<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
VIRTUALFUND.COM, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO] VirtualFund.com
7090 Shady Oak Road
Eden Prairie, Minnesota 55344
NOTICE OF ANNUAL MEETING
To the Shareholders of VirtualFund.com, Inc.:
Notice is hereby given that the Annual Meeting of Shareholders of
VirtualFund.com, Inc. (the "Company") will be held at 4:00 p.m. on Tuesday, June
27, 2000 at the Radisson Hotel South, 7800 Normandale Boulevard, Bloomington,
Minnesota, for the following purposes:
1. Elect two directors to serve for a three-year term, confirm the Board's
appointment of one director to fill a vacancy for a two-year term, and confirm
the Board's appointment of one director to fill a vacancy for a one-year term or
until their successors have been duly elected and qualified.
2. Any other matters of business which may properly come before the meeting.
The Board of Directors has fixed the close of business on May 12, 2000 as the
record date for the determination of Shareholders entitled to notice of and to
vote at the meeting and any adjournment thereof.
We encourage you to take part in the affairs of the Company either in person or
by executing and returning the enclosed proxy.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Melvin Masters
Melvin Masters
June 1, 2000 Chief Executive Officer
If you are unable to attend this meeting, you are urged to date and sign the
enclosed Proxy and return it in the postage-paid envelope enclosed herewith for
your convenience, or to vote by phone or on the Internet as described
in this document and on the proxy form.
<PAGE>
To our Shareholders:
Please come to our 1999 Annual Meeting. The Annual Meeting will be held on
Tuesday, June 27, 2000 at 4:00 p.m. at the Radisson Hotel South, 7800 Normandale
Boulevard, Bloomington, Minnesota.
This proxy statement describes the matters that management of VirtualFund.com,
Inc. intend to present to the Shareholders at the Annual Meeting. Accompanying
this proxy statement is VirtualFund.com, Inc. report on Form 10-K for fiscal
1999 and a form of proxy. These proxy materials are first being sent to
Shareholders on or about June 1, 2000.
This year, to make it easier for you to vote, we have arranged for you to
deliver your proxy by mail, telephone or through the Internet. If you vote
through the Internet this year, you can choose to receive next year's proxy
materials on-line rather than in the mail. You can change your vote at any time
before the Annual Meeting, or you can revoke your proxy and vote at the Annual
Meeting in person. Instructions for voting are included in this proxy statement.
I look forward to seeing you at the Annual Meeting.
Melvin Masters,
Chief Executive Officer
PROXY STATEMENT
The Annual Meeting of Shareholders of VirtualFund.com, Inc. (the "Company") will
be held at 4:00 p.m. on Tuesday, June 27, 2000 at the Radisson Hotel South, 7800
Normandale Boulevard, Bloomington, Minnesota. This proxy statement and the
accompanying materials are being sent to Shareholders of the Company as part of
a solicitation for proxies for use at the 1999 Annual Meeting of Shareholders.
The solicitation for proxies is being made by management of the Company. By
delivering the enclosed proxy card, you will appoint Melvin Masters and Timothy
N. Thurn as your agents and proxies to vote your shares of common stock at the
Annual Meeting. In this proxy statement, "proxy holders" refers to Mr. Masters
and Mr. Thurn in their capacity as your agents and proxies.
The accompanying form of proxy for use at the meeting and any adjournments
thereof is solicited by the Board of Directors of the Company and may be revoked
by written notice to the Chief Executive Officer of the Company at any time
prior to its exercise, by voting in person at the meeting, or by giving a later
dated proxy to the Chief Executive of the Company at any time before voting.
Shares represented by a proxy will be voted in the manner directed by the holder
of such shares, and if no direction is provided, the proxy will vote in favor of
the nominated directors, for the proposals set forth in the Notice of Meeting.
If your shares are held by a broker, a proxy card has been sent to the broker.
You may have received this proxy statement directly from your broker, together
with instructions directing the broker how to vote your shares. Unless your
broker appoints you as its proxy, you will have no right to vote shares in
person at the meeting. If you do not give your broker instructions or
discretionary authority to vote your shares on one or more of the proposals, but
your broker returns the proxy card indicating such lack of authority, your
shares will be "broker non-votes" with respect to the proposals for which the
broker does not have authority to vote. Broker non-votes will be counted as
present for purposes of determining a quorum, but will not be counted as shares
entitled to vote. As a result, broker non-votes will have no effect on whether
the proposals presented to the meeting are passed. Abstention from any proposal
set forth in the Notice of Meeting is treated as a vote against such proposal.
All expenses in connection with the solicitation of this proxy will be paid by
the Company. In addition to solicitation by mail, officers, directors and
regular employees of the Company, who will receive no extra compensation for
their services, may solicit proxies by telephone, telegraph or personal calls.
2
<PAGE>
DELIVERY AND REVOCABILITY OF PROXIES
This year, you may vote your shares by delivering a proxy in one of the
following ways:
. BY MAIL. You may mark the enclosed proxy card and mail it in the
enclosed postage-prepaid envelope.
. BY TELEPHONE. You may call from the United States toll free - 1-800-240-
6326. Use any touch-tone telephone to vote your proxy 24 hours a day, 7
days a week. You will be prompted to enter your 3-digit Company number
and your 7-digit Control Number which is located on the proxy card.
Follow the simple instructions the Voice provides you.
. BY INTERNET. You may access the website http://www.eproxy.com/vfnd/. You
will need to enter your Control Number and then follow the prompts.
