<PAGE>
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:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] 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:
<PAGE>
[Logo of Allin Corporation]
Allin Corporation
381 Mansfield Avenue
Suite 400
Pittsburgh, Pennsylvania 15220-2751
Notice of Special Meeting of Stockholders
To be held December 29, 2000
Dear Stockholders:
You are cordially invited to attend a special meeting of stockholders of
Allin Corporation (the "Company") that will be held on Friday, December 29,
2000, at 1:00 p.m. EST, 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 November
27, 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,
/s/ Dean C. Praskach
----------------------------------
Dean C. Praskach
Secretary
November 28, 2000
<PAGE>
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 Friday, December 29, 2000, at 1:00 p.m., EST, 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 November 30, 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
The Company seeks stockholder approval of the issuance of 125 shares of
Series G Preferred Stock and related Series G Warrants for which it has firm
purchase commitments, as well as the issuance of an additional 25 shares of
Series G Preferred Stock and related Series G Warrants which may be issued upon
exercise of a purchase right to be issued to the subscribers who have made the
firm purchase commitments.
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 facilitate the Company's ability to achieve and 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"). Losing the designation as a National Market security would
likely reduce the liquidity of the Common Stock and could limit the Company's
ability to raise equity capital.
<PAGE>
The Company has had difficulty maintaining the Nasdaq National Market net
tangible asset requirement for two main reasons. The first is that the Company
is a services business and as such does not 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.
In addition to the required net tangible asset level, the Nasdaq criteria
for continued designation of the Common Stock as a National Market security
require the Company to:
. have outstanding at least 750,000 shares of Common Stock held by persons
other than officers and directors of the Company and beneficial owners of
more than ten percent of the total outstanding shares of Common Stock
(commonly referred to as the "public float"),
. maintain a public float having a market value of at least $5,000,000,
. maintain a minimum bid price of $1.00 per share,
. have 400 stockholders who own at least 100 shares,
. have two market makers, and
. observe corporate governance standards.
In addition, Nasdaq may apply additional more stringent criteria for continued
designation. Therefore, compliance with the net tangible asset requirement
would not, standing alone, assure continued eligibility for designation of the
Common Stock as a National Market security. However, the Company believes that
it is currently in compliance with the National Market criteria other than the
required level of net tangible assets.
As of September 30, 2000, the Company had net tangible assets of
approximately $3,182,500. The Company has presented to Nasdaq, and Nasdaq must
now accept, a plan for the Company to come into compliance with and maintain the
level of net tangible assets required for continued designation of the Common
Stock as a National Market security. Management believes that the issuance of
the Series G Preferred Stock and the Series G Warrants, including upon exercise
of the purchase right, may not, standing alone, enable the Company to sustain
$4,000,000 in net tangible assets beyond December 31, 2000. Therefore, the
issuance of the Series G Preferred Stock and the Series G Warrants, together
with certain business prospects that may or may not be realized, but which are
currently under negotiation, constitute the Company's plan to maintain
designation of the Common Stock as a National Market security. 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 decline further.
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<PAGE>
Even if the stockholders approve the issuance of the Series G Preferred
Stock and the Series G Warrants, there can be no assurance that Nasdaq will
accept the Company's plan to come into compliance with the National Market
criteria so that the Common Stock will continue to be designated as a National
Market security. In such event, the Company expects that it would pursue, but
would not be guaranteed to obtain, designation of the Common Stock as a Nasdaq
SmallCap security. In addition to maintaining $2,000,000 in net tangible
assets, the criteria for initial and continued designation of the Common Stock
as a SmallCap security would require a public float of at least 500,000 shares,
a market value of the public float of at least $1,000,000, a minimum bid price
of $1.00 per share, 300 stockholders who own at least 100 shares, two market
makers and compliance with corporate governance standards. The Company believes
that it is currently in compliance with these SmallCap criteria. As in the case
of National Market designation, however, Nasdaq may apply additional or more
stringent criteria for designation of a SmallCap security.
