<PAGE>
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
<TABLE>
<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section 240.14a-12
CELERITY SYSTEMS, INC.
-----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------
</TABLE>
<PAGE>
[LOGO]
September 8, 2000
Dear Stockholder:
As indicated on the enclosed Notice of Annual Meeting of Stockholders, the
Annual Meeting of Stockholders of Celerity Systems, Inc. (the "Company") will be
held at the offices of the Company, 122 Perimeter Park Drive, Knoxville,
Tennessee 37922, at 10:00 a.m., Eastern Daylight Savings Time, on September 18,
2000. In order to assist the Company in its planning for the Meeting, if you
plan to attend the Meeting in person, please complete the enclosed attendance
card and return it to our transfer agent, American Stock Transfer & Trust
Company, in the enclosed addressed, postage-paid envelope (which has also been
provided for the return of your proxy card). Stockholders are, of course,
welcome to attend the Meeting whether or not they return the attendance card.
Whether or not you plan to attend the Meeting in person, I urge you to
complete your proxy and return it to our transfer agent in the enclosed
addressed, postage-paid envelope. If you return the proxy card and attend the
Meeting in person, you may still vote your shares in person at the Meeting.
Yours very truly,
[LOGO]
KENNETH D. VAN METER
President, Chief Executive Officer and
Chairman of the Board
122 Perimeter Park Drive, Knoxville, TN 37922 . tel: 865 539 5300 . fax: 865 539
3502 . www.celerity.com
<PAGE>
CELERITY SYSTEMS, INC.
122 PERIMETER PARK DRIVE
KNOXVILLE, TENNESSEE 37922
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Celerity Systems, Inc.:
The Annual Meeting of Stockholders of Celerity Systems, Inc. (the "Company")
will be held at the offices of the Company, 122 Perimeter Park Drive, Knoxville,
Tennessee 37922, at 10:00 a.m., Eastern Daylight Savings Time, on September 18,
2000, for the following purposes:
1. To elect the Board of Directors for the ensuing year.
2. To consider and act upon a Proposal to amend the Company's Certificate
of Incorporation to increase the authorized capital stock of the Company
such that the aggregate number of shares of Common Stock which the
Company shall have the authority to issue shall be increased from
15,000,000 to 50,000,000.
3. To ratify the appointment of PricewaterhouseCoopers LLP as independent
auditors and accountants for the Company for the fiscal year ending
December 31, 2000.
4. To transact such other business as may properly come before the meeting.
All stockholders are invited to attend the meeting. Stockholders of record
at the close of business on July 20, 2000, the record date fixed by the Board of
Directors, are entitled to notice of, and to vote at, the meeting. A complete
list of stockholders entitled to notice of, and to vote at, the meeting will be
open to examination by the stockholders beginning two days after notice of the
meeting is given for any purpose germane to the meeting during normal business
hours at the office of the Secretary of the Company at 122 Perimeter Park Drive,
Knoxville, Tennessee 37922.
Whether or not you intend to be present at the meeting, please sign and date
the enclosed proxy and return it in the enclosed envelope. Returning a proxy
will not deprive you of your right to attend the annual meeting and vote your
shares in person.
BY ORDER OF THE BOARD OF DIRECTORS
[SIG]
KENNETH D. VAN METER
PRESIDENT, CHIEF EXECUTIVE OFFICER
CHAIRMAN OF THE BOARD
Knoxville, Tennessee
September 8, 2000
<PAGE>
CELERITY SYSTEMS, INC.
122 PERIMETER PARK DRIVE
KNOXVILLE, TENNESSEE 37922
(865) 539-5300
------------------------
PROXY STATEMENT
------------------------
The accompanying proxy is solicited by the Board of Directors of Celerity
Systems, Inc. (the "Company") for use at the Annual Meeting of Stockholders (the
"Annual Meeting") to be held at 10:00 a.m., Eastern Daylight Savings Time, on
September 18, 2000 at the offices of the Company, 122 Perimeter Park Drive,
Knoxville, Tennessee 37922, and any adjournment thereof.
VOTING SECURITIES; PROXIES
The Company will bear the cost of solicitation of proxies. In addition to
the solicitation of proxies by mail, certain officers and employees of the
Company, without additional remuneration, may also solicit proxies personally by
telefax and by telephone. In addition to mailing copies of this material to
stockholders, the Company may request persons who hold stock in their names or
custody or in the names of nominees for others to forward such material to those
persons for whom they hold stock of the Company and to request their authority
for execution of the proxies. The Company will reimburse the costs associated
with such activity.
The holders of a majority of the outstanding shares of Common Stock, par
value $.001 per share (the "Common Stock"), present in person or represented by
proxy, shall constitute a quorum at the Annual Meeting. The approval of a
plurality of the shares of Common Stock cast at the Annual Meeting is required
for election of the nominees as directors. In all matters other than the
election of directors, the affirmative vote of the majority of the shares of
Common Stock cast at the Annual Meeting is required for adoption of such
matters, except for proposals to amend the Certificate of Incorporation, to
which the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock entitled to vote is required for the adoption of such
proposals.
The form of proxy solicited by the Board of Directors affords stockholders
the ability to specify a choice among approval of, disapproval of, or abstention
with respect to each matter to be acted upon at the Annual Meeting. Shares of
Common Stock represented by the proxy will be voted, except as to matters with
respect to which authority to vote is specifically withheld. Where the solicited
stockholder indicates a choice on the form of proxy with respect to any matter
to be acted upon, the shares will be voted as specified. Abstentions and broker
non-votes will not affect the outcome of the election of directors, the
ratification of the appointment of the public accountants or any other matter to
be voted on by stockholders at the Annual Meeting, except for the proposal to
increase the authorized Common Stock, as to which abstentions and broker
non-votes will have the effect of votes "against" such proposal.
All shares of Common Stock represented by properly executed proxies which
are returned and not revoked will be voted in accordance with the instructions,
if any, given therein. If no instructions are provided in a proxy, the shares of
Common Stock represented by such proxy will be voted FOR the Board's nominees
for director (Proposal 1), FOR the approval to amend the Certificate of
Incorporation to increase the authorized Common Stock (Proposal 2) and FOR the
ratification of the appointment of PricewaterhouseCoopers LLP (Proposal 3) and
in accordance with the proxy-holder's best judgment as to any other matters
raised at the Annual Meeting.
A stockholder who has given a proxy may revoke it at any time prior to its
exercise by giving written notice of such revocation to the Secretary of the
Company, executing and delivering to the Company a later dated proxy reflecting
contrary instructions or appearing at the Annual Meeting and taking appropriate
steps to vote in person.
2
<PAGE>
At the close of business on July 20, 2000, 12,541,681 shares of Common Stock
were outstanding and eligible for voting at the meeting. Each stockholder of
record is entitled to one vote for each share of Common Stock held on all
matters that come before the meeting. Only stockholders of record at the close
of business on July 20, 2000 are entitled to notice of, and to vote at, the
meeting.
NO DISSENTER'S RIGHTS
Under Delaware law, stockholders are not entitled to dissenter's rights of
appraisal with respect to Proposals 2 or 3.
This proxy material is being mailed to stockholders commencing on or about
September 8, 2000.
PROPOSAL 1
ELECTION OF DIRECTORS AND MANAGEMENT INFORMATION
The By-Laws of the Company provide that each director serves from the date
of election until the next annual meeting of stockholders and until his
successor is elected and qualified (subject to certain provisions). The specific
number of directors authorized may increase or decrease by resolution adopted by
a majority of the entire Board of Directors. The number of directors is
currently fixed at six. The Company has nominated Kenneth Van Meter, Glenn West,
Fenton Scruggs, David Hultquist and Bruce Thompson to serve as directors. It is
intended that the accompanying proxy will be voted in favor of the nominees,
unless the stockholder indicates to the contrary on the proxy. Each of the
nominees is a director of the Company.
The persons named in the accompanying proxy intend to vote for the election
of the nominees listed herein as directors. Each nominee has consented to serve
if elected. The Board of Directors has no reason to believe that any nominee
will not serve if elected, but if any of them should become unavailable to serve
as a director, and if the Board of Directors designates a substitute nominee or
nominees, the persons named as proxies will vote for the substitute nominee or
nominees designated by the Board of Directors.
