MARQUEE ENTERTAINMENT, INC.
6404 Wilshire Boulevard, Suite 550
Los Angeles, CA 90048
---------------
INFORMATION STATEMENT PURSUANT TO SECTIONS 14(C) AND 14(F)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
---------------
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
---------------
This Information Statement (the "Information Statement") is
being mailed on or about July 15, 1999 to the holders of record
at the close of business on June 21, 1999, of the common stock,
$.04 par value per share (the "Common Stock") of Marquee
Entertainment, Inc. (the "Company"), in connection with the
Company's acquisition of Progressive Telecommunications
Corporation ("Progressive") and appointment of certain persons to
the Board of Directors of the Company other than at a meeting of
the shareholders of the Company.
This Information Statement is also being mailed to the
Company's shareholders in connection with a proposed action by
written consent to authorize and approve: Amendments to the
Company's Certificate of Incorporation to (a) change the name of
the Company to "Progressive Telecommunications Corporation"; (b)
reverse split the outstanding shares of the Company's Common
Stock one-for-five; (c) decrease the par value of the Company's
Common Stock from $.04 to $.001; and (d) increase the number of
shares of Common Stock the Company is authorized to issue from
25,000,000 to 50,000,000. Members of the Board of Directors own
or have voting authority for 1,555,676 shares of Common Stock.
These shareholdings represent approximately 67% of the total
outstanding votes of all issued and outstanding Common Stock of
the Company and are sufficient to take the proposed action on the
record date of June 21, 1999. Dissenting shareholders do not
have any statutory appraisal rights as a result of the action
taken. All members of the Board of Directors have indicated
their intentions to execute written consents in favor of the
proposed action on behalf of the shares of the Company which they
own or for which they have voting authority. The Board of
Directors does not intend to solicit any proxies or consents from
any other shareholders in connection with this action.
Pursuant to the provisions of Nevada law and the Company's
Certificate of Incorporation, the amendments require the approval
of a majority of such shares. Accordingly, the vote of the Board
is sufficient to approve these matters, which the Company's
management believes is in the best interests of the Company and
its shareholders.
1
<PAGE
This Information Statement is being distributed pursuant to
the requirements of Sections 14(c) and 14(f) of the Securities
Exchange Act of 1934.
The entire cost of furnishing this Information Statement
will be borne by the Company. The Company will request brokerage
houses, nominees, custodians, fiduciaries and other like parties
to forward this information Statement to the beneficial owners of
the Common Stock held of record by them and will reimburse such
persons for their reasonable charges and expenses in connection
therewith.
2
INFORMATION RELATING TO THE COMPANY'S COMMON STOCK
--------------------------------------------------
The shares of Common Stock are the only class of voting
securities of the Company outstanding. Each share of Common
Stock is entitled to one vote per share on all matters submitted
to a vote of the shareholders. As of June 21, 1999 the Company
had 2,321,793 shares of the common stock outstanding.
CHANGE OF CONTROL OF THE COMPANY
--------------------------------
On June 9, 1999 the Company entered into a Securities
Exchange Agreement (the "Securities Exchange Agreement") to
acquire (the "Acquisition") 100% of the issued and outstanding
common stock of Progressive for an aggregate of 45,000,000 shares
of common stock and common stock equivalents of the Company. It
is anticipated that the Acquisition will close on July 15, 1999.
Pursuant to the Securities Exchange Agreement, the Company will
issue an aggregate 45,000,000 shares of Old Common Stock or Old
Common Stock Equivalent to the Progressive shareholders.
Accordingly, after the amendment and closing with Progressive,
the new combined entity will have approximately 10,000,000 shares
issued and outstanding.
The transaction will be two-tiered, with shareholders owning
in excess of 80% of Progressive exchanging their shares for the
Company's shares at the first closing. Thereafter the Company
will file a registration statement under the Securities Act of
1933 and Proxy Statement to offer the remaining shareholders of
Progressive and its majority owned subsidiary, CCC Communications
Corp., shares of the combined entity's stock in statutory
consolidation on the same exchange ratio as was provided for the
shareholders owning 80% of Progressive. No offer can be made to
the remaining shareholders until the registration is effective.
