FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended April 30, 1997
Commission File Number 0-19404
AMERICAN UNITED GLOBAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4359228
-------- ----------
(State or other jurisdiction of (I.R.S. Employer I.D. Number)
incorporation or organization)
11130 N.E. 33rd Pl., Suite 250
Bellevue, Washington 98004
---------------------------------------- --------
(Address of principal executive offices) Zip Code
Registrant's telephone no.: 206-803-5400
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports); and (2) has been subject to such filing
requirement for the past 90 days.
YES |X| NO |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Title of Class Number of Shares
Common Stock Outstanding
(par value $.01 per share) 8,209,773
<PAGE>
AMERICAN UNITED GLOBAL, INC.
INDEX
PART I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
Consolidated Balance Sheets
April 30, 1997 (Unaudited) and July 31, 1996................. 1-2
Consolidated Statements of Operations
Three months ended April 30, 1997
and April 30, 1996 (Unaudited)............................... 3
Consolidated Statements of Operations
Nine months ended April 30, 1997
and April 30, 1996 (Unaudited)............................... 4
Consolidated Statement of Shareholders'
Equity (Unaudited)........................................... 5
Consolidated Statements of Cash Flows
Nine months ended April 30, 1997
and April 30, 1996 (Unaudited)............................... 6
Notes to Consolidated Financial Statements..................... 7-14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 15-21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................... N/A
Item 2. Changes In Securities.................................. N/A
Item 3. Defaults Upon Senior Securities........................ N/A
Item 4. Submission Of Matters To A Vote Of Security
Holders................................................ N/A
Item 5. Other Information...................................... N/A
Item 6. Exhibits and Reports on Form 8-K....................... 22
<PAGE>
AMERICAN UNITED GLOBAL, INC.
ITEM 1. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
April 30, July 31,
1997 1996
------------ ------------
[Unaudited]
Current Assets:
Cash and cash equivalents $ 15,673,000 $ 17,086,000
Marketable securities 6,637,000 6,268,000
Trade accounts receivable (less allowance
for doubtful accounts of $1,047,000 and
$652,000 respectively) 14,266,000 6,628,000
Note receivable from shareholder 1,200,000 838,000
Inventories 73,080,000 65,697,000
Prepaid expenses and other receivables 1,551,000 476,000
Deferred tax asset 1,215,000 1,528,000
------------ ------------
Total Current Assets 113,622,000 98,521,000
Note receivable 3,427,000 3,198,000
Property and equipment, net 9,502,000 8,878,000
Intangibles and other assets 13,397,000 6,628,000
Deferred tax asset 1,830,000 1,830,000
------------ ------------
Total Assets $141,778,000 $119,055,000
============ ============
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<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
April 30, July 31,
1997 1996
------------- -------------
[Unaudited]
<S> <C> <C>
Current liabilities:
Borrowings under floor financing lines $ 51,217,000 $ 54,364,000
Short-term borrowings 6,434,000 4,660,000
Current portion of capital lease obligations 205,000 1,119,000
Accounts payable 12,452,000 4,252,000
Accrued liabilities 7,308,000 5,387,000
Income taxes payable 2,689,000 5,253,000
------------- -------------
Total Current Liabilities 80,305,000 75,035,000
Long term borrowings 8,887,000 2,968,000
Capital lease obligations, net of current portion 3,520,000 2,083,000
Purchased business obligations -- 6,929,000
Minority Interest 10,027,000 9,459,000
------------- -------------
Total Liabilities 102,739,000 96,474,000
------------- -------------
Commitments and contingencies (Note 6)
Shareholders' equity:
Series A preferred stock, 12.5% cumulative,
$1.00 per share liquidation value,
$.01 par value, 1,200,000 shares authorized;
none issued and outstanding -- --
Series B preferred stock, 1,500,000
shares authorized; 976,539 shares of
Series B-1 convertible preferred stock,
convertible to common, $3.50 per share
liquidation value, $.01 par value,
issued and outstanding 10,000 --
Series B-2 preferred stock, 7% convertible preferred
stock, convertible into common, $25.00 per share
liquidation value, $.01 par value, 500,000 shares
authorized, 367,840 shares issued and outstanding 4,000 --
Common stock, $.01 par value; 20,000,000 shares
authorized; 8,209,773 and 6,266,382 issued and
outstanding, respectively 82,000 63,000
Additional contributed capital 46,180,000 20,654,000
Deferred compensation (624,000) (793,000)
Retained (deficit) earnings (6,613,000) 2,657,000
------------- -------------
Total shareholders' equity 39,039,000 22,581,000
------------- -------------
Total Liabilities & Shareholders' Equity $ 141,778,000 $ 119,055,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
1997 1996
------------ ------------
<S> <C> <C>
Net sales $ 43,668,000 $ 26,136,000
Cost of goods sold 37,869,000 22,854,000
------------ ------------
Gross profit 5,799,000 3,282,000
Selling, general and administrative expenses 7,574,000 2,205,000
Research and development expenses 779,000 --
------------ ------------
Operating (loss) income (2,554,000) 1,077,000
Other income (expense)
Other income 34,000 114,000
Interest expense, net (515,000) (102,000)
------------ ------------
(Loss) income from continuing operations before
income taxes and minority interest (3,035,000) 1,089,000
Provision for income taxes 313,000 419,000
Minority interest in earnings of consolidated subsidiary 199,000 227,000
------------ ------------
Net (loss) income (3,547,000) 443,000
Dividends on preferred stock (1,655,000) --
------------ ------------
Net (loss) income available for common shareholders ($ 5,202,000) $ 443,000
============ ============
(Loss) Earnings per common and common equivalent share: ($ .66) $ .08
============ ============
Weighted average number of shares 7,919,000 5,696,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
April 30,
1997 1996
------------- ------------
<S> <C> <C>
Net sales $ 111,801,000 $ 75,061,000
Cost of goods sold 97,256,000 66,347,000
------------- ------------
Gross profit 14,545,000 8,714,000
Selling, general and administrative expenses 17,134,000 5,727,000
Research and development expenses 2,346,000 --
Impairment of intangible assets 930,000 --
------------- ------------
Operating (loss) income (5,865,000) 2,987,000
Other income (expense)
Other income 374,000 289,000
Interest expense, net (2,090,000) (843,000)
------------- ------------
(Loss) income from continuing operations before
income taxes and minority interest (7,581,000) 2,433,000
Provision (benefit) for income taxes (1,169,000) 922,000
Minority interest in earnings of consolidated subsidiary 569,000 593,000
------------- ------------
(Loss) income from continuing operations (6,981,000) 918,000
Discontinued Operations - Gain on sale of
wholly owned subsidiaries (less
applicable income taxes of $5,025,000) -- 7,539,000
Discontinued Operations - Income from operations
of subsidiaries sold (less applicable income
taxes of $169,000) -- 254,000
------------- ------------
Net (loss) income (6,981,000) 8,711,000
Dividends on preferred stock (2,289,000) --
------------- ------------
Net (loss) income available for common shareholders ($ 9,270,000) $ 8,711,000
============= ============
(Loss) Earnings per common and common equivalent share:
Continuing operations ($ 1.25) $ .16
Discontinued operations -- 1.37
------------- ------------
Net (loss) income ($ 1.25) $ 1.53
============= ============
Weighted average number of shares 7,416,000 5,691,000
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
----------------- ------------------ Additional Total
Number of Number of Contributed Deferred Retained Shareholders'
Shares Amount Shares Amount Capital Compensation Earnings Equity
------ ------ ------ ------ ------- ------------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
July 31, 1996 -- $ -- 6,267,000 $63,000 $20,654,000 ($793,000) $2,657,000 $22,581,000
Net loss -- -- -- -- -- -- (6,981,000) (6,981,000)
Dividend on
preferred stock -- -- -- -- 2,074,000 -- (2,289,000) (215,000)
Issuance of
common shares -- -- 1,603,000 16,000 7,503,000 -- -- 7,519,000
Issuance of
preferred stock 1,377,000 14,000 -- -- 15,113,000 -- -- 15,127,000
Conversion of
preferred stock
into common stock (33,000) -- 219,000 2,000 -- -- -- 2,000
Amortization
of deferred
compensation -- -- -- -- -- 169,000 -- 169,000
Exercise of
stock options -- -- 121,000 1,000 423,000 -- -- 424,000
Stock options
issued for
services -- -- -- -- 271,000 -- -- 271,000
Warrants issued
in connection
with acquisition -- -- -- -- 142,000 -- -- 142,000
--------- ------- --------- ------- ----------- -------- ---------- -----------
Balance at
April 30, 1997 1,344,000 $14,000 8,210,000 $82,000 $46,180,000 ($624,000) ($6,613,000) $39,039,000
========= ======= ========= ======= =========== ======== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
April 30,
1997 1996
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net (loss) income ($ 9,270,000) $ 8,711,000
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation 1,357,000 591,000
Amortization 1,418,000 49,000
Income applicable to minority interest 568,000 593,000
Impairment of intangible asset 930,000 --
Amortization of deferred compensation 169,000 --
Dividend on preferred stock 2,289,000 --
Discontinued operations -- (7,793,000)
Gain on sale of fixed assets (17,000) (1,000)
Stock options issued for compensation and services 271,000 15,000
Changes in assets and liabilities, net of effects
of acquisitions & dispositions:
Accounts receivable (6,228,000) 810,000
Other receivables -- (580,000)
Inventories (7,383,000) (10,450,000)
Inventory floor plan financing (3,147,000) 8,050,000
Prepaid expenses (1,035,000) (79,000)
Notes receivable (229,000) --
Accounts payable 7,786,000 (150,000)
Other accrued liabilities 1,357,000 962,000
Income taxes payable (2,564,000) (38,000)
Increase in intangibles and other assets (898,000) (106,000)
Other (39,000) --
------------ ------------
Net Cash (Used) Provided by Operating Activities (14,665,000) 584,000
------------ ------------
Cash Flows From Investing Activities:
Purchases of property and equipment (1,827,000) (538,000)
Purchase of distribution outlets -- (603,000)
Acquisition of businesses, net of cash acquired (1,171,000) --
Proceeds from sale of fixed assets 20,000 2,078,000
Proceeds from sale of wholly owned subsidiaries -- 19,493,000
Purchase of marketable securities (369,000) (6,791,000)
Note receivable from shareholder (362,000) --
------------ ------------
Net Cash (Used) Provided by Investing Activities (3,709,000) 13,639,000
------------ ------------
Cash Flows From Financing Activities:
Long-term borrowings, net 610,000 --
Capital lease obligations, net 494,000 (53,000)
Short-term borrowings, net 6,433,000 (2,783,000)
Exercise of stock warrants and options 424,000 90,000
Proceeds from private placement 9,000,000 --
------------ ------------
Net Cash Provided (Used) by Financing Activities 16,961,000 (2,746,000)
------------ ------------
Net (decrease) increase in cash and cash equivalents (1,413,000) 11,477,000
Cash and cash equivalents at beginning of period 17,086,000 4,488,000
------------ ------------
Cash and cash equivalents at end of period $ 15,673,000 $ 15,965,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<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 for the preceding year included in the annual
report on Form 10-K for the year ended July 31, 1996 filed with the Securities
and Exchange Commission. 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 financial statements included in the annual
report on Form 10-K for the year ended July 31, 1996.
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 Power and Equipment Corp. ("Western") which was 43% at April 30,
1997. There is also a 20% minority interest held in eXodus Technologies, Inc.
("eXodus") but no minority interest is presented due to accumulated losses.
