<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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 Rule 14a-11(c) or Rule 14a-12
TEKGRAF, 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:
(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:
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TEKGRAF, INC.
645 HEMBREE PARKWAY
SUITE J
ROSWELL, GEORGIA 30076
(770) 442-6060
December ____, 1999
Dear Shareholder:
We cordially invite you to attend a Special Meeting of Shareholders of
Tekgraf, Inc. which will be held on [Friday, January 21, 2000] at 10:00 a.m.
local time at [the Crowne Plaza Atlanta Airport Hotel located at 1325 Virginia
Avenue, Atlanta, Georgia 30344.]
At the Special Meeting, the Board of Directors will ask the
shareholders to approve a change in the capital structure of the Company
intended to equalize the voting power of all classes of Tekgraf stock. The
change will be accomplished by reclassifying all of the outstanding Class B
Common Stock into Class A Common Stock on a one-for-one basis. In addition, the
shareholders will be asked to approve a related amendment to the Articles of
Incorporation to eliminate the authority to issue Class B Common Stock in the
future. At the meeting, shareholders may transact such other business as may
properly come before the Special Meeting.
Please review the enclosed materials carefully. Regardless of whether
you plan to attend the Special Meeting, we ask that you read the information on
the following pages and promptly submit your proxy card in the enclosed postage
paid envelope. If you attend the meeting, you may vote in person if you wish,
even though you have previously returned your proxy.
An affirmative vote by at least 50% of the shares of each class of
stock is necessary for these measures to be adopted, so your vote is very
important.
Sincerely,
WILLIAM M. RYCHEL
Interim Chief Executive Officer
<PAGE> 3
TEKGRAF, INC.
645 HEMBREE PARKWAY
SUITE J
ROSWELL, GEORGIA 30076
(770) 442-6060
-----------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FRIDAY, JANUARY 21, 2000
-----------------------------------------
NOTICE IS HEREBY GIVEN that the Special Meeting of Shareholders of Tekgraf,
Inc. will be held on Friday, January 21, 2000 at 10:00 a.m. local time at the
Crowne Plaza Atlanta Airport Hotel located at 1325 Virginia Avenue, Atlanta,
Georgia 30344, for the following purposes:
1) To reclassify all issued and outstanding Class B Common Stock
into Class A Common Stock on a one-for-one basis, and to
amend the Articles of Incorporation to eliminate the
authority in the Articles of Incorporation to issue Class B
Common Stock in the future and to make certain related
technical amendments; and
2) To transact such other business as may properly come before
the Special Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on Friday, December 17,
1999 as the record date for determining the shareholders entitled to notice of
and to vote at the Special Meeting. Only record holders of Tekgraf's Class A
Common Stock and Class B Common Stock at the close of business on that date are
entitled to notice of, and to vote at, the Special Meeting or any adjournments
thereof.
BY ORDER OF THE BOARD OF DIRECTORS
WILLIAM M. RYCHEL
Interim Chief Executive Officer
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE. YOU MAY, IF YOU WISH,
REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE TIME IT IS VOTED.
--------------------
YOU SHOULD CAREFULLY CONSIDER ALL OF THE INFORMATION INCLUDED IN
THIS PROXY STATEMENT BEFORE RETURNING YOUR PROXY CARD.
--------------------
THE DATE OF THIS PROXY STATEMENT IS DECEMBER ____, 1999.
<PAGE> 4
SUMMARY
The following is a summary of certain information contained in this Proxy
Statement. Reference is made to, and this Summary is qualified in its entirety
by, the more detailed information contained in this Proxy Statement.
Shareholders are urged to review carefully the entire Proxy Statement,
including the documents incorporated by reference herein and Appendix I and
Appendix II attached hereto.
<TABLE>
<S> <C>
Date, Time, Place of
Meeting and Matters to be
Presented for Action .......... The Special Meeting of Shareholders of
Tekgraf will be held on Friday, January 21,
2000 at 10:00 a.m. local time at the Crowne
Plaza Atlanta Airport Hotel located at 1325
Virginia Avenue, Atlanta, Georgia 30344.
At the Special Meeting, and at any
adjournments thereof, shareholders will be
asked: (i) to reclassify all issued and
outstanding Class B Common Stock into Class
A Common Stock on a one-for-one basis, and
to amend the Articles of Incorporation to
eliminate the authority in the Articles of
Incorporation to issue Class B Common Stock
in the future and to make certain related
technical amendments; and (ii) to transact
such other business as may properly come
before the Special Meeting or any
adjournments thereof. See "Introduction"
and "Special Meeting."
Record Date ...................... Only shareholders of record at the close
of business on Friday, December 17, 1999
are entitled to notice of and to vote at
the Special Meeting or any adjournment
thereof. See "Special Meeting--Outstanding
Shares and Voting Rights--Record Date."
Quorum ........................... The holders of a majority of the votes
of the shares of common stock, including
both the Class A Common Stock and the Class
B Common Stock, issued and outstanding and
entitled to vote, present in person or
represented by proxy, shall constitute a
quorum for the transaction of business at
the Special Meeting. With respect to any
action on which approval of a voting group
is required, including the approval of the
proposed amendments to the Articles of
Incorporation, the holders of a majority of
the votes of the shares for each voting
group, present in person or represented by
proxy, shall constitute a quorum. See
"Special Meeting-- Outstanding Shares and
Voting Rights--Quorum."
Voting Rights and Related
Matters ....................... Each holder of Class A Common Stock is
entitled to one vote per share with respect
to all matters. Each holder of Class B
Common Stock is entitled to five votes per
share with respect to all matters. Shares
of Class A Common Stock and Class B Common
Stock (sometimes referred to collectively
herein as the "Common Stock") will vote as
a single voting group. The affirmative vote
of a majority of the votes entitled to be
cast is required to approve the proposed
reclassification and amendments to the
Company's Articles of Incorporation. In
addition, the affirmative vote of a
majority of the votes entitled to be cast
by holders of Class A Common Stock and by
holders of Class B Common Stock, voting as
separate voting groups, is required to
approve the proposed reclassification and
amendments. See "Special Meeting--
</TABLE>
2
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<TABLE>
<S> <C>
Outstanding Shares and Voting
Rights--Voting Rights and Related Matters."
Dissenters' Rights ............... Shareholders of Class B Common Stock have
dissenters' rights in connection with the
approval of the amendments to the Articles
of Incorporation to be presented at the
Special Meeting. See "Special Meeting
--Outstanding Shares and Voting Rights --
Dissenters' Rights; Proposal 1--Dissenters'
Rights."
Revocability of Proxies .......... A shareholder giving a proxy in the form
accompanying this Proxy Statement has the
power to revoke the proxy prior to its
exercise. Such proxy may be revoked by: (i)
delivering a written notice of revocation
to the Secretary of the Company prior to
the Special Meeting; (ii) delivering to the
Secretary of the Company a duly executed
proxy bearing a later date; or (iii)
attending the Special Meeting and voting in
person. See "Special Meeting-- Proxies."
Board Recommendations ............ The Board has approved and recommends the
approval by the shareholders of the
reclassification of the Class B Common
Stock into Class A Common Stock and the
amendments to the Articles of
Incorporation.
</TABLE>
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INTRODUCTION
This Proxy Statement is being furnished to the shareholders of the Company in
connection with the solicitation of proxies for use at the Special Meeting of
Shareholders to be held on [Friday, January 21], 2000 at [10:00 a.m.] local
time at the [Crowne Plaza Atlanta Airport Hotel] located at [1325 Virginia
Avenue, Atlanta, Georgia 30344.]
At the Special Meeting, shareholders will be asked: (i) to reclassify all
issued and outstanding Class B Common Stock into Class A Common Stock on a
one-for-one basis, and to amend the Articles of Incorporation to eliminate the
authority in the Articles of Incorporation to issue Class B Common Stock in the
future and to make certain related technical amendments; and (ii) to transact
such other business as may properly come before the Special Meeting or any
adjournments thereof.
Except for procedural matters incident to the conduct of the Special Meeting,
the Company does not know of any matters other than those described in the
Notice of Special Meeting that are to come before the Special Meeting. If any
other matters are properly brought before the Special Meeting, the persons
named in the accompanying proxy card will vote the shares represented by such
proxies on such matters as determined by a majority of the Board of Directors.
The Company's executive offices are located at 645 Hembree Parkway, Suite J,
Roswell, Georgia, 30076.
SPECIAL MEETING
OUTSTANDING SHARES AND VOTING RIGHTS
RECORD DATE. Only holders of Class A Common Stock and Class B Common Stock of
record at the close of business on Friday, December 17, 1999 are entitled to
notice of and to vote at the Special Meeting or any adjournment thereof. At the
close of business on December 1, 1999, the Company had outstanding 3,202,032
shares of Class A Common Stock, consisting of 2,100,000 publicly-traded shares
and 1,102,032 unregistered shares, held of record by approximately 43 persons
and beneficially owned by approximately [1,757] additional persons, and
3,126,299 shares of Class B Common Stock held of record by 19 persons.
QUORUM. The Company's by-laws provide that the holders of a majority of the
votes of the shares of common stock, including both Class A Common Stock and
Class B Common Stock, issued and outstanding and entitled to vote, present in
person or represented by proxy, shall constitute a quorum for the transaction of
business at a Shareholder Meeting. With respect to any action on which approval
of a voting group is required, including the approval of the proposed amendments
to the Articles of Incorporation, the holders of a majority of the votes of the
shares for each voting group, present in person or represented by proxy, shall
constitute a quorum.
Shares represented by proxies that reflect abstentions or include "broker
non-votes" will be treated as shares that are present and entitled to vote for
purposes of determining the presence of a quorum at the Special Meeting. (A
broker non-vote occurs when a registered broker holding customer securities in
street name has not received voting instructions from the beneficial owner
regarding any "non-routine" matter as so designated by that broker's
self-regulatory organization.) Abstentions and broker non-votes will be treated
as votes "against" for purposes of determining whether the proposed
reclassification and amendments to the Articles of Incorporation have been
approved.
