
diluted basis for the debentures contemplated to be issued. In turn, the Company
obtained the consent and agreement of 5 executive officers and directors to
refrain from exercising options previously issued in their name until the
Company receives approval and amends its Articles of Incorporation to increase
shares of common stock available for issuance.
Additionally, in connection with the Company's new $4 million credit facility
with Canadian Imperial Bank of Commerce ("CIBC"), as a condition precedent to
securing the new $4 million credit facility, all previously issued and
outstanding 9% debentures of the Company where required to be converted by the
holders to equity or redeemed by the Company. As the Company lacked sufficient
funds to redeem all outstanding debentures which totaled $16,258,267 with a
redemption price determined per the debentures at 110% of principal and accrued
interest, an inducement premium in shares of common stock for early conversion
of debentures to the debenture holders was agreed to subject to a fairness
opinion and approval by a Fairness Committee (comprised of independent Board
members) and the Board of Directors. The share premium was also subject to the
early conversion of all debentures (based upon the same Premium rate of 110%
that existed for redemption by the Company of the debentures). The conversion or
redemption of all outstanding debentures of the Company permitted the Company to
satisfy the CIBC condition precedent and to secure the credit facility. The
proposed premium in shares consisted of 4,375,665 shares in the aggregate and is
issuable to debenture holders on a pro-rata basis. The common stock premium to
debenture holders was further subject to an increase in authorized shares of
common stock available for issuance.
As of March 31, 2010 all debentures have been converted, a positive fairness
opinion in connection with the contemplated premium has been obtained, the
Fairness Committee and the independent Board of Directors have approved the
proposed share issuance to prior debenture holders.
An increase in the authorized shares of common stock will in turn increase the
authorized but unissued shares of common stock as a percentage of the total
number of shares of common stock authorized. The ability of the Board of
Directors to issue additional shares of common stock from the Company's
authorized but unissued shares without further stockholder approval could
discourage any possible unsolicited efforts to acquire control of our Company.
However, the increase in authorized common stock is not intended to be an
anti-takeover device. Management is not aware of any third party who may
currently intend to accumulate our common stock or to gain control of our
Company.
The Company has no plans for further share issuance beyond those set forth
herein. While there are no current merger or acquisition plans, the Company does
not have sufficient authorized shares available to consider such opportunities.
The increase in authorized shares is intended to provide for the potential
requirements outlined above.
The increase in the number of outstanding shares of common stock shall be
accomplished by amending the first paragraph of Article IV of the Articles of
Incorporation (See Annex B) to state as follows:
The aggregate number of shares that this corporation shall have authority
to issue shall be Two Hundred Fifty Million (250,000,000) common shares
which shall have a par value of $.001 per share.
30
The Board considers it both necessary and advisable to have additional
authorized but unissued shares of common stock available to (i) satisfy the
inducement premium for early conversion of all outstanding debentures of the
Company; (ii) allow the Company to act promptly with respect to future
financings which may be necessary to sustain its operations; (iii) to allow
issuances under the Company's employee benefit plans; (iv) to give the Company
the ability to act in connection with possible future acquisition opportunities;
and (v) for other corporate purposes approved by the Board. Having additional
authorized shares of common stock available for issuance will give the Company
greater flexibility and allow shares of common stock to be issued without the
expense or delay of a stockholders' meeting, except as may be required by
applicable laws or regulations.
FURTHER EFFECTS OF THE INCREASE OF AUTHORIZED SHARES OF COMMON STOCK
The increase in authorized common stock will not have any immediate effect on
the rights of existing stockholders. The Board will have the authority to issue
authorized common stock without requiring future stockholder approval of such
issuances, except as may be required by applicable law or exchange regulations.
To the extent that the additional authorized shares are issued in the future,
they will decrease the existing stockholders' percentage equity ownership and,
depending upon the price at which they are issued as compared to the price paid
by existing stockholders for their shares, could be dilutive to the existing
stockholders. The proposal to increase authorized shares for issuance is not
submitted to shareholders as a result of or in response to any accumulation of
stock or threatened takeover of the Company. Additionally, the Company does not
at this time have any plans to implement any anti-takeover measures.
The Board intends to cause a certificate of amendment (see Annex B) to the
Articles of Incorporation to be filed as soon as practicable. Upon effectiveness
of this Amendment, the Company will have approximately 117,641,000 shares of
common stock authorized but unissued and unreserved.