NOTE 2 - STATEMENT OF CASH FLOWS
Supplemental disclosure of cash paid during the periods:
Nine Months Ended
April 30,
1997 1996
---- ----
Interest paid $3,104,000 $1,440,000
Income taxes paid $ 852,000 $1,561,000
Summary of non cash financing activities
In November 1996, the Company issued 28,333 warrants to purchase common stock in
its acquisition of the assets of Seattle OnLine Inc. The warrants were valued at
$142,000.
NOTE 3 - INVENTORIES
Inventories consist of the following: April 30, July 31,
1997 1996
---- ----
Parts $ 8,114,000 $ 6,320,000
Equipment new and used 64,966,000 59,377,000
----------- -----------
$73,080,000 $65,697,000
=========== ===========
NOTE 4 - ACQUISITIONS
Effective September 20, 1996, the Company acquired all of the outstanding 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. The shareholders
of InterGlobe exchanged their shares for $400,000 and 800,000 unregistered
shares of the Company's common stock. The acquisition was accounted for by the
purchase method. Accordingly, the results of operations of InterGlobe have been
included
- 7 -
<PAGE>
with the results of operations of the Company for periods subsequent to the date
of acquisition.
A summary of assets acquired, liabilities assumed and purchase price paid is as
follows:
Cash Paid $ 400,000
Value of Common Stock 3,445,000
Costs of Acquisition 40,000
Liabilities Assumed 310,000
----------
COST OF ASSETS ACQUIRED $4,195,000
==========
The preliminary allocation of the cost of the assets acquired to each of
InterGlobe's assets and liabilities at the date of the acquisition, as
determined in accordance with the purchase method of accounting, is presented in
the table below:
Cash $ 277,000
Accounts receivable 242,000
Prepaid and other current assets 7,000
Intangible assets 3,589,000
Property and equipment 80,000
Accounts payable and accrued liabilities (310,000)
----------
NET ASSETS ACQUIRED $3,885,000
==========
The intangible assets acquired are being amortized using the straight-line
method over 10 years.
Additionally, options were granted to certain employees to purchase up to an
additional 800,000 shares of the Company's common stock upon the achievement of
certain Pre-tax Income Goals (as defined) as part of their employment
agreements. Pro forma financial information has not been provided relating to
the acquisition of InterGlobe because the effect is immaterial.
On November 8, 1996, a newly formed, wholly owned subsidiary of the Company,
Seattle OnLine Acquisition Corp. ("SOL") acquired the assets of Seattle OnLine,
Inc. (the "Seller"), a privately held company engaged in providing a local
internet service in the Pacific Northwest. The purchase agreement states that
SOL was to provide $300,000 cash and up to 25,000 shares of the Company's common
stock for the settlement of the liabilities of the Seller. The Seller was unable
to deliver to SOL the payoff, release and settlement letters pertaining to its
debts at the date of the closing, therefore SOL was not required to deliver the
shares and the cash at closing.
The assets of the Seller were exchanged for $147,000 in cash, 16,000 shares of
the Company's common stock, warrants for the purchase of 28,333 shares of stock
at an exercise price of $6.00 per share effective November 5, 1999, and the
assumption of certain liabilities. The acquisition was accounted for by the
purchase method. Accordingly, the results of operations of SOL have been
included with the results of operations of the Company for periods subsequent to
the date of acquisition.
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<PAGE>
A summary of assets acquired, liabilities assumed and purchase price paid is as
follows:
Cash Paid $147,000
Value of Common Stock 101,000
Value of Warrants issued 142,000
Liabilities Assumed 119,000
--------
COST OF NET ASSETS ACQUIRED $509,000
========
The preliminary allocation of the purchase price of each of SOL's assets and
liabilities at the date of the acquisition, as determined in accordance with the
purchase method of accounting, is presented in the table below:
Accounts receivable $ 18,000
Property and equipment 27,000
Other assets 19,000
Intangible assets 445,000
Accounts payable and accrued liabilities (69,000)
Note payable (50,000)
--------
NET ASSETS ACQUIRED $390,000
========
Intangible assets are being amortized using the straight-line method over 10
years.
Additionally, warrants were granted to the principal stockholder of Seattle
OnLine, Inc. to purchase up to an additional 305,000 shares of the Company's
common stock in connection with employment agreements. The options vest and
become exercisable upon the achievement of certain Pre-tax Income Goals (as
defined) pursuant to an employment agreement. Pro forma financial information
has not been provided relating to the acquisition of SOL because the effect is
immaterial.
Effective December 11, 1996 the Company acquired all of the outstanding stock of
Broadcast Tower Sites, Inc. ("BTS"), a private company providing site
acquisition, zoning, architectural, engineering and consulting services to the
wireless communications industry. The shareholders of BTS exchanged their shares
for $780,000 in cash, 507,246 unregistered shares of the Company's common stock
and three promissory notes aggregating $600,000, bearing interest at the
Citibank, N.A. prime rate (currently 8.50%) and payable in installments of
$100,000, $200,000 and $300,000 on each of November 30, 1997, 1998 and 1999,
respectively.
The acquisition was accounted for by the purchase method. Accordingly, the
results of operations of BTS have been included with the results of operations
of the Company for periods subsequent to the date of acquisition.
Subsequent to acquisition, the Company changed the name of BTS to TechStar
Communications, Inc. ("TechStar").
A summary of assets acquired, liabilities assumed and price paid is as follows:
Cash Paid $ 780,000
Value of Common Stock 2,891,000
Promissory Notes Given 600,000
Costs of Acquisition 155,000
Liabilities Assumed 941,000
----------
COST OF ASSETS ACQUIRED $5,367,000
==========
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<PAGE>
The preliminary allocation of purchase price to each of TechStar's assets and
liabilities at the date of acquisition, as determined in accordance with the
purchase method of accounting is presented in the table below:
Cash $ 74,000
Accounts Receivable 1,150,000
Intangible Assets 4,079,000
Property and equipment 50,000
Other Assets 14,000
Accounts Payable and Accrued liabilities (941,000)
----------
NET ASSETS ACQUIRED $4,426,000
==========
The intangible assets acquired are being amortized using the straight-line
method over 10 years.
The former stockholders of BTS received four-year employment agreements with
TechStar, pursuant to which such persons shall receive, in addition to their
base salaries and annual bonuses based upon performance of TechStar, options
exercisable over a five year period entitling the holder to purchase up to an
additional 520,000 shares of Company Common Stock in the aggregate (the
"TechStar Options"). The TechStar Options vest and become exercisable in the
event that TechStar achieves Pre-Tax Income Goals (as defined) in the each of
the four 12 month periods ending November 30, 2000. Alternatively, all 520,000
TechStar Options shall vest if, at any time during the period commencing upon
closing and terminating on November 30, 2000, the accumulated Pre-Tax Income of
TechStar has equaled or exceeded $11,000,000. 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 TechStar prior to November 30, 2000, all of
the TechStar Options shall immediately vest upon such occurrence. In addition,
the BTS acquisition agreement provides that if the Company effects a public
offering of TechStar or a sale of TechStar prior to November 30, 2000, the
former BTS stockholders may elect (but shall not be required) to exchange all
Company securities received by them in the BTS acquisition (the "Exchange
Option") for an aggregate of 25% of the common stock of TechStar then owned by
the Company prior to such transaction.
In addition to the 520,000 TechStar Options issued to the former BTS
stockholders, the Company also agreed to issue an additional 120,000 Company
common stock options, on identical terms as the TechStar Options, to certain
other key employees of TechStar designated by the former BTS stockholders. Pro
forma financial information has not been provided relating to the acquisition of
BTS because the effect is immaterial.
On January 17, 1997, Western acquired the operating assets of Sahlberg
Equipment, Inc., a four-store Pacific Northwest distributor of construction
equipment, for $5,289,616. The purchase price consisted of $3,844,152 in
equipment inventory, $796,914 in parts inventory, $625,326 in fixed assets, and
$23,224 in work-in-process. The majority of the purchase was financed by the
proceeds of two term loans from Case Credit Corporation carrying interest rates
of prime plus one percent. The acquisition has been accounted for as a purchase.
Pro forma financial information has not been provided relating to the
acquisition of Sahlberg because the effect is immaterial.
- 10 -
<PAGE>
NOTE 5 - INTANGIBLE ASSETS
Intangible and other assets consist of the following at April 30, 1997:
Goodwill $10,614,000
Capitalized Software 2,030,000
Non-compete agreement 183,000
Other assets 570,000
-----------
$13,397,000
===========
Goodwill is amortized over lives ranging from 10 to 40 years, capitalized
software is amortized at the greater of the amount computed using (a) the ratio
of current revenue for a product to the total of current and anticipated future
revenues or (b) the straight-line method over 5 years, and the non-compete
agreement is amortized over 2 years.
NOTE 6 - CONTINGENCIES
During the quarter, the Company was served with a demand for arbitration from
the former president of Seattle OnLine Inc., certain of whose assets were sold
to Seattle OnLine Acquisition Corporation (SOL), a wholly owned subsidiary of
the Company, in November, 1996. The complaint alleges that the Company and SOL
breached the terms of the asset purchase agreement and the related employment
and warrant agreements. His principle claim for damages seeks to recover
compensation lost as a result of the alleged breaches. The Company denies the
allegations and is vigorously defending itself in the arbitration proceeding.
The matter is presently in the discovery phase, and it is impossible at this
time to determine the likelihood of an unfavorable outcome, or estimate the
amount of any possible loss.
Except for ordinary, routine proceedings incidental to its business, none which
are material, there are no other pending legal proceedings to which the Company
or any of its property is subject.
NOTE 7 - SERIES B-1 CONVERTIBLE PREFERRED STOCK
976,539 shares of the Registrants Series B-1 convertible preferred stock were
issued in September 1996 in connection with the fiscal 1996 acquisition of
ConnectSoft, Inc. Such shares have a $3.50 per share liquidation value and are
convertible into a minimum of 976,539 and a maximum of 2,929,617 shares of the
Company's common stock pursuant to achieving certain performance goals and other
criteria described in the merger agreement.
NOTE 8 - SERIES B-2 CONVERTIBLE PREFERRED STOCK
In January 1997 the registrant consummated a Private Placement pursuant to which
400,000 shares of Series B-2 convertible preferred stock were issued.
The Private Placement Preferred Shares were originally convertible into an
aggregate of 1,165,501 shares of common stock, subject to adjustment, 34% on
March 8, 1997; 33% on April 8, 1997 and 33% on May 8, 1997. The conversion
period continues through January 8, 2000 and the conversion price is equal to
the LESSER of (i) the Closing Date Average Price of $8.58 per share, (ii) 105%
of the Anniversary Average Price (which Anniversary Average Price shall be the
Average Price (defined below) on the date immediately preceding the first
anniversary of the Closing Date), but only if the Anniversary Average Price is
less than the Closing Date Average Price, or (iii) 82.5% of the Conversion Date
Average Price. For purposes of determining the Private Placement Preferred
Shares conversion rate, the Average Price equals the average daily closing bid
price of the Company's Common Stock as reported on Nasdaq or other national
securities exchange for the ten (10) trading days immediately preceding the date
of sale of such Private Placement Preferred Shares, the anniversary of such
sale, or the conversion date, as the case may be. The Company has the right to
limit the holders' right of conversion in certain circumstances prior to January
8, 2000
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<PAGE>
after which all of the Private Placement Preferred Shares not previously
converted will be converted into Common Shares at the above formula price then
in effect. The 1,165,501 Common Shares were based on approximately 105% of the
Average Price at January 8, 1997, the closing date of the 1997 Private
Placement, and are subject to increase to an indeterminable number of additional
Common Shares based on the above formula. The discount conversion feature is
accounted for as a dividend to the preferred shareholders on a pro-rata basis
over the period beginning with the issuance of the preferred stock through May
1997, the date that all the Series B-2 preferred shares become convertible. As
of April 30, 1997, a total of 32,160 Private Placement Shares had been converted
into 218,641 common shares at prices ranging from $3.31 to $3.51 per share. As
of June 17, 1997, a total of 280,000 shares had been converted into 2,045,922
common shares at prices ranging from $3.31 to $3.73 per share.