If a sufficient number of votes to adopt the proposal is not present at the
meeting, either in person or by proxy, the Company intends to adjourn the
meeting to solicit additional votes. At any such adjourned meeting, all proxies
will be voted in the same manner as they would have been voted at the meeting
as initially convened.
VOTING RIGHTS AND RELATED MATTERS. Each holder of Class A Common Stock is
entitled to one vote per share with respect to all matters. Each holder of Class
B Common Stock is entitled to five votes per share with respect to all matters.
Accordingly, the outstanding shares of Class A Common Stock are entitled to vote
a total of 3,202,032 votes and the outstanding shares of Class B Common Stock
are entitled to vote a total of 15,631,495 votes. Approval of the
reclassification and the amendments to the Articles of Incorporation will
require the affirmative
4
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vote of the holders of the majority of (i) the shares of both Class A Common
Stock and Class B Common Stock, voting together, (ii) the shares of Class B
Common Stock voting as a separate voting group, and (iii) the shares of Class A
Common Stock voting as a separate voting group. There is no cumulative voting
of shares. Shareholders' votes will be tabulated by the persons appointed by
the Chairman of the Special Meeting to act as inspectors of election for the
Special Meeting. Abstentions and broker non-votes will be counted as votes
"against" a particular matter. AS NOTED ABOVE, THE BOARD OF DIRECTORS
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE RECLASSIFICATION AND AMENDMENTS
TO THE ARTICLES OF INCORPORATION.
DISSENTERS' RIGHTS. Shareholders of Class B Common Stock of the Company who do
not vote in favor of the reclassification and amendments to the Articles of
Incorporation and who strictly comply with the applicable provisions of Article
13 of the Georgia Business Corporation Code will have the right to dissent and
to seek appraisal of the fair value of their shares if the proposed
reclassification and amendments to the Articles of Incorporation are approved.
For further discussion of dissenters' rights, see "Proposal 1 - Dissenters'
Rights Available to Holders of Class B Common Stock" and Appendix I.
PROXIES
A shareholder giving a proxy in the form accompanying this Proxy Statement has
the power to revoke the proxy prior to its exercise by: (i) delivering, prior
to the Special Meeting, a written notice of revocation, bearing a date later
than the date of the proxy, to W. Jeffrey Camp, Secretary, Tekgraf, Inc., 645
Hembree Parkway, Suite J, Roswell, Georgia 30076; (ii) delivering to the
Secretary of the Company a duly executed proxy bearing a later date; or (iii)
attending the Special Meeting and voting in person. The shares represented by
each properly executed proxy not subsequently revoked will be voted at the
Special Meeting in accordance with the instructions contained therein, and if
no specification is made, the proxy will be voted FOR the reclassification and
amendments to the Articles of Incorporation.
COSTS OF SOLICITATION
The cost of soliciting proxies will be borne by the Company. In addition to the
use of the mails, proxies may be solicited personally or by telephone or fax by
officers, directors and employees of the Company, who will not be compensated
specifically for such solicitation activities. Arrangements also will be made
with brokerage houses and other custodians, nominees and fiduciaries for
forwarding solicitation materials to the beneficial owners of shares held of
record by such persons, and the Company will reimburse such persons for their
reasonable expenses incurred in that connection. The Company estimates that the
total cost of soliciting proxies in connection with the proposed
reclassification, including fees for attorneys, accountants, public relations
and financial advisers, solicitors, advertising, printing, and other costs
(other than wages or salaries of regular employees and officers) to be
$[________________].
BENEFICIAL OWNERSHIP OF CAPITAL STOCK
The following table provides information, as of December 1, 1999, concerning
beneficial ownership of Common Stock by: (i) each person or entity known by the
Company to beneficially own more than 5% of the outstanding Class A or Class B
Common Stock; (ii) each director of the Company; (iii) each Executive Officer;
(iv) all directors and executive officers of the Company as a group; and (v) the
"Rychel voting group." (see note (10) following the table of beneficial
ownership, below). Information in the table is based on information from the
named persons regarding ownership of Common Stock. Unless otherwise indicated,
each of the shareholders has sole voting and investment power with respect to
the shares shown as beneficially owned by them.
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<TABLE>
<CAPTION>
CLASS A CLASS B
------- -------
SHARES SHARES
------ ------ PERCENT OF
BENEFICIALLY BENEFICIALLY COMBINED
NAME AND ADDRESS (1) ------------ ------------ --------
OF BENEFICIAL OWNER OWNED (2)(3) PERCENT OF CLASS OWNED (2) PERCENT OF CLASS VOTES
- ------------------- ------------ ------------------ --------- ------------------ -----
<S> <C> <C> <C> <C> <C>
Anita, Ltd. ............................ 75,000(5)(6) 2.34% 1,191,333 37.71% 32.03%
Dan I. Bailey .......................... -- -- 257,000 6.82% --(4)
William M. Rychel ...................... 239,150 7.47% 970,758 31.05% 27.04%
Martyn L. Cooper ....................... -- * 69,500 2.22% 1.85%
W. Jeffrey Camp ........................ 30,000(8) * -- -- *
J. Thomas Woolsey ...................... -- * 132,167 4.23% 3.51%
Albert E. Sisto ........................ 10,000 * -- * *
Francis X. Dalton ...................... 10,000 * -- * *
Thomas A. Gust ......................... 40,216 1.26% 376,625 12.05% 10.21%
Peter Goletz ........................... -- -- 257,000 6.82% --(4)
Beverly Nerenberg (7) .................. 72,432 2.26% 53,333 1.71% 1.80%
Scott C. Barker ........................ 315,344 9.85% -- -- 1.67%
Mark C. Lewis .......................... 300,000 9.37% -- -- 1.59%
D.H. Blair & Co., Inc. ................ 220,000(9) 6.87% -- -- 1.17%
All executive officers, directors
As a group (six persons) ........... 289,150 9.03% 1,172,425 37.50% 32.66%
Rychel Group (including William M.
Rychel, Beverly Nerenberg, A.
Lowell Nerenberg, Thomas A.
Gust, Rosa Sabato, Martyn L.Cooper,
and J. Thomas Woolsey).................. 351,798 10.99% 1,606,633 51.39% 44.52%
</TABLE>
- -------------
* Represents less than 1%.
(1) The address of Anita, Ltd. is P.O. Box 124, Mignot Plateau, Cornet
Street St. Peter Port, Guernsey, Channel Islands, GYI 4EG. The address
of Dan I. Bailey is 5036 Sherifield Drive, Marietta, Georgia 30068. The
address of Thomas A. Gust is 200 North Fairway Drive, Suite 202, Vernon
Hills, Illinois, 60061. The address of Beverly Nerenberg is 17513 Sir
Galahad Way, Ashton, Maryland, 20861. The address of D.H. Blair & Co.,
Inc. ("Blair") is 84 Williams Street, New York, New York 10038. Unless
otherwise noted, the address of each of the beneficial owners of more
than 5% of the Company's Common Stock is c/o Tekgraf, Inc., 645 Hembree
Parkway, Suite J, Roswell, Georgia 30076.
(2) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed
to be the beneficial owner, for purposes of this table, of any shares of
Common Stock if such person has or shares voting power or investment
power with respect to such security, or has the right to acquire
beneficial ownership at any time within 60 days from December 1, 1999. As
used herein, "voting power" is the power to vote or direct the voting of
shares and "investment power" is the power to dispose or direct the
disposition of shares. All figures presented in the table include shares
currently held in escrow pursuant to various escrow agreements involving
the parties, regardless of whether the shareholder has the authority to
direct the voting of those shares.
(3) Excludes shares of Class B Common Stock that are convertible into a
corresponding number of shares of Class A Common Stock.
(4) In November 1997, certain of the pre-acquisition shareholders, including
Messrs. Bailey and Goletz, pledged all of their shares (an aggregate of
559,333 shares) to Anita, Ltd. in connection with personal loans and
granted Anita proxies to vote these shares. The pledged shares have been
included in the number and percent of shares beneficially owned for both
Anita and the respective pledgors. The percent of voting power figures,
however, attribute the voting power of such shares solely to Anita.
(5) In its initial public offering, the Company issued "units" consisting of
one share of Class A Common Stock and one warrant to purchase one share
of Class A Common Stock at an exercise price of $8.40 until November
2002. The table includes shares of Class A Common Stock that were part
of the 100,000 units that Anita, Mr. Cooper and Mr. Woolsey purchased in
the Company's initial public offering, but does not include the 75,000
warrants purchased by Anita, the 10,000 warrants purchased by Mr.
Cooper, or the 15,000 warrants purchased by Mr. Woolsey as components of
the units purchased.
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(6) Anita, Ltd. is a company owned by the New Freedom Trust, a trust for the
benefit of the father of Mr. Phillip Aginsky. The trustee of the New
Freedom Trust, appointed by Mr. Aginsky's father-in-law, as Protector,
is Riverbank, Ltd.
(7) Includes shares held by her husband, A. Lowell Nerenberg. The Nerenbergs
share beneficial ownership and voting and dispositive power of all their
shares of Tekgraf stock.
(8) Includes shares issuable upon exercise of a currently exercisable
option at an exercise price of $3.00 per share.
(9) This information is based on a letter received from counsel to D.H.
Blair & Co., Inc. on April 29, 1999. The amounts shown do not include
warrants held by Blair to purchase 15,000 shares of Class A Common
Stock. Each warrant entitles the holder to purchase one share of Class A
Common Stock at an exercise price of $8.40 through November 2002.
(10) William M. Rychel, Beverly Nerenberg, A. Lowell Nerenberg, Thomas A.