If you deliver your proxy by telephone or electronically, please do not mail the
enclosed proxy card. If you deliver your proxy and change your mind before the
Annual Meeting, you may revoke your proxy by delivering notice that you wish to
revoke your proxy or by delivering another proxy with a later date. You may vote
your shares by attending the meeting in person but, if you have delivered a
proxy before the Annual Meeting, you must revoke it before the Annual Meeting
begins. Attending the meeting will not automatically revoke your previously
delivered proxy.
The Internet voting procedure is designed to authenticate Shareholders'
identities and to allow Shareholders to vote their shares and confirm that their
instructions have been properly recorded. Shareholders voting via the Internet
should understand that there may be costs associated with electronic access,
such as usage charges from Internet access providers and telephone companies,
that would be borne by the Shareholder.
VOTING SECURITIES AND PRINCIPAL HOLDERS
Only the holders of the Company's common stock whose names appear of record on
the Company's books at the close of business on May 12, 2000 are entitled to
vote at the Annual Meeting. At the close of business on May 12, 2000, the
Company had 17,083,856 shares of common stock ("Common Stock") and 588,758
shares of convertible preferred stock ("Preferred Stock") outstanding and
entitled to vote. Each share of such Common Stock and Preferred Stock entitles
the holder thereof to one vote upon each matter to be voted upon.
The following table sets forth, as of May 12, 2000, certain information with
respect to beneficial share ownership by the directors individually; by all
persons known to management to own more than 5% of the Company's outstanding
Common Stock or Preferred Stock, individually; by each executive officer
included in the Summary Compensation table, below, and by all officers and
directors as a group. Except as otherwise indicated, the Shareholders listed
below have sole investment and voting power with respect to their shares.
3
<PAGE>
<TABLE>
<CAPTION>
Number of Beneficially Percent of Shares
Name of Beneficial Owner Owned Shares Outstanding
------------------------ ---------------------- -----------------
<S> <C> <C>
Melvin L. Masters (1) 3,419,607 17.2%
3213 South Duluth Avenue
Sioux Falls, SD 57105
Sihl-Zurich Paper Mill on Sihl, AG (2) 2,742,858 14.4%
Giesshubel Strasse 15
CH 8046
Zurich, Switzerland
Stephen Fisher (3) 503,758 2.9%
Robert J. Wenzel (4) 404,300 2.2%
Darris McCord 300,000 1.7%
Tim Thurn (5) 79,149 *
Danny J. Vatland (6) 146,650 *
Roger Wikner (7) 25,000 *
Tim Duoos 2,000 *
Ed Adams - *
All officers and directors as a group (9 persons) (8) 4,880,464 23.8%
</TABLE>
* Less than 1%
(1) Includes 100,000 warrants owned by Mr. Masters directly. This also includes
720,368 shares and warrants to purchase 1,392,239 shares owned by
TimeMasters, Inc. ("TMI"), a corporation owned by Mr. Masters; 70,000
shares and warrants to purchase 200,000 shares owned by Jessica Lee Tran-
Masters, Mr. Masters' spouse; and 88,000 shares and warrants to purchase
500,000 shares owned by Masters Trust I, a trust for the benefit of Mr.
Masters' children. Mr. Masters disclaims beneficial ownership of the shares
owned by Ms. Tran-Masters and Masters Trust I.
(2) Includes warrants to purchase 1,371,429 shares.
(3) Includes 488,758 shares of convertible voting Preferred Stock issued to Mr.
Fisher in the Company's acquisition of TEAM Technologies, Inc. in December
1998 and 15,000 shares issuable to Mr. Fisher under options which are
exercisable or will become exercisable within 60 days. The Preferred
shares have been automatically converted to Common stock by the Board of
Directors and are in the process of being reissued as common stock.
(4) Includes 92,500 shares issuable to Mr. Wenzel under options which are
exercisable or will become exercisable within 60 days and warrants to
purchase 300,000 shares of stock. Also includes shares held as trustee for
four education trusts for which Mr. Wenzel serves as trustee.
(5) Includes 25,150 shares issuable to Mr. Thurn under options which are
exercisable or will become exercisable within 60 days.
(6) Includes 146,650 shares issuable to Mr. Vatland under options which are
exercisable or will become exercisable within 60 days.
4
<PAGE>
(7) Includes 25,000 shares issuable under options which are exercisable or will
become exercisable within 60 days.
(8) Includes 304,300 shares issuable under options which are exercisable or
will become exercisable within 60 days and warrants to purchase 2,492,239
shares.
Proposal 1: ELECTION OF DIRECTORS
The Board of Directors is divided into three classes pursuant to the Articles
and Bylaws of the Company; directors are elected for staggered terms of three
years, with approximately one-third of the directors to be elected each year.
The Bylaws of the Company also currently provide that in the event of any
vacancy on the Board of Directors occurring during the year, the vacant
directorship may be filled by the vote of the remaining directors for the
remainder of the unexpired term. There are currently six members of the Board
of Directors.
George Kline resigned from the Board of Directors on June 17, 1998. On November
16, 1998 the Board elected Roger Wikner to fulfill the unexpired term of Mr.
Kline's Board seat ending in the year 1999, or until his successor is duly
elected and qualified. On April 19, 1999 Ralph Rolen advised the Board that he
would not seek re-election for his Board seat and resigned from the Board. On
May 11, 1999 the Board appointed Stephen Fisher to fulfill the unexpired seat
held by Ralph Rolen. On May 6, 1999 Jean Louis Gassee resigned from the Board,
citing time commitments related to a public offering of stock of Be, Inc. where
he is Chief Executive Officer. Rohan Champion resigned from the Board of
Directors on May 17, 1999 due to issues related to a new business for which he
is the Chief Executive Officer. Mr. Fisher was then elected to serve out the
term of Mr. Champion which expires in the year 2000. On September 15, 1999, we
announced the appointment of Timothy R. Duoos (to Mr. Gassee's seat) and Edward
S. Adams (to Mr. Rolen's seat) to our Board of Directors. On November 30, 1999,
we announced Darris McCord had accepted an appointment to fill an open seat on
our Board for a term to expire in 1999 or until his successor is duly elected or
qualified.
