<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 14, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-18 REGISTRATION STATEMENT AND
POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-1 REGISTRATION STATEMENTS ON
FORM S-1 REGISTRATION STATEMENT
AND
FORM S-1 REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
AMERICAN UNITED GLOBAL, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 2040 95-4359228
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification
Organization) Number)
</TABLE>
11130 NE 33rd Place, Suite 250
Bellevue, Washington 98004
(206) 803-5400
(Address, Including Zip Code, and Telephone Number, including
Area Code, of Registrant's Principal Executive Offices)
DAVID M. BARNES
Vice President and Chief Financial Officer
American United Global, Inc.
11130 NE 33rd Place, Suite 250
Bellevue, Washington 98004
(206) 803-5400
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
------------------------------
COPIES TO:
STEPHEN A. WEISS, ESQ.
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel
153 East 53rd Street
New York, New York 10022
Telephone: (212) 801-9200
Telecopier: (212) 223-7161
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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- --------------------------------------------------------------------------------
<PAGE>
------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT PRICE (1) FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share, issuable upon exercise of
Redeemable Common Stock Purchase
Warrants issued in connection with
the Company's 1994 public offering
(the "Public Warrants") 920,000(2) $7.50(1) $6,900,000 $2,090.91
Common Stock, par value $.01 per
share, issuable upon exercise of
Underwriters' Warrants granted in
the Company's 1992 public offering
(the "1992 Underwriters' Warrants") 100,000(2) $5.75(1) $575,000 $174.24
Common Stock, par value $.01 per
share, issuable upon exercise of
Underwriters' Warrants granted in
the Company's 1994 public offering
(the "1994 Underwriters' Warrants") 80,000(2) $6.30(1)(3) $504,000 $152.73
Common Stock, par value $.01 per
share, issuable upon exercise of
warrants underlying Underwriters'
Warrants granted in the Company's
1994 public offering (the "1994
Underlying Warrants") 80,000(2) $7.50(1) $600,000 $181.82
Common Stock, par value $.01 per
share, issuable upon exercise of
certain outstanding warrants (the
"Consultants' Warrants") 150,000(2) $4.75(1) $712,500 $215.91
Common Stock, par value $.01 per
share, issuable upon exercise of
certain outstanding options (the
"First Options") 100,000 $3.85(1) $385,000 $116.67
Common Stock, par value $.01 per
share, issuable upon exercise of
certain outstanding options (the
"Second Options") 700,000 $3.78125(1) $2,646,875 $802.08
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT PRICE (1) FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share, issuable upon exercise of
certain outstanding options (the
"Third Options") 50,000 $6.0125(1) $300,625 $91.10
Common Stock, par value $.01 per
share, issuable upon exercise of
certain outstanding options (the
"Fourth Options") 130,000 $5.125(1) $666,250 $201.89
Common Stock, par value $.01 per
share, issuable upon exercise of
certain outstanding options (the
"Fifth Options") 33,333 $5.25(1) $175,000 $53.03
Common Stock, par value $.01 per
share, issued in connection with
acquisition of InterGlobe Networks,
Inc. (the "InterGlobe Shares") 800,000 $7.5625(4) $6,050,000 $1,833.33
Common Stock, par value $.01 per
share, issued in connection with
acquisition of TechStar Communi-
cations, Inc. (the "TSC Shares") 507,246 $7.5625(4) $3,836,047 $1,162.44
Common Stock, par value $.01 per
share, issuable in connection with
the proposed acquisition of Arcadia
Consulting Co., Inc. (the "Arcadia
Shares") 192,754 $7.5625(4) $1,457,702 $441.73
Common Stock, par value $.01 per
share, issued to certain stockhold-
ers who purchased such shares from
Prologue, SA (the "Prologue Shares") 100,000 $7.5625(4) $756,250 $229.17
Common Stock, par value $.01 per
share, issuable upon conversion of
7% Series B-2 Preferred Stock issued
in connection with the Company's
January 1997 private placement (the
"Private Placement Preferred
Shares") 1,165,501(5) $7.5625(4) $8,814,101 $2,670.94
Common Stock, par value $.01 per
Share, issuable upon exercise of
warrants issued in connection with
the Company's January 1997 private
placement (the "Private Placement
Warrants") 350,000 $8.58(6) $3,003,000 $910
Common Stock, par value $.01 per
share, issued as a finder's fee in
connection with the ConnectSoft
acquisition 150,000 $7.5625(4) $1,134,375 $343.75
Common Stock, par value $.01 per
share(4) 68,500 $7.5625(4) $518,031 $156.98
Total Registration Fee $11,828.72
</TABLE>
* This Registration Statement incorporates: (i) Post-Effective Amendment No. 1
to American United Global, Inc., Registration Statement on Form S-1,
Registration No. 33-72556, which Registration Statement was declared
effective by the Securities and Exchange Commission (the "Commission") on
February 16, 1994; (ii) Post-Effective Amendment No. 1 to American United
Global, Inc., Registration Statement on Form S-1, Registration No. 33-43411,
which Registration Statement was declared effective by the Commission on
January 28, 1992; and (iii) Post-Effective Amendment No. 1 to Alrom Corp.
(the former name of American United Global, Inc.), Registration Statement on
Form S-18, Registration No. 33-33081, which Registration Statement was
declared effective by the Commission in May 1990. 920,000 Shares of Common
Stock issuable upon exercise of Public Warrants, 80,000 Shares of Common
Stock issuable upon exercise of 1994 Underwriters' Warrants, and 80,000
Shares issuable upon exercise of 1994 Underlying Warrants were previously
registered in connection with the Company's 1994 public offering pursuant to
Registration No. 33-72556, and of the $11,828.72 filing fee identified
<PAGE>
above ($2,425.46 of which relates to such shares) $2,759.78 was previously
paid in connection with Registration No. 33-72556. 100,000 Shares issuable
upon exercise of Certain 1992 Underwriters' Warrants were previously
registered in connection with the Company's 1992 public offering pursuant to
Registration No. 33-43411, and of the $11,828.72 filing fee identified above
($174.24 of which relates to such shares) $198.28 was previously paid in
connection with Registration No. 33-43411. 38,500 shares issued upon
exercise of certain 1990 IPO Warrants were registered in connection with the
Company's 1990 initial public offering pursuant to Registration No.
33-33081, and of the $11,828.72 filing fee identified above ($116.66 of
which relates to such Shares) $30.00 was previously paid in connection with
Registration No. 33-33081. The amount of the Registration Fee actually paid
with this filing, $9,229.02, is the amount which relates to the registration
of the 4,310,123 shares which have not been previously registered. All other
shares of Common Stock for which this Registration Statement is being filed
have been previously registered and sufficient registration fees paid, as
identified above.
(1) Estimated solely for the purpose of calculating the registration fee.
Reflects the exercise prices of the 1992 Underwriters' Warrants, the 1994
Underwriters' Warrants, the 1994 Underlying Warrants, the Consultant's
Warrants, the Private Placement Warrants, the First Options, the Second
Options, the Third Options, the Fourth Options and the Fifth Options.
(2) Pursuant to Rule 416 there are also being registered such indeterminate
number of additional shares of Common Stock as may be required for issuance
pursuant to the anti-dilution provisions of the Public Warrants, the 1992
Underwriters' Warrants, the 1994 Underwriters' Warrants, the 1994 Underlying
Warrants, the Consultant's Warrants and the Private Placement Warrants.
(3) Reflects the exercise price of a 1994 Underwriters' Warrant, payment of
which entitles the holder thereof to purchase one unit consisting of one
share of Company Common Stock and one 1994 Underlying Warrant to purchase
one share of Company Common Stock.
(4) Pursuant to Rule 457, the calculation of the filing fee for the Common Stock
is based upon the average of the high and low sales prices on February 10,
1997 of $7.5625 per share.
(5) Pursuant to Rule 416 there are also being registered such indeterminate
number of additional shares of Common Stock as may be required for issuance
pursuant to adjustments in the per share conversion price of the shares of
preferred stock which is convertible into 1997 Private Placement Shares.
(6) Reflects the exercise price of the Private Placement Warrants.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION--DATED FEBRUARY , 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
5,677,334 SHARES OF COMMON STOCK
AMERICAN UNITED GLOBAL, INC.
---------
This Prospectus relates to an offering (the "Offering") of 5,677,334 shares
of Common Stock, par value $.01 per share (each, a "Share" and collectively, the
"Shares"), of American United Global, Inc. (the "Company"), including an
aggregate of 1,818,500 Shares which are and will be outstanding as at the date
of this Prospectus and 3,858,834 additional Shares issuable upon conversion of
outstanding preferred stock and exercise of outstanding warrants and stock
options. Such Shares were issued or are issuable in connection with a series of
transactions which consist of: (i) 100,000 Shares issued in May 1996 to Prologue
Software ("Prologue") in connection with a license agreement and sold by
Prologue in December 1996 to unaffiliated third parties (the "Prologue Shares"),
(ii) 150,000 Shares issued as of May 1996 as finders fees paid in connection the
acquisition of ConnectSoft, Inc. (the "Finders Shares"), (iii) 800,000 Shares
issued in September 1996 in connection with the acquisition of InterGlobe
Networks, Inc. (the "InterGlobe Shares"), (iv) 507,246 Shares issued in December
1996 in connection with the acquisition of TechStar Communications, Inc. (the
"TSC Shares"), (v) 192,754 Shares issued on the date of this Prospectus in
connection with the acquisition of Arcadia Consulting Services, Inc. (the
"Arcadia Shares"), (vi) 38,500 Shares (the "1990 IPO Shares") issued upon
exercise of underwriters' warrants (the "1990 IPO Warrants") granted in
connection with the Company's 1990 initial public offering, (vii) 30,000 shares
issued to ConnectSoft Ruksun Software India, Pvt. Ltd. in settlement of certain
indebtedness (the "Ruksun Shares"), (viii) 920,000 Shares issuable upon exercise
of Redeemable Common Stock Purchase Warrants issued in connection with the
Company's 1994 public offering (the "Public Warrants"), (ix) 80,000 Shares
issuable upon exercise of underwriters' warrants issued in connection with the
Company's 1994 public offering (the "1994 Underwriters' Warrants"), (x) 80,000
Shares issuable upon exercise of Common Stock Purchase Warrants underlying the
1994 Underwriters' Warrants (the "1994 Underlying Warrants"), (xi) 100,000
Shares issuable upon exercise of underwriters' warrants issued in connection
with the Company's 1992 public offering (the "1992 Underwriters' Warrants") (the
1994 Underwriters' Warrants, the 1994 Underlying Warrants and the 1992
Underwriters' Warrants are sometimes collectively referred to herein as the
"Underwriters' Warrants"), (xii) 150,000 Shares issuable upon exercise of
warrants issued in April 1994 to financial consultants and 50,000 additional
Shares issuable upon exercise of additional options issued in August 1996 to
affiliates of one of such financial consultants (collectively, the "Consultants'
Warrants") (xiii) 1,013,333 Shares issuable upon exercise of certain outstanding
options granted to members of the Company's senior management and other
representatives (the "Options"), (xiv) 1,165,501 Shares, subject to adjustment
(the "1997 Private Placement Shares"), issuable upon conversion of 400,000
shares of the Company's 7% Series B-2 Convertible Preferred Stock, par value
$.01 per share (the "Private Placement Preferred Shares"), sold in connection
with the Company's January 8, 1997 private placement (the "1997 Private
Placement") and (xv) 350,000 Shares issuable upon exercise of warrants (the
"Private Placement Warrants") issued to investors in connection with the 1997
Private Placement. The Prologue Shares, the InterGlobe Shares, the TSC Shares,
the Arcadia Shares, the Finders Shares, the 1990 IPO Shares, the Ruksun Shares,
the Shares issuable upon exercise of the Underwriters' Warrants, the
Consultants' Warrants, the Private Placement Warrants and the Options, and the
1997 Private Placement Shares issuable upon conversion of Private Placement
Preferred Shares are being offered for sale by certain stockholders of the
Company (collectively, the "Selling Stockholders"). The Company will not receive
any of the proceeds from the sale of Shares by the Selling Stockholders,
although it will receive proceeds from the exercise of the Public Warrants,
Underwriters' Warrants, the Consultants' Warrants, the Private Placement
Warrants and the Options, if and to the extent exercised. See "USE OF PROCEEDS"
and "RISK FACTORS."
(COVER PAGE CONTINUED ON NEXT PAGE)
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. THERE IS ALSO
NO ASSURANCE THAT THE COMPANY WILL RECEIVE ANY PROCEEDS FROM THIS OFFERING. SEE
"RISK FACTORS" (COMMENCING ON PAGE 9)
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
Each Public Warrant entitles the holder to purchase one Share for $7.50
until June 30, 1997, when the Public Warrants shall expire. Each 1994
Underwriters' Warrant entitles the holder to purchase one unit, consisting of
one Share and one 1994 Underlying Warrant for $6.30 per unit, until February
1999. Each 1994 Underlying Warrant issuable upon exercise of the 1994
Underwriters' Warrants entitles the holder to purchase one Share at $7.50 per
Share until June 30, 1997. Each 1992 Underwriters' Warrant entitles the holder
to purchase one Share for $5.75 per Share until June 30, 1997. 150,000 of the
Consultants' Warrants entitle the holder to purchase one Share for $4.75 per
share until April 1999, and 50,000 Consultants' Warrants entitle the holder to
purchase one Share for $6.0125 per share until August 1, 2001 (all of the
foregoing securities and the Private Placement Warrants described below are
sometimes collectively referred to herein as the "Warrants"). The Options
entitle the holders thereof to acquire Shares at prices ranging from $3.78125
per Share to $5.25 per Share at various periods expiring between April 25 and
October 4, 2001. The various exercise prices of the Warrants and the Options are
all subject to adjustment pursuant to the anti-dilution provisions thereof.
The 1997 Private Placement consisted of an aggregate of 400,000 Private
Placement Preferred Shares which were sold to 11 unaffiliated accredited
purchasers for an aggregate purchase price of $10.0 million, of which
commissions of $800,000 were paid to an unaffiliated third party. The Private
Placement Preferred Shares are convertible into 1997 Private Placement Shares of
Common Stock, either as a result of action by the holders of Private Placement
Preferred Shares or automatically without further action by the Company or the
holders of the Private Placement Preferred Shares, under varying circumstances.
The holders of Private Placement Preferred Shares have the right to convert
Private Placement Preferred Shares into 1997 Private Placement Shares on a
cumulative vesting schedule of 133,333 Private Placement Preferred Shares on
February 7, 1997, 133,333 Private Placement Preferred Shares on March 7, 1997
and 133,334 Private Placement Preferred Shares on April 7, 1997, at a conversion
rate (the "Conversion Rate") equal to the lesser of (i) $8.58 per share (the
"Closing Date Average Price"), (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 Average Price on the date immediately preceding the date any
shares of Private Placement Preferred Shares are converted into 1997 Private
Placement Shares (the "Conversion Date Average Price"). For purposes of
determining the Private Placement Preferred Shares conversion rate, the Average
Price equals 105% of the average daily closing bid price of the Common Stock as
reported on The Nasdaq National Market ("Nasdaq") or other national securities
exchange for the ten trading days immediately preceding the measuring dated in
question. The Company has the right to limit the holders' right of conversion in
certain circumstances prior to January 8, 2000, after which all of the Private
Placement Preferred Shares not previously converted will be converted into 1997
Private Placement Shares at the above formula price then in effect. The
1,165,501 1997 Private Placement Shares estimated for issuance upon conversion
of all 400,000 Private Placement Preferred Shares are based on the $8.58 per
share Closing Date Average Price and are subject to increase to an
indeterminable number of additional 1997 Private Placement Shares based on the
above conversion formula.
In addition to the Private Placement Preferred Shares, the investors in the
1997 Private Placement received Private Placement Warrants to purchase an
aggregate of 350,000 Shares at an exercise price equal to the Closing Date
Average Price of $8.58 per Share, which Private Placement Warrants expire in
January 2002 to the extent unexercised.
The Company's publicly traded Common Stock and Public Warrants are currently
listed on Nasdaq under the symbols "AUGI" and "AUGIW", respectively. On February
7, 1997, the last reported sale prices of the Common Stock and the Public
Warrants reported on Nasdaq were $7.75 per Share, and $4.00 per Public Warrant.
As of the date of this Prospectus, the Company has received proceeds in the
amount of approximately $120,000 from the exercise of 1990 IPO Warrants held by
certain Selling Stockholders. In the event that all
2
<PAGE>
of the remaining unexercised Warrants and Options are exercised, the maximum net
proceeds which the Company will receive from such exercise, after deduction of
expenses of this offering, will be approximately $16,400,000. In the event that
none of such Warrants or Options are exercised, the Company will not receive any
proceeds in connection with this Offering. The Company will not receive any
proceeds from the sale of the Shares issuable upon exercise of the Warrants or
the Options, or from the sale of the 1997 Private Placement Shares issuable upon
conversion of the Private Placement Preferred Shares, nor will it receive any
proceeds from the sale of the Prologue Shares, the InterGlobe Shares, the TSC
Shares, the Arcadia Shares, the Finders Shares, the 1990 IPO Shares or the
Ruksun Shares being registered hereby. The Company will pay all of the costs of
this offering. See "USE OF PROCEEDS" and "RISK FACTORS."
The Shares may be offered by the Selling Stockholders from time to time in
transactions on Nasdaq. The Shares may also be offered in negotiated
transactions, at fixed prices which may be changed, at market prices prevailing
at the time of sale or at negotiated prices. The Selling Stockholders may effect
such transactions by selling the Shares in negotiated transactions, on Nasdaq or
through broker-dealers, and such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the Selling Stockholders
and/or the purchasers of the Shares for whom such broker-dealers may act as
agents or to whom they sell as principal, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions).
Alternatively, the Selling Stockholders may from time to time offer the Shares
through underwriters, dealers or agents, who may receive compensation in the
form of underwriting discounts, concessions or commissions from the Selling
Stockholders and/or the purchasers of securities for whom they act as agents.
Certain of the Selling Stockholders have entered into agreements with the
Company, pursuant to which they have agreed to certain restrictions on the sale
of their Shares. See "SELLING STOCKHOLDERS" and "PLAN OF DISTRIBUTION".
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO EXCHANGE OR SELL, OR A SOLICITATION OF AN OFFER TO
EXCHANGE OR PURCHASE, ANY SECURITIES IN ANY JURISDICTION IN WHICH, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN
ANY CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company may be inspected and copies at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such materials can be obtained upon written request from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
3
<PAGE>
The Company has filed with the Commission a registration statement on Form
S-1 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement. Each
statement made in this Prospectus concerning a document filed as part of the
Registration Statement is qualified in its entirety by reference to such
document for a complete statement of its provisions. Copies of the Registration
Statement may be inspected, without charge, at the offices of the Commission, or
obtained at prescribed rates from the Public Reference Section of the
Commission, at the address set forth above, or on the World Wide Web through the
Commission's Internet address at "http://www.sec.gov."
The Company will provide without charge to each person, including any
beneficial owner of the Shares, to whom a copy of this Prospectus is delivered,
upon the written or oral request of any such person, a copy of any or all of the
documents which are incorporated herein by reference into such documents.
Requests for such copies should be directed to David M. Barnes, Vice President
and Chief Financial Officer, American United Global, Inc., 11130 NE 33rd Place,
Suite 250, Bellevue, Washington 98004, telephone: (206) 803-5400.
------------------------
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO
THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTIONS "PROSPECTUS SUMMARY," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
"BUSINESS." THESE FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND
UNCERTAINTIES. NO ASSURANCE CAN BE GIVEN THAT ANY SUCH MATTERS WILL BE REALIZED.
FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE
FOLLOWING POSSIBILITIES: (I) COMPETITIVE CONDITIONS IN THE INDUSTRIES IN WHICH
THE COMPANY OPERATES; (II) DIFFICULTIES RELATED TO THE INTEGRATION OF THE
COMPANY'S TECHNOLOGY BUSINESS; (III) FAILURE TO COMMERCIALIZE ONE OR MORE OF THE
RESPECTIVE TECHNOLOGIES OF THE COMPANY; AND (IV) GENERAL ECONOMIC CONDITIONS
THAT ARE LESS FAVORABLE THAN EXPECTED. FURTHER INFORMATION ON OTHER FACTORS
WHICH COULD AFFECT THE FINANCIAL RESULTS OF THE COMPANY AND SUCH FORWARD-LOOKING
STATEMENTS IS INCLUDED IN THE SECTION HEREIN ENTITLED "RISK FACTORS."
4
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO)
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES,
ALL REFERENCES HEREIN TO: (A) A "YEAR" OR "FISCAL YEAR" MEANS THE COMPANY'S
FISCAL YEAR ENDED JULY 31, AND (B) UNLESS THE CONTEXT OTHERWISE INDICATES, THE
TERM THE "COMPANY" INCLUDES AMERICAN UNITED GLOBAL, INC. AND ITS CONSOLIDATED
SUBSIDIARIES.
THE COMPANY
American United Global, Inc., a Delaware corporation (the "Company"),
through its operating subsidiaries, is engaged in two distinct businesses; a
technology business and a distribution business.
The Company's technology business provides computer software and networking
as well as telecommunications products and services. Such products and services
currently consist of:
- a proprietary WINDOWS-TM- application server software, marketed as
NTERPRISE-TM-, which projects the user interface of a WINDOWS-TM-
application program from the application server across the network to one
or more end-user desktop computers or terminals (the "Application Remoting
Software"). NTERPRISE-TM- allows users to run application software
programs designed for the Microsoft-TM-WINDOWS NT-TM- operating system on
existing UNIX workstations, X-terminals and other X-windows compatible
devices. The NTERPRISE-TM- Application Remoting Software is sold as a
multi-user operating system to business and commercial end-users and OEM's
in conjunction with related software technology which enables the
Microsoft Windows NT Server-TM- operating system to be simultaneously used
by multiple end-users (the "Multi-user Software");
- an electronic mail communications management software product, marketed as
EMAIL CONNECTION-Registered Trademark-, and an e-mail product and Internet
browser designed for children, marketed as EMAIL FOR KIDS-TM- and KIDS
WEB-TM-;
- providing network engineering, design and consultation services, network
security, remote network management and monitoring as well as Intranet
development;
- providing a regional Internet/Intranet telecommunication service in the
form of high bandwidth Internet connectivity and hosting for businesses in
the Pacific Northwest;
- providing site acquisition, zoning, architectural and engineering
consulting services to the wireless communications industry; and
- the development of additional software technology, including software
designed to allow broadcast television data to be received and viewed on a
personal computer, and a digital communications technology designed to
allow the remote access to e-mail messages, voice messages and telecopies
from personal computers and other platforms.
The Company's distribution business consists of the sale, service and
leasing, as a retail distributor, of light and medium-sized construction
equipment, parts and other products manufactured principally by Case
Corporation. Such distribution business operates through the Company's
56.6%-owned subsidiary, Western Power & Equipment Corp., a Delaware corporation
("Western"). Western principally operates as an authorized Case Corporation
("Case") dealer through 19 retail distribution facilities located in the states
of Washington, Oregon, California and Nevada. The construction equipment
distributed by the Company is used in the construction of residential and office
buildings, roads, levees, dams, underground power projects, forestry projects,
municipal construction and other construction projects.
Prior to January 1996, the Company also operated a manufacturing business
through two operating subsidiaries: (i) the National O-Ring division of American
United Products, Inc., a California corporation ("AUP"), which manufactured and
distributed standard-size, low cost synthetic rubber o-ring sealing
5
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devices for use in automotive and industrial applications and (ii) the Stillman
Seal division of American United Seal, Inc., a California corporation ("AUS"),
which specialized in the design, manufacture and distribution of rubber-to-metal
bonded sealing devices for use in commercial, aerospace, defense and
communications industry applications. On January 19, 1996, the Company sold all
of the operating assets of its manufacturing business to Hutchinson Corporation
(the "Hutchinson Transaction"). See "BUSINESS--History and Recent Acquisitions."
Management of the Company carefully considered, both prior and immediately
subsequent to consummation of the Hutchinson Transaction, 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 through the acquisition of
proprietary technologies, unique niche software products and selective expertise
marketable on a national scale. As a result, between May and December 1996, the
Company acquired four businesses engaged in such industries, contracted to
purchase a fifth company, and has expended an aggregate of approximately
$9,000,000 of its capital resources. See "BUSINESS--History and Recent
Acquisitions."
THE OFFERING
<TABLE>
<S> <C>
SECURITIES OFFERED:
--COMMON STOCK OUTSTANDING.... 7,987,882 Shares (1)
--SHARES BEING OFFERED........ 5,677,334 Shares (2)
USE OF PROCEEDS................. In the event that all of the unexercised Warrants and
Options are exercised, the maximum net proceeds which the
Company will receive from such exercise will be
approximately $16,400,000. To the extent received, such
proceeds will be utilized for working capital and general
corporate purposes, at the discretion of the Company's
management. If none of such Warrants or Options are
exercised, the Company will not receive any proceeds in
connection with this Offering. In addition, the Company
will not receive any proceeds from (i) the sale of the
Shares issuable upon exercise of the Warrants or the
Options, or (ii) the sale of any 1997 Private Placement
Shares issuable upon conversion of Private Placement
Preferred Shares, or (iii) the sale of the Prologue
Shares, the InterGlobe Shares, the TSC Shares, the Arcadia
Shares, the Finders Shares, the 1990 IPO Shares, or the
Ruksun Shares.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
On February 7, 1997, the last sales price reported on
Nasdaq for a share of Common Stock was $7.75 per share.
Although it is possible that the Public Warrants and the
1994 Underlying Warrants, exercisable at $7.50 per Share,
the 1994 Underwriters' Warrants, exercisable at $6.30 per
Share, the 1992 Underlying Warrants, exercisable at $5.75
per Share, the Consultants' Warrants exercisable at $4.75
and $6.0125 per share, the Private Placement Warrants,
exercisable at $8.58 per share, and the Options,
exercisable at prices ranging from $3.78 per Share to
$5.25 per Share, may be exercised insofar as the current
market price of the Common Stock exceeds all such exercise
prices other than that of the Private Placement Warrants,
it is impossible to predict how many of such Warrants
and/or Options will be exercised and the amount of the
proceeds, if any, realizable therefrom. See "RISK
FACTORS--No Proceeds to Company upon Failure to Exercise
Warrants" and "USE OF PROCEEDS."
RISK FACTORS.................... The Shares offered hereby involve a high degree of risk.
See "RISK FACTORS."
NASDAQ SYMBOL................... Common Stock: AUGI
Public Warrants: AUGIW
</TABLE>
- ------------------------
(1) Consists of: (a) an aggregate of 7,795,128 shares of Common Stock
outstanding as at December 31, 1996, including (i) 800,000 InterGlobe Shares
issued in September 1996 in connection with the acquisition of InterGlobe
Networks, Inc. ("InterGlobe"), (ii) 25,000 shares of Common Stock issued in
November 1996 in connection with the acquisition of Seattle OnLine, Inc.
("Seattle OnLine"), and (iii) 507,246 TSC Shares issued in December 1996 in
connection with the acquisition of TechStar Communications, Inc., formerly
Broadcast Tower Sites, Inc. ("TechStar"); and (b) 192,754 Arcadia Shares to
be issued on the date of this Prospectus upon completion of the acquisition
of Arcadia Consulting Services, Inc. ("Arcadia").
(2) Includes (i) an aggregate of 1,818,500 Shares which are and will be
outstanding as at the date of this Prospectus, consisting of the Prologue
Shares, the InterGlobe Shares, the TSC Shares, the Arcadia Shares, the
Finders Shares, the IPO Shares, and the Ruksun Shares, and (ii) 3,858,834
additional Shares issuable upon exercise of the outstanding Warrants and
Options, and upon conversion of the Private Placement Preferred Shares.
As of December 31, 1996, the Selling Stockholders and the Company's
directors and executive officers beneficially owned in the aggregate
approximately 5,608,506 shares of Common Stock, after giving effect to (i)
exercise of all outstanding Options to acquire shares of Common Stock held by
such officers and directors, (ii) exercise of all of the additional Public
Warrants, Underwriters' Warrants, Consultants' Warrants, Private Placement
Warrants and Options not yet exercised but whose underlying Shares are
registered hereby, and (iii) conversion into 1997 Private Placement Shares of
all Private Placement Preferred Shares. See "RISK FACTORS--Substantial Dilution
from Issuance of Significant Additional Shares". Such number of shares equals
approximately 30% of the aggregate of the currently outstanding shares of Common
Stock and the issuance of the maximum number of shares of Common Stock issuable
upon conversion of the Series B-1 Preferred Stock and the Private Placement
Preferred Shares, and the issuance of all shares underlying the Warrants and
Options not yet exercised. As of December 31, 1996, the Company's directors and
executive officers beneficially owned in the aggregate 2,160,775 shares of
Common Stock, or 27.7% of the currently outstanding shares of Common Stock of
the Company . If these persons act in concert, although there is no agreement to
do so, they will have the ability to influence substantially the election of the
Board of Directors of the Company and the direction and future operations of the
Company.
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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary financial information for the fiscal years 1993, 1994,
1995 and 1996 have been derived from the audited financial statements of the
Company.
INCOME STATEMENT DATA:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JULY 31, OCTOBER 31,
------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
1996(3) 1995 1994 1993(1) 1996 1995
---------- --------- --------- --------- --------- ---------
Net sales........................................... $ 106,555 $ 86,173 $ 67,370 $ 30,386 $ 31,879 $ 23,153
(Loss) income from continuing operations............ (9,610) 1,164 1,024 417 (1,191) 196
Net (loss) income................................... (1,835 (2) 2,268 2,287 1,575 (1,191) 725
Per share:
(Loss) income from continuing operations.......... $ (1.66) $ 0.20 $ 0.18 $ 0.06 $ (0.18) $ 0.03
Net (loss) income................................. (0.32) 0.40 0.43 0.34 (0.18) 0.12
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
JULY 31,
-------------------------------------------- OCTOBER 31
1996 1995 1994 1993 1996
---------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Total assets........................................... $ 119,055 $ 76,829 $ 62,529 $ 58,320 $ 125,214
Total liabilities...................................... 96,474 56,575 44,591 44,787 94,152
Working capital........................................ 23,486 10,022 11,739 6,624 23,180
Shareholders' equity................................... 22,581 20,254 17,938 13,533 31,062
</TABLE>
- ------------------------
(1) Represents nine months of results of Western Power & Equipment Corp.
("Western") following its acquisition in November 1992.
(2) Includes income from discontinued operations and the gain on the sale of the
manufacturing business of $7.8 million, net of tax.
(3) Includes results of operations of ConnectSoft, Inc. for the day ended July
31, 1996.
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RISK FACTORS
THE FOLLOWING FACTORS, IN ADDITION TO THOSE DISCUSSED ELSEWHERE IN THIS
PROSPECTUS, SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE COMPANY, ITS
BUSINESS AND AN INVESTMENT IN THE SHARES BEING OFFERED HEREBY.
RISK FACTORS RELATING TO THE COMPANY'S TECHNOLOGY BUSINESS
SIGNIFICANT LOSSES FROM OPERATIONS. ConnectSoft, Inc. ("ConnectSoft") and
eXodus Technologies, Inc. ("eXodus"), two of the technology businesses acquired
by the Company as of July 31, 1996, have incurred accumulated net losses since
their inception in 1992 of $12,774,168, including net losses of $1,343,153 in
the fiscal year ended December 31, 1993, $6,458,728 in net losses in the fiscal
year ended December 31, 1995, $5,400,000 in net losses for the seven months
ended July 31, 1996 and $1,400,000 in net losses for the three months ended
October 31, 1996. It may be anticipated that such losses will continue for the
foreseeable future unless revenues from the businesses conducted by ConnectSoft
and eXodus significantly increase above its present levels. In addition, the
Company's future plans are subject to known and unknown risks and uncertainties
that may cause the Company to continue to incur substantial losses from
operations. There can be no assurance that the Company's technology operations
will ever become profitable. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
SIGNIFICANT INVESTMENT AND NEGATIVE CASH FLOW. Since the July 31, 1996
effective date of its acquisition of ConnectSoft and eXodus and through December
31, 1996, the Company has expended approximately $9.0 million in direct advances
to cover operating expenses, including personnel costs, payment of accounts
payable and other accrued expenses of such subsidiaries, exclusive of
approximately $1.4 million in cash paid to former stockholders of ConnectSoft,
InterGlobe, Seattle OnLine, TechStar and Arcadia in connection with the
acquisition of such companies. Prior to July 31, 1996, the Company had advanced
approximately $3,300,000 to ConnectSoft. It may be anticipated that the
operations of ConnectSoft and eXodus will continue to represent a cash flow
drain, at least in the near term. There can be no assurance that such businesses
will not continue to represent a significant drain on cash resources or will
ever prove to be profitable. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity and Capital Resources."
LACK OF MARKET ACCEPTANCE. The multi-user operating system incorporating
eXodus's NTERPRISE-TM- Application Remoting Software has recently been
commercially introduced, and although eXodus has received initial pilot test
orders from approximately 30 customers, such orders are for limited quantities
or "seats" of such product and represent relatively insignificant revenues. The
Company believes that, after accessing the WINDOWS NT-TM- operating system on
their UNIX workstations and X-Terminals using NTERPRISE-TM-, such customers and
others will order and reorder NTERPRISE-TM- in meaningful quantities. However,
there can be no assurance that this will be the case, or that NTERPRISE-TM- will
ever achieve market acceptance or otherwise be able to be sold in sufficient
quantities to prove profitable to the Company.
DEPENDENCE ON MICROSOFT AND PROLOGUE. In order for the eXodus's Application
Remoting Software to be commercially offered in WINDOWS-TM--compatible format,
either eXodus or the provider of the Multi-user Software must obtain a license
or other authorization from Microsoft. The Company believes that Prologue is one
of a small number of corporations known to have access to the WINDOWS-TM- source
code, and possesses rights to prepare and distribute Multi-user Software derived
from it through a direct license from Microsoft. The Company and eXodus
currently possess an OEM license from Prologue which permits the Company to
offer NTERPRISE-TM- Application Remoting Software with Prologue's WINTIMES-TM-
Multi-user Software in Windows NT 3.51 version. Prologue's license with
Microsoft expired in October 1996 and has been renewed for six months. There is
no assurance that Prologue's license with Microsoft will be renewed beyond March
31, 1997. In the event that Microsoft does not renew Prologue's
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<PAGE>
license, the Company will be unable to commercially offer NTERPRISE-TM- products
unless it obtains a direct license from Microsoft.
Many of the customers considering the purchase of NTERPRISE-TM- want such
product to be available in the updated WINDOWS NT 4.0-TM- compatible version.
Although eXodus believes that it will be able to offer its Application Remoting
Software platform in WINDOWS NT 4.0 version in the near future, such right
depends upon Microsoft releasing WINDOWS NT 4.0-TM- source codes for commercial
applications by its licensees, including Prologue. There can be no assurance
that Prologue's existing license from Microsoft, even if renewed, will be
renewed to include the WINDOWS NT 4.0 version.
In addition, under the terms of the license with Prologue, under certain
conditions Prologue may license Prologue's Multi-user Software to direct
competitors of eXodus. Although the Company believes that the key element in
providing its customers with access to WINDOWS application programs in a UNIX or
X-Terminal environment is the reliability and flexibility of the Application
Remoting Software developed by eXodus, as opposed to the Multi-user Software
furnished primarily by Citrix and Prologue, to the extent that more well
financed competitors are given access to Prologue's WINTIMES-TM- software,
eXodus's marketing efforts could be adversely impacted. See "BUSINESS--License
with Prologue."
DEPENDENCE ON SIGNIFICANT CUSTOMER For its year ended December 31, 1996, in
excess of 95% of the revenues of the Company's TechStar subsidiary was derived
from one customer, a Fortune 50 global telecommunications company. Although such
customer has recently renewed its agreement with TechStar for 1997, the loss of
or significant reduction in business from such customer would have a material
adverse effect on TechStar's business. See "BUSINESS--Wireless
Telecommunications Services."
COMPETITION. The markets in which the Company's business competes are
intensely competitive and are characterized by rapidly changing technology and
evolving industry standards.
Competitive factors in the WINDOWS-TM- application server product market
include completeness of features, product scalability and functionality, product
quality and reliability, marketing and sales resources, distribution channels,
and customer service and support. The Company faces extensive competition from
Citrix Systems, Inc. ("Citrix"), Sun Microsystems, Inc. ("Sun"), Tektronix, Inc.
("Tektronix"), Insignia Solutions, Inc. ("Insignia") and Network Computing
Devices, Inc. ("NCD"), all of whom are significantly larger than the Company and
have substantially greater financial resources. While the Company believes that
the features available on its NTERPRISE-TM- Application Remoting Software
provides UNIX and X-Terminal users with the maximum flexibility to integrate
WINDOWS-TM- applications, there can be no assurance that the Company will be
able to establish and maintain a market position in the face of increased
competition.
In addition, alternative products exist for accessing information or
databases over the Internet that indirectly compete with the eXodus's
Application Remoting Software products. Existing or new products that extend web
site software to provide database access or interactive computing can materially
impact the Company's ability to sell its WINDOWS-TM- application server into the
UNIX, X-Terminal and emerging network computer markets. Potential competitors
include all of the makers of Web server and browser software, including
Microsoft, Netscape, Quarterdeck, Silicon Graphics and Sun Microsystems. Other
key competitors in the multi-user graphical platform market include SunSoft,
Hewlett Packard and other manufacturers of UNIX application servers, to the
extent that they are able to provide a low-cost graphical computing platform for
Microsoft's WINDOWS-TM- applications. In addition to competition from Microsoft
licensees, Microsoft may revise its corporate strategy of licensing the
production of Multi-user Software and Application Remoting Software and either
purchase third party developers or produce its own software solutions in direct
competition with eXodus.
As is the case with its Application Remoting Software, ConnectSoft's EMAIL
CONNECTION-Registered Trademark-, KIDSWEB-TM- and EMAIL FOR KIDS-TM- software
also face intense competition from other developers and marketers of personal
productivity software products sold at retail. There are a number of e-mail and
Web
10
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browser products on the market, many of which are produced by companies that are
significantly larger and better capitalized than the Company. Although
ConnectSoft believes that its e-mail and Web browser products are the only ones
currently available which permit parents to monitor the content of programs
accessed by their children on the Internet, a number of larger competitors are
in the process of introducing a similar technology. There is no assurance that
ConnectSoft will be able to establish a sufficient customer base or market
presence to withstand a well-financed marketing campaign from a more substantial
competitor with a competing product for the children's market.
The Company's businesses engaged in Internet design, engineering and
consulting services, the development of Web sites for local advertisers, and
site location, architectural and engineering consulting services for the
wireless telecommunications industry, face competition from numerous regional
and national computer and telecommunications consultants, as well as from many
of the major software and hardware manufacturers who provide full customer
support and service for their products, which often include consulting and
advisory services.
EVOLVING NETWORK COMPUTING MARKET. The Company's future success in
developing and selling multi-user remote solutions will depend in substantial
part upon increased acceptance and successful marketing of such products. There
can be no assurance that eXodus's Application Remoting Software, whether
marketed with WINTIMES-TM- Multi-user Software developed by Prologue, or with an
alternate Multi-user Software solution, will be widely adopted in the rapidly
evolving desktop computer market. In addition, it is possible that Microsoft may
develop its own Application Remoting Software (in direct competition with
eXodus) for sale to users of UNIX workstations, X-Terminals and the new
generation of network computers. The failure of new markets to develop for
eXodus's products could have a material adverse effect on the Company's
business, operating results and financial condition.
CONSEQUENCES OF RAPID TECHNOLOGICAL CHANGE. The software industry is
characterized by rapid technological change, frequent introduction of new
products and systems, changes in customer demands and evolving industry
standards. The introduction of products embodying new technology or adapting
products to the computing market and the emergence of new industry standards
often render existing products obsolete or unmarketable. The success of the
Company's technology business will depend upon its ability to enhance its
existing products and to develop, introduce or otherwise acquire on a timely
basis new products that keep pace with technological developments and emerging
industry standards in order to meet the changing needs of the Company's
customers. There can be no assurance that the Company will be successful in
developing and marketing product enhancements or new products that respond to
technological change or evolving industry standards, that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction or sale of these products or that the Company's new product
enhancements (if any) will adequately meet the requirements of the marketplace
and achieve market acceptance. In addition, there can be no assurance that
technological changes or evolving industry standards will not render the
Company's products and technologies obsolete.
POTENTIAL NEED FOR ADDITIONAL FINANCING. Based on the Company's operating
plan, the Company believes that the net proceeds of the 1997 Private Placement
together with available capital and anticipated funds from certain of its
operations, will be sufficient to satisfy its capital requirements and planned
software development activities for the next 12 months, although there can be no
assurance that additional capital will not be required before such time. As yet
unplanned acquisition and development opportunities and other contingencies may
arise, which also could require the Company to obtain additional capital. The
Company anticipates that it could require additional capital in order to finance
its current plans for expansion and its development activities. Sources of funds
may include the issuance of Common Stock or preferred stock of the Company or
one or more of its operating subsidiaries sold in a public offering or in
private placements, debt securities or bank financing. There can be no assurance
that the Company or such subsidiaries will be able to obtain capital on a timely
basis, on favorable terms, or at all. If the Company is unable to obtain such
financing, or generate funds from operations sufficient to meet its needs, the
11
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Company and/or all or certain of its operating subsidiaries may be unable to
implement its current plans for expansion and software development.
ABSENCE OF PATENT PROTECTION. The Company's success in its Application
Remoting Software is heavily dependent upon proprietary technology. While eXodus
has filed one patent application, to date, it has no patents, and existing
copyright laws afford only limited protection for the Company's software. None
of the other operating subsidiaries in the Company's technology business hold
patents. Accordingly, the Company relies heavily on trade secret protection and
confidentiality and proprietary information agreements to protect its
proprietary technology. The loss of any material trade secret could have a
material adverse effect on the Company. There can be no assurance that the
Company's efforts to protect its proprietary technology rights will be
successful. Despite the Company's precautions, it may be possible for
unauthorized third parties to copy certain portions of the Company's software or
to obtain and use information that the Company regards as proprietary.
While the Company's competitive position may be affected by its ability to
protect its proprietary information, the Company believes that because of the
rapid pace of technological change in the industry, factors such as the
technical expertise, knowledge and innovative skill of the Company's management
and technical personnel, its strategic relationships, name recognition, the
timeliness and quality of support services provided by the Company and its
ability to rapidly develop, enhance and market software products may be more
significant in maintaining the Company's competitive position.
The Company believes that its products and services do not infringe the
rights of third parties; however, while the Company has not received notice of
any infringement claims, third parties may assert such claims against the
Company, and such claims could require the Company to enter into licensing
agreements for the technology in question or royalty arrangements or result in
litigation, which could materially and adversely affect the Company's business.
There can be no assurance that the Company could acquire any such license on
terms acceptable to the Company or at all. Any failure to acquire such licenses
could materially and adversely affect the Company's business and prospects.
LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS; RISK OF
LITIGATION. The Company holds copyrights on its products, manuals, advertising
and other materials and maintains trademark rights in the NTERPRISE-TM-, EMAIL
FOR KIDS-TM- and KIDS WEB-TM- names and logos. The Company regards its software
as proprietary and relies primarily on a combination of trademark, copyright and
trade secret laws, employee and third-party nondisclosure agreements, and other
methods to protect its proprietary rights. Unauthorized copying is common within
the software industry, and if a significant amount of unauthorized copying of
the Company's products were to occur, the Company's business, operating results
and financial condition could be adversely affected. There can be no assurance
that third parties will not assert infringement claims against the Company in
the future with respect to current or future products. Further, the Company may
enter into transactions in countries where intellectual property laws are not
well developed or are poorly enforced. Legal protections of the Company's rights
may be ineffective in such countries. Any claims or litigation, with or without
merit, could be costly and could result in a diversion of management's
attention, which could have a material adverse effect on the Company's business,
operating results and financial condition. Adverse determinations in such claims
or litigation could also have a material adverse effect on the Company's
business, operating results and financial condition.
NEW PRODUCT DEVELOPMENT AND TIMELY INTRODUCTION OF NEW AND ENHANCED
PRODUCTS. The markets for the products and services provided by the Company's
technology business are characterized by rapidly changing technologies, evolving
industry standards, frequent new product introductions and short product life
cycles. The Company's future in such businesses will depend, to a considerable
extent, on its ability to continuously develop, introduce and deliver in
quantity new software products that offer its customers enhanced performance at
competitive prices, and to offer new services at competitive prices that meet
the demands of a rapidly changing marketplace. The development and introduction
of new products and
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service is a complex and uncertain process requiring substantial financial
resources and high levels of innovation, accurate anticipation of technological
and market trends and the successful and timely completion of product
development. The inability to finance important software development projects,
delays in the introduction of new and enhanced products and services, the
failure of such products and services to gain market acceptance, or problems
associated with new products could materially and adversely affect the Company's
operating results.
DEPENDENCE ON KEY PERSONNEL. The Company's success in its technology
business depends to a significant degree upon the continuing contributions of
its senior management and other key employees. The Company believes that its
future success will also depend in large part on its ability to attract and
retain highly-skilled programmers, engineers, sales and marketing personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be successful in attracting, integrating and retaining such
personnel. Failure to attract and retain additional key personnel, or failure to
retain existing key personnel, could have a material adverse effect on the
Company's technology business, operating results or financial condition. See
"BUSINESS--Employees."
RISK FACTORS RELATING TO THE COMPANY'S DISTRIBUTION BUSINESS
COMPETITION. The Company's Distribution Business operates in highly
competitive environments, certain of which are characterized by firms having
resources and manpower significantly greater than those of Western, and in all
of which Western faces a great deal of competition on the basis of price. Such
intense price competition has the effect of holding down Western's profit
margins on product sales. The retail construction equipment industry, including
the states of Washington, Oregon, California and Nevada in which Western
operates, is highly fragmented with many brands of equipment and distributors of
such brands active in the market. Moreover, Western's dealership arrangements
with Case do not provide Western with exclusive dealerships in any territory.
Although management believes that it is unlikely that Case will create
additional independent dealers in the states of Oregon, Washington, California
or Nevada, or will reinstitute its own proprietary dealerships in that
territory, there is no assurance that Case will not elect to do so in the
future. See "BUSINESS--The Distribution Business--Competition."
GOVERNMENT REGULATION AND ENVIRONMENTAL STANDARDS. Western operations are
subject to numerous rules and regulations at the federal, state and local levels
which are designed to protect the environment and to regulate the discharge of
materials into the environment. Based upon current laws and regulations, Western
believes that its policies, practices and procedures are properly designed to
prevent unreasonable risk of environmental damage and the resultant financial
liability to Western. No assurance can be given that future changes in such
laws, regulations, or interpretations thereof, changes in the nature of
Western's operations, or the effects of former occupants' past activities at the
various sites at which Western operates, will not have an adverse impact on the
Company's operations.
Western is subject to federal environmental standards because, in connection
with its operations, it handles and disposes of hazardous materials and
discharges sewer water in its equipment servicing operations. Western internal
staff is trained to keep appropriate records with respect to its handling of
hazardous waste, to establish appropriate on-site storage locations for
hazardous waste, and to select regulated carriers to transport and dispose of
hazardous waste. Local rules and regulations also exist to govern the discharge
of waste water into sewer systems. There is always the risk that such materials
might be mishandled, or that there might occur equipment or technology failures,
which could result in significant claims for personal injury, property damage
and clean-up or remediation. Any such claims could have a material adverse
effect on the Company.
RISK OF TERMINATION OF CASE DEALERSHIP. Under the terms of the standard
Case Corporation ("Case") construction equipment sales and services agreement
with its dealers, including Western, Case reserves the right to terminate
Western as an authorized Case dealer at any one or more of the nineteen retail
13
<PAGE>
locations, for any reason, upon 90 days notice. In the Agreement of Purchase and
Sale by and between Case and Western, dated December 4, 1992 (the "Case Purchase
Agreement"), Case acknowledged that its corporate business policy is not to
exercise such discretionary right of termination arbitrarily, and agreed that if
Western's operations at a particular location acquired from Case are profitable
and are terminated by Case for any reason other than "for cause" (defined as any
grounds which Case shall determine in the exercise of its reasonable business
judgment) it would not reinstate its own retail operations at such location
through December 1997. Should its Case dealerships at any one or more locations
be terminated by Case, the Company's business could be materially and adversely
affected. In the event of such termination, the Company's interest in the
Distribution Business segment would be significantly affected. Western would
suffer significant adverse effects to its liquidity position and cash reserves,
as all of Western's indebtedness to Case under its various secured financing
agreements would become immediately due and payable upon termination of one or
more of such dealerships. All of Western's indebtedness to its institutional
lenders could also be accelerated at that time. On November 30, 1996, the
principal amount of all indebtedness which could be so accelerated equaled
approximately $32,487,483. See "Existence of Liens on Substantially all Western
Assets; Potential Unavailability of Additional Financing" below. Furthermore, in
the event that Western accelerates growth of its Distribution Business,
dependence upon Case as its principal supplier, at least in the near term, will
increase.
EXISTENCE OF LIENS ON SUBSTANTIALLY ALL WESTERN ASSETS; POTENTIAL
UNAVAILABILITY OF ADDITIONAL FINANCING. Substantially all of Western's assets
have been pledged as collateral to secure its indebtedness to its institutional
lender under a revolving credit facility and to Case pursuant to secured asset
purchase installment notes and inventory floor planning agreements. In the event
Western fails to comply with its loan obligations to the institutional lender,
or one or more of its dealerships are terminated by Case (whether or not
resulting from a payment default), Western's indebtedness to one or both
entities could be declared immediately due and payable and, in certain cases,
Western's assets could be foreclosed upon. To the extent that all of Western's
assets continue to be pledged to secure outstanding indebtedness, such assets
will be unavailable to secure additional debt financings. Such unavailability
may adversely affect Western's ability to obtain loans to meet its future cash
requirements.
IMPORTANCE OF CASE CORPORATION TO THE COMPANY'S OPERATIONS. During the year
ended July 31, 1996 the Company's Western subsidiary accounted for $106,555,000,
or 100%, of the Company's total net sales from continuing operations for Fiscal
Year 1996. Substantially all of Western's revenues result from sales, leasing
and servicing of equipment and parts manufactured by Case. As a result, the
ability of Case to continue to manufacture products that Western can
successfully market and distribute, largely based on the quality and pricing of
such products, is of material importance to the Company. In the event that Case
should cease to manufacture equipment for the construction equipment industry,
fail to produce sufficient products to stock the Company's inventories
adequately, fail to maintain beneficial product price levels on its products or
to maintain its international reputation for quality in such industry, the
Company could be materially and adversely affected.
EFFECTS OF DOWNTURN IN GENERAL ECONOMIC CONDITIONS, CYCLICALITY AND
SEASONALITY. Demand for all of Western's construction equipment distributed
through its retail operations, is significantly affected by general domestic
economic conditions. All of such products and services are either capital goods
themselves, principally sold for inclusion in capital equipment or used for the
provision of construction services by others. Sales of capital goods tend to
fluctuate widely along with trends in overall economic activity in the national
economy. A general inflationary spiral or a continuing increase in prevailing
interest rates could adversely affect new construction, and consequently result
in a significant reduction in demand for the construction equipment sold by
Western. The construction equipment business has also historically been
cyclical, and is subject to periodic reductions in the levels of construction
(especially housing starts) and levels of total industry capacity and equipment
inventory, irrespective of the effects of inflation or increasing interest
rates. In addition, housing construction in the northwest slows down beginning
in November and continuing through to January. Accordingly, Western's operations
may be materially and
14
<PAGE>
adversely affected by any continuation or renewal of general downward economic
pressures, adverse cyclical trends, or seasonal factors.
DEPENDENCE ON KEY PERSONNEL. The Company's success in its Distribution
Business depends to a significant degree upon the continuing contributions of
its senior management and other key employees. The Company believes that its
future success will also depend in large part on its ability to attract and
retain highly-skilled sales and marketing personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will be
successful in attracting, integrating and retaining such personnel. Failure to
attract or retain existing and additional key personnel could have a material
adverse effect on the Company's Distribution Business, operating results or
financial condition.
RISK FACTORS RELATING TO THE COMPANY IN GENERAL
CONTROL BY PRINCIPAL STOCKHOLDER AND MANAGEMENT As of December 31, 1996,
Robert M. Rubin beneficially owned 18.9% of the Company's outstanding voting
capital stock, assuming the exercise of all outstanding options held by him.
Accordingly, he will have a significant influence on all matters on which
stockholders are entitled to vote, including the election of the Company's
directors. In addition, as of December 31, 1996, the Company's directors and
executive officers as a whole beneficially owned 2,944,088 shares or 33.6% of
the Company's outstanding voting capital stock, assuming the exercise of all
outstanding stock options held by them, but excluding Performance Options not
yet earned. Insofar as the holders of voting securities do not have cumulative
voting rights under the Company's Certificate of Incorporation, the current
executive officers and directors of the Company, acting together, are currently
in a position to materially influence the outcome of issues to be voted on by
the Company's stockholders.
CERTAIN PROVISIONS IN THE ARTICLES OF INCORPORATION AND BYLAWS; OBSTRUCTIONS
TO CHANGE IN CONTROL The Company's Articles of Incorporation and Bylaws contain
certain provisions that could have the effect of delaying or preventing a change
of control of the Company, which could limit stockholders' ability to dispose of
their Common Stock at a premium in such transactions. The Articles of
Incorporation authorizes the Board of Directors to issue one or more series of
preferred stock without stockholder approval, which stock could have voting and
conversion rights that adversely affect the voting power of the holders of
Common Stock. In addition, the Company is planning to submit to its shareholders
the following proposals to amend the Company's Articles of Incorporation and
By-Laws, which proposals are to be voted on at the Company's next Annual Meeting
of Stockholders, which has not yet been scheduled: (i) to include provisions
which permit stockholders to act by not less than unanimous written consent and
to delete provisions which permit stockholders to act by less than unanimous
written consent; (ii) to classify the Board of Directors into three classes;
(iii) to provide that directors may be removed only for cause and the approval
of the holders of at least 66.6% of the voting power of each class or series of
outstanding stock of the Company entitled to vote; and (iv) to provide that
special meetings of stockholders may not be called by stockholders holding less
than 66.66% of the voting power of each class or series of outstanding stock
entitled to vote. Such provisions in the Company's Articles of Incorporation and
By-Laws, if approved by the Company's stockholders, may render more difficult or
discourage an attempt to obtain control of the Company by means of a proxy
contest, tender offer, merger or otherwise, and thereby protect the continuity
of the Company's Management.
Moreover, the Company is subject to the anti-takeover provisions of Section
203 of the Delaware General Corporation Law. In general, this Section prohibits
a publicly held Delaware corporation from engaging in a "business combination"
(as defined) with an "interested stockholder" (as defined) for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
This section may render more difficult or discourage an attempt to obtain
control of the Company by means of a proxy contest, tender offer, merger or
otherwise, and thereby protect the continuity of the Company's management. In
addition, in certain cases, this section may prevent the Company's stockholders
from realizing a premium upon the sale of their shares in any tender offer or
merger opposed by the Company's management.
15
<PAGE>
VOLATILITY OF MARKET PRICES FOR COMPANY'S COMMON STOCK The market prices
for the Company's publicly traded Common Stock has been historically volatile
and there is limited liquidity in such market. Future announcements concerning
the Company's Technology Business or Distribution Business, or its competitors,
including operating results, government regulations, or foreign and other
competition, could have a significant impact on the market price of the Common
Stock in the future. Upon completion of this offering, 11,716,716, or
approximately 62.5% of the Company's issued and outstanding common shares
(assuming exercise of all Options, Warrants and Performance Options, and
issuance of the maximum number of shares issuable upon conversion of the Series
B-1 Preferred Stock and the Private Placement Preferred Shares) may be sold in
the public marketplace without restriction (other than contractual restrictions
affecting individual holders), including sales pursuant to Rule 144. Such sales,
should they occur, could have an adverse impact on the market price for the
Company's Common Stock and could also impair the Company's ability to raise
capital through an offering of its equity securities in the future.
