sec document
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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Puroflow Incorporated
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August 6, 2001
To Our Stockholders:
On behalf of your Company's Board of Directors, I cordially invite
you to attend the Annual Meeting of Stockholders to be held on Tuesday, August
28, 2001, at 10:00 a.m., local time, at the Airtel Plaza Hotel, 7277 Valjean
Avenue, Van Nuys, California 91406.
The accompanying Notice of Meeting and Proxy Statement cover the
details of the matters to be presented. A copy of the Company's Annual Report on
Form 10-KSB for the fiscal year ended January 31, 2001 is included with this
mailing.
Regardless of whether you plan to attend the Annual Meeting, your
vote is important. I urge you to participate by promptly completing and
returning the enclosed proxy card as soon as possible. You may revoke your proxy
and vote in person if you decide to attend the Annual Meeting.
We appreciate your continued support.
Cordially,
PUROFLOW INCORPORATED
Michael H. Figoff
President and Chief Executive Officer
PUROFLOW INCORPORATED
16559 Saticoy Street
Van Nuys, California 91406
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
AUGUST 28, 2001
To the Stockholders of PUROFLOW INCORPORATED:
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders (the
"Annual Meeting") of Puroflow Incorporated, a Delaware corporation (the
"Company"), will be held at the Airtel Plaza Hotel on August 28, 2001 at 10:00
a.m., local time, or any adjournment or postponement thereof, for the following
purposes, all as more fully described in the attached Proxy Statement:
(1) To elect seven (7) members of the Board of Directors for one
year or until their successors are elected and qualified.
(2) To adopt the 2001 Stock Option Plan.
(3) To approve a one for fifteen reverse stock split of the
Company's issued and outstanding Common Stock.
(4) To vote for the appointment of auditors, Rose, Snyder &
Jacobs, for the fiscal year ended January 31, 2002.
(5) To transact such other business as may properly come before
the meeting or any adjournments thereof.
Only stockholders of record at the close of business on June 29,
2001 shall be entitled to notice of and to vote at the Annual Meeting. A copy of
the Company's Annual Report for the fiscal year ended January 31, 2001 is
enclosed.
The Board of Directors appreciates and welcomes stockholder
participation in the Company's affairs. You are earnestly requested to complete,
sign, date and return the accompanying proxy card in the enclosed envelope
provided for that purpose (to which no postage need be affixed if mailed in the
United States), whether or not you expect to attend the Annual Meeting in
person. The proxy is revocable by you at any time prior to its exercise and will
not affect your right to vote in person in the event you attend the Annual
Meeting. The prompt return of the proxy card will be of assistance in preparing
for the Annual Meeting and your cooperation in this respect will be greatly
appreciated.
By Order of the Board of Directors,
Sandy Yoshisato
Corporate Secretary
Van Nuys, California
August 6, 2001
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YOUR VOTE IS IMPORTANT. TO VOTE YOUR SHARES, PLEASE COMPLETE, SIGN
AND DATE THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE
ENCLOSED RETURN ENVELOPE.
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PUROFLOW INCORPORATED
16559 Saticoy Street
Van Nuys, California 91406
PROXY STATEMENT
OF THE BOARD OF DIRECTORS
FOR THE
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 28, 2001
INTRODUCTION
This Proxy Statement and the accompanying proxy card are being
furnished to the stockholders of Puroflow Incorporated, a Delaware corporation
(the "Company"), in connection with the solicitation of proxies by the Board of
Directors of the Company for use in voting at the Annual Meeting of Stockholders
to be held at the Airtel Plaza Hotel, 7277 Valjean Avenue, Van Nuys, California
91406, on August 28, 2001 at 10:00 a.m., local time (together with any and all
adjournments or postponements thereof, the "Annual Meeting"). This Notice of
Annual Meeting and Proxy Statement, together with the accompanying proxy card
and Annual Report to Stockholders of the Company for the fiscal year ended
January 31, 2001 (including the financial statements contained therein), are
first being mailed or delivered to stockholders of the Company on or about [ ].
QUORUM AND VOTING
AGENDA FOR MEETING
At the Annual Meeting, the holders of outstanding shares of common
stock, par value $0.01 per share, of the Company (the "Common Stock") will be
asked to consider and vote upon: (i) the election of seven (7) Directors to
serve for a term of one year or until their respective successors are duly
elected and qualified ("Proposal 1"); (ii) the adoption of the 2001 Stock Option
Plan ("Proposal 2"); (iii) the amendment to the Company's Certificate of
Incorporation to effect a reverse stock split of the Company's issued and
outstanding Common Stock, whereby the Company will issue one new share of Common
Stock in exchange for each fifteen shares of the outstanding Common Stock
("Proposal 3"); (iv) the appointment of Rose, Snyder & Jacobs, certified
public accountants, as independent auditors of the Company for the fiscal year
ending January 31, 2002 ("Proposal 4"); and (v) such other proposals as may
properly be presented for the Annual Meeting.
RECORD DATE
The record date for the Annual Meeting is June 29, 2001. Only
stockholders of record as of the close of business on that date are entitled to
notice of and to vote at the Annual Meeting.
VOTING STOCK
The only class of stock entitled to be voted at the Annual Meeting
is the Company's Common Stock. At the close of business on the record date,
there were 7,399,091 shares of Common Stock outstanding and entitled to vote at
the Annual Meeting, and the holders of these shares will be entitled to one vote
per share.
QUORUM
The By-laws of the Company provide that holders of more than 50% of
the shares outstanding and entitled to vote must be represented at the Annual
Meeting either in person or by proxy.
ADJOURNED MEETING
If a quorum is not present at the scheduled time of the Annual
Meeting, the stockholders who are represented may adjourn the Annual Meeting
until a quorum is present. The time and place of the adjourned Annual Meeting
will be announced at the time the adjournment is taken, and no other notice will
be given. An adjournment will have no effect on the business that may be
conducted at the Annual Meeting.
TABULATION OF VOTES
The votes will be tabulated and certified by two inspectors of
election appointed by the Company.
RETURNING YOUR PROXY CARD
A proxy will not be valid unless the completed enclosed proxy card
is received by the Company prior to commencement of the Annual Meeting. If the
enclosed proxy card is properly executed and returned to the Company, then your
shares will be voted in accordance with the instructions contained therein.
Any stockholder who executes and returns a proxy may revoke it at
any time before it is voted at the Annual Meeting by: (i) delivering written
notice of such revocation to the Company (attention: Corporate Secretary) prior
to the commencement of the Annual Meeting; (ii) submitting a duly executed proxy
bearing a later date which relates to the same shares; or (iii) attending and
voting such shares at the Annual Meeting. Mere attendance at the Annual Meeting
will not, in and of itself, revoke an otherwise valid proxy.
Whether or not you attend the Annual Meeting, your vote is
important. Accordingly, you are urged to sign and return the accompanying proxy
card regardless of the number of shares you own. Shares can be voted at the
Annual Meeting only if the holder is present or represented by proxy.
VOTE REQUIRED AND METHOD OF COUNTING VOTES
With respect to Proposal 1 (the election of directors), stockholders
may vote in favor of all nominees, withhold their votes as to all nominees, or
withhold their votes as to specific nominees. Checking the box on the proxy card
that withholds authority to vote for a nominee is the equivalent of abstaining.
The seven nominees who receive the greatest number of votes cast for the
election of directors by shares entitled to vote and present in person or by
proxy at the Annual Meeting will be elected directors. In an uncontested
plurality election such as this, abstentions have no effect, since approval by a
percentage of the shares present or outstanding is not required.
With respect to Proposal 2 (the adoption of the 2001 Stock Option
Plan), stockholders may vote in favor of the proposal, against the proposal, or
abstain from voting. The affirmative vote of the majority of shares present in
person or by proxy and entitled to vote at the Annual Meeting is required for
approval of Proposal 2. Broker non-votes and abstentions are not included in the
tabulation of the voting results on the adoption of the 2001 Stock Option Plan
and, therefore, do not have the effect of votes in opposition in such
tabulation.
With respect to Proposal 3 (the reverse stock split), stockholders
may vote in favor of the proposal, against the proposal, or abstain from voting.
The affirmative vote of a majority of the outstanding shares of Common Stock is
required for approval of Proposal 3, so an abstention or broker non-vote will
have the same effect as a vote against Proposal 3.
With respect to Proposal 4 (the ratification of independent
auditors), stockholders may vote in favor of the proposal, against the proposal,
or abstain from voting. The affirmative vote of the majority of shares present
in person or by proxy and entitled to vote at the Annual Meeting is required for
approval of Proposal 4. Broker non-votes and abstentions are not included in the
tabulation of the voting results on the ratification of independent auditors
and, therefore, do not have the effect of votes in opposition in such
tabulation.
Brokers who hold shares for the accounts of their clients may vote
such shares either as instructed by their clients, or if no instructions are
received, in their own discretion if permitted by the stock exchange or other
organization of which they are members. Members of the New York Stock Exchange
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are permitted to vote a client's proxy in their own discretion as to the
election of directors and ratification of independent auditors (each, a
"discretionary proposal") if their client has not furnished them with voting
instructions prior to the Annual Meeting. When a broker is empowered by a client
to vote that client's shares on some but not all of the proposals at a meeting,
the missing votes are referred to as "broker non-votes." Those shares will be
included in determining the presence of a quorum at the Annual Meeting. Broker
non-votes will not, however, be considered "present" for purposes of voting on
any non-discretionary proposal, and they will therefore have no impact on the
outcome of such proposals.
If you sign the proxy card but do not make specific choices, the
proxy holder will vote your shares as recommended by the Board of Directors as
follows:
o "FOR" the election of all nominees for directors,
o "FOR" the adoption of the 2001 Stock Option Plan,
o "FOR" the reverse stock split, and
o "FOR" ratification of the selection of independent auditors.
If any other business that is unknown a reasonable time before the
solicitation properly comes before the stockholders for a vote at the Annual
Meeting, your shares will be voted in accordance with the discretion of the
holders of the proxy.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of June 29,
2001 regarding the beneficial ownership of Common Stock by (A) each person known
by the Company to own beneficially more than five percent of the Common Stock,
(B) each director and director nominee of the Company, (C) each of the "Named
Executive Officers" (as defined in "Executive Compensation - Summary
Compensation Table"), and (D) all executive officers, directors and director
nominees of the Company as a group. Unless otherwise indicated, the address of
each person named in the table below is c/o Puroflow Incorporated, 16559 Saticoy
Street, Van Nuys, California 91406.
