THE WIDECOM GROUP, INC.
72 DEVON ROAD, UNIT 18
BRAMPTON, ONTARIO, CANADA L6T 5B4
--------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 27, 1999
--------------------
To the Shareholders of
THE WIDECOM GROUP, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of The
Widecom Group, Inc. (the "Company") will be held at 72 Devon Road, Unit 18,
Brampton, Ontario, Canada on January 27, 1999 at 10:00 a.m., for the following
purposes:
1. To elect five Directors to the Company's Board of Directors each to
hold office for a period of one year or until their successors are duly
elected and qualified; and
2. To approve the issuance of securities of the Company in a private
placement offering of up to 50 units, each Unit consisting of: (i) 40,000
shares of Common Stock; and (ii) a 12% three-year convertible note in the
principal amount of $20,000 ("Unit") at a purchase price of $30,000 per Unit
and such other terms described in the Proxy Statement; and
3. To approve the acquisition of Diprin, Inc., an entity owned by
Raja Tuli, the Company's Chairman, for a purchase price of 500,000 shares of
the Company's Common Stock; and
4. To approve a proposal to grant the Board of Directors the
authority to amend the Articles of Incorporation of the Company to effect a
reverse stock split of the Company's Common Stock in the range of from one-
for-two (1:2) to one-for-eight (1:8) of the Company's Common Stock, $.01 par
value per share; and to transact such other business as may properly be
brought before the Annual Meeting or any adjournment thereof.
The close of business on December 18, 1998 has been fixed as the record
date for the determination of Shareholders entitled to notice of, and to
vote at, the Annual Meeting and any adjournment thereof.
You are cordially invited to attend the Annual Meeting. Whether or
not you plan to attend, please complete, date and sign the accompanying
proxy and return it promptly in the enclosed envelope to assure that your
shares are represented at the Annual Meeting. If you do attend, you may
revoke any prior proxy and vote your shares in person if you wish to do so.
Any prior proxy will automatically be revoked if you execute the
accompanying proxy or if you notify the Secretary of the Company, in
writing, prior to the Annual Meeting of Shareholders.
By Order of the Board of Directors
SUNEET S. TULI, Secretary
Dated: December 29, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
ENCLOSED ENVELOPE IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. NO
POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES.
THE WIDECOM GROUP, INC.
72 Devon Road, Unit 18
Brampton, Ontario, Canada L6T 5B4
--------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 27, 1999
--------------------
This Proxy Statement and the accompanying form of proxy will be mailed
on or about December 29, 1998 to the holders of the Company's Common Stock of
record ("Record Date") on December 18, 1998, of THE WIDECOM GROUP, INC., an
Ontario, Canada corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at
the Annual Meeting of Shareholders to be held on January 27, 1999 at 72 Devon
Road, Unit 18, Brampton, Ontario, Canada and at any adjournment thereof.
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
Shares of the Company's Common Stock represented by an effective proxy
in the accompanying form will, unless contrary instructions are specified in
the proxy, be voted as follows: (i) FOR the election of five (5) Directors
to the Company's Board of Directors; (ii) FOR the approval of a private
offering of Units each Unit consisting of: (A) 40,000 shares of Common Stock;
and (B) a 12% three year convertible note in the principal amount of $20,000,
at a purchase price of $30,000 per Unit; (iii) FOR the approval of the
acquisition of Diprin, Inc., an entity owned by Raja S. Tuli; (iv) FOR the
proposal to amend the Company's Articles of Incorporation to effect a reverse
stock split in the range of from one-for-two (1:2) to one-for-eight (1:8) of
the Company's Common Stock, par value $.01 per share; and (v) FOR such other
matters as may be properly brought before the Annual Meeting and for which the
persons named on the enclosed proxies determine, in their sole discretion, to
vote in favor.
Any such proxy may be revoked at any time before it is voted. A
shareholder may revoke his or her proxy by notifying the Secretary of the
Company either in writing prior to the Annual Meeting, in person at the
Annual Meeting, by submitting a proxy bearing a later date or by voting in
person at the Annual Meeting. A majority of the shares present and voting
at the Annual Meeting is required for approval of all proposals being
submitted to the shareholders for their consideration except the proposal to
amend the Company's Articles of Incorporation to effect a reverse stock
split, which requires a favorable vote of two-thirds (2/3) of the votes cast
at the Annual Meeting. A shareholder voting through a proxy who abstains
with respect to the election of Directors is considered to be present and
entitled to vote on the election of Directors at the Annual Meeting and is
in effect a negative vote, but a shareholder (including a broker) who does
not give authority to a proxy to vote, or withholds authority to vote, on
the election of Directors shall not be considered present and entitled to
vote on the election of Directors. A shareholder voting through a proxy who
abstains with respect to approval of any other matter to come before the
Annual Meeting is considered to be present and entitled to vote on that
matter and is in effect a negative vote, but a shareholder (including a
broker) who does not give authority to a proxy to vote, or withholds
authority to vote, on any such matter shall not be considered present and
entitled to vote thereon.
The Company will bear the cost of the solicitation of proxies by the
Board of Directors. The Board of Directors may use the services of its
executive officers and certain directors to solicit proxies from
shareholders in person and by mail, telegram and telephone. Arrangements
may also be made with brokers, fiduciaries, custodians and nominees to send
proxies, proxy statements and other material to the beneficial owners of the
Company's Common Stock held of record by such persons, and the Company may
reimburse them for reasonable out-of-pocket expenses incurred by them in so
doing.
The Annual Report to Shareholders on the Company's Report on Form 10-K
for the fiscal year ended March 31, 1998, including financial statements,
accompanies this Proxy Statement.
The principal executive offices of the Company are located at 72 Devon
Road, Unit 18, Brampton, Ontario, Canada; the Company's telephone number is
(905) 712-0505.
Independent Public Accountants
The Board of Directors of the Company has selected BDO Dunwoody
("BDO"), Chartered Accountants, as independent accountants of the Company
for the fiscal year ending March 31, 1999. Shareholders are not being asked
to approve such selection because such approval is not required under the
Company's Bylaws or the Canada Business Companies Act. The audit services
provided by BDO consist of examination of financial statements, services
relative to filings with the Securities and Exchange Commission and
consultation in regard to various accounting matters. Representatives of
BDO are expected to be present at the Annual Meeting, will have the
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
VOTING SECURITIES AND SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The securities entitled to vote at the Annual Meeting are the
Company's common stock, $.01 par value per share (the "Common Stock"). The
presence, in person or by proxy, of a majority of shares entitled to vote
will constitute a quorum for the Annual Meeting. Each share of Common Stock
entitles its holder to one vote on each matter submitted to shareholders.
The close of business on December 18, 1998, has been fixed as the Record Date
for the determination of the Common Stock shareholders entitled to notice of
and to vote at the Annual Meeting and any adjournment thereof. As of
December 18, 1998, there were 7,154,598 shares of Common Stock issued and
outstanding. Voting of the shares of Common Stock is on a non-cumulative
basis.
The following table sets forth certain information as of December 1,
1998, with respect to each Director, each nominee for Director, each
executive officer, all Directors and Officers as a group and the persons
(including any "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) known by the Company to be the
beneficial owner of more than five (5%) percent of any class of the
Company's voting securities.
<TABLE>
<CAPTION>
Amount and
Nature of Percentage of
Beneficial Outstanding
Name and Address of Beneficial Owner (1) Ownership (2) Shares Owned
- --------------------------------------- ------------ -------------
<S> <C> <C>
Raja S. Tuli 1,498,509 (3) 20.945%
Lakhbir S. Tuli 1,026,258 14.34 %
Suneet S. Tuli 805,597 (4) 11.26 %
Dr. Ajit Singh -- --
Bruce Vallillee -- --
Willem J. Botha -- --
Mark Maltese 13,334 0.2
Lt. Colonel K.C. Sharma -- --
Stan Seitz -- --
Global Bermuda Limited Partnership 500,000 (5) 6.532%
601 Carlson Parkway, Suite 200
Minnetonka, Minnesota 55305
All executive officers and directors
as a group (five persons) 3,343,698 (2)(3)(4) 46.545%
- --------------------
<F1> Unless otherwise indicated, the business address of each beneficial
owner is 72 Devon Road, Unit #18, Brampton, Ontario, Canada, L6T 5B4.
