SCHEDULE 14C INFORMATION
(RULE 14C-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934
|_| Preliminary Information Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
|X| Definitive Information Statement
ZEN POTTERY EQUIPMENT, INC.
(Name of Registrant As Specified In Charter)
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
ZEN POTTERY EQUIPMENT, INC.
1185 Avenue of the Americas, 20th Floor
New York, New York 10036
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO ALL SHAREHOLDERS OF ZEN POTTERY EQUIPMENT, INC.:
A special meeting of shareholders of Zen Pottery Equipment, Inc., a
Colorado corporation, will be held at the offices of Zen Pottery, 1185 Avenue of
the Americas, 20th Floor, New York, New York 10036, on Tuesday, March 29, 2005,
at 9:30 a.m., local time. The purpose of the special meeting is to consider and
take action on the proposals summarized below:
1. To change our corporate name to Xethanol Corporation from Zen
Pottery Equipment, Inc.;
2. To reincorporate Zen Pottery in Delaware though a merger of Zen
Pottery with and into a newly-formed Delaware subsidiary, to be known as
"Xethanol Corporation," which will result in:
o a change of domicile of Zen Pottery to the state of Delaware
from the state of Colorado, which means that the surviving
corporation will be governed by the laws of the state of
Delaware;
o the change of our corporate name to Xethanol Corporation from
Zen Pottery Equipment, Inc.;
o your right to receive one share of common stock of Xethanol
for each share of common stock of Zen Pottery owned by you as
of the effective date of the reincorporation;
o the persons serving presently as executive officers and
directors of Zen Pottery to serve in their same respective
positions in Xethanol after the reincorporation;
o Xethanol's Certificate of Incorporation becoming the
certificate of incorporation of the surviving corporation; and
o Xethanol's By-laws becoming the by-laws of the surviving
corporation.
3. To ratify the adoption by Zen Pottery of the Xethanol Corporation
2005 Incentive Compensation Plan;
4. To ratify the appointment of Imowitz Koenig & Co., LLP as the new
certifying public accountants of Zen Pottery for the fiscal year ending December
31, 2005; and
5. To conduct such other business as properly comes before the
special meeting.
The holders of approximately 55% of our outstanding common stock have
agreed to vote in favor of the actions described above at the special meeting,
which are described in greater detail in the Information Statement accompanying
this notice. THEREFORE, WE ARE NOT ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
The accompanying Information Statement is for information purposes only
and explains our corporate name change, the terms of our proposed
reincorporation, the ratification of the adoption of the Xethanol Corporation
2005 Incentive Compensation Plan, and our appointment of new certifying public
accountants. Please read the accompanying Information Statement carefully.
March 10, 2005
By Order of the Board of Directors,
Christopher d'Arnaud-Taylor
Chairman and Chief Executive Officer
-------------------
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
-------------------
ii
ZEN POTTERY EQUIPMENT, INC.
1185 AVENUE OF THE AMERICAS, 20TH FLOOR
NEW YORK, NEW YORK 10036
INFORMATION STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 29, 2005
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND A PROXY
TO ALL SHAREHOLDERS OF ZEN POTTERY EQUIPMENT, INC.
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Zen
Pottery Equipment, Inc., a Colorado corporation, will be held at the offices of
Zen Pottery, 1185 Avenue of the Americas, 20th Floor, New York, New York 10036,
on Tuesday, March 29, 2005, at 9:30 a.m., local time. Management of Zen Pottery
may conduct and participate in the meeting by telephone conference call.
This Information Statement is being mailed on or about March 10, 2005 to
all shareholders of record as of the close of business on March 7, 2005, and
relates to the special meeting of shareholders to be held on March 29, 2005. The
purpose of the meeting is to consider and take action on the proposals
summarized below:
1. To change our corporate name to Xethanol Corporation from Zen
Pottery Equipment, Inc.;
2. To reincorporate Zen Pottery in Delaware through a merger of Zen
Pottery with and into a newly-formed Delaware subsidiary, to be known as
"Xethanol Corporation," which will result in:
o a change of domicile of Zen Pottery to the state of Delaware from
the state of Colorado , which means that the surviving corporation
will be governed by the laws of the state of Delaware;
o the change of our corporate name to Xethanol Corporation from Zen
Pottery Equipment, Inc.;
o your right to receive one share of common stock of Xethanol for each
share of common stock of Zen Pottery owned by you as of the
effective date of the reincorporation;
o the persons serving presently as executive officers and directors of
Zen Pottery to serve in their same respective positions in Xethanol
after the reincorporation;
o Xethanol's Certificate of Incorporation becoming the certificate of
incorporation of the surviving corporation;
o Xethanol's By-laws becoming the by-laws of the surviving
corporation.
3. To ratify the adoption by Zen Pottery of the Xethanol Corporation
2005 Incentive Compensation Plan;
4. To ratify the appointment of Imowitz Koenig & Co., LLP as the new
certifying public accountants of Zen Pottery for the fiscal year ending December
31, 2005; and
5. To conduct such other business as properly comes before the
meeting.
The close of business on March 7, 2005 has been fixed as the record date
for determining shareholders entitled to notice of and to vote at the special
meeting and any adjournments. The accompanying Information Statement is first
being sent to shareholders on or about March 10, 2005.
Our board of directors has adopted resolutions authorizing the taking of
each of the actions described above and recommended that the shareholders adopt
resolutions approving these actions.
As of the close of business on the record date, we had 13,406,241 shares
of common stock outstanding. The common stock is our only class of securities
entitled to vote. Each outstanding share of common stock is entitled to one vote
per share. The affirmative consent of the holders of a majority of our
outstanding common stock is required to approve each of the actions described
above. The holders of approximately 55% of our outstanding common stock have
agreed to vote in favor of the actions described above. THEREFORE, WE ARE NOT
ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
YOU HAVE THE RIGHT TO EXERCISE DISSENTERS' RIGHTS UNDER ARTICLE 113 OF THE
COLORADO BUSINESS CORPORATION ACT, AND OBTAIN THE "FAIR VALUE" OF YOUR SHARES OF
ZEN POTTERY COMMON STOCK, PROVIDED THAT YOU COMPLY WITH THE CONDITIONS
ESTABLISHED UNDER APPLICABLE COLORADO LAW. FOR A DISCUSSION REGARDING YOUR
DISSENTERS' RIGHTS, SEE THE SECTION ENTITLED "REINCORPORATION IN DELAWARE;
RIGHTS OF DISSENTING SHAREHOLDERS" IN THE ACCOMPANYING INFORMATION STATEMENT AND
EXHIBIT 4 THERETO, WHICH SETS FORTH THOSE STATUTES.
The expenses of mailing this Information Statement will be borne by Zen
Pottery, including expenses in connection with the preparation and mailing of
this Information Statement and all documents that now accompany or may in the
future supplement it. It is contemplated that brokerage houses, custodians,
nominees and fiduciaries will be requested to forward this Information Statement
to the beneficial owners of our common stock held of record by these persons and
that we will reimburse them for their reasonable expenses incurred in this
process.
For a period of at least ten days prior to the meeting, a complete list of
shareholders entitled to vote at the meeting will be open to examination by any
shareholder during ordinary business hours at the principal executive offices of
Zen Pottery, 1185 Avenue of the Americas, 20th Floor, New York, New York 10036.
The description of the proposals set forth above is intended only as a
summary. Information concerning the matters to be acted upon at the meeting is
contained in the accompanying Information Statement, which we urge you to read
carefully.
2
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the number of shares
of common stock of Zen Pottery beneficially owned on March 7, 2005 by:
o each person who is known by Zen Pottery to beneficially own 5% or
more of the common stock of Zen Pottery;
o each of the directors and executive officers of Zen Pottery; and
o all of Zen Pottery's directors and executive officers, as a group.
Except as otherwise set forth below, the address of each of the persons
listed below is Zen Pottery Equipment, Inc., c/o Xethanol Corporation, 1185
Avenue of the Americas, 20th Floor, New York, New York 10036.
NAME AND ADDRESS OF NUMBER OF SHARES PERCENTAGE OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED (1) BENEFICIALLY OWNED (2)
- --------------------------------------------- ---------------------- ----------------------
Christopher d'Arnaud-Taylor 1,082,600(3) 8.1%
Franz A. Skyranz 86,515 *
Zen Zachariah Pool III 866,667(4) 6.5%
Walter C. Nathan 383,333(5) 2.9%
Mark Austin 17,656(6) *
William Frost 449,710(7) 3.3%
Jeffrey S. Langberg 1,162,595(8) 8.7%
Robert J. Lehman 882,810(9) 6.6%
Lucas Energy Total Return Master Fund, Ltd. 1,070,000(10) 7.5%
Jed Schutz 766,406(11) 5.6%
W. Scott Smith 972,414(12) 7.3%
Existing and proposed directors and executive 4,049,076(13) 29.4%
officers as a group (7 persons)
- ------------------------
* Less than 1% of outstanding shares.
(1) Unless otherwise indicated, includes shares owned by a spouse, minor
children and relatives sharing the same home, as well as entities owned or
controlled by the named person. Also includes shares if the named person
has the right to acquire those shares within 60 days after March 7, 2005
by the exercise of any warrant, stock option or other right. Unless
otherwise noted, shares are owned of record and beneficially by the named
person.
3
(2) Based upon 13,406,241 shares of common stock outstanding on March 7, 2005.
(3) Includes 757,450 shares of common stock held by Mr. d'Arnaud-Taylor's
spouse and 318,088 shares of common stock held by London Manhattan
Securities Inc., an entity controlled by Mr. d'Arnaud-Taylor.
(4) 500,000 of such shares are subject to purchase pursuant to an option
agreement.
(5) 200,000 of such shares are subject to purchase pursuant to an option
agreement.
(6) Represents shares of common stock issuable upon the exercise of a
currently exercisable warrant.
(7) Held by F4 Group, LP, an entity controlled by Mr. Frost. Includes 361,429
shares of common stock issuable upon the exercise of currently exercisable
warrants.
(8) Includes 58,983 shares of common stock held by Mr. Langberg's spouse and
1,103,512 shares of common stock held by Bresner Partners Ltd., an entity
controlled by Mr. Langberg.
(9) Includes 441,405 shares of common stock held by Mr. Lehman's spouse. Mr.
Lehman's address is 1578 Conestoga Trail NE, Swisher, Iowa 52338.
(10) Includes 950,000 shares of common stock issuable upon the conversion of
currently convertible notes. The address of Lucas Energy Total Return
Master Fund, Ltd. is c/o Lucas Capital Management, LLC, 328 Newman Springs
Road, Red Bank, New Jersey 07701.
(11) Includes 141,249 shares of common stock issuable upon the exercise of a
currently exercisable warrant and 141,249 shares of currently outstanding
common stock each held by the Ethel E. Schutz Irrevocable Trust, of which
Mr. Schutz is the trustee. Also includes 132,427 shares of common stock
issuable upon the exercise of currently exercisable warrants held by Mr.
Schutz. Mr. Schutz's address is 18 On the Bluff, Sag Harbor, New York
11963.
(12) Includes 52,968 shares of common stock held by Jasmine Consulting, Inc.,
an entity controlled by Mr. Smith. Mr. Smith's address is 3141 Jasmine
Drive, Delray Beach, Florida 33483.
(13) Includes 379,085 shares of common stock issuable upon the exercise of
currently exercisable warrants.
4
CHANGE IN CONTROL
As previously disclosed in our Current Report on Form 8-K, which was filed
with the U.S. Securities and Exchange Commission on February 3, 2005, we
completed a so-called "reverse merger" transaction on February 2, 2005, in which
we caused Zen Acquisition Corp., a Delaware corporation and newly-created,
wholly-owned subsidiary of our company, to be merged with and into Xethanol
Corporation, a Delaware corporation now known as Xethanol BioEnergy, Inc., with
Xethanol surviving as our wholly-owned subsidiary, and Xethanol's former
security holders acquiring a majority of the outstanding shares of our common
stock. Xethanol is a leader in the emerging waste-to-ethanol industry. The
reverse merger was consummated under Delaware law and pursuant to an Agreement
of Merger and Plan of Reorganization, dated February 2, 2005. Concurrently with
the closing of the reverse merger, we completed the initial closing of a private
offering of our shares of common stock to new investors. We received gross
proceeds of $3,000,028 at the initial closing of the private offering, and, on
February 15, 2005, we received additional gross proceeds of $867,847.25 in the
final closing of the private offering.
