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 [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as Permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Solicitation Material Pursuant to Rule 14a-11(c) or rule 14a-12
WCM CAPITAL, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[x] 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: Common
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): $ per
share*
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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WCM CAPITAL, INC.
76 Beaver Street
Suite 500
New York, NY 10005-3402
Telephone (212) 344-2828
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held Friday, November 5, 1999
An Annual Meeting of Stockholders of WCM Capital, Inc., a Delaware
corporation (the "Company") will be held at the Holiday Inn, 304 Rte. 22 West,
Springfield, N.J. 07081 on November 5, 1999 at 5:30 p.m., for the following
purposes:
(1) To elect five directors for a term expiring at the 2000 Annual Meeting
of Stockholders or until their respective successors have been duly elected and
qualified;
(2) To approve the appointment of Lazar Levine & Felix LLP as independent
auditors for the Company for fiscal year ended December 31, 1999; and
(3) To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only holders of the Company's common stock, par value $0.01 per share (the
"Common Stock"), of record on September 15, 1999 are entitled to notice of, and
to vote at, the meeting or any adjournment thereof. At September 15, 1999, the
record date for determination of stockholders entitled to vote at the meeting or
any adjournments thereof, 3,991,107 shares of Common Stock were issued and
outstanding.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
FILL OUT, SIGN AND MAIL PROMPTLY THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE. PROXIES FORWARDED BY OR FOR BROKERS OR FIDUCIARIES SHOULD BE RETURNED
AS REQUESTED BY THEM. THE PROMPT RETURN OF PROXIES WILL SAVE THE EXPENSE
INVOLVED IN FURTHER COMMUNICATION.
By Order of the Board of Directors,
/s/ Richard Brannon
New York, New York
October 8th, 1999 /s/ Richard Brannon
Richard Brannon, Secretary
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WCM CAPITAL, INC.
(Formerly, Franklin Consolidated Mining Co., Inc.)
-----------------------
ANNUAL MEETING OF STOCKHOLDERS
Friday, November 5, 1999
------------------------
PROXY STATEMENT
------------------------
GENERAL INFORMATION
This Proxy Statement (the "Proxy Statement") is furnished in connection with the
solicitation of proxies by the Board of Directors of WCM Capital, Inc., a
Delaware corporation (the "Company"), for use at the Annual Meeting of
Stockholders of the Company to be held on Friday, November 5, 1999, or any and
all adjournments thereof, with respect to the following matters:
(1) To elect five directors for a term expiring at the 2000 Annual Meeting
of Stockholders or until their respective successors have been duly elected and
qualified (the "Election of Directors");
(2) To approve the appointment of Lazar Levine & Felix LLP as independent
auditors for the Company for fiscal year ended December 31, 1999; and
(3) To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Annual Meeting (the "Meeting") will be held on November 5, 1999 at 5:30 p.m.
at the Holiday Inn, 304 Rte. 22 West, Springfield, N.J. 07081. The Notice of
Annual Meeting, Proxy Statement, Proxy Card, and the Annual Report will be
mailed on or about October 8, 1999 to stockholders of record of the Company as
of September 15, 1999.
If the enclosed proxy card is properly executed and returned in time to be
voted at the meeting, the shares of Common Stock represented will be voted in
accordance with the instructions contained therein. Executed proxies that
contain no instructions will be voted in favor of all of the proposals set forth
above.
If the Annual Meeting is postponed or adjourned for any reason, at any
subsequent reconvening of the Annual Meeting all proxies will be voted in the
same manner as such proxies would have been voted at the original convening of
the Annual Meeting (except for proxies which have theretofore effectively been
revoked or withdrawn), notwithstanding that they may have been effectively voted
on the same or any other matter at a previous meeting.
VOTE REQUIRED FOR APPROVAL; SHARES ENTITLED TO VOTE; RECORD DATE
The presence at the Annual Meeting, whether in person or by proxy, of the
holders of at least a majority of the outstanding shares of Voting Stock
entitled to vote thereat constitutes a quorum for the transaction of business.