In addition, the Private Placement investors acquired warrants to purchase up to
350,000 shares of the Company's common stock at $8.58 per share and warrants to
purchase up to 350,000 shares of eXodus common stock in the event of an initial
public offering ("IPO") of eXodus at the IPO price.
NOTE 9 - SUBSIDIARY PREFERRED STOCK
Western 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, 1997 none were
issued and outstanding.
NOTE 10 - SUBSEQUENT EVENTS
Prologue
On May 5, 1997 the Company received payment of all accrued interest and the
principal of the $250,000 loan made to Prologue Software on February 14, 1997.
Prologue is a French entity that provides the Company and its eXodus subsidiary
with an OEM license which permits the Company and eXodus to offer NTERPRISE(TM)
application remoting software with Prologue's Win-Times multi-user software in
Microsoft Windows NT 3.51 version. Prologue's license with Microsoft expired
March 31, 1997. Prologue has since advised the Company that its negotiations
with Microsoft to obtain an modification or renewal of Prologue's Windows NT
3.51 version license with Microsoft were successful, but that consistent with
Microsoft's recent public announcements, no license for Microsoft's Windows NT
in 4.0 version was granted.
On June 17, 1997, the Company was advised by Prologue that the May 14, 1996
license agreement between the eXodus Technologies, Inc. subsidiary of AUGI and
Prologue had terminated, allegedly for non-payment by AUGI and eXodus of certain
royalties. AUGI believes that such notice of termination was not effective and
that payment of all royalties has been timely tendered. On June 17, 1997,
Prologue and the Company agreed that any alleged defaults under the May 14, 1996
license were waived and that such license would be amended to provide, among
other things that (i) the license will be non-exclusive and the scope of the
license will be limited to Prologue's WiNTimes(TM) supporting Microsoft's
Windows NT in 3.51 version only, and (ii) the license will terminate in May
1998. In addition, the Company and Prologue are engaged in ongoing discussions
concerning the establishment of a new long-term working relationship. There is
no assurance, however, that the Company's relationship with Prologue will be
expanded.
Registration Statement
On May 7, 1997, the Company's registration statement on Form S-1 covering
5,767,334 shares of common stock became effective.
Arcadia Acquisition
On May 8, 1997, the Company completed the acquisition of Arcadia Consulting
Services, Inc. ("Arcadia"), a company recently formed for the purpose of
providing consulting services to clients in the wireless telecommunications
industry. The Company paid $220,000 plus 192,754 shares of the Company's common
stock. Following the acquisition, Arcadia has been merged with and into the
Company. The entire purchase price has been allocated to goodwill in the amount
of $991,000. Pro forma financial information has not been provided relating to
the Arcadia acquisition because the effect is immaterial.
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The former President and sole stockholder of Arcadia received a 4 year
employment agreement with TechStar as its President and Chief Executive Officer.
The agreement contains terms substantially identical to those provided to each
of the former stockholders of TechStar, including 260,000 TechStar Options.
NOTE 11 - OTHER INFORMATION
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 accommodation 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 and Chief
Executive Officer, and a principal stockholder of the Company is also the
Chairman, Chief Executive Officer, a director and a principal stockholder of
ERD, owning approximately 25.0% of the outstanding ERD Common Stock.
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 certain 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.
In September 1996, a subsidiary of ERD which operated a waste facility in Nassau
County, New York was cited by the New York State Department of Environmental
Conservation ("DEC") for violating certain DEC regulations. Such waste facility
had accounted for approximately 13% of ERD's consolidated revenues. The Company
has been advised by ERD that under the terms of a Settlement Agreement reached
with the State of New York in November 1996, all violations alleged by the DEC
have been resolved in consideration for, among other things, ERD's agreement to
voluntarily cease incineration operations at the waste facility on or before
March 31, 1997. Such incineration operations ceased on April 15, 1997.
On November 8, 1996, the Company and ERD amended and restated their agreements
to provide that if and to the extent that the Letter of Credit provided by the
Company is called for payment, ERD will issue to the Company its convertible
note bearing interest at 12% per annum, payable monthly, and payable as to
principal on the earliest to occur of: (i) May 30, 1999, (ii) ERD's receipt of
the initial proceeds from any public or private placement of debt or equity
securities of ERD, or (iii) completion of any bank refinancing by ERD, to the
extent of all proceeds available after payment of other secured indebtedness. In
addition, the ERD notes, if issued, will be convertible, at any time at the
option of the Company, into ERD Common Stock at a conversion price equal to
$4.40 per share, or a maximum of 1,000,000 ERD shares if the entire $4.4 million
note is issued and converted into ERD Common Stock. In addition to the
collateral provided under the May 30, 1996 agreement, ERD also provided the
Company with a junior mortgage on the waste facility owned by ERD's subsidiary,
subordinated to existing indebtedness encumbering such facility.
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Under the terms of an indemnity agreement, dated May 30, 1996, Robert M. Rubin
agreed to indemnify the Company for all losses, if any, incurred by the Company
as a result of issuance of the Letter of Credit for the benefit of ERD. In
consideration of his negotiating the modification of the ERD agreement, on
November 8, 1996, the Company's Board of Directors (Mr. Rubin abstaining) agreed
to amend the indemnity agreement with Mr. Rubin to limit his contingent
liability thereunder to the extent of 23% (Mr. Rubin's approximate percentage
beneficial ownership in the outstanding Company Common Stock as of May 30, 1996)
of all losses that the Company may incur in connection with its having provided
the Letter of Credit financial accommodation on behalf of ERD. Mr. Rubin's
reimbursement obligations are also subject to pro rata reduction to the extent
of any repayments made directly by ERD or from proceeds received by the Company
from the sale of ERD capital stock described above. To date, ERD has made all
required bank payments on a timely basis.
In February of 1997, the Company loaned $500,000 to ERD Waste Corp. The loan is
secured by a short term note bearing interest at 2% above the prime lending rate
of the Company's commercial bank (8.5% at April 30, 1997) and a second
collateral and security position on all accounts receivable of ERD subject to
the primary collateral position held by Chase Bank. Principal together with
accrued interest is due October 5, 1997.
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ITEM 2. 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.
This management discussion and analysis of financial conditions and results of
operations contains certain "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. Such statements relating to
future events and financial performance are forward-looking statements that
involve risks and uncertainties, detailed from time to time in the Company's
various Securities and Exchange Commission filings.
Management of the Company carefully considered, both prior and immediately
subsequent to consummation of the January 1996 sale of the Company's
manufacturing divisions to Hutchinson Corporation ("Hutchinson"), the best
utilization of the cash resources that would result therefrom. It was determined
that stockholder value would best be enhanced by directing the Company's future
into the computing and telecommunications industries, by acquiring proprietary
technologies, unique niche software products and selective expertise that could
be marketed on a national scale.
Effective as of July 31, 1996, the Company acquired, through merger of an
acquisition subsidiary of the Company in August 1996 (the "ConnectSoft Merger"),
all of the outstanding capital stock of ConnectSoft, a private company located
in Bellevue, Washington.
ConnectSoft historically focused on providing EMail and internet software
products. ConnectSoft is now predominantly engaged in developing a new
intelligent integrated communications system which will be a modular,
customizable solution for telecommunications companies, internet access
providers and corporate intranets. The product, known as Free-Agent(TM),
integrates electronic mail, fax, paging, telephony, voice mail and Web browsing
functions into a single application that can be managed from a personal
computer, any touch-tone telephone or a television set equipped with a cable
modem. In April 1997, ConnectSoft signed an agreement with Hewlett-Packard to
supply a branded version of Free-Agent(TM).
eXodus Technologies, Inc. ("eXodus"), previously a division of ConnectSoft, is
now a separate company, 80% owned by the Company. eXodus provides a remote
access connectivity software protocol (NTERPRISE(TM)) which allows users to run
Microsoft Windows(TM) applications such as Word(TM), Excel(TM), and Power
Point(TM) on existing UNIX workstations, X-Terminals and other X-Compatible
devices. eXodus's Application Server Software is sold as a multi-user
operating system in conjunction with Multi-user Software. eXodus is targeting
users of UNIX workstations and X-Terminals as the primary market for its
NTERPRISE(TM) product.
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Effective September 20, 1996, the Company acquired InterGlobe Networks, Inc.
InterGlobe provides engineering design and consulting services for users and
providers of telecommunications facilities on the Internet and other media.
Effective November 8, 1996, the Company acquired the assets of Seattle OnLine,
Inc. which provides a local Internet service in the Pacific Northwest.
Effective December 11, 1996, the Company acquired the assets of Broadcast Tower
Sites, Inc., now known as TechStar Communications Incorporated ("TechStar"),
pursuant to a merger transaction. TechStar is engaged in providing site
acquisition, zoning, architectural and engineering services, as well as
consulting services to the wireless telecommunications industry.
As a result of the acquisitions of ConnectSoft, eXodus, InterGlobe, Seattle
OnLine and TechStar, and newly developed technology, the Company is now able to
provide:
a. a remote access connectivity software protocol which allows users to
run Microsoft Windows(TM) applications, such as Word(TM), Excel(TM)
and Power Point(TM), on existing UNIX workstations, X-Terminals and
other X-Compatible devices;
b. an electronic mail communications management software product,
marketed as EMail Connection(R);
c. a product capable of providing intelligent, integrated communications
between disparate media types, computer platforms and communications
devices;
d. engineering, design and consultation services to users and providers
of telecommunications facilities on the Internet and other media;
e. local Internet telecommunication service in the Pacific Northwest; and
f. site acquisition, zoning, architectural and engineering services to
the wireless communications industry.
In May 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128 "Earnings Per Share" (FAS 128).This
pronouncement changes the Company's method of calculating earnings per share
and is required to be adopted for the year ended July 31, 1998. Early adoption
of FAS 128 is not permitted. Management believes that based on its current
capital structure that FAS 128 will not have a material impact on earnings per
share.
Results of Operations
The Three Months and Nine Months ended April 30, 1997 compared to the Three
Months and Nine Months ended April 30, 1996.
Western's revenues for the three month period ended April 30, 1997 increased
$15,907,000 or approximately 61% over the three month period ended April 30,
1996, due mainly to the contribution of the stores acquired or opened in the
last year in Sacramento, Fullerton, Stockton and Redding, California, Elko,
Nevada, Kent and Spokane, Washington, Anchorage, Alaska and Portland, Oregon
which accounted for $10,786,000 (68%) of this increase in sales. Same store
revenues increased $5,121,000 or 22% for the three month period ended April 30,
1997, as compared to the prior year period. The increase in same store revenues
resulted from higher sales across all departments. In the three month period
ended April 30, 1997, Western's new equipment revenues increased $10,897,000,
used equipment revenues increased $1,084,000, and parts revenues increased
$2,991,000, rental revenues increased $317,000, and service revenues increased
$618,000 over the quarter ended April 30, 1996. ConnectSoft, InterGlobe
Networks, Inc., eXodus
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Technologies, Seattle OnLine Acquisition Corp. and TechStar Communications, Inc.
(The "Technology Group") reported revenues of $1,625,000 during the three months
ended April 30, 1997. Product sales by the technology business companies are
expected to experience a long sales cycle. It is anticipated that customers for
the eXodus NTERPRISE(TM) product will perform extensive evaluation of the
product prior to purchase and that the sales cycle for the NTERPRISE(TM) product
could average six to nine months.
