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AMERICAN UNITED GLOBAL, INC.
25 Highland Boulevard
Dix Hills, New York 11746
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 9, 1996
To the Shareholders of
AMERICAN UNITED GLOBAL, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting (the "Annual Meeting") of
Shareholders of American United Global, Inc. (the "Company" or the
"Corporation") will be held at 11130 NE 33rd Place, Suite 250,
Bellevue, Washington 98004, on Monday, September 9, 1996, at 2:00 p.m. local
time for the following purposes:
1. To elect three (3) directors to hold office until the next
Annual Meeting;
2. To ratify the selection of Price Waterhouse as auditors of the
Company for the Fiscal Year ending July 31, 1996;
3. To ratify the sale of all of the assets of the Company's
Manufacturing Business to subsidiaries of Hutchinson Corporation (the
"Hutchinson Transaction"); and
4. To authorize an amendment to the Company's Certificate of
Incorporation to increase the Company's authorized capital by (i) increasing to
25,000,0000 shares the Company's authorized voting Common Stock which will be
redesignated as Class A Voting Common Stock; and (ii) creating a new class of
Non-Voting Class B Common Stock, of which 25,000,000 shares of Non-Voting
Class B Common Stock will be authorized;
5. To authorize and ratify an amendment to the Company's
Articles of Incorporation to include provisions which permit
stockholders to act by not less than unanimous written consent and to
authorize and ratify an amendment to the Company's By-Laws that deletes
provisions which permit stockholders to act by less than unanimous
written consent;
6. To authorize and ratify amendments to the Company's
Articles of Incorporation and By-Laws to classify the Board of Directors into
three classes, as nearly equal in number as possible, each of which, after an
interim arrangement, will serve for three years, with one class being elected
each year;
7. To authorize and ratify amendments to the Company's
Articles of Incorporation and By-Laws which provide that directors may be
removed only with cause and the approval of the holders of at least 66.66% of
the voting power of each class or series of outstanding stock of the Company
entitled to vote generally in the election of directors;
8. To authorize and ratify amendments to the Company's
Articles of Incorporation and By-Laws that provide that special meetings of
stockholders may not be called by stockholders holding less than 66.66% of
the voting power of each class or series of outstanding stock entitled to
vote on the matter(s) to be considered at the special meeting;
9. To authorize and ratify amendments to the Company's
Articles of Incorporation and By-Laws that increase the stockholder vote
required to alter, amend or repeal the amendments to the Company's Articles
of Incorporation and By-Laws identified in Proposals 5, 6, 7 and 8 referred
to above and in this Proposal 9, to at least 66.66% of the voting power of
each class or series of outstanding stock of the Company entitled to vote
thereon; and
10. To ratify the terms of an Amended and Restated Employment
Agreement by and between the Company and Mr. Robert M. Rubin, the President,
Chief Executive Officer, Chairman of the Board and a principal stockholder of
the Company;
11. To transact such business as may properly come before the
meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed July 26, 1996 as the record date for
the determination of shareholders entitled to notice of and to vote at the
meeting or any adjournment thereof. The stock transfer books of the Company
will not be closed, but only shareholders of record at the close of business
on July 26, 1996 will be entitled to vote at the meeting or any adjournment
or adjournments thereof. The approximate mailing date for proxy materials
will be August 20, 1996.
By Order of the Board of Directors
Robert M. Rubin
CHAIRMAN OF THE BOARD
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WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE COMPLETE, SIGN AND
RETURN YOUR PROXY CARD PROMPTLY IN THE ENCLOSED STAMPED
ENVELOPE PROVIDED FOR YOUR USE.
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AMERICAN UNITED GLOBAL, INC.
25 Highland Boulevard
Dix Hills, New York 11746
___________________________________
PRELIMINARY PROXY STATEMENT
___________________________________
GENERAL INFORMATION CONCERNING SOLICITATION
This proxy statement is furnished in connection with the solicitation of
proxies by and on behalf of the Board of Directors of American United Global,
Inc. (hereinafter referred to as the "Company" or the "Corporation"), for its
Annual Meeting of Shareholders (the "Meeting") to be held at 2:00 P.M. on
Monday, September 9, 1996, or any adjournments thereof, at 11130 NE 33rd Place,
Suite 250, Bellevue, Washington 98004. Shares cannot be voted at the meeting
unless their owner is present in person or represented by proxy. Copies of
this proxy statement and the accompanying form of proxy shall be mailed to the
shareholders of the Company on or about August 20, 1996, accompanied by a copy
of the Annual Report of the Company containing financial statements as of and
for the Fiscal Years ended July 31, 1995, 1994, and 1993, together with other
information respecting the Company.
If a proxy is properly executed and returned, the shares represented
thereby will be voted in accordance with the specifications made, or if no
specification is made the shares will be voted to approve each proposition and
to elect each nominee for director identified on the proxy. Any shareholder
giving a proxy has the power to revoke it at any time before it is voted by
filing with the Secretary of the Company a notice in writing revoking it. A
proxy may also be revoked by any shareholder present at the Meeting who
expresses a desire in writing to revoke a previously delivered proxy and to vote
his or her shares in person. The mere presence at the Meeting of the person
appointing a proxy does not revoke the appointment. In order to revoke a
properly executed and returned proxy, the Company must receive a duly executed
written revocation of that proxy before it is voted. A proxy received after a
vote is taken at the Meeting will not revoke a proxy received prior to the
Meeting; and a subsequently dated proxy received prior to the vote will revoke a
previously dated proxy.
All expenses in connection with the solicitation of proxies, including the
cost of preparing, handling, printing and mailing the Notice of Annual Meeting,
Proxies and Proxy Statements will be borne by the Company. Directors, officers
and regular employees of the Company, who will receive no additional
compensation therefor, may solicit proxies by telephone or personal call, the
cost of which will be nominal and will be borne by the Company. In addition,
the Company will reimburse brokerage houses and other institutions and
fiduciaries for their expenses in forwarding proxies and proxy soliciting
material to their principals.
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As of August 15, 1996, the following shareholders holding 1,279,798 of the
votes represented by shares of the voting stock of the Company, in the aggregate
constituting approximately 21.8% of the total votes represented by shares
entitled to vote at the Meeting, have indicated their intention to vote in favor
of all nominees for director and all other matters to be submitted for
consideration at the Meeting: Robert M. Rubin 1,245,798, Lawrence E. Kaplan
14,000 and C. Dean McLain 20,000.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 0-19404)
pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
July 31, 1995, other than Item 6. Selected Financial Data and Item
8. Financial Statements and Supplementary Data;
2. The Company's Annual Report on Form 10-K/A for the fiscal year ended
July 31, 1995;
3. The Company's Quarterly Reports on Form 10-Q/A for the fiscal
quarters ended January 31, 1996 and April 30, 1996; and
4. Other reports filed by the Company pursuant to Section 13(a) or
15(d) of the Exchange Act since July 31, 1995, consisting of the
Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended October 31, 1995, January 31, 1996 and April 30, 1996, and
the Company's Current Reports on Form 8-K filed on October 17, 1995,
February 5, 1996, and July 24, 1996.
(The remainder of this page has been intentionally left blank)
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BUSINESS
General
The Company, through its operating subsidiaries, was formerly engaged in
two distinct businesses: (i) the Distribution Business, comprising the sale,
service and lease of light and medium-sized construction equipment, parts and
other products manufactured principally by Case Corporation ("Case"), as a
retail distributor and (ii) the Manufacturing Business, principally comprising
the manufacture and national distribution of sealing devices (o-rings, bonded
rubber-to-metal scale and molded rubber shapes) for the automotive, commercial
aerospace, defense and communications industries and for other industrial
applications.
The Company's Distribution Business operates through Western Power &
Equipment Corp., a Delaware corporation ("Western"), its 56.6% owned subsidiary.
Western's principal business is operation as an authorized Case dealer through
retail distribution facilities located in the States of Washington, Oregon,
California and Nevada. The construction equipment distributed by the Company is
used in the construction of residential and office buildings, roads, levees,
dams, underground power projects, forestry projects, municipal construction and
other construction projects.
The Company's Manufacturing Business operated through two Operating
subsidiaries: (i) the National O-Ring division of American United Products,
Inc., a California corporation ("AUP"), which manufactured and distributed
standard-size, low cost synthetic rubber o-ring sealing devices for use in
automotive and industrial applications and (ii) the Stillman Seal division of
American United Seal, Inc., a California corporation ("AUS"), which specialized
in the design, manufacture and distribution, of rubber-to-metal bonded sealing
devices for use in commercial, aerospace, defense and communications industry
applications. AUG California, Inc., a California corporation ("AUG"), the
Company's wholly-owned subsidiary, together with AUG's wholly-owned AUP and AUS
subsidiaries, formed the Manufacturing Business of the Company. Each of the
National O-Ring and Stillman Seal operating businesses is vertically integrated,
having the capacity to design, develop and create its own synthetic rubber or
elastomer compounds for use in production, and to manufacture finished products.
Pursuant to the terms of an Asset Purchase Agreement, dated as of November
22, 1995 (the "Sale Agreement"), by and among Hutchinson Corporation, a Delaware
Corporation ("Hutchinson"), as Buyer, and the Company and each of its AUG, AUP
and AUS subsidiaries, on January 19, 1926 all of the assets of the National
O-Ring and Stillman Seal businesses which constituted the Manufacturing Business
were sold to, and substantially all of the liabilities associated with operation
of the Manufacturing Business were assumed by, subsidiaries of Hutchinson
newly-formed for the purpose of acquiring the Manufacturing Business (the
"Hutchinson Transaction"). Hutchinson produces a variety of rubber related
products for three market sectors: automotive, consumer and industrial use.
The Purchase Price for the Manufacturing Business was $24,500,000,
$20,825,000 of which was paid in cash and the aggregate $3,675,000 balance was
paid by delivery of two 24-month non-interest bearing promissory notes (the
"Notes") made by the Hutchinson
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subsidiaries that purchased the Manufacturing Business. The Notes, which have
been discounted for financial statement presentation by $638,000, are guaranteed
by Total America, Inc., the parent corporation whose securities are listed on
the New York Stock Exchange.
At the closing of the Hutchinson Transaction, (the "Closing"), the
Company, Hutchinson (as guarantor) and Robert Rubin, who is the Chairman and a
director of the Company, entered into a five-year Non-Competition Agreement in
favor of Hutchinson and its affiliates, pursuant to which Mr. Rubin and the
Company agreed not to compete with the businesses acquired in the Hutchinson
Transaction. Under the terms of the Non-Competition Agreement, Mr. Rubin will
receive payments aggregating $200,000 over a seven year period. In addition,
Hutchinson engaged Mr. Rubin as a consultant to provide advisory
services relating to the acquired Manufacturing Business over a seven year
period, for which services Mr. Rubin will receive payments aggregating
$1,000,000.
On January 19, 1996, as a result of the Hutchinson Transaction, Mr. John
Shahid, the former President, Chief Executive Officer and director of the
Company and the Company entered into a Termination Agreement whereby Mr. Shahid
resigned as an officer and director of the Company and each of its subsidiaries
in consideration for the payment of an aggregate of $815,833.33, representing
salary payments under his Employment Agreement through December 31, 1998, as
well as a bonus payment for fiscal year 1996 in the amount of $90,000. The
Termination Agreement also provides that the Company shall retain Mr. Shahid as
a consultant for a period of three (3) years, commencing April 1, 1996, for
which consulting services he will be paid quarterly an aggregate of $200,000.
In December 1995 the Company's Board of Directors and senior
management sought to refocus the business direction of the Company in light
of the anticipated closing of the Hutchinson Transaction. In April 1996, the
Company entered into a letter of intent to acquire ConnectSoft, Inc., a
developer of a variety of computer software products and services, including
products to enable remote access computer terminals, Internet terminals,
personal computers and other computing devices to be connected to Windows net
technology software developed by Microsoft Corporation. In June 1996, the
Company entered into a letter of intent to acquire Interglobe Networks, Inc.,
a company engaged in providing engineering, design and consulting services
for users and providers of telecommunications facilities on the Internet and
other media. In June 1996, the Company also entered into a letter of intent
to acquire Datacom International, Inc., a company engaged in the development
and marketing of multifunctional, integrated telecommunications equipment,
including related hardware and software components of such products. See
"Recent Developments."
THE DISTRIBUTION BUSINESS
PRODUCTS, MARKETS AND SERVICES
NEW CASE CONSTRUCTION EQUIPMENT.
The construction equipment (the "Equipment") sold, rented and serviced by
Western generally consists of: backhoes (used to dig large, wide and deep
trenches); excavators (used to dig deeply for the construction of foundations,
basements, and other projects); log loaders (used to cut, process and load
logs); crawler dozers (bulldozers used for earth moving, leveling and shallower
digging than excavators); wheel loaders used for loading trucks and other
carriers with excavated dirt, gravel and rock), roller compactors (used to
compact roads and other surfaces); trenchers (a small machine that digs trenches
for sewer lines, electrical power and other utility pipes and wires); forklifts
(used to load and unload pallets of materials); and skid steer loaders (smaller
version of a wheel loader, used to load and transport small quantities of
material -- e.g., dirt and rocks around a job site). The sale prices of this
Equipment ranges from $15,000 to $350,000 per piece of equipment.
Under the terms of standard Case dealer agreements, Western is an
authorized Case dealer for sales of Equipment and related parts and services at
locations in the states of Oregon,
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Washington, Nevada and Northern California (the "Territory"). The dealer
agreements have no defined term or duration, but are reviewed on an annual basis
by, both parties, and can be terminated without cause at any time either by
Western on 30 days, notice or by Case on 90 days notice. Although the dealer
agreements do not prevent Case from arbitrarily exercising its right of
termination, based upon Case's established history of dealer relationships and
industry practice, Western does not believe that Case would terminate its dealer
agreement without good cause.
The dealer agreements do not contain requirements for specific minimum
purchases from Case. In consideration for Western's agreement to act as dealer,
Case supplies to Western items of Equipment for sale and lease, parts,
cooperative advertising benefits, marketing brochures related to Case products,
access to Case product specialists for field support, the ability to use the
Case name and logo in connection with the Western's sales of Case products, and
access to Case floor plan financing for Equipment purchases. Such floor planning
arrangements currently provide Western with interest free credit terms of
between six months and nine months on purchases of specified types of Equipment.
Principal payments are generally due at the earlier of sale of the Equipment or
twelve to fifteen months from the invoice date.
OTHER PRODUCTS.
Although the principal products sold, leased and serviced by Western are
manufactured by Case, Western also sells, rents and services equipment and sells
related parts (e.g., tires, trailers and compaction equipment) manufactured by
Hamm and by others. Approximately 15% of Western's net sales for fiscal year
1995 resulted from sales, rental and servicing of products manufactured by
companies other than Case.
Western's distribution business is generally divided into four categories
of activity: (i) New Equipment sales and rentals, (ii) used Equipment sales and
rentals, (iii) Equipment servicing, and (iv) parts sales.
NEW EQUIPMENT SALES AND RENTALS.
At each of its distribution outlets, Western maintains a fleet of various
items of Equipment for sale or rental for periods ranging from one week to up to
nine months (customarily with purchase options at the end of the rental period).
The Equipment purchased for each outlet is selected by Western's marketing staff
based upon the types of customers in the geographical areas surrounding each
outlet, historical purchases as well as anticipated trends. Each distribution
outlet has access to Western's full inventory of Equipment.
Western's new Equipment rental business has historically been an adjunct
to its new Equipment sales. To assist customers, any new Equipment can be rented
generally for periods of up to nine months and a portion of customer rental
payments may be applied to the purchase price down payment.
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Western provides only the standard manufacturer's limited warranty for new
Equipment, generally a one-year parts and service repair warranty. Customers can
purchase extended warranty contracts.
Western maintains a separate fleet of new Equipment that it generally
holds solely for rental. Such Equipment is generally held in the rental fleet
for 12 months and then sold as used Equipment with appropriate discounts
reflecting prior rental usage. As rental Equipment is taken out of the rental
fleet, Western adds new Equipment to its rental fleet as needed. The rental
charges vary, with different rates for different items of Equipment rented.
USED EQUIPMENT SALES AND RENTALS.
Western sells and rents used Equipment that has been reconditioned in its
own service shops. It generally obtains such used Equipment as "trade-ins" from
customers who purchase new items of Equipment and from Equipment previously
rented and not purchased. Unlike new Equipment, Western's used Equipment is
generally sold "as is" and without manufacturer's warranty. Used Equipment is
customarily rented only after available new Equipment has been rented. The
rental charge for such used Equipment is equal to that of rented new Equipment.
Used rental Equipment is first reconditioned by Western prior to being offered
for rent, and is typically not more than three years old.
Western's sales and marketing activities do not result in any significant
backlog of orders. Although Western has commenced acceptance of orders from
customers for future delivery following manufacture by Case, during fiscal 1995
substantially all of its sales revenues resulted from products sold directly out
of inventory, or the providing of services upon customer request.
All of Western's sales personnel are employees of Western and all are
under the general supervision of C. Dean McLain, the President and CEO of
Western. Each Equipment salesperson is assigned a separate exclusive territory,
the size of which varies based upon the number of potential customers and
anticipated volume of sales, as well as the geographical characteristics of each
area. Western employed 42 Equipment salespersons on July 31, 1995.
On July 31, 1995, Western employed 3 product support salespersons who sell
Western's parts and repair services to customers in assigned territories.
Western has no independent distributors or non-employee sales representatives.
SUPPLIERS
Western purchases approximately 85% of its inventory of Equipment and
parts from Case. No other supplier currently accounts for more than 5% of such
inventory purchases. While maintaining its commitment to Case to primarily
purchase Case Equipment and parts as an authorized Case dealer, in the future
Western plans to expand the number of products and increase the aggregate dollar
value of those products which Western purchases from manufacturers other than
Case.
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COMPETITION.
Western competes with distributors of construction equipment and parts
manufactured by companies other than Case on the basis of price, the product
support (including technical service) that it provides to its customers, brand
name recognition for its Case and other products, the accessibility of its
distribution outlets, the number of its distribution outlets, and the overall
quality of the Case and other products that it sells. Western management
believes that it is able to effectively compete with distributors of products
produced and distributed by such other manufacturers primarily on the basis of
overall Case product quality, and the superior product support and other
customer service provided by the Company.
Case's two major competitors in the manufacture of a full line of
construction equipment of comparable sizes and quality are Caterpillar
Corporation and Deere & Company. In addition, other manufacturers produce
specific types of equipment which compete with the Case Equipment and other
Equipment distributed by Western.
These competitors and their product specialties include JCB Corporation --
backhoes, Kobelco Corporation -- excavators, Dresser Industries -- light and
medium duty bulldozers, Komatsu Corporation -- wheel loaders and crawler dozers,
and Bobcat, Inc. -- skid steer loaders.
FOREIGN SALES.
The Company has no foreign assets and export sales amount to less than 1%
of the Company's total sales. No material amounts of the Company's sales are
dependent upon a single customer. Substantially all the Distribution Business
revenues resulted from sales, leasing and servicing of equipment and parts
manufactured by Case.
RECENT DEVELOPMENTS
Effective as of May 1, 1996, the Company acquired, through a merger with
an acquisition subsidiary of the Company (the "Merger"), all of the
outstanding capital stock of ConnectSoft, Inc. ("ConnectSoft"), a private
company providing communications software applications and services for
persons seeking access to and utilization of resources and information
available on the Internet. The Merger was consummated on August 8, 1996.
ConnectSoft shareholders received, on a pro rata basis, an aggregate
1,000,000 shares of the Company's Series B Preferred Stock (the "Preferred
Stock"). Such Preferred Stock does not pay a dividend, is not subject to
redemption, has a liquidation preference of $3.50 per share over Company
Common Stock and votes together with the Company Common Stock as a single
class on a one share for one vote basis. Each share of Preferred Stock is
convertible into shares of Company Common Stock at the holder's option into a
minimum of 1,000,000 shares of Company Common Stock and a maximum of
3,000,000 shares of Company Common Stock, based upon certain criteria.
The Preferred Stock may be converted into shares of Company Common
Stock at any time, as follows:
(i) Each share of Preferred Stock may be converted into one (1)
share of Company Common Stock (a minimum of 1,000,000 shares of such
Common Stock if all such shares of Preferred Stock are so converted);
(ii) In the event that the "Combined Pre-Tax Income" (as defined)
of any or all of the "Subject Entities" (as hereinafter defined) in
any one of the three fiscal years ending July 31, 1997, July 31, 1998,
or July 31, 1999 (each a "Measuring Fiscal Year" and collectively,
the "Measuring Fiscal Years"):
(a) shall equal or exceed $3,000,000, each share of Preferred
Stock may be converted into two shares of Company Common
Stock (a maximum of 2,000,000 shares of such Common Stock if
all such shares of Preferred Stock are so converted); or
(b) shall equal or exceed $5,000,000, each share of Preferred
Stock may be converted into three shares of Company Common
Stock (a maximum of 3,000,000 shares of such Common Stock if
all such shares of Preferred Stock are so converted).
The "Subject Entities" include ConnectSoft and its consolidated subsidiaries
(if any) and eXodus Technologies, Inc., as a direct majority-owned subsidiary
of the Company, which has developed certain remote access computer software
originated by ConnectSoft.
The conversion ratio of the Preferred Stock shall be adjusted, such
that each share of Preferred Stock may be converted into three shares of
Company Common Stock, notwithstanding the levels of Combined Pre-Tax Income
achieved, in the event that (i) the Company sells the assets or securities of
any of the Subject Entities for consideration aggregating $5,000,000 or more,
(ii) the Company consummates an initial public offering of the securities of
any of the Subject Entities (an "IPO") resulting in gross proceeds in excess
of $10,000,000, or in a market valuation of 100% of the issuer's common stock
equaling or exceeding $50,000,000, or (iii) a transaction occurs with any
third party (whether tender offer, merger, consolidation or other
combination) with the result that no shares of Company common stock will be
publicly traded on The NASDAQ Stock Market or any other national securities
exchange.
Prior to consummation of the Merger, the Company provided interim working
capital financing for ConnectSoft which aggregated approximately $3.4 million,
assumed all of ConnectSoft's operating expenses and liabilities and received
proxies to vote approximately 80% of the outstanding ConnectSoft capital
stock in favor of the Merger. Following completion of the ConnectSoft Merger,
the Company will increase its aggregate funding commitments to ConnectSoft
and its related companies to a minimum of $5.0 million.
Under the terms of a non-binding letter of intent, dated June 20, 1996,
the Company agreed to acquire, through a merger with an acquisition
subsidiary of the Company (the "Interglobe Merger"), all of the outstanding
capital stock of Interglobe Networks, Inc. ("Interglobe"), a private company
providing engineering, design and consulting services for users and providers
of telecommunications facilities on the Internet and other media. On
completion of the Interglobe Merger, it is intended that the Interglobe
shareholders shall receive an aggregate of 700,000 shares of the Company's
Common Stock.
In the event the Interglobe Merger shall be consummated, the Company
will make available to Interglobe funding commitments to support Interglobe's
operations and working capital needs in the form of intercompany loans and
advances based upon annual budgets and forecasts provided to and approved by
the Company. The pre-merger stockholders of Interglobe shall also receive
three-year employment agreements with the Company pursuant to which they will
receive seven-year options to purchase an additional aggregate 600,000 shares
of Company Common Stock (the "Interglobe Options"). The Interglobe Options
shall vest and be exercisable (i) one-third on July 31, 1997, (ii) one-third
on July 31, 1998 in the event that Interglobe achieves at least $1,500,000 of
Pre-Tax Income (as defined) in the year ended July 31, 1998 and (iii)
one-third on July 31, 1999 in the event that Interglobe achieves at least
$4,000,000 of Pre-Tax Income during the period commencing upon closing the
Merger and terminating on July 31, 1999 (with any options not vesting on July
31, 1998 being vested on July 31, 1999 should such target be achieved). In
the event that a change in control of the Company occurs, or the Company
effects a sale of all or substantially all of the assets of Interglobe, prior
to July 31, 1999, all of the Interglobe Options shall immediately vest upon
such occurrence.
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Under the terms of a non-binding letter of intent, dated June 25,
1996, the Company agreed to acquire, through a merger with an acquisition
subsidiary of the Company (the "Datacom Merger"), all of the outstanding
capital stock of Datacom International, Inc. ("Datacom"), a private company
engaged in the development and marketing of multifunctional, integrated
telecommunications equipment, including related hardware and software
components of such products. On completion of the Datacom Merger, it is
intended that the Datacom shareholders shall receive, on a pro rata basis, an
aggregate 375,000 shares of Company Common Stock (the "Fixed Merger
Consideration"). The Fixed Merger Consideration shall be subject to upward
adjustment, through the payment of a cash amount, in the event that the
Common Stock of the Company does not trade at an average closing price (the
"Average Price") in excess of $6.66 per share during the 20 trading days
prior to July 31, 2000. In such event, the Company shall pay in cash to the
Datacom shareholders the product of (i) the difference between $6.66 (the
"Base Price") and the Average Price, and (ii) the aggregate number of shares
included in the Fixed Merger Consideration (the "Additional Payment"). The
Datacom shareholders shall also receive "Contingent Merger Consideration,"
one-third in the form of up to an additional aggregate 375,000 shares of
Common Stock, and two-thirds in the form of up to a maximum aggregate
$7,500,000 principal of interest bearing notes, in the event that Datacom
achieves certain levels of Pre-Tax Income (as defined) during the four fiscal
years ending July 31, 2000. The notes made part of the Contingent Merger
Consideration are convertible into Company Common Stock at conversion prices
equal to the average closing price of such Common Stock measured over the 20
trading days immediately prior to the issuance date of each respective note.
If the Datacom shareholders shall have received any Contingent Merger
Consideration, then the Additional Payment shall be increased by adjusting
the Additional Payment formula as follows: the Base Price shall be increased
to $10.00, and to the extent that the Average Price does not equal or exceed
$10.00 per share the Additional Payment shall equal the product of (i) the
difference between $10.00 and the Average Price, and (ii) the sum of the
aggregate number of shares included in the Fixed Merger Consideration and the
Contingent Merger Consideration (including the aggregate number of Company
shares into which all outstanding principal of notes could be converted). The
Additional Payment, if any, shall be further adjusted such that it is
comprised of additional shares of Common Stock to the extent necessary to
insure that for United States tax purposes at least 50% of the total
consideration for the transaction (by value) is comprised of Common Stock.
Following completion of the Datacom Merger, the Company will advance to Datacom
up to $3,000,000 (less any amounts advanced prior to the merger date) in the
form of 10% long-term notes or preferred stock, at the Company's option, with
the amount of such advances being based upon the submission of annual budgets
approved by the Company.
Prior to or concurrent with completion of the Datacom Merger, the Company
has agreed to cause a principal shareholder of Datacom to be released from his
guarantee of approximately $190,000 of Datacom indebtedness.
SELECTED FINANCIAL DATA
AMERICAN UNITED GLOBAL, INC.
(in thousands, except per share data)
Income statement data:
NINE MONTHS ENDED
YEAR ENDED JULY 31,(1) APRIL 30,
---------------------- ---------
1993(2) 1994 1995 1995 1996
Net sales $30,386 $67,370 $86,173 $59,987 $75,061
Income from
continuing operations 417 1,024 1,164 1,092 918
Net income 1,575 2,201 2,268 1,622 8,711(3)
Per share:
Income from $ 0.06 $ 0.18 $ 0.20 $ 0.19 $ 0.16
continuing operations
Net income 0.34 0.43 0.40 0.29 1.53
Balance sheet data:
JULY 31,((1)) APRIL 30
------------------------ ----------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
Total assets $42,383 $55,779 $76,529 $62,021 $104,620
------
Long-term debt 2,714 $3,234 352 60 --
--
- -----------------
(1) No amounts are presented for the years ended July 31, 1991 and 1992 as
the Company consisted solely of the Manufacturing Business which has
been reclassified as a discontinued operation.
(2) Represents nine months of Western's results following its Acquisition
in November 1992.
(3) Reflects the estimated gain on the sale of the Manufacturing Business
of $7.7 million, net of tax.
8
<PAGE>
Note: Unless otherwise indicated, all references in this Proxy Statement to
Common Stock of the Company refer to the Company's currently authorized and
outstanding voting common stock, which will, upon stockholder approval of a
proposed amendment to the Company's Certificate of Incorporation, be
redesignated as Class A Voting Common Stock.
MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Since January 28, 1992, the Company's Common Stock has been traded on the
NASDAQ - National Market System (NMS). Closing sales prices for the Company's
Common Stock are reported for each trading day by that system. The following
sets forth, for the fiscal quarters as indicated, the high and low closing
prices for the Company's Common Stock on NMS. Such information reflects
interdealer quotations, without retail mark-up, mark-down or commissions, and
except for reports of closing prices on NASDAQ - NMS may not necessarily
represent actual transactions.
FISCAL
YEAR PERIOD HIGH BID LOW BID
1994 1st Quarter $5.63 $5.38
August 1, 1993 to
October 31, 1993
2nd Quarter $6.06 $5.19
November 1, 1993 to
January 31, 1994
3rd Quarter $6.78 $5.06
February 1, 1994 to
April 30, 1994
4th Quarter $4.75 $4.06
May 1, 1994 to
July 31, 1994
1995 1st Quarter $4.88 $4.00
August 1, 1994 to
October 31, 1994
2nd Quarter $4.25 $3.25
November 1, 1994 to
January 31, 1995
9
<PAGE>
3rd Quarter $ 3.69 $2.81
February 1, 1995 to
April 30, 1995
4th Quarter $ 6.75 $2.75
May 1, 1995 to
July 31, 1995
1996 1st Quarter $ 5.00 $3.19
August 1, 1995 to
October 31, 1995
2nd Quarter $ 3.88 $2.94
November 1, 1995 to
January 31, 1996
3rd Quarter $ 4.31 $3.06
February 1, 1996 to
April 30, 1996
4th Quarter $12.75 $4.1875
May 1, 1996 to
July 31, 1996
The number of shareholders of record of the Company's Common Stock on
July 31, 1996 was 116, and the number of beneficial holders of the Company's
Common Stock is estimated by management to be an additional 1,500 holders.
The Company has never paid cash dividends on its Common Stock and it does
not anticipate that it will pay cash dividends or alter its dividend policy in
the foreseeable future.
10
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL SHAREHOLDERS
At the close of business on July 26, 1996, there were outstanding
5,878,616 shares of Common Stock of the Company (the "Common Stock"), which
constituted all of the issued and outstanding voting securities of the
Company. Each shareholder is entitled to cast one vote for each share of
Common Stock which is present at the Meeting either in person or by proxy.
