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SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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 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:
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[Logo of Allin Corporation]
Allin Corporation
381 Mansfield Avenue
Suite 400
Pittsburgh, Pennsylvania 15220-2751
Notice of Special Meeting of Stockholders
To be held November 13, 2000
Dear Stockholders:
You are cordially invited to attend a special meeting of stockholders of
Allin Corporation (the "Company") that will be held on Monday, November 13,
2000, at 1:00 p.m. EDT, at 381 Mansfield Avenue, Suite 400, 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 Series G Convertible Redeemable Preferred Stock.
(2) To consider and vote upon a proposal to approve the issuance of warrants to
purchase shares of the Company's common stock to the purchasers of the
Company's Series G Convertible Redeemable Preferred Stock.
(3) To transact such other business as may properly come before the meeting and
any adjournments or postponements thereof.
The Board of Directors has established the close of business on October 2,
2000 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
October _____, 2000
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Allin Corporation
Proxy Statement
General Information
This proxy statement is provided to the stockholders of Allin 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 Monday, November 13, 2000, at 1:00 p.m., EDT, at 381
Mansfield Avenue, Suite 400, 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 381 Mansfield Avenue, Suite
400, Pittsburgh, Pennsylvania 15220-2751, and its telephone number is (412) 928-
8800. Proxy materials are first being mailed to stockholders beginning on or
about October 12, 2000.
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:
. a proposal to approve the issuance of shares of the Company's Series G
Convertible Redeemable Preferred Stock, par value $.01 per share (the
"Series G Preferred Stock"), and
. a proposal to approve the issuance of warrants to purchase shares of Common
Stock (the "Series G Warrants") to the purchasers of the Series G Preferred
Stock,
The holders of the Common Stock have no dissenter's or other rights of appraisal
in connection with the proposals to be voted upon at the Special Meeting.
Background of the Proposals
Management of the Company believes that it is in the Company's best
interests to raise funds at this time through the issuance of the Series G
Preferred Stock and the Series G Warrants to improve the Company's liquidity
position and to permit the Company to maintain the $4,000,000 level of net
tangible assets required for continued inclusion of the Common Stock in The
Nasdaq Stock Market's ("Nasdaq") National Market (the "National Market"). The
Company cannot incur any material amount of additional indebtedness or issue any
material amount of securities having mandatory redemption provisions as this
would cause the Company's net tangible assets to fall below the $4,000,000 level
required for continued designation of the Common Stock as a National Market
security. Losing the designation as a National Market security would reduce the
liquidity of the Common Stock and could limit the Company's ability to raise
equity capital.
The Company has had difficulty maintaining the Nasdaq net tangible asset
requirement for two main reasons. The first is that the Company is a services
business and as such does not
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maintain large amounts of fixed assets. Accordingly, the assets of the services
businesses that the Company has acquired have been comprised mostly of goodwill,
an intangible asset that does not count toward the net tangible asset
calculation. The second reason is that the Company has been in transition to a
solutions-oriented consulting model and continues to sustain net losses, which
reduce the Company's net tangible asset base.
On September 29, 2000 (the "Subscription Date"), the Company accepted
commitments from certain of its existing executive officers, directors and/or
stockholders to purchase shares of Series G Preferred Stock and related Series G
Warrants for $10,000 per share of Series G Preferred Stock, subject to the
Company's obtaining stockholder approval of the issuance of the Series G
Preferred Stock and the Series G Warrants. Richard W. Talarico, a director and
executive officer of the Company, agreed to purchase ten shares. William C.
Kavan, a director of the Company, agreed to purchase ten shares. Dean C.
Praskach, an executive officer of the Company, agreed to purchase two shares.
Henry Posner, Jr., Thomas D. Wright, Thomas D. Wright, Jr., Melissa Wright
Dailey and Steven B. Wright, stockholders of the Company, agreed to purchase 88
shares, ten shares, two shares, two shares and one share, respectively.
If stockholder approval is obtained, the Company expects to receive net
proceeds of approximately $1,200,000 from the issuance of the Series G Preferred
Stock and the Series G Warrants. The proceeds will be used to reduce outstanding
indebtedness under the Company's working capital line of credit. Any remainder,
along with the availability under the line of credit, will be used for general
working capital purposes.
Under the Nasdaq stockholder approval policy applicable to the Company,
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
potential issuance of shares of Common Stock underlying the Series G Preferred
Stock and the Series G Warrants would exceed 20% both of the voting power and
the number of shares of Common Stock outstanding prior to the issuance of such
securities. Therefore, the Company is now seeking stockholder approval of the
issuance of the Series G Preferred Stock and the Series G Warrants. The Company
will not issue any Series G Preferred Stock or any Series G Warrants that would
exceed Nasdaq's 20% thresholds unless and until both issuances are approved by
the holders of the Common Stock.
Each of the subscribers for Series G Preferred Stock and Series G Warrants
named above has indicated an intention to vote the shares of Common Stock he or
she holds in favor of each of the proposals to be voted on by the stockholders
at the Special Meeting. These persons collectively own or control the voting of
1,639,415 shares of outstanding Common Stock, or approximately 23.6% of the
Common Stock outstanding on October 2, 2000, 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 of the Special Meeting.
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Number of Shares of Common Stock Involved
Assuming no change in the capitalization of the Company, the following
table sets forth information concerning the aggregate maximum number of shares
of Common Stock that may be issued upon conversion of the Series G Preferred
Stock and upon exercise of the Series G Warrants. Percentages in the table are
based on the 6,953,114 shares of Common Stock outstanding on October 2, 2000.
Percentage of
Maximum Class Without
Number of Shares Regard to
That May be Issued Other Issuances
------------------ ---------------
Before After
Issuance Issuance
-------- --------
Series G Preferred Stock 3,571,424 shares 51.4% 33.9%
Series G Warrants 714,281 shares 10.3% 9.3%
Total 4,285,705 shares 61.6% 38.1%
The value of any shares of Common Stock actually issued will depend on the
market value of the shares on the date of issuance.
The actual number of shares of Common Stock that may be acquired upon
conversion of the Series G Preferred Stock cannot be determined at this time as
the applicable conversion price may vary depending on the market price of the
Common Stock on various dates and because of the antidilution provisions of the
Series G Preferred Stock. Details regarding these conversion prices and
antidilution provisions are set forth under Proposal 1. Similarly, the actual
number of shares of Common Stock that may be acquired upon exercise of the
Series G Warrants cannot be determined at this time because of the antidilution
provisions of the Series G Warrants. Details regarding these antidilution
provisions are set forth under Proposal 2.
Any shares of Common Stock issued upon conversion of the Series G Preferred
Stock or upon exercise of the Series G Warrants will have the same rights and
privileges as 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.
Advantages and Disadvantages of Approval of the Proposals
The issuance of the Series G Preferred Stock and the Series G Warrants
would enable the Company to raise estimated net proceeds of $1,200,000 for the
repayment of indebtedness and general working capital purposes without incurring
additional indebtedness. Failure to approve these issuances could result in a
lack of available funds to pursue future business opportunities and a
determination by Nasdaq to revoke the Common Stock's designation as a National
Market security. Such results would adversely affect the Company's liquidity
position and its business strategies and would reduce the liquidity of the
Common Stock and could limit the Company's ability to raise equity capital. As
of June 30, 2000, the Company had net tangible assets of
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approximately $4,267,000. Net tangible assets of $4,000,000 are required for
continued designation of the Common Stock as a National Market Security.
Issuance of the Series G Preferred Stock will, however, immediately dilute
the voting power of the current holders of the Common Stock as the holders of
the Series G Preferred Stock will be entitled to vote such shares together with
the holders of Common Stock as a single class on all matters submitted for a
vote of the holders of Common Stock that do not require a separate class vote of
the holders of Common Stock. The actual percentage of the overall vote
attributable to the holders of the Series G Preferred Stock will be based on the
relationship of the aggregate $1,250,000 purchase price for the Series G
Preferred Stock to the greater of the book value or market value of the Company
on the date of issuance of the Series G Preferred Stock. Approval of the
issuances of the Series G Preferred Stock and the Series G Warrants could also
significantly dilute the ownership position of the current holders of Common
Stock as demonstrated in the table above under the heading "Number of Shares of
Common Stock Involved" as the Series G Preferred Stock would be convertible into
Common Stock and the Series G Warrants would be exercisable for Common Stock.
