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-b(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
GALLERY RODEO INTERNATIONAL
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] 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 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[X] 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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4. Date Filed:
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GALLERY RODEO INTERNATIONAL
Notice of Annual Meeting of Shareholders
To Be Held September 20, 1996
To the Shareholders of GALLERY RODEO INTERNATIONAL:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"Annual Meeting") of GALLERY RODEO INTERNATIONAL, a California corporation (the
"Company"), will be held at the Holiday Inn Denver Southeast, 3200 S. Parker
Road, Aurora, Colorado 80814, on Friday, September 20, 1996, at 10:00 a.m.,
local time, for the following purposes:
1. ELECTION OF DIRECTORS. To elect six (6) Directors of the Company to
serve until the 1997 Annual Meeting of Shareholders or until their respective
successors are elected and qualified;
2. APPROVAL OF AMENDMENT TO ARTICLES OF INCORPORATION TO CHANGE THE
CORPORATE NAME. To ratify and approve an amendment to the Articles of
Incorporation of the Company to change the name of the Company to
"Sierra-Rockies Corporation;"
3. APPROVAL OF AMENDMENT TO ARTICLES OF INCORPORATION TO AUTHORIZE UP
TO 1,000,000 SHARES OF PREFERRED STOCK. To ratify and approve an amendment to
the Articles of Incorporation of the Company to authorize the Company to issue
up to 1,000,000 shares of Preferred Stock, with such designations, powers,
preferences, privileges or other special rights, and qualifications, limitations
or restrictions thereon, as may be determined by the Board of Directors;
4. APPROVAL OF AMENDMENT TO ARTICLES OF INCORPORATION TO EFFECT A ONE-
FOR-TEN REVERSE STOCK SPLIT. To ratify and approve an amendment to the Articles
of Incorporation of the Company to ratify and approve a one-for-ten (1-for-10)
reverse split of the outstanding shares of Common Stock of the Company; and
5. To transact such other business as may properly come before the
Annual Meeting and any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement which is attached and made a part hereof.
The Board of Directors has fixed the close of business on August 14,
1996, as the record date for determining the shareholders entitled to notice of
and to vote at the Annual Meeting and any adjournment or postponement thereof.
Whether or not you expect to attend the Annual Meeting in person, you
are urged to mark, sign, date and return the enclosed proxy card as promptly as
possible in the postage-prepaid envelope provided to ensure your representation
and the presence of a quorum at the Annual Meeting. If you send in your proxy
card and then decide to attend the Annual Meeting to vote your shares in person,
you may still do so. Your proxy is revocable in accordance with the procedures
set forth in the Proxy Statement.
By Order of the Board of Directors
Kenneth M. Cahill
Chairman of the Board, President and
Chief Executive Officer
Colorado Springs, Colorado
September 5, 1996
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Mailed to Shareholders
on or about September 5, 1996
GALLERY RODEO INTERNATIONAL
2 North Cascade, Suite 330
Colorado Springs, CO 80903
PROXY STATEMENT
General Information
This Proxy Statement is furnished to shareholders of GALLERY RODEO
INTERNATIONAL, a California corporation (the "Company"), in connection with the
solicitation by the Board of Directors (the "Board") of the Company of proxies
in the accompanying form for use in voting at the Annual Meeting of Shareholders
of the Company (the "Annual Meeting") to be held on Friday, September 20, 1996,
at 10:00 a.m., local time, at The Holiday Inn Denver Southeast, 3200 S. Parker
Road, Aurora, Colorado, 80814, and any adjournment or postponement thereof. The
shares represented by the proxies received, properly marked, dated, executed and
not revoked will be voted at the Annual Meeting.
Revocability of Proxy
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is exercised by: (i) delivering to the
Company (to the attention of J. Royce Renfrow, the Company's Secretary) a
written notice of revocation or a duly executed proxy bearing a later date; or
(ii) attending the Annual Meeting and voting in person.
Solicitation and Voting Procedures
The solicitation of proxies will be conducted by mail and the Company
will bear all attendant costs. These costs will include the expense of preparing
and mailing proxy materials for the Annual Meeting and reimbursements paid to
brokerage firms and others for their expenses incurred in forwarding
solicitation material regarding the Annual Meeting to beneficial owners of the
Company's Common Stock. The Company may conduct further solicitation personally,
telephonically or by facsimile through its Officers, Directors and regular
employees, none of whom will receive additional compensation for assisting with
the solicitation.
The close of business on August 14, 1996, has been fixed as the record
date (the "Record Date") for determining the holders of shares of Common Stock
of the Company entitled to notice of and to vote at the Annual Meeting. As of
the close of business on the Record Date, the Company had approximately fifteen
million seven hundred eighty-six thousand six hundred eighty-one (15,786,681)
shares of Common Stock outstanding and entitled to vote at the Annual Meeting.
The presence at the Annual Meeting of a majority, or approximately seven million
eight hundred ninety-three thousand three hundred forty-one (7,893,341) of these
shares of Common Stock of the Company, either in person or by proxy, will
constitute a quorum for the transaction of business at the Annual Meeting. Each
outstanding share of Common Stock on the Record Date is entitled to one (1) vote
on all matters voted on at the Annual Meeting, except that cumulative voting may
be used in the election of directors. Under cumulative voting, each shareholder
may cast for a single candidate, or distribute among the candidates as such
shareholder chooses, a number of votes equal to the number of candidates (six
(6) at this meeting) multiplied by the number of shares held by such
shareholder. Cumulative voting will apply only to those candidates whose names
have been placed in nomination prior to voting. No shareholder shall be entitled
to cumulate votes unless the shareholder has given notice at the meeting, prior
to the voting, of the shareholder's intention to cumulate the shareholder's
votes. If any one shareholder gives such notice, all shareholders may cumulate
their votes for candidates in nomination, except to the extent that a
shareholder withholds votes from the nominees, the proxy holders named in the
accompanying form of proxy, in their sole discretion, will vote such proxy for,
and, if necessary, exercise cumulative voting rights to secure, the election of
the nominees listed below as directors of the Company. Directors shall be
elected by a plurality of the votes cast.
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An automated system administered by the Company's transfer agent will
tabulate votes cast by proxy and an employee of the transfer agent will tabulate
votes cast in person at the Annual Meeting. Abstentions and broker non-votes are
each included in the determination of the number of shares present and voting,
and each is tabulated separately. However, broker non-votes are not counted for
purposes of determining the number of votes cast with respect to a particular
proposal. In determining whether a proposal has been approved, abstentions are
counted as votes against the proposal and broker non-votes are not counted as
votes for or against the proposal.
If no specific instructions are given with respect to matters to be
acted upon at the Annual Meeting, shares of Common Stock represented by a
properly executed proxy will be voted (i) FOR the election of management's
nominees for Directors listed in Proposal No. 1; (ii) FOR the ratification of
the amendment to the Articles of Incorporation as set forth in Proposal No. 2;
(iii) FOR the ratification of the amendment to the Articles of Incorporation as
set forth in Proposal No. 3; and (iv) FOR the ratification of the amendment to
the Articles of Incorporation as set forth in Proposal No. 4.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's Bylaws authorize the number of Directors to be not less
than three (3), nor more than twenty-five (25). The number of Directors on the
Board is currently fixed at seven (7). The term for each of the Company's Board
of Directors will expire upon the election and qualification of Directors at the
annual meeting of shareholders to be held in 1997.
All of the Directors have served on the Board since May 1996, except
Mr. Thompson, who has served as a Director since 1988. The Board of Directors is
in the process of identifying candidates to fill the existing vacancy following
the resignations of Jack A. Schneider and George M. Maxson. In accordance with
the Company's Articles of Incorporation and Bylaws, the Board intends to appoint
a successor at the earliest practicable date. Accordingly, the shareholders will
vote at the Annual Meeting only on the six nominees for Director set forth
below.
The Board has no reason to believe that the persons named below will be
unable or unwilling to serve as a nominee or as a Director if elected.
Certain information about each of the nominees is furnished below:
Kenneth M. Cahill, Chairman of the Board, President and Chief Executive
Officer. Mr. Cahill joined the Company as Director, Chief Executive Officer and
President in May 1996. From 1980 to May 1996, Mr. Cahill served as Director of
Operations for Larken, Inc., a hotel operator. Mr. Cahill directed Larken's
day-to-day marketing and training initiatives for over seventy-six (76) hotels.
In 1984, Mr. Cahill formed Arcadia, Inc., where, as its Chief Executive Officer,
he concentrated Arcadia's efforts in the areas of gaming and hospitality. Since
May 1996, Mr. Cahill has also served as a Vice President of InnerCircle Group
Incorporated, a management consulting company. Since June 1996, Mr. Cahill has
also served as the President and CEO of Microtech Medical Systems, Inc., a
publicly-traded medical devices manufacturer.
