SCHEDULE 14C
(RULE 14C-101)
Information Statement Pursuant to Section 14(c) of the Securities Exchange Act
of 1934
Check the appropriate box:
|_| Preliminary Information Statement
|X| Definitive Information Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
VERTEX INTERACTIVE, INC.
(Name of Registrant As Specified In Its Charter)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
|X| No fee required
|_| Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which the 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
VERTEX INTERACTIVE, INC.
3619 KENNEDY ROAD, SOUTH PLAINFIELD, NJ 07080
INFORMATION STATEMENT
PURSUANT TO SECTION 14
OF THE SECURITIES EXCHANGE ACT OF 1934
AND REGULATION 14C AND SCHEDULE 14C THEREUNDER
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE NOT REQUESTED TO SEND US A PROXY
South Plainfield, New Jersey
March 14, 2005
This information statement has been mailed on or about March 18, 2005 to
the stockholders of record on March 15, 2005 (the "Record Date") of Vertex
Interactive, Inc., a New Jersey corporation (the "Company") in connection with
certain actions to be taken by the written consent by the majority stockholders
of the Company, dated as of February 24, 2005. The actions to be taken pursuant
to the written consent shall be taken on or about April 8, 2005, 20 days after
the mailing of this information statement.
THIS IS NOT A NOTICE OF A SPECIAL MEETING OF STOCKHOLDERS AND NO STOCKHOLDER
MEETING WILL BE HELD TO CONSIDER ANY MATTER WHICH WILL BE DESCRIBED HEREIN.
By Order of the Board of Directors,
/s/ Hugo H. Biermann
-----------------------------------------
Chairman of the Board
2
NOTICE OF ACTION TO BE TAKEN PURSUANT TO THE WRITTEN CONSENT OF MAJORITY
STOCKHOLDERS IN LIEU OF A SPECIAL MEETING OF THE STOCKHOLDERS, DATED FEBRUARY
24, 2005
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the following action will be taken pursuant to
a written consent of a majority of stockholders dated February 24, 2005, in lieu
of a special meeting of the stockholders. Such action will be taken on or about
April 8, 2005:
1. To Amend the Company's Articles of Incorporation, as amended, to:
(a) Change the Company's name from Vertex Interactive, Inc. to
Cape Systems Group, Inc.; and
(b) increase the number of authorized shares of common stock, par
value $.005 per share (the "Common Stock"), of the Company
from 400,000,000 shares to 1,000,000,000 shares;
2. To ratify the selection of J.H. Cohn LLP as independent auditors of
the Company for the year ending September 30, 2005; and
3. To elect three directors to the Company's Board of Directors, to
hold office until their successors are elected and qualified or until their
earlier resignation or removal.
OUTSTANDING SHARES AND VOTING RIGHTS
As of February 24, 2005, the Company's authorized capitalization consisted
of 400,000,000 shares of Common Stock, of which 76,764,772 shares were issued
and outstanding. Holders of Common Stock of the Company have no preemptive
rights to acquire or subscribe to any of the additional shares of Common Stock.
Each share of Common Stock entitles its holder to one vote on each matter
submitted to the stockholders. However, as a result of the voting rights of the
class C-1 Convertible Preferred Stockholders, who hold at least a majority of
the voting rights of all outstanding shares of capital stock as of February 24,
2005, will have voted in favor of the foregoing proposals by resolution dated
February 24, 2005; and having sufficient voting power to approve such proposals
through their ownership of capital stock, no other stockholder consents will be
solicited in connection with this Information Statement. MidMark Capital II,
L.P. holds 805 shares of class C-1 Convertible Preferred Stock and MidMark
Capital L.P. holds 34 shares of class C-1 Convertible Preferred Stock. Combined,
they hold 162,723,887 votes out of a total of 236,246,255 possible votes on each
matter submitted to the stockholders MidMark Capital II, L.P. and MidMark
Capital L.P. are the shareholders who will have voted in favor of the foregoing
proposals by resolution dated February 24, 2005.
Pursuant to Rule 14c-2 under the Securities Exchange Act of 1934, as
amended, the proposals will not be adopted until a date at least 20 days after
the date on which this Information Statement has been mailed to the
stockholders. The Company anticipates that the actions contemplated herein will
be effected on or about the close of business on April 8, 2005.
The Company has asked brokers and other custodians, nominees and
fiduciaries to forward this Information Statement to the beneficial owners of
the Common Stock held of record by such persons and will reimburse such persons
for out-of-pocket expenses incurred in forwarding such material.
This Information Statement will serve as written notice to stockholders
pursuant to the General Corporation Law of the State of New Jersey.
3
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following tables sets forth, as of February 24, 2005, the number of and
percent of the Company's common stock beneficially owned by
o all directors and nominees, naming them,
o our executive officers,
o our directors and executive officers as a group, without naming them, and
o persons or groups known by us to own beneficially 5% or more of our common
stock:
The Company believes that all persons named in the table have sole voting and
investment power with respect to all shares of common stock beneficially owned
by them.