Any issuance of Common Stock upon such conversion or upon such exercise or the
potential for such issuances of Common Stock 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. Approval of each proposal could also have the effect of discouraging
unsolicited takeover attempts; however, the proposals are not part of a plan by
management to adopt a series of anti-takeover measures. The possible anti-
takeover effects of each proposal are discussed more fully below under the
discussion of each proposal.
Currently, the Company's Certificate of Incorporation and By-Laws contain
certain provisions that may be deemed to have anti-takeover effects, such as
discouraging a future hostile takeover attempt which is not approved by the
Board of Directors, but which individual stockholders may consider to be in
their best interests. For example, the Company's Certificate of Incorporation
currently provides that the number of directors will be fixed from time to time
with the consent of the Board of Directors and that directors may only be
removed with cause by the affirmative vote of the holders of at least a majority
of the outstanding shares of capital stock of the Company then entitled to vote
at an election of directors. Consequently, stockholders cannot remove an
incumbent director without cause, and a two-thirds majority of the incumbent
directors can fill any vacancies on the Board, not already filled by the
stockholders, without approval of stockholders until the next annual meeting of
stockholders at which directors are elected. The Company's By-Laws include a
provision requiring advance notice by a stockholder of a proposal or director
nomination that such stockholder desires to present at any annual meeting of
stockholders, thereby preventing a stockholder from making a proposal or
director nomination without giving the Company the requisite advance notice.
This provision could make a change in control more difficult by providing the
directors of the Company with more time to prepare an opposition to a proposed
change in control. The Company's By-Laws also contain a provision requiring the
action of the holders of two-thirds of the outstanding shares entitled to vote
in order to call a special meeting of the stockholders. This provision would
prevent a stockholder with less than a two-thirds interest from calling a
special meeting to consider a merger or other transaction unless the stockholder
had first obtained adequate support from a sufficient number of other
stockholders.
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The Company's Certificate of Incorporation currently authorizes the Board
of Directors, without further action of the stockholders, to issue up to 24,250
additional shares of preferred stock in one or more classes or series and to fix
the designations, powers, preferences and the relative participating, optional
and other rights of the shares of each series and any qualifications,
limitations and restrictions thereon. In the event of a takeover attempt, the
Board of Directors could use this provision to dilute the stock ownership of a
person or entity seeking to obtain control of the Company if the Board of
Directors considered such a takeover to be against the best interests of the
stockholders and the Company. At the present time, the Board of Directors has
reserved 125 shares of the remaining available preferred stock for issuance as
the Series G Preferred Stock. The Board of Directors is seeking stockholder
approval of the issuance of the Series G Preferred Stock because of Nasdaq's
stockholder approval policy discussed above.
Shares Outstanding, Voting Rights and Vote Required
Only stockholders of record at the close of business on October 2, 2000 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 6,953,114 shares were outstanding as of the close of business on October
2, 2000. 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 each of the issuance of the
Series G Preferred Stock and the issuance of the Series G Warrants. If a quorum
is present, non-votes will have no effect on the voting for the approval of
these issuances; however, 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 the Series G
Preferred Stock and FOR the proposal to approve the issuance of the Series G
Warrants.
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 the Series G Preferred Stock, for the proposal to approve the
issuance of the Series G Warrants and, on other matters presented for a
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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.
PROPOSAL 1
Approval of the Issuance of Shares of Series G Preferred Stock
If stockholder approval is obtained, the Company intends to issue 125
shares of Series G Preferred Stock having a liquidation value of $10,000 per
share. The holders of Series G Preferred Stock will be entitled to receive, when
and as declared by the Company's Board of Directors, cumulative quarterly cash
dividends on each share at the rate of eight percent of the liquidation value
thereof per annum, from and including the date of issuance (the "Issue Date") to
and including the earlier of the date of payment in redemption, the date of
conversion into Common Stock or the fifth anniversary of the Issue Date. The
dividend rate on each share will increase to 12% of the liquidation value
thereof from and after the fifth anniversary of the Issue Date to and including
the earlier of the date of payment in redemption or the date of conversion into
Common Stock. Such dividends, to the extent declared by the Board of Directors,
will be payable quarterly in arrears. There will be no mandatory redemption date
for the Series G Preferred Stock, although the Company may redeem shares of
Series G Preferred Stock after the fifth anniversary of the Issue Date. The
redemption price for each share of Series G Preferred Stock will be the
liquidation value of such share, plus an amount that would result in an
aggregate 25% compounded annual return on such liquidation value to the date of
redemption after giving effect to all dividends paid on such share through the
date of redemption. Except as may be provided by applicable law or regulations
or the terms of any future series of preferred stock of the Company, there will
be no other restrictions on the repurchase or redemption by the Company of
shares of the Series G Preferred Stock. There will be no sinking fund provisions
applicable to the Series G Preferred Stock.
The Series G Preferred Stock will be senior in right of payment and on
liquidation to the Common Stock and the Company's other series of outstanding
preferred stock, subject to the consent of the holder of the Company's Series F
Convertible Redeemable Preferred Stock (the "Series F Preferred Stock"). If such
holder does not consent, the Series G Preferred Stock will rank equal with, or
junior to, the Series F Preferred Stock. The Company will not be able to declare
or pay cash dividends on, make any other distribution on, redeem, purchase or
otherwise acquire for value, any of such junior securities unless all dividends
on the Series G Preferred Stock are paid and current or have been declared and a
sum sufficient for the payment thereof has been set aside by the Company. The
liquidation preference of the Series G Preferred Stock will be $10,000 per share
plus accrued and unpaid dividends, if any.
The holders of Series G Preferred Stock will be entitled to vote with the
holders of Common Stock together as a single class on all matters submitted for
a vote of the holders of Common Stock that do not require a separate class vote
of the holders of Common Stock under the Company's Certificate of Incorporation
or applicable law, regulations or Nasdaq rules. In such event, the actual
percentage of the overall vote attributable to the holders of the Series G
Preferred Stock will be based on the relationship of the aggregate $1,250,000
purchase price for the Series G Preferred Stock to the greater of the book value
or market value of the Company on the Issue Date. Thus, assuming no change in
the number of outstanding shares of Common Stock, if the greater of the book
value or market value of the Company on the Issue Date is $16,726,000 (the
actual book value of the Company as of June 30, 2000), the holders of the Series
G Preferred Stock will be entitled to 6.954% of the total vote, which would
translate into
6
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519,625 votes (4,157 votes per share) when allocated among the holders of the
Series G Preferred Stock. In the event that the number of shares of outstanding
Common Stock is changed by any stock dividend, stock split or combination of
shares at any time shares of Series G Preferred Stock are outstanding, the
number of votes per outstanding share of Series G Preferred Stock will be
proportionately adjusted. Any such adjustment will not result in an increase in
the percentage vote of the holders of the outstanding Series G Preferred Stock.
In addition, the consent of the holders of at least a majority of the
outstanding shares of Series G Preferred Stock, voting as a class, will be
required for any amendment to the Company's Certificate of Incorporation or the
Certificate of Designation relating to the Series G Preferred Stock and with
respect to any other actions, if such amendment or action would adversely affect
the rights and preferences of the Series G Preferred Stock set forth in the
Certificate of Designation relating to the Series G Preferred Stock. In
addition, holders of the Series G Preferred Stock will have any voting rights
afforded by Delaware law.
Upon issuance of the Series G Preferred Stock, each holder of the Series G
Preferred Stock will have the right to convert all or a portion of his shares of
Series G Preferred Stock into Common Stock at any time and from time to time
prior to the redemption date. The conversion prices will be as follows:
. Until and including the first anniversary of the Issue Date, each share of
Series G Preferred Stock held by each holder may be converted into the
number of shares of Common Stock determined by dividing 10,000 by the
lesser of (i) $1.75, (ii) 85% of the average closing price of the Common
Stock as reported by Nasdaq over the last five trading days prior to the
Issue Date or (iii) 85% of the average closing price of the Common Stock as
reported by Nasdaq over the last five trading days prior to the date of the
conversion.
