SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[X] Definitive Proxy Statement Only (as Permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to
ss.240.14a-11(c) or ss.240.14a-12
Tanner's Restaurant Group, Inc.
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: None
(2) Form, Schedule or Registration Statement No.: Not Applicable
(3) Filing Party: Not Applicable
(4) Date Filed: Not Applicable
Notes
<PAGE>
TANNER'S RESTAURANT GROUP, INC.
1087 Broad Street, 4th Floor
Bridgeport, Connecticut 06604
Letter to Shareholders
August 16, 2000
To Our Shareholders:
On May 31, 2000, Tanner's Restaurant Group, Inc. acquired all of the
outstanding common stock of Fone.com, Limited, a telecommunications company
doing business primarily in the United Kingdom. This acquisition signifies the
transformation of the Company into an international telecommunications company
that will focus on the convergence and integration of international long
distance telecommunications with internet services.
While Fone.com is not yet profitable and has been in existence for a
relatively short period of time, previous Tanner's management believed that it
could capitalize on the strategic alliances and international service agreements
that were either already in place or in the process of being negotiated by Fone.
Our acquisition of Fone.com followed the sale, in February of this year, of
all of the assets used in the operation of the "Rick Tanner's Original Grill"
chain of restaurants. As a result of this sale, we no longer operate or
franchise any restaurants, and we have dedicated ourselves to the transformation
of the Company into an international telecommunications company.
As consideration for the acquisition of Fone.com, we issued 40,000,000
shares of our common stock to DCI Telecommunications, Inc., the former parent of
Fone.com, representing approximately 59.8% of our currently outstanding shares
of common stock. We also assumed certain liabilities of DCI. Shortly after this
acquisition, outside investors agreed to invest $4,553,652 in us in exchange for
two promissory debentures that are convertible into shares of our common stock.
Of this amount, $3,653,652 was invested in us to refinance existing indebtedness
and $900,000 was invested in us to fund our operations and for general working
capital purposes.
Given the significant number of shares issued to DCI, and given the
significant number of shares of common stock that we could become obligated to
issue upon conversion of outstanding convertible securities, including these two
new convertible debentures, and upon exercise of outstanding options and
warrants, we believe it is necessary to amend the Company's articles of
incorporation to increase the number of authorized common shares. We also seek
your approval of an amendment to our articles of incorporation that will effect
a one-for-fifteen reverse stock split of our common stock, with the timing of
the implementation of such a reverse stock split to be at the discretion of our
board of directors. We also want to amend the articles of incorporation to
change our name to "Corzon, Inc.," which reflects that we are no longer engaged
in the restaurant business. Additionally, in accordance with the terms of our
agreement to purchase Fone.com, we need to elect a new board of directors.
Finally, we want to ratify the appointment of Feldman Sherb Horowitz & Co., P.C.
as our accounting firm for the fiscal year ending on December 31, 2000.
We need your approval to carry out these proposals. Accordingly, we
cordially invite you to attend an annual meeting of the Company's shareholders
on Friday, September 8, 2000 at 9:00 a.m. local time at the Holiday Inn, 1070
Main Street, Bridgeport, Connecticut 06604. If you can not attend the meeting in
person, we encourage you to complete, sign and date the enclosed proxy card and
return it as promptly as possible in the enclosed envelope. No postage is
required if the proxy is mailed in the United States.
By Order of the Board of Directors,
/s/ Lawrence Shatsoff
---------------------
Lawrence Shatsoff,
President
<PAGE>
TANNER'S RESTAURANT GROUP, INC.
1087 Broad Street, 4th Floor
Bridgeport, Connecticut 06604
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 8, 2000
To the shareholders of Tanner's Restaurant Group, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of
Tanner's Restaurant Group, Inc., a Texas corporation (the "Company" or "we"),
will be held at the Holiday Inn, 1070 Main Street, Bridgeport, Connecticut
06604, on Friday, September 8, 2000 at 9:00 a.m. local time. At the meeting, we
will ask you to:
(1) Approve an amendment to our articles of incorporation to increase the
number of authorized shares of common stock from 200,000,000 to
500,000,000 shares.
(2) Approve an amendment to our articles of incorporation to effect a
one-for-fifteen reverse stock split of our common stock, with the
timing of the implementation of such a reverse stock split to be at
the discretion of the board of directors.
(3) Approve an amendment to our articles of incorporation to change our
name to "Corzon, Inc."
(4) Elect Jose A. Auffant, Lawrence Shatsoff and Clifford Postelnik to the
board of directors.
(5) Ratify the appointment of Feldman Sherb Horowitz & Co., P.C. as our
independent auditors for the fiscal year ending December 31, 2000.
(6) Vote on such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
The foregoing items of business are described more fully in the proxy
materials accompanying this Notice. July 17, 2000 is the record date for
determining shareholders entitled to notice of and to vote at the meeting.
We cordially invite you to attend the meeting in person. Regardless of
whether you plan to attend, please complete, sign and date the enclosed proxy
card and return it as promptly as possible in the enclosed envelope. No postage
is required if the proxy is mailed in the United States.
By Order of the Board of Directors,
/s/ Lawrence Shatsoff
---------------------
Lawrence Shatsoff,
President
Bridgeport, Connecticut
August 16, 2000
<PAGE>
TANNER'S RESTAURANT GROUP, INC.
1087 Broad Street, 4th Floor
Bridgeport, Connecticut 06604
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 8, 2000
General Information
We are furnishing this Proxy Statement in connection with the solicitation
of proxies by the board of directors of Tanner's Restaurant Group, Inc. (the
"Company" or "we") for use at the annual meeting of the Company's shareholders
on Friday, September 8, 2000 at 9:00 a.m. local time, and at any adjournment or
postponement of such meeting. The Annual Meeting will be held at the Holiday
Inn, 1070 Main Street, Bridgeport, Connecticut 06604. We are mailing this proxy
statement and the accompanying proxy card on or about August 16, 2000 to all
shareholders entitled to vote at the Annual Meeting.
Voting and Record Date
The board of directors has fixed the close of business on July 17, 2000 as
the record date for the meeting. Only persons who held shares of our common
stock of record as of the record date will be entitled to notice of and to vote
at the meeting. Each shareholder of record of common stock on the record date is
entitled to cast one vote per share, exercisable in person or by a properly
executed proxy at the meeting. As of the record date, 66,857,197 shares of our
common stock were outstanding and entitled to vote.
The presence at the meeting, in person or by a proxy, of the holders of a
majority of the shares of common stock outstanding on the record date will
constitute a quorum at the meeting. Inspectors appointed by the Company will
count votes. Shares represented by proxies that reflect abstentions or include
"broker non-votes" will be treated as shares that are present and entitled to
vote for purposes of determining the presence of a quorum (a broker non-vote
occurs when a registered broker holding customer securities in street name has
not received voting instructions from the beneficial owner regarding any
"non-routine" matter as so designated by that broker's self-regulatory
organization).
Approval of each of the amendments to our articles of incorporation
requires the affirmative vote of the holders of two-thirds of our issued and
outstanding common stock as of the record date. Election of each nominee to the
board of directors requires the affirmative vote of the holders of a plurality
of the shares of common stock entitled to vote and represented in person or by
proxy at the meeting, and ratification of Feldman Sherb Horowitz & Co., P.C. as
our independent public accountants requires the affirmative vote of the holders
of a majority of the shares of common stock entitled to vote and represented in
person or by proxy at the meeting. Abstentions and broker non-votes will be
treated as "no" votes for purposes of determining whether approval of each
proposal has been obtained.
If a sufficient number of votes to adopt the proposals is not present,
either in person or by proxy, at the meeting, we intend to adjourn the meeting
to solicit additional votes. At any such adjourned meeting, all proxies will be
voted in the same manner as they would have been voted at the meeting.
<PAGE>
Proxies
All shares of common stock represented at the meeting by properly executed
proxies received prior to or at the meeting, and not duly and timely revoked,
will be voted at the meeting in accordance with the choices marked by the
shareholders. Unless a contrary choice is marked, or if the proxy is left blank
as to choice, the shares will be voted "For" approval of each proposal.
The board of directors is not aware of any other matters not referred to in
these proxy materials that will be presented for action at the meeting. If any
other matters properly come before the meeting, the persons designated in the
proxy intend to vote the shares represented thereby in accordance with their
best judgment.
You may revoke any proxy at any time before it is voted. Proxies may be
revoked by: (a) filing with the Secretary of the Company at or before the taking
of the vote at the meeting a written revocation bearing a later date than the
proxy, (b) duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of the Company before the taking of the vote at
the meeting, or (c) attending the meeting and voting in person (although
attendance at the meeting alone will not revoke a proxy).
No Dissenters' Rights
The taking of the proposed actions will not entitle any shareholder to
dissent and demand a right of appraisal or payment for its shares under the
Texas Business Corporation Act.
Costs of Solicitation
The board of directors is making this proxy solicitation and the Company
will pay all of the expenses involved in preparing, assembling and mailing these
proxy materials, along with the costs of soliciting proxies. In addition to
solicitation by mail, directors, officers, and regular employees of the Company
may solicit proxies by telephone or personal interview. They will receive no
compensation for their services other than their regular compensation. The
Company will also make arrangements with brokerage houses and other custodians,
nominees and fiduciaries to forward solicitation materials to the beneficial
owners of the shares held of record by such persons. The Company may reimburse
such persons for reasonable out-of-pocket expenses they incur in doing so.
Other Information
Our principal executive offices are located at 1087 Broad Street, 4th
Floor, Bridgeport, Connecticut 06604, and our telephone number is (203)
333-6389.
Holders of shares of the common stock are requested to complete, date, and
sign the enclosed Proxy and to return it to the Company in the postage paid
envelope provided.