Gust and Rosa Sabato have agreed to vote all of their shares of Class A
Common Stock and Class B Common Stock at the Special Meeting to approve
the reclassification of the Class B Common Stock into Class A Common
Stock and the amendments to the Articles of Incorporation. In addition,
Martyn L. Cooper and J. Thomas Woolsey have agreed to vote all of their
shares of Class A Common Stock and Class B Common Stock in favor of
every matter recommended by the Company's Board of Directors, including
any amendment to the Articles of Incorporation. SEC Rule 13d-5(b)(1)
deems each the beneficial owners of the others' stock. Therefore, this
group filed a Schedule 13D with the Securities and Exchange Commission
on October 15, 1999 (other than Rosa Sabato, Martyn L. Cooper, and J.
Thomas Woolsey who were not then members of the group), and an amendment
to the Schedule 13D was filed December __, 1999. As stated in the
Schedule 13D, each shareholder in the voting group disclaims beneficial
ownership of the other shareholders' shares. The voting agreements of
William M. Rychel, Beverly Nerenberg, A. Lowell Nerenberg, Thomas A.
Gust, and Rosa Sabato are solely for the purpose of voting the shares at
the Special Meeting on [January 21, 2000], and the table above does not
attribute beneficial ownership of all the shares in the voting group to
each shareholder.
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APPROVAL OF THE PROPOSED RECLASSIFICATION AND
AMENDMENTS TO THE ARTICLES OF INCORPORATION
(PROPOSAL 1)
DESCRIPTION OF THE PROPOSED RECLASSIFICATION AND AMENDMENTS TO THE COMPANY'S
ARTICLES OF INCORPORATION
At the Special Meeting, the shareholders of the Company will be asked to
consider and vote upon a proposal to reclassify all issued and outstanding
Class B Common Stock into Class A Common Stock on a one-for-one basis, and to
amend the Company's Articles of Incorporation (the "Articles") to eliminate the
authority in the Articles to issue Class B Common Stock in the future and to
make certain related technical amendments. This proposal is referred to below
as the "Reclassification." The Board of Directors of the Company approved of
the Reclassification on October 13, 1999 and recommended it to the shareholders
for their approval. A copy of the portion of the Company's Articles of
Incorporation related to the Company's capital structure, giving effect to the
Reclassification, is attached as Appendix II (the "Reclassification
Amendment"). The principal provisions of the Reclassification are summarized
below. This summary is not complete and is qualified in its entirety by
reference to Appendix II.
Under Georgia law and the Company's Articles of Incorporation, the
Reclassification will have the effect of amending the Articles of Incorporation
to require a conversion of all the Class B Common Stock into Class A Common
Stock, coupled with an amendment to remove all references to Class B Common
Stock in the Articles of Incorporation. If the Reclassification is approved by
the shareholders, the Board intends to prepare and promptly file the
Reclassification Amendment with the Secretary of State of Georgia. The
Reclassification will be effective immediately upon acceptance of the
Reclassification Amendment by the Secretary of State (the "Effective Time").
At the Effective Time, each issued share of Class B Common Stock will
automatically be converted into one share of Class A Common Stock, and each
certificate previously representing Class B Common Stock will automatically
thereafter be deemed to represent the same number of shares of Class A Common
Stock. The Class A Common Stock outstanding before the Effective Time will not
be affected. In particular, each old and new share of Class A Common Stock will
be entitled to one vote per share on all matters of the Company that require
shareholder approval.
As soon as practicable after the Effective Time, the Company will ask American
Stock Transfer and Trust Company, the Company's transfer agent, to record the
conversion of the Class B Common Stock into Class A Common Stock, and to mail a
letter of transmittal (the "Transmittal Letter") to each record holder of Class
B Common Stock. The former holders of Class B Common Stock either may retain
their certificates for Class B Common Stock because those certificates would
then represent Class A Common Stock, or may surrender such certificates to the
transfer agent in exchange for new certificates representing Class A Common
Stock. The transfer agent will be directed to treat certificates representing
shares of Class B Common Stock as representing shares of Class A Common Stock
from and after the Effective Time. Upon surrender of any such certificates for
transfer, new certificates will be issued in the form of certificates
representing shares of the Class A Common Stock.
Shareholders should surrender certificates representing Class B Common Stock
only after they have received the Transmittal Letter, and then only in
accordance with the instructions contained in the Transmittal Letter.
Certificates representing Class A Common Stock will be issued to the former
record holders of Class B Common Stock who deliver properly executed
Transmittal Letters accompanied by their certificates representing shares of
Class B Common Stock.
THE RECLASSIFICATION HAS BEEN UNANIMOUSLY APPROVED BY THE COMPANY'S BOARD OF
DIRECTORS. THE BOARD BELIEVES THAT THE RECLASSIFICATION IS IN THE BEST
INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS THAT YOU VOTE
"FOR" THE APPROVAL OF THE RECLASSIFICATION. SEE "REASONS FOR THE
RECLASSIFICATION; POSSIBLE DISADVANTAGES OF THE RECLASSIFICATION."
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BACKGROUND OF THE COMPANY'S CAPITAL STRUCTURE
The purpose of the Class A/Class B capital structure was to enable the original
shareholders of the Company, as holders of Class B Common Stock, to maintain
control over the Company, while allowing the Company to issue Class A Common
Stock or securities convertible into Class A Common Stock for financing,
acquisitions and compensation purposes.
The Company was incorporated in the State of Georgia in February 1993 under the
name Crescent Computers, Inc. ("Crescent"). In June 1997, the Company completed
the acquisition of all of the outstanding capital stock of each of G&R
Marketing, Inc., an Illinois corporation ("G&R"), Microsouth, Inc., a Georgia
corporation ("Microsouth"), tekgraf, inc., a Texas corporation ("tekgraf
Texas"), Computer Graphics Distributing Company, a Maryland corporation
("CGD"), Intelligent Products Marketing, Inc. ("IPM") and IG Distribution, Inc.
("IG"), each a California corporation and together doing business as
Intelligent Graphics Distribution ("IGD"). We refer to Crescent, G&R,
Microsouth, tekgraf Texas, CGD, IPM and IG as the "Original Companies." At the
time of the acquisitions, the existing Crescent shareholders held an aggregate
of 1,141,333 shares of common stock. As consideration for these acquisitions,
Crescent issued an aggregate of 2,192,000 shares of Class B Common Stock to the
shareholders of the Original Companies (giving effect to two stock splits
effected in 1997).
In November 1997 the Company conducted an initial public offering of 2,100,000
shares of the Company's Class A Common Stock, together with warrants to
purchase an equal amount of Class A Common Stock. Since then the Company has
completed three acquisitions in which it has issued an aggregate of 894,998
shares of Class A Common Stock.
As of December 1, 1999, there were outstanding 3,202,032 shares of Class A
Common Stock entitled to a total of 3,202,032 votes, and 3,126,299 shares of
Class B Common Stock entitled to a total of 15,631,495 votes.
REASONS FOR THE RECLASSIFICATION
The Board has determined that the Reclassification is in the best interests of
the Company and its shareholders because of the benefits of the elimination of
the dual class capital structure:
- provide all shareholders with more liquidity
- simplify the Company's capital structure
- increase the relative voting power of the current holders of
Class A Common Stock, the largest group of Company
shareholders.
MORE LIQUIDITY. The Company believes the elimination of the Company's dual
class capital structure will provide each shareholder of Class A Common Stock
and Class B Common Stock with more liquidity. The shares of Class A Common
Stock are thinly traded on Nasdaq, with the average daily trading volume for
1999 being less than or approximately ________ shares, while the Class B Common
Stock does not trade on Nasdaq or any securities exchange. There are few, if
any, institutional investors in the Class A Common Stock. Moreover, there are
few market makers and no coverage of the Company by any stock analyst. Because
the privately-held Class B Common Stock represents about one-half of the equity
interest in the Company and almost 85% of the voting power, management has been
advised by certain market makers and potential market makers that an investment
in Class A Common Stock is undesirable and, as a result, the trading volume and
the market price of the Class A Common Stock is well below where it would
likely be based solely on an analysis of the Company's financial condition and
prospects. Based on these conversations, the Company believes that potential
investors in Class A Common Stock perceive that they would have limited ability
to exercise control over the Company and little influence over the direction of
the Company.
The Company believes that this lack of interest in the Class A Common Stock,
reflected in the low trading volume, makes it difficult for its shareholders to
recognize the value of their holdings in the Company. The Reclassification
would combine the two classes of Common Stock for trading purposes and, thus,
increase the market float for the Company's Class A Common Stock. Management
believes that this increase, together with the elimination of the
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voting control currently held by a small group of shareholders, will decrease
the difficulty that shareholders experience in trading their Class A Common
Stock, and will increase the likelihood that stock analysts, professional
investors and market makers will take an interest in the Company.
SIMPLIFY THE CAPITAL STRUCTURE. The Reclassification will simplify the
Company's capital structure, which may provide greater flexibility and
efficiency in raising capital and issuing additional stock if, when and to the
extent desired by the Company. The Reclassification will also conform the
Company's capital structure with that of most other publicly held corporations.
Among publicly held companies, there has been a trend away from dual class
capital structures, consistent with policies of the major exchanges and Nasdaq
in favor of one-share, one-vote common stock capitalization. The single class
capital structure will also simplify the Company's voting procedures and
decrease the administrative and other burdens on the Company resulting from its
complex capital structure.
INCREASE VOTING POWER OF CURRENT CLASS A COMMON STOCK HOLDERS. The
Reclassification will effectively reduce the voting power of the current
holders of Class B Common Stock from five votes per share to one vote per
share. Therefore, the current holders of Class A Common Stock, who currently
have 17% of the combined voting power, will have approximately 51% of the
combined voting power after the Reclassification.