. After the first anniversary of the Issue Date, each share of Series G
Preferred Stock held by each holder may be converted into the number of
shares of Common Stock determined by dividing 10,000 by the lesser of (i)
$1.75, (ii) 85% of the average closing price of the Common Stock as
reported by Nasdaq over the last five trading days prior to the Issue Date
or (iii) 85% of the average closing price of the Common Stock as reported
by Nasdaq over the last five trading days prior to the first anniversary of
the Issue Date.
In any event, the minimum conversion price will be $.35.
Holders of the Series G Preferred Stock who exercise the foregoing
conversion right will have the right to receive any accrued and unpaid dividends
through the date of conversion. No fractional shares of Common Stock will 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 G Preferred Stock which
are not converted to Common Stock will remain outstanding until so converted or
until redeemed. None of the subscribers for Series G Preferred Stock have
advised the Company regarding their intent to convert the shares of Series G
Preferred Stock that they will receive if Proposals 1 and 2 are approved.
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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 Series G
Preferred Stock is 3,571,424 shares, which shares would represent approximately
51.4% of the shares of Common Stock outstanding prior to the issuance and
approximately 33.9% of the shares of Common Stock outstanding following the
issuance. The value of any shares of Common Stock actually issued, if any, will
depend on the market value of the shares on the date of issuance.
If the Company does issue shares of Common Stock upon conversion of the
Series G Preferred Stock, the holders of such shares will have certain rights to
require the Company to register such shares for resale under the Securities Act
of 1933, as amended (the "Securities Act").
Following issuance of the Series G Preferred Stock, in the event that the
number of shares of outstanding Common Stock is changed by any stock dividend,
stock split or combination of shares at any time shares of Series G Preferred
Stock are outstanding, the number of shares of Common Stock that may be acquired
upon conversion of such outstanding Series G Preferred Stock will be
proportionately adjusted. The conversion prices for the Series G Preferred Stock
will be adjusted on a weighted average basis in the event of a dilutive issuance
involving any sale of equity stock or stock equivalents of the Company at a
price below the greater of the conversion price of the Series G Preferred Stock
then in effect or 85% of the market value of the Common Stock. A "dilutive
issuance," however, will not include any: (i) grants of options under any
Company stock option plan that has been approved by the Company's Board of
Directors or any issuance of Common Stock as a result of the exercise of such
options, provided that the exercise price of any such option is not less than
the fair market value of the Common Stock on the date of the grant; (ii)
issuance of Common Stock upon the conversion of any shares of preferred stock of
the Company outstanding on the Subscription Date or upon the conversion of any
other convertible debt or other convertible securities of the Company
outstanding on the Subscription Date; (iii) issuance of Common Stock upon the
exercise of warrants outstanding on the Subscription Date and of the Series G
Warrants; (iv) issuance of Common Stock upon conversion of shares of Series G
Preferred Stock; (v) issuance of Common Stock in connection with the acquisition
by the Company of another business, or the stock or assets of another company
(including shares of Common Stock that may be issued to pay any earn-out
payments in connection with the acquisition); or (vi) firm commitment
underwritten public offering of the Common Stock that results in gross proceeds
to the Company of not less than $10,000,000.
The discounted conversion feature of the Series G Preferred Stock will
represent a dividend to the holders of Series G Preferred Stock. If the
stockholders approve this Proposal 1 and Proposal 2, when the Series G Preferred
Stock is issued, the Company will record a dividend reflecting the discount to
market represented by the then lowest available conversion price. Assuming that
the market price of the Common Stock on the Issue Date is $2.00 and that the
average closing price of the Common Stock over the five trading days prior to
issuance is also $2.00 thereby yielding a $1.70 conversion price, a dividend of
$220,558 will be recorded based on the 15% discount to market represented by the
$1.70 conversion price.
Until the first anniversary of the Issue Date, if the Company proposes to
sell any shares of its capital stock or any options or similar rights to acquire
shares of its capital stock or
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securities convertible into or exchangeable for its capital stock, the Company
must first offer each holder of Series G 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 G Preferred Stock held by the
holder, for the same price and on the same economic terms as the securities are
being offered in such transaction. The pro rata preemptive rights will not apply
to the following issuances or proposed issuances of securities by the Company:
(i) grants of options under any Company stock option plan that has been approved
by the Company's Board of Directors or any issuance of capital stock as a result
of the exercise of such options, provided that the exercise price of any such
option is not less than the fair market value of the capital stock on the date
of the grant; (ii) issuance of capital stock upon the conversion of any shares
of preferred stock of the Company outstanding on the Issue Date, including the
Series G Preferred Stock, or upon the conversion of any other convertible debt
or other convertible securities of the Company outstanding on the Issue Date;
(iii) issuance of capital stock upon the exercise of warrants outstanding on the
Issue Date, including the Series G Warrants; (iv) issuance of capital stock in
connection with the acquisition by the Company of another business, or the stock
or assets of another company (including shares of capital stock that may be
issued to pay any earn-out payments in connection with the acquisition); (v) a
firm commitment underwritten public offering of capital stock that is reasonably
expected to result in gross proceeds to the Company of not less than
$10,000,000; (vi) the issuance of capital stock pursuant to the declaration or
payment of any dividend on the capital stock payable in shares of capital stock;
(vii) the issuance of shares of capital stock upon exercise, exchange or
conversion of options or rights to acquire capital stock or any securities
convertible or exchangeable for capital stock; or (viii) securities offered 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 purpose of this proposal to approve the issuance of Series G Preferred
Stock is to increase the Company's liquidity position and ensure compliance with
the net tangible asset level required for continued designation of the Common
Stock as a National Market security. The Securities and Exchange Commission (the
"SEC"), however, requires the Company to discuss how the issuance of the Series
G Preferred Stock may be used to make it more difficult to effect a change in
control of the Company. The issuance of the Series G Preferred Stock to certain
of the Company's present executive officers, directors and stockholders may,
under some circumstances, render more difficult or discourage a merger, tender
offer, or proxy contest, the assumption of control by a holder of a large block
of the Company's securities, or the removal of incumbent management, even if
such action were favored by the holders of the requisite number of the then
outstanding shares. Thus, the proposal, if adopted, may benefit management in a
hostile takeover attempt and have an adverse impact on stockholders who might
want to participate in such a transaction. The proposal to approve the issuance
of the Series G Preferred Stock is not in response to any effort of which the
Company is aware to accumulate shares of Common Stock or to obtain control of
the Company.
The Company will not issue the Series G Preferred Stock unless this
Proposal 1 and Proposal 2 (Issuance of the Series G Warrants) are approved by
the stockholders. This, however, will not limit the Company's ability to issue
convertible preferred stock without stockholder approval if applicable law,
regulations or Nasdaq rules do not require stockholder approval of
9
<PAGE>
such issuance and a sufficient number of shares of preferred stock and Common
Stock are then authorized for issuance.
The affirmative vote of a majority of the shares represented and voting on
the proposal is required to approve the issuance of shares of Series G Preferred
Stock. The Board of Directors believes that approval of the issuance of shares
of Series G Preferred Stock is in the best interests of the Company and its
stockholders. The issuance of the Series G Preferred Stock in tandem with the
Series G Warrants would enable the Company to raise net proceeds of
approximately $1,200,000 for the repayment of indebtedness and general working
capital purposes without incurring additional indebtedness. The infusion of
equity capital would permit the Company to pursue future business opportunities
and to maintain for the foreseeable future net tangible assets sufficient to
meet Nasdaq National Market standards.
