UStel, Inc.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held August 20, 1997
To the Stockholders of UStel, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Annual Meeting") of UStel, Inc., a Minnesota corporation will be held on
August 20, 1997, at 10:00 a.m., at the principal executive offices of UStel,
6167 Bristol Parkway, Suite 300, Culver City, California 90230, for the
following purposes:
1.To elect six directors;
2. To ratify the action of the Company's Board of Directors in amending
the 1993 Stock Option Plan;
3. To ratify the selection of BDO Seidman, LLP, independent certified
public accountants, as independent auditors for the year ending
December 31, 1997; and
4. To transact such other business as may properly come before the
Annual Meeting and any adjournments thereof.
Only stockholders of record at the close of business on July 18, 1997
are entitled to notice of and to vote at the Annual Meeting and any
adjournment or postponement thereof.
Only stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the Annual Meeting, you are urged to
mark, sign, and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the Annual Meeting may vote in person even if he or she returned a proxy.
By Order of the Board of Directors
WOUTER van BIENE
Secretary
Culver City, CA
July 23, 1997
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
YOU ARE REQUESTED TO COMPLETE AND RETURN PROMPTLY
THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
<PAGE>
PROXY STATEMENT
July 23, 1997
UStel, Inc.
6167 Bristol Parkway, Suite 300
Culver City, California 90230
Introduction
The accompanying proxy is solicited on behalf of the Board of Directors of
UStel, Inc., a Minnesota corporation (the "Company" or "UStel"), for the use
at the Annual Meeting of stockholders of the Company to be held at 10:00 a.m.,
August 20, 1997. The approximate mailing date for this proxy statement and
the enclosed proxy is July 23, 1997. Only stockholders of record at the close
of business on July 18, 1997 (the "Record Date") will be entitled to vote at
the Annual Meeting.
The expense in soliciting proxies in the enclosed form will be paid by the
Company. Following the original mailing of the proxies and soliciting
materials, employees of the Company may solicit proxies in mail, telephone,
telegraph, telecopy and personal interviews. The Company will request brokers,
custodians, nominees and other record holders to forward the copies of the
proxies and soliciting materials to persons for whom they hold shares of the
Company's Common Stock and to request authority for the exercise of proxies;
in such cases, the Company will reimburse such holders for their reasonable
expenses.
Voting
As of the Record Date, there are 6,483,764 shares of Common Stock
outstanding and 275,000 shares of Series A Convertible Preferred Stock,
convertible into 374,990 shares of Common Stock which vote along with the
Common Stock on an as if converted basis. Consequently the total shares of
capital stock (Common and Preferred) entitled to vote will be 6,858,754.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is exercised at the Annual Meeting
by delivering to the Secretary of UStel at its principal executive offices,
a written notice of revocation or a duly executed proxy bearing a later date
or by attending the Annual Meeting and voting in person.
ELECTION OF DIRECTORS
Six directors of the Company are to be elected, each to hold office until
the next annual meeting of stockholders and until their respective successors
are elected, or until death, resignation or removal. Shares represented by the
accompanying proxy will be voted for the election of the following seven
nominees recommended by the Board of Directors, unless the proxy is marked in
such a manner as to withhold authority so to vote. Such nominees are the
incumbent directors of the Company. If any such person is unable or unwilling
to serve as a nominee for the office of the director at the date of the Annual
Meeting or any postponement or adjournment thereof, the proxies may be voted
for a substitute nominee, designated by the proxy holders or by the present
Board of Directors to fill such vacancy, or for the balance of those nominees
named without nomination of a substitute. The Board of Directors has no reason
to believe that any of such nominees will be unwilling or unable to serve if
elected as a director.
Every stockholder complying with the immediately following paragraph and
entitled to vote at any election of directors may cumulate such stockholder's
votes and give one candidate a number of votes equal to the number of directors
to be elected multiplied by the number of votes to which the stockholder's
shares are normally entitled, or distribute the stockholder's votes on the same
principle among as many candidates as the stockholder thinks fit.
No stockholder shall be entitled to cumulate votes (i.e., cast for any
candidate a number of votes greater than the number of votes which such
stockholder normally is entitled to cast) unless such candidate or candidates'
names have been placed in nomination prior to the voting and the stockholder
has given notice at the meeting prior to the voting of the stockholder's
intention to cumulate the stockholder's votes. If any one stockholder has
given such notice, all stockholders may cumulate their votes for candidates
in nomination.
