SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. _____)
Filed by the registrant |X|
Filed by a Party other than the Registrant | |
Check the appropriate box:
|X| Preliminary Proxy Statement
| | Definitive Proxy Statement
| | Definitive Additional Materials
| | Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
| | Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)
THE PRODUCERS ENTERTAINMENT GROUP LTD.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|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 transactions applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(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:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing party:
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(4) Date filed:
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THE PRODUCERS ENTERTAINMENT GROUP LTD.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 26, 1999
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TO OUR STOCKHOLDERS:
Notice is hereby given that the 1999 Annual Meeting of Stockholders of
The Producers Entertainment Group Ltd. "TPEG" or the "Company") will be held at
the Beverly Hilton, located at 9876 Wilshire Blvd., Beverly Hills, California
90210, on May 26, 1999 at 10:00 a.m., California time. The Annual Meeting is
being held for the following purposes:
1. To elect a Board of five (5) Directors to hold office until
the next Annual Meeting of Stockholders and until their
respective successors have been elected;
2. To consider and vote upon a proposed amendment to the
Company's Restated Certificate of Incorporation to change the
name of the Company from The Producers Entertainment Group
Ltd. to IAT Resources Corporation;
3. Pursuant to the stockholder approval requirements of the
Nasdaq SmallCap Market, to consider and vote upon a proposal
to approve the issuance of shares of Common Stock issuable
upon the conversion and/or exercise, as the case may be, of
the Company's Series E Convertible Preferred Stock and
Warrants issued pursuant to the Securities Purchase Agreement
with Augustine Fund, L.P., which, together with shares of
Common Stock previously issued under the Company's Series D
and E Convertible Preferred Stock and Warrants pursuant to the
Securities Purchase Agreement with Augustine Fund, L.P., will
be in excess of 20% of the number of shares of Common Stock
outstanding before the issuance;
4. Pursuant to the stockholder approval requirements of the
Nasdaq SmallCap Market, to consider and vote upon a proposal
to approve the issuance of the Company's Common Stock issuable
upon conversion of the Company's Series C-2 and C-3
Convertible Preferred Stock to Strategic Capital Consultants
and Mountaingate Productions pursuant to the terms of the
Securities Purchase Agreements, dated as of January 14, 1999,
which, together with the shares of Common Stock previously
issued to Strategic Capital Consultants and Mountaingate
Productions, will be in excess of 20% of the number of shares
of Common Stock outstanding before the issuance and could be
considered a change in control of the Company;
5. To consider and vote upon a proposed amendment to the
Company's 1998 Stock Incentive Plan to increase the maximum
number of shares of Common Stock that may be issued pursuant
to awards granted under the plan from 2,000,000 shares to
3,000,000 shares;
6. To transact such other business as may properly come before
the Annual Meeting or any adjournments or postponements
thereof.
Only stockholders of record of the Common Stock of the Company at the
close of business on APRIL 21, 1999 are entitled to notice of and to vote at the
Annual Meeting and at any adjournments or postponements thereof.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to ensure your representation at the Annual Meeting, you are
urged to mark, sign and return the enclosed Proxy as promptly as
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possible in the postage prepaid envelope enclosed for that purpose. Any
stockholder attending the Annual Meeting may vote in person, even though he or
she has returned a Proxy.
BY ORDER OF THE BOARD OF DIRECTORS
Arthur H. Bernstein
SECRETARY
Los Angeles, California 90036
__________, 1999
IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING, PLEASE COMPLETE, DATE,
SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE AS PROMPTLY AS
POSSIBLE. IF YOU DO ATTEND THE MEETING, YOU MAY, IF YOU PREFER, REVOKE YOUR
PROXY AND VOTE YOUR SHARES IN PERSON.
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THE PRODUCERS ENTERTAINMENT GROUP LTD.
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 26, 1999
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors (the "Board") of The Producers
Entertainment Group Ltd., a Delaware corporation ("TPEG" or the "Company"), for
use at the 1999 Annual Meeting of Stockholders (the "Annual Meeting") to be held
at the Beverly Hilton, located at 9876 Wilshire Boulevard, Beverly Hills,
California 90210, on May 26, 1999 at 10:00 a.m., California time, and at any
adjournments or postponements thereof, for the purposes set forth herein and in
the attached Notice of Annual Meeting of Stockholders. Accompanying this Proxy
Statement is the Board's Proxy for the Annual Meeting, which you may use to
indicate your vote on the proposals described in this Proxy Statement.
All Proxies which are properly completed, signed and returned to the
Company prior to the Annual Meeting, and which have not been revoked, will
unless otherwise directed by the stockholder be voted in accordance with the
recommendations of the Board set forth in this Proxy Statement. A stockholder
may revoke his or her Proxy at any time before it is voted either by filing with
the Secretary of the Company, at its principal executive offices, a written
notice of revocation or a duly executed proxy bearing a later date, or by
attending the Annual Meeting and expressing a desire to vote his or her shares
in person.
The close of business on APRIL 21, 1999 has been fixed as the record
date for the determination of stockholders entitled to notice of and to vote at
the Annual Meeting or at any adjournments or postponements of the Annual
Meeting. At the record date, ___________ shares of common stock, par value
$0.001 per share (the "Common Stock"), were outstanding, and the Company had
approximately _______ stockholders of record. The Common Stock is the only
outstanding class of securities of the Company entitled to vote at the Annual
Meeting.
A stockholder is entitled to cast one vote for each share held of
record on the record date on all matters to be considered at the Annual Meeting.
The five nominees for election as directors at the Annual Meeting who receive
the highest number of affirmative votes will be elected. The amendment of the
Restated Certificate of Incorporation to effect a change in the name of the
Company requires the affirmative vote of a majority of the outstanding shares of
the Company's Common Stock. For purposes of the vote to amend the Restated
Certificate of Incorporation, abstentions and broker non-votes will be counted
as votes cast against approval of the amendment of the Restated Certificate of
Incorporation. The issuance of the Company's Common Stock made pursuant to the
Securities Purchase Agreements with Augustine Fund, LP , Strategic Capital
Consultants and Mountaingate Productions, respectively, requires the affirmative
vote of a majority of the total votes cast on each proposal in person or by
proxy. For purposes of the vote to approve the issuance of the Company's Common
Stock, abstentions will be counted toward the tabulation of votes cast and will
have the same effect as negative votes. However, broker non-votes, while
included in the determination of shares present at the meeting for purposes of
determining a quorum, will not be counted as votes cast for or against approval
of each of these proposals. The approval of the amendment to the 1998 Stock
Incentive Plan requires the affirmative vote of a majority of the shares of
Common Stock present or represented and entitled to vote at the Annual Meeting.
With respect to the amendment to the 1998 Stock Incentive Plan, abstentions will
be counted toward the tabulation of votes cast and will have the same effect as
negative votes. However, broker non-votes, while included in the determination
of shares present at the Annual Meeting for purposes of determining a quorum,
will not be counted as votes cast for or against approval of the amendment to
the 1998 Stock Incentive Plan.
This Proxy Statement and the accompanying Proxy were mailed to
stockholders on or about April __, 1999.
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NOMINEES FOR ELECTION AS DIRECTORS
In accordance with the Bylaws of TPEG (the "Bylaws"), the Company's
directors are elected at each Annual Meeting of Stockholders and hold office
until the next election of directors and until their successors are duly
elected. The Bylaws provide that the Board shall consist of no fewer than two
and no more than nine directors as determined from time to time by the Board.
The Board currently consists of five directors.
Unless otherwise instructed, the Proxy holders will vote the Proxies
received by them for the nominees named below. If any nominee is unable or
unwilling to serve as a director at the time of the Annual Meeting or any
postponement or adjournment thereof, the Proxies will be voted for such other
nominee(s) as shall be designated by the current Board to fill any vacancy. The
Company has no reason to believe that any nominee will be unable or unwilling to
serve if elected as a director.
The Board proposes the election of the following nominees as directors:
1. Ivan Berkowitz
2. Arthur H. Bernstein
3. Thomas A. Daniels
4. Michael Iscove
5. Irwin Meyer
If elected, each nominee is expected to serve until the 2000 Annual
Meeting of Stockholders and thereafter until his or her successor is duly
elected and qualified. The five nominees for election as directors at the Annual
Meeting who receive the highest number of affirmative votes will be elected.
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INFORMATION WITH RESPECT TO NOMINEES AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
nominees and executive officers of the Company as of March 31, 1999:
<TABLE>
<CAPTION>
YEAR FIRST
AGE AT ELECTED OR
MARCH 31, APPOINTED
NAME 1999 DIRECTOR PRINCIPAL OCCUPATION
---- ---- -------- --------------------
<S> <C> <C> <C>
Ivan Berkowitz 53 1999 Mr. Berkowitz has been director of the Company since
February 1999. Since 1993, Mr. Berkowitz has served
as Managing General Partner of Steib & Company, also
a privately held New York based investment company.