At this Annual Meeting the term of two directors will expire. The Board of
Directors has nominated Roger Wikner and Darris McCord to three-year terms
ending in the year 2002, or until their successors are duly elected and
qualified. The Bylaws of the Company require that approximately one third of
the directors be elected each year. The Board of Directors also requests the
Shareholders to ratify the appointment of Timothy R. Duoos to a Board seat
expiring in the year 2000 and Edward S. Adams to a Board seat expiring in the
year 2001, or until their successors have been duly elected and qualified.
The proxy holder will vote for the election of the nominees described above,
unless authority to vote is withheld. The nominees have agreed that they are
willing to serve as directors; however, if anyone is unable to serve, the proxy
may be voted for such other person as the proxy holder shall, in his discretion,
determine.
5
<PAGE>
The following table sets forth information, as of April 30, 2000, concerning the
directors of the Company:
<TABLE>
<CAPTION>
Year
Became
Name, Age, Positions, Principal Occupations, Directorships Director
- ---------------------------------------------------------- --------
Directors whose terms expire in 1999
<S> <C>
Darris McCord; age 67; Mr. McCord has owned several companies in the past 30 years. Mr. McCord is 1999
currently the CEO of Photo Reproduction Materials, Inc., Data Scan Systems, Inc., CDM Service Corp.
of Michigan, and Shacoh Reprographics of Atlanta, all privately owned companies. In 1972, Mr. McCord
started Precision Coatings, Inc., a privately owned custom coating company. In 1982, he introduced
the first large document (36"-wide) plain paper copier into North America through KIP America.
Roger Wikner; age 57; In 1968 Mr. Wikner joined the investment firm of Miller & Schroeder. When the 1999
firm sold in 1997, he held positions of Chief Executive Officer, President and principal Shareholder. At
Miller & Schroeder, Mr. Wikner was responsible for developing healthcare, housing and commercial
financing programs.
Directors whose terms expire in 2000
Stephen Fisher; age 44; Mr. Fisher is the Senior Strategist for B2BXchange, Inc., a wholly owned 1999
subsidiary of the Company. Mr. Fisher has held this position since December 1998. B2BXchange is a
systems integrator specializing in Internet hosting, integration and support services. Prior to this
and for a period of 23 years, Mr. Fisher was President and Chief Executive Officer of TEAM
Technologies, which was acquired by the Company in 1998.
Timothy R. Duoos; age 43; Mr. Duoos is President and Chief Executive Officer of Lyndale Garden Center, 1999
Inc. in Minneapolis and has held that position since October 31, 1986. Mr. Duoos also held a
part-time position as Chairman of the Board and Chief Executive Officer of Sunbelt Nursery Group,
Inc. ("Sunbelt") based in Fort Worth, Texas, from November 1994 through May 1998, and President from
October 1997 through May 1998. He served as a part-time consultant to Sunbelt from May 1998 to
December 1998. Mr. Duoos served as a Director of Pinnacle Financial, Inc., a privately held company
from June 1996 through June 1997.
Directors whose terms expire in 2001
Edward S. Adams; age 36; Mr. Adams is Associate Dean for Academic Affairs, Julius E. Davis Chair and 1999
Professor of Law and Co-Director for the Center for Business Law and Entrepreneurial Studies at the
University of Minnesota School of Law. Mr. Adams is also a principal in Jon Adams Financial Company,
LLP, in Wayzata, Minnesota, where he assists e-commerce entities in raising venture capital.
Melvin L. Masters; age 46; Mr. Masters co-founded the Company in February, 1986 and has been Chairman, 1989
Chief Executive Officer and President of the Company since it acquired LaserMaster Corporation in May
1989. Mr. Masters is also the sole shareholder, director and CEO of TimeMasters, Inc. ("TMI"), a
company established for the purpose of property management which has additional investments in the
fields of wireless voice and data communications, Internet services and personal motor sports
products.
</TABLE>
6
<PAGE>
In fiscal 1999 the Board of Directors met in person once and three times
telephonically. All directors attended all four meetings and all committee
meetings. The Board of Directors has: (i) an Audit Committee composed of Mr.
Masters, Mr. Wikner, Mr. Duoos and Mr. Adams; (ii) a Stock Option Committee
composed of Mr. Masters and Mr. Wikner; (iii) a Compensation Committee composed
of Mr. Masters, Mr. Duoos and Mr. Wikner; (iv) an Indemnification and Litigation
Committee composed of Mr. Wikner, Mr. Adams and Mr. Masters. There is no
nominating committee. The Audit Committee is responsible for recommending
engagement of the Company's independent auditors, reviewing the scope of the
audit, evaluating the comments made by the independent auditor with respect to
accounting procedures and internal controls and determining whether to bring
such comments to the attention of Company management, and reviewing the internal
accounting procedures and controls with the Company's financial and accounting
staff. The Indemnification and Litigation Committee is charged with reviewing
and determining the right to indemnification of officers and directors who may
be defendants in litigation and to provide Company direction regarding the
management of certain corporate litigation. The Audit Committee, Stock Option
Committee, Indemnification and Litigation Committee, and Compensation Committee
each met once in fiscal 1999.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE ELECTION AND
CONFIRMATION OF THE NOMINATED DIRECTORS. THE PROXY HOLDER WILL VOTE IN FAVOR OF
SUCH NOMINEES, UNLESS OTHERWISE DIRECTED. AN AFFIRMATIVE VOTE OF THE HOLDERS OF
A MAJORITY OF THE SHARES OF THE COMMON STOCK REPRESENTED AT THE MEETING IS
REQUIRED FOR ELECTION AND CONFIRMATION OF THE NOMINEES AS DIRECTORS.