A person is deemed to be the beneficial owner of securities that can be acquired
by him within 60 days from February 24, 2005 upon the exercise of options,
warrants or convertible securities. Each beneficial owner's percentage ownership
is determined by assuming that options, warrants or convertible securities that
are held by him, but not those held by any other person, and which are
exercisable within 60 days of February 24, 2005 have been exercised and
converted.
4
TOTAL VOTES PERCENTAGE
NUMBER OF ENTITLED TO OF TOTAL
SHARES BE CAST ON VOTES ON
NAME AND ADDRESS BENEFICIALLY PERCENTAGE OF SHAREHOLDER SHAREHOLDER
OF OWNER TITLE OF CLASS OWNED(1) CLASS (2) MATTERS (3) MATTERS (4)
- -----------------------------------------------------------------------------------------------------------------------
Hugo H. Biermann Common Stock 1,863,010 (5) 2.41% 1,000,000 *
3619 Kennedy Road
South Plainfield, NJ 07080
Nicholas R. H. Toms Common Stock 2,563,418 (6) 3.32% 2,006,418 *
3619 Kennedy Road
South Plainfield, NJ 07080
Otto Leistner Common Stock 1,672,875 (7) 2.18% 1,622,875 *
3619 Kennedy Road
South Plainfield, NJ 07080
Barbara Martorano Common Stock 19,000 (8) * 0 0
3619 Kennedy Road
South Plainfield, NJ 07080
All Officers and Directors Common Stock 6,118,303 (9) 7.87% 4,629,293 1.96%
As a Group (4 persons)
- ----------------------------
American Marketing Complex Common Stock 9,455,000 12.32% 9,455,000 4.00%
330 East 33rd Street,
Suite 15M
New York, NY 10016
MidMark Capital L.P. Common Stock 6,557,960 (10) 8.47% 6,557,960 (11) 2.78%
177 Madison Avenue
Morristown, NJ 07960
MidMark Capital II L.P. Common Stock 156,165,927 (12) 67.11% 156,165,927 (13) 66.10%
177 Madison Avenue
Morristown, NJ 07960
=======================================================================================================================
Pitney Bowes, Inc. Preferred A 1,356,852 100%
One Elmcroft Road
Stamford, CT 06926
=======================================================================================================================
Pitney Bowes, Inc. Preferred B 1,000 100%
One Elmcroft Road
Stamford, CT 06926
=======================================================================================================================
MidMark Capital II L.P. Preferred C-1 805 80.74%
177 Madison Avenue
Morristown, NJ 07960
Paine Webber Custodian Preferred C-1 50 5.02%
F/B/O Wayne Clevenger
177 Madison Avenue
Morristown, NJ 07960
Joseph Robinson Preferred C-1 50 5.02%
177 Madison Avenue
Morristown, NJ 07960
O'Brien Ltd Partnership Preferred C-1 50 5.02%
177 Madison Avenue
Morristown, NJ 07960
=======================================================================================================================
MidMark Capital II, L.P. Preferred D 7,615 100%
177 Madison Avenue
Morristown, NJ 07960
5
(1) Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options or
warrants currently exercisable or convertible, or exercisable or convertible
within 60 days of February 24, 2005 are deemed outstanding for computing the
percentage of the person holding such option or warrant but are not deemed
outstanding for computing the percentage of any other person.
(2) For purposes of calculating the percentage beneficially owned, the number of
shares of each class of stock deemed outstanding include 76,764,772 common
shares; 1,356,852 Preferred "A" Shares; 1,000 Preferred "B" Shares; 997
Preferred "C-1" Shares and 7,615 Preferred "D" Shares outstanding as of February
24, 2005.
(3) This column represents the total number of votes each named shareholder is
entitled to vote upon matters presented to the shareholders for a vote.
(4) For purposes of calculating the percentage of total votes on shareholder
matters, the total number of votes entitled to vote on matters submitted to
shareholders is 236,246,255, which includes: one vote for each share of common
stock currently outstanding (76,764,772); 18,462,964 votes for the holders of
Class C-1 stock, which is determined by the number of votes that such holders
would be entitled to cast had such holders converted their shares into shares of
Common Stock on the record date for such vote; and 141,018,519 votes for the
holders of Class D stock, which is determined by the number of votes that such
holder would be entitled to cast had such holder converted its shares into
shares of Common Stock on the record date for such vote.
(5) Includes 475,000 shares issuable pursuant to presently exercisable options
and 388,010 shares held in the name of Bunter BVI Limited of which Mr. Biermann
may be deemed to be a beneficiary. Mr. Biermann, however, disclaims such
beneficial ownership.
(6) Includes 475,000 shares issuable pursuant to presently exercisable options,
7,000 shares held by his wife, Caroline Toms, and 75,000 shares held in a trust
for the benefit of his daughter, Catherine Toms, of which Mr. Toms is the
trustee. Mr. Toms, however, disclaims such beneficial ownership of the shares
owned by his wife and in the trust.
(7) Includes 50,000 shares issuable pursuant to presently exercisable options.
(8) Includes 19,000 shares issuable pursuant to presently exercisable options.
(9) Includes 1,019,000 shares issuable pursuant to presently exercisable options
and 388,010 shares held by a company for which by Mr. Biermann disclaims
beneficial ownership.
