UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Filed by a Party other than the Registrant[ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-12
WATER CHEF, 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)
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Water Chef, Inc.
1007 Glen Cove Avenue
Glen Head, NY 11545
-------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 4, 2004
-------------------
Dear Stockholders:
You are cordially invited to attend a special meeting of stockholders on
Friday, June 4, 2004 at 10:00 a.m. local time at The Harvard Club, Slocum Room,
27 West 44th Street, New York, NY 10036.
The purpose of this special meeting is to consider and vote on the
following matters:
1. a proposal to amend our Restated Certificate of Incorporation to
increase the authorized capital stock of Water Chef, Inc. from
100,000,000 shares to 200,000,000 shares, consisting of 190,000,000
shares of common stock and 10,000,000 shares of preferred stock, which
Certificate of Amendment was approved by the Board of Directors on
August 20, 2002; and
2. such other business as may properly come before the special meeting,
or any adjournment thereof.
The Board of Directors has fixed the close of business on Friday, May 7,
2004 as the record date for determining which stockholders are entitled to
notice of, and to vote at, this special meeting, or any adjournment thereof
(such date, the "Record Date").
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, YOU ARE URGED TO FILL
IN, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT TO US USING THE SELF
ADDRESSED STAMPED ENVELOPE PROVIDED.
By Order of the Board of Directors,
Marshall S. Sterman
Member of the Board of Directors and
Acting Secretary
Glen Head, New York
May 10, 2004
TABLE OF CONTENTS
Page
----
QUESTIONS AND ANSWERS ABOUT THE MEETING.......................................1
SECURITY OWNERSHIP............................................................4
PROPOSAL 1: APPROVING THE AMENDMENT TO OUR
RESTATED CERTIFICATE OF INCORPORATION.........................................5
Introduction.........................................................5
Description of the Common Stock, Warrants, Convertible
Securities and Convertible Notes...................................7
Principal Reasons for Increasing the Number of Authorized
Shares of Common Stock ............................................8
Vote Required........................................................10
Recommendation of the Board..........................................10
OTHER MATTERS.................................................................10
ANNUAL AND QUARTERLY REPORT...................................................10
EXHIBIT A - Amendment to the Water Chef, Inc. Restated
Certificate of Incorporation
(i)
WATER CHEF, INC.
1007 Glen Cove Avenue
Glen Head, NY 11545
This proxy statement is being furnished to you in connection with the
solicitation by the Board of Directors of proxies for use at our special meeting
of stockholders scheduled for Friday, June 4, 2004 at The Harvard Club, Slocum
Room, 27 West 44th Street, New York, NY 10036, at 10:00 a.m. local time, and any
adjournment thereof. This proxy statement, and the accompanying proxy card, are
first being mailed to stockholders on or about Monday, May 10, 2004.
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING
Q: WHAT IS THE PURPOSE OF THE SPECIAL MEETING?
A: The purpose of the special meeting is to consider and vote upon the
following matters:
o a proposal to amend our Restated Certificate of Incorporation to
increase the authorized capital stock of Water Chef, Inc. (the
"Company") from 100,000,000 shares to 200,000,000 shares, consisting
of 190,000,000 shares of common stock and 10,000,000 shares of
preferred stock, which Certificate of Amendment was approved by the
Board of Directors on August 20, 2002 ("Proposal No. 1").
o such other business as may properly come before the special meeting or
any adjournment thereof.
At the special meeting, a representative of Marcum & Kliegman LLP, our
independent auditors for the year ending December 31, 2002, will be
available to report on our current operations and answer stockholder
questions.
Q: WHY AM I RECEIVING THIS PROXY STATEMENT AND PROXY CARD?
A: You are receiving this proxy statement and the enclosed proxy card because
the Board of Directors is soliciting your proxy to vote your shares of
common stock or preferred stock, as the case may be, at the special
meeting. To assist you in your decision-making process, this proxy
statement contains pertinent information about us, the special meeting and
the proposal to be considered.
Q: WHEN AND WHERE WILL THE MEETING BE HELD?
A: The special meeting of stockholders will be held The Harvard Club, Slocum
Room, 27 West 44th Street, New York, NY 10036 on Friday, June 4, 2004 at
10:00 a.m. local time.
