SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)
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Filed by a party other than the registrant |_|
Check the appropriate box: |_| Confidential-For Use of the
|X| Preliminary proxy statement Commission Only (as
|_| Definitive proxy statement permitted by Rule 14a-6(e)(2))
|_| Definitive additional materials
|_| Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Hudson Technologies, Inc.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on
which the filing fee is calculated and state how it was determined).
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HUDSON TECHNOLOGIES, INC.
275 North Middletown Road
Pearl River, New York 10965
September __, 2002
Dear Fellow Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders
which will be held on Monday, September 30, 2002, at 10:00 A.M. at the Pearl
River Hilton, 500 Veterans Memorial Highway, Pearl River, New York 10965.
The Notice of Annual Meeting and Proxy Statement which follow describe the
business to be conducted at the meeting.
Whether or not you plan to attend the Annual Meeting in person, it is
important that your shares be represented and voted. After reading the enclosed
Notice of Annual Meeting and Proxy Statement, I urge you to complete, sign, date
and return your proxy card in the envelope provided. If the address on the
accompanying material is incorrect, please inform our Transfer Agent,
Continental Stock Transfer & Trust Company, at 17 Battery Place, New York, New
York 10004, in writing, of the correct address.
Your vote is very important, and we will appreciate a prompt return of
your signed proxy card. We hope to see you at the meeting.
Cordially,
Kevin J. Zugibe, P.E.
Chairman of the Board, President
and Chief Executive Officer
2
PRELIMINARY COPIES
HUDSON TECHNOLOGIES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 30, 2002
To the Shareholders of HUDSON TECHNOLOGIES, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Hudson Technologies, Inc. (the "Company") will be held on Monday, September 30,
2002 at 10:00 A.M., at the Pearl River Hilton, 500 Veterans Memorial Highway,
Pearl River, New York 10965, for the following purposes:
1. To elect a class of four directors who shall serve until the Annual
Meeting of Shareholders to be held in 2004 or until their successors have
been elected and qualified;
2. To consider and vote upon a proposal to authorize the Company to engage in
a Bridge Financing transaction with lenders which is expected to include
certain officers and directors of the Company;
3. To consider and vote upon a proposal to amend the Company's Certificate of
Incorporation to remove a provision from the designation of the Series A
Preferred Stock relating to a proxy granted by the holders of Series A
Preferred Stock in favor of certain officers of the Company;
4. To consider and vote upon a proposal to amend the Company's Certificate of
Incorporation to remove a provision from the designation of the Series A
Preferred Stock that sets a floor below which the conversion price of the
Series A Preferred Stock cannot be adjusted upon an event that would cause
the conversion price to fall below the floor;
5. To consider and vote upon a proposal to amend the Company's Certificate of
Incorporation to increase the number of authorized shares of common stock
from 20,000,000 shares to 50,000,000 shares; and
6. To transact such other business as may properly come before the meeting or
any adjournment or adjournments thereof.
Only shareholders of record at the close of business on August 1,
2002 are entitled to notice of and to vote at the Annual Meeting or any
adjournments thereof.
By Order of the Board of Directors
Stephen P. Mandracchia
Secretary
September __, 2002
IF YOU DO NOT EXPECT TO BE PRESENT AT THE MEETING:
PLEASE FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE
PROVIDED FOR THAT PURPOSE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO EXERCISE, AND IF YOU ARE
PRESENT AT THE MEETING YOU MAY, IF YOU WISH, REVOKE YOUR PROXY AT THAT TIME AND
EXERCISE THE RIGHT TO VOTE YOUR SHARES PERSONALLY.
PRELIMINARY COPIES
PROXY STATEMENT
HUDSON TECHNOLOGIES, INC.
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 30, 2002
This proxy statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Hudson Technologies, Inc.
(the "Company") for use at the Annual Meeting of Shareholders (the "Annual
Meeting") to be held on Monday, September 30, 2002, and including any
adjournment or adjournments thereof, for the purposes set forth in the
accompanying Notice of Meeting.
Management intends to mail this proxy statement and the accompanying
form of proxy to shareholders on or about September 5, 2002.
Proxies in the accompanying form, duly executed, returned to the
management of the Company and not revoked, will be voted at the Annual Meeting.
Any proxy given pursuant to such solicitation may be revoked by the shareholder
at any time prior to the voting of the proxy by a subsequently dated proxy, by
written notification to the Secretary of the Company, or by personally
withdrawing the proxy at the Annual Meeting and voting in person.
The address and telephone number of the principal executive offices
of the Company are:
275 North Middletown Road
Pearl River, New York 10965
Telephone No.: (914) 735-6000
OUTSTANDING STOCK AND VOTING RIGHTS
Only shareholders of record at the close of business on August 1,
2002 (the "Record Date") are entitled to notice of and to vote at the Annual
Meeting. As of the Record Date, there were issued and outstanding 5,165,020
shares of the Company's common stock, par value $.01 per share ("Common Stock")
and 112,618 shares of the Company's Series A Convertible Preferred Stock, par
value $.01 per share ("Preferred A Stock"), the only classes of voting
securities of the Company. Each share of Common Stock entitles the holder
thereof to one vote on each matter submitted to a vote at the Annual Meeting.
The holders of the shares of Preferred A Stock vote together with holders of
Common Stock as one class except that only holders of the Preferred A Stock are
entitled to vote on the election of two directors to the Board appointed by them
pursuant to the terms of the Company's Certificate of Designation relating to
the Preferred A Stock (the "Series A Directors"). Mr. Robert L. Burr, whose term
as director does not expire until 2003, is a Series A Director who has
previously been elected by the holders of the Preferred A Stock. The holders of
the Preferred A Stock have not yet nominated a second Series A Director for
election to the Board. Each share of Preferred A Stock entitles the holder to
such number of votes per share on each such action as shall equal the number of
shares of Common Stock (including fractions of a share) into which each share of
Preferred A Stock is
then convertible (which, as of the Record Date, is approximately 42.10 shares of
Common Stock for each share of Preferred A Stock, or an aggregate of 4,741,810
votes); provided, however, that each holder of Preferred A Stock has irrevocably
constituted Kevin J. Zugibe and Stephen P. Mandracchia, and each of them, as
such holder's proxy, with full power of substitution in each of them, in the
name, place and stead of such holder, to vote at all meetings of the
shareholders of the Company (other than with respect to matters requiring a
separate class vote of holders of the Preferred A Stock) that number of voting
shares of the Company of all classes held by such holder and its affiliates, in
the aggregate, as shall exceed twenty-nine percent (29%) of the votes entitled
to be cast by all shareholders of the Company. All of the outstanding Preferred
A Stock is held by Fleming US Discovery Fund III, L.P. and Fleming US Discovery
Offshore Fund III, L.P., which are affiliated with each other through their
general partner Fleming US Discovery Partners, L.P. (and its general partner
Fleming US Discovery Partners LLC) (collectively, the "Fleming Funds"), and
accordingly the Fleming Funds can vote up to an aggregate of 29% of the votes
entitled to be cast by all shareholders of the Company.
VOTING PROCEDURES
At the Annual Meeting, all directors will be elected by a plurality
of the votes cast by the holders of Common Stock and Preferred A Stock, voting
together as one class, in person or represented by proxy at the Annual Meeting,
provided a quorum is present at the Annual Meeting. The proposal authorizing the
Company to engage in the bridge financing transaction, with lenders which are
expected to include certain officers and directors of the Company, will require
the affirmative vote of a majority of the votes cast by the holders of Common
Stock and Preferred A Stock voting together as one class, present in person or
represented by proxy at the Annual Meeting, provided a quorum is present. Each
of the other proposals to amend the Certificate of Incorporation including, (a)
to remove the provision in the designation of the Preferred A Stock relating to
the proxy granted by the holders of the Preferred A Stock, (b) to remove the
provision in the designation of the Preferred A Stock relating to the floor on
the conversion price (the "Conversion Price Floor") of the Preferred A Stock,
and (c) to increase the number of authorized shares of Common Stock will require
the affirmative vote of the majority of votes entitled to be cast by the holders
of Common Stock and Preferred A Stock, voting together as one class, outstanding
as of the Record Date. With respect to the proposed amendments described in
items (a) and (b) above, in addition to the vote required for approval of each
such amendment, NASDAQ may also require under its Marketplace Rule 4350, as a
result of a transaction triggering the potential for a change of control (by
virtue of the removal of the proxy) and the below market issuance exceeding 20%
of the outstanding common stock (by virtue of the removal of the Conversion
Price Floor), the affirmative vote of a majority of votes cast at the Annual
Meeting by shareholders other than the holders of the Preferred A Stock (the
"NASDAQ Votes"). All other matters to be acted upon at the Annual Meeting will
be decided by the affirmative vote of a majority of the votes cast by the
holders of the shares of Common Stock and Preferred A Stock, voting together as
one class, present in person or represented by proxy at the Annual Meeting,
provided a quorum is present. A quorum will be present at the Annual Meeting if
the holders of a majority of the outstanding aggregate votes represented by
holders of the Common Stock and Preferred A Stock as of the Record Date are
present in person or represented by proxy. Votes will be counted and certified
by one or more Inspectors of
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Election who are expected to be employees of Continental Stock Transfer & Trust
Company, the Company's transfer agent.
In accordance with applicable law, abstentions and "broker
non-votes" (i.e., proxies from brokers or nominees indicating that such persons
have not received instructions from the beneficial owners or other persons
entitled to vote shares as to a matter with respect to which the brokers or
nominees do not have discretionary power to vote) will be treated as present for
purposes of determining the presence of a quorum. Based upon the Company's
understanding of the requirements of the law of the State of New York and the
Certificate of Incorporation and By-laws, as amended (the "By-laws"), of the
Company, "votes cast" at a meeting of shareholders by the holders of shares
entitled to vote are determinative of the outcome of the matter to be voted on.
Failures to vote, broker non-votes and abstentions will not be considered "votes
cast."
Proxies will be voted in accordance with the instructions thereon.
Unless otherwise stated, all shares represented by such proxy will be voted as
instructed. Proxies may be revoked as noted above.
The holders of the Preferred A Stock and the officers of the Company
holding the proxy from the holders of the Preferred A Stock which, in the
aggregate, represent approximately 48% of the Common Stock and Preferred A
Stock, voting together as a single class, outstanding as of the Record Date and
eligible to vote at the Annual Meeting, have indicated their intention to vote
in favor of the nominees for directors as well as each of the proposals set
forth in this Proxy Statement. These votes, however, will not be counted by
NASDAQ with respect to the shareholder approval required in connection with the
NASDAQ Votes.