BROAD DISCRETION IN APPLICATION OF PROCEEDS The Company will not receive
any proceeds from the sale of the Shares issuable upon exercise of the Public
Warrants, the Underwriters' Warrants, the Consultants' Warrants, the Private
Placement Warrants or the Options, or the 1997 Private Placement Shares issuable
upon conversion of the Private Placement Preferred Shares, nor will it receive
any proceeds from the sale of the Prologue Shares, the InterGlobe Shares, the
TSC Shares, the Arcadia Shares, the Finders Shares, the 1990 IPO Shares or
Ruksun Shares. However, as of the date of this Prospectus, the Company has
received proceeds in the amount of approximately $120,000 from the exercise of
certain 1990 IPO Warrants held by Selling Stockholders. Such proceeds were used
for general corporate and working capital purposes. The Company may receive
additional proceeds from the exercise of the Warrants and/or the Options. On
February 7, 1997, the last sales price reported on Nasdaq for a Share was $7.75
per Share. Although it is possible that the Public Warrants and the 1994
Underlying Warrants, exercisable at $7.50 per Share, the 1994 Underwriters'
Warrants, exercisable at $6.30 per Share, the 1992 Underlying Warrants,
exercisable at $5.75 per Share, the Private Placement Warrants, exercisable at
$8.58 per Share, and the Options, exercisable at prices ranging from $3.78 per
Share to $5.25 per Share, may be exercised insofar as the current market price
of the Common Stock exceeds all such exercise prices other than that of the
Private Placement Warrants, it is impossible to predict how many of the Warrants
and/or Options will be exercised and the magnitude of the proceeds, if any,
realizable therefrom. If the Company receives any proceeds in connection with
this Offering, all of such proceeds may be expended at the discretion of the
Company's management. As a result of the foregoing, any return on investment to
investors will be substantially dependent upon the discretion and judgment of
the Company's management with respect to the application and allocation of the
net proceeds of this Offering. See "USE OF PROCEEDS."
NO DIVIDENDS The Company has not paid any dividends to date on its Common
Stock and does not expect to declare or pay any dividends in the foreseeable
future. The Company intends to retain future earnings for investment in its
business. In addition, any credit agreements which in the future may be entered
into by the Company with institutional lenders will, in all likelihood, contain
restrictions on the payment of dividends by the Company. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors of the Company and will be dependent upon the Company's financial
condition, results of operations, capital requirements and such other factors as
the Board of Directors of the Company deems relevant. Investors should,
therefore, be aware that it is highly unlikely that any cash dividends will be
paid on the Company's Common Stock in the foreseeable future.
SUBSTANTIAL DILUTION FROM ISSUANCE OF SIGNIFICANT ADDITIONAL SHARES In
connection with its acquisition program, the Company has issued an aggregate of
1,805,000 shares of Common Stock, consisting of 1,500,000 shares to the former
stockholders of InterGlobe, TechStar and Arcadia, 25,000 shares in connection
with The Seattle OnLine acquisition, 100,000 Prologue Shares, 150,000 Finders
Shares and 30,000 Ruksun Shares to creditors of ConnectSoft. In addition, the
Company: (i) will be required to issue a minimum of 976,539 additional shares of
Company Common Stock and a maximum of 2,929,617 additional shares of Common
Stock, to former stockholders of ConnectSoft upon conversion of 976,539 shares
of
16
<PAGE>
Company Series B-1 Preferred Stock issued in the ConnectSoft acquisition, with
the conversion rate to Common Stock to be based upon achievement of certain
earnings and other criteria relating to ConnectSoft and eXodus, (ii) may be
required to issue up to 800,000 additional shares of Common Stock based upon
permitted exercise of Performance Options issued in connection with the
InterGlobe acquisition, (iii) may be required to issue up to 333,333 additional
shares of Common Stock based upon permitted exercise of Performance Options
issued in connection with the Seattle OnLine acquisition; (iv) may be required
to issue up to 640,000 additional shares of Common Stock based upon permitted
exercise of Performance Options issued in connection with the TechStar
acquisition; (v) may be required to issue up to 260,000 additional shares of
Common Stock based upon permitted exercise of Performance Options issued in
connection with the Arcadia acquisition; and (vi) may be required to issue up to
200,000 additional shares of Common Stock based upon exercise of additional
options granted to employees of the Company. Immediately prior to the July 31,
1996 effective date of the ConnectSoft acquisition, an aggregate of 5,695,749
shares of Company Common Stock were outstanding, and an aggregate of 8,105,589
shares were outstanding on a fully-diluted basis, after giving effect to the
exercise of all warrants and options then outstanding. In contrast, as a result
of the Company's acquisition program and the issuance of additional options and
convertible securities since July 31, 1996, as at February 10, 1997, an
aggregate of 7,795,128 shares of Company Common Stock were outstanding, and an
aggregate of 18,837,079 shares would be outstanding on a fully-diluted basis,
after giving effect to (i) the maximum permitted conversion of shares of Series
B-1 Preferred Stock issued in connection with the ConnectSoft acquisition, (ii)
the conversion of the 400,000 Private Placement Preferred Shares into an
aggregate of 1,165,501 1997 Private Placement Shares (subject to increase),
(iii) the exercise of all Warrants and Options, and (iv) the exercise of all
other outstanding options and warrants, including the Performance Options.
ADVERSE IMPACT OF ISSUANCE OF SIGNIFICANT NUMBER OF SHARES ELIGIBLE FOR
FUTURE SALE. No assurance can be given as to the effect, if any, that future
sales of Common Stock, or the availability of shares of Common Stock for future
sales, will have on the market price of the Common Stock from time to time.
Sales of substantial amounts of Common Stock (including shares issued upon the
exercise of the Company's warrants or stock options), or the possibility that
such sales could occur, could adversely affect the market price of the Common
Stock and could also impair the Company's ability to raise capital through an
offering of its equity securities in the future. Although all members of Company
management holding Options and holders of the InterGlobe Shares, TSC Shares,
Arcadia Shares and Finders Shares have agreed with the Company not to sell
certain of their securities for specified periods of time, without the prior
consent of the Company's Board of Directors, as at the date of this Prospectus,
an aggregate of 1,818,500 shares of Common Stock, including the Prologue Shares,
the InterGlobe Shares, the TSC Shares, the Arcadia Shares, the Finders Shares,
the Ruksun Shares and 1990 IPO Shares being offered hereunder by the Selling
Stockholders, and an aggregate of 3,858,834 additional shares of Common Stock
issuable upon conversion of the Private Placement Preferred Shares and upon
exercise of the Warrants and Options are (subject to certain contractual
restrictions with the Company) immediately transferable without restriction
under the Securities Act. See "PLAN OF DISTRIBUTION."
2,438,004 shares of Common Stock to be outstanding on completion of this
Offering (including shares underlying outstanding warrants and options, and
shares issuable upon conversion of convertible securities, but not including the
Performance Options, the distribution of which shares will not be registered)
are "restricted securities" (as that term is defined in Rule 144 promulgated
under the Securities Act) which may be publicly sold only if registered under
the Securities Act or if sold in accordance with an applicable exemption from
registration, such as Rule 144. In general, under Rule 144 as currently in
effect, subject to the satisfaction of certain other conditions, a person,
including an affiliate of the Company, who has beneficially owned restricted
securities for at least two years, is entitled to sell (together with any person
with whom such individual is required to aggregate sales), within any
three-month period, a number of shares that does not exceed the greater of 1% of
the total number of outstanding shares of the same class, or, if the Common
Stock is quoted on Nasdaq or a national securities exchange, the average weekly
trading volume during the four calendar weeks preceding the sale. A person who
has not been an affiliate of the
17
<PAGE>
Company for at least the immediately preceding three months, and who has
beneficially owned restricted securities for at least three years, is entitled
to sell such restricted shares under Rule 144 without regard to any of the
limitations described above. 2,710,544 of the 7,795,128 outstanding shares of
Common Stock owned by current stockholders on December 31, 1996 (not including
the 976,539 shares issuable upon conversion of the Series B Preferred Stock
issued to former ConnectSoft shareholders or the 1,165,501 1997 Private
Placement Shares issuable upon conversion of the 1997 Private Placement
Preferred Shares) are "restricted securities" which are currently eligible for
sale pursuant to Rule 144. See "PLAN OF DISTRIBUTION" and "SELLING
STOCKHOLDERS."
DILUTIVE EFFECT OF POSSIBLE ISSUANCE OF ADDITIONAL OPTIONS On April 25,
1996, the Board of Directors of the Company approved and adopted the 1996
Employee Stock Option Plan (the "1996 Plan"), which contains 2,000,000 shares of
Common Stock underlying stock options available for grant thereunder. In
December 1996, the Board of Directors amended the 1996 Plan to increase to
3,000,000 shares, the number of shares of Common Stock underlying options
available for grant thereunder. As of December 31, 1996, stock options to
purchase 650,000 shares of Common Stock at an exercise price of $3.78 have been
granted to the Company's principal stockholder, certain other members of senior
management and professional advisors, and stock options to acquire an additional
280,000 shares at exercise prices of between $5.125 and $5.25 have been granted
to two other executive officers of the Company under the 1996 Plan; of which an
aggregate of 833,333 shares of Common Stock underlying such options are included
in the Option Shares being offered hereby. Accordingly, such Option Shares, in
addition to all other shares of Common Stock owned by the Selling Stockholders,
and Shares issuable upon exercise of the Public Warrants and other Warrants and
options may enter the market, subject to certain contractual restrictions on
transfer pursuant to agreements with certain of the Selling Stockholders and the
Company. See "PLAN OF DISTRIBUTION."
The existence and exercise of all outstanding securities referred to above,
as well as the granting of additional employee plan options, and other rights to
acquire Company securities, may prove to be a hindrance to future financings by
the Company. The terms upon which the Company may be able to obtain additional
equity capital may be adversely affected since the holders of the outstanding
warrants and options can be expected to exercise them at a time when the Company
would, in all likelihood, be able to obtain any needed capital on terms more
favorable to the Company. Finally, the exercise of any such options or warrants
may further dilute the net tangible book value of the Common Stock. The Company
has agreed that, under certain circumstances, it will register the sale under
federal and state securities laws of certain of the shares of Common Stock
underlying such securities, including the shares subject to this Offering.
Exercise of these registration rights has, and could in the future involve
substantial expense to the Company and may adversely affect the terms upon which
the Company may obtain additional financing.
FOR ALL OF THE FOREGOING REASONS AND OTHERS SET FORTH IN THIS PROSPECTUS,
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. ANY PERSON
CONSIDERING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY SHOULD BE AWARE OF
THESE AND OTHER FACTORS SET FORTH IN THIS PROSPECTUS. THE SECURITIES OFFERED
HEREBY SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD A TOTAL LOSS OF THEIR
INVESTMENT IN THE COMPANY.
18
<PAGE>
USE OF PROCEEDS
As of the date of this Prospectus, the Company has received proceeds in the
aggregate amount of approximately $120,000 from the exercise of certain 1990 IPO
Warrants held by certain Selling Stockholders. Such proceeds were utilized for
working capital and general corporate purposes. In the event that all of the
remaining unexercised Warrants and Options are exercised, the Company will
receive maximum proceeds of $6,900,000 from the exercise of the Public Warrants,
$504,000 from the exercise of the 1994 Underwriter's Warrants, $600,000 from the
exercise of the 1994 Underlying Warrants, $575,000 from the exercise of the 1992
Underwriter's Warrants, $712,500 from the exercise of the Consultants' Warrants,
$3,000,000 from the exercise of the Private Placement Warrants and $4,173,750
from the exercise of the Options. Accordingly, the maximum net proceeds which
the Company would receive from such exercise, after deduction of expenses of
approximately $80,000 incurred in connection with this Offering, would be
approximately $16,400,000. Although the Company currently intends to utilize the
net proceeds of the Offering for working capital and general corporate purposes,
such net proceeds may be expended for other corporate purposes, including
additional acquisitions, at the discretion of the Company's management.
On February 7, 1997, the last sales price reported on Nasdaq for a Share was
$7.75 per Share. Although it is possible that the Public Warrants and the 1994
Underlying Warrants, exercisable at $7.50 per Share, the 1994 Underwriters'
Warrants, exercisable at $6.30 per Share, the 1992 Underlying Warrants,
exercisable at $5.75 per Share, the Consultants' Warrants, exercisable at prices
between $4.75 and $6.0125 per share, the Private Placement Warrants, exercisable
at $8.58 per Share, and the Options, exercisable at prices ranging from $3.78
per Share to $5.25 per Share, may be exercised insofar as the current market
price of the Common Stock exceeds all such exercise prices other than that for
the Private Placement Warrants, it is impossible to predict how many of the
Warrants and/or Options will be exercised and the amount of the proceeds, if
any, realizable therefrom.
If none of such Warrants or Options are exercised, the Company will not
receive any proceeds in connection with this Offering. The Company will not
receive any proceeds from the sale of the Shares issuable upon exercise of the
Warrants or the Options, or the 1997 Private Placement Shares issuable upon
conversion of the Private Placement Preferred Shares, nor will it receive any
proceeds from the sale of the Prologue Shares, the InterGlobe Shares, the TSC
Shares, the Arcadia Shares, the Finders Shares, 1997 Private Placement Shares,
the Ruksun Shares or the 1990 IP0 Shares to be sold by the Selling Stockholders.
19
<PAGE>
MARKET PRICE OF COMMON STOCK AND DIVIDENDS
The principal market for trading the Company's securities is the NASDAQ
National Market System. The following is a table that lists the high and low
selling prices for shares of the Company's Common Stock on the NASDAQ National
Market System during the periods identified:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal year 1995
First Quarter............................................................ $ 6.58 $ 3.50
Second Quarter........................................................... 5.42 4.00
Third Quarter............................................................ 5.00 3.75
Fourth Quarter........................................................... 5.92 4.25
Fiscal year 1996
First Quarter............................................................ 6.58 5.08
Second Quarter........................................................... 11.88 6.08
Third Quarter............................................................ 13.25 3.37
Fourth Quarter........................................................... 10.25 4.19
Fiscal year 1997
First Quarter............................................................ 10.875 5.625
Second Quarter........................................................... 11.375 7.563
</TABLE>
On February 7, 1997, the last sale price of the Common Stock was $7.75 as
reported on the NASDAQ National Market System, and the Company estimates that it
had over 1,000 beneficial holders of its common stock on that date.
DIVIDEND POLICY
In the foreseeable future, the Company intends to retain earnings to assist
in financing the expansion of its business. In the future, the payment of
dividends by the Company on its Common Stock will also depend on its financial
condition, results of operations and such other factors as the Board of
Directors of the Company may consider relevant. The Company does not currently
intend to pay dividends on its Common Stock.
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
October 31, 1996. Insofar as the Company will not receive the proceeds from the
sales of shares by Selling Stockholders, and it is not possible to predict the
number of Public Warrants, Underwriters' Warrants, Consultants' Warrants,
Private Placement Warrants and Options that will be exercised and the proceeds
therefrom received by the Company, there is no way to predict the amount of net
proceeds to be received by the Company as a result of this Offering. Therefore,
it is similarly not possible to give effect to the anticipated use of any
proceeds from this Offering which may be received by the Company. See "USE OF
PROCEEDS" and "BUSINESS--History and Recent Acquisition--Private Placement."
This table should be read in conjunction with the Company's Financial Statements
and the notes thereto which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
OCTOBER 31,
1996
---------------
<S> <C>
(UNAUDITED)
(IN THOUSANDS)
Borrowings under floor-financing lines....................................... $ 55,138
Short-term borrowings........................................................ 8,460
Current portion of capital lease obligations................................. 1,146
Long-term borrowings......................................................... 2,968
Capital lease obligations, net of current portion............................ 2,288
---------------
Total debt................................................................... 70,000
---------------
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
Common stock, $.01 par value; authorized 20,000,000 shares authorized;
7,166,382 shares issued and outstanding.................................... 72
Additional contributed capital............................................... 30,267
Deferred compensation........................................................ (753)
Retained Earnings............................................................ 11,466
---------------
Total shareholders' equity................................................... 31,062
---------------
Total capitalization....................................................... $ 101,062
---------------
---------------
</TABLE>
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<PAGE>
SELECTED FINANCIAL DATA
The selected historical financial data for the Company as of July 31, 1995
and July 31, 1996 and for each of the three fiscal years in the period ended
July 31, 1996 have been derived from the Company's audited consolidated
financial statements and notes thereto included in this Prospectus and should be
read in conjunction therewith. The selected historical financial data of the
Company as of and for the three month periods ended October 31, 1995 and October
31, 1996 have been derived from the Company's unaudited consolidated financial
statements and notes thereto included elsewhere in this Prospectus and should be
read in conjunction therewith. The selected historical financial data for the
Company as of July 31, 1992, July 31, 1993 and July 31, 1994 and for the fiscal
year ended July 31, 1993 have been derived from the Company's audited
consolidated financial statements and notes thereto not included in this
Prospectus. The unaudited historical information of the Company contained herein
includes, in the opinion of management of the Company, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information of the Company for the unaudited interim
periods. The operating results of the Company for the three months ended October
31, 1996 may not be indicative of the operating results for the full fiscal
year.
AMERICAN UNITED GLOBAL, INC.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA(1):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED JULY 31, OCTOBER 31,
-------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
1996(4) 1995 1994 1993(2) 1996 1995
---------- --------- --------- ---------- --------- ---------
Net sales................................. $ 106,555 $ 86,173 $ 67,370 $ 30,386 $ 31,879 $ 23,153
Income (loss) from continuing
operations.............................. (9,610) 1,164 1,024 417 (1,191) 196
Net (loss) income......................... (1,835 (3) 2,268 2,287 1,575 (1,191) 725
Per share:
Income (loss) from continuing
operations............................ $ (1.66) $ 0.20 $ 0.18 $ 0.06 $ (0.18) $ 0.03
Net income (loss)....................... (0.32) 0.40 0.43 0.34 (0.18) $ 0.12
BALANCE SHEET DATA:
</TABLE>
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31
1996 1995 1994 1993 1992 1996
---------- --------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total assets................................ $ 119,055 $ 76,829 $ 62,529 $ 58,320 $ 19,365 $ 125,214
Total long-term debt........................ 5,051 47 3,445 4,512 1,526 5,256
</TABLE>
- ------------------------
(1) No amounts are presented for the year ended July 31, 1992 as the Company
consisted solely of the manufacturing business which has been reclassified
as discontinued operations.
(2) Represents nine months of results of Western following its acquisition in
November 1992.
(3) Includes income from discontinued operations and the gain on the sale of the
manufacturing business of $7.8 million, net of tax.
(4) Includes results of operations for ConnectSoft, Inc. for the day ended July
31, 1996.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 CERTAIN RISKS AND UNCERTAINTIES, DETAILED FROM TIME TO TIME IN THE
COMPANY'S VARIOUS COMMISSION FILINGS. NO ASSURANCE CAN BE GIVEN THAT ANY SUCH
MATTERS WILL BE REALIZED.
GENERAL OVERVIEW
Management of the Company carefully considered, both prior and immediately
subsequent to consummation of the January 1996 sale of the Company's
manufacturing business to Hutchinson Corporation in the Hutchinson Transaction,
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 through
the acquisition of proprietary technologies, unique niche software products and
selective expertise marketable on a national scale.
On August 8, 1996, through a merger with an acquisition subsidiary, the
Company acquired ConnectSoft, Inc. ("ConnectSoft"). The acquisition was
accounted for as of July 31, 1996 as effective control of ConnectSoft was
transferred under a written agreement on that date and July 31, 1996 was the
date of the ConnectSoft shareholders' meeting at which the merger was approved.
ConnectSoft provides electronic mail communications management software products
and through its former eXodus division, which has been incorporated by the
Company as a direct, 80%-owned subsidiary of the Company known as eXodus
Technologies, Inc., provides an application remoting software protocol (known as
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.
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 engages in providing a local Internet service in the Pacific
Northwest.
Effective December 11, 1996, the Company acquired TechStar Communications,
Inc., formerly, Broadcast Tower Sites, Inc. ("TechStar"), a company located in
Maryland that provides site acquisition, architectural and engineering
consulting services to the wireless telecommunications industry, and entered
into an agreement to acquire Arcadia Consulting Services, Inc., a recently
formed company which also provides marketing and consulting services to the
wireless telecommunications industry.
For a description of the terms of the acquisitions of ConnectSoft,
InterGlobe, Seattle OnLine, TechStar and Arcadia, see "BUSINESS--History and
Recent Acquisitions."
As a result of its acquisitions of ConnectSoft, InterGlobe, Seattle OnLine
and TechStar and the development of the eXodus Application Remoting Software,
the Company believes that it is positioned to participate in the anticipated
growth in the computer software, networking, Internet and telecommunications
industries.
23
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31,
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
% OF % OF
1996 REVENUES 1995 REVENUES
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Net sales............................................................. $ 31,879 100% $ 23,153 100%
Cost of goods sold.................................................... $ 27,637 86.7% $ 20,449 88.3%
Selling, general and administrative expenses.......................... $ 4,227 13.3% $ 1,820 7.9%
Research and development expenses..................................... $ 945 3.0% -- 0%
Interest expense, net................................................. $ 413 1.3% $ 240 1.0%
Income (loss) from continuing operations before taxes and minority
interest............................................................ $ (1,343) (4.2)% $ 742 3.2%
(Benefit) provision for income taxes.................................. $ (376) (1.2 )% $ 320 1.4%
Income from discontinued business operations.......................... -- 0% $ 529 2.3%
Net (loss) income..................................................... $ (1,191) (3.7 )% $ 725 3.1%
</TABLE>
Western's revenues for the three month period ended October 31, 1996
increased $8,060,000 or approximately 35% over the three month period ended
October 31, 1995, due mainly to the contribution of the Sacramento and Stockton,
California and Elko, Nevada stores which accounted for $6,008,000 of this
increase in sales. Same store revenues increased $2,052,000 or 8.9% for the
three month period ended October 31, 1996, as compared to the prior year period.
The increase in same store revenues resulted from higher sales across all
departments. ConnectSoft, Interglobe Networks, Inc., eXodus Technologies and
Seattle OnLine (the "Technology Group") reported revenue of $666,000 during the
three months ended October 31, 1996.
Western's gross profit margin of 12.1% for the three month period ended
October 31, 1996 was up from the prior year comparative period margin of 11.7%.
The increase in gross profit margins was a result of Western's ability to
capitalize on the cash discounts offered by Case on the purchase of new
equipment. Also, while sales were up across all departments for the quarter
ended October 31, 1996, higher-margin parts and service sales made up a higher
percentage of sales than in the prior year bringing the consolidated margin up.
These gross margin improvements offset the impact of a gross margin sharing
provision of the purchase agreement with GCS, Inc., which called for the split
of gross margin between GCS and Western for backlogged sales made prior to the
closing of this acquisition in June 1996. Now that nearly all of the backlogged
GCS sales have been delivered, Western will retain the full gross margin on
future sales of GCS-related equipment.
Selling, general and administrative expenses totaled $4,227,000 or 13.3% of
sales for the three month period ended October 31, 1996, compared to $1,820,000
or 7.9% of sales for the comparable 1995 period. The increase in selling,
general and administrative expenses in the three month period ended October 31,
1996 of $2,407,000 is attributable to an increase at Western of $532,000
incurred to support the increase in sales as well as the opening of new outlets.
The $1,875,000 balance of the increase is attributable to the acquired
Technology Group.
During the three month period ended October 31, 1996 the Technology Group
continued development activities related to the NTerprise software product and
to a lesser extent its e-mail software products for the retail and OEM market.
Research and development expense for the three months ended October 31, 1996
amounted to $945,000.
Net interest expense for the three months ended October 31, 1996 of $413,000
was up significantly from the $240,000 in the prior year comparative period.
This increase is the result of a build up in
24
<PAGE>
inventory levels to support Western's higher equipment sales level including a
significant investment in equipment dedicated to the rental fleet. In addition,
Western also experienced an imbalance in its equipment inventory mix when the
paper pulp market in the Pacific Northwest, which utilizes Western's log
loaders, experienced a tightening this past year.
The effective tax rate for the three months ended October 31, 1996 was a
benefit of 28% which was less than the prior year provision rate at 38%. In the
current period, state income taxes attributable to the profitable distribution
business have offset the federal tax benefit of the technology group losses. In
the prior year state taxes were attributable to all operations. The Company
anticipates the effective tax rate will not vary significantly from statutory
rates for the foreseeable future.
Although Western's sales increased, the increase in Western's operating and
interest expenses offset Western's sales increase such that Western's net income
for the quarter ended October 31, 1996 was approximately the same as the prior
year.
FISCAL YEAR 1996, AS COMPARED WITH FISCAL YEAR 1995
YEARS ENDED JULY 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
% OF % OF
1996 REVENUES 1995 REVENUES
---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Net sales............................................................ $ 106,555 100% $ 86,173 100%
Cost of goods sold................................................... $ 93,906 88.1% $ 76,145 88.4%
Selling, general and administrative expenses......................... $ 7,864 7.4% $ 6,228 7.2%
Research and development expenses.................................... $ 10,295 9.7% -- 0%
Interest expense, net................................................ $ 1,137 1.1% $ 1,421 1.6%
Income (loss) from continuing operations before taxes and minority
interest........................................................... $ (8,318) (7.8)% $ 1,993 2.3%
Provision for income taxes........................................... $ 890 0.8 % $ 711 0.8%
Income from discontinued business operations......................... $ 7,775 7.3 % $ 1,104 1.3%
Net (loss) income.................................................... $ (1,835) (1.7) % $ 2,268 2.6%
</TABLE>
Continuing operations for fiscal 1996 and 1995 consist of twelve months of
the Company's Distribution Group activities comprising Western and one day of
ConnectSoft operations.
Revenues for fiscal 1996 increased by approximately $20,382,000, or 23.7%
over fiscal 1995. All such revenues are attributable to the Western subsidiary,
which reported net sales for fiscal 1996 of $106,555,000, as compared to
$86,173,000 for fiscal 1995. Same store revenues increased 13.8% over the prior
year results reflecting a continuation of generally good economic conditions,
increased market acceptance of Western's products, increased housing starts, as
well as revenues realized from the addition of numerous new parts and equipment
lines to Western's product offerings.
Cost of goods sold as a percentage of Western's sales was 88.1% during
fiscal 1996 which is consistent with the prior year results. Western's
management has placed a high priority on improving overall gross margins by
working to increase higher margin service and parts revenues and by obtaining
higher prices for new equipment.
Selling, general and administrative expenses totaled $7,864,000 or 7.4% of
sales for fiscal 1996 compared to $6,228,000 or 7.2% of sales for fiscal 1995.
The increase in selling, general and administrative expenses as a percent of
sales resulted mainly from administrative costs associated with Western's
acquisition and integration of the Sacramento Case operations and GCS
operations. Stock option compensation expense of $1,671,000 relates to options
granted to certain key employees under the Company's 1996 Stock Option Plan.
25
<PAGE>
Research and development expense for fiscal 1996 amounted to $10,295,000 or
9.7% of consolidated revenue. Included in this amount is $10,033,000
representing an allocation of the cost of acquiring ConnectSoft to in process
technology and software development costs which were charged to operations. An
additional $2,484,000 of research and development costs were capitalized due to
technological feasability of the products. In August 1996, the assets and
liabilities relating to the NTERPRISE-TM- Application Remoting Software product
development and business were sold to eXodus, an 80%-owned subsidiary of the
Company. The remaining 20% equity interest in eXodus is owned by key employees
of such subsidiary.
The $284,000 decrease in net interest expense for fiscal 1996 is primarily
attributable to an increasing balance of inventory purchased under Western's
various floor plan lines of credit to stock the new outlets, an increase of
inventory dedicated to rental from approximately $5,000,000 in fiscal 1995 to
more than $12,000,000 in fiscal 1996, as well as changes in floor plan terms by
Case. Effective January 1, 1996, Case changed factory to dealer terms in a
program they have named "Focus 2000". While interest free floor plan terms for
Case's most expensive units--wheel loaders and excavators--remains at six to
eight months, the terms on Case's smaller units were shortened from six months
to four months interest free. For the first time, Case is also granting a 4%
cash discount if the dealer pays for the machine outright rather than utilizing
the interest-free floor planning. Western was able to take advantage of the cash
discounts for some of its purchases in fiscal 1996, which had an immediate
effect on interest expense. The interest free floor planning period was not
utilized, however. Nevertheless, management believes that the positive impact of
the discounted cost as these units are sold will more than offset the increased
interest expense. These increases in expense are offset by increased interest
income from investments in cash and marketable debt securities which amounted to
$754,000 during fiscal 1996, an increase of $583,000 over fiscal 1995, resulting
from a significant increase in investable funds from the proceeds of the sale of
the manufacturing businesses in January 1996.
The provision for income taxes from continuing operations for fiscal 1996 of
$890,000 increased $179,000 from fiscal 1995. The increase in the amount and as
a percentage of pre tax income from continuing operations resulted primarily
from valuation allowances provided for expenses related to purchased software
development costs.
The Company recognized a gain of $12,502,000 ($7,460,000, net of applicable
taxes) in connection with the sale of its manufacturing business to Hutchinson
which was consummated in January 1996. Income from continuing operations of the
Manufacturing Business for the period of August 1, 1995 to January 19, 1996, the
date of sale, amounted to $315,000 as compared to $1,104,000 for the full year
for fiscal 1995.
FISCAL YEAR 1995, AS COMPARED WITH FISCAL YEAR 1994
YEARS ENDED JULY 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
% OF % OF
1995 REVENUES 1994 REVENUES
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Net sales............................................................. $ 86,173 100% $ 67,370 100%
Cost of goods sold.................................................... $ 76,145 88.4% $ 59,138 87.8%
Selling, general and administrative expenses.......................... $ 6,228 7.2% $ 5,696 8.5%
Interest expense...................................................... $ 1,421 1.6% $ 830 1.2%
Income from continuing operations before taxes........................ $ 1,993 2.3% $ 1,706 2.5%
Provision for income taxes............................................ $ 711 0.8% $ 682 1.0%
Income from discontinued operations................................... $ 1,104 1.3% $ 1,095 1.6%
Net income............................................................ $ 2,268 2.6% $ 2,287 3.3%
</TABLE>
26
<PAGE>
Continuing operations for fiscal 1995 and 1994 consist primarily of the
Company's Distribution Group activities comprising Western.
The Company reported net sales for fiscal 1995 of $86,173,000 which is an
increase of $18,803,000 or 28% over net sales of $67,370,000 for fiscal 1994.
Included in the fiscal 1995 amount are revenues of approximately $15,000,000
related to Western's acquisition of the Sparks, Nevada and Hayward, California
stores and the opening of the Santa Rosa, California store. Same store revenues
increased 5.6% over the prior year results reflecting a continuation of
generally good economic conditions, increased housing starts, as well as
revenues realized from the addition of numerous new parts and equipment lines to
Western's product offerings.
Cost of Goods sold as a percentage of sales was 88.4% during fiscal 1995
which is consistent with the prior year results. Management has placed a high
priority on improving overall gross margins by increasing higher margin service
and parts revenues and by obtaining higher prices for new equipment.
Selling, general and administrative expenses were $6,228,000 or 7.2% of
sales for fiscal 1995 compared to $5,696,000 or 8.5% of sales for fiscal 1994.
The decrease in selling, general and administrative expenses as a percent of
sales primarily reflects the spreading of Western's fixed overhead costs over an
increased revenue base which was partially offset by $108,000 in certain
one-time administrative costs associated with the integration of the Sparks,
Nevada and Hayward, California outlets.
The $591,000 increase in net interest expense in fiscal 1995, over than
incurred in fiscal 1994, is primarily attributable to increased borrowings under
Western's floor plan lines of credit with Case and other lenders, rising
interest rates in general, and to financing costs relating to Western's initial
public offering.
The provision for income taxes from continuing operations for fiscal 1995 of
$711,000 increased by $29,000 from fiscal 1994 primarily due to increased
pre-tax income and remained relatively consistent as a percentage of pre-tax
income.
Income from the discontinued operations of the manufacturing businesses
amounted to $1,104,000 for fiscal 1995 compared to $1,762,000 for fiscal 1994.
Additionally, during fiscal 1994 the Company incurred a loss of $365,000, net of
tax, on disposition of its Aerodynamic Engineering subsidiary and operating
losses for that subsidiary of $302,000 prior to its disposition.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
As a result of the Hutchinson transaction the Company significantly
increased its liquidity and capital resources. During the year ended July 31,
1996, cash and cash equivalents increased by $12,942,000 primarily due to the
Hutchinson Transaction. The Company had $3,771,000 cash flow from operations
during the period reflecting an increase of $7,273,000 over the prior year.
Purchases of fixed assets during the year ended July 31, 1996 were related
mainly to the opening of new distribution outlets by Western. The Company's cash
and cash equivalents of $17,086,000 as of July 31, 1996 and available credit
facilities are considered sufficient to support current or higher levels of
operations for at least the next twelve months.
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 has been granted a $14,000,000 secured demand
line of credit from its commercial bank. This line is uncommitted and secured by
the Company's portfolio of cash and marketable securities held by the bank. On
December 31, 1996 approximately $13,800,000 was outstanding under such line of
credit, the principal of which bears interest at the bank's 90 day LIBOR rate
(currently 5.59%) plus 1%. Substantially all of the advances under the line of
credit were used by the Company to finance the working capital and software
development
27
<PAGE>
requirements of its ConnectSoft and eXodus subsidiaries. During the eight months
from May through December 1996, such subsidiaries represented a negative cash
flow to the Company of approximately $9,000,000, or an average of $1,125,000 per
month.
In May 1996 approximately 427,000 options granted under the Company's
employee stock option plans were exercised and $1,776,000 of net proceeds were
received by the Company. The Company has used these funds to reduce its short
term bank borrowings.
Primarily as a result of payments made in connection with its acquisition
program commenced in May 1996 and to support the capital requirements of
ConnectSoft and eXodus, the Company has recently sought to recoup its liquid
capital resources. Accordingly, on January 10, 1997, the Company consummated the
1997 Private Placement of 400,000 Private Placement Preferred Shares to 11
unaffiliated purchasers. See "BUSINESS--Private Placement" and "SELLING
STOCKHOLDERS." The Company realized net proceeds of approximately $9,200,000
from the sale of the Private Placement Preferred Shares. The Private Placement
Preferred Shares provide for a liquidation preference of $25.00 per share, are
not subject to redemption by either the holder or the Company, and provide for
the payment of a cumulative quarterly dividend of 7% per annum (payable on the
last business day of each March, June, September and December), which dividend
may be paid, at the option of the Company in cash or by additional Private
Placement Preferred Shares. On January 8, 2000 (approximately three years after
issuance) all Private Placement Preferred Shares not converted into 1997 Private
Placement Shares shall be automatically converted into such 1997 Private
Placement Shares at the conversion formula price then in effect.
The Private Placement Preferred Shares are convertible by the holders into
an aggregate of 1,165,501 1997 Private Placement Shares, subject to adjustment,
at various times during the three-year period ending January 8, 2000 at prices
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 Private Placement
Preferred Shares are convertible on a cumulative basis in 33 1/3% increments in
1997, commencing February 8, March 9, and April 8, respectively. The Company has
the right to limit the holders' right of conversion in certain circumstances
prior to January 8, 2000 after which all of the Private Placement Preferred
Shares not previously converted will be converted into 1997 Private Placement
Shares at the above formula price then in effect. The 1,165,501 1997 Private
Placement Shares being registered in this Offering are 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 1997 Private Placement Shares based on the above formula.
In addition to the Private Placement Preferred Shares, the investors in the
1997 Private Placement purchased Private Placement Warrants to purchase an
aggregate of 350,000 Shares at an exercise price of $8.58 per share, the Closing
Date Average Price. The Private Placement Warrants expire January 8, 2002 to the
extent unexercised.
In the event of an initial public offering of common stock of the Company's
eXodus subsidiary, investors in the 1997 Private Placement shall have the right
to purchase, for $.01 per warrant, five-year warrants to purchase up to 350,000
shares of eXodus common stock (the "eXodus Common Stock") at an exercise price
equal to the initial price per share that eXodus Common Stock is offered to the
public (the "eXodus Warrants"). The eXodus Warrants shall contain terms which
are substantially identical to the Private Placement Warrants. The shares of
eXodus Common Stock issuable upon exercise of the eXodus
28
<PAGE>
Warrants shall be subject to customary "piggyback" registration rights and one
demand registration right following completion of a proposed initial public
offering of eXodus securities, but shall be subject to restrictions on sale
pursuant to customary "lock-up" agreements (but in no event for more than 180
days) with the representative of the underwriters of the eXodus initial public
offering.
Under the terms of the 1997 Private Placement, the Company was required to
file a registration statement (the "Registration Statement") with the Securities
and Exchange Commission (the "Commission") with respect to the distribution of
the Shares of Company Common Stock issuable upon exercise of the Private
Placement Warrants, as well as the 1997 Private Placement Shares to be issued
upon conversion of the Private Placement Preferred Shares. In the event that the
effective date of the Registration Statement (the "Effective Date") is more than
120 days subsequent to closing, the Company shall pay liquidated damages in cash
to the holders of the Private Placement Preferred Shares equal to $5,000 per day
until the Registration Statement is declared effective. Moreover, if the
Effective Date is more than 150 days subsequent to such closing, the Company
shall pay liquidated damages in cash to the holders of the Private Placement
Preferred Shares equal to $10,000 per day or (a maximum of $300,000 per month)
until the Registration Statement is declared effective.
WESTERN
Western's primary source of internal liquidity has been its profitable
operations since its inception in November 1992. As more fully described below,
Western's primary sources of external liquidity were contributions to Western by
the Company, and equipment inventory floor plan financing arrangements provided
to Western by Case Credit Corporation, Seattle-First National Bank ("SeaFirst
Bank"), Associates Commercial Corporation ("Associates") and Orix Commercial
Credit ("Orix"). In addition, in fiscal 1995, WPE, the immediate parent of
Western, completed an initial public offering of 1,495,000 shares of common
stock at $6.50 per share, generating net proceeds of $7,801,000. The net
proceeds of the offering 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 its inventory floor plan finance arrangements Case provides Western
with interest free credit terms on new equipment purchases for four to six
months, with the exception of the Model 1818 skid steer loader for which the
interest free credit terms are three months and the Model 90B Series special
application excavator for which the interest free credit terms are eight months,
after which interest commences to accrue monthly at the rate per annum equal to
2% over the prime rate of interest. At September 30, 1996, Western was indebted
to Case in the aggregate amount of approximately $36,912,024 under such
inventory floor plan finance arrangements.
In order to take advantage of a 4% cash discount offered by Case under its
new Focus 2000 program, to provide financing beyond the term of applicable Case
floor plan financing or as alternatives to Case floor plan financing
arrangements for inventory purchased other than from Case, Western has entered
into separate secured floor planning lines of credit with SeaFirst, Associates,
Orix, and the CIT Group.
The Associates line of credit was entered into in August 1993, and allows
Western to borrow up to $2,250,000 to finance the purchase of new equipment, to
finance up to $2,000,000 of installment sales of equipment to customers approved
by Associates (without recourse to Western), and to finance up to $1,000,000 of
installments sales of equipment to other customers (with recourse to Western in
the event of default). There are no material obligations outstanding under the
recourse line of credit. On September 30, 1996, approximately $906,898 was
outstanding under these lines, the principal of which bears interest at 2% over
the prime rate announced by the U.S. National Bank of Oregon.
The SeaFirst line of credit was entered into in June 1994 and provides a
$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 September 30, 1996,
approximately $15,225,944 was outstanding under such line of credit, the
principal of
29
<PAGE>
which bears interest at .25% over Seattle-First National Bank's prime rate and
is subject to annual review and renewal on June 1, 1997.
Western also buys a portion of its equipment from Hamm Compactors ("Hamm")
under a floor plan financing agreement with Orix. The Orix floor plan agreement
calls for repayment of principal and interest over periods ranging from thirty
to forty-eight months, with a balloon payment for the remaining outstanding
balance. At September 30, 1996, the aggregate indebtedness owed to Orix was
$820,190. The Orix notes bear interest at the highest prevailing prime rates of
certain major United States banks, plus 2% per annum. Amounts owing under these
floor plan financing agreements are secured by inventory purchases financed by
these lenders, as well as all proceeds from their sale or rental, including
accounts receivable thereto.
On October 19, 1995, Western entered into a purchase and sale agreement with
an unrelated party for the Auburn, Washington facility subject to the execution
of a lease. Under the terms of this agreement, which closed on December 1, 1995,
Western sold the property and is leasing it back from the purchaser. In
accordance with Statement of Financial Accounting Standards No. 13 (SFAS 13),
the building portion of the lease is being accounted for as a capital lease
while the land portion of the lease qualifies for treatment as an operating
lease. See Note 7 to the accompanying consolidated financial statements for more
information. The proceeds from the Auburn facility sale leaseback transaction
were sufficient to retire the related note payable to Case.
Effective February 29, 1996, Western acquired substantially all of the
operating assets used by Case Corporation ("Case") in connection with its
business of servicing and distributing Case construction equipment at a facility
located in Sacramento, California (the "Sacramento Operation"). The acquisition
was consummated for approximately $630,000 in cash, $1,590,000 in installment
notes payable to Case and the assumption of $3,965,000 in inventory floor plan
debt with Case and its affiliates. The acquisition is being accounted for as a
purchase.
The real property and improvements used in connection with the Sacramento
Operation, and upon which the Sacramento Operation is located, were sold by Case
for $1,500,000 to the McLain-Rubin Realty Company, LLC ("MRR"), a Delaware
limited liability company the owners of which are Messrs. C. Dean McLain, a
director of the Company and the President and Chief Executive Officer of
Western, and Robert M. Rubin, the Chairman and Chief Executive Officer of the
Company and a director of 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 the principal and interest payments
over a seven year term using a fifteen year amortization period. The note cannot
be prepaid during the first two years of its term.
On June 11, 1996, Western acquired the operating assets of GCS, Inc.
("GCS"), a California-based, closely held distributor of heavy equipment
primarily marketed to municipal and state government agencies responsible for
street and highway maintenance. Western will operate the GCS business from an
existing location in Fullerton, California and from Western's existing facility
in Sacramento, California. The Purchase price for the GCS assets was $1,655,000.
This transaction is being accounted for as a purchase.
30
<PAGE>
ACQUISITION PROGRAM COMMITMENTS
Effective July 31, 1996 the Company acquired ConnectSoft, a business
involved with providing computer software products and services. Accordingly,
the Company's consolidated operating results for fiscal 1996 include significant
software development expenses, including $10,033,000 related to purchased
in-process software development. Since May 1, 1996, the Company has provided
working capital for eXodus (a former ConnectSoft division), acquired InterGlobe,
Seattle OnLine and Tech Star, and will acquire Arcadia upon completion of this
offering.
The Company's acquisition program has resulted in the issuance of
significant additional shares of Company Common Stock, and the potential
issuance of significant additional shares of Company Common Stock under options
and warrants granted to former owners of acquired corporations, which are
exercisable based upon achievement of future earnings by such acquired
businesses or other specified indicia of achieved value (collectively, the
"Performance Options"). As a result, at the date of this Prospectus, the Company
will have issued an aggregate of 1,805,000 shares of Common Stock in connection
with such acquisitions and may issue as many as 4,962,950 additional shares of
Common Stock in connection with such acquisitions, including (i) the conversion
of the Company's Series B-1 Preferred Stock issued in connection with the
ConnectSoft acquisition into a minimum of 976,539 shares of Company Common Stock
and a maximum of 2,929,617 shares of Company Common Stock, (ii) the issuance of
800,000 shares of Common Stock and the potential issuance of an additional
800,000 shares upon exercise of Performance Options in connection with the
InterGlobe acquisition, (iii) the issuance of 25,000 shares of Common Stock and
the potential issuance of an additional 333,333 shares upon exercise of certain
Performance Options granted in connection with the Seattle OnLine acquisition,
(iv) the issuance of 507,246 shares of Common Stock and the potential issuance
of an additional 640,000 shares upon exercise of Performance Options granted in
connection with the TechStar acquisition, and (v) the issuance of 192,754 shares
of Common Stock and the potential issuance of an additional 260,000 shares upon
exercise of Performance Options to be granted upon consummation of the Arcadia
acquisition on the date of this Prospectus. See "BUSINESS--History and Recent
Acquisitions."
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BUSINESS
GENERAL
The Company, through its operating subsidiaries, is engaged in two distinct
businesses; the technology business and the distribution business.
The Company's technology business provides computer software and networking
as well as telecommunications products and services. Such products and services
currently consist of:
- a proprietary WINDOWS-TM- application server software, marketed as
NTERPRISE-TM-, which projects the user interface of a WINDOWS-TM-
application program from the application server across the network to one
or more end-user desktop computers or terminals (the "Application Remoting
Software"). NTERPRISE-TM- allows users to run application software
programs designed for the Microsoft-TM- WINDOWS NT-TM- operating system on
existing UNIX workstations, X-terminals and other X-windows compatible
devices. The NTERPRISE-TM- Application Remoting Software is sold as a
multi-user operating system to business and commercial end-users and OEM's
in conjunction with related software technology which enables the
Microsoft Windows NT Server-TM- operating system to be simultaneously used
by multiple end-users (the "Multi-user Software");
- an electronic mail communications management software product, marketed as
EMAIL CONNECTION-Registered Trademark-, and an e-mail product and Internet
browser designed for children, marketed as EMAIL FOR KIDS-TM- and KIDS
WEB-TM-;
- providing network engineering, design and consultation services; network
security; remote network management and monitoring as well as Intranet
development;
- providing a regional Internet/Intranet telecommunication service in the
form of high bandwidth Internet connectivity and hosting for businesses in
the Pacific Northwest;
- providing site acquisition, zoning, architectural and engineering
consulting services to the wireless communications industry; and
- the development of software designed to allow broadcast television data to
be received and viewed on a personal computer, and a digital
communications technology designed to allow the remote access to e-mail
messages, voice messages and telecopies from personal computers and other
platforms.
The Company's distribution business consists of the sale, service and
leasing, as a retail distributor, of light and medium-sized construction
equipment, parts and other products manufactured principally by Case
Corporation. Such distribution business operates through Western, a 56.6%-owned
subsidiary of the Company. Western principally operates as an authorized Case
dealer through 19 retail distribution facilities located in the States of
Washington, Oregon, California and Nevada. The construction equipment
distributed by the Company is used in the construction of residential and office
buildings, roads, levees, dams, underground power projects, forestry projects,
municipal construction and other construction projects.
Prior to January 1996, the Company also operated a manufacturing business
through two operating subsidiaries: (i) the National O-Ring division of AUP,
which manufactured and distributed standard-size, low cost synthetic rubber
o-ring sealing devices for use in automotive and industrial applications and
(ii) the Stillman Seal division of AUS, which specialized in the design,
manufacture and distribution of rubber-to-metal bonded sealing devices for use
in commercial, aerospace, defense and communications industry applications. On
January 19, 1996, the Company sold all of the operating assets of its
manufacturing business.
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HISTORY AND RECENT ACQUISITIONS
The Company was initially organized as a New York corporation on June 22,
1988 under the name Alrom Corp., and completed an initial public offering of
securities in August 1990. Effective on May 21, 1991, the Company acquired AUS
and AUP which operated the manufacturing business. Prior to such acquisition,
the Company had no operations. The Company effected a statutory merger in
December 1991, pursuant to which the Company was reincorporated in the State of
Delaware under the name American United Global, Inc.
Effective June 1, 1992, through a wholly-owned subsidiary, the Company
acquired substantially all of the assets of Aerodynamic Engineering, Inc.
("AEI"), a company engaged in the business of precision machining metal parts
for the aerospace and defense industries, and certain assets owned and used by
AEI. The Company sold the assets of its AEI subsidiary on April 29, 1994.
Effective November 1, 1992, the Company's newly-formed Western subsidiary
completed the acquisition of certain assets of Case used in connection with
seven separate Case retail construction equipment distribution operations
located in the states of Washington and Oregon.
Effective September 10, 1994, Western purchased from Case two retail
construction equipment distribution outlets located in Sparks, Nevada and
Fremont, California. In December 1994, Western relocated the Fremont outlet to
Hayward, California. Under the terms of the 1994 Case transaction, Western was
obligated to open two additional distribution outlets in Northern California. In
March 1995, Western opened a retail store in Santa Rosa, California. In August
1995, Western opened a retail store in Salinas, California.
In June 1995, Western completed an initial public offering of 1,495,000
shares of its common stock, which reduced the Company's interest in Western to
56.6%.
In January 1996, the Company and each of its AUG, AUP and AUS subsidiaries,
sold all of the assets of the National O-Ring and Stillman Seal businesses
comprising the manufacturing business of the Company to, and substantially all
of the liabilities associated with operation of such manufacturing business were
assumed by, subsidiaries of Hutchinson Corporation ("Hutchinson"). A subsidiary
of Total America, Inc., a New York Stock Exchange listed company ("Total"),
Hutchinson produces a variety of rubber related products for three market
sectors: automotive, consumer and industrial.
The purchase price paid by Hutchinson for the manufacturing business was
$24,500,000, $20,825,000 of which was paid in cash and the aggregate $3,675,000
balance was paid by delivery of two 24-month non-interest bearing promissory
notes. The Hutchinson notes, which have been discounted for financial statement
presentation by $638,000, are guaranteed by Total.
Management of the Company carefully considered, both prior and immediately
subsequent to consummation of the Hutchinson transaction, the best utilization
of the cash resources that would result therefrom. The Board of Directors
determined that stockholder value could best be enhanced by directing the
Company's future in the computing and telecommunications industries through the
acquisition of proprietary technologies, unique niche software products and
selective expertise that could be marketed on a national scale.
As a result, the Company embarked upon an acquisition program and, between
May and December 1996, acquired four companies and contracted to acquire a
fifth. The terms of such acquisitions are summarized as follows:
CONNECTSOFT AND EXODUS
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, which provides a variety of computer
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software products and services. The acquisition of ConnectSoft was not closed
until August 8, 1996. However, utilizing the purchase method of accounting, the
operating results of ConnectSoft have been included in the consolidated
operating results commencing July 31, 1996 because the Company assumed effective
control of ConnectSoft under the terms of a written agreement as of that date.
July 31 was also the date of the ConnectSoft shareholders' meeting at which the
merger was approved. In connection with the ConnectSoft Merger, ConnectSoft
shareholders received, on a pro rata basis, an aggregate 976,539 shares of the
Company's Series B-1 Preferred Stock (the "Series B-1 Preferred Stock"). Such
Series B-1 Preferred Stock does not pay a dividend, is not subject to
redemption, has a liquidation preference of $3.50 per share over Company Common
Stock and votes together with the Company Common Stock as a single class on a
one share for one vote basis. Each share of Series B-1 Preferred Stock is
convertible into shares of Company Common Stock at the holder's option into a
minimum of 976,539 shares of Company Common Stock and a maximum of 2,929,617
shares of Company Common Stock, based upon certain criteria. The Series B-1
Preferred Stock may be converted into shares of Company Common Stock as follows:
(i) Each share of Series B-1 Preferred Stock may be converted, at any
time, into one share of Company Common Stock (a minimum of 976,539 shares of
such Common Stock if all such shares of Series B-1 Preferred Stock are so
converted);
(ii) In the event that the "Combined Pre-Tax Income" (as defined) of any
or all of the "Subject Entities" (as defined) in ANY ONE of the three fiscal
years ending July 31, 1997, July 31, 1998, or July 31, 1999 (each a
"Measuring Fiscal Year" and collectively, the "Measuring Fiscal Years"):
(a) shall equal or exceed $3,000,000, each share of Series B-1 Preferred
Stock may be converted into two shares of Company Common Stock (a maximum of
1,953,078 shares of such Common Stock if all such shares of Series B-1
Preferred Stock are so converted); or
(b) shall equal or exceed $5,000,000, each share of Series B-1 Preferred
Stock may be converted into three shares of Company Common Stock (a maximum
of 2,929,617 shares of such Common Stock if all such shares of Series B-1
Preferred Stock are so converted).
The "Subject Entities" include ConnectSoft and its consolidated subsidiaries
(if any) and eXodus Technologies, Inc., a Washington corporation and a direct
80%-owned subsidiary of the Company ("eXodus"), which has developed and is
marketing the NTERPRISE-TM- Application Remoting Software originated by
ConnectSoft. At the time of the ConnectSoft Merger, all personnel and other
assets relating to the ENTERPRISE-TM- Application Remoting Software, and all
liabilities associated with such business were transferred by ConnectSoft to
eXodus. The 20% equity interest in eXodus not owned by the Company is held by
current management and employees of eXodus, some of whom were pre-ConnectSoft
Merger shareholders of ConnectSoft. Such persons waived their right to receive
shares of Series B-1 Preferred Stock in the ConnectSoft Merger in consideration
of their receipt of shares of common stock of eXodus.
The ConnectSoft merger agreement also provides that each share of Series B-1
Preferred Stock may be converted into three shares of Company Common Stock,
notwithstanding the levels of Combined Pre-Tax Income achieved, in the event
that (i) the Company sells the assets or securities of any of the Subject
Entities for consideration aggregating $5,000,000 or more, (ii) the Company
consummates an initial public offering of the securities of any of the Subject
Entities (an "IPO") resulting in gross proceeds in excess of $10,000,000, or in
a market valuation for 100% of the issuer's common stock equaling or exceeding
$50,000,000, or (iii) a transaction occurs with any third party (whether tender
offer, merger, consolidation or other combination) with the result that no
shares of Company common stock will be publicly traded on The NASDAQ Stock
Market or any other national securities exchange.
Prior to consummation of the ConnectSoft Merger, the Company provided
interim working capital financing for ConnectSoft which aggregated approximately
$3.4 million and assumed all of ConnectSoft's
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operating expenses and liabilities. The Company also agreed to increase its
aggregate funding commitments to ConnectSoft and its related companies to a
minimum of $5.0 million.
In consideration for their introducing the Company to ConnectSoft and its
stockholders, as of July 31, 1996, the Company issued as Finders Shares an
aggregate of 50,000 shares of its Common Stock to Hampshire Securities
Corporation and 100,000 shares of Common Stock to Meadowbrook, Ltd., neither of
which entity is affiliated with the Company. See "SELLING STOCKHOLDERS."
INTERGLOBE
In September 1996, the Company acquired, through merger of a newly formed
acquisition subsidiary of the Company (the "InterGlobe Merger"), all of the
outstanding capital stock of InterGlobe Networks, Inc. ("InterGlobe"), a private
company providing engineering, design and consulting services for users and
providers of telecommunications facilities on the Internet and other media.
Pursuant to the terms of the InterGlobe Merger, the InterGlobe shareholders
received the aggregate sum of $400,000, plus an aggregate of 800,000 shares of
the Company's Common Stock.
The former stockholders of InterGlobe also received four-year employment
agreements with InterGlobe and the Company pursuant to which they received
seven-year options to purchase an additional aggregate 800,000 shares of Company
Common Stock at an exercise price of $6.00 per share (the "InterGlobe Options").
The InterGlobe Options shall vest and be exercisable (i) 25% on July 31, 1997 in
the event that InterGlobe achieves at least $250,000 of Pre-Tax Income (as
defined) in the year ending July 31, 1997, (ii) 25% on July 31, 1998 in the
event that InterGlobe achieves at least $1,000,000 of Pre-Tax Income (as
defined) in the year ending July 31, 1998, (iii) 25% on July 31, 1999 in the
event that InterGlobe achieves at least $2,000,000 of Pre-Tax Income in the year
ending July 31, 1999, and (iv) the balance of such Interglobe Options in the
event that InterGlobe achieves at least $4,500,000 of Pre-Tax Income in the year
ending July 31, 2000. Alternatively, all 800,000 InterGlobe Options shall vest
if, during the period commencing upon closing the InterGlobe Merger and
terminating on July 31, 2000, the accumulated Pre-Tax Income of Interglobe has
equalled or exceeded $7,750,000. 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 InterGlobe, prior to July 31, 2000, all of the InterGlobe Options
shall immediately vest upon such occurrence. In addition, the InterGlobe
agreement provides that if the Company effects a public offering of InterGlobe
or a sale of InterGlobe prior to July 31, 2000, the InterGlobe stockholders may
elect (but shall not be required) to exchange two-thirds of all Company
securities received by them in the InterGlobe Merger for an aggregate of 25% of
the common stock of InterGlobe owned by the Company prior to such transaction.
Following completion of the InterGlobe Merger, Artour Baganov, the President
and Chief Executive Officer of InterGlobe, was appointed as a member of the
Board of Directors of the Company.