2
<PAGE>
PROPOSAL 1: AMENDMENT TO INCREASE THE NUMBER OF AUTHORIZED SHARES
Overview
Under our articles of incorporation, we are presently authorized to issue
200,000,000 shares of common stock, par value $.01 per share, and 5,000,000
shares of preferred stock, par value $1.00 per share. As of the close of
business on July 17, 2000, 66,857,197 shares of common stock, 446,410 shares of
Series A Preferred Stock, 8841.5 shares of Series D Preferred Stock, and 744,500
shares of Series E Preferred Stock were outstanding.
The increase in the number of authorized shares is necessary because we
need additional authorized shares of common stock in order to have a sufficient
number of shares available for issuance upon conversion of the outstanding
shares of our Series A Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock, upon conversion of two recently issued convertible debentures
and upon exercise of outstanding warrants and options. Given the number of
shares of common stock now outstanding, and assuming all of the preferred stock,
convertible debt, warrants, and options were to be converted or exercised
(assuming, for purposes of the Series D Preferred Stock and the two new
convertible debentures, a trading price of the common stock of $.08 per share,
the closing price on the OTC Bulletin Board on the record date), we would have
approximately 299,045,745 shares of common stock outstanding, which would be
approximately 99,045,745 more shares than the 200,000,000 shares we are now
authorized to issue. If the market price of the common stock were to decrease to
$.05, then the total number of shares of common stock outstanding following
conversion and exercise of all outstanding securities would be 427,471,327. If
the market price of the common stock were to decrease further, the total number
of shares of common stock issuable upon conversion and exercise of outstanding
securities would increase. If we do not amend our articles of incorporation and
cannot issue shares of common stock upon conversion or exercise of the preferred
stock, warrants, and options, we will likely incur substantial liability to the
holders of such securities.
The increase in the number of authorized shares is also necessary because
we may need additional shares of common stock for future acquisitions, stock
dividends, and for other matters. Our ability to sustain operations, make future
capital expenditures, and fund the development and marketing of our operations
is dependent in part on our ability to raise additional capital.
If the amendment is approved, all or any part of the additional authorized
but unissued shares may be issued without further approval by the shareholders,
for such purposes and on such terms as the board of directors may determine. (If
we are able to list the common stock on the Nasdaq SmallCap Market or a national
exchange, of which we can offer no assurances, the listing agreement with Nasdaq
or the exchange will require shareholder approval of certain issuances. No such
requirement now applies to us.) Holders of our common stock do not have any
preemptive rights to subscribe for the purchase of any shares of common stock,
which means that current shareholders do not have a prior right to purchase any
new issue of common stock to maintain their proportionate ownership. The
amendment will not affect the rights of existing holders of common stock except
to the extent that future issuances of common stock will dilute each existing
shareholder's proportionate ownership interest in us.
Potential Dilution. Each share of Series D Preferred Stock is convertible
into shares of common stock at a ratio determined by the following formula:
$1,000 divided by 80% of the per share market value of the common stock. Using
the closing market price on the OTC Bulletin Board on July 17, 2000 of $.08 per
share, the 8841.5 shares of Series D Preferred Stock that are currently
outstanding would be convertible into 138,148,438 shares of common stock. If the
market price of the common stock were to decrease to $.05, these 8841.5 shares
of Series D Preferred Stock would be convertible into 221,037,500 shares of
common stock. Conversely, if the market price of the common stock were to
increase to $.25, these 8841.5 shares of Series D Preferred Stock would be
convertible into 44,207,500 shares of common stock. (These calculations are
intended to serve only as examples, not as predictions as to the future market
price of the common stock.)
Similarly, our two recently issued convertible debentures, in the aggregate
principal amount of $4,553,652, are convertible into shares of common stock in
accordance with a formula that depends on the market price of the common stock.
These two debentures were issued following our acquisition of Fone.com, Limited.
See "Proposal 3: Amendment to Change the Company's Name." Specifically, the
number of shares of common stock issuable upon conversion of these debentures is
equal to the principal amount of the debentures divided by the lesser of: (i)
$.75; or (ii) the average of the five lowest closing prices of the common stock
during the twenty trading days immediately preceding the date of conversion.
3
<PAGE>
Furthermore, the holders of our Series A Preferred Stock and Series E
Preferred Stock and the holders of options and warrants to acquire shares of our
common stock, will be able to convert or exercise, as applicable, their
securities into shares of common stock. Consequently, substantial dilution of
the voting power of the current shareholders is likely as convertible securities
are converted and options and warrants are exercised over time.
Changes in Control
Since the beginning of 1999, three changes in control of the Company have
occurred.
In January 1999, we issued 4,123,219 shares of our common stock,
representing record ownership of 50.1% of the then-outstanding shares of our
common stock, to the former shareholders of TRC Acquisition Corporation, which
owned and franchised the "Rick Tanner's Original Grill" chain of restaurants, in
connection with the merger of TRC with and into Hartan, our wholly-owned
subsidiary. These shares now represent approximately 6.2% of the outstanding
shares of our common stock.
On May 11, 2000, a group of persons owning shares of our Series D preferred
stock, acting together, converted a portion of their shares of Series D
preferred stock into shares of our common stock in transactions that resulted in
a change in control of the Company. After conversion, these persons, and those
persons acting with them, owned or controlled 51.2% of the outstanding shares of
our common stock. These persons were Sovereign Partners, L.P., Cache Capital
(USA), L.P., Dominion Capital Fund Limited, Fetu Holdings, Ltd., the Rearden
Trust, Oscar Brito and Sandro Grimaldi. These persons now own of record
approximately 18.2% of the outstanding shares of our common stock.
Effective May 31, 2000 (closing date June 2, 2000), we purchased from DCI
Telecommunications, Inc. all of the outstanding stock of Fone.com, Limited, a
company organized under the laws of England and Wales, in exchange for
40,000,000 shares of our common stock, representing 62.67% of the
then-outstanding shares of common stock, and our assumption of $3,453,652 of
debt of DCI. DCI now owns of record 59.8% of the outstanding shares of our
common stock. See "Proposal 3: Amendment to Change the Company's Name."
Effect of the Proposed Amendment on the Company's Shareholders
If the proposal to amend our articles of incorporation to increase the
number of authorized shares to 500,000,000 is adopted, shareholders will retain
their equity interests in us, although such interests will be subject to the
possibility of significant future dilution of voting power. The number of shares
of common stock that we are authorized to issue will increase from 200,000,000
to 500,000,000 and, upon the issuance of additional shares of common stock, the
voting power of the current shareholders will be diluted. Because the
outstanding shares of Series A, Series D and Series E Preferred Stock and the
convertible debentures (see "Description of Securities - Convertible
Debentures") are or will be convertible into shares of common stock and the
outstanding options and warrants are currently exercisable for shares of common
stock, we are obligated to issue additional shares of common stock at the
election of the holders of those securities. The proposed amendment will not
result in any changes in the rights of the shareholders.
Also, if the proposal to increase the number of authorized shares is
adopted, the number of authorized but unissued shares will increase. This
increase could make a change in control of the Company more difficult to
achieve. Under certain circumstances, such shares of common stock could be used
to create voting impediments to frustrate persons seeking to effect a takeover
or otherwise gain control of the Company. Among other things, such shares could
be sold privately to purchasers who might side with the board of directors in
opposing a takeover bid that the board of directors determines is not in the
best interests of the Company and its shareholders.
Consequences of the Failure of the Shareholders to Approve the Proposed
Amendment
If the shareholders do not approve Proposal 1, we will be adversely
affected in several ways. First, we may be forced to pay penalties if we are
unable to convert shares of Series D Preferred Stock upon demand. If we are
unable to issue the shares of common stock to a holder of Series D Preferred
Stock who presents his shares for conversion, we will be required to rectify the
problem within 45 days. If we cannot do so, we must pay a penalty to all holders
of shares of Series D Preferred Stock in an amount equal to approximately .07%
of the stated value of the outstanding shares of Series D Preferred Stock held
by each holder for each day that we are unable to convert shares for which the
shareholder has requested conversion. For example, assuming that no shares of
common stock are available for issuance when a holder of Series D Preferred
Stock presents his shares for conversion, and assuming 8841.5 shares of Series D
Preferred Stock are outstanding, we will be penalized approximately $6,189 for
4
<PAGE>
each day that we do not have shares of common stock available to convert all
outstanding shares of Series D Preferred Stock. If we cannot increase the
authorized shares for 180 days, for example, the total penalty would be
approximately $1,114,029.
Moreover, the failure of the shareholders to approve Proposal 1 is likely
to expose us to liability to holders of warrants, options and other securities
that entitle the holder to acquire shares of common stock. A number of the
contracts between these holders and us require that we reserve a number of
shares sufficient to support the exercise or conversion of the securities. If an
adequate number of shares is not reserved, we will be in violation the
underlying agreements and be exposed to claims by the holders of such
instruments.
Description Of Securities
Our articles of incorporation authorize the board of directors to issue
200,000,000 shares of common stock, par value $0.01 per share, and 5,000,000
shares of preferred stock, par value $1.00 per share, in one or more series or
classes, and to determine the rights, powers, preferences, limitations and
restrictions of each series or class. As described below, the board of directors
has designated, to date, 3,754,200 shares of preferred stock into three classes.
Common Stock
Holders of common stock are entitled to receive dividends as the board of
directors may legally declare from time to time. Each holder of common stock is
entitled to one vote for each share held of record on all matters submitted to a
vote of shareholders, including the election of directors. Shareholders have no
right to cumulate votes in the election of directors. Holders of common stock
have no preemptive or redemption rights and have no right to convert their
common stock into any other securities. Upon our liquidation, dissolution or
winding up, holders of common stock will be entitled to share ratably in our net
assets available for distribution to common shareholders. The rights of the
holders of the common stock are subordinate to the rights of holders of
preferred stock. Accordingly, the rights conferred on holders of any additional
shares of preferred stock that are issued in the future under the articles of
incorporation may adversely affect the rights of holders of the common stock.
