Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ ] Preliminary Additional Materials
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.149-11(c) or Section
240.14a-12
Spectrum Information Technologies, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(j)(4) 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
computed pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with 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:
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 23, 1999
To the Stockholders of
Spectrum Information Technologies, Inc.
Notice is hereby given that the 1999 Annual Meeting of Stockholders (the
"Annual Meeting") of Spectrum Information Technologies, Inc., a Delaware
corporation, doing business as Siti-Sites.com (the "Company"), will be held at
10:00 a.m. on November 23, 1999, at 594 Broadway, Suite ___, New York New York,
for the following purposes:
1. To elect two Class I Directors to serve for the ensuing one year
and until their successors are duly elected and qualified, (b) to
elect one Class II Director to serve for the ensuing two years
and until his successor is duly elected and qualified, and (b) to
elect one Class III Director to serve for the ensuing three years
and until his successor is duly elected and qualified.
2. To approve the Company's Amended and Restated Certificate of
Incorporation to, among other things, (a) change the name of the
Company to "Siti-Sites.com, Inc.", (b) increase the number of
authorized shares of Common Stock from 10,000,000 to 35,000,000,
and the number of authorized shares of Preferred Stock from
2,000,000 to 5,000,000, (c) delete the authorization for and all
references to Class A Stock, which was automatically converted to
Common Stock on March 31, 1999, (d) delete certain limitations on
transfers of Common Stock which were originally designed to
preserve net operating loss carry forwards of the Company, but
are now irrelevant, and have been lost as a result of the change
of control transaction in December, 1998, and (e) further
indemnify the Company's directors, officers and employees against
costs and expenses relating to the performance of their duties.
3. To approve a plan of financing to raise additional funds through
a private placement with Lawrence M. Powers, the Chairman of the
Board, Chief Executive Officer and a major stockholder of the
Company.
4. To ratify the Company's 1999 Stock Option Plan.
5. To ratify the appointment of Edward Isaacs & Company LLP as the
Company's independent public accountant for the Company's fiscal
year ending March 31, 2000.
6. To transact such other business that may properly come before
the Annual Meeting.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on October 25, 1999,
as the record date for the determination of stockholders entitled to receive
notice of and to vote at the Annual Meeting. Such stockholders may vote in
person or by proxy.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN
PERSON. HOWEVER, TO ASSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, YOU ARE
URGED TO MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS
POSSIBLE IN THE POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE. ANY
STOCKHOLDER ATTENDING THE ANNUAL MEETING MAY VOTE IN PERSON EVEN IF THE
STOCKHOLDER HAS PREVIOUSLY RETURNED A PROXY.
If your shares are held of record by a broker, bank, or other nominee and
you wish to vote your shares at the Annual Meeting, you must obtain and bring to
the Annual Meeting a letter from the broker, bank, or other nominee confirming
your beneficial ownership of the shares.
By Order of the Board of Directors
ARJUN NAYYAR
Secretary
New York, New York
October __, 1999
____________________
PROXY STATEMENT
_____________________
ANNUAL MEETING OF STOCKHOLDERS
The proxy accompanying this Proxy Statement is solicited by the Board of
Directors of Spectrum Information Technologies, Inc., a Delaware corporation,
doing business as Siti-Sites.com (the "Company"). All proxies in the
accompanying form, which are properly executed and duly returned, will be voted
at the Annual Meeting of Stockholders to be held on November 24, 1999 at 10:00
a.m. (the "Annual Meeting"), at 594 Broadway, Suite ___, New York New York, for
the purposes set forth in the accompanying Notice of Annual Meeting.
This Proxy Statement and the enclosed form of proxy are being mailed to
stockholders entitled to vote at the Annual Meeting on or about October 25,
1999.
VOTING AND SOLICITATION OF PROXIES
Only holders of record of the Company's Common Stock, par value $.001 per
share ("Common Stock"), at the close of business on October 25, 1999 (the
"Record Date") will be entitled to notice of and to vote at the Annual Meeting.
On that date there were issued and outstanding _______________ shares of Common
Stock. Each outstanding share of Common Stock is entitled to one vote on all
matters to come before the Annual Meeting.
IF PROXY CARDS IN THE ACCOMPANYING FORM ARE PROPERLY EXECUTED AND RETURNED,
THE SHARES OF COMMON STOCK REPRESENTED THEREBY WILL BE VOTED AS INSTRUCTED ON
THE PROXY. IF NO INSTRUCTIONS ARE GIVEN, SUCH SHARES WILL BE VOTED (I) FOR THE
ELECTION AS DIRECTORS OF THE NOMINEES FOR THE BOARD OF DIRECTORS NAMED BELOW,
(II) TO APPROVE THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION,
(III) TO APPROVE THE COMPANY'S PLAN OF FINANCING, (IV) TO RATIFY THE 1999 STOCK
OPTION PLAN, (V) TO RATIFY THE CHANGE OF INDEPENDENT PUBLIC ACCOUNTANTS TO
EDWARD ISAACS & COMPANY LLP, AND (VI) IN THE DISCRETION OF THE PROXIES NAMED IN
THE PROXY CARD ON ANY OTHER PROPOSALS TO PROPERLY COME BEFORE THE ANNUAL MEETING
OR ANY ADJOURNMENT THEREOF.
The Board of Directors unanimously recommends a vote "FOR" (i) the election
as directors of the nominees named in Proposal No. 1 hereof, (ii) the Company's
Amended and Restated Certificate of Incorporation described in Proposal No. 2
hereof, (iii) the Company's Plan of Financing described in Proposal No. 3
hereof, (iv) the Company's 1999 Stock Option Plan described in Proposal No. 4
hereof, and (v) the appointment of Edward Isaacs & Company LLP as the Company's
independent public accountant for the Company's fiscal year ending March 31,
2000, described in Proposal No. 5 hereof.
The cost of soliciting proxies will be borne by the Company. In addition to
the use of the mails, officers, directors and regular employees of the Company
may solicit proxies personally or by telephone, telegraph or facsimile
transmission. The Company also intends to request that brokerage houses, banks,
custodians, nominees, and fiduciaries forward soliciting material to the
beneficial owners of Common Stock held of record by such persons, and will
reimburse such persons for their reasonable expenses in forwarding such
material.
-1-
The holders of a majority of the total shares of Common Stock issued and
outstanding, whether present in person or represented by proxy, will constitute
a quorum for the transaction of business at the Annual Meeting. Abstentions are
counted for purposes of determining the presence or absence of a quorum for the
transaction of business.
Directors are elected by a plurality of the votes actually cast at the
Annual Meeting (Proposal No. 1 hereof). The affirmative vote of a majority of
the total shares of Common Stock issued and outstanding is required for approval
of the Amended and Restated Certificate of Incorporation (Proposal No. 2
hereof). The affirmative vote of a majority of the total shares of Common Stock
represented in person or by proxy at the Annual Meeting is required for approval
of a plan of financing (Proposal No. 3 hereof), approval of the 1999 Stock
Option Plan (Proposal No. 4 hereof) and ratification of the appointment of
independent public accountants (Proposal No. 5 hereof). Since only affirmative
votes are counted as votes in favor of these matters, abstentions and broker
non-votes have the same effect as votes against these matters, except as to the
election of directors as to which they will have no effect. Proxies and ballots
will be tabulated by the inspectors of election. The Company has been informed
by each of Mr. Lawrence Powers, Mr. Barclay Powers, Mr. Ingenito, Mr. Steven E.
Gross and Mr. Jason Gross that he intends to vote "for" each of the proposals
set forth in this Proxy Statement. As of the Record Date these stockholders
collectively held more than _____% of the issued and outstanding shares of
Common Stock.
It is important that proxies be returned promptly. Therefore, whether or
not you plan to attend in person, you are urged to execute and return your proxy
in the enclosed envelope, to which no postage need be affixed if mailed in the
United States. The proxy may be revoked at any time before it is exercised by
filing with the Secretary of the Company an instrument revoking such proxy or a
duly executed proxy bearing a later date, or by attending the Annual Meeting and
voting in person.