ACTION 5 - REVERSE STOCK SPLIT
REVERSE SPLIT PROPOSAL
The Board at its discretion will have the ability to amend the Company's Amended
Articles of Incorporation to undertake a reverse split of the Company's issued
and outstanding common stock at a ratio of up to eight (8) shares of common
stock converted into one (1) share of common stock. The authorization to permit
the Board of Directors the discretion to effectuate a reverse split will be
limited to certain instances where the Board of Directors in its best judgment
determines that a reverse split will be beneficial to the Company and its
shareholders for business opportunities in the future or for potential listings
on a new exchange that is intended to provide greater liquidity in the Company's
Common Stock. In the proposed share combination, referred to as a reverse stock
split or "Reverse Split", the par value of common stock and the amount of
authorized stock will not change. All the fractional shares resulting from a
combination would be rounded up to the nearest whole share. With the exception
of adjustments for those shareholders with fractional shares, the reverse stock
split would not affect any shareholder's proportional equity interest in the
Company in relation to other shareholders or rights, preferences, privileges or
priorities.
31
REASONS FOR THE REVERSE SPLIT PROPOSAL
A Reverse Split would decrease the number of shares of common stock outstanding
and increase the per share market price for the common stock. The precise effect
of a Reverse Split upon the market price for the Company's common stock cannot
be predicted. There can be no assurance that the market price per share of ESW's
common stock after a Reverse Split will rise in proportion to the reduction in
the number of shares of common stock outstanding resulting from the Reverse
Split. The market price of ESW's common stock may also be based on its
performance and other factors, some of which may be unrelated to the number of
shares outstanding. There are currently no immediate plans to effectuate a
Reverse Split or issue additional shares of common stock available as a result
of a Reverse Split beyond the share Premium for early debenture conversions as
discussed under Action Item 4 herein.
EFFECT OF REVERSE SPLIT
A potential purpose of a Reverse Split would be to combine the outstanding
shares of he common stock so that the common stock outstanding after a Reverse
Split is closer to other similar companies both in number of shares outstanding
and price per share and to allow the Company to seek listing of its Common Stock
on a new/additional exchange whereby the Board of Directors believe greater
liquidity in the Company's trading stock will be provided. We feel this action
will benefit current shareholders by facilitating greater trading liquidity
after the reverse split occurs. Additionally, although there are no known
business opportunities, the Board of Directors having the ability to undertake a
Reverse Split at its discretion will afford the Company greater latitude to
effectuate prospective transactions for the benefit of shareholders.
An effect of the Reverse Split of the Company's issued and outstanding common
stock would be an increase in the authorized common stock for future issuance.
The Board will have the authority to issue authorized common stock without
requiring future stockholder approval of such issuances, except as may be
required by applicable law or exchange regulations. To the extent that the
additional authorized shares are issued in the future, they will decrease the
existing stockholder's percentage of equity ownership and, depending upon the
price at which they are issued as compared to the price paid by existing
stockholders for their shares, could be dilutive to then existing stockholders.
The Company has no plans at the present time for future share issuances beyond
those set forth herein with respect to the prospective share premium consisting
of 4,375,665 shares of common stock in the aggregate and issuable to the
Company's prior debenture holders on a pro-rata basis for their early conversion
of their debentures.
The closing price for our common stock has ranged from $0.35 to $0.72 during our
current fiscal year. The OTC Bulletin Board does not require any minimum share
price for shares to be quoted on it. However, we believe that such a low quoted
market price per share may:
o Discourage potential new investors,
o Increase market price volatility; and
o Reduce the liquidity of our common stock.
We believe that having the ability to implement a reverse stock split within the
parameters provided at the discretion of the Board will increase the price at
which the shares are quoted, but we cannot guarantee that this will happen or
that any increased price will be maintained.
ILLUSTRATIVE EXAMPLE OF A REVERSE SPLIT
If the Company were to have 250 million shares of common stock authorized
(see Action Item 4) and a 125 million shares issued and outstanding, all
outstanding common stock and/or derivatives convertible or exercisable
into common stock (subject to adjustment) would be effected by the reverse
split at a ratio (2:1 to 8:1) determined by the Board but in no event
greater than 8:1.
If the Board were to determine to effectuate a Reverse Split whereby every
five (5) shares outstanding would be exchanged for one (1) post split
share (i.e., 5:1), issued and outstanding stock of 125 million shares
would be reduced to 25 million shares (with fractional shares rounded up
to the next whole number). While the authorized amount of 250 million
shares would remain unchanged.