All of the outstanding shares of common stock are fully paid and non-assessable.
As of July 17, 2000, 66,857,197 shares of common stock were outstanding.
Preferred Stock
The board of directors may from time to time authorize us to issue
preferred stock without action by the shareholders. The preferred stock may be
in one or more series for such consideration, and with such relative rights,
privileges, and preferences, as the board may determine. Accordingly, the board
has the power to fix the dividend rate and to establish the provisions, if any,
relating to voting rights, redemption rate, sinking fund, liquidation
preferences, and conversion rights for any series of preferred stock issued in
the future.
Series A Redeemable Convertible Preferred Stock. On June 23, 1997, the
board of directors approved the issuance of 3,000,000 shares of Series A
Redeemable convertible preferred stock of the Company. The original issue price
of the Series A preferred stock was $10.00 per share. Holders of Series A
preferred stock are entitled to receive dividends at the annual rate of 12% of
the original issue price per share, or $1.20 per share, payable quarterly in
cash or in common stock at our sole discretion. Dividends are cumulative from
the date of issue. We may not declare or pay cash dividends on any other series
of preferred stock that is junior to or on par with the Series A preferred
stock, or on the common stock, nor may we redeem, purchase or otherwise acquire
any of that stock, unless full cumulative dividends have been or are
contemporaneously paid on the Series A preferred stock. Under the terms of our
guaranty of our subsidiary's secured loan from FINOVA Mezzanine Capital, Inc.,
we may pay cash dividends on the Series A preferred stock only if (a) our
subsidiary makes an equal prepayment on the FINOVA note; and (b) the payments do
not cause us to breach a specified financial covenant.
If we are liquidated or dissolved, the holders of shares of Series A
preferred stock are entitled to receive out of our assets available for
distribution to shareholders, before any distributions are made to holders of
common stock or of any other shares of our capital stock ranking junior to the
Series A preferred stock, liquidating distributions in the amount of $10.00 per
share, plus accrued and unpaid dividends.
The Series A preferred stock is redeemable at our option at any time, in
whole or in part, for cash or in common stock, on at least 30 days' notice. The
price payable upon redemption is 110% of the average bid price per share of the
Series A preferred stock as quoted on the Nasdaq SmallCap Market, or other
national securities exchange, for the 20 trading days before the redemption
date, plus all accrued and unpaid dividends. If the Series A preferred stock is
5
<PAGE>
not quoted by Nasdaq or listed on a securities exchange, its market value will
be the fair value as determined by a member of a national securities exchange
selected by us or by the board of directors.
The Series A preferred stock automatically converts into common stock if
the closing price for the Series A preferred stock equals or exceeds $20.00 per
share for a period of ten consecutive trading days. The holders of Series A
preferred stock have the right, at their option, to convert any or all their
shares of Series A preferred stock into common stock. The number of shares of
common stock issuable on conversion of a share of Series A preferred stock is
equal to $10.00 divided by $3.70, subject to adjustment. Holders of Series A
preferred stock may also convert their shares, if we call them for redemption,
at any time up to and including the close on business on the fifth full business
day before the date fixed for redemption.
The holders of the Series A preferred stock have no voting rights except as
otherwise required by the Texas Business Corporation Act and applicable law. The
holders of shares of Series A preferred stock have no preemptive or other rights
to subscribe for any other shares or securities. The Series A preferred stock
ranks ahead of the common stock as to dividends and on our liquidation.
As of the close of business on July 17, 2000, 446,410 shares of Series A
preferred stock were issued and outstanding.
Series B Convertible Preferred Stock. On January 14, 1999, all 133.2 of the
outstanding shares of Series B convertible preferred stock were exchanged for
1,998 shares of Series D convertible preferred stock. No other shares of Series
B preferred stock are outstanding, and the board of directors does not intend to
issue any more shares of Series B preferred stock.
Series C Convertible Preferred Stock. On January 14, 1999, all 200 of the
outstanding shares of Series C convertible preferred stock were exchanged for
2,600 shares of Series D preferred stock. No other shares of Series C preferred
stock are outstanding, and the board of directors does not intend to issue any
more shares of Series C preferred stock.
Series D Convertible Preferred Stock. The original issue price of the
Series D preferred stock is $1,000 per share. Dividends on the Series D
preferred stock accrue at an annual rate of 7% of the original issue price, or
$70 per share, and are payable in cash or common stock, as determined by the
holders, only at the time of conversion of such shares. Dividends are cumulative
from the date of issue. Unless full cumulative dividends have been or are
contemporaneously paid on the Series D preferred stock, we may not declare or
pay cash dividends on the common stock, nor may we redeem, purchase or otherwise
acquire common stock, nor may we make any other distribution with respect to the
common stock or any class of capital stock on a parity with or junior to the
Series D preferred stock. Under the terms of our guaranty of our subsidiary's
secured loan from FINOVA, we may pay cash dividends on the Series D preferred
stock so long as (a) our subsidiary makes an equal prepayment on the FINOVA
note; and (b) we are not in default under the loan documents governing the loan
and no default is created by such payments.
If we are liquidated or dissolved, the holders of shares of Series D
preferred stock are entitled to receive out of our assets available for
distribution to shareholders, before any distributions are made to holders of
common stock or of any other shares of our capital stock ranking junior to the
Series D preferred stock, liquidating distributions in the amount of $1,000 per
share, plus accrued and unpaid dividends.
The Series D preferred stock is convertible at the option of the holder
into shares of common stock for up to three years after initial issuance. After
three years, the Series D preferred stock will convert automatically into shares
of common stock. The conversion rate per share is equal to $1,000 divided by 80%
of the five-day average closing bid price of the common stock on the Nasdaq
Stock Market, the OTC Bulletin Board, or on any other national securities
exchange on which the common stock is listed at the time of conversion. We are
not required, however, to convert any shares if the conversion would result in
the issuance of 20% or more of the issued and outstanding common stock to the
holders of the Series D preferred stock, as provided by Nasdaq Marketplace Rule
4320(e)(21)(H), unless we obtain shareholder approval of that conversion. If a
conversion is requested and we do not convert the Series D preferred stock
because of the Nasdaq rule, we will pay the holder of the Series D preferred
stock 125% of the principal amount of the issued and outstanding Series D
preferred stock plus accrued interest.
Holders of Series D preferred stock may not convert those shares into
shares of common stock if and to the extent that upon conversion that holder
would beneficially own more than 4.99% of the outstanding common stock.
6
<PAGE>
The Series D preferred stock is non-voting, and it is ranked junior to the
Company's Series A preferred stock. The holders of the Series D preferred stock
have no preemptive rights or other rights to subscribe for any of our other
shares or securities.
On January 14, 1999, 133.2 shares of Series B preferred stock and 200
shares of Series C preferred stock were exchanged for 4,598 shares of Series D
preferred stock. We issued 1,300 shares of Series D preferred stock for
$1,000,000 in January 1999, and we issued another 1,300 shares of Series D
preferred stock for $1,000,000 in February 1999. In May and June 1999, we issued
another 500 shares of Series D preferred stock to certain of the outside
investors in exchange for $500,000. We issued the final 1,500 shares of Series D
preferred stock upon receipt of $1,500,000 in September 1999. The outside
investors who purchased Series D preferred stock for cash or by exchanging
Series B or Series C preferred stock also were issued common stock purchase
warrants, as described below.
As of July 17, 2000, 8841.5 shares of Series D preferred stock were issued
and outstanding.
Series E Convertible Preferred Stock. A total of 744,500 shares of Series E
preferred stock are issued and outstanding. The original issue price of the
Series E preferred stock is $10.00 per share. Dividends on the Series E
preferred stock accrue at an annual rate of 8% of the original issue price, or
$0.80 per share, and are payable in cash or common stock, as we determine, only
at the time of conversion of the shares. Dividends are cumulative from the date
of issue. Unless full cumulative dividends have been or are contemporaneously
paid on the Series E preferred stock, we may not declare or pay cash dividends
on the common stock, nor may we redeem, purchase or otherwise acquire common
stock, nor may we make any other distribution with respect to the common stock
or any class of capital stock on a parity with or junior to the Series E
preferred stock. Under the terms of our guaranty of our subsidiary's secured
loan with FINOVA, we may not pay cash dividends on the Series E preferred stock.
If we are liquidated or dissolved, the holders of shares of Series E
preferred stock are entitled to receive out of our assets available for
distribution to shareholders, before any distributions are made to holders of
common stock or of any other shares of our capital stock ranking junior to the
Series E preferred stock, liquidating distributions in the amount of $10.00 per
share, plus accrued and unpaid dividends.
The Series E preferred stock is redeemable at our option at any time after
six months from the date of issuance, in whole or in part, for $0.01 per share,
if the average closing bid price of our common stock, as quoted on any national
securities exchange, Nasdaq, or the OTC Bulletin Board, exceeds $3.50 per share
for five (5) consecutive trading days.
Each share of Series E preferred stock is convertible at the option of the
holder into four shares of common stock at any time after six months from the
date of issuance, subject to adjustment. The Series E preferred stock is
non-voting, and it is ranked junior to our Series A preferred stock and Series D
preferred stock. The holders of the Series E preferred stock have no preemptive
rights or other rights to subscribe for any of our other shares or securities.
Redeemable Preferred Stock Purchase Warrants
As of July 17, 2000, Redeemable Preferred Stock Purchase Warrants to
purchase 1,723,400 shares of our Series A Preferred Stock were outstanding, plus
a warrant issued to the underwriters of the offering of these warrants to
purchase 200,000 additional shares of our common stock. Each warrant represents
the right to purchase one share of Series A preferred stock at an exercise price
of $10.50 per share until June 11, 2002, subject to adjustment. These warrants
may be redeemed, in whole or in part, at our option, upon 30 days' notice, at a
redemption price equal to $0.01 per warrant at any time if the closing price of
the Series A preferred stock on the Nasdaq SmallCap Market averages at least
$11.00 per share for a period of 20 consecutive trading days or if we redeem the
Series A preferred stock.
