<PAGE>
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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
INTERNATIONAL META SYSTEMS, INC.
- ------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
GEORGE W. SMITH, CHIEF EXECUTIVE OFFICER
- ------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
August 4, 1997
Dear IMS Shareholders:
As we pursue a secondary public offering that is vital to the achievement of
our long term objectives, I want to share some perspectives with you. We view
the proposed secondary public offering for $25,000,000 as a necessary capital
bridge to the continued development of our products. The magnitude of the
technical effort we have undertaken requires a major commitment of resources
in the form of a team of highly skilled personnel and the tools they need to
utilize. We have now assembled most of these technical resources, creating an
ongoing need for the working capital to support them.
Therefore, as we prepare for this critical fund raising, we need to do
everything that we can to make the Company attractive to the capital markets
that will actually provide this working capital to us. Our lead underwriter,
Nichols, Safina, Lerner & Co. (NSL), has also anticipated this need and has
conditioned the firm underwriting on IMS doing a reverse stock split and
qualifying for listing on NASDAQ's National Market System (NMS). Another
objective of a reverse stock split and an NMS listing is the increased appeal
to both institutional investors and the brokerage community. This should
substantially broaden the universe of potential investors in our secondary
offering.
In our situation, these two steps required by NSL really are integrated since
qualification for NMS requires a stock price significantly higher than that
attained by our stock so far this year. Additionally, this required price is
subject to a substantial increase as indicated in proposed listing changes
pending at NASDAQ. This presents us with a "moving target", hence we have
opted to recommend a variable stock split so that the Board can react to both
the realities of IMS' stock price and of NASDAQ's required listing price at
the time we do the secondary offering.
While the above addresses the benefits that the Company hopes to achieve from
a reverse split and an NMS listing, there are other benefits that can accrue
to our stockholders. These potential benefits include a broader, more liquid
market, a marginable security, and increased ease in effecting transactions
in IMS stock. I believe, however, that the most important benefit for everyone
involved is a financially stronger Company that is better able to
successfully complete and market an advanced chip.
Please be assured that we do not approach a reverse stock split lightly. We
understand that there are potential pitfalls. However, in our coordinated
plan that integrates the timing of the steps to be taken with the effective
date of our secondary offering, we feel that the risk/reward ratio is clearly
on the side of the Company and our stockholders.
Your affirmative vote in support of this strategic plan is anticipated, and
is greatly appreciated. Thank you for your continued support of IMS.
Very truly yours,
INTERNATIONAL META SYSTEMS, INC.
George W. Smith
Chief Executive Officer
<PAGE>
INTERNATIONAL META SYSTEMS, INC.
A DELAWARE CORPORATION
EXECUTIVE OFFICES
100 NORTH SEPULVEDA BOULEVARD
SUITE 601
EL SEGUNDO, CALIFORNIA 90245
310-524-9300
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 18, 1997,
AT THE RADISSON HOTEL, MANHATTAN BEACH, CALIFORNIA
TO THE STOCKHOLDERS OF INTERNATIONAL META SYSTEMS, INC.:
The Annual Meeting of Stockholders (the "Meeting") of International Meta
Systems, Inc., a Delaware corporation (the "Company"), will be held at the
Radisson Hotel, 1400 Park View Avenue, Manhattan Beach, California, on
September 18, 1997, at 10:00 a.m., local time, to consider and vote on the
following proposals:
PURPOSE OF MEETING
(1) To ratify the appointment of Singer, Lewak, Greenbaum & Goldstein LLP,
Certified Public Accountants, as independent certified public
accountants of the Company for the fiscal year ending December 31,
1997.
(2) To elect to the Board of Directors seven (7) directors, as follows:
CLASS I - two (2) directors to serve for one-year terms; CLASS II -
two (2) directors to serve for two-year terms; and CLASS III - three
(3) directors to serve for three-year terms, or, in each case, until
their successors are elected and qualify, subject to their prior
death, resignation or removal.
(3) To authorize an amendment to the Company's Certificate of
Incorporation to effect a reverse stock split of the Common Stock on
up to a 1 for 10 basis, at the discretion of the Board of Directors.
(4) To transact such other business as may properly come before the
Meeting and any adjournments thereof.
ONLY STOCKHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON AUGUST 1, 1997 (THE
"RECORD DATE") ARE ENTITLED TO NOTICE OF AND TO VOTE AT THE MEETING.
PLEASE FILL IN, SIGN, DATE AND RETURN THE ENCLOSED PROXY TO INTERWEST
TRANSFER CO., INC., P.O. BOX 17136, SALT LAKE CITY, UTAH 84117, WHETHER OR
NOT YOU EXPECT TO ATTEND THE MEETING. A RETURN ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE.
By Order of the Board of Directors
INTERNATIONAL META SYSTEMS, INC.
By: /s/ George W. Smith
------------------------------
George W. Smith
Chief Executive Officer
El Segundo, California
DATED: August 4, 1997
<PAGE>
INTERNATIONAL META SYSTEMS, INC.
A DELAWARE CORPORATION
EXECUTIVE OFFICES
100 NORTH SEPULVEDA BOULEVARD
SUITE 601
EL SEGUNDO, CALIFORNIA 90245
310-524-9300
-------------------------
PROXY STATEMENT
-------------------------
This proxy statement is furnished to the stockholders of International
Meta Systems, Inc., a Delaware corporation (the "Company"), in connection
with the Annual Meeting of Stockholders (the "Meeting") to be held at the
Radisson Hotel, 1400 Park View Avenue, Manhattan Beach, California, on
September 18, 1997 at 10:00 a.m., local time.
The Meeting will be held to consider and vote on the following proposals:
PURPOSE OF MEETING
(1) To ratify the appointment of Singer, Lewak, Greenbaum & Goldstein LLP,
Certified Public Accountants, as independent certified public
accountants of the Company for the fiscal year ending December 31,
1997.
(2) To elect to the Board of Directors seven (7) directors, as follows:
CLASS I - two (2) directors to serve for one-year terms; CLASS II -
two (2) directors to serve for two-year terms; and CLASS III - three
(3) directors to serve for three-year terms, or, in each case, until
their successors are elected and qualify, subject to their prior
death, resignation or removal.
(3) To authorize an amendment to the Company's Certificate of
Incorporation to effect a reverse stock split of the Common Stock on
up to a 1 for 10 basis, at the discretion of the Board of Directors.
(4) To transact such other business as may properly come before the
Meeting and any adjournments thereof.
The list of all stockholders of record on August 1, 1997, the Record
Date, will be available at the Meeting and at the office of the Company at
100 North Sepulveda Boulevard, Suite 601, El Segundo, California 90245, for
the ten (10) days preceding the Meeting.
Upon written request, the Company will provide, without charge: (i) a
copy of its Annual Report on Form 10-KSB, for the year ended December 31,
1996 and Quarterly Report on Form 10-QSB for the quarter ended March 31,
1997, and (ii) a copy of the exhibits to this Proxy Statement, to any
stockholder of record or any stockholder who owned Common Stock listed in the
name of a bank or broker, as nominee, at the close of business on August 1,
1997. See "Incorporation By Reference."
Requests should be addressed to the Company, to the attention of Mr. Bill
Young, Director of Investor Relations, International Meta Systems, Inc., 100
North Sepulveda Boulevard, Suite 601, El Segundo, California 90245,
310-524-9300.
<PAGE>
INCORPORATION BY REFERENCE
The Company is currently subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, files reports, proxy and information statements and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy and information statements and other
information may be inspected and copied at the Public Reference Room of the
Commission at 450 Fifth Street, N.W. Washington D.C. 20549; at its New York
Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048;
and at its Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such materials can be obtained from
the Public Reference Room of the Commission at 450 Fifth Street, N.W.,
Washington D.C. 20549, at prescribed rates. The Company furnishes its
stockholders with annual reports containing audited financial statements and
such other periodic reports as the Company may determine to be appropriate or
as may be required by law.