Only holders of record of the outstanding shares of the Common Stock at the
close of business on July 26, 1996, will be entitled to vote at the Meeting.
The following table sets forth certain information as of May 15,
1996 with respect to the beneficial ownership of the Common Stock of the
Company by each beneficial owner of more than 5% of the total number of
outstanding shares of the Common Stock of the Company, each director and
nominee for director and all executive officers and directors of the Company
as a group. Unless otherwise indicated, the owners have sole voting and
investment power with respect to their respective shares.
Robert M. Rubin Director, Nominee 1,325,798(1)(2) 22.3%
6060 King's Gate Circle for Director and President,
Delray Beach, FL 33484 Chief Executive Officer and
Chairman of the Board of
Directors
Lawrence E. Kaplan Director, Nominee for Director 14,000(2) *
330 Vanderbilt Motor Pkwy
Hauppauge, NY 11788
C. Dean McLain Director, Nominee for Director 227,750(2)(3) 3.7%
4601 N.E. 77th Avenue Executive Vice President and
Suite 200 President of Western Power
Vancouver, WA 98662
Associated Capital L.P.(4) 570,000 9.7%
477 Madison Avenue
14th Floor
New York, NY 10022
David M. Barnes Vice President of Finance -0-(5) --
1735 Vestal Way
Coral Springs, FL 33071
Howard Katz Executive Vice President -0-(5) --
300 East 56th Street
New York, NY 10022
Anthony Romano Vice President -0-(5) --
538 North Street
Milford, CT 06460
All directors and
executive officers as a
group (6 persons) 1,567,548(1)(2)(3)(5) 25.4%
____________________
* Less than 1%
(1) Includes non-qualified Options to purchase 80,000 shares granted to Mr.
Rubin at an exercise price of $3.125 per share, which are fully
exercisable.
11
<PAGE>
(2) Does not include options granted under the 1996 Employee Stock Option Plan
(options to acquire 450,000 shares to Mr. Rubin and options to acquire
150,000 shares to Mr. McLain), which option plan has not yet been
authorized and approved by the Company's stockholders. Such options
granted under the 1996 Employee Stock Option Plan were granted
on April 25, 1996 at an exercise price of $3.78125 per share, the fair
market value of the Common Stock on the date of option grant. Messrs.
Rubin and McLain's continuing employment by the Company is governed by
the terms of their employment agreements.
(3) Includes (i) options to purchase 195,000 shares of the Company's Common
Stock at $3.125 per share and (ii) options to purchase 12,750 shares of
the Company's Common Stock at an exercise price of $4.875 granted under
the Company's 1991 Stock Option Plan which are fully exercisable.
(4) The General partner of Associated Capital, L.P., a Delaware limited
partnership ("Associated"), is A Cap, Inc., a New York corporation
("A Cap"). Under Rule 13d-3 promulgated under the Securities Exchange
Act of 1934, as amended, A Cap may be deemed to be a direct beneficial
owner of the shares of Company Common Stock owned by Associated by
virtue of its interest in, and control over, Associated. Jay H. Zises,
as President of A Cap, has the sole power to vote and to direct the
voting of, and to dispose and to direct the disposition of, the shares
of the Company's Common Stock deemed to be beneficially owned by A
Cap. Under Rule 13d-3, Mr. Zises may be deemed to be an indirect
beneficial owner of the Company Common Stock owned by Associated.
(5) Does not include options granted under the 1996 Employee Stock Option
Plan to Messrs. Barnes (100,000 shares), Katz (150,000 shares) and Romano
(150,000 shares) at exercise prices of $5.25, $3.78125 and $5.25,
respectively, all of which options are subject to approval and
ratification of the 1996 Employee Stock Option Plan by the Company's
stockholders. The options issuable to each of Messrs. Barnes, Katz and
Romano are exerciseable under certain conditions related to their
continued employment with the Company.
12
<PAGE>
DIRECTORS, NOMINEES FOR DIRECTOR
AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth information with respect to directors,
nominees for directors, executive officers and key employees of the Company as
of June 10, 1996. There are no pending legal proceedings to which any director,
nominee for director or executive officer of the Company is a party adverse to
the Company.
NAME AGE POSITION
---- --- --------
Robert M. Rubin 56 Chairman of the Board of Directors,
Director, Nominee for Director,
President and Chief Executive Officer
Lawrence E. Kaplan 53 Director and Nominee for Director
C. Dean McLain 41 Director, Nominee for Director and
Executive Vice President; President
and Chief Executive Officer of Western
Power & Equipment Corp.
David M. Barnes 53 Vice President of Finance and Chief
Financial Officer
Howard Katz 54 Executive Vice President
Anthony Romano 48 Vice President
ROBERT M. RUBIN. Mr. Rubin has served as the Chairman of the Board of
Directors of the Company since May, 1991, and was its Chief Executive Officer
from May 1991 to January 1, 1994. Between October, 1990 and January 1, 1994,
Mr. Rubin served as the Chairman of the Board and Chief Executive Officer of
AUG and its subsidiaries; from January 1, 1994 to January 19, 1996, he served
only as Chairman of the Board of AUG and its subsidiaries. From January 19,
1996, Mr. Rubin has served as Chairman of the Board and President and Chief
Executive Officer of the Company. Mr. Rubin was the founder, President, Chief
Executive Officer and a Director of Superior Care, Inc. ("SCI") from its
inception in 1976 until May 1986. Mr. Rubin continued as a director of SCI
(now known as Olsten Corporation ("Olsten")) until the latter part of 1987.
Olsten, a New York Stock Exchange listed company, is engaged in providing home
care and institutional staffing services and health care management services.
Mr. Rubin is Chairman of the Board, Chief Executive Officer and a stockholder
of ERD Waste Technology, Inc., a diversified waste management public company
specializing in the management and disposal of municipal solid waste,
industrial and commercial non-hazardous waste and hazardous waste. Mr. Rubin
is a former director and Vice Chairman, and currently a minority stockholder,
of American Complex Care, Incorporated, a public company formerly engaged in
providing on-site health care services, including intra-dermal infusion
therapies. In April 1995, American Complex Care, Incorporated's operating
subsidiaries made assignments of their assets for the benefit of creditors
without resort to bankruptcy proceedings. Mr. Rubin is also Chairman of the
Board and a minority stockholder of Universal Self Care, Inc., a public
company engaged in the sale of products used by diabetics. Mr. Rubin is also
the Chairman of the Board of Western Power & Equipment Corp. ("Western"), a
public company engaged in the distribution of construction equipment,
principally manufactured by Case Corporation, which is a subsidiary of the
Company. The Company owns
13
<PAGE>
approximately 56.6% of the outstanding common stock of Western. Mr. Rubin is
also a director and a minority stockholder of Response USA, Inc., a public
company engaged in the sale and distribution of personal emergency response
systems; Diplomat Corporation, a public company engaged in the manufacture and
distribution of baby products; Help at Home, Inc., a public company which
provides home health care personnel; Arzan International (1991) Ltd.; and Kay
Kotts Associates, Inc., a public company engaged in providing tax preparation
and assistance services.
LAWRENCE E. KAPLAN. Mr. Kaplan has served as a director of the Company
since February, 1993. Since January, 1987, Mr. Kaplan has been an officer,
director and principal stockholder of Gro-Vest Management Consultants, Inc., an
investment banking firm located on Long Island, New York. Mr. Kaplan is also a
registered representative, officer, director and principal stockholder of G-V
Capital, a brokerage firm. He is also a director of Andover Equities, Inc. and
PARK Group, both blank check companies which are looking for merger
opportunities. He is also an officer and director of Saratoga Standardbreds
Inc., a blank check company which is looking for a merger opportunity.
C. DEAN MCLAIN. Mr. McLain has served as an Executive Vice President of
the Company since March 1, 1993, as a director of the Company since March 7,
1994 and President of Western since June 1, 1993. From 1989 to 1993, Mr. McLain
served as Manager of Privatization of Case Corporation. From 1985 to 1989, Mr.
McLain served as General Manager of Lake State Equipment, a distributor of John
Deere construction equipment. Mr. McLain holds a B.S. degree in Business and
Economics, and a Master's of Business Administration, from West Texas State
University.
DAVID M. BARNES has been Chief Financial Officer of the Company since
May 15, 1996. Mr. Barnes has been a director of Consolidated Stainless,
Inc., a manufacturer and distributor of stainless steel products, since
June 21, 1994. From April 1990 until July 1990, Mr. Barnes also served as an
officer and director of Intelcom Data Systems, Inc., which engages in the
design and development of software for the foreign currency exchange and
banking industries. From October 1987 until May 1989, Mr. Barnes was Vice
President of Finance at U.S. Home Care Corp., a home health care provider.
From April 1983 until September 1987, Mr. Barnes was Vice President of
Finance and Administration of Lifetime Corporation. From 1975 to 1983, Mr.
Barnes was Executive Vice President of Beefsteak Charlies, Inc. Mr. Barnes
has served as a Director of Universal Self Care, Inc., a distributor and
retailer of products and services principally for diabetics, since May 1991
and he is a director, President and a minority stockholder of American
Complex Care, Incorporated, a public company formerly engaged in providing
on-site health care services, including intradermal infusion therapies. In
April 1995, American Complex Care, Incorporated's operating subsidiaries made
assignments of their assets for the benefit of creditors without resort to
bankruptcy proceedings.
HOWARD KATZ has been Executive Vice President of the Company since April
15, 1996. From December 1995 through April 15, 1996, Mr. Katz was a
consultant for, and from January 1994 through December 1995 he held various
executive positions, including Chief Financial Officer from December 1994
through December 1995, with National Fiber Network (a fiber optics
telecommunications company). From January 1991 through December 1993, Mr.
Katz was the President of Katlaw Construction Corp., a company that provides
general contractor services to foreign embassies and foreign missions located
in the United States. Prior to joining Katlaw Construction Corp., Mr. Katz
was employed as a management consultant by Coopers and Lybrand, LLP and as a
divisional controller for several large public companies.
ANTHONY ROMANO has been Vice President of the Company since May 15,
1996. From 1993 to May 15, 1996, Mr. Romano served as the President and
Chief Executive Officer of EPIC Multimedia Services Inc., a multimedia
company that produces computerized designs from print media and World Wide
Web pages, as well as interactive sound and video CD-ROMs for children's
publications. From 1990 to 1993, Mr. Romano was the President and Chief
Executive Officer of Trident Technologies, where he worked jointly with
Alcatel Telecommunications Company, a large French conglomerate that together
with Trident held a joint patent for a computerized telephone for the deaf -
"The Mini-Tel". From 1986 to 1990, Mr. Romano was in charge of the Municipal
Finance Division for Pandick Press Corporation, a financial printer.
14
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the amount of all compensation paid by the
Company for services rendered during each of the three (3) Fiscal Years of the
Company ended July 31, 1995, 1994 and 1993 to each of the Company's most highly
compensated executive officers and key employees whose total compensation
exceeded $100,000, and to all executive officers and key employees of the
Company as a group.
<TABLE>
<CAPTION>
Long-Term Compensation
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
-----------------------------------------------------------------------------------
Other All Other
Annual Restricted Compen-
Name and Principal Compen- Stock Options/ LTIP sation
Position Year Salary Bonus sation Awards SARs(#) Payouts
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert M. Rubin 1995 $168,750 $50,000 $ 0 $ 0 80,000(4) $ 0 $ 0
Chairman, 1994 $125,000 $69,600 $ 0 $ 0 0 $ 0 $ 0
President, Director 1993 $125,000 $ 5,100 $ 0 $ 0 0 $ 0 $ 0
and acting CFO(1)
John Shahid 1995 $237,411 $75,000 $ 0 $ 0 215,000(4) $ 0 $ 0
Former President, 1994 $190,585 $30,000 $ 0 $ 0 0 $ 0 $40,525(2)
Chief Executive 1993 $142,876 $ 1,580 $ 0 $ 0 0 $ 0 $ 0
Officer and Director
C. Dean McLain(3) 1995 $170,709 $75,000 $ 0 $ 0 195,000(4) $ 0 $29,250(5)
Executive Vice 1994 $141,879 $30,000 $ 0 $ 0 0 $ 0 $62,470(5)
President and 1993 $ 52,083 $ 0 $ 0 $ 0 0 $ 0 $46,000(5)
Director; President
of Western
John M. Palumbo 1995 $102,202 $10,000 $ 0 $ 0 110,000(4) $ 0 $ 0
Former Chief
Financial Officer,
Treasurer,
Secretary
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
___________________
(1) On June 15, 1995, Western entered into a separate employment agreement
with Robert Rubin. Mr. Rubin's 1995 salary includes $18,750 paid through
Western (See "Employment, Incentive Compensation and Termination
Agreements").
(2) Pursuant to the terms of Mr. Shahid's Employment Agreement dated as of
January 1, 1994, Mr. Shahid was permitted to and did purchase from the
Company 10,000 shares of the Company's common stock at a price of $.01 per
share on August 1, 1994. On August 1, 1994, the closing price for a share
of the Company's common stock as reported by NASDAQ was $4-1/16. The
value of the 10,000 shares of common stock held by Mr. Shahid as of July
31, 1995 was $48,750. Mr. Shahid resigned as President,
15
<PAGE>
CEO and a director of the Company effective January 19, 1996 in connection
with the sale of the Company's Manufacturing Business to subsidiaries of
Hutchinson Corporation.
(3) Mr. McLain joined the Company in March 1993. Effective as of August 1,
1995, Mr. McLain's employment agreement with the Company was terminated
and he entered into an amended employment agreement with Western Power &
Equipment Corp. (See "Employment, Incentive Compensation and Termination
Agreements").
(4) On May 5, 1995 the Board of Directors canceled the named person's
outstanding stock options to acquire an equal number of shares and issued
new stock options at the then current market price of $3.125.
(5) Pursuant to the terms of Mr. McLain's Employment Agreement, dated February
12, 1993, during the Fiscal Year 1993 Mr. Mclain received $38,095 from the
Company as reimbursement for certain expenses that he incurred in
connection with his move to Washington State, and the sale of his former
residence, in order to permit his assuming his employment duties on behalf
of the Company. In addition, under the terms of his Employment Agreement
on March 1, 1993, July 31, 1994, and August 1, 1995 Mr. McLain was
permitted to and did purchase from the Company 8,000, 6,000, and 6,000
shares of the Company's common stock, respectively, at a price of $.01 per
share. On March 1, 1993, August 1, 1994, and on August 1, 1995, the
closing prices for a share of the Company's common stock as reported by
NASDAQ was $5-3/4, $4-1/16 and $4 7/8, respectively. The value of the
20,000 shares of common stock held by Mr. McLain as of July 31, 1995 was
$97,500.
16
<PAGE>
STOCK OPTION PLANS
OPTION GRANTS IN 1995 FISCAL YEAR
<TABLE>
<CAPTION>
Realizable
Value at
Assumed Annual
Rates of Stock
Price
Appreciation
Individual Grants for Option Term
- --------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
% of Total
Options/SARs Exercise
Options/SA Granted to of Base
Rs Granted Employees in Price Expiration
Name (#) Fiscal Year ($/Sh) Date 5% ($) 10%($)
---- ------- ----------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Robert Rubin 80,000 10% $3.125 6/5/00 $69,070 $152,720
John Shahid 215,000 28% $3.125 6/5/00 $185,625 $410,516
C. Dean McLain 195,000 25% $3.125 6/5/00 $168,189 $372,255
12,750 2% $4.875 6/5/00 $ 17,155 $ 37,977
John M. Palumbo 110,000 16% $3.125 6/5/00 $107,166 $237,240
<CAPTION>
Aggregated Option Exercised
In Last fiscal Year and Fiscal
Year-End Option Values
- --------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of Unexercised Value of Unexercised In-
Options at Fiscal Year- the-Money Options at
Shares Acquired on Value Realized End Fiscal Year-End
Name Exercise (#) ($) (#) ($)
---- ------------ ----- ----------- ---------
<S> <C> <C> <C> <C>
Exercisable/ Exercisable/
Unexercisable Unexercisable
Robert Rubin -0- -0- 80,000 (exercisable) $140,000 (exercisable)
John Shahid -0- -0- 226,546 (exercisable) $413,717 (exercisable)
C. Dean McLain -0- -0- 207,500 (exercisable) $363,125 (exercisable)
John M. Palumbo -0- -0- 125,789 (exercisable) $222,432 (Exercisable)
</TABLE>
17
<PAGE>
EMPLOYMENT, INCENTIVE COMPENSATION AND TERMINATION AGREEMENTS
In November 1994, Robert M. Rubin entered into a three-year employment and
bonus compensation agreement with the Company, retroactive to August 1, 1994.
Under the terms of that agreement, Mr. Rubin serves as Chairman of the Board of
the Company and its subsidiaries through and including July 31, 1997. Mr.
Rubin receives an annual base salary of $150,000 per annum. Such base salary
shall be increased by $10,000 for the fiscal year ending July 31, 1996 and by
$15,000 for the fiscal year ending July 31, 1997. In addition, Mr. Rubin is
entitled to a guaranteed bonus of $50,000 plus an additional annual incentive
bonus payment equal to (i) $5,000 for each $.01 increase in net earnings per
share above $.55 per share for the fiscal year ending July 31, 1995, (ii) $5,000
for each $.01 increase in net earnings per share above $.60 per share for the
fiscal year ending July 31, 1996 and (iii) $5,000 for each $.01 increase in net
earnings per share above $.65 per share for the fiscal year ending July 31,
1997.
Upon completion of Western's initial public offering, Mr. Rubin's
employment agreement with the Company was amended to (i) eliminate his
guaranteed annual bonus, and (ii) limit his annual incentive bonus to $50,000
per annum for each of fiscal years ended July 31, 1996 and 1997, and made it
payable only in the event that the consolidated net income of the Company,
excluding the net income of Western, shall exceed $1,500,000 in each of such
fiscal years.
Following the amendment of his employment agreement with the Company,
Western entered into a separate employment agreement with Mr. Rubin, effective
June 14, 1995 and expiring July 31, 1998. Pursuant to such agreement, Mr. Rubin
serves as Chairman of the Board of Western and shall receive an annual base
salary of $150,000, payable at the rate of $12,500 per month from the effective
date of such agreement. In addition to his base annual salary, Mr. Rubin shall
be entitled to receive an annual bonus equal to $50,000 per annum, payable only
in the event that the "consolidated pre-tax income" of Western (as defined)
shall be in EXCESS of $3,000,000 for the fiscal year ending July 31, 1996,
$3,500,000 for the fiscal year ending July 31, 1997, and $4,000,000 for the
fiscal year ending July 31, 1998, respectively. Under the terms of his
employment agreement with Western, Mr. Rubin is only obligated to devote a
portion of his business and professional time to Western (estimated at
approximately 20%). The term "consolidated pre-tax income" is defined as
consolidated net income of the Company and any subsidiaries of Western
subsequently created or acquired, before income taxes and gains or losses from
disposition or purchases of assets or other extraordinary items.
The Company has entered into an Amended and Restated Employment
Agreement with Mr. Rubin, dated as of June 3, 1996, to extend the term of Mr.
Rubin's employment through July 31, 2001 (the "Restated Agreement"). The
Restated Agreement provides for a base salary payable to Mr. Rubin of $175,000
for the fiscal year ending July 31, 1997, $200,000 for the fiscal year ending
July 31, 1998, $225,000 for the fiscal year ending July 31, 1999, and a base
salary for the fiscal years ending July 31, 2000 and July 31, 2001 as
determined by the Compensation Committee of the Company's Board of Directors
and ratified by a majority of the entire Board of Directors of the Company
(other than the employee). The base salary in each of the fiscal years ending
July 31, 2000 and 2001 will not be less than the annual base salary in effect
in the immediately preceding fiscal year, plus an amount equal to the increase
in the annual cost of living as published by the Bureau of Labor Statistics of
the United States Department of Labor for wage earners in the New York
metropolitan area measured over the course of the immediately preceding fiscal
year. The Restated Agreement also provides for incentive bonuses to be paid
to Mr. Rubin of (i) $75,000 on November 1, 1997, if the net income of the
Company, including all of its consolidated subsidiaries other than Western
Power & Equipment Corp., as determined by the Company's independent auditors
using generally accepted accounting principles, consistently applied (the
"Corporations' Net Income"), is greater than or equal to $2,000,000 for the
fiscal year ended July 31, 1997; (ii) $100,000 on November 1, 1998 if the
Corporations' Net Income is greater than or equal to $2,500,000 for the fiscal
year ended July 31, 1998; and (iii) $125,000 on November 1, 1999 if the
Corporations' Net Income is greater than or equal to $3,000,000 for the fiscal
year ended July 31, 1999. Incentive compensation for each of the fiscal years
ending July 31, 2000 and July 31, 2001 shall be as determined by the
Compensation Committee of the Company's Board of Directors and ratified by a
majority of the entire Board of Directors of the Company (other than the
employee).
John Shahid served as President and Chief Executive Officer of the Company,
AUG California, Inc. and each of its American United Products, Inc. and American
United Seal, Inc. operating subsidiaries, pursuant to the terms of an Employment
Agreement, dated as of January 1, 1994, which was to terminate on December 31,
1998. Under that Employment Agreement, Mr. Shahid received a base salary
starting at $190,000 per year, which was to escalate to as high as $265,000 per
year during the last year of such agreement. His Employment Agreement provided
for payment of bonuses and for such other fringe benefits as are paid to other
executive officers of the Company. Such fringe benefits took the form of
medical coverage, excess life insurance benefits and an automobile allowance.
Mr. Shahid's Employment Agreement also
18
<PAGE>
provided for (i) bonus payments (the "Bonus") based on the Company achieving
prescribed levels of pre-tax profits (commencing at a maximum of $30,000 bonus
for the fiscal year 1994 and rising to a maximum of $110,000 bonus for fiscal
year 1998); (ii) the granting of options to acquire 12,500 shares of Company's
Common Stock at fair market value on the date of grant under the Company's 1991
Stock Option Plan, with respect to each fiscal year of the Employment Agreement
in which the maximum Bonus is paid, and (iii) the sale to Mr. Shahid of shares
of Company Common Stock (ranging in amounts from 10,000 shares to 15,000 shares)
at $.01 per share, with respect to each year in which the Company achieved
prescribed levels of pre-tax profits.
On January 19, 1996, as a result of the Hutchinson Transaction, Mr. Shahid
and the Company entered into a Termination Agreement whereby Mr. Shahid resigned
as an officer and director of the Company and each of its subsidiaries in
consideration for the payment of an aggregate of $815,833.33, representing
salary payments under his Employment Agreement though December 31, 1998, as well
as a bonus payment for fiscal year 1996 in the amount of $90,000. The
Termination Agreement also provides that the Company shall retain Mr. Shahid as
a consultant for a period of three (3) years, commencing April 1, 1996, for
which consulting services he will be paid an aggregate of $200,000 in equal
quarterly installments.
Prior to the Western 1995 initial public offering, C. Dean McLain served as
President and Chief Executive Office of Western and Executive Vice President of
the Company pursuant to the terms of an employment agreement with the Company
effective March 1, 1993, which was to terminate on July 31, 1998. Pursuant to
his employment agreement, in fiscal year 1995 Mr. McLain received a base salary
of $148,837 and the maximum $75,000 bonus provided for in such fiscal year.
Such agreement entitled Mr. McLain to scheduled increases in his base salary up
to $172,300 per year during the fiscal year ending July 31, 1998. The terms of
such employment agreement also provided for the issuance to Mr. McLain of an
aggregate of 20,000 shares of the Company's Common Stock at $.01 per share. In
addition, Mr. McLain received options to acquire an aggregate of 45,000 shares
of the Company's Common Stock at fair market value ($4.75 per share) on the date
of grant under the Company's 1991 Stock Option Plan, and additional options
under the Company's 1991 Stock Option Plan to purchase 150,000 shares of Company
Common Stock at fair market value ($5.50 per share) on the date of grant. These
options have since been repriced to $3.125 per share.
Effective as of August 1, 1995, Mr. McLain's employment agreement with the
Company was terminated and he entered into an amended employment agreement with
Western, expiring July 31, 2005. Pursuant to such agreement, Mr. McLain serves
as President and Chief Executive Officer of Western and will receive an annual
base salary, payable monthly, of $250,000 through the end of fiscal 1996,
$265,000 per annum in fiscal 1997, $280,000 per annum in fiscal 1998, $290,000
per annum in fiscal 1999, and $300,000 per annum in fiscal 2000. For each of
the fiscal years ending 2001, 2002, 2003, 2004 and 2005, inclusive, Mr. McLain's
base salary shall be determined by the Compensation Committee of Western and
ratified by the full Board of Directors of Western. In each of the five fiscal
years from 2001 through 2005, such base salary shall not be less than the annual
base salary in effect in the
19
<PAGE>
immediately preceding fiscal year plus a cost of living adjustment. In
addition, Mr. McLain will be entitled to receive bonus payments in each of the
five fiscal years ending 1996 through 2000, inclusive, equal to 5% of such
fiscal year consolidated pre-tax income of Western in excess of $1,750,000 in
each such fiscal year (the "Incentive Bonus"); provided, that the maximum amount
of the Incentive Bonus payable by Western to Mr. McLain shall not exceed
$150,000 in any such fiscal year, without regard to the amount by which the
Company's consolidated pre-tax income shall exceed $1,750,000 in each of such
fiscal years. For each of the fiscal years ending 2001 through 2005, Mr.
McLain's incentive bonus shall be determined by the Compensation Committee of
Western's Board of Directors and ratified by Western's full Board of Directors.
The maximum annual incentive bonus which Mr. McLain shall be entitled to receive
under his Employment Agreement shall not be less than $150,000. As used in Mr.
McLain's Employment Agreement, the term "consolidated pre-tax income" is defined
as consolidated net income of Western and any subsidiaries of Western
subsequently created or acquired, before the Incentive Bonus, income taxes and
gains or losses from disposition or purchases of assets or other extraordinary
items.
Under the terms of his amended employment agreement, the 150,000 stock
options, exercisable at $6.50 per share, awarded to Mr. McLain under Western's
1995 Stock Option Plan in March 1995, were canceled and on August 1, 1995 Mr.
McLain was granted options to purchase 300,000 shares of Western common stock at
$6.00 per share, the closing sale price of the Company's common stock on August
1, 1995. As the number of shares underlying Western's 1995 Stock Option Plan
was at that time insufficient for the full granting of such options, the options
to purchase 300,000 shares were granted on August 19, 1995 subject to
stockholder approval of the amendment of the 1995 Stock Option Plan (the
"Plan"), which was approved by the stockholders of Western on December 6, 1995.
Such amendment to the Plan added 550,000 shares of Common Stock to be available
for option grants under the Plan. The granting of all stock to Mr. McLain
pursuant to his amended employment agreement was ratified at Western's 1995
Annual Meeting. The Western options granted to Mr. McLain were repriced to
$4.50 per share in December 1995.
In the event that Western does not meet the accumulated consolidated pre-tax
income levels described above, Mr. McLain shall still be entitled to options to
purchase the 125,000 Western shares should the accumulated consolidated pre-tax
income of Western for the five fiscal years ending 1996 through 2000 equal or
exceed $16,000,000. In the event such additional incentive stock options become
available to him, Mr. McLain may exercise such options beginning August 1, 1996
and ending July 31, 2005 at $4.50 per share. Mr. McLain's employment agreement
also provides for fringe benefits as are customary for senior executive officers
in the industry in which the Company operates, including medical coverage,
excess life insurance benefits and use of an automobile supplied by the Company.
The Company hired Howard Katz as Executive Vice President effective April
15, 1996. Mr. Katz currently receives a base salary of $60,000 per annum,
payable monthly, until July 31, 1996, at which point the Company's Board of
Directors will review Mr. Katz's compensation arrangements. Mr. Katz does not
have an employment agreement with the Company.
The Company hired David M. Barnes as its Chief Financial Officer
effective May 15, 1996. Mr. Barnes receives a base salary of $120,000 per annum,
payable bi-monthly. Mr. Barnes does not have an employment agreement with the
Company.
The Company entered into an employment agreement with Anthony Romano
effective May 15, 1996 and expiring July 31, 1997, pursuant to which Mr.
Romano will serve as a Vice President of the Company and the President of
Debitel Communications Inc., a newly-formed subsidiary of the Company that
plans to develop and operate a central telecommunications network. Under such
agreement, Mr. Romano will receive a base salary of $125,000 through the
fiscal year ending July 31, 1997.
Mr. Romano's employment Agreement also provides for an incentive bonus
to be paid of $25,000 for the fiscal year ending July 31, 1997, based upon
specified pre-tax income targets being achieved by Debitel Communications.
Under the terms of his employment agreement Mr. Romano received options to
acquire 150,000 shares of Company Common Stock at $5.25 per share, the fair
market value of such shares on the effective date of the agreement, under the
Company's 1996 Employee Stock Option Plan. See Proposal V with respect to
adoption and authorization of the 1996 Employee Stock Option Plan by
stockholders at the Annual Meeting. If the Employee Stock Option Plan is
approved by Company stockholders, Mr. Romano's options will vest one-third on
the effective date of his employment agreement, and one-third on each of July
31, 1997 and July 31, 1998. Notwithstanding the vesting of such options, the
two-thirds of the options that vest on July 31, 1997 and July 31, 1998 are
not exercisable if Debitel Communications fails to achieve specified pre-tax
earnings targets.
The Company entered into an employment agreement with Robert Marcus
("Marcus"), dated as of May 15, 1996, pursuant to which Marcus was hired for
the period expiring July 31, 1999 to be the President and Chief Executive
Officer of ConnectSoft following acquisition of such corporation. See
"Recent Developments." As compensation for his services, Marcus will
receive a base salary of $125,000 per annum, and normal fringe benefits
available to other employees. The Company also entered into a stock option
agreement with Marcus pursuant to which he was granted a five-year option to
acquire up to 100,000 shares of Company Common Stock at an exercise price of
$5.25 per share, the fair market value of a share of Common Stock on the date
of option grant. Under the terms of the Marcus option, the option vests 25%
in July 1996, and 25% in each successive July through July 1999.