Between 1995 and 1997, Mr.Berkowitz served as Chief
Executive Officer of PolyVision Corporation. Between
1990 and 1994, Mr. Berkowitz served as Chairman of the
Board of Directors of Migdalei Shekel. Currently, Mr.
Berkowitz serves on the Board of Directors of the
following public companies: Propierre, a real estate
fund, HMG WorldWide, a manufacturer of point of
purchase displays, PolyVision Corporation, a manufacturer
of school products and displays, and Migdalei Shekel, a
real estate company based in Tel Aviv. Since 1989, Mr.
Berkowitz has served as President of Great Court Holdings
Corporation, a privately held New York based investment
company. Mr. Berkowitz holds a BA (cum laude) from Brooklyn
College, an MBA in Finance from Baruch College, City
University of New York and a Ph.D. in International Law
from Cambridge University, England.
Arthur H. Bernstein 36 1995 Mr. Bernstein has been a director of the Company since
February 1995 and has served as the Executive Vice
President of the Company since October 1997 as well
as the Company's Secretary since March 1995.
Between June 1992 and October 1997, Mr. Bernstein
served as a Senior Vice President of TPEG and was the
Company's Vice President-Business and Legal Affairs
from September 1991 to June 1992. Prior to this, from
July 1989 to August 1991, Mr. Bernstein was the
Director of Legal and Business Affairs for New World
Entertainment Ltd., a television production and
distribution company. From 1987 to June 1989, he was
Assistant General Counsel of Four Star International,
Inc., a television production and distribmpany.
Mr. Bernstein received a B.S. in finance and marketing
from Philadelphia College of Textiles and Sciences in
1984 and his law degree from Temple University in 1987.
</TABLE>
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<TABLE>
<CAPTION>
YEAR FIRST
AGE AT ELECTED OR
MARCH 31, APPOINTED
NAME 1999 DIRECTOR PRINCIPAL OCCUPATION
---- ---- -------- --------------------
- -<S> <C> <C> <C>
Thomas A. Daniels 45 1998 Mr. Daniels has been a director of the Company since
July 1998. Since the Company's acquisition of
MediaWorks in July 1998, Mr. Daniels has served as
President of MediaWorks. Mr. Daniels, along with
Mr. Craig Sussman, founded MediaWorks in 1996.
From 1992 until 1995, Mr. Daniels served as an
Executive Consultant of International Distribution for
Landmark Entertainment Group. From 1989 until
1992, Mr. Daniels served as Executive Vice President
of Blake Edward's Television, Paramount Pictures
Television.
Michael Iscove 48 1997 Mr. Iscove has been a director of the Company since
October 1997. Since June 1995, Mr. Iscove has served
as the Chairman, President and Chief Executive Officer
of Sirius Corporate Finance Inc., a consulting firm
providing strategic planning, corporate finance,
restructuring and mergers and acquisitions support.
Prior to that, from April 1986 to June 1995, Mr. Iscove
was the President of Creative Fusion, a consulting
company. In 1978, Mr. Iscove received a Chartered
Accounts Designation in accounting from The Canadian
Institute of Chartered Accountants. In 1972, Mr.
Iscove received a B.A. degree in English from York
University, Toronto, Canada.
Irwin Meyer 63 1989 Mr. Meyer has been a director of TPEG since its
inception in 1989 and has served as its Chief Executive
Officer since February 1995. Since January 1999, Mr.
Meyer has been Chairman of the Board of Directors.
At various times prior to October 1997, Mr. Meyer
served as TPEG's Chairman of the Board (April 1996-
October 1997; January 1991-June 1992); Co-Chairman
of the Board (February 1990-December 1990) and
President (February 1995-October 1997). Mr. Meyer
was an executive producer of seven of TPEG's made-
for-television movies. In 1995 he was nominated for
Producer of the Year by the Producers Guild of
America. Mr. Meyer received the Antoinette Perry
("Tony") Award, the New York Drama Critics Circle
Award, the Drama Desk Award, the Outer Critics
Circle Award and the Cue Magazine Golden Apple
Award for his 1977 production of the musical "Annie."
Mr. Meyer is a member of the Academy of Motion
Picture Arts and Sciences and the Academy of
Television Arts and Sciences. He holds a B.S. from
New York University.
</TABLE>
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BOARD MEETINGS AND COMMITTEES
The Board has an Audit Committee and a Compensation Committee. The
Audit Committee currently consists of Michael Iscove and Ivan Berkowitz.
Responsibilities of the Audit Committee include (i) reviewing financial
statements and consulting with the independent auditors concerning the Company's
financial statements, accounting and financial policies and internal controls,
(ii) reviewing the scope of the independent auditors' activities and the fees of
the independent auditors and (iii) maintaining good communications among the
Audit Committee, the Company's independent auditors and the Company's management
on accounting matters. One meeting of the Audit Committee was held during the
fiscal year ended June 30, 1998, and no meetings of the Audit Committee have
been held since June 30, 1998.
The Compensation Committee currently consists of Michael Iscove and
Ivan Berkowitz. The Compensation Committee is responsible for considering and
making recommendations to the Board regarding executive compensation. One
meeting of the Compensation Committee was held during the fiscal year ended June
30, 1998, and one meeting of the Compensation Committee has been held since June
30, 1998.
The Board held six meetings and acted by written consent on two
occasions during the fiscal year ended June 30, 1998. No director attended less
than 75% of all the meetings of the Board and those committees on which he
served in 1998.
The Company does not have a standing Nominating Committee; the full
Board performs the functions of the Nominating Committee.
COMPENSATION OF DIRECTORS
Employee directors of the Company do not receive any compensation for
attending Board or Committee meetings. Non-employee directors of the Company
each receive an annual grant of stock options to purchase 25,000 shares of the
Common Stock of the Company. When requested by the Company to attend Board
meetings in person, it is the policy of the Company to reimburse directors for
reasonable travel and lodging expenses incurred in attending these Board
meetings.
EXECUTIVE COMPENSATION
The information relating to executive compensation is herein
incorporated by reference to the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1998, under Item 10 B Executive Compensation.
CERTAIN TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
The information relating to certain transactions with directors and
executive officers is herein incorporated by reference to the Company's Annual
Report on Form 10-KSB for the fiscal year ended June 30, 1998, under Item 12 B
Certain Relationships and Related Transactions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission (the "Commission" or "SEC") initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Officers, directors and greater than ten
percent stockholders are required by the Commission regulations to furnish the
Company with copies of Section 16(a) forms they file.
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To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended June 30, 1998, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were satisfied.
PRINCIPAL STOCKHOLDERS
The information relating to principal stockholders is herein
incorporated by reference to the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1998, under Item 11 B Security Ownership of Certain
Beneficial Owners and Management.
INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee of the Board approved the engagement of Singer
Lewak Greenbaum & Goldstein LLP as its independent auditors for the year ending
June 30, 1998 to replace Kellogg & Andelson Accountancy Corporation ("Kellogg &
Andelson"), who resigned as auditors of the Company effective June 22, 1998.
Kellogg & Andelson advised TPEG that Kellogg & Andelson could no longer provide
services as independent accountants for publicly held companies. The change in
independent public accountants was filed with the Commission on Form 8-K on June
29, 1998.
Kellogg & Andelson audited the financial statements of TPEG as of June
30, 1996 and 1997, and the related statements of operations, stockholders'
equity and cash flows for the years ended June 30, 1996 and 1997 (collectively,
the "Financial Statements"). Kellogg & Andelson's reports on the Financial
Statements for the past two years did not contain an adverse opinion or
disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit
scope or accounting principles.
In connection with the audits of TPEG's financial statements for the
years ended June 30, 1996 and 1997, and in the subsequent interim period through
June 22, 1998, there were no disagreements with Kellogg & Andelson on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope and procedures which disagreements, if not resolved to the
satisfaction of Kellogg & Andelson would have caused Kellogg & Andelson to make
reference to the subject matter of the disagreements in their reports.
Representatives of Singer Lewak Greenbaum & Goldstein LLP are expected
to be present at the Annual Meeting of Stockholders. They will have the
opportunity to make a statement if they desire to do so, and will be available
to respond to appropriate questions.