The Company has accepted commitments from certain of its existing executive
officers, directors and/or stockholders (the "Subscribers") 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. This represents commitments to purchase a total of
125 shares of Series G Preferred Stock and related Series G Warrants.
In addition to the 125 shares of Series G Preferred Stock and related
Series G Warrants that the Subscribers are committed to purchase, the Company
has granted to the Subscribers the right to purchase 25 additional shares of
Series G Preferred Stock and related Series G Warrants (the "Purchase Right")
for the purchase price of $250,000 or $10,000 per share of Series G Preferred
Stock. The ability of the Subscribers to exercise the Purchase Right is subject
to the Company's obtaining stockholder approval of the issuance of the Series G
Preferred Stock and the Series G Warrants. Any exercise of the Purchase Right
will only be effective if there is a closing on the sale of the 125 shares of
Series G Preferred Stock and related Series G Warrants that are subject to the
firm purchase commitments described above, and the Purchase Right must be
exercised prior to or at the time of such closing. The Purchase Right may only
be exercised in whole for all 25 shares of Series G Preferred Stock and related
Series G Warrants. The actual allocation of the Series G Preferred Stock and
Series G Warrants that may be acquired upon exercise of the Purchase Right must
be in whole shares of Series G Preferred Stock and will be determined by the
Subscribers at the time of exercise. If the Subscribers are unable to agree
upon an allocation, the shares of Series G Preferred Stock and Series G Warrants
will be allocated among the Subscribers, rounded to the next highest whole share
of Series G Preferred Stock, based on the Subscribers' individual firm purchase
commitments, except in the case of Mr. Posner who will be allocated the balance
of the Series G Preferred Stock and Series G Warrants after the pro rata
allocations to the other Subscribers have been determined (the "Pro Rata
Allocation"). If the Purchase Right is exercised and the Pro Rata Allocation is
applied, the
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<PAGE>
Subscribers would acquire the following additional number of shares of Series G
Preferred Stock and the related Series G Warrants: Mr. Talarico - 2 shares; Mr.
Kavan - 2 shares; Mr. Praskach - 1 share; Mr. Posner - 15 shares; Thomas D.
Wright - 2 shares; Thomas D. Wright, Jr. - 1 share; Mrs. Dailey - 1 share; and
Steven B. Wright - 1 share. Although the Subscribers have not informed the
Company of their intent to exercise the Purchase Right, except as otherwise
indicated, the information in this proxy statement assumes that, subject to
stockholder approval, all 150 shares of Series G Preferred Stock and related
Series G Warrants will be issued and the Pro Rata Allocation will be applied
upon exercise of the Purchase Right.
If stockholder approval is obtained, the Company expects to receive net
proceeds of approximately $1,425,000 from the issuance of the Series G Preferred
Stock and the Series G Warrants, including proceeds received upon exercise of
the Purchase Right. The proceeds will be used to repay outstanding indebtedness
under the Company's working capital line of credit. As of November 1, 2000, the
Company's outstanding indebtedness was approximately $2,100,000, of which
approximately $1,100,000 was outstanding under the line of credit. Any
remaining proceeds from the issuance of the Series G Preferred Stock and the
Series G Warrants, along with the availability under the line of credit, will be
used for general working capital purposes. The Company currently has no
acquisition or business combination prospects for which any of the proceeds
would be used. The Series G Preferred Stock investment will be recorded as
equity on the Company's balance sheet, thereby increasing the Company's net
tangible assets by the amount of the net proceeds.
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 November 27, 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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<PAGE>
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 and aggregate
minimum 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 November 27, 2000. The aggregate maximum number of shares is
based on the potential minimum $.35 conversion price of the Series G Preferred
Stock and the $1.75 exercise price of the Series G Warrants. The aggregate
minimum number of shares is based on the maximum $1.75 conversion price of the
Series G Preferred Stock and the $1.75 exercise price of the Series G Warrants.