As part of this Proxy Statement, the Company incorporates by reference
the Company's Annual Report on Form 10-KSB in respect of the year ended
December 31, 1996 and Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1997, and the following documents filed herewith as exhibits to
this Proxy Statement:
1. EXHIBIT "A" - Form of Certificate of Amendment to the Restated
Certificate of Incorporation.
INFORMATION CONCERNING SOLICITATION AND VOTING
The following information is provided to stockholders to explain the use
of this Proxy Statement for the Meeting:
RECORD DATE
Only stockholders of record at the close of business on August 1, 1997
are entitled to vote at the Meeting. The Company's Common Stock is its only
class of voting securities. On August 1, 1997, the record date (the "Record
Date") fixed by the Board of Directors, the Company had issued and
outstanding 38,792,840 shares of Common Stock.
REVOCABILITY OF PROXIES
A PROXY FOR USE AT THE MEETING IS ENCLOSED. ANY STOCKHOLDER WHO EXECUTES
AND DELIVERS A PROXY HAS THE RIGHT TO REVOKE IT AT ANY TIME BEFORE ITS
EXERCISE BY FILING WITH THE SECRETARY OF THE COMPANY AN INSTRUMENT REVOKING
IT OR A DULY EXECUTED PROXY BEARING A LATER DATE. IN ADDITION, A STOCKHOLDER
MAY REVOKE A PROXY PREVIOUSLY EXECUTED BY HIM BY ATTENDING THE MEETING AND
ELECTING TO VOTE IN PERSON.
VOTING AND SOLICITATION
Proxies are being solicited by the Board of Directors of the Company. The
cost of this solicitation will be borne by the Company. Solicitation will be
primarily by mail, but may also be made by telephone, fax transmission or
personal contact by certain officers and directors of the Company, who will
not receive any compensation therefor. Shares of Common Stock represented by
properly executed proxies will, unless such proxies have been previously
revoked, be voted in accordance with the instructions indicated thereon. IN
THE ABSENCE OF SPECIFIC INSTRUCTIONS TO THE CONTRARY, PROPERLY EXECUTED
PROXIES WILL BE VOTED FOR EACH OF THE
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PROPOSALS DESCRIBED ABOVE. No business other than that set forth in the
accompanying Notice of Annual Meeting of Stockholders is expected to come
before the Meeting. Should any other matter requiring a vote of stockholders
properly arise, the persons named in the enclosed form of proxy will vote
such proxy in accordance with the recommendation of the Board of Directors.
Each share of Common Stock is entitled to one vote for each share held as
of record, and there are no preemptive rights. The Company's Certificate of
Incorporation and Bylaws do not provide for cumulative voting for the
election of directors or any other purpose.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
Shares representing 50% of the combined voting power of the 38,792,840
shares of Common Stock outstanding on the Record Date must be represented at
the Meeting to constitute a quorum for conducting business. In the absence
of a quorum, the stockholders present in person or by proxy, by majority vote
and without further notice, may adjourn the meeting from time to time until a
quorum is attained. At any reconvened meeting following such adjournment at
which a quorum shall be present, any business may be transacted which might
have been transacted at the Meeting as originally notified.
The required quorum for the transaction of business at the Meeting is a
majority of the votes eligible to be cast by holders of shares of Common
Stock issued and outstanding on the Record Date. Shares that are voted "FOR"
or "AGAINST" a matter are treated as being present at the Meeting for
purposes of establishing a quorum and are also treated as shares entitled to
vote at the Meeting (the "Votes Cast") with respect to such matter.
The Company will count abstentions for purposes of determining both: (i)
the presence or absence of a quorum for the transaction of business, and (ii)
the total number of Votes Cast with respect to a proposal (other than the
election of directors). Accordingly, abstentions will have the same effect
as a vote against the proposal.
Further, the Company intends to count broker non-votes for the purpose of
determining the presence or absence of a quorum for the transaction of
business, although broker non-votes will not be counted for purposes of
determining the number of Votes Cast with respect to the particular proposal
on which the broker has expressly not voted. Thus, a broker non-vote will
not affect the outcome of the voting on a proposal, except to the extent that
a resolution requires the approval of a majority of the issued and
outstanding shares of Common Stock, such as Proposal 3 of this Proxy
Statement.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be
presented by such stockholders at the next annual meeting must be received by
the Company no later than December 31, 1997, in order to be considered for
inclusion in the proxy statement and form of proxy relating to such meeting.
3
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth, as of August 1, 1997, certain information
concerning the beneficial ownership of Common Stock of the Company by (i)
each person who is known by the Company to be a beneficial holder of five
percent (5%) or more of the Company's Common Stock; (ii) each director of the
Company; (iii) each executive officer named in the Summary Compensation Table
set forth in this Proxy Statement (See "Executive Compensation"); and (iv)
all directors and executive officers of the Company as a group.
NAME NUMBER PERCENT#
---- ------ --------
Masahiro Tsuchiya(1) 3,740,583 9.64
George W. Smith(2) 2,287,077 5.72
Lee W. Hoevel(3) 30,000 *
Martin S. Albert(4) 10,000,000 25.78
Paragon Limited Partnership(4) 10,000,000 25.78
Den Norsk Krigsforsikring for Skib(4) 2,000,000 5.16
Investeringsselskapet Amandus AS(4) 2,000,000 5.16
Frank LaChapelle(5) 100,000 *
Sigmund Hartmann(6) 76,667 *
Philip Neches(7) 0 *
All directors and officers as a group(7 persons)(8) 16,234,327 40.63
- --------------------------
# Pursuant to the rules of the Commission, shares of Common Stock
which an individual or group has a right to acquire within 60 days pursuant
to the exercise of options or warrants are deemed to be outstanding for the
purpose of computing the percentage ownership of such individual or group,
but are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person shown in the table.
* Less than 1%.
1. Dr. Tsuchiya's address is 1585 Kaminaka Drive, Honolulu, Hawaii
96846. Included in the shares owned by Dr. Tsuchiya are 886,583 shares owned
by Sypex International, of which Dr. Tsuchiya is part owner.
2. Mr. Smith's address is c/o International Meta Systems, Inc., 100
North Sepulveda Boulevard, Suite 601, El Segundo, California 90245. Mr.
Smith's holdings consist of 1,127,077 shares of Common Stock currently owned
and vested options for 1,160,000 shares.
4
<PAGE>
3. Dr. Hoevel's address is c/o International Meta Systems, Inc., Austin
Design Center, 7718 Wood Hollow Drive, Suite 150, Austin, TX 78731. Dr.
Hoevel's holdings consist of 30,000 shares of Common Stock and unvested
options for 600,000 shares of Common Stock.
4. Mr. Albert's address is c/o Dolphin Interconnect Solutions, Inc.,
3609 E. Thousand Oaks Boulevard, Suite 209, Westlake Village, California
91362. Mr. Albert is the registered owner of 133,000 shares, and he is a
director of Paragon Capital Management LLC ("Paragon Capital"), which is the
sole general partner of Paragon Limited Partnership ("Paragon"), the
registered owner of 2,000,000 shares. Certain parties, who in the aggregate
own or control 10,000,000 shares of Common Stock, have entered into a
Shareholders Agreement, dated March 26, 1996 (the "Shareholders Agreement"),
pursuant to which such parties have granted certain voting rights to Paragon
and certain directors of Paragon Capital with respect to the 10,000,000
shares. The parties to the Shareholders Agreement include: Paragon
(2,000,000 shares), Den Norsk Krigsforsikring for Skib (2,000,000 shares),
Investeringsselskapet Amandus AS (2,000,000 shares), A/S/ Selvaag Invest
(1,500,000 shares), Andreas Ugland (1,500,000 shares), Woodbridge Asset
Management Limited (266,667 shares), Pollex A/S (200,000 shares), J. Arthur
Olafsen (250,000 shares), Filab A/S (100,000 shares), Martin S. Albert
(133,333 shares) and Bent Aasnas (50,000 shares). The Shareholders Agreement
remains in effect until April 30, 1998, unless earlier terminated in
accordance with its provisions. The number of shares reflected in the chart
as beneficially owned by Mr. Albert and Paragon does not include shares of
Common Stock which may be converted from a convertible promissory note (the
"Amerscan Note") dated July 15, 1997 issued in the name of Amerscan Partners
III, Limited Partnership ("Amerscan Partners III"), in the principal amount
of up to $1,500,000, at a per share conversion price equal to the lower of:
(i) $1.00, subject to certain adjustments, and (ii) 75% of the average of the
mean between the closing bid and asked prices for the Common Stock during the
five (5) trading days preceding the date of notice of conversion. As of the
date of this Proxy Statement, Amerscan Partners III has loaned the Company
the principal amount of $500,000 in connection with the Amerscan Note. Mr.