NUMBER OF SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
NAME OWNED (1) OWNED
--------- -----
Steel Partners II, L.P. (Warren G. Lichtenstein** - Sole Voting Power) 2,219,000 (2) 30.0%
Reuben M. Siwek 362,750 (3) 4.9%
David S. Nagelberg 459,350 (4) 6.2%
Michael H. Figoff** 197,000 (5) 2.6%
George Solymar 334,650 (6) 4.5%
Robert A. Smith** 76,000 (7) 1.0%
Dale Livingston 21,000 (8) *
Dr. Tracy Kent Pugmire** 31,000 (9) *
Wayne Conner 25,000 (10) *
Travis Bradford** 0 (2) 0
Glen Kassan** 0 (2) 0
Joshua Schechter** 0 (2) 0
All directors, director nominees and
executive officers as a group (nine persons) 2,569,000 34.7%
* Less than 1%
** Denotes nominee for election as director at the Annual Meeting.
(1) As used in this table, a beneficial owner of a security includes any
person who, directly or indirectly, through contract, arrangement,
understanding, relationship or otherwise has or shares (i) the power
to vote, or direct the voting of, such security or (ii) investment
power which includes the power to dispose, or to direct the
disposition of, such security. In addition, a person is deemed to be
the beneficial owner of a security if that person has the right to
acquire beneficial ownership of such security within 60 days of the
date shown above.
(2) Based upon a Form 4 filed jointly with the Securities and Exchange
Commission (the "Commission") by Steel Partners II, L.P. and Warren
Lichtenstein. The business address of Steel Partners II, L.P. and
Messrs. Lichtenstein and Bradford is 150 East 52nd Street, 21st
Floor, New York, New York 10022.
(3) Includes 70,000 shares of Common Stock owned by estate of Martha
Siwek. Mr. Siwek disclaims beneficial ownership of the shares owned
by estate of Martha Siwek.
(4) Based upon a Schedule 13G filed with the Commission by Mr.
Nagelberg. Includes 99,250 shares owned by The Nagelberg Family
Trust over which Mr. Nagelberg and his spouse, as trustees, share
voting and
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dispositive power. The business address of Mr. Nagelberg is c/o M.H.
Meyerson & Co., Inc., P.O. Box 2142, Rancho Santa Fe, California
92067-2142.
(5) Includes options to purchase 55,000 shares of Common Stock, which
are exercisable within 60 days hereof.
(6) The business address of Mr. Solymar is 2203 Crescent Avenue,
Montrose, California 91020.
(7) Includes options to purchase 10,000 shares of Common Stock, which
are exercisable within 60 days hereof.
(8) Includes options to purchase 12,600 shares of Common Stock, which
are exercisable within 60 days hereof.
(9) Includes options to purchase 10,000 shares of Common Stock, which
are exercisable within 60 days hereof.
(10) Includes options to purchase 21,000 shares of Common Stock, which
are exercisable within 60 days hereof.
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PROPOSAL 1: ELECTION OF DIRECTORS
Directors of the Company are elected annually at the annual meeting
of stockholders. Their respective terms of office continue until their
successors have been duly elected and qualified in accordance with the Company's
By-laws. There are no family relationships among any of the directors or
executive officers of the Company.
The Board nominated Michael H. Figoff, Robert A. Smith, Dr. Tracy
Kent Pugmire, Warren G. Lichtenstein, Travis Bradford, Glen Kassan and Joshua
Schechter for election to the Board at the Annual Meeting. At the Annual
Meeting, seven directors are to be elected to serve for a term of one year and
until their respective successors are duly elected and qualified.
The designated representatives named in the enclosed proxy card
intend to vote for the election to the Board of Directors each of the seven
nominees named in the table below to serve until the 2002 Annual Meeting of
Stockholders and until their successors shall be duly elected and qualified,
unless the proxy card is marked to expressly indicate otherwise. Should any of
such nominees be unable or unwilling to accept such election (which the Board of
Directors does not anticipate), then the designated representatives named in the
enclosed proxy card will vote for the election of such other person as the Board
of Directors may recommend. Proxies cannot be voted for a greater number of
persons than the number of nominees named.
INFORMATION CONCERNING DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS
The following table sets forth information regarding the directors,
the director nominees and the executive officers of the Company as of June 29,
2001.
NAME AGE POSITIONS WITH THE COMPANY
---- --- --------------------------
Michael H. Figoff(1) 58 Director, CEO and President
Robert A. Smith(1) 60 Director, Vice Chairman of the Board
Dr. Tracy Kent Pugmire(1) 70 Director
Warren G. Lichtenstein(1) 36 Director
Travis Bradford(1) 29 Director, Acting Chairman of the Board
Glen Kassan 57 Director Nominee
Joshua Schechter 28 Director Nominee
Wayne Conner 53 Vice President of Engineering
Dale Livingston 62 Vice President of Operations
------------------------------
(1) Indicates current member of the Board of Directors standing for
re-election at the Annual Meeting.
The business experience of each of the persons listed above for at
least five years is as follows:
MICHAEL H. FIGOFF has served as President and Chief Executive
Officer and Director of the Company since May 1995. Mr. Figoff joined the
Company in 1988 and has previously served as its Executive Vice President and
Director of Marketing. Prior to joining the Company, Mr. Figoff served in
various capacities with Lockheed Martin, Textron, Fairchild and Ferranti
International.
ROBERT A. SMITH has served as a Director of the Company since July
1994. Mr. Smith had been President of Microsource Incorporated, a subsidiary of
Giga-Tronics, from October 1998 until May 2001 and currently serves as
Microsource's Vice Chairman. Previously, Mr. Smith served as President of the
Industrial Products Group of Haskel International Inc. from February 1995 to
January 1998; President and Chief Executive Officer of Industrial Tools Inc.
from January 1994 to February 1995; President of Engineered Filtration Company
from October 1992 to January 1994; President of Puroflow Corporation, a
wholly-owned subsidiary of the Company, from February 1991 to October 1992; and
President of RTS Systems Incorporated from May 1988 to February 1991, when the
company was acquired by Telex Communications, Inc. Mr. Smith served as President
of Purolator Technologies Inc. from 1980 to 1988 and served as the General
Manager of the Filter Division of HR Textron Inc. from 1964 to 1980.
DR. TRACY KENT PUGMIRE has served as a Director of the Company since
June 1991. Since April 1992, Dr. Pugmire has served as an independent technical
consultant. Dr. Pugmire currently provides consulting services to Spincraft, a
Division of Standex International, and is involved with the design and
fabrication of the X-33 and X-34 rocket vehicles. Previously, Dr. Pugmire was
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Executive Vice President of ARDE Inc. and worked as a Program Manager for
several companies including TRW Space Systems Division, Technion Inc., AVCO
Missile and Space Systems (now a division of Textron), General Electric Space
Sciences Laboratory, and Boeing Propulsion and Mechanical Systems Department.
WARREN G. LICHTENSTEIN has served as a Director of the Company since
September 16, 1999. Mr. Lichtenstein has been the Chairman of the Board,
Secretary and the Managing Member of Steel Partners, L.L.C., the general partner
of Steel Partners II, L.P., since January 1, 1996. Prior to such time, Mr.
Lichtenstein was the Chairman and a director of Steel Partners, Ltd., the
general partner of Steel Partners Associates, L.P., which was the general
partner of Steel Partners II, L.P. from 1993 until prior to January 1, 1996. Mr.
Lichtenstein was the acquisition/risk arbitrage analyst at Ballantrae Partners,
L.P., a private investment partnership formed to invest in risk arbitrage,
special situations and undervalued companies, from 1988 to 1990. Mr.
Lichtenstein has served as a Director of WebFinancial Corporation, a consumer
and commercial lender, since 1996 and as its President and Chief Executive
Officer since December 1997. He has served as a Director of Gateway Industries,
Inc., a provider of database development and Web site design and development
services, since 1994 and as Chairman of the Board since 1995. He has served as
President, Chief Executive Officer and Director of CPX Corp., a company with no
significant business operations, since June 23, 1999 and as its Secretary and
Treasurer since May 3, 2001. Mr. Lichtenstein is also a Director of the
following publicly held companies: Tandycrafts, Inc., a manufacturer of picture
frames and framed art, ECC International Corp, a manufacturer and marketer of
computer-controlled simulators for training personnel to perform maintenance and
operator procedures on military weapons, US Diagnostic Inc., an operator of
outpatient medical diagnostic imaging and related facilities, and as Chairman of
the Board of Aydin Corporation from October 5, 1998 until its sale to L-3
Communications Corporation in April 1999.
TRAVIS BRADFORD has been a strategic and operational consultant for
over 10 years. He has been a Vice President of Steel Partners Services, Ltd., a
management and advisory company that provides services to Steel Partners II,
L.P., since June 1999. From March 1997 to May 1999, he was a member of Holding
Capital Group, LLC, an equity investment group. Mr. Bradford received his B.B.A.
in Finance from Georgia State University in 1992, and his M.B.A. in Finance and
Management from Stern School of Business at New York University in 1996. He also
attended the Ph.D. program at the University of Chicago studying finance and
economics.
GLEN KASSAN has served as Executive Vice President of Steel Partners
Services, Ltd. since June 2001 and as Vice President since October 1999. Mr.
Kassan has served as Vice President, Chief Financial Officer and Secretary of
Gateway Industries, Inc. since June 2000. He has also served as Vice President,
Chief Financial Officer and Secretary of WebFinancial Corporation since June
2000. From 1997 to 1998, Mr. Kassan served as Chairman and Chief Executive
Officer of Long Term Care Services, Inc., a privately owned healthcare services
company which Mr. Kassan co-founded in 1994 and initially served as Vice
Chairman and Chief Financial Officer. Mr. Kassan is currently a Director of
Tandycrafts, Inc. and the Chairman of the Board of US Diagnostic Inc.