SEATTLE ONLINE
On November 8, 1996, a newly-formed, wholly-owned subsidiary of the Company,
Seattle OnLine Acquisition Corp. (the "Buyer") acquired the assets of Seattle
OnLine, Inc. (the "Seller"), a privately owned company engaged in providing a
local internet service in the Pacific Northwest. The purchase price for the
assets was the sum of $300,000 and up to 25,000 shares of the Company's Common
Stock for use by the Seller in settlement of its debts. Craig Dieffenbach, the
President and principal stockholder of the Seller entered into a three-year
employment agreement with the Buyer, providing him an annual salary initially
set at $125,000 per year, plus a bonus based upon exceeding certain minimum
sales levels. Both Mr. Dieffenbach and the minority stockholder of Seller also
entered into non-competition and non-disclosure agreements for the benefit of
the Seller and Buyer. In consideration for their covenants contained in such
non-competition and non-disclosure agreements, the Company issued to such
individuals three year warrants to purchase an aggregate of 333,333 shares of
the Company's Common Stock.
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Of such warrants, the minority stockholder of Seller received three year
warrants to purchase an aggregate of 28,333 shares of the Company's Common Stock
at an exercise price of $6.00 per share. The balance of the warrants to purchase
305,000 shares of the Company's Common Stock were issued to Mr. Dieffenbach and
are initially exercisable at $8.50 per share, which exercise price drops to
$6.00 per share in the event that the Buyer generates net income before taxes of
at least $150,000 at the end of either the six month period ending on May 31,
1997 or the fiscal year of Acquisition ending on July 31, 1997. In the event of
a public offering of securities of the Buyer, Mr. Dieffenbach is entitled under
certain circumstances (but not required) to exchange his Company warrants and
the underlying warrant shares (to the extent of prior exercise of such warrants)
for shares aggregating up to 9.15% of the common stock of the Buyer immediately
prior to such initial public offering.
Finally, in the event that the Buyer generates net income before taxes of at
least $340,000 and $2,650,000 (such amounts, the "Pre-Tax Income Targets") in
the fiscal years ending July 31, 1997 and July 31, 1998 (such years, the
"Measuring Years"), respectively (or, under certain circumstances, $2,990,000 of
accumulated pre-tax income during both such fiscal years), the Company has
agreed to guaranty to Mr. Dieffenbach that, during the 90-day period commencing
October 1, 1998 and ending December 31, 1998 the average closing price of the
Company's Common Stock, as traded on the Nasdaq National Market or other
national securities exchange shall equal or exceed $6.00 per share more than the
exercise price for the unexercised warrants; failing which the Company shall
either reduce the exercise price of the warrants or repurchase the unexercised
warrants at a price to enable the holder of such warrants to make up such
difference. The aggregate dollar value of such guaranty is initially $1,830,000,
assuming that no warrants have been exercised when the guaranty is applied, but
it is subject to pro-rata increase to the extent that the Pre-Tax Income in the
two Measuring Years exceeds $2,990,000, provided that in no event shall the
guaranty amount exceed $3,660,000 irrespective of the Buyer's accumulated net
income before taxes. Conversely, if the net income before taxes of the Buyer in
each Measuring Year fails to reach the Pre-Tax Income Targets but (i) does equal
or exceed at least 50% of the Pre-Tax Income Targets for each Measuring Year and
(ii) the net income before taxes of the Buyer for its fiscal year ending July
31, 1998 is at least 80% of the net income before taxes for its fiscal year
ending July 31, 1997, then the guaranty shall still apply but shall be reduced
pro-rata to reflect the shortfall.
TECHSTAR AND ARCADIA
Effective December 11, 1996, the Company acquired TechStar Communications,
Inc., formerly known as Broadcast Tower Sites, Inc. ("TechStar"), pursuant to a
merger transaction (the "TechStar Merger"). TechStar is engaged in providing
site acquisition, zoning, architectural and engineering services, as well as
consulting services, to the wireless telecommunications industry.
Pursuant to the terms of the TechStar Merger, the former TechStar
shareholders received an aggregate of 507,246 shares of Company Common Stock
(all of which comprise the TSC Shares being offered hereby), $780,000 was paid
in cash and the Company delivered three year notes aggregating $600,000, bearing
interest at the Citibank, N.A. prime rate, and payable in installments of
$100,000, $200,000 and $300,000 on each of November 30, 1997, 1998 and 1999.
In a related transaction, the Company also entered into an agreement to
acquire 100% of the capital stock 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 as a deposit on execution of the Arcadia agreement, and agreed to
issue on closing of such acquisition an aggregate of 192,754 shares of Company
Common Stock (comprising the Arcadia Shares being offered hereby). The closing
of the Arcadia acquisition is subject to certain conditions, including the
effectiveness of this Offering, and will be consummated immediately following
the date of this Prospectus. Following the Arcadia acquisition, Arcadia will be
merged with and into TechStar.
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The former stockholders of TechStar received, and the stockholder of Arcadia
will receive, four-year employment agreements with TechStar and the Company
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 holders to purchase an additional aggregate
780,000 shares of Company Common Stock (the "TechStar Options"). The TechStar
Options shall vest and be exercisable (i) 195,000 options on November 30, 1997
in the event that TechStar achieves at least $2,000,000 of Pre-Tax Income (as
defined) in the 12 months ending November 30, 1997, (ii) 195,000 options on
November 30, 1998 in the event that TechStar achieves at least $2,500,000 of
Pre-Tax Income (as defined) in the 12 months ending November 30, 1998, (iii)
195,000 options on November 30, 1999 in the event that TechStar achieves at
least $3,000,000 of Pre-Tax Income in the 12 months ending November 30, 1999,
and (iv) 195,000 options on November 30, 2000 in the event that TechStar
achieves at least $3,500,000 of Pre-Tax Income in the 12 months ending November
30, 2000. Alternatively, all 780,000 TechStar Options shall vest if, during the
period commencing upon closing the Merger and terminating on November 30, 2000,
the accumulated Pre-Tax Income of TechStar has equalled 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 TechStar 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 TechStar and Arcadia stockholders may elect (but
shall not be required) to exchange all Company securities received by them in
the TechStar 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 780,000 TechStar Options issued to the former TechStar
and Arcadia stockholders, the Company also agreed to issue an additional 120,000
TechStar Options, on identical terms as those offered to the former TechStar and
Arcadia stockholders, to certain other key employees of TechStar designated by
the former TechStar and Arcadia stockholders.
Sergio Luciani, a former stockholder and currently Executive Vice President
and Chief Financial Officer of TechStar, was appointed as a member of the Board
of Directors of the Company.
Upon completion of the Arcadia acquisition, Solon L. Kandel, the President
and sole stockholder of Arcadia, will be employed by TechStar as its President
and Chief Executive Officer under a four year employment agreement containing
terms which are substantially identical to those provided to each of the former
stockholders of TechStar, including 260,000 TechStar Options. Pending completion
of the Arcadia acquisition, the Company engaged Arcadia as a consultant for a
monthly fee of $15,000.
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THE TECHNOLOGY BUSINESS
COMPANY STRATEGY
The Company's strategy in entering the technology business is to make the
Company a significant factor in the rapidly expanding and changing businesses of
(i) developing remote access multi-user software and Internet software, (ii)
Internet and Intranet engineering, design and consulting services, and (iii)
wireless telecommunications services. Through the acquisitions of ConnectSoft,
eXodus, InterGlobe, Seattle OnLine and TechStar, the Company is now able to
provide:
(a) the NTERPRISE-TM- Application Remoting Software, which is sold as a
multi-user operating system to business and commercial end-users and OEM's
in conjunction with Multi-user Software produced by Prologue, and allows
users to run application software programs designed for the Microsoft-TM-
WINDOWS NT-TM- operating system on existing UNIX workstations, X-terminals
and other X-windows compatible devices;
(b) an electronic mail communications management software product,
marketed as EMAIL CONNECTION-Registered Trademark-, and an e-mail product
and Internet browser designed for children, marketed as EMAIL FOR KIDS-TM-
and KIDS WEB-TM-;
(c) engineering, design and consultation services to users and providers
of telecommunications facilities on the Internet and other media;
(d) local Internet telecommunication service in the Pacific Northwest;
and
(e) site acquisition, zoning, architectural and engineering services to
the wireless communications industry.
The Company is also in the process of developing software designed to allow
broadcast television data to be received and viewed on personal computers, and a
digital communications technology designed to allow the remote access to e-mail
messages, voice messages and telecopies from personal computers and other
platforms.
PRODUCTS AND SERVICES
APPLICATION REMOTING SOFTWARE FOR MULTI-USER APPLICATIONS
New information technologies have enabled businesses to provide their
employees with access to business-critical information, such as sales and
customer data and financial and technical data. Many of these businesses have
made significant investments in information systems infrastructure incorporating
a variety of software operating systems, computing platforms and communications
protocols. Critical business software applications and personal computing tools
have historically been supplied by a variety of different vendors, often
resulting in incompatible systems and applications within and among company
locations. For example, business specific applications allowing companies to
provide their employees with information such as financial and technical data
may be supplied by one vendor, while personal productivity software, such as
word processing programs and spreadsheets, are furnished by another. As a
result, demand has increased for computing and networking systems that offer
users a number of features, including a standard user interface, the ability to
integrate enterprise and personal computer applications to local and remote
enterprise users, and centralize software installation, configuration, support,
user administration and troubleshooting.
Although a majority of personal productivity software is based either upon
Microsoft WINDOWS NT-TM- or WINDOWS 95-TM-, both PC-based solutions, WINDOWS-TM-
has increasingly become the operating system of choice for enterprise server
software, despite the fact that many of the world's largest corporations rely
largely upon UNIX workstations, X-Terminals or older Microsoft operating systems
such as DOS; none of which is compatible with WINDOWS 95-TM- or WINDOWS NT-TM-.
However, the costs
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associated with purchasing, maintaining and periodically upgrading separate
desktop Windows compatible PC's for literally hundreds or thousands of
workstations or "seats" in a large organization have become prohibitive.
Accordingly, the challenge has been to perfect a modern client-server technology
to provide uncompromised remote access to 32-bit Windows applications in a
diverse multi-user business environment.
The component software solution that has been developed essentially consists
of two principal elements: (i) software technology which projects the user
interface of a WINDOWS-TM- application program from the application server
across the network to one or more end-user desktop computers or terminals (the
"Application Remoting Software"), and (ii) a software technology which enables
the Microsoft Windows NT Server-TM- operating system to be simultaneously used
by multiple end-users (the "Multi-user Software"). NTERPRISE-TM- is a
proprietary Application Remoting Software solution developed by the Company's
eXodus subsidiary that, when coupled with Multi-user Software, delivers
WINDOWS-TM- performance to non-PC desktops thereby enabling users to combine
their business specific applications with personal productivity applications
based on WINDOWS-TM- operating system.
The Company believes that eXodus's NTERPRISE-TM- Application Remoting
Software product possesses certain significant advantages over other competing
component technology, in that:
- NTERPRISE-TM- is not a replacement server operating system for Microsoft's
Windows NT Server and, unlike competitive solutions which require
customers to purchase a replacement proprietary server operating system,
NTERPRISE-TM- maximizes the integrity of the WINDOWS NT-TM- environment
and permits the user to enjoy the greater reliability of Microsoft's
operating system;
- NTERPRISE-TM- has been designed to provide superior scalability, in that
it is able to maintain a high level of responsiveness and performance even
as the number of users connected to the NTERPRISE-TM- system is increased;
- unlike competitive products, which provide only one window for all
WINDOWS-TM- applications, NTERPRISE-TM- has multi-window capabilities
which allow users to run each WINDOWS-TM- application in its own window,
thus providing a familiar and easy to use working environment;
- NTERPRISE-TM- runs on different CPU-based server hardware platforms, such
as Motorola's POWER PC-TM-, Intel's PENTIUM PRO-TM- and Digital Equipment
Corporation's ALPHA;
- NTERPRISE-TM- resides entirely on a central application server and, in
most instances, does not require client software or hardware modules to be
loaded on the user's desktop machine, thereby permitting the users'
machine to range from sophisticated UNIX-TM- workstations to inexpensive
X-Terminals; and
- unlike its competitor's propriety client/server protocol software, which
must be used with more costly intelligent desktop computers,
NTERPRISE-TM-uses standard X-Terminal graphic commands for its
client/server protocol and is executed in the server only; thereby
permitting the customer the luxury of purchasing or continuing to use
inexpensive or even outdated desktop technology.
eXodus's Application Remoting 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. Although its current version only supports the WINDOWS NT
3.51 operating system, the Company anticipates that a Microsoft authorized
NTERPRISE-TM- version which will support WINDOWS NT 4.0 will be available in the
near future. However, there is no assurance that this will be the case.
NTERPRISE-TM- has already received industry recognition. In October 1996,
NTERPRISE-TM- was awarded the "UNIX/Windows NT Technical Award" by Windows NT
Magazine at the Unix Expo trade show in New York, and in November 1996, was
named as a finalist for BYTE Magazine's "Best of COMDEX, Best Connectivity"
award at the 1996 annual COMDEX computer show in Las Vegas, Nevada.
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eXodus is in the process of actively demonstrating its NTERPRISE-TM- solution to
a number of potential end-users and distributors. To date, eXodus has received
limited pilot test orders from approximately 30 customers, including Motorola
Corporation ("Motorola"), State Street Bank, Sandia National Laboratories and a
Fortune 50 world-wide telecommunications company. Although the Company
anticipates that significant additional orders will follow, there is no
assurance that any of such customers will adopt NTERPRISE-TM- on a large scale
basis for their organizations. eXodus's future success will depend in large
measure upon the performance reliability of its initial software protocol and
obtaining access to Microsoft's WINDOWS NT 4.0-TM- operating system. See "RISK
FACTORS."
RETAIL SOFTWARE
Through its ConnectSoft subsidiary, the Company develops and sells three
retail software products. EMAIL CONNECTION-Registered Trademark- is an
electronic mail ("e-mail") communications management package which collects
e-mail from commercial online sources, such as Prodigy, America Online and many
other Internet access providers. Many computer users have multiple addresses and
EMAIL CONNECTION-Registered Trademark- simplifies collecting e-mail. In
addition, it allows encrypted message transfers, supports SkyTel Pager
communications and receives telecopier transmissions.
The two other ConnectSoft products are children's applications--an Internet
browser product and an e-mail product designed for children between five and 10
years old. The e-mail product, known as EMAIL FOR KIDS-TM-, has similar features
as EMAIL CONNECTION-Registered Trademark- in that it allows access to popular
online services and the Internet. KIDWEB-TM- allows children access to the
various Internet services and provides an easy-to-understand Web browser using
animated characters. However, the Company believes that the unique feature of
its children's software products are that parents are capable of regulating the
content of e-mail messages and restrict the Web pages their children can view.
Parents can create a Web "neighborhood" of pre-approved sites, and disallow
access to other Web sites deemed by them to be objectionable or inappropriate
for viewing. FIND S.V.P. User's Survey for 1995 calculated that approximately
6.5 million American personal computer family households purchased children's
software in 1995 and approximately 41% of all Internet users named e-mail as the
principal reason for their access to the Internet.
The Company recently began marketing its retail products through
distributors, such as Tech Data, Micro Central and Navarre. Suggested retail
prices are EMAIL CONNECTION-Registered Trademark---$49.95; KIDWEB-TM--- $39.95;
and EMAIL FOR KIDS-TM---$29.95.
INTERNET ENGINEERING, DESIGN AND CONSULTING
Through its acquisition of InterGlobe, the Company provides network system
implementation and consulting for corporate Intranet and Internet communications
systems. Services and software provided by InterGlobe include:
NETWORK DESIGN AND MANAGEMENT SERVICES.
InterGlobe provides network design and management for businesses and
individuals with obsolete or deficient network structures. The rapid advance of
network systems necessitates a comprehensive solution to obsolescence which
includes evaluation, network design and implementation for functional
effectiveness. In addition to managing a network operation center ("NOC")
located in Seattle, Washington, InterGlobe has recently commenced providing
consulting services for Compuserve Incorporated, which includes building a NOC
in Columbus, Ohio and providing ongoing support services for the facility.
Compuserve is a major online service providing business network and Internet
access to its subscribers. InterGlobe provides ongoing technical support with
automatic and remote monitoring for its network design systems. The Company
believes that there will be considerable growth in providing ongoing support
services for clients' networks, as a result of which the Company is in the
process of increasing its engineering and support staff.
40
<PAGE>
CORPORATE INTRANET SYSTEMS AND CONNECTIVITY SOFTWARE
InterGlobe also develops custom built Intranet systems designed for
corporate clients, who desire access to a paperless intra-office and external
communications e-mail system. Its current major customer is the Eddie Bauer Inc.
retail chain.
CONSULTING AND SYSTEM INTEGRATION
In addition to designing networks and managing systems for specific
customers, InterGlobe also provides specialized Internet and Intranet consulting
services for corporate clients. Its customers include GE Capital Corporation, US
West, The American Automobile Association and Hewlett Packard Corporation.
REGIONAL INTERNET SERVICE
The Company's Seattle OnLine subsidiary is engaged in the production of
regional Web-sites that showcase metropolitan areas. Seattle OnLine is a full
solution Internet marketing firm that designs, builds and manages corporate
Inter/Intranet sites, including interactive catalogs and databases for
businesses in Seattle, Washington and throughout the nation. Seattle OnLine has
formed alliances and teamed with a number of major corporations with a major
regional focus to create a comprehensive metropolitan entertainment and
resources guide. Clients include the Seattle Space Needle and the Washington
State Ferry System.
The Company intends to use the Seattle OnLine concept as a prototype for
expansion into other major metropolitan areas, including cities in which Seattle
OnLine is registered to establish regional Web-sites showcasing the particular
metropolitan area. The Company plans to introduce the marketing program in
approximately 18 additional cities in 1997.
WIRELESS TELECOMMUNICATION SERVICES
TechStar provides consulting services to clients involved in a variety of
wireless communications (cellular telephone) applications. TechStar offers a
variety of turnkey solutions, including site acquisition, zoning and permitting
services to facilitate the location of a wireless network broadcasting system,
architectural and engineering services related to the design, development and
construction of wireless communications network facilities, management of
wireless network sites, and general management of wireless communications
network projects.
TechStar locates appropriate sites for the construction of a wireless
network broadcasting system, represents the client in negotiations with the
owner-landlord and provides a comprehensive preliminary site report including
photographic survey, preliminary zoning analysis and access and service
availabilities. Site zoning and permitting services include: obtaining FAA
clearing filings and preliminary site plans; obtaining zoning and permitting
applications and approvals; preparation of supporting materials for presentation
at public hearings; preparation of final site plans and obtaining construction
permits. Architectural and engineering services provided include the conduct of
site feasibility studies; providing preliminary cost estimates; development of
architectural, structural, mechanical and other construction site drawings,
plans and specifications (including cable and tray routing); determining of
electrical requirements; structural analysis of parapets, roofs, towers,
watertanks and other structures; design of heating and air conditioning systems;
topographic surveys; soil investigation and reports; and furnishing final "as
built" drawings and plans.
With over 45 architectural, engineering and other professional employees,
TechStar has rendered or is rendering continuing services for clients such as
AT&T Wireless Communications, Bell Atlantic, Bell South Mobility, Shenandoah
Mobile Company, Trammel Crow/LCC, Nextel Communications and Vanguard Cellular.
41
<PAGE>
TechStar contracts for its site location and other services with AT&T
Wireless Communications under one year agreements which has recently been
renewed for 1997. For its fiscal year ended December 31, 1996, revenues from
AT&T Wireless Communications accounted for over 95% of TechStar's revenues.
Although the Company anticipates that other customer's contributions to ongoing
revenues will increase in calendar 1997 and thereafter, it may be assumed that
AT&T Wireless Communications will continue to represent a major source of
TechStar's revenues. The loss of or significant reduction in revenues from such
customer would have a material adverse effect on the business and revenues of
TechStar.
ADDITIONAL DEVELOPMENTAL ACTIVITIES
Through a newly formed subsidiary of the Company, Avalon Interactive, Inc.
("Avalon"), the Company is in the process of developing a proprietary technology
to integrate digital communications and support on line content delivery. The
Company intends to distribute the Avalon technology through strategic alliances
with equipment manufacturers, telecommunications companies, internet service
providers and media companies engaged. The Avalon technology is still in the
preliminary stages and, to date, has not been test marketed or accepted by any
third party. There can be no assurance that the Avalon technology will ever be
marketed, or if marketed that it will be marketed on terms that shall prove
profitable to the Company.
The Company is also in the preliminary stages of developing software
designed to allow broadcast television data to be received and viewed on
personal computers. To date, such technology has not been test marketed or
tested by any prospective OEM or other third party. There can be no assurance
that such technology will be viable or ever marketed on terms that shall prove
profitable to the Company, if at all.
SALES AND TARGET MARKETS
eXodus is targeting as the primary customers for its Application Remoting
Software technology both original equipment manufacturers (OEMs) of X-terminals
and other operating devices, as well as large and medium sized national and
international corporations and government agencies using existing UNIX
workstations, X-terminals and X compliant personal computers and network
computers.
eXodus's marketing efforts currently involve direct end-user customer
contacts by Company salespersons, efforts to establish lines of distribution
through OEM channels and participation in national and regional industry and
trade shows. Subject to customer response from initial pilot test order sales of
eXodus's products, the Company intends to significantly increase eXodus's sales
and marketing staff and will undertake a marketing and public relations, print
advertising program to advertise the NTERPRISE-TM- solution to monthly and
weekly industry and trade journals as well as publications directed to corporate
information officers and other information systems personnel.
Initial selling efforts to eXodus's targeted market customarily begins at
least six to nine months prior to receipt of an order. The Company believes that
the favorable industry magazine publicity it received following demonstration of
NTERPRISE-TM- at the UNIX Expo trade show in New York and the COMDEX computer
show in Las Vegas in October and November 1996 has significantly increased both
industry and potential customer awareness of eXodus's Application Remoting
Software product.
eXodus is in the process of demonstrating its NTERPRISE-TM- solution to a
number of potential end-users and distributors. Anticipated pricing for a server
license is $795, and $250 per terminal or "seat" which is connected to
NTERPRISE-TM-. A complete ten-seat license is currently priced at $2,795,
consisting of a server license and a ten-seat dedicated user license. To date,
the Company has received pilot test orders for an aggregate of approximately 300
seats from approximately 30 customers, including State Street Bank, Sandia
National Laboratories and a Fortune 50 international telecommunications company.
eXodus also received a pilot test order for 5,000 seats from Motorola to be
incorporated in a total Motorola WAN operating system for a government agency in
Europe. If initial responses are favorable,
42
<PAGE>
eXodus anticipates that significant additional orders will be forthcoming from
such customers. However, there is no assurance that this will be the case.
ConnectSoft markets its retail EMAIL CONNECTION-Registered Trademark-, EMAIL
FOR KIDS-TM- and KIDWEB-TM- products through three independent distributors, by
advertising in magazines and trade journals, and by aggressively working on
product comparisons in computer magazines. The EMAIL CONNECTION is also marketed
directly to customers via on-line sales through the World Wide Web and through
electronic direct mail campaigns to the registered customer base. EMAIL FOR KIDS
and KIDWEB are marketed through direct sales programs aimed at schools.
InterGlobe markets its Internet engineering, design and consulting services
through advertising in trade journals and magazines customarily used by
information systems managers. In addition, InterGlobe obtains a number of its
customer through client referrals.
Seattle On-Line advertises its local Web site services primarily through
advertising in computer publications and trade journals.
TechStar provides its wireless telecommunications services primarily to a
Fortune 50 world-wide telecommunications company which represented in excess of
95% of its annual sales in calendar 1996. The loss of such customer would have a
material adverse affect on the business, financial condition and prospects of
TechStar.
PROLOGUE LICENSE AGREEMENT
The Company entered into a three-year license with Prologue, effective as of
June 1, 1996, pursuant to which the Company was granted: (i) the exclusive right
and license to sell, distribute, exploit and demonstrate Prologue's WINTIMES-TM-
Multi-user Software within North America, as an original equipment manufacturer
in combination with eXodus's Application Remoting Software, for the UNIX and X-
Terminal markets; and (ii) a non-exclusive license to sell such multi-user
operating system in other markets within such territory. However, such license
permits Prologue to license WINTIMES-TM- within the Company's exclusive
territory to any other original equipment manufacturer ("OEM") if, after the
Company has attempted to sell the WINTIMES-TM-/NTERPRISE-TM- multi-user
operating system to a potential OEM customer, a special committee comprised of
two Company designees, three Prologue designees and two independent persons
shall determine, in good faith, that there is a risk that refusing to grant such
a license to the OEM would result in such OEM keeping or acquiring the Citrix NT
Multi-user Software in lieu of WINTIMES-TM-. Prologue has recently advised the
Company that it desires to license WINTIMES-TM- to NCD, a direct competitor of
the Company, as NCD allegedly would not acquire the WINTIMES-TM- Multi-user
Software directly from the Company or combined with the NTERPRISE-TM- solution.
The Company is currently considering such request. Under the terms of the
license, if it is determined that Prologue is entitled to license its Multi-user
Software to NCD or another OEM, the Company is entitled to receive 30% of all
royalties and other payments which Prologue may receive from such OEM licensee
for the UNIX and X-Terminal markets.
Under the terms of the Prologue license, the Company paid Prologue initial
cash payments aggregating $450,000, issued 100,000 Prologue Shares and agreed to
pay certain ongoing royalties or floor price payments per "seat" connection in
lieu of royalties. In addition, the Company is required to pay minimum royalties
of $750,000, $1,500,000 and $2,750,000 during each of the three consecutive 12
month periods ending May 31, 1999, respectively. The license agreement is
currently limited to WINTIMES-TM- software for Windows NT 3.5 version. In
October 1996, the Company and Prologue entered into a limited access license,
pursuant to which the Company was granted limited access to Windows NT 4.0
source codes, SOLELY for the purpose of developing NTERPRISE-TM- in Windows NT
4.0 version and testing and demonstrating such software for a potential
customer. However, in order for the Company to sell its Application Remoting
Software to the UNIX and X-Terminal markets in Windows NT 4.0 version,
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<PAGE>
Prologue's existing license with Microsoft, which expired on October 31, 1996,
is required to be renewed to include such upgraded Windows NT 4.0 version. See
"RISK FACTORS".
RECENT DEVELOPMENTS WITH PROLOGUE
On December 11, 1996, the Company arranged for Prologue to sell its Prologue
Shares in a private placement to certain unaffiliated third parties for
$750,000. See "SELLING STOCKHOLDERS."
On December 7, 1996, the Company and Prologue entered into a non-binding
memorandum of understanding pursuant to which the Company agreed, subject to due
diligence and acceptable documentation, to make a $6,000,000 investment in
Prologue. $3,000,000 of such investment would be in the form of a loan bearing
interest at Citibank NA prime rate plus 1% and payable on the earliest to occur
of (i) an public offering of securities of Prologue (whether in Europe or the
United States), (ii) the sale of Prologue, or (iii) three years from the date of
funding. The remaining $3,000,000 of the investment would be in equity capital
of Prologue, to represent 12.5% of the outstanding capital stock of Prologue.
As a condition to the Company's investment in Prologue, the license
agreement between the Company and Prologue would be amended and restated to be
between Prologue and eXodus. Under such amended and restated license (i) the
minimum royalties will be eliminated, (ii) the term of the license will be
extended through December 31, 2001, (iii) the license shall be EXCLUSIVE to
eXodus for its Application Remoting Software for the UNIX and X-Terminal markets
through March 31, 1998, and thereafter non-exclusive; PROVIDED that eXodus shall
receive between 40% and 50% of all revenues which Prologue may obtain from any
other OEM licensing Prologue's WINTIMES-TM- software.
As at the date hereof, such investment in Prologue and amended and restated
license agreement have not been consummated and there is no assurance that
Prologue and the Company will consummate any of such transactions; or, if
consummated, that they will be of business or financial benefit to the Company
or eXodus.
THE DISTRIBUTION BUSINESS
THE EQUIPMENT
NEW CASE CONSTRUCTION EQUIPMENT.
The construction equipment (the "Equipment") sold, rented and serviced by
Western generally consists of: backhoes (used to dig large, wide and deep
trenches); excavators (used to dig deeply for the construction of foundations,
basements, and other projects); log loaders (used to cut, process and load
logs); crawler dozers (bulldozers used for earth moving, leveling and shallower
digging than excavators); wheel loaders (used for loading trucks and other
carriers with excavated dirt, gravel and rock); roller compactors (used to
compact roads and other surfaces); trenchers (a small machine that digs trenches
for sewer lines, electrical power and other utility pipes and wires); forklifts
(used to load and unload pallets of materials); and skid steer loaders (smaller
version of a wheel loader, used to load and transport small quantities of
material--e.g., dirt and rocks around a job site). The sale prices of this
Equipment ranges from $15,000 to $350,000 per piece of equipment.
Under the terms of standard Case dealer agreements, Western is an authorized
Case dealer for sales of equipment and related parts and services at locations
in the states of Oregon, Washington, Nevada and Northern California (the
"Territory"). The dealer agreements have no defined term or duration, but are
reviewed on an annual basis by both parties, and can be terminated without cause
at any time either by Western on 30 days' notice or by Case on 90 days' notice.
Although the dealer agreements do not prevent Case from arbitrarily exercising
its right of termination, based upon Case's established history of dealer
relationships and industry practice, Western does not believe that Case would
terminate its dealer agreement without good cause.
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<PAGE>
The dealer agreements do not contain requirements for specific minimum
purchases from Case. In consideration for Western's agreement to act as dealer,
Case supplies to Western items of Equipment for sale and lease, parts,
cooperative advertising benefits, marketing brochures related to Case products,
access to Case product specialists for field support, the ability to use the
Case name and logo in connection with the Western's sales of Case products, and
access to Case floor plan financing for Equipment purchases. Such floor planning
arrangements currently provides Western with interest free credit terms of
between six months and nine months on purchases of specified types of Equipment.
Principal payments are generally due at the earlier of sale of the equipment or
twelve to fifteen months from the invoice date.
OTHER PRODUCTS.
Although the principal products sold, leased and serviced by Western are
manufactured by Case, Western also sells, rents and services equipment and sells
related parts (e.g., tires, trailers and compaction equipment) manufactured by
Hamm and by others. Approximately 25% of Western's net sales for fiscal year
1996 resulted from sales, rental and servicing of products manufactured by
companies other than Case.
Western's distribution business is generally divided into four categories of
activity: (i) New Equipment sales and rentals, (ii) used Equipment sales and
rentals, (iii) Equipment servicing, and (iv) parts sales.
NEW EQUIPMENT SALES AND RENTAL.
At each of its distribution outlets, Western maintains a fleet of various
items of Equipment for sale or rental for periods ranging from one week to up to
nine months (customarily with purchase options at the end of the rental period).
The Equipment purchased for each outlet is selected by Western's marketing staff
based upon the types of customers in the geographical areas surrounding each
outlet, historical purchases as well as anticipated trends. Each distribution
outlet has access to Western's full inventory of Equipment.
Western's new Equipment rental business has historically been an adjunct to
its new Equipment sales. To assist customers, any new Equipment can be rented
generally for periods of up to nine months and a portion of customer rental
payments may be applied to the purchase price down payment.
Western provides only the standard manufacturer's limited warranty for new
equipment, generally a one-year parts and service repair warranty. Customers can
purchase extended warranty contracts.
Western maintains a separate fleet of new Equipment that it generally holds
solely for rental. Such Equipment is generally held in the rental fleet for 12
months and then sold as used Equipment with appropriate discounts reflecting
prior rental usage. As rental Equipment is taken out of the rental fleet,
Western adds new Equipment to its rental fleet as needed. The rental charges
vary, with different rates for different items of Equipment rented.
USED EQUIPMENT SALES AND RENTALS.
Western sells and rents used Equipment that has been reconditioned in its
own service shops. It generally obtains such used Equipment as "trade-ins" from
customers who purchase new items of Equipment and from Equipment previously
rented and not purchased. Unlike new Equipment, Western's used Equipment is
generally sold "as is" and without manufacturer's warranty. Used Equipment is
customarily rented only after available new Equipment has been rented. The
rental charge for such used Equipment is equal to that of rented new Equipment.
Used rental Equipment is first reconditioned by Western prior to being offered
for rent, and is typically not more than three years old.
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<PAGE>
EQUIPMENT SERVICING.
Western operates a service center and yard at each retail outlet for the
repair and storage of Equipment. Both warranty and non-warranty service work is
performed, with the cost of warranty work being reimbursed by the manufacturer
following the receipt of invoices from Western. Western employs approximately
100 manufacturer-trained service technicians who perform Equipment repair,
preparation for sale and other servicing activities. Equipment servicing is one
of the higher profit margin businesses operated by Western. Western has expanded
this business by hiring additional personnel and developing extended warranty
contracts for Equipment service terms, and independently marketing such
contracts to its customers. Western services items and types of Equipment which
include those that are neither sold by Western nor manufactured by Case.
PARTS SALES.
Western purchases a large inventory of parts, principally from Case, for use
in its Equipment service business, as well as for sale to other customers who
are independent servicers of Case Equipment. Generally, parts purchases are made
on standard net 30 days terms.
Western employs one or more persons who take orders from customers for parts
purchases at each retail distribution outlet, the majority of such orders are
placed in person by walk-in customers. Western provides only the standard
manufacturer's warranty on the parts that it sells, which is generally a 90-day
replacement guaranty.
SALES AND MARKETING.
Western's customers are typically residential and commercial building
general contractors, road and bridge contractors, sewer and septic contractors,
underground power line contractors, persons engaged in the forestry industry,
equipment rental companies and state and municipal authorities. Western
estimates that it has approximately 16,000 customers, with most being small
business owners, none of which accounted for more than 5% of its total sales in
the fiscal year ended July 31, 1996.
For the fiscal year ended July 31, 1996, the revenue breakdown by source for
the business operated by Western was approximately as follows:
<TABLE>
<S> <C>
New Equipment Sales................................................... 58%
Used Equipment Sales.................................................. 12%
Rental Revenue........................................................ 9%
Parts Sales........................................................... 17%
Service Revenue....................................................... 4%
---
100%
---
---
</TABLE>
Western advertises its products in trade publications and appears at trade
shows throughout its territory. It also encourages its salespersons to visit
customer sites and offer Equipment demonstrations when requested.
Western's sales and marketing activities do not result in a significant
backlog of orders. Although Western has commenced acceptance of orders from
customers for future delivery following manufacture by Case, during fiscal 1996
substantially all of its sales revenues resulted from products sold directly out
of inventory, or the providing of services upon customer request.
All of Western's sales personnel are employees of Western and all are under
the general supervision of C. Dean McLain, the President and Chief Executive
Officer of Western. Each Equipment salesperson is assigned a separate exclusive
territory, the size of which varies based upon the number of potential
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<PAGE>
customers and anticipated volume of sales, as well as the geographical
characteristics of each area. Western employed 67 Equipment salespersons on July
31, 1996.
On July 31, 1996, Western employed 5 product support salespersons who sell
Western's parts and repair services to customers in assigned territories.
Western has no independent distributors or non-employee sales representatives.
SUPPLIERS
Western purchases the majority of its inventory of Equipment and parts from
Case. No other supplier currently accounts for more than 5% of such inventory
purchases in fiscal 1996. While maintaining its commitment to Case to primarily
purchase Case Equipment and parts as an authorized Case dealer, in the future
Western plans to expand the number of products and increase the aggregate dollar
value of those products which Western purchases from manufacturers other than
Case.
COMPETITION
Western competes with distributors of construction equipment and parts
manufactured by companies other than Case on the basis of price, the product
support (including technical service) that it provides to its customers, brand
name recognition for its Case and other products, the accessibility of its
distribution outlets, the number of its distribution outlets, and the overall
quality of the Case and other products that it sells. Western management
believes that it is able to effectively compete with distributors of products
produced and distributed by such other manufacturers primarily on the basis of
overall Case product quality, and the superior product support and other
customer services provided by the Company.
Case's two major competitors in the manufacture of a full line of
construction equipment of comparable sizes and quality are Caterpillar
Corporation and Deere & Company. In addition, other manufacturers produce
specific types of equipment which compete with the Case Equipment and other
Equipment distributed by Western. These competitors and their product
specialties include JCB Corporation--backhoes, Kobelco Corporation--excavators,
Dresser Industries--light and medium duty bulldozers, Komatsu Corporation--wheel
loaders and crawler dozers, and Bobcat, Inc.--skid steer loaders.
Western is currently the only Case dealer for construction equipment in the
states of Washington and Nevada and in the Northern California area (other than
Case-owned distribution outlets), and is one of two Case dealers in the State of
Oregon. However, Case has the right to establish other dealerships in the future
in the same territories in which the Company operates. In order to maintain and
improve its competitive position, revenues and profit margins, Western plans to
increase its sales of products produced by companies other than Case.
ENVIRONMENTAL STANDARDS AND GOVERNMENT REGULATION
Western operations are subject to numerous rules and regulations at the
federal, state and local levels which are designed to protect the environment
and to regulate the discharge of materials into the environment. Based upon
current laws and regulations, Western believes that its policies, practices and
procedures are properly designed to prevent unreasonable risk of environmental
damage and the resultant financial liability to Western. No assurance can be
given that future changes in such laws, regulations, or interpretations thereof,
changes in the nature of Western's operations, or the effects of former
occupants' past activities at the various sites at which Western operates, will
not have an adverse impact on the Company's operations.
Western is subject to federal environmental standards because in connection
with its operations it handles and disposes of hazardous materials, and
discharges sewer water in its equipment servicing operations. Western internal
staff is trained to keep appropriate records with respect to its handling of
hazardous waste, to establish appropriate on-site storage locations for
hazardous waste, and to select
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regulated carriers to transport and dispose of hazardous waste. Local rules and
regulations also exist to govern the discharge of waste water into sewer
systems.
In September 1992, prior to Western becoming an authorized Case dealer, Case
received an environmental report indicating certain contamination conditions
which were to be rectified by Case in connection with the selling of retail
outlets to the Company in connection with the 1992 Case Transaction. In
addition, following the 1992 Case Transaction, additional environmental reports
were prepared or obtained concerning the progress and cost of remediation
projects at those facilities. Western did not assume any of Case's obligations
for site remediation when it completed the acquisition from Case of certain
assets used in connection with Western's retail facilities, and no accruals for
such clean-up costs appear on the Company's financial statements.
In July 1994, prior to Western's acquisition of the Sparks, Nevada property,
Case received an environmental report indicating certain contamination
conditions which were to be rectified by Case in connection with the sale of
that retail outlet to Western. Such remediation was completed prior to November
22, 1994. Western did not assume any of Case's obligations for site remediation
when it completed the acquisition from Case of certain assets used in connection
with Western's retail facilities, and no accruals for such clean-up costs appear
on the Company's financial statements.
INSURANCE
The Company currently has product liability insurance policies covering
Western with $500,000 limits for each occurrence and $1,000,000 in the aggregate
under the general liability and products liability policies. Western also has an
umbrella liability insurance policy with an annual aggregate coverage limit of
$10,000,000. Western believes that its product liability insurance coverage is
reasonable in amount and consists of such terms and conditions as are generally
consistent with reasonable business practice, although there is no assurance
that such coverage will prove to be adequate in the future. An uninsured or
partially insured claim, or a claim for which indemnification is not available,
could have a material adverse effect upon Western.
EMPLOYEES
At December 31, 1996, the Company's distribution business employed
approximately 298 full-time employees. Of that number, 41 are officers or are
involved in corporate and branch office administration, 140 are employed in
equipment and parts sales and rental and 117 are employed in equipment
servicing. At December 31, 1996, the Company's technology business employed
approximately 84 full-time employees. Of that number, 19 are officers or
involved in administration and clerical activities, 47 are involved in
engineering and software development and customer service and support, and 18
are involved in sales and marketing. None of the Company's employees are covered
by a collective bargaining agreement, other than a limited number of employees
of the distribution business employed at the Sacramento, California location.
The Company believes that its relations with its employees are satisfactory.
LEGAL PROCEEDINGS
Except as set forth below, there are no pending material legal proceedings
in which the Company or any of its subsidiaries is a party, or to which any of
their respective properties are subject, which either individually or in the
aggregate may have a material adverse effect on the results of operations or
financial position of the Company.
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On October 18, 1996, the Company was informed by Prudential Securities
Incorporated ("Prudential") that they are entitled to an investment banking fee
of approximately $550,000 in connection with the Company's acquisition of
ConnectSoft. The Company believes that, although Prudential had originally been
engaged by ConnectSoft as an investment banker, Prudential did not directly or
indirectly introduce the Company to ConnectSoft and abandoned efforts to finance
ConnectSoft well prior to the Company's involvement. Accordingly, the Company
does not believe that Prudential is entitled to any fee, and if litigation is
commenced, will vigorously defend any such action and assert against Prudential
what it believes are meritorious counterclaims on behalf of ConnectSoft.
PROPERTIES
The following table sets forth information as to each of the properties
which the Company owns or leases:
THE DISTRIBUTION BUSINESS:
<TABLE>
<CAPTION>
EXPIRATION ANNUAL SIZE/ PURCHASE
LOCATION AND USE LESSOR DATE RENTAL SQUARE FEET OPTIONS
- ------------------------------------ -------------------------- ----------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
1745 N.E. Columbia Blvd. Carlton O. Fisher, 12/31/00 $54,000(1) plus Approx. 4 No
Portland, Oregon 97211 Nancy A. Harrison & CPI adjustments Acres; Building
(Retail sales, service, Jane G. Whitbread 17,622 sq. ft.
storage and repair
facilities)
1665 Silverton Road, N.E. LaNoel Elston Myers 7/10/98 $27,480(1) Approx. 1 Acre; No
Salem, Oregon 97303 Living Trust Buildings
(Retail sales, service, 14,860 sq. ft.
storage and repair
facilities)
1702 North 28th Street McKay Investment 6/14/01 $69,000(1) Approx. 5 No
Springfield, Oregon 97477 Company Acres; Building
(Retail sales, service, 17,024 sq. ft.
storage and repair
facilities)
West 7916 Sunset Hwy. Case Corporation 9/30/98 $58,404(1) Approx. 5 No
Spokane, Washington 99204 Acres; Building
(Retail sales, service, 19,200 sq. ft.
storage and repair
facilities)
3217 Hewitt Avenue Dick Calkins 3/31/97 $40,320(1) Approx. 2.5 No
Everett, Washington 98201 Acres; Building
(Retail sales, service, 12,483 sq. ft.
storage and repair
facilities)
1901 Frontier Loop The Landon Group Month to $29,625(1) Approx. 7 No
Pasco, Washington 99301 Month Acres; Building
(Retail sales, service, 14,200 sq. ft.
storage and repair
facilities)
13184 Wheeler Road, N.E. Maiers Industrial Park Month to $38,400(1) Approx. 10 No
Building 4 Moses Lake, Month Acres; Building
Washington 98837 13,680 sq. ft.
(Retail sales, service,
storage and repair
facilities)
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
EXPIRATION ANNUAL SIZE/ PURCHASE
LOCATION AND USE LESSOR DATE RENTAL SQUARE FEET OPTIONS
- ------------------------------------ -------------------------- ----------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
63291 Nels Anderson Road B&K Management Corp. 10/31/98 $27,600(1) Approx. 3,600 No
Bend, Oregon 97701 sq. ft.
(Retail sales, service,
storage and repair
facilities)
4601 N.E. 77th Avenue Parkway Limited 2/15/99 $93,456 6,100 sq. ft. No
Suite 200 Partnership
Vancouver, Washington 98662
(Executive Offices)
2702 W. Valley Hwy No. ConnectSoft Island LLC 11/30/15 $204,000(1) Approx. 8 No
Auburn, Washington 98001 Acres; Building
(Retail sales, service, 33,000 sq. ft.
storage and repair
facilities)
13 West Washington Avenue Bob and Pat Schneider 1/14/97 $12,000(1) Approx. 15,600 No
Yakima, Washington 98903 sq. ft.;
(Retail sales, service, Building 4,320
storage and repair sq. ft.
facilities)
2112 Wildwood Way James Ghia 5/31/98 $18,720 Approx. 1 No
Elko, Nevada 89431 Acre; Building
(Retail sales, service, 3,000 sq. ft.
storage and repair
facilities)
1455 Glendale Ave. Owned N/A N/A Approx. 5 N/A
Sparks, Nevada 89431 acres;
(Retail sales, service, Building 22,475
storage and repair sq. ft.
facilities)
25886 Clawiter Road Fred Kewel II, Agency 11/30/99 $96,000(1) Approx. 2.8 No
Hayward, California 94545 acres; Building
(Retail sales, service, 21,580 sq. ft.
storage and repair
facility)
3540 D Regional Parkway Soiland 2/28/98 $35,400(1) plus 5,140 sq. ft. No
Santa Rosa, California 95403 CPI adjustments
(Retail sales, service,
storage and repair
facility)
1751 Bell Avenue McLain-Rubin Realty 3/1/16 $168,000(2) Approx. 8 No
Sacramento, California 95838 Company LLC(11) Acres;
(Retail sales, service, Buildings
storage and repair 35,941 sq. ft.
facility)
1041 S. Pershing Avenue Raymond Investment 3/14/01 $36,000(1) Approx. 2 No
Stockton, California Corp. Acres;
95206 Buildings
(Retail sales, service, 5,000 sq. ft.
storage and repair
facility)
1126 E. Truslow Avenue D. June Brecht, Glen 6/30/97 $22,524(1) Building 4,800 No
Fullerton, California 92631 Brecht and Marshal Brecht sq. ft.
(Retail sales, service,
storage and repair
facility)
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
EXPIRATION ANNUAL SIZE/ PURCHASE
LOCATION AND USE LESSOR DATE RENTAL SQUARE FEET OPTIONS
- ------------------------------------ -------------------------- ----------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
672 Brunken Avenue R. Jay De Serpa, Ltd. 7/31/98 $28,800(1) 4,000 sq. ft. No
Salinas, CA 93301
(Retail sales, service,
storage and repair
facility)
THE TECHNOLOGY BUSINESS:
11130 NE 33rd Place Koll Management 11/22/01 $350,000(1) 17,200 sq. ft. No
Bellevue, Washington 98004
(Principal executive
offices, ConnectSoft and
eXodus offices and software
production facility)
1520 Fourth Avenue, Metropolitan Federal 7/31/98 $48,000(1) 4,031 sq. ft. No
Suite 200 Savings and Loan
Seattle, Washington 98101 Association
(Interglobe Networks
offices and operating
facilities)
6th and Virginia 6th and Virginia 9/30/00 $25,000(1) 1,000 sq. ft. No
Seattle, Washington 98121 Properties
(Network operations center)
4340 East West Highway Booze Allen and 12/31/98 $41,292 3,441 sq. ft. No
Bethesda, MD 20814 Hamilton 12/31/97 $48,000 4,000 sq. ft. No
(TechStar offices and
operating facility)
1417 Fourth Avenue Collier Management 2/9/00 $54,000(1) 8,000 sq. ft. No
Seattle, Washington 98101
(Seattle OnLine
offices and operating
facilities)
</TABLE>
- ------------------------
(1) Net lease with payment of insurance, property taxes and maintenance costs by
Company.
(2) C. Dean McLain and Robert M. Rubin are (i) the Executive vice President and
Director of the Company and Chief Executive Office of Western, and (ii) the
President, Chief Executive Officer and Chairman of the company,
respectively. Messrs. Rubin and McLain are the equity owners of McLain-Rubin
Realty Company, LLC. The terms of its lease with McLain-Rubin Realty Company
LLC is "triple net", under which Western pays, in addition to rent, all
insurance, property taxes, maintenance costs and structural and other
repairs.
All of the leased and owned facilities used by the Company are believed to
be adequate in all material respects for the needs of the Company's current and
anticipated business operations.
PRIVATE PLACEMENT
Primarily as a result of payments made in connection with its acquisition
program commenced in May 1996 and to support the capital requirements of
ConnectSoft and eXodus, the Company has recently sought to recoup its liquid
capital resources. Accordingly, in January 1997, the Company consummated the
1997 Private Placement of 400,000 shares of the Company's Series B-2 Preferred
Stock, $.01 par value (referred to in this Prospectus as the "Private Placement
Preferred Shares"), to 11 unaffiliated investors for an aggregate purchase price
of $10,000,000, or $25 per share. The Private Placement Preferred Shares carry a
$25.00 per share liquidation preference over the Company's Common Stock, and pay
a 7% cumulative quarterly dividend, payable at the Company's option in cash or
in additional shares of Series B-2 Preferred Stock.
The Private Placement Preferred Shares are convertible into an aggregate of
1997 Private Placement Shares either as a result of action by the holders of
Private Placement Preferred Shares, or automatically
51
<PAGE>
without further action by the Company or the holders of Private Placement
Preferred Shares, under varying circumstances. The holders of Private Placement
Preferred Shares have the right to convert Private Placement Preferred Shares
into 1997 Private Placement Shares of Common Stock on a cumulative vesting
schedule of 133,333 Private Placement Preferred Shares on February 7, 1997,
133,333 Private Placement Preferred Shares on March 7, 1997 and 133,334 Private
Placement Preferred Shares on April 7, 1997, at a conversion rate (the
"Conversion Rate") equal to the lesser of (i) the Closing Date Average Price of
$8.58, (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 of the 1997 Private Placement),
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 (which is the Average
Price on the date immediately preceding the date any shares of Private Placement
Preferred Shares are converted into Common Stock). For purposes of determining
the Private Placement Preferred Shares conversion rate, the Average Price equals
the average daily closing bid price of the Common Stock as reported on Nasdaq or
other national securities exchange for the 10 trading days immediately preceding
the measuring date in question. Notwithstanding the holders' option to convert
the Private Placement Preferred Shares into 1997 Private Placement Shares, all
Private Placement Preferred Shares not previously converted into Shares on or
before January 8, 2000 will be automatically converted into 1997 Private
Placement Shares of Common Stock at the applicable Conversion Rate.
In the event that the Average Price of the Common Stock is $3.50 or less at
any time during the six-month period commencing on the Effective Date (as
defined below), the Company shall have the right to restrict the rights of the
holders to convert the Private Placement Preferred Shares into 1997 Private
Placement Shares as follows: (i) not more than 20% of the total number of shares
of Private Placement Preferred Shares originally purchased by a specific holder
may be converted into Shares in any thirty-day period interval measured from the
six-month anniversary of the Effective Date, and (ii) on not more than one
occasion in every six-month period interval measured from such six-month
anniversary date, the Company will have the right to impose a 30-calendar day
"standstill" during which period the Private Placement Preferred Shares may not
be converted.
Investors in the 1997 Private Placement also purchased 350,000 five-year
warrants (referred to in this Prospectus as the "Private Placement Warrants"),
at a purchase price of $.01 per warrant, entitling the holders to purchase
350,000 Shares at an exercise price equal to $8.58 per share or the Closing Date
Average Price. In addition, in the event of an initial public offering of common
stock of the Company's eXodus subsidiary, investors in the 1997 Private
Placement shall have the right to purchase, for $.01 each, five-year warrants to
purchase up to 350,000 shares of eXodus common stock (the "eXodus Common Stock")
at an exercise price equal to the initial price per share that eXodus Common
Stock is offered to the public (the "eXodus Warrants"). The eXodus Warrants
shall contain terms which are substantially identical to the Private Placement
Warrants. The shares of eXodus Common Stock issuable upon exercise of the eXodus
Warrants shall be subject to customary "piggyback" registration rights and one
demand registration right following completion of a proposed initial public
offering of eXodus securities, but shall be subject to restrictions on sale
pursuant to customary "lock-up" agreements (but in no event for more than 180
days) with the representative of the underwriters of such eXodus initial public
offering.
Under the terms of the 1997 Private Placement, the Company was required to
file a Registration Statement with the Commission with respect to the
distribution of the Shares issuable upon exercise of the Private Placement
Warrants, as well as all 1997 Private Placement Shares to be issued upon
conversion of the Private Placement Preferred Shares.
52
<PAGE>
MANAGEMENT
OFFICERS AND DIRECTORS
The following table sets forth information with respect to directors,
nominees for directors, executive officers and key employees of the Company as
of December 31, 1996. There are no pending legal proceedings to which any
director, nominee for director or executive officer of the Company is a party
adverse to the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Robert M. Rubin...................................... 56 Chairman of the Board of Directors, President and
Chief Executive Officer
Lawrence E. Kaplan................................... 53 Director
C. Dean McLain....................................... 41 Director and Executive Vice President of the Company;
President and Chief Executive Officer of Western
Artour Baganov....................................... 30 President of Interglobe and Director of the Company
David M. Barnes...................................... 53 Vice President of Finance, Chief Financial Officer
and Director
Howard Katz.......................................... 54 Executive Vice President and Director
Sergio Luciani....................................... 46 Vice President and Chief Financial Officer of
TechStar and Director of the Company
</TABLE>
ROBERT M. RUBIN. Mr. Rubin has served as the Chairman of the Board of
Directors of the Company since May, 1991, and was its Chief Executive Officer
from May 1991 to January 1, 1994. Between October, 1990 and January 1, 1994, Mr.
Rubin served as the Chairman of the Board and Chief Executive Officer of AUG and
its subsidiaries; from January 1, 1994 to January 19, 1996, he served only as
Chairman of the Board of AUG and its subsidiaries. From January 19, 1996, Mr.
Rubin has served as Chairman of the Board and President and Chief Executive
Officer of the Company. Mr. Rubin was the founder, President, Chief Executive
Officer and a Director of Superior Care, Inc. ("SCI") from its inception in 1976
until May 1986. Mr. Rubin continued as a director of SCI (now known as Olsten
Corporation ("Olsten")) until the latter part of 1987. Olsten, a New York Stock
Exchange listed company, is engaged in providing home care and institutional
staffing services and health care management services. Mr. Rubin is Chairman of
the Board, Chief Executive Officer and a stockholder of ERD Waste Technology,
Inc., a diversified waste management public company specializing in the
management and disposal of municipal solid waste, industrial and commercial
non-hazardous waste and hazardous waste. Mr. Rubin is a former director and Vice
Chairman, and currently a minority stockholder, of American Complex Care,
Incorporated, a public company formerly engaged in providing on-site health care
services, including intra-dermal infusion therapies. In April 1995, American
Complex Care, Incorporated's operating subsidiaries made assignments of their
assets for the benefit of creditors without resort to bankruptcy proceedings.
Mr. Rubin is also Chairman of the Board and a minority stockholder of Universal
Self Care, Inc., a public company engaged in the sale of products used by
diabetics. Mr. Rubin is also the Chairman of the Board of Western Power &
Equipment Corp. ("Western"), a public company engaged in the distribution of
construction equipment, principally manufactured by Case Corporation, which is a
subsidiary of the Company. The Company owns approximately 56.6% of the
outstanding common stock of Western. Mr. Rubin is also a director and a minority
stockholder of Response USA, Inc., a public company engaged in the sale and
distribution of personal emergency response systems; Diplomat Corporation, a
public company engaged in the manufacture and distribution of baby products;
Help at Home, Inc., a public company which provides home health
53
<PAGE>
care personnel; Arzan International (1991) Ltd.; and Kay Kotts Associates, Inc.,
a public company engaged in providing tax preparation and assistance services.
LAWRENCE E. KAPLAN. Mr. Kaplan has served as a director of the Company
since February, 1993. Since January, 1987, Mr. Kaplan has been an officer,
director and principal stockholder of Gro-Vest Management Consultants, Inc., an
investment banking firm located on Long Island, New York. Mr. Kaplan is also a
registered representative, officer, director and principal stockholder of G-V
Capital, a brokerage firm. He is also a director of Andover Equities, Inc. and
PARK Group, both blank check companies which are looking for merger
opportunities. He is also an officer and director of Saratoga Standardbreds
Inc., a blank check company which is looking for a merger opportunity.
C. DEAN MCLAIN. Mr. McLain has served as an Executive Vice President of the
Company since March 1, 1993, as a director of the Company since March 7, 1994
and President of Western since June 1, 1993. From 1989 to 1993, Mr. McLain
served as Manager of Privatization of Case Corporation. From 1985 to 1989, Mr.
McLain served as General Manager of Lake State Equipment, a distributor of John
Deere construction equipment. Mr. McLain holds a B.S. degree in Business and
Economics, and a Master's of Business Administration, from West Texas State
University.
ARTOUR BAGANOV. Mr. Baganov has served as a director of the Company since
November 1, 1996. He is a co-founder of InterGlobe Networks, Inc. and has served
as a director of InterGlobe since its inception in December 1994. From March
1996 Mr. Baganov has served as Chairman of the Board, President and Chief
Executive Officer of InterGlobe. Prior to co-founding InterGlobe, Mr. Baganov
was a network engineer at the University of Washington, specializing in TCPIIP
network topology design and engineering in addition to network management. Mr.
Baganov holds a Masters Degree in Engineering from Kalinin Polytechnical
Institute, Russia, and a BS in Computer Engineering from the University of
Washington. In addition, he has been actively involved in the graduate studies
in Computer Communications Networks area at the University of Washington. Mr.
