<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Schedule 14(a)
of the Securities Exchange Act of 1934
(Amendment No. __)
Filed by the Registrant X
---
Filed by a Party other than Registrant
---
Check the Appropriate Box:
X Preliminary Proxy Statement
- ---
Definitive Proxy Statement
- ---
Definitive Additional Materials (Annual Report)
- ---
Soliciting Material Pursuant to Section 240.14a-11(c) or Section 249.14a-12
- ---
METRO GLOBAL MEDIA, INC.
(Name of Registrant as Specified In Its Charter)
Francis D. Parisi, Esq.
(Name of Person Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
X $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
- ---
$500 per each party to the controversy pursuant to Exchange Act Rule
- --- 4a-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:
______________________________________________________
2. Aggregate number of securities to which transaction
applies:
______________________________________________________
3. Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11*:
______________________________________________________
4. Proposed maximum aggregate value of transaction:
______________________________________________________
* Set forth the amount on which the filing fee is
calculated and state how it was determined.
___ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1. Amount Previously Paid:__________________________________
2. Form, Schedule or Registration Statement No.:____________
3. Filing Party:____________________________________________
4. Date Filed:______________________________________________
<PAGE> 2
METRO GLOBAL MEDIA, INC.
ONE METRO PARK DRIVE
CRANSTON, RHODE ISLAND 02910
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD THURSDAY, OCTOBER 31, 1996
---------------------
To the Shareholders of Metro Global Media, Inc.:
Notice is hereby given that the Annual Meeting of Stockholders of
Metro Global Media, Inc. will be held at the Radisson Airport Hotel, 2081
Post Road, Warwick, Rhode Island on Thursday, October 31, 1996 at 10:00 a.m.,
local time, for the purpose of considering and voting upon the following
matters:
1. To elect a Board of Directors to serve until the next Annual Meeting
of Stockholders and until their successors are duly elected and
qualified.
2. To vote on the proposal to reincorporate the Company under the laws
of the state of Delaware by means of a merger of the Company into a
wholly-owned subsidiary of the Company.
3. To transact such other business as may properly come before the
meeting.
Only stockholders of record as of the close of business on August
30, 1996 are entitled to receive notice of and to vote at the meeting or
any adjournment thereof.
By order of the Board of Directors
KENNETH F. GUARINO
Secretary
October 10, 1996
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING AND VOTE YOUR SHARES. IN THE
EVENT YOU CANNOT ATTEND, PLEASE DATE, SIGN AND MAIL THE ENCLOSED PROXY IN THE
ENCLOSED SELF-ADDRESSED ENVELOPE. A STOCKHOLDER WHO EXECUTES AND RETURNS A
PROXY IN THE ACCOMPANYING FORM HAS THE POWER TO REVOKE SUCH PROXY AT ANY TIME
PRIOR TO THE EXERCISE THEREOF.
<PAGE> 3
METRO GLOBAL MEDIA, INC.
ONE METRO PARK DRIVE
CRANSTON, RHODE ISLAND 02910
-------------------
PROXY STATEMENT
-------------------
The accompanying proxy is solicited by the Board of Directors of
Metro Global Media, Inc. (the "Company"), for the use at the Annual Meeting
of Stockholders to be held on Thursday, October 31, 1996 and any adjournments
thereof.
PROXY SOLICITATION AND EXPENSE
Proxies in the accompanying form, properly executed and received
prior to the meeting and not revoked, will be voted as specified, or if no
instructions are given, will be voted in favor of the proposals described
herein. Proxies may be revoked at any time prior to being voted by written
notice to the Secretary of the Company. Solicitation of proxies may be made by
personal interview, mail, telephone or telegraph by directors, officers and
employees of the Company. The expense of soliciting proxies will be borne by
the Company. The Company may also request banking institutions, brokerage
firms, custodians, trustees, nominees and fiduciaries to forward solicitation
material to the beneficial owners of the Company's Common Stock. The
approximate date on which this Proxy Statement and the accompanying proxy card
will first be mailed to stockholders is September 21, 1996.
OUTSTANDING VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only stockholders of record at the close of business on September 30,
1996 will be entitled to notice of and to vote at the meeting. At the close of
business on that date, the Company had outstanding ________ shares of Common
Stock, $.0001 par value, exclusive of treasury shares. The presence at the
meeting, in person or by proxy, of shareholders entitled to cast at least a
majority of the votes which all shareholders are entitled to cast on each
particular matter to be considered at the meeting will constitute a quorum for
the purpose of considering such matter. Each holder of the Company's Common
Stock will be entitled to one vote for each share held.
THE HOLDERS OF A MAJORITY OF THE COMPANY'S COMMON STOCK OUTSTANDING AS
OF THE RECORD DATE HAVE ALREADY INDICATED THAT THEY INTEND TO VOTE IN FAVOR OF
PROPOSAL NO. 1. THEREFORE, THE APPROVAL OF PROPOSAL NO. 1 IS ASSURED. IN
ADDITION, THE HOLDERS OF A MAJORITY OF THE COMPANY'S COMMON STOCK OUTSTANDING
AS OF THE RECORD DATE HAVE ALREADY INDICATED THAT THEY INTEND TO VOTE IN FAVOR
OF PROPOSAL NO. 2, SUBJECT TO REVIEW OF THE NUMBER OF SHAREHOLDERS, IF ANY, WHO
ASSERT DISSENTERS' RIGHTS.
<PAGE> 4
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Shares represented by the enclosed proxy will, unless otherwise
directed, be voted to elect the nominees listed below to serve until the next
annual meeting of stockholders and until their successors are duly elected and
qualified. In the event of a vacancy in the list of nominees, the holders of
the enclosed proxy will vote for the election of a nominee acceptable to the
remaining nominees. Management is not aware of any person who is unable or
unwilling to stand for election or to serve if nominated.
Name of Nominee Age Position with Company
- --------------- --- ---------------------
T. James Blair 42 Director and Treasurer
Alan S. Casale 46 Director
A. Daniel Geribo 51 Director
Dolores Guglielmi 57 Director
T. James Blair was elected Treasurer and a Director of the Company in
April, 1996. Mr. Blair served as Controller for Triangle Wire and Cable Inc.,
a manufacturer of building wire, and specialty wire products, from July 1993 to
February, 1996. From March, 1990 to July, 1993 Mr. Blair served as Director of
Finance and Administration for Hermitage Hospital Products, a manufacturer of
medical products. Mr. Blair is a Certified Public Accountant.
Alan S. Casale has been a principal in the accounting firm of
Cardello, Riccitelli & Casale since 1987. Cardello, Riccitelli & Casale were
the auditors of record of the Company from December 1992 to February 1993, and
audited the financial statements of Metro for the years ended May 31, 1992 and
May 31, 1991.
A. Daniel Geribo has served as President, Treasurer, Secretary and
sole director of Capital Video Corporation, which operates a chain of retail
video stores in the New England and upstate New York area since November 1994,
and from September 1993 to November 1994 served as General Manager of Capital
Video Corporation. From January 1983 to May 1993, Mr. Geribo served as
President of Unfinished Furniture House, Inc., a chain of retail furniture
stores.
Dolores Guglielmi has been a Registered Nurse Anesthetist for
Associates in Anesthesia, Inc. a medical services provider, for more than five
years.
3
<PAGE> 5
PROPOSAL NO. 2
PROPOSED AMENDMENT TO REINCORPORATE THE COMPANY UNDER THE
THE LAWS OF THE STATE OF DELAWARE BY MEANS OF A
MERGER OF THE COMPANY INTO A WHOLLY-OWNED
SUBSIDIARY OF THE COMPANY
GENERAL
The Board of Directors has unanimously approved, and recommends for
shareholder approval, the change of the Company's state of incorporation from
Florida to Delaware. Reincorporation in Delaware will allow the Company to take
advantage of certain provisions of the corporate laws of Delaware. The
transaction will not result in any change in the business, management, assets,
liabilities or net worth of the Company. It will not cause its corporate
headquarters to be moved and will not result in any relocation of management or
other employees. The proposed reincorporation and its purposes and effects are
summarized below.
The proposed reincorporation would be accomplished by merging the
Company into a newly formed Delaware corporation which, just before the merger,
will be a wholly owned subsidiary of the Company ("Metro Delaware"), pursuant
to an Agreement and Plan of Merger (the "Reincorporation Agreement"). Metro
Delaware will be the surviving entity and, upon the effective date of the
merger, will change its name to Metro Global Media, Inc. The Company will then
be subject to the Delaware General Corporation Law ("DGCL").
The Board has approved the Reincorporation Agreement and recommends
it to the shareholders for their adoption and approval. The full texts of the
Reincorporation Agreement and the Certificate of Incorporation and Bylaws of
the successor Delaware company under which the Company's business would be
conducted after the merger, if consummated, will be filed with the Securities
and Exchange Commission, and may be obtained from the Company by any
shareholder of the Company, without charge.
