SCHEDULE 14A/A-4 INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant /X/
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Check the appropriate box:
/X/ Preliminary Proxy Statement
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(as permitted by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
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/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a- 12
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Avitar, Inc. (File Number 1-15695)
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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/X/ No fee required
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
AVITAR, INC.
65 Dan Road
Canton, Massachusetts 02021
December 16, 2005
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of the Stockholders
of Avitar, Inc., a Delaware corporation ("Avitar"), at 65 Dan Road, Canton,
Massachusetts on January 18, 2006 at 10:00 a.m.
At the meeting you will be asked to consider and vote upon (1) the election
of five Directors to Avitar's Board of Directors; (2) the approval of an
Amendment of the Certificate of Incorporation to effect a one-for-fifty (1 for
50) reverse stock split of our common stock; (3) the approval of an Amendment of
the Certificate of Incorporation to decrease our authorized common stock from
300 million to 100 million, but subject to and conditioned upon implementation
of the 1 for 50 reverse stock split; (4) the ratification of appointment of BDO
Seidman, LLP as Avitar's independent registered public accounting firm for the
fiscal year ending September 30, 2005; and (5) any other business that properly
comes before the meeting or any adjournments or postponements thereof.
The Board of Directors recommends that shareholders vote FOR Items 1, 2, 3
and 4.
Your vote is important. We urge you to complete, sign, date and return the
enclosed proxy card promptly in the accompanying prepaid envelope. You may, of
course, attend the Meeting and vote in person, even if you have previously
returned your proxy card.
Sincerely yours,
Peter P. Phildius,
Chairman and Chief Executive Officer
Avitar, Inc.
65 Dan Road
Canton, Massachusetts 02021
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on January 18, 2006
To the Stockholders of Avitar, Inc.:
Notice is hereby given that the Annual Meeting of Stockholders of Avitar,
Inc., a Delaware corporation ("Avitar") will be held at 10:00 a.m., local time,
on January 18, 2006 at 65 Dan Road, Canton, Massachusetts, for the following
purposes:
(1) To consider and vote upon the election of the Board of Directors consisting
of five persons to serve until the next annual meeting of the stockholders;
(2) To consider and vote upon a proposal to approve an amendment to Avitar's
Certificate of Incorporation that would effect a one-for-fifty (1 for 50)
reverse stock split of our common stock;
(3) To consider and vote upon a proposal to approve an amendment to Avitar's
Certificate of Incorporation that, subject to and conditioned upon approval and
implementation of the aforementioned one-for-fifty (1 for 50) reverse stock
split of our common stock, would thereafter decrease the number of authorized
shares of our common stock from 300,000,000 to 100,000,000; and
(4) To consider and vote upon a proposal to ratify the selection of BDO Seidman,
LLP as Avitar's independent registered public accounting firm for the fiscal
year ending September 30, 2005.
Only record holders of Common Stock at the close of business on November
23, 2005 are entitled to notice of and to vote at the Annual Meeting and any
adjournments or postponements thereof. To ensure that your vote will be counted,
please complete, sign, date and return the Proxy in the enclosed prepaid
envelope whether or not you plan to attend the Annual Meeting. You may revoke
your proxy by notifying the Secretary of the Company in writing at any time
before it has been voted at the Annual Meeting.
By Order of the Board of Directors
Canton, Massachusetts Jay C. Leatherman,
Secretary, Avitar, Inc.
December 16, 2005
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED
PROXY CARD PROMPTLY WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE ANNUAL MEETING.
Avitar, Inc.
-----------------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 18, 2006
------------------------------------
THE ACCOMPANYING PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
AVITAR, INC.
If properly signed and returned and not revoked, the proxy will be voted in
accordance with the instructions it contains. The persons named in the
accompanying proxy will vote the proxy for the Board of Directors' slate of
directors and for the other matters listed on the proxy, in each case as
recommended by the Board of Directors unless contrary instructions are given. At
any time before it is voted, each proxy granted may be revoked by the
stockholder by a later dated proxy, by written revocation addressed to the
Secretary of Avitar, Inc. at the address below or by voting by ballot at the
Annual Meeting.
The Company's principal executive offices are located at 65 Dan Road,
Canton, Massachusetts 02021. This proxy statement and the accompanying proxy are
being sent to stockholders on or about December 16, 2005. ANY PROXY MAY BE
REVOKED IN PERSON AT THE ANNUAL MEETING, BY SUBMITTING A PROXY DATED LATER THAN
THE PROXY TO BE REVOKED OR BY NOTIFYING THE SECRETARY OF THE COMPANY IN WRITING
AT ANY TIME PRIOR TO THE TIME THE PROXY IS VOTED.
VOTING SECURITIES
The Board has fixed the close of business on November 23, 2005 as the
record date (the "Record Date") for determination of stockholders entitled to
receive notice of and to vote at the Annual Meeting or any adjournment thereof.
Only stockholders of record at the close of business on the Record Date will be
entitled to notice of and to vote at the Annual Meeting.
On the Record Date, the Company had outstanding 205,845,862 shares of
Common Stock and 44,630 shares of Preferred Stock, of which 2,000 were shares of
6% Convertible Preferred Stock, 36,941 were shares of Series C Convertible
Preferred Stock, and 5,689 were shares of Series B Preferred Stock. Stockholders
are entitled to one vote for each share of Common Stock (including the shares
into which each share of Series A and 6% Convertible Preferred Stock are
convertible) and each share of Series B Preferred Stock on the business as may
properly come before the meeting or any adjournments thereof. The holders of a
majority of the outstanding voting shares constitute a quorum. Abstentions from
voting and broker non-votes on a particular Proposal will be counted for
purposes of determining the presence of a quorum but will not be counted as
affirmative or negative votes on the Proposals. In the case of Proposals No. 2
and No. 3, each of which requires a majority of outstanding shares to amend our
Certificate of Incorporation, abstentions from voting and broker non-votes will
have the effect of a negative vote.
As of the Record Date, the directors and executive officers of Avitar as a
group held 4,459,797 voting shares, representing 2.0 % of the shares eligible to
vote at the Annual Meeting. (In addition, also as of the Record Date, beneficial
owners of approximately 5% or more of Common Stock, as listed in the table of
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT in this Proxy
Statement, held in the aggregate 22,948,194 voting shares, representing 10.6 %
of the shares eligible to vote at the Annual Meeting.)
ACTION TO BE TAKEN UNDER PROXY
All proxies for stockholders in the accompanying form that are properly
executed and returned will be voted at the Annual Meeting and any adjournments
thereof in accordance with any specifications thereon or, if no specifications
are made, will be voted for the election of the five nominees described herein
and for Items 1, 2, 3 and 4.
SOLICITATION
Avitar will bear the entire cost of the solicitation of proxies from its
stockholders, including preparation, assembly, printing and mailing of this
Proxy Statement, the proxy card and any additional information furnished to
stockholders. Copies of solicitation materials will be furnished to banks,
brokerage houses, fiduciaries and custodians holding in their names shares
beneficially owned by others to forward to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, facsimile,
telegram or personal solicitation by directors, officers or other regular
employees of Avitar. No additional compensation will be paid to such persons for
such services. Avitar may also employ the services of a professional
solicitation company to assist with solicitation of stockholders; but as of
December 1, 2005 Avitar has not determined to retain a solicitation company. If
such a company were subsequently retained, Avitar would bear the entire cost.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Five (5) directors will be elected to hold office until the next Annual
Meeting of Stockholders and until their successors have been elected and duly
qualified. The persons named on the accompanying proxy will vote all shares for
which they have received proxies for the election of the nominees named below
unless contrary instructions are given. In the event that any nominee should
become unavailable, shares will be voted for a substitute nominee unless the
number of directors constituting a full board is reduced. Directors are elected
by plurality vote.
NOMINEES
The name, age and position with Avitar of each nominee for director is
listed below, followed by summaries of their background and principal
occupations.
Name Age Title
Peter P. Phildius 75 Chairman of the Board/Chief Executive Officer
Douglas W. Scott 58 President and Chief Operating Officer/Director
Neil R. Gordon (1)(2) 57 Director
James Groth (1)(2) 66 Director
Charles R. McCarthy, Jr. 66 Director
(1)(2)
1. Member of Audit Committee.
2. Member of Compensation Committee.
PETER P. PHILDIUS
Mr. Phildius has been Chairman of the Board of Directors since October 1990
and Chief Executive Officer since July 1996. He has been a general partner in
Phildius Kenyon & Scott, a partnership ("PKS"), since that firm's founding in
1985. Prior to 1985, Mr. Phildius was an independent consultant and Chairman and
co-founder of Nutritional Management, Inc., a company that operated weight loss
clinics (1983 - 1985), President and Chief Operating Officer of Delmed, Inc., a
medical products company (1982 - 1983), President and Chief Operating Officer of
National Medical Care, Inc., a dialysis and medical products company (1979-1981)
and held a variety of senior management positions with Baxter Laboratories, Inc.