ELECTION OF DIRECTORS
The Company's By-laws provide that the Board of Directors (the
"Board") is divided into two classes. Each class is to have a term of two years
(the term of each class expiring in successive years) and is to consist, as
nearly as possible, of one-half of the number of directors constituting the
entire Board. The By-laws provide that the number of directors shall be fixed by
the Board of Directors but in any event, shall be no less than seven (7)
(subject to decrease by a resolution adopted by the shareholders).
At the Annual Meeting, a class of four directors will be elected for
a two-year term expiring at the Annual Meeting of Shareholders to be held in
2004. Messrs. Kevin J. Zugibe, Dominic J. Monetta, Harry C. Schell and Robert M.
Zech are the nominees for election to such positions. Messrs. Vincent P.
Abbatecola, Robert L. Burr and Otto C. Morch will not stand for election at the
Annual Meeting because their respective terms expire at the Annual Meeting of
Shareholders to be held in 2003.
The holders of the Preferred A Stock are entitled to nominate and
vote exclusively for up to two directors to the Company's Board. To date, the
holders of the Preferred A Stock have nominated and elected one director who is
part of the class of directors whose term expires at the Company's annual
meeting in 2003 and have not yet nominated a second director for election to the
Board.
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Proxies will be voted for the nominees named below, unless authority
is withheld. Should any nominee not be available for election, proxies will be
voted for such substitute nominee as may be designated by the Board of
Directors. Each of the nominees has indicated to the Board that he will be
available.
The following is information with respect to the nominees for
election as directors at the Annual Meeting:
Name Age Position
---- --- --------
Chairman of the Board, Chief Executive
Kevin J. Zugibe 38 Officer and President
Dominic J. Monetta 60 Director
Harry C. Schell 67 Director
Robert M. Zech 36 Director
Kevin J. Zugibe, P.E., a founder of the Company, has been Chairman
of the Board and Chief Executive Officer of the Company since its inception in
1991 and was President of the Company from July 1999 until August 2001. Since
May 1994, Mr. Zugibe has devoted his full business time to the Company's
affairs. From May 1987 to May 1994, Mr. Zugibe was employed as a power engineer
with Orange and Rockland Utilities, Inc., a major public utility, where he was
responsible for all HVAC applications. Mr. Zugibe is a licensed professional
engineer, and from December 1990 to May 1994, he was a member of Kevin J. Zugibe
& Associates, a professional engineering firm. Kevin J. Zugibe is the
brother-in-law of Stephen P. Mandracchia, the Vice President of Operations and
Secretary of the Company.
Dominic J. Monetta has been a director of the Company since April
1996. Since August 1993, he has been the President of Resource Alternatives,
Inc., a corporate development firm concentrating on solving management and
technological problems facing chief executive officers and their senior
executives. From December 1991 to May 1993, Mr. Monetta served as Director of
Defense Research and Engineering for the Research and Advanced Technology Office
of the United States Department of Defense. From June 1989 to December 1991, he
served as the Director of the Office of New Production Reactors of the United
States Department of Energy.
Harry C. Schell has been a director of the Company since August
1998. Mr. Schell is the former chairman and chief executive officer of BICC
Cables Corporation, a company engaged in the manufacture of wire and cable
products, and has served on the board of directors of the BICC Group (London),
Phelps Dodge Industries, the National Electrical Manufacturers Association, and
the United Way of Rockland (New York).
Robert M. Zech has been a Director of the Company since June 1999.
Mr. Zech has been a Partner of Windcrest Discovery Capital Partners, LLC, an
investment management firm, from its inception in February 2002. From April 1996
to October 2001, Mr. Zech was
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employed by J.P. Morgan Chase & Co., where he was a Partner of Fleming US
Discovery Partners, L.P., the general partner of Fleming US Discovery Fund III,
L.P. and Fleming US Discovery Offshore Fund III, L.P. From 1994 to 1996, Mr.
Zech was an Associate with Cramer Rosenthal McGlynn, Inc., an investment
management firm. Previously Mr. Zech served as an Associate with Wolfensohn &
Co., a mergers & acquisitions advisory firm, and was a Financial Analyst at
leveraged buyout sponsor Merrill Lynch Capital Partners, Inc.
The following is information with respect to the directors whose
terms of office expire at the Annual Meeting to be held in 2003:
Name Age Position
---- --- --------
Vincent P. Abbatecola 55 Director
Robert L. Burr 51 Director
Otto C. Morch 68 Director
Vincent P. Abbatecola has been a director of the Company since June
1994. Mr. Abbatecola is the owner and General Manager of Abbey Ice & Spring
Water Company, Spring Valley, New York, a leading ice and bottled water company
in the New York metropolitan area where he has been employed since May 1971. Mr.
Abbatecola serves as a member of the Board and is a past Chairman of Mid
Atlantic Ice Association, an industry trade association and past Chairman of the
National Packaged Ice Association and past chairman of the Food Safety Committee
of the National Packaged Ice Association. He also serves as Vice Chairman, Board
of Governors of the Rockland County Health Center; member, St. Thomas Aquinas
College President's Council; Member, Rockland Business Association Board of
Directors; Member, Nyack Hospital Corporation and Member, Union State Bank
Chairman's Council.
Robert L. Burr has been a director of the Company since August 1999.
Mr. Burr has been a Partner of Windcrest Discovery Capital Partners, LLC, an
investment management firm, from its inception in February 2002 and has a
consulting agreement with J.P. Morgan Partners, under which he is the lead
partner of Fleming US Discovery Partners, L.P., a private equity sponsor
affiliated with J.P. Morgan Chase & Co. Fleming US Discovery Partners, L.P. is
the general partner of Fleming US Discovery Fund III, L.P. and Fleming US
Discovery Offshore Fund III, L.P. From July 1995 to October 2001, Mr. Burr was
employed by J.P. Morgan Chase & Co. From 1992 to 1995, Mr. Burr was head of
Private Equity at Kidder, Peabody & Co., Inc. Prior to that time, Mr. Burr
served as the Managing General Partner of Morgan Stanley Ventures and General
Partner of Morgan Stanley Venture Capital Fund I, L.P., and was a corporate
lending officer with Citibank, N.A. Mr. Burr received an MBA from Columbia
University and a BA from Stanford University. Mr. Burr serves on the Board of
Directors of Displaytech, Inc. and Impax Laboratories, Inc.
Otto C. Morch has been a director of the Company since March 1996.
Mr. Morch was Senior Vice President, Commercial Banking, at Provident Savings
Bank, F.A., for more than five years until his retirement in December 1997.
5
During the fiscal year ended December 31, 2001 ("Fiscal 2001"), the
Board held eight (8) meetings. Each of the current directors attended at least
75% of the total number of meetings of the Board and any Committee of the Board
on which he served which was held during the period he served as a director
during such year.
Committees of the Board of Directors
The Company has established a Compensation /Stock Option Committee
of the Board of Directors, which is responsible for recommending the
compensation of the Company's executive officers and for the administration of
the Company's Stock Option Plans. The members of such Committee are Messrs.
Abbatecola, Burr, Morch and Zech. The Compensation/Stock Option Committee held 4
meetings during Fiscal 2001. The Company also has an Audit Committee of the
Board of Directors, which supervises the audit and financial procedures of the
Company. The members of the Audit Committee are Messrs. Abbatecola, Morch and
Monetta. Each member of the Audit Committee is an "independent director" within
the meaning of Nasdaq Marketplace Rule 4200. The Audit Committee held 3 meetings
during Fiscal 2001. The Audit Committee has adopted a written charter, a copy of
which was attached as Appendix A to the Company's Definitive Proxy Statement
filed with the Securities and Exchange Commission on July 27, 2001. The Company
also has an Executive Committee of the Board of Directors, which is authorized
to exercise the powers of the Board of Directors in the general supervision and
control of the business affairs of the Company during the intervals between
meetings of the board. The members of the Executive Committee are Messrs. Burr,
Schell and Zugibe. The Company's Occupational, Safety And Environmental
Protection Committee, which is responsible for satisfying the Board that the
Company's Environmental, Health and Safety policies, plans and procedures are
adequate. The members of the Occupational, Safety and Environmental Protection
Committee are Messrs. Monetta and Zugibe.
Audit Committee Report
In December 2001, the Audit Committee met with management to review
and discuss the audit and the procedures and timing of the audit. In April 2002,
the Audit Committee met with management to review and discuss the audited
financial statements. The Audit Committee also conducted discussions with the
Company's independent auditors, BDO Seidman, LLP, regarding the matters required
by the Statement on Auditing Standards No. 61. As required by Independence
Standards Board Standard No. 1, "Independence Discussion with Audit Committees,"
the Audit Committee has discussed with and received the required written
disclosures and confirming letter from BDO Seidman, LLP regarding its
independence and has discussed with BDO Seidman, LLP its independence. Based
upon the review and discussions referred to above, the Audit Committee ratified
its prior recommendation 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 December 31, 2001.
The Audit Committee-
Vincent Abbatecola, Otto Morch and Dominic Monetta.
6
Executive Officers
In addition to Kevin J. Zugibe, Messrs. Brian Coleman, Neil B.
Gafarian and Stephen P. Mandracchia serve as executive officers of the Company.
Executive officers are elected annually and serve at the pleasure of the Board.
The following is information with respect to such executive officers:
Brian F. Coleman, 40, has been President and Chief Operating Officer
of the Company since August 21, 2001 and has been Chief Financial Officer of the
Company since May 1997. From June 1987 to May 1997, Mr. Coleman was employed by,
and since July 1995, was a partner of, BDO Seidman, LLP, the Company's
independent auditors.
Neil B. Gafarian, 55, has been Vice President of Sales and Marketing
since February 2002. Mr. Gafarian is responsible for all sales and marketing
activities for the Company. From 1993 through 2001, Mr. Gafarian was employed at
Invensys, and from 1999 through 2001 served as Director of Sales and Marketing,
first for the Energy Services Group and then for the Facilities Solutions Group.
