OSAGE SYSTEMS GROUP, INC.
1661 EAST CAMELBACK ROAD, SUITE 245
PHOENIX, ARIZONA 85016
April 7, 2000
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Meeting") of Osage Systems Group, Inc. (the "Company") which will be held at
Embassy Suites, 2630 East Camelback Road, Phoenix, Arizona on Thursday, May 11,
2000 at 10:00 A.M. Mountain Time. Your Board of Directors and management look
forward to personally greeting those stockholders able to attend.
At the Meeting, stockholders will be asked to:
(1) approve, in accordance with applicable requirements of the American
Stock Exchange, the issuance of more than 20% of the Company's
outstanding Common Stock upon the conversion of outstanding debentures
and the exercise of outstanding warrants at below-market prices (the
debentures and warrants are collectively referred to as the
"Derivative Securities");
(2) approve an amendment to the Company's Certificate of Incorporation
(the "Certificate") to eliminate the classification of the Board of
Directors into three different classes;
(3) approve an amendment to the Certificate eliminating a supermajority
voting requirement for the stockholders to amend the Certificate;
(4) elect four (4) directors in the event that the stockholders approve
the amendment to the Certificate to eliminate the classified Board of
Directors, to serve a one-year term or until their successors are
elected and qualified; or, in the alternative, elect two (2) directors
in the event that the stockholders do not approve the amendment to the
Certificate to eliminate the classified Board of Directors, to serve
until the 2003 Annual Meeting of Stockholders or until their
successors are elected and qualified;
(5) approve an amendment to the Certificate to increase the number of
shares of Common Stock the Company is authorized to issue from
50,000,000 to 100,000,000;
(6) ratify the appointment of Deloitte & Touche LLP as the Company's
independent auditors for the year ending December 31, 2000; and
(7) consider such other matters as may be properly brought before the
Meeting and at any adjournment(s) or postponement(s) thereof.
These matters are discussed in greater detail in the accompanying Proxy
Statement.
Your Board of Directors recommends a vote FOR the conversion and
exercise features of the Derivative Securities, FOR the proposed amendments to
the Certificate, FOR the election of
<PAGE>
directors nominated, and FOR the ratification of Deloitte & Touche LLP as
the Company's independent auditors.
Regardless of the number of shares you own or whether you plan to attend,
it is important that your shares be represented and voted at the Meeting. You
are requested to sign, date and mail the enclosed proxy promptly.
A copy of the Annual Report for the year ended December 31, 1999 is
enclosed for your information. No material contained in the Annual Report is to
be considered a part of the proxy solicitation material.
We wish to thank our stockholders for their participation and support.
Sincerely,
---------------------------
Phil Carter
Chairman of the Board
and Chief Executive Officer
2
<PAGE>
OSAGE SYSTEMS GROUP, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 11, 2000
To the Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of Osage Systems Group, Inc. (the "Company") will be held at Embassy
Suites, 2630 East Camelback Road, Phoenix, Arizona on Thursday, May 11, 2000, at
10:00 A.M. Mountain Time, for the following purposes:
At the Meeting, stockholders will be asked to:
(1) approve, in accordance with applicable requirements of the American
Stock Exchange, the issuance of more than 20% of the Company's
outstanding Common Stock upon the conversion of outstanding debentures
and the exercise of outstanding warrants at below-market prices (the
debentures and warrants are collectively referred to as the
"Derivative Securities");
(2) approve an amendment to the Company's Certificate of Incorporation
(the "Certificate") to eliminate the classification of the Board of
Directors into three different classes;
(3) approve an amendment to the Certificate eliminating a supermajority
voting requirement for the stockholders to amend the Certificate;
(4) elect four (4) directors in the event that the stockholders approve
the amendment to the Certificate to eliminate the classified Board of
Directors, to serve a one-year term or until their successors are
elected and qualified; or, in the alternative, elect two (2) directors
in the event that the stockholders do not approve the amendment to the
Certificate to eliminate the classified Board of Directors, to serve
until the 2003 Annual Meeting of Stockholders or until their
successors are elected and qualified;
(5) approve an amendment to the Certificate to increase the number of
shares of Common Stock the Company is authorized to issue from
50,000,000 to 100,000,000;
(6) ratify the appointment of Deloitte & Touche LLP as the Company's
independent auditors for the year ending December 31, 2000; and
(7) consider such other matters as may be properly brought before the
Meeting and at any adjournment(s) or postponement(s) thereof.
A copy of the Annual Report for the year ended December 31, 1999 is
enclosed for your information. No material contained in the Annual Report is to
be considered a part of the proxy solicitation material.
Only stockholders of record as of the close of business on April 3, 2000
will be entitled to vote at the Meeting and any adjournment(s) or
postponement(s) thereof.
<PAGE>
All stockholders are cordially invited to attend the Meeting. However, to
assure your representation at the Meeting, you are urged to complete, sign, date
and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the Meeting may vote in person even if he or she has returned a proxy.
By Order of the Board of Directors,
-----------------------------------
Phil Carter
Chairman of the Board and
Chief Executive Officer
Phoenix, Arizona
April 7, 2000
YOUR VOTE IS IMPORTANT
YOU ARE URGED TO SIGN, DATE AND PROMPTLY
RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE.
2
<PAGE>
OSAGE SYSTEMS GROUP, INC.
1661 EAST CAMELBACK ROAD, SUITE 245
PHOENIX, ARIZONA 85016
PRELIMINARY PROXY STATEMENT
The enclosed proxy is solicited on behalf of the Board of Directors of
Osage Systems Group, Inc. (the "Company") to be voted at the Annual Meeting of
Stockholders (the "Meeting") of the Company to be held at Embassy Suites/1661
EAST CAMELBACK ROAD, SUITE 245, PHOENIX, ARIZONA on [Thursday, May 11, 2000] at
[10:00 A.M]. Mountain Time, and at any adjournment(s) or postponement(s) thereof
for the purposes set forth in the accompanying Notice of Annual Meeting of
Stockholders. The proxy solicitation materials were mailed on or about [April 7,
2000] to all stockholders entitled to vote at the Meeting.
RECORD DATE AND SHARE OWNERSHIP
Stockholders of record at the close of business on April 3, 2000 (the
"Record Date") are entitled to notice of and to vote at the Meeting, and at any
adjournment(s) or postponement(s) thereof. At the Record Date, [11,169,091]
shares of the Company's common stock, $0.01 par value per share ("Common
Stock"), were issued, outstanding and entitled to notice of and to vote at the
Meeting and at any adjournment(s) or postponement(s) thereof. Holders of
outstanding shares of the Company's Series E Convertible Preferred Stock are
entitled to notice of, but are not entitled to vote at the Meeting.
REVOCABILITY OF PROXIES
The execution of a proxy will not affect a stockholder's right to attend
the Meeting and vote in person. Any proxy given pursuant to this solicitation
may be revoked by the person giving it at any time before it is used at the
Meeting by filing with the Secretary of the Company either (i) a written notice
of revocation; (ii) a proxy bearing a later date than the most recently
submitted proxy; or (iii) by attendance at the Meeting and voting in person.
Attendance at the Meeting will not, by itself, revoke a proxy.
ANNUAL REPORT
A copy of the Company's Annual Report for the year ended December 31, 1999
accompanies this Proxy Statement. No material contained in the Annual Report is
to be considered a part of the proxy solicitation material.
The mailing address of the Company's executive office is 1661 East
Camelback Road, Suite 245, Phoenix, Arizona 85016.
QUORUM AND VOTING REQUIREMENTS; SOLICITATION
As of the Record Date for the Meeting, there were [11,169,091] shares of
Common Stock outstanding. The presence at the Meeting, in person or by a proxy
relating to any matter to be acted upon at the Meeting, of a majority of the
outstanding shares, or [5,584,546] shares, is necessary to constitute a quorum
for the Meeting. Each outstanding share of Common Stock is entitled to one vote
on all matters, except as noted below. For purposes of the quorum and the
discussion below regarding the vote necessary to take stockholder action,
stockholders of record
<PAGE>
who are present at the Meeting in person or by proxy and who abstain,
including brokers holding customers' shares of record who cause abstentions to
be recorded at the Meeting, are considered stockholders who are present and
entitled to vote and they count toward the quorum.
Although there are no controlling precedents under Delaware law regarding
the treatment of broker non-votes in certain circumstances, the Company intends
to apply the principles set forth below. As used herein, "uninstructed shares"
means shares held by a broker who has not received instructions from its
customers on such matters and the broker has so notified the Company on a proxy
form in accordance with industry practice or has otherwise advised the Company
that it lacks voting authority. As used herein, "broker non-votes" means the
votes that could have been cast on the matter in question by brokers with
respect to uninstructed shares if the brokers had received their customers'
instructions and such shares cannot otherwise be voted in accordance with
applicable New York Stock Exchange regulations.
The vote required for Proposal 1 (approving the conversion and exercise
features of the Derivative Securities) and Proposal 6 (approving the auditors)
is the affirmative vote of the majority of the shares of Common Stock present in
person or by proxy at the Meeting. Accordingly, abstentions and broker non-votes
have the effect of negative votes with respect to the approval of these
proposals. The vote required for Proposals 2, 3 and 5 to amend the Certificate
is the affirmative vote of the majority of shares of Common Stock outstanding.
Accordingly, abstentions and broker non-votes have the effect of negative votes
with respect to the approval of these proposals. Nominees receiving a plurality
of the votes cast will be elected as directors. Abstentions and broker non-votes
will not be taken into account in determining the outcome of the election of
directors.