Western's revenues for the nine month period ended April 30, 1997 increased
$33,183,000 or approximately 44% over the nine month period ended April 30,
1996. The increase was due primarily to the contribution of the stores acquired
or opened in the last year, accounting for $23,644,000 (71%) of the increase in
sales. Western's same store revenues increased $9,205,000 or 12% for the nine
month period ended April 30, 1997, as compared to the nine month period ended
April 30, 1996. For the nine month period ended April 30, 1997, Western's sales
in all departments were up compared to the same period in the prior year. The
Technology Group reported revenue of $3,557,000 for the nine month period ended
April 30, 1997.
Western's gross profit margin of 10.9% for the three month period ended April
30, 1997 was down from the prior year comparative period margin of 12.6%. The
decrease in gross profit margins was the result of a decrease in higher margin
rental revenue as a percentage of sales, and also lower margin on new equipment
sales. For the nine month period ended April 30, 1997, Western's gross margin
was 11.1%, a slight decrease from the nine month period ended April 30, 1996, at
11.6%. The Technology Group revenue yields a higher gross margin than Western
although the impact for the three and nine months ended April 30, 1997 was not
material.
Selling, general and administrative ("SG&A") expenses were $7,574,000 (17.3% of
sales) and $17,134,000 (15.3% of sales) for the three and nine month period
ended April 30, 1997, respectively, compared to $2,205,000 (8.4% of sales) and
$5,727,000 (7.6% of sales) for the comparative prior year periods. The increase
in SG&A expenses of $5,369,000 for the three months ended April 30, 1997 were
attributable to an increase at Western of $875,000 primarily due to new
locations, an increase of $474,000 of corporate SG&A and also included
Technology Group SG&A expenses of $4,020,000 for which no comparable expense was
incurred in 1996. The increase in SG&A expenses of $11,407,000 for the nine
months ended April 30, 1997 was attributable to an increase at Western of
$1,989,000 primarily due to new locations, and an increase of $1,956,000 of
corporate SG&A and also included Technology Group SG&A expenses of $7,462,000
for which no comparable expense was incurred in 1996. Included in SG&A for the
Technology Group are $750,000 of minimum royalties pertaining to the Prologue
license agreement.
During the three month and nine month periods ended April 30, 1997, the
Technology Group continued development activities related to its NTERPRISE(TM)
software product and to a lesser extent its e-mail software products for retail
and OEM markets, as well as a new ConnectSoft product involving intelligent
integrated communications for telecommunication companies, Internet access
providers and corporate intranets. Research and development expense for the
three and nine month periods ended April 30, 1997 were $779,000 and $2,346,000
respectively. No research and development expenses were incurred in comparable
1996 periods. During the three and nine months ended April 30, 1997, only
minimal revenues were generated by ConnectSoft's Email Connection (EMC) product
and subsequent thereto such revenues have declined further. These revenue
decreases were attributable to more intense competition and lower sales prices
in the market place and the inclusion of similar products in bundled software
packages distributed by the larger companies in the industry. In addition, EMC
is based on the older 16 bit technology while most competitive products are
built
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upon the newer, more efficient and enhanced 32 bit technology. Due to
insignificant sales and the fact that it is not economically feasible to upgrade
the EMC product to the 32 bit technology, the Company determined that the
technology had no material remaining value and therefore wrote off the balance
of $430,000 as of January 31, 1997.
In addition, there was a non-compete agreement with the prior CEO of
ConnectSoft. Due to the lack of sales mentioned above and the high cost of
market entry, management determined that likewise there is no material remaining
value to the non-compete agreement and the balance of $500,000 was written off
as of January 31, 1997.
Interest expense net of interest income for the three months ended April 30,
1997 of $515,000 was up significantly from the $102,000 in the prior year
comparative period. This increase is primarily the result of Western's build up
in inventory levels to support the increased number of facilities operated by
Western and Western's higher equipment sales level, including an increase in
equipment dedicated to the rental fleet. Also contributing to this increase were
borrowings to fund the operations of certain of the technology companies.
Interest expense net of interest income for the nine month period ended April
30, 1997 was $2,090,000 compared to $843,000 for the nine month period ended
April 30, 1996, due to the increased inventory carried by Western and required
funding of the operations of certain of the technology companies.
The effective tax rate for the three months ended April 30, 1997 was negative
for the reasons explained below. The effective tax rate for the nine months
ended April 30, 1997 was approximately 15%. The Company has recorded a valuation
allowance against the deferred tax benefit for net operating losses generated in
the third quarter by the Technology Group since in management's opinion the net
operating losses do not meet the more likely than not criteria for recognition.
The tax provision recognized during the current quarter is based upon profits
generated by the Western subsidiary. These rates are lower than the 38%
effective rate for the comparable 1996 periods because of the valuation
allowance and the absence of California state income taxes due to the sale of
the California operations in January, 1996.
Although Western's sales were well ahead of the prior year comparative period,
the decrease in gross margins along with the increase in operating and interest
expenses offset the sales increase, resulting in Western's net income for the
three and nine month periods ended April 30, 1997 to be approximately the same
as the prior year. Western's management expects its efforts to streamline
expenses, increase inventory turns, and increase revenues to result in more net
income as a percentage of sales in future periods.
Liquidity and Capital Resources
As a result of the Hutchinson Transaction the Company significantly increased
its liquidity and capital resources. The Company has used, and intends to use in
the future, the proceeds of the Hutchinson Transaction, to acquire and fund the
working capital needs of additional businesses. The Company previously had been
granted a $14,000,000 secured demand line of credit from its prior commercial
bank. This line was secured by the Company's portfolio of cash and marketable
securities held by the bank and had an interest rate of the bank's 90 day LIBOR
rate plus 1%. Effective May 9, 1997 the Company commenced a new banking and
borrowing relationship with North Fork Bank. As a result, the Company's prior
bank indebtedness of $5,309,000 was paid in full.
The new arrangement provides for an advised line of credit in the maximum
principal amount of $10,000,000. Advances under this facility bear an interest
rate of LIBOR (currently 5-7/8%) plus .125%. The new banking arrangement also
provides for a standby letter of credit in favor of Chase Bank in the principal
amount of $4,400,000 relative to ERD (see note 11 to financial statements).
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Both credit facilities are secured by a pledge of no less than $2,000,000 in
cash on deposit at North Fork Bank and a pledge of all government securities,
commercial paper and other investments owned by the Company and held at the bank
in a custodial account.
As of June 13, 1997, the amount outstanding under the $10,000,000 facility was
approximately $5,320,000 and there was no amount drawn under the standby letter
of credit. All loans and advances are due on October 1, 1998.
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 the manufacturers of the products Western sells and Seattle-First
National Bank ("SeaFirst Bank"). In addition, in fiscal 1995, 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
were 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 Western's inventory floor plan finance arrangements, the manufacturers of
products sold by Western provide interest free credit terms on new equipment
purchases for periods ranging from one to twelve months, after which interest
commences to accrue monthly at rates ranging from two to three percent over the
prime rate of interest. Principal payments are typically made under these
agreements at scheduled intervals and/or as the equipment is rented, with the
balance due at the earlier of a specified date or sale of the equipment. At
April 30, 1997, Western was indebted under manufacturer provided floor planning
arrangements in the aggregate amount of $34,460,000.
In order to take advantage of the cash discounts offered by Case, and to provide
financing beyond the term of applicable manufacturer provided floor plan
financing or as alternatives to manufacturer provided floor plan financing
arrangements, Western has entered into a separate secured floor planning line of
credit with Seafirst Bank. The Seafirst line of credit was entered into in June
1994 and provides a $17,500,000 line of credit which can be used to finance new
and used equipment, or equipment to be held for rental purposes. On April 30,
1997, approximately $16,757,000 was outstanding under such line of credit, the
principal of which bears interest at .125 percent over Seafirst Bank's prime
rate and is subject to annual review and renewal on June 1, 1997. As of June 1,
1997, the Seafirst line of credit was extended for 30 days pending ongoing
renewal negotiations.
On June 5, 1997, Western obtained a $75 million inventory flooring and operating
line on credit through Deutsche Financial Services (DFS). The DFS credit
facility is a three-year, floating rate facility based on prime with rates
between 0.50% under prime to 1.00% over prime depending on the amount of total
borrowing under the facility. Amounts are advanced against Western's assets,
including accounts receivable (85% advance rate), parts (advance rate of 50% of
cost), new equipment (100% of book value advance rate), rental fleet (advance
rate of 100% of net book value), and used equipment (advance rate of 93% of net
book value). Western expects to use this borrowing facility to lower flooring
related interest expense by using advances under such line to finance inventory
purchases in lieu of financing provided by suppliers and/or Seafirst, to take
advantage of cash purchase discounts from its suppliers, to provide operating
capital for further growth, and to refinance some of its acquisition related
debt at a lower interest rate.
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Amounts owing under Western's floor plan financing agreements are generally
secured by inventory purchases financed by these lenders, as well as all
proceeds from the sale and rental of such inventory, including related accounts
receivable. Amounts owing under the DFS credit facility are secured by Western's
accounts receivable and parts and equipment inventory.
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.
Effective February 17, 1996, Western acquired substantially all of the operating
assets used by 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, $3,090,900 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 has been 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"). MRR is a
Delaware limited liability company, the owners of which are Messrs. C. Dean
McLain, a director of the Company and the President and a director of 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.
On October 10, 1995, using proceeds from its 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 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.
During the nine months ended April 30, 1997, cash and cash equivalents decreased
by $1,413,000 primarily due to an increase in Western's inventory. The decrease
was partially offset by an increase in other short-term borrowing. Western had
positive cash flow from operating activities of $920,000 during the quarter
ended April 30, 1997, chiefly as a result of the increase in other short-term
borrowing. Purchases of fixed assets during the quarter were related mainly to
the opening of new distribution outlets, the Sahlberg acquisition and the
purchase of computer equipment by the technology group.
Effective July 31, 1996 the Company acquired ConnectSoft, Inc., a business
involved with providing software products and services. ConnectSoft had three
products for e-mail users in production for the retail and OEM marketplace.
Throughout fiscal 1997, revenues from the retail products were much less than
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expected and at January 31, 1997, intangible assets of $930,000 related to those
products was written off. ConnectSoft is now engaged in developing a new
intelligent integrated communications system which will be a modular,
customizable solution for telecommunications companies, internet access
providers and corporate intranets. In late August 1996 eXodus began marketing
its connectivity software protocol known as NTERPRISE(TM) Version 1.1 to
businesses using UNIX workstations, X-Terminals and other X-Compatible devices.
Sales of NTERPRISE(TM) to businesses typically involve extensive evaluation by
customers. The Company is in the process of demonstrating its NTERPRISE(TM)
solution to a number of potential end-users and distributors, including
Motorola, IBM and AT&T. Although eXodus has received initial evaluation and
pilot orders from several customers, no significant firm orders have been
obtained. However, management believes that larger commercial orders will be
received throughout the balance of calendar 1997.
Under the terms of the Company's acquisition of InterGlobe, the InterGlobe
shareholders received the aggregate sum of $400,000 plus an aggregate of 800,000
shares of the Company's Common Stock. Following consummation of the InterGlobe
acquisition, the Company became obligated to fund 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. Since its
acquisition, InterGlobe has been cash flow positive and self funding, however
revenues during the current quarter decreased from those generated in the
quarter ended January 31, 1997.