The Securities Exchange Agreement was attached to the
Company's Form 8-K dated June 16, 1999 as an exhibit which was
filed via EDGAR with the Securities and Exchange Commission.
Further information concerning the acquisition of Progressive
will be available upon the closing of the Acquisition. The
description in this Information Statement of the Securities
Exchange Agreement and its terms and conditions is qualified in
its entirety by reference to the Securities Exchange Agreement
and the respective exhibits and schedules thereto and is not, and
does not purport to be, complete.
Upon the closing of the Acquisition, Progressive's
shareholders will own approximately 90% of the outstanding Common
Stock and will be able to elect new directors and officers either
at a meeting of shareholders or by written consent.
3
BOARD OF DIRECTORS
------------------
General
- -------
Management of the Company, prior to the Acquisition
(collectively referred to as "Prior Management') is set forth
below:
Name Position
---- --------
Harold Brown Chairman of the Board and Chief
Executive Officer
Harvey Seslowsky Director
David DeShay Director
Prior Management will resign effective as of the closing of
the Acquisition (scheduled for July 15, 1999 or ten days
following the mailing of this Information Statement, which ever
is later) and the following individuals (collectively referred to
as "New Management") will be nominated to assume the positions
set forth next to their names:
Name Age Position
---- --- --------
Barry Shevlin 28 Chairman of the Board,
Chief Executive Officer
Tom Chubokas 41 President and Chief
Operating Officer and
Director
James C. Watson 43 Executive Vice President,
Chief Technology Officer
and Director
Dr. Howart Tackett 56 Vice President, Strategic
Support and Director
Barry Shevlin, Chief Executive Officer: Mr. Shevlin is a
founder of Progressive. In addition to day-to-day executive
responsibilities, he has authority for all corporate finance and
investor relations matters. Prior to founding Progressive, from
1993 to 1996, he was a contractor to Time-Warner, engaged in
marketing satellite services in Florida. As a consultant to
Time-Warner, he designed marketing programs for the Florida
market, which were among the most successful in the country.
Prior to this, from 1991 to 1993, Mr. Shevlin served as a
consultant to Intellectual Properties Associates in Florida,
where he was responsible for the development of software for
small business customers. At Intellectual Properties, Mr.
Shevlin also gained extensive experience in the management and
administration of small to mid-sized companies.
4
Tom Chubokas, President and Chief Operating Officer: Mr.
Chubokas is responsible for all aspects of company operations,
including all contract negotiations with carriers and other
service providers. He was a founder and officer of CCC
Communications Inc. ("CCC"), which agreed to become a wholly
owned subsidiary of Progressive at the end of 1998. From 1990 to
1997, he was founder and president of Communications Group of
America, Cape Coral, FL, a nationwide independent
telecommunications services sales organization. Prior to this,
from 1981 to 1989 he owned the Marshall Corporation, Cleveland,
OH, the largest investigative security firm in the state.
Clients included Revco Drug, Rite-Aid Drug, F.W. Woolwrth and
I.J. Fox Furriers, among others. He is a graduate of Cleveland
State in Cleveland, Ohio, with a Bachelor of Arts degree in
Political Science and English.
James C. Watson, Executive Vice President and Chief
Technology Officer: Mr. Watson is responsible for design,
development and management of Progressive's technology
infrastructure, including its network, new service integration,
and billing and support systems. He is a specialist in advanced
communications systems, networks and applications, and has
extensive experience in the operation of interexchange carrier
platforms, billing systems and facilities and is considered a
pioneer in the development of debit cellular service networks.
He was a co-founder and officer of CCC. Prior to becoming an
officer of CCC, from 1992 to 1997, Mr. Watson owned a
telecommunications consulting firm specializing in the
technology, operational and regulatory issues affecting carriers.
