AMERICAN GENERAL VENTURES, INC.
3650 Austin Bluffs Parkway - Suite 138
Colorado Springs, Colorado 80918
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
American General Ventures, Inc. ("AGV") to be held on December 23, 1998 at 10:00
a.m., local time, at the Hotel Monaco, 225 North Wabash, Chicago, Illinois.
At the Special Meeting you will be asked to consider and vote upon the
following:
(a) approval and adoption of an Agreement and Plan of Merger which would
merge Nucleus Holding Corporation ("Nucleus") with and into AGV,
whereupon AGV will change its name to Nucleus, Inc. (the "Merger");
and
(b) the election of 3 directors of AGV.
In addition, I will be pleased to report on the affairs of AGV and a
discussion period will be provided for questions and comments of general
interest to stockholders.
In the Merger, the sole Nucleus stockholder, CapitalOne Inc., an Illinois
corporation, will receive 54,428.999 shares of AGV's Common Stock for each of
its 1,000 shares of Nucleus Common Stock, or an aggregate of 54,428,999 shares
of AGV's Common Stock.
The Merger represents a unique opportunity for the stockholders of AGV to
participate in what your Board of Directors believes will be the enhanced value
of the combined technology, expertise and commercial potential of the companies.
The Proxy Statement, which you are urged to read carefully, provides
important information about the Merger and about the businesses of AGV and
Nucleus. In particular, you should review the sections entitled "Reasons of the
AGV and Nucleus Boards for the Merger" and "Recommendation of the AGV Board:
Factors Considered" under the heading "The Merger - Description of the Merger"
for the reasons why we believe the Merger is in the best interest of AGV
stockholders. You should also review the section entitled "Risk Factors" for the
risks related to the Merger and the businesses of AGV and Nucleus.
Your Board of Directors believes the Merger with Nucleus is in the best
interest of AGV and its stockholders and unanimously recommends that you vote
FOR approval of the Merger Proposal. Your Board of Directors also believes the
election of the nominees for election to AGV's Board of Directors is in the best
interest of AGV and its stockholders and unanimously recommends that you vote
FOR approval thereof.
We look forward to greeting personally those stockholders who are able to
be present at the meeting; however, whether or not you plan to attend the
Special Meeting, please complete, date and sign your proxy card and return it
promptly in the enclosed envelope. If you attend the Special Meeting you may
vote in person, even if you previously returned a proxy.
Thank you for your cooperation.
On behalf of the Board of Directors.
-------------------------------------
Steven H. Walker
President and Chairman of the Board
<PAGE>
AMERICAN GENERAL VENTURES, INC.
3650 AUSTIN BLUFFS PARKWAY - SUITE 138
COLORADO SPRINGS, COLORADO
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD
DECEMBER 23, 1998 AT 10:30 A.M. LOCAL TIME
You are hereby notified that a Special Meeting of Stockholders of American
General Ventures, Inc., a Nevada corporation ("AGV"), will be held at the Hotel
Monaco, 225 North Wabash, Chicago, Illinois, at 10:00 a.m., local time, for the
following purposes:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of October 30, 1998 (the "Merger
Agreement"), between AGV and Nucleus Holding Corporation, an Illinois
corporation ("Nucleus"), pursuant to which (i) Nucleus will be merged with
and into AGV, following which AGV will be the surviving corporation, and
will change its name to Nucleus, Inc. and (ii) each outstanding share of
Nucleus Common Stock will be converted into the right to receive 54,428.999
shares of AGV Common Stock, as more fully described in the accompanying
Proxy Statement.
2. To elect 3 directors to serve for the ensuing year.
A copy of the Merger Agreement is set forth as Appendix A to the Proxy
Statement and is incorporated herein by reference. The Board of Directors of AGV
unanimously recommends that you vote FOR the Merger and FOR the election of the
directors nominated by the Board of Directors.
Stockholders of record at the close of business on November 5, 1998 will be
entitled to notice of and to vote at the Special Meeting or any adjournment
thereof. The affirmative vote of a majority of the shares of AGV Common Stock
present or represented and entitled to vote at the Special Meeting is required
for approval of the Merger and the Merger Agreement. The 3 nominees for election
as directors at the Special Meeting who receive the greatest number of votes
cast for the election of directors at the Special Meeting by the holders of the
AGV Common Stock entitled to vote at the meeting shall become directors of AGV.
Whether or not you plan to attend the Special Meeting, please sign, date
and return the enclosed proxy in the reply envelope provided. No postage is
necessary if mailed within the United States. The prompt return of your proxy
will assist us in preparing for the Special Meeting. Stockholders who attend the
Special Meeting may revoke their proxy and vote their shares in person.
BY ORDER OF THE BOARD OF DIRECTORS
----------------------------------
Colorado Springs, Colorado Christopher S. Walker
December 7, 1998
<PAGE>
AMERICAN GENERAL VENTURES, INC.
PROXY STATEMENT FOR SPECIAL MEETINGS OF
STOCKHOLDERS TO BE HELD
December 23, 1998
The Proxy Statement is being furnished to holders of American General
Ventures, Inc., a Nevada corporation ("AGV") in connection with the solicitation
by the Board of Directors of AGV (the "Board") of proxies for use at a special
meeting of stockholders (the "Stockholders Meeting"), to be held at the Hotel
Monaco, 225 North Wabash, Chicago, Illinois, on December 23, 1998 at 10:00 a.m.,
local time, and any adjournments or postponements thereof. This Proxy Statement
is first being mailed to stockholders of AGV on or about December 7, 1998.
At the Meeting, stockholders are being asked to vote on the following three
proposals:
(A) Approval of the combination of AGV and Nucleus Holding
Corporation, an Illinois corporation ("Nucleus"), through the proposed
merger (the "Merger") of Nucleus with and into AGV, pursuant to an
Agreement and Plan of Merger dated as of October 30, 1998 by and between
AGV and Nucleus (the "Merger Agreement"), and the issuance of AGV Common
Stock (as herein defined) in connection therewith. If the Merger is
consummated, Nucleus will be merged with and into AGV, each outstanding
share of Nucleus Common Stock, no par value ("Nucleus Common Stock"), other
than shares held by stockholders who exercise their dissenters rights under
Illinois law, will be converted into the right to receive 54,428.999 shares
of AGV common stock, $0.001 par value ("AGV Common Stock"), and the name of
AGV will be changed to Nucleus, Inc.
(B) The election of 3 directors to serve for the ensuing year.
The date of this Proxy Statement is December 7, 1998.
1
<PAGE>
DELIVERY OF DOCUMENTS
The following documents which have been filed with the Commission pursuant
to the Securities Exchange Act of 1934 (the "Exchange Act") are delivered
herewith:
(a) AGV's Annual Report on Form 10-KSB for the year ended December 31,
1997;
(b) AGV's Quarterly Report on Form 10-QSB for the quarter entered March
31, 1998;
(c) AGV's Quarterly Report on Form 10-QSB for the quarter ended June 30,
1998; and
(d) AGV's Quarterly Report on Form 10-QSB for the quarter ended September
30, 1998.
The information relating to AGV contained in this Proxy Statement does not
purport to be comprehensive and should be read together with the information in
the documents delivered herewith.
All information appearing in this Proxy Statement from the date of filing
is qualified in its entirety by the information and financial statements
(including the notes) appearing in the documents delivered herewith. Any
statement contained in a document delivered herewith will be deemed to be
modified or superseded for purposes of this Proxy Statement to the extent that a
statement contained in this Proxy Statement or in any subsequently filed
document which is deemed to be incorporated by reference modifies or supersedes
such statement. Any statement so modified or superseded will not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement.
SUMMARY
The following is a summary of certain of the information included elsewhere
in this Proxy Statement. The summary does not purport to be complete and is
qualified in its entirety by the more detailed information contained in this
Proxy Statement, the appendices and the material incorporated by reference, all
of which should be carefully reviewed. Cross-references in this Summary refer to
indicated captions or portions of this Proxy Statement. See "Risk Factors" for
certain information that should be considered by the stockholders of AGV.
On May 8, 1997, the shareholders of AGV approved a one for ten reverse
stock split. AGV anticipates that the reverse stock split will become effective
subsequent to the mailing of this Proxy Statement but prior to the Meeting.
Unless otherwise indicated, numbers in this Proxy Statement do not take account
of the one for ten reverse stock split.
2
<PAGE>
THE PARTIES
AGV
AGV, through its subsidiary ACI Micro Systems, Inc. ("ACI"), is engaged in
the business of manufacturing and selling computers and computer accessories.
ACI has developed its own web site (www.availpc.com), which is promoted by
Hotmail, a wholly owned subsidiary of Microsoft. Hotmail is the world's largest
e-mail provider with more than nine million members.
AGV was incorporated on November 13, 1984 under the laws of the State of
Nevada. AGV's headquarters are located at 3650 Austin Bluffs Parkway, Suite 138,
Colorado Springs, Colorado, 80918, telephone (719) 548- 1616.
Nucleus
The product offerings of Nucleus currently consist of "PC Express", a
computer repair and upgrade business, "PC OnLine," a computer help desk, and
"TelOne" a long distance reseller and acquirer of telecom assets.
Nucleus commenced operations on April 30, 1997, and was incorporated on
December 22, 1997 under the laws of the State of Illinois. Nucleus's
headquarters are located at 150 North Michigan Avenue, Suite 3610, Chicago,
Illinois 60601, telephone (312) 683-9000. Computer activities are carried out
through Nucleus's wholly- owned subsidiary, Nucleus Data Source, Inc., and
telecom activities are carried out through Nucleus's wholly-owned subsidiary
Alliance Net, Inc. Unless the context otherwise indicates, all references herein
to Nucleus include Nucleus Data Source, Inc. and Alliance Net, Inc. See
"Nucleus-Business."
THE MEETING
Introduction
At the Meeting, AGV stockholders will be asked to vote on the following two
proposals (collectively the "Proposals"):
(A) Approval of the Merger Agreement; the combination of AGV and
Nucleus through the Merger; the issuance of the AGV Common Stock
in the Merger at an exchange ratio of 54,428.999 shares of AGV
Common Stock for each share of Nucleus Common Stock (the
"Exchange Ratio"); and the change of name of AGV into Nucleus,
Inc.; and
(B) The election of 3 directors to serve for the ensuing year.
Time, Date and Place
The Meeting will be held on December 23, 1998 at 10:00 a.m., local time at
the Hotel Monaco, 225 North Wabash, Chicago, Illinois.
Record Date; Shares Entitled to Vote
Holders of record of AGV Common Stock at the close of business on November
5, 1998 (the "Record Date") will be entitled to notice of and to vote at the AGV
Meeting. At the close of business on November 5, 1998, 11,681,268 shares of AGV
Common Stock were issued and outstanding. Each outstanding share of AGV Common
Stock is entitled to one vote at the AGV Meeting.
3
<PAGE>
See "Introduction - Voting and Proxies."
Vote Required -- AGV
The affirmative vote of a majority of the shares of AGV Common Stock
present or represented at the Meeting and entitled to vote is required for
approval of the Merger and the Merger Agreement. The 3 nominees for election as
directors at the AGV Meeting who receive the greatest number of votes cast for
the election of directors at that meeting by the holders of the AGV Common Stock
entitled to vote at the meeting shall become directors of AGV. Stockholders are
entitled to cumulative voting in the election of directors. The presence, either
in person or by proxy of the holders of at least a majority of the outstanding
shares of AGV Common Stock entitled to vote is necessary to constitute a quorum
at the Meeting. Directors and executive officers of AGV as a group (3 persons)
beneficially owned 6,025,200 shares of AGV Common Stock (excluding shares
subject to warrants), representing approximately 51.6% of the total outstanding
shares on the Record Date. Management of AGV believes that both of its directors
and executive officers who own shares of AGV Common Stock intend to vote in
favor of both of the Proposals. See "AGV -- Beneficial Ownership of AGV Common
Stock."
Nucleus Vote
The affirmative vote of the holders of two-thirds of the outstanding shares
of Nucleus Common Stock entitled to vote were required for approval of the
Merger and the Merger Agreement. CapitalOne, Inc., an Illinois corporation
("CapitalOne") is the beneficial owner of 100% of the outstanding shares of
stock of Nucleus. On October 24, 1998, CapitalOne voted to approve the Merger
and Merger Agreement. John C. Paulsen is the beneficial owner of 100% of the
outstanding shares of CapitalOne. See "The Merger--Description of the Merger--
Interests of Certain Persons in the Merger" and "Nucleus--Beneficial Ownership
of Nucleus Common Stock."
THE MERGER
General
At the Effective Time (as defined below), if the Merger is consummated
Nucleus will merge with and into AGV, and AGV will change its name into Nucleus,
Inc. Nucleus will no longer exist and AGV will be the surviving corporation
(hereinafter referred to as the "Combined Company").
Reasons for the Merger
The AGV and Nucleus Boards believe the merger of Nucleus and AGV will
create a stronger company by integrating complementary lines of business. The
Combined Company intends to continue the computer business of Nucleus and AGV
and the telecommunications business of Nucleus. The computer business of the
Combined Company will comprise 4 categories which have been carried out to-date
by Nucleus: on-premise sales; internet build-to-order sales; online help; and
express repair. In addition, following the Merger, the Combined Company intends
to begin acquiring and consolidating other telecommunications companies and
computer sales and hardware, build-to order, and service companies. Neither AGV
nor Nucleus currently have any plans or proposals to acquire any computer or
telecommunications companies.
Material Advantages and Disadvantages of the Proposed Merger
The material advantages and disadvantages of the proposed Merger to AGV
stockholders are as follows:
* Opens up a distribution channel through which AGV can sell computers
4
<PAGE>
* Expands ability of AGV to build, rather than outsource, production of
computers
* Expands ability of AGV to perform maintenance on computers
* Expands sales capacity of AGV, allowing for volume discounts
* No assurance that the companies can be successfully combined and be
profitable
* AGV stockholders will relinquish voting control of the company
See "The Merger -- Reasons of the AGV and Nucleus Boards for the Merger." "--
Recommendation of the AGV Board: Factors Considered," and "Decision of the
Nucleus Board: Factors Considered."
Recommendation of the AGV Board of Directors
The AGV Board unanimously approved the Merger and the Merger Agreement. The
AGV Board unanimously recommends that AGV stockholders vote FOR the approval of
both of the Proposals. See "The Merger -- Description of the Merger --
Recommendation of the AGV Board: Factors Considered" for a discussion of the
factors considered by the AGV Board in approving the Merger and the Merger
Agreement.
Decision of the Nucleus Board of Directors
The Nucleus Board unanimously approved the Merger and the Merger Agreement.
See "The Merger -- Description of the Merger -- Decision of the Nucleus Board:
Factors Considered" for a discussion of the factors considered by the Nucleus
Board in approving the Merger and the Merger Agreement.
Risk Factors
In connection with a determination to approve the Merger and the Merger
Agreement, stockholders should evaluate the risk factors associated with AGV,
Nucleus and the operation of AGV and the Combined Company. There can be no
assurance that the Combined Company will be able to achieve a profit. For a more
detailed description of the risk factors associated with the Merger and the
business of AGV and the Combined Company, see "Risk Factors."
Neither AGV nor Nucleus have obtained an opinion from an investment bank or
another independent third party as to the fairness of the Merger.
Interests of Certain Persons in the Merger
In considering the recommendation of the AGV Board and the decision of the
Nucleus Board with respect to the Merger, stockholders should be aware that
Steven H. Walker, and Christopher S. Walker, two current directors of AGV,
beneficially own, without taking account of the exercise of certain warrants
beneficially owned by such individuals, approximately 41.6% and 10.0%
respectively, of the outstanding AGV Common Stock, and immediately following the
Merger Steven H. Walker and Christopher Walker will beneficially own, without
taking account of the exercise of such warrants, approximately 7.4% and 1.8% of
the outstanding AGV Common Stock.
In considering the decision of the Nucleus Board with respect to the
Merger, stockholders should be aware that John C. Paulsen, President and Chief
Executive Officer of Nucleus, beneficially owns 100% of the outstanding Nucleus
stock, and immediately following the Merger, Mr. Paulsen will beneficially own
82.3% of the outstanding AGV stock. In addition, pursuant to the Merger
Agreement, Mr. Paulsen and two persons designated by Mr. Paulsen have been
nominated as directors of AGV. See "-Board Representation."
5
<PAGE>
The Merger Agreement provides that following the Merger AGV will indemnify,
defend and hold harmless to the full extent permitted by the General Corporation
Law of the State of Nevada (the "Nevada Law") each officer, director and agent
of Nucleus against all losses, claims, damages and actions resulting from their
service as directors, officers or agents of Nucleus prior to the Merger,
including, without limitation all losses, claims, damages and actions arising
out of the negotiation, execution and delivery of the Merger Agreement and the
consummation of the Merger.
See "The Merger--Description of the Merger--Interests of Certain Persons in
the Merger."
If all the nominees for election to the AGV Board are elected and the
Merger is consummated the members of the AGV Board will be: John Paulsen,
Stephen Calk (nominated by Mr. Paulsen), Mark Fera (nominated by Mr. Paulsen),
and Steven Walker and Adriann Belinne (current directors of AGV). Christopher
Walker will resign as a director of AGV.
Effective Time
The Merger will become effective when the Certificate of Merger and
Articles of Merger are duly filed with the Secretary of State of the State of
Illinois and the Secretary of State of the State of Nevada or at such later time
as specified in the Certificate of Merger and Articles of Merger (the "Effective
Time"). The filing of the Certificate of Merger and Articles of Merger will be
made as soon as practicable after all conditions set forth in the Merger
Agreement have been satisfied or waived, including approval of the Merger by the
stockholders of AGV. See "The Merger -- The Merger Agreement -- Effective Time."
Conversion of Shares
At the Effective Time of the Merger, each share of Nucleus Common Stock
outstanding immediately prior to the Effective Time (except as otherwise
provided with respect to shares as to which dissenters' rights will have been
exercised) will be converted into the right to receive 54,428.999 shares of AGV
Common Stock.
The following table presents the equity interest of AGV and Nucleus
stockholders on a pro forma combined basis as of September 30, 1998 based on the
Exchange Ratio.
Shares %
------ ------
Current AGV Stockholders(1) 11,681,268 17.7%
Nucleus Stockholder 54,428,999 82.3%
Total Pro Forma Combined Company 66,110,267 100.0%
Stockholders
- -----------------------
(1) Does not include outstanding warrants to purchase an aggregate of 3,670,501
shares of AGV Common Stock. If these shares were assumed to be outstanding,
current AGV stockholders would own an aggregate of 15,351,769 shares of AGV
Common Stock, or 22.0% of the Combined Company, and the Nucleus stockholder
would continue to own 54,428,999 shares of AGV Common Stock, or 78.0% of
the Combined Company.
The Exchange Ratio is subject to proportional adjustment in the event that
any stock dividend, subdivision, reclassification, recapitalization, split-up
combination, exchange of shares or the like occurs between the date of this
Proxy Statement and the Effective Time. The Exchange Ratio will also be adjusted
to take account of the one for ten reverse stock split, if the reverse stock
split occurs price to the Effective Time of the Merger. See "The Merger -- The
Merger Agreement -- Conversion of Shares."
6
<PAGE>
Exchange of Stock Certificates
Promptly after the Effective Time, AGV will make available to the Exchange
Agent (as defined herein) the AGV Common Stock issuable to the Nucleus
stockholder in the Merger. See "The Merger -- The Merger Agreement -- Exchange
of Certificates."
Board Representation
Mr. John Paulsen, Chairman of the Board, President and Chief Executive
Officer of Nucleus, and two persons designated by Mr. Paulsen - Stephen Calk and
Mark Fera - have been nominated as directors of AGV for election at the Meeting.
Acquisition Proposals; No Solicitation
The Merger Agreement provides that Nucleus will not (and will not cause or
permit any of its subsidiaries to) solicit, initiate, or encourage the
submission of any proposal or offer from any Person (as defined) relating to the
acquisition of all or substantially all of the capital stock or assets of
Nucleus or its subsidiaries (including any acquisition structured as a merger,
consolidation, or share exchange); provided, however, that Nucleus, its
subsidiaries, and their directors and officers will remain free to participate
in any discussions or negotiations regarding, furnish any information with
respect to, assist or participate in, or facilitate in any other manner any
effort or attempt by any Person to do or seek any of the foregoing to the extent
their fiduciary duties may require. The Merger Agreement also provides that
Nucleus shall notify AGV immediately if any person makes any proposal, offer,
inquiry, or contact with respect to any of the foregoing.
The Merger Agreement further provides that AGV will not (and will not cause
or permit any of its subsidiaries to) solicit, initiate, or encourage the
submission of any proposal or offer from any Person (as defined) relating to the
acquisition of all or substantially all of the capital stock or assets of AGV or
its subsidiaries (including any acquisition structured as a merger,
consolidation, or share exchange); provided, however, that AGV, its
subsidiaries, and their directors and officers will remain free to participate
in any discussions or negotiations regarding, furnish any information with
respect to, assist or participate in, or facilitate in any other manner any
effort or attempt by any Person to do or seek any of the foregoing to the extent
their fiduciary duties may require. The Merger Agreement also provides that AGV
notify Nucleus immediately if any Person makes any proposal, offer, inquiry, or
contact with respect to any of the foregoing.
Conditions to the Merger; Termination
The respective obligations of AGV and Nucleus to consummate the Merger are
each subject to various conditions which are set forth under "The Merger -- The
Merger Agreement -- Conditions." These include among others: (a) requisite
approval by the stockholders of AGV; and (b) the truth in all material respects
as of the Effective Time of the representations and warranties of AGV and
Nucleus set forth in the Merger Agreement. See "The Merger -- The Merger
Agreement -- Conditions."
No federal or state regulatory requirements must be complied with and no
governmental approvals must be obtained in connection with the Merger.
The Merger Agreement is subject to termination by AGV and Nucleus either
before or after the approval of the AGV stockholders if the Effective Time has
not occurred by December 31, 1998 and prior to that time upon the occurrence of
certain events. See "The Merger -- The Merger Agreement -- Termination."
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<PAGE>
Tax Consequences
The Merger will not have any income tax consequences for AGV stockholders.
However, no tax opinion has been received with respect to this matter.
Accounting Treatment
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. However, consummation of the Merger is not
conditioned upon the confirmation from any independent accountant to the effect
that the Merger will qualify as a pooling of interests transaction in accordance
with generally accepted accounting principles and rules, regulations and
policies of the Commission. See "The Merger -- Description of the Merger --
Accounting Treatment."
Rights of Dissenting Stockholders
AGV stockholders do not have appraisal rights in the Merger.
MARKET PRICES OF AGV COMMON STOCK
The following table sets forth, for the calendar quarters indicated ended
March 31, June 30, September 30 and December 31, the range of high and low bid
quotations per share of AGV Common Stock as reported by NASD on the
Over-The-Counter Electronic Bulletin Board.
On November 4, 1998 the last full trading date prior to the joint public
announcement by AGV and Nucleus of the signing of the Merger Agreement, the
average of the last reported high and low bid quotations reported by NASD on the
Over-The-Counter Electronic Bulletin Board (OTC-BB) for the AGV Common Stock was
$.22 per share. Based upon the Exchange Ratio of 54,428.999 shares of AGV Common
Stock for one share of Nucleus Common Stock and the AGV market price, the
equivalent market price per share of Nucleus Common Stock as of November 4,
1998, based upon the Exchange Ratio, would have been $11,974.38. On _________,
1998 the most recent practicable date prior to the printing of this Proxy
Statement, the average of the last reported high and low bid quotations on the
OTC-BB for AGV Common Stock was $_______ per share, and the equivalent market
price per share of Nucleus Common Stock based upon the Exchange Ratio would have
been $__________.
AGV Common Stock
----------------
Period High Bid Low Bid
------ -------- -------
1997
1st Quarter $ .46 $ .15
2nd Quarter $ .56 $ .15
3rd Quarter $ .43 $ .21
4th Quarter $1.28 $ .25
1998
1st Quarter $ .29 $ .22
2nd Quarter $ .32 $ .26
3rd Quarter $ .33 $ .31
4th Quarter (through November 13th) $ .25 $ .21
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<PAGE>
SUMMARY FINANCIAL INFORMATION
The following summary financial information of AGV and Nucleus has been
derived from their respective historical consolidated financial statements, and
should be read in conjunction with such historical consolidated financial
statements and the notes thereto, which for certain periods are included
elsewhere herein. The results of operations for the nine months ended September
30, 1998 are not necessarily indicative of the results of operations for the
full fiscal year. The summary pro forma combined financial information of AGV
and Nucleus which gives effect to the Merger as if it will be accounted for as a
pooling of interests, is derived from the unaudited pro forma condensed combined
financial data and should be read in conjunction with such pro forma data and
the notes thereto, which are included elsewhere in this Proxy Statement.
The pro forma information is presented for comparative purposes only and is
not necessarily indicative of the financial position or results of operations
which may occur in the future, or what the financial position or results of
operations would have been had the Merger been consummated for the periods or as
of the dates for which the pro forma data are presented.
<TABLE>
<CAPTION>
American General Ventures, Inc.
Nine Months Ended
Year Ended December 31 September 30
--------------------------------------------------------------------------- -----------------------------
1993 1994 1995 1996 1997 1997 1998
--------------------------------------------------------------------------- -----------------------------
Statement of
Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $ 825,307 $ 593,743 $ 985,979 $ 1,397,850 $ 721,745 $ 717,961 $ 579,472
------------ ------------ ------------ ------------ ------------ ------------ ------------
Cost of sales 641,779 415,932 721,372 1,365,308 690,064 574,494 465,848
Selling and
marketing expenses 14,600 32,145 42,474 25,357 15,948 10,826 6,801
Research and
development
expenses 75,027 -- -- -- -- -- --
General and
administrative
expenses 190,968 178,401 145,235 675,675 413,264 257,582 163,242
Rent paid to related
party 56,604 32,917 -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------
Income (loss) from
operations (153,671) (65,652) 76,898 (668,490) (397,531) (124,941) (56,419)
Other income
(expense) (126,789) (29,949) 43,483 (55,421) (33,390) -- (4,987)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net income (loss) $ (280,460) $ (95,601) $ 120,381 $ (723,911) $ (430,921) $ (124,941) $ (61,406)
============ ============ ============ ============ ============ ============ ============
Earnings (loss) per
share - basic and
diluted $ (0.04) $ (0.01) $ 0.01 $ (0.08) $ (0.05) $ (0.01) $ (0.01)
============ ============ ============ ============ ============ ============ ============
Weighted average
shares outstanding:
- - basic 7,805,000 7,928,171 8,300,000 9,200,000 9,506,222 9,200,000 11,318,734
========= ========= ========= ========= ========= ========= ==========
- - diluted 7,805,000 7,928,171 8,700,000 9,200,000 9,506,222 9,200,000 14,993,735
========= ========= ========= ========= ========= ========= ==========
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As of December 31 As of September 30
--------------------------------------------------------------------------------------- -----------
1993 1994 1995 1996 1997 1998
--------------------------------------------------------------------------------------- -----------
Balance Sheet
Data:
Working
capital $ 186,288 $ 131,678 $ 232,804 $ (140,544) $ (142,243) $ (39,252)
Total assets $ 292,868 $ 208,574 $ 324,012 $ 308,582 $ 256,571 $ 308,390
Long-term
liabilities $ 97,548 $ 116,031 $ 129,691 $ 465,168 $ 129,432 $ --
Accumulated
deficit $(1,522,820) $(1,618,421) $(1,544,401) $(2,221,951) $(2,652,872) $(2,433,635)
Stockholders'
equity (deficit) $ 128,979 $ 53,878 $ 166,898 $ (510,652) $ (211,490) $ 8,834
10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nucleus Holding Corporation
From April 30, 1997 From April 30, 1997 Nine Months
(inception) to September 30 (inception) to September 30 Ended September 30
--------------------------- --------------------------- ------------------
1997(1) 1997 1998
--------------------------- --------------------------- ------------------
Statement of Operations
Data:
<S> <C> <C> <C>
Sales $ 956,810 $ -- $ 2,114,153
----------- ----------- -----------
Cost of sales 672,343 --
Selling and marketing
expenses 86,000 -- 187,752
Research and development
expenses 248,690 200,673 39,264
General and
administrative expenses 246,995 2,308 481,155
----------- ----------- -----------
Income (loss) from (297,218) (202,981) (21,146)
operations
Other income (expense) -- -- 100,697
----------- ----------- -----------
Net income (loss) $ (297,218) $ (202,981) $ 79,551
=========== =========== ===========
Earnings (loss) per share - $ (297.22) $ (202.98) $ 79.55
basic and diluted =========== =========== ===========
Weighted average number 1,000 1,000 1,000
of shares outstanding - =========== =========== ===========
basic and diluted
As of December 31 As of September 30
--------------------------------------
1997(1) 1998
--------- ---------
Balance Sheet Data:
Working capital $(332,395) $(251,790)
Total assets $ 689,482 $ 655,186
Long-term liabilities $ -- $ --
Accumulated deficit $(297,218) $(217,667)
Stockholders' deficit $(294,218) $(214,667)
(1) Nucleus Holding Corporation commenced operations on April 30, 1997.
11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American General Ventures, Inc.
and Nucleus Holding Corporation
Nine Months
Year Ended December 31 Ended September 30
--------------------------------------------------------------------------- ----------------------------
1993 1994 1995 1996 1997 1997 1998
--------------------------------------------------------------------------- ----------------------------
Pro Forma Combined Statement
of Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $ 825,307 $ 593,743 $ 985,979 $ 1,397,850 $ 1,678,555 $ 717,961 $ 2,693,625
------------ ------------ ------------ ------------ ------------ ------------ ------------
Cost of sales 641,779 415,932 721,372 1,365,308 1,362,407 574,494 1,842,976
Selling and marketing
expenses 14,600 32,145 42,474 25,357 101,948 10,826 194,553
Research and
development expenses 75,027 -- -- -- 248,690 200,673 39,264
General and
administrative
expenses 190,968 178,401 145,235 675,675 660,259 259,890 644,397
Rent paid to related
party 56,604 32,917 -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------
Income (loss) from
operations (153,671) (65,652) 76,898 (668,490) (694,749) (327,922) (77,565)
Other income
(expense) (126,789) (29,949) 43,483 (55,421) (33,390) -- 95,710
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net income (loss) $ (280,460) $ (95,601) $ 120,381 $ (723,911) $ (728,139) $ (327,922) $ 18,145
============ ============ ============ ============ ============ ============ ============
Earnings (loss) per
share - basic and
diluted $ (0.04) $ (0.01) $ 0.01 $ (0.08) $ (0.02) $ (0.01) $ 0.00
============ ============ ============ ============ ============ ============ ============
Weighted average
number of shares
outstanding - basic 7,805,000 7,928,171 8,300,000 9,200,000 41,256,471 31,159,333 65,747,733
========= ========= ========= ========= ========== ========== ==========
- - diluted 7,805,000 7,928,171 8,700,000 9,200,000 41,256,471 31,159,333 69,418,234
========= ========= ========= ========= ========== ========== ==========
12
<PAGE>
As of December 31 As of September 30
----------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998
---------------------------------------------------------------------------------- -----------
Pro Forma Combined
Balance Sheet
Data:
Working capital $ 186,288 $ 131,678 $ 232,804 $ (140,544) $ (474,638) $ (291,042)
Total assets $ 292,868 $ 208,574 $ 324,012 $ 308,582 $ 946,053 $ 963,576
Long-term
liabilities $ 97,548 $ 116,031 $ 129,691 $ 465,168 $ 129,432 --
Accumulated
deficit $(1,522,820) $(1,618,421) $(1,544,401) $(2,221,951) $(2,950,090) $(2,651,302)
Stockholders'
equity (deficit) $ 128,979 $ 53,878 $ 166,898 $ (510,652) $ (505,708) $ (205,833)
13
</TABLE>
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of AGV and
Nucleus and combined per share data on an unaudited pro forma basis after giving
effect to the Merger as if it were accounted for as a pooling of interests
assuming that 54,428.999 shares of AGV Common Stock are issued in exchange for
each share of Nucleus Common Stock in the Merger. This data should be read in
conjunction with the selected historical and pro forma financial data, the pro
forma combined condensed financial data and the separate historical financial
statements of AGV and Nucleus and notes thereto included elsewhere in this Proxy
Statement. The unaudited pro forma combined financial data are not indicative of
the operating results that would have been achieved had the transaction been in
effect at the beginning of the periods presented and should not be construed as
representative of future operations.
Pro forma equivalent Nucleus amounts are calculated by multiplying the AGV
pro forma combined net income (loss) per common share and AGV pro forma combined
book value per common share by the Exchange Ratio so that the per share amounts
are equated to the respective amounts for one share of Nucleus Common Stock.
Neither AGV nor Nucleus has paid cash dividends since its inception. AGV
currently intends to retain all earnings for use in its business and therefore
does not anticipate paying any cash dividends in the foreseeable future. The
payment of future dividends will be at the discretion of the AGV Board and will
depend, among other things, on AGV's earnings, capital requirements, and
financial condition and debt covenants.
The following information is not necessarily indicative of the financial
position or results of operations which may occur in the future or what the
financial position or results of operations would have been had the Merger been
consummated for the periods or as of the dates for which such information is
presented.
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31 Ended September 30
------------------------------------------------------------- ------------------------
1993 1994 1995 1996 1997 1997 1998
------------------------------------------------------------- ------------------------
Net Income (loss) per
common share:
AGV
<S> <C> <C> <C> <C> <C> <C> <C>
Historical $ (0.04) $ (0.01) $ 0.01 $ (0.08) $ (0.05) $ (0.01) $ 0.00
Pro forma combined $ (0.04) $ (0.01) $ 0.01 $ (0.08) $ (0.02) $ (0.01) $ 0.00
Nucleus
Historical n/a n/a n/a n/a $ (297.21) $ (202.98) $ 79.55
Pro forma equivalent n/a n/a n/a n/a $ (960.62) $ (572.81) $ 15.02
14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
As of December 31 As of September 30
------------------------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1998
------------------------------------------------------------------- ------------------
Book value per common
share:
AGV
<S> <C> <C> <C> <C> <C> <C>
Historical $ 0.02 $ 0.01 $ 0.02 $ (0.06) $ (0.02) $ 0.00
Pro forma combined $ 0.02 $ 0.01 $ 0.02 $ (0.06) $ (0.01) $ 0.00
Nucleus
Historical n/a n/a n/a n/a $ (294.22) $ (214.67)
Pro forma equivalent n/a n/a n/a n/a $ (423.32) $ (169.50)
15
</TABLE>
<PAGE>
RISK FACTORS
PRIOR TO VOTING UPON THE MERGER PROPOSAL, STOCKHOLDERS SHOULD CONSIDER
CAREFULLY THE FOLLOWING RISK FACTORS, AS WELL AS THE OTHER INFORMATION SET FORTH
ELSEWHERE IN THIS PROXY STATEMENT. THIS PROXY STATEMENT CONTAINS IN ADDITION TO
HISTORICAL INFORMATION, FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934 (THE "EXCHANGE ACT").
