<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement [ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
VISUAL EDGE SYSTEMS INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
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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)
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] 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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE> 2
April __, 1999
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of
Stockholders of Visual Edge Systems Inc. (the "Company"), which will be held at
the Company's principal executive office, 2424 North Federal Highway, Suite
100, Boca Raton, Florida, on Friday, May 14, 1999, commencing at 10:00 a.m.
(local time). We look forward to greeting as many of our stockholders as are
able to be with us.
At the meeting, you will be asked to: (1) elect five Directors of the
Company to serve until the next Annual Meeting and until their successors are
duly elected and qualified; (2) grant permission to the Board of Directors of
the Company to effect a reverse stock split, in a ratio of no more than
one-for-five, if the Board of Directors determines that such action is
advisable to comply with the listing requirements of the Nasdaq SmallCap
Market; (3) consider and act upon an amendment to the Visual Edge Systems Inc.
Amended and Restated 1996 Stock Option Plan; and (4) transact such other
business as may properly come before the meeting and any adjournment thereof.
We hope you will find it convenient to attend the meeting in person.
Whether or not you expect to attend, to assure your representation at the
meeting and the presence of a quorum, please complete, date, sign and mail
promptly the enclosed proxy card (the "Proxy"), for which a return envelope is
provided. No postage need be affixed to the Proxy if it is mailed in the United
States. After returning your Proxy, you may, of course, vote in person on all
matters brought before the meeting.
The Company's Annual Report for the fiscal year ended December 31,
1998 is being mailed to you together with the enclosed proxy materials.
Sincerely,
Earl Takefman
Chief Executive Officer
<PAGE> 3
VISUAL EDGE SYSTEMS INC.
2424 NORTH FEDERAL HIGHWAY, SUITE 100
BOCA RATON, FLORIDA 33431
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 14, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Visual Edge Systems Inc., a Delaware corporation (the "Company"), will be held
at the Company's principal executive office, 2424 North Federal Highway, Suite
100, Boca Raton, Florida 33431, on Friday, May 14, 1999, at 10:00 a.m. (local
time), for the following purposes:
(1) to elect five Directors, each to serve until the next Annual
Meeting and until his successor is duly elected and
qualified;
(2) to grant permission to the Board of Directors of the Company
to effect a reverse stock split, in a ratio of no more than
one-for-five, if the Board of Directors determines that such
action is advisable to comply with the listing requirements
of the Nasdaq SmallCap Market;
(3) to consider and act upon an amendment to the Visual Edge
Systems Inc. Amended and Restated 1996 Stock Option Plan; and
(4) to transact such other business as may properly come before
the Annual Meeting and any adjournment thereof.
The accompanying proxy is solicited by the Board of Directors of the
Company. A copy of the Company's Annual Report to Stockholders, Proxy Statement
and form of proxy are enclosed.
Only stockholders of record as of the close of business on April __,
1999 are entitled to notice of, and to vote at, the Annual Meeting and any
adjournment thereof. Such stockholders may vote in person or by proxy.
You are cordially invited to be present at the Annual Meeting. It is
important to you and to the Company that your shares be voted at the Annual
Meeting.
By Order of the Board of Directors
Earl Takefman
Chief Executive Officer
April __, 1999
<PAGE> 4
===============================================================================
IMPORTANT NOTICE:
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE URGED
TO READ THE ATTACHED PROXY STATEMENT CAREFULLY AND THEN TO SIGN, DATE AND
RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED STAMPED AND ADDRESSED ENVELOPE.
AS SET FORTH IN THE PROXY STATEMENT, THE GIVING OF THE PROXY WILL NOT AFFECT
YOUR RIGHT TO ATTEND AND TO VOTE AT THE ANNUAL MEETING.
===============================================================================
<PAGE> 5
VISUAL EDGE SYSTEMS INC.
--------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 14, 1999
This Proxy Statement and the accompanying form of proxy ("Proxy") are
being furnished to the stockholders of Visual Edge Systems Inc., a Delaware
corporation (the "Company"), in connection with the solicitation of Proxies by
the Board of Directors of the Company for use at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held at the Company's principal
executive office, 2424 North Federal Highway, Suite 100, Boca Raton, Florida,
on May 14, 1999, at 10:00 a.m. (local time), and at any adjournment thereof.
Only stockholders of record as of the close of business on April __, 1999 (the
"Record Date") will be entitled to notice of, and to vote at, the Annual
Meeting.
This Proxy Statement and the accompanying Proxy, together with a copy
of the Company's Annual Report to Stockholders for the year ended December 31,
1998 (the "Annual Report"), are being sent or given to the stockholders
commencing on or about April __, 1999.
At the Annual Meeting, the stockholders of the Company will be asked:
(i) to elect five Directors of the Company to serve until the next Annual
Meeting and until their successors are duly elected and qualified; (ii) to
grant permission to the Board of Directors of the Company to effect a reverse
stock split, in a ratio of no more than one-for-five, if the Board of Directors
determines that such action is advisable to comply with the listing
requirements of the Nasdaq SmallCap Market; (iii) to consider and act upon an
amendment to the Visual Edge Systems Inc. Amended and Restated 1996 Stock
Option Plan; and (iv) to transact any other business that may properly come
before the meeting and any adjournment thereof.
The principal executive office of the Company is located at 2424 North
Federal Highway, Suite 100, Boca Raton, Florida 33431 and the Company's
telephone number at that address is (561) 750-7559.
STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ACCOMPANYING
FORM OF PROXY AND RETURN IT PROMPTLY TO THE COMPANY IN THE ENCLOSED POSTAGE
PAID ENVELOPE.
<PAGE> 6
SOLICITATION OF PROXIES
If the accompanying Proxy is properly executed and returned, the
shares represented thereby will be voted in accordance with the instructions
specified in the Proxy. In the absence of instructions to the contrary, such
shares will be voted (i) in favor of the nominees for election to the Board of
Directors listed in this Proxy Statement and named in the accompanying Proxy,
(ii) to grant permission to the Board of Directors of the Company to effect a
reverse stock split, in a ratio of no more than one-for-five, if the Board of
Directors determines that such action is advisable to comply with the listing
requirements of the Nasdaq SmallCap Market, and (iii) to approve an amendment
to the Visual Edge Systems Inc. Amended and Restated 1996 Stock Option Plan.
The Board of Directors does not intend to bring any other matters before the
Annual Meeting and is not aware of any matters that will come before the Annual
Meeting other than as described herein. In the absence of instructions to the
contrary, however, it is the intention of each of the persons named in the
accompanying Proxy to vote all properly executed Proxies on behalf of the
stockholders they represent in accordance with their discretion with respect to
any such other matters properly coming before the Annual Meeting. The expenses
with respect to this solicitation of Proxies will be paid by the Company.
Any stockholder may revoke such stockholder's Proxy at any time prior
to the voting thereof on any matter (without, however, affecting any vote taken
prior to such revocation). A Proxy may be revoked by written notice of
revocation received prior to the Annual Meeting, by attending the Annual
Meeting and voting in person or by submitting a signed Proxy bearing a
subsequent date. A written notice revoking a previously executed Proxy should
be sent to the Company at 2424 North Federal Highway, Suite 100, Boca Raton,
Florida 33431, Attention: Secretary. Attendance at the Annual Meeting will not
in and of itself constitute a revocation of a Proxy.