By agreement dated August 10, 1995, the Company agreed to pay severance to
certain specified employees, including John Palumbo (its former Chief Financial
Officer), in the event that such persons' employment by the successor to the
Company's Manufacturing Business was terminated prior to the first anniversary
of the closing date of the sale of the Manufacturing Business. Such severance
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<PAGE>
payment shall be equal to any terminated employee's salary, at the level last
paid by the Company for the 12 months succeeding the closing date, minus any
severance received from the successor company. Mr. Palumbo has informed the
Company that his employment by such successor, Hutchinson, was terminated
effective March 15, 1996, and that his severance compensation from Hutchinson
would terminate on April 19, 1996. As a result, Mr. Palumbo is entitled to
receive approximately $66,000 in severance compensation, plus the availability
of certain benefits from the Company, through January 19, 1997 under the
Company's severance program. To date, Mr. Palumbo is the only person taking
advantage of the Company's severance program.
TEN YEAR OPTION REPRICING
The following table sets forth the information noted for all repricing of
options held by an executive officer of the Company in the last 10 complete
fiscal years.
<TABLE>
<CAPTION>
Number of
Securities
Underlying Market Price
Options of Stock at Exercise Price New Length of Original
Repriced or Time of at Time of Exercise Option Term Remaining
Name Date Amended (1) Pricing(2) Repricing Price at Date of Repricing
---- ---- ----------- ---------- --------- ----- --------------------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Rubin April 5, 1995 80,000 $3.125 $4.75 $3.125 4 Years
President,
Chief Executive
Officer and
Chairman
John Shahid April 5, 1995 150,000 $3.125 $5.00 $3.125 2 Years, 7 Months
Former President 65,000 $3.125 $4.75 $3.125 4 Years
and Chief
Executive Officer
C. Dean McLain April 5, 1995 45,000 $3.125 $4.75 $3.125 4 Years
Executive Vice 150,000 $3.125 $5.50 $3.125 2 Years, 11 Months
President
John M. Palumbo April 5, 1995 14,250 $3.125 $4.21 $3.125 1 Year, 1 Month
Former Treasurer, 75,000 $3.125 $5.00 $3.125 2 Years, 7 Months
Secretary and 35,000 $3.125 $4.75 $3.125 4 Years
Chief Financial
Officer
</TABLE>
________________
The members of the Compensation Committee of the Board of Directors at the
time of such repricing of options were the following:
Robert M. Rubin Lawrence E. Kaplan Ralph T. Beers
In December 1995, the Company amended each of its employee stock option
plans in anticipation of the consummation of the Hutchinson Transaction. Under
the old terms of the plans, all options granted to employees would have
terminated within ninety days of such employees' termination of employment with
the
21
<PAGE>
Company or any of its subsidiaries. As a majority of the Company's employees,
other than those of Western, were to be terminated upon the consummation of the
Hutchinson Transaction, the Company felt that it was in its best interests to
amend the Plans in order to extend the expiration dates of these options and to
allow for such options to immediately vest in full upon the consummation of the
Hutchinson Transaction. All of the options granted under the Plans shall be
exercisable until January 19, 1998. At such time, the options held by
individuals no longer employed by the Company or its subsidiaries shall
immediately terminate. Options which continue to be held by Company employees
shall revert back to their old vesting terms and original expiration dates. One
effect of these amendments is to change the federal income tax treatment of
incentive options held by non-employees of the Company. Upon exercise, these
options shall be treated as non-qualified stock options for federal income tax
purposes.
As a result of such option exercise period extension, the Company
incurred additional compensation expense for the fiscal year ended July 31,
1995 in the amount of $332,293. Such amount is equal to the product of the
number of options whose exercise periods were extended and the aggregate
difference between the exercise price of each extended option and the market
price for a share of Company Common Stock on January 19, 1996 (the closing
day of the Hutchinson Transaction, the day that the option extension became
effective).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended July 31, 1995, the Compensation Committee of
the Company's Board of Directors (the "Compensation Committee") did not meet.
During this time the Company's Board of Directors decided all compensation
matters relating to the Company's executive officers. Mr. Rubin's annual
compensation identified in the Summary Compensation Table was provided for under
his employment agreements entered into in July 1991, and August 1994, which were
approved by the Company's Board of Directors. In June 1995, following
completion of Western's initial public offering, Mr. Rubin's 1994 employment
agreement with the Company was amended to (i) eliminate his guaranteed annual
bonus, and (ii) limit his annual incentive bonus to $50,000 per annum for each
of fiscal years ended July 31, 1996 and 1997, and payable only in the event that
the consolidated net income of the Company, excluding the net income of Western,
shall exceed $1,500,000 in each of such fiscal years. Mr. Rubin also entered
into a separate employment agreement with Western. Mr. Shahid's annual
compensation was provided for under his employment contracts which were entered
into in January, 1991 and as of January 1, 1994, and which were approved by
votes of the Company's Board of Directors. (See, "Employment, Incentive
Compensation and Termination Agreements.") Mr. McLain's annual compensation was
provided for under his employment agreement dated February 12, 1993, which was
approved by vote of the Company's Board of Directors. Effective as of August 1,
1995, Mr. McLain's employment agreement with the Company was terminated and he
entered into an amended employment agreement with Western (See "Employment,
Incentive Compensation and Termination Agreements").
During the last fiscal year, other than Messrs. Rubin, Shahid and McLain,
who were then officers of the Company and members of the Board of Directors, no
officers or employees of the Company or any subsidiary participated in the
Board's compensation decisions.
Of the Compensation Committee members, only Mr. Rubin was at any time an
officer or employee of the Company or any of its subsidiaries. While Mr. Rubin
serves on the Compensation Committees of the Boards of Directors of other
publicly held corporations, no executive officers or directors of such companies
serve on the Company's Compensation Committee. The Company's Audit,
Compensation and Stock Option Committees are comprised of Messrs. Rubin and
Kaplan.
22
<PAGE>
No director of the Company receives any directors fees for attendance at
Board meetings, although they do receive reimbursement for actual expenses of
such attendance.
In October 1991, Mr. Rubin agreed to waive rights inherent in his
ownership of the Company's Series A Preferred Stock to designate a majority
of the members of the Company's Board of Directors and to use his best
efforts to cause the Company to amend its Certificate of Incorporation so as
to eliminate all rights of Mr. Rubin or any other holder of the Series A
Preferred Stock to designate a majority of the members of the Board of
Directors. In partial consideration for his agreement to waive and modify
such rights and privileges, the Company issued to Mr. Rubin for $200,000
($2.63 per share) an aggregate of 76,000 additional shares of Company Common
Stock. Mr. Rubin paid for such shares by delivering to the Company his full
recourse 10% promissory note, which note is secured by collateral other than
the shares acquired (certain marketable securities in corporations other than
the Company) which has a fair market value in excess of $200,000. This note
was payable over five years, commencing March 31, 1992, together with accrued
interest, in twenty equal quarterly principal installments of $10,000 each.
In March 1993, the Company agreed to amend Mr. Rubin's note to be payable in
a single payment 36 months from the date of issuance at 8% interest per
annum. In connection with such amendment, Mr. Rubin agreed to apply no less
than 50% of any bonus received by him against the outstanding principal of
the installment note. In addition, Mr. Rubin incurs certain expenses on
behalf of the Company which are continuously charged against the outstanding
balance of this note. The highest amount outstanding during the year ended
July 31, 1995 was $257,680. The balance of this note as of December 31, 1995
was approximately $165,000.
To assist the Company in capitalizing Western and to provide it with
ongoing working capital, in November 1992 Mr. Rubin, advanced to the Company the
sum of $1,375,000 as a subordinated loan (the "Rubin Western Loan"), which was
funded together with related subordinated loans made to the Company by Messrs.
Lawrence Kaplan (who became a director of the Company in March 1993), Stanley
Kaplan, Edmond O'Donnell and Lawrence Fleischman (collectively, the "Gro-Vest
Investors"). Such loans, aggregating $1,900,000 (of which amount Mr. Lawrence
Kaplan advanced $131,250) were evidenced by Company notes payable on August 15,
1994 and bearing interest, payable monthly, at the Citibank, N.A. prime rate,
plus 1%. The loans were identical in all respects except that the loan made by
Mr. Rubin could not be prepaid until the loans made by the Gro-Vest investors
were repaid in full. All such loans were made fully subject and subordinate to
all bank and other related secured indebtedness of the Company and its
subsidiaries.
In consideration of his personal guaranty of a portion of the Company's
overadvance loan by its commercial lender made in connection with the
acquisition of Western, his $1,375,000 loan to the Company in order to
capitalize Western and the payment of $.01 per share to the Company (an
aggregate of $1,250), the Company's Board of Directors authorized the issuance
of 125,000 shares of Company Common Stock to Mr. Rubin on November 19, 1992.
Mr. Rubin agreed that, except in connection with a merger or sale of the Company
as a whole, he will not sell or otherwise transfer any of the 125,000 shares for
a minimum of four years from
23
<PAGE>
their date of issuance. The closing price of the Company's Common Stock on The
Nasdaq National Market was $4.94 per share on November 19, 1992.
On consummation of the Company's public offering of 800,000 Units of
common stock and redeemable warrants in February 1994, Mr. Rubin exchanged all
of his 1,200,000 shares of Series A Preferred Stock (which he purchased for
$1,200,000 in September 1990) and the Company note evidencing the Rubin Western
Loan, for the Company's 9.56% $2,575,000 unsecured note, payable monthly as to
interest and due as to principal on November 30, 1995. Such note was fully
subject and subordinated to all indebtedness for money borrowed by the Company
and its direct and indirect subsidiaries, including indebtedness to its
institutional lenders and to Case. The note was retired in June 1995, with
$1,375,000 from the proceeds of the Western initial public offering.
In consideration of his advancing a portion of the Gro-Vest loans, the
Company issued 8,750 shares of Common Stock to Lawrence Kaplan. In addition,
Mr. Kaplan received 52,500 shares of Company Common Stock in consideration for
assistance in negotiating the Case transaction and the exchange of his shares of
Western common stock. Upon completion of the Company's February 1994 public
offering of Units, the Company's $525,000 of indebtedness to the Gro-Vest
Investors (including $131,250 owed to Lawrence Kaplan, a member of the Company's
Board of Directors) was retired.
On January 26, 1994, the Company entered into a month-to-month public
relations consulting agreement with Gro-Vest Management Consultants, Inc.
("Gro-Vest Consultants"), a company one of whose principal stockholders,
directors and officers is Lawrence Kaplan. Commencing on March 1, 1994, the
Company became obligated to pay $3,000 per month to Gro-Vest Consultants for its
services under such agreement, subject to termination of the agreement on 30
days' notice provided by either party thereto. An aggregate of $36,000 was paid
to Gro-Vest Consultants in the 1995 calendar year.
In December 1994, Western guaranteed payment to Associates Commercial
Corporation ("Associates)", one of Western's commercial lenders, of $158,000 of
indebtedness incurred by Environmental Resources & Development Corporation, then
a privately owned company ("ERD"). Such indebtedness represented the portion of
the $190,000 purchase price of an item of equipment purchased by ERD from
Western which was financed by Associates. Robert M. Rubin, the Company's
Chairman of the Board and principal stockholder is also a principal stockholder
of ERD. Mr. Rubin has agreed to indemnify the Western from any liability it may
incur in connection with its guaranty of the ERD obligation to Associates. ERD's
indebtedness to Associates has been repaid in full.
On February 9, 1996, the Company loaned an aggregate of $450,000 to
Diplomat Corporation ("Diplomat") in connection with Diplomat's acquisition of
BioBottoms, Inc. Diplomat is a public company of which Robert Rubin serves as a
director. Before the BioBottoms transaction, Mr. Rubin held approximately 22%
of Diplomat's outstanding capital stock. Such loan (i) bears interest at the
prime rate of CoreStates Bank, N.A. plus 2% and is payable monthly, (ii) is
subordinated to a $2,000,0000 revolving credit loan agreement between Diplomat
and Congress Financial Corporation, (iii) is payable in full on or before May 4,
1996 and (iv) is secured by a second priority lien in all of the assets of
Diplomat and its wholly-owned subsidiary, BioBottoms, Inc. The loan was repaid
in full in May 1996. In addition to repayment of principal and its receipt of
accrued interest, the Company received a facilities fee of $40,000.
Simultaneous with the Company's Diplomat transaction, in consideration for
making a loan to Diplomat and committing to make a stand-by financing
commitment, Mr. Rubin received shares of Diplomat Convertible Preferred Stock
which are convertible into 1,000,000 shares of Diplomat Common Stock. His
holdings of Diplomat Preferred Stock make Mr. Rubin the beneficial owner of
approximately 46% of Diplomat Common Stock.
Pursuant to an Agreement, dated May 30, 1996 (the "ERD Agreement")
between the Company and ERD Waste Corp.("ERD"), the Company agreed to
provide certain financial accommodations to ERD by making available a $4.4
million standby letter of credit expiring May 31, 1997 issued by Citibank,
N.A. in favor of Chemical Bank (the "Letter of Credit") on behalf of ERD.
Chemical Bank is the principal lender to ERD and its subsidiaries, and upon
issuance of the Letter of Credit Chemical Bank made available $4.4 million of
additional funding to ERD under ERD's existing lending facility. The funding
was used to refinance certain outstanding indebtedness of Environmental Services
of America, Inc. ("ENSA"), a wholly-owned subsidiary of ERD. Robert M. Rubin,
the Chairman, Chief Executive Officer, Chief Financial Officer, a director
and a principal stockholder of the Company is also the Chairman, Chief
Executive Officer, a director and a principal stockholder of ERD. Under the
terms of a separate Indemnity Agreement, Mr. Rubin has agreed to indemnify
the Company for any losses or liabilities that it may incur in connection
with its having provided the Letter of Credit financial accommodation on behalf
of ERD.
In consideration for making the Letter of Credit available, in addition
to repayment by ERD of all amounts drawn under the Letter of Credit and the
grant of a security interest in all machinery and equipment of ENSA to secure
such repayment, ERD agreed (i) to pay to the Company all of the Company's
fees, costs and expenses payable to Citibank and others in connection with
making the Letter of Credit available, as well as the amount of all interest
paid by the Company on drawings under the Letter of Credit prior to their
repayment by ERD and (ii) to issue to the Company an aggregate of 100,000
shares of ERD common stock (the "ERD Shares"). Shares of RED Common Stock
trade on the NASDAQ National Market and, at the time of closing of the
transaction the 100,000 ERD Shares had a market value of $925,000.
Under the terms of the ERD Agreement, the parties agreed to engage a
mutually acceptable investment banking firm to advise the Board of Directors
of each of the Company and ERD in writing, as soon as practicable, as to:
(i) whether or not the contemplated issuance of the ERD Shares represents
BOTH (A) fair and adequate consideration to the Company considering the
financial risks being taken by the Company and (B) a reasonable payment of
consideration by ERD for the financial accommodations provided; (ii) whether
a different number of common shares of ERD (whether more or less than
100,000 shares) would be more appropriate under the circumstances to meet both
of the tests described above; or (iii) whether a form of consideration, other
than the ERD Shares would be more appropriate under the circumstances to meet
both of the tests described above. The ERD Agreement further provides that
the opinion and recommendation of the investment banking firm as to the
appropriate number of ERD Shares or other form of compensation in lieu of
ERD Shares shall be final and binding on all parties to the ERD Agreement.
As of August 20, 1996, the directors and executive officers listed below
hold outstanding stock options granted under the Company's 1996 Employee Stock
Option Plan, adopted on April 25, 1996, to acquire shares of Company Common
Stock. Options were granted on April 25, 1996 to Robert M. Rubin, C. Dean McLain
and Howard Katz at an exercise price of $3.78125 per share, and were granted on
May 15, 1996 to David M. Barnes and Anthony Romano
at an exercise price of $5.25 per share. In each case, the exercise price of
the option was the fair market value of the Common Stock on the date of option
grant, as follows:
Robert Rubin 450,000 shares
C. Dean McClain 150,000 shares
David M. Barnes 100,000 shares
Howard Katz 150,000 shares
Anthony Romano 150,000 shares
All current executive officers and directors of the Company 1,000,000 shares
as a group
Based on the July 10, 1996 market value of the shares of Company Common Stock
underlying such options, the aggregate value of such unexercised in-the-money
options issued under such option plan (including unexercisable options) to the
named persons would be $4,706,406.
The options granted to each of Messrs. Rubin and McLain are immediately
exercisable. The options granted to each of Messrs. Barnes, Katz and Romano vest
immediately as to 33 1/3% and as to 33 1/3% at the end of each of fiscal years
ending July 1997 and 1998, subject to their continued employment with the
Company. In addition, exercise of the options granted to Mr. Romano is also
subject to the achievement of certian specified operating income by the
subsidiary that he will manage.
In June 1996, the Company agreed to loan to Mr. Rubin up to $1,200,000, at
an interest rate equal to one percent above the fluctuating Prime Rate offered
by Citibank, N.A. All borrowings under the loan are repayable on a demand basis,
when and if requested by the Company, but in no event later than January 31,
1998. Mr. Rubin's indebtedness will be secured by his pledge of 150,000 shares
of Company Common Stock and his collateral assignment of all payments to him
under the terms of his seven-year Consulting Agreement with Hutchinson, which
aggregate $1,000,000.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Board of Directors of the Company has decided that the best way to
attract and retain highly capable employees on a basis that will encourage them
to perform at increasing levels of effectiveness and to use their best efforts
to promote the growth and profitability of the
24
<PAGE>
Company and its subsidiaries, is to enter into employment agreements with its
senior executive officers. During the fiscal year ended July 31, 1995, Messrs.
Rubin, Shahid and McLain were all under contract with the Company. This had
enabled the Board to concentrate on the negotiation of particular employment
contracts rather than on the formulation of more general compensation policies
for all management and other personnel. Upon the effective date of the initial
public offering of Western, Mr. McLain's Employment Agreement was terminated.
Mr. Shahid's Employment Agreement was terminated upon consummation of the
Hutchinson Transaction. See, "Employment, Incentive Compensation and
Termination Agreements" above. The Company believes that its compensation
levels as to all of its employees were comparable to industry standards. As of
January 19, 1996, Mr. Rubin is the Company's only senior executive officer which
is employed under a contract approved by the full Board of Directors. The
Company's Compensation Committee has not had to determine the compensation of
senior executive officers, and will not do so until Mr. Rubin's employment
contract expires or additional senior executive officers are engaged by the
Company. See "Employment, Incentive Compensation and Termination Agreements".
In setting levels of compensation under such employment contracts,
including that of Mr. Shahid as President and Chief Executive Officer, and in
approving management's compensation of all other Company employees, the Board of
Directors evaluates the Company's overall profitability, the contribution of
particular individuals to Company performance and industry compensation
standards. A significant percentage of the compensation paid to each of Messrs.
Shahid, McLain and Rubin in the past under their respective employment
agreements was tied to the Company's achievement of prescribed levels of pre-tax
income by either the Company itself (in the case of Messrs. Shahid and Rubin) or
Western alone (in the case of Mr. McLain). See, "Employment, Incentive
Compensation and Termination Agreements," above. The members of the Company's
Board of Directors are Messrs. Robert M. Rubin, C. Dean McLain and Lawrence E.
Kaplan.
Robert M. Rubin Lawrence E. Kaplan C. Dean McLain
25
<PAGE>
PERFORMANCE GRAPH
The following performance graph compares the yearly percentage change in
the Company's cumulative total shareholder return on its common stock since 1991
as compared to the NASDAQ National Market as a whole and as compared to a peer
group of similar industries all of whom which have been publicly held since 1991
(the "Peer Group").
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG AMERICAN UNITED GLOBAL, INC.,
NASDAQ MARKET INDEX AND PEER GROUP INDEX
- -------------------------------FISCAL YEAR ENDING------------------------------
COMPANY 1991 1992 1993 1994 1995
AMERICAN UNITED GLOBAL 100.00 81.85 113.54 85.82 102.98
PEER GROUP 100.00 94.98 118.31 141.52 167.39
BROAD MARKET 100.00 96.53 119.90 130.84 160.33
26
<PAGE>
As shown in the above performance graph, a $100 investment in the Company made
in the fiscal year ended July 31, 1991 was worth $81.85 at July 31, 1992, as
compared to $94.98 in a comparable Peer Group investment, and as compared to
$96.53 in a comparable Nasdaq Broad market investment. The same investment was
worth $113.54 at July 31, 1993, as compared to $118.31 in a comparable Peer
Group investment, and as compared to $119.90 in a comparable Nasdaq Broad market
investment. Such investment was worth $85.82 at July 31, 1994, as compared to
$141.52 in a comparable Peer Group investment, and as compared to $130.84 in a
comparable Nasdaq Broad market investment. Such investment was worth $102.98 at
July 31, 1995, as compared to $167.39 in a comparable Peer Group investment, and
as compared to $160.33 in a comparable Nasdaq Broad market investment.
The Peer Group is comprised of the following securities:
AEP Industries Inc. Cascade CP Plymouth Rubber CL A
AG-Bag International Ltd. Case CP Plymouth Rubber CL B
Alamo Group Inc. Caterpillar Inc. Portage Industries Inc.
Allied Products CP CMI CP Raymond CP
Alpine Group Inc. Deere & Co. Rexene CP
American Biltrite Inc. Essef CP Rexworks Inc.
American Filtrona CP First Brands CP Rubbermaid Inc.
American United Global Furon Co. Safeskin CP
Applied Extrusion Techs Gardner Denver Machinery Safety 1st Inc.
Applied Power CL A Gehl Co. Schulman A, Inc.
Arco Chemical Co. Glassmaster Co. Selvac CP
Art's-Way Manufacturing Goodrich, B.F. Co. SI Handling Systems Inc.
Atlantis Plastics Inc. Harnischfeger Industries Spartech CP
Automotive Manufacturing JLG Industries Inc. Sudbury Inc.
Aztec Manufacturing Co. Kleer-VU Industries Sun Coast Industries Inc.
Biosafety Systems Inc. Kubota Ltd. Synetics Inc.
Blount Inc. CL A London International
Group Terex CPVarity CP
Blount Inc. CL B Mark IV Industries Inc. Total Containment Inc.
Boral Ltd. ADS Maxco Inc. Triple S Plastics Inc.
Buffton CP Mining Services Int. Valmont Industries Ltd.
Carlisle Cos. Inc. Navistar International
Hldg. Varity CP
Carlisle Plastics Inc. O'Sullivan CP Velcro Industries Ltd.
Versa Technologies Inc.
Vulcan International CP
27
<PAGE>
CERTAIN TRANSACTIONS
See "Executive Compensation - Compensation Committee Interlocks and
Insider Participation" and Employment, Incentive and Termination Agreement"
above.
On April 29, 1994, the Company consummated the sale of all of the
operating assets of its wholly-owned subsidiary, Aerodynamic Engineering Inc.
("AEI") to Mayer Eisel, Inc., a company owned and operated by the former
managers of AEI. The Company had previously acquired the business of AEI
from Mayer Eisel, Inc. in August 1992 for $1,350,000 in cash, delivery of a
$1,400,000 convertible note of the Company and assumption of specified
liabilities. The Company also became liable for lease payments under a lease
of the AEI operating facility, which lease payments were made to a general
partnership. One of the principals of Mayer Eisel, Inc., as well as of the
lessor of the AEI operating facility, Alfred Mayer, is a former director and
officer of the Company and the manager of the AEI business while it was
controlled by the Company.
In consideration for sale of the AEI business, the Company received
$500,000 in cash, a 4-year $500,000 promissory note of Mayer Eisel, Inc., the
cancellation by Mayer Eisel, Inc. and the shareholders of Mayer Eisel, Inc. of
$875,000 of remaining outstanding Company indebtedness related to the Company's
1992 purchase of the AEI business and the termination by a general partnership
controlled by the Mayer Eisel, Inc. shareholders of the lease under which AEI
had use and possession of its Huntington Beach, CA facility. In addition, the
Company entered into a non-competition agreement with Mayer Eisel, Inc. in which
the Company agreed not to compete with the AEI business for a 5-year period
after the closing. As part of the transaction, the Company transferred all AEI
assets free of any liens and encumbrances (by paying to its institutional lender
$958,063, a portion of which includes the $500,000 cash portion of the purchase
price, which constituted all outstanding indebtedness secured by any of such
assets) and Mayer Eisel, Inc. assumed substantially all of the operating
liabilities of AEI by assuming AEI's accounts payable, accrued expenses,
personal property lease obligations and certain other AEI liabilities. The
purchase price for the sale of the AEI assets (including the value of the
indebtedness and other liabilities to be released or forgiven in favor of the
Company and its subsidiaries) was determined based upon management's
determination of the current value of the assets, net of liabilities.
In consideration of his personal guaranty of a portion of the Company's
Overadvance Loan, his $1,375,000 loan to the Company and the payment of $.01 per
share to the Company (an aggregate of $1,250), on November 19, 1992, the
Company's Board of Directors authorized the issuance of 125,000 shares of
Company Common Stock to Mr. Rubin. Mr. Rubin agreed that, except in connection
with a merger or sale of the Company as a whole, he will not sell or otherwise
transfer any of the 125,000 shares for a minimum of four years from their date
of issuance. The closing price of the Company's Common Stock on the NASDAQ
National Market Systems was $4.94 per share on November 19, 1992.
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At the closing of the Hutchinson Transaction, the Company,
Robert Rubin and Hutchinson (as guarantor) entered into a five-year
Non-Competition Agreement in favor of Hutchinson and its affiliates, pursuant to
which Mr. Rubin and the Company agreed not to compete with the businesses
acquired in the Hutchinson Transaction. Under the terms of the Non-Competition
Agreement, Mr. Rubin will receive payments aggregating $200,000 over a seven
year period. In addition, at the Closing Hutchinson engaged Mr. Rubin as a
consultant to provide advisory services relating to the acquired Manufacturing
Business over a seven year period, for which services Mr. Rubin will receive
payments aggregating $1,000,000.
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COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
To the knowledge of the Company, no officers, directors, beneficial owners
of more than 10 percent of any class of equity securities of the Company
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any other person subject to Section 16 of the
Exchange Act with respect to the Company, failed to file on a timely basis
reports required by Section 16(a) of the Exchange Act during the most recent
fiscal year, which ended July 31, 1995, other than Messrs. Shahid, Rubin, McLain
and Palumbo who failed to file a Form 4 with respect to the repricing of certain
options in April 1995. Mr. Shahid also failed to timely report the issuance of
10,000 shares of common stock as of August 1, 1994 pursuant to his employment
contract.
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ACTION TO BE TAKEN UNDER THE PROXY
Unless otherwise directed by the grantor of the proxy, the persons acting
under the accompanying proxy will vote the shares represented thereby: (a) for
the election of the persons named in the next succeeding table as nominees for
directors of the Company; (b) for the proposal to ratify the appointment of
Price Waterhouse as the Company's auditors for the current Fiscal Year; (c) for
the proposal to ratify the sale of all of the assets of the Company's
Manufacturing Business to Hutchinson Corporation; (d) for the proposal to
authorize an amendment to the Company's Certificate of Incorporation to increase
the Company's authorized capital by creating a new class of Non-Voting Common
Stock; (e) for the proposal to authorize and approve the Company's 1996 Employee
Stock Option Plan; and (f) in connection with the transaction of such other
business that may be brought before the Meeting, in accordance with the judgment
of the person or persons voting the proxy.
I. ELECTION OF DIRECTORS
NOMINEES
At the Meeting three directors are to be elected, each to hold office
until the next Annual Meeting of Shareholders or until his successor shall be
elected and shall qualify. The names of the nominees for election as directors,
all of whom are now serving as directors of the Company, and certain information
furnished to the Company by such nominees with respect to them, as of April 1,
1996, are set forth below. Unless authority to vote for one or more nominees is
withheld, it is intended that shares represented by proxies in the accompanying
form will be voted for the election of the following nominees. With respect to
any such nominee who may become unable or unwilling to accept nomination or
election, it is intended that the proxies will be voted for the election in his
stead of such person as the Board of Directors may recommend, but the Board does
not know of any reason why any nominee will be unable or unwilling to serve if
elected.
PRINCIPAL
OCCUPATION
DIRECTOR DURING LAST
NAME AGE SINCE FIVE YEARS
- ---- --- -------- -----------
Robert M. Rubin 56 * *
Lawrence Kaplan 52 * *
C. Dean McLain 41 * *
__________________________
* See "DIRECTORS, NOMINEES FOR DIRECTOR AND EXECUTIVE OFFICERS OF THE
COMPANY" on pages 13 and 14.
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THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT SHAREHOLDERS VOTE IN
FAVOR OF all the nominees for director.
COMMITTEES AND MEETINGS OF THE BOARD
At present the Board of Directors has two committees, the Compensation
Committee and the Audit Committee, both of which consist of Robert M. Rubin and
Lawrence E. Kaplan. The function of the Compensation Committee includes
responsibility for reviewing the compensation for all of the Corporation's
employees and the granting of stock options under all of the Company's employee
stock option plans that may exist and be in effect from time to time. The
function of the Audit Committee includes the review of the Company's financing
arrangements and a review of its internal financial controls. During the Fiscal
Year ended July 31, 1995, the Board of Directors met 10 times, including actions
taken by unanimous written consent of the directors. The Compensation Committee
met jointly with the full Board of Directors twice during the fiscal year ended
July 31, 1995. The Audit Committee did not meet during the Fiscal Year ended
July 31, 1995. All of the nominated directors who served as directors during
the Fiscal Year ended July 31, 1995 attended 100% of the meetings of the Board
held during periods of their tenure during such year. No director of the
Company receives any directors fees for attendance at Board meetings, although
they do receive reimbursement for actual expenses related to such attendance.
II. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS FOR THE FISCAL YEAR
ENDING JULY 31, 1996
At the Meeting a vote will be taken on a proposal to ratify the
appointment by the Board of Directors of Price Waterhouse independent certified
public accountants, as the independent auditors of the Company for the Fiscal
Year ending July 31, 1996. Price Waterhouse has no interest in or any
relationship with the Company except as its auditors.
MANAGEMENT BELIEVES THE APPOINTMENT TO BE IN THE BEST INTEREST OF THE
COMPANY AND RECOMMENDS THAT IT BE RATIFIED.
A representative of Price Waterhouse will be present at the Annual Meeting
of Shareholders of the Company and will be given an opportunity to make a
statement to the shareholders if he so desires. The representative will be
available to respond to questions from shareholders.
III. RATIFICATION OF THE SALE OF ALL OF ASSETS OF THE COMPANY'S MANUFACTURING
BUSINESS TO HUTCHINSON CORPORATION.
At the Meeting a vote will be taken on a proposal to ratify the sale of
all of the assets of the Company's Manufacturing Business to Hutchinson
Corporation. The terms of such sale are discussed below.