JOSHUA SCHECHTER has served as an Associate of Steel Partners
Services, Ltd. since July 2001. From March 1998 to June 2001, Mr. Schechter was
an Associate in the corporate finance group at Imperial Capital, LLC, an
investment banking firm. From August 1997 to February 1998, he was a Senior
Analyst at Leifer Capital, Inc., an investment banking firm. From January 1996
to June 1997, Mr. Schechter was a Tax Consultant with Ernst & Young LLP. Mr.
Schechter received his B.B.A. and M.A. in Professional Accounting from the
University of Texas at Austin in 1995.
WAYNE CONNER has over 30 years of filtration experience and has been
the Vice President of Engineering of the Company since July 1997. From 1990 to
1994, Mr. Conner served as Senior Project Engineer - New Product Development for
the Hydraulic Filter Division of Parker Hannifin Corporation. Mr. Conner also
served in various capacities with Purolator Technologies Inc.
DALE LIVINGSTON has been the Vice President of Operations of the
Company since February 1998. From August 1995 until February 1998, Mr.
Livingston served as Director of Operations of the Company, and from October
1989 until August 1995, he served as Production Manager of the Company. Mr.
Livingston previously served in various capacities with Parker Hannifin
Corporation, Hydraulic Research/Textron, Talley Corporation, The Marquardt
Company and Teleflex Control Systems.
Each of the director nominees has consented to serve as a director
and, if elected, intends to discharge his duties as director of the Company in
compliance with all applicable legal requirements, including the general
fiduciary obligations imposed upon corporate directors.
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VOTE REQUIRED
Approval of Proposal 1 to elect seven directors requires the
affirmative vote of a plurality of the shares of Common Stock represented in
person or by proxy at the Annual Meeting. The seven director nominees are
Michael H. Figoff, Robert A. Smith, Dr. Tracy Kent Pugmire, Warren G.
Lichtenstein, Travis Bradford, Glen Kassan and Joshua Schechter. The Board of
Directors recommends that stockholders vote FOR each of these seven director
nominees.
INFORMATION CONCERNING MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES AND
DIRECTOR COMPENSATION
The business affairs of the Company are managed under the direction
of the Board of Directors. Members of the Board are informed about the Company's
affairs through presentations, reports and documents distributed to them,
through operating and financial reports routinely presented at meetings of the
Board of Directors and committee meetings, and through other means. In addition,
directors of the Company discharge their duties throughout the year not only by
attending meetings of the Board of Directors but also through personal meetings
and other communications, including telephone contact with management and others
regarding matters of interest and concern to the Company.
During the fiscal year ended January 31, 2001, the Company's Board
of Directors held one meeting and acted by unanimous written consent three
times. Each director attended the Board meeting and committee meetings, to the
extent they were a member of such committee, held during the fiscal year ended
January 31, 2001.
BOARD COMMITTEES
The Board of Directors has a standing Audit Committee and
Compensation Committee, which each met once during the fiscal year ended January
31, 2001. The Audit and Compensation Committees do not meet on a regular basis,
but only as circumstance require. The members of the Audit and Compensation
Committees are appointed by the Board of Directors. The Company does not
currently have a nominating committee. Nominations to the Board of Directors are
made by the entire Board.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee held a meeting on May 21, 2001 in order to
review and discuss the audited financial statements with management and to
discuss with the independent auditors the matters required to be discussed by
SAS 61. The Audit Committee has also received the written disclosures and the
letter from Rose, Snyder & Jacobs, the Company's independent auditors,
required by Independence Standards Board Standard No. 1 and has discussed with
Rose, Snyder & Jacobs the independent auditor's independence. Based on the
Audit Committee's discussions with management and Rose, Snyder & Jacobs and
its review of the audited financial statements and disclosure from the
independent auditors, the Audit Committee recommended to the Board of Directors
that the audited financial statements be included in the Company's Annual Report
on Form 10-KSB for the year ended January 31, 2001 for filing with the
Commission.
Submitted by the Audit Committee
Robert A. Smith
Dr. Tracy K. Pugmire
An Audit Committee charter is in the process of being drawn and will
be incorporated in the next Proxy Statement. A new Audit Committee will be
elected by the Board of Directors after the Annual Meeting.
COMPENSATION COMMITTEE. The Compensation Committee recommends to the
Board of Directors compensation of the Company's executive officers and other
key personnel, reviews new or existing compensation programs and periodically
reviews management perquisites and other benefits. The current members of the
Compensation Committee are Mr. Smith and Dr. Pugmire. A new Compensation
Committee will be elected by the Board of Directors after the Annual Meeting.
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DIRECTOR COMPENSATION
Each outside director of the Company receives a $2,500 annual fee,
plus $300 for each formal meeting attended. Directors are also reimbursed for
reasonable expenses actually incurred in connection with attending each formal
meeting of the Board of Directors or any committee thereof. The Company's
outside directors are currently Messrs. Smith, Lichtenstein, Bradford and Dr.
Pugmire. If all the director nominees are elected at the Annual Meeting, the
Company's outside directors will be Messrs. Smith, Lichtenstein, Bradford,
Kassan, Schechter and Dr. Pugmire.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors
and executive officers and persons who beneficially own more than 10% of the
Company's Common Stock (collectively, the "Reporting Persons") to file with the
Commission (and, if such security is listed on a national securities exchange,
with such exchange), various reports as to ownership of such Common Stock. Such
Reporting Persons are required by Commission regulations to furnish the Company
with copies of all Section 16(a) reports they file. Based solely upon a review
of copies of Section 16(a) reports and representations received by the Company
from Reporting Persons, and without conducting any independent investigations of
its own, the Company believes that no Reporting Person failed to timely file
Forms 3, 4, and 5 with the Commission during the fiscal year ended January 31,
2001.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following summary compensation table sets forth the aggregate
compensation paid to or earned by the President and Chief Executive Officer of
the Company and the four most highly compensated executive officers of the
Company (other than the President and Chief Executive Officer) whose total
annual salaries and bonuses exceeded $100,000 for the year ended January 31,
2001 (the "Named Executive Officers").
Annual Compensation
-------------------
Long-Term
Compensation
Awards
Securities
Name and Fiscal Underlying All Other
Principal Position Year Salary($) Bonus ($) Options/SARs Compensation ($) (1)
------------------ ---- --------- --------- ------------ ---------------------
Michael H. Figoff 2001 165,000 - - 27,101
President and Chief 2000 165,000 - - 22,894
Executive Officer 1999 160,875 - - 19,827
Wayne Conner 2001 106,391 - - 7,813
Vice President of 2000 103,858 - - 7,849
Engineering 1999 98,458 10,000 5,000 6,469
Dale Livingston 2001 102,400 - - 6,554
Vice President of 2000 99,542 - - 6,590
Operations 1999 94,292 5,000 5,000 5,093
--------------------------------
(1) Represents Company-reimbursed automobile expenses of such executive
and life and disability insurance premiums paid by the Company.
OPTION/SAR GRANTS IN FISCAL YEAR
No options were granted to any of the Named Executive Officers
during the fiscal year ended January 31, 2001.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table provides certain information regarding stock
option ownership and exercises by the Named Executive Officers, as well as the
number and assumed value of exercisable and unexercisable options held by those
persons at January 31, 2001.
Number of Securities Value of Unexercised In
Underlying Unexercised The Money Options/SARs
Name Options/SARs at 01/31/01 at 01/31/01($)
---- ------------------------ --------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Michael Figoff 55,000 0 0 0
Wayne Conner 21,000 4,000 0 0
Dale Livingston 12,600 4,000 0 0
------------------------
(1) Value of unexercised "in-the-money" options is equal to the difference
between the closing bid price per share of the Common Stock on the OTC
Bulletin Board at January 31, 2001 ($0.58) and the option exercise price
per share multiplied by the number of shares subject to options.
EMPLOYMENT AGREEMENTS
On March 1, 1993, the Company entered into an employment agreement
with Michael Figoff pursuant to which Mr. Figoff agreed to serve as the
Executive Vice President of the Company for a term of five years at an annual
base salary of $95,000. Effective February 14, 1994, Mr. Figoff's annual base
salary was increased to $104,500. Mr. Figoff was appointed President of the
Company in February 1995, and was appointed President and Chief Executive
Officer in May 1995. In April 1997, Mr. Figoff's annual base salary was
increased to $165,000. On June 9, 1998, the Company extended Mr. Figoff's
employment agreement for a term of five years at an annual base salary of
$165,000.
9
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1998, the Board authorized the issuance of one million
shares of Common Stock to certain officers, directors and employees of the
Company. Each purchaser was permitted to purchase not less than 10,000 shares
and no more than 200,000 shares at a price of $.75 per share. Twenty percent of
the purchase price was payable in cash. The balance of the purchase price was
payable over the course of three years following the date of purchase pursuant
to 5% promissory notes executed by each purchaser. In March 2000, the Company
agreed to retire the remaining indebtedness under such notes of Reuben Siwek,
Robert Smith, Michael Figoff and certain other officers and employees of the
Company, in exchange for the retirement of 731,030 of the shares which they had
purchased in such transaction.
Reuben M. Siwek, the former Chairman of the Board of Directors of
the Company, renders legal services to the Company. The Company incurred
expenses of approximately $53,636, $72,257 and $83,078 during the fiscal years
ended January 31, 2001, 2000, and 1999, respectively, for legal services
rendered by Mr. Siwek.
10
PROPOSAL NO. 2: TO ADOPT THE 2001 STOCK OPTION PLAN
On July 19, 2001, the Board of Directors of the Company adopted the
2001 Stock Option Plan (the 2001 Plan), which is set forth in ANNEX A to this
Proxy Statement. The 2001 Plan will not become effective unless it is approved
by the holders of record of a majority of the shares of Common Stock present in
person or represented by proxy at the Annual Meeting.
The 2001 Plan is intended to assist the Company in securing and
retaining employees, directors, officers, consultants and advisors (the
"Optionees") by allowing them to participate in the ownership and growth of the
Company through the grant of incentive and nonqualified stock options. The
granting of such options serves as partial consideration for and gives the
Optionees an additional inducement to remain in the service of the Company and
its subsidiaries and provides them with an increased incentive to work towards
the Company's success. Shares of Common Stock may be issued under the 2001 Plan
upon the exercise of incentive stock options, as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified stock
options.
