<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Allin Communications Corporation
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
Allin LOGO
Allin Communications Corporation
400 Greentree Commons
381 Mansfield Avenue
Pittsburgh, Pennsylvania 15220-2751
Notice of Special Meeting of Stockholders
To be held December 29, 1998
Dear Stockholders:
You are cordially invited to attend a special meeting of stockholders of
Allin Communications Corporation (the "Company") that will be held on Tuesday,
December 29, 1998, at 1:00 p.m. EDT, at 400 Greentree Commons, 381 Mansfield
Avenue, Pittsburgh, Pennsylvania 15220-2751, for the following purposes, as set
forth in the accompanying proxy statement:
(1) To consider and vote upon a proposal to approve the issuance of shares of
the Company's common stock upon the conversion of outstanding shares of the
Company's Series B Redeemable Preferred Stock.
(2) To consider and vote upon a proposal to approve the issuance of shares of
the Company's common stock upon the exercise of certain outstanding
warrants to purchase shares of common stock.
(3) To consider and vote upon a proposal to approve the issuance of shares of
the Company's common stock upon the conversion of a certain outstanding
promissory note in the principal amount of $2,000,000.
(4) To consider and vote upon a proposal to approve an amendment to the
Company's Certificate of Incorporation which would change the Company's
corporate name to Allin Corporation.
(5) To consider and vote upon a proposal to approve the 1998 Stock Plan of the
Company.
(6) To transact such other business as may properly come before the meeting and
any adjournments or postponements thereof.
<PAGE>
The Board of Directors has established the close of business on November
12, 1998 as the record date for the determination of stockholders entitled to
receive notice of and to vote at the special meeting and any adjournment or
postponement thereof.
YOU ARE URGED TO REVIEW CAREFULLY THE ACCOMPANYING PROXY STATEMENT AND TO
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS
POSSIBLE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
Your proxy may be revoked by you at any time before it has been voted. You
are cordially invited to attend the special meeting in person if it is
convenient for you to do so.
By order of the Board of Directors,
Dean C. Praskach
Secretary
November ___, 1998
<PAGE>
Allin Communications Corporation
Proxy Statement
General Information
This proxy statement is provided to the stockholders of Allin
Communications Corporation (the "Company") in connection with the solicitation
by the Board of Directors of the Company of proxies for use at a Special Meeting
of Stockholders of the Company to be held on Tuesday, December 29, 1998, at 1:00
p.m., EDT, at 400 Greentree Commons, 381 Mansfield Avenue, Pittsburgh,
Pennsylvania 15220-2751, and any adjournments or postponements thereof (the
"Special Meeting"), for the purposes described below. A form of proxy is
enclosed for use at the Special Meeting.
The Company's executive offices are located at 400 Greentree Commons, 381
Mansfield Avenue, Pittsburgh, Pennsylvania 15220-2751, and its telephone number
is (412) 928-8800. Proxy materials are first being mailed to stockholders
beginning on or about November __, 1998.
At the Special Meeting, the holders of the Company's common stock, par
value $.01 per share (the "Common Stock"), will be asked to consider and vote
upon (i) a proposal to approve the issuance of shares of Common Stock upon the
conversion of outstanding shares of the Company's Series B Redeemable Preferred
Stock, par value $.01 per share (the "Series B Preferred Stock"), (ii) a
proposal to approve the issuance of shares of Common Stock upon the exercise of
certain outstanding warrants to purchase shares of Common Stock (the
"Warrants"), (iii) a proposal to approve the issuance of shares of Common Stock
upon the conversion of a certain outstanding promissory note in the principal
amount of $2,000,000 (the "$2M Note"), (iv) a proposal to approve an amendment
to the Company's Certificate of Incorporation which would change the Company's
corporate name to Allin Corporation and (v) a proposal to approve the 1998 Stock
Plan of the Company (the "1998 Plan").
The Series B Preferred Stock, the Warrants and the $2M Note were issued in
connection with the Company's August 13, 1998 acquisition (the "KCS
Acquisition") of all of the issued and outstanding capital stock of KCS Computer
Services, Inc. ("KCS"). At the time of the closing of the KCS Acquisition, the
Company delivered to the former shareholders of KCS (the "KCS Shareholders") an
aggregate of $2,443,061 in cash; 805,195 shares of Common Stock valued under the
agreement at $3,547,687 or $4.406 per share, which shares currently represent
approximately 13.45% of the Common Stock issued and outstanding; and promissory
notes in the aggregate principal amount of $8,200,000, of which principal amount
$6,200,000 has subsequently been repaid. The aggregate market value of the
Common Stock issued on the closing date of the KCS Acquisition was $3,422,079,
or $4.25 per share (which was the closing market price per share on the date of
the closing). The Company also repaid outstanding indebtedness of KCS in the
amount of $626,875 and made a $209,252 post-closing payment on behalf of KCS to
satisfy a tax liability. Depending on the performance of KCS for 1998, the
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<PAGE>
KCS Shareholders have the right to receive additional payments of up to an
aggregate of $1,200,000 in cash and 90,786 shares of Common Stock valued at
$400,000 or $4.406 per share, which shares, if issued, would represent
approximately 1.49% of the Common Stock then issued and outstanding (assuming
that no other shares have been issued). The actual value of any shares of
Common Stock that may be issued, if any, will depend on the market value of the
shares on the date of issuance. The Company expects that, if no disagreement
arises with respect to its determination of the contingent payments to be made,
if any, the payments, including the stock issuances, will be made in March 1998.
For additional information concerning the KCS Acquisition, see "The KCS
Acquisition."
The Company is not asking the stockholders to approve the foregoing
issuances of Common Stock to the KCS Shareholders. However, under The Nasdaq
Stock Market's ("Nasdaq") stockholder approval policy, stockholder approval is
required for certain plans or arrangements involving the issuance or potential
issuance of shares of common stock which will have, upon issuance, voting power
equal to or in excess of 20% of the voting power outstanding before such
issuance or involving a number of shares equal to or in excess of 20% of the
number of shares outstanding before such issuance. The number of shares of
Common Stock issued to, or which may be issued to, the KCS Shareholders as a
portion of the purchase price totals 895,981 shares, which shares represent
approximately 17.30% of the shares of Common Stock outstanding prior to the
issuance and approximately 14.73% of the shares of Common Stock outstanding
following the issuance (assuming that no other shares have been issued).
Stockholder approval is not required under Nasdaq's rules for such issuances.
The potential issuance of shares of Common Stock underlying the Series B
Preferred Stock, the Warrants and the $2M Note, however, would have caused the
number of shares issued in the group of related transactions to exceed 20% both
of the voting power and the number of shares of Common Stock outstanding prior
to the transactions. Therefore, the Company is now seeking stockholder approval
of the additional potential issuances. The Series B Preferred Stock and the $2M
Note will not be convertible into, and the Warrants will not be exercisable for,
shares of Common Stock unless and until the issuance of Common Stock upon any
such conversion or exercise is approved by the holders of the Common Stock.
Information concerning the aggregate maximum number of shares of Common
Stock that may be issued upon conversion of the Series B Preferred Stock, upon
exercise of the Warrants and upon conversion of the $2M Note is set forth in the
following table:
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<PAGE>
<TABLE>
<CAPTION>
Percentage of
Maximum Class Without
Number of Shares Regard to
That may be Issued Other Issuances
------------------ ----------------------
Before After
Issuance Issuance
<S> <C> <C> <C>
Series B Preferred Stock 1,375,000 shares 22.96% 18.68%
Warrants 647,059 shares 10.81% 9.75%
$2M Note 1,000,000 shares 16.70% 14.31%
------------------ ----- -----
Total 3,022,059 shares 50.47% 33.54%
</TABLE>
The value of the shares actually issued will depend on the market value of the
shares on the date of issuance.
The issuance of the Series B Preferred Stock, the Warrants and the $2M Note
enabled the Company to complete the KCS Acquisition and significantly expand its
software consulting business. Failure to approve the issuances of Common Stock
upon conversion of the Series B Preferred Stock and the $2M Note will result in
the Company being required to redeem the Series B Preferred Stock on or before
December 31, 1998 and, if permitted by the Company's senior lender, to repay the
$2M Note in August 2000 or earlier, if accelerated. Such redemption and
repayment obligations would adversely affect the Company's liquidity position
and its business strategies. Exercisability of the Warrants represents a
significant component of the Warrants and the benefits negotiated for by the
purchasers of the Series B Preferred Stock. Approval of the issuances of Common
Stock upon conversion of the Series B Preferred Stock and the $2M Note and upon
exercise of the Warrants could significantly dilute the ownership position of
the current holders of Common Stock as demonstrated in the foregoing table. The
issuances or potential issuances could also adversely impact prevailing market
prices for the Common Stock, thereby reducing the liquidity of the Common Stock
and limiting the ability of the Company to raise equity capital.
Any shares of Common Stock issued upon conversion of the Series B Preferred
Stock or the $2M Note or upon exercise of the Warrants will be identical to the
other shares of Common Stock issued and outstanding and will not entitle the
holder thereof to any preemptive rights to subscribe for additional shares of
Common Stock.
Shares Outstanding, Voting Rights and Vote Required
Only stockholders of record at the close of business on November 12, 1998
are entitled to vote at the Special Meeting. The only voting stock of the
Company outstanding and entitled to vote at the Special Meeting is its Common
Stock, of which 5,987,462 shares were outstanding
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<PAGE>
as of the close of business on November 12, 1998. Each share of Common Stock
issued and outstanding is entitled to one vote on matters properly submitted at
the Special Meeting.
The presence, in person or by proxy, of the holders of a majority of the
total issued and outstanding shares of Common Stock entitled to vote at the
Special Meeting is necessary to constitute a quorum for the transaction of
business at the Special Meeting. Abstentions and broker non-votes are counted
for purposes of determining the presence or absence of a quorum. A broker non-
vote occurs when a nominee holding shares for a beneficial owner does not vote
on a particular proposal because the nominee does not have discretionary voting
power with respect to that item and has not received instructions from the
beneficial owner. Abstentions are counted in tabulating votes cast on proposals
presented to stockholders, whereas broker non-votes are not. Votes cast in
person or by proxy at the Special Meeting will be tabulated by the election
inspector appointed for the meeting.
The affirmative vote of a majority of the votes cast in person or by proxy
at the Special Meeting is required for approval of the issuance of Common Stock
upon each of conversion of the Series B Preferred Stock, exercise of the
Warrants and conversion of the $2M Note and for approval of the 1998 Stock Plan.
Approval of the amendment to the Company's Certificate of Incorporation to
change the Company's name to Allin Corporation requires the affirmative vote of
a majority of the outstanding shares of Common Stock entitled to vote at the
Special Meeting. If a quorum is present, non-votes will have no effect on the
voting for the approval of the additional issuances of Common Stock and the 1998
Stock Plan; however, abstentions will have the effect of a negative vote. With
respect to the approval of the amendment to the Company's Certificate of
Incorporation, non-votes and abstentions will have the effect of a negative
vote. Stockholders voting by proxy may revoke that proxy at any time before it
is voted at the Special Meeting by delivering written notice to the Secretary of
the Company, by delivering a proxy bearing a later date or by attending the
Special Meeting in person and casting a ballot. The Board of Directors
recommends voting FOR the proposal to approve the issuance of Common Stock upon
conversion of the Series B Preferred Stock, FOR the proposal to approve the
issuance of Common Stock upon exercise of the Warrants, FOR the proposal to
approve the issuance of Common Stock upon conversion of the $2M Note, FOR the
proposal to approve the amendment to the Company's Certificate of Incorporation
and FOR the proposal to approve the 1998 Stock Plan.
Proxies properly executed and returned in a timely manner will be voted at
the Special Meeting in accordance with the directions specified therein. If no
direction is indicated, they will be voted for the proposal to approve the
issuance of Common Stock upon conversion of the Series B Preferred Stock, for
the proposal to approve the issuance of Common Stock upon exercise of the
Warrants, for the proposal to approve the issuance of Common Stock upon
conversion of the $2M Note, for the proposal to approve the amendment to the
Company's Certificate of Incorporation, for the proposal to approve the 1998
Stock Plan and, on other matters presented for a vote, in accordance with the
judgment of the persons acting under the proxies. The persons named as proxies
were selected by the Board of Directors.
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<PAGE>
THE KCS ACQUISITION
On August 13, 1998 (the "Closing Date"), the Company acquired all of the
issued and outstanding capital stock of KCS Computer Services, Inc., a
Pennsylvania corporation ("KCS"), pursuant to a Stock Purchase Agreement among
the Company and the KCS Shareholders. KCS provides information technology
professional services and offers its clients a complete portfolio of consulting
and custom development services for client/server and mainframe systems on
either a project solution or staff supplement basis. Following the KCS
Acquisition, KCS became a wholly owned subsidiary of the Company and was
recently renamed Allin Consulting of Pennsylvania, Inc. The Company intends to
operate KCS as a sister entity to Kent Consulting Group, Inc. ("KCG"), another
wholly owned subsidiary of the Company, in the Company's Allin Consulting
business unit. The Company has recently shifted its business focus to
concentrate on developing its software development and technology consulting
practice and moving its interactive business from a concessionaire to a
consulting and systems integration model. The KCS Acquisition significantly
enhanced the Company's technology consulting practice. The Company continues to
seek additional acquisition opportunities for its Allin Consulting business
unit. There can be no assurance, however, that the Company will be able to
identify suitable and available acquisition opportunities or that it will be
able to reach agreement with any identified candidate.
The Company initially approached KCS concerning the possibility of an
acquisition of KCS in May 1998. Negotiations concerning the terms, conditions
and structure of the acquisition ensued and the acquisition closed in August
1998. There were no preexisting relationships between the Company and its
management on the one hand and KCS and its management and shareholders on the
other.
At the closing of the KCS Acquisition, the KCS Shareholders received, in
the aggregate, cash in the amount of $2,443,061, 805,195 shares of Common Stock
(the "Initial Stock Consideration") and promissory notes in the aggregate
principal amount of $8,200,000 (the "Notes"), including the $2M Note
(collectively, the "Initial KCS Purchase Price"). As of the Closing Date, KCS
had outstanding indebtedness to a financial institution in the amount of
$626,875. Such indebtedness was repaid on the Closing Date, which amount was in
addition to the Initial KCS Purchase Price and the aggregate Earn-Out Payments
described below. The Company also made a $209,252 post-closing payment on
behalf of KCS to satisfy a tax liability. The KCS Shareholders, depending on
the performance of KCS for 1998, have the right to receive additional payments
(the "Earn-Out Payments") of up to an aggregate of $1,200,000 in cash and 90,786
shares of Common Stock (the "Contingent Stock Consideration"). The amount of
the Earn-Out Payment will be determined on the basis of the Adjusted Operating
Profit (as defined below) of KCS for the period beginning January 1, 1998 and
ending December 31, 1998 (the "Earn-Out Period"). If Adjusted Operating Profit
for the Earn-Out Period is at least $1,671,681, the KCS Shareholders will
receive an aggregate Earn-Out Payment equal to $4.67 for each dollar by which
Adjusted Operating Profit exceeds $1,671,681, with 75% of the Earn-Out Payment
being made in cash and 25% of the Earn-Out Payment being made in shares of
Common Stock, up to a maximum of $1,200,000 in cash and $400,000 in shares of
Common
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<PAGE>
Stock. The number of shares of Common Stock to be issued will be determined by
dividing (i) a sum equal to 25% of the Earn-Out Payment by (ii) $4.406 (which is
the average of the bid and asked prices of the Common Stock for the thirty-day
period ended August 7, 1998). The $4.406 per share rate to be used to determine
the number for shares to be issued, if any, equals that used in determining the
number of shares issued at the closing of the KCS Acquisition. The Company is
required to deliver a calculation of any Earn-Out Payments due to the KCS
Shareholders by February 28, 1999. Any Earn-Out Payments due are required to be
made within ten days of the final determination of amount. KCS' Adjusted
Operating Profit for purposes of the acquisition agreement was approximately
$926,000 for the nine months ended September 30, 1998. Based on an assessment
of KCS' performance through September 30, 1998, the Company does not believe
that any Earn-Out Payments will be made. However, KCS' fourth quarter results
will be determinative and such results are not yet available. Any Earn-Out
Payments will be recorded as additional cost of the acquired enterprise.