Stephen P. Mandracchia, 42, has been Vice President of Operations
for the Company since March 2002, and has been Secretary of the Company since
April 1995. He served as Vice President of the Company since 1993, and as
Executive Vice President from 1997 to March 2002. Mr. Mandracchia is responsible
for operations and human resources for the Company. Mr. Mandracchia was a member
of the law firm of Martin, Vandewalle, Donohue, Mandracchia & McGahan, a Great
Neck, New York law firm until December 31, 1995 (having been affiliated with
such firm since August 1983). Mr. Mandracchia is the brother-in-law of Kevin J.
Zugibe.
Section 16(a) Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), requires the Company's officers and directors and persons
who own more than 10% of a registered class of the Company's equity securities
to file reports of ownership and changes in ownership ("Reporting Persons") with
the Securities and Exchange Commission (the "SEC"). Reporting Persons are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on the Company's review of the copies of such forms
received by the Company, the Company believes that during the year ended
December 31, 2001 all filing requirements applicable to its officers, directors,
and greater than 10 percent beneficial shareholders were complied with except
that Mr. Thomas P. Zugibe did not timely file a Form 4 for five transactions in
July 2001.
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EXECUTIVE COMPENSATION
The following table discloses for the years indicated, the
compensation for the Company's Chief Executive Officer, and each other executive
officers that earned over $100,000 during the fiscal year ended December 31,
2001 (the "Named Executives").
Summary Compensation Table
Long Term
Compensation
Annual Compensation(1) Awards
---------------------- ------------
Securities
Underlying
Options
------------
Name Position Year Salary Bonus
---- -------- ---- ------ -----
Kevin J. Zugibe Chairman of the Board, 2001 $ 76,366 -- 170,000 shares
President, Chief Executive 2000 $ 80,981 -- 140,000 shares
Officer 1999 $136,279 -- 1,000 shares
Brian F. Coleman President, Chief Operating 2001 $138,799 -- 100,000 shares
Officer and Chief Financial 2000 $151,047 -- 37,500 shares
Officer 1999 $138,124 -- 1,000 shares
Thomas P. Zugibe Executive Vice President(2) 2001 $122,800 -- 20,000 shares
2000 $110,338 -- 102,500 shares
1999 $104,800 -- 1,000 shares
Stephen P. Mandracchia Executive Vice President and 2001 $123,800 -- 15,000 shares
Secretary(3) 2000 $113,415 -- 77,500 shares
1999 $108,124 -- 1,000 shares
----------
(1) The value of personal benefits furnished to the Named Executives during
1999, 2000 and 2001 did not exceed 10% of their respective annual
compensation.
(2) Commencing in March 2002 Mr. Zugibe's new position with the Company is
Director of Technical, Legal and Regulatory Compliance.
(3) Commencing in March 2002, Mr. Mandracchia's new position with the Company
is Vice President of Operations and Secretary.
The Company granted options, which except as otherwise set forth below, vest
upon the date of grant to the Named Executives during the fiscal year ended
December 31, 2001, as shown in the following table:
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Summary of Stock Options Granted to Executive Officers
% of Total
Number of Options
Securities Granted to
Underlying Employees in Exercise Expiration
Name Position Options Granted Fiscal Year Price ($/sh) Date
---- -------- --------------- ----------- ------------ ----
Kevin J. Zugibe Chairman and Chief 60,000 13% $2.38 02/07/2006
Executive Officer 45,000 10% $2.38 10/23/2006
50,000(1) 11% $2.55 12/13/2006
15,000 3% $2.55 12/13/2006
Brian F. Coleman President, Chief 80,000 18% $2.55 12/13/2006
Operating Officer and 20,000(2) 4% $2.55 12/13/2006
Chief Financial
Officer
Thomas P. Zugibe Executive Vice 20,000 4% $2.55 12/13/2006
President(3)
Stephen P. Mandracchia Executive Vice 15,000(4) 3% $2.55 12/13/2006
President and
Secretary(4)
-------------
(1) Options vest over a three year period at the rate of 4,167 per quarter,
commencing with the first quarter of 2002.
(2) Options vest over a three year period at the rate of 1,667 per quarter,
commencing with the first quarter of 2002.
(3) Commencing in March 2002 Mr. Zugibe's new position with the Company is
Director of Technical, Legal and Regulatory Compliance.
(4) Commencing in March 2002 Mr. Mandracchia's new position with the Company
is Vice President of Operations and Secretary. Options vest over a three
year period at the rate of 1,250 per quarter, commencing with the first
quarter of 2002.
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Aggregated Fiscal Year End Option Values
The following table sets forth information concerning the value of
unexercised stock options held by the Named Executives at December 31, 2001.
Except as otherwise indicated, no options were exercised by the Named Executives
during the fiscal year ended December 31, 2001.
Number of Securities Underlying
Shares Value Unexercised Options At Value of In-the-money Options At(1)
Name and Position Acquired Realized December 31, 2001 December 31, 2001
----------------- -------- -------- ------------------------------- -----------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Kevin J. Zugibe -- -- 314,500 94,500 $94,077 $33,252
Chairman and Chief Executive
Officer
Brian F. Coleman, President, -- -- 144,715 60,785 $39,327 $ 5,380
Chief Operating Officer and
Chief Financial Officer
Thomas P. Zugibe, Executive -- -- 168,500 20,000 $45,612 $ 5,380
Vice President(2)
Stephen P. Mandracchia,(3) 2,200 $4,850 141,300 15,000 $33,953 $ 4,035
Executive Vice President and
Secretary
--------
(1) Year-end values of unexercised in-the-money options represent the positive
spread between the exercise price of such options and the year-end market
value of the Common Stock of $2.82.
(2) Commencing in March 2002 Mr. Zugibe's new position with the Company is
Director of Technical, Legal and Regulatory Compliance.
(3) Commencing in March 2002 Mr. Mandracchia's new position with the Company
is Vice President of Operations and Secretary.
Employment Agreement
The Company has entered into a two-year employment agreement with
Kevin J. Zugibe, which expires in May 2003 and is automatically renewable for
successive two-year terms. Pursuant to the agreement, effective February 1, 2002
Mr. Zugibe is receiving an annual base salary of $134,000 with such increases
and bonuses as the Board may determine. The Board of Directors and Mr. Zugibe
have agreed to reduce the cash compensation and issue additional stock options
to Mr. Zugibe in satisfaction of his annual base salary. The Company is the
beneficiary of a "key-man" insurance policy on the life of Mr. Zugibe in the
amount of $1,000,000.
10
Stock Option Plan
1994 Stock Option Plan
The Company has adopted an Employee Stock Option Plan (the "Plan")
effective October 31, 1994 pursuant to which 725,000 shares of Common Stock are
currently reserved for issuance upon the exercise of options designated as
either (i) options intended to constitute incentive stock options ("ISOs") under
the Internal Revenue Code of 1986, as amended (the "Code"), or (ii) nonqualified
options. ISOs may be granted under the Plan to employees and officers of the
Company. Non-qualified options may be granted to consultants, directors (whether
or not they are employees), employees or officers of the Company. Stock
appreciation rights may also be issued in tandem with stock options.
The Plan is intended to qualify under Rule 16b-3 under the Exchange
Act and is administered by a committee of the Board of Directors, which
currently consists of Messrs. Abbatecola, Burr, Morch and Schell. The committee,
within the limitations of the Plan, determines the persons to whom options will
be granted, the number of shares to be covered by each option, whether the
options granted are intended to be ISOs, the duration and rate of exercise of
each option, the exercise price per share and the manner of exercise and the
time, manner and form of payment upon exercise of an option. Unless sooner
terminated, the Plan will expire on December 31, 2004.
ISOs granted under the Plan may not be granted at a price less than
the fair market value of the Common Stock on the date of grant (or 110% of fair
market value in the case of persons holding 10% or more of the voting stock of
the Company). The aggregate fair market value of shares for which ISOs granted
to any employee are exercisable for the first time by such employee during any
calendar year (under all stock option plans of the Company) may not exceed
$100,000. Non-qualified options granted under the Plan may not be granted at a
price less than 85% of the market value of the Common Stock on the date of
grant. Options granted under the Plan will expire not more than ten years from
the date of grant (five years in the case of ISOs granted to persons holding 10%
or more of the voting stock of the Company). All options granted under the Plan
are not transferable during an optionee's lifetime but are transferable at death
by will or by the laws of descent and distribution. In general, upon termination
by of employment of an optionee, all options granted to such person which are
not exercisable on the date of such termination immediately terminate, and any
options that are exercisable terminate 90 days following termination of
employment.
As of December 31, 2001, options to purchase 618,906 shares of
Common Stock were issued under the Plan. During 2000, the Company granted
options to purchase 40,000 shares to each of Kevin J. Zugibe, Stephen P.
Mandracchia and Thomas P. Zugibe. Such options fully vested on August 3, 2000.
During 2001, the Company granted options to purchase shares to Kevin J. Zugibe,
50,000 shares; Brian F. Coleman, 20,000 shares; Stephen P. Mandracchia, 15,000
shares; and Thomas P. Zugibe, 20,000 shares, all of which are exercisable at
$2.55 per share. Such options vest quarterly in equal amounts over three years,
commencing with the first quarter of 2002. In addition, during 2001, the Company
also granted options to purchase 15,000 shares to Kevin J. Zugibe exercisable at
$2.55 per share, all of which vested and are fully exercisable as of December
13, 2001. During 2001, the Company also granted options to
11
purchase 80,000 shares to Brian F. Coleman exercisable at $2.55 per share, all
of which vested as of December 13, 2001, and which became exercisable as
follows: 39,215 on December 13, 2001, 39,215 on December 13, 2002 and 1,570 on
December 13, 2003. In addition, during 2001, the Company also granted options to
certain employees to purchase 20,000 shares exercisable at $2.55 per share. Such
options vest quarterly in equal amounts over three years, commencing with the
first quarter of 2002.
1997 Stock Option Plan
The Company has adopted the 1997 Stock Option Plan (the "1997
Plan"), pursuant to which 2,000,000 shares of Common Stock are currently
reserved for issuance upon the exercise of options designated as either (i)
options intended to constitute ISOs under the Code, or (ii) nonqualified
options. ISOs may be granted under the 1997 Plan to employees and officers of
the Company. Non-qualified options may be granted to consultants, directors
(whether or not they are employees), employees or officers of the Company. Stock
appreciation rights may also be issued in tandem with stock options.
