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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Puradyn Filter Technologies Incorporated
----------------------------------------
(Name of Registrant as Specified In Its Charter)
not applicable
--------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Puradyn Filter Technologies Incorporated
3020 High Ridge Road, Suite 100
Boynton Beach, Florida 33426
Telephone 561-547-9499 Facsimile 561-547-4025
June 4, 2002
Dear Stockholder:
You are cordially invited to attend the 2002 Annual Meeting of
Stockholders of Puradyn Filter Technologies Incorporated, to be held on Tuesday,
July 9, 2002 at 2:00 p.m. at the Holiday Inn Catalina, 1601 North Congress
Avenue, Boynton Beach, Florida 33426. The formal Notice of the 2002 Annual
Meeting of Stockholders and Proxy Statement are attached.
The matters to be acted upon by our stockholders are set forth in the
Notice of 2002 Annual Meeting of Stockholders and include,
o the election of our Board of Directors;
o the ratification of the engagement of Ernst & Young LLP as our
independent auditors;
o the approval of an amendment to our Certificate of
Incorporation to increase the number of shares of common stock
we are authorized to issue from 20,000,000 shares to
30,000,000 shares; and
o the approval of such other matters as may properly come before
the meeting.
It is important that your shares be represented and voted at the
meeting. Accordingly, after reading the attached Proxy Statement, please sign,
date and return the enclosed proxy card. Your vote is important regardless of
the number of shares you own.
I hope that you will attend the meeting in person, at which time I will
review the business and operations of Puradyn Filter Technologies Incorporated.
Sincerely,
/s/ Richard C. Ford
------------------------
Richard C. Ford
Chief Executive Officer
PURADYN FILTER TECHNOLOGIES INCORPORATED
NOTICE OF 2002 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 9, 2002
The 2002 Annual Meeting of the Stockholders of Puradyn Filter
Technologies Incorporated will be held at 2:00 p.m., at the Holiday Inn
Catalina, 1601 North Congress Avenue, Boynton Beach, Florida 33426, on Tuesday,
July 9, 2002. At the 2002 Annual Meeting, you will be asked to vote on the
following matters:
1. To elect a Board of Directors consisting of seven (7) members;
2. To ratify the appointment of Ernst & Young LLP as our
independent auditors, to serve at the pleasure of the Board of
Directors;
3. To approve an amendment to our Certificate of Incorporation
increasing the number of shares of common stock we are
authorized to issue from 20,000,000 shares to 30,000,000
shares; and
4. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Only stockholders of record, as shown on our transfer books at the
close of business on May 24, 2002, will be entitled to notice of and to vote at
the meeting. A list of stockholders entitled to vote at the 2002 Annual Meeting
will be available for examination by any stockholder, for proper purposes,
during normal business hours at our offices for a period of at least 10 days
preceding the 2002 Annual Meeting.
The Board of Directors recommends that you vote FOR the Board's slate
of nominees to serve on the Board of Directors, FOR the ratification of the
appointment of Ernst & Young LLP, and FOR the amendment to our Certificate of
Incorporation.
By Order of the Board of Directors
/s/ RICHARD C. FORD
----------------------------------
Richard C. Ford
Chief Executive Officer
June 4, 2002
PLEASE FILL IN, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENVELOPE
PROVIDED AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING. IF YOU LATER DESIRE TO REVOKE YOUR PROXY FOR ANY REASON, YOU MAY DO SO
IN THE MANNER DESCRIBED IN THE ATTACHED PROXY STATEMENT.
PURADYN FILTER TECHNOLOGIES INCORPORATED
PROXY STATEMENT
2002 ANNUAL MEETING OF STOCKHOLDERS
JULY 9, 2002
INTRODUCTION
The accompanying proxy is solicited by the Board of Directors of
Puradyn Filter Technologies Incorporated ("Puradyn", "we", "us", "our") to be
voted at the 2002 Annual Meeting of Stockholders to be held on July 9, 2002, and
any adjournments thereof. When such proxy is properly executed and returned, the
shares it represents will be voted at the meeting as directed. If no
specification is indicated, the shares will be voted in accordance with the
recommendation of the Board with respect to each matter submitted to our
stockholders for approval. Abstentions and broker non votes are counted for
purposes of determining a quorum, but will not be counted as votes cast in
connection with the election of directors, the ratification of our auditors, or
the approval to amend our Certificate of Incorporation. Any stockholder giving a
proxy has the power to revoke it prior to its exercise by notice of revocation
to Puradyn, in writing, by voting in person at the 2002 Annual Meeting or by
execution of a subsequent proxy; provided, however, that such action must be
taken in sufficient time to permit the necessary examination and tabulation of
the subsequent proxy or revocation before the vote is taken.
The shares entitled to vote at the 2002 Annual Meeting consist of
shares of our common stock. Each share entitles the holder to one vote. At the
close of business on May 24, 2002, the record date for determining those
stockholders entitled to notice of and to vote at the 2002 Annual Meeting, there
were 15,577,923 shares of our common stock issued and outstanding. This Proxy
Statement and the accompanying form of proxy are first being sent to
stockholders on or about June 4, 2002, and are accompanied by Puradyn's Annual
Report on Form 10-KSB for the year ended December 31, 2001, and its Quarterly
Report on Form 10-QSB for the quarter ended March 31, 2002.
In addition to the use of the mail, solicitations may be made by our
employees, by us, by telephone, email, mailgram, facsimile, telegraph, cable and
personal interview. We will bear all expenses of soliciting proxies.