(10) Includes 629,630 shares issuable upon conversion of class C-1 convertible
preferred stock.
(11) Includes 629,630 votes as a result of ownership of 34 shares of Class C-1
preferred stock, which is determined by the number of votes that such holder
would be entitled to cast had such holder converted its shares into shares of
Common Stock on the record date for such vote.
(12) Includes 141,018,519 shares issuable upon conversion of class D convertible
preferred stock, and 14,907,408 shares issuable upon conversion of class C-1
convertible preferred stock.
(13) Includes 141,018,519 votes as a result of ownership of 7,615 shares of
Class D preferred stock and 14,907,408 votes as a result of ownership of 805
shares of Class C-1 preferred stock, which is determined by the number of votes
that such holder would be entitled to cast had such holder converted its shares
into shares of Common Stock on the record date for such vote.
6
SERIES C-1 VOTING RIGHTS
Each share of Series C-1 convertible preferred stock shall be entitled to cast
that number of votes per share as is equal to the number of votes that holder
would be entitled to cast had such holder converted his shares into shares of
Common Stock on the record date for such vote.
SERIES D VOTING RIGHTS
Each share of Series D convertible preferred stock shall be entitled to cast
that number of votes per share as is equal to the number of votes that holder
would be entitled to cast had such holder converted his shares into shares of
Common Stock on the record date for such vote.
7
AMENDMENT TO THE ARTICLES OF INCORPORATION
On February 24, 2005, the majority stockholders of the Company approved an
amendment to the Company's Articles of Incorporation, as amended, to increase
the number of authorized shares of Common Stock from 400,000,000 to
1,000,000,000 and to change the Company's name from Vertex Interactive, Inc. to
Cape Systems Group, Inc. The Company currently has authorized capital stock of
400,000,000 shares and approximately 76,764,772 shares of common stock are
outstanding as of February 24, 2005. The Board believes that the increase in
authorized common shares would provide the Company greater flexibility with
respect to the Company's capital structure for such purposes as additional
equity financing, and stock based acquisitions.
CHANGE OF THE COMPANY'S NAME
The amendment to the Company's Certificate of Incorporation, as amended,
will change the Company's name from Vertex Interactive, Inc. to Cape Systems
Group, Inc. The Company believes that the name change would be in the best
interests of the Company because the new name reflects the recent acquisition of
Cape Systems, Inc., a Delaware corporation. The name change will become
effective when the Certificate of Amendment to the Articles of Incorporation is
filed with the Secretary of State of the State of New Jersey. The Company
intends to file the Certificate of Amendment promptly after the stockholders
approve the name change at which time the Company will also change its name and
stock symbol on the Over-The-Counter Bulletin Board.
INCREASE IN AUTHORIZED COMMON STOCK
The terms of the additional shares of Common Stock will be identical to
those of the currently outstanding shares of Common Stock. However, because
holders of Common Stock have no preemptive rights to purchase or subscribe for
any unissued stock of the Company, the issuance of additional shares of Common
Stock will reduce the current stockholders' percentage ownership interest in the
total outstanding shares of Common Stock. This amendment and the creation of
additional shares of authorized common stock will not alter the current number
of issued shares. The relative rights and limitations of the shares of Common
Stock will remain unchanged under this amendment.
As of February 24, 2005, a total of 76,764,772 shares of the Company's
currently authorized 400,000,000 shares of Common Stock are issued and
outstanding. The increase in the number of authorized but unissued shares of
Common Stock would enable the Company, without further stockholder approval, to
issue shares from time to time as may be required for proper business purposes,
such as raising additional capital for ongoing operations, business and asset
acquisitions, stock splits and dividends, present and future employee benefit
programs and other corporate purposes.
The proposed increase in the authorized number of shares of Common Stock
could have a number of effects on the Company's stockholders depending upon the
exact nature and circumstances of any actual issuances of authorized but
unissued shares. The increase could have an anti-takeover effect, in that
additional shares could be issued (within the limits imposed by applicable law)
in one or more transactions that could make a change in control or takeover of
the Company more difficult. For example, additional shares could be issued by
the Company so as to dilute the stock ownership or voting rights of persons
seeking to obtain control of the Company, even if the persons seeking to obtain
control of the Company offer an above-market premium that is favored by a
majority of the independent shareholders. Similarly, the issuance of additional
shares to certain persons allied with the Company's management could have the
effect of making it more difficult to remove the Company's current management by
diluting the stock ownership or voting rights of persons seeking to cause such
removal. The Company does not have any other provisions in its articles or
incorporation, by-laws, employment agreements, credit agreements or any other
documents that have material anti-takeover consequences. Additionally, the
Company has no plans or proposals to adopt other provisions or enter into other
arrangements, except as disclosed below, that may have material anti-takeover
consequences. The Board of Directors is not aware of any attempt, or
contemplated attempt, to acquire control of the Company, and this proposal is
not being presented with the intent that it be utilized as a type of anti-
takeover device.