The candidates receiving the highest number of affirmative votes of the
shares entitled to be voted for them up to the number of directors to be
elected by such shares are elected; votes against the director and votes
withheld have no legal effect.
The names, ages and principal occupation at the Record Date and for the
past five years and directorships of the nominated directors are set forth
below.
Robert L. B. Diener, age 49, served the Company as a consultant from July,
1995, to January 1996, devoting a substantial portion of his time to the
Company's business. He became Executive Vice President in January, 1996,
President and Chief Executive Officer on August 14, 1996 and Chairman and
Chief Executive Officer on December 23, 1996. From its inception in 1986
through 1993, Mr. Diener served as President and Chief Executive Officer of
American Health Properties, Inc., a New York Stock Exchange ("NYSE") listed
real estate investment trust specializing in health care. From 1976 through
1986, Mr. Diener held various positions with American Medical International,
Inc., ("AMI"), a multinational hospital management company listed on the NYSE
and included in the S&P 500, most recently Group Vice President--Corporate
Development. For over seven years, he was a principal business development
officer in the international division of AMI, overseeing projects worldwide.
For four years prior to joining AMI, Mr. Diener was engaged in the private
practice of law with a law firm in Los Angeles, California, concentrating in
banking, real estate, corporate and securities law. Mr. Diener is the son of
Royce Diener.
Jerry Dackerman, age 47, served the Company as Executive Vice President
and Director since August 14, 1996, and on December 23, 1996, was elected
President and Chief Operating Officer. Mr. Dackerman founded Consortium 2000
in 1988 as a communications user group specializing in the design of large
scale telecommunications networks utilizing a group purchasing approach.
Mr. Dackerman is President and Chief Executive Officer of Consortium 2000 and
will continue to serve in such capacities after the Merger is completed. Mr.
Dackerman's initial experience in the telecommunications field was with
Executone, Inc. and RCA American Communications. In 1977, he founded Robin &
Dackerman, Inc., an international telecommunications consulting firm
specializing in the design and implementation of telecommunications networks.
Mr. Dackerman is also a director of New USA Growth Fund.
Dr. Wouter van Biene, age 48, has been the Senior Vice President, Chief
Financial Officer and Secretary of Consortium 2000, Inc. since 1991. On August
14, 1996, he became Executive Vice President, Chief Financial Officer and
Secretary of UStel and will continue to serve in his capacity as Senior Vice
President and Chief Financial Officer of Consortium 2000 after the
consummation of the Merger. From 1986 to 1991, he was a partner with Robin &
Dackerman, Inc., a telecommunications consulting firm. From 1972 to 1986, he
was employed by AMI where he achieved the level of Group Vice President-
Information Systems and Chief Financial Officer for International Operations.
Dr. van Biene earned a doctorate in Economics and Business Administration at
the University of Amsterdam, the Netherlands.
Royce Diener, age 79, has served as an advisor to the Company since July,
1995, became a director of the Company in January, 1996 and served as Chairman
from August 14, 1996 to December 23, 1996. Mr. Diener served for over 18 years
as President, then Chairman and Chief Executive Officer of AMI. He serves on
the Board of Directors of Acuson, Inc. and American Health Properties, Inc.,
both listed on the NYSE. Among private companies, Mr. Diener serves on the
Board of Directors of Harvard Medical International, an affiliate of Harvard
University. He recently completed a ten-year term as a director of Advanced
Technology Ventures, a registered investment firm located in Boston,
Massachusetts, and Palo Alto, California. Mr. Diener is the father of Robert
L. B. Diener.
Ann Graham Ehringer, Ph.D., age 57, became a director in May, 1997. Dr.