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Pursuant to the terms of an Asset Purchase Agreement, dated as of November
22, 1995 (the "Sale Agreement"), by and among Hutchinson Corporation, a Delaware
corporation ("Hutchinson"), as Buyer, and the Company and each of its
AUG-California, Inc., American United Products, Inc. ("National O-Ring") and
American United Seal, Inc. ("Stillman Seal") subsidiaries, on January 19, 1996
all of the assets of the National O-Ring and Stillman Seal businesses (the
"Manufacturing Business") were sold to, and substantially all of the liabilities
associated with operation of the Manufacturing Business were assumed by,
subsidiaries of Hutchinson newly-formed for the purpose of acquiring the
Manufacturing Business (the "Hutchinson Transaction"). Hutchinson's principal
place of business is located at 160 Fuller Avenue, N.E., Grand Rapids, MI 49501;
telephone number (616) 459-4541. Hutchinson produces a variety of rubber
related products for three market sectors: automotive, consumer and industrial
use.
Under the terms of the Sale Agreement, the Company agreed that as soon as
reasonably practicable following the closing of the Hutchinson Transaction (the
"Closing"), but NOT as a condition to consummation of the Hutchinson
Transaction, the Company would call a meeting of its stockholders to request
that Company stockholders ratify the Sale Agreement, the Exhibits thereto
(including the Non-Competition Agreement and the Consulting Agreement, as herein
after described) and the transactions contemplated thereby. FAILURE OF COMPANY
STOCKHOLDERS TO RATIFY SUCH AGREEMENTS AND THE TRANSACTIONS CONTEMPLATED THEREIN
WILL NOT AFFECT THE EFFECTIVENESS OF ANY OF THE HUTCHINSON TRANSACTION OR THE
TRANSACTIONS CONTEMPLATED THEREBY, ALL OF WHICH HAVE BEEN CONSUMMATED. The
sole purpose for stockholder ratification of the Hutchinson Transaction, the
Sale Agreement and the Exhibits thereto, and the transactions contemplated
thereby, is that under the terms of the Sale Agreement failing such ratification
by a majority of the outstanding shares of Company Common Stock entitled to vote
at a scheduled meeting of stockholders the Company shall indemnify Hutchinson
and its affiliates (including their respective officers, directors, employees
and agents) for a period of up to eighteen months following the Closing, from
and against any claims, judgements, liabilities, costs and expenses which any of
them may incur as a result of any suits or proceedings brought by or on behalf
of any Company stockholder alleging that the transactions contemplated by the
Sale Agreement and the Exhibits thereto are unfair to Company stockholders.
The Purchase Price for the Manufacturing Business was $24,500,000,
$20,825,000 of which was paid in cash and the aggregate $3,675,000 balance was
paid by delivery of two 24-month non-interest bearing promissory notes (the
"Notes") made by the Hutchinson subsidiaries that purchased the Manufacturing
Business. The Notes are guaranteed by Total America, Inc., the parent
corporation of Hutchinson and a subsidiary of TOTAL, a french corporation whose
securities are listed on the New York Stock Exchange.
At the Closing, the Company, Robert Rubin and Hutchinson (as guarantor)
entered into a five-year Non-Competition Agreement in favor of Hutchinson and
its affiliates, pursuant to which Mr. Rubin and the Company agreed not to
compete with the businesses acquired in the
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Hutchinson Transaction. Under the terms of the Non-Competition Agreement, Mr.
Rubin will receive payments aggregating $200,000 over a seven year period. In
addition, at the Closing Hutchinson engaged Mr. Rubin as a consultant under the
terms of a 7-year Consulting Agreement to provide advisory services relating to
the acquired Manufacturing Business over a seven year period, for which services
Mr. Rubin will receive payments aggregating $1,000,000.
The Company did not seek the report or opinion of any outside party to
help in establishing or negotiating the amount of consideration to be received
by the Company for sale of the Manufacturing Business in the Hutchinson
Transaction. As a condition to consummation of its purchase, however,
Hutchinson required the Company to obtain an independent opinion to confirm that
the previously established and negotiated purchase price was fair to the Company
and its stockholders. The Company's management does not believe that such
independent opinion materially related to the transaction insofar as it merely
confirmed the fairness of the previously established sales price for the
Manufacturing Business and was not used to establish the price for the
Manufacturing Business.
The independent opinion was provided by Montauk Consulting, Inc.
("Montauk"). Montauk is a recently formed company with a single employee who is
its Managing Director. Although Montauk itself has limited experience in
providing valuations of the fairness of transactions, the Managing Director of
Montauk who provided the independent opinion is a certified public accountant
who has been engaged in the investment banking industry for over 30 years. He
has provided asset valuations and fairness reviews on numerous occasions, as
well as court testimony in more than 70 securities litigation cases in state and
federal court in support of such valuations and reviews for a number of Fortune
500 companies. Montauk was selected by the Company based upon the reputation of
such Managing Director for providing similar valuations which have withstood
challenge. In the past, the Chairman of the Company and such Managing Director
have invested together in public and private companies and other ventures, and
they have served together on the boards of directors of certain of those
entities. In providing its fairness opinion, Montauk (i) reviewed the terms of
the Hutchinson Transaction, (ii) analyzed published financial reports,
historical earnings and stock price performance and business prospects of the
Company and its affiliates, including its periodic filings under the federal
securities laws, (iii) considered the various characteristics of the
Manufacturing Business,, and the relative position of the Manufacturing Business
in its industry and the future prospects of the Manufacturing Business (with
attention paid to the impact of technological developments and the potential for
additional capital requirements to support modernization and expansion), (iv)
had contacts and discussions with members of the Company's Board of Directors
regarding the Manufacturing Business and its future, (v) studied other companies
engaged in the automotive parts and equipment business and aerospace/defense
business including competitors of the Manufacturing Business, (vi) examined the
record of trading in the Company's Common Stock and (vii) analyzed the Company's
balance sheet and income statement ratios and compared them to the ratios of
other like companies. Based on the above investigation, and after applying the
Montauk
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Managing Director's experience in financial and business affairs,
Montauk concluded that the terms of the Hutchinson transaction are fair from a
financial point of view to the stockholders of the Company. There were no
limitations placed upon Montauk or its employee in rendering the fairness
opinion, including with respect to the scope of the investigation made. There
were no special or limiting instructions delivered to Montauk by the Company or
its affiliates with respect to its engagement; Montauk was simply engaged to
render an opinion as to whether or not the Hutchinson Transaction, as
contemplated by the Sale Agreement (including all exhibits thereto), is fair and
reasonable to the stockholders of the Company.
THE COMPANY'S MANAGEMENT BELIEVES THAT THE CONSIDERATION RECEIVED IN THE
HUTCHINSON TRANSACTION WAS FAIR TO THE COMPANY AND ITS STOCKHOLDERS FOR SEVERAL
REASONS.
First, without regard to income tax considerations, the cash portion of
the Purchase Price alone exceeded by approximately $890,000 the market value on
the date of Closing, as reported on the Nasdaq National Market ("Nasdaq"), for
all the outstanding Company Common Stock. On January 19, 1996, the date of
Closing, the last reported sale price for a share of Company Common Stock was
$3.75, for an aggregate market value for all outstanding Company Common Stock as
reported on Nasdaq of approximately $21,369,000 on that date. Second, the
Manufacturing Business operated in mature industries, and it was believed that
without significantly increasing its future capital expenditures the Company
would find it difficult to improve upon its operating performance. Third, the
Manufacturing Business derived a significant amount of revenues from defense
contracts, and the future impact of federal budget constraints upon governmental
programs was uncertain to predict. Fourth, Hutchinson was a strategic purchaser
of the Manufacturing Business, a purchaser that the Company believed was intent
upon entering the businesses in which the Company operated either by purchasing
existing operations or by developing competing operations of its own.
Hutchinson is larger and better financed than the Company, principally through
its subsidiary relationship with TOTAL, one of the largest petro-chemical
companies in the world. The Company believed that should Hutchinson enter the
Manufacturing Businesses's markets independently and not through purchase of the
Manufacturing Business itself, Hutchinson would constitute a formidable
competitor in the industry to the detriment of the Company's future operations.
Fifth, and lastly, insofar as Hutchinson was a strategic purchaser of the
Manufacturing Business, the Company believed that in the event that the Company
later decided to sell the Manufacturing Business it would not be able to obtain
as favorable of a price for that business should a strategic purchaser not be
subsequently available.
At the time that it negotiated the Purchase Price for the Hutchinson
Transaction, although the Company was not actively soliciting the sale of the
Manufacturing Business, the Company was not aware of any other potential
purchasers of the Manufacturing Business. Due to the fact that the Purchase
Price offered by Hutchinson was believed to be quite favorable to the Company
and its stockholders, the Company did not actively solicit additional potential
purchasers for the Manufacturing Business at that time.
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<PAGE>
The Company entered into and consummated the Hutchinson Transaction
principally as a way to create additional value for its stockholders by
obtaining an attractive price, 85% in cash, upon sale of the Manufacturing
Business. Indeed, the net book value of the assets of the Manufacturing
Business that were sold in the Hutchinson Transaction represented only
approximately 87% of the net cash proceeds received alone.
Following execution of the definitive sale agreement in connection with
the Hutchinson Transaction, the Company's management sought to redirect the
Company's business focus to the computer technology and telecommunications
industries.
Consistent with such strategy, effective May 1, 1996, the Company acquired
all of the outstanding capital stock of ConnectSoft, a company providing
communications software applications and services for persons seeking access
to and utilization of resources and information available on the Internet.
ConnectSoft shareholders received, on a pro rata basis, an aggregate
1,000,000 shares of the Company's Series B Preferred Stock. Such Series B
Preferred Stock does not pay a dividend, is not subject to redemption, has a
liquidation preference of $3.50 per share over the Company's Common Stock and
votes together with the Company Common Stock as a single class on a one share
for one vote basis. Each share of Series B Preferred Stock is convertible
into shares of Company Common Stock at the holder's option into a minimum of
1,000,000 shares of Common Stock and a maximum of 3,000,000 shares of Common
Stock, based upon certain criteria, including the combined Pre-Tax Income (as
defined), if any, which shall be earned by ConnectSoft and other direct and
indirect Company subsidiaries in any one or all of the three Company fiscal
years ending July 31, 1999. See "BUSINESS -- Recent Developments."
Prior to consummation of the ConnectSoft Merger, the Company provided
working capital financing for ConnectSoft which aggregated approximately $3.4
million, assumed all of ConnectSoft's operating expenses and liabilities, and
received proxies to vote approximately 80% of the outstanding ConnectSoft
capital stock in favor of the Merger. The Company will increase its funding
commitments to ConnectSoft and its related companies (including Xodus
Technologies, Inc.) to a minimum aggregate of $5.0 million.
On June 20, 1996, the Company entered into a non-binding
letter of intent to acquire through merger all of the outstanding capital
stock of Interglobe Networks, a private company providing engineering, design
and consulting services for users and providers of telecommunications
facilities on the Internet and other media. On completion of the Interglobe
Merger, it is intended that the Interglobe shareholders shall receive, on a
pro rata basis, an aggregate 700,000 shares of the Company's Common Stock.
Upon completion of the Interglobe Merger, the Company will make
available to Interglobe funding commitments to support Interglobe's
operations and working capital needs in the form of intercompany loans and
advances based upon annual budgets and forecasts provided to and approved by
the Company. The pre-merger stockholders of Interglobe shall also receive
three-year employment agreements with the Company pursuant to which they will
receive seven-year options to purchase an additional aggregate 600,000 shares
of Company Common Stock (the "Interglobe Options"). The Interglobe Options
shall vest and be exercisable (i) one-third on July 31, 1997, (ii) one-third
on July 31, 1998 in the event that Interglobe achieves at least $1,500,000 of
Pre-Tax Income (as defined) in the year ended July 31, 1998 and (iii)
one-third on July 31, 1999 in the event that Interglobe achieves at least
$4,000,000 of Pre-Tax Income during the period commencing upon closing the
Merger and terminating on July 31, 1999 (with any options not vesting on July
31, 1998 being vested on July 31, 1999 should such target be achieved). In
the event that a change in control of the Company occurs, or the Company
effects a sale of all or substantially all of the assets of Interglobe, prior
to July 31, 1999, all of the Interglobe Options shall immediately vest upon
such occurrence.
On June 25, 1996, the Company also entered into a letter of intent to
acquire, through merger, all of the outstanding capital stock of Datacom, a
company engaged in the development and marketing of multifunctional, integrated
telecommunications equipment, including related hardware and software components
of such products. On completion of the Datacom Merger, it is intended that the
Datacom shareholders shall receive, on a pro rata basis, an aggregate 375,000
shares of Company Common Stock (the "Fixed Merger Consideration"). The number of
shares constituting the Fixed Merger Consideration shall be subject to upward
adjustment in the event that the Common Stock of the Company does not trade at
an average closing price in excess of $6.66 per share during the 20 trading days
prior to July 31, 2000. The Datacom shareholders shall also receive "Contingent
Merger Consideration," one-third in the form of up to an additional aggregate
375,000 shares of Common Stock, and two-thirds in the form of up to a maximum
aggregate $7,500,000 principal of interest bearing notes, in the event that
Datacom achieves certain levels of Pre-Tax Income (as defined) during the four
fiscal years ending July 31, 2000. The notes made part of the Contingent Merger
Consideration are convertible into Company Common Stock at conversion prices
equal to the average closing price of such Common Stock measured over the 20
trading days immediately prior to the issuance date of each respective note.
Following completion of the Datacom Merger, the Company will advance to Datacom
up to $3,000,000 (less any amounts advanced prior to the merger date) in the
form of 10% long-term notes or preferred stock, at the Company's option, with
the amount of such advances being based upon the submission of annual budgets
approved by the Company. See "BUSINESS -- Recent Developments."
Prior to or concurrent with completion of the Datacom Merger, the Company
has agreed to cause a principal shareholder of Datacom to be released from his
guarantee of approximately $190,000 of Datacom indebtedness.
Although the Company intends to acquire, or invest in, businesses other
than ConnectSoft, Interglobe and Datacom in the future with the proceeds of the
Hutchinson Transaction, at this time the Company has no other specific
business or businesses which it intends, or is obligated, to purchase. In
addition to the Line of Credit extended to ConnectSoft, the Company made a
$450,000 principal four-month secured loan to a public company affiliated
with Mr. Rubin which has been repaid, has invested $250,000 in a private
placement of convertible indebtedness issued by an entity unaffiliated with
Mr. Rubin and is currently considering other similar size investments in
companies that are not affiliated with Mr. Rubin. Neither ConnectSoft,
Interglobe nor Datacom is affiliated with Mr. Rubin.
Management believes that receipt of the proceeds from sale of the
Manufacturing Business will increase stockholder value because the
significant amount of cash that the Company now has available for its
acquisition program is expected to permit the acquisition of businesses which
will generate higher levels of net income than that historically generated by
the Manufacturing Business. In addition, the amount of cash resources now
available to the Company should enable the Company to obtain favorable
pricing for any businesses that it decides to acquire. Finally, the Company
intends to acquire businesses that operate in industries whose equity
interests trade at higher multiples of net income per share in the public
securities market than have the Company's securities have traded
historically.
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As a result of all of the factors recited above with respect to the
fairness of the terms of the Hutchinson Transaction to the Company and its
stockholders, as well as the potential for increased stockholder value as a
result of the application of proceeds from the Hutchinson Transaction,
Management of the Company believes the Hutchinson Transaction to be in the best
interests of the Company and its stockholders.
The sale of the assets comprising the Manufacturing Business are being
accounted for as discontinued operations.
The Company is not in arrears with respect to the declaration and payment
of dividends on its securities.
As required under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, the Company made all necessary filings with the Federal Trade Commission
and received notification of early termination of the applicable waiting period
by letter dated December 21, 1995. On December 8, 1995, the Company supplied a
voluntary notice ("Exon Florio Notice") of the Hutchinson Transaction to the
Department of the Treasury pursuant to Section 721 of Title VII of the Defense
Production Act of 1950. By letter dated January 11, 1996, the Company received
notice that there exist no issues of national security sufficient to warrant
investigation of the Hutchinson Transaction and that all actions under the
statute were favorably concluded.
The Company's Common Stock is traded on Nasdaq under the trading symbol
"AUGI". On November 24, 1995, the trading date immediately preceding public
announcement of execution of the Sale Agreement, the high and low sale prices of
the Company's Common Stock as reported on Nasdaq were $3.50 and $3.38,
respectively.
In connection with this transaction the Company did not, nor will it,
transfer any of the 2,000,000 shares of common stock of its Western Power &
Equipment Corp. subsidiary that it holds.
The failure by Company stockholders to ratify the Hutchinson Transaction
will neither cause the Hutchinson Transaction to be rescinded nor affect the
effectiveness of the Hutchinson Transaction in any way. The Board of Directors
has no plans for its future conduct, or for any effect on its consummation of
the Hutchinson Transaction, should Company stockholders fail to ratify the
Hutchinson Transaction.
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The audited financial statements for 1994 and 1995 and the unaudited
financial statements for the three months and six months ended January 31,
1996, as well as information complying with Item 303 of Regulation SK related
to Management's Discussion and Analysis of Financial Condition and Results of
Operations, all of which are annexed hereto as Appendix I, have been revised
to treat the Company's former Manufacturing Business as discontinued
operations for purposes of financial reporting by reclassifying the results
of operations of National O-Ring and Stillman Seal for the three years ended
July 31, 1995 and for the six months ended January 31,1996 and January 31,
1995 in accordance with APB 30, Reporting Results of Operations - Reporting
the Effects of a Disposal of a Segment of a Business. The unaudited financial
statements for the three and six month periods ended January 31, 1996 reflect
(1) the sale of all of the assets of the Manufacturing Business to and the
assumption of substantially all of the liabilities associated with the
operations of the Manufacturing Business by subsidiaries of Hutchinson
Corporation for a combination of cash and notes receivable aggregating $24.5
million; (2) the execution of the Termination Agreement with the former
President and Chief Executive Officer and a director of the Company, which
provides for a lump sum payment of $905,833 and a three year consulting
agreement requiring payments aggregating $200,000; and (3) the assumption of
$250,000 of certain environmental remediation costs under the terms of the
Sale Agreement.
MANAGEMENT BELIEVES THE SALE OF THE COMPANY'S MANUFACTURING BUSINESS TO
HUTCHINSON CORPORATION WAS IN THE BEST INTEREST OF THE COMPANY AND RECOMMENDS
THAT IT BE RATIFIED.
IV. TO AMEND THE CORPORATION'S CERTIFICATE OF INCORPORATION TO INCREASE THE
NUMBER OF THE CORPORATION'S AUTHORIZED SHARES BY INCREASING THE
AUTHORIZED NUMBER OF SHARES OF VOTING COMMON STOCK AND AUTHORIZING SHARES
OF NEW CLASS B NON-VOTING COMMON STOCK
At the Annual Meeting a vote will be taken on a proposal to authorize
the amendment of the Company's Certificate of Incorporation to increase the
number of shares authorized for issuance thereunder by creating a new class of
Non-Voting Common Stock. A COPY OF THE PROPOSED CERTIFICATE OF AMENDMENT OF
THE CERTIFICATE OF INCORPORATION OF THE COMPANY IS ANNEXED HERETO AS EXHIBIT
A. In reflecting upon the Company's present capital structure, management of
the Company believes that the current authorized number of common and
preferred shares is inadequate for the Company's purposes. Management
believes that the Company needs more flexibility in its capital structure in
order to raise additional working capital funds and to support its ability to
consummate potential future acquisitions. The purpose of the proposal to
amend the Company's Certificate of Incorporation, which will (i) increase to
25,000,000 shares from the currently authorized 20,000,000 shares the number
of shares of voting Common Stock, which 25,000,000 shares of voting Common
Stock will be redesignated as Class A Voting Common Stock; and (ii) create a
new class of non-voting common shares (a total of 25,000,000 shares of Class B
Non-Voting Common Stock) is to enhance the Company's flexibility in the
issuance of different classes and types of securities for capital formation
and for meeting the needs of an active acquisition program.
Such a program is now the Company's foremost activity as a result of the
sale of all of its operating assets in connection with the Hutchinson
Transaction described above. The Company already has two authorized classes
of Preferred Stock: 1,200,000 shares of Series A 12.5%
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cumulative voting preferred stock; and 1,500,000 shares of Series B "blank
check" preferred stock, the terms, conditions and privileges of which Series B
preferred stock can be determined by action of the Board of Directors without
further action by the Company's stockholders. There are no outstanding shares
of either series of Preferred Stock. Notwithstanding the availability of such
authorized Preferred Stock, Management sees the need for the proposed increase
in its capital structure at this time despite the absence of current or
immediately foreseeable plans for issuance of such shares in the public market
to raise additional working capital funds. Management also believes that,
insofar as the Company is seeking stockholder approval at this time for the
other proposals identified in this solicitation material, it is more cost
effective for the Company concurrently to approach stockholders for approval of
such increase in its authorized capital.
An unintended effect of the increase in the Company's authorized stock
will be to strengthen the Board's ability to fight off hostile takeovers. The
Company is not aware of any existing hostile takeover proposals nor is it the
intention of the Company's management to shore up the Company's defenses against
a potential hostile takeover. Stockholders must be aware that in the event that
all or a substantial number of the additional shares are issued, existing
stockholders may suffer immediate and substantial dilution of their interests in
the Company and a potential decrease in the valuation of their stock.
The terms of the Class B Non-Voting Common Stock to be authorized by the
amended Certificate of Incorporation of the Company shall be identical to the
terms of the Company's existing Common Stock (to be redesignated as Class A
Common Stock), other than the fact that such Class B Non-Voting Common Stock
will not have voting rights (other than as required by Delaware law) and will
not be entitled to vote for the election of Company directors. No shares of
Class B Non-Voting Common Stock have ever been issued, and shares of the new
Class B Non-Voting Common Stock may be issued without further authorization by
the Company's stockholders.
MANAGEMENT BELIEVES APPROVAL OF THE AMENDMENT OF THE COMPANY'S CERTIFICATE
OF INCORPORATION IS IN THE BEST INTEREST OF THE COMPANY AND RECOMMENDS THAT IT
BE AUTHORIZED AND RATIFIED.
39
<PAGE>
V. AMENDMENTS TO THE BY-LAWS AND THE CERTIFICATE OF INCORPORATION
CONCERNING CLASSIFICATION OF THE BOARD OF DIRECTORS AND RELATED
MATTERS.
This group of proposed amendments to the By-laws of the Company (the
"By-Laws") and the Certificate of Incorporation of the Company (the
"Articles") would (1) classify the Board of Directors into three classes, as
nearly equal in number as possible, each of which, after an interim
arrangement, will serve for three years, with one class being elected each
year; (2) provide that directors may be removed by the stockholders only with
cause and the approval of the holders of at least 66.66% of the voting power
of each class or series of outstanding stock of the Company entitled to vote
generally in the election of directors; (3) provide that special meetings of
stockholders may not be called by stockholders unless pursuant to a written
demand by the holders of at least 66.66% of the voting power of each class or
series of outstanding stock of the Company entitled to vote on the matter(s)
to be considered at the special meeting; (4) add provisions to the Articles
which authorize stockholders to act in lieu of holding a meeting only upon
the unanimous written consent of the holders of the stock of the Company
entitled to vote thereon and delete provisions from the By-Laws that permit
stockholder action by less than the unanimous written consent of
stockholders; and (5) increase the stockholder vote required to alter, amend
or repeal the foregoing amendments from a majority to 66.66% of the voting
power of each class or series of outstanding stock of the Company. If the
proposed amendments are adopted, the Board intends to amend certain
inconsistent By-Law provisions.
These proposed amendments are being presented to the stockholders of the
Company for their approval as separate proposals. As more fully discussed
below, the Board of Directors believes that the proposed amendments, taken
together, would, if adopted, enhance the likelihood of continuity and
stability in the composition of the Company's Board of Directors as against
"creeping" acquisitions of the Company's stock, while reducing the
possibility that a third party could effect a sudden or surprise change in
majority control of the Company's Board of Directors without the support of
the incumbent Board. Although adoption of the proposed amendments may have
significant effects on the ability of stockholders of the Company to change
the composition of the incumbent Board of Directors and to benefit from
certain transactions which are opposed by the incumbent Board, the amendments
are not being recommended in response to any effort of which the Company is
aware to accumulate the Company's stock or to obtain control of the Company.
43
<PAGE>
Stockholders are urged to read carefully the following sections of this Proxy
Statement, which describe the amendments and their purposes and effects
before voting on the proposed amendments. EXHIBIT A HERETO SETS FORTH THE
FULL TEXT OF THE PROPOSED AMENDMENTS TO THE COMPANY'S ARTICLES OF
INCORPORATION AND EXHIBIT B HERETO SETS FORTH THE FULL TEXT OF THE PROPOSED
AMENDMENTS TO THE COMPANY'S BY-LAWS.
DESCRIPTION OF THE PROPOSED AMENDMENTS
ADDITION OF ARTICLE TWELFTH TO THE ARTICLES, AND DELETION OF ARTICLE II,
SECTION 11 OF THE BY-LAWS. Currently, under the provisions of Delaware law
and Article II, Section 11 of the By-Laws, the stockholders of the Company
may act by written consent signed by holders of less than all of the
outstanding shares of the Company entitled to vote so long as the number of
shares represented by such written consent would have been sufficient to pass
the action contemplated at a duly called and held meeting of stockholders.
The Board proposes to amend the Articles by adding Article Twelfth to the
Articles and to amend the By-Laws by deleting Article II, Section 11 of the
By-laws to the effect that any action by the stockholders of the Company
taken by written consent must be signed by holders of not less than all of
the outstanding shares of the Company entitled to vote on the matters being
considered by the stockholders. Pursuant to Section 228 of the Delaware
General Corporation Law (the "DGCL"), which permits the Articles of
Incorporation and By-laws of a Delaware corporation to provide that
stockholders can act by not less than the unanimous written consent of
stockholders entitled to act thereon, if the proposal is approved: (i)
Article Twelfth of the Articles will be added such that no action will be
permitted to be taken by the stockholders by written consent in lieu of
holding a meeting and voting on the action to be taken, unless all of the
stockholders entitled to vote on the action sign a written consent to such
action; and (ii) Article II, Section 11 of the By-Laws, which currently
permits action by less than unanimous written consent of the stockholders
entitled to vote on a given action, will be deleted in its entirety.
If the revisions are adopted, a majority stockholder would be unable to
avoid the call, notice and meeting requirements for stockholder meetings by
simply executing a written consent to the action the majority stockholder
wishes to take.
INCREASED STOCKHOLDER VOTE FOR ALTERATION, AMENDMENT OR REPEAL OF
PROPOSED AMENDMENTS. Under the DGCL, amendments to the Articles require the
approval of the holders of a majority of the outstanding stock entitled to
vote thereon and of a majority of the outstanding stock of each class
entitled to vote thereon as a class. The DGCL also permits provisions in the
Articles or the By-laws which require a greater vote than the vote otherwise
44
<PAGE>
required by law for any corporate action. With respect to such
super-majority provisions, the DGCL permits the Articles and the By-Laws to
require that any alteration, amendment or repeal thereof be approved by an
equally large stockholder vote. As permitted by these provisions of Delaware
law, the result of the proposed amendments of the Articles by revising
Article Sixth and Article Ninth of the Articles and by amending Article IX of
the By-Laws (which refer to the ability to amend or revise the provisions of
the Articles or the By-Laws to negate the effects of the proposed amendments
discussed herein) would be to require that any amendment to or deletion of
such provisions from the Articles or the By-Laws would have to be approved by
the holders of at least 66.66% of each class or series of outstanding stock
of the Company entitled to vote thereon.
The requirement of an increased stockholder vote is designed to prevent
a stockholder with a majority of the voting power of the Company from
avoiding the requirements of the proposed amendments by simply repealing them.
CLASSIFICATION OF THE BOARD OF DIRECTORS. The By-Laws now provide that
all directors are to be elected to the Company's Board of Directors annually
for a term of one year. On May 30, 1996, the Board voted to set the number
of directors at three effective at the annual meeting of the stockholders on
July 19, 1996. The proposed Article Fourteenth of the Articles and the
proposed revision of Article III, Section 2 of the By-Laws contained in
Exhibits A and C hereto provide that the Board shall be divided into three
classes of directors, each class to be as nearly equal in number of directors
as possible. If this proposal is adopted, the Company's directors will be
divided into three classes and one director will be elected for a term
expiring at the 1997 annual meeting of stockholders, one director will be
elected for a term expiring at the 1998 annual meeting of stockholders and
the remaining one director will be elected for a term expiring at the 1999
annual meeting of stockholders (in each case, until their respective
successors are duly elected and qualified). Starting with the 1997 annual
meeting of stockholders, one class of directors will be elected each year for
a three-year term. If the proposed amendments are not adopted, all three
directors will be elected to a term expiring at the 1997 annual meeting of
stockholders or until their successors are duly elected and qualified.
The classification of directors will have the effect of making it more
difficult to change the composition of the Board of Directors. At least two
stockholder meetings, instead of one, will be required to effect a change in
the control of the Board. The Board believes that the longer time required
to elect a majority of a classified Board will help to assure the continuity
and stability of the Company's management and policies in the future, since a
majority of the directors at any given time will
45
<PAGE>
have prior experience as directors of the Company. It should also be noted
that the classification provision will apply to every election of directors,
whether or not a change in the Board would be beneficial to the Company and
its stockholders and whether or not a majority of the Company's stockholders
believes that such a change would be desirable.
REMOVAL OF DIRECTORS. The proposed revisions to Article Fifteenth of
the Articles and to Article III, Section 11 of the By-Laws provide that a
director, or the entire Board of Directors, may be removed only with cause
and with the affirmative votes of stockholders having no less than 66.66%
voting power of each class or series of outstanding stock entitled to vote
generally in the election of directors. Currently, directors may be removed
with or without cause by the stockholders holding majority voting power.
The provisions of the proposed amendments relating to the removal of
directors will preclude a third party from removing incumbent directors with
adverse views to those of the third party thereby reducing the number of
incumbent directors who could maintain such adverse position.