The following table sets forth certain information with respect to the
individuals nominated and recommended to be elected by the Board of Directors of
the Company and is based on the records of the Company and information furnished
to it by such persons. Reference is made to "Security Ownership of Certain
Beneficial Owners and Management" for information pertaining to stock ownership
by the nominees.
The names and ages of the Company's directors are as follows:
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE POSITION
--------------- -------- --------
<S> <C> <C>
Kenneth D. Van Meter...................... 53 President, Chief Executive Officer and
Chairman of the Board
Glenn West................................ 37 Director
Fenton Scruggs............................ 63 Director
David Hultquist........................... 37 Director
Bruce Thompson............................ 70 Director
</TABLE>
KENNETH D. VAN METER
Mr. Van Meter has been the President and Chief Executive Officer of the
Company since January 20, 1997. He was elected Chairman of the Board on
March 25, 1997. From May 1995 to January 1997, Mr. Van Meter served as Sr. Vice
President, Operations, for Tele-TV Systems, a limited partnership owned by Bell
Atlantic Corporation ("Bell Atlantic"), NYNEX, and Pacific Telesis, which was
engaged in providing
3
<PAGE>
systems, software, and services for its three parents in the interactive digital
services industry. From June 1994 to May 1995, Mr. Van Meter was President of
Bell Atlantic Video Services Interactive Multimedia Platforms, a wholly-owned
subsidiary of Bell Atlantic. From April 1993 to June 1994, Mr. Van Meter was
Vice President of Bell Atlantic Video Services. Prior to joining Bell Atlantic,
from 1991 to 1993, Mr. Van Meter was Vice President and General Manager for
Thomas Cook Limited, a travel services company. From 1989 to 1991, Mr. Van Meter
was Group Vice President for two divisions of National Data Corporation. From
1984 to 1989, Mr. Van Meter was Director and General Manager of two businesses
for Sprint Corp., United Business Communications (shared tenant services), and
the Meeting Channel (2-way digital video teleconferencing). Mr. Van Meter holds
an MBA with highest honors in management and marketing from the University of
Georgia, and a B.S. with high honors in chemistry from West Virginia University.
GLENN WEST
Mr. West, a founder of the Company, has served as Director of Technology and
a member of the Board of Directors since the Company's inception in 1993. Since
January 1999, Mr. West has been Deputy Director of the Infocom Lab at Kent Ridge
Digital Labs in Singapore. Mr. West also served as a Consultant to the Company
until May 2000. Between 1993 and 1999, Mr. West served as Executive Vice
President of the Company. Prior to founding the Company, from 1987 to 1993,
Mr. West served as Senior Systems Engineer for Data Research and Applications, a
software company.
FENTON SCRUGGS
Dr. Scruggs, a founder of the Company, funded the initial start-up of the
Company, and has been a member of the Company's Board of Directors since the
Company's inception in 1993. Dr. Scruggs is a Board Certified Pathologist from
Chattanooga, Tennessee, who has been in private practice since 1969.
Dr. Scruggs received his undergraduate degree from the University of Virginia in
1959 and his graduate degree from the University of Tennessee in 1962.
Dr. Scruggs completed his residency at Memphis Methodist Hospital and was a
General Medical Officer in the U.S. Air Force from 1963 to 1965.
DAVID HULTQUIST
Mr. Hultquist has been nominated to serve as a director of the Company.
Mr. Hultquist has been President of Capital Resource Consultants since 1999.
From 1998 to 1999, Mr. Hultquist served as Chief Operating Officer, Chief
Financial Officer and in certain other positions with the Lanrick Group, a net
worth advisory firm. From 1995 to 1997, Mr. Hultquist served as Chief Operating
Officer and Director of Strategic Telecom Systems. From 1992 to 1995,
Mr. Hultquist served as Controller of Global Telemedia. From 1986 to 1991,
Mr. Hultquist served as Assistant Controller for Health Care REIT, Inc.
Mr. Hultquist holds a BBA in Accounting from the University of Toledo.
BRUCE THOMPSON
Mr. Thompson has been nominated to serve as a director of the Company. Since
1995, Mr. Thompson has served as President of First Toledo Corporation, an
owner-developer of assisted living facilities and manager of limited
partnerships with assisted living assets. From 1970 to 1995, he served as
Chairman and Chief Executive Officer of Health Care REIT, Inc., which owns and
finances operators of nursing and rehabilitation centers, mental health
facilities, retirement and assisted living complexes and allied health care
properties. Mr. Thompson received his B.A. from Yale University and received his
LLB and JD from the University of Virginia Law School. Mr. Thompson is a
director of Health Care REIT, Inc.
Vacancies and newly-created directorships resulting from any increase in the
number of authorized directors may be filled by a majority vote of the directors
then in office. Each director holds office until the Company's annual meeting of
stockholders and until his successor is duly elected and qualified. Officers
4
<PAGE>
are elected by the Board of Directors and hold office at the discretion of the
Board of Directors. There are no family relationships between any of the
directors or executive officers of the Company.
STOCKHOLDER VOTE
Election of each director requires a plurality of the votes of the shares of
Common Stock present in person or represented by proxy at the meeting and
entitled to vote on the election of directors.
The Board of Directors recommends a vote FOR the election of each of the
nominees for election to the Board of Directors named above.
COMMITTEES OF THE BOARD--BOARD MEETINGS
The Board has established an Audit Committee and a Compensation Committee to
assist it in the discharge of its responsibilities. The principal
responsibilities of each committee and the members of each committee are
described in the succeeding paragraphs. Actions taken by any committee of the
Board are reported to the Board of Directors, usually at its next meeting or by
written report. The Company's Board of Directors held ten meetings during the
fiscal year ended December 31, 1999. All directors attended at least 75% of the
meetings.
The Audit Committee held one meeting during the fiscal year ended
December 31, 1999 which was attended by all members. Each year it recommends the
appointment of a firm of independent public accountants to examine the financial
statements of the Company for the coming year. In making this recommendation, it
reviews the nature of audit services rendered, or to be rendered, to the
Company. It reviews with representatives of the independent public accountants
the auditing arrangements and scope of the independent public accountants'
examination of the financial statements, results of those audits, their fees and
any problems identified by the independent public accountants regarding internal
accounting controls, together with their recommendations. It also meets with the
Company's Controller to review reports on the functioning of the Company's
programs for compliance with its policies and procedures regarding ethics and
those regarding financial controls and internal auditing. This includes an
assessment of internal controls within the Company based upon the activities of
the Company's internal auditing staffs as well as an evaluation of the
performance of those staffs. The Audit Committee is also prepared to meet at any
time upon request of the independent public accountants or the Controller to
review any special situation arising in relation to any of the foregoing
subjects. The Board of Directors has not adopted a written charter for the audit
committee.
The Audit Committee has reviewed and discussed the audited financial
statements of the Company for the fiscal year ended 1999 with management and has
discussed with its independent auditors the matters required to be discussed by
SAS 61. In addition, the Audit Committee has received the written disclosures
and the letter from its independent accountants required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees)
and has discussed with its independent accountants their independence. Based on
the foregoing, the Audit Committee recommended to the Board of Directors that
the audited financial statements be included in the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1999.
The Audit Committee of the Board of Directors currently consists of Fenton
Scruggs, Donald Greenhouse and Stephen Portch. A majority of the members of the
Audit Committee are independent as defined in Rule 4200(a) of the National
Association of Securities Dealer's listing standards.
The Compensation Committee held one meeting during the fiscal year ended
December 31, 1999 which was attended by all members. This Committee makes
recommendations to the Board of Directors as to the salaries of the President
and other senior executives. It also recommends to the Board of Directors
incentive compensation plans for elected officers and other senior executives
and reviews guidelines for the
5
<PAGE>
administration of the Company's incentive programs. It also reviews and approves
or makes recommendations to the Board of Directors on any proposed plan or
program which would benefit primarily the senior executive group.
The Compensation Committee of the Board of Directors currently consists of
Donald Greenhouse, Stephen Portch and Mark Braunstein.
The Board of Directors does not have a nominating committee. This function
is performed by the Board of Directors as a whole.