IT WILL NOT BE NECESSARY FOR STOCKHOLDERS OF THE COMPANY TO EXCHANGE
THEIR EXISTING STOCK CERTIFICATES FOR CERTIFICATES OF METRO DELAWARE;
OUTSTANDING STOCK CERTIFICATES OF METRO GLOBAL MEDIA INC. OR SOUTH POINTE
ENTERPRISES, INC. SHOULD NOT BE DESTROYED OR SENT TO THE COMPANY. The common
stock of the Company will continue to be quoted on the NASDAQ Small Cap market,
and the exiting stock certificates will constitute "good delivery" in
transactions subsequent to the reincorporation.
4
<PAGE> 6
PRINCIPAL REASONS FOR CHANGING THE COMPANY'S STATE OF INCORPORATION.
The Company's Board of Directors believes that the reincorporation
will provide flexibility for both the management and business of the Company.
Delaware is a favorable legal and regulatory environment in which to
operate. For many years, Delaware has followed a policy of encouraging
incorporation in that state and, in furtherance of that policy, has adopted
comprehensive, modern and flexible corporate laws which are periodically
updated and revised to meet changing business needs. As a result, many major
companies have initially chosen Delaware for their domicile or have
subsequently reincorporated in Delaware. The Delaware courts have developed
considerable expertise in dealing with corporate issues, and a substantial body
of case law has developed construing Delaware law and establishing public
policies with respect to Delaware companies thereby providing greater
predictability with respect to corporate legal affairs.
Delaware law is more familiar to lenders and investors, and therefore
may provide the Company a more favorable legal environment in which to seek
additional financing. Because Delaware corporate law is more predictable and
familiar to lenders and investors than is Florida corporate law, and because
Delaware courts have substantially greater experience in handling matters of a
corporate nature, the Board of Directors believes that changing the Company's
domicile from Florida to Delaware would make the Company more attractive to new
and existing shareholders, lenders and investors.
If the reincorporation is consummated, the Delaware Business
Combinations Statute ("DBCS") will apply to the Company. See "COMPARATIVE
RIGHTS OF SHAREHOLDERS -- State Takeover Laws, below". The Board believes that
the provisions of the DBCS will enhance the Board's ability to assure more
equitable treatment of the Company's shareholders in the event of a possible
takeover attempt.
The Board of Directors has determined that the most practical and
economical means of reincorporating the Company in the State of Delaware would
be through a reincorporation merger of the Company with and into a wholly-owned
subsidiary of the Company incorporated in Delaware. Merger with a wholly-owned
subsidiary is the usual means of reincorporation in another jurisdiction, since
it is inexpensive to accomplish and will qualify as a tax-free reorganization.
Since a reincorporation merger is the usual and most practical and economical
means of reincorporating the Company in Delaware, it was the only alternative
considered by the Board of Directors.
5
<PAGE> 7
EFFECTS ON THE COMPANY
The business and internal affairs of the Company will be governed by
Delaware law. The Company's Certificate of Incorporation and Bylaws will
provide for greater limitations on the personal liability of directors to the
Company and its stockholders, provide expanded indemnification provisions,
require that stockholders desiring to submit nominees for election as directors
or to introduce business at an annual meeting comply with certain notice
provisions, and will allow the Board of Directors of the Company, in addition
to the stockholders, to adopt, amend or repeal the Bylaws.
Once the Reincorporation Agreement is approved, the Board of
Directors of the Company will be comprised of the same members elected at the
Meeting to comprise the Company's Board of Directors. The directors elected in
connection with the current Proposal for election of Company directors will
serve until the next annual meeting of the stockholders of the Company, until
their respective successors are elected and qualified. Metro Delaware will
also have the same executive officers as did the Company prior to the
reincorporation.
Upon consummation of the Merger, holders of the Common Stock will
become holders of Metro Delaware Common Stock and the rights of former Company
shareholders will be governed by Metro Delaware's Certificate of Incorporation,
Metro Delaware's Bylaws and the DGCL.
COMPARISON OF DELAWARE AND FLORIDA LAW
The following comparison of the DGCL and Metro Delaware's Certificate
of Incorporation and Bylaws, on the one hand, and the FBCA and the Company's
Articles of Incorporation and Bylaws, on the other, is not intended to be
complete and is qualified in its entirety by reference to Metro Delaware's
Certificate of Incorporation and Bylaws and the Company's Articles of
Incorporation and Bylaws. Copies of the Company's Articles of Incorporation
and Bylaws are on file with the Securities and Exchange Commission and are
available for inspection at the offices of the Company. If the reincorporation
is consummated, copies of Metro Delaware's Articles of Incorporation and Bylaws
will be filed with the Securities and Exchange Commission and will be available
for inspection at the offices of the Company. Copies of the Company's
Articles of Incorporation and Bylaws or Metro Delaware's Certificate of
Incorporation and Bylaws will be sent to the holders of the Company's Common
Stock without charge upon request.
DISTRIBUTIONS TO SHAREHOLDERS
A Delaware corporation may pay dividends out of surplus or, if there
is no surplus, out of net profits for the fiscal year in which declared or for
the preceding fiscal year. A Florida corporation may make distributions to
shareholders as long as, after giving effect to such distribution, the
corporation will be able to pay its debts as they become due in the usual
course of business and the corporation's total assets will not be less than the
sum of its total liabilities plus (unless the articles of incorporation permit
otherwise) the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential
6
<PAGE> 8
rights upon dissolution of shareholders whose preferential rights are superior
to those receiving the distribution.
DISSENTER'S RIGHTS
The DGCL provides that dissenting stockholders who follow prescribed
statutory procedures are entitled to appraisal rights in the case of a merger
of a corporation, except that such rights are not provided when (i) no vote of
the stockholders is required for the merger or (ii) shares of the corporation
are listed on a national securities exchange or held by more than 2,000
stockholders and are to be exchanged solely for shares of stock of another
corporation which are listed on a national securities exchange or held by more
than 2,000 stockholders.
The FBCA provides appraisal rights in connection with (i) a merger,
except that such rights are not provided when (a) no vote of the shareholders
is required for the merger or (b) shares of the corporation are listed on a
national securities exchange, traded on the NASDAQ National Market System, or
held of record by not fewer than 2,000 shareholders; (ii) a sale of
substantially all the assets of a corporation (with similar restrictions as
provided under the DGCL for mergers); (iii) amendments to the articles of
incorporation that may adversely affect the rights or preferences of
shareholders; and (iv) a Control Share Acquisition (as described below).
The shares of the Company are not presently listed on a national
securities exchange or traded on the NASDAQ National Market System and, as of
September 30, 1996, were held by approximately 425 shareholders of record.
STATE TAKEOVER LAWS
The Delaware Business Combinations Statute prohibits certain business
combinations between a Delaware company and an "Interested Stockholder." An
Interested Stockholder is defined as a person (including such person's
affiliates and associates) that is directly or indirectly a beneficial owner of
15% or more of the voting power of the outstanding voting stock of a Delaware
company. "Business combinations" are broadly defined to include mergers,
consolidations, sales or other dispositions of assets having an aggregate value
in excess of 10% of the consolidated assets of a company, and certain
transactions that would increase the Interested Stockholder's proportionate
share ownership in a company.
The DBCS prohibits such combinations between an Interested
Stockholder and a company for a period of three years after the date the
Interested Shareholder acquired its stock, unless (i) the business combination
is approved by such company's board of directors prior to the date the
Interested Stockholder acquired its shares, (ii) the Interested Shareholder
acquired at least 85% of the voting stock of such company in the transaction in
which it became an Interested Stockholder, or (iii) the business combination is
approved by a majority of the board of directors and the affirmative vote of
two-thirds of the votes entitled to be cast by disinterested Stockholders at an
annual or special meeting.
7
<PAGE> 9
Section 607.0901 of the FBCA, informally known as the "Fair Price
Statute," provides that the approval of the holders of two-thirds of the voting
shares of a company, other than the shares owned by an Interested Stockholder
(as hereinafter defined) would be required in order to effectuate certain
transactions, including, without limitation, a merger, sale of assets, sale of
shares and reclassification of securities involving a corporation and an
Interested Shareholder (an "Affiliated Transaction"). An "Interested
Shareholder" is defined under the FBCA as the beneficial owner of more than 10%
of the voting shares outstanding. The foregoing special voting requirement is
in additional to the vote required by any other provision of the FBCA or a
corporation's articles of incorporation.