Common Stock Purchase Warrants
At July 17, 2000, there were Common Stock Purchase Warrants to purchase
2,300,000 shares of our common stock outstanding, which we refer to as the IPO
Warrants, plus additional warrants issued to the underwriters of the offering of
the IPO Warrants to purchase 300,000 shares of our common stock. Each IPO
Warrant entitles the holder to purchase one share of common stock at $4.00 per
7
<PAGE>
share until July 9, 2001, subject to adjustment. IPO Warrants may be redeemed,
in whole or in part, at our option, upon 30 days notice, at a redemption price
equal to $0.01 per IPO Warrant at any time, if the closing price of the common
stock on the Nasdaq SmallCap Market averages at least $8.00 per share for a
period of 20 consecutive trading days. The other warrants are exercisable at
prices ranging from $2.00 per share to $6.60 per share.
We have also issued warrants to purchase 135,000 shares of common stock at
an exercise price of 110% of the average closing bid price of the common stock
on certain benchmark dates (subject to certain adjustments) to Sterling Capital,
LLC, and have issued warrants to purchase 699,259 shares of common stock
(increasing to 756,331 shares on October 22, 2000) at an exercise price of $.01
to FINOVA, our subsidiary's secured lender. In November, 1999, we issued
warrants to purchase an aggregate of 175,000 shares of our common stock at an
exercise price of $.04 to two of our unsecured lenders. Warrants to purchase
300,000 shares at an exercise price of $2.50 per share are also outstanding, and
we agreed last year to issue warrants to purchase 150,000 shares of common stock
to our public relations firm, although we have not yet issued such warrants. In
addition, we believe that there are outstanding options to acquire approximately
2,216,625 shares of our common stock at various exercise prices, although a
portion of these options may have expired by their terms or otherwise been
forfeited or cancelled.
As noted above, we issued common stock purchase warrants to holders of our
Series D preferred stock to purchase 919,800 shares of common stock at a price
of $2.00 per share. These warrants are exercisable for five years after
issuance.
Convertible Debentures
In early June, 2000, we issued two 6% Secured Convertible Debentures in an
aggregate principal amount of $4,553,652. These Debentures bear interest at a
rate of 6% per annum and will mature on June 7, 2002. These Debentures entitle
the holders thereof to convert all or a portion of the Debentures into shares of
our common stock at a conversion price which is the lower of (i) $.75 per share
or (ii) seventy-five percent of the average of the five lowest closing prices of
our common stock during the twenty preceding trading days immediately prior to
the date of conversion. In addition, the conversion price will be further
reduced by a ten percent discount if, before October 5, 2000, we sell shares of
our common stock without the consent of all of the holders of the Debentures at
a price that is lower than either the market price of our common stock on June
7, 2000 or $.75 per share. The maximum number of shares of common stock into
which the holder of a Debenture may convert is capped at 4.9% of the total
number of outstanding shares of our common stock, as determined in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended. The
holder of a Debenture may convert into additional shares of common stock only to
the extent that previously converted shares of common stock have been sold in
the open market, such that that total number of shares beneficially owned by
that holder never exceeds 4.9% of the outstanding shares of our common stock.
The Company may redeem the Debentures in whole or in part at redemption prices
that increase over time from 123.33% of the principal amount (during the 120 day
period following June 7, 2000) to 133.33% of the principal amount (at any time
more than 180 days after June 7, 2000). The Debentures are secured by all of the
assets and property of the Company, including a pledge of all of the outstanding
shares of Fone.com.
Certain Provisions of Our Bylaws and Texas Law
Number, Term and Removal of Directors. Our bylaws provide that the number
of directors must not be less than one and not be more than five. We currently
have two directors. Upon a vacancy created in the board of directors, a
successor or new director may be appointed by the affirmative vote of a majority
of the directors then in office.
Special Shareholder Meetings. Our bylaws provide that special meetings of
shareholders may be called at any time by a majority of the board of directors,
the chairman of the board or our president, and that special meetings of
shareholders must be called when the holders of shares representing at least 10%
of the votes entitled to be cast on each issue presented at the meeting request
a meeting in writing.
Texas Anti-Takeover Statutes. Some provisions of the Texas Business
Corporation Act may be considered to have anti-takeover effects and may hinder,
delay, deter or prevent a tender offer, proxy contest or other attempted
takeover that a shareholder may deem to be in his best interest. Those
provisions might allow the board of directors to defend against an attempted
transaction that might otherwise result in payment of a premium over the market
price for shares the shareholder holds.
8
<PAGE>
Transfer Agent and Registrar
The transfer agent and registrar for the common stock, the common stock
purchase warrants, the Series A preferred stock, the Series A preferred stock
purchase warrants and the Series D preferred stock is Corporate Stock Transfer,
3200 Cherry Creek Drive South, Suite 430, Denver, Colorado 80209. We have acted
as our own transfer agent and registrar for the Series E preferred stock.
Recommendation of the Board of Directors
Approval and adoption of this proposed amendment requires the affirmative
vote of the holders of two-thirds of the issued and outstanding common stock
entitled to vote on the amendment. The board of directors believes that the
proposed amendment to increase the number of authorized shares is fair and in
the best interests of the Company and its shareholders. Accordingly, the board
of directors has unanimously approved the proposal and recommends that you vote
"For" its approval.
9
<PAGE>
PROPOSAL 2: TO APPROVE AN AMENDMENT TO THE ARTICLES OF INCORPORATION TO EFFECT
A REVERSE STOCK SPLIT
The board of directors has adopted a proposal to effect a one-for-fifteen
reverse split of the issued and outstanding shares of common stock, par value
$.01 per share, of the Company, in the manner prescribed below. An amendment to
Article Four of our articles of incorporation is required to effect the reverse
stock split.
The amendment to the articles of incorporation would effect a
one-for-fifteen reverse stock split of the common stock. If the reverse stock
split is approved by the shareholders, each fifteen shares of common stock
outstanding on the Effective Date (as defined below) will be converted
automatically into one share of common stock. To avoid the creation of
fractional shares of common stock, shareholders who would otherwise be entitled
to receive fractional shares of common stock will receive a cash distribution in
lieu thereof. See "Exchange of Stock Certificates." The "Effective Date" will be
the date on which the amendment is filed with the Secretary of State of the
State of Texas.
Notwithstanding approval of the reverse stock split by the shareholders, we
may elect not to file, or to delay the filing of, the amendment, if we determine
that filing the amendment would not be in the best interest of our shareholders
at such time. The board of directors will construe approval of the reverse split
by the shareholders to confer authority to the Company to effect the reverse
split in the discretion of management of the Company and at such time as
management of the Company shall deem to be in the best interest of the Company,
but in no event more than eleven months after the September, 2000 annual meeting
of shareholders. In the event that the Company has not effected the reverse
split within eleven months after the September, 2000 annual meeting of
shareholders, it will again seek shareholder approval before effecting the
reverse split.
Reasons for the Reverse Stock Split
We believe that the reverse stock split is likely to cause the stock price
of the common stock and the number of shares of common stock outstanding to be
more appropriately aligned with the Company's peers in the telecommunications
sector. The reverse stock split should cause the common stock to be more
attractive to the financial community and may reduce trading costs for the
investing public.
Under our articles of incorporation, we are presently authorized to issue
200,000,000 shares of common stock, par value $.01 per share, and 5,000,000
shares of preferred stock, par value $1.00 per share. As of the close of
business on July 17, 2000, 66,857,197 shares of common stock, 446,410 shares of
Series A Preferred Stock, 8841.5 shares of Series D Preferred Stock, and 744,500
shares of Series E Preferred Stock were outstanding, held by 102, 13, 9, and 4
holders of record, respectively.
The reverse stock split is necessary because it will make available
additional authorized but unissued shares of common stock in order to have a
sufficient number of shares available for issuance upon conversion of the
outstanding shares of our Series A Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock, upon conversion of two recently issued convertible
debentures and upon exercise of outstanding warrants and options. Given the
number of shares of common stock now outstanding, and assuming all of the
preferred stock, convertible debt, warrants, and options were to be converted or
exercised (assuming, for purposes of the Series D Preferred Stock and the two
new convertible debentures, a trading price of the common stock of $.08 per
share, the closing price on the OTC Bulletin Board on the record date), we would
have approximately 299,045,745 shares of common stock outstanding, which would
be approximately 99,045,745 more shares than the 200,000,000 shares we are now
authorized to issue. If the market price of the common stock were to decrease to
$.05, then the total number of shares of common stock outstanding following
conversion and exercise of all outstanding securities would be 427,471,327. If
the market price of the common stock were to decrease further, the total number
of shares of common stock issuable upon conversion and exercise of outstanding
securities would increase. If we do not amend our articles of incorporation and
cannot issue shares of common stock upon conversion or exercise of the preferred
stock, warrants, and options, we will likely incur substantial liability to the
holders of such securities.
10
<PAGE>
By making available additional shares of authorized but unissued common
stock, the reverse split will enable us to have more authorized shares available
for future acquisitions, stock dividends, and for other matters. Our ability to
sustain operations, make future capital expenditures, and fund the development
and marketing of our operations is dependent in part on our ability to raise
additional capital.
In addition to the foregoing agreements, the Company has been in
negotiations for the settlement of various claims which have been asserted
against the Company and/or certain of its subsidiaries. It is possible that a
portion of settlement payments to these persons and/or entities may be made
either in shares of common stock or warrants to purchase common stock.