SECURITY OWNERSHIP
The following table sets forth information, as of September 24, 1999, as to
the beneficial ownership of the Company's Common Stock (including shares which
may be acquired within sixty days pursuant to stock options) by (1) each person
or group of affiliated persons known by the Company to own beneficially more
than 5% of the outstanding shares of the Company's Common Stock, (2) the Named
Executive Officers (as defined in "Executive Compensation" below), (3) each of
the Company's directors, and (4) all directors and executive officers of the
Company as a group. Unless otherwise noted, the Company believes that all
persons named in the table have sole voting and investment power with respect to
all shares of Common Stock beneficially owned.
Shares of Common Stock Beneficially Owned
Name of Owner Number Percent of Class
Lawrence M. Powers 3,370,000(1) 40.6%
Powers & Co.
47 Beech Road
Englewood, NJ 07631
Robert Ingenito 800,000(2) 9.3%
80 Ruland Road
Melville, NY 11747-6200
-2-
Shares of Common Stock Beneficially Owned
Name of Owner Number Percent of Class
Maurice W. Schonfeld 800,000(2) 9.3%
630 Fifth Avenue
Suite 3163
New York, NY 10111
Barclay Powers 1,685,000 20.3%
665 Walther Way
Los Angeles, CA 90048
Jonathan Blank 45,833 *
4239 Coolidge Avenue
Los Angeles, CA 90066
Donald J. Amoruso (3) 194,540(4) 2.2%
463 Old Sleepy Hollow Road
Pleasantville, NY 10570
Mikhail Drabkin (3) 100,219(5) 1.2%
415 East Middlefield Road
Mountain View, CA 94043
Richard duFosse (3) 120,943(6) 1.4%
15 John Edward Drive
Northboro, MA 01532
Current Directors and 4,215,833(7) 48.5%
Executive Officers as a
Group (4 persons):
- -------------------------
* Less than 1%
(1) Includes 1,685,000 shares held by his son, Barclay Powers. Lawrence M.
Powers and Barclay Powers have a verbal understanding that the shares of
Common Stock held by Barclay Powers may be voted, exercised and disposed of
by either of them.
(2) Consist of 500,000 shares of Common Stock and an option to purchase an
additional 300,000 shares of Common Stock at an exercise price of $0.15 per
share.
(3) A member of former management who resigned as of December 11, 1998 in
connection with the change of control transaction.
(4) Consists of 106,188 shares of Common Stock and various options to purchase
an additional 88,352 shares of Common Stock at exercise prices ranging from
$0.35 per share to $337.50 per share.
(5) Consists of 52,581 shares of Common Stock and an option to purchase an
additional 47,638 shares of Common Stock at an exercise of $0.35 per share.
(6) Consists of 61,662 shares of Common Stock and an option to purchase an
additional 59,281 shares of Common Stock at an exercise price of $0.35 per
share.
(7) Includes 300,000 shares of Common Stock issuable upon the exercise of an
option held by Mr. Ingenito.
-3-
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's current Restated Certificate of Incorporation provides for
the division of the Company's Board of Directors into three classes with
overlapping three-year terms. A director serves in office until his or her
respective successor is duly elected and qualified unless the director resigns
or by reason of death or other cause is unable to serve in the capacity of
director. Any additional directorships resulting from an increase in the number
of directors will be distributed among the three classes so that, as nearly as
possible, each class will consist of an equal number of directors. Vacancies on
the Board of Directors are filled by the remaining directors.
In connection with the Company's change of control transaction on December
11, 1998 which is described in "Item 1. Business - Change of Control" of the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999,
the Company's then-current Board of Directors resigned and appointed Lawrence M.
Powers as Chairman of the Board and Chief Executive Officer. Mr. Powers then
appointed Mr. Jon M. Gerber and Mr. Maurice W. Schonfeld to the Board. The Board
subsequently appointed Mr. Robert Ingenito to fill a Board vacancy. In April,
1999, Mr. Schonfeld resigned to devote his attention to other commitments. In
September, 1999, Mr. Gerber also resigned to pursue other commitments. On
September 9, 1999, the remaining members of the Board appointed Jonathan Blank,
the Chief Executive Officer and Co- President of the Company's wholly-owned
subsidiary, Tropia, Inc. ("Tropia") and Barclay Powers, the Co- President of
Tropia and a major stockholder of the Company, as Board members. The current
Board of Directors therefore consists of Mr. Lawrence M. Powers as Chairman, Mr.
Ingenito, Mr. Blank and Mr. Barclay Powers.
Two Class I directors are to be elected at the Annual Meeting for a
one-year term ending in 2000. One Class II director is to be elected at the
Annual Meeting for a two-year term ending in 2001. One Class III director is to
be elected for a three-year term ending in 2002. The Board of Directors has
nominated Jonathan Blank and Barclay Powers for election as the Class I
directors, Robert Ingenito for election as Class II director, and Lawrence M.
Powers for election as the Class III director.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION AS
DIRECTORS OF EACH OF THE NOMINEES NAMED BELOW.
Certain information regarding the nominees for election as directors at the
Annual Meeting is set forth below.
Name Age Position(s) with the Company Class Reelection Year
Lawrence M. Powers 68 Chief Executive Officer and III 2002
Chairman of the Board.
Robert Ingenito 56 Director II 2001
Jonathan Blank 34 Director I 2000
Barclay Powers 36 Director I 2000
LAWRENCE M. POWERS, 68, has served as the Company's Chairman of the
Board and Chief Executive Officer since the change of control
transaction in December, 1998. Mr. Powers has been a private investor
since 1992. Beginning in 1978 and continuing to his retirement in
1992, as Chairman/CEO he built Spartech Corporation (NYSE), from a
previously bankrupt corporation with few assets, into what has become
an $800 million plastics manufacturing group operating 40 plants. He
-4-
raised some $200 million during his tenure, and with Spartech's key
managers, built one of the largest plastic processing companies in the
U.S. by 1992 (12 plants at the time). The management team he assembled
has continued successfully. He remained on the board of Spartech until
1995 and is still a major securities holder. Mr. Powers, a securities
lawyer in New York from 1957 through 1981, was educated at Yale Law
School and senior executive programs at Harvard Business School.
ROBERT INGENITO, 56, has served as a Director of the Company since the
change of control transaction in December, 1998. Mr. Ingenito was a
founder and, since 1989, has served as Chief Executive Officer of
Access Communications and Access Direct, two established data service
companies ($32 million in sales). Access Direct produces high volume,
highly segmented mail correlated to its clients segmented databases;
Access Communications produces critical documents from on-line
transmissions from its clients. Prior to that, he was the President
and a principal of Axciom Corporation (NYSE) when it went public in
1992. Axciom has become a $750 million database management firm which
has recently purchased Access Communications from Mr. Ingenito and his
partner. Mr. Ingenito has agreed to continue as a consultant thereto.
JONATHAN BLANK, 34, has served as a Director of the Company since
September 9, 1999 and has been the Chief Executive Officer and
Co-President of Tropia since June 1, 1999. In 1993, Mr. Blank founded
Red Hat Productions, Inc., an award-winning N.Y. and L.A. based
independent film company, with Barclay Powers. Through Red Hat, Mr.
Blank and Barclay Powers have jointly produced and marketed two
documentary films and a feature length theatrical film, all aimed at
the college youth market. The films, now in video release, were
written and directed by Mr. Blank and produced by Barclay Powers. Mr.
Blank is a graduate of Columbia University, with an M.F.A. from its
Film School, in film making and directing.
BARCLAY POWERS, 36, has served as a Director of the Company since
September 9, 1999 and has been the Co-President of Tropia since June
1, 1999. In 1993, Mr. Powers founded Red Hat Productions, Inc., an
award-winning N.Y. and L.A. based independent film company, with
Jonathan Blank. Through Red Hat, Mr. Powers and Jonathan Blank have
jointly produced and marketed two documentary films and a feature
length theatrical film, all aimed at the college youth market. The
films, now in video release, were written and directed by Jonathan
Blank and produced by Mr. Powers. From 1987 to 1992, Mr. Powers was an
executive associate to the Chairman/CEO of Spartech Corporation,
specializing in marketing projects, acquisitions and joint ventures.