CALLING OF SPECIAL STOCKHOLDER MEETINGS. Currently, under Article II,
Section 3 of the By-Laws, holders of at least 10% of all of the votes
entitled to be cast on the matter to be considered at the special meeting
could demand that a special meeting of the Company be called. The DGCL
permits By-Laws or the Articles of Incorporation of a Delaware corporation to
include provisions which increase the percentage of outstanding shares
necessary to demand a special meeting of Stockholders. The proposed revision
to Article II, Section 3 of the By-Laws would permit a special meeting of
stockholders to be called only by the Board of Directors, or upon the written
demand, specifying the purpose of the meeting, of the holders of 66.66% of
the stock of the Company entitled to vote on the matter(s) to be considered
at the special meeting. Accordingly, if the revision is approved, even a
majority of such stockholders would not be permitted to call a special
meeting of stockholders or to require that the Board call a special meeting.
PURPOSE AND EFFECTS OF THE PROPOSED AMENDMENTS
The purpose of the proposed amendments to the Articles concerning
classification of the Board and the related matters discussed in this section
of the Proxy Statement is to discourage certain types of transactions,
described below, which involve an actual or threatened change of control of
the Company. They are designed to make it more difficult and time-consuming
to change majority control of the Board and thus to reduce the vulnerability
of the Company to an unsolicited proposal for the
46
<PAGE>
takeover of the Company that does not contemplate the acquisition of all of
the Company's outstanding shares, or an unsolicited proposal for the
restructuring or sale of all or part of the Company. As more fully described
below, the Board believes that, as a general rule, such unsolicited proposals
are not in the best interests of the Company and its stockholders.
Takeovers or changes in management of the Company which are proposed and
effected without prior consultation and negotiation with the Company's
management are not necessarily detrimental to the Company and its
stockholders. As stated above, the Board of Directors has no knowledge of any
present effort to gain control of the Company or to organize a proxy fight.
However, particularly in view of the Company's currently proposed acquisition
program and the remarkable rise in the market price of the Company's Common
Stock within a relatively limited period of time (from approximately $3.50
per share in April 1996 to approximately $10.00 per share in May 1996), the
Board believes that it is prudent and in the best interests of the Company's
stockholders generally to provide greater assurance of continuity of the
Board's composition and policies which would result from adoption of the
proposed amendments. The Board strongly believes that such advantages
outweigh any disadvantage relating to preserving incumbent management or
possibly discouraging potential acquirors from attempting to gain control of
the Company. See "Security Ownership of Management and Principal
Shareholders" and "Existing Provisions" below.
There is an established pattern of third parties accumulating
substantial stock positions in public companies as a prelude to proposing a
takeover or a restructuring or sale of all or part of the company or other
similar extraordinary corporate action. Such actions are often undertaken by
the third party without advance notice to or consultation with management of
the company. In many cases, the purchaser seeks representation on the
company's board of directors in order to increase the likelihood that its
proposal will be implemented by the company. If the company resists the
efforts of the purchaser to obtain representation on the company's board, the
purchaser may commence a proxy contest to have its nominees elected to the
board in place of certain directors or the entire board. In some cases, the
purchaser may not truly be interested in taking over the company, but uses
the threat of a proxy fight and/or a bid to take over the company as a means
of forcing the company to repurchase its equity position at a substantial
premium over market price.
The Board of Directors of the Company believes that the imminent threat
of removal of the Company's management in such situations would severely
curtail management's ability to negotiate effectively with such purchaser.
Management would be deprived of the time and information necessary to
evaluate the
47
<PAGE>
takeover proposal, to study alternative proposals and to help ensure that the
best price is obtained in any transaction involving the Company which may
ultimately be undertaken. If the real purpose of a takeover bid were to
force the Company to repurchase an accumulated stock interest at a premium
price, management would face the risk that if it did not repurchase the
purchaser's stock interest, the Company's business and management would be
disrupted, perhaps irreparably.
The proposed amendments will make more difficult or discourage a proxy
contest or the assumption of control by a holder of a substantial block of
the Company's stock or the removal of the incumbent Board, increasing the
likelihood that incumbent directors will retain their positions. In addition
since Section 203 of the DGCL discussed under the caption "Existing
Provisions" is applicable to the Company and specifically makes business
combination with interested stockholders more difficult to accomplish without
approval of the incumbent Board, the proposed amendments could give incumbent
management the power to prevent certain takeovers. For information
concerning the beneficial ownership of the Company's Common Stock by the
executive officers and directors. See "Directors, Nominees For Director and
Executive Officers of the Company." Section 203 of the DGCL may also, in
conjunction with the amendments of the Articles and the By-laws discussed
herein, discourage attempts to effect a "two-step" acquisition in which a
third party purchases a controlling interest in cash and acquires the balance
of the Company's voting stock for lower consideration. Under the proposed
amendments, the third party would not immediately obtain the ability to
control the Board through its first-step acquisition. Moreover, having made
the first-step acquisition, the third party could not if it wanted to
effectuate a business combination with the Company by acquiring less than an
aggregate of 85% of the Company's voting stock without triggering the
requirement that the business combination be approved by the continuing
directors AND by a 2/3rds vote of the holders of shares entitled to vote
thereon.
The proposed amendments complement the provisions described under the
caption "Existing Provisions" and are intended to encourage persons seeking
to acquire control of the Company to initiate such an acquisition through
arm's-length negotiations with the Company's management and Board of
Directors. The amendments, if they are adopted, like certain of the
Company's Existing Provisions described below, however, could also have the
effect of discouraging a third party from making a tender offer or otherwise
attempting to obtain control of the Company even though such an attempt might
be beneficial to the Company and its stockholders. In addition, since the
amendments are designed to discourage accumulations of large blocks of the
Company's stock by purchasers whose objective is to have such stock
repurchased by the Company at a premium, adoption of the amendments could
48
<PAGE>
tend to reduce the temporary fluctuations in the market price of the
Company's stock which are caused by accumulations of large blocks of the
Company's stock. Accordingly, stockholders could be deprived of certain
opportunities to sell their stock at a temporarily higher market price.
The staggered election of members of the Board pursuant to the proposed
amendments will apply to every election of directors, whether or not a change
in control of the Company had occurred or the holders of a majority of the
voting power of the Company desired to change the Board. The Board has no
present intention of soliciting a stockholder vote on proposals other than
those described herein relating to a possible change in control of the
Company or a change in the stockholders' interest in the Company.
The proposed amendments are permitted under the DGCL and are consistent
with the rules of the Nasdaq Market System, the principal market upon which
the Common Stock is listed and traded.
EXISTING PROVISIONS
SECTION 203 OF THE DGCL. Section 203 of the DGCL prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless (i)
prior to the date of the business combination, the transaction is approved by
the board of directors of the corporation; (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock, or (iii) on or after such date the business combination is
approved by the board of directors and by the affirmative vote of at least
66-2/3% of the outstanding voting stock that is not owned by the interested
stockholder. A "business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person, who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock.
PREFERRED STOCK. The Company has authorized 2,700,000 shares of
Preferred Stock contained in two classes of Preferred Stock: 1,200,000 shares
of Series A 12.5% cumulative voting Preferred Stock; and 1,500,000 shares of
Series B "blank check" Preferred Stock, $.01 par value, none of which shares
are issued and outstanding. Under the Company's Articles, authority is
vested in the Board of Directors, without further action by the Company's
stockholders, to provide for the issuance of shares of
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<PAGE>
either class of the Preferred Stock, and in connection therewith to fix by
resolution providing for the issue of the Series B Preferred Stock the number
of shares to be included and such of the preferences and relative
participating, optional or other special rights and limitations of such
series, including, without limitation, voting rights, rights of redemption or
rights of conversion into Common Stock, to the fullest extent now or
hereafter permitted by the DGCL. The existence of such authorized shares,
and the ability of the Company's Board of Directors, acting alone, to create
the terms and conditions of the Series B Preferred Stock and to provide for
the issuance of shares of either class of the Preferred Stock, can act as a
deterrent to a hostile takeover of the Company.
MANAGEMENT BELIEVES AUTHORIZATION AND APPROVAL OF THE AMENDMENTS TO THE
ARTICLES AND TO THE BY-LAWS IS IN THE BEST INTEREST OF THE COMPANY AND
RECOMMENDS THAT THEY BE AUTHORIZED AND RATIFIED.
VI . RATIFICATION OF AMENDED AND RESTATED EMPLOYMENT AGREEMENT
WITH ROBERT M. RUBIN.
The Company has entered into an Amended and Restated Employment Agreement
with Mr. Rubin, dated as of June 3, 1996 (Exhibit C), to extend the term of
Mr. Rubin's employment through July 31, 2001 (the "Restated Agreement"). The
Restated Agreement provides for a base salary payable to Mr. Rubin of
$175,000 for the fiscal year ended July 31, 1997, $200,000 for the fiscal
year ended July 31, 1998, $225,000 for the fiscal year ended July 31, 1999,
and a base salary for the fiscal years ended July 31, 2000 and July 31, 2001
(the "Final Years") as determined by the Compensation Committee of the
Company's Board of Directors and ratified by a majority of the entire Board
of Directors of the Company (other than the Employee). The base salary in
each of the two Final Years will not be less than the annual base salary in
effect in the immediately preceding fiscal year, plus an amount equal to the
increase in the annual cost of living as published by the Bureau of Labor
Statistics of the United States Department of Labor for wage earners in the
New York metropolitan area measured over the course of the immediately
preceding fiscal year. The Restated Agreement also provides for incentive
bonuses to be paid to Mr. Rubin of (i) $75,000 on November 1, 1997, if the
net income of the Company, including all of its consolidated subsidiaries
other than Western Power & Equipment Corp., a Delaware corporation, and
Western Power & Equipment Corp., an Oregon corporation, as determined by the
Company's independent auditors using generally accepted accounting
principles, consistently applied (the "Corporations' Net Income"), is greater
than or equal to $2,000,000 for the fiscal year ended July 31, 1997; (ii)
$100,000 on November 1, 1998 if the Corporations' Net Income is greater than
or equal to $2,500,000 for the fiscal year ended July 31, 1998; and (iii)
$125,000 on November 1, 1999 if the Corporations' Net Income is greater than
or equal to $3,000,000 for the fiscal year ended July 31, 1999. Incentive
compensation for each of the fiscal years ending July 31, 2000 and July 31,
2001 shall be as determined by the Compensation Committee of the Company's
Board of Directors and ratified by a majority of the entire Board of
Directors of the Company (other than the Employee).
Management recognizes that the Company's operations and its development
are dependent in part upon the efforts and talents of Robert M. Rubin. Loss
of his services could adversely affect the Company. Further, insofar as the
Company is currently engaged in an ongoing acquisitions program as its
foremost activity, Management believes it is in the best interests of the
Company to retain the services of Mr. Rubin as the Company's Chairman of the
Board and Chief Executive Officer for a period extending beyond the July 31,
1997 termination date of his current Employment Agreement. Therefore, in
Management's opinion, in order to induce and encourage Mr. Rubin to serve the
Company, and to maximize the value of the Company, Management has determined
after due consideration, and in light of the foregoing considerations, that
the Restated Agreement is not only reasonable, fair and prudent to the
shareholders of the Company, but is also necessary to promote and ensure the
best interests of the Company and its shareholders.
MANAGEMENT BELIEVES RATIFICATION OF THE AMENDED AND RESTATED EMPLOYMENT
AGREEMENT WITH ROBERT M. RUBIN IS IN THE BEST INTEREST OF THE COMPANY AND
RECOMMENDS THAT IT BE RATIFIED.
OTHER BUSINESS
While management of the Company does not know of any matters which may be
brought before the Meeting other than as set forth in the Notice of Meeting, the
proxy confers discretionary authority with respect to the transaction of any
other business. It is expected that the proxies will be voted in support of
management on any question which may properly be submitted to the meeting.
INCLUSION OF SHAREHOLDER PROPOSALS IN THE COMPANY'S PROXY STATEMENT
If any shareholder desires to put forth a proposal to be voted on at the
1997 Annual Meeting of Shareholders and wishes that proposal to be included in
the Company's Proxy Statement to be delivered to shareholders in connection with
such meeting, that shareholder must cause such proposal to be received by the
Company at its principal executive office no later than February 10, 1997. Any
request for such a proposal, should be accompanied by a written representation
that the person making the request is a record or beneficial owner of the lesser
of at least 1% of the outstanding shares of the Company's Common Stock or $1,000
in market value of the Company's common shares and has held such shares for a
least one year as required by the Proxy Rules of the Securities and Exchange
Commission.
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AVAILABILITY OF FORM 10-K
THE COMPANY WILL PROVIDE, WITHOUT CHARGE, TO ANY SHAREHOLDER, UPON WRITTEN
REQUEST OF SUCH SHAREHOLDER, A COPY OF THE ANNUAL REPORT ON FORM 10-K FOR THE
FISCAL YEAR ENDED JULY 31, 1995 AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION.
Any request for a copy of the Form 10-K should include a representation
that the person making the request was the beneficial owner, as of the record
date, of securities entitled to vote at the Annual Meeting of Stockholders.
Such request should be addressed to: American United Global, Inc., 25 Highland
Boulevard, Dix Hills, New York 11746; Attention: Secretary.
_________________________________________________________________
PLEASE SIGN, DATE AND RETURN THE ENCLOSED
PROXY IN THE ENVELOPE PROVIDED FOR SUCH PURPOSE
_________________________________________________________________
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APPENDIX I
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of
American United Global, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of American United
Global, Inc. and its subsidiaries at July 31, 1995 and 1994 and the results of
their operations and their cash flows for each of the three years in the period
ended July 31, 1995 in conformity with generally accepted accounting principles.
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 audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 7 to the consolidated financial statements, the Company
changed its method of accounting for income taxes during the year ended July 31,
1994.
Price Waterhouse LLP
Woodland Hills, California
September 23, 1995 (except as to Notes 1 and 9, which
are as of January 19, 1996)
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AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)
<TABLE>
<CAPTION>
July 31,
---------------------
1994 1995
<S> <C> <C>
ASSETS
------
Current assets:
Cash $ 775 $ 4,144
Trade accounts receivable (less allowance for doubtful
accounts $232 and $370, respectively) 2,980 6,008
Inventories (Note 4) 35,254 46,413
Prepaid expenses 360 22
Other receivables 171 1,102
-------- --------
Total current assets 39,540 57,689
Property and equipment, net (Note 5) 4,570 7,062
Intangibles and other assets (net of accumulated amortization
of $424 and $823, respectively) 2,362 2,526
Asset held for sale 9,307 9,552
-------- --------
$ 55,779 $ 76,829
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under floor financing lines (Note 6) $ 28,782 $ 37,072
Short-term borrowings (Note 6) 2,575 6,023
Accounts payable 1,715 2,171
Accrued liabilities 964 1,505
Income taxes payable (Note 7) 571 896
-------- --------
Total current liabilities 34,607 47,667
Long-term borrowings from related parties (Note 6) 2,575 -
Other non-current liabilities 659 352
Minority interest - 8,556
-------- --------
Total liabilities 37,841 56,575
-------- --------
Commitments and contingencies (Note 10)
Shareholders' equity (Notes 8 and 11):
Preferred stock - 12.5% cumulative, $1.00 per share
liquidation value, $.01 par value, 1,200 shares authorized
Common stock-$.01 par value; 20,000 shares authorized; 5,638
and 5,654 shares issued and outstanding, respectively 56 57
Additional contributed capital 15,858 15,889
Note receivable from shareholder (200) (184)
Retained earnings 2,224 4,492
-------- --------
Total shareholders' equity 17,938 20,254
-------- --------
$ 55,779 $ 76,829
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Net sales $ 30,386 $ 67,370 $ 86,173
Cost of goods sold 26,369 59,138 76,145
---------- ---------- ----------
Gross profit 4,017 8,232 10,028
Selling, general and administrative expenses 3,153 5,696 6,228
---------- ---------- ----------
Operating income 864 2,536 3,800
Interest expense 169 830 1,421
Loss on Western Power & Equipment initial public offering - - 386
---------- ---------- ----------
Income from continuing operations before income taxes 695 1,706 1,993
Provision for income taxes (Note 7) 278 682 711
Minority interest in consolidated subsidiary - - 118
---------- ---------- ----------
Income from continuing operations 417 1,024 1,164
---------- ---------- ----------
Discontinued operations, net of taxes (Note 9)
AEI:
(Loss) income from operations, net of income taxes 145 (302) -
Loss on disposal (net of income tax of $244) - (365) -
National/Stillman:
Income from operations, net of income taxes 1,105 1,762 1,104
---------- ---------- ----------
1,250 1,095 1,104
---------- ---------- ----------
Extraordinary items:
Gain on early debt extinguishment (less applicable income
taxes of $20) - 30 -
Income tax benefit resulting from realization of net
operating loss carryforward 58 - -
Cumulative effect of a change in accounting principle (Note 2) - 138 -
---------- ---------- ----------
Net income 1,725 2,287 2,268
Dividends on preferred stock (150) (86) -
---------- ---------- ----------
Net income available for common shareholders $ 1,575 $ 2,201 $ 2,268
---------- ---------- ----------
---------- ---------- ----------
Primary earnings per common and common equivalent share:
Income from continuing operations $ 0.06 $ 0.18 $ 0.20
Discontinued operations .27 .21 .20
Extraordinary items .01 .01 -
Cumulative effect of change in accounting principle - .03 -
---------- ---------- ----------
Net income $ 0.34 $ 0.43 $ 0.40
---------- ---------- ----------
---------- ---------- ----------
Weighted average number of shares outstanding - primary 4,622 5,170 5,730
---------- ---------- ----------
---------- ---------- ----------
Fully diluted earnings per common and common equivalent share:
Income from continuing operations $ 0.05 $ 0.18 $ 0.20
Discontinued operations .24 .20 .19
Extraordinary items .01 .01 -
Cumulative effect of change in accounting principle - .03 -
---------- ---------- ----------
Net income $ 0.30 $ 0.42 $ 0.39
---------- ---------- ----------
---------- ---------- ----------
Weighted average number of shares outstanding - fully diluted 5,207 5,256 5,794
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
54
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,725 $ 2,287 $ 2,268
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting principle - (138) -
Shares issued in lieu of compensation 23 - 32
Depreciation and amortization 392 633 1,068
Loss on disposal of business - 365 -
Loss on Western Power & Equipment initial public offering - - 386
Loss on sale of fixed assets - 35 4
Deferred tax provision 16 (200) 386
Gain on debt extinguishment - (30) -
Income applicable to minority interest - - 118
Change in assets and liabilities, net of effects of
acquisitions and dispositions:
Accounts receivable (1,973) (94) (2,420)
Inventories (2,758) (5,736) (5,181)
Prepaid expenses, other receivables and other assets 14 116 (1,196)
Accounts payable 1,140 749 261
Accrued liabilities 127 251 273
Income taxes payable 470 (348) 324
Other noncurrent liabilities 383 135 223
Discontinued operations 141 (1,253) 497
---------- ---------- ----------
Net cash used in operating activities (300) (3,228) (3,610)
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of fixed assets - 26 6
Proceeds from sale of business - 500 -
Purchase of property and equipment (477) (309) (332)
Acquisition of business,
net of cash acquired (1,937) - (449)
Acquisition costs (413) - (108)
---------- ---------- ----------
Net cash provided by (used in) investing activities (2,827) 217 (775)
---------- ---------- ----------
Cash flows from financing activities:
Net borrowings under floor plan financing agreements 7,336 1,467 4,187
Net payments under term and mortgage loans (6,955) 500 (1,623)
Payments of long-term debt (905) (814) -
Principal payments under capitalized lease obligations - (20) (52)
Proceeds from public offerings - 3,401 7,801
Net proceeds (payments) under notes payable to shareholders 1,900 (800) (2,575)
Dividends paid on preferred stock (150) (86) -
Exercise of stock options and warrants - 3 -
Collections from notes receivable from shareholder - - 16
---------- ---------- ----------
Net cash provided by financing activities 1,226 3,651 7,754
---------- ---------- ----------
Net increase (decrease) in cash (1,901) 640 3,369
Cash at beginning of year 2,036 135 775
---------- ---------- ----------
Cash at end of year $ 135 $ 775 $ 4,144
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
55
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Note Retained
---------------------- ------------------- Additional Receivable Earnings/
Number of Number of Contributed From (Accumulated
Shares Amount Shares Amount Capital Shareholder Deficit)
--------- --------- ------ ------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1992 1,200 $ 12 4,282 $ 43 $12,316 $(200) $(1,552)
Net income 1,725
Shares issued in connection with the Western
Power acquisition and certain compensation
agreements (Note 8) 535 5 1,334
Dividends paid on preferred stock (150)
Balance at July 31, 1993 1,200 12 4,817 48 13,650 (200) 23
Net income 2,287
Dividends paid on preferred stock (86)
Public offering, net of $968 in expenses 920 9 3,855
Shares repurchased (100) (1) (462)
Conversion of preferred stock to subordinated
note payable (Note 8) (1,200) (12) (1,188)
Exercise of options 2 3
Balance at July 31, 1994 -- -- 5,639 56 15,858 (200) 2,224
Net income 2,268
Issuance of common shares as compensation 16 1 31
Net collection on note receivable
from shareholder 16
Balance at July 31, 1995 -- -- 5,655 $57 $15,889 $(184) $ 4,492
<CAPTION>
Total
Shareholder's
Equity
-------------
<S> <C>
Balance at July 31, 1992 $10,619
Net income 1,725
Shares issued in connection with the Western
Power acquisition and certain compensation
agreements (Note 8) 1,339
Dividends paid on preferred stock (150)
Balance at July 31, 1993 13,533
Net income 2,287
Dividends paid on preferred stock (86)
Public offering, net of $968 in expenses 3,864
Shares repurchased (463)
Conversion of preferred stock to subordinated
note payable (Note 8) (1,200)
Exercise of options 3
Balance at July 31, 1994 17,938
Net income 2,268
Issuance of common shares as compensation 32
Net collection on note receivable from shareholder 16
Balance at July 31, 1995 $20,254
</TABLE>
See accompanying notes to consolidated financial statements.
56
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands, except per share data)
NOTE 1 - DESCRIPTION OF BUSINESS:
American United Global, Inc. ("AUG" or the "Company") is a holding company whose
assets consist of investments in its operating and nonoperating subsidiaries.
Through its Western Power & Equipment Corp. ("Western") subsidiary, the Company
operates as a retail distributor for the sale, servicing and leasing of light to
medium-sized construction equipment and parts. Substantially all of this
equipment is manufactured and supplied by Case Corporation ("Case").
In January 1996, the Company disposed of the all of the assets and substantially
all of the liabilities of its manufacturing business which consisted of two
units, National O-Ring and Stillman Seal (collectively "National/Stillman").
National O-Ring was involved in the manufacturing and distribution of synthetic
rubber o-ring sealing devices for use in automotive and industrial applications,
and Stillman Seal specialized in the design, manufacture and distribution of
rubber-to-metal bonded sealing devices and molded rubber shapes for use in
commercial aerospace, defense and communications industry applications. In
accordance with the rules and regulations of the Securities and Exchange
Commission, previously reported financial statements of the Company have been
restated to present National/Stillman as a discontinued operation. The net
assets of National/Stillman are presented as assets held for sale in the
restated balance sheet.
Until its disposal in fiscal year 1994, the Company's manufacturing business
also included Aerodynamic Engineering, Inc ("AEI") which performed precision
machining of close tolerance parts primarily for use in the commercial aerospace
and defense industries.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned and majority-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation. Minority
interest represents the minority shareholders' proportionate share of the equity
of Western which was 43% at July 31, 1995.
INVENTORY VALUATION
Inventories are stated at the lower of cost or market. Cost is determined based
upon the first-in, first-out method for parts inventories and the specific
identification method for equipment inventories.
57
<PAGE>
NOTE 2: (Continued)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
assets, ranging from 3 to 25 years. Expenditures for additions and major
improvements are capitalized. Repairs and maintenance costs are expensed as
incurred. The cost of assets retired or otherwise disposed of and the related
accumulated depreciation are eliminated from the accounts; any gain or loss
thereon is included in the results of operations.
INTANGIBLE ASSETS
Goodwill is amortized using the straight-line method over periods ranging from
20 to 40 years.
INCOME TAXES
Effective August 1, 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 109, Accounting for Income Taxes. The adoption of SFAS
No. 109 changed the Company's method of accounting for income taxes from the
deferral method to an asset and liability approach which requires the
recognition of deferred tax liabilities and assets for the expected future
consequences of temporary differences between the carrying amounts for financial
reporting purposes and the tax bases of assets and liabilities. The cumulative
effect of the adoption was an increase in net income of $138, resulting
primarily from the recognition of certain net operating loss carryforwards.
EARNINGS PER SHARE
Primary net income per share is computed by dividing the net income available
for common shareholders by the weighted average number of shares of common stock
and common stock equivalents outstanding during the period.
On a fully diluted basis, both net earnings and shares outstanding are adjusted
to assume the conversion of convertible subordinated notes from August 1, 1992.
Prior to fiscal year 1993, the conversion of the convertible subordinated notes
had an anti-dilative impact on earnings per share.
NOTE 3 - ACQUISITION:
WESTERN POWER AND EQUIPMENT
Effective November 1, 1992, the Company's newly formed Western subsidiary
completed the acquisition from Case of certain assets used in connection with
seven separate Case retail construction equipment distributorships located in
the states of Washington and Oregon (the "Western Acquisition").
The purchase included approximately $33,000 of various assets, including
inventories of new and used Case construction equipment and spare parts, as well
as the land and building at one
58
<PAGE>
of the locations. The purchase price paid was approximately $1,937 in cash and
approximately $31,000 was financed, primarily through inventory floor planning
dealer finance agreements with Case and its affiliates. In addition, the
Company incurred approximately $2,000 in other related acquisition costs in
connection with the transaction. The obligations of Western to Case and its
affiliates under the various purchase notes and related financing and security
agreements with Case and its affiliates are guaranteed by the Company.
Effective September 10, 1994, the Company acquired the assets and operations of
two additional factory-owned stores of Case in the states of California and
Nevada. The acquisition was consummated for approximately $557 in cash, $4,153
in installment notes payable to Case and the assumption of $5,019 in inventory
floor plan debt with Case and its affiliates. The accounts of these two stores
have been included in the Company's accounts from the effective date of the
acquisition. The acquisition was accounted for as a purchase and resulted in
the recording of approximately $300 in goodwill which is included in other long-
term assets on the Company's books and is being amortized on a straight-line
basis over 20 years.
The acquisitions were accounted for as purchases, and the net assets and the
results of operations of Western are included in the consolidated accounts from
the acquisition date.
NOTE 4 - INVENTORIES:
Inventories consist of the following:
July 31,
-----------------------
1994 1995
---- ----
Equipment:
New equipment $ 27,243 $ 36,461
Used equipment 3,428 4,662
Parts 4,583 5,290
-------- -------
$ 35,254 $ 46,413
-------- -------
-------- -------
At July 31, 1995, approximately $4,756 of equipment was being held for rent and
in accordance with standard industry practice is included in new and used
equipment inventory. Such equipment is generally being depreciated at an amount
equal to 80% of the rental payments received.
59
<PAGE>
NOTE 5 - PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
July 31,
-----------------------
1994 1995
---- ----
Land $ 1,063 $ 1,903
Buildings 1,012 2,347
Machinery and equipment 1,181 1,574
Furniture and office equipment 1,417 1,892
Vehicles 479 596
-------- --------
5,152 8,312
Less: Accumulated depreciation and amortization (582) (1,250)
-------- --------
$ 4,570 $ 7,062
-------- --------
-------- --------
NOTE 6 - BORROWINGS:
Borrowings consist of the following:
July 31,
-----------------------
1994 1995
---- ----
Third party borrowings -
Borrowings under floor financing lines $ 28,782 $ 37,072
Term and mortgage notes payable to
Case Corporation 2,575 6,023
-------- --------
31,357 43,095
Related party borrowings -
Note payable to principal shareholder 2,575 -
-------- --------
Total borrowings 33,932 43,095
-------- --------
Less current portions:
Dealer floor financing 28,782 37,072
Other third-party borrowings 2,575 6,023
-------- --------
$ 2,575 $ -
-------- --------
-------- --------
60
<PAGE>
NOTE 6: (Continued)
FLOOR FINANCING LINES
The Company has a floor plan revolving credit line with Case Credit Corporation,
the financing operation of Case Corporation, to purchase new equipment and
attachments. The Case Credit floor plan line provides for a six-month to nine-
month interest free term followed by a six-month to nine-month term during which
interest is charged at prime plus 2% (10.75% and 9.25% at July 31, 1995 and
1994, respectively). Principal payments are generally due at the earlier of
sale of the equipment or twelve to fifteen months from the invoice date. At
July 31, 1995 there was approximately $31,297 outstanding under floor financing
arrangements.
The Company also has a credit facility with Seafirst Bank to provide up to
$7.5 million for the purchase of new and used equipment held for sale as well
as equipment held for rental. The credit line calls for monthly interest
payments at prime plus .25% (9.00% and 8.00% at July 31, 1995 and 1994,
respectively). Principal payments are due in periodic installments over
terms ranging from twelve months to twenty four months from the borrowing
date. At July 31, 1995, approximately $3,885 was outstanding under this
facility. This credit facility is subject to annual review and expires
May 1, 1996.
In addition to the Case and Seafirst credit lines, the Company has entered into
floor plan financing arrangements with other equipment manufacturers and
commercial credit companies. These credit facilities provide for interest free
terms ranging up to forty-eight months. The interest rate paid on these credit
facilities are prime plus 2%. The total amount outstanding under these other
financing arrangements was $1,890 at July 31, 1995.
TERM AND MORTGAGE NOTES PAYABLE TO CASE
In connection with the acquisition of Western in fiscal year 1993 and the two
additional stores in fiscal year 1995, the Company entered into two
collateralized mortgage notes with Case relating to the purchase of certain land
and buildings. The first note totaling $2,075 bears interest at 6% and is due
upon the completion by Case of certain environmental remediation work expected
to be completed in fiscal 1996. The second mortgage note totaling $2,175 bears
interest at current prime rate and is due on October 1, 1995.
In addition to the mortgage notes, the Company entered into various term notes
with Case for the purchase of used equipment, parts, shop tools, furniture and
fixtures and accounts receivables. The terms of these notes range from six
months to twenty-four months, provide for interest charges at various rates up
to prime plus 2% and are collateralized by the related equipment, parts and
fixed assets. At July 31, 1995, approximately $1,773 was outstanding under
these notes.
NOTE PAYABLE TO PRINCIPAL SHAREHOLDER
In conjunction with the Company's secondary offering as further described in
Note 8, Shareholders' Equity, the Company's principal shareholder exchanged all
of the outstanding Series A preferred stock and an existing $1,375 subordinated
note for a single $2,575 subordinated note. The note bore interest at 9.56%
and was retired in June 1995.