Q: WHO IS ENTITLED TO NOTICE OF AND TO VOTE AT THE SPECIAL MEETING?
A: All stockholders of record at the close of business on Friday, May 7, 2004
are entitled to notice of, and to vote at, the special meeting. Each share
of our common stock and each share of each class of our preferred stock
entitle its holder to one vote on each matter properly submitted to
stockholders. On the record date, there were (i) 89,933,916 outstanding
shares of our common stock, held by a total of 828 stockholders, (ii)
52,500 outstanding shares of our Series A Preferred Stock, held by a total
of 11 stockholders, (iii) 218,750 outstanding shares of our Series C
Preferred Stock, held by a total of 23 stockholders, (iv) 93,000
outstanding shares of our Series D Preferred Stock, held by a total of 23
stockholders, and (v) 705,425 outstanding shares of our Series F Preferred
Stock, held by a total of 75 stockholders.
Q: HOW DO I VOTE?
A: By properly completing, signing and returning the enclosed proxy card, your
shares will be voted as directed. If no directions are specified on your
properly signed and returned proxy card, your shares will be voted for the
proposal set forth below, and with regard to any additional matters that
come before the special meeting, in the discretion of the persons named as
proxies. If you are a registered stockholder; that is, if you hold your
shares of stock in certificate form, and you attend the meeting, you may
either mail in your completed proxy card or deliver it to us in person. If
you hold your shares of stock in "street name"; that is, if you hold your
shares of stock through a broker or other nominee, and you wish to vote in
person at the special meeting, you will need to obtain a proxy card from
the institution holding your stock.
Q: CAN I VOTE BY TELEPHONE OR ELECTRONICALLY?
A: No. At the present time we have not established procedures for telephonic
or electronic voting. We may establish such procedures in the future,
should we determine that their added convenience justifies their additional
cost. At this time, you may only vote by returning a properly executed
proxy card, or voting in person at the special meeting.
Q: WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
A: It means that you have multiple accounts at the transfer agent and/or with
stockbrokers. Please sign and return all proxy cards to ensure that all of
your shares are voted.
Q: CAN I CHANGE OR REVOKE MY VOTE AFTER I RETURN MY PROXY CARD?
A: Yes. Even after submitting your proxy card, you can revoke it and/or change
your vote prior to the special meeting. To revoke or change your vote prior
to the special meeting, simply (i) file a written notice of revocation with
our secretary, (ii) send us a duly executed proxy card bearing a later date
than the prior one submitted or (iii) attend the special meeting and vote
in person. Please note, however, that while the giving of a proxy does not
affect your right to vote in person at the special meeting, attendance
alone will not revoke a previously granted proxy.
Q: WHAT IS A "QUORUM?"
A: A quorum is the number of people required to be present before a meeting
can conduct business. Pursuant to our Bylaws, the presence at the special
meeting of at least a majority of the outstanding shares of our capital
stock (45,501,797 shares) as of the record date, whether in person or by
proxy, is necessary for there to be a "quorum." If you submit a properly
executed proxy card, even if you abstain from voting, you will be
considered part of the quorum. Shares represented by broker "non-votes"
will also be considered part of the quorum.
Q: WHAT VOTE IS REQUIRED TO APPROVE PROPOSAL No. 1?
A: Approval of the proposal to amend our Restated Certificate of
Incorporation, attached hereto as Exhibit A, to increase the authorized
capital stock of the Company from 100,000,000 to 200,000,000, consisting of
190,000,000 shares of common stock and 10,000,000 shares of preferred
stock, as approved by the Board of Directors on August 20, 2002, requires
the affirmative vote of a majority of the issued and outstanding shares of
our common stock and preferred stock, as of the record date, voting
together as one class of capital stock.
Properly executed proxy cards marked "ABSTAIN" and broker "non-votes" will
not be voted. Accordingly, abstentions and broker "non-votes" are
tantamount to negative votes.
2
Q: WHAT IS THE BOARD OF DIRECTORS' RECOMMENDATION?