Albert is a director and Deputy Chairman of Amerscan Capital Management, Ltd.
("Amerscan Capital"), the general partner of Amerscan Partners III. Amerscan
Partners III has agreed to be bound by the terms of the Shareholders
Agreement with respect to any shares of Common Stock which may be converted
from the Amerscan Note. See "Certain Relationships and Related Transactions."
5. Mr. LaChapelle's address is c/o Interscience Computer Corporation,
5171 Clareton Drive, Agoura Hills, California 91301. In addition, Mr.
LaChapelle holds unvested options for 100,000 shares.
6. Mr. Hartmann's address is c/o International Meta Systems, Inc., 100
North Sepulveda Boulevard, Suite 601, El Segundo, California 90245. In
addition, Mr. Hartmann holds unvested options for 23,333 shares.
7. Dr. Neches' address is 12 Murray Hill Manor, Murray Hill, NJ 07974.
In addition, Dr. Neches holds unvested options for 100,000 shares.
8. Includes 15,074,327 shares of Common Stock and vested options to
purchase up to 1,160,000 shares of Common Stock. Does not include unvested
options to purchase up to 823,333 shares of Common Stock or shares of Common
Stock which may be converted from the Amerscan Note. See "Certain
Relationships and Related Transactions."
5
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning
compensation of certain of the Company's executive officers, including the
Company's Chief Executive Officer and all executive officers (the "Named
Executives") whose total annual salary and bonus exceeded $100,000, for the
years ended December 31, 1996, 1995 and 1994:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------- ----------------------------------
Awards Payouts
- -------------------------------------------------------------------------------------------------------------
Name and Restricted Securities
principal Other annual stock underlying LTIP All other
position Year Salary Bonus compensation award(s) Options/SARs payouts compensation
($) ($) (#) ($) ($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
George W. 1996 $160,000 0 0 0 0 0 0
Smith, CEO 1995 $130,000 0 0 0 0 0 0
1994 $130,000 0 0 0 0 0 0
</TABLE>
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth information with respect to the exercised
and unexercised options to purchase shares of Common Stock for each of the
Named Executives held by them at December 31, 1996:
<TABLE>
<CAPTION>
Value of Unexercised
Shares Number of Unexercised In the Money
Acquired Value Options at Options at
on Exercise Realized(1) December 31, 1996 December 31, 1996(2)
----------- ----------- ------------------- ----------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George A. Smith 298,077 $593,173 1,160,000 0 $995,200 0
</TABLE>
- ---------------------
(1) Represents an amount equal to the number of options multiplied by the
difference between the average of the closing bid and asked prices for the
Common Stock in the Over-the-Counter Market on the date of exercise, June
24, 1996 ($2.00 per share) and any lesser exercise price.
(2) Represents an amount equal to the number of options multiplied by the
difference between the average of the closing bid and asked prices for the
Common Stock in the Over-the Counter Market on December 31, 1996 ($1.22 per
share) and any lesser exercise price.
6
<PAGE>
COMPENSATION OF DIRECTORS
Currently, the Company does not compensate directors in cash for services
rendered as directors. Outside directors are issued stock options which vest
over a period of three years. The Company maintains errors and omissions
liability insurance for its directors.
Under Delaware law, an officer or director of the Company may be entitled
to indemnification from the Company against expenses (including attorneys
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with a pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative. Under
the Company's Certificate of Incorporation, no director of the Company shall
be liable to the Company or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability: (i) for any breach of
the director's duty of loyalty to the Company or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law; (iii) under Section 174 of the Delaware
General Corporation Law; or (iv) for any transaction from which the director
derives an improper personal benefit.
In addition, the Company has adopted a form of indemnification agreement
(the "Indemnification Agreement") which provides the indemnitee with the
maximum indemnification allowed under applicable law. The Company has not
entered into any Indemnification Agreements with any of its officers or
directors as of the date of this Proxy Statement. Since the Delaware statute
is non-exclusive, it is possible that certain claims beyond the scope of the
statute may be indemnifiable. The Indemnification Agreements provide a
scheme of indemnification which may be broader than that specifically
provided by Delaware law. It has not yet been determined, however, to what
extent the indemnification expressly permitted by Delaware law may be
expanded, and therefore the scope of indemnification provided by the
Indemnification Agreements may be subject to future judicial interpretation.
The Indemnification Agreement provides, in pertinent part, that the
Company shall indemnify an indemnitee who is or was a party or becomes a
party or is threatened to be made a party to any threatened, pending or
completed action or proceeding whether civil, criminal, administrative or
investigative by reason of the fact that the indemnitee is or was a director,
officer, key employee or agent of the Company or any subsidiary of the
Company. The Company shall advance all expenses, judgments, fines, penalties
and amounts paid in settlement (including taxes imposed on indemnitee on
account of receipt of such payouts) incurred by the indemnitee in connection
with the investigation, defense, settlement or appeal of any civil or
criminal action or proceeding as described above. The indemnitee shall repay
such amounts advanced only if it shall be ultimately determined that he or
she is not entitled to be indemnified by the Company. The advances paid to
the indemnitee by the Company shall be delivered within 20 days following a
written request by the indemnitee. Any award of indemnification to an
indemnitee, if not covered by insurance, would come directly from the assets
of the Company, thereby affecting a stockholder's investment.
COMPLIANCE WITH SECTION 16 OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and the holders of more than 10% of the Company's Common
Stock to file with the Commission initial reports of ownership and reports of
changes in ownership of equity securities of the Company. Based solely upon
a review of such forms, or on written representations form certain reporting
persons that no other reports were required for such persons, the Company
believes that all reports required pursuant to Section 16(a) with respect to
its executive officers, directors and 10% stockholders for the 1996 fiscal
year were timely filed, except as set forth below.
7
<PAGE>
Sigmund Hartmann, a director of the Company, inadvertently failed to file
on a timely basis a Form 4 with the Commission disclosing his change in
beneficial ownership when he acquired 53,334 shares of the Company's Common
Stock pursuant to the exercise of a stock option. The Form 3 disclosing his
initial beneficial ownership of the option was filed on a timely basis. Mr.
Hartmann subsequently filed a Form 4 disclosing the transaction.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONSULTING AGREEMENT WITH UNIVERSAL MICROTECHNOLOGY, INC.
On September 1, 1995, the Company entered into a consulting agreement
with Universal Microtechnology, Inc. ("Universal"), all of the shares of
which are beneficially owned by its President, Sigmund Hartmann, who is also
a director of the Company, for the provision to the Company of services
related to the development of speech and voice technology. The consulting
agreement was amended on November 27, 1996 pursuant to which Universal agreed
to provide additional technical and administrative services to the Company
and the Company agreed to pay Universal the sum of $8,000 per month in fees
during the term commencing January 1, 1997 through May 1, 1998.
STOCK PURCHASE AGREEMENT WITH PARAGON LIMITED PARTNERSHIP AND RELATED
SHAREHOLDERS AGREEMENT
On January 26, 1996, the Company entered into a Stock Purchase Agreement
with Paragon Limited Partnership, an exempted limited partnership organized
under the laws of the Cayman Islands, British West Indies ("Paragon"),
pursuant to which Paragon purchased 2,000,000 shares of Common Stock at a
purchase price of $1.00 per share.