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation for
services in all capacities for the fiscal years ended December 31, 1999, 1998
and 1997 paid to Kenneth D. Van Meter, the Company's Chairman of the Board,
Chief Executive Officer and President and Dennis Smith, the Company's former
Vice President of Engineering and Operations (Messrs. Van Meter and Smith are
together the "Named Executive Officers"). No other executive officer received
compensation exceeding $100,000 during the fiscal year ended December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-----------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
-------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARD(S) OPTIONS COMPENSATION
--------------------------- -------- -------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth D. Van Meter................. 1999 $170,100(1) -- -- -- --
Chairman of the Board, Chief 1998 $170,100(2) -- -- 413,200(6) --
Executive Officer, and President 1997 $154,731 71,810(5) -- 413,200 --
Dennis K. Smith...................... 1999 $131,250(3) -- 10,000 7,500 --
Vice President of Engineering and 1998 $125,000(4) -- 10,000 36,500(6) --
Operations 1997 -- -- -- --
</TABLE>
------------------------
(1) Includes $155,925 voluntarily deferred in 1999, which was paid in equity
securities in April 2000. See "Certain Relationships and Related
Transactions."
(2) Includes $70,875 voluntarily deferred in 1998, which was paid in equity
securities in April 2000. See "Certain Relationships and Related
Transactions."
(3) Includes $73,149 voluntarily deferred in 1999, which was paid in equity
securities in April 2000. See "Certain Relationships and Related
Transactions."
(4) Includes $14,583 voluntarily deferred in 1998, which was paid in equity
securities in April 2000. See "Certain Relationships and Related
Transactions."
(5) Includes $17,864 paid in the first quarter of 1998 and an aggregate of
$53,946 which was paid in equity securities in April 2000. See "Certain
Relationships and Related Transactions."
(6) Options repriced on December 1, 1998.
6
<PAGE>
The following table sets forth certain information concerning options
granted to the Named Executive Officers during the fiscal year ended
December 31, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------
NUMBER OF PERCENTAGE OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS INDIVIDUALS IN BASE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR PER SHARE DATE
---- ---------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
Dennis K. Smith.................................. 7,500 100% $0.656 9/13/09
</TABLE>
The following table sets forth certain information concerning the number and
value of securities underlying exercisable and unexercisable stock options as of
the fiscal year ended December 31, 1999 by the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NUMBER OF UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE DECEMBER 31, 1999 DECEMBER 31, 1999(1)
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth D. Van Meter............. -- -- 413,200 0 0 0
Dennis K. Smith.................. -- -- 20,167 23,833 0 0
</TABLE>
------------------------
(1) Amount reflects the market value of the underlying shares of Common Stock at
the closing price reported on the OTC Bulletin Board on December 31, 1999
($0.609 per share), less the exercise price of each option.
DIRECTOR COMPENSATION
Beginning in 1998, the Company's policy was for each outside director to
receive nonqualified stock options for 20,000 shares in addition to $2,500 per
quarter. Directors did not receive compensation in fiscal 1998 or 1999, but
equivalent compensation was paid to the directors in shares in June 2000.
Beginning in 2000, the Company's policy is for each outside director to receive
nonqualified stock options for 5,000 shares per quarter in addition to either
$1,500 in cash or $2,000 in nonqualified stock options per quarter.
STOCK OPTION PLANS
On August 10, 1995, the Board of Directors and stockholders adopted the
Company's 1995 Stock Option Plan (the "1995 Plan"). The 1995 Plan provides for
the grant of options to purchase up to 178,929 shares of Common Stock to
employees and officers of the Company. In August 1997, the Board of Directors
and the stockholders adopted the Company's 1997 Stock Option Plan (the "1997
Plan," and, together with the 1995 Plan, the "Plans"). The 1997 Plan provides
for the grant of options to purchase up to 200,000 shares of Common Stock to
employees, directors, and officers of the Company. Options granted under the
Plans may be either "incentive stock options" within the meaning of
Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified options.
The Plans are administered by the Board of Directors which serves as the
stock option committee and which determines, among other things, those
individuals who receive options, the time period during which the options may be
partially or fully exercised, the number of shares of Common Stock issuable upon
the exercise of each option, and the option exercise price.
The exercise price per share of Common Stock subject to an incentive stock
option may not be less than the fair market value per share of Common Stock on
the date the option is granted. The per share
7
<PAGE>
exercise price of the Common Stock subject to a non-qualified option may be
established by the Board of Directors, but may not be less than 85% of the fair
market value of the Common Stock on the date of the grant. The aggregate fair
market value (determined as of the date the option is granted) of Common Stock
for which any person may be granted incentive stock options which first become
exercisable in any calendar year may not exceed $100,000. No person who owns,
directly or indirectly, at the time of the granting of an incentive stock option
to such person, more than 10% of the total combined voting power of all classes
of capital stock of the Company (a "10% Stockholder") shall be eligible to
receive any incentive stock options under the Plan unless the exercise price is
at least 110% of the fair market value of the shares of Common Stock subject to
the option, determined on the date of grant.
No stock option may be transferred by an optionee other than by will or the
laws of descent and distribution and, during the lifetime of an optionee, the
option will be exercisable only by the optionee or a representative of such
optionee. In the event of termination of employment other than by death or
disability, the optionee will have no more than three months after such
termination during which the optionee shall be entitled to exercise the option,
unless otherwise determined by the stock option committee. Upon termination of
employment of an optionee by reason of death, such optionee's options remain
exercisable for one year thereafter to the extent such options were exercisable
on the date of such termination. Under the 1997 Plan, upon termination of
employment of an optionee by reason of total disability (as defined in the 1997
Plan) such optionee's options remain exercisable for one year thereafter.
Options under the 1995 Plan must be issued within 10 years from August 10,
1995, the effective date of the 1995 Plan. Options under the 1997 Plan must be
issued within 10 years from August 6, 1997, the effective date of the 1997 Plan.
Incentive stock options granted under the Plans cannot be exercised more than
10 years from the date of grant. Incentive stock options issued to a 10%
Stockholder are limited to five-year terms. Payment of the exercise price for
options granted under the Plans may be made in cash or, if approved by the Board
of Directors of the Company, by delivery to the Company of shares of Common
Stock already owned by the optionee having a fair market value equal to the
exercise price of the options being exercised, or by a combination of such
methods. Therefore, an optionee may be able to tender shares of Common Stock to
purchase additional shares of Common Stock and may theoretically exercise all of
such optionee's stock options with no additional investment other than the
purchase of the original shares.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the Company become available again for issuance under
the Plan from which they were granted.
On November 25, 1998, the Board of Directors of the Company approved a
resolution which permitted the Company to reprice all outstanding options to
purchase Common Stock which were held by employees of the Company as of
December 1, 1998, to a price equal to the closing of the Company Common Stock
reported on the Nasdaq SmallCap Market on December 1, 1998. Such closing price
on December 1, 1998 was $.688 per share.
At December 31, 1999, options to purchase 24,500 shares of Common Stock were
outstanding under the 1995 Plan at an exercise price of $0.688 per share. Of
such optionees, Dennis Smith, a former officer of the Company, had options to
purchase 12,500 shares of Common Stock (4,167 of which were exercised). At
December 31, 1999, options to purchase 207,920 shares of Common Stock were
outstanding under the 1997 Plan (or upon equivalent terms) at exercise prices
ranging from $0.688 to $2.938 per share, although a majority of such options are
exercisable at $0.688 per share. Options granted at December 31, 1999 to
directors of the Company under the 1997 Plan consist of: (i) options granted to
Mark Braunstein, Donald Greenhouse and Fenton Scruggs to each purchase 20,000
shares of Common Stock, respectively, at an exercise price of $2.125 per share;
(ii) options granted to Stephen Portch to purchase 20,000 shares of Common Stock
at an exercise price of $2.625 per share; (iii) options granted to Mark
Braunstein and Fenton Scruggs to each purchase 851 shares of Common Stock,
respectively, at an exercise price of $2.938 per share; (iv) options granted to
Stephen Portch and Donald Greenhouse to each purchase 1,333 shares of Common
Stock, respectively, at an exercise price of $1.875; and (v) options granted to
Stephen Portch,
8
<PAGE>
Donald Greenhouse, Mark Braunstein and Fenton Scruggs to each purchase 1,538
shares of Common Stock, respectively, at an exercise price of $1.625 per share.
Dennis Smith, a former officer of the Company, had options to purchase 8,000
shares of Common Stock at an exercise price of $0.688 per share and options to
purchase 7,500 shares of Common Stock at an exercise price of $0.656 per share.