The 1997 Plan is intended to qualify under Rule 16b-3 under the
Exchange Act and is administered by a committee of the Board of Directors, which
currently consists of Messrs. Abbatecola, Burr, Morch and Schell. The committee,
within the limitations of the 1997 Plan, determines the persons to whom options
will be granted, the number of shares to be covered by each option, whether the
options granted are intended to be ISOs, the duration and rate of exercise of
each option, the exercise price per share and the manner of exercise and the
time, manner and form of payment upon exercise of an option. Unless sooner
terminated, the 1997 Plan will expire on June 11, 2007.
ISOs granted under the 1997 Plan may not be granted at a price less
than the fair market value of the Common Stock on the date of grant (or 110% of
fair market value in the case of persons holding 10% or more of the voting stock
of the Company). The aggregate fair market value of shares for which ISOs
granted to any employee are exercisable for the first time by such employee
during any calendar year (under all stock option plans of the Company) may not
exceed $100,000. Non-qualified options granted under the 1997 Plan may not be
granted at a price less than the par value of the Common Stock on the date of
grant. Options granted under the 1997 Plan will expire not more than ten years
from the date of grant (five years in the case of ISOs granted to persons
holding 10% or more of the voting stock of the Company). All options granted
under the 1997 Plan are not transferable during an optionee's lifetime but are
transferable at death by will or by the laws of descent and distribution. In
general, upon termination of employment of an optionee, all options granted to
such person which are not exercisable on the date of such termination
immediately terminate, and any options that are exercisable terminate 90 days
following termination of employment.
As of December 31, 2001, the Company had granted options to purchase
1,405,716 shares of Common Stock under the 1997 Plan. During 1998, the Company
granted non-qualified options to purchase 40,000, 25,000, and 25,000 shares at
an exercise price of $3.00 per share to Kevin J. Zugibe, Stephen P. Mandracchia
and Thomas P. Zugibe, respectively. Such options vested on August 31, 1998. In
addition during 1998, the Company also granted options to purchase 420,666
shares to certain officers, directors and employees, exercisable at prices
12
ranging from $2.50 to $4.375 per share. During 1999, the Company granted options
to purchase 1,000, 1,000 and 1,000 shares at an exercise price of $2.00 per
share to Kevin J. Zugibe, Stephen P. Mandracchia and Thomas P. Zugibe,
respectively. Such options vested and are fully exercisable as of November 3,
2000; November 3, 1999 and November 3, 1999, respectively. In addition, during
1999, the Company also granted options to purchase 153,500 shares to certain
officers, directors and employees, exercisable at prices ranging from $1.781 to
$2.63 per share. During 2000, the Company granted options to purchase 100,000
shares at an exercise price of $2.375 per share to Kevin J. Zugibe, which
options vest at a rate of 50% upon issuance and 50% on the first anniversary
date, and which become exercisable as follows: 14,500 on August 4, 2000, 27,500
on November 3, 2000, 14,500 on August 4, 2001, 27,000 on November 3, 2001,
14,500 on August 4, 2002 and 2,000 on November 2, 2002. During 2000, the Company
granted options to purchase 37,500 and 62,500 shares at an exercise price of
$2.375 per share to Stephen P. Mandracchia and Thomas P. Zugibe, respectively.
Such options vest at a rate of 50% upon issuance and 50% on the first
anniversary date. In addition, during 2000, the Company also granted options to
purchase 269,250 shares to certain officers, directors and employees,
exercisable at prices ranging from $2.375 to $2.78 per share. During 2001, the
Company granted options to purchase 105,000 shares at an exercise price of
$2.375 per share to Kevin J. Zugibe, which options vested and were fully
exercisable as of February 7, 2001, as to 60,000 shares, and as of October 23,
2001 as to 45,000 shares. In addition, during 2001, the company granted options
to purchase 131,0000 shares to certain directors and employees with exercise
prices ranging from $2.375 to $3.08 per share. Such options vested and were
fully exercisable as of the date of issuance.
Compensation of Directors
Non-employee directors receive an annual fee of $3,000 and receive
reimbursement for out-of-pocket expenses incurred, and an attendance fee of $500
and $250, respectively, for attendance at meetings of the Board of Directors and
Board committee meetings. In addition, commencing in August 1998, non-employee
directors receive 5,000 nonqualified stock options per year of service under the
Company's Stock Option Plan.
In addition to the standard annual director's remuneration, Mr.
Schell receives an additional $20,000 and an additional 5,000 stock options for
serving as a director and a consultant to the Company. The additional stock
options are issued with an exercise price equal to that of the other directors'
option grants.
To date, the Company has granted to Harry C. Schell nonqualified
options to purchase 40,000 shares of Common Stock at exercise prices ranging
from $2,38 to $3.00 per share. Such options vested and are fully exercisable as
of December 31, 2001. The Company has also granted to each of Dominic J.
Monetta, Otto Morch and Vincent Abbatecola, nonqualified options to purchase
20,000 shares of Common Stock at exercise prices ranging from $2,38 to $3.00 per
share. Such options vested and are fully exercisable as of December 31, 2001. In
addition, in connection with the appointment of two of their nominees as members
of the Board of Directors, the Company has granted to Fleming US Discovery Fund
III, L.P. and Fleming US Discovery Offshore Fund III, L.P. nonqualified options
to purchase 25,854 and
13
4,146 shares of common stock at an exercise price of $2.38 per share. All such
options issued to the directors are vested and fully exercisable at December 31,
2001.
14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of the Record Date
based on the information obtained from the persons named below, with respect to
the beneficial ownership of Common Stock by (i) each person known by the Company
to be the beneficial owner of more than 5% of the Company's outstanding Common
Stock, (ii) the Named Executives, (iii) each director of the Company, and (iv)
all current directors and executive officers of the Company as a group:
Percentage of
Amount and Nature of Common Shares
Name and Address of Beneficial Owner(1) Beneficial Ownership(2) Beneficially Owned
------------------------------------ -------------------- ------------------
Kevin J. Zugibe 552,228 (3) 10.1%
Thomas P. Zugibe 402,295 (4) 7.5%
Stephen P. Mandracchia 380,128 (5) 7.2%
Brian F. Coleman 147,715 (6) 2.8%
Vincent P. Abbatecola 25,000 (7) *
Robert L. Burr 0 (11) *
Dominic J. Monetta 30,000 (7) *
Otto C. Morch 20,600 (7) *
Harry C. Schell 69,000 (8) 1.3%*
Robert M. Zech 0 *
DuPont Chemical and Energy
Operations, Inc. 500,000 (9) 9.7%
Fleming Funds 4,771,810 (10) 48.0%
All directors and executive officers as a group
(10 persons) 1,664,701 (12) 27.4%
* Less than 1%
----------
(1) Unless otherwise indicated, the address of each of the persons listed above
is the address of the Company, 275 North Middletown Road, Pearl River, New York
10965.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the Record Date. Each beneficial
owner's percentage ownership is determined by assuming that options and warrants
that are held by such person (but not held by any other person) and which are
exercisable within 60 days from Record Date have been exercised. The percentage
of beneficial ownership is calculated based upon the number of shares of Common
Stock outstanding as of the Record Date, exclusive of shares of Common Stock
underlying issuable upon conversion of outstanding shares of Preferred A Stock.
Unless otherwise noted, the Company believes that all persons named in the table
have sole voting and investment power with respect to all shares of Common Stock
beneficially owned by them.
(3) Includes an aggregate of 314,500 shares of Common Stock underlying currently
exercisable options at exercise prices ranging from $2.00 to $4.47 per share.
Does not give effect to any voting rights held by Mr. Zugibe as a result of the
proxy granted by the holders of the Preferred A Stock pursuant to the provision
in the designation of the Preferred A Stock.
(4) Includes an aggregate of 170,167 shares of Common Stock underlying currently
exercisable options at exercise prices ranging from $2.00 to $4.47 per share.
15
(5) Includes an aggregate of 141,300 shares of Common Stock underlying currently
exercisable options at exercise prices ranging from $2.375 to $4.47 per share.
Does not give effect to any voting rights held by Mr. Mandracchia as a result of
the proxy granted by the holders of the Preferred A Stock pursuant to the
provision in the designation of the Preferred A Stock.
(6) Includes an aggregate of 144,715 shares of Common Stock underlying currently
exerciseable options at exercise prices ranging from $2.375 to $4.06 per share.
Does not include an aggregate of 40,785 shares of Common Stock underlying
options which are not currently exercisable.
(7) Includes an aggregate of 20,000 shares of Common Stock underlying currently
exerciseable options at exercise prices ranging from $2.375 to $3.08 per share.
(8) Includes an aggregate of 40,000 shares of Common Stock underlying currently
exercisable options at exercise prices ranging from $2.375 to $3.08 per share.
(9) According to a Schedule 13D filed with the Securities and Exchange
Commission, DuPont Chemical and Energy Operations, Inc. ("DCEO") and E.I. DuPont
de Nemours and Company claim shared voting and dispositive power over the
shares. DCEO's address is DuPont Building, Room 8045, 1007 Market Street,
Wilmington, DE 19898.
(10) Fleming US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund
III, L.P., and their general partner, Fleming US Discovery Partners, L.P. and
its general partner, Fleming US Discovery Partners LLC, collectively referred to
as ("Fleming Funds") are affiliates. The beneficial ownership of the Fleming
Funds assumes the conversion of Preferred A Stock owned by the Fleming Funds
(which constitutes all of the outstanding Preferred A Stock) to Common Stock at
a conversion rate of $2.375 per share. The holders of shares of Preferred A
Stock vote together with the holders of the Common Stock based upon the number
of shares of common stock into which the Preferred A Stock is then convertible.
The Fleming Funds have provided to the Chief Executive Officer and Secretary of
the Company a Proxy to vote that number of voting shares held by the Fleming
Funds which exceed 29% of the then voting shares. Also includes an aggregate of
30,000 shares of Common Stock underlying currently exercisable options at
exercise prices ranging from $2.375 to $3.08 per share. The address of all the
Fleming Funds is c/o JP Morgan Partners, 1221 Avenue of the Americas, 40th
Floor, New York, New York 10020, except for the Fleming US Discovery Offshore
Fund III, L.P. whose address is c/o Bank of Bermuda LTD., 6 Front Street,
Hamilton HM11 Bermuda.
(11) Mr. Burr is a Series A Director appointed by the Fleming Funds. His share
ownership excludes all shares of Common Stock beneficially owned by the Fleming
Funds.