VOTING SECURITIES AND BENEFICIAL OWNERSHIP
Only holders of record of the common stock, par value $.01 per share,
of the Company (the "Common Stock"), as of the close of business on the Record
Date will be entitled to vote at the Annual Meeting. Each share of Common Stock
entitles the registered holder thereof to one vote on each matter to come
before the Annual Meeting. As of the close of business on the Record Date,
there were 10,398,440 shares of the Common Stock outstanding. The presence, in
person or by Proxy, of stockholders entitled to cast a majority of all votes
entitled to be cast at the Annual Meeting will constitute a quorum. Assuming a
quorum, the nominees receiving a plurality of the votes cast at the Annual
Meeting for the election of Directors will be elected as Directors. Votes that
are withheld will be counted for purposes of determining the presence or
absence of a quorum but will have no other effect. Broker non-votes, if any,
will be counted for purposes of determining the presence or absence of a quorum
but will have no effect on the outcome of the election of Directors.
The following table sets forth certain information, as of April __,
1999, relating to the beneficial ownership of shares of the Common Stock by:
(i) each person or entity who is known by the Company to own beneficially five
percent or more of the outstanding Common Stock; (ii) each of the Company's
executive officers, directors and nominees as a director; and (iii) all
directors and executive officers of the Company as a group.
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<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIAL BENEFICIAL
OWNERSHIP OF OWNERSHIP OF
BENEFICIAL HOLDER COMMON STOCK(1) COMMON STOCK(1)
- ----------------- --------------- ----------------
<S> <C> <C>
Earl Takefman(2) ........................ 1,696,960 12.0%
Infinity Investors Limited(3)............ 1,039,388 7.4%
Ronald F. Seale(4) ..................... 976,000 6.9%
Alan L. Lubell(5) ....................... 767,786 5.4%
Richard Parker(6) ....................... 702,000 5.0%
Tom Peters(7) ........................... 254,566 1.8%
Melissa Forzly(8) ....................... 27,500 *
Mark Hershhorn(9) ....................... 5,000 *
Beryl Artz(10) .......................... 3,333 *
All directors and executive officers as a
group (seven persons)................... 3,665,359 26.0%
</TABLE>
- ----------
*Less than 1%
(1) Unless otherwise indicated, the Company believes that all persons
named in the table have sole voting and investment power with respect
to all shares of the Common Stock beneficially owned by them. A person
is deemed to be the beneficial owner of securities which may be
acquired by such person within 60 days from the date of this Proxy
Statement upon the exercise of options, warrants or convertible
securities. Each beneficial owner's percentage ownership is determined
by assuming that (a) options that are held by such person (but not
those held by any other person) and which are exercisable within 60
days of the date of this Proxy Statement, have been exercised and (b)
securities convertible into shares of Common Stock that are held by
such person (but not those held by any other person) and which are
convertible within 60 days of the date of this Proxy Statement, have
been converted.
(2) Includes (i) 1,159,482 shares owned by Status-One Investments Inc., a
Delaware corporation owned by Earl Takefman and certain family members
("Status-One"), and (ii) presently exercisable options to acquire
537,478 shares of Common Stock, but does not include 2,136 shares of
Common Stock owned by Mr. Takefman's spouse, as to which shares Mr.
Takefman disclaims beneficial ownership.
(3) Includes shares beneficially owned by IEO Holdings Limited, Glacier
Capital Limited and Summit Capital Limited, which entities have
affirmed the existence of a "group" as such term is used in Rule 13d-5
promulgated under the Securities Exchange Act of 1934, as amended. For
all of such entities, excludes all shares underlying Notes and
Preferred Stock held by such entities. Information regarding these
entities has been obtained from the Schedule 13G, filed February 16,
1999, with respect to the "group" in which these entities are
included.
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<PAGE> 8
(4) Includes 976,000 shares owned by Marion Interglobal, Ltd., a British
Virgin Islands corporation of which Mr. Seale is Senior Managing
Director.
(5) Does not include 21,827 shares of Common Stock that Mr. Lubell has
agreed to give to certain persons.
(6) Includes presently exercisable options to acquire 700,000 shares of
Common Stock.
(7) Includes presently exercisable options to acquire 240,411 shares of
Common Stock.
(8) Includes presently exercisable options to acquire 27,500 shares of
Common Stock.
(9) Includes presently exercisable options to acquire 5,000 shares of
Common Stock.
(10) Excludes shares underlying options to acquire 1,667 shares of Common
Stock, none of which are exercisable within 60 days.
4
<PAGE> 9
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
Five directors are to be elected to hold office until the next annual
meeting and until their respective successors are elected and qualified.
The following information is furnished with respect to the five
nominees for election as Directors. The Board of Directors has recommended the
nominees named below. Unless otherwise instructed, it is the intention of the
persons named in the accompanying Proxy to vote all shares of the Common Stock
represented by properly executed Proxies for the nominees named below. Although
such nominees have indicated that they will serve as Directors of the Company,
should any of them be unable to serve, the Proxies will be voted for the
election of a substitute nominee designated by the Board of Directors or the
Board of Directors will elect to reduce the number of Directors constituting
the Board of Directors. There is no cumulative voting for Directors.
NOMINEES FOR DIRECTORS
RONALD F. SEALE, age 51, has been Chairman of the Board of the Company
since May 1998. Mr. Seale also presently serves as a Senior Managing Director
of Marion Interglobal, Ltd., an investment group, as well as Senior Managing
Director of Bayfront Holdings Inc., an investment group, and Chairman of the
Board of Aim Holdings, Inc. , an investment group. From 1986 until 1998, Mr.
Seale served as President of Tristar Acquisitions, an investment group. From
1967 until 1984, Mr. Seale worked in the securities industry for Merrill Lynch,
Paine Webber, Shearson American Express and Prudential Bache. Mr. Seale is a
former director of Progressive National Bank of Louisiana.
EARL TAKEFMAN, age 49, a co-founder of the Company, has been Chief
Executive Officer of the Company since March 1995. Prior to founding the
Company, Mr. Takefman was Co-Chief Executive Officer of SLM International, Inc.
("SLM"), a publicly traded toy and sporting goods company, from December 1989
to August 1994. From 1980 to 1989, prior to joining SLM, Mr. Takefman was Chief
Operating Officer of Charan Industries ("Charan"), a publicly traded Canadian
toy and sporting goods company. Mr. Takefman received a Bachelor of
Architecture degree in 1971 and a Masters of Business Administration degree
from McGill University in Montreal, Canada in 1973.
RICHARD PARKER, age 37, has been the Company's President and Chief
Operating Officer since July 1996. From February 1990 until his appointment as
Chief Operating Officer of the Company, Mr. Parker was the founder, owner and
president of Diomo Marketing Inc. and Devrew Merchandising Inc., companies
engaged in marketing and selling consumer products in Canada. From August 1984
to February 1990, Mr. Parker held various positions, including Vice President,
at Charan. Mr. Parker graduated from Vanier College in Montreal in 1980.
MARK HERSHHORN, age 50, became a director of the Company on July 24,
1996 upon completion of the Company's initial public offering. From November
1994 until April 1997, Mr. Hershhorn served as President and Chief Executive
Officer and as a director of National Media Corporation of Philadelphia, a
publicly-traded worldwide infomercial company, and as Chairman of the Board of
its international subsidiary, Quantum International, Inc. From August 1994 to
November 1994, Mr. Hershhorn acted as President and Chief Operating Officer of
National Media. Mr. Hershhorn was President and Chief Operating Officer of
Buckeye Communications, a publicly traded corporation, from June 1993 to August
1994 and of National Media from December 1991 to April 1993. From 1990 to
December 1991, Mr. Hershhorn was a
5
<PAGE> 10
Senior Vice President of Food Marketing for Nutri-Systems Inc., a diet food
company. Prior to joining Nutri-Systems, he held various positions at the
Franklin Mint, including Chief Financial Officer, Treasurer, Vice President and
director, from 1985 to 1990. Mr. Hershhorn received a Bachelor of Arts degree
in economics from Rutgers University and a Masters of Business Administration
degree from the Wharton School of Business at the University of Pennsylvania.