A: The Board of Directors recommends that you vote:
o for the amendment to the Certificate of Amendment to the Restated
Certificate of Incorporation increasing the authorized capital stock
from 100,000,000 shares to 200,000,000 shares, consisting of
190,000,000 shares of common stock and 10,000,000 shares of preferred
stock, which Certificate of Amendment was approved by the Board of
Directors on August 20, 2002.
If Proposal No. 1 is approved by the stockholders, David A. Conway, the
President and Chief Executive Officer of the Company, will be issued
10,954,186 shares and his adult children will be issued 3,969,772 shares of
the 24,003,149 shares that are to be reissued (as more fully discussed
below). Because of this potential conflict of interest, he did not
participate in the vote of the Board of Directors to approve the increase
of the authorized capital of the Company, or provide his opinion to the
Board as to whether the Board should recommend Proposal No. 1 to the
stockholders.
Unless otherwise instructed, the shares of stock represented by your signed
and returned proxy card will be voted in accordance with the
recommendations of the Board of Directors. With respect to other matters
that may properly come before the special meeting, the proxy holder(s) will
vote in accordance with the Board of Directors' recommendations or, if no
recommendation is given, at their discretion.
Q: WHO IS PAYING THE COST FOR THIS PROXY SOLICITATION AND HOW IS THE
SOLICITATION PROCESS BEING CONDUCTED?
A: We will pay the costs associated with this proxy solicitation. We do not
anticipate that such costs will exceed those normally associated with
similar proxy solicitations. We will also, upon request, reimburse brokers,
banks and similar organizations for reasonable out-of-pocket expenses
incurred in forwarding these proxy materials to clients.
In addition to soliciting of proxies through the mail, our directors and
employees may solicit proxies in person, by telephone or other electronic
means, or we may utilize firms specializing in proxy solicitation. None of
our directors or employees will receive additional compensation for any
such efforts. The Company has retained Georgeson Shareholder
Communications, Inc. to assist the Company in the solicitation of proxies
for a fee of $10,000 plus expenses. The Company will, upon their request,
reimburse brokerage houses and persons holding shares of Common Stock in
the names of the Company's nominees for their reasonable expenses in
sending solicited material to their principals.
Q: DO I HAVE DISSENTER'S RIGHTS?
A: No. The action proposed to be taken at the special meeting does not entitle
dissenting stockholders to any appraisal rights under the Delaware General
Corporation Law.
Q: WHEN ARE STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING OF STOCKHOLDERS
DUE?
A: For stockholder proposals to be considered for inclusion in the proxy
statement for our next annual meeting, they must be submitted to us in
writing, within a reasonable time before we begin printing and mailing our
annual meeting proxy materials. We have not yet set the date for our next
annual meeting. Please note, however, that all proposals submitted must
comply with applicable laws and regulations and follow the procedures set
forth in Rule 14a-8 of the Securities Exchange Act of 1934, as amended, to
be considered for inclusion in our proxy materials.
3
Q: HOW DO I OBTAIN MORE INFORMATION ABOUT THE COMPANY?
A: We file annual, quarterly and special reports and other information with
the Securities and Exchange Commission (the "SEC"). You may read and copy
any of these documents at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at (800)-SEC-0330
for further information. Copies of this material may also be obtained from
the SEC's web site at HTTP://WWW.SEC.GOV, by contacting our chief financial
officer at (516) 656-0059 or by writing to us at 1007 Glen Cove Avenue,
Glen Head, NY 11545.
SECURITY OWNERSHIP
The following table sets forth information concerning ownership of our
common stock and preferred stock, as of the Record Date, by (i) each person
known to be the beneficial owner of more than five percent of our outstanding
common stock and preferred stock, (ii) each director and executive officer
required to be named hereunder and (iii) all of our directors and executive
officers as a group. Unless otherwise indicated, we believe that each
stockholder has sole voting power and dispositive power with respect to the
shares of capital stock beneficially owned by him.