<TABLE>
<CAPTION>
Percentage of Percentage of
Class After Class After
Conversion or Conversion or
Maximum Exercise Without Minimum Exercise Without
Number of Shares Regard to Number of Shares Regard to
That May be Issued Other Issuances That May be Issued Other Issuances
----------------------- ---------------------- ----------------------- --------------------
<S> <C> <C> <C> <C>
Series G Preferred Stock 4,285,712 shares 38.1% 857,138 shares 11.0%
Series G Warrants 857,138 shares 11.0% 857,138 shares 11.0%
Total 5,142,850 shares 42.5% 1,714,276 shares 19.8%
</TABLE>
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. The lower that the average trading price of the
Common Stock is below $2.06 at the time a conversion price is fixed, the
greater the number of shares of Common Stock that may be acquired upon
conversion of the Series G Preferred Stock. The following table demonstrates
this and shows the number of shares of Common Stock that each Subscriber may
acquire assuming conversion prices of $1.75, $1.31, $0.88 and $0.44. These
conversion prices represent a 15% discount to assumed average trading prices of
the Common Stock of $2.06, $1.54, $1.04 and $0.52, respectively, when the
conversion price is fixed, and 0%, 25%, 50% and 75% discounts to market,
respectively, at the time of conversion if converted when the market price of
the Common Stock is $1.75.
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<PAGE>
<TABLE>
<CAPTION>
Number and Percentage of Shares that May be
Acquired Upon Conversion Assuming Various
Conversion Prices and Discounts to an Assumed
Stock Price of $1.75 at the Time of Conversion
-----------------------------------------------------------
Shares of
Series G
Preferred Aggregate
Stock to be Purchase
Purchased Price
(Includes (Includes 0% Discount 25% Discount 50% Discount 75% Discount
Exercise of Exercise of ($1.75 ($1.31 ($0.88 ($0.44
Purchase Purchase Conversion Conversion Conversion Conversion
Subscriber Right) Right) Price) Price) Price) Price)
---------- ----------- ----------- ---------------- ------------------ -------------------- ------------------
Number Percent Number Percent Number Percent Number Percent
------- -------- --------- -------- --------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Richard W. Talarico 12 $ 120,000 68,571 1.0% 91,603 1.3% 136,363 1.9% 272,727 3.8%
William C. Kavan 12 120,000 68,571 1.0 91,603 1.3 136,363 1.9 272,727 3.8
Dean C. Praskach 3 30,000 17,142 0.2 22,900 0.3 34,090 0.5 68,181 1.0
Henry Posner, Jr. 103 1,030,000 588,571 7.8 786,259 10.2 1,170,454 14.4 2,340,909 25.2
Thomas D. Wright 12 120,000 68,571 1.0 91,603 1.3 136,363 1.9 272,727 3.8
Thomas D. Wright, Jr. 3 30,000 17,142 0.2 22,900 0.3 34,090 0.5 68,181 1.0
Melissa Wright Dailey 3 30,000 17,142 0.2 22,900 0.3 34,090 0.5 68,181 1.0
Steven B. Wright 2 20,000 11,428 0.2 15,267 0.2 22,727 0.3 45,454 0.6
--- ---------- ------- ---- --------- ---- --------- ---- --------- ----
Total 150 $1,500,000 857,138 11.0% 1,145,035 14.1% 1,704,540 19.7% 3,409,087 32.9%
</TABLE>
Information concerning other Company securities beneficially owned by each
Subscriber is discussed below under the heading "Security Ownership of
Certain Beneficial Owners and Management."