Further, on such date, the Company entered into a placement agreement
(the "Placement Agreement") with Paragon Capital Management LLC, an exempted
limited liability company organized under the laws of the Cayman Islands,
British West Indies ("Paragon Capital"), pursuant to which Paragon Capital
agreed to act as placement agent with respect to the sale of up to an
additional 8,000,000 shares of Common Stock at a purchase price of $1.00 per
share. Paragon Capital is the sole general partner of Paragon. On or about
March 26, 1996, the Company issued an additional 8,000,000 shares of Common
Stock at a purchase price of $1.00 per share to certain persons (the
"Purchasers") pursuant to the Placement Agreement, including, Den Norsk
Krigsforsikring for Skib (2,000,000 shares), Investeringsselskapet Amandus AS
(2,000,000 shares), A/S/ Selvaag Invest (1,500,000 shares), Andreas Ugland
(1,500,000 shares), Woodbridge Asset Management Limited (266,667 shares),
Pollex A/S (200,000 shares), J. Arthur Olafsen (250,000 shares), Filab A/S
(100,000 shares), Martin S. Albert (133,333 shares) and Bent Aasnas (50,000
shares). Paragon Capital received a placement fee from the Purchasers, and
not from the proceeds of such offering, of $0.055 per share, pursuant to
separate agreements between Paragon Capital and each of the Purchasers.
On March 19, 1996, Martin S. Albert, a director of Paragon Capital,
became a director of the Company in connection with the closing of the
purchase of the initial 2,000,000 shares pursuant to the Stock Purchase
Agreement. Mr. Albert became the Chairman of the Board of Directors of the
Company on August 1, 1997. Further, the Company has agreed to use its best
efforts to elect Mr. Albert or another designee of Paragon, as a director of
the Company so long as Paragon continues to own at least 1,000,000 shares of
the Company's Common Stock.
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Each of the Purchasers and Paragon have entered into a Shareholders
Agreement pursuant to which, in pertinent part, the Purchasers and Paragon
have agreed to vote the 10,000,000 shares owned or controlled by them: (i) in
favor of the election of Martin S. Albert, or another designee of Paragon, as
a director of the Company, (ii) in favor of each of the actions contemplated
by the Shareholders Agreement and any action required in furtherance thereof,
and (iii) except as specifically instructed by Paragon in advance, against
(A) any action or agreement which would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the
Company under the Shareholders Agreement, (B) any extraordinary corporate
transaction, such as a merger, consolidation or other business combination
involving the Company or any subsidiary of the Company, (C) any sale, lease
or transfer of a material amount of assets of the Company or any subsidiary
of the Company, (D) any change in the majority of the board of directors of
the Company, (E) any material change in the present capitalization of the
Company (other than as contemplated by the Shareholders Agreement), (F) any
amendment of the Company's Certificate of Incorporation or Bylaws, (G) any
other material change in the Company's corporate structure or business, or
(H) any other action which is intended, or could reasonably be expected to
impede, interfere with, delay, postpone, discourage or materially adversely
affect, the transaction contemplated by the Shareholders Agreement. See
"Certain Relationships and Related Transactions - Amerscan Partners III
Convertible Promissory Note."
Further, each of the parties to the Shareholders Agreement has granted
to, and appointed, Paragon and Erik C.T. Tiller, Rolv E. Norderhaug and
Martin S. Albert, in their respective capacities as directors of Paragon
Capital, and any individual who shall thereafter succeed any of them as a
director of Paragon Capital, and any other designee of Paragon, individually,
such person's irrevocable proxy and attorney-in-fact (so long as such person
is a party to the Shareholders Agreement), with full power of substitution,
to vote the shares of Common Stock owned by each such person in accordance
with the immediately preceding paragraph. Mr. Tiller is also an affiliate of
Woodbridge Asset Management Limited.
The Shareholders Agreement will terminate on the earlier of: (i) April
30, 1998, (ii) the date on which the Company's Board of Directors and the
stockholders of the Company vote as required by law and by the Company's
Certificate of Incorporation and By-laws for the merger or consolidation of
the Company with another company, or for the sale of all or substantially all
of the Company's assets, or for its liquidation, (iii) the date on which the
holders of not less than 66-2/3% of the shares of Common Stock subject to the
Shareholders Agreement agree in writing to the termination of the
Shareholders Agreement, and (iv) the date on which the combined holdings of
the parties to the Shareholders Agreement are reduced to ownership of less
than 5% of the issued and outstanding shares of Common Stock.
The Company has granted Paragon and the Purchasers the right, upon the
written request of at least 25% of the holders of the 10,000,000 shares, to
require the Company to effect two registrations of such shares, and an
unlimited number of "piggy back" registrations with respect to such shares,
subject to certain conditions.
The Company also has granted Paragon a right of first refusal to purchase
or cause to be purchased from the Company any of its securities which may be
offered in any private placement exempt from registration under the
Securities Act, on the same terms and conditions that may be offered to any
third party. In connection with such right of first refusal, the Company is
required to give Paragon 60 days' prior written notice of the Company's
intention to conduct such a private placement, including the material terms
and conditions thereof. Paragon will have 10 days (deemed to begin no earlier
than 10 days prior to the end of such 60 day period) to provide the Company
with written notice of Paragon's election to exercise such right of first
refusal.
9
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AMERSCAN PARTNERS III CONVERTIBLE PROMISSORY NOTE
As of July 15, 1997, the Company executed a convertible promissory note
(the "Amerscan Note"), in the principal amount of up to $1,500,000, in favor
of Amerscan Partners III, Limited Partnership, an exempted limited
partnership organized under the laws of Bermuda ("Amerscan Partners III").
Amerscan Partners III has agreed to lend to the Company, subject to the terms
of the Amerscan Note, an amount up to $1,500,000, of which $500,000 has been
loaned to the Company as of the date of this Proxy Statement. The balance of
the Amerscan Note is required to be loaned to the Company in two (2)
additional installments of $500,000, each of which is due within three (3)
business days following written request by the Company. However, the balance
of the installments is due in no event later than 60 days following the date
of the Amerscan Note.
The Amerscan Note bears interest at the rate of eight percent PER ANNUM,
with the principal amount of the Amerscan Note, together with accrued and
unpaid interest thereon, payable on July 15, 1998.
Amerscan Partners III has the option at any time to convert the
outstanding principal amount of the Amerscan Note, together with accrued and
unpaid interest thereon, into shares of the Company's Common Stock at a per
share conversion rate equal to the aggregate principal amount of the Amerscan
Note, together with accrued and unpaid interest thereon, divided by the lower
of: (i) $1.00, subject to adjustments for stock splits, reverse splits, stock
dividends or recapitalizations of the Common Stock, and (ii) 75% of the
average of the mean between the closing bid and asked prices for the Common
Stock during the five (5) trading days preceding the notice date of the
exercise of such option. Further, the Company has the right to require
Amerscan Partners III, at any time prior to July 15, 1998, to convert the
outstanding principal amount of the Amerscan Note, together with accrued and
unpaid interest thereon, if on the date of such request, the mean between the
closing bid and asked prices of the Common Stock is greater than $2.00 per
share, subject to adjustments for stock splits, reverse splits, stock
dividends or recapitalizations.
So long as any amount of the Amerscan Note remains unpaid, Amerscan
Partners III or its designee shall be entitled to appoint one member to the
Board of Directors of the Company, who shall further be entitled to appoint
the chairman of a Finance Committee of the Board of Directors which shall
consist of at least three (3) members of the Board of Directors. As of the
date of this Proxy Statement, Amerscan has not exercised its right to appoint
such a director. The Amerscan Note is secured by the Company's intellectual
property rights relating to the Company's Meta 6000 Chip, pursuant to the
terms of a Security Agreement dated July 15, 1997, subject to the terms and
conditions of any prior agreements of the Company with respect to the Meta
6000 chip.
Upon conversion of any portion of the Amerscan Note into shares of Common
Stock, Amerscan Partners III has agreed to sign an endorsement to the
Shareholders Agreement agreeing to be bound by the terms of the Shareholders
Agreement with respect to such shares so converted, as though Amerscan
Partners III were an original party thereto. Amerscan Partners III will have
the sole power to vote and dispose of such shares of Common Stock, subject to
the terms of the Shareholders Agreement.