Dr. Howard Tackett, Vice President, Strategic Support:
Since inception, Dr. Tackett has assisted the Company in
development of its key infrastructure and support systems and
services, and has provided the Company with the benefit of his
extensive executive-level management experience. He is a
graduate of Palmer College, Davenport, Iowa with a Doctor of
Chiropractic Degree. In 1980, he founded Tackett Chiropractic
Clinics, which grew to become the largest multi-office group of
Chiropractic clinics in southeastern Virginia. He served as CEO
of Tackett Chiropractic Clinics from 1980 to 1997 and has been a
member of the Board of Directors of Managed Care of Virginia.
Dr. Tackett devotes his time to customer support for Progressive
Telecommunications' plans and programs.
Each member of New Management has been nominated to serve in
such position until the next annual meeting of shareholders and
until their successors have been duly elected and shall have
qualified.
5
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
----------------------------------------
The following table sets forth, as of the Record Date
information concerning ownership of the Company's securities by
(i) each Director, (ii) each executive officer, (iii) all
Directors and executive officers as a group; and (iv) each person
known to the Company to be the beneficial owner of more than five
percent of each class:
Name and Address(1) Amount and Nature Percent of
Title of Class of Beneficial Owner(2) of Beneficial Ownership Class(3)
- -------------- ---------------------- ----------------------- ----------
Common Stock Harold Brown 1,814,054(4) 47.66%
Harvey Seslowsky 157,500(5) 6.35%
David DeShay 50,000(6) 2.11%
Richard Smith 1,271,972(7) 38.10%
2609 Middlesex Place
Fullerton, CA 92635
Mary Park Properties 1,073,077(8) 43.41%
c/o R & R Equities
1381 51st Street
Brooklyn, NY 11219
All executive officers
and Directors as a Group
(3 persons) 2,021,554 51.36%
- ------------------------
(1) Unless otherwise indicated, the address of each beneficial owner is
c/o Marquee Entertainment, Inc., 6404 Wilshire Blvd., Los Angeles, CA
90048
(2) Beneficial ownership has been determined in accordance with Rule 13d-3
under the Exchange Act and unless otherwise indicated, represents
securities for which the beneficial owner has sole voting and
investment power.
(3) Based upon 2,321,793 shares outstanding on March 29, 1999.
(4) Includes 1,421,552 shares of Common Stock which may be obtained by Mr.
Brown upon the conversion or exercise of outstanding warrants, options
and convertible debentures owned by him.
(5) Includes 157,500 shares of Common Stock which may be obtained by Mr.
Seslowsky upon the exercise of outstanding warrants owned by him.
(6) Includes 50,000 shares of Common Stock which may be obtained by Mr.
DeShay upon the exercise of outstanding warrants owned by him.
(7) Includes 1,031,875 shares of Common Stock which may be obtained by Mr.
Smith upon the conversion or exercise of outstanding options and
convertible debentures owned by the Estate of Ralph Smith.
(8) Includes 150,000 shares of Common Stock which may be obtained by Mary
Park Properties upon the exercise of outstanding warrants owned by
this entity.
6
EXECUTIVE COMPENSATION
----------------------
Management and Compensation
- ---------------------------
The following table shows all cash compensation for services
rendered during the last three (3) fiscal years ended September 30,
paid by the Registrant to (i) each of the Registrant's executive
officers whose cash compensation exceeded $60,000 and (ii) to all
officers and directors as a group:
SUMMARY COMPENSATION TABLE
--------------------------
Long Term
Annual Compensation Compensation
----------------------------------- ------------
Name Other Annual
and Principal Compensation
Position Year Salary($) ($) Options (#)
(1) (2)
- -------------------------------------------------------- ------------
Harold Brown
CEO 1996 35,000 13,860 5,000
1997 37,500 19,235 5,000
1998 52,500 19,000 5,000
Ralph T. Smith
President, CFO
1996 38,000 5,000
1997 37,500 5,000
1998 37,500 6,364 5,000
All executive officers as a group 1998 (2 persons)(3) $90,000
- ------------------------------------------------------------------------
(1) Pursuant to employment agreements between the Company and Harold
Brown and Ralph T. Smith, respectively, dated March 12, 1991,
annual compensation is $150,000 and $140,000 respectively. The term
of the agreements is one year; the term is automatically extended
until terminated by ninety days written notice given by either
party to the other.
