SAM,
for those not familiar with what you are talking about the whole scoop can be viewed below. The corporate structure was a mess and expensive to clean up through incorporating in Delaware and "exchanging" ADGI shares for Globetel shares..
(DEF 14A 6/21/2002)
Defective Share Authorization
ADGI has been advised by its legal counsel that a problem exists with respect to valid authorization of almost all of the outstanding shares of ADGI Common.
The original Nevada Articles of Incorporation of ADGI (then known as Terra West Homes, Inc.), adopted in December, 1978 and filed in January, 1979 (including amendments through the date of this Proxy Statement, the "ADGI Articles"), contain a provision requiring the consent of all directors and of holders of 100% of the outstanding shares of ADGI Common to any amendment of the ADGI Articles. The original number of authorized shares of ADGI Common was 25,000. Article X of these original Articles provides that "The corporation reserves the right to amend, alter, change or repeal any of the provisions contained in these Articles of Incorporation provided that unanimous consent is first given by both the full Board of Directors then seated and the holders of shares (in good standing) issued and outstanding of the corporation."
On December 3, 1991, Terra West Homes, Inc. filed an amendment to its Articles of Incorporation. This amendment purported to (1) change the name of the company to "Gerard Enterprises, Ltd.", (2) increase the authorized number of shares from 25,000 to 25,000,000, and (3) split the 25,000 outstanding shares of common stock 40-for-1 "as approved at a Special Meeting of Shareholders held October 20, 1991". This amendment recites that "As of the date of the Special Meeting the Company had issued and outstanding one million (1,000,000) shares . . . all of which were entitled to vote on the proposed amendments." It then states "At the . . . Meeting held October 20, 1991, seven hundred seventy five thousand (775,000) voted in favor of the amendments and none (0) voted against the amendments." This represented a 77.5% favorable vote, substantially less than the 100% required by the Articles. This amendment was invalid for want of the approval required by the original Articles.
On November 22, 1992, Gerard Enterprises, Ltd. filed a further amendment to its Articles of Incorporation. This amendment purported to (1) change the name of the company to "Tera West Homes, Inc." and (2) increase the authorized shares from 25,000,000 to 50,000,000. The amendment contains this statement ". . . there being at the present time, 2,000,000 issued and outstanding shares." It also contains this statement: "The number of shares of the corporation outstanding and entitled to vote on amendment to the articles of incorporation is 1,000,000, that the said change(s) and amendment have been consented to and approved by a majority vote of the stockholders . . .". This discrepancy between the 1 million and 2 million numbers may have resulted from an assumption that doubling the authorized shares also doubled the outstanding shares. In any event, the recital that the amendment was approved by a "majority vote" falls short of the 100% approval required by the company's original Articles. This amendment also was invalid for want of the 100% approval required by the original Articles.
On April 8, 1993, Tera West Homes, Inc. filed a further amendment to its Articles of Incorporation. This amendment purported to (1) change the company's name to "Tera West Ventures, Inc." and (2) change the company's authorized shares to be "50,000 shares of preferred shares Series A." This latter change, had it been approved by the required 100% of outstanding shares, would have eliminated all the common stock, because no mention was made of the common stock in the amendment. However, like the first two amendments described above, this amendment was invalid for want of the required 100% approval, because the final paragraph of the amendment recites that "The number of shares of the corporation outstanding and entitled to vote on an amendment . . . are 1,000,000, that the said change(s) and amendment has been consented to and approved by a majority vote . . .".
On March 15, 1995, Tera West Ventures, Inc. filed a further amendment to its Articles of Incorporation. This amendment purported only to change the name of the corporation to "American Diversified Group, Inc." However, the final paragraph of the amendment states "The number of shares of the corporation outstanding and entitled to vote on an amendment to the Articles of Incorporation is 14,000,001, that the said change(s) and amendment have been . . . approved by a majority vote . . . ". There is no amendment between April 8, 1993 and March 15, 1995 that accounts for the increase from 1,000,000 to 14,000,001 in the number of shares entitled to vote. In any event, as the March 15, 1995 amendment, like the earlier ones, recites that only a majority, not 100%, of the voting shares approved the amendment, it is also invalid.