------------------------------------- ------------------------------
Common Stock Beneficially
Owned(1)
------------------------------------- ------------------------------
David A. Conway (2)(3)
Water Chef, Inc. 14,156,596 15.8%
1007 Glen Cove Ave.
Glen Head, NY 11545
------------------------------------- --------------- --------------
Marshall S. Sterman(4) 750,000 *
The Mayflower Group
68 Phillips Beach Road
Swampscott, MA 1907
------------------------------------- --------------- --------------
John J. Clarke(5) 900,000 1.0%
Baldwin & Clarke Corporate Finance
116-B South River Road
Bedford, NH 03110
------------------------------------- --------------- --------------
All executive officers and 15,456,596 17.4%
directors as a Group
------------------------------------- --------------- --------------
-----------------
* less than one percent.
(1) A person is deemed to be the beneficial owner of voting securities that can
be acquired by such person within 60 days after the record date upon the
exercise of options and warrants and the conversion of convertible
securities. Each beneficial owner's percentage ownership is calculated
under the assumption that all options, warrants or convertible securities
held by such person (but not those held by any other person) that are
currently exercisable or convertible (i.e., that are exercisable or
convertible within 60 days after the record date) have been exercised or
converted.
(2) Includes 6,310,464 shares held in an IRA trust.
(3) Does not include 5,044,794 shares owned by Mr. Conway's adult children and
also does not include 10,954,186 shares to be re-issued to Mr. Conway and
3,969,772 shares to be re-issued to his adult children if Proposal No. 1 is
approved by the stockholders.
(4) Includes 750,000 shares of Common Stock issuable upon the conversion of
18,750 shares of Series F Convertible Preferred Stock of the Company which
shall be convertible any time after there is authorized but unissued shares
of common stock available for issuance. Does not include 800,000 shares to
be re-issued to Mr. Sterman if Proposal No. 1 is approved by the
Stockholders.
(5) Includes 250,000 shares of Common Stock issuable upon the conversion of
6,250 shares of Series F Convertible Preferred Stock of the Company which
shall be convertible any time after there is authorized but unissued shares
of common stock available for issuance. Does not include 600,000 shares to
be re-issued to Mr. Clarke if Proposal No. 1 is approved by the
stockholders.
4
PROPOSAL NO. 1 - APPROVING THE AMENDMENT TO OUR RESTATED CERTIFICATE OF
INCORPORATION
INTRODUCTION
On February 22, 2002, the Board of Directors of the Company approved a
Certificate of Amendment to our Restated Certificate of Incorporation increasing
the authorized capital stock of the Company to 200,000,000, which was filed with
the Secretary of State of the State of Delaware on March 22, 2002. After filing
such Certificate of Amendment, the Company issued 24,003,149 shares of our
common stock in the following transactions:
Number of Shares
----------------
Name of Common Stock Consideration
---- --------------- -------------
D.A. Conway 6,769,583(1) -
D.A. Conway IRA Tr. 4,184,603(2) -
J.S. Conway 1,984,886(2) -
C.S. Conway 1,984,886(2) -
M.S. Sterman 800,000(3) $64,000
R. Hart 225,000(4) $18,000
J.J. Clark 100,000(5) $5,000
R. Breeding 125,000(6) $12,500
E. Roberts 50,000(7) $2,500
R. Monette 29,191(8) $2,043
D.M. Strazzula 500,000(9) -
F.A. Hertzka Trust 250,000(9) -
M.P. Claudette 250,000(9) -
C.L. Gelfand 250,000(9) -
C.C. Griffin 250,000(9) -
J.R. Fichtl 500,000(9) -
5
Number of Shares
----------------
Name of Common Stock Consideration
---- --------------- -------------
K.T. Decoster 300,000(9) -
H.O. Harris 100,000(9) -
A. Harris 100,000(9) -
M.B. Hayden 250,000(9) -
K.T. Decoster 250,000(9) -
J.J. Clark 500,000(10) -
E. Brown 250,000(10) -
G.F. Frank 1,000,000(11) $50,000
P. Brady 500,000(11) $25,000
P.G. Hall 500,000(11) $25,000
E.E. Ellis 2,000,000(11) $100,000
(1) Issued pursuant to anti-dilution rights granted to David Conway in
consideration of his $1,500,000 equity investment in the Company made in
June 1997.
(2) Issued pursuant to anti-dilution rights granted to David Conway, an
affiliate and transferor of shares to the holder.
(3) Issued in connection with fund raising services and financial advisory
services rendered to the Company valued at $64,000.
