SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
AMERICAN UNITED GLOBAL, INC.
--------------------------------------------------------------------
(Name of Registrant as specified in its charter)
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(Name of Person(s) Filing Proxy Statement), if other than Registrant
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] $125 per Exchange Act Rules 0-11(c)(l)(ii), 14a-6(I)(l) or
14a-6(I)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(I)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(I)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies: __________________________________________________
(2) Aggregate number of securities to which transaction
applies: __________________________________________________
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: ___________ (A)
(4) Proposed maximum aggregate value of transaction: ___________
(5) Total fee paid: __________________________
[_] Fee paid previously with preliminary materials.
[_] Check box if any of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the
date of its filing.
(1) Amount Previously Paid: ____________________________________
(2) Form, Schedule or Registration Statement No.: ______________
(3) Filing Party: ______________________________________________
(4) Date Filed: ________________________________________________
<PAGE>
AMERICAN UNITED GLOBAL, INC.
11130 NE 33RD PLACE, SUITE 250
BELLEVUE, WASHINGTON 98004
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 22, 2000
------------------------
To the Stockholders of
AMERICAN UNITED GLOBAL, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting (the "Annual Meeting") of
Stockholders of American United Global, Inc. a Delaware corporation (the
"Company" or the "Corporation") will be held at the offices of Gersten, Savage &
Kaplowitz, LLP, counsel to the company ("GSK"), located at 101 East 52nd Street,
New York, New York 10022, on February 22, 2000, at 10:00 a.m. local time for the
following purposes:
I. To elect six (6) directors to hold office until the next
Annual Meeting;
II. To authorize an amendment to the Company's Certificate of
Incorporation changing the Company's name to:
INTERNET-EQUITY.COM, INC.
III. To authorize and ratify the adoption of the Company's 1996
Employee Stock Option Plan, as amended (the "1996 Plan"),
which 1996 Plan contains 3,500,000 shares of Common Stock,
$.01 par value (the "Common Stock") underlying and available
for the granting of options under such plan;
IV. To authorize and ratify the sale of all of the assets of the
Company's Manufacturing Business (as defined herein) to
subsidiaries of Hutchinson Corporation (such sale, the
"Hutchinson Transaction"), effective January 19, 1996;
V. To authorize and ratify the issuance of 976,539 shares of the
Company's Series B-1 Convertible Preferred Stock (the "Series
B-1 Preferred Stock") issued in connection with the
acquisition of all the capital stock of ConnectSoft, Inc., a
Washington corporation ("Old Connectsoft"), effective July 31,
1996;
VI. To authorize and ratify the issuance of 400,000 shares of the
Company's Series B-2 Convertible Preferred Stock issued in
connection with a $10,000,000 private placement completed in
January 1997;
VII. To authorize and ratify the amendment and restatement of an
employment agreement between the Company and Robert M. Rubin;
VIII. To authorize and ratify an amendment to the Company's
Certificate of Incorporation reducing the Company's authorized
capital stock from 67,700,000 to 42,700,000 shares, reducing
the authorized Common Stock from 65,000,000 to 40,000,000
shares and removing all classifications of the Common Stock.
IX. To authorize and ratify the selection of
PricewaterhouseCoopers as auditors of the Company for the
fiscal year ending July 31, 1999 ("Fiscal 1999"); and
X. To transact such business as may properly come before the
meeting or any adjournment or adjournments thereof.
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<PAGE>
The Board of Directors has fixed Monday, January 3, 2000 as the record
date for the determination of stockholders entitled to notice of and to vote at
the meeting or any adjournment thereof. The stock transfer books of the Company
will not be closed, but only stockholders of record at the close of business on
Monday, January 3, 2000 will be entitled to vote at the meeting or any
adjournment or adjournments thereof. The approximate mailing date for proxy
materials will be Monday, January 3, 2000.
By Order of the Board of Directors
Robert M. Rubin
CHAIRMAN OF THE BOARD
WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE COMPLETE, SIGN AND RETURN YOUR
PROXY CARD PROMPTLY IN THE ENCLOSED SELF-ADDRESSED STAMPED ENVELOPE PROVIDED FOR
YOUR USE.
3
<PAGE>
AMERICAN UNITED GLOBAL, INC.
11130 NE 33RD PLACE, SUITE 250
BELLEVUE, WASHINGTON 98004
GENERAL INFORMATION CONCERNING SOLICITATION
This proxy statement (the "Proxy Statement") is furnished in connection
with the solicitation of proxies by and on behalf of the Board of Directors of
American United Global, Inc. (hereinafter referred to as the "Company" or the
"Corporation"), for its Annual Meeting of Stockholders (the "Meeting") to be
held at 10:00 A.M. on February 22, 2000, or any adjournments thereof, at the
offices of Gersten, Savage & Kaplowitz, LLP, counsel to the company ("GSK"), AT
101 East 52nd Street, New York, New York 10022. Shares cannot be voted at the
meeting unless their owner is present in person or represented by proxy. Copies
of the Notice of Annual Meeting, this Proxy Statement and the accompanying form
of proxy shall be mailed to the stockholders of the Company on or about Monday,
January 3, 2000, accompanied by a copy of the Annual Report of the Company
containing audited financial statements as of and for the Fiscal Years ended
July 31, 1999 ("Fiscal 1999") July 31, 1998 ("Fiscal 1998"), and July 31, 1997
("Fiscal 1997") and other information regarding the Company.
A quorum consisting of a simple majority of outstanding voting shares of
the Company as of the Record Date at the Annual Meeting for proposals to be
voted on and business to be transacted. The Company has a total of 12,347,148
outstanding voting shares as of December 16, 1999, which shares consist of
11,921,528.5 shares of Common Stock and 425,619.5 shares of Series B-1 Preferred
Stock. Each share of Series B-1 Preferred Stock is convertible into, and votes
as, one share of Common Stock. All voting shares will be voted together and not
by class of stock. A majority of the outstanding voting shares on the Record
Date of January 3, 2000 must be present, whether in person or by proxy, at the
Meeting for a quorum to be established. Abstentions and broker non-votes are
each included in the determination of the number of shares present and voting,
for purposes of determining the presence or absence of a quorum for the
transaction of business. Neither abstentions nor broker non-votes are counted as
votes either for or against a proposal.
If a proxy is properly executed and returned, the shares represented
thereby will be voted in accordance with the specifications made, or if no
specification is made the shares will be voted to approve each proposal and to
elect each nominee for director identified on the proxy. Any shareholder giving
a proxy has the power to revoke it at any time before it is voted by filing with
the Secretary of the Company a notice in writing revoking it. The mere presence
at the Meeting of the person appointing a proxy does not revoke the appointment.
In order to revoke a properly executed and returned proxy, the Company must
receive a duly executed written revocation of that proxy before it is voted. A
proxy received after a vote is taken at the Meeting will not revoke a proxy
received prior to the Meeting. A subsequently dated proxy received prior to the
vote will revoke a previously dated proxy.
All expenses in connection with the solicitation of proxies, including the
engagement
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<PAGE>
of a proxy solicitation firm and the cost of preparing, handling, printing and
mailing the Notice of Annual Meeting, proxies and Proxy Statements will be borne
by the Company. The Company has retained D.F. King & Co., Inc. ("DF King"), to
provide certain solicitation and advisory services in connection with such
solicitation, for which DF King will receive a fee of between approximately
$7,500 and $12,500, together with reimbursement for its reasonable out-of-pocket
expenses. Directors, officers and regular employees of the Company, who will
receive no additional compensation therefor, may solicit proxies by telephone or
personal call, the cost of which is expected to be nominal and will be borne by
the Company. In addition, the Company will reimburse brokerage houses and other
institutions and fiduciaries for their expenses in forwarding proxies and proxy
soliciting materials to their principals.
The Company did not hold its 1998 Annual Meeting of Stockholders (the
"1998 Meeting"). The Company held its 1997 Annual Meeting of Stockholders ("1997
Meeting") on February 24, 1998. Proposals III, IV, V and VI to be voted upon at
this Meeting were previously presented to stockholders for approval at the 1997
Meeting, but none of such proposals received sufficient votes to be approved.
THE DERIVATIVE ACTION
In May 1998 a purported derivative lawsuit (the "Derivative Action") was
brought on behalf of the Company against Robert M. Rubin, the Company's Chief
Executive Officer, and the Company's other directors and officers who served
between November 1996 and February 1998. The Derivative Action alleged breaches
of fiduciary duty and waste of corporate assets. Final judicial approval of a
settlement was received in August 1999, pursuant to which the Company will
receive a payment (the "Rubin Payment") of $2,800,000 from Mr. Rubin.
The settlement payments of $2,800,000 will consist of the following:
(a) the assignment by Mr. Rubin to the Company of his right to $600,000 from
Hutchinson, which is due under the Consulting Agreement and Non-Competition
Agreement, and which Mr. Rubin believes will be immediately available upon
stockholder ratification of the Hutchinson Transaction; (b) the assignment of
approximately $500,000 as the "net present value" of the remaining payments
(originally to be made in installments through 2002) due under the Consulting
Agreement and Non-Competition Agreement to Mr. Rubin; (c) the transfer by Mr.
Rubin to the Company of an account (valued at approximately $860,851 as of June
25, 1999, the date of transfer) containing both cash and unrestricted common
stock of various publicly-traded companies, with the actual value of each
component common stock to be calculated as the product of (i) the number of
shares of each security actually transferred, multiplied by (ii) the average
closing price of each security for the ten trading days preceding the date on
which the Company receives the securities account; and (d) the transfer by Mr.
Rubin to the Company of such number of shares of common stock of Response USA
("Response"), a publicly-traded company, as equals the quotient of (i) the
dollar value of the Rubin Payment after subtracting the actual value of the
payments in (a), (b) and (c)
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<PAGE>
above, divided by (ii) the average closing price of the Response common stock
during the ten trading days preceding the final judicial approval of the
Settlement. If the number of Response shares which Mr. Rubin is able to transfer
is not sufficient to pay the remainder of the settlement, Mr. Rubin shall
transfer such number of his shares of the Company's Common Stock as determined
by the same formula used for Response, or, subject to the approval of the
Company and counsel for the plaintiffs in the Derivative Action, shares of any
other publicly traded company, or cash. Hutchinson has withheld payments under
the Consulting Agreement and Non-Competition Agreement pending stockholder
ratification of the Hutchinson Transaction, pursuant to Proposal IV made hereby,
and has agreed to make these payments to the Company upon such stockholder
ratification. The payments by Hutchinson will constitute a significant portion
of the Rubin Payment.
In connection with the settlement of the Derivative Action, the Company
has agreed to (a) appoint two new independent directors to the Board of
Directors, pending stockholder approval hereby, (b) have its chief financial
officer report on the Company's financial condition and prospects at each
regular board meeting, (c) establish an audit committee of the Board of
Directors to be comprised entirely of independent directors, (d) establish a
compensation committee to be composed of a majority of independent directors,
(e) pass a board resolution regarding the review of unsolicited bona fide offers
to acquire at least a controlling stake in the Company, and (f) pass a board
resolution regarding "related party" transactions.
If the Hutchinson Transaction is ratified by the Company's stockholders,
the Company will release Mr. Rubin, the Company's Chairman and Chief Executive
Officer, from the obligation to repay a $1,200,000 principal amount promissory
note (the "Note") issued by Mr. Rubin to the Company. In return for such
release, Mr. Rubin has assigned to the Company his rights to receive payments
under the Non-Competition Agreement and Consulting Agreement with Hutchinson. In
return for his assigning to the Company his rights to receive payments from
Hutchinson under the Non-Competition Agreement and the Consulting Agreement, the
Company will agree to reduce his indebtedness under the Note by an amount equal
to the payments by Hutchinson to the Company. Hutchinson has conditioned its
payments under the Consulting Agreement and Non-Competition Agreement on
stockholder ratification of the Hutchinson Transaction. In the event the Company
stockholders do not ratify the Hutchinson Transaction, and Hutchinson does not
make its payments as owed under the Non-Competition Agreement and the Consulting
Agreement, Mr. Rubin will remain responsible for payment of $1,100,000 under the
settlement, which amount represents the Hutchinson payments of which the right
to receive such payments had been assigned to the Company.
THE CLASS ACTION
In June 1998 a stockholder class action (the "Class Action") was filed
against the Company's directors alleging breaches of fiduciary duty and loyalty
to the Company and its stockholders in connection with a letter of credit
guarantee by the Company for ERD Waste Corp.
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<PAGE>
("ERD") and the delisting of the Company's Common Stock and publicly-traded
warrants from NASDAQ in February 1998. During Fiscal 1997 the Company paid
$4,400,000 pursuant to its guarantee for ERD, which sought protection from
creditors under Chapter 11 of the federal bankruptcy laws on September 30, 1997.
Final judicial approval of a settlement was received in August 1999, pursuant to
which the Company will pay $2,500,000 (the "Class Payment") to members of the
stockholder class.
The Class Payment will be paid in the form of $600,000 in cash (consisting
of proceeds from the Company's directors' and officers' liability insurance
policy) and $1,900,000 in common stock of Western Power & Equipment Corp.
("Western") owned by the Company. The Company presently owns approximately 60.6%
of the outstanding common stock of Western and, after the Class Payment is made,
will own approximately 35% of the Western common stock. In addition, two of the
officers and directors of the Company are officers or directors of Western. As a
result, the Company will remain able to materially influence the outcome of
votes by the directors and shareholders of Western on matters before its board
of directors and shareholders. Pursuant to the settlement, the Company set aside
777,414 shares of Western common stock for transfer to the members of the
stockholder class at the direction of counsel for the plaintiff class in the
Class Action, and transferred $600,000 to such counsel's trust account for
transfer to the members of the stockholder class. The number of shares of
Western common stock to be transferred was calculated as the quotient of (i)
$1,900,000 divided by (ii) the average closing price of Western common stock
during the ten trading days preceding the final judicial approval of the
settlement of the Class Action.
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<PAGE>
OWNERSHIP OF SECURITIES
Only stockholders of record holding voting shares at the close of business
on the Record Date of January 3, 2000, the date fixed by the Board of Directors
in accordance with the Company's by-laws, are entitled to vote at the Meeting.
As of December 16, 1999, there were issued and outstanding a total of 12,347,148
voting shares of the Company, consisting of 11,921,528.5 shares of Common Stock
and 425,619.5 shares of Series B-1 Preferred Stock. Each share of the Series B-1
Preferred Stock is convertible into, and shall vote as, one share of Common
Stock. The Series B-1 Preferred Stock and Common Stock vote together as a class
and all shares thereof have one vote.
Each outstanding voting share is entitled to one vote on all matters
properly coming before the Meeting. A total of one-half of the outstanding
voting shares, plus one (or approximately 6,173,575 shares, based upon the
number of outstanding voting shares as of December 16, 1999) as of the Record
Date must be present, in person or by proxy, to establish a quorum for the
meeting.
The following table sets forth certain information as of December 16, 1999
with respect to each beneficial owner of five percent (5%) or more of the
outstanding voting shares of the Company, each officer and director of the
Company and all officers and directors as a group. The table does not include
options or SARs that have not yet vested or are not exercisable within 60 days
of the date hereof.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS* OFFICE(S) NUMBER OF VOTING SHARES PERCENTAGE OF
OF BENEFICIAL OWNER BENEFICIALLY OWNED (1) VOTING SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Robert M. Rubin Director, President, Chief 1,062,798 (2)(6) 8.1
Executive Officer
- ------------------------------------------------------------------------------------------------------------------------------------
C. Dean McLain Director, Executive 300,000 (3) 2.4
4601 N.E. 77TH Avenue Vice-President and
Suite 200 President of Western
Vancouver, WA 98662 Power and Equipment Corp.
("Western")
- ------------------------------------------------------------------------------------------------------------------------------------
Howard Katz Director 350,000 (4) 2.8
- ------------------------------------------------------------------------------------------------------------------------------------
David M. Barnes Chief Financial Officer, 300,000 (5) 2.4
Vice President of Finance
and Director
- ------------------------------------------------------------------------------------------------------------------------------------
Rubin Family Irrevocable 1,025,000(6) 8.3
Stock Trust
25 Highland Blvd.
Dix Hills, NY 11746
- ------------------------------------------------------------------------------------------------------------------------------------
Seymour Kessler Nominee for Director 250,000 (7) 2.0
- ------------------------------------------------------------------------------------------------------------------------------------
Allen Perres Nominee for Director 250,000 (7) 2.0
- ------------------------------------------------------------------------------------------------------------------------------------
All Directors and Executive 2,012,798 (9) 14.2
Officers as a Group (4 persons) (8)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* UNLESS OTHERWISE INDICATED, THE ADDRESS OF EACH SUCH BENEFICIAL OWNER IS 11130
NE 33RD PLACE, SUITE 250, BELLEVUE, WA 98004.
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(1) Pursuant to the rules and regulations of the Securities and Exchange
Commission, shares of Common Stock that an individual or group has a right
to acquire within 60 days pursuant to the exercise of options or warrants
are deemed to be outstanding for the purposes of computing the percentage
ownership of such individual or group, but are not deemed to be
outstanding for the purposes of computing the percentage ownership of any
other person shown in the table.
(2) Includes (a) 222,798 shares of Common Stock, and (b) incentive stock
options issued to Mr. Rubin under the 1996 Plan as of December 7, 1999 to
acquire 840,000 shares for five years after issuance at an exercise price
of $0.21 per share, or approximately 110% of the fair market value of the
Common Stock as of December 7, 1999. Excludes options issued to Mr. Rubin
under the 1996 Plan during 1996 to purchase an aggregate of 383,450 shares
of Common Stock at exercise prices between $3.78125 and $5.125 per share,
all of the options issued to Mr. Rubin under the Company's 1991 Stock
Option Plan (the "1991 Plan") to purchase 80,000 shares of Common Stock at
an exercise price of $3.125 per share and 126,550 shares at an exercise
price of $5.125 per share, which options were cancelled on December 7,
1999. All of the outstanding options are incentive stock options and are
presently exercisable.
(3) Includes incentive stock options to acquire 300,000 shares of Common Stock
granted to Mr. McLain under the 1996 Plan as of December 7, 1999 for five
years after issuance at an exercise price of $0.21 per share, or
approximately 110% of the closing sale price of the Common Stock as of
such date. Excludes (a) options under the 1991 Plan to purchase 36,000
shares of Common Stock at $3.125 per share, 45,000 shares of Common Stock
at $4.875 per share, and 12,500 shares of Common Stock at $3.875 per
share, and extended for an additional five years and repriced at $0.19 per
share as of December 7, 1999 and (b) non-qualified options to acquire
150,000 shares of Common Stock granted under the 1996 Plan on April 25,
1996 at an exercise price of $3.78125 per share, the fair market value of
the Common Stock on the date of grant, all of which options were cancelled
on December 7, 1999. Mr. McLain's continuing employment by the Company is
governed by the terms of his employment agreement.