Details regarding the fixing of the conversion prices for the Series G
Preferred Stock and the antidilution provisions of the Series G Preferred
Stock are set forth under Proposal 1. The actual number of shares of Common
Stock that may be acquired upon exercise of the Series G Warrants also
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 at least
$1,175,000 and, if the Purchase Right is exercised, of up to $1,425,000,
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 or decline to designate
the Common Stock as a SmallCap security if the Company is required to
pursue such SmallCap designation. Such results could adversely affect the
Company's liquidity position and its business strategies, reduce the
liquidity of the Common Stock and limit the Company's ability to raise
equity capital. As of September 30, 2000, the Company had net tangible
assets of
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approximately $3,182,500. Net tangible assets of $4,000,000 are required for
continued designation of the Common Stock as a National Market security. The
Company has presented to Nasdaq, and Nasdaq must now accept, a plan for the
Company to come into compliance with and maintain the level of net tangible
assets required for continued designation of the Common Stock as a National
Market security. There can be no assurance that Nasdaq will accept the Company's
plan. For additional information about National Market criteria and the
Company's compliance plan, see the discussion above under the heading
"Background of the Proposals."
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 $1,500,000 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 tables 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 exercise of the Series G Warrants, 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. The lower that the average
trading price of the Common Stock is below $2.06 at the time that a conversion
price is fixed, the greater the number of shares of Common Stock that may be
acquired upon conversion of the Series G Preferred Stock, and the greater the
risk of dilution to existing stockholders. The perceived risk of dilution may
cause Company stockholders to sell their shares, which would likely cause or
contribute to a downward movement in the trading price of the Common Stock. This
downward pressure on the trading price of the Common Stock could encourage other
Company stockholders to engage in short sales, which would further contribute to
a decline in the trading price of the Common Stock. Any decline in the bid price
of the Common Stock to below $1.00 would jeopardize the continued eligibility of
the Common Stock for designation as either a Nasdaq National Market security or
a Nasdaq SmallCap security. For additional information about National Market and
SmallCap criteria, see the discussion above under the heading "Background of the
Proposals."
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
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<PAGE>
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.
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 150 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 November 27, 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
November 27, 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
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<PAGE>
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 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 to the
Subscribers the 125 shares of Series G Preferred Stock for which the Company has
firm purchase commitments. If the Purchase Right is exercised, the Company
intends to issue an additional 25 shares of Series G Preferred Stock. The Series
G Preferred Stock will have 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
9
<PAGE>
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 other than the Company's Series F Convertible Redeemable
Preferred Stock (the "Series F Preferred Stock"). The Series G Preferred Stock
will rank 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 $1,500,000
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 $15,378,000 (the
actual book value of the Company as of September 30, 2000), the holders of the
Series G Preferred Stock will be entitled to 8.9% of the total vote, which would
translate into 678,194 votes (4,521 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
10
<PAGE>
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 used as a denominator in the
foregoing calculations 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 and if
the Purchase Right is exercised.
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 4,285,712 shares, which shares would represent approximately
38.1% 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. For
example, if 100,000 shares of Common Stock were issued at $1.50 at a time when
the applicable conversion ratio was $1.75, then the conversion price would be
adjusted to a
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<PAGE>
conversion price of $1.50. 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 September 29, 2000 (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
$264,706 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 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
12
<PAGE>
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 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 estimated net proceeds of at
least $1,175,000 and, if the Purchase Right is exercised, of up to $1,425,000,
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, if the Company is able
to consummate certain business prospects currently in negotiation, the Company
believes that it will be able to maintain net tangible assets sufficient to meet
Nasdaq National Market standards through at least 2001. If the business
prospects currently in negotiation are not consummated or Nasdaq otherwise
declines to permit continued designation of the Common Stock as a National
Market security, then the Company expects that it would seek designation of the
Common Stock of a Nasdaq SmallCap security. Management believes that the net
proceeds from the issuance of the Series G Preferred Stock and Series G
Warrants, whether or not the Purchase Right is exercised, would facilitate the
Company's ability to secure designation of the Common Stock as a SmallCap
security.
13
<PAGE>
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
Subscribers, 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. If the
Purchase Right is exercised, the Company intends to issue additional Series G
Warrants to purchase up to an aggregate of 142,857 shares of Common Stock. 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 and if the Purchase Right is exercised.