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEES AND DIRECTORS
Our Board of Directors currently consists of seven members. At the
meeting, seven directors will be elected to serve until the next annual meeting
of stockholders and until their successors are elected and qualified. Directors
are elected by a plurality of the votes cast, in person or represented by proxy,
at the 2002 Annual Meeting. Therefore, the seven nominees receiving the greatest
number of votes cast will be elected directors of Puradyn (assuming a quorum is
present). We have no reason to believe that any nominee will be unable to serve
if elected. A vote FOR the nominees includes discretionary authority to vote for
a substitute nominee named by the Board, if any of the nominees become unable or
unwilling to serve.
The following persons have been nominated by the Board for election to
the Board of Directors:
Name Age Position
- ------------------------------- --------- -------------------------------------------------
Joseph V. Vittoria 66 Chairman of the Board of Directors
Richard C. Ford 58 Chief Executive Officer and Director
Kevin G. Kroger 50 President, Chief Operating Officer and Director
Alan J. Sandler 63 Vice President, Secretary, and Director
Peter H. Stephaich 46 Director
Ottavio Serena 49 Director
Michael Castellano 61 Director
JOSEPH V. VITTORIA was appointed to the Board of Directors and
appointed as Chairman on February 8, 2000. Mr. Vittoria was Chairman and Chief
Executive Officer of Travel Services International, Inc. where he served since
1998. From 1987 to 1997, Mr. Vittoria served as Chairman and Chief Executive
Officer of Avis, Inc. and was President and Chief Operating Officer of Avis,
Inc. from 1982 to 1987. Mr. Vittoria also serves on the Boards of Directors of
Sirius Satellite Radio, Inc., ResortQuest International, Inc. and Transmedia
Asia, Inc.
RICHARD C. FORD has been a Director of the Company since its inception
in 1988. He served as President of the Company from its inception in 1988 until
April 1997 and as Chief Executive Officer and Treasurer until June 1997. He also
served as Secretary of the Company from its inception until August 1996. Mr.
Ford returned to the Company in April 1998 and in January 1999, Mr. Ford was
elected Chairman of the Board of Directors and appointed Chief Executive
Officer. Mr. Ford was also a Director of TF Purifiner Ltd. through July 17, 1997
at which time he resigned, and was re-appointed as a Director in 1999.
KEVIN G. KROGER joined the Company July 3, 2000 as President, Chief
Operating Officer, and was appointed to the Board of Directors. Mr. Kroger was
with Detroit Diesel Corporation from 1989 to the time he joined the Company,
serving in various executive positions prior to his appointment in 1998 to the
position of Vice President and General Manager of Series 30/40 Product. From
1987 to 1989 he was Vice President of R.E.S. Leasing and of VE Corporation.
Prior to this, from 1971 to 1987, he held several management positions with
Caterpillar Corporation.
2
ALAN J. SANDLER joined the Company in June 1998 as President, Chief
Operating Officer, Secretary, Chief Financial Officer, and Director. In January
2000, he became Vice President and resigned from the positions of President and
Chief Operating Officer. In March 2001, he resigned as Chief Financial Officer.
In August 2001, Mr. Sandler resumed the position of Chief Financial Officer and
then resigned from the position in March 2002. From 1995 until 1997 Mr. Sandler
served as President and Chief Executive Officer to Hood Depot, Inc., a national
restaurant supply manufacturer/distributor. From 1979 to 1995 he was President
and Chief Executive Officer of Sandler & Sons Dental Supply Company, a regional
dental supply and equipment distributor. Previous to this position he was a Vice
President of Gardner Advertising Company, a national advertising agency. Mr.
Sandler was appointed as a Director of TF Purifiner Ltd. in 1999.
PETER H. STEPHAICH was appointed to the Board of Directors at its
meeting June 12, 2000. Mr. Stephaich is currently Chairman, Chief Executive
Officer and President of Blue Danube Incorporated, a private holding Company
engaged in the river transportation industry on the Upper Ohio River. Mr.
Stephaich has been on its Board of Directors since 1982 and has held the titles
of Chief Executive Officer and President since 1995. Prior to 1995, Mr.
Stephaich worked for various financial institutions, including four years at
Banker Trust Company where he provided international financial advisory services
to the transportation and aerospace industries.
OTTAVIO SERENA was appointed to the Board of Directors at it meeting
June 12, 2000. Mr. Serena is a principal of The Lynx Partners, a private equity
consulting firm. He is also President of The Explorer and Fiber Group, and is a
director and Vice President of Financial Performance Corporation, a publicly
traded financial Company. From 1993 to 1999, Mr. Serena was with Citicorp
Venture Capital, a leveraged buyout Company. Mr. Serena co-founded and was
managing director of The Lynx Partners from 1987 to 1993.
MICHAEL CASTELLANO was appointed to the Board of Directors at its
January 24, 2001 meeting. Mr. Castellano retired in 1997. From 1995 to 1997, Mr.
Castellano was Chief Administrative Officer of Kobren Insight Group, a mutual
fund Company, and in 1994, he was Executive Vice President of Wall Street
Access, a discount brokerage firm. Prior to that, from 1988 to 1993, Mr.
Castellano was Senior Vice President and Corporate Controller for Fidelity
Investments.
INFORMATION CONCERNING THE BOARD OF DIRECTORS
During 2001, our Board of Directors met on 3 occasions and took action
by unanimous written consent on 16 occasions. Each Director attended each
meeting and concurred in each Board action by consent. We currently have an
audit committee and a compensation committee.
Audit Committee
The Audit Committee of the Board of Directors is composed of three
independent directors (as independence is defined in Section 121(A) of the AMEX
listing standards), and operates under a written charter adopted by the Board of
Directors. The committee members are Michael Castellano (chairperson), Peter H.
Stephaich and Joseph V. Vittoria. During the fiscal year ended December 31,
2001, the Audit Committee met on 5 occasions.
The Audit Committee reviews our financial reporting process on behalf
of the Board of Directors. Management has the primary responsibility for the
financial statements and the reporting process including the system of internal
controls.