The existing disparity in voting rights gives disproportionate voting power to
the holders of Class B Common Stock and accordingly has an anti-takeover
effect. The shareholders currently may be deprived of an opportunity to sell
their shares at a premium over prevailing market prices in the event of a
hostile takeover bid. The Reclassification may increase the likelihood that the
Company could be acquired in a transaction viewed as favorable by the current
Class A Common Stock holders. The existence of the Class B Common Stock may
make the Company a less attractive target for a hostile takeover bid or render
more difficult or discourage a merger proposal, an unfriendly tender offer, a
proxy contest, or the removal of incumbent management, even if such
transactions were favored by the stockholders of the Company other than the
holders of Class B Common Stock. Those seeking to acquire the Company through a
business combination currently will be compelled first to consult with the
holders of Class B Common Stock in order to negotiate the terms of such
business combination. In addition, any such proposed business combination will
have to be approved by the Board of Directors, which may be under the control
of the holders of Class B Common Stock, and if stockholder approval were
required, the approval of the holders of Class B Common Stock currently is
necessary before any such business combination can be consummated.
POSSIBLE DISADVANTAGES OF THE RECLASSIFICATION
The Reclassification will effectively reduce the voting power of the holders of
shares of Class B Common Stock, from five votes per share to one vote per
share. The relative voting power of each current holder of Class A Common Stock
will increase as a result of the Reclassification.
The Reclassification will eliminate the anti-takeover protection that the dual
class capital structure provides to the Company. Nevertheless, the
Reclassification will not preclude the Company from adopting other
anti-takeover protections if deemed appropriate for the protection of the
Company and its shareholders.
STEPS TAKEN BEFORE THE SPECIAL MEETING OF SHAREHOLDERS
On December 3, 1999, Mr. Rychel purchased a total of 689,583 shares of Class B
Common Stock, 117,400 shares of Class A Common Stock, and agreed to purchase an
additional 161,333 shares of Class B Common Stock from certain persons. More
specifically, Mr. Rychel purchased: 189,045 shares of Class B Common Stock and
41,955 shares of Class A Common Stock from Martyn L. Cooper; 356,888 shares of
Class B Common Stock and 75,445 shares of Class A Common Stock from J. Thomas
Woolsey; 36,750 shares of Class B Common Stock from A. Lowell Nerenberg; 90,383
shares of Class B Common Stock and 3,767 shares of Class A Common Stock from
Beverly Nerenberg; and 12,750 shares of Class B Common Stock from Rosa Sabato.
The purchase price was $2.10 per share. In addition, Mr. Rychel agreed to
purchase 55,600 shares of Class B Common Stock from Mr. Cooper and 105,733
shares of Class B Common Stock from Mr. Woolsey for $2.75 per share. Mr. Rychel
paid Messrs. Cooper and Woolsey $.50 per share as a down payment. Those shares
are currently held in an escrow established when the Original Companies joined
to form the Company, and these purchases can be completed only as to the shares
released from escrow by December 1, 2000. To the extent the purchases are not
completed, Mr. Rychel will forfeit the down payment but will have no further
obligations to Messrs. Cooper and Woolsey as to these shares.
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In connection with those purchases, each selling shareholder entered into a
voting agreement and appointed Mr. Rychel his or her proxy with respect to the
other shares of Tekgraf not being sold to Mr. Rychel, thereby allowing Mr.
Rychel to vote those shares in favor of the Reclassification. On October 15,
1999 Messrs. Rychel, Gust and Nerenberg, and Mrs. Nerenberg, filed a Schedule
13D with the SEC in which they reported their intent to vote his or her Class A
Common Stock and Class B Common Stock in favor of the conversion of the Class B
Common Stock to Class A Common Stock if presented at a shareholders' meeting.
An amendment to this Schedule 13D was filed on December ___, 1999 to reflect
the transactions described above. The amendment of this Schedule 13D also
reflected the voting agreements of William M. Rychel, Martyn L. Cooper and J.
Thomas Woolsey whereby Messrs. Cooper and Woolsey agreed to vote all of their
shares of Class A Common Stock and Class B Common Stock in favor of every
matter recommended by the Company's Board of Directors, including any amendment
to the Company's Articles of Incorporation.
The purpose of these steps was to allow Mr. Rychel to accumulate enough Class B
Common Stock votes to ensure the approval of the Reclassification. Mr. Rychel
currently owns or has the power to vote 279,366 shares of Class A Common Stock
and 1,606,633 shares of Class B Common Stock, which represent 8.7% and 51.4% of
the outstanding Class A Common Stock and Class B Common Stock, respectively.
The Company loaned Mr. Rychel a total of $1,775,000 to purchase the shares of
Class A Common Stock and Class B Common Stock. The loan is for a term of one
year, with interest payable annually at a rate that is .25% above the rate paid
from time to time by Tekgraf under its current bank loan agreement, and with
all principal and interest due at maturity. As collateral for payment of the
loan, Mr. Rychel has pledged the 121,167 shares of Class A Common Stock and
685,816 shares of Class B Common Stock which he recently purchased with the
proceeds of the loan, and 99,875 shares of previously owned Class A Common
Stock, and 182,692 shares of previously owned Class B Common Stock. The stock
pledge will terminate when $887,500 of the principal of the loan and all
accrued interest has been repaid, or the trading price of the Company's Class A
Common Stock has been above $2.50 for ten consecutive trading days. Mr. Rychel
has also collaterally assigned his rights under his agreements with Messrs.
Cooper, Woolsey and Nerenberg, and Mrs. Nerenberg and Mrs. Sabato. The loan is
prepayable at any time without penalty, and Mr. Rychel has stated his intent to
attempt to sell blocks of his shares on a private basis as soon as possible
after the Special Meeting in an effort to repay the loan as soon as possible.
Mr. Rychel has agreed that if the trading price of the Class A Common Stock
equals or exceeds $3.00 per share, the Company can purchase any of the recently
purchased Class A and Class B Common Stock from him at discounts to the
then-current market price ranging from 10-15% depending on the market price,
with a corresponding reduction of the loan balance. In connection with the
loan, Mr. Rychel has purchased a $2,000,000 term life insurance policy on his
life, with the Company as beneficiary, and has agreed to keep the policy in
effect until the loan is paid in full. The Company has agreed to indemnify Mr.
Rychel against any actions brought against him personally by any of the
Company's shareholders as a result of the loan or his use of the loan to
purchase shares as described above.
The Company borrowed the money lent to Mr. Rychel under its existing bank
facility. In doing so, the Company incurred a service charge of approximately
$10,000 imposed by the Bank in order to obtain a waiver from the usual lending
conditions prohibiting loans by the Company to its officers or directors.
DESCRIPTION OF THE CLASS A COMMON STOCK AND THE CLASS B COMMON STOCK
The rights, powers and limitations of the Class A Common Stock and the Class B
Common Stock are set forth in full in Article Second, A of the Company's
existing Articles of Incorporation. The full text of the portion of the
Articles of Incorporation related to the Company's capital structure, as
proposed to be amended, is set forth as Appendix II and incorporated herein by
reference. The following summary should be read in conjunction with Appendix
II. Presently, the rights of the Class A Common Stock and the Class B Common
Stock are substantially identical except with respect to voting, and the right
to convert the Class B Common Stock into Class A Common Stock. The shares of
Class A Common Stock are designated for quotation on the Nasdaq SmallCap Market
and are freely transferable. The Class B Common Stock have no established
trading market.
VOTING. Under the Company's Articles of Incorporation as now in effect, each
share of Class B Common Stock entitles the holder to five votes per share on
all matters, and holders of Class B Common Stock are entitled to vote
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for the election of all directors and on all other matters submitted to the
shareholders of the Company. In contrast, the Class A Common Stock entitles the
holder to one vote per share on all matters, including the election of all
directors and on all other matters submitted to the shareholders of the
Company. Like the voting rights of the holders of Class B Common Stock, the
affirmative vote of the holders of a majority of the outstanding shares of
Class A Common Stock will be required to approve all matters requiring
shareholder approval. There is no provision in the Company's Articles of
Incorporation permitting cumulative voting.
DIVIDENDS AND OTHER DISTRIBUTIONS. The shares of Class A Common Stock and Class
B Common Stock are equal in respect to dividends and other distributions.
Subject to the rights of the holders, if any, of Preferred Stock, holders of
Class A Common Stock and Class B Common Stock are entitled to receive such
dividends and other distributions in cash, in property or in shares of the
Company as may be declared by the Board of Directors from time to time out of
assets or funds of the Company legally available therefor; provided, however,
that no cash, property or share dividend or distribution may be declared or
paid on the outstanding shares of either the Class A Common Stock or Class B
Common Stock unless an identical per share dividend or distribution is
simultaneously declared and paid on the outstanding shares of the other such
class of stock; provided further, however, that a dividend of shares may be
declared and paid in Class A Common Stock to holders of Class A Common Stock
and Class B Common Stock if the number of shares paid per share to holders of
Class A Common Stock and the Holders of Class B Common Stock are the same. If
the Company in any manner subdivides, combines, or reclassifies the outstanding
shares of Class A Common Stock or Class B Common Stock, the outstanding shares
of the other such class will be subdivided, combined, or reclassified
proportionally in the same manner and on the same basis as the outstanding
shares of Class A Common Stock or Class B Common Stock, as the case may be,
have been subdivided, combined or reclassified. A dividend in shares of Class A
Common Stock may be paid to the holders of shares of any other class of the
Company. The Company has not paid or declared any dividends on either its Class
A Common Stock or its Class B Common Stock, and the Company does not expect to
pay any dividends in the foreseeable future.