Amerscan Capital Management, Ltd., a Bermuda exempted limited duration
company ("Amerscan Capital") is the sole general partner of Amerscan Partners
III. Mr. Albert serves as a director and Deputy Chairman, Rolv Norderhaug
serves as Vice President and a director and Erik C.T. Tiller serves as a
director of Amerscan Capital.
The Company has agreed to pay to Amerscan Capital a placement fee equal
to eight percent (8%) of the gross proceeds of funds received by the Company
pursuant to the Amerscan Note.
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MATTERS FOR CONSIDERATION BY STOCKHOLDERS
PROPOSAL 1. RATIFICATION OF APPOINTMENT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANT
The Board of Directors of the Company has appointed the firm of Singer,
Lewak, Greenbaum & Goldstein LLP as independent certified public accountants
of the Company for the fiscal year ending December 31, 1997 subject to
stockholder approval. The Company has been advised by Singer, Lewak,
Greenbaum & Goldstein LLP that neither that firm nor any of its partners has
any material relationship with the Company or any affiliate of the Company.
A representative of Singer, Lewak, Greenbaum & Goldstein LLP is expected
to be present at the Annual Meeting and make a statement if he or she desires
to do so. He or she will be available to respond to appropriate questions.
Should the appointment of Singer, Lewak, Greenbaum & Goldstein LLP be
disapproved by the stockholders, the Board of Directors will review its
selection.
Approval of the appointment of Singer Lewak Greenbaum & Goldstein LLP as
independent certified public accountants for the Company for the year ending
December 31, 1997 requires the affirmative vote of a majority of the combined
Votes Cast.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
PROPOSAL 2. ELECTION OF THE BOARD OF DIRECTORS
GENERAL
The Company's Restated Certificate of Incorporation provides that at the
first annual meeting of the Company's stockholders after the authorized
number of directors is six (6) or more, the Board of Directors shall be
divided into three (3) classes with staggered terms, Class I, Class II and
Class III. The Company's Bylaws provide that the authorized number of
directors shall be not less than three (3) members and not more than eleven
(11) members. As the authorized number of directors currently exceeds more
than six (6) members, the Board of Directors has been divided into the three
(3) classes.
To initiate these staggered terms, seven (7) directors will be elected at
the Meeting, as follows: (i) CLASS I - two (2) directors to serve for
one-year terms; (ii) CLASS II - two (2) directors to serve for two-year
terms; and (iii) CLASS III - three (3) directors to serve for three-year
terms, or, in each case, until a successor has been duly elected and
qualified. In the absence of instructions to the contrary, shares of Common
Stock represented by properly executed proxies will be voted for the seven
(7) nominees listed hereinbelow, all of whom are recommended by management of
the Company and who have consented to be named and to serve if elected. Each
nominee is presently serving as a director of the Company.
The Board of Directors met five (5) times during the year ended December
31, 1996. All directors standing for reelection attended 100% of the
meetings of the Board, except for Frank LaChapelle and Masahiro Tsuchiya, who
attended three (3) and four (4) meetings, respectively. The Board has a
compensation committee comprised of the following members of the Board of
Directors: Sigmund Hartmann, Frank LaChapelle and Masahiro Tsuchiya, the
latter two (2) of whom may be deemed to be outside/non-employee directors.
The Board has no standing committee on nominations, audit, or any other
committees performing equivalent functions.
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The Board knows of no reason why any of the nominees will be unavailable
or unable to serve as a director. The information presented below is as of
August 1, 1997 and is based in part on information furnished by the nominees
and, in part, from the records of the Company.
Directors are elected by the affirmative vote of a plurality of the
combined Votes Cast at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE ELECTION OF THE
NOMINEES TO THE TERMS SPECIFIED BELOW.
NOMINEES FOR ELECTION AS DIRECTOR
NAME AGE DIRECTOR SINCE:
---- --- ---------------
CLASS I (ONE-YEAR TERM)
George W. Smith 57 December, 1985
Director, Chief Executive Officer
and Chief Financial Officer (acting)
Sigmund Hartmann 67 August, 1995
Director
CLASS II (TWO-YEAR TERM)
Frank LaChapelle 55 September, 1993
Director
Philip Neches 47 November, 1996
Director
CLASS III (THREE-YEAR TERM)
Martin S. Albert 64 March, 1996
Chairman of the Board
Lee W. Hoevel 47 April, 1997
Director, President and
Secretary
Masahiro Tsuchiya 47 August, 1992
Director
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GEORGE W. SMITH, Director and Chief Executive Officer, has served the
Company in these offices since election by the shareholders since December
31, 1988. He has served as the Company's acting Chief Financial Officer
since April 3, 1997. Prior to December 31, 1988, he founded the entity which
entered into a reorganization agreement with the Company on December 31,
1988, and served as its President and Chief Executive Officer and Director
from its inception in December 1985 until December 31, 1988. From October,
1967 to August, 1985, he was employed by the Aerospace Corporation, where his
positions included Principal Director for DOD Space Shuttle Operations and
Systems Director for Development and Operations of several classified Air
Force programs. While employed by the Aerospace Corporation, he managed
programs with budgets exceeding $300 million. He has an extensive background
in managing the design, development and manufacturing of complex high-tech
products. His awards include the Trustees' Distinguished Achievement Award
granted by the Aerospace Corporation in recognition of his technical
leadership and management and the Air Force Outstanding Service Award. He
received a Bachelor of Science degree in electrical engineering from the
University of Nevada and has performed graduate work at U.C.L.A.
SIGMUND HARTMANN, Director, previously held the positions of Vice
President and Assistant General Manager of TRW Incorporated, President,
Software Division of Commodore Business Machines, and President of Software
of Atari Corporation. At Commodore, Mr. Hartmann directed the company from a
$300 million, low end computer business to a $1.2 billion systems company.
At Atari, he reversed the fortunes of that entity from losing $500 million a
year to a profitable operation.
FRANK LACHAPELLE, Director, is a founder of Interscience Computer
Corporation and has served as the Chairman of the Board since its formation
in 1983. Mr. LaChapelle served as President of Interscience Computer
Corporation from 1983 until January, 1991, and has served as Chief Executive
Officer since September, 1991. Interscience Computer Corporation filed for
protection under Chapter 11 of the U.S. Bankruptcy Act on March 6, 1997.
PHILIP NECHES, Director, previously held positions as Founder, Chief
Scientist and Vice President, Teradata Corporation, Sr. Vice President and
Chief Scientist, NCR Corporation and Vice President and Group Technical
Officer, Multimedia Products and Services, AT&T Corporation. At present, Dr.
Neches is an outside consultant and investor in several companies. Dr.
Neches holds a Bachelor of Science degree (with honors) from the California
Institute of Technology, a Masters Degree in Engineering Science from the
California Institute of Technology and a Ph.D. in Computer Science from the
California Institute of Technology.
MARTIN S. ALBERT, Chairman of the Board of Directors, is the President
and Chief Executive Officer of Dolphin Interconnect Solutions, Inc.
("Dolphin"), a stockholder of Amerscan, A.S., Dolphin's largest stockholder,
and has been a director of Dolphin since its incorporation. He is a director
of Paragon Capital Management LLC, the sole general partner of Paragon
Limited Partnership, a principal stockholder of the Company. He is also a
director and Deputy Chairman of Amerscan Capital Management, Ltd., the
general partner and investment advisor of Amerscan Partners III, Limited
Partnership. He is also a director of Scada, Inc. Mr. Albert has a
bachelor's degree in Physics from the City College of New York and carried
out post graduate studies in Philosophy of Science and Business at the
University of California, Los Angeles and Columbia University. He has
previously been involved in corporate investment and consultancy work and has
served as a director of numerous companies during his career, particularly
being involved with a number of small-to medium sized technology companies
seeking funding to expand their strategic and operational capabilities. He
has also been involved in developing and managing disk-drive test and
development systems companies and other companies involved in computer disk
and tape technologies. Mr. Albert has led several high technology companies
through their original public offerings and oversaw their future acquisition
by substantially larger firms.