The reverse stock split will enable the Company to fully reserve shares for
issuance (1) upon the conversion or exercise of such securities, and (2) in
connection with settlement of claims and in future acquisition activities. If
the Company is not able to amend its Articles of Incorporation to increase the
number of authorized but unissued shares, either through a reverse stock split
or an increase in the number of authorized shares, or both, it may not be able
to address the foregoing issues in a satisfactory manner.
While the amendment to the Company's articles of incorporation to increase
the number of authorized but unissued shares may be sufficient to address these
concerns if approved, there are other reasons for the reverse split. For
example, many institutional and other investors look upon stock trading at low
prices as unduly speculative in nature and, as a matter of policy, avoid
investment in such stocks. Accordingly, we believe that the current per share
price of the common stock may reduce the effective marketability of the shares
because of the reluctance of many leading brokerage firms to recommend low
priced stock to their clients. Further, various brokerage house policies and
practices tend to discourage individual brokers from dealing in low priced
stocks. Some of those policies and practices pertain to the payment of brokers'
commissions and to time-consuming procedures that function to make the handling
of low priced stocks unattractive to brokers from an economic standpoint.
Additionally, the structure of trading commissions also tends to have an adverse
impact upon holders of low priced stock because the brokerage commission on a
sale of low priced stock generally represents a higher percentage of the sales
price than the commission on higher priced issues. There can be no assurance,
however, that the reverse split will alleviate these concerns at all, or that
the size of the proposed split is adequate to address these concerns.
We believe that the shares of common stock will, as a result of the reverse
stock split, trade at higher prices than those that have prevailed recently. We
cannot assure you, however, that such increase in the market value will occur
or, if such an increase occurs, that it will equal or exceed the direct
arithmetical result of the reverse stock split since there are numerous factors
and contingencies that would affect such value including the status of the
market for the shares of common stock at the time, the Company's reported
results of operations in future fiscal periods and general stock market
conditions.
THEREFORE, WE CANNOT ASSURE YOU THAT THE SHARES OF COMMON STOCK WILL NOT,
DESPITE THE REVERSE STOCK SPLIT, TRADE AT PRICES THAT ARE LESS THAN THE
ARITHMETICAL EQUIVALENT SHARE PRICE RESULTING FROM THE REVERSE STOCK SPLIT. Our
board of directors believes that the reverse stock split should result in a
stock price of approximately fifteen times the current price range, putting the
our common stock in a price range that will enhance its marketability to the
financial community and investing public and will mitigate any reluctance on the
part of brokers and investors to trade in our common stock. However, there can
be no assurance that the market price of the common stock immediately after
implementation of the reverse stock split will increase and, if it increases, no
assurance that the increase can be maintained for any period of time, or that
the market price will approximate fifteen times the market price before the
reverse stock split. In addition, there can be no assurance that any increase in
the market price of the common stock will increase investment in the stock by
brokerage firms or individual investors, or otherwise facilitate the Company's
access to the equity markets, especially since there are many other factors that
affect demand for stock.
Effectiveness of the Reverse Stock Split
The one-for-fifteen reverse stock split, if approved by the shareholders,
would become effective at such time as determined by the management of the
Company, upon filing by the Company of Articles of Amendment with the Secretary
11
<PAGE>
of State of Texas. Notwithstanding the approval of the shareholders, the Company
reserves the right in its discretion to determine whether to delay or forego
entirely the implementation of the reverse stock split. Upon the filing of the
Articles of Amendment, all of the Company's outstanding common stock will
evidence the effect of the one-for-fifteen reverse stock split. No fractional
shares will be issued in the reverse stock split. In lieu of any fractional
shares, each shareholder who is entitled to a fractional share of common stock
will instead receive an amount of cash, without interest, determined by
multiplying: the fractional interest to which the shareholder would otherwise be
entitled, after taking into account all shares of common stock then held by the
shareholder, and the product of fifteen multiplied by the closing price of the
Company common stock on the date immediately preceding the date on which the
reverse stock split is effective.
Effects of the Amendment
Subject to shareholder approval, and the decision of the Board of Directors
to implement this proposal, the reverse stock split will be effected by filing
the amendment to our Articles of Incorporation, and will be effective
immediately upon such filing. The actual timing of the filing of the amendment
with the Texas Secretary of State's office will be determined by the Company's
management based upon its evaluation as to if and when such action will be most
advantageous to the Company and its shareholders. THE BOARD OF DIRECTORS OF THE
COMPANY RESERVES THE RIGHT TO FOREGO OR POSTPONE FILING THE AMENDMENT, IF SUCH
ACTION IS DETERMINED TO BE IN THE BEST INTERESTS OF THE COMPANY AND ITS
SHAREHOLDERS.
The reverse stock split will also result in some shareholders owning "odd
lots" of less than 100 shares of common stock received as a result of the
reverse stock split. Brokerage commissions and other costs of transactions in
odd lots may be higher, particularly on a per-share basis, than the cost of
transactions in even multiples of 100 shares.
The Company is authorized to issue 200,000,000 shares of common stock, of
which 66,857,197 shares were issued and outstanding at the close of business on
the record date. The Company is also authorized to issue 5,000,000 shares of
Preferred Stock, each share having a par value of $1.00, of which 1,199,751.5
were issued and outstanding at the close of business on the record date. If the
amendment is approved by the shareholders, the principal effect of the reverse
stock split will be to decrease the number of outstanding shares of common stock
from 66,857,197 shares to approximately 4,457,146 shares (less fractional
shares), based on share information as of the record date. The reverse stock
split will not affect the number of authorized shares of common stock. After the
reverse stock split, the Company estimates that it will have approximately the
same number of shareholders. Except for the receipt of cash in lieu of
fractional interests, the reverse stock split would not affect any shareholder's
proportionate equity interest in the Company or the relative rights, preferences
or priorities of any shareholder.
After the reverse stock split, each resulting combined share will have a
par value of $.01, and each authorized but unissued share will have a par value
of $.01. Because the reverse stock split if implemented will reduce the number
of shares outstanding, and because par value per share after the reverse split
will be the same as before the reverse split, the reverse split will result in a
reduction of our stated capital, and an increase in capital surplus. We will
make the appropriate accounting adjustments to these accounts if and when the
reverse split is implemented.
As a result of the reverse stock split, the Company will have a greater
number of authorized but unissued shares of common stock than prior to the
reverse stock split. The increase in the authorized but unissued shares of
common stock could make a change in control of the Company more difficult to
achieve. Under certain circumstances, such shares of common stock could be used
to create voting impediments to frustrate persons seeking to effect a takeover
or otherwise gain control of the Company. Such shares could be sold privately to
purchasers who might side with the board of directors in opposing a takeover bid
that the board of directors determines is not in the best interests of the
Company and its shareholders.
The number of shares subject to stock options granted to officers,
directors and employees of the Company under stock option plans and the strike
price for such options will be proportionately adjusted for the reverse stock
split. The number of shares of common stock authorized for the stock option
plans will also be proportionately adjusted. The number of shares issuable upon
the exercise of outstanding warrants and nonemployee options and the conversion
of outstanding convertible securities of the Company will also be
proportionately adjusted for the reverse stock split.
12
<PAGE>
Exchange of Stock Certificates
The exchange of shares of common stock will occur on a date to be
determined by the board of directors of the Company (the "Effective Date")
without any action on the part of the shareholders and without regard to the
date or dates certificates formerly representing shares of common stock are
physically surrendered for certificates representing the number of shares of
common stock such shareholders are entitled to receive as a result of the
reverse stock split. The Company's transfer agent, Corporate Stock Transfer,
will effectuate the exchange of certificates.
As soon as practicable after the Effective Date, transmittal forms will be
mailed to each holder of record of certificates representing shares of common
stock to be used in forwarding their certificates for surrender and exchange for
certificates representing the number of shares of common stock such shareholders
are entitled to receive as a result of the reverse stock split. After receipt of
such transmittal form, each such holder will surrender the certificates formerly
representing shares of common stock of the Company and such holder will receive
in exchange therefor certificates representing the number of shares of common
stock to which such holder is entitled. These transmittal forms will be
accompanied by instructions specifying other details of the exchange.
SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL FORM.
So that the Company may avoid the expense and inconvenience of issuing and
transferring fractional shares of common stock, shareholders who would otherwise
be entitled to receive a fractional share of common stock will receive payment
in cash in lieu of receiving a fractional share of common stock. Payment for
fractional shares will be based upon the closing price reported for the common
stock on the OTC Bulletin Board on the Effective Date. The Company estimates
that it will cost no more than $8,000.00 to pay for fractional shares.
Federal Income Tax Consequences
The following description of the material federal income tax consequences
of the reverse stock split is based on the Internal Revenue Code of 1986, as
amended (the "Code"), the final, temporary and proposed Treasury Regulations
promulgated thereunder, judicial authority and current administrative rulings
and pronouncements as in effect on the date of this proxy statement.
General Rules
The Company has not sought, and will not seek, a ruling from the Internal
Revenue Service or an opinion of counsel regarding the federal income tax
consequences of the reverse stock split. However, the Company believes that the
reverse stock split will constitute a recapitalization, and hence a
reorganization, within the meaning of Section 368(a)(1)(E) of the Code.
Generally, the holders of common stock will not recognize gain or loss for
federal income tax purposes as a result of the reverse stock split, except that
a holder of common stock who receives cash in lieu of fractional shares pursuant
to the reverse stock split may recognize gain or loss as provided in "--Cash in
Lieu of Fractional Shares" below. No gain or loss will be recognized by the
Company as a result of the reverse stock split. Following the reverse stock
split, a holder of common stock received in the reverse stock split will have an
adjusted basis in such common stock (including any fractional share deemed
received) equal to the adjusted basis of the common stock held by that holder
immediately prior to the reverse stock split. In addition, a holder of common
stock will have a holding period for the common stock received in the reverse
stock split that includes the holding period of the common stock exchanged
therefor, provided that such common stock is a capital asset in the hands of
such holder at the time of the reverse stock split.