Darel A. Tiegs, Director and Vice President. Mr. Tiegs joined the
Company on May 9, 1996 as Vice President and Director. From 1972 to 1975, Mr.
Tiegs was Vice President of Norwest Bank where he gained extensive experience in
all facets of the real estate industry. Mr. Tiegs headed projects including
residential developments, shopping centers, hospitals and casinos. From 1984, to
the present, he has been President and part owner of Superior Homes, a of
company specializing in the construction, warranty work and installation of
modular homes. Since June 1996, Mr. Tiegs has also served as a vice president of
Microtech Medical Systems, Inc., a publicly-traded medical devices manufacturer.
J. Royce Renfrow, Director, Corporate Secretary and General Counsel.
Mr. Renfrow joined the Company as General Counsel, Corporate Secretary and
Director in May, 1996. Mr. Renfrow practiced law in a small firm specializing in
real estate and corporate law from 1969, until May 1996. From 1969, to the
present, Mr. Renfrow has served as President and as General Counsel for Speedway
Gas and Oil Co., Inc., a small firm which provides management services for oil
and gas companies. From 1989, to 1992, Mr. Renfrow served as Vice President and
General Counsel of a small, privately-held medical start-up company, Medlogic
Global Corporation. From May 1996, until the present, Mr. Renfrow has served as
Corporate Secretary and General Counsel to InnerCircle Group Incorporated, a
management consulting company. Since June 1996, Mr. Renfrow has also served as a
Director, General Counsel and Corporate Secretary of Microtech Medical Systems,
Inc., a publicly-traded medical devices manufacturer.
James A. Humpal, Director and Treasurer. Mr. Humpal joined the Company
in May 1996, as Treasurer and Director. From 1989 to 1991, Mr. Humpal served as
General Manager of the Holiday Inn- Columbus in Ohio. From 1991 to 1992, he
began work for Larken Inc. as a General Manager of the Holiday Inn-Tucson in
Arizona. In 1992, and until May 1996, Mr. Humpal served as Vice President of
Operations of Larken Inc. Since June 1996, Mr. Humpal has also served as
Director and Treasurer of Microtech Medical Systems, Inc., a publicly-traded
medical devices manufacturer.
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Stephen M. Thompson, Director. Mr. Thompson has served as a Director of
the Company since 1988. From September 1991, until May 1996, Mr. Thompson served
as Chairman of the Board, Chief Executive Officer and Chief Financial Officer of
the Company. Between 1985 and 1988, Mr. Thompson's primary activity was that of
an independent business consultant with clients including Wexco International, a
real estate development company, Bio Care, Inc., a biological product
distributor and First Fidelity Exchange, a precious metals marketing concern.
Mr. Thompson's activities included design and layout of collateral sales
material, writing and organization of sales and presentations, and hiring and
training of sales and administrative staff.
Ray L. Bouchard, Director. Mr. Bouchard was appointed as a Director of
the Company in May 1996. In 1992, Mr. Bouchard was owner and NASD principal of
Triad Global Investment Company, where he worked to set up Tampa Bay's first
minority broker/dealer firm. From 1994, to 1995, he served as Vice President,
Mergers and Acquisitions of Viking Resources International, a company
specializing in acquisitions of businesses in the recycling industry. From
February 1995, until the present, Mr. Bouchard has served as President of
Corporate Services Group, Inc., an investment banking company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE ELECTION OF EACH OF THE NOMINEES NAMED ABOVE.
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Directors and Executive Officers
The following table sets forth certain information with respect to the
Directors and Executive Officers of the Company:
Directors and Executive Officers
Name Age Position
- ------------------- --- ---------------------------------------
Kenneth M. Cahill 60 Chairman of the Board of Directors,
President and Chief Executive Officer
J. Royce Renfrow 53 General Counsel, Secretary and Director
Darel A. Tiegs 52 Vice President and Director
James A. Humpal 41 Treasurer and Director
Ray L. Bouchard 49 Director
Stephen M. Thompson 47 Director
- --------------------
Relationships Among Directors or Executive Officers
There are no family relationships among any of the Directors or
executive officers of the Company.
Meetings and Committees of the Board of Directors
During 1995, the Board met eleven (11) times and acted by written
consent eighteen (18) times. No Director attended fewer than seventy-five
percent (75%) of the aggregate of the total number of meetings of the Board.
The Board currently has no audit, nominating or compensation
committees.
Compensation of Directors
No Directors, either those who are employees of the Company or the
outside directors, receive compensation for their services as Directors.
However, outside directors are reimbursed for expenses incurred in connection
with attending Board meetings.
The Company has entered into a management fee contract with InnerCircle
Group Incorporated ("InnerCircle"). InnerCircle provides certain management
services to the Company. Certain officers and directors of the Company are also
the owners of InnerCircle and are officers and directors of InnerCircle. Such
persons are compensated by InnerCircle. See "Certain Relationships and Related
Transactions."
No Directors' fees were paid during 1995. On January 16, 1995, the
Company issued an option to purchase one hundred thousand (100,000) shares of
the Company's restricted Common Stock to Jack Schneider, a former Director of
the Company. The option is exercisable at Fifty Cents ($0.50) per share and will
expire three (3) years from the date of grant.
In addition, the Company paid George M. Maxson, a former Director of
the Company, consulting fees totalling Seventeen Thousand Five Hundred
Thirty-nine Dollars ($17,539) during 1995. See "Certain Relationships and
Related Transactions."
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SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial
ownership of the Company's Common Stock as of August 14, 1996, by any person who
is known to the Company to be the beneficial owner of more than five percent
(5%) of the Company's voting securities, by each of the Named Executive Officers
set forth in "Executive Compensation" below, by each Director, and by the
officers and Directors of the Company as a group. The Company has only one class
of stock.
Name and Address(1) Number of Shares Percentage of Class
- --------------------------------------------------------------------------------
Stephen M. Thompson 4,000,000(2) 25.34%
4223 Las Vegas Blvd. South
Las Vegas, Nevada 89119
- --------------------------------------------------------------------------------
Richard Carthew 1,780,188 11.28%
421 N. Rodeo Drive
Beverly Hills, CA 90210
- --------------------------------------------------------------------------------
Kenneth M. Cahill 0 *
- --------------------------------------------------------------------------------
Darel A. Tiegs 839,070(3) 5.33%
- --------------------------------------------------------------------------------
J. Royce Renfrow 423,994(4) 2.69%
- --------------------------------------------------------------------------------
Ray L. Bouchard 0 *
- --------------------------------------------------------------------------------
James A. Humpal 0 *
- --------------------------------------------------------------------------------
All Officers and Directors 4,890,975 30.98%
as a Group (6 persons)
- --------------------------------------------------------------------------------
- --------------------------
* Represents less than one percent (1%) of the Company's outstanding Common
Stock.
(1) Unless otherwise indicated, the address of each of the persons
below is c/o Gallery Rodeo International, 2 North Cascade, Suite 330, Colorado
Springs, CO 80903.
(2) Includes two million five hundred sixty-five thousand eight hundred
thirty-three (2,565,833) shares held by Clipper Industries, Inc., a corporation
owned by the Thompson Family Trust, with Stephen M. Thompson as Trustee. The
beneficiaries under the Thompson Family Trust are January Lee Thompson and other
members of the Thompson family, excluding Stephen M. Thompson. Mr. Thompson
serves as sole Director, President and Treasurer of Clipper Industries, Inc.
Also includes one million four hundred thirty-four thousand one hundred
fifty-seven (1,434,157) shares which the Company has agreed to issue to Mr.
Thompson as soon as practicable.
(3) Includes four hundred sixty-six thousand nine hundred eighty-one
(466,981) shares held by the Tiegs Family Trust, of which Mr. Tiegs is Trustee.
The beneficiaries under the Tiegs Family Trust are members of the Tiegs family.
Also includes three hundred seventy-two thousand eight- nine (372,089) shares
held by Mountainscape Holding Corporation, of which thirty-three and one-third
percent (33.3%) is owned by the Tiegs Family Trust.
(4) Includes (i) twelve thousand five hundred (12,500) shares held by
J. Royce Renfrow, P.C., a professional corporation of which Mr. Renfrow is the
sole shareholder; (ii) thirty-nine thousand two hundred five (39,205) shares
held by R Lazy J Trust, of which Mr. Renfrow is Trustee, and of which the
beneficiaries are members of the Renfrow family; (iii) three hundred seventy-two
thousand eight-nine (372,089) shares held by Mountainscape Holding Corporation,
of which Mont Blanc Development Corporation (of which Mr. Renfrow owns eighty
percent (80%) of the capital stock and of which he serves as President and as a
Director) owns thirty-three and one-third percent (33.3%) of the capital stock
and of which he serves as sole Director, President and Treasurer; and (iv) an
aggregate of two hundred (200) shares held by Mr. Renfrow's wife.