Lack of Profitable Operations. AGV's revenue to date has not been
sufficient to offset the expenses incurred in its business activities. AGV had a
net loss of approximately $61,406 for the nine months ended September 30, 1998,
and an accumulated deficit of $2,433,635 at September 30, 1998. Nucleus has only
a brief operating history, having commenced its principal lines of business in
1997. There can be no assurance that the Combined Company will achieve
profitability. The profitability of the Combined Company, will depend, among
other things, on the successful integration of the business activities of the
two companies, and on growing the Combined Company through acquisitions.
Lack of Management Experience. The management of AGV following the Merger,
although experienced in the telecommunications industry, has only limited
experience in the computer business. See "Election of AGV Directors" and
"Executive Officers and Directors."
"Checkbook" and the "Business Browser" are Unproven Technologies. A portion
of Nucleus's business plan is to develop and market "Checkbook," a website that
stores, tracks, and presents billing information over the Internet, along with
"Business Browser" a front-end tool that allows clients to directly access
frequently used websites via a simplified user interface. Although management
believes that "Checkbook" and "Business Browser" will be successful, the
respective technologies are still under development, and there can be no
assurance that "Checkbook" or "Business Browser" can be successfully developed,
marketed, or sold. Failure to develop, in a timely manner, "Checkbook" or
"Business Browser" would materially adversely affect the Company.
Lack of Technical Experience. AGV and Nucleus employees have limited
experience in developing the "Checkbook," and "Business Browser" technologies.
Consequently, the Combined Company will need to rely on third parties in order
to continue the development of these technologies.
Start-up Computer Business. "PC Express" and "PC OnLine" have generated
only limited revenues, and can best be characterized as "start-up" businesses.
There can be no assurance that "PC Express" and "PC OnLine" can be successfully
expanded or can generate significant revenues or profits.
Risks Inherent in Growth Strategy. The Combined Company's business strategy
depends in significant part on its ability to acquire additional computer
service companies, computer build-to-order companies, computer sales and
hardware companies, and telecommunications resellers. This strategy is dependent
on the continued availability of suitable acquisition candidates and subjects
the Combined Company to the risks inherent in assessing the value, strengths and
weaknesses of acquisition candidates, and the operations of the acquired
companies. The Combined Company's growth is expected to place significant
demands on the Combined Company's financial and management resources. In recent
16
<PAGE>
years, acquisition prices and competition for these type of companies has
increased. To the extent the Combined Company is unable to acquire companies in
a cost-effective manner, its ability to expand its business and enhance results
of operations would be adversely affected. In addition, the process of
integrating acquired operations presents a significant challenge to the Combined
Company's management and may lead to unanticipated costs or a diversion of
management's attention from day-to-day operations. There can be no assurance
that the Combined Company will be able to achieve its growth strategy or that
this strategy will ultimately prove successful. A failure to successfully
achieve its growth strategy could have an adverse effect on the Company's
results of operations.
Management of Growth. The Combined Company requires an effective planning
and management process to fully exploit the emerging demand for Internet payment
services. To manage this anticipated rapid growth, the Combined Company must be
able to implement and improve its operational and financial systems and train
and manage its employee base. Further, AGV and Nucleus are required and the
Combined Company will continue to be required to manage multiple relationships
among various financial institutions, merchants, transaction processors,
strategic partners, technology distributors, and other third parties. Although
AGV and Nucleus believes they have made adequate allowances for the costs and
risks associated with this expansion, there can be no assurance that the
Combined Company's systems, procedures, or controls will be sufficient to
support current or future operations, or that the Combined Company's management
will be able to concurrently deal with this expansion to achieve the rapid
execution necessary to fully exploit the market window for the Combined
Company's services, particularly Internet Payment Services, in a timely and
cost-effective manner. There also can be no assurance that the Combined Company
will be able to successfully compete with the more extensive and well-funded
sales and marketing and research and development operations of the Combined
Company's competitors. If the Combined Company is unable to manage growth,
integrate operations effectively, or achieve the rapid expansion necessary to
fully exploit the market window for the Combined Company's services in a timely
and cost-effective manner, the business, operating results and financial
condition of the Combined Company may be materially adversely affected.
Possible Inability to Obtain NASDAQ SmallCap Listing. The Combined
Company's business strategy depends on significant part on its ability to
acquire additional computer service companies, computer build-to-order
companies, computer sales and hardware companies, and telecommunications
resellers. This strategy is dependent on utilizing the common stock of the
Combined Company. Presently, the common stock of the Combined Company is
reported by NASD on the Over-the-Counter Electronic Bulletin Board (OTC-BB). The
Combined Company's strategy depends, to a significant extent, on being able to
obtain NASDAQ SmallCap listing. In order to obtain NASDAQ SmallCap Listing, a
company is required, among other things, to have a public float of $5 million,
one million publicly-held shares, 300 shareholders, a minimum bid price of $4, a
one-year operating history and three market makers. Also required for NASDAQ
SmallCap Listing is either $4 million in net assets, a $50 million market
capitalization, or $750,000 in net income in two of the last three years. At the
time of the Merger, and after giving effect to the reverse stock split, the
Combined Company will not have the required public float, number of publicly
held shares, net assets, market capitalization or net income, and there can be
no assurance that the Combined Company will be able to meet these or the other
NASDAQ SmallCap requirements in the near future. Failure of the Combined Company
to obtain NASDAQ SmallCap listing could have a material adverse effect on the
Company's business strategy.
Possible, Lack of Market Acceptance of AGV Common Stock. The business
strategy of the Combined Company depends, to a large extent, upon the
willingness of a potential seller to accept AGV Common Stock for his business.
Even if the Combined Company achieves NASDAQ SmallCap listing, there can be no
assurance that a seller will accept such AGV Common Stock for his business.
Except as set forth in the discussion of the possible acquisition of CompPro in
"The Merger-Reasons for the Merger," neither AGV nor Nucleus currently has any
plans or proposals to acquire other companies.
Discontinuance of Relationship with Wal-Mart. AGV's revenues have been
largely dependent on its relationship with Wal-Mart. AGV and Wal-Mart terminated
their business relationship in October 1998.
17
<PAGE>
Consequently, any revenues previously achieved by AGV should not be relied upon
as an indication of revenues that could be achieved by the Combined Company in
the future.
Uncertain Development of Markets. At this early stage of development, the
markets of the Combined Company are rapidly evolving and are characterized by an
ever-increasing number of market entrants producing similar products and
services. Typically, demand and market acceptance for recently introduced
products and services are highly uncertain in new rapidly evolving industries.
Internet security, reliability, cost, ease of use, and quality of service are
factors that may affect the general growth of the use of the Internet and,
specifically, the use of Internet commerce.
Capital Needs. To date, AGV has relied primarily on equity and debt
financing, along with loans from officers, to finance its operations. Although
AGV believes that the Combined Company will achieve profitability in the near
future, there is no assurance that it will be able to do so, or, if it cannot
achieve profitability, that the Combined Company will be able to obtain
additional funds. If adequate funds are not available, the Combined Company may
be required to significantly curtail its business activities.
The Company expects to seek, from time to time, additional sources of
funds, the form of which will vary depending upon prevailing market and other
conditions and may include short or long-term borrowings or the issuance of debt
or equity securities. However, there can be no assurance that AGV will be able
to obtain additional funds or, if such funds are available, that such funding
will be on favorable terms. See "AGV--Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Nucleus--Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Competition. The long distance, Internet and PC industries are intensely
competitive and are significantly affected by new service introductions and the
market activities of major industry participants. Competition is based upon
pricing levels, network and customer service quality, and the availability of
value-added services.
The ongoing competitiveness of the Combined Company within these industries
will depend on its continued ability to maintain high-quality, market-driven
services at prices, in most cases, equal to or below those charged by its
competitors. There can be no assurance that the Combined Company will be able to
successfully compete with existing or future competitors.
Due to a dynamic growth environment, the Combined Company expects
competition to persist and intensify in the foreseeable future. AGV and Nucleus
currently compete and the Combined Company may eventually compete with companies
with longer operating histories, greater name recognition, larger customer
bases, and greater overall resources.
Web browser companies, software and hardware vendors such as Microsoft, as
well as many of Nucleus's collaborative partners may well present a significant
challenge to the success of the Combined Company now or in the near future by
establishing cooperative relationships among themselves or with third parties to
increase their competitive edge. There is no assurance that the competitive
pressures faced by the Combined Company in the future will not have a material
adverse effect on its business, financial condition, or operating results.
Checkbook's Development of New Services. Checkbook's anticipated revenues
will be substantially derived from relatively small fees charged to subscribers
and larger fees charged to vendor companies. The market for these services is
characterized by rapidly changing technology and evolving industry standards.
Furthermore, large numbers of transactions are essential, as is the Combined
Company's ability to design, develop, test, introduce, and support new services
and enhancements on a timely basis. Changing end-user needs must be met, and
response to technological developments and emerging industry standards must be
facilitated.
18
<PAGE>
Risks of Defects and Delays in Development. Software-based services and
computing systems, such as the ones which comprise PC OnLine and CheckBook,
often experience delays in development, and the basic software package may
contain undetected errors or failures when initially introduced or, at a later
date, when the volume of provided services increases. In light of this fact, the
Combined Company may encounter delays in the development of its underlying
software and computing systems. Additionally, there can be no assurance that, in
spite of thorough testing by the Combined Company and its potential customers,
errors will not exist in the basic software, or that the Combined Company will
not experience impediments in development that will delay the shipment of its
software, the commercial release of its services, or the market acceptance of
its services, any of which could have a material adverse affect on the business,
financial condition, or operating results of the Combined Company.
Dependence on Key Personnel. The overall performance of the Combined
Company will be dependent, in large part, upon the performance of its executive
officers and key employees, most of whom will not have previously worked
together. Consequently, it is incumbent upon the Combined Company to retain and
motivate high-quality personnel, with particular emphasis on management and
specialized development teams. Neither AGV nor Nucleus currently maintains, or
intends to maintain, "key person" life insurance policies on any of its
employees. Therefore, the loss of any one of their key employees, particularly
the founder of Nucleus, John C. Paulsen, could have a material adverse effect on
the general business climate of the Combined Company. In order to ensure future
success, the Combined Company must also be able to identify, hire, train, and
retain highly qualified technical and managerial personnel. Because competition
for qualified personnel is intense, there can be no assurance that the Combined
Company will be able to attract, assimilate, or retain qualified technical and
managerial personnel in the future. The failure of the Combined Company to do so
may have a material adverse affect on the business, financial condition, and
operating results of the Combined Company.
Limited Sales Force; Evolving Distribution Channels. Nucleus and AGV have
limited sales and marketing forces, nor do they have established distribution
channels for their software or services. The Combined Company intends to
distribute its software to businesses and individuals gratis and to distribute
the majority of its software through bundling arrangements with various vendor
companies. Therefore, the Combined Company must achieve broad distribution of
its software to individuals and businesses and secure general adoption of its
services and technology in order to generate substantial revenues. The Combined
Company can provide no assurance as to its ability to continue to establish
vendor relationships or to adequately distribute its software so as to generate
sufficient demand for its services. Failure to accomplish any of the above may
have a material adverse effect on the business, financial condition, and
operating results of the Combined Company.
Dependence on Intellectual Property Rights; Risk of Infringement; Possible
Litigation. Nucleus' and AGV's success and ability to compete depends, in part,
on their proprietary technology, and Nucleus and AGV rely predominantly on
copyright, trade secret, and trademark law to protect this technology. Neither
company has patents. There can be no assurance that any patents for any of
Nucleus' and/or AGV's products will be granted, or that, if granted, such
patents would survive a legal challenge to their validity or provide meaningful
levels of protection. Nucleus and AGV generally enter into confidentiality and
assignment agreements with their employees, consultants, and vendors and
generally control access to and distribution of their software, documentation,
and other proprietary information. Despite these precautions, a third party
might be able to copy or otherwise obtain these services and technology without
authorization or to develop them independently. There can be no assurance that
steps taken by Nucleus and AGV will prevent misappropriation of their technology
or that such agreements will be enforceable. Future litigation may also be
necessary to enforce the Combined Company's intellectual property rights, to
protect its trade secrets, to determine the validity and scope of the
proprietary rights of others, or to defend against claims of infringement or
invalidity. Such litigation, whether successful or unsuccessful, could result in
substantial costs and diversions of resources, either of which could have a
material adverse effect on the business, financial condition, or operating
results of the Combined Company.
Government Regulation. The operations of Nucleus are subject to various
state and federal regulations. Because Internet commerce, in general, and
Nucleus's services, in particular, are so new, the application of many of these
19
<PAGE>
regulations is uncertain and difficult to interpret. The agencies responsible
for the interpretation and enforcement of these regulations could amend those
regulations or implement new interpretations of existing regulations. New
legislation may also be passed that would impose additional regulations on the
Combined Company. Any such change in the regulations applicable to the business
of the Combined Company could lead to increased operating costs and could reduce
the convenience and functionality of the Combined Company's services, resulting
in reduced market acceptance. Furthermore, if a regulatory agency or law
enforcement authority asserts that the Combined Company is failing to comply
with existing regulations, the cost of responding to such a challenge could
result in significant drains on the Combined Company's financial and management
resources. This occurrence could have a material adverse effect on the business,
financial condition or operating results of the Combined Company.
The Internet is becoming increasingly popular, and it is possible that laws
and regulations may be enacted that would cover issues of user privacy, pricing,
content, characteristics, and quality of products and services, the adoption of
which may decrease the growth of the Internet. This, in turn, could decrease the
demand for the Combined Company's services, increase the cost of doing business,
or could otherwise have a material adverse effect on the business, financial
condition, or operating results of the Combined Company.
Limited Manufacturing and Marketing Capability and Experience. AGV and
Nucleus have limited commercial scale manufacturing capacity and experience. In
addition, neither AGV nor Nucleus have large, established sales forces and both
primarily rely on third parties to market their products. There can be no
assurance that the Combined Company's marketing strategy will be successful. The
Combined Company's ability to market its products successfully in the future
will be dependent on a number of factors, many of which are not within its
control.
Risk of Loss from Returned Transactions, Merchant Fraud, or Erroneous
Transmissions. The Combined Company will be utilizing two principal fund
transfer systems: the automated clearing house ("ACH") system for electronic
fund transfers and the national credit card systems (e.g., Master Card, Visa,
American Express, and Discover) for electronic credit card settlements. As a
user of these established payment systems, the Combined Company may bear some of
the credit risks assumed by other users of these systems arising from returned
transactions due to unauthorized use, disputes, theft, or fraud. The Combined
Company may also bear some risk of merchant fraud and transmission errors if the
recipient of erroneously transmitted funds fails to return them. Additionally,
the agreement between the Combined Company's service users for allocation of
these risks will be in electronic form, and, while digitally signed, will not be
manually signed and, therefore, may not be enforceable. Finally, the Combined
Company may be subject to merchant fraud, including such actions as inputting
false sales transactions or false credits. The Combined Company intends to
manage all of these risks through risk management systems, internal controls,
and system security, but there can be no assurance that these practices or
reserves will be sufficient to protect the Combined Company from returned
transactions, merchant fraud, or erroneous transmissions that could have a
material adverse effect on the business, financial condition, or operating
results of the Combined Company.
System Interruption and Security Risks; Possible Liability; Lack of
Insurance. Nucleus's operations depend on its ability to protect its system,
which is located at a single site, from interruption by damage from fire,
earthquake, power loss, telecommunications failure, unauthorized entry or other
events beyond its control. There can be no assurance that Nucleus's existing and
planned precautions of redundant systems, regular data backups, and other
procedures are adequate to prevent any major system outage or data loss.
Moreover, unanticipated problems may cause such occurrences. In spite of the
implementation of security measures, Nucleus's and the Combined Company's
infrastructure may also be vulnerable to computer viruses, hackers, or similar
disruption intentionally or unintentionally caused by its customers or other
Internet users. Damage or failure causing interruption of the Combined Company's
operations could have a material adverse effect on its business, financial
condition, or operating results. Computer break-ins and other disruptions may
jeopardize the security of information stored in and transmitted through the
computer systems of the individuals, businesses, and financial institutions
utilizing the Combined Company's services. This may result in significant
liability, as well as deter potential customers from using its services.
20
<PAGE>
Persistent problems continue to affect public and private data networks.
For example, in a number of networks, hackers have bypassed firewalls and
misappropriated confidential information. The Combined Company intends to be
careful with respect to its hiring decisions and will maintain controls through
software design, security systems, and accounting procedures in order to prevent
unauthorized employee access to user accounts. However, the possibility exists
that an employee of the Combined Company could divert users' funds while they
are in the Combined Company's control. This occurrence would also expose the
Combined Company to a risk of loss or litigation and potential liability to
users. Neither AGV nor Nucleus currently have product liability insurance to
protect against these risks, and there can be no assurance that such insurance
will be available to the Combined Company on commercially reasonable terms, if
at all.
Dependence on the Internet. The Combined Company's operating performance
will depend, in large part, on the emergence of the Internet as a widely used
commercial marketplace. However, the Internet may not prove to be a viable
commercial marketplace because of inadequate development of the necessary
infrastructure (e.g., reliable network backbone), untimely development of
complementary products (e.g. high-speed modems), delays in the development or
adoption of new standards and protocols required to handle increased levels of
Internet activity, and increased government regulation. There also can be no
assurance that the Internet infrastructure will continue to be able to support
the increased demand place on it by significant growth in the number of users
and level of use. If the necessary infrastructure or complementary products are
not developed, or if the Internet does not become a viable commercial
marketplace, the business, operating results, and financial condition of the
Combined Company will be materially adversely affected.
Stock Ownership Following the Merger. The following table presents the
equity interest of AGV and Nucleus stockholders on a proforma combined basis as
of September 30, 1998 based on the Exchange Ratio.
21
<PAGE>
Shares %
------ ------
Current AGV Stockholders(1) 11,681,268 17.7%
Nucleus Stockholder 54,428,999 82.3%
Total Pro Forma Combined Company 66,110,267 100.0%
Stockholders
- -----------------------------------
(1) Does not include outstanding warrants to purchase an aggregate of
3,670,501 shares of AGV Common Stock. If these shares were assumed to be
outstanding, current AGV stockholders would own an aggregate of 15,351,769
shares of AGV Common Stock, or 22.0% of the Combined Company, and the Nucleus
stockholder would continue to own 54,428,999 shares of AGV Common Stock, or
78.0% of the Combined Company.
Following the Merger, Nucleus's sole stockholder will beneficially own
82.3% of the outstanding shares of AGV Common Stock (excluding the warrant
exercises set forth in note (1) above). As a result, John C. Paulsen, as owner
of the sole stockholder of Nucleus, will have control over the outcome of all
matters submitted to AGV's stockholders for approval, including the election of
directors and approval of significant corporate transactions. Such concentration
of ownership may also have the effect of delaying, preventing or deterring a
change in control of AGV. See "AGV--Beneficial Ownership of AGV Common Stock"
and "The Merger--The Merger Agreement--Board Representation," respectively.
Dependence on Third Party Transmission and Billing Facilities. TelOne does
not currently own the transmission facilities necessary to complete the
transmission of, and bill for, long distance telephone calls. Therefore,
TelOne's direct-dial long distance telephone business is dependent on
contractual agreements with non facilities-based carriers for the transmission
of, and billing for, calls. TelOne believes that it has sufficient access to
transmission facilities and billing services at competitive rates and expects to
have such access in the future. However, there can be no assurance that
transmission facilities and billing services will be available in the future at
rates necessary to enable TelOne to achieve profitability.
Technological Changes And New Services. The telecommunications industry has
been, and continues to be, characterized by steady technological change,
frequent new service introductions, and evolving industry standards. TelOne
believes its future success will depend on its ability to anticipate such
changes and market and offer, on a timely basis, responsible services that meet
the requirements of these evolving industry standards. There can be no assurance
that TelOne will have sufficient resources to make the financial investments
necessary to acquire new technology or to introduce new services that would
satisfy an expanded range of customer needs.
Service Interruptions And Equipment Failures. Nucleus's business requires
transmission and switching facilities that are operable 24 hours a day, 365 days
a year. Service providers, such as Nucleus, may, on occasion, experience
temporary service interruptions or equipment failures resulting, in some cases,
from causes beyond its control. Any such event would impair the Combined
Company's ability to provide service for its customers and could have a material
adverse effect on the Combined Company's business.
Customer Attrition. TelOne believes a high level of customer attrition is
commonplace throughout the telecommunications industry. TelOne has not, to date,
experienced significant attrition, TelOne's historical level of customer
attrition may not be indicative of future levels, and there can be no assurance
that any steps taken to counteract increased customer attrition would be
effective.
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Risk of Carrier Failure. As a long distance reseller, TelOne is dependent
upon its underlying telecommunications carrier. Should the underlying
telecommunications carrier fail to provide service to TelOne, TelOne's business
would be severely disrupted as many of TelOne's customers would elect to not
continue utilizing TelOne's services.
Limitation on Use of Net Operating Loss Carryforwards. AGV has net
operating loss carryforwards available to reduce future federal taxable income
aggregating, approximately $2,676,000 as of December 31, 1997, which expire from
the years 2002 through 2012. See Note 5 to AGV's Consolidated Financial
Statements. As a result of the Merger and the related AGV share issuances, a
change in ownership is expected and therefore the use of such carryforwards may
be limited. Subsequent changes in AGV's ownership may cause further limitations
on the annual amounts of the carryforwards which can be utilized.
No Assurance That AGV or Its Stockholders Will Realize Anticipated Benefits
from the Merger. The AGV Board and the Nucleus Board have given careful
consideration to the Merger and believe it to be in the best interest of their
respective stockholders. However, the Merger involves the combination of certain
aspects of two companies that have operated independently. Accordingly, there
can be no assurance that Nucleus can be successfully integrated into AGV or that
AGV and its stockholders will ultimately realize any of the anticipated benefits
of the Merger.
No Investment Banking Opinion. No investment banking opinion or opinion
from any third party has been obtained in connection with the Merger.
Consequently, stockholders can be given no assurance as to the fairness of the
Merger-from a financial standpoint.
Forward-Looking Statements. Certain statements contained in this Proxy
Statement, including without limitation statements containing the words
"believes," "anticipates," "intends," "expects" and words of similar import,
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of AGV or Nucleus or
industry results to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
condition, both nationally and in the regions in which AGV or Nucleus operate;
competition; changes in business strategy or development plans; the ability to
attract and retain qualified personnel; the lack of assurance that the cost
savings, growth opportunities and synergies expected from the Merger will be
achieved; the lack of assurances as to the future performance of the Combined
Company; the availability and terms of capital to fund the expansion of the
Combined Company's business; and other factors referenced in this Proxy
Statement. Certain of these factors are discussed in more detail elsewhere in
this Proxy Statement, including without limitation under the captions "Summary,"
"Risk Factors" and "Unaudited Pro Forma Condensed Combined Financial
Information." GIVEN THESE UNCERTAINTIES, STOCKHOLDERS ARE CAUTIONED NOT TO PLACE
UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. Each of AGV and Nucleus
disclaim any obligation to update any such factors or to publicly announce the
result of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments.
INTRODUCTION
General
This Proxy Statement is being furnished to the stockholders of AGV in
connection with the solicitation of proxies by the AGV Board from holders of
outstanding shares of AGV Common Stock for use at the AGV Meeting. At the AGV
Meeting, AGV stockholders will be asked to consider and vote upon (i) the
approval of the Merger, the Merger Agreement, the issuance of shares of AGV
Common Stock in connection with the Merger and the change of the name of AGV
into Nucleus, Inc. and (ii) the election of three directors for the ensuing
year.
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The information in this Proxy Statement with respect to Nucleus has been
supplied by Nucleus and the information with respect to AGV has been supplied by
AGV.
The principal executive offices of AGV are located at 3650 Austin Bluffs
Parkway, Suite 138, Colorado Springs, Colorado 80918 and its telephone number is
(719) 548-1616. The principal executive offices of Nucleus are located at 150
North Michigan Avenue, Suite 3610, Chicago, Illinois 60601, and its telephone
number is (312) 683-9000.
Merger - Consideration
Upon consummation of the Merger, each outstanding share of Nucleus Common
Stock (other than shares held by stockholders who exercises their dissenters'
rights under Illinois Law or shares held by Nucleus as treasury stock or owned
by AGV) will be converted into the right to receive 54,428.999 pre-reverse stock
split shares of AGV Common Stock (the "Exchange Ratio"). The Exchange Ratio is
subject to proportional adjustment in the event that any stock dividend,
subdivision, reclassification, recapitalization, split-up combination, exchange
of shares or the like occurs between the date of this Proxy Statement and the
Effective Time. The Exchange Ratio will also be adjusted to take account of the
one for ten reverse stock split, if the reverse stock split occurs price to the
Effective Time of the Merger.
Voting and Proxies
Holders of record of shares of AGV Common Stock at the close of business on
November 5, 1998 (the "Record Date") will be entitled to vote at the Meeting and
at any adjournment or postponement thereof. At the close of business on the
Record Date, AGV had 11,681,268 shares of its Common Stock outstanding.
The presence, either in person or by proxy, of the holders of at least a
majority of the outstanding shares of AGV Common Stock entitled to vote is
necessary to constitute a quorum at the Meeting. The holder of each outstanding
shares of AGV Common Stock is entitled to one vote per share on the proposal to
approve and adopt the Merger Agreement. The affirmative vote of the holders of a
majority of the outstanding shares of AGV Common Stock present or represented at
the AGV Meeting and entitled to vote is required for approval and adoption
thereof. On such matter, a majority of the quorum must actually vote in favor of
the proposal for it to pass, and therefore, although both broker non-votes and
abstentions will be counted in determining if a quorum is present,broker non-
votes and abstentions will have the same legal effect as votes "against" the
matter even though the stockholder or interested parties analyzing the results
of the voting may interpret such a vote differently. On the vote to elect
directors, each stockholder is entitled to three votes for each share of AGV
Common Stock he owns, and such stockholder may cumulate his votes to vote for
one, two, or three directors. The three nominees for election as directors at
the Meeting who receive the greatest number of votes cast for the election of
directors at that meeting by the holders of the AGV Common Stock entitled to
vote at the meeting shall become directors of AGV.
At the Record Date, directors and executive officers of AGV as a group (3
persons) beneficially owned 6,025,200 shares of AGV Common Stock representing
approximately 51.6% of the total outstanding shares of AGV Common Stock
(excluding shares subject to warrants held by such persons). See
"AGV--Beneficial Ownership of AGV Common Stock." Management of AGV believes that
both of its directors and executive officers who own shares of AGV Common Stock
intend to vote in favor of the Proposals.
All shares of AGV Common Stock represented by properly executed proxies
will be voted at the Meeting in accordance with the directions indicated on the
respective proxies unless the proxies have been previously revoked. Unless
contrary direction is given, all AGV shares represented by such proxies will be
voted FOR the Merger, and FOR the nominees for election as directors, and in the
proxy holder's discretion as to such other matters incident to the conduct of
the Meeting as may properly come before stockholders at the Meeting.
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The AGV Board unanimously recommends that stockholders vote FOR both of the
Proposals and all nominees for election of directors.
If any other matters are properly presented at the Meeting for action,
including a question of adjourning the meeting from time to time, the persons
named in the proxies and acting thereunder will have discretion to vote on those
matters in accordance with their best judgment. The Meeting may be adjourned and
additional proxies solicited if at the time of the Meeting the vote necessary to
approve the Proposals has not been obtained. Any adjournment of the Meeting will
require the affirmative vote of the holders of at least a majority of the AGV
shares present or represented at the Meeting (regardless of whether those shares
constitute a quorum).
A stockholder executing and returning a proxy has the power to revoke the
proxy at any time before it is voted. A stockholder who wishes to revoke a proxy
can do so by executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of AGV prior to the vote at the Meeting or by
appearing in person at the Meeting and voting in person the shares to which the
proxy relates. Any written notice revoking a proxy should be sent to American
General Ventures, Inc., 3650 Austin Bluff Parkway, Suite 138, Colorado Springs,
Colorado 80918 and its telephone number is (719) 548-1616.
Solicitation
AGV will bear its own expenses in connection with this solicitation,
including the cost of preparing and mailing this Proxy Statement. In addition to
solicitation by use of the mails, proxies may be solicited by directors,
officers and employees of AGV, respectively, in person or by telephone, telegram
or other means of communication. Such directors, officers and employees will not
be additionally compensated, but may be reimbursed for reasonable out-of-pocket
expenses in connection with such solicitation. Arrangements will also be made
with custodians, nominees and fiduciaries for forwarding of proxy solicitation
materials to beneficial owners of shares held of record by such custodian,
nominees and fiduciaries and AGV will reimburse such custodians, nominees and
fiduciaries for reasonable expenses incurred in connection therewith.
THE MERGER
The description of the Merger contained in this Proxy Statement is
qualified in its entirety by reference to the Merger Agreement, the full text of
which is contained in Appendix A hereto and is incorporated herein by reference
and to which reference is hereby made for the terms thereof.
DESCRIPTION OF THE MERGER
General
Upon consummation of the Merger, Nucleus Holding Corporation ("Nucleus")
will merge with and into AGV, and AGV will change its name to Nucleus, Inc. The
sole stockholder of Nucleus will receive 54,428.999 shares of AGV Common Stock
in exchange for each share of Nucleus Common Stock. The Merger will be effective
after satisfaction (absent waivers) of all conditions contained in the Merger
Agreement, including the approval of the Merger by the stockholders of AGV.
Background of the Merger
Starting in July 1998, John C. Paulsen, Nucleus's Chairman of the Board,
President and Chief Executive officer, held informal, preliminary discussions
with various computer companies to ascertain whether any of such companies had
an interest in a strategic collaboration with Nucleus, including a merger,
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equity investment or joint venture. One of the individuals Mr. Paulsen met with
was Steve Walker, Chairman of the Board, President and Chief Executive Officer
of AGV, who was introduced to Mr. Paulsen by Steve Calk. Mr. Calk knew of AGV
through an acquaintance at Chicago Bancorp, who had a business relationship with
Mr. Walker.
In September 1998, Mr. Paulsen and Mr. Walker held two telephone
conversations, during which a confidentiality agreement was reached and
information concerning the two companies was exchanged. Following the second
telephone conversation, Mr. Paulsen briefed the Nucleus Board on the
conversations. The Nucleus Board recommended that Mr. Paulsen continue his
negotiations with Mr. Walker and begin negotiating a merger agreement with AGV.
Thereafter, on or about October 6, 1998, Mr. Paulsen flew to Colorado to meet
with Mr. Walker. The meeting resulted in an agreement to the terms of a contract
of merger. Shortly after the meeting, Mr. Paulsen directed his outside counsel
to begin drafting an agreement of merger, and directed his controller to begin a
due diligence investigation on AGV. At the same time, Mr. Walker directed his
accountants to begin a due diligence investigation on Nucleus.
On October 12, 1998, the AGV Board held a special meeting at which it heard
presentations by AGV's management concerning the Merger and the proposed terms.
AGV management reviewed with the AGV Board the status of the negotiations and
the rationale for pursuing the Merger. AGV's counsel reviewed with the AGV Board
a draft of the Merger Agreement and AGV Board members provided AGV's management
and counsel with comments on the draft of the Merger Agreement.
Between October 12, 1998 and October 22, 1998, management of AGV and
Nucleus and their respective counsel finalized the Merger Agreement and the
status of the negotiations was periodically reported to the AGV and the Nucleus
Boards. The respective AGV and Nucleus Boards reviewed the proposed terms of the
Merger during special meetings held on October 23, 1998 by telephone. The
Nucleus Board was advised that a formal, written offer would be submitted by AGV
on the following day. At the continuation of the meetings on October 24, 1998,
management of both companies and their legal counsel continued discussions on a
variety of matters relative to the Merger and its structure as well as the terms
of the Merger Agreement. At the conclusion of these special meetings, both
boards unanimously approved the terms of the Merger Agreement and the
transactions contemplated thereunder.
Reasons of the AGV Board for the Merger
The AGV Board believes the merger of Nucleus with and into AGV will create
a stronger company by integrating complementary lines of business. The Combined
Company intends to continue the computer business of Nucleus and AGV and the
telecommunications business of Nucleus. The computer business of the Combined
Company will comprise 4 categories, which have been carried out to date by
Nucleus: on-premise sales; internet build-to-order sales; on-line help; and
express repair service. These businesses will be continued by the Combined
Company. In addition to continuing the computer business, following the Merger,
the Combined Company intends to begin purchasing and consolidating other
computer service companies, build-to-order computer companies, computer hardware
companies, and telecom companies. Neither AGV nor Nucleus currently have any
plans or proposals to acquire any such companies.
See "Risk Factors" for a discussion of the risks associated with the Merger
and the ownership of AGV Common Stock following the Merger.
Recommendations of AGV Board - Factors Considered
The AGV Board unanimously approved the Merger as fair to, and in the best
interests of the Stockholders of AGV. The AGV Board believes that following the
Merger, AGV should emerge a stronger company because of the technological
expertise and commercial potential of the Combined Company. In reaching its
conclusion, the AGV Board reviewed with AGV management, legal counsel, and
accountants a number of factors, including:
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1. The potential long-term benefits that could result from the combination
of AGV's and Nucleus's businesses in the Merger and their complementary
strengths, especially in the computer field. The AGV Board believes that
Nucleus's computer products and AGV's distribution channels could significantly
increase the business of the Combined Company. In addition, the AGV Board
believes that Nucleus's computer expertise may allow AGV to build, rather than
outsource, computers, and may expand the ability of AGV to perform maintenance
on computers.
2. The AGV Board's belief that the size of the Combined Company will be a
more competitive company than either AGV or Nucleus would be on a stand alone
basis. Specifically, the Combined Company may be able to achieve volume
discounts and efficiencies in the business of computer purchase, repair and
maintenance.
3. The AGV Board's belief that Nucleus's TelOne business can achieve and
maintain profitability. The AGV Board believes that the resale of long-distance
telecommunications services can be extremely profitable.
4. The current market conditions and historical market prices and trading
information with respect to the AGV Common Stock. The AGV Board believed, based
on negotiations with Nucleus, that Nucleus was not willing to enter into the
Merger Agreement at an exchange ratio of less than 54,428.999. The AGV Board
also considered the likelihood that the market price of the AGV Common Stock in
the near term would be adversely affected by the announcement of the Merger.