EXECUTIVE OFFICERS
The following table sets forth information, as of April 30, 2000, regarding the
executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Positions
- ---- --- ---------
<S> <C> <C>
Melvin L. Masters 46 Chief Executive Officer, President and Chairman of the Board
Robert J. Wenzel 49 Chief Operating Officer
Danny J. Vatland 37 Chief Technical Officer
Timothy N. Thurn 44 Chief Financial Officer, Treasurer
</TABLE>
Mr. Wenzel has been Chief Operating Officer of the Company since October 1991
and President of ColorSpan Corporation (formerly LaserMaster Corporation), the
Company's principal operating subsidiary, since October 1989. He joined
ColorSpan as General Manager of the PC Division in May 1989. In anticipation of
the divestiture of the Company's Digital Graphics Business Unit ("DGBU"), Mr.
Wenzel resigned his post as President of ColorSpan Corporation on May 8, 2000.
Mr. Vatland assumed the duties of Chief Technology Officer in April 2000. Mr.
Vatland has been a Vice President of Research and Development for ColorSpan
(formerly LaserMaster Corporation) since 1994. He joined the company in 1989
and moved to the Internet Services Business Unit in July 1999. Mr. Vatland has
an Electrical Engineering degree from Michigan Technological University.
Mr. Thurn assumed the duties of CFO in April 2000, has been Treasurer of the
Company since June 1989 and of LaserMaster Corporation (now ColorSpan
Corporation) since March 1987. Mr. Thurn has experience as both a public and
private accountant. Mr. Thurn is a Certified Public Accountant (CPA) and
Certified Management Accountant (CMA).
Officers of the Company are elected annually by the Board of Directors. All of
the current officers have been re-elected to serve in the same positions for the
coming year.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Under federal securities laws, the Company's directors and officers, and any
beneficial owner of more than 10 percent of a class of equity securities of the
Company, are required to report their ownership of the Company's equity
securities and any changes in such ownership to the Securities and Exchange
Commission (the "Commission") and the securities exchange on which the equity
securities are registered. Specific due dates for these reports have been
established by the Commission, and the Company is required to disclose in its
Form 10-K any delinquent filing of such reports and any failure to file such
reports.
7
<PAGE>
Based upon its review of forms 3, 4, and 5 and any amendments thereto furnished
to the Company pursuant to Section 16 of the Securities Exchange Act of 1934,
all such forms were filed on a timely basis by reporting persons, except as
follows: The Forms 3 for Mssrs. Stephen Fisher, Roger Wikner, Tim Duoos and Ed
Adams were filed late, but have been filed.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
One of the primary goals in setting compensation policies is to maintain
competitive, progressive programs to attract, retain and motivate high caliber
executives, and maximize the financial success of the Company by appropriately
rewarding such individuals for their achievements. Another goal is to provide an
incentive to executives to focus efforts on long-term strategic goals for the
Company by closely aligning their financial interests with stockholder
interests. To attain these goals the Company's executive compensation program
was designed to include base salary, incentive bonuses and long-term incentives
in the form of stock options.
Base Salary. Salaries for executives are reviewed by the Compensation Committee
on a periodic basis and may be increased (or decreased) at any time based on:
(1) the Compensation Committee's evaluation of the individual's performance; and
(2) the Company's financial condition. Increases in median competitive pay
levels are a secondary factor.
Compensation of the Company's Chief Executive Officer is set by the Board of
Directors as a whole, with Mr. Masters abstaining. The annual compensation for
the Chief Executive Officer was set at $250,000 in 1994. As of the end of the
fiscal year, the Board of Directors has not made any adjustments to this salary
since 1994. A review of the CEO compensation package is currently underway. On
March 12, 1997, Mr. Masters, Mr. Wenzel and Mr. Vatland, along with two other
non-officer members of management, voluntarily offered to decrease their
salaries to $175,000 until Company performance improved, or as may be agreed
upon with the Compensation Committee. No further adjustment was made to their
salaries in fiscal 1999.
Annual Incentive. The Company did not establish a cash incentive plan for its
officers for fiscal 1999. The Compensation Committee pays bonuses at year end
based on an evaluation of performance of the individual during the fiscal year.
The Compensation Committee's determination at such times is discretionary and
normally is based primarily on overall Company performance and the contribution
of each individual to such performance. No specific formula or criteria is
established prior to the time such incentive compensation is allocated to the
individual. No incentive bonuses were paid for fiscal 1999.
Long Term Incentives. The Company believes that significant incentives should
be provided to executive officers to maximize Shareholder value. Even though
such officers may hold substantial positions in the Company's common stock, such
incentives can be provided by benefit awards that are based on the appreciation
of such common stock. The Company currently grants stock options that become
exercisable over a period of time. This process is administered by the Stock
Option Committee, which is composed of Mr. Masters and Mr. Wikner. Stock options
are granted at the prevailing market value and will only have value if the
Company's stock price increases. Generally, grants may vest in equal amounts
over five to eight years; generally executives must be employed by the Company
at the time of vesting in order to exercise the option.
The Committee determines the number of options to be granted based on the
expected value of an individual's contribution, or to reflect historical
contributions. During fiscal 1999, Mr. Thurn was granted 120,000 performance
options. The options vest based on performance criteria to be set by the
Company's CEO.