32
Under the foregoing example, if an option holder had 100,000 options
(subject to adjustment) exercisable at $.50, in the event of a 5:1 reverse
split, the options would be adjusted to reflect 20,000 options exercisable
at $2.50 per option share. The authorized number of shares available for
issuance by the Company would remain unchanged at 250 million and the par
value of the Company's common stock would remain unchanged at $.001 and as
a result the Company would have additional shares available for issuance
given that the number of shares issued and outstanding will be adjusted
downward based upon the reverse split.
Should the Board of Directors elect to undertake a Reverse Split, ESW would
obtain a new CUSIP number for its common stock at the time of the reverse split
and new stock certificates would be issued to shareholders.
As a result of a Reverse Split, some shareholders may own less than 100 shares
of common stock. A purchase or sale of less than 100 shares, known as an "odd
lot" transaction, may result in incrementally higher trading costs through
certain brokers, particularly "full service" brokers. Therefore, those
shareholders who own less than 100 shares following a Reverse Split may be
required to pay higher transaction costs if they sell their shares.
ADDITIONAL EFFECTS OF AUTHORIZED BUT UNISSUED SHARES
As noted in the example above, a Reverse Split will also increase the number of
authorized but unissued shares of common stock as a percentage of the total
number of shares of common stock authorized. Existing stockholders do not have
preemptive rights under the certificate of incorporation or otherwise to
purchase any shares of common stock that we may issue. Shares may be issued in
the future that may dilute the voting power of existing stockholders, decrease
earnings per share and/or decrease the book value per share of the shares then
outstanding.
The ability of the Board of Directors to issue additional shares of common stock
without further stockholder approval could discourage any possible unsolicited
efforts to acquire control of our company. However, the Reverse Split is not
intended as an anti-takeover device. Management is not aware of any third party
who may currently intend to accumulate our common stock or to gain control of
our Company.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT
The following is a summary of the material federal income tax consequences of a
reverse stock split to holders of our common stock and to us. This summary is
based on the Internal Revenue Code of 1986, as amended (the "Code"),
regulations, rulings and judicial decisions currently in effect, all of which
are subject to change. The summary does not address all aspects of federal
income taxation that may apply to a stockholder because of his particular
circumstances, and it does not discuss any special rules that may be applicable
to some types of investors (for example, estates, trusts, individuals who are
not citizens or residents of the United States, foreign corporations, insurance
companies, regulated investment companies, tax-exempt organizations and dealers
in securities). The discussion assumes throughout that stockholders have held
our shares of common stock subject to the reverse stock split as capital assets
at all relevant times. The summary does not cover the applicability and effect
of any state, local or foreign tax laws on a reverse stock split, and investors
should accordingly consult their own tax advisors for information about the
state, local and foreign tax consequences of the transaction.
33
THE FOLLOWING DISCUSSION SUMMARIZING FEDERAL TAX CONSEQUENCES IS BASED ON
CURRENT LAW. STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX EFFECTS OF THE REVERSE STOCK SPLIT IN
LIGHT OF THEIR INDIVIDUAL CIRCUMSTANCES.
Other than the nominal affect of rounding fractional shares upward, stockholders
will not recognize gain or loss from the reverse split. Their adjusted tax basis
of their new common stock will be the same as their adjusted tax basis in their
existing common stock. The holding period of new common stock received as a
result of the reverse split will be the same as holding period for the
stockholder's existing common stock.
A reverse split will be a tax-free recapitalization under the Internal Revenue
Code. We will not recognize any gain or loss as a result of a reverse split.
There will not be any other material tax consequences to us from the
transaction. The tax consequences of a reverse split to our affiliates who are
stockholders will be the same to those affiliates as they are to other
stockholders. There will be no material tax consequences from the reverse split
to affiliates who are not stockholders.
EXCHANGE OF CERTIFICATES AND ELIMINATION OF FRACTIONAL SHARE INTERESTS
On the effective date of a Reverse Split, shareholders will be requested to
exchange their certificates representing shares of common stock held prior to
the Reverse Split for new certificates representing shares of common stock.
Shareholders will be furnished with the necessary materials and instructions to
affect such exchange promptly following the effective date of the Reverse Split.
Shareholders should not submit any certificates until requested to do so. In the
event any certificate representing shares of common stock outstanding prior to
the Reverse Split are not presented for exchange upon request by the Company,
any dividends that may be declared after the date of the Reverse Split with
respect to the common stock represented by such certificate will be withheld by
the Company until such certificate has been properly presented for exchange. At
such time, all such withheld dividends which have not yet been paid to a public
official pursuant to relevant abandoned property laws will be paid to the holder
thereof or his designee, without interest.