<F2> Except as indicated by footnote, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them. Each beneficial owner's
percentage ownership is determined by assuming that convertible
securities, options or warrants that are held by such person (but not
those held by any other person) and which are exercisable within 60
days of the date hereof have been exercised.
<F3> Includes (i) 175,000 Common Shares issuable upon exercise of currently
exercisable options at a price of $2.125 per share and 50,000 shares
issuable upon exercise of currently exercisable warrants at a price of
$2.125 per share, and (ii) 32,500 shares owned by Diversified
Investors Capital Services of North America, Inc., a New York
corporation, 30,500 shares owned by Pyrotech Limited, a Cayman Islands
corporation, and 4,000 shares owned by Donald J. Schattle,
respectively, as to which Mr. Tuli has voting rights pursuant to a
stock exchange agreement.
<F4> Includes 75,000 Common Shares issuable upon exercise of currently
exercisable options at a price of $2.125 per share and 50,000 Common
Shares issuable upon exercise of currently exercisable warrants at a
price of $2.125 per share.
<F5> Global Bermuda Limited Partnership currently owns three Debentures in
the aggregate principal amount of $150,000, convertible into the
Company's Common Stock at a conversion price equal to 80% of the
average closing bid price of the Company's Common Stock as quoted on
Nasdaq over the 20 trading days immediately preceding the date of the
Company's receipt of notice requesting conversion. Based on the
closing price of the Common Stock on December 1, 1998, which was $.375
per share the three outstanding Debentures may be converted into a
aggregate of 500,000 shares at such time. The controlling persons of
Global Bermuda Limited Partnership are Richard J. Emmerich, John D.
Brandenburg and Michael J. Frey, the shareholders of Global Capital
Management Inc., a Delaware corporation, which acts as the general
partner of Global Bermuda Limited Partnership. The Company is currently
in default with respect to the aforementioned Debentures.
</TABLE>
Certain Reports
Section 16(a) of the Securities Exchange Act of 1934, as amended
requires the Company's Directors and executive officers, and persons who own
more than 10% of the Company's Common Stock warrants (which are the only
classes of securities of the Company registered under Section 12 of the
Securities Exchange Act of 1934), to file with the Securities and Exchange
Commission ("SEC") reports of ownership and reports of changes in ownership of
common stock and other equity securities of the Company. Officers, Directors
and greater than 10% stockholders are required by SEC regulation to furnish
the Corporation with copies of all Section 16(a) forms they file. Based solely
on review of the copies of such reports received by the Company, the Company
believes that during the fiscal year ended March 31, 1998, all officers,
Directors and greater than 10% beneficial owners complied with the Section
16(a) filing requirements.
It is expected that the following will be considered at the Annual
Meeting and action taken thereon:
I. ELECTION OF DIRECTORS
The Board of Directors has unanimously approved, and recommends
Shareholder approval to elect, five Directors to the Company's Board of
Directors to hold office for a period of one year or until their successors
are duly elected and qualified.
Proposal
The By-laws of the Company provide that the Board of Directors shall
be comprised of not less than one and no more than nine persons. The Board of
Directors currently consists of five members elected for a term of one year or
until their successors are duly elected and qualified.
At the Annual Meeting of Shareholders, five Directors will be elected to
serve until the 1999 Annual Meeting of Shareholders or until their respective
successors shall have been duly elected and shall have qualified. The
affirmative vote of the holders of a majority of the shares of Common Stock
voting at the Annual Meeting is required for the approval of the nominees for
a Director. All proxies received by the Board of Directors from holders of the
common stock will be voted for the election as directors of the nominees listed
below if no direction to the contrary is given. In the event any nominee is
unable to serve, the proxy solicited hereby may be voted, in the discretion of
the proxies, for the election of another person in his stead. The Board of
Directors knows of no reason to anticipate that this will occur.
The following table sets forth certain information as of the date
hereof with respect to the Directors of the Company, including all nominees
for election to the Company's Board of Directors at the Annual Meeting.
<TABLE>
<CAPTION>
Position with
Company; Continual
Name and Age Since Term Expires
- -------------------------------------------------------------------------------------------
NOMINEES
<S> <C> <C> <C>
Raja S. Tuli President, Chief Executive Officer
and Director of the Company, 32 1990 1999
Suneet S. Tuli Executive Vice President, Secretary
and Director of the Company, 30 1992 1999
Lt. Colonel K.C. Sharma Director, 57 1998 1999
Dr. Ajit Singh Director, 57 1992 1999
Bruce D. Vallillee Director, 77 1995 1999
</TABLE>
- --------------------
Raja S. Tuli, founder of the Company, has been President, Chief
Executive Officer and a director of the Company since its inception. From
the Company's inception to August 1993, Mr. Tuli was also Treasurer of the
Company. From 1987 to 1990 Mr. Tuli was President of CaCE Ltd. a family-
owned architectural/construction business. Mr. Tuli received a Bachelor of
Science degree in Computer Engineering in 1988 from the University of
Alberta. Mr. Tuli is a resident Canadian national. Mr. Raja Tuli is the
brother of Suneet S. Tuli.
Suneet S. Tuli has been Executive Vice President of Sales and
Marketing and Secretary since September 1993, a director of the Company
since October 1992 and was the Marketing manager of the Company from June
1990 to August 1993. Mr. Tuli received a Bachelor of Science degree in Civil
Engineering from the University of Toronto in April 1990 and is a resident
Canadian national. Mr. Tuli is the brother of Raja S. Tuli.
Lt. Colonel Kailash Chander Sharma is a director of the Company.
Lieutenant Colonel Sharma possesses a Masters Degree in Political Science
from Delhi University. Lt.Col. Sharma has a lengthy military background and
has held several senior posts with significant levels of responsibility
including strategic planning and public relations. Lt. Col. Sharma is
proficient in government organizational and regulatory matters and since
1992 has operated a private consulting company, named Sharma's Consulting
Company Private Limited.
Dr. Ajit Singh has been a director of the Company since October 1992.
Dr. Singh is the Senior Fellow at Queens' College, University of Cambridge
in England, and its Director of Studies in Economics. Since 1987, Dr. Singh
has held the Dr. William M. Scholl Visiting Chair in the Department of
Economics at the University of Notre Dame in the United States. Dr. Singh
has been a senior economic advisor the governments of Mexico and Tanzania,
and is the author of Takeovers, Their Relevance to the Stock Market and the
Theory of the Firm. Dr. Singh is the uncle of Raja and Suneet Tuli.
Bruce D. Vallillee has been a director of the Company since September
1995. Since April 1994, Mr. Vallillee has been President of Vallillee Wide
Format Products, Ltd., a company engaged in wide format document management
and equipment sales. From 1987 to 1994, Mr. Vallillee was the President of
Vallillee Electronics, Ltd., a company engaged in the distribution of
electronic products. From 1976 to 1987, Mr. Vallillee was Vice President -
Sales and Marketing for ITT/Canon Canada, the Canadian joint venture of ITT
Corporation and Canon Electronics Corp. Mr. Vallillee is a resident Canadian
national.
Under Ontario law, a majority of the directors of the Company must be
resident Canadians. A resident Canadian is defined, generally, to be an
individual who is (i) a Canadian citizen ordinarily resident in Canada, (ii)
a Canadian citizen not ordinarily resident in Canada who is a member of a
prescribed class of persons, or (iii) a permanent resident within the
meaning of the Immigration Act (Canada), and ordinarily resident in Canada.
A majority of the Board of Directors are presently Canadian residents.