Under the merger agreement, at closing, we issued 9,706,781 shares of our
common stock to the former security holders of Xethanol, representing 72.4% of
our outstanding common stock following the merger, in exchange for 100% of the
outstanding capital stock of Xethanol, subject to appraisal rights of former
Xethanol stockholders. In addition, at the closing of the merger, outstanding
warrants to purchase an aggregate of 1,465,068 shares of common stock in
Xethanol were automatically converted into warrants to purchase 1,293,376 shares
of our common stock. Neither Xethanol nor us had any stock options outstanding
as of the closing of the merger.
In connection with the merger, we completed a private offering of shares
of our common stock to new investors at a price of $3.25 per share, resulting in
total gross proceeds to us of $3,867,875.25. After the closing of the merger and
private offering, we had outstanding 13,406,241 shares of common stock and
warrants to purchase 1,293,376 shares of common stock. As of the closing of the
merger and the private offering, we had no stock options outstanding.
Under the merger agreement, at the closing of the merger, the membership
of the board of directors of Zen Pottery was increased from three to four
directors, and Christopher d'Arnaud-Taylor and Franz A. Skryanz were appointed
to serve until the next annual meeting of stockholders in the vacancies created
by the increase. Upon compliance with Section 14(f) of the Securities Exchange
Act of 1934 and Rule 14f-1 under that act, under the merger agreement, the
number of members comprising the board of directors will be increased to five
members, and Mark Austin, William Frost and Jeffrey S. Langberg will be
appointed to serve as directors of Zen Pottery until the next annual meeting of
stockholders. In connection with the appointment of these three directors, Zen
Zachariah Pool III and Walter C. Nathan, the sole remaining members of the board
of directors of Zen Pottery prior to the merger, will resign as directors of Zen
Pottery.
For a more complete summary of the reverse merger and concurrent private
offering transactions, stockholders should refer to the Current Report on Form
8-K filed by Zen Pottery on February 3, 2005.
5
PROPOSAL #1
CHANGE OF THE COMPANY'S NAME
BACKGROUND AND PURPOSE
On February 2, 2005, our board of directors approved a change of our
corporate name to "Xethanol Corporation" The reason for the name change is to
allow us to maintain the Xethanol Corporation name through which old Xethanol
conducted its business before the completion of the reverse merger transaction
on February 2, 2005. The name change will be effected by virtue of the
reincorporation of our company in the state of Delaware, as described below.
PROPOSAL #2
REINCORPORATION IN DELAWARE
SUMMARY
Transaction: Reincorporation in Delaware.
Purpose: To provide greater flexibility and simplicity in
corporate transactions and reduce taxes and other costs
of doing business. For more information, see "Background
and Purpose of Reincorporation; Principal Reasons for
Reincorporation in Delaware."
The purpose of this Information Statement is to inform
holders of our common stock of this corporate action.
Record Date: March 7, 2005
Method: Merger with and into our newly-formed, wholly-owned
subsidiary, Xethanol Corporation. For more information,
see "Background and Purpose of Reincorporation;
Principal Features of the Reincorporation."
Exchange Ratios: One share of Xethanol common stock will be issued for
each share of our common stock held as of the effective
date of the reincorporation. For more information, see
"Background and Purpose of Reincorporation; Principal
Features of the Reincorporation."
Effective Date: The later of 20 days after the mailing of this
Information Statement, and March 29, 2005, the date
scheduled for the special meeting of shareholders.
Right to Dissent: Any shareholder is entitled to be paid the fair value of
his, her or its shares if the shareholder timely
dissents to the reincorporation or any of the actions
resulting from or in connection with the
reincorporation. For more information, see "Rights of
Dissenting Shareholders."
6
QUESTIONS AND ANSWERS
This Information Statement is first being sent to shareholders on or about
March 10, 2005. The following questions and answers are intended to respond to
frequently asked questions concerning our reincorporation in Delaware. These
questions do not, and are not intended to, address all the questions that may be
important to you. You should carefully read the entire Information Statement, as
well as its exhibits.
Q: Why are we reincorporating in Delaware and changing our name?
A: We believe that the reincorporation in Delaware will give us more
flexibility and simplicity in various corporate transactions. Delaware has
adopted a General Corporation Law that includes by statute many concepts
created by judicial rulings in other jurisdictions. Therefore, we believe
that Delaware provides a recognized body of corporate law that is
consistently interpreted by Delaware courts, thus facilitating corporate
governance by our officers and directors. As part of the reincorporation,
Zen Pottery's name will be changed to that of its subsidiary, Xethanol
Corporation. By changing our name, we will maintain the Xethanol name
through which our operating subsidiary, Xethanol BioEnergy, Inc. has
conducted its business since it was acquired by Zen Pottery in the reverse
merger transaction that was completed on February 2, 2005.
Q: Why are we not soliciting proxies to approve the reincorporation?
A: The board of directors has already approved the reincorporation in
Delaware, and the holders of approximately 55% of our outstanding shares
of common stock have agreed to vote in favor of the reincorporation at the
special meeting, which is a sufficient percentage for passage without the
need for soliciting proxies.
Q: What are the principal features of the reincorporation?
A: The reincorporation will be accomplished by merging with and into our
newly-formed, wholly-owned subsidiary, Xethanol Corporation One new share
of Xethanol common stock will be issued for each outstanding share of our
common stock held by our shareholders on the effective date for the
reincorporation. Our shares will no longer be eligible be quoted on the
OTC Bulletin Board. Shares of Xethanol will be eligible to be quoted in
their place beginning on or about the effective date of the
reincorporation under a new CUSIP number and trading symbol that have not
yet been assigned.
Q: What are the differences between Delaware and Colorado law?
A: There are some differences between the laws of the state of Colorado and
state of Delaware that impact your rights as a shareholder. For
information regarding the differences between the corporate laws of the
state of Delaware and the state of Colorado, please see "Background and
Purpose; Differences Between the Corporate Laws and Charter Documents
Governing Zen Pottery and Xethanol."
Q: How will the reincorporation affect my ownership?
A: Your ownership interest will not be affected by the reincorporation.
Q: How will the reincorporation affect our officers, directors and employees?
7
A: Our officers, directors and employees will become the officers, directors
and employees of Xethanol after the effective date of the reincorporation.
Q: How will the reincorporation affect our business?
A: Xethanol will continue our business at the same location and with the same
assets through Zen Pottery's other wholly-owned subsidiary, Xethanol
BioEnergy, Inc. Zen Pottery will cease its corporate existence in the
state of Colorado on the effective date of the reincorporation.
Q: What do I do with my stock certificates?
A: Delivery of your certificates issued prior to the effective date of the
reincorporation will constitute "good delivery" of shares in transactions
subsequent to reincorporation. Certificates representing shares of
Xethanol will be issued with respect to transfers occurring after the
reincorporation. New certificates will also be issued upon the request of
any shareholder, subject to normal requirements as to proper endorsement,
signature guarantee, if required, and payment of applicable taxes.
IT WILL NOT BE NECESSARY FOR OUR SHAREHOLDERS TO EXCHANGE THEIR EXISTING
STOCK CERTIFICATES FOR CERTIFICATES OF XETHANOL. OUTSTANDING STOCK
CERTIFICATES OF ZEN POTTERY SHOULD NOT BE DESTROYED OR SENT TO US.
Q: What if I have lost my certificate?
A: If you have lost your certificate, you can contact our transfer agent to
have a new certificate issued. You may be required to post a bond or other
security to reimburse us for any damages or costs if the certificate is
later delivered for sale of transfer. Our transfer agent may be reached
at:
Corporate Stock Transfer
3200 Cherry Creek South Drive, Suite 430
Denver, Colorado 80209
Telephone: (303) 282-4800
Attention: Ms. Carylyn Bell
Q: Can I require Zen Pottery to purchase my stock?
A: Yes. Under Colorado law you are entitled to appraisal and purchase of your
stock as a result of the reincorporation.
Q: Who will pay the costs of reincorporation?
A: We will pay all of the costs of reincorporation in Delaware, including
distributing this Information Statement. We may also pay brokerage firms
and other custodians for their reasonable expenses for forwarding
information materials to the beneficial owners of our common stock. We do
not anticipate contracting for other services in connection with the
reincorporation.
Q: Will I have to pay taxes on the new certificates?
A: We believe that the reincorporation is not a taxable event and that you
will be entitled to the same tax basis in the shares of Xethanol that you
had in our common stock. Everyone's tax situation is different and you
should consult with your personal tax advisor regarding the tax effect of
the reincorporation.
8
BACKGROUND AND PURPOSE
The following discussion summarizes the important aspects of our
reincorporation in Delaware. This summary does not include all of the provisions
of the Agreement and Plan of Merger between Zen Pottery and Xethanol, the form
of which is attached as Exhibit 1, the Certificate of Incorporation of Xethanol,
the form of which is attached as Exhibit 2, or the By-laws of Xethanol, the form
of which is attached as Exhibit 3. Copies of the Amended and Restated Articles
of Incorporation and the By-laws of Zen Pottery are available for inspection at
our principal office and we will send copies to shareholders upon request.
Principal Reasons for Reincorporation in Delaware
We believe that the reincorporation in Delaware will provide a greater
measure of flexibility and simplicity in corporate transactions and reduce taxes
and other costs of doing business. We also believe Delaware provides a
recognized body of corporate law that will facilitate corporate governance by
our officers and directors. Delaware is a favorable legal and regulatory
environment in which to operate and where a substantial number of Fortune 500
companies and New York and American Stock Exchange listed firms are incorporated
today. For many years, Delaware has followed a policy of encouraging
incorporation in that state and, in furtherance of that policy, has adopted
comprehensive, modern and flexible corporate laws that are periodically updated
and revised to meet changing business needs. As a result, many major
corporations have initially chosen Delaware for their domicile or have
subsequently reincorporated in Delaware in a manner similar to that which we
proposed. Because of Delaware's longstanding policy of encouraging incorporation
in that state, and consequently its preeminence as the state of incorporation
for many major corporations, the Delaware courts have developed a considerable
expertise in dealing with corporate issues and a substantial body of case law
has developed construing Delaware law and establishing public policies with
respect to Delaware corporations. It is anticipated that Delaware corporate law
will continue to be interpreted and explained in a number of significant court
decisions that may provide greater predictability with respect to our corporate
legal affairs. Certain aspects of Delaware corporate law have, however, been
criticized on the ground that they do not afford minority shareholders the same
substantive rights and protection as are available in a number of other states.
For a discussion of some differences in shareholders' rights and the powers of
management under Delaware law and Colorado law see "Differences Between the
Corporate Laws and Charter Documents Governing Zen Pottery and Xethanol."
Principal Features of the Reincorporation
The reincorporation in Delaware will be effected by our merger with and
into Xethanol Corporation, a newly-formed, wholly-owned subsidiary of Zen
Pottery incorporated in Delaware for this purpose. Xethanol Corporation, which
will be the surviving entity, has not engaged in any activities except in
connection with the reincorporation. The mailing address of its principal
executive offices and its telephone number are the same as those of Zen Pottery.
As part of its approval and recommendation of the reincorporation, the board of
directors of Zen Pottery has approved, and recommended to our shareholders, an
Agreement and Plan of Merger pursuant to which Zen Pottery will be merged with
and into Xethanol. The full texts of the Agreement and Plan of Merger, and the
Certificate of Incorporation and By-laws of Xethanol, the successor Delaware
company under which Zen Pottery's business will be conducted after the
reincorporation, are attached as Exhibits 1, 2 and 3, respectively. The
discussion contained in this Information Statement is qualified in its entirety
by reference to such Exhibits.