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LEE W. HOEVEL, Director, President and Secretary, received his
undergraduate degrees in mathematics and economics at Rice University. He
received graduate degrees in electrical engineering and computer science at
Johns Hopkins University. Dr. Hoevel's career spans nearly twenty years of
technology development and executive management. During his tenure at
AT&T/NCR, he held numerous positions of increased responsibility including
director of Advanced Architecture, chief architect for Workstation Products
Division, vice president for Research and Development Division, and chief
technical officer for AT&T Global Information Solutions. Dr. Hoevel holds
seven U.S. Patents in technology design and is the author of 39 technical
papers.
MASAHIRO TSUCHIYA, Director and acting marketing representative of the
Company in Japan, received his Ph.D. degree in computer sciences from the
University of Texas at Austin. Currently he is president of Sypex
International Company, based in the U.S. and Japan. As founder and president
of Sypex, he has served as consultant to several startup and major
corporations in the U.S., Japan and Korea on high technology product
development and marketing plans. From 1980 to 1988, he worked on systems
engineering of several major U.S. missile and space defense programs at TRW
Defense Systems Group, Redondo Beach, California. His academic career
includes a research associate at the University of California, Berkeley in
1991, and an adjunct professor of computer science at the University of
Southern California, Los Angeles, in 1986. From 1973 to 1979, he was an
associate professor at the University of Hawaii at Manoa, Honolulu, an
assistant professor at the University of California, Irvine, and at
Northwestern University, Evanston, Illinois. In 1975, he was a visiting
computer scientist for research in computer architecture at Arhus University,
Arhus, Denmark, and in 1972, he was a visiting lecturer at Konan University,
Japan.
PROPOSAL 3 REVERSE SPLIT OF COMMON STOCK
GENERAL
The Board of Directors, by unanimous vote, has approved, and recommends
that the Company's stockholders approve a proposal to effect a reverse
exchange (the "Reverse Share Exchange") of the Company's Common Stock at up
to a 1 for 10 ratio, at the discretion of the Company's Board of Directors.
The Reverse Share Exchange will not alter the number of shares of the
Company's Common Stock authorized for issuance, but will simply reduce the
number of shares of Common Stock issued and outstanding.
The principal purpose of the proposed Reverse Share Exchange is to
satisfy certain conditions set forth in a letter of intent for a proposed
secondary public offering of the Company's securities.
The Board of Directors also believes that it is desirable to have
additional authorized shares of Common Stock available for possible future
financing and acquisition transactions and other general corporate purposes.
Because the need to raise additional capital or the opportunity to effect an
acquisition can arise when it would be inconvenient to hold a shareholders'
meeting or when there would not be time for such a meeting, the Board of
Directors believes that it would be prudent business planning for the number
of authorized shares of Common Stock to remain at 70,000,000 following the
Reverse Share Exchange.
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PURPOSE AND EFFECT OF PROPOSED REVERSE SHARE EXCHANGE; LETTER OF INTENT FOR
SECONDARY PUBLIC OFFERING
On May 7, 1997, the Company entered into a letter of intent with a group
of underwriters proposed to be led by Nichols, Safina, Lerner and Company,
Inc. as representative (the "Representative") with respect to a proposed
secondary public offering (the "Proposed Offering") of the Company's Common
Stock of up to $25,000,000. The letter of intent requires that the Company
effect a reverse split of the Company's Common Stock and obtain a listing on
the NASDAQ National Market System ("NASDAQ/NMS") as conditions of closing the
Proposed Offering. The Company will only effect the Reverse Share Exchange,
if adopted by the Company's stockholders, on the effective date of the
registration statement for the Proposed Offering. There can be no assurances
that the Proposed Offering will be completed on the terms set forth in the
letter of intent or at all.
Further, this Proposal 3 grants to the Company's Board of Directors the
discretion to effect the Reverse Share Exchange at up to a 1 for 10 ratio.
If this Proposal 3 is adopted by the Company's stockholders and a
registration statement for the Proposed Offering becomes effective, the
Company intends to effect the Reverse Share Exchange on the effective date of
such a registration statement. Management intends to determine the ratio of
the Reverse Share Exchange based on negotiations with the Representative.
There can be no assurances as to the ratio of the Reverse Share Exchange
which may be finally determined, if at all, although the number of "old"
shares which may be exchanged for one "new" share of Common Stock will be no
greater than 10 shares.
The Company believes that the total number of shares of the Company's
Common Stock outstanding is disproportionately large in relation to the
Company's level of sales, net income and net worth. Additionally, the
Company's Common Stock has had a low market value per share in recent months,
which in the opinion of the Board of Directors tends to reduce stockbroker
and investor interest in the Company.
The Board believes that the current per share price of the Common Stock
may limit the effective marketability of the Common Stock because of the
reluctance of many brokerage firms and institutional investors to recommend
lower-priced stocks to their clients or to hold them in their own portfolios.
In addition, certain policies and practices of the securities industry may
tend to discourage individual brokers within those firms from dealing in
lower-priced stocks. Some of those policies and practices involve
time-consuming procedures that make the handling of lower-priced stocks
economically unattractive. The Board believes that a decrease in the number
of shares of Common Stock outstanding without any material alterations of the
proportionate economic interest in the Company represented by individual
stockholdings may increase the trading price of such shares, although no
assurance can be given that the market price of the Common Stock will rise in
proportion to the reduction in the number of outstanding shares resulting
from the Reverse Share Exchange. If, as a result of the Reverse Share
Exchange and other factors, the market price per share of the Common Stock is
increased sufficiently, the Company believes that the marketability of the
Common Stock may be enhanced. However, there can be no assurances to this
effect.
The market price of the Common Stock also may be based on Company
performance and other factors, some of which may be unrelated to the number
of shares outstanding. Accordingly, there can be no assurance that the
market price of the Common Stock after the Reverse Share Exchange will
actually increase in an amount proportionate to the decrease in the number of
outstanding shares.
15
<PAGE>
Although the Board of Directors has no present intention of doing so, the
additional shares of authorized but unissued Common Stock which may result
from the proposed Reverse Share Exchange could also be used by the Board of
Directors to defeat or delay a hostile takeover. Faced with an actual or
proposed hostile takeover, the directors could issue shares of Common Stock,
in a private transaction, to a friendly party who might align themselves with
the Board of Directors in opposing a hostile takeover. Accordingly, the
proposed amendment could be considered to have the effect of discouraging a
takeover of the Company. The directors are not aware, however, of any
current proposals by any party to acquire control of the Company and the
Reverse Share Exchange is not intended to be an anti-takeover device.
As of August 1, 1997, the Company had 38,792,840 shares of Common Stock
issued and outstanding. Further, the Company had issued and outstanding
warrants and options to purchase up to an additional 6,117,046 shares of
Common Stock.
The Company's Common Stock is listed for trading on the OTC Electronic
Bulletin Board maintained by the National Association of Securities Dealers,
Inc. ("NASD") or in the "pink sheets" maintained by the National Quotation
Bureau, Inc. (the "Over-The-Counter Market") under the symbol "IMES." The
following table sets forth quotations for the bid and asked prices for the
Common Stock for the periods indicated below, based upon quotations between
dealers, without adjustments for stock splits, dividends, retail mark-ups,
mark-downs or commissions, and therefore, may not represent actual
transactions:
BID PRICES ASKED PRICES
---------- ------------
HIGH LOW HIGH LOW
---- --- ---- ---
Year Ended December 31, 1995
1st Quarter 1 13/32 5/16 2 5/8 5/8
2nd Quarter 1 1/2 7/8 1 11/16 1 1/32
3rd Quarter 2 31/32 7/8 3 1/16 31/32
4th Quarter 2 3/32 31/32 3 1/8 1
Year Ended December 31, 1996
1st Quarter 2 3/8 1 5/16 2 7/16 1 3/8
2nd Quarter 2 5/16 1 5/8 2 7/16 1 23/32
3rd Quarter 2 7/32 1 5/16 2 5/16 1 1/2
4th Quarter 1 23/32 31/32 1 25/32 1 1/16
Year Ending December 31, 1997
1st Quarter 2 1 1/8 2 1/16 1 1/4
2nd Quarter 1 21/32 15/16 1 11/16 1
On August 1, 1997, the closing bid and asked market prices for the
Company's Common Stock in the Over-The-Counter Market were approximately
$0.84 and $0.91 per share, respectively.