("Baxter"), a hospital supply company and the predecessor of Baxter Healthcare
Corporation. During the last eight years of his 18 year career at Baxter (1961 -
1979), Mr. Phildius was Group Vice President and President of the Parenteral
Division, President of the Artificial Organs Division and President of the
Fenwal Division.
DOUGLAS W. SCOTT
Mr. Scott has been the Chief Operating Officer since July 1996, was the
Chief Executive Officer from August 1989 until July 1996 and has been a director
since August 1989. Mr. Scott has been a general partner in PK&S since its
founding in 1985. Prior to 1985, Mr. Scott was Executive Vice President of
Nutritional Management, Inc. (1983 - 1985); Senior Vice President, Operations of
Delmed, Inc. (1982 - 1983); Vice President, Quality Assurance of Frito-Lay,
Inc., a consumer products company (1980 - 1982); and held several senior
positions at Baxter from 1970 to 1980. The last two of these senior positions at
Baxter were General Manager of the Vicra Division and General Manager of Irish
Operations. Mr. Scott is also a director of Candela Corporation, a
publicly-traded company in the business of manufacturing and marketing medical
lasers. Mr. Scott received an M.B.A. from the Harvard Business School.
JAMES GROTH
Mr. Groth has served as a director since January 1990. Mr. Groth has been
President of Mountainside Corporation, a provider of corporate sponsored
functions, for over the past 15 years.
NEIL R. GORDON
Mr. Gordon has served as a director since June 1997. He has been President
of N.R. Gordon & Company, Inc., a company that provides a broad range of
financial consulting services, since 1995. From 1981 to 1995, he was associated
with Ekco Group, Inc. and served as its Treasurer from 1987 to 1995. Mr. Gordon
has also served as Director of Financing and Accounting for Empire of Carolina,
Inc. He received a Bachelor of Science Degree from the Pennsylvania State
University. Mr. Gordon is also a director of Datameg Corporation, a
publicly-traded company focused on supplying products and related services that
support critical network performance requirements in the voice, data and video
communications industry.
CHARLES R. McCARTHY, JR.
Mr. McCarthy was elected as a director in February 1999. He has been a
counsel in the Washington D.C. law firm, O'Connor & Hannan, since 1993.
Previously, Mr. McCarthy was General Counsel to the National Association of
Corporate Directors, served as a trial attorney with the Securities and Exchange
Commission, was Blue Sky Securities Commissioner for the District of Columbia
and was a law professor teaching securities law topics and served as a Board
member of and counsel to a number of public companies over the last 30 years.
NUMBER OF DIRECTORS
The Company's Bylaws allow the Board to fix the number of Board members
between 3 and 7. The number has been fixed, at present, at 5. The Board can
increase the number to 7 at any time without stockholder approval. There are no
family relationships between any Director or Executive Officer of Avitar and any
other Director or Executive Officer of Avitar.
TERM
Directors hold office for a period of one year from the Annual Meeting of
Stockholders at which they are elected or until their successors are duly
elected and qualified. Officers are appointed by the Board of Directors and hold
office at the will of the Board.
BOARD MEETINGS AND COMMITTEES
The Board held 3 meetings during the fiscal year ended September 30, 2004
and 2 meetings during the fiscal year ended September 30, 2005.
The Board has two standing committees: the Audit Committee and the
Compensation Committee. The Board does not have a standing nominating committee
or any committee performing the function of such a committee. During fiscal year
2005, each Board member attended at least 75% of the aggregate number of
meetings of the Board and the Committee of the Board on which he served.
CONTACTING OUR BOARD
Our stockholders and other interested parties who wish to communicate with
our Board or individual directors may send written correspondence addressed to
them, care of Secretary, Avitar, Inc., 65 Dan Road, Canton, Massachusetts 02021.
All written correspondence addressed to our directors will be forwarded promptly
by our Secretary to the directors to whom it is addressed.
The Company has no policy on attendance by Directors at the Annual Meeting
of Shareholders, although the By-Laws provide that the Annual Meeting of
Directors shall be held as soon as possible after the Annual Meeting of
Shareholders. In fact, all Directors attended the last Annual Meeting of
Shareholders.
NOMINATION OF DIRECTORS
The Board of Directors does not have a separately constituted nominating
committee. The Board believes that it is appropriate under existing
circumstances not to have a separate nominating committee because the Board is
comprised of only five (5) existing members, three (3) of whom are "independent"
as that term is defined in certain listing standards. All members of the Board
of Directors participate in the consideration of director nominees. The Board of
Directors does not have a formal policy with regard to the consideration of any
director candidates recommended by shareholders. However, the Board of Directors
would consider for possible nomination qualified nominees recommended by
shareholders. Shareholders who wish to propose a qualified nominee for
consideration should submit complete information as to the identity and
qualifications of that person to the Secretary of the Company at 65 Dan Road
Canton, MA 02021, sufficiently in advance of an annual meeting. Absent special
circumstances, the Board of Directors will continue to nominate qualified
incumbent Directors whom the Board of Directors believes will continue to make
important contributions to the Board of Directors. The Board generally requires
that nominees be persons of sound ethical character, be able to represent all
shareholders fairly, have no material conflicts of interest, have demonstrated
professional achievement, have meaningful experience and have a general
appreciation of the major business issues facing Avitar. The Board of Directors
does not have a formal process for identifying and evaluating nominees for
Director.
AUDIT COMMITTEE
The Audit Committee of the Avitar Board of Directors, which consists of
Messrs. Gordon, Groth and McCarthy, held one (1) telephone meeting concerning
fiscal year 2004. In addition, the Audit Committee reviewed and approved the
financial statements that were included in each of the quarterly reports on Form
10-QSB during the year ended September 30, 2004. The Board of Directors has
determined that each of the members of the Audit Committee is independent as
determined in accordance with the listing standards of the American Stock
Exchange and Item 7(d)(3)(iv) of Schedule 14A of the Exchange Act. In addition,
the Board of Directors has determined that Neil R. Gordon is an audit committee
financial expert as defined by SEC rules.
The Audit Committee meets with the independent registered public accounting
firm , at a minimum annually, to review the results of the annual audit and
discuss the financial statements; recommends to the Board the independent
registered public accounting firm to be retained; and receives and considers the
registered public accounting firm's comments as to controls, adequacy of staff
and management performance and procedures in connection with audit and financial
records. Management has primary responsibility for financial statements and the
reporting process, including the systems of internal controls, and has
represented to the Audit Committee that Avitar's 2004 consolidated financial
statements are in accordance with generally accepted accounting principles.
AUDIT COMMITTEE REPORT
In connection with the fiscal 2004 audit, the Audit Committee has:
- reviewed and discussed with management Avitar's audited consolidated
financial statements included in our annual report on Form 10-KSB for
the year ended September 30, 2004,
- discussed with BDO Seidman, LLP the matters required to be discussed
by Statement of Auditing Standards No. 61,
- discussed with BDO Seidman, LLP whether various other services
performed for Avitar during 2004 were compatible with BDO Seidman, LLP
maintaining its independence, and
- received from and discussed with BDO Seidman, LLP the written
disclosures and the letter from BDO Seidman, LLP required by the
Independence Standards Board Standard No. 1 and discussed with BDO
Seidman, LLP its independence.
Based on the review and the discussions described above, the Audit
Committee recommended to the Board of Directors that the audited consolidated
financial statements be included in our annual report on Form 10-KSB for the
year ended September 30, 2004 for filing with the Securities and Exchange
Commission.
The Board of Directors has approved a written charter, a copy of which is
attached to the Proxy Statement as Annex A. All members of the Audit Committee
have been determined to be independent in accordance with the then-applicable
requirements of Section 121(A) of the American Stock Exchange listing standards.
Fiscal 2004 and 2003 Audit Firm Fee Summary. During fiscal years 2004 and
2003, Avitar retained its principal auditor, BDO Seidman, LLP to provide
services in the following categories and amounts:
2004 2003
Audit Fees(services in connection with the audit of the Company's financial
statements, review of the Company's quarterly reports of Form 10-QSB
and statutory or regulatory filings or engagements).............................$ 127,020 $118,330
Audit Related Fees (assurance and related services).............................$ - $ -
Tax Fees (services in connection with the preparation of the Company's
tax returns)..................................................................$ 12,000 $ 12,350
All Other Fees..................................................................$ - $ -
The Audit Committee has considered whether the provision of non-audit
services by the Company's principal auditor was compatible with maintaining
auditor independence and has determined such services were not incompatible with
maintaining auditor independence.
THE AUDIT COMMITTEE
Neil R. Gordon
James Groth
Charles R. McCarthy, Jr.
The Audit Committee Report shall not be deemed incorporated by reference by
any general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934 (together, the "Acts"), except to the extent Avitar specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
COMPENSATION COMMITTEE.