OPTIONS GRANTED OUTSIDE THE PLANS
In addition to the options which have been granted under the Plans, the
Company has previously granted options outside of the Plans. At December 31,
1999, options to purchase 483,200 shares of Common Stock were outstanding,
including: (i) options granted to Donald Greenhouse, a director of the Company
to purchase (a) 14,000 shares of Common Stock at an exercise price of $0.10 per
share (all of which have been exercised) and (b) 26,000 shares of Common Stock
at an exercise price of $1.38 per share; and (ii) options granted to Kenneth Van
Meter to purchase 413,200 shares of Common Stock at an exercise price of $0.688
per share
401(K) PROFIT SHARING PLAN
The Company had a 401(k) profit sharing plan which was terminated in 1999.
The Company made no matching contributions to the plan during its life.
EMPLOYMENT AGREEMENTS
KENNETH VAN METER. Our employment agreement with Mr. Van Meter, as amended,
expired January 20, 2000. Mr. Van Meter is currently employed by us without such
an agreement. Pursuant to his prior employment agreement, Mr. Van Meter received
an annual base salary of $162,000. The employment agreement provided for the
annual review of Mr. Van Meter's salary; Mr. Van Meter received a 5% raise as of
January 20, 1998. In May 2000, our Board of Directors approved an increase to
Mr. Van Meter's base salary for 2000 to $225,000 with a potential bonus of 200%
of such salary. Retroactive salary increases for 1998 and 1999 were also granted
and were paid in shares of common stock in June 2000 ($8,505 raise for 1998,
paid as 8,000 shares; $8,930 raise for 1999, paid as 10,338 shares). Pursuant to
his employment agreement (now expired), Mr. Van Meter may have, at the
discretion of the Board of Directors, received an annual incentive bonus equal
to up to 99% of Mr. Van Meter's base salary if he and the Company reached
certain milestones. Up to two-thirds of such incentive bonus were to be awarded
and paid within thirty days following the end of each calendar year and up to
the remaining one third of such bonus was to be awarded at the end of each
calendar year and vest in two equal installments on the first and second
anniversaries of the date of the award. In July 1997, Mr. Van Meter purchased
15,000 shares of Common Stock for nominal consideration plus the cancellation of
certain anti-dilution rights and received options to purchase 183,200 shares of
Common Stock at $1.38 per share and options to purchase 230,000 shares of Common
Stock at $3.00 per share. Such options were repriced on December 1, 1998 at an
exercise price of $0.688 per share. Additionally, during 1997, Mr. Van Meter
received reimbursement of approximately $37,272 for expenses incurred as a
result of his relocation.
GLENN WEST. Our employment agreement with Mr. West expired on May 1, 2000.
The employment agreement provided that Mr. West may not compete with the Company
for two years after the termination of his employment. A state court, however,
may determine to limit or not enforce such non-compete clause as against public
policy. As of January 1, 1999, Mr. West ceased employment with us pursuant to a
leave of absence. Mr. West has taken a full-time position with another company
and will not be returning to his duties with us.
DENNIS SMITH Pursuant to an employment agreement with the Company, Dennis
Smith received a salary of $125,000 per annum. In 1998, he received a
reimbursement of approximately $30,000 for expenses incurred as a result of his
relocation and was eligible each year during his employment to receive, at the
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discretion of the Board of Directors, a bonus of up to twenty five percent (25%)
of his annual salary. Mr. Smith was not paid a bonus during 1998 or 1999, but in
June 2000, was granted $10,000 in shares at a price per share equal to the
Company's market price as of December 31, 1998 and $10,000 in shares at a price
per share equal to the Company's market price as of December 31, 1999. In
connection with his employment, Mr. Smith received options to purchase 24,000
shares of Common Stock at an exercise price of $7.00 per share and options to
purchase 12,500 shares of Common Stock at an exercise price of $0.78 per share.
All of such options were repriced on December 1, 1998 to an exercise price of
$0.688 per share. Mr. Smith terminated his employment with the Company in
June 2000.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Company's voting securities as of
June 30, 2000 by (i) each person who is known by the Company to own of record or
beneficially more than 5% of the outstanding Common Stock, (ii) each of the
Company's directors, director nominees and the Named Executive Officers and
(iii) all directors and executive officers of the Company as a group. Unless
otherwise indicated, each of the stockholders listed in the table below has sole
voting and dispositive power with respect to the shares beneficially owned by
such stockholder.
PRINCIPAL STOCKHOLDERS
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED PERCENT OF CLASS(2)
--------------------------- ------------------ -------------------
<S> <C> <C>
Kenneth D. Van Meter....................................... 889,399(3) 8.0%
Glenn West................................................. 157,636(4) 1.5%
Dennis K. Smith............................................ 106,003(5) 1.0%
Dr. Fenton Scruggs......................................... 438,214(6) 4.1%
Donald Greenhouse(7)....................................... 40,630(8) 0.4%
Stephen Portch............................................. 40,630(9) 0.4%
Dr. Mark Braunstein........................................ 40,308(10) 0.4%
David Hultquist (nominee for director)..................... 397,000(11) 3.7%
All directors and executive officers as a group
(7 persons)(3)(4)(6)(8)(9)(10)........................... 1,606,817 14.3%
</TABLE>
------------------------
(1) The address for Messrs. Van Meter, West, Smith, Greenhouse, Portch,
Hultquist and Thompson and Drs. Braunstein and Scruggs is c/o Celerity
Systems, Inc., 122 Perimeter Park Drive, Knoxville, Tennessee 37922.
(2) Shares of Common Stock are deemed outstanding for purposes of computing the
percentage of beneficial ownership if such shares of Common Stock underlie
securities which are exercisable or convertible within 60 days of the date
of this proxy statement.
(3) Includes 491,329 shares of Common Stock which are subject to currently
exercisable stock options and warrants. Does not include 21,032 shares of
Common Stock owned by Mr. Van Meter's adult children to which he disclaims
beneficial ownership.
(4) Includes 8,096 shares of Common Stock which are subject to currently
exercisable warrants.
(5) Includes 27,271 shares of Common Stock which are subject to currently
exercisable stock options and warrants.
(6) Includes 36,411 shares of Common Stock which are subject to currently
exercisable stock options and warrants.
(7) Mr. Greenhouse is the father of David Greenhouse who is the Vice President
of AWM Investment Company, Inc. Mr. Greenhouse disclaims beneficial
ownership of any shares owned by such fund.
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(8) Includes 14,735 shares of Common Stock which are subject to currently
exercisable stock options.
(9) Includes 14,735 shares of Common Stock which are subject to currently
exercisable stock options.
(10) Includes 14,413 shares of Common Stock which are subject to currently
exercisable stock options.
(11) Includes 125,000 shares of Common Stock which are subject to currently
exercisable warrants. Does not include 200,000 shares of Common Stock owned
by a trust for the benefit of Mr. Hultquist's children as to which he
disclaims beneficial ownership.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who beneficially own more than ten percent of a registered class of the
Company's equity securities, to file with the Securities and Exchange Commission
(the "Commission") initial reports of ownership and reports of changes in
ownership of Common Stock and the other equity securities of the Company.
Officers, directors, and persons who beneficially own more than ten percent of a
registered class of the Company's equities are required by the regulations of
the Commission to furnish the Company with copies of all Section 16(a) forms
they file. To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company, during the fiscal year ended
December 31, 1999, all Section 16 filing requirements applicable to its
officers, directors, and greater than ten percent beneficial owners were
complied with, except that a Form 5 was filed late by Dennis Smith.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DEFERRED PAYMENTS AND CASH LOANS TO THE COMPANY
Several persons affiliated with the Company have permitted us to defer
paying them certain amounts we owed to them. Mr. Van Meter has permitted the
deferral of compensation payments, $70,875 in 1998, $204,515 in 1999, and $0 in
2000. Mr. West permitted the deferral of payments of contractor fees, $2,500 in
1998, and $30,000 in 1999. Mr. Smith permitted the deferral of an aggregate of
compensation payments, $14,219 in 1998 and $73,149 in 1999. Mr. Smith also
permitted the payment deferral of $25,000 owed to him in connection with his
relocation in 1998. Mr. Chambers, a former officer and employee of the Company,
permitted the deferral of compensation payments of $22,969 in 1998 and $54,687
in 1999. As of December 31, 1999, a total of $1,130,245 of compensation and fees
was deferred by current and former officers and employees, including the amounts
noted above. Several persons affiliated with the Company have made cash loans to
the Company. Mr. Van Meter loaned the Company an aggregate of $55,000 during
1998, an aggregate of $17,219 during 1999, and has made no loans to the Company
during 2000. Dr. Scruggs lent the Company $100,000 in 1998. Mr. Hultquist, a
private investor and present nominee for our Board of Directors, loaned the
Company $70,000 in the first quarter of 2000 (which was repaid in cash) and
$125,000 in the second quarter of 2000 which remains outstanding. Except for the
loans from Mr. Hultquist, and $191,142 of compensation owed to former employees,
none of the amounts owed described in this section remain outstanding due to
such persons' investments in the transactions described in the following
section.