In connection with the restructuring of the Board of Directors, Stephen
Thompson and his affiliate, Clipper Industries, entered into a Voting Trust
Agreement pursuant to which Mr. Thompson has deposited the 2,565,843 shares
owned by him and his affiliate into a voting trust. When the additional
1,434,157 shares are issued, these shares will also be deposited into the trust.
The trustee of the trust is directed to vote the 4,000,000 shares in favor of
the nominees for Director proposed by the current Board. The Voting Trust will
terminate nine months following May 1996. See "Certain Relationships and Related
Transactions."
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PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO ARTICLES OF INCORPORATION
TO CHANGE THE NAME OF THE COMPANY
The Company's shareholders are being asked to act upon a proposal to
ratify and approve an amendment to Articles of Incorporation of the Company to
effect a change of the name of the Company to "Sierra-Rockies Corporation."
The Company's Board has adopted, and is recommending to the
shareholders for their approval at the Annual Meeting, a resolution to amend
Article I of the Company's Articles of Incorporation to change the corporate
name. The applicable text of the Board's resolution is as follows:
RESOLVED: That Article I of the Company's Articles of Incorporation be
amended to read in its entirety as follows:
"The name of this corporation is SIERRA-ROCKIES CORPORATION."
In the judgment of the Board of Directors, the change of corporate name
is desirable in view of the relocation of the Company's corporate offices to
Colorado and the significant change in the character and strategic focus of the
business of the Company resulting from disposition of the Company's art gallery
business. This relocation and disposition of the Company were part of a
strategic corporation program to refocus the Company's business operations into
the gaming industry, primarily in Colorado, which industry the Company's new
management believes has higher growth potential than the art gallery business.
If the proposed name change is adopted, it is the intent of the Company
to use the trade name Sierra- Rockies Corporation in its communications with
shareholders and the investment community, and in its operations.
If the amendment is adopted, shareholders will not be required to
exchange outstanding stock certificates for new certificates.
Approval by Shareholders
Approval of this proposal requires the affirmative vote of a majority
of the outstanding shares of Common Stock of the Company entitled to vote at the
Annual Meeting. If approved by the shareholders, the amendment to Article I will
become effective upon filing with the Secretary of State of California, a
Certificate of Amendment to the Company's Articles of Incorporation, which
filing is expected to take place shortly after the Annual Meeting. However, the
Board of Directors will be authorized, without a further vote of the
shareholders, to abandon the name change and determine not to file the
Certificate of Amendment if the Board concludes that such action would be in the
best interest of the Company and its shareholders. If this proposal is not
approved by the shareholders, then the Certificate of Amendment will not be
filed.
A copy of the proposed Amendment to the Articles of Incorporation
incorporating this Proposal No. 2 is set forth in Exhibit A attached to this
Proxy Statement, and is incorporated herein by this reference. In the event this
Proposal No. 2 is approved by the shareholders and the Amendments to the
Articles of Incorporation described in Proposals No. 3 and No. 4 (below) are
also approved, the Company's Articles of Incorporation will be restated to
include each of the Amendments. A copy of the proposed Amended and Restated
Articles of Incorporation is set forth in full as Exhibit D, attached to this
Proxy Statement, and is incorporated herein by this reference; provided,
however, that the text of the Amended and Restated Articles of Incorporation is
subject to change as may be required by the California Secretary of State, and
the Board may make any and all changes to the Amended and Restated Articles of
Incorporation that it deems necessary to file the document with the California
Secretary of State, and give effect to the Amendments described in Proposals No.
2, No. 3 and No. 4, assuming approval of such proposals by the shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENT TO THE ARTICLES OF INCORPORATION TO
CHANGE THE NAME OF THE COMPANY
AN ABSTENTION WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE PROPOSAL.
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PROPOSAL NO. 3
APPROVAL OF AMENDMENT TO ARTICLES OF INCORPORATION
TO AUTHORIZE UP TO 1,000,000 SHARES
OF PREFERRED STOCK
The Company's shareholders are being asked to act upon a proposal to
ratify and approve an Amendment to Articles of Incorporation of the Company to
authorize the Company to issue up to one million (1,000,000) shares of Preferred
Stock with such designations, powers, preferences, privileges or other special
rights, and the qualifications, limitations or restrictions thereon as may be
determined by the Board of Directors.
The Board of Directors has adopted and submitted to the shareholders
for approval an amendment to the Articles of Incorporation (the "Preferred Stock
Amendment") to authorize the issuance by the Company of up to one million
(1,000,000) shares of Preferred Stock. The text of the Preferred Stock Amendment
is attached hereto as Exhibit B, and is incorporated herein by reference.
The Board of Directors believes that it is advisable to authorize such
shares and have them available in connection with possible future transactions,
such as financings, strategic alliances, corporate mergers, acquisitions,
possible funding of new product programs or businesses and other uses not
presently determinable and as may be deemed to be feasible and in the best
interest of the Company. In addition, the Board of Directors believes that it is
desirable that the Company have the flexibility to issue shares of Preferred
Stock without further shareholder action, except as otherwise provided by law.
The Preferred Stock will have such designations, preferences,
conversion rights, cumulative, relative, participating, optional or other
rights, including voting rights, qualifications, limitations or restrictions
thereof as are determined by the Board of Directors. Thus, if the Preferred
Stock Amendment is approved, the Board of Directors would be entitled to
authorize the creation and issuance of up to one million (1,000,000) shares of
Preferred Stock in one (1) or more series with such limitations and restrictions
as may be determined in the Board's sole discretion, without further
authorization by the Company's shareholders. Shareholders will not have
preemptive rights to subscribe for shares of Preferred Stock.
It is not possible to determine the actual effect of the Preferred
Stock on the rights of the shareholders of the Company until the Board of
Directors determines the rights of the holders of a series of the Preferred
Stock. However, such effects might include (i) restrictions on the payment of
dividends to holders of the Common Stock; (ii) dilution of voting power to the
extent that the holders of shares of Preferred Stock are given voting rights;
(iii) dilution of the equity interests and voting power if the Preferred Stock
is convertible into Common Stock; and (iv) restrictions upon any distribution of
assets to the holders of the Common Stock upon liquidation or dissolution and
until the satisfaction of any liquidation preference granted to the holders of
Preferred Stock.
Although the Board of Directors has no present intention of doing so,
it could issue shares of Preferred Stock (within the limits imposed by
applicable law) that could, depending on the terms of such series, make more
difficult or discourage an attempt to obtain control of the Company by means of
a merger, tender offer, proxy contest or other means. When in the judgment of
the Board of Directors such action would be in the best interests of the
shareholders and the Company, the issuance of shares of Preferred Stock could be
used to create voting or other impediments or to discourage persons seeking to
gain control of the Company, for example, by the sale of Preferred Stock to
purchasers favorable to the Board of Directors. In addition, the Board of
Directors could authorize holders of a series of Preferred Stock to vote either
separately as a class or with the holders of Common Stock, on any merger, sale
or exchange of assets by the Company or any other extraordinary corporate
transaction. The existence of the additional authorized shares could have the
effect of discouraging unsolicited takeover attempts. The issuance of new shares
could also be used to dilute the stock ownership of a person or entity seeking
to obtain control of the Company should the Board of Directors consider the
action of such entity or person not to be in the best interests of the
shareholders and the Company. Such issuance of Preferred Stock could also have
the effect of diluting the earnings per share and book value per share of the
Common Stock held by the holders of Common Stock.
8
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While the Company may consider effecting an equity offering of
Preferred Stock in the future for the purposes of raising additional working
capital or otherwise, the Company, as of the date hereof, has no agreements or
understanding with any third party to effect any such offering and not
assurances are given that any offering will, in fact, be effected.
Dissenters' Rights
The Company's shareholders are not entitled, under California law, to
dissenters' rights of appraisal with respect to the Preferred Stock Amendment.
Approval by Shareholders
Approval of this proposal requires the affirmative vote of a majority
of the outstanding shares of Common Stock of the Company entitled to vote at the
Annual Meeting. If approved by the shareholders, the amendment to Article IV
will become effective upon filing with the Secretary of State of California, a
Certificate of Amendment to the Company's Articles of Incorporation, which
filing is expected to take place shortly after the Annual Meeting. However, the
Board of Directors will be authorized, without a further vote of the
shareholders, to abandon the Preferred Stock authorization and determine not to
file the Certificate of Amendment if the Board concludes that such action would
be in the best interest of the Company and its shareholders. If this proposal is
not approved by the shareholders, then the Certificate of Amendment will not be
filed.