(4) Issued in connection with Scientific Advisory Board services rendered to
the Company valued at $18,000.
(5) Issued in connection with fund raising services rendered to the Company
valued at $5,000.
(6) Issued in connection with marketing services rendered to the Company valued
at $12,500.
(7) Issued in connection with web site design services rendered to the Company
valued at $2,500.
(8) Issued in connection with printing services rendered to the Company valued
at $2,043.
(9) Pursuant to a settlement agreement discussed below with certain debenture
holders who brought an action against the Company, the Company was required
to issue 17,037,631 shares of common stock to the debenture holders. The
Company issued an aggregate of 3,000,000 shares of common stock to such
debenture holders valued at $497,500.
(10) The Company issued an aggregate of 750,000 shares of common stock valued at
$45,226 to certain debenture holders who were not party to the litigation
settlement agreement discussed below.
(11) Issued in connection with a private placement of common stock at a price
per share equal to $0.05.
Under Delaware General Corporation Law, the March 22, 2002 filing of the
Certificate of Amendment and the issuance of the 24,003,149 shares of common
stock were void acts of the Company since the requisite stockholder approval was
6
neither solicited nor received. Even though stock certificates representing the
24,003,149 shares have been issued by the Company, the shares represented
thereby are not validly issued and outstanding shares of the Company, and such
certificates will be cancelled and reissued.
Since the issuance of the 24,003,149 shares of common stock was void, the
Company breached its settlement agreement with the debenture holders, and its
agreements with the purchasers of 4,000,000 shares of common stock in the
private sale discussed above. However, the Company believes that as long as such
shares are validly issued to such parties by authorizing the issuance of such
shares, the Company will be in compliance with those agreements, with respect to
such issuances, and the Company and its stockholders will not be materially
adversely impacted by such breaches. However, if Proposal No.1 is not approved
by the stockholders, the Company will be in material breach of the settlement
agreement and private placement purchase agreements; in which case, the Company
will attempt to negotiate settlements with the parties to those agreements. If
the Company is not able to complete such settlements, its financial condition
and operations will be materially adversely affected.
In an effort to comply with Delaware General Corporation Law, on August 20,
2002, the Board of Directors approved: (i) a Certificate of Amendment to the
Restated Certificate of Incorporation, that would increase the number of shares
of our capital stock authorized for issuance from 100,000,000 to 200,000,000;
and (ii) the re-issuance of the 24,003,149 shares of our common stock which were
not validly issued, and which the Company intends to re-issue if Proposal No. 1
is approved. In connection with the re-issuance of the 24,003,149 shares of our
common stock, the Company accrued a liability of $500,000. This is not an
additional liability. Rather, it reflects the Company's obligation to validly
issue common stock in connection with the settlement agreement between the
Company and former debenture holders. In addition, those shares of common stock
which were not validly issued will not be entitled to vote on this proposal.
The stockholders are being asked to approve this proposed amendment. The
shares of the Company's common stock, including the additional shares proposed
for authorization, do not have preemptive or similar rights. If approved by the
stockholders, Article 4 of the Company's Restated Certificate of Incorporation
would be amended to provide as follows:
4: The total authorized capital stock of the Corporation shall be two
hundred million (200,000,000) shares, each with a par value of $0.001
per share, as follows:
1. COMMON STOCK: The Corporation is authorized to issue up to one
hundred and ninety million (190,000,000) shares of Common Stock.
2. PREFERRED STOCK: The Corporation is further authorized to issue
up to ten million (10,000,000) shares of preference stock to be
known as "Preferred Stock." Authority is hereby expressly vested
in the Board of Directors of the Corporation to divide said
Preferred Stock into series and fix and determine the voting
powers, designations, preferences and relative participating,
optional or special rights and qualifications, limitations or
restrictions of the shares of each series so established, as
provided by Section 151 of the Delaware General Corporation Law.
DESCRIPTION OF THE COMMON STOCK, WARRANTS, CONVERTIBLE DEBENTURES AND
CONVERTIBLE NOTES
Except as to certain matters discussed below or as proscribed by applicable
law, the holders of shares of all classes of the capital stock of the Company
vote together as a single class. The holders of our capital stock do not have
cumulative voting rights, which means that the holders of more than 50% of the
outstanding shares, voting for the election of directors, can elect all of the
directors to be elected, if they so choose, and, in that event, the holders of
the remaining shares will not be able to elect any of our directors.