LIMITED CONVERTIBILITY. Under the Articles as now in effect, the shares of
Class A Common Stock are not convertible into or exchangeable for shares of
Class B Common Stock or any other shares or securities of the Company. Each
holder of Class B Common Stock is entitled, however, at any time or from time
to time, to convert any or all of the shares of such holder's Class B Common
Stock into fully paid and non-assessable shares of Class A Common Stock for no
additional consideration, at the ratio of one share of Class A Common Stock for
each share of Class B Common Stock. Each share of Class B Common Stock may be
converted at the option of the holder or automatically upon (i) its sale, gift
or transfer, except in the case of a transfer to a trust for which the original
holder acts as sole trustee or to any other holder of Class B Common Stock;
(ii) the death of the original holder thereof, including in the case of the
original holder having transferred the Class B Common Stock to a trust for
which the original holder served as trustee during his or her lifetime; or
(iii) the conversion of an aggregate of 75% of the authorized shares of Class B
Common Stock into Class A Common Stock.
PREEMPTIVE RIGHTS. Under the Articles as now in effect, as well as immediately
after the Reclassification, the Class B Common Stock and the Class A Common
Stock do not and will not carry any preemptive rights enabling a holder to
subscribe for or receive shares of any class of stock of the Company or any
other securities convertible into shares of any class of stock of the Company.
TRANSFER AGENT AND REGISTRAR. As with the Class B Common Stock, the transfer
agent and the registrar of the Company's Class A Common Stock will be American
Stock Transfer and Trust Company.
DISSENTERS' RIGHTS AVAILABLE TO HOLDERS OF CLASS B COMMON STOCK
Shareholders of Class B Common Stock of the Company who do not vote in favor of
the Reclassification and who strictly comply with the applicable provisions of
Article 13 of the Georgia Business Corporation Code will have the right to
dissent and to seek appraisal of the fair market value of their shares if the
proposed Reclassification is approved. The following summary does not purport
to be a complete statement of the provisions of Georgia law relating to the
appraisal rights of shareholders. The summary is qualified in its entirety by
reference to the provisions of Article 13 of the Georgia Business Corporation
Code (the "GBCC") set forth in full as Appendix I to this Proxy Statement.
Holders of record of shares of Class B Common Stock of the Company who meet the
requirements summarized in this document and comply with the applicable
procedures will be entitled to appraisal rights under Article 13 of the GBCC. A
person having a beneficial interest in shares of the Company's Class B
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Common Stock held of record in the name of another person, such as a broker or
nominee, must act promptly to cause the record holder to follow the steps
summarized below properly and in a timely manner to perfect dissenters' rights.
ALL REFERENCES IN ARTICLE 13 OF THE GBCC AND IN THIS SUMMARY TO A "SHAREHOLDER"
ARE TO THE RECORD HOLDER OF THE CLASS B COMMON STOCK AS TO WHICH APPRAISAL
RIGHTS ARE ASSERTED. VOTING AGAINST, ABSTAINING FROM VOTING OR FAILING TO VOTE
ON APPROVAL AND ADOPTION OF THE RECLASSIFICATION WILL NOT CONSTITUTE A DEMAND
FOR APPRAISAL WITHIN THE MEANING OF ARTICLE 13 OF THE GBCC. Shareholders who
meet the requirements and follow the procedures set forth in Article 13 of the
GBCC may receive a cash payment equal to the "fair value" of their shares
immediately before the approval of the Reclassification, excluding any
appreciation or depreciation in anticipation of the Reclassification, plus
accrued interest.
The statutory right of appraisal granted in Article 13 is subject to strict
compliance with the procedures set forth in Article 13, and summarized below.
Failure to follow any of these procedures may result in termination or waiver
of appraisal rights under Article 13. If you wish to exercise appraisal rights,
or "dissenters' rights," you must deliver to the Company, before the vote on
the Reclassification, a written notice of your intent to demand payment for
your shares of Class B Common Stock. You must not vote in favor of the
Reclassification. A vote against approval of the Reclassification will not, by
itself, constitute a valid written demand for dissenters' rights under Article
13. The Company must provide a written dissenters' notice to each dissenting
shareholder who has complied with the procedures of Article 13 within 10 days
after shareholder approval of the Reclassification (a) stating where the demand
for payment must be sent and where and when certificates must be deposited, and
(b) setting a date by which the Company must receive the demand for payment,
which date may not be fewer than 30 nor more than 60 days after the date on
which the dissenters' notice is delivered. A shareholder must deliver a demand
for payment and deposit his or her certificates for shares of Class B Common
Stock on or prior to the payment demand date in accordance with the terms of
the dissenters' notice.
Within 10 days after receipt of the demand for payment or within 10 days after
the Reclassification is approved, whichever is later, the Company must make a
written offer to each dissenting shareholder who has filed a demand for payment
to pay an amount estimated to be the "fair value" of the shares plus accrued
interest. If the dissenting shareholder fails to respond within 30 days of the
Company's offer, the dissenting shareholder will be deemed to have accepted the
Company's offer. If the dissenting stockholder accepts the Company's offer by
written notice to the Company within 30 days of the Company's offer or is
deemed to have accepted the offer, the Company must make payment within 60 days
after it made the offer or the Reclassification was approved, whichever occurs
later.
If the dissenting shareholder does not wish to accept the Company's offer, he
or she may notify the Company, in writing, of the shareholder's own estimate of
the "fair value" of his or her shares and amount of interest due, and demand
payment, if such notice is delivered within 30 days after the Company's offer.
In addition, if the Company does not offer payment within the time period set
forth in the preceding paragraph, a dissenting shareholder may demand delivery
of certain financial information of the Company (which the Company must provide
within 10 days after receipt of such demand) and may, at any time within three
years of the approval of the Reclassification, notify the Company of the
shareholder's own estimate of the fair value of the shareholder's shares and
demand payment.
If a demand for payment remains unsettled, then the Company, within 60 days
after receipt of the demand for payment, must commence a court proceeding in
the Superior Court of Fulton County, Georgia (the "Court") to determine the
"fair value" of the shares and accrued interest. The costs and expenses of any
such action shall be determined by the Court and shall be assessed against the
Company. Notwithstanding the foregoing, all or any part of such costs and
expenses may be apportioned and assigned as the Court may deem equitable
against any and all of the dissenting shareholders who are parties to the
action and to whom the Company shall have made an offer to pay for the shares,
if the Court finds that the shareholder acted arbitrarily, vexatiously, or not
in good faith in making a demand for payment. Such expenses may include
reasonable compensation and expenses of appraisers appointed by the Court and
fees and expenses of counsel and experts employed by the Company. If the Court
finds that the Company failed to comply with legal requirements, the Court may
award to any shareholder who is a party to the proceeding such sum as the Court
may determine to be reasonable compensation to any attorneys or experts
employed by the shareholder in the action. If the Company fails to bring such
action within the 60-day period, the Company will be required to pay each
dissenter whose demand remains unsettled the amount demanded.
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Only a shareholder of record as of the date written demand is made and as of
the Effective Time of the Reclassification is entitled to assert dissenter's
rights for the Company's Class B Common Stock registered in that holder's name.
The demand for dissenters' rights should be exercised by or on behalf of the
holder of record fully and correctly, as his or her name appears on the stock
certificates. A shareholder of record may assert dissenter's rights as to fewer
than all of the shares registered in his or her name only if the record
shareholder dissents with respect to all shares beneficially owned by any one
beneficial shareholder and notifies the Company in writing of the name and
address of each person on whose behalf the record shareholder asserts
dissenter's rights. If the Company's Class B Common Stock is owned of record in
a fiduciary capacity, such as by a trustee, guardian or custodian, the
fiduciary should execute the demand in that capacity. Similarly, if the Class B
Common Stock is owned of record by more than one person, such as a joint
tenancy or tenants in common, all joint owners should execute the demand. An
authorized agent, including one or more joint owners, may execute a demand for
appraisal on behalf of a holder of record, but the agent must identify the
record owner or owners and expressly disclose the fact that, in executing the
demand, the agent is acting for the owner or owners.
If any holder of the Company's Class B Common Stock who demands dissenters'
rights with respect to his or her shares fails to perfect, or effectively
withdraws or loses the right to dissent, he or she will no longer have the
right to receive the "fair value" of the shares. Rather, such a shareholder
will be entitled only to have his or her shares of Class B Common Stock
reclassified as Class A Common Stock. A shareholder of the Company will fail to
perfect, or effectively withdraw or lose, his or her right to dissent if he or
she (i) fails to deliver to the Company a notice of intent to demand payment,
prior to the vote on the Reclassification, (ii) votes "for" approval of the
Reclassification, (iii) fails to file a demand for payment with the Company, or
(iv) delivers to the Company a written withdrawal of his or her demand for
payment. Failure to follow the steps required by Article 13 of the GBCC for
perfecting dissenters' rights will result in the loss of such rights.
Consequently, any shareholder of the Company who desires to exercise his or her
dissenters' rights is urged to consult his or her legal advisor before
attempting to exercise such rights. Shareholders who hold their shares in
brokerage accounts or other nominee forms and who wish to exercise appraisal
rights are urged to consult with their brokers to determine the appropriate
procedures for the making of a demand for appraisal by such a nominee. All
written communications from shareholders with respect to the exercise of
appraisal rights should be mailed to the attention of the Secretary of the
Company at 645 Hembree Parkway, Suite J, Roswell, Georgia 30076.
OTHER CONSIDERATIONS
EFFECT ON MARKET PRICE. The market price of shares of Class A Common Stock
after the Effective Time will depend, as before the adoption of the
Reclassification, on many factors, including, among others, the future
performance of the Company, general market conditions and conditions relating
to companies or industries similar to that of the Company. Accordingly, the
Company cannot predict the prices at which the Class A Common Stock will trade
following the Reclassification. On December ____, 1999, the closing price of
the Class A Common Stock was $_____ per share, as reported on the Nasdaq
SmallCap Market. Upon the effectiveness of the Reclassification, approximately
3,126,299 additional shares of Class A Common Stock will be issued and
outstanding.
PUBLIC TRADING MARKET. The shares of Class A Common Stock presently are, and
the Company expects that the additional shares of Class A Common Stock to be
issued in respect of the Class B Common Stock, will be quoted on the Nasdaq
SmallCap Market under the ticker symbol "TKGFA."