A copy of the proposed Amendment to the Articles of Incorporation
incorporating this Proposal No. 3 is set forth in Exhibit B attached to this
Proxy Statement, and is incorporated herein by this reference. In the event this
Proposal No. 3 is approved by the shareholders and the Amendments to the
Articles of Incorporation described in Proposals No. 2 (above) and No. 4 (below)
are also approved, the Company's Articles of Incorporation will be restated to
include each of the Amendments. A copy of the proposed Amended and Restated
Articles of Incorporation is set forth in full as Exhibit D, attached to this
Proxy Statement, and is incorporated herein by this reference; provided,
however, that the text of the Amended and Restated Articles of Incorporation is
subject to change as may be required by the California Secretary of State, and
the Board may make any and all changes to the Amended and Restated Articles of
Incorporation that it deems necessary to file the document with the California
Secretary of State, and give effect to the Amendments described in Proposals No.
2, No. 3 and No. 4, assuming approval of such proposals by the shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENT TO THE ARTICLES OF INCORPORATION TO
AUTHORIZE UP TO 1,000,000 SHARES OF PREFERRED STOCK
AN ABSTENTION WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE PROPOSAL.
9
<PAGE>
PROPOSAL NO. 4
APPROVAL OF AMENDMENT TO ARTICLES OF INCORPORATION TO
EFFECT A REVERSE SPLIT OF THE COMMON STOCK IN A RATIO OF 1-FOR-10
The Company's shareholders are being asked to act upon a proposal to
ratify and approve an Amendment to Articles of Incorporation of the Company to
effect a 1-for-10 reverse split of the shares of Common Stock of the Company
(the "Reverse Stock Split").
If the Reverse Stock Split is approved by the shareholders of the
Company at the Annual Meeting, the Reverse Stock Split will be effected only
upon a determination by the Board of Directors that the Reverse Stock Split is
in the best interests of the Company and the shareholders. In connection with
any determination by the Board of Directors to such effect, the Board will also
determine at that time whether shareholders will receive cash in lieu of
fractional shares resulting from the Reverse Stock Split, or whether they will
receive an additional share for any such fractional shares.
If approved by the shareholders of the Company, a Reverse Stock Split
would become effective on a date that is as soon as practicable after the Annual
Meeting (the "Effective Date") selected by the Board of Directors.
The complete text of the form of amendment to the Articles (the
"Amendment to the Articles") for the Reverse Stock Split is set forth in Exhibit
C to this Proxy Statement; however, such text is subject to amendment (i) to
provide whether cash or an additional share will be received by shareholders for
fractional shares, and (ii) to include such changes as may be required by the
California Secretary of State. The Board may make any and all changes to the
Amendment to the Articles that it deems necessary to file the Amendment to the
Articles with the California Secretary of State and give effect to the Reverse
Stock Split. If the Reverse Stock Split is approved by the requisite vote of the
Company's shareholders, upon filing of the Amendment to the Articles with the
California Secretary of State on the Effective Date, the Reverse Stock Split
selected by the Board will be effective, and each share of the Common Stock
issued and outstanding immediately prior thereto (the "Old Common Stock"), will
be, automatically and without any action on the part of the shareholders,
converted into and reconstituted as one-tenth (1/10) of a share of the Company's
Common Stock (the "New Common Stock"); provided, however, that no fractional
shares of New Common Stock will be issued as a result of the Reverse Stock
Split. In lieu of any such fractional share interest, each holder of Old Common
Stock who would otherwise be entitled to receive a fractional share of New
Common Stock will receive, as determined by the Board prior to the Effective
Date, either (i) one additional share of New Common Stock for such fractional
share of New Common Stock, or (ii) cash in lieu of such fractional share of New
Common Stock in an amount equal to the product obtained by multiplying (a) the
average of the high bid and low asked per share prices of the Common Stock as
reported on the Nasdaq electronic "Bulletin Board" on the Effective Date
(adjusted if necessary to reflect the per share price of the Old Common Stock
without giving effect to the Reverse Stock Split) by (b) the number of shares of
Old Common Stock held by such holder that would otherwise have been exchanged
for such fractional share interest.
Shortly after the Effective Date, shareholders will be asked to
surrender certificates representing shares of Old Common Stock in accordance
with the procedures set forth in a letter of transmittal to be sent by the
Company. Upon such surrender, a certificate representing shares of New Common
Stock will be issued and forwarded to the shareholders (and, if applicable, cash
in lieu of any fractional share interest); however, each certificate
representing shares of Old Common Stock will continue to be valid and represent
the number of shares of New Common Stock equal to one-tenth (1/10) of the number
of shares of Old Common Stock (and, where applicable, either (i) one additional
share of New Common Stock where the Reverse Stock Split results in a fractional
share of New Common Stock, or (ii) cash in lieu of such fractional share, as
described above).
10
<PAGE>
Purposes of the Reverse Stock Split
The Board of Directors believes the Reverse Stock Split is desirable
for several reasons. A Reverse Stock Split should enhance the acceptability of
the Common Stock by the financial community and the investing public. The
reduction in the number of issued and outstanding shares of Common Stock caused
by a Reverse Stock Split is anticipated initially to increase proportionally the
per share market price of the Common Stock to approximately ten times the
then-current market price. The Board of Directors also believes that the
proposed Reverse Stock Split may result in a broader market for the Common Stock
than that which currently exists. The expected increased price level may
encourage interest and trading in the Common Stock and possibly promote greater
liquidity for the Company's shareholders, although such liquidity could be
adversely affected by the reduced number of shares of Common Stock outstanding
after the Reverse Stock Split Effective Date. Additionally, a variety of
brokerage house policies and practices tend to discourage individual brokers
within those firms from dealing with lower priced stocks. Some of those policies
and practices pertain to the payment of broker's commissions and to time
consuming procedures that function to make the handling of lower priced stocks
economically unattractive to brokers. In addition, the structure of trading
commissions also tends to have an adverse impact upon holders of lower priced
stock because the brokerage commission on a sale of lower priced stock generally
represents a higher percentage of the sales price than the commission on a
relatively higher priced issue. The proposed Reverse Stock Split could result in
a price level for the Common Stock that will reduce, to some extent, the effect
of the above-referenced policies and practices of brokerage firms and diminish
the adverse impact of trading commissions on the market for the Common Stock.
Any reduction in brokerage commissions resulting from the Reverse Stock Split
may be offset, however, in whole or in part, by increased brokerage commissions
required to be paid by shareholders selling "odd lots" created by such Reverse
Stock Split.
However, there can be no assurance that any or all of these effects
will occur; including, without limitation, that the market price per share of
New Common Stock after the Reverse Stock Split will be equal to ten times the
market price per share of Old Common Stock before the Reverse Stock Split, or
that such price will either exceed or remain in excess of the current market
price. Further, there is no assurance that the market for the Common Stock will
be improved. Shareholders should note that the Board of Directors cannot predict
what effect the Reverse Stock Split will have on the market price of the Common
Stock.
Effects of the Reverse Stock Split
The Reverse Stock Split selected by the Board will be effected by means
of filing the Amendment to the Articles with the California Secretary of State.
Assuming approval of the Reverse Stock Split by the requisite vote of the
shareholders at the meeting, the Amendment to the Articles will be filed with
the California Secretary of State as promptly as practicable after a
determination by the Board of Directors to proceed with the Reverse Stock Split,
and the Reverse Stock Split will become effective on the date of such filing.
Without any further action on the part of the Company or the shareholders, after
the Reverse Stock Split, each share of Old Common Stock will be converted into
and reconstituted as one-tenth (1/10) of a share of New Common Stock (and, where
applicable, either (i) one additional share of New Common Stock where the
Reverse Stock Split results in a fractional share of New Common Stock, or (ii)
cash in lieu of such fractional share, as described above).
As of the date of this Proxy Statement, the records of the Company's
transfer agent indicate that no shareholder of record holds fewer than ten (10)
shares of Common Stock. Therefore, if the Company elects to pay cash in lieu of
fractional shares resulting from a Reverse Stock Split, the Company estimates
that the entire interest of no shareholders (those holding fewer than ten (10)
shares) will be eliminated pursuant to the Reverse Stock Split. Because such
transaction would be mandatory, any shareholders holding fewer than ten (10)
shares who wish to retain their existing equity interest in the Company would be
adversely affected. The Company expects that a negligible number of the
currently outstanding shares would result in fractional share interests for
which cash would be paid in the Reverse Stock Split. Shares no longer
outstanding as a result of the fractional share settlement procedure will be
returned to authorized but unissued shares of the Company.