He is a graduate of Columbia University. Mr. Powers is the son of
Lawrence M. Powers.
COMPLIANCE WITH SECTION 16 OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who beneficially own more than 10% of the
Company's Common Stock (collectively, "Reporting Persons"), to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). Reporting Persons are required by SEC regulations to furnish the
Company with copies of all such reports. To the Company's knowledge, based on a
review of such reports and certain representations of the Reporting Persons, the
Company believes that during the 1999 fiscal year, all Reporting Persons timely
complied with all applicable Section 16(a) filing requirements except as set
forth below. Prior management member Richard duFosse filed one late report
covering his acquisition of an option and prior management member Mikhail
Drabkin filed one late report covering his acquisition of an option. Lawrence
Powers filed one late report covering his gifts of stock and an option, and his
exercise of his remaining option. Barclay Powers filed two late reports covering
his acquisition and exercise of an option. See "Item 5." Market for Registrant's
Common Equity and Related Stockholder Matters - Recent Sales of Unregistered
Securities" of the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1999.
-5-
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the total annual compensation paid or
accrued by the Company for services in all capacities for the two individuals
who served as Chief Executive Officer during the Company's 1999 fiscal year (Mr.
Amoruso, who managed the Company's prior discontinued operations, for
approximately nine months, and Mr. Lawrence M. Powers, for approximately three
months), and two individuals who managed the Company's prior discontinued
operations and who were among the highest paid employees for the 1999 fiscal
year but were not executive officers at the end of such fiscal year
(collectively, the "Named Executive Officers"). The Company had no executive
officers serving as such at the end of its 1999 fiscal year whose aggregate
compensation exceeded $100,000.
Summary Compensation Table
Long-Term Compensation
----------------------
Annual Compensation Grants & Awards Payout
------------------- --------------- ------
Shares
Other Restricted Underly-
Name and Annual Stock ing All other
Principal Position Year Salary Bonus Comp. Awards Options LIP Payout Comp.
- ------------------ ---- ------ ----- ----- ------ ------- ---------- ----
Lawrence M. Powers 1999 18,250(1) -0- -0- -0- -0- -0- -0-
Chairman and Chief
Executive Officer
______________________
Donald J. Amoruso 1999 387,193 -0- 5,916(4) -0- 44,914 -0- 14,974(5)
Former Chairman, 1998 295,000 -0- -0- -0- 25,000 -0- 19,965(5)
Chief Executive 1997 295,000 132,686(3) 681,558(4) -0- -0- -0- 19,965(5)
Officer and
President (2)
Mikhail Drabkin 1999 239,297 -0- 400(4) -0- 47,638 -0- -0-
Former Chief 1998 195,000 -0- -0- -0- 22,719 -0- -0-
Technical 1997 195,000 72,500(6) 46,080(4) -0- -0- -0- -0-
Officer (2)
Richard duFosse 1999 233,754 -0- 400(4) -0- 59,281 -0- -0-
Former Vice 1998 167,083 -0- -0- -0- 22,719 -0- -0-
President, 1997 142,083 50,000(7) 46,080(4) -0- -0- -0- -0-
Engineering (2)
(1) This amount represents Mr. Powers' contribution of services charged
against earnings. No compensation was paid by the Company to Mr.
Powers with respect to these services or with respect to continuing
operations.
(2) Messrs. Amoruso, Drabkin and duFosse resigned as of December 11, 1998
in connection with the change of control transaction.
(3) This amount, which relates to the Company's prior discontinued
operations, was awarded pursuant to the Company's Third Amended
Consolidated Plan of Reorganization (the "Plan") approved by the
Bankruptcy Court, as part of a success fee for effecting a confirmed
Plan of Reorganization. The Plan is described in greater detail at
Note 1(b) to the Consolidated Financial Statements as part of the
Company's Annual Report on Form 10-K for the fiscal year ended on
March 31, 1999.
-6-
(4) Pursuant to the Plan, as part of a success fee for effecting a
confirmed Plan of Reorganization and as incentive compensation,
242,002 shares were set aside to be awarded to officers, employees and
non-executive directors responsible for consummation of the Plan.
Pursuant to the Plan, Messrs. Amoruso, Drabkin and duFosse were
awarded shares of Common Stock totaling 113,593, 7,680 and 7,680,
respectively. The shares were distributed pursuant to the Company's
1996 Incentive Deferral Plan, which provided for distribution in three
equal installments in August 1997, February 1998 and August 1998.
These shares were recorded at their fair value. Actual value of the
awards are determined on the date of distribution for each installment
in August 1997, February 1998 and August 1998.
(5) Represents premiums under a variable life insurance policy paid by the
Company pursuant to Mr. Amoruso's employment agreement, which
terminated upon Mr. Amoruso's resignation.
(6) Represents the final installment of starting bonus and performance
bonus paid pursuant to Mr. Drabkin's then-current employment
agreement.
(7) Represents performance bonus paid pursuant to Mr. duFosse's then-
current employment agreement.
OPTION GRANTS IN LAST YEAR
The following table sets forth certain information concerning the grant of
stock options to each of the Named Executive Officers during the Company's 1999
fiscal year. This table does not include options purchased by Lawrence M. Powers
through Powers & Co. in December, 1998 in connection with the change of control
transaction.
Options Granted in 1999 Fiscal Year
Potential
Realizable Value at
Assumed Annualized
Rates of
Stock Price
Appreciation for
Option Term
% of Total
Options
Granted to Grant
Options Employees in Exercise or Expiration Date
Name Granted(1) Fiscal Year Base Price Date 5% 10% Value
---- --------- ----------- ---------- ---- --- --- -----
Lawrence M. Powers - - - - - - -
__________________
Donald J. Amoruso 44,914 11.35% .350 Dec. 11, 2003 4,343 9,597 -
Mikhail Drabkin 47,638 12.04% .350 Dec. 11, 2003 4,607 10,179 -
Richard duFosse 59,281 14.98% .350 Dec. 11, 2003 5,732 12,667 -
(1) All options were granted at or above fair market value.
-7-
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth certain information concerning options to
purchase the Company's Common Stock exercised by the Named Executive Officers
during the 1999 fiscal year, and the number and value of unexercised options
held by each of the Named Executive Officers at March 31, 1999.
Aggregated Option Exercises in 1999 Fiscal Year
and Fiscal Year End Option Values
Value of
Number of Unexercised
Unexercised In-the-Money
Options 3/31/99 Options 3/31/99
Shares
Acquired
on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------------- -------------- -------------- ------------------- ------------------- ----------------- ----------------
Lawrence M. Powers -0- -0- -0- -0- -0- -0-
- ------------------
Donald J. Amoruso -0- -0- 69,914 -0- $51,651 -0-
Mikhail Drabkin 13,064 $28,087.60 47,638 -0- $54,784 -0-
Richard duFosse -0- -0- 59,281 -0- $68,173 -0-
COMPENSATION OF DIRECTORS
At present, the Board does not award compensation to its directors.
Prior to the change of control transaction in December, 1998, each of the
Company's outside directors was paid $18,000 per year plus $1,000 per meeting
attended, and $500 per diem for any special assignments. The Board of Directors
had also adopted a plan during fiscal year 1998 pursuant to which the Company
paid one-half of the director's fixed annual compensation in Common Stock of the
Company. These arrangements related to the Company's prior discontinued
operations and were terminated in December, 1998.
-8-
EMPLOYMENT AGREEMENTS
At present the Company does not maintain employment agreements or other
similar arrangements with its executive officers.
Prior to the change of control transaction, the Company had employment
agreements with Messrs. Amoruso, Drabkin, and duFosse, who were employed in the
positions noted in the Summary Compensation Table at annual salaries of
$387,193, $239,297 and $233,754, respectively. In addition to salary, the
above-described employment agreements provided for health and medical insurance,
life insurance benefits, certain other benefits and required indemnification in
certain circumstances. These agreements also provided that if the Company
discharged the individual without cause they were entitled to full compensation
and medical benefits for up to one year.