However, this did not affect the AGV Board's conclusion that the Merger was in
the best interest of AGV stockholders based on the long-term benefits that the
Combined Company could offer its stockholders. The AGV Board, however, did not
obtain the opinion of an investment bank or other independent third party as to
the fairness of the Merger to AGV and its stockholders from a financial point of
view.
5. The effect of the shares to be issued in the Merger. The AGV Board
weighed the potential dilutive effect and the effect on equity returns and
performance resulting from the issuance of shares in the Merger.
6. The impact of the Merger on the financial results of AGV during the next
several years.
In view of the variety of factors considered by the AGV Board in connection
with its evaluation of the Merger, the AGV Board did not find it practicable to
and did not quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination.
Reasons of the Nucleus Board for the Merger
The Nucleus Board unanimously approved the Merger Agreement. In deciding to
approve the Merger, the Nucleus Board reviewed a number of factors, including
those set forth below.
1. The potential long-term benefits that could result from the combination
of AGV's and Nucleus's businesses in the Merger and their complementary
strengths, especially in the computer field. Nucleus's computer products and
AGV's distribution channels may significantly increase the business of the
Combined Company. In addition, the AGV Board believes that Nucleus's computer
expertise may allow AGV to build, rather than outsource, computers, and may
expand the ability of AGV to perform maintenance on computers.
2. The Nucleus Board's belief that the size of the Combined Company will be
a more competitive company than either AGV or Nucleus would be on a stand alone
basis. Specifically, the Combined Company may be able to achieve volume
discounts and efficiencies in the business of computer purchase, repair and
maintenance.
3. The potential of acquiring and rolling-up other build-to-order computer
or telecom companies, through additional issuances of AGV Common Stock. Nucleus
has no present plans or proposals to acquire any such company.
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4. The potential of opening up a distribution channel through which Nucleus
can sell computers, computer services and computer products.
5. The Nucleus Board believed that a higher exchange ratio could not be
achieved through continued negotiations with AGV and believed that the results
of financial analyses performed by Nucleus management were consistent with the
consideration to be received by the Nucleus stockholder in the Merger.
6. The Nucleus Board reviewed current market conditions, historical market
prices and trading information with respect to AGV Common Stock.
None of the foregoing factors or groups of factors had more prominence than
any other factor or group of factors in the decision of the Nucleus Board to
approve the Merger, the Merger Agreement and the transactions contemplated
thereunder.
The Nucleus Board did not obtain the opinion of an investment bank or other
independent third party as to the fairness of the transaction to Nucleus and its
stockholder from a financial point of view.
Accounting Treatment
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. Under this method of accounting, upon
consummation of the Merger, the historical financial statements of AGV will be
restated to include the historical account balances of Nucleus as if the two
companies had been one for all periods presented. However, consummation of the
Merger is not conditioned upon the confirmation from any independent accountant
to the effect that the Merger will qualify as a pooling of interests in
accordance with generally accepted accounting principles.
The Merger Agreement provides that it is a condition to the obligations of
AGV and Nucleus that each person who is an affiliate of Nucleus will execute a
written agreement on or before the Effective Time of the Merger to the effect
that such person will not transfer any shares of AGV Common Stock prior to the
date that AGV publishes financial statements that reflect at least 30 days of
post-Merger combined operations of AGV and Nucleus (which agreements relate to
the ability of AGV to account for the Merger as a pooling of interests). AGV has
agreed to use its commercially reasonable efforts to file with the Commission
financial results of the Combined Company covering a period of at least 30 days
following the Effective Time within 45 days after the last day of the first full
month following the Effective Time. AGV may delay this filing under certain
circumstances.
Certain Federal Income Tax Consequences
Management of AGV and Nucleus believe that the Merger will constitute a
tax-free reorganization within the meaning of Section 368(a) of the Code.
However, no opinion has been received with respect to this matter.
Assuming qualification as a tax-free reorganization under the Code, (i) no
gain or loss will be recognized by AGV or its stockholders as a result of the
Merger, (ii) no gain or loss will be recognized by Nucleus or its stockholder
who receives AGV Common Stock in the Merger in exchange for its shares of
Nucleus Common Stock, (iii) the basis of the shares of AGV Common Stock to be
received by the Nucleus stockholder in the Merger will be the same as the basis
of the shares of Nucleus Common Stock surrendered in exchange therefor, and (iv)
the holding period of the shares of AGV Common Stock to be received by the
Nucleus stockholder in the Merger will include the holding period of the shares
of Nucleus Common Stock exchanged therefor, provided that all shares are held as
capital assets of the Nucleus stockholder at the Effective Time.
Because no opinion of counsel has been received, there can be no assurance
that the Merger will constitute a tax-free reorganization or that any of the
favorable tax treatments pursuant to a tax-free reorganization will be available
to the Nucleus stockholder.
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Interests of Certain Persons in the Merger
In considering the recommendation of the AGV Board and the decision of the
Nucleus Board with respect to the Merger, stockholders should be aware that
Steven H. Walker and Christopher S. Walker, two of the current directors of AGV,
beneficially own, without taking account of the exercise of certain warrants
beneficially owned by such individuals, approximately 41.6% and 10.0%,
respectively, of the outstanding AGV Common Stock, and immediately following the
Merger, Steven H. Walker and Christopher S. Walker will beneficially own,
without taking account of the exercise of such warrants, approximately 7.4% and
1.8% of the outstanding AGV Common Stock. The AGV Board and the Nucleus Board
were aware of these interests when they considered approval of the Merger
Agreement and the transactions contemplated hereby, including the Merger.
In considering the decision of the Nucleus Board with respect to the
Merger, stockholders should be aware that John C. Paulsen, President and Chief
Executive Officer of Nucleus, beneficially owns, through his ownership of
CapitalOne, 100% of the outstanding Nucleus stock, and immediately following the
Merger, Mr. Paulsen will beneficially own 82.3% of the outstanding AGV stock. In
addition, pursuant to the Merger Agreement, Mr. Paulsen and two persons
designated by Mr. Paulsen have been nominated as directors of AGV. See "-Board
Representation." The AGV Board and the Nucleus Board were aware of these
interests when they considered approval of the Merger Agreement and the
transactions contemplated hereby, including the Merger.
The Merger Agreement provides that following the Merger AGV will indemnify,
defend and hold harmless to the full extent permitted by Nevada Law each
officer, director and agent of Nucleus against all losses, claims, damages and
actions resulting from their service as directors, officers or agents of Nucleus
prior to the Merger, including, without limitation all losses, claims, damages
and actions arising out of the negotiation, execution and delivery of the Merger
Agreement and the consummation of the Merger.
Federal Securities Law Consequences
The shares of AGV Common Stock received by the Nucleus stockholder in the
Merger may be resold only in transactions permitted by the resale provisions of
Rule 144 promulgated under the Securities Act or as otherwise permitted under
the Securities Act. The obligations of AGV to consummate the Merger are
conditioned upon each Nucleus affiliate executing a written agreement to the
effect that such person will not offer or sell or otherwise dispose of any of
the shares of AGV Common Stock issued to such person in or pursuant to the
Merger in violation of the Securities Act or the rules and regulations of the
Commission promulgated thereunder.
THE MERGER AGREEMENT
General
The Merger Agreement and certain related matters are summarized below. The
following summarizes the material terms of the Merger Agreement. This summary
does not purport to be a complete statement of the terms and conditions of the
Merger and is qualified in its entirety by reference to the Merger Agreement,
which is set forth as Appendix A and is incorporated herein by reference.
All stockholders are urged to read the Merger Agreement in its entirety.
The Merger
The Merger Agreement provides that subject to the adoption of the Merger
Agreement by the stockholders of AGV and the satisfaction or waiver of the other
conditions to the Merger, Nucleus will be merged with and into AGV. Following
consummation of the Merger, Nucleus will no longer exist, AGV will be the
surviving corporation, and AGV will change its name to Nucleus, Inc.
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Conversion of Shares
At the time that the Merger becomes effective:
(i) each share of Nucleus Common Stock outstanding immediately prior to the
Effective Time will (except as otherwise provided with respect to shares as to
which dissenters' rights will have been exercised) be converted at the Exchange
Ratio into the right to receive 54,428.999 fully-paid validly issued and
nonassessable shares of AGV Common Stock;
(ii) each share of Nucleus Common Stock held by Nucleus as treasury stock
or owned by AGV or any subsidiary of AGV immediately prior to the Effective Time
shall be canceled and retired and all rights in respect thereof shall cease to
exist without any conversion thereof or payment therefor; and
(iii) each warrant to purchase a share of AGV Common Stock ("AGV Warrant")
outstanding at and as of the Effective Time will remain outstanding and in full
force and effect.
Effective Time
The Merger will become effective at such time as the Certificate of Merger
and Articles of Merger are duly filed with the Secretary of State of the State
of Illinois and the Secretary of State of the State of Nevada or at such later
time as specified in the Certificate of Merger and Articles of Merger (the
"Effective Time"). The filing of the Certificate of Merger and the Articles of
Merger will be made as soon as practicable after all conditions set forth in the
Merger Agreement have been satisfied or waived. Assuming all conditions to
consummation of the Merger have been satisfied or waived the Effective Time will
occur as soon as practicable following the Meeting. Any delay in the
satisfaction or waiver of the conditions to the Merger will delay the Effective
Time. Either party may terminate the Merger Agreement if the Effective Time has
not occurred by December 31, 1998. See "Termination."
Board Representation
Pursuant to the Merger Agreement, Mr. Paulsen and two persons designated by
Mr. Paulsen have been nominated as directors of AGV. If all the nominees for
election to the AGV Board are elected and the Merger is consummated, the members
of the AGV Board will be John Paulsen, Stephen Calk (nominated by Mr. Paulsen),
Mark Fera (nominated by Mr. Paulsen), and Steven Walker and Adriann C. Belinne
(current directors).
Exchange of Certificate
Illinois Stock Transfer Company of Chicago, Illinois will act as exchange
agent (the "Exchange Agent") for the exchange of the certificate representing
shares of Nucleus Common Stock ("Certificate") for the certificate representing
shares of AGV Common Stock. Promptly after the Effective Time, AGV shall make
available to the Exchange Agent the AGV Common Stock issuable to the Nucleus
stockholder in the Merger. As soon as practicable after the Effective Time, the
Exchange Agent will mail to the former holder of record of shares of Nucleus
Common Stock instructions for surrendering its Certificate in exchange for a
certificate or certificates representing AGV Common Stock.
Upon surrender of the Certificate for cancellation to the Exchange Agent
together with the letter of transmittal duly executed, the holder of the
Certificate will be entitled to receive in exchange a certificate for the number
of whole shares of AGV Common Stock represented by the Certificate so
surrendered. The Certificate surrendered will then be cancelled. In the event of
a transfer of ownership of Nucleus Common Stock which is not registered in the
transfer books of Nucleus or its transfer agent, AGV Common Stock may be
delivered to a transferee if the Certificate representing such shares is
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presented to the Exchange Agent and accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
At and after the Effective Time, the sole stockholder of Nucleus will be
treated as a stockholder of record of AGV, but no dividends will be paid to the
holder of the Nucleus Certificate until the Certificate has been surrendered at
which time the amount of any dividends which theretofore became payable but
which were not paid with respect to the number of shares of AGV Common Stock
represented by the Certificate will be paid. After the Effective Time, there
will be no further registration of transfers on the stock transfer books of
Nucleus or its transfer agent of shares of Nucleus Common Stock that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented for any reason, they will be canceled and
exchanged as described above.
Conditions
The obligations of AGV to consummate the Merger are subject to the
satisfaction of the following conditions: (i) the accuracy of the
representations and warranties of Nucleus contained in the Merger Agreement at
and as of the date of closing under the Merger Agreement (the "Closing Date");
(ii) Nucleus having performed and complied with all of its covenants contained
in the Merger Agreement in all material respects on or before the Closing Date;
(iii) AGV having received from each person or entity who may be deemed an
affiliate of Nucleus a duly executed affiliates agreement, which such affiliate
agrees not to offer to sell, sell or otherwise dispose of any shares of AGV
Common Stock issued in the Merger, except pursuant to an effective registration
statement or in compliance with Rules 144 or 145 as amended; (iv) no action,
suit, or proceeding being pending or threatened before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent consummation of any
of the transactions contemplated by the Merger Agreement, (B) cause any of the
transactions contemplated by the Merger Agreement to be rescinded following
consummation, (C) affect adversely the right of AGV to own the former assets, to
operate the former businesses, and to control the former subsidiaries of
Nucleus, or (D) affect adversely the right of any of the former subsidiaries of
Nucleus to own its assets and to operate its businesses (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect); (v) Nucleus
having delivered to AGV a certificate to the effect that certain conditions to
the Merger Agreement have been satisfied; (vi) the Merger Agreement having been
approved by the stockholders of AGV; (vii) AGV having received an opinion from
counsel to Nucleus as to certain matters; and (viii) all actions to be taken by
Nucleus in connection with consummation of the transactions contemplated by the
Merger Agreement and all certificates, opinions, instruments, and other
documents required to effect the transactions contemplated thereby being
reasonably satisfactory in form and substance to AGV.
AGV may waive any condition specified in the Merger Agreement if it
executes a writing so stating at or prior to the Closing.
The obligations of Nucleus to consummate the Merger are subject to the
satisfaction of the following conditions: (i) the accuracy of the
representations and warranties of AGV contained in the Merger Agreement at and
as of the Closing Date; (ii) AGV having performed and complied with all of its
covenants contained in the Merger Agreement in all material respects on or
before the Closing Date; (iii) no action, suit, or proceeding being pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by the Merger
Agreement, (B) cause any of the transactions contemplated by the Merger
Agreement to be rescinded following consummation, (C) affect adversely the right
of AGV to own the former assets, to operate the former businesses, and to
control the former subsidiaries of Nucleus, or (D) affect adversely the right of
any of the former subsidiaries of Nucleus to own its assets and to operate its
businesses (and no such injunction, judgment, order, decree, ruling, or charge
shall be in effect); (iv) AGV having delivered to Nucleus a certificate to the
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<PAGE>
effect that certain conditions to the Merger Agreement have been satisfied; (v)
Nucleus having received an opinion as to certain matters from counsel to AGV;
(vi) the By-Laws of AGV having been amended to provide for up to ten directors;
and (vii) all actions to be taken by AGV in connection with consummation of the
transactions contemplated by the Merger Agreement and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated thereby being reasonably satisfactory in form and substance to
Nucleus.
Nucleus may waive any condition specified in the Merger Agreement if it
executes a writing so stating at or prior to the Closing.
Termination
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after the approval of the stockholders of AGV under the
circumstances described below.
Either AGV or Nucleus may terminate the Merger Agreement if: (i) the
Effective Time has not occurred by December 31, 1998; (ii) the consent of the
other party is given; or (iii) AGV fails to obtain stockholder approval of the
Meeting.
AGV may terminate the Merger Agreement if: (i) Nucleus has breached the
Merger Agreement so that the conditions relating to representations and
warranties or covenants have not been satisfied and this breach has not been
cured within 30 days after the notice of breach; or (ii) if the closing shall
not have occurred on or before December 31, 1998, by reason of the failure of
any condition precedent to AGV's obligations thereunder (unless the failure
results primarily from AGV breaching any representation, warranty or covenant
contained in the Merger Agreement).
Nucleus may terminate the Merger Agreement if: (i) AGV has breached the
Merger Agreement so that the conditions relating to representations and
warranties or covenants have not been satisfied and this breach has not been
cured within 30 days after notice of breach; or (ii) if the closing shall not
have occurred on or before December 31, 1998, by reason of the failure of any
condition precedent to Nucleus's obligation thereunder (unless the failure
results primarily from Nucleus breaching any representation, warranty or
covenant contained in the Merger Agreement), or (iii) in the event Nucleus's
Board of Directors conclude that termination would be in the best interest of
Nucleus and its stockholder.
Expenses
In the event of termination of the Merger Agreement, each party will bear
its own fees and expenses in connection with the Merger.
Acquisition Proposals; No Solicitation
Nucleus has agreed that it will not (and will not cause or permit any of
its subsidiaries to) solicit, initiate, or encourage the submission of any
proposal or offer from any Person (as defined) relating to the acquisition of
all or substantially all of the capital stock or assets of any of Nucleus or its
subsidiaries (including any acquisition structured as a merger, consolidation,
or share exchange); provided, however, that Nucleus, its subsidiaries, and their
directors and officers will remain free to participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
Person to do or seek any of the foregoing to the extent their fiduciary duties
may require. Nucleus is required to notify AGV immediately if any Person makes
any proposal, offer, inquiry, or contact with respect to any of the foregoing.
AGV has agreed that it will not (and will not cause or permit any of its
subsidiaries to) solicit, initiate, or encourage the submission of any proposal
or offer from any Person relating to the acquisition of all or substantially all
32
<PAGE>
of the capital stock or assets of any of AGV or its subsidiaries (including any
acquisition structured as a merger, consolidation, or share exchange); provided,
however, that AGV, its subsidiaries, and their directors and officers will
remain free to participate in any discussions or negotiations regarding, furnish
any information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by and Person to do or seek any of the extent
their fiduciary duties may require. AGV is required to notify Nucleus
immediately if any Person makes any proposal, offer, inquiry, or contact with
respect to any of the foregoing.
Conduct of Business Pending Merger
AGV and Nucleus have agreed to conduct their respective businesses in the
ordinary course pending the Merger and have agreed not to and (where applicable)
not to permit their respective subsidiaries to:
(i) authorize or effect any change in their charter or bylaws;
(ii) grant any options, warrants, or other rights to purchase or obtain any
of their capital stock or issue, sell, or otherwise dispose of any of their
capital stock (except upon the conversion or exercise of options, warrants, and
other rights currently outstanding);
(iii) declare, set aside, or pay any dividend or distribution with respect
to their capital stock (whether in cash or in kind), or redeem, repurchase, or
otherwise acquire any of their capital stock;
(iv) issue any note, bond, or other debt security or create, incur, assume,
or guarantee any indebtedness for borrowed money or capitalized lease obligation
outside the ordinary course of business;
(v) impose any Security Interest (as defined) upon any of their assets
outside the ordinary course of business;
(vi) make any capital investment in, make any loan to, or acquire the
securities or assets of any other Person (as defined) outside the ordinary
course of business;
(vii) make any change in employment terms for any of their directors,
officers, and employees outside the ordinary course of business; or
(viii) commit to any of the foregoing.
AGV and Nucleus have also agreed to give each other reasonable access to
their respective books and records. Each has agreed to give the other notice of
specified material events and prior notice of any press release or public
announcement and to consult with the other before issuing any press release or
making public announcements relating to the Merger.
Both Nucleus and AGV have agreed to use their reasonable best efforts to
satisfy or cause to be satisfied all of the conditions to the Merger and to
cause the transactions contemplated by the Merger Agreement to be consummated.
Nucleus has also agreed to use its best efforts to obtain from each "affiliate"
(as used in Rule 145 under the Securities Act) an agreement to comply with
applicable provisions of the Securities Act.
Directors' and Officers' Indemnification
The Merger Agreement provides that, after the Effective Time, AGV, as the
surviving corporation will indemnify defend and hold harmless to the full extent
a corporation is permitted under the General Corporation Law of the State of
Nevada to indemnify its own directors, officers and agents, each person who is
now, or has been at any time prior to the date of the Merger Agreement or who
becomes prior to the Effective Time, an officer or director of Nucleus or, for
purposes of clause (ii), certain agents of Nucleus, acting in connection with
the negotiation, execution and delivery of the Merger Agreement and the
33
<PAGE>
consummation of the Merger ("Indemnified Parties"), against (i) all losses,
claims, damages, costs, reasonable expenses, liabilities or judgments or amounts
("Indemnified Liabilities") of or in connection with any claim, action, suit
proceeding or investigation based in whole or in part on or arising in whole or
in part out of the fact that such person is or was a director or officer of
Nucleus, whether pertaining to any matter existing now or occurring at or prior
to the Effective Time and whether asserted or claimed prior to, at, or after the
Effective Time, and (ii) all Indemnified Liabilities based in whole or in part
on, arising in whole or in part out of or pertaining to the Merger Agreement or
the Merger, including without limitation, any act or omission of the officers
and directors of Nucleus in the negotiation, execution and delivery of the
Merger Agreement and the consummation of the Merger.
Representations and Warranties
In the Merger Agreement, Nucleus and AGV have made certain representations
and warranties concerning corporate existence and power, corporate
authorization, governmental consents and approvals, non-contravention of
agreements and instruments, financial statements, absence of certain changes,
absence of undisclosed liabilities, compliance with laws, broker's fees, and
continuity of business enterprise. In addition, AGV has made certain
representations and warranties concerning filings with the Commission.
Amendments and Waivers
Any term of the Merger Agreement may be amended and the observance of any
term of the Merger Agreement may be waived, by a writing signed by both parties,
provided, however, that any amendment effected subsequent to stockholder
approval will be subject to the restrictions contained in Illinois and Nevada
Law.
Rights of Dissenting Stockholders
AGV stockholders will not have appraisal rights in connection with the
Merger.
The holder of Nucleus Common Stock has the right to dissent with respect to
the Merger, however, such holder has notified Nucleus that it has waived its
dissenter's right.
34
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following unaudited pro forma condensed combined statements of
operations of American General Ventures, Inc. gives effect to the proposed
merger of AGV and Nucleus as if such transaction occurred at the beginning of
each period presented. The unaudited pro forma condensed combined statement of
operations for the year ended December 31, 1997 is derived from the audited
statements of operations of AGV and Nucleus. The unaudited pro forma condensed
combined statement of operations for the nine months ended September 30, 1998 is
derived from the unaudited statements of operations of AGV and Nucleus.
The unaudited pro forma condensed combined balance sheet at September 30,
1998 gives effect to the proposed Merger of AGV and Nucleus as if such
transaction occurred on September 30, 1998. The unaudited pro forma condensed
combined balance sheet is derived from the unaudited historical balance sheet of
AGV and Nucleus as of September 30, 1998.
The unaudited pro forma condensed combined financial data do not reflect
the effects of any anticipated changes to be made by AGV in its operations from
the historical operations, are presented for informational purposes only and
should not be construed to be indicating (i) the results of operations or the
financial position of AGV that actually would have occurred had the proposed
merger been consummated as of the dates indicated or (ii) the results of
operation or the financial position of AGV in the future.
The following pro forma condensed combined financial data and notes are
qualified in their entirety by reference to, and should be read in conjunction
with, "Managements Discussion and Analysis of Financial Condition and Results of
Operation," the consolidated financial statements and notes thereto of AGV and
Nucleus and other historical information included elsewhere in this proxy.
35
<PAGE>
<TABLE>
<CAPTION>
AMERICAN GENERAL VENTURES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
ASSETS
- ------ AGV Nucleus Pro Forma(1)
--- ------- ------------
Current Assets (Historical)
<S> <C> <C> <C>
Cash $ 61,781 $ 10,657 $ 72,438
Accounts receivable - Billed 21,466 241,550 263,016
Accounts receivable - Unbilled -- 208,593 208,593
Inventory 177,057 -- 177,057
Due from shareholder -- 108,563 108,563
Other current assets -- 48,700 48,700
---------- ---------- ----------
Total current assets 260,304 618,063 878,367
Property, plant and equipment, net 27,292 37,123 64,415
Goodwill, net 20,794 -- 20,794
---------- ---------- ----------
Total assets $ 308,390 $ 655,186 $ 963,576
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ---------------------------------------------
Current Liabilities:
Notes payable to related party $ 172,215 $ -- $ 172,215
Accounts payable 116,287 533,517 649,804
Accrued expenses 11,054 336,336 347,390
---------- ---------- ----------
Total current liabilities 299,556 869,853 1,169,409
Stockholders' equity (deficit):
Common stock and paid in capital 2,442,469 3,000 2,445,469
Accumulated deficit (2,433,635) (217,667) (2,651,302)
---------- ---------- ----------
Total stockholders' equity (deficit) 8,834 (214,667) (205,833)
---------- ---------- ----------
Total liabilities and stockholders'
equity (deficit) $ 308,390 $ 655,186 $ 963,576
========== ========== ==========
36
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN GENERAL VENTURES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Nine months ended September 30
------------------------------------------------------------------------------------------------
1997 1998
------------------------------------------------------------------------------------------------
AGV NUCLEUS(2) PRO FORMA(3) AGV NUCLEUS(2) PRO FORMA(3)
--- ------- ------------ --- ---------- ------------
(HISTORICAL) (HISTORICAL)
<S> <C> <C> <C> <C> <C> <C>
Sales $ 717,961 -- $ 717,961 $ 579,472 $ 2,114,153 $ 2,693,625
----------- ----------- ----------- ----------- ----------- -----------
Cost of sales 574,494 -- 574,494 465,848 1,427,128 1,892,976
Selling and
marketing
expenses 10,826 -- 10,826 6,801 187,752 194,553
Research and
development
expenses -- 200,673 200,673 -- 39,264 39,264
General and
administratives
expenses 257,582 2,308 259,890 163,242 481,155 644,397
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from
operations (124,941) (202,981) (327,922) (56,419) (21,146) (77,565)
Other income
(expense) -- -- -- (4,987) 100,697 95,710
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)(5) $ (124,941) $ (202,981) $ (327,922) $ (61,406) $ 79,551 $ 18,145
=========== =========== =========== =========== =========== ===========
Earnings (loss) per
share - basic and
diluted (4) $ (0.01) $ (202.98) $ (0.02) $ (0.01) $ 79.55 $ 0.00
=========== =========== =========== =========== =========== ===========
Weighted average
shares outstanding
- - basic 9,200,000 1,000 31,159,333 11,318,734 1,000 65,747,733
=========== =========== =========== ============ =========== ===========
- - diluted 9,200,000 1,000 31,159,333 11,318,734 1,000 69,418,234
=========== =========== =========== ============ =========== ===========
37
</TABLE>
<PAGE>
AMERICAN GENERAL VENTURES, INC.
(UNAUDITED) PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year ended December 31, 1997
-------------------------------------------
AGV NUCLEUS(2) PRO FORMA(3)
----------- ------------ ------------
(HISTORICAL)
Sales $ 721,745 $ 956,810 $ 1,678,555
----------- ----------- -----------
Costs of sales 690,064 672,343 1,362,407
Selling and marketing
expenses 15,948 86,000 101,948
Research and development
expenses -- 248,690 248,690
General and administrative
expenses 413,264 246,995 660,259
----------- ----------- -----------
Loss from operations (397,531) (297,218) (694,749)
Other expenses (33,390) -- (33,390)
----------- ----------- -----------
Net loss $ (430,921) $ (297,218) $ (728,139)
=========== =========== ===========
Loss per share -
basic and diluted(4) $ (0.05) $ (297.22) $ (0.02)
=========== =========== ===========
Weighted average
shares outstanding -
basic and diluted(4) 9,506,222 1,000 41,256,471
=========== =========== ===========
38
<PAGE>
AMERICAN GENERAL VENTURES, INC.
Notes to Unaudited Pro Forma Condensed Combined Financial Data
- ---------------------------
(1) On October 30, 1998 AGV and Nucleus entered into a definitive agreement and
plan of merger (the "Agreement") providing for the merger of Nucleus with
and into AGV. Under the terms of the Agreement, which was approved by the
Board of Directors of both AGV and Nucleus, the holder of Nucleus Common
Stock will receive 54,428.999 shares of AGV Common Stock for each of its
1,000 outstanding shares. Accordingly, the pro forma condensed combined
balance sheet as of September 30, 1998 gives effect to the issuance of
54,428.999 AGV common shares and assumes the Merger with Nucleus will be
accounted for as a pooling of interests.
(2) The historical results of operations of Nucleus for the nine months ended
September 30, 1997 and year ended December 31, 1997 reflect the operations
of Nucleus since April 30, 1997 (its inception).
(3) The pro forma condensed combined statements of operations gives effect to
the Merger of AGV with Nucleus as if the merger occurred on January 1 of
the period indicated and is accounted for as a pooling of interests and,
accordingly, the historical results of operations are combined together.
(4) The pro forma weighted average shares outstanding for basic and diluted
earnings (loss) per share gives effect to the issuance of 54,428.999 shares
of AGV stock in exchange for every 1,000 shares of Nucleus stock
outstanding for all periods presented, weighted for the period such shares
were actually outstanding.
(5) No provision for income taxes has been included in the statement of
operations for the nine months ended September 30, 1998 as the realization
of previously unbenefitted net operating losses would generate an asset
offestting the provision.
ELECTION OF DIRECTORS
Three directors (constituting, along with Steven H. Walker and Adriann
Belinne, the entire AGV Board) are to be elected at the AGV Meeting. Unless
otherwise specified, the enclosed proxy will be voted in favor of the persons
named below, to serve until the next Annual Meeting of Stockholders of AGV and
until their successors shall have been duly elected and shall qualify. In the
event any of these nominees shall be unable to serve as a director, the shares
represented by the proxy will be voted for the person, if any, who is designated
by the AGV Board of Directors to replace the nominee. All nominees have
consented to be named and have indicated their intent to serve if elected. The
AGV Board has no reason to believe that any of the nominees will be unable to
serve or that any vacancy on the AGV Board will occur.
The nominees are as follows:
Nominee Age
- ------- ---
John C. Paulsen (1) 35
Stephen Calk (1) 34
Mark Fera (1) 31
John C. Paulsen will, if elected director, serve as of Director, Chief Executive
Officer, and President of AGV. Mr. Paulsen is currently Chairman of the Board of
Directors and Chief Executive Officer of Nucleus. From 1990 to 1995, Mr. Paulsen
served as President and Chairman of the Board of Directors of American
Teletronics Long Distance, Inc., a reseller of long distance telecommunications
services. From 1995 to 1997, Mr. Paulsen served as President and Chairman of the
Board of Directors of MetroLink Communications, Inc., a long-distance carrier.
See "Nucleus - Business."
Stephen Calk has since October 1995, been the president of Chicago Bancorp,
Chicago's second largest private mortgage bank. Mr. Calk received a B.A. from
the University of Illinois in 1998, and received a Master's Degree from the J.L.
Kellogg Graduate School of Management at Northwestern University in 1988.
39
<PAGE>
Mark Fera has been the Manager of Strategic Accounts of IZ Technologies, a
software company. From 1993 to 1997, Mr. Fera was affiliated with Systems
Software Associates, a software solutions company. Mr. Fera received a
bachelor's degree from the University of Illinois in 1988.
(1) Pursuant to the Merger Agreement, Mr. Paulsen and the two persons
designated by Mr. Paulsen - Mr. Calk and Mr. Fera - have been nominated as
directors of AGV.
40
<PAGE>
AMERICAN GENERAL VENTURES, INC.
BUSINESS
General Overview
The original purpose of American General Ventures, Inc. was to seek
potential business ventures, which in the opinion of the management of AGV would
provide a profit for AGV. Such involvement would be either as an acquisition of
existing businesses or an acquisition of assets to establish a subsidiary
business for AGV.
On January 22, 1986, AGV signed a letter of intent with Aspen Medical
Diagnostics, Inc. and Neuro Medical, Inc., both Utah Corporations, to acquire
all of the stock of both of those companies in exchange for 1,000,000 shares of
the common stock of AGV to the shareholders of each of the acquired companies or
a total of 2,000,000 shares. Both acquired companies were in the business of
establishing medical diagnostic facilities.
On September 11, 1987, AGV acquired all of the stock of ACI Micro Systems,
Inc., a Colorado Corporation. ACI Micro Systems, Inc. was in the business of
manufacturing and selling micro computers.
In January 1991, AGV incorporated Your ATTACHE, a wholly owned subsidiary.
Your ATTACHE develops and sells licenses of powerful high speed computer systems
that provides a mutually beneficial communication and interaction medium between
suppliers and consumers. Your ATTACHE is not active and had no revenues in 1997.
Industry Segments
AGV has engaged in a single line of business since September 11, 1987, when
the AGV acquired ACI Micro Systems. AGV engages in the business of manufacturing
computers and sales of computers and computer accessories.
Narrative Description of Business
AGV on January 29, 1986, acquired 100 percent of the outstanding stock of
Neuro-Medical, Inc. (Neuro) and Aspen Medical Diagnostics, Inc. (Aspen), both
Utah corporations. The letter of intent for said purchase was executed on the
22nd day of January, 1986. In exchange, AGV issued 1,000,000 of its restricted
shares to the stockholders of Aspen and 1,000,000 of its restricted shares to
the stockholders of Neuro.
The business of Neuro and Aspen was to establish and operate neurological
diagnostic centers that provide diagnostic testing for physicians and others in
the medical community. The Company made available to the medical community the
latest neurological testing and assessment equipment. The officers of AGV for
eight years used the Brain Electrical Activity Mapping System (BEAM) which was
developed at Harvard University Medical School. The officers of AGV selected the
BEAM system because they believed that the system represented a significant
advancement over alternative equipment being used for neurological testing in
the overall treatment of patients. However, the technology faced resistance from
the medical community which created a negative impact upon the growth of AGV.
AGV ceased to operate its BEAM centers in 1993.
Current Operations
AGV continues to operate ACI Micro Systems, Inc., (ACI), a Colorado
Corporation, that manufactures and sells computers and accessories.
41
<PAGE>
In August 1995, ACI received a national vendor number from Wal-Mart Stores,
Inc. authorizing AGV to sell computers and accessories in their retail stores
and their supercenters. ACI and Wal-Mart Stores Inc. discontinued their business
relationship in October 1998.
Proposed Operations
ACI has developed a web site (www.availpc.com). ACI's web site is promoted
by Hotmail, a wholly owned subsidiary of Microsoft. Hotmail is the world's
largest e-mail provider with more than nine million members. ACI banner ads on
Hotmail are presently eliciting an average of 600 hits per day. If the Hotmail
customer chooses, he/she can be directly linked into ACI's web site. ACI offers
a fully loaded computer (without monitor) for $599.00 on its web site.
The ACI Micro Computer Systems
ACI Micro Systems, Inc., manufactures non-integrated circuitry computer
systems that allows true upgradability. Through in-house assembly and
outsourcing, ACI presently has a capacity of assembling 15,000 computers per
month.
Seasonality
AGV's business is not considered seasonal.
Backlog
As of December 31, 1997, AGV was able to fill all orders and did not have
any backlog orders.
Competition
AGV's manufacturing operations faces stiff competition from existing
computer manufacturers. AGV has met the competition in the past with its niche
in the computer industry. ACI is able to produce computers in America and still
be competitive with computers built in foreign countries. AGV's computers are
built in America giving AGV a competitive edge to resellers whose philosophy
mirrors that of AGV. In addition to "Made in America" AGV builds computers with
non-integrated circuitry that allows true upgradability and local service and
support.