(12) Includes an aggregate of 908,417 shares of Common Stock underlying
exercisable options. Does not include (i) an aggregate of 40,785 shares of
Common Stock underlying options which are not currently exercisable, and (ii)
4,742,652 shares of Common Stock issuable upon conversion of Preferred A Stock
beneficially owned by the Fleming Funds.
16
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In the regular course of its business, the Company purchases
refrigerants from and sells refrigerants to DuPont and performs recovery,
reclamation, RefrigerantSide(TM) Services and other services. During the years
ended December 31, 2001 and 2000, the Company had sales to DuPont in the amount
of $1,124,000 and $976,000, respectively.
On February 6, 2001, the Company completed the sale of 30,000 shares
of its Preferred A Stock, with a liquidation value of $100 per share, to Fleming
US Discovery Fund III, L.P. and Fleming US Discovery Offshore Fund III, L.P. The
gross proceeds from the sale of the Preferred A Stock were $3,000,000. The
Preferred A Stock converts to Common Stock at a rate of $2.375 per share, which
was 23% above the closing market price of Common Stock on February 15, 2001. Mr.
Burr, a director of the Company, has a consulting agreement with JP Morgan
Partners under which he is the lead partner of Fleming US Discovery Partners,
L.P., a private equity sponsor affiliated with JP Morgan Chase & Co. Fleming US
Discovery Partners, L.P. is the general partner of Fleming US Discovery Fund
III, L.P. and Fleming US Discovery Offshore Fund III, L.P.
17
PROPOSAL I
TO AUTHORIZE THE COMPANY TO ENGAGE IN A BRIDGE FINANCING WITH
LENDERS WHICH ARE EXPECTED TO INCLUDE CERTAIN OFFICERS AND
DIRECTORS OF THE COMPANY
General
The Board of Directors of the Company has adopted a resolution, and
submits to shareholders for approval, a proposal authorizing the Company to
enter into a debt financing transaction (the "Bridge Financing") with several
lenders which are expected to include certain officers and directors of the
Company as well as the Fleming Funds, principal shareholders of the Company.
Description of the Bridge Financing
The Company intends to raise approximately $1.15 million in the
Bridge Financing. The Company, however, may complete the Bridge Financing if at
least $750,000 is received and may increase the Bridge Financing to up to $2.0
million. The Company will issue to the lenders 10% Convertible Subordinated
Promissory Notes (the "Notes") each having a term of two years from issuance,
bearing interest at the annual rate of 10%, which interest will be payable
quarterly in arrears. The holder of a Note will have the option to defer
quarterly interest payments until the maturity date of the Note or convert such
deferred interest into shares of the Company's Common Stock, as described more
fully below. The Notes will be secured by all of the assets of the Company which
security interest, however, will be subordinate to an existing first priority
lien held by The CIT Group/Business Credit, Inc. on substantially all of the
assets of the Company as well as liens held by certain third-party purchase
money lenders on specific assets of the Company. The Company shall have the
right to prepay all or a portion of the principal amount of the Notes, together
with any accrued and unpaid interest thereon, at any time during their term and
prior to maturity upon twenty (20) days prior written notice to the Lender or
Lenders subject to the prepayment.
The Notes will be convertible at the option of the holders for all
or a portion of the principal amount of the Notes then outstanding and/or
accrued and unpaid interest thereon, into shares of the Company's Common Stock.
The initial conversion rate of the Notes will be equal to the average of the
closing prices of the Company's Common Stock as reported on the NASDAQ SmallCap
Market for the five business days prior to the closing date of the Bridge
Financing (the "Conversion Rate"). The Conversion Rate will be subject to
subsequent adjustment as a result of the issuance by the Company of Common Stock
or warrants, rights to purchase (other than options granted by the Company under
shareholder approved stock option plans and shares issuable upon exercise
thereof or upon exercise of options or warrants or conversion of notes of the
Company outstanding immediately prior to the closing of the Bridge Financing) or
other exercisable, exchangeable or convertible debt or equity securities (each
an "Additional Issuance") at a consideration per share which is less than the
Conversion Rate then in effect. In such a case the Conversion Rate will be
adjusted to equal the consideration per share received by the Company for the
securities issued in the Additional Issuance. In addition, the Conversion Rate
will be subject to an appropriate adjustment in the event of the following: (a)
upon a
18
subdivision, combination or reclassification by the Company of its common stock;
(b) upon the payment of dividends in shares of common stock, or (c) upon the
consolidation or merger of the Company with or into another corporation whereby
the Company is the surviving entity, or upon the sale or distribution of
substantially all of the Company's assets.
In addition, as consideration for their participation in the Bridge
Financing, the Company will issue to the holders of the Notes on the earlier of
(a) the first anniversary of the closing date of the Bridge Financing, or (b)
the consummation by the Company of an equity financing for aggregate
consideration of not less than $2,000,000, common stock purchase warrants
("Warrants") to purchase an aggregate number of shares of Common Stock equal to
10% of the number of shares of Common Stock into which the Notes are convertible
at the date of the closing of the Bridge Financing. Each Warrant will be
exercisable to purchase one share of common stock for a period of five years
from issuance at an exercise price (the "Exercise Price") equal to 110% of the
lesser of (i) the fair market value of the Common Stock of the Company as of the
closing date of the Bridge Financing, (ii) the fair market value of the Common
Stock of the Company as of the date of issuance, or (iii) the Conversion Rate of
the Notes on the date of issuance of the Warrants. With respect to items (i) and
(ii) above, the fair market value of the Common Stock will be based upon the
average of the Closing Price of the Common Stock as reported on NASDAQ (or such
other exchange or national securities market on which the Common Stock is then
listed) for the five business days prior to such respective date. The Exercise
Price of the Warrants will be subject to anti-dilution adjustment after issuance
of the warrants, on terms substantially similar to the anti-dilution adjustment
of the Conversion Rate of the Notes.
Purpose of Bridge Financing
As a result of current market conditions, revenues from the
Company's operations are not currently sufficient to support its operating
activities and, as such, the Company is in need of additional financing prior to
the end of 2002 in order to support its continuing operations. Management has
investigated potential sources of debt or equity financings and concluded that
either such financings are not currently available to the Company, or with
respect to those financings that are available, the proposed terms of such
financings are not commercially reasonable to the Company. As a result, the
Company has determined to pursue the Bridge Financing with several lenders which
are expected to include certain of the Company's officers and directors as well
as the Fleming Funds, principal shareholders of the Company.
Consent of Holders of Preferred A Stock
The Fleming Funds hold an aggregate of 112,618 Preferred A Stock,
constituting all of the Company's issued and outstanding Preferred A Stock as of
the Record Date. The Preferred A Stock is convertible into an aggregate of
4,741,810 shares of the Company's Common Stock or approximately 48% of all of
the issued and outstanding Common Stock of the Company after conversion of the
Preferred A Stock (assuming no other conversion or exchange of outstanding
securities of the Company) as of the Record Date, at the current conversion
price, as set forth in the designation of the Preferred A Stock, of $2.375 (the
"Conversion Price"). Because the Preferred A Stock votes together with the
Common Stock of the Company as one class (except for the election of two
directors, for which only the Preferred
19
A Stock have the right to vote), the Fleming Funds would otherwise have the
ability to provide for approximately 48% of the vote on matters brought before
the shareholders of the Company, thereby enabling the Fleming Funds to
significantly influence the ultimate shareholder determinations on matters
presented for a vote.
Pursuant to stock purchase agreements, as amended, in accordance
with which the Fleming Funds acquired the Preferred A Stock (the "Fleming
Purchase Agreements"), the Company is restricted, without the prior written
consent of the Fleming Funds, from issuing or selling securities, including
securities such as the Notes and Warrants to be included in the Bridge
Financing, which are convertible or exchangeable into shares of Common Stock for
a consideration per share that is less than the Conversion Price of the
Preferred A Stock then in effect immediately prior to such proposed issuance or
sale of securities. Based on the market price of the Company's Common Stock on
the Record Date, the Conversion Rate of Notes to be issued in the Bridge
Financing would be approximately $1.882 per share of Common Stock, which is
below the current Conversion Price of the Preferred A Stock ($2.375).
Consequently, the Company would not be able to engage in the Bridge Financing
without the prior written consent of the Fleming Funds.
The Fleming Funds have agreed to consent to the Bridge Financing. As
consideration for, among other things, their consent to the Bridge Financing,
the Company has determined, at the request of the Fleming Funds, to amend: (i)
Section 4(a) of Paragraph (5) of the Company's Certificate of Incorporation to
remove the provision for a Proxy (defined below in Proposal II) granted by the
holders of Preferred A Stock in favor of the Hudson Officers (defined below in
Proposal II); and (ii) Section 5(d)(ii) of Paragraph 5 of the Company's
Certificate of Incorporation to remove the provision relating to a Conversion
Price Floor with respect to the conversion price of the Preferred A Stock. The
removal of the Proxy would allow for the Fleming Funds to vote all of the Common
Stock into which the Preferred A Stock are then convertible, subject to the
Disparate Voting Limitation (defined below in Proposal III), at all meetings of
shareholders of the Company and the removal of the Conversion Price Floor would
allow for the conversion price of the Preferred A Stock to be adjusted to equal
the consideration per share at any price received by the Company in an
Additional Issuance, and a corresponding increase in the number of shares of
Common Stock into which the Preferred A Stock is convertible.
Necessity for Shareholder Approval
Because the Company's Common Stock is listed on the NASDAQ SmallCap
Market, the Company is subject to NASDAQ Marketplace Rules. NASDAQ Marketplace
Rule 4350(i)(1)(D)(ii) requires that a company listed on NASDAQ obtain
shareholder approval in connection with a transaction (other than a public
offering) involving the potential issuance of common stock (or securities
convertible into or exercisable for common stock) equal to 20% or more of its
common stock or 20% or more of its voting power outstanding before the issuance
for less than the greater of book or market value of the stock as of the date of
the transaction.