The special voting requirement does not apply in any of the following
four circumstances: (i) the Affiliated Transaction is approved by a majority of
the corporation's disinterested directors; (ii) the Interested Shareholder has
beneficially owned 80% of the corporations's voting shares for five years;
(iii) the Interested Shareholder beneficially owns 90% of the corporation's
voting shares; or (iv) all of the following conditions are met: (A) the cash
and fair value of other consideration to be paid per share to all holders of
voting shares equals the highest per share price calculated pursuant to various
methods set forth in Section 607.091 of the FBCA, (B) the consideration to be
paid in the Affiliated Transaction is in the same form as previously paid by
the Interested Shareholder, and (C) during the portion of the three years
preceding the announcement date that the Interested Shareholder has been an
Interested Shareholder, except as approved by a majority of the disinterested
directors, there shall have been no default in payment of preferred stock
dividends, no decrease in common stock dividends, no increase in the voting
shares owned by the Interested Shareholder, and no benefit to the Interested
Shareholder from loans, guaranties or other financial assistance or tax
advantages provided by the corporation. The Company has not opted out of the
provisions of Section 607.0901.
LIMITATION ON DIRECTOR'S LIABILITY
In accordance with the DGCL, the Company's Certificate of
Incorporation will provide that the directors of the Company shall not be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director except (i) for any breach of the
director's duty of loyalty to the Company and its stockholders; (ii) for acts
or omissions not in good faith or which involve intentional misconduct, or
knowing violations of law; (iii) under Section 174 of the DGCL, which relates
to unlawful payments of dividends and unlawful stock repurchases and
redemptions; or (iv) for any transaction from which the director derived an
improper personal benefit. This provision does not eliminate a director's
fiduciary duties; it merely eliminates the possibility of damage awards against
a director personally which may be occasioned by certain unintentional breaches
(including situations that may involve grossly negligent business decisions) by
the director of those duties. The provisions have no effect on the
availability of equitable remedies, such as injunctive relief or rescission,
which might be necessitated by a director's breach of his or her fiduciary
duties. However, equitable remedies may not be available as a practical matter
where transactions (such as merger transactions) have already been consummated.
The inclusion of this provision in Metro Delaware's Certificate of
Incorporation may have the effect of reducing the likelihood of derivative
litigation against directors, and may discourage or deter stockholders or
management
8
<PAGE> 10
from bringing a lawsuit against directors for breach of their duty of care,
even though such an action, if successful, might otherwise have benefited the
Company and its stockholders.
The FBCA provides that directors of a corporation will not be
personally liable for monetary damages for breach of their fiduciary duty as
directors, except in certain specified circumstances. Those circumstances
involve either: (i) a violation of the criminal law; (ii) a transaction from
which the director derived an improper personal benefit; (iii) an unlawful
payment of a dividend or unlawful stock repurchase or redemption; (iv) in a
derivative proceeding or one by or in the right of a shareholder, conscious
disregard for the best interests of the corporation or willful misconduct; or
(v) in a proceeding by or in the right of someone other than the corporation or
a shareholder, recklessness or an act or omission that was committed in bad
faith, was malicious purpose or in a manner exhibiting wanton and willful
disregard of human rights, safety or property.
CALLING A SPECIAL MEETING OF SHAREHOLDERS
Under the DGCL, a special meeting of shareholders can be called by
the corporation's Board of Directors or by such person or persons as may be
authorized by the corporation's certificate of incorporation or bylaws. The
Company's Certificate of Incorporation will not authorize any person to call a
special meeting of shareholders. The Company's Bylaws, however, will provide
that a special meeting may be called by the Board of Directors, Chairman of the
Board of Directors, or the President or the Board and shall be called by the
President or the Secretary upon written request of a majority of the directors
then in office or upon the written request of one or more shareholders holding
in the aggregate at least 10% of the total number of shares outstanding and
entitled to vote.
The FBCA provides that a special meeting of shareholders can be
called by (i) a corporation's Board of Directors; (ii) the persons authorized
by the articles of incorporation or bylaws; or (iii) the holders of not less
than 10% of all votes entitled to be cast on any issue to be considered at the
proposed special meeting. A corporation's articles of incorporation can
require a higher percentage of votes, up to a maximum of 50%, to call a special
meeting of shareholders. The Company's Articles of Incorporation do not include
any such provision.
AMENDMENTS TO BYLAWS
Under the DGCL, directors can amend the Bylaws of a corporation only
if such right is expressly conferred upon the directors in its certificate of
incorporation. Metro Delaware's Certificate of Incorporation will provide its
directors with such authority. Under the FBCA, a corporation's board of
directors may amend or repeal the bylaws unless such power is expressly
reserved to the shareholders in the articles of incorporation or the FBCA or
the shareholders expressly provide, in amending or repealing all or any part of
the bylaws, that the board of directors may not amend or repeal the affected
bylaws.
MERGER WITH SUBSIDIARY
9
<PAGE> 11
Under the DGCL, a parent corporation may merge into itself, without
shareholder approval, a subsidiary of which it owns at least 90% of the
outstanding shares of each class of stock. The FBCA permits such a merger of a
subsidiary without shareholder approval if 80% of each class of stock of the
subsidiary is owned by the parent corporation.
REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS.
Under Delaware law, any director or the entire board of directors
generally may be removed, with or without cause, by the holders of a majority
of the shares entitled to vote at an election of directors. Under the FBCA,
shareholders may remove one or more directors with or without cause, unless the
articles of incorporation provide that directors may be removed only with
cause, at a meeting of the shareholders called expressly for that purpose. The
Company's current Articles of Incorporation do not refer to removal of
Directors.
Under the Company's Bylaws, newly created directorships resulting
from any increase in the number of directors or any vacancies on the Board of
Directors may be filled by the affirmative vote of a majority of the directors
then in office. In addition, the Metro Delaware Bylaws provide that the
directors elected to fill vacancies on the Board of Directors will serve for
the unexpired portion of the term of the director whose place has been filled,
and a director elected by the Board of Directors of the Metro Delaware to fill
a newly created directorship resulting from an increase in the number of
directors will hold office until the next election of directors.
The Company's Bylaws provide that vacancies on the Board of Directors
will be filled by a majority vote of the Board of Directors or by a vote of
shareholders.
AMENDMENT OR REPEAL OF THE CERTIFICATE.
Under Delaware law, unless the certificate of incorporation otherwise
provides, amendments of the certificate of incorporation generally require the
approval of the holders of a majority of the outstanding stock entitled to vote
thereon, and if the amendment would increase or decrease the number of
authorized shares of any class or series or the par value of such shares or
would adversely affect the rights, powers or preferences of such class or
series, a majority of the outstanding stock of such class or series also would
have to approve the amendment. The Metro Delaware certificate does not provide
otherwise.
Except with regard to minor amendments, all amendments to the
articles of incorporation of a Florida corporation must be approved by the
majority of all the votes entitled to be cast by that voting group, unless the
articles require a greater or lesser vote. The Company's Articles or
Incorporation do not provide otherwise.
VOTE REQUIRED FOR MERGERS.
The FBCA provides that the sale, lease, exchange or disposal of all,
or substantially all, of the assets of a Florida corporation, not in the
ordinary course of business, as well as any merger,
10
<PAGE> 12
consolidation or share exchange, generally must be recommended by the Board of
Directors and approved by a vote of a majority of the shares of each class of
the stock of the corporation entitled to vote on such matters. Under the FBCA,
the vote of the shareholders of a corporation surviving a merger is not
required if: (i) the articles of incorporation of the surviving corporation
will not substantially differ from its articles before the merger; and (ii)
each shareholder of the surviving corporation before the effective date will
hold the same number of shares, with identical designations, preferences,
limitations and relative rights immediately after the merger. Delaware law has
similar provisions for stockholder approval required in the case of the
disposition of assets or a merger or a share exchange.
FEDERAL TAX CONSEQUENCES.
The merger which will take place in connection with the
reincorporation should, under current law, constitute a tax-free reorganization
under Section 368 of the Internal Revenue Code of 1986, as amended (the
"Code"). No ruling has been or is expected to be requested from the Internal
Revenue Service ("IRS") as to the tax consequences of such merger. Since no
ruling has been obtained, no assurance can be given that the IRS will agree
with the conclusions of counsel or that a challenge by the IRS, if made, will
not be successful.
Assuming that the reincorporation constitutes a tax-free
reorganization, the federal income tax consequences to the Company and its
stockholders are has follows: No gain or loss will be recognized to the
Company or Metro Delaware as a result of this transaction. No gain or loss
will be recognized to shareholders who exchange their Company shares solely for
Metro Delaware shares. Stockholders will have the same tax basis in the shares
of Metro Delaware received in this transaction as the basis in the shares of
Company exchanged therefor, and the holding period of the shares of Metro
Delaware will include the period during which the shares of the Company were
held, provided such shares of the Company were held as capital assets on the
effective date of the reincorporation.