Proxies which are validly executed by stockholders and which are received
by the Company no later than the business day preceding the Meeting will be
voted in accordance with the instructions contained thereon. If no instructions
are given, the proxy will be voted in accordance with the recommendations of the
Board of Directors and in the discretion of the proxy on all other matters
presented to the Meeting. For the reasons set forth in more detail in the Proxy
Statement, the Board of Directors recommends a vote FOR the conversion and
exercise features of the Derivative Securities, FOR the amendment to the
Certificate eliminating the classified Board of Directors, FOR the amendment to
the Certificate eliminating the supermajority voting requirement for the
stockholders to amend the Certificate, FOR the election of directors nominated,
FOR the amendment to the Certificate increasing the number of authorized shares
of Common Stock, and FOR the ratification of Deloitte & Touche LLP as the
Company's independent auditors.
The cost of this proxy solicitation will be borne by the Company. In
addition to the use of mail, proxies may be solicited in person or by telephone
by employees of the Company without additional compensation. The Company will
reimburse brokers and other persons holding stock in their names or in the names
of nominees for their expenses incurred in sending proxy material to principals
and obtaining their proxies.
2
<PAGE>
PROPOSAL 1
APPROVAL OF THE CONVERSION FEATURE OF DEBENTURES AND THE
EXERCISE FEATURE OF WARRANTS
In November 1999, the Company issued in a private placement transaction
below-market debenture units (the "Units") to Michael Lauer and three investment
funds managed by him, Lancer Offshore, Inc., Lancer Partners, L.P. and Orbiter
Fund, Ltd. (collectively, "Lancer"). The Units consist of 10% Convertible
Subordinated Debentures in an aggregate principal amount of $3 million (the
"Debentures") and warrants to purchase shares of Common Stock (the "Warrants").
The stockholders of the Company are being asked to vote to approve the
conversion feature of the Debentures and the exercise feature of the Warrants in
this Proposal 1.
BACKGROUND
Despite an aggressive growth program in which revenues increased
significantly during 1998 and 1999, the Company continued to incur material
operating losses through the end of the third quarter of 1999. By the end of the
third quarter of 1999, the Company had a significant working capital deficit and
existing cash flow from operations had been unable to support the continued
growth of the Company. At the same time, the Company's stock price had dropped
dramatically from a range of $6.00 -$8.00 per share during the first and second
quarters of 1999 to less than $0.75 per share during September 1999. Requiring a
capital infusion to finance a restructuring program and raise working capital
necessary for operations, the Company sought financing from a number of
conventional sources. While those sources were unavailable given the Company's
weakened financial position, the Company was able to secure financing (the
"Financing Transaction") from Lancer, one of its principal stockholders.
OVERVIEW OF THE FINANCING TRANSACTION
The Company sold the Debentures and Warrants for $3 million to Lancer in a
private placement transaction. The completion of the Financing Transaction
occurred concurrently with a change in executive management of the Company
wherein current management assumed their present positions with the Company.
Subject to the stockholders' approval, the principal amount of the
Debentures, together with accrued but unpaid interest thereon, is convertible
into shares of the Company's Common Stock at the conversion rate of $0.30 per
share, or approximately 10,000,000 shares of Common Stock. Of the total Warrants
granted as part of the Units, Warrants to purchase 10,000,000 shares of Common
Stock expired on February 21, 2000. The remaining Warrants expire on February
21, 2004 and, subject to the stockholders' approval, may be exercised for up to
10,000,000 shares of Common Stock at an exercise price of $0.30 per share. The
conversion rate of the Debentures and exercise price of the Warrants is equal to
80% of the closing bid price of the Company's Common Stock on the American Stock
Exchange ("AMEX") on October 8, 1999, the date on which the Company agreed to
sell and Lancer agreed to purchase the Debentures and Warrants. At that time,
the Company was (and continues to be) listed on AMEX. Under applicable AMEX
rules, stockholder approval is required for a listed company to issue common
stock or securities convertible into common stock equal to 20% or more of the
outstanding common stock at a price less than the greater of book and market
value. Since the Debentures and Warrants are below-market securities convertible
into more than 20% of the Company's
3
<PAGE>
outstanding common stock, they cannot be converted or exercised into Common
Stock unless and until the stockholders have approved such features.
As part of the Financing Transaction, the Company agreed to submit the
following matters to the stockholders for their approval:
o the conversion feature of the Debentures into approximately 10,000,000
shares of Common Stock of the Company, as more fully explained in this
Proposal 1;
o the exercise feature of the Warrants to purchase 10,000,000 shares of
Common Stock of the Company, as more fully explained in this Proposal 1;
and
o an amendment to the Company's Certificate of Incorporation eliminating
provisions for a classified board of directors and other anti-takeover
provisions, as more fully explained in Proposals 2 and 3 below.
The principal amount of the Debenture is payable on or before November 22,
2001, with interest payable at the rate of ten percent (10%) per annum on a
quarterly basis commencing December 31, 1999. Absent a sale of the Company, the
Company does not have the right to prepay the Debentures without Lancer's
consent. Interest may be paid in cash, or at the option of Lancer, in shares of
Common Stock priced at $.30 per share ( the "Conversion Price"). At the option
of Lancer, the Debentures are convertible into shares of the Company's Common
Stock at the Conversion Price per share at any time prior to maturity,
commencing once stockholder approval of the conversion feature has been
obtained. However, once stockholder approval of the conversion feature has been
obtained and the shares of Common Stock issuable upon the conversion of the
Debentures may be resold under an effective registration statement filed with
the Securities and Exchange Commission, the Debentures shall automatically
convert into shares of the Company's Common Stock at the Conversion Price. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Pursuant to the terms of the Debentures, the Company must obtain
stockholder approval for the conversion feature of the Debentures and the
exercise feature of the Warrants by May 22, 2000 to avoid an event of default
thereunder. In the event that the stockholders do not approve this Proposal 1,
the interest rate on the outstanding principal balance of the Debentures will
increase from ten percent (10%) to eighteen percent (18%), retroactive to
November 22, 1999. In addition, the entire principal and accrued interest under
the Debentures shall accelerate and become immediately due and payable, with the
default rate of interest in excess of the normal rate payable in equal monthly
installments over the three month period following the event of default. This
would result in a repayment obligation of the $3 million principal amount of the
Debenture, together with interest accrued but unpaid thereon, on May 22, 2000.
The Company does not believe that it will have, nor can there be any assurances
that it will have, the funds available at that time to repay the Debenture in
full. The failure of the stockholders to approve Proposal 1 could therefore have
a material adverse effect on the Company's financial position.
EFFECT OF PROPOSALS
Lancer currently owns approximately 13% of the Company's outstanding Common
Stock. If this Proposal 1 is approved, Lancer will immediately have the ability
to convert the Debentures into approximately 10,000,000 shares of Common Stock
and exercise the Warrants for up to an additional 10,000,000 shares of Common
Stock, which would result in a considerable increase in
4
<PAGE>
the percentage of shares of Common Stock outstanding that are beneficially
owned by Lancer to approximately [69%], as indicated in the following chart:
<TABLE>
<CAPTION>
Ownership Before Shareholder Approval Ownership After Shareholder Approval
-------------------------------------- ------------------------------------------
Shares Owned Percentage of Shares Owned Percentage of
Beneficially and of Outstanding Beneficially and Outstanding
Name and Address Record (1) Shares (2) of Record (1) Shares (2)
- ---------------- -------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C>
Lancer Offshore, Inc. 820,000(3,4) % 14,153,334(3,5) 45.4%
Kaya Flamboyan 9
Curacao, Netherland Antilles
Lancer Partners, LP 470,000(3,6) % 3,803,332(3,7) 12.2%
375 Park Avenue, Suite 2006
New York, NY 10152
Michael Lauer 1,500,000(8) % 21,500,000(9) 69.0%
375 Park Avenue, Suite 2006
New York, NY 10152
The Orbiter Fund, L.P. 0 0% 1,666,666(3,10) 5.3%
Kaya Flamboyan 9
Curacao, Netherland Antilles
</TABLE>
- ---------------------
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations promulgated under the Securities Exchange Act of 1934, and,
accordingly, may include securities owned by or for, among others, the
spouse and/or minor children of an individual and any other relative who
has the same home as such individual, as well as other securities as to
which the individual has or shares voting or investment power or which each
person has the right to acquire within 60 days through the exercise of
options, or otherwise. Beneficial ownership may be disclaimed as to certain
of the securities. This table has been prepared based on [11,169,091]
shares of Common Stock outstanding as of April __, 2000.
(2) Based on 31,169,091 shares of Common Stock outstanding, assuming the
conversion of the Debentures into 10,000,000 shares of Common Stock and the
exercise of Warrants to purchase 10,000,000 shares of Common Stock.
(3) The beneficial ownership of these securities is also attributed to Michael
Lauer. See Footnotes No. 8 and 9.
(4) Includes 820,000 shares of Common Stock. Does not include 6,666,667 shares
of Common Stock issuable upon the exercise of Warrants, or 6,666,667 shares
of Common Stock issuable upon the conversion of Debentures, none of which
will vest until the Company's stockholders approve the exercise of these
Warrants and the conversion of the Debentures.
(5) Includes 820,000 shares of Common Stock, 6,666,667 shares of Common Stock
issuable upon the exercise of Warrants, and 6,666,667 shares of Common
Stock issuable upon the conversion of Debentures.