He currently serves as a member of the Wharton School Graduate Executive Board.
BERYL ARTZ, age 46, became a director of the Company on March 19,
1997. Since March 1995, Mr. Artz has served as an Executive Vice President and
director for Club Corporation of America, a corporation that owns and manages
golf courses, in which position he has responsibility for private clubs, public
golf and semi-private club operations within Texas and the Southeast United
States. From January 1988 until January 1995, Mr. Artz was the Executive Vice
President of GolfCorp, a corporation that owns and manages golf courses, where
he had responsibility for the public golf course and semi-private club
operations. Mr. Artz also currently serves as an advisor to the Board of
Directors of Club Corporation International, a privately held corporation that
owns and manages golf courses and that has annual gross revenues of over $700
million and over 228,000 memberships nationwide.
VOTE REQUIRED FOR APPROVAL
The five nominees receiving a plurality of the votes cast at the
Annual Meeting for the election of Directors will be elected as Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR ITS NOMINEES TO THE BOARD OF DIRECTORS
COMPENSATION OF DIRECTORS
The Company reimburses Directors for reasonable travel expenses
incurred in connection with their activities on behalf of the Company, but does
not give its Directors additional compensation for serving as Directors or for
attending Board of Directors meetings. Each Director who is not an employee of
the Company receives an initial grant of non-qualified options to purchase
5,000 shares of the Common Stock under the Company's Amended and Restated 1996
Stock Option Plan (the "Plan"). Non-employee directors receive annual grants of
non-qualified options to purchase 2,500 shares of the Common Stock.
BOARD AND COMMITTEE MEETINGS
The Company's Board of Directors met on five occasions in 1998. All of
the Directors attended at least 75% of the meetings of the Board of Directors
during 1998.
Nominees for election as a director of the Company are selected by the
full Board of Directors, acting as a nominating committee. Nominations for
directors, other than those made by the entire Board of Directors, will not be
eligible to be voted upon at an annual meeting unless submitted in accordance
with the procedure set forth under the heading "STOCKHOLDER PROPOSALS AND
NOMINATIONS FOR THE 2000 ANNUAL MEETING."
The Board of Directors has an Audit Committee and a Compensation
Committee. The members of the Audit Committee presently consist of Messrs. Artz
and Hershhorn. The members of the Compensation Committee presently consist of
Messrs. Seale, Takefman and Hershhorn.
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<PAGE> 11
The Audit Committee is generally responsible for recommending the
appointment of the Company's independent auditors and overseeing the accounting
and internal audit functions of the Company. Audit Committee members regularly
talk with the Company's financial management and independent auditors to review
the results of their examinations, the general scope of their audit services
and their opinions on the adequacy of internal controls and quality of
financial reporting. The Audit Committee met one time during 1998. All of the
members of the Audit Committee attended the meeting of such committee during
1998.
The Compensation Committee is responsible for reviewing and making
recommendations to the Board of Directors concerning remuneration of the
Company's executive officers. The Compensation Committee also administers the
Plan and determines the amounts of, and the individuals to whom, awards shall
be made thereunder. The Compensation Committee met one time during 1998. All of
the members of the Compensation Committee attended the meeting of such
committee during 1998.
PROPOSAL NO. 2 - GRANT OF PERMISSION TO THE BOARD OF DIRECTORS
OF THE COMPANY TO POTENTIALLY EFFECT A REVERSE STOCK SPLIT IN ORDER
TO COMPLY WITH THE LISTING REQUIREMENTS
OF THE NASDAQ SMALLCAP MARKET
On April [__], 1999 the last reported sale price of the Common Stock
on the Nasdaq SmallCap Market was [$__] per share. As discussed below, the
recent per share price of the Common Stock has raised concerns that the Common
Stock could be delisted from the Nasdaq SmallCap Market. On March 1, 1998, the
Company received a letter from Nasdaq stating that the Common Stock would be
delisted if the Company does not demonstrate compliance with Nasdaq's minimum
bid price requirement by the close of business on June 1, 1999.
The Board of Directors of the Company seeks permission to potentially
effect a reverse stock split, in a ratio of no more than one-to-five (the
"Reverse Stock Split"), if it determines that such action is advisable as a
means of increasing the market price of the Common Stock to a level sufficient
to maintain the listing of the Common Stock on the Nasdaq SmallCap Market. If
the Board of Directors decides to effect the Reverse Stock Split after
receiving stockholder approval, the Board of Directors will determine the exact
ratio for such Reverse Stock Split (provided that such ratio shall be no more
than one-for-five) so as to satisfy the listing requirements of the Nasdaq
SmallCap Market.
REASONS FOR THE REVERSE STOCK SPLIT PROPOSAL
The trading market for the Common Stock is currently the Nasdaq
SmallCap Market. One of the requirements for continued listing on the Nasdaq
SmallCap Market is a minimum bid price of $1 per share. On March 1, 1999, the
Company received a letter from Nasdaq notifying the Company that the Common
Stock had failed to maintain a closing bid price of at least $1 per share for
30 consecutive trading days. The letter stated that if the closing bid price of
the Common Stock was not at least $1 per share for a minimum of ten consecutive
trading days (the "Minimum Price Condition") by June 1, 1999, the Common Stock
would be subject to delisting from Nasdaq effective with the close of business
on June 1, 1999. The letter went on to say that the delisting would be stayed
if Nasdaq received a request for a hearing by the close of business on June 1,
1999. If the Company fails to satisfy the Minimum Price Condition and requests
a hearing and the Company proposes to the hearing panel a plan (such as a
reverse stock split) that is reasonably likely to result in the satisfaction of
the Minimum Price Condition in the following 30 to 45 days, the panel may
extend the stay for that period. However, there can be no assurance that the
Common Stock would not be
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<PAGE> 12
delisted after the hearing for failure to meet the Minimum Price Condition or
another of the Nasdaq maintenance standards. If it were delisted from Nasdaq,
the Common Stock would trade on the OTC Bulletin Board, which, as discussed
below, may have a material adverse effect on the ability of the Company to
finance its operations in the future and on the liquidity of the Common Stock.
The Board of Directors believes that the delisting of the Common Stock
from the Nasdaq SmallCap Market would have a negative impact on the liquidity
of the Common Stock. The Company believes that the increased share price
expected to result from a reverse stock split could enable the Company to meet
the minimum share price requirement for continued listing of the Common Stock
on the Nasdaq SmallCap Market. However, there can be no assurance that the
market price of the Common Stock will increase to at least $1 per share if the
Board of Directors decides to effect a Reverse Stock Split or, even if it does,
that the Company will be able to maintain the listing of the Common Stock on
the Nasdaq SmallCap Market.
There can be no assurance, however, that the foregoing effects will
occur or that the market price of the Common Stock immediately after
implementation of the proposed Reverse Stock Split will be maintained for any
period of time, that such market price will approximate any particular multiple
of the market price of the Common Stock before the proposed Reverse Stock
Split, or that such market price will exceed or remain in excess of the current
market price of the Common Stock.
If the Board of Directors decides to effect the Reverse Stock Split
after receiving stockholder approval, the total number of shares of Common
Stock held by each stockholder would be converted automatically into a right to
receive a number of shares of new common stock, par value $.01 (the "New Common
Stock"), of the Company equal to the number of shares of Common Stock owned
immediately prior to the Reverse Stock Split divided by a number no more than
five, as determined by the Board of Directors in order to comply with the
listing requirements of the Nasdaq SmallCap Market.