Similar funding arrangements were included in the acquisition agreements for BTS
(now Tech-Star) and Seattle OnLine Acquisition Corp. To date, TechStar has been
cash flow positive from operations but required a $200,000 advance to fund the
costs of revenue and receivable growth from new customers, whereas Seattle
OnLine has been advanced approximately $850,000 for working capital and certain
debt and accounts payable settlements of the prior entity.
In January 1997, the Company consummated a private placement of 400,000 shares
of Series B-2 preferred convertible stock for an aggregate purchase price of
$10,000,000. Substantially all net proceeds were used to reduce short term bank
indebtedness. Such indebtedness had been incurred to fund the cash portion of
the acquisition price of certain of the technology companies as well as to fund
the working capital needs of the Technology Group as a whole and included such
working capital advances of approximately $9,000,000.
The Company's cash, cash equivalents and marketable securities of $22,310,000 as
of April 30, 1997 and available credit facilities are considered sufficient to
support current or higher levels of operations for at least the next twelve
months. The Company seeks to provide a high current return on its investments of
cash and cash equivalents while preserving both liquidity and capital. The
established policy guidelines for the investment portfolio include investments
that include U.S. Treasury Securities, U.S. Government agency obligations,
Deposit-type obligations of U.S. banking institutions, Repurchase agreements,
Grade A1 U.S. Corporate Commercial Paper, Money Market and mutual funds
investing in the above listed instruments. Concentration of the securities
portfolio is limited to not more than 20% of the Investment portfolio in any one
bank, corporation or non-government issuer. The investments chosen reflect this
policy by investing substantially all cash and cash equivalents in money market
funds, a United States Treasury Reserve Fund and U.S. denominated A1 grade
commercial paper.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
1. North Fork Bank Advised Line of Credit
2. North Fork Bank Letter of Credit
3. North Fork Bank Pledge Agreements
(b) REPORTS ON FORM 8-K
None
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- 22 -
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN UNITED GLOBAL, INC.
June 18, 1997
By:
------------------------------
Robert M. Rubin
Chairman
By:
------------------------------
David M. Barnes
Chief Financial Officer
NORTH FORK BANK
ADVISED LINE OF CREDIT
REVOLVING CREDIT NOTE
BORROWER: AMERICAN UNITED GLOBAL, INC.
PRINCIPAL: $10,000,000 Date: May 15, 1997
PROMISE TO PAY: The undersigned (the "Borrower"), for value received, does
hereby promise to pay to the order of NORTH FORK BANK (the "Bank") at its
offices at 245 Love Lane, Mattituck, New York 11952, or at any of its branches,
the sum of TEN MILLION ($10,000,000) DOLLARS plus interest thereon from the date
hereof as set forth herein.
RATE AND PAYMENT: The Borrower shall pay said sum, or such lesser amount as may
then be the aggregate unpaid principal balance of all loans made by the Bank to
the Borrower hereunder, (each a "Loan" and collectively the "Loans") on or
before October 1, 1998 (the "Maturity Date").
Each advance made by the Bank to the Borrower hereunder shall bear interest at
an interest rate equal to one hundred twenty-five (125) basis points in excess
of the "Effective LIBOR Rate," payable monthly in arrears commencing on June 15,
1997 and on the fifteenth day of each month thereafter. The "Effective LIBOR
Rate" shall be that rate, to be selected by the Borrower on the date of each
such advance, published in The Wall Street Journal on the day preceding said
election as the LIBOR Rate (adjusted for any applicable reserve requirement of
the Bank) with a time frame not to exceed the lesser of (a) 365 days, or (b) the
number of days until the maturity of this Note and shall be applied to the
unpaid principal balance of such advance for the corresponding number of days
(each an "Interest Rate Period"). The Borrower shall notify the Bank at least
two (2) business days prior to the expiration of an Interest Rate Period as to
its election of an Effective LIBOR Rate to be applied to each advance for the
subsequent Interest Rate Period. In the event that the Borrower does not select
an Effective LIBOR Rate for the subsequent Interest Rate Period such advance
Note shall automatically roll over at one hundred twenty-five (125) basis points
in excess of the same index controlling during the immediately preceding
Interest Rate Period for the corresponding period of time. This Note shall
mature on October 1, 1998 on which date no further advances shall be available
thereunder and all outstanding principal, interest and/or related charges due to
the Bank thereunder shall be due and payable.
The Borrower further agrees that this Note shall bear interest at any stated or
accelerated maturity hereof at a rate of five (5%) percent in excess of the rate
hereinbefore provided for, payable on demand. In no event shall the rate either
before
<PAGE>
or after the occurrence of any such default exceed the highest rate of interest,
if any, permitted under applicable New York or Federal law.
If any payment is not made within ten (10) days of its respective due date as
set forth herein, or if the entire balance becomes due and payable and is not
paid, all or part of the amount due may be offset out of any account or other
property which the Borrower has at the Bank or any affiliate of the Bank without
prior notice or demand.
The Bank may charge any account of the Borrower for any payment due to the Bank
hereunder.
LATE CHARGES: The Borrower will pay a charge of one (1%) percent of the amount
of any payment which is not made within ten (10) days of its respective due
date, or, if applicable, which cannot be debited from its account due to
insufficient balance on the debit date.
ATTORNEYS FEES: In the event the Bank retains counsel with respect to
enforcement of this Note or any other document or instrument given to the Bank,
the Borrower agrees to pay the Bank's reasonable attorneys fees (whether or not
an action is commenced and whether or not in the court of original jurisdiction,
appellate court, bankruptcy court, or otherwise).
REVOLVING CREDIT OFFERING:
a. The Loans evidenced by this Note are available in one or more
advances during the period which commences on the date hereof and ends on
October 1, 1998 (the "Credit Period") in an aggregate principal amount up to,
but not exceeding at any time the outstanding principal sum of Ten Million
($10,000,000) Dollars (the "Commitment"). During the Credit Period, the Borrower
may use the Commitment by borrowing, prepaying in whole or in part and
reborrowing, on a revolving basis, all in accordance with the terms and
conditions hereof; provided, however, that each Loan or prepayment be in a
minimum amount of $10,000.
b. The date and amount of each Loan and of each payment of principal
shall be maintained by the Bank in its books and records at the time of each
Loan or payment. All such notations shall be presumed to be correct and the
aggregate net unpaid amount of Loans set forth therein shall be presumed to be
the principal balance hereof.
c. Each request for a Loan shall be subject to the satisfaction of
the following conditions precedent:
(i) The Borrower shall have given the Bank notice of such
request, setting forth the amount of the Loan requested and the date thereof.
Such
2
<PAGE>
notice may be written or oral and shall be sufficient if received by 1 p.m.
of the date the Loan is requested. If the request is oral, it shall be
thereafter confirmed in writing delivered by the Borrower to the Bank.
(ii) No Event of Default, or event which would be an Event of
Default but for the giving of notice or the passage of time or both, has
occurred and is continuing; and all of the representations and warranties made
by the Borrower herein shall be true and correct on and as of the date of such
request as if made on and as of such date.
d. Notwithstanding anything to the contrary set forth herein, the
aggregate of (i) advances to the Borrower hereunder, and (ii) the difference
between $4,400,000 and the balance of the Pledged Account as hereinafter defined
shall at no time exceed the lesser of (A) $12,400,000 or (B) the sum of (X)
eighty (80%) percent of the market value of those securities in the Custodial
Collateral Account as hereinafter defined and (Y) the balance then maintained in
the Pledged Account.
e. Proceeds hereof shall be utilized by the Borrower for working
capital.
f. Notwithstanding anything to the contrary set forth herein, the
facility evidenced by this Note is only an advised line of credit (and NOT a
committed loan facility). Any advances to the Borrower shall be made in the sole
discretion of the Bank and further availability may be terminated by the Bank at
any time in its sole discretion upon reasonable notice.
CONDITIONS PRECEDENT.
a. Prior to funding the first Loan, the Borrower shall satisfy the
following conditions precedent including delivery to the Bank of the following:
(i) An executed copy of this Note;
(ii) The Bank shall receive a pledge by the Borrower to the
Bank of all sums to be maintained by the Borrower in a certain Custodial
Collateral Account (the "Custodial Collateral Account") in the name of the
Borrower at the Bank with a market value of not less than Seventeen Million Nine
Hundred Thirty Thousand ($17,930,000) Dollars as of February 28, 1997. Said
pledge shall be evidenced, in part, by a Pledge Agreement in the Bank's standard
form for same (the "Custodial Collateral Account Pledge"). During the term of
the Loan, the Bank shall permit the purchase, sale or transfer certain
collateral in the Custodial Collateral Account at the direction of the Borrower
or its designee provided that in any such event the Bank shall receive
substitute collateral acceptable to the Bank of equal or greater value.
Securities maintained by the Borrower in the Custodial Collateral Account shall
be high
3
<PAGE>
grade commercial paper with ratings of not less than P1 (Moodys) and A1
(Standard & Poors) or United States Treasury Securities. Commercial paper held
in said account shall have a maximum tenor of two hundred seventy (270) days.
(iii) The Bank shall receive a pledge by the Borrower to the
Bank of all sums to be maintained by the Borrower in a non-interest bearing
Demand Deposit Account in the name of the Borrower at the Bank with a balance of
not less than $2,500,000 prior to March 15, 1998 and $2,000,000 thereafter (the
"Pledged Account"). Said pledge shall be evidenced, in part, by a Pledge
Agreement in the Bank's standard form for same (the "DDA Pledge").
(iv) All other documents reasonably required by the Bank
and/or its counsel in order to evidence and/or secure the Bank's position as set
forth herein.
REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants
to the Bank that:
a. This Note, the Custodial Collateral Account Pledge, the DDA
Pledge and all other documents executed and delivered herewith have been duly
executed and delivered and constitute the valid and legally binding obligations
of the Borrower, enforceable in accordance with their respective terms.
b. The execution and delivery of this Note, the Custodial Collateral
Account Pledge, the DDA Pledge and all other documents executed and delivered
herewith and performance hereunder and thereunder, will not violate any
provision of law.
c. There are no actions or proceedings pending before any court or
governmental authority, bureau or agency, with respect to or threatened against
or affecting the Borrower, which if determined adversely would have a material
adverse effect on the business, the assets or the financial condition of the
Borrower.
d. The Borrower is not in default under, or in violation of, any
term of any agreement, ordinance, resolution, decree, bond, note, indenture,
order or judgment to which it is a party or by which it is bound, or by which
any of the properties or assets owned by or used in the conduct of its business
is affected, which default or violation may have a material adverse effect on
its business, assets or financial condition.
e. The Borrower is not a party to or bound by, nor are any of the
properties or assets owned by it affected by any agreement, ordinance,
resolution, decree, bond, note, indenture, order or judgment, which materially
and adversely affects assets or financial condition.
4
<PAGE>
f. All financial information heretofore furnliabilities of every
kind, which financial condition has not materially adversely changed since the
date of the most recently dated financial statement of the Borrower heretofore
furnished to the Bank.
g. No part of the proceeds of the loan which is evidenced by this
Note will be used directly or indirectly for the purpose of purchasing or
carrying, or for payment in full or in part of indebtedness which was incurred
for the purpose of purchasing or carrying, any margin stock as such term is
defined in Sec. 221.3 of Regulation U of the Board of Governors of the Federal
Reserve System.
5
<PAGE>
FINANCIAL STATEMENTS. During the term hereof, the Borrower shall deliver to the
Bank:
a. Annual Audited Financial Statements and signed Federal Tax
Returns of the Borrower (and all schedules annexed thereto) no later than ninety
(90) days after the end of each year or upon filing and quarterly 10Q statements
within sixty (60) days after the end of each such period;
b. Within a reasonable time after a written request therefor, such
other financial data or information as the Bank may reasonably request from time
to time.