(6) Includes 470,000 shares of Common Stock. Does not include 1,666,666 shares
of Common Stock issuable upon the exercise of Warrants, or 1,666,666 shares
of Common Stock issuable upon the conversion of Debentures, none of which
will vest until the Company's stockholders approve the exercise of these
Warrants and the conversion of the Debentures.
(7) Includes 470,000 shares of Common Stock, 1,666,666 shares of Common Stock
issuable upon the exercise of Warrants, and 1,666,666 shares of Common
Stock issuable upon the conversion of Debentures.
5
<PAGE>
(8) Includes direct ownership of 40,000 shares and investment control of
1,460,000 shares through Mr. Lauer's role as Managing Member of Lancer
Management Group LLC which is the Manager of Lancer Offshore, Inc. (820,000
shares) and Lancer Voyager Fund (170,000 shares), and Lancer Management
Group, II, which is the Manager of Lancer Partners, L.P. (470,000 shares).
Mr. Lauer acts as Investment Manager of each of these funds. Does not
include the shares of Common Stock issuable upon the conversion of
Debentures and exercise of Warrants that will not vest until the Company's
stockholders approve the conversion and exercise features of those
securities, which instruments will be owned of record either by Michael
Lauer or funds managed by him, as follows: Warrants to purchase an
aggregate 10,000,000 shares (of which 6,666,667 will be in the name of
Lancer Offshore, Inc., 1,666,666 will be in the name of Lancer Partners,
L.P., 833,334 will be in the name of Michael Lauer and 833,333 will be in
the name of Orbiter Fund, Ltd.), or Debentures convertible into 10,000,000
shares (of which 6,666,667 will be in the name of Lancer Offshore, Inc.,
1,666,666 will be in the name of Lancer Partners, L.P., 833,334 will be in
the name of Michael Lauer and 833,333 will be in the name of Orbiter Fund,
Ltd.).
(9) Includes direct ownership of 40,000 shares and investment control of
1,460,000 shares through Mr. Lauer's role as Managing Member of Lancer
Management Group LLC which is the Manager of Lancer Offshore, Inc. (820,000
shares) and Lancer Voyager Fund (170,000 shares), and Lancer Management
Group, II, which is the Manager of Lancer Partners, L.P. (470,000 shares).
Mr. Lauer acts as Investment Manager of each of these funds. Also includes
shares of Common Stock issuable upon the conversion of Debentures and
exercise of Warrants, which instruments will be owned of record either by
Michael Lauer or funds managed by Mr. Lauer, as follows: Warrants to
purchase an aggregate 10,000,000 shares (of which 6,666,667 will be in the
name of Lancer Offshore, Inc., 1,666,666 will be in the name of Lancer
Partners, L.P., 833,334 will be in the name of Michael Lauer and 833,333
will be in the name of Orbiter Fund, Ltd.), or Debentures convertible into
10,000,000 shares (of which 6,666,667 will be in the name of Lancer
Offshore, Inc., 1,666,666 will be in the name of Lancer Partners, L.P.,
833,334 will be in the name of Michael Lauer and 833,333 will be in the
name of Orbiter Fund, Ltd.).
(10) Includes 833,333 shares of Common Stock issuable upon the exercise of
Warrants, and 833,333 shares of Common Stock issuable upon the conversion
of Debentures. Mr. Lauer is the investment manager for The Orbiter Fund,
Ltd.
Furthermore, if this Proposal 1 is approved, the Debentures automatically
convert into shares of Common Stock once the Company registers the resale of the
shares issuable upon conversion of the Debentures with the Securities and
Exchange Commission. If Proposals 2 and 3 are also approved, and assuming that
Lancer converts the Debentures and/or exercises the Warrants, it is likely that
Lancer would have the ability by virtue of its majority ownership position to
elect all of the Company's directors and amend the Company's Certificate of
Incorporation. The conversion of the Debentures and exercise of the Warrants
would result in the number of shares of Common Stock outstanding increasing to
approximately [31,169,091], which would have a significantly dilutive effect on
existing stockholders' equity.
In the event that this Proposal 1 is not approved, the Company will be
contractually obligated to repay the entire $3 million principal amount of the
Debenture, together will all interest accrued thereon at the annual rate of 18%,
retroactive to November 22, 1999. The repayment of at least $3.23 million would
be due during the second quarter of 2000, with approximately an additional
$216,000 due during the third quarter. However, in the event that the Company
does not have funds available to make these payments, it will continue to incur
interest obligations at the rate of 18% of principal balance outstanding. The
Company does not believe that it will have sufficient funds available to timely
repay the Debentures in the event that the stockholders do not approve Proposal
1. Accordingly, the failure of the stockholders to approve this Proposal 1 could
have a material adverse effect on the Company's financial condition.
In considering Proposal 1, stockholders should consider and review the
discussion in "PROPOSAL 2-AMENDMENT TO THE COMPANY'S CERTIFICATE OF
6
<PAGE>
INCORPORATION TO ELIMINATE THE CLASSIFIED BOARD OF DIRECTORS-Possible
Anti-Takeover Effects of the Proposal."
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the holders of the Common Stock
present, in person or by proxy, at the Meeting is required for the approval of
the conversion feature of the Debentures and the exercise feature of the
Warrants. An abstention or failure to vote on this Proposal is not an
affirmative vote, and therefore will have the same effect as a negative vote on
this proposal at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
CONVERSION FEATURE OF THE DEBENTURES AND THE EXERCISE FEATURE
OF THE WARRANTS
7
<PAGE>
PROPOSAL 2
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
TO ELIMINATE THE CLASSIFIED BOARD OF DIRECTORS
The Board of Directors has unanimously approved and recommends that the
stockholders adopt a resolution amending the Certificate to eliminate staggered
terms of office for the Board of Directors (the "Classified Board"). At the
Meeting, stockholders will consider and vote on this proposed amendment. The
text of the proposed amendment is attached to this Proxy Statement as Exhibit A.
The statements made in this Proxy Statement with respect to this amendment to
the Certificate should be read in conjunction with and are qualified in their
entirety by reference to Exhibit A. In the event that this proposal is approved,
the Board of Directors will consider conforming amendments to the Bylaws at the
meeting of the Board of Directors which is expected to follow shortly after the
Meeting.
DESCRIPTION OF PROPOSED AMENDMENT
This Proposal would amend Article Seventh of the Certificate to eliminate
the Classified Board. Article Seventh currently divides the Board of Directors
into three separate classes of directors, as nearly equal in number as possible,
each serving a staggered three year term and until their successors are duly
elected and qualified, with each class being elected at different annual
stockholder meetings. Following the effectiveness of the Proposal, the Board
will not be classified and its members would not serve staggered terms. Instead,
all directors would serve a one-year term and until their successors are duly
elected and qualified, and all directors would be elected at every annual
stockholder meeting. See "PROPOSAL 4 - ELECTION OF DIRECTORS." At present, the
size of the Board of Directors may be fixed solely by action of the Board of
Directors. This Proposal also provides for the ability of the stockholders to
remove any director from office with or without cause by the affirmative vote of
the holders of the majority of the voting power of the then outstanding shares
of stock entitled to vote generally in the election of directors. At present,
directors may be removed only for cause and only by the affirmative vote of
two-thirds of the stockholders entitled to vote thereon.
REASONS FOR PROPOSAL
The Board of Directors believes that the elimination of the Classified
Board will allow stockholders to express their views annually and eradicate
obstacles to removing directors that are not, in the stockholders' opinion,
managing the Company in their best interests. This will promote effective
management oversight and management's attention to and representation of
stockholders' interests. The Board of Directors believes that Proposal 2 also
takes away management's ability to perpetuate itself in control of the Company
without the support of the stockholders owning a majority of the Company's
stock.
In addition, the Proposal could discourage a potential purchaser of the
Company from influencing the Board of Directors by offering terms acceptable to
it, such as the continuation of the existing management of the Company or a
commitment by the purchaser to provide benefits (such as employment contracts)
not available to stockholders generally.
POSSIBLE ANTI-TAKEOVER EFFECTS OF THE PROPOSAL
The Company adopted the Classified Board to promote continuity and
stability in management and policies by making the Company less vulnerable to
attempted takeovers. A
8
<PAGE>
classified board extends the time required for a change in control of the
board and tends to discourage hostile takeovers because, assuming that each
class of directors is equal in size, a majority stockholder could not obtain
control of the Board of Directors until the second annual stockholders' meeting
after acquiring a majority of the voting stock. While this Proposal may have the
effect of making the Company more vulnerable to hostile takeovers, the Board of
Directors believes that such a risk is mitigated to some extent by anti-takeover
protections of Delaware law, as discussed more fully below. However, in the
event that Proposal 1 (approving the conversion and exercise features of the
Derivative Securities of the Company owned by Lancer) is approved, Lancer could
obtain control of the Company's management and policies by converting its
Debentures and exercising its Warrants to obtain approximately 69% of the voting
power of the Company's common stock. If Proposals 1 and 2 are approved, Lancer
would have the ability to remove directors without cause and elect all of the
Company's directors, who are charged with appointing officers and managing the
Company.
ANTI-TAKEOVER PROVISIONS OF THE DGCL
While the elimination of the Classified Board make render the Company more
vulnerable to takeover tactics, Delaware law does contain provisions designed to
strengthen the position of incumbent management in connection with a takeover
attempt. For example, Delaware law provides that a company has the general
power, exercisable by its board of directors, to accept, reject, respond to or
take no action in respect of an actual or proposed acquisition, divestiture,
tender offer, takeover or other fundamental change. The case law of Delaware has
developed special standards for deciding whether to uphold or advocate the
actions of incumbent management in the context of takeover proposals.