The Board of Directors of the Company Recommends a Vote FOR the Proposal
to Approve the Issuance of Shares of Series G Preferred Stock
PROPOSAL 2
Approval of the Issuance of the Series G Warrants
If stockholder approval is obtained, the Company intends to issue to the
purchasers of the Series G Preferred Stock, Series G Warrants to purchase an
aggregate of 714,281 shares of Common Stock, which is the aggregate number of
whole shares of Common Stock equal to the product of the number of shares of
Series G Preferred Stock to be purchased by each subscriber multiplied by
10,000, divided by $1.75. The per share exercise price under the Series G
Warrants will be $1.75. Payment of the exercise price may be made in cash or by
delivery to the Company of shares of Series C Redeemable Preferred Stock of the
Company (the "Series C Preferred Stock") and/or Series D Convertible Redeemable
Preferred Stock of the Company (the "Series D Preferred Stock") 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
Series G Warrants will expire on the fifth anniversary of the date of issuance
of the Series G Warrants. None of the subscribers for the Series G Warrants have
advised the Company regarding their intent to exercise the Series G Warrants
that they will receive if Proposals 1 and 2 are approved.
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 Series G
Warrants is 714,281 shares, which shares would represent approximately 10.3% of
the Common Stock outstanding prior to the issuance and approximately 9.3% 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.
If the Company does issue any shares of Common Stock upon exercise of the
Series G Warrants, the holders of such shares will have certain rights to
require the Company to register such shares for resale under the Securities Act.
10
<PAGE>
Following issuance of the Series G Warrants, in the event that the number
of shares of outstanding Common Stock is changed by any stock dividend, stock
split or combination of shares at any time the Series G Warrants are
outstanding, the number of shares of Common Stock that may be acquired upon
exercise of such outstanding Series G Warrants and the exercise price of such
outstanding Series G Warrants will be proportionately adjusted. The number of
shares of Common Stock for which the Series G Warrants may be exercised and the
exercise price of the Series G Warrants will be adjusted on a weighted average
basis in the event of a dilutive issuance involving any sale of equity stock or
stock equivalents of the Company at a price below the greater of the exercise
price of the Series G Warrants or 85% of the market value of the Common Stock. A
"dilutive issuance," however, will not include any: (i) grants of options under
any Company stock option plan that has been approved by the Company's Board of
Directors or any issuance of Common Stock as a result of the exercise of such
options, provided that the exercise price of any such option is not less than
the fair market value of the Common Stock on the date of the grant; (ii)
issuance of Common Stock upon the conversion of any shares of preferred stock of
the Company outstanding on the Subscription Date or upon the conversion of any
other convertible debt or other convertible securities of the Company
outstanding on the Subscription Date; (iii) issuance of Common Stock upon the
exercise of warrants outstanding on the Subscription Date and of the Series G
Warrants; (iv) issuance of Common Stock upon conversion of shares of Series G
Preferred Stock; (v) issuance of Common Stock in connection with the acquisition
by the Company of another business, or the stock or assets of another company
(including shares of Common Stock that may be issued to pay any earn-out
payments in connection with the acquisition); or (vi) firm commitment
underwritten public offering of the Common Stock that results in gross proceeds
to the Company of not less than $10,000,000.
In addition, upon the occurrence of certain events, the holders of the
Series G Warrants will have rights to purchase or receive shares of Common Stock
or other exchange as if they had previously exercised the Series G Warrants. For
instance, in the event of a capital reorganization, consolidation or merger or
the sale of all or substantially all of the Company's assets, the holders of the
Series G Warrants will have the right to exercise the Series G Warrants and to
receive the same kind and amount of securities, cash or property that they would
have received if they had exercised the Series G Warrants immediately prior to
such event. In the event of a reorganization or reclassification resulting in a
change in the number or classes of shares of Common Stock issuable upon the
exercise of the Series G Warrants, the holders of the Series G Warrants will
have the right to purchase the kind and amount of shares and other exchange that
they could have purchased if they had exercised the Series G Warrants
immediately prior to such reorganization or reclassification. Moreover, if the
Company makes a dividend or distribution of the Company's securities other than
Common Stock or securities convertible into Common Stock, the holders of the
Series G Warrants will have the right to exercise the Series G Warrants and to
receive the amount of such securities that they would have received had they
exercised the Series G Warrants on the date of such distribution. Similarly, if
the Company dissolves, liquidates or winds up its affairs, the holders of the
Series G Warrants can exercise the Series G Warrants and receive the same kind
and amount of securities or assets as they would have received had they
exercised the Series G Warrants prior to the record date for determining those
stockholders entitled to receive such distribution.
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<PAGE>
The Company will not issue the Series G Warrants unless this Proposal 2 and
Proposal 1 (Issuance of the Series G Preferred Stock) are approved by the
stockholders. This, however, will not limit the Company's ability to issue
warrants to purchase shares of Common Stock without stockholder approval if
applicable law, regulations or Nasdaq rules do not require stockholder approval
of such issuance and a sufficient number of shares of Common Stock are then
authorized for issuance.
The purpose of this proposal to approve the issuance of the Series G
Warrants, like the proposal to issue the Series G Preferred Stock, is to
increase the Company's liquidity position and its net tangible assets. Similar
to the issuance of the Series G Preferred Stock, the issuance of the Series G
Warrants may, under some circumstances, render more difficult or discourage a
merger, tender offer, or proxy contest, the assumption of control by a holder of
a large block of the Company's securities, or the removal of incumbent
management, even if such action were favored by the holders of the requisite
number of the then outstanding shares. The proposal to issue the Series G
Warrants is not in response to any effort of which the Company is aware to
accumulate shares of Common Stock or to obtain control of the Company.
The affirmative vote of a majority of the shares represented and voting on
the proposal is required to approve the issuance of the Series G Warrants. The
Board of Directors believes that approval of the issuance of the Series G
Warrants is in the best interests of the Company and its stockholders. The
issuance of the Series G Warrants in tandem with the Series G Preferred Stock
would enable the Company to raise net proceeds of approximately $1,200,000 for
the repayment of indebtedness and general working capital purposes without
incurring additional indebtedness. The infusion of equity capital would permit
the Company to pursue future business opportunities and to maintain for the
foreseeable future net tangible assets sufficient to meet Nasdaq National Market
standards.
The Board of Directors of the Company Recommends a Vote FOR the Proposal
to Approve the Issuance of the Series G Warrants
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning 1997, 1998 and 1999
compensation of the Chief Executive Officer and the other executive officers of
the Company (collectively the "Named Executives"). Information with respect to
1997 and 1998 compensation is not given for Mr. O'Shea as he did not join the
Company and begin service as an executive officer of the Company until 1999.
12
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Securities Underlying
Name and Principal Position Year Salary ($) Options(#)
--------------------------- ---- ---------- ----------
<S> <C> <C> <C>
Richard W. Talarico 1999 $175,000 60,000
Chief Executive Officer 1998 $164,583 100,000
1997 $150,000 ---
Timothy P. O'Shea 1999 $140,385 60,000
President
Dean C. Praskach 1999 $127,500 28,750
Chief Financial Officer, 1998 $102,917 23,500
Treasurer and Secretary 1997 91,217 9,500
</TABLE>
Employment Agreements
During 1998, the Company entered into a new 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, subject to annual merit increases. In the event that the Company
achieves certain performance criteria, the annual base salary is to be increased
to $225,000. The Company has met the performance criteria, but Mr. Talarico has
to date declined any change in annual base salary. Mr. Talarico is eligible to
receive a discretionary bonus with any annual bonus program in respect of 2000
operations to be established by the Compensation Committee and approved by the
Board of Directors. Any bonus awarded shall not exceed one and one-half times
Mr. Talarico's annual base salary for 2000.
The employment agreement contains restrictive covenants prohibiting Mr.
Talarico from competing with the Company or soliciting the Company's employees
or customers for another business during the term of the agreement and for a
period of two years after termination or the end of the employment term.
The employment agreement provides for option grants to purchase 100,000
shares of Common Stock upon signing of the agreement and option grants to
purchase an additional 100,000 shares of the Common Stock on each of January 1,
1999 and January 1, 2000, if shares are then available under the Company's stock
plans. In June 1998, Mr. Talarico was granted options to purchase 100,000 shares
of Common Stock in accordance with the terms of the employment agreement. The
exercise price of $4.50 per share was based on the market price of the Common
Stock on the date of the grant. In March 1999, January 2000 and August 2000, Mr.