AFFIRMATIVE COVENANTS. The Borrower will:
a. Duly pay and discharge all taxes or other claims which might
become a lien upon any of its properties except to the extent that such items
are being in good faith appropriately contested;
b. Maintain, preserve and keep its properties in good repair,
working order and condition, and make all reasonable repairs, replacements,
additions, betterments and improvements thereto;
c. Permit the Bank to make or cause to be made, inspections and
audits of any books, records and papers of the Borrower and each guarantor
hereof and to make extracts therefrom at all such reasonable times and as often
as the Bank may reasonably require; and
d. Immediately give notice to t action which the Borrower has taken
and proposes to take with respect thereto.
NEGATIVE COVENANTS. The Borrower will not:
a. create, assume or permit to exist, any mortgage, pledge, lien or
encumbrance of or upon or security interest in, any of its property or assets
now owned or hereafter acquired except (i) mortgages, liens, pledges and
security interests in favor of the Bank; (ii) other liens, charges and
encumbrances incidental to the ownership of its property and assets which were
not incurred in connection with the borrowing of money or the obtaining of
advances or credit and which do not materially impair the use thereof in the
operation of its business; and (iii) liens for taxes or other governmental
charges which are not delinquent or which are being contested in good faith and
for which a reserve shall have been established in accordance with generally
accepted accounting principles;
6
<PAGE>
b. assume, endorse, be or become liable for or guarantee the
obligations of any person except subsidiaries of the Borrower by the endorsement
of negotiable instruments for deposit or collection in the ordinary course of
business.
COLLATERAL SECURITY.
a. As collateral security for the payment of any and all sums owing under
this Note and all other obligations, direct or contingent, joint, several or
independent, of the Borrower and each endorser or guarantor hereof now or
hereafter existing, due or to become due to, or held, or to be held by, the
Bank, whether created directly or acquired by assignment or otherwise (all of
such obligations, including this Note, are hereinafter called the
"Obligations"), the Borrower hereby grants to the Bank a lien on and security
interest in any and all deposits or other sums at any time credited by or due
from the Bank to the Borrower, whether in regular or special depository accounts
or otherwise, and any and all monies, securities and other property of the
Borrower, and the proceeds thereof, now or hereafter held or received by or in
transit to the Bank from or for the Borrower, whether for safekeeping, custody,
pledge, transmission, collection or otherwise, and any such deposits, sums,
monies, securities and other property, may at any time after the occurrence of
any Event of Default be set-off, appropriated and applied by the Bank against
any of the Obligations whether or not such Obligations are then due or are
secured by any collateral, or, if they are so secured, whether or not such
collateral held by the Bank is considered to be adequate and with respect to all
collateral security the Bank shall have all the rights and remedies available to
it under the Uniform Commercial Code of New York and other applicable law.
b. This Note is also secured by (i) the Custodial Collateral Account
Pledge and (ii) the Pledged Account.
EVENTS OF DEFAULT. If any one or more of the following eventsf and
interest on the Obligations shall immediately become due and payable:
a. Failure to pay any amount required by this Note within five (5) days of
its respective due date, or any other obligation owed to the Bank by Borrower;
b. Failure to perform or keep or abide by, after any applicable grace
period, any term, covenant or condition contained in this Note, the Custodial
Collateral Account Pledge, the DDA Pledge, or any other document or instrument
given to the Bank in connection with this loan;
c. The filing of a bankruptcy proceeding, assignment for the benefit of
creditors, issuance of any execution, garnishment, or levy against, or the
commencement of any proceeding for relief from indebtedness by or against the
Borrower;
7
<PAGE>
d. The happening of any event which, in the good faith judgment of the
Bank, materially adversely affects the Borrower's ability to repay or materially
adversely affects the value of any collateral;
e. If any written representation or statement made to the Bank by the
Borrower is untrue in any material respect at the time made;
f. If any written representation, covenant or warranty made to the Bank by
the Borrower is breached in any material respect;
g. The occurrence of a default under the Custodial Collateral Account, the
DDA Pledge or any other document or instrument given to the Bank in connection
with this loan or any other loan or obligation;
g. Failure to provide any financial information on request or permit an
examination of books and records.
INTEREST ADJUSTMENT. Notwithstanding anything to the contrary contained in this
Note, the rate of interest payable on this Note shall never exceed the maximum
rate of interest permitted under applicable law. If at any time the rate of
interest otherwise prescribed herein shall exceed such maximum rate, and such
prescribed rate is thereafter below such maximum rate, the prescribed rate shall
be increased to the maximum rate for such period of time as is required so that
the total amount of interest received by the Bank is that which would have been
received by the Bank, except for the operation of the first sentence of this
Section 9.
NOTICES. All notices, requests and other communications pursuant to this Note
shall be in writing, either by letter (delivered by hand or sent by certified
mail, return receipt requested) or telegram, addressed as follows:
a. if to the Borrower:
American United Global, Inc.
11130 N.E. 33rd Place
Suite 250
Bellevue, Washington 98004
b. if to the Bank:
North Fork Bank
275 Broad Hollow Road
Melville, New York 11747
Attention: Sonya Morlock, Assistant Vice President
8
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Any notice, request or communication hereunder shall be deemed to
have been given when deposited in the mails, postage prepaid, or in the case of
telegraphic notice, when delivered to the telegraph company, addressed as
aforesaid. Any party may change the person or address to whom or which the
notices are to be given hereunder, but any such notice shall be effective only
when actually received by the party to whom it is addressed.
GOVERNING LAW. This Note and the rights and obligations of the parties shall be
construed and interpreted in accordance with the laws of the State of New York
and the Borrower consents to the jurisdiction of the courts of New York in any
action brought to enforce any rights of the Bank under this Note.
MISCELLANEOUS.
a. Only those agreements, representations and warranties made
expressly herein shall survive the delivery of this Note. The Borrower waives
trial by jury, set-off and counterclaim of any nature or description in any
litigation in any court with respect to, in connection with, or arising out of,
this Note or any instrument or document delivered pursuant hereto or the
validity, protection, interpretation, collection or enforcement hereof.
b. No modification or waiver of or with respect to any provision of
this Note, or consent to any departure by the Borrower from any of the terms or
conditions hereof, shall in any event be effective unless it shall be in writing
and signed by the Bank, and then such waiver or consent shall be effective only
in the specific instance and for the purpose for which given. No notice to or
demand on the Borrower in any case shall, of itself, entitle it to any other or
further notice or demand in similar or other circumstances.
c. Each and every right granted to the Bank hereunder or under any
other document delivered hereunder or in connection herewith, or allowed it by
law or equity, shall be cumulative and may be eelay in exercising, any right
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right preclude any other or future exercise thereof or the exercise of any
other right.
d. In the event that this Note is placed in the hands of an attorney
for collection by reason of any default hereunder, the Borrower agrees to pay
reasonable attorney's fees so incurred. The Borrower promises to pay all
expenses of any nature as soon as incurred whether in or out of court and
whether incurred before or after this Note shall become due at its Maturity Date
or otherwise and costs which the Bank may deem necessary or proper in connection
with the satisfaction of the indebtedness or the administration, supervision,
preservation, protection (including but not limited to maintenance of adequate
insurance) of or the realization upon the collateral.
9
<PAGE>
e. The Borrower hereby waives presentment, demand for payment,
protest, notice of protest, notice of dishonor, and any or all other notices or
demands except as otherwise expressly provided for herein.
f. All accounting terms not otherwise defined in this Note shall
have the meanings ascribed thereto under generally accepted accounting
principles.
g. Delay or failure of the Bank to exercise any of its rights under
this Note shall not be deemed a waiver thereof. No waiver of any condition or
requirement shall operate as a waiver of any other or subsequent condition or
requirement. The Bank or any other holder of this Note need not present it
before requiring payment. The Borrower waives trial by jury, offset, and
counterclaim with respect to any action arising out of or relating to this Note.
This Note may not be modified or terminated orally. This Note shall be governed
by the laws of the State of New York without regard to its conflicts of laws
rules.
h. The Borrower expressly warrants and represents that no
statements, agreements or representations, whether oral or written, have been
made by the Bank, or by any employee, agent or broker of the Bank with respect
to the obligation or debt evidenced by this Note. The Borrower further expressly
warrants and represents that (i) no oral commitment has been made by the Bank to
extend or continue any credit to the Borrower or any party other than as
expressly stated herein or in those certain documents executed in connection
herewith, (ii) no representation or agreement has been made by or with the Bank,
or any employee, agent or broker of the Bank, to forebear or refrain in any way
from exercising any right or remedy in its favor hereunder or otherwise unless
expressly set forth herein, and (iii) the Borrower and Guarantors have not and
will not rely on any commitment to extend or continue any credit, nor on any
agreement to forebear or refrain from exercising rights or remedies unless such
commitment or agreement shall be in writing and duly executed by an authorized
officer of the Bank.
IN WITNESS WHEREOF, the Borrower has signed this Note the 15th day
of May, 1997.
AMERICAN UNITED GLOBAL, INC.
By:
------------------------------------
ROBERT RUBIN
Chairman, CEO
10
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF SUFFOLK )
On the 15th day of May, 1997, before me personally came ROBERT RUBIN, to
me known, who being by me duly sworn, did depose and say that he resides at 25
Highland Boulevard, Dix Hills, New York 11746; that he is the Chairman, CEO of
AMERICAN UNITED GLOBAL, INC. which corporation executed the foregoing instrument
and that he signed his name thereto by order of the Board of Directors of same.
------------------------------------
Notary Public
11
May 13, 1997
Robert Rubin, Chairman and CEO
American United Global, Inc.
11130 NE 33rd Place
Suite 250
Bellevue, Washington 98004
RE: North Fork Bank with American United Global, Inc.
Dear Mr. Rubin:
North Fork Bank (the "Bank") is pleased to advise you that it has
approved your requests for following:
FACILITY Secured Standby Letter of Credit expiring on May 31, 1998 in favor of
Chase Manhattan Bank in the principal amount of Four Million Four
Hundred Thousand ($4,400,000) Dollars; and
FACILITY Advised Line of Credit in the principal amount of Ten Million
($10,000,000) Dollars.
(Facility I and Facility II are collectively referred to herein as the "Loan").
Closing and funding of the Loan is specifically subject to all terms and
conditions set forth herein.
Borrower.
The Borrower shall be American United Global, Inc., a corporation
organized and in good standing under the laws of the State of Delaware and
authorized to do business in the State of New York.
Description of the Loan.
FACILITY Facility I shall be evidenced, in part, by a Secured Irrevocable
Standby Letter of Credit in the Bank's standard form for same issued in
favor of Chase Manhattan Bank for an amount not to exceed Four Million
Four Hundred Thousand ($4,400,000) Dollars. Said letter of credit shall
expire on May 31, 1998 to be renewed on an annual basis in the sole
discretion of the Bank. The Borrower shall pay to the Bank, in
consideration of said Letter of Credit an annual fee equal to one (1%)
percent of the principal amount thereof, payable in equal quarterly
<PAGE>
North Fork Bank with American United Global, Inc.
Page 2
installments of Eleven Thousand ($11,000) Dollars each, the first such
installment due at Closing and each subsequent installment due on every
third (3rd) month anniversary thereof, or upon cancellation on a pro
rata basis.