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PROPOSAL 1
ELECTION OF DIRECTORS
The Board has nominated Messrs. Ivan Berkowitz, Arthur H. Bernstein,
Thomas A. Daniels, Michael Iscove and Irwin Meyer to serve as directors of the
Company for a one-year term. Each nominee, if elected, will hold office until
the 2000 annual meeting of stockholders at which time his term of office
expires, and until his successor is elected and qualified, unless he resigns or
his seat on the Board becomes vacant due to his death, removal or other cause in
accordance with the Bylaws of the Company. Management knows of no reason why any
of these nominees would be unable or unwilling to serve, but if any nominee
should be unable or unwilling to serve, the proxies will be voted for the
election of such other persons for the office of director as the Board may
recommend in the place of such nominee.
THE BOARD UNANIMOUSLY RECOMMENDS VOTING "FOR" THE FIVE NOMINEES
NAMED ABOVE, AND YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY
OTHERWISE.
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PROPOSAL 2
AMENDMENT TO THE COMPANY'S
RESTATED CERTIFICATE OF INCORPORATION
TO CHANGE THE NAME OF THE COMPANY
The Board of the Company has approved, subject to stockholder approval,
a proposed amendment to the Company's Restated Certificate of Incorporation (the
"Amendment") which will effect a change in the name of the Company from The
Producers Entertainment Group Ltd. to IAT Resources Corporation (the "Name
Change"). The complete text of the Amendment is set forth as Exhibit "A" to this
Proxy Statement. The Board of Directors believes that it is in the best interest
of the Company to effect the Name Change in order to more accurately reflect the
Company's change in direction in terms of new areas of business.
The Amendment will be presented to stockholders in the form of a
resolution as follows:
RESOLVED, that Article Second of the Restated Certificate of Incorporation of
this Corporation be amended so that such Article, as amended, shall be and read
as follows:
2. The name of the corporation is IAT RESOURCES CORPORATION.
If the Name Change is approved by the requisite vote of the Company's
stockholders, the Name Change will be effective upon the close of business on
the date of filing of the Amendment with the Delaware Secretary of State, which
filing is expected to take place shortly after the Annual Meeting. If this
proposal is not approved by the stockholders, then the Amendment will not be
filed.
RECOMMENDATION AND REQUIRED VOTE
The Board has unanimously approved the Name Change. The affirmative
vote of a majority of the outstanding shares of the Company's Common Stock is
required to approve the Amendment. For purposes of the vote to amend the
Restated Certificate of Incorporation, abstentions and broker non-votes will be
counted as votes cast against approval of the Amendment of the Restated
Certificate of Incorporation. The Board is of the opinion that the Amendment is
advisable and in the best interests of the Company and recommends a vote FOR the
approval of the Amendment. All proxies will be voted to approve the Amendment
unless a contrary vote is indicated on the enclosed proxy card.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" APPROVAL OF THE AMENDMENT TO EFFECT THE NAME CHANGE OF
THE COMPANY, AND YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY
OTHERWISE.
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PROPOSAL 3
APPROVAL OF THE ISSUANCE OF ADDITIONAL SHARES
OF COMMON STOCK PURSUANT TO THE
SECURITIES PURCHASE AGREEMENT WITH AUGUSTINE FUND, L.P.
The Common Stock of the Company is traded on the Nasdaq SmallCap
Market. Rule 4310(c)(25)(H) of The Nasdaq Stock Market, Inc. Marketplace Rules
requires stockholder approval to be obtained prior to issuing common stock (or
shares convertible into common stock) in a transaction other than a public
offering at a price less than the greater of book or market value of the common
stock when the amount of common stock to be issued (or issuable upon conversion)
is or is greater than 20% of the common stock or voting power of the company
outstanding prior to issuance.
Pursuant to the Securities Purchase Agreement (as defined below),
Augustine Fund, LP ("Augustine") may acquire under certain circumstances up to
5,500,000 shares of Series D, Series E and Series F Preferred Stock. In
addition, pursuant to the Securities Purchase Agreement, for each purchase by
Augustine of Series D and E Preferred Stock, Augustine received a like number of
shares of Series F Preferred Stock. In accordance with these terms, Augustine
acquired 50,000 shares of Series D Convertible Preferred Stock, par value $0.001
per share, and in connection therewith, 50,000 shares of Series F Convertible
Preferred Stock, par value $0.001 per share, in July and August 1998 and 25,000
shares of Series E Convertible Preferred Stock, par value $0.001 per share, and
in connection therewith 25,000 shares of Series F Convertible Preferred Stock in
September 1998. On January 25, 1999 and February 16, 1999, Augustine acquired
75,000 shares and 100,000 shares, respectively of the Series E Preferred Stock
and, in connection therewith, 175,000 shares of Series F Convertible Preferred
Stock. The Securities Purchase Agreement provides for the future purchases of
Series E Convertible Preferred Stock by Augustine, as more particularly
described below. The Company and Augustine have also entered into new
negotiations for the future purchase of shares of the Company's Series E
Convertible Preferred Stock.
In connection with the transactions contemplated by the Securities
Purchase Agreement, for certain services rendered to the Company by its
placement agent, BridgeWater Capital Corporation ("BridgeWater"), the Company
agreed to issue warrants (the "Warrants") to BridgeWater to purchase the number
of shares of Common Stock that is equivalent to 4% of the total dollar value of
any Series D and E Preferred Stock sold pursuant to the Securities Purchase
Agreement. Accordingly, in connection with the sale of the Series D Preferred
Stock, the Company issued warrants to purchase an aggregate of 20,000 shares of
Common Stock to BridgeWater and its designees. In connection with the sale of
the Series E Preferred Stock made in September 1998 and January and February
1999, the Company issued warrants to purchase an aggregate of 80,000 shares of
Common Stock to BridgeWater and its designees.
In the event that Nasdaq aggregates the issuances of the Series D and E
Convertible Preferred Stock and the Warrants issued in connection with the
Series D and E issuances made in July and September 1998 with the issuance of
the Series E Convertible Preferred Stock and the Warrants issued in
connection with the Series E issuance made in January and February 1999 (such
transactions are more particularly described below), stockholder approval is
required to the extent that future issuances under either the terms of the
Securities Purchase Agreement or any related agreement or a separately
negotiated written agreement entered into by the Company and Augustine,
aggregated with all prior issuances, upon conversion or exercise, as the case
may be, exceeds 19.99% of the outstanding Common Stock of the Company.
THE SECURITIES PURCHASE AGREEMENT WITH AUGUSTINE FUND, L.P.
On July 31, 1998, the Company entered into a Securities Purchase
Agreement (the "Securities Purchase Agreement") with Augustine Fund, L.P.
Pursuant to the terms of the Securities Purchase Agreement, on July 31, 1998,
the Company issued to Augustine 25,000 shares of the Company's Series D
Convertible Preferred Stock for $10.00 per share. A subsequent closing was held
in August 1998, pursuant to which the Company issued Augustine an additional
25,000 shares of the Company's Series D Convertible Preferred Stock for $10.00
per share. The terms
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of the Series D Convertible Preferred Stock allowed Augustine to convert the
Preferred Stock into Common Stock, at any time after the earlier of (i) the date
on which a registration statement filed with the Securities and Exchange
Commission, covering the Common Stock into which the Series D Convertible
Preferred Stock is convertible, is declared effective and (ii) the date which is
120 days from the date of issuance of the Series D Convertible Preferred Stock.
The shares of Series D Convertible Preferred Stock are convertible into that
number of shares of the Company's Common Stock as equals $10.00 per share of
Series D Convertible Preferred Stock tendered, plus accumulated and unpaid
dividends, divided by the lesser of (A) 100% of the average of the closing bid
prices per share of the Company's Common Stock on the Nasdaq stock market for
the five trading days preceding the date of purchase of the Series D Convertible
Preferred Stock; (B) 80% of the average of the closing bid prices for the five
trading days preceding conversion; or (C) the post adjustment exercise price per
share of the Common Stock purchasable pursuant to a certain warrant.
The Company filed on September 1, 1998 a registration statement
covering the Common Stock underlying the shares of Series D Convertible
Preferred Stock, 50,000 shares of the Series F Convertible Preferred Stock and
the Warrants issued in connection with the Series D issuance. The registration
statement was declared effective on September 18, 1998.
The Securities Purchase Agreement also provides for the future
purchases of shares of Series E Convertible Preferred Stock by Augustine,
assuming certain conditions are met. Under the terms of the Securities Purchase
Agreement, Augustine agreed to purchase and the Company agreed to sell, over a
24 month period, a minimum of 150,000 shares of Series E Convertible Preferred
Stock and up to a maximum of 500,000 shares of the Series E Preferred Stock, in
a series of tranches, each of which tranche was to be a minimum of 10,000 shares
and a maximum of 30,000 shares.