8
Except for the following, there are currently no plans, arrangements,
commitments or understandings for the issuance of the additional shares of
Common Stock which are proposed to be authorized:
o SECURED CONVERTIBLE NOTES
To obtain funding for its ongoing operations, the Company entered into a
Securities Purchase Agreement with four accredited investors, AJW
Partners, LLC, AJW Offshore, Ltd., AJW Qualified Partners, LLC and New
Millennium Capital Partners, LLC, on January 11, 2005 for the sale of (i)
$1,850,000 in convertible notes and (ii) warrants to buy 1,850,000 shares
of our common stock.
The Company used the proceeds generated from the sale of the secured
convertible notes for the acquisition of Cape Systems, Inc.
The secured convertible notes bear interest at 10%, mature two years from
the date of issuance, and are convertible into our common stock, at the
selling stockholders' option, at the lower of (i) $0.09 or (ii) 40% of the
average of the three lowest intraday trading prices for the common stock
on a principal market for the 20 trading days before but not including the
conversion date. Accordingly, there is in fact no limit on the number of
shares into which the secured convertible notes may be converted. As of
February 24, 2005, the average of the three lowest intraday trading prices
for our common stock during the preceding 20 trading days as reported on
the Over-The-Counter Bulletin Board was $.09 and, therefore, the
conversion price for the secured convertible notes was $.036. Based on
this conversion price, the $1,850,000 secured convertible notes, excluding
interest, were convertible into 51,388,889 shares of our common stock. If
the Company's stock price should decrease, the Company will be required to
issue substantially more shares, which will cause dilution to the
Company's existing stockholders. There is no upper limit on the number of
shares that may be issued, which will have the effect of further diluting
the proportionate equity interest and voting power of holders of the
Company's common stock.
The full principal amount of the convertible notes are due upon default
under certain terms of convertible notes. The Company is obligated to
register the resale of the conversion shares issuable upon conversion of
the notes under the Securities Act of 1933, as amended, no later than
thirty (30) days from January 11, 2005. In addition, management is also
obligated, pursuant to the Securities Purchase Agreement, to vote in favor
of an increase in the Company's common stock as well as to recommend such
increase to the Company's stockholders. In the event that the increase in
the Company's authorized common stock is not approved, an event of default
will exist upon the Company's failure to rectify such default within ten
days of receipt of a notice of default from the investor and the investor
may demand that all interest owed on the secured convertible note be paid
in either cash or common stock. Furthermore, upon the event of default,
the investors have a first priority security interest in substantially all
of our assets and can take possession of them upon an event of default.
The following are the risks associated with entering into the Securities
Purchase Agreement:
THERE ARE A LARGE NUMBER OF SHARES UNDERLYING OUR SECURED CONVERTIBLE NOTES AND
WARRANTS THAT MAY BE AVAILABLE FOR FUTURE SALE AND THE SALE OF THESE SHARES MAY
DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
As of February 24, 2005, we had 76,764,772 shares of common stock issued
and outstanding, secured convertible notes outstanding that may be converted
into an estimated 134,722,223 shares of common stock at current market prices
and outstanding warrants to purchase 4,850,000 shares of common stock and an
obligation to issue warrants to purchase 1,700,000 shares of common stock in the
near future. In addition, the number of shares of common stock issuable upon
conversion of the outstanding secured convertible notes may increase if the
market price of our stock declines. All of the shares, including all of the
shares issuable upon conversion of the notes and upon exercise of our warrants,
may be sold without restriction. The sale of these shares may adversely affect
the market price of our common stock.
9
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR SECURED CONVERTIBLE
NOTES COULD REQUIRE US TO ISSUE A SUBSTANTIALLY GREATER NUMBER OF SHARES, WHICH
WILL CAUSE DILUTION TO OUR EXISTING STOCKHOLDERS.
Our obligation to issue shares upon conversion of our secured convertible
notes is essentially limitless. The following is an example of the amount of
shares of our common stock that are issuable, upon conversion of our secured
convertible notes (excluding accrued interest), based on market prices 25%, 50%
and 75% below the market price as of February 23, 2005 of $0.12 per share.
Secured Convertible Notes
Number % of
% Below Price Per With Discount of Shares Outstanding
Market Share at 60% Issuable Stock
- ------ ----- ------ -------- -----
25% $.09 $.036 51,388,889 40.1%
50% $.06 $.024 77,083,334 50.1%
75% $.03 $.012 154,166,667 66.8%
As illustrated, the number of shares of common stock issuable upon
conversion of our secured convertible notes will increase if the market price of
our stock declines, which will cause dilution to our existing stockholders.
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR SECURED CONVERTIBLE
NOTES MAY ENCOURAGE INVESTORS TO MAKE SHORT SALES IN OUR COMMON STOCK, WHICH
COULD HAVE A DEPRESSIVE EFFECT ON THE PRICE OF OUR COMMON STOCK.
The secured convertible notes are convertible into shares of our common
stock at a 60% discount to the trading price of the common stock prior to the
conversion. The significant downward pressure on the price of the common stock
as the investors convert and sells material amounts of common stock could
encourage short sales by investors. This could place further downward pressure
on the price of the common stock. The investors could sell common stock into the
market in anticipation of covering the short sale by converting their
securities, which could cause the further downward pressure on the stock price.