All of these employment agreements, which related to the Company's prior
discontinued operations, were terminated as of December 11, 1998 pursuant to
Settlement Agreements executed by Messrs. Amoruso, Drabkin, and duFosse in
connection with the change of control transaction. Pursuant to these Settlement
Agreements, Messrs. Amoruso, Drabkin, and duFosse received cash payments of
$178,235, $52,816 and $48,754, respectively, and options to acquire 44,914,
47,638 and 59,281 shares, respectively, of the Company's Common Stock at an
exercise price of $0.35 per share, exercisable through December 11, 2003.
COMMITTEES OF THE BOARD OF DIRECTORS
At present, the Company does not have a Compensation Committee, an Audit
Committee or a Nominating Committee.
Prior to the change of control transaction in December, 1998, the Company
had a Compensation Committee composed of two outside board members, Mr. Sheldon
A. Buckler and Mr. George Bugliarello, both of whom resigned as of December 11,
1998.
-9-
DIRECTORS' MEETINGS
The Board of Directors met 15 times during fiscal year 1999, one of which
was held after the change of control transaction in December, 1998. Each
Director attended more than 75% of the combined number of meetings of both the
Board of Directors and of any committees of the Board on which the Director
served.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TROPIA
As described in "Item 1. Business - Tropia" of the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1999, on June 23, 1999, the
Company consummated its acquisition of Tropia, which operates an MP3 music site
that promotes and distributes the music of independent artists through its
website located at www.tropia.com. Tropia, which is now a wholly-owned
subsidiary of the Company, was acquired for an aggregate of 316,850 shares of
the Company's Common Stock, half of which were delivered at closing, and half of
which are in escrow to be delivered after one year, if certain goals are
achieved. The Company has agreed to provide $100,000 of capital to Tropia
initially and approximately $800,000 of additional capital during the
twelve-month period after the closing. The acquisition was effected by merging
SITI-II, Inc., a Delaware corporation and a wholly-owned subsidiary of the
Company, with and into Tropia. Tropia was partially owned (55%) by Red Hat
Productions, Inc., an award-winning independent film production company which is
owned by Barclay Powers, a director and large stockholder of the Company and the
Co- President of Tropia, and Jonathan Blank, a director of the Company and the
Chief Executive Officer and Co- President of Tropia. Lawrence M. Powers, the
Chairman/CEO and a large stockholder of the Company, has been a financial
participant and one-third owner of Red Hat Productions, Inc. since 1997. Tropia
was also owned (45%) by Ari Blank and Arjun Nayyar, the designers of the website
who are now employees of Tropia.
The fully functioning Tropia website, and related business arrangements
with artists and marketing agents, has been under development since February
1999 and was valued at 500,000 shares of the Company's Common Stock. However,
Lawrence M. Powers and Barclay Powers (his son) have waived their rights to
participate in the shares otherwise receivable by Red Hat Productions, Inc. from
the acquisition. As a result of this waiver, the shares delivered to Red Hat
Productions, Inc. were reduced proportionately and all such shares were
distributed by Red Hat Productions, Inc. solely to Mr. Blank. The Company will
reserve 183,150 shares of its Common Stock (which equals the number of
additional shares that would otherwise have been issued but for the waiver) for
issuance in the future (in the form of stock and/or options to acquire stock)
for existing and new management personnel of Tropia.
-10-
On purchasing a control position in the Company in December, 1998 through
Powers & Co., a sole proprietorship owned by Lawrence M. Powers, Mr. Powers
promptly made assignments of portions of the shares and/or option he acquired to
Jon Gerber, Barclay Powers and certain other individuals. Mr. Powers assigned
200,000 shares (and an option to acquire an additional 80,000 shares) to Jon
Gerber, and 995,000 shares (and an option to acquire an additional 690,000
shares) to Barclay Powers. These gifts are further described in "Item 1.
Business - Management Background/Philosophy - Investors and Administration" and
"Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters - Recent Sales of Unregistered Securities" of the Company's Annual
Report for the year ended March 31, 1999, referred to above.
SUBSEQUENT FINANCING
As described in Proposal No. 3 hereof, on July 26, 1999, the Company
entered into a private-placement agreement to raise $1,250,000 in equity capital
through a private placement with Lawrence M. Powers, the Chairman of the Board,
the Chief Executive Officer and a major stockholder of the Company. Under the
terms of the agreement, the Company will receive $1,250,000 in exchange for
issuing 1,000,000 shares of Common Stock, and an option to purchase an
additional 500,000 shares at $2.50 per share, exercisable for five years.
The terms of the agreement are subject to stockholder review and approval
at the Annual Meeting (see Proposal No. 3 hereof.) The closing of the private
placement transaction is also subject to stockholder approval of a related
increase in the number of authorized shares of the Company's Common Stock (see
Proposal No. 2 hereof.) The private placement is expected to close shortly after
stockholder approval is obtained.
GUARANTEE OF LEASE
On August 30, 1999, the Company entered into a three year lease for new
office space at 594 Broadway, Suite 1001, New York, New York 10012. The Company
moved its principal executive offices to this location in September, 1999. The
Company's payment obligations under this lease were guaranteed by Lawrence M.
Powers.
-11-
COMMON STOCK PERFORMANCE GRAPH
The following line graph compares the cumulative total annual stockholder
return on the Company's Common Stock during the past five fiscal years, based on
the market price of the Common Stock and assuming reinvestment of dividends,
with the cumulative total monthly return of the S&P 500 Index and the Technology
Sector of the S&P 500 Index. The graph is based on the assumption that $100 was
invested on April 1, 1994 in the Company's Common Stock, the S&P 500 Index and
the Technology Sector of the S&P 500 Index.
However, as described at "Change of Corporate Name" below, after the
Company's change of control transaction in December, 1998, the Company's new
senior management and Board of Directors changed the direction and nature of the
Company's business, discontinued its prior business and began seeking to
establish websites for the marketing of products and services over the Internet.
Accordingly, the stockholder returns shown below should not be relied upon as an
indication of future performance.
[PERFORMANCE GRAPH APPEARS HERE]
Indexed Returns
YEARS ENDING
BASE
Company/Index Mar 94 Mar 95 Mar 96 Mar 97 Mar 98 Mar 99
- --------------------------------------------------------------------------------------------------------------------
Spectrum Information 100 16.65 8.00 4.95 0.85 0.76
Technologies, Inc.
S&P 500 Index 100 115.57 152.67 182.93 270.74 320.72
Technology - 500 100 126.54 170.85 230.96 349.06 559.93
- --------------------------------------------------------------------------------------------------------------------
Source: S&P Compustat Total Return Service
-12-
PROPOSAL NO. 2
TO APPROVE THE COMPANY'S AMENDED
AND RESTATED CERTIFICATE OF INCORPORATION
The Company's current Restated Certificate of Incorporation (the "Current
Certificate") was adopted in connection with the Company's prior 1995 bankruptcy
proceeding and was approved pursuant to the Company's Third Amended Consolidated
Plan of Reorganization, which became effective March 31, 1997. See "Item 3.
Legal Proceedings - Past Bankruptcy Proceedings" of the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1999.
On September 24, 1999, the Board of Directors of the Company unanimously
adopted a resolution to amend and restate the Current Certificate as set forth
in the Amended and Restated Certificate of Incorporation in the form attached
hereto as Exhibit A (the "Amended Certificate"), subject to approval of the
stockholders. The Amended Certificate was recommended by the Board in light of
the change of control transaction in December, 1998, the subsequent change of
strategic direction of the Company (as described at "Change of Corporate Name"
below) and the automatic conversion of all of the Company's Class A Stock to
Common Stock on March 31, 1999 (as described at "Changes Resulting from the
Conversion of the Class A Stock" below). The following is a description of the
most significant changes from the Current Certificate now in the Amended
Certificate.
If approved by the stockholders at the Annual Meeting, the Amended
Certificate will become effective upon its filing with the Secretary of State of
the State of Delaware. In addition, if the Amended Certificate is approved, the
Board of Directors intends to amend the Company's Bylaws immediately after the
Annual Meeting to make conforming changes to those made in the Amended
Certificate.