3
In this context, the chairperson has met and held discussions with
management and the independent auditors. Management represented to the committee
that Puradyn's consolidated financial statements were prepared in accordance
with accounting principles generally accepted in the United States, and the
committee has reviewed and discussed the consolidated financial statements with
management and the independent auditors. The committee discussed with the
independent auditors matters required to be discussed by Statement on Auditing
Standards No. 61 (Communication with Audit Committees).
In addition, the committee has discussed with the independent auditors
the auditor's independence from Puradyn and its management, including the
matters in the written disclosures required by the Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees).
The committee discussed with our independent auditors the overall scope
and plans for their respective audit. The committee meets with the independent
auditors with and without management present, to discuss the results of their
examinations, the evaluations of Puradyn's internal controls, and the overall
quality of our financial reporting.
In reliance on the reviews and discussions referred to above, the
committee recommended to the board of directors, and the Board has approved,
that the audited consolidated financial statements be included in Puradyn's Form
10-KSB for the year ended December 31, 2001, for filing with the Securities and
Exchange Commission.
Submitted by the Audit Committee of the Board of Directors:
Michael Castellano Peter H. Stephaich Joseph V. Vittoria
Compensation Committee
The Compensation Committee provides overall guidance for officer
compensation programs, including salaries and other forms of compensation
including all employee stock option grants and warrant grants to non-employees.
The Compensation Committee consists of Peter Stephaich (chairperson), Joseph V.
Vittoria, Ottavio Serena and Michael Castellano. The Compensation Committee held
1 meeting during the fiscal year ended December 31, 2001.
EXECUTIVE COMPENSATION
Cash Compensation
The following table shows, for the three year period ended December 31,
2001, the cash and other compensation paid by us to our Chief Executive Officer
and to each other executive officers who had annual compensation in excess of
$100,000.
4
SUMMARY COMPENSATION TABLE
OTHER
NAME AND ANNUAL NUMBER OF LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (2) OPTIONS PAYOUTS COMPENSATION (3)
- -------------------------- ---------- -------------- ---------- ------------------- ------------ ------------ ---------------------
Richard C. Ford (4) 2001 $ 208,000 $ - $ 6,890 - - $ 11,000
CEO and Director 2000 200,000 150,000 1,644 - - 12,000
1999 145,608 (1) 1,000 1,171 1,064,510 - 9,000
Kevin G. Kroger 2001 166,000 76,000 17,641 - - 13,000
President, COO and 2000 83,000 50,000 12,289 300,000 - 6,000
Director
Alan J. Sandler 2001 100,000 - 8,650 - - -
Vice President and 2000 96,615 - 7,865 - - -
Secretary and Director(5)
(1) Mr. Ford elected to defer payment of $53,000 included in his
1998 salary, which he received in 2000. Richard C. Ford's
salary in 1999 includes stock options granted at a nominal
exercise price in lieu of cash compensation for Mr. Ford
(114,510 options having a value of $50,163).
(2) This amount represents payments made by us for health
insurance premiums and, in the case of Mr. Kroger, also for
life insurance and disability insurance premiums.
(3) This amount represents payments made to Mr. Ford for
consulting services in 1998, and a car allowance in 1999, 2000
and 2001. For Mr. Kroger, this amount represents a car
allowance.
(4) Mr. Ford served as our Secretary until August 1996. Mr. Ford
served as our President until April 1, 1997 and served as
Chief Executive Officer, Treasurer and Chief Financial Officer
until June 19, 1997. Mr. Ford left our employment on July 17,
1997, and provided consulting services to us under an
agreement until April 1, 1998, when he rejoined us as a
Director. In February 2000, Mr. Ford resigned as Chairman of
the Board of Directors, but remained as a Director. (See
Certain Relationships and Related Transactions).
(5) Mr. Sandler joined us in June 1998 as President, Chief
Operating Officer, Secretary, Chief Financial Officer, and
Director. In January 2000, he became Vice President and
resigned from the positions of President and Chief Operating
Officer. In March 2001, he resigned as Chief Financial
Officer. In August 2001, Mr. Sandler resumed the position of
Chief Financial Officer and then resigned from the position in
March 2002.
Incentive and Non-qualified Stock Option Plans
The Board of Directors adopted the 2000 Non-Employee Directors' Plan
(the "Directors' Plan") on November 8, 2000, under which options to purchase
400,000 shares have been authorized for issuance. The Directors' Plan provides a
means to attract and retain highly qualified persons to serve as non-employee
directors and advisory.
Each member of the Board of Directors will be automatically granted
5,000 options at the date of commencement of the Directors' Plan and on their
initial election as new members to the Board of Directors. Each director
receives an additional 5,000 options at the close of each annual meeting of
stockholders. Additionally, each director automatically receives 2,500 options
for each committee of the Board on which the director serves. Options are
granted at a price equal to the fair market value of the stock on the date of
grant, are exercisable commencing two years following grant, and will expire
five years from the date of grant. In the event a person ceases to serve on the
Board of Directors, the outstanding options expire one year from the date of
cessation of service. The Directors' Plan is administered by the Board of
Directors.
5
The Company's 1999 Stock Option Plan (the "1999 Plan") and the 1996
Stock Option Plan (the "1996 Plan"), adopted on September 15, 1999 and amended
in June 2000 and July 31, 1996, respectively, will work to increase the
proprietary interest in Puradyn by our employees, Board of Advisors,
consultants, and non-employee Directors, and to align more closely their
interests with the interests of Puradyn's stockholders. The Plans will also
maintain our ability to attract and retain the services of experienced and
highly qualified employees and non-employee directors.