In addition, not only the sale of shares issued upon conversion or exercise of
the secured convertible notes, but also the mere perception that these sales
could occur, may adversely affect the market price of the common stock.
THE ISSUANCE OF SHARES UPON CONVERSION OF THE SECURED CONVERTIBLE NOTES AND
EXERCISE OF OUTSTANDING WARRANTS MAY CAUSE IMMEDIATE AND SUBSTANTIAL DILUTION TO
OUR EXISTING STOCKHOLDERS.
The issuance of shares upon conversion of the secured convertible notes
and exercise of warrants may result in substantial dilution to the interests of
other stockholders since the investors may ultimately convert and sell the full
amount issuable on conversion. Although the investors may not convert their
secured convertible notes and/or exercise their warrants if such conversion or
exercise would cause them to own more than 4.9% of our outstanding common stock,
this restriction does not prevent the investors from converting and/or
exercising some of their holdings and then converting the rest of their
holdings. In this way, the investors could sell more than this limit while never
holding more than this limit. There is no upper limit on the number of shares
that may be issued which will have the effect of further diluting the
proportionate equity interest and voting power of holders of our common stock,
including investors in this offering.
IN THE EVENT THAT OUR STOCK PRICE DECLINES, THE SHARES OF COMMON STOCK ALLOCATED
FOR CONVERSION OF THE SECURED CONVERTIBLE NOTES AND REGISTERED PURSUANT TO A
REGISTRATION STATEMENT MAY NOT BE ADEQUATE AND WE MAY BE REQUIRED TO FILE A
SUBSEQUENT REGISTRATION STATEMENT COVERING ADDITIONAL SHARES. IF THE SHARES WE
HAVE ALLOCATED AND ARE REGISTERING HEREWITH ARE NOT ADEQUATE AND WE ARE REQUIRED
TO FILE AN ADDITIONAL REGISTRATION STATEMENT, WE MAY INCUR SUBSTANTIAL COSTS IN
CONNECTION THEREWITH.
10
Based on our current market price and the potential decrease in our market
price as a result of the issuance of shares upon conversion of the secured
convertible notes, we have made a good faith estimate as to the amount of shares
of common stock that we are required to register and allocate for conversion of
the secured convertible notes. Accordingly, we have reserved for issuance
120,652,174 shares to cover the conversion of the secured convertible notes. In
the event that our stock price decreases, the shares of common stock we have
allocated for conversion of the secured convertible notes and are registering
pursuant to a registration statement may not be adequate. If the shares we have
allocated to the registration statement are not adequate and we are required to
file an additional registration statement, we may incur substantial costs in
connection with the preparation and filing of such registration statement.
IF WE ARE REQUIRED FOR ANY REASON TO REPAY OUR OUTSTANDING SECURED CONVERTIBLE
NOTES, WE WOULD BE REQUIRED TO DEPLETE OUR WORKING CAPITAL, IF AVAILABLE, OR
RAISE ADDITIONAL FUNDS. OUR FAILURE TO REPAY THE SECURED CONVERTIBLE NOTES, IF
REQUIRED, COULD RESULT IN LEGAL ACTION AGAINST US, WHICH COULD REQUIRE THE SALE
OF SUBSTANTIAL ASSETS.
In January 2005, we entered into a Securities Purchase Agreement for the
sale of an aggregate of $1,850,000 principal amount of secured convertible
notes. The secured convertible notes are due and payable, with 10% interest, two
years from the date of issuance, unless sooner converted into shares of our
common stock. Any event of default such as our failure to repay the principal or
interest when due, our failure to issue shares of common stock upon conversion
by the holder, our failure to timely file a registration statement or have such
registration statement declared effective, breach of any covenant,
representation or warranty in the Securities Purchase Agreement or related
convertible note, the assignment or appointment of a receiver to control a
substantial part of our property or business, the filing of a money judgment,
writ or similar process against our company in excess of $50,000, the
commencement of a bankruptcy, insolvency, reorganization or liquidation
proceeding against our company and the delisting of our common stock could
require the early repayment of the secured convertible notes, including a
default interest rate of 15% on the outstanding principal balance of the notes
if the default is not cured with the specified grace period. We anticipate that
the full amount of the secured convertible notes will be converted into shares
of our common stock, in accordance with the terms of the secured convertible
notes. If we are required to repay the secured convertible notes, we would be
required to use our limited working capital and raise additional funds. If we
were unable to repay the secured convertible notes when required, the note
holders could commence legal action against us and foreclose on all of our
assets to recover the amounts due. Any such action would require us to curtail
or cease operations.
11
APPOINTMENT OF J.H. COHN LLP
Upon the recommendation of the Audit Committee, the Board of Directors has
appointed the firm of J.H. Cohn LLP as independent auditors of the Company for
the year ending September 30, 2005. On February 24, 2005, the majority
stockholders ratified the selection of J.H. Cohn LLP as the independent auditors
of the Company for the year ending September 30, 2005.