(4) Includes incentive stock options granted to Mr. Katz under the 1996 Plan
as of December 7, 1999 to purchase 350,000 shares of Common Stock for five
years after issuance at an exercise price of $0.21 per share, or
approximately 110% of the closing sale price of the Common Stock as of
such date. Excludes options under the 1996 Plan to purchase 100,000 shares
at an exercise price of $5.125 per share, 100,000 shares at an exercise
price of $4.375 per share and 150,000 shares granted at an exercise price
of $3.78125, all of which were cancelled as of December 7, 1999.
(5) Includes incentive stock options granted to Mr. Barnes under the 1996 Plan
as of December 7, 1999 to purchase 300,000 shares of Common Stock for five
years after issuance at an exercise price of $0.21 per share, or
approximately 110% of the closing sale price of the Common Stock as of
such date. Excludes options under the 1996 Plan to purchase 50,000 shares
at an exercise price of $4.375 per share, 100,000 shares at an exercise
price of $5.25 per share and 50,000 shares at an exercise price of $5.125
per share, all of which were cancelled as of December 7, 1999.
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(6) Robert M. Rubin, a grantor of the Rubin Family Irrevocable Stock Trust
(the "Trust"), disclaims beneficial ownership of the shares held by the
Trust. See "Insider Participation," "Executive Compensation-Employment,
Incentive Compensation and Termination Agreements" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(7) Includes 250,000 non-qualified options to purchase Common Stock granted
under the 1996 Plan as of December 7, 1999 to each of Dr. Kessler and Mr.
Perres in consideration for their anticipated services as directors of the
Company, which options shall be exercisable at $0.21 per share only upon,
and for five years after, their election to the Board of Directors.
(8) Excludes Dr. Kessler and Mr. Perres, who are nominees for Director.
(9) See Notes (2) through (6).
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<PAGE>
MANAGEMENT
DIRECTORS, NOMINEES FOR DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth information with respect to directors,
nominees for directors, executive officers and key employees of the Company as
of December 16, 1999. There are no pending legal proceedings to which any
director, nominee for director or executive officer of the Company is a party
adverse to the Company.
NAME AGE POSITION
- ---- --- --------
Robert M. Rubin 59 Chairman of the Board of Directors,
President and Chief Executive Officer
C. Dean McLain 44 Director and Executive Vice President of
the Company; President and Chief Executive
Officer of Western
David M. Barnes 56 Vice President of Finance, Chief Financial
Officer and Director
Howard Katz 56 Director
Seymour Kessler 68 Nominee for Director (1)
Allen Perres 48 Nominee for Director (1)
- -----------------
(1) Nominee for election as a director at the Company's 1999 Annual Meeting.
ROBERT M. RUBIN. Mr. Rubin has served as the Chairman of the Board of Directors
of the Company since May 1991, and has been its Chief Executive Officer since
January 1996 to the present. Between October 1990 and January 1, 1994, Mr. Rubin
served as the Chairman of the Board and Chief Executive Officer of the Company
and its subsidiaries; from January 1, 1994 to January 19, 1996, he served only
as Chairman of the Board of the Company and its subsidiaries. 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 a subsidiary of 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 was Chairman of the Board, Chief Executive
Officer and is 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. In September 1997, ERD filed for protection under the
provisions of Chapter 11 of the federal bankruptcy act. Mr. Rubin is a former
director and Vice Chairman, and currently a minority stockholder, of American
Complex Care, Incorporated ("ACC"), a public company formerly engaged in
providing on-site health care services, including intra-dermal infusion
therapies. In April 1995, ACC, operating subsidiaries made assignments of their
assets for the benefit of creditors without resort to bankruptcy proceedings.
Mr. Rubin is also the Chairman of the Board of both Western and IDF, a
publicly-held company of which the Company is a minority stockholder. The
Company owns approximately 60.6% of the outstanding common stock of Western. Mr.
Rubin owns approximately 13% of the fully-diluted IDF common stock. Mr. Rubin is
also a director of Western (the Company's 60.6%-owned subsidiary), StyleSite
Marketing, Inc., a public company principally engaged in the women's apparel
catalog retailing business, Health at Home, Inc. and Med-Emerg, Inc., a
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publicly-held Canadian management company for hospital emergency rooms and
out-patient facilities.
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 as President of Western (a 60.6%-owned subsidiary of the Company) since
June 1, 1993. From 1989 to 1993, Mr. McLain served as Manager of Privatization
of Case Corporation. From 1985 to 1989, Mr. McLain served as General Manager of
Lake State Equipment, a distributor of John Deere construction equipment. Mr.
McLain holds a B.S. degree in Business and Economics, and a Master's of Business
Administration from West Texas State University.
DAVID M. BARNES. Mr. Barnes has served as the Chief Financial Officer of
the Company since May 15, 1996, and has been a director since November 8, 1996.
Mr. Barnes is presently the chief financial officer of Nextron Communications, a
privately-held Internet yellow pages designer and developer based in San Jose,
CA, and of Interactive Imagination, Inc., a privately-held start-up video game
developer based in Seattle, WA. Mr. Barnes served as a Director of Universal
Self Care, Inc., a distribution and retailer of products and service principally
for diabetes from May 1991 to June 1995. Mr. Barnes has been a director, the
President and a minority stockholder of ACC from October 1994 to the present. In
April 1995, ACC'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. Since January 1999 to the present Mr. Katz has been the
Chief Executive Officer of Imagine Networks, LLC, which engages in advanced
technology and software development. 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).
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<PAGE>
SEYMOUR KESSLER. Dr. Kessler is a nominee for Director of the Company.
From January 1999 to the present Dr. Kessler has been co-Managing Director of
RKP Capital Partners, a holding company for publicly and privately-held
companies. Between 1996 and the present Dr. Kessler has been an active investor
in various publicly and privately-held companies. From 1992 through 1996 Dr.
Kessler was a founder, Chief Executive Officer and a director of Princeton
Dental Management Corporation. Between 1982 and 1997 Dr. Kessler served on the
Board of Trustees of University of Health Science Center, in Des Moines, IA. Dr.
Kessler also has been a director of four nationally-chartered banks, including
serving as Vice Chairman of the Board of Directors of Peterson Bank. Dr. Kessler
is a former podiatric surgeon who since 1975 has held majority and minority
interests and actively served in over 85 partnerships, privately-held and
publicly-owned companies and institutions.
ALLEN PERRES. Mr. Perres is a nominee for Director of the Company. From
January 1999 to the present Mr. Perres has been co-Managing Director of RKP
Capital Partners, a holding company for publicly and privately-held companies.
Mr. Perres is a partner in RB Partners, Inc., an investment banking firm for
homebuilders, and has served in such capacity from 1994 to the present. Mr.
Perres co-founded and managed that firm's commercial and residential mortgage
unit, First Dearborn Mortgage Company, Inc., during such period. Mr. Perres has
a total of over 28 years' experience in private investment banking, corporate
marketing and sales consulting.
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EXECUTIVE COMPENSATION
The following table sets forth the amount of all compensation paid by the
Company for services rendered during each of Fiscal 1999, Fiscal 1998 and Fiscal
1997 to each of the Company's most highly compensated executive officers and key
employees whose total compensation exceeded $100,000, and to all executive
officers and key employees of the Company as a group.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
AWARDS
NAME AND FISCAL SALARY BONUS OTHER RESTRICTED SECURITIES LTIP ALL OTHER
PRINCIPAL YEAR ($)(1) ANNUAL STOCK UNDER- PAYOUTS COMPEN
POSITION COMPEN- AWARD(S) LYING ($) -SATION
SATION ($) OPTIONS/) ($)
($) SARS(#
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert M. Rubin 1999 375,000 -0- -0- -0- -0- -0- -0-
(2) 1998 350,000 -0- -0- -0- -0- -0- -0-
Chairman, 1997 325,000 -0- -0- -0- -0- -0- -0-
President and
Chief Executive
Officer
Howard Katz 1999 78,000 -0- 13,738 -0- -0- -0- -0-
Executive Vice- 1998 197,000 -0- -0- -0- -0- -0- -0-
President and 1997 131,968 -0- -0- -0- 200,000 -0- -0-
Director
David M. Barnes, 1999 125,000 -0- 2,000 -0- -0- -0- -0-
Chief Financial 1998 156,000 -0- -0- -0- -0- -0- -0-
Officer 1997 129,807 -0- -0- -0- 100,000 -0- -0-
C. Dean McLain 1999 290,000 -0- -0- -0- -0- -0- -0-
(3) 1998 280,000 68,935 -0- -0- -0- -0- -0-
Executive Vice 1997 268,587 18,658 -0- -0- -0- -0- -0-
President and
Director;
President of
Western
</TABLE>
(1) Includes severance payments.
(2) Includes $150,000 paid under Mr. Rubin's Consulting Agreement with Western
during Fiscal 1999, and $150,000 paid under Mr. Rubin's now-expired
employment agreement with Western during Fiscal 1997 and Fiscal 1998.
(3) All compensation paid by Western.
14
<PAGE>
STOCK OPTION PLANS
OPTION GRANTS IN FISCAL 1999
No options were issued in Fiscal 1999. However, the Board of Directors did
amend the employment agreement of Robert M. Rubin as of December 7, 1999,
pursuant to which the Company made a one-time grant of 250,000 incentive stock
options under the 1996 Plan to Mr. Rubin exercisable for five years after
issuance at $0.21 per share. See "Employment Agreements." In addition, as of
December 7, 1999 the Company cancelled all outstanding options issued under the
1996 Plan and 1991 Plan, and issued new incentive stock options under the 1996
Plan for an identical number of shares of Common Stock as were issuable upon
exercise of all such cancelled options. These new options are exercisable for
five years after the date of issuance at an exercise price of $0.21 per share,
or approximately 110% of the closing sale price of the Company's Common Stock on
December 7, 1999. The Company also issued an additional 56,500 incentive stock
options and 100,000 incentive stock options to Messrs. McLain and Barnes,
respectively, all of which options are exercisable at $0.21 per share for five
years after issuance, and 250,000 non-qualified options to each of Dr. Kessler
and Mr. Perres, all of which options are exercisable at $0.21 per share for five
years after their election to the Board of Directors.
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 (as of July 31,
1999) of unexercised options held by each such person.
AGGREGATED OPTIONS EXERCISED
IN LAST FISCAL YEAR (1999) AND FISCAL
YEAR-END OPTION VALUES
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES Options/SARs Options/SARs
ACQUIRED ON VALUE AT FY-END AT FY-END
NAME EXERCISE (#) REALIZED EXERCISABLE EXERCISABLE*
- --------------------------------------------------------------------------------
Robert Rubin -0- -0- 590,000 $0
Howard Katz -0- -0- 350,000 $0
David Barnes -0- -0- 200,000 $0
15
<PAGE>
C. Dean McLain -0- -0- 243,500 $0
THE 1996 STOCK OPTION PLAN
The Company's Board of Directors cancelled as of December 7, 1999 all
options outstanding under the Company's 1996 Stock Option Plan, adopted on April
25, 1996 and amended as of July 30, 1996 and further amended as of December 7,
1999 (the "1996 Plan") and issued new incentive stock options under the 1996
Plan for an identical number of shares of Common Stock as were issuable upon
exercise of the cancelled options. In addition, the Company issued 56,500 and
100,000 additional incentive stock options to Messrs. McLain and Barnes,
respectively, in consideration for their continued service to the Company. These
new options are exercisable for five years after the date of issuance at an
exercise price of $0.21 per share, the closing sale price of the Company's
Common Stock on December 7, 1999. The Company has also issued 250,000
non-qualified stock options to each of Dr. Kessler and Mr. Perres, which options
will vest upon their election to the Board of Directors and will be exercisable
for five years thereafter at an exercise price of $0.21 per share. As of
December 7, 1999, the directors, executive officers and nominees for election to
the Board of Directors listed below hold outstanding options to acquire shares
of Common Stock granted under the 1996 Plan, as follows:
RECIPIENT DATE OF GRANT NUMBER OF EXERCISE
(AS OF) OPTIONS PRICE
Robert M. Rubin December 7, 1999 840,000 (1) $0.21
C. Dean McLain December 7, 1999 300,000 (1) $0.21
Howard Katz December 7, 1999 350,000 (1) $0.21
David M. Barnes December 7, 1999 300,000 (1) $0.21
Seymour Kessler December 7, 1999 250,000 (2) $0.21
Allen Perres December 7, 1999 250,000 (2) $0.21
(1) These are incentive stock options and are all presently exercisable.
(2) These are non-qualified stock options and will vest only upon their election
to the Board of Directors.
On July 30, 1996, the Board of Directors amended the 1996 Plan to make all
options granted thereunder exercisable without stockholder approval. On that
date the market price of the Company's Common Stock was $6.0125 per share. As a
result of the amendment, the Company incurred a compensation charge equal to
$1,670,667, representing the aggregate value of such unexercised in-the-money
(i.e., options for which the market price of the underlying Common Stock is
above the exercise price) options issued under such option plan (including
unexercisable options) to the named persons.
AMENDMENTS TO THE EMPLOYEE STOCK OPTION PLANS
As of December 7, 1999 the Company amended the 1996 Plan to increase the
number of options issuable thereunder from 2,500,000 to 3,500,000. The Company
believes this increase will permit the Company to have the ability and
flexibility to issue options in the future to key employees in order to reward,
motivate and retain valuable personnel, and recognize and encourage their
valuable contributions and continued dedication to the Company. See "Proposal
III".
16
<PAGE>
COMPARISON OF THE FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG THE COMPANY'S COMMON
STOCK, THE NASDAQ MARKET INDEX AND A PEER GROUP CONSISTING OF THE S&P MACHINERY
(DIVERSIFIED) INDEX, SINCE DECEMBER 15, 1994
The Company presently engages in only one operating business, which it
does through its 60.6%-owned subsidiary Western. The peer group used for
purposes of this comparison is the S&P Machinery (Diversified) Index, whose
businesses are believed to be comparable to that of Western. The companies
comprising such index are: Case Corporation, Caterpillar Inc., Cooper
Industries, Deere & Co., Dover Corporation, Milacron Inc., Ingersoll Rand
Corporation, NACCO Industries, Inc. (Class A) and Timken. This comparison covers
the total return (assuming an investment of $100 in each of the following) among
the Company's Common Stock, an index representing the NASDAQ Stock Market and
the S&P Machinery (Diversified) Index over a five-year period beginning December
15, 1994 and ending December 15, 1999 and assumes the reinvestment of dividends.
COMPANY NASDAQ S&P MACHINERY
DATE COMMON STOCK STOCK MARKET (DIVERSIFIED) INDEX
12/15/94 $100.00 (1) $ 100.00 $ 100.00
12/15/95 $169.43 (2) $ 129.71 $ 123.40
12/15/96 $201.06 (3) $ 157.97 $ 159.30
12/15/97 $ 57.11 (4) $ 192.79 $ 203.46
12/15/98 $ 9.23 (5) $ 271.91 $ 169.33
12/15/99 $ 4.25 (6) $ 403.48 $ 191.44
(1) The price for the Company's Common Stock for such date was unavailable. This
comparison calculates a base price of $100 using the average ($4.71) of the high
($5.42) and low ($4.00) sale prices for the Common Stock during the second
quarter (November 1, 1994 - January 31, 1995) of the Company's fiscal year
ending July 31, 1995.
(2) This comparison uses the average ($7.98) of the high ($11.88) and low
($6.08) sale prices for the Common Stock during the second quarter (November 1,
1995 - January 31, 1996) of the Company's fiscal year ending July 31, 1996.
17
<PAGE>
(3) This comparison uses the average ($9.47) of the high ($11.375) and low
($7.563) sale prices for the Common Stock during the second quarter (November 1,
1996 - January 31, 1997) of the Company's fiscal year ending July 31, 1997.
(4) This comparison uses the average ($2.69) of the high ($3.625) and low
($1.75) sale prices for the Common Stock during the second quarter (November 1,
1997 - January 31, 1998) of the Company's fiscal year ending July 31, 1998.
(5) This comparison uses the average ($0.435) of the high ($0.59) and low
($0.28) sale prices for the Common Stock during the second quarter (November 1,
1998 - January 31, 1999) of the Company's fiscal year ending July 31, 1999.
(6) The last sale price of the Company's Common Stock quoted on the OTC Bulletin
Board on December 15, 1999 was $0.20, meaning that an investment of $100 in the
Company's Common Stock at a purchase price of $4.71 per share would have been,
on December 15, 1999, reduced to approximately $4.25, representing a price
decline of approximately 95.8%.
18
<PAGE>
EMPLOYMENT, INCENTIVE COMPENSATION AND TERMINATION AGREEMENTS
ROBERT M. RUBIN
Mr. Rubin is employed by the Company as the Chairman of the Board of
Directors of the Company and of its subsidiaries. Mr. Rubin is so employed
pursuant to an amended and restated employment agreement, dated as of June 3,
1998 and as amended as of December 7, 1999 (the "Restated Agreement"), with a
five-year term expiring December 7, 2004. The Restated Agreement provides Mr.
Rubin with a $225,000 minimum annual base salary, incentive bonuses based upon
the Company's profitability or consummation of any transactions increasing its
value, and 250,000 incentive stock options under the 1996 Plan.