Permission for the Board of Directors of the Company to effect the
Reverse Stock Split would not affect any stockholder's percentage ownership
interest in the Company or proportional voting power, except for minor
differences resulting from fractional shares. The Reverse Stock Split would not
reduce the number of stockholders of the Company, other than stockholders
owning less than that number of shares of Common Stock to be exchanged for each
share of New Common Stock. The shares of New Common Stock which would be issued
upon the Board of Directors of the Company effecting the Reverse Stock Split
would be fully paid and nonassessable. The voting rights and other privileges
of the holders of Common Stock would not be affected substantially by the Board
of Directors of the Company effecting the Reverse Stock Split.
EFFECTIVE TIME
If the stockholders grant permission to the Board of Directors to
effect the Reverse Stock Split, and upon a determination by the Board of
Directors that the Reverse Stock Split is in the best interest of the Company
and its stockholders, an amendment to Article 4 of the Certificate of
Incorporation would be filed with the Secretary of State of the State of
Delaware on any date selected by the Board of Directors on or prior to the
Company's next Annual Meeting of Stockholders, providing that the Reverse Stock
Split would become effective as of 5:00 p.m. New York City time on the date of
such filing (the "Effective Time"). Without any further action on the part of
the Company or the stockholders, the shares of Common Stock held by
stockholders of record as of the Effective Time would be converted at the
Effective Time into the right to receive a number of shares of New Common Stock
equal to the number of their shares of Common Stock divided by a number not
more than five, as determined by the Board of Directors in order to comply with
the listing requirements of the Nasdaq SmallCap Market.
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<PAGE> 13
EXCHANGE OF STOCK CERTIFICATES
If the Reverse Stock Split is effected by the Board of Directors, as
soon as practicable after the Effective Time, the Company will send a letter of
transmittal to each stockholder of record at the Effective Time for use in
transmitting certificates representing shares of Common Stock ("old
certificates") to the Company's transfer agent, American Stock Transfer & Trust
Company (the "Exchange Agent"). The letter of transmittal will contain
instructions for the surrender of old certificates to the Exchange Agent in
exchange for certificates representing the appropriate number of whole shares
of New Common Stock. No new certificates will be issued to a stockholder until
such stockholder has surrendered all old certificates together with a properly
completed and executed letter of transmittal to the Exchange Agent.
Upon proper completion and execution of the letter of transmittal and
return thereof to the Exchange Agent, together with all old certificates,
stockholders will receive a new certificate or certificates representing the
number of whole shares of New Common Stock into which their shares of Common
Stock represented by the old certificates have been converted as a result of
the Reverse Stock Split. Until surrendered, outstanding old certificates held
by stockholders will be deemed for all purposes to represent the number of
whole shares of New Common Stock to which such stockholders are entitled as a
result of the Reverse Stock Split. Stockholders should not send their old
certificates to the Exchange Agent until they have received the letter of
transmittal. Shares not presented for surrender as soon as is practicable after
the letter of transmittal is sent shall be exchanged at the first time they are
presented for transfer.
No service charges will be payable by stockholders in connection with
the exchange of certificates, all expenses of which will be borne by the
Company.
EFFECT OF REVERSE STOCK SPLIT
If the Reverse Stock Split is effected by the Company's Board of
Directors, the result would be that each Company stockholder who owns shares of
Common Stock will receive one share of New Common Stock in exchange for a
number of shares of Common Stock that shall be no more than five, as determined
by the Board of Directors in order to comply with the listing requirements of
the Nasdaq SmallCap Market.
Dissenting stockholders have no appraisal rights under Delaware law or
under the Company's Certificate of Incorporation or Bylaws in connection with
the Reverse Stock Split.
VOTE REQUIRED
In order to grant permission to the Board of Directors of the Company
to effect the Reverse Stock Split, a majority of the votes cast at the Annual
Meeting on such proposal must be voted in favor of granting such permission.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
THE PROPOSAL TO GRANT PERMISSION TO THE BOARD OF DIRECTORS
TO EFFECT THE REVERSE STOCK SPLIT.
9
<PAGE> 14
PROPOSAL NO. 3 - APPROVAL OF AN AMENDMENT TO THE VISUAL EDGE
SYSTEMS INC. AMENDED AND RESTATED 1996 STOCK OPTION PLAN
In April 1996, prior to the Company's initial public offering, the
Board of Directors adopted, and the Company's stockholders approved, the
Company's 1996 Stock Option Plan pursuant to which key employees and
non-employee directors of the Company have been granted stock options.
Effective January 1, 1997, the Board of Directors and the Company's
stockholders approved an amendment to the 1996 Stock Option Plan, which, as
amended, was renamed the Visual Edge Systems Inc. Amended and Restated 1996
Stock Option Plan. The amendment increased the limitation on the number of
shares of the Common Stock that may be subject to outstanding options from
900,000 to the greater of 1,200,000 or 12% of the total number of shares of the
Common Stock outstanding. Effective _______________, the Board of Directors
approved an amendment to the Amended and Restated 1996 Stock Option Plan. Such
amendment further increased the limitation on the number of shares of the
Common Stock that may be subject to outstanding options to the greater of
2,000,000 or 20% of the total number of shares of the Common Stock outstanding.
The purpose of this amendment is (i) to ensure that a sufficient number of
shares are available for grants of options at any given time and (ii) to give
the Compensation Committee added flexibility in compensating key employees and
other individuals with stock options.
At the 1999 Annual Meeting, Stockholders will be asked to approve the
Stock Option Plan, as amended and restated. All option grants made pursuant to
the Stock Option Plan from and after the date of the Annual Meeting are
contingent upon the approval of the Stock Option Plan by Stockholders at the
1999 Annual Meeting.
In the Board of Director's judgment, the Stock Option Plan provides a
critical long-term incentive for the management employees and non-employee
directors of the Company and its subsidiaries. The Board of Directors believes
that the Company's policy of granting stock options to directors and employees
will continue to provide it with a critical advantage in attracting and
retaining qualified candidates. In addition, the Stock Option Plan, in its
amended and restated form, is intended to provide the Compensation Committee
with maximum flexibility to compensate plan participants. It is expected that
such flexibility will be an integral part of the Company's policy to encourage
directors and key employees to focus on the long-term growth of Stockholder
value. The Board of Directors believes that important advantages to the Company
are gained by an option program such as the Stock Option Plan which includes
incentives for motivating employees of the Company, while at the same time
promoting a closer identity of interests between directors and employees on the
one hand, and the Stockholders on the other.
The principal terms of the Stock Option Plan, as amended and restated,
are summarized below and a copy of the Stock Option Plan, as amended and
restated, is annexed to this Proxy Statement as Annex A. The summary of the
Stock Option Plan set forth below is not intended to be a complete description
thereof and such summary is qualified in its entirety by the actual text of the
Stock Option Plan to which reference is made.
SUMMARY DESCRIPTION OF THE AMENDMENT TO THE AMENDED AND RESTATED 1996 STOCK
OPTION PLAN
The purpose of the Stock Option Plan, attached hereto as Annex A, is
to provide directors, officers and key employees of, and consultants to the
Company and its subsidiaries with additional incentives by increasing their
ownership interests in the Company. Directors, officers and other key employees
of the Company and its subsidiaries are eligible to participate in the Stock
Option Plan. Options may also be granted to consultants providing valuable
services to the Company and its subsidiaries. In addition,
10
<PAGE> 15
individuals who have agreed to become a key employee of or a consultant to the
Company and its subsidiaries are eligible for option grants, conditional in
each case on actual employment or consultant status. Awards of options to
purchase Common Stock may include incentive stock options ("ISOs") and/or
non-qualified stock options ("NQSOs").