Cash in Lieu of Fractional Shares
Holders of common stock who receive cash in lieu of fractional shares in
the reverse stock split will recognize gain or loss equal to the difference, if
any, between such holder's adjusted basis in the fractional share of common
stock deemed received and the amount of cash received in exchange therefor. Such
gain or loss will be a capital gain or loss, long-term or short-term, depending
on the holder's holding period, if the common stock is held by such holder as a
capital asset at the time of the reverse stock split.
13
<PAGE>
SHAREHOLDERS OF THE COMPANY ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE
REVERSE STOCK SPLIT.
Required Vote
Approval of the reverse stock split requires the affirmative vote of
two-thirds of the issued and outstanding shares of Common Stock held by the
Shareholders. If not otherwise indicated, proxies will be voted "FOR" approval
of the reverse stock split. Abstentions and broker non-votes will not be treated
as either a vote for or against approval of the reverse stock split. However,
because the approval of the amendment requires the affirmative vote of
two-thirds of the issued and outstanding shares of capital stock held by the
shareholders, abstentions and broker non-votes will have the same effect as a
vote against approval of the reverse stock split.
The Board of Directors recommends that you vote "FOR" the approval of the
reverse stock split.
14
<PAGE>
PROPOSAL 3: AMENDMENT TO CHANGE THE COMPANY'S NAME
Effective May 31, 2000, we acquired all of the outstanding common
stock of Fone.com, Limited, a telecommunications company doing business
primarily in the United Kingdom. This acquisition signifies our transformation
from a restaurant company into an international telecommunications company that
will focus on the convergence and integration of international long distance
telecommunications and internet services. Our acquisition of Fone.com followed
the sale, in February of this year, of all of the assets used in the operation
of the "Rick Tanner's Original Grill" chain of restaurants. As a result of this
sale, we no longer operate or franchise any restaurants, and we have dedicated
ourselves to the transformation of the Company into an international
telecommunications company.
As consideration for the acquisition of Fone.com, we issued 40,000,000
shares of our common stock to DCI Telecommunications, Inc., the former parent of
Fone.com, representing approximately 62.7% of our then-outstanding shares of
common stock. We also assumed certain liabilities of DCI. Shortly after this
acquisition, outside investors agreed to invest $4,553,652 in us in exchange for
two promissory debentures that are convertible into shares of our common stock.
Of this amount, $3,653,652 was used to refinance existing indebtedness and
$900,000 is being used by us to fund our operations and for general working
capital purposes.
In connection with the ongoing transformation of the Company into an
international telecommunications company, the board of directors has determined
that it is in the best interests of the Company to change the Company's name to
"Corzon, Inc." The change in the Company's name will reflect that the Company is
no longer engaged in the restaurant business.
Approval and adoption of this proposal requires the affirmative vote of the
holders of two-thirds of the issued and outstanding common stock entitled to
vote on the amendment.
The board of directors has unanimously approved this proposal and
recommends that you vote "For" the amendment to our articles of incorporation to
change the name of the Company to "Corzon, Inc."
15
<PAGE>
PROPOSAL 4: ELECTION OF BOARD OF DIRECTORS
Pursuant to our Articles of Incorporation, the board of directors shall
have at least one but not more than five directors. The board of directors can
determine the number of directors within these limits. The directors elected at
this meeting will hold office for a term of one year and until their successors
are elected and qualified.
At the meeting, you will be asked to elect three directors. If you return
your proxy card and do not specify otherwise on your proxy card, we will vote
your shares in favor of the election of the persons named below as nominees.
Only one of the nominees is currently a director of the Company. The board
believes that the nominees will stand for election and will serve if elected as
directors. If, however, any nominee fails to stand for election or is unable to
accept election and the board recommends another nominee, we will vote in favor
of the election of the other person that the board recommends. Directors will be
elected by a plurality of the votes cast at the meeting. There are no cumulative
voting rights in the election of directors.
The director nominees, their ages and their other positions with the
Company as of July 17, 2000 are as follows:
Director Nominees Age Position(s) with the Company
----------------- --- ----------------------------
Jose A. Auffant 31 Chief Executive Officer, Chief
Financial Officer, Secretary and Director
Lawrence Shatsoff 46 President
Clifford Postelnik 56 Vice President of Operations
Other Directors and
Executive Officers
------------------
Rollin M. Shouse 58 Director
In December 1999, Clyde E. Culp, III resigned from the Board. Richard E.
Tanner resigned from the Board in January 2000, and on May 11, 2000, the holders
of a majority of our then-outstanding shares of common stock elected Jose A.
Auffant and Rollin M. Shouse to the Board and effectively removed James R.
Walker from the Board.
Lawrence Shatsoff and Clifford Postelnik were officers of Fone.com prior to
our acquisition of Fone.com. In addition, Mr. Shatsoff was an officer and
director of DCI Telecommunications, from whom we purchased all of the
outstanding stock of Fone.com. Fone.com was a wholly-owned subsidiary of DCI.
DCI now owns 59.8% of the outstanding shares of our common stock. See "-Security
Ownership of Certain Beneficial Owners and Management of the Company." Mr.
Shatsoff owns 122,199 shares of common stock of DCI but is no longer an officer
or director of DCI and has surrendered his options to acquire 1,028,545 shares
of common stock of DCI. Messrs. Shatsoff and Postelnik have been nominated to
serve on the board of directors pursuant to the contractual obligations
contained in the agreement between us and DCI whereby we acquired Fone.com from
DCI.
Our officers are appointed at the first meeting of the board of directors
after each annual meeting of stockholders. Officers hold office for a term of
one year and until their successors are chosen and qualified or until their
earlier resignation or removal.
16
<PAGE>
Director Nominees
Jose A. Auffant has served as our Chief Executive Officer, Chief Financial
Officer, Secretary and Director since May 2000. Mr. Auffant is currently the
general counsel for J.P. Carey Securities, Inc. From 1997 to 2000, Mr. Auffant
was associated with Winston & Strawn, a Chicago, Illinois based law firm, in its
corporate department. Mr. Auffant received a Juris Doctor degree from Emory
University School of Law in 1997 and a Bachelor of Business Administration
degree from Stetson University in 1991.
Lawrence Shatsoff has served as our President since June 2000. Prior to
joining us, Mr. Shatsoff was the Vice President and Chief Operations Officer of
DCI. From 1991 to 1994, Mr. Shatsoff was the Vice President and Chief Operations
Officer of Alpha Products, a computer board sales and manufacturing company.
From 1988 through 1990, Mr. Shatsoff was the Executive Vice President of Kalon
Systems, a data processing services company.
Clifford A. Postelnik has served as our Vice President since June 2000.
Prior to joining us, Mr. Postelnik was the Managing Director of European
Operations for Fone.com. Prior to joining Fone.com, Mr. Postelnik had a 30-year
career in bilateral carrier contract negotiations and marketing to the tour and
travel industry, airlines and hotels in Europe, Africa and the Far East.
Other Directors
Rollin M. Shouse has served as a Director of the Company since May 2000.
Mr. Shouse is currently the Chief Executive Officer of Technest.com, Inc., a
full-service accelerator for Internet startup companies. From 1996 to 1999, Mr.
Shouse served as Chief Executive Officer and President of Shouse Enterprises,
Inc., a convenience store chain comprised of 26 stores. From 1993 to 1996, Mr.
Shouse served as Chief Executive Officer and President of Sunshine-Jr. Stores,
Inc., a publicly-traded company with 232 convenience stores and six
supermarkets. Mr. Shouse received a Bachelor of Business Administration degree
from Georgetown College in 1964. We expect that Mr. Shouse will not serve on the
Board following the Annual Meeting.
Committees of the Board of Directors and Nominations by Shareholders
During 1999, the board of directors held one regular meeting. All of our
directors attended at least 75% or more of the meetings of the board and board
committees on which they served, during the time periods during which they
served, in 1999.
We do not have standing audit, compensation or nominating committees. The
board nominates candidates to stand for election as directors. Our articles of
incorporation permit shareholders to make nominations for directors but only if
such nominations are made pursuant to timely notice in writing to our Secretary.
For more information on stockholder proposals, see "Other Matters - Shareholder
Proposals for the 2001 Annual Meeting of Shareholders."
Interest of Certain Persons in Matters to be Acted Upon
Both Proposal 1, which seeks shareholder approval of an increase in the
number of authorized shares of common stock, and Proposal 2, which seeks
shareholder approval of a one-for-fifteen reverse split of our outstanding
shares of common stock, will result in an increase in the number of shares of
common stock that are available to be issued. Consequently, both Proposals will
allow the Company to have a greater number of shares of common stock available
for issuance when holders of outstanding options, warrants and other convertible
securities seek to convert or exercise their options, warrants or other
convertible securities; presently, the Company does not have a sufficient number
of authorized but unissued shares to issue upon conversion or exercise of all
existing convertible securities.
Several of our current and former directors and officers either hold
options, warrants or other convertible securities or are associated with
entities that do. Therefore, approval of Proposals 1 and 2 is in the interests
of these persons. Specifically, Jose A. Auffant, who is our director, Chief
Executive Officer, Chief Financial Officer and Secretary, serves as General
Counsel to J.P. Carey Securities, Inc. J.P. Carey holds warrants to purchase
17
<PAGE>
300,000 shares of our common stock and also serves as a representative for
several of our Series D investors. Similarly, James R. Walker, our former
director, is an equity owner of SECA VII, LLC, an entity that, in addition to
owning 756,741 shares of our common stock, holds 183,150 shares of our Series E
convertible preferred stock and options to acquire 154,976 shares of our common
stock. Similarly, four of our former executive officers hold options to acquire
shares of our common stock: Clyde E. Culp, III holds options to acquire 78,538
shares; William Gallagher holds options to acquire 140,000 shares; Robert J.