For purposes of the Stock Purchase Agreement governing the KCS Acquisition,
the term "Adjusted Operating Profit" means:
(a) the net profit of KCS, determined on an accrual basis in
accordance with generally accepted accounting principles consistently applied,
before interest income or expense, loss or gain on the sale of assets, any prior
period adjustments and income taxes; plus
(b) expenses related to the following items incurred from January
1, 1998 through the Closing Date:
(i) salary, wage taxes, benefits and other expenses associated
with the employment of James S. Kelly, Jr., not to exceed $30,500 per
month;
(ii) salaries, wage taxes and benefits associated with the
elimination of the positions of administrative office manager and
administrative support person which are not filled prior to December 31,
1998, not to exceed $7,200 per month; and
(iii) professional fees for investment bankers, attorneys and
outside accountants incurred by KCS prior to June 19, 1998 in connection
with the anticipated sale of KCS.
Only two KCS Shareholders, James S. Kelly, Jr. and Ronald J. Pearce,
received the Initial Stock Consideration and will receive the Contingent Stock
Consideration, if any. The other two KCS Shareholders received or will receive
all cash. James S. Kelly, Jr. and Ronald J. Pearce have certain rights to
require the Company to register the shares of Common Stock issued to them as the
Initial Stock Consideration and Contingent Stock Consideration, if any, for
resale under the Securities Act of 1933, as amended (the "Securities Act").
James S. Kelly, Jr. is the sole recipient of the Notes. See "Proposal 3" and
"Interest of Certain Persons in the Transactions."
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<PAGE>
In connection with the financing of the KCS Acquisition, the Company sold
2,750 shares of Series B Preferred Stock, which is a newly designated series of
preferred stock, and the related Warrants, at a purchase price of $1,000 per
share of Series B Preferred Stock, resulting in proceeds to the Company of
$2,750,000 which were used to pay the cash portion of the Initial KCS Purchase
Price and for the repayment of existing KCS debt. Additional funds of
approximately $323,000 from cash on hand were required for the transaction.
The Series B Preferred Stock and Warrants were offered and sold to certain
existing stockholders of the Company. Richard W. Talarico, a director and
executive officer of the Company, purchased 300 shares, James C. Roddey and
William C. Kavan, directors of the Company, purchased 100 shares and 750 shares,
respectively, and Henry Posner, Jr. and Thomas D. Wright, stockholders of the
Company, purchased 1,400 and 200 shares, respectively. See "Interest of Certain
Persons in the Transactions."
CERTAIN OTHER RECENT DEVELOPMENTS
On September 30, 1998, the Company sold all of the issued and outstanding
capital stock of its subsidiary, SportsWave, Inc. ("SportsWave"), for an
aggregate purchase price of $3,443,512, which is subject to adjustment based on
unearned revenue of SportsWave. Such adjustment is expected to be immaterial.
The purchase price paid consisted of $2,943,512 in cash and a promissory note
due December 31, 1998 in the principal amount of $500,000. In connection with
the sale, the Company made an aggregate payment of $600,000 to the persons from
whom the Company acquired SportsWave in 1996 in full settlement of any claims of
such persons to contingent earn-out payments that may have been due in the
future.
On October 1, 1998, the Company and S&T Bank, a Pennsylvania banking
association, entered into a Loan and Security Agreement under which S&T Bank has
agreed to extend the Company a revolving credit loan. The maximum borrowing
availability under the agreement is the lesser of $5,000,000 or 85% of the
aggregate of the gross amount of eligible trade accounts receivable. The
Company is permitted to borrow under the agreement for general working capital
purposes and to repay a portion of the indebtedness incurred by the Company in
connection with the KCS Acquisition, including payments for any required
redemption of the Series B Preferred Stock. Loans made under the agreement bear
interest at S&T Bank's prime interest rate plus one percent.
On October 2, 1998, the Company paid to James S. Kelly, Jr. in full the
outstanding Note delivered on the Closing Date of the KCS Acquisition in the
principal amount of $6,200,000 plus accrued interest of $43,126. The sources of
funds for the repayment of such Note were $2,843,512 of the proceeds from the
sale of SportsWave, $1,000,000 borrowed under the loan agreement with S&T Bank
and $2,399,614 from the Company's working capital.
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<PAGE>
PROPOSAL 1
Approval of the Issuance of Shares of Common Stock upon
Conversion of the Outstanding Shares of the Series B Preferred Stock
There are 2,750 shares of Series B Preferred Stock issued and outstanding.
The holders of Series B Preferred Stock are entitled to receive, when and as
declared by the Company's Board of Directors, cumulative quarterly dividends at
the rate of six percent per annum, from and including the date of issuance to
and including the date of payment in redemption. Such dividends, to the extent
declared by the Board of Directors, will be payable quarterly in arrears on each
October 31, January 31, April 30 and July 31. As of October 31, 1998, the
Company paid a cash dividend in the aggregate amount of $36,440 on the Series B
Preferred Stock. The holders of Series B Preferred Stock have no voting rights
except as provided by the Delaware General Corporation Law and except with
respect to actions which adversely affect the rights and preferences of the
Series B Preferred Stock set forth in the Certificate of Designation relating to
the Series B Preferred Stock. The Series B Preferred Stock is senior in right
of payment and on liquidation to the Common Stock and the Company's Series A
Convertible Redeemable Preferred Stock (the "Series A Preferred Stock").
Upon approval by the holders of the outstanding Common Stock, each holder
of the Series B Preferred Stock will have the right to convert all or a portion
of its shares of Series B Preferred Stock into Common Stock at any time and from
time to time prior to the redemption date. Until and including the first
anniversary of the original issuance of shares of Series B Preferred Stock, each
share of Series B Preferred Stock held by each holder may be converted into the
number of shares of Common Stock determined by (i) dividing 1,000 by $3.6125,
which is 85% of the closing price of the Common Stock as reported by Nasdaq on
the date prior to the Closing Date, or (ii) if it results in a greater number of
shares of Common Stock, dividing 1,000 by the greater of (A) 85% of the closing
price of the Common Stock as reported by Nasdaq on the trading date prior to the
date of the conversion or (B) $2.00. After the first anniversary of the
original issuance of shares of Series B Preferred Stock, each share of Series B
Preferred Stock held by each holder may be converted into the number of shares
of Common Stock determined by (i) dividing 1,000 by $3.6125 or (ii) if it
results in a greater number of shares of Common Stock, dividing 1,000 by 85% of
the closing price of the Common Stock as reported by Nasdaq on the first trading
date following the first anniversary of the Closing Date. This means the
maximum conversion price per share of Common Stock is $3.6125 and, until August
13, 1999, the minimum conversion price per share of Common Stock is $2.00. The
minimum conversion price per share of Common Stock from and after August 14,
1999 cannot be determined at this time. Holders of the Series B Preferred Stock
who exercise the foregoing conversion right shall have the right to receive any
accrued and unpaid dividends. No fractional shares of Common Stock shall be
issued; instead a cash payment will be made in lieu of the issuance of any
fractional shares of Common Stock. Any shares of Series B Preferred Stock which
are not converted to Common Stock will remain outstanding until so converted or
until redeemed. None of the holders of Series B Preferred Stock have advised
the Company regarding their intent to convert their shares of Series B Preferred
Stock into Common Stock if this Proposal 1 is approved.
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<PAGE>
In the event that the holders of the outstanding Common Stock have not
approved the issuance of Common Stock pursuant to the foregoing conversion
rights on or before December 31, 1998, the Company would be required to redeem
all outstanding shares of Series B Preferred Stock (subject to the legal
availability of funds therefor) at $1,000 per share of Series B Preferred Stock,
plus accrued and unpaid dividends, if any, on or before December 31, 1998. If
the Company is required to redeem the outstanding shares of Series B Preferred
Stock as a result of failure to obtain stockholder approval of the issuance of
common stock pursuant to the described conversion nights, the aggregate
redemption price at December 31, 1998 would be $2,777,575.
As of the date of this Proxy Statement, the Company has cash on hand in the
amount of approximately $__________ and may borrow approximately $__________
under its revolving loan with S&T Bank. The promissory note in the amount of
$500,000 payable to the Company and delivered in connection with the sale of
SportsWave is also due on December 31, 1998. The proceeds of the revolving loan
and the Company's cash reserves would be sufficient to cover the mandatory
redemption price of the Series B Preferred Stock. The redemption obligations of
the Company as to the Series B Preferred Stock are in any event subject to the
legal availability of funds therefor. If such funds are legally available from
the sources identified above or otherwise, the Company intends to meet its year-
end redemption obligation if stockholder approval of the conversion feature has
not been obtained. Otherwise, the redemption obligation will be deferred until
funds become legally available. If the Company were to default in its
redemption obligation notwithstanding the legal availability of funds, dividends
would continue to accrue and the preferences of the Series B Preferred Stock
would remain in place, but no special rights are provided to the holders, such
as to elect certain directors.
Assuming no change in the capitalization of the Company, the maximum number
of shares of Common Stock that may be issued upon conversion of the outstanding
Series B Preferred Stock is 1,375,000 shares, which shares would represent
approximately 22.96% of the shares of Common Stock outstanding prior to the
issuance and approximately 18.68% of the shares of Common Stock outstanding
following the issuance. The value of the shares actually issued, if any, will
depend on the market value of the shares on the date of issuance. However, no
shares of Series B Preferred Stock will be convertible into Common Stock unless
and until the holders of the Common Stock approve the issuance of Common Stock
upon such conversion.
If the Company does issue shares of Common Stock upon conversion of the
Series B Preferred Stock or upon exercise of the Warrants (collectively, the
"Conversion Shares"), the holders of the Conversion Shares will have certain
rights to require the Company to register the Conversion Shares for resale under
the Securities Act.
The discounted conversion feature of the Series B Preferred Stock will
represent a dividend to the holders of the Series B Preferred Stock only if the
conversion feature is approved by the holders of the Common Stock. If such
approval is obtained, the Company will record a dividend reflecting the greater
of (i) the discount from market as of the date prior to closing
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<PAGE>
of the KCS Acquisition or (ii) the discount from market as of the date of
approval, whichever is greater.
Until August 13, 1999, if the Company proposes to sell any shares of its
capital stock or any options or similar rights to acquire shares of capital
stock or securities convertible into or exchangeable for its capital stock, the
Company must first offer each holder of Series B Preferred Stock the right to
purchase such number of shares of the capital stock, options or other rights
being sold in proportion to the number of shares of Series B Preferred Stock
originally purchased by the holder, for the same price and on the same economic
terms as the securities are being offered in such transaction. Stockholder
approval or nonapproval of this Proposal 1 will not affect the preemptive rights
granted. The pro rata preemptive rights will not apply where the securities are
proposed to be issued by the Company (i) under an existing employee benefit
plan, (ii) pursuant to the declaration or payment of any dividend on the capital
stock payable in shares of capital stock, (iii) as consideration for the
purchase of equity interests or assets of an entity unaffiliated with the
Company whether pursuant to a merger or otherwise; (iv) pursuant to the
exercise, exchange or conversion of outstanding options or other rights or (v)
to all holders of a particular class of outstanding capital stock on a pro rata
basis whether pursuant to an exchange offer or otherwise.
The affirmative vote of a majority of the shares represented and voting on
the proposal is required to approve the issuance of shares of Common Stock upon
conversion of the Series B Preferred Stock. The Board of Directors believes
that approval of the issuance of shares of Common Stock upon conversion of the
Series B Preferred Stock is in the best interests of the Company and its
stockholders. The issuance of the Series B Preferred Stock enabled the Company
to complete the KCS Acquisition and significantly expand its technology
consulting business. Although stockholder approval is required for the
conversion of the Series B Preferred Stock, such conversion rights represent an
important component of the Series B Preferred Stock. In addition, if
stockholder approval is not obtained and the Company is therefore required to
redeem the Series B Preferred Stock on or before December 31, 1998, the
liquidity position of the Company would be adversely affected.
The Board of Directors of the Company Recommends a Vote FOR the Proposal
to Approve the Issuance of Shares of Common Stock upon Conversion
of the Outstanding Shares of Series B Preferred Stock.
PROPOSAL 2
Approval of the Issuance of Shares of Common Stock upon
Exercise of the Outstanding Warrants
Purchasers of the Series B Preferred Stock received Warrants to purchase,
subject to stockholder approval, an aggregate of 647,059 shares of Common Stock,
which is the number of shares of Common Stock equal to the product of the number
of shares of Series B Preferred Stock multiplied by 1,000, divided by $4.25, the
closing price of the Common Stock as reported
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<PAGE>
by Nasdaq on the last trading day preceding the Closing Date of the KCS
Acquisition. The per share exercise price under the Warrants is $4.25. Payment
of the exercise price may be made in cash or by delivery to the Company of
shares of Series A Preferred Stock of the Company having an aggregate
liquidation value plus accrued and unpaid dividends, if any, equal to the
exercise price for the number of shares to be purchased upon exercise. The
Warrants will expire on the earlier to occur of (a) December 31, 1998 if the
Company is required to redeem the outstanding shares of Series B Preferred Stock
as of such date or (b) August 13, 2003. The Company is required to redeem the
outstanding shares of Series B Preferred Stock as of December 31, 1998 only if
the issuance of Common Stock upon conversion of the Series B Preferred Stock has
not been approved by the holders of the Common Stock on or prior to such date.
Assuming no change in the capitalization of the Company, the maximum number
of shares of Common Stock that may be issued upon exercise of the outstanding
Warrants is 647,059 shares, which shares would represent approximately 10.81% of
the Common Stock outstanding prior to the issuance and approximately 9.75% of
the shares of Common Stock outstanding following the issuance. The value of the
shares actually issued, if any, will depend on the market value of the shares on
the date of issuance. However, no Warrant will be exercisable for Common Stock
unless and until the holders of the Common Stock approve the issuance of Common
Stock upon such exercise. Although approval of the issuance of shares of Common
Stock upon exercise of the Warrants is not conditioned upon approval of the
issuance of shares of Common Stock upon conversion of the outstanding shares of
Series B Preferred Stock, the failure of the stockholders to approve Proposal 1
will limit the exercisability of the Warrants (assuming that Proposal 2 is
approved) because, if Proposal 1 is not approved and the Company is required to
redeem all outstanding shares of Series B Preferred Stock on or before December
31, 1998 as discussed above under Proposal 1, then the Warrants, if not
exercised, will expire as of December 31, 1998 and the holders thereof will have
no further rights as a Warrant holder. If the stockholders approve Proposal 1
but do not approve the issuance of shares of Common Stock upon exercise of the
Warrants, the Warrants will not expire until August 13, 2003, but they will not
be exercisable unless and until stockholder approval of such issuance is
obtained in the future.
If the Company does issue any Conversion Shares, the holders of the
Conversion Shares will have certain rights to require the Company to register
the Conversion Shares for resale under the Securities Act.