The Compensation Committee makes recommendations to the Board concerning
salaries and incentive compensation, awards stock options to employees and
consultants and otherwise determines compensation levels and performs such other
functions regarding compensation as the Board may delegate. The Compensation
Committee, comprised of Mr. Gordon, Mr. Groth and Mr. McCarthy, held no meetings
in fiscal year 2005.
DIRECTOR COMPENSATION
During Fiscal 2005 in accordance with a plan approved by the Company on
September 25, 2001, the Company compensated its non-management directors with a
$5,000 annual retainer, $1,000 for each board meeting attended and $500 for each
committee meeting attended. In addition, a plan approved by the Company on
August 3, 2004 provides for each non-management director to be granted options
covering 100,000 shares of the Company's common stock upon initial election to
the Board and 75,000 shares of the Company's common stock for each year in which
he/she was selected to serve as a director.
For information on compensation to management directors, see
"Management-Executive Compensation" below.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of the Common Stock
beneficially owned as of November 23, 2005 by (i) each person believed by Avitar
to be the beneficial owner of more than 5% of the Common Stock; (ii) each
director; (iii) the Chief Executive Officer and its four most highly compensated
executive officers (other than the Chief Executive Officer) who earn over
$100,000 a year; and (iv) all directors and executive officers as a group.
Beneficial ownership by the stockholders has been determined in accordance with
the rules promulgated under Section 13(d) of the Securities Exchange Act of
1934, as amended. All shares of the Common Stock are owned both of record and
beneficially, unless otherwise indicated.
Name and Address of Beneficial Owner (1) No. Owned %
- ---------------------------------- --------- ----
Peter P. Phildius (2)(3)(9)(11) 4,713,835 3.3
Douglas W. Scott (2)(4)(9)(12) 3,274,016 2.6
Phildius, Kenyon & Scott("PK&S") (2)(9) 1,732,595 *
Jay C. Leatherman, Jr.(2)(5) 438,380 *
Richard Anderson (2)(15) 160,000 *
Peter Cholakis (2)(16) 160,000 *
David Greaves (2)(17) 80,000 *
James Groth (2)(6)(13) 277,199 *
Neil R.Gordon (2)(7) 318,097 *
Charles R. McCarthy (2)(8) 350,155 *
David Brown (10) 26,013,874 12.5
Gryphon Master Fund, LP (14) 11,843,320 5.7
All directors and executive officers
as a group (3)(4)(5)(6)(7)(8)(9)(11)
(12)(13)(15)(16)(17) 7,639,087 3.9
* Indicates beneficial ownership of less than one (1%) percent.
(1) Information with respect to holders of more than five (5%) percent of the
outstanding shares of the Company's Common Stock was derived from, to the extent
available, Schedules 13D and the amendments thereto on file with the Commission
and the Company's records regarding stock issuances.
(2) The business address of such persons, for the purpose hereof, is c/o Avitar,
Inc., 65 Dan Road, Canton, MA 02021.
(3) Includes 1,668,120 shares of the Company's Common Stock, options and
warrants to purchase 1,313,120 shares of the Company's Common Stock. Also
includes the securities of the Company beneficially owned by PK&S as described
below in Note 9.
(4) Includes 715,501 shares of the Company's Common Stock and options to
purchase 825,920 shares of the Company's Common Stock. Also includes the
securities of the Company beneficially owned by PK&S as described below in Note
9.
(5) Includes 5,630 shares of the Company's Common Stock, and options to purchase
432,750 shares of the Company's Common Stock.
(6) Includes 74,699 shares of the Company's Common Stock and options to purchase
202,500 shares of the Company's Common Stock.
(7) Includes 90,597 shares of the Company's Common Stock, warrants to purchase
40,000 shares of the Company's Common Stock granted to such director under a
consulting agreement to provide services to the Company and options to purchase
187,500 shares of the Company's Common Stock.
(8) Includes 172,655 shares of the Common Stock and options to purchase 177,500
shares of the Common Stock.
(9) Represents ownership of 1,732,595 shares of the Company's Common Stock. PK&S
is a partnership of which Mr. Phildius and Mr. Scott are general partners.
(10) The business address for such person is 4101 Evans Avenue, Fort Meyers, FL
33901. Represents 12,113,874 shares of the Company's Common Stock, warrants to
purchase 900,000 shares of the Company's Common Stock and convertible debt
convertible into 13,000,000 shares of the Company's Common Stock.
(11) Does not include 33,600 shares of the Common Stock owned by Mr. Phildius'
wife, all of which he disclaims beneficial ownership.
(12) Does not include 15,000 shares of the Common Stock owned by Mr. Scott's
children, all of which he disclaims beneficial ownership.
(13) Does not include 10,929 shares of the Company's Common Stock owned by a
trust established for Mr. Groth's children, all of which he disclaims beneficial
ownership
(14) The business address for such entity is 500 Crescent Court, #270, Dallas,
TX 75201. Represents preferred stock convertible into 11,843,320 shares of the
Company's Common Stock, but limited to 9.9% beneficial holding.
(15) Includes options to purchase 80,000 shares of the Company's Common Stock.
(16) Includes options to purchase 160,000 shares of the Company's Common Stock.
(17) Includes options to purchase 160,000 shares of the Company's Common Stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the officers
and directors, and persons who own more than 10% of a registered class of equity
securities to file reports of ownership and changes in ownership with the
Securities and Exchange Commission ("SEC"). Officers, directors and greater than
10% stockholders are required by SEC regulation to furnish Avitar with copies of
all Section 16(a) forms they file.
Based on its review of the copies of such forms received by it or its
written representations from certain reporting persons, the Company believes
that, during Fiscal 2005, all filing requirements applicable to its officers,
directors and greater than ten-percent shareholders were met except the
following failures to file timely reports as required by Section 16(a):
None
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PK&S, a 1.8 % beneficial owner of the Company, provided consulting services
to the Company from September 1989 to May 1995. On May 28, 1992, the Company
entered into a written consulting agreement with PK&S, which reflected the
provisions of a previous oral agreement approved by the Company's Board of
Directors in October 1990. Pursuant to its arrangement with the Company, PK&S
provided the services of each of Messrs. Phildius and Scott to the Company.
On May 19, 1995, the Company's Consulting Agreement ended and was replaced
by the Employment Agreements with Messrs. Phildius and Scott (See "Employment
Agreements"). As requested by Messrs. Phildius and Scott and approved by the
Company's Board of Directors, the salary and benefits provided under the
Employment Agreements will be paid directly to PK&S. Under the terms of the
current employment agreements with Peter Phildius and Douglas Scott described
above, the Company pays their salaries and related expenses directly to PK&S.
The aggregate of salaries, fringe benefits and reimbursement of expenses paid to
PK&S by the Company on behalf of Messrs. Phildius and Scott for fiscal years
2005 and 2004 totaled $414,709 and $420,103 respectively.
MANAGEMENT
The executive officers of the Company and their respective ages and
positions with the Company, as of December 1, 2005, along with certain
biographical information (based solely on information supplied by them), are as
follows:
Name Age Title
Peter P. Phildius 75 Chairman of the Board and Chief Executive
Officer/Director
Douglas W. Scott (1) 58 President and Chief Operating Officer/
Director
Jay C. Leatherman Jr. 61 Vice President, Chief Financial Officer and
Secretary
Richard Anderson 54 Vice President of Research and Development
Peter Cholakis 50 Vice President of Marketing
David Greaves 47 Vice President of Sales
PETER P. PHILDIUS
Biographical information of Mr. Phildius is included under "Proposal No. 1,
Election of Directors -- Nominees" in this Proxy Statement.
DOUGLAS W. SCOTT
Biographical information of Mr. Scott is included under "Proposal No. 1,
Election of Directors -- Nominees" in this Proxy Statement.
JAY C. LEATHERMAN, JR.
Mr. Leatherman has served as the Company's Chief Financial Officer since
October 1992 and its Secretary since July 1994. He has over 27 years experience
in financial management in the health care, medical products and medical
diagnostic fields. Mr. Leatherman served as Vice President and Chief Financial
Officer of 3030 Park, Inc. and 3030 Park Management Company from 1985 to 1992,
responsible for financial, management information services and business
development functions for this continuing care retirement community and
management company. He served as Director of Finance and Business Services for
the Visiting Nurses Association of New Haven, Inc. from 1977 to 1985. In
addition, he served in a variety of accounting and financial positions with
Westinghouse Electric Corporation from 1969 to 1977. Mr. Leatherman has a B.B.A
in accounting from the University of Hawaii.
RICHARD ANDERSON
Dr. Anderson has served as the Company's Vice President of Research and
Development since June 2004. He has over 20 years of experience in product
development and corporate management in the medical diagnostics and life
sciences industries. He has held technology management positions with Genicon
Sciences, Nanogen, Inc. (NGEN-NASDAQ) as vice president of product development
and, was a co-founder of Biosite Incorporated (BSTE-NASDAQ), a leading supplier
of urine-based rapid drugs-of-abuse tests for the clinical diagnostics market.