Upon the receipt by Zen Pottery of any required third party consents to
the reincorporation, and upon the filing of appropriate certificates of merger
with the Secretaries of State of the states of Colorado and Delaware, Zen
Pottery will be merged with and into Xethanol pursuant to the Agreement and Plan
of Merger, resulting in a change in Zen Pottery's state of incorporation from
Colorado to Delaware, and a change in our company's corporate name from Zen
Pottery Equipment, Inc. to Xethanol Corporation. We will then be subject to the
Delaware General Corporation Law and the Certificate of Incorporation and
By-laws of Xethanol, which will replace Zen Pottery's current Amended and
Restated Articles of Incorporation and By-laws. These changes may alter the
rights of shareholders of Zen Pottery Equipment. See "Differences Between the
Corporate Laws and Charter Documents Governing Zen Pottery and Xethanol." The
text of the Certificate of Incorporation and By-laws of Xethanol are attached
hereto as Exhibits 2 and 3, respectively. The effectiveness of the
reincorporation and the merger is conditioned upon the filing by both Zen
Pottery and Xethanol of a Certificate of Merger with the state of Colorado and
the state of Delaware. The reincorporation will become effective upon the later
to occur of 20 days after the date of the mailing of this Information Statement,
and March 29, 2005, the date scheduled for the special meeting of shareholders.
As a result of the reincorporation, Zen Pottery will cease its corporate
existence in the state of Colorado.
Upon completion of the reincorporation, each of our shareholders will be
entitled to receive one share of Xethanol common stock for each share of Zen
Pottery common stock that he, she or it owns on the effective date of the
reincorporation. Each share of Xethanol common stock owned by us will be
9
canceled and resume the status of authorized and unissued Xethanol common stock.
In addition, outstanding stock options and warrants to purchase shares of common
stock will be converted automatically into stock options and warrants to
purchase the same number of shares of common stock of Xethanol. Each employee
stock plan and any other employee benefit plan to which Zen Pottery is a party
will be assumed by Xethanol and, to the extent any such plan provides for the
issuance or purchase of Zen Pottery's common stock, it will be deemed to provide
for the issuance or purchase of shares of common stock of Xethanol.
IT WILL NOT BE NECESSARY FOR STOCKHOLDERS OF ZEN POTTERY TO EXCHANGE THEIR
EXISTING STOCK CERTIFICATES FOR CERTIFICATES OF XETHANOL; OUTSTANDING STOCK
CERTIFICATES OF ZEN POTTERY SHOULD NOT BE DESTROYED OR SENT TO ZEN POTTERY
EQUIPMENT. The common stock of Xethanol will continue to be quoted through the
OTC Bulletin Board, which will consider the existing stock certificates as
constituting "good delivery" in transactions subsequent to the reincorporation.
The Certificate of Incorporation and By-laws of Xethanol are different
from our Amended and Restated Articles of Incorporation and By-laws. Your rights
as shareholders may be affected by the reincorporation by, among other things,
the differences between the laws of the state of Colorado, which govern Zen
Pottery and the laws of the state of Delaware, which govern Xethanol. See the
information under "Differences between the Corporate Laws and Charter Documents
Governing Zen Pottery and Xethanol" for a summary of the differences between the
corporate laws of the state of Colorado and the state of Delaware.
The reincorporation will not result in any changes in our business,
management, assets, liabilities or net worth. Xethanol is currently our
wholly-owned subsidiary and, upon completion of the reincorporation, will
succeed by operation of law to all of our business, assets and liabilities. The
board of directors and officers of Xethanol will consist of the same persons who
are our directors and officers prior to the reincorporation. Our daily business
operations will continue at our principal executive offices at 1185 Avenue of
the Americas, 20th Floor, New York, New York 10036.
Change in Capitalization
Our authorized capital on the date of this Information Statement consisted
of 51,000,000 shares of capital stock, divided into 50,000,000 shares of common
stock, par value $.001 per share, and 1,000,000 shares of preferred stock, par
value $.01 per share. On the date of this Information Statement, there were
10
13,406,241 shares of our common stock and no shares of our preferred stock
issued and outstanding. The authorized capital of Xethanol consists of
51,000,000 shares of capital stock, divided into 50,000,000 shares of common
stock, par value $.001 per share, and 1,000,000 shares of preferred stock, par
value $.01 per share, with the right conferred upon the board of directors to
set the dividend, voting, conversion, liquidation and other rights, as well as
the qualifications, limitations and restrictions, with respect to such preferred
stock as the board of directors may determine from time to time. As a result of
the reincorporation and exchange of the common stock, Xethanol will have
outstanding 13,406,241 shares of common stock and no shares of preferred stock
outstanding. Accordingly, the board of directors of Xethanol will have available
35,300,383 shares of common stock and 10,000,000 shares of preferred stock which
are authorized but unissued and unreserved. The reincorporation will not affect
our total shareholders' equity or total capitalization.
The additional shares of common stock authorized under Xethanol's
Certificate of Incorporation would be identical to the shares of common stock
now authorized. Holders of common stock do not have preemptive rights under
Xethanol's Certificate of Incorporation to subscribe for additional securities
which may be issued by Xethanol. The issuance of additional shares of common
stock may, among other things, have a dilutive effect on the earnings per share
and on the equity and voting power of existing holders of common stock and may
adversely affect the market price of the common stock.
The board of directors of Xethanol has not adopted any designations,
rights or preferences for the preferred stock. The board of directors of
Xethanol may authorize, without further stockholder approval, the issuance of
such shares of preferred stock to such persons, for such consideration, and upon
such terms as the board of directors determines. This issuance could result in a
significant dilution of the voting rights and the stockholders' equity of then
existing stockholders.
There are no present plans, understandings or agreements, and we are not
engaged in any negotiations, that will involve the issuance of preferred stock.
However, the board of directors believes it prudent to have shares of preferred
stock available for such corporate purposes as the board of directors may from
time to time deem necessary and advisable including for acquisitions and the
raising of additional capital, for which there are no present agreements or
understandings.
Issuance of additional authorized common stock or preferred stock may have
the effect of:
o deterring or thwarting persons seeking to take control of Xethanol
through a tender offer, proxy fight or otherwise;
o inhibiting the removal of incumbent management; or
o impeding a corporate transaction such as a merger. For example, the
issuance of common stock or preferred stock could be used to deter
or prevent such a change of control through dilution of stock
ownership of persons seeking to take control or by rendering a
transaction proposed by such persons more costly.
Change in By-laws
Upon the completion of the reincorporation, the By-laws of Xethanol will
become the by-laws of the surviving corporation. While the By-laws of Xethanol
are similar to the By-laws of Zen Pottery Equipment, there are differences which
may affect your rights as a shareholder.
11
Differences Between the Corporate Laws and Charter Documents Governing Zen
Pottery and Xethanol
Zen Pottery is incorporated under the laws of the state of Colorado and
Xethanol is incorporated under the laws of the state of Delaware. On the
effective date of the reincorporation, the shareholders of Zen Pottery, whose
rights currently are governed by Colorado law and Zen Pottery's Amended and
Restated Articles of Incorporation and By-laws, which were created pursuant to
Colorado law, will become stockholders of Xethanol, a Delaware company, and
their rights as stockholders will then be governed by Delaware law and
Xethanol's Certificate of Incorporation and By-laws, which were created under
Delaware law.
The corporation laws of Colorado and Delaware differ in some respects.
Although all the differences are not described in this Information Statement,
the most significant differences, in the judgment of the management of Zen
Pottery, are summarized below. Shareholders should refer to the Delaware General
Corporation Law and the Colorado Business Corporation Act to understand how
these laws apply to Xethanol and Zen Pottery, respectively.
Removal of Directors. Directors may generally be removed with or without
cause under the laws of both Colorado and Delaware, with the approval of a
majority of the outstanding shares entitled to vote in an election of directors.
However, no director may be removed if the number of votes cast against such
removal would be sufficient to elect the director.
Colorado
A director of a corporation that does not have a staggered board of directors or
cumulative voting may be removed with or without cause with the approval of a
majority of the outstanding shares entitled to vote at an election of directors.
In the case of a Colorado corporation having cumulative voting, if less than the
entire board is to be removed, a director may not be removed without cause if
the number of shares voted against such removal would be sufficient to elect the
director under cumulative voting. The Amended and Restated Articles of
Incorporation of Zen Pottery do not provide for a classified board of directors
or for cumulative voting.
Delaware
A director of a corporation that does not have a classified board of directors
or cumulative voting may be removed with or without cause with the approval of a
majority of the outstanding shares entitled to vote at an election of directors.
In the case of a Delaware corporation having cumulative voting, if less than the
entire board is to be removed, a director may not be removed without cause if
the number of shares voted against such removal would be sufficient to elect the
director under cumulative voting. A director of a corporation with a classified
board of directors may be removed only for cause, unless the certificate of
incorporation otherwise provides. The Certificate of Incorporation of Xethanol
does not provide for a classified board of directors or for cumulative voting.
Classified Board of Directors. A classified or staggered (the term used in
the Colorado Business Corporation Act) board is one on which a certain number,
but not all, of the directors are elected on a rotating basis each year. This
method of electing directors makes changes in the composition of the board of
directors more difficult, and thus a potential change in control of a
corporation a lengthier and more difficult process. Neither Zen Pottery nor
Xethanol has a classified or staggered board.
12
Colorado
Zen Pottery's Amended and Restated Articles of Incorporation and By-laws do not
provide for a staggered board. Colorado law permits, but does not require, a
staggered board of directors, pursuant to which the directors can be divided
into as many as three classes with staggered terms of office, with only one
class of directors standing for election year.
Delaware
Delaware law permits, but does not require, a classified board of directors,
pursuant to which the directors can be divided into as many as three classes
with staggered terms of office, with only one class of directors standing for
election each year. Xethanol's Certificate of Incorporation and By-laws do not
provide for a classified board, and Xethanol presently does not intend to
propose establishment of a classified board.
Indemnification and Limitation of Liability of Directors, Officers and
Other Agents. Delaware and Colorado have similar laws respecting indemnification
by a corporation of its officers, directors, employees and other agents. The
laws of both states also permit, with limited exceptions, a corporation to adopt
provisions in its articles or certificate of incorporation, as the case may be,
eliminating the liability of a director to the corporation or its shareholders
for monetary damages for breach of the director's fiduciary duty in certain
cases. There are nonetheless some differences between the laws of the two states
respecting indemnification and limitation of liability of directors, officers
and other agents.
Colorado
The Amended and Restated Articles of Incorporation of Zen Pottery eliminate the
liability of directors to the corporation to the fullest extent permissible
under Colorado law. Colorado law does not permit the elimination of monetary
liability where such liability is based on: (a) intentional misconduct or
knowing and culpable violations of law; (b) acts or omissions that a director
believes to be contrary to the best interests of the corporation or its
shareholders, or that involve the absence of good faith on the part of the
director; (c) receipt of an improper personal benefit; (d) acts or omissions
that show reckless disregard for the director's duty to the corporation or its
shareholders, where the director in the ordinary course of performing a
director's duties should be aware of a risk of serious injury to the corporation
or its shareholders; (e) acts or omissions that constitute an unexcused pattern
of inattention that amounts to an abdication of the director's duty to the
corporation and its shareholders; (f) interested transactions between the
corporation and a director in which a director has a material financial
interest; and (g) liability for improper distributions, loans or guarantees.
Colorado law generally permits indemnification of director liability, including
expenses actually and reasonably incurred in the defense or settlement of a
derivative or third-party action, provided there is a determination by a
majority vote of a disinterested quorum of the directors, by independent legal
counsel or by a quorum of the shareholders that the person seeking
indemnification acted in good faith and in the case of conduct in an official
capacity, in a manner he or she reasonably believed was in the best interests of
the corporation or a benefit plan (if acting in a capacity with respect to such
a plan). In other cases, the director is entitled to indemnification if his or
her conduct was at least not opposed to the corporation's best interests. In a
criminal proceeding, the director is entitled to indemnification if he or she
had no reasonable cause to believe the conduct was unlawful.