Previously, the Company's Class A Common Stock was quoted on the Nasdaq
National Market. However, on November 15, 1999, the Nasdaq Stock Market
("Nasdaq") transferred the listing of the Company's Class A Common Stock from
the Nasdaq National Market to the Nasdaq SmallCap Market due to the Company's
continuing inability to meet the Nasdaq National Market public float listing
requirement. The Company's formal application for the Nasdaq Small Cap Market
is currently under review by Nasdaq. If the Company's bid price fails to close
at or above $1.00 per share during the course of this review, the Company would
be placed under a 90-day exception to the bid price requirement. The Company
then would be required to reach a $1.00 per share bid price and maintain it for
10 consecutive trading days during the 90-day period. If the Company failed to
comply with the terms of this exception, the Class A Common Stock will be
delisted from the Nasdaq. The Company believes that it will be able to comply
with the Nasdaq SmallCap Market listing requirements and the Company is
considering what steps can be taken to enable it to be reconsidered for listing
on the Nasdaq National Market. No assurances can be made that the
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Company will be successful in maintaining its listing on the Nasdaq. If
delisted from the Nasdaq, the delisting could have an adverse and material
effect on the Company's stock price, the ability of the Company's shareholders
to sell their shares, and on the Company's ability to obtain additional debt
and/or equity financing.
IMPACT ON THE COMPANY'S CAPITALIZATION. The Reclassification involves no
increase in the total number of shares of common stock authorized in the
Company's Articles of Incorporation. Immediately prior to the effectiveness of
the Reclassification, 3,202,032 shares of Class A Common Stock and
3,126,299 shares of Class B Common Stock were issued and outstanding. After
the Effective Time, an aggregate of 6,328,331 million shares of Class A
Common Stock will be issued and outstanding. The interest of each shareholder
in the total equity of the Company will remain unchanged as a result of the
Reclassification.
EFFECT ON COMPENSATION PLANS. No compensation plan or stock incentive plan will
be directly affected by the Reclassification.
SECURITIES ACT OF 1933. The Company believes the Reclassification will be
treated as an exempt exchange under Section 3(a)(9) of the Securities Act.
Consequently, the Company is not required to register and has not registered
under the Securities Act the issuance of the Class A Common Stock to be issued
in the Reclassification. In addition, Rule 144 under the Securities Act allows
the public resale of securities not issued in a public offering, including the
Class A Common Stock issued in the Reclassification, subject to certain
requirements including a prescribed period of time for which the securities
must have been held before resale. The Company believes the period of time the
Class B Common Stock was held by any shareholder may be "tacked" onto or
combined with the holding period of the Class A Common Stock issued to that
shareholder in the Reclassification.
FINANCIAL INFORMATION. The Company expects that the Reclassification will have
no direct impact on its operations or financial condition. Therefore, the
Company believes that its shareholders can exercise prudent judgment in
considering the proposed Reclassification without reference to financial
information about the Company, other than information currently publicly
available. The Company has furnished its financial statements to shareholders
in its Annual Report for the year ended December 31, 1998, which was mailed to
shareholders on or about May 4, 1999. In addition, the Company has filed with
the SEC its Annual Report on Form 10-K for the year ended December 31, 1998,
and Quarterly Reports on Form 10-Q for its quarters ended March 31, June 30 and
September 30, 1999.
FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of certain of the federal income tax consequences
of the Reclassification. This discussion is based upon the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the United States
Department of the Treasury Regulations promulgated thereunder, and rulings and
court decisions as of the date hereof, all of which are subject to change,
possibly retroactively.
The discussion is included for general information purposes only. No rulings
from the Internal Revenue Service with respect to the tax consequences of the
Reclassification to the Company or its shareholders will be sought.
The reclassification and conversion by the Company of the Class B Common Stock
into Class A Common Stock will be treated as a tax-free exchange under Section
1036 of the Code and as a tax-free recapitalization under Section 368(a)(1)(E)
of the Code. As a result of such treatment, the following tax consequences will
apply:
(i) No gain or loss will be recognized for federal income tax purposes by
the Company's shareholders upon the reclassification and conversion of
their shares of Class B Common Stock as and into Class A Common Stock.
(ii) The basis for the shares reclassified as and converted into shares of
Class A Common Stock will be the same as the aggregate basis of the Class
B Common Stock held by a shareholder before the Reclassification became
effective.
(iii) The holding period of the shares reclassified as and converted into
shares of Class A Common Stock will include the periods during which the
Class B Common Stock was held by a shareholder before the Reclassification
became effective, provided such shares were held by such shareholder as a
capital asset at the time the Reclassification became effective.
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(iv) No gain or loss will be recognized for federal income tax purposes by
the Company upon the reclassification and conversion of shares of Class B
Common Stock as and into shares of Class A Common Stock.
BECAUSE CERTAIN TAX CONSEQUENCES OF THE RECLASSIFICATION MAY VARY DEPENDING
UPON THE PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER, EACH HOLDER OF THE
COMPANY'S CLASS B COMMON STOCK IS URGED TO CONSULT SUCH HOLDER'S OWN TAX
ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE
RECLASSIFICATION (INCLUDING THE APPLICATION AND EFFECT OF FOREIGN, STATE AND
LOCAL INCOME AND OTHER TAX LAWS).
VOTE REQUIRED FOR APPROVAL OF RECLASSIFICATION
Approval of the Reclassification will require the affirmative vote of the
holders of the majority of the shares of (i) both Class A Common Stock and
Class B Common Stock, voting together, (ii) Class B Common Stock voting as a
separate voting group, and (iii) Class A Common Stock voting as a separate
voting group. There is no cumulative voting of shares. Abstentions and broker
non-votes will be counted as votes "against" a proposal. Shareholders' votes
will be tabulated by the persons appointed by the Chairman of the Special
Meeting to act as inspectors of election for the Special Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 1. THE BOARD OF
DIRECTORS CONSIDERS THE RECLASSIFICATION TO BE IN THE BEST INTERESTS OF THE
COMPANY AND ALL OF ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE TO
APPROVE THE RECLASSIFICATION.
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
The Company provides all shareholders with the opportunity, under certain
circumstances, to participate in the governance of the Company by submitting
proposals that they believe merit consideration at the next Annual Meeting of
Shareholders, which currently is expected to be held in May 2000. To enable
management to analyze and respond adequately to proposals and to prepare
appropriate proposals for presentation in the Company's Proxy Statement for the
next Annual Meeting of shareholders, shareholders must submit such proposals in
advance to the Company, to the attention of its Secretary, at the Company's
principal place of business in 645 Hembree Parkway, Suite J, Roswell, Georgia,
30076. Any shareholder proposals intended to be presented at our 2000 annual
meeting of shareholders must be received by us on or before January 4, 2000 to
be eligible to be included in the proxy statement and form of proxy to be
distributed by the Board of Directors for that meeting. Any shareholder
proposals intended to be presented from the floor at our 2000 annual meeting of
shareholders must be received by us no later than March 20, 2000.
AVAILABLE INFORMATION
It is the Company's belief that its financial statements and other financial
information are not material to the shareholders' exercise of prudent judgment
in regard to the Reclassification and accordingly are not included with this
Proxy Statement. Nevertheless, the Company is subject to the informational
requirements of the Exchange Act and, in accordance therewith, is required
periodically to file reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the Public Reference Section of the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of the reports, proxy statements and other
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information can be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549, at prescribed rates. The Commission
maintains a World Wide Web site on the Internet at http://www.sec.gov that
contains reports, proxies, information statements, and registration statements
and other information filed with the Commission through the EDGAR system. The
Class A Common Stock of the Company and the Warrants are traded on the Nasdaq
SmallCap Market (Symbols: TKGFA and TKGFW, respectively), and such reports,
proxy statements and other information concerning the Company also can be
inspected at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington,
D.C. 20006.
OTHER MATTERS
The Board of Directors does not know of any other matters to be presented for
action by the shareholders at the Special Meeting. If, however, any other
matters not now known are properly brought before the Special Meeting, the
persons named in the accompanying proxy card will vote such proxy on such
matters as determined by a majority of the Board of Directors.
BY ORDER OF THE BOARD OF DIRECTORS
WILLIAM M. RYCHEL
Interim Chief Executive Officer
Roswell, Georgia
December ____, 1999
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APPENDIX I
ARTICLE 13, TITLE 14-GEORGIA BUSINESS CORPORATIONS CODE
TITLE 14, CHAPTER 2 BUSINESS CORPORATIONS STATE OF GEORGIA, ARTICLE 13
DISSENTERS' RIGHTS
PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
14-2-1301. DEFINITIONS.
As used in this article, the term:
(1) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporate action" means the transaction or other action by the corporation
that creates dissenters' rights under Code Section 14-2-1302.
(3) "Corporation" means the issuer of shares held by a dissenter before the
corporate action, or the surviving or acquiring corporation by merger or share
exchange of that issuer.
(4) "Dissenter" means a shareholder who is entitled to dissent from corporate
action under Code Section 14-2-1302 and who exercises that right when and in
the manner required by Code Sections 14-2-1320 through 14-2-1327.
(5) "Fair value," with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which the
dissenter objects, excluding any appreciation or depreciation in anticipation
of the corporate action.
(6) "Interest" means interest from the effective date of the corporate action
until the date of payment, at a rate that is fair and equitable under all the
circumstances.
(7) "Record shareholder" means the person in whose name shares are registered
in the records of a corporation or the beneficial owner of shares to the extent
of the rights granted by a nominee certificate on file with a corporation.
(8) "Shareholder" means the record shareholder or the beneficial shareholder.
14-2-1302. RIGHT TO DISSENT.