He has also held research and development positions with Hybritech (acquired by
Eli Lilly & Company [LLY-NYSE]) and Miles Laboratories.
PETER CHOLAKIS
Mr. Cholakis has served as the Company's Vice President of Marketing since
February 2004. He has over 20 years of senior marketing experience and is
leading Avitar's marketing campaign in penetrating the $1.5 billion
drugs-of-abuse market with its point-of-care oral fluid drugs-of-abuse test,
ORALscreen(R) Before joining Avitar, Mr. Cholakis worked for VFA, a Boston-based
enterprise software and services firm as vice president of marketing. Prior to
that, he held key marketing and sales positions in the high technology product
and consultative service markets.
DAVID GREAVES
Mr. Greaves has served as the Company's Vice President of Sales since June
2004. He has over 20 years of high technology sales and marketing experience.
Prior to joining the Avitar team, he built the sales organizations at growing
software companies through their critical $5 million to $20 million stage of
revenue growth. Mr. Greaves comes to Avitar from Heroix Corporation, an
infrastructure monitoring and management-software company. He also worked as the
vice president at Datametrics Corp. (DMTI.PK)/Fortel Inc. (FRTL.PK).
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth compensation
earned by or paid to the Chief Executive Officer, Chief Operating Officer and
other executive officers for Fiscal 2005 and, to the extent required by
applicable Commission rules, the preceding two fiscal years.
Annual Compensation Long-Term
Name/Position Year Salary(1) Bonus Compensation Options
- ------------- ---- --------- ----- --------------------
Peter P. Phildius 2005 $200,000 $0 453,600(2)
(Chairman of the Board/ 2004 $200,000 $0 0
Chief Executive Officer) 2003(4) $171,661 $0 0
Douglas W. Scott 2005 $180,000 $0 237,600(2)
(President/ 2004 $180,000 $0 0
Chief Operating Officer) 2003(4) $154,500 $0 0
Jay C. Leatherman, Jr. 2005 $140,000 $0 157,500(2)
(Chief Financial Officer) 2004 $140,000 $0 0
2003(4) $120,616 $0 0
Douglas Lewis 2005(3) $ - $0 0
(Vice President/President 2004(3) $ - $0 0
of USDTL) 2003 $126,000 $0 0
Richard Anderson 2005 $140,000 $0 0
(Vice President of Research 2004(5) $ - $0 400,000(6)
& Development) 2003 $ - $0 0
Peter Cholakis 2005 $143,747 $0 0
(Vice President of 2004(5) $ - $0 400,000(7)
Marketing) 2003 $ - $0 0
David Greaves 2005 $184,130 $0 0
(Vice President of Research 2004(5) $ - $0 400,000(6)
& Development) 2003 $ - $0 0
(1) Does not include amounts reimbursed for business-related expenses incurred
by the executive officers on behalf of the Company.
(2) Reflects additional stock options granted to executive officers by the
Company's Board of Directors in February and October 2004.
(3) Resigned on December 1, 2003 as part of the sale of USDTL and therefore did
not have any compensation in Fiscal 2005 and had compensation less than
$100,000 in Fiscal 2004.
(4) Reflects temporary salary reductions in effect during Fiscal 2003.
(5) Compensation was less than $100,000.
(6) Reflects stock options granted to executive officers by the Company's Board
of Directors in June 2004.
(7) Reflects stock options granted to executive officers by the Company's Board
of Directors in February 2004.
Stock Option Grants in Last Fiscal Year.
The following table sets forth information concerning stock options granted to
the Named Executives during the Last Fiscal Year.
Individual Grants
Shares of Common % of Total Options
Stock Underlying Granted to Exercise Expiration
Options Employees in
NAME GRANTED FISCAL YEAR PRICE($) DATE
Peter Phildius 453,600 19.6% $0.07 9/04/2015
Douglas Scott 237,600 10.3% $0.07 9/04/2015
Jay Leatherman 157,500 6.8% $0.07 9/04/2015
Option Exercises in Last Fiscal Year and Year-Ended Option Values. No stock
options or stock appreciation rights were exercised by the executive officers in
Fiscal 2005.
As of September 30, 2005, the executive officers held options as follows,
none of which are in the money:
Options Value of Options
Total Options Exercisable Exercisable Not Exercisable
Peter Phildius 2,382,200 1,197,200 $ 0 $ 0
Douglas Scott 1,385,600 765,230 0 0
Jay Leatherman 806,250 392,500 0 0
Richard Anderson 400,000 80,000 0 0
Peter Cholakis 400,000 80,000 0 0
David Greaves 400,000 80,000 0 0
Employment Agreements. Messrs. Phildius and Scott are covered by Employment
Agreements (the "Employment Agreements") which commenced on May 19, 1995.
Pursuant to the Employment Agreements, if Messrs. Phildius and/or Scott are
terminated without "Cause" (as such term is defined in the Employment
Agreements) by the Company or if Messrs. Phildius and/or Scott terminate their
employment as a result of a breach by the Company of its obligations under such
Agreements, he will be entitled to receive his annual base salary ($200,000 for
Mr. Phildius and $180,000 for Mr. Scott) for a period of up to 18 months
following such termination. In addition, if there is a "Change of Control" of
the Company (as such term is defined in the Employment Agreements) and, within
two years following such "Change of Control", either of Messrs. Phildius or
Scott is terminated without cause by the Company or terminates his employment as
a result of a breach by the Company, such executive will be entitled to certain
payments and benefits, including the payment, in a lump sum, of an amount equal
to up to two times the sum of (i) the executive's annual base salary and (ii)
the executive's most recent annual bonus (if any). In addition, pursuant to the
Employment Agreements, which have a three-year term (subject to extension),
Messrs. Phildius and Scott are each entitled to annual bonus payments of up to
$150,000 if the Company achieves certain levels of pre-tax income (as such term
is defined in such Agreements) or alternative net income objectives established
by the Board of Directors.
In July 1999, the Company entered into employment agreements with two
executives of USDTL. The agreements provide for annual compensation aggregating
$226,000 per year, plus cost-of-living increases and bonuses or commissions, as
defined. The agreements terminated on December 1, 2003. Expenses under these
agreements totaled approximately $ 0 and $40,800 in 2005 and 2004, respectively.
REQUIRED VOTE
Election of each of the five nominees for director requires, under Avitar's
Bylaws, the affirmative vote of the holders of a majority of the Avitar Common
Stock and other voting shares present in person or by proxy at the Avitar Annual
Meeting (assuming a quorum exists) and entitled to vote thereon.
BOARD RECOMMENDATION
The Avitar Board of Directors unanimously recommends a vote FOR election of
all of the five nominees for director.
PROPOSAL NO. 2
APPROVAL OF AN AMENDMENT TO OUR CERTIFICATE OF INCORPORATION TO EFFECT A
ONE-FOR-FIFTY (1 for 50) REVERSE STOCK SPLIT OF OUR COMMON STOCK WHEREBY EACH
OUTSTANDING FIFTY SHARES OF OUR COMMON STOCK WOULD BE COMBINED INTO AND BECOME
ONE SHARE OF OUR COMMON STOCK IN ACCORDANCE WITH SECTION 242(C) OF THE DELAWARE
GENERAL CORPORATION LAW.
General
The board of directors has unanimously adopted a resolution approving,
subject to approval by our stockholders, the Proposed Amendment to our
Certificate of Incorporation, to effect a reverse stock split of our common
stock. Under the Proposed Amendment, a copy of which is attached hereto as
Appendix B, each outstanding fifty shares of common stock would be combined into
and become one share of common stock. Approval of the Proposed Amendment will
authorize the board of directors to effect the reverse stock split. We currently
anticipate that if the reverse stock split is approved by stockholders at the
Annual Meeting, such reverse stock split would be implemented on the date of the
Annual Meeting or as soon as practicable thereafter, subject to compliance with
any applicable rules.
Purposes of the Reverse Stock Split
Possible increase in per share trading price. One principal reason for the
reverse stock split is to increase the per share trading price of our common
stock, which could help to ensure a share price high enough to satisfy minimum
bid price requirement for any possible future market listing applications. Our
common stock had been traded on The American Stock Exchange from February 2000
until the delisting of our common stock in August 2005. One of the continued
listing requirements for that market was a minimum price of $1.00 per share.
Avitar common stock has not achieved $1.00 per share for more than 4 years. On
December 1, 2005, the closing price per share for our common stock as quoted on
the OTC Bulletin Board was $0.01. However, there can be no assurance that the
trading price of our common stock would be maintained at $1.00 or at any future
relevant level.