13
Without court approval, however, no indemnification is available in any action
by or on behalf of the corporation (i.e., a derivative action) in which such
person is adjudged liable to the corporation or in any other basis that he or
she received an improper personal benefit. Colorado law requires indemnification
of director expenses when the individual being indemnified has successfully
defended any action, claim, issue, or matter therein, on the merits or
otherwise.
A director may also apply for and obtain indemnification as ordered by a court
under circumstances where the court deems the director is entitled to mandatory
indemnification under Colorado law or when, under all the facts and
circumstances, it deems it fair and reasonable to award indemnification even
though the director has not strictly met the statutory standards. An officer is
also entitled to apply for and receive court awarded indemnification to the same
extent as a director.
A corporation cannot indemnify its directors by any means (other than under a
third party insurance contract) if to do so would be inconsistent with the
limitations on indemnification set forth in the Colorado Business Corporation
Act.
A Colorado corporation may indemnify officers, employees, fiduciaries and agents
to the same extent as directors, and may indemnify those persons to a greater
extent than is available to directors if to do so does not violate public policy
and is provided for in a bylaw, a general or specific action of the board of
directors or shareholders or in a contract.
Delaware
The Certificate of Incorporation of Xethanol also eliminates the liability of
directors to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director to the fullest extent permissible under Delaware
law, as such law exists currently or as it may be amended in the future. Under
Delaware law, such provision may not eliminate or limit director monetary
liability for: (a) breaches of the director's duty of loyalty to the corporation
or its stockholders; (b) acts or omissions not in good faith or involving
intentional misconduct or knowing violations of law; (c) the payment of unlawful
dividends or unlawful stock repurchases or redemptions; or (d) transactions in
which the director received an improper personal benefit. Such limitation of
liability provisions also may not limit a director's liability for violation of
or otherwise relieve its directors from the necessity of complying with federal
or state securities laws, or affect the availability of non-monetary remedies
such as injunctive relief or rescission.
Delaware law generally permits indemnification of expenses, including attorney's
fees, actually and or reasonably incurred in the defense or settlement of a
third-party action, provided there is a determination by a derivative or
majority vote of a disinterested quorum of the directors, by independent legal
counsel or by a majority vote of a majority vote of a quorum of the stockholders
that the person seeking indemnification acted in good faith and in a manner
reasonably believed to be in, or not opposed to, the best interests of the
corporation. Without court approval, however, no indemnification may be made in
respect of any derivative action in which such person is adjudged liable for
negligence or misconduct in the performance of his or her duty to the
corporation. Delaware law requires indemnification of expenses when the
individual being indemnified has successfully defended any action, claim, issue,
or matter therein, on the merits or otherwise.
Delaware law also permits a Delaware corporation to provide indemnification in
excess of that provided by statute. In contrast to Colorado law, Delaware law
does not require authorizing provisions in the certificate of incorporation and
does not contain express prohibitions on indemnification in certain
circumstances. A court may impose limitations on indemnification, however, based
on principles of public policy.
Delaware law provides that the indemnification provided by statute shall not be
deemed exclusive of any other rights under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
14
Both Colorado and Delaware law require indemnification when a director or
officer has successfully defended an action on the merits, or otherwise.
Expenses incurred by an officer or director in defending an action may be
paid in advance under Colorado and Delaware law if the director or officer
undertakes to repay the advances if it is ultimately determined that he or she
is not entitled to indemnification. In addition, the laws of both states
authorize a corporation's purchase of indemnity insurance for the benefit of its
officers, directors, employees and agents whether or not the corporation would
have the power to indemnify against the liability covered by the policy.
Inspection of Shareholder List. Both Delaware and Colorado law allow any
shareholder to inspect the shareholder list for a purpose reasonably related to
such person's interests as a shareholder.
Consideration for Issuance of Shares.
Colorado
Shares may be issued for consideration consisting of tangible or intangible
property or benefit to the corporation, including cash, promissory notes,
services performed and other securities of the corporation. Shares may not be
issued for consideration consisting of a promissory note of the subscriber or an
affiliate of the subscriber unless the note is negotiable and is secured by
collateral, other than the shares, having a fair market value at least equal to
the principal amount of the note. The note must reflect a promise to pay
independent of the collateral and cannot be a "nonrecourse" note.
Shares with a par value may be issued for consideration less than such par
value.
Delaware
Shares may be issued for consideration consisting of tangible or intangible
property or benefit to the corporation, including cash, promissory notes,
services performed and other securities of the corporation.
In the absence of "actual fraud," in the transaction, the judgment of the board
as to the value of the consideration shall be conclusive.
No provisions restrict the ability of the board to authorize the issuance of
stock for a promissory note of any type, including an unsecured or nonrecourse
note or a note secured only by the shares. Shares with par value cannot be
issued for consideration with a value that is less than the par value. Shares
without par value can be issued for any consideration determined to be valid by
the board.
Dividends and Repurchases of Shares.
Colorado
Colorado law dispenses with the requirements for par value of shares as well as
statutory definitions of capital, surplus and the like. Colorado law permits a
corporation to declare and pay cash or in-kind property dividends or to
repurchase shares unless, after giving effect to the transaction: (a) the
corporation would not be able to pay its debts as they become due in the usual
course of business; or (b) the corporation's total assets would be less than the
sum of its total liabilities plus (unless the articles of incorporation permit
otherwise) the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are superior to those
receiving the distribution.
Delaware
The concepts of par value, capital and surplus are retained under Delaware law.
Delaware law permits a corporation to declare and pay dividends out of surplus
or, if there is no surplus, out of net profits for the fiscal year in which the
dividend is declared and/or for the preceding fiscal year as long as the amount
of capital of the corporation following the declaration and payment of the
dividend is not less than the aggregate amount of the capital represented by the
issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, Delaware law generally provides that a
corporation may redeem or repurchase its shares only if the capital of the
corporation is not impaired and such redemption or repurchase would not impair
the capital of the corporation.
15
To date, we have not paid any cash dividends. We currently intend to
retain our future earnings to support operations and to finance expansion and
therefore do not anticipate paying any cash dividends on our common stock in the
foreseeable future.
Shareholder Voting on Mergers and Certain Other Transactions. Both
Delaware and Colorado law generally require that a majority of the shareholders
of both acquiring and target corporations approve statutory mergers.
Colorado
Colorado law does not require a stockholder vote of the surviving corporation in
a merger (unless the corporation provides otherwise in its certificate of
incorporation) if (a) the merger agreement does not amend the existing
certificate of incorporation, (b) each share of the stock of the surviving
corporations outstanding immediately before the effective date of the merger is
an identical outstanding share after the merger, and (c) either no shares of
common stock of the surviving corporation and no shares, securities or
obligations convertible into such stock are to be issued or delivered under the
plan of merger, or the authorized, unissued shares or the treasury shares of
common stock of the surviving corporation to be issued or delivered under the
plan of merger plus those initially issuable upon conversion of any other
shares, securities or obligations to be issued or delivered under such plan do
not exceed 20% of the shares of common stock of such constituent corporation
outstanding immediately prior to the effective date of the merger.
Unless one of these exceptions are available, Colorado law requires that a
majority of the shareholders of both acquiring and target corporations approve
statutory mergers.
Delaware
Delaware law contains a similar exception to its voting requirements for
reorganizations where shareholders of the corporation itself, or both,
immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than 80% of the voting power
of the surviving or acquiring corporation or its parent entity.
Both Delaware law and Colorado law also require that a sale of all or
substantially all of the assets of a corporation otherwise than in the ordinary
course of business be approved by a majority of the outstanding voting shares of
the corporation transferring such assets.
16
Both Colorado and Delaware law generally do not require class voting,
except in certain transactions involving an amendment to the certificate of
incorporation that adversely affects a specific class of shares or where the
designation of the class of securities includes such a right.
Stockholder Approval of Certain Business Combinations under Delaware Law.
In recent years, a number of states have adopted special laws designed to make
certain kinds of "unfriendly" corporate takeovers, or other transactions
involving a corporation and one or more of its significant shareholders, more
difficult. Under Section 203, certain "business combinations" with "interested
stockholders" of Delaware corporations are subject to a three-year moratorium
unless specified conditions are met.
Section 203 prohibits a Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for three years following the date
that such person or entity becomes an interested stockholder. With limited
exceptions, an interested stockholder is a person or entity who or which owns,
individually or with or through certain other persons or entities, 15% or more
of the corporation's outstanding voting stock (including any rights to acquire
stock pursuant to an option, warrant, agreement, arrangement or understanding,
or upon the exercise of conversion or exchange rights, and stock with respect to
which the person has voting rights only), or is an affiliate or associate of the
corporation and was the owner, individually or with or through certain other
persons or entities, of 15% or more of such voting stock at any time within the
previous three years, or is an affiliate or associate of any of the foregoing.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers with or caused by the interested stockholder; sales
or other dispositions to the interested stockholder (except proportionately with
the corporation's other stockholders) of assets of the corporation of a direct
or indirect majority-owned subsidiary equal in aggregate market value of 10% or
more of the aggregate market value of either the corporation's consolidated
assets or all of its outstanding stock; the issuance or transfer by the
corporation or a direct or indirect majority-owned subsidiary of stock of the
corporation or such subsidiary to the interested stockholder (except for certain
transfers in a conversion or exchange or a pro rata distribution or certain
other transactions, none of which increase the interested stockholder's
proportionate ownership of any class or series of the corporation's or such
subsidiary's stock or of the corporation's voting stock); or receipt by the
interested stockholder (except proportionately as a stockholder), directly or
indirectly, of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation or a subsidiary. The three-year
moratorium imposed on business combinations by Section 203 does not apply if:
o prior to the date on which such stockholder becomes an interested
stockholder the board of directors approves either the business
combination or the transaction that resulted in the person or entity
becoming an interested stockholder;
o upon consummation of the transaction that made him or her an
interested stockholder, the interested stockholder owns at least 85%
of the corporation's voting stock outstanding at the time the
transaction commenced (excluding from the 85% calculation shares
owned by directors who are also officers of the target corporation
and shares held by employee stock plans that do not give employee
participants the right to decide confidentially whether to accept a
tender or exchange offer); or
o on or after the date such person or entity becomes an interested
stockholder, the board approves the business combination and it is
also approved at a stockholder meeting by 66-2/3% of the outstanding
voting stock not owned by the interested stockholder. Section 203
only applies to certain publicly held corporations that have a class
of voting stock that is listed on a national securities exchange,
quoted on an interdealer quotation system of a registered national
securities association, or held of record by more than 2,000
stockholders.
17
Although a Delaware corporation to which Section 203 applies may elect not
to be governed by Section 203, Xethanol does not intend to make that election.
Section 203 will encourage any potential acquirer to negotiate with the
board of directors. Section 203 also might have the effect of limiting the
ability of a potential acquirer to make a two-tiered bid for our company in
which all stockholders would not be treated equally. Shareholders should note,
however, that the application of Section 203 to us will confer upon the board of
directors the power to reject a proposed business combination in some
circumstances, even though a potential acquirer may be offering a substantial
premium for our shares over the then-current market price. Section 203 would
also discourage certain potential acquirers unwilling to comply with its
provisions.
Interested Director Transactions. Under both Delaware and Colorado law,
contracts or transactions in which one or more of a corporation's directors has
an interest are generally not void or voidable because of such interest provided
that certain conditions, such as obtaining the required approval and fulfilling
the requirements of good faith and full disclosure, are met. With certain
exceptions, the conditions are similar under Delaware and Colorado law. To
authorize or ratify the transaction, under Colorado law, (a) either the
shareholders or the disinterested members of the board of directors must approve
any such contract or transaction in good faith after full disclosure of the
material facts, or (b) the contract or transaction must have been fair as to the
corporation. The same requirements apply under Delaware law, except that the
fairness requirement is tested as of the time the transaction is authorized,
ratified or approved by the board, the shareholders or a committee of the board.
If board approval is sought, the contract or transaction must be approved by a
majority vote of the disinterested directors (though less than a majority of a
quorum), except that interested directors may be counted for purposes of
establishing a quorum.