11
<PAGE>
After giving effect to the settlement of fractional shares of Common
Stock, there will be no material differences between the rights of the shares of
Common Stock outstanding prior to the Reverse Stock Split and those to be
outstanding after the Reverse Stock Split is effected.
Shareholders have no right under California law to dissent from the
Reverse Stock Split of the Common Stock.
Consummation of the Reverse Stock Split will not alter the number of
authorized shares of Common Stock, which will remain three hundred million
(300,000,000) shares (or two hundred ninety-nine million (299,000,000) assuming
approval by the Company's shareholders of Proposal No. 3), or the number of
authorized shares of Preferred Stock, which will remain one million (1,000,000)
shares (assuming approval by the Company's shareholders of Proposal No. 3). As
discussed above, proportionate voting rights and other rights of the holders of
Common Stock will not be altered by the Reverse Stock Split (other than as a
result of either the issuance of one additional share for fractional shares or
the payment of cash in lieu of fractional shares, as described above).
Shareholders should note that certain disadvantages may result from the
adoption of this Proposal No. 4. In the event this Proposal No. 4 is approved by
the shareholders and the Reverse Stock Split is effected by the Board, the
number of outstanding shares of Common Stock would be decreased as a result of
the Reverse Stock Split, but the number of authorized shares of Common Stock and
Preferred Stock would not be so decreased. The Company would therefore have the
authority to issue a greater number of shares of Common Stock and Preferred
Stock following the Reverse Stock Split without the need to obtain shareholder
approval to authorize additional shares. Any such additional issuance may have
the effect of significantly reducing the interest of the existing shareholders
of the Company with respect to earnings per share, voting, liquidation value and
book and market value per share. See "Proposal No. 3 -- Approval of Amendment to
Articles of Incorporation to Authorize up to 1,000,000 Shares of Preferred
Stock."
As of August 14, 1996, the number of issued and outstanding shares of
Old Common Stock was 15,786,681, and the number of authorized and unissued
shares of Common Stock was two hundred eighty-four million two hundred thirteen
thousand three hundred nineteen (284,213,319). In the event that Proposal No. 3
is approved by the Company's shareholders, then the number of authorized and
unissued shares will be two hundred eighty-three million two hundred thirteen
thousand three hundred nineteen (283,213,319). The following table illustrates
the effects of the 1-for-10 Reverse Stock Split upon the number of shares of Old
Common Stock issued and outstanding, and the number of authorized and unissued
shares of Common Stock (assuming that no additional shares of Old Common Stock
are issued by the Company after the Record Date).
Common Stock Authorized and
Reverse Stock Split Ratio Outstanding(1) Unissued Common Stock(2)
- ------------------------- -------------- ------------------------
1-for-10 1,578,668 297,421,332
- -----------------------
(1) Does not take into account any reduction in the number of outstanding
shares resulting from the procedures for cashing out fractional shares,
or any increase in the number of outstanding shares resulting from the
issuance of additional shares for fractional shares. In addition, the
number of Common Stock shares outstanding does not include shares of
Common Stock issuable upon exercise or conversion of outstanding
options or warrants.
(2) Assuming the Company's shareholders approve Proposal No. 3.
12
<PAGE>
The Common Stock is currently registered under Section 12(b) of the
Securities Exchange Act of 1934 (the "Exchange Act") and, as a result, the
Company is subject to the periodic reporting and other requirements of the
Exchange Act. The Reverse Stock Split will not effect the registration of the
Common Stock under the Exchange Act. After the Effective Date, trades of the New
Common Stock will continue to be reported on the Nasdaq electronic "Bulletin
Board" under the Company's symbol "GROI."
Federal Income Tax Consequences of the Reverse Stock Split
The Company has not sought and will not seek an opinion of counsel or a
ruling from the Internal Revenue Service regarding the federal income tax
consequences of the Reverse Stock Split. The Company, however, believes that
because the Reverse Stock Split is not part of a plan to increase any
shareholder's proportionate interest in the assets or earnings and profits of
the Company, the Reverse Stock Split will have the following federal income tax
effects:
1. A shareholder will not recognize gain or loss on the exchange
of Old Common Stock for New Common Stock. In the aggregate,
the shareholder's basis in shares of New Common Stock will
equal his basis in shares of Old Common Stock.
2. A shareholder's holding period for tax purposes for shares of
New Common Stock will be the same as the holding period for
tax purposes of the shares of Old Common Stock exchanged
therefor.
3. The Reverse Stock Split will constitute a reorganization
within the meaning of Section 368(a)(1)(E) of the Internal
Revenue Code of 1986, as amended, or will otherwise qualify
for general nonrecognition treatment, and the Company will not
recognize any gain or loss as a result of the Reverse Stock
Split.
4. To the extent a shareholder receives cash from the Company in
lieu of a fractional share of New Common Stock, the
shareholder will be treated for tax purposes as though he sold
the fractional share to the Company. Such a shareholder will
recognize a gain equal to the excess of (i) his cash
distribution over (ii) his tax basis in the fractional share
deemed sold. The gain will be long-term capital gain if the
shareholder's shares are capital assets in his hands and if he
had held his shares for more than one year before the Reverse
Stock Split. If the shareholder's tax basis in the fractional
share deemed sold exceeds his cash distribution, the
shareholder will recognize a loss.
Vote Required
Approval of this proposal requires the affirmative vote of a majority
of the outstanding shares of Common Stock of the Company entitled to vote at the
Annual Meeting. If approved by the shareholders, the Amendment to the Articles
will become effective upon filing with the Secretary of the State of California
a Certificate of Amendment to the Company's Articles of Incorporation, which
filing is expected to take place shortly after the Annual Meeting. However, the
Board of Directors will be authorized, without a further vote of the
shareholders, to abandon the Reverse Stock Split and determine not to file the
Certificate of Amendment if the Board concludes that such action would be in the
best interest of the Company and its shareholders. If this proposal is not
approved by the shareholders, then the Certificate of Amendment will not be
filed.
13
<PAGE>
A copy of the proposed Amendment to the Articles of Incorporation
incorporating this Proposal No. 4 is set forth in Exhibit C, attached to this
Proxy Statement, and is incorporated herein by this reference. In the event this
Proposal No. 4 is approved by the shareholders and the amendments to the
Articles of Incorporation described in Proposals No. 2 and No. 3 (above) are
also approved, the Company's Articles of Incorporation will be restated to
include each of the amendments. A copy of the proposed Amended and Restated
Articles of Incorporation is set forth in full as Exhibit D, attached to this
Proxy Statement, and is incorporated herein by this reference; provided,
however, that the text of the Amended and Restated Articles of Incorporation is
subject to change as may be required by the California Secretary of State, and
the Board may make any and all changes to the Amended and Restated Articles of
Incorporation that it deems necessary to file the document with the California
Secretary of State, and give effect to the Amendments described in Proposals No.
2, No. 3 and No. 4, assuming approval of such proposals by the shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENT TO THE ARTICLES OF INCORPORATION TO
EFFECT A 1-FOR-10 REVERSE STOCK SPLIT PURSUANT TO THE RESOLUTIONS WITH
RESPECT THERETO SET FORTH IN EXHIBIT C TO THIS PROXY STATEMENT.
AN ABSTENTION WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE PROPOSAL.
14
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary Compensation Table
The following table sets forth all compensation for the years ended
December 31, 1995, 1994, and 1993, earned by the Company's current Chief
Executive Officer, former Chief Executive Officer and the one other most highly
compensated Executive Officer of the Company whose salary and bonus compensation
exceeded One Hundred Thousand Dollars ($100,000) (collectively, the "Named
Executive Officers"):
Summary Compensation Table
Long-Term
Annual Compensation Comp. Awards
--------------------------- -------------
Shares
Fiscal Underlying
Name and Principal Position Year Salary Bonus Options (#)
- --------------------------- ------ ------- ------ -------------
Kenneth Cahill(1) 1995 $ 0 $ 0 0
Chairman of the Board 1994 0 0 0
and Chief Executive Officer 1993 0 0 0
Stephen M. Thompson 1995 78,000 0 1,000,000(2)
Former Chairman of the Board 1994 78,000 0 0
and Former Chief Executive 1993 78,000 0 0
Officer
Richard Carthew 1995 143,489 0 0
Former Vice President 1994 221,489 0 0
1993 187,816 0 0
- ---------------
(1) Mr. Cahill joined the Company in May 1996.
(2) These options have terminated, unexercised.
No officer received any compensation under stock plans during 1995.