The Restated Agreement provides for a base salary payable to Mr. Rubin of
a minimum of $225,000 (his base salary for Fiscal 1999) for the fiscal years
ending July 31, 2000 ("Fiscal 2000") and July 31, 2001 ("Fiscal 2001"), which
base salary shall be as determined by the Compensation Committee of the
Company's Board of Directors and ratified by a majority of the entire Board of
Directors of the Company (other than Mr. Rubin). Mr. Rubin's base salary in each
of the fiscal years ending July 31, 2000 and 2001 will be adjusted for any
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 City metropolitan area measured over the course of the immediately
preceding fiscal year. Mr. Rubin will also receive as compensation under the
Restated Agreement a one-time grant of 250,000 incentive stock options under the
1996 Plan which options are immediately exercisable at $0.21 per share
(approximately 110% of the closing sale price of the Company's Common Stock on
the OTCBB on December 7, 1999, the date of grant) for five years after the date
of grant. The Restated Agreement also provides for incentive bonuses to be paid
to Mr. Rubin of (i) a cash bonus of ten percent (10%) of the Company's net
income (the "Net Income"), including all of its consolidated subsidiaries, if
any, for any fiscal year as determined by the Company's independent auditors
using generally accepted accounting principles, consistently applied, which
bonus shall not exceed $1,000,000 for any fiscal year; and (ii) a bonus equal to
ten percent of the value of any transaction consummated by the Company which is
introduced by Mr. Rubin if, in the opinion of the independent members of the
Board of Directors of the Company, such transaction substantially improves or
increases the business, financial condition or prospects of the Company. The
bonus to be paid pursuant to clause (ii) shall be paid in such amount and type
of securities of the Company as shall be determined by the independent directors
in their sole discretion. The value of such transaction referenced in clause
(ii) shall be determined by the independent directors in their sole discretion,
who may elect, but are not obligated, to engage an independent investment
banking firm to evaluate the value of such transaction. For the purposes of
clause (ii) herein, a "transaction" shall include a private or public financing
of equity or debt securities of the Company, a merger, acquisition, exchange,
joint venture, license or other agreement or arrangement.
Mr. Rubin is also engaged by Western, the Company's 60.6%-owned
subsidiary, pursuant to a two-year Consulting Agreement, effective August 1,
1998 and expiring August 1, 2000 under which he is paid $150,000 annually plus
all authorized business expenses.
19
<PAGE>
C. DEAN MCLAIN
C. Dean McLain serves as the President and Chief Executive Officer of
Western, the Company's 60.6%-owned subsidiary, pursuant to a ten-year employment
agreement expiring July 31, 2005. This employment agreement superseded Mr.
McLain's earlier employment agreement with the Company, which is further
described below and which was terminated upon the execution of his employment
agreement with Western. Pursuant to such agreement, Mr. McLain received 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 and
$290,000 per annum in Fiscal 1999 and will receive $300,000 per annum in Fiscal
2000. For each of the fiscal years ending 2001, 2002, 2003, 2004 and 2005, 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 has been entitled to
receive bonus payments in each of the fiscal years from Fiscal 1996 through and
including Fiscal 2000, inclusive, equal to five percent (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 Western'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, which were awarded in March 1995 to Mr.
McLain under Western's 1995 Stock Option Plan, were cancelled 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 Western's common stock on
August 1, 1995. These options were subsequently repriced at $4.50 per share in
December 1995. The grant of all stock options to Mr. McLain pursuant to his
amended employment agreement was ratified at Western's 1995 Annual Meeting. 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 years from Fiscal 1996 through and including
Fiscal 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
during the nine -year period ending July 31, 2005 at $4.50 per share. Mr.
McLain's employment agreement also provides for fringe benefits as are customary
for senior executive officers in the industry in which Western operates,
including medical coverage, excess life insurance benefits and use of an
automobile supplied by Western.
20
<PAGE>
Prior to the effectiveness of Western's initial public offering, Mr.
McLain served as President and Chief Executive Officer 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. 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, as of December 7, 1999 Mr. McLain received options to
acquire 300,000 shares of the Company's Common Stock, exercisable for five years
after issuance at $0.21 per share, or approximately 110% of the closing sale
price of the Common Stock on such date. See "Executive Compensation."
HOWARD KATZ
Howard Katz is a director of the Company. Mr. Katz is presently receiving
severance payments of $78,000 per year under a severance agreement which
provides for payments over a three-year period ending in 2001. Mr. Katz received
$91,738 in salary and severance payments and other compensation during Fiscal
1999. Prior to July 31, 1998, Mr. Katz served as the Company's Executive Vice
President since April 15, 1996 and received an annual base salary of $185,000
for Fiscal 1998. See "Executive Compensation."
DAVID M. BARNES
David M. Barnes is a director and Chief Financial Officer of the Company.
In Fiscal 1999 Mr. Barnes received a base salary of $50,000 plus severance
payments aggregating $75,000 and certain executive benefits which brought his
total annual compensation for Fiscal 1999 to $127,000. In Fiscal 2000 Mr. Barnes
will continue in these capacities with a base salary of $75,000 plus certain
executive benefits. Between May 15, 1996 and July 31, 1998 Mr. Barnes was the
Company's Chief Financial Officer and received an annual salary of approximately
$150,000. In addition, Mr. Barnes received 100,000 options under the 1996 Plan
on December 7, 1999. See "Executive Compensation."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During Fiscal 1998 and Fiscal 1999 the Board of Directors' Compensation
Committee (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, has been determined by his employment agreements with the Company, which
have been approved by the Board of Directors. Mr. Rubin's agreement was amended
in December 1999 (such agreement is also referred to herein as the "Restated
Agreement") and now is for a five-year term expiring December 7, 2004.
21
<PAGE>
For information concerning Mr. Rubin's Restated Agreement, see "Employment,
Incentive Compensation and Termination Agreements." Mr. Rubin also entered into
a separate employment agreement with Western. Mr. McLain's annual compensation
was set by his amended employment agreement with Western. See "Employment,
Incentive Compensation and Termination Agreements."
No director of the Company is paid to attend Board meetings, although they
are reimbursed for their actual expenses. During Fiscal 1999, there were no
meetings of the Board of Directors and actions of the Board were taken pursuant
to resolutions approved by the unanimous written consent of the directors (not
counting abstentions). During Fiscal 1999, there were no meetings of the
Compensation Committee and all matters regarding compensation were resolved or
handled by the entire Board of Directors. 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 each presently comprised of Messrs. Rubin and Katz.
Upon the closing of the Hutchinson Transaction in January 1996, 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 was to receive payments aggregating $200,000 over a seven
year period. In addition, at the closing of the Hutchinson Transaction
Hutchinson engaged Mr. Rubin under a seven-year Consulting Agreement pursuant to
which Mr. Rubin was to receive payments aggregating $1,000,000. All payments
under the Non-Competition Agreement and Consulting Agreement, aggregating
$1,200,000 (and as to which the net present value of such payments is
approximately $1,100,000), were assigned to the Company by Mr. Rubin as at July
31, 1998 as repayment for his $1,200,000 loan. No payments have or will be made
to the Company from Hutchinson, unless and until the Hutchinson Transaction is
ratified by the Company's stockholders at this Meeting or any subsequent special
or annual meeting of Company stockholders. Hutchinson has conditioned its
payments under those agreements on stockholder ratification of the Hutchinson
Transaction.
BOARD OF DIRECTORS' REPORT ON EXECUTIVE COMPENSATION
The Board of Directors has directed the Company's policy on executive
compensation as the Board's Compensation Committee did not meet during Fiscal
1999 and has not met since. The Board believes that offering the Company's
senior executive officers employment agreements is the best way to attract and
retain highly capable employees on a basis that will encourage them to perform
at increasing levels of effectiveness and to use their best efforts to promote
the growth and profitability of the Company and its subsidiaries. Presently, the
Company has only engaged Mr. Rubin pursuant to an employment agreement (which
was amended as of December 7, 1999). Mr. McLain is under contract with the
Company's 60.6%-owned subsidiary, Western. The Company believes that its
compensation levels as to all of its employees were and are comparable to
industry standards. See "Executive Compensation-Employment, Incentive
Compensation and Termination Agreements."
In setting levels of compensation under such employment contracts and in
approving the compensation of all other Company employees, the Board of
Directors evaluates the Company's
22
<PAGE>
overall profitability, the contribution of particular individuals to the
Company's performance and industry compensation standards. A significant portion
of the maximum achievable compensation paid to Mr. Rubin under his Restated
Agreement is contingent upon the Company's profitability or consummation of any
transactions increasing its value. See "Employment, Incentive Compensation and
Termination Agreements," above.
TRANSACTIONS WITH ERD WASTE CORP.
The Company has incurred a loss of approximately $5,000,000 as a result of
certain transactions it entered into with ERD Waste Corp. ("ERD") in Fiscal
1997. On September 30, 1997, ERD filed for reorganization under Chapter 11 of
the federal bankruptcy laws. The Company has recorded a $5,000,000 net loss in
connection with these transactions, which included making available for ERD's
benefit a $4,400,000 letter of credit and making an additional $500,000 loan
during Fiscal 1997.
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, and owns approximately 25.1% of the
outstanding ERD Common Stock.
Pursuant to an agreement dated May 30, 1996 (the "ERD Agreement") between
the Company and ERD, the Company agreed to provide certain financial
accommodations to ERD by making available a $4,400,000 standby letter of credit
(the "Letter of Credit") originally issued by Citibank, N.A. ("Citibank") and
later assumed by North Fork Bank in favor of Chase Bank ( "Chase Bank") on
behalf of ERD. Chase Bank was the principal lender to ERD and its subsidiaries,
and upon issuance of the Letter of Credit, Chase Bank made available to ERD
$4,400,000 of additional funding 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.
In consideration for the Company making the Letter of Credit available,
ERD agreed that, in addition to repaying all amounts drawn under the Letter of
Credit and granting to the Company a security interest in certain machinery and
equipment of ENSA to secure such repayment, it would (i) pay all the Company's
fees, costs and expenses payable to Citibank, N.A. and others in connection with
making the Letter of Credit available, as well as all interest paid by the
Company on monies drawn upon the Letter of Credit prior to repayment by ERD, and
(ii) 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. Pursuant to the foregoing
agreement, ERD paid nothing in fees and expenses to Citibank on behalf of the
Company, but issued 100,000 shares of ERD Common Stock to the Company. ERD
Common Stock was then traded on the NASDAQ National Market and, at the time of
closing of the transaction with ERD, the closing price of ERD Common Stock, as
traded on NASDAQ was $9.25 per share.
Under the terms of an indemnity agreement, dated May 30, 1996, Robert M.
Rubin agreed to indemnify the Company for any and all of its losses resulting
from issuance of the Letter of Credit to 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
23
<PAGE>
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 any and all losses
incurred by the Company in connection with the Letter of Credit to 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. In addition, Mr. Rubin
personally guaranteed the $500,000 additional advance from the Company to ERD.
In August 1996, a subsidiary of ERD that operated a waste facility in Long
Beach, New York was cited by the New York State Department of Environmental
Conservation ("DEC") for violating certain DEC regulations. ERD and the DEC
reached an agreement in November 1996 to settle such violations, which resulted
in the closing of the Long Beach, New York facility on April 15, 1997. As a
result, the business of ERD was 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 Company demands payment
on the Letter of Credit, ERD will issue to the Company its $4,400,000 principal
amount 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
$4,400,000 principal amount of the convertible note is issued and converted into
ERD Common Stock. In addition to the collateral provided under the ERD
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.
In February 1997, the Company advanced an additional $500,000 to ERD,
payable on demand (the "Advance Loan"). The Advance Loan is secured by a
short-term promissory note, due October 5, 1997, bearing interest at two percent
(2%) above the prime lending rate of the Company's commercial bank (which was
8.5% on April 30, 1997) and a second collateral and security position on all
accounts receivable of ERD, subject to the priority interests of Chase Bank.
On September 30, 1997, ERD filed for reorganization under Chapter 11 of
the federal bankruptcy laws. On October 29, 1997, Chase Bank drew $4,400,000
from the Letter of Credit. As a result, the Company became liable to North Fork
Bank, the issuer of the Letter of Credit, for such amount, which obligation the
Company paid in full on October 31, 1997. As a result, the Company is now a
creditor in the ERD reorganization, holding approximately $5,000,000 of claims
and a lien on certain ERD assets. However, the federal bankruptcy courts will
not sustain or honor this lien on the basis of the common control between the
Company and ERD resulting from Mr. Rubin's offices with each. If the lien is not
sustained, the Company will be only a general unsecured creditor of ERD. As a
result of the foregoing development, the Company recorded a $5,000,000 net loss
in connection with the Letter of Credit and Advance Loan to ERD for the year
ended July 31, 1997. In the event that the Company does not recoup any portion
of such loss in connection with the ERD bankruptcy proceedings or otherwise, Mr.
Rubin has agreed to personally indemnify the Company
24
<PAGE>
for the first $1,600,000 of such loss.
TRANSACTIONS WITH OTHER AFFILIATES
The Company provided approximately $992,000 in financing to IDF, a
40%-owned subsidiary. These funds were used for working capital, the
payment of certain delinquent taxes and other liabilities of Hayden Wegman, an
IDF subsidiary, and costs related to the discontinuation of operations of
TechStar (also a subsidiary of IDF). The Company has now taken a full reserve
against the $992,000 in advances to IDF due to a significant decrease in revenue
sustained by IDF and IDF's inability to obtain further financing, which have
made recovery uncertain.
Lawrence Kaplan, a former director of the Company, is also a member of the
Board of Directors of IDF and directly and through affiliates owns an aggregate
of 497,859 shares of IDF common stock. In addition, GV Capital, Inc., an
affiliate of Mr. Kaplan, has acted as placement agent in connection with the IDF
private placement and received additional compensation for such services, in the
form of commission of 7.5%, a 2.5% non-accountable expense allowance and 180,000
shares of IDF common stock for nominal consideration.
Mr. Rubin is currently a director of IDF and owns 874,659 shares of IDF
common stock, representing approximately 13.0% of the currently outstanding IDF
common stock after giving effect to the IDF Merger, and including Mr. Rubin's
conversion of an $800,000 loan previously made to IDF into preferred stock
convertible into an additional 400,000 shares of IDF common stock. Subsequent
the IDF Merger, Mr. Rubin has served as Chairman of the Board of Directors of
IDF and received a three year employment agreement from IDF at an annual salary
of $75,000. However, Mr. Rubin has not received payments thereunder since
IDF's fiscal year ended July 31, 1998.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
To the knowledge of the Company, no officers, directors, beneficial owner
of more than 1 percent of any class of equity securities of the Company
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any other person subject to Section 16 of the
Exchange Act with respect to the Company, failed to file on a timely basis
reports required by Section 16(a) of the Exchange Act during the most recent
fiscal year, which ended July 31, 1999.
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ACTIONS TO BE TAKEN UNDER THE PROXY
Unless otherwise directed by the grantor of the proxy, the persons acting
under the accompanying proxy will vote the shares represented thereby: (a) for
the election of the persons named in the next succeeding table as nominees to
the Board of Directors of the Company; (b) to amend the Company's Certificate of
Incorporation to change the Company's name to "Internet-equity.com, Inc."; (c)
to authorize and ratify the Company's 1996 Employee Stock Option Plan, as
amended; (d) to ratify the Hutchinson Transaction; (e) to authorize and ratify
the issuance of 976,539 shares of the Company's Series B-1 Convertible Preferred
Stock in connection with the Old ConnectSoft acquisition; (f) to authorize and
ratify the issuance of 400,000 shares of the Company's Series B-2 Convertible
Preferred Stock; (g) to authorize and ratify an amended and restated employment
agreement between the Company and Robert M. Rubin, its Chief Executive Officer,
(h) to authorize and ratify an amendment to the Company's Certificate of
Incorporation reducing the Company's authorized capital stock from 67,700,000 to
42,700,000 shares, and reducing the authorized Common Stock from 65,000,000 to
40,000,000 shares, and removing any classifications in the Common Stock; (i) to
authorize and ratify the appointment of PricewaterhouseCoopers as the Company's
auditors for the 1999 Fiscal Year; and (j) in connection with the transaction of
such other business that may be brought before the Meeting, in accordance with
the judgment of the person or persons voting the proxy.
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PROPOSAL I. TO ELECT SIX (6) DIRECTORS TO THE BOARD OF DIRECTORS, TO HOLD OFFICE
UNTIL THE NEXT ANNUAL MEETING
NOMINEES
At the Annual Meeting six directors are to be elected to the Board of
Directors. Each director shall hold office until the next Annual Meeting of
Stockholders or until his successor is elected. The names of the six nominees
for election as directors, all of whom other than Messrs. Kessler and Perres are
incumbent directors of the Company, are set forth below. Biographical
information on each of the six candidates for election is included in
"Management." Unless authority to vote for one or more nominees is withheld, it
is intended that shares represented by proxies in the accompanying form will be
voted for the election of the following nominees. With respect to any such
nominee who may become unable or unwilling to accept nomination or election, it
is intended that the proxies will be voted for the election in his stead of such
person as the Board of Directors may recommend, but the Board does not know of
any reason why any nominee will be unable or unwilling to serve if elected.
NAME AGE POSITIONS HELD
President, Chief Executive Officer and
Robert M. Rubin............ 59 Chairman of the Board
C. Dean McLain............. 44 Executive Vice President and Director
David M. Barnes............ 56 Chief Financial Officer and Director
Howard Katz................ 56 Executive Vice President and Director
Seymour Kessler............ 68 Nominee
Allen Perres .............. 48 Nominee
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
At present the Board of Directors has three committees, the Compensation
Committee, the Audit Committee, and the Corporate Governance Committee. The
Compensation Committee reviews the compensation for all employees and the
granting of options under all of the Company's employee stock option plans that
may exist and be in effect from time to time, and consists of Dr. Kessler and
Messrs. McLain and Perres. The Audit Committee's duties include the review of
the Company's financing arrangements and a review of its internal financial
controls, and consists of Dr. Kessler and Messrs. Perres and Katz. The Corporate
Governance Committee's duties will include the review of corporate governance
matters including proposed amendments to the Certificate of Incorporation and
bylaws and the conduct of meetings of directors, committees of the Board of
Directors and of stockholders. During Fiscal 1999, the Board of Directors did
not meet and only took actions pursuant to the unanimous written consent of the
directors without a meeting. Neither the Compensation Committee nor the Audit
Committee met during Fiscal 1999 or Fiscal 1998. The Corporate Governance
Committee was recently formed in December 1999.
No director of the Company is paid to attend Board meetings, although they
are reimbursed for actual expenses related to such attendance.
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THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT YOU VOTE "FOR" ALL
SIX (6) NOMINEES FOR DIRECTOR AND APPROVE PROPOSAL I.
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PROPOSAL II. TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO CHANGE THE
COMPANY'S NAME TO "INTERNET-EQUITY.COM, INC."
At the Annual Meeting a vote will be taken on a proposal to amend the
Company's Certificate of Incorporation to change its corporate name to
"Internet-equity.com, Inc." Management believes that the Company's current name
is no longer reflective of the Company's business direction or emphasis.