The minimum market price per share required for initial inclusion in the
NASDAQ/NMS is $3.00 per share. The NASDAQ/NMS has proposed certain changes to
the minimum market price for initial inclusion, which may increase the
requisite minimum market price therefor. There can be no assurances that the
Reverse Share Exchange will result in the market price of the Common Stock
meeting the requirement as is currently constituted or as it may be increased
by such proposal.
16
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No dividend has been declared or paid by the Company since inception on
the Company's Common Stock. The Company does not anticipate that any
dividends will be declared or paid in the future on the Company's Common
Stock.
EFFECT OF PROPOSED REVERSE EXCHANGE UPON HOLDERS OF COMMON STOCK
On August 1, 1997, there were 38,792,840 shares of Common Stock
outstanding. Consummation of the Reverse Share Exchange, assuming that the
Company effects the Reverse Share Exchange on a 1 for 10 ratio, would
decrease the number of outstanding shares of Common Stock to approximately
3,879,284 shares. The par value of the Common Stock will remain as $0.0001
per share and the authorized number of shares of Common Stock will be
70,000,000. As a consequence, the aggregate par value of the outstanding
Common Stock will be reduced, while the aggregate capital in excess of par
value attributable to the outstanding Common Stock for statutory and
accounting purposes will be correspondingly increased. The resolution
approving the Reverse Share Exchange provides that this increase in capital
in excess of par value will be treated as capital for statutory purposes.
However, under Delaware law, the Board of Directors of the Company will have
the authority, subject to various limitations, to transfer some or all of
such increased capital in excess of par value from capital to surplus, which
additional surplus could be distributed to stockholders as dividends or used
by the Company to repurchase outstanding stock. The Company currently has no
plans to use any surplus so created to pay any such dividend or to repurchase
stock.
Subject to the provisions for elimination of fractional shares as
described below, consummation of the Reverse Share Exchange will not result
in a change in the relative equity position or voting power of the holders of
Common Stock.
No fractional shares of Common Stock will be issued to any stockholder.
Accordingly, stockholders of record who would otherwise be entitled to
receive fractional shares of Common Stock, will, upon surrender of their
certificates representing shares of the Company's Common Stock, receive a
cash payment in lieu thereof equal to the value of such fractional share
determined by reference to the average closing bid prices of the Common Stock
for a period of ten (10) trading days immediately preceding the effective
date of the Reverse Share Exchange (the "Effective Date"), as reported in the
Over-the-Counter Market (as defined hereinafter). Holders of less than one
share of Common Stock as a result of the Reverse Share Exchange no longer
will be stockholders of the Company as of the effective date of the Reverse
Share Exchange (the "Effective Date").
Stockholders should be aware that as a general rule, a stock split will,
in and of itself, neither increase nor decrease the intrinsic value of a
stockholder's investment. Except for holders of a very small number of
shares who receive cash in lieu of a fractional share, the smaller number of
shares resulting from a reverse split generally leaves stockholders with
approximately the same proportionate ownership as before the reverse split.
The issuance of cash in lieu of a fractional share will increase the
proportionate interest of some stockholders and decrease the proportionate
interest of others.
The greatest possible increase in ownership will accrue to any
stockholder holding a number of shares evenly divisible by 10, if any so
exist. Those current holders of a number of shares of Common Stock not
evenly divisible by 10, assuming a Reverse Share Exchange at a 1 for 10
ratio, will receive cash in lieu of fractional shares, and will
correspondingly suffer a dilution in ownership. The difference in the
ownership interest of each stockholder resulting from the Reverse Share
Exchange will generally be inversely proportional to the number of shares
held by such stockholder, with large stockholders generally affected the
least.
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The Reverse Share Exchange may leave stockholders with one or more "odd
lots" of the Company's stock, i.e. stock holdings in amounts of less than 100
shares. These shares may be more difficult to sell, or require a greater
commission per share to sell, than shares in lots of 100.
The Company believes that the Reverse Share Exchange will have no
detrimental effect on the total value of the Company's Common Stock.
However, to the extent that a stockholder's holding is reduced by reason of
the Reverse Share Exchange to less than 100 shares of Common Stock, the
brokerage fees for the sale of his or her shares may in all likelihood be
higher than the brokerage fees applicable to the sale of round lots of shares.
MANNER OF EFFECTING THE REVERSE SHARE EXCHANGE: EXCHANGE OF CERTIFICATES AND
ELIMINATION OF FRACTIONAL SHARE INTERESTS
The Reverse Share Exchange will be effected by the filing with the
Secretary of State of Delaware, in the event of the approval of the Reverse
Share Exchange by the Company's stockholders, a Certificate of Amendment to
the Certificate of Incorporation (the "Amended Certificate of Incorporation")
of the Company in substantially the form attached as Exhibit "A" to this
Proxy Statement, in order to complete the transactions contemplated by the
Reverse Share Exchange. The Reverse Share Exchange will become effective on
the date of filing of the Amended Certificate of Incorporation unless the
Company specifies otherwise (the "Effective Date"). Assuming stockholder
approval of the proposed Reverse Share Exchange is obtained, the Company
intends to file the Amended Certificate of Incorporation on the effective
date of the registration statement which may be filed in connection with the
Proposed Offering.
In addition to the discretion of the Board of Directors to negotiate the
ratio of the Reverse Share Exchange with the Representative up to a 1 for 10
ratio, the Board of Directors of the Company reserves the right, in its
absolute discretion, to abandon the proposed Reverse Share Exchange at any
time prior to the effectuation of the Reverse Share Exchange. The Board of
Directors may choose to exercise such discretion in certain situations,
including, without limitation negotiations with respect to the Proposed
Offering in which the Representative requests that the Company not proceed
with the Reverse Share Exchange.
On the Effective Date, assuming a Reverse Share Exchange at a 1 for 10
ratio, each 10 shares of the "old" Common Stock will automatically be
combined and changed into one share of "new" Common Stock. No additional
action on the part of the Company or any stockholder will be required in
order to effect the Reverse Share Exchange. Stockholders will be requested
to exchange their certificates representing shares of Common Stock held prior
to the Reverse Share Exchange for new certificates representing shares of
"new" Common Stock issued as a result of the Reverse Share Exchange.
Stockholders will be furnished the necessary materials and instructions to
effect such exchange promptly following the Effective Date by the Company's
transfer agent.
CERTIFICATES REPRESENTING SHARES OF THE "OLD" COMMON STOCK SUBSEQUENTLY
PRESENTED FOR TRANSFER WILL NOT BE TRANSFERRED ON THE BOOKS AND RECORDS OF
THE COMPANY UNTIL THE CERTIFICATES REPRESENTING THE SHARES OF "OLD" COMMON
STOCK HAVE BEEN EXCHANGED FOR CERTIFICATES REPRESENTING SHARES OF "NEW"
COMMON STOCK.
Stockholders should not submit any certificates until requested to do so.
In the event any certificate representing shares of the "old" Common Stock is
not presented for exchange upon request by the Company, any dividends that
may be declared after the Effective Date with respect to the Common Stock
represented by such certificate will be withheld by the Company until such
certificate has been properly presented for exchange, at which time all such
withheld dividends which have not yet been paid to the public official
pursuant to relevant abandoned property laws will be paid to the holder
thereof or his designee, without interest.
18
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT
The following description of federal income tax consequences is based on
the Internal Revenue Code of 1986, as amended, and applicable Treasury
regulations promulgated thereunder, judicial authority and current
administrative rulings and practices as in effect on the date of this Proxy
Statement. This discussion should not be considered tax or investment
advice, and the tax consequences of the reverse stock split may not be the
same for all stockholders. In particular, this discussion does not address
the tax treatment of special classes of stockholders, such as banks,
insurance companies, tax-exempt entities and foreign persons. Stockholders
desiring to know their individual federal, state, local and foreign tax
consequences should consult their own tax advisors.