Loans to Directors and Officers.
Colorado
The board of directors cannot make a loan to a director or officer (or any
entity in which such person has an interest), or guaranty any obligation of such
person or entity, until at least 10 days after notice has been given to the
shareholders who would be entitled to vote on the transaction if it were being
submitted for shareholder approval.
Delaware
The board of directors may make loans to, or guaranties for, directors and
officers on such terms as they deem appropriate whenever, in the board's
judgment, the loan can be expected to reasonably benefit the corporation.
Stockholder Derivative Suits. Under both Delaware and Colorado law, a
stockholder may bring a derivative action on behalf of the corporation only if
the stockholder was a stockholder of the corporation at the time of the
transaction in question or if his or her stock thereafter passed to him or her
by operation of law.
Colorado
Provides that the corporation or the defendant in a derivative suit may make a
motion to the court for an order requiring the plaintiff shareholder to furnish
a security bond.
Delaware
Delaware does not have a similar bonding requirement.
18
Appraisal/Dissenters' Rights. Under both Delaware and Colorado law, a
stockholder of a corporation participating in major corporate transactions may,
under varying circumstances, be entitled to appraisal/dissenters' rights
pursuant to which such stockholder may receive cash in the amount of the fair
market value of his or her shares in lieu of the consideration he or she would
otherwise receive in the transaction. Under both Delaware and Colorado law, fair
market value is determined exclusive of any element of value arising from the
accomplishment or expectation of the merger or consolidation.
Dissolution.
Colorado
If the board of directors initially approves the dissolution, it may be approved
by a simple majority of the outstanding shares of the corporation's stock
entitled to vote. In the event of such a board-initiated dissolution, Colorado
law allows a Colorado corporation to include in its certificate of incorporation
a supermajority (greater than a simple majority) voting requirement in
connection with dissolutions. Under Colorado law, shareholders may only initiate
dissolution by way of a judicial proceeding.
Delaware
Unless the board of directors approves the proposal to dissolve, the dissolution
must be approved by all the stockholders entitled to vote thereon. Only if the
board of directors initially approves the dissolution may it be approved by a
simple majority of the outstanding shares of the corporation's stock entitled to
vote. In the event of such a board initiated dissolution, Delaware law allows a
Delaware corporation to include in its certificate of incorporation a
supermajority (greater than a simple majority) voting requirement in connection
with dissolutions. Xethanol's certificate of incorporation contains no such
supermajority requirement, however, and a majority of the outstanding shares
entitled to vote, voting at a meeting at which a quorum is present, would be
sufficient to approve a dissolution of Xethanol that had previously been
approved by its board of directors.
FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION
Zen Pottery believes that, for federal income tax purposes, no gain or
loss will be recognized by Zen Pottery, Xethanol or the shareholders of Zen
Pottery who receive Xethanol common stock for their Zen Pottery common stock in
connection with the reincorporation. The adjusted tax basis of each whole share
of Xethanol common stock received by a shareholder of Zen Pottery as a result of
the reincorporation will be the same as the shareholder's aggregate adjusted tax
basis in the shares of Zen Pottery common stock converted into such shares of
Xethanol common stock. A shareholder who holds Zen Pottery common stock will
include in his holding period for the Xethanol common stock that he receives as
a result of the reincorporation his holding period for Zen Pottery common stock
converted into such Xethanol common stock.
Because of the complexity of the capital gains and loss provisions of the
Internal Revenue Code of 1986 and the uniqueness of each individual's capital
gain or loss situation, shareholders contemplating exercising statutory
dissenters' rights should consult their own tax advisor regarding the federal
income tax consequences of exercising such rights. State, local or foreign
income tax consequences to shareholders may vary from the federal income tax
consequences described above, and SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN
TAX ADVISOR AS TO THE CONSEQUENCES TO THEM OF THE REINCORPORATION UNDER ALL
APPLICABLE TAX LAWS.
19
RIGHTS OF DISSENTING SHAREHOLDERS
Article 113 of the Colorado Business Corporation Act grants certain rights
to obtain payment for their shares to dissenting shareholders of a Colorado
corporation (such as Zen Pottery Equipment) with respect to any plan of merger
and sales of all, or substantially all, of such corporation's assets. Strict
statutory procedures set forth in Section 7-113-202 of the Colorado Business
Corporation Act must be followed by dissenting shareholders and failure to do so
will result in forfeiture of their rights to payment, and cause such
shareholders to be bound by such actions. A shareholder may assert his rights to
payment with respect to all or a portion of the shares held by him.
FAILURE TO FILE THE REQUIRED DOCUMENTS AND TO SUBMIT SUCH SHARES WITHIN
THE SPECIFIED TIME PERIODS MAY AUTOMATICALLY CAUSE A TERMINATION OF DISSENTERS'
RIGHTS. ADDITIONALLY, A VOTE IN FAVOR OF THE PROPOSED SALE OR MERGER WILL
CONSTITUTE A WAIVER OF THE SHAREHOLDERS' RIGHTS UNDER THE ACT AS TO SUCH ACTION,
BUT A FAILURE TO VOTE AGAINST THE PROPOSED MERGER WILL NOT. A VOTE AGAINST THE
PROPOSED MERGER WILL NOT SATISFY THE REQUIREMENTS OF A WRITTEN OBJECTION AT OR
PRIOR TO THE MEETING AND A WRITTEN DEMAND AND DEPOSITING OF CERTIFICATES WITHIN
THE TIME SET FORTH IN THE NOTICE TO OBJECTING SHAREHOLDERS.
The following summary of the provisions of Article 113 is not intended to
be a complete statement of such provisions and is qualified in its entirety to
the full text of Article 113, a copy of which is attached to this Information
Statement as Exhibit 4, and incorporated herein by reference. Shareholders are
urged to consult legal counsel with respect to dissenters' rights.
Shareholders of a Colorado corporation have the right, in limited
circumstances, to dissent from certain corporate actions, including the
consummation of a plan of merger by a Colorado corporation which requires the
approval of such corporation's shareholders. Shareholders entitled to dissent
are also entitled to obtain a cash payment in the amount of the fair value of
their shares. The holders of our common stock have these rights with respect to
the merger.
A holder of our common stock who wishes to assert dissenters' rights under
Article 113 must (i) cause us to receive, before the vote is taken with respect
to the merger, written notice of the holder's intention to demand a cash payment
for the holder's shares of our common stock if the merger is effectuated; and
(ii) not vote the shares of our common stock in favor of the merger. A holder of
our common stock failing to satisfy these requirements will not be entitled to
dissenters' rights under Article 113.
If the merger is approved, we must give a written dissenters' notice to
all our shareholders who are entitled to demand a cash payment for their shares
under Article 113 (the "Dissenters' Notice") within ten days after shareholder
approval of the merger. The Dissenters' Notice must: (i) state that the merger
was authorized and state the effective date or the proposed effective date of
the merger; (ii) state an address at which it will receive cash payment demands
and the address of a place where certificates for certificated shares must be
deposited; (iii) supply a form for demanding a cash payment, which form shall
request a dissenter to state an address to which a cash payment is to be made;
(iv) set the date by which it must receive a cash payment demand and
certificates for uncertificated shares, which date may not be less than 30 days
after the date that the Dissenters' Notice is given; (v) state the requirement
regarding the dissent by record holders with respect to shares held by
beneficial owners, as permitted by Section 7-113-103(3) of the Business
Corporation Act; and (vi) be accompanied by a copy of Article 113.
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A shareholder who wishes to obtain a cash payment for his or her shares of
our common stock must demand a cash payment by submitting the form provided
pursuant to (iii) above, or by stating such demand in another writing, and
depositing the shareholder's certificate(s) for certificated shares. We may
restrict the transfer of any shares not represented by a certificate from the
date the demand for cash payment is received. The shareholder demanding a cash
payment in accordance with Section 7-113-204 shall retain all rights of a
shareholder, except the right to transfer shares, until the effective date of
the merger. A shareholder who does not provide demand for a cash payment by the
dates set forth in the Dissenter's Notice and in accordance with Section
7-113-204 will not be entitled to a cash payment for his or her shares of our
common stock as provided in the Business Corporation Act.
Pursuant to Sections 7-113-206 and 207 of the Business Corporation Act,
upon the effective date of the merger or upon receipt of a cash payment demand,
whichever is later, we must pay each dissenter who complied with Section
7-113-204 the amount of cash that we estimate to be the fair market value of the
shares, plus accrued interest. The cash payment must be accompanied by (i)
certain financial information regarding us; (ii) a statement of our estimate of
the fair value of the shares; (iii) an explanation of how the interest was
calculated; (iv) a statement of the dissenter's right to demand a cash payment
under Section 7-113-209; and (v) a copy of Section 7-113-206 of the Business
Corporation Act.
Section 7-113-208 of the Business Corporation Act permits us to require
each shareholder to certify in writing, or in the dissenter's cash payment
demand, whether or not the dissenter acquired beneficial ownership of his or her
shares of our common stock before the date of the first announcement to the news
media or to the shareholders, such date to be set forth in the dissenters'
notice. If any dissenter does not so certify in writing, we may offer to make a
cash payment if the dissenter agrees to accept such payment in full satisfaction
of the demand for a cash payment.
A dissenter may give written notice to us, within 30 days after we make or
offer a cash payment for the dissenter's shares of our common stock, of the
dissenter's estimate of the fair value of such shares and of the amount of
interest due and may demand cash payment of such estimate, or reject our offer
under Section 7-113-208 and demand a cash payment of the fair value of the
shares and interest due if: (i) the dissenter believes that the amount of cash
paid pursuant to Section 7-113-206 or offered pursuant to Section 7-113-208 is
less than the full value of his or her shares of our common stock or that the
interest due was incorrectly calculated; (ii) we fail to make a cash payment as
required under Section 7-113-206 within the time specified above; or (iii) we do
not return the deposited certificates as required by Section 7-113-207.
Dissenters who do not give the required notice waive the right to demand a cash
payment under Section 7-113-209.
If a demand for a cash payment under Section 7-113-209 remains unresolved,
we may, within 60 days after receiving the cash payment demand, petition the
court to determine the fair value of the shares of our common stock and accrued
interest. All dissenters whose demands remain unsettled would be made a party to
such a proceeding. Each dissenter is entitled to judgment for the amount the
court finds to be the fair value of the shares of our common stock, plus
interest, less any amount paid by us. The costs associated with this proceeding
shall be assessed against us, unless the court finds that all or some of the
dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
cash payment under Section 7-113-209, in which case the court may assess the
costs in the amount the court finds equitable against some or all of the
dissenters. The court may also assess the fees and expenses of counsel and
experts for the respective parties in amounts the court finds equitable, against
us or the dissenters. If we do not commence a proceeding within the 60-day
period, we must pay each dissenter whose demand remains unsettled the amount of
cash demanded.
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CHANGE OF FISCAL YEAR END
The board of directors has determined it to be in the best interests of
Zen Pottery to change its current June 30 fiscal year end, to a December 31
fiscal year end. The purpose of changing the fiscal year end is to bring Zen
Pottery in line with the year end of Xethanol BioEnergy, Inc., its operating
subsidiary, whose current fiscal year end is December 31.
PROPOSAL #3
APPROVAL, ADOPTION AND RATIFICATION OF THE
XETHANOL CORPORATION
2005 INCENTIVE COMPENSATION PLAN
BACKGROUND AND PURPOSE
On February 2, 2005, following the completion of the reverse merger, the
board of directors of our company adopted and approved a new 2005 Incentive
Compensation Plan, which we refer to as the 2005 Plan, and recommended that it
be submitted to our shareholders for their approval at the next annual meeting.
The purpose of the 2005 Plan is to provide a means for our company and its
subsidiaries and other designated affiliates, which we refer to as Related
Entities, to attract key personnel to provide services to our company and the
Related Entities, as well as, to provide a means whereby those key persons can
acquire and maintain stock ownership, thereby strengthening their commitment to
the welfare of our company and its Related Entities and promoting the mutuality
of interests between participants and our shareholders. A further purpose of the
2005 Plan is to provide participants with additional incentive and reward
opportunities designed to enhance the profitable growth of our company and its
Related Entities, and provide participants with annual and long term performance
incentives to expend their maximum efforts in the creation of shareholder value.