Ehringer has been a director of the Family and Closely-Held Businesses Program
and associate professor in the Entrepreneur Program in the Marshall School of
Business of the University of Southern California since July 1996. From 1990
to 1996 Dr. Ehringer has acted as a private consultant to the owners and
managers of small and mid-sized companies. From September 1992 to the
present she has also been Chairman and Chief Executive Officer of S.P. Land,
Inc. and S.P. Lodge, Inc., a real-estate holding business and a fine-dining
business, respectively. Dr. Ehringer has a Ph.D. in Management from the
University of Southern California, completed the Owner/President, Management
Program at the Harvard Business School, received a M.A. from Stanford
University and a B.A. from the University of Hawaii. She is a member of the
Executive Advisory Panel for the "Executive" a Publication of the Academy of
Management and of the National Association of Corporate Directors. She
serves on the boards of directors of Dycam, Inc. (AMEX), Styles-On-Video, Inc.
(AMEX) and on other private and not-for-profit organizations.
Jordan Barness became a director in May, 1997. Mr. Barness is a founding
partner of the Los Angeles and New York-based law firm of Steinberg, Barness,
Glasgow & Foster, LLP. He serves as President to Trans International Management
Corporation, a domestic and international consulting, marketing and management
firm. He was a member of the law firm of Cordero, Glasgow & Barness from 1986
to 1994 and a member of the law firm of Barness, Glasgow & Barness from 1994 to
1996. Mr. Barness received his Bachelor of Arts Degree in Political Economies
of Industrial Societies from the University of California at Berkeley in 1979.
He received his Juris Doctor Degree from Southwestern University School of Law
in 1983. Mr. Barness is admitted to the New York and California Bars. Mr.
Barness' practice includes general corporate, real estate and international law.
Mr. Barness is the son of Amnon Barness, a stockholder and warrant holder of
UStel, a shareholder of Consortium 2000 and one of the beneficiaries of the
Palisades USTL Trust.
Board of Directors
Directors are elected annually to serve until the next annual meeting of
stockholders and until their successors are elected and qualified or until
their death, resignation or removal.
The Audit Committee of the Board of Directors, comprised of Royce Diener,
Ann Graham Ehringer and Jordan Barness, is responsible for making
recommendations concerning the engagement of independent certified public
accountants, approving professional services provided by the independent
certified public accountants and reviewing the adequacy of the Company's
internal accounting controls. The Compensation Committee, comprised of Royce
Diener, Ann Graham Ehringer and Jordan Barness, is responsible for recommending
to the Board of Directors all officer salaries, management incentive programs
and bonus payments. Neither the Audit or Compensation Committees met formally
in 1996. The Board of Directors met 18 times in 1996. Each director attended
at least 75% of the aggregate of all meetings held by the Board in 1996 during
such director's tenure as a director. Currently, none of the directors
receives compensation for acting as a director. The Company anticipates that
it may in the future institute a compensation plan for outside directors which
will involve compensation for attending meetings and stock options.
Compensation Committee Interlocks and Insider Participation
Prior to August 1996, the Company did not have a Compensation Committee or
an Audit Committee. Messrs. Schwartz and Epling participated in deliberations
concerning compensation of executive officers during 1995. None of the
executive officers of the Company have served on the board of directors or on
the compensation committee of any other related entity, except for Consortium
2000.
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act of 1934 requires the Company's directors
and officers, and persons who won more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the SEC. Officers, directors and greater than 10% stockholders
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
<PAGE>
Base solely on the Company's review of the copies of such reports
received by it during the year ended December 31, 1996, the Company believes
that each person who, at any time during such fiscal year, was a director,
officer or beneficial owner of more than 10% of the Company's Common Stock
complied with all Section 16(a) filing requirements during such fiscal year or
prior fiscal years, except as follows:
<TABLE>
<S> <C> <C> <C>
# of Late # of Transactions Failure to File
Reports Not Reported in a Required
Name of Person and Position Timely Basis Report
Robert L.B. Diener 1 1
Chairman, Chief Executive
Officer and Director
Jerry Dackerman 1 1
President, Chief Operating
Officer and Director
Barry K. Epling 1 Form 4
Executive Vice President,
Assistant Secretary and Director
Wouter van Biene 1
Executive Vice President, Chief
Financial Officer and Director
Abe M. Sher 1
Vice President and General
Counsel
Andrew J. Grey 1 1 Forms 3 and 4
Director
Royce Diener 1
Kamel B. Nacif 2 Forms 3 and 4
10% holder
TAD 1993 Family Trust 1 Form 4
10% holder
RGB 1993 Family Trust 1 Form 4
10% holder
</TABLE>
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all compensation received by the Company's
Chief Executive Officer and its other most highly compensated executive
officers and key employees whose total cash and cash equivalent compensation
exceeded $100,000 for services rendered to the Company for the years ended
December 31, 1994, 1995 and 1996.