PRIVATE PLACEMENTS REDUCING INDEBTEDNESS
In October 1998, the Company consummated a private placement (the "1998
Royalty Placement") of $450,000, aggregate principal amount, 7% Notes due 1999
and 2001 ("Royalty Notes") in which subscribers were also entitled to receive
royalties of $0.50 for each $100,000 invested (pro rated for lesser investments)
for each set top box sold over a period of five years or the total notes placed.
Each of Messrs. Van Meter and Smith and Dr. Scruggs, converted purchased Royalty
Notes by the cancellation of Company indebtedness or cancelling the Company's
obligation to pay them money, the payment of which
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<PAGE>
was then being deferred. The amounts of Royalty Notes purchased were $50,000,
$25,000 and $100,000 for Van Meter, Smith, and Scruggs respectively. William
Chambers, then an officer of the Company, purchased a Royalty Note in the
Royalty Private Placement for $50,000. In the second quarter of 2000, the
Company consummated a private placement of Common Stock and warrants to purchase
Common Stock (the "Spring 2000 Placement") in exchange for which the Company
canceled some of its outstanding debt, including Royalty Notes, and deferred
payments of monies owed held by some of the creditors of the Company, including
some of its current and former officers, directors and employees. All investors
in the private offering received shares of the Company's Common Stock with an
aggregate value equal to the amount of debt canceled (calculated at the average
closing bid price of the Company's Common Stock on the OTC bulletin board for
the five trading days prior to the Company's acceptance of the respective
subscription agreement less twenty percent) plus warrants to purchase Common
Stock at the rate of one share for each five dollars of debt canceled. Investors
in the Spring 2000 Placement included Mr. Van Meter ($390,647); Mr. Smith
($96,352); Dr. Scruggs ($109,991); Mr. Chambers ($130,889); and Mr. West
($40,481).
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PROPOSAL 2
APPROVAL OF AMENDMENT
OF CERTIFICATE OF INCORPORATION TO
INCREASE THE AUTHORIZED COMMON STOCK
GENERAL
The Board of Directors has determined that it would be advisable to amend
the FOURTH Article of the Company's Certificate of Incorporation to increase the
authorized number of shares of our Common Stock from 15,000,000 to 50,000,000.
Our Certificate of Incorporation currently authorizes the issuance of 15,000,000
shares of Common Stock.
The Board of Directors has unanimously adopted and declared it advisable and
unanimously recommends to our stockholders that the FOURTH Article of our
Certificate of Incorporation be amended as described. A copy of the FOURTH
Article of our Certificate of Incorporation, as proposed to be amended by the
resolution adopted by the Board of Directors, is attached as Annex A.
The Board of Directors has approved, subject to stockholder approval at the
2000 Annual Meeting of Stockholders, an increase in the number of authorized
shares of Common Stock from 15,000,000 to 50,000,000. As of July 20, 2000, the
record date for the Annual Meeting (the "Record Date"), 12,541,681 shares of
Common Stock were outstanding and 3,418,496 shares were reserved for issuance in
relation to outstanding options, warrants, our Stock Option Plans, and shares
issuable upon conversion of convertible securities, including those that feature
fluctuating conversion prices ("Fluctuating Price Securities").
Accordingly, at such date, we had contingent obligations to issue
approximately 986,843 shares of Common Stock which were not authorized by our
Certificate of Incorporation, after taking into account 1,240,567 shares
issuable pursuant to warrants and options which contain exercise prices in
excess of the current market price of the Common Stock. If the market price of
the Common Stock were to rise above the respective exercise prices of the
warrants and options, we could be prevented from fulfilling our obligations to
issue such shares due to our failure to maintain a sufficient number of
authorized but unissued shares. If the market price of the Common Stock were to
fall, additional shares of Common Stock would be issuable upon conversion of the
Fluctuating Price Securities, and we could be prevented from fulfilling our
obligations to issue such shares due to our failure to maintain a sufficient
number of authorized but unissued shares.
NEED FOR ADDITIONAL COMMON SHARES
The Board of Directors considers the proposed authorization of an increase
of 35,000,000 shares of Common Stock a matter critical to our survival. We have
financed our operations through the issuance of Common Stock and securities
exercisable for or convertible into Common Stock. We no longer have any
authorized shares that we can issue for additional financing. Without the
approval of Proposal 2, we will be forced to find alternative sources of capital
which management believes will be very difficult, if possible at all.
Approval of Proposal 2 would provide us with the ability to take advantage
of future opportunities for the issuance of equity in connection with public and
private financings (including possible issuances of additional Fluctuating Price
Securities), programs to facilitate expansion and growth and for other general
corporate purposes, including stock dividends and employee benefit plans,
without the delay and expense incident to the holding of a special meeting of
stockholders to consider any specific issuance. In addition, the proposed
authorization would assist us in issuing the required number of shares issuable
upon exercise or conversion of our outstanding (or future) securities
exercisable for or convertible into shares of Common Stock.
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<PAGE>
Other than the 986,843 shares described above and the shares of Common Stock
into which the preferred stock is convertible (as described below), the Board of
Directors has no present agreement or arrangement to issue any of the shares for
which approval is sought. If the amendment is approved by the stockholders, the
Board of Directors does not intend to solicit further stockholder approval prior
to the issuance of any additional shares of Common Stock, except as may be
required by applicable law or applicable listing requirements of a market or
exchange on which the Common Stock is traded. However, if the Company raises
funds by issuing additional Fluctuating Price Securities or other securities
issuable below the then current price of the Common Stock, conversions thereof
could be increasingly dilutive, based on the factors described below.
Although we do not have any present plan or proposal to enter into any
business combination, including any "probable" business combination, as that
term is used in Section 3-05 of Regulation S-X, shares of Common Stock may be
used to acquire other businesses or assets in the future.
Regardless of whether Proposal 2 is approved by the stockholders, we intend
to register such number of shares of Common Stock, up to our authorized amount
of Common Stock. If Proposal 2 is approved by the stockholders, we intend to
register such number of shares as described above, plus the 986,843 shares
described above, plus shares of Common Stock into which the preferred stock is
convertible, plus an undetermined amount of additional shares.
FLUCTUATING PRICE SECURITIES: DESCRIPTION, PURPOSE, AND EFFECT
Our Fluctuating Price Securities consist of three tranches of convertible
debentures (the "Convertible Debentures") and our Series A Convertible Preferred
Stock (the "Preferred Stock" and, together with the Convertible Debentures, the
"Convertible Securities"). The conversion price of the Preferred Stock and all
the Convertible Debentures is a percentage of the market price of our Common
Stock; other terms of the securities vary. The lower the price of the Common
Stock at the time of conversion, the more shares a holder receives upon
conversion of the Convertible Securities; the higher the price of the Common
Stock at the time of conversion, the fewer shares a holder receives upon
conversion. At September 1, 2000, $969,579, aggregate principal amount, of
Convertible Debentures was outstanding, and 41 shares of Preferred Stock were
outstanding.
In total, at September 1, 2000, we had issued an aggregate of 2,822,468
shares of Common Stock upon conversion of Convertible Debentures. At such date
we had received no conversion notices for which we had not issued Common Stock.
Had conversion notices for all outstanding Convertible Securities (debentures
and preferred stock) been received effective September 1, 2000, we would have
been required to issue an additional 1,852,000 shares of Common Stock
approximately, pursuant to conversions of Convertible Debentures, representing
approximately 14.77% of the then outstanding Common Stock and approximately
2,622,800 shares of Common Stock pursuant to conversions of the Preferred Stock.
The following approximate number of shares of Common Stock would be issuable if
the market price of the Common Stock were to decrease the specified percentage
amount from the price at September 1, 2000 and holders were to issue conversion
notices for all outstanding Convertible Securities at the respective reduced
prices (assuming the preferred stock was fully convertible at such date, and the
Company had sufficient authorized but unissued shares, neither of such
conditions being true): 3,477,000 shares (25% decrease); 5,215,500 shares (50%
decrease); and 10,431,000 shares (75% decrease).