Talarico was granted options to purchase 60,000 shares, 15,000 shares and 10,000
shares, respectively, of Common Stock. The exercise prices of $3.25 per share
for the March 1999 grant, $4.50 per share for the January 2000 grant and $1.91
per share for the August 2000 grant were based on the market prices of the
Common Stock on the dates of the grants. The Company's management determined
that awards in excess of 60,000 shares in March 1999, 15,000 shares in January
2000 and 10,000 shares in August 2000 would not allow an adequate number of
available shares for planned option awards to the Company's senior managers and
other employees.
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<PAGE>
Options to acquire shares of Common Stock granted to Mr. Talarico pursuant
to the agreement under the Company's stock plans will vest on the earlier to
occur of May 15, 2001 or, if earlier, on the date of termination without cause
or 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 as of June 1, 1998, owns 50% or more of the outstanding Common Stock.
The employment agreement also provides that Mr. Talarico will be entitled to
receive following termination of employment by the Company without cause or
contemporaneously with or within ninety days prior to the occurrence of a change
in control of the Company, semi-monthly severance payments equal to the semi-
monthly base salary payment which he was receiving immediately prior to such
termination until the later of the first anniversary of the termination or May
15, 2001.
The Company entered into an employment agreement with Mr. O'Shea, the term
of which commenced January 25, 1999 and will continue through December 31, 2001.
Mr. O'Shea's current annual salary is $150,000. The employment agreement permits
annual adjustments to salary. Mr. O'Shea is also eligible to receive a
discretionary bonus for any annual period subject to approval by the Board of
Directors.
The employment agreement contains restrictive covenants prohibiting Mr.
O'Shea from competing with the Company during the term of the agreement or
soliciting the Company's employees or customers for another business during the
term of the agreement and for a period of one year after termination or the end
of the employment term.
The employment agreement provides for option grants to purchase 60,000
shares of the Company's Common Stock at the commencement of the agreement. In
March 1999, Mr. O'Shea was granted options to purchase 60,000 shares of Common
Stock in accordance with the terms of the employment agreement. The exercise
price of $3.25 per share was based on the market price of the Common Stock on
the date of the grant. Mr. O'Shea is also eligible to receive additional stock
options as may be awarded from time to time by the Company's Board of Directors.
In January 2000 and August 2000, Mr. O'Shea was granted options to purchase
15,000 shares and 10,000 shares, respectively, of Common Stock. The exercise
prices of $4.50 per share for the January 2000 grant and $1.91 per share for the
August 2000 grant were based on the market prices of the Common Stock on the
dates of the grants. Options granted to date to Mr. O'Shea will vest, except as
noted below, at a rate of 20% of each award on each of the first five
anniversary dates of any award.
Pursuant to the employment agreement, options to acquire shares of Common
Stock granted to Mr. O'Shea 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 as of January 14, 1999, owns 40% or more of the outstanding Common
Stock.
14
<PAGE>
The Company entered into a new employment agreement with Mr. Praskach, the
term of which commenced June 23, 2000 and will continue through June 23, 2005.
Mr. Praskach's current annual salary is $140,000. The employment agreement
permits annual merit increases to salary. Mr. Praskach is also eligible to
receive a discretionary bonus for any annual period subject to approval by the
Board of Directors.
The employment agreement contains restrictive covenants prohibiting Mr.
Praskach from competing with the Company or soliciting the Company's employees
or customers for another business during the term of the agreement and for a
period of eighteen months after termination or the end of the employment term.
Mr. Praskach is eligible to receive stock options as may be awarded from
time to time and under terms similar to options awarded to other employees under
the Company's stock plans. The employment agreement with Mr. Praskach does not,
however, specify any minimum number of options to be awarded during the term of
the agreement. Options granted to date to Mr. Praskach will vest, except as
noted below, at a rate of 20% of each award on each of the first five
anniversary dates of any award.
Pursuant to the employment agreement, the options to acquire shares of
Common Stock granted to Mr. Praskach under the Company's stock plans 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 as of June 23, 2000, owns 40% or more
of the outstanding Common Stock. The employment agreement also provides that Mr.
Praskach will be entitled to receive for up to one year following termination of
employment by the Company without cause or in conjunction with, or within one
year of, the occurrence of a change in control of the Company, semi-monthly
severance payments equal to the semi-monthly base salary payment which he was
receiving immediately prior to such termination until the earlier of the first
anniversary of the termination or the date on which Mr. Praskach obtains other
full-time employment. If the termination is in conjunction with, or within one
year, of a change in control of the Company, Mr. Praskach will also be entitled
to receive a bonus in the amount of his annual base salary in effect at the time
of termination.
Stock Plans
In October 1996, the Board of Directors adopted the 1996 Stock Plan, and in
April 1997 the Board of Directors adopted the 1997 Stock Plan which was approved
by the Company's stockholders in May 1997. The Board of Directors subsequently
approved re-issuance of forfeited option grants and restricted shares under the
1996 and 1997 Plans. In September 1998, the Board of Directors adopted the 1998
Stock Plan, which was approved by the Company's stockholders in December 1998.
The Board of Directors subsequently approved reissuance of forfeited shares
under the 1998 Plan. In February 2000, the Board of Directors adopted the 2000
Stock Plan, which was approved by the Company's stockholders in May 2000. All of
the 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. The plans are
15
<PAGE>
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). The Compensation Committee is responsible for making recommendations to
the Board of Directors concerning executive compensation, including the award of
stock options.
The number of shares that may be awarded under the Company's 1996, 1997,
1998 and 2000 Stock Plans are 266,000, 300,000, 375,000 and 295,000,
respectively. At December 31, 1999, 72,699, 10,790 and 71,242 shares remained
available for future grants under the 1996, 1997 and 1998 Plans, respectively.
Option Grants in Last Fiscal Year
The following table provides information concerning stock options granted
to the Named Executives during 1999.
<TABLE>
<CAPTION>
Individual Grants Grant Date Value
----------------- -----------------
Number of % of Total
Securities Options Exercise
Underlying Granted to or Base
Options Employees in Price Grant Date
Name Granted Fiscal Year ($/sh) Expiration Date Present Value $ (1)
---- ------- ----------- ------ --------------- -------------------
<S> <C> <C> <C> <C> <C>
Richard W. Talarico 60,000 (2) 15.6% $3.25 3/1/06 $123,600
Timothy P. O'Shea 60,000 (3) 15.6% $3.25 3/1/06 $123,600
Dean C. Praskach 18,750 (4) 4.9% $3.25 3/1/06 $ 38,625
10,000 (4) 2.6% $4.81 11/11/06 $ 30,600
</TABLE>
(1) The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions for 1999
grants to Named Executives.
Risk-free interest rate:
Options granted to Richard W. Talarico 5.5%
Options granted to Timothy P. O'Shea 5.5%
Options granted to Dean C. Praskach (18,750) 5.5%
Options granted to Dean C. Praskach (10,000) 6.1%
Expected dividend yield 0.0%
Expected life of options 7 yrs.
Expected volatility rate 57.0%
No adjustments were made for non-transferability or risk of forfeiture.
(2) These options to acquire shares of Common Stock granted to Mr. Talarico will
vest on the earlier to occur of May 15, 2001 or on the date of termination
of Mr. Talarico's employment without cause or 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,
16
<PAGE>
other than the stockholders of the Company as of June 1, 1998, owns 50% or
more of the outstanding Common Stock.
(3) These options granted to Mr. O'Shea will vest at a rate of 20% on each of
the first five anniversary dates of the award, or earlier if not already
vested, 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 as of January 14, 1999, owns 40% or
more of the outstanding Common Stock.
(4) These options granted to Mr. Praskach will vest at a rate of 20% on each of
the first five anniversary dates of the award, or earlier if not already
vested, 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 as of June 23, 2000, owns 40% or more
of the outstanding Common Stock.