The affirmative vote of a majority of the shares represented and voting on
the proposal is required to approve the issuance of shares of Common Stock upon
exercise of the outstanding Warrants. The Board of Directors believes that
approval of the issuance of shares of Common Stock upon exercise of the Warrants
is in the best interests of the Company and its stockholders. The issuance of
the Warrants enabled the Company to complete the KCS Acquisition and
significantly expand its technology consulting business. Although stockholder
approval is required for the exercise of the Warrants, such exercisability is
the defining component of the Warrants and an important component of the Series
B Preferred Stock. Approval of the
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<PAGE>
conversion of the Series B Stock without approval of the exercise of the
Warrants could adversely affect the Company's bargaining position in future
transactions, if any.
The Board of Directors of the Company Recommends a Vote FOR the Proposal
to Approve the Issuance of Shares of Common Stock upon Exercise
of the Outstanding Warrants.
PROPOSAL 3
Approval of the Issuance of Shares of Common Stock upon
Conversion of the $2M Note
The $2M Note was issued to James S. Kelly, Jr. in the original principal
amount of $2,000,000, bears interest at the rate of 6% per annum and is due and
payable in full on August 13, 2000. The $2M Note is secured by substantially
all of the Company's assets. The payment of interest and principal on the $2M
Note is subordinated to, and subject to the consent of S&T Bank which provided a
portion of the financing which was used to repay indebtedness under the
$6,200,000 promissory note issued to James S. Kelly, Jr. on the Closing Date.
The Company has agreed to request permission from such senior lender to pay
interest under the $2M Note for so long as the Company is not in default under
the documents evidencing the senior loan. If the holders of Common Stock do not
approve the issuance of Common Stock upon such conversion, the $2M Note will
remain outstanding, and will be due and payable on August 13, 2000 or earlier,
if accelerated. Payment, however, will be subject to any senior lender's
consent as discussed above.
Subject to stockholder approval, if the Company does not repay the $2M Note
on or before August 13, 2000, the $2M Note will automatically convert into the
number of shares of Common Stock equal to (a) the amount obtained by dividing
the then outstanding indebtedness evidenced by the $2M Note by $4.406 (which is
the average of the bid and asked prices of the Common Stock for the thirty-day
period ended August 7, 1998) or (b) at the holder's option, the amount obtained
by dividing the then outstanding indebtedness evidenced by the $2M Note by the
average of the bid and asked prices of the Company's Common Stock for the 30
days preceding August 13, 2000, subject to a $2.00 minimum per share price (the
"Maturity Formula"). This means the effective maximum conversion price per
share of Common Stock is $4.406 and the minimum conversion price per share of
Common Stock is $2.00. The interest on the $2M Note is to be paid in cash,
subject to approval by any then senior lender to the Company. In the event of
any default, including a payment default with respect to interest, the holder of
the $2M Note has the following options: (i) to take no action, (ii) to
accelerate the principal amount of the $2M Note and convert such principal
amount into Common Stock in accordance with the Maturity Formula and seek
payment from the Company of accrued and unpaid interest, if any, through the
date of conversion or (iii) to accelerate the principal amount of the $2M Note
and convert such principal amount as well as accrued and unpaid interest through
the date of conversion, if any, into Common Stock in accordance with the
Maturity Formula. In addition, if there is a payment default with respect to
interest payments, the holder
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<PAGE>
may also elect to accelerate the principal amount of the $2M Note and convert
such principal amount into Common Stock in accordance with the Maturity Formula
and continue to receive quarterly payments of interest until the Maturity Date
as if the principal amount of the $2M Note remained outstanding. It will not be
a payment default if the Company's then senior lender, if any, does not permit
the payment of interest on the $2M Note.
Assuming no change in the capitalization of the Company, the maximum number
of shares of Common Stock that may be issued upon conversion of the $2M Note is
1,000,000 shares, which shares would represent approximately 16.70% of the
Common Stock outstanding prior to issuance and approximately 14.31% of the
Common Stock outstanding following the issuance. The value of the shares
actually issued, if any, will depend on the market value of the Common Stock on
the date of issuance. However, no indebtedness evidenced by the $2M Note will
be convertible into Common Stock unless and until the holders of the Common
Stock approve the issuance of Common Stock upon such conversion.
The affirmative vote of a majority of the shares represented and voting on
the proposal is required to approve the issuance of shares of Common Stock upon
conversion of the $2M Note. The Board of Directors believes that approval of
the issuance of shares of Common Stock upon conversion of the $2M Note is in the
best interests of the Company and its stockholders. The issuance of the $2M
Note enabled the Company to complete the KCS Acquisition and significantly
expand its technology consulting business. Although stockholder approval is
required for the conversion of the $2M Note, such conversion rights represent an
important component of the $2M Note. In addition, if stockholder approval is
not obtained and the Company is, therefore, required, if permitted by its then
senior lender, to repay the $2M Note when due or thereafter, the liquidity
position of the Company would be adversely affected. Approval of the conversion
of the $2M Note would effectively afford the Company with the discretion to
repay the $2M Note in cash or shares of Common Stock because if not paid in cash
on or before August 13, 2000, the $2M Note would automatically convert into
shares of Common Stock.
The Board of Directors of the Company Recommends a Vote FOR the Proposal
to Approve the Issuance of Shares of Common Stock upon Conversion of the $2M
Note.
PROPOSAL 4
Approval of an Amendment to the Company's Certificate of Incorporation
to Change the Company's Corporate Name to Allin Corporation
The Company's Board of Directors has adopted, and is recommending to the
stockholders for their approval at the Special Meeting, a resolution to amend
Article I of the Company's Certificate of Incorporation to change the corporate
name. The applicable text of the Board's resolution is as follows:
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<PAGE>
"RESOLVED, that Article I of the Company's Certificate of Incorporation be
amended to read in its entirety as follows:
"Name
The name of the corporation is Allin Corporation (the "Company")."
In the judgment of the Board of Directors, the change of corporate name is
desirable in view of the significant change in the character and strategic focus
of the business of the Company resulting, in part, from the KCS Acquisition.
If the amendment is adopted, stockholders will not be required to exchange
outstanding stock certificates for new certificates.
The affirmative vote of a majority of the outstanding shares of Common
Stock entitled to vote at the Special Meeting is required to approve the
amendment to the Company's Certificate of Incorporation to change the Company's
corporate name to Allin Corporation. If approved by the stockholders, the
amendment to Article I will become effective upon filing with the Secretary of
the State of Delaware a Certificate of Amendment to the Company's Certificate of
Incorporation, which filing is expected to take place shortly after the Special
Meeting. However, the Board of Directors will be authorized, without a further
vote of the stockholders, to abandon the name change and determine not to file
the Certificate of Amendment if the Board of Directors concludes that such
action would be in the best interest of the Company and its stockholders. If
this proposal is not approved by the stockholders, then the Certificate of
Amendment will not be filed.
The Board of Directors of the Company Recommends a Vote FOR the Proposal
to Approve an Amendment to the Company's Certificate of Incorporation
to Change the Company's Corporate Name to Allin Corporation
PROPOSAL 5
Approval of the 1998 Stock Plan of Allin Communications Corporation
The Board of Directors believes that ownership of Common Stock by key
employees serves to provide those employees with a personal financial interest
in the Company's success and enhances the Company's ability to attract, retain
and motivate key employees and consultants. The Company has publicly announced
that its strategic focus will be on increasing revenue in its information
technology consulting services business both through internal growth and through
acquisition. The Company's consulting practice is a service business in which
one of the major components for growth is attracting and retaining experienced
computer engineers. Resources necessary to support growth in this industry are
presently at a premium as demand for computer engineers' services considerably
outweighs supply. The Board of Directors believes that a meaningful stock
option program covering the majority of its consultants would
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<PAGE>
enhance the Company's opportunity for success in attracting and retaining
sufficient resources to support its growth plans.
On September 1, 1998, the Board of Directors adopted, subject to
stockholder approval, the 1998 Stock Plan of Allin Communications Corporation
(the "1998 Stock Plan"). A copy of the 1998 Stock Plan is set forth in Annex A
to this Proxy Statement, to which reference is made for a full and complete
statement of its terms and conditions. A summary of the principal features of
the 1998 Stock Plan follows.
Summary Description of 1998 Stock Plan
The 1998 Stock Plan provides for awards of stock options, stock
appreciation rights ("SARs"), restricted shares and restricted units to officers
and other employees of the Company and its subsidiaries and to consultants and
advisors (including non-employee directors) of the Company and its subsidiaries.
The Company and its subsidiaries currently employ approximately 200 persons,
engage approximately 40 non-employee consultants and there are six non-employee
directors of the Company. An aggregate of 375,000 shares of Common Stock have
been reserved for issuance under the 1998 Stock Plan. As of September 1, 1998,
such shares would have had a market value of $1,642,500, based on the $4.38
closing price of the Common Stock as reported by Nasdaq on such date. Unless
the Board of Directors provides otherwise, shares covered by expired or
terminated options and forfeited restricted shares or restricted units, shares
subject to awards that are paid in cash or surrendered upon the exercise of an
option, and shares received by the Company upon the exercise of an option will
not be available for subsequent awards under the 1998 Stock Plan.
The 1998 Stock Plan also provides for automatic grants to non-employee
directors of the Company, at the conclusion of each year of service, of an
immediately exercisable option to acquire 5,000 shares of Common Stock at an
exercise price per share equal to the closing price of the Common Stock as
reported by Nasdaq for the date on which the option is granted ("Fair Market
Value"). Any such grant will not be made with respect to a year of service if,
and to the extent, the same grant has been made under the Company's 1996 Stock
Plan or 1997 Stock Plan.
The 1998 Stock Plan will be administered by the Board of Directors which
has broad discretion to determine the individuals entitled to participate in the
1998 Stock Plan and to prescribe conditions (such as the completion of a period
of employment with the Company following an award) that must be satisfied before
awards vest. The Board of Directors may delegate to one or more of its members
or to one or more agents such administrative duties as it may deem advisable.
Awards under the 1998 Stock Plan may be made in the form of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), and options that are not incentive stock options.
Participants in the 1998 Stock Plan may also receive SARs, which may be awarded
separately from or in tandem with any option
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<PAGE>
granted under the 1998 Stock Plan. The 1998 Stock Plan also provides for the
award of limited SARs in tandem with options. Limited SARs may be exercised
only during the 90 days immediately following the occurrence of certain events
(which may include events associated with a change in control of the Company)
identified by the Board of Directors. In addition, the Board of Directors may,
in its discretion, award restricted shares or restricted units under the 1998
Stock Plan. No incentive stock option may be granted under the 1998 Stock Plan
more than ten years after September 1, 1998. An award, other than an award of
restricted shares, may provide for the crediting to the account of, or the
current payment to, each participant who has such an award of an amount equal to
the cash or stock dividends paid by the Company upon one share of Common Stock
for each restricted unit or share of Common Stock subject to an option or right,
included in such award ("Dividend Equivalent"). Dividend Equivalents credited
to a participant's account are not subject to forfeiture, except as the Board of
Directors may otherwise determine in respect of any option or right.
Incentive stock options may only be awarded to employees. The term of each
incentive stock option may not be more than ten years (five years in the case of
an incentive stock option granted to an individual who at the time of grant owns
more than 10% of the Common Stock) at an option price of not less than the Fair
Market Value of a share on the date of grant (not less than 110% of the Fair
Market Value of a share on the date of grant in the case of an incentive stock
option granted to an individual who at the time of grant owns more than 10% of
the Common Stock). Non-qualified stock options may be awarded for such term and
at such option exercise price as may be determined by the Board of Directors at
the time of grant.
Subject to the provisions of the 1998 Stock Plan, options granted under the
1998 Stock Plan (other than the automatic grant of options to non-employee
directors at the conclusion of each year of service) generally will become 100%
vested at the earliest of the participant's normal retirement age, the
participant's death or total disability or over a five year period commencing
with the date of the grant at the rate of 20% per year. The Board of Directors,
in its discretion, may provide at the date of grant for another time or times of
exercise, or it may accelerate the exercisability of any such option subject to
such terms and conditions as the Board of Directors deems necessary and
appropriate.
Upon exercise of an option under the 1998 Stock Plan, the exercise price
for the purchased shares will be immediately payable in cash, by check or other
instrument acceptable to the Company, or with the consent of the Board of
Directors, in shares of Common Stock valued at Fair Market Value on the date of
exercise, or by a combination of these methods or by surrender of awards under
the 1998 Stock Plan, subject to such terms and conditions as the Board of
Directors may determine. The 1998 Stock Plan also permits the Company to make
loans to such option holders as the Board of Directors, in its discretion, may
determine in connection with the exercise of options granted under the 1998
Stock Plan.
The Board of Directors may elect, in lieu of delivering all or a portion of
the shares of Common Stock as to which an option has been exercised, if the Fair
Market Value of the Common Stock exceeds the exercise price of the option, to
pay to the participant cash or shares
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<PAGE>
of Common Stock, or a combination of cash and Common Stock, equal to the amount
of the excess of (i) the Fair Market Value on the exercise date of the shares of
Common Stock as to which the option has been exercised over (ii) the option
exercise price. In the case of non-qualified options, the Board may defer
payment and credit the amount on the books of the Company for the account of the
optionee.
SARs awarded in tandem with a grant of an option will generally be subject
to the same terms and conditions as the related option and will entitle the
recipient to elect to receive cash, shares of Common Stock, or a combination
thereof in lieu of exercising an option. The terms of a separate SAR will be
determined by the Board of Directors. Subject to the provisions of the 1998
Stock Plan, freestanding SARs granted under the 1998 Stock Plan generally will
become 100% vested at the earliest of the participant's normal retirement age,
the participant's death or total disability or such period of time from the date
of the grant as the Board of Directors may determine. Prior to becoming 100%
vested, each freestanding SAR shall become exercisable at such time and in such
manner as the Board of Directors may determine. The Board of Directors, in its
discretion, may also accelerate the exercisability of any freestanding SAR.
A limited SAR may be awarded with respect to all or some of the shares of
Common Stock covered by an option, either at the time an option is granted or at
any time thereafter prior to expiration of the option. A limited right may be
exercised only during the ninety-day period beginning on the occurrence of an
event or condition prescribed by the Board of Directors.
Subject to the provisions of the 1998 Stock Plan and any rules prescribed
by the Board of Directors, upon exercise of a SAR in accordance with its terms
(subject, in the case of a tandem right, to the surrender of the unexercised
portion of the related option or any portion or portions thereof which the
participant from time to time determines to surrender for this purpose), the
participant will be entitled to receive a payment having a value equal to (i)
the excess of the Fair Market Value on the date of exercise of one share over
the option exercise price per share, in the case of a tandem right, or the price
per share specified in the terms of the SAR, in the case of a freestanding SAR,
multiplied by (ii) the number of shares with respect to which the right has been
exercised. The payment shall be made in cash, in shares of Common Stock, or a
combination thereof.
In addition to options and SARs, the 1998 Stock Plan authorizes the award
of restricted shares and restricted units to participants. Such awards may be
made in lieu of or in addition to awards of options and SARs. Each award of
restricted shares or restricted units may have a different restricted period.
The Board of Directors may, in its sole discretion, accelerate the restricted
period or, at the time an award is made, (i) prescribe conditions of the
incremental lapse of restrictions during the restricted period or (ii) provide
for the lapse or termination of restrictions upon the satisfaction of any
condition or the occurrence of any event prescribed by the Board of Directors in
its sole discretion. The Board of Directors may also, in its sole discretion,
shorten or terminate the restricted period or waive any conditions for the lapse
or termination of restrictions with respect to all or any portion of the
restricted shares or restricted
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units. Notwithstanding the foregoing, all restrictions shall lapse or terminate
with respect to all restricted shares or restricted units upon death or total
disability.