We issued the Convertible Securities because the terms of such securities
were the best that we could command in the market at the times we were seeking
to raise capital. We used the Convertible Securities to raise needed working
capital; however, we assumed the conversion, registration, and other obligations
required by the Convertible Securities.
The ongoing effects on us from issuing Convertible Securities include the
following:
- POTENTIAL LOWER STOCK PRICE. Conversions of the Convertible Securities and
sales of the Common Stock issued upon conversion could lower the price of
the Common Stock due to the additional
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<PAGE>
supply of shares in the public marketplace. Subsequent conversions and
sales, putting additional shares of Common Stock into the market, could
lower the price further.
Any decrease in the price of the Common Stock could attract the attention
of investors, including holders of Convertible Securities, and encourage
short sales of the Common Stock. Short sales could place further downward
pressure on the price of the Common Stock.
- DILUTION TO EXISTING STOCKHOLDERS. The issuance of Common Stock upon
conversions of Convertible Securities would have a dilutive effect on the
interests of other holders of Common Stock. Depending on the amount of
Convertible Securities that are eligible to be converted and are actually
converted, any downward movement of the price of the Common Stock, and the
prices at which holders of Convertible Securities convert and the number
of shares issued, the dilutive effect on existing holders of Common Stock
could be substantial.
CONVERTIBLE DEBENTURES
SPRING 1999 DEBENTURES. On March 24, 1999, we consummated the final sale of
our first tranche of Convertible Debentures in a private placement more fully
described in our Current Report on Form 8-K, filed with the Commission on
January 19, 1999. We issued a total of $600,000 of 9% convertible debentures due
2001 (the "Spring 1999 Debentures"). The Spring 1999 Debentures are convertible
at any time at the option of the holder until maturity at a conversion price
equal to the lesser of 75% of the average closing bid price of the Common Stock
for the five trading days immediately prior to the conversion date or equal to
the average closing bid price times four for the five trading days immediately
prior to the respective closing date for that initial purchaser. Interest on the
Spring 1999 Debentures is payable in shares of Common Stock upon conversion,
redemption or maturity. The Spring 1999 Debentures are redeemable at our option
for 125% of the principal amount of the debentures, plus accrued interest. If we
fail to redeem the Spring 1999 Debentures prior to maturity, such securities
automatically convert into shares of Common Stock. At September 1, 2000, holders
had converted $300,000 principal amount of Spring 1999 Debentures, and we had
issued 1,207,854 shares of Common Stock upon conversion thereof.
GMF DEBENTURES. Effective September 30, 1999, we entered into agreements
with GMF Holdings ("GMF"), under which we could require GMF to purchase up to $5
million of our 4% subordinated convertible debentures due September 2004 (the
"GMF Debentures"), as more fully described in our Current Report on Form 8-K,
filed with the Commission on October 8, 1999. At September 1, 2000 we had issued
$550,000 of GMF Debentures. By the terms of such agreements, we may require GMF
to purchase up to a maximum of $500,000 of GMF Debentures every 30 days and
possibly less, depending on the trading volume of the Common Stock. The GMF
Debentures are convertible at a conversion price equal to 75% of the highest bid
price of the Common Stock during the five trading days immediately preceding the
date of conversion. Interest on the GMF Debentures is payable in cash or shares
of Common Stock (at our option) upon conversion or maturity. We are not
permitted to redeem the GMF Debentures prior to their maturity, at which time
they are converted into Common Stock. At September 1, 2000, holders had
converted $550,000 principal amount of GMF Debentures, and we had issued
1,035,748 shares of Common Stock upon conversions.
GMF's obligations to purchase additional debentures terminate September 30,
2000 unless such agreements are extended or renewed. We are currently discussing
those possibilities with GMF. If the agreements are not renewed or extended,
GMF's obligations are likely to be limited to purchasing $400,000 of GMF
Debentures or less, given the monthly restrictions on the principal amount of
debentures that we can require GMF to purchase.
B&G DEBENTURES. On February 17, 2000, we consummated the final sale of our
third tranche of Convertible Debentures in a private placement more fully
described in our Current Report on Form 8-K, filed with the Commission on
March 23, 2000. We issued a total of $774,980 of subordinated convertible
debentures (the "B&G Debentures"); $110,000 of B&G Debentures pay 4% interest
and mature October
15
<PAGE>
2002; $204,980 of B&G Debentures pay 8% interest and mature in November 2002;
and $629,980 of B&G Debentures pay 8% interest and mature in February 2003. The
B&G Debentures are convertible at any time at the option of the holders until
maturity at the lesser of 75% of average closing bid price of the Common Stock
for the five trading days immediately prior to the conversion date or fixed
prices ranging from $0.50 to $1.50. Interest on the B&G Debentures is payable in
shares of Common Stock (at our option) upon conversion, redemption, or maturity.
The B&G Debentures are redeemable at our option for either 135% or 125% of the
face amount of the debentures, plus accrued interest. If we fail to redeem a B&G
Debenture prior to its maturity, such security automatically converts into
shares of Common Stock, based on the price of the Common Stock on its maturity
date. At September 1, 2000, holders had converted $275,381 principal amount of
the B&G Debentures (all types), and we had issued 578,866 shares of Common Stock
upon conversion.
PREFERRED STOCK
On August 31, 2000, we consummated the initial sale of our previously
unissued Preferred Stock as a private placement more fully described in our
Current Report on Form 8-K, filed with the Commission on September 5, 2000. We
issued 41 shares of Preferred Stock. Each share has a liquidation preference of
$10,000 plus an amount representing 6% thereof as has accrued since issuance;
such amount is the Liquidation Value, defined as equal to
((.06)(N/365)($10,000)) + $10,000, where "N" means the number of days from
issuance of the Preferred Stock to the date of calculation. The Preferred Stock
does not pay a dividend. The holders of the Preferred Stock have voting rights
with as required by law, and a two-thirds vote is required for us to issue
securities senior to or PARI PASSU with the Preferred Stock, or for us to
adversely affect such shares as a class. A vote of the holders of the Preferred
Stock is also required in connection with certain redemption events as described
below. All shares of Preferred Stock outstanding on August 31, 2002 convert into
shares of Common Stock as if holders of such shares had delivered a conversion
notice effective at such date. The holders of Preferred Stock are entitled to
participate in pro rata offerings (such as rights offerings) of certain
securities made to holders of Common Stock as if their shares of Preferred Stock
had been converted into Common Stock on such date. The holders may be entitled
to liquidated damages under certain circumstances, including if the registration
statement is not filed or declared effective in a timely fashion and if we do
not fulfill our redemption obligations, some of which are set forth below.
CONVERSIONS AND REDEMPTIONS. The Preferred Stock is convertible into shares
of Common Stock by the holders, subject to certain exceptions, upon the earlier
of 90 days after issuance, the date a registration statement covering the resale
of the common stock issuable upon conversion of the Preferred Stock is declared
effective by the Commission or five days after receiving a "no-review" status
from the Commission in connection with such registration statement.
- Conversions. The number of shares of Common Stock issuable upon conversion
is calculated according to the following formula: ((.06)(N/365)(10,000) +
10,000) divided by the "Conversion Price", the lower of $1.40 and the
price obtained by multiplying 0.75 times the average of the closing bid
prices of the Common Stock for the five consecutive trading days
immediately preceding the date of conversion, and where N means the number
of days from issuance of the Preferred Stock.
- Redemptions upon the Vote of the Holders. If holders of two-thirds of
Preferred Stock then outstanding vote in favor of redemption, such holders
may require us to redeem all of the Preferred Stock then outstanding upon
the occurrence of Major Transactions, Triggering Events (each as defined
in the Preferred Stock's Certificate of Designation) or our failure to
timely deliver freely tradable Common Stock upon receipt of a duly
delivered conversion notice. A Major Transaction includes mergers where we
are not the surviving entity and the sale of all or substantially all of
our assets. Triggering Events include: any failure on our part to maintain
an effective registration statement when required to do so, an
announcement that upon receipt of conversion notices that we intend not to
comply with our obligations thereunder, and our failure to comply with
certain
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<PAGE>
covenants in the Securities Purchase Agreement or Registration Rights
Agreement resulting in the reasonable expectation of a material adverse
event or that the truthfulness of our representations in such agreements
would have prevented such material adverse event.