MEMBERSHIP AND ROLE OF THE AUDIT COMMITTEE
The Audit Committee of the board of directors reviews the internal
accounting procedures of the Company and consults with and reviews the services
provided by our independent accountants. During 2004, the audit committee
consisted of Messr. Otto Leistner. The Audit Committee held four meetings in
2004.
As at February 24, 2005 the Audit Committee (Messr. Leistner) was
"independent" for purposes of the National Association of Securities Dealers'
listing standards. The Audit Committee operates under a written charter adopted
by the Board of Directors.
The Audit Committee reviews the Company's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process, including the system of
internal controls. The independent auditors are responsible for performing an
independent audit of the Company's consolidated financial statements in
accordance with generally accepted accounting principles and to issue a report
thereon. The Committee monitors these processes.
Review of the Company's audited financial statements for the fiscal year ended
September 30, 2004
- --------------------------------------------------------------------------------
In this context, the Committee met and held discussions with management
and the independent auditors. Management represented to the Committee that the
Company's consolidated financial statements were prepared in accordance with
accounting principles generally accepted in the United States, and the Committee
reviewed and discussed the consolidated financial statements with management and
the independent auditors. The Committee also discussed with the independent
auditors the matters required to be discussed by Statement on Auditing Standards
No. 61 (Codification of Statements on Auditing Standards, AU 380), as amended.
In addition, the Committee discussed with the independent auditors the
auditors' independence from the Company and its management, and the independent
auditors provided to the Committee the written disclosures and letter required
by the Independence Standards Board Standard No. 1 (Independence Discussions
With Audit Committees).
The Committee discussed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The Committee
met with the internal and independent auditors, with and without management
present, to discuss the results of their examinations, the evaluation of the
Company's internal controls, and the overall quality of the Company's financial
reporting.
Based on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors, and the Board has approved, that the
audited financial statements be included in the Company's Annual Report on Form
10-K for the year ended September 30, 2004, for filing with the Securities and
Exchange Commission.
AUDIT FEES
The aggregate fees billed by our auditors, for professional services
rendered for the audit of the Company's annual financial statements during the
year ended September 30, 2004, and for the reviews of the financial statements
included in the Company's Quarterly Reports on Form 10-Q and the registration
statement during the fiscal year then ended was approximately $267,000. No such
fees were billed for the year ended 2003.
12
TAX FEES
J.H. Cohn LLP billed the Company approximately $30,000 for tax related
work during fiscal years 2004 and none for 2003.
ALL OTHER FEES
J.H. Cohn LLP did not bill the Company for any other services during
fiscal years 2004 and 2003.
The Board of Directors has considered whether the provision of non-audit
services is compatible with maintaining the principal accountant's independence.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
For the fiscal year ended September 30, 2004, J.H. Cohn LLP provided no
information technology services to the Company relating to financial systems
design and implementation, and no fees were billed by J.H. Cohn LLP to the
Company for any such services.
13
ELECTION OF DIRECTORS
On February 24, 2005, the majority stockholders of the Company elected
Hugo H. Biermann, Nicholas R. H. Toms and Otto Leistner to the Company's Board
of Directors for a term of one year. Following is information about each
director, including biographical data for at least the last five years.
The Board is responsible for supervision of the overall affairs of the
Company. In fiscal 2004, the Board's business was conducted at 18 meetings of
the board of directors. The Board now consists of three directors. The term of
each director continues until the next annual meeting or until successors are
elected. The directors are:
Name Age Position
- --------------------------------------------------------------------------------
Hugo H. Biermann 55 Executive Chairman and Director
Nicholas R. H. Toms 56 Chief Executive Officer, Chief Financial
Officer and Director
Otto Leistner 60 Director
Directors are elected at each meeting of stockholders and hold office
until the next annual meeting of stockholders and the election and
qualifications of their successors. Executive officers are elected by and serve
at the discretion of the board of directors.
HUGO H. BIERMANN has served as Executive Chairman of the Board of
Directors since July 2001 and served as Joint Chairman and Joint Chief Executive
Officer and a Director of the Company from September 1999 through June 2001. Mr.
Biermann has been a principal in Edwardstone & Company, Incorporated
("Edwardstone"), an investment management company, since 1986 as well as serving
as President of Edwardstone since 1989. From 1988 to 1995 Mr. Biermann served as
Director and Vice Chairman of Peak Technologies Group, Incorporated ("Peak
Technologies"), a company involved in automated data capture technologies.
NICHOLAS R. H. TOMS has served as Chief Executive Officer since July,
2001, as Chief Financial Officer since August, 2003, and served as Joint
Chairman of the Board of Directors, Joint Chief Executive Officer and a Director
of the Company from September 1999 through June 2001. Mr. Toms has been a
principal of Edwardstone, an investment management company, since 1986 and
Chairman and Chief Executive Officer of Edwardstone since 1989. From 1988 to
1997, Mr. Toms served as Chairman, President and Chief Executive Officer of Peak
Technologies.
OTTO LEISTNER has been a Director since April 2000. He has been a Partner
since 1995 in Leistner Pokoj Schnedler, a midsize accounting and consulting firm
in Frankfurt, Germany with a staff of approximately 100.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
During the fiscal year ended September 30, 2004, based upon an examination
of the public filings, all of our company's officers and directors timely filed
reports on Forms 3, 4 and 5.