Participants receiving restricted shares will be issued a certificate
representing such shares, and will be entitled to exercise full voting rights
with respect thereto, at the time of the award. However, such certificate will
be held in custody by the Company until such time as restrictions imposed by the
Board of Directors with respect to such shares lapse. The recipients of
restricted shares will also be entitled to receive credit for dividends paid by
the Company, subject to the right of the Board of Directors to defer payment of
such dividends to holders of restricted shares until the lapse of the applicable
restrictions. Cash or stock dividends so withheld by the Board of Directors
shall not be subject to forfeiture. Upon forfeiture of any restricted shares,
such forfeited restricted shares shall be transferred to the Company without any
further action by the participant.
Participants receiving restricted units will have no rights as stockholders
of the Company with respect to the restricted units and will not be issued a
certificate at the time of the award, but will receive a certificate for one
share of Common Stock for each restricted unit or, in the discretion of the
Board of Directors, cash, upon the lapse of restrictions imposed by the Board.
Participants who receive shares of Common Stock upon expiration of the
restricted period applicable to restricted shares or other restricted units will
not be required to pay for such shares.
Options and SARs awarded under the 1998 Stock Plan will not be transferable
except by will or the laws of descent and distribution. Awards of options and
SARs made to employees under the 1998 Stock Plan terminate, to the extent not
previously exercised, upon the involuntary termination of the participant's
employment or within three months of the termination of the participant's
employment with the Company for any other reason (other than the participant's
total disability). In the case of a participant's death or total disability,
such options may be exercised (to the extent exercisable on the date of death or
disability) within one year after the date of the participant's death or
disability. Awards of restricted shares and restricted units as to which the
applicable restrictions have not lapsed (but not cash or stock dividends or
equivalents previously credited to the holder's account) will be forfeited by an
employee upon the termination of his or her employment, other than by reason of
the employee's death or total disability. All restrictions shall lapse or
terminate with respect to all restricted shares or restricted units upon death
or total disability. The conditions under which awards made to non-employees
will terminate will be determined by the Board of Directors, in its discretion.
The Board of Directors may amend the 1998 Stock Plan. However, if required
by applicable law or any other governing rules or regulations, stockholder
approval will be required to (i) increase the aggregate number of shares that
may be issued under the 1998 Stock Plan, (ii) materially increase the benefits
accruing to participants under the 1998 Stock Plan or (iii) materially modify
the requirements as to eligibility for participation in the 1998 Stock Plan. If
certain events occur, the Board of Directors may adjust the number and types of
securities that
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may subsequently be issued under the 1998 Plan and any outstanding grants to
prevent dilution or enlargement of the benefits available under the 1998 Plan.
These events include, but are not limited to, a distribution to stockholders
other than a normal cash dividend, split-up, recapitalization, merger,
consolidation, combination, exchange of shares or repurchase.
As awards under the 1998 Stock Plan will be discretionary, the Company
cannot currently determine the recipients and number of awards that will be made
pursuant to the 1998 Stock Plan in 1998 or thereafter. The Company's 1996 and
1997 Stock Plans are substantially similar to the 1998 Stock Plan. For purposes
of comparison, the following table sets forth information concerning awards made
under the Company's 1996 Stock Plan and 1997 Stock Plan during 1997:
<TABLE>
<CAPTION>
Shares
Name Dollar Value Underlying
- ---- on Date Options
Of Grant (1) Granted in 1997
------------- ---------------
<S> <C> <C>
Richard W. Talarico $-0- -0-
Chief Executive Officer
R. Daniel Foreman(2) -0- -0-
President
Brian K. Blair (2) -0- -0-
Chief Operating Officer
All Current Executive Officers -0- 9,500
as a group(3)
All Current Directors -0- 10,000
who are not Executive
Officers as a group(4)
All Employees (including $-0- 73,050
Officers who are not
Executive Officers) as a
group(3)
</TABLE>
(1) The "Dollar Value on Date of Grant" for Stock Options is defined as the
fair market value of the Company's Common Stock on the date of grant minus
the option exercise price.
(2) Each of Mr. Foreman and Mr. Blair resigned as an officer of the Company in
February 1998. Mr. Blair continues to serve as a director of the Company.
(3) All options granted to employees in 1997 have an exercise price per share
equal to or greater than the market price of the Common Stock on the date
of the grant and vest 20% each year beginning on the first anniversary of
the grant.
(4) Automatic grants of options were made to non-employee directors in 1997 and
1998 under the 1997 Stock Plan. Assuming no change in non-employee
directors, automatic grants of options covering 15,000
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shares of Common Stock and 30,000 shares of Common Stock have been or will
be made in 1998 and 1999, respectively, to such non-employee directors.
The automatic grants to non-employee directors have an exercise price equal
to the fair market value of the Common Stock on the date of the grant, are
immediately exercisable in full and expire seven years after the date of
grant.
During 1997 and 1998, approximately 54 persons received awards under the 1996
and 1997 Stock Plans. The Company anticipates that the total number of persons
receiving awards during the remainder of 1998 and in 1999 under the 1998 Stock
Plan, the 1997 Stock Plan and/or the 1996 Stock will not be substantially
greater than 240. For additional information concerning the 1996 Stock Plan and
the 1997 Stock Plan and certain grants made thereunder, see "Executive
Compensation."
Federal Income Tax Consequences
Incentive Stock Options. When an optionee exercises an incentive stock option
while employed by the Company or one of its subsidiaries or within the three
month (one year for disability or death) period after the termination of
employment, no ordinary income will be recognized by the optionee at that time.
The excess, if any, of the fair market value of the shares acquired upon such
exercise over the option price (the "spread") will be an adjustment to the
taxable income of the optionee for alternative minimum tax purposes. If the
Shares acquired upon exercise are not disposed of prior to the expiration of one
year after the date of exercise and two years after the date of grant of the
option, the excess, if any, of the sales proceeds over the aggregate option
price of such shares will be long term capital gain, and the Company will not be
entitled to any federal income tax deduction with respect to such gain. If the
shares are disposed of prior to the expiration of such periods (a "disqualifying
disposition"), the Spread (up to the amount of the gain on the disposition) will
be ordinary income at the time of such disqualifying disposition, and the
Company will be entitled to a federal income tax deduction in a like amount.
Nonqualified Stock Options. When an optionee exercises a nonqualified stock
option, the difference between the option price and any fair market value of the
shares on the date of exercise will be ordinary income to the optionee, subject
to income tax withholding as wages and will be allowed as a deduction to the
Company for federal income tax purposes. When an optionee disposes of shares
acquired by exercise of the option, any amount received in excess of the fair
market value of the shares on the date of exercise will be treated as long term
or short term capital gain, depending upon the holding period of the shares. If
the amount received is less than the market value of the shares on the date of
exercise, the loss will be treated as long term or short term capital gain,
depending upon the holding period of the shares.
Stock for Stock Exchanges. Additional special rules apply if the exercise
price for an option is paid for in shares previously owned by the optionee
rather than in cash.
The above discussion summarizes the federal income tax consequences of options
granted under the 1998 Stock Plan based on current provisions of the Code and
published rulings of the
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Internal Revenue Service, which are subject to change. The summary does not
however cover any state or local tax consequences.
The Board of Directors of the Company Recommends a Vote FOR
the Proposal to Adopt the 1998 Stock Plan of Allin Communications Corporation.
INTEREST OF CERTAIN PERSONS IN THE TRANSACTIONS
James S. Kelly, Jr., the founder and the President and Chief Executive Officer
of KCS prior to its acquisition by the Company, was elected, effective as of the
closing of the KCS Acquisition, as a director of the Company to serve in such
capacity until the next annual meeting of stockholders of the Company. Mr.
Kelly has been involved in the information technology field for 25 years. Mr.
Kelly now owns 724,675 shares of Common Stock which represent approximately
12.10% of the Common Stock issued and outstanding, and he may receive additional
shares of Common Stock if any Contingent Stock Consideration is paid.
Mr. Kelly also received the Notes in connection with the closing of the KCS
Acquisition, including the $2M Note. The Note in the principal amount of
$6,200,000 and accrued interest thereon of $43,126 were repaid on October 2,
1998. See "Certain Other Recent Developments." If the holders of Common Stock
approve the issuance of shares of Common Stock upon conversion of the $2M Note,
Mr. Kelly may be entitled to receive shares of Common Stock if the $2M Note is
automatically converted into Common Stock at maturity, or earlier if converted
into Common Stock following a default by the Company, if any. See "Proposal 3."
The Series B Preferred Stock and Warrants were offered and sold to certain
existing stockholders of the Company. Richard W. Talarico, a director and
executive officer of the Company, purchased 300 shares, James C. Roddey and
William C. Kavan, directors of the Company, purchased 100 shares and 750 shares,
respectively, and Henry Posner, Jr. and Thomas D. Wright, stockholders of the
Company, purchased 1,400 and 200 shares, respectively. If the holders of Common
Stock approve the issuance of shares of Common Stock upon conversion of the
Series B Preferred Stock, Messrs. Talarico, Roddey, Kavan, Posner and Wright
will be entitled to convert their shares of Series B Preferred Stock into at
least 83,044, 27,681, 207,612, 387,543 and 55,363 shares of Common Stock,
respectively, and up to a maximum of 150,000, 50,000, 375,000, 700,000 and
100,000 shares of Common Stock, respectively. If the holders of Common Stock
approve the issuance of shares of Common Stock upon exercise of the Warrants,
Messrs. Talarico, Roddey, Kavan, Posner and Wright will be entitled, upon
payment of the exercise price, to purchase 70,588, 23,529, 176,471, 329,412,
47,059 shares of Common Stock, respectively. See "Security Ownership of Certain
Beneficial Owners and Management."
As described under "Executive Compensation -- Employment Agreement," if shares
are then available under one or more stock plans of the Company, Mr. Talarico is
entitled to receive grants of options for 100,000 shares of Common Stock on each
of January 1, 1999 and January
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<PAGE>
1, 2000 having an exercise price per share equal to the closing price of the
Common Stock on the date of the grant. Approval by the stockholders of the 1998
Stock Plan would enable the Company to make such grants to Mr. Talarico under
the 1998 Stock Plan.
Executive Compensation
Summary Compensation Table
The following table sets forth information concerning 1996 and 1997
compensation of the Chief Executive Officer and the other executive officers of
the Company whose 1997 salary exceeded $100,000 (collectively the "Named
Executives").
<TABLE>
<CAPTION>
Long Term
---------
Annual Compensation Compensation
-------------------- ---------------------
Other Annual Securities Underlying
Name and Principal Position Year Salary ($) Compensation ($) Options (#)
- --------------------------- ---- ---------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Richard W. Talarico 1997 $150,000 $ --- ---
Chief Executive Officer 1996 75,000 --- 21,000
R. Daniel Foreman (1) 1997 $150,000 $ --- ---
President 1996 124,875 --- 21,000
Brian K. Blair (1) 1997 $150,000 $37,141 (2) ---
Chief Operating Officer 1996 124,875 15,596 (2) 21,000
</TABLE>
(1) Each of Mr. Foreman and Mr. Blair resigned as an officer of the Company in
February 1998. Mr. Blair continues to serve as a director of the Company.
(2) During 1996, Mr. Blair accepted an assignment to manage the southern
Florida based operations of Allin Interactive Corp. The duration of the
assignment was approximately one year, and the assignment ended in 1997.
Because of the temporary nature of the assignment at a remote office, Allin
Interactive Corp leased housing and an automobile for Mr. Blair's usage and
incurred moving and certain other expenses related to this assignment.
Housing, automobile, moving and other expenses were $27,136, $3,262,
$3,264, and $3,479, respectively, during 1997. Expenses for housing and
automobile were $12,500 and $3,096, respectively, during 1996.
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<PAGE>
Employment Agreement
The Company has entered into an employment agreement with Mr. Talarico, the
term of which commenced May 15, 1998 and will continue through May 15, 2001. The
annual salary as set forth in the employment agreement is $175,000. In the
event that the Company achieves certain performance criteria, the annual base
salary is to be increased to $225,000. If Mr. Talarico's employment with the
Company is terminated by the Company without cause or contemporaneously with or
within 90 days prior to a change in control of the Company, Mr. Talarico will be
entitled to receive semi-monthly severance payments equal to the semi-monthly
base salary payment which he was receiving immediately prior to such termination
until the later to occur of (i) the first anniversary of the termination or (ii)
May 15, 2001. The employment agreement contains restrictive covenants
prohibiting Mr. Talarico from competing with the Company for a period of two
years after termination or the end of the employment term.
Pursuant to the employment agreement, Mr. Talarico was granted an option to
purchase 100,000 shares of Common Stock at an exercise price of $4.50 per share.
If shares are then available under one or more stock plans of the Company, the
employment agreement also entitles Mr. Talarico to receive grants of options for
100,000 shares of Common Stock on each of January 1, 1999 and January 1, 2000
having an exercise price per share equal to the closing price of the Common
Stock on the date of the grant. The options granted or which may be granted to
Mr. Talarico will, if not already vested, vest on the date of a change in
control of the Company, defined as a sale of all or substantially all of the
Company's assets, a merger in which the Company is not the surviving corporation
or when a person or group, other than the stockholders of the Company on June
15, 1998, becomes the beneficial owner, directly or indirectly, of 50% or more
of the outstanding Common Stock.
Stock Plans
In October 1996, the Board of Directors adopted the 1996 Stock Plan, and in
May 1997 the Board of Directors adopted the 1997 Stock Plan which was approved
by the Company's stockholders in 1997. Both plans provide for awards of stock
options, stock appreciation rights, restricted shares and restricted units to
officers and other employees of the Company and its subsidiaries and to
consultants and advisors (including non-employee directors) of the Company and
its subsidiaries. At December 31, 1997, 9,282 and 229,950 shares remained
available for future grants under the 1996 Stock Plan and the 1997 Stock Plan,
respectively. The plans are administered by the Board of Directors which has
broad discretion to determine the individuals entitled to participate in the
plans and to prescribe conditions (such as the completion of a period of
employment with the Company following an award). Although options were awarded
under both plans in 1997, none of the Named Executive were granted options in
1997. The Compensation Committee is responsible for making recommendations to
the Board of Directors concerning executive compensation, including the award of
stock options.
If certain events occur, the Board of Directors may adjust the number and
types of securities that may subsequently be issued under the plans and any
outstanding grants to prevent
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<PAGE>
dilution or enlargement of the benefits available under the plans. These events
include, but are not limited to, a distribution to stockholders other than a
normal cash dividend, split-up, recapitalization, merger, consolidation,
combination, exchange of shares or repurchase.
Option Grants in Last Fiscal Year
There were no stock option grants to the Named Executives during 1997.
Fiscal Year End Option Values
The following table provides information concerning stock options held by the
Named Executives at December 31, 1997. No options were exercised in 1997.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-the-
Underlying Unexercised Money Options at Fiscal Year
Shares Options at Fiscal Year End End (1)
Acquired ------------------------------ ----------------------------
on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- --------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard W. Talarico --- --- 4,200 16,800 --- ---
R. Daniel Foreman (2) --- --- 4,200 16,800 --- ---
Brian K. Blair (2) --- --- 4,200 16,800 --- ---
</TABLE>
(1) Based on the December 31, 1997 closing price per share of Common Stock of
$3.88, as reported by Nasdaq, and the option exercise price of $15.00 per
share, the options were not in-the-money at December 31, 1997.
(2) Messrs. Foreman and Blair resigned as officers of the Company in February
1998. All options have been forfeited.
The Company does not have any long-term incentive or defined benefit plans.