ACI's BTO program has an advantage over the larger computer manufacturers
because it gives the consumer more choices and lower prices. The customer is
able to build a computer system for less than $1,000. This is not possible with
some of the larger firms because their standard systems contain components that
the consumer may not want. Limited choices resulted in higher prices for
computer systems.
Research and Development
Since its inception, AGV has spent $193,370 for company sponsored research
and development of the Your ATTACHE concept.
Compliance with Environmental Regulations
Management of AGV believe that compliance with federal, state, and local
provisions regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment will have no material
effect on the capital expenditures, earnings and competitive position of AGV.
42
<PAGE>
Employees
AGV employs a total of eight persons: a chief executive officer, a
secretary/treasurer, a chief technology officer, a part-time accountant, and
four part time technicians and/or assemblers. AGV's outsourcing facility has 125
employees.
Foreign Operations
AGV had no foreign operations or export sales during fiscal year 1997.
Properties
AGV currently occupies approximately 2,000 square feet at 3650 Austin
Bluffs Parkway, Suite 138, Colorado Springs, Colorado. AGV pays $2,110 plus
utilities for rent for the Austin Bluffs facility. The lease for the Austin
Bluffs space will continue until May 1, 1999. AGV has two five year options on
the Austin Bluffs space.
Legal Proceedings
Two suppliers have recently made demands for payment. Daytek alleges
$27,000 is due and Altura PC Systems claims $21,350 is due. Both claims are in
dispute. Negotiations will likely result in settlement of both at reduced
amounts.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables summarize certain selected consolidated financial
data, which should be read in conjunction with AGV's consolidated financial
statements and related notes and "AGV Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this Proxy
Statement. The selected consolidated financial data set forth below for the
years ended December 31, 1993, December 31, 1994 December 31, 1995, December 31,
1996 and December 31, 1997 and as of the end of each such period were derived
from AGV's consolidated financial statements that were audited by James E.
Scheifley & Associates, P.C. independent public accountants. The selected
consolidated financial information set forth below for the nine months ended
September 30, 1997 and 1998 and as of September 30, 1998 have been derived from
the unaudited financial statements which have been prepared on the same basis as
the audited financial statements included elsewhere herein and in the opinion of
AGV include all adjustments consisting only of normal recurring adjustments
necessary to present fairly the information set forth therein. The audited
consolidated balance sheets of AGV as of December 31, 1996 and 1997 and the
consolidated income statements for each of the years in the three year period
ended December 31, 1997 and the independent auditor's report thereon are
included elsewhere in this Proxy Statement.
43
<PAGE>
<TABLE>
<CAPTION>
American General Ventures, Inc.
Nine Months Ended
Year Ended December 31 September 30
--------------------------------------------------------------------------- -----------------------------
1993 1994 1995 1996 1997 1997 1998
--------------------------------------------------------------------------- -----------------------------
Statement of
Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $ 825,307 $ 593,743 $ 985,979 $ 1,397,850 $ 721,745 $ 717,961 $ 579,472
------------ ------------ ------------ ------------ ------------ ------------ ------------
Cost of sales 641,779 415,932 721,372 1,365,308 690,064 574,494 465,848
Selling and
marketing expenses 14,600 32,145 42,474 25,357 15,948 10,836 6,801
Research and
development
expenses 75,027 -- -- -- -- -- --
General and
administrative
expenses 190,968 178,401 145,235 675,675 413,264 257,582 163,242
Rent paid to related
party 56,604 32,917 -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------
Income (loss) from
operations (153,671) (65,652) 76,898 (668,490) (397,531) (124,941) (56,419)
Other income
(expense) (126,789) (29,949) 43,483 (55,421) (33,390) -- (4,987)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net income (loss) $ (280,460) $ (95,601) $ 120,381 $ (723,911) $ (430,921) $ (124,941) $ (61,406)
============ ============ ============ ============ ============ ============ ============
Earnings (loss) per
share - basic and
diluted $ (0.04) $ (0.01) $ 0.01 $ (0.08) $ (0.05) $ (0.01) $ (0.01)
============ ============ ============ ============ ============ ============ ============
Weighted average
shares outstanding:
- - basic 7,805,000 7,928,171 8,300,000 9,200,000 9,506,222 9,200,000 11,318,734
========= ========= ========= ========= ========= ========= ==========
- - diluted 7,805,000 7,928,171 8,700,000 9,200,000 9,506,222 9,200,000 14,993,735
========= ========= ========= ========= ========= ========= ==========
44
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American General Ventures, Inc.
As of December 31 As of September 30
----------------------------------------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1998
----------------------------------------------------------------------------------- ------------------
Balance Sheet
Data:
Working
<S> <C> <C> <C> <C> <C> <C>
capital $ 186,288 $ 131,678 $ 232,804 $ (140,544) $ (142,243) $ (39,252)
Total assets $ 292,868 $ 208,574 $ 324,012 $ 308,582 $ 256,571 $ 308,390
Long-term
liabilities $ 97,548 $ 116,031 $ 129,691 $ 465,168 $ 129,432 $ --
Accumulated
deficit $(1,522,820) $(1,618,421) $(1,544,401) $(2,221,951) $(2,652,872) $(2,433,635)
Stockholders'
equity (deficit) $ 128,979 $ 53,878 $ 166,898 $ (510,652) $ (211,490) $ 8,834
</TABLE>
AGV'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Results of Operations
July 1, 1998 to September 30, 1998
AGV's primary business and source of revenue is derived from sales by its
wholly owned subsidiary ACI Micro Systems, Inc.
During the period from July 1, 1998 through September 30, 1998 AGV revenues
were $385,961 compared with $109,385 for the same period in 1997. The increase
in revenues was due to AGV's subsidiary ACI Micro Systems, Inc. restructuring
its strategy by concentrating on web site online sales. In addition to selling
its products through Wal-Mart Online, AGV developed its own web site offering
its branded computers at extremely competitive price points. The combination of
sales through Wal-Mart Online and AGV's web site increased its computer sales by
more than 350 percent.
Net income for this period was $35,856 compared to a loss of ($50,401) for
the same period in 1997. The increase in income was due to the increase in sales
generated through Wal-Mart Online and AGV's web site. During this current period
Wal-Mart Online introduced AGV's build to order (BTO) computer. The BTO
accounted for an eighty percent increase in sales generated by Wal-Mart Online.
The increase in profits was also due to AGV reducing its costs incurred by
returns from Wal-Mart retail outlets. AGV's strategy of marketing its product
solely through the internet has proven effective in reducing returns.
AGV's sales through its own web site were nearly sixty percent of its
revenues. AGV's success in online sales is directly correlated to its banner ads
that ran on Hotmail, the world's largest free e-mail company that was recently
acquired by Microsoft. AGV continues to use Hotmail to advertise its products,
but plans to expand its banner ads on additional web site promoters and expects
that the additional exposure will result in increased revenues and profits.
45
<PAGE>
ACI and Wal-Mart terminated their business relationship effective October
1998; consequently, results of operations for the period July 1, 1998 to
September 30, 1998 or for any previous period should not be relied upon as
indicative of results of operations for any future period.
March 31 to June 30, 1998
- -------------------------
During the period from April 1, 1998 through June 30, 1998 AGV revenues
were $120,318 compared to $310,727 for the same period in 1997. The decrease in
revenues was due to decreased orders for computers and accessories from
Wal-Mart.
January 1, 1998 to March 31, 1998
- ---------------------------------
From January 1, 1998 through March 31, 1998 AGV's revenues were $73,193
compared with $297,849 for the same period a year ago. AGV had a loss of $54,363
for this period compared to a loss of ($42,533) for the same period a year ago.
The loss was due to a decrease in revenues from AGV's decision to sell its
products only through Wal-Mart Online (www.Wal-Mart.com) and not in Wal-Mart's
retail stores.
Year Ended December 31, 1997 and Year Ended December 31, 1998
- -------------------------------------------------------------
AGV had a net loss of ($430,921) for the year ended December 31, 1997
compared to a net loss of ($723,911) for the year ended December 31, 1996.
Revenues from overall operations for the year ended December 31, 1997
decreased by $676,105 from the year ended December 31, 1996. The decrease in
sales was primarily due to AGV's change from selling its product from Wal-Mart
retail stores to Wal-Mart Online. There were two months that no sales were made
to either the Wal-Mart retail stores or through Wal-Mart Online.
Cost of sales as a percentage of sales for ACI was 95 percent compared to
98 percent for the cost of sales in 1996. The decrease in the percentage of the
cost of goods was due to Wal-Mart returning fewer unsold computers in 1997 than
in 1996, and AGV's decision to sell products through Wal-Mart Online instead of
Wal-Mart retail stores. While returns due to defective product are minimal, ACI
had a guaranteed-sale provisions with Wal- Mart and agreed to take back unsold
computers at the original invoice amount. The vast fluctuation in prices of
computer components causes the percentage of the cost of goods to rise if the
computers are returned several months after they are originally sold.
Selling, general and administrative expenses were $429,212 for 1997
compared with $701,032 for 1996. AGV reduced its selling, general and
administrative by 39 percent in 1997. AGV was able to decrease its selling
general and administrative expenses by focusing on Internet sales and reducing
sales to retail stores.
The loss per share in 1997 was ($.05) compared to a loss per share of
($.08) in 1996. The accumulated deficit was reduced by $119,059 in 1997 and the
shareholder equity deficit was reduced from ($510,632) in 1996 to ($211,490) in
1997 or $299,142. The deficit reductions were due to additional paid in capital
for common shares and by the President of AGV, Steven H. Walker, converting
$500,000 of debt owing him to equity.
Year End December 31, 1996 and Year Ended December 31, 1995
- -----------------------------------------------------------
AGV had a not loss of ($723.911) for the year ended December 31, 1996
compared to a gain of $74,020 for the year ended December 31, 1995.
Revenues from overall operations for the year ended December 31, 1996
increased by $411,871 or 42 percent over the year ended December 31, 1995. The
increase in sales was primarily due to AGV expansion from selling its product in
eight Wal-Mart stores to 70 stores by years end.
46
<PAGE>
Cost of sales as a percentage of sales for ACI was 98 percent compared to
70 percent for the cost of sales in 1995. The increase in the percentage of the
cost of goods was due to Wal-Mart returning unsold computers. While returns due
to defective product is minimal, ACI had a guaranteed-sale provision with
Wal-Mart and agreed to take back unsold computers at the original invoice
amount. The vast fluctuation in prices of computer components causes the
percentage of the cost of goods to rise if the computers are returned several
months after they are originally purchased.
Selling, general and administrative expenses were 50 percent of sales
compared with 23 percent in 1995. The increase was mainly due to increased
expenses incurred by the rapid expansion of doing business with eight Wal-Mart
stores in 1995, to 70 stores by the end of 1996.
Liquidity and Capital Resources
September 30, 1998
- ------------------
Working capital at September 30, 1998 (current assets at less current
liabilities) totaled $8,834 compared to $163,634 at June 30, 1997.
The decrease in working capital was due to a decrease in inventory and an
increase in short term debt to its President Steven H. Walker. In 1997, Dr.
Walker converted $500,000 of AGV's debt owed to him to equity. He accepted AGV's
commons stock at $1.00 per shares to reduce the debt. In 1998, Dr. Walker
deferred his salary and loaned AGV additional funds to pay off debts owed to
vendors reducing AGV's accounts payable to vendors by more than $80,000.
December 31, 1997
- -----------------
The ratio of current assets to current liabilities for year ending December
31, 1997 was .58 compared to .87 for 1996. Actual working capital for the year
ended December 1997 was ($142,243) compared to ($45,484) at December 31, 1996.
The decrease in working capital was primarily due to an increase in liabilities
that came from increases in payables due to the return of products from Wal-Mart
retail stores. In October 1998, ACI and Wal-Mart terminated their business
relationship.
AGV currently has no commitments for capital expenditures.
AGV believes that its remaining cash resources as of September 30, 1998
together with cash generated from operations, will be sufficient to fund AGV's
operations through 1999. There can, however, be no assurance that sufficient
cash will be generated from operations or that unanticipated events requiring
the expenditure of funds will not occur. The satisfaction of AGV's cash
requirements after 1999 will depend in large part on AGV being able to generate
sufficient cash from operations and AGV's ability to obtain additional equity
investments.
AGV expects to seek, from time to time, additional sources of funds, the
form of which will vary depending upon prevailing market and other conditions
and may include short or long-term borrowing or the issuance of debt or equity
securities. However, there can be no assurance that AGV will be able to obtain
additional funds or, if such funds are available, that such funding will be on
favorable terms.
On October 30, 1998 AGV and Nucleus entered into the Merger Agreement
providing for the merger of Nucleus into AGV. Under the terms of the Merger
Agreement, holders of Nucleus Common Stock will receive 54,428.999 Shares of AGV
Common Stock, having a market value of $___ based on the ________________
closing price of AGV Common Stock for each of their shares. The Merger is
intended to qualify as a tax-free reorganization, as permitted by the Code and a
"pooling of interests" for accounting and financial reporting purposes.
Completion of the transaction is subject to among other things, the approval of
AGV's stockholders and other conditions.
47
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND DIRECTORS
The executive and directors officers of AGV are currently as follows:
Name Position held with AGV Age Dates of Service
- ---- ---------------------- --- ----------------
<S> <C> <C> <C>
Steven H. Walker President, Chairman of the Board 59 1985 - 1997
of Directors, and Chief Executive
Officer and Director
Christopher S. Walker Secretary, Treasurer, Chief 28 1996 - 1997
Operating Officer and Director
Adriann Belinne Director 34 1998
</TABLE>
If the Merger is approved by the stockholders, and the three directors
named previously are elected, the executive officers and other key personnel of
AGV will be as follows:
Name Position held with AGV
- ---- ----------------------
John C. Paulsen Chief Executive Officer
Steven H. Walker Vice President of Business Development
Steven H. Walker, has been President, Chairman of the Board of Directors and
Chief Executive Officer of AGV since January 1986 and has been Vice President
and Chairman of the Board of Neuro-Medical, Inc. and President and Chairman of
the Board of Aspen Medical Diagnostics, Inc. since 1983 and 1984 respectively.
Mr. Walker is also a licensed psychologist who was in private practice for 15
years. Mr. Walker is a past president of the El Paso County Psychological
Society. Mr. Walker received a Ph.D. from the University of Wyoming in 1972.
Christopher S. Walker, has been Secretary, Treasurer, Director, and Chief
Operating Officer since August 1996. He has been an employee of the Company
since 1988 and has held positions of Transfer Agent and Marketing Director. Mr.
Walker received a Bachelor of Science degree in Business Administration from the
University of Northern Colorado in 1990.
Adriann Belinne has been a director of AGV since October 1998. Since January,
1998, Mr. Belinne has been serving as senior manager of international and
business development (Hotmail) at Microsoft, Inc. From June 1995 to September
1995 and from May 1996 to September 1997 Mr. Belinne served as an associate of
management consulting at McKinsey & Co., Inc. From September 1997 to January
1998, Mr. Belinne was a senior manager of business development at Hotmail Corp.
In 1991, Mr. Belinne founded and until 1994, served as President of Christmas
Concepts, a start-up service company in Oklahoma City, Oklahoma. Mr. Belinne
received a B.S. from the United States Air Force Academy in 1986 and an M.B.A.
from the Wharton School in 1996.
For the background of John C. Paulsen, see "Election of AGV Directors."
EXECUTIVE COMPENSATION
The following table shows all the cash compensation paid or to be paid by
AGV or its subsidiary as well as certain other compensation paid or accrued,
during the fiscal years indicated, to the President and Chief Executive Officer
and the other executive officer of AGV for such periods in all capacities in
which they served.
48
<PAGE>
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Fiscal
Principal Position Year Salary ($) Bonus($)(1)
- ------------------ ---- ---------- -----------
Steven H. Walker 1997 $ 63,000 0
President and Chief 1996 $ 63,000 0
Executive Officer 1995 $ 63,000 0
Christopher W. Walker 1997 $ 26,400 0
Secretary, Treasurer 1996 $ 26,400 0
and Chief Operating Officer 1995 $ 26,400 0
- ------------------------
(1) Mr. Steven H. Walker was entitled to a bonus in the amount of 10% of any
net profits of AGV. No bonuses were paid in the years indicated. The
contingent bonus arrangement has been discontinued.
OPTION GRANTS OR EXERCISES IN LAST FISCAL YEAR
No options were granted or exercised by the named executive officers in the
last fiscal year.
Compensation of Directors
Directors of AGV do not receive any cash or other compensation for their
services as directors. There is no stock option or stock compensation plan for
outside directors.
MARKET PRICES OF AGV COMMON STOCK; DIVIDENDS
AGV Common Stock is reported by NASD on the Over-the-CounterElectronic
Bulletin Board (OTC-BB) market under the symbol AMGV. The following table sets
forth for the periods indicated the high and low bid quotations per share of AGV
Common Stock from January 1, 1997 through November 13, 1998 as reported by
NASDAQ. The quotations, which reflect prices among dealers, do not reflect
retail markups, markdowns, or other fees or commissions, and do not necessarily
represent actual transactions.
49
<PAGE>
High Bid Low Bid
-------- -------
1997
First Quarter $.46 $.15
Second Quarter $.56 $.15
Third Quarter $.43 $.21
Fourth Quarter $.28 $.25
1998
First Quarter $.29 $.22
Second Quarter $.32 $.26
Third Quarter $.33 $.31
Fourth Quarter (Through November 13th,1998) $.25 $.21
The number of stockholders of record of AGV Common Stock on November 25,
1998 was approximately 1,200.
AGV has never declared or paid a cash dividend on its AGV Common Stock and
it is not expected that cash dividends will be paid to the holders of AGV Common
Stock in the foreseeable future.
50
<PAGE>
BENEFICIAL OWNERSHIP OF AGV COMMON STOCK
The following table sets forth information, as of November 30, 1998,
regarding the beneficial ownership (as defined by the Commission) of AGV Common
Stock of (i) each person known by AGV to own beneficially more than five percent
of outstanding AGV Common Stock; (i) each director and nominee for director of
AGV; (iii) each executive officer named in the Summary Compensation Table; and
(iv) all directors and executive officers of AGV as a group. Except as otherwise
specified, the named beneficial owner has sole voting and investment power over
the shares listed.
<TABLE>
<CAPTION>
Amount and
Nature of Amount of
Beneficial Percentage of Beneficial Percentage of
Ownership Common Stock Ownership After Common Stock
Name of Beneficial Owner Before Merger Before Merger Merger After Merger (1)
- ------------------------ ------------- ------------- ------ ----------------
<S> <C> <C> <C> <C>
Steven H. Walker 4,975,400(2) 42.2% 4,975,400(2) 7.5%
3650 Austin Bluffs Parkway
Colorado Springs, CO 80918
Christopher S. Walker 1,968,800(3) 15.8% 1,968,800(3) 2.9%
3650 Austin Bluffs Parkway
Colorado Springs, CO 80918
Adriann Belinne 1,000,000(4) 7.9% 1,000,000(4) 1.5%
11 Stowe Lane
Menlo Park, California 94025
Jeffrey Frient 1,000,000(4) 7.9% 1,000,000(4) 1.5%
828 Foxdale Avenue
Winnetta, Illinois 60093
CapitalOne, Inc. 0 0% 54,428,999 82.3%
150 North Michigan Avenue
Suite 3610
Chicago, Illinois 60601
John C. Paulsen 0 0% 54,428,999(5) 82.3%
150 North Michigan Avenue
Suite 3610
Chicago, Illinois 60601
Stephen Calk 0 0 0 0
Chicago Bancorp
1640 North Wells
Chicago, Illinois 60614
Mark Fera 0 0 0 0
1130 North Dearborn
Suite 302
Chicago, Illinois 60610
All directors and executive 7,944,200 58.4% 62,373,199 91.7%
offices as a group (3 persons
before Merger, 5 persons
after the Merger)
51
</TABLE>
<PAGE>
- -----------------------
(1) Based on 66,110,267 shares of AGV Common Stock outstanding after the
Merger.
(2) Includes 119,000 shares that may be purchased upon exercise of a warrant.
(3) Includes 800,000 shares that may be purchased upon exercise of warrants.
(4) Consists of 1,000,000 shares that may be purchased upon exercise of
warrants.
(5) Beneficially owned by Mr. Paulsen as sole stockholder of CapitalOne, Inc.
(6) Includes 1,919,000 shares that may be purchased upon exercise of warrants.
DESCRIPTION OF AGV CAPITAL STOCK
AGV is authorized to issue 900,000,000 shares of AGV Common Stock, par
value $.001 and 8,000,000 shares of AGV Preferred Stock no stated value. As of
November 15, 1998, there were 11,681,268 shares of AGV Common Stock outstanding.
The following brief description of the capital stock of AGV is qualified in its
entirety by reference to AGV's Articles of Incorporation as amended copies of
which are on file with the Commission.
Common Stock
Holders of AGV Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders generally, including the election
of directors. Subject to the rights of holders of Preferred Stock, the holders
of AGV Common Stock are entitled to receive such dividends as may be declared
from time to time by the AGV Board out of funds legally available therefor, and
in the event of liquidation, dissolution or winding up of AGV to share ratably
in all assets remaining after payment of liabilities. The holders of AGV Common
Stock have no preemptive or conversion rights and are not subject to further
calls or assessments by AGV.
Following the Merger, the Transfer Agent and Registrar for the AGV Common
Stock will be Illinois Stock Transfer Company of Chicago, Illinois.
Preferred Stock
The AGV Board has authority to issue Preferred Stock from time to time
without stockholder approval in one or more series. The AGV Board is authorized
with respect to any series of Preferred Stock to fix the designation, the number
of shares, the voting powers, the conditions of the conversion privilege, if
any, the terms and conditions of the redemption rights; if any, the rights upon
liquidation, merger, consolidation, distribution or sale of assets and
dissolution or winding-up, the dividend rate and whether dividends shall be
cumulative, and any other powers, preferences and relative, participating,
optional and other rights and the qualifications, limitations and restrictions
of such series. No shares of Preferred Stock are currently outstanding.
NUCLEUS HOLDING CORPORATION
BUSINESS
Nucleus was incorporated in December of 1997, under the laws of the State
of Illinois to act as a holding company for its companies, Alliance Net, Inc.
d/b/a TelOne and Nucleus Data Source, Inc.("NDSI").
52
<PAGE>
Nucleus's current product offerings consist of "PC Express," a computer
repair and upgrade business, "PC OnLine," a computer help desk, and "TelOne", a
long distance reseller and acquirer of telecom assets. Nucleus also plans to
continue developing "Checkbook," a website that intends to store, track, and
present billing information over the Internet. However, "Checkbook" has not yet
been fully developed into a technologically feasible product. See "Risk Factors
- - Checkbook and Business Browser are Unproven Technologies."
The Opportunities
"PC Express" and "PC OnLine." The proliferation of computers has created a
multitude of new business opportunities. The increase in the number of
businesses and individuals using software, hardware, and the Internet on a daily
basis has created demand for goods and services related to this usage. Nucleus
is in the process of developing products and services to address this demand.
"PC Express" provides a service in great demand. PC Express is sensitive to
the need for quick, reliable, and cost-effective repair, maintenance, and
upgrade services. The approach of PC Express is to establish long-term
relationships with customers and encourage them to take advantage of decreasing
processor and memory costs by upgrading existing computers. Nucleus believes
that as the sophistication level of users increases, upgrade services will be in
greater demand. By offering clients the choice of on-site repair or pick-up and
delivery service, PC Express strives to ensure minimal disruption of the
customer's activities.
"PC OnLine" is a service designed to minimize the computer user's downtime.
By providing reasonably priced help desk functionality, PC OnLine gives the user
access to skilled technicians capable of solving many hardware, software, and
configuration problems during a telephone session. This service also provides
the technician with remote access to the user's computer. Diagnosis, program
mending, software installation, and data recovery can all be performed as if the
technician was at the user's site.
"CheckBook." Management believes that its "CheckBook" system, when
developed, will allow banks, subscribers, and vendor companies to transact
business today at little or no cost. Management believes that its network, when
developed, will be capable of handling a high volume of transactions with small,
incremental costs to the financial institution or vendor companies, and will
compare favorably with networks charging large fees and achieving limited
success in market penetration or longevity. However, the technology supporting
"Checkbook" has not yet been fully developed. See "Risk Factors - Checkbook and
Business Browser are Unproven Technologies."
"TelOne." Alliance Net, Inc. d/b/a TelOne obtained a portion of its assets
via the acquisition of a portion of the assets of two companies, American
Teletronics Long Distance ("ATLD") and MetroLink Communications, Inc.
("MetroLink"), at a public sale in April 1997. ATLD was a long distance
telecommunications reseller founded in 1990. In response to increasing pressure
on margins, ATLD embarked on the development of a proprietary long distance
telecommunications network via a joint venture with Teleport Communications
Group ("Teleport"), headquartered in Staten Island, New York.
In May 1995, MetroLink was created to continue the development of the long
distance network with nationwide coverage. MetroLink became a supplier to ATLD
and other resellers of long distance service, including Equalnet Holding Corp.
Subsequent network problems, currently the subject of litigation between
MetroLink, ATLD and Teleport, caused some resellers of the network to experience
millions of dollars of unauthorized and uncollectible long distance usage,
resulting in ATLD being put into involuntary bankruptcy, which was subsequently
dismissed, and in both ATLD and MetroLink ceasing operation. The public sale of
the assets of these companies was held for the benefit of the first secured
creditor of both companies and the assets were purchased by AllianceNet, Inc.
for nominal consideration.
53
<PAGE>
TelOne currently resells telecommunications services, including long
distance, cellular, personal communication services (PCS), and paging services.
TelOne has a base of over 5,000 customers, generally small to medium-sized
businesses. If the telecommunications needs of these customers change, TelOne is
able to provide competitive services through the utilization of an effective
distribution channel for suppliers of these services.
TelOne's customers rely on TelOne to obtain the best quality
telecommunication services at competitive pricing. TelOne's experience in the
telecommunications resale industry has enabled it to become very effective in
the acquisition of various telecommunication assets, such as customer bases and
accounts receivable. In this dynamic business, opportunities continually arise.
TelOne has the expertise to take advantage of these situations, as they occur.
How Each System Is Intended to Work
Nucleus Computers. Management believes that Nucleus computers will provide
clients with an expedient and cost-effective method of custom building PC
workstations, networks, and software platforms using industry
leader-manufactured components branded with the "Nucleus Computer" name.
Customers will be able to pick and choose components over the Internet with
which to build a suitable computer or select components with the assistance of a
trained Nucleus technician.
Nucleus "Business Browser." The "Business Browser" is being developed as a
Nucleus-branded Internet access front-end tool that allows clients to directly
access frequently used web sites via a simplified user interface. The browser
will be segregated into seven sections, as follows: "CheckBook," a bill payment
and presentment platform; "Business Services," a provider of links to host
companies that perform general business services (i.e., Federal Express, UPS,
Amazon, Monsterboard Com, etc.); "Travel" will provide clients with access to
all major airlines' sites, hotel sites, and travel guides; the "News" category
gives clients direct access to CNN, "Bloomberg Reports," "The Wallstreet
Journal" NYSE, NASDAQ, etc.; "Entertainment" will provide clients with direct
access to the latest theatrical events, trade shows, live feeds, lotteries,
restaurants, etc.; and "Nucleus" will cover The Company's major product lines.
Nucleus views the browser as an all-important factor in the sale of its
Internet access products. The browser will be designed to be compatible with
both Microsoft and Netscape. However, the technology supporting "Business
Browser" has not yet been fully developed. See "Risk Factors - Checkbook and
Business Browser are Unproven Technologies."
"PC Express." "PC Express" provides clients with an expedient and
cost-effective method to gain hardware service for their computer systems.
Technicians, working in a centralized location, repair computers that are picked
up and returned by Nucleus drivers. This process saves customers time and money
by keeping the technicians' hourly rate charge tied to the actual time it takes
to repair the computer and eliminates expensive charges for travel time. This
process actually decreases a client's "down time" because technicians can get to
the computer quicker than if a visit had to be scheduled.
"PC OnLine." "PC OnLine" instantly brings Nucleus's office to the
customer's desk, allowing certified technicians to remotely access a client's
computer, at their request, via modem or the Internet, to diagnose, install, and
repair software programs, operating systems, and data storage devices. Customers
pay a per minute rate for technical support instead of the industry standard
"hourly minimums." Windows and DOS operating systems will be supported initially
by PC Online. NDSI expects to support Macintosh in 1999.
54
<PAGE>
"CheckBook." Management believes that "CheckBook" will provide a depository
into which multiple vendors can cost-effectively download rated billing
information via their existing bill-imaging systems. Customers can then retrieve
this information along with an aging summary for each of their vendors. At this
point, they can pay either all or a portion of their bills directly to the
vendor company with a credit or debit card. Customers disputing a bill can then
contact the appropriate vendor to receive a corrected bill or credit. In either
case, both the vendor and customer can react quickly and efficiently. The
technology supporting "CheckBook" has not yet been fully developed. See "Risk
Factors - Checkbook and Business Browser are Unproven Technologies."
"TelOne." TelOne acquires minutes of usage in bulk from the nations largest
long distance, cellular, paging and local service providers. It then resells
this usage to residential and small to medium sized businesses.
Telemarketing
Nucleus's growth strategy includes the use of telemarketing services to
obtain customers. This methodology will be utilized in contacting residential
and commercial customers, and potential vendor company subscribers.
Billing Process
PC Express. Fees for hardware are billed upon delivery, while revenues for
service is billed and recognized as service is performed.
PC OnLine. Clients are billed a fee of $.90 to $2.00 per minute based on
the volume of minutes acquired. Typically, these charges are billed directly to
the end user's credit card. Revenue is recognized based upon usage.
CheckBook. The billing process will consist of charging subscribers an
initial set-up fee of $4.95 and, thereafter, a monthly fee of $2.95 to be billed
either directly to their credit card or automatically withdrawn from their bank
account. This fee may be waived at Nucleus's discretion. Nucleus will not be
involved in each CheckBook transaction other than to supply credit card or bank
information to vendor companies.
Management intends to bill vendor companies on a page-by-page basis. When a
vendor company's billing information has been verified and posted to the
website, a fee will be due with terms of Net-30 days. Nucleus will not be
involved in the collection of vendor invoices. At this time, CheckBook's role
will be that of a postman only. In other words, a primary focus of CheckBook
will be to provide each subscriber with the ability to maintain control of how,
when, and to whom a bill is paid.
TelOne. TelOne's billing cycle begins when an account is sold by a TelOne
sales representative or agent. After submitting the account to the Local
Exchange Carrier and receipt of credit approval, the account is placed on the
TelOne service provider's network. The account then generates local and long
distance usage tracked by a call record reflecting that usage. TelOne receives
and aggregates bills, due within 45 days, having received billing tapes from its
service provider for all account usage. Approximately 3 business days later,
individual bills are sent from TelOne's billing house to each TelOne customer.
TelOne receipts are then sent to a lockbox by the customers. Approximately 85%
of customer invoices are paid within 45 days.
Regulatory
As the Internet becomes increasingly popular, it is possible that laws and
regulations may be enacted that would cover issues of user privacy, pricing,
content, characteristics, and quality of products and services.
55
<PAGE>
The intrastate local and long distance telecommunications operations of
TelOne are subject to various state laws and regulations, including
certification requirements. Generally, TelOne must obtain Certificates of Public
Convenience and Necessity from the regulatory authorities in most states where
it offers services, and, in most of these jurisdictions, it must file and obtain
prior regulatory approval of tariffs for intrastate offerings. At present,
TelOne can provide originating service to customers in 49 states. Of the states
in which TelOne provides originating service, 38 have Public Utility Commissions
that actively assert regulatory oversight of the services offered by TelOne.
There can be no assurances that the regulatory authorities, in one or more
states, or the FCC will not take action having an adverse effect on the business
or financial condition of TelOne.
Corporate Facilities
Nucleus leases approximately 3,500 square feet of office space in Chicago,
Illinois, under a lease agreement expiring December 30, 1999, with an
unaffiliated third party. Nucleus believes its lease is at or below market
rates. Nucleus's financial obligation for its facilities is approximately $5,600
per month.
NUCLEUS SELECTED FINANCIAL INFORMATION
The following tables summarize certain selected financial data, which
should be read in conjunction with Nucleus's consolidated financial statements
and related notes and "Nucleus's Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this Proxy
Statement. The selected financial data set forth below as of December 31, 1997
and for the period from April 30, 1997 (inception) through December 31, 1997
were derived from Nucleus's audited financial statements. The selected financial
data set forth below as of September 30, 1998 and for the period from inception
to September 30, 1997 and the nine months ended September 30, 1998 were derived
from Nucleus's unaudited financial statements which have been prepared on the
same basis as the audited financial statements and in the opinion of management,
include all adjustments, consisting of normal recurring adjustments necessary to
present fairly the information set forth therein. The audited financial
statements of Nucleus as of December 31, 1997 and for the period from April 30,
1997 through December 31, 1997 and the independent auditor's report thereon are
included elsewhere in this Proxy Statement.
56
<PAGE>
<TABLE>
<CAPTION>
Nucleus Holding Corporation
April 30, 1997 (inception) From April 30, 1997 Nine Months
to December 31 (inception) to September 30 Ended September 30
---------------------- --------------------------- ------------------
1997(1) 1997 1998
---------------------- --------------------------- ------------------
Statement of Operations
Data:
<S> <C> <C> <C>
Sales $ 956,810 $ -- $ 2,114,153
----------- ----------- -----------
Cost of sales 672,343 -- 1,427,298
Selling and marketing
expenses 86,000 -- 187,752
Research and development
expenses 248,690 200,673 39,264
General and
administrative expenses 246,995 2,308 481,155
----------- ----------- -----------
Income (loss) from
operations (297,218) (202,981) (21,146)
Other income (expense) -- -- 100,697
----------- ----------- -----------
Net income (loss) $ (297,218) $ (202,981) $ 79,551
=========== =========== ===========
Earnings (loss) per share -
basic and diluted ($ 297.22) ($ 202.98) $ 79.55
=========== =========== ===========
Weighted average number
of shares outstanding -
basic and diluted 1,000 1,000 1,000
=========== =========== ===========
Other data:
Cash flows from:
Operating activities $ (226,521) $ (139,352) $ 424,590
Investing activities $ (40,722) $ (43,525) $ (41,127)
Financing activities $ 267,243 $ 194,985 $ (327,806)
As of December 31 As of September 30
----------------- ------------------
1997(1) 1998
----------------- ------------------
Balance Sheet Data:
Working capital $(332,395) $(251,790)
Total assets $ 689,482 $ 655,186
Long-term liabilities $ -- $ --
Accumulated deficit $(297,218) $(217,667)
Stockholder's deficit $(294,218) $(214,667)
(1) Nucleus Holding Corporation commenced operations on April 30, 1997.