Long Term
Compensation
Awards
Payouts
<TABLE>
<S> <C> <C>
Securities
Annual Underlying
Compensation Options/SAR's
Name and Principal Position Year Salary #
Robert L.B. Diener(1)
Chairman, Chief Executive Officer and
Former President
1996 $ --- ---
1995 --- ---
1994 --- ---
Jerry Dackerman(1)
President, Chief Operating Officer and
Director
1996 $ --- ---
1995 --- ---
1994 --- ---
Wouter van Biene(1)
1996 $ --- ---
1995 --- ---
1994 --- ---
Barry K. Epling
Executive Vice President, Assistant
Secretary, Director and Former Chief
Operating Officer
1996 $ 102,440 100,000
1995 93,000 ---
1994 93,000 ---
Noam Schwartz
Former President, Chief Executive
Officer and Director
1996 $ 120,000 100,000
1995 100,000 210,000
1994 60,000 210,000
</TABLE>
(1) In January 1997, the Company entered into three-year employment
agreements, retroactive to August 15, 1996, with Messrs. Diener, Dackerman
and van Biene, at annual salaries of $200,000, $180,000, and $140,000,
respectively, with bonuses to be determined at the discretion of the Board of
Directors. The employment agreements for Messrs. Diener, Dackerman and van
Biene provide that, under certain circumstances, in the event of a change in
control of the Company, each employee shall be paid the amount of his
compensation as would be due for the balance of his term of employment, or
for the two year period from such change in control, whichever is longer.
The Company has entered into employment agreements with Noam Schwartz and
Barry Epling that provide for annual salaries of $120,000 (of which Mr.
Schwartz only drew $100,000 in 1995) and $93,600, respectively. Mr. Schwartz's
employment agreement provides for a three-year term ending March 1, 1997. Mr.
Schwartz resigned effective December 15, 1996. Mr. Epling's employment
agreement provides for a five-year term commencing December 1, 1993, although
the salary provided for in such agreement did not commence until February 1,
1994. Each of the employment agreements also provides for bonuses to be paid
at the discretion of the Company's Board of Directors.
The compensation of Robert L. B. Diener, in his capacity as the Company's
former Executive Vice President and Secretary, was payable by the Company as
consulting fees to Diener Financial Group, a company wholly owned by Mr. Diener,
under a one-year consulting agreement effective September 1, 1995. Pursuant to
this arrangement, the Company agreed to pay Mr. Diener $7,500 per month. In
addition, Mr. Diener was to personally receive $5,000 per month for a one year
period starting November 1, 1995. The consulting agreement further provided
that Diener Financial Group and Mr. Diener were to receive five-year warrants
to purchase up to 100,000 shares each of Common Stock at a price of $5.00 per
share. On August 14, 1996, Mr. Diener became President and Chief Executive
Officer of the Company.
In September, 1996, the Company entered into a two-year employment
agreement with Abe M. Sher that provides for a monthly salary of $6,950.
Mr. Sher's employment commitment is for 50% of his working time. The Company
previously granted Mr. Sher five-year warrants to purchase up to 200,000 shares
of Common Stock at $5.00 per share and issued to him 32,000 shares of Common
Stock. All of such warrants are currently exercisable. The 32,000 shares of
Common Stock are restricted from transfer for two years from the date of grant
and are forfeitable to the Company if Mr. Sher elects to terminate his
employment with the Company during that two-year period.