Separation Agreements
The Company also entered into employment agreements in 1996 with each of
Messrs. Foreman and Blair substantially similar to the employment agreement
entered into with Mr. Talarico. In connection with their resignations as
officers of the Company, the Company entered into separation agreements with
each of Mr. Foreman and Mr. Blair. Under the separation agreements, the Company
is obligated to make aggregate payments to each of Messrs. Foreman and Blair in
the amount of $225,000 plus accrued vacation pay, and to provide certain
consulting services to Messrs. Foreman and Blair. In addition, the Company
agreed to pay $20,000 of Mr. Foreman's relocation expenses and to forgive the
$130,000 principal amount of, and approximately $10,000 of accrued interest on,
a loan made by the Company to Mr. Foreman in 1997. The $140,000 loan
forgiveness, which was recorded by the Company in 1997 as a bad debt expense
under selling, general and administrative expenses, will be included in
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<PAGE>
Mr. Foreman's 1998 compensation. Under the separation agreement with Mr.
Foreman, the Company has agreed that Mr. Foreman may compete immediately in
certain areas of business utilizing digital imaging technology. Mr. Blair
remains subject to restrictive covenants prohibiting him from competing with the
Company for a period of two years following his resignation.
Compensation of Directors
The non-employee directors of the Company are entitled to receive at the
conclusion of each year of service, an automatic grant of an immediately
exercisable option to acquire 5,000 shares of Common Stock at an exercise price
per share equal to the closing price of the Common Stock as reported by Nasdaq
for the date on which the option is granted. Grants for the initial year of
service were made under the 1997 Stock Plan. Messrs. Kavan and Roddey each
received grants to acquire 5,000 shares of Common Stock at the exercise price of
$4.50 per share on November 3, 1997. Mr. Pasquarelli received a grant to
acquire 5,000 shares of Common Stock at the exercise price of $4.25 per share on
February 6, 1998.
Non-employee directors of the Company receive $2,500 for each Board of
Directors meeting attended and $500 for each separate committee meeting attended
on a date on which no full board meeting is held. Directors of the Company who
are also employees do not receive additional compensation for attendance at
Board and committee meetings, except that all directors will be reimbursed for
out-of-pocket expenses in connection with attendance at Board and committee
meetings.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of William C. Kavan and James C. Roddey.
Mr. Roddey served as President of International Sports Marketing, Inc. from 1992
until its acquisition by the Company in 1996. Mr. Richard W. Talarico, Chairman
and Chief Executive Officer of the Company, is a partner in The Hawthorne Group
("THG") and an officer of The Hawthorne Group, Inc. ("Hawthorne"), and, as such,
he and Mr. Roddey are shareholders and/or partners in common in certain
investments and companies. During 1997 and the first six months of 1998, Mr.
Talarico was a shareholder and director of The Bantry Group, Inc. and its
affiliates Wexford Health Services, Inc. ("WHS"), Longford Health Sources, Inc.
and Galway Technologies, Inc. (collectively "Bantry") of which Mr. Roddey was a
shareholder, director and an executive officer. Mr. Talarico and Mr. Roddey
were each partners in MA Associates II and shareholders in Hawthorne Group
Productions, Inc. and Production Masters, Inc. ("PMI"), of which Mr. Roddey is
an executive officer and director. Mr. Talarico is neither an officer or
director of these companies. None of these companies or Bantry has a
compensation committee of its board of directors. Mr. Roddey has indicated an
intention to excuse himself from any vote of the Compensation Committee or the
Board of Directors concerning Mr. Talarico's compensation. Richard S. Trutanic,
a former director of the Company, also served as a member of the Compensation
Committee for a portion of 1997.
-27-
<PAGE>
In respect of the fiscal year ended December 31, 1997 and the nine-month
period ended September 30, 1998, the Company made payments to PMI in the amount
of approximately $61,000 and $7,000, respectively, for the production of videos
and other visual media for use with the Company's ITV system. Messrs. Henry
Posner Jr., Thomas D. Wright, Roddey and Talarico are shareholders of PMI. Mr.
Posner owns greater than five percent of the Company's outstanding Common Stock
and Mr. Wright owned greater than five percent of the Company's outstanding
Common Stock during 1997. The Company believes that such transactions between
it and PMI were on terms as favorable to the Company as could have been obtained
from an unaffiliated party. The Company expects to continue to conduct business
with PMI in the future.
The Company acquired all of the issued and outstanding shares of capital stock
of International Sports Marketing, Inc., now SportsWave, Inc. ("SportsWave"),
from the stockholders of SportsWave in November 1996. The purchase price paid at
the closing of the sale was $2.4 million in cash. In addition, the stock
purchase agreement governing the sale provided for up to $2.4 million in
contingent payments. One-half of the contingent payments, if any, was to be paid
by delivery to the former SportsWave stockholders of promissory notes bearing
interest at seven percent per annum. Messrs. Posner, Wright, Talarico and
Roddey were SportsWave stockholders. At the closing of the acquisition of
SportsWave, Messrs. Posner, Wright, Talarico and Roddey received cash payments
in the amounts of approximately $1,273,000, $791,000, $48,000 and $120,000,
respectively, and would have been entitled to receive contingent payments up to
the same approximate amounts (not including interest payable on any promissory
note delivered in respect of the contingent payments). In connection with the
Company's sale of SportsWave, on October 2, 1998, the Company paid $318,200,
$197,800, $12,000 and $30,000 to Messrs. Posner, Wright, Talarico and Roddey,
respectively, and $42,000 to the other former SportsWave stockholders in full
settlement of any claims to contingent earn-out payments that may have been due
in the future.
During the fiscal year ended December 31, 1997, Allin Digital Imaging Corp., a
subsidiary of the Company, made payments of approximately $12,000 for office
space under a month-to-month occupancy arrangement with Star Cable Associates,
in which Mr. Roddey has an ownership interest. The arrangement was terminated
in March 1997 and Allin Digital Imaging Corp. personnel now occupy a portion of
the Company's other leased space.
During the fiscal year ended December 31, 1997 and the nine-month period ended
September 30, 1998, KCG provided computer network consulting services to
Hawthorne, Allegheny Media ("AM"), and WHS. Fees charged Hawthorne, AM and WHS
were approximately $28,000, $2,000 and $4,000, respectively, for the fiscal year
ended December 31, 1997 and approximately $12,000, $400 and $5,000,
respectively, for the nine-month period ended September 30, 1998. Mr. Posner,
Mr. Wright and two of Mr. Posner's sons are shareholders of Hawthorne. Mr.
Roddey has an ownership interest in AM. Mr. Roddey is a shareholder, director
and executive officer of WHS' parent company, The Bantry Group, Inc. Mr.
Talarico is a shareholder and was a director during 1997 of Bantry. The Company
believes its fees are on terms substantially similar to those offered non-
affiliated parties.
-28-
<PAGE>
During the fiscal year ended December 31, 1997 and the nine-month period ended
September 30, 1998, Netright, Inc., a subsidiary of the Company ("Netright"),
sold computer hardware and components to THG and AM. Netright also sold
computer hardware and software components to WHS during the nine-month period
ended September 30, 1998. Amounts charged THG and AM for the fiscal year ended
December 31, 1988 were approximately $22,000 and $1,000, respectively. Amounts
charged THG, AM and WHS for the nine-month period ended September 30, 1998 were
approximately $1,000, $500 and $23,000, respectively. The Company believes its
charges are on terms substantially similar to those offered non-affiliated
parties.
Certain stockholders of the Company, including Messrs. Posner, Wright, Roddey,
Talarico, Brian K. Blair, a director and former officer of the Company, and R.
Daniel Foreman, a former director and officer of the Company, have certain
rights under a registration rights agreement (the "Registration Rights
Agreement") to require the Company, subject to certain limitations, to register
under the Securities Act certain of their shares of Common Stock for public
offering and sale.
Each of Messrs. Talarico, Kavan, Roddey, Posner and Wright purchased shares of
Series B Preferred Stock and Warrants. If the Company does issue any Conversion
Shares, the holders of the Conversion Shares, including Messrs. Talarico, Kavan,
Roddey, Posner and Wright will have certain rights to require the Company to
register the Conversion Shares for resale under the Securities Act. See also
"Interest of Certain Persons in the Transactions" and "Security Ownership of
Certain Beneficial Owners and Management."
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as to the ownership of
Common Stock as of October 22, 1998, both before and after giving effect to
stockholder approval of the issuance of Common Stock upon conversion of the
Series B Preferred Stock (assuming that only the minimum number of shares may be
issued upon such conversion) and to stockholder approval of the issuance of
Common Stock upon exercise of the Warrants, by (i) each person who is known to
the Company to own beneficially more than five percent of the outstanding shares
of Common Stock, (ii) each executive officer and director and (iii) all
executive officers and directors as a group. Except as indicated below, the
persons named have sole voting and investment power with respect to all shares
shown as being beneficially owned by them.
-29-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Percent of
Beneficially Owned(1) Common Stock(1)
--------------------- --------------------
Before After Before After
Name Approval Approval Approval Approval
- ---- ---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Henry Posner, Jr.(2) 1,144,740 1,861,695 19.12% 27.77%
500 Greentree Commons
381 Mansfield Avenue
Pittsburgh, PA 15220
Friedman, Billings, 401,000 401,000 6.70% 6.70%
Ramsey Group, Inc.(3)
1001 19th Street North
Arlington, VA 22209
Continental Casualty 340,000 340,000 5.68% 5.68%
Company(4)
CNA Plaza
Chicago, IL 60685
Kindy French(5) 325,000 325,000 5.43% 5.43%
2120 Leroy Place N.W.
Washington, D.C. 20008
Emanuel J. Friedman(6) 601,000 601,000 10.04% 10.04%
1001 19th Street North
Arlington, VA 22209
Dimensional Fund 393,300 393,300 6.57% 6.57%
Advisors(7)
1299 Ocean Avenue
11th Floor
Santa Monica, CA
90401
Les D. Kent 263,333 263,333 4.40% 4.40%
60 98th Avenue
Oakland, CA 94603
</TABLE>
-30-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Percent of
Beneficially Owned(1) Common Stock(1)
--------------------- --------------------
Before After Before After
Name Approval Approval Approval Approval
- ---- ---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Thomas D. Wright(8) 211,460 313,882 3.53% 5.15%
500 Greentree Commons
381 Mansfield Avenue
Pittsburgh, PA 15220
Richard W. Talarico(9) 103,503 257,135 1.73% 4.18%
400 Greentree Commons
381 Mansfield Avenue
Pittsburgh, PA 15220
Brian K. Blair 177,200 177,200 2.96% 2.96%
13320 State Route 7
East Liverpool, OH
43920
William C. Kavan(10) 110,800 494,883 1.85% 7.75%
100 Garden City Plaza
Garden City, NY 11530
James C. Roddey(11) 102,603 153,813 1.71% 2.54%
200 Greentree Commons
381 Mansfield Avenue
Pittsburgh, PA 15220
Paul J. Pasquarelli 5,000 5,000 * *
200 Corporate Center
Drive, Suite 340
Coraopolis, PA 15108
Anthony L. Bucci - 0 - - 0 - - 0 - - 0 -
Four Station Square
Suite 500
Pittsburgh, PA 15219
James S. Kelly, Jr.(12) 724,676 724,676 12.10% 12.10%
100 Trotwood Drive
Monroeville, PA 15146
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Percent of
Beneficially Owned(1) Common Stock(1)
--------------------- --------------------
Before After Before After
Name Approval Approval Approval Approval
- ---- ---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Dean C. Praskach 3,900 3,900 * *
400 Greentree Commons
381 Mansfield Avenue
Pittsburgh, PA 15220
All executive officers and 1,491,015 2,079,940 24.83% 31.45%
directors as a group (9
persons)(13)
</TABLE>
_____________________________________________
*Less than one percent
(1) The number of shares and the percent of the class in the table and these
notes to the table have been calculated in accordance with Rule 13d-3 under
the Securities Exchange Act of 1934, as amended. The numbers shown include
shares covered by options that are currently exercisable or are exercisable
within sixty days of October 22, 1998. The numbers and percentages of
shares owned assume that such options had been exercised as follows: Mr.
Talarico - 8,400 shares; Messrs. Kavan and Roddey - 10,000 shares each
(includes for each an immediately exercisable option to purchase 5,000
shares of Common Stock granted in November 1998); Mr. Pasquarelli - 5,000
shares; Mr. Praskach - 3,900 shares; and all directors and executive
officers as a group - 37,300 shares. The minimum number of shares of
Common Stock that may be acquired upon conversion of the Series B Preferred
Stock and exercise of the Warrants are also included in the after approval
columns of the table; however, shares that may be acquired upon conversion
of the $2M Note are not so included.
(2) Includes 102,000 shares held in various trusts and a family foundation of
which Mr. Posner and his wife are trustees and with respect to which shares
Mr. Posner shares voting and investment power. Does not include 1,000
shares owned by Mr. Posner's wife and 2,000 shares held by trusts of which
Mr. Posner's wife is a trustee. Mr. Posner owns 1,400 shares of Series B
Preferred Stock and related Warrants. If stockholder approval is obtained,
such shares will be convertible into at least 387,543, but no more than
700,000, shares of Common Stock, and such Warrants will become exercisable
for 329,412 shares of Common Stock. Assuming that the Series B Preferred
Stock became exercisable for the maximum 700,000 shares of Common Stock,
Mr. Posner would be deemed to beneficially own an aggregate of 2,174,152
shares of Common Stock representing approximately 30.98% of the Common
Stock outstanding.
(3) As reported on Schedule 13G filed with the Securities and Exchange
Commission (the "SEC"), the shares indicated are beneficially owned by each
of Friedman, Billings, Ramsey Group, Inc., Eric F. Billings, Emanuel J.
Friedman, and W. Russell Ramsey. The number of shares shown assumes that
there has been no change in the number of shares beneficially owned since
this date.
(4) The shares indicated are under shared voting power and shared dispositive
power among Continental Casualty Company, CNA Financial Corporation and
Loews Corporation as reported on Schedule 13G filed by such entities with
the SEC. The report states that, under Illinois law, assets owned by
Continental Casualty Company, an Illinois insurance company, are solely
under the control of the board of directors
-32-
<PAGE>
of the insurer and that the characterization of shared dispositive power
with the parent holding company is made solely as a consequence of SEC
interpretations regarding control of the subsidiary. CNA Financial
Corporation and Loews Corporation specifically disclaim beneficial
ownership of the shares. The number of shares shown assumes that there has
been no change in the number of shares owned since the date of the report
on Schedule 13G.
(5) Information as to the number of shares owned by Ms. French has been
obtained from the Schedule 13D filed with the SEC by Ms. French. The
number of shares shown assumes there has been no change in the number of
shares owned since the date of the Schedule 13D. Ms. French is the wife of
Emanuel J. Friedman, the Chairman of Friedman, Billings, Ramsey Group,
Inc., a beneficial owner of more than five percent of the outstanding
Common Stock of the Company. See Notes (3) and (6) above.
(6) As reported on Schedule 13G filed with the SEC, Mr. Friedman has sole
voting and dispositive power with respect to 34,000 shares and shared
voting and dispositive power with respect to 567,000 shares. The number of
shares shown assumes that there has been no change in the number of shares
reported as beneficially owned.
(7) As reported by Nasdaq-Online. The number of shares assumes that there has
been no change in the number of shares reported as beneficially owned.
(8) Does not include 45,000 shares held by Mr. Wright's spouse, 5,000 shares in
her own name and 40,000 shares as trustee for various trusts. Mr. Wright
owns 200 shares of Series B Preferred Stock and related Warrants. If
stockholder approval is obtained, such shares will be convertible into at
least 55,363, but no more than 100,000, shares of Common Stock and such
Warrants will become exercisable for 47,059 shares of Common Stock.
Assuming that the Series B Preferred Stock became exercisable for the
maximum 100,000 shares of Common Stock, Mr. Wright would be deemed to
beneficially own an aggregate of 358,519 shares of Common Stock
representing approximately 5.84% of the Common Stock outstanding.
