<PAGE>
================================================================================
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
OPTICAL SECURITY GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--Enter Company Name Here--
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(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 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
OPTICAL SECURITY GROUP, INC.
535 16th Street
Suite 920
Denver, CO 80202
(303) 534-4500
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD AUGUST 18, 1997
To the Shareholders:
The annual meeting of the shareholders of Optical Security Group, Inc. (the
"Company") will be held in the Bard Center for Entrepreneurship Development,
Suite 300, 535 16th Street, Denver, Colorado 80202 on August 18, 1997, at 9:00
A.M., for the following purposes:
(1) To elect the Company's board of directors for the ensuing year.
(2) To ratify the appointment of Ernst & Young LLP as the Company's
independent accountants for the fiscal year ending March 31, 1997.
(3) To transact such other business as may properly come before the
meeting.
The board of directors has fixed the close of business on July 7, 1997, as the
record date for the determination of shareholders entitled to notice of and to
vote at the meeting.
All shareholders are cordially invited to attend the meeting in person.
However, to assure adequate representation at the meeting, you are urged to sign
and return the enclosed Proxy as soon as possible in the postage pre-paid
envelope enclosed. Any share holder attending the meeting may vote in person,
even if he or she has return a Proxy.
OPTICAL SECURITY GROUP, INC.
July 18, 1997 By:________________________________
Catherine M. Gotwalt, Secretary
THE ANNUAL REPORT TO SHAREHOLDERS INCLUDING FINANCIAL STATEMENTS ARE BEING
MAILED TO SHAREHOLDERS TOGETHER WITH THESE PROXY MATERIALS ON OR ABOUT JULY 18,
1996.
YOUR VOTE IS IMPORTANT. PLEASE MARK, SIGN, DATE AND MAIL THE ENCLOSED PROXY,
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING. A RETURN ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE.
TO SAVE THE COST OF FURTHER SOLICITATION, PLEASE MAIL YOUR PROXY CARD PROMPTLY.
<PAGE>
OPTICAL SECURITY GROUP
535 16th Street, Suite 920
Denver, CO 80202
(303) 534-4500
PROXY STATEMENT
The enclosed proxy is solicited by the board of directors of Optical
Security Group, Inc. (the "Company") for use at the annual meeting of
shareholders to be held on Monday, August 18, 1997, at 9:00 a.m., local time, or
at any adjournments of such meeting for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Shareholders. The annual meeting will
be held in the Bard Center for Entrepreneurship Development, Suite 300, 535 16th
Street, Denver, Colorado 80202.
If the proxy is executed and returned, it will be voted at the meeting in
accordance with any accompanying instructions, and if no specification is made,
the proxy will be voted for the proposals set forth in the accompanying Notice
of Annual Meeting of Share holders. Shareholders who execute proxies may revoke
them at any time before they are voted, either by writing to the Company at the
address set forth above or in person at the time of the meeting. Additionally,
a shareholder may revoke a previous proxy by duly executing a proxy bearing a
later date.
The close of business on July 7, 1997, has been fixed as the record date
for determining the shareholders entitled to notice of and to vote at the
meeting. Only shareholders of record at the close of business on that date will
be entitled to vote at the meeting and any adjournment thereof. This Proxy
Statement, the Proxy, Notice of Annual Meeting of Shareholders, and Annual
Report, including financial statements for the fiscal year ended March 31, 1997,
are being mailed to shareholders of record on or about July 18, 1997.
Management of the Company does not intend to present and does not have
reason to believe that others will present any other items of business at the
annual meeting. However, if other matters are properly presented to the meeting
for a vote, the persons named in the proxies will vote the proxies in accordance
with their best judgement pursuant to discretionary authority granted in the
proxies.
The Company's common stock and Series B 8% Cumulative Convertible
Exchangeable Preferred Voting Stock ("Series B Shares") have voting rights. As
of June 6, 1997, the Company had outstanding 4,973,952 shares of common stock
and 1,793 Series B Shares. The holders of the common stock are entitled to a
total of 4,973,952 votes--one vote for each share of common stock held by them.
The holders of the Series B Shares are entitled to a total of 298,833 votes--one
vote for each share of common stock issuable to the holders of the Series B
Shares upon conversion of their
<PAGE>
Series B Shares. (The common stock issuable upon conversion of the Series B
Shares and the outstanding common stock is referred to herein jointly as the
"Voting Stock.")