Baganov is also on the Board of Directors of the Greater Seattle Chamber of
Commerce.
DAVID M. BARNES. Mr. Barnes has been Chief Financial Officer of the Company
since May 15, 1996, and Vice President Finance and director since November 8,
1996. Mr. Barnes has been a director of Consolidated Stainless, Inc., a
manufacturer and distributor of stainless steel products, since June 21, 1994.
From April 1990 until July 1990, Mr. Barnes also served as an officer and
director of Intelcom Data Systems, Inc., which engages in the design and
development of software for the foreign currency exchange and banking
industries. From October 1987 until May 1989, Mr. Barnes was Vice President of
Finance at U.S. Home Care Corp., a home health care provider. From April 1983
until September 1987, Mr. Barnes was Vice President of Finance and
Administration of Lifetime Corporation. From 1975 to 1983, Mr. Barnes was
Executive Vice President of Beefsteak Charlies, Inc. Mr. Barnes served as a
Director of Universal Self Care, Inc., a distributor and retailer of products
and services principally for diabetics, from May 1991 to June 1995 and he is a
director, President and a minority stockholder of American Complex Care,
Incorporated, a public company formerly engaged in providing on-site health care
services, including intradermal infusion therapies. In April 1995, American
Complex Care, Incorporated's operating subsidiaries made assignments of their
assets for the benefit of creditors without resort to bankruptcy proceedings.
HOWARD KATZ. Mr. Katz has been Executive Vice President of the Company
since April 15, 1996. From December 1995 through April 15, 1996, Mr. Katz was a
consultant for, and from January 1994 through December 1995 he held various
executive positions, including Chief Financial Officer from December 1994
through December 1995, with National Fiber Network (a fiber optics
telecommunications company). From January 1991 through December 1993, Mr. Katz
was the President of Katlaw Construction Corp., a company that provides general
contractor services to foreign embassies and foreign missions located in the
United States. Prior to joining Katlaw Construction Corp., Mr. Katz was employed
as a
54
<PAGE>
management consultant by Coopers and Lybrand, LLP and as a divisional controller
for several large public companies.
SERGIO LUCIANI. Mr. Luciani has been Vice President and Chief Financial
Officer of TechStar since the company's formation as Broadcast Tower Sites, Inc.
in 1994, and was a principal stockholder of TechStar at the time of its December
1996 sale to the Company. For four years prior to 1994, Mr. Luciani was
President of Nanosystems, SRL, an engineering software company located in Italy.
Mr. Luciani was appointed as a member of the Company's Board of Directors in
January 1997. He is an adjunct Professor of International Finance at The
American University in Washington, D.C.
SUMMARY COMPENSATION TABLE
The following table sets forth the amount of all compensation paid by the
Company for services rendered during each of the three fiscal years of the
Company ended July 31, 1996, 1995 and 1994 to each of the Company's most highly
compensated executive officers and key employees whose total compensation
exceeded $100,000, and to all executive officers and key employees of the
Company as a group.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------------------------------------------------------------------
ANNUAL COMPENSATION AWARDS
--------------------------------------------------- --------------- PAYOUTS
OTHER RESTRICTED ------------------------
ANNUAL STOCK OPTIONS/ LTIP
NAME AND PRINCIPAL YEAR SALARY BONUS COMPENSATION AWARDS SARS(#) PAYOUTS
- ------------------------- --------- ---------- --------- ----------------- --------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert M. Rubin.......... 1996 $ 300,000 $ 50,000 $ 0 $ 0 450,000(4) $ 0
Chairman, President, 1995 $ 168,750 $ 50,000 $ 0 $ 0 80,000 $ 0
Director and acting 1994 $ 125,000 $ 69,600 $ 0 $ 0 $ 0
CFO(1)
John Shahid Former....... 1996 $ 250,000 $ 90,000 $ 0 $ 0 0 $ 0
President, Chief 1995 $ 237,411 $ 75,000 $ 0 $ 0 215,000(4) $ 0
Executive Officer and 1994 $ 190,585 $ 30,000 $ 0 $ 0 0 $ 0
Director
C. Dean McLain(3)........ 1996 $ 250,000 $ 84,868 $ 0 $ 0 150,000(4) $ 0
Executive Vice 1995 $ 170,709 $ 75,000 $ 0 $ 0 195,000 $ 0
President and Director; 1994 $ 141,879 $ 30,000 $ 0 $ 0 0 $ 0
President of Western
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL COMPENSATION
- ------------------------- -------------
<S> <C>
Robert M. Rubin.......... $ 0
Chairman, President, $ 0
Director and acting $ 0
CFO(1)
John Shahid Former....... $ 815,833
President, Chief $ 0
Executive Officer and $ 40,525(2)
Director
C. Dean McLain(3)........ $ 0
Executive Vice $ 29,250(5)
President and Director; $ 62,470
President of Western
</TABLE>
- ------------------------
(1) On June 15, 1995, Western entered into a separate employment agreement with
Robert Rubin. Mr. Rubin's 1995 salary includes $18,750 paid through Western
(See "Employment, Incentive Compensation and Termination Agreements").
(2) Pursuant to the terms of Mr. Shahid's Employment Agreement dated as of
January 1, 1994, Mr. Shahid was permitted to and did purchase from the
Company 10,000 shares of the Company's common stock at a price of $.01 per
share on August 1, 1994. On August 1, 1994, the closing price for a share of
the Company's common stock as reported by NASDAQ was $4-1/16. The value of
the 10,000 shares of common stock held by Mr. Shahid as of July 31, 1995 was
$48,750. Mr. Shahid resigned as President, CEO and a director of the Company
effective January 19, 1996 in connection with the sale of the Company's
manufacturing business to subsidiaries of Hutchinson Corporation.
(3) Mr. McLain joined the Company in March 1993. Effective as of August 1, 1995,
Mr. McLain's employment agreement with the Company was terminated and he
entered into an amended employment agreement with Western Power Equipment
Corp. (See "Employment, Incentive Compensation and Termination Agreements").
55
<PAGE>
(4) On May 5, 1995 the Board of Directors canceled the named person's
outstanding stock options to acquire an equal number of shares and issued
new stock options at the then current market price of $3.125.
(5) Pursuant to the terms of Mr. McLain's Employment Agreement, dated February
12, 1993, during the Fiscal Year 1993 Mr. McLain received $38,095 from the
Company as reimbursement for certain expenses that he incurred in connection
with his move to Washington State, and the sale of his former residence, in
order to permit his assuming his employment duties on behalf of the Company.
In addition, under the terms of his Employment Agreement on March 1, 1993,
July 31, 1994, and August 1, 1995 Mr. McLain was permitted to and did
purchase from the Company 8,000, 6,000, and 6,000 shares of the Company's
common stock, respectively, at a price of $.01 per share. On March 1, 1993,
August 1, 1994, and on August 1, 1995, the closing prices for a share of the
Company's common stock as reported by NASDAQ was $5 3/4, $4 1/16 and $4 7/8,
respectively. The value of the 20,000 shares of common stock held by Mr.
McLain as of July 31, 1995 was $97,500.
STOCK OPTION PLANS
OPTION GRANTS IN FISCAL YEAR 1996
The following table identifies individual grants of stock options made
during the last completed fiscal year to the executive officers named in the
Summary Compensation Table:
<TABLE>
<CAPTION>
REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
-------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(A) (B) (C) (D) (E) (F) (G)
<CAPTION>
% OF TOTAL
OPTIONS
OPTIONS GRANTED TO EXERCISE OF
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION
NAME (#) FISCAL YEAR ($/SH) DATE 5% ($) 10%($)
- -------------------------------------------- --------- --------------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert Rubin................................ 450,000 40.9% $ 3.78125 4/25/01 $ 1,786,640 $ 1,871,719
John Shahid................................. 0 0 N/A N/A N/A N/A
C. Dean McLain.............................. 150,000 13.6% $ 3.78125 4/25/01 $ 595,547 $ 623,906
</TABLE>
The following table provides information concerning the exercise of stock
options during the last completed fiscal year by each executive officer named in
the Summary Compensation Table, and the fiscal year-end value of unexercised
options held by each such person.
56
<PAGE>
AGGREGATED OPTIONS EXERCISED
IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
<S> <C> <C> <C> <C>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES ACQUIRED VALUE OPTIONS AT FISCAL IN- THE-MONEY OPTIONS
NAME ON EXERCISE (#) REALIZED ($) YEAR- END (#) AT FISCAL YEAR-END ($)
- ------------------------------------- --------------- ------------- ---------------------- -----------------------
Exercisable/ Exercisable/
Unexercisable Unexercisable
80,000 (exercisable) $240,000 (exercisable)
Robert Rubin......................... -0- -0- 450,000 (exercisable) $686,875 (exercisable)
John Shahid.......................... 226,546 $ 696,900 -0- -0-
195,000 (exercisable) $566,719 (exercisable)
150,000 (exercisable) $337,500 (exercisable)
C. Dean McLain....................... -0- -0- 12,750 (exercisable) $14,742 (exercisable)
</TABLE>
EMPLOYMENT, INCENTIVE COMPENSATION AND TERMINATION AGREEMENTS
In November 1994, Robert M. Rubin entered into a three-year employment and
bonus compensation agreement with the Company, retroactive to August 1, 1994.
Under the terms of that agreement, Mr. Rubin serves as Chairman of the Board of
the Company and its subsidiaries through and including July 31, 1997. Mr. Rubin
receives an annual base salary of $150,000 per annum. Such base salary shall be
increased by $10,000 for the fiscal year ending July 31, 1996 and by $15,000 for
the fiscal year ending July 31, 1997. In addition, Mr. Rubin was entitled to a
guaranteed bonus of $50,000 plus an additional annual incentive bonus payment
equal to (i) $5,000 for each $.01 increase in net earnings per share above $.55
per share for the fiscal year ending July 31, 1995, (ii) $5,000 for each $.01
increase in net earnings per share above $.60 per share for the fiscal year
ending July 31, 1996 and (iii) $5,000 for each $.01 increase in net earnings per
share above $.65 per share for the fiscal year ending July 31, 1997.
Upon completion of Western's initial public offering, Mr. Rubin's employment
agreement with the Company was amended to (i) eliminate his guaranteed annual
bonus, and (ii) limit his annual incentive bonus to $50,000 per annum for each
of fiscal years ended July 31, 1996 and 1997, and made it payable only in the
event that the consolidated net income of the Company, excluding the net income
of Western, shall exceed $1,500,000 in each of such fiscal years.
Following the amendment of his employment agreement with the Company,
Western entered into a separate employment agreement with Mr. Rubin, effective
June 14, 1995 and expiring July 31, 1998. Pursuant to such agreement, Mr. Rubin
serves as Chairman of the Board of Western and shall receive an annual base
salary of $150,000, payable at the rate of $12,500 per month from the effective
date of such agreement. In addition to his base annual salary, Mr. Rubin shall
be entitled to receive an annual bonus equal to $50,000 per annum, payable only
in the event that the "consolidated pre-tax income" of Western (as defined)
shall be in excess of $3,000,000 for the fiscal year ending July 31, 1996,
$3,500,000 for the fiscal year ending July 31, 1997, and S4,000,000 for the
fiscal year ending July 31, 1998, respectively. Under the terms of his
employment agreement with Western, Mr. Rubin is only obligated to devote a
portion of his business and professional time to Western (estimated at
approximately 20%). The term "consolidated pre-tax income" is defined as
consolidated net income of the Company and any subsidiaries of Western
subsequently created or acquired, before income taxes and gains or losses from
disposition or purchases of assets or other extraordinary items.
57
<PAGE>
The Company has entered into an amended and restated employment agreement
with Mr. Rubin, dated as of June 3, 1996, to extend the term of Mr. Rubin's
employment through July 31, 2001 (the "Restated Agreement"). The Restated
Agreement provides for a base salary payable to Mr. Rubin of $175,000 for the
fiscal year ending July 31, 1997, $200,000 for the fiscal year ending July 31,
1998, $225,000 for the fiscal year ending July 31, 1999, and a base salary for
the fiscal years ending July 31, 2000 and July 31, 2001 as determined by the
Compensation Committee of the Company's Board of Directors and ratified by a
majority of the entire Board of Directors of the Company (other than the
employee). The base salary in each of the fiscal years ending July 31, 2000 and
2001 will not be less than the annual base salary in effect in the immediately
preceding fiscal year, plus an amount equal to the increase in the annual cost
of living as published by the Bureau of Labor Statistics of the United States
Department of Labor for wage earners in the New York metropolitan area measured
over the course of the immediately preceding fiscal year. The Restated Agreement
also provides for incentive bonuses to be paid to Mr. Rubin of (i) $75,000 on
November 1, 1997, if the net income of the Company, including all of its
consolidated subsidiaries other than Western Power & Equipment Corp., as
determined by the Company's independent auditors using generally accepted
accounting principles, consistently applied (the "Corporations' Net Income"), is
greater than or equal to $2,000,000 for the fiscal year ended July 31, 1997;
(ii) $100,000 on November 1, 1998 if the Corporations' Net Income is greater
than or equal to $2,500,000 for the fiscal year ended July 31, 1998; and (iii)
$125,000 on November 1, 1999 if the Corporations' Net Income is greater than or
equal to $3,000,000 for the fiscal year ended July 31, 1999. Incentive
compensation for each of the fiscal years ending July 31, 2000 and July 31, 2001
shall be as determined by the Compensation Committee of the Company's Board of
Directors and ratified by a majority of the entire Board of Directors of the
Company (other than the employee).
John Shahid served as President and Chief Executive Officer of the Company,
AUG California, Inc. and each of its American United Products, Inc. and American
United Seal, Inc. operating subsidiaries, pursuant to the terms of an Employment
Agreement, dated as of January 1, 1994, which was to terminate on December 31,
1998. Under that Employment Agreement, Mr. Shahid received a base salary
starting at $190,000 per year, which was to escalate to as high as $265,000 per
year during the last year of such agreement. His Employment Agreement provided
for payment of bonuses and for such other fringe benefits as are paid to other
executive officers of the Company. Such fringe benefits took the form of medical
coverage, excess life insurance benefits and an automobile allowance. Mr.
Shahid's Employment Agreement also provided for (i) bonus payments based on the
Company achieving prescribed levels of pre-tax profits (commencing at a maximum
of $30,000 bonus for the fiscal year 1994 and rising to a maximum of $110,000
bonus for fiscal year 1998); (ii) the granting of options to acquire 12,500
shares of Company's Common Stock at fair market value on the date of grant under
the Company's 1991 Stock Option Plan, with respect to each fiscal year of the
Employment Agreement in which the maximum Bonus is paid, and (iii) the sale to
Mr. Shahid of shares of Company Common Stock (ranging in amounts from 10,000
shares to 15,000 shares) at $.01 per share, with respect to each year in which
the Company achieved prescribed levels of pre-tax profits.
On January 19, 1996, as a result of the Hutchinson Transaction, Mr. Shahid
and the Company entered into a Termination Agreement whereby Mr. Shahid resigned
as an officer and director of the Company and each of its subsidiaries in
consideration for the payment of an aggregate of $815,833, representing salary
payments under his Employment Agreement though December 31, 1998, as well as a
bonus payment for fiscal year 1996 in the amount of $90,000. The Termination
Agreement also provides that the Company shall retain Mr. Shahid as a consultant
for a period of three years, commencing April 1, 1996, for which consulting
services he will be paid an aggregate of $200,000 in equal quarterly
installments.
Prior to the Western 1995 initial public offering, C. Dean McLain served as
President and Chief Executive Office of Western and Executive Vice President of
the Company pursuant to the terms of an employment agreement with the Company
effective March 1, 1993, which was to terminate on July 31, 1998. Pursuant to
his employment agreement, in fiscal year 1995 Mr. McLain received a base salary
of
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<PAGE>
$148,837 and the maximum $75,000 bonus provided for in such fiscal year. Such
agreement entitled Mr. McLain to scheduled increases in his base salary up to
$172,300 per year during the fiscal year ending July 31, 1998. The terms of such
employment agreement also provided for the issuance to Mr. McLain of an
aggregate of 20,000 shares of the Company's Common Stock at $.01 per share. In
addition, Mr. McLain received options to acquire an aggregate of 45,000 shares
of the Company's Common Stock at fair market value ($4.75 per share) on the date
of grant under the Company's 1991 Stock Option Plan, and additional options
under the Company's 1991 Stock Option Plan to purchase 150,000 shares of Company
Common Stock at fair market value ($5.50 per share) on the date of grant. These
options have since been repriced to $3.125 per share.
Effective as of August 1, 1995, Mr. McLain's employment agreement with the
Company was terminated and he entered into an amended employment agreement with
Western, expiring July 31, 2005. Pursuant to such agreement, Mr. McLain serves
as President and Chief Executive Officer of Western and will receive an annual
base salary, payable monthly, of $250,000 through the end of fiscal 1996,
$265,000 per annum in fiscal 1997, $280,000 per annum in fiscal 1998, $290,000
per annum in fiscal 1999, and $300,000 per annum in fiscal 2000. For each of the
fiscal years ending 2001, 2002, 2003, 2004 and 2005, inclusive, Mr. McLain's
base salary shall be determined by the Compensation Committee of Western and
ratified by the full Board of Directors of Western. In each of the five fiscal
years from 2001 through 2005, such base salary shall not be less than the annual
base salary in effect in the immediately preceding fiscal year plus a cost of
living adjustment. In addition, Mr. McLain will be entitled to receive bonus
payments in each of the five fiscal years ending 1996 through 2000, inclusive,
equal to 5% of such fiscal year consolidated pre-tax income of Western in excess
of $1,750,000 in each such fiscal year (the "Incentive Bonus"); provided, that
the maximum amount of the Incentive Bonus payable by Western to Mr. McLain shall
not exceed $150,000 in any such fiscal year, without regard to the amount by
which the Company's consolidated pre-tax income shall exceed $1,750,000 in each
of such fiscal years. For each of the fiscal years ending 2001 through 2005, Mr.
McLain's incentive bonus shall be determined by the Compensation Committee of
Western's Board of Directors and ratified by Western's full Board of Directors.
The maximum annual incentive bonus which Mr. McLain shall be entitled to receive
under his Employment Agreement shall not be less than $150,000. As used in Mr.
McLain's Employment Agreement, the term "consolidated pre-tax income" is defined
as consolidated net income of Western and any subsidiaries of Western
subsequently created or acquired, before the Incentive Bonus, income taxes and
gains or losses from disposition or purchases of assets or other extraordinary
items.
Under the terms of his amended employment agreement, the 150,000 stock
options, exercisable at $6.50 per share, awarded to Mr. McLain under Western's
1995 Stock Option Plan in March 1995, were canceled and on August 1, 1995 Mr.
McLain was granted options to purchase 300,000 shares of Western common stock at
$6.00 per share, the closing sale price of the Company's common stock on August
1, 1995. As the number of shares underlying Western's 1995 Stock Option Plan was
at that time insufficient for the full granting of such options, the options to
purchase 300,000 shares were granted on August 19, 1995 subject to stockholder
approval of the amendment of the 1995 Stock Option Plan (the "Plan"), which was
approved by the stockholders of Western on December 6, 1995. Such amendment to
the Plan added 550,000 shares of Common Stock to be available for option grants
under the Plan. The granting of all stock to Mr. McLain pursuant to his amended
employment agreement was ratified at Western's 1995 Annual Meeting. The Western
options granted to Mr. McLain were repriced to $4.50 per share in December 1995.
In the event that Western does not meet the accumulated consolidated pre-tax
income levels described above, Mr. McLain shall still be entitled to options to
purchase the 125,000 Western shares should the accumulated consolidated pre-tax
income of Western for the five fiscal years ending 1996 through 2000 equal or
exceed $16,000,000. In the event such additional incentive stock options become
available to him, Mr. McLain may exercise such options beginning August 1, 1996
and ending July 31, 2005 at $4.50 per share. Mr. McLain's employment agreement
also provides for fringe benefits as are customary
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<PAGE>
for senior executive officers in the industry in which the Company operates,
including medical coverage, excess life insurance benefits and use of an
automobile supplied by the Company.
The Company hired Howard Katz as Executive Vice President effective April
15, 1996. Mr. Katz currently receives a base salary of $130,000 per annum,
payable monthly, until July 31, 1997, at which point the Company's Board of
Directors will review Mr. Katz's compensation arrangements. Mr. Katz does not
have an employment agreement with the Company.
The Company hired David M. Barnes as its Chief Financial Officer effective
May 15, 1996. Mr. Barnes receives a base salary of $125,000 per annum, payable
bi-monthly. Mr. Barnes does not have an employment agreement with the Company.
The Company entered into an employment agreement with Robert Marcus, dated
as of May 15, 1996, pursuant to which Mr. Marcus was hired for the period
expiring July 31, 1999 to be the President and Chief Executive Officer of
ConnectSoft. See "Recent Developments." As compensation for his services, Mr.
Marcus will receive a base salary of $125,000 per annum, and normal fringe
benefits available to other employees. The Company also entered into a stock
option agreement with Mr. Marcus pursuant to which he was granted a five-year
option to acquire up to 100,000 shares of Company Common Stock at an exercise
price of $5.25 per share, the fair market value of a share of Common Stock on
the date of option grant. The option vests to the extent of 25% in July 1996,
and 25% in each successive July through July 1999.
In connection with the InterGlobe Merger, the Company and InterGlobe entered
into an employment agreement with Artour Baganov, a director of the Company and
President of InterGlobe, expiring July 31, 2000. Under the terms of such
agreement, Mr. Baganov receives an annual base salary of $150,000, annual cost
of living increases (not to exceed 5% in any one year) and an annual bonus equal
to 4.5% of the amount of any, by which the Pre-Tax Income (as defined) of
InterGlobe exceeds $250,000, $1,000,000, $2,000,000 and $4,500,000 in each of
fiscal years ending 1997 through 2000, respectively. In addition, the 698,182
Company stock options issued to Mr. Baganov become exercisable at $5.50 per
share immediately upon the occurrence of certain events, and otherwise on a
cumulative basis at the rate of 25% in each of fiscal year 1997 through 2000,
provided that InterGlobe meets or exceeds the Pre-Tax Income thresholds
described above.
In connection with the TechStar Merger, the Company entered into a four-year
employment agreement, terminating November 30, 2000, with Sergio Luciani, as
Vice President and Chief Financial Officer of TechStar. The employment agreement
provides for an initial annual base salary of $180,000, increasing to $250,000
in the fourth year of the agreement. In addition to the base salary, Mr. Luciani
received 260,000 TechStar Options. See "BUSINESS--History and Recent
Acquisitions."
By agreement dated August 10, 1995, the Company agreed to pay severance to
certain specified employees, including John Palumbo (its former Chief Financial
Officer), in the event that such persons' employment by the successor to the
Company's manufacturing business was terminated prior to the first anniversary
of the closing date of the sale of the manufacturing business. Such severance
payment shall be equal to any terminated employee's salary, at the level last
paid by the Company for the 12 months succeeding the closing date, minus any
severance received from the successor company. Mr. Palumbo has informed the
Company that his employment by such successor, Hutchinson, was terminated
effective March 15, 1996, and that his severance compensation from Hutchinson
would terminate on April 19, 1996. As a result, Mr. Palumbo is entitled to
receive approximately $66,000 in severance compensation, plus the availability
of certain benefits from the Company, through January 19, 1997 under the
Company's severance program. To date, Mr. Palumbo is the only person taking
advantage of the Company's severance program.
In December 1995, the Company amended each of its then outstanding employee
stock option plans in anticipation of the consummation of the Hutchinson
transaction. Under the old terms of the plans, all
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<PAGE>
options granted to employees would have terminated within ninety days of such
employees' termination of employment with the Company or any of its
subsidiaries. As a majority of the Company's employees, other than those of
Western, were to be terminated upon the consummation of the Hutchinson
transaction, the Company felt that it was in its best interests to amend the
Plans in order to extend the expiration dates of these options and to allow for
such options to immediately vest in full upon the consummation of the Hutchinson
transaction. All of the options granted under the Plans became exercisable until
January 19, 1998. At such time, the options held by individuals no longer
employed by the Company or its subsidiaries shall immediately terminate. Options
which continue to be held by Company employees shall revert back to their old
vesting terms and original expiration dates. One effect of these amendments is
to change the federal income tax treatment of incentive options held by
non-employees of the Company. Upon exercise, these options shall be treated as
non-qualified stock options for federal income tax purposes. As a result of such
option exercise period extension, the Company incurred additional compensation
expense for the fiscal year ended July 31, 1996 in the amount of $332,293. Such
amount is equal to the product of the number of options whose exercise periods
were extended and the aggregate difference between the exercise price of each
extended option and the market price for a share of Company Common Stock on
January 19, 1996 (the closing date of the Hutchinson Transaction, the day that
the option extension became effective).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended July 31, 1996, the Compensation Committee of
the Company's Board of Directors (the "Compensation Committee") did not meet.
During this time the Company's Board of Directors decided all compensation
matters relating to the Company's executive officers. Mr. Rubin's annual
compensation identified in the Summary Compensation Table was provided for under
his employment agreements entered into in July 1991 and August 1994, and his
amended and restated employment agreement dated as of June 3, 1996, which were
approved by the Company's Board of Directors. In June 1995, following completion
of Western's initial public offering, Mr. Rubin's 1994 employment agreement with
the Company was amended to (i) eliminate his guaranteed annual bonus, and (ii)
limit his annual incentive bonus to $50,000 per annum for each of fiscal years
ended July 31, 1996 and 1997, and payable only in the event that the
consolidated net income of the Company, excluding the net income of Western,
shall exceed $1,500,000 in each of such fiscal years. For information concerning
Mr. Rubin's June 1996 amended and restated employment agreement, see
"Employment, Incentive Compensation and Termination Agreements", above. Mr.
Rubin also entered into a separate employment agreement with Western. Mr.
Shahid's annual compensation was provided for under his employment contracts
which were entered into in January, 1991 and as of January 1, 1994, and which
were approved by votes of the Company's Board of Directors. See, "Employment,
Incentive Compensation and Termination Agreements," above. Mr. McLain's annual
compensation was provided for under his employment agreement dated February 12,
1993, which was approved by vote of the Company's Board of Directors. Effective
as of August 1, 1995, Mr. McLain's employment agreement with the Company was
terminated and he entered into an amended employment agreement with Western. See
"Employment, Incentive Compensation and Termination Agreements", above.
During the last fiscal year, other than Messrs. Rubin, Shahid and McLain,
who were then officers of the Company and members of the Board of Directors, no
officers or employees of the Company or any subsidiary participated in the
Board's compensation decisions.
Of the Compensation Committee members, only Mr. Rubin was at any time an
officer or employee of the Company or any of its subsidiaries. While Mr. Rubin
serves on the Compensation Committees of the Boards of Directors of other
publicly held corporations, no executive officers or directors of such companies
serve on the Company's Compensation Committee. The Company's Audit, Compensation
and Stock Option Committees are comprised of Messrs. Rubin and Kaplan.
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<PAGE>
No director of the Company receives any directors fees for attendance at
Board meetings, although they do receive reimbursement for actual expenses of
such attendance.
In October 1991, Mr. Rubin agreed to waive rights inherent in his ownership
of the Company's Series A Preferred Stock to designate a majority of the members
of the Company's Board of Directors and to use his best efforts to cause the
Company to amend its Certificate of Incorporation so as to eliminate all rights
of Mr. Rubin or any other holder of the Series A Preferred Stock to designate a
majority of the members of the Board of Directors. In partial consideration for
his agreement to waive and modify such rights and privileges, the Company issued
to Mr. Rubin for $200,000 ($2.63 per share) an aggregate of 76,000 additional
shares of Company Common Stock. Mr. Rubin paid for such shares by delivering to
the Company his full recourse 10% promissory note, which note is secured by
collateral other than the shares acquired (certain marketable securities in
corporations other than the Company) which has a fair market value in excess of
$200,000. This note was payable over five years, commencing March 31, 1992,
together with accrued interest, in twenty equal quarterly principal installments
of $10,000 each. In March 1993, the Company agreed to amend Mr. Rubin's note to
be payable in a single payment 36 months from the date of issuance at 8%
interest per annum. In connection with such amendment, Mr. Rubin agreed to apply
no less than 50% of any bonus received by him against the outstanding principal
of the installment note. On November 7, 1996, the Board of Directors of the
Company agreed to extend the maturity date of such note to March 31, 1999.
On January 26, 1994, the Company entered into a month-to-month public
relations consulting agreement with Gro-Vest Management Consultants, Inc.
("Gro-Vest Consultants"), a company one of whose principal stockholders,
directors and officers is Lawrence Kaplan. Commencing on March 1, 1994, the
Company became obligated to pay $3,000 per month to Gro-Vest Consultants for its
services under such agreement, subject to termination of the agreement on 30
days' notice provided by either party thereto. An aggregate of $43,000 was paid
to Gro-Vest Consultants in the 1996 fiscal year.
At the closing of the Hutchinson Transaction, the Company, Robert Rubin and
Hutchinson (as guarantor) entered into a five-year Non-Competition Agreement in
favor of Hutchinson and its affiliates, pursuant to which Mr. Rubin and the
Company agreed not to compete with the businesses acquired in the Hutchinson
transaction. Under the terms of the Non-Competition Agreement, Mr. Rubin will
receive payments aggregating $200,000 over a seven year period. In addition, at
the Closing Hutchinson engaged Mr. Rubin as a consultant to provide advisory
services relating to the acquired manufacturing business over a seven year
period, for which services Mr. Rubin will receive payments aggregating
$1,000,000
On February 9, 1996, the Company loaned an aggregate of $450,000 to Diplomat
Corporation ("Diplomat") in connection with Diplomat's acquisition of
BioBottoms, Inc. Diplomat is a public company of which Robert Rubin serves as a
director. Before the BioBottoms transaction, Mr. Rubin held approximately 22% of
Diplomat's outstanding capital stock. Such loan (i) bears interest at the prime
rate of CoreStates Bank, N.A. plus 2% and is payable monthly, (ii) is
subordinated to a $2,000,0000 revolving credit loan agreement between Diplomat
and Congress Financial Corporation, (iii) is payable in full on or before May 4,
1996 and (iv) is secured by a second priority lien in all of the assets of
Diplomat and its wholly-owned subsidiary, BioBottoms, Inc. The loan was repaid
in full in May 1996. In addition to repayment of principal and its receipt of
accrued interest, the Company received a facilities fee of $50,000.
Pursuant to an Agreement, dated May 30, 1996 (the "ERD Agreement") between
the Company and ERD Waste Corp.("ERD"), the Company agreed to provide certain
financial accommodations to ERD by making available a $4.4 million standby
letter of credit expiring May 31, 1997 issued by Citibank, N.A. in favor of
Chemical Bank (the "Letter of Credit') on behalf of ERD. Chemical Bank is the
principal lender to ERD and its subsidiaries, and upon issuance of the Letter of
Credit Chemical Bank made available $4.4 million of additional funding to ERD
under ERD's existing lending facility. The funding was used to refinance certain
outstanding indebtedness of Environmental Services of America, Inc. ("ENSA"), a
wholly-owned subsidiary of ERD. Robert M. Rubin, the Chairman and Chief
Executive Officer and a
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<PAGE>
principal stockholder of the Company is also the Chairman, Chief Executive
Officer, a director and a principal stockholder of ERD, owning approximately
25.1% 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 and (ii)
to issue to the Company an aggregate of 25,000 shares of ERD common stock for
each consecutive period of 90 days or any portion thereof, commencing August 1,
1996 that the Letter of Credit remains outstanding. ERD Common Stock trades on
the NASDAQ National Market and, at the time of closing of the transaction with
ERD, its the closing price of ERD Common Stock, as traded on Nasdaq was $9.25
per share.
In August 1996, a subsidiary of ERD which operates 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 currently accounts for approximately 13% of ERD's consolidated
revenues. As a result of the uncertainties surrounding ERD's waste facility
operations, the per share price of ERD Common Stock closed at $2.875 per share
on November 8, 1996. Although the Company has been advised by ERD that it and
the DEC have reached agreement in principle to settle on acceptable terms such
violations and pending charges alleged against ERD and one of the employees of
the ERD subsidiary, to date, no such settlement has been finalized. If an
acceptable settlement is not reached, the business of ERD could be materially
and adversely affected.
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.
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 AUGI from
the sale of ERD capital stock described above.
As of October 31, 1996, the directors and executive officers listed below
hold outstanding non-qualified options to acquire shares of Company Common Stock
granted under the Company's 1996 Stock Option Plan, adopted on April 25, 1996
and amended as of July 30, 1996, as follows: options were granted on April 25,
1996 to Robert M. Rubin (450,000 options), C. Dean McLain (150,000 options) and
Howard Katz (150,000 options) at an exercise price of $3.78125 per share;
options were granted on May 15, 1996 to
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<PAGE>
David M. Barnes (100,000 options) at an exercise price of $5.25 per share; and
options were granted to Robert M. Rubin (30,000 options), Howard Katz (100,000
options) and David M. Barnes (50,000 options) at an exercise price of $5.125 on
October 4, 1996. The exercise prices of all such options equals the average of
the closing bid and asked prices for a share of Company Common Stock as reported
on The Nasdaq National Market on the date of option grant.
On July 30, 1996, the Board of Directors of the Company amended the terms of
the 1996 Stock Option Plan to make all options granted under the 1996 Stock
Option Plan exercisable without shareholder approval. On the date the 1996 Stock
Option Plan was amended, the market price of the Company's Common Stock was
$6.0125 per share, as a result of which the Company incurred a compensation
charge equal to $1,670,667, representing the aggregate value of such unexercised
in-the-money options issued under such option plan (including unexercisable
options) to the named persons.
All options granted to each of Messrs. Rubin and McLain in April 1996, and
100,000 options granted to Mr. Katz at $5.125 per share in October 1996, are
immediately exercisable. The options granted to Mr. Barnes in May 1996 and the
remaining 150,000 options granted to Mr. Katz vest immediately as to 33 1/3% and
as to 33 1/3% at the end of each of various fiscal periods ending 1997 and 1998,
subject to their continued employment with the Company. The options to acquire
30,000 shares granted to Mr. Rubin and 50,000 shares granted to Mr. Barnes in
October 1996 vest 50% on the first anniversary of the option grant and 50% on
the second anniversary of the option grant.
In June 1996, the Company agreed to loan to Mr. Rubin up to $1,200,000, at
an interest rate equal to one percent above the fluctuating Prime Rate offered
by Citibank, N.A. All borrowings under the loan are repayable on a demand basis,
when and if requested by the Company, but in no event later than January 31,
1998. Mr. Rubin's indebtedness is secured by his pledge of 150,000 shares of
Company Common Stock and his collateral assignment of all payments to him under
the terms of his seven-year Consulting Agreement and Non-Competition Agreement
with Hutchinson, which currently aggregate $1,200,000.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of December 31, 1996
with respect to the beneficial ownership of the Common Stock of the Company by
each beneficial owner of more than 5% of the total number of outstanding shares
of the Common Stock of the Company, each director and all executive officers and
directors of the Company as a group. Unless otherwise indicated, the owners have
sole voting and investment power with respect to their respective shares.
<TABLE>
<CAPTION>
NO. OF PERCENT OF
NAME AND ADDRESS OFFICE SHARES OUTSTANDING
- ------------------------------------ ------------------------------------ ---------- -------------
<S> <C> <C> <C>
Robert M. Rubin Director, President, 1,575,798 (2) 18.9%
6060 King's Gate Circle Chief Executive Officer
Del Ray Beach, FL 33484
Lawrence E. Kaplan Director -0- -0-
330 Vanderbilt Motor Pkwy
Hauppauge, NY 11788
C. Dean McLain Director, Executive 257,500 (3) 3.2%
4601 N.E. 77th Avenue Vice-President and
Suite 200 President of Western
Vancouver, WA 98662
Artour Baganov Director and President 698,182(4) 9.0%
1520 Fourth Avenue, Suite 200 of InterGlobe
Seattle, Washington 98101
Associated Capital L.P.(5) 570,000 7.3%
477 Madison Avenue 14th Floor
David M. Barnes Vice President of 33,333(6) *
11130 NE 33rd Place Finance and Director
Bellevue, WA 98004
Sergio Luciani Executive Vice 229,275(7) 2.9%
4340 East West Highway President of TechStar
Bethesda, MD 20814 and Director
Howard Katz Executive Vice 150,000(6) 1.9%
300 East 56th Street President and Director
New York, New York 10022
Goodland International 545,425(8) 6.5%
Investment Ltd.
c/o Corner House
20 Parliament St.
Hamilton HM12 Bermuda
All directors and executive officers 2,944,088 (7) 33.6%
as a group (7 persons)
</TABLE>
- ------------------------
* Less than one percent (1%)
(1) Includes non-qualified options to purchase 80,000 shares granted to Mr.
Rubin at an exercise price of $3.125 per share under the Company's 1991
Stock Option Plan which are fully exercisable.
(2) Includes non-qualified options granted under the 1996 Stock Option Plan
(options to acquire 450,000 shares to Mr. Rubin; options to acquire 150,000
shares to Mr. McLain). Such options were granted on April 25, 1996 at an
exercise price of $3.78125 per share, the fair market value of the Common
Stock
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on the date of option grant. The 1996 Stock Option Plan was amended in July
1996 to make options granted under the plan exercisable without stockholder
approval. Messrs. Rubin and McLain's continuing employment by the Company is
governed by the terms of their employment agreements. Does not include
30,000 options granted to Mr. Rubin on October 4, 1996 under the 1996 Stock
Option Plan, which options are not yet exercisable.
(3) Includes (i) options to purchase 36,000 shares of the Company's Common Stock
at $3.125 per share granted under the Company's 1991 Stock Option Plan, (ii)
options to purchase 45,000 shares of the Company's Common Stock at $4.875
per share under the 1991 Stock Option Plan, (iii) options to purchase 12,500
shares of the Company's Common Stock at $3.875 per share under the 1991
Stock Option Plan and (iv) options to purchase 150,000 shares of the
Company's Common Stock at $3.78125 per share granted under the 1996 Stock
Option Plan.
(4) Does not include Interglobe Options to purchase a maximum of 698,182 shares
of Company Common Stock at $5.50 per share which are exercisable only under
certain conditions specified in connection with the Interglobe merger.
(5) The General partner of Associated Capital, L.P., a Delaware limited
partnership ("Associated"), is A Cap, Inc., a New York corporation ("A
Cap"). Under Rule 13d-3 promulgated under the Securities Exchange Act of
1934, as amended, A Cap may be deemed to be a direct beneficial owner of the
shares of Company Common Stock owned by Associated by virtue of its interest
in, and control over, Associated. Jay H. Zises, as President of A Cap, has
the sole power to vote and to direct the voting of, and to dispose and to
direct the disposition of, the shares of the Company's Common Stock deemed
to be beneficially owned by A Cap. Under Rule 13d-3, Mr. Zises may be deemed
to be an indirect beneficial owner of the Company Common Stock owned by
Associated.
(6) Includes options to purchase 100,000 shares granted to Mr. Katz at an
exercise price of $5.125 per share and options to purchase 50,000 shares
granted to Mr. Katz at an exercise price of $3.78125 under the 1996 Plan
which are immediately exercisable. Does not include options granted under
the 1996 Stock Option Plan to Messrs. Barnes (66,667 shares at an exercise
price of $3.78125 per share and 50,000 at an exercise price of $5 .125 per
share) and Katz (100,000 shares) at exercise price of $3.78125,
respectively, which are not yet exercisable. The options issuable to each of
Messrs. Barnes and Katz which are not yet exercisable are only exercisable
under certain conditions related to their continued employment with the
Company.
(7) Does not include Performance Options to purchase a maximum of 260,000 shares
of Company Common Stock at an exercise price of $5.25 per share which are
exercisable only under certain specified conditions in connection with the
TechStar Merger. See, "BUSINESS--History and Recent Acquisitions."
(8) Represents 407,925 1997 Private Placement Shares and an additional 122,500
Shares issuable upon exercise of Private Placement Warrants sold to such
stockholder in connection with the 1997 Private Placement. Does not include
warrants to purchase 122,500 shares of common stock of eXodus which are to
be issued in the event of consummation of a public offering of securities of
eXodus. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--Liquidity and Capital Resources."
66
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership by the Selling Stockholders of the Shares as of the date of
this Prospectus, and as adjusted to reflect the sale of the Shares offered
hereby. Except as otherwise noted, all Shares are held of record directly by the
parties shown.
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
NUMBER OF SHARES SHARES OF COMMON VOTING SECURITIES BENEFICIALLY
OF COMMON STOCK BEING OWNED(9)
STOCK REGISTERED BY ------------------------------
NAMES AND ADDRESS BENEFICIALLY THIS AFTER
OF BENEFICIAL OWNER OWNED(1) PROSPECTUS BEFORE OFFERING OFFERING
- --------------------------------------------- ---------------- ----------------- --------------- -------------
<S> <C> <C> <C> <C>
Michael F. Frey(2) 9,500 9,500 * 0
5 Simonson
Old Brookville, NY 11545
John E. Lawlor(2) 9,500 9,500 * 0
461 Richland Blvd.
Brightwaters, NY 11718
James T. Martelli(2) 9,500 9,500 * 0
3 Versailles
Brookvile, NY 11545
Arthur W. Goldsmith(2) 9,500 9,500 * 0
289 Lakeview Avenue
West Brightwaters, NY 11718
Richard G. Schmeling(3) 2,000 2,000 * 0
604 Pines Lake Drive,
West Wayne, NJ 07470
Andrew J. Cahill(3) 3,000 3,000 * 0
223 Baker Avenue
Westfield, NJ 07090
John D. White(3) 1,000 1,000 * 0
325 East 77th
Street, Apt. 5C
New York, NY 10021
Colman Abbe(3) 30,000 30,000 * 0
26 Lawrence Road
Scarsdale, NY 10583
Lawrence A. Silverstein(3) 5,000 5,000 * 0
411 East 53rd Street, Apt. 16B
New York, NY 10022
Caesar Fraschilla(3) 1,000 1,000 * 0
15 Woodvale Loop
Staten Island, NY 10309
Laidlaw Equities, Inc.(3) 58,000 58,000 * 0
275 Madison Avenue
New York, NY 10016
Robert L. Lemon(4) 17,600 17,600 * 0
Chatfield Dean & Co., Inc.
7935 East Prentice Ave.
Suite 200
Englewood, CO 80111
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
NUMBER OF SHARES SHARES OF COMMON VOTING SECURITIES BENEFICIALLY
OF COMMON STOCK BEING OWNED(9)
STOCK REGISTERED BY ------------------------------
NAMES AND ADDRESS BENEFICIALLY THIS AFTER
OF BENEFICIAL OWNER OWNED(1) PROSPECTUS BEFORE OFFERING OFFERING
- --------------------------------------------- ---------------- ----------------- --------------- -------------
<S> <C> <C> <C> <C>
Richard H. Kamerling(4) 9,280 9,280 * 0
6 MacKenzie Court
Highlands Ranch, CO 80126
Harvey S. Morrow(4) 9,280 9,280 * 0
5206 South Hanover Way
Englewood, CO 80111
Richard Frueh(4) 9,280 9,280 * 0
1715 Northwest
Shore Blvd.
Suite 775
Tampa, Florida 33607
Kenneth S. Bernstein(4) 14,800 14,800 * 0
5330 South Grape Lane
Greenword Village, CO 80121
Kenneth L. Greenberg(4) 14,800 14,800 * 0
Chatfield Dean & Co., Inc.
7935 East Prentice Ave.
Suite 200
Englewood, CO 80111
Sissel Greenberg(4) 4,000 4,000 * 0
Premier Concepts
3033 South Parker Road
Suite 120
Aurora, Colorado 80014
Sanford D. Greenberg(4) 80,800 80,800 1.0% 0
Chatfield Dean & Co., Inc.
7935 East Prentice Ave.
Suite 200
Englewood, CO 80111
Gilford Securities, Inc. (5) 50,000 50,000 * 0
850 Third Avenue
New York, NY 10022
Stephen Kaplan(5) 25,000 25,000 * 0
3 Kalb Court
Dix Hills, NY 11746
David Kaplan(5) 20,000 20,000 * 0
6 Seward Drive
Dix Hills, NY 11746
Keith Barry(5) 5,000 5,000 * 0
21 Longwood Road
Middle Island, NY 11953
Damon Testaverde(6) 50,000 50,000 * 0
580 Oakdale Street
Staten Island, NY 10312
M.S. Farrell & Co., Inc.(6) 50,000 50,000 * 0
67 Wall Street--3rd Floor
New York, NY 10005
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
NUMBER OF SHARES SHARES OF COMMON VOTING SECURITIES BENEFICIALLY
OF COMMON STOCK BEING OWNED(9)
STOCK REGISTERED BY ------------------------------
NAMES AND ADDRESS BENEFICIALLY THIS AFTER
OF BENEFICIAL OWNER OWNED(1) PROSPECTUS BEFORE OFFERING OFFERING
- --------------------------------------------- ---------------- ----------------- --------------- -------------
<S> <C> <C> <C> <C>
Princeton Securities, Corp.(6) 50,000 50,000 * 0
100 Canal Pointe Boulevard
Princeton, NJ 08540
Martin Schacker(7) 25,000 25,000 * 0
c/o M.S. Farrell & Co., Inc.(6)
67 Wall Street--3rd Floor
New York, NY 10005
Douglas Gass(7) 25,000 25,000 * 0
c/o M.S. Farrell & Co., Inc.(6)
67 Wall Street--3rd Floor
New York, NY 10005
Hampshire Securities, Inc.(8) 50,000 50,000 * 0
640 Fifth Avenue
New York, NY 10019
Meadowbrook, Ltd.(8) 100,000 100,000 1.3% 0
c/o Zohar Arieli
91 Tarnast
Haderce, Israel
Milton Partners, Ltd.(9) 65,000 65,000 * 0
c/o David Kaminer
85 Old Long Ridge Road
Stamford, CT. 06903
Okemo Partners, Ltd.(9) 35,000 35,000 * 0
c/o David Kaminer
85 Old Long Ridge Road
Stamford, CT. 06903
Artour Baganov(10) 698,182 698,182 8.7% 0
c/o InterGlobe
1520 Fourth Avenue
Seattle, WA 98101
Brian Bursh(10) 32,000 32,000 * 0
c/o InterGlobe
1520 Fourth Avenue
Seattle, WA 98101
Ali Marashi(10) 69,818 69,818 * 0
c/o InterGlobe
1520 Fourth Avenue
Seattle, WA 98101
Simantov Moskona(11) 277,971 277,971 3.5% 0
c/o TechStar
4340 East West Highway
Bethesda MD 20814
Sergio Luciani(11) 229,275 229,275 2.9% 0
c/o TechStar
4340 East West Highway
Bethesda MD 20814
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
NUMBER OF SHARES SHARES OF COMMON VOTING SECURITIES BENEFICIALLY
OF COMMON STOCK BEING OWNED(9)
STOCK REGISTERED BY ------------------------------
NAMES AND ADDRESS BENEFICIALLY THIS AFTER
OF BENEFICIAL OWNER OWNED(1) PROSPECTUS BEFORE OFFERING OFFERING
- --------------------------------------------- ---------------- ----------------- --------------- -------------
<S> <C> <C> <C> <C>
Solon L. Kandel(12) 192,754 192,754 2.4% 0
30 Janet Lane
Springfield, NJ 07081
Goodland International 545,425 545,425 5.7% 0
Investment Ltd. (13)
c/o Corner House
20 Parliment St.
Hamilton HM12 Bermuda
Weyburn Overseas Ltd.(13) 227,325 227,325 2.4% 0
c/o Corner House
20 Parliment St.
Hamilton HM12 Bermuda
Porter Partners LP(13) 98,508 98,508 1.0% 0
100 Shoreline
Suite 211B
Mill Valley, CA
EDJ Limited (13) 22,733 22,733 * 0
c/o Deltec
Panamerica Trust
Deltec House
Lyford Cay, Box N3229
Nassau, Bahamas
Kodiak Capital, LP(13) 58,195 58,195 * 0
100 Wilshire Blvd.
Santa Monica, CA
Kodiak International Ltd.(13) 101,869 101,869 1.1% 0
c/o Kernco Trust
2 Rue Jargonnant
P.O. Box 6432
1211 Geneva 6, Switzerland
Kodiak Opportunity LP(13) 14,553 14,553 * 0
100 Wilshire Blvd.
Santa Monica, CA
Kodiak Opportunity Offshore 7,276 7,276 * 0
Limited(13)
c/o Citco Fund Services
West Bay Road
P.O.B. 31106 SMB
Grand Cayman, Cayman
Islands BWI
The Galileo Fund, L.P.(13) 427,371 427,371 4.5% 0
141 Linden Street, S-4
Wellesley, MA 02181
Kepler Overseas Corp.(13) 13,640 13,640 * 0
PO Box 896
Grand Cayman Islands
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
NUMBER OF SHARES SHARES OF COMMON VOTING SECURITIES BENEFICIALLY
OF COMMON STOCK BEING OWNED(9)
STOCK REGISTERED BY ------------------------------
NAMES AND ADDRESS BENEFICIALLY THIS AFTER
OF BENEFICIAL OWNER OWNED(1) PROSPECTUS BEFORE OFFERING OFFERING
- --------------------------------------------- ---------------- ----------------- --------------- -------------
<S> <C> <C> <C> <C>
Crocodile I, LLC (13) 13,640 13,640 * 0
c/o DDJ Capital Management
141 Linden Street, S-4
Wellesley MA 02181
Robert M. Rubin(14) 1,575,798 450,000 18.7% 13.3%
c/o American United
Global, Inc.
11130 NE 33rd Place
Suite 250
Bellevue, WA 98004
C. Dean McLain(14) 257,500 150,000 3.2% 1.3%
c/o Western Power &
Equipment Corp.
4601 NE 77th Avenue
Suite 200
Vancouver, WA 98662
Howard Katz(14) 150,000 150,000 1.8% 0
c/o American United
Global, Inc.
11130 NE 33rd Place
Suite 250
Bellevue, WA 98004
David M. Barnes(14) 33,333 33,333 * 0
c/o American United
Global, Inc.
11130 NE 33rd Place
Suite 250
Bellevue, WA 98004
Stephen A. Weiss(15) 40,000 40,000 * 0
c/o Greenberg, Traurig
153 East 53rd Street
New York, NY 10022
Peter W. Rothberg(15) 12,500 10,000 * *
c/o Greenberg, Traurig
153 East 53rd Street
New York, NY 10022
ConnectSoft Ruksun Software 30,000 30,000 * 0
India, Pvt. Ltd.(16)
3674 North Main Road
Koregaon Park, Pune, India
</TABLE>
- ------------------------
* Less than 1%.
(1) Each person is deemed to be the beneficial owner of securities which may
be acquired within sixty days through exercise of options, warrants and
rights, if any. Information contained in the table assumes that all
securities offered pursuant to this Prospectus will be sold.
71
<PAGE>
(2) Messrs. Frey, Goldsmith, Martelli and Lawlor acquired their Shares being
offered pursuant to this Prospectus upon exercise of certain 1990 IPO
Warrants, which entitled the holders to acquire up to an aggregate of
38,500 shares of Company Common Stock. Such 1990 IPO Warrants were
originally granted to Best Investors, Inc. and subsequently assigned to
them.
(3) Represents shares of common stock which may be acquired upon exercise of
1992 Underwriters' Warrants, which 1992 Underwriters' Warrants originally
entitled the holders to acquire up to an aggregate 100,000 shares of
Common Stock. Such 1992 Underwriters' Warrants are currently exercisable
by the holders thereof and expire in February 1997. Each such 1992
Underwriters' Warrant is exercisable to acquire Common Stock at an
exercise price of $5.75 per share.
(4) Represents shares of Common Stock which may be acquired upon exercise of
1994 Underwriters' Warrants, which 1994 Underwriters' Warrants originally
entitled the holders to acquire up to an aggregate 80,000 units, each unit
consisting of one share of Common Stock and one 1994 Underlying Warrant.
Such 1994 Underwriters' Warrants are currently exercisable by the holders
thereof to acquire one unit at an exercise price of $6.30 per unit and
expire in February 1999. Upon exercise of the 1994 Underwriters' Warrants,
the holders thereof can acquire an aggregate of 80,000 1994 Underlying
Warrants which, upon full exercise, give them the right to acquire an
aggregate of up to 80,000 Shares. Such 1994 Underlying Warrants are
exercisable at $7.50 per Share and currently expire on February 16, 1997.
(5) Represents Shares of Common Stock which may be acquired upon exercise of
certain Options granted by the Company. Such Options are currently
exercisable at $3.85 per Share and will expire on June 22, 1997.
(6) Represents Shares of Common Stock which may be acquired upon exercise of
150,000 warrants granted by the Company in April 1994 in consideration of
financial consulting services provided by Damon Testaverde, M.S. Farrell,
Inc. and Princeton Securities, Inc.; which warrants are exercisable at
$4.75 per share and expire on April 4, 1999.
(7) Represents an aggregate of 50,000 stock options granted to Messrs.
Schacker and Gass on August 1, 1996 exercisable through August 2001 at
$6.0125 per share. Messrs. Schacker and Gass are principal officers and
stockholder of M.S. Farrell, Inc.
(8) Represents Finders Shares issued as a finders fee in connection with the
introduction of the Company to ConnectSoft.
(9) Represents Prologue Shares purchased from Prologue for $7.50 per share in
December 1996.
(10) Represents Shares of Common Stock issued in connection with the InterGlobe
acquisition.
(11) Represents Shares of Common Stock issued in connection with the TechStar
acquisition.
(12) Represents Shares of Common Stock to be issued on the date of this
Prospectus in connection with the Arcadia acquisition.
(13) Represents 1997 Private Placement Shares issuable upon conversion of
400,000 Private Placement Preferred Shares sold in the 1997 Private
Placement, and Shares ("Warrant Shares") issuable upon exercise of the
Private Placement Warrants sold in the 1997 Private Placement, as follows:
(i) Goodland International Investment Ltd.--407,925 1997 Private Placement
Shares and 122,500 Warrant Shares; (ii) Weyburn Overseas Ltd.--174,825
1997 Private Placement Shares and 52,500 Warrant Shares; (iii) Porter
Partners LP--75,758 1997 Private Placement Shares and 22,750 Warrant
Shares; (iv) EDJ Limited--17,483 1997 Private Placement Shares and 5,250
Warrant Shares; (v) Kodiak Capital LP--44,755 1997 Private Placement
Shares and 13,440 Warrant Shares; (vi) Kodiak International Ltd.--78,349
1997 Private Placement Shares and 23,520 Warrant Shares; (vii) Kodiak
Opportunity LP--11,193 1997 Private Placement Shares and 3,360 Warrant
Shares;
72
<PAGE>
(viii) Kodiak Opportunity Offshore Limited--5,596 1997 Private Placement
Shares and 1,680 Warrant Shares; (ix) The Galileo Fund, L.P.--328,671 1997
Private Placement Shares and 98,700 Warrant Shares; (xi) Kepler Overseas
Corp.--10,490 1997 Private Placement Shares and 3,150 Warrant Shares; and
(xii) Crocodile I, LLC--10,490 1997 Private Placement Shares and 3,150
Warrant Shares. The aggregate number of such 1997 Private Placement Shares
and Warrant Shares offered hereby are subject to increase to an
indeterminable amount based on (i) adjustments reducing the conversion
price for the Private Placement Preferred Shares provided for in the
securities purchase agreement entered into between the Company and such
Selling Stockholders on January 8, 1997, and (ii) anti-dilution provisions
in the Private Placement Warrants.
(14) Represents shares issuable to Messrs. Rubin, McLain, Katz and Barnes upon
exercise of immediately exercisable options at $3.78125 per share (as to
450,000 shares) for Mr. Rubin, $3.78125 per share (as to 150,000 shares)
for Mr. McLain, $3.78125 per share (as to 50,000 shares) and $5.125 (as to
100,000 shares) for Mr. Katz and $5.25 per share (as to 33,333 shares) for
Mr. Barnes, granted to such persons at various times between April 1996
and October 1996. Each of such persons are senior executive officers and
members of the Board of Directors of the Company.
(15) Represents shares issuable to Messrs. Weiss and Rothberg upon exercise of
immediately exercisable options at $3.78125 per share granted in April
1996 in consideration for legal services provided to the Company in
January 1996. Since February 1996, Messrs. Weiss and Rothberg have been
associated with a law firm which is acting as counsel to the Company in
connection with this offering.
(16) Represents shares issued to ConnectSoft Ruksun Software India, Pvt. Ltd.
in settlement of outstanding indebtedness of ConnectSoft.