- Amounts Payable Upon Redemption. The amount payable per share upon such
redemptions is equal to (i) in the case of Major Transaction, the greater
of the Liquidation Value or the value of the Common Stock that such
holders would have received if they had delivered conversion notices to us
effective the date of the public announcement of the Major Transaction;
(ii) in the case of a Triggering Event, the greater of 120% of the
Liquidation Value or the value of the Common Stock that such holders would
have received if they had delivered conversion notices to us effective the
date immediately prior to the day on which the Triggering Event occurred;
and (iii) in the case of our failure to deliver freely tradable shares of
Common Stock in response to a conversion notice, the greater of 120% of
the Liquidation Value, or the Liquidation Value divided by the Conversion
Price (lower of $1.40 or 75% of the market price of a share of Common
Stock, as calculated) multiplied by the Closing Bid Price (as defined) of
a share of Common Stock as of the effective date of such conversion
notice. In the third instance, such holder may otherwise require us to
issue shares of Common Stock which are not freely tradable pursuant to its
conversion notice or such holder may void its conversion notice and have
us return its shares of Preferred Stock.
- Redemptions at the Option of the Company. We may redeem the Preferred
Stock at our option in a pro rata fashion upon payment of 125% of the
Liquidation Value of the Preferred Stock called for redemption in
increments of not less than $100,000.
REGISTRATION OBLIGATIONS OF THE COMPANY
GENERAL. All Common Stock issuable upon the conversion of any portion of
the Convertible Debentures is "restricted" stock, meaning that it is not
registered under the Securities Act of 1933, as amended, and cannot be sold
except pursuant to an exemption to that act. According, the respective
transaction documents obligate us to register such Common Stock for the purpose
of permitting the holders thereof to sell such stock on the open markets at a
time of their choosing. We have not filed a registration statement covering the
shares into which the 8% due 2003 B&G Debentures are convertible, and are
required to pay the holders of those debentures 2% per month of the principal
amount outstanding as liquidated damages until such a registration statement is
declared effective. As $619,980 of such debentures are outstanding, $12,400 is
payable monthly, in cash or stock at the option of the holder of the debentures.
On June 4, 2000 we made a payment of $9,000 toward our obligations for the month
of May 2000. We believe that we have complied with our registration requirements
applicable to the GMF Debentures, the Spring 1999 Debentures, and, except as
described above, the B&G Debentures.
PREFERRED STOCK. We have agreed to file a registration statement within
75 days from the issuance of the Preferred Stock. Such registration statement is
required to be declared effective within 195 days after filing. We agreed to
indemnify and hold harmless the holders and certain other parties in connection
with any action or proceeding that arises out of, or is based upon any allegedly
untrue statements, omissions or violations of the registration statement, unless
any of the foregoing arise out of information furnished to us by such persons.
To the extent any indemnification is prohibited or limited by law, the
indemnifying party has agreed to make a contribution in such proportion as is
appropriate to reflect relative fault with respect to any amounts for which it
would otherwise be liable. In addition, we have agreed to bear nearly all
expenses relating to the registration of the shares of Common Stock into which
the Preferred Stock is convertible. Similar indemnification, contribution and
expense provisions exist in the Convertible Debentures' registration rights
agreements.
NO MATERIAL RELATIONSHIPS. None of the initial purchasers, all private
investors, of the Convertible Securities has had any other material relationship
with us with in the past three years.
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<PAGE>
CHANGE OF CONTROL IMPLICATIONS
CONVERTIBLE DEBENTURES. The existence of the Convertible Debentures may
discourage attempts to acquire the Company. In response to information regarding
a possible acquisition attempt, holders of Convertible Debentures could elect to
convert any or all of their holdings of Convertible Debentures into Common
Stock, thus raising the amount of Common Stock an acquirer must acquire to gain
control of the Company. Also, any Convertible Debentures that the holders do not
convert would remain outstanding after an acquisition unless the acquirer or the
Company redeems the Convertible Debentures at 125% or 135% of the principal
amount of the applicable debentures. Any future issuances of GMF Debentures
would not be redeemable at our option and would either remain outstanding after
an acquisition, representing future dilution to the interest of the acquirer, or
would require private negotiations by the acquirer to purchase those securities.
All Convertible Debentures, by their terms become obligations of an entity which
assumes all our liabilities.
All the Convertible Debentures contain a provision that states that we are
not obligated to issue such number of shares of the Common Stock that would
constitute a change of control of the Company or would exceed 19.99% of our then
outstanding Common Stock. Furthermore, the Spring 1999 Debentures contain a
provision which restricts us from issuing any holder thereof an amount of Common
Stock, which when combined with such holder's existing Common Stock ownership,
would exceed 4.99% of the then outstanding Common Stock. These provisions were
included to comply with regulations of the Nasdaq SmallCap Market (which no
longer apply), to prevent holders from becoming our affiliate, and to prevent a
debenture holder from taking control of the Company without the affirmative vote
of the holders of our Common Stock.
PREFERRED STOCK. The existence of the Preferred Stock may discourage
attempts to acquire the Company. The Preferred Stock requires that we give them
written notice of a Major Transaction between 15 and 10 days prior to its
consummation. After receipt of such notice, if holders of two-thirds of
Preferred Stock then outstanding vote in favor of redemption, we will be
required to redeem all the outstanding shares of Preferred Stock at the greater
of the Liquidation Value (as defined in the Certificate of Designation) or the
value of Common Stock the holders would have received had they converted. The
Preferred Stock restricts us from issuing any holder thereof an amount of Common
Stock, which when combined with such holder's existing Common Stock ownership,
would exceed 4.99% of the then outstanding Common Stock. This provision was
included to prevent holders from becoming our affiliates.
PROPOSAL 2. The increase in the authorized shares of Common Stock and the
subsequent issuance of such shares could have the effect of discouraging,
delaying, or preventing a change in control of the Company without further
action by the stockholders, even if a majority of independent stockholders favor
the proposed change of control. Shares of authorized and unissued Common Stock
could, within the limits imposed by applicable law, be issued in one or more
transactions which would make a change in control of the Company more difficult,
and therefore less likely. Any such issuance of additional stock could have the
effect of diluting the earnings per share and book value per share of
outstanding shares of Common Stock and such additional shares could be used to
dilute the stock ownership or voting rights of a person seeking to obtain
control of the Company. While the proposed amendment may have potential
anti-takeover effects, this proposal is not prompted by any specific effort or
takeover threat currently perceived by the Board of Directors or management. We
have no present plan or proposal to enter into any other arrangement which might
have material anti-takeover consequences; however, we may consummate additional
fundraising transactions in the future, including issuances of Fluctuating Price
Securities under the GMF line of credit or otherwise.
EXISTING ANTI-TAKEOVER PROVISION. Our Certificate of Incorporation
authorizes our Board of Directors to issue up to 2,999,950 shares of "blank
check" preferred stock. Such provision may discourage attempts to acquire the
Company. The Board of Directors, without stockholder approval, may fix all the
rights of the preferred stock. The issuance of such stock could, among other
results, negatively affect the voting
18
<PAGE>
power of the holders of Common Stock. Under certain circumstances, the issuance
of the preferred stock would make it more difficult for a third party to gain
control of the Company, discourage bids for the Common Stock at a premium, or
otherwise adversely affect the market price of the Common Stock.
None of our Certificate of Incorporation, by-laws, employment agreements, or
other material agreements contain other material anti-takeover provisions.
BOARD OF DIRECTORS' RESERVATION OF RIGHTS
If the amendment proposed in this Proposal 2 to amend the Company's
Certificate of Incorporation is approved by the stockholders, such amendment
will become effective upon the filing of a Certificate of Amendment of the
Certificate of Incorporation of the Company, with the Secretary of State of the
State of Delaware. The Board of Directors reserves the right, notwithstanding
stockholder approval and without further action by the stockholders, to elect
not to proceed with the Amendment, if at any time prior to filing a Certificate
of Amendment with the Secretary of State of the State of Delaware the Board of
Directors, in its sole discretion, determines that the Amendment is no longer in
the best interests of the Company and its stockholders. In addition, the Board
of Directors reserves the right to delay filing the Certificate of Amendment for
up to twelve months following stockholder approval of the Amendment at the
Annual Meeting. However, at the present time, the Board of Directors intends to
proceed with the Amendment as presented herein without delay.