The conditions also included the following:
1. the subsequent tranche would not close until 15 days after the
date on which either (x) a registration statement as contemplated by the
Registration Rights Agreement and covering all Registrable Securities (as
defined) was declared effective by the SEC or (y) a Registration Statement
covering the resale of all Registrable Securities underlying all shares of
Preferred Stock previously issued is declared effective;
2. each of the representations and warranties of the Company made in
the Purchase Agreement, the Registration Rights Agreement and Escrow Agreement
shall be true and correct and the Company shall have performed all required
obligations;
3. the average daily dollar trading volume for the common stock for
the prior 20 trading days must equal or exceed $40,000. In addition, the maximum
number of Series E Convertible Preferred Shares sold shall be based on the
Average Dollar Volume (in accordance with a chart in the agreement - i.e., if
the minimum Average Daily Volume is $40,000, then the maximum draw down
available to the Company is $100,000);
4. the average closing bid price for the Common Stock for the ten
trading days prior to the date of the closing must equal or exceed $.625 per
share; and
5. the number of shares issuable upon conversion of the Series E
Convertible Preferred Shares then purchased, together with the shares of Common
Stock issued prior thereto pursuant to the transaction documents shall not
exceed 20% of the outstanding shares of the Company's common stock.
In September 1998, the Company sold to Augustine 25,000 shares of the
Company's Series E Convertible Preferred Stock for $10.00 per share. At the
time, the Company had been informed by counsel that condition 1 above could not
be met as the SEC did not allow the registration in advance of common stock
underlying preferred stock subject to an equity line. Additionally, the Company
and Augustine entered into an agreement dated September 17, 1998 pursuant to
which Augustine agreed to waive condition number 3. The terms of the Series E
Convertible Preferred Stock allowed Augustine to convert the Preferred Stock
into Common Stock, at any time after issuance. The shares of Series E
Convertible Preferred Stock are convertible into that number of shares of the
Company's
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Common Stock as equals $10.00 per share of Series E Convertible Preferred Stock
tendered, plus accumulated and unpaid dividends, divided by the lesser of (A)
82.5% of the average of the closing bid prices for the five trading days
preceding conversion; or (B) the post adjustment exercise price per share of the
common stock purchasable pursuant to a certain warrant.
The Series D and E Convertible Preferred Stock issued pursuant to the
Securities Purchase Agreement and the Warrants issued to BridgeWater in
connection therewith are not subject to any preemptive rights.
The Company filed on September 18, 1998 a registration statement
covering the Common Stock underlying the 25,000 shares of Series E Convertible
Preferred Stock and 25,000 shares of the Series F Convertible Preferred Stock.
The registration statement was declared effective on September 23, 1998.
On January 25, 1999 and February 16, 1999, the Company sold to
Augustine 75,000 shares of the Company's Series E Convertible Preferred Stock
and 100,000 shares of the Company's Series E Convertible Preferred Stock,
respectively, for $10.00 per share. At the time of the sales, the Company met
only conditions number 3 and 4 to closing under the Purchase Agreement.
Accordingly, the Company and Augustine negotiated a new sale, without
giving effect to any of the prior terms or conditions of the Securities Purchase
Agreement. Because the Company already had authorized the Series E Convertible
Preferred Stock, the Company sold to Augustine shares of the Series E
Convertible Preferred Stock. As part of the new agreement with Augustine, the
Company issued to Augustine a warrant to acquire 250,000 shares of the Company's
Common Stock.
Augustine has agreed to provide the Company with equity financing in
connection with the sales of the Series D, E and F Convertible Preferred Stock
in an aggregate gross amount up to $5,500,000. The Company received gross
proceeds from the sale of the Series D Convertible Preferred Stock in July and
August 1998 in the amount of $500,000. The Company's net proceeds from such sale
were approximately $460,000. The Company's gross proceeds from the sale of the
Series E Convertible Preferred Stock in September 1998 was $250,000, the net
proceeds of which were approximately $230,000. The Company received gross
proceeds from the sale of each of the Series E Convertible Preferred Stock in
January and February 1999 in the amount of $1,750,000, of which approximately
$1,600,000 constitute the net proceeds. The Company has devoted the net proceeds
for working capital purposes. The Company anticipates issuing the additional
shares of Series E Convertible Preferred Stock to Augustine and Warrants in
connection therewith to BridgeWater in the future.
The Company and Augustine have agreed to continue to work together in
the future and the Company believes that Augustine will continue to provide
equity funding to the Company. Accordingly, the Board believes that it is
important to the Company to obtain the approval of the stockholders with respect
to future stock issuances.
If this Proposal is not approved by the stockholders, then the Company
will be required to locate new sources of financing for the Company.
EFFECT OF THE ISSUANCE OF COMMON STOCK UNDERLYING THE ISSUANCE OF
ADDITIONAL PREFERRED STOCK AND WARRANTS
The future issuance of the Series E Convertible Preferred Stock
and the Warrants issued in connection therewith will upon conversion or
exercise, as the case may be, increase the number of outstanding shares of
Common Stock. As a result of the increase in the number of outstanding shares of
Common Stock upon conversion of the Series E Convertible Preferred Stock
and/or exercise of the Warrants issued in connection therewith, the economic
interests and voting rights of each stockholder will be diluted.
RECOMMENDATION AND REQUIRED VOTE
The issuance at a discount of a number of shares of the Company's
Common Stock equal to or in excess of 20% of the number of shares of the
Company's Common Stock outstanding before the issuance requires the affirmative
vote of a majority of the total votes cast on the proposal in person or by
proxy. With respect to this
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proposal, abstentions will be counted toward the tabulation of votes
cast and will have the same effect as negative votes. However, broker non-votes,
while included in the determination of shares present at the meeting for
purposes of determining a quorum, will not be counted as votes cast for or
against approval of this proposal. The Board is of the opinion that the issuance
of the Common Stock upon the conversion of the Preferred Stock and/or exercise
of the Warrants, as the case may be, is advisable and in the best interests of
the Company and recommends a vote "FOR" the approval of this Proposal 3. All
proxies will be voted to approve this Proposal 3 unless a contrary vote is
indicated on the enclosed proxy card.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" APPROVAL OF THE ISSUANCE OF ADDITIONAL COMMON STOCK ISSUABLE UPON
THE CONVERSION OF PREFERRED STOCK AND/OR EXERCISE OF THE WARRANTS, AS
THE CASE MAY BE, AND YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY
OTHERWISE.
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PROPOSAL 4
APPROVAL OF THE ISSUANCE OF ADDITIONAL SHARES
OF COMMON STOCK TO
STRATEGIC CAPITAL CONSULTANTS AND MOUNTAINGATE PRODUCTIONS
Pursuant to Rule 4310(c)(25)(H) of The Nasdaq Stock Market, Inc.
Marketplace Rules, stockholder approval is required prior to the issuance of
common stock issuable upon the conversion of preferred stock if such issuance is
equal to 20% or more of the outstanding common stock of the company prior to the
issuance and is made for less than the greater of book or market value of the
stock or if the issuance could constitute a change in control of the Company.
Pursuant to that certain Securities Purchase Agreement by and between
the Company and Strategic Capital Consultants ("Strategic"), dated as of January
14, 1999 (the "Strategic Agreement"), Strategic purchased 1,500,000 shares of
the Series C-2 Convertible Preferred Stock, par value $0.001 per share, and
1,000,000 shares of the Series C-3 Convertible Preferred Stock, par value $0.001
per share (collectively, and together with the Series C-1 Convertible Preferred
Stock, par value $0.001, the "Series C Convertible Preferred Stock") for a
purchase price of $2,500. Strategic serves as the Company's financial advisor.
Of the shares of Series C Convertible Preferred Stock purchased, all 1,500,000
shares of the Series C-2 Convertible Preferred Stock are convertible at a fixed
rate of $0.50 per share and all 1,000,000 shares of the Series C-3 Convertible
Preferred Stock are convertible at a fixed rate of $1.00 per share. As of the
effective date of the Strategic Agreement, the conversion prices for the shares
of each of the Series C-2 Convertible Preferred Stock and the Series C-3
Convertible Preferred Stock were above market value. The closing sales price of
the Company's Common Stock on January 14, 1999 was $0.3125. The Series C-3
Convertible Preferred Stock shares may not be converted until January 14, 2000.
As a condition to the purchase of the shares, Strategic may convert up to a
maximum of 500,000 shares of the Series C-2 and C-3 Convertible Preferred Stock
every three months.