The Compensation Committee:
Melvin Masters
Roger Wikner
Tim Duoos
In November 1999, the Board entered into an agreement with Mr. Masters which
includes the following: Warrants to purchase 1,000,000 common shares in
VirtualFund.com, Inc. ("VFND") at $2.00 per share. These VFND warrants may be
converted, at Mr. Masters' option, on a 1:1 basis to B2BXchange, Inc. warrants
with a $0.25 exercise price upon the occurrence of certain events. The warrant
grant includes certain piggyback registration rights. Mr. Masters has the option
to convert the warrants to warrants to purchase common stock of B2BXchange, Inc.
upon the occurrence of certain events including, but not limited to, a
spinout/public financing and/or divestiture of B2BXchange, Inc.
8
<PAGE>
On November 11, 1999 the Company granted Robert Wenzel 300,000 common shares in
VirtualFund.com, Inc. at $2.00 per share. These VFND warrants may be converted,
at Mr. Wenzel's option, on a 1:1 basis to B2BXchange, Inc. warrants with a $0.25
exercise price upon the occurrence of certain events. The warrant grant includes
certain piggyback registration rights. Mr. Wenzel has the option to convert the
warrants to warrants to purchase common stock of B2BXchange, Inc. upon the
occurrence of certain events including, but not limited to, a spinout/public
financing and/or divestiture of B2BXchange, Inc.
Board Option Committee Report on Repricing Options
During fiscal 1998, previously granted options were canceled and repriced
options were granted for certain key employees and officers of the Company. The
repriced options have an exercise price of $3.00 per share. The action was in
response to the decline in the market price of the Company's stock during the
preceding year and the lack of value in the stock options which had effectively
eliminated the incentive value of options with higher exercise prices. The
decision was based on a number of other factors including significant events
that had taken place during the preceding months. These events included a work
force reduction taken in April 1996, the concern over losing skilled employees,
the loss of incentives, and the subsequent negative impact these events could
have had on the Company's operating results and financial condition. In
addition, the Company wanted to retain key employees who were critical to the
Company's long range success. The Option Committee determined that the repriced
options were appropriate long-term incentives for valued employees.
The following table presents information on the repricing of stock options of
executive officers employed by the Company during the period the Company has
been subject to the reporting requirements of the Securities Exchange Act of
1934.
VirtualFund.com, Inc. - Executive Officer Option Repricing
<TABLE>
<CAPTION>
====================================================================================================================================
Market
Price of Length of Original
Number Stock at Exercise New Option Term
of Options time of Price at Time Exercise Remaining at Date
Name Date Repriced Repricing of Repricing Price of Repricing
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Melvin Masters - None - - - -
Chairman, Chief Executive
Officer and President
- ------------------------------------------------------------------------------------------------------------------------------------
Lawrence J. Lukis (1) - None - - - -
Chief Engineer
- ------------------------------------------------------------------------------------------------------------------------------------
Robert J. Wenzel 9/26/97 100,000 $ 3.00 $3.625 $ 3.00 6 years 7 months
Chief Operating Officer 7/17/96 100,000 $3.625 $4.000 $3.625 7 years 9 months
4/5/94 30,000 $2.250 $3.330 $2.250 1 year 7 months
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas D. Ryan 9/26/97 120,000 $ 3.00 $3.625 $ 3.00 6 years 10 months
Executive Vice President 7/17/96 120,000 $3.625 $4.000 $3.625 6 years 8 months
VirtualFund.com, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
James H. Horstmann 9/26/97 90,000 $ 3.00 $3.625 $ 3.00 6 years 10 months
Chief Financial Officer
- ------------------------------------------------------------------------------------------------------------------------------------
James E. Retterath (1) 7/17/96 120,000 $3.625 $4.000 $3.625 7 years 9 months
Secretary
- ------------------------------------------------------------------------------------------------------------------------------------
W. Scott Parr (1) 4/5/94 61,113 $2.250 $3.330 $2.250 1 year 7 months
Director, General Counsel
====================================================================================================================================
</TABLE>
(1) No longer employed by the Company, but was an executive officer at the time
of repricing.
The Compensation Committee
Melvin Masters
Roger Wikner
Tim Duoos
9
<PAGE>
EXECUTIVE COMPENSATION
Summary Of Cash And Certain Other Compensation
The following table sets forth the cash and noncash compensation for each of the
last three fiscal years awarded to or earned by our Chief Executive Officer and
our other four most highly compensated executive officers whose salary and bonus
earned in the fiscal year ended June 30, 1999 exceeded $100,000.
<TABLE>
<CAPTION>
====================================================================================================================================
Annual compensation Long term compensation
-----------------------------------------------------------------------------------------
Awards
----------------------------
Other Payouts/ All other
annual Restricted LTIP compen
Name and principal Year Salary ($) Bonus compen- stock Options/ payouts -sation
position ($) sation award(s) SARs (#) ($) ($)
($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Melvin Masters 1999 $175,000 - - - - - $9,494/1/
Chief Executive 1998 175,000 - - - - - 8,904/1/
Officer 1997 208,333 - - - - - 7,536/1/
- ------------------------------------------------------------------------------------------------------------------------------------
Robert Wenzel 1999 $175,000 - - - - - -
Chief Operating 1998 175,000 - - - - - -
Officer 1997 208,333 - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Danny J. Vatland 1999 $175,000 - - - - - -
Chief Technical 1998 175,000 - - - - - -
Officer 1997 202,962 - - - 240,000 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen Fisher 1999 $150,000 $155,750 - - 120,000 - -
Senior Strategist 1998 # - - - - - -
B2BXchange, Inc. 1997 # - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Timothy N. Thurn 1999 $100,000 - - - 120,000 - -
Chief Financial 1998 100,000 - - - - - -
Officer 1997 100,000 - - - 50,000 - -
===================================================================================================================================
</TABLE>
# Became executive officer during fiscal 1999. Fiscal 1999 figures include
compensation earned at K&R Technical Services, Inc. prior to its
acquisition by B2BXchange, Inc.