On December 5, 1996, ADGI filed a further amendment to its Articles of Incorporation. This amendment purported to (1) locate the company's principal office at an address in West Palm Beach, Florida, (2) increase the "number of authorized shares of common stock . . . from 50,000 par value $10 to 200,000,000, par value $.001" and (3) remove three directors and replace them with Tom Craft Jr., Jerrold Hinton and another person. The last paragraph of the amendment recites that "The number of shares of the corporation outstanding and entitled to vote on an amendment . . . is 50,000, that the said change(s) and amendment has been consented to and approved by a majority vote . . .". There is no explanation of the discrepancy between the figure of 50,000 and the
14,000,001 shares-entitled-to-vote referred to in the 1995 amendment. One possible explanation is that the amendment used the 50,000 figure from the 1993 amendment which purported to create 50,000 shares of preferred stock and to eliminate the common stock.
On April 7, 1998, ADGI filed a further amendment. This amendment purported to increase the company's authorized shares to 350,000,000. The final paragraph recites that "The number of shares of the corporation outstanding and entitled to vote on an amendment . . . is 197,512,520, that the said change(s) and amendment has been consented to and approved by a majority vote . . .". This amendment, like the earlier ones, was invalid for want of the 100% approval required by ADGI's original Articles of Incorporation.
On August 15, 2001, ADGI filed a certificate with the Nevada Secretary of State. This certificate recorded an increase in the number of authorized shares from 350,000,000 to 700,000,000, which is the number currently reported by ADGI in its financial statements. The certificate states that this was approved by ADGI's Board of Directors on March 15, 2000. It further states that the change was not approved by stockholders because "Stockholder approval was not required pursuant to N[evada] R[evised] S[tatutes] 78.207".
NRS 78.207 permits the Board of Directors to increase the number of authorized shares without stockholder approval "Unless otherwise provided in the articles of incorporation" while at the same time "correspondingly increasing . . . the number of issued and outstanding shares . . . held by each stockholder". A change under NRS 78.207 is not effective until the company files a certificate describing the change (which was the certificate filed on August 15, 2001). When the certificate is filed, NRS 78.209 provides that "[t]he provisions of the articles of incorporation . . . regarding the authorized number . . . of the changed class . . . of shares shall be deemed amended . . .".
The Board action of March 15, 2000 taken without unanimous stockholder approval was invalid for two reasons. First, only the authorized shares, not the outstanding shares, were increased. In the words of NRS 78.207, the number of issued and outstanding shares was not "correspondingly increased".
Second, the procedure in NRS 78.207 may only be used if the articles of incorporation do not "otherwise provide". As noted in the above discussion, ADGI's original Articles of Incorporation require 100% stockholder approval "to amend, alter, change or repeal" any provision of the Articles of Incorporation. Because the filing of the NRS 78.207 certificate causes a "deemed amendment" under NRS 78.209, ADGI's Articles of Incorporation must be viewed as "providing otherwise," because the original Articles do not permit any amendment to a provision of the Articles that is not approved by 100% of the stockholders.
ADGI has obtained an opinion of its Nevada counsel, Kummer Kaempfer Bonner & Renshaw ("KKBR"), to the effect that (1) upon the affirmative vote of ADGI stockholders holding a majority of the outstanding shares in favor of the Plan, it will have been duly authorized by stockholders and will be ADGI's valid and binding agreement, (2) completion of the Exchange as provided for in the Plan will result in conversion of each share of ADGI Common into the right to receive a share of GlobeTel Common, and (3) the consummation of the Exchange will not violate Nevada law. While the defect in authorization of most of the outstanding shares of ADGI Common cannot be completely addressed by the Plan (barring a 100% favorable vote to approve the Plan), completion of the Exchange as contemplated by the Plan will result in ADGI stockholders becoming stockholders in GlobeTel, a Delaware company that, unlike ADGI, does not require a 100% vote of stockholders to amend its certificate of incorporation.
The Board believes that the defect in authorization of ADGI Common must be addressed, and that successful completion of the Exchange and the Merger that are included in the Plan offer the only means of doing so, because it has been advised by counsel that any other method would require amendment of ADGI's Articles of Incorporation, which in turn would require 100% approval of ADGI stockholders. As noted above under "Summary--Recommendation of ADGI Board Of Directors; Reasons for Reincorporation", all shares of GlobeTel Common issued in the Exchange will be properly authorized,
duly and validly issued, fully paid and non-assessable, and GlobeTel's certificate of incorporation (the "GlobeTel Certificate") will not contain the 100% approval requirement.
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