STOCKHOLDER VOTE REQUIRED
An affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required to adopt Proposal 2. Accordingly, abstentions and
broker non-votes could have a significant effect on the outcome of this
proposal. Proxies solicited by the Board of Directors will be voted in favor of
the adoption of Proposal 2 to amend the FOURTH Article of the Certificate of
Incorporation unless otherwise indicated thereon.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT
TO THE FOURTH ARTICLE OF THE COMPANY'S CERTIFICATE OF INCORPORATION, WHICH IS
DESIGNATED AS PROPOSAL 2 ON THE ENCLOSED PROXY CARD.
PROPOSAL 3
RATIFICATION OF APPOINTMENT OF PUBLIC ACCOUNTANTS
The firm of PricewaterhouseCoopers LLP, independent certified public
accountants, has audited the books and records of the Company for fiscal year
1999 and for six prior years.
Representatives of PricewaterhouseCoopers LLP are expected to be available
at the meeting to respond to appropriate questions and will be given the
opportunity to make a statement if they desire to do so. If the stockholders do
not ratify the appointment of this firm, the appointment of another firm of
independent certified public accountants will be considered by the Board of
Directors.
STOCKHOLDER VOTE
The appointment of public accountants will be ratified if Proposal 3
receives the affirmative vote of a majority of the shares of the Company's
Common Stock cast.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS AND PUBLIC
ACCOUNTANTS FOR THE COMPANY, WHICH IS DESIGNATED AS PROPOSAL 3 ON THE ENCLOSED
PROXY CARD.
19
<PAGE>
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be considered for inclusion in the proxy
statement for presentation at the Company's 2001 Annual Meeting of Stockholders
must be received at the Company's offices at 122 Perimeter Park Drive,
Knoxville, Tennessee 37922 no later than March 1, 2001, for inclusion in the
Company's proxy statement and form of proxy relating to such meeting. All
proposals must comply with applicable Commission rules and regulations.
ANNUAL REPORT
The Company's Annual Report on Form 10-KSB for the year ended December 31,
1999 is being mailed to stockholders with this proxy statement.
OTHER MATTERS
The Board of Directors is not aware of any other matter other than those set
forth in this proxy statement that will be presented for action at the meeting.
If other matters properly come before the meeting, the persons named as proxies
intend to vote the shares they represent in accordance with their best judgment
in the interest of the Company.
The cost of the solicitation of proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending the proxy
materials to the beneficial owners of the Common Stock. The Company has retained
Georgeson Shareholder Communications, Inc. to assist with the solicitation of
proxies for a fee not to exceed $5,000, plus reimbursement for out-of-pocket
expenses. In addition to solicitations by mail, directors, officers and
employees of the Company may solicit proxies personally or by telephone without
additional compensation.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company's Annual Report on Form 10-KSB for the year ended December 31,
1999 is incorporated herein by reference.
THE COMPANY UNDERTAKES TO PROVIDE ITS STOCKHOLDERS WITHOUT CHARGE A COPY OF
THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB, INCLUDING THE FINANCIAL STATEMENTS
AND SCHEDULES FILED THEREWITH. WRITTEN REQUESTS FOR SUCH REPORT SHOULD BE
ADDRESSED TO THE OFFICE OF THE SECRETARY, CELERITY SYSTEMS, INC., 122 PERIMETER
PARK DRIVE, KNOXVILLE, TENNESSEE 37922.
20
<PAGE>
ANNEX A
FOURTH: The total number of shares of capital stock that the Corporation has
authority to issue is (i) fifty million (50,000,000) shares of common stock with
a par value of $0.001 per share ("Common Stock"); and (ii) three million
(3,000,000) shares of Preferred Stock with a par value of $0.01 per share (the
"Designation Preferred Stock"). The Designation Preferred Stock may be issued in
one or more series, from time to time, with each such series to have such
designations, powers, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof, as
shall be stated and expressed in the resolution or resolutions providing for the
issue of such series adopted by the Board of Directors, subject to the
limitations prescribed by law and in accordance with the provisions hereof, the
Board of Directors being hereby expressly vested with authority to adopt any
such resolution or resolutions. The authority of the Board of Directors with
respect to each such series shall include, but shall not be limited to, the
determination of fixing of the following:
(a) The distinctive designation and number of shares constituting such
series, which number may (except where otherwise provided by the Board of
Directors in creating such series) be increased or decreased (but not below
the number of shares then outstanding) from time to time by like action of
the Board of Directors;
(b) The dividend rate, if any, of such series or the method of
determination thereof, the conditions and times upon which such dividends
shall or may be payable, the relation which such dividends shall bear to the
dividends payable on any other class or classes of stock or series thereof,
or any other series thereof, or any other series of the same class, and
whether dividends shall be cumulative or noncumulative;
(c) The conditions upon which the shares of such series shall be subject
to redemption by the Corporation or the holder thereof and the times, prices
and other terms and provisions upon which the shares of the series may be
redeemed;
(d) Whether or not the shares of the series shall be subject to the
operation of a retirement or sinking fund to be applied to the purchase or
redemption of such shares and, if such retirement or sinking fund be
established, the annual amount thereof and the terms and provisions relative
to the operation thereof;
(e) Whether or not the shares of the series shall be convertible into or
exchangeable for shares of any other stock of the Corporation or any other
securities and, if provision is made for conversion or exchange, the times,
prices, rates, adjustments and other terms and conditions of such conversion
or exchange;
(f) Whether or not the shares of the series shall have voting rights in
addition to the voting rights provided by law, including whether or not the
shares shall have cumulative voting rights, and, if so, subject to the
limitations hereinafter set forth, the terms of such voting rights;
(g) The rights of the shares of the series in the event of voluntary or
involuntary liquidation or dissolution, or upon the distribution of assets,
of the Corporation; and
(h) Any other powers, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions
thereof, of the shares of such series, as the Board of Directors may deem
advisable and as shall not be inconsistent with the provisions of this
Certificate of Incorporation.
20
<PAGE>
ATTENDANCE CARD
I, ____________________________________, plan to attend the Annual Meeting of
Stockholders of Celerity Systems, Inc. to be held at the offices of the Company,
122 Perimeter Park Drive, Knoxville, Tennessee 37922, at 10:00 a.m., Eastern
Daylight Savings Time, on September 18, 2000.
(If you plan to attend the Meeting in person, please return this attendance card
to American Stock Transfer & Trust Company
in the enclosed addressed, postage-paid envelope)
<PAGE>
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CELERITY SYSTEMS, INC.
The undersigned stockholder in Celerity Systems, Inc. (the "Company") hereby
constitutes and appoints Kenneth D. Van Meter and Fenton Scruggs, and each of
them, the undersigned's true and lawful attorneys and proxies, with full
power of substitution in and for each of them, to vote all of the shares of
the Company which the undersigned is entitled to vote at the Annual Meeting
of Stockholders to be held at the offices of the Company, 122 Perimeter Park
Drive, Knoxville, Tennessee 37922, on September 18, 2000 at 10:00 a.m.,
Eastern Daylight Savings Time, or at any postponement or adjournment thereof,
on any and all of the proposals contained in the Notice of the Annual Meeting
of Stockholders, with all the powers the undersigned would possess if present
personally at said meeting, or at any postponement or adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE NOMINEES LISTED ON THE REVERSE SIDE AND FOR THE APPROVAL OF PROPOSALS 2
AND 3.
(Continued and to be signed and dated on the other side)
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A /X/ Please mark your
votes as in this
example.
<TABLE>
<CAPTION>
WITHHOLD
FOR AUTHORITY Nominees: FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C> <C> <C> <C>
(1) Election / / / / Kenneth Van Meter (2) Proposal No. 2 / / / / / /
of
Directors Glenn West Approval of the Increase
of Authorized Common
Fenton Scruggs Stock
David Hultquist / / / / / /
Bruce Thompson (3) Proposal No. 3
Ratification of the
Appointment of
PricewaterhouseCoopers
LLP as Public
Accountants
</TABLE>
FOR, except vote withheld from the following nominees:
<TABLE>
<S> <C> <C> <C>
__________________ Date: ____________, 2000 __________________ Date: ____________, 2000
Signature Signature
</TABLE>
Please sign exactly as name appears hereon. When shares are held by joint
owners, 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.
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