61
<PAGE>
NOTE 7 - INCOME TAXES:
Effective August 1, 1993, the Company adopted SFAS No. 109, Accounting for
Income Taxes. The cumulative effect of adoption was an increase in net income
of $138, or $.03 per share.
Provision for income taxes is comprised of the following:
YEAR ENDED JULY 31,
--------------------
1993 1994 1995
---- ---- ----
Current:
Federal $ 236 $ 672 $ 918
State 26 107 60
----- ----- -----
262 779 978
----- ----- -----
Deferred:
Federal 15 (153) (252)
State 1 (47) (15)
----- ----- -----
16 (200) (267)
----- ----- -----
Total provision for income taxes $ 278 $ 682 $ 711
----- ----- -----
----- ----- -----
The principal reasons for the variation from the customary relationship between
income taxes at the statutory federal rate and that shown in the consolidated
statement of income were as follows:
YEAR ENDED JULY 31,
-----------------------
1993 1994 1995
---- ---- ----
Statutory federal income tax rate $236 $580 $638
State income taxes, net of federal income tax benefit 28 68 74
Other 14 34 (1)
---- ---- ----
Effective income tax rate $278 $682 $711
---- ---- ----
---- ---- ----
62
<PAGE>
Temporary differences and carryforwards which give rise to a significant portion
of deferred tax assets and liabilities were as follows:
JULY 31,
----------------
1994 1995
---- ----
Gross deferred tax liabilities:
Depreciation and amortization $(407) $(488)
Gross deferred tax assets:
Inventory reserve 189 193
Bad debt reserve 100 159
Accrued vacation and bonuses 34 92
Other taxes -- 53
Loss on Western initial public offering -- 154
Other 7 27
---- -----
330 678
---- -----
$(77) $ 190
---- -----
---- -----
At July 31, 1995, the Company had federal income tax loss carry forwards of $55
which will begin to expire in 2004. Utilization of such net operating losses
will be subject to annual limitations due to the Company's change in ownership
in September 1990.
NOTE 8 - SHAREHOLDERS' EQUITY:
PUBLIC OFFERING
On February 25, 1994, the Company completed a public offering of 800,000 units
at $5.25 per unit, each unit consisting of one share of common stock, $.01 par
value, and one redeemable common stock purchase warrant. Each warrant entitles
the holder to purchase one share of common stock until February 16, 1996, at an
exercise price of $7.50. The warrants are subject to redemption by the Company
at a redemption price of $.10 per warrant commencing August 16, 1994. In
addition, the underwriter exercised its over allotment option of an additional
120,000 units. Simultaneous with the offering, the Company purchased an
aggregate of 100,000 shares of its issued and outstanding common stock from
certain stockholders of the Company for $4.625 per share.
In addition, all outstanding shares of the Company's preferred stock, along with
an existing $1,375 note payable, were exchanged for a new subordinated note
payable to a related party totaling $2,575 which was repaid in fiscal 1995. The
net proceeds of the offering after the purchase of the selling shareholders'
shares were approximately $3,401. The Company retired notes totaling $525 that
were incurred in connection with the Western Acquisition. The balance of the
proceeds was used to pay down a revolving credit facility used by the
manufacturing subsidiaries.
63
<PAGE>
WESTERN INITIAL PUBLIC OFFERING
On June 14, 1995, Western completed an initial public offering of 1,300,000
shares of common stock at $6.50 per share. In addition, on July 28, 1995, the
underwriters exercised their overallotment option for an additional 195,000
shares. The net proceeds of the offering were approximately $7,801 including
$1,102 from the exercise of the overallotment option which was received
subsequent to year end.
Prior to the offering, Western issued promissory notes totaling $250 (the
"Bridge Loans"), and 38,462 shares of its common stock to certain investors.
The shares were valued at the estimated offering price and recorded as deferred
debt issuance costs. Such costs were written-off in June 1995 when the Bridge
Loans were retired using proceeds from the offering.
The net proceeds per share from Western's offering and the Bridge Loans were
lower than the Company's per share basis in Western at the time of the offering.
Accordingly, the Company recognized a $386 pretax loss in connection with the
transaction.
NOTE 9 - DISCONTINUED OPERATIONS:
AEI
On April 29, 1994, the Company sold its Aerodynamic Engineering, Inc. ("AEI")
subsidiary to Mayer Eisel, Inc., a company owned and operated by the former
managers of Aerodynamics, Inc. In consideration for the sale of AEI, the
Company received $500 in cash, a four year $500 promissory note from Mayer
Eisel, Inc., equipment valued at $100, and the cancellation of the remaining
outstanding balance of the convertible notes totaling $875. The Company also
assumed indebtedness of Aerodynamic, Inc. due to Congress Financial in the
amount of $958 and entered into a 5 year noncompete agreement with Mayer Eisel,
Inc.
Results of AEI's operations through its disposal are as follows:
YEAR ENDED JULY 31,
-------------------
1993 1994
---- ----
Net sales $3,503 $1,648
Costs and expenses 3,261 2,151
------ ------
(Loss) income before income taxes 242 (503)
Income tax benefit (expense) (97) 201
------ ------
Net (loss) income $145 $302
------ ------
------ ------
NATIONAL/STILLMAN
In July 1995, The Company signed a letter of intent to sell the assets and
liabilities of National/Stillman to Hutchinson Corporation. The transaction was
subject to certain terms and conditions and was not consummated until January
1996. The purchase price was $24,500 of which $20,825 was paid in cash with the
remaining $3,675 paid by the delivery of two 24 month
64
<PAGE>
noninterest bearing promissory notes. The transaction is expected to result in
an approximate $12,896 pretax gain.
Results of National/Stillman's operations for each of the three prior years are
as follows:
YEAR ENDED JULY 31,
------------------------
1993 1994 1995
---- ---- ----
Net sales $ 30,983 $ 34,820 $37,441
Costs and expenses 29,119 32,147 35,511
-------- -------- -------
Income before taxes 1,864 2,673 1,930
Provision for income taxes 759 911 826
-------- -------- -------
Net income $ 1,105 $ 1,762 $ 1,104
-------- -------- -------
-------- -------- -------
NOTE 10 - COMMITMENTS AND CONTINGENCIES:
The Company leases its facilities under noncancelable operating leases with
terms ranging from one to five years. Certain of the leases provide for options
to renew. The Company's operating leases are as follows:
Year Ending
JULY 31, TOTAL
-------- -----
1996 $ 598
1997 520
1998 479
1999 290
2000 153
-------
Total $2,040
-------
-------
Rental expense, exclusive of maintenance, property taxes, insurance and
utilities, was $296, $435 and $733 for the years ended July 31, 1993, 1994 and
1995, respectively.
The Company is involved in certain legal proceedings that have arisen in the
normal course of business. These matters are not expected to have a material
effect on the Company's consolidated financial condition or results of
operations.
65
<PAGE>
NOTE 11 - STOCK OPTION PLANS:
EMPLOYEE STOCK BONUS PLAN (THE "TRANSFER PLAN")
In March 1991, the Company granted incentive options under the Transfer Plan to
purchase an aggregate of 38,496 shares of the common stock at purchase prices of
$1.63 and $6.50. During fiscal 1994, 1,780 options were exercised under the
Transfer Plan. No options were exercised in 1993 or 1995. There are currently
outstanding options to purchase 24,328 shares of common stock under the Transfer
Plan, 20,866 of which are exercisable at $1.63.
THE 1991 EMPLOYEE INCENTIVE STOCK OPTION PLAN (THE "1991 STOCK OPTION PLAN")
Key employees of the Company can receive incentive options to purchase an
aggregate of 750,000 shares of common stock at option exercise prices equal to
100% of the market price per share of the Company's common stock on the date of
grant. The 1991 Stock Option Plan was approved by the Board of Directors and
stockholders in June 1991 and became effective from May 21, 1991.
Set out below is a summary of the activity of the 1991 Stock Option Plan for the
years ended July 31, 1993, 1994 and 1995:
1993 1994 1995
------- ------- -------
Beginning balance 69,350 461,050 623,450
Granted 395,500 170,000 --
Exercised -- -- --
Expired or canceled 3,800 7,600 3,800
------- ------- -------
Ending balance 461,050 623,450 461,050
STOCK OPTION BONUS PLAN (THE "STOCK BONUS PLAN")
The Stock Bonus Plan was established in October 1991, and granted certain key
employees nonqualified options to acquire 171,000 shares of stock, which
options were only exercisable in the event that the Company realized certain
targeted annual earnings in fiscal years 1992-1994. The Company did not meet
its annual earning target in 1992; however, it met its annual earning targets in
1993 and 1994 and 114,000 options were granted at exercise prices equal to the
market price at the date of grant. As of July 31, 1995, all such options were
outstanding.
On May 5, 1995, the Company's Board of Directors approved the repricing of
options outstanding under all three plans. With the exception of the $1.63
options under the Transfer Plan, all outstanding options were repriced to $3.125
which was the closing market price on May 5, 1995.
66
<PAGE>
NOTE 12 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
AND SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
The Company paid interest relating to continuing operations of $221, $795 and
$1,091 during the twelve months ended July 31, 1993, 1994 and 1995,
respectively. The Company paid $655, $1,268, and $1,575 in consolidated income
taxes during the twelve months ended July 31, 1993, 1994 and 1995, respectively.
Noncash investment activities surrounding the Company's acquisition of Western
were as follows:
Year Ended
July 31,
----------------
1993 1995
---- ----
Fair value of net assets acquired $ 32,663 $9,621
Noncash financing (30,726) 9,172
-------- ------
$ 1,937 $ 449
-------- ------
-------- ------
As discussed in Note 9, the Company sold AEI to Mayer Eisel, Inc. In partial
consideration of the sale, the Company received a four year $500 promissory
note, equipment valued at $100 and the cancellation of the remaining outstanding
balance of the convertible notes totaling $875. The remaining consideration was
received in cash. As discussed in Note 8, concurrent with the Company's public
offering in February 1994, all outstanding Preferred Stock, along with an
existing $1,375 note payable was exchanged for a new subordinated note totaling
$2,575.
NOTE 13 - EMPLOYEE SAVINGS PLAN:
The Company has a voluntary savings plan pursuant to Section 401(k) of the
Internal Revenue Code, whereby eligible participants may contribute a percentage
of compensation subject to certain limitations. The Company has the option to
make discretionary qualified contributions to the plan, however, no Company
contributions were made for the years ended July 31, 1993 through 1995.
67
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
April 30,
1996
-----------
ASSETS
<S> <C>
Current Assets:
Cash and cash equivalents $ 15,965,000
Marketable securities 6,791,000
Trade accounts receivable (less allowance
for doubtful accounts of $448,000 and
$370,000 respectively) 6,598,000
Other receivables 580,000
Inventories 62,213,000
Prepaid expenses 102,000
------------
TOTAL CURRENT ASSETS 92,249,000
------------
Note receivable (Note 5) 3,112,000
Property and equipment, net 6,936,000
Intangibles and other assets 2,323,000
Assets held for sale -
------------
TOTAL ASSETS $104,620,000
------------
------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under floor financing lines $ 50,002,000
Short-term borrowings 3,913,000
Accounts Payable 2,656,000
Accrued liabilities 2,397,000
Income taxes payable 5,413,000
------------
TOTAL CURRENT LIABILITIES 64,381,000
------------
Capital lease obligations 1,658,000
Other non-current liabilities -
Minority Interest 9,149,000
------------
TOTAL LIABILITIES 75,188,000
------------
Commitments and contingencies (Note 4)
SHAREHOLDERS' EQUITY:
Preferred stock:
Class A - 12.5% cumulative, $1.00 per share
liquidation value, $.01 par value, 1,200,000
shares authorized; none issued and outstanding -
Class B - $.01 par value; 1,500,000 shares
authorized; none issued and outstanding -
Common stock-$.01 par value; 20,000,000 shares
authorized; 5,695,749 and 5,654,479
issued and outstanding, respectively 57,000
Additional contributed capital 16,327,000
Note receivable from shareholder ( 155,000)
Retained earnings 13,203,000
------------
TOTAL SHAREHOLDERS' EQUITY 29,432,000
------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $104,620,000
------------
------------
</TABLE>
See accompanying notes to consolidated financial statements.
68
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
1996 1995
---------- ----------
<S> <C> <C>
Net Sales $ 26,136,000 $ 20,772,000
Cost of goods sold 22,854,000 18,235,000
------------ ------------
GROSS PROFIT 3,282,000 2,537,000
Selling, general and administrative expenses 2,205,000 1,596,000
------------ ------------
OPERATING INCOME 1,077,000 941,000
OTHER (INCOME) EXPENSE
Bridge loan deferred financing costs - 118,000
Other income ( 114,000) ( 25,000)
Interest income ( 351,000) -
Interest expense 453,000 346,000
------------ ------------
Income from continuing operations before income
taxes and minority interest 1,089,000 502,000
Provision for income taxes 419,000 166,000
Minority interest in earnings of consolidated subsidiary 227,000 -
------------ ------------
Income from continuing operations 443,000 336,000
Discontinued Operations - Income from operations
of subsidiaries sold (less applicable income
taxes of $-0- and $322,000 respectively) - 396,000
------------ ------------
Net income $ 443,000 $ 732,000
------------ ------------
------------ ------------
Earnings per common and common equivalent share:
Continuing operations $ .08 $ .06
Discontinued operations - .07
------------ ------------
Net income $ .08 $ .13
------------ ------------
------------ ------------
Weighted average number of shares 5,696,000 5,654,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
69
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Nine Months Ended
April 30,
1996 1995
---- ----
Net Sales $ 75,061,000 $ 59,897,000
Cost of goods sold 66,347,000 52,840,000
---------- ----------
Gross profit 8,714,000 7,057,000
------------
Selling, general and administrative
expenses 5,727,000 4,342,000
--------- ---------
Operating income 2,987,000 2,715,000
Other (Income) Expense
- ----------------------
Bridge loan deferred financing costs - 118,000
Interest income ( 351,000) -
Other income ( 289,000) ( 43,000)
Interest expense 1,194,000 879,000
--------- ---------
Income from continuing operations before
income taxes and minority interest 2,433,000 1,761,000
Provision for income taxes 922,000 669,000
Minority interest in earnings of
consolidated subsidiary 593,000 -
--------- ---------
Income from continuing operations 918,000 1,092,000
Discontinued Operations - Gain on Sale
of wholly owned subsidiaries (less
applicable income taxes of $5,025,000)
(Note 5) 7,539,000 -
--------- ---------
Discontinued Operations - Income from
operations of subsidiaries sold (less
applicable income taxes of $169,000
and $413,000 respectively) 254,000 530,000
--------- ---------
Net income $8,711,000 $1,622,000
---------- ----------
---------- ----------
Earnings per common and common
equivalent share:
Continuing operations $ .16 $ .19
Discontinued operations .05 .10
Gain on sale of wholly own
subsidiaries 1.32 -
----- -----
Net income $1.53 $ .29
----- -----
----- -----
Weighted average number of shares 5,691,000 5,654,000
--------- ---------
--------- ---------
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
April 30,
1996 1995
---------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 8,711,000 $ 1,622,000
Adjustment to reconcile net income
to net cash provided by operating
activities:
Discontinued operations ( 7,793,000) -
Depreciation and amortization 640,000 1,273,000
Loss on sale of fixed assets ( 1,000) 120,000
Stock in lieu of compensation 15,000 32,000
Income applicable to minority interest 593,000 -
Change in assets and liabilities, net of
effects of acquisition & dispositions:
Accounts receivable 810,000 ( 1,914,000)
Other receivables ( 580,000) -
Inventories ( 10,450,000) 3,508,000
Inventory floor plan financing 8,050,000 ( 2,388,000)
Prepaid expenses and other assets ( 79,000) 928,000
Accounts payable ( 150,000) 301,000
Other accrued liabilities 962,000 1,061,000
Income taxes payable ( 38,000) ( 3,000)
Other assets ( 106,000) -
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 584,000 4,540,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ( 538,000) ( 2,345,000)
Purchase of distribution outlets ( 603,000) ( 640,000)
Proceeds from sale of fixed assets 2,078,000 8,000
Proceeds from sale of wholly owned subsidiaries 19,493,000 -
Purchase of marketable securities ( 6,791,000) -
------------ ------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 13,639,000 ( 2,977,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease ( 53,000) ( 39,000)
Short term borrowings ( 2,783,000) ( 1,804,000)
Note receivable from shareholder - 50,000
Exercise of stock warrants and options 90,000 -
Bridge loan - 250,000
------------ ------------
NET CASH (USED) BY FINANCING ACTIVITIES ( 2,746,000) ( 1,543,000)
------------ ------------
Net increase in cash and cash equivalents 11,477,000 20,000
Cash and cash equivalents at beginning of period 4,488,000 831,000
------------ ------------
Cash and cash equivalents at end of period $ 15,965,000 $ 851,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
70
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Note
Common Stock Additional Receivable Total Total
Number of Contributed from Retained Shareholders'
Shares Amount Capital Shareholder Earnings Equity
------ ------ ----------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1995 5,655,000 $57,000 $15,889,000 ($184,000) $4,492,000 $20,254,000
Net income - - - - 8,711,000 8,711,00
Issuance of common shares
as compensation 12,000 - 15,000 - - 15,000
Satisfaction of note receivable
from shareholder - - - 29,000 - 29,000
Warrants exercised 28,000 - 90,000 - - 90,000
Options exercised 1,000 - 1,000 - - 1,000
Deferred Compensation - - 332,000 - - 332,000
--------- ------- ----------- -------- ---------- -----------
Balance at April 30, 1996 5,696,000 $57,000 $16,327,000 ($155,000) $13,203,000 $29,432,000
--------- ------- ----------- -------- ---------- -----------
--------- ------- ----------- -------- ---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
71
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial information included in this report has been prepared
in conformity with the accounting principles and practices reflected in the
consolidated financial statements included in the annual report filed with the
Commission for the preceding fiscal year. All adjustments are of a normal
recurring nature and are, in the opinion of management, necessary for a fair
statement of the consolidated results for the interim periods. This report
should be read in conjunction with the Company's 1995 Annual Report.
Certain reclassifications have been made in the accompanying fiscal 1995
consolidated financial statements to conform with financial statement
presentation for fiscal 1996. Such reclassifications had no effect on the
Company's results of operations or retained earnings.
NOTE 2 - STATEMENT OF CASH FLOWS
Supplemental disclosure of cash paid during the periods:
Nine Months Ended
April 30,
1996 1995
-------- -------
Interest $1,440,000 $1,079,000
Income taxes $1,561,000 $ 950,000
Supplemental disclosure of non-cash investing and financing activities:
1. A capital lease obligation of $926,000 was incurred in December 1995
when Western consummated a sale leaseback transaction of the Auburn
facility. In February 1996, a capital lease obligation of $740,000
was incurred related to the lease of the Sacramento facility. In
February 1996 the Company acquired the assets and operations of two
stores in California for approximately $630,000 in cash (including
$27,000 of indirect expenses), $3,090,000 in installment notes payable
and the assumption of $3,965,000 in inventory floor plan debt.
2. A note receivable of $3,037,000 arose due to the Hutchinson
Transaction.
72
<PAGE>
NOTE 3 - INVENTORIES
Inventories consist of the following: April 30, July 31,
1996 1995
-------- --------
Raw materials $ - $ 1,179,000
Work-in-process - 2,736,000
Finished goods - 3,379,000
------------ -----------
- 7,294,000
LESS: Allowance for obsolete and
excess inventory ( - ) ( 888,000)
------------ -----------
- 6,406,000
Equipment: New equipment 51,088,000 36,461,000
Used equipment 5,196,000 4,662,000
Parts 5,929,000 5,290,000
------------ -----------
$62,213,000 $52,819,000
------------ -----------
------------ -----------
Balance sheet presentation of inventory
Inventories $62,213,000 $46,413,000
Included in assets held for sale - 6,406,000
------------ -----------
$62,213,000 $52,819,000
------------ -----------
------------ -----------
NOTE 4 - CONTINGENCIES
Except for ordinary, routine proceedings incidental to its business, there are
no pending legal proceedings to which the Company or any of its property is
subject. In the opinion of management, the outcome of these legal proceedings
will not have a material adverse effect on the financial condition or results of
operations and cash flows of the Company and its subsidiaries.
Prior to April 30, 1996 the Company agreed to purchase and accept delivery of
certain computer software and related products. It has agreed to the purchase
for $5,000,000 subject to completion of satisfactory testing. The Company has
the right to reject the software and to limit its liability to actual costs and
expenses incurred in ongoing development of the software. In the event of
rejection by the Company, the maximum liability that would be incurred under the
agreement would not exceed $1,000,000.
NOTE 5 - DISPOSITION OF ASSETS
Pursuant to the terms of an Asset Purchase Agreement, dated as of November 22,
1995 (the "Sale Agreement"), by and among Hutchinson Corporation, a Delaware
Corporation ("Hutchinson"), as Buyer, and the Company and each of its AUG-
California, Inc., American United Products, Inc. ("National O-Ring") and
American United Seal, Inc. ("Stillman Seal") subsidiaries, on January 19, 1996
all of the assets of the National O-Ring and Stillman Seal businesses (the
"Manufacturing Business") were sold to, and substantially all of the liabilities
associated with operation of the Manufacturing Business were assumed by,
subsidiaries of Hutchinson newly-formed for the purpose of acquiring the
Manufacturing Business (the "Hutchinson Transaction"). Hutchinson produces a
variety of rubber related products for three market sectors: automotive,
consumer and industrial use.
73
<PAGE>
The Purchase Price for the Manufacturing Business was $24,500,000, $20,825,000
of which was paid in cash and the aggregate $3,675,000 balance was paid by
delivery of two 24-month non-interest bearing promissory notes (the "Notes")
made by the Hutchinson subsidiaries that purchased the Manufacturing Business.
The Notes, which have been discounted for financial statement presentation by
$638,000, are guaranteed by Total America, Inc., the parent corporation whose
securities are listed on the New York Stock Exchange.
At the closing of the Hutchinson Transaction, (the "Closing"), the Company,
Hutchinson (as guarantor) and Robert Rubin, who is the Chairman and a director
of the Company, entered into a five-year Non-Competition Agreement in favor of
Hutchinson and its affiliates, pursuant to which Mr. Rubin and the Company
agreed not to compete with the businesses acquired in the Hutchinson
Transaction. Under the terms of the Non-Competition Agreement, Mr. Rubin will
receive payments aggregating $200,000 over a seven year period. In addition, at
the Closing Hutchinson engaged Mr. Rubin as a consultant to provide advisory
services relating to the acquired Manufacturing Business over a seven year
period, for which services Mr. Rubin will receive payments aggregating
$1,000,000.
On January 19, 1996, as a result of the Hutchinson Transaction, Mr. John Shahid,
the former President, Chief Executive Officer and director of the Company and
the Company entered into a Termination Agreement whereby Mr. Shahid resigned as
an officer and director of the Company and each of its subsidiaries in
consideration for the payment of an aggregate of $815,833.33, representing
salary payments under his Employment Agreement through December 31, 1998, as
well as a bonus payment for fiscal year 1996 in the amount of $90,000. The
Termination Agreement also provides that the Company shall retain Mr. Shahid as
a consultant for a period of three (3) years, commencing April 1, 1996, for
which consulting services he will be paid quarterly an aggregate of $200,000.
Details of this transaction are as follows:
Sale price $23,862,000
Basis of assets sold 9,634,000
Deferred Compensation 332,000
Expenses of sale 1,332,000
-----------
Gain on sale before
income taxes 12,564,000
Income tax provision 5,025,000
-----------
Gain on sale of wholly
owned subsidiaries $ 7,539,000
-----------
-----------
The deferred compensation change is a result of the extension of the exercise
period with respect to options for 483,598 shares. The extension of the
exercise period created a new measurement date for these options which resulted
in a $332,000 compensation charge. This extension was granted as a result of the
closing of the Hutchinson Transaction in January 1996.
The continuing operation of the Company now consists of the Company's 56.6%
interest in Western Power and Equipment Corp., a publicly traded Delaware
Corporation engaged in the construction equipment distribution business,
principally as a Case Corporation dealer ("WPE").
74
<PAGE>
NOTE 6 - FISCAL 1996 AND SUBSEQUENT EVENTS
On February 9, 1996, the Company loaned an aggregate of $450,000 to Diplomat
Corporation ("Diplomat") in connection with Diplomat's acquisition of
BioBottoms, Inc. Diplomat is a public company of which Robert Rubin serves as a
director. Before the BioBottoms transaction, Mr. Rubin held approximately 22%
of Diplomat's outstanding capital stock. Such loan (i) bears interest at the
prime rate of CoreStates Bank, N.A. plus 2% and is payable monthly, (ii) is
subordinated to a $2,000,000 revolving credit loan agreement between Diplomat
and Congress Financial Corporation, (iii) is payable in full on or before May 4,
1996 and (iv) is secured by a second priority lien in all of the assets of
Diplomat and its wholly-owned subsidiary, BioBottoms, Inc. The $450,000 loan to
Diplomat was repaid in May 1996.
In connection with the above transaction, Mr. Rubin personally made a secured
loan to Diplomat in the aggregate principal amount of $2,353,100 which matures
in February 1999, and committed to make available a stand-by loan of up to
$300,000 aggregate principal. In consideration for making his loan to Diplomat
and committing to make this stand-by commitment, Mr. Rubin received that number
of shares of Diplomat Convertible Preferred Stock which are convertible into
1,000,000 shares of Diplomat Common Stock. His holdings of Diplomat Preferred
Stock make Mr. Rubin the beneficial owner of approximately 46% of Diplomat
Common Stock.
On March 8, 1996, the Company purchased 25,000 Series A Convertible Preferred
Shares of Chatfield Dean, Inc. for $250,000. Chatfield Dean, Inc. is a broker
dealer and a NASD member firm. If converted, the Company would hold 1.4% of
Chatfield Dean, Inc.'s total outstanding Common Stock.
Pursuant to an Agreement, dated May 30, 1996 (the "ERD Agreement") between the
Company and ERD Waste Corp. ("ERD"), the Company agreed to provide certain
financial accommodations to ERD by making available a $4.4 million standby
letter of credit expiring May 31, 1997 issued by Citibank, N.A. in favor of
Chemical Bank (the "Letter of Credit") on behalf of ERD. Chemical Bank is the
principal lender to ERD and its subsidiaries, and upon issuance of the Letter of
Credit Chemical Bank made available $4.4 million of additional funding to ERD
under ERD's existing lending facility. The funding was used to refinance
certain outstanding indebtedness of Environmental Services of America, Inc.
("ENSA"), a wholly owned subsidiary of ERD. Robert M. Rubin, the Chairman,
Chief Executive Officer, Chief Financial Officer, a director and a principal
stockholder of the Company is also the Chairman, Chief Executive Officer, a
director and a principal stockholder of ERD. Under the terms of a separate
Indemnity Agreement, Mr. Rubin has agreed to indemnify the Company for any
losses or liabilities that it may incur in connection with its having provided
the Letter of Credit financial accommodation on behalf of ERD.
In consideration for making the Letter of Credit available, in addition to
repayment by ERD of all amounts drawn under the Letter of Credit and the grant
of a security interest in all machinery and equipment of ENSA to secure such
repayment, ERD agreed (i) to pay to the Company all of the Company's fees, costs
and expenses payable to Citibank and others in connection with making the Letter
of Credit available, as well as the amount of all interest repayment by ERD and
75
<PAGE>
(ii) to issue to the Company an aggregate of 100,000 shares of ERD common stock
(the "ERD Shares"). Shares of ERD Common Stock trade on The NASDAQ National
Market and, at the time of closing of the transaction, the 100,000 ERD Shares
had a market value of $925,000.
Under the terms of the ERD Agreement, the parties agrees to engage Unterberg
Tobin & Co., or another mutually acceptable investment banking firm to advise
the Board of Directors of each of the Company and ERD in writing, as soon as
practicable, as to: (i) whether or not the contemplated issuance of the ERD
Shares represents BOTH (A) fair and adequate consideration to the Company
considering the financial risks being taken by the Company and (B) a reasonable
payment of consideration by ERD for the financial accommodations provided; (ii)
whether a different number of common shares of ERD (whether more or less than
100,000 shares) would be more appropriate under the circumstances to meet both
of the tests described above; or (iii) whether a form of consideration, other
than the ERD common shares would be more appropriate under the circumstances to
meet both of the tests described above. The ERD Agreement further provides that
the opinion and recommendation of the investment banking firm as to the
appropriate number of ERD Shares or other form of compensation in lieu of ERD
Shares shall be final and binding on all parties to the ERD Agreement.
Although there is no assurance that the transaction will be consummated, or if
consummated that the terms of the transaction will be as currently anticipated,
the Company has executed a non-binding letter of intent to acquire all of the
outstanding capital stock of ConnectSoft, Inc. ("ConnectSoft") for a minimum of
1,000,000 and a maximum of 3,000,000 shares of Company Common Stock.
ConnectSoft is a private company that provides communications software
applications and services for persons seeking access to and utilization of
resources and information available on the Internet. The Company has already
commenced financing the operations of ConnectSoft by providing a $1,100,000 Line
of Credit. Outstanding balances under the Line of Credit are convertible into a
majority of the outstanding shares of capital stock of ConnectSoft in the event
of default. Upon completion of its acquisition of ConnectSoft, the Company has
agreed to increase the maximum availability under the Line of Credit to
$5,000,000. Consummation of the acquisition is subject to certain conditions,
including the Company's satisfactory due diligence investigations of ConnectSoft
and its technology, as well as approval of the acquisition by ConnectSoft
stockholders. Although the Company intends to acquire, or invest in, businesses
other than ConnectSoft in the future with the proceeds of the Hutchinson
Transaction, at this time the Company has no other specific business or
businesses which it intends, or is obligated, to purchase.
In June 1996, the Company executed a non-binding letter of intent to acquire
Interglobe Networks, Inc., a company providing engineering , design and
consulting services for users and providers of telecommunications facilities
on the Internet and other media. If the transaction is consummated the
Interglobe Networks stockholders will receive 700,000 Company common shares,
plus options to acquire an additional 600,000 Company common shares,
two-thirds of which are exercisable based upon Interglobe Network's future
financial performance.