(9) Mr. Talarico owns 300 shares of Series B Preferred Stock and related
Warrants. If stockholder approval is obtained, such shares will be
convertible into at least 83,044, but no more than 150,000, shares of
Common Stock, and such Warrants will become exercisable for 70,588 shares
of Common Stock. Assuming that the Series B Preferred Stock became
exercisable for the maximum 150,000 shares of Common Stock, Mr. Talarico
would be deemed to beneficially own an aggregate of 324,091 shares of
Common Stock representing approximately 5.21% of the Common Stock
outstanding.
(10) Mr. Kavan owns 750 shares of Series B Preferred Stock and related Warrants.
If stockholder approval is obtained, such shares will be convertible into
at least 207,612, but no more than 375,000, shares of Common Stock, and
such Warrants will become exercisable for 176,471 shares of Common Stock.
Assuming that the Series B Preferred Stock became exercisable for the
maximum 375,000 shares of Common Stock, Mr. Kavan would be deemed to
beneficially own an aggregate of 662,271 shares of Common Stock
representing approximately 10.11% of the Common Stock outstanding.
(11) Includes 2,000 shares owned by Mr. Roddey's wife. Mr. Roddey owns 100
shares of Series B Preferred Stock and related Warrants. If stockholder
approval is obtained, such shares will be convertible into at least 27,681,
but no more than 50,000, shares of Common Stock, and such Warrants will
become exercisable for 23,529 shares of Common Stock. Assuming that the
Series B Preferred Stock became exercisable for the maximum 50,000 shares
of Common Stock, Mr. Roddey would be deemed to beneficially own an
aggregate of 176,132 shares of Common Stock representing approximately
2.90% of the Common Stock outstanding.
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<PAGE>
(12) Does not include shares of Common Stock that may be issued to Mr. Kelly as
Contingent Stock Consideration. See "The KCS Acquisition." Does not
include shares which, following stockholder approval, may be issued upon
conversion of the $2M Note. See "Proposal 3."
(13) See Notes (9), (10), (11) and (12). Assuming that the Series B Preferred
Stock became exercisable for the maximum number of shares of Common Stock,
all executive officers and directors as a group would be deemed to
beneficially own an aggregate of 2,336,603 shares of Common Stock
representing approximately 34.01% of the Common Stock outstanding.
-34-
<PAGE>
OTHER INFORMATION
Independent Public Accountants
Arthur Andersen LLP is serving as the independent public accountants to
examine the financial statements of the Company and its subsidiaries for the
year ending December 31, 1998. Arthur Andersen LLP has been employed to perform
this function for the Company and its predecessors since 1995. A representative
of Arthur Andersen LLP is expected to be present at the Special Meeting for the
purpose of making a statement, should he so desire, and to respond to
appropriate questions.
Director Nominees
The Board of Directors will consider stockholder's recommendations for
nominees for election to the Board of Directors. Generally such nominations
must be submitted in writing to the Secretary of the Company at the Company's
principal offices at least 90 days in advance of the anniversary date of the
immediately preceding annual meeting, and the notice must provide information as
required by the Company's By-laws. A copy of these By-law requirements will be
provided upon request in writing to the Secretary at the principal offices of
the Company. This requirement does not affect the deadline for submitting
stockholder proposals for inclusion in the proxy statement, nor does it apply to
questions a stockholder may wish to ask at the meeting.
Stockholder Proposals for 1999 Annual Meeting
Any proposals of stockholders intended to be presented at the 1999 Annual
Meeting of Stockholders must be received by the Company, 400 Greentree Commons,
381 Mansfield Avenue, Pittsburgh, Pennsylvania 15220-2751, no later than
December 7, 1998 in order to be included in the proxy materials for such
meeting. It is suggested that a proponent submit any proposal by Certified Mail
- - Return Receipt Requested to the Secretary of the Company. Such proposals must
meet the requirements set forth in the rules and regulations of the SEC in order
to be eligible for inclusion in the Company's 1999 proxy materials.
All other stockholder proposals to be presented at the 1999 Annual Meeting
of Stockholders must be submitted in writing to the Secretary of the Company at
the Company's principal offices no later than February 7, 1999, and the notice
must provide information as required by the Company's By-laws. A copy of these
By-law requirements will be provided upon request in writing to the Secretary at
the principal offices of the Company.
Other Matters
The Board does not intend to present, and does not have any reason to
believe that others will present, any item of business at the Special Meeting
other than those specifically set forth in the notice of the meeting. However,
if other matters are properly brought before the meeting,
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<PAGE>
the persons named on the enclosed proxy will have discretionary authority to
vote all proxies in accordance with their best judgment.
Solicitation of Proxies
All costs and expenses of this solicitation, including the cost of
preparing and mailing this proxy statement, will be borne by the Company. In
addition to the use of the mails, certain directors, officers and regular
employees of the Company may solicit proxies personally, or by mail, telephone,
telegraph, or otherwise, but such persons will not be compensated for such
services. Brokerage firms, banks, fiduciaries, voting trustees or other
nominees will be requested to forward the soliciting materials to each
beneficial owner of stock held of record by them, and the Company will reimburse
them for their expenses in doing so. The Company has engaged National City Bank
to coordinate the solicitation of proxies by and through such holders for a fee
of approximately $1,500 plus expenses.
Incorporation of Certain Documents by Reference
The following portions of the following documents, previously filed by the
Company with the Securities and Exchange Commission, are incorporated herein by
reference:
(i) Allin Communications Corporation and Subsidiaries Audited Consolidated
Balance Sheets as of December 31, 1996 and 1997; Audited Consolidated
Statements of Operations for the years ended December 31, 1995, 1996 and
1997; Audited Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1995, 1996 and 1997; Audited Consolidated
Statements of Cash Flows for the years ended December 13, 1995, 1996 and
1997; and Notes to Audited Consolidated Financial Statements, all
included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997;
(ii) Management's Discussion and Analysis of Financial Condition and Results
of Operations contained in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997;
(iii) Allin Communications Corporation and Subsidiaries Consolidated Balance
Sheet as of September 30, 1998 (unaudited); Consolidated Statements of
Operations for the nine months ended September 30, 1997 and 1998
(unaudited); Consolidated Statements of Shareholders' Equity for the
nine months ended September 30, 1998 (unaudited); Consolidated
Statements of Cash Flows for the nine months ended September 30, 1998
(unaudited) and Notes to Unaudited Consolidated Financial Statements,
all included in the Company's Quarterly report on 10-Q for the fiscal
quarter ended September 30, 1998;
(iv) Management's Discussion and Analysis of Financial Condition and Results
of Operations contained in the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30, 1998;
-36-
<PAGE>
(v) KCS Computer Services, Inc. Audited Balance Sheets as of December 31,
1997 and 1996; Audited Statements of Operations and Retained Earnings
for the years ended December 31, 1997 and 1996; Audited Statements of
Cash Flows for the years ended December 31, 1997 and 1996; and Notes to
Audited Financial Statements, all included in the Company's Current
Report on Form 8-K/A filed October 9, 1998;
(vi) KCS Computer Services, Inc. Balance Sheets as of June 30, 1998 and 1997
(unaudited); Statement of Operations and Retained Earnings for the six
months ended June 30, 1998 and 1997 (unaudited); Statements of Cash
Flows for the six months ended June 30, 1998 and 1997 (unaudited); and
Notes to Unaudited Financial Statements, all included in the Company's
Current Report on Form 8-K/A filed October 9, 1998;
(vii) KCS Computer Services, Inc. Balance Sheet as of July 31, 1998
(unaudited); Statement of Operations and Retained Earnings for the seven
months ended July 31, 1998 (unaudited); Statements of Cash Flows for the
seven months ended July 31, 1998 (unaudited); and Notes to Unaudited
Financial Statements, all included in the Company's Current Report on
Form 8-K/A filed November 12, 1998;
(viii) Allin Communications Corporation and Subsidiaries Pro Forma Consolidated
Balance Sheet as of June 30, 1998; Pro Forma Condensed Consolidated
Statement of Operations for the year ended December 31, 1997; Pro Forma
Condensed Statement of Operations for the six months ended June 30,
1998; and Notes to Pro Forma Condensed Consolidated Financial
Statements, all included in the Company's Current Report on Form 8-K/A
filed October 9, 1998; and
(ix) Allin Communications Corporation and Subsidiaries Pro Forma Condensed
Statement of Operations for the seven months ended July 31, 1998 and
Notes to Pro Forma Condensed Consolidated Statement of Operations for
the nine months ended September 30, 1998, all included in the Company's
Current Report on Form 8-K/A filed November 12, 1998.
The Company has enclosed its Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, its Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1998, its Current Report on Form 8-K/A filed October
9, 1998 and its Current Report on 8-K/A filed November 12, 1998 with this proxy
statement. Stockholders are referred to such reports for the information
specifically incorporated herein by reference. The portions of such reports not
listed above are not incorporated in this proxy statement and are not part of
the proxy soliciting material.
Forward Looking Statements
The Management's Discussion and Analysis and other sections of the
documents incorporated by reference herein contain forward-looking statements
that are based on then current expectations, estimates and projections about the
industries in which the Company operates, management's beliefs and assumptions
made by management. Words such as
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<PAGE>
"expects," "anticipates," "intends," "plans," "believes," "estimates,"
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements constitute "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, and are subject to the safe harbors created thereby. These
statements are based on a number of assumptions that could ultimately prove
inaccurate and, therefore, there can be no assurance that they will prove to be
accurate. Factors that could affect performance include the Company's limited
operating history, the Company's recent net losses and accumulated deficit,
risks inherent in the development of new markets and products and in
technological obsolescence, dependence on key personnel and competitive market
conditions, which are representative of factors which could affect the outcome
of the forward-looking statements, and which are discussed along with other
factors in Management's Discussion and Analysis of Financial Condition and
Results of Operations in the Company's Quarterly Report on 10-Q for the fiscal
quarter ended September 30, 1998 which is incorporated herein by reference. In
addition, such statements could be affected by general industry and market
conditions and growth rates, and general domestic and international economic
conditions. The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
By order of the Board of Directors,
Dean C. Praskach
Secretary
November ___, 1998
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<PAGE>
Annex A
1998 Stock Plan of Allin Communications Corporation
1. Purpose
-------
Allin Communications Corporation (the "Company") desires to attract and
retain the best available talent and encourage the highest level of performance
by employees and other persons who perform services for the Company in order to
serve the best interests of the Company and its shareholders. By affording
eligible persons the opportunity to acquire proprietary interests in the Company
and by providing them incentives to put forth maximum efforts for the success of
the Company's business, the 1998 Stock Plan of the Company (the "1998 Plan") is
expected to contribute to the attainment of those objectives.
2. Scope and Duration
------------------
Awards under the 1998 Plan may be granted in the form of (i) incentive
stock options ("incentive stock options") as provided in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), (ii) non-qualified stock
options ("non-qualified options") (unless otherwise indicated, references in the
1998 Plan to "options" include incentive stock options and non-qualified
options), (iii) shares of the common stock, par value $0.01 per share, of the
Company (the "Common Stock") that are restricted as provided in paragraph 11
("restricted shares"), (iv) units to acquire shares of Common Stock that are
restricted as provided in paragraph 11 ("restricted units") and (v) stock
appreciation rights ("rights") or limited stock appreciation rights ("limited
rights"). The maximum aggregate number of shares of Common Stock as to which
awards may be granted from time to time under the 1998 Plan is 375,000 shares.
The shares available may be in whole or in part, authorized but unissued shares
or issued shares reacquired by the Company, as the Board of Directors of the
Company (the "Board of Directors") shall from time to time determine. Unless
otherwise provided by the Board of Directors, shares covered by expired or
terminated options and forfeited restricted shares or restricted units, shares
subject to awards that are paid in cash or surrendered upon the exercise of an
option, and shares received by the Company upon the exercise of an option will
not be available for subsequent awards under the 1998 Plan. No incentive stock
option shall be granted under the 1998 Plan more than 10 years after September
1, 1998. Otherwise, the Plan will continue until terminated pursuant to
paragraph 17.
3. Administration
--------------
The 1998 Plan will be administered by the Board of Directors, which shall
have plenary authority in its discretion, subject to and not inconsistent with
the express provisions of the 1998 Plan, (i) to grant options, to determine the
purchase price of the shares of Common Stock covered by each option, the term of
each option, the persons to whom, and the time or times at which options shall
be granted, and the number of shares to be covered by each option; (ii) to
designate options as incentive stock options or non-qualified options and to
determine which options shall be accompanied by rights and limited rights; (iii)
to grant rights and to determine the terms and conditions applicable to such
rights; (iv) to grant restricted shares and restricted units and to determine
the terms of the restricted period and other conditions applicable to such
shares or units, the persons to whom, and the time or times at which, restricted
shares or restricted units shall be granted and the number of shares or units to
be covered by each grant; (v) to interpret the 1998 Plan; (vi) to prescribe,
amend and rescind rules and regulations relating to the 1998 Plan; (vii) to
determine the terms and provisions of the option and rights agreements (which
need not be identical) and the restricted share and restricted units agreements
(which need not be identical) entered into in connection with awards under the
1998 Plan; and (viii) to make all other determinations deemed necessary or
advisable for the administration of the 1998 Plan. The Board of Directors may
delegate to one or more of its members or to one or more agents such
administrative duties as it may deem advisable, and the Board of Directors or
any person to whom it has delegated duties as aforesaid may employ one or more
persons to render advice with respect to any responsibility or authority the
Board of Directors or such person may have under the 1998 Plan.
<PAGE>
The Board of Directors may employ attorneys, consultants, accountants
or other persons. The Board of Directors, the Company and its officers and
directors shall be entitled to rely upon the advice, opinions or valuations of
any such persons. All actions taken and all interpretations and determinations
made by the Board of Directors in good faith shall be final and binding upon all
persons who have received awards, the Company and all other interested persons.
No member or agent of the Board of Directors shall be personally liable for any
action, determination or interpretation taken or made in good faith with respect
to the 1998 Plan or awards made thereunder, and all members and agents of the
Board of Directors shall be fully indemnified and protected by the Company in
respect of any such action, determination or interpretation.
4. Eligibility; Factors to be Considered in Granting Awards
--------------------------------------------------------
Awards will be limited to (i) officers, executives and others, who are
employees of the Company or its subsidiaries and (ii) any non-employee advisors
or consultants (including non-employee directors) who may provide or who have
provided services to the Company, its predecessors or its subsidiaries;
provided, however, that awards in the form of incentive stock options may be
granted only to employees. In determining the persons to whom awards shall be
granted and the number of shares or units to be covered by each award, the Board
of Directors shall take into account the nature of the employees' duties or the
services provided, their past, present and potential contributions to the
success of the Company and such other factors as it shall deem relevant in
connection with accomplishing the purposes of the 1998 Plan. For each year that
an individual, who is not an employee of the Company, serves as a director, he
or she will receive an immediately exercisable option to acquire 5,000 shares of
Common Stock at an exercise price equal to the Fair Market Value (as defined in
paragraph 5) to the extent that an option to acquire that number of shares is
not granted under another plan of the Company. Awards may be granted singly, in
combination or in tandem and may be made in combination or in tandem with, in
replacement of, or as alternatives to, awards or grants under any other employee
plan maintained by the Company or its present and future subsidiaries. A person
to whom an award has been granted shall be referred to as a "participant." An
award, other than an award of restricted shares, may provide for the crediting
to the account of, or the current payment to, each participant who has such an
award of an amount equal to the cash or stock dividends paid by the Company upon
one share of Common Stock for each restricted unit or share of Common Stock
subject to an option or right, included in such award ("Dividend Equivalent").