The Notes to be issued by the Company in the Bridge Financing will
be convertible into shares of the Company's common stock at any time from
issuance until maturity at the Conversion Rate, subject to adjustment in certain
circumstances, including in the event of an Additional Issuance by the Company
at a consideration per share below the then effective
20
Conversion Rate. The Warrants to be issued by the Company as a result of the
Bridge Financing will, when issued, be exercisable for shares of the Company's
Common Stock at any time from their issuance until their termination at the then
applicable Exercise Price which will be subject to adjustment on terms
substantially similar to the adjustment of the Conversion Rate of the Notes. Any
Additional Issuance at a consideration per share below the then effective
Conversion Rate will act to immediately reduce the Conversion Rate of the Notes
then in effect to equal the amount of per share consideration received by the
Company in connection with such Additional Issuance. Since the Conversion Rate
of the Notes and the applicable Exercise Price of the Warrants will initially be
set at the market price of the Company's Common Stock at the closing of the
Bridge Financing transaction, any Additional Issuance for a per share
consideration below the Conversion Rate will, as a result of the adjustment
provision of the Conversion Rate, reduce the amount of the Conversion Rate to
below market value and, consequently, reduce the applicable Exercise Price of
the Warrants to below market value. In addition, as the Conversion Rate is
adjusted downward the number of shares of common stock issuable upon conversion
of the Notes increases such that, the potential exists that the Notes and
Warrants issued in connection with the Bridge Financing would be convertible and
exercisable, as the case may be, at a rate below the market price of the Common
Stock on the closing of the Bridge Financing for an aggregate number of shares
of Common Stock equal to 20% or more of the Company's outstanding Common Stock
prior to the Bridge Financing transaction. The Company, therefore has submitted
this Proposal for shareholder approval in accordance with Marketplace Rule
4350(i)(1)(D)(ii).
In addition, the Company is subject to Marketplace Rule
4350(i)(1)(A) which requires that a company listed on NASDAQ obtain shareholder
approval of an arrangement made pursuant to which stock in excess of the lesser
of (a) 1% of the number of shares of such company's currently outstanding common
stock, (b) 1% of the outstanding voting power of the company, or (c) 25,000
shares will be acquired by officers or directors (other than with respect to
warrants or rights generally issued to shareholders of the Company and broad
based plans). To the extent that a NASDAQ listed company does not obtain
shareholder approval to such an arrangement and otherwise proceeds with such an
arrangement, that company may be subject to the delisting of its securities from
NASDAQ.
Based upon discussions among the parties, they Fleming Funds have
indicated their intention to purchase up to an aggregate of $750,000 principal
amount of the Notes. Additionally, several of the Company's officers and
directors are expected to purchase up to an aggregate of $400,000 principal
amount of Notes in the Bridge Financing. Assuming a Conversion Rate of $1.882
(based upon the average of the closing price of the Company's common stock for
the five business days prior to the Record Date) such officers and directors
would be able to convert the principal amount of their Notes into an aggregate
of approximately 212,540 shares of the Company's common stock, exceeding the
25,000 share maximum issuance permitted by Marketplace Rule 4350. Such officers
and directors would also be eligible to exercise the Warrants, to be issued as
discussed above, into shares of the Company's Common Stock. Although it is the
Company's understanding that such Marketplace Rule would otherwise permit,
without prior shareholder approval, the private sale of securities such as the
proposed Bridge Financing, wherein the securities are deemed to be offered at or
above fair market value and the officers or directors are participating on the
same terms as other potential investors, the
21
provision in the Notes and the Warrants for adjustment of the Conversion Rate
and applicable Exercise Price in the event of an Additional Issuance at a
consideration per share below the Conversion Rate and applicable Exercise Price
then in effect triggers the application of Marketplace Rule 4350(i)(1)(A) where
stock may be issued to officers and directors. Consequently, the Company has
submitted this Proposal for shareholder approval.
Required Vote
Approval by shareholders of this Proposal I requires the affirmative
vote of a majority of the votes cast by the holders of the shares of common
stock and Preferred A Stock, voting together as one class, present in person or
represented by proxy at the Annual Meeting, provided a quorum is present.
Recommendation
The Board of Directors believes that it is in the best interests of
the Company that the shareholders authorize the Company to engage in the Bridge
Financing.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR
PROPOSAL I TO AUTHORIZE THE COMPANY TO ENGAGE IN A BRIDGE FINANCING WITH LENDERS
WHICH IS EXPECTED TO INCLUDE CERTAIN OFFICERS AND DIRECTORS OF THE COMPANY.
22
PROPOSAL II
TO AMEND THE CERTIFICATE OF INCORPORATION TO REMOVE
THE PROVISION FROM THE DESIGNATION OF THE SERIES A
PREFERRED STOCK RELATING TO THE PROXY GRANTED
BY THE HOLDERS OF THE SERIES A PREFERRED STOCK IN
FAVOR OF CERTAIN OFFICERS OF THE COMPANY
The Board of Directors of the Company has adopted a resolution
declaring the advisability of, and submits to the shareholders for approval, a
proposal to authorize an amendment to Section 4(a) of Paragraph 5 of the
Certificate of Incorporation of the Company, substantially in the form of
Exhibit A attached hereto, to remove the provision in the designation of the
Preferred A Stock, relating to the proxy granted by holders of the Preferred A
Stock which irrevocably constitutes Kevin J. Zugibe, the Company's Chairman and
Chief Executive Officer, and Stephen P. Mandracchia, the Company's Vice
President of Operations and Secretary (the "Hudson Officers"), and each of them,
with full power to vote in the place and stead of the holders of the Preferred A
Stock at all shareholder meetings, that number of the Company's voting shares of
all classes held by the holders of the Preferred A Stock as shall exceed
twenty-nine (29%) percent of the votes entitled to be cast by all shareholders
of the Company (the "Proxy").
Reason for the Proposed Amendment
As noted above in Proposal I, the Company is in need of additional
financing such as the proposed Bridge Financing in order to be able to support
its operating activities prior to the end of 2002. Due, however, to the
restriction set forth in the Fleming Purchase Agreements with respect to
issuances or sales of convertible securities for per share consideration below
the Conversion Price then in effect, based upon the Conversion Rate of the Notes
to be offered in the Bridge Financing calculated as of the Company's market
price on the Record Date, the Company would not be able to proceed with the
Bridge Financing without the prior written consent of the Fleming Funds. The
Fleming Funds, however, have agreed to consent to the Bridge Financing. As
consideration for, among other things, the consent of the Fleming Funds to the
Bridge Financing, the Company has determined, at the request of the Fleming
Funds, to amend its Certificate of Incorporation to remove the Proxy granted by
the holders of the Preferred A Stock in favor of the Hudson Officers.
Based on the Conversion Price of the Preferred A Stock as of the
Record Date, the Fleming Funds may acquire approximately 48% of the outstanding
Common Stock after conversion of the Preferred A Stock (and assuming no other
conversion of exercise of outstanding options, warrants or other convertible
securities). Because the Preferred A Stock votes together with the Common Stock
as one class, the Fleming Funds would otherwise have approximately 48% of the
voting power, thereby enabling the Fleming Funds to significantly influence the
ultimate determination on matters presented for shareholder vote since, in most
instances, shareholder approval is obtained upon the affirmative vote of a
majority of the voting shares cast at the meeting of shareholders at which a
quorum is present. The Proxy contained in the voting provision of the
designation of the Preferred A Stock currently acts to transfer approximately
nineteen (19%) percent of the voting power held by the Fleming Funds to the
officers and directors of the Company.
Necessity for Shareholder Approval
Because the removal of the provision for the Proxy from the
designation of the Preferred A Stock would result in the immediate increase in
the percentage of votes entitled to be
23
cast by the Fleming Funds from 29% to approximately 48% of all shares currently
eligible to be cast by shareholders of the Company, the removal of the Proxy
could be deemed to result in a change of control for NASDAQ purposes and,
consequently, shareholder approval of such proposal would be required under
NASDAQ's Marketplace Rule 4350.
In addition to shareholder approval required for an amendment to the
Certificate of Incorporation, NASDAQ Marketplace Rule 4350(i)(1)(B) requires
that a company listed on NASDAQ obtain shareholder approval prior to the
issuance of designated securities where the issuance or potential issuance will
result in a change of control of the company. Although the removal of the
provision providing for a Proxy granted by the holders of Preferred A Stock in
favor of the Hudson Officers may not technically involve an "issuance" of
securities, in essence the power to vote an aggregate of approximately 19% of
the currently outstanding voting securities would be returned to the Fleming
Funds, which would result in the Fleming Funds holding approximately 48% of the
voting securities of the Company. As this could be deemed a change of control of
the Company, the Company has submitted the proposal to amend the Certificate of
Incorporation to remove the Proxy from the designation of the Preferred A Stock
for shareholder approval.
Required Vote
Approval by the shareholders of this amendment to the Company's
Certificate of Incorporation will require the affirmative vote of a majority of
shares of common stock and Preferred A Stock, voting together as one class,
outstanding as of the Record Date.
It is anticipated that, because the Fleming Funds, as sole holder of
the Preferred A Stock, have a substantial interest in the amendment of the
Certificate of Incorporation to remove the Proxy, NASDAQ will not allow the
Preferred A Stock to be counted in determining shareholder approval required by
Rule 4350(i)(1)(B) with respect to the potential change in control of the
Company. Consequently, shareholder approval of this Proposal II for NASDAQ
purposes will also require the affirmative vote of the majority of shares of
Common Stock voted at the Annual Meeting, provided a quorum is present.
Recommendation
The Board of Directors believes that it is in the best interests of
the Company that the shareholders authorize the amendment to the Certificate of
Incorporation to remove the provision providing for a proxy from the designation
of the Preferred A Stock.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR
PROPOSAL II TO AUTHORIZE THE COMPANY TO AMEND ITS CERTIFICATE OF INCORPORATION
TO REMOVE THE PROVISION IN THE DESIGNATION OF PREFERRED A STOCK PROVIDING FOR A
PROXY IN FAVOR OF CERTAIN HUDSON OFFICERS.
24
PROPOSAL III
TO AMEND THE CERTIFICATE OF INCORPORATION
TO REMOVE THE CONVERSION PRICE RESTRICTION
FROM THE DESIGNATION OF THE SERIES A PREFERRED STOCK
The Board of Directors of the Company has adopted a resolution
declaring the advisability of, and submits to the shareholders for approval, a
proposal to authorize an amendment to Section 5(d)(ii) of paragraph 5 of the
Company's Certificate of Incorporation, substantially in the form of Exhibit A
attached hereto, to remove the provision in the designation of Preferred A Stock
that establishes a Conversion Price Floor of not less than $1.78 per common
share (the weighted average market price of the Common Stock of the Company at
the time the Preferred A Stock was issued) with respect to the adjustment of the
Conversion Price of the Preferred A Stock in the event of an Additional Issuance
by the Company for consideration per share less than the Conversion Price in
effect immediately prior to such Additional Issuance by the Company.