Employment Agreements
An Employment Agreement was entered into on July 17, 1995, between the
Company and Raja S. Tuli ("RT Agreement") in which he agreed to devote 40
hours per week to the business of the company. The term of the RT Agreement
is for five years, unless earlier terminated, and after July 17, 2000, the
RT Agreement may be extended for successive one-year periods upon approval
of the Board of Directors, unless earlier terminated. Pursuant to the RT
Agreement, Raja S. Tuli serves as President and Chief Executive Officer of
the Company, receives an annual base salary of $98,000 per year and is
eligible to receive bonuses (up to 50% of his salary) provided that the
Company achieves certain performance objectives. Raja S. Tuli pursues other
business interests, however, Mr. Tuli limits his professional activities
concerning the manufacturing and selling of wide format fax machines,
engineering scanners, thermal plotters and related wide format document system
peripheral equipment and supplies to the business of the Company. In
consideration of Raja S. Tuli executing the RT Agreement, the Company granted
him an option to purchase up to 187,500 shares of the Company's Common Stock
at an exercise price of $4.00. Raja Tuli also develops other technologies
outside of the business of the Company on his own time. Mr. Tuli is the
sole owner of Diprin, Inc., to which he devotes approximately five hours
per week developing the portable photo printer technology. Raja Tuli is
also the sole owner of Docuport, Inc., to which he devotes approximately
three hours per week developing the Slimfax, a multi-functional peripheral
device which can be hooked up to a laptop computer enabling it to scan,
print, copy or fax. Raja S. Tuli has had no other principal occupation
or employment in the last five years.
An Employment Agreement was entered into on July 17, 1995, between
the Company and Suneet S. Tuli ("ST Agreement") in which he agreed to
devote 40 hours per week to the business of the Company. The term of the ST
Agreement is for five years, unless earlier terminated, and after July
17, 2000, the ST Agreement may be extended for successive one-year periods
upon approval of the Board of Directors, unless earlier terminated.
Pursuant to the ST Agreement, Suneet S. Tuli serves as Executive Vice
President of Sales and Marketing of the Company, receives an annual base
salary of $92,000 per year and is eligible to receive bonuses (up to 50% of
his salary) provided that the Company achieves certain performance
objectives. Suneet S. Tuli pursues other business interests; however, Mr. Tuli
limits his professional activities concerning the manufacturing and selling of
wide format fax machines, engineering scanners, thermal plotters and related
wide format document system peripheral equipment and supplies to the business
of the Company. In consideration of Suneet S. Tuli executing the ST
Agreement, the Company granted him an option to purchase up to 62,500 shares
of the Company's Common Stock at an exercise price of $4.00. Suneet S. Tuli
has no other principal occupation or employment in the last five years.
Board Meetings, Committees and Compensation of Directors
During the fiscal year ended March 31, 1998, although no meetings of
the Board of Directors were held, on five occasions the Board took
action by unanimous written consent in lieu of a meeting.
The Audit Committee is the only currently standing committee of the
Board of Directors. The members of the committee are Lt. Colonel Kailash
Chander Sharma and Bruce D. Vallillee. The Audit Committee reviews (i) the
Company's audit functions, (ii) with management, the finances, financial
condition, and interim financial statements of the Company, and (iii) with
the Company's independent auditors, the year end financial statements of the
Company. Members of the Audit Committee do not receive additional
compensation for such service.
No director of the Company received any compensation for such services
as a director during the Company's last three fiscal years ended March 31,
1998. Directors who are employees of the Company receive no additional
compensation for serving on the Board of Directors. Non-employee directors
are reimbursed for their out-of-pocket expenses in attending Board meetings
and a per diem of $1,000.
Executive Compensation
The following table sets forth the cash compensation paid or accrued
by the Company during the fiscal year ended March 31, 1998, to those persons
serving as officers of the Company for the year ended March 31, 1998. No
other officer was compensated at a rate in excess of $100,000.
SUMMARY COMPENSATION TABLE
--------------------------
WIDECOM SUMMARY COMPENSATION TABLE 402 REG. S-K
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------ -----------------------
Awards
-----------------------
Securities
Under-
Other Restricted Lying
Annual Stock Options/
Salary Bonus Compensation Award(s) SARs
Name And Principal Position Year ($) ($) ($) ($) (#)
(A) (B) (C) (D) (E) (F) (G)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Raja S. Tuli, President & CEO 1998 126,724 0 0 0 25,000
1997 98,460 0 0 0 0
1996 79,225 0 0 0 150,000
- --------------------------------------------------------------------------------------------------------
Suneet S. Tuli, Executive Vice President 1998 112,476 0 0 0 25,000
1997 85,925 0 0 0 0
1996 51,902 0 0 0 50,000
- --------------------------------------------------------------------------------------------------------
Mark Maltese, Vice President of Sales 1998 139,548 0 0 0 40,000
1997 47,917 0 0 0 0
1996 N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR MARCH 31, 1997-1998.
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------
Percent Of Potential Realizable Value At Alternative To
Total Assumed Annual Rates of Stock (f) And (g):
Number Of Options Price Appreciation For Option Grant Date
Securites Granted Term Value
Underlying To Employees Exercise Of ---------------------------------------------
Options In Fiscal Year Base Price Expiration Grant Date
Name Granted(#) % ($/sh) Date 5%($) 10%($) Present Value $
(a) (b) (c) (d) (e) (g) (h) (i)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Raja S. Tuli (CEO) 25,000 8.9767 $2.125 09/23/07 0 $3,612.50 0
- ---------------------------------------------------------------------------------------------------------------------------------
Suneet S. Tuli (Executive Vice
President Sales & Marketing) 25,000 8.9767 $2.125 09/23/07 0 $3,612.50 0
- ---------------------------------------------------------------------------------------------------------------------------------
Mark Maltese (Vice President
of Sales & Marketing) 40,000 14.3627 $2.125 09/23/07 0 $5,780.00 0
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Stock Value @ Grant Date = $0.875.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Number Of
Securities Value Of
Underlying Unexercised
Unexercised In-The-Money
Options Options
At Fiscal Year-End At Fiscal Year-
Shares Value (#) End($)
Acquired On Realized Exercisable/ Exercisable/
Name Exercise(#) ($) Unexercisable Unexercisable
(a) (b) (c) (d) (e)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Raja S. Tuli, (CEO) 0 0 175,000/0 0
- --------------------------------------------------------------------------------------------------------------------------------
Suneet S. Tuli (Executive Vice President Sales & Marketing) 0 0 75,000/0 0
- --------------------------------------------------------------------------------------------------------------------------------
Mark Maltese ( Vice President of Sales & Marketing) 0 0 13,334/26,666 0
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: (A) Year End Stock Price = $ 0.75
(B) Year End Stock Price < Option Price therefore Options are not
"In-The-Money" and have no value for this calculation.
STOCK PERFORMANCE GRAPH
<TABLE>
<CAPTION>
31-Mar-94 31-Mar-95 31-Mar-96 31-Mar-97 31-Mar-98
-------------------------------------------------------------
(In U.S. Dollars)
<S> <C> <C> <C> <C> <C>
NASDAQ 239.36 266.3 361.54 401.76 609.68
- ------------------------------------------------------------------------------
The WideCom Inc 9.5 3.88 0.75
- ------------------------------------------------------------------------------
Intergraph 9.13 11.88 16 7.75 8.47
- ------------------------------------------------------------------------------
</TABLE>
The Company used Intergraph Corporation ("Intergraph") as a peer
issuer in the stock performance graph to compare the Company's performance
to Intergraph's performance. Intergraph is a large technology company which
trades on the Nasdaq SmallCap Market and has a scanner division whose
products directly compete with the Company's products.
1995 Stock Option Plan
In 1995, the Board of Directors adopted the 1995 Stock Option Plan
(the "1995 Plan") to attract, retain and motivate persons as key service
providers to the corporation and its affiliates and to advance the interest
of the Company by providing such persons with the opportunity, through
shares options, to acquire a proprietary interest in the Company. The 1995
Plan was approved by shareholders in July, 1995. In June, 1996, the 1995
Plan was amended to increase the number of shares eligible for grant from
375,000 shares to 500,000 shares.