(2) Other annual compensation for Mr. Brown represents the dollar value
paid by the Company for premiums with respect to his life insurance
policy and certain payments made on behalf of Mr. Smith.
(3) Subsequent to September 30, 1998 Mr. Brown's cash compensation
continues to be reduced until such time that the Company liquidity
problems are resolved.
7
Compensation and Stock Option Plans
- -----------------------------------
1986 and 1993 Incentive Stock Option Plan
-----------------------------------------
The 1993 Incentive Plan is administered by the Board of
Directors of the Company, or a Committee of not less than two
members thereof, which, except as set forth below with respect to
the Directors themselves, has the authority to determine the
persons to whom the options may be granted, the number of shares
to be covered by each option, the time or times at which the
options may be granted or exercised and, for the most part, the
terms and provisions of the options. Under the 1993 Incentive
Plan, the option exercise price may not be less than 100% (or
110% if the optionee owns 10% or more of the outstanding voting
securities of the Company) of the fair market value of the Common
Stock on the date of grant; the exercise price of options granted
to Officers and Directors will be 100%of fair market value on the
date of grant, or 110% if the Officer or Director owns 10% or
more of the outstanding voting securities of the Company. No
option under the 1993 Incentive Plan may be exercised (i) within
one year of the date of grant, but must be exercisable at the
rate of at least 20% per year over five years from the date of
grant, or (ii) more than ten years from the date of grant except
that options granted to optionees owning 10% or more of the
outstanding voting securities of the Company may not be exercised
more than five years from the date of grant.
On October 30th of each year while the 1993 Incentive Plan
is in effect, all eligible Directors of the Company will receive
options to purchase 2,500 shares of Common Stock if they served
as a Director during the previous fiscal year (or a pro-ratable
amount if they served for less than all of the fiscal year) which
shall expire five years from the date of grant. Options granted
to Directors will be exercisable at the rate of 50% in each of
the second and third years from the date of grant on a cumulative
basis. All grants of options to Directors under the 1993
Incentive Plan will be automatic without any discretion on the
part of the Board or the Committee, as the case may be, with
respect to the grantee, the number of shares of Common Stock
subject to options to be granted, the term of the options, and
the exercise price of the options.
The 1993 Incentive Plan provides for the granting of
incentive stock options to purchase a maximum of 625,000 shares.
The 1993 Incentive Plan limits the percentage of the total number
of options which may be granted to Officers and Directors to 50%
or 312,500 shares.
8
The 1993 Incentive Plan provides that no options shall be
granted thereunder after March 7, 2003. The Board of Directors
may amend, suspend or terminate the 1993 Incentive Plan at any
time. As of September 30, 1998, 28,750 options have been granted
under the plan, none have been exercised.
1993 Non-Qualified Stock Option Plan
------------------------------------
Shareholders adopted the Marquee Entertainment 1993 Non-
Qualified Stock Option Plan ("1993 Non-Qualified Plan") on April
30, 1993.
The 1993 Non-Qualified Plan is administered by the Board of
Directors of the Company, or a Committee of not less than two
members thereof, which, except as set forth below with respect to
the Directors themselves, has the authority to determine the
persons to whom the options may be granted, the number of shares
to be covered by each option, the time or times at which the
options may be granted or exercised and, for the most part, the
terms and provisions of the options. Under the 1993 Non-
Qualified Plan, the exercise price may not be less than 85% (or
110% if the optionee owns 10% or more of the outstanding voting
securities of the Company) of the fair market value of the Common
Stock on the date of grant; the exercise price of options granted
to Officers and Directors will be 100% of the fair market value
on the date of grant, or 110% if the Officer or Director owns 10%
or more of the outstanding voting securities of the Company.