The presence in person or by proxy of the holders of shares representing a
majority of the Voting Stock will constitute a quorum. Provided a quorum is
present, the five nominees receiving the highest number of votes cast by the
holders of the Voting Stock voting as one class will be elected directors. The
affirmative vote cast by the holders of a majority of the shares of the Voting
Stock present in person or represented by proxy at the meeting, voting as one
class, shall be required to ratify the appointment of the Company's auditors.
The cost of preparing, printing and mailing the enclosed Proxy,
accompanying Notice, Proxy Statement, Annual Report, and all other costs in
connection with solicitation of proxies will be paid by the Company including
any additional solicitation made by letter, telephone, or telegraph. Failure of
a quorum to be present at the meeting will necessitate adjournment and will
subject the Company to additional expense.
PROPOSAL TO ELECT DIRECTORS
Unless the proxy contains contrary instructions, it is intended that the
proxies will be voted for the election of the nominees listed below to serve
until the next annual meeting of shareholders and until their successors shall
be elected and shall qualify. Abstentions and shares held by a broker in "street
name" ("Broker Shares") that are not voted in the election of directors will not
be included in determining the number of votes cast.
All nominees have consented to serve if elected. In case any nominee shall
be unable or shall fail to act as a director, the persons named as proxies shall
have full discretion to vote for such other person or persons as may be
nominated.
The following table sets forth the name, age, and position with the Company
for each nominee for director:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Richard H. Bard 49 Chairman of the Board, and
Chief Executive Officer
Martin T. Hart 61 Director
J. R. Holland, Jr. 53 Director
Richard D. Lamm 61 Director
Bruce I. Raben 43 Director
</TABLE>
2
<PAGE>
RICHARD H. BARD has been a director and chief executive officer of the Company
since September 1993 and chairman of the board since April 1995. He served as
president from April 1994 until July 1, 1997. Mr. Bard served as treasurer from
September 1993 to December 1994. Mr. Bard is also the chief executive officer
of Bard & Co., Inc., a diversified investment management company. Mr. Bard is
also a director of Polymedica Industries, Inc. and VanStar Corporation, formerly
known as Computerland Corporation.
MARTIN T. HART has been a director since December 1993. He serves as the
chairman of the Compensation Committee and as a member of the Audit Committee
and Nominating Committee. Mr. Hart is a Denver-based businessman and investor.
He is also a director of Schuler Homes, Inc., PJ America, Inc. and PNB Financial
Group, the holding company for Pacific National Bank, and a trustee of
MassMutual Corporate Investors and MassMutual Participation Investors.
J. R. HOLLAND, JR. has been a director since July 1994 and serves as chairman of
the Audit Committee. He is also a member of the Nominating Committee. Since
1991, he has been the manager, president and chief executive officer of Hunt
Capital Group, L.L.C. and president and chief executive officer of Unity Hunt
Resources, Inc., companies based in Dallas, Texas. He is a director of Heartland
Wireless Communications, Inc., Wireless One, Inc., and TNP Enterprises, Inc.
RICHARD D. LAMM has been a director since December 1993 and serves on the Audit
Committee. He previously served as a director from 1989 through 1992. Since
1987, Mr. Lamm has been a university professor and director of the Center for
Public Policy and Contemporary issues at the University of Denver. Mr. Lamm
served as the governor of the state of Colorado from 1975 until 1987.
BRUCE I. RABEN has been a director since February 1995. He serves as
chairperson of the Nominating Committee and is a member of the Compensation
Committee. Since February 1996, Mr. Raben has been the managing director of
CIBC Wood Gundy Securities Corp. in Los Angeles. From March 1990 until January
1996, he served as the executive vice president and director of corporate
finance at Jefferies & Company, Inc., an investment banking firm. He is also a
director of Equity Marketing, Inc. and Terex Corporation.
3
<PAGE>
COMPANY MANAGEMENT
------------------
RETIRING DIRECTORS, EXECUTIVE OFFICERS, AND SIGNIFICANT EMPLOYEES
- -----------------------------------------------------------------
The following table sets forth the name, age, and position with the Company
for retiring directors, executive officers (other than executive officers listed
as nominees), and significant employees as of July 1, 1997:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Yoram Curiel 56 Director and Director of
Technology
Edward Dietrich 45 Senior Vice President - Sales;
President and Chief Operating
Officer of Optical Security
Industries, Inc.