(a) A record shareholder of the corporation is entitled to dissent from, and
obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a party:
(A) If approval of the shareholders of the corporation is required for
the merger by Code Section 14-2-1103 or 14-2-1104 or the articles of
incorporation and the shareholder is entitled to vote on the merger;
or
(B) If the corporation is a subsidiary that is merged with its parent
under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially all of the
property of the corporation if a shareholder vote is required on the sale or
exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant
to court order or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed to the
shareholders within one year after the date of sale;
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(4) An amendment of the articles of incorporation that materially and adversely
affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the shares
to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any matter,
or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights;
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be
acquired for cash under Code Section 14-2-604; or
(F) Cancels, redeems, or repurchases all or part of the shares of the
class; or
(5) Any corporate action taken pursuant to a shareholder vote to the extent
that Article 9 of this chapter, the articles of incorporation, bylaws, or a
resolution of the board of directors provides that voting or nonvoting
shareholders are entitled to dissent and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares under
this article may not challenge the corporate action creating his entitlement
unless the corporate action fails to comply with procedural requirements of
this chapter or the articles of incorporation or bylaws of the corporation or
the vote required to obtain approval of the corporate action was obtained by
fraudulent and deceptive means, regardless of whether the shareholder has
exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall be no
right of dissent in favor of the holder of shares of any class or series which,
at the record date fixed to determine the shareholders entitled to receive
notice of and to vote at a meeting at which a plan of merger or share exchange
or a sale or exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national securities
exchange or held of record by more than 2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the holders of
shares of the class or series are required under the plan of merger or
share exchange to accept for their shares anything except shares of
the surviving corporation or another publicly held corporation which
at the effective date of the merger or share exchange are either
listed on a national securities exchange or held of record by more
than 2,000 shareholders, except for scrip or cash payments in lieu of
fractional shares; or
(2) The articles of incorporation or a resolution of the board of
directors approving the transaction provides otherwise.
14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf
he asserts dissenters' rights. The rights of a partial dissenter under this
Code section are determined as if the shares as to which he dissents and his
other shares were registered in the names of different shareholders.
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
14-2-1320. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under Code Section
14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters'
rights under this article and be accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under Code Section
14-2-1302 is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that the
action
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was taken and send them the dissenters' notice described in Code Section
14-2-1322 no later than ten days after the corporate action was taken.
14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under Code Section
14-2-1302 is submitted to a vote at a shareholders' meeting, a record
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of subsection
(a) of this Code section is not entitled to payment for his shares under this
article.
14-2-1322. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under Code Section
14-2-1302 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten days after the
corporate action was taken and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60 days
after the date the notice required in subsection (a) of this Code
section is delivered; and
(4) Be accompanied by a copy of this article.
14-2-1323. DUTY TO DEMAND PAYMENT.
(a) A record shareholder sent a dissenters' notice described in Code Section
14-2-1322 must demand payment and deposit his certificates in accordance with
the terms of the notice.
(b) A record shareholder who demands payment and deposits his shares under
subsection (a) of this Code section retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(c) A record shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
14-2-1324. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares from the
date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under Code Section 14-2-1326.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
canceled or modified by the taking of the proposed corporate action.
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14-2-1325. OFFER OF PAYMENT.
(a) Except as provided in Code Section 14-2-1327, within ten days of the later
of the date the proposed corporate action is taken or receipt of a payment
demand, the corporation shall by notice to each dissenter who complied with
Code Section 14-2-1323 offer to pay to such dissenter the amount the
corporation estimates to be the fair value of his or her shares, plus accrued
interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, an income
statement for that year, a statement of changes in shareholders'
equity for that year, and the latest available interim financial
statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Code
Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written notice to the
corporation within 30 days after the corporation's offer or is deemed to have
accepted such offer by failure to respond within said 30 days, payment for his
or her shares shall be made within 60 days after the making of the offer or the
taking of the proposed corporate action, whichever is later.
14-2-1326. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within 60 days after
the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Code Section 14-2-1322 and repeat the payment demand
procedure.
14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment of
his estimate of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under Code Section
14-2-1325 is less than the fair value of his shares or that the
interest due is incorrectly calculated; or
(2) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within 60 days after the
date set for demanding payment.
(b) A dissenter waives his or her right to demand payment under this Code
section and is deemed to have accepted the corporation's offer unless he or she
notifies the corporation of his or her demand in writing under subsection (a)
of this Code section within 30 days after the corporation offered payment for
his or her shares, as provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the time set forth in
subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under
subsection (b) of Code Section 14-2-1325, and the corporation shall
provide the information to the shareholder within ten days after
receipt of a written demand for the information; and
(2) The shareholder may at any time, subject to the limitations period
of Code Section 14-2-1332, notify the corporation of his own estimate
of the fair value of his shares and the amount of interest due and
demand payment of his estimate of the fair value of his shares and
interest due.
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PART 3. JUDICIAL APPRAISAL OF SHARES
14-2-1330. COURT ACTION.
(a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the
corporation shall commence a proceeding within 60 days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding
within the 60 day period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a nonjury
equitable valuation proceeding, in the superior court of the county where a
corporation's registered office is located. If the surviving corporation is a
foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered office
of the domestic corporation merged with or whose shares were acquired by the
foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of this
state, whose demands remain unsettled parties to the proceeding, which shall
have the effect of an action quasi in rem against their shares. The corporation
shall serve a copy of the petition in the proceeding upon each dissenting
shareholder who is a resident of this state in the manner provided by law for
the service of a summons and complaint, and upon each nonresident dissenting
shareholder either by registered or certified mail or by publication, or in any
other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) of this Code section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them or in any amendment to it. Except as
otherwise provided in this chapter, Chapter 11 of Title 9, known as the
"Georgia Civil Practice Act," applies to any proceeding with respect to
dissenters' rights under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to judgment for
the amount which the court finds to be the fair value of his shares, plus
interest to the date of judgment.
14-2-1331. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Code Section 14-2-1330
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, but not
including fees and expenses of attorneys and experts for the respective
parties. The court shall assess the costs against the corporation, except that
the court may assess the costs against all or some of the dissenters, in
amounts the court finds equitable, to the extent the court finds the dissenters
acted arbitrarily, vexatiously, or not in good faith in demanding payment under
Code Section 14-2-1327.
(b) The court may also assess the fees and expenses of attorneys and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of Code Sections 14-2-1320 through 14-2-1327; or
(2) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in
good faith with respect to the rights provided by this article.
(c) If the court finds that the services of attorneys for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court
may award to these attorneys reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
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14-2-1332. LIMITATION OF ACTIONS.
No action by any dissenter to enforce dissenters' rights shall be brought more
than three years after the corporate action was taken, regardless of whether
notice of the corporate action and of the right to dissent was given by the
corporation in compliance with the provisions of Code Section 14-2-1320 and
Code Section 14-2-1322.
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APPENDIX II
PROPOSED ARTICLE SECOND OF
THE ARTICLES OF INCORPORATION
OF TEKGRAF, INC.
SECOND. The total number of shares of capital stock which the
Corporation shall have authority to issue is Forty Million (40,000,000) shares,
consisting of (i) Thirty-Five Million (35,000,000) shares of Class A Common
Stock, $.001 par value per share (the "Class A Common Stock") and (ii) Five
Million (5,000,000) shares of Preferred Stock, $.001 par value per share (the
"Preferred Stock").
The designations and powers, preferences and rights, and the
qualifications, limitations on restrictions thereof, of the capital stock shall
be as follows:
A. Class A Common Stock
(1) Voting Rights.
(a) At each meeting of shareholders of the Corporation
and upon each proposal presented at such meeting, every holder of
Class A Common Stock shall be entitled to one vote in person or by
proxy for each share of Class A Common Stock standing in his or her
name on the stock transfer records of the Corporation.
(b) The number of authorized shares of Class A Common
Stock may be increased or decreased (but not below the number of
shares of such class then outstanding) by the affirmative vote of the
holders of a majority of the Class A Common Stock of the Corporation
entitled to vote.
(c) Except as may be otherwise required by law or stated
in any Preferred Stock Designation (as defined in Section (B) of this
ARTICLE SECOND), the holders of Class A Common Stock shall have the
exclusive right to vote for the election of directors and for all
other purposes, each holder of the Class A Common Stock being entitled
to vote as provided in this Paragraph (1).
(2) Dividends and Distributions. Subject to the rights of the
holders of Preferred Stock, and subject to any other provisions of
these Articles of Incorporation, as they may be amended from time to
time, holders of Class A Common Stock shall be entitled to receive
such dividends and other distributions in cash, in property or in
shares of the Corporation as may be declared thereon by the Board of
Directors from time to time out of assets or funds of the Corporation
legally available therefor. A dividend in shares of Class A Common
Stock may be paid to the holders of shares of any other class of the
Corporation.
(3) Common Stock Subject to Priorities of Preferred Stock. The
Class A Common Stock are subject to all the powers, rights,
privileges, preferences and priorities of the Preferred Stock as may
be stated in these Articles of Incorporation and in any Preferred
Stock Designation.
(4) Liquidation Rights. Upon liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, and after the
holders, if any, of the Preferred Stock of each series shall have been
paid in full the amounts to which they respectively shall be entitled,
or a sum sufficient for such payment in full shall have been set
aside, the remaining net assets of the Corporation shall be
distributed pro rata on a share for share basis to the holders of the
Class A Common Stock, subject to any Preferred Stock Designation.