The 1995 Plan is available for certain eligible persons, which means
any director, officer or employee of the Company or any Affiliate, or any
other service provider or a corporation controlled by an eligible person,
the issued and outstanding voting shares of which are, and will continue to
be, beneficially owned, directly or indirectly, by such eligible person
and/or spouse, children and/or grandchildren of such eligible person
("Eligible Person"). Options may be granted by the Board to any Eligible
Person, provided, however, that the aggregate number of shares reserved for
issuance upon the exercise of all Options granted to both Raja S. Tuli and
Suneet S. Tuli shall not exceed 250,000 Options.
The number of shares subject to each Option, the Option price of each
Option, the expiration date of each Option, the extent to which each Option
is exercisable from time to time during the term of the Option and other
terms and conditions relating to each such Option shall be determined by the
Board. The Option price of any Option shall in no circumstances be lower
than the market price on the date on which the grant of the Option is
approved by the Board.
The terms of the Option shall not exceed 10 years from the date of the
grant of the Option.
No Options shall be granted to any Optionee if the total number of
Shares issuable to such Optionee under this Plan, together with any shares
reserved for issuance to such Optionee under options for services or any
other stock option plans, would exceed 5% of the issued and outstanding
shares.
Subject to provisions of the 1995 Plan, an Option may be exercised
from time to time by delivery to the Company at its registered office of a
written notice of exercise addressed to the Secretary of the Company
specifying the number of shares with respect to which the Option is being
exercised and accompanied by payment in full, by cash or certified check, of
the Option Price of the Shares then being purchased.
In the event that the shares are at any time changed or affected as
result of the declaration of a stock dividend thereon or their subdivision
or consolidation, the number of shares reserved for Option shall be adjusted
accordingly by the Board to such as they deem proper in their discretion.
In such event, the number of, and the price payable for, any shares that are
then subject to Option may also be adjusted by the Board to such extent as
they deem proper in their discretion.
Certain Relationships And Related Transactions
In November 1995, the Company entered into an indemnification
agreement with Raja Tuli, Suneet Tuli, Lakhbir Tuli and the Whale Securities
Co., L.P., the underwriter of the Company's initial public offering
("Whale"), pursuant to which: (i) the Company, Raja Tuli, Suneet Tuli and
Lakhbir Tuli, jointly and severally, agreed to indemnify and hold Whale
harmless for any and all losses, claims, damages, expenses or liabilities it
may suffer (including reasonable legal fees and expenses) as a result of any
claim arising out of or based upon or related to a claim asserted by Mr.
Debs, who commenced an action against the Company in New York County Supreme
Court in 1995 ("Claim") (including legal fees and expenses) alleging breach
of contract and fraud and claiming an ownership interest in certain of the
Company's technologies, which indemnity may be made in cash or Common
Shares; and (iii) in the event the Company issues any Common Shares or other
equity securities to Mr. Debs or any person or entity claiming through, or
designated by, Mr. Debs, Raja Tuli, Suneet Tuli and Lakhbir Tuli agreed to
deliver to the Company, for cancellation, an equivalent number of Common
Shares, each in proportion to his respective current beneficial ownership
interest in the Company. In February 1996, without admitting any wrongdoing
the Company settled the Debs litigation for $185,000. In connection
therewith, Raja Tuli, Suneet Tuli and Lakhbir Tuli each contributed 7,368,
3,760 and 4,959 shares, respectively, to the Company to be held as treasury
stock.
As of January 30, 1997, the Company announced that it has finalized a
joint venture agreement with Societe Innovatech du Grand Montreal, an
instrumentality of the Province of Quebec, Canada ("Innovatech"). Both the
Company and Innovatech purchased 450 shares of the Class A Common Stock of
NovImage Inc., a Quebec corporation ("NovImage") for a purchase price of
approximately $1,875,000 US dollars each. The consideration paid by the
Company for the stock of NovImage was in cash and was derived from the
Company's working capital. In addition, two other corporations, 3294412
Canada Inc., a Quebec corporation, and 3294421 Canada Inc., a Quebec
corporation, each acquired 50 shares of the Class A Common Stock of NovImage
in exchange for the transfer to NovImage of all right, title and interest to
certain patents, patent applications and other technology and intellectual
property rights of those corporations. Raja S. Tuli, President and Chief
Executive Officer of the Company, owns 50% of 3294412 Canada Inc. and 50% of
3294421 Canada Inc. and is in common control of these corporations with the
other directors of such corporations. Mr. Tuli maintains the ownership
interest to enable NovImage to qualify for government research grants. No
other person or entity holds interests in NovImage and neither Innovatech
nor 3294412 Canada Inc. or 3294421 Canada Inc. retained any rights to the
technologies transferred.
In connection with the transaction, the Company licensed all of its
patents, software and technology relating to its scanner and plotter
manufacturing to NovImage for research and development purposes in order to
develop improvements, modifications, additions or alterations to the
Intellectual Property and to develop new products. The patents licensed to
NovImage cover technologies which (i) allows for the use of photocells to
create images on a liquid crystal display and (ii) produce a miniature
viewscreen which can be mounted on face goggles. NovImage has developed
the plain paper plotter and the print-heads; the next generation color
scanner (836-8x); a computer chip to enable greater scanning speed; the
SCSI print option and the related Faster/Turbo Mode for the 836 Model; and a
new revision of Widecom's Colscan software (Version 4.0 1998) that enables
greater image manipulation capability, increased file format conversion options
and enhanced color correction and resolution schemes.
NovImage granted the Company an exclusive perpetual worldwide (with
the exception of the Province of Quebec, Canada) license to use such
improved scanner and plotter technology and software to manufacture,
distribute, market and sell the improved scanner, plotter and software, and
any new products developed by NovImage in exchange for payment by the
Company of 0.5% of royalty fees on net revenue, a 0.5% royalty fee on
licensing revenue and 0.5% of the aggregate of all sales prices in
connection with the sale to any sub-licensee of any equipment or materials.
NovImage retained such rights with respect to the Province of Quebec,
Canada. The Company does not receive any license or royalty fees from
NovImage for the license of the Company's patents, software or technology
relating to its scanner and plotter manufacturing.
The Company also entered into a Stock Exchange Agreement with Innovatech
pursuant to which Innovatech would be permitted at any time after October 2,
1996 to exchange all and not less than all of the 450 Class A Shares of
NovImage (the "Exchange Shares") issued to Innovatech for 253,000 shares of
Common Stock of the Company, for which Innovatech would have demand
registration rights.
Although the Company believes that the foregoing transactions were on
terms no less favorable than would have been available from unaffiliated
third parties in an arm's length transaction, there can be no assurance that
this is the case. All future transaction and loans between the Company and
its officers, directors and 5% shareholders will be on terms no less
favorable than could be obtained from independent, third parties and will be
approved by a majority of the independent and disinterested members of the
Board of Directors. There can be no assurance, however, that future
transactions or arrangements between the Company and its affiliates will be
advantageous, that conflicts of interest will not arise with respect thereto
or that if conflicts do arise, that they will be resolved in favor of the
Company.
As a vehicle for receipt of a portion of their own compensation derived
from their employment agreements, Messrs. Raja and Suneet Tuli each
established their own consulting company. Raja Tuli's consulting company
is called Raja S. Tuli Software Inc., and $69,874 of his total salary in
1998 was paid to his consulting company. Similarly, Suneet S. Tuli's
consulting company is called Suneet S. Tuli Software Inc., and $59,892 of
his total salary in 1998 was paid to his consulting company.
On September 9, 1998, Raja S. Tuli, President and Chief Executive
Officer, Suneet S. Tuli, Executive Vice President and Secretary, and Lakhbir
S. Tuli, an independent consultant for the Company and the father of Raja
and Suneet Tuli, purchased, in the aggregate, 1,176,470 shares of the
Company's Common Stock at $.17 cents per share in a private transaction in
order to provide the Company with funds for working capital. The actual
price of the Company's Common Stock on September 9, 1998, was $.125.