Options under the 1993 Non-Qualified Plan cannot be exercised
within one year or later than five years from the date of grant
and must be exercisable at the rate of at least 20% per year over
five years from the date the option is granted. Options granted
to Directors will be exercisable at the rate of 50% in each of
the second and third years from the date of grant on a cumulative
basis.
Upon their election as a Director and on October 30th of
each subsequent year while the 1993 Non-Qualified Plan is in
effect, all Directors (including employee-Directors) of the
Company will receive options to purchase 2,500 shares of Common
Stock if they served as a Director during the previous fiscal
year (or a pro-ratable amount if they served for less than all of
the fiscal year) which shall expire five years from the date of
grant. All grants of options to Directors under the 1993 Non-
Qualified Plan will be automatic without any discretion on the
part of the Board or the Committee, as the case may be, with
respect to the grantee, the number of shares of Common Stock
subject to options to be granted, the term of the options, and
the exercise price of the options.
9
The 1993 Non-Qualified Plan provides for the granting of
non-qualified stock options to purchase a maximum of 625,000
shares. The 1993 Non-Qualified Plan limits the percentage of the
total number of options which may be granted to Officers and
Directors to 50% or 312,500 shares.
The 1993 Non-Qualified Plan provides that no options shall
be granted thereunder after March 7, 2003. The Board of
Directors may amend, suspend or terminate the 1993 Non-Qualified
Plan at any time. As of September 30, 1998, 28,750 options have
been granted under the plan, none have been exercised.
Option Grants. The following table summarizes pertinent
information concerning individual grants of Options, including
the potential realizable dollar value of grants of Options made
during the fiscal year ended September 30, 1998, to each Named
Executive, assuming that the market value of the underlying
security appreciates in value, from the date of grant to the end
of the Option term, at the assumed rates indicated in the
following table.
FISCAL YEAR 1998 OPTION GRANTS
------------------------------
Potential Realizable
Value at Assumed
Rates of Stock Price
Appreciation for
Individual Grants Option Term (1)
- ------------------------------------------------------------------------------
Percent of
Total Options
Granted to
Options Employees/ Exercise Expira-
Granted Directors Price (2) tion
Name (#) in Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- -------------------------------------------------------------------------------
Harold Brown 5,000 33% $0.44 10/30/02 $ 385 $1,000
Ralph T. Smith 5,000 33% $0.44 10/30/02 $ 385 $1,000
Harvey Seslowsky 5,000 33% $0.44 10/30/02 $ 385 $1,000
- -------------------------------------------------------------------------------
(1) The dollar amounts under these columns are the result of calculations at
annualized rates of 5% and 10%, respectively, which were established by
rules promulgated by the Securities and Exchange Commission and therefore
are not intended to forecast possible future appreciation, if any, of
Marquee Entertainment's Common Stock price.
(2) As both Mr. Brown and Mr. Smith each own greater than 10% of the
outstanding voting securities of the Company, all grants were made at 110%
of market at the date of grant.
10
Option Exercises and Fiscal Year-End Values. Shown below is
information with respect to the exercise of Options to purchase
Common Stock of Marquee Entertainment during the last fiscal year
by each of the Named Executives and the value of unexercised
Options held by each of them as of the end of fiscal 1998. None
of the Named Executives exercised any Options during fiscal 1998.
AGGREGATED OPTION EXERCISES IN FISCAL 1996
AND FISCAL YEAR-END OPTION VALUES
Number of Values of Unexercised
Shares Unexercised Options In-the-Money Options
Acquired Value at Fiscal Year- at Fiscal Year-
on Exercise Realized End (#) Exercisable/ End ($) Exercisable/
Name (#) (#) Unexercisable Unexercisable (1)
- ------------------------------------------------------------------------------
Harold Brown ---- ---- 15,000/10,000 $0/$0
Ralph T. Smith ---- ---- 15,000/10,000 $0/$0
- ------------------------------------------------------------------------------
(1) Based on the closing price of $0.20 for Marquee Entertainment's Common
Stock as traded over-the-counter on September 30, 1998.