7
DESCRIPTION OF THE COMMON STOCK
-------------------------------
Prior to filing the Certificate of Amendment on March 22, 2002 increasing
our authorized capital stock to 200,000,000, we were authorized to issue up to
100,000,000 shares of capital stock, consisting of up to 90,000,000 shares of
common stock, par value $0.001 per share, and up to 10,000,000 shares of
preferred stock. Not including the 24,003,149 shares of common stock which were
not validly issued, there are presently 89,993,916 shares of common stock
outstanding. The Company is also obligated to issue 1,666,667 shares of common
stock upon the exercise of warrants, an additional 14,037,671 pursuant to the
settlement agreement discussed below and 41,374,372 of shares common stock upon
the conversion of other securities outstanding. The holders of common stock: (i)
have equal ratable rights to dividends from funds legally available if and when
declared by our Board of Directors after all accrued but unpaid dividends have
been paid to the holders of the outstanding capital stock ranking senior to the
common stock as to dividends; (ii) are entitled to share ratably in all of our
assets available for distribution to the holders of common stock upon
liquidation, dissolution or winding up of our affairs; and (iii) do not have
preemptive, subscription or conversion rights, and there are no redemption or
sinking fund provisions or rights.
DESCRIPTION OF WARRANTS
-----------------------
There are 1,666,667 Series D Warrants to purchase common stock outstanding
that are exercisable at $0.15 per share at anytime prior to March 27, 2002,
which exercise period was initially extended to March 27, 2004, and was extended
again in March 2004 to the end of the twelve-month period immediately following
the registration of the shares of common stock underlying the warrants pursuant
to the court actions brought by certain 12% subordinated debenture holders,
discussed below. The warrants are subject to adjustment in certain
circumstances, including stock splits, dividends, recapitalizations and
issuances of common stock or securities convertible into common stock, for no
consideration. If the warrants are not exercised by the expiration thereof, the
warrant holders right to purchase the securities under the warrant shall be
forfeited. The warrants do not confer upon the holder any voting or other rights
of a stockholder.
DESCRIPTION OF SUBORDINATED DEBENTURES
--------------------------------------
There is an aggregate of $375,000 of 12% subordinated debentures
outstanding, which convert into 2,333,334 shares of common stock, and were due
on October 1, 1997. These debentures are presently in default. As more fully
discussed below, the Company has entered into settlement agreements, settling
certain claims of all of the holders of these subordinated debentures. All but
two debenture holders were party to a legal proceeding in connection with these
debentures. However, all holders, including the two holders not party to that
action have agreed to settle their claims and potential claims against the
Company. Pursuant to those settlement agreements, in exchange for 17,787,671
shares of common stock, the holders of the subordinated debentures will tender
the subordinated debentures to the Company. The subordinated debentures do not
confer upon the holders any voting or other rights of a stockholder.
DESCRIPTION OF CONVERTIBLE NOTES
--------------------------------
There is a 10% convertible note issued to 4 Clean Waters, Ltd. ("Clean
Waters") outstanding, the principal amount of which is $200,000. The note is not
presently convertible into common stock. The note became convertible into common
stock upon a loan by Clean Waters of $300,000 to the Company. A loan of such
amount never occurred. The Company is in default of the note and Clean Waters
has obtained a judgment in the amount of $245,893.89 against the Company. The
Company has not paid the judgment and is in discussions with Clean Waters to
negotiate a settlement.