For a description of the terms of certain agreements entered into between
the Company and a number of the Selling Stockholders, see "PLAN OF
DISTRIBUTION."
73
<PAGE>
PLAN OF DISTRIBUTION
The Shares issuable upon (i) exercise of the Public Warrants, the
Underwriters' Warrants, the Consultants' Warrants, the Private Placement
Warrants and the Options, and (ii) conversion into 1997 Private Placement Shares
of the Private Placement Preferred Shares sold in January 1997, will be
distributed when and as such Warrants, Options and Private Placement Preferred
Shares are exercised or converted by the holders thereof, subject to the
restrictions on certain of such Selling Stockholders imposed under the lockup
agreements described below. The Company may solicit the exercise of the Warrants
or the conversion of the Private Placement Preferred Shares at any time. The
Company may also reduce the various exercise prices of the Warrants or the
conversion price of the Private Placement Preferred Shares in order to encourage
their exercise.
As of the date of this Prospectus, all of the 1,818,500 Prologue Shares,
InterGlobe Shares, TSC Shares, Arcadia Shares, Finders Shares, IPO Shares and
Ruksun Shares offered hereby may be immediately sold and distributed by the
holders thereof, subject to the restrictions imposed under the lock-up
agreements with the Company described below.
The Shares offered hereby may, upon compliance with applicable "Blue Sky"
law, be sold from time to time to purchasers directly by the Selling
Stockholders or by pledgees, donees, transferees or other successors in
interest, or in negotiated transactions and on Nasdaq through brokers or
dealers, or otherwise. Such broker-dealers may receive compensation in the form
of discounts, concessions or commissions from the Selling Stockholders for whom
such broker-dealers may act as agents or to whom they sell as principal, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). In addition, any securities covered by this Prospectus
which qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather
than pursuant to this Prospectus.
Alternatively, the Selling Stockholders may from time to time offer the
Shares offered hereby through underwriters, dealers or agents, who may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Selling Stockholders and/or the purchasers of Shares for whom they may
act as agents.
The Selling Stockholders and any underwriters, dealers or agents that
participate in the distribution of Shares offered hereby may be deemed to be
underwriters, and any profit on the sale of such Shares by them and any
discounts, commissions or concessions received by any such underwriters, dealers
or agents might be deemed to be underwriting discounts and commissions under the
Securities Act. At the time a particular offer of Shares is made, to the extent
required a post-effective amendment to this Registration Statement will be filed
with the Commission which will set forth the aggregate amount of Shares being
offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, and discounts, commissions and other items
constituting compensation form the Selling Stockholders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers.
The Shares offered hereby may be sold from time to time in one or more
transactions at market prices prevailing at the time of sale, at a fixed
offering price, which may be changed, at varying prices determined at the time
of sale or at negotiated prices. The Selling Stockholders will pay the
commissions and discounts of underwriters, dealers or agents, if any, incurred
in connection with the sale of the Shares.
The Company will not receive any proceeds from the sale of the Shares
issuable upon exercise of the Warrants or the Options, or upon the sale of any
1997 Private Placement Shares issued upon conversion of the Private Placement
Preferred Shares, nor will it receive any proceeds from the sale of the Prologue
Shares, InterGlobe Shares, TSC Shares, Arcadia Shares, Finders Shares, the 1990
IPO Shares or the Ruksun Shares. As of the date of this Prospectus, the Company
has received proceeds in the aggregate amount of $120,000 from the exercise of
certain 1990 IPO Warrants held by certain Selling Stockholders. On the
assumption that all of the unexercised Warrants and Options are exercised, the
maximum net proceeds which the Company would receive from such exercise, after
deduction of expenses of this
74
<PAGE>
Offering, would be approximately $16,400,000. There can be no assurance that any
of such Warrants or Options will be exercised.
LOCK-UP AGREEMENTS.
In order to minimize the potential adverse effect of public sales of
substantial Shares, each of the following groups of Selling Stockholders have
entered into agreements with the Company pursuant to which they have all agreed
that, without the prior approval or consent of the Board of Directors of the
Company (an interested Selling Stockholder who is also a director abstaining
from any such vote), they will not sell, transfer, assign or hypothecate any of
their Company Shares or Warrants or Options to purchase shares of Common Stock,
for the periods indicated below:
- As to each of the holders of the Finders Shares for a period of two years
from the date of this Prospectus;
- As to each of the former stockholders of InterGlobe, for a period of one
year from the date of this Prospectus for all 800,000 InterGlobe Shares;
provided, that the Company has agreed to permit Artour Baganov to
immediately sell an aggregate of InterGlobe Shares, valued at
$500,000 based on the closing price of the Company's Common Stock on the
date of this Prospectus;
- As to each of the former stockholders of TechStar, for a period of twelve
months from the date of this Prospectus, and thereafter not more than 10%
of the number of TSC Shares owned by each of them in each succeeding 90
day period;
- As to the former stockholder of Arcadia, 82,884 of his Arcadia Shares may
be sold immediately. His remaining Arcadia Shares may not be sold for a
period of twelve months from the date of this Prospectus, and thereafter
not more than 10% of the number of Arcadia Shares owned by Mr. Kandel in
each succeeding 90 day period; and
- As to each of Messrs. Rubin, McLain, Katz, Weiss and Rothberg for a period
of two years from the date of this Prospectus.
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized by its Certificate of Incorporation to issue an
aggregate of 20,000,000 shares of Common Stock, $.01 par value per share (the
"Common Stock"), and 2,700,000 shares of preferred stock, $.01 par value per
share (the "Preferred Stock"), of which Preferred Stock: (a) 1,200,000 shares of
Preferred Stock are designated as Series A voting and redeemable Preferred
Stock, $.01 par value per share (the "Series A Preferred Stock"); (b) 1,000,000
shares are designated as Series B-1 voting and convertible Preferred Stock (the
"Series B-1 Preferred Stock"); and (c) 500,000 shares are designated as Series
B-2 non-voting and convertible Preferred Stock (the "Series B-2 Preferred
Stock").
COMMON STOCK
The Company's Certificate of Incorporation authorizes the Company to issue
20,000,0000 shares of Common Stock, having a par value of $.01 per share.
Holders of the Common Stock are entitled to one vote per share and, subject
to the rights of the holders of the Preferred Stock (discussed below), to
receive dividends when and as declared by the Board of Directors and share
ratably in the assets of the Company legally available for distribution in the
event of the liquidation, dissolution or winding up of the Company.
Holders of the Common Stock do not have subscription, redemption or
conversion rights, nor do they have any preemptive rights. In the event the
Company were to elect to sell additional shares of its
75
<PAGE>
Common Stock following the date of this Prospectus, purchasers of the shares
offered hereby would have no right to purchase additional shares of such stock.
As a result, their percentage of equity interest in the Company would be
diluted.
The shares of Common Stock offered hereby will be, when issued and paid for,
fully paid and not liable for further call or assessment.
Holders of the Common Stock do not have cumulative voting rights, which
means that the holders of more than half of the shares of Common Stock (subject
to the rights of the holders of the Preferred Stock) can elect all of the
Company's Directors, if they choose to do so. In such event the holders of the
remaining shares would not be able to elect any Directors. The Board is
empowered to fill any vacancies on the Board created by the resignation of
Directors.
Except as otherwise required by the Delaware General Corporation Law, all
shareholder action is taken by vote of a majority of the shares of Common,
Series A Preferred Stock and Series B-1 Preferred Stock voting as a single class
present at a meeting of shareholders at which a quorum (a majority of the issued
and outstanding shares of the Company's Common and Series A Preferred Stock) is
present in person or by proxy.
PREFERRED STOCK
THE SERIES A PREFERRED STOCK.
Pursuant to its Certificate of Incorporation, the Company is authorized to
issue a maximum of 1,200,000 share of Series A Preferred Stock. In July 1991,
the company issued all of such 1,200,000 shares of Series A Preferred Stock to
Robert M. Rubin.
In the event of the liquidation or dissolution of the Company, the holders
of the Series A Preferred Stock are entitled to be paid out of the assets of the
Company $1.00 per share, plus accrued dividends, before the holders of Common
Stock will receive distributions in respect of any assets of the Company. The
Series A Preferred Stock pays a dividend, in cash, at the rate of 12.5% ($.125
per share per annum), which dividend is payable monthly at the rate of .0104166
per share (except that the first dividend was paid in an amount equal to
accumulated dividends from the date of initial issuance in July 1991 at the rate
of 12.5% per annum). Such dividends are cumulative in nature. Each share of
Series A Preferred Stock entitles the holder to one vote for each share of
Preferred Stock owned, or an aggregate of 1,200,000 votes, on all matters
requiring shareholder vote or approval. The Series A Preferred Stock votes with
the holders of Company Common Stock and not as a separate class.
The Series A Preferred Stock is redeemable at any time at the option of the
Company, following a vote of the directors of the Company other than Mr. Rubin,
on payment of $1.00 per share plus accrued dividends.
Mr. Rubin exchanged all of his share of Series A Preferred Stock for a 10%
$1,200,000 principal subordinated note of the Company in February 1994. There
are currently no outstanding shares of Series A Preferred Stock.
THE SERIES B PREFERRED STOCK.
The Company is authorized by its Certificate of Incorporation to issue a
maximum of 1,500,000 shares of Series B Preferred Stock in one or more series
and containing such rights, privileges and limitations, including voting rights,
conversion privileges and/or redemption rights, as may, from time to time, be
determined by the Board of Directors of the Company. As of the date of this
Prospectus, the Company has issued 1,376,539 shares of Series B Preferred Stock,
in two series, as follows:
76
<PAGE>
SERIES B-1 PREFERRED STOCK. 976,539 shares of the Series B-1 Preferred
Stock have been issued in connection with the ConnectSoft Merger. For a
description of the terms of the Series B-1 Preferred Stock, see
"BUSINESS--History and Recent Acquisitions--ConnectSoft."
SERIES B-2 PREFERRED STOCK. 400,000 shares of the Series B-2 Preferred
Stock have been issued in connection with the 1997 Private Placement. For a
description of the terms of the Series B-2 Preferred Stock, see
"BUSINESS--Private Placement."
PUBLIC WARRANTS
The Public Warrants were initially issued pursuant to a Warrant Agreement
between the Company and North American Transfer Company, as warrant agent, and
were in registered form. Each of the Public Warrants entitle the registered
holder to purchase one share of Common Stock at a price of $7.50 per share until
June 30, 1997. Unless exercised, or the expiration date extended by action of
the Company, the Public Warrants will automatically expire on June 30, 1997. The
Public Warrants are subject to redemption by the Company at a redemption price
of $.10 per warrant upon 15 days' prior written notice, provided that the
average last trade price of the Common Stock as reported on the NASDAQ-NMS
System (or the average closing bid price if the Common Stock is not traded on
the NASDAQ-NMS System) equals or exceeds $8.75 per share for either (i) any 20
consecutive trading days ending not more than 25 and not less than five trading
days prior to the date upon which notice of redemption is given, or (ii) with
the written consent of the Underwriter of the public offering in which the
Public Warrants were issued, Chatfield Dean, Inc., any 10 consecutive trading
days ending not more than 15 and not less than five trading days prior to the
date upon which notice of redemption is given.
The holders of the Public Warrants have certain anti-dilution protection
upon the occurrence of certain events, including stock dividends, stock splits,
and reclassifications. The holders of the Public Warrants have no right to vote
on matters submitted to the stock holders of the Company and have no right to
receive dividends. The holders of the Public Warrants are not entitled to share
in the assets of the Company in the event of liquidation, dissolution or the
winding up of the Company's affairs.
OTHER WARRANTS
The Company also has outstanding 1992 Underwriters' Warrants, 1994
Underwriters' Warrants, 1994 Underlying Warrants and Consultants' Warrants. Each
1994 Underwriters' Warrant entitles the holder to purchase one unit, consisting
of one share of Common Stock and one 1994 Underlying Warrant for $6.30 per unit,
until February 1999. Each 1994 Underlying Warrant issuable upon exercise of the
1994 Underwriters' Warrants entitles the holder to purchase one share of Common
Stock at $7.50 per Share until June 30, 1997. Each 1992 Underwriters' Warrant
entitles the holder to purchase one share of Common Stock for $5.75 per Share
until June 30, 1997. 150,000 of the Consultants' Warrants entitle the holder to
purchase one Share for $4.75 per share until April 1999, and 50,000 Consultants'
Warrants entitle the holder to purchase one Share for $6.0125 per share until
August 1, 2001.
In addition to the Private Placement Preferred Shares, the investors in the
1997 Private Placement received Private Placement Warrants to purchase an
aggregate of 350,000 Shares at an exercise price equal to the Closing Date
Average Price of $8.58 per Share, which Private Placement Warrants expire in
January 2002 to the extent unexercised.
All of the above warrants are subject to anti-dilution protection (resulting
in adjustments to the exercise price and the number of underlying shares which
may be acquired) upon the occurrence of certain events, including stock
dividends, stock splits and reclassifications.
77
<PAGE>
SECTION 203 OF THE DELAWARE LAW
Section 203 of the Delaware Law prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i) prior to the date
of the business combination, the transaction is approved by the board of
directors of the corporation; (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the outstanding voting stock, or (iii) on or
after such date the business combination is approved by the board of directors
and by the affirmative vote of at least 66 2/3% of the outstanding voting stock
that is not owned by the interested stockholder. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person, who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock.
DIRECTORS' AND OFFICERS' INDEMNIFICATION
The Company has included in its Certificate of Incorporation and/or Bylaws
provisions to indemnify its directors and officers to the fullest extent
permitted by the Delaware Law, including circumstances in which indemnification
is otherwise discretionary. The Company believes that these provisions are
necessary to attract and retain qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors or officers, the Company has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
TRANSFER AGENT/WARRANT AGENT
The Transfer Agent and Registrar for the Company's Common Stock is Corporate
Stock Transfer, Inc., Denver, Colorado.
LEGAL MATTERS
The validity of the Shares offered hereby and certain other legal matters in
connection with the Offering will be passed upon for the Company by Greenberg,
Traurig, Hoffman, Lipoff, Rosen & Quentel, New York, New York. Stephen A. Weiss,
a shareholder of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, is the
Assistant Secretary of the Company and owns 40,000 Options.
EXPERTS
The consolidated financial statements as of July 31, 1996 and 1995 and for
each of the three years in the period ended July 31, 1996 of American United
Global, Inc. included in this Prospectus have been so included in reliance upon
the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
The financial statements as of December 31, 1995 and 1994 and for each of
the three years in the period ended December 31, 1995 of ConnectSoft, Inc.
included in this Prospectus have been so included in reliance upon the report of
Coopers & Lybrand LLP, independent accountants, given on the authority of said
firm as experts in accounting and auditing.
78
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AMERICAN UNITED GLOBAL, INC.
Report of Independent Accountants of Price Waterhouse LLP................................................ F-2
Consolidated Balance Sheet............................................................................... F-3
Consolidated Statements of Operations.................................................................... F-4
Consolidated Statements of Shareholders' Equity.......................................................... F-5
Consolidated Statements of Cash Flows.................................................................... F-7
Notes to Consolidated Financial Statements............................................................... F-9
AMERICAN UNITED GLOBAL, INC.
Unaudited Consolidated Balance Sheet..................................................................... F-30
Unaudited Consolidated Statements of Operations.......................................................... F-31
Unaudited Consolidated Statement of Shareholders' Equity................................................. F-32
Unaudited Consolidated Statements of Cash Flows.......................................................... F-33
Notes to Consolidated Financial Statements............................................................... F-34
CONNECTSOFT, INC.
Report of Independent Accountants of Coopers & Lybrand LLP............................................... F-39
Balance Sheets........................................................................................... F-40
Statements of Operations................................................................................. F-41
Statements of Shareholders' Equity (Deficit)............................................................. F-42
Statements of Cash Flows................................................................................. F-43
Notes to Financial Statements............................................................................ F-44
CONNECTSOFT, INC.
Unaudited Statements of Operations....................................................................... F-53
Unaudited Statements of Cash Flow........................................................................ F-54
UNAUDITED PRO FORMA SUMMARY COMBINED STATEMENT OF OPERATIONS
Unaudited Pro Forma Combined Statement of Operations..................................................... F-55
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
American United Global, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of American
United Global, Inc. and its subsidiaries at July 31, 1996 and 1995 and the
results of their operations and their cash flows for each of the three years in
the period ended July 31, 1996 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 8 to the consolidated financial statements, the Company
changed its method of accounting for income taxes during the year ended July 31,
1994.
PRICE WATERHOUSE LLP
Portland, Oregon
February 13, 1997
F-2
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JULY 31,
-----------------------------
1996 1995
-------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................................ $ 17,086,000 $ 4,144,000
Investment in marketable debt securities........................................ 6,268,000 --
Trade accounts receivable, less allowance for doubtful accounts of $652,000 and
$370,000, respectively........................................................ 6,628,000 6,008,000
Other receivables............................................................... -- 1,102,000
Note receivable from shareholder................................................ 838,000 --
Inventories (Note 4)............................................................ 65,697,000 46,413,000
Prepaid expenses................................................................ 476,000 22,000
Deferred tax asset (Note 8)..................................................... 1,528,000 --
-------------- -------------
Total current assets.......................................................... 98,521,000 57,689,000
Property and equipment, net (Note 5)............................................ 8,878,000 7,062,000
Note receivable (Note 10)....................................................... 3,198,000 --
Intangibles and other assets, net of accumulated amortization of $202,000 and
$133,000, respectively.......................................................... 6,628,000 2,526,000
Net assets held for sale (Note 10).............................................. -- 9,552,000
Deferred tax asset (Note 8)..................................................... 1,830,000 --
-------------- -------------
$ 119,055,000 $ 76,829,000
-------------- -------------
-------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under floor financing lines (Note 7)................................. $ 54,364,000 $ 37,072,000
Short-term borrowings (Note 7).................................................. 4,660,000 6,023,000
Current portion of capital lease obligations (Note 11).......................... 1,119,000 51,000
Accounts payable................................................................ 4,252,000 2,171,000
Accrued liabilities............................................................. 5,387,000 1,454,000
Income taxes payable (Note 8)................................................... 5,253,000 896,000
-------------- -------------
Total current liabilities......................................................... 75,035,000 47,667,000
Long-term borrowings (Note 7)..................................................... 2,968,000 --
Capital lease obligations, net of current portion (Note 11)....................... 2,083,000 47,000
Other non-current liabilities..................................................... -- 305,000
Purchased business obligations (Notes 3 and 6).................................... 6,929,000 --
Minority interest................................................................. 9,459,000 8,556,000
-------------- -------------
Total liabilities............................................................. 96,474,000 56,575,000
-------------- -------------
Commitments and contingencies (Note 11)
Shareholders' equity (Notes 9 and 12):
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 convertible preferred stock, convertible to common, $3.50 per share
liquidation value, $.01 par value; 1,500,000 shares authorized; none issued
and outstanding............................................................... -- --
Common stock, $.01 par value; 20,000,000 shares authorized; 6,266,382 and
5,654,479 shares issued and outstanding, respectively......................... 63,000 57,000
Additional contributed capital.................................................. 20,654,000 15,889,000
Note receivable from shareholder................................................ -- (184,000)
Deferred compensation........................................................... (793,000) --
Retained earnings............................................................... 2,657,000 4,492,000
-------------- -------------
Total shareholders' equity.................................................... 22,581,000 20,254,000
-------------- -------------
$ 119,055,000 $ 76,829,000
-------------- -------------
-------------- -------------
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------
<S> <C> <C> <C>
1996 1995 1994
-------------- ------------- -------------
Net sales.......................................................... $ 106,555,000 $ 86,173,000 $ 67,370,000
Cost of goods sold................................................. 93,906,000 76,145,000 59,138,000
-------------- ------------- -------------
Gross profit..................................................... 12,649,000 10,028,000 8,232,000
Selling, general and administrative expenses....................... 7,864,000 6,228,000 5,696,000
Stock option compensation.......................................... 1,671,000 -- --
Research and development expenses (Note 3)......................... 10,295,000 -- --
-------------- ------------- -------------
Operating (loss) income.......................................... (7,181,000) 3,800,000 2,536,000
Interest expense, net.............................................. 1,137,000 1,421,000 830,000
Loss on Western Power & Equipment initial public offering (Note
9)............................................................... -- 386,000 --
-------------- ------------- -------------
(Loss) income from continuing operations before income taxes and
minority interest.............................................. (8,318,000) 1,993,000 1,706,000
Provision for income taxes (Note 8)................................ 890,000 711,000 682,000
Minority interest in earnings of consolidated subsidiaries......... 402,000 118,000 --
-------------- ------------- -------------
(Loss) income from continuing operations......................... (9,610,000) 1,164,000 1,024,000
-------------- ------------- -------------
Discontinued operations, net of taxes (Note 10):
Income from operations, net of tax............................... 315,000 1,104,000 1,460,000
Gain (loss) on disposal (net of tax of $5,042,000 and $244,000 in
1996 and 1994)................................................. 7,460,000 -- (365,000)
-------------- ------------- -------------
7,775,000 1,104,000 1,095,000
-------------- ------------- -------------
Extraordinary item--Gain on early debt extinguishment, less
applicable income taxes.......................................... -- -- 30,000
-------------- ------------- -------------
Cumulative effect of a change in accounting principle
(Note 8)......................................................... -- -- 138,000
-------------- ------------- -------------
Net (loss) income.................................................. (1,835,000) 2,268,000 2,287,000
Dividends on preferred stock....................................... -- -- (86,000)
-------------- ------------- -------------
Net (loss) income available for common shareholders................ $ (1,835,000) $ 2,268,000 $ 2,201,000
-------------- ------------- -------------
-------------- ------------- -------------
(Loss) earnings per common and common equivalent share:
(Loss) income from continuing operations......................... $ (1.66) $ 0.20 $ 0.18
Discontinued operations.......................................... 1.34 0.20 0.21
Extraordinary item............................................... -- -- 0.01
Cumulative effect of change in accounting principle.............. -- -- 0.03
-------------- ------------- -------------
Net (loss) income per share...................................... $ (.32) $ 0.40 $ 0.43
-------------- ------------- -------------
-------------- ------------- -------------
Weighted average number of shares................................ 5,810,526 5,729,852 5,170,175
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------------- ----------------------
<S> <C> <C> <C> <C>
NUMBER OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT
---------- --------- ----------- ---------
Balance at July 31, 1993............................................. 1,200,000 $ 12,000 4,817,000 $ 48,000
Net income...........................................................
Dividends paid on preferred stock....................................
Public offering, net of $968,000 in expenses......................... 920,000 9,000
Shares repurchased................................................... (100,000) (1,000)
Conversion of preferred stock to subordinated note payable........... (1,200,000) (12,000)
Exercise options..................................................... 2,000
---------- --------- ----------- ---------
Balance at July 31, 1994............................................. -- -- 5,639,000 56,000
Net income...........................................................
Issuance of common shares as compensation............................ 16,000 1,000
Net collection on note receivable from shareholder...................
---------- --------- ----------- ---------
Balance at July 31, 1995............................................. -- -- 5,655,000 57,000
Net loss.............................................................
Issuance of common shares as compensation............................ 12,000
Stock issued under stock option plans and warrants................... 600,000 6,000
Tax benefit related to stock option plans and warrants...............
Deferred compensation (Note 3).......................................
Stock option compensation............................................
Net collection on note receivable from shareholder...................
---------- --------- ----------- ---------
Balance at July 31, 1996............................................. -- $ -- 6,267,000 $ 63,000
---------- --------- ----------- ---------
---------- --------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
CONTRIBUTED RETAINED SHAREHOLDERS'
CAPITAL OTHER EARNINGS EQUITY
------------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at July 31, 1993................................... $ 13,650,000 $ (200,000) $ 23,000 $13,533,000
Net income................................................. 2,287,000 2,287,000
Dividends paid on preferred stock.......................... (86,000) (86,000)
Public offering, net of $968,000 in expenses............... 3,855,000 3,864,000
Shares repurchased......................................... (462,000) (463,000)
Conversion of preferred stock to subordinated note
payable.................................................. (1,188,000) (1,200,000)
Exercise options........................................... 3,000 3,000
------------ ---------- ----------- -------------
Balance at July 31, 1994................................... 15,858,000 (200,000) 2,224,000 17,938,000
Net income................................................. 2,268,000 2,268,000
Issuance of common shares as compensation.................. 31,000 32,000
Net collection on note receivable from shareholder......... 16,000 16,000
------------ ---------- ----------- -------------
Balance at July 31, 1995................................... 15,889,000 (184,000) 4,492,000 20,254,000
Net loss................................................... (1,835,000) (1,835,000)
Issuance of common shares as compensation.................. 15,000 15,000
Stock issued under stock option plans and warrants......... 1,770,000 1,776,000
Tax benefit related to stock option plans and warrants..... 510,000 510,000
Deferred compensation (Note 3)............................. (500,000) (500,000)
Stock option compensation.................................. 2,470,000 (293,000) 2,177,000
Net collection on note receivable from shareholder......... 184,000 184,000
------------ ---------- ----------- -------------
Balance at July 31, 1996................................... $ 20,654,000 $ (793,000) $ 2,657,000 $22,581,000
------------ ---------- ----------- -------------
------------ ---------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------
1996 1995 1994
------------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income.................................................... $ (1,835,000) $ 2,268,000 $ 2,287,000
Adjustments to reconcile net (loss) income to net cash provided by
(used by) operating activities:
Cumulative effect of change in accounting principle................ -- -- (138,000)
Shares issued in lieu of compensation.............................. -- 32,000 --
Depreciation and amortization...................................... 891,000 1,068,000 633,000
(Gain) Loss on disposal of business................................ (7,460,000) -- 365,000
Loss on Western Power & Equipment initial public offering.......... -- 386,000 --
Loss on sale of fixed assets....................................... -- 4,000 35,000
Deferred tax provision............................................. (781,000) (267,000) (200,000)
Gain on debt extinguishment........................................ -- -- (30,000)
Income applicable to minority interest............................. 402,000 118,000 --
Purchased research and development................................. 10,033,000 -- --
Stock option compensation.......................................... 1,671,000 -- --
Imputed interest................................................... 161,000 -- --
Change in assets and liabilities, net of effects of acquisitions
and dispositions:
Accounts receivable.............................................. (275,000) (2,420,000) (94,000)
Inventories...................................................... (12,840,000) (5,181,000) (5,736,000)
Prepaid expenses, other receivables and other assets............. 571,000 (1,196,000) 116,000
Other assets..................................................... (686,000) -- --
Inventory floor financing........................................ 12,411,000 -- --
Accounts payable................................................. 143,000 261,000 749,000
Accrued liabilities.............................................. 2,026,000 273,000 251,000
Income taxes payable............................................. (165,000) 324,000 (348,000)
Other non-current liabilities.................................... -- 223,000 135,000
Discontinued operations.......................................... -- 605,000 (1,253,000)
Other............................................................ (496,000) -- --
------------- ----------- -----------
Net cash provided by (used in) operating activities.............. 3,771,000 (3,502,000) (3,228,000)
------------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of fixed assets................................... 2,075,000 6,000 26,000
Proceeds from sale of business, net.................................. 19,099,000 -- 500,000
Purchase of property and equipment................................... (695,000) (332,000) (309,000)
Purchase of debt securities.......................................... (6,268,000) -- --
Purchase of distribution outlets..................................... (2,325,000) -- --
Advances to ConnectSoft, Inc. prior to acquisition................... (3,289,000) -- --
Acquisition of businesses, net of cash acquired...................... (17,000) (557,000) --
------------- ----------- -----------
Net cash provided by (used in) investing activities.............. 8,580,000 (883,000) 217,000
------------- ----------- -----------
Cash flows from financing activities:
Net borrowings (payments) under revolving credit agreements.......... (2,805,000) 4,187,000 1,467,000
Net borrowings (payments) under term loans........................... 1,268,000 (1,623,000) (314,000)
Principal payments under capitalized lease obligations............... (62,000) (52,000) (20,000)
Proceeds from Company public offerings............................... -- 7,801,000 3,401,000
Net (payments) borrowings under notes payable to shareholders........ -- (2,575,000) (800,000)
Dividends paid on preferred stock.................................... -- -- (86,000)
Decrease in receivable from underwriter.............................. 1,102,000 -- --
Exercise of stock options............................................ 1,776,000 -- 3,000
Collections (increase) of notes receivable from shareholder, net..... (688,000) 16,000 --
------------- ----------- -----------
Net cash provided by financing activities........................ 591,000 7,754,000 3,651,000
------------- ----------- -----------
Net increase in cash................................................... 12,942,000 3,369,000 640,000
Cash at beginning of year.............................................. 4,144,000 775,000 135,000
------------- ----------- -----------
Cash at end of year.................................................... $ 17,086,000 $ 4,144,000 $ 775,000
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
American United Global, Inc. (the "Company") has been engaged in two
distinct businesses consisting of a distribution operation and a manufacturing
operation. Through its Western Power & Equipment Corp. ("Western") subsidiary,
the Company operates as a retail distributor for the sale, servicing, and
leasing of light to medium-sized construction equipment and parts (the
"Distribution Service Group"). Substantially all of this equipment is
manufactured by Case Corporation ("Case"). The Company's manufacturing business
consisted of two units, National O-Ring, which manufactured and distributed a
full range of standard-size, low-cost, synthetic rubber o-ring sealing devices
for use in automotive and industrial applications, and Stillman Seal, which
specialized in the design, manufacture and distribution of rubber-to-metal
bonded sealing devices and molded rubber shapes for use in commercial aerospace,
defense and communications industry applications (collectively the
"Manufacturing Group"). The Manufacturing Group was sold pursuant to the terms
of an Asset Purchase Agreement dated as of November 22, 1995. The effect of the
sale on the results of operations of the Company has been included in
discontinued operations in the accompanying consolidated statements of
operations for the year ended July 31, 1996 as more fully described in Note 10.
Previously reported financial statements of the Company have been restated to
present National O-Ring/Stillman Seal as a discontinued operation. The net
assets of National O-Ring/Stillman Seal are presented as assets held for sale in
the restated balance sheet for fiscal 1995.
The Manufacturing Group also included Aerodynamic Engineering, Inc. which
performed precision machining of close tolerance parts primarily for use in the
commercial aerospace and defense industries until its disposal in fiscal 1994.
This subsidiary was sold in April 1994 as further discussed in Note 10.
As discussed in Note 3, the Company acquired ConnectSoft, Inc.
("ConnectSoft"), effective July 31, 1996. ConnectSoft provides communications
management software products and through its former eXodus division, which has
been incorporated by the Company as a direct 80%-owned subsidiary of the
Company, known as eXodus Technologies, Inc. provides an application remoting
protocol which allows users to run Microsoft Windows-TM-.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned and majority-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
Minority interest represents the minority shareholders' proportionate share of
the equity of Western which was 43% at July 31, 1996. There is also a 20%
minority interest held in eXodus Technologies, Inc. ("eXodus"), a former
division of Connectsoft, but no minority interest is presented due to
accumulated losses.
CASH EQUIVALENTS
For financial reporting purposes, the Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
INVENTORY VALUATION
Inventories are stated at the lower of cost or market. Cost is determined
based upon the first-in, first-out method for parts inventory and specific
identification for construction equipment.
F-7
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT SECURITIES
Investments in marketable debt securities represent primarily treasury notes
which are carried at amortized cost as these investments have been classified as
held-to-maturity securities. Held-to-maturity securities represent those
securities that the Company has both the positive intent and ability to hold
until maturity. Maturity dates of these securities range from January 1, 1998 to
January 31, 2001.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets, ranging from 3 to 30 years. Expenditures for additions and major
improvements are capitalized. Repairs and maintenance costs are expensed as
incurred. The cost of assets retired or otherwise disposed of and the related
accumulated depreciation are eliminated from the accounts; any gain or loss
thereon is included in the results of operations.
INTANGIBLE ASSETS
Intangible assets acquired in business acquisitions such as goodwill, name
recognition, existing technology, geographical location and presence and
noncompete agreements represent value to the Company. Intangibles are amortized
using the straight-line method over the assets' estimated useful lives ranging
from 5 to 40 years. Such lives are based on the factors influencing the
acquisition decision and on industry practice.
The carrying value of intangible assets is assessed for any permanent
impairment by evaluating the operating performance and future undiscounted cash
flows of the underlying assets. Adjustments are made if the sum of the expected
future net cash flows is less than book value. Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of, requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of assets may not be recoverable. SFAS No. 121 is
required to be implemented by the Company for the fiscal year beginning August
1, 1996 and is not expected to have a significant impact on the Company's
financial statements.
INCOME TAXES
Effective August 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. The adoption
of SFAS No. 109 changed the Company's method of accounting for income taxes from
the deferral method to an asset and liability approach which requires the
recognition of deferred tax liabilities and assets for the expected future
consequences of temporary differences between the carrying amounts for financial
reporting purposes and the tax bases of assets and liabilities. The cumulative
effect of the adoption in fiscal 1994 was an increase in net income of $138,000,
resulting primarily from the recognition of certain net operating loss
carryforwards.
REVENUE RECOGNITION
Revenue on equipment and parts sales is recognized upon shipment of products
and passage of title. Equipment rental and service revenue is generally
recognized over the period such services are provided.
F-8
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SOFTWARE DEVELOPMENT COSTS
The Company recorded certain software development costs in connection with
the acquisition of ConnectSoft as more fully described in Note 3. Software
development costs incurred in conjunction with product development are charged
to product development expense until technological feasibility is established.
Thereafter, through general release of product, all software product development
costs are capitalized and reported at the lower of unamortized cost or net
realizable value of each product. The establishment of technological feasibility
and the on-going assessment of the recoverability of costs require considerable
judgment by the Company with respect to certain external factors, including, but
not limited to, anticipated future gross product revenues, estimated economic
life and changes in the software and hardware technology. After consideration of
the above factors, the Company amortizes capitalized software costs at the
greater of the amount computed using (a) the ratio of current revenues for a
product to the total of current and anticipated future revenues or (b) the
straight-line method over the remaining estimated economic life of the product.
Capitalized software development costs are included in intangible and other
assets in the accompanying consolidated balance sheet.
RESEARCH AND DEVELOPMENT
Expenditures relating to the development of new products and processes,
including significant improvements and refinements to existing products, are
expensed as incurred.
ADVERTISING EXPENSE
The Company expenses all advertising costs as incurred. Total advertising
expense for the years ended July 31, 1996, 1995 and 1994 was $263,000, $274,000
and $134,000, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable,
short-term borrowings, accounts payable and accrued liabilities as presented in
the consolidated financial statements approximates fair value based on the
short-term nature of these instruments. The recorded amount of long-term debt
approximates fair value as the actual interest rates approximate current
competitive rates. The fair value of investment securities held is approximately
$179,000 less than the carrying value at July 31, 1996.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the fiscal
periods presented. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board issued FAS 123,
"Accounting for Stock-Based Compensation", which establishes financial
accounting and reporting standards for stock-based employee compensation plans
and for the issuance of equity instruments to acquire goods and services from
non-employees. The Company has not determined its method of adoption for fiscal
1997.
F-9
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
Net income (loss) per share is computed by dividing the net income available
for common shareholders by the weighted average number of shares of common stock
and, if dilutive, common stock equivalents outstanding during the period using
the treasury stock method. The Company's preferred stock that has been granted
in connection with the ConnectSoft acquisition (see Note 3) has not been
included in the loss per share calculation for the year ended July 31, 1996, as
their effect is antidilutive. The additional shares to be potentially issued to
the ConnectSoft shareholders upon occurrence of certain events (see Note 3) have
not been included in the determination of loss per share for the year ended July
31, 1996. Fully diluted earnings (loss) per share is not presented as it is the
same as primary earnings per share.
3. ACQUISITIONS
Effective November 1, 1992, the Company's newly formed Western subsidiary
completed the acquisition from Case of certain assets used in connection with
seven separate Case retail construction equipment distributorships located in
the states of Washington and Oregon (the "Western Acquisition").
The purchase included approximately $33,000,000 of various assets, including
inventories of new and used Case construction equipment and spare parts, as well
as the land and building at one of the locations. The purchase price paid was
approximately $1,937,000 in cash and approximately $31,000,000 was financed,
primarily through inventory floor planning dealer finance agreements with Case
and its affiliates. In addition, the Company incurred approximately $2,000,000
in other related acquisition costs in connection with the transaction. The
obligations of Western to Case and its affiliates under the various purchase
notes and related financing and security agreements with Case and its affiliates
are guaranteed by the Company.
Effective September 10, 1994, Western acquired the assets and operations of
two additional factory-owned stores of Case in the states of California and
Nevada. The purchase price paid was approximately $557,000 in cash, $4,153,000
in installment notes payable to Case and the assumption of $5,019,000 in
inventory floor planning dealer finance agreements with Case and its affiliates.
The acquisitions were accounted for as purchases, and the net assets and the
results of operations of the businesses acquired are included in the
consolidated accounts from their respective acquisition dates.
The following unaudited pro forma summary presents the consolidated results
of operations of the Company as if the two additional stores had been acquired
as of August 1, 1993. Pro forma results for the year ended July 31, 1995 are not
presented as the results are not materially different than actual results.
<TABLE>
<CAPTION>
YEAR ENDED
JULY 31, 1994
-------------
<S> <C>
Net sales...................................................................... $ 81,833,000
Net income..................................................................... 2,053,000
Earnings per share............................................................. 0.40
</TABLE>
Effective February 29, 1996, Western acquired the assets and operations of
two additional factory-owned stores of Case in the state of California. The
acquisition was consummated for approximately $630,000 in cash, $1,590,000 in
installment notes payable to Case and the assumption of $3,965,000 in inventory
floor plan debt with Case and its affiliates. The results of operations of these
two stores have been included in the consolidated results of operations from the
effective date of the acquisition. The
F-10
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS (CONTINUED)
acquisition was accounted for as a purchase and resulted in the recording of
approximately $150,000 in goodwill which is included in intangible and other
long-term assets in the accompanying consolidated financial statements and is
being amortized on a straight-line basis over 20 years.
On July 31, 1996, the Company acquired effective control of ConnectSoft,
Inc. under the terms of a written agreement. Pursuant to the terms of the merger
agreement, the ConnectSoft shareholders received, on a pro rata basis,
approximately 977,000 unregistered shares of the Company's Series B convertible
preferred stock. This preferred stock does not pay dividends, is not subject to
redemption, has a liquidation preference of $3.50 per share over the Company's
common stock and shares voting rights with the Company's common stock with
restrictions on the shareholders' ability to vote the shares until December 31,
1999. Each share of Series B preferred stock is convertible into shares of the
Company's common stock at the shareholders' option on a one-for-one basis.
However, the conversion ratio may be increased to one-for-two or one-for-three
if certain criteria are met by ConnectSoft. In the event that the "Combined
Pre-Tax Income", as defined in the merger documents of any of the "Subject
Entities", as defined as in the merger document, in any one of the three fiscal
years ending July 31, 1997, 1998 or 1999 equals or exceeds $3,000,000, each
share of preferred stock may be converted into two shares of the Company's
common stock. If the "Combined Pre-Tax Income" equals or exceeds $5,000,000,
each share of preferred stock may be converted into three shares of the
Company's common stock. Additionally, the conversion ratio of the preferred
stock shall be adjusted, such that each share of preferred stock is convertible
into three shares of the Company's common stock, notwithstanding the levels of
"Combined Pre-Tax Income" achieved, if on or before December 31, 1999 (1) the
Company sells the assets or securities of any of the "Subject Entities" for
consideration aggregating $5,000,000 or more, (2) the Company consummates an
initial public offering of any of the "Subject Entities" resulting in gross
proceeds in excess of $10,000,000 or in a market valuation of 100% of the
issuer's common stock equaling or exceeding $50,000,000, or (3) a transaction
occurs with any third party with the result that no shares of the Company's
common stock will be publicly traded on a national securities exchange.
In connection with the acquisition of ConnectSoft, the Company incorporated
eXodus Technologies (eXodus), formerly a division of ConnectSoft. The net assets
purchased by the Company related to eXodus were sold to eXodus in exchange for a
note payable and shares of eXodus preferred stock issued to the Company.
Minority interest in the common stock of eXodus of approximately 20% was
acquired by certain key employees of eXodus in exchange for notes receivable. To
account for the minority interest that was granted to certain employees of
eXodus, the financial statements include a deferred compensation balance of
$500,000 that represents the excess of the estimated value of the 20% minority
ownership of eXodus over amounts paid by the minority interest at the date the
minority interest was granted. The common stock held by these minority
shareholders contains certain repurchase features. The deferred compensation
will be amortized over the three year term of the repurchase rights. The
minority interest has been charged with the minority interests' share of eXodus'
purchased research and development expense during the year ended July 31, 1996.
The acquisition of ConnectSoft was not closed until August 8, 1996. However,
utilizing the purchase method of accounting, the operating results of
ConnectSoft have been included in the consolidated operating results commencing
July 31, 1996 because the Company assumed effective control of ConnectSoft under
the terms of a written agreement as of that date. July 31, 1996 was also the
date of the ConnectSoft shareholders' meeting at which the merger was approved.
The purchase price plus direct costs of acquisition have been initially
allocated to the assets acquired and the liabilities assumed based on
F-11
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS (CONTINUED)
management's estimates and a valuation of the Company's preferred stock issued
and the assets and liabilities obtained. Adjustments to the initial purchase
price allocation will occur, if necessary, during fiscal 1997. Issuance of the
Company's preferred stock to the ConnectSoft shareholders had not occurred as of
July 31, 1996 and, accordingly, these shares are not reflected as outstanding as
of July 31, 1996. For purposes of computing earnings per share, these preferred
shares have not been included as their effect is antidilutive. The fair value of
the preferred stock is reflected as purchased business obligations in the
accompanying consolidated balance sheet.
Summary of assets acquired, liabilities assumed and purchase price paid:
<TABLE>
<S> <C>
Value of preferred stock....................................... $6,132,000
Costs of acquisition........................................... 1,352,000
Liabilities assumed............................................ 10,861,000
----------
$18,345,000
----------
----------
</TABLE>
The convertible preferred stock has been recorded at its fair value as
determined by independent appraisal at May 1, 1996 as the acquisition was
announced to the public proximate to this date. The valuation technique utilized
has considered that the conversion ratio increases based on the earnings of the
"Subject Entities" or other future events. Accordingly, full acquisition cost
has been determined based on this value. The purchase price has been allocated
to the net assets acquired, including certain intangible assets such as
purchased computer software, covenant not to compete, goodwill and research and
development in process.
The costs initially allocated to each of ConnectSoft's assets and
liabilities at the date of acquisition:
<TABLE>
<S> <C>
Accounts receivable............................................ $ 122,000
Prepaid and other current assets............................... 406,000
Intangible assets:
Software technology--completed............................... 2,484,000
Software technology--in progress (charged to research
and development expense)................................... 10,033,000
Software license (Note 7).................................... 800,000
Other identifiable intangibles and goodwill.................. 730,000
Property and equipment......................................... 1,847,000
Other long-term assets......................................... 92,000
Deferred tax asset............................................. 1,831,000
Accounts payable and accrued liabilities....................... (3,602,000)
Debt and capital lease obligations............................. (7,259,000)
----------
$7,484,000
----------
----------
</TABLE>
In connection with the purchase of ConnectSoft, the Company entered into an
agreement with a creditor of ConnectSoft whereby the Company purchased from the
creditor a note payable due from ConnectSoft for cash and a $1,500,000
promissory note payable due on April 30, 1999. This creditor was also a
shareholder of ConnectSoft and, accordingly, received the Company's preferred
stock as consideration for its shares of ConnectSoft. As part of this agreement,
the former creditor granted to the Company
F-12
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS (CONTINUED)
an irrevocable right and option to purchase all or any portion of the Company's
securities owned by the creditor during the period December 31, 1996 to December
31, 1999. These shares will be purchased at the highest closing price during the
30 days prior to date of exercise. If the Company exercises its option, the
creditor shall receive at a minimum $4,000,000 from the Company irrespective of
whether or not the purchase price payable for these shares based on the exercise
price shall equal $4,000,000. If the net proceeds are greater than $4,000,000,
the first $1,000,000 greater than $4,000,000 shall be applied to reduce the then
outstanding principal amount of the note payable to the creditor, and to the
extent such note payable shall have then been fully paid, any remaining amounts
shall be allocated 50% to the Company and 50% to the creditor.
The following unaudited pro forma summary combines the consolidated results
of operations as if ConnectSoft and the factory owned stores of Case had been
acquired as of the beginning of the periods presented, including the impact of
certain adjustments.
<TABLE>
<CAPTION>
YEAR ENDED
JULY 31,
------------------------------
<S> <C> <C>
1996 1995
-------------- --------------
Net sales.................................................... $ 121,820,000 $ 110,231,000
Net loss..................................................... $ (9,621,000) $ (11,860,000)
Loss per share............................................... $ (1.66) $ (2.07)
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisitions had been in effect for the entire periods
presented. In addition, they are not intended to be a projection of future
results and do not reflect any synergies that might be achieved from combined
operations.
In addition, effective June 11, 1996, Western acquired the assets and
operations of GCS, Inc. ("GCS"), a California-based closely held distributor of
heavy equipment primarily marketed to municipal and state government agencies
responsible for highway maintenance. The acquisition was consummated for
approximately $1,655,000 in cash. The acquisition was accounted for as a
purchase and resulted in goodwill of approximately $400,000 which is included in
intangible and other long-term assets in the accompanying consolidated financial
statements and is being amortized on the straight-line basis over 20 years. Pro
forma financial information relating to this acquisition has not been provided
because its effect is immaterial. The results of operations of the GCS stores
have been included in the consolidated results of operations of the Company from
the effective date of the acquisition.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JULY 31,
----------------------------
<S> <C> <C>
1996 1995
------------- -------------
Parts.......................................................... $ 6,320,000 $ 5,290,000
Equipment new and used......................................... 59,377,000 41,123,000
------------- -------------
$ 65,697,000 $ 46,413,000
------------- -------------
------------- -------------
</TABLE>
F-13
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVENTORIES (CONTINUED)
At July 31, 1996 and 1995, approximately $12,079,000 and $4,756,000,
respectively, of equipment was being held for rent and, in accordance with
standard industry practice, is included in new and used equipment inventory.
Such equipment is generally being depreciated at an amount equal to 80% of the
rental payments received.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JULY 31,
----------------------------
<S> <C> <C>
1996 1995
------------- -------------
Machinery and equipment......................................... $ 2,092,000 $ 1,574,000
Furniture and office equipment.................................. 1,925,000 1,892,000
Computer system................................................. 2,328,000 --
Land............................................................ 840,000 1,903,000
Building........................................................ 3,042,000 2,347,000
Construction in progress........................................ 892,000 596,000
------------- -------------
11,119,000 8,312,000
Less: Accumulated depreciation and amortization................. (2,241,000) (1,250,000)
------------- -------------
$ 8,878,000 $ 7,062,000
------------- -------------
------------- -------------
</TABLE>
6. LICENSE AGREEMENT
Effective May 4, 1996 and in connection with the acquisition of ConnectSoft
(Note 3), the Company entered into a software licensing agreement for technology
to be utilized in a software product being developed by the Company. The term of
this license agreement is for three years commencing June 1, 1996. In
consideration for the license granted, the Company will make a $450,000
nonrefundable advance minimum royalty payment to the licensor. Royalties due
under this agreement are 15% of the sales price to third parties subject to a
minimum payment due on each sale. The Company is required to pay minimum
royalties of $750,000, $1,500,000 and $2,750,000 during each of the three
consecutive twelve month periods ending May 31, 1999, respectively.
Additionally, the Company has agreed to sell 100,000 unregistered shares of its
common stock for $1,000 to the licensor which were issued subsequent to July 31,
1996. Other provisions of the agreement grant the licensor the right to
designate one member of the board of directors of one of the Company's
subsidiaries and certain rights to receive options to purchase shares of the
subsidiary's common stock in the event that the subsidiary completes an initial
public offering. The value assigned to the shares to be issued was $350,000. Of
the $800,000 cost associated with the license, $262,000 was expensed as research
and development during fiscal 1996.
F-14
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. BORROWINGS
Borrowings consist of the following:
<TABLE>
<CAPTION>
JULY 31,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Borrowings under floor financing lines....................... $ 54,364,000 $ 37,072,000
Line of credit with bank..................................... 2,927,000 --
Term and mortgage notes payable.............................. 3,201,000 6,023,000
Note payable to creditor (Note 3)............................ 1,500,000 --
------------- -------------
Total borrowings......................................... 61,992,000 43,095,000
Less current portions:
Borrowings under floor financing lines....................... 54,364,000 37,072,000
Other third-party borrowings................................. 4,660,000 6,023,000
------------- -------------
$ 2,968,000 $ --
------------- -------------
------------- -------------
</TABLE>
Scheduled principal payments of all borrowings are as follows:
<TABLE>
<S> <C>
1997........................................................... $59,024,000
1998........................................................... 204,000
1999........................................................... 1,658,000
2000........................................................... 63,000
2001........................................................... 68,000
Thereafter..................................................... $ 975,000
----------
$61,992,000
----------
----------
</TABLE>
FLOOR FINANCING LINES
Western has an inventory floor financing line with Case Credit Corporation,
the financing operation of Case Corporation, to purchase new equipment and
attachments. The Case credit floor plan line provides for a four-month to
eight-month interest free term followed by a term during which interest is
charged at prime plus 2% (10.25% at July 31, 1996). Principal payments are
generally due at the earlier of sale of the equipment or twelve to forty-eight
months from the invoice date. At July 31, 1996 there was approximately
$38,501,000 outstanding under floor financing arrangements.
Western also has a credit facility with Seafirst Bank to provide up to
$17,500,000 for the purchase of new and used equipment held for sale as well as
equipment held for rental. The credit line calls for monthly interest payments
at prime plus .25% (8.5% at July 31, 1996). Principal payments are generally due
in periodic installments over terms ranging from twelve months to twenty-four
months from the borrowing date. At July 31, 1996, approximately $14,352,000 was
outstanding under this facility.
In addition to the Case and Seafirst Bank credit lines, Western has entered
into floor plan financing arrangements with other equipment manufacturers and
commercial credit companies. These credit facilities provide for interest free
terms ranging up to six months and require monthly principal and interest
payments over terms ranging up to forty-eight months. The interest rate paid on
these credit facilities are prime plus 2%. The total amount outstanding under
these other financing arrangements was $1,511,000 at July 31, 1996.
F-15
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. BORROWINGS (CONTINUED)
OTHER BORROWINGS
Western entered into various term notes with Case for the purchase of used
equipment, parts, shop tools, furniture and fixtures and accounts receivable.
The terms of these notes provide for interest charges at various rates up to
prime plus 2% and are collateralized by the related equipment, parts and fixed
assets. As of July 31, 1996, approximately $963,000 was outstanding under these
notes.
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.
In connection with the acquisition of the original seven stores, Western
entered into a purchase agreement for the Auburn, Washington facility subject to
the completion by Case of certain environmental remediation. In December 1995,
after completion of the remediation, Western entered into a sale-leaseback
transaction with an unrelated party regarding the Auburn facility which resulted
in no gain or loss to Western. Using the proceeds of the sale-leaseback, Western
repaid a $2,075,000 collateralized mortgage with Case. The term of the lease is
20 years at an initial annual rate of $204,000. In addition to base rent,
Western is responsible for the payment of all related taxes and other
assessments, utilities, insurance and repairs with respect to the leased real
property during the term of the lease. In accordance with SFAS 13, the building
portion of the lease is being accounted for as a capital lease (see Note 11)
while the land portion of the lease qualifies for treatment as an operating
lease.
During fiscal 1996, the Company obtained a $10,000,000 secured demand line
of credit from a commercial bank. This line is secured by the Company's
portfolio of cash and marketable securities held by the bank. On July 31, 1996
approximately $2,927,000 was outstanding under this line of credit, the
principal of which bears interest at the bank's base rate plus 1% or 90 day
LIBOR plus 1%.
The applicable rate is elected upon issuance of each advance on the line of
credit. Effective October 1996, the secured demand line of credit was increased
to $13,000,000 of which $4,400,000 may be in the form of letters of credit.
During May 1993, ConnectSoft entered into a financing arrangement whereby it
requested advances from a financing company and pledged receipts on accounts
receivable to repay these advances. The interest rate charged to ConnectSoft
amounts to 48% per year. The advances made under this arrangement are
collateralized by the accounts receivable and other assets of ConnectSoft. At
July 31, 1996, ConnectSoft had a total liability under this arrangement of
$585,000 and was in default with respect to one of its covenants. As a result,
the total amount due is classified as a short-term liability.
F-16
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES
Effective August 1, 1993, the Company adopted SFAS No. 109, Accounting for
Income Taxes. The cumulative effect of adoption was an increase in net income of
$138,000, or $.03 per share. The provision (benefit) for income taxes from
continuing operations before extraordinary items comprises the following:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Current:
Federal............................................. $ 1,429,000 $ 918,000 $ 672,000
State............................................... 242,000 60,000 210,000
------------ ----------- -----------
1,671,000 978,000 882,000
------------ ----------- -----------
Deferred:
Federal............................................. (779,000) (252,000) (153,000)
State............................................... (2,000) (15,000) (47,000)
------------ ----------- -----------
(781,000) (267,000) (200,000)
------------ ----------- -----------
$ 890,000 $ 711,000 $ 682,000
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
The principal reasons for the variation from the customary relationship
between income taxes at the statutory federal rate and that shown in the
consolidated statement of income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------
1996 1995 1994
------------- ---------- ----------
<S> <C> <C> <C>
Statutory federal income tax rate...................... $ (2,828,000) $ 677,000 $ 580,000
State income taxes, net of federal income tax
benefit.............................................. 82,000 74,000 68,000
Purchased research and development..................... 3,532,000 -- --
Other.................................................. 104,000 (40,000) 34,000
------------- ---------- ----------
$ 890,000 $ 711,000 $ 682,000
------------- ---------- ----------
------------- ---------- ----------
</TABLE>
F-17
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
JULY 31,
-------------------------
1996 1995
------------ -----------
<S> <C> <C>
Depreciation and amortization...................................... $ (587,000) $ (488,000)
Deferred income.................................................... (117,000) --
Other.............................................................. (314,000) --
------------ -----------
Gross deferred tax liabilities..................................... (1,018,000) (488,000)
------------ -----------
Inventory reserve.................................................. 258,000 193,000
Bad debt reserve................................................... 222,000 159,000
Accrued vacation and bonuses....................................... 127,000 92,000
State taxes........................................................ 124,000 53,000
Loss carryforwards................................................. 88,000 --
Loss on Western initial public offering............................ 131,000 154,000
Stock options...................................................... 1,127,000 --
Operating lease.................................................... 194,000 --
Intangible assets.................................................. 2,105,000 --
Other.............................................................. -- 27,000
------------ -----------
Gross deferred tax assets.......................................... 4,376,000 678,000
------------ -----------
$ 3,358,000 $ 190,000
------------ -----------
------------ -----------
</TABLE>
At July 31, 1996, the Company had federal income tax loss carryforwards of
$260,000 which will begin to expire in 2010. Utilization of such net operating
losses will be subject to annual limitations due to the Company's acquisition of
ConnectSoft.
9. SHAREHOLDERS' EQUITY
On February 25, 1994, the Company completed a public offering of 920,000
units at $5.25 per unit, each unit consisting of one share of common stock, $.01
par value, and one redeemable common stock purchase warrant. Each warrant
entitled the holder to purchase one share of common stock until February 16,
1996, at an exercise price of $7.50. During fiscal 1996, the exercise period for
these warrants was extended to February 16, 1997. The warrants are subject to
redemption by the Company at a redemption price of $.10 per warrant.
Simultaneous with the offering, the Company purchased an aggregate of 100,000
shares of its issued and outstanding common stock from certain shareholders of
the Company for $4.625 per share. The net proceeds of the offering after the
purchase of the selling shareholders' shares were approximately $3,401,000.
In addition, during fiscal 1994, all outstanding shares of the Company's
preferred stock, along with an existing $1,375,000 note payable, were exchanged
for a new subordinated note payable to a related party totaling $2,575,000 which
was repaid in fiscal year 1995. The Company also retired notes totaling $525,000
that were incurred in connection with the Western Acquisition and used the
balance of the proceeds to pay down the Company's revolving credit facility with
Congress Financial Corporation during fiscal 1994.
F-18
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. SHAREHOLDERS' EQUITY (CONTINUED)
During fiscal 1995, Western completed an initial public offering of
1,495,000 shares of common stock at $6.50 per share. The net proceeds of the
offering were approximately $7,801,000 including $1,102,000 from the exercise of
an over allotment option which was received subsequent to July 31, 1995.