For purposes of the quorum and the discussion below regarding the votes
necessary to take stockholder action, Stockholders of record who are present at
the meeting in person or by proxy and who abstain, including brokers holding
customers' shares of record who cause abstentions to be recorded at the meeting,
are considered Stockholders who are present and entitled to vote and they count
toward the quorum.
Brokers holding shares of record for customers generally are not entitled
to vote on certain matters unless they receive voting instructions from their
customers. As used herein, "uninstructed shares" means shares held by a broker
who has not received instructions from its customers on such matters and the
broker has so notified the Company on a proxy form in accordance with industry
practice or has otherwise advised
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the Company that it lacks voting authority. As used herein, "broker non-votes,"
means the votes that could have been cast on the matter in question by brokers
with respect to uninstructed shares if the brokers had received their customers'
instructions.
Election of Directors. Directors are elected by a plurality vote and the
five nominees who receive the most votes will be elected. In the election of
Directors, votes may be cast in favor of or withheld with respect to each
nominee. Abstentions and broker non-votes will not be taken into account in
determining the outcome of the election.
Approval of Auditor. To be approved, this matter must receive the
affirmative vote of the majority of the shares present or by proxy at the Annual
Meeting and entitled to vote. Uninstructed shares are entitled to vote on this
matter. Therefore, abstentions and broker non-votes have the effect of negative
votes.
On September 15, 1999 (the "Record Date"), there were outstanding 3,991,107
shares of Common Stock. Only holders of record of Common Stock at the close of
business on the Record Date will be entitled to notice of, and to vote at, the
Annual Meeting. Each share of Common Stock is entitled to one vote for each
director to be elected and upon all other matters to be brought to a vote by the
Stockholders at the forthcoming Annual Meeting.
Commencing 11 days prior to the date of the Annual Meeting, a complete
record of the stockholders entitled to vote at the Annual Meeting, or any
adjournment thereof, shall be available for inspection at the Company's
executive office during normal business hours by any stockholder for any purpose
germane to the Annual Meeting. This record will also be available to
stockholders for such purposes at the place of and during the Annual Meeting
The Company's executive offices are currently located at 76 Beaver Street,
Suite 500, New York, New York 10005.
REVOCABILITY OF PROXIES
Stockholders who execute proxies for the Annual Meeting may revoke their
proxies at any time prior to their exercise, by delivering written notice of
revocation to the Company at the address on the Notice of Annual Meeting, by
delivering a duly executed proxy bearing a later date, or by attending the
Annual Meeting and voting in person.
BOARD OF DIRECTORS PROXY SOLICITATION
The costs of soliciting the proxies and of the meeting, including the costs
of preparing and mailing this Proxy Statement and other material, will be borne
by the Company. In addition to solicitation by mail, certain directors,
officers, and regular employees of the Company may, without additional
compensation, solicit proxies by telephone, personal interview, or facsimile
transmission to encourage stockholder participation in the voting process. The
Company also will request banks, brokers and others who hold shares in the
Company in nominee names to distribute proxy soliciting material to beneficial
owners, and will reimburse such banks and brokers for reasonable out-of-pocket
expenses which they may incur in so doing.
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ELECTION OF DIRECTORS
Item 1 on Proxy Card
The Board of Directors has fixed the number of directors constituting the
whole Board as five and has selected the following nominees for election to a
term expiring at the 2000 Annual Meeting or until their successors have been
elected and qualified:
William C. Martucci
Robert Waligunda
William H. Wishinsky
Casey Myhre
John R. Bruno
Unless authority to vote for directors is withheld in the proxy, the
persons named in the accompanying proxy intend to vote for the election of the
five nominees listed above.
All nominees have indicated a willingness to serve as directors, but if any
of them should decline or be unable to act as a director, the persons named in
the proxy will vote for the election of another person or persons as the Board
of Directors recommends. Of all of the nominees for director, only Messrs.
Waligunda and Martucci previously were elected by the stockholders at the last
Annual Meeting of Stockholders held in October 1998. There are no family
relationships between the nominees for the Board of Directors.
The following biographical information is furnished with respect to each of
the five nominees for election at the Annual Meeting.