The terms of the 2005 Plan provide for grants of stock options, stock
appreciation rights or SARs, restricted stock, deferred stock, other
stock-related awards and performance awards that may be settled in cash, stock
or other property.
The effective date of the 2005 Plan is February 2, 2005. As of the date of
this information statement, no awards have been granted under the 2005 Plan.
Shareholder approval of the 2005 Plan is required (i) to comply with
certain exclusions from the limitations of Section 162(m) of the Internal
Revenue Code of 1986, which we refer to as the Code, as described below, (ii)
for the 2005 Plan to be eligible under the "plan lender" exemption from the
margin requirements of Regulation G promulgated under the Securities Exchange
Act of 1934, as amended, which we refer to as the Exchange Act, (iii) to comply
with the incentive stock options rules under Section 422 of the Code, and (iv)
to comply with the shareholder approval requirements of the National Association
of Securities Dealers National Market System ("NASDAQ").
The following is a summary of certain principal features of the 2005 Plan.
This summary is qualified in its entirety by reference to the complete text of
the 2005 Plan. Shareholders are urged to read the actual text of the 2005 Plan
in its entirety which is set forth as Exhibit 5 to this information statement.
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SHARES AVAILABLE FOR AWARDS; ANNUAL PER-PERSON LIMITATIONS
Under the 2005 Plan, the total number of shares of our common stock that
may be subject to the granting of awards under the 2005 Plan shall be equal to
2,000,000 shares, plus the number of shares with respect to which awards
previously granted thereunder are forfeited, expire, terminate without being
exercised or are settled with property other than shares, and the number of
shares that are surrendered in payment of any awards or any tax withholding
requirements.
Awards with respect to shares that are granted to replace outstanding
awards or other similar rights that are assumed or replaced by awards under the
2005 Plan pursuant to the acquisition of a business are not subject to, and do
not count against, the foregoing limit.
In addition, the 2005 Plan imposes individual limitations on the amount of
certain awards in part to comply with Code Section 162(m). Under these
limitations, during any fiscal year the number of options, SARs, restricted
shares of our common stock, deferred shares of our common stock, shares as a
bonus or in lieu of other company obligations, and other stock-based awards
granted to any one participant may not exceed 250,000 for each type of such
award, subject to adjustment in certain circumstances. The maximum amount that
may be earned by any one participant as a performance award in respect of a
performance period of one year is $1,000,000, and in respect of a performance
period greater than one year is $1,000,000 multiplied by the number of full
years in the performance period.
A committee of our Board of Directors, which we refer to as the Committee,
is to administer the Plan. See "Administration." The Committee is authorized to
adjust the limitations described in the two preceding paragraphs and is
authorized to adjust outstanding awards (including adjustments to exercise
prices of options and other affected terms of awards) in the event that a
dividend or other distribution (whether in cash, shares of our company common
stock or other property), recapitalization, forward or reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase, share
exchange or other similar corporate transaction or event affects the our company
common stock so that an adjustment is appropriate in order to prevent dilution
or enlargement of the rights of participants. The Committee is also authorized
to adjust performance conditions and other terms of awards in response to these
kinds of events or in response to changes in applicable laws, regulations or
accounting principles.
ELIGIBILITY
The persons eligible to receive awards under the 2005 Plan are the
officers, directors, employees and independent contractors of our company and
our Related Entities. An employee on leave of absence may be considered as still
in our employ or in the employ of a Related Entity for purposes of eligibility
for participation in the 2005 Plan.
ADMINISTRATION
Our Board of Directors shall select the Committee that will administer the
2005 Plan. All Committee members must be "non-employee directors" as defined by
Rule 16b-3 of the Exchange Act, "outside directors" for purposes of Section
162(m) of the Code, and independent as defined by NASDAQ or any other national
securities exchange on which any securities of our company may be listed for
trading in the future. However, except as otherwise required to comply with Rule
16b-3 of the Exchange Act or Section 162(m) of the Code, our Board of Directors
may exercise any power or authority granted to the Committee. Subject to the
terms of the 2005 Plan, the Committee is authorized to select eligible persons
to receive awards, determine the type and number of awards to be granted and the
number of shares of our company common stock to which awards will relate,
specify times at which awards will be exercisable or settleable (including
performance conditions that may be required as a condition thereof), set other
terms and conditions of awards, prescribe forms of award agreements, interpret
and specify rules and regulations relating to the 2005 Plan and make all other
determinations that may be necessary or advisable for the administration of the
2005 Plan.
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STOCK OPTIONS AND SARS
The Committee is authorized to grant stock options, including both
incentive stock options or ISOs, which can result in potentially favorable tax
treatment to the participant, and non-qualified stock options, and SARs
entitling the participant to receive the amount by which the fair market value
of a share of our company common stock on the date of exercise (or the "change
in control price," as defined in the Plan, following a change in control)
exceeds the grant price of the SAR. The exercise price per share subject to an
option and the grant price of an SAR are determined by the Committee, but in the
case of an ISO must not be less than the fair market value of a share of our
company common stock on the date of grant. For purposes of the 2005 Plan, the
term "fair market value" means the fair market value of our company common
stock, awards or other property as determined by the Committee or under
procedures established by the Committee. Unless otherwise determined by the
Committee or our Board of Directors, the fair market value of our company common
stock as of any given date shall be the closing sales price per share of our
company common stock as reported on the principal stock exchange or market on
which our company common stock is traded on the date as of which such value is
being determined or, if there is no sale on that date, the last previous day on
which a sale was reported. The maximum term of each option or SAR, the times at
which each option or SAR will be exercisable, and provisions requiring
forfeiture of unexercised options or SARs at or following termination of
employment or service generally are fixed by the Committee except that no option
or SAR may have a term exceeding 10 years. Options may be exercised by payment
of the exercise price in cash, shares that have been held for at least six
months (or that the Committee otherwise determines will not result in a
financial accounting charge to our company), outstanding awards or other
property having a fair market value equal to the exercise price, as the
Committee may determine from time to time. Methods of exercise and settlement
and other terms of the SARs are determined by the Committee. SARs granted under
the 2005 Plan may include "limited SARs" exercisable for a stated period of time
following a change in control of our company or upon the occurrence of some
other event specified by the Committee, as discussed below.
RESTRICTED AND DEFERRED STOCK
The Committee is authorized to grant restricted stock and deferred stock.
Restricted stock is a grant of shares of our company common stock which may not
be sold or disposed of, and which may be forfeited in the event of certain
terminations of employment or service, prior to the end of a restricted period
specified by the Committee. A participant granted restricted stock generally has
all of the rights of a shareholder of our company, unless otherwise determined
by the Committee. An award of deferred stock confers upon a participant the
right to receive shares of our company common stock at the end of a specified
deferral period, and may be subject to possible forfeiture of the award in the
event of certain terminations of employment prior to the end of a specified
restricted period. Prior to settlement, an award of deferred stock carries no
voting or dividend rights or other rights associated with share ownership,
although dividend equivalents may be granted, as discussed below.
DIVIDEND EQUIVALENTS
The Committee is authorized to grant dividend equivalents conferring on
participants the right to receive, currently or on a deferred basis, cash,
shares of our company common stock, other awards or other property equal in
value to dividends paid on a specific number of shares of our company common
stock or other periodic payments. Dividend equivalents may be granted alone or
in connection with another award, may be paid currently or on a deferred basis
and, if deferred, may be deemed to have been reinvested in additional shares of
our company common stock, awards or otherwise as specified by the Committee.
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BONUS STOCK AND AWARDS IN LIEU OF CASH OBLIGATIONS
The Committee is authorized to grant shares of our company common stock as
a bonus free of restrictions, or to grant shares of our company common stock or
other awards in lieu of our company obligations to pay cash under the 2005 Plan
or other plans or compensatory arrangements, subject to such terms as the
Committee may specify.
OTHER STOCK-BASED AWARDS
The Committee is authorized to grant awards under the 2005 Plan that are
denominated or payable in, valued by reference to, or otherwise based on or
related to shares of our company common stock. Such awards might include
convertible or exchangeable debt securities, other rights convertible or
exchangeable into shares of our company common stock, purchase rights for shares
of our company common stock, awards with value and payment contingent upon
performance of our company or any other factors designated by the Committee, and
awards valued by reference to the book value of shares of our company common
stock or the value of securities of or the performance of specified subsidiaries
or business units. The Committee determines the terms and conditions of such
awards.
PERFORMANCE AWARDS
The right of a participant to exercise or receive a grant or settlement of
an award, and the timing thereof, may be subject to such performance conditions
(including subjective individual goals) as may be specified by the Committee. In
addition, the 2005 Plan authorizes specific performance awards, which represent
a conditional right to receive cash, shares of our company common stock or other
awards upon achievement of certain preestablished performance goals and
subjective individual goals during a specified fiscal year. Performance awards
granted to persons whom the Committee expects will, for the year in which a
deduction arises, be "covered employees" (as defined below) will, if and to the
extent intended by the Committee, be subject to provisions that should qualify
such awards as "performance-based compensation" not subject to the limitation on
tax deductibility by our company under Code Section 162(m). For purposes of
Section 162(m), the term "covered employee" means our chief executive officer
and each other person whose compensation is required to be disclosed in our
company's filings with the SEC by reason of that person being among the four
highest compensated officers of our company as of the end of a taxable year. If
and to the extent required under Section 162(m) of the Code, any power or
authority relating to a performance award intended to qualify under Section
162(m) of the Code is to be exercised by the Committee, not our Board of
Directors.
Subject to the requirements of the 2005 Plan, the Committee will determine
performance award terms, including the required levels of performance with
respect to specified business criteria, the corresponding amounts payable upon
achievement of such levels of performance, termination and forfeiture provisions
and the form of settlement. One or more of the following business criteria for
our company, on a consolidated basis, and/or for Related Entities, or for
business or geographical units of our company and/or a Related Entity (except
with respect to the total shareholder return and earnings per share criteria),
shall be used by the Committee in establishing performance goals for performance
awards to "covered employees" that are intended to qualify under Section 162(m):
(1) earnings per share; (2) revenues or margin; (3) cash flow; (4) operating
margin; (5) return on net assets; (6) return on investment; (7) return on
capital; (8) return on equity; (9) economic value added; (10) direct
contribution; (11) net income, (12) pretax earnings; (13) earnings before
interest, taxes, depreciation and amortization; (14) earnings after interest
expense and before extraordinary or special items; (15) operating income; (16)
25
income before interest income or expense, unusual items and income taxes, local,
state or federal and excluding budgeted and actual bonuses which might be paid
under any ongoing bonus plans of our company; (17) working capital; (18)
management of fixed costs or variable costs; (19) identification or consummation
of investment opportunities or completion of specified projects in accordance
with corporate business plans, including strategic mergers, acquisitions or
divestitures; (20) total shareholder return; (21) debt reduction; and (22) any
of the above goals determined on an absolute or relative basis or as compared to
the performance of a published or special index deemed applicable by the
Committee including, but not limited to, the Standard & Poor's 500 Stock Index
or a group of comparable companies. The Committee may exclude the impact of an
event or occurrence which the Committee determines should appropriately be
excluded, including without limitation (i) restructurings, discontinued
operations, extraordinary items, and other unusual or non-recurring charges,
(ii) an event either not directly related to the operations of our company or
not within the reasonable control of our company's management, or (iii) a change
in accounting standards required by generally accepted accounting principles.
In granting performance awards, the Committee may establish unfunded award
"pools," the amounts of which will be based upon the achievement of a
performance goal or goals based on one or more of certain business criteria
described in the 2005 Plan (including, for example, total shareholder return,
net income, pretax earnings, EBITDA, earnings per share, and return on
investment). During the first 90 days of a performance period, the Committee
will determine who will potentially receive performance awards for that
performance period, either out of the pool or otherwise.