14
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Other
Annual Restricted Options LTIP
Name & Principal Salary Bonus Compen- Stock SARs Payouts All Other
Position Year ($) ($) sation ($) Awards($) (#) ($) Compensation
- ------------------------- -------- ------------ -------------- ------------ ------------- ----------- ------------ --------------
Hugo H. Biermann 2004 0 0 0 -- -- -- --
Executive Chairman of 2003 0 0 0 -- -- -- --
the Board of Directors 2002 300,000 0 0 -- -- -- --
- ------------------------- -------- ------------ -------------- ------------ ------------- ----------- ------------ --------------
Nicholas R. H. Toms 2004 50,000 0 0 -- -- -- --
Chief Executive Officer 2003 91,667 0 0 -- -- -- --
2002 300,000 0 0 -- -- -- --
- ------------------------- -------- ------------ -------------- ------------ ------------- ----------- ------------ --------------
Mark A. Flint 2004 0 0 0 -- -- -- --
Chief Financial Officer 2003 218,589 (1) 0 0 -- -- -- --
2002 275,000 100,000 (2) 0 -- -- -- --
- ------------------------- -------- ------------ -------------- ------------ ------------- ----------- ------------ --------------
Donald W. Rowley 2004 0 0 0 -- -- -- --
Executive VP - 2003 101,667 (3) 0 0 -- -- -- --
Strategic Development 2002 225,000 0 0 -- -- -- --
- ------------------------- -------- ------------ -------------- ------------ ------------- ----------- ------------ --------------
Robert Schilt 2004 100,000 0 0 -- -- -- --
Chief Operating Officer 2003 214,475 0 0 -- -- -- --
Exqute Solutions, Inc. 2002 235,828 105,000 0 -- -- -- --
- ------------------------- -------- ------------ -------------- ------------ ------------- ----------- ------------ --------------
Timothy Callahan 2004 50,000 0 0 -- -- -- --
Vice President 2003 198,750 0 0 -- -- -- --
Sales and Marketing 2002 170,625 0 0 -- -- -- --
- ------------------------- -------- ------------ -------------- ------------ ------------- ----------- ------------ --------------
(1) Mr. Flint was laid off in August, 2003.
(2) Such amount is accrued however unpaid as of February 24, 2005.
(3) Mr. Rowley resigned as an officer in February, 2003, and was laid
off in June, 2003.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with certain key employees, which
automatically renew on an annual basis, unless otherwise terminated by either
party. Such agreements provide for salary levels (approximately $495,000 as of
September 30, 2004) as well as for incentive bonuses. As of September 30, 2004,
two employees who have employment agreements, are on furlough from the Company,
and are not receiving salaries while on furlough, but are receiving company
benefits, with the expectation that they can return when the company has the
financial capability for them to do so. One employee has verbally agreed to
accept a lower salary until such time that the company has the financial
capability to increase their salary.
DIRECTORS' COMPENSATION
All directors are reimbursed for their reasonable expenses incurred in attending
meetings of the board of directors and its committees. Directors serve without
cash compensation and without other fixed remuneration.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning options granted to executive
officers named in the Summary Compensation Table during the fiscal year ended
September 30, 2004:
15
Individual Grants
Number of
Securities % of Total Options
Underlying Granted to
Options Granted Employees in Fiscal Exercise
Name (#) Year Price ($/sh) Expiration Date
- -------- ------------------------------------------------------------------------
NONE
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table contains information concerning the number and value, at
September 30, 2003, of unexercised options held by executive officers named in
the Summary Compensation Table:
Number of Securities Value of unexercised
Underlying unexercised in-the-money options
Options at fiscal year end at fiscal year end
--------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------------- ----------- -------------
Hugo Biermann 475,000 -- n/a n/a
Nicholas Toms 475,000 -- n/a n/a
Mark Flint 280,000 120,000 n/a n/a
STOCK OPTION PLANS
On October 10, 1985, the board of directors adopted our 1985 Incentive
Stock Option Plan which was amended on February 14, 2000. We reserved 8,000,000
shares of common stock for issuance upon exercise of options granted from time
to time under the 1985 plan. The 1985 stock option plan is intended to assist us
in securing and retaining key employees, directors and consultants by allowing
them to participate in our ownership and growth through the grant of stock
options.
Under the stock compensation plan, we may grant stock options only to
employees and consultants. The 1985 stock option plan is administered directly
by our board of directors.
Subject to the provisions of the stock option plan, the board will
determine who shall receive stock options, the number of shares of common stock
that may be purchased under the options, the time and manner of exercise of
options and exercise prices.
As of September 30, 2004, there were 1,190,500 stock options granted under
the 1985 plan that were outstanding.
In September 2004, the Board approved the 2004 Incentive Stock Option
Plan, which was approved by the stockholders, that provides for the granting of
options to employees, directors and consultants to purchase shares of the
Company's common stock. The number of shares available for issuance under the
2004 Plan is 10,000,000. Options granted under the Plan generally vest over five
years and expire after ten years. The exercise price per share may not be less
than the fair market value of the stock on the date the option is granted.