WILLIAM C. MARTUCCI, Director, age 57. Mr. Martucci has been a Director of the
Company since October 28, 1998. From 1974 to the present, Mr. Martucci has
served as president and chairman of United Grocers Clearing House, Inc., a
privately held company he founded to serve the coupon redemption, fulfillment
and promotional needs of manufacturers and retailers. Additionally, Mr. Martucci
is the sole shareholder, director, and president of US Mining, Inc., the
Company's principal creditor. Mr. Martucci received a Bachelor of Science in
Philosophy from Florida International University in 1973.
ROBERT L. WALIGUNDA, Director, President and Treasurer, age 52. Mr. Waligunda
has served as a Director of the Company since 1985 and Treasurer of the Company
since August 1995. He is a member of the Audit Committee of the Board of
Directors. He was Secretary from August 1995 to October 1998 From 1965 to the
present, Mr. Waligunda has served as founder, President and principal
stockholder of Sky Promotions, Inc., a Pittstown, New Jersey marketing and
management company involved in sales, advertising and marketing of hot air
balloons and inflatable products. He is the founder and director of
International Professional Balloon Pilots Racing Association, a member of the
advisory board of Aerostar International, Inc., the world's oldest and largest
balloon manufacturing company, and a member of the National Aeronautic
Association, the Experimental Aircraft Association, and the Airplane Owner and
Pilots Association. Mr. Waligunda received a Masters of Science degree in
guidance and psychological services from Springfield College in 1968.
WILLIAM H. WISHINSKY, Director, age 35. Mr. Wishinsky has been a Director of the
Company and a member of the Audit Committee of the Board of Directors since
October 4, 1999. Since 1990, Mr. Wishinsky has been the owner of William H.
Wishinsky, CPA, P.C., an accounting firm. From 1988 until 1990, he was an
accountant at Friedman, Alpren & Green, CPA's in New York City. Mr. Wishinsky
graduated from Pace University in New York and received a B.B.A. in Accounting
in June 1986. He became a certified public accountant in 1990.
CASEY MYHRE, Director, age 34. Mr. Myhre has been a Director of the Company and
a member of
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the Audit Committee of the Board of Directors since October 4, 1999. Since early
1999, Mr. Myhre has been manager of Kimball International, a furniture
manufacturing company. For the four years prior to his being promoted to
management he worked for Kimball International as a salesman. Mr. Myhre attended
Minnesota School of Business and graduated in 1987.
JOHN R. BRUNO, age 73. Mr. Bruno has been a Director of the Company since
September 30, 1999. Since 1996, Mr. Bruno has been the president and founder of
The Bruno Group, a division of the Keyes Martin Company, New Jersey public
relations, and funding consultant. In October 1996, Bruno Associates merged with
The Keyes Martin Company, a New Jersey advertising and marketing/public
relations firm. The merger resulted in Keyes Martin, The Bruno Group, creating
one of the largest multi-talented groups of funding and marketing/public
relations specialists in the State of New Jersey. From 1967 to 1997, John R.
Bruno was President and Chief Executive Officer of Bruno Associates Inc. a
public relations and funding company.
The Board of Directors met by phone five times during 1998. None of the
directors attended less than 75% of the meetings of the Board. The Board of
Directors established an Audit Committee that currently is comprised of Messrs
Waligunda, Wishinsky, and Myhre. Messrs. Wishinsky and Myhre were appointed to
the Committee in September 1999 and replace Ronald Ginsberg (who resigned on May
27, 1999) and Robert W. Singer (who resigned on October 4, 1999). The Audit
Committee did not meet during 1998. The Board of Directors will appoint new
members to the Audit Committee at its annual meeting, immediately following the
Annual Meeting of Stockholders. The Audit Committee's function includes
recommending annually to the Board of Directors a firm of independent auditors
to audit and review the Company's books, records and the scope of such firm's
audit, reviewing reports and recommendations of the Company's independent
auditors, reviewing the scope of all internal audits and reports and
recommendations in connection therewith and review non-audit services provided
by the Company's principal independent auditors.
EXECUTIVE OFFICERS
The executive officers of the Company are appointed annually by the Board of
Directors and, to date, have served an indefinite term. The current officers
serve on a part-time basis. No family relationship exists between any of the
executive officers of the Company.