11
APPROVAL OF AMENDMENTS TO THE COMPANY'S
CERTIFICATE OF INCORPORATION
---------------------------------------
The Company's board of directors approved amendments to the
Company's Certificate of Incorporation to (a) change the name of
the Company to Progressive Telecommunications Corporation; (b)
reverse split the outstanding shares of the Company's common
stock one-for-five (the "Reverse Split"); (c) reduce the par
value of the Company's common stock from $.04 to $.001; and (d)
increase the number of shares of common stock the Company is
authorized to issued from 25,000,000 to 50,000,000. The Board,
which holds approximately 67% of the Company's common stock has
approved these actions and will vote their shares in favor of
these matters at the meeting.
Change of Corporate Name
- ------------------------
The Company has entered into a Securities Exchange Agreement
("Securities Exchange Agreement") with shareholders owning 80% of
Progressive Telecommunications Corporation ("Progressive")
regarding acquisition by the Company of all of the issued and
outstanding common stock of Progressive. At present it is
anticipated that a closing will occur on or about July 15, 1999
and Management believes it is prudent to take the necessary
corporate actions necessary to consummate the acquisition. In
the event the closing does not occur, the Company will maintain
it's present name.
The change of corporate name will become effective upon the
filing with the Secretary of State of an amendment to the
Company's Certificate of Incorporation which states that, upon
the filing of the Certificate of Amendment the name of the
Corporation will be Progressive Telecommunications Corporation.
One-For-Five Reverse Split and Reduction of Par Value
- -----------------------------------------------------
As a result of the Reverse Split, each share of Common Stock
outstanding at the effective time of the Reverse Split, will,
without any action on the part of the holder thereof, become one-
fifth share of Common Stock. The amendment will also decrease the
par value per share of the Company's common stock from $.04 to
$.001. The decrease in the par value per share will reduce the
Company's capital stock accounts. For purposes of this
description, the Common Stock, as presently constituted, is
referred to as the "Old Common Stock" and the Common Stock
resulting from the Reverse Split is referred to as the "New
Common Stock."
12
The Reverse Split will become effective upon the filing with
the Secretary of State of an amendment to the Company's
Certificate of Incorporation which states that, upon the filing
of the Certificate of Amendment, each share of Old Common Stock
then issued and outstanding would automatically become and be
converted into one-fifth share of New Common Stock.
Principal Effects of the Reverse Split
--------------------------------------
The principal effects of the Reverse Split will be as
follows:
Based upon the 2,321,793 shares of Old Common Stock
outstanding on the Record Date, the Reverse Split would decrease
the outstanding shares of Old Common Stock by 80%, and, upon the
effectiveness of the Reverse Split approximately 464,359 shares
of New Common Stock would be outstanding.
The Company will obtain new CUSIP numbers for the New Common
Stock at the time of the Reverse Split. Following the
effectiveness of the Reverse Split, the Company will provide each
record holder of Old Common Stock with information to enable such
holder to obtain new stock.
Subject to the provisions for elimination of fractional
shares, as described below, consummation of the Reverse Split
will not result in a change in the relative equity position or
voting power of the holders of Old Common Stock.
Assuming the Reverse Split is implemented, the Certificate
of Amendment amending the Certificate of Incorporation will be
filed with the Secretary of State of Delaware as promptly as
practicable thereafter. The Reverse Split would become effective
as of the date of such filing (the "Effective Date").
Purposes of the Reverse Stock Split
-----------------------------------
The Reverse Split would decrease the number of shares of Old
Common Stock outstanding and presumably increase the per share
market price for the New Common Stock. Theoretically, the number
of shares outstanding should not, by itself, affect the
marketability of the stock, the type of investor who acquires it,
or the Company's reputation in the financial community, but in
practice this is not necessarily the case, as many investors look
upon a stock trading at or under $1.00 per share as unduly
speculative in nature and, as a matter of policy, avoid
investment in such stocks.