Management intends that the Company will, in the future, engage in businesses
different from its present business, and that this proposed new corporate name
will more accurately reflect the different businesses and the changing business
strategy, direction and emphasis of the Company. However, there can be no
assurance that the Company will be able to engage in any such businesses. The
Company presently has no plans to commence operations in other businesses, and
has not entered into any agreements to acquire, commence or otherwise engage or
participate in such other businesses.
MANAGEMENT BELIEVES THAT THE PROPOSED CHANGE OF THE COMPANY'S CORPORATE NAME IS
IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS. THE BOARD OF
DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL II AND APPROVE THE
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION EFFECTING THE CHANGE OF
THE COMPANY'S CORPORATE NAME TO "INTERNET-EQUITY.COM, INC."
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PROPOSAL III. TO AUTHORIZE AND APPROVE THE CORPORATION'S 1996 EMPLOYEE
STOCK OPTION PLAN, UNDER WHICH STOCK OPTIONS FOR THE PURCHASE OF UP TO 3,500,000
SHARES OF COMMON STOCK WILL BE AVAILABLE.
At the Annual Meeting a vote will be taken on a proposal to ratify and
approve the creation of the Company's 1996 Employee Stock Option Plan (the "1996
Plan"). Under the 1996 Plan stock options for the purchase of up to 3,500,000
shares of Common Stock will be available for grant. The 1996 Plan was adopted by
the Board of Directors on April 25, 1996, amended on July 10, 1996 and further
amended as of December 7, 1999. A COPY OF THE 1996 PLAN, AS AMENDED, IS INCLUDED
HEREWITH AS EXHIBIT 4.1. As of December 7, 1999, options to purchase 2,290,000
shares of Common Stock in the aggregate, of which 1,790,000 are incentive stock
options, have been granted to the Company's employees, directors and outside
consultants under the 1996 Plan, and of which 250,000 non-qualified options
issued as of December 7, 1999 to each of Dr. Kessler and Mr. Perres exercisable
at $0.21 per share for five years will vest only upon their election to the
Board of Directors. Under the terms of the 1996 Plan, shareholder approval was
not required for authorization of the 1996 Plan.
The purpose of the 1996 Plan is to provide additional incentive to the
directors, officers, employees and consultants of the Company who are primarily
responsible for the management and growth of the Company. Each option shall be
designated at the time of grant as either an incentive stock option (an "ISO")
or a non-qualified stock option (a "NQSO").
The Company currently has one other employee stock option plan (the "1991
Plan"), under which as of December 7, 1999, no options were outstanding or
available for grant. See "Stock Option Plans" for information with respect to
options granted under the 1996 Plan to the Company's current directors, nominees
for director and current executive officers. Therefore, management deemed it
necessary to authorize the 1996 Plan in order to create incentives for
management and employees of the Company who are responsible for the Company's
future growth and business performance.
As of December 7, 1999 the Company cancelled all options previously
outstanding under the 1996 Plan and the 1991 Plan, issued an identical number of
new options under the 1996 Plan, all of which are exercisable for five years
after issuance at an exercise price of $0.21 per share, which was approximately
110% of the closing sale price of the underlying Common Stock on the OTCBB on
such date, and amended the 1996 Plan to increase the number of options issuable
thereunder from 2,500,000 to 3,500,000. The Company's Board of Directors decided
to take this action in order to restore the value to the options which had been
lost since their granting as a result of the steep decline in the price of the
Company's Common Stock and preserve the original function of the option grants
as a means of recognizing and rewarding those individuals whose service had been
determined to be of considerable value to the Company, and provide the Company
with the ability and flexibility to continue to reward key employees, and
recognize their contributions and encourage their continued service to the
Company, by issuing options. The Board of Directors determined that the
replacement of these options would encourage continued diligence and dedication
on behalf of the Company, and would help the Company attract and retain highly
capable employees, and motivate them to perform at increasing levels of
effectiveness and use their best efforts to promote the growth and profitability
of the Company.
The Company also granted, under the 1996 Plan, 56,500 and 100,000 new
five-year incentive stock options (not replacement options) at $0.21 per share
to Messrs. McLain and Barnes, respectively,
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as of December 7, 1999 in consideration for their continued service and
substantial contributions to the Company, and 250,000 non-qualified options to
each of Messrs. Kessler and Perres as of December 7, 1999, exercisable for five
years at $0.21 per share, in consideration for their anticipated services, but
which options will vest only upon their election to the Board of Directors.
Management believes that it is in the best interests of the Company to
obtain shareholder approval of the 1996 Plan at this time in order to (i)
provide recipients of plan options with certain benefits available under
Securities and Exchange Commission regulations (e.g., option grants are not
considered purchases of securities for purposes of determining whether certain
profits are "short swing" profits under Section 16(b) of the Exchange Act which
must be returned to the Company by corporate insiders, and (ii) provide
employees with the beneficial tax treatment accorded ISOs, which can only be
granted under the 1996 Plan if it is approved by Company stockholders. Although
other factors, principally regarding plan administration, are required for
holders of options granted under the 1996 Plan to enjoy such benefits (e.g.,
restrictions under Section 16(b) of the Exchange Act on certain purchases and
sales of securities by management personnel are relaxed), having a
shareholder-authorized stock option plan is the first requirement which must be
met. For information concerning the beneficial tax treatment accorded ISOs, see
"Tax Treatment of Options," below.
ADMINISTRATION OF THE PLAN. The 1996 Plan is administered by the full
Board of Directors or by the Compensation Committee, which determines which
eligible persons will be granted options, when options will be granted, the
number of shares to be subject to options, the durations of options, any
conditions to the exercise of options and the manner in and price at which
options may be exercised. The Compensation Committee is authorized to amend,
suspend or terminate the 1996 Plan. However, except for adjustments resulting
from changes in capitalization, the Compensation Committee requires shareholder
approval to (i) increase the maximum number of shares that may be issued
pursuant to the exercise of options granted under the 1996 Plan; (ii) grant an
option with an exercise price less than 85% of the fair market value of the
underlying Common Stock at the time of grant; (iii) change the eligibility
requirements for participation in the 1996 Plan; (iv) extend the term of any
option or the period during which any option may be granted under the 1996 Plan;
or (v) decrease an option exercise price (although an option may be cancelled
and a new option granted at a lower exercise price).
SHARES SUBJECT TO THE PLAN. The 1996 Plan currently provides that options
may be granted to purchase up to 3,500,000 shares of Common Stock, subject to
adjustment upon certain changes in capitalization without receipt of
consideration by the Company. In addition, if the Company is involved in a
merger, consolidation, dissolution or liquidation, the options granted under the
1996 Plan will be adjusted or, under certain conditions, will terminate, subject
to the right of the option holder to exercise his option or a comparable option
substituted at the discretion of the Company prior to such event. If any
unexercised option expires or terminates for any reason, the non-purchased
shares subject to such unexercised option will be available again for the
purposes of the 1996 Plan.
PARTICIPATION. Any employee, director, consultant, or representative of
the Company is eligible to receive ISOs or NQSOs granted under the 1996 Plan.
Non-employee directors, consultants or representatives may only receive NQSOs.
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OPTION PRICE. The exercise price of each option shall be determined by the
full Board of Directors or by the Compensation Committee. However, the exercise
price of each option on the date the option is granted may not be less than (i)
100% of the fair market value of the Common Stock underlying an incentive stock
option on the date of grant, or (ii) 85% of the fair market value of the Common
Stock underlying a non-qualified stock option on the date of grant. If an
incentive stock option is to be granted to an employee who holds over 10% of the
total combined voting power of all classes of the Company's capital stock, then
the exercise price may not be less than 110% of the fair market value of the
Common Stock covered by the option on the date the option is granted. As of
December 7, 1999, all outstanding options have an exercise price of $0.21 per
share which was approximately 110% of the closing sale price of $0.19 of the
Common Stock on such date.
TERMS OF OPTIONS. The full Board of Directors or the Compensation
Committee shall, in its discretion, fix the term of each option, provided that
the maximum term of an option shall be 10 years. ISOs granted to an employee who
owns over 10% of the total combined voting power of all classes of capital stock
of the Company shall expire not more than five years after the date of grant.
The 1996 Plan provides for the earlier expiration of options in the event of
certain terminations of employment of the holder. As of December 7, 1999 all
outstanding options are exercisable for five years after such date, except for
250,000 non-qualified options granted to each of Dr. Kessler and Mr. Perres
which vest only upon their election to the Board of Directors and are
exercisable for five years after their vesting at $0.21 per share.
RESTRICTIONS ON GRANT AND EXERCISE. An option may not be transferred other
than by will or the laws of descent and distribution and, during the lifetime of
the option holder, may be exercised solely by him. The aggregate fair market
value (determined at the time the option is granted) of the shares of Common
Stock as to which an employee may exercise ISOs in any one calendar year may not
exceed $100,000. The full Board of Directors or the Compensation Committee may
impose other conditions to exercise as it deems appropriate.
OPTION GRANTS. The Company has granted an aggregate of 2,290,000 options
under the 1996 Plan as of December 7, 1999, and of such amount a total of
1,790,000 options are presently exercisable.
TERMINATION. The 1996 Plan will terminate on April 25, 2006, unless
terminated earlier by the Board of Directors or the Compensation Committee.
TAX TREATMENT OF OPTIONS. Federal income tax treatment of NQSOs under the
1996 Plan is generally less favorable to employees than the tax treatment
accorded ISOs under the 1996 Plan. Whereas holders of both ISOs and NQSOs
realize taxable income when they sell the shares acquired upon exercise of the
options, holders of NQSOs also realize taxable income when they exercise their
options. However, the Company generally receives more favorable tax treatment
when it issues NQSOs, as it would be entitled to a tax deduction on each NQSO
granted. The Company's tax deductions will be equal to the grantee's realizable
income.
The Company currently has no obligation to grant additional options under
the 1996 Plan to any person, including any members of the Company's management.
MANAGEMENT BELIEVES AUTHORIZATION AND RATIFICATION OF THE
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COMPANY'S 1996 STOCK OPTION PLAN IS IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS, AND RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL III.
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PROPOSAL IV. TO AUTHORIZE AND RATIFY THE SALE IN JANUARY 1996 OF ALL OF THE
ASSETS OF THE COMPANY'S MANUFACTURING BUSINESS TO HUTCHINSON CORPORATION.
At the Annual Meeting a vote will be taken on a proposal to ratify the
sale (the "Hutchinson Transaction") in January 1996 of all of the assets of the
Company's Manufacturing Business (as defined below) to subsidiaries of the
Hutchinson Corporation ("Hutchinson"), a Delaware corporation formed for the
purpose of consummating this transaction. The Manufacturing Business of the
Company consisted of all of the businesses of American United Products, Inc.
("National O-Ring") and American United Seal, Inc. ("Stillman Seal"), which were
both wholly-owned subsidiaries of the Company. The Manufacturing Business was
sold for a purchase price ("Purchase Price") of approximately $24,328,000, of
which $20,825,000 was paid in cash and the remaining balance was paid by
delivery of two 24-month non-interest bearing promissory notes (the "Notes")
made by the Hutchinson subsidiaries that purchased the Manufacturing Business.
The Notes were guaranteed by Total America, Inc., the parent corporation of
Hutchinson whose securities are listed on the New York Stock Exchange and the
note balance of $3,503,000 at July 31, 1997 was paid in January 1998. The terms
of such sale are further discussed below.
THE SALE OF THE MANUFACTURING BUSINESS HAS ALREADY OCCURRED AND THE
COMPANY HAS ALREADY RECEIVED THE PURCHASE PRICE OF APPROXIMATELY $24,328,000. A
VOTE BY STOCKHOLDERS AGAINST RATIFICATION OF THE SALE, THE AGREEMENTS
EFFECTUATING SUCH SALE AND ANY TRANSACTIONS CONTEMPLATED THEREIN WILL NOT AFFECT
THE EFFECTIVENESS OF THE HUTCHINSON TRANSACTION OR OBLIGATE THE COMPANY TO
RETURN ANY PAYMENT OF THE PURCHASE PRICE.
The terms and conditions of the Hutchinson Transaction were set forth in
the Asset Purchase Agreement, dated as of November 22, 1995 (the "Sale
Agreement"), by and among Hutchinson as Purchaser, and the Company and its
wholly-owned subsidiaries AUG-California, Inc., National O-Ring and Stillman
Seal. 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 the operation of the Manufacturing
Business were assumed by, subsidiaries of Hutchinson which were formed for the
purpose of acquiring the Manufacturing Business.
Under the terms of the Sale Agreement, the Company agreed that as soon as
reasonably practicable following the closing of the Hutchinson Transaction (the
"Closing"), it would call a meeting of its stockholders to request that Company
stockholders ratify the Sale Agreement, the exhibits thereto (including the
non-competition agreement and the Consulting Agreement, as herein after
described) and the transactions contemplated thereby. Ratification by
stockholders was not a condition to consummation of the Hutchinson Transaction.
HUTCHINSON HAS CONDITIONED ITS PAYMENTS TO THE COMPANY ON STOCKHOLDER
RATIFICATION OF THE HUTCHINSON TRANSACTION.
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The sole purpose for shareholder ratification of the Hutchinson
Transaction, the Sale Agreement and the Exhibits thereto, and the transactions
contemplated thereby, is to receive payments from Hutchinson under the
Non-Competition Agreement and Consulting Agreements, which payments are part of
the Rubin Payment.
At the closing of the Hutchinson Transaction in January 1996 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 Manufacturing
Business acquired in the Hutchinson Transaction, and in return Mr. Rubin was to
receive payments aggregating $200,000 over a seven year period, and to provide
advisory services under the Consulting Agreement relating to the Manufacturing
Business over a seven-year period, for which advisory services Mr. Rubin was to
receive payments aggregating $1,000,000. In connection with the settlement of
the Derivative Action (as to which final judicial approval was received in
August 1999) Mr. Rubin had in July 1998 assigned to the Company his rights to
such payments aggregating $1,200,000 (and as to which the net present value is
approximately $1,100,000). If the Hutchinson Transaction is ratified by the
Company's stockholders, the Company will release Mr. Rubin from the obligation
to repay a $1,200,000 principal amount promissory note (the "Note") issued by
Mr. Rubin to the Company. In return for such release, Mr. Rubin has assigned to
the Company his rights to receive payments under the Non-Competition Agreement
and Consulting Agreement with Hutchinson. In return for his assigning to the
Company his rights to receive such payments, the Company has agreed to reduce
Mr. Rubin's indebtedness under the Note by an amount equal to the payments by
Hutchinson to the Company. Hutchinson has conditioned its payments under the
Consulting Agreement and Non-Competition Agreement on stockholder ratification
of the Hutchinson Transaction. In the event the Company stockholders do not
ratify the Hutchinson Transaction, and Hutchinson does not make payments under
the Non-Competition Agreement and the Consulting Agreement, Mr. Rubin will
remain responsible for payment of the remaining $1,100,000 of the settlement,
which amount represents the approximate current net present value of the
Hutchinson payments of which the right to receive such payments had been
assigned to the Company. For this reason, the Company is soliciting stockholder
approval of the Hutchinson Transaction.
There is no existing or, to the Company's knowledge, threatened claim for
indemnification made by Hutchinson or its affiliates against the Company under
the terms of the Sale Agreement. There is likewise no litigation, or threatened
litigation known to the Company, that is otherwise related to consummation of
the Hutchinson Transaction, including any suits or proceedings by stockholders
which alleges the unfairness of the Hutchinson Transaction to the Company, other
than the Class Action or Derivative Action described herein.
THE COMPANY HAS RECEIVED AN OPINION FROM AN INDEPENDENT THIRD PARTY THAT, BASED
UPON SUCH PARTY'S INVESTIGATION, THE CONSIDERATION TO BE PAID IN CONNECTION WITH
THE HUTCHINSON TRANSACTION WAS FAIR TO BOTH THE COMPANY AND ITS STOCKHOLDERS.
The Company believed that the Purchase Price of the Hutchinson Transaction
was fair for
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several reasons, which are explained below. In addition, the Company received an
opinion the ("Fairness Opinion") from an independent third-party which confirmed
that the consideration to be paid in connection with the Hutchinson Transaction
was fair to both the Company and its stockholders. The Company negotiated the
Purchase Price without the report or opinion of any outside party on the
Manufacturing Business in the Hutchinson Transaction. As a condition of its
purchase, however, Hutchinson required that the Company obtain such an
independent opinion to confirm that the negotiated Purchase Price (as set forth
in the Sale Agreement) was fair to the Company and its stockholders. The
Company's management does not believe that such independent opinion materially
related to the transaction insofar as it merely confirmed the fairness of the
previously established sale price for the Manufacturing Business and was not
used to establish the price for the Manufacturing Business. The contents of the
independent opinion, the investigative process performed in connection therewith
and other matters pertaining to the issuer of the opinion are discussed below.
The independent opinion was provided by Montauk Consulting, Inc.
("Montauk"). Montauk is a recently formed company with one employee who is its
managing director (the "Managing Director"). Although Montauk itself has limited
experience in valuing the fairness of transactions, the Managing Director is a
certified public accountant who has been engaged in the investment banking
industry for over 30 years and has provided asset valuations and fairness
reviews on numerous occasions, as well as court testimony in more than 70
securities litigation cases in state and federal court in support of such
valuations and reviews for a number of Fortune 500 companies. Montauk was
selected by the Company based upon the reputation of such Managing Director for
providing similar valuations which have withstood challenge.
In the past, Mr. Rubin and such Managing Director have invested together
in public and private companies and other ventures, and they have served
together on the boards of directors of certain of those entities.
In providing its fairness opinion, Montauk did the following: (i) reviewed
the terms of the Hutchinson Transaction, (ii) analyzed published financial
reports, historical earnings and stock price performance and business prospects
of the Company and its affiliates, including its periodic filings under the
federal securities laws, (iii) considered the various characteristics of the
Manufacturing Business, the relative position of the Manufacturing Business in
its industry and the future prospects of the Manufacturing Business (with
attention paid to the impact of technological developments and the potential for
additional capital requirements to support modernization and expansion), (iv)
had contacts and discussions with members of the Board of Directors regarding
the Manufacturing Business and its future, (v) studied other companies engaged
in the automotive parts and equipment business and aerospace/defense business
including competitors of the Manufacturing Business, (vi) examined the record of
trading in the Company's Common Stock, and (vii) analyzed the Company's balance
sheet and income statement ratios and compared them to the ratios of comparable
companies. There were no limitations placed upon Montauk or its Managing
Director in rendering the fairness opinion, including the scope of the
investigation made, nor were special or limiting instructions delivered to
Montauk by the Company or its affiliates with respect to its engagement. Montauk
was simply engaged to render an opinion as to whether or not the Hutchinson
Transaction, as contemplated by the Sale Agreement (including all exhibits
thereto), is fair and reasonable to the Company's stockholders.