The maximum number of shares of the Common Stock that may be subject
to outstanding options, determined immediately after the grant of any option,
is equal to the greater of 2,000,000 shares (reduced by the number of options
not granted or, if granted, forfeited in accordance with their terms) or 20% of
the aggregate number of shares of the Company's Common Stock outstanding,
provided, however, that options to purchase no more than 300,000 shares of the
Common Stock may be granted as ISOs. Prior to its _______________ amendment,
the Stock Option Plan provided that no more than the greater of 1,200,000 or
12% of the total number of shares of the Common Stock outstanding may be
subject to options under the Stock Option Plan.
The Compensation Committee administers the Stock Option Plan. Except
with respect to nondiscretionary stock options granted to non-employee
directors (described below) the Compensation Committee generally has discretion
to determine the terms of any option grant, including the number of option
shares, option price, term, vesting schedule, the post-termination exercise
period, and whether the grant will be an ISO or NQSO. Notwithstanding this
discretion: (i) the number of shares subject to options granted to any
individual in any calendar year may not exceed 250,000; (ii) the term of any
option may not exceed 10 years (unless granted as an ISO to a 10% or more
stockholder, which term may not exceed five years); and (iii) an option will
terminate upon a grantee's termination of employment for cause. In addition,
unless otherwise specified by the Compensation Committee, all outstanding
options vest upon a "change in control" of the Company (as defined in the Stock
Option Plan), and all options will terminate three months following any
termination of employment.
The Stock Option Plan also provides for automatic, non-discretionary
option grants to directors who are not otherwise employed by the Company. Upon
commencement of service, non-employee directors receive a nonqualified option
to purchase 5,000 shares of the Common Stock, and continuing non-employee
directors receive annual grants of stock options to purchase 2,500 shares of
the Common Stock. Options granted to non-employee directors become exercisable
as to one-third of the shares on the date of grant, and as to one-third on each
of the next two anniversaries of the date of grant, have a term of five years
from the date of grant, and are granted with an exercise price equal to the
fair market value of the Common Stock on the date of their grant.
The Stock Option Plan may be amended, altered, suspended, discontinued
or terminated by the Board of Directors without further Stockholder approval,
unless such approval is required by law or regulation or under the rules of the
stock exchange or automated quotation system on which the Common Stock is then
listed or quoted. Thus, Stockholder approval will not necessarily be required
for amendments which might increase the cost of the Stock Option Plan or
broaden eligibility. The Stock Option Plan will remain in effect until
terminated by the Board of Directors.
Option grants under the Stock Option Plan that may in the future be
received by or allocated to the Company's executive officers or to such other
group or groups of persons from and after the date of the Annual Meeting are
not presently determinable (other than with respect to options granted to the
Company's non-employee directors, who will receive automatic, non-discretionary
grants in such amounts and on such terms as described in this summary).
11
<PAGE> 16
FEDERAL TAX CONSEQUENCES
The following is a brief description of the federal income tax
consequences generally arising with respect to options that may be granted
under the Stock Option Plan. This discussion is intended for the information of
Stockholders considering how to vote at the Annual Meeting and not as tax
guidance to individuals who participate in the Stock Option Plan.
The grant of an option will create no tax consequences for the grantee
or the Company. A grantee will not have taxable income upon exercising an ISO
(except that the alternative minimum tax may apply) and the Company will
receive no deduction at that time. Upon exercising a NQSO, the participant must
generally recognize ordinary income equal to the difference between the
exercise price and fair market value of the freely transferable and
nonforfeitable stock received. In each case, the Company will be entitled to a
deduction equal to the amount recognized as ordinary income by the participant.
A participant's disposition of shares acquired upon the exercise of an
option generally will result in capital gain or loss measured by the difference
between the sale price and the participant's tax basis in such shares (or the
exercise price of the option in the case of shares acquired by exercise of an
ISO and held for the applicable ISO holding periods). Generally, there will be
no tax consequences to the Company in connection with a disposition of shares
acquired under an option except that the Company will be entitled to a
deduction (and the participant will recognize ordinary taxable income) if
shares acquired upon exercise of an ISO are disposed of before the applicable
ISO holding periods have been satisfied.
Section 162(m) of the Internal Revenue Code generally disallows a
public company's tax deduction for compensation to its chief executive officer
and the four other most highly compensated executive officers in excess of $1
million. Compensation that qualifies as "performance-based compensation" is
excluded from the $1 million deductibility cap, and therefore generally remains
fully deductible by the company that pays it. The Company intends that options
granted to the relevant officers with an exercise price at least equal to 100%
of fair market value of the underlying stock at the date of grant will qualify
as such "performance-based compensation," although other grants under the Stock
Option Plan may not so qualify.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the outstanding shares of the
Common Stock present in person or represented by Proxy at the Annual Meeting
and entitled to vote is required to approve the adoption of the Stock Option
Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE
FOR THE ADOPTION OF THE AMENDMENT TO THE COMPANY'S AMENDED AND
RESTATED 1996 STOCK OPTION PLAN.
EXECUTIVE OFFICERS
The executive officers of the Company are appointed by the Board of
Directors of the Company and serve at the discretion of the Board of Directors.
The executive officers of the Company, their respective ages and positions and
certain other information with respect to each of them are set forth below and
herein under the section entitled "Election of Directors."
MELISSA FORZLY, age 40, has been the Chief Financial Officer of the
Company since March 1998 and
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<PAGE> 17
joined the Company as Controller in June 1997. Prior to joining the Company,
Ms. Forzly was Controller of Big Entertainment, a public company trading on the
Nasdaq SmallCap market, which is a diversified entertainment company involved
in the licensing of entertainment properties, the operation of retail stores,
and the publishing and packaging of books. Ms. Forzly graduated from Boston
University in 1981 with a B.S. in Business Administration with concentrations
in accounting and finance.
THOMAS PETERS, age 53, has been Vice President of Operations and
Technology of the Company since November 1997 and joined the Company as
Director of Software Development of the Company in May 1996. Since July 1992,
Mr. Peters has been the owner of Smart View ("Smart View"), a company he
founded to design and develop computer golf software to be used by golf
professionals when giving video golf lessons. In March 1995, Smart View was
engaged as an independent consultant to the Company and was principally
responsible for the development of the software used in the Company's products.
Smart View also developed operating systems used by Golf Academy at PGA
National and at the Doral Golf Learning Center, each in Florida. Prior to
founding Smart View, Mr. Peters, for 26 years, held various positions at IBM
Corporation, including Manager of Application Development from July 1989 to
July 1992 and Personal Computer Product Planning Manager from 1984 to 1989. Mr.
Peters graduated from Harper College at University of New York in 1967, with a
B.A. in mathematics.
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding the
compensation earned by or awarded to the Chief Executive Officer and each of
the other executive officers (the "Named Executive Officers") of the Company
for the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION AWARDS
ANNUAL COMPENSATION ---------------------------------------------
------------------------------------------- RESTRICTED SECURITIES
SALARY BONUS OTHER STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) AWARD(S)(#) OPTIONS(1) COMPENSATION
- --------------------------- --------- ----------- -------- -------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earl Takefman, Chief Executive
Officer.............................. 1998 164,867 0 0 0 250,000 0
Ronald F. Seale, Chairman of
the Board............................ 1998 0 0 0 0 0 0
Richard Parker, President and Chief
Operating Officer ................... 1998 164,867 0 0 0 600,000 0
Tom Peters, Vice President of
Operations and Technology ........... 1998 125,283 0 0 0 200,000 0
Melissa Forzly ....................... 1998 79,572 0 0 0 25,000 0
</TABLE>
- ---------------
(1) Reflects options to acquire shares of the Company that were granted in
1998. The Company has not granted stock appreciation rights.
13
<PAGE> 18
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table shows, with respect to the Named Executive Officers,
information concerning the grant of stock options pursuant to the Plan during
the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
------------------------------------------------------------
NUMBER OF PERCENTAGE OF
SECURITIES TOTAL OPTIONS EXERCISE OR
UNDERLYING GRANTED TO BASE PRICE PER
OPTIONS EMPLOYEES IN SHARE
NAME GRANTED FISCAL 1998 ($/SHARE) EXPIRATION DATE
- ----- ------------ --------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
Earl Takefman.............. 250,000 22.3% $1.00 March 31, 2001
Ronald F. Seale........... 0 0 0 N/A
Richard Parker............. 600,000 53.5% $1.00 March 31, 2001/
December 21, 2001(2)
Melissa Forzly............. 25,000 2.2% $1.00 March 31, 2001
Tom Peters................. 200,000 17.8% $1.00 March 31, 2001/
December 21, 2001(3)
</TABLE>
- ---------------
(1) All options granted in fiscal 1998 expire ten years from the date of the
grant.