The Company has engaged Lakhbir S. Tuli as a management consultant to
manage the Company's facility, employees and operations in India. As
consideration for his services, Lakhbir S. Tuli receives $75,000 per year.
On September 20, 1998, Lakhbir S. Tuli made a non-interest bearing
loan to the Company in the amount of $13,333 US dollars. The loan is
payable on demand.
Vote Required
The affirmative vote of the holders of a majority of the shares of
Common Stock voting at the Annual Meeting is required for the approval of
the nominees for a Director.
THE BOARD OF DIRECTORS DEEMS THE NOMINEES FOR DIRECTORS TO BE IN THE BEST
INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS A VOTE "FOR"
ALL OF THE NOMINEES.
II.
PROPOSED PRIVATE PLACEMENT OF UNITS
The Board of Directors has unanimously approved, and recommends
Shareholder approval of, a private placement offering of up to 50 Units,
each Unit consisting of: (i) 40,000 shares of Common Stock; and (ii) a 12%
three-year convertible secured subordinated note in the principal amount of
$20,000 ("Units") at a purchase price of $30,000 per Unit. The Units are
being offered without registration under the Securities Act of 1933, as
amended, (the "Act"), in reliance upon the exemption from registration
afforded by Section 4(2) of the Act, and sales of the securities will be
made only to "accredited investors" as such term is defined in Rule 501(a)
of Regulation D under the Act.
The private offering (the "Offering"), is on a best efforts $600,000
minimum - $1,500,000 maximum basis. The net proceeds to the Company from
the sale of the Units will be approximately $451,000 if the minimum number
of Units are sold and approximately $1,231,000 if the maximum number of
Units are sold, after deduction of placement agent fees of 10% and all other
estimated fees and expenses of this offering.
Background of Proposal
As shown in the financial statements included in its Annual Report on
Form 10-K for the year ended March 31, 1998 (copies of which have been
delivered to each Shareholder with this Proxy Statement), the Company has a
pressing need for additional financing. The Company's heavy investment in
property, plant, equipment and inventories, its continuing operating losses
and its $1,850,000 investment in NovImage have substantially reduced the
Company's cash position. Losses have continued during the fiscal year ending
1999, resulting in a continuation of the depletion of the Company's working
capital. Additionally, the Company has recently introduced several new
products and requires funds in order to manufacture and distribute these new
products. As a result, management believes it is necessary to raise
additional capital and is conducting the Offering in an attempt to raise the
necessary funds. The Company believes that the maximum offering amount
sought to be raised in this Offering will satisfy the Company's working
capital needs for the next 9-12 months.
The number of shares of the Company's Common Stock outstanding prior
to the Offering is 7,154,598(1). After the Offering, if the minimum number
of Units offered are sold, the number of shares of the Company's Common Stock
outstanding will be 7,954,598 plus 400,000 shares of Common Stock if the all
of the Notes are converted, and if the maximum number of Units offered are
sold, the number of shares of the Company's Common stock outstanding will be
9,154,598(2) plus 1,000,000 shares of Common Stock if all of the Notes are
converted. If the minimum number of Units offered are sold and all the Notes
are converted, the Company will issue 1,200,000 shares of the Company Common
Stock which will be 14.4% of the number of shares of Common Stock outstanding.
If the maximum number of Units offered are sold and all the Notes are
converted, the Company will issue 3,000,000 shares of the Company's Common
Stock which will be 29.5% of the number of shares of Common Stock outstanding.
[FN]
- --------------------
<F1> Does not include (i) 500,000 shares of Common Stock reserved for
issuance under the Company's 1995 Employee Stock Option Plan, of which
462,500 shares have been reserved for currently outstanding options
and 37,500 shares are available for future issuances; and (ii)
2,462,460 outstanding warrants and debentures;
<F2> Does not include (i) 500,000 shares of Common Stock reserved for
issuance under the Company's 1995 Employee Stock Option Plan, of which
462.000 shares have been reserved for currently outstanding options
and 37,500 shares are available for future issuances; (ii) 2,462,460
outstanding warrants and debentures; (iii) the issuance of any shares
of Common Stock upon conversion of the Notes; (iv) the issuance of any
additional shares of Common Stock to the holders of Units in the event
the Company fails to cause the Registration Statement to be filed
under the Act 60 days after the Final Closing or cause the
Registration Statement to become effective within 120 days of the
filing of the Registration Statement; and (v) 500,000 shares that may
be issued pursuant to the Diprin, Inc. acquisition.
</FN>
Companies whose securities are quoted on the Nasdaq SmallCap Market
(the "Nasdaq") are required to obtain Shareholder approval if the sale or
issuance by the Company of common stock (or securities convertible into or
exercisable for common stock) equal to 20% or more of the common stock or
20% or more of the voting power outstanding. On the Record Date, the
Company had 7,154,598 shares of Common Stock outstanding. Given that the
proposed Offering described below constitutes in excess of 20% of the
Company's outstanding Common Stock, the Company cannot proceed with the
Offering without the affirmative vote of the majority of the Company's
Shareholders voting on this Proposal.
Proposal
After due consideration, the Board of Directors has determined that
the following proposed Offering is in the Company's best interests. The
Company has agreed with an investment banking firm, to act as the placement
agent ("Placement Agent") for the Offering, for sale to persons who qualify
as "accredited investors" (as defined in Rule 501 under the Act) of a
minimum of 20 Units and a maximum of 50 Units, each Unit consisting of (a)
40,000 shares (the "Unit Shares") of common stock, par value $.01 per share,
of the Company (the "Common Stock") and (b) a 12% three-year convertible
secured subordinated note in the principal amount of $20,000 with a 12% rate
of interest paid quarterly, commencing on March 31, 1999 (the "Notes").
Subject to redemption, each holder of a Note shall be entitled to convert
into shares of Common Stock (i) up to one-half of the Note during the 30-day
period commencing 180 days following the Initial Closing Date and (ii) the
balance of the Notes at any time 360 days after the Initial Closing Date,
provided, however, the Notes may be converted in full at the Option of the
holder at any time following the receipt of Notice of Redemption by the
Company. The principal amount of the Notes may be converted at the
conversion price of $1.00 US per share, subject to adjustment in certain
circumstances to prevent dilution. No fractional shares of Common Stock will
be issued and a cash adjustment will be made in lieu thereof. No adjustment
for interest will be made on conversion of any Note. Accordingly, accrued
interest will not be paid on a Note if it is converted between an interest
payment date and the next record date for interest payments. However, any
unpaid interest accruing prior to the interest payment due immediately
preceding the conversion will be paid by the Company. A holder who converts
his Note will be deemed to have waived, as of the date of conversion, any
default existing under the Note prior to conversion, except the payment of
accrued interest. The Notes mature three (3) years from the date of
issuance.
In the event that the Company does not receive approval of this
Offering from its Shareholders within six months of the initial closing
(assuming at least 20 Units have been subscribed for prior to December 31,
1998) of this Offering, which approval is required in accordance with Nasdaq
rules, the Company will (i) offer less than 20% of its common stock (or
securities convertible into or exercisable for common stock), or offer less
than 20% of the voting power outstanding, in which case Shareholder approval
will not be required, and (ii) any Note sold in excess of the minimum
will become immediately due and payable and interest thereon shall increase
from 12% per annum to 20% per annum effective as of the date of issuance of
the Notes.
The Company has agreed to register for resale under the Act the Unit
Shares, the shares of Common Stock underlying the Notes and the Common Stock
underlying the Placement Agents Warrants in a Registration Statement to be
filed with the SEC by the Company 60 days after the final closing of the
Offering, which will occur when the maximum number of Units offered hereby
has been subscribed for and accepted by the Company (the "Final Closing"),
and to cause the Registration Statement to become effective 120 days after
the filing of the Registration Statement. In the event that the Company
fails either to (i) cause the Registration Statement to be filed under the
Act 60 days after the Final Closing, or (ii) cause the Registration to
become effective 120 days after the filing of the Registration Statement
(except where such failure is due solely to actions of the SEC), then the
Company shall issue to each holder of the Units 4,000 additional shares of
Common Stock per Unit held for each thirty-day period following the 60 days
after the Final Closing that the Registration Statement is not filed and
4,000 additional shares of Common Stock per Unit held for each thirty-day
period following the 120 days after the filing of the Registration Statement
that the Registration is not effective (except where such failure is due
solely to actions of the SEC).