Catherine M. Gotwalt 41 Secretary
Gerald A. Melfi 47 Chief Accounting and Principal
Financial Officer and Treasurer
Mark T. Turnage 37 President, Chief Operating
Officer; Managing Director of
Optical Security Industries
International, Plc
Frank M. Vrechek 53 Executive Vice President
</TABLE>
YORAM CURIEL has been a director since August 1988. He is not standing for
reelection as a director. He currently serves as director of technology.
Previously, Mr. Curiel served as the Company's chief technology officer, chief
executive officer, president, and vice president of product development. Mr.
Curiel is the Company's founder, and he developed the Company's tamper-evident
packaging and document security technology. He is also the president and a
director of a private company involved in the development of new technologies.
EDWARD DIETRICH assumed the duties of president and chief operating officer of
the Company's subsidiary, Optical Security Industries, Inc. ("OpSec U.S."),
effective July 1, 1997. He also serves as senior vice president of sales. From
August 1994, until October 1996, Mr. Dietrich served as vice president-sales of
OpSec U.S. Effective July 1, 1997, Mr. Dietrich was employed with American Bank
Note Holographics, Inc. from February 1992 until August 1994 as the director of
sales and marketing/government markets.
CATHERINE M. GOTWALT serves as the corporate secretary. She has served in this
capacity since 1989.
GERALD A. MELFI serves as the Company's chief accounting and principal financial
officer and treasurer. Mr. Melfi also is employed as the chief financial
officer for Bard & Co., Inc., a diversified investment management company.
4
<PAGE>
MARK T. TURNAGE assumed the duties of president and chief operating officer
effective July 1, 1997. He also serves as managing director of Optical
Securities Industries International, Plc. From October 1996, until July 1,
1997, he served as vice president. From July 1994 until November 1995, Mr.
Turnage served as vice president-corporate affairs. From 1991 to 1994, Mr.
Turnage practiced law with the firm of Davis, Graham & Stubbs in Denver,
Colorado.
FRANK M. VRECHEK has served as executive vice president since October 23, 1996.
From July, 1996, to October 23, 1996, he served as senior vice president. From
1979 until its sale in 1995, Mr. Vrechek owned and operated a private company
which supplied premium products for United States consumer sales promotion
markets.
CORPORATE GOVERNANCE
- --------------------
The board of directors has the responsibility for establishing broad
corporate policies and for the overall performance of the Company, taking into
consideration the interest of the share holders. Directors of the Company serve
in such capacity until the next annual meeting of the shareholders. The board
of directors met four times during the fiscal year ended March 31, 1997. Except
for Mr. Lamm and Mr. John Tipton, who resigned from the board of directors on
March 17, 1997, each incumbent director attended at least 75% of the board of
directors' meetings. Except for Mr. Tipton, each incumbent director attended at
least 75% of the committee meetings on which he served.
The Company had a Compensation, Audit, and Nominating Committee during the
year ended March 31, 1997. Committee members are appointed to serve until the
next annual meeting of directors or until their successors are duly appointed.
The following table sets forth the names of the committee members as of June 20,
1997, and their term on the committee.
<TABLE>
<CAPTION>
Audit Committee Term
--------------- ----
<S> <C>
J. R. Holland, Jr., Chairman Since December 15, 1994
Martin T. Hart Since December 15, 1994
Richard Lamm Since December 15, 1994
Compensation Committee Term
---------------------- ----
Martin T. Hart, Chairman Since December 15, 1994
Bruce Raben Since November 28, 1995
Nominating Committee Term
-------------------- ----
Bruce Raben, Chairman Since October 23, 1996
Martin T. Hart Since October 23, 1996
J. R. Holland, Jr. Since October 23, 1996
</TABLE>
The Compensation Committee is responsible for establishing and reviewing
policies governing salaries, bonuses, incentive compensation and the terms and
conditions of employment of senior executives and other key employees. In
addition, the Compensation Committee is responsible for oversight of the
Company's stock
5
<PAGE>
option plans. The Compensation Committee receives recommendations from
management and brings its recommendations to the full board of directors.