On October 10, 1995, using proceeds from the WPE's initial public offering,
Western retired the $2,175,000 real estate note given to Case for the purchase
of the Sparks, Nevada real estate in September 1994. Western is in the process
of consummating a transaction with an institutional lender to provide Western
with a conventional mortgage on the property in the amount of $1,330,000 to be
secured by the Sparks, Nevada real estate. The agreement calls for the
principal and interest payments over a seven year term using a fifteen year
amortization period. The note cannot be prepaid during the first two years of
its term.
On October 19, 1995, Western entered into a purchase and sale agreement with an
unrelated party for the Auburn, Washington facility subject to the execution of
a lease. Under the term of this agreement, which closed on December 1, 1995,
Western sold the property and is leasing it back from the purchaser for 20 years
at an initial annual rental of $204,000. Under the lease, such annual rental
76
<PAGE>
increases to $228,000 after five years and is subject to fair market adjustments
at the end of ten years. The lease is a net lease with payment of insurance,
property taxes and maintenance costs paid by Western. In accordance with
Statement of Financial Accounting Standards No. 13 (SFAS 13), the building
portion of the lease is being accounted for as a capital lease while the land
portion of the lease qualifies for treatment as an operating lease. The sale
leaseback of the Auburn facility did not result in any material gain or loss to
Western.
Effective February 17, 1996, Western acquired substantially all of the operating
assets used by Case Corporation ("Case") in connection with its business of
servicing and distributing Case construction equipment at a facility located in
Sacramento, California (the "Sacramento Operation"). The acquisition was
consummated for approximately $630,000 in cash, $3,090,000 in installment notes
payable to Case and the assumption of $3,965,000 in inventory floor plan debt
with Case and its affiliates. The acquisition is being accounted for as a
purchase.
The real property and improvements used in connection with the Sacramento
Operation, and upon which the Sacramento Operation is located, were sold by Case
for $1,500,000 to the McLain-Rubin Realty Company, LLC ("MRR"), a Delaware
limited liability company the owners of which are Messrs. C. Dean McLain, the
President and a director of the Company and Western, and Robert M. Rubin, the
Chairman and a director of the Company and Western. Simultaneous with its
acquisition of the Sacramento Operation real property and improvements, MRR
leased such real property and improvements to Western under the terms of a 20
year Commercial Lease Agreement dated as of March 1, 1996 with Western paying an
initial annual rental of $168,000. Under the lease, such annual rental
increases to $192,000 after five years and is subject to fair market adjustments
at the end of ten years. In addition to base rent, Western is responsible for
the payment of all related taxes and other assessments, utilities, insurance and
repairs (both structural and regular maintenance) with respect to the leased
real property during the term of the lease. In accordance with SFAS 13, the
building portion of the lease is being accounted for as a capital lease while
the land portion of the lease qualifies for treatment as an operating lease.
On June 11, 1996, Western acquired the operating assets of GCS, Inc. ("GCS"), a
California-based, closely held distributor of heavy equipment primarily marketed
to municipal and state government agencies responsible for street and highway
maintenance. Western will operate the GCS business from an existing location in
Fullerton, California and from Western's existing facility in Sacramento,
California. The Purchase price for the GCS assets was $1,655,000. This
transaction is being accounted for as a purchase.
NOTE 7 - SUBSIDIARY PREFERRED STOCK
The Company's subsidiary has been authorized to issue 10,000,000 shares of
"blank check" preferred stock, with respect to which all the conditions and
privileges thereof can be determined solely by action of such subsidiary's Board
of Directors without further action of its stockholders. As at April 30, 1996
none were issued and outstanding.
NOTE 8 - ADVERTISING EXPENSE
The Company and its subsidiary expense all advertising costs as incurred.
77
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Form 10-Q.
On January 19, 1996 the Company sold all the assets of its manufacturing
operations (See Note 5 of the Notes to Consolidated Financial Statements for
detailed information.) leaving the Company with ownership of 56.6% of the stock
of Western Power and Equipment Corp. ("WPE"), a public Delaware company that
sells and services construction equipment and related parts principally
manufactured by Case Corporation ("Case"). The operations of the Company now
consist of the Company's 56.6% interest in WPE.
On June 14, 1995, WPE completed an initial public offering of 1,495,000 shares
of common stock. After the offering the Company's interest in Western, through
its ownership interest in WPE, was reduced to 56.6%.
Effective November 1, 1992, the Company through its formerly wholly-owned
subsidiary Western Power and Equipment Corp., an Oregon corporation ("Western"),
completed the acquisition from Case of seven stores located in Washington and
Oregon which sell and service equipment used in the construction industry.
Western's strategic plan was, and continues to be, that of expanding the
operations and improving profitability at each of its existing retail outlets.
Subsequent to 1992 Western opened three additional outlets in Washington and
Oregon. Effective September 10, 1994, Western also purchased from Case
Corporation two additional retail construction equipment distribution outlets
located in Sparks, Nevada and Fremont, California. On December 11, 1994,
Western relocated its Fremont outlet to neighboring Hayward, California. As
part of its agreement with Case, Western was required to open two additional
distribution outlets in northern California. In March and August 1995 Western
opened retail stores in Santa Rosa and Salinas, California, respectively. In
February 1996, the Company announced the opening of a distribution outlet in
Elko, Nevada. Also in February 1996, Western completed the acquisition of the
Sacramento, California outlet from Case as further described in Note 6 to the
Consolidated Financial Statements. The opening of a Stockton, California outlet
was completed in March 1996, bringing the total number of distribution outlets
owned and operated by Western to 17.
In 1995, the Company incorporated WPE as a wholly-owned holding company to own
100% of the outstanding shares of Western.
RESULTS OF OPERATIONS
THE THREE MONTHS AND NINE MONTHS ENDED APRIL 30, 1996 COMPARED TO THE THREE
MONTHS AND NINE MONTHS ENDED APRIL 30, 1995.
Revenues for the three month period ended April 30, 1996 increased $5,364,000 or
26% over the three month period ended April 30, 1995. The increase in revenues
was primarily attributable to increased sales of new units ($3,426,000), rental
revenues ($760,000) and parts sales ($748,000). Revenues from sales of used
units and service work also increased ($324,000 and $106,000 respectively)
during
78
<PAGE>
the quarter. New stores acquired since last year contributed $3,631,000 or 60%
of the increased sales while same store sales improved 8.3% over the prior year.
The strong gains in sales and rentals of new units are indications of the
continued strength of the economies in the geographic areas in which the Company
operates. The Company has invested significant resources in expanding its fleet
of rental equipment. Management believes that there exists a trend toward
increased rental of equipment. With more equipment to rent, the Company
experienced a 76% increase in rental revenues in the current year third quarter
versus the same period last year. The used equipment market continues to be
strong in most of our geographic areas as reflected in the improved sales of
used units.
Revenues for the nine month period ended April 30, 1996 increased by $15,164,000
or 25% over the revenues for the nine month period ended April 30, 1995. Such
increase reflects strong demand for new equipment and rentals as noted above,
and gives effect to the full impact on revenues of the California and Nevada
locations which were purchased or opened in the first and second quarters of
fiscal 1995.
The Company's gross profit margin of 12.6% for the three month period ended
April 30, 1996 was an improvement over the comparable prior year margin of
12.2%. As noted above, the majority of the increase in the Company's sales came
from the sale of new equipment which, under Case's new Focus 2000 program,
provided the Company with pricing discounts recognized in the third quarter thus
increasing the gross profit margin.
For the nine month period ended April 30, 1996, the Company's gross profit
margin was 11.6%, which is down slightly from the gross profit margin of 11.8%
for the same period during the prior year. The improvement in margin realized
in the third quarter discussed above was not enough to erase the decreased
margin experienced in the first six months of the current fiscal year as
compared to the prior year.
Selling, general and administrative ("SG&A") expenses were $2,205,000 (8.4% of
sales) and $5,727,000 (7.6% of sales) for the three and nine month periods ended
April 30, 1996, respectively, compared to $1,596,000 (7.7% of sales) and
$4,342,000 (7.2% of sales) for the comparative prior year periods. The
significant growth in operations during the past 12 months has had an upward
impact on SG&A expenses, such that the Company has not yet fully realized the
potential benefits of its streamlined organizational structure. While many of
the administrative and moving costs incurred in connection with the acquisition
and opening of these outlets are one-time charges which will not be incurred in
future period, management is also taking steps intended to decrease SG&A
expenses as a percentage of sales over time.
Interest expense of $453,000 and $1,194,000 for the three and nine month periods
ended April 30, 1996, respectively, was up $107,000 and $315,000 from the prior
year comparative periods. Interest expense is tied directly to interest rates
and the Company's equipment inventory levels which have increased as the Company
has acquired and opened additional distribution outlets. In addition, the
Company has made a substantial investment in expanding its rental fleet of
equipment. At April 30, 1996, a total of $13,327,000 in equipment was dedicated
to rental compared to only $3,359,000 at April 30, 1995. Since the related note
balance becomes interest bearing when a unit is placed in the dedicated rental
fleet, the increase in rental equipment has had and will continue to have a
significant upward impact on interest expense (which should be offset by
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increased rental revenues and margin). In addition, as part of Case's Focus
2000 program, a dealer can elect to forego Case's interest free flooring period
and pay cash for new Case equipment. In return for the cash payment, Case
grants the dealer a 4% discount on the cost of such equipment. The Company has
elected to take this discount on selected purchases of new Case equipment and,
if necessary, has financed such purchases on the Company's third party flooring
lines which has also contributed to the increase in interest expense. This
increase should be more than offset by the 4% cash discount which is recognized
in income at the time such units are sold.
The effective income tax rate has remained consistent at approximately 38% for
all periods presented. The Company anticipates the effective tax rate will
remain at basically statutory rates for the foreseeable future.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the Hutchinson Transaction the Company significantly increased
its liquidity and capital resources. The Company intends to acquire additional
businesses in the future with the proceeds of the Hutchinson Transaction. See
Note 6 to the accompanying consolidated financial statements for more
information.
The Company has been granted a $10,000,000 secured demand line of credit from
its commercial bank. This line is uncommitted and secured by the Company's
portfolio of cash and marketable securities held by the bank. On April 30, 1996
approximately $1,300,000 was outstanding under such line of credit, the
principal of which bears interest at the banks base rate plus 1% or 90 day LIBOR
plus 1%. The applicable rate is elected upon issuance of the loan.
Western's primary source of internal liquidity has been its profitable
operations since its inception in November 1992. As more fully described below,
Western's primary sources of external liquidity were contributions to Western by
the Company, and equipment inventory floor plan financing arrangements provided
to Western by Case Credit Corporation, Seattle-First National Bank ("SeaFirst
Bank"), Associates Commercial Corporation ("Associates") and Orix Commercial
Credit ("Orix"). In addition, in fiscal 1995, WPE, the immediate parent of
Western, completed an initial public offering of 1,495,000 shares of common
stock at $6.50 per share, generating net proceeds of $7,801,000. The net
proceeds of the offering have been utilized to repay amounts due to the Company
and to Case, the acquisition and opening of additional outlets, as well as to
reduce floor plan debt.
Under its inventory floor plan finance arrangements Case provides Western with
interest free credit terms on new equipment purchases for four to six months,
with the exception of the Model 1818 skid steer loader for which the interest
free credit terms are three months and the Model 90B Series special application
excavator for which the interest free credit terms are eight months, after which
interest commences to accrue monthly at the rate per annum equal to 2% over the
prime rate of interest. At April 30, 1996, Western was indebted to Case in the
aggregate amount of approximately $42,106,000 under such inventory floor plan
finance arrangements.
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In order to take advantage of a 4% cash discount offered by Case under its new
Focus 2000 program, to provide financing beyond the term of applicable Case
floor plan financing or as alternatives to Case floor plan financing
arrangements for inventory purchased other than from Case, Western has entered
into separate secured floor planning lines of credit with SeaFirst, Associates,
Orix, and the CIT Group.
The Associates line of credit was entered into in August 1993, and allows
Western to borrow up to $2,250,000 to finance the purchase of new equipment, to
finance up to $2,000,000 of installment sales of equipment to customers approved
by Associates (without recourse to Western), and to finance up to $1,000,000 of
installments sales of equipment to other customers (with recourse to Western in
the event of default). There are no material obligations outstanding under the
recourse line of credit. On April 30, 1996, approximately $142,000 was
outstanding under these lines, the principal of which bears interest at 2% over
the prime rate announced by the U.S. National Bank of Oregon.
The SeaFirst line of credit was entered into in June 1994 and provides a
$7,500,000 line of credit which can be used to finance new and used equipment or
equipment to be held for rental purposes. On April 30, 1996, approximately
$6,719,000 was outstanding under such line of credit, the principal of which
bears interest at .25% over Seattle-First National Bank's prime rate and is
subject to annual review and renewal on June 1, 1997.
Western also buys a portion of its equipment from Hamm Compactors ("Hamm") under
a floor plan financing agreement with Orix. The Orix floor plan agreement calls
for repayment of principal and interest over periods ranging from thirty to
forty-eight months, with a balloon payment for the remaining outstanding
balance. At April 30, 1996, the aggregate indebtedness owed to Orix was
$1,035,000. The Orix notes bear interest at the highest prevailing prime rates
of certain major United States banks, plus 2% per annum.
Amounts owing under these floor plan financing agreements are secured by
inventory purchases financed by these lenders, as well as all proceeds from
their sale or rental, including accounts receivable thereto.
On October 19, 1995, Western entered into a purchase and sale agreement with an
unrelated party for the Auburn, Washington facility subject to the execution of
a lease. Under the terms of this agreement, which closed on December 1, 1995,
Western sold the property and is leasing it back from the purchaser. In
accordance with Statement of Financial Accounting Standards No. 13 (SFAS 13),
the building portion of the lease is being accounted for as a capital lease
while the land portion of the lease qualifies for treatment as an operating
lease. See Note 6 to the accompanying consolidated financial statements for
more information.
Effective February 17, 1996, Western acquired substantially all of the operating
assets used by Case Corporation ("Case") in connection with its business of
servicing and distributing Case construction equipment at a facility located in
Sacramento, California (the "Sacramento Operation"). The acquisition was
consummated for approximately $630,000 in cash, $3,090,000 in installment notes
payable to Case and the assumption of $3,965,000 in inventory floor plan debt
with Case and its affiliates. The acquisition is being accounted for as a
purchase.
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The real property and improvements used in connection with the Sacramento
Operation, and upon which the Sacramento Operation is located, were sold by Case
for $1,500,000 to the McLain-Rubin Realty Company, LLC ("MRR"), a Delaware
limited liability company the owners of which are Messrs. C. Dean McLain, the
President and a director of the Company and Western, and Robert M. Rubin, the
Chairman and a director of the Company and Western. Simultaneous with its
acquisition of the Sacramento Operation real property and improvements, MRR
leased such real property and improvements to Western under the terms of a 20
year Commercial Lease Agreement dated as of March 1, 1996. In accordance with
SFAS 13, the building portion of the lease is being accounted for as a capital
lease while the land portion of the lease qualifies for treatment as an
operating lease. See Note 6 to the accompanying consolidated financial
statements for more information.
On October 10, 1995, using proceeds from WPE's initial public offering, Western
retired the $2,175,000 real estate note given to Case for the purchase of the
Sparks, Nevada real estate in September 1994. In March 1996 Western consummated
an agreement with an institutional lender for a conventional mortgage on the
property in the amount of $1,330,000 secured by the Sparks, Nevada real estate.
The agreement calls for the principal and interest payments over a seven year
term using a fifteen year amortization period. The note cannot be prepaid
during the first two years of its term.
In May 1996 approximately 530,000 options were exercised with $1,690,574 of net
proceeds received by the Company. The Company has used these funds to reduce its
short term bank borrowings. The dilutive effect of the exercise of these options
on earnings per share has already been reflected in the weighted average
earnings per share stated in this report.
During the nine months ended April 30, 1996, cash and cash equivalents increased
by $11,477,000 primarily due to the Hutchinson Transaction. The Company had
positive cash flow from operations during the period reflecting a decrease in
accounts receivable, an increase in accounts payable, and this, along with net
income for the quarter, was sufficient to more than offset the decline resulting
from the increased cash investment in inventories. The proceeds from the Auburn
facility sale leaseback transaction were sufficient to retire the related note
payable to Case. Purchases of fixed assets during the period were related
mainly to the opening of new distribution outlets. The Company's cash and cash
equivalents of $15,965,000 as of April 30, 1996 and available credit facilities
are considered sufficient to support current or higher levels of operations for
at least the next twelve months. In addition, the Company is currently in
negotiations with several financing institutions to expand the credit available
to the Company.
In consideration for making the Letter of Credit available, in addition to
repayment by ERD of all amounts drawn under the Letter of Credit and the grant
of a security interest in all machinery and equipment of ENSA to secure such
repayment, ERD agreed (i) to pay to the Company all of the Company's fees, costs
and expenses payable to Citibank and others in connection with making the Letter
of Credit available, as well as the amount of all interest repayment by ERD and
(ii) to issue to the Company an aggregate of 100,000 shares of ERD common stock
(the "ERD Shares"). Shares of ERD Common Stock trade on The NASDAQ National
Market and, at the time of closing of the transaction, the 100,000 ERD Shares
had a market value of $925,000.
On June 11, 1996, Western acquired the operating assets of GCS, Inc. ("GCS"), a
California-based, closely held distributor of heavy equipment primarily marketed
to municipal and state government agencies responsible for street and highway
maintenance. Western will operate the GCS business from an existing location in
Fullerton, California and from Western's existing facility in Sacramento,
California. The Purchase price for the GCS assets was $1,655,000. This
transaction is being accounted for as a purchase.
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AMERICAN UNITED GLOBAL, INC.
PROXY-ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 9, 1996
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS IN CONNECTION WITH THE
ANNUAL MEETING OF SHAREHOLDERS OF AMERICAN UNITED GLOBAL, INC. TO BE HELD ON
SEPTEMBER 9, 1996. THE SHAREHOLDER HAS THE RIGHT TO APPOINT AS HIS PROXY A
PERSON (WHO NEED NOT BE A SHAREHOLDER) OTHER THAN ANY PERSON DESIGNATED
BELOW, BY INSERTING THE NAME OF SUCH OTHER PERSON IN ANOTHER PROPER FORM OF
PROXY.
The undersigned, a shareholder of American United Global, Inc. (the
"Corporation"), hereby revoking any proxy hereinbefore given, does hereby
appoint Robert M. Rubin and Stephen A. Weiss, or either of them, as his proxy
with full power of substitution, for and in the name of the undersigned to
attend the Annual Meeting of the Shareholders to be held on September 9, 1996
at 11130 NE 33rd Place, Suite 250, Bellevue, Washington 98004, at 2:00 p.m.,
local time, and at any adjournments thereof, and to vote upon all matters
specified in the notice of said meeting, as set forth herein, and upon such
other business as may properly come before the meeting, all shares of stock
of said Corporation which the undersigned would be entitled to vote if
personally present at the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, SUCH SHARES
WILL BE VOTED FOR ALL NOMINEES FOR DIRECTOR IDENTIFIED BELOW AND FOR ALL
PROPOSALS.
1. The Election of Directors
Election of the following proposed directors to hold office until the next
Annual Meeting of Shareholders or until their successors shall be elected
and shall qualify: Robert M. Rubin, C. Dean McLain and Lawrence E. Kaplan.
FOR ALL NOMINEES WITHHOLD ALL NOMINEES
(EXCEPT AS MARKED TO THE CONTRARY)
( ) ( )
AUTHORITY TO WITHHOLD A VOTE FOR ANY OF THE ABOVE NAMED INDIVIDUALS SHOULD BE
INDICATED BY LINING THROUGH OR OTHERWISE STRIKING OUT THE NAME OF THE NOMINEE.
2. Ratify the Appointment of Price Waterhouse, LLP as independent auditors for
the Corporation for the fiscal year ending July 31, 1996.
( ) FOR ( ) AGAINST ( ) ABSTAIN
3. Ratify the sale of all of the assets of the Company's Manufacturing
Business to subsidiaries of Hutchinson Corporation under the terms of the
Sale Agreement, and ratification of the terms of the Sale Agreement, all
Exhibits thereto, and the transactions contemplated thereby.
( ) FOR ( ) AGAINST ( ) ABSTAIN
4. To authorize an amendment to the Company's Certificate of Incorporation to
increase the Company's authorized capital by (i) increasing to 25,000,000
shares its authorized shares of voting Common Stock (which shall be
redesignated as Class A Voting Common Stock); and (ii) creating a new
class of Non-Voting Common Stock, of which 25,000,000 shares of Non-Voting
Common Stock will be authorized.
( ) FOR ( ) AGAINST ( ) ABSTAIN
5. To authorize and ratify amendments to the Company's Articles of
Incorporation and By-Laws to eliminate provisions which permit stockholders
to act by less than unanimous written consent;
( ) FOR ( ) AGAINST ( ) ABSTAIN
6. To authorize and ratify amendments to the Company's Articles of
Incorporation and By-Laws to classify the Board of Directors into three
classes, as nearly equal in number as possible, each of which, after an
interim arrangement, will serve for three years, with one class being
elected each year;
( ) FOR ( ) AGAINST ( ) ABSTAIN
7. To authorize and ratify amendments to the Company's Articles of
Incorporation and By-Laws which provide that directors may be removed by
the stockholders only with cause and the approval of the holders of at
least 66.66% of the voting power of each class or series of outstanding
stock of the Company entitled to vote generally in the election of
directors;
( ) FOR ( ) AGAINST ( ) ABSTAIN
8. To authorize and ratify amendments to the Company's Articles of
Incorporation and By-Laws that require that special meetings of
stockholders may only be called by the Board of Directors or by
stockholders holding not less than 66.66% of the voting power of each class
or series of outstanding stock entitled to vote on the matter(s) to be
considered at the special meeting;
( ) FOR ( ) AGAINST ( ) ABSTAIN
9. To authorize and ratify amendments to the Company's Articles of
Incorporation and By-Laws that increase the stockholder vote required to
alter, amend or repeal the amendments to the Company's Articles of
Incorporation and By-Laws identified in Proposals 5, 6, 7, and 8 referred
to above and in this Proposal 9 to at least 66.66% of the voting power of
each class or series of outstanding stock of the Company entitled to vote
thereon; and
( ) FOR ( ) AGAINST ( ) ABSTAIN
10. To ratify the terms of an Amended and Restated Employment Agreement
by and between the Company and Mr. Robert M. Rubin, the President, Chief
Executive Officer, Chairman of the Board and a principal stockholder of
the Company;
( ) FOR ( ) AGAINST ( ) ABSTAIN
12. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
( ) FOR ( ) AGAINST ( ) ABSTAIN
Dated: _______________, 1996 _______________________ ___________________
Signature Print Name
_______________________ ___________________
Signature, if Jointly Held Print Name
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS
HEREIN, if signing as attorney, executor,
administrator, trustee or guardian, indicate such
capacity. All joint tenants must sign. If a
corporation, please sign in full corporate name by
president or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.
The Board of Directors requests that you fill
in the date and sign the Proxy and return it in
the enclosed envelope.
IF THE PROXY IS NOT DATED IN THE ABOVE SPACE,
IT IS DEEMED TO BE DATED ON THE DAY ON WHICH IT
WAS MAILED BY THE CORPORATION.
<PAGE>
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
AMERICAN UNITED GLOBAL, INC.
Pursuant to Section 242 of the Delaware
General Corporation Law
Original Certificate of Incorporation filed with the Secretary of
State on October 18, 1991.
American United Global, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify as follows:
FIRST: The Board of Directors of the Corporation, by Unanimous
Written Consent dated as of May 21, 1996, adopted a resolution proposing and
declaring advisable an amendment (the "Amendment") to the Corporation's
Certificate of Incorporation, dated as of October 18, 1991 (the "Certificate of
Incorporation").
SECOND: That thereafter, at the Annual Meeting of the
Stockholders of the Corporation, the holders of a majority of the issued and
outstanding shares of the Corporation's capital stock voted in favor of the
Amendment.
THIRD: That the Amendment was duly adopted in accordance with
Section 242 of the General Corporation Law of the State of Delaware.
FOURTH: That the capital of said Corporation will not be reduced
under or by reason of the Amendment.
FIFTH: That Article "FOURTH" of the Certificate of
Incorporation is hereby amended to read in its entirety as follows:
FOURTH: The aggregate number of shares which the Corporation
shall have authority to issue is 52,700,000 shares consisting of:
a) 25,000,000 shares of Class A Common Stock, $.01 par value per
share (the "Class A Common Stock");
b) 25,000,000 shares of Class B Common Stock, $.01 par value per
share (the "Class B Common Stock");
c) 1,200,000 shares of Series A Preferred Stock, $.01 par value
per share (the "Series A Preferred Stock"); and
<PAGE>
d) 1,500,000 shares of Series B Preferred Stock, $.01 par value
per share (the "Series B Preferred Stock").
PART A
COMMON STOCK
1. GENERAL.
(a) Each share of Common Stock issued and outstanding shall be
identical in all respects one with the other, except as otherwise described in
Section 2 of this Part A below with respect to the voting rights of the Class B
Common Stock. No dividends shall be paid on any shares of Common Stock unless
the same dividend is paid on all shares of Common Stock outstanding at the time
of such payment.
(b) Except for and subject to those rights expressly granted to
the holders of the Series A or Series B Preferred Stock (sometimes collectively
referred to as the "Preferred Stock"), or except as may be provided herein or by
the Delaware General Corporation Law, the holders of Common Stock shall have
exclusively all other rights of stockholders including, but not by way of
limitation, (i) the right to receive dividends, when, as and if declared by the
Board of Directors out of assets lawfully available therefor, and (ii) in the
event of any distribution of assets upon liquidation, dissolution or winding up
of the Corporation or otherwise, the right to receive ratably and equally all
the assets and funds of the Corporation remaining after payment to the holders
of the Preferred Stock of the Corporation of the specific amounts which they are
entitled to receive upon such liquidation, dissolution or winding up of the
Corporation as herein provided.
(c) In the event that the holder of any share of Common Stock
shall receive any payment of any dividend on, liquidation of, or other amounts
payable with respect to, any shares of Common Stock, which he is not then
entitled to receive, he will forthwith deliver the same to the holders of shares
of the Preferred Stock (as their respective interests may appear), as the case
may be, in the form received, and until it is so delivered will hold the same in
trust for such holders.
2. VOTING RIGHTS.
Each holder of shares of Class A Common Stock shall be entitled to
one vote for each share of such Class A Common Stock held by him, and voting
power with respect to all classes of securities of the Corporation shall be
vested solely in the Class A Common Stock, other than as specifically provided
in the Corporation's Certificate of Incorporation, as it may be amended, with
respect to the Series A and Series B Preferred Stock or otherwise. The Class B
Common Stock shall not be entitled to voting rights except as required by the
Delaware General Corporation Law or otherwise required by law.
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PART B
SERIES A PREFERRED STOCK
1. DIVIDENDS. In each year the holders of shares of the Series A
Preferred Stock shall be entitled to receive, before any dividends shall be
declared and paid upon or set aside for the Common Stock in such year, when and
as declared by the Board of Directors of the Corporation, out of funds legally
available for that purpose, dividends in cash at the rate of $.125 per annum per
share, and no more, payable monthly at the rate of $.0104166 per share (except
that the first dividend payment shall be an amount equal to accumulated
dividends from the date of initial issuance at the rate of 12.5% per annum), on
the first day of each month in each year, commencing on the first such date
which occurs after the date of the initial issuance of the Series A Preferred
Stock (each of the periods commencing on the first day of each such month,
respectively including the period commencing with the date of initial issuance,
being hereinafter called a "Dividend Period"). Dividends on the Series A
Preferred Stock shall be cumulative from the date on which payment is made on
account of the initial issue of such stock (whether or not there shall be
surplus of the Corporation legally available for the payment of such dividends),
so that, if at any time Full Cumulative Dividends (as defined in Section 5 of
this Part B) upon the Series A Preferred Stock to the end of the last completed
Dividend Period shall not have been paid or declared and a sum sufficient for
payment thereof set apart, the amount of the deficiency in such dividends shall
be fully paid, but without interest, or dividends in such amount shall be
declared on the shares of Series A Preferred Stock and a sum sufficient for the
payment thereof shall be set aside for such payment, before any sum or sums
shall be set aside for or applied to the purchase or redemption of the Common
Stock or upon any shares of any other class of stock ranking as to dividends or
upon liquidation junior to the Series A Preferred Stock and before any dividend
shall be declared or paid or any other distribution ordered or made upon any of
the Common Stock or upon any shares of any other class of stock ranking as to
dividends junior to the Series A Preferred Stock.
2. RIGHTS ON LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of
any liquidation, dissolution or winding up of the Corporation, the holders of
shares of Series A Preferred Stock then outstanding shall be entitled to be paid
out of the assets of the Corporation available for distribution to its
stockholders, whether from stated capital, capital surplus, earned surplus or
other amounts, before any payment shall be made to the holders of any Common
Stock, an amount equal to $1.00 per share plus an amount equal to Accrued.
Dividends (as defined in Section 5 of this Part B). If upon any liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay to
the holders of shares of Series A Preferred Stock the full amounts to which they
respectively shall be entitled, the holders of shares of Series A Preferred
Stock shall share ratably in any distribution of assets according to the
respective amounts which would be payable in respect to the shares held by them
upon such distribution if all amounts payable on or with respect to said shares
were paid in full. In the event of any liquidation, dissolution or winding up of
the Corporation after payment shall have been made to the holders of shares of
Series A Preferred Stock
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<PAGE>
of the full amount to which they shall be entitled as aforesaid, the holders of
any shares of Common Stock shall be entitled, to the exclusion of the holders of
shares of Series A Preferred Stock, to share, according to their respective
rights and preferences, in all remaining assets of the Corporation available for
distribution to its stockholders.
3. VOTING RIGHTS. (a) Except as otherwise provided herein for the
election of directors or as required by the Delaware General Corporation Law,
the holders of shares of Series A Preferred Stock stall have the right to vote,
together with the holders of all the outstanding shares of Common Stock and not
by classes, on all matters on which holders of Common Stock shall have the right
to vote. The holders of shares of Series A Preferred Stock shall have the right
to cast one vote for each share of Series A Preferred Stock, with any fractions
(after aggregating all shares of Series A Preferred Stock owned beneficially or
of record by each holder) rounded to the next full vote.
(b) Whenever holders of Series A Preferred Stock are required or
permitted to take any action by vote, such action may be taken without a meeting
on written consent, setting forth the action so taken and signed by the holders
of all outstanding Series A Preferred Stock entitled to vote thereon.