FACILITY Facility II shall be an advised line of credit (the "Line") evidenced,
in part, by a Secured Revolving Credit Note in the principal amount of
Ten Million ($10,000,000) Dollars (the "Facility II Note"). Each
advance made under the Line by the Bank to the Borrower under said Note
shall bear interest at an interest rate equal to one hundred
twenty-five (125) basis points in excess of the "Effective LIBOR Rate,"
payable monthly in arrears commencing on June 15, 1997 and on the
fifteenth (15th) day of each month thereafter. The "Effective LIBOR
Rate" shall be that rate, to be selected by the Borrower on the date of
each such advance, published in The Wall Street Journal on the day
preceding said election as the LIBOR Rate (adjusted for any applicable
reserve requirement of the Bank) with a time frame not to exceed the
lesser of (a) 365 days or (b) the number of days until the maturity of
Facility II and shall be applied to the unpaid principal balance of
such advance for the corresponding number of days (each an "Interest
Rate Period"). The Borrower shall notify the Bank at least two (2)
business days prior to the expiration of an Interest Rate Period as to
its election of an Effective LIBOR Rate to be applied to each advance
for the subsequent Interest Rate Period. In the event that the Borrower
does not select an Effective LIBOR Rate for the subsequent Interest
Rate Period such advance shall automatically roll over at one hundred
twenty-five (125) basis points in excess of the same index controlling
during the immediately preceding Interest Rate Period for the
corresponding period of time. The Facility II Note shall mature on
October 1, 1998 on which date no further advances shall be available
thereunder and all outstanding principal, interest and/or related
charges due to the Bank thereunder shall be due and payable. The
Borrower may make prepayments of principal to the Bank under Facility
II ($10,000 minimum or integral multiples thereof) provided no event of
default shall have occurred under the Loan and further provided that
each such prepayment shall be accompanied by interest on the amount of
said prepayment to the date that it is received by the Bank.
All payments due under the Note shall be made by automatic debit from an account
maintained by the Borrower for such purpose at the Bank in which the Borrower
shall maintain balances sufficient to pay each monthly payment due to the Bank
under the Loan. In the event that the money maintained in such account is
insufficient for any payment due under the Loan, the Bank may charge any account
of the Borrower for any payment due to the Bank under the Loan.
The Borrower shall pay to the Bank a late fee equal to one (1%) percent of any
amount paid to the Bank later than ten (10) days after its respective due date.
The Bank may charge any account of the Borrower or any Guarantor for any payment
due under the Loan.
<PAGE>
North Fork Bank with American United Global, Inc.
Page 3
Security for the Loan.
All obligations of the Borrower to the Bank shall be secured, in
part, by the following:
A pledge by the Borrower to the Bank of all sums to be maintained by
the Borrower in a non-interest bearing Demand Deposit Account in the name of the
Borrower at the Bank with a balance of not less than Two Million Five Hundred
Thousand ($2,500,000) Dollars prior to the first day of the tenth (10th) month
after Closing and Two Million ($2,000,000) Dollars thereafter (the "Pledged
Account"), said pledge to be evidenced, in part, by a Pledge Agreement in the
Bank's standard form for same (the "Account Pledge");
A pledge by the Borrower to the Bank of all sums to be maintained by
the Borrower in a certain Custodial Collateral Account in the name of the
Borrower at the Bank with a market value of not less than Seventeen Million Nine
Hundred Thirty Thousand ($17,930,000) Dollars as of February 28, 1997 said
pledge to be evidenced, in part, by a Pledge Agreement in the Bank's standard
form for same (the "Custodial Collateral Account Pledge"). During the term of
the Loan, the Bank shall permit the purchase, sale or transfer certain
collateral in the Custodial Collateral Account at the direction of the Borrower
or its designee provided that in any such event the Bank shall receive
substitute collateral acceptable to the Bank of equal or greater value.
Securities maintained by the Borrower in the Custodial Collateral Account shall
be (i) high grade commercial paper with ratings of not less P1 (Moodys) and A1
(Standard & Poors) or (ii) United States Treasury Securities. Commercial paper
held in said account shall have a maximum tenor of two hundred seventy (270)
days.
General Conditions
The funding of the Loan shall be subject to satisfaction of the
general conditions attached hereto and made a part hereof.
Special Conditions
Proceeds of Facility II shall be used by the Borrower to provide the
Borrower with additional working capital in order to acquire interests in other
companies to be selected by the Borrower;
Notwithstanding anything to the contrary set forth herein, the
aggregate of (i) advances to the Borrower under Facility II and (ii) that
portion of Facility I in excess of the balance in the Pledged Account shall at
no time exceed the lesser of (i) $12,400,000, or (ii) the sum of (X) eighty
(80%) percent of the market value of those securities held by the Borrower in
the Custodial Collateral Account and (Y) the balance then maintained in the
Pledged Account to be monitored on a weekly basis;
<PAGE>
North Fork Bank with American United Global, Inc.
Page 4
During the term of the Loan, the Borrower shall submit to the Bank
(i) annual 10K statements of the Borrower within 90 days of each fiscal year
end, (ii) quarterly 10Q statements of the Borrower within 60 days of the end of
each fiscal quarter, and (iii) any other interim filings of a similar nature
made by the Borrower.
Notwithstanding anything to the contrary set forth herein, Facility
II is offered to the Borrower only as an advised line of credit (and not as a
committed loan facility); any advances to the Borrower shall be made in the sole
discretion of the Bank and further availability may be terminated by the Bank at
any time in its sole discretion upon reasonable notice.
Acceptance of this Offering.
Acceptance of this offering shall be evidenced by the execution of
the enclosed copy of this letter by the Borrower and the returning of same to
the Bank no later than ten (10) days from the date hereof. Until the timely
receipt of such acceptance, the Bank shall have no liability hereunder and
unless such acceptance has been received by the Bank within the stated period,
this offering shall, at the Bank's option, be null and void.
Time for Closing.
Upon timely acceptance of these terms as outlined in the preceding
paragraph, the Closing shall occur within thirty (30) days from the date hereof
unless extended in writing by the Bank. If the Loan fails to close within the
stated time, this offering shall expire and become unenforceable against the
Bank.
The Closing shall be held at the offices of the attorneys for the
Bank.
Very truly yours,
NORTH FORK BANK
By:
---------------------------------
Sonya L. Morlock
Assistant Vice President
By:
---------------------------------
James Stagnari
Senior Vice President
Accepted and Agreed to this ____ day of May, 1997.
AMERICAN UNITED GLOBAL, INC.
By:
-----------------------------
ROBERT RUBIN, President
<PAGE>
North Fork Bank with American United Global, Inc.
Page 5
General Conditions
1. Conditions Precedent:
Prior to or at the Closing, the Borrower shall satisfy the following
conditions precedent:
(a) The Bank shall have received:
(i) The Facility II Note, the Account Pledge, the Custodial
Collateral Account Pledge, and all other documents
deemed necessary by the Bank and its counsel in order to
secure the Bank's position as set forth in this
offering;
(b) The form and substance of all documents to be delivered to or
received by the Bank and title to Premises and evidence thereof shall be
satisfactory in all respects to the Bank and its counsel.
2. Attorneys for the Bank:
In connection with this offering and the transaction contemplated
hereby, the Bank shall be represented by the law firm of Gandin, Schotsky,
Rappaport, Glass & Greene, LLP, 445 Broad Hollow Road, Melville, New York 11747,
telephone (516) 293-2300. The matter is expected to be handled by Kevin E.
Balfe, Esq.
3. Payment of Fees and Expenses:
Whether or not the Loan closes, all out-of-pocket fees and expenses
incurred by the Bank relating to this offering or the Loan, including, without
limitation, title insurance premiums, recording fees, mortgage taxes, appraisal
and survey costs, legal expenses and documentation expenses, if any, shall be
paid by the Borrower.
5. Cancellation and Termination of this Offering by the Bank:
The Bank reserves the right to cancel this offering or to terminate
its obligations hereunder after acceptance thereof by the Borrower in any of the
following events:
(a) The failure of the Borrower to comply within the times
specified, with any of the provisions or conditions set forth in this letter;
(b) Non-payment of the fees and expenses provided for in Paragraph 3
hereof;
<PAGE>
North Fork Bank with American United Global, Inc.
Page 6
(c) Insufficiency of title or lack of approval by the Bank or its
counsel to title of any documents to be delivered or executed hereunder;
(d) The filing, by or against the Borrower of a petition in
bankruptcy or insolvency, or for reorganization or for the appointment of a
receiver or trustee, or the making by the Borrower of an assignment for the
benefit of creditors or the filing of a petition for arrangement by the
Borrower, which petition is not withdrawn or dismissed or which appointment,
assignment or arrangement is not canceled or terminated prior to the expiration
of this offering, or such changes in the financial condition of the Borrower as
shall cause the Bank to deem itself insecure;
(e) A material adverse change after the date hereof in the financial
condition of the Borrower.
6. Assignment:
This offering shall not be assignable by operation of law or
otherwise, without the prior written consent of the Bank.
7. Intended Use of Loan Proceeds:
Borrower hereby represents and warrants to the Bank that all
proceeds of this Loan shall be used only as set forth herein.
9. Miscellaneous Provisions:
No statements, agreements or representations, oral or written, that
may have been made either by the Bank or by any employee, agent or broker, with
respect to this Offering or the Loan, shall be of any force or effect, except to
the extent stated in this Offering, and any prior agreements and representations
with respect to this Offering and the Loan are merged herein so that this
Offering shall contain the entire agreement with respect to the Loan. The
Borrower expressly acknowledges and agrees (a) that no oral Offerings have been
made to them by the Bank to extend or continue any credit to the Borrower or any
party other than as expressly stated herein, (b) that the Bank stated herein,
and (c) that neither the Borrower will not rely on any offering (regardless of
when made) to extend or continue any credit, or on any such agreement
(regardless of when made) to forebear or refrain from exercising rights or
remedies unless such Offering or agreement shall be in writing and signed by an
officer of the Bank.
<PAGE>
North Fork Bank with American United Global, Inc.
Page 7
Time shall be of the essence with respect to this Offering. No
waiver of any of the terms and provisions of this Offering shall be effective
unless in writing, and no waiver furnished in writing shall be deemed a waiver
of any future condition. All notices shall be in writing. The Borrower shall
indemnify the Bank and hold it harmless against loss or damage suffered by it as
a result of any claim by any person, firm or corporation for any brokerage or
other commissions alleged to be due as a result of the transaction contemplated
by this Offering. This Offering and all of its provisions not then satisfied
shall survive the Closing. This Offering is made and delivered in the State of
New York and shall be construed in accordance with the laws thereof.
Notwithstanding anything to the contrary set forth herein or in the
documents evidencing the Loan, the Borrower shall indemnify and hold the Bank
harmless and defend the Bank at the sole cost of the Borrower against any loss
or liability, cost or expense (including, without limitation, reasonable
attorneys' fees and disbursements of Bank's counsel whether in-house staff,
outside firms or otherwise) and all claims, actions, procedures and suits
arising out of or in connection with
(a) Any ongoing matters arising out of the transaction
contemplated by this offering, the Note, the Mortgage or
any other document or instrument now or hereafter
executed and/or delivered in connection with the Loan
(the "Loan Documents") and the Loan (including, but not
limited to, all costs of any appraisals and/or
re-appraisals of the Premises or any other collateral
for the Loan);
(b) Any amendment to, or restructuring of the Loan and the
Loan documents; and
(c) Any and all lawful action that may be taken by the Bank
in connection with the enforcement of the provisions of
the Note, Mortgage, or any of the other Loan Documents,
whether or not suit is filed in connection with same, or
in connection with the Borrower, any Guarantor and/or
any partner, joint venturer, or shareholder thereof
becoming a party to a voluntary or involuntary Federal
or State bankruptcy, insolvency or other similar
proceedings.
This Offering is issued by the Bank for review by and consideration
of the parties hereto. Neither this Offering, nor the terms hereof, shall be
neither disclosed or provided to any person or entity other than those
specifically referenced herein.