In addition, in determining to authorize the reverse split, the board
considered that a sustained higher per share price of our common stock, which
may result from the reverse stock split, might heighten the interest of the
financial community in us and potentially broaden the pool of investors that may
consider investing in us, possibly increasing the trading volume and liquidity
of our common stock or helping to mitigate any decrease in such trading volume
and liquidity that might result from the reverse stock split. As a matter of
policy, many institutional investors are prohibited from purchasing stocks below
certain minimum price levels. For the same reason, brokers often discourage
their customers from purchasing such stocks. The board believes that, to the
extent that the price per share of our common stock remains at a higher per
share price as a result of the reverse stock split, some of these concerns may
be ameliorated. However, as noted above, there can be no assurance that the
price of our common stock would achieve or remain above $1.00 per share after
the reverse stock split.
The board of directors also believes that a higher per share market price
for our common stock may help us attract and retain employees. Our board
believes that some potential employees are less likely to work for a company
with a low stock price, regardless of the company's market capitalization.
However, again, there can be no assurance as to the market prices for our common
stock after the reverse stock split or that increased market prices for our
common stock will in fact enhance our ability to attract and retain employees.
There also can be no assurance that, after the reverse stock split, we
would be able to obtain and maintain the listing of our common stock on any
market. Immediately after the reverse stock spilt, we will not be eligible for
relisting on AMEX or for quotation on either the NASDAQ National or the SmallCap
Markets. The AMEX and other exchanges and the NASDAQ Markets maintain many other
listing requirements that, even after the reverse stock split, and without
changes in our financial condition, we will not satisfy such requirements. We
cannot assure you that we will ever be able to achieve or maintain compliance
with any market requirements, including any future relevant minimum price
requirement.
Factors the board considered in determining the ratio for the reverse stock
split. In determining the ratio of one-for-fifty (1 for 50) for the reverse
stock split, the board of directors considered primarily the recent trading
price per share of our common stock, the potential trading price and liquidity
that may result from a reverse stock split and the resulting increase of
authorized, unreserved and unissued shares. At the time the board was
determining the ratio, the recent trading price was approximately $0.02 per
share. The likely (but not assured) increase in the trading price per share
resulting from a proposed reverse stock split at the ratio of one-for-fifty (1
for 50) would in the board's opinion approach a reasonable level that may
attract investors and brokers who may otherwise avoid securities trading at very
low prices per share and thereby improve the liquidity of trading for our common
stock.
Increase in authorized but unissued shares of common stock. Another
principal reason for the reverse stock split is to increase the number of
authorized but unissued shares of common stock available for issuance for all of
our future purposes, including the shares to be reserved for issuance for
conversion of the $3 million convertible notes and exercise of the 6 million
warrants issued pursuant to our September 2005 private placement. The Company
agreed in the September 2005 private placement to increase sufficient authorized
but unissued shares of common stock as required for the convertible notes and
warrants.
Terms of September 2005 Private Placement. The Company entered into the
September 2005 $3 million private placement of convertible notes and warrants
based upon a Securities Purchase Agreement with accredited investors. The
securities to be issued in the private placement are $3 million of 8% Secured
Convertible Notes and Warrants to purchase 6,000,000 shares of the Company's
Common Stock in exchange for gross proceeds of $3 million, of which $1 million
was paid in the first closing on September 23, 2005. A second tranche of $1
million was paid after we filed a registration statement with respect to the
shares issuable upon conversion of the Notes and exercise of the Warrants. On
December 2, 2005, the Company applied to the SEC to withdraw this registration
statement. In addition, the Company and the investors are renegotiating certain
terms of the transaction so that shareholder approval will not be a condition to
funding of the final $1 million of the transaction and assignability of the
rights of the investors will be further restricted. However, the Company and the
investors do not expect any change in the basic economic terms of the
transaction. The Company will file another registration statement with respect
to the shares issuable upon conversion of the Notes and exercise of the Warrants
(the "Registration Statement"). The third tranche of $1 million is to be paid
when the Registration Statement is effective. The Notes are convertible into
Common Stock at 65% of the average of the three (3) lowest intraday trading
prices for the twenty (20) trading days immediately prior to the notice of
conversion and the Warrants are exercisable at $0.25 per share.
The Notes bear interest at 8%, mature three years from the date of
issuance, and are convertible into our common stock at any time, at the
Purchasers' option, at 65% of the average of the three lowest intraday trading
prices for the Common Stock for the 20 trading days ending the day before the
conversion date.
The full principal amount of the Notes, plus a default interest rate of
15%, is due upon a default under the terms of the Notes. We have a right to
prepay the Notes under certain circumstances at a premium ranging from 20% to
35% depending on the timing of such prepayment.
In addition, we granted the Purchasers a security interest in substantially
all of our assets. We are further required to file the Registration Statement
with the Securities and Exchange Commission within 45 days of closing. If the
Registration Statement is not filed on time or not declared effective within 120
days from the date of closing, we are required to pay to the Purchasers damages
in Common Stock or cash, at the election of the Company, in an amount equal to
two percent of the outstanding principal amount of the Notes per month plus
accrued and unpaid interest.
The Warrants are exercisable until five years from the date of issuance at
a purchase price of $0.25 per share. The Purchasers may exercise the Warrants on
a cashless basis if the shares of Common Stock underlying the Warrants are not
then registered pursuant to an effective registration statement. In the event
the Purchasers exercise the Warrants on a cashless basis, we will not receive
any proceeds. In addition, the Warrants are subject to standard anti-dilution
provisions.
The Purchasers have agreed to restrict their ability to convert their Notes
or exercise their Warrants and receive shares of our common stock such that the
number of shares of common stock held by them and their affiliates in the
aggregate after such conversion or exercise does not exceed 4.9% of the then
issued and outstanding shares of Common Stock.
Other considerations. In evaluating whether or not to authorize the reverse
stock split, in addition to the considerations described above, the board of
directors also took into account various negative factors associated with a
reverse stock split. These factors include: the negative perception of reverse
stock splits held by some investors, analysts and other stock market
participants; the fact that the stock price of some companies that have effected
reverse stock splits has subsequently declined back to pre-reverse stock split
levels; the adverse effect on liquidity that might be caused by a reduced number
of shares outstanding; and the costs associated with implementing a reverse
stock split.
The board of directors considered these factors. The board believes that
stockholder approval of the Proposed Amendment, which authorizes the board to
effect the reverse stock split at one-for-fifty (1 for 50), provides the board
with potential ability to achieve the principal purposes of the reverse stock
split as described above. In determining to effect the reverse split, the board
has considered numerous factors, including the historical and projected
performance of our common stock, our projected performance, prevailing market
and industry conditions and general economic trends, and the expected closing
price of our common stock over the short and longer period following the
effectiveness of the reverse stock split with a view to possibly enabling us to
meet in the future the minimum price requirement for another market listing.
Stockholders should recognize that if a reverse split is effected, they
will own a smaller number of shares than they currently own (approximately equal
to the number of shares owned immediately prior to the reverse stock split
divided by fifty). While we expect that the reverse split will result in an
increase in the market price of our common stock, the reverse split may not
increase the market price of our common stock in proportion to the reduction in
the number of shares of our common stock outstanding or result in a permanent
increase in the market price (which depends on many factors, including our
performance, prospects and other factors that may be unrelated to the number of
shares outstanding).
If the reverse stock split is effected and the market price of our common
stock declines, the percentage decline as an absolute number and as a percentage
of our overall market capitalization may be greater than would occur in the
absence of a reverse stock split. Furthermore, the liquidity of our common stock
could be adversely affected by the reduced number of shares that would be
outstanding after the reverse stock split. In addition, the reverse split will
likely increase the number of our stockholders who own odd lots (less than 100
shares). Stockholders who hold odd lots typically will experience an increase in
the cost of selling their shares, as well as potentially greater difficulty in
effecting such sales. Accordingly, a reverse stock split may not achieve the
desired results that have been outlined above.
Principal Effects of the Reverse Stock Split
Number of Shares of Common Stock and Corporate Matters
The reverse stock split would have the following effects on our common
stock and securities convertible into or exercisable for shares of our common
stock:
o each fifty shares of our common stock owned by a stockholder
immediately prior to the reverse split would become one share of
common stock after the reverse split;
o the number of shares of our common stock issued and outstanding would
be reduced from approximately 195 million to approximately 4 million
shares;
o all outstanding but unexercised options and warrants and convertible
debt and equity securities entitling the holders thereof to acquire
shares of our common stock will enable such holders to acquire, upon
exercise of their options and warrants or conversion of their debt and
equity securities, one-fiftieth of the number of shares of our common
stock that such holders would have been able to acquire upon exercise
of their options and warrants or conversion of their debt and equity
securities immediately preceding the o reverse stock split, with any
fractional interests resulting from the reverse stock split rounded up
to the next whole share, at an exercise or conversion price equal to
fifty times, respectively, the exercise or conversion price specified
before the reverse stock split rounded to the nearest cent (with a
fractional interest of up to $0.0049 being rounded down and a
fractional interest of $0.005 or above being rounded up), resulting in
approximately the same aggregate exercise or conversion price being
required to be paid upon exercise or conversion thereof immediately
preceding the reverse stock split;
o the number of shares of common stock reserved for issuance (including
the maximum number of shares that may be subject to options or
warrants or convertible debt or equity securities) under our 2001
Employee Stock Purchase Plan or any other Plan (collectively, the
"Plans") will be reduced to one-fiftieth (1:50) of the number of
shares currently included in such plans with any fractional interests
resulting from the reverse stock split rounded up to the next whole
share.