No fractional shares of post-split common stock will be issued to any
shareholder. All the fractional shares will be rounded up to the nearest whole
share. In lieu of any such fractional share interest, each holder of pre-split
common stock who would otherwise be entitled to receive a fractional share of
post-split common stock will in lieu thereof receive one full share upon
surrender of certificates formerly representing pre-split common stock held by
such holder.
34
GENERAL INFORMATION REGARDING THE COMPANY, THE PROPOSALS
AND SHAREHOLDER ACTION
DISSENTERS' RIGHTS
ESW is distributing this Information Statement to its shareholders in full
satisfaction of any notice requirements it may have under the Securities and
Exchange Act of 1934, as amended, and the Florida Revised Statutes. No
dissenters' rights under the Florida Revised Statutes are afforded to the
Company's shareholders in connection with the actions described in this
Information Statement.
ITEM 2. STATEMENTS THAT PROXIES ARE NOT SOLICITED.
WE ARE NOT ASKING FOR A PROXY AND SHAREHOLDERS ARE NOT REQUESTED TO SEND US A
PROXY.
ITEM 3. INTEREST OF CERTAIN PERSONS.
Reference is made to the disclosures under Actions 1, 2, 3, 4 and 5 above. For
the reasons stated in the above section, our current and future board of
directors may have an interest in Action 3, 4 and/or 5. No director has informed
the registrant that he intends to oppose any action described above.
ITEM 4. PROPOSALS BY SECURITY HOLDERS.
Not applicable.
ITEM 5. DELIVERY OF DOCUMENTS TO SECURITY HOLDERS SHARING AN ADDRESS.
Only one Information Statement to security holders is being delivered to
multiple security holders sharing an address unless ESW has received contrary
instructions from one or more of the security holders. Upon written or oral
request, a separate copy of an Information Statement can be provided to security
holders at a shared address. For an oral request, please contact the company at
905-695-4142. For a written request, mail request to 335 Connie Crescent,
Concord Ontario Canada L4K 5R2.
Further information is available by request or can be accessed on the internet.
We are subject to the informational requirements of the Securities Exchange Act
of 1934, as amended, and in accordance therewith file annual and quarterly
reports, proxy statements and other information with the Securities Exchange
Commission. Reports, proxy statements and other information filed by ESW can be
accessed electronically by means of the Securities and Exchange Commission's
home page on the Internet at http://www.sec.gov or at other Internet sites such
as http://www.freeedgar.com or http://www.otcbb.com.
You may read and copy any materials that we file with the Securities and
Exchange Commission at the commission's Public Reference Room at 100 F Street,
N.E., Washington D.C. 20549. A copy of any public filing is also available to
any shareholder at no charge upon written request to the Company providing an
e-mail or facsimile number.
35
2010 ANNUAL MEETING
The Board has not yet determined the date on which the next annual meeting of
stockholders of the Company will be held. Any proposal by a stockholder intended
to be presented at the Company's next annual meeting of stockholders must be
received at the offices of the Company a reasonable amount of time prior to the
date on which the information or proxy statement for that meeting are mailed to
stockholders in order to be included in the Company's information or proxy
statement.
By the Order of the Board of Directors.
Dated: September 3, 2010
ENVIRONMENTAL SOLUTIONS WORLDWIDE, INC.
/s/ DAVID J. JOHNSON
---------------------------------------
David J. Johnson, Chief Executive Officer,
President, Director
36
WRITTEN CONSENT
OF A MAJORITY OF THE STOCKHOLDERS OF
ENVIRONMENTAL SOLUTIONS WORLDWIDE, INC.
(AUGUST 20, 2010)
The undersigned, as constituting the holders ("Holders") of at least a majority
of the votes entitled to be cast on the matters referred to herein by the
holders of outstanding Common Stock, par value $0.001 per share of Environmental
Solutions Worldwide, Inc. (the "Company"), adopt the following resolutions
pursuant to Section 604.0704 of the Florida Business Corporation Act:
WHEREAS, the Holders and members of the Board of Directors ("Directors")
deem it to be advisable and in the best interest of the Company to: elect the
current slate of Directors consisting of Elbert O. Hand, Nitin Amersey, John D.