In May 1996, the Company sold its art gallery business to Stephen
Thompson. See "Certain Relationships and Related Transactions."
Clipper Industries, Inc., is a corporation owned by the Thompson Family
Trust, with Stephen M. Thompson as Trustee. The beneficiaries under the Thompson
Family Trust are January Lee Thompson and other members of the Thompson family,
excluding Stephen M. Thompson. During the year ended December 31, 1995, Clipper
Industries, Inc. performed management consulting services for the Company
pursuant to which fees paid by the Company to Clipper Industries, Inc. were
Forty-five Thousand Two Hundred Sixty-four Dollars ($45,264). See "Certain
Relationships and Related Transactions."
15
<PAGE>
Stock Options
The following table contains information concerning the grant of stock
options made during fiscal 1995, to the Named Executive Officers.
Options Grants in Last Fiscal Year
Individual Grants
------------------------------------------
Number of
Shares % of Total
Underlying Options Granted Exercise
Options in Employees Price Expiration
Granted (#) Fiscal Year ($/Share) Date
----------- --------------- --------- ----------
Stephen M. Thompson(1) 500,000 46% $ 0.45 10/99
500,000 46% $ 0.25 10/99
(1) No Named Executive Officer other than Mr. Thompson was granted
options in 1995.
The following table sets forth information with respect to the Named
Executive Officers, concerning the exercise of options during the fiscal year
ended December 31, 1995 and unexercised options held as of the end of that
fiscal year.
<TABLE>
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
<CAPTION>
Number of Shares Value of
Shares Underlying Unexercised
Acquired Unexercised In-the-Money
on Value Options at Options at
Name Exercise(#) Realized($) FY-End(#)(1) FY-End($)(1)(2)(3)
- ---- ----------- ----------- ----------------- ------------------
<S> <C> <C> <C> <C>
Stephen M. Thompson -- -- 1,000,000 $ 0.00
Kenneth Cahill -- -- -- --
Richard Carthew -- -- -- --
<FN>
- --------------
(1) All options were exercisable at December 31, 1995. These options have
terminated.
(2) Market value of underlying securities minus the exercise price. Based on
closing sale price of $0.13 per share on December 29, 1995.
(3) Exercise price equal to $0.25 per share for 500,000 shares, and $0.45 per
share for 500,000 shares.
</FN>
</TABLE>
Employment Agreements with Named Executive Officers
On October 14, 1994, a majority of the non-interested members of the
Board of Directors of the Company approved a five (5) year employment agreement
between the Company and Mr. Thompson. The agreement provided, among other
things, a base compensation equal to five percent (5%) of the net cash receipts
of the Company. In addition, the Company was required to pay an annual bonus of
One Hundred Thousand Dollars ($100,000) for each year in which the Company's net
profits exceed certain target profit levels, as audited by the Company's
independent accountants. Under the agreement, Mr. Thompson was entitled to
deferred compensation in the amount of One Hundred Thousand Dollars ($100,000)
for each year of service to the Company, payable in twenty-four (24)
installments commencing on the first month after Mr. Thompson reaches the age of
fifty (50) or after termination of employment, whichever occurs first.
16
<PAGE>
In May 1996, the employment agreement was terminated and all
obligations of the Company thereunder ceased. In consideration of such
termination, and in consideration of a covenant not to compete with the Company
in the gaming business for a period of one (1) year, the Company paid Mr.
Thompson approximately Three Hundred Fifty Thousand Dollars ($350,000) in cash,
and agreed to issue one million four hundred thirty-four thousand one hundred
fifty-seven (1,434,157) shares of the Company's Common Stock to Mr. Thompson.
These transactions were effected in connection with the sale of the Company's
art gallery business to Mr. Thompson. See "Certain Relationships and Related
Transactions."
Under the agreement, Mr. Thompson was granted an option to purchase
five hundred thousand (500,000) shares of the Company's Common Stock at an
exercise price of Forty-five Cents ($0.45) per share. In addition, Mr. Thompson
was also granted an option to purchase five hundred thousand (500,000) shares of
the Company's Common Stock at a purchase price of Twenty-five Cents ($0.25) per
share. The options were cancelled in May 1996 in connection with Mr. Thompson's
resignation as President and Chief Executive Officer.
17
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
Change in Independent Public Accountants
The principal independent public accounting firm utilized by the
Company during the fiscal years ended December 31, 1994 and 1995, was Grant
Thornton, LLP, independent certified public accountants (the "Former Auditors").
The Former Auditors were dismissed by the Company effective August 22, 1996, as
the certifying accountant for the Company. The Board of Directors of the Company
approved the dismissal of the Former Auditors in connection with the change in
the Company's management and the change in location of its executive offices
from California to Colorado.
The certifying accountant's reports of the Former Auditors for the
fiscal years ending December 31, 1994 and 1995, contain no adverse opinion,
disclaimer of opinion, or qualifications as to uncertainty, audit scope or
accounting principles. The current management of the Company has no knowledge of
any matter of accounting principle or practice, of financial statement
disclosure or of auditing scope or procedure brought to the attention of the
current management by the Former Auditors which gave rise to an actual
disagreement or difference of opinion with the Former Auditors with respect to
such a matter for the fiscal years ended December 31, 1994 and 1995. The current
management of the Company has not yet had a full opportunity, however, to
determine whether the accounting principles or practices, financial statement
disclosure, or auditing scope or procedures for the fiscal years ending December
13, 1994 and 1995 were, in the view of the current management of the Company,
appropriate.
The Company does not anticipate that the Former Auditors will be
available for, or will attend, the Annual Meeting.
Selection of New Independent Public Accountants
Because the Company dismissed the Former Auditors on August 22, 1996,
the Company has not yet selected a new independent public accounting firm to
audit the financial statements of the Company for its fiscal year ending
December 31, 1996.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Clipper Industries, Inc. (a corporation controlled by Stephen M.
Thompson) performed management consulting services for the Company, for which
fees paid by the Company to Clipper Industries, Inc. were Forty-five Thousand
Two Hundred Sixty-four Dollars ($45,264) and Eight-six Thousand One Hundred
Fifty Dollars ($86,150) during the years ended December 31, 1995, and December
31, 1994, respectively. In addition, in 1994, the Company purchased inventory
from Clipper Industries in exchange for two hundred thousand (200,000) shares of
its restricted common stock valued at One Hundred Sixty Thousand Dollars
($160,000) ($0.80 per share).
Pursuant to license agreements, the Company was granted certain
exclusive, nonassignable reproduction and marketing rights from Red Star
Corporation through its licensee, the Renoir Foundation for the Arts, to
reproduce and market certain Renoir bronze sculptings. In consideration for the
granting of such licenses, Red Star Corporation acquired one million two hundred
fifty thousand (1,250,000) shares of the Company's Common Stock. Payments made
to Red Star Corporation amounted to approximately Twenty-four Thousand Five
Hundred Dollars ($24,500) and Sixty-two Thousand Dollars ($62,000) in the fiscal
year ended December 31, 1995, and 1994, respectively. In March, 1995, the
Company terminated its reproduction and marketing rights with respect to certain
of the Renoir bronze sculptings. The Company did retain the exclusive rights
with respect to other specific pieces of the collection. Such reproduction and
marketing rights are nonassignable. In connection with such termination of the
reproduction and marketing rights, Red Star agreed to return eight hundred fifty
thousand (850,000) of the one million two hundred fifty thousand (1,250,000)
shares of the Company's Common Stock previously issued to Red Star. On October
12, 1995, such eight hundred fifty thousand (850,000) shares of Common Stock
were returned to the Company. In addition, Red Star agreed to reduce the
Company's future minimum royalty payments.
18
<PAGE>
In January 1993, the Company issued one million one hundred fifty
thousand (1,150,000) shares of its restricted Common Stock to Gary D. Kucher, a
former officer of the Company, in consideration of a promissory note dated
January 23, 1993, in favor of the Company in the principal amount of One Hundred
Forty-three Thousand Seven Hundred Fifty Dollars ($143,750). The balance of the
promissory note remains outstanding and the Company is seeking return of the
shares or payment of the note. As of December 31, 1995, Gary D. Kucher, formerly
Executive Vice President of the Company, had a note payable to the Company
totalling One Hundred Forty-three Thousand Seven Hundred Fifty Dollars
($143,750), payable on demand at an interest rate of four percent (4%). The
Company is seeking return of the shares or payment of the note balance.
During 1995, the Company had received advances from its two executive
officers, Stephen M. Thompson and Richard Carthew, both of whom are also major
shareholders, totalling Eighty-three Thousand Ninety Dollars ($83,090) and,
during 1995, the Company made advances to shareholders totalling One Hundred
Twelve Thousand Four Hundred Five Dollars ($112,405). These advances are
non-interest bearing and therefore no interest has been accrued at December 31,
1995.