Fiscal Year End Option Values
The following table provides information concerning stock options held
by the Named Executives at December 31, 1999. No options were exercised in 1999.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-the-Money
Options at Fiscal Year End Options at Fiscal Year End (1)
-------------------------- ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Richard W. Talarico 12,600 168,400 --- $155,000
Timothy P. O'Shea --- 60,000 --- $105,000
Dean C. Praskach 11,500 55,250 $3,385 $ 47,226
</TABLE>
(1) Based on the December 31, 1999 closing price per share of Common Stock of
$5.00, as reported by Nasdaq, and the various option exercise prices per
share, certain of the options were in-the-money at December 31, 1999.
Long-Term Incentive and Defined Benefit Plans
The Company does not have any long-term incentive or defined benefit
plans.
Compensation of Directors
The non-employee directors of the Company have been 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. Messrs. Bucci
and Kelly each received grants to acquire 5,000 shares of Common Stock at the
exercise price of $4.63 per share on September 1, 1999. Mr. Kavan received a
grant to acquire 5,000 shares of Common Stock at the exercise price of $4.81 per
share on November 10, 1999. James C. Roddey, a former director of the Company,
received a grant to acquire 5,000 shares of
17
<PAGE>
Common Stock at the exercise price of $4.81 per share on November 10, 1999.
Following approval of the 2000 Stock Plan in May 2000, at the conclusion of each
non-employee director's current year of service, such person will be entitled to
receive such an immediately exercisable option to acquire 5,000 shares of Common
Stock at an exercise price equal to the closing price of the Common Stock on the
date of grant. Each of Messrs. Bucci and Kelly received such grants to acquire
5,000 shares of Common Stock at the exercise price of $2.00 per share on
September 1, 2000. In addition, at the commencement of each year of service,
each non-employee director will be entitled to receive an option to acquire
5,000 shares of Common Stock at an exercise price equal to the closing price of
the Common Stock on the date of the grant that will vest on the first
anniversary of the date of the grant if the individual is serving as a director
on that date. Each of Messrs. Bucci and Kelly received such grants to acquire
5,000 shares of Common Stock at the exercise price of $2.00 per share on
September 1, 2000.
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 are 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 Anthony L.
Bucci.
In March 1998, the Company contributed certain assets, including rights to
the name PhotoWave, formerly used in its operations in the retail digital
photography market for a minority, non-controlling equity interest in a new
corporation, Rhino Communications Corporation ("RCC"), which thereafter began
operations in this market. The value placed on the Company's initial equity
interest, $100,000, approximated the value of the assets contributed. RCC
subsequently changed its name to PhotoWave, Inc. ("PhotoWave"). Mr. Kavan is a
shareholder and director of PhotoWave. In June 2000, Allin Digital Imaging Corp.
("Allin Digital"), a subsidiary of the Company, sold twenty shares, comprising
all of its equity interest in PhotoWave, to Mr. Kavan for approximately
$144,000. Richard W. Talarico, Chairman and Chief Executive Officer of the
Company and a director and executive officer of each of the Company's
subsidiaries, is also a director of PhotoWave. Mr. Henry Posner, Jr., a
beneficial owner of greater than five percent of the Company's outstanding
Common Stock, is also a shareholder of PhotoWave.
During the fiscal year ended December 31, 1999, Allin Digital and Allin
Interactive Corporation, also a subsidiary of the Company, sold approximately
$53,000 of digital photography equipment and supplies and computer hardware to
PhotoWave. During the six months ended June 30, 2000, Allin Digital sold
approximately $20,000 of digital photography equipment and supplies to
PhotoWave. The Company believes its sales are on terms substantially similar to
those offered non-affiliated parties. Allin Digital and PhotoWave are also
parties to a commission-based referral agreement under which PhotoWave earns
commissions for referral of customers to Allin Digital. Commissions are based on
a percentage of gross revenue. During the fiscal year ended
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<PAGE>
December 31, 1999 and the six-month period ended June 30, 2000, PhotoWave earned
approximately $39,000 and $8,000, respectively, in commissions under this
agreement.
During the fiscal year ended December 31, 1999, Allin Consulting of
Pennsylvania, Inc., a subsidiary of the Company ("Allin Consulting-
Pennsylvania"), performed technology consulting services for MARC Advertising
and MARC USA. Mr. Bucci serves as Chairman of the Board and Chief Executive
Officer for both MARC Advertising and MARC USA. Fees charged MARC Advertising
and MARC USA were approximately $27,000 and $1,000, respectively, for the fiscal
year ended December 31, 1999. The Company believes its charges are on terms
substantially similar to those offered non-affiliated parties.
James C. Roddey served as a director of the Company during a portion of
1999. Mr. Talarico is a partner in The Hawthorne Group ("THG") and an officer
of The Hawthorne Group, Inc. ("Hawthorne"), and, as such, he and Mr. Roddey were
shareholders and/or partners in common in certain investments and companies. Mr.
Posner and two of Mr. Posner's sons are shareholders of Hawthorne. Mr. Talarico
is 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 during a portion of 1999. Mr.
Posner also has an ownership interest in Bantry. Mr. Talarico currently is a
partner of and Mr. Roddey was a partner during a portion of 1999 in MA
Associates II. Mr. Talarico is a shareholder, and Mr. Roddey was a shareholder
during a portion of 1999, in Hawthorne Group Productions, Inc. and Production
Masters, Inc. ("PMI"), of which Mr. Roddey was an executive officer and director
during a portion of 1999. Mr. Talarico is neither an officer nor director of
these companies. Mr. Talarico is a shareholder, and Mr. Roddey was a
shareholder during a portion of 1999, in DirecTeam Merchandising, LLC, of which
Mr. Talarico is an officer. None of these companies has a compensation
committee of its board of directors.
During the fiscal year ended December 31, 1999, Allin Consulting-
Pennsylvania and Allin Corporation of California, also a subsidiary of the
Company, provided computer network consulting services to Hawthorne and WHS.
Fees charged Hawthorne and WHS were approximately $12,000 and $200,
respectively, for the fiscal year ended December 31, 1999. During the six
months ended June 30, 2000, Allin Consulting-Pennsylvania provided computer
network consulting services to Hawthorne and charged fees of approximately
$25,000 for these services. The Company believes its fees are on terms
substantially similar to those offered non-affiliated parties.
During the fiscal year ended December 31, 1999, Allin Network Products,
Inc., a subsidiary of the Company, sold computer hardware and components to THG
and WHS. Amounts charged THG and WHS for the fiscal year ended December 31, 1999
were approximately $500 and $300, 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, Talarico,
Kavan and Brian K. Blair, a director and former officer of the Company, have
certain rights under a registration rights 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.
19
<PAGE>
On May 31, 1999, Messrs. Kavan, Posner, Roddey and Talarico exchanged
10,000, 7,059, 588 and 588 shares, respectively, of the Company's Series A
Convertible Redeemable Preferred (the "Series A Preferred Stock") Stock for a
like number of shares of the Company's Series C Preferred Stock. There is no
mandatory redemption feature for Series C Preferred Stock whereas mandatory
redemption for Series A Preferred Stock had been required on June 30, 2006.
Also on May 31, 1999, Messrs. Posner, Kavan, Talarico and Roddey exchanged
1,400, 750, 300 and 100 shares, respectively, of the Company's Series B
Redeemable Preferred Stock (the "Series B Preferred Stock") for a like number of
shares of the Company's Series D Preferred Stock. There is no mandatory
redemption feature for Series D Preferred Stock whereas mandatory redemption for
Series B Preferred Stock had been required on the earlier of August 13, 2003 or
following certain asset sales by the Company. On December 30, 1999, Mr. Posner
purchased the Series C and D Preferred Stock owned by Mr. Roddey. Each of
Messrs. Posner, Kavan and Talarico owns shares of Series D Preferred Stock and
related warrants. Messrs. Posner, Kavan and Talarico own 1,500, 750, and 300
shares of Series D Preferred Stock, respectively. If the Company does issue any
shares of Common Stock upon conversion of the Series D Preferred Stock or upon
exercise of the related warrants, the holders of such shares, including Messrs.
Talarico, Kavan, and Posner, will have certain rights to require the Company to
register the shares for resale under the Securities Act.