Hoffman holds options to acquire 243,466 shares; and, Timothy R. Robinson holds
options to acquire 254,462. In addition, Richard E. Tanner, our former director,
owns, in addition to his other holdings, 469,775 shares of our Series E
convertible preferred stock and warrants to acquire 353,419 shares of common
stock.
Certain Relationships and Related Transactions
The following is a summary of certain transactions and relationships among
the Company and our subsidiaries and our directors, executive officers and
greater than 5% stockholders.
Lawrence Shatsoff, our President, was formerly a director of Fone.com,
Limited and the Vice President and Chief Operations Officer of DCI, from whom we
acquired Fone.com. Mr. Shatsoff owns 122,199 shares of common stock of DCI,
which now owns 40,000,000 shares of our common stock.
As consideration for the acquisition of Fone.com, we issued 40,000,000
shares of our common stock to DCI, the former parent of Fone.com. Consequently,
DCI now owns approximately 59.8% of our outstanding shares of common stock. We
also assumed certain liabilities of DCI in the acquisition of Fone.com.
Several of our former officers and directors, as well as holders of 5% or
more of our outstanding common stock, received our securities in our January
1999 merger with TRC Acquisition Corporation, in which we acquired the "Rick
Tanner's Original Grill" restaurants that we sold in February, 2000. Clyde E.
Culp, III, our former Chairman and Chief Executive Officer, received 1,178,063
shares of common stock in exchange for his shares of TRC common stock and
received options to acquire an additional 78,538 shares of common stock in
exchange for his options to acquire shares of TRC. Also as part of the merger,
Mr. Culp executed an employment agreement to become our Chairman and Chief
Executive Officer. James R. Walker, our former director, is an equity owner of
SECA VII, LLC, which received 765,741 shares of common stock, 183,150 shares of
Series E preferred stock, and options to acquire 54,976 shares in the merger,
also in exchange for its TRC securities. Timothy R. Robinson, our former Chief
Financial Officer, received options to acquire 254,462 shares of common stock,
and Robert J. Hoffman, our former Chief Executive Officer, received options to
acquire 243,466 shares of common stock, in each case in exchange for their
options to acquire shares of common stock of TRC.
Also in the merger with TRC, Richard Tanner, our former director and a
current beneficial owner of more than five percent of our common stock, received
approximately 469,775 shares of Series E preferred stock in exchange for his
agreement to cancel a promissory note from TRC to him, his agreement to
terminate his employment agreement with TRC, and his conversion of shares of
Class A preferred stock of TRC. Mr. Tanner also received 1,413,675 shares of
common stock in exchange for his outstanding TRC shares and options to acquire
353,419 shares of common stock in exchange for his options to acquire shares of
TRC. Mr. Tanner has indicated that he believes that the Company agreed to issue
to him a greater number of shares of Series E preferred stock than he actually
received.
Mr. Gallagher, a former director and officer, is an officer of Santa Cruz
Squeeze, Inc., which advanced money to Harvest in 1998 secured by a real estate
lien note in the approximate amount of $150,000. Harvest paid this note in full
before the merger.
SECA VII, LLC, a significant shareholder and an entity in which Mr. Walker,
formerly one of our directors, is an equity owner, has loaned Hartan $350,000 at
an interest rate of 12.5%. This loan matured on September 9, 1999. SECA agreed
to extend the maturity date of the loan in November 1999 in exchange for our
issuance to SECA of warrants of acquire 100,000 shares of our common stock at an
exercise price of $.04 per share. The maturity date has been extended to January
31, 2001.
18
<PAGE>
In March 1999, Clyde E. Culp, III, our former Chairman of the Board and
Chief Executive Officer, loaned approximately $350,000 to Pacific Ocean
Restaurants, Inc., the parent entity of Crabby Bob's Seafood, Inc., from whom we
sought to purchase the assets used in the operation of the Crabby Bob's Seafood
Grill Restaurant chain. Mr. Culp loaned these funds to Pacific Ocean so that
Pacific Ocean could satisfy certain of its immediate obligations while we
continued to pursue our acquisition of the Crabby Bob's assets. Interest on Mr.
Culp's loan began accruing at a rate of 10% per annum in September 1999. Mr.
Culp's loan became due on the date of termination of the letter of intent
between us and Pacific Ocean. The obligations of Pacific Ocean under Mr. Culp's
note are secured by the personal property, general intangibles and intellectual
property used in the operation of the Crabby Bob's Seafood Grill and Bob's on
the Bay restaurants operated by Crabby Bob's Seafood, Inc. Mr. Culp has also
personally guaranteed two loans on our behalf.
In February 2000, in connection with the sale of assets to Hartan and six
of Hartan's subsidiaries to RTI, RTI agreed to indemnify Robert J. Hoffman, our
acting Chief Executive Officer at that time, and certain other of our
subsidiaries' former officers and employees against any claims relating to our
failure or the failure of our subsidiaries to pay certain sales taxes, with the
aggregate amount of such indemnification to be limited to $125,000.
In June 2000, we agreed, as RTI had agreed, to indemnify Mr. Robinson for
any claims relating to our failure or the failure of our subsidiaries to pay
certain sales taxes.
We have no official policy regarding material transactions between our
directors and officers and us. We generally seek to have any such transaction
approved or ratified by a majority of our directors who lack a personal interest
in the matter. Because we currently have only two directors, that approval or
ratification is not always available to us.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires our executive officers and
directors and persons who beneficially own more than 10% of a registered class
of our equity securities to file reports of securities ownership and changes in
such ownership with the Commission and NASDAQ. Officers, directors and greater
than 10% beneficial owners also are required by rules promulgated by the
Commission to furnish us with copies of all Section 16(a) forms they file. Based
solely on review of the copies of the reports furnished to us and written
representations that no other reports were required, except for the late filing
of a Form 5 on behalf of SECA VII, LLC, we believe that, during 1999, our
executive officers, directors and greater than 10% beneficial owners complied
with all applicable Section 16(a) filing requirements.
(The remainder of this page has been left blank intentionally.)
19
<PAGE>
Security Ownership of Certain Beneficial Owners and Management of the Company
The following table provides information as of July 17, 2000 concerning
ownership of the capital stock by each director and officer, all directors and
officers as a group, certain former officers and directors, and all beneficial
owners of 5% or more of the outstanding shares of common stock. As of July 17,
2000, 66,857,197 shares of our common stock were outstanding.
Except as otherwise noted, the persons named in the table own the shares
beneficially and of record and have sole voting and investment power with
respect to all shares of capital stock shown as owned by them, subject to
community property laws, where applicable. Except as otherwise indicated, each
shareholder's address is in care of us at 1087 Broad Street, 4th Floor,
Bridgeport, Connecticut 06604. The Right to Acquire column in the table also
reflects all shares of common stock that each individual has the right to
acquire within 60 days from the above date upon exercise of stock options or
common stock purchase warrants or upon conversion of preferred stock.
DCI Telecommunications, Inc. owns approximately 59.8% of the outstanding
shares of our common stock and has nominated Lawrence Shatsoff and Clifford
Postelnik to become members of our board of directors pursuant to a contractual
right contained in the agreement between us and DCI whereby we acquired Fone.com
from DCI (DCI is the former parent entity of Fone.com). On June 23, 2000, the
Securities and Exchange Commission filed a complaint against DCI alleging, among
other things, that DCI and certain of its executive officers had engaged in
various forms of accounting fraud over the past several years and that this
fraud had resulted in numerous violations of the securities laws. Lawrence
Shatsoff, our President and a nominee to serve on our board of directors,
formerly served as a director and executive officer of DCI, but was not named by
the SEC in its complaint. In a press release dated June 30, 2000, DCI denied any
wrong doing.
Percent of
Outstanding
Class of Number of Right Shares
Name Stock Shares Owned to Acquire of Class
---- ----- ------------ ---------- --------
DCI Telecommunications, Inc. (4) Common 40,000,000 0 59.8%
The Rearden Trust (5) Common 4,854,803 0 7.3
Clyde E. Culp, III (6) Common 1,178,063 78,538 1.9
William J. Gallagher (7) Common 10,000 140,000 (2)
Richard Tanner Common 1,413,675 353,419 5.3
Series E(1) 469,775 0 63.1
Robert J. Hoffman Common 0 243,466 (2)
Timothy R. Robinson Common 0 254,462 (2)
All officers and directors
as a group (4 persons) (3) Common 0 0 0%
Series E 0 0 0%
----------------
(1) Each share of our Series E preferred stock is convertible into four shares
of common stock.
(2) Represents less than 1% of the outstanding shares of our common stock.
(3) None of Messrs. Auffant, Shouse, Shatsoff or Postelnik, who constitute all
of our current directors and executive officers, beneficially own any
shares of our capital stock or have the right to acquire any shares of our
capital stock.
(4) The address of DCI Telecommunications, Inc. is 611 Access Road, Stratford,
Connecticut 06615.
(5) The address of the Rearden Trust is c/o City Trust Limited, Third Floor,
Murdoch House, South Quay, Douglas, Isle of Man IM1 5A5.
(6) The address for Mr. Culp is c/o Bakery Resources Group, 2275 Rolling Run
Drive, Baltimore, Maryland 21244.
(7) The address for Mr. Gallagher is c/o JAG Capital, 1250 N.E. Loop 410, Suite
335, San Antonio, Texas 78209.