PRINCIPAL REASONS FOR INCREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Company does not have sufficient liquidity to finance its operations
and has used its common stock to pay for goods, services and to repay past
debts. As a condition to a settlement agreement, dated as of June 20, 2002,
settling certain claims and counterclaims between the Company and certain of its
investors who acquired subordinated debentures (the aggregate principal amount
of which is $300,000, plus accrued interest of $197,500) and warrants to
8
purchase an aggregate of 1,666,667 shares of common stock of the Company which
were exercisable at $0.15 per share until March 27, 2002, (i) the Company is
required to:
(a) issue a minimum of 3,000,000 shares (the equivalent of $0.166 per
share); however, the agreement also states that the Company will
prepare a calculation of the average share price for the 30
consecutive trading days subsequent to issuance. If this
calculation yields a value less than $.166 per share, additional
shares will be issued so that the aggregate value of the shares
equals $497,500. An addendum to the settlement agreement, dated
June 20, 2002 fixes the number of additional shares to be issued
at 14,037,671 based on a calculated share price of $.0292 per
share. The stock has not yet been issued, and will not be issued,
until the Company's stockholders have approved an increase in the
authorized common stock of the Corporation. If at the time the
shares are issued the stock price exceeds $.0292 per share the
value of the 17,037,671 shares issued will exceed $497,500 and
the Company will record a loss on settlement of debt. The
following gives examples of the potential effect of the
transaction based on various stock prices at the time the shares
are issued:
Stock Price Shares to be Issued Potential Loss on Settlement
----------- ------------------- ----------------------------
$.05 17,037,671 $354,000
$.10 17,037,671 $1,205,000
$.15 17,037,671 $2,057,000
and
(b) extend the exercise term of the warrants to purchase common stock
initially until March 27, 2004, which initial time period was
extended again in March 2004 until the end of the twelve-month
period immediately following the registration of the shares of
common stock underlying the warrants; and
(ii) the investors shall surrender their subordinated debentures to the
Company.
The Company has also agreed to apply for listing, and register the resale
of such shares. The Company also is required to issue 750,000 (which shares are
also included in the 24,003,149 shares of common stock that the Company intends
to issue upon approval of the proposal) shares to two debenture holders who held
notes in the principal amount of $75,000 who were not party to the settlement
agreement to settle any potential claims they may have.
The Company is also seeking approval of Proposal No. 1 because, as
previously discussed, the Company did not validly issue a total of 24,003,149
shares of common stock as required. Therefore, if Proposal No. 1 is approved,
the Company intends to re-issue those shares of common stock.
The Board of Directors of the Company believes that it is advisable and in
the best interests of the Company to have additional authorized but unissued
shares of common stock available in an amount adequate to provide for the future
needs of the Company. The increase in authorized common stock will not have any
immediate effect on the rights of existing stockholders. However, the additional
shares will be available for issuance from time to time for a stock split or
dividend, raising capital through the sale of common stock and/or attracting and
retaining valuable employees by issuing additional stock options.
9
Other than the 24,003,149 shares of common stock the Company intends to
re-issue, shares to be issued in connection with the litigation, claims of
certain debenture holders discussed above and common stock the Company is
required to issue in connection with the exchange, conversion or exercise of the
Company's outstanding options, warrants and other convertible securities as
described above, the Company has no commitments, undertakings or agreements for
the issuance or use of the proposed additional shares of capital stock. However,
to the extent possible, the Company intends to issue its common stock to fund
its operations and continue as a going concern. The Board of Directors believes
that if an increase in the authorized number of shares of capital stock were to
be postponed until specific needs for such shares arose, the delay and expense
incident to obtaining the approval of the Company's stockholders at that time
could significantly impair the Company's ability to meet financing requirements
or other objectives.
The issuance of the additional shares of capital stock could have the
effect of diluting earnings per share and book value per share, which could
adversely affect the Company's existing stockholders. Issuing additional shares
of capital stock may also have the effect of delaying or preventing a change of
control of the Company. The Company's authorized but unissued capital stock
could be issued in one or more transactions that would make more difficult or
costly, and less likely, a takeover of the Company. The ratification of the
Certificate of Amendment to the Company's Restated Certificate of Incorporation
is not being recommended in response to any specific effort of which the Company
is aware to obtain control of the Company, and the Board of Directors has no
current intention to use the additional shares of capital stock in order to
impede a takeover attempt.
VOTE REQUIRED
The affirmative vote of the holders of a majority of our outstanding
capital stock is required to amend our Restated Certificate of Incorporation.
Withholding your vote or abstaining from voting will therefore be counted as a
negative vote.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT.