Under the 1999 Plan and 1996 Plan, we had reserved an aggregate of
3,000,000 and 2,200,000 shares, respectively, of common stock for issuance
pursuant to options granted under the Plans ("Plan Options"). The Board of
Directors or a Committee of the Board of Directors (the "Committee") administers
the Plans including, without limitation, the selection of the persons who will
be granted Plan Options under the Plans, the type of Plan Options to be granted,
the number of shares subject to each Plan Option and the Plan Option price.
Options granted under the 1996 and 1999 Plans may either be options
qualifying as incentive stock options ("Incentive options") under Section 422 of
the Internal Revenue Code of 1986, as amended, or options that do not so qualify
("Non-Qualified Options"). In addition, the Plans also allow for the inclusion
of a reload option provision ("Reload Option"), which permits an eligible person
to pay the exercise price of the Plan Option with shares of Common Stock owned
by the eligible person and receive a new Plan Option to purchase shares of
Common Stock equal in number to the tendered shares. Any Incentive Option
granted under the Plans must provide for an exercise price of not less than 100%
of the fair market value of the underlying shares on the date of such grant, but
the exercise price of any Incentive Option granted to an eligible employee
owning more than 10% of the Company's Common Stock must be at least 110% of such
fair market value as determined on the date of the grant. The term of each Plan
Option and the manner in which it may be exercised is determined by the Board of
the Directors or the Committee, provided that no Plan Option may be exercisable
more than 10 years after the date of its grant and, in the case of an Incentive
Option granted to an eligible employee owning more than 10% of our common stock,
no more than five years after the date of the grant.
The exercise price of Non-Qualified Options shall be determined by the
Board of Directors or the Committee and cannot be less than the par value of
Puradyn's Common Stock.
The per share purchase price of shares subject to Plan Options granted
under the Plans may be adjusted in the event of certain changes in our
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of Plan Options granted under the Plan.
Officers, directors, key employees and consultants of Puradyn and its
subsidiaries (if applicable in the future) are eligible to receive Non-Qualified
Options under the Plans. Only our officers, directors and employees, and those
of our subsidiaries are eligible to receive Incentive Options.
All Plan Options are generally nonassignable and nontransferable,
except by will or by the laws of descent and distribution, and during the
lifetime of the optionee, may be exercised only by such optionee. If an
optionee's employment is terminated for any reason, other than his death or
disability or termination for cause, or if an optionee is not an employee but is
a member of Puradyn's Board of Directors and his service as a Director is
terminated for any reason, other than death or disability, the Plan Option
granted to him generally shall lapse to the extent unexercised on the earlier of
6
the expiration date or one year following the date of termination. If the
optionee dies during the term of his employment, the Plan Option granted to him
generally shall lapse to the extent unexercised on the earlier of the expiration
date of the Plan Option or the date one year following the date of the
optionee's death. If the optionee is permanently and totally disabled within the
meaning of Section 22 (c) (3) of the Internal Revenue Code of 1986, the Plan
Option granted to him generally lapses to the extent unexercised on the earlier
of the expiration date of the option or one year following the date of such
disability.
The Board of Directors or the Committee may amend, suspend or terminate
the Plans at any time, except that no amendment shall be made which (i)
increases the total number of shares subject to the Plans or changes the minimum
purchase price therefore (except in either case in the event of adjustments due
to changes in the Company's capitalization), (ii) extends the term of any Plan
Option beyond ten years, or (iii) extends the termination date of the Plan.
Unless the Plans shall theretofore have been suspended or terminated by the
Board of Directors, the 1996 Plan shall terminate on July 31, 2006 and the 1999
Plan shall terminate on September 15, 2009. Any such termination of the Plans
shall not affect the validity of any Plan Options previously granted thereunder.
As of December 31, 2001, under the Directors' Plan, options to purchase
260,000 shares of common stock were outstanding. As of December 31, 2001, under
the 1996 Plan, incentive stock options to purchase 165,407 shares of common
stock were outstanding and non-qualified options to purchase 595,000 shares of
common stock were outstanding and, under the 1999 Plan, incentive stock options
to purchase 1,238,750 shares of common stock were outstanding and non-qualified
options to purchase 197,000 shares of common stock were outstanding.
Options Granted to Officers and Directors
On January 24, 2001 and May 16, 2001 director Michael Castellano was
granted 7,500 and 2,500 at $6.50 and $4.81, respectively. On October 23, 2001
directors Michael Castellano, Peter Stephaich and Ottavio Serena were granted
10,000, 10,000 and 7,500 options, respectively, at $2.60 per share. These
options were granted under the Directors' Plan and vest over two years from the
date of grant.
On July 3, 2000, Kevin Kroger was granted 300,000 qualified options at
$9.25 per share, which become exercisable at 75,000 per year beginning July 3,
2001. On October 23, 2000 directors Joseph Vittoria, Peter Stephaich and Ottavio
Serena were granted 205,000, 10,000 and 7,500 options, respectively, at $5.88
per share. These options vest over two years from the date of grant.
On January 7, 1999 Richard C. Ford was granted 100,000 non-qualified
options at $.21 per share, which were immediately vested and exercisable. On
April 1, 1999, Mr. Ford was granted 175,000 non-qualified options at $.94 per
share of which 100,000 were immediately vested and exercisable and 75,000 vested
on April 1, 2000. On April 14, 1999 Mr. Ford was granted 100,000 non-qualified
options at $.56 per share, which vest on April 14, 2001. From June 18, 1999 to
September 24, 1999 Mr. Ford was granted 114,510 non-qualified options at a zero
exercise price compared to market prices of from $.31 to .51 per share in lieu
of cash compensation. All vested and were exercisable immediately. On December
20, 1999, Mr. Ford was granted 275,000 qualified options at $1.10 per share,
which were immediately vested and exercisable. Also, on December 20, 1999, Mr.
Ford was granted 300,000 qualified options at $1.10 per share of which 150,000
vested on December 20, 2000 and 150,000 will vest on December 20, 2001.