The foregoing summary of federal income tax consequences is included
for general information only and does not address the federal income tax
consequences to all holders, including those who acquired shares of Common
Stock pursuant to the exercise of employee stock options or otherwise as
compensation and those subject to the alternative minimum tax. In view of the
individual nature of tax consequences, shareholders are urged to consult their
own tax advisors as to the specific tax consequences of the reincorporation,
including the application and effect of state, local and foreign income and
other tax laws.
AMENDMENT
The Reincorporation Agreement may be amended, modified or
supplemented prior to the effective time of the reincorporation upon the
approval of the Board of Directors of the Company and Metro Delaware. However,
no amendment, modification or supplement may be made after the adoption of the
Reincorporation Agreement by the shareholders of the Company which changes the
Reincorporation Agreement in a way which, in the judgment of the Board of
11
<PAGE> 13
Directors of the Company, would have a material adverse effect upon the
shareholders of the Company, unless such amendment, modification or supplement
is approved by such shareholders.
TERMINATION
The Reincorporation Agreement provides that the Board of Directors of
the Company may terminate the Reincorporation Agreement and abandon the merger
contemplated thereby at any time prior to its effective time, whether before or
after approval by the shareholders of the Company, if (i) the reincorporation
shall not have received the requisite approval of the shareholders of the
Company or (ii) the Board of Directors of the Company determines for any reason
in its sole judgment that the consummation of the transaction would be
inadvisable or not in the best interests of the Company and its shareholders.
VOTE REQUIRED
Under Florida law, the affirmative vote of holders of a majority of
the issued and outstanding shares of Common Stock entitled to vote thereon at
the Meeting is required for the ratification of the reincorporation of the
Company under the laws of State of Delaware.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR the proposal to
reincorporate the Company under the laws of the state of Delaware by means of a
merger of the Company into a wholly-owned subsidiary of the Company.
DISSENTERS' RIGHTS
The shareholders of the Company are entitled to exercise dissenters'
rights of appraisal under Sections 607.1301, 607.1302 and 607.1320 of the FBCA
(the "Dissenters' Statute"). The dissenters' rights available are summarized
below. The following summary is not intended to be a complete statement of
such rights. The preservation and exercise of dissenters' rights are
conditioned on strict adherence to the applicable provisions of the FBCA and
shareholders of the Company who desire to exercise dissenters' rights should
consult and study carefully the provisions contained in the Dissenters' Statute
and seek the advice of legal counsel in connection with any decision with
respect to the exercise of dissenters' rights.
Under the Dissenters' Statute, shareholders have the right to dissent
from adoption of the Reincorporation Agreement and demand payment of the fair
value of their shares. In order to properly exercise this right, each
dissenting shareholder (i) must give the Company a written notice of his or her
intent to dissent from the proposal to approve the Reincorporation Agreement
and demand payment for his or her shares if the Merger is effectuated BEFORE
THE VOTE ON THE MERGER AGREEMENT IS TAKEN AT THE ANNUAL MEETING and (ii) MUST
NOT VOTE IN FAVOR OF THE MERGER AGREEMENT. Merely voting against the Merger or
abstaining from voting on the Merger will not satisfy the foregoing
requirements. Any dissenting shareholder who fails to satisfy the foregoing
requirements as they apply to his or her
12
<PAGE> 14
shares will not be entitled to payment for his or her shares and will be bound
by the terms of the Reincorporation Agreement.
If the proposed action is submitted to a vote at a shareholders
meeting, the Company is required to include in the notice of meeting notice
that the shareholders are or may be entitled to dissenters' rights as well as a
copy of the Dissenters' Statute. Within 10 days after the shareholder's
Meeting approving the Merger, the Company will mail a further notice of such
approval to all Shareholders who delivered a notice of intent to demand payment
and refrained from voting in favor of the proposed action. Within 20 days
after the Company delivers the written notice of the approval to Shareholders,
any shareholder who elects to dissent shall file with the company a notice of
such election, stating his name and address, the number of shares as to which
he dissents and a demand for payment of the fair value of his shares, and such
shareholder shall file an election to dissent and deposit his certificates [for
certificated shares] with the company simultaneously with the filing of the
election to dissent. A shareholder who fails to file his notice of election to
dissent within the 20-day period will forfeit his dissenters' rights.
Within 10 days after the later to occur of (i) the expiration of the
20-day period in which shareholders may file their notices of election to
dissent, or (ii) the consummation of the Merger, but in no event later than 90
days from the date the Shareholders approve the transaction, the company must
make a written offer to each dissenting shareholder, who has filed his notice
of election to dissent within the 20-day period, to pay an amount the Company
estimates to be the fair value for such shares. The Company's written offer
must be accompanied by its most recent balance sheet (the date of which must be
within 12 months of the date of the offer) and a profit and loss statement for
the 12-month period ended on the date of the balance sheet. The dissenting
shareholder shall have 30 days following the Company's offer to accept the
offer. If the offer is accepted, the Company shall pay the agreed to value for
the shares within 90 days of its making the offer, following which the
dissenting shareholder shall cease to have an interest in the shares.
If the Company fails to make its offer within the prescribed period,
or if it makes an offer and the dissenting shareholder fails to accept the same
within the 30 day acceptance period, then the Company, within 30 days after
receipt of a written demand from any dissenting shareholder which is given
within 60 days after the date of the consummation of the Merger, will have the
option to file (within such 60 day period) an action in the appropriate court
in the county where the registered office of the Company is located requesting
that the court determine the fair value of the shares. If the Company fails to
institute the court proceeding, any dissenting shareholder may do so in the
name of the Company. The judgment of the court will be plenary and exclusive
and all dissenters who are made parties will be entitled, after a hearing
without a jury, to judgment for the amount the court determines is the fair
value of the shares which, at the discretion of the court, may include
interest.
While costs and expenses of an appraisal proceeding will generally be
borne by the Company, the court has equitable powers to assess any part of the
costs against all or some of the dissenters who are parties whose action in
failing to accept the Company's offer the court finds to
13
<PAGE> 15
be arbitrary, vexatious or not in good faith. The court has similar equitable
powers to allocate among the parties the fees and expenses of appraisers
appointed by the court, but not the fees and expenses of counsel or experts
employed by any party.
THE PROVISIONS OF THE FBCA REGARDING DISSENTERS' RIGHTS ARE TECHNICAL
AND COMPLEX AND ANY COMPANY SHAREHOLDER CONTEMPLATING THE EXERCISE OF SUCH
RIGHTS IS URGED TO CONSULT WITH HIS OR HER LEGAL COUNSEL. A COPY OF THE
DISSENTERS' STATUTE IS ATTACHED HERETO AS EXHIBIT A.
14
<PAGE> 16
MANAGEMENT
The Directors and Executive Officers of the Company are as follows:
Name Age Position
---- --- --------
T. James Blair 42 Director and Treasurer
Alan S. Casale 46 Director
A. Daniel Geribo 51 Director
Dolores Guglielmi 57 Director
Kenneth F. Guarino 47 President and Secretary
Mr. Blair's biography is included above under Proposal No. 1--Election of
Directors.
Mr. Casale's biography is included above under Proposal No. 1--Election of
Directors.
Mr. Geribo's biography is included above under Proposal No. 1--Election of
Directors.
Ms. Guglielmi's biography is included above under Proposal No. 1--Election of
Directors.
Kenneth F. Guarino has served as President of the Company from
October, 1995 until present. Mr. Guarino has served as operations manager of
Metro since its inception in 1990 and served as President of the Company from
April 1993 to July 1994. From March 1992 to present, Mr. Guarino has also
served as operations manager, and prior to that served as assistant operations
manager for more than the past five years, of Capital Video Corporation, which
operates a chain of retail video stores in the New England and upstate New York
area. On October 13, 1992, Mr. Guarino was indicted in the United States
District Court for the District of Nevada for allegedly participating in a
conspiracy to influence a union representative in violation of 18 U.S.C.Section
371. On August 25, 1994, the indictment was replaced with a superseding
indictment to add a charge alleging that Mr. Guarino participated in a
conspiracy to impede the Internal Revenue Service in the assessment and
collection of federal income taxes owed by another individual. The charges are
completely unrelated to Mr. Guarino's involvement with Metro, Inc. or the
Company, and counsel for Mr. Guarino believes that there are meritorious
defenses to the charges. According to counsel for Mr. Guarino, the first
charge involves a claim that Mr. Guarino participated in a conversation,
constituting the alleged violation, regarding a Las Vegas stage production of
which Mr. Guarino was an investor. There is no claim that any contact with
any official was ever made or that any benefit was ever offered or paid. The
second charge involves a claim that a corporation in which Mr. Guarino is a
shareholder made payments to an individual who did not report the payments on a
federal income tax return. There is no claim that Mr. Guarino or the
corporation failed to pay any required income tax. Although each charge
carries a maximum penalty of 60 months incarceration, it is difficult to
ascertain that potential penalties that may be incurred by Mr. Guarino if
convicted. The ultimate penalty, if any, will be determined based upon a
formula under the Federal Sentencing Guidelines and depends on a number of
variables such as the actual tax loss, if any, proven by the government
15
<PAGE> 17
and the degree of participation by Mr. Guarino in the alleged conspiracies.