The Board of Directors believes it is in the Company's and its
stockholders' best interests to approve the 2001 Plan because it would (i) allow
the Company to grant options which facilitates the benefits of the additional
incentive inherent in the ownership of Common Stock by the Optionees and helps
the Company retain the services of these Optionees and (ii) enable compensation
received under the 2001 Plan to qualify as "performance-based" for purposes of
Section 162(m) of the Code with respect to those options for which qualification
for such exception is intended.
ADMINISTRATION
The 2001 Plan will be administered by a Stock Option Committee (the
"2001 Option Committee"), consisting of not less than two members of the Board
of Directors appointed by the Board of Directors. The 2001 Option Committee will
select the employees, directors, officers, consultants and advisors who will be
granted options to purchase shares of Common Stock under the 2001 Plan and,
subject to the provisions of the 2001 Plan, will determine the terms and
conditions and number of shares of Common Stock subject to each such option. The
2001 Option Committee will also make any other determinations necessary or
advisable for the administration of the 2001 Plan. The determinations by the
2001 Option Committee will be final and conclusive. In the event that for any
reason the 2001 Option Committee is unable to act or if the 2001 Option
Committee at the time of any grant, award or other acquisition under the 2001
Plan does not consist of two or more Non-Employee Directors (as such term is
defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended), or if there shall be no such committee, then the plan shall be
administered by the Board of Directors, provided that options granted to the
Company's chief executive officer or to any of the Company's other four most
highly compensated officers that are intended to qualify as performance based
compensation under Section 162(m) of the Code may only be granted by such 2001
Option Committee. Options granted under the 2001 Plan shall vest and become
exercisable at such times as shall be determined by the 2001 Option Committee.
The 2001 Plan will terminate on July 18, 2011, but may be terminated by the
Board of Directors at any time before that date.
SHARES SUBJECT TO THE 2001 PLAN
The shares of Common Stock to be issued under the 2001 Plan will be
either currently authorized but unissued shares of Common Stock, treasury stock
or previously issued shares held by any subsidiary of the Company. An aggregate
of 500,000 shares of Common Stock (or 33,333 shares of Common Stock if Proposal
3 is approved) have been reserved for issuance under the 2001 Plan. The number
of shares of Common Stock available under the 2001 Plan will be subject to
adjustment to prevent dilution in the event of a stock split, combination of
shares, stock dividend or certain other events. Shares of Common Stock subject
to unexercised Options that expire or are terminated prior to the end of the
period during which options may be granted will be restored to the aggregate
number of shares of Common Stock available for issuance under the 2001 Plan.
OPTIONS
Upon the grant of an option to purchase shares of Common Stock to an
employee, the 2001 Option Committee will fix the number of shares of the
Company's Common Stock that the optionee may purchase upon exercise of such
option and the price at which the shares may be purchased. The option price for
incentive options shall not be less than 100% of the "fair market value" of the
11
shares of Common Stock at the time such option is granted; provided, however,
that with respect to an incentive stock option in the case of an optionee, who,
at the time such option is granted, owns more than 10% of the voting stock of
the Company or its subsidiaries, then the purchase price per share shall be at
least 110% of the fair market value. "Fair market value" is deemed to be the
closing price of shares of Common Stock on such date, on the New York Stock
Exchange ("NYSE"), or if the shares of Common Stock are not listed on the NYSE,
in the principal market in which such shares of Common Stock are traded. The
aggregate fair market value of shares of Common Stock (determined at the time
the incentive stock option is granted) subject to incentive stock options
granted to an Optionee under all stock option plans of the Company, and of the
Company's subsidiaries (if any), that become exercisable for the first time by
such Optionee during any calendar year may not exceed $100,000. The option price
for nonqualified options shall not be less than 80% of the fair market value of
the shares of Common Stock at such time such option is granted; provided,
however, that if an option granted to the Company's chief executive officer or
to any of the Company's other four most highly compensated officers is intended
to qualify as performance-based compensation under Section 162(m) of the Code,
the exercise price of such option shall not be less than 100% of the fair market
value of such share of stock on the date the option is granted. The maximum
number of shares of Common Stock that may be subject to options granted under
the 2001 Plan to any individual in any calendar year shall not exceed 200,000.
Payment of the exercise price for shares of Common Stock subject to options may
be made with cash, check or such other instrument as may be acceptable to the
Company. Full payment for shares of Common Stock exercised must be made at the
time of exercise.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. Incentive stock options granted under the
2001 Plan are intended to be "incentive stock options" as defined by Section 422
of the Code. Under present law, the grantee of an incentive stock option will
not realize taxable income upon the grant or the exercise of the incentive stock
option and the Company will not receive an income tax deduction at either such
time. If the grantee does not sell the shares acquired upon exercise of an
incentive stock option within either (i) two years after the grant of the
incentive stock option or (ii) one year after the date of exercise of the
incentive stock option, the gain upon a subsequent sale of the shares will be
taxed as long-term capital gain. If the grantee, within either of the above
periods, disposes of the shares acquired upon exercise of the incentive stock
option, the grantee will recognize as ordinary income an amount equal to the
lesser of (i) the gain realized by the grantee upon such disposition or (ii) the
difference between the exercise price and the fair market value of the shares on
the date of exercise. In such event, the Company would be entitled to a
corresponding income tax deduction equal to the amount recognized as ordinary
income by the grantee. The gain in excess of such amount recognized by the
grantee as ordinary income would be taxed as a long-term capital gain or
short-term capital gain.
Non-Qualified Stock Options. Upon exercise of a non-qualified stock
option granted under the 2001 Plan, the grantee will recognize ordinary income
in an amount equal to the excess of the fair market value of the shares received
over the exercise price of such shares. The Company will be allowed a federal
income tax deduction for the amount recognized as ordinary income by the grantee
upon the grantee's exercise of the option.
Summary of Tax Consequences. The foregoing outline is no more than a
summary of the federal income tax provisions relating to the grant and exercise
of options under the 2001 Plan.
12
The Board of Directors believes it is in the Company's best
interests to approve the 2001 Plan which would allow the Company to continue to
grant options under the 2001 Plan to secure for the Company the benefits of the
additional incentive inherent in the ownership of shares of the Company's Common
Stock by directors, consultants and advisors and to help the Company secure and
retain the services of directors, consultants and advisors and to enable
compensation under the 2001 Plan to qualify as "performance-based" for purposes
of Section 162(m) of the Code.
Section 162(m) of the Code provides that a publicly traded company
may not deduct for federal income tax purposes compensation paid to the chief
executive officer or any of the four most highly compensated other officers
("Covered Employees") to the extent such compensation exceeds $1,000,000 in any
one tax year, unless the payments, among other things, are made based upon the
attainment of objective performance goals established by a committee of the
Board of Directors, comprised solely of two or more outside directors, and based
upon business criteria and other material terms approved by stockholders of such
publicly traded company. The 2001 Plan is designed so that options may be
granted to Covered Employees in a manner considered performance-based and hence
fully deductible. If such stockholder approval is not obtained as may be
necessary in order to satisfy the requirements of Section 162(m) of the Code, it
is possible that options granted under the 2001 Plan to Covered Employees may
not be fully deductible for federal tax purposes.
VOTE REQUIRED
Approval of Proposal 2 to adopt the 2001 Plan requires the
affirmative vote of a majority of the shares of Common Stock represented in
person or by proxy at the Annual Meeting. The Board of Directors recommends that
the stockholders vote FOR Proposal 2.
13
PROPOSAL 3: APPROVAL OF THE REVERSE STOCK SPLIT
The Board of Directors believes it would be in the best interests of
the Company and its stockholders to effect a reverse stock split of each fifteen
shares of the Company's issued and outstanding Common Stock into one new share
of Common Stock (the "Reverse Stock Split"). In this regard, the Board has
unanimously approved, and recommends to stockholders that they approve, the
Reverse Stock Split, as described herein. The Reverse Stock Split will be
effected by the filing of an amendment to the Company's Certificate of
Incorporation, which contains the changes relating to the Reverse Stock Split,
substantially as set forth in ANNEX B to this Proxy Statement.
If the Reverse Stock Split is approved, each fifteen shares of the
Company's Common Stock would be changed into one share of Common Stock. The par
value of the Common Stock would be changed to $.15 per share (from $.01 per
share). Fractional shares of Common Stock will not be issued as a result of the
Reverse Stock Split. Instead, the Company will pay each holder of a fractional
interest an amount in cash equal to the then market value of such fractional
interest. Such market value will be determined by calculating the average
closing price of the Common Stock on the OTC Bulletin Board for the ten business
days prior to the date the Reverse Stock Split amendment is filed with the
Secretary of State of the State of Delaware. The per share exercise price and
the number of shares issuable upon exercise of outstanding options will be
adjusted accordingly. For example, the Company currently has outstanding options
to purchase approximately 161,600 shares of Common Stock at an average exercise
price of $0.63 per share. If the Reverse Stock Split is approved, and assuming
no other grants of options or exercises of outstanding options, the Company will
have outstanding options to purchase approximately 10,773 shares of Common Stock
at an average exercise price of $9.45 per share.
Dissenting stockholders have no appraisal rights under Delaware law,
the Company's Certificate of Incorporation or the Company's By-laws in
connection with the approval of the Reverse Stock Split amendment and the
consummation of the Reverse Stock Split.
PURPOSES OF THE REVERSE STOCK SPLIT
The Board of Directors believes that the Reverse Stock Split may
improve the marketability and liquidity of the Common Stock because the
anticipated increase in the per share price of the Common Stock should reduce
the reluctance of many brokerage firms and institutional investors to recommend
the Common Stock to their clients or to otherwise hold it in their own
portfolios.
The Board of Directors believes that some of the practices of the
securities industry which may tend to discourage individual brokers within those
firms from dealing in lower-priced stocks or lending funds (i.e. providing
margin) to facilitate the purchase of such stocks, have affected the per share
price of the Common Stock. Some of those practices involve time-consuming
procedures which make dealing in lower-priced stocks less appealing
economically. Furthermore, the brokerage commission on a sale of lower-priced
stock may also represent a higher percentage of the sale price than the actual
brokerage commission on a higher-priced issue.