/1/Premiums for life insurance where the Company is not the beneficiary.
Stock Options
We maintain a Stock Option Plan pursuant to which executive officers, other
employees and certain non-employees providing services to the Company may
receive options to purchase our common stock.
The following table summarizes grants of stock options during fiscal 1999 to the
Chief Executive Officer and the Executive Officers named in the Summary
Compensation Table:
10
<PAGE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Potential Realizable
Value at Assumed Annual Rates
Individual Grants of Stock Price Appreciation for
Option Term
- --------------------------------------------------------------------------------------------------------------------
% of Total
Options/ Options/ Exercise or
SARs Granted Base Price Expiration
Name Granted to Employees ($/Share) Date 5% ($) 10% ($)
(#) in Fiscal Year
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stephen Fisher 240,000/1,2/ 13.8% $1.59 June 2009 $239,988 $608,156
Timothy N. Thurn 120,000/1/ 6.9% $1.56 June 2009 $117,919 $298,819
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/120,000 options vest nine years from date of issuance with accelerated
vesting contingent upon meeting performance goals as established by the Chief
Executive Officer.
/2/120,000 options vest ratably over eight years.
The following table summarizes exercises of stock options during fiscal 1999 by
the Executive Officers named in the Summary Compensation Table.
AGGREGATE OPTION/SAR EXERCISES IN 1999 FISCAL YEAR AND FY-END OPTION/SAR VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of
unexercised Value of unexercised in-
options/SARs at FY- the-money options/SARs
Shares acquired on Value realized end (#) exercisable/ at FY-end ($) exercisable/
Name exercise (#) ($) Unexercisable unexercisable (1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Melvin L. Masters -0- -0- -0- -0-
- -----------------------------------------------------------------------------------------------------------------------------
Robert J. Wenzel -0- -0- 77,500 / 187,500 $3,488 / -0-
- -----------------------------------------------------------------------------------------------------------------------------
Danny J. Vatland -0- -0- 131,650 / 192,500 -0- / -0-
- -----------------------------------------------------------------------------------------------------------------------------
Stephen Fisher -0- -0- -0- / 240,000 -0- / -0-
- -----------------------------------------------------------------------------------------------------------------------------
Timothy N. Thurn -0- -0- 18,900 / 151,250 -0- / -0-
=============================================================================================================================
</TABLE>
(1) Represents the difference between the closing price of the Company's common
stock on June 30, 1999 and the exercise price of the options.
Long-Term Incentive Plan Awards
Other than the Stock Option Plan reported on above, the Company does not
maintain any long-term incentive plans.
Director Compensation
For fiscal year 1999, there was no plan for compensation to non-employee
directors. All directors were reimbursed for their expenses incurred in
attending meetings. Roger Wikner, Jean-Louis Gassee and Rohan Champion also
acted as consultants to the Company. Consulting fees of $33,000 were incurred
for services provided by Mr. Wikner during fiscal 1999. Consulting fees of
$10,000 were incurred for services provided by Mr. Gassee during fiscal 1999.
Consulting fees of $41,670 were incurred for services provided by Mr. Champion
during fiscal 1999. The consulting fees paid to Mr. Wikner, Mr. Gassee and Mr.
Champion were determined and set based on anticipated consulting services and
the market cost therefor. We believe that the consulting fees paid to Mr.
Wikner, Mr. Gassee and Mr.
11
<PAGE>
Champion represent the approximate market value for the consulting services
performed and that which might be obtained from similar arrangements with non-
affiliates.
Employment Agreements
At June 30, 1999, we had employment agreements with Messrs. Masters, Wenzel,
Vatland, Thurn, Fisher and several other members of management. The agreements
for Messrs. Masters, Wenzel, Vatland, Thurn and Fisher and certain members of
management renew automatically on an annual basis unless terminated by either
party by written notice prior to the renewal date. The agreements provide for
continuation payments equal to 36 months pay for Mr. Masters and one other non-
officer. The agreement for Mr. Fisher and for two other members of management
provide for continuation payments equal to 60 months pay upon termination of
employment. Agreements are also in place for 12 months pay for Mr. Wenzel, Mr.
Vatland, Mr. Thurn and certain other members of management upon termination of
employment in certain circumstances, including change of control. As of June
30, 1999 minimum salary levels of $250,000 were set for each of Messrs. Masters,
Wenzel, and Vatland. By agreement, these individuals reduced their compensation
to $175,000 in March 1997, and the compensation has not been adjusted to the
levels previously set. The Company is engaged in ongoing negotiations with Mr.
Masters regarding amendment or replacement of his employment agreement.
Compensation Committee Interlocks and Insider Participation
The Chief Executive Officer of the Company, Melvin L. Masters, is a member of
the Compensation Committee. Mr. Masters' compensation is set by the Board of
Directors as a whole with Mr. Masters abstaining.