Dividend Equivalents credited to a participant's account shall not be subject to
forfeiture, except as the Board of Directors may otherwise determine in respect
of any option or right, and may bear amounts equivalent to interest or cash
dividends as the Board of Directors may determine. A participant who has been
granted an award or awards under the 1998 Plan may be granted an additional
award or awards, subject to such limitations as may be imposed by the Code on
the grant of incentive stock options. The Board of Directors, in its sole
discretion, may grant to a participant who has been granted an award under the
1998 Plan or any other plan maintained by the Company or one of its
subsidiaries, or any predecessors or successors thereto, in exchange for the
surrender and cancellation of such award, a new award in the same or a different
form and containing such terms, including without limitation a price which is
different (either higher or lower) than any price provided in the award so
surrendered and cancelled, as the Board of Directors may deem appropriate.
5. Option Price
------------
Except as provided in paragraph 4 with respect to certain options granted
to directors, the purchase price of the Common Stock covered by each option
shall be determined by the Board of Directors. However, in the case of an award
made to any other participant in the form of an incentive stock option, the
purchase price shall not be less than 100% (or, in the case of an incentive
stock option granted to a "10 percent shareholder," as defined in Code section
422, 110%) of the fair market value of the Common Stock on the date the option
is granted, which shall be the closing price of the Common Stock as reported on
Nasdaq NMS (the "Fair Market Value") for the date on which the option is
granted, or if there are no sales on such date, on the next preceding day on
which there were sales. Except as provided in paragraph 15, the price of any
award, once established, will not be subject to change. The Board of Directors
shall determine the date on which an option is granted, provided that such date
--------
is consistent with the Code and any applicable rules or regulations thereunder.
In the absence of such determination, the date on which the Board of Directors
adopts a resolution granting an option shall be considered the date on which
such option is granted, provided the participant to whom the option is granted
--------
is promptly notified of the grant and an option agreement is duly executed as of
the
2
<PAGE>
date of the resolution. The price so determined shall also be applicable in
connection with the exercise of any related right or limited right.
6. Term of Options, Units and Rights
---------------------------------
The term of each incentive stock option granted under the 1998 Plan shall
not be more than 10 (or, in the case of a "10 percent shareholder," as defined
in Code section 422, 5) years from the date of grant, as the Board of Directors
shall determine, subject to earlier termination as provided in paragraphs 12 and
13. The term of each non-qualified stock option as well as each restricted
unit, right or limited right granted under the 1998 Plan shall be such period of
time as the Board of Directors shall determine, subject to earlier termination
as provided in paragraphs 12 and 13.
7. Exercise of Options; Loans
--------------------------
(a) Subject to the provisions of the 1998 Plan and unless otherwise
provided in the option agreement, an option granted under the 1998 Plan shall
become 100% vested at the earliest of the participant's normal retirement date,
the participant's death or total disability (as defined in paragraph 13) or over
a five (5) year period commencing with the date of grant at the rate of twenty
percent (20%) per year. In its sole discretion, the Board of Directors may, in
any case or cases, prescribe different installments. The Board of Directors may
also, in its sole discretion, accelerate any option at any time or, in any
option agreement, provide for the acceleration of the exercisability of any
option based on the occurrence of any event or satisfaction of any condition
prescribed by the Board of Directors in its sole discretion.
(b) An option may be exercised at any time or from time to time (subject,
in the case of an incentive stock option, to such restrictions as may be imposed
by the Code), as to any or all full shares as to which the option has become
exercisable.
(c) The purchase price of the shares as to which an option is exercised
shall be paid in full at the time of exercise; payment may be made in cash,
which may be paid by check or other instrument acceptable to the Company, or,
with the consent of the Board of Directors, in shares of the Common Stock,
valued at the Fair Market Value on the date of exercise, or if there were no
sales on such date, on the next preceding day on which there were sales or (if
permitted by the Board of Directors and subject to such terms and conditions as
it may determine) by surrender of outstanding awards under the 1998 Plan. In
addition, any amount necessary to satisfy applicable federal, state or local tax
requirements shall be paid promptly upon notification of the amount due. The
Board of Directors may permit such amount to be paid in shares of Common Stock
previously owned by the participant, or a portion of the shares of Common Stock
that otherwise would be distributed to such participant upon exercise of the
option, or a combination of cash and shares of such Common Stock.
(d) Except as provided in paragraphs 12 and 13, no option which is an
incentive stock option may be exercised at any time unless the holder thereof is
then an employee of the Company, one of its subsidiaries. For this purpose,
"subsidiary" shall include, as under Treasury Regulations Section 1.421-7(h)(3)
and (4), Example (3), any corporation that is a subsidiary of the Company during
the entire portion of the requisite period of employment during which it is the
employer of the holder.
(e) The Board of Directors, in its sole discretion, may elect, in lieu of
delivering all or a portion of the shares of Common Stock as to which an option
has been exercised, if the Fair Market Value of the Common Stock exceeds the
exercise price of the option (i) to pay the participant in cash or in shares of
Common Stock, or a combination of cash and Common Stock, an amount equal to the
excess of (A) the Fair Market Value on the exercise date of the shares of Common
Stock as to which such option has been exercised, or if there were no sales on
such date, on the next preceding day on which there were sales over (B) the
option price, or (ii) in the case of an option which is a non-qualified option,
to defer payment and to credit the amount of such excess on the Company's books
for the account of the optionee and either (a) to treat the amount in such
account as if it had been invested in the manner from time to time determined by
the Board of Directors, with dividends or other income thereon being
3
<PAGE>
deemed to have been so reinvested or (b) for the Company's convenience, to
contribute the amount credited to such account to a trust, which may be
revocable by the Company, for investment in the manner from time to time
determined by the Board of Directors and set forth in the instrument creating
such trust. The Board of Director's election pursuant to this subparagraph
shall be made by giving written notice of such election to the participant (or
other person exercising the option). Shares of Common Stock paid pursuant to
this subparagraph will be valued at the Fair Market Value on the exercise date,
or if there were no sales on such date, on the next preceding day on which there
were sales.
(f) Subject to any terms and conditions that the Board of Directors may
determine in respect of the exercise of options involving the surrender of
outstanding awards, upon, but not until, the exercise of an option or portion
thereof in accordance with (i) the 1998 Plan, (ii) the option agreement and
(iii) such rules and regulations as may be established by the Board of
Directors, the holder thereof shall have the rights of a shareholder with
respect to the shares issued as a result of such exercise.
(g) The Company may make loans to such option holders as the Board of
Directors, in its discretion, may determine (including a holder who is a
director or officer of the Company) in connection with the exercise of options
granted under the 1998 Plan; provided, however, that the Board of Directors
-------- -------
shall not authorize the making of any loan where the possession of such
discretion or the making of such loan would result in a "modification" (as
defined in Section 424 of the Code) of any incentive stock option. Such loans
shall be subject to the following terms and conditions and such other terms and
conditions as the Board of Directors shall determine not inconsistent with the
1998 Plan. Such loans shall bear interest at such rates as the Board of
Directors shall determine from time to time, which rates may be below then
current market rates (except in the case of incentive stock options). In no
event may any such loan exceed the fair market value, at the date of exercise,
of the shares covered by the option, or portion thereof, exercised by the
holder. No loan shall have an initial term exceeding five years, but any such
loan may be renewable at the discretion of the Board of Directors. When a loan
shall have been made, shares of Common Stock having a Fair Market Value at least
equal to the principal amount of the loan shall be pledged by the holder to the
Company as security for payment of the unpaid balance of the loan. Every loan
shall comply with all applicable laws, regulations and rules of the Board of
Governors of the Federal Reserve System and any other governmental agency having
jurisdiction.
8. Award and Exercise of Rights
----------------------------
(a) A right may be awarded by the Board of Directors in connection with
any option granted under the 1998 Plan (a "tandem right"), either at the time
the option is granted or thereafter at any time prior to the exercise,
termination or expiration of the option. A right may also be awarded separately
(a "free-standing right"). Each tandem right shall be subject to the same terms
and conditions as the related option and shall be exercisable only to the extent
the option is exercisable.
The term of each freestanding right granted under the 1998 Plan shall be
such period of time as the Board of Directors shall determine. Subject to the
provisions of the 1998 Plan and unless otherwise provided in the agreement
covering a freestanding right granted under the 1998 Plan, such right shall
become 100% vested at the earliest of the participant's normal retirement date,
the participant's death or total disability (as defined in paragraph 13) or such
period of time from the date of grant as the Board of Directors shall determine.
Prior to becoming 100% vested, each freestanding right shall become exercisable
at such time and in such manner as the Board of Directors shall determine. The
Board of Directors may also, in its sole discretion, accelerate the
exercisability of any freestanding right at any time and provide, in the
agreement covering a freestanding right, that the right shall become immediately
exercisable based on the occurrence of any event or satisfaction of any
condition prescribed by the Board of Directors in its sole discretion.
(b) A right shall entitle the participant upon exercise in accordance with
its terms (subject, in the case of a tandem right, to the surrender of the
unexercised portion of the related option or any portion or portions thereof
which the participant from time to time determines to surrender for this
purpose) to receive, subject to the provisions of the 1998 Plan and such rules
and regulations as from time to time may be established by the Board of
Directors, a payment having an aggregate value equal to (A) the excess of the
fair market value on the exercise date of one
4
<PAGE>
share over the option price per share, in the case of a tandem right, or the
price per share specified in the terms of the right, in the case of a
freestanding right, times (B) the number of shares with respect to which the
right shall have been exercised. The payment shall be made in the form of all
cash, all shares of Common Stock, or a combination thereof, as elected by the
participant; provided, that the Board of Directors shall have sole discretion to
--------
consent to or disapprove the election of a participant to receive all or part of
a payment in cash (which consent or disapproval may be given at any time after
the election to which it relates). The price per share specified in a
freestanding right shall be determined by the Board of Directors but in no event
shall be less than the average of the daily closing price for the Common Stock
as reported on the Nasdaq NMS during a period determined by the Board of
Directors in its sole discretion that shall consist of any day on which shares
of Common Stock are traded on the Nasdaq NMS (a "Trading Day") or any number of
consecutive Trading Days, not exceeding 30, during the period of 30 Trading Days
ending on the Trading Day immediately preceding the date the right is granted,
provided that, in the absence of a different determination by the Board of
- --------
Directors, the price per share shall be determined on the basis of a period
consisting of 30 Trading Days. Such price shall be subject to adjustment as
provided in paragraph 15. The Board of Directors shall determine the date on
which a freestanding right is granted. In the absence of such determination,
the date on which the Board of Directors adopts a resolution granting such right
shall be considered the date of grant, provided the participant is promptly
notified of the grant and an agreement is duly executed as of the date of the
resolution.
If upon exercise of a right the participant is to receive all or a portion
of the payment in shares of Common Stock, the number of shares received shall be
determined by dividing such portion by the fair market value of a share on the
exercise date. The number of shares received may not exceed the number of
shares covered by any option or portion thereof surrendered. Cash will be paid
in lieu of any fractional share.
No payment will be required from the participant upon exercise of a right,
except that any amount necessary to satisfy applicable federal, state or local
tax requirements shall be withheld or paid promptly upon notification of the
amount due and prior to or concurrently with delivery of cash or a certificate
representing shares. The Board of Directors may permit such amount to be paid
in shares of Common Stock previously owned by the participant, or a portion of
the shares of Common Stock that otherwise would be distributed to such
participant upon exercise of the right, or a combination of cash and shares of
such Common Stock.
(c) For purposes of this paragraph 8, the fair market value of a share on
any particular date shall mean the Fair Market Value of such share on such date,
or if there are no sales on such date, on the next preceding day on which there
were sales; provided that, in the case of rights that relate to an incentive
--------
stock option, not in excess of the maximum amount that would be permissible
under Section 422 of the Code and the Treasury Regulations thereunder without
disqualifying such option as an incentive stock option under Section 422.
(d) Upon exercise of a tandem right, the number of shares subject to
exercise under the related option shall automatically be reduced by the number
of shares represented by the option or portion thereof surrendered.
(e) A right related to an incentive stock option may only be exercised if
the fair market value of a share of Common Stock on the exercise date exceeds
the option price.
(f) Whether payments to participants upon exercise of tandem rights
related to non-qualified options or of freestanding rights are made in cash,
shares of Common Stock or a combination thereof, the Board of Directors shall
have sole discretion as to timing of the payments, whether in one lump sum or in
annual installments or otherwise deferred, which deferred payments may in the
Board of Directors' sole discretion (i) bear amounts equivalent to interest or
cash dividends, (ii) be treated as invested in the manner from time to time
determined by the Board of Directors, with dividends or other income thereon
being deemed to have been so reinvested, or (iii) for the convenience of the
Company, contributed to a trust, which may be revocable by the Company or
subject to the claims of its creditors, for investment in the manner from time
to time determined by the Board of Directors and set forth in the instrument
creating such trust, all as the Board of Directors shall determine.
(g) If a freestanding right is not exercised, or neither a tandem right
nor the related option is exercised, before the end of the day on which the
right ceases to be exercisable and the fair market value of a share on such date
exceeds (i) the option price per share in the case of a tandem right or (ii) the
price per share specified in the
5
<PAGE>
terms of the right in the case of a freestanding right, such right shall be
deemed exercised and a payment in the amount prescribed by subparagraph 8(b),
less any applicable taxes, shall be paid to the participant in cash.
9. Award and Exercise of Limited Rights
------------------------------------
(a) A limited right may be awarded by the Board of Directors in connection
with any option granted under the 1998 Plan with respect to all or some of the
shares of Common Stock covered by such related option. A limited right may be
granted either at the time the option is granted or thereafter at any time prior
to the exercise, termination or expiration of the option. A limited right may
be granted to a participant irrespective of whether such participant is being
granted or has been granted a right under paragraph 8 hereof. A limited right
may be exercised only during the ninety-day period beginning on the occurrence
of an event or condition prescribed by the Board of Directors. In addition,
each limited right shall be exercisable only if, and to the extent that, the
related option is exercisable and, in the case of a limited right granted in
respect of an incentive stock option, only when the fair market value per share
of the Common Stock exceeds the option price per share. Upon exercise of a
limited right, such related option shall cease to be exercisable to the extent
of the shares of Common Stock with respect to which such limited right is
exercised. Upon the exercise or termination of a related option, the limited
right with respect to such related option shall terminate to the extent of the
shares of Common Stock with respect to which the related option was exercised or
terminated.
(b) Upon the exercise of limited rights, the holder thereof shall receive
in cash an amount determined in the same manner as for a right granted under
paragraph 8.
(c) Notwithstanding any other provision of the 1998 Plan, tandem rights
granted pursuant to paragraph 8 may not be exercised to the extent that any
limited rights granted with respect to the same option are then exercisable.
Upon exercise of the limited right, the number of shares subject to exercise
under the related option, and the number of tandem rights related thereto, shall
automatically be reduced by the number of shares and rights represented by the
limited right exercised.
10. Non-Transferability of Options and Rights
-----------------------------------------
Options, rights and limited rights granted under the 1998 Plan shall not be
transferable otherwise than by will or the laws of descent and distribution.
Options, rights and limited rights may be exercised during the lifetime of the
participant only by the participant or by the participant's guardian or legal
representative (unless such exercise would disqualify an option as an incentive
stock option).
11. Award and Delivery of Restricted Shares or Restricted Units
-----------------------------------------------------------
(a) At the time an award of restricted shares or restricted units is made,
the Board of Directors shall establish a period of time (the "Restricted
Period") applicable to such award. Each award of restricted shares or
restricted units may have a different Restricted Period. The Board of Directors
may, in its sole discretion, accelerate the Restricted Period or, at the time an
award is made, (i) prescribe conditions for the incremental lapse of
restrictions during the Restricted Period or (ii) provide for the lapse or
termination of restrictions upon the satisfaction of any condition or the
occurrence of any event prescribed by the Board of Directors in its sole
discretion. The Board of Directors may also, in its sole discretion, shorten or
terminate the Restricted Period or waive any conditions for the lapse or
termination of restrictions with respect to all or any portion of the restricted
shares or restricted units. Notwithstanding the foregoing, all restrictions
shall lapse or terminate with respect to all restricted shares or restricted
units upon death or total disability (as defined in paragraph 13).