During 1995, the Company's Board of Directors approved transactions in
which two shareholders had notes payable to the Company totalling Twenty-one
Thousand Seven Hundred Fifty Dollars ($21,750), payable over five (5) years at
an interest rate of two percent (2%).
During 1995, the Company paid Seventeen Thousand Five Hundred
Thirty-nine Dollars ($17,539) in consulting fees to George M. Maxson, a former
Director of the Company.
Effective May 9, 1996, pursuant to an Agreement between the Company,
Stephen M. Thompson, Clipper Industries, Inc. and certain other parties, dated
effective as of March 29, 1996 (the "Agreement"), the sale of those assets and
operations of the Company attributable and relating to its art gallery business
was effected in exchange for a Promissory Note payable by Mr. Thompson to the
Company in the principal amount of One Million Dollars ($1,000,000), bearing
interest at the rate of eight percent (8%) per annum, and due and payable in
full in May, 2001 (the "Note"). Repayment on the Note may be made in the form of
cash, securities of the Company or such other securities as are acceptable to
the Company. The Note is secured by four million (4,000,000) shares of the
Company's Common Stock held by Mr. Thompson and his affiliates. The Board has
determined that it was in the Company's best interests to divest itself of the
art gallery business to focus its direction exclusively on its hotel and gaming
business in order to enhance the possibility of obtaining financing to develop
the hotel and gaming business.
Also in connection with this transaction, the Company has agreed to pay
to Mr. Thompson the amount of approximately Three Hundred Fifty Thousand Dollars
($350,000) in cash and has agreed to issue one million four hundred thirty-four
thousand one hundred fifty-seven (1,434,157) shares of the Company's Common
Stock to Mr. Thompson, in exchange for Mr. Thompson's agreement not to compete
with the Company in the gaming business for a period of one year from the
closing of this transaction and for cancellation of any employment agreement
with Mr. Thompson or any other agreement between the Company and Mr. Thompson
relating to compensation in any form to which Mr. Thompson may have been
entitled. In consideration of the cancellation of a promissory note issued by
the Company to Mr. Thompson in the principal amount of Seventy-five Thousand
Dollars ($75,000), the Company cancelled promissory notes issued by Mr. Thompson
to the Company in the aggregate principal amount of approximately Seventy-five
Thousand Dollars ($75,000). The Company has also granted options to Mr.
Thompson, an affiliate of Mr. Thompson, and Richard Carthew, a shareholder of
the Company, to purchase shares of the Company's Common Stock in the event the
Company issues shares of Common Stock to a third party vendor within the two
year period following the closing of the transactions contemplated in the
Agreement. The exercise price of the options shall be equal to the per share
price assigned in any transaction pursuant to which the Company issues shares of
Common Stock to a third party vendor in exchange for assets of the third party
vendor. The number of shares subject to such options shall be a number
sufficient to enable the optionees to retain the same percentage ownership in
the Company as they own immediately following the transactions contemplated by
the Agreement. The options expire in May, 1998.
19
<PAGE>
Mr. Thompson and his affiliate Clipper Industries, Inc., and the
Company's new management have entered into a Voting Trust Agreement pursuant to
which Mr. Thompson has deposited the four million (4,000,000) shares of the
Company's Common Stock owned by him and his affiliate into a voting trust (the
"Trust"). The trustee of the Trust is directed to vote the shares in the Trust
in favor of the slate of Directors proposed by the new Directors, Messrs.
Cahill, Bouchard, Tiegs and Renfrow, for a period of nine months following the
closing of the transactions contemplated in the Agreement. The Voting Trust
Agreement provides that the proposed slate of Directors shall include Mr.
Thompson.
On May 9, 1996, the Company entered into an agreement with InnerCircle
Group Incorporated ("InnerCircle") with respect to the management of the
Company. InnerCircle is a company that provides general managerial services to
various businesses. Under the agreement, InnerCircle is to provide the following
services: (i) general and administrative business office services, including the
use of Class A office space, as necessary, furniture, equipment, fixtures and
secretarial services; (ii) general legal and accounting services necessary for
the day-to-day operation of the Company's offices and activities, not including
outside legal and accounting services; (iii) planning, structuring, development
and financing, if applicable, of projects to be considered on behalf of the
Company, including the completion of projects approved; and (iv) the compliance
with appropriate corporate and securities laws of the state of incorporation of
the Company and the United States, including filing of appropriate reports,
forms, and documents with the various regulatory authorities. For such services,
the Company will pay InnerCircle a minimum of Fifty Thousand Dollars ($50,000)
per month. Such compensation is to be adjusted quarterly based on the
performance of InnerCircle and the additional duties assumed by InnerCircle. The
agreement may be terminated by the Company with ninety (90) days notice, or
InnerCircle with thirty (30) days notice.
Kenneth M. Cahill, Darel A. Tiegs, James A. Humpal and J. Royce Renfrow
each own a 25% equity interest in InnerCircle and are employees of InnerCircle.
As employees of InnerCircle, they will be obligated to assume the following
roles in the Company: (i) Kenneth M. Cahill: President/CEO and Director; (ii)
Darel A. Tiegs: Vice President and Director; (iii) James A. Humpal: Treasurer
and Director; and (iv) J. Royce Renfrow: Corporate Secretary/General Counsel and
Director.
SHAREHOLDER PROPOSALS
To be considered for presentation to the annual meeting of the Company's
shareholders to be held in 1997, a shareholder proposal must be received by
Kenneth Cahill, President and Chief Executive Officer, GALLERY RODEO
INTERNATIONAL, 2 North Cascade, Suite 330, Colorado Springs, CO 80903, no later
than March 31, 1997.
OTHER MATTERS
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's Directors, executive officers and persons who own more
than ten percent (10%) of the Company's Common Stock (collectively "Covered
Persons") to file initial reports of ownership (Form 3) and reports of changes
in ownership of Common Stock (Forms 4 and Forms 5) with the Securities and
Exchange Commission (the "Commission") as well as the Company and any exchange
upon which the Company's Common Stock is listed.
The Company is required to identify Covered Persons that the Company knows have
failed to file or filed late Section 16(a) reports during the previous fiscal
year. To the Company's knowledge, the following Covered Persons during the
fiscal year ended December 31, 1995, failed to file on a timely basis reports
required by Section 16(a) of the Exchange Act:
20
<PAGE>
<TABLE>
<CAPTION>
Number of Reports Not Filed on a
Name Position Timely Basis(2)
- ---- -------- --------------------------------
<S> <C> <C>
Stephen M. Thompson............ Director, Former Chairman of Form 3; Form 4 (1 report); Form 5
the Board, CEO, CFO(1)
Richard Carthew................ Former Director(1) Form 3; Form 5
Thomas J. Harris............... Former Director Form 3; Form 4 (1 report); Form 5
George M. Maxson............... Former Director Form 3; Form 4 (1 report); Form 5
Kathy Grant.................... Former Secretary Form 3
<FN>
- --------------------------
(1) Also beneficial owner of more than ten percent (10%) of equity securities
of Registrant.
(2) To the Company's knowledge, based solely on a review of the copies of the
reports furnished to the Company by such persons, in the fiscal year ended
December 31, 1995, such persons have subsequently filed the reports
required by Section 16(a) of the Exchange Act.
</FN>
</TABLE>
Other Matters. The Board of Directors knows of no other business which
will be presented at the Annual Meeting. If any other business is properly
brought before the Annual Meeting, it is intended that proxies in the enclosed
form will be voted in respect thereof in accordance with the judgments of the
persons voting the proxies.
It is important that the proxies be returned promptly and that your
shares be represented. Share holders are urged to mark, date, execute and
promptly return the accompanying proxy card in the enclosed envelope.
By Order of the Board of Directors,
------------------------------
Kenneth M. Cahill,
Chairman of the Board, President and
Chief Executive Officer
September 5, 1996
Colorado Springs, Colorado
21
<PAGE>
Exhibit A
PROPOSED AMENDMENT TO
THE ARTICLES OF INCORPORATION
Article I of the Articles of Incorporation of the Company shall be
amended to read in its entirety as follows:
"The name of this corporation is:
SIERRA-ROCKIES CORPORATION"
22
<PAGE>
Exhibit B
PROPOSED AMENDMENT TO
THE ARTICLES OF INCORPORATION
Article IV of the Articles of Incorporation of the Company shall be
amended to read in its entirety as follows:
"The total number of shares of stock that this Corporation
shall have authority to issue is: three hundred million (300,000,000),
consisting of two hundred ninety-nine million (299,000,000) shares of
common stock (the "Common Stock"), and one million (1,000,000) shares
of preferred stock (the "Preferred Stock").