As described above under the heading "Background of the Proposals" and
elsewhere in this proxy statement, each of Messrs. Posner, Kavan and Talarico
have agreed to purchase shares of Series G Preferred Stock and Series G
Warrants.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as to the ownership of
Common Stock as of September 15, 2000, both before and after giving effect to
stockholder approval and issuance of the Series G Preferred Stock (assuming that
the maximum number of shares of Common Stock may be issued upon such conversion)
and to stockholder approval and issuance of the Series G Warrants, by (i) each
executive officer and director, (ii) all executive officers and directors as a
group; (iii) each subscriber for Series G Preferred Stock and Series G Warrants;
and (iv) each person who is known to the Company to own beneficially more than
five percent of the outstanding shares of Common Stock. 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. The percentages in the
table are rounded to the nearest tenth of a percent.
<TABLE>
<CAPTION>
Number of Shares
of Common Stock Percent of
Beneficially Owned(1) Common Stock(1)
--------------------------------------- ------------------------------------------
Before After Before After
Name of Stockholder Approval Approval Approval Approval
------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Richard W. Talarico(2) 265,779 608,635 3.7% 8.2%
Chairman and Chief Executive
Officer and subscriber
381 Mansfield Avenue
Suite 400
Pittsburgh, PA 15220
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Number of Shares
of Common Stock Percent of
Beneficially Owned(1) Common Stock(1)
--------------------------------------- ------------------------------------------
Before After Before After
Name of Stockholder Approval Approval Approval Approval
------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Timothy P. O'Shea 12,000 12,000 * *
President
381 Mansfield Avenue
Suite 400
Pittsburgh, PA 15220
Dean C. Praskach(3) 24,850 93,420 * 1.3%
Chief Financial Officer and
subscriber
381 Mansfield Avenue
Suite 400
Pittsburgh, PA 15220
Brian K. Blair 149,570 149,570 2.1% 2.1%
Director
2498 Monterey Court
Weston, FL 33327
Anthony L. Bucci 13,500 13,500 * *
Director
4 Station Square
Suite 500
Pittsburgh, PA 15219
William C. Kavan(4) 489,883 832,739 6.7% 10.8%
Director and subscriber
100 Garden City Plaza
Garden City, NY 11530
James S. Kelly, Jr. 1,617,816 1,617,816 23.2% 23.2%
Director
100 Trotwood Drive
Monroeville, PA 15146
Anthony C. Vickers --- --- --- ---
Director
1212 Via Zumaya
Palos Verdes Estates, CA 90274
All directors and executive 2,573,398 3,327,680 33.9% 39.9%
officers, as a group (8 persons)(5)
Henry Posner, Jr.(6) 2,026,252 5,043,394 26.2% 47.0%
Subscriber
381 Mansfield Avenue
Suite 500
Pittsburgh, PA 15220
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Number of Shares
of Common Stock Percent of
Beneficially Owned(1) Common Stock(1)
--------------------------------------- ------------------------------------------
Before After Before After
Name of Stockholder Approval Approval Approval Approval
------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Thomas D. Wright(7) 248,103 590,959 3.5% 8.0%
Subscriber
381 Mansfield Avenue
Suite 500
Pittsburgh, PA 15220
Thomas D. Wright, Jr.(8) 16,500 85,070 * 1.2%
Subscriber
80 Lookout Circle
Larchmont, NY 10538
Melissa Wright Dailey(9) 16,500 85,070 * 1.2%
Subscriber
142 Campbell Road
Bedford, NH 03110
Steven B. Wright(10) 16,500 50,785 * *
Subscriber
2351 Golfview Drive
Pittsburgh, PA 15241
Les D. Kent(11) 671,967 671,967 9.0% 9.0%
867 El Pintano
Danville, CA 94526
Friedman, Billings, Ramsey Group, 693,079 693,079 10.0% 10.0%
Inc.(12)
1001 19th Street North
Arlington, VA 22209
Dimensional Fund Advisors(13) 416,300 416,300 6.0% 6.0%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
</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, and assume, on a
stockholder by stockholder basis, that each stockholder has converted all
securities owned by such stockholder that are convertible into Common Stock
at the option of the holder currently or within 60 days of September 15,
2000, and that no other stockholder so converts. The numbers and
percentages of shares owned assume that options that are currently
exercisable or exercisable within sixty days of September 15, 2000 had been
exercised as follows: Mr. Talarico - 16,800 shares; Mr. O'Shea - 12,000
shares; Mr. Praskach - 24,850 shares; Mr. Kavan - 15,000 shares; Messrs.
Bucci and Kelly - 10,000 shares each; Mr. Blair - 5,000 shares; and all
directors and executive officers as a group - 93,650 shares. The number of
shares of Common Stock that may be acquired upon conversion of the Series D
Preferred Stock and exercise of the related warrants are also included in
the table. Series D Preferred Stock is convertible into the Company's
Common Stock at a conversion rate of $3.6125 per common share. Information
is provided in the footnotes below for each holder of Series D Preferred
Stock as to the number of shares
22
<PAGE>
included in the table for conversion of Series D Preferred Stock and
exercise of the related warrants. The maximum number of shares of Common
Stock that may be acquired upon conversion of the Series G Preferred Stock
and upon exercise of the Series G Warrants are also included in the after
approval columns of the table.
(2) Includes 70,588 shares of Common Stock which may be acquired upon exercise
of outstanding warrants. Mr. Talarico owns 300 shares of Series D
Preferred Stock, representing approximately 10.9% of the Series D Preferred
Stock outstanding. The table includes 83,044 shares of Common Stock that
may be acquired upon conversion of the Series D Preferred Stock. Mr.
Talarico also owns 588 shares of Series C Preferred Stock, representing
approximately 2.4% of the Series C Preferred Stock outstanding. Mr.
Talarico has subscribed for ten shares of Series G Preferred Stock and
related Series G Warrants. If stockholder approval is obtained, when the
Series G Preferred Stock and related Series G Warrants are issued, the
shares of Series G Preferred Stock will be convertible into at most 285,714
shares of Common Stock and the Series G Warrants will be exercisable for
57,142 shares of Common Stock. When issued, the ten shares of Series G
Preferred Stock will represent 8.0% of the shares of Series G Preferred
Stock outstanding.
(3) Mr. Praskach has subscribed for two shares of Series G Preferred Stock and
related Series G Warrants. If stockholder approval is obtained, when the
Series G Preferred Stock and related Series G Warrants are issued, the
shares of Series G Preferred Stock will be convertible into at most 57,142
shares of Common Stock and the Series G Warrants will be exercisable for
11,428 shares of Common Stock. When issued, the two shares of Series G
Preferred Stock will represent 1.6% of the shares of Series G Preferred
Stock outstanding.
(4) Includes 176,471 shares of Common Stock which may be acquired upon exercise
of outstanding warrants. Mr. Kavan owns 750 shares of Series D Preferred
Stock, representing approximately 27.3% of the Series D Preferred Stock
outstanding. The table includes 207,612 shares of Common Stock that may be
acquired upon conversion of the Series D Preferred Stock. Mr. Kavan also
owns 10,000 shares of Series C Preferred Stock, representing approximately
40.0% of the Series C Preferred Stock outstanding. Mr. Kavan has subscribed
for ten shares of Series G Preferred Stock and related Series G Warrants.
If stockholder approval is obtained, when the Series G Preferred Stock and
related Series G Warrants are issued, the shares of Series G Preferred
Stock will be convertible into at most 285,714 shares of Common Stock and
the Series G Warrants will be exercisable for 57,142 shares of Common
Stock. When issued, the ten shares of Series G Preferred Stock will
represent 8.0% of the shares of Series G Preferred Stock outstanding.
(5) Includes shares discussed in notes 2, 3 and 4.