On July 8, 1998, Richard C. Ford was granted 300,000 stock options to
purchase shares of the Company's Common Stock at $.38 per share. Of these
options, 150,000 vested on July 8, 1998 and 150,000 vested on July 7, 1999.
7
On August 2, 1996, the Company granted Richard C. Ford Incentive Plan
Options to purchase an aggregate of 50,000 shares of common stock at $2.20 per
share through August 2, 2001, of which 25,000 vested on August 2, 1996, 12,500
vested on August 2, 1997, and 12,500 vested on August 2, 1998. Mr. Ford
surrendered these options for cancellation in 1999. On August 2, 1996, the
Company granted Richard C. Ford non-qualified options to purchase an aggregate
of 200,000 shares of Common Stock at $2.00 per share through August 2, 2004, of
which 100,000 vested on August 2, 1996, 50,000 vested on August 2, 1997, and
50,000 vested on August 2, 1998. Mr. Ford also surrendered these 200,000 options
for cancellation in 1999.
Option Exercises and Holdings
The following table sets forth information with respect to the exercise
of options to purchase shares of common stock during the fiscal year ended
December 31, 2001 to each person named in the Summary Compensation Table and the
unexercised options held as of the end of the 2001 fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED AT VALUE OF UNEXERCISED IN THE-MONEY
ACQUIRED ON OPTIONS/ SARS YEAR END (#) OPTIONS/ SARS AT YEAR END ($)
EXERCISE VALUE EXERCISABLE/ ---------------------------------
REALIZED (#) EXERCISABLE/ ($) UNEXERCISABLE EXERCISABLE UNEXERCISABLE (1)
---------------- ----------------- ---------------- ------------------- -------------------
875,000/
Richard C. Ford 875,000 $3,371,000 (3) 375,000/ - $1,521,000 -
Chief Executive
Officer and Director
75,000/
Kevin G. Kroger - - 225,000 (2) (2)
President, COO and
Director
Alan J. Sandler 260,000 (4) - - - -
Vice President,
Secretary and
Director
(1) In accordance with the Securities and Exchange Commission's rules,
values are calculated by subtracting the exercise price from the fair
market value of the underlying common stock. For purposes of this
table, fair market value is deemed to be $4.70, the closing price
reported on December 31, 2001.
(2) The closing price at December 31, 2001 of $4.70 is less than the
exercise price of the options.
(3) Mr. Ford exercised 875,000 options and has a promissory note payable to
the Company for the total exercise price of $756,250.
(4) Mr. Sandler exercised 260,000 options and has a promissory note payable
to the Company for the total exercise price of $97,500.
8
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires our directors and executive
officers, and persons who own more than ten percent (10%) of a registered class
of our equity securities, to file with the Commission initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of Puradyn. Officers, directors and greater than ten percent (10%)
stockholders are required by Commission regulation to furnish us with copies of
all Section 16(a) forms they file.
To our knowledge, based solely on a review of the copies of such
reports furnished to us and written representations that no other reports were
required, during the year ended December 31, 2001, all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten percent
(10%) beneficial owners were completed and filed on a timely basis.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows certain information regarding Puradyn's
common stock beneficially owned on the May 24, 2002 record date, by:
o each person who is known by us to own beneficially or exercise
voting or dispositive control over 5% or more of Puradyn's
common stock,
o each of Puradyn's directors,
o each officer named in the Summary Compensation Table, and
o all officers and directors as a group.
A person is considered a beneficial owner of any securities that the
person owns or has the right to acquire beneficial ownership of within 60 days.
At May 24, 2002, there were 15,577,923 shares of common stock outstanding.
Except as otherwise indicated, (a) we have been informed that the persons
identified in the table have sole voting and dispositive power with respect to
their shares, and (b) the address of each person is 3020 High Ridge Road, Suite
100, Boynton Beach, Florida 33426.
Percent of
Name and Address or Common Stock Beneficial
Identity of Group Beneficially Owned Ownership
- ----------------- ------------------ ---------
Quantum Industrial Partners LDC ("QIP") (1) 4,570,000 29.34%
Richard C. Ford (2) 2,118,118 13.28%
Kevin G. Kroger (3) 182,000 1.16%
Alan J. Sandler (4) 316,538 2.03%
Joseph V. Vittoria (5) 1,317,573 8.40%
Peter H. Stephaich (6) 110,000 *
Ottavio Serena (7) 125,000 *
Michael Castellano (8) 15,250 *
All Officers and Directors as a group (7 persons) 4,184,479 25.75%
- -------------------------
* Less than 1%.
(1) Address is c/o Curacao Corporation Company, N.V., Kaya Flamboyan,
Willenstad Curacao, Netherlands, Antilles.
9
(2) Mr. Ford serves as Chief Executive Officer and as a Director. Includes
options to purchase (i) 100,000 shares of Common Stock at $.56 per
share through April 14, 2004, options to purchase 100,000 shares at
$.21 per share through January 7, 2004, and options to purchase 175,000
shares at $.94 per share through April 1, 2004.
(3) Mr. Kroger is President, Chief Operating Officer, and a Director.
Includes options to purchase 75,000 shares of Common Stock at $9.25
through July 3, 2010.
(4) Mr. Sandler serves as Vice President, Secretary, and a Director.
(5) Mr. Vittoria serves as Chairman of the Board of Directors. Includes
options to purchase 102,500 shares of Common Stock at $5.88 through
October 23, 2005.
(6) Mr. Stephaich serves as a Director. Includes options to purchase 10,000
shares of Common Stock at $5.88 through October 23, 2005.
(7) Mr. Serena serves as a Director. Includes options to purchase 5,000
shares of Common Stock at $5.88 through October 23, 2005, and warrants
to purchase 100,000 shares of Common Stock.