Given this uncertainty, any assessment of the impact that this matter may have
on the Company would be purely speculative at this time.
On August 28, 1995, Mr. Guarino and North Star Distributors, Inc.,
now known as Metro, Inc., were indicted in the United States District Court for
the District of Nevada for the interstate transportation of allegedly obscene
video cassettes in violation of 18 U.S.C. Sections 1462 and 2. The charges
regarded two shipments made by North Star into Las Vegas, Nevada in June and
July, 1991, prior to the acquisition of North Star by the Company; accordingly
the previous owner of North Star agreed to indemnify the Company for all legal
fees incurred and fines paid in connection with the defense of this matter. On
September 24, 1996, in order to avoid the expense and uncertainty of
litigation, the Company pled guilty to the one count of the indictment and
agreed to pay a fine of $200,000 (which fine will be paid by the former owner
of North Star and will have no impact on the Company's financial condition).
The charges against Mr. Guarino were dismissed. Even though North Star entered
a plea of guilty to effect a settlement of this matter, there was no judgement
or finding that the videotapes were obscene or violated any law.
In addition to the Directors and Executive Officers listed above,
Dennis Nichols is expected to make a significant contribution to the business
of the Company and its subsidiaries. Dennis Nichols has served as President and
sole director of Metro since its inception in 1990, and previously served in
executive capacitates with Metro Inc., a video distribution company. From
March 1992 to November 1994, Mr. Nichols served as President, Treasurer,
Secretary and sole director of Capital Video Corporation, which operates a
chain of retail video stores in the New England and upstate New York area.
Mr. Nichols is 47 years old.
On April 11, 1996, Mr. Blair was elected to the Company's Board of
Directors, and filed Form 3 on May 23, 1996. In August, 1996, Dolores
Guglielmi filed a Form 5 with respect to the exercise of outstanding warrants
during fiscal 1996. In August 1995 Mr. Guarino filed a Form 4 with respect to
transactions made by his spouse in July 1994. In September, 1996, Dan Geribo
filed a Form 4 with respect to transactions made in September 1995. The
Company is not aware of the failure of any person to file any form required by
Section 16 (a) of the Exchange Act.
No director or executive officer serves pursuant to any arrangement
or understanding between him or her and any other person(s), other than
arrangement or understandings with directors and officers acting solely in
their capacity as such.
The Board of Directors of the Company held 4 meetings during the
fiscal year ended May 31, 1996. During the last fiscal year, no Director
attended fewer than 75% of the regularly scheduled and special meetings held
while he or she was a Director. The Company does not have standing audit,
compensation or nominating committees.
The Bylaws of the Company provide for a Board of Directors consisting
of seven Directors. Upon the election of the individuals listed in Proposal
No. 1 above, there will be three vacancies on the Board. Pursuant to Section
3.04 the Company's Bylaws, the Board of Directors of the Company has the
authority to fill this vacancy by an affirmative vote of a majority of the
Directors. The Board intends to seek out suitable candidates to fill the
vacancies as soon as practicable.
16
<PAGE> 18
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------ ----------------------------------
OTHER
NAME AND PRINCIPAL FISCAL ANNUAL ALL OTHER
POSITION YEAR SALARY BONUS COMP. AWARDS PAYOUTS COMP.
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
KENNETH F. GUARINO 1996 $ 83,798 - - - - -
PRESIDENT (1) 1995 $ 383,907 - - - - -
1994 $ 378,975 - - - - -
CARL BRUNO 1996 $ 17,600 - - - - -
PRESIDENT (2) 1995 $ 41,616 - - - - -
1994 $ N/A - - - - -
</TABLE>
(1) Mr. Guarino was elected President of the Company effective April 28, 1993.
Prior to this election, Mr. Guarino served as Operations Manager of Metro. Mr.
Guarino resigned as President of the Company effective July 27, 1994 and
resumed his position as Operations Manager of Metro. Mr. Guarino was elected
President effective October 31, 1995.
(2) Mr. Bruno served as President from July 27, 1994 until October 31, 1995.
<TABLE>
<CAPTION>
Options / SAR Grants in Last Fiscal Year
----------------------------------------
Number of % of Total Market
Securities Options/SARs Price on
Underlying Granted to Exercise or Date of
Options/SARs Employees in Base Price Grant Expiration
Name Granted Fiscal Year ($/share) ($/share) Date
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NA 0 - - - -
</TABLE>
<TABLE>
<CAPTION>
Aggregated Options / SAR Exercises in Last Fiscal Year and fiscal year-end Option / SAR Values
----------------------------------------------------------------------------------------------
Number of Value of Unexercised
Securities In-the-Money
Underlying Options/SARs at
Unexercised FY-end
Options/SARs at
FY-End
Name Shares Acquired Value Exercisable / Exercisable /
on exercise (#) Realized ($) Unexercisable Unexercisable
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kenneth Guarino 0 - 150,000/50,000 -
</TABLE>
Until October 1994 Messrs. Garber and Chalcraft received $1,250 per
calendar quarter as compensation for services rendered as Directors. Effective
October 1994, the Company agreed to pay all directors who are not employees of
the Company $300.00 per scheduled meeting.
17
<PAGE> 19
In September 1993, a disinterested majority of the Board of Directors
authorized the execution of an Employment Agreement with Kenneth F. Guarino,
effective as of January 1, 1993. The Agreement is for a term of four years;
however, on December 31, 1995 and on each December 31 thereafter (the "Renewal
Date"), the term shall automatically be extended for an additional one year
period unless Metro notifies Mr. Guarino in writing on or before the applicable
Renewal Date that Metro does not wish to extend the Agreement beyond the term
thereof. The Agreement provides for a salary of $312,000 for the calendar year
1993, which shall be automatically increased fifteen percent annually and
reviewed periodically by the Board of Directors. In addition, the Company
granted Mr. Guarino stock options to purchase up to 200,000 shares of Common
Stock at a purchase price of $1.50 per share, exercisable in four annual
installments of 50,000 shares commencing January 1, 1994. On July 27, 1994, a
disinterested majority of the Board ratified Mr. Guarino's Employment Agreement
and Stock Option Agreement notwithstanding the resignation of Mr. Guarino as
President of the Company. Except as set forth above, no other executive
officer received salary and bonus exceeding $100,000 in any of the last three
fiscal years except for Anthony P. Santucci who received $123,914 and $109,302
in the fiscal years 1995 and 1994, respectively. Mr. Santucci resigned as
treasurer in August, 1995.
Effective December 31, 1995, the Company and Mr. Guarino agreed, in
light of the Company's performance for the fiscal year ended May 31, 1995 and
Mr. Guarino's need to devote time and energy to personal and other business
matters during the year, to reduce Mr. Guarino's salary to $83,798 for the
fiscal year ended May 31, 1996.
18
<PAGE> 20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
Company's Common Stock beneficially owned as of August 31, 1996, by each person
who is known by the Company to own beneficially more than 5% of the Company's
common stock, (ii) by each of the Company's directors, and by all executive
officers and directors as a group.
<TABLE>
<CAPTION>
NO. OF SHARES OF PERCENTAGE OF BENEFICIAL
COMMON STOCK OWNERSHIP (1)
NAME AND ADDRESS BENEFICIALLY OWNED
<S> <C> <C>
Officers and Directors
----------------------
T. James Blair
1060 Park Avenue
Cranston, RI 02910 None *
Alan S. Casale
1140 Reservoir Avenue
Cranston, RI 02920 20 *
A. Daniel Geribo
788 Reservoir Avenue, Suite 300
Cranston, RI 02910 None *
Dolores Guglielmi
27 Sherman Avenue
Lincoln, RI 02865 24,000 *
Kenneth F. Guarino
1060 Park Avenue 2,228,780 (2)(3)
Cranston, RI 02910 62.29%
All Executive Officers and
Directors as a group (8 people) 2,252,800 (2)(3) 62.96%
Other 5% Beneficial Owners
--------------------------
Zeon Corporation
1060 Park Avenue
Cranston, RI 02910 1,237,065 (3) 34.57%
Greystone Associates, L.P.