After the end of each performance period, the Committee will determine (i)
the amount of any pools and the maximum amount of potential performance awards
payable to each participant in the pools and (ii) the amount of any other
potential performance awards payable to participants in the 2005 Plan. The
Committee may, in its discretion, determine that the amount payable as a
performance award will be reduced from the amount of any potential award.
OTHER TERMS OF AWARDS
Awards may be settled in the form of cash, shares of our company common
stock, other awards or other property, in the discretion of the Committee. The
Committee may require or permit participants to defer the settlement of all or
part of an award in accordance with such terms and conditions as the Committee
may establish, including payment or crediting of interest or dividend
equivalents on deferred amounts, and the crediting of earnings, gains and losses
based on deemed investment of deferred amounts in specified investment vehicles.
The Committee is authorized to place cash, shares of our company common stock or
other property in trusts or make other arrangements to provide for payment of
our company's obligations under the 2005 Plan. The Committee may condition any
payment relating to an award on the withholding of taxes and may provide that a
portion of any shares of our company common stock or other property to be
distributed will be withheld (or previously acquired shares of our company
common stock or other property be surrendered by the participant) to satisfy
withholding and other tax obligations. Awards granted under the 2005 Plan
generally may not be pledged or otherwise encumbered and are not transferable
except by will or by the laws of descent and distribution, or to a designated
beneficiary upon the participant's death, except that the Committee may, in its
discretion, permit transfers for estate planning or other purposes subject to
any applicable restrictions under Rule 16b-3 of the Exchange Act.
Awards under the 2005 Plan are generally granted without a requirement
that the participant pay consideration in the form of cash or property for the
grant (as distinguished from the exercise), except to the extent required by
law. The Committee may, however, grant awards in exchange for other awards under
the 2005 Plan awards or under other company plans, or other rights to payment
from our company, and may grant awards in addition to and in tandem with such
other awards, rights or other awards.
26
ACCELERATION OF VESTING; CHANGE IN CONTROL
The Committee may, in its discretion, accelerate the exercisability, the
lapsing of restrictions or the expiration of deferral or vesting periods of any
award, and such accelerated exercisability, lapse, expiration and if so provided
in the award agreement, vesting shall occur automatically in the case of a
"change in control" of our company, as defined in the 2005 Plan (including the
cash settlement of SARs and "limited SARs" which may be exercisable in the event
of a change in control). In addition, the Committee may provide in an award
agreement that the performance goals relating to any performance based award
will be deemed to have been met upon the occurrence of any "change in control."
Upon the occurrence of a change in control, if so provided in the award
agreement, stock options and limited SARs (and other SARs which so provide) may
be cashed out based on a defined "change in control price," which will be the
higher of (i) the cash and fair market value of property that is the highest
price per share paid (including extraordinary dividends) in any reorganization,
merger, consolidation, liquidation, dissolution or sale of substantially all
assets of our company, or (ii) the highest fair market value per share
(generally based on market prices) at any time during the 60 days before and 60
days after a change in control.
AMENDMENT AND TERMINATION
Our Board of Directors may amend, alter, suspend, discontinue or terminate
the 2005 Plan or the Committee's authority to grant awards without further
shareholder approval, except shareholder approval must be obtained for any
amendment or alteration if such approval is required by law or regulation or
under the rules of any stock exchange or quotation system on which shares of our
company common stock are then listed or quoted. Thus, shareholder approval may
not necessarily be required for every amendment to the 2005 Plan which might
increase the cost of the 2005 Plan or alter the eligibility of persons to
receive awards. Shareholder approval will not be deemed to be required under
laws or regulations, such as those relating to ISOs, that condition favorable
treatment of participants on such approval, although our Board of Directors may,
in its discretion, seek shareholder approval in any circumstance in which it
deems such approval advisable. Unless earlier terminated by our Board of
Directors, the 2005 Plan will terminate at such time as no shares of our company
common stock remain available for issuance under the 2005 Plan and our company
has no further rights or obligations with respect to outstanding awards under
the 2005 Plan.
FEDERAL INCOME TAX CONSEQUENCES OF AWARDS
The 2005 Plan is not qualified under the provisions of section 401(a) of
the Code and is not subject to any of the provisions of the Employee Retirement
Income Security Act of 1974.
NONQUALIFIED STOCK OPTIONS
On exercise of a nonqualified stock option granted under the 2005 Plan an
optionee will recognize ordinary income equal to the excess, if any, of the fair
market value on the date of exercise of the shares of stock acquired on exercise
of the option over the exercise price. If the optionee is an employee of our
company or a Related Entity, that income will be subject to the withholding of
Federal income tax. The optionee's tax basis in those shares will be equal to
their fair market value on the date of exercise of the option, and his holding
period for those shares will begin on that date.
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If an optionee pays for shares of stock on exercise of an option by
delivering shares of our company's stock, the optionee will not recognize gain
or loss on the shares delivered, even if their fair market value at the time of
exercise differs from the optionee's tax basis in them. The optionee, however,
otherwise will be taxed on the exercise of the option in the manner described
above as if he had paid the exercise price in cash. If a separate identifiable
stock certificate is issued for that number of shares equal to the number of
shares delivered on exercise of the option, the optionee's tax basis in the
shares represented by that certificate will be equal to his tax basis in the
shares delivered, and his holding period for those shares will include his
holding period for the shares delivered. The optionee's tax basis and holding
period for the additional shares received on exercise of the option will be the
same as if the optionee had exercised the option solely in exchange for cash.
Our company will be entitled to a deduction for Federal income tax
purposes equal to the amount of ordinary income taxable to the optionee,
provided that amount constitutes an ordinary and necessary business expense for
our company and is reasonable in amount, and either the employee includes that
amount in income or our company timely satisfies its reporting requirements with
respect to that amount.
INCENTIVE STOCK OPTIONS
The 2005 Plan provides for the grant of stock options that qualify as
"incentive stock options" as defined in section 422 of the Code, which we refer
to as ISOs. Under the Code, an optionee generally is not subject to tax upon the
grant or exercise of an ISO. In addition, if the optionee holds a share received
on exercise of an ISO for at least two years from the date the option was
granted and at least one year from the date the option was exercised, which we
refer to as the Required Holding Period, the difference, if any, between the
amount realized on a sale or other taxable disposition of that share and the
holder's tax basis in that share will be long-term capital gain or loss.
If, however, an optionee disposes of a share acquired on exercise of an
ISO before the end of the Required Holding Period, which we refer to as a
Disqualifying Disposition, the optionee generally will recognize ordinary income
in the year of the Disqualifying Disposition equal to the excess, if any, of the
fair market value of the share on the date the ISO was exercised over the
exercise price. If, however, the Disqualifying Disposition is a sale or exchange
on which a loss, if realized, would be recognized for Federal income tax
purposes, and if the sales proceeds are less than the fair market value of the
share on the date of exercise of the option, the amount of ordinary income
recognized by the optionee will not exceed the gain, if any, realized on the
sale. If the amount realized on a Disqualifying Disposition exceeds the fair
market value of the share on the date of exercise of the option, that excess
will be short-term or long-term capital gain, depending on whether the holding
period for the share exceeds one year.
An optionee who exercises an ISO by delivering shares of stock acquired
previously pursuant to the exercise of an ISO before the expiration of the
Required Holding Period for those shares is treated as making a Disqualifying
Disposition of those shares. This rule prevents "pyramiding" or the exercise of
an ISO (that is, exercising an ISO for one share and using that share, and
others so acquired, to exercise successive ISOs) without the imposition of
current income tax.
For purposes of the alternative minimum tax, the amount by which the fair
market value of a share of stock acquired on exercise of an ISO exceeds the
exercise price of that option generally will be an adjustment included in the
optionee's alternative minimum taxable income for the year in which the option
is exercised. If, however, there is a Disqualifying Disposition of the share in
the year in which the option is exercised, there will be no adjustment with
respect to that share. If there is a Disqualifying Disposition in a later year,
no income with respect to the Disqualifying Disposition is included in the
optionee's alternative minimum taxable income for that year. In computing
alternative minimum taxable income, the tax basis of a share acquired on
exercise of an ISO is increased by the amount of the adjustment taken into
account with respect to that share for alternative minimum tax purposes in the
year the option is exercised.
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Our company is not allowed an income tax deduction with respect to the
grant or exercise of an incentive stock option or the disposition of a share
acquired on exercise of an incentive stock option after the Required Holding
Period. However, if there is a Disqualifying Disposition of a share, our company
is allowed a deduction in an amount equal to the ordinary income includible in
income by the optionee, provided that amount constitutes an ordinary and
necessary business expense for our company and is reasonable in amount, and
either the employee includes that amount in income or our company timely
satisfies its reporting requirements with respect to that amount.
STOCK AWARDS
Generally, the recipient of a stock award will recognize ordinary
compensation income at the time the stock is received equal to the excess, if
any, of the fair market value of the stock received over any amount paid by the
recipient in exchange for the stock. If, however, the stock is non-vested when
it is received under the 2005 Plan (for example, if the employee is required to
work for a period of time in order to have the right to sell the stock), the
recipient generally will not recognize income until the stock becomes vested, at
which time the recipient will recognize ordinary compensation income equal to
the excess, if any, of the fair market value of the stock on the date it becomes
vested over any amount paid by the recipient in exchange for the stock. A
recipient may, however, file an election with the Internal Revenue Service,
within 30 days of his or her receipt of the stock award, to recognize ordinary
compensation income, as of the date the recipient receives the award, equal to
the excess, if any, of the fair market value of the stock on the date the award
is granted over any amount paid by the recipient in exchange for the stock.
The recipient's basis for the determination of gain or loss upon the
subsequent disposition of shares acquired as stock awards will be the amount
paid for such shares plus any ordinary income recognized either when the stock
is received or when the stock becomes vested. Upon the disposition of any stock
received as a stock award under the 2005 Plan the difference between the sale
price and the recipient's basis in the shares will be treated as a capital gain
or loss and generally will be characterized as long-term capital gain or loss if
the shares have been held for more the one year from the date as of which he or
she would be required to recognize any compensation income.
STOCK APPRECIATION RIGHTS
Our company may grant SARs separate from any other award, which we refer
to as Stand-Alone SARs, or in tandem with options, which we refer to as Tandem
SARs, under the 2005 Plan. Generally, the recipient of a Stand-Alone SAR will
not recognize any taxable income at the time the Stand-Alone SAR is granted.
With respect to Stand-Alone SARs, if the recipient receives the
appreciation inherent in the SARs in cash, the cash will be taxable as ordinary
compensation income to the recipient at the time that the cash is received. If
the recipient receives the appreciation inherent in the SARs in shares of stock,
the recipient will recognize ordinary compensation income equal to the excess of
the fair market value of the stock on the day it is received over any amounts
paid by the recipient for the stock.
With respect to Tandem SARs, if the recipient elects to surrender the
underlying option in exchange for cash or shares of stock equal to the
appreciation inherent in the underlying option, the tax consequences to the
recipient will be the same as discussed above relating to the Stand-Alone SARs.
If the recipient elects to exercise the underlying option, the holder will be
taxed at the time of exercise as if he or she had exercised a nonqualified stock
option (discussed above), i.e., the recipient will recognize ordinary income for
federal tax purposes measured by the excess of the then fair market value of the
shares of stock over the exercise price.
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In general, there will be no federal income tax deduction allowed to our
company upon the grant or termination of Stand-Alone SARs or Tandem SARs. Upon
the exercise of either a Stand-Alone SAR or a Tandem SAR, however, our company
will be entitled to a deduction for federal income tax purposes equal to the
amount of ordinary income that the employee is required to recognize as a result
of the exercise, provided that the deduction is not otherwise disallowed under
the Code.
DIVIDEND EQUIVALENTS
Generally, the recipient of a dividend equivalent award will recognize
ordinary compensation income at the time the dividend equivalent award is
received equal to the fair market value dividend equivalent award received. Our
company generally will be entitled to a deduction for federal income tax
purposes equal to the amount of ordinary income that the employee is required to
recognize as a result of the dividend equivalent award, provided that the
deduction is not otherwise disallowed under the Code.