The Compensation Committee met once during the fiscal year ended March 31,
1997. None of the Compensation Committee members are executive officers of the
Company, and no executive officers of the Company participated in deliberations
of the Company's board of directors concerning executive officer compensation.
The Audit Committee confers with the Company's independent accountants to
review the plan and scope of their proposed Company audit as well as their
findings and recommendations upon completion of the audit. The Audit Committee
met once during the fiscal year ended March 31, 1997.
The Nominating Committee was newly formed in October 1996, and did not meet
during the fiscal year ended March 31, 1997. The nomination committee selects
the nominees for election to the board of directors at the annual meeting of
shareholders. The nominating committee will consider recommendations for
nominations from the shareholders. Recommendations for nominations should be
addressed to the Company, Attn: Nominating Committee, at the address provided on
the first page of this proxy statement and must be received by the Company no
later than April 20, 1998.
During the year ended March 31, 1997, no director of the Company was also
an executive officer of another entity which had an executive officer of the
Company serving as a director of such entity, or as a member of the compensation
committee of such entity.
There are no family relationships among the Company's directors or
executive officers. The Company's officers serve at the discretion of the
Company's board of directors.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
- -------------------------------------------------
The Company believes that, other than as disclosed below, during the fiscal
year ended March 31, 1997, its directors, officers and greater than 10%
beneficial owners have complied with all filing requirements under Section 16(a)
of the Exchange Act.
Mr. Holland failed to timely file one report, reporting the acquisition of
stock options. Hunt Capital Group, L.L.C. failed to timely file one report,
reporting the conversion of Series B Preferred Stock for shares of common stock.
EXECUTIVE COMPENSATION
- ----------------------
The following tables set forth in summary form the compensation received
during each of the Company's last three completed fiscal years by the chief
executive officer of the company (such officer referred to as the "Named
Executive Officer"). During the fiscal year ended March 31, 1997, no other
executive officer received in salary and bonus an amount exceeding $100,000.
All reference to shares of common stock and stock prices
6
<PAGE>
have been adjusted to reflect the five-to-one reverse stock split effective
February 28, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
---------------------------- ----------------------
Awards
------ All Other
Fiscal Options Compen-
Name Year Salary Bonus Granted sation
- ---- ------ -------- ----- ------- ------
<S> <C> <C> <C> <C> <C>
Richard H. Bard 1997 $150,000 - 342,878 -
Chief Executive Officer 1996 $125,000 - 300,000 -
since 9/17/93 and 1995 $125,000 - 300,000 $121,250(1)
President from 4/1/94
to 7/1/97
</TABLE>
___________________
(1) This amount represents a grant of options to purchase 100,000 shares of
common stock under the Nonqualified Stock Option Plan at an exercise price
of $2.85 per share (70% of market value at time of issue). Compensation
was recognized for the difference between the exercise price and the market
value at the time of grant.
STOCK OPTIONS
- -------------
The following table sets forth information concerning stock options granted
during the fiscal year ended March 31, 1997, to the Named Executive Officer.
Each option represents the right to purchase one share of the Company's common
stock.
OPTIONS GRANTED IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
% of Total
Number of Options
Securities Granted to Exercise
Underlying Employees or Base
Options in Fiscal Price Expiration
Name Granted Year ($/Sh) Date
- ---- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Richard H. Bard 105,614(1) 13% $6.00 10/22/01
90,264(1) 11% $6.50 12/16/01
147,000(1) 10% $7.63 03/26/02
</TABLE>
___________________
(1) Issued under the Nonqualified Stock Option Plan. The options vested on
October 23, 1996, December 17, 1996 and March 27, 1997.
The following table sets forth information concerning each exercise of
stock options during the fiscal year ended March 31, 1997, for each Named
Executive Officer and the fiscal year-end value of all unexercised in-the-money
options (regardless of when granted) held by such person.
7
<PAGE>
AGGREGATED OPTION/EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/VALUES
<TABLE>
<CAPTION>
Value of
Unexercised
Number of Number of In-the-Money
Shares Acquired Dollar Value Unexercised Options at
Name On Exercise Realized Options Fiscal Year End
---- --------------- ------------ -------------- -------------------
Exercisable/ Exercisable/
Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Richard H. Bard - - 976,212/66,660 $2,384,859/$211,331
</TABLE>
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
There were no awards made to the Named Executive Officer under any long-
term incentive plans.