Certain Relationships and Related Transactions
As of June 30, 1999 or during the year then ended, the Company had the following
arrangements with certain of its directors, executive officers or five percent
Shareholders:
(1) We lease space we currently occupy in Shady View I & II, from
Grandchildren's Realty Alternative Management Partnership I (GRAMPI), a
Minnesota limited partnership. The general partner of GRAMPI is TimeMasters,
Inc., a Minnesota corporation that is wholly owned by Melvin L. Masters. One of
the limited partners of GRAMPI is the Masters Trust I, of which Ralph Rolen, a
former director of the Company, was Trustee at the time of the negotiations and
of which the minor children of Mr. Masters are the beneficiaries. We retained
the services of an outside law firm as well as an independent commercial real
estate brokerage firm in negotiating the lease. We lease 174,647 square feet of
space under this agreement which had an initial term of fifteen years and a
monthly base rate as of September 30, 1999, of $107,699. The base rate escalates
periodically over the term of the lease. We are also required to pay our pro-
rata share of property taxes, utilities and essentially all other operating
expenses. There is no renewal option. Rent expense including real estate taxes
and common area maintenance under this lease was $1,682,000 in fiscal 1999.
(2) Under a Use Indemnification Agreement and certain related Board of
Directors' actions, we have the right to hold business and business-related
occasions at facilities owned by Masters Trust I and/or Melvin L. Masters and/or
Jessicca Lee Tran-Masters and/or TimeMasters, Inc and/or GRAMPI. In addition, we
occasionally use an airplane owned by a Company owned and controlled by Mr.
Masters, for business-related travel. We indemnify the owners against loss or
damage, reimburse out-of-pocket expenses and pay a usage charge based on what
management believes are market rates. We purchase services and hardware from
TimeMasters for the wireless voice system used on the Eden Prairie facilities.
We also use the services of a travel agency that is controlled by Mr. Masters.
The travel agency relationship terminated in fiscal 2000. In the fiscal year
ended June 30, 1999 charges for these items totaled $357,968 of which
approximately $200,000 of the total was for the purchase of commerical airline
tickets issued through the travel agency.
(3) We have occasionally prepaid the rent and lease expense to GRAMPI for
the Shady View I and II properties. When rent is prepaid there is an adjustment
of the amount paid for rent at the next regular payment date to reflect the
prepayment. In addition, interest is charged during the interim period.
(4) In June 1998, we loaned $250,000 to GRAMPI. The note was personally
guaranteed by Mr. Masters, was secured by certain shares of the Company's common
stock owned by GRAMPI, and bore interest at the Prime Rate plus 2.0%. In
September 1999, the principal balance of the note, which was originally due
February 25, 1999, was combined with additional borrowing during fiscal 1999 by
Mr. Masters into a new $500,000 non interest bearing note
12
<PAGE>
from Mr. Masters that is due September 1, 2000. During fiscal 1999, Mr. Masters
and TMI borrowed an additional $375,472. This additional borrowing was combined
in September 1999 with $97,505 that was owed to the Company by TMI at June 30,
1998 into a second note from Mr. Masters of $472,977 that is payable September
1, 2000 and bears interest at 9.75%. Total principal and accrued interest due
from Mr. Masters at June 30, 1999 is $1,048,767. In August 1999 Mr. Masters
borrowed an additional $200,000 that is payable September 1, 2000 and bears
interest at 9.75%. All three notes are secured by a Deed of Trust encumbering
certain real property located in the state of Montana.
(5) We acquired a note receivable from TEAM Property Management when we
purchased K&R Technical Services, Inc. The note, which bears interest at 9% and
is due September 1, 2000, had an outstanding balance of $329,982 at June 30,
1999. One partner of TEAM Property Management is Stephen Fisher.
(6) We lease space that we currently occupy in Cedar Falls Iowa from TEAM
Property Management Company, a company that is controlled by Stephen Fisher and
two other VirtualFund.com shareholders, who were previously principals in TEAM
Technologies.
(7) We assumed a note receivable of $114,849 from Stephen Fisher when we
purchased K&R Technical Services, Inc. The note is due June 18, 2001 and bears
interest at 9%.
Each of the foregoing transactions was approved by a disinterested majority
of our Board of Directors, by shareholders, or by both. We believe that each
such transaction is on terms at least as favorable to us as could have been
obtained from an unaffiliated entity.
(8) We purchase certain inventory from Sihl-Zurich Paper Mill on Sihl AG,
a greater than 5% shareholder of the Company. Total purchases in fiscal 1999
from Sihl were $2,327,631.
Performance Graph
The following table compares the cumulative total return on the common stock of
the Company for the last five years with the Nasdaq Composite Index and with an
index of computer corporations listed on Nasdaq, in each case assuming an
investment of $100 on June 30, 1993 and the reinvestment of all dividends:
[GRAPH APPEARS HERE]
VIRTUAL FUND.COM.INC., NASDAQ U.S. COMPOSITE INDEX. NASDAQ COMPUTER INDEX
Assumes $100 Invested 6/30/94
<TABLE>
<CAPTION>
6/30/94 12/30/94 6/30/95 12/29/95 6/30/96 12/31/96 6/30/97 12/31/97 6/30/98 12/31/98 6/30/99
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Nasdaq Computer Index 100 140 179 219 254 294 319 355 518 770 965
Nasdaq US Composite
Index 100 107 133 151 171 186 208 228 274 322 395
VFND Stock Price 100 95 71 76 62 76 27 61 62 28 21
</TABLE>
13
<PAGE>
AUDITORS
Deloitte & Touche, LLP audited the books and accounts of the Company for the
years ended June 30, 1996, 1997, 1998 and 1999.
SHAREHOLDER PROPOSALS FOR THE
2000 ANNUAL MEETING OF SHAREHOLDERS
Any Shareholder who wishes to present a proposal for action at the next Annual
Meeting of Shareholders and who wishes to have it set forth in the Proxy
Statement and identified in the form of proxy prepared by the Company must
notify the Company at the Company's principal executive offices, 7144 Shady Oak
Road, Eden Prairie, Minnesota 55344, in such manner so that such notice is
received by the Company on or before August 15, 2000. Any such proposal must be
in the form required under the rules and regulations promulgated by the
Securities and Exchange Commission.