57
</TABLE>
<PAGE>
NUCLEUS'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Nine Months Ended September 30, 1998 Compared to April 30, 1997 (inception)
through September 30, 1997
Sales
- -----
Sales for the nine months ended September 30, 1998 totalled $2,114,153 and
primarily consist of revenue from TelOne, which resells telecommunication
services. TelOne did not have any revenues in 1997 during the same period
because its operations had not yet commenced. Sales from PC Express, a new
product line, which began operations during the second quarter of 1998, totalled
approximately $65,000 for the nine months ended September 30, 1998.
Cost of Sales
- -------------
Cost of sales totalled $1,427,298 for the nine months ended September 30,
1998, or 67.5% of sales. Although cost of sales related to PC Express is less
than that of Nucleus' other services offerings, predominantly all sales for the
nine months ended September 30, 1998 related to the resale of long distance
telephone services, for which cost of sales is approximately 68%. The cost of
purchasing telecommunication services is Nucleus' vendor's cost plus 3%. Nucleus
also pays a fee, equal to 3% of total billings, to a third party which performs
billing services.
Selling and Marketing
- ---------------------
Selling and marketing expenses as a percentage of sales were 8.9%,
consistent with Nucleus results for the period from inception to December 31,
1997. Selling and marketing expenses consist of commissions payable to agents
selling telecommunication services; consequently, in absolute dollars, selling
and marketing expenses increase as sales increase.
Research and Development Expenses
- ---------------------------------
Research and development expenses decreased $161,409 from $200,673, in 1997
to $39,264 in 1998 as Nucleus has been cautiously proceeding with the
development of Checkbook and PC Express subsequent to the original investment to
design the products.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses were not incurred in 1997 because
Nucleus devoted its efforts to designing and developing Checkbook and PC
Express.
Income from Operations
- ----------------------
As described above, Nucleus had a full nine months of operations in 1998,
compared to a period in 1997 in which it was investing in Checkbook and PC
Express.
Other Income
- ------------
Other income in 1998 relates to cash receipts Nucleus collected under an
arrangement through which it purchased accounts receivable from a bankrupt
long-distance telecommunications reseller. The agreement provides for Nucleus to
receive 50% of all accounts receivable collected. Nucleus paid $32,000 to
purchase the assets.
58
<PAGE>
Net Income
- ----------
As a result of proceeds received from the collection on bankrupt
receivables, Nucleus generated net income for the nine months ended September
30, 1998 compared to a loss in 1997 due to Nucleus' investment in Checkbook and
PC Express.
April 30, 1997 (inception) compared to December 31, 1997
- --------------------------------------------------------
Nucleus began the development of Checkbook and PC Express in May 1997 and
incurred a total of $248,690 in research and development costs for this product
from inception to December 31, 1997. The product has not been determined to be
technologically feasible as of December 31, 1997, or to date.
In October, TelOne began reselling long-distance telecommunications
services. 100% of Nucleus sales in 1997 related to the resale of long-distance
service.
Nucleus incurred a net loss of $297,218 for the period from inception to
December 31, 1997 as a result of its investment in research and development of
Checkbook and PC Express and start up costs of the TelOne operations. In
addition, TelOne was only operational for three months.
Liquidity and Capital Resources
- -------------------------------
Working capital at September 30, 1998 totaled $(251,790) compared to
$(332,395) on December 31, 1997. During 1997, Nucleus' shareholder advanced
funds totaling $249,356 to provide liquidity for its operations. Such funding,
in addition to cash generated from operations, has been sufficient to enable
Nucleus to meet its obligations. Currently, Nucleus does not maintain any
financing arrangement with any lending institution. As December 31, 1997,
Nucleus owed its shareholder $249,356. During 1998, the Company repaid the
shareholder loan and, in addition, as of September 30, 1998, had advanced
$108,563 to the shareholder. Such shareholder advance is expected to be repaid
by December 31, 1998.
New Accounting Pronouncements
- -----------------------------
There are no recent accounting pronouncements which have not been adopted
by Nucleus or which will be required to be adopted by Nucleus, which will have a
significant effect on Nucleus' financial statements.
Year 2000 Compliance
- --------------------
The Year 2000 Issue. In the next year and a half, most large companies will
face a potentially serious problem because many software applications and
operational programs written in the past may not properly recognize calendar
dates beginning in the Year 2000. This problem could force information systems
to either shut down or provide incorrect data and information. Nucleus began the
process of identifying the necessary changes to its computer programs and
hardware as well as assessing the progress of its significant vendors in their
remediation efforts in late 1997. The discussion below details Nucleus efforts
to ensure Year 2000 compliance.
Nucleus' State of Readiness. Nucleus has begun identifying and evaluating
the readiness of its internal and third party informational and
non-informational technology systems, which, if not Year 2000 compliant, could
have a direct major impact to Nucleus. Nucleus' evaluation has identified the
following areas of concern: (i) third party bill processing, and (ii) third
party providers of long distance telephone services.
Based on its assessment and vendors' representations, Nucleus believes that
the systems of its significant third party vendors of long distance telephone
service and billing will be Year 2000 compliant before the year 2000.
The Company is highly dependent on third party vendors to provide long
distance telephone services and billing support. Actual telephone services and
bill processing is provided by WilTel and Connect America, respectively. Nucleus
is currently evaluating each of these third parties compliance with Year 2000
matters. Connect America has represented to Nucleus that it has replaced
hardware which was not Year 2000 compliant in June 1998.
59
<PAGE>
The Risks of Nucleus' Year 2000 Issues. Nucleus believes the greatest Year
2000 compliance risk, in terms of magnitude, is that third party vendors may
fail to complete remediation efforts in a timely manner and that telephone
service and customer billing could be interrupted for a period of time. Nucleus
is unable to predict the likelihood of this risk occurring.
Contingency Plans. At this time, Nucleus fully expects to be Year 2000
compliant and is satisfied that its significant vendors are or will be
compliant. While the Company fully expects all of its informational and
non-informational technology systems to be compliant by the Year 2000, it is
beginning to develop contingency plans in the event one or more of its
identified areas of concern are not compliant. Nucleus does not believe that the
total costs of such Year 2000 compliance activities will be material.
NUCLEUS STOCK
All of the 1,000 outstanding shares of Nucleus Common Stock are held by
CapitalOne, Inc., an Illinois corporation ("CapitalOne"). John C. Paulsen is the
owner of all of the outstanding shares of CapitalOne.
INDEPENDENT PUBLIC ACCOUNTANTS
James A. Scheifley & Associates, P.C. have been the independent auditors
for AGV since 1992. A representative of James A. Scheifley & Associates, P.C.
will be available by teleconference at the AGV Meeting and will respond to
appropriate questions from stockholders.
EXPERTS
The Consolidated Financial Statements of AGV at December 31, 1997 and 1996
and for each of the years in the three year period ended December 31, 1997
included and incorporated in this Proxy Statement have been audited by James A.
Scheifley & Associates, P.C. independent public accountants as indicated in
their report with respect thereto and are included and incorporated herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
The consolidated financial statements of Nucleus Holding Corporation and
subsidiaries as of December 31, 1997 and for the period from April 30, 1997
(inception) to December 31, 1997 included in this Proxy Statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
60
<PAGE>
OTHER MATTERS
The AGV Board knows of no other business that will be presented at the
Meeting. If any other business is properly brought before the Meeting it is
intended that proxies in the enclosed form will be voted in respect thereof in
accordance with the judgment of the persons voting the proxies. WHETHER OR NOT
YOU INTEND TO BE PRESENT AT THE MEETING YOU ARE URGED TO COMPLETE SIGN AND
RETURN YOUR PROXY PROMPTLY.
BY ORDER OF THE BOARD
Christopher S.Walker, Secretary
December 7, 1998
Chicago, Illinois
61
<PAGE>
AGREEMENT AND PLAN OF MERGER
BETWEEN
AMERICAN GENERAL VENTURES, INC.
AND
NUCLEUS HOLDING CORP.
October 30, 1998
TABLE OF CONTENTS
1. Definitions
2. Basic Transaction
(a) The Merger
(b) The Closing
(c) Actions at the Closing
(d) Effect of Merger
(e) Procedure for Payment
(f) Closing of Transfer Records
3. Representations and Warranties of the Target
(a) Organization, Qualification, and Corporate Power
(b) Capitalization
(c) Authorization of Transaction
(d) Noncontravention
(e) Financial Statements
(f) Events Subsequent to Most Recent Fiscal Quarter End
(g) Undisclosed Liabilities
(h) Brokers' Fees
(i) Continuity of Business Enterprise
4. Representations and Warranties of the Buyer
(a) Organization, Qualification, and Corporate Power
(b) Capitalization
(c) Authorization of Transaction
(d) Noncontravention
(e) Filings with the SEC
(f) Financial Statements
(g) Events Subsequent to Most Recent Fiscal Quarter End
(h) Undisclosed Liabilities
<PAGE>
(i) Employment Agreements
(j) Brokers' Fees
(k) Continuity of Business Enterprise
(l) Disclosure
5. Covenants
(a) General
(b) Notices and Consents
(c) Regulatory Matters and Approvals
(d) [Intentionally Omitted]
(e) Operation of Target Business
(f) Operation of Buyer Business
(g) Full Buyer Access
(h) Full Target Access
(i) Notice of Developments
(j) Target Exclusivity
(k) Buyer Exclusivity
(l) Insurance and Indemnification
(m) Compliance with the Securities Act
(n) Report on Form 8-K
(o) Continuity of Business Enterprise
6. Conditions to Obligation to Close
(a) Conditions to Obligation of the Buyer
(b) Conditions to Obligation of the Target
7. Termination
(a) Termination of Agreement
(b) Effect of Termination
8. Miscellaneous
(a) Survival
(b) Press Releases and Public Announcements
(c) No Third Party Beneficiaries
(d) Entire Agreement
(e) Succession and Assignment
(f) Counterparts
(g) Headings
(h) Notices
(i) Governing Law
(j) Amendments and Waivers
(k) Severability
(l) Expenses
(m) Construction
(n) Incorporation of Exhibits and Schedules
2
<PAGE>
ITEM 5. Other Events
AGREEMENT AND PLAN OF MERGER
Agreement entered into as of October 30, 1998 by and between American
General Ventures, Inc., a Nevada corporation (the "Buyer"), and Nucleus Holding
Corporation, an Illinois corporation (the "Target"). The Buyer and the Target
are referred to collectively herein as the "Parties."
This Agreement contemplates a tax-free merger of the Target with and into
the Buyer in a reorganization pursuant to Code ss.368(a)(1)(A). The Target
Stockholder will receive capital stock in the Buyer in exchange for their
capital stock in the Target.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Buyer" has the meaning set forth in the preface above.
"Buyer-owned Share" means any Target Share that the Buyer owns
beneficially.
"Buyer Common Share" means any share of the Common Stock, $.001 par value
per share, of the Buyer.
"Buyer Preferred Share" means any share of Preferred Stock of the Buyer.
"Buyer Warrant" means any warrant to purchase a Buyer-owned Share.
"Closing" has the meaning set forth in ss.2(b) below.
"Closing Date" has the meaning set forth in ss.2(b) below.
"Confidential Information" means any information concerning the businesses
and affairs of the Target and its Subsidiaries that is not already generally
available to the public.
"Conversion Ratio" has the meaning set forth in ss.2(d)(v) below.
"Definitive Buyer Proxy Materials" means the definitive proxy materials
relating to the Special Buyer Meeting.
"Disclosure Schedule" has the meaning set forth in ss.3 below.
1
<PAGE>
"Dissenting Share" means any Target Share which any stockholder who or
which has exercised his or its appraisal rights under the Illinois General
Corporation Law holds of record.
"Effective Time" has the meaning set forth in ss.2(d)(i) below.
"Exchange Agent" has the meaning set forth in ss.2(e) below.
"Financial Statements" has the meaning set forth in ss.3(e) below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Illinois Certificate of Merger" has the meaning set forth in ss.2(c)
below.
"Illinois General Corporation Law" means the Business Corporation Act of
1983 of the State of Illinois, as amended.
"IRS" means the Internal Revenue Service.
"Knowledge" means actual knowledge without independent investigation.
"Merger" has the meaning set forth in ss.2(a) below.
"Most Recent Fiscal Quarter End" has the meaning set forth in ss.4(f)
below.
"Nevada Certificate of Merger" has the meaning set forth in ss.2(c) below.
"Nevada General Corporation Law" means the General Corporation Law of the
State of Nevada as amended.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Public Report" has the meaning set forth in ss.4(e) below.
2
<PAGE>
"Requisite Buyer Stockholder Approval" means the affirmative vote of the
holders of a majority of the Buyer Shares in favor of this Agreement and the
Merger.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Special Buyer Meeting" has the meaning set forth in ss.5(c)(ii) below.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Surviving Corporation" has the meaning set forth in ss.2(a) below.
"Target" has the meaning set forth in the preface above.
"Target Share" means any share of the Common Stock, no par value per share,
of the Target.
"Target Stockholder" means any Person who or which holds any Target Shares.
2. Basic Transaction.
(a) The Merger. On and subject to the terms and conditions of this
Agreement, the Target will merge with and into the Buyer (the "Merger") at the
Effective Time. The Buyer shall be the corporation surviving the Merger (the
"Surviving Corporation"). Immediately following the Merger, the Buyer shall
change its name to Nucleus Holding Corporation.
(b) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Target's general
counsel in Chicago, Illinois commencing at 9:00 a.m. local time on the second
business day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
3
<PAGE>
(other than conditions with respect to actions the respective Parties will take
at the Closing itself) or such other date as the Parties may mutually determine
(the "Closing Date"); provided, however, that the Closing Date shall be no later
than December 31, 1998.
(c) Actions at the Closing. At the Closing, (i) the Target will deliver to
the Buyer the various certificates, instruments, and documents referred to in
ss.6(a) below, (ii) the Buyer will deliver to the Target the various
certificates, instruments, and documents referred to in ss.6(b) below, (iii) the
Buyer and the Target will file with the Secretary of State of the State of
Nevada a Certificate of Merger in a form customarily accepted by the Secretary
of State of the State of Nevada (the "Nevada Certificate of Merger"), (iv) the
Buyer and the Target will file with the Secretary of State of the State of
Illinois a Certificate of Merger in a form customarily accepted by the Secretary
of State of the State of Illinois (the "Illinois Certificate of Merger"), and
(v) the Buyer will deliver to the Exchange Agent in the manner provided below in
this ss.2 the certificate evidencing the Buyer Shares issued in the Merger.
(d) Effect of Merger.
(i) General. The Merger shall become effective at the time (the
"Effective Time") the Buyer and the Target file the Certificate of Merger
and Articles of Merger with the Secretary of State of the State of Illinois
and the Secretary of State of the State of Nevada or such later time as
specified in the Certificate of Merger and Articles of Merger. The Merger
shall have the effect set forth in the Nevada General Corporation Law and
the Illinois General Corporation Law. The Surviving Corporation may, at any
time after the Effective Time, take any action (including executing and
delivering any document) in the name and on behalf of either the Buyer or
the Target in order to carry out and effectuate the transactions
contemplated by this Agreement.
(ii) Certificate of Incorporation. The Certificate of Incorporation of
the Buyer in effect at and as of the Effective Time will remain the
Certificate of Incorporation of the Surviving Corporation without any
modification or amendment in the Merger.
(iii) Bylaws. The Bylaws of the Buyer in effect at and as of the
Effective Time will remain the Bylaws of the Surviving Corporation without
any modification or amendment in the Merger.
(iv) Directors and Officers.
(a) prior to the Effective Time, AGV will amend its Bylaws to
provide for up to ten directors;
(b) prior to the Effective Time, AGV shall use its best efforts
to cause Christopher S. Walker to resign as a director;
(c) AGV shall use its best efforts to cause John Paulsen and up
to three persons designated by Mr. Paulsen mutually
acceptable to AGV and Nucleus to be duly appointed or
elected to the Board of Directors of AGV, effective at the
Effective Time or as soon as practicable thereafter. AGV and
Nucleus hereby agree that, Mark Fera and Stephen Calk are
acceptable to serve as directors of AGV.
4
<PAGE>
(d) AGV and Nucleus shall use their reasonable best efforts to
cause John C. Paulsen to be appointed President and Chief
Executive Officer and Steven H. Walker to remain a Chairman
of the Board of Directors and to be appointed as Vice
President of Business Development of AGV effective at the
Effective Time or as soon as practicable thereafter.
(v) Conversion of Target Shares. At and as of the Effective Time, (A)
each Target Share (other than any Dissenting Share or Buyer-owned Share)
shall be converted into the right to receive 54,428,999 Buyer Shares (the
ratio of 54,428.999 Buyer Shares to one Target Share is referred to herein
as the "Conversion Ratio"), (B) each Dissenting Share shall be converted
into the right to receive payment from the Surviving Corporation with
respect thereto in accordance with the provisions of the Illinois General
Corporation Law, and (C) each Buyer-owned Share shall be canceled;
provided, however, that the Conversion Ratio shall be subject to equitable
adjustment in the event of any stock split, stock dividend, reverse stock
split, or other change in the number of Target Shares outstanding. No
Target Share shall be deemed to be outstanding or to have any rights other
than those set forth above in this ss.2(d)(v) after the Effective Time.
(vi) Buyer Shares. Each Buyer Share issued and outstanding at and as
of the Effective Time will remain issued and outstanding.
(vii) Buyer Warrants. Each Buyer Warrant outstanding at and as of the
Effective Time will remain outstanding and in full force and effect.
(e) Procedure for Payment.
(i) Immediately after the Effective Time, (A) the Buyer will
furnish to Illinois Stock Transfer Company of Chicago, Illinois (the
"Exchange Agent") a stock certificate (issued in the name of the
5
<PAGE>
Exchange Agent or its nominee) representing that number of Buyer
Shares equal to the product of (I) the Conversion Ratio times (II) the
number of outstanding Target Shares (other than any Dissenting Shares
and Buyer-owned Shares) and (B) the Buyer will cause the Exchange
Agent to mail a letter of transmittal (with instructions for its use)
to each record holder of outstanding Target Shares for the holder to
use in surrendering the certificates which represented his or its
Target Shares in exchange for a certificate representing the number of
Buyer Shares to which he or it is entitled.
(ii) The Buyer will not pay any dividend or make any distribution
on Buyer Shares (with a record date at or after the Effective Time) to
any record holder of outstanding Target Shares until the holder
surrenders for exchange his or its certificates which represented
Target Shares. The Buyer instead will pay the dividend or make the
distribution to the Exchange Agent in trust for the benefit of the
holder pending surrender and exchange. The Buyer may cause the
Exchange Agent to invest any cash the Exchange Agent receives from the
Buyer as a dividend or distribution in one or more of the investments
permitted of banks and transfer companies ; provided, however, that
the terms and conditions of the investments shall be such as to permit
the Exchange Agent to make prompt payments of cash to the holders of
outstanding Target Shares as necessary. The Buyer may cause the
Exchange Agent to pay over to the Buyer any net earnings with respect
to the investments, and the Buyer will replace promptly any cash which
the Exchange Agent loses through investments. In no event, however,
will any holder of outstanding Target Shares be entitled to any
interest or earnings on the dividend or distribution pending receipt.
(iii) The Buyer may cause the Exchange Agent to return any Buyer
Shares and dividends and distributions thereon remaining unclaimed 180
days after the Effective Time, and thereafter each remaining record
holder of outstanding Target Shares shall be entitled to look to the
Buyer (subject to abandoned property, escheat, and other similar laws)
as a general creditor thereof with respect to the Buyer Shares and
dividends and distributions thereon to which he or it is entitled upon
surrender of his or its certificates.
(iv) The Buyer shall pay all charges and expenses of the Exchange
Agent.
(f) Closing of Transfer Records. After the close of business on
the Closing Date, transfers of Target Shares outstanding
prior to the Effective Time shall not be made on the stock
transfer books of the Surviving Corporation.
3. Representations and Warranties of the Target. The Target represents and
warrants to the Buyer that the statements contained in this ss.3 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this ss.3), except as set
forth in the disclosure schedule accompanying this Agreement and initialed by
the Parties (the "Disclosure Schedule"). The Disclosure Schedule will be
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this ss.3.
6
<PAGE>
(a) Organization, Qualification, and Corporate Power. Each of the Target
and its Subsidiaries is a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation. Each of
the Target and its Subsidiaries is duly authorized to conduct business and is in
good standing under the laws of each jurisdiction where such qualification is
required except where the lack of such qualification would not have a material
adverse effect on the financial condition of the Target and its Subsidiaries
taken as a whole or on the ability of the Parties to consummate the transactions
contemplated by this Agreement. Each of the Target and its Subsidiaries has full
corporate power and authority to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it.
(b) Capitalization. The entire authorized capital stock of the Target
consists of 1,000 Target Shares, all of which Target Shares are issued and
outstanding. All of the issued and outstanding Target Shares have been duly
authorized and are validly issued, fully paid, and nonassessable. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Target to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights with
respect to the Target.
(c) Authorization of Transaction. The Target has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement constitutes
the valid and legally binding obligation of the Target, enforceable in
accordance with its terms and conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which any of the Target and its Subsidiaries is
subject or any provision of the charter or bylaws of any of the Target and its
Subsidiaries or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument or other arrangement to which
any of the Target and its Subsidiaries is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets) except where the violation, conflict, breach,
default, acceleration, termination, modification, cancellation, failure to give
notice, or Security Interest would not have a material adverse effect on the
financial condition of the Target and its Subsidiaries taken as a whole or on
the ability of the Parties to consummate the transactions contemplated by this
Agreement. Other than in connection with the provisions of the Illinois General
Corporation Law, the Nevada General Corporation Law, the Securities Exchange
Act, the Securities Act, and the state securities laws, none of the Target and
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its Subsidiaries needs to give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any government or governmental agency
in order for the Parties to consummate the transactions contemplated by this
Agreement, except where the failure to give notice, to file, or to obtain any
authorization, consent, or approval would not have a material adverse effect on
the Target and its Subsidiaries taken as a whole or on the ability of the
Parties to consummate the transactions contemplated by this Agreement.
(e) Financial Statements. The Financial Statements of the Target for the
fiscal quarter ended June 30, 1998, and for the fiscal year ended December 31,
1997, (collectively, the "Financial Statement") have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods covered thereby,
and present fairly the financial condition of the Target and its Subsidiaries as
of the indicated dates and the results of operations of the Target and its
Subsidiaries for the indicated periods; provided, however, that the interim
statements are subject to normal year-end adjustments.
(f) Events Subsequent to Most Recent Fiscal Quarter End. Since the Most
Recent Fiscal Quarter End, there has not been any material adverse change in the
financial condition of the Target and its Subsidiaries taken as a whole.
(g) Undisclosed Liabilities. None of the Target and its Subsidiaries has
any liability (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due), including any liability for
taxes, except for (i) liabilities set forth on the face of the balance sheet
dated as of June 30, 1998 (rather than in any notes thereto) and (ii)
liabilities which have arisen after June 30, 1998 in the Ordinary Course of
Business (none of which results from, arises out of, relates to, is in the
nature of, or was caused by any breach of contract, breach of warranty, tort,
infringement, or violation of law).
(h) Brokers' Fees. None of the Target and its Subsidiaries has any
liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.
(i) Continuity of Business Enterprise. The Target operates at least one
significant historic business line, or owns at least a significant portion of
its historic business assets, in each case within the meaning of Reg.
ss.1.368-1(d).
4. Representations and Warranties of the Buyer. The Buyer represents and
warrants to the Target that the statements contained in this ss.4 are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this ss.4), except as set
forth in the Disclosure Schedule. The Disclosure Schedule will be arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
this ss.4.
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(a) Organization, Qualification and Corporate Power. Each of the Buyer and
its subsidiaries is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation. Each of the
Buyer and its Subsidiaries is duly authorized to conduct business and is in good
standing under the laws of each jurisdiction where such qualification is
required except where the lack of such qualification would not have a material
adverse effect on the financial condition of the Buyer and its Subsidiaries
taken as a whole or on the ability of the Parties to consummate the transactions
contemplated by this Agreement. Each of the Buyer and its Subsidiaries has full
corporate power and authority to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it.
(b) Capitalization. The entire authorized capital stock of the Buyer
consists of (i) 900,000,000 Buyer Common Shares, of which 11,681,268 Buyer
Common Shares are issued and outstanding, and no Buyer Common Shares are held in
treasury, (ii) 8,000,000 Buyer Preferred Shares, none of which Buyer Preferred
Shares are issued or outstanding, and (iii) 3,670,501 Buyer Warrants. All of the
Buyer Common Shares to be issued in the Merger have been duly authorized and,
upon consummation of the Merger, will be validly issued, fully paid, and
nonassessable. There are no other outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights, or
other contracts or commitments that could require the Buyer to issue, sell, or
otherwise cause to become outstanding any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Buyer.
(c) Authorization of Transaction. The Buyer has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder; provided, however, that the
Buyer cannot consummate the Merger unless and until it receives the Requisite
Buyer Stockholder Approval. This Agreement constitutes the valid and legally
binding obligation of the Buyer, enforceable in accordance with its terms and
conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any provision of
the charter or bylaws of the Buyer or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument or other arrangement
to which the Buyer is a party or by which it is bound or to which any of its
assets is subject, except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, or failure to give notice
would not have a material adverse effect on the ability of the Parties to
consummate the transactions contemplated by this Agreement. Other than in
connection with the provisions of the Illinois General Corporation Law, the
Nevada General Corporation Law, the Securities Exchange Act, the Securities Act,
and the state securities laws, the Buyer does not need to give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement, except where the failure to give
notice, to file, or to obtain any authorization, consent, or approval would not
have a material adverse effect on the ability of the Parties to consummate the
transactions contemplated by this Agreement.
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(e) Filings with the SEC. The Buyer has made all filings with the SEC that
it has been required to make under the Securities Act and the Securities
Exchange Act (collectively the "Public Reports"). Each of the Public Reports has
complied with the Securities Act and the Securities Exchange Act in all material
respects. None of the Public Reports, as of their respective dates, contained
any untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Buyer has
delivered to the Buyer a correct and complete copy of each Public Report
(together with all exhibits and schedules thereto and as amended to date).
(f) Financial Statements. The Target has filed Quarterly Reports on Form
10-Q for the fiscal quarters ended September 30, 1998 (the "Most Recent Fiscal
Quarter End"), June 30, 1998, and March 31, 1998, and an Annual Report on Form
10-K for the fiscal year ended December 31, 1997. The financial statements
included in or incorporated by reference into these Public Reports (including
the related notes and schedules) have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered thereby, and
present fairly the financial condition of the Buyer and its Subsidiaries as of
the indicated dates and the results of operations of the Buyer and its
Subsidiaries for the indicated periods; provided, however, that the interim
statements are subject to normal year-end adjustments.
(g) Events Subsequent to Most Recent Fiscal Quarter End. Since the Most
Recent Fiscal Quarter End, there has not been any material adverse change in the
financial condition of the Buyer and its Subsidiaries taken as a whole.
(h) Undisclosed Liabilities. None of the Buyer and its Subsidiaries has any
liability (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due), including any liability for
taxes, except for (i) liabilities set forth on the face of the balance sheet
dated as of the Most Recent Fiscal Quarter End (rather than in any notes
thereto) and (ii) liabilities which have arisen after the Most Recent Fiscal
Quarter End in the Ordinary Course of Business (none of which results from,
arises out of, relates to, is in the nature of, or was caused by any breach of
contract, breach of warranty, tort, infringement, or violation of law).
(i) Employment Agreements. There are no employment agreements or
arrangements of any kind between Buyer and any of its executive officers or key
employees which cannot be terminated upon not more than two weeks notice.
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(j) Brokers' Fees. The Buyer does not have any liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which any of the Target and its
Subsidiaries could become liable or obligated.
(k) Continuity of Business Enterprise. It is the present intention of the
Buyer to continue at least one significant historic business line of the Target,
or to use at least a significant portion of the Target's historic business
assets in a business, in each case within the meaning of Reg. ss.1.368-1(d).
(l) Disclosure. The Registration Statement and the Definitive Buyer Proxy
Materials will comply with the Securities Act and the Securities Exchange Act in
all material respects. The Registration Statement and the Definitive Buyer Proxy
Materials will not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made therein, in
the light of the circumstances under which they will be made, not misleading;
provided, however, that the Buyer makes no representation or warranty with
respect to any information that the Target will supply specifically for use in
the Registration Statement and the Definitive Buyer Proxy Materials. None of the
information that the Buyer will supply specifically for use in the Definitive
Target Proxy Materials will contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they will be made, not
misleading.
5. Covenants. The Parties agree as follows with respect to the period from
and after the execution of this Agreement.
(a) General. Each of the Parties will use its best efforts to take all
action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
ss.6 below).
(b) Notices and Consents. The Target will give any notices (and will cause
each of its Subsidiaries to give any notices) to third parties, and will use its
best efforts to obtain (and will cause each of its Subsidiaries to use its
reasonable best efforts to obtain) any third party consents, that the Buyer
reasonably may request in connection with the matters referred to in ss.3(d)
above.
(c) Regulatory Matters and Approvals. Each of the Parties will (and the
Target will cause each of its Subsidiaries to) give any notices to, make any
filings with, and use its best efforts to obtain any authorizations, consents,
and approvals of governments and governmental agencies in connection with the
matters referred to in ss.3(d) and ss.4(d) above. Without limiting the
generality of the foregoing:
(i) Securities Act, Securities Exchange Act, and State Securities
Laws. The Buyer will prepare and file with the SEC preliminary proxy
materials under the Securities Exchange Act relating to the Special Buyer
Meeting. The Buyer will use its best efforts to respond to the comments of
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the SEC thereon and will make any further filings (including amendments and
supplements) in connection therewith that may be necessary, proper, or
advisable. The Target will provide the Buyer, with whatever information and
assistance in connection with the foregoing filings that the Buyer
reasonably may request. The Buyer will take all actions that may be
necessary, proper, or advisable under state securities laws in connection
with the offering and issuance of the Buyer Shares.
(ii) Special Buyer Meeting. The Buyer will call a special meeting of
its stockholders (the "Special Buyer Meeting") as soon as practicable in
order that the stockholders may consider and vote upon the adoption of this
Agreement and the approval of the Merger in accordance with the Nevada
General Corporation Law. The Buyer will mail the Definitive Buyer Proxy
Materials to its stockholders simultaneously and as soon as practicable.
The Definitive Buyer Proxy Materials will contain the affirmative
recommendation of the board of directors of Buyer in favor of the adoption
of this Agreement and the approval of the Merger; provided, however, that
no director or officer of Buyer shall be required to violate any fiduciary
duty or other requirement imposed by law in connection therewith.
(d) [Intentionally Omitted]
(e) Operation of Target Business. The Target will not (and will not cause
or permit any of its Subsidiaries to) engage in any practice, take any action,
or enter into any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing:
(i) none of the Target and its Subsidiaries will authorize or effect
any change in its charter or bylaws;
(ii) none of the Target and its Subsidiaries will grant any options,
warrants, or other rights to purchase or obtain any of its capital stock or
issue, sell, or otherwise dispose of any of its capital stock (except upon
the conversion or exercise of options, warrants, and other rights currently
outstanding);
(iii) none of the Target and its Subsidiaries will declare, set aside,
or pay any dividend or distribution with respect to its capital stock
(whether in cash or in kind), or redeem, repurchase, or otherwise acquire
any of its capital stock;
(iv) none of the Target and its Subsidiaries will issue any note,
bond, or other debt security or create, incur, assume, or guarantee any
indebtedness for borrowed money or capitalized lease obligation outside the
Ordinary Course of Business;
(v) none of the Target and its Subsidiaries will impose any Security
Interest upon any of its assets outside the Ordinary Course of Business;
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(vi) none of the Target and its Subsidiaries will make any capital
investment in, make any loan to, or acquire the securities or assets of any
other Person outside the Ordinary Course of Business;
(vii) none of the Target and its Subsidiaries will make any change in
employment terms for any of its directors, officers, and employees outside
the Ordinary Course of Business; and
(viii) none of the Target and its Subsidiaries will commit to any of
the foregoing.
(f) Operation of Buyer Business. The Buyer will not (and will not cause or
permit any of its Subsidiaries to) engage in any practice, take any action, or
enter into any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing:
(i) none of the Buyer and its Subsidiaries will authorize or effect
any change in its charter or bylaws;
(ii) none of the Buyer and its Subsidiaries will grant any options,
warrants, or other rights to purchase or obtain any of its capital stock or
issue, sell, or otherwise dispose of any of its capital stock (except upon
the conversion or exercise of options, warrants, and other rights currently
outstanding);
(iii) none of the Buyer and its Subsidiaries will declare, set aside,
or pay any dividend or distribution with respect to its capital stock
(whether in cash or in kind), or redeem, repurchase, or otherwise acquire
any of its capital stock;
(iv) none of the Buyer and its Subsidiaries will issue any note, bond,
or other debt security or create, incur, assume, or guarantee any
indebtedness for borrowed money or capitalized lease obligation outside the
Ordinary Course of Business;
(v) none of the Buyer and its Subsidiaries will impose any Security
Interest upon any of its assets outside the Ordinary Course of Business;
(vi) none of the Buyer and its Subsidiaries will make any capital
investment in, make any loan to, or acquire the securities or assets of any
other Person outside the Ordinary Course of Business;
(vii) none of the Buyer and its Subsidiaries will make any change in
employment terms for any of its directors, officers, and employees outside
the Ordinary Course of Business; and
(viii) none of the Buyer and its Subsidiaries will commit to any of
the foregoing.
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(g) Full Buyer Access. The Target will (and will cause each of its
Subsidiaries to) permit representatives of the Buyer to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of the Target and its Subsidiaries, to all premises,
properties, personnel, books, records (including tax records), contracts, and
documents of or pertaining to each of the Target and its Subsidiaries. The Buyer
will treat and hold as such any Confidential Information it receives from any of
the Target and its Subsidiaries in the course of the reviews contemplated by
this ss.5(g), will not use any of the Confidential Information except in
connection with this Agreement, and, if this Agreement is terminated for any
reason whatsoever, agrees to return to the Target all tangible embodiments (and
all copies) thereof which are in its possession.