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Based on its investigation and the processes stated above, and its Managing
Director's experience in financial and business affairs, Montauk concluded that
the terms of the Hutchinson Transaction were fair, from a financial point of
view, to the Company and to the Company's stockholders.
IN ADDITION TO ITS HAVING RECEIVED AN INDEPENDENT FAIRNESS OPINION, THE
COMPANY'S MANAGEMENT BELIEVES THAT THE PURCHASE PRICE PAID IN THE HUTCHINSON
TRANSACTION WAS FAIR TO THE COMPANY AND ITS STOCKHOLDERS FOR SEVERAL REASONS.
1. PURCHASE PRICE WAS AT A PREMIUM TO THE COMPANY'S MARKET CAPITALIZATION.
Without regard to income tax considerations, the cash portion of the
Purchase Price alone exceeded by approximately $890,000 the Company's
total market capitalization as of January 19, 1996, the date of Closing.
On such date, the last reported sale price on NASDAQ for the Common Stock
was $3.75 per share. Based upon this price the Company at such date had an
aggregate market capitalization of approximately $21,369,000. Since the
Closing, the Company's Common Stock and publicly traded warrants were
delisted from NASDAQ on February 4, 1998 for various violations of NASDAQ
rules, including (i) the Company's failure to hold annual stockholders'
meetings, in violation of NASDAQ's requirements, (ii) adopting a stock
option plan without stockholder approval, which approval is required by
NASDAQ, and (iii) the issuance of two series of preferred stock (the
Series B-1 Preferred and Series B-2 Preferred) without shareholder
approval as required for any transactions which involve the actual or
potential issuance of voting securities representing more than 20% of the
voting capital stock outstanding immediately before such transaction. The
Common Stock now trades on the OTC Bulletin Board ("Bulletin Board"). On
December 7, 1999 the last reported sale price per share of the Company's
common stock as reported on the Bulletin Board was $0.19 per share. Based
upon this price, the Company at such date had an aggregate market value
for its outstanding Common Stock of approximately $2,263,090. Therefore,
the premium of the purchase price over the Company's market capitalization
has only increased since the Hutchinson Transaction.
2. Projected Difficulty In Improving Sector Performance.
The Manufacturing Business operated in mature industries. The Company
believed that without significantly increasing its future capital
expenditures it would be difficult to improve upon its operating
performance.
3. UNCERTAIN FUTURE REVENUES FROM DEFENSE INDUSTRY.
The Manufacturing Business derived a significant amount of revenues from
defense contracts, and the future impact of federal budget constraints
upon governmental programs was uncertain to predict.
4. "Strategic Purchaser" Deemed Likely to be Competitor For Company.
The Company determined that Hutchinson was a "strategic purchaser" intent
on entering the business in which the Company's Manufacturing Business was
a part, whether by starting competing operations or acquiring existing
operations from other companies. The Company believed that Hutchinson
possessed several advantages, including being larger and better financed
than the Company, principally through its
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subsidiary relationship with Total, one of the largest petro-chemical
companies in the world. The Company believed that should Hutchinson itself
enter markets in which its subsidiaries in the Manufacturing Business
engaged instead of acquiring the Manufacturing Business itself, it would
constitute a formidable competitor in the industry to the detriment of the
Company's future operations.
5. Hutchinson Transaction Deemed to Be Best Deal Available.
The Company believed in the event it declined the Hutchinson Transaction,
it might not be able to obtain a similarly favorable price for the
Manufacturing Business if it later sought to sell it and a "strategic
purchaser" or other potential acquirer was not available or inclined to
offer an equally favorable price. In short, the Company believed that the
Purchase Price Offered by Hutchinson might constitute the best offer for
the Manufacturing Business from the standpoint of the Company and its
stockholders.
At the time that it negotiated the Purchase Price for the Hutchinson
Transaction, the Company was not actively soliciting, and was not aware of, any
other potential purchasers of the Manufacturing Business. As the Company
believed the Purchase Price offered by Hutchinson was quite favorable to the
Company and its stockholders, the Company did not actively solicit competing
offers for the Manufacturing Business at that time.
The Company entered into and consummated the Hutchinson Transaction
principally to realize additional value for its stockholders through its sale of
the Manufacturing Business for a Purchase Price which was not only mostly in
cash, but was also a premium over the net book value of the disposed assets and
a premium over the Company's market capitalization at closing (which premium has
increased greatly subsequent to the decline in the price of the Common Stock and
the delisting of the Common Stock and publicly traded warrants of the Company
from the NASDAQ National Market. The net book value of the assets sold in the
Hutchinson Transaction was equal to only approximately 87% of the net cash
proceeds constituting the Purchase Price. Management believes that the sale of
the Manufacturing Business increased shareholder value because the significant
amount of cash received therefrom by the Company permitted the acquisition of
businesses which, over the long term, either generated or were at the time of
the acquisitions expected to generate greater net income than that historically
generated by the Manufacturing Business. In addition, it was believed that the
amount of cash resources projected to be available to the Company after the
Hutchinson Transaction could enable the Company to obtain favorable pricing for
any future businesses that it decided to acquire. Finally, it was the Company's
intent at that time to acquire businesses that operate in industries whose
equity interests trade at higher multiples of net income per share in the public
securities market than the Company's securities traded historically prior to the
Hutchinson Transaction. These proposed acquisitions were viewed as holding
potential for increased shareholder value.
As a result of all of these factors regarding the Hutchinson Transaction
as well as the potential increased shareholder value from possible acquisitions
which could have been financed with the sale proceeds, management believed the
Hutchinson Transaction to be in the best interests of the Company and its
stockholders.
The sale of the assets comprising the Manufacturing Business has been
accounted for as discontinued operations.
The failure by Company stockholders to ratify the Hutchinson Transaction
will neither cause the Hutchinson Transaction to be rescinded nor affect the
effectiveness of the Hutchinson Transaction in any way.
MANAGEMENT BELIEVES THE SALE OF THE COMPANY'S MANUFACTURING BUSINESS TO
HUTCHINSON CORPORATION WAS, AND REMAINS, IN THE BEST INTERESTS OF THE COMPANY
AND ITS STOCKHOLDERS. MANAGEMENT STRONGLY RECOMMENDS THAT YOU APPROVE THIS
PROPOSAL IV RATIFYING THE HUTCHINSON TRANSACTION.
38
<PAGE>
PROPOSAL V. TO RATIFY THE ISSUANCE OF SHARES OF THE COMPANY'S SERIES B-1
CONVERTIBLE PREFERRED STOCK ISSUED IN CONNECTION WITH THE ACQUISITION OF OLD
CONNECTSOFT, EFFECTIVE AS OF JULY 31, 1996.
At the Annual Meeting a vote will be taken on a proposal to ratify the
issuance of Series B-1 Preferred Stock in connection with the Company's
acquisition of Old ConnectSoft, in order to obtain compliance with certain rules
governing the requirements for maintaining a listing upon NASDAQ. The Company's
acquisition of Old Connectsoft occurred prior to the Company's delisting from
NASDAQ in February 1998. The Company's Common Stock is currently quoted on the
OTC Bulletin Board. Ratification of this Proposal V may facilitate the Company's
ability to have its Common Stock be eligible for quotation on NASDAQ; however,
the Company has not taken any steps to reapply for quotation on NASDAQ, and
there can be no assurance that the Company will reapply for quotation or that
such application will be approved and that the Company will be quoted thereupon.
BACKGROUND
Effective July 31, 1996, the Company acquired, through a merger with an
acquisition subsidiary of the Company (the "Merger"), all of the outstanding
capital stock of Old ConnectSoft and Old ConnectSoft stockholders received, on a
pro rata basis, an aggregate of approximately 976,539 shares of the Company's
Series B-1 Preferred Stock (the "Preferred Stock"). At the Meeting, this
Proposal V to ratify the issuance of 976,539 shares of the Company's Series B-1
Convertible Preferred Stock issued in connection with the acquisition of Old
ConnectSoft, effective as of July 31, 1996, will be presented to stockholders
for a vote. As of December 16, 1999, approximately 425,619.5 shares of the
Preferred Stock remain outstanding. The terms of such issuance and the nature of
the business of Old ConnectSoft, as of the date of the Merger, are discussed
below.
OLD CONNECTSOFT BUSINESS
Prior to its acquisition by the Company, Old ConnectSoft was a provider of
communications software applications and services in the Internet industry.
Serving both businesses and consumers, Old ConnectSoft provided an integrated
array of commercial software development services, easy-to-use retail Internet
software applications, and Internet access services to facilitate the use of the
Internet and on-line services for communication and commerce. Founded in 1988,
Old ConnectSoft provided Microsoft Windows-based, enterprise-wide, connectivity
software development to some of the largest corporations in the U.S., including
MCI Communications Corporation ("MCI"), United Parcel Service of America, Inc.
("UPS"), Microsoft Corporation ("Microsoft"), International Business Machines,
Inc. ("IBM"), and Adobe Systems, Inc. ("Adobe"). In connection with such
projects, Old ConnectSoft had developed a core expertise in communications and
commerce software engineering that it had incorporated into a line of Internet
software products. E-Mail Connection, which had been Old ConnectSoft's
best-selling retail product, had its technology incorporated into proprietary
products for MCI, America Online, Prodigy, and CompuServe.
ACQUISITION TERMS
In May 1996, the Company and Old ConnectSoft executed a letter of intent
expressing the proposed terms of acquisition of Old ConnectSoft by the Company.
At this time, Old ConnectSoft was judged to be in significant financial
distress. Under the proposed terms, the Company would
39
<PAGE>
provide Old ConnectSoft prior to acquisition with an immediate working
capital infusion in the form of a $1,000,000 line of credit and up to
$5,000,000 of post-acquisition working capital financing and to support
Old ConnectSoft. At the time of consummation of the Merger, effective July
31, 1996, Old ConnectSoft received under these lines of credit
approximately $3,400,000, and the Company acquired all of the outstanding
capital stock of Old ConnectSoft and Old ConnectSoft stockholders
received, on a pro rata basis, an aggregate of approximately 976,539
shares of the Company's Series B-1 Preferred Stock. Such Preferred Stock
does not pay a dividend, is not subject to redemption, has a liquidation
preference of $3.50 per share over the Company's common stock, $.01 par
value (the "Company Common Stock"), and votes together with the Common
Stock as a single class on the basis of one vote per share. Each share of
Preferred Stock was convertible, at the holder's option, into a minimum of
one share and a maximum of three shares of Common Stock, based upon
certain criteria, as follows:
(i) Each share of Preferred Stock may be converted, at any time, into
one (1) share of Common Stock;
(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 Preferred
Stock may be converted into two shares of Common Stock; or
(b) shall equal or exceed $5,000,000, each share of Preferred
Stock may be converted into three shares of Common Stock.
To date, the Combined Pre-Tax Income threshold required for an increase in
the conversion ratio has not been met, and all conversions have been on the
original one-for-one ratio. The "Subject Entities" include Old ConnectSoft and
its consolidated subsidiaries (if any) and Exodus Technologies, Inc., a direct
majority-owned subsidiary of the Company, which has developed certain remote
access computer software originated by Old ConnectSoft. The conversion ratio of
the Preferred Stock shall be adjusted, such that each share of Preferred Stock
may be converted into three shares of 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 an aggregate
consideration of at least $5,000,000 (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 subsequent to such IPO
the Company's total market capitalization equals at least $50,000,000, or (iii)
a transaction occurs with any third party (whether tender offer, merger,
consolidation or other combination) after which no shares of Common Stock are
publicly traded on any national securities exchange or quoted on NASDAQ.
Following consummation of the Merger, the Company increased its aggregate
funding commitments to ConnectSoft and its related companies to a minimum of
$5,000,000.
SUBSEQUENT DEVELOPMENTS
40
<PAGE>
In April 1998, the Company approved a formal plan to dispose of or close
down the remaining operations of its subsidiaries constituting its "Technology
Group", including that of Old ConnectSoft. Pursuant to an agreement dated July
10, 1998 the Company agreed to sell substantially all of the assets of its
network operations center owned by Old ConnectSoft and all of the assets of its
subsidiary ConnectSoft Communications Corp. ("CCC") to eGlobe, Inc. (the "eGlobe
Acquisition"). Effective June 15, 1999, the eGlobe acquisition had been
effected. In consideration for such sale, and pursuant to amended terms of the
acquisition as of September 1999, the Company received twenty-four (24) shares
of Series K convertible preferred stock of eGlobe, Inc. ("eGlobe Preferred"),
aggregate stated value $3,000,000, and which became convertible in September
1999 into approximately 1,923,000 shares of common stock of eGlobe, Inc. In
connection with the eGlobe Acquisition, CCC received approximately $1,850,000 in
advances for working capital and eGlobe assumed approximately $4,700,000 of
CCC's liabilities and leases, most of which had been guaranteed by the Company.
The Company has realized a net gain on the eGlobe Acquisition (gain on sale less
total costs, expenses and closure costs) of approximately $1,989,000.
REASONS WHY THE BOARD BELIEVES YOU SHOULD APPROVE PROPOSAL V.
The Company seeks shareholder ratification of the issuance of the
Preferred Stock in order to comply with certain Rules of Conduct of the National
Association of Securities Dealers, Inc. ("NASD") which impose certain
requirements on companies with securities quoted on NASDAQ. NASD Rule 4460 (g)
requires that such companies solicit proxies and provide proxy statements for
all stockholders' meetings such as this Meeting. NASD Rule 4460 (i)(1)(C)(ii)(a)
requires that such companies receive shareholder approval for the acquisition of
the stock of another company if, due to the issuance of the Preferred Stock
convertible into Common Stock, such Common Stock has or will potentially have
upon issuance voting power equal to or in excess of 20% of the voting power
outstanding prior to the issuance of the Preferred Stock ("the 20% rule"). If
the Preferred Stock was converted into Common Stock at its maximum three-to-one
ratio, the holders of the Preferred Stock would have been able to vote an
aggregate of up to 2,929,617 shares of Common Stock, which constituted more than
20% of the pre-acquisition outstanding voting power of the Common Stock.
As of December 16, 1999, approximately 550,000 shares of Common Stock have
been issued pursuant to any conversion of Preferred Stock, and all remaining
approximately 425,619.5 shares of outstanding Preferred Stock may only be
converted on a one-to-one basis because the Combined Pre-Tax Income thresholds
for increasing the conversion ratio were not met. Although the aggregate of the
Common Stock issued upon previous conversions of the Preferred Stock and Common
Stock issuable upon conversion of remaining Preferred Stock will be less than
20% of the pre-acquisition outstanding voting power of the Common Stock, the
potential three-for-one conversion ratio triggered the 20% rule.
The Company's Common Stock is currently quoted on the OTC Bulletin Board.
The Common Stock previously was quoted on the NASDAQ National Market prior to
its delisting in February 1998 due to (i) the Company's failure to hold
regularly scheduled stockholders' meetings in violation of NASDAQ's
requirements, (ii) adopting a stock option plan without stockholder approval as
required by NASDAQ, and (iii) the issuance of two series of preferred
41
<PAGE>
stock (the Series B-1 Preferred Stock and Series B-2 Preferred Stock) without
shareholder approval as required for any transactions which involve the actual
or potential issuance of voting securities representing more than 20% of the
voting capital stock outstanding immediately before such transaction. Compliance
with the 20% rule may assist the Company in obtaining listing on NASDAQ in the
future if the Company pursues such listing (and meets various other
requirements). However, the Company has not taken any steps to reapply for
quotation on NASDAQ, and there can be no assurance that the Company will reapply
for quotation or that such application will be approved and that the Company
will be quoted thereupon.
THE FAILURE OF COMPANY STOCKHOLDERS TO RATIFY THE ISSUANCE OF COMPANY
SERIES B-1 PREFERRED STOCK TO OLD CONNECTSOFT STOCKHOLDERS IN CONNECTION WITH
THE MERGER WILL NEITHER CAUSE THE OLD CONNECTSOFT MERGER TO BE RESCINDED NOR
AFFECT THE EFFECTIVENESS OF THE OLD CONNECTSOFT MERGER IN ANY WAY.
THE SOLE PURPOSE FOR SHAREHOLDER RATIFICATION OF THE ISSUANCE OF SERIES
B-1 PREFERRED STOCK TO OLD CONNECTSOFT STOCKHOLDERS IS TO COMPLY WITH THE NASD
MARKETPLACE RULES 4460(G) AND 4460(I) IN THE EVENT THE COMPANY APPLIES TO LIST
ITS SECURITIES ON NASDAQ. THOSE RULES REQUIRE THE COMPANY TO MAKE ANNUAL
SOLICITATIONS OF PROXIES FOR VOTING AT ANNUAL SHAREHOLDER MEETINGS, AND TO SEEK
SHAREHOLDER APPROVAL OF COMPANY ISSUANCES IN ANY SINGLE TRANSACTION OF VOTING
SECURITIES WHICH ENTITLE THE HOLDERS THEREOF TO CAST TWENTY PERCENT (20%) OR
MORE OF THE VOTES AT A MEETING OF STOCKHOLDERS.
The failure by Company stockholders to ratify the issuance of Series B-1
Preferred Stock to Old ConnectSoft stockholders will not cause the Old
ConnectSoft Merger to be rescinded, affect the effectiveness of the Old
ConnectSoft Merger, or otherwise affect any subsequent action taken with regard
to Old ConnectSoft (including the "eGlobe Acquisition") in any way. However, as
the Company was in violation of the NASD's Marketplace Rules at the time the
Preferred Stock was issued, the failure to ratify the issuance of the Preferred
Stock now may affect the Company's ability to have its securities quoted on
NASDAQ if the Company so applies in the future, of which there can be no
assurance. The Board of Directors has no plans to change any of its prior
actions with respect to Old ConnectSoft should Company stockholders fail to
ratify the issuance of Series B-1 Preferred Stock to Old ConnectSoft
stockholders.
There is or has been no pending or threatened litigation, known to the
Company, that is in any way related to consummation of the Old ConnectSoft
Merger, other than an action commenced in the United States District Court for
the Western District of Washington by Prudential Securities Incorporated
("Prudential") seeking an investment banking fee of approximately $550,000 in
connection with the Old ConnectSoft Merger, and which was subsequently settled
for approximately $325,000 during Fiscal 1998.