The Board of Directors believes that a decrease in the number of
issued and outstanding shares of Common Stock, in the absence of any material
alteration in the proportionate economic interest in the Company held by its
individual stockholders, should proportionately increase the market value of the
outstanding shares. However, the Board makes no assurance that the market value
of the Common Stock will rise in proportion to the reduction in the number of
outstanding shares resulting from the Reverse Stock Split. Accordingly, there
can be no assurance that the foregoing objectives will be achieved or that the
market price of the Common Stock resulting upon implementation of the proposed
Reverse Stock Split will be maintained for any period of time or that such
market price will approximate fifteen times the market price before the proposed
Reverse Stock Split.
14
POTENTIAL EFFECTS OF THE REVERSE STOCK SPLIT
Pursuant to the Reverse Stock Split, each holder of fifteen shares
of Common Stock, par value $.01 per share ("Old Common Stock"), immediately
prior to the effectiveness of the Reverse Stock Split would become the holder of
one share of Common Stock, par value $.15 per share ("New Common Stock"), after
consummation of the Reverse Stock Split.
Although the Reverse Stock Split will not, by itself, impact the
Company's assets or prospects, the Reverse Stock Split could result in a
decrease in the aggregate market value of the Company's equity capital. The
Board of Directors believes that this risk is outweighed by the benefits of the
Reverse Stock Split.
If approved, the Reverse Stock Split will result in some
stockholders owning "odd-lots" of less than 100 shares of Common Stock.
Brokerage commissions and other costs of transactions in odd-lots are generally
somewhat higher than the costs of transactions in "round-lots" of even multiples
of 100 shares.
INCREASE OF SHARES OF COMMON STOCK AVAILABLE FOR FUTURE ISSUANCE
As a result of the Reverse Stock Split, there will be a reduction in
the number of shares of Common Stock issued and outstanding, or held as treasury
shares, and an associated increase in the number of authorized shares which
would be unissued and available for future issuance after the Reverse Stock
Split (the "Increased Available Shares"). The Increased Available Shares could
be used for any proper corporate purpose approved by the Board of Directors of
the Company including, among others, future financing transactions.
Because the Reverse Stock Split will create the Increased Available
Shares, the Reverse Stock Split may be construed as having an anti-takeover
effect. Although neither the Board of Directors nor the management of the
Company views the Reverse Stock Split as an anti-takeover measure, the Company
could use the Increased Available Shares to frustrate persons seeking to effect
a takeover or otherwise gain control of the Company.
EFFECTIVENESS OF THE REVERSE STOCK SPLIT
The Reverse Stock Split, if approved by the Company's stockholders,
would become effective (the "Effective Date") upon the filing with the Secretary
of State of the State of Delaware of a Certificate of Amendment of the Company's
Certificate of Incorporation in substantially the form of the Reverse Stock
Split Amendment attached to this Proxy Statement as ANNEX B. It is expected that
such filing will take place on or shortly after the date of the Annual Meeting,
assuming the stockholders approve the Reverse Stock Split. However, the exact
timing of the filing of such Certificate of Amendment will be determined by the
Board of Directors based upon its evaluation as to when such action will be most
advantageous to the Company and its stockholders, and the Board of Directors
reserves the right to delay the Reverse Stock Split Amendment for up to twelve
months following stockholder approval thereof. In addition, the Board of
Directors reserves the right, notwithstanding stockholder approval and without
further action by the stockholders, to elect not to proceed with the Reverse
Stock Split Amendment if, at any time prior to filing such Reverse Stock Split
Amendment, the Board of Directors, in its sole discretion, determines that it is
no longer in the best interests of the Company and its stockholders.
Commencing on the Effective Date, each Old Common Stock certificate
will be deemed for all corporate purposes to evidence ownership of the reduced
number of shares of Common Stock resulting from the Reverse Stock Split and any
cash which may be payable in lieu of fractional shares. As soon as practicable
after the Effective Date, stockholders will be notified as to the effectiveness
of the Reverse Stock Split and instructed as to how and when to surrender their
certificates representing shares of Old Common Stock in exchange for
certificates representing shares of New Common Stock (and, if applicable, cash
in lieu of fractional shares).
On the Effective Date, the interest of each stockholder of record
who owns fewer than fifteen shares of Common Stock will thereby be terminated,
and he, she or it will have no right to vote as a stockholder or share in the
assets of any future earnings of the Company.
15
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material anticipated Federal
income tax consequences of the Reverse Stock Split to stockholders of the
Company. It should be noted that this summary is based upon the Federal income
tax laws currently in effect and as currently interpreted. This summary does not
take into account possible changes in such laws or interpretations, including
any amendments to applicable statutes, regulations and proposed regulations, or
changes in judicial or administrative rulings, some of which may have
retroactive effect. The summary is provided for general information only, and
does not purport to address all aspects of the range of possible Federal income
tax consequences of the Reverse Stock Split and is not intended as tax advice to
any person. In particular, and without limiting the foregoing, this summary does
not account for or consider the Federal income tax consequences to stockholders
of the Company in light of their individual investment circumstances or to
holders subject to special treatment under the Federal income tax laws (for
example, life insurance companies, regulated investment companies, and foreign
taxpayers). This summary does not discuss any consequence of the Reverse Stock
Split under any state, local or foreign tax laws.
No ruling from the Internal Revenue Service or opinion of counsel
will be obtained regarding the Federal income tax consequences to the
stockholders of the Company in connection with the Reverse Stock Split.
ACCORDINGLY, EACH STOCKHOLDER IS ENCOURAGED TO CONSULT ITS TAX ADVISER REGARDING
THE SPECIFIC TAX CONSEQUENCES OF THE PROPOSED REVERSE STOCK SPLIT TO SUCH
STOCKHOLDER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND
FOREIGN TAXES, AND ANY OTHER TAX LAWS.
The Board of Directors believes that the Reverse Stock Split would
be a tax-free recapitalization to the Company and its stockholders. If the
Reverse Stock Split qualifies as a recapitalization described in Section
368(a)(1)(E) of the Internal Revenue Code of 1986, as amended (the "Code"), (i)
no gain or loss will be recognized by a stockholder of Common Stock who
exchanges its Common Stock for new Common Stock, except that a holder of Common
Stock who receives cash proceeds from the sale of fractional shares of Common
Stock will recognize a gain or loss equal to the difference, if any, between
such proceeds and the basis of its Common Stock allocated to its fractional
share interests, and such gain or loss, if any, will constitute capital gain or
loss if its fractional share interests are held as capital assets at the time of
their sale, (ii) the tax basis of the New Common Stock received by holders of
Common Stock will be the same as the tax basis of the Common Stock exchanged
therefore, less the tax basis allocated to fractional share interests and (iii)
the holding period of the new Common Stock in the hands of holders of New Common
Stock will include the holding period of their Common Stock exchanged therefore,
provided that such Common Stock was held as a capital asset immediately prior to
the exchange.
CONCLUSION
The Board of Directors has considered this Proposal and believes
that the Reverse Stock Split of the Company's issued and outstanding shares of
Common Stock is in the best interests of its stockholders. The Board of
Directors recommends that the stockholders vote FOR Proposal 3.
16
PROPOSAL 4: RATIFICATION OF INDEPENDENT AUDITORS
Rose, Snyder & Jacobs has acted as the independent auditors of
the Company since November 1995, and has acted in such capacity in connection
with the preparation of the Company's audited consolidated financial statements
for the year ended January 31, 2001 and the report contained therein, which is
included in the Company's Annual Report to Stockholders accompanying this Proxy
Statement. As independent auditors for the Company, Rose, Snyder & Jacobs is
responsible for auditing the accounts of the Company and providing other audit
and accounting services to the Company in connection with filings with the
Commission.
In June 2001, the Board of Directors approved the appointment of
Rose, Snyder & Jacobs as the Company's independent auditors for the year
ending January 31, 2002. The stockholders are being asked to ratify the
appointment of Rose, Snyder & Jacobs as independent auditors for the year
ending January 31, 2002. A representative of Rose, Snyder is expected to be
present at the Annual Meeting and available to respond to appropriate questions.
Such representative also will have the opportunity, if desired, to make a
statement to the stockholders.
AUDIT FEES:
Audit fees billed to the Company by Rose, Snyder & Jacobs during
the Company's 2001 fiscal year for review of the Company's annual financial
statements and those financial statements included in the Company's quarterly
reports on Form 10-QSB totaled approximately $48,650.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES:
The Company did not engage Rose, Snyder & Jacobs to provide
advice to the Company regarding financial information systems design and
implementation during the fiscal year ended January 31, 2001.
ALL OTHER FEES:
Fees billed to the Company by Rose, Snyder & Jacobs during the
Company's 2001 fiscal year for all other non-audit services rendered to the
Company, including tax related services totaled approximately $10,200.
REQUIRED AFFIRMATIVE VOTE
Ratification of the appointment of Rose, Snyder & Jacobs as
independent auditors of the Company for the year ending January 31, 2002
requires the affirmative vote of holders of a majority of the shares of Common
Stock represented in person or by proxy at the Annual Meeting. The Board of
Directors recommends that the stockholders vote FOR Proposal 4.
STOCKHOLDER PROPOSALS
Proposals submitted for consideration at any future meeting of
stockholders must comply with Rules 14a-8 and 14a-4(c) promulgated by the
Commission pursuant to the Exchange Act. Stockholder proposals requested to be
included in the Company's Proxy Statement for the 2002 Annual Meeting of
Stockholders must comply with Rule 14a-8 and must be received by the Company at
its principal executive offices, 16559 Saticoy Street, Van Nuys, California
91406 (Attn: Corporate Secretary), no later than April 6, 2002 to be included in
the Company's Proxy Statement for the 2002 Annual Meeting of Stockholders. The
Company has chosen April 6, 2002 because it is at least 120 days prior to August
6, 2002.
Rule 14a-4(c)(1) governs a company's use of its discretionary proxy
voting authority with respect to a stockholder proposal that is not addressed in
a company's proxy statement. Under this rule, if a proponent of a proposal fails
to notify a company at least 45 days prior to the month and day of mailing of
the prior year's proxy statement, or, if a company's annual meeting date has
changed by more than 30 days from the prior year, within such other reasonable
time frame (the "Notice Date"), the company will be allowed to use its
discretionary voting authority when the proposal is raised at the meeting, even
if that proposal is not discussed in the company's proxy statement. If notice of
a proposal is timely received by the company, then under Rule 14a-4(c)(2), the
company may exercise its discretionary proxy voting authority on such proposal
if the company includes a discussion of the proposal in its proxy statement and
discloses therein how it intends to vote on the matter. Notwithstanding the
17
previous sentence, a company may not exercise its discretionary proxy voting
authority if the proponent of such proposal notifies the company of its intent
to solicit proxies for such proposal and in fact delivers a proxy statement to
stockholders in connection therewith.