The Company is also subject to Section 203 of the DGCL, which provides that
a person who acquires fifteen percent (15%) or more of the outstanding voting
stock of a Delaware corporation becomes an "interested stockholder." Section 203
prohibits a corporation from engaging in mergers or certain other "business
combinations" with an interested stockholder for a period of three (3) years,
unless (i) prior to the date the stockholder becomes an interested stockholder,
the board of directors approves either the business combination or the
transaction which results in the stockholder becoming an interested stockholder,
or (ii) the interested stockholder is able to acquire ownership of at least
eight-five percent (85%) of the outstanding voting stock of the corporation
(excluding shares owned by directors of the corporation who are also officers
and shares owned by certain employee stock plans) in the same transaction by
which the stockholder became an interested stockholder, or (iii) the interested
stockholder obtains control of the board of directors, which then approves a
business combination which is authorized by a vote of the holders of two-thirds
of the outstanding voting stock not held by the interested stockholder.
The definition of interested stockholder does not include persons whose
ownership of voting stock exceeds the fifteen percent (15%) threshold as a
result of action taken by the corporation unless that person thereafter acquires
additional stock.
A "business combination" is defined broadly in the DGCL to include any
merger or consolidation with the interested stockholder, any merger or
consolidation caused by the interested stockholder in which the surviving
corporation will not be subject to Delaware law, or the sale, lease, exchange,
mortgage, pledge, transfer or other disposition to the interested stockholder of
any assets of the corporation having a market value equal to or greater than ten
percent (10%) of the aggregate market value of the assets of the corporation.
"Business
9
<PAGE>
combination" is also defined to include transfers of stock of the corporation
or a subsidiary to the interested stockholder (except for transfers in
conversion, exchange or pro rata distribution which do not increase the
interested stockholder's proportionate ownership of a class or series), or any
receipt by the interested stockholder (except proportionately as a stockholder)
of any loans, advances, guaranties, pledges or financial benefits.
Lancer is not subject to the provisions of Section 203 of the DGCL because
the Financing Transaction was approved by the Board of Directors. In the event
that the stockholders approve Proposal 1 (approving the conversion and exercise
features of the Derivative Securities of the Company owned by Lancer), Lancer
would not be restricted under Section 203 from engaging in a business
combination with the Company.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of at least the majority of the outstanding shares of
Common Stock is required in order to approve this Proposal 2. An abstention or
failure to vote on this proposal is not an affirmative vote, and therefore will
have the same effect as a negative vote on this proposal at the Meeting. If
approved, this Proposal 2 will become effective upon the filing of a Certificate
of Amendment to the Certificate with the Secretary of State of Delaware which is
expected to follow shortly after the approval of this Proposal 2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELIMINATION
OF THE CLASSIFICATION OF THE BOARD OF DIRECTORS
10
<PAGE>
PROPOSAL 3
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
TO ELIMINATE SUPERMAJORITY VOTING REQUIREMENTS FOR
STOCKHOLDERS TO AMEND THE CERTIFICATE OF INCORPORATION
The Board of Directors has unanimously approved and recommends that the
stockholders adopt a resolution amending the Certificate to permit the
stockholders to amend the Certificate by the affirmative vote of the holders of
the majority of the outstanding voting stock. Currently, the Certificate
requires the affirmative vote of two-thirds of the outstanding voting stock to
approve amendments to the Certificate unless the proposed amendment has been
approved by the affirmative vote of at least eighty percent of the Board of
Directors, in which case the affirmative vote of the holders of the majority of
the outstanding voting stock is required. At the Meeting, stockholders will
consider and vote on this proposed amendment. The text of the proposed amendment
is attached to this Proxy Statement as Exhibit B. The statements made in this
Proxy Statement with respect to this amendment to the Certificate should be read
in conjunction with and are qualified in their entirety by reference to Exhibit
B. In the event that this proposal is approved, the Board of Directors will
consider conforming amendments to the Bylaws at the meeting of the Board of
Directors which is expected to follow shortly after the Meeting.
This Proposal may have the effect of making it less difficult for
stockholders to change the number of directors of the Company and to remove the
existing management of the Company; consequently, it may encourage potentially
unfriendly bids for stock of the Company. This Proposal 3 will also make it less
difficult for a stockholder to defuse the Company's takeover defenses that
require amending the Certificate. For example, if this Proposal 3 is adopted,
stockholders could block attempts by the Board of Directors to amend the
Certificate to adopt measures to discourage anti-takeover attempts. For these
reasons, the Board of Directors believes that this Proposal may expose the
Company to takeovers. In considering Proposal 3, stockholders should consider
and review the discussion in "PROPOSAL 2-AMENDMENT TO THE COMPANY'S CERTIFICATE
OF INCORPORATION TO ELIMINATE THE CLASSIFIED BOARD OF DIRECTORS-Possible
Anti-Takeover Effects of the Proposal."
VOTE REQUIRED FOR APPROVAL
The affirmative vote of at least the majority of the outstanding shares of
Common Stock is required in order to approve this Proposal 3. An abstention or
failure to vote on this Proposal is not an affirmative vote, and therefore will
have the same effect as a negative vote on this proposal at the Meeting. If
approved, this Proposal 3 will become effective upon the filing of a Certificate
of Amendment to the Certificate with the Secretary of State of Delaware which is
expected to follow shortly after the approval of this Proposal 3.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELIMINATION
OF SUPERMAJORITY VOTING REQUIREMENTS FOR STOCKHOLDERS TO AMEND
THE CERTIFICATE OF INCORPORATION
11
<PAGE>
PROPOSAL 4
ELECTION OF DIRECTORS
NOMINEES FOR CONSIDERATION AT THE MEETING
The Certificate and Bylaws currently provide for a classified Board of
Directors divided into three classes, each nearly equal in number as possible.
The Board of Directors, in its sole discretion, by majority vote, may increase
or decrease the number of members of the Board. Currently, the Board consists of
three (3) directors, with Phil Carter, Gerald Harrington and George Knight
currently serving in classes with terms expiring at the 2002, 2001 and 2000
Annual Meetings, respectively, or until their successors are duly elected and
qualified. The Board has unanimously adopted a resolution to increase the number
of directors on the Board to four (4), commencing immediately after this
Meeting. The new directorship shall have a term expiring at the 2003 Annual
Meeting in the event that Proposal 2 to eliminate the Classified Board is not
adopted at this Meeting; however, in the event that Proposal 2 is adopted, the
new directorship shall have a term expiring at the next annual meeting.
Vacancies in the Board of Directors may be filled by the Board of Directors and
any director chosen to fill a vacancy shall hold office for the full term of the
class of directors in which the new directorship was created if Proposal 2 is
not adopted or until the next annual meeting of stockholders if Proposal 2 is
adopted or, in each case, until his successor is duly elected and qualified.
Unless otherwise specified, each properly executed proxy received will be
voted for the election of the nominees named below to serve as directors until
the end of their respective terms or until their successors are elected and
qualified. The Company is not aware of any reason that any nominee will be
unable to serve or will decline to serve as a director. In the event that any
nominee is unable to serve or will not serve as a director, it is intended that
the proxies solicited hereby will be voted for such other person or persons as
shall be nominated by management.
In the event that Proposal 2 to eliminate the Classified Board is not
adopted at this Meeting, the stockholders will be asked elect George Knight and
Edward B. Stead at this Meeting for a term expiring at the 2003 Annual Meeting.
Directors Whose Terms Year in Which
Expire at the 2000 Services as a
Annual Meeting Principal Occupation Director Began
- --------------------------------------------------------------------------------
George Knight, 58 Retired 1999
Edward B. Stead, 52 Executive Vice President and -
General Counsel of
Blockbuster, Inc.
- --------------------------------------------------------------------------------
In the event that Proposal 2 is adopted, the stockholders will be asked to
elect the four persons nominated by the Board of Directors and listed below to
serve as directors for a term of one year term and until their successors are
duly elected and qualified:
12
<PAGE>
Phil Carter
Mr. Carter, age 54, has served as Chairman and Chief Executive Officer
since November 1999. He has also held the following positions at the Company:
interim Chief Executive Officer (October 8, 1999 to November 22, 1999); director
and Chief Operating Officer (January 5, 1999 to September 2, 1999); and
Executive Vice President and General Manager of Operations (July 1, 1998 to
January 4, 1999). From 1994 until 1998, Mr. Carter owned and operated a
privately held real estate sales and development company. From 1986 to 1993, Mr.
Carter was President, Chief Operating Officer, and a member of the Board of
Directors of Acxiom Corporation, an international database management and direct
marketing company. Prior to 1986, Mr. Carter held numerous senior management and
executive positions with IBM, including Branch Manager, Regional Manager, and
Director of IBM's Value Added Reseller Channel. He is a graduate of the
University of Central Arkansas with a Bachelor of Science degree in Math.
George Knight
Mr. Knight, age 58, became a member of the Board of Directors during
November 1999. He had previously served as a director from November 1998 to
September 1999. Mr. Knight retired from IBM in 1995 after A 29 year career in
sales and management. Most recently, Mr. Knight was the owner of a insurance
agency that was sold in 1997. Mr. Knight also serves as an independent
contractor and consultant, having performed work for companies such as IBM,
Acxiom, Inc. and Dillards Department Stores. He is a graduate of the University
of Arkansas with a degree in Civil Engineering.