-13-
PLEASE REVIEW THIS DESCRIPTION AND THE ATTACHED COPY OF THE
AMENDED CERTIFICATE CAREFULLY, AS SEVERAL OF THE CHANGES WILL
AFFECT YOUR RIGHTS AS A STOCKHOLDER. THIS DESCRIPTION SHOULD BE
READ IN CONJUNCTION WITH, AND IS QUALIFIED BY REFERENCE TO, THE
AMENDED CERTIFICATE.
CHANGE OF CORPORATE NAME
After the change of control transaction in December, 1998, the Company's
new senior management and Board of Directors changed the direction and nature of
the Company's business, discontinued its prior business and began seeking to
establish websites for the marketing of products and services over the Internet.
As a result, the Company desires to change the Company's name to
"Siti-Sites.com, Inc.," a name that preserves its trading symbol, but is more
appropriate for its new Internet business. The Company has temporarily been
doing business under the name "Siti-Sites.com" since January, 1999.
The change in corporate name will not affect the validity or
transferability of stock certificates presently outstanding, and the Company's
stockholders will not be required to exchange stock certificates to reflect the
new name. Shareholders should keep the certificates they now hold, which will
continue to be valid, and should not send them to the Company or its transfer
agent. The Company will retain the trading symbol "SITI" if the Amended
Certificate is approved.
INCREASE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Current Certificate authorizes the Company to issue 10,000,000 shares
of Common Stock, par value $0.001 per share, 1,500,000 shares of Class A Stock,
par value $0.001 per share ("Class A Stock"), and 2,000,000,000 shares of
Preferred Stock, par value $0.001 per share ("Preferred Stock"). Section E of
Article IV of the Current Certificate grants the Board of Directors discretion
to issue and determine the rights, preferences, designations, qualifications and
limitations applicable to Preferred Stock.
As of September 24, 1999, (a) 8,301,010 shares of Common Stock were issued
and outstanding, 1,059,789 additional shares were issuable upon exercise of
outstanding options and 108,764 shares were reserved for future grants under the
Company's stock option plans, (b) no shares of Class A Stock were issued and
outstanding, and (c) no shares of Preferred Stock were issued and outstanding.
As described at "Changes Resulting from the Conversion of the Class A Stock"
below, on March 31, 1999, all issued and outstanding shares of Class A Stock
automatically converted to Common Stock.
-14-
The Company's principal purpose in seeking to increase the authorized
number of shares of Common Stock and Preferred Stock is to make additional
shares of stock available in the event that the Board of Directors determines
(1) to raise additional capital through the sale of securities, (2) to acquire
one or more additional businesses, (3) to establish a strategic relationship
with a corporate partner, and/or (4) to authorize additional stock dividends or
future stock splits. It will also enable the Company to issue stock and grant
stock options to attract personnel as staffing requirements increase. In the
opinion of the Board, based upon recent developments in the growth of other
Internet companies, it is particularly important for the Company to have the
flexibility to offer securities to acquire other Internet operations, to obtain
related financing and to attract talented personnel. If the Amended Certificate
is adopted, 25,000,000 additional shares of Common Stock and 3,000,000
additional shares of Preferred Stock of the Company will be available for
issuance by the Board of Directors without any further stockholder approval,
unless such approval is required by applicable law or the rules of any stock
exchange on which stock may then be listed.
The Board of Directors believes that it is desirable that the Company have
the flexibility to issue the additional shares without further stockholder
approval. The holders of Common Stock have no preemptive rights to purchase any
stock of the Company. The additional shares could be issued at such times and
under such circumstances as to have a dilutive effect on earnings per share and
on the equity ownership of the present holders of Common Stock.
Furthermore, the increase in the authorized number of shares of Common
Stock is necessary to provide shares for the proposed plan of financing
described in Proposal No. 3 hereof and to increase the number of shares reserved
for issuance under the 1999 Stock Option Plan described in Proposal 4 hereof. In
addition, as a result of the waiver by Lawrence M. Powers and Barclay Powers of
their right to receive Common Stock in connection with the Company's acquisition
of Tropia (as discussed above in "Certain Relationships and Related Transactions
- - Tropia"), the Company agreed to reserve 183,150 shares of Common Stock for
issuance to Tropia's existing and future management.
-15-
Granting the Board of Directors flexibility to issue additional shares of
Common Stock and Preferred Stock could enhance the Board's ability to negotiate
on behalf of the stockholders in a takeover situation. Although it is not the
purpose of the Amended Certificate, the Board could also use the authorized but
unissued shares of Common Stock and Preferred Stock to discourage, delay or make
more difficult a change in the control of the Company. For example, such shares
could be privately placed with purchasers who might align themselves with the
Board of Directors in opposing a hostile takeover bid. The issuance of
additional shares could serve to dilute the stock ownership of persons seeking
to obtain control and thereby increase the cost of acquiring a given percentage
of the outstanding stock. The Current Certificate contains certain other
measures (which will not be changed in the Amended Certificate) that may have
the effect of delaying or preventing an unsolicited takeover attempt, including
provisions authorizing the Board to issue the Preferred Stock with rights,
preferences, designations qualifications and limitations fixed by the Board and
provisions establishing a classified Board of Directors in which the Board of
Directors is divided into three classes. The Board of Directors is not aware of
any pending or proposed effort to acquire control of the Company.
CHANGES RESULTING FROM THE CONVERSION OF THE CLASS A STOCK
As discussed above, the Current Certificate was adopted pursuant to the
1997 Plan of Reorganization. In connection with the 1997 Plan of Reorganization,
the Company settled certain claims against it by delivering Class A Stock to the
holders of such claims. To protect the voting power of the persons receiving
Class A Stock, as required by Section 1123(a)(6) of Title 11 of the United
States Code, as amended (the "Bankruptcy Code"), among other reasons, the
Current Certificate provides that Class A Stock would have certain liquidation
preferences in the event the Company again sought bankruptcy protection prior to
March 31, 1999, as well as certain other rights (including, among others, the
right to vote separately as a class on certain matters such as the election of
directors, the merger of the Company and the sale of all or substantially all of
the business of the Company). In addition, the Current Certificate restricts the
ability of the Company to issue nonvoting securities, as required by 1123(a)(6)
of the Bankruptcy Code, and imposes certain restrictions or requirements which
apply only so long as any shares of Class A Stock are outstanding (e.g., Article
X requires that two-thirds of the members of the Board present at a meeting
approve certain transactions).
However, all issued and outstanding shares of Class A Stock automatically
converted to Common Stock on March 31, 1999 pursuant to Section D of Article IV
of the Current Certificate. The Board therefore believes that it is no longer
necessary for the Company's certificate of incorporation to authorize or refer
to the Class A Stock, or to prohibit the issuance of nonvoting securities.
Accordingly, except for certain provisions describing the method of converting
Class A Stock into Common Stock, the Amended Certificate removes all references
to Class A Stock and all provisions applicable only so long as shares of Class A
Stock are outstanding. It also removes the restriction on the issuance of
nonvoting securities by the Company.
-16-
REMOVE LIMITATIONS ON TRANSFERS TO FIVE PERCENT SHAREHOLDERS
The Current Certificate limits until March 31, 2000 the transfer of shares
of Common Stock, and any other interests that would be treated as stock of the
Company under the Internal Revenue Code of 1986, as amended (the "Tax Code"),
that would cause any individual or entity to become an owner, directly or
indirectly, of five percent or more of the Common Stock, or that would increase
the percentage ownership interest in the Company of such a person. Shares of the
Company's stock were required to bear a legend reflecting this restriction,
which was intended to prevent transfers of Common Stock from triggering an
"ownership change," as defined in section 382 of the Tax Code. Such an ownership
change would thereafter prevent the Company from using certain tax benefits from
net operating loss carry forwards ("NOLs") the Company believed it had on the
effective date of the 1997 Plan of Reorganization, and which may have been used
to offset income of the Company thereafter. The Current Certificate provides
that this restriction may be waived by the Board of Directors of the Company.