OTHER MATTERS
The Company had not received any notice of a stockholder proposal
prior to the mailing of this Proxy Statement, and the Board of Directors does
not know of any other matters that are to be presented for consideration at the
Annual Meeting. Should any other matters properly come before the Annual
Meeting, including any proposal made by a stockholder, the persons named in the
accompanying proxy card or their substitutes will vote such proxy on behalf of
the stockholders they represent in accordance with their best judgment, as
permitted by Rule 14a-4(c).
SOLICITATION OF PROXIES
Proxies are being solicited by and on behalf of the Board of
Directors. The Company will bear the costs of preparing and mailing the proxy
materials to its stockholders in connection with the Annual Meeting. The Company
will solicit proxies by mail and the directors and certain officers and
employees of the Company may solicit proxies personally or by telephone,
facsimile or telegraph. These persons will receive no additional compensation
for such services but will be reimbursed by the Company for reasonable
out-of-pocket expenses. The Company will request brokers, dealers, banks and
their nominees to solicit proxies from their clients, where appropriate, and
will reimburse them for reasonable out-of-pocket expenses related thereto.
ADDITIONAL INFORMATION
The Company will make available to any stockholder, without charge,
upon a written request therefore, copies of the Company's Annual Report on Form
10-KSB for the year ended January 31, 2001. Any such request should be directed
to Puroflow Incorporated, 16559 Saticoy Street, Van Nuys, California 91406,
Attention: Corporate Secretary.
FOR THE BOARD OF DIRECTORS
SANDY YOSHISATO
CORPORATE SECRETARY
Van Nuys, California
August 6, 2001
18
ANNEX A
PUROFLOW INCORPORATED
2001 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
This 2001 Stock Option Plan (the "Plan") is intended as an
incentive, to retain in the employ of and as directors, officers, consultants
and advisors to PUROFLOW INCORPORATED, a Delaware corporation (the "Company")
and any Subsidiary of the Company, within the meaning of Section 424(f) of the
United States Internal Revenue Code of 1986, as amended (the "Code"), persons of
training, experience and ability, to attract new employees, directors, officers,
consultants and advisors whose services are considered valuable, to encourage
the sense of proprietorship and to stimulate the active interest of such persons
in the development and financial success of the Company and its Subsidiaries.
It is further intended that certain options granted pursuant to
the Plan shall constitute incentive stock options within the meaning of Section
422 of the Code (the "Incentive Options") while certain other options granted
pursuant to the Plan shall be nonqualified stock options (the "Nonqualified
Options"). Incentive Options and Nonqualified Options are hereinafter referred
to collectively as "Options."
The Company intends that the Plan meet the requirements of Rule
16b-3 ("Rule 16b- 3") promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and that transactions of the type specified in
subparagraphs (c) to (f) inclusive of Rule 16b-3 by officers and directors of
the Company pursuant to the Plan will be exempt from the operation of Section
16(b) of the Exchange Act. Further, the Plan is intended to satisfy the
performance-based compensation exception to the limitation on the Company's tax
deductions imposed by Section 162(m) of the Code with respect to those Options
for which qualification for such exception is intended. In all cases, the terms,
provisions, conditions and limitations of the Plan shall be construed and
interpreted consistent with the Company's intent as stated in this Section 1.
2. ADMINISTRATION OF THE PLAN.
The Board of Directors of the Company (the "Board") shall appoint
and maintain as administrator of the Plan a Committee (the "Committee")
consisting of two or more directors who are "Non-Employee Directors" (as such
term is defined in Rule 16b-3) and "Outside Directors" (as such term is defined
in Section 162(m) of the Code), which shall serve at the pleasure of the Board.
The Committee, subject to Sections 3 and 5 hereof, shall have full power and
authority to designate recipients of Options, to determine the terms and
conditions of respective Option agreements (which need not be identical) and to
interpret the provisions and supervise the administration of the Plan.
-A1-
The Committee shall have the authority, without limitation, to designate which
Options granted under the Plan shall be Incentive Options and which shall be
Nonqualified Options. To the extent any Option does not qualify as an Incentive
Option, it shall constitute a separate Nonqualified Option.
Subject to the provisions of the Plan, the Committee shall
interpret the Plan and all Options granted under the Plan, shall make such rules
as it deems necessary for the proper administration of the Plan, shall make all
other determinations necessary or advisable for the administration of the Plan
and shall correct any defects or supply any omission or reconcile any
inconsistency in the Plan or in any Options granted under the Plan in the manner
and to the extent that the Committee deems desirable to carry into effect the
Plan or any Options. The act or determination of a majority of the Committee
shall be the act or determination of the Committee and any decision reduced to
writing and signed by all of the members of the Committee shall be fully
effective as if it had been made by a majority at a meeting duly held. Subject
to the provisions of the Plan, any action taken or determination made by the
Committee pursuant to this and the other Sections of the Plan shall be
conclusive on all parties.
In the event that for any reason the Committee is unable to act
or if the Committee at the time of any grant, award or other acquisition under
the Plan of Options or Stock as hereinafter defined does not consist of two or
more Non-Employee Directors, or if there shall be no such Committee, then the
Plan shall be administered by the Board, and references herein to the Committee
(except in the proviso to this sentence) shall be deemed to be references to the
Board, and any such grant, award or other acquisition may be approved or
ratified in any other manner contemplated by subparagraph (d) of Rule 16b-3;
provided, however, that options granted to the Company's Chief Executive Officer
or to any of the Company's other four most highly compensated officers that are
intended to qualify as performance-based compensation under Section 162(m) of
the Code may only be granted by the Committee.
3. DESIGNATION OF OPTIONEES.
The persons eligible for participation in the Plan as recipients
of Options (the "Optionees") shall include employees, officers and directors of,
and consultants and advisors to, the Company or any Subsidiary; provided that
Incentive Options may only be granted to employees of the Company and the
Subsidiaries. In selecting Optionees, and in determining the number of shares to
be covered by each Option granted to Optionees, the Committee may consider the
office or position held by the Optionee or the Optionee's relationship to the
Company, the Optionee's degree of responsibility for and contribution to the
growth and success of the Company or any Subsidiary, the Optionee's length of
service, age, promotions, potential and any other factors that the Committee may
consider relevant. An Optionee who has been granted an Option hereunder may be
granted an additional Option or Options, if the Committee shall so determine.
-A2-
4. STOCK RESERVED FOR THE PLAN.
Subject to adjustment as provided in Section 7 hereof, a total of
500,000 shares of the Company's Common Stock, $.01 par value per share (the
"Stock"), shall be subject to the Plan. The maximum number of shares of Stock
that may be subject to options granted under the Plan to any individual in any
calendar year shall not exceed 200,000, and the method of counting such shares
shall conform to any requirements applicable to performance-based compensation
under Section 162(m) of the Code. The shares of Stock subject to the Plan shall
consist of unissued shares, treasury shares or previously issued shares held by
any Subsidiary of the Company, and such amount of shares of Stock shall be and
is hereby reserved for such purpose. Any of such shares of Stock that may remain
unsold and that are not subject to outstanding Options at the termination of the
Plan shall cease to be reserved for the purposes of the Plan, but until
termination of the Plan the Company shall at all times reserve a sufficient
number of shares of Stock to meet the requirements of the Plan. Should any
Option expire or be canceled prior to its exercise in full or should the number
of shares of Stock to be delivered upon the exercise in full of an Option be
reduced for any reason, the shares of Stock theretofore subject to such Option
may be subject to future Options under the Plan, except where such reissuance is
inconsistent with the provisions of Section 162(m) of the Code.
5. TERMS AND CONDITIONS OF OPTIONS.
Options granted under the Plan shall be subject to the following
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) Option Price. The purchase price of each share of Stock
purchasable under an Incentive Option shall be determined by the Committee at
the time of grant, but shall not be less than 100% of the Fair Market Value (as
defined below) of such share of Stock on the date the Option is granted;
provided, however, that with respect to an Optionee who, at the time such
Incentive Option is granted, owns (within the meaning of Section 424(d) of the
Code) more than 10% of the total combined voting power of all classes of stock
of the Company or of any Subsidiary, the purchase price per share of Stock shall
be at least 110% of the Fair Market Value per share of Stock on the date of
grant. The purchase price of each share of Stock purchasable under a
Nonqualified Option shall not be less than 80% of the Fair Market Value of such
share of Stock on the date the Option is granted; provided, however, that if an
option granted to the Company's Chief Executive Officer or to any of the
Company's other four most highly compensated officers is intended to qualify as
performance-based compensation under Section 162(m) of the Code, the exercise
price of such Option shall not be less than 100% of the Fair Market Value (as
such term is defined below) of such share of Stock on the date the Option is
granted. The exercise price for each Option shall be subject to adjustment as
provided in Section 7 below. "Fair Market Value" means the closing price of
publicly traded shares of Stock on the principal securities exchange on which
shares of Stock are listed (if the shares of Stock are so listed), or on the
NASDAQ Stock Market (if the shares of Stock are regularly quoted on the NASDAQ
Stock Market), or, if not so listed or regularly quoted, the mean between the
closing bid and asked prices of publicly traded shares of Stock in the
-A3-
over-the-counter market, or, if such bid and asked prices shall not be
available, as reported by any nationally recognized quotation service selected
by the Company, or as determined by the Committee in a manner consistent with
the provisions of the Code. Anything in this Section 5(a) to the contrary
notwithstanding, in no event shall the purchase price of a share of Stock be
less than the minimum price permitted under the rules and policies of any
national securities exchange on which the shares of Stock are listed.
(b) Option Term. The term of each Option shall be fixed by the
Committee, but no Option shall be exercisable more than ten years after the date
such Option is granted and in the case of an Incentive Option granted to an
Optionee who, at the time such Incentive Option is granted, owns (within the
meaning of Section 424(d) of the Code) more than 10% of the total combined
voting power of all classes of stock of the Company or of any Subsidiary, no
such Incentive Option shall be exercisable more than five years after the date
such Incentive Option is granted.