Name Age Position
Robert L. Waligunda 53 President, Treasurer and Director
Richard Brannon 49 Vice President - West Coast
Operations and Secretary
Mr. Waligunda's biographical information is set forth above.
RICHARD BRANNON has served as the Vice President-West Coast Operations since
February 1996 and Secretary of the Company since October 1998. Mr. Brannon is a
California licensed real estate broker and 100% owner of A Reel Mortgage, Inc.,
a mortgage and loan servicing company organized in 1991. Mr. Brannon is a
founding director of the California Trustee Mortgage Broker Association, a
not-for-profit corporation.
BENEFICIAL OWNERSHIP OF COMMON STOCK
Directors, Executive Officers and Principal Stockholders
The following table lists the beneficial ownership of shares of the
Company's Common Stock as of September 15, 1999 for (a) each director, (b) each
nominee for director (c) each executive officer, (d) each person who is known by
the Company to be the beneficial owner of five percent or more of the
outstanding shares of Common Stock and (e) all directors and executive officers
as a group.
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Name and Amount and
Address of Nature of
Beneficial Beneficial Percentage
Owner Ownership of Class
- ---------- ---------- ----------
J. Terry Anderson (1) 29,661(2) *
Robert L. Waligunda (3)(4) 7,700(5) *
George E. Otten(1)(3) -0- -0-
William C. Martucci (3) -0-(6) -0-
Steven R. Schurman(1) -0- -0-
Richard Brannon (3) -0- -0-
Ronald Ginsberg (1) -0- -0-
Robert W. Singer (1) 120,000 3.0%
William H. Wishinsky (4) -0- -0-
Casey Myhre (4) -0- -0-
John R. Bruno (4) -0- -0-
All Directors and Executive
Officers as a Group (11 persons,
including the above-listed former
officers and directors) %
--------- ---------
157,361 3.0%
- ---------------------------------
* Less than 1%
(1) Former officer and/or director of the Company.
(2) Includes 10,000 shares owned by Bruce E. Anderson Trust under which Mr.
Anderson acts as Trustee and 19,661 owned by Anderson Chemical Company for
which Mr. Anderson serves as a director and president. Mr. Anderson
disclaims any beneficial ownership with respect to shares of the Company
owned by his brothers.
(3) Executive officer and/or director of the Company
(4) Director or director nominee.
(5) Includes 1,200 shares pledged as collateral to a non-affiliate individual.
(6) Although Mr. Martucci does not own any shares of the Company's common
stock, he is, through his affiliates, the principal creditor of the Company
and the principal source of funding for the Company. Accordingly, he has
the ability to exert significant influence on the management of the
Company. See "Certain Transactions with Executive Officers and Directors"
below.
To the Company's knowledge and based solely on a review of such materials
as are required by the Securities and Exchange Commission, no officer, director
or beneficial holder of more than ten percent of the Company's issued and
outstanding shares of Common Stock ("Beneficial Owner") has filed any forms and
reports required to be filed pursuant to Section 16(a) of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"), during the fiscal year
ended December 31, 1998; and no officer, director or Beneficial Holder has
submitted any representation letter to the Company stating that they are not
subject to the filing requirements under Section 16 of the Exchange Act for
fiscal year 1998.
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EXECUTIVE COMPENSATION
The Company's two executive officers, Messrs. Waligunda and Brannon,
received no significant compensation in fiscal year 1998. The Company granted no
options to any of the Company's Executive Officers in 1998. None of the
Company's executive officers owns any options of the Company and there were no
exercises of any option in 1998 by any such persons.
The Company has not adopted any stock option plans, medical insurance
plans, or retirement, pension, profit sharing or insurance plans for the benefit
of its directors, officers or employees.
No officer or director of the Company receives any cash compensation for
services rendered as a director and/or office.
None of the Company officers have entered into written employment
agreements with the Company.
CERTAIN TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
During fiscal year 1998, J. Terry Anderson, former director and officer of
the Company, loaned the Company approximately $23,000 and Anderson Chemical
Company, a company for which Mr. Anderson serves as director and president,
loaned the Company approximately $85,000 for working capital and other expenses.