Prior to the offering, Western issued promissory notes totaling $250,000
(the "Bridge Loans"), and 38,462 shares of its common stock to certain
investors. The shares were valued at the estimated offering price and recorded
as deferred debt issuance costs. Such costs were written off in June 1995 when
the Bridge Loans were retired using proceeds from the offering.
The net proceeds per share from Western's offering and the Bridge Loans were
lower than the Company's per share basis in Western at the time of the offering.
Accordingly, the Company recognized a $386,000 pretax loss in connection with
the transaction during the year ended July 31, 1995.
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 Western's Board of Directors without
further action of its shareholders. As of July 31, 1996 none were issued and
outstanding.
10. DISCONTINUED OPERATIONS
Pursuant to the terms of an Asset Purchase Agreement, dated as of November
22, 1995, on January 19, 1996 all of the assets of the National O-Ring and
Stillman Seal businesses (the "Manufacturing Business") were sold to, and
substantially all of the liabilities associated with operation of the
Manufacturing Business were assumed by, subsidiaries of Hutchinson Corporation
(the "Hutchinson Transaction").
The Purchase Price for the Manufacturing Business was $24,500,000,
$20,825,000 of which was paid in cash and the aggregate $3,675,000 balance was
paid by delivery of two 24-month non-interest bearing promissory notes (the
"Notes" ) issued by Hutchinson. The Notes, which have been discounted for
financial statement presentation by $638,000, are non-interest bearing and
guaranteed by Total America, Inc., the parent corporation of Hutchinson, whose
securities are listed on the New York Stock Exchange. The discounted note
balance aggregates $3,198,000 at July 31, 1996.
At the closing of the Hutchinson Transaction, the Company, Hutchinson (as
guarantor) and Robert Rubin, who is the chairman and a director of the Company,
entered into a five-year Non-Competition Agreement in favor of Hutchinson and
its affiliates, pursuant to which Mr. Rubin and the Company agreed not to
compete with the business acquired in the Hutchinson Transaction. Under the
terms of the Non-Competition Agreement, Mr. Rubin will receive payments
aggregating $200,000 over a seven-year period. In addition, Hutchinson engaged
Mr. Rubin as a consultant to provide advisory services relating to the acquired
Manufacturing Business over a seven-year period, for which services Mr. Rubin
will receive payments aggregating $1,000,000.
On January 19, 1996, as a result of the Hutchinson Transaction, Mr. John
Shahid, the former president, chief executive officer and director of the
Company and the Company entered into a Termination Agreement whereby Mr. Shahid
resigned as an officer and director of the Company and each of its subsidiaries
in consideration for the payment of an aggregate of $816,000, representing
salary payments under his Employment Agreement through December 31, 1998, as
well as a bonus payment for fiscal year 1996 in the amount of $90,000. The
Termination Agreement also provides that the Company shall retain Mr. Shahid as
a consultant for a period of two years, commencing April 1, 1996, for which
consulting services he will be paid quarterly an aggregate of $200,000. Benefits
under the termination agreement as
F-19
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. DISCONTINUED OPERATIONS (CONTINUED)
well as the two-year consulting agreement were fully expensed during fiscal
1996. Additionally, the Company recognized $506,000 in compensation expense
resulting from amendments made to its employee stock option plans (see Note 12).
These charges, along with other costs of the Hutchinson Transaction were
included in determining the gain on the sale of the Manufacturing Business.
Details of this transaction are as follows:
<TABLE>
<S> <C>
Sale price..................................................... $23,862,000
Basis of net assets sold....................................... (9,634,000)
Expenses of sale............................................... (1,726,000)
----------
Gain on sale before income taxes............................... 12,502,000
----------
Income tax provision........................................... (5,042,000)
----------
Gain on sale of wholly-owned subsidiaries...................... $7,460,000
----------
----------
</TABLE>
Although the results of National O-Ring and Stillman Seal subsidiaries have
previously been reported in the consolidated financial statements, these
subsidiaries were operated as a separate line of business whose products,
activities and class of customers differed from other operations of the Company.
Based upon this determination, the disposal of these two subsidiaries has been
accounted for as discontinued operations and accordingly, their operating
results are segregated in the accompanying statement of operations.
Results of National O-Ring and Stillman Seal for each of the three prior
fiscal years through the date of disposition are as follows:
<TABLE>
<CAPTION>
5 1/2 MONTHS
ENDED YEAR ENDED JULY 31,
JANUARY 19, ----------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Net sales........................................................... $ 16,928,000 $ 37,441,000 $ 34,820,000
Costs and expenses.................................................. 16,410,000 35,511,00 32,147,000
------------- ------------- -------------
Income before taxes................................................. 518,000 1,930,000 2,673,000
Provision for income taxes.......................................... 203,000 826,000 911,000
------------- ------------- -------------
Net income.......................................................... $ 315,000 $ 1,104,000 $ 1,762,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
On April 29, 1994, the Company sold its Aerodynamic Engineering, Inc.
("AEI") subsidiary to Mayer Eisel, Inc., a company owned and operated by the
former owners of Aerodynamics, Inc. The Company had originally purchased AEI
from Aerodynamics, Inc.
In consideration for the sale of AEI, the Company received $500,000 in cash,
a four-year $500,000 promissory note from Mayer Eisel, Inc. (prepaid at a
discount in October 1995), equipment valued at $100,000 and the cancellation of
the remaining outstanding balance of notes totaling $875,000. The Company also
assumed indebtedness of Aerodynamic, Inc. due to Congress Financial Corporation
in the amount of $958,000 and entered into a five-year noncompete agreement with
Mayer Eisel, Inc.
Although the results of AEI have previously been reported as part of the
Manufacturing Group, the subsidiary was operated as a separate line of business
whose products, activities and class of customers
F-20
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. DISCONTINUED OPERATIONS (CONTINUED)
differed from the other Manufacturing Group operations. Based upon this
determination, the disposal of AEI has been accounted for as a discontinued
operation and, accordingly, its operating results are segregated in the
accompanying consolidated statement of operations for the year ended July 31,
1994.
Results of AEI's operations through its date of disposal are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
JULY 31, 1994
--------------
<S> <C>
Net sales..................................................................... $ 1,648,000
Costs and expenses............................................................ 2,151,000
--------------
(Loss) before income taxes.................................................... (503,000)
Income tax benefit............................................................ 201,000
--------------
Net (loss).................................................................... $ (302,000)
--------------
--------------
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company and Western lease certain facilities and certain computer
equipment and software under noncancelable lease agreements. The building
portion of two of the Western's facility leases qualify under SFAS 13 as
"capital leases" (i.e., an acquisition of an asset and incurrence of a
liability). The remaining facility lease agreements have terms ranging from one
to five years. Certain of the facility lease agreements provide for options to
renew and generally require the Company and Western to pay property taxes,
insurance, and maintenance and repair costs. Total rent expense under all
operating leases aggregated $1,100,000, $733,000 and $435,000 for the fiscal
years 1996, 1995 and 1994, respectively. The computer equipment lease expires
February 1997 and meets certain specific criteria to be accounted for as a
capital lease. In connection with the acquisition of ConnectSoft, the Company
acquired certain capital lease obligations. These lease obligations were valued
at the acquisition date at fair market value which was based on a refinancing
agreement for these leases that the Company is currently negotiating. The terms
of the refinancing have not been finalized and, accordingly, the specific
payment terms have not been determined, however the anticipated terms of the new
leases are for a thirty-six month period. As the terms of these leases have not
been finalized, the payments associated with these leases cannot be allocated to
specific years.
Assets recorded under capital leases are as follows:
<TABLE>
<CAPTION>
JULY 31,
------------------------------------
1996 1995 1994
------------ ---------- ----------
<S> <C> <C> <C>
Capitalized asset value................................ $ 3,668,000 $ 170,000 $ 170,000
Less accumulated amortization.......................... (287,000) (54,000) (20,000)
------------ ---------- ----------
$ 3,381,000 $ 116,000 $ 150,000
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
F-21
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments under all noncancelable leases as of July 31,
1996, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING JULY 31, LEASES LEASES
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
1997.............................................................. $ 26,000 $ 1,493,000
1998.............................................................. (23,000) 1,324,000
1999.............................................................. (26,000) 1,087,000
2000.............................................................. (30,000) 896,000
2001.............................................................. (8,000) 444,000
Thereafter........................................................ 1,765,000 2,793,000
------------ ------------
Total annual lease payments....................................... 1,704,000 $ 8,037,000
------------
------------
Refinanced leases................................................. 1,500,000
Less amount representing interest................................. 2,000
------------
Present value of minimum lease payments........................... 3,202,000
Less: Current portion............................................. 1,119,000
------------
Long-term portion................................................. $ 2,083,000
------------
</TABLE>
LEGAL PROCEEDINGS
The Company is involved in certain legal proceedings that have arisen in the
normal course of business. Based on the advice of legal counsel, management does
not anticipate that these matters will have a material effect on the Company's
consolidated financial condition, results of operations or cash flows.
12. STOCK OPTION PLANS
EMPLOYEE STOCK BONUS PLAN (THE "TRANSFER PLAN")
In March 1991, the Company granted incentive options under the Transfer Plan
to purchase an aggregate of 38,496 shares of common stock at purchase prices of
$1.63 and $6.50 per share. During fiscal 1994 and 1996, 1,780 and 23,558
options, respectively, were exercised under the Transfer Plan. No options were
exercised during fiscal 1995. There are currently outstanding options to
purchase 770 shares of common stock under the Transfer Plan, all of which are
exercisable at $1.63.
THE 1991 EMPLOYEE INCENTIVE STOCK OPTION PLAN (THE "1991 STOCK OPTION PLAN")
Key employees of the Company can receive incentive options to purchase an
aggregate of 750,000 shares of common stock at initial exercise prices equal to
100% of the market price per share of the Company's common stock on the date of
grant. The 1991 Stock Option Plan was approved by the Board of Directors and
shareholders in June 1991 and became effective from May 21, 1991.
F-22
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCK OPTION PLANS (CONTINUED)
Set out below is a summary of the activity of the 1991 Stock Option Plan:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Beginning balance............................................................... 623,450 623,450 461,050
Granted....................................................................... -- -- 170,000
Exercised..................................................................... (427,450) -- --
Expired or canceled........................................................... -- -- (7,600)
---------- --------- ---------
Ending balance.................................................................. 196,000 623,450 623,450
---------- --------- ---------
---------- --------- ---------
</TABLE>
STOCK OPTION BONUS PLAN (THE "STOCK BONUS PLAN")
The Stock Bonus Plan was established in October 1991, and granted certain
key employees non-qualified options to acquire 171,000 shares of stock, which
options were only exercisable in the event that the Company realized certain
targeted annual earnings in fiscal years 1992-1994. The Company did not meet its
annual earnings target in 1992; however, it met its annual earnings targets in
1993 and 1994 and 114,000 options were granted at exercise prices equal to the
market price at the date of grant. During 1996, 99,625 options were exercised
under the Stock Bonus Plan. At July 31, 1996, 14,375 options were exercisable
and outstanding under this plan.
AMENDMENTS TO THE PLANS
On May 5, 1995, the Company's Board of Directors approved the re-pricing of
options outstanding under all three plans. With the exception of the $1.63
options under the Transfer Plan, all outstanding options were repriced to
$3.125, which was the closing market price on May 5, 1995.
In connection with the Hutchinson Transaction described in Note 10, the
Company amended the Transfer Plan, 1991 Stock Option Plan and the Stock Bonus
Plan by accelerating the vesting period and extending the exercise term for all
options under these plans. The amendment was subject to the consummation of the
Hutchinson Transaction and affected 761,008 options outstanding on the closing
date. The difference between the fair market price on the date of closing and
the respective exercise prices applied to the options totaled $506,000 which was
included as an expense in determining the net gain on Hutchinson Transaction.
1996 EMPLOYEE STOCK OPTION PLAN (THE "1996 PLAN")
In April 1996, the Company's Board of Directors authorized and approved the
creation of the 1996 Plan for which two million shares of the Company's common
stock has been reserved. Concurrent with the 1996 Plan's adoption, options to
acquire 800,000 shares at an exercise price of $3.76 per share were granted to
the Company's principal shareholder and management. In May, options to acquire
an additional 250,000 shares at an exercise price of $5.25 were granted to two
other employees. All exercise prices represented the fair market value of the
Company's common stock on the date of grant. Of these options granted 100,000
options granted at $5.25 have been canceled.
The 1996 Plan as originally adopted required shareholder approval which had
not been obtained by the end of the fiscal year. On July 30, 1996, the Board
amended the 1996 Plan so that shareholder approval
F-23
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCK OPTION PLANS (CONTINUED)
was not required. The difference between the fair market value on the date of
the amendment and the respective exercise prices applied to the options was
recognized as compensation expense based on the options' vesting schedule. This
resulted in a fiscal 1996 expense of approximately $1,671,000 and $293,000 of
deferred compensation to be recognized over the next two fiscal years.
OTHER OPTIONS AND WARRANTS GRANTED
Prior to fiscal 1996, the Company granted warrants and options to certain
consultants of the Company in consideration for services rendered to the
Company. Of these warrants and options, 522,500 were outstanding at July 31,
1996 with exercise prices ranging from $3.13-$7.00. During fiscal 1996, 100,000
options with an exercise price of $5.25 were granted to the president of one of
the Company's subsidiaries. Of these options, all were unexercised and 25,000
were vested at July 31, 1996.
WESTERN STOCK OPTION PLAN
In March 1995, the Company, as the sole shareholder of Western, approved
Western's 1995 Stock Option Plan, as previously adopted by the Board of
Directors (the "Plan"), under which key employees, officers, directors and
consultants of Western can receive incentive stock options and non-qualified
stock options to purchase up to an aggregate of 300,000 shares of common stock.
In December 1995, the shareholders amended the 1995 stock option plan to
increase the number of shares underlying the plan from 300,000 to 850,000
shares. The Plan provides that the exercise price of incentive stock options be
at least equal to 100 percent of the fair market value of the common stock on
the date of grant. With respect to non-qualified stock options, the Plan
requires that the exercise price be at least 85 percent of fair value on the
date such option is granted. Upon approval of the Plan, Western's Board of
Directors awarded non-qualified stock options for an aggregate of 200,000
shares, all of which provide for an exercise price of $6.50 per share. On
December 28, 1995, the exercise price of the options previously granted was
lowered to $4.50 per share, the market price as of that date. All outstanding
options are exercisable commencing August 1, 1996 and expire on July 31, 2005.
Subsequent to July 31, 1996, Western's Board of Directors approved the grant
of an additional 347,000 options to employees, directors and consultants of
Western at an exercise price of $4.375 per share, the market price as of the
date of grant. These options vest ratably over a two-year period commencing
August 1, 1996.
EXODUS STOCK OPTION COMMITMENT
In connection with the Company's acquisition of ConnectSoft, employees of
eXodus are entitled to receive stock options, under terms similar to the
Company's 1996 Plan, of not less than 15% of the outstanding shares of eXodus
immediately prior to an initial public offering of eXodus.
F-24
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
The Company paid interest of $1,877,000, $1,091,000 and $795,000 during the
fiscal years 1996, 1995, and 1994, respectively. The Company paid $2,084,000,
$1,575,000 and $1,268,000 in income taxes during fiscal 1996, 1995 and 1994,
respectively.
In September 1994, Western acquired the assets and operations of two stores
in California and Nevada for approximately $557,000 in cash (including $108,000
of indirect expenses), $4,153,000 in installment notes payable and the
assumption of $5,019,000 in inventory floor plan debt.
In February 1996, Western acquired the assets and operations of two stores
in California for approximately $630,000 in cash, $1,590,000 in installment
notes payable and the assumption of $3,965,000 in inventory floor plan debt. In
addition, a capital lease obligation of $740,000 was incurred related to the
lease of the Sacramento facility.
Effective June 11, 1996, Western acquired the assets and operations of GCS,
Inc, for approximately $1,655,000 in cash.
On July 31, 1996, the Company acquired ConnectSoft in exchange for shares of
its Series B Preferred Stock valued at $6,132,000 and incurred $1,352,000 in
acquisition costs.
A capital lease obligation of $926,000 was incurred in fiscal 1996 when the
Company consummated a sale-leaseback transaction. A note receivable of
$3,037,000 arose due to the sale of the Manufacturing Group in fiscal 1996.
As discussed in Note 10, the Company sold AEI to Mayer Eisel, Inc. In
partial consideration of the sale, the Company received a four-year $500,000
promissory note, which was prepaid at a discount in October 1995, equipment
valued at $100,000 and the cancellation of the remaining outstanding balance of
the convertible notes totaling $875,000. The remaining consideration was
received in cash. As discussed in Note 9, concurrent with the Company's public
offering in February 1994, all outstanding Preferred Stock, along with an
existing $1,375,000 note payable was exchanged for a new subordinated note
totaling $2,575,000.
14. RELATED PARTIES
The real property and improvements used in connection with the Sacramento
Operations of Western, and upon which the Sacramento Operation is located, were
sold by Case for $1,500,000 to the McLain-Rubin Realty Company, LLC ("MRR"), a
Delaware limited liability company the owners of which are Messrs. C. Dean
McLain, the president of Western and a director of Western, and Robert M. Rubin,
the chairman, chief executive officer, a director and principal shareholder of
the Company. 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 March 1,
1996 with Western paying an initial annual rate of $168,000. Under the lease,
such annual rate increases to $192,000 after five years and is subject to fair
market adjustments at the end of ten years. In addition to base rent, the
Company is responsible for the payment of all related taxes and other
assessments, utilities, insurance and repairs (both structural and regular
maintenance) with respect to the leased real property during the term of the
lease. In accordance with SFAS 13, the building portion of the lease is being
accounted for as a capital lease (see Note 11) while the land portion of the
lease qualifies for treatment as an operating lease.
F-25
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. RELATED PARTIES (CONTINUED)
On February 9, 1996, the Company loaned an aggregate of $450,000 to Diplomat
Corporation ("Diplomat") in connection with Diplomat's acquisition of
BioBottoms, Inc. Diplomat is a public company of which Robert Rubin serves as a
director. Before the BioBottoms, Inc. transaction, Mr. Rubin held approximately
22% of Diplomat's outstanding capital stock. The loan to Diplomat earned
interest at the prime rate plus 2% and was repaid in May 1996.
In connection with the above transaction, Mr. Rubin personally made a
secured loan to Diplomat in the aggregate principal amount of $2,353,100 which
matures in February 1999, and committed to make available a stand-by loan of up
to $300,000 aggregate principal. In consideration for making his loan to
Diplomat and committing to make this stand-by commitment, Mr. Rubin received
shares of Diplomat convertible preferred stock.
Pursuant to an Agreement, dated May 30, 1996 (the "ERD Agreement") between
the Company and ERD Waste Corp. ("ERD"), the Company agreed to provide certain
financial accommodations to ERD by making available a $4.4 million standby
letter of credit expiring May 31, 1997 issued by Citibank, N.A. in favor of
Chemical Bank (the "Letter of Credit") on behalf of ERD. Chemical Bank is the
principal lender to ERD and its subsidiaries, and upon issuance of the Letter of
Credit Chemical Bank made available $4.4 million of additional funding to ERD
under ERD's existing lending facility. The funding was used to refinance certain
outstanding indebtedness of Environmental Services of America, Inc. ("ENSA"), a
wholly-owned subsidiary of ERD. Robert M. Rubin is the chairman, chief executive
officer, a director and principal shareholder of ERD. Under the terms of a
separate Indemnity Agreement, Mr. Rubin has agreed to a limited indemnification
to the Company for certain losses or liabilities that it may incur in connection
with its having provided the Letter of Credit financial accommodation on behalf
of ERD.
In consideration for making the Letter of Credit available, in addition to
repayment by ERD of all amounts drawn under the Letter of Credit by the delivery
of notes convertible into ERD unregistered common stock in the aggregate
principal amount of all drawings under the Letter of Credit, ERD granted the
Company a security interest in certain machinery and equipment of ENSA to secure
such repayment, and agreed to pay to the Company all of the Company's fees,
costs and expenses payable to Citibank, N.A. and others in connection with
making the Letter of Credit available. No provision for loss on this guarantee
has been recorded at July 31, 1996 as management believes that the Company's
exposure to loss on this guarantee is minimal. There can be no assurance,
however, that the Company will not be required to make payments on behalf of ERD
in accordance with the terms of this guarantee. Loss, if any, will be recorded
when determinable.
On June 28, 1996 the Company entered into a credit agreement with Mr. Rubin
pursuant to which Mr. Rubin delivered a demand promissory note for up to
$1,200,000. The note is payable on demand no later than July 31, 1997. At July
31, 1996, $838,000 was outstanding on the promissory note. Mr. Rubin's
indebtedness is secured by his pledge of 150,000 shares of Company common stock
and his collateral assignment of all payments to him under the terms of his
Consulting and Non-Competition Agreements with Hutchinson, which currently
aggregate $1,200,000.
15. OPERATING BUSINESS GROUPS
As described in Note 1, the Company historically has been engaged in two
distinct businesses consisting of the Manufacturing Group and the Distribution
Service Group. During fiscal 1996, as more fully described in Note 3, through
the acquisition of ConnectSoft the Company added a Technology Group
F-26
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. OPERATING BUSINESS GROUPS (CONTINUED)
to its businesses. Total revenue by segment represents sales to unaffiliated
customers. Inter-segment sales are not material. Operating profit (loss)
represents total revenue less operating expenses. In computing operating profit
(loss) none of the following items has been added or deducted: general corporate
expenses, interest expense, income taxes or extraordinary gains.
Identifiable assets are those assets used in the operations of each industry
segment. Corporate assets primarily consist of cash, investments and certain
prepaid expenses.
As discussed in Note 10, the Manufacturing Business was sold during fiscal
1996. All operating results of the Manufacturing Business have been included in
the gain on discontinued operations.
The Company has no foreign assets and export sales amount to less than 1% of
the Company's total sales. No material amounts of the Company's sales are
dependent upon a single customer; however, substantially all the Distribution
Service Group's revenues resulted from sales, leasing and servicing of equipment
and parts manufactured by Case.
Summarized financial information by business group for fiscal 1996, 1995 and
1994 is as follows:
<TABLE>
<CAPTION>
TECHNOLOGY DISTRIBUTION
GROUP SERVICE GROUP CORPORATE TOTAL
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
1996:
Revenue........................................ $ -- $ 106,555,000 $ -- $ 106,555,000
Operating (loss) profit........................ (10,295,000) 5,201,000 (2,087,000) (7,181,000)
Identifiable assets............................ 8,049,000 85,290,000 25,716,000 119,055,000
Depreciation and amortization.................. -- 820,000 71,000 891,000
Capital expenditures........................... -- 695,000 -- 695,000
<CAPTION>
DISTRIBUTION
SERVICE GROUP CORPORATE TOTAL
-------------- ------------- --------------
<S> <C> <C> <C> <C>
1995:
Revenue........................................ $ 86,173,000 $ -- $ 86,173,000
Operating profit (loss)........................ 3,983,000 (183,000) 3,800,000
Identifiable assets............................ 66,852,000 425,000 67,277,000
Depreciation and amortization.................. 1,068,000 -- 1,068,000
Capital expenditures........................... 332,000 -- 332,000
1994:
Revenue........................................ 67,370,000 -- 67,370,000
Operating profit (loss)........................ 2,880,000 (344,000) 2,536,000
Identifiable assets............................ 45,000,000 1,311,000 46,311,000
Depreciation and amortization.................. 633,000 -- 633,000
Capital expenditures........................... 309,000 -- 309,000
</TABLE>
16. EMPLOYEE SAVINGS PLAN
The Company has a voluntary savings plan pursuant to Section 401(k) of the
Internal Revenue Code, whereby eligible participants may contribute a percentage
of compensation subject to certain limitations. The Company has the option to
make discretionary qualified contributions to the plan, however, no Company
contributions were made for fiscal 1996, 1995 or 1994.
F-27
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SUBSEQUENT EVENTS (UNAUDITED)
Effective September 20, 1996, the Company acquired all of the outstanding
capital stock of Interglobe Networks, Inc. ("Interglobe"), a private company
providing engineering, design and consulting services for users and providers of
telecommunications facilities on the Internet and other media. The shareholders
of Interglobe exchanged their shares for $400,000 and 800,000 unregistered
shares of the Company's common stock. 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 anticipated profits. The
acquisition will be accounted for by the purchase method. Accordingly, the
results of operations of Interglobe will be included with the results of
operations of the Company for periods subsequent to the date of acquisition.
Interglobe had revenue of $937,000 (unaudited) and net income of $269,000
(unaudited) for the year ended July 31, 1996.
The unaudited pro forma combined results of operations of the Company and
Interglobe for the year ended July 31, 1996 are as follows:
<TABLE>
<S> <C>
Revenue....................................................... $107,492,000
Net loss...................................................... $(1,566,000)
Loss per share................................................ $ (.27)
</TABLE>
In November 1996, the Company completed the acquisition of the assets of
Seattle On-Line, a company engaged in the production of regional websites that
showcase metropolitan areas and sale of advertising on these websites. The
purchase price of Seattle On-Line consisted of $300,000 cash and up to 25,000
unregistered shares of the Company's common stock. Additionally, the Company
issued warrants to purchase 333,333 shares of the Company's common stock at
specified prices for a period of three years commencing with the effective date
of the acquisition. The warrants carry certain provisions that affect the
warrants' exercise price based on future profitability of Seattle On-Line.
Pro-forma financial information has not been provided relating to this
acquisition because the effect is immaterial.
In December 1996, the Company completed the acquisition of the assets of
TechStar Communications, Inc., formerly known as Broadcast Tower Sites, Inc.
("TechStar"). TechStar is engaged in providing site acquisition, zoning,
architectural and engineering services, as well as consulting services, to the
wireless telecommunications industry. The purchase price of TechStar consisted
of $780,000 cash, 507,246 unregistered shares of the Company's common stock, and
three year notes aggregating $600,000, bearing interest at the Citibank, N.A.
prime rate, and payable in installments of $100,000, $200,000 and $300,000 on
each of November 30, 1997, 1998 and 1999. Additionally, options were granted to
certain employees to purchase up to an additional 510,000 shares of the
Company's common stock upon the achievement of certain anticipated profits, or
upon sale of TechStar prior to November 30, 2000.
In a related transaction, the Company also agreed to acquire 100% of the
capital stock of Arcadia Consulting, Inc. ("Arcadia"), a company recently formed
for the purpose of providing consulting services to clients in the wireless
telecommunications industry. As part of the purchase price, the Company has paid
$220,000 as a deposit on execution of the Arcadia agreement. In addition, the
Company will issue 192,754 shares of Company Common Stock, and options to
purchase 390,000 shares of Company Common Stock based upon the achievement of
certain anticipated profits. Upon completion of the Arcadia acquisition, Solon
L. Kandel, the President and sole stockholder of Arcadia, will be employed by
TechStar as its President and Chief Executive Officer under a four year
employment agreement including 260,000 options.
F-28
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
In addition to the above, if the Company effects a public offering of
TechStar or a sale of TechStar prior to November 30, 2000, the former TechStar
and Arcadia stockholders may elect (but shall not be required) to exchange all
Company securities received by them in the TechStar acquisition (the "Exchange
Option") for an aggregate of 25% of the common stock of TechStar then owned by
the Company prior to such transaction.
On December 7, 1996, the Company entered into a non-binding memorandum of
understanding with the company party to the license agreement discussed in Note
6 pursuant to which the Company agreed, subject to due diligence and acceptable
documentation, to make a $6,000,000 investment in the company. Of this
investment, $3,000,000 would be in the form of a loan bearing interest at
Citibank N.A. prime rate plus 1% and payable on the earliest to occur of (i) a
public offering of securities of this company (ii) the sale of this company, or
(iii) three years from the date of funding. The remaining $3,000,000 of the
investment would be in equity capital of the company, to represent 12.5% of the
outstanding capital stock of the company.
As a condition to the Company's investment in this company, the license
agreement between the Company and this company (Note 6) would be amended and
restated to be between this company and eXodus. Under such amended and restated
license (i) the minimum royalties will be eliminated, (ii) the term of the
license will be extended through December 31, 2001, (iii) the license shall be
exclusive to eXodus for its Application Remoting Software for the UNIX and
X-Terminal markets through March 31, 1998, and thereafter non-exclusive;
provided that eXodus shall receive between 40% and 50% of all revenues which the
company may obtain from any other OEM licensing the company's proprietary
software.
In January of 1997, the Company issued 400,000 shares of Series B-2
preferred stock in a private placement. Proceeds from the private placement
totaled $10,000,000. The Series B-2 preferred stock carry a $25 per share
liquidation preference over the Company's common stock, and pay a 7% cumulative
quarterly dividend, payable at the Company's option in cash or in additional
shares of Series B-2 preferred stock. With certain restrictions, the preferred
shares are convertible to common stock of the Company through April of 1997. All
private placement shares will automatically convert to common stock of the
Company in January of 2000. In addition, purchasers of private placement shares
acquired 350,000 five year warrants at a purchase price of $.01 per warrant,
entitling the holders to purchase 350,000 shares of Company common stock at
$8.58 per share. In the event of an initial public offering of common stock of
the Company's eXodus subsidiary, purchasers of the private placement shares
shall have the right to purchase, for $.01 each, 350,000 five year warrants to
purchase up to 350,000 shares of eXodus common stock at an exercise price equal
to the initial price per share offered to the public.
F-29
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
OCTOBER 31,
1996
--------------
<S> <C>
Current Assets:
Cash and cash equivalents....................................................................... $ 16,281,000
Marketable securities........................................................................... 6,637,000
Trade accounts receivable (less allowance for doubtful accounts of $676,000).................... 10,907,000
Other receivables............................................................................... 404,000
Note receivable from shareholder................................................................ 1,200,000
Inventories..................................................................................... 64,443,000
Prepaid expenses................................................................................ 541,000
Deferred tax asset.............................................................................. 1,528,000
--------------
Total Current Assets.......................................................................... 101,941,000
Note receivable................................................................................... 3,274,000
Property and equipment, net....................................................................... 8,908,000
Deferred tax asset................................................................................ 1,830,000
Intangibles and other assets...................................................................... 9,261,000
--------------
Total Assets.................................................................................. $ 125,214,000
--------------
--------------
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C>
Current Liabilities:
Borrowings under floor financing lines...................................... $55,138,000
Short-term borrowings....................................................... 8,460,000
Accounts payable............................................................ 4,577,000
Accrued liabilities......................................................... 4,477,000
Deferred revenue............................................................ 234,000
Income taxes payable........................................................ 4,729,000
Current portion of capital lease obligations................................ 1,146,000
-----------
Total Current Liabilities................................................. 78,761,000
Long-term borrowings.......................................................... 2,968,000
Capital lease obligations, net of current portion............................. 2,288,000
Purchased business obligations................................................ 452,000
Minority interest............................................................. 9,683,000
-----------
Total Liabilities......................................................... 94,152,000
-----------
Commitments and contingencies (Note 5)
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
Common stock, $.01 par value; 20,000,000 shares authorized; 7,166,382 issued
and outstanding............................................................. 72,000
Additional contributed capital................................................ 30,267,000
Deferred compensation......................................................... (753,000)
Retained Earnings............................................................. 1,466,000
-----------
Total Shareholders' Equity................................................ 31,062,000
-----------
Total Liabilities & Shareholders' Equity.................................. $125,214,000
-----------
-----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31
----------------------------
<S> <C> <C>
1996 1995
------------- -------------
Net Sales.......................................................................... $ 31,879,000 $ 23,153,000
Costs of goods sold................................................................ 27,637,000 $ 20,449,000
------------- -------------
Gross Profit..................................................................... 4,242,000 2,704,000
Selling, general and administrative expenses....................................... 4,227,000 1,820,000
Research and development expenses.................................................. 945,000 --
------------- -------------
Operating (loss) income.......................................................... (930,000) 884,000
Other (income) expense
Other income..................................................................... -- (98,000)
Interest expense, net............................................................ 413,000 240,000
------------- -------------
(Loss) income from continuing operations before income taxes and minority
interest......................................................................... (1,343,000) 742,000
Provision (benefit) for income taxes............................................... (376,000) 320,000
Minority interest in net earnings of consolidated subsidiary....................... 224,000 226,000
------------- -------------
(Loss) income from continuing operations........................................... (1,191,000) 196,000
Discontinued operations--income from operations of subsidiaries sold (less
applicable income taxes of $315,000)............................................. -- 529,000
------------- -------------
Net (loss) income.................................................................. ($ 1,191,000) $ 725,000
------------- -------------
(Loss) earnings per common and common equivalent shares:
Continuing operations.............................................................. ($.18) $.03
Discontinued operations............................................................ -- .09
------------- -------------
Net (loss) income.................................................................. ($.18) $.12
------------- -------------
------------- -------------
Weighted average number of shares.................................................. 6,746,000 5,901,000
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------------ --------------------- ADDITIONAL DEFERRED TOTAL
NUMBER OF NUMBER OF CONTRIBUTED COMPEN- RETAINED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL SATION 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............. -- -- -- -- -- -- (1,191,000) (1,191,000)
Amortization of
deferred
compensation....... -- -- -- -- -- 40,000 -- 40,000
Exercise of stock
options............ -- -- -- -- 379,000 -- -- 379,000
Issuance of Preferred
Stock.............. 977,000 $ 10,000 -- -- 6,217,000 -- -- 6,227,000
Issuance of common
shares............. -- -- 900,000 9,000 3,017,000 -- -- 3,026,000
------------- --------- ---------- --------- ------------- ------------ ------------- -------------
Balance at October
31, 1996........... 977,000 $ 10,000 7,167,000 $ 72,000 $ 30,267,000 ($ 753,000) $ 1,466,000 $ 31,062,000
------------- --------- ---------- --------- ------------- ------------ ------------- -------------
------------- --------- ---------- --------- ------------- ------------ ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
--------------------------
<S> <C> <C>
1996 1995
------------- -----------
Cash Flows from Operating Activities:
Net (loss) income.................................................................. $ (1,191,000) $ 725,000
Adjustment to reconcile net (loss) income to net cash (used) provided by operating
activities (used):
Discontinued operations.......................................................... -- (598,000)
Depreciation and amortization.................................................... 781,000 200,000
Amortization of deferred compensation............................................ 40,000
Loss on sale of fixed assets..................................................... -- (1,000)
Stock in lieu of compensation.................................................... -- 15,000
Income applicable to minority interest........................................... 224,000 226,000
Change in assets and liabilities, net of effects of acquisition & dispositions:
Accounts receivable.............................................................. (4,037,000) 658,000
Other receivables................................................................ (288,000) 1,102,000
Inventories...................................................................... 1,254,000 (4,158,000)
Inventory floor plan financing................................................... 774,000 3,615,000
Prepaid expenses................................................................. (274,000) (38,000)
Note receivable.................................................................. (76,000) --
Accounts payable................................................................. 191,000 175,000
Other accrued liabilities........................................................ (910,000) (430,000)
Income taxes payable............................................................. (524,000) 98,000
Deferred revenue................................................................. 234,000 --
Other assets..................................................................... (39,000) 5,000
------------- -----------
Net Cash (Used) Provided By Operating Activities............................... (3,841,000) 1,594,000
------------- -----------
Cash Flows From Investing Activities:
Purchases of property and equipment................................................ (228,000) (86,000)
Acquisition of businesses, net of cash acquired.................................... (123,000) --
Proceeds from sale of fixed assets................................................. -- 1,000
Purchase of marketable securities.................................................. (369,000) --
------------- -----------
Net Cash Used By Investing Activities.......................................... (720,000) (85,000)
------------- -----------
Cash Flows From Financing Activities:
Principal payments on capital lease................................................ (61,000) (14,000)
Short term borrowings.............................................................. 3,800,000 (2,466,000)
Note receivable from shareholder................................................... (362,000) 19,000
Exercise of stock options and warrants............................................. 379,000 90,000
------------- -----------
Net Cash Provided (Used) By Financing Activities............................... 3,756,000 (2,371,000)
------------- -----------
Net decrease in cash and cash equivalents............................................ (805,000) (862,000)
Cash and cash equivalents at beginning of period..................................... 17,086,000 4,144,000
------------- -----------
Cash and cash equivalents at end of period........................................... $ 16,281,000 $ 3,282,000
------------- -----------
------------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 year ended July 31, 1996. 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 this Prospectus.
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
October 31, 1996. 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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
------------------------
<S> <C> <C>
1996 1995
------------ ----------
Interest............................................................ $ 1,169,000 $ 376,000
Income taxes........................................................ $ 148,000 $ 500,000
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
1. A capital lease obligation of $293,000 was incurred during the
quarter ended October 31, 1996 when the Company entered into a lease for
computer equipment and software.
2. In September 1996, the Company acquired Interglobe by issuing shares
of its common stock valued at $2,775,000, cash of $400,000 and incurring
$40,000 in acquisition costs.
NOTE 3--INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
1996
-------------
<S> <C>
Parts.......................................................................... $ 6,761,000
Equipment new and used......................................................... 57,682,000
-------------
$ 64,443,000
-------------
-------------
</TABLE>
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
F-34
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4--ACQUISITIONS (CONTINUED)
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 with the results of operations of the Company for
periods subsequent to the date of acquisition. The Company has preliminarily
recorded this acquisition as described below and will finalize its purchase
accounting during fiscal 1997.
A summary of assets acquired, liabilities assumed and purchase price paid is
as follows:
<TABLE>
<S> <C>
Cash paid....................................................... $ 400,000
Value of common stock........................................... 2,775,000
Costs of acquisition............................................ 40,000
Liabilities assumed............................................. 134,000
---------
Cost of Assets acquired......................................... $3,349,000
---------
---------
</TABLE>
The cost initially allocated 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:
<TABLE>
<S> <C>
Cash............................................................ $ 277,000
Accounts receivable............................................. 242,000
Prepaid and other current assets................................ 7,000
Intangible assets............................................... 2,743,000
Property and equipment.......................................... 80,000
Accounts payable and accrued liabilities........................ (134,000)
---------
Net Assets Acquired............................................. $3,215,000
---------
---------
</TABLE>
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 anticipated profits as part of their employment agreements. Pro forma
financial information has not been provided relating to the acquisition because
the effect is immaterial.
NOTE 5--CONTINGENCIES
Except for ordinary, routine proceedings incidental to its businesses, there
are no pending legal proceedings to which the Company or any of its property is
subject. In the opinion of management, the outcome of these legal proceedings
will not have a material adverse effect on the financial condition, results of
operations or cash flows of the Company and its subsidiaries.
NOTE 6--SUBSEQUENT EVENTS
In November 1996, the Company completed the acquisition of the assets of
Seattle On-Line, a company engaged in the production of regional websites that
showcase metropolitan areas and sale of advertising on these websites. The
purchase price of Seattle On-Line consisted of $300,000 cash and up to 25,000
unregistered shares of the Company's common stock. Additionally, the Company
issued warrants to
F-35
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6--SUBSEQUENT EVENTS (CONTINUED)
purchase 333,333 shares of the Company's common stock at specified prices for a
period of three years commencing with the effective date of the acquisition. The
warrants carry certain provisions that affect the warrants' exercise price based
on future profitability of Seattle On-Line. Pro forma financial information has
not been provided relating to this acquisition because the effect is immaterial.
Effective December 11, 1996, the Company acquired Broadcast Tower Sites,
Inc. ("TechStar"), pursuant to a merger transaction (the "TechStar Merger").
TechStar is engaged in providing site acquisition, zoning, architectural and
engineering services, as well as consulting services, to the wireless
telecommunications industry. Following its acquisition, Broadcast Tower Sites,
Inc. changed its name to TechStar Communications, Inc. Pursuant to the terms of
the TechStar acquisition, the TechStar shareholders received an aggregate of
507,246 shares of Company Common Stock, $780,000 in cash and three promissory
notes aggregating $600,000, bearing interest at the Citibank, N.A. prime rate,
and payable in installments of $100,000, $200,000 and $300,000 on each of
November 30, 1997, 1998 and 1999, respectively.
In a related transaction, the Company also entered into an agreement to
acquire 100% of the capital stock of Arcadia Consulting, Inc. ("Arcadia"), a
company recently formed for the purpose of providing consulting services to
clients in the wireless telecommunications industry. The Company has agreed to
pay a purchase price of $220,000 in cash and 192,754 shares of Company Common
Stock. The closing of the Arcadia acquisition is subject to certain conditions
and is expected to be consummated in or about January 1997. Following the
Arcadia acquisition, Arcadia will be merged with and into TechStar.
The former stockholders of TechStar received, and the stockholder of Arcadia
will receive, four-year employment agreements with TechStar and the Company
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 an additional aggregate
780,000 shares of Company Common Stock (the "TechStar Options"). The TechStar
Options shall vest and be exercisable (i) 195,000 options on November 30, 1997
in the event that TechStar achieves at least $2,000,000 of Pre-Tax Income (as
defined) in the 12 months ending November 30, 1997, (ii) 195,000 options on
November 30, 1998 in the event that TechStar achieves at least $2,500,000 of
Pre-Tax Income (as defined) in the 12 months ending November 30, 1998, (iii)
195,000 options on November 30, 1999 in the event that TechStar achieves at
least $3,000,000 of Pre-Tax Income in the 12 months ending November 30, 1999,
and (iv) 195,000 options on November 30, 2000 in the event that TechStar
achieves at least $3,500,000 of Pre-Tax Income in the 12 months ending November
30, 2000. Alternatively, all 780,000 TechStar Options shall vest if, during the
period commencing upon closing the TechStar Merger and terminating on November
30, 2000, the accumulated Pre-Tax Income of TechStar has equalled 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 TechStar 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 TechStar and Arcadia stockholders may
elect (but shall not be required) to exchange all Company securities received by
them in the TechStar acquisition (the "Exchange Option") for an aggregate of 25%
of the common stock of TechStar then owned by the Company prior to such
transaction.
F-36
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6--SUBSEQUENT EVENTS (CONTINUED)
In addition to the 780,000 TechStar Options issued to the former TechStar
and Arcadia stockholders, the Company also agreed to issue an additional 120,000
TechStar Options, on identical terms as those offered to the former TechStar and
Arcadia stockholders, to certain other key employees of TechStar designated by
the former TechStar and Arcadia stockholders.
Upon completion of the Arcadia acquisition, Solon L. Kandel, the President
and sole stockholder of Arcadia, will be employed by TechStar as its President
and Chief Executive Officer under a four-year employment agreement containing
terms which are substantially identical to those provided to each of the former
stockholders of TechStar, including 260,000 TechStar Options. In addition, Mr.
Kandel has been nominated to serve as a member of the Board of Directors of the
Company. Pending completion of the Arcadia acquisition, the Company engaged
Arcadia as a consultant for a monthly fee of $15,000.
Pursuant to an Agreement, dated May 30, 1996 (the "ERD Agreement") between
the Company and ERD Waste Corp. ("ERD"), the Company agreed to provide certain
financial accommodations to ERD by making available a $4.4 million standby
letter of credit expiring May 31, 1997 issued by Citibank, N.A. in favor of
Chemical Bank (the "Letter of Credit") on behalf of ERD. Chemical Bank is the
principal lender to ERD and its subsidiaries, and upon issuance of the Letter of
Credit Chemical Bank made available $4.4 million of additional funding to ERD
under ERD's existing lending facility. The funding was used to refinance certain
outstanding indebtedness of Environmental Services of America, Inc. ("ENSA"), a
wholly-owned subsidiary of ERD. Robert M. Rubin, the Chairman 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 25.1% 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 and (ii)
to issue to the Company an aggregate of 25,000 shares of ERD common stock for
each consecutive period of 90 days or any portion thereof, commencing August 1,
1996 that the Letter of Credit remains outstanding. ERD Common Stock trades on
the NASDAQ National Market and, at the time of closing of the transaction with
ERD, its the closing price of ERD Common Stock, as traded on Nasdaq was $9.25
per share.
In August 1996, a subsidiary of ERD which operates 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 currently accounts for approximately 13% of ERD's consolidated
revenues. As a result of the uncertainties surrounding ERD's waste facility
operations, the per share price of ERD Common Stock closed at $2.875 per share
on November 8, 1996. Although the Company has been advised by ERD that it and
the DEC have reached agreement in principle to settle on acceptable terms such
violations and pending charges alleged against ERD and one of the employees of
the ERD subsidiary, to date, no such settlement has been finalized. If an
acceptable settlement is not reached, the business of ERD could be materially
and adversely affected.
F-37
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6--SUBSEQUENT EVENTS (CONTINUED)
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.
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 AUGI from
the sale of ERD capital stock described above.
NOTE 7--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 October 31, 1996 none were
issued and outstanding.
F-38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
ConnectSoft, Inc.
We have audited the accompanying balance sheets of ConnectSoft, Inc. as of
December 31, 1995 and 1994 and the related statements of operations,
shareholders' equity (deficit) and cash flows for each of the three years ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ConnectSoft, Inc. as of
December 31, 1995 and 1994 and the results of its operations and its cash flows
for each of the three years ended December 31, 1995 in conformity with generally
accepted accounting principles.
As discussed in Note 12 to the financial statements, in 1996 the Company was
acquired by American United Global, Inc.
COOPERS & LYBRAND L.L.P.
Seattle, Washington
October 19, 1996
F-39
<PAGE>
CONNECTSOFT, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
--------- ---------
<S> <C> <C>
Current assets:
Cash............................................................. $ 68,623 $ --
Restricted cash.................................................. -- 105,683
Accounts receivable, net of allowance for doubtful accounts of
$134,279 and $4,000, respectively.............................. 303,281 1,796,633
Inventories, net................................................. 135,325 210,757
Prepaid expenses................................................. 34,246 35,056
--------- ---------
Total current assets......................................... 541,475 2,148,129
Property and equipment, net...................................... 2,340,550 881,805
Restricted cash.................................................. -- 430,812
Capitalized software costs, net of accumulated amortization of
$979,221 and $213,180, respectively............................ 926,690 1,390,173
Operating lease deposits......................................... 153,793 132,459
Other assets..................................................... 514,277 30,367
--------- ---------
Total assets................................................. $4,476,785 $5,013,745
--------- ---------
--------- ---------
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<S> <C> <C>
Current liabilities:
Accounts payable................................................. $2,413,665 $1,699,490
Billings in excess of revenues earned............................ 412,288 588,810
Accrued liabilities.............................................. 485,967 278,748
Current portion, capital lease obligations....................... 825,844 196,960
Current portion, long-term debt.................................. -- 108,052
Line of credit................................................... 4,109,122 --
--------- ---------
Total current liabilities.................................... 8,246,886 2,872,060
--------- ---------
Long-term debt, less current portion............................. -- 400,000
Capital lease obligations, less current portion.................. 1,279,033 352,586
--------- ---------
--------- ---------
Total long-term obligations.................................. 1,279,033 752,586
--------- ---------
Total liabilities............................................ 9,525,919 3,624,646
--------- ---------
Commitments and contingencies
Shareholders' equity (deficit):
Convertible preferred stock:
Series A, $0.001 par value; 1,796,873 shares authorized, issued
and outstanding................................................ 1,797 1,797
Series B, $0.001 par value; 600,000 shares authorized; no shares
issued or outstanding.......................................... -- --
Series C, $0.001 par value; 2,412,625 shares authorized;
1,832,632 shares issued and outstanding........................ 1,832 1,832
Series D, $0.001 par value; 5,667,368 shares authorized; no
shares issued or outstanding................................... -- --
Common stock, no par value; 30,000,000 shares authorized;
6,119,773 and 5,772,895 issued and outstanding at December 31,
1995 and 1994, respectively.................................... 474,075 453,580
Additional paid-in capital....................................... 2,057,960 2,057,960
Accumulated deficit.............................................. (7,584,798) (1,126,070)
--------- ---------
Total shareholders' equity (deficit)......................... (5,049,134) 1,389,099
--------- ---------
Total liabilities and shareholders' equity (deficit)......... $4,476,785 $5,013,745
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-40
<PAGE>
CONNECTSOFT, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------ -------------
<S> <C> <C> <C>
Revenues:
Contract services................................................. $ 3,201,437 $ 4,418,859 $ 1,967,830
Retail products................................................... 8,429,564 3,307,016 201,187
------------- ------------ -------------
Total revenues........................................................ 11,631,001 7,725,875 2,169,017
------------- ------------ -------------
Cost of sales:
Contract services................................................. 3,848,269 2,726,879 1,577,167
Retail products................................................... 1,296,470 340,650 81,269
------------- ------------ -------------
Total cost of sales................................................... 5,144,739 3,067,529 1,658,436
------------- ------------ -------------
Gross profit.......................................................... 6,486,262 4,658,346 510,581
------------- ------------ -------------
Operating expenses:
Product development............................................... 4,834,843 479,148 464,137
Sales and marketing............................................... 3,158,010 1,606,162 406,369
General and administrative........................................ 3,211,772 1,904,238 857,847
------------- ------------ -------------
Total operating expenses.............................................. 11,204,625 3,989,548 1,728,353
------------- ------------ -------------
Operating income (loss)............................................... (4,718,363) 668,798 (1,217,772)
------------- ------------ -------------
Other income (expense):
Interest expense.................................................. (628,045) (121,519) (103,241)
Loss on factored receivables...................................... (190,117) (94,566) (26,826)
Other............................................................. (922,203) -- 4,686
------------- ------------ -------------
Total other expense................................................... (1,740,365) (216,085) (125,381)
------------- ------------ -------------
Net income (loss)..................................................... $ (6,458,728) $ 452,713 $ (1,343,153)
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-41
<PAGE>
CONNECTSOFT, INC.
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
CLASS A CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------- ---------------------- -------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- --------- --------- ----------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1,
1993.................... 50,000 $ 100,000 -- $ -- 231,367 $ 83,860 $ -- $ (218,806)
Dividends paid to Class A
Preferred
shareholders............ -- -- -- -- -- -- -- (5,184)
Conversion of Class A
Preferred Stock to
Common Stock............ (50,000) (100,000) -- -- 50,000 100,000 -- --
Exercise of Common Stock
options................. -- -- -- -- 43,113 425 -- --
Common Stock issued to
independent
contractors............. -- -- -- -- 2,804 11,200 -- --
Conversion of promissory
notes to Common Stock... -- -- -- -- 18,500 39,000 -- --
Conversion of employee
deferred wages notes
payable to Common
Stock................... -- -- -- -- 13,787 55,149 -- --
Sale of Common Stock...... 13,525 129,945 -- --
Increase in the number of
common shares
outstanding resulting
from 15 for 1 stock
split................... -- -- -- -- 5,223,352 -- -- --
Sale of Series A
Convertible Preferred
Stock, net of $61,420
issuance costs.......... -- -- 1,347,655 1,348 -- -- 687,232 --
Net loss.................. -- -- -- -- -- -- -- (1,343,153)
--------- --------- --------- ----------- --------- --------- ----------- ------------
Balance at December 31,
1993.................... -- -- 1,347,655 1,348 5,596,448 419,579 687,232 (1,567,143)
Exercise of Common Stock
options................. -- -- -- -- 176,447 34,001 -- --
Sale of Series A
Convertible Preferred
Stock, net of $7,293
issuance costs.......... -- -- 449,218 449 -- -- 242,258 --
Sale of Series C
Convertible Preferred
Stock, net of $91,513
issuance costs.......... -- -- 1,832,632 1,832 -- -- 1,128,470 --
Dividends paid to Series A
Preferred
Shareholders............ -- -- -- -- -- -- -- (11,640)
Net income................ -- -- -- -- -- -- -- 452,713
--------- --------- --------- ----------- --------- --------- ----------- ------------
Balances at December 31,
1994.................... -- -- 3,629,505 3,629 5,772,895 453,580 2,057,960 (1,126,070)
Exercise of Common Stock
options................. -- -- -- -- 346,878 20,495 -- --
Net loss.................. -- -- -- -- -- -- -- (6,458,728)
--------- --------- --------- ----------- --------- --------- ----------- ------------
Balances at December 31,
1995.................... $ $3,629,505 $ 3,629 6,119,773 $ 474,075 $2,057,960 $(7,584,798)
--------- --------- --------- ----------- --------- --------- ----------- ------------
--------- --------- --------- ----------- --------- --------- ----------- ------------
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
(DEFICIT)
-------------
<S> <C>
Balances at January 1,
1993.................... $ (34,946)
Dividends paid to Class A
Preferred
shareholders............ (5,184)
Conversion of Class A
Preferred Stock to
Common Stock............ --
Exercise of Common Stock
options................. 425
Common Stock issued to
independent
contractors............. 11,200
Conversion of promissory
notes to Common Stock... 39,000
Conversion of employee
deferred wages notes
payable to Common
Stock................... 55,149
Sale of Common Stock...... 129,945
Increase in the number of
common shares
outstanding resulting
from 15 for 1 stock
split................... --
Sale of Series A
Convertible Preferred
Stock, net of $61,420
issuance costs.......... 688,580
Net loss.................. (1,343,153)
-------------
Balance at December 31,
1993.................... (458,984)
Exercise of Common Stock
options................. 34,001
Sale of Series A
Convertible Preferred
Stock, net of $7,293
issuance costs.......... 242,707
Sale of Series C
Convertible Preferred
Stock, net of $91,513
issuance costs.......... 1,130,302
Dividends paid to Series A
Preferred
Shareholders............ (11,640)
Net income................ 452,713
-------------
Balances at December 31,
1994.................... 1,389,099
Exercise of Common Stock
options................. 20,495
Net loss.................. (6,458,728)
-------------
Balances at December 31,
1995.................... $(5,049,134)
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-42
<PAGE>
CONNECTSOFT, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income (loss)...................................................... $(6,458,728) $ 452,713 $(1,343,153)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Provision for doubtful accounts...................................... 130,279 (22,950) 26,950
Depreciation and amortization........................................ 1,902,006 336,862 95,555
Inventory allowance.................................................. 89,956 -- --
Changes in:
Accounts receivable................................................ 1,221,682 (2,079,090) 84,131
Inventories........................................................ (14,524) (187,413) (10,916)
Prepaid expenses................................................... 811 (13,540) 34,631
Operating lease deposits........................................... (21,334) (110,849) (8,232)
Other assets....................................................... (220,000) (10,000) 31,079
Accounts payable................................................... 375,675 1,392,438 240,007
Accrued liabilities................................................ 207,219 87,664 395,441
Billings in excess of revenue earned............................... (176,522) 588,810 --
----------- ----------- -----------
Net cash provided by (used in) operating activities................ (2,963,480) 434,645 (454,507)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment..................................... (118,095) (346,749) (48,213)
Capitalized software development costs................................. (733,708) (1,164,440) (361,694)
----------- ----------- -----------
Net cash used in investing activities.............................. (851,803) (1,511,189) (409,907)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from line of credit........................................... 4,109,122 200,000 185,911
Payment of line of credit.............................................. -- (420,000) --
Proceeds from shareholder note payable................................. -- 545,000 40,032
Payment of notes payable to shareholders............................... -- (585,032) (193,082)
Proceeds from long-term debt........................................... -- 800,000 --
Payment of long-term debt.............................................. (500,000) (666,532) --
(Increase) decrease in restricted cash................................. 536,495 (536,495) --
Bank overdrafts........................................................ -- 10,335 --
Payment of capital lease obligations................................... (415,545) (86,089) (26,398)
Payments of notes payable to employees................................. (8,052) -- --
Issuance of convertible preferred stock, net of issuance costs......... -- 1,373,009 688,580
Issuance of common stock............................................... 20,495 34,001 141,570
Payment of dividends................................................... -- (11,640) (5,184)
Net proceeds from factored receivables................................. 141,391 399,937 --
----------- ----------- -----------
Net cash provided by financing activities.......................... 3,883,906 1,056,494 831,429
----------- ----------- -----------
Net increase in cash................................................... 68,623 (20,050) (32,985)
Cash, beginning of year................................................ -- 20,050 53,035
----------- ----------- -----------
Cash, end of year...................................................... $ 68,623 $ -- $ 20,050
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest............................................................. $ 398,512 $ 240,011 $ 94,466
----------- ----------- -----------
----------- ----------- -----------
Noncash investing and financing activities:
Property and equipment acquired with capital lease obligations....... $ 1,970,876 $ 571,806 $ 44,200
----------- ----------- -----------
----------- ----------- -----------
Unpaid employee compensation converted to promissory notes........... $ -- $ 5,625 $ --
----------- ----------- -----------
----------- ----------- -----------
Accounts and notes payable exchanged for common stock................ $ -- $ -- $ 94,149
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-43
<PAGE>
CONNECTSOFT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF THE COMPANY
Connectsoft, Inc., previously Adonis Corporation (the "Company") was founded
in 1988. The Company has been engaged in two primary business activities as
follows:
CONTRACT SERVICES: The contract services business was founded in 1988
and the Company grew to be one of the premier providers of MicroSoft
Windows-based contract programming services. These services were marketed
directly to the PC industry, peripheral manufacturers and corporate
information services departments. In 1996, the Company discontinued this
business.