20
<PAGE>
Executive Compensation
The following table provides information concerning compensation for the
past fiscal three years to our executive officers.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Compensation
Awards
Annual Compensation Securities
Other Annual Underlying
Name and Principal Position Year Salary($) Bonus($) Compensation($) Options(#)
--------------------------- ---- --------- -------- --------------- ----------
<S> <C> <C> <C> <C> <C>
William J. Gallagher 1999 200,000(4) 0 0 0
Former Chairman and 1998 90,000 0 13,691(2) 140,000(1)
Chief Executive Officer 1997 89,519 37,156 17,663 0
Clyde E. Culp, III
Former Chairman and 1999 142,308 0 0 0
Chief Executive Officer
Robert J. Hoffman
Former Chief Executive Officer, 1999 126,575 0 4,200(3) 0
President and Secretary;
Former Senior Vice
President of Operations
Timothy R. Robinson
Former Vice President and 1999 122,599 0 0 0
Chief Financial Officer
----------
</TABLE>
(1) On February 5, 1998, the Board of Directors authorized a repricing of the
option exercise price for all outstanding options granted under the Harvest
Stock Option Plan to $1.00, with no change in the vesting periods. Mr.
Gallagher owned 140,000 options at that time. This revised exercise price
represented approximately 200% of the market price of the common stock on
the date of the repricing.
(2) This amount consists of a car allowance of $5,157 and $8,534 that was used
to pay off a loan.
(3) This amount represents a car allowance.
(4) This amount represents payments made to Mr. Gallagher pursuant to his
severance agreement.
Compensation of Directors
While we have stated previously that directors are paid $250 per meeting,
we have not paid our directors for attending meetings since the date of the
merger with TRC.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
When we completed the merger with TRC on January 14, 1999, Clyde E. Culp,
III, the chairman and chief executive officer of TRC prior to the merger, became
our Chairman and Chief Executive Officer. Mr. Culp's five year employment
agreement provided that Mr. Culp would be paid an annual salary of $200,000. Mr.
Culp resigned in December 1999.
In connection with the merger, William J. Gallagher, our chief executive
officer prior to the merger with TRC, executed a severance agreement with us
pursuant to which he resigned from all positions that he held with us, other
than as one of our directors, in exchange for our agreement to pay him a total
of $200,000. Mr. Gallagher remained on the board of directors until April 1999.
We have paid Mr. Gallagher all amounts owed him under his severance agreement.
21
<PAGE>
PROPOSAL 5: RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The board of directors has appointed Feldman Sherb Horowitz & Co., P.C. to
serve as our independent public accountants for the year ending December 31,
2000, subject to ratification by the shareholders at the annual meeting. Feldman
Sherb Horowitz & Co., P.C. has served as independent public accountants for
Fone.com since November, 1999. If your return your proxy card and do not specify
otherwise on your proxy card, we will vote your shares in favor of ratifying the
appointment of Feldman Sherb Horowitz & Co., P.C., independent certified public
accountants, to audit our books and accounts for the year ending December 31,
2000. The board of directors has not determined what action it would take if the
stockholders do not ratify the appointment.
Representatives of Feldman Sherb Horowitz & Co., P.C. are expected to be
present at the meeting and are expected to be available to respond to
appropriate questions, although we do not expect the representatives to deliver
a prepared statement.
Changes in the Company's Independent Public Accountants
(a) Previous Independent Accountants
(i) On June 16, 2000, we dismissed Porter Keadle Moore, LLP ("PKM"), as our
independent accountants effective immediately. PKM had completed all activities
related to our 1999 fiscal year audit. We dismissed PKM in order to hire Feldman
Sherb Horowitz & Co., P.C. because they are located closer to our new executive
offices and have extensive experience with companies in our industry.
(ii) The reports of PKM on our consolidated balance sheets as of December
26, 1999 and December 27, 1998, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years ended December
26, 1999 and December 27, 1998, did not contain an adverse opinion or disclaimer
of opinion, and were not qualified or modified as to uncertainty, audit scope or
accounting principles.
(iii) The decision to terminate PKM was approved by the board of directors,
who also expressed appreciation for the work performed by PKM.
(iv) During the two most recent fiscal years and the interim period
subsequent to December 26, 1999 through June 16, 2000, there were no
disagreements with PKM on any matter of accounting practices or principles,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of PKM, would have caused
them to make reference thereto in their report on the financial statements for
such periods.
(v) During the two most recent fiscal years and the interim period
subsequent to December 26, 1999 through June 16, 2000, none of the events
described in Regulation S-K Item 304(a)(1)(v) occurred.
(vi) On June 20, 2000, we delivered a copy of the disclosures contained
herein to PKM and requested that PKM furnish us with a letter addressed to the
Securities and Exchange Commission stating whether or not PKM agreed with such
disclosures. PKM provided us with such a letter, dated June 20, 2000, indicating
its agreement with these statements, and a copy of this letter was filed by us
as Exhibit 16.1 to our current report on Form 8-K, dated June 16, 2000.
(b) New Independent Accountants
(i) On June 16, 2000, we engaged the firm of Feldman Sherb Horowitz & Co.,
P.C. ("FSH") as independent accountants for our fiscal year ending December 31,
2000. The board of directors approved the selection of FSH as independent
accountants.
22
<PAGE>
(ii) During the two most recent fiscal years and the interim period
subsequent to December 26, 1999 through June 16, 2000, we have not consulted
with FSH with respect to (1) the application of accounting principles to a
specified transaction, either completed or proposed; or the type of audit
opinion that might be rendered on our financial statements; or (2) on any matter
that was either the subject of a disagreement (as defined in Item 304 (a)(1)(iv)
of Regulation S-K) or a reportable event (as described in Item 304(a)(1)(v) of
Regulation S-K).
Votes Required to Ratify the Appointment
The affirmative vote of a majority of the shares present in person or
represented by proxy at the meeting is necessary for ratification of the
appointment of Feldman Sherb Horowitz & Co., P.C. as our independent public
accountants.
The board of directors has unanimously approved this proposal and
recommends that you vote "For" Proposal 5 to ratify the appointment of Feldman
Sherb Horowitz & Co., L.P. as our independent public accounts for the year
ending December 31, 2000.
23
<PAGE>
OTHER MATTERS
The board of directors knows of no other matters to be presented for action
at the meeting. As stated in the accompanying proxy card, if any other business
should come before the meeting, proxies have discretionary authority to vote
their shares according to their best judgment, including, without limitation, a
motion to adjourn or postpone the meeting to another time and/or place for the
purpose of soliciting additional proxies.
SHAREHOLDER PROPOSALS FOR THE 2001 ANNUAL MEETING OF SHAREHOLDERS
We anticipate that the 2001 annual meeting will be held in April, 2001.
Proposals of shareholders of the Company intended to be presented at the 2001
annual meeting must be received by the Company not later than December 15, 2000
to be considered for inclusion in the Company's proxy statement and form of
proxy relating to that meeting. Any proposal for presentation of our next annual
meeting which is outside the processes of Rule 14a-8 under the Securities
Exchange Act of 1934 will be considered untimely for purposes of Rules 14a-4 and
14a-5 if we receive it after February 1, 2001.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, is required to file reports, proxy statements,
and other information with the Commission. Such reports, proxy statements and
other information can be inspected and copied at the Public Reference Section of
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
the Commission's regional offices at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of the reports, proxy statements, and other
information can be obtained from the Public Reference Section of the Commission,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a World
Wide Web site on the Internet at http://www.sec.gov that contains reports,
proxies, information statements, and registration statements and other
information filed with the Commission through the EDGAR system. The common stock
of the Company is traded on the OTC Bulletin Board (symbol "ROTI") and such
reports, proxy statements, and other information concerning the Company also can
be inspected at the offices of Nasdaq Operations, 1735 K Street, N.W.,
Washington, D.C. 20006.
By Order of the Board of Directors,
/s/ Lawrence Shatsoff
---------------------
Lawrence Shatsoff,
President
Bridgeport, Connecticut
August 16, 2000
24
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY
FOR THE ANNUAL MEETING OF SHAREHOLDERS OF
TANNER'S RESTAURANT GROUP, INC.
TO BE HELD SEPTEMBER 8, 2000
The undersigned hereby constitutes and appoints Lawrence Shatsoff as the
lawful agent and proxy of the undersigned (with all the powers the undersigned
would possess if personally present, including full power of substitution), and
hereby authorizes him to represent and to vote, as designated below, all the
shares of Common Stock of Tanner's Restaurant Group, Inc. (the "Company") held
of record by the undersigned on July 17, 2000, at the Annual Meeting of
Shareholders of the Company to be held September 8, 2000, or any adjournment or
postponement thereof.
1. To amend the Company's Articles of Incorporation to increase the number of
authorized shares of Common Stock to 500,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To amend the Company's Articles of Incorporation to effect a
one-for-fifteen reverse split of the Company's common stock, with the
timing of the implementation of the reverse split to be at the discretion
of the board of directors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To amend the Company's Articles of Incorporation to change its name to
"Corzon, Inc."
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To elect the following persons to the Board of Directors:
JOSE A. AUFFANT
LAWRENCE SHATSOFF
CLIFFORD POSTELNIK
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY to
listed (except as vote for all nominees
marked to the contrary)
(INSTRUCTION: To withhold authority to vote for any individual
nominee(s), write that nominee's name(s) in the space provided below.)
5. To ratify the appointment of Feldman Sherb Horowitz & Co., P.C. as
independent public accountants of the Company for the year ending December
31, 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. IN HIS DISCRETION, Lawrence Shatsoff may act upon such other business as
may properly come before the meeting or any adjournment thereof.
It is understood that when properly executed, this proxy will be voted in
the manner directed herein by the undersigned shareholder. The Board of
Directors recommends a vote "FOR" all proposals. WHERE NO CHOICE IS SPECIFIED BY
THE SHAREHOLDER, THE PROXY WILL BE VOTED FOR ALL PROPOSALS.
<PAGE>
The undersigned hereby revokes all previous proxies relating to the shares
covered hereby and confirms all that said proxy may do by virtue hereof.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Dated: _________________________________
Signature: _____________________________
PLEASE MARK, SIGN, DATE
AND RETURN THE PROXY
CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Signature,
if held jointly: ________________________
PLEASE CHECK THIS BOX IF YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING OF
SHAREHOLDERS. [ ]