Additionally, in July 1996, Anderson Chemical Company loaned the Company $20,000
evidenced by a Promissory Note bearing interest at a rate of 12% per annum. As
of the Record Date, these loans remain outstanding.
On December 25, 1976, the Company leased 28 patented mining claims from
Audrey and David Hayden ("Hayden") and Dorothy Kennec pursuant to a mining lease
and option to purchase dated November 12, 1976 (the "Hayden/Kennec Lease"). The
leases expired. However, on November 13, 1997, US Mining, Inc. ("USM"), a New
Jersey corporation wholly-owned and controlled by William C. Martucci, a Company
director, entered into an agreement with Hayden to purchase her interest in the
Hayden/Kennec Lease for a purchase price of $70,000 (the "Hayden-USM Purchase
Agreement"). The purchase price is evidenced by note, due on February 2, 1998.
Upon the execution of the Hayden-USM Purchase Agreement, USM agreed to extend
the Hayden/Kennec Leases upon the same terms and conditions then in effect
through March 13, 1998. As of the date hereof, USM has not consummated the
transaction contemplated by the Hayden-USM Purchase Agreement. Although the
Hayden-USM Purchase Agreement has expired, USM has continued to make royalty
payments to Mrs. Hayden pursuant to the terms of the Hayden-USM Purchase
Agreement. No assurance can be given as to whether the Hayden-USM Purchase
Agreement will be consummated. In the event that the Hayden-USM Purchase
Agreement is not consummated the lease will become invalid and there is no
assurance can be given that the Company will not lose its rights to the
leasehold properties.
The Company had outstanding an 8% promissory note (the "Note") plus additional
liabilities (collectively, the "USM Indebtedness") with an aggregate balance of
$ 1,576,158 at September 15, 1999. The USM Indebtedness represents monies
advanced to the Company by an affiliate of USM, obligations assumed in
connection with the contributions of Joint Venture interests in 1997 and
additional advances by USM. The Note was payable on May 4, 1998, and is secured
by all the Company's mining claims and mining properties, as well as its
interests in the Hayden/Kennec Leases. The Note was subject to successive 30-day
extensions throughout 1998 upon the mutual agreement of the maker and lender for
no additional consideration. The Note was assigned to USM on March 5, 1998. As
of September 15, 1999, the Company has not made any payments of principal and/or
interest accrued on the USM Indebtedness. USM and its affiliates have verbally
pledged to provide financing to the Company on an as needed basis until on or
about January 1, 2000. The Company cannot assure, however, that USM will fulfill
its commitment to fund the Company's operations.
History of Transactions between the Company and Mr. Martucci and His Affiliated
Companies
In early 1997, an officer of the Company introduced Gems and Minerals Corp.
("Gems") to William C. Martucci ("Martucci"). Martucci began negotiations with
Gems to enter into a possible business combination between Martucci's
businesses, on the one hand, and businesses owned and/or operated by or
affiliated with Gems (the "Gems Businesses"), on the other hand. The Gems
Businesses included an 82.5% interest in the Zeus No. 1 Investments Zeus Joint
Venture ("Zeus Joint Venture") - a
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California general partnership between the Company and Island Investment Corp.,
a Nevada corporation ("Island").
By mid to late 1997, it became apparent to the Company that Gems did not
possess the technical and financial resources required to bring the Franklin
Mines into operation as contemplated by the Zeus Joint Venture. Also, during
this period, the Company had established a relationship with Martucci
independent of Gems. On September 25, 1997, the Company entered into a letter of
intent (the "Martucci Letter of Intent") with Martucci to acquire (the
"Transaction") all of the outstanding shares of certain entities owned by him
including USM, in exchange for newly issued shares of Common Stock of the
Company.
Pursuant to the Martucci Letter of Intent, Martucci would receive
approximately 85% of the outstanding shares of the Company, upon the closing of
the completion of customary due diligence, the execution of definitive
agreements and the approval of Franklin stockholders. Additionally, Martucci
agreed to cover expenses incurred with respect to the Transaction in the form of
loans to the Company. Management believed that the financial support to be
supplied by Martucci pursuant to the Martucci Letter of Intent would be
sufficient to fund the Company prior to the consummation of the Transaction.