Gerald T. Harrington
Mr. Harrington, age 41, became a director on November 22, 1999. Since
February 1999, Mr. Harrington has served as a Managing Director of Capitol City
Group, LLC, a Washington, D.C. and Providence, Rhode Island-based government
relations firm. Mr. Harrington is also an attorney with the firm of Nadeau &
Simmons, P.C. in Providence, Rhode Island, where he has concentrated his
practice in municipal finance since February 1999. From 1992 to February 1999,
Mr. Harrington was a partner in the law firm of McGovern Noel & Benik,
Incorporated, where his practice focused on governmental relations and financial
transactions. Mr. Harrington received a Bachelors of Arts degree from Yale
University in 1981 and a Juris Doctor degree from the University of Pennsylvania
in 1985.
Edward B. Stead
Mr. Stead, age 52, has served as executive vice president and general
counsel of Blockbuster, Inc. since 1997, and as Blockbuster's secretary since
1999. From 1988 until 1996, Mr. Stead served in various capacities with Apple
Computer, Inc., including vice president and general counsel from 1989 until
1995, vice president, general counsel and secretary from 1993 until 1995, and
senior vice president, general counsel and secretary from 1995 to 1996. Prior to
joining Apple, Mr. Stead served as senior vice president, general counsel and
secretary of Cullinet Software, Inc. Mr. Stead also served as a member of the
legal advisory board of the National Association of Securities Dealers from 1993
until 1997 and has been a member of the American Law Institute since 1996.
13
<PAGE>
BOARD MEETINGS
During the year ended December 31, 1999, the Board of Directors met twice
and all of the directors were present at the meetings. Additionally, the Board
of Directors took action by unanimous written consent 13 times.
During the year ended December 31, 1999, the Company had an Audit Committee
and a Compensation Committee of the Board of Directors. The Audit Committee is
responsible for reviewing the Company's financial and accounting practices and
controls and making recommendations concerning the engagement of its independent
auditors. The Compensation Committee is responsible for determining the
compensation of the officers and employees of the Company and administering the
Company's stock option plans. The Audit Committee and the Compensation Committee
consists of Messrs. Knight, Harrington and Carter. The Company has no nominating
committee.
DIRECTOR'S COMPENSATION
Currently, the Company has no policy with respect to the granting of fees
to directors in connection with their service to the Company. However, the
Company may reimburse directors for their cost of travel and lodging to attend
meetings of the Board of Directors or committees thereof. In connection with
their services as directors of the Company, on November 23, 1999, the Company
granted each of George Knight and Gerald Harrington three-year options to
purchase 25,000 shares of Common Stock of the Company at an exercise price of
$1.50 per share.
14
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid or
accrued for the fiscal years ended December 31, 1999, 1998 and 1997 by the
Company to or for the benefit of the named executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------------------
AWARDS PAYOUTS
----------------------------- -----------
ANNUAL COMPENSATION RESTRICTED
NAME AND PRINCIPAL ----------------------------------- STOCK OPTIONS/ ALL OTHER
POSITION YEAR SALARY BONUS AWARD(S)($) SARS(#) COMPENSATION
- ------------------ ---- ------ ----- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
PHIL CARTER 1999 $146,950(1) 12,500 -0- 700,000(2) $ 6,321(3)
Chairman of the Board and 1998 $ 75,000(4) -0- -0- 510,000(5) -0-
Chief Executive Officer; 1997 N/A N/A N/A N/A N/A
Former Chief Operating
Officer
GLENN M. FORD 1999 -0-(6) -0- -0- 0 $35,926(7)
Interim Chief Financial 1998 N/A N/A N/A N/A N/A
Officer 1997 N/A N/A N/A N/A N/A
JACK R. LEADBEATER 1999 $188,125(8) -0- -0- 116,943(9) $ 8,868(10)
Former Chairman of the Board 1998 $200,000 $ 70,000 -0- 664,000(11) $26,295(12)
and Chief Executive Officer 1997 $ 89,967 $261,463 -0- 19,057(13) -0-
DAVID S. OLSON 1999 $188,125(14) -0- -0- -0- $ 2,910(15)
Former Director, President 1998 $200,000 $ 70,000 -0- 664,000(11) $18,052(16)
and Chief Operating Officer 1997 $ 89,967 $261,463 -0- 19,057(13) -0-
JOHN IORILLO 1999 $ 83,125(17) -0- -0- 0 $1,839 (18)
Former Director and Chief 1998 $ 87,500(19) $ 77,500 -0- 150,000(20) $2,586(21)
Financial Officer 1997 N/A N/A N/A N/A -0-
MICHAEL G. GLYNN 1999 N/A N/A N/A N/A N/A
Former Director and 1998 $200,000(22) -0- -0- -0- $13,200(23)
Executive Vice President 1997 -0- -0- 100,000(24) 100,000(25) -0-
</TABLE>
- ----------------------------
(1) Reflects Mr. Carter's compensation as Chief Operating Officer from January
1, 1999 through September 2, 1999 based on an annual salary of $150,000,
together with his compensation as interim Chief Executive Officer from
October 8, 1999 to November 1999 based on an annual salary of $175,000, and
as Chief Executive Officer from November 29, 1999 through December 31, 1999
based on an annual salary of $195,000.
(2) Reflects options to purchase 700,000 shares of Common Stock granted in
conjunction with the commencement of employment as Chief Executive Officer
in November 1999. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
(3) Includes $6,321 for costs of maintaining a condominium in Phoenix, Arizona.
(4) Reflects Mr. Carter's compensation during the six month period commencing
July 1, 1998, the date on which Mr. Carter was initially employed by the
Company, based on an annual salary of $150,000.
(5) Reflects options to purchase 510,000 shares of Common Stock granted in
conjunction with the commencement of initial employment in 1998, of which
options to purchase 360,000 shares of Common Stock were forfeited by virtue
of Mr. Carter's resignation as Chief Operating Officer on September 2,
1999. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
(6) The Company has retained Mr. Ford as a professional consultant through his
company, Lauren Management Company.
(7) Includes $25,780 in consulting fees paid to Mr. Ford's company, Lauren
Management Company, for professional services rendered from October 20,
1999 through December 31, 1999, based on an annual rate of $129,600. Also
includes $10,146 in housing and travel expenses.
(8) Reflects Mr. Leadbeater's compensation as Chief Executive Officer from
January 1, 1999 to November 22, 1999, the date of his resignation, based on
an annual salary of $210,000.
(9) Reflects options to purchase 116,943 shares of Common Stock granted on
August 25, 1999. All of these options were
15
<PAGE>
forfeited upon Mr. Leadbeater's resignation as an officer on November 22,
1999.
(10) Includes $21,875 in severance benefits in the form of salary continuation
from November 22, 1999, the date of Mr. Leadbeater's resignation as an
officer of the Company, through December 31, 1999, based on $210,000 per
year. Pursuant the terms of his settlement agreement with the Company, Mr.
Leadbeater is entitled to receive severance payments in the form of salary
continuation at the annual rate of $210,000 from November 22, 1999 through
December 22, 2000. Also includes $8,368 in interest income from a loan made
to the Company in 1998, and $500 in premium payments for a life insurance
policy. With respect to the loan, see "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
(11) Reflects options to purchase 664,000 shares of Common Stock ("New Options")
granted in exchange for the surrender of options to purchase 332,000 shares
of Common Stock ("Merger Options") previously granted on December 22, 1997
as part of the December 22, 1997 merger between the Company and Osage
Computer Group, Inc. (the "Merger "). All of the New Options were forfeited
on November 22, 1999.
(12) Includes $12,795 in interest income from a loan made to the Company in
1998, and $13,500 in car payments. With respect to the loan, see "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
(13) Reflects options to purchase 19,057 shares of Common Stock granted
immediately following the Merger. All of these options were forfeited on
November 22, 1999.
(14) Reflects Mr. Olson's compensation as President from January 1, 1999 to
November 22, 1999, the date of his resignation, based on an annual salary
of $210,000.
(15) Includes $21,875 in severance benefits in the form of salary continuation
from November 22, 1999, the date of his resignation as an officer of the
Company, through December 31, 1999, based on $210,000 per year. Pursuant
the terms of his settlement agreement with the Company, Mr. Olson is
entitled to receive severance payments in the form of salary continuation
at the annual rate of $210,000 from November 22, 1999 through December 22,
2000. Also includes $2,410 in interest income from a loan made to the
Company in 1998, and $500 in premium payments for a life insurance policy.
With respect to the loan, see "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
(16) Includes $4,552 in interest income from a loan made to the Company in 1998,
and $13,500 in car payments. With respect to the loan, see "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
(17) Reflects Mr. Iorillo's compensation as Chief Financial Officer from January
1, 1999 to October 15, 1999, the date of his resignation, based on an
annual salary of $105,000.
(18) Includes $21,875 in severance benefits in the form of salary continuation
from October 15, 1999, the date of his resignation as an officer of the
Company, through December 31, 1999, based on $105,000 per year. Pursuant
the terms of his settlement agreement with the Company, Mr. Iorillo is
entitled to receive severance payments in the form of salary continuation
at the annual rate of $105,000 from October 16, 1999 through March 31,
2000. Also includes $15,000 in accrued but unpaid wages, $1,339 in interest
income from a loan made to the Company in 1998, and $500 in premium
payments for a life insurance policy. With respect to the loan, see
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
(19) Reflects Mr. Iorillo's compensation during 1998 commencing February 16,
1998, the date on which Mr. Iorillo was employed by the Company, based on
an annual salary of $100,000.