(c) Exercisability. Subject to Section 5(j) hereof, Options shall
be exercisable at such time or times and subject to such terms and conditions as
shall be determined by the Committee.
Upon the occurrence of a "Change in Control" (as hereinafter
defined), the Committee may accelerate the vesting and exercisability of
outstanding Options, in whole or in part, as determined by the Committee in its
sole discretion. In its sole discretion, the Committee may also determine that,
upon the occurrence of a Change in Control, each outstanding Option shall
terminate within a specified number of days after notice to the Optionee
thereunder, and each such Optionee shall receive, with respect to each share of
Company Stock subject to such Option, an amount equal to the excess of the Fair
Market Value of such shares immediately prior to such Change in Control over the
exercise price per share of such Option; such amount shall be payable in cash,
in one or more kinds of property (including the property, if any, payable in the
transaction) or a combination thereof, as the Committee shall determine in its
sole discretion.
For purposes of the Plan, a Change in Control shall be deemed
to have occurred if:
(i) a tender offer (or series of related offers) shall be
made and consummated for the ownership of 50% or more of the
outstanding voting securities of the Company, unless as a result of
such tender offer more than 50% of the outstanding voting securities
of the surviving or resulting corporation shall be owned in the
aggregate by the shareholders of the Company (as of the time
immediately prior to the commencement of such offer), any employee
benefit plan of the Company or its Subsidiaries, and their
affiliates;
(ii) the Company shall be merged or consolidated with another
corporation, unless as a result of such merger or consolidation more
than 50% of the outstanding voting securities of the surviving or
resulting corporation shall be owned in the aggregate by the
shareholders of the Company (as of the time immediately
-A4-
prior to such transaction), any employee benefit plan of the Company
or its Subsidiaries, and their affiliates;
(iii) the Company shall sell substantially all of its assets
to another corporation that is not wholly owned by the Company,
unless as a result of such sale more than 50% of such assets shall
be owned in the aggregate by the shareholders of the Company (as of
the time immediately prior to such transaction), any employee
benefit plan of the Company or its Subsidiaries and their
affiliates; or
(iv) a Person (as defined below) shall acquire 50% or more of
the outstanding voting securities of the Company (whether directly,
indirectly, beneficially or of record), unless as a result of such
acquisition more than 50% of the outstanding voting securities of
the surviving or resulting corporation shall be owned in the
aggregate by the shareholders of the Company (as of the time
immediately prior to the first acquisition of such securities by
such Person), any employee benefit plan of the Company or its
Subsidiaries, and their affiliates.
For purposes of this Section 5(c), ownership of voting
securities shall take into account and shall include ownership as determined by
applying the provisions of Rule 13d-3(d)(I)(i) (as in effect on the date hereof)
under the Exchange Act. In addition, for such purposes, "Person" shall have the
meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in
Sections 13(d) and 14(d) thereof; however, a Person shall not include (A) the
Company or any of its Subsidiaries; (B) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any of its
Subsidiaries; (C) an underwriter temporarily holding securities pursuant to an
offering of such securities; or (D) a corporation owned, directly or indirectly,
by the shareholders of the Company in substantially the same proportion as their
ownership of stock of the Company.
(d) Method of Exercise. Options to the extent then exercisable
may be exercised in whole or in part at any time during the option period, by
giving written notice to the Company specifying the number of shares of Stock to
be purchased, accompanied by payment in full of the purchase price, in cash, or
by check or such other instrument as may be acceptable to the Committee. As
determined by the Committee, in its sole discretion, at or after grant, payment
in full or in part may be made at the election of the Optionee (i) in the form
of Stock owned by the Optionee (based on the Fair Market Value of the Stock on
the trading day before the Option is exercised) which is not the subject of any
pledge or security interest, (ii) in the form of shares of Stock withheld by the
Company from the shares of Stock otherwise to be received with such withheld
shares of Stock having a Fair Market Value on the date of exercise equal to the
exercise price of the Option, or (iii) by a combination of the foregoing,
provided that the combined value of all cash and cash equivalents and the Fair
Market Value of any shares surrendered to the Company is at least equal to such
exercise price and except with respect to (ii) above, such method of payment
will not cause a disqualifying disposition of all or a portion of the Stock
received upon exercise of an Incentive Option. An Optionee shall have the right
to dividends and other rights of a stockholder with respect to shares of Stock
purchased upon exercise of an Option at such time as the Optionee has given
-A5-
written notice of exercise and has paid in full for such shares and (ii) has
satisfied such conditions that may be imposed by the Company with respect to the
withholding of taxes.
(e) Non-transferability of Options. Options are not transferable
and may be exercised solely by the Optionee during his lifetime or after his
death by the person or persons entitled thereto under his will or the laws of
descent and distribution. The Committee, in its sole discretion, may permit a
transfer of a Nonqualified Option to (i) a trust for the benefit of the Optionee
or (ii) a member of the Optionee's immediate family (or a trust for his or her
benefit). Any attempt to transfer, assign, pledge or otherwise dispose of, or to
subject to execution, attachment or similar process, any Option contrary to the
provisions hereof shall be void and ineffective and shall give no right to the
purported transferee.
(f) Termination by Death. Unless otherwise determined by the
Committee, if any Optionee's employment with or service to the Company or any
Subsidiary terminates by reason of death, the Option may thereafter be
exercised, to the extent then exercisable (or on such accelerated basis as the
Committee shall determine at or after grant), by the legal representative of the
estate or by the legatee of the Optionee under the will of the Optionee, for a
period of one year after the date of such death or until the expiration of the
stated term of such Option as provided under the Plan, whichever period is
shorter.
(g) Termination by Reason of Disability. Unless otherwise
determined by the Committee, if any Optionee's employment with or service to the
Company or any Subsidiary terminates by reason of total and permanent
disability, any Option held by such Optionee may thereafter be exercised, to the
extent it was exercisable at the time of termination due to Disability (or on
such accelerated basis as the Committee shall determine at or after grant), but
may not be exercised after 60 days after the date of such termination of
employment or service or the expiration of the stated term of such Option,
whichever period is shorter; provided, however, that, if the Optionee dies
within such 60-day period, any unexercised Option held by such Optionee shall
thereafter be exercisable to the extent to which it was exercisable at the time
of death for a period of one year after the date of such death or for the stated
term of such Option, whichever period is shorter.
(h) Termination by Reason of Retirement. Unless otherwise
determined by the Committee, if any Optionee's employment with or service to the
Company or any Subsidiary terminates by reason of Normal or Early Retirement (as
such terms are defined below), any Option held by such Optionee may thereafter
be exercised to the extent it was exercisable at the time of such Retirement (or
on such accelerated basis as the Committee shall determine at or after grant),
but may not be exercised after 60 days after the date of such termination of
employment or service or the expiration of the stated term of such Option,
whichever period is shorter; provided, however, that, if the Optionee dies
within such 60-day period, any unexercised Option held by such Optionee shall
thereafter be exercisable, to the extent to which it was exercisable at the time
of death, for a period of one year after the date of such death or for the
stated term of such Option, whichever period is shorter.
-A6-
For purposes of this paragraph (h) "Normal Retirement" shall mean
retirement from active employment with or service to the Company or any
Subsidiary on or after the normal retirement date specified in the applicable
Company or Subsidiary pension plan or if no such pension plan, age 65, and
"Early Retirement" shall mean retirement from active employment with or service
to the Company or any Subsidiary pursuant to the early retirement provisions of
the applicable Company or Subsidiary pension plan or if no such pension plan,
age 55.
(i) Other Termination. Unless otherwise determined by the
Committee, if any Optionee's employment with or service to the Company or any
Subsidiary terminates for any reason other than death, Disability or Normal or
Early Retirement, the Option shall thereupon terminate, except that the portion
of any Option that was exercisable on the date of such termination of employment
or service may be exercised for the lesser of 30 days after the date of
termination or the balance of such Option's term if the Optionee's employment or
service with the Company or any Subsidiary is terminated by the Company or such
Subsidiary without cause (the determination as to whether termination was for
cause to be made by the Committee). The transfer of an Optionee from the employ
of or service to the Company to the employ of or service to a Subsidiary, or
vice versa, or from one Subsidiary to another, shall not be deemed to constitute
a termination of employment or service for purposes of the Plan.
(j) Limit on Value of Incentive Option. The aggregate Fair Market
Value, determined as of the date the Incentive Option is granted, of Stock for
which Incentive Options are exercisable for the first time by any Optionee
during any calendar year under the Plan (and/or any other stock option plans of
the Company or any Subsidiary) shall not exceed $100,000.
(k) Incentive Option Shares. A grant of an Incentive Option under
this Plan shall provide that (a) the Optionee shall be required as a condition
of the exercise to furnish to the Company any payroll (employment) tax required
to be withheld, and (b)if the Optionee makes a disposition, within the meaning
of Section 424(c) of the Code and regulations promulgated thereunder, of any
share or shares of Stock issued to him upon exercise of an Incentive Option
granted under the Plan within the two-year period commencing on the day after
the date of the grant of such Incentive Option or within a one-year period
commencing on the day after the date of transfer of the share or shares to him
pursuant to the exercise of such Incentive Option, he shall, within 10 days
after such disposition, notify the Company thereof and immediately deliver to
the Company any amount of United States federal, state and local income tax
withholding required by law.
6. TERM OF PLAN.
No Option shall be granted pursuant to the Plan on or after July
19, 2011, but Options theretofore granted may extend beyond that date.
-A7-
7. CAPITAL CHANGE OF THE COMPANY.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, or other change in corporate structure
affecting the Stock, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares reserved for issuance under the Plan
and in the number and option price of shares subject to outstanding Options
granted under the Plan, to the end that after such event each Optionee's
proportionate interest shall be maintained as immediately before the occurrence
of such event. The Committee shall, to the extent feasible, make such other
adjustments as may be required under the tax laws so that any Incentive Options
previously granted shall not be deemed modified within the meaning of Section
424(h) of the Code.
8. PURCHASE FOR INVESTMENT.
Unless the Options and shares covered by the Plan have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
or the Company has determined that such registration is unnecessary, each person
exercising an Option under the Plan may be required by the Company to give a
representation in writing that he is acquiring the shares for his own account
for investment and not with a view to, or for sale in connection with, the
distribution of any part thereof.