The change of control transaction in December, 1998 (which prevented a
second bankruptcy filing by prior management) resulted in an "ownership change"
under Tax Code section 382, thus prohibiting the Company from using the tax
benefits from any then-existing NOLs. As discussed in "Item 1. Business - Prior
Company History" of the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1999, shortly before the change of control transaction was
approved by the Company's prior Board of Directors, the Company had wound down
its overhead and operations and effectively discontinued it operations, and was
on the verge of filing for bankruptcy protection a second time. When evaluating
whether to proceed with the change of control transaction, the Company's prior
Board considered numerous factors including the Company's inability to raise
capital or locate an acquiror, its inability to operate as a going concern
without raising additional capital, the interests of its stockholders, employees
and creditors, and that the change of control transaction, the only viable
alternative to a second bankruptcy filing, would result in an "ownership
change," as defined in section 382 of the Tax Code.
Since an "ownership change" under Tax Code section 382 has already
occurred, the present Board believes that it is no longer necessary for the
Company's certificate of incorporation to limit transfers of Common Stock to
prevent such an occurrence. Accordingly, the Amended Certificate removes these
restrictions.
If the Amended Certificate is approved, certificates representing shares of
Common Stock will no longer bear any legend reflecting this restriction.
However, the Company's stockholders will not be required to exchange stock
certificates to remove this legend. Shareholders should keep the certificates
they now hold, which will continue to be valid, and should not send them to the
Company or its transfer agent.
-17-
FURTHER INDEMNIFY DIRECTORS, OFFICERS AND EMPLOYEES
The ability of publicly held companies to recruit and retain high quality
officers and directors has been adversely impacted by the substantial increase
in directors' and officers' litigation costs and risks, and the costs and
periodic limitations on the availability and coverage of liability insurance. In
order to provide appropriate levels of protection for their officers and
directors, many publicly held corporations have been making use of the statutory
liability limitation/indemnification tools which have been adopted in many
states, including Delaware. The Current Certificate already provides most of
these protections. The Board of Directors has unanimously recommended that the
stockholders approve providing additional indemnification for the Company's
officers and directors to the fullest extent permitted by the Delaware General
Corporation law.
Among other protections provided to the Company's officers and directors in
the Current Certificate, the Company is required to indemnify to the fullest
extent provided by law any person made or threatened to be made a party or
witness to any action, suit or proceeding by reason of the fact that such person
is or was a director or officer of the Company or by reason of the fact that
such person is or was serving any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity at the request
of the Company.
The Amended Certificate adds that the Company shall also indemnify to the
fullest extent provided by law any person made or threatened to be made a party
or witness to any action, suit or proceeding (threatened, pending or completed)
by or in the right of the Company to procure a judgment in its favor by reason
of the fact that such person is or was a director or officer of the Company or
by reason of the fact that such person is or was serving any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise in
any capacity at the request of the Company.
-18-
EXPAND RIGHTS TO REQUEST SPECIAL SHAREHOLDER MEETINGS.
Under the Delaware General Corporation Law, special meetings of a
corporation's stockholders may be called by the corporation's Board of Directors
or by such person or persons as may be authorized by the corporation's
certificate of incorporation or bylaws. The Current Certificate provides that
special meetings of stockholders may only be called by the Board of Directors,
the Chairman of the Board or the President of the Company. The Company's current
Bylaws contain a similar provision (although they also permit the Board to
authorize the holders of Preferred Stock, if issued, to call special meetings of
holders of Preferred Stock). This provision makes it more difficult for
stockholders to take any action not approved by the Board of Directors.
The Amended Certificate permits the holders of 30% of the Company's Common
Stock to call a special stockholders meeting. To the Company's knowledge, the
only stockholders of the Company who own 30% or more of the Company's Common
Stock, individually or as part of a group, are Lawrence M. Powers, the Chairman
of the Board and Chief Executive Officer, and his son, Barclay Powers, who
collectively owned approximately ____% of the issued and outstanding Common
Stock as of the Record Date and who will collectively own approximately ____%
of the issued and outstanding Common Stock if the plan of financing described in
Proposal No. 3 hereof is consummated.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
PROPOSAL TO AMEND THE CORPORATION'S RESTATED CERTIFICATE OF INCORPORATION
AS SET FORTH IN THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.
-19-
PROPOSAL NO. 3
TO APPROVE THE COMPANY'S
PLAN OF FINANCING
On July 26, 1999, the Board of Directors of the Company unanimously adopted
a resolution to enter into an agreement (the "Stock Purchase Agreement") with
Lawrence M. Powers, the Company's Chairman and Chief Executive Officer, and a
major stockholder of the Company, under which the Company will raise $1,250,000
in equity capital through a private placement transaction, subject to approval
of the Company's stockholders. The following description of the Stock Purchase
Agreement and the Option (as defined below) should be read in conjunction with,
and is qualified by reference to, the Stock Purchase Agreement and the Option,
copies of which are attached hereto as Exhibits B and C, respectively. The Stock
Purchase Agreement and the form of the Option were prepared based upon the same
forms of stock purchase agreement and option negotiated at arms-length with the
prior Board in December, 1998 in connection with the change of control
transaction.
OVERVIEW OF OFFERING TERMS
Under the terms of the Stock Purchase Agreement, the Company will receive
$1,250,000, and in exchange will issue 1,000,000 shares of Common Stock and an
option (the "Option") to purchase an additional 500,000 shares of Common Stock
at $2.50 per share, exercisable for five years. If and when the Option is fully
exercised, the Company will receive an additional $1,250,000. The transaction
will be a private placement. None of the shares, the Option or the shares
underlying the Option will initially be registered with the SEC for future sale,
and all will be taken for investment by Mr. Powers.
The Company intends to use the proceeds of the private placement to develop
and expand its operations in the MP3 music field through its music website
www.tropia.com. The Company's previous equity financing of $1,000,000 in
December 1998 (much of which remains intact as cash capital) was also used for
its continuing operations focusing on the MP3 music field and related Internet
marketing opportunities.
CONDITIONS PRECEDENT
As provided in the Stock Purchase Agreement, the terms thereof are subject
to stockholder approval at the Annual Meeting, as well as the approval of the
Amended Certificate pursuant to Proposal No. 2 hereof to increase the number of
authorized shares of Common Stock. If stockholder approval is obtained, the
private placement transaction is expected to close shortly thereafter.
-20-
VOTING RIGHTS
Any Common Stock to be issued under the Stock Purchase Agreement and the
Option would have the same voting rights as all other shares of Common Stock.
ANTI-DILUTION PROVISION
The number of shares of Common Stock subject to the Option would be subject
to customary adjustment as the result of any subdivision, consolidation,
increase, decrease, change or exchange of shares or securities of the Company
through reorganization, merger, recapitalization, reclassification, capital
adjustment or otherwise, or if the Company issues Common Stock as a dividend or
upon a stock split. Any such adjustment shall be made without change in the
total exercise price applicable to the unexercised portion of the Option.
REASONS FOR THE OFFERING
As indicated in the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1999 and Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1999, the Company's future success is highly dependent
near term on its ability to raise capital. As a result of the Company's past
emergence from bankruptcy protection in 1997, the December 1998 change in
control and the subsequent discontinuance of the Company's historical operations
and new strategic direction, the Company's ability to raise additional capital
is severely restricted. Upon the closing of the private placement, the Company's
capital base will be supplemented by the described $1.25 million equity infusion
provided by this second round of financing.
If the Company's stockholders do not approve this private placement
transaction, the Company will seek additional financing from another source.
However, the Company may not be able to obtain additional financing in the near
term on commercially reasonable terms, if at all. Accordingly, if stockholder
approval is not obtained, there can be no assurance that the Company will have
sufficient financial resources to support the continuation or expansion of its
business.
-21-
INCREASE IN BENEFICIAL STOCK OWNERSHIP BY MR. POWERS
As discussed above in "Security Ownership," as of September 24, 1999,
Lawrence M. Powers, who is the Company's largest stockholder, beneficially owned
approximately 40.6% of the issued and outstanding Common Stock of the Company.