1060 Park Avenue
Cranston, RI 02910 1,237,065 (3) 34.57%
Colby Development Corp.
1060 Park Avenue
Cranston, RI 02910 1,237,065 (3) 34.57%
Dennis Nichols
1060 Park Avenue
Cranston, RI 02910 1,258,065 (3) 35.16%
Capital Video Corporation
1060 Park Avenue
Cranston, RI 02910 730,863 20.43%
</TABLE>
19
<PAGE> 21
* Beneficial ownership represents less than 1% of the outstanding common
stock.
(1) Assumes 3,428,034 shares of Common Stock issued and outstanding at
August 31, 1996 and 150,000 unexercised stock options.
(2) Includes 150,000 shares issuable upon the exercise of stock options
held by Mr. Guarino. Includes 18,000 shares held by Mr. Guarino's
wife, for which Mr. Guarino disclaims beneficial ownership. Includes
41,000 shares owned by a non-profit charitable corporation of which
Mr. Guarino and his wife serve as 2 of the 3 members of the Board of
Directors for which Mr. Guarino disclaims beneficial ownership.
Includes 730,863 shares held by Capital Video Corporation.
(3) Includes 1,236,750 shares held of record by Zeon Corporation and 315
shares held of record by Metro, Inc.
20
<PAGE> 22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Zeon Corporation is the record owner of 1,236,750 shares of the
Company. Zeon Corporation is owned 40% by Dennis Nichols and 60% by Greystone
Associates, L.P., a Rhode Island limited partnership of which Colby Development
Corp., a Rhode Island corporation serves as sole general partner. Kenneth F.
Guarino is the sole shareholder of Colby Development Corp.
Effective January 31, 1996, Airborne for Men, Ltd. sold to Capital
Video Corporation the stock of its wholly owned subsidiary A.F.M. Limited and
effective November 30, 1995, Airborne for Men, Ltd. sold to Capital Video
Corporation the stock of its wholly owned subsidiaries, Eastern Sales, Inc., a
Rhode Island corporation, and Airoldco, Inc. (formerly known as Airborne East,
Inc.), a Rhode Island corporation.
In connection with the November 30, 1995 transaction, Capital Video
Corporation agreed to assume the indebtedness of Airborne to Kenneth F. Guarino
evidenced by the Promissory Note of Airborne dated September 30, 1994 (the
"Airborne Note"). At November 30, 1995, the outstanding principal balance of
the Airborne Note was $292,711, plus accrued interest of $26,503.
In addition, Capital Video Corporation agreed to assume the
indebtedness of Metro, Inc. to Metro Equipment Company evidenced by the
Promissory Note of North Star Distributors, Inc. dated June 1, 1991 (the
"1/1/92 North Star/MEC Note"). At November 30, 1995, the outstanding principal
balance of the 1/1/92 North Star/MEC Note was $97,323, plus accrued interest of
$12,530. In addition, Capital Video Corporation agreed to assume a portion of
the indebtedness of Metro, Inc. to Metro Equipment Company evidenced by the
Promissory Note of North Star Distributors, Inc. dated 6/1/92 (the "6/1/91
North Star/MEC Note"). At November 30, 1995, the outstanding principal balance
of the 6/1/91 North Star/MEC Note that Capital Video Corporation agreed to
assume was $232,894, plus accrued interest of $64,624.
In connection with the January 31, 1996 transaction, Capital Video
Corporation agreed to assume the balance of indebtedness of Metro, Inc. under
the 6/1/91 North Star/MEC Note. At January 31, 1996, the outstanding principal
balance of the 6/1/91 North Star/MEC Note that Capital Video Corporation agreed
to assume was $337,736. In addition, Capital Video Corporation agreed to
assume a portion of the indebtedness of Metro, Inc. to Metro Plus Company
evidenced by the Promissory Note of North Star Distributors, Inc. dated June
1, 1991 (the "6/1/91 North Star/MPC Note"). At January 31, 1996, the
outstanding principal balance of the 6/1/91 North Star/MPC Note that Capital
Video Corporation agreed to assume was $12,625.
During the quarter ended May 31, 1995, Capital Video Corporation (a
related entity) advanced the company $1,000,000 bearing interest at the rate of
12% to be repaid on or before May 31, 1996. Effective June 1, 1995, Capital
Video Corporation extended the loan to July 1, 1997 and the interest rate was
increased to 15%. Effective November 30, 1995, the company converted this note
payable to Capital Video Corporation plus accrued interest of $95,866 to
730,568 shares of common stock (a conversion price of $1.50 per share). The
debt to stock conversion was approved by the Directors on December 7, 1995.
The shares bear restrictive legend but Capital has been provided with a
registration right exercisable upon demand for up to 250,000 shares. To date,
none of these shares have been registered.
A. Daniel Geribo serves as the sole officer and director of, and
Mr. Guarino also serves as the operations manager and is 100% owner of,
Capital Video Corporation ("CVC") which operates a chain of retail video stores
21
<PAGE> 23
in the New England and upstate New York area. Capital Video Corporation
accounted for $6,297,550 (32%), $5,625,047 (32%), and $4,639,194 (36%) of the
net sales of Metro, Inc. for the fiscal years ended May 31, 1996, 1995, and
1994 respectively. At May 31, 1996, $662,807 (21%) of Metro's outstanding
accounts receivable were due from Capital Video Corporation, secured by a
security interest in all of the inventory of Capital Video Corporation and the
personal guaranty of Mr. Guarino's wife. At May 31, 1995, $205,561 (7%) of
Metro's outstanding accounts receivable were due from Capital Video Corporation
and at May 31, 1994, $731,503 (34%) of Metro's outstanding accounts receivable
were due from CVC. The age of the accounts receivable from CVC is as follows:
<TABLE>
<CAPTION>
Current 30-60 days 60-90 days Over 90 days
<S> <C> <C> <C> <C>
May 31, 1995 $205,561 $ 0 $ 0 $ 0
May 31, 1994 380,541 239,357 116,605 0
May 31, 1993 472,323 352,649 515,980 150,135
</TABLE>
The significant decrease in North Star's accounts receivable from CVC
is the result of a temporary paydown requested by North Star to confirm
collectability of the account; however, North Star intends to permit CVC to
return to the previous net 60 day payment terms. Management of the Company has
determined that, given the volume of business CVC has historically provided to
North Star, the value of the CVC inventory (which is monitored by North Star
and in which North Star retains a security interest), and the inability of CVC
to obtain inventory financing elsewhere, such aging is reasonable and in the
best interests of the Company.
In addition, at May 31, 1993, the Company had outstanding current
notes receivable from CVC, of $64,877 and $440,322. The first note provided
for interest at 15% and was payable in equal monthly installments of $33,048
through July 1993. The second note provided for interest at 12%, was payable in
equal monthly installments of $6,000 though 2004, and was secured by the
personal guaranties of Messrs. Guarino and Nichols. As of May 31, 1994, the
first note had been paid in full and the second note had an outstanding
principal balance of $414,607. At May 31, 1995, the second note had also been
paid in full. Both of these notes were entered into prior to the acquisition
of North Star by the Company, and reflect management of North Star's decision
to facilitate the expansion of CVC (thereby increasing CVC's demand for North
Star product) by restructuring prior accounts receivable to permit their
repayment over time.
During the fourth quarter of 1995, CVC advanced the Company an
aggregate $1,000,000, bearing interest at the rate of 12%, to be repaid on or
before May 31, 1995. Effective June 1, 1995, CVC agreed to extend the loan to
July 31, 1997, and the interest rate was increased to 15%. The terms of said
loan are subject to ratification by the Company's Board of Directors.
During the fiscal year 1995, Mr. Guarino made aggregate advances to
the Company of $63,383, bearing interest at 12%, to be repaid on or before May
31, 1997.
Effective May 1, 1993, North Star entered into a lease with Castle
Properties, L.L.C. for an approximately 50,000 square foot office, warehouse
and shipping complex located in Cranston, Rhode Island. This facility houses
North Star's executive, administrative, editorial and operational offices, the
data center and customer service, warehouse and fulfillment facilities. The
lease is for a term of 10 years with two five-year renewal options, and
provides for a fixed annual rent of $245,200 for the first five years, triple
net. The annual
22
<PAGE> 24
rent for lease years 6 through 10 as well as the rent for the renewal terms, if
any, shall be adjusted based on increases in the consumer price index.
Approximately 7,500 square feet of the facility is sublet to Capital Video
Corporation under an oral, month-to-month lease agreement for $5,000 per month.
Castle Properties, L.L.C. is a Rhode Island limited liability company, 50% of
which is owned by Mr. Guarino's wife.