Pursuant to that certain Securities Purchase Agreement by and between
the Company and Mountaingate Productions ("Mountaingate"), dated as of January
14, 1999 (the "Mountaingate Agreement" and, together with the Strategic
Agreement, the "Agreements"), Mountaingate purchased for $3,000, 2,000,000
shares of the Series C-1 Convertible Preferred Stock convertible at a fixed rate
of $0.82 per share and 1,000,000 shares of the Series C-3 Convertible Preferred
Stock convertible at a fixed rate of $1.00 per share. Mountaingate has provided
production services to the Company since October 1, 1995. Mountaingate is owned
by Alison Meyer Marcus and Patricia Meyer, Mr. Irwin Meyer's adult children. As
of the effective date of the Mountaingate Agreement, the conversion prices for
the shares of each of the Series C-1 Convertible Preferred Stock, convertible at
$0.82, and the Series C-3 Convertible Preferred Stock, convertible at $1.00,
were above market value. The closing sales price of the Company's Common Stock
on January 14, 1999 was $0.3125. The Series C-3 Convertible Preferred Stock
shares may not be converted until January 14, 2000.
Although the Company agreed to issue each of the Series C-1, C-2 and
Series C-3 Convertible Preferred Stock at a fixed conversion price above market
value at the date of the Agreements, the issuance of the underlying Common Stock
upon conversion of the Preferred Stock will exceed 20% of the Company's
outstanding Common Stock. The Company believes it prudent to request stockholder
approval prior to the issuance of the Series C-1, C-2 and C-3 Convertible
Preferred Stock, due to the number of shares to be issued. To the extent that
this issuance could be considered a change in control under the Nasdaq
requirements, the issuance requires prior stockholder approval. As of the date
of the Agreements, the Company had 8,469,732 shares of outstanding Common Stock.
Based on the fixed conversion rates of the Series C-2 and C-3 Convertible
Preferred Stock as described above, the issuance of the 3,000,000 shares to
Strategic Capital represents approximately 35.42% of the outstanding Common
Stock at January 14, 1999 and the issuance of the 3,000,000 shares to
Mountaingate Productions represents approximately 35.42% of the outstanding
Common Stock. Due to the additional issuances of Common Stock since January 14,
1999, the issuance of 3,000,000 shares of Common Stock represents, as of the
record date, approximately ____% of the outstanding Common Stock.
The Series C Convertible Preferred Stock is not subject to any
preemptive rights.
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The Company received $5,500 in gross proceeds from the sale of the
Series C-1, C-2 and C-3 Convertible Preferred Stock. The Company devoted the net
proceeds to working capital. Upon Strategic's and Mountaingate's conversion of
the Series C-1, C-2 and C-3 Convertible Preferred Stock, the Company will
receive an additional $4,390,000.
If this Proposal is not approved by the stockholders, then the Company
will be required to locate new sources of financing.
TERMS OF THE SERIES C CONVERTIBLE PREFERRED STOCK
The following is a summary description of the terms of the Series C
Convertible Preferred Stock as set forth in the Certificate of Designations,
Preferences, Limitations and Relative Rights of Series C Convertible Preferred
Stock of the Company dated as of __________ ____, 1999 and as filed with the
Secretary of State of the State of Delaware on _____________, 1999(the "Series C
Stock Certificate").
VOTING RIGHTS. The shares of the Series C Convertible Preferred Stock
are entitled to no voting rights. Any corporate action that may require a vote
of the holders of the Series C Convertible Preferred Stock as a class shall be
deemed to have been approved by that class upon the affirmative vote of the
holders of a majority of the issued and outstanding Series C Convertible
Preferred Stock unless a higher voting requirement is imposed by the Delaware
General Corporation Law. If any corporate action shall require a vote of the
holders of the Series C Convertible Preferred Stock other than as a class, the
Series C Convertible Preferred Stock shall vote with the Company's Common Stock
as if the Series C Convertible Preferred Stock had been fully converted three
(3) business days prior to the date of the vote.
DIVIDENDS. The shares of the Series C Convertible Preferred Stock are
entitled to receive non-cumulative dividends from the date of issuance at the
rate of 8% per year per Preferred Share, payable quarterly in arrears in cash,
or, at the option of the Company, in shares of its Free-Trading Common Stock (as
defined below), provided, however that such dividends will only be paid in the
event the Company has earnings in any fiscal year greater than $1.5 million.
Notwithstanding the preceding sentence, should the Company in its discretion
determine to pay said dividends in shares of Free-Trading Common Stock, then all
unpaid dividends shall be paid at the time of each conversion of the Series C
Convertible Preferred Stock, such that upon each conversion of the Series C
Convertible Preferred Stock, the Company shall pay all unpaid dividends owed as
of the date of such conversion. "Free-Trading Common Stock" shall mean shares of
Common Stock that are either "restricted securities" as defined in Rule 144
under the Securities Act of 1933, as amended (the "Securities Act"), but for
which the resales of such shares have been registered under a registration
statement filed with the Commission or are otherwise freely tradable without
restriction.
REDEMPTION. Except for the foregoing provisions, the Series C
Convertible Preferred Stock shall not be redeemable at any time prior to January
1, 2004. Thereafter, the Company, on the sole authority of its Board of
Directors, may, at its option and at any time prior to notice of conversion of
the Series C Convertible Preferred Stock, redeem all or any part of the Series C
Convertible Preferred Stock at the time issued and outstanding for an amount in
cash equal to 110% of $0.001 per share plus any unpaid dividends. Except as
otherwise provided in the Series C Stock Certificate, if less than all of the
Series C Convertible Preferred Stock are to be redeemed, then such redemption
shall be pro rata based on the number of shares of Series C Convertible
Preferred Stock owned of record by each Series C Convertible Preferred Stock
holder.
CONVERSION. No holder of the Series C Convertible Preferred Stock may
directly or indirectly effect a "short sale" of the Company's Common Stock for
the holder's own account or for the account of a Related Person (as defined
below). Each share of the Series C Convertible Preferred Stock is convertible
into one share of Common Stock. Each share of the Series C-1 Convertible
Preferred Stock may be converted, at any time at the option of the holder in its
sole and absolute discretion, into one share of Common Stock, at a price of
$0.82 per share. Each share of the Series C-2 Convertible Preferred Stock may be
converted, at any time at the option of the holder in its sole and absolute
discretion, into one share of Common Stock, at a price of $0.50 per share.
Beginning at any time after January 14, 2000, each share of Series C-3
Convertible Preferred Stock may be converted, at the option of the holder
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in its sole and absolute discretion, into one share of Common Stock, at a price
of $1.00 per share. "Related Person" shall mean (A) any member of the holder's
immediate family (B) any entity of which the holder is an officer, director or
holder of a position having comparable duties or responsibilities; (C) any
entity in which the holder is the owner of an equity interest; and (D) any
person which would be deemed to be an "affiliate" of the holder as that term is
defined in the Securities Act or the rules and regulations promulgated
thereunder.
At the option of the Company, if any shares of Series C Convertible
Preferred Stock remain outstanding on June 30, 2005, then all or any part of
such Series C Convertible Preferred Stock as the Company elects shall be
converted in accordance with the procedures set forth in the Series C Stock
Certificate.
RIGHTS ON LIQUIDATION. In the event of liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, resulting in any
distribution of its assets to its stockholders, the holders of the Series C
Convertible Preferred Stock then issued and outstanding shall be entitled to
receive out of the assets of the Company available for distribution to its
stockholders, an amount equal to $0.001 per share, and no more, before any
payment or distribution of the assets of the Company is made to or set apart for
the holders of Common Stock. If the assets of the Company distributable to the
holders of the Series C Convertible Preferred Stock are insufficient for payment
to them of the full preferential amount described above, such assets shall be
distributed ratably among the holders of the Series C Convertible Preferred
Stock. The holders of the Common Stock shall be entitled to the exclusion of the
holders of the Series C Convertible Preferred Stock to share in all remaining
assets of the Company in accordance with their respective interests. All shares
of the Series C Convertible Preferred Stock shall (i) rank senior to any class
or series of capital stock of the Company hereafter created (unless otherwise
agreed to by a majority of the holders of the Series C Convertible Preferred
Stock then outstanding), and (ii) shall rank junior to all of the preferred
stock of the Company issued and outstanding as of the date of the Series C Stock
Certificate.
EFFECT OF THE ISSUANCE OF ADDITIONAL COMMON STOCK AND COMMON STOCK
ISSUABLE UPON CONVERSION OF THE PREFERRED STOCK.
The issuance of the Common Stock and Common Stock issuable upon
Strategic's and Mountaingate's conversion of the Series C-1, C-2 and C-3
Convertible Preferred Stock will increase the number of outstanding shares of
Common Stock. As a result of the increase in the number of shares of Common
Stock, the economic interests and voting rights of each stockholder will be
diluted.