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 857,138 shares, which shares would represent approximately 11.0% 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.
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.
For example, if 100,000 shares of Common Stock were issued at $1.50, then the
exercise price of the Series G Warrants would be adjusted to an exercise price
of $1.50 per share
14
<PAGE>
and the number of shares of Common Stock that may be acquired upon exercise
would be increased to such number of shares determined by multiplying the then
number of shares that could be acquired upon exercise by the then exercise price
and dividing the result by $1.50. 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.
If the $1.75 exercise price of the Series G Warrants is less than the
market price of the Common Stock on the date that the Series G Warrants are
issued, the discounted exercise feature of the Series G Warrants will represent
a dividend to the holders of the Series G Warrants. If the stockholders approve
this Proposal 2 and Proposal 1, when the Series G Warrants are issued, the
Company will record a dividend reflecting any discount to market represented by
the $1.75 exercise price. Assuming that the market price of the Common Stock on
the date of issuance of
15
<PAGE>
the Series G Warrants is $2.00, a dividend of $214,286 will be recorded based on
the 12.5% discount to market represented by the $1.75 exercise price.
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 estimated net proceeds of at least $1,175,000
and, if the Purchase Right is exercised, of up to $1,425,000, for the repayment
of indebtedness and general working capital purposes without incurring
additional indebtedness. The infusion of equity capital would permit the
Company to pursue future business opportunities, and, if the Company is able to
consummate certain business prospects currently in negotiation, the Company
believes that it will be able to maintain net tangible assets sufficient to meet
Nasdaq National Market standards through at least 2001. If the business
prospects currently in negotiation are not consummated or Nasdaq otherwise
declines to permit continued designation of the Common Stock as a National
Market security, then the Company expects that it would seek designation of the
Common Stock of a Nasdaq SmallCap security. Management believes that the net
proceeds from the issuance of the Series G Preferred Stock and Series G
Warrants, whether or not the Purchase Right is exercised, would facilitate the
Company's ability to secure designation of the Common Stock as a SmallCap
security.
The Board of Directors of the Company Recommends a Vote FOR the Proposal
to Approve the Issuance of the Series G Warrants
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<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning 1997, 1998 and 1999
compensation of the Chief Executive Officer and the other executive officers of
the Company (collectively the "Named Executives"). Information with respect to
1997 and 1998 compensation is not given for Mr. O'Shea as he did not join the
Company and begin service as an executive officer of the Company until 1999.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
---------------------------------------------- --------------------------------
Securities Underlying
Name and Principal Position Year Salary ($) 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
17
<PAGE>
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.
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
18
<PAGE>
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.
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.
19
<PAGE>
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
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
Securities % of Total Options
Underlying Granted to Exercise or
Options Employees in Base 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.
20
<PAGE>
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, 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.
21
<PAGE>
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 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 in
September 2000, and each of Messrs. Kavan and Vickers received such grants to
acquire 5,000 shares of Common Stock in November 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 in September
2000, and each of Messrs. Kavan and Vickers received such grants to acquire
5,000 shares of Common Stock in November 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.
22
<PAGE>
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 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
23
<PAGE>
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.