The Notes are redeemable, in whole or in part, at the option of the
Company, provided that (i) the shares of Common Stock underlying the Notes
are registered for resale under the Act; (ii) during the 20 consecutive
trading days ending within 45 days of the date of the written Notice of
Redemption, the closing bid price of the Common Stock is not less than 150%
of the conversion price and (iii) the trading volume of the Common Stock is
not less than 30,000 shares per day. The redemption price shall be equal to
the principal amount of the Note then outstanding plus all accrued and
unpaid interest.
To the extent that outstanding options and warrants are exercised,
dilution to the percentage ownership of the Company's stockholders will
occur and any sales in the public market of the shares of Common Stock
underlying such options and warrants may adversely affect prevailing market
prices for the shares of Common Stock. Moreover, the terms upon which the
Company will be able to obtain additional equity capital may be adversely
effected since the holders of outstanding options and warrants can be
expected to exercise them at a time when the Company would, in all
likelihood, be able to obtain any needed capital on terms more favorable to
the Company than those provided in the outstanding options and warrants.
The Placement Agent will receive a commission of 10% of the gross
proceeds from the sale of the Units, as well as a 3% nonaccountable expense
allowance reimbursement for its expenses relating to the Offering. In
addition, the Placement Agent will receive warrants to purchase 12,000
shares per Unit sold in the Offering, exercisable for a period of five years
at an exercise price of $.30 per share. In addition, the Company may enter
into financial consulting agreements after the Offering under which the
Company will issue up to 175,000 additional warrants and pay $5,000 per
month for such services. The terms of these agreements are subject to
further negotiations.
The Company intends to use the proceeds from the sale of the Units
offered hereby for the rollout of new products, repayment of debt,
promotion, marketing and advertising and sales for new copier and printer
products. The Company also intends to use the proceeds for general
operating expenses, including the payment of outstanding payables and
salaries of officers and employees.
The application of the proceeds is intended to be made substantially
as follows:
<TABLE>
<CAPTION>
Assuming Sale Assuming Sale
of the Minimum the Maximum
Application Number of Units Number of Units
- ---------------------------------------------------------------
<S> <C> <C>
Rollout of New Products $250,000 $650,000
Repayment of Debt $ 75,000 $150,000
Advertising and Marketing
of Other Products $ 75,000 $200,000
Working Capital $ 50,000 $231,000
</TABLE>
No offering of the securities referred to above is being made by this
Proxy Statement. This Proxy Statement shall not constitute an offer to sell
or the solicitation of an offer to buy, nor shall there be any prior sale of
such securities in any state in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws
of any such state.
Vote Required
The affirmative vote of the holders of a majority of the shares of
Common Stock voting at the Annual Meeting is required for the approval of
the Offering. Approval will be deemed to include all shares of Common Stock
issuable pursuant to the Offering.
THE BOARD OF DIRECTORS DEEMS THE OFFERING TO BE IN THE BEST INTERESTS OF THE
COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL OF
PROPOSAL II.
III.
THE ACQUISITION OF DIPRIN, INC.
The Board of Directors has unanimously approved, and recommends
Shareholder approval of, the acquisition of Diprin, Inc, a corporation
organized under the laws of the province of Ontario, Canada, on August 19,
1998, and located at 1290 WhiteOaks Avenue, Missuaga, Ontario L5J 3C1. Raja
S Tuli and Suneet S. Tuli have agreed to abstain from voting the shares
of Common Stock beneficially owned by them on this issue.
Background of Proposal
The Company has recently agreed in principle to acquire Diprin, Inc.
("Diprin"), a recently formed company wholly-owned by Mr. Raja Tuli, the
Company's President and Chief Executive Officer. Although recently
incorporated, Mr. Tuli was actively researching and developing the portable
photo-printer technology, prior to incorporation and Diprin is continuing its
research and development activities. Operations will commence upon the
completion of the development of the photo-printer. Diprin currently has no
operations, previous contracts, revenues or liabilities and was formed by Mr.
Tuli to hold the photo-printer technology to facilitate this acquisition and
the eventual commencement of operations. Diprin owns all the rights to the
photo-printer technology for which a patent application is currently
pending. Diprin has 100 shares of common stock outstanding. After the
acquisition, the Company will be the sole owner of Diprin.
Diprin is completing development of a portable photo-printer
technology, which technology is the sole asset of Diprin. Diprin is
conforming its portable photo-printer technology to that of the rapidly
expanding consumer digital camera market. The Company believes the
technology being developed will allow digital cameras to become instant
photo producing cameras similar to the instant photo producing cameras
marketed by Polaroid. To the best of the Company's knowledge, the portable
photo-printer being developed by Diprin will be the smallest available (at
3"x6"x1.5 and weighing less than one pound) and the most affordable. The
basis for this belief is the Company's knowledge of the industry and
technology, as well as the belief that the design, for which a patent is
pending, will enable the Company to sell the product at a price under
$100.00 US dollars. Currently, there are only two photo-quality printers
available to consumers under $299.00 US dollars, one of which prints only
black and white and neither of which is portable.
The design of the portable photo-printer is in the lastest stages of
completion and phototyping has been scheduled to commence in the fiscal year
ending March 2000. However, there can be no assurances that the photo-printer
will be completed or that phototyping will begin. It is believed that the
portable photo-printer will be ready for release by the fourth quarter of the
fiscal year ending 1999 upon completion of the Beta and Gamma testing.
Development costs and market preparation have been estimated to be
approximately $500,000 US dollars. Although the Company does not
have the funds necessary to complete development or market the photo-printer,
the Board of Directors believes, but can not assure, that the Company will
be able to obtain the additional capital in the future.
The Company believes several companies have developed or are in the
process of developing photo-printers which appeal to photo-enthusiasts and
those who own digital-cameras. Currently, the market consists of approximately
30 photo-printers, primarily desktop or larger units which are incapable of
printing without a computing device. In contrast, Diprin's photo-printer
contains its own source of power which enables it to be portable. Diprin's
photo-printer will be able to print directly from a digital camera. The Company
believes that it can produce a low cost printer because it manufactures its own
print-head. Canon has recently completed the Canon BJ Photo Adapter PC-100,
which provides an interface to connect a digital camera to a printer. However,
the Company believes that the adaptor is scheduled to be released in Japan in
1999.
In determining whether the Company should acquire Diprin, the Board of
Directors considered the photo-printer market as well as the Company's
ability to compete in this market and develop new and innovative products.
The Board of Directors believes that the acquisition of Diprin has the
potential to generate substantial revenue for the Company and that the
purchase price was fair and reasonable.
Proposal
The current proposal is for the Company to acquire Diprin in a stock
for stock exchange. The Company will give Mr. Raja Tuli 500,000 shares of
the Company's Common Stock in exchange for all of the outstanding shares of
Common Stock of Diprin. The Board of Directors, including disinterested
Directors, has determined that the purchase price, is fair and reasonable,
and that the acquisition of Diprin is in the best interests of the Company
and the unaffiliated shareholders, although no outside or independent
valuation of Diprin has been obtained. The factors considered in the valuation
of Diprin were Diprin's potential market share and estimated financial
forecasts, which indicate that Diprin's portable photo-printer technology
would be of significant value to the Company. In September, 1998, the
Company agreed to pay Diprin 500,000 shares of the Company's Common Stock
which traded at a range of from $.375 per share to $.50 per share.
Therefore, the total cost to the Company for the photo-printer technology
shall be a range of from $187,500 to $250,000 in (without consideration of
any discount to the value of the shares since the shares are restricted and not
currently eligible for public resale). The Company believes that the cost of
the portable photo-printer technology, in comparison to the potential revenues
derived from sales of the portable photo-printer and the potential revenues
derived from consumables that will be marketed with the portable photo-
printers, is extremely low. The actual price of Diprin's portable photo-
technology will depend on the price of the Company's Common Stock on the date
of the purchase.