Reason for the Proposed Amendment
As noted above in Proposal I, the Company is in need of additional
financing such as the proposed Bridge Financing in order to be able to support
its operating activities prior to the end of 2002. Due, however, to the
restriction set forth in the Fleming Purchase Agreements with respect to the
issuances or sales of convertible securities for per share consideration below
the Conversion Price then in effect, based upon the Conversion Rate of the Notes
to be offered in the Bridge Financing calculated as of the Company's market
price on the Record Date, the Company would not be able to proceed with the
Bridge Financing without the prior written consent of the Fleming Funds. The
Fleming Funds, however, have agreed to consent to the Bridge Financing. As
consideration for, among other things, the consent of the Fleming Funds to the
Bridge Financing, the Company has determined, at the request of the Fleming
Funds, to amend its Certificate of Incorporation to remove the Conversion Price
Floor from the designation of the Preferred A Stock.
The Company is subject to NASDAQ Marketplace Rule 4351 which
restricts the disparate reduction or restriction of the voting rights of
existing shareholders of common stock registered under Section 12 of the
Securities Exchange Act of 1934, through any corporate action or issuance. The
holders of the Preferred A Stock vote together with the Common Stock as one
class based upon the number of shares of Common Stock into which the Preferred A
Stock is convertible at the Conversion Price then in effect. Following the
removal of the Conversion Price Floor, the Conversion Price, upon an event
causing a subsequent downward adjustment, could be adjusted to a price well
below the Conversion Price Floor. The number of shares of Common Stock into
which the Preferred A Stock is convertible would increase as would the votes
held by the holders of Preferred A Stock. As NASDAQ would most likely view the
resulting unlimited downward adjustment of the Preferred A Stock as a disparate
reduction or restriction to the holders of the Company's Common Stock, the
Company will maintain a floor on the Conversion Price of the Preferred A Stock
solely as it relates to the voting rights of such shares. Consequently, for
calculating the number of shares of Common Stock into which a share of Preferred
A Stock is convertible for purposes of determining the votes held by such share
of Preferred A Stock, the Conversion Price shall be the higher of (a) the
Conversion Price then in effect, or (b) $1.78 (the "Disparate Voting
Limitation").
25
Necessity For Shareholder Approval
In addition to shareholder approval for an amendment to the
Certificate of Incorporation to remove the Conversion Price Floor, NASD
Marketplace Rule 4350(i)(1)(D)(ii) requires that a company listed on NASDAQ
obtain shareholder approval prior to a transaction (other than a public
offering) involving the issuance or potential issuance of common stock (or
securities convertible into or exercisable for common stock) equal to 20% or
more of the common stock or 20% or more of the voting power outstanding before
such issuance for less than the greater of book or market value of the stock.
The removal of the Conversion Price Floor would allow for the
downward adjustment of the Conversion Price of the Preferred A Stock to a price
below the Conversion Price Floor. The Conversion Price Floor is in place because
the initial issuance of the Preferred A Stock was in excess of 20% of the
outstanding shares of Common Stock at that time and the Conversion Price Floor
was the weighted average market price of the Common Stock at the time the
Preferred A Stock was issued (the "Preferred Stock Market Price"). As the
Company believed that shareholder approval for the initial issuance of the
Preferred A Stock was not deemed to be required, the Company did not obtain
shareholder approval for such initial issuance of the Preferred A Stock.
Accordingly, the removal of the Conversion Price Floor could permit the
Conversion Price to fall below the Preferred Share Market Price. As this may be
deemed an issuance or potential issuance of common stock equal to 20% or more of
the common stock outstanding before the issuance of the Preferred A Stock for
less than the greater of book or market value of the Common Stock at such
issuance, the proposal to amend the Company's Certificate of Incorporation to
remove the Conversion Price Floor from the designation of the Preferred A Stock
has been submitted for shareholder approval.
The Fleming Funds have agreed to waive the anti-dilution adjustment
of the Conversion Price of the Preferred A Stock with respect to the issuance of
the Notes at a Conversion Rate below the Conversion Price of the Preferred A
Stock at the time of the closing of the Bridge Financing. Such waiver, however,
will not cover anti-dilution adjustment to the Conversion Price of the Preferred
A Stock resulting from the conversion of the Notes for the underlying shares of
Common Stock. The Fleming Funds have also agreed to waive the anti-dilution
adjustment of the Conversion Price of the Preferred A Stock with respect to the
Company's obligation to issue the Warrants, such waiver to be in effect up to,
but not including, the exercise of such Warrants. It is currently anticipated
that the prospective purchasers of the Notes in the Bridge Financing, including
the Fleming Funds, will agree to a lock-up from converting their Notes until the
earlier of (a) one year from the closing of the Bridge Financing or (b) the
consummation by the Company of an equity financing for consideration of not less
than $2.0 million dollars.
Required Vote
Approval by the shareholders of an amendment to the Certificate of
Incorporation will require the affirmative vote of a majority of shares of
Common Stock and Preferred A Stock, voting together as one class, outstanding as
of the Record Date.
It is anticipated that, because the Fleming Funds, as sole holder of
the Preferred A Stock, have a substantial interest in the amendment of the
Certificate of Incorporation to remove
26
the Conversion Price Restriction, NASDAQ will not allow the Preferred A Stock to
be counted in determining shareholder approval required by Rule
4350(i)(1)(D)(ii) with respect to the potential issuance of in excess of 20% of
the outstanding common stock below the greater of book or market value.
Consequently, shareholder approval of this Proposal III for NASDAQ purposes will
also require the affirmative vote of the majority of shares of Common Stock
voted at the Annual Meeting, provided a quorum is present.
Recommendation
The Board of Directors believes that it is in the best interests of
the Company that the shareholders authorize the amendment to the Certificate of
Incorporation to remove the Conversion Price Restriction from the designation of
the Preferred A Stock.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR
PROPOSAL III TO AUTHORIZE THE COMPANY TO AMEND ITS CERTIFICATE OF INCORPORATION
TO REMOVE THE CONVERSION PRICE RESTRICTION FROM THE DESIGNATION OF PREFERRED A
STOCK.
27
PROPOSAL IV
TO AUTHORIZE THE BOARD OF DIRECTORS
TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
COMMON STOCK FROM 20,000,000 SHARES TO 50,000,000 SHARES
The Board of Directors has adopted a resolution approving and
recommending to the Company's shareholders, for their approval, the
authorization for the Board, in its discretion, to amend the Certificate of
Incorporation of the Company, substantially in the form of Exhibit A attached
hereto, to provide for an increase in the authorized number of shares of Common
Stock of the Company from 20,000,000 shares to 50,000,000 shares.
As of the Record Date there were 5,165,020 shares of the Company's
Common Stock issued and outstanding and options, warrants and other convertible
securities outstanding (whether or not currently exercisable), other than the
Preferred A Stock, to acquire approximately 2,165,229 shares of Common Stock. In
addition, as of the Record Date, an aggregate of 112,618 Preferred A Stock were
issued and outstanding, which if converted in full, together with any accrued
dividends thereon, based upon the current Conversion Price would result in the
issuance of an aggregate of approximately 4,741,810 shares of Common Stock.
Moreover, if the shareholders approve Proposal I above authorizing the Company
to enter into the Bridge Financing, the Notes to be issued by the Company will
be eligible for immediate conversion into shares of Common Stock based upon the
average of the closing price of the Company's common stock as reported on the
NASDAQ Small Cap Market for the five business days prior to the closing date of
the Bridge Financing. The Notes to be issued by the Company as well as the
Preferred A Stock, to the extent that the shareholders approve Proposal III
above authorizing the Company to amend its Certificate of Incorporation to
remove the Conversion Price Restriction from the designation of the Preferred A
Stock, will each provide for full adjustment of their respective conversion rate
in the event of an Additional Issuance by the Company at a per share price below
their respective conversion rate then in effect. In such cases, the number of
shares of common stock issuable upon conversion of the Notes and Preferred A
Stock will be proportionately increased.
Finally, the Company is contemplating a proposed public offering
(the "Public Rights Offering") that will give holders of its Common Stock the
right (the "Stock Purchase Rights") to purchase additional shares of Common
Stock based upon a ratio of Stock Purchase Rights to outstanding shares of
Common Stock to be determined by the Company. The Company anticipates the
aggregate proceeds of such Public Rights Offering to be within a range of
$2,000,000 to $5,000,000 with the exercise price of the Stock Purchase Rights to
be offered at a discount to market at a price to be determined by the Company.
Reason for the Proposed Amendment
The Company believes that, in addition to the authorized but
unissued shares reserved for issuance in the event of the exercise and/or
conversion, as the case may be, of currently outstanding options and warrants as
well as options available for future grant under the Company's stock option
plans, it would have sufficient authorized shares of Common Stock to cover the
conversion of the currently outstanding Preferred A Stock at the Conversion
Price currently in effect, the conversion of the Notes contemplated to be issued
in the Bridge Financing
28
at a Conversion Rate based upon the market price of its common stock as of the
Record Date and the exercise of Stock Purchase Rights issued at the high end of
the range in the proposed Public Rights Offering. The Company, however, may not
have a sufficient number of shares of authorized Common Stock to issue in the
event of the conversion or exercise of the Notes and/or the Preferred A Stock,
or for other purposes, subsequent to a downward adjustment of the respective
conversion rate of the Notes and Preferred A Stock.
The additional authorized but unissued shares of Common Stock may
also be available to, among other things, raise capital in the future, finance
future acquisitions, retire debt or compensate employees. Although such
additional authorized shares may be used for anti-takeover purposes, the Company
does not anticipate such use in the immediate future. Additionally, the Company
currently has no plans, arrangements or understandings regarding future
issuances of Common Stock except in connection with the Company's stock option
plans, the Preferred A Stock and, to the extent that Proposal I authorizing the
Bridge Financing is approved by the shareholders, the Notes and Warrants. The
Company, however is contemplating the Public Rights Offering discussed above.
Once authorized, the additional shares of Common Stock may be issued
with approval of the Board of Directors but without further approval of the
shareholders unless shareholder approval is required by applicable law, rule or
regulation. Accordingly, this solicitation may be the only opportunity for the
Company's shareholders to approve certain financings, acquisitions, benefit
plans, recapitalizations and other corporate transaction to be undertaken by the
Company.