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 October 30, 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
24
<PAGE>
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) 265,779 677,207 3.7% 9.0%
Chairman and Chief Executive
Officer and Subscriber
381 Mansfield Avenue
Suite 400
Pittsburgh, PA 15220
Timothy P. O'Shea 12,000 12,000 * *
President
381 Mansfield Avenue
Suite 400
Pittsburgh, PA 15220
Dean C. Praskach(3) 24,850 127,706 * 1.8%
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
1600 CNG Tower
625 Liberty Avenue
Pittsburgh, PA 15222
William C. Kavan(4) 489,883 901,311 6.7% 11.6%
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
2406 Oakhurst Court
Murrysville, PA 15668
</TABLE>
25
<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>
Anthony C. Vickers --- --- --- ---
Director
1212 Via Zumaya
Palos Verdes Estates, CA 90274
All directors and executive 2,573,398 3,499,110 33.9% 41.1%
officers, as a group (8 persons)(5)
Henry Posner, Jr.(6) 2,026,252 5,557,680 26.2% 49.4%
Subscriber
381 Mansfield Avenue
Suite 500
Pittsburgh, PA 15220
Thomas D. Wright(7) 248,103 659,531 3.5% 8.8%
Subscriber
381 Mansfield Avenue
Suite 500
Pittsburgh, PA 15220
Thomas D. Wright, Jr.(8) 16,500 119,356 * 1.7%
Subscriber
80 Lookout Circle
Larchmont, NY 10538
Melissa Wright Dailey(9) 16,500 119,356 * 1.7%
Subscriber
142 Campbell Road
Bedford, NH 03110
Steven B. Wright(10) 16,500 85,070 * 1.2%
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 19/th/ Street North
Arlington, VA 22209
Dimensional Fund Advisors(13) 416,300 416,300 6.0% 6.0%
1299 Ocean Avenue, 11/th/ Floor
Santa Monica, CA 90401
</TABLE>
___________________________
* Less than one percent
26
<PAGE>
(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 October 30,
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 October 30, 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 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. The number of
shares of Series G Preferred Stock and related Series G Warrants indicated
as having been subscribed for gives effect to the exercise of the Purchase
Right in accordance with the Pro Rata Allocation.
(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 12 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 342,857 shares of Common
Stock and the Series G Warrants will be exercisable for 68,571 shares of
Common Stock. When issued, the 12 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 three 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 85,714
shares of Common Stock and the Series G Warrants will be exercisable for
17,142 shares of Common Stock. When issued, the three shares of Series G
Preferred Stock will represent 2.0% 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 12 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 342,857 shares of Common Stock and
the Series G Warrants will be exercisable for 68,571 shares of Common
Stock. When issued, the 12 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
27
<PAGE>
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
103 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 2,942,857 shares of Common Stock and
the Series G Warrants will be exercisable for 588,571 shares of Common
Stock. When issued, the 103 shares of Series G Preferred Stock will
represent 68.7% 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
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 12 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 342,857 shares of Common Stock and
the Series G Warrants will be exercisable for 68,571 shares of Common
Stock. When issued, the 12 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 three 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 85,714
shares of Common Stock and the Series G Warrants will be exercisable for
17,142 shares of Common Stock. When issued, the three shares of Series G
Preferred Stock will represent 2.0% of the Series G Preferred Stock
outstanding.
(9) Ms. Dailey has subscribed for three 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 85,714
shares of Common Stock and the Series G Warrants will be exercisable for
17,142 shares of Common Stock. When issued, the three shares of Series G
Preferred Stock will represent 2.0% of the Series G Preferred Stock
outstanding.
(10) 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
share 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 1.3% 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
28
<PAGE>
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 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
29
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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.
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.
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 the Private
Securities Litigation Reform Act of 1995, 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 September 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.
30
<PAGE>
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
September 30, 2000 (unaudited); Consolidated Statements of Operations for
the six months ended September 30, 1999 and 2000 (unaudited);
Consolidated Statements of Shareholders' Equity for the nine months ended
September 30, 2000 (unaudited); Consolidated Statements of Cash Flows for
the nine months ended September 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 September
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 September 30, 2000; and
(vi) Quantitative and Qualitative Disclosures about Market Risk contained in
the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 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 September 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.
By order of the Board of Directors,
/s/ Dean C. Praskach
-----------------------------------
Dean C. Praskach
Secretary
November 28, 2000
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PROXY 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 Friday,
December 29, 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.
Date , 2000
---------------------------------
Signature
---------------------------------
(Signature, if held jointly)
Please Mark, Sign, Date, and Return this Proxy Card Promptly Using the Enclosed
Envelope.