The Board of Directors and the Company's Management believes that the
acquisition of Diprin would enable the Company to expand its product lines,
expand its market share and generate substantial revenue. Therefore, it is
in the Company's best interest to acquire Diprin, and it is anticipated that
the transaction will be consummated within the next 60 days, assuming
approval by the Company's shareholders.
Companies whose securities are quoted on Nasdaq are required to obtain
Shareholder approval if acquiring the assets of another company and any
director, officer or substantial shareholder of the Company has a 5% or
greater interest (or such persons collectively have a 10% or greater
interest), directly or indirectly in the assets to be acquired or in the
consideration to be paid in the transaction or series of related
transactions and the present or potential issuance of common stock, could
result in an increase in outstanding common shares or voting power of 5% or
more. Accordingly, this proposed acquisition cannot take place without the
affirmative vote of the majority of the Company's Shareholders voting on
this Proposal.
Vote Required
The affirmative vote of the holders of a majority of the shares of
Common Stock voting at the Annual Meeting is required for the approval of
the proposed acquisition of Diprin, Inc.
THE BOARD OF DIRECTORS DEEMS THE ACQUISITION OF DIPRIN, INC. TO BE IN THE
BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS A VOTE
"FOR" PROPOSAL III. RAJA S. TULI AND SUNEET S. TULI HAVE AGREED TO ABSTAIN
FROM VOTING THE SHARES OF COMMON STOCK BENEFICIALLY OWNED BY THEM ON THIS
ISSUE.
IV.
AMENDMENT TO THE ARTICLES OF INCORPORATION
TO GRANT THE BOARD OF DIRECTORS AUTHORITY
TO DECLARE AND IMPLEMENT REVERSE SPLITS
OF COMMON STOCK
The Board of Directors has unanimously approved, and recommends
Shareholder approval of, an amendment to the Company's Articles of
Incorporation to grant authority to the Board of Directors to declare and
implement a reverse stock split in the range of from one-for-two (1:2) to
one-for-eight (1:8) ("Reverse Stock Split").
Background of Proposal
The Board of Directors has unanimously approved a proposal to amend
the Articles of Incorporation to effect a Reverse Stock Split of the
Company's Common Stock, $.01 par value per share, in the range of from one-
for-two to one-for-eight, whereby from two shares of Common Stock to eight
shares of Common Stock, currently outstanding, may be exchanged for one new
share of Common Stock. All fractional shares resulting from the Reverse Stock
Split will be settled in cash. The Reverse Stock Split will not affect the par
value of the Common Stock. There are presently 20,000,000 shares of Common
Stock, $.01 par value per share, authorized by the Company's Articles of
Incorporation. Because the number of authorized shares of Common Stock will
not be reduced if a Reverse Stock Split is effected, these shares will be
available for issuance without any further shareholder approval. As of the
Record Date, there were 7,154,598 shares of Common Stock issued and
outstanding and 2,462,460 shares of Common Stock reserved for issuance upon
the conversion or exercise of various securities of the Company. In the event
that a one-for-two Reverse Stock Split is effected, the number of shares of
Common Stock issued and outstanding will be 3,577,299 and the number of shares
of Common Stock reserved for issuance will be 1,231,230. In the event that a
one-for-eight Reverse Stock Split is effected, the number of shares of Common
Stock issued and outstanding will be 894,324 and the number of shares of
Common Stock reserved for issuance will be 307,807. The Company believes that
shareholders will not have any greater difficulty disposing of stock in the
event a Reverse Stock Split is effected.
The Reverse Stock Split is being proposed in order for the Company to
maintain the listing of its Common Stock and Warrants on Nasdaq. On May 27,
1998, the Company received a Letter from Nasdaq regarding the Company's
ability to continue to meet its maintenance criteria. Under Nasdaq rules,
in order to maintain listing of its Common Stock and Warrants on Nasdaq a
Company must have, among other things, either $2,000,000 of net tangible
assets, market capitalization of $35,000,000, $500,000 of net revenue in the
latest fiscal year or 2 of 3 previous fiscal years as well as a minimum bid
price of $1.00 per share. In addition, Nasdaq reserves the right to
withdraw or terminate the Company's listing on Nasdaq at any time and for
any reason at its discretion.
The Nasdaq letter stated that based upon a review of the price data of
the Company's Common Stock on the 30 days' prior to May 27th, the per share
price was less than $1.00 per share. Nasdaq advised the Company that as
long as the bid price of the Company's Common Stock increased to over $1.00
per share for at least 10 consecutive trading days prior to August 27, 1998,
the Company would be in compliance with the maintenance requirement and no
further action would be taken by Nasdaq to delist the Company's Common
Stock. At a hearing held October 16, 1998, to determine the Company's
continued listing, the Company proposed various alternatives and proposals
in order to comply with the Nasdaq maintenance regulations, including
seeking stockholder approval to complete a reverse stock split. The Nasdaq
granted the Company an exception to the minimum bid price requirement for
the continued listing of the Company's Common Stock until February 1, 1999.
The Company's Nasdaq symbol for the Common Stock for the duration of the
exception will be "WIDFC". The Warrants were delisted from Nasdaq since the
Company did not have the required number of market makers making a market in
the Company's Warrants. Previously, the Company's Common Stock was listed for
trading on Nasdaq under the symbol "WIDEF" and the Warrants were listed under
the symbol "WIDWF".
The Company proposes to implement the Reverse Stock Split in the range
of from one-for-two to one-for-eight in an attempt to comply with the Nasdaq
maintenance regulations dependent upon the price of the Common Stock at the
date of the Reverse Stock Split. In the event that the Company completes
the Reverse Stock Split, the number of shares that an investor owns would
be reduced, but theoretically the economic value of the shares held by an
investor would have the same value as prior to the split. While there can
be no assurances that the price of the Common Stock on a post-split basis
will increase to the mathematical equivalent of the Reverse Stock Split,
the Board of Directors believes that it is the Company's only alternative
currently available to raise the price of the Common Stock to a level which
will be acceptable in order to maintain the Company's listing on Nasdaq.
Proposal
The following description of the amendment is qualified in its
entirety by reference to the form of the Amended Articles of Incorporation
annexed hereto as Appendix A.
The Company's Articles of Incorporation currently authorizes the
issuance of 20,000,000 shares of Common Stock, par value $.01 per share. As
of the Record Date, the Company had issued and outstanding 7,154,598 shares
of Common Stock. As of such date, there was also reserved for issuance upon
the conversion or exercise of various securities of the Company 2,462,460
shares of Common Stock, leaving a total of 10,382,942 authorized, unissued
and unreserved shares of Common Stock available for future issuances.
If Proposal IV is approved by Shareholders, from two to eight shares
would be exchanged for one new share of Common Stock in accordance with the
Reverse Stock Split, as of the date on which the amendment to the Company's
Articles of Incorporation is filed with the Ministry of Consumer and
Commercial Relations for the Province of Ontario, Canada (the "Effective
Date"). The par value of the Common Stock would not be effected.
No fractional shares of new Common Stock will be issued for any
fractional new share interest. Rather, each Shareholder who would otherwise
receive a fractional new share of Common Stock as a result of the Reverse
Stock Split will receive an amount of cash equal to the average of the low
bid price of a share of Common Stock as reported by the National Quotation
Bureau, Inc., (or if no price is quoted, the market value of the Common
Stock as determined by the Board of Directors) on the date immediately
preceding the Effective Date multiplied by the number of shares of Common
Stock held by such holder that would otherwise have been exchanged for such
fractional interest. In the event that no market price from the National
Quotation Bureau is available on the Effective Date, the Board of Directors
will determine the market price based upon the market price of the Common
Stock during the most recent 10-day period for which market prices are
available. Because the price of the Common Stock fluctuates, the amount to
be paid for fractional shares cannot be determined until the Effective Date
and may be greater or less than the price on the date that any Shareholder
executes his proxy.