DEMAND DEPOSIT ACCOUNT
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT dated this 15th day of May, 1997 between AMERICAN
UNITED GLOBAL, INC., a Delaware corporation having an address at 11130 N.E. 33rd
Place, Suite 250, Bellevue, Washington, 98004 ("Pledgor") and North Fork Bank, a
New York banking corporation having an address at 245 Love Lane, Mattituck, New
York 11952 ("Pledgee") (Pledgor and Pledgee are collectively referred to herein
as the "Parties").
WHEREAS, the Parties have simultaneously herewith entered into a certain
loan transaction (the "Loan") evidenced, in part, by a certain secured standby
letter of credit in the principal amount of $4,400,000 and a certain revolving
credit loan note in the principal amount of $10,000,000; and
WHEREAS, the Pledgor has assumed under the terms of said loan transaction
certain obligations (the "Obligations") including, but not limited to, the
payment of all sums due to Pledgee under the terms of the Loan;
WHEREAS, the Pledgor has agreed to secure the performance of the
Obligations, in part, by the Pledge set forth herein;
NOW, THEREFORE, in consideration of the Loan and other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
Parties agree as follows:
1. Pledgor hereby pledges, assigns and delivers to Pledgee all sums
maintained or to be maintained by the Borrower in that certain Demand Deposit
Account in the name of the borrower at the Bank, account number ________,
together with a continuing valid and binding first security interest in same
(collectively referred to herein as the "Collateral").
2. In connection with the Pledge evidenced hereby, Pledgor warrants and
represents to Pledgee as follows:
a) Pledgor is the owner and holder of the Collateral and has
not previously hereto pledged, assigned or delivered any interest in the
Collateral to any person or entity for any purpose or reaso
c) The Pledge evidenced hereby is not prohibited or in any way
limited by the terms of the Collateral nor by any other instrument or document,
nor is any consent required in connection with same.
<PAGE>
d) The Collateral is freely transferable by the Pledgor and
are not subject to any restriction of any type of kind that would prohibit this
pledge or the liquidation, sale and/or transfer thereof by the Pledgee pursuant
to the terms hereof.
3. Notwithstanding the effective and immediate Pledge evidenced hereby,
the Pledgor may, absent a default under the Loan, continue to collect and
receive all interest, dividends and/or payments payable to the Pledgor under the
Collateral.
4. The Pledgee is hereby authorized to cause the Collateral to be
identified as subject to this Pledge in such manner as the Pledgee may
determine, and this shall be full authority for the Pledgee to make such
identification or transfer.
5. Upon default under the Loan, the Pledgee may immediately thereafter
undertake to collect and receive all of the Collateral.
6. The Pledgee is hereby appointed and constituted as attorney-in-fact for
the Pledgor for all purposes relative to the within Pledge Agreement.
7. Notwithstanding anything to the contrary set forth herein, the Bank
may, upon five (5) days prior written notice to the Pledgor liquidate, sell
and/or transfer the Collateral at then current value, in the event an Event of
Default occurs under the Loan.
8. Upon written request therefor, the Pledgor shall provide to the Pledgee
all documentation and/or information necessary to further evidence or effectuate
the within Pledge Agreement.
9. Upon collection or receipt of any monies by the Pledgee from the
transfer, sale and/or other disposition of the Collateral, the Pledgee shall
thereafter apply the net proceeds of same (after the payment of all costs and
expenses, including reasonable legal fees of the Pledgee) first to any accrued
but unpaid late charges or interest under the Loan and then to the outstanding
principal balance thereof.
10. No failure or delay on the part of the Pledgee to exercise the rights
and entitlements granted to it herein shall operate as a waiver thereof. The
remedies provided herein are cumulative and are not exclusive of any remedies
provided by law or by any other written agreement. Neither this Pledge Agreement
nor the provisions hereof can be modified, waived or terminated except by a
written instrument executed by the Parties. The Pledgee shall have no liability
to the Pledgor hereunder for any action or actions taken by the Pledgee
hereunder, provided such action or actions
2
<PAGE>
taken by the Pledgee hereunder are undertaken pursuant to the terms of this
agreement and in a commercially reasonable manner. This Agreement shall be
binding upon and shall inure to the benefit of the Parties and their respective
successors, legal representatives and assigns and shall be governed by and
construed in accordance with the laws of the State of New York.
11. Any event of default under those documents evidencing tand delivered
this Agreement on the date first above written.
AMERICAN UNITED GLOBAL, INC.
By:
------------------------------------
ROBERT RUBIN
Chairman, CEO
NORTH FORK BANK
By:
------------------------------------
Sonya Morlock
Assistant Vice President
3
<PAGE>
STATE OF NEW YORK )
) SS:
COUNTY OF SUFFOLK )
On the 15th day of May, 1997, before me personally came ROBERT RUBIN, to
me known, who being by me duly sworn, did depose and say that he resides at 25
Highland Boulevard, Dix Hills, New York 11746; that he is the Chairman, CEO of
AMERICAN UNITED GLOBAL, INC. which corporation executed the foregoing instrument
and that he signed his name thereto by order of the Board of Directors of same.
-----------------------------
NOTARY PUBLIC
STATE OF NEW YORK )
) SS:
COUNTY OF SUFFOLK )
On the 15th day of May, 1997, before me personally came Sonya Morlock, to
me known, who being by me duly sworn did depose and say that she has an address
at c/o 275 Broad Hollow Road, Melville, New York that she is an Assistant Vice
President of NORTH FORK BANK, the corporation described in and which executed
the foregoing instrument and that she signed her name thereto by order of the
Board of Directors of said corporation.
-----------------------------
NOTARY PUBLIC
4
<PAGE>
CUSTODIAL COLLATERAL ACCOUNT
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT dated this 15th day of May, 1997 between AMERICAN
UNITED GLOBAL, INC., a Delaware corporation having an office for the transaction
of business at 11130 N.E. 33rd Place, Suite 250, Bellevue, Washington 98004
("Pledgor") and North Fork Bank, a New York banking corporation having an
address at 245 Love Lane, Mattituck, New York 11952 ("Pledgee") (Pledgor and
Pledgee are collectively referred to herein as the "Parties").
WHEREAS, the Parties have simultaneously herewith entered into a certain
loan transaction (the "Loan") evidenced, in part, by a secured standby letter of
credit in the principal amount of $4,400,000 and a certain revolving credit loan
note in the principal amount of $10,000,000; and
WHEREAS, the Pledgor has assumed under the terms of said loan transaction
certain obligations (the "Obligations") including, but not limited to, the
payment of all sums due to Pledgee under the terms of the Loan;
WHEREAS, the Pledgor has agreed to secure the performance of the
Obligations, in part, by the Pledge set forth herein;
NOW, THEREFORE, in consideration of the Loan and other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
Parties agree as follows:
1. Pledgor hereby pledges, assigns and delivers to Pledgee all sums
maintained or to be maintained by the Borrower in that certain Custodial
Collateral Account in the name of the Borrower at the Bank, account
________________________________ together with a continuing valid and binding
first security interest in same (collectively referred to herein as the
"Collateral").
2. In connection with the Pledge evidenced hereby, Pledgor warrants and
represents to Pledgee as follows:
a) Pledgor is the owner and holder of the Collateral and has not
previously hereto pledged, assigned or delivered any interest in the Collateral
to any person or entity for any purpose ($ /share);
<PAGE>
c) The pledge evidenced hereby is not prohibited or in any way
limited by the terms of the Collateral nor by any other instrument or document,
nor is any consent required in connection with same.
d) The Collateral is freely transferable by the Pledgor and are not
subject to any restriction of any type of kind that would prohibit this pledge
or the liquidation, sale and/or transfer thereof by the Pledgee pursuant to the
terms hereof.
3. Notwithstanding the effective and immediate Pledge evidenced hereby,
the Pledgor may, absent a default under the Loan, continue to collect and
receive all interest, dividends and/or payments payable to the Pledgor under the
Collateral.
4. The Pledgee is hereby authorized to cause the Collateral to be
identified as subject to this Pledge in such manner as the Pledgee may
determine, and this shall be full authority for the Pledgee to make such
identification or transfer.
5. Upon default under the Loan, the Pledgee may immediately thereafter
undertake to collect and receive all of the Collateral.
6. The Pledgee is hereby appointed and constituted as attorney-in-fact for
the Pledgor for all purposes relative to the within Pledge Agreement.
7. Notwithstanding anything to the contrary set forth herein, the Bank
may, upon five (5) days prior written notice to the Pledgor liquidate, sell
and/or transfer the Collateral at then market value, in the event an Event of
Default occurs under the Loan.
8. Provided an Event of Default has not occurred, the Pledgor shall have
the right to receive all stock dividends, together with any new or additional
securities issued with respect to the Collateral, together with the right to
receive any distribution upon dissolution and liquidation of the issuer of the
Collateral. Securities maintained by the Borrower in the subject account shall
be high grade commercial paper with ratings of not less than P1 (Moodys) and A1
(Standard & Poors) or United States Treasury Securities. Commercial paper held
in said account shall have a maximum tenor of two hundred seventy (270) days.
During the term of the Loan, the Pledgee shall permit the purchase, sale or
transfer of certain of the Collateral at the direction of the Pledgor or its
designee provided that in any such event the Bank shall receive substitute
collateral acceptable to the Bank of equal or greater rating and value.
2
<PAGE>
9. Upon written request therefor, the Pledgor shall provide to the Pledgee
all documentation and/or information necessary to further evidence or effectuate
the within Pledge Agreement.
10. Upon collection or receipt of any monies by the Pledgee from the
transfer, sale and/or other disposition of the Collateral, the Pledgee shall
thereafter apply the net proceeds of same (after the payment of all costs and
expenses, including reasonable legal fees of the Pledgee) first to any accrued
but unpaid late charges or interest under the Loan and then to the outstanding
principal balance thereof.
11. No failure or delay on the part of the Pledgee to exercise the rights
and entitlements granted to it herein shall operate as a waiver thereof. The
remedies provided herein are cumulative and are not exclusive of any remedies
provided by law or by any other written agreement. Neither this Pledge Agreement
nor the provisions hereof can be modified, waived or terminated except by a
written instrument executed by the Parties. The Pledgee shall have no liability
to the Pledgor hereunder for any action or actions taken by the Pledgee
hereunder, provided such action or actions taken by the Pledgee hereunder are
undertaken pursuant to the terms of this agreement and in a commercially
reasonable manner. This Agreement shall be binding upon and shall inure to the
benefit of the Parties and their respective successors, legal representatives
and assigns and shall be governed by and construed in accordance with the laws
of the State of New York.
12. Any event of default under those documents evidencing the Loan shall
be an event of default hereunder.
IN WITNESS WHEREOF, the Parties have executed and delivered this Agreement
on the date first above written.
AMERICAN UNITED GLOBAL, INC.
By:
-------------------------------------
ROBERT RUBIN
Chairman, CEO
NORTH FORK BANK
3
<PAGE>
By:____York 11746; that he is the Chairman, CEO of AMERICAN UNITED GLOBAL, INC.
which corporation executed the foregoing instrument and that he signed his name
thereto by order of the Board of Directors of same.
------------------------------------------
Notary Public
STATE OF NEW YORK )
) SS:
COUNTY OF SUFFOLK )
On the 15th day of May, 1997, before me personally came Sonya Morlock, to
me known, who being by me duly sworn did depose and say that she has an address
at c/o 275 Broad Hollow Road, Melville, New York that she is an Assistant Vice
President of NORTH FORK BANK, the corporation described in and which executed
the foregoing instrument and that she signed her name thereto by order of the
Board of Directors of said corporation.
---------------------------------
NOTARY PUBLIC
4
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