(h) Full Target Access. The Buyer will (and will cause each of its
Subsidiaries to) permit representatives of the Target to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of the Buyer and its Subsidiaries, to all premises,
properties, personnel, books, records (including tax records), contracts, and
documents of or pertaining to each of the Buyer and its Subsidiaries. The Buyer
will treat and hold as such any Confidential Information it receives from any of
the Buyer and its Subsidiaries in the course of the reviews contemplated by this
ss.5(h), will not use any of the Confidential Information except in connection
with this Agreement, and, if this Agreement is terminated for any reason
whatsoever, agrees to return to the Buyer all tangible embodiments (and all
copies) thereof which are in its possession.
(i) Notice of Developments. Each Party will give prompt written notice to
the other of any material adverse development causing a breach of any of its own
representations and warranties in ss.3 and ss.4 above. No disclosure by any
Party pursuant to this ss.5(i), however, shall be deemed to amend or supplement
the Disclosure Schedule or to prevent or cure any misrepresentation, breach of
warranty, or breach of covenant.
(j) Target Exclusivity. The Target will not (and will not cause or permit
any of its Subsidiaries to) solicit, initiate, or encourage the submission of
any proposal or offer from any Person relating to the acquisition of all or
substantially all of the capital stock or assets of any of the Target and its
Subsidiaries (including any acquisition structured as a merger, consolidation,
or share exchange); provided, however, that the Target, its Subsidiaries, and
their directors and officers will remain free to participate in any discussions
or negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
Person to do or seek any of the foregoing to the extent their fiduciary duties
may require. The Target shall notify the Buyer immediately if any Person makes
any proposal, offer, inquiry, or contact with respect to any of the foregoing.
(k) Buyer Exclusivity. The Buyer will not (and will not cause or permit any
of its Subsidiaries to) solicit, initiate, or encourage the submission of any
proposal or offer from any Person relating to the acquisition of all or
substantially all of the capital stock or assets of any of the Buyer and its
Subsidiaries (including any acquisition structured as a merger, consolidation,
or share exchange); provided, however, that the Buyer, its Subsidiaries, and
their directors and officers will remain free to participate in any discussions
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or negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
Person to do or seek any of the foregoing to the extent their fiduciary duties
may require. The Buyer shall notify the Target immediately if any Person makes
any proposal, offer, inquiry, or contact with respect to any of the foregoing.
(l) Insurance and Indemnification.
(i) From the after the Effective Time, AGV and the Surviving
Corporation (collectively, the "Indemnifying Party") shall indemnify,
defend and hold harmless, to the full extent a corporation is permitted
under the Nevada Law to indemnify its own directors, officers and agents,
each person who is now, or has been at any time prior to the date of this
Agreement or who becomes prior to the Effective Time an officer or director
of Nucleus, and for purposes of clause (ii) below any agent of Nucleus
acting at the request of its officers or directors in connection with the
negotiation, execution and delivery of this Agreement and the consummation
of the Merger (the "Indemnified Parties") against (i) all losses, claims,
damages, costs, reasonable expenses, liabilities or judgments or amounts
("Indemnified Liabilities") that are paid in settlement with the approval
of the Indemnifying Party (which approval shall not be unreasonably
withheld) of or in connection with any claim, action, suit, proceeding or
investigation based in whole or in part on or arising in whole or in part
out of the fact that such person is or was a director or officer of
Nucleus, whether pertaining to any matter existing now or occurring at or
prior to the Effective Time and whether asserted or claimed prior to or at
or after the Effective Time, and (ii) all Indemnified Liabilities based in
whole or in part on or arising in whole or in part out of or pertaining to
this Agreement or the Merger, including without limitation any act or
omission of the officers and directors of Nucleus in the negotiation
execution and delivery of this Agreement and the consummation of the
Merger. AGV and Nucleus, as the case may be, will pay expenses incurred by
an Indemnified Party in advance of the final disposition of any such action
or proceeding upon receipt of an undertaking by or on behalf of such
Indemnified Party to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified. In the event any such claim,
action , suit, proceeding or investigation is brought against any
Indemnified Party, the Indemnifying Party shall proceed at its own expense
to resist and dispose of such claim in such manner as it deems appropriate;
provided, however, that the Indemnified Party shall have the right to
employ separate legal counsel in any such claim and participate in the
defense thereof, but the fees and expenses of such other counsel shall be
at the expense of the Indemnified Party and shall not be an Indemnified
Liability hereunder unless the Indemnified Party shall conclude based on
advice of counsel that the interests of the Indemnified Party in such
action are materially different from those of the Indemnifying Party or
that the Indemnified Party may have defenses that are different from or in
addition to those available to the Indemnifying Party in which case the
fees and expenses of such counsel shall be an Indemnified Liability.
Neither the Indemnifying Party nor the Indemnified Party shall, except with
the prior written consent of each other Indemnified or Indemnifying Party
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affected, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term and release by the claimant
or plaintiff of all such parties from all further liability in respect of
such claim. Any Indemnified Party wishing to claim indemnification under
this paragraph 5(1), upon learning of any such claim, action, suit,
proceeding or investigation, shall notify the Indemnifying Party (but the
failure so to notify the Indemnifying Party shall not relieve such party
from any liability which it may have under this paragraph 5(1) except to
the extent such failure prejudices such party), and shall deliver to the
Indemnifying Party the undertaking to repay expenses referred to above.
(b) For the entire period from the Effective Time until at least three
years after the Effective Time AGV will cause the Surviving Corporation to
maintain without any reduction in scope or coverage the indemnification
provisions for present and former officers and directors contained in
Nucleus's Certificate of Incorporation and By-laws in effect on the date
hereof.
(c) The provisions of this paragraph 5(1) shall survive the Effective
Time and are intended to be for the benefit of and shall be enforceable by
each Indemnified Party and his or her heirs and representatives.
(m) Compliance with the Securities Act. Nucleus shall use its commercially
reasonable efforts to cause each person who is an affiliate, as that term is
used in paragraphs (c) and (d) of Rule 145 under the Securities Act, of Nucleus
to deliver to AGV on or prior to the Effective Time a written agreement to the
effect that such person will not offer to sell, sell or otherwise dispose of any
shares of AGV Common Stock issued in the Merger, except in each case pursuant to
an effective registration statement or in compliance with Rule 145, as amended
from time to time, or in as transaction which in the opinion of legal counsel
satisfactory to AGV is exempt from the registration requirements of the
Securities Act, and in a manner necessary to assure the accounting treatment of
the Merger as a "pooling of interests." Nucleus shall use its commercially
reasonable efforts to provide AGV with such information as AGV shall reasonably
request for purposes of making its own determination of persons who may be
deemed to be affiliates of Nucleus.
(n) Report on Form 8-K. AGV will use its commercially reasonable efforts to
file a Current Report on Form 8-K containing financial results of the combined
operations of AGV and Nucleus covering a period of at least 30 days following
the Effective Date with the SEC within 45 days after the last day of the first
full month following the Effective Date; provided, however, that AGV may delay
the filing of the Form 8-K for a reasonable period of time if it determines, in
good faith, that the filing would require disclosure of information not
otherwise then required to be disclosed and that such disclosure would adversely
affect any material business situation, transaction or negotiation then
proposed, contemplated or being engaged in by AGV.
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(o) Continuity of Business Enterprise. The Buyer will continue at least one
significant historic business line of the Target, or use at least a significant
portion of the Target's historic business assets in a business, in each case
within the meaning of Reg. ss.1.368-1(d).
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in ss.3 above shall
be true and correct in all material respects at and as of the Closing Date;
(ii) the Target shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, (C) affect adversely the right of
the Surviving Corporation to own the former assets, to operate the former
businesses, and to control the former Subsidiaries of the Target, or (D)
affect adversely the right of any of the former Subsidiaries of the Target
to own its assets and to operate its businesses (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);
(iv) the Target shall have delivered to the Buyer a certificate to the
effect that each of the conditions specified above in ss.6(a)(i)-(iii) is
satisfied in all respects;
(v) this Agreement and the Merger shall have received the Requisite
Buyer Stockholder Approval;
(vi) AGV shall have received the agreement(s) referred to in paragraph
5(m);
(vii) the Buyer shall have received from counsel to the Target an
opinion in form and substance reasonably satisfactory to Buyer, addressed
to the Buyer, and dated as of the Closing Date;
(viii) all actions to be taken by the Target in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Buyer.
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The Buyer may waive any condition specified in this ss.6(a) if it executes
a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Target. The obligation of the Target to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) this Agreement and the Merger shall have received the Requisite
Buyer Stockholder Approval;
(ii) the representations and warranties set forth in ss.4 above shall
be true and correct in all material respects at and as of the Closing Date;
(iii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iv) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, (C) affect adversely the right of
the Surviving Corporation to own the former assets, to operate the former
businesses, and to control the former Subsidiaries of the Target, or (D)
affect adversely the right of any of the former Subsidiaries of the Target
to own its assets and to operate its businesses (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);
(v) the Buyer shall have delivered to the Target a certificate to the
effect that each of the conditions specified above in ss.6(b)(i)-(iv) is
satisfied in all respects;
(vi) the Target shall have received from counsel to the Buyer an
opinion in form and substance reasonably satisfactory to Target, addressed
to the Target, and dated as of the Closing Date;
(vii) Nucleus shall have received the resignation, effective as of the
Closing, of Christopher Walker as director of AGV; and
(viii) the By-Laws of AGV shall have been amended to provide for up to
ten directors; and
(ix) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Target.
18
<PAGE>
The Target may waive any condition specified in this ss.6(b) if it executes
a writing so stating at or prior to the Closing.
7. Termination.
(a) Termination of Agreement. Either of the Parties may terminate this
Agreement with the prior authorization of its board of directors (whether before
or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual written consent
at any time prior to the Effective Time;
(ii) the Buyer may terminate this Agreement by giving written notice
to the Target at any time prior to the Effective Time (A) in the event the
Target has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, the Buyer has notified
the Target of the breach, and the breach has continued without cure for a
period of 30 days after the notice of breach or (B) if the Closing shall
not have occurred on or before December 31, 1998, by reason of the failure
of any condition precedent under ss.6(a) hereof (unless the failure results
primarily from the Buyer breaching any representation, warranty, or
covenant contained in this Agreement);
(iii) the Target may terminate this Agreement by giving written notice
to the Buyer at any time prior to the Effective Time (A) in the event the
Buyer has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, the Target has
notified the Buyer of the breach, and the breach has continued without cure
for a period of 30 days after the notice of breach or (B) if the Closing
shall not have occurred on or before December 31, 1998, by reason of the
failure of any condition precedent under ss.6(b) hereof (unless the failure
results primarily from the Target breaching any representation, warranty,
or covenant contained in this Agreement);
(iv) the Target may terminate this Agreement by giving written notice
to the Buyer at any time prior to the Effective Time in the event the
Target's board of directors concludes that termination would be in the best
interests of the Target and its stockholders; or
(v) any Party may terminate this Agreement by giving written notice to
the other Party at any time after the Special Buyer Meeting in the event
this Agreement and the Merger fail to receive the Requisite Buyer
Stockholder Approval.
(b) Effect of Termination. If any Party terminates this Agreement pursuant
to ss.7(a) above, all rights and obligations of the Parties hereunder shall
terminate without any liability of any Party to any other Party (except for any
liability of any Party then in breach); provided, however, that the
confidentiality provisions contained in ss.5(g) and 5(h) above shall survive any
such termination.
19
<PAGE>
8. Miscellaneous.
(a) Survival. None of the representations, warranties, and covenants of the
Parties (other than the provisions in ss.2 above concerning issuance of the
Buyer Shares, the provisions in ss.5(l) above concerning insurance and
indemnification, and the provisions in ss.5(o) above concerning certain
requirements for a tax-free reorganization]) will survive the Effective Time.
(b) Press Releases and Public Announcements. No Party shall issue any press
release or make any public announcement relating to the subject matter of this
Agreement without the prior written approval of the other Party; provided,
however, that any Party may make any public disclosure it believes in good faith
is required by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its best
efforts to advise the other Party prior to making the disclosure).
(c) No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns; provided, however, that (i) the provisions in
ss.2 above concerning issuance of the Buyer Shares and the provisions in ss.5(o)
above concerning certain requirements for a tax-free reorganization are intended
for the benefit of the Target Stockholders and (ii) the provisions in ss.5(l)
above concerning insurance and indemnification are intended for the benefit of
the individuals specified therein and their respective legal representatives.
(d) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement between the Parties and supersedes any
prior understandings, agreements, or representations by or between the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
(e) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party.
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
20
<PAGE>
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Target: Nucleus Holding Corporation
150 North Michigan Avenue
Suite 3610
Chicago, Illinois 60601
Copy to: Frederick H. Kopko, Jr.
McBreen, McBreen & Kopko
20 North Wacker Drive
Suite 2520
Chicago, Illinois 60606
If to the Buyer: American General Ventures, Inc.
3650 Austin Bluffs Parkway
Suite 138
Colorado Springs, Colorado 80918
Copy to: Jodi Walker
7841 South Garfield
Littleton, Colorado 80122
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Illinois without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Illinois or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Illinois.
(j) Amendments and Waivers. The Parties may mutually amend any provision of
this Agreement at any time prior to the Effective Time with the prior
authorization of their respective boards of directors; provided, however, that
any amendment effected subsequent to stockholder approval will be subject to the
21
<PAGE>
restrictions contained in the Illinois General Corporation Law and in the Nevada
General Corporation Law. No amendment of any provision of this Agreement shall
be valid unless the same shall be in writing and signed by both of the Parties.
No waiver by any Party of any default, misrepresentation, or breach of warranty
or covenant hereunder, whether intentional or not, shall be deemed to extend to
any prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
(k) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) Expenses. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
(m) Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
*****
22
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
AMERICAN GENERAL VENTURES, INC.
By: /s/ Steven H. Walker
Title: President
NUCLEUS HOLDING CORPORATION
By: /s/ John Paulsen
Title: President
23
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL INFORMATION
American General Ventures, Inc.
- -------------------------------
Page
----
Annual Report on Form 10-KSB for the year ended
December 31, 1997 F-1
Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1998 F-28
Quarterly Report on Form 10-QSB for the quarter ended
June 30, 1998 F-37
Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1998 F-46
Nucleus Holding Corporation
- ---------------------------
Report of Independent Public Accountants F-56
Consolidated Balance Sheet at December 31, 1997 F-57
Consolidated Statement of Operations for the period
from April 30, 1997 (Inception) to December 31, 1997 F-58
Consolidated Statement of Shareholders' Deficit for the
period from April 30, 1997 (Inception) to December 31, 1997 F-59
Consolidated Statement of Cash Flows for the period
from April 30, 1997 (Inception) to December 31, 1997 F-60
Notes to Financial Statements F-61
Consolidated Balance Sheets at September 30, 1998 and
September 30, 1997 (unaudited) F-64
Consolidated Statement of Income year-to-date ended September 30,
1998 and year-to-date ended September 30, 1997 (unaudited) F-65
Consolidated Statement of Cash Flows year-to-date ended September 30,
1998 and year-to-date ended September 30, 1997 (unaudited) F-66
Pro Forma Financial Statements
- ------------------------------
Pro Forma Condensed Combined Balance Sheet as of
September 30, 1998 (unaudited) F-68
Pro Forma Condensed Combined Statement of Operations for the nine
months ended September 30, 1998 an 1997 (unaudited) F-69
Pro Forma Condensed Combined Statement of Operations for the year
ended December 31, 1997 (unaudited) F-70
Notes to Pro Forma Condensed Combined Financial Statements (unaudited) F-71
<PAGE>
FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [Fee Required]
For the fiscal year ended: 12/31/97
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________to ____________
Commission file number: 0-14039
AMERICAN GENERAL VENTURES, INC.
-------------------------------
(Name of Small Business Issuer in its charter)
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
NEVADA 11-2714721
------ ----------
(State of incorporation) (I.R.S. Employer Identification No.)
3650 Austin Bluffs Parkway - Suite 138
Colorado Springs, Colorado 80918
-------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant telephone number, including area code: (719) 548-1616
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
F-1
<PAGE>
Check whether the Company (l) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the
preceding 12 months (or for such shorter periods that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the Company's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [x]
The Company's revenues for its most recent fiscal year. $721,745.
As of December 31, 1997, the market value of the Company's voting $.001 par
value common stock held by non-affiliates of the Company was $1,020,000.
The number of shares outstanding of Company's only class of common stock, as of
December 31, 1997 was 10,593,666 shares of its $.001 par value common stock.
Check whether the Issuer has filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes X No
--- ---
No documents are incorporated into the text by reference.
Transitional Small Business Disclosure Format (check one) Yes No X
--- ---
F-2
<PAGE>
AMERICAN GENERAL VENTURES, INC.
FORM l0-KSB
PART I
ITEM 1 DESCRIPTION OF BUSINESS
(a) General Development of Business
(a) (1) The original purpose of American General Ventures, Inc. (the
Company) was to seek potential business ventures, which in the opinion of the
management of the Company would provide a profit for the Company. Such
involvement would be either as acquisition of existing businesses or the
acquisition of assets to establish a subsidiary business for the Company.
On January 22, l986, the Company signed a letter of intent with Aspen
Medical Diagnostics, Inc. and Neuro Medical, Inc., both Utah Corporations, to
acquire all of the stock of both of those companies in exchange for 1,000,000
shares of the common stock of the Company to the shareholders of each of the
acquired companies or a total of 2,000,000 shares. Both Companies acquired were
in the business of establishing medical diagnostic facilities.
On September 11, 1987, the Company acquired all of the stock of ACI Micro
Systems, Inc., a Colorado Corporation. ACI Micro Systems, Inc. was in the
business of manufacturing and selling micro computers.
In January 1991, the Company incorporated Your ATTACHE(C), a wholly owned
subsidiary. Your ATTACHE develops and sells licenses of powerful high speed
computer systems that provides a mutually beneficial communication and
interaction medium between suppliers and consumers. ATTACHE is not active and
had no revenues in 1997.
The Company has not been involved, during the year ended December 31, l997,
in any bankruptcy, receivership or similar proceedings.
(a)(2) Not applicable.
(b) Financial Information About Industry segments.
The Company has engaged in a single line of business since September 11,
1987, when the Company acquired ACI Micro Systems. The Company engages in the
business of manufacturing computers and sales of computers and computer
accessories.
F-3
<PAGE>
(c) Narrative Description of Business
(c)(1)(i) The Company on January 29, l986, acquired 100 percent of
outstanding stock of Neuro-Medical, Inc. (Neuro) and Aspen Medical Diagnostics,
Inc. (Aspen), both Utah corporations. The letter of intent for said purchase was
executed on the 22nd day of January, l986. In exchange, the Company issued
1,000,000 of its restricted shares to the stockholders of Aspen and 1,000,000 of
its restricted shares to the stockholders of Neuro.
The business of Neuro and Aspen was to establish and operate neurological
diagnostic centers that provide diagnostic testing for physicians and others in
the medical community. The Company made available to the medical community the
latest neurological testing and assessment equipment. The officers of the
Company for eight years used the Brain Electrical Activity Mapping System (BEAM)
which was developed at Harvard University Medical School. The officers of the
Company selected the BEAM system because they believed that the system
represented a significant advancement over alternative equipment being used for
neurological testing in the overall treatment of patients. However, the
technology faced resistance from the medical community which created a negative
impact upon the growth of the Company. The Company ceased to operate its BEAM
centers in 1993.
CURRENT OPERATIONS
The Company continues to operate ACI Micro Systems, Inc., (ACI), a Colorado
Corporation, that manufactures and sells computers and accessories.
In August 1995, ACI received a national vendor number from Wal-Mart Stores,
Inc. authorizing the Company to sell computers and accessories in 1,989 of their
retail stores and 245 of their supercenters.
Wal-Mart Stores selected the ACI computer because it uses non-integrated
circuitry and versatile cases with extra bays that allows true upgradability.
The ACI computer can grow with the consumer's needs. ACI provides local
upgrades, service and technical support.
ACI began selling it computers in eight stores in Southern Colorado. By
December 31, 1996, ACI had expanded to 70 Wal-Mart retail stores in Colorado,
New Mexico, Kansas, Nebraska, Iowa, Oklahoma and Missouri.
Because of ACI's relationship with Wal-Mart stores it received a second
vendor number from Wal-Mart Stores, Inc. allowing the Company to sell its
products through Wal-Mart's interactive world wide web site (www.Wal-Mart.com).
On June 26, 1997, ACI had seven lines of computer systems available to be
purchased through Wal-Mart's online server.
F-4
<PAGE>
PROPOSED OPERATIONS
ACI has an exclusive agreement with Wal-Mart in which ACI will be the sole
manufacturer of Wal-Mart's build to order "BTO" computer. ACI expects that the
BTO will be available through Wal-Mart's web site by the end of July 1998. The
BTO will be for both desktop and notebook computers. ACI presently has five
pre-configured desktop computer systems and a notebook on Wal-Mart's web site.
In addition to selling its products through Wal-Mart Online, ACI has
developed its own web site (www.availpc.com). ACI's web site is promoted by
Hotmail, a wholly owned subsidiary of Microsoft. Hotmail is the world's largest
e-mail provider with more than nine million members. ACI banner ads on Hotmail
are presently eliciting an average of 600 hits per day. If the Hotmail customer
chooses, he/she can be directly linked into ACI's web site. ACI offers a fully
loaded computer for $799.00 on its web site. ACI's web page will also provide a
direct link into Wal-Mart's BTO page.
THE ACI MICRO COMPUTER SYSTEMS
ACI Micro Systems, Inc., manufactures non-integrated circuitry computer
systems that allows true upgradability. Through in-house assembly and
outsourcing, ACI presently has a capacity of assembling 15,000 computers per
month.
REVENUES
During the fiscal year ending December 31, 1997, the Company, through its
subsidiary, ACI, generated operating revenues of $721,745. In 1996, the Company
had $1,397,850 in operating revenues.
In 1997, the Company had revenues of $721,745 with a net loss of $430,921
compared with $1,397,850 with a net loss of ($723,911) in 1996. The loss for
1997 yielded a net loss of ($0.05) compared to 1996 that yielded ($0.08) per
share loss. Revenues of $721,745 for 1997 were down 48 percent from the revenues
of $1,397,850 in 1996. The decrease in revenues was in part due to the Company's
decision to concentrate on sales through Wal-Mart Online and not to sell to
Wal-Mart retail stores. The guaranteed sales provision given to the retail
stores forced the Company to credit Wal-Mart for outdated and obsolete product.
The last orders shipped to Wal-Mart's retail stores were in April 1997. The
Company began selling its products through Wal-Mart Online in June 1997. There
were no sales to Wal-Mart for two months in 1997.
When the Company began selling its products through Wal-Mart's web page, it
quickly became one of the top five vendors for Wal-Mart Online. Even though the
Company was one the top five vendors for Wal-Mart Online, revenues for the
Company were down from previous quarters. Concentrating on sales through
Wal-Mart Online resulted in lower revenues but offered the Company an
opportunity to grow with a new division within the largest retailer in the
world. When the Company began selling its products through Wal-Mart Online, the
Online division was in its development stage.
F-5
<PAGE>
(c)(1)(ii) Not applicable.
(c)(1)(iii) Not applicable.
(c)(1)(iv) Not applicable.
(c)(1)(v) The Company's business is not considered seasonal.
(c)(1)(vi) The Company's working capital of ($142,243) (current assets less
current liabilities) would normally cause difficulty for moderate growth.
However, with the Company's "just in time" inventory control, the Company can
grow without considerable capital infusion. The Company is paid by Wal-Mart 15
days from the date of shipment. The Company has 25 days to pay its major
outsourcing facility from the date of ship. This provides the Company a ten day
period between receiving funds and having to pay for the product shipped.
Customers ordering through the Company's own web site must pay, by credit
card, for the product at the time of ordering. The Company has the use of these
revenues for 30 days before having to pay its supplier.
(c)(1)(vii) Not applicable.
(c)(1)(viii) As of December 31, l997, the Registrant was able to fill all
orders and did not have any backlog orders.
(c)(1)(viii) Not applicable.
(c)(1)(ix) Not applicable.
(c)(1)(x) COMPETITION. The Company's manufacturing operations faces stiff
competition from existing computer manufacturers. The Company has met the
competition in the past with its niche in the computer industry. ACI is able to
produce computers in America and still be competitive with computers built in
foreign countries. The Company's computers are built in America giving the
Company a competitive edge to resellers such as Wal-Mart whose philosophy
mirrors that of the Company. In addition to "Made in America" the Company builds
computers with non-integrated circuitry that allows true upgradability and local
service and support.
ACI has an exclusive arrangement with Wal-Mart Online for its build to
order (BTO) computer program on Wal-Mart's web site. Wal-Mart Online's BTO
software has been developed exclusively for marketing the Company's desktop and
notebook computer. Being an exclusive partner with the largest retailer in the
world gives the Company name recognition and a competitive edge over other
computer manufacturers.
F-6
<PAGE>
ACI's BTO program has an advantage over the larger computer manufacturers
because it gives the consumer more choices and lower prices. The Wal-Mart Online
customer is able to build a computer system for less than $1,000. This is not
possible with some of the larger firms because their standard systems contain
components that the consumer may not want. Limited choices results in higher
prices for computer systems.
(c)(1)(xi) Since its inception, the Company has spent $193,370 for company
sponsored research and development of the Your ATTACHE concept.
(c)(1)(xii) Compliance with federal, state and local provisions regulating
the discharge of materials into the environment or otherwise relating to the
protection of the environment will have no material effect on the capital
expenditures, earnings and competitive position of the Company.
(c)(1)(xiii) The Company employs a total of eight persons: One Chief
Executive Officer, one Secretary/Treasurer, one Chief Technology Officer, one
part-time Accountant, and four part time technicians and/or assemblers. The
Company's outsourcing facility has 125 employees.
(d) Not applicable since the Company had no foreign operations or export
sales during fiscal year l997. The Company does ship to APO and FPO addresses.
ITEM 2 PROPERTIES
The Company currently occupies approximately 2,000 square feet at 3650
Austin Bluffs Parkway, suite 138, Colorado Springs, Colorado. The Company is
paying $2110 plus utilities for rent for the Austin Bluffs. The lease for the
Austin Bluffs space will continue until May l, l999. The Company has two five
year options on the Austin Bluffs space.
ITEM 3 LEGAL PROCEEDINGS
The Company's subsidiary, ACI Micro Systems, Inc. has been sued by
California IC for $27,500 for goods and services. ACI has answered generally and
specifically that the plaintiff refused to accept returned merchandise. The
matter has been dormant since February 1998 and until recently the court ordered
some action or the case will be dismissed. No settlement negotiations have been
held but should be fruitful if initiated by plaintiff.
Two other suppliers have recently made demands for payment. Daytek alleges
$27,000 is due and Altura PC Systems claims $21,350. Both claims are in dispute.
Negotiations will likely result in settlement of both at reduced amounts.
F-7
<PAGE>
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The shareholders at the annual shareholders meeting held on August 10, 1997
elected Steven H. Walker as a Director and Chair of the Board of Directors and
Christopher S. Walker as a Director on the Board of Directors.
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS
(a)(1)(i) The principal market on which the Company's common stock is
traded is on the Over-the-Counter Bulletin Board. Its symbol is AMGV.
(a)(1)(ii) Not applicable.
(a)(1)(iii) Since January l986, the Company's stock has been traded on the
over-the-counter market. The range of high and low bid quotations for the
Company's common stock for the quarters in l997 is provided below. The
over-the-counter market quotations reflect inter-dealer prices without retail
markup, markdown or commissions and may not necessarily represent actual
transactions.
High Bid Low Bid
1/1/97 -- 3/31/97 $.46 $.15
4/1/97 -- 6/30/97 $.56 $.15
7/1/97 -- 9/31/97 $.43 $.21
l0/1/97 -- 12/31/97 $1.28 $.25
(a)(1)(iv) Not applicable.
(a)(1)(v) Not applicable.
(a)(2) Not applicable.
(b)(2) The approximate number of record holders of the Company's common
stock on December 31, 1997 was 1,150.
(b)(2) Not applicable.
F-8
<PAGE>
(c)(1) The Company has paid no dividends with respect to its common stock.
There are no contractual restrictions on the Company's present or future ability
to pay dividends.
(c)(2) Not applicable since the Company has not had earnings that indicate
an ability to pay cash dividends. The Company does not expect to pay dividends
in the foreseeable future.
ITEM 6 MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The ratio of current assets to current liabilities for year ending December
31, 1997 is .58 compared to .87 for 1996. Actual working capital for the year
ended December 1997 was ($142,243) compared to ($45,484) at December 31, 1996.
The decrease in working capital was primarily due to an increase in liabilities
that came from increases in payables due to the return of product from Wal-Mart
retail stores.
The Company believes that its "just in time" inventory method will reduce
capital requirements and provide sufficient revenues to meet its cash
requirements for major growth in the year ahead. The Company plans to sell its
product only through Wal-Mart Online and its own web site. Products will not be
shipped until paid for.
The Company has reached an agreement with Wal-Mart that there will be no
more returns of products from its retail stores. The Company has satisfied its
debit balance with Wal-Mart and has satisfied its obligation with its largest
creditor.
The Company currently has no commitments for capital expenditures.
RESULTS OF OPERATIONS
The Company's primary business and source of revenue is derived from the
sales by its wholly owned subsidiary ACI Micro Systems, Inc. The Company had a
net loss of ($430,921) for the year ended December 31, 1997 compared to a net
loss of ($723,911) for the year ended December 31, 1996.
Revenues from overall operations for the year ended December 31, 1997
decreased by $676,105 from the year ended December 31, 1996. The decrease in
sales was primarily due to the Company's change from selling its product to
Wal-Mart retail stores to Wal-Mart Online. There were two months that no sales
were made to either the Wal-Mart retail stores or through Wal-Mart Online.
Cost of sales as a percentage of sales for ACI was 95 percent compared to
98 percent for the cost of sales in 1996. The decrease in the percentage of the
cost of goods was due to Wal-Mart returning fewer unsold computers in 1997 than
in 1996, and the Company's decision to sell products through Wal-Mart Online
instead of Wal-Mart retail stores. While returns due to defective product are
minimal, ACI had a guaranteed-sale provision with Wal-Mart and agreed to take
back unsold computers at the original invoice amount. The vast fluctuation in
prices of computer components causes the percentage of the cost of goods to rise
if the computers are returned several months after they are originally sold. The
Company's decision to sell computers through Wal-Mart Online instead of Wal-Mart
retail stores has enabled the Company to adopt a `Just In Time' inventory method
which significantly reduces the risk of obsolete inventory.
F-9
<PAGE>
The Company has taken provisions to avoid guaranteed-sale returns. ACI no
longer accepts orders from Wal-Mart retail stores. The Company only accepts
orders from Wal-Mart Online and those orders are produced only if the computer
is sold and paid for. The customer has only 15 days to return the computer and
there are no returns of unsold computers.
ACI received a second vendor agreement from Wal-Mart Stores, Inc. that
provides the Company the ability to sell its computers world wide through
Wal-Mart's web site. ACI presently has five computer configurations available
through Wal-Mart's web site and expects to have its customized built to order
"BTO" computer web page up and running by the end of July 1998. These computers
are sold to the consumer before they are built, therefore nullifying the
guaranteed-sale problem.
ACI has an exclusive agreement with Wal-Mart Online for the BTO computers.
Wal-Mart Online software has been developed to be used with ACI's price points
and products for both the desktop and notebook computer. ACI's BTO has an
advantage over some of the larger BTO companies in that the customer can build a
computer with fewer standard features thus providing the customer more choices.
Selling, general and administrative expenses were $429,212 for 1997
compared with $701,032 for 1996. The Company reduced its selling general and
administrative by 39 percent in 1997. The Company was able to decrease its
selling general and administrative expenses by focusing on Internet sales and
reducing sales to retail stores.
The loss per share in 1997 was ($.05) compared to a loss per share of
($.08) in 1996. The accumulated deficit was reduced by $119,059 in 1997 and the
Shareholder equity deficit was reduced from ($510,632) in 1996 to ($211,490) in
1997 or $299,142. The deficit reductions were due to additional paid in capital
for common shares and by the President, Steven H. Walker converting $500,000 of
debt owing him to equity.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supporting schedules reporting supplementary
financial information are listed in the Index to Financial Statements filed as
part of this Form l0-KSB.
F-10
<PAGE>
ITEM 9 DISAGREEMENTS OF ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS OF THE COMPANY.
(a) Identification of Directors.
Position held Dates of
Name with Company Age Service
- ---- ------------ --- -------
Steven H. Walker President, Chair 59 l985-l997
of the Board, Director
Christopher S. Walker Secretary-Treasurer, 28 1996-1997
Director
(b) Identification of Executive Officers
Position held Dates of
Name with Company Age Service
- ---- ------------ --- -------
Steven H. Walker CEO 59 l985-l997
Christopher S. Walker COO 28 l996-1997
(c) Identification of Certain Significant Employees.
Michael P. Lohman, Ph.D. was appointed to the position Chief Technology
Officer (CTO). Dr. Lohman received his doctorate from UCLA in Computer
Science/Electrical Engineering in 1986.
No other officer or director of the Company, including controlling
shareholders, is related to any other such person.
(e)(1) The business experience of the Registrant's officers and directors
is as follows:
F-11
<PAGE>
STEVEN H. WALKER, (59), has been President, Chair of the Board and Chief
Executive Officer of the Company since January l986 and has been Vice President
and Chair of the Board of Neuro-Medical, Inc. and President and Chair of the
Board of Aspen Medical Diagnostics, Inc. since 1983 and 1984 respectively. He is
also a licensed psychologist who was in private practice for 15 years. He is a
past president of the El Paso County Psychological Society. He received a Ph.D.
from the University of Wyoming in l972.
CHRISTOPHER S. WALKER, (28), has been Secretary/Treasurer, Director on the Board
and Chief Operating Officer since August 1996. He has been an employee of the
Company since 1988 and has held positions of Transfer Agent and Marketing
Director. Mr. Walker received a Bachelor of Science degree in Business
Administration from the University of Northern Colorado in 1990. Mr. Walker was
instrumental in acquiring the Wal-Mart accounts.
(e)(2) Not applicable
(f) Not applicable
(g) Not applicable.
ITEM II MANAGEMENT REMUNERATION
(a)(l) Cash compensation for the fiscal year ended December 31, l997.
Cash bonuses
Name of individual Capacities Cash salaries and deferred
or number in group in which served and fees compensation
- ------------------ --------------- -------- ------------
Steven H. Walker President/CEO $63,000/year plus 10% of netprofits
Christopher W. Walker Secretary/Treasurer
COO $26,400
All officers and/or
Directors as a Group
(two persons) $89,400 plus 10% of net profit
(a)(2) Bonuses and deferred compensation.