SECTION 409A
Section 409A of the Code, enacted as part of the American Jobs Creation
Act of 2004, imposes certain new requirements applicable to "nonqualified
deferred compensation plans," including new rules relating to the timing of
deferral elections and elections with regard to the form and timing of benefit
distributions, prohibitions against the acceleration of the timing of
distributions, and the times when distributions may be made, as well as rules
that generally prohibit the funding of nonqualified deferred compensation plans
in offshore trusts or upon the occurrence of a change in the employer's
financial health. These new rules generally apply with respect to deferred
compensation that becomes earned and vested on or after January 1, 2005. If a
nonqualified deferred compensation plan subject to Section 409A fails to meet,
or is not operated in accordance with, these new requirements, then all
compensation deferred under the plan is or becomes immediately taxable to the
extent that it is not subject to a substantial risk of forfeiture and was not
previously taxable. The tax imposed as a result of these new rules would be
increased by interest at a rate equal to the rate imposed upon tax underpayments
plus one percentage point, and an additional tax equal to 20% of the
compensation required to be included in income. Some of the awards to be granted
under this 2005 Plan may constitute deferred compensation subject to the Section
409A requirements, including, without limitation, discounted stock options,
deferred stock and SARs that are not payable in shares of our company stock. It
is our company's intention that any award agreement that will govern awards
subject to Section 409A will comply with these new rules.
SECTION 162 LIMITATIONS
The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the
Code, which generally disallows a public company's tax deduction for
compensation to covered employees in excess of $1 million in any tax year
beginning on or after January 1, 1994. Compensation that qualifies as
"performance-based compensation" is excluded from the $1 million deductibility
cap, and therefore remains fully deductible by the company that pays it. Our
Company intends that options granted to employees whom the Committee expects to
be covered employees at the time a deduction arises in connection with such
options, will qualify as such "performance-based compensation," so that such
options will not be subject to the Section 162(m) deductibility cap of $1
million. Future changes in Section 162(m) or the regulations thereunder may
adversely affect the ability of our company to ensure that options under the
2005 Plan will qualify as "performance-based compensation" that is fully
deductible by our company under Section 162(m).
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IMPORTANCE OF CONSULTING TAX ADVISER
The information set forth above is a summary only and does not purport to
be complete. In addition, the information is based upon current Federal income
tax rules and therefore is subject to change when those rules change. Moreover,
because the tax consequences to any recipient may depend on his particular
situation, each recipient should consult his tax adviser as to the Federal,
state, local and other tax consequences of the grant or exercise of an award or
the disposition of stock acquired as a result of an award.
NEW PLAN BENEFITS
The following table sets forth the stock options that the individuals and
groups referred to below have received as of March 7, 2005 under the Xethanol
Corporation 2005 Incentive Compensation Plan:
NAME AND POSITION
- ----------------- XETHANOL CORPORATION
2005 INCENTIVE COMPENSATION PLAN
---------------------------------
DOLLAR VALUE NUMBER OF UNITS
------------ ---------------
Christopher d'Arnaud-Taylor
Chairman and Chief Executive Officer....................... -- --
Franz A. Skryanz
Vice President and Secretary............................... -- --
Executive Group................................................. -- --
Non-Executive Director Group.................................... -- --
Non-Executive Officer Employee Group............................ -- --
- ----------
As of March 7, 2005, no stock options had been granted under the Xethanol
Corporation 2005 Incentive Compensation Plan. We expect to grant options to
purchase shares of our common stock in the future to the persons listed in the
table above and to other eligible participants. The grant of stock options in
the future to these persons is entirely within the discretion of the board of
directors or the compensation committee. We cannot determine the nature, amount
or the dollar value of stock option awards that may be made in the future.
PROPOSAL #4
RATIFICATION OF APPOINTMENT OF CERTIFYING PUBLIC ACCOUNTANTS
As previously reported in our Current Report on Form 8-K filed with the
U.S. Securities and Exchange Commission on February 8, 2005, on February 2, 2005
we retained Imowitz Koenig & Co., LLP as our new certifying public accountants
for the fiscal year ending December 31, 2005, replacing Cordovano and Honeck,
P.C. Upon the completion of the reincorporation, Imowitz Koenig & Co., LLP will
become the certifying public accountants of Xethanol Corporation for the fiscal
year ending December 31, 2005.
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Representatives of Imowitz Koenig & Co., LLP and Cordovano and Honeck,
P.C. are not expected to be present at the special meeting of shareholders, and
therefore will not be available to make a statement or respond to questions.
The dismissal of Cordovano and Honeck, P.C. and the engagement of Imowitz
Koenig & Co., LLP as our independent auditor for the fiscal year ending December
31, 2004 was approved by our board of directors at a meeting held on February 2,
2005.
The reports of Cordovano and Honeck, P.C. on our financial statements for
each of the two fiscal years ended June 30, 2004 and 2003 did not contain an
adverse opinion or a disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope, or accounting principles, except that the audit
report for the fiscal year ended June 30, 2004 contained an explanatory
paragraph to the effect that a majority of our sales were to a related party and
therefore not arms' length transactions.
In connection with the audits of our financial statements for each of the
two fiscal years ended June 30, 2004 and 2003, and through February 2, 2005,
there were no disagreements with Cordovano and Honeck, P.C. on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which, if not resolved to the satisfaction of Cordovano and
Honeck, P.C., would have caused Cordovano and Honeck, P.C. to make reference to
the matter in its reports.
During each of the two fiscal years ended June 30, 2004 and 2003, and
through February 2, 2005, no information is required to be reported under Item
304(a)(1)(iv)(B) of Regulation S-B.
We provided Cordovano and Honeck, P.C. with a copy of the Current Report
on Form 8-K we filed with the U.S. Securities and Exchange on February 8, 2005,
and Cordovano and Honeck, P.C. furnished us with a letter addressed to the U.S.
Securities and Exchange Commission stating whether it agreed with the above
statements and, if not, stating the respects in which it did not agree with such
statements. Cordovano and Honeck, P.C.'s response letter, dated February 8,
2005, is filed as an exhibit to such Current Report on Form 8-K.
AUDIT FEES
The aggregate fees billed by Cordovano and Honeck, P.C. for the fiscal
years ended June 30, 2004 and 2003 for professional services rendered for the
audit of Zen Pottery's annual financial statements and for the review of the
financial statements included in Zen Pottery's Quarterly Reports on Form 10-QSB
for those fiscal years were $14,108.33.
No tax or other accounting related services were provided by Cordovano and
Honeck, P.C. to Zen Pottery during the fiscal years ended June 30, 2004 or 2003.
Neither Cordovano and Honeck, P.C. nor Imowitz Koenig & Co., LLP have previously
provided audit, tax or other accounting related services to Xethanol BioEnergy,
Inc., Zen Pottery's wholly-owned subsidiary. Imowitz Koenig & Co., LLP has no
financial interest, either direct or indirect, in Zen Pottery or Xethanol
BioEnergy, Inc.
We intend to establish an Audit Committee of the board of directors, which
will consist of independent directors. The Audit Committee's duties would be to
recommend to the board of directors the engagement of independent auditors to
audit our financial statements and to review our accounting and auditing
principles. The Audit Committee would review the scope, timing and fees for the
annual audit and the results of audit examinations performed by the internal
auditors and independent public accountants, including their recommendations to
improve the system of accounting and internal controls. The Audit Committee
would at all times be composed exclusively of directors who are, in the opinion
of the board of directors, free from any relationship which would interfere with
the exercise of independent judgment as a committee member and who possess an
understanding of financial statements and generally accepted accounting
principles.
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BOARD OF DIRECTORS' RECOMMENDATIONS
Our board of directors has considered each of the proposals set forth in
this Information Statement and is recommending that the shareholders adopt each
of the proposals.
MANAGEMENT AND A NUMBER OF FORMER STOCKHOLDERS OF XETHANOL OWN SUFFICIENT
VOTING STOCK OF ZEN POTTERY TO ADOPT, RATIFY AND APPROVE ALL OF THE ITEMS TO BE
VOTED UPON AT THE SPECIAL MEETING OF THE SHAREHOLDERS. NO FURTHER CONSENTS,
VOTES OR PROXIES ARE NEEDED, AND NONE ARE REQUESTED.
The information contained in this Information Statement constitutes the
only notice any shareholder will be provided.
INTEREST OF CERTAIN PERSONS IN OR OPPOSITION
TO MATTERS TO BE ACTED UPON
None of our officers, directors or any of their respective affiliates has
any interest in any of the proposals to be acted upon at the meeting. None of
our directors has indicated to us an intention to oppose any of the proposals to
be acted upon at the meeting. Management and a number of former Xethanol
stockholders have enough votes to approve the proposals described in this
Information Statement and have indicated that they will approve the proposals at
the meeting.
FORWARD-LOOKING STATEMENTS
This Information Statement may contain certain "forward-looking"
statements as such term is defined by the U.S. Securities and Exchange
Commission in its rules, regulations and releases, which represent our
expectations or beliefs, including but not limited to, statements concerning our
operations, economic performance, financial condition, growth and acquisition
strategies, investments, and future operational plans. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the generality of the
foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
"intend," "could," "estimate," "might," or "continue" or the negative or other
variations thereof or comparable terminology are intended to identify
forward-looking statements. These statements, by their nature, involve
substantial risks and uncertainties, certain of which are beyond our control,
and actual results may differ materially depending on a variety of important
factors, including uncertainty related to acquisitions, governmental regulation,
managing and maintaining growth, volatility of stock prices and any other
factors discussed in this and other of our filings with the Securities and
Exchange Commission, or SEC.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the information and reporting requirements of the
Securities Exchange Act of 1934 and in accordance with this act, we file
periodic reports, documents and other information with the SEC relating to our
business, financial statements and other matters. These reports and other
information may be inspected and are available for copying at the offices of the
SEC, 450 Fifth Street, NW, Washington, DC 20549 or may be accessed at
www.sec.gov.
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OTHER BUSINESS
Our management knows of no other matter which may come before the meeting.
However, if any additional matters are properly presented at the meeting, the
former Xethanol stockholders have enough votes to establish a quorum and will
vote in accordance with their judgment on such matters.
INCORPORATION OF FINANCIAL INFORMATION
Our Annual Report on Form 10-KSB for the year ended June 30, 2004, as
filed with the SEC on September 28, 2004 (Commission File No. 0-50154), is
incorporated in its entirety by reference into this Information Statement. In
addition, our Current Report on Form 8-K, as filed with the SEC on February 3,
2005, is incorporated in its entirety by reference into this Information
Statement. We will provide, without charge, to each shareholder as of the record
date, upon the written or oral request of the shareholder and by first class
mail or other equally prompt means within one business day of our receipt of
such request, copies of the Annual Report on Form 10-KSB and Current Report on
Form 8-K which we have incorporated by reference into this Information
Statement, as well as all amendments thereto, including the financial statements
and schedules, as filed with the SEC. Shareholders should direct the written
request to Zen Pottery Equipment, Inc., c/o Xethanol Corporation, 1185 Avenue of
the Americas, 20th Floor, New York, New York 10036, Attention: Franz A. Skryanz,
Vice President and Secretary. Oral requests should be directed to Mr. Skryanz at
(646) 723-4000.
As shareholders representing approximately 55% of our outstanding shares
of common stock have agreed to vote for each of the actions described in this
Information Statement at the special meeting, WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED TO SEND US A PROXY. This Information Statement is for
informational purposes only. Please read this Information Statement carefully.
By Order of the Board of Directors,
Christopher d'Arnaud-Taylor
Chairman and Chief Executive Officer
March 10, 2005
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INDEX OF EXHIBITS
Exhibit 1: Form of Agreement and Plan of Merger.
Exhibit 2: Form of Certificate of Incorporation of Xethanol Corporation.
Exhibit 3: Form of By-laws of Xethanol Corporation.
Exhibit 4: Colorado Statutes concerning Dissenter's Rights.
Exhibit 5: Xethanol Corporation 2005 Incentive Compensation Plan.