Dunlap III, David J. Johnson and Bengt G. Odner; ratify MSCM LLP as the
Company's independent auditors; approve the Company's 2010 Stock Incentive Plan;
amend the Company's Articles of Incorporation to increase the Company's
authorized Common Stock from 125,000,000 to 250,000,000 shares; and authorize
the Company's Directors to undertake at their discretion a reverse split of the
Company's issued and outstanding Common Stock at a ratio of up to eight (8)
shares of Common Stock converted into one (1) share of Common Stock with the par
value remaining unchanged;
NOW, THEREFORE, be it
RESOLVED, that the Company be and hereby is authorized to take any and all
actions in connection with: the election of Directors; ratification of auditors;
approving the 2010 Stock Incentive Plan; amendment to its Certificate of
Incorporation increasing its authorized shares of Common Stock to 250,000,000;
and authorizing and permitting the Directors to effectuate a reverse split of
the Company's issued and outstanding Common Stock at a ratio of up to eight (8)
shares converted into one (1) share of Common Stock with the par value remaining
unchanged
RESOLVED, that all the aforementioned actions on behalf of the Company and
its officers, Directors, employees and agents be, and the same hereby are, in
all respects, ratified, confirmed and approved.
IN WITNESS HEREOF, the undersigned have executed this Written Consent as
of the date first written above
[Signature page follows]
1
IN WITNESS WHEREOF, the undersigned Holders have each executed these
Resolutions as of the date first written above, which Resolutions may be
executed in two or more counterparts and may be transmitted by facsimile when
delivered each being an original and all of which, when taken together, shall be
deemed to be one instrument.
/S/ SEDAM LIMITED
- --------------------------------------
/S/ BLACK FAMILY 1997 TRUST
- --------------------------------------
/S/ LEON D. BLACK
- --------------------------------------
/S/ LEON D. BLACK TRUST UAD 11/30/92
FBO JOSHUA BLACK
- --------------------------------------
/S/ LEON D. BLACK TRUST UAD 11/30/92
FBO BENJAMIN BLACK
- --------------------------------------
/S/ LEON D. BLACK TRUST UAD 11/30/92
FBO VICTORIA BLACK
- --------------------------------------
/S/ LEON D. BLACK TRUST UAD 11/30/92
FBO ALEXANDER BLACK
- --------------------------------------
/S/ JOHN J. HANNAN
- --------------------------------------
/S/ RODNEY JONES
- --------------------------------------
2
Appendix B
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION OF
ENVIRONMENTAL SOLUTIONS WORLDWIDE, INC.
Pursuant to the provision of section 607.1006, Florida Statues, this Florida
profit corporation adopts the following articles of amendment to its articles of
incorporation:
FIRST: Amendment(s) adopted:
The Articles of Incorporation are hereby amended to increase the total
number of shares which the corporation shall be authorization to issue from One
Hundred Million (125,000,000) Common shares having a par value of $.001 per
share to Two Hundred Fifty Million (250,000,000) Common Shares which shall have
a par value of $.001 per share.
To accomplish the foregoing amendment, Article IV of the original Articles
of Incorporation is hereby amended to read as follows:
"ARTICLE IV"
The aggregate number of shares of that this corporation shall have
authority to issue shall be Two Hundred Fifty Million (250,000,000) Common
Shares having a par value of $.001 per share."
SECOND: If an amendment provides for an exchange, reclassification or
cancellation of issued shares, provisions for implementing the amendment
if not contained in the amendment if not contained in the amendment
itself, are as follows: N/A
THIRD: The date of the amendments adoption is _________, 2010.
FOURTH: Adoption of Amendment(s) (CHECK ONE)
[x] The amendment(s) was/were approved by the shareholders. The number of
votes cast for the amendment(s) was/were sufficient for approval.
[ ] The amendment(s) was/were approved by the shareholders
through voting groups. The following statement must be separated provided
for each voting group entitled to vote separately on the amendments(s):
"The number of votes cast for the amendment(s) was/were sufficient for
approval by _________________."
[ ] The amendment(s) was/were adopted by the board of directors without
shareholder action and shareholder action was not required.
[ ] The amendment(s) was/were adopted by the incorporators without shareholder
action and shareholder action was not required.
Signed this _____day of September, 2010
- ------------------------------------------
David J. Johnson, Director, Chief Executive Officer and President
(By the Chairman or Vice Chairman of the Board of Directors, President or other
officer if adopted by the shareholders, or By a director if adopted by the
directors, Or By an incorporator if adopted by the incorporators)