B. Preferred Stock
The Preferred Stock may be issued from time to time in one or
more series. The Board of Directors of the Corporation is hereby
expressly authorized to provide, by resolution or resolutions duly
adopted by it prior to issuance, for the creation of each such series
and to fix the designation and the powers, preferences, rights,
qualifications, limitations and restrictions relating to the shares of
each such series (the "Preferred Stock
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Designation"). The authority of the Board of Directors with respect to each
series of Preferred Stock shall include, but not be limited to, determining the
following:
(1) the designation of such series, the number of shares to constitute
such series and the stated value if different from the par value thereof;
(2) whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of such
voting rights, which may be general or limited;
(3) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and, if so, from what dates, the conditions and
dates upon which such dividends shall be payable, and the preference or
relation which such dividends shall bear to the dividends payable on any shares
of stock of any other class or any other series of Preferred Stock;
(4) whether the shares of such series shall be subject to redemption
by the Corporation, and, if so, the times, prices and other conditions of such
redemption;
(5) the amount or amounts payable upon shares of such series upon, and
the rights of the holders of such series in, the voluntary or involuntary
liquidation, dissolution or winding up, or upon any distribution of the assets,
of the Corporation;
(6) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and the
manner in which any such retirement or sinking fund shall be applied to the
purchase or redemption of the shares of such series for retirement or other
corporate purposes and the terms and provisions relating to the operation
thereof;
(7) whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other series of
Preferred Stock or any other securities and, if so, the price or prices or the
rate or rates of conversion or exchange and the method, if any, of adjusting
the same, and any other terms and conditions of conversion or exchange;
(8) the limitations and restrictions, if any, to be effective while
any shares of such series are outstanding upon the payment of dividends or the
making of other distributions on, and upon the purchase, redemption or other
acquisition by the Corporation of, the Common Stock or shares of stock of any
other class or any other series of Preferred Stock;
(9) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such series or of any other series of Preferred
Stock or of any other class; and
(10) any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications, limitations and
restrictions, thereof.
The powers, preferences and relative, participating, optional and other special
rights of each series of Preferred Stock, and the qualification, limitations or
restrictions thereof, if any, may differ from those of any and all other series
at any time outstanding. All shares of any one series of Preferred Stock shall
be identical in all respects with all other shares of such series, except that
shares of any one series issued at different times may differ as to the dates
from which dividends thereof shall be cumulative.
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APPENDIX II
MARKED TO SHOW PROPOSED CHANGES
PROPOSED ARTICLE SECOND OF
THE ARTICLES OF INCORPORATION
OF TEKGRAF, INC.
SECOND. The total number of shares of capital stock which the
Corporation shall have authority to issue is Forty Million (40,000,000) shares,
consisting of (i) Thirty-Five Million (35,000,000) shares of Class A Common
Stock, $.001 par value per share (the "Class A Common Stock") and (ii) Five
Million (5,000,000) shares of Preferred Stock, $.001 par value per share (the
"Preferred Stock").
The designations and powers, preferences and rights, and the
qualifications, limitations on restrictions thereof, of the capital stock shall
be as follows:
A. Class A Common Stock
(1) Voting Rights.
(a) At each meeting of shareholders of the Corporation and
upon each proposal presented at such meeting, every holder of Class A Common
Stock shall be entitled to one vote in person or by proxy for each share of
Class A Common Stock standing in his or her name on the stock transfer records
of the Corporation.
(b) The number of authorized shares of Class A Common Stock
may be increased or decreased (but not below the number of shares of such class
then outstanding) by the affirmative vote of the holders of a majority of the
Class A Common Stock of the Corporation entitled to vote.
(c) Except as may be otherwise required by law or stated in
any Preferred Stock Designation (as defined in Section (B) of this ARTICLE
SECOND), the holders of Class A Common Stock shall have the exclusive right to
vote for the election of directors and for all other purposes, each holder of
the Class A Common Stock being entitled to vote as provided in this Paragraph
(1).
(2) Dividends and Distributions. Subject to the rights of the
holders of Preferred Stock, and subject to any other provisions of these
Articles of Incorporation, as they may be amended from time to time, holders of
Class A Common Stock shall be entitled to receive such dividends and other
distributions in cash, in property or in shares of the Corporation as may be
declared thereon by the Board of Directors from time to time out of assets or
funds of the Corporation legally available therefor;
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A dividend in shares of Class A Common Stock may be paid to the holders of
shares of any other class of the Corporation.
(3) Common Stock Subject to Priorities of Preferred Stock. The
Class A Common Stock are subject to all the powers, rights, privileges,
preferences and priorities of the Preferred Stock as may be stated in these
Articles of Incorporation and in any Preferred Stock Designation.
(4) Liquidation Rights. Upon liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, and after the holders, if
any, of the Preferred Stock of each series shall have been paid in full the
amounts to which they respectively shall be entitled, or a sum sufficient for
such payment in full shall have been set aside, the remaining net assets of the
Corporation shall be distributed pro rata on a share for share basis to the
holders of the Class A Common Stock, subject to any Preferred Stock
Designation.
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B. Preferred Stock
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors of the Corporation is hereby expressly
authorized to provide, by resolution or resolutions duly adopted by it prior to
issuance, for the creation of each such series and to fix the designation and
the powers, preferences, rights, qualifications, limitations and restrictions
relating to the shares of each such series (the "Preferred Stock Designation").
The authority of the Board of Directors with respect to each series of
Preferred Stock shall include, but not be limited to, determining the
following:
(1) the designation of such series, the number of shares to constitute
such series and the stated value if different from the par value thereof;
(2) whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of such
voting rights, which may be general or limited;
(3) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and, if so, from what dates, the conditions and
dates upon which such dividends shall be payable, and the preference or
relation which such dividends shall bear to the dividends payable on any shares
of stock of any other class or any other series of Preferred Stock;
(4) whether the shares of such series shall be subject to redemption
by the Corporation, and, if so, the times, prices and other conditions of such
redemption;
(5) the amount or amounts payable upon shares of such series upon, and
the rights of the holders of such series in, the voluntary or involuntary
liquidation, dissolution or winding up, or upon any distribution of the assets,
of the Corporation;
(6) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and the
manner in which any such retirement or sinking fund shall be applied to the
purchase or redemption of the shares of such series for retirement or other
corporate purposes and the terms and provisions relating to the operation
thereof;
(7) whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other series of
Preferred Stock or any other securities and, if so, the price or prices or the
rate or rates of conversion or exchange and the method, if any, of adjusting
the same, and any other terms and conditions of conversion or exchange;
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<PAGE> 31
(8) the limitations and restrictions, if any, to be effective while
any shares of such series are outstanding upon the payment of dividends or the
making of other distributions on, and upon the purchase, redemption or other
acquisition by the Corporation of, the Common Stock or shares of stock of any
other class or any other series of Preferred Stock;
(9) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such series or of any other series of Preferred
Stock or of any other class; and
(10) any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications, limitations and
restrictions, thereof.
The powers, preferences and relative, participating, optional and other special
rights of each series of Preferred Stock, and the qualification, limitations or
restrictions thereof, if any, may differ from those of any and all other series
at any time outstanding. All shares of any one series of Preferred Stock shall
be identical in all respects with all other shares of such series, except that
shares of any one series issued at different times may differ as to the dates
from which dividends thereof shall be cumulative.
29
<PAGE> 32
PROXY SOLICITED FOR SPECIAL MEETING
OF SHAREHOLDERS OF
TEKGRAF, INC.
TO BE HELD [FRIDAY, JANUARY 21], 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby constitutes and appoints William M. Rychel and W.
Jeffrey Camp and each or either of them, the true and lawful agents and proxies
of the undersigned with full power of substitution in each, to represent and
vote, as indicated on the reverse, all of the shares of Class A Common Stock
and Class B Common Stock of Tekgraf, Inc. ("Tekgraf") that the undersigned
would be entitled to vote at a Special Meeting of Shareholders of Tekgraf, to
be held on [FRIDAY, JANUARY 21], 2000 at [THE CROWNE PLAZA ATLANTA AIRPORT
HOTEL LOCATED AT 1325 VIRGINIA AVENUE, ATLANTA, GEORGIA 30344], at [10:00 A.M.]
local time, and at any adjournment thereof, upon the matters described in the
accompanying Notice of Special Meeting of Shareholders and Proxy Statement for
the Special Meeting of Shareholders, receipt of which is acknowledged, and upon
any other business that may properly come before the meeting or any adjournment
thereof. Said proxies are directed to vote on the matters described in the
Notice of Special Meeting of Shareholders and Proxy Statement for the Special
Meeting of Shareholders as follows, and otherwise in their discretion upon such
other business as may properly come before the meeting or any adjournment
thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED: (I) "FOR" PROPOSAL 1 TO RECLASSIFY ALL ISSUED AND OUTSTANDING CLASS B
COMMON STOCK INTO CLASS A COMMON STOCK ON A ONE-FOR-ONE BASIS, AND TO AMEND THE
ARTICLES OF INCORPORATION TO ELIMINATE THE AUTHORITY IN THE ARTICLES OF
INCORPORATION TO ISSUE CLASS B COMMON STOCK IN THE FUTURE AND TO MAKE CERTAIN
RELATED TECHNICAL AMENDMENTS; AND (II) AS THE PROXY HOLDER MAY DETERMINE IN HIS
DISCRETION WITH REGARD TO ANY OTHER MATTER PROPERLY BROUGHT BEFORE THE SPECIAL
MEETING.
PLEASE MARK, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
1. PROPOSAL to reclassify all issued and outstanding Class B Common Stock
into Class A Common Stock on a one-for-one basis, and to amend
Tekgraf's Articles of Incorporation to eliminate the authority in the
Articles of Incorporation to issue Class B Common Stock in the future
and to make certain related technical amendments.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. IN THEIR DISCRETION, to act upon such other business as may properly
come before the meeting or any adjournment thereof.
Dated: , 1999
----------------
- -------------------------- ------------------------------------
Number of Shares Signature of Shareholder(s)
of Class A Common Stock
- -------------------------- ------------------------------------
Number of Shares Signature of Shareholder(s)
of Class B Common Stock
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<PAGE> 33
Note: Please sign exactly as name or names
appear hereon. Where more than one owner is
shown on a stock certificate, each owner
should sign. Persons signing in a fiduciary
or representative capacity shall give full
title. If a corporation, please sign in
full corporate name by authorized officer.
If a partnership, please sign in
partnership name by authorized person.
PLEASE MARK, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
31