Upon effectiveness of the reverse stock split, the number of authorized
shares of our common stock that are not issued and outstanding would increase
from approximately 105 million shares to approximately 296 million shares,
however, immediately thereafter the number of authorized shares will be reduced
from 300 million to 100 million if Proposal No. 3 below is approved by the
shareholders and implemented. Thereafter, we will continue to have a total of
100 million authorized shares of Common Stock and 5 million authorized shares of
preferred stock.
As a summary and for illustrative purposes only, the following table shows
approximately the present numbers of our common stock and the effect on our
common stock of the proposed reverse stock split (and followed by the proposed
reduction of authorized shares), based on 205,845,862 shares of common stock
issued and outstanding as of the close of business on November 10, 2005 and
assuming the reverse stock split became effective at the close of business on
November 10, 2005:
After Reverse Stock Split
Prior to And
Reverse Reduction of
Stock Split Authorized
o Authorized common stock 300,000,000 100,000,000
o Issued and outstanding 205,845,862 4,116,917
o Reserved for issuance upon exercise of outstanding stock options 9,705,750 194,115
o Reserved for future issuance under each of the Company's stock plans,
warrants, contractual commitments or other arrangements 19,264,788 385,296
o Reserved for future issuance upon conversion of the Company's issued and
outstanding preferred stock 43,992,210 876,844
o Reserved for future issuance upon conversion of the Company's issued and
outstanding convertible Notes; Prior to September 2005 13,650,000 273,000
o Number of Shares underlying previously Funded Notes in principal amount of
$2 million for September 2005 Private Placement based on closing price on
November 23, 2005 311,700,000 6,234,000
o Number of Shares underlying Note to be funded in future in principal amount of
$1 million for September 2005 Private Placement based on closing price on
November 23, 2005 155,850,000 3,117,000
o Deficiency in number of authorized shares without reverse stock split (460,008,610) -
o Authorized, unreserved and unissued - 84,802,828
After completion of the reverse stock split (assuming the reverse stock
became effective at the close of business on November 2, 2005 and the reduction
of authorized became effective at the same time), we would have approximately 96
million shares of authorized but unissued shares of common stock, of which an
aggregate of approximately 8 million would be reserved for issuance pursuant to
the Plans and outstanding but unexercised options and warrants and convertible
debt and equity securities. See Proposal No. 3 concerning the proposed decrease
of our authorized shares of common stock from 300 million to 100 million. The
authorized and unissued and unreserved shares would be available from time to
time for corporate purposes including raising additional capital, acquisitions
of companies or assets, for strategic transactions, including a sale of all or a
portion of the Company, and sales of stock or securities convertible into common
stock. We currently have no plan, arrangement or agreement to issue shares of
our common stock for any purpose, except for the issuance of shares of common
stock pursuant to our stock option and employee stock purchase plans and
outstanding but unexercised options and warrants and convertible debt and equity
securities and plans to raise an additional $4 million in our previously
reported capital raising plan. If we issue additional shares, the ownership
interests of holders of our common stock may be diluted.
As noted above, the authorized and unissued and unreserved shares would be
available from time to time for various corporate purposes. In general, no
further shareholder approval will be required for such future issuances.
However, shareholder approval may be required for issuances that involve
combinations with, or sales to, other parties. In addition, shareholder approval
may be required for future issuances if the Company becomes listed on an
exchange or quoted on a NASDAQ Market.
The reverse stock split will affect all of our stockholders uniformly
(except for fractional shares) and will not change the proportionate equity
interests of our stockholders, nor will the respective voting rights and other
rights of stockholders be altered. As described below, stockholders holding
fractional shares will be entitled to one full share in lieu of each fractional
share. Common stock issued and outstanding pursuant to the reverse stock split
will remain fully paid and non-assessable. The reverse stock split will not
reduce the number of shareholders and so long as there are more than 300
stockholders of record, we will continue to be subject to the periodic reporting
requirements of the Securities Exchange Act of 1934, as amended.
No Fractional Shares
We will not issue fractional certificates for post-reverse stock split
shares in connection with the reverse stock split. Stockholders who otherwise
would be entitled to receive fractional shares because they hold of record
immediately prior to the effective time of the reverse stock split a number of
shares not evenly divisible by fifty will be entitled, upon surrender to the
exchange agent of certificate(s) representing such shares, to one full share in
lieu of any such fractional shares.
Accounting Matters
The reverse stock split will not affect the total amount of stockholders'
equity on our balance sheet. However, because the par value of our common stock
will remain unchanged, the components that make up total stockholders' equity
will change by offsetting amounts. As a result of the reverse stock split, the
stated capital component will be reduced to an amount approximately equal to
one-fiftieth of its present amount, and the additional paid-in capital component
will be increased by the amount by which the stated capital is reduced. The per
share net loss and net book value per share of our common stock will be
increased as a result of the reverse stock split because there will be fewer
shares of our common stock outstanding. All historic share and per share amounts
in our financial statements and related footnotes will be adjusted accordingly
for the reverse stock split.
Potential Anti-Takeover Effects
If the Proposed Amendment is approved by our stockholders and the reverse
stock split is implemented, the increased proportion of unissued authorized
shares to issued shares could, under certain circumstances, have an
anti-takeover effect. These authorized but unissued shares could be used by the
Company to oppose a hostile takeover attempt or to delay or prevent a change of
control or changes in or removal of our board of directors, including a
transaction that may be favored by a majority of our stockholders or in which
our stockholders might receive a premium for their shares over then-current
market prices or benefit in some other manner. For example, without further
stockholder approval, our board of directors could issue and sell shares thereby
diluting the stock ownership of a person seeking to effect a change in the
composition of our board of directors or to propose or complete a tender offer
or business combination involving us and potentially strategically placing
shares with purchasers who would oppose such a change in our board or such a
transaction. Although the increased proportion of unissued authorized shares to
issued shares could, under certain circumstances, have an anti-takeover effect,
the reverse stock split is not being proposed in response to any effort of which
we are aware to accumulate the shares of our common stock or obtain control of
us, nor is it part of a plan by our management to recommend a series of similar
amendments to our board of directors and stockholders.
Our board of directors does not intend to use the reverse stock split as a
part of or first step in a "going private" transaction pursuant to Rule 13e-3
under the Securities Exchange Act of 1934, as amended.
Procedure for Effecting Reverse Stock Split and Exchange of Stock Certificates
If our stockholders approve the Proposed Amendment, we intend to file the
Proposed Amendment with the Secretary of State of the State of Delaware. The
reverse stock split will become effective as of 5:00 p.m. eastern time on the
date of such filing, which time on such date will be referred to as the
"Effective Time." Except as described above under "No Fractional Shares," at the
Effective Time, each fifty shares of common stock issued and outstanding
immediately prior to the Effective Time will, automatically and without any
further action on the part of our stockholders, be combined into and become one
share of common stock, and each certificate which, immediately prior to the
Effective Time represented pre-reverse stock split shares, will be deemed for
all corporate purposes to evidence ownership of post-reverse stock split shares.
Although the Board of Directors believes as of the date of this Proxy
Statement that the reverse stock split is advisable, the reverse stock split may
be abandoned by the Board of Directors at any time before, during or after the
Annual Meeting and prior to the Effective Time. The Board of Directors may make
any and all changes to the Proposed Amendment that it deems necessary in order
to file the Amendment with the Delaware Secretary of State and give effect to
the reverse stock split.
Our transfer agent, Continental Stock Transfer & Trust Company, will act as
exchange agent for purposes of implementing the exchange of stock certificates,
and is referred to as the "exchange agent." As soon as practicable after the
effective time, a letter of transmittal will be sent to stockholders of record
as of the effective time for purposes of surrendering to the exchange agent
certificates representing pre-reverse stock split shares in exchange for
certificates representing post-reverse stock split shares in accordance with the
procedures set forth in the letter of transmittal. No new certificates will be
issued to a stockholder until such stockholder has surrendered such
stockholder's outstanding certificate(s), together with the properly completed
and executed letter of transmittal, to the exchange agent. From and after the
effective time, any certificates formerly representing pre-reverse stock split
shares which are submitted for transfer, whether pursuant to a sale, other
disposition or otherwise, will be exchanged for certificates representing
post-reverse stock split shares. Stockholders who do not have stock certificates
for surrender and exchange will have their accounts automatically adjusted in
order to reflect the number of shares of common stock they hold as a consequence
of the reverse stock split. STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK
CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY CERTIFICATE(S) UNTIL REQUESTED TO DO
SO.