If this Proposal is approved, the Company will notify Shareholders of
the filing of the Amended and Restated Articles of Incorporation with the
Ministry of Consumer and Commercial Relations for the Province of Ontario,
Canada and will furnish to Shareholders of record as of the close of
business on the Effective Date with a Letter of Transmittal for use in
exchanging certificates. The Shareholders of the Company, promptly after
the Amended and Restated Articles of Incorporation becomes effective, will
be requested to mail their certificates representing their shares of Common
Stock of the Company to the Exchange Agent named in the Letter of
Transmittal in order that a new stock certificate giving effect to the
Reverse Stock Split may be issued and proceeds of the settlement of
fractional interests delivered promptly.
After giving effect to the settlement of fractional shares of Common
Stock, there will be no material differences between those securities
outstanding prior to the Effective Date of a Reverse Stock Split and those
to be outstanding after the Effective Date of a Reverse Stock Split. A
Reverse Stock Split will, however, result in adjustments to the exercise
price, conversion rates and number of shares issuable upon the exercise or
conversion of certain outstanding options and warrants.
As a result of the Reverse Stock Split, cash proceeds received from
the settlement of fractional shares may result in a Shareholder realizing
taxable gain or loss to the extent of the difference between such proceeds
and the cost or other basis applicable to the fractional shares. No
officer, director, associate or affiliate of the Company is expected to
derive any material benefit from approval of a Reverse Stock Split other
than the benefits which would be enjoyed by any other person holding the
same number of shares.
The Board of Directors believes that it is in the best interest of the
Company to grant the Board of Directors authority to declare and implement
up to a one-for-eight Reverse Stock Split without the delay and expense of
calling a special meeting to secure Shareholder approval.
Vote Required
A favorable vote of two-thirds (2/3) of the votes cast at the Annual
Meeting is required for the approval of the proposed amendment to the
Articles of Incorporation to grant the Board of Directors authority to
declare and implement Reverse Stock Split of common stock.
THE BOARD OF DIRECTORS DEEMS THE PROPOSED AMENDMENT TO THE ARTICLES OF
INCORPORATION TO GRANT THE BOARD OF DIRECTORS AUTHORITY TO DECLARE AND
IMPLEMENT REVERSE SPLITS OF COMMON STOCK TO BE IN THE BEST INTERESTS OF THE
COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL OF
PROPOSAL IV.
FINANCIAL INFORMATION
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED MARCH 31, 1998 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WILL
BE FURNISHED WITHOUT THE ACCOMPANYING EXHIBITS, WHICH EXHIBITS SHALL BE
FURNISHED TO SHAREHOLDERS, IF REQUESTED, UPON PAYMENT TO THE COMPANY OF
REASONABLE EXPENSES INCLUDING PHOTOCOPYING AND MAILING EXPENSES, TO
SHAREHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST THEREFOR SENT TO SUNEET S.
TULI, SECRETARY, 72 DEVON ROAD, UNIT 18, BRAMPTON, ONTARIO, CANADA L6T 5B4.
Each such request must set forth a good faith representation that as
of the Record Date, the person making the request was the beneficial owner
of Common Shares of the Company entitled to vote at the 1998 Annual Meeting
of Shareholders.
VI. OTHER BUSINESS
As of the date of this Proxy Statement, the foregoing is the only
business which the Board of Directors intends to present, and is not aware
of any other matters which may come before the Annual Meeting. If any other
matter or matters are properly brought before the Annual Meeting, or any
adjournments thereof, it is the intention of the persons named in the
accompanying form of proxy to vote the proxy on such matters in accordance
with their judgment.
VII. STOCKHOLDER PROPOSALS- 1999 ANNUAL MEETING
Proposals of shareholders intended to be presented at the Company's
1999 Annual Meeting of Shareholders must be received by the Company on or
prior to May 1, 1999 to be eligible for inclusion in the Company's proxy
statement and form of proxy to be used in connection with the 1999 Annual
Meeting of Shareholders.
By Order of the Board of Directors
SUNEET S. TULI, Secretary
Dated: December 29, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE AND
RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED
IF IT IS MAILED IN THE UNITED STATES OF AMERICA.
______________________________________________________________
Appendix A
Form of Articles of Amendment
-----------------------------
1. The present name of the corporation is:
The Widecom Group Inc.
----------------------
2. The name of the corporation is changed to (if applicable):
----------------------
3. Date of incorporation
June 15, 1990
----------------------
_________________________________________________________________
4. The articles of the corporation are amended as follows:
Paragraph 9 of the Articles of Incorporation of the corporation is
hereby amended to provide for "a reverse stock split to effect a one
for eight (1:8) reverse stock split of the Corporation's Common Stock,
whereby each new share of the Common Stock will be exchanged for each
8 shares of the Common Stock currently outstanding and all fractional
shares resulting from the reverse stock split will be payable in cash
in an amount equal to the average of the low bid price of a share of
Common Stock as reported by the National Quotation Bureau, Inc. on the
date immediately preceding the effective date of the reverse stock
split, multiplied by the number of shares of Common Stock that could
otherwise have been exchanged for such fractional interest and thereby
decreasing the number of Common Stock issued and outstanding to
894,324 shares of Common Stock."
5. The amendment has been duly authorized as required by Sections 168 &
170 (as applicable) of the Business Corporations Act.
6. The resolution authorizing the amendment was approved by the
shareholder/directors (as applicable) of the corporation on
the th day of January, 1999
------------------------------
These articles are signed in duplicate.
The Widecom Group Inc.
----------------------
(name of corporation)
Sy/Par./s/Raja S. Tuli President
----------------------------------
The WIDECOM GROUP, INC.
Annual Meeting of Shareholders - January 27, 1999
Proxy Solicited By The Board of Directors
The undersigned hereby appoints Raja S. Tuli and Suneet S. Tuli, and each
of them, proxies, with full power of substitution, to vote all shares of
common stock of the Widecom Group, Inc. owned by the undersigned at the
Annual Meeting of shareholders of The Widecom Group, Inc. to be held on
January 27, 1999 and at any adjournments thereof, hereby revoking any proxy
heretofore given. The undersigned instructs such proxies to vote:
I. Election of Directors
[ ] For all nominees listed below [ ] Withhold authority
(except as marked to the to vote for all nominees
contrary below) listed below
(Instruction: To withhold authority for any individual nominee, strike a
line through the nominee's name in the list below.)
Raja S. Tuli Lt. Colonel K.C. Sharma Bruce D. Vallillee
Suneet S. Tuli Dr. Ajit Singh
(Continued and to be signed on reverse side)
II. Proposal For The Private Placement of Units
[ ] For [ ] Against [ ] Abstain
III. Proposal For The Acquisition of Diprin, Inc.
[ ] For [ ] Against [ ] Abstain
IV. Proposal To Amend The Articles of Incorporation To Grant the Board of
Directors Authority to Declare and Implement Reverse Splits of Common
Stock.
[ ] For [ ] Against [ ] Abstain
and to vote upon any other business as may properly become before the
meeting or any adjournment thereof, all as described in the proxy statement
dated December 29, 1998 receipt of which is hereby acknowledged.
Either of the proxies or their respective substitutes who shall be present
and acting shall have and may exercise all the powers hereby granted. The
shares represented by this proxy will be voted FOR the election of five
directors, FOR Proposal For The Private Placement of Units, FOR Proposal
For The Acquisition of Diprin, Inc., FOR Proposal To Amend The Articles of
Incorporation To Grant the Board of Directors Authority to Declare and
Implement Reverse Splits of Common Stock, unless contrary instructions are
given. Said proxies will use their discretion with respect to any other
matters which properly come before the meeting.
Date ________________________________
Signed ______________________________
(Please date and sign exactly as
accounts. Each joint owner should
sign. Executors, administrators,
trustees, etc. should also so
indicate when signing.)
The proxy is solicited on behalf of
the Board of Directors. Please sign
and return in the enclosed envelope.