(8) Mr. Castellano serves as a Director. Includes options to purchase 5,000
shares of Common Stock at $6.50 through January 24, 2006 and 1,250
shares of Common Stock at $4.81 through May 16, 2006.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1998, Richard C. Ford, who was, at the time, our Chairman of the
Board of Directors and a major stockholder, loaned us $150,000, for which we
issued notes payable due one year from the date of issuance, bearing interest at
12%, and secured by accounts receivable and inventories. On January 24, 2000,
Mr. Ford converted the loan and the related accrued interest totaling $175,504
into 150,000 shares of common stock.
During 1998 and 1999, we borrowed an aggregate of $525,000 from our
bank under a revolving line-of-credit. The revolving line of credit was secured
by certificates of deposit in the name of Richard C. Ford and held by the bank
and a personal guarantee.
In exchange for Mr. Ford's personal guarantee of our borrowings, the
Board of Directors granted Mr. Ford 175,000 options. The fair value of the
options, estimated at $171,500 using the Black-Scholes valuation model, was
recorded as a deferred financing cost and has been amortized to interest expense
over the term of facility. Included in interest expense in the accompanying
statements of operations for 2000 is amortization of such deferred financing
costs of $39,000.
On January 24, 2000, Mr. Ford and his daughter personally repaid the
bank on our behalf and simultaneously converted their loans totaling $525,000
into 525,000 shares of our common stock. As a result of this conversion, and the
conversions discussed above, we recorded compensation expense in 2000 totaling
approximately $1,687,500 which represents the excess of the fair market value of
the common stock received by Mr. Ford and his daughter over conversion price at
the date of the conversion.
At December 31, 1999, we were obligated to Quantum Industrial Partners
LDC ("QIP"), a significant stockholder, under a 12% Senior Subordinated
Convertible Note due 2003. In addition, during 1998, Puradyn and QIP entered
into a Note Purchase Agreement whereby we issued QIP a 12% Senior Subordinated
Convertible Note totaling $2.5 million.
On December 31, 1999, Puradyn and QIP entered into an agreement for QIP
to convert the outstanding principal amount payable to QIP into 2,500,000 shares
of our common stock at a conversion rate of $1 per share. As a result of the
modification of the conversion terms, we recognized interest expense in 1999
10
totaling $2,115,909, equal to the fair market value of the additional shares
received by QIP resulting from the modification, pursuant to SFAS No. 84,
INDUCED CONVERSIONS OF CONVERTIBLE DEBT. On January 24, 2000, QIP converted the
principal balance of the notes, totaling $2,500,000, and forgave the related
accrued interest totaling $717,997, into 2,500,000 shares of our common stock.
In July 2001, we received promissory notes from two officers for the
exercise of their vested stock options in the amount of $853,750 and bearing
interest of 5.63%. The principal and accrued interest are due upon the earlier
of the expiration of the original option periods, which range from July 2008 to
December 2009, or upon the sale of the common stock acquired by the execution of
the options.
On March 28, 2002, we executed a commitment letter with one of our
stockholders to fund up to $2.5 million through the end of 2002. Under the terms
of the commitment, we may draw amounts as needed in multiples of $500,000 to
fund operations subject to Board of Director approval. Amounts drawn will bear
interest at 8% and will become due and payable on December 31, 2003 or upon a
change in control of Puradyn or consummation of any other financing over $3
million. As incentive, we granted such stockholder 100,000 common stock purchase
warrants at an exercise price equal to the closing market price of our stock on
the date of grant.
On April 1, 2002, we executed an agreement with Richard J. Ford, who is
the son of Richard C. Ford the Company's C.E.O., and a third unrelated party, to
receive web site and advertising consulting services. The agreement is for a
term of 15 weeks and the two consultants will receive 10,000 stock options each
as well as cash payments for services rendered. The fair value of the options
was estimated at the date of grant using a Black-Scholes option pricing model
with the following assumptions: risk free interest rates of 4.65, volatility
factors of the expected market price of our common stock of 1.39; and an
expected life of 3 years. The deferred charge of approximately $64,000 will be
amortized over the commitment period.
We believe that the transactions referred to above were on terms no
less favorable to us than terms which could have been obtained from unrelated
third parties.
Private Offering Investment by Directors
In connection with Puradyn's March 2000 private offering of common
stock, at $1.00 per share, the following Directors participated:
Joseph V. Vittoria $1,000,000
Peter H. Stephaich $ 100,000
Ottavio Serena $ 20,000
In connection with Puradyn's September 2000 private offering of common
stock, at $7.50 per share, the following Directors participated:
Joseph V. Vittoria $1,000,000
Kevin G. Kroger $ 150,000
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE BOARD'S
DIRECTOR NOMINEES.
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PROPOSAL 2
PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP
AS INDEPENDENT AUDITORS OF PURADYN FILTER TECHNOLOGIES INCORPORATED
The appointment of Ernst & Young LLP as our independent auditors for
the fiscal year ending December 31, 2002, will be submitted for ratification by
our stockholders. Ratification of the appointment of our auditors requires the
affirmative vote of a majority of the shares of Puradyn's common stock voting at
the annual meeting in person or by proxy.
Fees to Auditors.
Audit Fees: The aggregate fees, including expenses, billed by Ernst &
Young LLP in connection with their audit of our consolidated financial
statements for the fiscal year ended December 31, 2001, and for their review of
our quarterly reports on Form 10-QSB during the 2001 fiscal year, were $152,495.
Financial Information Systems Design and Implementation Fees: The
aggregate fees billed by Ernst & Young LLP for the fiscal year ended December
31, 2001, for the professional services described in Paragraph (c)(4)(ii) of
Rule 2.01 of Regulation S-X were nil.