The designation, relative rights, preferences and limitations
of the shares of each class are as follows:
The Preferred Stock authorized by these Articles of
Incorporation shall be issued from time to time in one or more series.
The Board of Directors of this Corporation (the "Board of Directors")
is authorized to determine the designation of any such series and to
fix the number of shares of any such series. The Board of Directors may
determine or alter the rights, preferences, privileges and restrictions
granted to or imposed upon any wholly unissued series of Preferred
Stock. Within the limits and restrictions stated in any resolution or
resolutions of the Board of Directors originally fixing the number of
shares constituting any series of Preferred Stock, the Board of
Directors may increase or decrease (but not below the number of shares
of such series then outstanding) the number of shares of any such
series subsequent to the issue of shares of that series. Except as
otherwise provided by the resolution or resolutions providing for the
issue of any series of shares of Preferred Stock, the holders of shares
of Common Stock shall be entitled, to the exclusion of the holders of
shares of Preferred Stock of any and all series, to receive such
dividends as from time to time may be declared by the Board of
Directors. In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, after payment
shall have been made to the holders of shares of Preferred Stock of the
full amount to which they shall be entitled pursuant to the resolution
or resolutions providing for the issue of any series of shares of
Preferred Stock, the holders of shares of Common Stock shall be
entitled, to the exclusion of the holders of shares of Preferred Stock
of any and all series, to share, ratably according to the number of
shares of Common Stock held by them, in all remaining assets of the
Corporation available for distribution to its shareholders.
"Subject to the provisions of this Certificate of
Incorporation and except as otherwise provided by law, the stock of the
Corporation, regardless of class, may be issued for such consideration
and for such corporate purposes as the Board of Directors may from time
to time determine."
23
<PAGE>
Exhibit C
PROPOSED AMENDMENT TO
THE ARTICLES OF INCORPORATION
Article IV of the Articles of Incorporation of the Company shall be
amended to add the following paragraph to the end of Article IV as follows:
"On the amendment of this Article IV to read as hereinabove
set forth, each ten (10) outstanding shares of this corporation's stock
shall be combined, reconstituted and converted into one (1) share."
24
<PAGE>
Exhibit D
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
SIERRA-ROCKIES CORPORATION
The undersigned, Kenneth M. Cahill and J. Royce Renfrow do hereby
certify as follows:
A. They are the President and Secretary, respectively, of
Sierra-Rockies Corporation, a California corporation (this "Corporation").
B. The Articles of Incorporation of this Corporation are amended and
restated in their entirety to read as follows:
"I
The name of this corporation is:
SIERRA-ROCKIES CORPORATION
II
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
law of California, other than the banking business, trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
III
The total number of shares of stock that this Corporation shall have
authority to issue is: three hundred million (300,000,000), consisting of two
hundred ninety-nine million (299,000,000) shares of common stock (the "Common
Stock"), and one million (1,000,000) shares of preferred stock (the "Preferred
Stock").
The designation, relative rights, preferences and limitations of the
shares of each class are as follows:
The Preferred Stock authorized by these Articles of Incorporation shall
be issued from time to time in one or more series. The Board of Directors of
this Corporation (the "Board of Directors") is authorized to determine the
designation of any such series and to fix the number of shares of any such
series. The Board of Directors may determine or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock. Within the limits and restrictions stated in any
resolution or resolutions of the Board of Directors originally fixing the number
of shares constituting any series of Preferred Stock, the Board of Directors may
increase or decrease (but not below the number of shares of such series then
outstanding) the number of shares of any such series subsequent to the issue of
shares of that series. Except as otherwise provided by the resolution or
resolutions providing for the issue of any series of shares of Preferred Stock,
the holders of shares of Common Stock shall be entitled, to the exclusion of the
holders of shares of Preferred Stock of any and all series, to receive such
dividends as from time to time may be declared by the Board of Directors. In the
event of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, after payment shall have been made to the holders of
shares of Preferred Stock of the full amount to which they shall be entitled
pursuant to the resolution or resolutions providing for the issue of any series
of shares of Preferred Stock, the holders of shares of Common Stock shall be
entitled, to the exclusion of the holders of shares of Preferred Stock of any
and all series, to share, ratably according to the number of shares of Common
Stock held by them, in all remaining assets of the Corporation available for
distribution to its shareholders.
25
<PAGE>
Subject to the provisions of this Certificate of Incorporation and
except as otherwise provided by law, the stock of the Corporation, regardless of
class, may be issued for such consideration and for such corporate purposes as
the Board of Directors may from time to time determine.
On the amendment of this Article III to read as hereinabove set forth,
each ten (10) outstanding shares of this corporation's stock shall be combined,
reconstituted and converted into one (1) share."
C. The foregoing Restated and Amended Articles of Incorporation have
been duly approved and adopted by the Board of Directors of the Corporation.
D. The foregoing Amended and Restated Articles of Incorporation have
been duly approved by the required vote of shareholders in accordance with
Section 902 of the California Corporations Code. The total number of shares of
this Corporation outstanding is ________ shares of Common Stock. The number of
shares voting in favor of the amendment equaled or exceeded the vote required.
The percentage vote required was more than 50% of the outstanding shares.
The undersigned declare under penalty of perjury under the laws of the
State of California that the matters set forth herein are true and correct of
his own knowledge.
Date: ___________ _________________________________
Kenneth Cahill, President
Date: __________ _________________________________
J. Royce Renfrow, Secretary
26
<PAGE>
APPENDIX A
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
GALLERY RODEO INTERNATIONAL
FOR THE 1996 ANNUAL MEETING OF THE SHAREHOLDERS
September 20, 1996
The undersigned shareholder of GALLERY RODEO INTERNATIONAL, a
California corporation, hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and Proxy Statement, each dated September 5, 1996, and
the 1995 Annual Report to Stockholders and hereby appoints J. Royce Renfrow
proxy, with full power of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the 1996 Annual Meeting of
Shareholders of GALLERY RODEO INTERNATIONAL, to be held on September 20, 1996 at
10:00 a.m., local time, at the Holiday Inn Denver Southeast, 3200 S. Parker
Road, Aurora, Colorado 80814, and at any adjournment or adjournments thereof,
and to vote all shares of Common Stock which the undersigned would be entitled
to vote if then and there personally present, on the matters set forth below.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR AMENDING THE
ARTICLES OF INCORPORATION TO CHANGE THE NAME OF THE CORPORATION, FOR AMENDING
THE ARTICLES OF INCORPORATION TO AUTHORIZE THE ISSUANCE OF UP TO 1,000,000
SHARES OF PREFERRED STOCK, FOR AMENDING THE ARTICLES OF INCORPORATION TO EFFECT
A 1-FOR-10 REVERSE STOCK SPLIT, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
1. ELECTION OF DIRECTORS:
__FOR all nominees listed below __WITHHOLD AUTHORITY to vote
(except as indicated.) for all nominees listed below
If you wish to withhold authority to vote for any individual nominee, strike a
line through that nominee's name in the list below.
Kenneth M. Cahill Darel A. Tiegs J. Royce Renfrow
James A. Humpal Stephen M. Thompson Ray L. Bouchard
2. PROPOSAL TO RATIFY AND APPROVE AN AMENDMENT TO ARTICLES OF
INCORPORATION OF THE COMPANY TO EFFECT A CHANGE OF THE NAME OF THE COMPANY TO
"SIERRA-ROCKIES CORPORATION."
__FOR __AGAINST __ABSTAIN
3. PROPOSAL TO RATIFY AND APPROVE AN AMENDMENT TO ARTICLES OF
INCORPORATION OF THE COMPANY TO AUTHORIZE THE COMPANY TO ISSUE UP TO ONE MILLION
(1,000,000) SHARES OF PREFERRED STOCK WITH SUCH DESIGNATIONS, POWERS,
PREFERENCES, PRIVILEGES OR OTHER SPECIAL RIGHTS, AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS THEREON AS MAY BE DETERMINED BY THE BOARD OF
DIRECTORS.
__FOR __AGAINST __ABSTAIN
4. PROPOSAL TO RATIFY AND APPROVE AN AMENDMENT TO ARTICLES OF
INCORPORATION OF THE COMPANY TO EFFECT A 1-FOR-10 REVERSE SPLIT OF THE SHARES OF
COMMON STOCK OF THE COMPANY.
__FOR __AGAINST __ABSTAIN
Dated: , 1996
------------------------------
------------------------------------
Signature
------------------------------------
Signature
This Proxy should be marked, dated and signed by the shareholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.