(20) Includes options to purchase 100,000 shares of Common Stock granted in
conjunction with the commencement of employment. Also includes options to
purchase 50,000 shares of Common Stock granted during June 1998. All
150,000 of these options were forfeited on October 15, 1999.
(21) Includes $2,396 in interest income from a loan made to the Company in 1998,
and $190 in premium payments for a life insurance policy. With respect to
the loan, see "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
(22) Mr. Glynn is a former director and officer of the Company.
(23) Represents $13,200 in car payments.
(24) Includes 100,000 shares of Common Stock granted to Mr. Glynn in conjunction
with his employment.
(25) Pursuant to the terms of his employment agreement, Mr. Glynn was granted
options to purchase 100,000 shares of Common Stock; however, these options
did not vest due to the Company's failure to achieve certain performance
criteria and have since expired.
EMPLOYMENT ARRANGEMENTS
The Company has an employment agreement with Phil Carter, Chief Executive
Officer, with an initial two-year term commencing November 29, 1999. Mr.
Carter's annual salary is $195,000, plus a performance-based bonus of up to
$292,500 per year. In addition, in the event that the Company is sold to a third
party during the term of his employment agreement at a price in excess of
$40,000,000 when the Company's Common Stock is trading at $1.00 per share or
more, Mr. Carter is entitled to receive a bonus equal to 1% of the acquisition
price, provided, however, that such bonus shall not exceed $7,000,000 for a sale
in 2000 and $10,000,000 for a sale in 2001. Mr. Carter's employment agreement
contains covenants not to solicit the Company's employees, customers or
suppliers for the twelve-month period following the
16
<PAGE>
termination of his employment with the Company. In conjunction with his
employment as Chief Executive Officer of the Company, Mr. Carter was granted
options to purchase 700,000 shares of Common Stock of the Company. See "SUMMARY
COMPENSATION TABLE." Mr. Carter is entitled to receive his base salary through
November 23, 2001 and an additional twelve months' salary as severance pay in
the event that his employment is terminated prior to November 29, 2001.
SEVERANCE ARRANGEMENTS
On November 22, 1999, Jack Leadbeater resigned as Chief Executive Officer
and David S. Olson resigned as President of the Company. In addition, John
Iorillo resigned as Chief Financial Officer of the Company effective as of
October 15, 1999. In conjunction with their resignations, each of Messrs.
Leadbeater, Olson and Iorillo entered into severance agreements with the
Company. Each of the severance arrangements with Messrs. Leadbeater, Olson and
Iorillo provides for the termination of their respective employment agreements
and the termination benefits agreements with the Company. Each agreement further
provides for: (i) severance benefits in the form of salary continuation at
$17,500 per month for Messrs. Leadbeater and Olson commencing on November 22,
1999 until December 22, 2000, and $8,750 per month for Mr. Iorillo, commencing
October 18, 1999 until March 31, 2000; (ii) reimbursement of reasonable business
expenses through their respective resignation dates; and (iii) repayment of
certain outstanding loans extended to the Company in the amount of $83,488.44 to
Mr. Leadbeater, $7,748.36 to Mr. Olson and $10,000 (plus accrued interest) to
Mr. Iorillo, payable upon the terms set forth in their respective agreements.
Mr. Iorillo also received accrued wages in the amount of $15,000 pursuant to the
terms of his severance agreement. The Company also agreed to provide directors
and officers insurance coverage for Messrs. Leadbeater, Olson and Iorillo for a
period of one year commencing November 22, 1999, provided such insurance can be
obtained at commercially reasonable rates. Messrs. Leadbeater, Olson and Iorillo
also surrendered and forfeited all rights to all stock options they held. The
agreements of Messrs. Leadbeater and Olson contain covenants not to compete for
a three month period commencing November 22, 1999 and covenants not to solicit
the Company's employees or customers until after December 22, 2000, for which
the Company made lump-sum payments on November 22, 1999 to Mr. Leadbeater and
Mr. Olson of $159,360 and $153,360, respectively. The severance agreements also
contain mutual releases of the Company and each of Messrs. Leadbeater, Olson and
Iorillo.
STOCK OPTIONS
1993 Stock Option Plan
The Company's Amended and Restated 1993 Stock Option Plan, as amended (the
"1993 Option Plan"), covers 5,000,000 shares of the Company's Common Stock.
Under its terms, officers, directors, key employees and consultants of the
Company are eligible to receive incentive stock options within the meaning of
Section 422 of the Internal Revenue Code, as well as non-qualified stock
options. The 1993 Option Plan is administered by the Board of Directors or a
committee designated by the Board of Directors. Incentive stock options, as well
as non-qualified stock options, granted under the 1993 Option Plan are
exercisable for a period of up to 10 years from the date of grant and at an
exercise price that is not less than the fair market value of the Common Stock
on the date of the grant. The term of an incentive stock option granted under
the 1993 Option Plan to a stockholder owning more than 10% of the outstanding
Common Stock may not exceed five years and the exercise price of an incentive
stock option granted to such stockholder may not be less than 110% of the fair
market value of the Common Stock on
17
<PAGE>
the date of the grant. As of April __, 2000, options to purchase [3,753,379]
shares of the Company's Common Stock were outstanding under the 1993 Option
Plan.
1999 Employee Stock Purchase Plan
In June 1999, the stockholders approved the adoption of the Company's 1999
Employee Stock Purchase Plan (the "1999 Plan"). The 1999 Plan covers 1,000,000
shares of the Company's Common Stock. Under its terms, employees, including
officers and directors of the Company, are eligible to purchase shares of the
Company's Common Stock, up to 10% of the participant's compensation (not to
exceed $25,000 in fair market value) in any given year, through accumulated
payroll deductions. Purchases may be made four times per year at a price equal
to the lesser of (i) 85% of the closing price of the Company's Common Stock
reported on the American Stock Exchange ("AMEX") on the first business day of
the offering period and (ii) 85% of the closing price of the Company's Common
Stock reported on AMEX on the last business day of the offering period. As of
April __, 2000, [101,749] shares of the Company's Common Stock have been
purchased by participants in the 1999 Plan.
Surrender of Options
In connection with their severance arrangements, Messrs. Leadbeater and
Olson surrendered and forfeited all of their respective options on November 22,
1999, and John Iorillo surrendered and forfeited all of his options on October
15, 1999. In connection with his previous resignation from the Company during
the third quarter of 1999, Mr. Carter forfeited 360,000 of the options granted
to him in 1998.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
-------------------------------------
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or
Option/SARs Employees in Base Price Expiration
Name Granted(#) Fiscal Year ($/Sh) Date
- ---- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
Phil Carter 700,000 23.8% $ 1.50 November 29, 2002
Jack R. Leadbeater 116,943(1) 4.0% $1.4375 August 25, 2009
</TABLE>
- ------------------------
(1) By virtue of Mr. Leadbeater's resignation as a officer of the Company, all
of these options were forfeited on November 22, 1999.
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs In-the-Money
at FY-End (#) Options/SARs at
Shares Shares FY-End ($)
Acquired on Value Realized Exercisable/ Exercisable/
Name Exercise(#) ($) Unexercisable Unexercisable (1)
- ---- ----------- -------------- ------------- -----------------
<S> <C> <C> <C> <C>
Phil Carter (2) -0- -0- (E)450,000/400,000(U) (E)$0/(U)$0
Jack R. Leadbeater (3) -0- -0- (E)0/(U)0 (E)$0/(U)$0
</TABLE>
18
<PAGE>
- ------------------------
(1) Based upon $1.3125, the high bid price (per share) of the Company's Common
Stock on the last reported trading date during the year ended December 31,
1999 as reported on the American Stock Exchange.
(2) Pursuant to the terms of his employment agreement dated as of November 29,
1999, Mr. Carter was granted options to purchase 700,000 shares of Common
Stock (the "1999 Options"). The 1999 Options have a term of three years
commencing in November 1999 and an exercise price of $1.50 per share.
Subject to accelerated vesting provisions in the event of a change in
control of the Company or termination of Mr. Carter's employment for any
reason, the 1999 Options vest as follows: (i) 300,000 vest on November 29,
1999, the date of grant; (ii) 200,000 vest on November 29, 2000; and (iii)
200,000 vest on November 29, 2001. Pursuant to the terms of his employment
agreement dated as of July 1, 1998, Mr. Carter was granted options to
purchase 510,000 shares of Common Stock, of which 360,000 were forfeited
upon Mr. Carter's resignation as Chief Operating Officer in September 1999.
The remaining 150,000 options (the "1998 Options") expire on June 30, 2003
and an exercise price of $4.50 per share. All of the 1998 Options vested on
December 31, 1998.
(3) Mr. Leadbeater forfeited all of his options to purchase shares of Common
Stock on November 22, 1999, the date of his resignation as an officer and
director of the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April __, 2000, information with
respect to the securities holdings of all persons which the Company, pursuant to
filings with the Securities and Exchange Commission, has reason to believe may
be deemed the beneficial owners of more than five percent (5%) of the Company's
outstanding Common Stock. Also set forth in the table is the beneficial
ownership of all shares of the Company's outstanding stock, as of such date, of
all officers and directors, individually and as a group.