1993 Stock Option Plan
The 1993 Stock Option Plan (the "Stock Option Plan") provides for the
grant of options to acquire the Company's Common Stock ("Options"), the
direct grant of shares of the Company's Common Stock ("Stock Awards"), the
grant of stock appreciation rights ("SARs"), or the grant of other cash
awards ("Cash Awards") (Stock Awards, SARs and Cash Awards collectively are
referred to herein as "Awards"). Options and Awards under Stock Option Plan
may be issued to executives, directors, key employees and others providing
valuable services to the Company and its subsidiaries. The Options issued may
be incentive stock options or nonqualified stock options. A maximum of 450,000
shares of Common Stock of the Company may be issued under the Stock Option
Plan. Of this amount, 40,000 options are available for grant. If any change
is made in the stock subject to the Stock Option Plan, or subject to any
Option or SAR granted under the Stock Option Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, split-up,
combination of shares, exchange of shares, change in corporate structure or
otherwise), the Stock Option Plan provides that appropriate adjustments will
be made as to the maximum number of shares subject to the Stock Option Plan
and the number of shares and exercise price per share of stock subject to
outstanding options.
The 1993 stock Option Plan is administered by the Board of Directors of
the Company or a committee appointed by the Board. The exercise price of all
options granted under the Stock Option Plan must be at least equal to the fair
market value of such shares at the date of grant. The maximum term of options
granted under the Stock Option Plan is 10 years. With respect to any
participant who owns stock representing more than 10% of the voting rights of
the Company's outstanding capital stock, the exercise price of any option must
be equal at least to 110% of the fair market value of such shares on the date
of grant.
Options granted under the 1993 Stock Option Plan are nontransferable other
than by will or by the laws of descent and distribution upon the death of the
option holder and, during the lifetime of the option holder, are exercisable
only by such option holder. Termination of employment at any time for cause
immediately terminates all options held by the terminated employee.
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
<S> <C> <C> <C> <C>
Name Number of Securities Percent of Total
Underlying Options/ Options/SAR's Exercise of
SAR's Granted Granted to Employees Base Price Expiration
# In Fiscal Year ($/sh) Date
----------- ----------- ------- ----------
Robert L.B. Diener -0- -0- -0- N/A
Noam Schwartz 100,000 50 5.00 01/06
Barry Epling 100,000 50 5.00 01/06
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
(Individual Grants)
Value of
Number of Unexercised
Unexercised In-The-Money
Shares Options/SAR's Options/SAR's
Acquired Value At FY-End(#) At FY-End(#)
On Exercise Realized Exercisable Exercisable
Name (#) ($) Unexercisable Unexercisable
----------- ----------- ------------ -----------
Robert L.B. Diener -0- -0- -0- -0-
Noam Schwartz -0- -0- -0- -0-
Barry Epling 100,000 500,000 -0- -0-
</TABLE>
At December 31, 1995, there were outstanding options to acquire 210,000
shares of the Company's Common Stock under the Stock Option Plan. These
options were granted in January, 1994 to Noam Schwartz, the Company's former
President, at an exercise price of $7.50 per share. As of December 31, 1995,
no options had been granted to any other executive officers of the Company and
no options had been exercised. In January, 1996, the Company's Board of
Directors approved the reduction of the exercise price of Mr. Schwartz's
outstanding options to $5.00 per share. In January, 1996, the Company also
granted to each of Noam Schwartz and Barry Epling from the Stock Option Plan,
options to purchase 100,000 shares of Common Stock at $5.00 per share. In
June, 1996, Mr. Epling exercised such options in connection with the Company's
acquisition of a switch owned by Mr.Epling.
Limitation of Director's Liability and Indemnification
The Company's Articles of Incorporation limit the liability of its
directors in their capacity as directors to the fullest extent permitted by
the Minnesota Business Corporation Act. Specifically, directors of the Company
will not be personally liable for monetary damages for breach of fiduciary duty
as directors except liability for (i) any breach of the duty of loyalty to the
Company or its stockholders, (ii) acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, (iii) dividends
or other distributions of corporate assets that are in contravention of certain
statutory or contractual restrictions, (iv) violations of certain Minnesota
securities laws, or (v) any transaction from which the director derives an
improper personal benefit.
The Minnesota Business Corporation Act requires that the Company indemnify
any director, officer or employee made or threatened to be made a party to a
proceeding, by reason of the former or present official capacity of the person,
against judgments, penalties, fines, settlements and reasonable expenses
incurred in connection with the proceeding if certain statutory standards are
met. "Proceeding" means a threatened, pending or completed civil, criminal,
administrative, arbitration or investigative proceeding, including a derivative
action in the name of the Company. Reference is made to the detailed terms of
the Minnesota Indemnification Statute (Minn. Stat. SEC.302A.521) for a
complete statement of such indemnification rights. The Company's Bylaws also
require the Company to provide indemnification to the fullest extent of the
Minnesota Indemnification Statute.