Effective September 26, 1994, Airborne for Men, Ltd., a wholly-owned
subsidiary of the Company, acquired 100% of the capital stock of Eastern Sales,
Inc., a Rhode Island corporation, from Kenneth Guarino. Eastern Sales operates
an adult video and magazine retail store in Johnston, Rhode Island, which
opened as the first company-owned Airborne for MenTM retail store in October
1994. The purchase price of the stock was $324,000, payable $24,000 at
closing, and the balance in the form of a promissory note, bearing interest at
the rate of 12%, amortized over sixty months commencing November 1, 1994. The
purchase price was negotiated based on a multiple of 2.5 times the average
annual earnings of Eastern Sales over the 18 month period immediately preceding
the transaction, plus the book value of inventory and leasehold improvements of
Eastern Sales at closing, and was unanimously approved by the Board of
Directors of the Company.
On January 13, 1995, the Company entered into a lease agreement with
Centurion Financial Group, L.L.C. for approximately 5,000 square feet of
office space in Cranston, Rhode Island, with a monthly rent of $5,833.33,
effective June 1, 1994. The lease is for a term of 5 years, with a 5 year
renewal option. Centurion Financial Group, L.L.C. is a Rhode Island limited
liability company principally owned by a trust for the benefit of Mr. Guarino's
children.
Conflicts of Interest
Of necessity, some inherent conflict of interest is involved whenever
Officers, Directors and others acting on behalf of the Company supply services
or goods to the Company for compensation. Additional conflicts and non-arm's
length transactions may arise in the future when Company officers or directors
are involved in the management of any other company with which the Company
transacts business. Conflicts may also arise with respect to opportunities
which come to the attention of such persons. Conflicts may also arise with
respect to the amount of time and effort devoted to respective businesses and
opportunities.
Many of the persons who perform services as officers, and directors to
the company are actively, and in the future will be, involved in businesses
from which they derive income, other than the Company. Their activities may
include information and management of business ventures, the legal profession,
purchase and sale of real estate and pursuit of other opportunities. It is
expected that these persons will continue their separate business activities in
conjunction with their activities at the Company.
Although the Board of Directors believes that members of Management
will be of great assistance to the Company in the fulfillment of its corporate
mission, some transactions may and will occur where the Company and a member of
Management will have conflicts in particular respects. However, it is intended
that, in accordance with legal principles applicable to corporations, Company
action will be determined whenever possible by a disinterested majority of the
Board of Directors.
It is the Company's policy that all transactions in which an officer,
director or 5% shareholder has a direct or indirect interest be on terms no
less favorable to the Company than the Company would grant to or obtain from a
independent third-party in an arms-length transaction. Because a majority of
the Board of Directors
23
<PAGE> 25
are not affiliated with Capital Video Corporation, all transactions between the
Company or North Star and Capital Video Corporation have been, and all future
transactions will be, approved and/or ratified by a disinterested majority of
the Board of Directors.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The accounting firm of Trien, Rosenberg, Rosenberg, Weinberg, Ciullo &
Fazzari, LLP served as the Company's independent certified public accountants
for the year ended May 31, 1996 and management anticipates that such firm will
be reappointed for the present fiscal year. A representative of Trien,
Rosenberg, Rosenberg, Weinberg, Ciullo, and Fazzari is expected to be present
at the meeting with an opportunity to make a statement if he desires to do
so. Such representative is expected to be available to respond to appropriate
questions from stockholders.
ANNUAL REPORT
ANY PERSON FROM WHOM PROXIES FOR THIS MEETING ARE SOLICITED MAY OBTAIN
FROM THE COMPANY, WITHOUT CHARGE, A COPY OF ITS ANNUAL REPORT TO THE SECURITIES
AND EXCHANGE COMMISSION ON FORM 10-KSB FOR THE FISCAL YEAR ENDED MAY 31, 1996,
INCLUDING THE FINANCIAL STATEMENTS THEREIN AND THE RELATED SCHEDULES, BY
WRITING THE COMPANY AT ONE METRO PARK DRIVE, CRANSTON, RHODE ISLAND 02910
ATTENTION: SECRETARY. ANY SUCH REQUEST FROM A BENEFICIAL OWNER OF STOCK NOT
REGISTERED IN HIS NAME MUST CONFIRM THAT HE WAS A BENEFICIAL OWNER OF SUCH
STOCK ON THE RECORD DATE.
STOCKHOLDER PROPOSALS
Proposals of security holders intended to be presented at the next
annual meeting of stockholders must be received by the Company at One Metro
Park Drive, Cranston, Rhode Island 02910, on or before June 11, 1997 for
inclusion in the proxy material for said meeting.
OTHER BUSINESS
It is not anticipated that any business other than as set forth
hereinabove will be brought before the meeting. Management is not aware of any
matters proposed to be presented to the meeting by any other person. However,
if any other business should properly come before the meeting, it is the
intention of the persons named in the enclosed form of proxy to act in
accordance with their best judgment on such business.
24
<PAGE> 26
EXHIBIT A
FLORIDA BUSINESS CORPORATION ACT
XIII DISSENTERS' RIGHTS
607.1301 DISSENTERS' RIGHTS; DEFINITIONS.
The following definitions apply to ss. 607.1302 and 607.1320:
(1) "Corporation" means the issuer of the shares held by a dissenting
shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Fair value," with respect to a dissenter's shares, means the
value of the shares as of the close of business on the day prior to the
shareholders' authorization date, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(3) "Shareholders' authorization date" means the date on which the
shareholder's vote authorizing the proposed action was taken, the date on which
the corporation received written consents without a meeting from the requisite
number of shareholders in order to authorize the action, or, in the case of a
merger pursuant to s. 607.1104, the day prior to the date on which a copy of
the plan of merger was mailed to each shareholder of record of the subsidiary
corporation.
607.1302 RIGHT OF SHAREHOLDERS TO DISSENT.
(1) Any shareholder of a corporation has the right to dissent from,
and obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party:
1. If the shareholder is entitled to vote on the merger, or
2. If the corporation is a subsidiary that is merged with its parent
under s.607.1104, and the shareholders would have been entitled to vote on
action taken, except for the applicability of s. 607.1104;
(b) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation, other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or exchange
pursuant to s.607.1202, including a sale in dissolution but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to the
shareholders within 1 year after the date of sale;
(c) As provided in s. 607.0902(11), the approval of a control-share
acquisition;
(d) Consummation of a plan of share exchange to which the corporation
is a party as the corporation the shares of which will be acquired, if the
shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the shareholder
is entitled to vote on the amendment and if such amendment would adversely
affect such shareholder by:
1. Altering or abolishing any preemptive rights attached to any of his
shares;
2. Altering or abolishing the voting rights pertaining to any of his
shares, except as such rights may be affected by the voting rights of new
shares then being authorized of any existing or new class or series of shares;
3. Effecting an exchange, cancellation, or reclassification of any of
his shares, when such exchange, cancellation, or reclassification would alter
or abolish his voting rights or alter his percentage of equity in the
corporation, or effecting a reduction or cancellation of accrued dividends or
other arrearage in respect to such shares;
25
<PAGE> 27
4. Reducing the stated redemption price of any of his redeemable
shares, altering or abolishing any provision relating to any sinking fund for
the redemption or purchase of any of his shares, or making any of his shares
subject to redemption when they are not otherwise redeemable;
5. Making noncumulative, in whole or in part, dividends of any of his
preferred shares which had theretofore been cumulative;
6. Reducing the stated dividend preference of any of his preferred
shares; or
7. Reducing any stated preferential amount payable on any of his
preferred shares upon voluntary or involuntary liquidation; or
(f) Any corporate action taken, to the extent the articles of
incorporation provide that a voting or nonvoting shareholder is entitled to
dissent and obtain payment for his shares.
(2) A shareholder dissenting from any amendment specified in paragraph
(1)(e) has the right to dissent only as to those of his shares which are
adversely affected by the amendment.
(3) A shareholder may dissent as to less than all the shares
registered in his name. In that event, his rights shall be determined as if
the shares as to which he has dissented and his other shares were registered in
the names of different shareholders.
(4) Unless the articles of incorporation otherwise provide, this
section does not apply with respect to a plan of merger or share exchange or a
proposed sale or exchange of property, to the holders of shares of any class or
series which, on the record date fixed to determine the shareholders entitled
to vote at the meeting of shareholders at which such action is to be acted upon
or to consent to any such action without a meeting, were either registered on a
national securities exchange or held of record by not fewer than 2,000
shareholders.