Options granted to persons owning more than 10% of the voting shares of the
Company may not have a term of more than five years and may not be granted at
less than 110% of fair market value. As of September 30, 2004, no shares were
issued from the 2004 Plan.
16
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On June 25, 2004, as part of an Investment Restructuring Agreement with
six shareholders, who are also our principal shareholders, we exchanged class C
preferred stock for class C-1 convertible preferred stock on a 1:1 basis. Each
share of Series C-1 convertible preferred stock is convertible into $1,000 worth
of our common stock, at the selling stockholders' option, at the lower of (i)
$0.30 or (ii) 60% of the average of the three lowest intraday trading prices for
the common stock on a principal market for the 20 trading days before but not
including the conversion date.
On September 27, 2004, we issued 7,615 shares of class D convertible
preferred stock to MidMark Capital, L.P. in exchange for $7,614,708 of debt,
including accrued interest, owed by our subsidiaries and us to MidMark Capital
II, L.P. In addition, on September 27, 2004, we issued 5,569,980 shares of
common stock to MidMark Capital, L.P. upon exercise of warrants by MidMark
Capital, L.P. The exercise price for the warrants was exchanged for the
retirement of $315,309 in debt owed by us to MidMark Capital, L.P. As well, on
September 27, 2004, we issued 240,000 shares of common stock to MidMark Capital
II, L.P. upon exercise of warrants by MidMark Capital II, L.P. The exercise
price for the warrants was exchanged for the retirement of $2,400 in debt owed
by us to MidMark Capital II, L.P. Each share of the class D convertible
preferred stock is convertible into $1,000 worth of our common stock, at MidMark
Capital's option, at the lower of (i) $0.30 or (ii) 60% of the average of the
three lowest intraday trading prices for the common stock on a principal market
for the 20 trading days before but not including the conversion date.
17
ANNUAL AND QUARTERLY REPORTS
Our Annual Report on Form 10-K for the fiscal year ended September 30,
2004 and our Quarterly Report on Form 10-QSB for the quarter ended December 31,
2004, as filed with the SEC, excluding exhibits, are being mailed to
shareholders with this Information Statement. We will furnish any exhibit to our
Annual Report on Form 10-K or Quarterly Report on Form 10-QSB free of charge to
any shareholder upon written request to Barbara H. Martorano, Secretary, Vertex
Interactive, Inc., 3619 Kennedy Road, South Plainfield, NJ 07080. The Annual
Report and Quarterly Report are incorporated in this Information Statement. You
are encouraged to review the Annual Report and Quarterly Report together with
subsequent information filed by the Company with the SEC and other publicly
available information.
By Order of the Board of Directors,
/s/ Hugo H. Biermann
-----------------------------------------
Hugo H. Biermann
Chairman of the Board
South Plainfield, New Jersey
March 14, 2005
18
EXHIBIT A
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
VERTEX INTERACTIVE, INC.
The undersigned, being the Chief Executive Officer and Secretary of VERTEX
INTERACTIVE, INC., a corporation existing under the laws of the State of New
Jersey, do hereby certify under the seal of the said corporation as follows:
1. The certificate of incorporation of the Corporation is hereby amended by
replacing Article First, in its entirety, with the following:
"FIRST: The name of the Corporation is Cape Systems Group, Inc."
2. The certificate of incorporation of the Corporation is hereby amended by
replacing Article Third, in its entirety, with the following:
"THIRD: The Corporation is authorized to issue two classes of stock.
One class of stock shall be Common Stock, par value $0.005. The second
class of stock shall be Preferred Stock, par value $0.01. The Preferred
Stock, or any series thereof, shall have such designations, preferences
and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof as shall be expressed
in the resolution or resolutions providing for the issue of such stock
adopted by the board of directors and may be made dependent upon facts
ascertainable outside such resolution or resolutions of the board of
directors, provided that the matter in which such facts shall operate upon
such designations, preferences, rights and qualifications; limitations or
restrictions of such class or series of stock is clearly and expressly set
forth in the resolution or resolutions providing for the issuance of such
stock by the board of directors.
The total number of shares of stock of each class which the
Corporation shall have authority to issue and the par value of each share
of each class of stock are as follows:
Class Par Value Authorized Shares
----- --------- -----------------
Common $0.005 1,000,000,000
Preferred $0.01 2,000,000
----------------
Totals: 1,002,000,000"
19
3. The amendments of the articles of incorporation herein certified has been
duly adopted by the unanimous written consent of the Corporation's Board of
Directors and a majority of the Corporation's stockholders in accordance with
the provisions of Section 14A:5-6 of the General Corporation Law of the State of
New Jersey.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this Certificate of Amendment of the Corporation's Articles
of Incorporation, as amended, to be signed by Nicholas R. Toms, its Chief
Executive Officer, and Barbara H. Martorano, its Secretary, this __th day of
March, 2005.
VERTEX INTERACTIVE, INC.
By:
------------------------------------------
Nicholas R. Toms, Chief Executive Officer
By:
------------------------------------------
Barbara H. Martorano, Secretary
20