REPRICED OPTIONS
In the fiscal year ended March 31, 1997, there were no actions taken
regarding the repricing of options relating to Executive Officer Compensation.
EMPLOYEE PENSION, PROFIT SHARING OR OTHER RETIREMENT PLANS
The Company does not have a defined benefit, pension plan, profit sharing
or other retirement plan.
COMPENSATION OF DIRECTORS
Standard Arrangements. Effective July 1, 1997, outside directors are
---------------------
entitled to receive a director's fee of $1,000 per attendance at all regular
meetings on the board of directors. Additionally, directors serving on
committees are entitled to receive a fee of $500 per attendance at each
regularly scheduled committee meeting.
Other Arrangements. During the year ended March 31, 1997, the Company
------------------
granted stock options to three non-officer directors under the Company's
Nonqualified Stock Option Plan, as follows:
OPTIONS GRANTED TO NON-OFFICER DIRECTORS
IN FISCAL YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Number of Market Price
Options Exercise on Date of Expiration
Name Granted Price Grant Date
- ---- --------- -------- ------------ ----------
<S> <C> <C> <C> <C>
Martin T. Hart 15,000 $6.00 $5.62 10/22/01
J.R. Holland, Jr. 15,000 $6.00 $5.62 10/22/01
Bruce I. Raben 15,000 $6.00 $5.62 10/22/01
</TABLE>
8
<PAGE>
EMPLOYMENT CONTRACTS
Mr. Richard H. Bard, the Company's chief executive officer and president,
is in the second year of a three-year employment contract. Mr. Bard's
employment contract terminates March 31, 1999. The employment contract
provides for a salary of $150,000 for the first year, $175,000 for the second
year, and $200,000 for the third year. Mr. Bard is also entitled to bonuses in
such amount as the board of directors may determine. Additionally, Mr. Bard is
entitled to grants of additional options during the term of the contract in an
amount sufficient to maintain Mr. Bard's percentage beneficial ownership of the
Company's common stock as of December 31, 1995, less common stock Mr. Bard sells
or otherwise disposes of after that date. If the Company is sold or merged into
another company prior to March 31, 2000, Mr. Bard is entitled to a stock bonus
of 250,000 shares of common stock. In addition to benefits available generally
to other Company employees, Mr. Bard is entitled to a $500 per month automobile
allowance and reimbursement of expenses incurred on behalf of the Company. If
the Company terminates Mr. Bard's employment prior to the expiration of the
contract, Mr. Bard is entitled to a buyout at 150% of the value of the contract
at the time of termination. During the fiscal year ended March 31, 1997, no
bonus was granted to Mr. Bard; however, pursuant to the terms of his employment
contract, Mr. Bard was issued options to purchase a total of 342,878 shares of
common stock. [See EXECUTIVE COMPENSATION -Stock Options.]
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ----------------------------------------------
The following outlines certain relationships and related transactions
during the fiscal years ended March 31, 1997, and March 31, 1996.
Effective March 27, 1997, the Company completed a private offering of
526,899 shares of common stock. The purchase price of such shares was $6.00 per
share. The purchasers of the shares were granted certain registration rights.
In the offering, Mr. Bard and Mr. Lamm together with his spouse, purchased
16,866 and 12,000 shares of common stock for a purchase price of $101,200 and
$72,000, respectively.
On December 16, 1996, the Company completed the purchase of all the shares
of OpSec Pasternak & Partner GmbH ("OP&P"), a European distributor of value-
added packaging and point-of-sale material, including lenticular and holographic
products, authentication products, and security materials. The purchase was
effective as of November 1, 1996. Such shares were held by Ms. Gudrun Pasternak
and Mr. Hans M. Andresen. The purchase price for the stock was approximately
U.S. $5,000,000 payable U.S. $1,200,000 in cash, promissory notes aggregating
U.S. $1,000,000, and the issuance of 466,668 unregistered shares of the
Company's common stock, valued for the purposes of the transaction at
$2,800,000. In addition, in connection with the acquisition, Ms. Pasternak and
Mr. Andresen entered into three-year employment agreements with OP&P. Such
agreements provide for an annual salary of DM 100.000, from November 1, 1996,
through October 31, 1997, DM 150.000 from November 1, 1997, through October 31,
1998, and DM 200.000 from
9
<PAGE>
November 1, 1998, through October 31, 1999 (approximately, U.S. $58,000,
$87,000, and $116,000 based on the current exchange rate) for each Ms. Pasternak
and Mr. Andresen.