(2) The expiration date for 200,000 of Richard Parker's options is March 31,
2001 and the expiration date for his remaining 400,000 options is December
21, 2001.
(3) The expiration date for 100,000 of Tom Peters' options is March 31, 2001
and the expiration date for his remaining 100,000 options is December 21,
2001.
14
<PAGE> 19
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
The following table shows, with respect to the Named Executive Officers,
information with respect to the unexercised options to purchase shares of the
Common Stock granted under the Plan and held as of December 31, 1998. None of
the Named Executive Officers exercised options during the year ended December
31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1998 AT DECEMBER 31, 1998(1)
---------------------------------------------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earl Takefman(2) ........ 537,478 0 0 0
Ronald F. Seale ......... 0 0 0 0
Richard Parker .......... 700,000 0 0 0
Melissa Forzly .......... 27,500 0 0 0
Tom Peters .............. 240,411 0 0 0
</TABLE>
- ---------------
(1) Options are "in-the-money" if the closing market price of the Company's
Common Stock exceeds the exercise price of the options. The value of the
unexercised options represents the difference between the exercise price
of such options and the closing market price of the Company's Common Stock
on December 31, 1998.
(2) Excludes (i) 10,000 warrants owned by Mr. Takefman to acquire shares of
the Common Stock, which were purchased by Mr. Takefman upon the same terms
as other unaffiliated investors in a Bridge Financing consummated by the
Company in March 1997, and (ii) 5,832 shares underlying options owned by
Mr. Takefman's spouse as to which shares Mr. Takefman disclaims beneficial
ownership.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All of the members of the Compensation Committee (other than Mr.
Takefman) are non-employee Directors of the Company and are not former officers
of the Company or its subsidiaries. No executive officer of the Company serves
as a member of the Board of Directors or on the compensation committee of a
corporation for which any of the Company's Directors serving on the
Compensation Committee or on the Board of Directors of the Company is an
executive officer.
PERFORMANCE COMPARISON
The graph below provides an indicator of cumulative total shareholder
returns for the Company, as compared with the S&P 500 Stock Index and
Comparable Golf Leisure Companies.
15
<PAGE> 20
<TABLE>
<CAPTION>
9/30/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97 3/31/98 6/30/98 9/30/98 12/31/98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EDGE 6.25 5.75 11.25 9.625 7.625 3.5625 3.25 3.125 2 15/16
Golf Leisure
Companies(1) 9.479167 5.390625 5.046875 4.6195 5.922 4.354167 5.104167 4.566667 2.535714 2.116071
S&P 500 687.31 740.74 757.12 885.14 947.28 970.43 1105.43 1133.86 1017.06 1229.4
</TABLE>
- --------------
(1) The following companies comprise the Comparable Golf Leisure Companies:
Adams Golf, Inc., Arnold Palmer Golf Company, Bullet Sports International
Inc., Coyote Sports Inc., Golden Bear Golf Inc., McHenry Metals Golf Corp.,
and Teardrop Golf Co. Comparable Golf Leisure Companies calculation is
based on an average of their respective closing trade prices as of the
specified day.
EMPLOYMENT AGREEMENTS
Effective January 1, 1996, the Company entered into a three-year
employment agreement with Earl Takefman, the Chief Executive Officer of the
Company. This agreement was amended on April 14, 1998 and extended until
December 31, 2000. Pursuant to the agreement, as amended, Mr. Takefman is
entitled to receive a base salary of $175,000 per annum, subject to increase to
$200,000 on January 1, 1999 and $225,000 on January 1, 2000. In addition,
pursuant to the original employment agreement, Mr. Takefman received 250,000
options upon the consummation of the Company's initial public offering, which
options have now vested, and have an exercise price of $3.00 (these options
were repriced to $1.00 pursuant to the Third Amendment (as defined in "Certain
Transactions - Infinity Financing" below). The agreement is automatically
renewed for additional one-year periods, unless Mr. Takefman or the Company
provides notice to the other of its termination. In the event that Mr. Takefman
is terminated without cause, he will be entitled to receive as severance the
amount of his base salary for the lesser of one year or the remaining term of
the agreement.
Effective June 1, 1996, the Company entered into an employment
agreement with Richard Parker, pursuant to which Mr. Parker serves as the
President and Chief Operating Officer of the Company. This Agreement was
amended on April 14, 1998 and extended until December 31, 2000. Mr. Parker is
entitled to receive a base salary of $175,000 per annum, subject to increase to
$200,000 on January 1, 1999 and to $225,000 on January 1, 2000. The agreement
expires on December 31, 2000 but will automatically be renewed annually unless
16
<PAGE> 21
terminated by one or both of the parties. If Mr. Parker is terminated without
cause, he will be entitled to received as severance the amount of his base
salary for the lesser of six months or the remaining term of the agreement. In
addition, Mr. Parker may terminate his employment agreement if Mr. Takefman is
no longer employed by the Company; in such case, Mr. Parker would still be
entitled to his severance package.
As of May 1, 1996, the Company entered into a two-year employment
agreement with Thomas Peters, pursuant to which Mr. Peters originally served as
Director Software Development and now serves as Vice President of Operations
and Technology. This Agreement was amended on April 14, 1998 and extended until
December 31, 2000. Mr. Peters is entitled to receive a base salary of $130,000
under the agreement for 1998, subject to increase to $140,000 for 1999 and to
$150,000 for 2000. Pursuant to the agreement, Mr. Peters will also be eligible
to receive a bonus based on the Company's performance, as determined by the
Board of Directors. The agreement is automatically renewed for additional
one-year periods unless Mr. Peters or the Company provides notice to the other
of its termination. In the event that Mr. Peters is terminated without cause,
he will be entitled to receive as severance the amount of his base salary for
three months.
CERTAIN TRANSACTIONS
INFINITY FINANCING
On June 13, 1997, the Company arranged a three-year $7.5 million debt
and convertible equity facility (the "Infinity Financing") with a group of
investment funds (the "Funds"). The Company issued and sold to the Funds the
following securities pursuant to the Securities Purchase Agreement, dated as of
June 13, 1997 (the "Agreement"), among the Company and the Funds: (i) 8.25%
unsecured convertible notes (the " Notes") in the aggregate principal amount of
$7,500,000 with a maturity date of three years from the date of issuance ,
subject to the mandatory automatic exchange of $5 million of the Notes for
Preferred Stock, par value $.01 per share, which Notes were convertible into
shares of Common Stock (the "Note Conversion Shares") at any time and from time
to time commencing January 1, 1998 at the option of the holder thereof subject
to certain limitations on conversion set forth in the Agreement; (ii) 93,677
shares of Common Stock subject to adjustment (the "Grant Shares"); and (iii)
five-year warrants (the "June Warrants") to purchase 100,000 shares of Common
Stock (the "Warrant Shares") at an exercise price equal to $10.675. The net
proceeds to the Company from the sale of the Notes, Grant Shares and June
Warrants was $7,236,938. In addition, the Company issued 14,052 shares of
Common Stock to the underwriter in the Company's initial public offering as a
fee for services rendered in connection with the transactions contemplated by
the Agreement.