RECOMMENDATION AND REQUIRED VOTE
The issuance of a number shares of the Company's Common Stock equal to
or in excess of 20% of the number of shares of the Company's Common Stock
outstanding before the issuance or that may result in a change of control of the
Company requires the affirmative vote of a majority of the total votes cast on
the proposal in person or by proxy. With respect to this proposal, abstentions
will be counted toward the tabulation of votes cast and will have the same
effect as negative votes. However, broker non-votes, while included in the
determination of shares present at the Meeting for purposes of determining a
quorum, will not be counted as votes cast for or against approval of this
proposal. The Board is of the opinion that the issuance of the Common Stock
issuable upon the conversion of the Preferred Stock is advisable and in the best
interests of the Company and recommends a vote FOR the approval of this Proposal
4. All proxies will be voted to approve this Proposal 4 unless a contrary vote
is indicated on the enclosed proxy card.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" APPROVAL OF THE ISSUANCE OF COMMON STOCK AND COMMON STOCK
ISSUABLE UPON THE CONVERSION OF PREFERRED STOCK TO STRATEGIC AND
MOUNTAINGATE, AND YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY
OTHERWISE.
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PROPOSAL 5
APPROVAL OF THE AMENDMENT TO THE 1998 STOCK INCENTIVE PLAN
GENERAL
The Board of Directors has approved an amendment (the "Plan Amendment")
to the 1998 Stock Incentive Plan (the "1998 Plan") to increase the number of
shares of Common Stock available for issuance under the 1998 Plan from 2,000,000
shares to 3,000,000 shares. The complete text of the Plan Amendment is attached
hereto as Exhibit "B". The Plan Amendment is being submitted to the stockholders
for approval.
The Board of Directors approved the Plan Amendment to ensure that a
sufficient number of shares are available for issuance under the 1998 Plan. The
1998 Plan provides for the issuance of awards to purchase shares of the
Company's Common Stock to non-employee directors, officers, employees and
consultants of the Company. At April 21, 1999, approximately ____ persons were
eligible to receive awards under the 1998 Plan and 1,975,000 shares remained
available for grants of awards under the 1998 Plan. The Board of Directors
believes that the ability to grant stock-based awards is important to the future
success of the Company. The grant of stock options and other stock-based awards
is important to the future success of the Company. The grant of stock options
and other stock-based awards can motivate high levels of performance and provide
an effective means of recognizing contributions of key personnel to the success
of the Company. In addition, stock-based compensation can be valuable in
recruiting and retaining key personnel who are in great demand as well as
rewarding and providing incentives to the Company's current directors, officers,
employees and consultants. The increase in the number of shares available for
awards under the 1998 Plan will enable the Company to continue to realize the
benefits of granting stock-based compensation.
As of April 21, 1999, the last reported sales price of the Common Stock
on the Nasdaq SmallCap Market was $________ per share.
SUMMARY OF THE 1998 PLAN
The following is a summary of the principal features of the 1998 Plan.
PURPOSE. The purpose of the 1998 Plan is to advance the interests of
the Company and its stockholders by strengthening the Company's ability to
obtain and retain the services of the types of employees, consultants, officers
and directors who will contribute to the Company's long term success and to
provide incentives which are linked directly to increases in stock value which
will inure to the benefit of all stockholders of the Company.
ADMINISTRATION. The 1998 Plan may be administered by the Board of the
Company, or a committee of the Board whose members shall serve at the pleasure
of the Board. The party administering the 1998 Plan is referred to herein as the
"Administrator." Subject to the provisions of the 1998 Plan, the Administrator
has full and final authority (i) to select from among eligible directors,
officers, employees and consultants, those persons to be granted awards under
the 1998 Plan, (ii) to determine the type, size and terms of individual awards
to be made to each person selected, (iii) to determine the time when awards will
be granted and to establish objectives and conditions (including, without
limitation, vesting and performance conditions), if any, for earning awards,
(iv) to amend the terms or conditions of any outstanding award, subject to
applicable legal restrictions and to the consent of the other party to such
award, (v) to authorize any person to execute, on behalf of the Company, any
instrument required to carry out the purposes of the 1998 Plan, and (vii) to
make any and all other determinations which the Administrator determines to be
necessary or advisable in the administration of the 1998 Plan. The Administrator
shall have full power and authority to administer and interpret the Plan and to
adopt, amend and revoke such rules, regulations, agreements, guidelines and
instruments for the administration of the 1998 Plan and for the conduct of its
business as the Administrator deems necessary or advisable.
ELIGIBILITY. Any person who is a director, officer, employee or
consultant of the Company, or any of its subsidiaries (a "Participant"), shall
be eligible to be considered for the grant of awards under the 1998 Plan. No
Participant may receive awards representing more than 50% of the number of
shares of Common Stock covered by the 1998 Plan.
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TYPES OF AWARDS. Awards authorized under the 1998 Plan may consist of
any type of arrangement with a Participant that, by its terms, involves or might
involve or be made with reference to the issuance of shares of the Company's
Common Stock, or a derivative security with an exercise or conversion price
related to the Common Stock or with a value derived from the value of the Common
Stock. Awards are not restricted to any specified form or structure and may
include sales, bonuses and other transfers of stock, restricted stock, stock
options, reload stock options, stock purchase warrants, other rights to acquire
stock or securities convertible into or redeemable for stock, stock appreciation
rights, phantom stock, dividend equivalents, performance units or performance
shares, or any other type of award which the Administrator shall determine is
consistent with the objectives and limitations of the 1998 Plan. An award may
consist of one such security or benefit, or two or more of them in tandem or in
the alternative.
CONSIDERATION. The Common Stock or other property underlying an award
may be issued for any lawful consideration as determined by the Administrator,
including, without limitation, a cash payment, services rendered, or the
cancellation of indebtedness. In addition, an award may permit the recipient to
pay the purchase price of the Common Stock or other property or to pay such
recipient's tax withholding obligation with respect to such issuance, in whole
or in part, by delivering previously owned shares of capital stock of the
Company or other property, or by reducing the number of shares of Common Stock
or the amount of other property otherwise issuable pursuant to such award.
TERMINATION OF AWARDS. All awards granted under the 1998 Plan expire
ten years from the date of grant, or such shorter period as is determined by the
Administrator. No option is exercisable by any person after such expiration. If
an award expires, terminates or is canceled, the shares of Common Stock not
purchased thereunder shall again be available for issuance under the 1998 Plan.
AMENDMENT AND TERMINATION OF THE 1998 PLAN. The Administrator may amend
the 1998 Plan at any time, may suspend it from time to time or may terminate it
without approval of the stockholders; provided, however, that stockholder
approval is required for any amendment which materially increases the number of
shares for which awards may be granted, materially modifies the requirements of
eligibility, or materially increases the benefits which may accrue to recipients
of awards under the 1998 Plan. However, no such action by the Board or
stockholders may unilaterally alter or impair any award previously granted under
the 1998 Plan without the consent of the recipient of the award. In any event,
the 1998 Plan shall terminate on the tenth anniversary of the date the 1998 Plan
is approved by the stockholders unless sooner terminated by action of the Board.
EFFECT OF SECTION 16(b) OF THE EXCHANGE ACT. The acquisition and
disposition of Common Stock by officers, directors and greater-than-ten percent
stockholders of the Company ("Insiders") pursuant to awards granted to them
under the 1998 Plan may be subject to Section 16(b) of the Exchange Act.
Pursuant to Section 16(b), a purchase of common stock by an Insider within six
months before or after a sale of common stock by the Insider could result in
recovery by the Company of all or a portion of any amount by which the sale
proceeds exceeds the purchase price. Insiders are required to file reports of
changes in beneficial ownership under Section 16(a) of the Exchange Act upon
acquisitions and dispositions of shares. Rule 16b-3 provides an exemption from
Section 16(b) liability for certain transactions pursuant to certain employee
benefit plans. The 1998 Plan is designed to comply with Rule 16b-3.
OMNIBUS BUDGET RECONCILIATION ACT IMPLICATIONS FOR EXECUTIVE
COMPENSATION. Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), places a limit of $1,000,000 on the amount of compensation that
may be deducted by the Company in any year with respect to each of the Company's
five most highly paid executive officers. Certain "performance-based"
compensation that has been approved by the Company's stockholders is not subject
to the deduction limit. The 1998 Plan is intended to qualify as
performance-based compensation which is not subject to the $1,000,000 limitation
of Section 162(m) of the Code.