RETAIL PRODUCTS: In 1990, the Company expanded the scope of its business
with the publication of Company developed application software. Through
retail products divisions, the Company markets a family of Windows-based
telecommunication programs for accessing on-line information services.
Included in the Company's line of products are E-mail connection software
and children's E-mail and internet connection products.
PROPERTY AND EQUIPMENT
Furniture and equipment are stated at cost and depreciated using the
straight-line method over estimated useful lives ranging from 3 to 5 years.
Tenant improvements are depreciated over the term of the facility lease or
useful life, whichever is shorter. Expenditures for additions and improvements
are capitalized; expenditures for maintenance and repairs are expensed as
incurred. Gains and losses on assets, retired or otherwise disposed of, are
reflected in operations.
INVENTORIES
Inventories are stated at the lower of first-in, first-out ("FIFO") cost or
market and consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Materials............................................................. $ 211,124 $ 164,914
Finished goods........................................................ 14,157 45,843
Obsolescence allowance................................................ (89,956) --
---------- ----------
$ 135,325 $ 210,757
---------- ----------
---------- ----------
</TABLE>
RESTRICTED CASH
At December 31, 1994 the Company had a certificate of deposit in the amount
of $500,000 plus accrued interest which was pledged as collateral on long-term
debt. The CD had an interest rate of 4.75% and it matured on April 10, 1995. At
December 31, 1994 the Company also had a certificate of deposit in the amount of
$30,812 plus accrued interest which was pledged as collateral on a capital
lease. The CD had an interest rate of 3.50% for the first three months and was
adjusted every three months thereafter and matured on June 10, 1995. All of the
Company's restricted cash was held at one financial institution.
F-44
<PAGE>
CONNECTSOFT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SOFTWARE DEVELOPMENT COSTS
Software development costs incurred in conjunction with product development
are charged to product development expense until technological feasibility is
established. Thereafter, all software product development costs are capitalized
and reported at the lower of unamortized cost or net realizable value of each
product. The establishment of technological feasibility and the on-going
assessment of the recoverability of costs require considerable judgment by the
Company with respect to certain external factors, including, but not limited to,
anticipated future gross product revenues, estimated economic life and changes
in software and hardware technology. After consideration of the above factors,
the Company amortizes capitalized software costs for each software product using
the straight-line method over the estimated economic life of the software.
INCOME TAXES
Deferred tax assets and liabilities are recorded for differences between the
financial statement and tax bases of the assets and liabilities that will result
in taxable or deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
recorded for the amount of income tax payable or refundable for the period
increased or decreased by the change in deferred tax assets and liabilities
during the period.
FINANCIAL INSTRUMENTS
The carrying amounts of cash and accounts receivable approximate fair value
due to their short-term maturities. The carrying value of the Company's line of
credit balance approximates its estimated fair value because the rate of
interest on the line of credit approximates current interest rates for similar
obligations with like maturities.
REVENUE RECOGNITION
CONTRACT SERVICES: During the years ended December 31, 1995, 1994 and
1993, the Company entered into both "Time and Materials" and "Fixed Bid"
contracts with customers. Revenue on these contracts is recognized using the
percentage-of-completion contract accounting method, or on a completed
contract basis, in accordance with the American Institute of Certified
Public Accountant's statement of position SOP 91-1, Software Revenue
Recognition ("SOP 91-1").
RETAIL PRODUCTS: Revenue from sales of software products to end-users
and distributors is recognized upon product shipment, net of an allowance
for returns. The Company permits customers to return products within certain
specified periods. The Company also licenses products to original equipment
manufacturers ("OEM") and recognizes royalties in accordance with SOP 91-1.
CONCENTRATION OF CREDIT RISK
The Company provides contract services to PC users and manufacturers, and
corporate information services departments who are located primarily in the
United States. Concentrations of credit risk with respect to trade receivables
are limited to the Company's diverse customer base. The Company closely monitors
extensions of credit and has never experienced significant credit losses.
F-45
<PAGE>
CONNECTSOFT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PRIVATE PLACEMENT AND ACQUISITION COSTS
During 1995 the Company incurred $441,623 associated with certain abandoned
equity offering and financing transactions. Such costs have been charged to
operations. Also, during 1995 the Company incurred $487,726 associated with an
abandoned acquisition transaction. Such costs have been charged to operations.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Accordingly, actual results could differ from those estimates
and assumptions.
It is reasonably possible that the estimates of anticipated future gross
revenues and the remaining estimated economic life of the Company's products
used to calculate amortization of software development costs may be reduced
significantly in the near term. As a result, the carrying amount of the
capitalized software costs may be reduced materially in the near term.
RECLASSIFICATIONS
Certain balances in the 1994 financial statements have been reclassified to
conform to the 1995 presentation. These reclassifications had no effect on the
net income (loss) or shareholder's equity (deficit) as previously reported.
2. ACCOUNTS RECEIVABLE:
At December 31, accounts receivable consisted of the following:
<TABLE>
<CAPTION>
1995 1994
----------- ------------
<S> <C> <C>
Receivables assigned to factor..................................... $ 182,833 $ 769,200
Less advances from factor.......................................... (141,391) (399,938)
Funds in excess of reserve requirements............................ 3,125 24,595
----------- ------------
Due from factor.................................................... 44,567 393,857
Accounts receivable................................................ 392,993 1,406,776
Allowance for doubtful accounts.................................... (134,279) (4,000)
----------- ------------
$ 303,281 $ 1,796,633
----------- ------------
----------- ------------
</TABLE>
In May 1993, the Company entered into an agreement with an investment
company to secure short-term financing by factoring accounts receivable. Under
this agreement, the Company is permitted to receive up to 80% of pre-approved
receivables and 65% of retail product receivables assigned on a recourse basis.
The remaining balances are retained by the investment company as a reserve
against losses and are refunded to the Company following receipt of Company's
payment. Receivables sold are collateralized by all owned assets of the Company
and are personally guaranteed by an officer of the Company. Approximately
$2,775,000 and $2,015,000 of accounts receivable were sold during 1995 and 1994,
respectively.
F-46
<PAGE>
CONNECTSOFT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
------------ ----------
<S> <C> <C>
Computer equipment................................................. $ 219,820 $ 126,184
Computer and other equipment under capital leases.................. 2,586,882 646,930
Furniture and fixtures............................................. 204,253 184,657
Tenant improvements................................................ 144,993 140,128
------------ ----------
3,155,948 1,097,899
Less accumulated depreciation and amortization (includes
accumulated amortization of capital leases of $565,153 and
$115,212 for 1995 and 1994, respectively)........................ (815,398) (216,094)
------------ ----------
$ 2,340,550 $ 881,805
------------ ----------
------------ ----------
</TABLE>
4. OTHER ASSETS:
During 1995 the Company entered into software license agreements with two
software development companies to use their software in products the Company
develops. The license fees under the agreements were $510,000 and are amortized
on a straight-line method over the estimated economic life of the software
products. The Company is also required to pay certain other license and
maintenance fees under the agreements which are expensed when incurred.
5. LINE OF CREDIT:
On September 20, 1995, the Company entered into a $3,000,000 line of credit
agreement with a major customer, with interest at 17% and principal and accrued
interest due on December 31, 1995. At December 31, 1995, the Company had
borrowed $3,000,000 under this loan agreement.
On November 1, 1995, the Company entered into another loan agreement with
the major customer for additional borrowings up to a maximum of $3,000,000 with
interest at 17% and principal and accrued interest due January 1996. The note
was personally guaranteed by the President and majority shareholder of the
Company and collateralized by a first lien on all of the capital stock of the
Company owned by the President and majority stockholder. At December 31, 1995,
the Company had borrowed $1,109,122 under this loan agreement.
In connection with the acquisition of the Company discussed in Note 12, the
line of credit debt was settled for $2,000,000 which resulted in debt and
interests forgiveness of $2,558,246.
F-47
<PAGE>
CONNECTSOFT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT:
At December 31, 1994 long-term debt was as follows:
<TABLE>
<S> <C>
Term loan payable to bank, monthly interest only payments bearing
interest at the CD rate plus 2% (6.75% at December 31, 1994).... $ 500,000
Notes payable to employees, bi-weekly principal and interest
payments, bearing interest at 18%, due in June 1995............. 8,052
---------
508,052
Less current portion.............................................. (108,052)
---------
$ 400,000
---------
---------
</TABLE>
7. COMMITMENTS AND CONTINGENCIES:
LEASE OBLIGATIONS
At December 31, 1995, the Company was obligated under capital leases for
computer hardware and other capital equipment and furniture utilized in its
operations. The Company also is obligated under operating leases for its office
space. Subsequent to December 31, 1995, the Company entered into new operating
lease agreements and modified the terms on other operating leases. Future
minimum lease payments under capital and operating leases, including the new and
revised leases, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------------ ------------
<S> <C> <C>
1996.................................................................................. $ 1,068,865 $ 668,289
1997.................................................................................. 971,018 661,720
1998.................................................................................. 454,279 525,198
1999.................................................................................. 15,204 394,564
2000.................................................................................. -- 400,143
Thereafter............................................................................ -- 349,492
------------ ------------
Total minimum lease payments.......................................................... 2,509,366 $ 2,999,406
------------ ------------
------------
Less amount representing interest..................................................... (404,489)
------------
Present value of net minimum lease payments........................................... $ 2,104,877
------------
------------
</TABLE>
Rent expense for 1995, 1994 and 1993 was $615,143, $299,537 and $139,820,
respectively.
CONTINGENCIES
The Company is involved in various legal matters arising in the normal
course of business. Although the outcome of these matters is not determinable at
this time, management believes that the ultimate outcomes will not have a
material adverse effect on the Company's financial position or results of
operations.
F-48
<PAGE>
CONNECTSOFT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES:
Due to net taxable losses incurred, the Company did not record any Federal
income tax expense or benefit for 1995, 1994 or 1993. Deferred income taxes
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
The significant components of the Company's deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
<S> <C> <C>
1995 1994
------------- -----------
Deferred income tax assets:
Tax loss carryforwards.......................................... $ 2,177,727 $ 754,988
Capitalized software costs...................................... 276,045 --
Accrued liabilities............................................. 47,413 36,818
Allowance for doubtful accounts receivable...................... 45,655 --
Inventory....................................................... 42,779 46,880
Other........................................................... 8,290 5,938
------------- -----------
Deferred income tax assets........................................ 2,597,909 844,624
------------- -----------
Deferred income tax liability:
Depreciation.................................................... (48,332) (5,400)
Capitalized software costs...................................... -- (454,859)
------------- -----------
Deferred income tax liability..................................... (48,332) (460,259)
------------- -----------
Valuation allowance............................................. (2,549,577) (384,365)
------------- -----------
Net deferred income tax assets.................................. $ -- $ --
------------- -----------
------------- -----------
</TABLE>
As a result of the acquisition of the Company by American United Global,
Inc. in 1996 (see Note 12), there is a limitation of use on the Company's tax
loss carryforwards. Because of the limitation and because of the Company's prior
operating results, full valuation allowances have been recorded at December 31,
1995 and 1994. The net deferred tax asset will be realized when future taxable
income is earned.
The Company has net operating loss carryforwards of approximately $6,406,000
with expiration dates through fiscal year 2010.
9. CAPITAL STOCK:
RECAPITALIZATION: Effective September 23, 1993, the shareholders approved a
recapitalization of the Company's capital structure and increased authorized
shares of common stock to 30,000,000 shares. In addition, a 15-for-1 stock split
was authorized for all outstanding securities. The recapitalization resulted in
the conversion of 50,000 shares of Class A preferred stock into common stock on
a one-for-one basis and authorized payment of dividends totaling $11,640 to the
preferred shareholders.
PREFERRED STOCK: On November 12, 1993, the shareholder's authorized
1,796,873 shares of Series A Convertible Preferred Stock and 600,000 shares of
Series B Convertible Preferred Stock. A shareholder has an option to purchase
the 600,000 shares of Series B Convertible Preferred Stock at approximately
$0.83 per share for a total investment of $500,000.
F-49
<PAGE>
CONNECTSOFT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. CAPITAL STOCK: (CONTINUED)
On December 14, 1993, the Company issued 1,347,655 shares of Series A
Convertible Preferred Stock to a corporate investor at approximately $0.55 per
share.
On August 9, 1994, the shareholders authorized 2,412,625 shares of Series C
Convertible Preferred Stock and 5,667,368 shares of Series D Convertible
Preferred Stock. On August 9, 1994, a corporate investor purchased 1,832,632
shares of Series C Convertible Preferred Stock at approximately $0.67 per share.
In connection with the Series C Convertible Preferred Stock financing, the
Company issued 579,993 options to acquire Series C Preferred Stock at $.67 per
share to an existing shareholder, and extended the expiration date of the
600,000 Series B options from June 30, 1994 to 60 days after the delivery of the
1994 financial statements. The Series C options expire 60 days after the
delivery of the 1995 financial statements. The Board of Directors has the
authority to issue Series D stock without the consent of Series A and B
stockholders. The Series D stock must be issued for consideration of not less
than $0.8333 per share, and is convertible into not more than 5,667,368 shares
of common stock as determined by the Board of Directors.
The Preferred Series A, B and C Shares are convertible at the holders'
option any time up to December 31, 1999 into common stock of the Company on a
1-to-1 basis. The conversion ratio will be adjusted under certain circumstances,
as defined by the agreements. Terms of the Preferred Stock Purchase Agreement
limit dividend payments, provide anti-dilution protection, provide right of
first negotiation on proposed equity and debt financing and prohibit
authorization of any senior class of equity instrument without approval. Series
A and B have the right, voting as a class separate from the holders of common
stock, to elect a director. The holders of Series C, voting as a class, have the
right to elect a director. Series A, B and C have equal rights and rights ahead
of Series D Preferred Stock with respect to liquidation. In the event of
liquidation, Series A, B and C preferred shareholders will be entitled to
receive an amount equal to the purchase price for each share owned, dividends
declared but unpaid, and a premium amount equal to 12%, compounded annually,
from date of issuance on the purchase price of the preferred shares. Any assets
remaining after payment of the preferred liquidation preference, if any, will be
distributed to the holders of the preferred and common stock in proportion to
the number of common shares held after conversion adjustments.
On January 13, 1994, the same corporate investor purchased an additional
449,218 shares of Series A Convertible Preferred Stock at approximately $0.55
per share.
EMPLOYEE STOCK OPTION PLAN
The Company has stock option plans which provide for nonqualified and
incentive stock options for officers, employees, directors and consultants.
Shares of common stock reserved for the plan total 5,750,000. Options granted
under the plan generally become exercisable, at a rate of 33% per year from the
date of grant, are dependent on the optionee's continuous employment, and expire
10 years from the date of grant or three months subsequent to termination. Stock
options are issued at prices equal to the estimated fair market value at the
date of grant. Proceeds received upon the exercise of stock options are credited
to the common stock account.
F-50
<PAGE>
CONNECTSOFT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. CAPITAL STOCK: (CONTINUED)
Stock option activity and option price information for the years ended
December 31, 1995, 1994 and 1993, is summarized as follows:
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS
-------------------------
<S> <C> <C>
NUMBER OF OPTION PRICE
SHARES RANGE
---------- -------------
Balance, January 1, 1993.......................................... 2,449,875 $ 0.01--0.18
Granted......................................................... 710,125 $ 0.20--0.67
Exercised....................................................... (646,695) $ 0.01--0.20
Canceled........................................................ (265,500) $ 0.13--0.27
----------
Balance, December 31, 1993........................................ 2,247,805 $ 0.01--0.67
Granted......................................................... 195,000 $ 0.67--0.83
Exercised....................................................... (176,447) $ 0.13--0.67
Canceled........................................................ (152,708) $ 0.13--0.67
----------
Balance, December 31, 1994........................................ 2,113,650 $ 0.01--0.83
Granted......................................................... 563,350 $ 2.80
Exercised....................................................... (346,878) $ .01--.83
Canceled........................................................ (364,652) $ .20--2.80
----------
Balance, December 31, 1995........................................ 1,965,470 $ 0.01--2.80
</TABLE>
At December 31, 1995 and 1994, 1,860,097 and 58,795 shares are available for
future grant. Total shares exercisable at December 31, 1995 and 1994 are
1,796,062 and 1,815,395, respectively.
10. 401(K) PROFIT SHARING PLAN:
Effective May 1, 1994, the Company adopted a 401(k) Retirement and Profit
Sharing Plan (the "Plan"). The Plan covers all full time employees who have
completed three consecutive months of service and are at least 18 years of age.
Under the terms of the Plan, participants may contribute up to 15% of gross
wages up to the statutory limits. The Company made no contributions to the Plan
during 1995 and 1994.
11. MAJOR CUSTOMERS:
The Company's largest contract services customer accounted for approximately
23% and 55% of total revenues in 1995 and 1994, respectively. The Company's
largest retail products customer accounted for approximately 63% and 29% of
total revenues during 1995 and 1994, respectively. Revenues from three principal
customers from contract services in 1993 accounted for 16.1%, 17.2%, and 20% of
total revenues.
12. SUBSEQUENT EVENTS:
In April 1996, the Company entered into a letter of intent agreement and
plan of merger with American United Global, Inc., a Delaware corporation
("AUGI"). The merger was completed with a final merger agreement dated June 28,
1996 and approved by the Company's shareholders on July 31, 1996. Under the
merger agreement, the record owners of all outstanding fully diluted equity of
the Company will receive a proportional amount of 1,000,000 shares of Series B
Convertible Preferred stock of AUGI. The record owners of all outstanding fully
diluted equity of the Company prior to the merger will be all
F-51
<PAGE>
CONNECTSOFT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENTS: (CONTINUED)
stockholders of the Company after giving effect to the conversion and exercises
of warrants and vested stock options. The AUGI preferred shares have a par value
of $.01, do not pay a dividend, are not subject to redemption, have a
liquidation preference over AUGI's common stock of $3.50 per share, vote
together with AUGI common stock and are convertible into AUGI common stock at a
variable conversion rate depending upon future income earned by AUGI from
business operations engaged in by the Company at the time of acquisition. The
conversion rate can vary from one-to-one to one-to-three.
In connection with the acquisition, AUGI paid certain debt of the Company
and agreed to make advances to the Company totaling $5 million including amounts
advanced at the time of the acquisition.
F-52
<PAGE>
CONNECTSOFT, INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Revenue:
Contract services................................................................. $ 722,310 $ 1,789,137
Retail products................................................................... 1,007,555 568,988
------------- -------------
Total Revenue................................................................... 1,729,865 2,358,125
------------- -------------
Cost of sales:
Contract services................................................................. (11,332) 2,212,554
Retail products................................................................... 217,358 335,334
------------- -------------
Total Cost of sales............................................................. 206,026 2,547,888
------------- -------------
------------- -------------
Gross profit........................................................................ 1,523,839 (189,763)
------------- -------------
Operating expenses:
Product development and support................................................... 1,720,965 1,554,265
Sales and Marketing............................................................... 808,772 1,225,514
General and administrative........................................................ 2,858,684 1,278,612
------------- -------------
Total operating expenses........................................................ 5,388,421 4,058,391
------------- -------------
Operating (loss).................................................................... (3,864,582) (4,248,154)
Other expenses:
Interest expense.................................................................. 365,802 215,975
------------- -------------
Total other expense, net........................................................ 365,802 215,975
------------- -------------
(Loss) before taxes................................................................. (4,230,384) (4,464,129)
------------- -------------
Net (loss).......................................................................... $ (4,230,384) $ (4,464,129)
------------- -------------
------------- -------------
</TABLE>
F-53
<PAGE>
CONNECTSOFT, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Cash Flows from operating Activities:
Net (Loss)........................................................................ $ (4,230,384) $ (4,464,129)
Adjustments to reconcile net (loss) to net cash provided by operating activities:
Shares issued in lieu of compensation............................................. 1,200,000 --
Depreciation & Amortization....................................................... 465,214 442,131
Changes in:
Accounts receivable............................................................... 560,252 1,656,852
Inventories....................................................................... (7,295) (6,438)
Prepaid expense................................................................... (6,369) (154,016)
Other Assets...................................................................... 65,183 11,571
Restricted cash................................................................... -- 504,042
Accounts payable.................................................................. 178,526 (380,771)
Accrued liabilities............................................................... 147,984 143,494
Billing in excess of revenue earned............................................... (192,676) 227,247
------------- -------------
Net cash (used in) operating activities........................................... (1,819,565) (2,020,017)
------------- -------------
Cash Flows from investment activities:
Purchase of property and equipment................................................ (81,748) (596,638)
Capitalized software development costs............................................ (152,828) (396,433)
------------- -------------
Net cash used by investing activities............................................. (234,576) (993,071)
------------- -------------
Cash flows from financing activities:
Proceeds from Note Payable........................................................ 2,127,000 --
Proceeds from line of credit...................................................... -- 3,150,000
Payment of capital lease obligations.............................................. (117,317) 387,189
Payment of long-term debt......................................................... -- (508,052)
------------- -------------
Net cash provided by financing activities......................................... 2,009,683 3,029,137
------------- -------------
Net (decrease) increase in cash..................................................... (44,458) 16,049
Cash, beginning of period........................................................... 68,623 --
------------- -------------
Cash end of period.................................................................. $ 24,165 $ 16,049
------------- -------------
------------- -------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
interest.......................................................................... $ 124,961 $ 150,344
------------- -------------
------------- -------------
Noncash investing and financing activities:
Property and equipment acquired with capital lease obligations.................... $ 119,385 $ 205,562
------------- -------------
------------- -------------
</TABLE>
F-54
<PAGE>
UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
AMERICAN UNITED GLOBAL, INC.
The Unaudited Pro Forma Combined Statement of Operations of American United
Global, Inc. for the year ended July 31, 1996 gives effect to the acquisition by
the Company of the business of ConnectSoft, Inc. as if such business were
acquired on August 1, 1995. The Unaudited Pro Forma Combined Statement of
Operations does not give effect to any changes in the operations of ConnectSoft,
Inc. following such acquisition.
The Unaudited Pro Forma Combined Statement of Operations is presented for
informational purposes only and does not purport to represent what the Company's
results of operations for the year ended July 31, 1996 would actually have been
had the applicable acquisition, in fact, occurred on August 1, 1995, or the
Company's results of operations for any future period. The Unaudited Pro Forma
Combined Statement of Operations should be read in conjunction with the
consolidated financial statements and related notes thereto included elsewhere
in this Prospectus and the information set forth in "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
F-55
<PAGE>
UNAUDITED COMBINED PRO FORMA STATEMENT OF
OPERATIONS FOR THE YEAR ENDED JULY 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
AUGI CONNECTSOFT ADJUSTMENTS COMBINED
------------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Net sales............................................ 106,555,000 $ 6,723,000 $ 113,278,000
Cost of goods sold................................... 93,906,000 2,492,000 96,398,000
------------- ------------- ----------- --------------
Gross profit..................................... 12,649,000 4,231,000 16,880,000
Selling, general and administrative.................. 7,864,000 6,007,000 146,000 14,017,000
Stock option compensation............................ 1,671,000 1,671,000
Research and development............................. 10,295,000 3,914,000 657,000 14,866,000
------------- ------------- ----------- --------------
Operating (loss)..................................... (7,181,000) (5,690,000) (803,000) (13,674,000)
Interest expense, net................................ 1,137,000 1,277,000 2,414,000
------------- ------------- ----------- --------------
(Loss) from continuing operations before income taxes
and minority interest.............................. (8,318,000) (6,967,000) (803,000) (16,088,000)
Provision for income taxes........................... 890,000 890,000
Minority interest in earnings of consolidated
subsidiaries....................................... 402,000 402,000
------------- ------------- ----------- --------------
(Loss) from continuing operations.................... (9,610,000) (6,967,000) (803,000) (17,380,000)
------------- ------------- ----------- --------------
Discontinued operations, net of taxes................
Income from operations, net of tax................... 315,000 315,000
Gain on disposal (net of tax of $5,042,000).......... 7,460,000 7,460,000
------------- ------------- ----------- --------------
7,775,000 7,775,000
------------- ------------- ----------- --------------
Net (loss)........................................... (1,835,000) $ (6,967,000) $(803,000) $ (9,605,000)
------------- ------------- ----------- --------------
------------- ------------- ----------- --------------
(Loss) earnings per common and common equivalent
share:
(Loss) from continuing opeations..................... $ (1.66) $ (2.99)
Discontinued operations.............................. 1.34 1.34
------------- --------------
$ (0.32) $ (1.65)
------------- --------------
------------- --------------
Pro forma weighted average number of shares
outstanding........................................ 5,810,526 5,810,526
------------- --------------
------------- --------------
</TABLE>
The accompanying notes to the unaudited pro forma financial statements
are an integral part of these financial statements.
F-56
<PAGE>
NOTES TO UNAUDITED COMBINED PRO FORMA STATEMENT OF OPERATIONS
(1) BASIS OF PRESENTATION
The pro forma statement of operations gives effect to the acquisition of
ConnectSoft, Inc. which aggregate the results of operations of American United
Global, Inc. (the Company) and ConnectSoft for the year ended July 31, 1996 as
if ConnectSoft had been acquired as of August 1, 1995. ConnectSoft's results of
operations for the day ended July 31, 1996 have been included in the
consolidated results of operations of the Company for the year ended July 31,
1996. Accordingly, the ConnectSoft results of operations included in the pro
forma statement of operations reflect the results of operations of ConnectSoft
for the period August 1, 1995 to July 30, 1996 prior to the acquisition. A
nonrecurring expense of approximately $1,200,000 related to the repricing of
certain ConnectSoft warrants and options in connection with the acquisition by
the Company
The pro forma financial statements are presented for illustrative purposes
only and should not be construed to be indicative of the actual combined results
of operations as may exist in the future. The pro forma adjustments are based on
the consideration exchanged, including the fair value of the assets acquired,
liabilities assumed and preferred stock issued.
The Company accounted for the acquisition of ConnectSoft using the purchase
method of accounting, wherein the purchase price was allocated to the assets
acquired and liabilities assumed based upon their relative fair values.
(2) PRO FORMA ADJUSTMENT
The pro forma adjustment of $803,000 represents the amortization of the
non-compete agreement, goodwill and capitalized software costs acquired for the
period August 1, 1995 to July 30, 1996. The purchased research and development
costs of $10,033,000 was charged to research and development expense in the July
31, 1996 statement of operations of the Company.
F-57
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERING DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THERE
HAS NOT BEEN ANY CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF
THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
SECURITIES OFFERED HEREBY, OR AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO
BUY SUCH SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information.......................... 3
Prospectus Summary............................. 5
Summary Financial Data......................... 8
Risk Factors................................... 9
Use of Proceeds................................ 19
Market Price of Common Stock and Dividends..... 20
Capitalization................................. 21
Selected Financial Data........................ 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 23
Business....................................... 32
Management..................................... 53
Principal Stockholders......................... 65
Selling Stockholders........................... 67
Plan of Distribution........................... 74
Description of Securities...................... 75
Legal Matters.................................. 78
Experts........................................ 78
Financial Statements........................... F-1
</TABLE>
5,677,334
SHARES OF COMMON STOCK
AMERICAN UNITED GLOBAL, INC.
---------------------
PROSPECTUS
---------------------
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses (other than selling
commissions) which will be paid by the Registrant in connection with the
issuance and distribution of the securities being registered. With the exception
of the Registration fee and the NASD filing fee, all amounts shown are
estimates.
<TABLE>
<S> <C>
Registration fee................................................ $9,229.02
Printing and engraving expenses................................. 10,000.00*
Legal fees and expenses......................................... 35,000.00*
Accounting fees and expenses.................................... 5,000.00*
Transfer Agent and Trustees fees and expenses................... 1,000.00*
NASDAQ Filing Fee............................................... 10,000.00*
Miscellaneous expenses.......................................... 9,770.98*
---------
Total........................................................... $80,000.00*
---------
---------
</TABLE>
- ------------------------
(*) Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Tenth of the Certificate of Incorporation of American United Global,
Inc. (the "Registrant") eliminates the personal liability of directors and/or
officers to the Registrant or its stockholders for monetary damages for breach
of fiduciary duty as a director; provided that such elimination of the personal
liability of a director and/or officer of the Registrant does not apply to (i)
any breach of such person's duty of loyalty to the Registrant or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) actions prohibited
under Section 174 of the Delaware General Corporation Law (i.e., liabilities
imposed upon directors who vote for or assent to the unlawful payment of
dividends, unlawful repurchases or redemption of stock, unlawful distribution of
assets of the Registrant to the stockholders without the prior payment or
discharge of the Registrant's debts or obligations, or unlawful making or
guaranteeing of loans to directors and/or officers), or (iv) any transaction
from which the director derived an improper personal benefit. In addition,
Article Eleventh of the Registrant's Certificate of Incorporation provides that
the Registrant shall indemnify its corporate personnel, directors and officers
to the fullest extent permitted by the Delaware General Corporation Law, as
amended from time to time.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Registrant has sold the following
unregistered securities:
Effective as of May 1, 1996, the Company consummated the ConnectSoft Merger,
pursuant to which it acquired all of the outstanding capital stock of
ConnectSoft, a private company located in Bellevue,
Washington, which provides a variety of computer software products and
services. The Company also assumed all of ConnectSoft's operating expenses and
liabilities. As consideration therefor, the Company issued to former ConnectSoft
shareholders, on a PRO RATA basis, an aggregate 976,539 shares of the Company's
Series B-1 Preferred Stock. Each share of Series B-1 Preferred Stock is
convertible into shares of Company Common Stock at the holder's option into a
minimum of 976,539 shares of Company
II-1
<PAGE>
Common Stock and a maximum of 2,929,617 shares of Company Common Stock, based
upon certain criteria. In consideration for their introducing the Company to
ConnectSoft and its stockholders, as of May 1, 1996 the Company issued as
Finders Shares an aggregate of 50,000 shares of its Common Stock to Hampshire
Securities Corporation and 100,000 shares of Common Stock to Meadowbrook, Ltd.,
neither of which entity is affiliated with the Company.
In September 1996, the Company consummated the InterGlobe Merger, pursuant
to which all of the outstanding capital stock of InterGlobe, a private company
providing engineering, design and consulting services for users and providers of
telecommunications facilities on the Internet and other media. As partial
consideration therefor, the Company issued to former InterGlobe shareholders an
aggregate of 800,000 shares of the Company's Common Stock.
On November 8, 1996, the Company's newly-formed, wholly-owned subsidiary,
Seattle OnLine Acquisition Corp. consummated the acquisition of all of the
operating assets of Seattle OnLine, a privately owned company engaged in
providing a local internet service in the Pacific Northwest. In connection with
this acquisition, the Company issued to former stockholders of Seattle On Line
three-year warrants to purchase an aggregate of 333,333 shares of the Company's
Common Stock at exercise prices based upon certain criteria related to future
operating results.
Effective December 1, 1996, the Company consummated the TechStar Merger,
pursuant to which the Company acquired all of the outstanding capital stock of
TechStar, a privately-owned company engaged in providing site acquisition,
zoning, architectural and engineering services, as well as consulting services,
to the wireless telecommunications industry. As partial consideration therefor,
the former TechStar shareholders received an aggregate of 507,246 shares of the
Company's Common Stock and three-year notes aggregating $600,000, bearing
interest at the Citibank, N.A. prime rate, and payable in installments of
$100,000, $200,000 and $300,000 on each of November 30, 1997, 1998 and 1999.
On January 10, 1997, the Company consummated the 1997 Private Placement of
400,000 shares of the Company's Series B-2 Preferred Stock to institutional
investors for an aggregate purchase price of $10,000,000, or $25 per share. Such
shares of Series B-2 Preferred Stock are convertible into an aggregate of
1,165,501 shares of Common Stock of the Company, either as a result of action by
the holders thereof, or automatically without further action by the Company or
the holders of such shares, under varying circumstances. The investors in the
1997 Private Placement also purchased 350,000 Private Placement Warrants, at a
purchase price of $.01 per Private Placement Warrant, entitling the holders to
purchase an aggregate of 350,000 shares of the Company's Common Stock at an
exercise price equal to $8.58 per share.
All of the above transactions were exempt from the registration provisions
of the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof, as
transactions by an issuer not involving any public offering. The sales of such
shares of Series B-1 Preferred Stock, Series B-2 Preferred Stock and Common
Stock were without the use of an underwriter, and the certificates evidencing
such shares shall bear a restrictive legend permitting the transfer thereof only
upon registration of the shares or an exemption under the Securities Act of
1933, as amended.
II-2
<PAGE>
ITEM 16. EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
3.1 -- Certificate of Incorporation.
3.2 -- Certificates of Designations, Supplementing Certificate of Incorporation
3.3 -- By-Laws
4.1 -- Specimen Certificate of Common Stock. (1)
4.2 -- Form of Underwriters' Warrant Agreement in connection with the Company's 1990 initial public
offering. (1)
4.3 -- Form of Underwriters' Warrant Agreement in connection with the Company's 1992 public offering. (2)
4.4 -- Form of Warrant Agreement in connection with the Company's 1994 public offering. (4)
4.5 -- Specimen Warrant Certificate. (3)
4.6 -- Form of Underwriters' Warrant Agreement in connection with the Company's 1994 public offering. (3)
4.7 -- 1996 Stock Option Plan, as amended. (4)
5.1 -- Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, counsel to Registrant.
10.1 -- Agreement of Purchase and Sale, dated December 4, 1992, by and between Case and Western Power
(Schedules omitted). (5)
10.2 -- Employment Agreement, by and between Western Power and C. Dean McLain. (6)
10.3 -- Financing Agreement with Associates Commercial Corporation and Western Power. (7)
10.4 -- Asset Purchase Agreement, dated as of September 22, 1994, by and between Case and Western Power
(schedules omitted. (8)
10.5 -- Management Agreement between Western Power and American United Global, Inc. (9)
10.6 -- Revised Financing Agreement with Seattle-First National Bank and Western Power. (6)
10.7 -- Auburn Facility Real Estate Purchase and Sale Agreement, dated October 19, 1995, by and between
Western Power and Ford Kiene. (6)
10.8 -- Western Power Lease Agreement--Sacramento, California. (10)
10.9 -- Sacramento Acquisition Agreement with Western Power
a. Asset Purchase Agreement (10)
b. Used Equipment Note (10)
c. Parts Note (10)
d. Accounts Receivable Note (10)
e. Goodwill Note (10)
f. Real Estate Note from MRR to Case (10)
g. Deed to Secure Debt of MRR to Case (10)
h. Security Agreement (10)
i. C. Dean McLain's Personal Guaranty (10)
10.10 -- GCS Acquisition Agreement with Western Power (6)
10.11 -- Amended and Restated Employment Agreement with Robert M. Rubin. (11)
10.12 -- Asset Purchase Agreement, dated as of November 22, 1995, by and among Hutchinson Corporation,
American United Global, Inc. ("AUGI"), AUG California, Inc. ("AGU-Ca"), American United Products
("AUP") and American United Seal ("AUS"). (12)
10.13 -- Non-Competition Agreement, dated January 19, 1996, among Hutchinson Seal Corporation, AUGI, AUG-Ca,
AUP and AUS. (12)
10.14 -- Non-Competition Agreement, dated January 19, 1996, between Hutchinson Seal Corporation and Robert M.
Rubin. (12)
10.15 -- Agreement of Hutchinson Corporation to guaranty payments under Non-Competition and Consulting
Agreements. (12)
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S> <C>
10.16 -- Consulting Agreement, dated January 19, 1996, between Hutchinson Seal Corporation and Robert M.
Rubin. (12)
10.17 -- $2,625,000 Purchase Note from NO-Ring Corporation to AUGI. (12)
10.18 -- $1,050,000 Purchase Note from Stillman Seal Corporation to AUGI. (12)
10.19 -- Guaranty of Hutchinson Corporation of the Purchase Notes, aggregating $3,675,000 of NO-Ring
Corporation and Stillman Seal Corporation. (12)
10.20 -- January 19, 1996 amendment to certain provisions of Asset Purchase Agreement. (12)
10.21 -- Agreement and Plan of Merger, dated June 28, 1996, by and among AUGI, ConnectSoft, Inc., and certain
shareholders of ConnectSoft, Inc. (without exhibits). (13)
10.22 -- Agreement and Plan of Merger, dated August 22, 1996, by and among AUGI, Interglobe Networks, Inc. and
certain shareholders of Interglobe Networks, Inc. (without exhibits). (14)
10.23 -- Asset Purchase Agreement, dated October 17, 1996 by and among AUGI, Seattle Online, Inc. and certain
shareholders of Seattle Online, Inc., including amendments (without exhibits). (14)
10.24 -- Agreement and Plan of Merger by and among American United Global, Inc. ("AUGI"), TechStar Acquisition
Corp. ("Mergerco"), BroaTechStar Communications, Inc., formerly, Broadcast Tower Sites, Inc.
("TechStar"), Simantov Moskona ("Moskona") and Sergio Luciani ("Luciani") dated December 11, 1996.
(15)
10.25 -- Non-Competition and Non-Disclosure Agreement between AUGI, Luciani and Moskona, dated December 11,
1996. (15)
10.26 -- Employment Agreement by and among Mergerco, Moskona and AUGI dated December 11, 1996. (15)
10.27 -- Employment Agreement by and among Mergerco, Luciani and AUGI dated December 11, 1996. (15)
10.28 -- Registration Rights Agreement by and among AUGI, Mergerco, TechStar, Moskona, Luciani and Solon
Kandel dated December 11, 1996. (15)
10.29 -- Agreement and Plan of Merger by and among AUGI, Arcadia Consulting Services, Inc. and Kandel dated
December 11, 1996. (15)
10.30 -- Securities Purchase Agreements, AUGI Warrant and Registration Rights Agreements (AUGI and eXodus
Technologies) for 1997 AUGI Private Placement. (16)
24.1 -- Consent of Price Waterhouse LLP.
24.2 -- Consent of Coopers & Lybrand LLP.
24.3 -- Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel (contained in Exhibit 5.1.)
</TABLE>
- ------------------------
(1) Incorporated by reference and filed as an Exhibit to Registrant's
Registration Statement on Form S-18, Registration No. 33-33081-NY.
(2) Incorporated by reference and filed as an Exhibit to Amendment No. 1 to
Registrant's Registration Statement on Form S-1, Registration No. 33-42411,
filed with the Commission on December 18, 1991.
(3) Incorporated by reference and filed as an Exhibit to Amendment No. 1 to
Registrant's Registration Statement on Form S-1, Registration No. 33-72556,
filed with the Commission on February 1, 1994.
(4) Incorporated by reference and filed as an Exhibit to Registrant's Annual
Report on Form 10-K filed with the Commission on November 13, 1996.
(5) Filed as an Exhibit to the Current Report on Form 8-K of American United
Global, Inc. ("AUGI"), as filed on December 19, 1992 and incorporated herein
by reference thereto.
(6) Filed as an Exhibit to Western Power and Equipment Corp. ("Western Power")
Report on Form 10-K for fiscal year ended July 31, 1996.
II-4
<PAGE>
(7) Filed as an Exhibit to Amendment No. 1 to AUGI's Registration Statement on
Form S-1, filed on February 1, 1994 and incorporated herein by reference
thereto. (Registration No. 33-72556)
(8) Filed as an Exhibit to the Current Report on Form 8-K of AUGI, as filed on
September 23, 1994 and incorporated herein by reference thereto.
(9) Filed as an Exhibit to the Western Power Registration Statement on Form S-1,
filed on February 24, 1995 (Registration No. 33-89762).
(10) Filed as an Exhibit to the Current Report on Form 8-K of Western Power as
filed on March 6, 1996 and incorporated herein by reference thereto.
(11) Filed as an Exhibit to AUGI's Preliminary Proxy Materials filed for 1996
Annual Meeting on June 27, 1996.
(12) Filed as an Exhibit to AUGI's Current Report on Form 8-K, dated February 2,
1996.
(13) Filed as an Exhibit to AUGI's Current Report on Form 8-K, dated July 24,
1996.
(14) Filed as an Exhibit to AUGI's Annual Report on Form 10-K, dated November
13, 1996.
(15) Filed as an Exhibit to AUGI's Current Report on Form 8-K, dated December
24, 1996.
(16) Filed as an Exhibit to AUGI's Current Report on Form 8-K, dated January 22,
1997.
(b) Financial Statement Schedules
(i) Schedule VIII--Valuation and Qualifying Accounts.
ITEM 17. UNDERTAKINGS.
1. The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (1) To include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
(b) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof; and
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
2. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of
II-5
<PAGE>
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has fully caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 14th day of
February, 1997.
AMERICAN UNITED GLOBAL, INC.
By: /s/ ROBERT M. RUBIN
-----------------------------------------
Robert M. Rubin,
CHAIRMAN OF THE BOARD AND PRESIDENT
POWER OF ATTORNEY
AMERICAN UNITED GLOBAL, INC. and each of the persons whose signature appears
below hereby constitutes and appoints ROBERT M. RUBIN AND DAVID M. BARNES, and
each of them singly, such person's true and lawful attorneys-in-fact, with full
power to them and each of them to sign for such person and in such person's
name, in the capacities indicated below, any and all amendments to this
Registration statement, hereby ratifying and confirming such person's signature
as it may be signed by said attorney-in-fact to any and all amendments to said
Registration Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ ROBERT M. RUBIN
- ------------------------------ Chairman of the Board, February 14, 1997
Robert M. Rubin Director and President
/s/ C. DEAN MCLAIN
- ------------------------------ Director February 14, 1997
C. Dean McLain
/s/ LAWRENCE E. KAPLAN
- ------------------------------ Director February 14, 1997
Lawrence E. Kaplan
/s/ DAVID M. BARNES Chief Financial Officer
- ------------------------------ Vice President and February 14, 1997
David M. Barnes Director
/s/ ARTOUR BAGANOV
- ------------------------------ President of InterGlobe February 14, 1997
Artour Baganov Network, Inc. and Director
/s/ HOWARD KATZ
- ------------------------------ Vice President and February 14, 1997
Howard Katz Director
/s/ SERGIO LUCIANI
- ------------------------------ Vice President of TechStar February 14, 1997
Sergio Luciani and Director
II-7
<PAGE>
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
SCHEDULE VIII- VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED JULY 31, 1996 (000'S)
<TABLE>
<CAPTION>
BALANCE AT CHARGED AT CHARGED TO BALANCE
BEGINNING OF COSTS AND OTHER AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ----------------------------------------------------------- --------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Accounts receivable reserve:
1996................................................... $ 370 $ 353 $ -- $ (71) $ 652
1995................................................... 233 215 -- (78) 370
1994................................................... 74 165 -- (6) 233
Inventory reserve:
1996................................................... 449 470 -- (5) 914
1995................................................... 439 50 -- (40) 449
1994................................................... 500 -- -- (61) 439
</TABLE>
S-1
<PAGE>
Exhibit 3.1
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 03:00 PM 10/16/1991
701291023 - 2276561
CERTIFICATE OF INCORPORATION
OF
AMERICAN UNITED GLOBAL, INC.
PURSUANT TO SECTION OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
The undersigned, in order to form a carport: on pursuant to Section
102 of the General Corporation Law of the State of Delaware, does hereby
certify:
FIRST: The name of the Corporation is American United Global, Inc.
SECOND: The address of the Corporation' E' registered office in the
State of Delaware is 15 North Street in-the City of Dover, county of Kent,
Delaware 19901. The name of tic registered agent at such address is National
Corporate Research, Ltd.
THIRD: The purpose of the Corporation i" to engage in any lawful act
or activity for which corporations may be organized under tile General
Corporation Law of the State of Delaware.
FOURTH: The aggregate number of shares which the corporation shall
have authority to issue in 22,700,000 shares consisting of:
a) 20,000,000 shares Of Common Stock, $.01 par value per share (the
"Common Stock");
b) 1,200,000 shares of Series A Preferred Stock, $.01 par value per
share (the "Series A Preferred Stock"); and
par value per share (the "Series A Preferred Stock"); and
c) 1,500,000 shares of Series B Preferred Stock, $.01
par value per share (the "Series B Preferred Stock").
PART A
COMMON STOCK
1. GENERAL.
(a) Each share of Common Stock issued and outstanding shall be
identical in all respects one with the other, and no dividends and shall be paid
on any shares of Common Stock unless
<PAGE>
the same dividend Is paid on all char of Co on Stock outstanding at the time
of such payment.
(b) Except for and subject to those rights expressly granted to the
holders or the Series A' or Series B Preferred Stock, or except as may be
provided by the Delaware General Corporation law, the holder`; of Common
Stock she' 1 have exclusively all other rights old stockholders in Ludwig,
but not by way of limitation, (i) the right to receive dividends, when, as
and it declared by the Board of Directors out of assets lawfully available
therefor, and (ii) in the event of any distribution of asset upon
liquidation, dissolution or winding up of the Corporation or otherwise, the
right to receive ratably and equally all the assets and funds of the
Corporation remaining after payment to the holders of the Preferred Stock of
the Corporation of the specific amounts which they are entitled to receive
upon such liquidation, dissolution or winding up of the corporation as
therein provided.
(c) In the event that the holder of any share of Common Stock shall
receive any payment of any dividend on, liquidation or, or ether amounts
payable with respect to, any shares of common Stock, which he is not then
entitled to receive, he will forthwith deliver the same to the holders of
shares of the Series A Preferred Stock, and if in existence, the holders of
shares of the Series B Preferred Stock (as their respective interests may
appear), as the case may be, in the form received, and until it is so
delivered will hold the same in trust for such holders.
(d) Each holder of shares of Common Stock shall be entitled to one
vote far each share of such Common Stock held by him, and toting power with
respect to all classes of securities of the Corporation shall be vested
solely in the Common Stock, other than as specifically provided in the
Corporation's Certificate of Incorporation, as it nay be amended, with
respect to the Series A Preferred Stock.
PART B
SERIES A PREFERRED STOCK
1. DIVIDENDS. In each year the holders of shares of the series A
Preferred Stock shall be entitled to receive, before any dividends shall be
declared and paid upon or set aside for the Common Stock in such year, when
and as declared by the Board of Directors of the Corporation, out of funds
legally available for that purpose, dividends in cash at the rate of $.125
per annum per share, and no more, payable monthly at the rate or $.0104166
par share (except that the first dividend pageant shall be an amount equal to
accumulated dividends from the date of initial issuance at the rate of 12.5%
per annum), on the first day of each month in each year, commencing on the
fires such date which occurs after the date of the initial issuance of the
Series A Preferred Stock (each
2
<PAGE>
or the periods commencing on the first day of each such month, respectively,
including the period commencing with the date of initial issuance, being
hereinafter called a "Dividend Period"). Dividends on the series A Preferred
Stock shall be cumulative from the date on which payment is made on account
of the initial issue of such stock (whether or not there shall be surplus of
the Corporation legally available for the.payment of ouch dividends), so
that, it at any time Full Cumulative Dividends (as defined in Section 5 of
this Part B) upon the Series A Preferred Stock to the end of the last
completed Dividend Period shall not have been paid or declared and a sum
sufficient or payment thereof set apart, the amount o:E the deficiency in
such dividends shall be fully paid, but without interest, or dividends in
such amount shall be declared on the "hares of Series A Preferred Stock and a
sum sufficient for the payment thereof shall be set aside for such payment,
before any sum or sums shall be set aside for or applied to the purchase or
redemption of the Common Stock or upon any shares of any Other class of stock
ranking as to dividends or upon liquidation junior to the Series A Preferred
Stock and before any dividend shall be declared or paid or any other
distribution ordered or made upon any of the Common Stock or upon any shares
of any other class of stock ranking an to dividends junior to the Series A
preferred Stock.
2. RIGHTS ON LIQUIDATION. DISSOLUTION OR WINDING UP. In the event of
any liquidation, dissolution or winding up of the Corporation, the holders of
shares of Series A Preferred Stock then outstanding shell be entitled to be
paid out of the assets of the Corporation available for distribution to its
stockholders, whether from stated capitol, capital surplus, earned surplus or
other amounts, before any payment shall be made to the holders of any Common
Stock, an amount equal to $1.00 per share plus an amount equal to Accrued
Dividends (as defined in Section 5 of this Part B). If upon any liquidation,
dissolution or winding up of the Corporation, the ascots of the Corporation
available for distribution to its stockholders shall be insufficient to pay
to the holders of shares of series A Preferred Stock the full amounts to
which they respectively shall he entitled, the holders of shares of Series A
Preferred stock shall share ratably in any distribution of assets according
to the respective Amounts which would be payable in respect to the shares
held by them upon such distribution if all amounts payable on or with respect
to said shares were paid in full. In the event of any liquidation,
dissolution or winding up of the Corporation after payment shall have bean
made to the holders of shares of Series A Preferred Stock of the full amount
to which they shall be entitled as aforesaid, the holders of any shares of
Common Stock shall be entitled, to the exclusion of the holders of shares of
Series A Preferred Stock, to share, according to their respective rights and
preferences, in all remaining assets of the Corporation available for
distribution to its stockholders.
3
<PAGE>
3. VOTING RIGHTS. (a) Except as otherwise provided herein for the
election of directors or as required by the Delaware General Corporation Law,
the holders of shares of series A Preferred Stock shall have the right to
vote, to-tether with the holders of all the outstanding shares of Common
Stock and not by classes, on all matters on which holders of Common Stock
shall have the right to vote. The holders of shares of Series A Preferred
Stock shall have the right to cant one vote for each share of Series A
Preferred Stock, with any fractions (after aggregating all SECURE; of Series
A Preferred Stock owned beneficially or of record by each holder) rounded to
the next full vote.
(b) Whenever holders of Series A Preferred Stock are required or
permitted to take any action by vote, such action may be taken without a
meeting on written consent, setting forth the action so taken and signed by
the holders of all outstanding Series A Preferred Stock entitled to vote
thereon.
4. REDEMPTION.
(a) So long as any shares of Series A Preferred Stock are
outstanding, the Corporation may, at the option of the Board of Directors, at
any time or from time to twine redeem the whole or any part of such Series A
Preferred Stock pursuant to the provisions hereof. The aggregate number of
shares of Series A Preferred Stock which may be redeemed at any one time
shall be at least one hundred thousand (100,000) Or any integral multiple
thereof. Pony redemption pursuant to this Section 4 shall be at redemption
price equal to $1.00 per share (payable in cash or other consideration as the
Corporation and the holders of a majority of the Series A Preferred Stock may
agree>, plus an amount equal to Accrued Dividends on the shares of Series A
Preferred Stock being redeemed. It less than all the shares of Series A
Preferred Stock at any time outstanding shall be called for redemption, the
redemption shall be made pro rata with respect to such shares; and in such
manner as may be prescribed by resolution of the Board of Directors approved
by Such vote as aforesaid in this paragraph 4(a). The date of each such
redemption is herein referred to as "Redemption Date".
(b) Notice of every redemption pursuant to this Section 4 shall be
sent by registered or certified mail, postage prepaid, to the holders of record
of the shares of Series A Preferred Stock so to be redeemed at their respective
addresses as the same shall appear on the books of the Corporation. Such notice
shall be deposited in the United States mail not less than 10 days in advance of
the Redemption Date. The holders of the shares of Series A Preferred Stock to be
redeemed shall surrender to the Corporation any certificates for the shares of
Series A Preferred Stock 60 redeemed; PROVIDED, that on and after the Redemption
Date all right" of the holders of shares of Series A Preferred Stock as
stockholders of the Corporation with respect to those shares of
4
<PAGE>
Series A Preferred Stock to be redeemed, except the right to receive the
redemption price, shall cease and terminate and the shares designated for
redemption shall no longer be outstanding whether or not the certificates for
the shares so redeemed have been received by the Corporation.
5. DEFINITION. (a) The term "Accrued Dividends" with respect to the
Aeries A Preferred Stock shall mean Full Cumulative Dividends to the date as
of which Accrued dividends are to be computed, less the amount of all
dividends theretofore paid, upon he relevant shares of Series A Preferred
Stock.
(b) The term "Full Cumulative Dividends" with respect to the
Preferred Stock shall mean (whether or not in any Dividend Period, or any part
thereof, with respect to which such term is used there shall have been stated
capital, capital surplus, or earned surplus of the Corporation legally available
for the payment of such dividends) that amount which shall be equal to dividends
at the full rate fixed for the Series A Preferred Stock as provided herein for
the period of time elapsed from the data of issuance thereof to the date as of
which Full Cumulative Dividends is to be computed.
PART B
SERIES PREFERRED STOCK
Authority is hereby vested in the Board of Directors 04 the Corporation
to provide for the issuance of Series B Preferred Stock and in connection
therewith to fix by resolution providing for the issue of such series, the
number of shares to be included and such of the preferences and relative
participating, optional or other special rights and limitations of much
series, including, without limitation, rights of redemption or conversion
into Common Stock, to the fullest extent now or hereafter permitted by the
Delaware General Corporation Law.
FIFTH: The name and mailing address of the Incorporator is as
follows:
NAME ADDRESS
---- -------
Mark F. Coldwell 420 Lexington Avenue
New York, New York 10170
SIXTH: The board of directors is expressly authorized to adopt,
amend or repeal the by-laws of the Corporation.
SEVENTH: Elections of directors need not be by written ballot unless
the by-laws of the Corporation shall otherwise provide.
5
<PAGE>
EIGHTH: Whenever a compromise or arrangement is proposed between
this Corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a scary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of Section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of thin Corporation, as
the case may be, to be summoned in such manner an the said court direct. If
a majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of
this Corporation, as the case may be, agree to any compromise or arrangement
and to any reorganization of this Corporation as a consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which said application
has been made, be binding on all the creditors or class of creditors, and/or
on all of the stockholders or class of stockholders of this Corporation, as
the case may be, and also on this Corporation.
NINTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
TENTH: No director of the Corporation shall be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or ~
knowing violation of law, (iii) under Section 174 of the General Corporation
Law of the State of Delaware, or (iv) for any transaction from which the
director derived an improper personal benefit.
ELEVENTH: Except as way otherwise be specifically provided in this
certificate of incorporation, no provision of this certificate of incorporation
is intended by the Corporation to be construed as limiting, prohibiting, denying
or abrogating any of the general or specific powers or rights conferred under
the General Corporation Law upon the Corporation, upon its shareholders,
bondholders and security holders, and upon its directors, officers and other
corporate personnel, including, in particular, the power of the Corporation to
furnish indemnification to directors and officers in the capacities defined and
prescribed
6
<PAGE>
by the General Corporation Law and the defined and prescribed rights of said
persons to indemnification as the came are conferred under the General
Corporation Law; provided, however, that the indemnification provisions
contained in the General Corporation Law shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any By-Law,
agreement, resolution of shareholders or disinterested directors, or
otherwise, and shall continue as to a person who has ceased to be a director,
officer, employee or agent, both as to action in his official capacity and as
to action in another capacity while holding such notice, and shall inure to
the benefit of the heirs, executors and administrators of such person.
IN WITNESS WHEREOF, I have hereunto set any hand this 1st day of
October, 1991 and I offing that the foregoing certificate is my act and deed and
that the facts stated therein are true.
______________________________
Mark F. Coldwell, Incorporator
420 Lexington Avenue
New York, New York 10170
A:\forms\certs\augdel.crt
7
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF SERIES B PREFERRED STOCK
OF
AMERICAN UNITED GLOBAL, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
I, Robert M. Rubin, President of American United Global, Inc., a
corporation organized and existing under the General Corporation Law of the
State of Delaware, in accordance with the provisions of Section 103 thereof,
DO HEREBY CERTIFY:
That, pursuant to the authority conferred upon the Board of
Directors by the Certificate of Incorporation of the said Corporation, the
said Board of Directors on July 31, 1996, adopted the following resolution
creating the terms and conditions of the series of 1,500,000 shares of Series
B Preferred Stock, $.01 par value per share, designated as Series B Preferred
Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of its
Certificate of Incorporation, a series of Preferred Stock of the Corporation
be and it hereby is created, and that the designation and amount thereof and
the voting powers, preferences and relative, participating, optional and
other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
1. NUMBER AND DESIGNATION. The designation of the series of
Preferred Stock, $.01 par value per share, authorized by this resolution
shall be "Series B Preferred Stock" (the "Series B Preferred"). The number
of shares of Series B Preferred authorized by this resolution shall be
1,500,000.