(6) 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. Includes 352,941 shares of Common Stock
which may be acquired upon exercise of outstanding warrants. Mr. Posner
owns 1,500 shares of Series D Preferred Stock, representing approximately
54.5% of the Series D Preferred Stock outstanding. The table includes
415,224 shares of Common Stock that may be acquired upon conversion of the
Series D Preferred Stock. Mr. Posner owns 7,647 shares of Series C
Preferred Stock, representing approximately 30.6% of the Series C Preferred
Stock outstanding. Mr. Posner has subscribed for 88 shares of Series G
Preferred Stock and related Series G Warrants. If stockholder approval is
obtained, when the Series G Preferred Stock and related Series G Warrants
are issued, the shares of Series G Preferred Stock will be convertible into
at most 2,514,285 shares of Common Stock and the Series G Warrants will be
exercisable for 502,857 shares of Common Stock. When issued, the 88 shares
of Series G Preferred Stock will represent 70.4% of the shares of Series G
Preferred Stock outstanding.
(7) Does not include 83,000 shares of Common Stock held by Mr. Wright's spouse,
5,000 shares in her own name and 78,000 shares as trustee for various
trusts. Includes 47,059 shares of Common Stock that may be acquired upon
exercise of outstanding warrants. Mr. Wright owns 200 shares of Series D
Preferred Stock, representing approximately 7.3% of the Series D Preferred
Stock. The table includes 55,363 shares of Common Stock that may be
acquired upon conversion of the Series D Preferred Stock. Mr. Wright also
23
<PAGE>
owns 1,765 shares of Series C Preferred Stock, representing approximately
7.1% of the Series C Preferred Stock outstanding. Mr. Wright has
subscribed for ten shares of Series G Preferred Stock and related Series G
Warrants. If stockholder approval is obtained, when the Series G Preferred
Stock and related Series G Warrants are issued, the shares of Series G
Preferred Stock will be convertible into at most 285,714 shares of Common
Stock and the Series G Warrants will be exercisable for 57,142 shares of
Common Stock. When issued, the ten shares of Series G Preferred Stock will
represent 8.0% of the shares of Series G Preferred Stock outstanding.
(8) Mr. Wright has subscribed for two shares of Series G Preferred Stock and
related Series G Warrants. If stockholder approval is obtained, when the
Series G Preferred Stock and related Series G Warrants are issued, the
shares of Series G Preferred Stock will be convertible into at most 57,142
shares of Common Stock and the Series G Warrants will be exercisable for
11,428 shares of Common Stock. When issued, the two shares of Series G
Preferred Stock will represent 1.6% of the Series G Preferred Stock
outstanding.
(9) Ms. Dailey has subscribed for two shares of Series G Preferred Stock and
related Series G Warrants. If stockholder approval is obtained, when the
Series G Preferred Stock and related Series G Warrants are issued, the
shares of Series G Preferred Stock will be convertible into at most 57,142
shares of Common Stock and the Series G Warrants will be exercisable for
11,428 shares of Common Stock. When issued, the two shares of Series G
Preferred Stock will represent 1.6% of the Series G Preferred Stock
outstanding.
(10) Mr. Wright has subscribed for one share of Series G Preferred Stock and
related Series G Warrants. If stockholder approval is obtained, when the
Series G Preferred Stock and related Series G Warrants are issued, the
share of Series G Preferred Stock will be convertible into at most 28,571
shares of Common Stock and the Series G Warrants will be exercisable for
5,714 shares of Common Stock. When issued, the one share of Series G
Preferred Stock will represent .8% of the Series G Preferred Stock
outstanding.
(11) Mr. Kent owns all 1,000 outstanding shares of the Company's Series F
Preferred Stock. The table includes 508,634 shares of Common Stock that may
be acquired upon conversion of the Series F Preferred Stock.
(12) As reported on Schedule 13G filed with the SEC on June 12, 2000, Friedman,
Billings, Ramsey Group, Inc. has voting and dispositive power with respect
to the shares indicated. Each of Eric F. Billings, Emanuel J. Friedman and
W. Russell Ramsey share voting and dispositive power with respect to the
shares. In addition, Emanuel J. Friedman reported on Schedule 13G filed
with the SEC on June 12, 2000 that he has sole voting and dispositive power
with respect to 95,000 shares, which represent approximately 1.4% of the
shares of Common Stock outstanding. The numbers of shares assume that
there has been no change in the number of shares beneficially owned from
the number of shares reported as being beneficially owned in the Schedule
13Gs.
(13) As reported on Schedule 13G filed with the SEC on February 3, 2000,
Dimensional Fund Advisors Inc., an investment advisor registered under
Section 203 of the Investment Advisors Act of 1940, has sole voting and
investment power over the shares indicated, but Dimensional Fund Advisors
Inc. disclaims beneficial ownership of the shares. The number of shares
assumes that there has been no change in the number of shares beneficially
owned from the number of shares reported as being beneficially owned in the
Schedule 13G.
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, 2000. Arthur Andersen LLP has been employed to perform
this function for the Company and its
24
<PAGE>
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 2001 Annual Meeting
Any proposals of stockholders intended to be presented at the 2001 Annual
Meeting of Stockholders must be received by the Company, 381 Mansfield Avenue,
Suite 400, Pittsburgh, Pennsylvania 15220-2751, no later than December 5, 2000
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 2001 proxy materials.
Any stockholder proposal that is not submitted for inclusion in the proxy
materials for the 2001 Annual Meeting of Stockholders, but is instead sought to
be presented directly at the 2001 Annual Meeting must be submitted in writing to
the Secretary of the Company at the Company's principal offices no later than
February 9, 2001, 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.
The Company retains discretion to vote proxies it receives with respect to
proposals received before the close of business on February 9, 2001 if the
Company advises the stockholders in the 2001 proxy statement about the nature of
the matter and how management intends to vote on such matter and the proponent
does not issue a proxy statement.
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, the persons named on
the enclosed proxy will have discretionary authority to vote all proxies in
accordance with their best judgment.
25
<PAGE>
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 $2,500 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 Corporation and Subsidiaries Audited Consolidated Balance Sheets as
of December 31, 1998 and 1999; Audited Consolidated Statements of
Operations for the years ended December 31, 1997, 1998 and 1999; Audited
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997, 1998 and 1999; Audited Consolidated Statements of Cash
Flows for the years ended December 13, 1997, 1998 and 1999; 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, 1999;
(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, 1999;
(iii) Quantitative and Qualitative Disclosures about Market Risk contained in
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999;
(iv) Allin Corporation and Subsidiaries Consolidated Balance Sheet as of June
30, 2000 (unaudited); Consolidated Statements of Operations for the six
months ended June 30, 1999 and 2000 (unaudited); Consolidated Statements
of Shareholders' Equity for the six months ended June 30, 2000
(unaudited); Consolidated Statements of Cash Flows for the six months
ended June 30, 2000 (unaudited) and Notes to Unaudited Consolidated
Financial Statements, all included in the Company's Quarterly Report on
10-Q for the fiscal quarter ended June 30, 2000;
(v) 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 June 30, 2000; and
26
<PAGE>
(vi) Quantitative and Qualitative Disclosures about Market Risk contained in the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 2000.
The Company has enclosed its Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 and its Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 2000 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 "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 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 June 30, 2000,
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
October ___, 2000
27
<PAGE>
ALLIN CORPORATION
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Dean C. Praskach and Timothy P. O'Shea, or either of them, each with power
of substitution, are hereby authorized to vote all stock of Allin Corporation
which the undersigned would be entitled to vote if personally present at a
Special Meeting of Stockholders of Allin Corporation to be held on Monday,
November 13, 2000, and at any postponements or adjournments thereof as follows:
1. Approval of the issuance of shares of Allin Corporation's Series G
Convertible Redeemable Preferred Stock.
FOR [_] AGAINST [_] ABSTAIN [_]
A vote FOR is recommended by the Board of Directors.
2. Approval of the issuance of warrants to purchase shares of Allin
Corporation's common stock to the purchasers of Allin Corporation's Series
G Convertible Redeemable Preferred Stock.
FOR [_] AGAINST [_] ABSTAIN [_]
A vote FOR is recommended by the Board of Directors.
3. 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 and 2.
(Continued on other side)
<PAGE>
(Continued from other side)
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:_______________________, 2000
___________________________________
(Signature)
___________________________________
(Signature, if held jointly)
PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