FEDERAL INCOME TAX CONSEQUENCES FOR STOCK OPTIONS
As of April 21, 1999, the only type of award granted by the Company has
been stock options. The following is a general discussion of the principal tax
considerations for both "incentive stock options" within the meaning of Section
422 of the Code ("Incentive Stock Options") and non-statutory stock options
("Non-statutory Stock Options"), and is based upon the tax laws and regulations
of the United States existing as of the date hereof, all of which are
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subject to modification at any time. The 1998 Plan does not constitute a
qualified retirement plan under Section 401(a) of the Code (which generally
covers trusts forming part of a stock bonus, pension or profit-sharing plan
funded by the employer and/or employee contributions which are designed to
provide retirement benefits to participants under certain circumstances) and is
not subject to the Employee Retirement Income Security Act of 1974 (the pension
reform law which regulates most types of privately funded pension, profit
sharing and other employee benefit plans).
CONSEQUENCES TO EMPLOYEES: INCENTIVE STOCK OPTIONS. No income is
recognized for federal income tax purposes by an optionee at the time an
Incentive Stock Option is granted, and, except as discussed below, no income is
recognized by an optionee upon his or her exercise of an Incentive Stock Option.
If the optionee makes no disposition of the Common Stock received upon exercise
within two years from the date such option was granted or one year from the date
such option is exercised, the optionee will recognize mid-term or long-term
capital gain or loss when he or she disposes of his or her Common Stock
depending on the length of the holding period. Such gain or loss generally will
be measured by the difference between the exercise price of the option and the
amount received for the Common Stock at the time of disposition.
If the optionee disposes of the Common Stock acquired upon exercise of
an Incentive Stock Option within two years after being granted the option or
within one year after acquiring the Common Stock, any amount realized from such
disqualifying disposition will be taxable as ordinary income in the year of
disposition to the extent that (i) the lesser of (a) the fair market value of
the shares on the date the Incentive Stock Option was exercised or (b) the fair
market value at the time of such disposition exceeds (ii) the Incentive Stock
Option exercise price. Any amount realized upon disposition in excess of the
fair market value of the shares on the date of exercise will be treated as
long-term, mid-term or short-term capital gain, depending upon the length of
time the shares have been held.
The use of stock acquired through exercise of an Incentive Stock Option
to exercise an Incentive Stock Option will constitute a disqualifying
disposition if the applicable holding period requirement has not been satisfied.
For alternative minimum tax purposes, the excess of the fair market
value of the stock as of the date of exercise over the exercise price of the
Incentive Stock Option is included in computing that year's alternative minimum
taxable income. However, if the shares are disposed of in the same year, the
maximum alternative minimum taxable income with respect to those shares is the
gain on disposition. There is no alternative minimum taxable income from a
disqualifying disposition in subsequent years.
CONSEQUENCES TO EMPLOYEES: NON-STATUTORY STOCK OPTIONS. No income is
recognized by a holder of Non- statutory Stock Options at the time Non-statutory
Stock Options are granted under the 1998 Plan. In general, at the time shares of
Common Stock are issued to a holder pursuant to exercise of Non-statutory Stock
Options, the holder will recognize ordinary income equal to the excess of the
fair market value of the shares on the date of exercise over the exercise price.
A holder will recognize gain or loss on the subsequent sale of Common
Stock acquired upon exercise of Non- statutory Stock Options in an amount equal
to the difference between the selling price and the tax basis of the Common
Stock, which will include the price paid plus the amount included in the
holder's income by reason of the exercise of the Non-statutory Stock Options.
Provided the shares of Common Stock are held as a capital asset, any gain or
loss resulting from a subsequent sale will be short-term, mid-term or long-term
capital gain or loss depending upon the length of time the shares have been
held.
CONSEQUENCES TO THE COMPANY: INCENTIVE STOCK OPTIONS. The Company will
not be allowed a deduction for federal income tax purposes at the time of the
grant or exercise of an Incentive Stock Option. There are also no federal income
tax consequences to the Company as a result of the disposition of Common Stock
acquired upon exercise of an Incentive Stock Option if the disposition is not a
disqualifying disposition. At the time of a disqualifying disposition by an
optionee, the Company will be entitled to a deduction for the amount received by
the optionee to the extent that such amount is taxable to the optionee as
ordinary income.
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CONSEQUENCES TO THE COMPANY: NON-STATUTORY STOCK OPTIONS. Generally,
the Company will be entitled to a deduction for federal income tax purposes in
the year and in the same amount as the optionee is considered to have realized
ordinary income in connection with the exercise of Non-statutory Stock Options.
RECOMMENDATION AND REQUIRED VOTE
The Approval of the Plan Amendment requires the affirmative vote of a
majority of the shares of the Company's Common Stock present or represented and
entitled to vote on this matter at the Annual Meeting. An abstention will be
counted toward the tabulation of votes cast and will have the same effect as a
vote against the proposal. A broker non-vote, however, will not be treated as a
vote cast for or against approval of the proposal.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" APPROVAL OF THE AMENDMENT TO THE 1998 STOCK INCENTIVE PLAN TO
INCREASE THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE UNDER THE 1998
PLAN, AND YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
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STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Any stockholder who intends to present a proposal at the next Annual
Meeting of stockholders for inclusion in the Company's Proxy Statement and Proxy
form relating to such Annual Meeting must submit such proposal to the Company at
its principal executive offices by December 12, 1999.
SOLICITATION OF PROXIES
It is expected that the solicitation of proxies will be primarily by
mail. The cost of solicitation by management will be borne by the Company. The
Company will reimburse brokerage firms and other persons representing beneficial
owners of shares for their reasonable disbursements in forwarding solicitation
material to such beneficial owners. Proxies may also be solicited by certain of
the Company's directors and officers, without additional compensation,
personally or by mail, telephone, telegram or otherwise for the purpose of
soliciting such proxies.
ANNUAL REPORT ON FORM 10-K
THE COMPANY INCORPORATES HEREIN BY REFERENCE INFORMATION SET FORTH IN
THE ANNUAL REPORT ON FORM 10-KSB, WHICH HAS BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION FOR THE FISCAL YEAR ENDED JUNE 30, 1998. THE COMPANY IS
PROVIDING TO STOCKHOLDERS ALONG WITH THIS PROXY STATEMENT THE ANNUAL REPORT ON
FORM 10-KSB AND THE COMPANY'S QUARTERLY REPORTS ON FORM 10-QSB, WHICH HAVE BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR THE QUARTERS ENDED
SEPTEMBER 30, 1998 AND DECEMBER 31, 1998.
ON BEHALF OF THE BOARD OF DIRECTORS
ARTHUR H. BERNSTEIN
SECRETARY
LOS ANGELES, CALIFORNIA 90036
- -----------------------------
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EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
THE PRODUCERS ENTERTAINMENT GROUP LTD.
THE UNDERSIGNED, BEING THE PRESIDENT AND SECRETARY, RESPECTIVELY, OF THE
PRODUCERS ENTERTAINMENT GROUP LTD. (THE "CORPORATION") DO HEREBY CERTIFY AS
FOLLOWS:
1. THE NAME OF THE CORPORATION IS THE PRODUCERS ENTERTAINMENT GROUP LTD.
2. THE RESTATED CERTIFICATE OF INCORPORATION OF THE CORPORATION IS HEREBY
AMENDED TO CHANGE THE NAME OF THE CORPORATION FROM THE PRODUCERS ENTERTAINMENT
GROUP LTD. TO IAT RESOURCES CORPORATION.
3. THE FOREGOING AMENDMENT OF THE RESTATED CERTIFICATE OF INCORPORATION OF THE
CORPORATION HAS BEEN DULY ADOPTED BY THE CORPORATION'S BOARD OF DIRECTORS AND
STOCKHOLDERS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 242 OF THE DELAWARE
GENERAL CORPORATION LAW.
IN WITNESS WHEREOF, THE UNDERSIGNED HAVE SUBSCRIBED THIS DOCUMENT ON THE DATE
SET FORTH BELOW.
DATED: ATTEST:
----------------
- ------------------------------------ -------------------------------
IRWIN MEYER, CHIEF EXECUTIVE OFFICER ARTHUR BERNSTEIN, SECRETARY
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EXHIBIT B
AMENDMENT
TO
1998 STOCK INCENTIVE PLAN
OF
THE PRODUCERS ENTERTAINMENT GROUP LTD.
WHEREAS, THE PRODUCERS ENTERTAINMENT GROUP LTD., A DELAWARE CORPORATION
(THE "COMPANY"), MAINTAINS THE 1998 STOCK INCENTIVE PLAN OF THE COMPANY,
EFFECTIVE AS OF APRIL 28, 1998 (THE "STOCK INCENTIVE PLAN"); AND
WHEREAS, PURSUANT TO SECTION 9 OF THE STOCK INCENTIVE PLAN, THE BOARD
OF DIRECTORS OF THE COMPANY (THE "BOARD") MAY AMEND THE STOCK INCENTIVE PLAN
FROM TIME TO TIME;
NOW THEREFORE, BE IT RESOLVED, THAT EFFECTIVE AS OF MAY 26, 1999, THE
STOCK INCENTIVE PLAN BE, AND IT HEREBY, IS AMENDED AS FOLLOWS.