None of the Company's Common Stock has any preemptive rights. The
Preferred A Stock, in order to enable the holders thereof to maintain their
fully diluted percentage ownership of the Company, have preemptive rights to
purchase capital stock issued by the Company, including warrants or securities
convertible into capital stock, except for (a) pro rata dividends issued to all
holders of the Common Stock, (b) stock issued to employees, officers and
directors in connection with stock options or incentive plans approved by the
Board of Directors, (c) stock issued in connection with any merger, acquisition
or business combination, or (d) stock issued for consideration aggregating less
than $500,000 in any single transaction provided that all such transactions, in
the aggregate, do not exceed $1,000,000. Such preemptive rights terminate upon
the conversion or redemption of the Preferred A Stock, as the case may be.
Required Vote
To be approved by the shareholders, this Proposal IV requires the
affirmative vote of a majority of shares of common stock and Preferred A Stock,
voting together as one class, outstanding as of the Record Date.
Recommendation
The Board of Directors believes that it is in the best interests of
the Company that the shareholders authorize the Board of Directors, in their
discretion, to amend the Certificate of Incorporation to increase the number of
authorized shares of common stock from 20,000,000 shares to 50,000,000 shares.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR
PROPOSAL IV TO AUTHORIZE THE BOARD OF DIRECTORS, IN THEIR DISCRETION, TO AMEND
THE COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK FROM 20,000,000 SHARES TO 50,000,000 SHARES.
29
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BDO Seidman, LLP has audited and reported upon the consolidated
financial statements of the Company for Fiscal 2001 and has been selected by the
Board of Directors to examine and report upon the financial statements of the
Company for the fiscal year ending December 31, 2002. A representative of BDO
Seidman, LLP is expected to be present at the Annual Meeting with the
opportunity to make a statement if he or she desires to do so and is expected to
be available to respond to appropriate questions.
Audit Fees
The aggregate fees billed by BDO Seidman, LLP for professional
services rendered for the audit of the Company's annual financial statements for
Fiscal 2001 and the reviews of the financial statements included in the
Company's Form 10-QSB's for Fiscal 2001 totaled $91,536.
Financial Information Systems Design And Implementation Fees
There were no fees billed to the Company by BDO Seidman, LLP for
professional services related to financial information systems design and
implementation by BDO Seidman, LLP for Fiscal 2001.
All Other Fees
There were no fees billed for services rendered by BDO Seidman, LLP,
other than for audit and information technology services, described in the
preceding two paragraphs.
The Audit Committee has considered whether the provision of services
covered in the preceding two paragraphs is compatible with maintaining BDO
Seidman, LLP's independence.
SHAREHOLDER PROPOSALS
Shareholders who wish to present proposals appropriate for
consideration at the next Annual Meeting of Shareholders must submit the
proposal in proper form and in satisfaction of the conditions established by the
Securities and Exchange Commission, to the Company at its address set forth on
the first page of this proxy statement not later than May 8, 2003 to be
considered for inclusion in the Company's proxy statement and form of proxy
relating to such annual meeting. Any such proposals, as well as any questions
related thereto, should be directed to the Secretary of the Company.
After the May 8, 2003 deadline, a shareholder may present a proposal
at the Company's next Annual Meeting if it is submitted to the Company's
Secretary at the address set forth above no later than July 22, 2003. If timely
submitted, the shareholder may present the proposal at the next Annual Meeting
but the Company is not obligated to include the proposal in its proxy statement.
30
OTHER INFORMATION
Proxies for the Annual Meeting will be solicited by mail and through
brokerage institutions and all expenses involved, including printing and
postage, will be paid by the Company.
THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED
DECEMBER 31, 2001 IS INCORPORATED BY REFERENCE INTO THIS PROXY STATEMENT. A COPY
OF SUCH ANNUAL REPORT ON FORM 10-KSB IS BEING FURNISHED HEREWITH TO EACH
SHAREHOLDER OF RECORD AS OF THE CLOSE OF BUSINESS ON THE RECORD DATE.
THE COMPANY'S QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTER ENDED
JUNE 30, 2002 IS INCORPORATED BY REFERENCE INTO THIS PROXY STATEMENT. A COPY OF
SUCH QUARTERLY REPORT ON FORM 10-QSB IS BEING FURNISHED HEREWITH TO EACH
SHAREHOLDER OF RECORD AS OF THE CLOSE OF BUSINESS ON THE RECORD DATE.
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR
ENDED DECEMBER 31, 2001 AND QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTER
ENDED JUNE 30, 2002 ARE ALSO AVAILABLE UPON WRITTEN REQUEST TO THE COMPANY AT
THE ADDRESS SET FORTH BELOW. EXHIBITS TO THE ANNUAL REPORT ON FORM 10-KSB WILL
BE PROVIDED FOR A NOMINAL CHARGE TO SHAREHOLDERS WHO MAKE A WRITTEN REQUEST TO
THE COMPANY AT THE FOLLOWING ADDRESS:
HUDSON TECHNOLOGIES, INC.
275 NORTH MIDDLETOWN ROAD
PEARL RIVER, NEW YORK 10965
ATTENTION: STEPHEN P. MANDRACCHIA, SECRETARY
The Board is not aware of any other matters, except for those
incident to the conduct of the Annual Meeting, that are to be presented to
shareholders for formal action at the Annual Meeting. If, however, any other
matters properly come before the Annual Meeting or any adjournments thereof, it
is the intention of the persons named in the proxy included herewith to vote
such proxy in accordance with their judgment.
By Order of the Board of Directors
Kevin J. Zugibe, P.E.
Chairman of the Board
September __, 2002
31
PRELIMINARY COPIES
HUDSON TECHNOLOGIES, INC.
275 North Middletown Road
Pearl River, New York 10965
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD SEPTEMBER 30, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints KEVIN J. ZUGIBE and STEPHEN P.
MANDRACCHIA, and each of them, Proxies, with full power of substitution in each
of them, in the name, place and stead of the undersigned, to vote at the Annual
Meeting of Shareholders of Hudson Technologies, Inc. (the "Company") on Monday,
September 30, 2002, at the Pearl River Hilton, 500 Veterans Memorial Highway,
Pearl River, New York 10965 or at any adjournment or adjournments thereof,
according to the number of votes that the undersigned would be entitled to vote
if personally present, upon the following matters:
1. ELECTION OF DIRECTORS:
|_| FOR all nominees listed below |_| WITHHOLD AUTHORITY
(except as marked to the contrary below). to vote for all
nominees listed below.
Kevin J. Zugibe, Dominic J. Monetta, Harry C. Schell and Robert M. Zech.
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space below.)
--------------------------------------------------------------------------------
(Continued and to be signed on reverse side)
2. Authorization for the Company to engage in a bridge financing transaction
with lenders which are expected to include certain officers and directors of the
Company.
|_|For |_|Against |_|Abstain
3. Approval of an amendment to the Company's Certificate of Incorporation to
remove the provision in the designation of the Series A Preferred A Stock
relating to a proxy granted by the holders of the Series A Preferred Stock in
favor of certain officers of the Company.
|_|For |_|Against |_|Abstain
4. Approval of an amendment to the Company's Certificate of Incorporation to
remove the Conversion Price Floor from the designation of the Series A Preferred
Stock.
|_|For |_|Against |_|Abstain
5. Approval of an amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares of common stock.
|_|For |_|Against |_|Abstain
6. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN ABOVE. IF NO
INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR THOSE NOMINEES AND THE
PROPOSALS LISTED ABOVE.
DATED:___________, 2002
Please sign exactly as name appears
hereon. When shares are held by
joint tenants, both should sign.
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If
a corporation, please sign in full
corporate name by President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
-------------------------------------
Signature
-------------------------------------
Signature if held jointly
Please mark, sign, date and return this proxy card promptly using the enclosed
envelope.
EXHIBIT A
FORM OF AMENDMENT TO
THE
CERTIFICATE OF INCORPORATION
The first paragraph of Article 5 of the Certificate of
Incorporation, which refers to the authorized shares of the corporation, is
hereby amended to read as follows:
"(5). The total number of shares of capital stock which the Company
shall have authority to issue is Fifty-Five Million (55,000,000) shares,
of which Fifty Million (50,000,000) shares shall be Common Stock, par
value $.01 per share, and Five Million (5,000,000) shares shall be
Preferred Stock, par value $.01 per share."
The Certificate of Incorporation is amended as authorized by Section
801 of the Business Corporation Law to change the provisions of the Series A
Preferred Stock relating to Voting and to adjustment of the Conversion Price.
To effectuate the foregoing:
(a) Section 4(a) is deleted in its entirety and a new Section
4(a) is hereby inserted in lieu and instead thereof to read as follows:
"(a) General. In addition to any voting rights provided
in the Corporation's Certificate of Incorporation or by law, the Series A
Preferred Stock shall vote together with the Common Stock as a single
class on all actions to be voted on by the stockholders of the
Corporation. Each share of Series A Preferred Stock shall entitle the
holder thereof to such number of votes per share on each such action as
shall equal the number of shares of Common Stock (including fractions of a
share) into which each share of Series A Preferred Stock is then
convertible; provided, however, that, notwithstanding any other provision
to the contrary herein, as the same relates solely to the voting rights of
the Series A Preferred Stock as set forth in this Section 4, in
determining the number of votes per share of Series A Preferred Stock, the
Conversion Price shall be the higher at (a) the Conversion Price then in
effect, or (b) $1.78. The holders of Series A Preferred Stock shall be
entitled to notice of any stockholder's meeting in accordance with the
By-Laws of the Corporation."
(b) Section 5(d)(ii) is deleted in its entirety and a new
Section 5(d)(ii) is hereby inserted in lieu and instead thereof to read as
follows:
"(ii) Issuance of Additional Shares of Stock. If the
Corporation shall (except as hereinafter provided) issue or sell
Additional Shares of Stock in exchange for consideration in an amount per
Additional Share of Stock less than the Conversion Price in effect
immediately prior to such issuance or sale of Additional Shares of Stock,
then the Conversion Price as to the Common Stock into which the Series A
Preferred Stock is convertible immediately prior to such adjustment shall
be adjusted to equal the consideration paid per Additional Share of Stock.
The provisions of this Section 5(d)(ii) shall not apply to any issuance of
Additional Shares of Common Stock for which an adjustment is provided
under Section 5(d)(i) or which are dividends or distributions received by
the holders of the Series A Preferred Stock pursuant to Section 2(b)
hereof."