The combination and change of up to each 10 shares of "old" Common Stock
into one share of "new" Common Stock will be a tax-free transaction, and the
holding period and tax basis of the "old" Common Stock will be carried over
to the "new" Common Stock received in exchange therefor.
Generally, cash received in lieu of fractional shares will be treated as
received in exchange for the fractional shares (although in unusual
circumstances, a portion of such cash may possibly be deemed a dividend), and
stockholders will recognize gain or loss based upon the difference between
the amount of cash received and the tax basis in the surrendered fractional
shares. If the fractional shares surrendered have been held as capital assets
by such stockholder, then any gain or loss recognized by such stockholder
will be a capital gain or loss.
AVAILABILITY OF DISSENTERS' RIGHTS
The Company believes there are no dissenters' or appraisal rights
available to stockholders with respect to the proposed reverse stock split.
VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS
Under the Company's Certificate of Incorporation and Delaware law, this
Proposal 3 to effect the Reverse Share Exchange must be approved by the
affirmative vote of the holders of a majority of the issued and outstanding
shares of the Company's Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
19
<PAGE>
OTHER MATTERS
The Company knows of no other matters to be submitted at the Meeting. If
any other matters properly come before the Meeting, it is the intention of
the persons named in the enclosed proxy card to vote the shares they
represent as the Board of Directors may recommend.
By Order of the Board of Directors of
INTERNATIONAL META SYSTEMS, INC.
By: /s/ George W. Smith
-----------------------------------
George W. Smith
Chief Executive Officer
El Segundo, California
August 4, 1997
20
<PAGE>
EXHIBIT A
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
INTERNATIONAL META SYSTEMS, INC.
a Delaware corporation
The undersigned, the Chief Executive Officer of International Meta
Systems, Inc., a Delaware corporation (the "Corporation"), hereby certifies
that the following Certificate of Amendment to the Certificate of
Incorporation has been duly adopted by its Board of Directors and
stockholders, in accordance with Sections 141(f), 211 and 242 of the Delaware
General Corporation Law, as set forth below:
1. The Board of Directors unanimously adopted a resolution dated
________, 1997, setting forth the then proposed Certificate of Amendment to
the Certificate of Incorporation, declaring the advisability thereof, and
pursuant to action taken by written consent, adopted this Certificate of
Amendment to the Certificate of Incorporation pursuant to Sections 141(f) and
242 of the Delaware General Corporation Law.
2. Thereafter, the stockholders of record owning a majority of the issued
and outstanding shares, at a duly authorized and convened meeting of the
stockholders, adopted the proposed Certificate of Amendment to the
Certificate of Incorporation on ________, 1997, pursuant to Sections 211 and
242 of the Delaware General Corporation Law. The vote of the stockholders of
the Corporation by which the foregoing Certificate of Amendment to the
Certificate of Incorporation was adopted and approved was ________ shares in
favor, _________ shares opposed and _________ abstaining or not voting, out
of the Corporation's total of ________ shares issued and outstanding.
3. The resolution by which the Corporation's directors and stockholders
adopted the Certificates of Amendment to the Certificate of Incorporation, as
set forth above, provides that the FOURTH Article, Paragraph 1, of the
Corporation's Restated Certificate of Incorporation, as amended to date, be
amended to provide in its entirety as follows:
<PAGE>
"FOURTH: 1. The total number of shares of stock which
the Corporation shall have authority to issue is Seventy
One Million (71,000,000) shares, consisting of Seventy
Million (70,000,000) shares of Common Stock, par value
$0.0001 per share (the "Common Stock") and One Million
(1,000,000) shares of Preferred Stock, par value $0.0001
per share (the "Preferred Stock")." Upon the date of the
effectiveness of the amendment of this Article (the
"Effective Date"), each _________ (______) issued and
outstanding shares of Common Stock or issued and held in
the treasury of the Corporation shall be converted into
one (1) share of Common Stock. No fractional shares shall
be issued pursuant to such conversion. The Corporation shall
pay to each stockholder who would otherwise be entitled to a
fractional share as a result of such conversion, the cash
value of such fractional share determined by reference to the
average of the high and low closing bid and asked prices of
the Common Stock for a period of ten trading days immediately
preceding the Effective Date, as reported in the principal
market for the Company's Common Stock. Each certificate for
Common Stock outstanding or held in treasury on the Effective
Date shall thereupon and thereafter evidence the number of
shares of Common Stock, and/or the right to receive cash into
which such shares shall have been converted, and may be
surrendered to the Corporation for cancellation in exchange
for new certificates representing such number of shares and/or
cash.
4. This amendment shall be effective as of the date of filing of this
Certificate of Amendment with the Secretary of State of Delaware.
2
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to the Certificate of Incorporation to be executed by its
Chief Executive Officer as of _________, 1997.
INTERNATIONAL META SYSTEMS, INC.
By:
------------------------------
George A. Smith
Chief Executive Officer
3
<PAGE>
P R O X Y
INTERNATIONAL META SYSTEMS, INC.
THIS PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 18, 1997
The undersigned stockholder appoints George W. Smith and Sigmund
Hartmann, or either of them, as proxy with full power of substitution, to
vote the shares of voting securities of International Meta Systems, Inc. (the
"Company") which the undersigned is entitled to vote at the Annual Meeting of
Stockholders to be held at the Radisson Hotel, 1400 Park View Avenue,
Manhattan Beach, California, on September 18, 1997, at 10:00 a.m., local
time, and at any adjournments thereof, upon matters properly coming before
the meeting, as set forth in the Notice of Annual Meeting and Proxy
Statement, both of which have been received by the undersigned. Without
otherwise limiting the general authorization given hereby, such proxy is
instructed to vote as follows:
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE PROPOSALS INDICATED ON THIS CARD AND
AS SUCH PROXIES DEEM ADVISABLE WITH DISCRETIONARY AUTHORITY ON SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING AND ANY
ADJOURNMENT OR ADJOURNMENTS THEREOF.
(1) To ratify the appointment of Singer, Lewak, Greenbaum & Goldstein LLP,
Certified Public Accountants, as independent certified public accountants
of the Company for the fiscal year ending December 31, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) To elect to the Board of Directors seven (7) directors, as follows: CLASS I
- two (2) directors to serve for one-year terms; CLASS II - two (2)
directors to serve for two-year terms; and CLASS III - three (3) directors
to serve for three-year terms, or, in each case, until their successors are
elected and qualify, subject to their prior death, resignation or removal:
[ ] FOR ALL NOMINEES LISTED HEREIN (EXCEPT AS MARKED UP TO THE
CONTRARY BELOW).
[ ] WITHHOLD AUTHORITY TO VOTE FOR ALL NOMINEES LISTED BELOW.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME LISTED BELOW)
CLASS I - (ONE-YEAR TERM)
-------------------------
GEORGE W. SMITH SIGMUND HARTMANN
CLASS II - (TWO-YEAR TERM)
--------------------------
FRANK LACHAPELLE PHILIP NECHES
CLASS III - (THREE-YEAR TERM)
----------------------------
MARTIN S. ALBERT LEE W. HOEVEL MASAHIRO TSUCHIYA
<PAGE>
(3) To authorize an amendment to the Company's Certificate of Incorporation to
effect a reverse stock split of the Common Stock on up to a 1 for 10 basis,
at the discretion of the Board of Directors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In his discretion, the proxy is authorized to vote upon such other
business as may properly come before the meeting.
DATED:
----------------
-----------------------------------------
Signature
-----------------------------------------
Signature (if held jointly)
-----------------------------------------
Print Names
(Please sign exactly as your name appears hereon.
When signing as attorney, executor, administrator,
trustee or guardian, please give your full title.
If shares are jointly held, each holder must sign.
If a corporation, please sign in full corporate
name by President or other authorized officer. If
a partnership, please sign in partnership name by
authorized person).
PLEASE CHECK THE BOXES ABOVE AND ON THE REVERSE SIDE, SIGN, DATE AND RETURN
THIS PROXY TO INTERWEST TRANSFER CO., INC., P.O. BOX 17136, SALT LAKE CITY,
UTAH 84117, IN THE SELF-ADDRESSED ENVELOPE PROVIDED.