MANAGEMENT BELIEVES THAT IT IS IN THE BEST INTERESTS OF THE COMPANY AND
ITS STOCKHOLDERS THAT STOCKHOLDERS RATIFY THE
42
<PAGE>
ISSUANCE OF SERIES B-1 PREFERRED STOCK TO OLD CONNECTSOFT STOCKHOLDERS, AND
RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL V .
43
<PAGE>
FINANCIAL INFORMATION CONCERNING OLD CONNECTSOFT ACQUISITION
CONNECTSOFT, INC.
FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT ACCOUNTANTS
AS OF DECEMBER 31, 1995
AND 1994 AND FOR EACH OF THE THREE
YEARS ENDED DECEMBER 31, 1995
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,
stockholders' 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
44
<PAGE>
CONNECTSOFT, INC.
BALANCE SHEETS
<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 .............................................. -- 881,805
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
========= =========
LIABILITIES AND Stockholders= EQUITY (DEFICIT)
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
45
<PAGE>
Total liabilities ....................................... 9,525,919 3,624,646
Commitments and contingencies
Stockholders= equity (deficit):
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 stockholders= equity (deficit) ......................... (5,049,134) 1,389,099
Total liabilities and stockholders= equity (deficit) ......... 4,476,785 5,013,745
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
46
<PAGE>
CONNECTSOFT, INC.
NOTES TO FINANCIAL STATEMENTS
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:
- --------------------------------------------------------------------------------
1995 1994
---- ----
- --------------------------------------------------------------------------------
Materials ...................................... $ 211,124 $164,914
- --------------------------------------------------------------------------------
Finished goods ................................. 14,157 45,843
- --------------------------------------------------------------------------------
Obsolescence allowance ......................... (89,956) --
- --------------------------------------------------------------------------------
RESTRICTED CASH ................................ $ 135,325 $210,757
========= ========
- --------------------------------------------------------------------------------
At December 31, 1994 the Company had a certificate of deposit in the
amount of $500,000
47
<PAGE>
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.
CONNECTSOFT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (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.
48
<PAGE>
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.
CONNECTSOFT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (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.
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<PAGE>
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:
- --------------------------------------------------------------------------------
1995 1994
---------- ----------
- --------------------------------------------------------------------------------
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 doubtful accounts .................... (134,279) (4,000)
---------- ----------
- --------------------------------------------------------------------------------
$ 303,281 $1,796,633
========== ==========
- --------------------------------------------------------------------------------
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.
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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.
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<PAGE>
CONNECTSOFT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTS RECEIVABLE: (CONTINUED)
Approximately $2,775,000 and $2,015,000 of accounts receivable were sold
during 1995 and 1994, respectively.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following at December 31:
- --------------------------------------------------------------------------------
1995 1994
---------- ----------
- --------------------------------------------------------------------------------
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
========== ==========
- --------------------------------------------------------------------------------
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 expenses 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.
52
<PAGE>
On November 1, 1995, the Company entered into another loan agreement with
the major customer for additional borrowing 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 shareholder. 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.
53
<PAGE>
CONNECTSOFT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT:
At December 31, 1994 long-term debt was as follows:
- --------------------------------------------------------------------------------
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
=========
- --------------------------------------------------------------------------------
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:
- --------------------------------------------------------------------------------
CAPITAL OPERATING
LEASES LEASES
- --------------------------------------------------------------------------------
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
---------- -----------
- --------------------------------------------------------------------------------
Lease amount representing interest ............. (404,489)
-----------
- --------------------------------------------------------------------------------
54
<PAGE>
Present value of net minimum lease payment ..... $ 2,104,877
-----------
- --------------------------------------------------------------------------------
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.
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:
- --------------------------------------------------------------------------------
DECEMBER 31,
- --------------------------------------------------------------------------------
1995 1994
----------- ---------
- --------------------------------------------------------------------------------
Deferred Income tax assets:
- --------------------------------------------------------------------------------
Tax loss carry forwards ....................... $ 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)
----------- ---------
- --------------------------------------------------------------------------------
55
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Net deferred income tax assets ................... $-- $--
=========== =========
- --------------------------------------------------------------------------------
As a result of the acquisition of the Company by American United Global,
Inc. in 1996 (see Note 12), here is a limitation of use on the Company's tax
loss carry forward. 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 carry forward of approximately
$6,406,000 with expiration dates through fiscal year 2010.
9. CAPITAL STOCK:
RECAPITALIZATION: Effective September 23, 1993, the stockholders 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 stockholders.
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.
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 stockholders 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
56
<PAGE>
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
stockholders 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 that provide for non-qualified 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.
Stock option activity and option price information for the years ended
December 31, 1995, 1994 and 1993, is summarized as follows:
- --------------------------------------------------------------------------------
OUTSTANDING STOCK
OPTIONS
- --------------------------------------------------------------------------------
OPTION
NUMBER OF 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
- --------------------------------------------------------------------------------
Cancelled ............................... (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) $0.67-0.83
- --------------------------------------------------------------------------------
57
<PAGE>
- --------------------------------------------------------------------------------
Cancelled ............................... (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) $0.01-0.83
- --------------------------------------------------------------------------------
Cancelled ............................... (364,652) $0.20-2.80
---------- ----------
- --------------------------------------------------------------------------------
Balance, December 31, 1995 ................... 1,965,470 $0.01-2.80
- --------------------------------------------------------------------------------
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 stockholders 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 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.
58
<PAGE>
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.
59
<PAGE>
AMERICAN UNITED GLOBAL, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
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.
UNAUDITED COMBINED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PRO FORMA
- ---------------------------------------------------------------------------------------------------------
CONNEC ADJUST-
AUGI TSOFT MENTS 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
------------- ----------- ------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
(Loss) from continuing operations
before income taxes and
minority interest ................... (8,318,000) (6,967,000) (803,000) (16,088,000)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Provision for income taxes .......... 890,000 890,000
------------- ------------
- ---------------------------------------------------------------------------------------------------------
(9,208,000) (6,967,000) (803,000) 16,978,000
- ---------------------------------------------------------------------------------------------------------
Minority interest in earnings of
consolidated subsidiaries ........... 402,000 402,000
- ---------------------------------------------------------------------------------------------------------
(Loss) from continuing operations ... (9,610,000) (6,967,000) (803,000) (13,674,000)
- ---------------------------------------------------------------------------------------------------------
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 operations ... $ (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>
61
<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 has not been included in the results of operations of ConnectSoft.
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 form 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.
62
<PAGE>
PROPOSAL VI. TO RATIFY THE ISSUANCE OF 400,000 SHARES OF THE COMPANY'S SERIES
B-2 CONVERTIBLE PREFERRED STOCK ISSUED IN CONNECTION WITH A $10,000,000 PRIVATE
PLACEMENT COMPLETED IN JANUARY 1997.
At the Annual Meeting a vote will be taken on a proposal to ratify the
issuance of Series B-2 Convertible Preferred Stock in connection with a private
placement of the Company in January 1997. The Company seeks to obtain
shareholder ratification of this issuance in order to ensure the Company's
compliance with the NASD's 20% rule (as defined in Proposal V). The Company's
Common Stock is currently quoted on the OTC Bulletin Board. Ratification of this
Proposal V may facilitate the Company's ability to have its Common Stock be
eligible for quotation on NASDAQ; however, the Company has not taken any steps
to reapply for quotation on NASDAQ, and there can be no assurance that the
Company will reapply for quotation or that such application will be approved and
that the Company will be quoted thereupon.
On January 8, 1997, the Company completed a private placement (the "Series
B-2 Placement") of 400,000 shares of Series B-2 Preferred Stock, paying a 7%
cumulative quarterly dividend with a liquidation preference of $25.00 per share
over the common stock (the "Series B-2 Preferred Stock"), to eleven (11)
unaffiliated purchasers for an aggregate purchase price of $10,000,000. The
Company realized net proceeds of approximately $9,200,000 from the Series B-2
Placement. Investors in the Series B-2 Placement also received an aggregate of
350,000 warrants (the "Private Placement Warrants") to purchase Common Stock at
an exercise price of $8.58 per share for five years after issuance. The exercise
price was determined by the average daily closing bid price for the Common Stock
on NASDAQ for the ten (10) trading days immediately preceding the closing date
for subscriptions in the Series B-2 Placement (the "Closing Date Average
Price"). The Company engaged in the Series B-2 Placement in order to raise
additional capital with which to finance its acquisition program and the ongoing
operations and capital requirements of Old ConnectSoft and Exodus, which were
acquired by the Company in July 1996.
The Series B-2 Preferred Stock provided for a discount conversion feature
which was accounted for as an imputed dividend to holders. All dividends were
paid as a total of 12,221 additional shares of Series B-2 Preferred Stock. All
Series B-2 Preferred Stock was converted into approximately 2,616,000 shares of
Common Stock at conversion prices between $3.31 and $5.37 per share by September
1997. There are presently, and since September 1997 have been, no outstanding
shares of Series B-2 Preferred Stock.
Shares of the Series B-2 Preferred Stock were initially convertible by the
holders into an aggregate of 1,165,501 shares of Company Common Stock, 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
Series B-2 Preferred Stock conversion rate, the Average Price
63
<PAGE>
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 Series B-2 Preferred
Stock, the anniversary of such sale, or the conversion date, as the case may be.
At the Company's option, dividends on the Series B-2 Preferred Stock could be
paid in cash or in additional shares of Series B-2 Preferred Stock. The Company
declared and paid dividends by distributing 12,221 additional shares of Series
B-2 Preferred Stock in the aggregate to holders of the Series B-2 Preferred
Stock.
Pursuant to the terms of the 1997 Private Placement, the Company filed a
registration statement with the Securities and Exchange Commission (the
"Commission") to register the shares of Common Stock issuable upon exercise of
the Private Placement Warrants and upon conversion of the Series B-2 Preferred
Stock. Such registration statement was declared effective by the Commission on
May 7, 1997. Subsequent to such date, there was a significant decline in the per
share trading price of the Common Stock. All 412,221 shares of the Series B-2
Preferred Stock issued in the 1997 Private Placement, including shares issued as
dividends, were converted into an aggregate of 2,631,125 shares of Common Stock.
REASONS WHY THE BOARD OF DIRECTORS ADVISES THAT YOU APPROVE PROPOSAL VI.
The Company seeks to obtain shareholder ratification of the issuance of
Series B-2 Preferred Stock in order to ensure the Company's compliance with the
NASD's 20% rule (as defined in Proposal V). Such compliance may facilitate the
Company's potential future efforts to obtain approval for its securities to be
quoted on NASDAQ, but as to such approval or efforts there can be no assurance.
Those rules require the Company to make annual solicitations of proxies for
voting at annual stockholder meetings, and to seek stockholder approval of any
company issuance in any single transaction of voting securities which entitle or
have the potential to entitle the holders thereof to vote at least twenty
percent (20%) of the voting shares outstanding prior to such issuance at a
meeting of stockholders. There can be no assurance, however, that the Company
will seek or obtain such approval.
Stockholder ratification of the issuance of Series B-2 Preferred Stock in
connection with the 1997 Private Placement is not necessary to ensure the
effectiveness of that issuance or of any transactions subsequent thereto
involving the Series B-2 Preferred Stock. If this issuance is not ratified,
neither the Series B-2 Preferred Stock nor the Common Stock issued upon the
conversion thereof will be subject to rescission.
MANAGEMENT BELIEVES THAT IT IS IN THE BEST INTERESTS OF THE COMPANY AND
ITS STOCKHOLDERS THAT STOCKHOLDERS RATIFY THE ISSUANCE OF SERIES B-2 PREFERRED
STOCK IN CONNECTION WITH THE 1997 PRIVATE PLACEMENT, AND RECOMMENDS THAT YOU
VOTE "FOR" PROPOSAL VI.
64
<PAGE>
PROPOSAL VII. TO RATIFY AND AUTHORIZE THE AMENDMENT AND RESTATEMENT OF AN
EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND ITS CHIEF EXECUTIVE OFFICER, ROBERT
M. RUBIN.
At the Annual Meeting a vote will be taken on a proposal to ratify and
authorize an amended and restated employment agreement between the Company and
its Chief Executive Officer, Robert M. Rubin.
The Board of Directors in December 1999 approved a resolution by unanimous
written consent (with Mr. Rubin abstaining) amending the employment agreement
(the agreement as currently in force, the "Restated Agreement") between the
Company and Mr. Rubin. The Restated Agreement provides Mr. Rubin with an annual
minimum base salary of $225,000, incentive bonuses and cost-of-living
adjustments, and a one-time grant of 250,000 incentive stock options under the
1996 Plan to purchase Common Stock for five years after issuance (as of December
7, 1999) at $0.21 per share. Since Fiscal 1998 the Board of Directors'
Compensation Committee, which may typically decide such matters, did not meet,
and during and since this time the entire Board of Directors decided all
compensation matters relating to the Company's executive officers.
Under the Restated Agreement Mr. Rubin shall receive a base salary of at
least $225,000 (his base salary for Fiscal 1999) for the fiscal years ending
July 31, 2000 ("Fiscal 2000") and July 31, 2001 ("Fiscal 2001"), which base
salary shall be as determined by the Compensation Committee of the Company's
Board of Directors and ratified by a majority of the entire Board of Directors
of the Company (other than Mr. Rubin). Mr. Rubin's base salary in each of Fiscal
2000 and Fiscal 2001 will be adjusted for any 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 City metropolitan area
measured over the course of the immediately preceding fiscal year. Mr. Rubin
will also receive as compensation under the Restated Agreement incentive bonuses
of (i) a cash bonus of ten percent (10%) of the Company's Net Income, including
all of its consolidated subsidiaries, if any, for any fiscal year as determined
by the Company's independent auditors using generally accepted accounting
principles, consistently applied, which bonus shall not exceed $1,000,000 for
any fiscal year; and (ii) a bonus equal to ten percent of the value of any
transaction consummated by the Company which is introduced by Mr. Rubin if, in
the opinion of the independent members of the Board of Directors of the Company,
such transaction substantially improves or increases the business, financial
condition or prospects of the Company. The bonus to be paid pursuant to clause
(ii) shall be paid in such amount and type of securities of the Company as shall
be determined by the independent directors in their sole discretion. The value
of such transaction referenced in clause (ii) shall be determined by the
independent directors in their sole discretion, who may elect, but are not
obligated, to engage an independent investment banking firm to evaluate the
value of such transaction. For the purposes of clause (ii) herein, a
"transaction" shall include a private or public financing of equity or debt
securities of the Company, a merger, acquisition, exchange, joint venture,
license or other agreement or arrangement. Mr. Rubin also received, as of
December 7, 1999, 250,000 incentive stock options under the 1996 Plan to
purchase Common Stock which are exercisable for five years at $0.21 per share.
During Fiscal 1998 and Fiscal 1999, other than Messrs. Rubin and McLain,
who during such time were officers and members of the Board of Directors, no
officers or employees of the Company or any subsidiary participated in the
Board's compensation decisions. In Fiscal 1998 and Fiscal
65
<PAGE>
1999, other than Mr. Rubin, no Compensation Committee member was 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 presently each comprised of Messrs. Rubin and Katz.
Mr. Rubin is also engaged by Western, the Company's 60.6%-owned
subsidiary, pursuant to a two-year Consulting Agreement, effective August 1,
1998 and expiring August 1, 2000 under which he is paid $150,000 annually plus
all authorized business expenses.
REASONS WHY THE BOARD OF DIRECTORS ADVISES THAT YOU APPROVE PROPOSAL VII.
The Board of Directors decided to amend Mr. Rubin's employment agreement
in order to recognize the considerable value, service and dedication of Mr.
Rubin to the Company and to further encourage his continued efforts in
attempting to restore and add value to the Company and to its publicly-traded
securities. The Board of Directors also determined that the amendment of his
agreement would encourage his continued diligence and dedication on behalf of
the Company and would help the Company attract and retain other highly capable
employees as well as motivate them to perform at increasing levels of
effectiveness and use their respective best efforts to promote the growth and
profitability of the Company.
MANAGEMENT BELIEVES THE AMENDMENT OF THE RESTATED AGREEMENT TO BE IN THE BEST
INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS THAT YOU VOTE "FOR"
PROPOSAL VII.
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PROPOSAL VIII. TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO REDUCE THE
COMPANY'S AUTHORIZED CAPITAL STOCK FROM 67,700,000 TO 42,700,000 SHARES, TO
REDUCE THE AUTHORIZED COMMON STOCK FROM 65,000,000 TO 40,000,000 SHARES AND TO
REMOVE ANY CLASSIFICATIONS IN THE COMMON STOCK.
At the Annual Meeting a vote will be taken on a proposal to amend the
Company's Certificate of Incorporation to reduce the Company's authorized
capital stock from 67,700,000 to 42,700,000 shares, to reduce the authorized
Common Stock from 65,000,000 to 40,000,000 shares and to remove any
classifications in the Common Stock.
Management proposes that the stockholders ratify and approve amendments to
the Company's Certificate of Incorporation effecting a reduction in the
Company's authorized capital stock from 67,700,000 to 42,700,000 shares, and a
reduction in the Company's authorized Common Stock from 65,000,000 to 40,000,000
shares, and the removal of any classifications in the Common Stock. All of the
reductions in the Company's capital stock will represent a share-for-share
reduction in the amount of authorized Common Stock, and will represent all
shares of Class B Common Stock. The Company amended its Certificate of
Incorporation in June 1998 to classify its existing Common Stock as Class A
Common Stock (and to increase the number of shares of such class from 20,000,000
to 40,000,000) and create a new class of common stock, which it designated Class
B Common Stock, containing non-voting shares which were to be issued in
connection with one contemplated transaction which was not consummated. The
Company will not complete or pursue such transaction and believes it has no
other reason to cause Class B Common Stock to remain existing. No shares of
Class B Common Stock are issued and outstanding and there are no outstanding or
authorized securities of the Company convertible into, or which upon exercise
would cause the issuance of, Class B Common Stock. Management also proposes that
all classifications of the Common Stock be removed as it believes that the
Company has no reason to have separate classes of Common Stock. In addition, the
reductions in such authorized capital stock and Common Stock will permit the
Company to reduce its franchise tax liability to the state of Delaware, in which
the Company is incorporated and which assesses a franchise tax based upon the
amount of authorized capital stock. Furthermore, management believes that after
these reductions are effected, the Company will still have sufficient authorized
but unissued and unreserved Common Stock so as to permit the Company to issue
Common Stock in order to raise additional capital through public and private
equity financings, engage in mergers and acquisitions, reward key officers and
employees, and retire certain indebtedness. Management believes that these
reductions will not impair the Company's ability to engage in the foregoing
transactions.