13
Many leading brokerage firms are reluctant to recommend
lower-priced securities to their clients and a variety of
brokerage house policies and practices currently tend to
discourage individual brokers within firms from dealing in lower-
priced stocks. Some of those policies and practices pertain to
the payment of brokers' commissions and to time consuming
procedures that make the handling of lower priced stocks
unattractive to brokers from an economic standpoint. In addition,
the structure of trading commissions also tends to have an
adverse impact upon holders of lower priced stocks because the
brokerage commission on a sale of a lower priced stock generally
represents a higher percentage of the sales price than the
commission on a relatively higher priced issue.
The Board of Directors believes that the Reverse Split is in
the best interest of the Company and its shareholders. The price
of the Old Common Stock during the period from January 1, 1999
through June 21, 1999 ranged from a low closing price of $.187 to
a high closing price of $1.38. On June 21, 1999, the closing
price of the Old Common Stock was $1.06 per share. The Company
requires additional capital for its operations and does not
believe that it will be able to raise the necessary capital
unless the price of the Common Stock is higher than the current
Common Stock price levels. However, no assurance can be given
that the Reverse Split will result in any increase in the Common
Stock price or that the Company will be able to complete any
financing following the Reverse Split.
Exchange of Certificate and Elimination
of Fractional Share Interests
---------------------------------------
On the Effective Date, each five shares of Old Common Stock
will automatically be combined and changed into one share of New
Common Stock. No additional action on the part of the Company or
any shareholder will be required in order to effect the Reverse
Split. Shareholders will be requested to exchange their
certificates representing shares of Old Common Stock held prior
to the Reverse Split for new certificates representing shares of
New Common Stock. Shareholders will be furnished the necessary
materials and instructions to effect such exchange promptly
following the Effective Date. Certificates representing shares of
Old Common Stock subsequently presented for transfer will not be
transferred on the books and records of the Company but will be
returned to the tendering person for exchange. Shareholders
should not submit any certificates until requested to do so. In
the event any certificate representing shares of Old Common Stock
is not presented for exchange upon request by the Company, any
dividends that may be declared after the Effective Date of the
Reverse Split with respect to the Common Stock represented by
such certificate will be withheld by the Company until such
14
certificate has been properly presented for exchange, at which
time all such withheld dividends which have not yet been paid to
a public official pursuant to relevant abandoned property laws
will be paid to the holder thereof or his designee, without
interest.
No fractional shares of New Common Stock will be issued to
any shareholder. Accordingly, shareholders of record who would
otherwise be entitled to receive fractional shares of New Common
Stock, will, upon surrender of their certificates representing
shares of Old Common Stock, receive a cash payment in lieu
thereof equal to the fair value of such fractional share. Holders
of less than five shares of Old Common Stock as a result of the
Reverse Split will on the Effective Date no longer be
shareholders of the Company. The Board of Directors had
determined that the fair value of the Common Stock will be based
on the closing price of the Common Stock on the OTC-Bulletin
Board on the Effective Date (as adjusted to reflect the Reverse
Split) or, if there are no reported sales on such date, the
average of the last reported high bid and low asked price on such
day shall be used.
Federal Income Tax Consequences of the Reverse Split
----------------------------------------------------
The combination of each five shares of the Old Common Stock
into one share of New Common Stock should be a tax-free
transaction under the Internal Revenue Code of 1986, as amended,
and the holding period and tax basis of the Old Common Stock will
be transferred to the New Common Stock received in exchange
therefor.
Generally, cash received in lieu of fractional shares will
be treated as a sale of the fractional shares (although in
unusual circumstances such cash might possibly be deemed a
dividend), and shareholders will recognize gain or loss based
upon the difference between the amount of cash received and the
basis in the surrendered fractional share.
This discussion should not be considered as tax or
investment advice, and the tax consequences of the Reverse Split
may not be the same for all shareholders. Shareholders should
consult their own tax advisors to know their individual Federal,
state, local and foreign tax consequences.