OTHER MATTERS
The Board of Directors of the Company knows of no other matters which may come
before the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Melvin Masters
Melvin Masters
June 1, 2000 Chief Executive Officer
14
<PAGE>
ENCLOSED IS YOUR PROXY. YOUR VOTE IS IMPORTANT.
Regardless of whether you plan to attend the Annual Meeting of Shareholders, you
can be sure your shares are represented at the meeting by promptly delivering
your proxy.
The Board of Directors has submitted one name to be elected as a director of the
Company. The Board of Directors recommends a vote in favor (FOR) the nominee
listed.
The telephone and internet voting procedures are designed to authenticate
Shareholders' identities and to allow Shareholders to vote their shares and
confirm that their instructions have been properly recorded. The Company has
been advised that the procedures that have been put in place are consistent with
the requirements of applicable law. Shareholders voting via the Internet should
understand there may be costs associated with electronic access, such as usage
charges from Internet access providers and telephone companies, that will be
borne by the Shareholder.
By executing and returning the proxy you are agreeing to appoint Melvin Masters
and Timothy Thurn, and each of them, in their lawful capacities as proxies, with
full power of substitution in each, to represent you and vote the shares of
common stock of VirtualFund.com, Inc. which you may be entitled to vote at the
Annual Meeting of Shareholders of the Company held on June 27, 2000 at 4:00 p.m.
at the Radisson Hotel South, 7800 Normandale Boulevard, Bloomington, MN 55439,
and at any adjournment thereof, on all matters coming before the meeting.
IF SPECIFIC INSTRUCTIONS ARE INDICATED, YOUR PROXY WILL BE VOTED IN ACCORDANCE
WITH SUCH INSTRUCTIONS. UNLESS A CONTRARY DIRECTION IS INDICATED, YOUR PROXY
WILL BE VOTED FOR THE NOMINEE LISTED IN PROPOSAL 1.
You may deliver this proxy by signing and returning the enclosed proxy card in
the enclosed envelope or by telephone or through the Internet. DO NOT RETURN
THE PROXY FORM IF YOU VOTE BY TELEPHONE OR THROUGH THE INTERNET.
The following describes the matters for which you are requested to vote.
Proposal 1: ELECTION OF/CONFIRMATION OF DIRECTORS
01 Director: Roger Wikner (to be elected)
02 Director: Darris McCord (to be elected)
03 Director: Timothy R. Duoos (confirmation of appointment)
04 Director: Edward S. Adams (confirmation of appointment)
Please sign the proxy exactly as your name appears thereon. Joint owners should
each sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If the signer is a corporation,
please give full corporate name and please have a duly authorized officer sign
stating title. If signer is a partnership, please sign the partnership name by
an authorized person.
You will only need to return the attached proxy form, you do not need to return
this page of instructions with your proxy.
<PAGE>
There are three ways to vote your Proxy
Your telephone or Internet vote authorizes the Named Proxies to vote your shares
in the same manner as if you marked, signed and returned your proxy card.
VOTE BY PHONE - TOLL FREE - 1-800-240-6326 - QUICK *** EASY *** IMMEDIATE
. Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week.
. You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which is located above.
. Follow the simple instructions the Voice provides you.
VOTE BY INTERNET - www.eproxy.com/vfnd/ - QUICK *** EASY *** IMMEDIATE
. Use the Internet to vote your proxy 24 hours a day, 7 days a week.
. You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which is located above to obtain your records and create an
electronic ballot.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to VirtualFund.com, Inc., c/o Shareowner
Services/sm/, P.O. Box 64873, St. Paul, MN 55164-0873.
If you vote by Phone or Internet, Please do not mail your Proxy Card.
Please detach here
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________________________
The Board of Directors Recommends a Vote FOR item 1.
<S> <C> <C> <C> <C>
1. Election of/confirmation of directors: 01 Director 03 Director [_] Vote FOR [_] Vote WITHHELD
02 Director 04 Director all nominees from all nominees
(Instructions: To withhold authority to vote for/confirm the appointment
of any indicated nominee, write the number(s) of the nominee(s) in the ____________________________________________
box provided to the right) ____________________________________________
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN,
WILL BE VOTED FOR EACH PROPOSAL
---
Address Change? Mark Box [_] Date___________________
Indicate changes below:
______________________________________________
______________________________________________
Signature(s) in Box
Please sign exactly as your name(s) appear on Proxy.
If held in joint tenancy, all persons must sign.
Trustees, administrtors, etc. should include title and
authority. Corporations should provide full name or
corporation and title of authorized officer signing
the proxy.
____________________________________________________________________________________________________________________________________
</TABLE>
<PAGE>
VIRTUALFUND.COM, INC.
ANNUAL MEETING OF STOCKHOLDERS
Tuesday, June 27, 2000
4:00 p.m.
Radisson Hotel South
7800 Normandale Boulevard
Bloomington, MN 55439
[LOGO] VirtualFund.com, VirtualFund.com, Inc.
7090 Shady Oak Road, Eden Prairie, MN 55344 proxy
________________________________________________________________________________
This proxy is solicited by the Board of Directors for use at the Annual Meeting
on June 27, 2000.
The shares of stock you hold in your account or in a dividend reinvestment
account will be voted as you specify below.
If no choice is specified, the proxy will be voted "FOR" Item 1.
By signing the proxy, you revoke all prior proxies and appoint Melvin Masters
and Timothy N. Thurn, and both of them, with full power of substitution, to vote
your shares on the matters shown on the matters shown on the reverse side and
any other matters which may come before the Annual Meeting and all adjournments.
See reverse for voting instructions