No Appraisal Rights
Under the Delaware General Corporation Law, stockholders will not be
entitled to exercise appraisal rights in connection with the reverse stock
split, and the Company will not independently provide stockholders with any such
right.
Certain United States Federal Income Tax Consequences
The following is a summary of certain United States federal income tax
consequences of the reverse stock split generally applicable to beneficial
holders of shares of our common stock. This summary addresses only such
stockholders who hold their pre-reverse stock split shares as capital assets and
will hold the post-reverse stock split shares as capital assets. This discussion
does not address all United States federal income tax considerations that may be
relevant to particular stockholders in light of their individual circumstances
or to stockholders that are subject to special rules, such as financial
institutions, tax-exempt organizations, insurance companies, dealers in
securities, and foreign stockholders. The following summary is based upon the
provisions of the Internal Revenue Code of 1986, as amended, applicable Treasury
Regulations thereunder, judicial decisions and current administrative rulings,
as of the date hereof, all of which are subject to change, possibly on a
retroactive basis. Tax consequences under state, local, foreign, and other laws
are not addressed herein. Each stockholder should consult its tax advisor as to
the particular facts and circumstances which may be unique to such stockholder
and also as to any estate, gift, state, local or foreign tax considerations
arising out of the reverse stock split.
Exchange Pursuant to Reverse Stock Split
No gain or loss will be recognized by a stockholder upon such stockholder's
exchange of pre-reverse stock split shares for post-reverse stock split shares
pursuant to the reverse stock split. The aggregate tax basis of the post-reverse
stock split shares received in the reverse stock split, including any fractional
share deemed to have been received (and the full share received in lieu of such
fractional share), will be equal to the aggregate tax basis of the pre-reverse
stock split shares exchanged therefor, and the holding period of the
post-reverse stock split shares will include the holding period of the
pre-reverse stock split shares.
BOARD RECOMMENDATION
The Board of Directors of Avitar unanimously recommends a vote FOR Proposal
No. 2.
PROPOSAL NO. 3
APPROVAL OF AN AMENDMENT TO OUR CERTIFICATE OF
INCORPORATION THAT, SUBJECT TO AND CONDITIONED
UPON APPROVAL AND IMPLEMENTATION OF THE
ONE-FOR-FIFTY (1 for 50) REVERSE STOCK SPLIT
OF OUR COMMON STOCK ,
WOULD THEREAFTER DECREASE THE NUMBER OF AUTHORIZED SHARES OF OUR
COMMON STOCK FROM 300,000,000 TO 100,000,000.
General
The board of directors has unanimously adopted a resolution approving,
subject to approval by our stockholders, the Proposed Amendment to our
Certificate of Incorporation, to effect both a reverse stock split of our common
stock and, subject to and conditioned upon approval and implementation of the
one-for-fifty (1 for 50) reverse stock split, the decrease of the number of
authorized shares of common stock from 300 million to 100 million. Under the
Proposed Amendment, a copy of which is attached hereto as Appendix B, each
outstanding fifty shares of common stock would be combined into and become one
share of common stock and immediately thereafter the authorized shares would be
reduced to 100 million. Approval of the Proposed Amendment will authorize the
board of directors to effect the reverse stock split and, immediately
thereafter, the reduction of authorized shares. We currently anticipate that if
the reverse stock split and reduction of authorized shares are approved by
stockholders at the Annual Meeting, such reverse stock split and reduction of
authorized shares would be implemented on the date of the Annual Meeting or as
soon as practicable thereafter, subject to compliance with any applicable rules.
Purpose of the Decrease of Authorized Shares Following the Reverse Stock Split
Increase in authorized but unissued shares of common stock. One principal
reason for the reverse stock split is to increase the number of authorized but
unissued shares of common stock available for issuance for all of our future
purposes, including the shares to be reserved for issuance for conversion of the
$3 million convertible notes and exercise of the 6 million warrants issued
pursuant to our September 2005 private placement. The Company agreed in the
September 2005 private placement to increase sufficient authorized but unissued
shares of common stock as required for the convertible notes and warrants. By
proposing the reverse stock split, the Company not only would provide sufficient
authorized but unissued shares of common stock, but also seek to improve the
market price per share of the common stock for a variety of reasons including
potential market and employee benefits. However, the board of directors believes
that, after the reverse stock split, the ratio of authorized shares to
outstanding shares would be too high. Accordingly, the board determined to
reduce that ratio by decreasing the authorized shares.
Principal Effects of the Decrease of Authorized Shares Following the Reverse
Stock Split
Upon effectiveness of the reverse stock split, the number of authorized
shares of our common stock that are not issued and outstanding would increase
from approximately 105 million shares to approximately 296 million shares,
however, immediately thereafter the number of authorized shares will be reduced
from 300 million to 100 million if this Proposal No. 3 is also approved by the
shareholders and implemented. Thereafter, we will continue to have a total of
100 million authorized shares of Common Stock and 5 million authorized shares of
preferred stock.
After completion of the reverse stock split and the reduction of
authorized, we would have approximately 96 million shares of authorized but
unissued shares of common stock, of which an aggregate of approximately 8
million, would be reserved for issuance pursuant to the Plans and outstanding
but unexercised options and warrants and convertible debt and equity securities.
The authorized and unissued and unreserved shares would be available from time
to time for corporate purposes including raising additional capital,
acquisitions of companies or assets, for strategic transactions, including a
sale of all or a portion of the Company, and sales of stock or securities
convertible into common stock. We currently have no plan, arrangement or
agreement to issue shares of our common stock for any purpose, except for the
issuance of shares of common stock pursuant to our stock option and employee
stock purchase plans and outstanding but unexercised options and warrants and
convertible debt and equity securities and plans to raise an additional $4
million in our previously reported capital raising plan. If we issue additional
shares, the ownership interests of holders of our common stock may be diluted.
Potential Anti-Takeover Effects
If the Proposed Amendment is approved by our stockholders and the reverse
stock split and decrease of authorized shares are each implemented, the
increased proportion of unissued authorized shares to issued shares could, under
certain circumstances, have an anti-takeover effect. These authorized but
unissued shares could be used by the Company to oppose a hostile takeover
attempt or to delay or prevent a change of control or changes in or removal of
our board of directors, including a transaction that may be favored by a
majority of our stockholders or in which our stockholders might receive a
premium for their shares over then-current market prices or benefit in some
other manner. For example, without further stockholder approval, our board of
directors could issue and sell shares thereby diluting the stock ownership of a
person seeking to effect a change in the composition of our board of directors
or to propose or complete a tender offer or business combination involving us
and potentially strategically placing shares with purchasers who would oppose
such a change in our board or such a transaction. Although the increased
proportion of unissued authorized shares to issued shares could, under certain
circumstances, have an anti-takeover effect, the reverse stock split is not
being proposed in response to any effort of which we are aware to accumulate the
shares of our common stock or obtain control of us, nor is it part of a plan by
our management to recommend a series of similar amendments to our board of
directors and stockholders. The decrease of authorized shares ameliorates to a
certain extent the potential anti-takeover effects of the reverse stock split,
but does not eliminate those potential effects.
BOARD RECOMMENDATION
The Board of Directors of Avitar unanimously recommends a vote FOR Proposal
No. 3.
PROPOSAL NO. 4
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors of Avitar selected BDO Seidman, LLP as auditors for
the fiscal year ending September 30, 2005, subject to stockholder approval by
ratification. BDO Seidman, LLP has been the independent registered accounting
firm for Avitar since December 1992. A representative of BDO Seidman, LLP is
expected to be present at the Annual Meeting, at which time he or she will be
afforded an opportunity to make a statement, and will be available to respond to
questions.
The Board of Directors of Avitar may, in its discretion, direct appointment
of new independent auditors at any time during the fiscal year if the Board
believes such change would be in the best interests of Avitar and its
stockholders. No such change is anticipated.
REQUIRED VOTE
Approval of ratification of BDO Seidman, LLP requires the affirmative vote
of the holders of a majority of the Avitar Common Stock and Preferred Stock
present in person or by proxy at the Avitar Annual Meeting (assuming a quorum
exists) and entitled to vote thereon.
BOARD RECOMMENDATION
The Board of Directors of Avitar unanimously recommends a vote FOR the
ratification of BDO Seidman, LLP as registered accounting firm for the fiscal
year ending September 30, 2005.
OTHER BUSINESS
The proxy confers discretionary authority on the proxies with respect to
any other business, which may come before the Annual Meeting. The Board of
Directors of Avitar knows of no other matters to be presented at the Annual
Meeting. The persons named in the proxy will vote the shares for which they hold
proxies according to their best judgment if any matters not included in this
Proxy Statement properly come before the meeting.