4. REDEMPTION. (a) So long as any shares of Series A Preferred Stock
are outstanding, the Corporation may, at the option of the Board of Directors,
at any time or from time to time redeem the whole or any part of such Series A
Preferred Stock pursuant to the provisions hereof. The aggregate number of
shares of Series A Preferred Stock which may be redeemed at any one time shall
be at least one hundred thousand (100,000) or any integral multiple thereof. Any
redemption pursuant to this Section 4 shall be at a redemption price equal to
$1.00 per share (payable in cash or other consideration as the Corporation and
the holders of a majority of the Series A Preferred Stock may agree), plus an
amount equal to Accrued Dividends on the shares of Series A Preferred Stock
being redeemed. If less than all the shares of Series A Preferred Stock at any
time outstanding shall be called for redemption, the redemption shall be made
pro rata with respect to such shares and in such manner as may be prescribed by
resolution of the Board of Directors approved by such vote as aforesaid in this
paragraph 4(a). The date of each such redemption is herein referred to as a
"Redemption Date."
(b) Notice of every redemption pursuant to this Section 4 shall be sent
by registered or certified mail, postage prepaid, to the holders of record of
the shares of Series A Preferred Stock so to be redeemed at their respective
addresses as the same shall appear on the books of the Corporation. Such notice
shall be deposited in the United States mail not less than ten (10) days in
advance of the Redemption Date. The holders of the shares of Series A Preferred
Stock to be redeemed shall surrender to the Corporation any certificates for the
shares of Series A Preferred Stock so redeemed; PROVIDED, that on and after
the Redemption Date all rights of the holders of shares of Series A Preferred
Stock as stockholders of the Corporation with respect to those shares of Series
A Preferred Stock to be redeemed, except the right to receive the redemption
price, shall cease and terminate
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<PAGE>
and the shares designated for redemption shall no longer be outstanding whether
or not the certificates for the shares so redeemed have been received by the
Corporation.
5. DEFINITIONS. (a) The term "Accrued Dividends" with respect to the
Series A Preferred Stock shall mean Full Cumulative Dividends to the date as of
which accrued dividends are to be computed, less the amount of all dividends
theretofore paid upon the relevant shares of Series A Preferred Stock.
(b) The term "Full Cumulative Dividends" with respect to the Preferred
Stock shall mean (whether or not in any Dividend Period, or any part thereof,
with respect to which such term is used there shall have been stated capital,
capital surplus, or earned surplus of the Corporation legally available: for the
payment of such dividends) that amount which shall be equal to dividends at the
full rate fixed for the Series A Preferred Stock as provided herein for the
period of time elapsed from the date of issuance thereof to the date as of which
Full Cumulative Dividends is to be computed.
PART B
SERIES B PREFERRED STOCK
Authority is hereby vested in the Board of Directors of the Corporation to
provide for the issuance of Series B Preferred Stock and in connection therewith
to fix by resolution providing for the issue of such series, the number of
shares to be included and such of the preferences and relative participating,
optional or other special rights and limitations of such series, including,
without limitation, rights of redemption or conversion into Common Stock, to the
fullest extent now or hereafter permitted by the Delaware General Corporation
Law."
SIXTH: That Article "SIXTH" of the Certificate of Incorporation is
hereby amended to read in its entirety as follows:
"SIXTH: The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation. Any provision of the By-Laws of the
Corporation which provides that certain provisions of the By-Laws of the
Corporation may only be amended or repealed, or new By-Laws adopted which have
the effect of amending or repealing such provisions, by the affirmative vote of
the holders of more than a majority of the voting power of each class or series
of outstanding stock of the Corporation entitled to vote thereon, may only be
amended or repealed, or new By-Laws adopted which have the effect of amending or
repealing such provision, by the affirmative vote of the holders of such super-
majority of the voting power of each class or series of outstanding stock of the
Corporation entitled to vote thereon as is specified in the subject provision of
the By-Laws."
SEVENTH: That Article "NINTH" of the Certificate of Incorporation is
hereby amended to read in its entirety as follows:
"NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute or by this Certificate of
Incorporation, and all rights conferred upon shareholders herein are granted
subject to this reservation. The provisions of Article Sixth, Article Ninth,
Article Twelfth, Article Thirteenth, Article Fourteenth or Article Fifteenth of
this Certificate of Incorporation shall not be amended by the shareholders of
the Corporation other than by a vote of no less than 66.66% of the outstanding
shares of the Corporation entitled to vote on such matters as provided by the
General Corporation Law of the State of Delaware."
EIGHTH: That the following Articles be added to the Certificate of
Incorporation:
"TWELFTH: All actions taken by the shareholders of the Corporation by
written consent and not at a meeting of shareholders must be taken by no less
than the unanimous written consent of all shareholders entitled to act with
respect to such matter under the provisions of the General Corporation Law of
the State of Delaware.
THIRTEENTH: Special meetings of the shareholders of the Corporation may be
called by the Board of Directors, or by shareholders pursuant to a written
demand by the holders of at least 66.66% of the voting power of each class or
series of outstanding stock of the Corporation entitled to vote on the matter(s)
to be considered at the special meeting.
FOURTEENTH: The Board shall consist of three classes of directors, each
class to be as nearly equal in number of directors as possible. There shall be
Class A director(s), Class B director(s) and Class C director(s). Beginning
with the 1997 Annual Meeting of Stockholders, the Class A director(s) shall be
elected, to hold office until the third Annual Meeting of Stockholders to occur
subsequent to the Annual Meeting at which such director(s) was elected and until
his or their successors shall have been elected and qualified, or until his or
their deaths, or until he or they shall have resigned, or have been removed.
Beginning with the 1998 Annual Meeting of Stockholders, the Class B director(s)
shall be elected, to hold office until the third Annual Meeting of Stockholders
to occur subsequent to the Annual Meeting at which such director(s) was elected
and until his or their successors shall have been elected and qualified, or
until his or their deaths, or until he or they shall have resigned, or have been
removed. Beginning with the 1999 Annual Meeting of Stockholders, the Class C
director(s) shall be elected, to hold office until the third Annual Meeting of
Stockholders to occur subsequent to the Annual Meeting at which such director(s)
was elected and until his or their successors shall have been elected and
qualified, or until his or their deaths, or until he or they shall have
resigned, or have been removed. The Board of Directors can determine to change
the number of directors constituting the Board of Directors, which number shall
not be less than three (3) nor more than nine (9), provided that no decrease in
the number of directors shall have the effect of shortening the term of any
incumbent director. Any decrease in the number of directors shall be effective
at the time of the next succeeding Annual Meeting of Stockholders at which the
election of the director whose position is being eliminated would have been
considered, unless there shall be vacancies in the Board of Directors, in which
case such decrease may become effective at any time prior to the next such
succeeding Annual Meeting of Stockholders to the extent of the number of such
vacancies. In the event of any increase or decrease in the number of directors,
the number of additional directors and the number of eliminated directors shall
be apportioned among the three classes of directors in a manner which results,
to the extent possible, in an equal number of directors being included in each
such class.
FIFTEENTH: A director, or the entire Board of Directors, may be removed
only with cause and with the affirmative vote of the holders of at least 66.66%
of the voting power of each class or series of outstanding stock of the
Corporation entitled to vote generally in the election of directors."
IN WITNESS WHEREOF, the undersigned hereby execute his name and
under the penalties of perjury affirms that the statements made herein are true,
this ___ day of May, 1996.
______________________________________
Robert M. Rubin, Chairman of the Board
of Directors and Chief Executive Officer
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<PAGE>
EXHIBIT B
PROPOSED AMENDMENTS TO BY-LAWS
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders may be
called at any time by the Board of Directors or, upon written demand, specifying
the purpose of the meeting, by the holders of at least 66.66% of the voting
power of each class or series of outstanding stock of the Corporation entitled
to vote on the matter(s) to be considered at the special meeting.
SECTION 11. ACTION BY CONSENT. [DELETED].
ARTICLE III
BOARD OF DIRECTORS
Delete Section 2 in its entirety and replace it with the following:
"SECTION 2. NUMBER, QUALIFICATIONS, ELECTION AND TERM OF OFFICE. The
number of directors shall be three (3) until such time as the Board of
Directors changes the number of directors in accordance with the provisions of
this Section 2. The Board shall initially consist of three classes of
directors. There shall be one Class A director, one Class B director and one
Class C director. Beginning with the 1997 Annual Meeting of Stockholders, the
Class A director shall be elected, to hold office until the third Annual Meeting
of Stockholders to occur subsequent to the Annual Meeting at which such director
was elected and until his successor shall have been elected and qualified, or
until his death, or until he shall have resigned, or have been removed, as
hereinafter provided in these By-Laws. Beginning with the 1998 Annual Meeting
of Stockholders, the Class B director shall be elected, to hold office until the
third Annual Meeting of Stockholders to occur subsequent to the Annual Meeting
at which such director was elected and until his successor shall have been
elected and qualified, or until his death, or until he shall have resigned, or
have been removed, as hereinafter provided in these By-Laws. Beginning with the
1999 Annual Meeting of Stockholders, the Class C director shall be elected, to
hold office until the third Annual Meeting of Stockholders to occur subsequent
to the Annual Meeting at which such director was elected and until his successor
shall have been elected and qualified, or until his death, or until he shall
have resigned, or have been removed, as hereinafter provided in these By-Laws.
The Board of Directors can determine to change the number of directors
constituting the Board of Directors, which number shall not be less than three
(3) nor more than nine (9), provided that no decrease in the number of directors
shall have the effect of shortening the term of any incumbent director. Any
decrease in the number of directors shall be effective at the time of the next
succeeding Annual Meeting of Stockholders at which the election of the director
whose position is being eliminated would have been considered, unless there
shall be vacancies in the Board of Directors, in which case such decrease may
become effective at any time prior to the next such succeeding Annual Meeting of
Stockholders to the extent of the number of such vacancies. In the event of any
increase or decrease in the number of directors, the number of additional
directors and the number of eliminated directors shall be apportioned among the
three classes of directors in a manner which results, to the extent possible, in
an equal number of directors being included in each such class. At each meeting
of the stockholders for the election of directors at which a quorum is present,
the persons receiving a plurality of the votes cast at such election shall be
elected director. All the directors shall be at least eighteen years of age.
Directors need not be stockholders.
SECTION 11. REMOVAL OF DIRECTORS. Any director, or the entire Board
of Directors, may be removed, for cause, by the affirmative vote of the holders
of at least 66.66% of the voting power of each class or series of outstanding
stock of the Corporation entitled to vote generally in the election of
directors.
ARTICLE IX
AMENDMENTS
These By-Laws may be amended or repealed or new By-Laws may be adopted at
an annual or special meeting of stockholders at which a quorum is present or
represented, by the vote of the holders of shares entitled to vote thereon
provided that notice of the proposed amendment or repeal or adoption of new
By-Laws is contained in the notice of such meeting. These By-Laws may also be
amended or repealed or new By-Laws may be adopted by the Board at any regular or
special meeting of the Board of Directors; provided that Article II, Section 3
of these By-Laws, or Article III Section 2 of these By-Laws, or Article III,
Section 11 of these By-Laws, may only be amended or repealed, or new By-Laws
adopted which have the effect of amending or repealing Article II, Section 3 of
these By-Laws, or Article III, Section 2 of these By-Laws, or Article III,
Section 11 of these By-Laws, by the affirmative vote of the holders of at least
66.66% of the voting power of each class or series of outstanding stock of the
Corporation entitled to vote thereon. If any By-Law regulating an impending
election of directors is adopted, amended or repealed by the Board of Directors,
there shall be set forth in the notice of the next meeting of the stockholders
for the election of directors the By-Law so adopted, amended or repealed,
together with a concise statement of the changes made. By-Laws adopted by the
Board of Directors may be amended or repealed by the stockholders.
<PAGE>
EXHIBIT C
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
WITH ROBERT M. RUBIN
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement"), made
and entered into as of the 3rd day of June, 1996, by and between AMERICAN
UNITED GLOBAL, INC., a Delaware corporation (the "Company"), having its
principal office at 25 Highland Boulevard, Dix Hills, New York 11746; and
ROBERT M. RUBIN, an individual (the "Employee"), residing at 6060 Kings Gate
Circle, Delray Beach, Florida 33484.
W I T N E S S E T H:
WHEREAS, the Employee has been elected by the Board of
Directors to serve as the Chairman of the Board of the Company and
its subsidiaries, including, without limitation, Western Power &
Equipment Corp. ("Western"), a Delaware corporation, AEI
California, Inc. ("AEI"), a California corporation, AUG California,
Inc. ("AUG"), a California corporation, and the subsidiaries of
AUG, namely, American United Products, Inc. ("AUP"), a California
corporation, as well as the subsidiary of Western Power & Equipment
Corp., an Oregon corporation ("WPE"), and American United Seal,
Inc. ("AUS"), a California corporation; the Company, Western, AEI,
AUG, AUP, AUS all presently existing and hereinafter created or
acquired direct or indirect consolidated subsidiaries of the
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Company are hereinafter collectively referred to as the "Corporations"; and
WHEREAS, insofar as the Company is engaged in a program of making
acquisitions of operating entities with the proceeds of the sale of its
former manufacturing business, and the Company desires to retain the services
of the Employee to serve as the Chairman of the Board of the Corporations
during this important transitional period for a period extending beyond the
July 31, 1997 termination date of his current Employment Agreement; and
WHEREAS, the Employee is willing to serve as the Chairman of the
Board of the Corporations, all upon the terms and subject to the conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises, and the mutual
covenants herein contained, the parties hereby agree as follows:
PART A. EMPLOYMENT.
i. Throughout the term of this Agreement, the Company shall
employ the Employee and the Employee shall render services to the
Corporations in the capacity and with the title of Chairman of the Board of
the Corporations. In such capacity, the Employee, subject at all times to
the direction of the Board of Directors of the Company, shall be the Chief
Executive Officer of the Company and shall have the primary responsibility
for the management and establishment of general policies of and planning for
the Company (including, without limitation, financings, acquisitions and new
product development), with such general powers and duties in
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respect of the other Corporations as are usually vested in the Chairman of
the Board of a corporation.
2. Throughout the period of his employment hereunder, the
Employee shall devote such portion of his business time, attention, knowledge
and skills as shall be reasonably required to faithfully, diligently and to
the best of his abilities perform his duties hereunder; PROVIDED, that it is
understood that the Employee will continue to devote a substantial amount of
his business time, attention, knowledge and skills to other business
activities, unrelated to the activities of the Corporations.
3. Throughout the period of his employment hereunder, the
Employee shall have the right (but not the obligation), if elected by the
requisite majority of the stockholders of the relevant Corporation(s), to
serve, without any further or additional compensation or remuneration (other
than as set forth herein), as a member of the Board of Directors of any or
all of the Corporations.
PART B. TERM OF EMPLOYMENT; TERMINATION OF AGREEMENT.
1. Subject to the earlier termination of this Agreement in
accordance with the provisions hereof, the term of this Agreement shall
commence, effective as of August 1, 1996 (the "Effective Date") and shall
continue through and including July 31, 2001 (the "Termination Date").
Notwithstanding the foregoing, as of the Effective Date of this Agreement,
the fiscal year end of the Company is July 31st. In the event that the
fiscal year of the Company (or any parent of the Company, the results of
operations of
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<PAGE>
which are consolidated for financial reporting purposes with the Company and
its consolidated subsidiaries) shall end on any date OTHER than July 31st
(hereinafter, referred to as a "Fiscal Year"), the Termination Date of this
Agreement shall be ninety (90) days after the end of the Fiscal Year ending
in 2001.
2. Anything contained in Section 1 of this PART B to the contrary
notwithstanding, this Agreement may be terminated at the option of the Board
of Directors of the Company for "Cause" (as herein defined), effective upon
the giving of written notice of termination to the Employee. As herein used,
the term for "Cause" shall mean and be limited to:
(a) any act committed by the Employee against the Company,
its parent or subsidiaries or divisions constituting: (A) fraud, (B)
non-disclosed self-dealing, (C) embezzlement of funds, (D) felony conviction
for conduct involving moral turpitude or felony conviction for other criminal
conduct concerning activities involving the Company, its parents,
subsidiaries or divisions, or (E) the continued disregard by the Employee of
the reasonable directions of the Board of Directors of the Company or any of
the other Corporations; or
(b) the breach or default by the Employee in the performance
of any material provision of this Agreement; or
(c) chronic alcoholism or any other form of addiction which
impairs the Employee's ability to perform his duties hereunder.
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<PAGE>
3. Anything contained in Section 1 of this PART B to the contrary
notwithstanding, this Agreement may be terminated by the Company: (i) upon
the death of the Employee, or, (ii) on thirty (30) days' prior written notice
to the Employee, in the event that the Employee shall be physically or
mentally disabled or impaired so as to prevent him from continuing the normal
and proper performance of his duties and responsibilities hereunder for a
period of six (6) consecutive months. The initial determination as to
whether the Employee is disabled or impaired shall be made by the physician
regularly treating the condition causing the disability. The Company shall
have the right to require the Employee to be examined by a physician duly
licensed to practice medicine in the state in which the Employee has his
primary residence to determine such physician's opinion as to the Employee's
disability. If such physician's opinion differs from that of the physician
treating the Employee, or a physician thereafter retained by the Employee,
they shall forthwith select a third physician so licensed whose opinion,
after examination and review of available information, shall be conclusive
and binding upon all parties hereto. All costs of the physician regularly
treating or thereafter retained by the Employee shall be paid by the
Employee. All costs of the physician retained by the Company shall be paid
by the Company. If a third physician is required, then the costs of that
physician shall be paid by the Company.
4. Upon any termination of this Agreement by the Company for
Cause pursuant to Section 2 of this PART B above,
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<PAGE>
neither the Company nor any parent, subsidiary or division thereof shall be
liable for or shall pay or cause to be paid to the Employee any further
remuneration, compensation or other benefits hereunder.
5. If the Company terminates Employee for any reason, OTHER than:
(a) for "Cause", as provided in PART B, Section 2, or (b) as a result of the
Employee's voluntary resignation of his employment with the Company (not
constituting a constructive discharge), the Company shall be obligated to pay
or shall cause to be paid to Employee the "Base Salary" (as hereinafter
defined) and the Incentive Compensation (as hereinafter defined) in respect
of each Fiscal Year in question for the remaining employment term specified
in Section 1 of this PART B, as, if and when the same would have otherwise
become due and payable hereunder, but for such termination of employment of
the Employee. In the event of the Employee's death or disability as provided
in PART B, Section 3, the Company shall be not obligated to pay or shall
cause to be paid to Employee the "Base Salary" (as hereinafter defined) or
the Incentive Compensation (as hereinafter defined) in respect of any Fiscal
Year, or portion thereof, remaining in the employment term specified in
Section 1 of this PART B.
PART C. COMPENSATION; EXPENSES; FRINGE BENEFITS.
1. BASE SALARY. As compensation for his services rendered and to
be rendered hereunder, the Company shall pay or cause the Corporations to pay
to the Employee throughout the term of this Agreement, a salary (the "Base
Salary"), to be payable in
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monthly installments, as follows: (i) from August 1, 1996 through July 31,
1997, at the rate of One Hundred Seventy-Five Thousand Dollars ($175,000.00)
per annum; to be payable monthly at the rate of Fourteen Thousand Five
Hundred Eighty-Three and 33/100 Dollars ($14,583.33) per month; (ii) from
August 1, 1997 through July 31, 1998, Two Hundred Thousand Dollars
($200,000.00) per annum to be payable monthly at the rate of Sixteen Thousand
Six Hundred Sixty-Six and 66/100 Dollars ($16,666.66) per month; (iii) from
August 1, 1998 through July 31, 1999, Two Hundred Twenty-Five Thousand
Dollars ($225,000.00) per annum, to be payable monthly at the rate of
Eighteen Thousand Seven Hundred Fifty Dollars ($18,750.00) per month; and
(iv) for each of the fiscal years ended July 31, 2000 and July 31, 2001, the
Employee's Base Salary shall be as determined by the Compensation Committee
of the Company's Board of Directors AND ratified by a majority of the entire
Board of Directors of the Company (other than the Employee); PROVIDED, that
the Employee's Base Salary in each of these two fiscal years shall be NOT
LESS than: (y) the annual Base Salary in effect in the immediately preceding
Fiscal Year; PLUS (z) an amount equal to the increase in the annual cost of
living as published by the Bureau of Labor Statistics of the United States
Department of Labor for wage earners in the New York metropolitan area
measured over the course of the immediately preceding fiscal year. The
Corporations are hereby authorized to make all necessary payroll deductions,
including FICA, from such amount, as are customarily made with respect to the
salaries of other senior executive officers of the
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<PAGE>
Company. Any Base Salary accrued from the Effective Date of this Agreement
shall be paid by the Corporations to the Employee on or before December 31,
1994.
2. INCENTIVE COMPENSATION.
(a) As compensation for his services rendered and to be
rendered hereunder, the Company shall pay or cause the Corporations to pay to
the Employee for the period commencing as of the Effective Date and ending on
July 31, 1999, compensation (the "Incentive Compensation") based on the
audited consolidated pre-tax net income of the Corporations and any other
direct or indirectly owned companies or entities which are subsidiaries of
the Company on or after the date hereof and whose financial statements are
consolidated with those of the Company for financial reporting purposes under
generally accepted accounting principles ("GAAP"), excluding Western and WPE
(the "Incentive Group"), as determined by the independent auditors of the
Company in accordance with consistently applied GAAP by such auditors (the
"Incentive Group's Net Income"), as follows: (i) the Company shall pay or
cause the Corporations to pay to the Employee no later than November 1, 1997,
Seventy-Five Thousand Dollars ($75,000) if the Incentive Group's Net Income
for the fiscal year ending July 31, 1997 is greater than or equal to Two
Million Dollars ($2,000,000); (ii) the Company shall pay or cause the
Corporations to pay to the Employee no later than November 1, 1998, One
Hundred Thousand Dollars ($100,000) if the Incentive Group's Net Income for
the fiscal year ending July 31, 1998 is greater than or equal to Two Million
Five Hundred
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<PAGE>
Thousand Dollars ($2,500,000); (iii) the Company shall pay or cause the
Corporations to pay to the Employee no later than November 1, 1999 One
Hundred Twenty-Five Thousand Dollars ($125,000) if the Incentive Group's Net
Income for the fiscal year ending July 31, 1999 is greater than or equal to
Three Million Dollars ($3,000,000). For each of the fiscal years ending on
July 31, 2000 and July 31, 2001, the Incentive Compensation, if any, and the
formula to be used for calculating same, shall be as determined by the
Compensation Committee of the Company's Board of Directors AND ratified by a
majority of the entire Board of Directors of the Company (other than the
Employee).
3. EXPENSES. In addition to the remuneration set forth above,
throughout the period of the Employee's employment hereunder, the Company
shall also reimburse, or cause to be reimbursed to the Employee, upon
presentment by the Employee to the Company, as applicable, of appropriate
receipts and vouchers therefor, for any reasonable business expenses,
including air and other travel expenses, incurred by the Employee in
connection with the performance of his duties and responsibilities hereunder.
4. FRINGE BENEFITS. The Company shall also make available, or
cause to be made available, to the Employee, throughout the period of his
employment hereunder, such benefits, including a monthly car allowance of
$500.00, any disability, hospitalization, medical benefit plan, pension plan
or other benefits or policy, as are put into effect by the Corporations for
their other executive employees; PROVIDED, that notwithstanding any
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<PAGE>
other insurance policies purchased for the benefit of Employee pursuant to
this Section 4 of this PART C, the Company shall purchase for the benefit of
Employee life insurance policy in the amount of $250,000, which benefits shall
be payable to the beneficiary of the Employee upon the death of the Employee.
PART D. CONFIDENTIALITY; NON-COMPETITION. As a material inducement to
cause the Company to enter into this Employment Agreement, the Employee
hereby covenants and agrees, as follows:
1. CONFIDENTIAL INFORMATION; PERSONAL RELATIONSHIPS.
The Employee agrees that for so long as he is employed by the
Company (the "Restricted Period"), he shall keep secret and retain in
strictest confidence all confidential matters of the Corporations, and the
"know-how", trade secrets, confidential client lists, details of client,
subcontractor or consultant contracts, pricing policies, operational methods,
marketing plans or strategies, project development, acquisition or bidding
techniques or plans, business acquisition plans, new personnel acquisition
plans, technical processes, inventions and research projects of the
Corporations learned by the Employee heretofore and hereafter, unless (i)
such information is generally available to the public without restriction,
(ii) Employee obtains confidentiality agreements with respect to such
confidential information, (iii) Employee is requested by the Board of
Directors of the Company or a Committee thereof to disclose such confidential
information, (iv) such information is provided to a customer of the
Corporations pursuant to a request received from such customer in
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<PAGE>
the ordinary course of business, or (v) Employee is under compulsion of
either a court order or a governmental agency's or authority's inquiry, order
or request to so disclose such information.
2. PROPERTY OF THE CORPORATIONS.
(a) Except as otherwise provided herein, all lists, records
and other non-personal documents or papers (and all copies thereof),
including such items stored in computer memories, on microfiche or by any
other means, made or compiled by or on behalf of the Employee, or made
available to the Employee relating to the Corporations are and shall be the
property of the Corporations, shall be delivered to the Company, on the date
of termination of this Agreement.
(b) All inventions, including any procedures, formulas,
methods, processes, uses, apparatuses, patterns, designs, drawings, devises
or configurations of any kind, any and all improvements to them which are
developed, discovered, made, or produced, trade secrets, or information used
by any or all of the Corporations shall be the exclusive property of the
Corporations, and shall be delivered to the Company as applicable, on the
earlier of the expiration or the termination of this Agreement.
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<PAGE>
3. EMPLOYEES OF THE CORPORATIONS. If the Company terminates
Employee for any reason: (i) provided in PART B, Section 2, (ii) provided in
PART B, Section 3, or (iii) as a result of the Employee's voluntary
resignation of employment (not constituting a constructive discharge), the
Employee shall not, directly or indirectly, until the LATER to occur of: (A)
the course of his employment with the Corporations or (B) July 31, 1999,
solicit any employee of the Corporations other than Employee's personal
secretary or encourage any such employee to leave such employment without the
prior written approval of the Company as applicable.
4. NON-COMPETITION. For a period equal to the LATEST to occur
of:
(a) such period as the Employee is employed by any
of the Corporations (whether under this Agreement or otherwise);
(b) one (1) year following the date of termination
of the Agreement as a result of the Employee's voluntary
resignation of employment (not constituting a constructive
discharge), but under no circumstances later than ninety (90)
days after the end of the Fiscal Year of the Company and/or
its Parent ending in 1999; or
(c) one (1) year following the termination of this
Agreement if the Company terminates Employee for any reason
provided in: (i) PART B, Section 2, or (ii) PART B, Section
3 above; or
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<PAGE>
(d) such period with respect to which the Employee
shall receive an amount equal to Incentive Compensation under
insurance policies purchased pursuant to PART C, Section 4
above; or
(e) such period as the Employee shall receive Base
Salary and Incentive Compensation from the Company or its
assigns pursuant to PART B, Section 6 above,
the Employee shall not, directly or indirectly, whether individually or as an
employee, stockholder, partner, joint venturer, agent or other representative
of any other person firm or corporation, engage in any business which is
competitive with the businesses of the Corporations. As used herein, the
term "business which is competitive with the businesses of the Corporations"
shall only mean any person, firm or corporation located in the Continental
United States, ten (10%) or more of the net revenues of which are derived
from the manufacture, sale or distribution of seals and o-rings for
industrial, defense or commercial applications.
5. SEVERABILITY OF COVENANTS.
The Employee acknowledges and agrees that the provisions of this
Article D (including Section 4 above) are reasonable and valid in all
respects. If any tribunal having jurisdiction determines that any of the
provisions of this Section 5 of this PART D or any part thereof, is invalid
or unenforceable because of the duration or geographic scope of such
provision, such tribunal shall have the power to reduce the duration or
geographic scope of
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<PAGE>
such provision and in its reduced form, such provision shall then be
enforceable.
PART E. BINDING EFFECT.
All of the terms and conditions of this Agreement shall
be binding upon and inure to the benefit of the Employee and the
Company and any successor-in-interest to any of them.
PART F. NOTICES.
Except as herein provided, any notice, request, demand or other
communication required or permitted under this Agreement shall be in writing
and shall be deemed to have been given when delivered personally or when
mailed by certified mail, return receipt requested, addressed to a party at
the address of such party first set forth above, or at such other address as
such party may hereafter have designated by notice.
If to the Company at the address first above written with copies to:
Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel
153 East 53rd Street
New York, New York 10022
Attn: Stephen A. Weiss, Esq.
or to any other address as shall be designated from time to time by the
Company.
If to Employee at the address first above written, with
copies to any attorney designated by the Employee.
PART G. MISCELLANEOUS.
1. Neither this Agreement nor any of the terms or conditions
hereof may be waived, amended or modified except by
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means of a written instrument duly executed by the party to be charged
therewith.
2. The captions and paragraph headings used in this Agreement are
for convenience of reference only, and shall not affect the construction or
interpretation of this Agreement or any of the provisions hereof.
3. This Agreement, and all matters or disputes relating to the
validity, construction, performance or enforcement hereof, shall be governed
and construed under the laws of the State of New York.
4. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original hereof, but all of which
together shall constitute one and the same instrument.
5. Any dispute involving the interpretation or application of
this Agreement shall be resolved by final and binding arbitration before one
or more arbitrators designated by the American Arbitration Association in New
York, New York, unless mutually agreed to otherwise. The award of such
arbitrator(s) may be enforced in any court of competent jurisdiction in the
State of New York.
6. This Agreement is intended for the sole and exclusive benefit
of the parties hereto and their respective heirs, executors, administrators,
personal representatives, successors and permitted assigns, and no other
person or entity shall have any right to rely on this Agreement or to claim
or derive any benefit
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<PAGE>
herefrom absent the express written consent of the party to be charged with
such reliance or benefit.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on and as of the date first set forth above, to be effective as of August 1,
1996.
ATTEST: AMERICAN UNITED GLOBAL, INC.
______________________________ By:___________________________
C. Dean McLain
Executive Vice President
_______________________________
ROBERT M. RUBIN
COMPENSATION COMMITTEE
Robert M. Rubin Lawrence E. Kaplan C. Dean McLain
Chairman & Director Director
Director
___________________ _____________________ ___________________
Signature Date Signature Date Signature Date
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