On June 29, 1994, pursuant to investment agreements with the Company, Hunt
Capital Group, L.L.C. ("Hunt") and Mr. Bard, loaned the Company $750,000 and
$500,000, respectively. Such loans were reflected by convertible promissory
notes (the "Notes") due July 1, 2001. The Notes were secured by a pledge of the
stock of OpSec International and the Company's patents (the "Note Security").
Hunt also purchased 246,914 shares of common stock and a warrant to purchase an
additional 200,000 shares of common stock at an exercise price of $5.00 per
share for a purchase price of $1,000,000. Mr. Bard also purchased 53,087 shares
of common stock and a warrant to purchase an additional 43,000 shares of common
stock at an exercise price of $5.00 per share for a purchase price of $215,000.
Effective July 1, 1995, the Notes were canceled and Note Security
terminated in exchange for the issuance of 240,000 and 160,000 shares of the
Company's Series A Convertible Preferred Stock (the "Series A Shares"). (Such
exchange hereinafter referred to as the "First Exchange.") The Series A Shares
were entitled to quarterly dividends beginning with the quarter ended September
30, 1996. The dividend rate was on a sliding scale beginning at a rate of
14.60%, increasing 2% a year for the next four years, and 3% a year thereafter.
The Series A Shares were convertible into stock of the Company at the rate of
one share of common stock for one Series A Share. In connection with the First
Exchange, Hunt and Mr. Bard were given options to exchange their Series A Shares
for stock in two of the Company's subsidiaries in the event the Company failed
to pay dividends on the Series A Shares. The dividend also was guaranteed by
one of the Company's subsidiaries.
Effective March 26, 1996, Hunt and Mr. Bard exchanged their Series A Shares
for 1,440 and 960 Series B Shares, respectively (the "Second Exchange").
Pursuant to the terms of the Second Exchange, the option agreements and guaranty
issued in the First Exchange were terminated.
Effective October 1, 1996, in connection with the Company's early
conversion incentive offered to all holders of the Series B Shares, Hunt and Mr.
Bard converted their Series B Shares into shares of common stock. Pursuant to
the incentive offer, they were issued warrants to purchase 120,000 and 80,000
shares of common stock, at an exercise price of $6.00 per share.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
- -----------------------------------------------
The following table sets forth, as of June 16, 1997, the number of and
percentage of outstanding shares of the Company's common stock, beneficially
owned by (a) all directors and nominees, naming them, (b) the named executive
officer, (c) the directors and executive officers of the Company as a group,
without naming them,
10
<PAGE>
and (d) persons or groups known by the Company to own beneficially 5% or more of
the common stock:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF TITLE PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS OF CLASS
- ------------------- -------------------- -------- ---------
<S> <C> <C> <C>
Richard H. Bard 1,691,677/(1)/ Common 27.85%
535 16th Street, Suite 920
Denver, CO 80206
Yoram Curiel 387,135/(2)/ Common 7.54%
535 16th Street, Suite 920
Denver, CO 80206
Alan J. Gotcher - Common -
150 N. Orange Grove Boulevard
Pasadena, CA 91103
Martin T. Hart 242,148/(3)/ Common 4.79%
875 Race Street
Denver, CO 80206
J.R. Holland, Jr. 15,000/(4)(5)/ Common 00.30%
4000 Thanksgiving Tower
1601 Elm Street
Dallas, TX 75201
Hunt Capital Group, L.L.C. 838,929/(5)(6)/ Common 15.85%
4000 Thanksgiving Tower
1601 Elm Street
Dallas, TX 75201
Richard D. Lamm 71,583/(7)/ Common 1.43%
c/o University of Denver
2301 S. Gaylord St., 2nd Fl
Denver, CO 80208
Gudrun Pasternak/ 466,668/(8)/ Common 9.38%
Hans M. Andresen
Bismarckstrasse 120
Krefeld, Germany
Philena Enterprises, Inc./ 299,134/(9)/ Common 8.60%
Mark Bar
P. O. Box 6246
Denver, CO 80206
Bruce I. Raben 58,346/(10)/ Common 1.16%
1995 Avenue of the States
Suite 2340
Los Angeles, CA 90067
All executive officers
and directors as a group
(111 persons) 2,599,035(11) Common 39.85%
_______________________
</TABLE>
11
<PAGE>
(1) Includes 150,000 shares held by Richard H. Bard, IRA, and 20,000 shares
held as custodian for a minor child. In addition, includes the right to
acquire, currently or within 60 days, 1,099,212 shares of common stock.