(5) A shareholder entitled to dissent and obtain payment for his
shares under this section may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
607.1320 PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
(1)(a) If a proposed corporate action creating dissenters' rights
under s. 607.1302 is submitted to a vote at a shareholder's meeting, the
meeting notice shall state that shareholders are or may be entitled to assert
dissenters' rights and be accompanied by a copy of ss. 607.1301, 607.1302, and
607.1320. A shareholder who wishes to assert dissenters' rights shall:
1. Deliver to the corporation before the vote is taken written notice
of his intent to demand payment for his shares if the proposed action is
effectuated, and
2. Not vote his shares in favor of the proposed action. A proxy or
vote against the proposed action does not constitute such a notice of intent to
demand payment.
(b) If proposed corporate action creating dissenters' rights under s.
607.1302 is effectuated by written consent without a meeting, the corporation
shall deliver a copy of ss. 607.1302, 607,1302, and 607.1320 to each
shareholder simultaneously with any request for his written consent or, if such
a request is not made, within 10 days after the date the corporation received
written consents without a meeting from the requisite number of shareholders
necessary to authorize the action.
(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be, to each shareholder who
filed a notice of intent to demand payment for his shares pursuant to paragraph
(1)(a) or, in the case of action authorized by written consent, to each
shareholder, excepting any who voted for, or consented in writing to, the
proposed action.
(3) Within 20 days after the giving of notice to him, any shareholder
who elects to dissent shall file with the corporation a notice of such
election, stating his name and address, the number, classes, and series of
shares
26
<PAGE> 28
as to which he dissents, and a demand for payment of the fair value of his
shares. Any shareholder failing to file such election to dissent within the
period set forth shall be bound by the terms of the proposed corporate action.
Any shareholder filing an election to dissent shall deposit his certificates
for certificated shares with the corporation simultaneously with the filing of
the election of dissent. The corporation may restrict the transfer of
uncertificated shares from the date the shareholder's election to dissent is
filed with the corporation.
(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and shall
not be entitled to vote or to exercise any other rights of a shareholder. A
notice of election may be withdrawn in writing by the shareholder at any time
before and offer is made by the corporation, as provided in subsection (5), to
pay for his shares. After such offer, no such notice of election may be
withdrawn unless the corporation consents thereto. However, the right of such
shareholder to be paid the fair value of his shares shall cease, and he shall
be reinstated to have all his rights as a shareholder as of the filing of his
notice of election, including any intervening preemptive rights and the right
to payment of any intervening dividend or other distribution or, if any such
rights have expired or any such dividend or distribution other than in cash has
been completed, in lieu thereof, at the election of the corporation, the fair
value thereof in cash as determined by the board as of the time of such
expiration or completion, but without prejudice otherwise to any corporate
proceedings that may have been taken in the interim, if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or rescinded or the
shareholders revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value by a
court has been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such shareholder
is not entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which
shareholders may file their notice of election to dissent, or within 10 days
after such corporate action is effected, whichever is later (but in no case
later than 90 days from the shareholder's authorization date), the corporation
shall make a written offer to each dissenting shareholder who has made demand
as provided in this section to pay an amount the corporation estimates to be
the fair value for such shares. If the corporate action has not been
consummated before the expiration of the 90-day period after the shareholders'
authorization date, the offer may be made conditional upon the consummation of
such action. Such notice and offer shall be accompanied by:
(a) A balance sheet of the corporation, the shares of which the
dissenting shareholder holds, as of the latest available date and not more than
12 months prior to the making of such offer; and
(b) A profit and loss statement of such corporation for the 12-month
period ended on the date of such balance sheet or, if the corporation was not
in existence throughout such 12-month period, for the portion thereof during
which it was in existence.
(6) If within 30 days after the making of such offer any shareholder
accepts the same, payment for his shares shall be made within 90 days after the
making of such offer or the consummation of the proposed action, whichever is
later. Upon payment of the agreed value, the dissenting shareholder shall
cease to have any interest in such shares.
(7) If the corporation fails to make such offer within the period
specified therefore in subsection (5) or if it makes the offer and any
dissenting shareholder or shareholders fail to accept the same within the
period of 30 days thereafter, then the corporation, within 30 days after receipt
of written demand from any dissenting shareholder given within 60 days after
the date on which such corporate action was effected, shall, or at its election
at any time within such period of 60 days may, file an action in any court of
competent jurisdiction in the county in this state where the registered office
of the corporation is located requesting that the fair value of
27
<PAGE> 29
such shares be determined. The court shall also determine whether each
dissenting shareholder, as to whom the corporation requests the court to make
such determination, is entitled to receive payment for his shares. If the
corporation fails to institute the proceeding as herein provided, any
dissenting shareholder may do so in the name of the corporation. All
dissenting shareholders (whether or not residents of this state), other than
shareholders who have agreed with the corporation as to the value of their
shares, shall be made parties to the proceeding as an action against their
shares. The corporation shall serve a copy of the initial pleading in such
proceeding upon each dissenting shareholder who is a resident of this state in
the manner provided by law for the service of a summons and complaint and upon
each nonresident dissenting shareholder either by registered or certified mail
and publication or in such other manner as is permitted by law. The
jurisdiction of the court is plenary and exclusive. All shareholders who are
proper parties to the proceeding are entitled to judgment against the
corporation for the amount of the fair value of their shares. the court may,
if it so elects, appoint one or more persons as appraisers to receive evidence
and recommend a decision on the question of fair value. The appraisers shall
have such power and authority as is specified in the order of their appointment
or any amendment thereof. The corporation shall pay each dissenting
shareholder the amount found to be due him within 10 days after final
determination of the proceedings. Upon payment of the judgement, the
dissenting shareholder shall cease to have any interest in such shares.
(8) The judgement may, at the discretion of the court, include a fair
rate of interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be determined
by the court and shall be assessed against the corporation, but all or any part
of such costs and expenses may be apportioned and assessed as the court deems
equitable against any or all of the dissenting shareholders who are parties to
the proceeding, to whom the corporation has made an offer to pay for the
shares, if the court finds that the action of such shareholders in failing to
accept such offer was arbitrary, vexatious, or not in good faith. Such
expenses shall include reasonable compensation for, and reasonable expenses of,
the appraisers, but shall exclude the fees and expenses of counsel for, and
experts employed by, any party. If the fair value of the shares, as
determined, materially exceeds the amount which the corporation offered to pay
therefor or if no offer was made, the court in its discretion may award to any
shareholder who is a party to the proceeding such sum as the court determines
to be reasonable compensation to any attorney or expert employed by the
shareholder in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the
agreed value thereof or pursuant to payment of the judgment entered therefor,
as provided in this section, may be held and disposes of by such corporation as
authorized but unissued shares of the corporation, except that, in the case of
a merger, they may be held and disposed of as the plan of merger otherwise
provides. The share of the surviving corporation into which the shares of such
dissenting shareholders would have been converted had they assented to the
merger shall have the status of authorized but unissued share of the surviving
corporation.
28
<PAGE> 30
METRO GLOBAL MEDIA, INC.
Annual Meeting of Stockholders
October 31, 1996
The undersigned hereby appoints Kenneth F. Guarino and T. James Blair, or
either one of them, as proxy or proxies for the undersigned, with full powers
of substitution, to vote at the Annual Meeting of Stockholders to be held on
Thursday, October 31, 1996 at 10:00 a.m., local time, at the Radisson Airport
Hotel, 2081 Post Road, Warwick, Rhode Island and at any and all adjournments
thereof, according to the number of votes that the undersigned would be
entitled to cast with all powers the undersigned would possess if personally
present at said meeting. This proxy may be exercised to vote for the following
purposes:
1. FOR AGAINST
--- ---
the election of all of the following nominees listed below as
Directors of the Company:
T. James Blair
Alan P. Casale
A. Daniel Geribo
Dolores Guglielmi
If you do not wish your shares be voted "FOR"
a particular nominee, mark "AGAINST" above and
strike a line through the name(s) of the person(s)
for whose election you do not wish to consent.
2. FOR AGAINST
--- ---
the proposal to reincorporate the Company under the laws of the State
of Delaware
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH PROPOSAL
29
<PAGE> 31
The undersigned hereby ratifies and confirms all that said proxy or proxies, or
substitutes, may do by virtue hereof. The proxies are authorized to vote in
their discretion with respect to matters not known or determined at the date of
the Proxy Statement. Receipt of the Notice of Meeting, Proxy Statement and
Annual Report is hereby acknowledged.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH
YOUR SPECIFICATIONS ABOVE. IN THE ABSENCE OF SPECIFICATIONS, THIS PROXY WILL
BE VOTED "FOR" ALL OF THE PROPOSALS SET FORTH ABOVE.
Dated:___________________, 1996
_____________________________ L.S.
_____________________________ L.S.
Please sign here exactly as name appears at the left. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title as such. Each joint owner or trustee should sign the proxy. If the
stockholder is a corporation, the office of the person signing should be
indicated.
Please sign, date and mail today.
This proxy is solicited on behalf of
the Board of Directors of the Company.
30