If this proposal is approved, the Company will amend its Certificate of
Incorporation to remove all references to Class B Common Stock. All presently
issued and outstanding shares of Common Stock had previously been designated as
Class A Common Stock pursuant to an amendment to its Certificate of
Incorporation filed in June 1998. THE REMOVAL OF THE CLASSIFICATION WILL MEAN
THAT ALL REFERENCES TO CLASS A COMMON STOCK SHALL THEREAFTER BE DEEMED TO BE
REFERENCES TO COMMON STOCK. The proposed amendment will affect only the
designation name of the outstanding Common Stock and will not impair, affect or
otherwise change the rights, privileges, powers or other aspects of such Common
Stock. All references herein to "Common Stock" are made, except as specifically
mentioned otherwise, to the Company's capital stock designated as Class A Common
Stock subsequent to the June 1998 amendment to its Certificate of Incorporation.
THE AMENDMENT REMOVING THE CLASSIFICATION OF THE COMMON STOCK AND CHANGING
THE NAME OF THE CLASS A COMMON STOCK TO
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"COMMON STOCK" WILL NOT IMPAIR, AFFECT OR OTHERWISE CHANGE THE RIGHTS,
PRIVILEGES, POWERS OR OTHER ASPECTS OF SUCH SHARES OF THE COMMON STOCK.
This amendment will only reduce the number of authorized shares of Common
Stock and declassify the Common Stock, and will not affect the rights, powers
and privileges of the holders of any Common Stock.
MANAGEMENT BELIEVES THAT THESE REDUCTIONS IN THE COMPANY'S AUTHORIZED CAPITAL
STOCK AND COMMON STOCK, AND THE REMOVAL OF CLASSIFICATIONS OF THE COMMON STOCK,
WILL NOT AFFECT ANY RIGHTS, POWERS OR PRIVILEGES OF ANY OUTSTANDING COMMON STOCK
AND WILL BE IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS. THE BOARD
OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THIS PROPOSAL VIII.
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PROPOSAL IX. TO RATIFY THE APPOINTMENT OF INDEPENDENT AUDITORS FOR THE FISCAL
YEAR ENDING JULY 31, 1999.
At the Annual Meeting a vote will be taken on a proposal to ratify the
appointment by the Board of Directors of PricewaterhouseCoopers, LLP,
independent certified public accountants, as the independent auditors of the
Company for Fiscal 1999. PricewaterhouseCoopers, LLP has no interest in or any
relationship with the Company except as its auditors.
A representative of PricewaterhouseCoopers, LLP, will be present at the
Annual Meeting and will be given an opportunity to make a statement to the
stockholders if he so desires. The representative will also be available to
respond to questions from stockholders at the Annual Meeting.
MANAGEMENT BELIEVES THE APPOINTMENT OF PRICEWATERHOUSECOOPERS, LLP, AS ITS
INDEPENDENT AUDITOR TO BE IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS AND RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL IX.
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OTHER BUSINESS
While management of the Company does not know of any matters which may be
brought before the Meeting other than as set forth in the Notice of Meeting, the
proxy confers discretionary authority with respect to the transaction of any
other business. It is expected that the proxies will be voted in support of
management on any question which may properly be submitted to the meeting.
INCLUSION OF STOCKHOLDER PROPOSALS IN THE COMPANY'S PROXY STATEMENT.
If any shareholder desires to put forth a proposal to be voted on at the
2000 Annual Meeting of Stockholders and wishes that proposal to be included in
the Company's Proxy Statement to be delivered to stockholders in connection with
such meeting, that shareholder must cause such proposal to be received by the
Company at its principal executive offices no later than September 1, 2000. Any
request for such a proposal should be accompanied by a written representation
that the person making the request is a record or beneficial owner of the lesser
of at least one percent (1%) of the outstanding shares of the Company's Common
Stock or $2,000 in market value of the Company's common shares and has held such
shares for a least one year prior to the date on which you submit your proposal,
as required by the Proxy Rules of the Securities and Exchange Commission.
AVAILABILITY OF REPORT ON FORM 10-K.
THE COMPANY WILL PROVIDE, WITHOUT CHARGE, TO ANY STOCKHOLDER UPON WRITTEN
REQUEST, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED JULY 31, 1999 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
Any request for a copy of the Report on Form 10-K should include a
representation that the person making the request was the beneficial owner, as
of the record date, of securities entitled to vote at the Annual Meeting of
Stockholders. Such request should be addressed to: American United Global, Inc.,
11130 NE 33rd Place, Suite 250, Bellevue, Washington 98004; Attention:
Secretary.
PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY
IN THE ENVELOPE PROVIDED FOR SUCH PURPOSE.
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Exhibit List
------------
4.1 1996 Stock Option Plan, as amended (1)
10.1 Employment Agreement with Robert M. Rubin, dated as of December 7,
1999 (1)
- ----------
(1) Filed herewith
72
EXHIBIT 4.1
AMERICAN UNITED GLOBAL, INC.
1996 EMPLOYEE STOCK OPTION PLAN
1. PURPOSES
The purposes of the American United Global, Inc. 1996 Employee Stock
Option Plan (the "Plan") are to aid American United Global, Inc. and its
"subsidiaries" or "parents" (as defined under the federal securities laws)
(together the "Company") in attracting and retaining highly capable employees
and to enable selected key employees and consultants or other representatives of
the Company to acquire or increase ownership interest in the Company on a basis
that will encourage them to perform at increasing levels of effectiveness and
use their best efforts to promote the growth and profitability of the Company.
Consistent with these objectives, this Plan authorizes the granting to selected
key employees and consultants of options to acquire shares of the Company's
voting Common Stock, par value $.01 per share (the "Common Stock"), pursuant to
the terms and conditions hereinafter set forth.
Options granted hereunder may be (i) "Incentive Options" (which term, as
used herein, shall mean options that are intended to be "incentive stock
options" within the meaning of Code Section 422), or (ii) "Non-Qualified
Options" (which term, as used herein, shall mean options that are not intended
to be Incentive Options).
2. EFFECTIVE DATE
Following approval by the holders of a majority of the outstanding shares
of common stock, this Plan shall become effective as of April 25, 1996 (the
"Effective Date").
3. ADMINISTRATION
(a) This Plan shall be administered by a committee (the "Committee")
consisting of not less than two members of the Board of Directors of the Company
(the "Board of Directors"), who are selected by the Board of Directors. If, at
any time, there are less than two members of the Committee, the Board of
Directors shall appoint one or more other members of the Board of Directors to
serve on the Committee. All Committee members shall serve, and may be removed,
at the pleasure of the Board of Directors.
(b) A majority of the members of the Committee (but not less than two)
shall constitute a quorum, and any action taken by a majority of such members
present at any meeting at which a quorum is present, or acts approved in writing
by all such members, shall be the acts of the Committee.
(c) Subject to the other provisions of this Plan, the Committee shall
have full authority to decide the date or dates on which options (the "Options")
to acquire shares of Common Stock will be granted under this Plan (the "Date of
Grant"), to determine whether the Options to be granted shall be Incentive
Options or Nonqualified Options, or a combination of both, to select the persons
to whom the Options will be granted and to determine the number of shares of
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Common Stock to be covered by each Option, the price at which such shares may be
purchased upon the exercise of such option (the "Option Exercise Price"), and
other terms and conditions of the Options. In making those determinations, the
Committee shall solicit the recommendations of the President and Chairman of the
Board of the Company and may take into account the proposed optionee's present
and potential contributions to the Company's business and any other factors
which the Committee may deem relevant. Subject to the other provisions of this
Plan, the Committee shall also have full authority to interpret this Plan and
any stock option agreements evidencing Options granted hereunder, to issue rules
for administering this Plan, to change, alter, amend or rescind such rules, and
to make all other determinations necessary or appropriate for the administration
of this Plan. All determinations, interpretations and constructions made by the
Committee pursuant to this Section 3 shall be final and conclusive. No member of
the Board of Directors or the Committee shall be liable for any action,
determination or omission taken or made in good faith with respect to this Plan
or any Option granted hereunder.
4. ELIGIBILITY
Subject to the provisions of Section 7 below, key employees of the Company
(including officers and directors who are employees) and consultants and other
representatives of the Company shall be eligible to receive Options under this
Plan.
5. OPTION SHARES
(a) The shares subject to Options granted under this Plan shall be
shares of Common Stock and, except as otherwise required or permitted by
Subsection 5(b) below, the aggregate number of shares with respect to which
Options may be granted shall not exceed 3,500,000 shares. If an Option expires,
terminates or is otherwise surrendered, in whole or in part, the shares
allocable to the unexercised portion of such Option shall again become available
for grants of Options hereunder. As determined from time to time by the Board of
Directors, the shares available under this Plan for grants of Options may
consist either in whole or in part of authorized but unissued shares of Common
Stock or shares of Common Stock which have been reacquired by the Company or a
subsidiary following original issuance.
(b) The aggregate number of shares of Common Stock as to which Options
may be granted hereunder, as provided in Subsection 5(a) above, the number of
shares covered by each outstanding Option and the Option Exercise Price shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split or other subdivision or
consolidation of shares or other capital adjustment, or the payment of a stock
dividend; PROVIDED, HOWEVER, that any fractional shares resulting from any such
adjustment shall be eliminated.
(c) The aggregate fair market value, determined on the Date of Grant (as
such term is defined in Section 6(a) below), of the shares of stock with respect
to which Incentive Options are exercisable for the first time by an Optionee (as
such term as defined in Section 6 below) during any calendar year (under all
incentive stock option plans of the Company and its subsidiaries) may not exceed
$100,000.
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6. TERMS AND CONDITIONS OF OPTIONS
The Committee may, in its discretion, grant to a key employee only
Incentive Options, only Nonqualified Options, or a combination of both, and each
Option granted shall be clearly identified as to its status. Recipients other
than employees of the Company can only receive Nonqualified Options. Each Option
granted pursuant to this Plan shall be evidenced by a stock option agreement
between the Company and the recipient to whom the option is granted (the
"Optionee") in such form or forms as the Committee, from time to time, shall
prescribe, which agreements need not be identical to each other but shall comply
with and be subject to the following terms and conditions:
(a) OPTION EXERCISE PRICE. The Option Exercise Price at which each share
of Common Stock may be purchased pursuant to an Option shall be determined by
the Committee, except that (i) the Option Exercise Price at which each share of
Common Stock may be purchased pursuant to an Incentive Option shall be not less
than 100% of the fair market value for each such share on the Date of Grant of
such Incentive Option and (ii) the Option Exercise Price at which each share of
Common Stock may be purchased pursuant to a Non-Qualified Option shall not be
less than 85% of the fair market value for each share on the Date of Grant of
such Nonqualified Option. Anything contained in this Section 6(a) to the
contrary notwithstanding, in the event that the number of shares of Common Stock
subject to any Option is adjusted pursuant to Section 5(b) above, a
corresponding adjustment shall be made in the Option Exercise Price per share.
(b) DURATION OF OPTIONS. The duration of each Option granted hereunder
shall be determined by the Committee, except that each Nonqualified Option
granted hereunder shall expire and all rights to purchase shares of Common Stock
pursuant thereto shall cease one day before the tenth anniversary of the Date of
Grant of such Option and each Incentive Option granted hereunder shall expire
and all rights to purchase shares of Common Stock pursuant thereto shall cease
one day before the tenth anniversary of the Date of Grant of such Option (in
each case, the "Expiration Date").
(c) VESTING OF OPTIONS. The vesting of each Option granted hereunder
shall be determined by the Committee. Only such vested portions of Options may
be exercised. Anything contained in this Section 6(c) to the contrary
notwithstanding, an Optionee shall become fully (100%) vested in each of his or
her Options upon his or her termination of employment with the Company or any of
its subsidiaries for reasons of death, disability or retirement. The Committee
shall, in its sole discretion, determine whether or not disability or retirement
has occurred.
(d) MERGER, CONSOLIDATION, ETC. In the event the Company shall propose
to merge into, consolidate with, or sell or otherwise transfer all or
substantially all of its assets to, another corporation and provision is not
made pursuant to the terms of such trans shall, pursuant to action by its Board
of Directors, at any time action for (i) the assumption by the surviving,
resulting or acquiring corporation of outstanding Options, (ii) the substitution
therefor of new options granting reasonably similar rights and privileges, or
(iii) the payment of cash or other consideration in respect thereof, the
Committee shall cause written notice of the proposed transaction to be given to
each Optionee not less than 30 days prior to the announced anticipated effective
date of the proposed transaction, and the Committee shall specify in such notice
a date,
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which date shall be not less than 10 days prior to the announced anticipated
effective date of the proposed transaction (the "Vesting Date"), upon which
Vesting Date each Optionee's Options shall become fully (100%) vested. Each
Optionee shall have the right to exercise his or her Options to purchase any or
all shares then subject to such Options during the period commencing on the
Vesting Date and ending at 5:00 p.m. on the day which is two (2) days prior to
the announced anticipated effective date of the proposed transaction. If the
transaction is consummated, each Option, to the extent not previously exercised
prior to the effective date of the transaction, shall terminate on such
effective date. If the transaction is abandoned or otherwise not consummated,
then to the extent that any Option not exercised prior to such abandonment shall
have vested solely by operation of this Section 6(d), such vesting shall be
annulled and be of no further force or effect and the vesting period set forth
in Section 6(c) above shall be reinstituted as of the date of such abandonment.
(e) EXERCISE OF OPTIONS. A person entitled to exercise an Option, or any
portion thereof, may exercise it (or such vested portion thereof) in whole at
any time, or in part from time to time, by delivering to the Company at its
principal office, directed to the attention of its Chairman, President or such
other duly elected officer as shall be designated in writing by the Committee to
the Optionee, written notice specifying the number of shares of Common Stock
with respect to which the Option is being exercised, together with payment in
full of the Option Exercise Price for such shares. Such payment shall be made in
cash or by certified check or bank draft to the order of the Company; PROVIDED,
HOWEVER, that the Committee may, in its sole discretion, authorize such payment,
in whole or in part, in any other form, including payment by personal check or
by the exchange of shares of Common Stock of the Company previously acquired by
the person entitled to exercise the Option and having a fair market value on the
date of exercise equal to the price for which the shares of Common Stock may be
purchased pursuant to the Option.
(f) NONTRANSFERABILITY. The Options shall not be transferable other than
by will or the laws of descent and distribution and no Option may be exercised
by anyone other than the Optionee; that if the Optionee dies or becomes
incapacitated, the Option may be exercised by his or her estate, legal
representative or beneficiary, as the case may be, subject to all other terms
and conditions contained in this Plan.
(g) TERMINATION OF EMPLOYMENT. The following rules shall apply in the
event that an Optionee is an employee of the Company as regards such Optionee's
termination of employment with the Company:
(i) In the event of an Optionee's termination of employment with
the Company either (1) by the Company for Cause (as defined in any relevant
employment agreement to which Optionee is a party) or for fraud, dishonesty,
habitual drunkenness or drug use, or willful disregard of assigned duties by
such Optionee in the absence of such an agreement, or (2) by the Optionee
voluntarily otherwise than at the end of an employment term under a relevant
employment agreement to which Optionee is a party and without the written
consent of the Company, then the Option shall immediately terminate.
(ii) In the event of the Optionee's termination of employment with
the Company
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for reason of retirement or under circumstances other than those specified in
subsection (g)(i) immediately above, and for reasons other than death or
disability, the Option shall terminate three months after the date of such
termination of employment or on the Expiration Date, whichever shall first
occur; PROVIDED, HOWEVER, that if the Optionee dies within such 3-month period,
the time period set forth in subsection (g) (iii) immediately below shall apply.
(iii) In the event of the death or disability, of the Optionee while
the Optionee is employed by the Company, the Option shall terminate on the first
anniversary of the Optionee's date of termination of employment, or on the
Expiration Date, whichever shall first occur.
(iv) Anything contained in this Section 6 to the contrary
notwithstanding, the Option may only be exercised following the Optionee's
termination of employment with the Company for reasons other than death,
disability or retirement if, and to the extent that, the Option was exercisable
immediately prior to such termination of employment.
(v) The Optionee's transfer of employment between American United
Global, Inc. and its "subsidiaries" and "parents" (as defined under the federal
securities laws) shall not constitute a termination of employment and the
Committee shall determine in each case whether an authorized leave of absence
for military service or otherwise shall constitute a termination of employment.
(vi) Termination of the Optionee's employment shall not affect the
vesting schedule of the Optionee's Option.
(h) NO RIGHTS AS SHAREHOLDER OR TO CONTINUED EMPLOYMENT. No Optionee
shall have any rights as a shareholder of the Company with respect to any shares
covered by an Option prior to the date of issuance to such Optionee of the
certificate or certificates for such shares, and neither this Plan nor any
Option granted hereunder shall confer upon an Optionee any right to continuance
of employment by the Company or interferes in any way with the right of the
Company to terminate the employment of such Optionee.
(i) Each stock option agreement shall specify whether the Options
granted hereunder are Incentive Options, Nonqualified Options, or a combination
of both.
7. TEN PERCENT STOCKHOLDERS
The Committee shall not grant an Incentive Option to an individual who
owns, at the time such Incentive Option is granted (directly or by attribution
pursuant to Section 425(d) of the Code), shares of capital stock of the Company
possessing more than 10% of the voting power of all classes of capital stock of
the Company unless, at the time such Incentive Option is granted, the price at
which each share of Common Stock may be purchased pursuant to the Incentive
Option is at least 110% of the fair market value of each such share on the Date
of Grant and such Incentive Option, by its terms, is not exercisable after the
expiration of five years from the Date of Grant.
8. ISSUANCE OF SHARES; RESTRICTIONS
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(a) Subject to the conditions and restrictions provided in this Section
8, the Company shall, within 20 business days after an Option has been duly
exercised in whole or in part, deliver to the person who exercised the Option
one or more certificates, registered in the name of such person, for the number
of shares of Common Stock with respect to which the Option has been exercised.
The Company may legend any stock certificate issued hereunder to reflect any
restrictions provided for in this Section 8.