If Proposal No. 1 is approved by the stockholders, David A. Conway, the
President and Chief Executive Officer of the Company will be issued 10,954,186
shares, and his adult children will be issued 3,969,772 of the 24,003,149 shares
that are to be reissued. Because of this potential conflict of interest, he did
not participate in the vote of the Board of Directors to approve the increase of
the authorized capital of the Company or provide his opinion as to whether the
Board should recommend Proposal No. 1 to the stockholders.
OTHER MATTERS
The Board of Directors does not know of any matter, other than Proposal No.
1 described above that may be presented for action at the special meeting. If
any other matter or proposal should be presented and should properly come before
the meeting for action, the persons named in the accompanying proxy will vote
upon such matter or proposal in accordance with their best judgment.
ANNUAL AND QUARTERLY REPORT
This Proxy incorporates by reference the Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2003, as amended, which contains certified
financial statements of the Company for the year then ended. This Proxy
incorporates by reference the Financial Statements and Management's Discussion
and Analysis of Financial Condition and Results of Operations contained in such
report.
10
EXHIBIT A
Text of Article 4 of the Water Chef, Inc. Restated Certificate of
Incorporation, as amended to authorize additional common stock:
4: The total authorized capital stock of the Corporation shall be two
hundred million (200,000,000) shares, each with a par value of $0.001
per share, as follows:
1. Common Stock: The Corporation is authorized to issue up to one
hundred and ninety million (190,000,000) shares of Common Stock.
2. Preferred Stock: The Corporation is further authorized to issue
up to ten million (10,000,000) shares of preference stock to be
known as "Preferred Stock." Authority is hereby expressly vested
in the Board of Directors of the Corporation to divide said
Preferred Stock into series and fix and determine the voting
powers, designations, preferences and relative participating,
optional or special rights and qualifications, limitations or
restrictions of the shares of each series so established, as
provided by Section 151 of the Delaware General Corporation Law.
11
DATED JUNE 4, 2004
THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS OF
WATER CHEF, INC.
Proxy - Special Meeting of Stockholders
June 4, 2004
The undersigned, a holder of common stock or preferred stock of Water Chef,
Inc., a Delaware corporation (the "Company"), does hereby appoint David A.
Conway and Marshall S. Sterman, and each of them, the true and lawful attorneys
and proxies with full power of substitution, for and in the name, place and
stead of the undersigned, to vote all of the shares of common stock or preferred
stock of the Company that the undersigned would be entitled to vote if
personally present at the Special Meeting of Stockholders of the Company to be
held at 10:00 a.m., local time, June 4, 2004 at The Harvard Club, Slocum Room,
27 West 44th Street, New York, NY 10036, or at any adjournment or adjournments
thereof.
The undersigned hereby revokes any proxy or proxies heretofore given and
acknowledges receipt of a copy of the Notice of Special Meeting and Proxy
Statement, both dated May 10, 2004, and a copy of the Company's Annual Report,
as amended, for the year ended December 31, 2003.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH ANY DIRECTIONS GIVEN HEREIN.
UNLESS OTHERWISE SPECIFIED, THIS PROXY WHEN EXECUTED AND RETURNED TO THE COMPANY
WILL BE VOTED TO APPROVE THE PROPOSED AMENDMENT TO THE RESTATED CERTIFICATE OF
INCORPORATION.
CONTINUED TO BE COMPLETED, SIGNED AND DATED ON THE REVERSE SIDE
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR PROPOSAL 1
1. To amend the Company's Restated Certificate of Incorporation to increase
the authorized capital stock of Water Chef, Inc. from 100,000,000 shares to
200,000,000 shares, consisting of 190,000,000 shares of common stock and
10,000,000 shares of preferred stock, which Certificate of Amendment was
approved by the Board of Directors on August 20, 2002.
FOR [___] AGAINST[___] ABSTAIN[___]
NOTE: Your signature should appear the same as your name appears hereon. If
signing as attorney, executor, administrator, trustee or guardian, please
indicate the capacity in which you are signing. When signing as joint tenants,
all parties in the joint tenancy must sign. When a proxy is given by a
corporation, it should be signed by an authorized officer.
Signature:___________________________ Date: __________________, 2004
Signature:_______________________ Date: __________________, 2004
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW: _____________
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