Pursuant to the Agreement, the Company was required to issue
additional Grant Shares (the "Additional Grant Shares") to the Funds in the
event that the closing bid price of Common Stock for each trading day during
any consecutive 10 trading days from June 13, 1997 through December 31, 1997
did not equal at least $10.00 per share. The Company issued 180,296 Additional
Grant Shares during the fourth quarter of 1997.
Interest payments on the Notes are, at the option of the Company,
payable in cash or in shares of Common Stock. During 1997 and 1998, the Company
issued an aggregate of 65,671 shares and 80,989 shares (collectively, the
"Interest Shares"), respectively, for payment of interest due.
17
<PAGE> 22
On February 6, 1998, the Company entered into the First Amendment to
the Securities Purchase Agreement and Related Documents, dated as of December
31, 1997 (the "First Amendment"), among the Company and the Funds. Pursuant to
the First Amendment, the Funds converted $6 million aggregate principal amount
of the Notes into 6,000 shares of the Company's Series A Convertible Preferred
Stock (the "Preferred Stock"). The "Maximum Conversion Price" (as defined in
the First Amendment) at which shares of Preferred Stock are convertible into
Common Stock (the "Stock Conversion Shares") is $6.00, subject to adjustment in
certain circumstances.
Dividends on the Preferred Stock and the Series A-2 Preferred Stock
(as hereinafter defined) are, at the option of the Company, payable in cash or
in shares of Common Stock. During 1998 the Company issued an aggregate of
302,755 shares (the "Dividend Shares") for payment of dividends.
The remaining $1.5 million of outstanding Notes held by the Funds have
become secured debt pursuant to a Security Agreement, dated as of February 6,
1998 (the "Security Agreement"), between the Company and H.W. Partners, L.P.,
as agent for and representative of the Funds. With respect to such $1.5 million
in outstanding Notes, the Funds have been granted a security interest in the
collateral described in the Security Agreement, which includes all of the
Company's unrestricted cash deposit accounts, accounts receivable, computer
software, inventory and equipment and fixtures, excluding the vans.
The Company issued to the Funds an aggregate of 200,000 warrants (the
"New Warrants"), each to purchase one share of Common Stock (collectively, the
"New Warrant Shares") at an exercise price equal to $4.00 per share.
As a condition to the consummation of the transactions contemplated by
the Purchase Agreement (as hereinafter defined), the Company entered into the
Agreement and Second Amendment to Bridge Securities Purchase Agreement and
Related Documents (the "Second Amendment"), dated as of March 27, 1998, among
the Company and the Funds. Pursuant to the Second Amendment, the Funds agreed
that they would not convert, prior to December 31, 1998, any shares of
Preferred Stock or any principal amount of the Notes into shares of Common
Stock, unless a "Material Transaction" (defined as a change of control of the
Company, a transfer of all or substantially all of the Company's assets or a
merger of the Company into another entity) has occurred. Further, the Funds
agreed that they would not, prior to March 31, 1999, publicly sell any shares
of Common Stock owned or acquired by the Funds, unless a Material Transaction
has occurred; the Funds are permitted, after June 30, 1998 and subject to the
Company's right of first refusal, to privately sell any shares of Common Stock
that they own or acquire, provided the purchaser agrees in writing to be bound
by the same resale restrictions.
The Funds have granted to the Company an option to redeem the
Preferred Stock and the Notes owned by the Funds. The Company is required to
redeem all of the Preferred Stock outstanding prior to redemption of any of the
Notes. In addition, the Funds have granted to the Company and to Marion
Interglobal, Ltd., an investment group ("Marion") an option to acquire, on or
before March 31, 1999, all of the shares of Common Stock owned by the Funds.
In connection with the Second Amendment, the Funds received 100,000
shares of Common Stock. Furthermore, because the Company did not redeem all of
the Preferred Stock and Notes owned by the Funds by June 30, 1998, the Funds
received 200,000 additional shares of Common Stock. Further, the exercise price
of the June Warrants was reduced from $10.675 per share to $3.25 per share and
the exercise price of the New Warrants was reduced from $4.00 per share to
$3.25 per share.
18
<PAGE> 23
On December 29, 1998, the Company entered into the Third Amendment to
Bridge Securities and Purchase Agreement and Related Documents (the "Third
Amendment"), among the Company and Funds (or, if applicable, their respective
transferees) (the "New Funds"). Pursuant to the Third Amendment, the Company
agreed to retire all of the issued and outstanding shares of its Series A
Convertible Preferred Stock and, in exchange therefor, issue to the New Funds a
new class of Series A-2 Convertible Preferred Stock (the "Series A-2 Preferred
Stock"). The Series A-2 Preferred Stock is senior to the Common Stock with
respect to dividends, liquidation and dissolution. Prior to January 1, 2000, no
dividends shall accrue or be payable on the Series A-2 Preferred Stock.
Beginning on January 1, 2000, each share of Series A-2 Preferred Stock shall
entitle the holder to an annual dividend of 8.25%, payable on a quarterly
basis, which dividend shall increase to 18% in certain situations as specified
in the Certificate of Designation with respect to the Series A-2 Preferred
Stock.
The Third Amendment also revised the conversion price at which the
Notes may be convertible into Common Stock and at which the Series A-2
Preferred Stock may be convertible into Common Stock (the "Series A-2
Conversion Shares"). The "Conversion Price" (as defined in the Third Amendment)
applicable to the Company's outstanding Convertible Notes is $2.50 until
January 1, 2000, inclusive, and $1.25 thereafter. The Conversion Price
applicable to the Series A-2 Preferred Stock is (i) for the first $2,000,000 of
aggregate liquidation preference of the Series A-2 Preferred Stock, $1.25, (ii)
for the next $1,000,000 of aggregate liquidation preference of the Series A-2
Preferred Stock, $2.00 until June 30, 1999, inclusive, $1.375 from July 1, 1999
until January 1, 2000, inclusive, and $1.25 thereafter, and (iii) for any
excess amounts of aggregate liquidation preference of the Series A-2 Preferred
Stock, $2.50 until June 30, 1999, inclusive, $2.00 from July 1, 1999 until
January 1, 2000, inclusive, and $1.25 thereafter.
The New Funds agreed to a limitation on their conversion rights, such
that they may not convert any amount of convertible instruments or exercise any
portion of warrants that would result in the sum of (a) the number of shares of
Common Stock beneficially owned by the New Funds and their affiliates and (b)
the number of shares of Common Stock issuable upon conversion of convertible
instruments or exercise of warrants, exceeding 9.99% of the outstanding shares
of Common Stock after giving effect to such conversion or exercise. The Third
Amendment removed resale limitations on the New Funds.
Furthermore, as a means of retaining the Company's management and as
an incentive for such management to pursue the Company's long-term goals, the
Third Amendment provided that all outstanding stock options granted to Earl
Takefman, Richard Parker and Thomas Peters shall be repriced to $1.00 per share
and that all such options shall be immediately vested. The Company also agreed
to reprice to $1.00 per share approximately 82,000 existing employee stock
options, all such options to be immediately vested. In addition, the New Funds
agreed to return to the Company the June Warrants and the New Warrants to
purchase an aggregate of 300,000 shares, provided that options to purchase
200,000 shares of Common Stock be redistributed to Richard Parker and options
to purchase 100,000 shares of Common Stock be redistributed to Thomas Peters,
all such options to be immediately vested and to have an exercise price of
$1.00 per share. Moreover, the Company granted 200,000 new stock options to
Richard Parker, all such options to be immediately vested and to have an
exercise price of $1.00 per share.