Upon the closing of this transaction, Mr. Powers's beneficial ownership of
Common Stock will increase to approximately 49.7%. A subsequent exercise of the
Option by Mr. Powers could result in Mr. Power's beneficially owning a majority
of the issued and outstanding shares of the Company's Common Stock. If this
occurs, Mr. Powers could singlehandedly control the outcome of stockholder votes
requiring approval of a majority of the Company's stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PLAN OF
FINANCING.
PROPOSAL NO. 4
TO RATIFY THE 1999
STOCK OPTION PLAN
The stockholders are being asked to approve the Company's 1999 Stock Option
Plan (the "Plan"). A copy of the Plan is attached hereto as Exhibit D. On
September 24, 1999, the Board of Directors of the Company unanimously adopted
the Plan, subject to stockholder approval. A total of 1,800,000 shares have been
reserved for issuance under the Plan.
The Board believes that the option grants under the Plan will play an
important role in the efforts of the Company and its present and future
affiliates to attract, employ, motivate and retain experienced employees,
officers, outside directors and consultants in the hypercompetitive market for
talented individuals. The Company and its affiliates must be able to offer
market competitive long-term compensation opportunities. Stock options, because
of their upside potential and vesting requirements, are a key component of such
compensation opportunities. The Company's prior stock option plans have either
terminated or have limited amounts of stock available for issuance. Should the
Company's stockholders fail to ratify the Plan, the Company and its present and
future affiliates would likely be severely constrained in their ability to
attract and retain key employees, officers, outside directors and consultants
who are necessary for their success.
The principal terms and provisions of the Plan are summarized below. The
summary, however, is not intended to be a complete description of all the terms
of the Plan. This summary should be read in conjunction with, and is qualified
by reference to, the Plan.
-22-
ADMINISTRATION
The Plan shall be administered by the Board of Directors or a committee of
directors appointed by the Board of Directors, each member of which must be a
"non-employee director" as defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended and an "outside director" as defined
for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code").
The Board (or a committee thereof that may act as Plan administrator) has
full authority under the Plan to determine who receives options under the Plan,
the number of shares covered by each granted option, the date or dates options
are granted, the maximum term during which the option will remain outstanding,
whether the granted option will be an Incentive Stock Option ("ISO") that
satisfies the requirements of Section 422 of the Code or a Non-Qualified Stock
Option ("NQSO") not intended to meet such requirements, and the remaining
provisions of the option grant.
ELIGIBILITY
Employees (including officers), consultants and outside directors who
render services to the Company or any affiliate of the Company are eligible to
receive option grants under the Plan. Employees, non-employee directors and
consultants are eligible for grants of NQSOs. Only employees are eligible for
the grant of ISOs. As of September 24, 1999, there were approximately 13
individuals who would have been eligible to receive option grants under the
Plan.
SECURITIES SUBJECT TO OPTION PLAN
A maximum of 1,800,000 shares of Common Stock may be issued under the Plan.
The last trading price of the Common Stock on September 27, 1999 was $1,375.
Generally, any option granted under the Plan which is forfeited, expires or
terminates prior to vesting or exercise will again be available for award under
the Plan.
PRICE AND EXERCISABILITY
The option exercise price per share in the case of an ISO may not be less
than 100% of the fair market value of the Common Stock on the date of the grant.
However, in the case of an ISO granted to a holder of shares representing more
than 10% of the total combined voting power of all classes of stock of the
Company or any affiliate of the Company (a "10% Shareholder"), the per share
exercise price shall not be less than 110% of the fair market value of the
Common Stock on the date of the grant. In addition, the fair market value of
shares of Common Stock subject to ISOs (determined as of the date such ISOs are
granted) exercisable for the first time by any individual during any calendar
year may in no event exceed $100,000. The option exercise price per share in the
case of a NQSO will be the price determined by the Board (or a committee thereof
that may act as Plan administrator).
-23-
The Board (or a committee thereof that may act as Plan administrator) shall
also establish the form or forms in which payment of the option price with
respect to may be made or deemed to have been made. Options may be exercised
through a same-day sale program, pursuant to which a designated brokerage firm
is to effect the immediate sale of the shares purchased under the option and pay
over to the Company, out of the sale proceeds on the settlement date, sufficient
funds to cover the exercise price for the purchased shares plus all applicable
withholding taxes.
The Board (or a committee thereof that may act as Plan administrator) may
at any time offer to buy out an outstanding option or give an optionee the right
to surrender his or her option for cash, shares of Common Stock or another
option. No optionee is to have any stockholder rights with respect to the option
shares until the optionee has exercised the option, paid the exercise price and
become a holder of record of the shares. Options are not assignable or
transferable other than (a) by will or the laws of descent and distribution, or
(b) with respect to NQSOs, as otherwise determined by the Board (or a committee
thereof that may act as Plan administrator) and set forth in the option
agreement relating thereto. An option is exercisable only by the optionee (or,
in certain circumstances, by the optionee's guardian or legal representative, if
any) or one who receives the option pursuant to a permitted transfer. In no
event may any option held by an optionee be exercised after the specified
expiration date of the option term.
VESTING CONDITIONS AND EXPIRATION
As noted above, the Board (or a committee thereof that may act as Plan
administrator) determines the number of options included in an award as well as
the vesting and other conditions. The vesting conditions may be based on the
nature of the recipient's duties, the recipient's present and potential
contributions to the success of the Company and its affiliates and other
appropriate criteria.
Vesting may be accelerated in the event of the recipient's death or
disability, or in the event of the termination of his or her employment. An
option may be exercised after the termination of the optionee's employment with
the Company or its affiliate (other than by reason of death or disability) to
the extent exercisable on the date of such termination, for up to three months
(or such other period of time not less than 30 days nor more than three months,
in the case of an ISO, or not less than 30 days nor more than 12 months, in the
case of a NQSO, as determined by the Board) (or a committee thereof that may act
as Plan administrator) following such termination, provided that such option has
not expired on the date of such exercise. In the event of death or permanent and
total disability while an optionee is employed by the Company or its affiliate,
options may be exercised, to the extent exercisable on the date of termination
of employment, by the optionee or the optionee's survivors or legal
representatives at any time prior to the earlier of the option's specified
expiration date or one year from the date of the optionee's termination of
employment (all as more specifically provided in the Plan).
-24-
In addition, vesting may be accelerated in the event of a change of control
with respect to the Company. For purposes of the Plan, a "change of control" of
the Company will be deemed to occur upon any of the following events: (a) the
consummation of a sale, transfer or other disposition of all or substantially
all of the Company's assets; (b) approval by the stockholders of the Company of
a merger or consolidation in which securities possessing more than 50% of the
total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from the persons holding those
immediately prior to such transaction; (c) a change in the composition of the
Board over a period of 24 months or less such that a majority of the Board
members ceases to be comprised of individuals who have either been Board members
continuously since the beginning of such period or have been elected or
nominated for selection as Board members by a majority of the continuing Board
members; (d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company or (e) the acquisition by any person
or related group of persons (other than the Company or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership of more than 50% of the Company's outstanding
voting stock without the Board's recommendation.
Stock options granted under the Plan expire not more than ten years from
the date of grant, or not more than five years from the date of grant in the
case of ISOs granted to a 10% Shareholder.
AMENDMENT, TERMINATION AND MODIFICATION OF THE PLAN
The Board of Directors may amend, terminate or modify the Plan at any time
and for any reason. Amendments require the approval of the Company's
stockholders only to the extent provided by applicable law, rules or
regulations. No amendment, termination or modification of the Plan shall alter
or amend any rights or obligations under any option theretofore granted without
the consent of the holder of such option.
-25-
CHANGES IN CAPITALIZATION
In the event that any change is made to the Common Stock issuable under the
Plan by reason of any stock split, stock dividend, recapitalization,
reorganization, merger, consolidation, split-up, spin-off, combination of
shares, exchange of shares or other similar event, then appropriate adjustments
will be made to (a) the number and/or kind of shares issuable under the Plan,
(b) the number and/or kind of shares and price per share in effect under each
outstanding option under the Plan, and/or (c) the exercise price of each option.
FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS
Neither the optionee nor the Company incurs any federal tax consequences as
a result of the grant of an option. The optionee has no taxable income upon
exercising an ISO (except that the alternative minimum tax may apply), and the
Company receives no deduction when an ISO is exercised. Upon exercising an NQSO,
the optionee generally must recognize ordinary income equal to the "spread"
between the exercise price and the fair market value of the Common Stock on the
date of exercise; the Company ordinarily will be entitled to a deduction for the
same amount. In the case of an employee, the option spread at the time an NQSO
is exercised is subject to income tax withholding, but, if permitted by the
Board (or a committee thereof that may act as Plan administrator), the optionee
generally may elect to satisfy the withholding tax obligation by having shares
of Common Stock withheld from those purchased under the NQSO. The tax treatment
of a disposition of option shares acquired under the Plan depends on how long
the shares have been held and on whether such shares were acquired by exercising
an ISO or by exercising an NQSO. The Company is not entitled to a deduction in
connection with a disposition of option shares, except in the case of a
disposition of shares acquired under an ISO before the applicable ISO holding
periods have been satisfied.
NEW PLAN BENEFITS
Awards under the Plan are discretionary. Therefore, it is not possible to
determine the benefits that will be received in the future by participants in
the Plan or the benefits that would have been received by such participants if
the Plan had been in effect since the inception of the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION OF
THE 1999 STOCK OPTION PLAN.
-26-
PROPOSAL NO. 5
TO RATIFY THE CHANGE
OF INDEPENDENT PUBLIC ACCOUNTANTS
Effective August 31, 1999, the Board of Directors of the Company engaged
the accounting firm of Edward Isaacs & Company LLP as independent auditors for
the Company. Edward Isaacs & Company LLP replaces the firm of BDO Seidman LLP,
whose engagement was terminated (upon the expiration of their engagement) by the
Company's Board of Directors effective as of August 31, 1999. BDO Seidman LLP
had previously been notified of the termination.
The Company has consulted with Edward Isaacs & Company LLP after the change
of control transaction in December, 1998 with respect to tax issues. During the
two most recent fiscal years ending March 31, 1999 and March 31, 1998, and
through the period ending August 31, 1999, the Company has not consulted with
Edward Isaacs & Company LLP regarding (a) either 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 was provided to the Company or oral advice was
provided that Edward Isaacs & Company LLP concluded was an important factor
considered by the Company in reaching a decision as to the accounting, auditing
or financial reporting issue; or (b) 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
promulgated by the SEC and the related instructions to Item 304 of Regulation
S-K, or a "reportable event" as described in Item 304(a)(1)(v) of Regulation
S-K. Lawrence M. Powers, the Company's Chairman and Chief Executive Officer, and
a major stockholder of the Company, has employed Edward Isaacs & Company LLP and
its predecessor firms to prepare family tax returns and to provide personal tax
advice since 1962.
In connection with the audits of the Company's financial statements for the
last two fiscal years ending March 31, 1999 and March 31, 1998, and through the
period ending August 31, 1999, there were no disagreements between the Company
and BDO Seidman LLP on any matters of accounting principles or practices,
financial statements disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of BDO Seidman LLP, would
have caused it to make a reference to the subject matter of the disagreements in
connection with its reports on financial statements. There were no "reportable
events" as described in Item 304(a)(1)(v) of Regulation S-K with respect to the
Company within the last two fiscal years ending March 31, 1998 or March 31,
1999, and the subsequent period ending August 31, 1999. BDO Seidman LLP's
reports on the Company's financial statements as of March 31, 1999 and 1998
contained no adverse opinion or disclaimer of opinion, and were not qualified or
modified as to uncertainty, audit scope or accounting principle. However, their
report for the fiscal year ended March 31, 1999 contained an explanatory
paragraph which stated that the Company's significant recurring losses, its
change of control, the discontinuance of its prior business and its new
strategic direction, raised substantial doubt about its ability to continue as a
going concern. In addition, their report for the fiscal year ended March 31,
1998 contained an explanatory paragraph which stated that unless the Company was
able to successfully raise financing, there remained a substantial doubt about
the Company's ability to continue as a going concern. The Company has provided a
copy of this disclosure to BDO Seidman LLP in compliance with the provisions of
Item 304 (a)(3) of Regulation S-K and has requested a letter from BDO Seidman
LLP addressed to the SEC stating that BDO Seidman LLP agrees with the statements
as set forth above; a copy of such letter is attached as Exhibit 16.1 to the
Company's Current Report on Form 8-K filed with the SEC on September 7, 1999.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION OF
THE APPOINTMENT OF EDWARD ISAACS & COMPANY LLP.
-27-
ANNUAL REPORT
The Company's Annual Report on Form 10-K, as well as Amendment No. 1 to
Form 10-K, for the fiscal year ended March 31, 1999 (collectively, the Form
10-K"), and the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1999 (the "Form 10-Q") are being furnished simultaneously
herewith. The Form 10-K and the Form 10-Q are not to be considered a part of
this Proxy Statement and are not deemed to be part of the proxy solicitation
material.
The Company will also furnish to any stockholder of the Company any exhibit
to the Form 10-K or the Form 10-Q as listed thereon, upon request and upon
payment of the Company's reasonable expenses of furnishing such exhibit.
Requests should be directed to Arjun Nayyar, Secretary, at 594 Broadway, Suite
1001, New York, New York 10012.
OTHER MATTERS
The Board of Directors is not aware of any matters to come before the
Annual Meeting which will require the vote of stockholders other than those
matters indicated in the Notice of Annual Meeting and this Proxy Statement.
However, if any other matter calling for stockholder action should properly come
before the Annual Meeting or any adjournments thereof, those persons named as
proxies in the enclosed proxy form will vote thereon according to their best
judgment.
ADVANCE NOTICE FOR DIRECTOR NOMINATIONS
In order for a stockholder to nominate a candidate for election as a
director at the Company's 1999 Annual Meeting of Stockholders, written notice
must be delivered (in person or by mail) to Arjun Nayyar, Secretary, at 594
Broadway, Suite 1001, New York, New York 10012 by 5:00 p.m. on October 22, 1999.
In order for a stockholder to nominate a candidate for election as a director at
the Company's 2000 annual meeting of stockholders, written notice must be
delivered to the Secretary of the Company (in person or by mail) not less than
50 days nor more than 75 days prior to the annual meeting. Based on the
anticipated meeting date for the 2000 annual meeting, in order for a stockholder
to propose director nominations at the 2000 annual meeting, stockholders must
deliver notice to the Secretary of the Company at such address between June 30
and July 26, 2000. Specific requirements for each such written notice are
contained in the Company's Restated Bylaws, a copy of which will be furnished by
the Company, without cost, to any stockholder of the Company upon request made
to Arjun Nayyar, Secretary, at 594 Broadway, Suite 1001, New York, New York
10012.
-28-
STOCKHOLDER PROPOSALS FOR ANNUAL MEETING
In order for a stockholder to submit a proposal (other than those regarding
director nominations as described above) at the Company's 1999 Annual Meeting of
Stockholders, written notice must be delivered (in person or by mail) to Arjun
Nayyar, Secretary, at 594 Broadway, Suite 1001, New York, New York 10012 by 5:00
p.m. on October 22, 1999. In order for a stockholder to submit a proposal (other
than those regarding director nominations as described above) at the Company's
2000 annual meeting of stockholders, written notice must be delivered to the
Secretary of the Company (in person or by mail) not less than 50 days nor more
than 75 days prior to the annual meeting. Based on the anticipated meeting date
for the 2000 annual meeting, in order for a stockholder to propose director
nominations at the 2000 annual meeting, stockholders must deliver notice to the
Secretary of the Company at such address between June 30 and July 26, 2000.
Specific requirements for each such written notice are contained in the
Company's Restated Bylaws, a copy of which will be furnished by the Company,
without cost, to any stockholder of the Company upon request made to Arjun
Nayyar, Secretary, at 594 Broadway, Suite 1001, New York, New York 10012.
By Order of the Board of Directors
ARJUN NAYYAR
Secretary
New York, New York
October __, 1999
-29-