Name of individual Capacities Deferred Compensation.
- ------------------ ---------- ----------------------
Steven H. Walker President 10% of net profit
(b)(1) Compensation pursuant to Plans.
The Company has no retirement, pension or profit sharing covering its
officers and directors and does not contemplate implementing any such plan at
this time.
F-12
<PAGE>
(b)(2) Pension Table. Not applicable.
(b)(3) Alternative Pension Plan Disclosure. Not applicable.
(b)(4) Stock Option and Stock Purchase right plans. Not applicable.
(c) Other compensation. Not applicable.
(d) Compensation of Directors.
(d)(l) Standard Arrangements. The Board Directors shall not receive any fee
for serving as directors.
(d)(2) Other arrangements. None.
(e) Termination of employment and change of control arrangements. None.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
(a) Security Ownership of Certain Beneficial Owners as of December 31,
l997.
Title of class Name and address of Amount and Percent beneficial owner
Nature of beneficial class
Ownership
- --------------------------------------------------------------------------------
Common Stock Steven H. Walker 5,563,400 60.5% $.001 par
3650 Austin Bluffs Parkway value
Colorado Springs, CO 80918
Common Stock Christopher S. Walker 304,800 3.3% $.001 par
3650 Austin Bluffs Parkway value
Colorado Springs, CO 80918
Common Stock All officers and 5,868,200 63.8% $.001 par
directors as a group value
F-13
<PAGE>
(c) Changes in control. none
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) Transactions With Management and Others.
Steven H. Walker, President and CEO receives cash salaries and consulting
fees totaling $63,000 per annum plus 10% of the net profit before taxes.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed apart of this Report of the Company
immediately following the signature page.
1. Financial Statements
Report of Certified Public Accountants
Balance Sheets - December 31, 1997
Statements of Operations - Years ended December 31, 1997 and 1996.
Statement of Stockholders' Equity - Years ended December 31, 1997 and 1996.
Statements of Cash Flows - Years ended December 31, 1997 and 1996.
Notes to Financial Statements
2. Financial Statement schedules required to be filed immediately follow Item
14 of this Form 10-KSB
F-14
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
American General Ventures, Inc.
We have audited the consolidated balance sheet of American General Ventures,
Inc. as of December 31, 1997, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for each of the
years in the two year period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of American General
Ventures, Inc. as of December 31, 1997, and the results of its operations and
cash flows for each of the years in the two year period ended December 31, 1997,
in conformity with generally accepted accounting principles.
James E. Scheifley & Associates, P.C.
Certified Public Accountants
Englewood, Colorado
May 26, 1998
F-15
<PAGE>
American General Ventures, Inc.
Consolidated Balance Sheet
December 31, 1997
ASSETS
------
Current assets:
Cash $ 17,706
Accounts receivable, trade 1,425
Inventory 177,057
Prepaid exepnses 198
-----------
Total current assets 196,386
Property and equipment, at cost, net of
accumulated depreciation of $36,081 37,602
Goodwill, net of amortization of $25,183 22,583
-----------
$ 256,571
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 4,200
Accounts payable 289,846
Accrued interest - related party 37,729
Accrued expenses, other 6,854
-----------
Total current liabilities 338,629
Notes payable - shareholders 115,215
Long-term debt 14,217
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock, no stated value
8,000,000 shares authorized,
no shares issue and outstanding --
Common stock, $.001 par value,
900,000,000 shares authorized,
10,593,666 shares issue and outstanding 10,594
Additional paid-in capital 2,430,788
Accumulated deficit (2,652,872)
-----------
(211,490)
-----------
$ 256,571
-----------
See accompanying notes to consolidated financial statements.
F-16
<PAGE>
American General Ventures, Inc.
Consolidated Statement of Operations
Years Ended December 31, 1997 and 1996
1997 1996
---- ----
Sales $ 721,745 $ 1,397,850
Cost of sales 690,064 1,365,308
----------- -----------
Gross profit
31,681 32,542
Other costs and expenses:
General and administrative 429,212 701,032
----------- -----------
Income (loss) from operations (397,531) (668,490)
Other income and (expense):
Other income 117 --
Interest expense - related party (12,000) (25,729)
Interest expense (21,507) (29,692)
----------- -----------
(33,390) (55,421)
----------- -----------
Income (loss) before income taxes (430,921) (723,911)
Provision for income taxes -- --
----------- -----------
Net income (loss) $ (430,921) $ (723,911)
----------- -----------
Earnings (loss) per share:
Net income (loss) $ (0.05) $ (0.08)
----------- -----------
Weighted average shares outstanding 9,506,222 9,200,000
----------- -----------
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
<TABLE>
<CAPTION>
American General Ventures, Inc.
Consolidated Statement of Changes in Stockholders' Equity
Years Ended December 31, 1997 and 1996
Additional
Common Stock Paid -in Accumulated
Shares Amount Capital (Deficit) Total
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 9,200,000 $ 9,200 $ 1,702,099 $(1,498,040) $ 213,259
Net (loss) for the year -- -- -- (723,911) (723,911)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 9,200,000 9,200 1,702,099 (2,221,951) (510,652)
Common stock sold for cash 566,666 567 150,266 -- 150,833
Common stock issued for services 277,000 277 53,973 -- 54,250
Common stock issued for debt conversion 550,000 550 524,450 525,000
Net (loss) for the year -- -- -- (430,921) (430,921)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 10,593,666 10,594 2,430,788 (2,652,872) (211,490)
See accompanying notes to consolidated financial statements.
</TABLE>
F-18
<PAGE>
American General Ventures, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 1997 and 1996
1997 1996
--------- ---------
Net income (loss) $(430,921) $(723,911)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 16,134 12,255
Stock issued for services 44,250 --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 18,126 112,097
(Increase) decrease in inventory (9,070) 2,929
(Increase) decrease in prepaid expenses 1,802 2,024
(Increase) decrease in other assets -- 4,874
Increase (decrease) in accounts payable and
accrued expenses 150,955 318,560
--------- ---------
Total adjustments 222,197 452,739
--------- ---------
Net cash (used in)
operating activities (208,724) (271,172)
--------- ---------
Cash flows from investing activities:
Acquisition of plant and equipment -- (1,740)
--------- ---------
Net cash (used in) investing activities -- (1,740)
--------- ---------
Cash flows from financing activities:
Repayment of long-term debt (8,084) (3,085)
Proceeds from the sale of common stock 148,833 --
Increase in officer loans 61,697 299,981
--------- ---------
Net cash provided by
financing activities 202,446 296,896
--------- ---------
Increase (decrease) in cash (6,278) 23,984
Cash and cash equivalents,
beginning of period 23,984 --
--------- ---------
Cash and cash equivalents,
end of period $ 17,706 $ 23,984
========= =========
See accompanying notes to consolidated financial statements.
F-19
<PAGE>
American General Ventures, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 1997 and 1996
1997 1996
-------- --------
Supplemental cash flow information:
Cash paid for interest $ 21,506 $ 1,803
Cash paid for income taxes $ -- $ --
Non-cash investing and financing activities:
Assets acquired by issuance of long-term debt $ -- $ 46,664
Asset liquidated to satisfy note payable $ 18,741 $ --
Conversion of officer loans to common stock $500,000 $ --
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
American General Ventures, Inc.
Notes to Consolidated Financial Statements
December 31, 1997
Note 1. Organization and Summary of Significant Accounting Policies.
------------------------------------------------------------
The Company was incorporated in Nevada in November 1984. The consolidated
financial statements include the accounts of the Company and its wholly owned
subsidiary, ACI Micro Systems, Inc., a manufacturer and distributor of computers
and related products, which was acquired on September 11, 1987. All significant
inter-company items have been eliminated in consolidation.. The Company
distributes its products through a retail outlet in Colorado Springs, CO and
through a national retail chain in the southwestern United States through the
chain's worldwide online shopping website.
Inventory:
Inventory is valued at the lower of cost or market on a first-in first-out basis
and consists primarily of finished goods including complete computer systems,
spare parts and related equipment held for retail sale.
Property, Plant and Equipment:
Property, plant and equipment are recorded at cost and are depreciated based
upon estimated useful lives using the straight-line method. Estimated useful
lives range from 3 to 5 years for furniture and fixtures and from 5 to 10 years
for equipment.
Loss per share:
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share." SFAS No. 128 supersedes and simplifies the
existing computational guidelines under Accounting Principles Board ("APB")
Opinion No. 15, "Earnings Per Share."
The statement is effective for financial statements issued for periods ending
after December 15, 1997. Among other changes, SFAS No. 128 eliminates the
presentation of primary earnings per share and replaces it with basic earnings
per share for which common stock equivalents are not considered in the
computation. It also revises the computation of diluted earnings per share. The
Company has adopted SFAS No. 128 and there is no material impact to the
Company's earnings per share, financial condition, or results of operations. The
Company's earnings per share have been restated for all periods presented to be
consistent with SFAS No. 128. Per share amounts are based on the weighted
average number of common shares outstanding. Common stock equivalents are not
considered in years when operating losses are incurred as their effect would be
anti-dilutive.
The basic loss per share is computed by dividing the net loss for the period by
the weighted average number of common shares outstanding for the period. Loss
per share is unchanged on a diluted basis since the assumed exercise of common
stock equivalents would have an anti-dilutive effect.
F-21
<PAGE>
Revenue Recognition:
Revenue is recognized at the time the product is delivered or the service is
performed. Revenue related to long term service contracts is recognized on a pro
rata basis over the term of the contract. Provision for sales returns are
estimated based on the Company's historical return experience.
Intangible Assets:
Intangible assets consist of goodwill related to the acquisition of a subsidiary
company. Goodwill is being amortized using the straight line method over a
period of 20 years. Amortization expense amounted to $2,388 for each of the
years ended December 31, 1997 and 1996.
The Company makes reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Under SFAS No. 121,
an impairment loss would be recognized when estimated future cash flows expected
to result from the use of the asset and its eventual disposition is less than
its carrying amount. No such impairment losses have been identified by the
Company for the 1997 and 1996 fiscal years.
Cash:
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
Estimates:
The preparation of the Company's financial statements requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates. The Company made sales to its major customer, see Note 10, on terms
which include a guaranteed right of return. At December 31, 1996 the Company
accrued $39,000 related to anticipated returns.
Advertising costs:
Advertising costs are charged to operations when the advertising first takes
place. Advertising costs charged to operations were $3,720 and $15,554 in 1997
and 1996, respectively.
Fair value of financial instruments
The Company's short-term financial instruments consist of cash and cash
equivalents, accounts and loans receivable, and payables and accruals. The
carrying amounts of these financial instruments approximates fair value because
of their short-term maturities. Financial instruments that potentially subject
the Company to a concentration of credit risk consist principally of cash and
accounts receivable, trade. During the year the Company did not maintain cash
deposits at financial institutions in excess of the $100,000 limit covered by
the Federal Deposit Insurance Corporation. The Company has a major customer,
(see Note 10) the loss of which could have a material negative impact upon the
Company. The Company does not hold or issue financial instruments for trading
purposes nor does it hold or issue interest rate or leveraged derivative
financial instruments.
F-22
<PAGE>
Stock-based Compensation
The Company adopted Statement of Financial Accounting Standard No. 123 (FAS
123), Accounting for Stock-Based Compensation beginning with the Company's first
quarter of 1996. Upon adoption of FAS 123, the Company continued to measure
compensation expense for its stock-based employee compensation plans using the
intrinsic value method prescribed by APB No. 25, Accounting for Stock Issued to
Employees. No stock based compensation was paid by the Company during the year
ended December 31, 1997.
Note 2. Property, Plant and Equipment.
------------------------------
Property, plant and equipment consists of the following at December 31, 1996
Office furniture and equipment $ 50,908
Vehicles 22,775
-----------
Less accumulated depreciation (36,081)
-----------
$ 37,602
===========
Depreciation charged to operations was $13,746 and $9,897 for the years ended
December 31, 1997 and 1996 respectively. Vehicles are pledged as collateral for
the underlying purchase financing contracts, see Note 7.
Note 3. Goodwill.
---------
Amortization of goodwill amounted to $2,388 for each of the years ended December
31, 1997 and 1996 and was computed using the straight line method over a twenty
year period. Goodwill recorded by the Company represents the excess of the
purchase of ACI Micro Systems, Inc. over the net assets acquired.
Note 4. Stockholders' Equity.
---------------------
During the year ended December 31, 1997 the Company issued 500,000 shares of its
common stock for the conversion of debt owed to its president. The shares were
valued at bid price ($1.00 per share) for the Company's common stock at the date
the conversion was approved by the Company's Board of Directors. Additionally,
50,000 shares of restricted common stock were issued to a vendor for debt
conversion at $.50 per share, the fair value of the stock on the conversion
date.
The Company issued an aggregate of 277,000 shares of its common stock for
services provided to the Company by three entities. The shares were valued at
$.10 pre share for 100,000 shares issued in January 1998 and $.25 per share for
177,000 shares issued in September 1998.
During the fourth quarter of 1998, the Company received an aggregate of $150,833
in cash for the exercise of common stock warrants. The exercise price of 125,000
of the warrants was $.25 per share and the exercise price of 25,833 of the
warrants was $.3875 per share.
F-23
<PAGE>
Note 5. Income Taxes.
-------------
The Company has not provided for income taxes for the years ended December 31,
1997 and 1996 due to operating losses.
The Company has net operating loss carryforwards available to offset future
taxable income of approximately $2,676,000. Such carryforward amounts expire in
years beginning in 2002 as follows:
2002 $214,000
2003 $233,000
2004 $353,000
2005 $190,000
2007 $140,000
2008 $280,000
2009 $ 81,000
2011 $724,000
2012 $461,000
The Company does not anticipate the utilization of these net operating losses in
the near future and has established a valuation allowance for the full amount of
deferred tax asset ($910,000) estimated to arise therefrom. The reserve amount
increased by approximately $157,000 and $246,000 during the years ended December
31, 1997 and 1996.
Note 6. Related Party Transactions.
---------------------------
The Company is obligated to compensate its president at the rate of $63,000 plus
10% of pre tax profits per annum effective January, 1992.
During 1992 the balance due for cash advances and deferred salary to the
Company's president was converted to an unsecured note with interest at 10% per
annum due in installments through August, 2000. The balance on this note was
$129,691 at December 31, 1996. The Company was unable to meet repayment
requirements during 1997 and 1996. The Company has accrued interest of $12,000
and $12,969 for the years ended December 31, 1997 and 1996, respectively. During
the years ended December 31, 1997 and 1996, the Company's president made working
capital advances to the Company of $61,697 and $44,781, respectively and during
1996, assumed personal liability for funds advanced to the Company in 1996
pursuant to a line of credit with a bank amounting to $255,200.
At December 31, 1997 the note plus additional cash advances an salary accruals
amounting to $500,000 were converted into
F-24
<PAGE>
Note 7. Long-term debt
--------------
During the year ended December 31, 1996, the Company entered into two vehicle
purchase contracts which provide for monthly repayments aggregating $968 though
2001. The contracts bear interest at 8.5% per annum and are secured by the
Company's vehicles. During 1997, the Company disposed of one of the vehicles and
retired the related debt. Aggregate amounts due under the remaining contract are
$4,200 in 1998, $4,603 in 1999, $5,044 in 2000 and $4,570 in 2001.
Note 8. Commitments and contingencies
-----------------------------
Operating leases
The Company leases its facilities under an operating leases through May 31,
1999. Minimum future rentals payable under the leases are as follows:
Year Amount
---- ------
1998 $ 18,453
1999 7,875
$ 26,328
Rent expense amounted to $27,310 and $52,843 for the years ended December 31,
1997 and 1996, respectively.
The Company has three legal matters pending with its suppliers for collection of
trade accounts payable aggregating $approximately $75,000. The Company expects
to reach settlement agreements with the suppliers for reduced payment amounts,
however, the gross amounts due each vendor are included in accounts payable at
December 31, 1997.
Note 9. Sales to major customers
------------------------
During the years ended December 31, 1997 and 1996, the Company recorded revenue
for goods or services provided to client companies that comprise greater than
10% of total revenues as follows:
1997 1996
---- ----
Wal-Mart Stores, Inc. $422,041 $975,940
Note 10. Subsequent event
----------------
On June 29,1998, the Company settled an outstanding trade account payable with a
vendor having a balance at December 31, 1997 and the settlement date of
$110,232. The Company made a one time cash payment of $32,000 in full settlement
of the claim and will record a gain from debt extinguishment during the quarter
ended June 30, 1998 amounting to $78,232.
F-25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN GENERAL VENTURES, INC.
By: /s/ Steven H. Walker
-------------------------------
Steven H. Walker
President/CEO
Date: July 28, 1998
-----------------------------
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: July 28, 1998 /s/ Steven H. Walker
----------------------------- ------------------------------------
Steven H. Walker, President Director
Date:* July 28, 1998 /s/ Christopher S. Walker
----------------------------- ------------------------------------
Christopher S. Walker, Secretary
Treasurer, Director
F-26
<PAGE>
PERIOD-TYPE 12-MOS
FISCAL-YEAR-END DEC-31-1997
PERIOD-START JAN-01-1997
PERIOD-END DEC-31-1997
CASH 17,706
SECURITIES 0
RECEIVABLES 1,425
ALLOWANCES 0
INVENTORY 177,057
CURRENT-ASSETS 196,386
PP&E 198
DEPRECIATION 36,081
TOTAL-ASSETS 256,571
CURRENT-LIABILITIES 338,624
BONDS 0
PREFERRED-MANDATORY 0
PREFERRED 0
COMMON 0
OTHER-SE 0
TOTAL-LIABILITY-AND-EQUITY (211,490)
SALES 721,745
TOTAL-REVENUES 721
CGS 690,064
TOTAL-COSTS 690,064
OTHER-EXPENSES 429,212
LOSS-PROVISION 0
INTEREST-EXPENSE 33,390
INCOME-PRETAX 0
INCOME-TAX 0
INCOME-CONTINUING 0
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME (430,921)
EPS-PRIMARY (.05)
EPS-DILUTED (.05)
F-27
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Three Months Ended: March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from: to:
Commission file Number 0-14039
AMERICAN GENERAL VENTURES, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
NEVADA 11-2712721
------ ----------
(State or Other Jurisdiction of I.R.S. Employer
Incorporated or Organization) Identification No.
3650 Austin Bluffs Parkway-Suite 138
Colorado Springs, Colorado 80918
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(719) 548-1616
- --------------------------------------------------------------------------------
(Registrant's Telephone Number)
Check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or shorter period that the registrant was required to file
such reports), (2) has been subject to such filing requirements for the past 90
days. Yes x No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check mark whether the issuer has filed all documents and reports required to be
filed by Sections 2, 12, or 15 (d) of the Securities Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each issuer's classes of common
stock, as of the latest practicable date.
Common Stock $.001 par value, 11,200,843
(title of class) (Shares outstanding at March 31, 1998)
F-28
<PAGE>
AMERICAN GENERAL VENTURES, INC.
FORM 10-QSB
FOR THREE MONTHS ENDED MARCH 31, 1998
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements PAGE
Balance Sheet as of March 31, 1998 & 1997 3
Income Statements for quarters ending 4
March 31, 1998 & 1997
Statement of Cash Flows for three months ended
March 31, 1998 & 1997 5
ITEM 2 - Management Discussion and Analysis 6
PART II - OTHER INFORMATION
ITEMS 1-5 7
SIGNATURE PAGE 8
F-29
<PAGE>
AMERICAN GENERAL VENTURES, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998 & MARCH 31, 1997
(UNAUDITED)
ASSETS 3-31-98 3-31-97
- ------ ------- -------
Current Assets:
Cash 29,103 (7,898)
Accounts Receivable 27,692 131,501
Inventory-For Sale 174,875 240,211
Inventory-Office Equipment -0- -0-
---------- ----------
Total Current Assets 231,670 363,814
Net Prop,Plant,Equip and 97,573 70,089
Vehicles, Less Accumulated
Depreciation ($27,454)
Other Assets (Goodwill) 24,971 24,971
---------- ----------
Total Assets 354,214 458,874
========== ==========
LIABILITIES and STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Account Payables 222,795 194,394
Other Current Liabilities 4,025 10,051
Accrued Salaries-Officers 98,075 98,075
Accrued Interest 25,729 25,829
---------- ----------
Total Current Liabilities 350,624 328,249
Long Term Liabilities:
Notes Payable-Officer 115,215 396,528
Bank Loan 14,217 35,495
---------- ----------
Total Long Term Liabilities 129,432 432,023
---------- ----------
Total Liabilities 480,056 760,272
Stockholders' Equity:
Common Stock 11,201
Paid in Capital 2,430,788 1,711,299
Accumulated deficit (2,707,235) (2,012,697)
---------- ----------
Total Equity (125,842) (301,398)
---------- ----------
Total Liabilities & Equity 605,898 630,112
========== ==========
F-30
<PAGE>
AMERICAN GENERAL VENTURES, INC.
CONSOLIDATED INCOME STATEMENT
QTRS ENDING MARCH 31, 1998 & 1997
1ST QTR 1ST QTR
1998 1997
---- ----
REVENUES 73,193 297,849
Cost and Expenses:
Cost of Sales 53,138 242,937
Sell & General Admin 74,418 97,445
Interest -0- -0-
----------- -----------
Total Cost & Expenses 127,556 340,382
----------- -----------
Income (Loss) from Operations (54,363) (42,533)
----------- -----------
Other Income & Expenses:
Interest Income -0- -0-
----------- -----------
Total Other Income/Expense -0- -0-
----------- -----------
Net Income (Loss) (54,363) (42,533)
Net Income Per Common Share .00 .00
Weighted Average Common Shares
Outstanding 11,200,843 9,200,000
=========== ===========
F-31
<PAGE>
AMERICAN GENERAL VENTURES, INC.
CONSOLIDATED CASH FLOW
FOR THREE MONTHS ENDING MARCH 31, 1998 & 1997
1998 1997
---- ----
Cash Flow from Operating Activities
Net Income (Loss) (54,363) (42,533)
Adjustments to Reconcile Net Income
to Net Cash:
Inc (Dec) in Accounts Receivable 52,198 246,190
Inc (Dec) in Inventory (16,969) (217,840)
Inc (Dec) in Other Assets 2,318 1,931
Inc (Dec) in Accounts Payable 29,336 20,162
Inc (Dec) in Payroll Tax Payable (7,278) (4,262)
Inc (Dec) in Sales Tax Payable (1,813) (501)
------- -------
Net Cash Provided by (Used In
Operating Activities 57,792 45,680
Cash Flow from Investing Activities:
Inc (Dec) in Marketable Sec -0- -0-
Plant and Equipment -0- -0-
------- -------
Net Cash Provided by (Used in)
Investing Activities -0- -0-
Cash Flow from Financing Activities:
Inc (Dec) in Notes Payable -0- -0-
Inc (Dec) in Notes Pay-Walker (67,691) (33,144)
Inc (Dec) in Long-Term Debt (5,495) (1,995)
------- -------
Net Cash Provided by (Used in)
Financing Activities (73,186) (35,099)
------- -------
Inc (Dec) in Cash (69,757) (31,952)
Cash (Beginning) 21,674 23,923
Cash (Ending) (48,083) (8,029)
======= =======
F-32
<PAGE>
AMERICAN GENERAL VENTURES, INC.
FORM 10-QSB
FOR THE THREE MONTHS ENDED MARCH 31, 1998
ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS
Results of Operations
From January 1, 1998 through March 31, 1998 the Company's revenues were $73,193
compared with $297,849 for the same period a year ago. The Company had a loss of
$54,363 for this period compared to a loss of ($42,533) the same period a year
ago. The loss was due to a decrease in revenues from the Company's decision to
sell its products only through Wal-Mart Online (www.Wal-Mart.com) and not in
Wal-Mart's retail stores. During this period, Wal-Mart Online was in its
development stage and there was essentially no marketing for Online products.
Wal-Mart Online expects to complete its web page development in six more months.
Even though the Company had a significant reduction in revenues, it placed in
the top five vendors for Wal-Mart Online. Management's decision to sell only
through Wal-Mart Online is due to the fact that the Company will experience
greater long term benefits than to continue to expand into additional Wal-Mart
retail stores. Some advantages from selling only through Wal-Mart Internet site
is that Wal-Mart pays the Company within fifteen days from the time the product
is shipped. Other benefits from selling through Wal-Mart Online rather than
through their retail stores is that the purchaser has only allowed fifteen days
to return the product, the warranty begins the day the purchaser receives the
product and the Company has accurate records on when the product is sold and who
the purchaser is. Selling Online also provides a "just in time" inventory method
that is very beneficial for computer manufactures. The components are not
purchased until the order is placed from the customer. This method of inventory
reduces expenses of personnel and warehousing, nullifies the guaranteed sale
provision and shields the Company from the extraordinary depreciation of costs
that are so prevalent in the computer industry.
Management is also confident that the change to selling through Wal-Mart Online
and not through their retail stores is that Wal-Mart Online plans to feature a
"Build to Order" (BTO) computer system. The BTO concept has been one of the
reasons that Dell Computers and Gateway Computers have been successful. Wal-Mart
Online has given the Company an exclusive to use only the Company's computers in
their BTO program. The Company has the opportunity of growing with a new
division within the largest retailer in the world.
Working Capital and Capital Resources
Working capital at March 31, 1998 (current assets less current liabilities)
totaled $35,565 compared with $319,038 at March 31, 1996. The decrease in
working capital was due to a decrease in revenues and accounts receivables while
carrying forward unpaid accounts payable.
F-33
<PAGE>
The Company is developing its own web page to sell directly to the public as
well as selling through Wal-Mart's web page. Selling directly to the public will
be done through credit cards and will essentially work as factoring but at a
lower cost. If the Company is successful with its own web page sales, it will
greatly reduce the need for additional financing needed for day to day
operations. The Company is seeking capital to meet its marketing needs.
PART II OTHER INFORMATION
Item 1 Legal Proceedings
The Company's subsidiary, ACI Micro Systems, Inc. has been sued by
California IC for $27,500 for goods and services. ACI has answered generally and
specifically that the plaintiff refused to accept returned merchandise. The
matter has been dorma nce February 1998 and until recently the court ordered
some action or the case will be dismissed. No settlement negotiations have been
held but should be fruitful if initiated by plaintiff.
Two other suppliers have recently made demands for payment. Daytek alleges
$27,000 is due and Altura PC Systems claim $21,350. Both claims are in dispute.
Negotiations will likely result in settlement of both at reduced amounts.
Item 2 Changes in Securities - None
Item 3 Defaults Upon Senior Securities - None
Item 4 Submission of Matters to a Vote of Securities Holders - Election of the
board directors.
Item 5 Other Information - None
Item 6 Exhibits and Reports on Form 8-K - None
F-34
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
AMERICAN GENERAL VENTURES, INC.
By: /s/ Steven H. Walker
-------------------------------------
President/CEO
Date: August 14, 1998
F-35
<PAGE>
ARTICLE 5
PERIOD-TYPE 3-MOS
FISCAL-YEAR-END DEC-31-1998
PERIOD-START JAN-01-1998
PERIOD-END MAR-31-1998
CASH 29,103
SECURITIES 0
RECEIVABLES 27,692
ALLOWANCES 0
INVENTORY 174,875
CURRENT-ASSETS 231,670
PP&E 97,573
DEPRECIATION 27,954
TOTAL-ASSETS 354,214
CURRENT-LIABILITIES 350,624
BONDS 0
PREFERRED-MANDATORY 0
PREFERRED 0
COMMON 0
OTHER-SE 0
TOTAL-LIABILITY-AND-EQUITY 605,898
SALES 73,193
TOTAL-REVENUES 73,193
CGS 53,138
TOTAL-COSTS 127,556
OTHER-EXPENSES 0
LOSS-PROVISION 0
INTEREST-EXPENSE 0
INCOME-PRETAX (543,637)
INCOME-TAX 0
INCOME-CONTINUING 0
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME (543,637)
EPS-PRIMARY 0
EPS-DILUTED 0
F-36
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Three Months Ended: June 30, 1998
[ X ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from: to:
Commission file Number 0-14039
AMERICAN GENERAL VENTURES, INC.
-------------------------------
(Exact Name of Registrant as Specified in its Charter)
NEVADA 11-2712721
(State or Other Jurisdiction of I.R.S. Employer
Incorporated or Organization) Identification No.
3650 Austin Bluffs Parkway-Suite 138
Colorado Springs, Colorado
--------------------------
(Address of Principal Executive Offices)
(719) 548-1616
--------------
(Registrant's Telephone Number)
Check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes x No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check mark whether the issuer has filed all documents and reports required to be
filed by Sections 2, 12, or 15 (d) of the Securities Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes__ No__
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each issuer's classes of common
stock, as of the latest practicable date.
Common Stock $.001 par value, 11,671,268
- ----------------------------- ----------
(title of class) (Shares outstanding at
June 30, 1998)
F-37
<PAGE>
AMERICAN GENERAL VENTURES, INC.
FORM 10-QSB
FOR THREE MONTHS ENDED June 30, 1998
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements PAGE
Balance Sheet as of June 30, 1998 & June 30,1997 3
Income Statements for quarters ending
June 30, 1998 & 1997 4
Statement of Cash Flows for three months ended
June 30, 1998 & 1997 5
ITEM 2 - Management Discussion and Analysis 6
PART II - OTHER INFORMATION
ITEMS 1-5 7
SIGNATURE PAGE 8
F-38
<PAGE>
AMERICAN GENERAL VENTURES, INC
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998 & JUNE 30, 1997
(UNAUDITED)
ASSETS 6-30-98 6-30-97
---------- ----------
Current Assets:
Cash (35,589) 3038
Marketable Securities -0- -0-
Accounts Receivable 14,653 73,880
Inventory 151,870 295,783
Other Current Assets -0- -0-
---------- ----------
Total Current Assets 168,918 375,047
Net Prop,Plant,Equip 70,118 70,118
Other Assets 24,971 24,971
---------- ----------
Total Assets 226,023 470,136
========== ==========
LIABILITIES and STOCKHOLDERS' EQUITY
Current Liabilities:
Notes Payable-Officer 18,052 -0-
Accounts Payable 138,516 290,931
Other Current Liabilities 108,929 142,722
---------- ----------
Total Current Liabilities 265,497 433,653
Long Term Liabilities:
Notes Payable-Officer 115,215 501,151
Long Term Debt -0- 35,495
---------- ----------
Total Liabilities 380,712 970,299
Stockholders' Equity:
Common Stock 11,671 9,200
Paid in Capital 1,702,099 1,702,099
Accumulated Deficit (2,750,134) (2,211,462)
---------- ----------
Total Equity (157,689) (500,163)
---------- ----------
Total Liabilities & Equity 538,401 470,136
========== ==========
F-39
<PAGE>
AMERICAN GENERAL VENTURES, INC.
CONSOLIDATED INCOME STATEMENT
QTRS ENDING JUNE 30, 1998 & 1997
(UNAUDITED)
2ND QTR 2ND QTR
1998 1997
----------- -----------
REVENUES 120,318 310,727
Cost and Expenses:
Cost of Sales 111,918 245,143
Sell & General Admin 51,299 97,591
Interest -0- -0-
----------- -----------
Total Cost & Expenses 163,217 342,734
----------- -----------
Net Income (Loss) Before Taxes (42,899) (32,007)
Income Tax Expense -0- -0-
Net Income (Loss) (42,899) (32,007)
Net Income Per Common Share .00 .00
Weighted Average Common Shares 11,200,843 9,200,000
Outstanding
=========== ===========
F-40
<PAGE>
AMERICAN GENERAL VENTURES, INC.
CONSOLIDATED CASH FLOW
FOR THREE MONTHS ENDING JUNE 30, 1998 & 1997
(UNAUDITED)
1998 1997
------- --------
Cash Flow from Operating Activities
Net Income (Loss) (42,899) (32,007)
Adjustments to Reconcile Net Income
to Net Cash:
Inc (Dec) in Accounts Receivable 249,300 (151,429)
Inc (Dec) in Inventory (49,249) (13,280)
Inc (Dec) in Other Assets 22,245 (2,479)
Inc (Dec) in Accounts Payable (258,937) 98,137
Inc (Dec) in Payroll Tax Payable (2,940) 1,330
Inc (Dec) in Sales Tax Payable (1,148) (565)
-------- --------
Net Cash Provided by (Used In)
Operating Activities (40,729) (68,286)
Cash Flow from Investing Activities:
Inc (Dec) in Marketable Sec -0- -0-
Plant and Equipment (30)
-------- --------
Net Cash Provided by (Used in)
Investing Activities -0- -0-
Cash Flow from Financing Activities:
Inc (Dec) in Notes Payable -0- -0-
Inc (Dec) in Notes Pay-Walker 122,691 113,124
Inc (Dec) in Long Term Debt 35,495 (1,998)
-------- --------
Net Cash Provided by (Used in)
Financing Activities 158,186 111,126
-------- --------
Inc (Dec) in Cash 74,558 10,803
Cash (Beginning) (51,888) (8,029)
Cash (Ending) 22,670 2,774
F-41
<PAGE>
AMERICAN GENERAL VENTURES, INC.
FORM 10-QSB
FOR THE THREE MONTHS ENDED JUNE, 1998
ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS
Results of Operations
During the period from April 1, 1998 through June 30, 1998 the Company revenues
were $120,318 compared to $310,727 for the same period in 1997. The decrease in
revenues was due to decreased orders for computers and accessories from Wal-Mart
Stores, Inc. taken by the Company's subsidiary ACI Micro Systems, Inc. ACI
terminated its sales to Wal-Mart retail stores since it was issued a second
vendor number from Wal-Mart Online. The Company is now marketing its products
through Wal-Mart's Internet store and not to Wal-Mart's physical retail stores.
The Company presently offers seven pre-configured computer systems on Wal-Mart
Online and expects to have a "build to order" (BTO) desktop and notebook
computer online in August 1998. The BTO computer has been very successful with
Dell Computers and Gateway 2000. The Company expects that by partnering with
Wal-Mart it will capture a percentage of Dell's and Gateway's market share. This
quarter's revenues are up 64% from last quarter's revenues and the Company
expects to exceed this trend of increased revenues. In addition to having an
exclusive agreement with Wal-Mart Online to manufacture its BTO computers, the
Company is developing its own Internet web site. The Company has an advertising
agreement with Microsoft's 16 million member e-mail service, Hotmail, Inc. Early
indications suggest that revenues for the third quarter will more than double
from this quarter's revenues.
Since the Company has changed its strategy to sell its product through Wal-Mart
Online, its losses have significantly decreased. The Company losses in 1997 were
less than half of the losses in 1996. The Company expects to show a profit for
1998.