2. RANK. The Series B Preferred shall, with respect to rights on
liquidation, winding up and dissolution, rank prior to all classes of Common
Stock, $.01 par value per share, of the Corporation (the "Common Stock").
All equity securities of the Corporation to which the Series B Preferred
ranks prior (whether upon liquidation, dissolution, winding up or otherwise),
including the Common Stock, are collectively referred to herein as the
"Junior Securities." All equity securities of the Corporation to which the
Series B Preferred ranks junior (whether upon liquidation, dissolution,
winding up or otherwise) are collectively referred to
<PAGE>
herein as the "Senior Securities." All equity securities of the Corporation
with which the Series B Preferred ranks on a parity (whether upon
liquidation, dissolution, winding up or otherwise) are collectively referred
to herein as the "Parity Securities." The Series B Preferred shall be
subject to the creation of Junior Securities, Senior Securities and Parity
Securities.
3. DIVIDENDS. Holders of shares of Series B Preferred shall not
be entitled to receive any dividends or distributions in respect of the
Series B Preferred, except upon and by reason of any liquidation, dissolution
or winding up of the Corporation, as and to the extent hereinafter provided.
4. VOTING RIGHTS. In addition to any voting rights provided by law,
each holder of Series B Preferred shall be entitled to vote on all matters
submitted to a vote of the holders of Common Stock and shall be entitled to that
number of votes equal to the largest number of whole shares of Common Stock into
which such holder's Series B Preferred could be converted pursuant to the
provisions of Section 7 hereof on the record date for the determination of
stockholders entitled to vote on such matter or, if no record date is
established, on the date such vote is taken or any written consent of
stockholders is first executed. Except as otherwise required by law, the
holders of Series B Preferred and Common Stock shall vote together as a single
class on all matters.
5. REDEMPTION. Neither the Corporation nor the holders of the
Series B Preferred shall have any right at any time to require the redemption of
any of the Series B Preferred, except upon and by reason of any liquidation,
dissolution or winding up of the Corporation, as and to the extent hereinafter
provided. Nothing herein contained, however, shall be deemed to prohibit or
impair the Corporation's ability, by agreement with any holder(s) of Series B
Preferred, to redeem any or all of the outstanding shares of Series B Preferred
at any time and from time to time, out of funds legally available therefor.
6. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) Upon any liquidation (voluntary or otherwise), dissolution
or winding up of the Corporation, no distribution shall be made to the
holders of any Junior Securities unless, prior thereto, the holders of shares
of Series B Preferred shall have received $3.50 per share in cash (such
amount being referred to as the "Liquidation Preference"). Following the
payment of the full amount of the Liquidation Preference, no additional
distributions shall be made to the holders of Series B Preferred.
(b) In the event there are not sufficient assets available to
permit payment in full of the Liquidation Preference and the liquidation
preferences of all other classes of Preferred Stock, if any, which rank on a
parity with the Series B Preferred, then such remaining assets shall be
distributed ratably to the holders of the Series B Preferred and such Parity
Securities in proportion to the total amounts (including, but not limited to,
the amount of
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liquidation preference) to which the holders of such shares of Series B
Preferred and such Parity Securities are then entitled.
(c) Neither the merger or consolidation of the Corporation into
or with any other corporation, nor the merger or consolidation of any other
corporation into or with the Corporation, nor a sale, transfer or lease of all
or any part of the assets of the Corporation, shall, without further corporate
action, be deemed to be a liquidation, dissolution or winding up of the affairs
of the Corporation within the meaning of this Section 6.
7. CONVERSION RIGHTS.
(a) CONVERSION. Subject to the terms and conditions of this
Section 7, the holder of any shares of Series B Preferred shall have the
right, at its option at any time and from time to time, to convert all or any
portion of such shares into such number of fully paid and nonassessable
shares of Common Stock as is determined based on the factors and
circumstances set forth below:
(i) MINIMUM NUMBER OF SHARES OF COMMON STOCK. Each full
share of Series B Preferred may be converted by the holder thereof, at any
time or from time to time, without regard to the application of any other
provisions of this Section 7(a), into one (1) full share of Common Stock (a
minimum of 1,000,000 shares of Common Stock if all such shares of Series B
Preferred are so converted).
(ii) COMBINED PRE-TAX INCOME. In the event that the
"Combined Pre-Tax Income" (as hereinafter defined) of any or all of the
"Subject Entities" (as hereinafter defined) in ANY ONE of the three fiscal
years commencing August 1, 1996 and ending July 31, 1997, commencing August
1, 1997 and ending July 31, 1998, or commencing August 1, 1998 and ending
July 31, 1999 (each a "Measuring Fiscal Year" and collectively, the
"Measuring Fiscal Years"):
(x) shall equal or exceed Three Million ($3,000,000)
Dollars, each share of Series B Preferred may be
converted by the holder into two (2) shares of Common
Stock (a maximum of 2,000,000 shares of Common Stock if
all such shares of Series B Preferred are so
converted); or
(y) shall equal or exceed Five Million ($5,000,000)
Dollars, each share of Series B Preferred may be
converted by the holder into three (3) shares of Common
Stock (a maximum of 3,000,000 shares of Common Stock if
all such shares of Series B Preferred are so
converted).
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As used herein, the term "Subject Entities" shall mean and include:
(A) ConnectSoft, Inc., a Washington corporation and a wholly owned subsidiary
of the Corporation ("ConnectSoft"), (B) any consolidated subsidiaries of
ConnectSoft hereafter formed or acquired, (C) eXodus Technologies, Inc., an
Affiliate of ConnectSoft to be formed by the Corporation as a direct
majority-owned subsidiary of the Corporation ("eXodus"), and (D) any
consolidated subsidiaries of eXodus or the Corporation hereafter formed or
acquired to conduct the business operations currently engaged in by
ConnectSoft or any derivatives thereof. Notwithstanding the foregoing, the
term Subject Entities shall not be deemed to include any other independently
owned corporations or businesses which may be acquired by the Corporation or
any subsidiary thereof, unless assets or operating revenue of any of the
Subject Entities are transferred thereto.
As used herein, the term "Combined Pre-Tax Income" shall mean the
consolidated income of the Subject Entities after deduction of all expenses
paid or accrued and required to be deducted from such income in accordance
with generally accepted accounting principles then in effect, but BEFORE
deduction or application of (A) all federal, state and local taxes on such
income; and (B) all interest on indebtedness for money borrowed from the
Corporation or its subsidiaries OTHER than the Subject Entities; PROVIDED,
that there shall be deducted from such income, all interest paid or accrued
on indebtedness incurred by the Corporation, to the extent that any proceeds
of such indebtedness were used to provide financing to any of the Subject
Entities.
(iii) SALE OF CONNECTSOFT OR EXODUS. In the event
that the Corporation shall at any time on or before December 31, 1999 sell
assets or securities of ConnectSoft, eXodus or any of the other Subject Entities
for consideration aggregating Five Million ($5,000,000) Dollars or more, each
share of Series B Preferred shall be immediately convertible by the holder into
three (3) shares of Common Stock (a maximum of 3,000,000 shares of Common Stock
if all such shares of Series B Preferred are so converted), irrespective of the
Combined Pre-Tax Income.
(iv) INITIAL PUBLIC OFFERING; GOING PRIVATE TRANSACTION. In
the event that the Corporation shall at any time on or before December 31, 1999,
either:
(x) consummate an initial public offering of the
securities of any of the Subject Entities (an "IPO"),
pursuant to which EITHER: (A) the issuer of securities
in such IPO shall receive gross proceeds from such IPO
of $10,000,000 or more, or (B) the market valuation of
100% of the Common Stock of the issuer of such
securities at any time following such IPO (based upon
the average of the closing prices of the common stock
of such issuer as traded on The NASDAQ Stock Market or
any other national securities exchange for any twenty
(20) consecutive trading days) shall equal or exceed
$50,000,000; OR
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(y) enter into any transaction with any third party
(whether tender offer, merger, consolidation or other
combination) as a result of which it is contemplated
that no shares of Common Stock of the Corporation or
its successor-in-interest will be publicly traded on
The NASDAQ Stock Market or any other national
securities exchange upon consummation of such
transaction (a "Going Private Transaction"),
than, and in either event, each share of Series B Preferred shall be immediately
convertible by the holder into three (3) shares of Common Stock (a maximum of
3,000,000 shares of Common Stock if all such shares of Series B Preferred Stock
are so converted), irrespective of the Combined Pre-Tax Income.
(b) MECHANICS OF CONVERSION. The rights of conversion under
Section 7(a) shall be exercised by a holder of Series B Preferred by (i)
surrendering the certificates representing such shares, together with written
notice of such holder's election to convert such shares (the "Conversion
Notice"), and a proper assignment of such certificates to the Corporation. The
Conversion Notice shall state the names and addresses in which and to which the
certificates representing the Common Stock issuable or, if applicable, the other
shares, other securities, cash or other property issuable, deliverable or
payable, upon such conversion shall be issued, delivered or paid, as the case
may be. The date upon which the certificates representing the Series B
Preferred to be converted, the Conversion Notice and the proper assignment have
all been received by the Corporation is referred to herein as the "Conversion
Date." As promptly as practicable after the Conversion Date, the Corporation
shall issue and deliver or cause to be issued and delivered, as specified in the
Conversion Notice, certificates for the number of full shares of Common Stock
issuable upon such conversion together with any cash instead of fractional
shares as provided in Section 7(e). Such conversion shall be deemed to have
been effected immediately prior to the close of business on the Conversion Date,
and at such time the rights of the holder of the converted Series B Preferred
shall cease and the person or persons in whose name or names any certificate or
certificates for Common Stock shall be issuable upon such conversion shall be
deemed to have become the holder or holders of record of the Common Stock
represented thereby. Notwithstanding anything contained herein to the contrary,
in the event of the liquidation, dissolution or winding up of the Corporation,
the holders of Series B Preferred shall only be entitled to convert their shares
in accordance with the terms of this Section 7 at any time prior to the earlier
of the tenth day following the date on which such liquidation, distribution or
winding up was approved by the stockholders of the Corporation and the date
which is three days prior to the distribution of the proceeds from such
liquidation, dissolution or winding up of the Corporation.
(c) SUBDIVISION OR COMBINATION OF STOCK. In case the
Corporation shall at any time split or subdivide its outstanding Common Stock
into a greater number of shares, the applicable conversion ratios for the Series
B Preferred set forth in Section 7(a) above and
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<PAGE>
in effect immediately prior to such subdivision shall be proportionately
reduced, and, conversely, in case the outstanding Common Stock shall be
combined into a smaller number of shares, the applicable conversion ratios in
effect immediately prior to such combination shall be proportionately
increased.
(d) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION OR MERGER.
In the event of any capital reorganization or reclassification of the
outstanding capital stock of the Corporation, or any consolidation of the
Corporation with, or merger of the Corporation with or into, another
corporation or entity, or the sale of all or substantially all of the assets
of the Corporation (each of such events being hereinafter referred to as an
"Extraordinary Event"), where, in connection with such Extraordinary Event,
the holders of Common Stock will be entitled to receive stock, securities,
cash and/or other property with respect to or in exchange for such Common
Stock, then each share of Series B Preferred shall, at the effective time of
such Extraordinary Event, be converted into, without any action on the part
of the holder thereof, such shares of stock, securities, cash and/or other
property as may be issuable or payable with respect to or in exchange for the
number of shares of Common Stock which would otherwise have been issuable to
the holder of such Series B Preferred upon the conversion of the Series B
Preferred Stock into the MAXIMUM number of shares of Common Stock of the
Corporation into which the Series B Preferred Stock may be converted pursuant
to the provisions of either subclause (II) of clause (ii) of Section 7(a),
clause (iii) of Section 7(a) or clause (iv) of Section 7(a) hereof.
(e) FRACTIONAL SHARES. No fractional shares of Common Stock (or
other shares or other securities) or scrip representing fractional shares shall
be issued upon conversion of any of the Series B Preferred. Instead, the
Corporation shall pay cash in an amount equal to the fair market value of such
fractional share at the time of such conversion, as determined in good faith by
the Board of Directors of the Corporation.
(f) RESERVATION OF COMMON STOCK. The Corporation shall at all
times reserve and keep available and free of preemptive rights out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Series A Preferred, such number of its shares
of Common Stock (or other shares or other securities as may be required) as
shall from time to time be sufficient to effect the conversion of all
outstanding Series A Preferred, and if at any time the number of authorized
but unissued shares of Common Stock (or such other shares or other
securities) shall not be sufficient to affect the conversion of all then
outstanding Series A Preferred, the Corporation shall take such action as may
be necessary to increase its authorized but unissued shares of Common Stock
(or other shares or other securities) to such number of shares as shall be
sufficient for such purpose.
(g) COSTS OF CONVERSION. The Corporation shall pay all
documentary, stamp or other similar taxes attributable to the issuance or
delivery of Common Stock (or other shares or other securities) of the
Corporation upon conversion of any of the Series B Preferred. However, the
Corporation shall not be required to pay any taxes which may be payable in
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<PAGE>
respect of any transfer involved in the issuance or delivery of any
certificate for such shares in a name other than that of the holder of the
Series B Preferred in respect of which such shares are being issued.
8. REACQUIRED SHARES. Any shares of the Series B Preferred
exchanged, redeemed, purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions or restrictions on issuance set forth
herein.
IN WITNESS WHEREOF, American United Global, Inc. has caused this
certificate to be signed by Robert M. Rubin, its President, and attested by its
Assistant Secretary this 31st day of July 1996.
AMERICAN UNITED GLOBAL, INC.
By: /S/ ROBERT M. RUBIN
------------------------------------
Robert M. Rubin
President
ATTEST:
/S/ STEPHEN A. WEISS
- ----------------------------
Assistant Secretary
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<PAGE>
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF SERIES B-2 PREFERRED STOCK
OF
AMERICAN UNITED GLOBAL, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
I, Robert M. Rubin, President of American United Global, Inc., a
corporation organized and existing under the General Corporation Law of the
State of Delaware, in accordance with the provisions of Section 103 thereof, DO
HEREBY CERTIFY:
That, pursuant to the authority conferred upon the Board of Directors
by the Certificate of Incorporation of the said Corporation, the said Board of
Directors, on January 2, 1997, adopted the following resolution creating the
terms and conditions of the series of 500,000 shares of Series B Preferred Stock
designated as Series B-2 Preferred Stock, $.01 par value per share:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of its
Certificate of Incorporation, a series of Preferred Stock of the Corporation be
and it hereby is created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof are as follows:
1. NUMBER AND DESIGNATION. The designation of the series of Series
B Preferred Stock authorized by this resolution shall be "Series B-2 Preferred
Stock" (the "Series B-2 Preferred"). The number of shares of Series B-2
Preferred, $.01 par value per share, authorized by this resolution shall be
500,000.
2. RANK. The Series B-2 Preferred shall, with respect to rights on
liquidation, winding up and dissolution, rank prior to all classes of Common
Stock, $.01 par value per share, of the Corporation (the "Common Stock"). All
equity securities of the Corporation to which the Series B-2 Preferred ranks
prior (whether upon liquidation, dissolution, winding up or otherwise),
including the Common Stock, are collectively referred to herein as the "Junior
Securities." All equity securities of the Corporation to which the Series B-2
Preferred ranks junior (whether upon liquidation, dissolution, winding up or
otherwise) are collectively referred to herein as the "Senior Securities." All
equity securities of the Corporation with which the Series B-2 Preferred ranks
on a parity (whether upon liquidation, dissolution, winding up or otherwise) are
collectively
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<PAGE>
referred to herein as the "Parity Securities." The Series B-2 Preferred
ranks on a parity (whether upon liquidation, dissolution, winding up or
otherwise) with the Series A Preferred Stock and the Series B-1 Preferred
Stock of the Corporation. The Series B-2 Preferred shall be subject to the
creation of Junior Securities, Senior Securities and Parity Securities
PROVIDED, that no Senior Securities shall be issued without the prior
approval of at least two-thirds (2/3) of the outstanding Series B-2
Preferred, voting as a class.
3. DIVIDENDS. Holders of shares of Series B-2 Preferred shall be
entitled to receive, if, when, and as declared payable by the Board of Directors
from funds legally available therefor, dividends on each share of Series B-2
Preferred at a rate per annum of 7.00% of the "Liquidation Preference" (as
defined below) of such shares, payable quarterly with the first such payment
date being March 31, 1997 and subsequent payment dates being on the last day of
each subsequent calendar quarter that the Series B-2 Preferred shall be
outstanding. Such dividends shall be payable, at the option of the Corporation,
either in cash or in additional whole or fractional shares of the Series B-2
Preferred. Each such dividend shall be paid to the holders of record of shares
of the Series B-2 Preferred as they appear on the stock register of the
Corporation on such record date, not exceeding 30 days nor less than 10 days
preceding the payment date of such dividend as shall be fixed by the Board of
Directors of the Corporation or a duly authorized committee thereof.
4. VOTING RIGHTS. Except as otherwise provided by law, the holders
of the Series B-2 Preferred shall have no power to vote on any question or in
any proceeding, or to be represented at or to receive notice of any meeting of
the stockholders of the Corporation.
5. REDEMPTION. Neither the Corporation nor the holders of the
Series B-2 Preferred shall have any right at any time to require the redemption
of any of the Series B-2 Preferred, except upon and by reason of any
liquidation, dissolution or winding up of the Corporation, as and to the extent
hereinafter provided. Nothing herein contained, however, shall be deemed to
prohibit or impair the Corporation's ability, by agreement with any holder(s) of
Series B-2 Preferred, to redeem any or all of the outstanding shares of Series
B-2 Preferred at any time and from time to time, out of funds legally available
therefor.
- Page 2 - Certificate of Designation -
<PAGE>
6. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) Upon any liquidation (voluntary or otherwise), dissolution
or winding up of the Corporation, no distribution shall be made to the holders
of any Junior Securities unless, prior thereto, the holders of shares of Series
B-2 Preferred shall have received $25.00 per share in cash plus the amount of
any and all accrued and unpaid dividends in respect of the Series B-2 Preferred
(such aggregate amount being referred to as the "Liquidation Preference").
Following the payment of the full amount of the Liquidation Preference, no
additional distributions shall be made to the holders of Series B-2 Preferred.
(b) In the event there are not sufficient assets available to
permit payment in full of the Liquidation Preference and the liquidation
preferences of all other classes of Preferred Stock, if any, which rank on a
parity with the Series B-2 Preferred, then such remaining assets shall be
distributed ratably to the holders of the Series B-2 Preferred and such Parity
Securities in proportion to the total amounts (including, but not limited to,
the amount of liquidation preference) to which the holders of such shares of
Series B-2 Preferred and such Parity Securities are then entitled.
(c) Neither the merger or consolidation of the Corporation into
or with any other corporation, nor the merger or consolidation of any other
corporation into or with the Corporation, nor a sale, transfer or lease of all
or any part of the assets of the Corporation, shall, without further corporate
action, be deemed to be a liquidation, dissolution or winding up of the affairs
of the Corporation within the meaning of this SECTION 6.
7. CONVERSION RIGHTS.
(a) OPTIONAL OR MANDATORY CONVERSION. Subject to the terms and
conditions of this SECTION 7 (including, without limitation, the restrictions on
conversions hereunder applicable at certain times as set forth below), the
holder of any shares of Series B-2 Preferred shall have the right, at the
holder's option from time to time, to convert (any such conversion, an "Optional
Conversion") all or any portion of such shares into such number of fully paid
and nonassessable shares of Common Stock as is determined based on the factors
and circumstances set forth below. On December 31, 1999, all shares of Series
B-2 Preferred not previously converted into Common Stock shall, without any
further action or approval of or on the part of, any of the holders of the
Series B-2 Preferred, be automatically converted (any such conversion, a
"Mandatory Conversion") into such number of fully
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<PAGE>
paid and nonassessable shares of Common Stock as is determined based on the
factors and circumstances set forth below:
(i) CONVERSION PRICE FORMULA. Upon any Optional Conversion
or Mandatory Conversion, each full share of Series B-2 Preferred so converted
shall be converted into whole shares of Common Stock, at a price per share equal
to the LESSER of "Price (A)" or "Price (B)", where:
(A) "Price (A)" is equal to 105% of the average daily
closing bid price of the Common Stock as reported on The Nasdaq National Market
or other national securities exchange which is the principal market for the
Common Stock for the ten (10) trading days (the "Average Price") immediately
preceding January 8, 1997 (the "Measuring Date") (the "Measuring Date Average
Price"); PROVIDED, that if the Average Price immediately preceding the first
anniversary of the Measuring Date (the "Anniversary Average Price") shall be
LESS than the Measuring Date Average Price, the conversion price set forth in
this clause (A) shall be reset to equal 105% of the Anniversary Average Price;
and
(B) "Price (B)" is equal to 82.5% of the Average Price
immediately preceding the date any shares of Series B-2 Preferred are converted
into Common Stock (the "Conversion Date Average Price").
(ii) CONVERSION PERIOD. No holder shall be entitled to
exercise the holder's right to Optional Conversion of the holder's Series B-2
Preferred other than as follows:
(A) no Series B-2 Preferred may be converted during
the first 60 days after Measuring Date;
(B) up to 34% of the holder's Series B-2 Preferred, in
the aggregate, may be converted by the holder from time to time after the 60th
day after the Measuring Date;
(C) up to an additional 33% of the holder's Series B-2
Preferred, in the aggregate, may be converted by the holder from time to time
after the 90th day after the Measuring Date, for a cumulative total of up to 67%
of such holder's Series B-2 Preferred having been converted into Common Stock;
(D) up to an additional 33% of the holder's Series B-2
Preferred, in the aggregate, may be converted by the holder from time to time
after the 120th day after the Measuring Date, for a cumulative total of up to
100% of such holder's Series B-2 Preferred having been converted into Common
Stock.
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<PAGE>
(iii) RESTRICTIONS ON CONVERSION. In the event that the
Average Price of the Common Stock calculated at any time on or after the date
(the "Restriction Commencement Date") which is six months (6) after the
effective date of the Form S-3 registration statement which the Corporation has
undertaken to file pursuant to certain Subscription Agreements dated as of
January 3, 1997 by and among the Corporation, eXodus Technologies, Inc., and the
investors thereunder, and prior to the date of conversion, shall be $3.50 or
less, the Corporation shall have the right to RESTRICT the rights of the holders
to convert the Series B-2 Preferred into Common Stock in the manner provided
below.
(A) PERCENTAGE CONVERSIONS. No holder may convert into
Common Stock during any interval of thirty (30) consecutive calendar days (each
such interval, a "Conversion Window") more than 20% of the total number of
shares of Series B-2 Preferred originally acquired by such holder from the
Corporation. The first Conversion Window shall commence on the Restriction
Commencement Date, and each subsequent Conversion Window shall commence at the
conclusion of the immediately preceding Conversion Window.
(B) STANDSTILL. On not more than ONE occasion in any
six month period (each such period, a "Six Month Period"), the Corporation shall
have the right to impose a thirty (30) calendar day "standstill" on the holders
of the Series B-2 Preferred during which such holders may NOT convert the Series
B-2 Preferred. The first Six Month Period shall commence on the Restriction
Commencement Date, and each subsequent Six Month Period shall commence at the
conclusion of the immediately preceding Six Month Period. The Corporation's
"standstill" right will be implemented, as follows:
(1) if any holder elects to convert, in order to
effect such conversion such holder first shall be required to notify the
Corporation in writing at of such holder's intent to convert and of the number
of shares of Series B-2 Preferred to be so converted; and
(2) the Corporation must respond by notice in
writing delivered to the holder at the holder's address on the Corporation's
stock register by hand or by facsimile, within two (2) business days after
receipt by the Corporation of the holder's notice of intention to convert, as to
whether the Corporation desires to impose the "standstill" (no response by the
Corporation means that the Corporation will permit the conversion into Common
Stock). If the Corporation gives timely notice of its desire to impose a
standstill, the standstill applies to each holder for thirty (30) days from the
date of notice. If the Corporation permits a conversion or does not respond and
the holder
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<PAGE>
does NOT convert the Series B-2 Preferred into Common Stock within such
thirty (30) day period, the Corporation's right to impose a standstill shall
resume for the next thirty (30) day period.
(b) MECHANICS OF CONVERSION. The rights of conversion under
SECTION 7(a) shall be exercised by a holder of Series B-2 Preferred by (i)
surrendering the certificates representing such shares, together with written
notice of such holder's election to convert such shares (the "Conversion
Notice"), and a proper assignment of such certificates to the Corporation. The
Conversion Notice shall state the names and addresses in which and to which the
certificates representing the Common Stock issuable or, if applicable, the other
shares, other securities, cash or other property issuable, deliverable or
payable, upon such conversion shall be issued, delivered or paid, as the case
may be. The date upon which the certificates representing the Series B-2
Preferred to be converted, the Conversion Notice and the proper assignment have
all been received by the Corporation is referred to herein as the "Conversion
Date." As promptly as practicable after the Conversion Date, the Corporation
shall issue and deliver or cause to be issued and delivered, as specified in the
Conversion Notice, certificates for the number of full shares of Common Stock
issuable upon such conversion together with any cash instead of fractional
shares as provided in Section 7(e). Such conversion shall be deemed to have
been effected immediately prior to the close of business on the Conversion Date,
and at such time the rights of the holder of the converted Series B-2 Preferred
shall cease and the person or persons in whose name or names any certificate or
certificates for Common Stock shall be issuable upon such conversion shall be
deemed to have become the holder or holders of record of the Common Stock
represented thereby. Notwithstanding anything contained herein to the contrary,
in the event of the liquidation, dissolution or winding up of the Corporation,
the holders of Series B-2 Preferred shall only be entitled to convert their
shares in accordance with the terms of this SECTION 7 at any time prior to the
earlier of the tenth day following the date on which such liquidation,
distribution or winding up was approved by the stockholders of the Corporation
and the date which is three days prior to the distribution of the proceeds from
such liquidation, dissolution or winding up of the Corporation.
(c) SUBDIVISION OR COMBINATION OF STOCK. In case the
Corporation shall at any time split or subdivide its outstanding Common Stock
into a greater number of shares, the applicable conversion ratios for the Series
B-2 Preferred set forth in SECTION 7(a) above and in effect immediately prior to
such subdivision shall be proportionately reduced, and, conversely, in case the
outstanding Common Stock shall be combined into a smaller number of shares, the
applicable conversion ratios in effect
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<PAGE>
immediately prior to such combination shall be proportionately increased.
(d) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION OR MERGER.
In the event of any capital reorganization or reclassification of the
outstanding capital stock of the Corporation not included in the immediately
preceding PARAGRAPH (c), or any consolidation of the Corporation with, or
merger of the Corporation with or into, another corporation or entity, or the
sale of all or substantially all of the assets of the Corporation (each of
such events being hereinafter referred to as an "Extraordinary Event"),
where, in connection with such Extraordinary Event, the holders of Common
Stock will be entitled to receive stock, securities, cash and/or other
property with respect to or in exchange for such Common Stock, then each
share of Series B-2 Preferred shall, at the effective time of such
Extraordinary Event, be converted into, without any action on the part of the
holder thereof, such shares of stock, securities, cash and/or other property
as may be issuable or payable with respect to or in exchange for the number
of shares of Common Stock which would otherwise have been issuable to the
holder of such Series B-2 Preferred upon the conversion of the Series B-2
Preferred Stock into shares of Common Stock of the Corporation.
(e) FRACTIONAL SHARES. No fractional shares of Common Stock (or
other shares or other securities) or scrip representing fractional shares shall
be issued upon conversion of any of the Series B-2 Preferred. Instead, the
Corporation shall pay cash in an amount equal to the fair market value of such
fractional share at the time of such conversion, as determined in good faith by
the Board of Directors of the Corporation.
(f) RESERVATION OF COMMON STOCK. The Corporation shall at all
times reserve and keep available and free of preemptive rights out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Series B-2 Preferred, such number of its shares
of Common Stock (or other shares or other securities as may be required) as
shall from time to time be sufficient to effect the conversion of all
outstanding Series B-2 Preferred, and if at any time the number of authorized
but unissued shares of Common Stock (or such other shares or other securities)
shall not be sufficient to affect the conversion of all then outstanding Series
B-2 Preferred, the Corporation shall take such action as may be necessary to
increase its authorized but unissued shares of Common Stock (or other shares or
other securities) to such number of shares as shall be sufficient for such
purpose.
(g) COSTS OF CONVERSION. The Corporation shall pay all
documentary, stamp or other similar taxes attributable to the
- Page 7 - Certificate of Designation -
<PAGE>
issuance or delivery of Common Stock (or other shares or other securities) of
the Corporation upon conversion of any of the Series B-2 Preferred. However,
the Corporation shall not be required to pay any taxes which may be payable
in respect of any transfer involved in the issuance or delivery of any
certificate for such shares in a name other than that of the holder of the
Series B-2 Preferred in respect of which such shares are being issued.
8. REACQUIRED SHARES. Any shares of the Series B-2 Preferred
exchanged, redeemed, purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions or restrictions on issuance set forth
herein.
- Page 8 - Certificate of Designation -
<PAGE>
IN WITNESS WHEREOF, American United Global, Inc. has caused this
certificate to be signed by Robert M. Rubin, its President, and attested by its
Assistant Secretary this 8th day of January, 1997.
AMERICAN UNITED GLOBAL, INC.
By:____________________________
Robert M. Rubin
President
- Page 9 - Certificate of Designation -
<PAGE>
Exhibit 3.3
BY-LAWS OF
AMERICAN UNITED GLOBAL, INC.
(A Delaware Corporation)
ARTICLE I.
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of the Corporation
shall be located in Downey, California.
SECTION 2. REGISTERED OFFICE AND AGENT. The registered office of the
Corporation in the State of Delaware is 15 North Street, Dover, Delaware 19901.
The registered agent shall be National Corporate Research, Ltd.
SECTION 3. OTHER OFFICES. The Corporation may also have an office or
offices other than said principal office at such place or places, either within
or without the State of Delaware, as the Board of Directors shall from time to
time determine or the business of the Corporation may require.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
SECTION 1. PLACE OF MEETING. All meetings of the shareholders for the
election of directors or for any other purpose shall be held at such place as
may be fixed from time to time by the Board of Directors, or at such other
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors.
SECTION 2. ANNUAL MEETING. The annual meeting of the shareholders of
the Corporation for the election of directors and for the transaction of much
other business as may properly come before the meeting, shall be designated from
time to time by the Board of Directors.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders,
unless otherwise prescribed by statute, may be called at any time by the Board
of Directors or the Chairman of the Board, if one shall have been elected, or
the Vice-Chairman of the Board, if one shall have been elected, or the President
and shall be called by the Secretary upon the request in writing of a
shareholder or shareholders holding of record at least ten (10%) percent of the
outstanding shares of the Corporation entitled to vote at such meeting.
SECTION 4. NOTICE OF MEETINGS. Notice of the place, date and hour of
holding of each annual and special meeting of the
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Shareholders and, unless it is the annual meeting, the purpose or purposes
thereof, shall be given personally or by mail in a postage prepaid envelope,
not less than ten nor more than sixty days before the date of such meeting,
to each shareholder entitled to vote at such meeting, and, if mailed, it
shall be directed to such shareholder at his address as it appears on the
record of shareholders, unless he shall have filed with the Secretary of the
Corporation a written request that notices to him be mailed at some other
address, in which case it shall be directed to him at such other address. Any
such notice for any meeting other than the annual meeting shall indicate that
it is being issued at the direction of the Board of Directors, the Chairman
of the Board, the Vice-Chairman of the Board, the President or the Secretary,
whichever shall have called the meeting. Notice of any meeting of
shareholders Shall not be required to be given to any shareholder who shall
attend such meeting in person or by proxy and shall not, prior to the
conclusion of such meeting, protest the lack of notice thereof, or who shall,
either before or after the meeting, submit a signed waiver of notice, in
person or by proxy. Unless the Board of Directors shall fix a new record date
for an adjourned meeting, notice of such adjourned meeting need not be given
if the time and place to which the meeting shall be adjourned were announced
at the meeting at which the adjournment is taken.
SECTION 5. QUORUM. At all meetings of the shareholders the holders of
a majority of the shares of the Corporation issued and outstanding and entitled
to vote thereat shall be present in person or by proxy to constitute a quorum
for the transaction of business, except as otherwise provided by statute. In the
absence of a quorum, the holders of a majority of the shares present in person
or by proxy and entitled to vote may adjourn the meeting from tome to time. At
any such adjourned meeting at which a quorum may be present any business may be
transacted which might have been transacted at the meeting as originally called.
SECTION 6. ORGANIZATION. At each meeting of the shareholders, the
Chairman of the Board, if one shall have been elected, shall act as chairman of
the meeting. In the absence of the Chairman of the Board or if one shall not
have been elected, the Vice-Chairman of the Board, or in his absence or if one
shall not have been elected, the President shall act as chairman of the meeting.
The Secretary, or in his absence or inability to act, the person whom the
chairman of the meeting shall appoint secretary of the meeting, shall act as
secretary of the meeting and keep the minutes thereof.
SECTION 7. ORDER OF BUSINESS. The order of business at all meetings of
the shareholders shall be determined by the chairman of the meeting.
SECTION 8. VOTING. Except as otherwise provided by statute or the
Certificate of Incorporation, each holder of record
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of shares of the Corporation having voting power shall be entitled at each
meeting of the shareholders to one vote for each share standing in his name
on the record of shareholders of the Corporation:
(a) on the date fixed pursuant to the provisions of Section 6 of
Article V of these By-Laws as the record date for the determination of the
shareholders who shall be entitled to notice of and to vote at such
meeting; or
(b) if no such record date shall have been so fixed, then at the
close of business on the day next preceding the day on which notice thereof
shall be given.
Each shareholder entitled to vote at any meeting of the shareholders may
authorize another person or persons to act for him by a proxy signed by such
shareholder or his attorney-in-fact. Any such proxy shall be delivered to the
secretary of such meeting at or prior to the time designated in the order of
business for so delivering such proxies. Except as otherwise provided by statute
or the Certificate of Incorporation or these By-Laws, any Corporate action to be
taken by vote of the shareholders shall be authorized by a majority of the votes
cast at a meeting of shareholders by the holders of shares present in person or
represented by proxy and entitled to vote on such action. Unless required by
statute, or determined by the chairman of the meeting to be advisable, the vote
on any question need not be by ballot. On a vote by ballot, each ballot shall be
signed by the shareholder acting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
SECTION 9. LIST OF SHAREHOLDERS. A list of shareholders as of the
record date, certified by the Secretary of the Corporation or by the transfer
agent for the Corporation, shall be produced at any meeting of the shareholders
upon the request of any shareholder made at or prior to such meeting.
SECTION 10. INSPECTORS. The Board of Directors may, in advance of any
meeting of shareholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If any of the inspectors so appointed shall fail to
appear or actor on the request of any shareholder entitled to vote at such
meeting, the chairman of the meeting shall, or if inspectors shall not have been
appointed, the chairman of the meeting may, appoint one or more inspectors. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares outstanding and the voting power of each,
the number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to
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<PAGE>
vote, count and tabulate all votes, ballots or Consents, determine the
results, and do such acts as are proper to conduct the election or vote with
fairness to all shareholders. On request of the chairman of the meeting or
any shareholder entitled to vote thereat, the inspector shall make a report
in writing of any challenge, request or matter determined by them and shall
execute a certificate of any fact found by him. No director or candidate for
the office of director shall act as an inspector of an election of directors.
inspectors need not be shareholders.
SECTION 11. ACTION BE CONSENT. Whenever shareholders are required or
permitted to take any action by vote, such action may be taken without a meeting
on written consent, setting forth the action so taken signed by the holders of a
majority of the outstanding shares of the Corporation entitled to vote thereon.
ARTICLE III.
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors. The Board of
Directors may exercise all such authority and powers of the corporation and do
all such lawful acts and things as are not by statute or the Certificate of
Incorporation directed or required to be exercised or done by the shareholders.
SECTION 2. NUMBER, QUALIFICATIONS, ELECTION AND TERM OF OFFICE. The
number of directors constituting the Board of Directors shall be not less than
three nor more than twelve. Any decrease in the number of directors shall be
effective at the~time of the next succeeding annual meeting of the shareholders
unless there shall be vacancies in the Board of Directors, in which case such
decrease may become effective at any time prior to the next succeeding annual
meeting to the extent of the number of such vacancies. All the directors shall
be at least eighteen years of age. Directors need not be shareholders. Except as
otherwise provided by statute or these By-Laws, the directors (other than
members of the initial Board of Directors) shall be elected at the annual
meeting of the shareholders. At each meeting of the shareholders for the
election of directors at which a quorum is present the persons receiving a
plurality of the votes cast at such election shall be elected. Each director
shall hold office until the next annual meeting of the shareholders and until
his successor shall have been elected and qualified, or until his death, or
until he shall have resigned, or have been removed, as hereinafter provided in
these By-Laws.
SECTION 3. PLACE OF MEETINGS. Meetings of the Board of Directors shall
be held at the principal office of the Corporation in the State of Delaware or
at such other place, within or without such State, as the Board of Directors may
from time to time
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<PAGE>
determine or as shall be specified in the notice of any such meeting.
SECTION 4. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such time and place as the Board of Directors may
fix. If any day fixed for a regular meeting shall be a legal holiday at the
place where the meeting is to be held, then the meeting which would otherwise be
held on that day shall be held at the same hour on the next succeeding business
day. Notice of regular meetings of the Board of Directors need not be given
except as otherwise required by statute or these By-Laws.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the President or by a majority of the directors.
SECTION 6. NOTICE OF MEETING. Notice of each special meeting of the
Board of Directors (and of each regular meeting for which notice shall be
required) shall be given by the Secretary as hereinafter provided in this
Section 7, in which notice shall be stated the time and place of the meeting.
Except as otherwise required by these By-Laws, such notice need not state the
purposes of such meeting. Notice of each such meeting shall be mailed, postage
prepaid, to each director, addressed to him at his residence or usual place of
business, by first-class mail, at least five days before the day on which such
meeting is to be held, or shall be sent addressed to him at such place by
telegraph, cable, telex, telecopier or other similar means, or be delivered to
him personally or be given to him by telephone, or other similar means, of at
least forty-eight hours before the time at which such meeting is to be held.
Notice of any such meeting need not be given to any director who shall, either
before or after the meeting, submits a signed waiver of notice or who shall
attend such meeting without protesting, prior to or at its commencement, the
lack of notice to him.
SECTION 7. QUORUM AND MANNER OF ACTING. A majority of the entire Board
of Directors shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, and, except as otherwise expressly required
by statute or the Certificate of Incorporation or these By- Laws, the act of a
majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board of Directors. In the absence of a quorum at any
meeting of the Board of Directors, a majority of the directors present thereat
may adjourn such meeting to another time and place. Notice of the time and place
of any such adjourned meeting shall be given to the directors unless such time
and place were announced at the meeting at which the adjournment was taken, to
the other directors. At any adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted at the meeting as
originally called. The directors shall act only as a Board and the individual
directors
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shall have no power as such.
SECTION 8. ORGANIZATION. At each meeting of the Board of Directors, the
Chairman of the Board, if one shall have been elected, shall act as the Chairman
of the meeting, or if one shall not have been elected, the Vice-Chairman of the
Board, or in his absence, or if one shall not have been elected, the President
(or, in his absence, another director chosen by a majority of the directors
present) shall act as Chairman of the meeting and preside thereat. The Secretary
(or, in his absence, any person -- who shall be an Assistant Secretary, if any
of them shall be present at such meeting -- appointed by the chairman) shall act
as secretary of the meeting and keep the minutes thereof.
SECTION 9. RESIGNATIONS. Any director of the Corporation may resign at
any time by giving written notice of his resignation to the Board of Directors
or the Chairman of the Board or the Vice-Chairman of the Board or the President
or the Secretary. Any such resignation shall tyke effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, immediately upon its receipt. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 10. VACANCIES. Subject to any expressed provision of the
Certificate of Incorporation, any vacancy in the Board of Directors, whether
arising from death, resignation, removal (with or without cause), an increase in
the number of directors or any other cause, may be filled by the vote of a
majority of the directors then in office, though less than a quorum, or by the
shareholders at the next annual meeting thereof or at a special meeting thereof.
Each director so elected shall hold office until the next meeting of the
shareholders in which the election of directors is in the regular order of
business and until his successor shall have been elected and qualified.
SECTION 11. REMOVAL OF DIRECTORS. Except as otherwise provided by
statute, any director may be removed, either with or without cause, at any time,
by the shareholders at a special meeting thereof. Except as otherwise provided
by statute, any director may be removed for cause by the Board of Directors at a
special meeting thereof.
SECTION 12. COMPENSATION. The Board of Directors shall have authority
to fix the compensation, including fees and reimbursement of expenses, of
directors for services to the Corporation in any capacity.
SECTION 13. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate one or more
committees, including an executive committee, each committee to consist of three
or more of the directors of the
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Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of the committee. Except to the extent restricted by statute or the
Certificate of Incorporation, each such committee, to the extent provided in
the resolution creating it, shall have and may exercise all the authority of
the Board of Directors. Each such committee shall serve at the pleasure of
the Board of Directors and have such name as may be determined from time to
time by resolution adopted by the Board of Directors. Each committee shall
keep regular minutes of its meetings and report the same to the Board of
Directors.
SECTION 14. ACTION BY CONSENT. Unless restricted by the Certificate of
Incorporation, any action required or permitted to be taken by the Board of
Directors or any committee thereof may be taken without a meeting if all members
of the Board of Directors or such committee consent in writing to the adoption
of a resolution authorizing the action. The resolution and the written consents
thereto by the members of the Board of Directors or such committee shall be
filed with the minutes of the proceedings of the Board of Directors or such
committee.
SECTION 15. TELEPHONIC MEETING. Unless restricted by the Certificate of
Incorporation or by statute, any one or more members of the Board of Directors
or any committee thereof may participate in a meeting of the Board of Directors
or such committee by means of a conference telephone or similar communications
equipment allowing all persons participating in the meeting to hear each other
at the came time. Participation by such means shall constitute presence in
person at a meeting.
ARTICLE IV.
OFFICERS
SECTION 1. NUMBER AND QUALIFICATIONS. The officers of the Corporation
shall be elected by the Board of Directors and shall include the President, one
or more Vice-Presidents, the Secretary, and the Treasurer. If the Board of
Directors wishes, it may also elect as officers of the Corporation a Chairman of
the Board and a Vice-Chairman of the Board and may elect other officers
(including one or more Assistant Treasurers and one or more Assistant
Secretaries, as may be necessary or desirable for the business of the
Corporation. Any two or more offices may be held by the same person, except the
offices of President and Secretary. Each officer shall hold office until the
first meeting of the Board of Directors following the next annual meeting of the
shareholders, and until his successor shall have been elected and shall have
qualified, or until his death, or until he shall have resigned or have been
removed, as hereinafter provided in these By-Laws.
SECTION 2. RESIGNATIONS. Any officer of the Corporation may resign at
any time by giving written notice of his resignation
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<PAGE>
to the Board of Directors or the Chairman of the Board or the Vice-chairman
of the Board or the President or the Secretary. Any such resignation shall
take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately upon its
receipt. Unless otherwise specified therein, the acceptance of any such
resignation shall not be necessary to make it effective.
SECTION 3. REMOVAL. Any officer of the Corporation may be removed,
either with or without cause, at any time, by the Board of Directors at any
meeting thereof.
SECTION 4. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be
the chief executive officer of the Corporation and shall be a member of the
Board and, if present, shall preside at each meeting of the Board of
Directors or the shareholders. He shall perform all duties incident to the
office of Chairman and chief executive officer, and shall perform such other
duties as may from time to time be assigned to him by the Board of Directors.
SECTION 5. VICE-CHAIRMAN OF THE BOARD. The Vice-Chairman of the
Board, if one shall have been elected, shall be a member of the Board, an
officer of the Corporation and, if present, shall preside at each meeting of
the Board of Directors if no Chairman of the Board has been elected or if the
Chairman of the Board is absent, or is unable or refuses to act. He shall
advise and counsel the Chairman of the Board and the President, and, in the
President's absence, other executives of the Corporation, and shall perform
such other duties as may from time to time be assigned to him by the Board of
Directors.
SECTION 6. THE PRESIDENT. The President shall be the chief
operating officer of the Corporation. He shall, in the absence of the
Chairman of the Board and the Vice-Chairman of the Board or if either shall
not have been elected, preside at each meeting of the Board of Directors or
the shareholders. He shall perform all duties incident to the office of
President and chief operating officer and such other duties as may from time
to time be assigned to him by the Board of Directors.
SECTION 7. VICE-PRESIDENT. Each Vice-President shall perform all
such duties as from time to time may be assigned to him by the Board of
Directors or the President. At the request of the President or in his absence
or in the event of his inability or to act, the Vice-President, or if there
shall be more than one, the Vice-Presidents in the order determined by the
Board of Directors (or if there be no such determination, then the
Vice-Presidents in the order of their election), shall perform the duties of
the President, and, when so called, shall have the power of and be subject to
the restrictions placed upon the President in respect of the performance of
such duties.
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SECTION 8. TREASURER. The Treasurer shall
(a) have charge and custody of, and be responsible for, all the funds
and securities of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;
(c) deposit all moneys and other valuables to the credit of the
Corporation in such depositaries as may be designated by the Board of
Directors or pursuant to its direction;
(d) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;~
(e) disburse the funds of the Corporation and supervise the
investments of its funds, taking proper vouchers therefor;
(f) render to the Board of Directors, whenever the Board of Directors
may require, an account of the financial condition of the Corporation; and
(g) in general, perform all duties incident to the office of the
Treasurer and such other duties as from time to time may be assigned to him
by the Board of Directors.
SECTION 9. SECRETARY. The Secretary shall
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board of Directors, the
committees of the Board of Directors and the shareholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all certificates for shares of the Corporation
(unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all
other documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly
kept and filed; and
(e) in general, perform all duties incident to the office of the
Secretary and such other duties as from time to time may be assigned to him
by the Board of Directors.
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SECTION 10. THE ASSISTANT TREASURER. The Assistant Treasurer, or if
there shall be more than one, the Assistant Treasurers in the order
determined by the Board of Directors (or if there be no such determination,
then in the order of their election), shall, in the absence of the Treasurer
or in the event of his inability or refusal to act, perform the duties and
exercise the powers of the Treasurer and shall perform such other duties as
from time to time may be assigned by the Board of Directors.
SECTION 11. THE ASSISTANT SECRETARY. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries in the order determined by
the Board of Directors (or if there be no such determination, then in the
order of their election), shall, in the absence of the Secretary or in the
event of his inability or refusal to act, perform the duties and exercise the
powers of the if Secretary and shall perform such other duties as from time
to time may be assigned by the Board of Directors.
SECTION 12. OFFICERS' BONDS OR OTHER SECURITY. If required by the
Board of Directors, any officer of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board of Directors may require.
SECTION 13. COMPENSATION. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to
time by the Board of Directors. An officer of the Corporation shall not be
prevented from receiving compensation by reason of the fact that he is also a
director of the Corporation.
ARTICLE V.
SHARES, ETC.
SECTION 1. SHARE CERTIFICATES. Each owner of shares of the
Corporation shall be entitled to have a certificate, in such form as shall be
approved by the Board of Directors, certifying the number of shares of the
Corporation owned by him. The certificates representing shares shall be
signed in the name of the Corporation by the Chairman of the Board or the
Vice-Chairman of the Board or the President or a Vice-President and by the
Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer,
and sealed with the seal of the Corporation (which seal may be a facsimile,
engraved or printed); provided, however, that where any such certificate is
countersigned by a transfer agent, or is registered by a registrar (other
than the Corporation or one of its employees), the signatures of the Chairman
of the Board, Chairman of the Board, President, Vice-President, Secretary,
Assistant Secretary, Treasurer or Assistant Treasurer upon such certificates
may be facsimiles, engraved or printed. In case any officer who shall have
signed any such certificate shall have ceased to be such officer before such
certificate shall be issued, it may
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nevertheless be issued by the Corporation with the same effect as if such
officer were still in office at the date of their issue. When the Corporation
is authorized to-issue shares of more than one class, there shall be set
forth upon the face or back of the certificate, (or the certificate shall
have a statement that the Corporation will furnish to any shareholder upon
request and without charge) a full statement of the designation, relative
rights, preferences, and limitations of the shares of each separate class, or
of the different shares within each class, authorized to be issued and, if
the Corporation is authorized to issue any class of preferred shares in
series, the designation, relative rights, preferences and limitations of each
much series no far as the same have been fixed and the authority of the Board
of Directors to designate and fix the relative rights, preferences and
limitations of other series.
SECTION 2. BOOKS OF ACCOUNT AND RECORD OF SHAREHOLDERS. There shall
be kept correct and complete books and records of account of all the business
and transactions of the Corporation. There shall also be kept, at the office
of the Corporation, in the State of Delaware, or at the office of its
transfer agent in said State, a record containing the names and addresses of
all shareholders of the Corporation, the number of shares held by each, and
the dates when they became the holders of record thereof.
SECTION 3. TRANSFER OF SHARES. Transfers of shares of the
Corporation shall be made on the records of the Corporation only upon
authorization by the registered holder thereof, or by his thereunto
authorized by power of attorney duly executed and filed with the Secretary or
with a transfer agent, and on surrender of the certificate or certificates
for such shares properly endorsed or accompanied by a duly executed stock
transfer power and the payment of all taxes thereon. The person in whose name
shares shall stand on the record of shareholders of the Corporation shall be
deemed the owner thereof for all purposes as the Corporation. Whenever any
transfer of shares shall be made for collateral security and not absolutely
and written notice thereof shall be given to the Secretary or to a transfer
agent, such fact shall be noted on the records of the Corporation.
SECTION 4. TRANSFER AGENTS AND REGISTRARS. The Board of Directors
may appoint, or authorize any officer or officers to appoint, one or more
transfer agents and one or more registrars and may require all certificates
for shares of stock to bear the signature of any of them.
SECTION 5. REGULATIONS. The Board of Directors may make such
additional rules and regulations, not inconsistent with these By-Laws, as it
may deem expedient concerning the issue, transfer and registration of
certificates for shares of the Corporation.
SECTION 6. FIXING OF RECORD DATE. The Board of Directors
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may fix, in advance, a date not more than fifty nor less than ten days before
the date when fixed for the holding of any meeting of the shareholders or
before the last day on which the consent or dissent of the shareholders may
be effectively expressed for any purpose without a meeting, as the time as of
which the shareholders entitled to notice of and to vote at such meeting or
whose consent or dissent is required or may be expressed for any purpose, as
the case may be, shall be determined, and all persons who were shareholders
of record of voting shares at such time, and no others shall be entitled to
notice of and to vote at such meeting or to express their consent or dissent,
as the case may be. The Board of Directors may fix, in advance, a date not
more than fifty nor less than ten days preceding the date fixed for the
payment of any dividend or the making of any distribution or the allotment of
rights to subscribe for securities of the Corporation, or for the delivery of
evidences of rights or evidences of interests arising out of any change,
conversion or exchange of shares per other securities, as the record date for
the determination of the shareholders entitled to receive any such dividend,
distribution, allotment, rights or interests, and in such case only the
shareholders of record at the time so fixed shall be entitled to receive such
dividend, distribution, allotment, rights or interests.
SECTION 7. LOST, DESTROYED OR MUTILATED CERTIFICATES. The holder of
any certificate representing shares of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate in the place of
any certificate theretofore issued by it which the owner thereof shall allege
to have been lost or destroyed or which shall have been mutilated. The Board
of Directors may, in its discretion, require such owner or his legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety of sureties as the Board of
Directors in its absolute discretion shall determine, to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss or destruction of any such certificate, or the issuance of such
new certificate.
ARTICLE VI.
INDEMNIFICATION
The Corporation to the extent permitted by law may provide for
indemnification and advancement of expenses of directors in any civil or
criminal action or proceeding, including one in the rights of the Corporation
to procure a judgment in its favor, for acts or decisions made by them in
good faith while performing services for the Corporation. Such
indemnification may be authorized by resolution of the Board of Directors or
resolution of the shareholders.
ARTICLE VII.
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GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to statute and the Certificate of
Incorporation, dividends upon the shares of the Corporation may be declared
by the Board of Directors at any regular or special meeting. Dividends may be
paid in cash, in property or in shares of the Corporation, unless otherwise
provided by statute or the Certificate of Incorporation.
SECTION 2. RESERVES. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors may, from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or
for equalizing dividends, or for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors may think
conducive to the interests of the Corporation. The Board of Directors may
modify or abolish any such reserves in the manner in which it was related.
SECTION 3. FISCAL YEAR. The first fiscal year of the Corporation
shall be fixed, and once fixed, may thereafter be changed, by resolution of
the Directors. The first fiscal year end of the Corporation shall first be
July 31.
SECTION 4. CHECKS, NOTES, DRAFTS ETC. All checks, notes, drafts or
other orders for the payment of money of the Corporation shall be signed,
endorsed or accepted in the name off the Corporation by such officer,
officers, person or persons as from time to time may be designated by the
Board of Directors or by an officer or officers authorized by the Board of
Directors to make such designation.
SECTION 5. EXECUTION OF CONTRACTS, DEEDS, ETC. The Board of
Directors may authorize any officer or officers, agent or agents, in the name
and on behalf of the Corporation to enter into or execute and deliver any and
all deeds, bonds, mortgages, contracts and other obligations or instruments,
and such authority may be general or confined to specific instances.
SECTION 6. VOTING OF STOCKS IN OTHER CORPORATIONS. Unless otherwise
provided by resolution of the Board of Directors, the Chairman of the Board,
the Vice-Chairman of the Board, or the President, from time to time, may (or
may appoint one or more attorneys or agents to) cast the votes which the
Corporation may be entitled to cast as a shareholder or otherwise in any
other corporation, any of whose shares or securities may be held by the
Corporation, at meetings of the holders of the shares or other securities of
such other corporations, or to consent in writing to any action by any such
other corporation. In the event one or more attorneys or agents are
appointed, the Chairman of the Board, the
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Vice-Chairman of the Board, or the President may instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent. The Chairman of the Board, the Vice-chairman of the Board, or the
President may, or may instruct the attorneys or agents appointed to, execute
or cause to be if executed in the name and on behalf of the Corporation and
under its meal or otherwise, such written proxies, consents, waivers or other
instruments as may be necessary or proper in the premises.
ARTICLE VIII.
FORCE AND EFFECT OF BY-LAWS
These By-Laws are subject to the provisions of the Delaware General
Corporation Law and the Corporation's certificate of incorporation, as it may
be amended from time to time. If any provision in these By-Laws is
inconsistent with a provision in that Act or the certificate of
incorporation, the provision of that Act or the certificate of incorporation
shall govern. Wherever in these By-Laws references are made to more than one
incorporator, director, or shareholder, they shall, if this is a sole
incorporator, director, shareholder corporation, be construed to mean the
solitary person; an all provision dealing with the quantum of majorities or
quorums shall be deemed to mean the action by the one person constituting the
corporation.
ARTICLE IX.
AMENDMENTS
These By-Laws may be amended or repealed or new By-Laws may be adopted at
an annual or special meeting of shareholders at which a quorum is present or
represented, by the vote of the holders of shares entitled to vote in the
election of directors provided that notice of the proposed amendment or
repeal or adoption of new By-Laws is contained in the notice of such meeting.
These By-Laws may also be amended or repealed or new By-Laws may be adopted
by the Board at any regular or special meeting of the Board of Directors. If
any By-Law regulating an impending election of directors is adopted, amended
or repealed by the Board of Directors,-there shall be set forth in the notice
of the next meeting of the shareholders for the election of directors the
By-Law so adopted, amended or repealed, together with a concise statement of
the changes made. By-Laws adopted by the Board of Directors may be amended or
repealed by the shareholders.
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EXHIBIT 24.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 13, 1997
relating to the financial statements of American United Global, Inc., which
appears in such Prospectus. We also consent to the application of such report to
the Financial Statement Schedule for the three years ended July 31, 1996 listed
under Item 16(b) of this Registration Statement when such schedule is read in
conjunction with the financial statements referred to in our report. The audits
referred to in such report also included this schedule. We also consent to the
reference to us under the heading 'Experts' in such Prospectus.
PRICE WATERHOUSE LLP
Seattle, Washington
February 14, 1997
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EXHIBIT 24.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated October 19, 1996, on our audits of the financial statements of
ConnectSoft, Inc. We also consent to the reference to our firm under the
caption "Experts."
COOPERS & LYBRAND LLP
Seattle, Washington
January 16, 1997