PROPOSED AMENDMENTS TO 1993 STOCK OPTION PLAN
In May, 1997, the Board of Directors amended the 1993 Stock Option Plan,
subject to stockholder approval (which is being sought at the Annual Meeting)
to increase the total number of shares covered by the 1993 Stock Option Plan
from 450,000 to 1,450,000. Of the 450,000 shares of Common Stock which were
originally authorized under the 1993 Stock Option Plan, only 40,000 options are
available for grant. The Board of Directors believes that the selective use of
stock options is an effective means of attracting, motivating and retaining
employees and non-employee directors and that the availability of the number of
shares covered by the 1993 Stock Option Plan, as amended, is essential to the
success of the Company. Also in May 1997 the Board of Directors adopted
an amendment to the plan eliminating the requirement for stockholder approval
of Board action to reduce the exercise price at which options may be granted
or the exercise price at which any outstanding option may be exercised. The
Board of Directors believes that such an amendment will provide it with the
necessary flexibility to react to changing market conditions for its stock and
will incentivize persons eligible to receive or who have received options under
the Stock Option Plan. The Board of Directors recommends that the stockholders
vote FOR approval of the proposed amendments and for the Stock Option Plan as
amended. The affirmative vote of a majority of all of the voting capital stock
of the Company, present at the Annual Meeting in person or by proxy is required
to approve the amendments. A copy of the 1993 Stock Option Plan, as amended by
the Board will be furnished, without cost to stockholders on request to Wouter
van Biene, secretary, UStel, Inc. 6167 Bristol Parkway, Suite 300, Culver City,
California 90230.
<PAGE>
CERTAIN TRANSACTIONS
The Company has advanced funds to Mr. Noam Schwartz. At December 31, 1995
and 1996, Mr. Schwartz owed the Company approximately $193,000 and $177,000,
respectively.
In mid-1994, the Company retained Consortium 2000 as a non-exclusive
independent sales representative on a commission basis. During 1994, 1995
and 1996, the Company paid, or became obligated to pay to Consortium 2000, for
commissions the sums of $60,058, $1,335,029 and $2,058,163 respectively. As of
December 31, 1994, 1995 and 1996, the Company owed $45,558, $449,774 and $0
respectively to Consortium 2000.
In June, 1995, the Company obtained a revolving line of credit from Bank
Leumi in the amount of $3,000,000, secured by certificates of deposit held by
the bank and guaranteed by Noam Schwartz. This line of credit was fully repaid
in July 1996.
In August, 1995, the Company agreed to engage the Diener Financial Group
as a financial consultant for a period of one year commencing September 1, 1995
and agreed to grant to the Diener Financial Group five year warrants to
purchase 100,000 shares of the Company's Common Stock at $5.00 per share.
The sole principal of the Diener Financial Group is Robert Diener, who
currently is the Company's Chairman and Chief Executive Officer. Pursuant to
the Diener Financial Group engagement, the Company agreed to pay a consulting
fee of $7,500 per month to the Diener Financial Group and $5,000 a month to Mr.
Diener personally. The Company also agreed to additionally compensate the
Diener Financial Group in an amount equal to 1%, 2% and 3% of the senior debt,
subordinated debt and equity proceeds, respectively, raised by the Diener
Financial Group for the Company. As of August 14, 1996, the engagement
agreement with the Diener Financial Group was terminated with no additional
sums owing to the Diener Financial Group.
In October, 1995, the Company obtained a $1,500,000 term loan from a group
of investors introduced to the Company by the Diener Financial Group. Of the
$1,500,000 loaned to the Company by the investor group, $500,000 came from
Royce Diener. The loan bore interest at 10% per annum payable quarterly and
was due in one year. The loan was secured by the Company's accounts receivable
and unrestricted deposit accounts of the Company to the fullest extent
permitted by law and was convertible at the lenders' option, in whole or in
part, into shares of the Company's Common Stock at the rate of $5.00 per share.