<TABLE>
<CAPTION>
Shares Owned Percentage of
Beneficially and Outstanding
Name and Address of Record (1) Shares
- ---------------- ----------------- --------------
<S> <C> <C>
Phil Carter (2)............................................................. 453,200(3) 3.9%
1661 East Camelback Road, Suite 245
Phoenix, AZ 85016
Glenn M. Ford (2)........................................................... 0 0%
1661 East Camelback Road, Suite 245
Phoenix, AZ 85016
Gerald T. Harrington........................................................ 0(4) 0%
80 Hazael Street
Providence, RI 02908
George Knight............................................................... 3,000(5) *
1706 Alton Drive
Fayetteville, AR 72701
Lancer Offshore, Inc........................................................ 820,000(6) 7.3%
Kaya Flamboyan 9
Curacao, Netherland Antilles
Lancer Partners, LP......................................................... 470,000(7) 4.2%
375 Park Avenue, Suite 2006
New York, NY 10152
Michael Lauer............................................................... 1,500,000(8) 13.4%
375 Park Avenue, Suite 2006
New York, NY 10152
All Directors and Officers as a group (4 persons)........................... 456,200 3.9%
</TABLE>
19
<PAGE>
- ---------------------
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations promulgated under the Securities Exchange Act of 1934, and,
accordingly, may include securities owned by or for, among others, the
spouse and/or minor children of an individual and any other relative who
has the same home as such individual, as well as, other securities as to
which the individual has or shares voting or investment power or which each
person has the right to acquire within 60 days through the exercise of
options or otherwise. Beneficial ownership may be disclaimed as to certain
of the securities. This table has been prepared based on [11,169,091]
shares of Common Stock outstanding as of April __, 2000.
(2) Mr. Carter and Mr. Ford are brothers-in-law.
(3) Includes 3,200 shares of Common Stock, and 450,000 shares issuable upon the
exercise of vested options. Does not include options to purchase 400,000
shares of Common Stock which have not vested.
(4) Does not include options to purchase 25,000 shares of Common Stock which
have not vested.
(5) Includes 3,000 shares of Common Stock. Does not include options to purchase
25,000 shares of Common Stock which have not vested.
(6) Includes 820,000 shares of Common Stock. Does not include 6,666,667 shares
of Common Stock issuable upon the exercise of Warrants, or 6,666,667 shares
of Common Stock issuable upon the conversion of Debentures, none of which
vest until the Company's stockholders approve the exercise of these
Warrants and the conversion of the Debentures.
(7) Includes 470,000 shares of Common Stock. Does not include 1,666,666 shares
of Common Stock issuable upon the exercise of Warrants, or 1,666,666 shares
of Common Stock issuable upon the conversion of Debentures, none of which
vest until the Company's stockholders approve the exercise of these
Warrants and the conversion of the Debentures.
(8) Includes direct ownership of 40,000 shares and investment control of
1,460,000 shares through Mr. Lauer's role as Managing Member of Lancer
Management Group LLC, which is the Manager of Lancer Offshore, Inc.
(820,000 shares) and Lancer Voyager Fund (170,000 shares), and Lancer
Management Group, II, which is the Manager of Lancer Partners, L.P.
(470,000 shares). Mr. Lauer acts as Investment Manager of each of these
funds. Does not include the shares of Common Stock issuable upon the
conversion of Debentures and exercise of Warrants that will not vest until
the Company's stockholders approve the conversion and exercise features of
the Debentures and Warrants, which instruments are owned of record either
by Michael Lauer or funds managed by Mr. Lauer, as follows: Warrants to
purchase an aggregate 10,000,000 shares (of which 6,666,667 are in the name
of Lancer Offshore, Inc., 1,666,666 are in the name of Lancer Partners,
L.P., 833,334 are in the name of Michael Lauer and 833,333 are in the name
of Orbiter Fund, Ltd.), and Debentures convertible into 10,000,000 shares
(of which 6,666,667 are in the name of Lancer Offshore, Inc., 1,666,666 are
in the name of Lancer Partners, L.P., 833,334 are in the name of Michael
Lauer and 833,333 are in the name of Orbiter Fund, Ltd.).
(*) Less than 1%.
- -----------------------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FINANCING TRANSACTION WITH LANCER
On November 22, 1999, the Company sold Lancer, a principal stockholder, $3
million principal amount 10% Convertible Subordinated Debentures (the
"Debentures") and common stock purchase warrants for a total purchase price of
$3 million in a private placement transaction exempt from registration pursuant
to Section 4(2) and Regulation D of the Securities Act of 1933, as amended. The
principal amount of the Debentures is payable on November 22, 2001 with interest
payable at the rate of ten percent (10%) per annum on a quarterly basis
commencing
20
<PAGE>
December 31, 1999. Interest may be paid in cash, or at the option of
Lancer, in shares of Common Stock priced at the "Conversion Price" of the
Debentures. At the option of Lancer, the Debentures are convertible into shares
of the Company's Common Stock at the Conversion Price per share at any time
prior to maturity, commencing once stockholder approval of the conversion
feature has been obtained. However, once stockholder approval of the conversion
feature has been obtained and the shares of Common Stock issuable upon the
conversion of the Debentures may be resold under an effective registration
statement filed with the Securities and Exchange Commission, the Debentures
shall automatically convert into shares of the Company's Common Stock at the
Conversion Price. The Conversion Price shall be $.30 per share of Common Stock
(reflective of a twenty (20%) percent discount to the closing bid price of the
Common Stock on October 8, 1999).
The Debentures were privately offered as a Unit, together with warrants
that, subject to certain vesting provisions, entitled Lancer to contingently
purchase twenty million (20,000,000) shares of Common Stock of the Company at an
exercise price of $.30 per share. The warrants consist of 5-year warrants to
purchase ten million (10,000,000) shares of Common Stock of the Company (the
"Long-Term Warrants") and 90-day warrants to purchase ten million (10,000,000)
shares of Common Stock of the Company (the "Short-Term Warrants"). All of the
Short-Term Warrants expired on February 22, 2000. The Long-Term Warrants shall
vest only once stockholder approval of the exercise feature of these warrants is
obtained.
EMPLOYMENT ARRANGEMENTS
The Company has an employment agreement with Phil Carter. The terms of Mr.
Carter's agreement include the grant of options to purchase 700,000 shares of
Common Stock at an exercise price of $1.50 per share, of which 300,000 vested on
November 29, 1999, and 200,000 additional options are scheduled to vest on
November 29, 2000 and November 29, 2001. The 400,000 unvested options may,
however, vest immediately upon the occurrence of: (i) a change in the majority
ownership or control of the Company; or (ii) termination of Mr. Carter's
employment for any reason. See "EXECUTIVE COMPENSATION-EMPLOYMENT ARRANGEMENTS."
CONSULTING SERVICES
During the fiscal year ended December 31, 1999, Lauren Management Company,
which is wholly owned by Glenn M. Ford, the Company's Interim Chief Financial
Officer, received $25,780 in consideration of rendering professional consulting
services, plus $10,146 as reimbursement for housing and travel expenses incurred
in connection therewith.
George Knight received $28,100 during the fiscal year ended December 31,
1999 in consideration for providing the Company with management consulting
services to the Company. Mr. Knight is a director of the Company.
OPTIONS GRANTED TO MANAGEMENT AND DIRECTORS
During August 1999, the Company granted Jack Leadbeater ten-year options to
purchase 116,943 shares of its Common Stock at $1.4375 per share. Mr. Leadbeater
forfeited all of these options on November 22, 1999, the date of his resignation
as an officer of the Company.
During November 1999, the Company granted Phil Carter options to purchase
700,000 shares of its Common Stock in conjunction with Mr. Carter's employment
as Chief Executive
21
<PAGE>
Officer of the Company. These options permit the purchase of shares of Common
Stock at $1.50 per share through November 29, 2002. Subject to accelerated
vesting provisions in the event of a change in control of the Company or
termination of Mr. Carter's employment for any reason, the 700,000 options vest
as follows: (i) 300,000 vest on November 29, 1999, the date of grant; (ii)
200,000 vest on November 29, 2000; and (iii) 200,000 vest on November 29, 2001.
During November 1999, the Company granted each of George Knight and Gerald
Harrington options to purchase 25,000 shares of its Common Stock in conjunction
with becoming members of the Company's Board of Directors. These options vest on
November 23, 2000 and permit the purchase of shares of Common Stock at $1.50 per
share through November 23, 2002.
VOTE REQUIRED
A plurality of the votes cast by the shares present in person or by proxy
is required to elect a nominee as a director.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF
THE NOMINEES TO THE BOARD OF DIRECTORS
22
<PAGE>
PROPOSAL 5
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON
STOCK FROM 50,000,000 TO 100,000,000
The Board of Directors has unanimously adopted a resolution setting forth a
proposed amendment to the Company's Certificate of Incorporation to increase the
number of shares of Common Stock which the Company is authorized to issue from
50,000,000 shares to 100,000,000 shares. A true and correct copy of the proposed
amendment is attached hereto as Exhibit C. The statements made in this Proxy
Statement regarding the amendment to the Company's Certificate to increase the
number of authorized shares of Common Stock should be read in conjunction with
and are qualified in their entirety by reference to Exhibit C.
DESCRIPTION OF COMMON STOCK
Currently, the Certificate authorizes the issuance of 50,000,000 shares of
Common Stock, par value $.01 per share. As of April __, 2000, the Company had
[11,169,091] shares of Common Stock issued and outstanding. The issued and
outstanding shares of Common Stock are fully paid and nonassessable and held by
approximately [900] stockholders of record. Except as otherwise required by law,
each share of Common Stock held of record entitles the stockholder to one vote
on each matter which stockholders may vote on at all meetings of the
stockholders of the Company. The holders of the Company's Common Stock are not
entitled to cumulative voting rights nor are they entitled to preemptive,
subscription or conversion rights. In addition, there are no redemption or
sinking fund provisions applicable thereto. However, upon liquidation or
dissolution of the Company, the holders of the Common Stock are entitled to
share ratably in the residual assets of the Company.