On November 25, 1997, in a step transaction, USM acquired an aggregate of
82.5% interest in the Zeus Joint Venture from Gems and Nuco in exchange for the
assumption of approximately $100,000 in liabilities of Gems (the "Gems
Liabilities"). USM thereafter simultaneously assigned the acquired interest to
the Company in exchange for the assumption of the Gem's liabilities. Upon the
acquisition of the 82.5% interest of the Zeus Joint Venture by the Company, the
Zeus Joint Venture relationship with Gems was terminated and the Zeus Joint
Venture was effectively dissolved. The result of the termination of the Zeus
Joint Venture is that the Company has reacquired the right to received 100% of
the profits generated from the Franklin Mines and Franklin Mill once these
properties come into operation.
On April 6, 1998, Martucci terminated the Martucci Letter of Intent.
On or about August 3, 1998, the Company entered into agreements with each
of USM (the "USM Agreement") and Martucci (the "Martucci Agreement"). Pursuant
to the USM Agreement, USM agreed to forgive the indebtedness of the Company
evidenced by the USM Note; release the security interests in the collateral of
the Company securing the USM Note and assign its rights to the Hayden-USM
Purchase Agreement in exchange for 42.5% of the issued and outstanding shares of
the Company.
Under the terms of the USM Agreement, Martucci agreed to sell to the
Company 100% of the outstanding shares of USM in exchange for 42.5% of the
issued and outstanding shares of the Company. The Company intended to seek
stockholders' approval of these transactions at its Annual Meeting of
Stockholders held in October 1998.
In August 1998, the Company filed a preliminary proxy statement with the
Securities and Exchange Commission (the "Commission") for its annual meeting of
stockholders, which included proposals to approve each of the USM Agreement and
the Martucci Agreement. Shortly after the filing of the preliminary proxy
materials, the Commission informed the Company that the staff of the Commission
(the "Staff") would be conducting a review of the proxy materials and the
proposals. The Company informed USM of the Staff's inquiry and was thereafter
notified that USM wished to terminate the agreements under the premise that the
Company could not secure stockholder approval of the transactions in a timely
manner.
On September 21, 1998, the Company received a letter from USM concerning
the monies loaned to the Company by USM, which included the monies owed to USM
by the Company pursuant to the terms of the Note and an additional $144,280
loaned to the Company subsequent to the date of the Note. At a meeting of the
Board of Directors of the Company on October 8, 1998, a negotiated settlement
agreement was approved by the Board, whereby USM agreed to convert the USM
Indebtedness into shares of common stock of the Company at a conversion price
equal to 50% of the closing bid price as of the close of business October 7,
1998. The price of the Company's common stock at the close of business on
October 7, 1998 was $.66 per share. Therefore, the conversion rate under the
settlement agreement would be one share of common stock of the Company for each
$.33 of the USM Indebtedness.
It was further agreed that the settlement plan would be implemented in a
two step transaction. Approximately $306,160 of loans would be paid by
converting that portion into 927,757 shares of common
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stock of the Company resulting in USM holding approximately 19% of the total
issued and outstanding shares of common stock of the Company. The conversion of
the remaining USM Indebtedness would be predicated upon either (i) stockholder
approval of the issuance of more than 20% of the Company's common stock in the
aggregate to USM at a discount to market price as required by the rules of
corporate governance promulgated by the NASDAQ Small Cap Market ("NASDAQ"), or
(ii) the issuance of a waiver by the NASDAQ excepting the Company for compliance
with this rule. USM also agreed that it would continue to provide the Company
with financing going forward as further inducement to consummate the settlement
agreement set forth above.