9. TAXES.
The Company may make such provisions as it may deem appropriate,
consistent with applicable law, in connection with any Options granted under the
Plan with respect to the withholding of any taxes (including income or
employment taxes) or any other tax matters.
10. EFFECTIVE DATE OF PLAN.
The Plan shall be effective on July 19, 2001, provided however
that the Plan shall subsequently be approved by majority vote of the Company's
stockholders not later than July 18, 2002.
11. AMENDMENT AND TERMINATION.
The Board may amend, suspend, or terminate the Plan, except that
no amendment shall be made that would impair the rights of any Optionee under
any Option theretofore granted without the Optionee's consent, and except that
no amendment shall be made which, without the approval of the stockholders of
the Company would:
(a) materially increase the number of shares that may be issued
under the Plan, except as is provided in Section 7;
(b) materially increase the benefits accruing to the Optionees
under the Plan;
-A8-
(c) materially modify the requirements as to eligibility for
participation in the Plan;
(d) decrease the exercise price of an Incentive Option to less
than 100% of the Fair Market Value per share of Stock on the date of grant
thereof or the exercise price of a Nonqualified Option to less than 80% of the
Fair Market Value per share of Stock on the date of grant thereof; or
(e) extend the term of any Option beyond that provided for in
Section 5(b).
The Committee may amend the terms of any Option theretofore
granted, prospectively or retroactively, but no such amendment shall impair the
rights of any Optionee without the Optionee's consent. The Committee may also
substitute new Options for previously granted Options, including options granted
under other plans applicable to the participant and previously granted Options
having higher option prices, upon such terms as the Committee may deem
appropriate.
12. GOVERNMENT REGULATIONS.
The Plan, and the grant and exercise of Options hereunder, and
the obligation of the Company to sell and deliver shares under such Options,
shall be subject to all applicable laws, rules and regulations, and to such
approvals by any governmental agencies, national securities exchanges and
interdealer quotation systems as may be required.
13. GENERAL PROVISIONS.
(a) Certificates. All certificates for shares of Stock delivered
under the Plan shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations
and other requirements of the Securities and Exchange Commission, or other
securities commission having jurisdiction, any applicable Federal or state
securities law, any stock exchange or interdealer quotation system upon which
the Stock is then listed or traded and the Committee may cause a legend or
legends to be placed on any such certificates to make appropriate reference to
such restrictions.
(b) Employment Matters. The adoption of the Plan shall not confer
upon any Optionee of the Company or any Subsidiary any right to continued
employment or, in the case of an Optionee who is a director, continued service
as a director, with the Company or a Subsidiary, as the case may be, nor shall
it interfere in any way with the right of the Company or any Subsidiary to
terminate the employment of any of its employees, the service of any of its
directors or the retention of any of its consultants or advisors at any time.
(c) Limitation of Liability. No member of the Board or the
Committee, or any officer or employee of the Company acting on behalf of the
Board or the Committee, shall be personally liable for any action, determination
or interpretation taken or made in good faith with
-A9-
respect to the Plan, and all members of the Board or the Committee and each and
any officer or employee of the Company acting on their behalf shall, to the
extent permitted by law, be fully indemnified and protected by the Company in
respect of any such action, determination or interpretation.
(d) Registration of Stock. Notwithstanding any other provision in
the Plan, no Option may be exercised unless and until the Stock to be issued
upon the exercise thereof has been registered under the Securities Act and
applicable state securities laws, or are, in the opinion of counsel to the
Company, exempt from such registration in the United States. The Company shall
not be under any obligation to register under applicable federal or state
securities laws any Stock to be issued upon the exercise of an Option granted
hereunder in order to permit the exercise of an Option and the issuance and sale
of the Stock subject to such Option, although the Company may in its sole
discretion register such Stock at such time as the Company shall determine. If
the Company chooses to comply with such an exemption from registration, the
Stock issued under the Plan may, at the direction of the Committee, bear an
appropriate restrictive legend restricting the transfer or pledge of the Stock
represented thereby, and the Committee may also give appropriate stop transfer
instructions with respect to such Stock to the Company's transfer agent.
PUROFLOW INCORPORATED
July 19, 2001
-A10-
ANNEX B
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
PUROFLOW INCORPORATED
Puroflow Incorporated, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation at a duly
called meeting, duly adopted resolutions setting forth a proposed amendment of
the Certificate of Incorporation of the Corporation, declaring said amendment to
be advisable and proposing that said amendment be considered by the stockholders
of the Corporation. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Board of Directors declares that it is advisable
to amend Article FOURTH of the Certificate of Incorporation of the Corporation
as follows:
"FOURTH: This Corporation is authorized to issue two classes
of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares of Common
Stock this Corporation is authorized to issue is 12,000,000,
par value $.15 per share, and the total number of shares of
Preferred Stock this Corporation is authorized to issue is
500,000 shares of Preferred Stock, par value $.10 per share,
with the Board of Directors being hereby authorized to fix
or alter the rights, preferences, privileges and restriction
granted to or imposed upon any series of such Preferred
Stock, and the number of shares constituting any such series
and the designation thereof, or of any of them. The Board of
Directors is also authorized to increase or decrease the
number of shares of any series, prior or subsequent to the
issue of that series, but not below the number of shares of
such series then outstanding. In case the number of shares
of any series shall be so decreased, the shares constituting
such decrease shall resume the status which they had prior
to the adoption of the resolution originally fixing the
number of shares of such series.
Simultaneously with the effective date of the filing of this
amendment to the Corporation's Certificate of Incorporation
(the "Effective Date"), each share of Common Stock, par
value $.01 per share, of the Corporation issued and
outstanding or held as treasury shares immediately prior to
the Effective Date (the "Old Common Stock") shall
automatically be reclassified and continued (the "Reverse
Split"), without any action on the part of the holder
thereof, as one-fifteenth of one share of Common Stock. The
Corporation shall not issue fractional shares on account of
the Reverse Split. Holders of Old Common Stock who would
otherwise be entitled to a fraction of a share on account of
the Reverse Split shall receive, upon surrender of the stock
certificates formerly representing shares of the Old Common
Stock, in lieu of such fractional share, an amount in cash
(the "Cash-in-Lieu Amount") equal to the then market value
of such fractional interest. Such market value will be
determined by calculating the average closing price of the
Common Stock as quoted on the OTC Bulletin Board for the ten
business days prior to the Effective Date. No interest shall
be payable on the Cash-in-Lieu Amount."
SECOND: That thereafter, the stockholders of the Corporation, at a
duly called meeting of the stockholders, voted in favor of the amendment.
B1
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Puroflow Incorporated has caused this
Certificate to be signed by Michael H. Figoff, its President and Chief Executive
Officer, this _____ day of ____________, 2001.
PUROFLOW INCORPORATED
By: ____________________________
Michael H. Figoff
President and Chief Executive Officer
B2
PROXY
PUROFLOW INCORPORATED
This Proxy is Solicited on Behalf of the Board of Directors
Annual Meeting of Stockholders
August 28, 2001
The undersigned, revoking all other proxies previously given, hereby appoints
Michael H. Figoff and Warren G. Lichtenstein, and each of them individually
(with full power to act without the other and with power to appoint his
substitute), as the undersigned's proxy to represent and to vote all of the
shares of Common Stock of PUROFLOW INCORPORATED, a Delaware corporation (the
"Company"), held of record by the undersigned on June 29, 2001 at the Annual
Meeting of Stockholders to be held on August 28, 2001 at 10:00 a.m., local time,
at the Airtel Plaza Hotel, 7277 Valjean Avenue, Van Nuys, California 91406, and
at any and all adjournments or postponements thereof.
THIS PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 2, 3 AND 4. IF ANY OTHER MATTERS ARE PROPERLY BROUGHT
BEFORE THE ANNUAL MEETING, THE PROXIES WILL VOTE ON THESE MATTERS AS THE PROXIES
NAMED HEREIN MAY DETERMINE IN THEIR SOLE DISCRETION.
PROPOSAL 1. Election of Directors MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW
|_| FOR all nominees (The nominees are Michael H. Figoff, Robert A. Smith,
Dr. Tracy Kent Pugmire, Warren G. Lichtenstein, Travis Bradford, Glen Kassan,
and Joshua Schechter)
|_| WITHHOLD AUTHORITY to vote for all nominees
|_| FOR all nominees except as listed below
(INSTRUCTION: To withhold authority to vote for any indvidual nominees, write that nominee's name on the lines set forth below)
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PROPOSAL 2. To adopt the 2001 Stock Option Plan.
|_| FOR |_| AGAINST |_| ABSTAINING
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PROPOSAL 3. To approve a one for fifteen reverse stock split of the Company's
issued and outstanding Common Stock.
|_| FOR |_| AGAINST |_| ABSTAINING
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PROPOSAL 4. To vote for the appointment of auditors, Rose, Snyder & Jacobs, for
the fiscal year ended January 31, 2002.
|_| FOR |_| AGAINST |_| ABSTAINING
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o SEE HOUSEHOLDING ELECTION NOTICE
|_| FOR |_| AGAINST
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If any amendments or variations to the matters referred to above or to any other
matters identified in the Notice of Annual Meeting are proposed at the Annual
Meeting or any if any other matters which are not now known to management should
properly come before the Annual Meeting or any adjournments thereof, this Proxy
confers discretaionary authority on the person voting the proxy to vote on such
amendments or variations or such other matters in accordance with the best
judgment of such person.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders dated August 6, 2001, the Proxy Statement of the Company, dated
August 6, 2001, and the Company's Annual Report to Stockholders for the year
ended January 31, 2001, each of which is enclosed herewith.
The undersigned hereby revokes any proxy to vote shares of Common Stock of the
Company heretofore delivered by the undersigned in connection with the Annual
Meeting.
Dated
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Signature
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Signature, if held jointly
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Title (if applicable)
Please date, sign exactly as your name
appears on this Proxy and promptly
return in the enclosed envelpe. In the
case of joint ownership, each joint
owner must sign. When signing as
guardian, executor, administrator,
attorney, trustee, custodian, or in
any other similar capacity, please
give your full title. In the case of a
corporation, sign in full corporate
name by president or other authorized
officer, giving title, and affix
corporate seal. If a partnership, sign
in partnership name by an authorized
person.