The holders of the Company's Common Stock are entitled to share equally and
ratably in dividends paid, when, as and if declared by the Board of Directors
out of funds legally available for the payment thereof. Under the Certificate
and consistent with Delaware law, the declaration of dividends is subject to the
discretion of the Board of Directors. The Company has no present intention of
paying cash dividends on the Common Stock; rather, the Company intends to retain
earnings to finance the development and expansion of operations. Nonetheless,
the payment of cash dividends may be restricted by a number of other factors,
including future earnings, capital requirements and the Company's overall
financial condition.
REASON FOR THE INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK
The Company currently has outstanding: (i) [11,169,091] shares of Common
Stock; (ii) warrants to purchase 1,462,500 shares of Common Stock; (iii) options
to purchase [3,753,379] shares of Common Stock; (iv) certain obligations to
issue shares of Common Stock under earn-out provisions of our prior acquisitions
if the financial and performance criteria described in the acquisition
agreements are satisfied; (v) certain obligations to issue shares of Common
Stock to holders of our outstanding preferred stock; and (vi) in the event that
Proposal 1 is approved and Lancer converts all of the Debentures and exercises
all of the Warrants, the Company would have an obligation to issue approximately
20,000,000 shares of Common Stock to Lancer. Therefore, in the event that the
stockholders approve Proposal 1, the Company may have an insufficient number of
shares of Common Stock available for all of the purposes enumerated in this
paragraph.
23
<PAGE>
The Board of Directors also considers the proposed increase in the number
of authorized shares of Common Stock desirable because it would give the Board
of Directors the necessary flexibility to issue Common Stock in connection with
and in furtherance of general corporate purposes, whether in the nature of stock
dividends and splits, acquisitions, financing, employee benefits, the
acquisition of other companies, compensation of directors or any other
appropriate corporate purpose. The issuance of additional Common Stock, however,
shall dilute the voting power of the currently outstanding shares of Common
Stock.
POTENTIAL ANTI-TAKEOVER EFFECT
Although neither the Board of Directors nor the management of the Company
views this proposal as an anti-takeover measure, the Company could use
authorized but unissued Common Stock to frustrate persons seeking to effect a
takeover or otherwise gain control of the Company. For example, the Company
could privately place shares of the Common Stock with purchasers who might side
with the Board of Directors in opposing a hostile takeover bid or issue shares
to a holder which would, thereafter, have sufficient voting power to assure that
any proposal to amend or repeal the Bylaws or certain provisions of the
Certificate would receive the requisite vote. Notwithstanding the potential
anti-takeover effect of the authorization of additional Common Stock, the Board
of Directors believes it is in the best interest of the Company to increase the
number of authorized shares of Common Stock for the reasons set forth above.
VOTE REQUIRED FOR APPROVAL
Under the Certificate, the affirmative vote of at least a majority of the
outstanding shares of Common Stock is required to approve this proposal to amend
the Certificate to authorize an increase in the number of shares of Common Stock
available for issuance. An abstention or failure to vote on this proposal is not
an affirmative vote, and therefore will have the same effect as a negative vote
on this proposal at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL TO THIS PROPOSAL
TO AMEND THE CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK FROM 50,000,000 TO 100,000,000
24
<PAGE>
PROPOSAL 6
RATIFICATION OF THE COMPANY'S INDEPENDENT AUDITORS
Deloitte & Touche LLP has audited the Company's financial statements for
the year ended December 31, 1999. The Board of Directors has selected Deloitte &
Touche LLP to serve as the independent auditors for the Company for the fiscal
year ending December 31, 2000. [REPRESENTATIVES OF DELOITTE & TOUCHE LLP ARE
EXPECTED TO BE PRESENT AT THE MEETING TO MAKE A STATEMENT, IF THEY SO DESIRE,
AND TO BE AVAILABLE TO RESPOND TO APPROPRIATE QUESTIONS.]
The Board of Directors shall consider the selection of another accounting
firm to serve as the Company's independent auditors in the event that the
stockholders do not approve the selection of Deloitte & Touche LLP as the
Company's independent auditors.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the shares of Common Stock, present,
in person or by proxy, at the Meeting is required for ratification of Deloitte &
Touche LLP as the Company's independent auditors for the fiscal year ending
December 31, 2000.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF
DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT
AUDITORS FOR THE 2000 FISCAL YEAR
OTHER MATTERS
The Board of Directors does not know of any other matter which is intended
to be brought before the Meeting, but if such matter is presented, the persons
named in the enclosed proxy intend to vote the same according to their best
judgment.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's officers and directors, and persons who
own more than ten percent (10%) of a class of the Company's equity securities
registered under the Exchange Act to file reports of ownership on Form 3 and
changes in ownership on Form 4 or 5 with the Securities and Exchange Commission
(the "SEC"). Such officers, directors and ten percent (10%) stockholders are
also required by SEC rules to furnish the Company with copies of all forms that
they file pursuant to Section 16(a). Based solely on its review of copies of
forms filed pursuant to Section 16(a) of the Securities Exchange Act of 1934, as
amended, and written representations from certain reporting persons, the Company
believes that during fiscal 1999 all reporting persons timely complied with all
filing requirements applicable to them, except for certain reports, which
include: (i) a Form 4 for each of Messrs. Leadbeater, Olson, Iorillo; (ii) a
Form 3 for Gerald T. Harrington; (iii) a Form 5 for George Knight; and (iv) a
Schedule 13G for Lancer.
26
<PAGE>
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
The Company currently intends to hold its 2001 Annual Meeting of
Stockholders in [May] 2001 and to mail proxy statements relating to such meeting
in April 2001. In order for proposals of stockholders to be considered for
inclusion in the proxy statement and form of proxy relating to the Company's
2001 Annual Meeting of Stockholders, such proposals must be received by the
Company no later than January __, 2001 and must otherwise be in compliance with
all applicable laws and regulations.
By Order of the Board of Directors
------------------------------------
Phil Carter
Chairman of the Board and
Chief Executive Officer
Dated: April 7, 2000
26
<PAGE>
EXHIBIT A
FORM OF
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
OSAGE SYSTEMS GROUP, INC.
RESOLVED, that Article Seventh of the Certificate of Incorporation
of the Corporation, as amended to date, be restated in its
entirety to read:
"Board of Directors and Bylaws. All corporate powers shall be
exercised by the Board of Directors, except as otherwise provided
by statute or by this Certificate of Incorporation, or any
amendment thereof, or by the Bylaws. Directors need not be
elected by written ballot, unless specified otherwise in the
Bylaws of the Corporation. The Bylaws may be adopted, amended or
repealed by the Board of Directors of the Corporation, except as
otherwise provided by law, but any bylaw made by the Board of
Directors is subject to amendment and repeal by the stockholders
of the Corporation.
"(a) Numbers, Elections And Terms. Except as otherwise fixed by
or pursuant to provisions hereof relating to the rights of the
holders of any class or series of stock having a preference over
common stock as to dividends or upon liquidation to elect
additional Directors under specified circumstances, the number of
Directors of the Corporation shall be fixed from time to time by
affirmative vote of a majority of the Directors then in office.
No decrease in the number of Directors constituting the Board of
Directors shall shorten the term of any incumbent director.
"(b) Newly Created Directorships And Vacancies. Except as
otherwise fixed by or pursuant to provisions hereof relating to
the rights of the holders of any class or series of stock having
a preference over common stock as to dividends or upon
liquidation to elect additional Directors under specified
circumstances, newly created directorships resulting from any
increase in the number of directors and any vacancies on the
Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled by the
affirmative vote of a majority of the remaining Directors than in
office, even though less then a quorum of the Board of Directors.
Any Director elected in accordance with the preceding sentence
shall hold office until such Director's successor shall have been
elected and qualified.
27
<PAGE>
"(c) Removal. Except as otherwise fixed by or pursuant to
provisions hereof relating to the rights of the holders of any
class or series of stock having a preference over common stock as
to dividends or upon liquidation to elect additional Directors
under specified circumstances, any Director may be removed from
office with or without cause and only by the affirmative vote of
the holders of the majority of the combined voting power of the
then outstanding shares of stock entitled to vote generally in
the election of Directors, voting together as a single class."
28
<PAGE>
EXHIBIT B
FORM OF
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
OSAGE SYSTEMS GROUP, INC.
RESOLVED, that Article Tenth of the Certificate of Incorporation
be restated in its entirety to read:
"Amendments to the Certificate of Incorporation shall require the
affirmative vote of the holders of the majority of the combined
outstanding voting stock entitled to vote on a proposed amendment
to the Certificate of Incorporation."
29
<PAGE>
EXHIBIT C
FORM OF
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
OSAGE SYSTEMS GROUP, INC.
RESOLVED, that Article Fourth of the Certificate of Incorporation
of the Corporation, as amended to date, be restated in its
entirety to read:
"Capital Stock." The total number of shares of stock which the
Corporation shall have authority to issue is One Hundred Ten
Million (110,000,000) shares, of which One Hundred Million
(100,000,000) shares shall be Common Stock of the par value of
One Cent ($.01) per share (hereinafter called "Common Stock") and
of which Ten Million (10,000,000) shares shall be Preferred Stock
of the par value of One Cent ($.01) per share (hereinafter called
"Preferred Stock").
30