(b) Upon the grant of an award of restricted shares, a stock certificate
representing a number of shares of Common Stock equal to the number of
restricted shares granted to a participant shall be registered in the
participant's name but shall be held in custody by the Company for the
participant's account. The participant shall generally have the rights and
privileges of a shareholder as to such restricted shares, including the right to
vote such restricted
6
<PAGE>
shares, except that, subject to the provisions of paragraph 12, the following
restrictions shall apply: (i) the participant shall not be entitled to delivery
of the certificate until the expiration or termination of the Restricted Period
and the satisfaction of any other conditions prescribed by the Board of
Directors; (ii) none of the restricted shares may be sold, transferred,
assigned, pledged, or otherwise encumbered or disposed of during the Restricted
Period and until the satisfaction of any other conditions prescribed by the
Board of Directors; and (iii) all of the restricted shares shall be forfeited
and all rights of the participant to such restricted shares shall terminate
without further obligation on the part of the Company unless the participant has
remained an employee of or, in the case of a non-employee participant, continues
to perform services for the Company or any of its subsidiaries until the
expiration or termination of the Restricted Period and the satisfaction of any
other conditions prescribed by the Board of Directors applicable to such
restricted shares. At the discretion of the Board of Directors, cash and stock
dividends with respect to the restricted shares may be either currently paid or
withheld by the Company for the participant's account, and interest may be paid
on the amount of cash dividends withheld at a rate and subject to such terms as
determined by the Board of Directors. Cash or stock dividends so withheld by
the Board of Directors shall not be subject to forfeiture. Upon the forfeiture
of any restricted shares, such forfeited restricted shares shall be transferred
to the Company without further action by the participant. The participant shall
have the same rights and privileges, and be subject to the same restrictions,
with respect to any shares received pursuant to paragraph 15.
(c) Upon the expiration or termination of the Restricted Period and the
satisfaction of any other conditions prescribed by the Board of Directors or at
such earlier time as provided for in paragraph 12, the restrictions applicable
to the restricted shares shall lapse and a stock certificate for the number of
shares of Common Stock with respect to which the restrictions have lapsed shall
be delivered, free of all such restrictions, except any that may be imposed by
law, to the participant or the participant's beneficiary or estate, as the case
may be. The Company shall not be required to deliver any fractional share of
Common Stock but will pay, in lieu thereof, the Fair Market Value (determined as
of the date the restrictions lapse or next preceding day on which sales are
traded) of such fractional share to the participant or the participant's
beneficiary or estate, as the case may be. No payment will be required from the
participant upon the issuance or delivery of any restricted shares, except that
any amount necessary to satisfy applicable federal, state or local tax
requirements shall be withheld or paid promptly upon notification of the amount
due and prior to or concurrently with the issuance or delivery of a certificate
representing such shares. The Board of Directors may permit such amount to be
paid in (i) shares of Common Stock previously owned by the participant, (ii) a
portion of the shares of Common Stock that otherwise would be distributed to
such participant upon the lapse of the restrictions applicable to the restricted
shares, or (iii) a combination of cash and shares of such Common Stock;
provided, however, that the Board of Directors shall have sole discretion to
- -----------------
consent to or disapprove of any such election (which consent or disapproval may
be given at any time after the election to which it relates).
(d) In the case of an award of restricted units, no shares of Common Stock
shall be issued at the time the award is made, and the Company shall not be
required to set aside a fund for the payment of any such awards. The
participant will have no rights as a shareholder of the Company with respect to
restricted units.
Upon the expiration or termination of the Restricted Period and the
satisfaction of any other conditions prescribed by the Board of Directors or at
such earlier time as provided for in paragraph 12, the Company shall deliver to
the participant or the participant's beneficiary or estate, as the case may be,
one share of Common Stock for each restricted unit with respect to which the
restrictions have lapsed ("vested unit"), and cash equal to any Dividend
Equivalents credited with respect to each such vested unit and any interest
thereon; provided, however, that the Board of Directors may, in its sole
-----------------
discretion, elect to pay cash or part cash and part Common Stock in lieu of
delivering only Common Stock for vested units. If a cash payment is made in
lieu of delivering Common Stock, the amount of such cash payment shall be equal
to the Fair Market Value for the date on which the Restricted Period lapsed with
respect to such vested unit, or if there are no sales on such date, on the next
preceding day on which there were sales. No payment will be required from the
participant upon the award of any restricted units, the crediting or payment of
any Dividend Equivalents, or the delivery of Common Stock or the payment of cash
in respect of vested units, except that any amount necessary to satisfy
applicable federal, state or local tax requirements shall be withheld or paid
promptly upon notification of the amount due. The Board of Directors may permit
such amount to be paid in (i) shares of Common Stock previously owned by the
participant, (ii) a portion of the shares of Common Stock that otherwise would
be distributed to such participant in respect of vested units, or (iii) a
combination of cash and shares of such Common Stock; provided, however, that the
-----------------
Board of Directors shall have
7
<PAGE>
sole discretion to consent to or disapprove of any such election (which consent
or disapproval may be given at any time after the election to which it relates).
(e) The restricted unit award agreement may permit a participant to
request that the payment of vested units (and Dividend Equivalents and the
interest thereon with respect to such vested units) be deferred beyond the
payment date specified in the agreement. The Board of Directors shall, in its
sole discretion, determine whether to permit such deferral and to specify the
terms and conditions, which are not inconsistent with the 1998 Plan, to be
contained in the agreement. In the event of such deferral, the Board of
Directors may determine that interest shall be credited annually on the Dividend
Equivalents, at a rate to be determined by the Board of Directors. The Board of
Directors may also determine to compound such interest.
12. Termination of Employment
-------------------------
(a) If the employment of an employee to whom an option, right or limited
right has been granted under the 1998 Plan shall be involuntarily terminated,
then except as set forth in paragraph 13, such option, right or limited right
may, subject to the provisions of the 1998 Plan, be exercised (to the extent
that the employee was entitled to do so at such involuntary termination of his
employment) at any time within three months after such involuntary termination,
provided, however, that any option, right or limited right held by an employee
- -----------------
whose employment is terminated for cause, as determined by the Board of
Directors in its sole discretion, shall forthwith terminate. If the employment
of an employee to whom an option, right or limited right has been granted under
the 1998 Plan shall terminate for any other reason, then, except as provided in
paragraph 13, such option, right or limited right will immediately terminate;
provided, however, that in the case of an employee whose termination results
from retirement from active employment at or after age 65, such options, rights
and limited rights may be exercised within one year after such termination, but
in no case later than the date on which the option, right or limited right
terminates.
(b) Unless otherwise determined by the Board of Directors, if an employee
to whom restricted shares or restricted units have been granted ceases to be an
employee of the Company or of a subsidiary prior to the end of the Restricted
Period and the satisfaction of any other conditions prescribed by the Board of
Directors for any reason other than death or total disability (as defined in
paragraph 13), the employee shall immediately forfeit all restricted shares and
restricted units as to which the Restricted Period has not then lapsed. If such
employee ceases employment with the Company due to such employee's death or
total disability (as defined in paragraph 13), then all restrictions relating to
the restricted shares or restricted units shall immediately terminate.
(c) Awards granted under the 1998 Plan shall not be affected by any change
of duties or position so long as the holder continues to be an employee of the
Company or any of its subsidiaries. Any option, right, limited right,
restricted share or restricted unit agreement, or any rules and regulations
relating to the 1998 Plan, may contain such provisions as the Board of Directors
shall approve with reference to the determination of the date employment
terminates and the effect of leaves of absence. Any such rules and regulations
with reference to any option agreement shall be consistent with the provisions
of the Code and any applicable rules and regulations thereunder. Nothing in the
1998 Plan or in any award granted pursuant to the 1998 Plan shall confer upon
any employee any right to continue in the employ of the Company or any of its
subsidiaries or interfere in any way with the right of the Company or any such
subsidiary to terminate such employment at any time.
(d) Notwithstanding anything else in the 1998 Plan to the contrary, if the
company employing an individual to whom an option, right, limited right,
restricted unit or restricted share has been granted under the 1998 Plan ceases
to be a subsidiary of the Company, then the Board of Directors may provide that
service with such employer or its direct or indirect subsidiaries in any
capacity shall be considered employment with the Company for purposes of the
1998 Plan.
13. Death or Total Disability of Employee
-------------------------------------
If an employee to whom an option, right or limited right has been granted
under the 1998 Plan shall die or suffer a "total disability" while employed by
the Company, one of its subsidiaries, such option, right or limited right
8
<PAGE>
may be exercised, to the extent that the employee was entitled to do so at the
termination of employment (including by reason of death or total disability), as
set forth herein or in option agreement (subject to the restrictions set forth
in paragraphs 8 and 9 with respect to persons subject to Section 16(b) of the
Exchange Act) by the employee, the legal guardian of the employee (unless such
exercise would disqualify an option as an incentive stock option), a legatee or
legatees of the employee under the employee's last will, or by the employee's
personal representatives or distributees, whichever is applicable, at any time
within one year after the date of the employee's death or total disability, but
in no case later than the date on which the option, right or limited right
terminates. For purposes hereof, "total disability" is defined as a condition
which permits the employee to receive full benefits under the Company's long
term disability plan. If employee is not eligible to participate in such plan
or no such plan is then maintained, "total disability" means any physical or
mental condition which renders the employee unable to perform his or her duties
to the satisfaction of the Board of Directors and which condition may be
expected to continue for more than six months in the opinion of a physician
selected by the Board of Directors.
14. Awards to Non-employees
-----------------------
Any non-employee of the Company who receives an award under the 1998 Plan
shall be subject to such constraints with respect to exercisability of awards
and forfeiture of awards as the Board of Directors, in its sole discretion, may
prescribe.
15. Adjustment upon Changes in Capitalization, etc.
----------------------------------------------
Notwithstanding any other provision of the 1998 Plan, the Board of
Directors may at any time make or provide for such adjustments to the 1998 Plan,
to the number and class of shares available thereunder or to any outstanding
options, rights, restricted shares or restricted units as it shall deem
appropriate to prevent dilution or enlargement of rights, including adjustments
in the event of distributions to holders of Common Stock other than a normal
cash dividend, changes in the outstanding Common Stock by reason of stock
dividends, split-ups, recapitalizations, mergers, consolidations, combinations
or exchanges of shares, separations, reorganizations, liquidations and the like.
In the event of any offer to holders of Common Stock generally relating to the
acquisition of their shares, the Board of Directors may make such adjustment as
it deems equitable in respect of outstanding options, rights, limited rights and
restricted units, including in the Board of Directors' discretion revision of
outstanding options, rights, limited rights and restricted units so that they
may be exercisable for or payable in the consideration payable in the
acquisition transaction. No adjustment shall be made in respect of an incentive
stock option if such adjustment would disqualify such option as an incentive
stock option under Section 422 of the Code and the Treasury Regulations
thereunder. No adjustment shall be made in the minimum number of shares with
respect to which an option may be exercised at any time. Any fractional shares
resulting from such adjustments to options, rights, limited rights or restricted
units shall be eliminated.
16. Effective Date
--------------
The 1998 Plan shall be effective as of the October 15, 1998 or such later
date on which the 1998 Plan is approved by the stockholders of the Company. The
Board of Directors may, in its discretion, grant awards under the 1998 Plan, the
grant, exercise or payment of which shall be expressly subject to the conditions
that, to the extent required at the time of grant, exercise or payment, (i) if
the Company deems it necessary or desirable, a Registration Statement under the
Securities Act of 1933 with respect to such shares shall be effective, (ii) to
the extent such awards provide for the delivery of shares of Common Stock of the
Company, such shares shall have been listed on the Nasdaq NMS, subject to notice
of issuance, and (iii) any requisite approval or consent of any governmental
authority of any kind having jurisdiction over awards granted under the 1998
Plan shall be obtained.
17. Termination and Amendment
-------------------------
9
<PAGE>
The Board of Directors of the Company may suspend, terminate, modify or
amend the 1998 Plan, provided that any amendment that would increase the
aggregate number of shares that may be issued under the 1998 Plan, materially
increase the benefits accruing to participants under the 1998 Plan, or
materially modify the requirements as to eligibility for participation in the
1998 Plan shall be subject to the approval of the Company's shareholders to the
extent required by Rule 16b-3, applicable law or any other governing rules or
regulations, except that any such increase or modification that may result from
adjustments authorized by paragraph 15 does not require such approval. If the
1998 Plan is terminated, the terms of the 1998 Plan shall, notwithstanding such
termination, continue to apply to awards granted prior to such termination. In
addition, no suspension, termination, modification or amendment of the 1998 Plan
may, without the consent of the participant to whom an award shall theretofore
have been granted, adversely affect the rights of such participant under such
award.
18. Written Agreements
------------------
Each award of options, rights, limited rights, restricted shares or
restricted units shall be evidenced by a written agreement, executed by the
participant and the Company, which shall contain such restrictions, terms and
conditions as the Board of Directors may require.
19. Effect on Other Stock Plans
---------------------------
The adoption of the 1998 Plan shall have no effect on awards made or to be
made pursuant to other stock plans covering employees or non-employees of the
Company, its subsidiaries, or any predecessors or successors thereto.
10
<PAGE>
ALLIN COMMUNICATIONS CORPORATION
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Dean C. Praskach and Carol A. Randol, or either of them, each with power of
substitution, are hereby authorized to vote all stock of Allin Communications
Corporation which the undersigned would be entitled to vote if personally
present at a Special Meeting of Stockholders of Allin Communications
Corporation to be held on Tuesday, December 29, 1998, and at any postponements
or adjournments thereof as follows:
1. Approval of the issuance of shares of Allin Communications Corporation
common stock upon conversion of outstanding shares of Allin Communications
Corporation Series B Redeemable Preferred Stock.
FOR [_] AGAINST [_] ABSTAIN [_]
A VOTE FOR IS RECOMMENDED BY THE BOARD OF DIRECTORS.
2. Approval of the issuance of shares of Allin Communications Corporation
common stock upon exercise of certain out- standing warrants.
FOR [_] AGAINST [_] ABSTAIN [_]
A VOTE FOR IS RECOMMENDED BY THE BOARD OF DIRECTORS.
3. Approval of the issuance of shares of Allin Communications Corporation
common stock upon conversion of an outstanding promissory note in the
principal amount of $2,000,000. FOR [_] AGAINST [_] ABSTAIN [_]
A VOTE FOR IS RECOMMENDED BY THE BOARD OF DIRECTORS.
4. Approval of an amendment to the Certificate of Incorporation of Allin
Communications Corporation to change the corporate name to Allin
Corporation. FOR [_] AGAINST [_] ABSTAIN [_]
A VOTE FOR IS RECOMMENDED BY THE BOARD OF DIRECTORS.
(Continued on other side)
<PAGE>
5. Approval of the 1998 Stock Plan of Allin Communications Corporation.
FOR [_] AGAINST [_] ABSTAIN [_]
A VOTE FOR IS RECOMMENDED BY THE BOARD OF DIRECTORS.
6. In their discretion, on such other business as may properly come before the
meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4 AND 5.
Please sign this proxy
exactly as your name appears
below. When shares are held
by joint tenants, both
should sign. When signing as
attorney, executor,
administrator, trustee or in
another representative
capacity, please give full
title as such. If a
corporation, please sign in
full corporate name by the
president or other
authorized officer. If a
partnership, please sign in
partnership name by an
authorized person.
Dated: ............... , 1998
.............................
(Signature)
.............................
(Signature, if held jointly)
PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