(b) Unless the shares subject to Options granted under the Plan have
been registered under the Securities Act of 1933, as amended (the "Act") (and,
in the case of any Optionee who may be deemed an "affiliate" of the Company as
such term is defined in Rule 405 under the Act, such shares have been registered
under the Act for resale by the Optionee), or the Company has determined that an
exemption from registration under the Act is available, the Company may require
prior to and as a condition of the issuance of any shares of Common Stock, that
the person exercising an Option hereunder (i) sign such agreements with respect
thereto as the Company may require in any Option Agreement by and between the
Company and the Optionee, and (ii) furnish the Company with a written
representation in a form prescribed by the Committee to the effect that such
person is acquiring such shares solely with a view to investment for his or her
own account and not with a view to the resale or distribution of all or any part
thereof, and that such person will not dispose of any of such shares otherwise
than in accordance with the provisions of Rule 144 under the Act unless and
until either the distribution of such shares is registered under the Act or the
Company is satisfied that an exemption from such registration is available.
(c) Anything contained herein to the contrary notwithstanding, the
Company shall not be obliged to sell or issue any shares of Common Stock
pursuant to the exercise of an Option granted hereunder unless and until the
Company is satisfied that such sale or issuance complies with all applicable
provisions of the Act and all other laws or regulations by which the Company is
bound or to which the Company or such shares are subject.
9. SUBSTITUTE OPTIONS
Anything contained herein to the contrary notwithstanding, Options may, at
the discretion of the Board of Directors, be granted under this Plan in
substitution for options to purchase shares of capital stock of another
corporation which is merged into, consolidated with, or all or a substantial
portion of the property or stock of which is acquired by, the Company or a
subsidiary. The terms, provisions and benefits to Optionees of such substitute
options shall in all respects be as similar as reasonably practicable to the
terms, provisions and benefits to Optionees of the Options of the other
corporation on the date of substitution, except that such substitute Options
shall provide for the purchase of shares of Common Stock of the Company instead
of shares of such other corporation.
10. TERM OF THE PLAN
Unless the plan has been sooner terminated pursuant to Section 11 below,
this Plan shall terminate on, and no Options shall be granted after, the tenth
anniversary of the Effective Date.
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The provisions of this Plan, however, shall continue thereafter to govern all
Options theretofore granted, until the exercise, expiration or cancellation of
such Options.
11. AMENDMENT AND TERMINATION OF PLAN
The Board of Directors at any time may terminate this Plan or amend it
from time to time in such respects as it deems desirable; PROVIDED, HOWEVER,
that, without the further approval of the stockholders of the Company, no
amendment shall (i) increase the maximum aggregate number of shares of Common
Stock with respect to which Options may be granted under this Plan, (ii) change
the eligibility provisions of Section 4 hereof, or (iv) create a "modification"
of any Incentive Stock Options previously granted or otherwise modify the Plan
with respect to the granting of Incentive Stock Options, as those terms are
defined under the Code; and PROVIDED, FURTHER, that, subject to the provisions
of Section 6 hereof, no termination of or amendment hereto shall adversely
affect the rights of an Optionee or other person holding an option theretofore
granted hereunder without the consent of such Optionee or other person, as the
case may be.
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Exhibit 10.1
AMERICAN UNITED GLOBAL, INC.
Employment Agreement
with
Robert M. Rubin
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AGREEMENT made effective as of the 7th day of December 1999, by and
between AMERICAN UNITED GLOBAL, INC., a Delaware corporation (hereinafter
referred to as the "Company") and Robert M. Rubin, an individual with an address
of c/o Gersten, Savage & Kaplowitz, LLP, 101 East 52nd Street, New York, New
York 10022 (hereinafter referred to as the "Employee").
W I T N E SSE T H:
WHEREAS, the Company desires to retain the Employee to continue as its
President and Chief Executive Officer; and
WHEREAS, the Employee is willing to make himself available for advice and
counsel to the Company in connection with its management and such other matters
so that the Company may have the benefit of the Employee's knowledge and
expertise.
NOW THEREFORE, in consideration of the mutual covenants of the parties,
which are hereinafter set forth and for other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. ENGAGEMENT.
(a) The Company hereby retains the Employee in the employ of the
Company as its President and Chief Executive Officer, upon the terms and
conditions which are hereinafter set forth.
(b) The Employee will render management services and other advice to
the Company. Such advice may include, without limitation, the following:
strategic planning, financial analysis, the introduction and arrangement of
financing and other business transactions, product development, business
modeling and planning, organizational development, human resources allocation
and business development.
(c) The Employee shall make himself available to the Company for
telephone consultations and for meetings as reasonably requested.
(d) Except for the requirements which are set forth in Section 1(c) of
this Agreement, the Employee shall not be required to devote any minimum number
of weeks, days or hours to the affairs of the Company during the term of this
Agreement, although it is acknowledged that the performance of his duties may
require substantial effort. Employee shall devote such additional time,
attention and energies to the business of the additional time, attention and
energies to the business of the Company as he, in the exercise of good faith and
discretion, shall determine to be necessary during the term of this Agreement.
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2. TERM. The term of this Agreement shall commence on the date set forth
above and expire on the fifth anniversary thereof, unless this Agreement is
terminated prior thereto pursuant to the terms of this Agreement (the "Term").
3. COMPENSATION.
(a) SALARY. During the Term of this Agreement the Company shall pay on
behalf of Employee in consideration for his services a minimum annual base
salary of $225,000, which shall be determined (if greater) by the Compensation
Committee of the Board of Directors of the Company and as ratified by the entire
Board. The salary shall be adjusted for any 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 City metropolitan area
measured over the course of the immediately preceding fiscal year. Such salary
shall be paid no less frequently than monthly.
(b) NET INCOME BONUS. Employee shall be eligible to receive as
compensation under the Agreement incentive bonuses of ten percent (10%) of the
Company's net income, including all of its consolidated subsidiaries, if any,
for any fiscal year as determined by the Company's independent auditors using
generally accepted accounting principles, consistently applied, which bonus
shall not exceed $1,000,000 for any fiscal year.
(c) INTRODUCED TRANSACTION BONUS. Employee shall be eligible to
receive a bonus equal to ten percent (10%) of the value of any transaction
consummated by the Company which is introduced by Employee if, in the opinion of
the independent members of the Board of Directors of the Company such
transaction substantially improves or increases the business, financial
condition or prospects of the Company. The bonuses to be paid pursuant to this
Section 3(c) shall be paid in such amount and type of securities of the Company
as shall be determined by the independent directors in their sole discretion.
The value of such transaction referenced in this Section 3(c) shall be
determined by the independent directors of the Company in their sole discretion,
who may elect, but are not obligated, to engage an independent investment
banking firm to evaluate the value of such transaction. For the purposes of this
Section 3(c) herein, a "transaction" shall include a private or public financing
of equity or debt securities of the Company, a merger, acquisition, exchange,
joint venture, license or other agreement or arrangement.
(d) INCENTIVE STOCK OPTIONS. Employees shall also receive as of the
date hereof 250,000 incentive stock options under the 1996 Plan to purchase
Common Stock which are exercisable for five years after the date hereof at $0.21
per share.
(e) EXPENSES. The Company shall reimburse Employee for all reasonable
expenses incurred by Employee in the performance of his duties hereunder,
including without limitation, those incurred in connection with business related
travel or entertainment, provided that the Employee provides reasonable
documentation to substantiate such expenses and such expenditures shall have
been authorized in writing by the Company.
(f) EXCISE TAX. In the event that any payment or benefit received or
to be
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received by Employee in connection with a termination of his employment with
Company would constitute a "parachute payment" within the meaning of Code
Section 280G or any similar or successor provision to 280G and/or would be
subject to any excise tax imposed by Code Section 4999 or any similar or
successor provision then Company shall assume all liability for the payment of
any such tax and Company shall immediately reimburse Employee on a "grossed-up"
basis for any income taxes attributable to Employee by reason of such Company
payment and reimbursements.
4. INTENTIONALLY OMITTED.
5. CONFIDENTIAL INFORMATION; INTELLECTUAL PROPERTY RIGHTS; NON
COMPETITION.
(a) NONDISCLOSURE OF CONFIDENTIAL INFORMATION. During the term of this
Agreement and at all times thereafter, Employee will keep confidential and will
not directly or indirectly divulge to anyone nor use or otherwise appropriate
for Employee's own benefit, or on behalf of any other person, firm, partnership
or corporation by whom Employee might subsequently be employed or otherwise
associated or affiliated with, any Confidential Information (as defined herein).
For this purpose, "Confidential Information" means any and all trade secrets or
other confidential information of any kind, nature or description concerning any
matters affecting or relating to the business of the Company or any affiliate of
the Company which derives economic value, actual or potential, from not being
generally known to the public or the trade or to other persons who can obtain
economic value from its disclosure or use and which is subject to efforts by
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the Company that are reasonable under the circumstances to maintain its secrecy.
Confidential Information does not include information which (a) is or becomes
generally available to the public or the trade other than as a result of a
disclosure by Employee or any of his agents or representatives, or (b) was
within Employee's possession prior to its being furnished to Employee by the
Company; provided that the source of such information in the case of either
clause (a) or (b) was not bound by a confidentiality agreement or other
contractual obligation of confidentiality with respect to such information or
did not otherwise acquire or disclose such information wrongfully.
(b) COMPANY INTELLECTUAL PROPERTY RIGHTS. All intellectual property
rights, whether or not patentable or copyrightable, which (i) are made or
developed with the equipment, supplies, facilities, product formulations, trade
secrets, time or other assets of the Company; (ii) relate to the business,
including anticipated research or development, of the Company that are developed
during the term of this Agreement, or (iii) result from work performed by
Employee for the Company, are and shall remain the sole property of the Company,
and upon request made by the Company, Employee shall assign any and all rights,
including copyrights, patents and patent rights, trade mark and trade dress
rights, Employee may have therein to Company.
(c) COMPANY MATERIALS. All reports and analysis, designs, drawings,
contracts, contractual arrangements, specifications, computer software, computer
hardware and other equipment, computer printouts, computer disks, documents,
memoranda, notebooks, correspondence, files, lists and other records, and the
like, and all photocopies or other reproductions thereof, affecting or relating
to the business of Company which Employee shall prepare, use, construct,
observe, possess or control ("Company Materials"), shall be and remain the sole
property of Company. Upon termination of this Agreement, Employee shall deliver
promptly to Company all such Company Materials.
(d) CERTAIN RESTRICTIONS ON BUSINESS ACTIVITIES. During the term of
this Agreement, Employee agrees that, except with the express written consent of
the Company:
(i) SOLICITATION OF CUSTOMERS, ETC. He will not, directly or
indirectly, either for himself or for any other person, firm or corporation,
divert or take away or attempt to divert or take away and, if the Employee's
termination of employment results for Cause (as defined herein) or the
Employee's voluntary termination of employment, for six (6) months after the
term of this Employment Agreement, call on or solicit or attempt to call on or
solicit in an attempt to so divert
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or take away any of Company's customers or distributors, including but not
limited to, those upon whom Employee called or whom Employee solicited.
(ii) SOLICITATION OF EMPLOYEES, ETC. He will not, directly or
indirectly or by action in concert with others, induce or influence (or seek to
induce or influence) any person who is engaged (as an employee, agent,
independent contractor or otherwise) by Company to terminate his or her
employment or engagement.
(e) SEVERABILITY. Employee agrees, in the event that any provision of
this Section 5 or any word, phrase, clause, sentence or other portion thereof
shall be held to be unenforceable or invalid for any reason, such provision or
portion thereof shall be modified or deleted in such a manner so as to make this
Section 5 as modified legal and enforceable to the fullest extent permitted
under applicable laws. The validity and enforceability of the remaining
provisions or portions thereof shall not be affected thereby and shall remain
valid and enforceable to the fullest extent permitted under applicable laws. A
waiver of any breach of the provisions of this Section 5 shall not be construed
as a waiver of any subsequent breach of the same or any other provision.
6. WAIVERS. Except as otherwise specifically provided for in this
Agreement, no party shall be deemed to have waived any of his or its rights
hereunder under any other agreement, instrument or paper signed by any of them
with respect to the subject matter hereof unless such waiver is in writing and
signed by the party waiving said right. Except as otherwise specifically
provided for in this Agreement, no delay or omission by any party in exercising
any right with respect to the subject matter hereof shall operate as a waiver of
such right or of any such other right. A waiver on any one occasion with respect
to the subject matter hereof shall not be construed as a bar to, or waiver of,
any right or remedy on any future occasion.
7. ELECTION OF REMEDIES. All rights and remedies with respect to the
subject matter hereof, whether evidenced hereby or by any other agreement,
instrument, or paper, will be cumulative, and may be exercised separately or
concurrently.
8. ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement
between them with respect to the subject matter hereof. All understandings and
agreements heretofore had between the parties with respect to the subject matter
hereof are merged in this Agreement and any such instrument, which alone fully
and completely expresses their Agreement.
9. AMENDMENTS. This Agreement may not be changed, modified, extended,
terminated or discharged orally, but only by an agreement in writing, signed by
all of the parties to this Agreement.
10. FURTHER ASSURANCES. The parties agree to execute any and all such
other and further instruments and documents, and to take any actions reasonably
required to effectuate this Agreement and the intents and purposes hereof.
11. ASSIGNMENT. This Agreement shall not be assigned to other parties,
provided,
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however, this Agreement may be assigned by Company to an entity that acquires
substantially all of the assets of Company.
12. APPLICABLE LAW. This Agreement shall in all respects be governed by
the internal laws of the State of New York.
13. SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their heirs, executors, administrators,
personal representatives, successors, and assigns.
14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same agreement.
[SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties to this Agreement have caused these
presents to be signed by their duly authorized officers as of the day, month and
year first above written.
AMERICAN UNITED GLOBAL INC.
By: ---------------------------------
Name:
Title:
Employee:
--------------------------------
Robert M. Rubin
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PROXY
AMERICAN UNITED GLOBAL, INC.
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 22, 2000
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS IN CONNECTION WITH THE
ANNUAL MEETING OF STOCKHOLDERS OF AMERICAN UNITED GLOBAL, INC. TO BE HELD ON
FEBRUARY 22, 2000. THE SHAREHOLDER HAS THE RIGHT TO APPOINT AS HIS PROXY A
PERSON (WHO NEED NOT BE A SHAREHOLDER) OTHER THAN ANY PERSON DESIGNATED BELOW,
BY INSERTING THE NAME OF SUCH OTHER PERSON IN ANOTHER PROPER FORM OF PROXY.
The undersigned, a shareholder of American United Global, Inc. (the
"Corporation"), hereby revoking any proxy hereinbefore given, does hereby
appoint Robert M. Rubin and David M. Barnes, or either of them, as his proxy
with full power of substitution, for and in the name of the undersigned to
attend the Annual Meeting of the Stockholders to be held on Tuesday, February
22, 2000 at the offices of Gersten, Savage & Kaplowitz, LLP, counsel to the
company, 101 E. 52nd Street, New York, N.Y. 10022 at 10:00 a.m., local time, and
at any adjournments thereof, and to vote upon all matters specified in the
notice of said meeting, as set forth herein, and upon such other business as may
properly come before the meeting, all shares of stock of said Corporation which
the undersigned would be entitled to vote if personally present at the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, SUCH SHARES
WILL BE VOTED FOR ALL NOMINEES FOR DIRECTOR IDENTIFIED BELOW AND FOR ALL
PROPOSALS.
1. The Election of the following proposed directors to hold office until the
next Annual Meeting of Stockholders or until their successors shall be elected
and shall qualify: Robert M. Rubin, C. Dean McLain, Howard Katz, David M.
Barnes, Seymour Kessler and Allen Perres.
FOR ALL NOMINEES / /
(EXCEPT AS MARKED TO THE CONTRARY)
WITHHOLD ALL NOMINEES / /
AUTHORITY TO WITHHOLD A VOTE FOR ANY OF THE ABOVE NAMED INDIVIDUALS SHOULD BE
INDICATED BY CLEARLY LINING THROUGH OR OTHERWISE STRIKING OUT THE NAME OF THE
NOMINEE.
2. To authorize an amendment to the Company's Certificate of Incorporation
changing the Company's name to "Internet-equity.com, Inc."
/ / FOR / / AGAINST / / ABSTAIN
3. To authorize and approve the Company's 1996 Employee Stock Option Plan, as
amended, which contains options upon the exercise of which up to 3,500,000
shares of Common Stock would be available for issuance.
/ / FOR / / AGAINST / / ABSTAIN
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4. To authorize and ratify the sale of all of the assets of American United
Products, Inc. and American United Seal, Inc., engaged in the Company's
Manufacturing Business to subsidiaries of Hutchinson Corporation under the terms
of the Sale Agreement, and to ratify of the terms of the Sale Agreement, all
exhibits thereto and the transactions contemplated thereby.
/ / FOR / / AGAINST / / ABSTAIN
5. To authorize and ratify the issuance of shares of the Company's Series B-1
Convertible Preferred Stock issued in connection with the acquisition of Old
Connectsoft, effective as of July 31, 1996.
/ / FOR / / AGAINST / / ABSTAIN
6. To authorize and ratify the issuance of 400,000 shares of the Company's
Series B-2 Convertible Preferred Stock issued in connection with a $10,000,000
Private Placement in January 1997.
/ / FOR / / AGAINST / / ABSTAIN
7. To authorize and ratify the amendment and restatement of the employment
agreement between the Company and Robert M. Rubin, the Company's Chief Executive
Officer.
/ / FOR / / AGAINST / / ABSTAIN
8. To authorize an amendment to the Company's Certificate of Incorporation
reducing the authorized capital stock from 67,700,000 to 42,700,000 shares and
the authorized Common Stock from 65,000,000 to 40,000,000 shares, and removing
all classifications of the Common Stock.
/ / FOR / / AGAINST / / ABSTAIN
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9. To authorize and ratify the appointment of PricewaterhouseCoopers as
independent auditors for the Company for the fiscal year ending July 31, 1999
/ / FOR / / AGAINST / / ABSTAIN
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING.
/ / FOR / / AGAINST / / ABSTAIN
Dated: ______________________, _____[Month, Date, Year]
---------------------------------------
Signature
Print Name:
---------------------------------------
Signature, if Jointly Held
Print Name:
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS
HEREIN, if signing as attorney, executor,
administrator, trustee or guardian, indicate
such capacity. All joint tenants must sign. If
a corporation, please sign in full corporate
name by the president or other authorized
officer. If a partnership, please sign in
partnership name by an authorized person.
The Board of Directors requests that you fill
in the date and sign the Proxy and return it
in the enclosed envelope.
IF THE PROXY IS NOT DATED ABOVE
IT WILL BE DEEMED TO BE DATED
ON THE DAY ON WHICH IT WAS MAILED BY
THE COMPANY .
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EXHIBITS.