MARION EQUITY FINANCING
In March 1998, the Company entered into a Purchase Agreement (the
"Purchase Agreement") with Marion. The Purchase Agreement calls for the Company
to receive up to $11,000,000 from Marion in exchange for shares of Common Stock
as explained herein. Pursuant to the Purchase Agreement, the purchase of Common
Stock was to occur in three tranches as follows: (i) on March 27, 1998 the
Company
19
<PAGE> 24
sold to Marion 1,200,000 shares of Common Stock for an aggregate consideration
of $3,000,000, which was received on April 16, 1998; (ii) on or prior to June
30, 1998 the Company sold to Marion 800,000 shares of Common Stock for an
aggregate consideration of $2,000,000; and (iii) on or prior to September 30,
1998 the Company was to sell a number of shares of Common Stock (to be
determined by when the closing occurs, which would range from 2,666,667 shares
to 3,200,000 shares) for an aggregate consideration of $6,000,000. The third
tranche was contingent on Marion's satisfaction that the Company met or
exceeded certain unspecified financial targets expected by Marion, in its sole
discretion. Marion was under no firm obligation to complete this tranche. The
third trance of the Purchase Agreement was not completed by Marion due to
market conditions. The Company paid transaction fees to Marion upon completion
of each tranche as follows: (i) 1,200,000 shares of Common Stock for the first
$3,000,000 tranche; and (ii) 800,000 shares of Common Stock for the second
$2,000,000 tranche. The Company issued an additional 10,000 shares as a finders
fee in connection with this financing.
Further, upon the consummation of the second tranche of the Purchase
Agreement, Mr. Alan Lubell, a former director of the Company, transferred
250,000 shares of Common Stock to Marion, which shares were registered under
the Securities Act of 1933, as amended, effective April 15, 1998.
Pursuant to the Purchase Agreement, Marion represented a group of
investors and was entitled to assign its rights to receive shares of Common
Stock from the Company and Mr. Lubell. Marion exercised this right and
allocated the shares of Common Stock from the Company and Mr. Lubell to various
unrelated investors and retained 976,000 shares for its own account. Marion is
controlled by Mr. Ronald Seale, who become Chairman of the Board of the Company
on June 3, 1998 and presently holds 976,000 shares of Common Stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities and Exchange Act of 1934, the
Company's Directors, executive officers and holders of more than 10% of the
Common Stock are required to report their initial ownership of the Company's
equity securities and any subsequent changes in that ownership to the
Securities and Exchange Commission. Specific due dates for these reports have
been established, and the Company is required to disclose any failure to file
by these dates with respect to 1998. Based on representations of its directors
and executive officers and copies of reports they have filed with the
Securities and Exchange Commission, there were no late reports filed for 1998,
except that Ronald F. Seale, the Company's Chairman of the Board, filed several
late reports on Form 3 and Form 4.
INDEPENDENT ACCOUNTANTS
Upon the recommendation of the Audit Committee, the Board of Directors
selected Arthur Andersen LLP for fiscal 1999. Arthur Andersen LLP audited the
Company's books, records and accounts for fiscal 1998, and representatives of
the firm will attend the Annual Meeting, will have the opportunity to make a
statement and will be available to answer questions that may be asked by
stockholders.
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OTHER MATTERS
The Board of Directors does not know of any matters to be presented
for consideration at the Annual Meeting other than the matters described in the
Notice of Annual Meeting, but if other matters are presented, it is the
intention of the persons named in the accompanying Proxy to vote on such
matters in accordance with their judgment.
STOCKHOLDER PROPOSALS AND NOMINATIONS FOR THE 2000
ANNUAL MEETING OF STOCKHOLDERS
Stockholder proposals to be presented at the 2000 Annual Meeting of
Stockholders must be received, in writing, by the Secretary of the Company at
the Company's principal executive offices no later than January __, 2000 in
order to be included in the Company's proxy materials relating to that meeting.
REPORT ON FORM 10-KSB
The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998, filed with the Securities and Exchange Commission, is
available to stockholders, without charge, upon written request. Requests for
copies should be directed to Visual Edge Systems Inc., 2424 North Federal
Highway, Suite 100, Boca Raton, Florida 33431, Attention: Secretary.
SOLICITATION OF PROXIES
The accompanying Proxy is solicited by the Board of Directors, and the
cost of such solicitation will be borne by the Company. Proxies may be
solicited by Directors, officers and employees of the Company, none of whom
will receive any additional compensation for his or her services. Solicitation
of Proxies may be made personally or by mail, telephone, telegraph, facsimile
or messenger. The Company will pay persons holding shares of the Common Stock
in their names or in the names of nominees, but not owning such shares
beneficially, such as brokerage houses, banks and other fiduciaries, for the
reasonable expense of forwarding soliciting materials to their principals.
By Order of the Board of Directors
Earl Takefman
Chief Executive Officer
Boca Raton, Florida
April __, 1999
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VISUAL EDGE SYSTEMS INC.
ANNUAL MEETING OF STOCKHOLDERS - MAY 14, 1999
The undersigned hereby appoints Earl Takefman and Richard Parker, and
each of them, proxies, with full power of substitution, to appear on behalf of
the undersigned and to vote all shares of Common Stock, par value $.01 per
share, of Visual Edge Systems Inc. (the "Company") which the undersigned is
entitled to vote at the Annual Meeting of Stockholders to be held at the
Company's principal executive office, 2424 North Federal Highway, Suite 100,
Boca Raton, Florida 33431 on Friday, May 14, 1999, commencing at 10:00 a.m.
(local time), and at any adjournment thereof.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF
NO INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED (I) FOR EACH OF THE
NOMINEES AS A DIRECTOR OF THE COMPANY, (II) TO GRANT PERMISSION TO THE BOARD OF
DIRECTORS OF THE COMPANY TO EFFECT A REVERSE STOCK SPLIT, IN A RATIO OF NO MORE
THAN ONE-FOR-FIVE, IF THE BOARD OF DIRECTORS DETERMINES THAT SUCH ACTION IS
ADVISABLE TO COMPLY WITH THE LISTING REQUIREMENTS OF THE NASDAQ SMALLCAP MARKET
AND (III) FOR THE APPROVAL OF AN AMENDMENT TO THE COMPANY'S AMENDED AND
RESTATED 1996 STOCK OPTION PLAN.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE> 27
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
1. ELECTION OF DIRECTORS: Authority to vote this Proxy for the election \
of the following persons as directors is:
[ ] GRANTED [ ] WITHHELD
(Except as indicated otherwise)
IF THERE IS ANY INDIVIDUAL DIRECTOR WITH RESPECT TO WHOM YOU DESIRE TO
WITHHOLD YOUR VOTE, YOU MAY DO SO BY LINING THROUGH OR OTHERWISE
STRIKING OUT HIS NAME.
Ronald F. Seale, Earl Takefman,
Richard Parker, Mark Hershhorn
and Beryl Artz
2. Grant permission to the Board of Directors of the Company to effect a
reverse stock split, in a ratio of no more than one-for-five, if the
Board of Directors determines that such action is advisable to comply
with the listing requirements of the Nasdaq SmallCap Market.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of an amendment to the Company's Amended and Restated 1996
Stock Option Plan to increase the number of shares of the Company's
Common Stock that may be subject to outstanding options.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
PLEASE CHECK HERE IF YOU PLAN TO ATTEND THE ANNUAL MEETING [ ]
Signature ____________ Signature ________________ Dated: ______________, 1999
NOTE: Please sign exactly as your name appears above. When signing as an
attorney, executor, administrator, trustee or guardian, please give your
full title. If shares are held jointly, each holder should sign.