Working Capital and Capital Resources
Working capital at June 30, 1998 (current assets less current liabilities)
totaled ($39,474) compared to ($58,606) at June 30, 1997. The reduction in the
working capital deficit was primarily due to a decrease in accounts payable. The
Company was able to reduce a debt of $110,000 to $32,000.
The Company will use the "just in time" inventory method for sales through it
web site. This will reduce the need for operating capital for its own web site
because these customers pay in advance by credit card. Also reducing the need
for additional working capital is due to the Company establishing terms with its
primary vendor to exceed the length of time of Wal-Mart payables to the Company.
The Company recognizes the need for marketing and continues to seek additional
capital for these expenses.
F-42
<PAGE>
PART II OTHER INFORMATION
Item 1 Legal Proceedings
The Company's subsidiary, ACI Micro Systems, Inc. has been sued by California IC
for $27,500 for goods and services. ACI has answered generally and specifically
that the plaintiff refused to accept returned merchandise. The matter has been
dormant since February 1998 and until recently the court ordered some action or
the case will be dismissed. No settlement negotiations have been held but should
be fruitful if initiated by plaintiff.
Two other suppliers have recently made demands for payment. Daytek alleges
$27,000 is due and Altura PC Systems claim $21,350. Both claims are in dispute.
Negotiations will likely result in settlement of both at reduced amounts The
Company's subsidiary, ACI Micro Systems, Inc. has been sued by California IC for
$27,500 for goods and services. ACI has answered generally and specifically that
the plaintiff refused to accept returned merchandise. The matter has been
dormant since February 1998 and until recently the court ordered some action or
the case will be dismissed. No settlement negotiations have been held but should
be fruitful if initiated by plaintiff.
Item 2 Changes in Securities - 465,425 shares of restricted common stock were
issued to private investors. 5,000 shares of free trading shares were
issued to the Chief Technology Officer. 1,648,500 warrants were issued
to private investors, consultants and key employees.
Item 3 Defaults Upon Senior Securities - None
Item 4 Submission of Matters to a Vote of Securities Holders - None
Item 5 Other Information - None
Item 6 Exhibits and Reports on Form 8-K - None
F-43
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN GENERAL VENTURES, INC.
By: /s/ Steven H. Walker
-------------------------------
President/CEO
Date: August 15, 1998
F-44
<PAGE>
ARTICLE 5
PERIOD-TYPE 3-MOS
FISCAL-YEAR-END DEC-31-1998
PERIOD-START APR-01-1998
PERIOD-END JUN-30-1998
CASH (35,589)
SECURITIES 0
RECEIVABLES 14,653
ALLOWANCES 0
INVENTORY 151,870
CURRENT-ASSETS 168,918
PP&E 70,118
DEPRECIATION 0
TOTAL-ASSETS 226,023
CURRENT-LIABILITIES 265,497
BONDS 0
PREFERRED-MANDATORY 0
PREFERRED 0
COMMON 0
OTHER-SE 0
TOTAL-LIABILITY-AND-EQUITY 538,401
SALES 120,318
TOTAL-REVENUES 120,318
CGS 111,918
TOTAL-COSTS 163,217
OTHER-EXPENSES 0
LOSS-PROVISION 0
INTEREST-EXPENSE 0
INCOME-PRETAX (42,899)
INCOME-TAX 0
INCOME-CONTINUING (42,899)
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME (42,899)
EPS-PRIMARY 0
EPS-DILUTED 0
F-45
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Three Months Ended: September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from:_______________to:________________
Commission file Number 0-14039
AMERICAN GENERAL VENTURES, INC.
-------------------------------
(Exact Name of Registrant as Specified in its Charter)
NEVADA 11-2712721
------ ----------
(State or Other Jurisdiction of I.R.S. Employer
Incorporated or Organization) Identification No.
3650 Austin Bluffs Parkway-Suite 138 Colorado Springs, Colorado 80918
---------------------------------------------------------------------
(Address of Principal Executive Offices)
(719) 548-1616
--------------
(Registrant's Telephone Number)
Check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes x No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Check mark whether the issuer has filed all documents and reports required to be
filed by Sections 2, 12, or 15 (d) of the Securities Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes__ No__
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each issuer's classes
of common stock, as of the latest practicable date.
Common Stock $.001 par value, 11,681,268
- ----------------------------- ----------
(title of class) (Shares outstanding at
September 30, 1998)
F-46
<PAGE>
AMERICAN GENERAL VENTURES, INC.
FORM 10-QSB
FOR THREE MONTHS ENDED SEPTEMBER 30, 1998
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
PAGE
Balance Sheet as of
September 30, 1998 & September 30,1997 3
Income Statements for quarters ending
September 30, 1998 & 1997 4
Statement of Cash Flows for three months ended
September 30, 1998 & 1997 5
ITEM 2 - Management Discussion and Analysis 6
PART II - OTHER INFORMATION
ITEMS 1-6 7
SIGNATURE PAGE 8
F-47
<PAGE>
AMERICAN GENERAL VENTURES, INC
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998 & SEPTEMBER 30, 1997
(UNAUDITED)
ASSETS 9-30-98 9-30-97
- ------ ------- -------
Current Assets:
Cash 61,781 17,073
Accounts Receivable, trade 21,466 66,472
Inventory 177,057 276,000
Other Current Assets -0- -0-
---------- ----------
Total Current Assets 260,304 359,545
Net Prop,Plant,Equip, net 27,292 70,118
Of accumulated depreciation
of $46,391
Goodwill, net of 20,794 29,971
amortization of $26,974
---------- ----------
Total Assets 308,390 459,634
========== ==========
LIABILITIES and STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Notes Payable-Shareholders 172,215 -0-
Accounts Payable 116,287 188,478
Other Current Liabilities 11,054 7,433
---------- ----------
Total Current Liabilities 299,556 195,911
Long Term Liabilities:
Long Term Debt -0- 35,945
---------- ----------
Total Liabilities 299,556 231,406
Stockholders' Equity:
Common Stock, $001 par value 11,681 9,200
11,681,268 shares issued
and outstanding
Paid in Capital 2,430,788 1,702,099
Accumulated Deficit (1,588,400) (1,478,265)
---------- ----------
Shareholder's equity 8,834 228,228
(deficit)
Total Liabilities & Equity 308,390 459,634
========== ==========
F-48
<PAGE>
AMERICAN GENERAL VENTURES, INC.
CONSOLIDATED INCOME STATEMENT
QTRS ENDING SEPTEMBER 30, 1998 & 1997
(UNAUDITED)
3RD QTR 3RD QTR
1998 1997
---- ----
REVENUES 385,961 109,385
Cost and Expenses:
Cost of Sales 300,792 86,414
Sell & General Admin 44,326 73,372
Interest 4,987 -0-
---------- ----------
Total Cost & Expenses 350,105 159,786
---------- ----------
Income (Loss) from Operations 35,856 (50,401)
Interest Income -0- -0-
Net Income (Loss) Before Taxes 35,856 (50,401)
Income Tax Expense -0- -0-
Net Income (Loss) 35,856 (50,401)
Net Income Per Common Share .00 .00
Weighted Average Common Shares 11,318,734 9,200,000
Outstanding
========== ==========
F-49
<PAGE>
AMERICAN GENERAL VENTURES, INC.
CONSOLIDATED CASH FLOW
FOR THREE MONTHS ENDING SEPTEMBER 30, 1998 & 1997
(UNAUDITED)
1998 1997
---- ----
Cash Flow from Operating Activities
Net Income (Loss) 35,856 (50,401)
Adjustments to Reconcile Net Income
to Net Cash:
Inc (Dec) in Accounts Receivable 21,466 162,256
Inc (Dec) in Inventory 177,057 (27,600)
Inc (Dec) in Other Assets 198 (2,479)
Inc (Dec) in Accounts Payable (116,287) (75,567)
Inc (Dec) in Payroll Tax Payable (819) -0-
Inc (Dec) in Sales Tax Payable (980) -0-
-------- --------
Net Cash Provided by (Used In)
Operating Activities 80,635 56,610
Cash Flow from Investing Activities:
Inc (Dec) in Marketable Sec -0- -0-
Plant and Equipment -0- -0-
-------- --------
Net Cash Provided by (Used in)
Investing Activities -0- -0-
Cash Flow from Financing Activities:
Inc (Dec) in Notes Payable -0- -0-
Inc (Dec) in Notes Pay-Walker -0- -0-
-------- --------
Net Cash Provided by (Used in)
Financing Activities -0- 6,209
-------- --------
Inc (Dec) in Cash 80,635 6,209
Cash (Beginning) 61,781 17,073
Cash (Ending) 18,854 23,282
F-50
<PAGE>
AMERICAN GENERAL VENTURES, INC.
FORM 10-QSB
FOR THE THREE MONTHS ENDED SEPTEMBER, 1998
ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS
Results of Operations
During the period from July 1, 1998 through September 30, 1998 the Company
revenues were $385,961 compared with $109,385 for the same period in 1997. The
increase in revenues was due to the Company's subsidiary ACI Micro Systems, Inc.
restructuring its strategy by concentrating on online sales. In addition to
selling its products through Wal-Mart Online, the Company developed its own web
site offering its branded computers at extremely competitive price points. The
combination of sales through Wal-Mart Online and the Company's web site
increased it computer sales by more than 350 percent.
Net income for this period was $35,856 compared to a loss of ($50,401) for the
same period in 1997. The increase in income was due to the increase in sales
generated through Wal-Mart Online and the Company's web site. During this
current period Wal-Mart Online introduced the Company's build to order (BTO)
computer. The BTO accounted for an eighty percent increase in sales generated by
Wal-Mart Online.
The increase in profits was also due to the Company reducing its costs incurred
by returns from Wal-Mart retail outlets. The company's strategy of marketing its
product solely through the internet has proven effective in reducing returns.
The Company's sales through its own web site were nearly sixty percent of its
revenues. The Company's success in online sales is directly correlated to its
banner ads that ran on Hotmail, the world's largest free e-mail company that was
recently acquired by Microsoft. The Company continues to use Hotmail to
advertise its products, but plans to expand its banner ads on additional web
site promoters and expects that the additional exposure will result in increased
revenues and profits.
Working Capital and Capital Resources
Working capital at September 30, 1998 (current assets less current liabilities)
totaled $8,834 compared to $163,634 at June 30, 1997. The decrease in working
capital was due to a decrease in inventory and an increase in short term debt to
F-51
<PAGE>
its President Steven H. Walker. In 1997, Dr. Walker converted $500,000 of the
Company's debt owed to him to equity. He accepted the Company's common stock at
$1.00 per share to reduce the debt. In 1998, Dr. Walker deferred his salary and
loaned the company additional funds to pay off debts owed to vendors reducing
the Company's accounts payable to vendors by more than $80,000.
The Company has adopted a "just in time" method of inventory that has resulted
in the need for using capital to purchase products before they are sold. This
strategy allows the Company to increase its cash position and reduces the cost
of inventory that depreciates rapidly in the computer industry.
The Company has determined that its working capital is sufficient to continue
operations and that no significant adjustments were necessary during this
current quarter.
PART II OTHER INFORMATION
Item 1 Legal Proceedings
The Company's subsidiary, ACI Micro Systems, Inc. suit by Cal IC was settled
with no judgement against the Company. The settlement resulted in a reduction of
$20,000 claimed by Cal IC.
The Company was also successful in reducing the amount of a debt claimed by
Worldnet from $110,000 to $32,000. Worldnet has been paid and the claim has been
satisfied.
Two other suppliers have recently made demands for payment. Daytek alleges
$27,000 is due and Altura PC Systems claims $21,350. Both claims are in dispute
and negotiations will likely result in settlement of both at reduced amounts.
The Denver Regional office of the FCC has fined ACI Micro Systems, Inc. $10,000
for not complying with rules and regulations that are no longer applicable to
computer manufacturers and resellers. ACI Micro Systems, Inc. denies that they
were in violation and have appealed the action to the FCC in Washington, D.C.
The fine was imposed more than five years ago and no litigation by the FCC has
been pursued.
Item 2 Changes in Securities - None
Item 3 Defaults Upon Senior Securities - None
Item 4 Submission of Matters to a Vote of Securities Holders - The
shareholders elected three directors to the Company's Board of
Directors. Steven H. Walker was elected as a Director and Chair of the
Board. Adrian Belinne and Christopher Walker were also elected as
directors to the Board of Directors.
Item 5 Other Information - None
Item 6 Exhibits and Reports on Form 8-K - None
F-52
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN GENERAL VENTURES, INC.
By: /s/ Steven H. Walker
----------------------------------
Steven H. Walker, President/CEO
Date: October 19, 1998
F-53
<PAGE>
ARTICLE 5
PERIOD-TYPE 3-MOS
FISCAL-YEAR-END DEC-31-1998
PERIOD-START JUL-01-1998
PERIOD-END SEP-30-1998
CASH 61,781
SECURITIES 0
RECEIVABLES 21,466
ALLOWANCES 0
INVENTORY 177,057
CURRENT-ASSETS 260,304
PP&E 20,794
DEPRECIATION 0
TOTAL-ASSETS 308,390
CURRENT-LIABILITIES 299,556
BONDS 0
PREFERRED-MANDATORY 0
PREFERRED 0
COMMON 0
OTHER-SE 0
TOTAL-LIABILITY-AND-EQUITY 308,390
SALES 385,961
TOTAL-REVENUES 385,961
CGS 300,792
TOTAL-COSTS 350,105
OTHER-EXPENSES 0
LOSS-PROVISION 0
INTEREST-EXPENSE 0
INCOME-PRETAX 35,856
INCOME-TAX 0
INCOME-CONTINUING 35,856
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME 35,856
EPS-PRIMARY 0
EPS-DILUTED 0
F-54
<PAGE>
Nucleus Holding Corporation and Subsidiaries
Consolidated Financial Statements
For the Period from April 30, 1997 (Inception)
to December 31, 1997
Together With Auditors' Report
F-55
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of
Nucleus Holding Corporation:
We have audited the accompanying consolidated balance sheet of NUCLEUS HOLDING
CORPORATION (an Illinois corporation) AND SUBSIDIARIES as of December 31, 1997,
and the related consolidated statement of operations, shareholder's deficit and
cash flows for the period from April 30, 1997 (inception), to December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Nucleus Holding
Corporation and Subsidiaries as of December 31, 1997, and the results of their
operations and their cash flows for the period from April 30, 1997 (inception),
to December 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
July 24, 1998
(except with respect to the matter
discussed in Note 7, as to which the
date is October 30, 1998)
F-56
<PAGE>
NUCLEUS HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET--DECEMBER 31, 1997
ASSETS
------
CURRENT ASSETS:
Accounts receivable, net of allowance for doubtful
accounts of $74,300 $ 230,775
Unbilled revenue, less reserves of $22,300 379,993
Prepaid expenses and deposits 40,537
---------
Total current assets 651,305
---------
PROPERTY AND EQUIPMENT:
Computer equipment 38,722
Computer software 2,000
---------
40,722
Less- Accumulated depreciation and amortization (2,545)
---------
Property and equipment, net 38,177
---------
Total assets $ 689,482
=========
LIABILITIES AND SHAREHOLDER'S DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Book overdraft $ 14,887
Trade accounts payable 236,036
Accrued telephone and billing expenses 382,099
Accrued commissions 44,131
Accrued expenses 57,191
Amount due to shareholder 249,356
---------
Total liabilities 983,700
---------
SHAREHOLDER'S DEFICIT:
Common stock, no par value, 1,000 shares authorized,
issued and outstanding 3,000
Accumulated deficit (297,218)
---------
Total shareholder's deficit (294,218)
---------
Total liabilities and shareholder's deficit $ 689,482
=========
The accompanying notes to
consolidated financial statements are an
integral part of this balance sheet.
F-57
<PAGE>
NUCLEUS HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the Period from April 30, 1997 (Inception), to December 31, 1997
REVENUES $ 956,810
-----------
EXPENSES:
Cost of service 672,343
Selling and marketing 86,000
Research and development 248,690
General and administrative 246,995
-----------
Total operating expenses 1,254,028
-----------
Loss before income taxes (297,218)
PROVISION FOR INCOME TAXES --
-----------
NET LOSS $ (297,218)
===========
The accompanying notes to consolidated
financial statements are an integral part of
this statement.
F-58
<PAGE>
<TABLE>
<CAPTION>
NUCLEUS HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S DEFICIT
For the Period from April 30, 1997 (Inception), to December 31, 1997
Common Stock,
No Par Value,
1,000 Shares
Authorized
------------------------- Accumulated
Shares Amount Deficit Total
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE, April 30, 1997 -- $ -- $ -- $ --
Issuance of common stock,
December 1997 1,000 1,000 -- 1,000
Shareholder contribution -- 2,000 -- 2,000
Net loss for the period -- -- (297,218) (297,218)
--------- --------- --------- ---------
BALANCE, December 31, 1997 1,000 $ 3,000 $(297,218) $(294,218)
========= ========= ========= =========
The accompanying notes to consolidated
financial statements are an integral part of
this statement.
F-59
</TABLE>
<PAGE>
NUCLEUS HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Period from April 30, 1997 (Inception), to December 31, 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(297,218)
Adjustments to reconcile net loss to net cash used for
operating activities-
Depreciation 2,545
Changes in operating assets and liabilities-
Accounts receivable (230,775)
Unbilled revenue (379,993)
Prepaid expenses and deposits (40,537)
Accounts payable 236,036
Accrued telephone and billing expenses 382,099
Accrued commissions 44,131
Accrued expenses 57,191
---------
Net cash used for operating activities (226,521)
---------
CASH FLOWS FROM INVESTING ACTIVITIES--purchases of
property and equipment
(40,722)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock issuance 1,000
Shareholder contribution 2,000
Borrowings from shareholder 249,356
Book overdraft 14,887
---------
Net cash provided by financing activities 267,243
---------
NET CHANGE IN CASH --
CASH, beginning of period --
---------
CASH, end of period $ --
=========
CASH PAID DURING THE PERIOD FOR:
Income taxes $ --
=========
The accompanying notes to consolidated
financial statements are an integral part of
this statement.
F-60
<PAGE>
NUCLEUS HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Nucleus Holding Corporation and Subsidiaries (the "Company") was
incorporated in Illinois on December 22, 1997, and has two wholly owned
subsidiaries; Alliance Net, Inc. ("Alliance") and Nucleus Data Source
("NDS"). Alliance, which began operations in August 1997, is a reseller of
long-distance telecommunications services with customers primarily located
in Chicago, Illinois. Alliance relies upon a third-party vendor to provide
the long distance telephone service and a separate third-party vendor to
provide billing and cash collection services (Note 3). NDS is a software
development company that specializes in the development of internet-based
software products with a focus on electronic commerce and bill presentment.
NDS was incorporated on April 30, 1997, is still in the development stage
and has not generated any revenues.
Prior to becoming subsidiaries of the Company, Alliance and NDS were owned
directly by the sole shareholder of the Company. On December 22, 1997, in
connection with the formation of the Company, the sole shareholder of
Alliance and NDS contributed his stock ownership in the companies to the
Company. Since all of the companies are controlled by the same shareholder,
the transaction has been accounted for in a manner similar to a pooling of
interests and, therefore, the results of operations presented are for the
period from April 30, 1997, through December 31, 1997.
The consolidated financial statements include the accounts of the Company,
Alliance and NDS. All significant intercompany balances and transactions
have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue from the resale of long-distance telecommunication services is
recognized as services are provided to customers.
Research and Development
The Company incurred approximately $249,000 in costs related to software
research and development. These costs have been expensed as incurred.
Unbilled Revenue
Long-distance telecommunication services provided to customers but not
billed at December 31, 1997, are reflected as a current asset.
F-61
<PAGE>
Property and Equipment
Computer equipment and software is stated at cost and is depreciated using
the straight-line method over estimated useful lives of three years.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
3. SERVICE AGREEMENT
On August 21, 1997, the Company entered into a three-year service agreement
with Connect America, Inc. ("CAI"). Under the agreement, CAI provides
Alliance with long distance telecommunications, billing, consulting and
other services, which Alliance resells to its customers. The agreement
provides for CAI to receive a fee for the cost of each long distance call
equal to the per minute usage rate plus 7%, and a fee for billing services
equal to 3% of the monthly billed revenue. In addition, CAI provides
certain cash management functions for the Company. At December 31, 1997,
the Company owed CAI approximately $385,000 related to the services
described above.
4. LEASE COMMITMENTS
The Company leases office space from month to month in Chicago, Illinois.
Rent expense relating to this lease totaled $31,848 for the period from
October 24, 1997, to December 31, 1997. On April 5, 1998, the Company
entered into a 20-month operating lease agreement beginning May 1, 1998.
Future obligations under noncancelable operating leases are payable as
follows:
Year ended December 31-
1998 $100,000
1999 75,000
--------
Total $175,000
========
5. RELATED-PARTY TRANSACTION
During 1997, the Company's shareholder advanced funds totaling $249,356 to
the Company. The amount owed to the shareholder is unsecured, non-interest
bearing and is expected to be repaid in 1998.
F-62
<PAGE>
6. SUBSEQUENT EVENT
In June 1998, the Company, through one of its subsidiaries, entered into a
90-day joint agreement ending September 30, 1998, with a third party, to
conduct computer repair, installation of hardware and software and upgrade
and maintenance services. In conjunction with this agreement, the third
party will furnish all technical and repair personnel, services, facilities
and equipment. The Company is required to provide all marketing and
customer service personnel, advertising, parts, procurement and delivery of
customer computer systems. Under the terms of the agreement, the Company
and the third party have agreed to share revenues equally.
7. MERGER TRANSACTION
On October 30, 1998, the Company entered into a merger agreement with
American General Ventures, Inc. ("AGV") whereby each share of outstanding
stock of the Company will be exchanged for 41,415.405 shares of AGV stock.
Upon completion of the transaction, which is expected to close no later
than December 31, 1998, the Company will control the ownership of AGV.
F-63
<PAGE>
Nucleus Holding Corporation
Consolidated Unaudited Balance Sheets
as of September 30, 1998 and 1997
1998 1997
--------- ---------
Assets
Current assets:
Cash $ 10,657 $ 12,108
Accounts receivable - billed 241,550 --
Accounts receivable - unbilled 208,593 --
Due from shareholder 108,563 --
Prepaid expenses and other 48,700 55,405
--------- ---------
Total current assets 618,063 67,513
========= =========
Property and equipment
Computer equipment 42,848 43,525
Computer software 2,000 --
Furniture & fixtures 5,000 --
--------- ---------
Total property and equipment 49,848 43,525
Accumulated depreciation and amortization 12,725 --
--------- ---------
Net property and equipment 37,123 43,525
========= =========
Total assets $ 655,186 $ 111,038
========= =========
Liabilities & stockholders' deficit
Current liabilities:
Trade accounts payable $ 533,517 $ 119,034
Accrued expenses 336,336 --
Loans from stockholders -- 193,986
--------- ---------
Total current liabilities 869,853 313,020
========= =========
Stockholders' deficit:
Common stock 3,000 1,000
Retained earnings
Balance, beginning of year (297,218) --
Current year net income (loss) 79,551 (202,982)
--------- ---------
Balance, end of period (217,667) (202,982)
========= =========
Total stockholders' deficit (214,667) (201,982)
========= =========
Total liabilities and stockholders' deficit $ 655,186 $ 111,038
========= =========
F-64
<PAGE>
Nucleus Holding Corporation
Consolidated Unaudited Statements Of Operations
for the nine months ended September 30, 1998 and for the period
from April 30, 1997 (inception) to December 31, 1997
Nine months ended April 30, 1997 to
September 30, 1998 September 30, 1997
------------------ ------------------
Sales $ 2,114,153 $ --
----------- -----------
Cost of sales 1,427,128 --
Selling and marketing expenses 187,752 --
Research and development expenses 39,264 2,673
General and administrative expenses 481,155 2,308
----------- -----------
Loss from operations (21,146) (202,981)
=========== ===========
Other income 100,697 --
----------- -----------
Income Before Taxes 79,551 (202,98)
=========== ===========
Income taxes -- --
----------- -----------
Net income / (loss) $ 79,551 $ (202,981)
=========== ===========
Earnings (loss) per share -
basic and diluted $ 79.55 $ (202.98)
=========== ===========
Weighted average shares
outstanding - basic and diluted 1,000 1,000
=========== ===========
F-65
<PAGE>
<TABLE>
<CAPTION>
Nucleus Holding Corporations and Subsidiaries
Consolidated Unaudited Statements Of Cash Flows
For the Nine Months Ended September 30, 1998 and for the Period
from April 30, 1997 (inception) to December 31, 1997
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 79,551 $(202,981)
Adjustments to reconcile net income (loss) to net cash
used for operating activities
Depreciation 10,181 --
Changes in operating assets and liabilities -
Accounts receivable 21,225 --
Unbilled revenue 171,400 --
Prepaid expenses and deposits (8,163) (55,405)
Accounts payable 297,481 119,034
Accrued expenses (147,085) --
--------- ---------
Net cash provided by (used in) operating activities 424,590 (139,352)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (9,127) (43,525)
Purchase of assets out of bankruptcy (32,000) --
--------- ---------
Net cash used in investing activities (41,127) (43,525)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock issuance -- 1,000
Borrowings from shareholder -- 193,985
Payments to shareholder (357,919) --
Book overdraft (14,887) --
--------- ---------
Net cash provided by (used in) financing activities (372,806) 194,985
--------- ---------
NET CHANGE IN CASH 10,657 12,108
CASH, beginning of period -- --
--------- ---------
CASH, end of period $ 10,657 $ 12,108
========= =========
CASH PAID DURING THE PERIOD FOR:
Income taxes $ -- $ --
========= =========
F-66
</TABLE>
<PAGE>
Nucleus Holding Corporation
Consolidated Unaudited Statement Of Cash Flows
Year-to-Date Ending September 30, 1997
Cash Flows From Operating Activities:
Net loss $(202,982)
Adjustments to reconcile net loss to net cash used for operating
activities-
Depreciation --
Changes in operating assets and liabilities-
Accounts receivable --
Unbilled revenue --
Prepaid expenses and deposits (55,405)
Accounts payable 119,034
Accrued expenses --
---------
Net cash used for operating activities (139,353)
---------
Cash Flows From Investing Activities:
Purchases of property and equipment (43,525)
---------
Cash Flows From Financing Activities:
Stock issuance --
Shareholder contribution 1,000
Borrowings from shareholder 193,986
Book overdraft
---------
Net cash provided by financing activities 194,986
---------
Net Change In Cash 12,108
Cash, beginning of period --
---------
Cash, end of period $ 12,108
=========
Cash Paid During The Period For:
Income taxes $ --
=========
F-67
<PAGE>
<TABLE>
<CAPTION>
AMERICAN GENERAL VENTURES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
ASSETS
- ------ AGV Nucleus Pro Forma(1)
--- ------- ------------
Current Assets (Historical)
<S> <C> <C> <C>
Cash $ 61,781 $ 10,657 $ 72,438
Accounts receivable - Billed 21,466 241,550 263,016
Accounts receivable - Unbilled -- 208,593 208,593
Inventory 177,057 -- 177,057
Due to shareholder -- 108,563 108,563
Other current assets -- 48,700 48,700
---------- ---------- ----------
Total current assets 260,304 618,063 878,367
Property, plant and equipment, net 27,292 37,123 64,415
Goodwill, net 20,794 -- 20,794
---------- ---------- ----------
Total assets $ 308,390 $ 655,186 $ 963,576
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ---------------------------------------------
Current Liabilities:
Notes payable to related party $ 172,215 $ -- $ 172,215
Accounts payable 116,287 533,517 649,804
Accrued expenses 11,054 336,336 347,390
---------- ---------- ----------
Total current liabilities 299,556 869,853 1,169,409
Stockholders' equity (deficit):
Common stock and paid in capital 2,442,469 3,000 2,445,469
Accumulated deficit (2,433,635) (217,667) (2,651,302)
---------- ---------- ----------
Total stockholders' equity (deficit) 8,834 (214,667) (205,833)
---------- ---------- ----------
Total liabilities and stockholders'
equity (deficit) $ 308,390 $ 655,186 $ 963,576
========== ========== ==========
F-68
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN GENERAL VENTURES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Nine months ended September 30
------------------------------------------------------------------------------------------------
1997 1998
------------------------------------------------------------------------------------------------
AGV NUCLEUS(2) PRO FORMA(3) AGV NUCLEUS PRO FORMA(3)
--- ------- ------------ --- ------- ------------
(HISTORICAL) (HISTORICAL)
<S> <C> <C> <C> <C> <C> <C>
Sales $ 717,961 0 $ 717,961 $ 579,472 $ 2,114,153 $ 2,693,625
----------- ----------- ----------- ----------- ----------- -----------
Cost of sales 574,494 -- 574,494 465,848 1,427,128 1,892,976
Selling and
marketing
expenses 10,826 -- 10,826 6,801 187,752 194,553
Research and
development
expenses -- 200,673 200,673 -- 34,264 39,264
General and
administratives
expenses 257,582 2,308 259,890 163,242 481,155 644,397
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from
operations (124,941) (202,981) (327,922) (56,419) (21,146) (77,565)
Other income
(expense) -- -- -- (4,987) 100,697 95,710
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)(5) $ (124,941) $ (202,981) $ (327,922) $ (61,406) $ 79,551 $ 18,145
=========== =========== =========== =========== =========== ===========
Earnings (loss) per
share - basic and
diluted (4) $ (0.01) $ (202.48) $ (0.02) $ (0.01) $ 79.55 $ 0.00
=========== =========== =========== =========== =========== ===========
Weighted average
shares outstanding
- - basic 9,200,000 1,000 31,159,333 11,318,734 1,000 65,747,773
=========== =========== =========== ============ =========== ===========
- - diluted 9,200,000 1,000 31,159,333 11,318,734 1,000
=========== =========== =========== ============ ===========
F-69
</TABLE>
<PAGE>
AMERICAN GENERAL VENTURES, INC.
(UNAUDITED) PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(in thousands except per share data)
Year ended December 31, 1997
------------------------------------------
AGV NUCLEUS PRO FORMA
(HISTORICAL)
Sales $ 721,745 $ 956,810 $ 1,678,555
----------- ----------- -----------
Costs of sales 690,064 672,343 1,362,407
Selling and marketing
expenses 15,948 86,000 101,948
Research and development
expenses -- 248,690 248,690
General and administrative
expenses 413,264 246,995 660,259
----------- ----------- -----------
Loss from operations (397,531) (297,218) (694,749)
Other ExpenseS (33,390) -- (33,390)
----------- ----------- -----------
Net Loss $ (430,921) $ (297,218) $ (728,139)
Loss per share -
basic and diluted(4) $ (0.05) $ (297.22) $ (0.02)
=========== =========== ===========
Weighted average
shares outstanding -
basic and diluted(4) 9,506,222 1,000 41,256,471
=========== =========== ===========
F-70
<PAGE>
AMERICAN GENERAL VENTURES, INC.
Notes to Unaudited Pro Forma Condensed Combined Financial Data
- ---------------------------
(1) On October 30, 1998 AGV and Nucleus entered into a definitive agreement and
plan of merger (the "Agreement") providing for the merger of Nucleus with
and into AGV. Under the terms of the Agreement, which was approved by the
Board of Directors of both AGV and Nucleus, the holder of Nucleus Common
Stock will receive 54,428.999 shares of AGV Common Stock for each of its
1,000 outstanding shares. Accordingly, the pro forma condensed combined
balance sheet as of September 30, 1998 gives effect to the issuance of
54,428.999 AGV common shares and assumes the Merger with Nucleus will be
accounted for as a pooling of interests.
(2) The historical results of operations of Nucleus for the nine months ended
September 30, 1997 and year ended December 31, 1997 reflect the operations
of Nucleus since April 30, 1997 (its inception).
(3) The pro forma condensed combined statements of operations gives effect to
the Merger of AGV with Nucleus as if the merger occurred on January 1 of
the period indicated and is accounted for as a pooling of interests and,
accordingly, the historical results of operations are combined together.
(4) The pro forma weighted average shares outstanding for basic and diluted
earnings (loss) per share gives effect to the issuance of 54,428.999 shares
of AGV stock in exchange for every 1,000 shares of Nucleus stock
outstanding for all periods presented, weighted for the period such shares
were actually outstanding.
(5) No provision for income taxes has been included in the statement of
operations for the nine months ended September 30, 1998 as the realization
of previously unbenefitted net operating losses would ????????
ELECTION OF DIRECTORS
Three directors (constituting, along with Steven H. Walker and Adriann
Belinne, the entire AGV Board) are to be elected at the AGV Meeting. Unless
otherwise specified, the enclosed proxy will be voted in favor of the persons
named below, to serve until the next Annual Meeting of Stockholders of AGV and
until their successors shall have been duly elected and shall qualify. In the
event any of these nominees shall be unable to serve as a director, the shares
represented by the proxy will be voted for the person, if any, who is designated
by the AGV Board of Directors to replace the nominee. All nominees have
consented to be named and have indicated their intent to serve if elected. The
AGV Board has no reason to believe that any of the nominees will be unable to
serve or that any vacancy on the AGV Board will occur.
The nominees are as follows:
Nominee Age
- ------- ---
John C. Paulsen (1) 35
Stephen Calk (1) 34
Mark Fera (1) 31
John C. Paulsen will, if elected director, serve as of Director, Chief Executive
Officer, and President of AGV. Mr. Paulsen is currently Chairman of the Board of
Directors and Chief Executive Officer of Nucleus. From 1990 to 1995, Mr. Paulsen
served as President and Chairman of the Board of Directors of American
Teletronics Long Distance, Inc., a reseller of long distance telecommunications
services. From 1995 to 1997, Mr. Paulsen served as President and Chairman of the
Board of Directors of MetroLink Communications, Inc., a long-distance carrier.
See "Nucleus - Business."
Stephen Calk has since October 1995, been the president of Chicago Bancorp,
Chicago's second largest private mortgage bank. Mr. Calk received a B.A. from
the University of Illinois in 1998, and received a Master's Degree from the J.L.
Kellogg Graduate School of Management at Northwestern University in 1988.
F-71
<PAGE>
Mark Fera has been the Manager of Strategic Accounts of IZ Technologies, a
software company. From 1993 to 1997, Mr. Fera was affiliated with Systems
Software Associates, a software solutions company. Mr. Fera received a
bachelor's degree from the University of Illinois in 1988.
(1) Pursuant to the Merger Agreement, Mr. Paulsen and the two persons
designated by Mr. Paulsen - Mr. Calk and Mr. Fera - have been nominated as
directors of AGV.
F-72