All Other Fees: The aggregate fees billed by Ernst & Young LLP for
professional services rendered to us by Ernst & Young LLP during the 2001 fiscal
year, other than Audit Fees and Financial Information Systems Design and
Implementation Fees, were $2,500, including audit related services of $2,500 and
nonaudit services of nil. Audit related services generally include fees for
statutory audits, business combinations accounting consultations, Securities and
Exchange Commission registration statements and internal audit outsourcing
services. Nonaudit fees generally include tax compliance, tax services and
corporate compliance services performed for us
The Audit Committee has considered whether the provision of the
services covered under the captions "Financial Information Systems Design and
Implementation Fees" and "All Other Fees," above, is compatible with maintaining
the principal accountant's independence.
General.
- -------
Representatives of Ernst & Young LLP are expected to be present at the
2002 Annual Meeting, and (a) will be provided with an opportunity to make a
statement if they desire to do so, and (b) are expected to be available to
respond to appropriate questions from stockholders.
Although the Board of Directors is submitting the appointment of Ernst
& Young LLP for stockholder approval, it reserves the right to change the
selection of Ernst & Young LLP as auditors, at any time during the fiscal year,
if it deems such change to be in Puradyn's best interest, even after stockholder
approval.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF ERNST & YOUNG LLP AS PURADYN'S INDEPENDENT AUDITORS FOR THE
FISCAL YEAR ENDING DECEMBER 31, 2002.
12
PROPOSAL THREE
APPROVAL OF AMENDMENT TO THE CERTIFICATE OF
INCORPORATION TO INCREASE AUTHORIZED COMMON STOCK
On May 22, 2002, the Board of Directors approved a proposal to amend
Puradyn's Certificate of Incorporation to increase the number of authorized
shares of Common Stock from 20,000,000 shares to 30,000,000 shares, and further
decreed that the proposal be submitted to the stockholders with the
recommendation that the amendment be approved. The approval of this Proposal
requires the affirmative vote of a majority of our issued and outstanding common
stock.
If Proposal 3 is approved by the stockholders of Puradyn, the newly
authorized shares of Common Stock will have voting and other rights identical to
the currently authorized shares of Common Stock. The increase in authorized
shares will have no immediate effect on the rights of existing stockholders. To
the extent that the additional authorized shares are issued in the future, the
existing stockholders' percentage ownership of Puradyn will decrease, and
depending upon the price at which such shares are issued, could be dilutive to
existing stockholders. The text of the proposed amendment is set forth in
Appendix A attached to this Proxy Statement.
The Board of Directors believes that adoption of Proposal 3 is
desirable so that, as the need may arise, Puradyn will have more flexibility and
be able to issue shares of Common Stock without the expense and delay of a
special stockholders' meeting, in connection with future opportunities for
expanding the business through investments or acquisitions, public and private
equity financing, management incentive and employee benefit plans, and for other
purposes. As of the date of this Proxy Statement, we do not have any specific
plans for the additional shares of Common Stock that would result from the
approval of this proposal, but we do anticipate issuing equity securities during
the course of the current year if market conditions are favorable.
If Proposal 3 is approved by the stockholders, authorized but unissued
shares of Puradyn's Common Stock may be issued at such times, for such purposes
and for such consideration as the Board of Directors may determine to be
appropriate without further action by our stockholders, except as otherwise
required by applicable law, rules or regulations. Therefore, for instance, if
Proposal 3 is approved by the stockholders, our Board of Directors could attempt
to frustrate any stockholder attempt to replace or remove current management by
diluting the ownership of such stockholder(s) through the issuance of the
additional authorized shares of common stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE AMENDMENT TO
PURADYN'S CERTIFICATE OF INCORPORATION INCREASING THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK.
13
INFORMATION CONCERNING STOCKHOLDER PROPOSALS
The stockholder intending to present a proposal to be included in the
proxy statement for our 2003 Annual Meeting of Stockholders must deliver a
proposal in writing to our executive offices no later than February 1, 2003.
OTHER MATTERS
Management is not aware of any other matters to be presented for action
at the 2002 Annual Meeting. However, if any other matter is properly presented,
it is the intention of the persons named in the enclosed form of proxy to vote
in accordance with their best judgment on such matter.
ADDITIONAL INFORMATION
Our Annual Report on Form 10-KSB, which includes audited, consolidated
financial statements for the year ended December 31, 2001, and our Quarterly
Report on Form 10-QSB, which contains unaudited, condensed, consolidated
financial statements for the quarter ended March 31, 2002, accompany this proxy
statement.
14
APPENDIX A
----------
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PURADYN FILTER TECHNOLOGIES INCORPORATED
Puradyn Filter Technologies Incorporated (the "Corporation"), a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation has adopted a
resolution proposing and declaring advisable the following amendment to the
Certificate of Incorporation of the Corporation:
RESOLVED, that the Certificate of Incorporation of Puradyn Filter
Technologies Incorporated be amended by changing Article V thereof, so that, as
amended, said Article shall be and read as follows:
ARTICLE V
Capital Stock
The aggregate number of shares of all classes of capital stock which
the Corporation has authority to issue is 30,500,000 of which 30,000,000 are to
be shares of Common Stock, $.001 par value per share, and of which 500,000 are
to be shares of Preferred Stock, $.001 par value per share. The shares may be
issued by the Corporation from time to time as approved by the Board of
Directors of the Corporation without the approval of the stockholders except as
otherwise provided in this Article V or the rules of a national securities
exchange if applicable.