Due to the fact that the Company had already expended significant monies to
conduct a proxy solicitation for its annual meeting scheduled on October 12,
1998, on October 19, 1998, the Company made a formal application to NASDAQ in
accordance with Rule 4310(C)(25)(H)(ii) of the NASDAQ Stock Market for a waiver
of the requirement that the Company call a meeting of its stockholders to
approve the issuance of over 20% in the aggregate of its stock to USM at a price
below market price. The rule allows for a waiver of this requirement when, among
other things, a delay in securing stockholder approval would seriously
jeopardize the financial viability of the Company. On or about October 24, 1998,
the NASDAQ Stock Market contacted the Company and indicated that it was inclined
to deny the Company's application unless additional information was submitted
for review. The Company thereafter withdrew its application and re-opened
negotiations with USM. Although the Board of Directors of the Company had
approved the issuance of 927,757 shares of common stock of the Company, such
shares were never issued. The Company however, continues to be in default of the
USM Indebtedness and has not, as of the date hereof, repaid any of the amounts
owed to USM. The Company and USM are continuing negotiations with respect to the
outstanding monies owed to USM and USM is still funding the Company.
In June 1999, the Company and USM mining executed a letter of intent
pursuant to which the Company proposed to purchase certain assets of USM in
exchange for 69% of the Company's common stock and forgiveness of the USM
Indebtedness. This proposed transaction was never consummated.
Appointment of Auditors
Item 2 on Proxy Card
The Board of Directors has appointed Lazar Levine & Felix LLP ("LLF"), to
audit the financial statements of the Company for the fiscal year ended December
31, 1999. Stockholders are being asked to ratify this appointment. LLF audited
the Company's financial statements for the fiscal years ended December 31, 1997
and 1998. Representatives of LLF will not be present at the meeting to answer
questions or make a statement.
The Company initially retained LLF as its independent auditors for fiscal
year 1997 after notifying JH Cohn, LLP ("Cohn") of its decision to dismiss the
firm as its independent auditors. The decision to dismiss Cohn was approved by
the Board of Directors of the Company. During fiscal year 1995 and 1996 of the
Company, none of the reports issued by Cohn on the financial statements of the
Company contained an adverse opinion or a disclaimer of opinion or was qualified
or modified as to audit scope, or account principles; however, Cohn did include
in its audit reports an explanatory paragraph concerning the Company's ability
to continue as a going concern. During fiscal years 1995 and 1996 and any
subsequent interim periods prepared by Cohn prior to their dismissal, there were
no disagreements between the Company and Cohn concerning accounting principles
or practices, financial statement disclosure, or auditing scope or procedure
which would have caused Cohn to make a reference to the subject matter thereof
in its report had such disagreement not been resolved to the satisfaction of
Cohn.
The proposal will be approved if it receives the affirmative vote of a
majority of the shares of Common Stock of the Company represented at the
meeting.
The Board of Directors recommends that you vote IN FAVOR OF the appointment
of LLF. Proxies solicited by the Board of Directors will be so voted unless
stockholders specify otherwise.
Other Business
The Board of Directors is not aware of any other matters to be presented at
the meeting. If any other
10
<PAGE>
matters would properly come before the meeting, the persons named in the
enclosed proxy form will vote the proxies in accordance with their best
judgment.
SUBMISSION OF STOCKHOLDER PROPOSALS
A Stockholder of record may present a proposal for action at the next
Annual Meeting of Stockholders provided that the Company receives such proposal
at its executive office no later than June 7, 2000. Upon receipt of such
proposal, the Company shall set forth the proposal in its Proxy Statement for
that meeting. The proponent may submit a maximum of one (1) proposal of not more
than five hundred (500) words for inclusion in the Company's proxy materials for
a meeting of security holders. At the next Annual Meeting, management proxies
will have discretionary authority to vote on stockholder proposals that are not
submitted for inclusion in the Company's proxy statement unless received by the
Company before August 7, 2000.
The Company files annual, quarterly, and special reports, proxy statements,
and other information with the Commission. You may read and copy any reports,
statements, and other information that the Company files at the Commission's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the Commission at 1-800-SEC-0330 for further information on the operations
of the Public Reference Room. The Company's Commission filings also are
available on the Commission's Internet site, which is http://www.sec.gov. The
Company's Annual Report on Form 10-KSB for the year ended December 31, 1998 is
delivered herewith.
Date: October 8, 1999 By Order of the Board of Directors
/s/ Richard Brannon
Richard Brannon, Secretary