CODE OF ETHICS
Avitar has adopted a code of ethics that applies to its principal executive
officer, principal financial officer, principal accounting officer or controller
and all persons performing similar functions, if any. The Company will provide
to any person without charge, upon request, a copy of such code of ethics.
Requests should be made in writing to: Corporate Secretary, Avitar, Inc., 65 Dan
Road Canton, MA 02021.
INCORPORATION OF ANNUAL REPORT ON FORM 10-KSB
We are incorporating by reference the information contained in the Annual
Report on Form 10-KSB for the year ended September 30, 2004, including our most
recent audited financial statements and management's discussion and analysis of
financial condition and results of operations. The Annual Report was filed with
the SEC under the Exchange Act and will be delivered to our shareholders with
this Proxy Statement.
STOCKHOLDER PROPOSALS
Any stockholder proposal to be included in the proxy statement and form of
proxy relating to the 2006 Annual Meeting of Avitar Stockholders must be
received by the close of business on June 30, 2006 and must comply in all other
respects with the rules and regulations of the Securities and Exchange
Commission. Proposals should be addressed to: Corporate Secretary, Avitar, Inc.,
65 Dan Road, Canton, Massachusetts 02021.
APPENDIX A
AVITAR, INC.
AUDIT COMMITTEE CHARTER
Organization
There shall be a committee of the board of directors known as the audit
committee. The audit committee shall be comprised of directors, the majority of
whom are independent (as defined in the American Stock Exchange Listing
Standards) of the management of the corporation and are free of any relationship
that, in the opinion of the board of directors, would interfere with their
exercise of independent judgment as a committee member.
Statement of Policy
The audit committee shall provide assistance to the corporate directors in
fulfilling their responsibilities to the shareholders, potential shareholders
and investment community relating to corporate accounting, reporting practices
of the corporation, and the quality and integrity of the financial reports of
the corporation. In so doing, it is the responsibility of the audit committee to
maintain free and open means of communication between the directors, the
independent auditors and the financial management of the corporation.
Responsibilities
The audit committee believes its policies and procedures should remain flexible,
in order to best react to changing conditions and ensure to the directors and
shareholders that the accounting and reporting practices of the corporation are
in accordance with all requirements and are of the highest quality.
In carrying out its responsibilities, the audit committee will:
1. Review and make a recommendation to the directors regarding the independent
auditors to be selected to audit the financial statements of the
corporation and its subsidiaries.
2. Meet with the independent auditors and financial management of the
corporation to review the scope of the proposed audit for the current year
and the audit procedures to be utilized, and at the conclusion thereof
review such audit, including any comment or recommendations of the
independent auditors.
3. Review with the independent auditors and the corporation's internal
financial and accounting personnel the adequacy and effectiveness of the
accounting and financial controls procedures of the corporation, and elicit
any recommendations for the improvement of such internal control procedures
or particular areas where new or more detailed controls or procedures are
desirable. Particular emphasis should be given to the adequacy of such
internal controls to expose any payments, transactions or procedures that
might be deemed illegal or otherwise improper.
4. Review the audited financial statements to be included in the annual report
to shareholders and the annual report filed with Securities and Exchange
Commission ("SEC") on Form 10-KSB with management and the independent
auditors to determine that the independent auditors are satisfied with the
disclosure and content of the financial statements to be presented to the
shareholders and filed with the SEC. Make a recommendation to the board of
directors regarding the inclusion of the audited financial statements in
such annual reports. Any changes in accounting principles should be
reviewed.
5. Review the financial information included in the corporations' Quarterly
Reports on Form 10-QSB prior to the corporation filing such reports with
Securities and Exchange Commission.
6. Provide sufficient opportunity for the independent auditors to meet with
members of the audit committee without members of management present. Among
the items to be discussed in these meetings are the independent auditors'
evaluation of the corporation's financial and accounting personnel, and the
cooperation that the independent auditors received during the course of the
audit.
7. Review the matters discussed at each committee meeting with the board of
directors.
8. Investigate any matter brought to its attention within the scope of its
duties, with the power to retain outside counsel for this purpose if, in
its judgment, that is appropriate.
APPENDIX B
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Avitar, Inc., a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That by unanimous written consent of the Board of Directors of
Avitar, Inc., resolutions were duly adopted setting forth proposed amendments of
the Certificate of Incorporation of said corporation, declaring said amendments
to be advisable and calling a meeting of the stockholders of said corporation
for consideration thereof. The resolutions setting forth the proposed amendments
are as follows:
RESOLVED, that effective at 5:00 p.m. (Delaware time) on the date of the
filing of this Certificate of Amendment with the Secretary of State of the State
of Delaware (such time on such date, the "Effective Time"), each fifty shares of
the Corporation's common stock, par value $.01 per share ("Common Stock"),
issued and outstanding immediately prior to the Effective Time shall
automatically, without further action on the part of the Corporation or its
stockholders, be combined into and become one share of fully paid and
nonassessable Common Stock, subject to the treatment of fractional share
interests set forth below. No fractional shares of Common Stock shall be issued
by the Corporation, and the Corporation shall not recognize on its stock record
books any purported transfer of any purported fractional share interest. A
holder of Common Stock immediately prior to the Effective Time who would
otherwise be entitled to a fraction of a share as a result of the reverse stock
split effected hereby (which shall be determined on the basis of the total
number of shares of Common Stock held by a holder of record immediately prior to
the Effective Time) shall, in lieu thereof, be entitled to receive one full
share of fully paid and nonassessable Common Stock.
FURTHER RESOLVED, that effective immediately after the Effective Time the
Certificate of Incorporation of this corporation be amended by changing the
Article thereof numbered "FOURTH" so that, as amended, said Article shall be and
read as follows:
FOURTH: The total number of shares of stock which the corporation
shall have authority to issue is One Hundred Five Million (105,000,000), of
which One Hundred Million (100,000,000) shares shall be Common Stock, par
value $.01 per share, and Five Million (5,000,000) shares shall be
Preferred Stock, par value $.001 per share.
SECOND: That thereafter, pursuant to resolutions of its Board of Directors,
the annual meeting of the stockholders of said corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware at which meeting the necessary number of shares as
required by statute were voting in favor of the amendments.
THIRD: That said amendments were duly adopted in accordance with the
provisions of Section 242(c) of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or
by reason of said amendment.
IN WITNESS WHEREOF, said Avitar, Inc. has caused this certificate to be
signed by Peter P. Phildius, its Chairman and Chief Executive Officer, this
_____day of , 2006.
By: _
--------------------------------
Peter P. Phildius,
Chairman & Chief Executive Office
ATTEST:
By: _____________________
Jay C. Leatherman,
Secretary
SHARES AVITAR, INC. PROXY NO.
65 Dan Road, Canton, Massachusetts 02021
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Peter P. Phildius and Douglas W. Scott as
Proxies, each with the power to appoint his substitute and hereby authorizes
them to represent and to vote, as designated below and on the reverse hereof,
all shares of common stock of Avitar, Inc. ("Avitar") or shares of Preferred
Stock of Avitar held of record by the undersigned on November 23, 2005 at the
Annual Meeting of stockholders of Avitar to be held on January 18, 2006 or any
adjournments thereof.
The undersigned hereby revokes any proxies heretofore given to vote said
shares.
The undersigned hereby acknowledges receipt of Avitar's Annual Report for
2004 and of the Notice of Annual Meeting of Stockholders and attached Proxy
Statement dated December 16, 2005.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted FOR Items 1, 2, 3 and 4. Please sign exactly as your name appears to
the left hereof. When signing as corporate officer, partner, attorney,
administrator, trustee or guardian, please give your full title as such.
Dated , 200
------------------------
Authorized Signature
Title
Please mark boxes on reverse hereof in blue or black ink. Please date, sign and
return this Proxy Card promptly using the enclosed envelope.
1. Election of Directors.
For all nominees listed below (except as marked to the contrary listed below)
[ _ ]
Withhold Authority to vote for all nominees marked to the contrary below [ _ ]
(Instruction: To withhold authority to vote for any individual nominee strike a
line through the nominee's name below.)
Peter P. Phildius Douglas W. Scott Neil R.Gordon
James Groth Charles R. McCarthy, Jr.
2. To approve the proposed amendment to our Certificate of Incorporation to
effect a fifty-to-one (50 to 1) reverse stock split of our common stock.
For Against Abstain
---------------- ---------------- -------------
3. To approve the proposed amendment to our Certificate of Incorporation,
subject to and conditioned upon approval and implementation of the fifty-to-one
(50 to 1) reverse stock split, to decrease the authorized shares of our common
stock to 100 million.
For Against Abstain
---------------- ---------------- -------------
4. To ratify the appointment of BDO Seidman, LLP as independent public
accounting firm for Avitar for the fiscal year ending September 30, 2005.
For Against Abstain
---------------- ---------------- -------------