1. THE FIRST SENTENCE OF SECTION 5 SHALL BE AMENDED AND RESTATED IN
ITS ENTIRETY AS FOLLOWS:
THE AGGREGATE NUMBER OF SHARES OF COMMON STOCK THAT MAY BE
ISSUED OR ISSUABLE PURSUANT TO ALL AWARDS UNDER THE 1998 PLAN
(INCLUDING AWARDS IN THE FORM OF INCENTIVE STOCK OPTIONS AND
NON-STATUTORY STOCK OPTIONS) SHALL NOT EXCEED AN AGGREGATE OF
3,000,000 SHARES OF COMMON STOCK, SUBJECT TO ADJUSTMENT AS
PROVIDED IN SECTION 7 OF THE 1998 PLAN.
RESOLVED FURTHER, THAT THIS AMENDMENT TO THE STOCK INCENTIVE PLAN SHALL
BE PRESENTED TO THE STOCKHOLDERS OF THE COMPANY FOR APPROVAL AT THE ANNUAL
MEETING TO BE HELD ON MAY 26, 1999.
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THE PRODUCERS ENTERTAINMENT GROUP LTD.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
THE UNDERSIGNED, A STOCKHOLDER OF THE PRODUCERS ENTERTAINMENT GROUP
LTD., A DELAWARE CORPORATION, (THE "COMPANY") HEREBY APPOINTS IRWIN MEYER AND
ARTHUR BERNSTEIN, AND EACH OF THEM, THE PROXY OF THE UNDERSIGNED, WITH FULL
POWER OF SUBSTITUTION, TO ATTEND, VOTE AND ACT FOR THE UNDERSIGNED AT THE
COMPANY'S ANNUAL MEETING OF STOCKHOLDERS (THE "ANNUAL MEETING"), TO BE HELD ON
MAY 26, 1999, AND AT ANY OF ITS POSTPONEMENTS OR ADJOURNMENTS, TO VOTE AND
REPRESENT ALL OF THE SHARES OF THE COMPANY WHICH THE UNDERSIGNED WOULD BE
ENTITLED TO VOTE, AS FOLLOWS:
THE BOARD OF DIRECTORS RECOMMENDS A FOR VOTE ON PROPOSAL 1, A FOR VOTE
ON PROPOSAL 2, A FOR VOTE OF PROPOSAL 3, A FOR VOTE ON PROPOSAL 4, A FOR VOTE ON
PROPOSAL 5 AND A FOR VOTE ON PROPOSAL 6.
1. THE APPROVAL OF THE ELECTION OF FIVE (5) DIRECTORS OF THE
COMPANY TO HOLD OFFICE UNTIL THE NEXT ANNUAL MEETING OF
STOCKHOLDERS AND UNTIL THEIR RESPECTIVE SUCCESSORS HAVE BEEN
ELECTED.
____ FOR ____ AGAINST ____ ABSTAIN
2. THE APPROVAL OF AN AMENDMENT TO THE COMPANY'S RESTATED
CERTIFICATE OF INCORPORATION TO CHANGE THE NAME OF THE COMPANY
FROM THE PRODUCERS ENTERTAINMENT GROUP LTD. TO IAT RESOURCES
CORPORATION.
____ FOR ____ AGAINST ____ ABSTAIN
3. THE APPROVAL OF THE ISSUANCE OF SHARES OF COMMON STOCK,
ISSUABLE UPON CONVERSION AND EXERCISE, AS THE CASE MAY BE,
OF THE COMPANY'S SERIES E CONVERTIBLE PREFERRED STOCK
AND WARRANTS ISSUED IN CONNECTION WITH THE SECURITIES PURCHASE
AGREEMENT WITH AUGUSTINE FUND, L.P., WHICH, TOGETHER WITH
SHARES OF COMMON STOCK PREVIOUSLY ISSUED PURSUANT TO THE
SECURITIES PURCHASE AGREEMENT WITH AUGUSTINE FUND, L.P., WILL
BE IN EXCESS OF 20% OF THE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING BEFORE ISSUANCE.
____ FOR ____ AGAINST ____ ABSTAIN
4. THE APPROVAL OF THE ISSUANCE OF SHARES OF COMMON STOCK AND
COMMON STOCK ISSUABLE UPON CONVERSION OF THE COMPANY'S SERIES
C-1, C-2 AND C-3 CONVERTIBLE PREFERRED STOCK TO STRATEGIC
CAPITAL CONSULTANTS AND MOUNTAINGATE PRODUCTIONS, WHICH,
TOGETHER WITH SHARES OF COMMON STOCK PREVIOUSLY ISSUED TO
STRATEGIC CAPITAL CONSULTANTS AND MOUNTAINGATE PRODUCTIONS,
WILL BE IN EXCESS OF 20% OF THE NUMBER OF SHARES OF COMMON
STOCK OUTSTANDING BEFORE ISSUANCE AND COULD BE CONSIDERED A
CHANGE IN CONTROL OF THE COMPANY.
____ FOR ____ AGAINST ____ ABSTAIN
5. THE APPROVAL OF THE AMENDMENT TO THE COMPANY'S 1998 STOCK
INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR
ISSUANCE UNDER THE 1998 PLAN.
____ FOR ____ AGAINST ____ ABSTAIN
THE UNDERSIGNED HEREBY REVOKES ANY OTHER PROXY TO VOTE AT THE ANNUAL
MEETING, AND HEREBY RATIFIES AND CONFIRMS ALL THAT THE PROXY HOLDER MAY LAWFULLY
DO BY VIRTUE HEREOF. AS TO ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE
ANNUAL MEETING AND ANY OF ITS POSTPONEMENTS OR ADJOURNMENTS, THE PROXY HOLDER IS
AUTHORIZED TO VOTE IN ACCORDANCE WITH ITS BEST JUDGMENT.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH
ABOVE. THIS PROXY WILL BE
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TREATED AS A GRANT OF AUTHORITY TO VOTE FOR THE APPROVAL OF THE ELECTION OF FIVE
(5) DIRECTORS OF THE COMPANY, THE APPROVAL OF THE AMENDMENT TO THE COMPANY'S
RESTATED CERTIFICATE OF INCORPORATION, THE APPROVAL OF THE ISSUANCE OF SHARES OF
COMMON STOCK, ISSUABLE UPON CONVERSION AND EXERCISE, AS THE CASE MAY BE, OF THE
COMPANY'S SERIES E CONVERTIBLE PREFERRED STOCK AND WARRANTS ISSUED IN
CONNECTION WITH THE SECURITIES PURCHASE AGREEMENT WITH AUGUSTINE FUND, L.P., THE
APPROVAL OF THE ISSUANCE OF COMMON STOCK UPON THE CONVERSION OF THE COMPANY'S
SERIES C-1, C-2 AND C-3 CONVERTIBLE PREFERRED STOCK TO STRATEGIC CAPITAL
CONSULTANTS AND MOUNTAINGATE PRODUCTIONS, THE APPROVAL OF THE AMENDMENT TO THE
COMPANY'S 1998 STOCK INCENTIVE PLAN AND AS THE PROXY HOLDER SHALL DEEM ADVISABLE
ON SUCH OTHER BUSINESS AS MAY COME BEFORE THE ANNUAL MEETING, UNLESS OTHERWISE
DIRECTED.
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THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF A COPY OF THE NOTICE OF ANNUAL MEETING
AND ACCOMPANYING PROXY STATEMENT DATED __________, ____ RELATING TO THE ANNUAL
MEETING.
DATE: ,
-------------------- ----------
----------------------------------------
----------------------------------------
SIGNATURE(S) OF STOCKHOLDER(S)
(SEE INSTRUCTIONS BELOW)
THE SIGNATURE(S) HEREON SHOULD CORRESPOND
EXACTLY WITH THE NAME(S) OF THE
STOCKHOLDER(S) APPEARING ON THE STOCK
CERTIFICATE. IF STOCK IS JOINTLY HELD, ALL
JOINT OWNERS SHOULD SIGN. WHEN SIGNING AS
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE
OR GUARDIAN, PLEASE GIVE FULL TITLE AS
SUCH. IF SIGNER IS A CORPORATION, PLEASE
SIGN THE FULL CORPORATION NAME, AND GIVE
TITLE OF SIGNING OFFICER.
THIS PROXY IS SOLICITED BY
THE BOARD OF DIRECTORS OF
THE PRODUCERS ENTERTAINMENT GROUP LTD.
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