(2) Includes 15,534 shares held by Mr. Curiel's spouse and 65,392 shares held
by Dynagroup International, Inc., an affiliate of Mr. Curiel. In addition,
includes the right to acquire, currently or within 60 days, 163,334 shares
of common stock.
(3) Includes the right to acquire, currently or within 60 days, 79,000 shares
of common stock.
(4) Includes the right to acquire, currently or within 60 days, 15,000 shares
of common stock.
(5) Mr. Holland is the manager and president of Hunt Capital Group, L.L.C. Mr.
Holland has no ownership interest in Hunt Capital Group, L.L.C. and
disclaims beneficial ownership of the shares held by Hunt Capital Group,
L.L.C.
(6) Includes the right to acquire, currently or within 60 days, 320,000 shares
of common stock.
(7) Includes 9,470 shares held as trustee for his children and 10,000 shares
held by his spouse. In addition, includes the right to acquire, currently
or within 60 days, 25,000 shares of common stock.
(8) Gudrun Pasternak and Hans M. Andresen are husband and wife and each own
233,334 shares of common stock. Ms. Pasternak disclaims beneficial
ownership of the shares held by Ms. Andresen. Mr. Andresen disclaims
beneficial ownership of the shares held by Ms. Pasternak.
(9) Mr. Bar is the president of Philena Enterprises, Inc. and for purposes of
calculating the percentage of beneficial owner, the shares held by Philena
Enterprises, Inc. and Mr. Bar have been aggregated.
(10) Includes 6,000 shares held by Mr. Raben's spouse. Mr. Raben disclaims any
beneficial interest in these shares. In addition, includes the right to
acquire, currently or within 60 days, 40,000 shares of common stock.
(11) Includes the right to acquire, currently or within 60 Days 1,548,045 shares
of common stock.
As of June 4, 1997, the Company also had outstanding 1,793 Series B 8%
Cumulative Convertible Exchangeable Preferred Voting Stock ("Series B Shares").
The holders of the Series B Shares are entitled to one vote for each share of
common stock issuable upon conversion of the Series B Shares on all matters to
which holders of the common stock are entitled to vote. In addition, under
Colorado law, the holders are entitled to vote on certain matters, including
matters effecting the rights of the Series B Shares, as a class. No director or
executive officer owns beneficially any Series B Shares. The following table
sets forth the number of and percentage of outstanding Series B Shares
beneficially owned by any person or groups known to the Company to own
beneficially 5% or more of the Series B Shares.
12
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF TITLE PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS OF CLASS
- ------------------- -------------------- --------- ---------
<S> <C> <C> <C>
Bank J. Vontobel & Co. AG 115 Series B 6.41%
Bahnhof STR 3 Preferred
8022 Zurich
SWITZERLAND
</TABLE>
PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG
AS THE COMPANY'S INDEPENDENT ACCOUNTANTS
The board of directors has selected Ernst & Young LLP, independent
certified public accountants, to audit the books and records of the Company for
fiscal year ending March 31, 1998. A representative of Ernst & Young LLP is not
expected to be present at the shareholders meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE TO RATIFY THE
APPOINTMENT OF ERNST & YOUNG LLP.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
------------------------------------------
The Company's Annual Report on Form 10-KSB for the year ended March 31,
1997, will be sent to any shareholder of the Company upon request. Requests for
a copy of this report should be addressed to the secretary of the Company at the
address provided on the first page of this proxy statement.
SHAREHOLDER PROPOSALS
---------------------
Any shareholder proposal which may properly be included in the proxy
solicitation material for the 1998 annual meeting of shareholders must be
received by the secretary of the Company no later than April 20, 1998.
13