15
Change in Authorized Capital Stock
- ----------------------------------
The Board of Directors has approved an amendment to the
Company's Certificate of Incorporation which would change the
number of authorized shares of Common Stock, and the par value
from $.04 to $.001 per share. The number of authorized shares
would be increased from 25,000,000 shares to 50,000,000 shares.
Discussion of the Amendment
---------------------------
On the Record Date, there were 2,321,793 shares of Common
Stock outstanding. Pursuant to the Securities Exchange
Agreement, the Company will issue an aggregate 45,000,000 shares
of Old Common Stock or Old Common Stock Equivalent to the
Progressive shareholders. Accordingly, after the amendment and
closing with Progressive, the new combined entity will have
approximately 10,000,000 shares issued and outstanding.
Under the Company's Certificate of Incorporation, the Board
of Directors of the Company has authority to issue authorized and
unissued shares of Preferred Stock without obtaining approval
from the holders of the Common Stock. The holders of the
Company's Common Stock and Preferred Stock do not have preemptive
rights. The Preferred Stock provisions give the Board of
Directors broad authority to issue shares of Preferred Stock in
one or more series and to determine such matters as the dividend
rate and preference, voting rights, conversion privileges,
redemption provisions, liquidation preferences and other rights
of each series. Each share of Common Stock is entitled to one
vote. The holders of any series of preferred stock issued in the
future will be entitled to such voting rights as may be specified
by the Board of Directors.
Because of the broad powers granted to the Board of
Directors to issue shares of Preferred Stock and determine the
rights, preferences and privileges of the holders of such series,
the board has the power to issue shares of Preferred Stock in a
manner which could be used as a defensive measure against a
hostile takeover or to keep the Board of Directors in power.
However, the Board of Directors has no present plans to issue
shares for such purpose.
The Board of Directors of the Company believes it will
benefit the shareholders to have additional unreserved shares
available for issuance in order that adequate shares may be
available for the possible issuance of Common Stock, convertible
Preferred Stock or convertible debt securities in connection with
a possible financing of the Company's business or an acquisition,
16
although, except for preliminary discussions with Progressive
Telecommunications Corporation, the Company has no plans,
arrangements, understanding or commitments with respect to the
issuance of such shares, except to effect the Acquisition.
Approval Required
- -----------------
The approval of a majority of the outstanding stock entitled
to vote will be necessary to approve the proposed amendment. As
discussed above, the Company's Board of Directors, on June 21,
1999 the record date of the transaction, hold voting authority
for stock representing approximately 63.8% of the votes of the
Company's outstanding stock. They have executed written consents
voting those shares in favor of the proposed amendment. The
Board of Directors does not intend to solicit any proxies or
consents from any other shareholders in connection with this
action.
AVAILABLE INFORMATION
---------------------
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934 and, in accordance therewith,
files reports and other information with the Commission. The
Registration Statement and such reports and other information may
be inspected without charge at the Public Reference Room
maintained by the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices located at Seven World Trade Center, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material may be obtained from the Public
Reference Room of the Commission at 450 Fifth Street, N.W.,
Washington D.C. 20549, at prescribed rates. Information on the
operation of the Public Reference Room is available by calling
the Commission at 1-800-SEC-0330. In addition, the Commission
maintains an Internet site where the Registration Statement and
other information filed with the Commission may be retrieved, and
the address of such site is http://www.sec.gov. Statements made
in this Prospectus concerning the contents of any document
referred to herein are not necessarily complete.
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INCORPORATION BY REFERENCE
--------------------------
The following documents filed with the Commission by the
Company are hereby incorporated by reference into this
Information Statement:
(1) The Company's Annual Report on Form 10-K, as most
recently amended, for the fiscal year ended September
30, 1998;
(2) The Company's Quarterly Report on Form 10-Q for the
quarter ended March 30, 1999;
OTHER MATTERS
-------------
The Board of Directors does not know of any other matters to
be brought before the meeting.
By Order of the Board of Directors
Harold Brown
Chairman of the Board
June 25, 1999
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