A description of the different classes and series (if any) of the
Corporation's capital stock, and a statement of the relative powers,
designations, preferences and rights of the shares of each class and series (if
any) of capital stock, and the qualifications, limitations or restrictions
thereof, are as follows:
A. Common Stock. Except as provided in this Certificate, the holders of
the Common Stock shall exclusively possess all voting power. Each holder of
shares of Common Stock shall be entitled to one vote for each share held by such
holder, except as otherwise expressly set forth in this Certificate.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock having
preferences over the Common Stock as to the payment of dividends, the full
amount of dividends and sinking fund or retirement fund or other retirement
payments, if any, to which such holders are respectively entitled in preference
to the Common Stock, then dividends may be paid on the Common Stock, and on any
class or series of stock entitled to participate therewith as to dividends, out
of any assets legally available for the payment of dividends, but only when and
as declared by the Board of Directors of the Corporation.
In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class having preference
over the Common Stock in any such event, the full preferential amounts to which
they are respectively entitled, the holders of the Common Stock and of any class
or series of stock entitled to participate therewith, in whole or in part, as to
A-1
distribution of assets shall be entitled, after payment or provision for payment
of all debts and liabilities of the Corporation, to redeem the remaining assets
of the Corporation available for distribution, in cash or in kind.
Each share of Common Stock shall have the same relative powers,
preferences and rights as, and shall be identical in all respects with, all the
other shares of Common Stock of the Corporation, except as otherwise expressly
set forth in this Certificate.
B. Preferred Stock. Preferred Stock may be issued from time to time in one or
more series, each of such series to have such powers, vote designations,
preferences, qualifications, limitations, restrictions, participation, options
or other relative or special rights, as are stated and expressed herein or, to
the extent permitted by law, in the resolution or resolutions providing for the
issuance of such series, as adopted by the Board of Directors. The Board of
Directors is hereby expressly empowered, subject to the provisions of this
Paragraph, to provide for the issuance of Preferred Stock from time to time in
one or more series and to fix, as to such series, by resolution or resolutions
providing for the issuance of such series:
(1) the number of shares to constitute such series and the title
or designation of the series;
(2) the rate of dividend, whether or not cumulative, and the
extent of further participation in dividends or distributions,
if any;
(3) the price and the terms and conditions, if any, upon which
shares of such series are redeemable;
(4) whether or not the shares of such series shall be subject to
sinking fund provisions for the redemption or purchase of
shares;
(5) the amount, if any, payable upon shares in event of voluntary
or involuntary liquidation of the Corporation;
(6) the terms and conditions, if any, on which shares of such
series are convertible;
(7) the voting power, if any, of such series by determining the
votes (or fraction of a vote) per share and the elections or
events upon which such series may be voted, or may determine
to restrict or eliminate entirely the right of such series to
vote;
(8) such other powers, designations, preferences and relative,
participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, as and to
the extent permitted by law.
Each share of each series of Preferred Stock shall have the same
relative powers, preferences and rights as, and shall be identical in all
respects with, all the other shares of the Corporation of the same series,
except as otherwise expressly set forth in this Certificate or any amendment
thereto.
SECOND: That the aforesaid amendment was duly adopted by the
Corporation's Board of Directors by unanimous written consent on May 22, 2002 in
accordance with the provisions of Section 141(f) of the General Corporation Law
of the State of Delaware, and by the affirmative vote of stockholders holding a
majority of the Corporation's outstanding shares of capital stock at the
Corporation's 2002 Annual Meeting of the Stockholders on July 9, 2002 in
accordance with the provisions of Section 212 of the General Corporation Law of
the State of Delaware.
A-2
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Section 242 of the General Corporation Law of the
State of Delaware.
FOURTH: That the aforesaid amendment shall become effective upon
filing.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Richard C. Ford, its Chief Executive Officer, this ___ day of
__________, 2002.
PURADYN FILTER TECHNOLOGIES, INC.
By: _________________________
Richard C. Ford, C.E.O.
A-3
PURADYN FILTER TECHNOLOGIES INCORPORATED
2002 ANNUAL MEETING OF STOCKHOLDERS
July 9, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PURADYN FILTER
TECHNOLOGIES INCORPORATED
The undersigned hereby appoints Richard C. Ford proxy with power of
substitution and hereby authorizes him to represent and to vote, as designated
below, all of the shares of common stock of Puradyn Filter Technologies
Incorporated held of record by the undersigned on May 24, 2002, at the 2002
Annual Meeting of Stockholders to be held at the Holiday Inn Catalina, 1601
North Congress Avenue, Boynton Beach, Florida 33426, on Tuesday, July 9, 2002 at
2:00 p.m., local time, and at all adjournments thereof, with all powers the
undersigned would possess if personally present. In his or her discretion, the
Proxy is authorized to vote upon such other business as may properly come before
the meeting.
1. Election of Directors
Nominees: Joseph V. Vittoria, Richard C. Ford, Kevin G. Kroger, Alan J.
Sandler, Peter H. Stephaich, Ottavio Serena, and Michael Castellano.
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY [ ] FOR all nominees,
except as noted below:
--------------------
Nominee exception(s)
2. Proposal to ratify the appointment of Ernst & Young LLP as independent
auditors of Puradyn Filter Technologies Incorporated for the fiscal
year ending December 31, 2002, to serve at the pleasure of the Board of
Directors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to approve the amendment to the Certificate of Incorporation
to increase the authorized number of shares of common stock from
20,000,000 shares to 30,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED "FOR" PROPOSALS 1, 2 AND 3.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF 2002
ANNUAL MEETING AND PROXY STATEMENT FURNISHED IN CONNECTION THEREWITH.
DATED:
-------------------------------
-------------------------
(Signature)
-------------------------
(Signature if jointly held)
--------------------------
(Printed name(s))
Please sign exactly as name appears herein. When shares are held by Joint
Tenants, both should sign. When signing as attorney, as executor, as
administrator, trustee or guardian, please give full title as such. If held by a
corporation, the president or another authorized officer should sign below the
full name of the corporation. If held by a partnership, an authorized person
should sign below the full name of the partnership.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
IN THE ENCLOSED ENVELOPE. THANK YOU.