The Company also issued to the members of the investor group five-year warrants
to purchase an aggregate of up to 100,000 shares of Common Stock at $5.00 per
share. The warrants are allocable among the members of the investor group in
proportion to the amount loaned to the Company, which means that Royce Diener,
who loaned one-third of the total term loan, is entitled to one third of the
warrants (i.e., warrants to purchase 33,333 shares of Common Stock). In
consideration for arranging the term loan in 1995, the Company paid Robert
Diener $15,000 (1% of the proceeds raised). The $1,500,000 term loan was
repaid by the Company in January, 1996 from proceeds drawn under its new line
of credit with Coast Business Credit.
In January, 1996, the Company completed a private placement of 160,000
Units (consisting of 160,000 shares of Common Stock and 160,000 redeemable
common stock purchase warrants) raising net proceeds of approximately $775,000.
For assisting the Company in connection with this private placement, the
Company paid Robert Diener the sum of $25,000. In November, 1995, the Company
granted Mr. Diener 100,000 warrants exercisable at $5.00 per share, expiring
October, 2000.
In June, 1996, the Company acquired title to a telecommunications switch
owned by Mr. Epling for aggregate consideration in the amount of $702,157.
Consideration was paid by crediting $500,000 as payment for the issuance of
100,000 shares of Common Stock to Mr. Epling pursuant to the exercise of
employee stock options, canceling approximately $117,799 in interim advances
made by the Company to TYC, Inc., a corporation wholly-owned by Mr. Epling, and
a cancellation of interim advances of approximately $68,656 made by the Company
to Mr. Epling for upgrading the switch, and the issuance of an additional 7,851
shares of Common Stock to Mr. Epling based on a $5.00 per share market value.
At the time the switching equipment was acquired, it was appraised at
approximately $716,000.
In July, 1996, the Company's Board of Directors authorized the issuance of
20,000 shares of Common Stock to Consortium 2000 at $5.75 per share to
reconcile variances in commissions owed to Consortium 2000 for July, 1995
through March, 1996. At the consummation of the merger with Consortium 2000,
these shares were distributed as dividends to the shareholders of Consortium
2000.
In August, 1996, the Company entered into a two-year consulting agreement
with Vanguard Consultants, Inc., a Nevada corporation owned by Ronnie Schwartz,
to provide consulting services in the areas of marketing, finance and business
development. Pursuant to this agreement, Vanguard Consultants, Inc. will
receive $7,500 per month for such services.
Noam Schwartz, and his brother, Ronnie Schwartz, personally guaranteed the
Company's credit facility with Jeflor, Inc. As of December 31, 1996, the
amount outstanding under this facility was $1,200,000. The loan was paid off
in February 1997.
Under Minnesota law, officers and directors of the Company may enter into
transactions or contracts with the Company provided generally that (i) the
transaction is fair to the Company at the time it is authorized or approved;
(ii) the stockholders approve the transaction after disclosure of the
relationship or interest; or (iii) after disclosure to the Board of Directors,
a majority of the disinterested board members authorize the transaction. In
addition, any transaction involving a loan, guarantee or other financial
assistance by the Company to an officer or director requires approval of the
Board of Directors.
Related Party Transactions
The Company has entered and anticipates that it will enter into business
transactions with certain of its principal stockholders and entities that are
owned or controlled by certain of its principal stockholders, including the
acquisition of Consortium 2000. Although the Company may continue to enter
into such transactions in the future, its policy is not to enter into
transactions with related persons unless the terms thereof are at least as
favorable to the Company as those that could be obtained for unaffiliated third
parties and are approved by a majority of disinterested directors.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price Range Of Common Stock
The Company's Common Stock has traded in the over-the-counter market since
June 22, 1994 and is included in the Nasdaq SmallCap Market under the symbol
"USTL." The following table sets forth for the quarters indicated the high and
low closing sale prices per share of Common Stock as reported by the Nasdaq
SmallCap Market. Prices represent inter-dealer quotations, without adjustment
for retail mark-ups, markdowns or commissions and may not necessarily represent
actual transactions.
1994 High Low
Second Quarter (from June 22) $5.625 $5.00
Third Quarter 6.75 5.125
Fourth Quarter 7.50 6.25
1995
First Quarter $7.50 $6.00
Second Quarter 7.00 5.00
Third Quarter 6.50 4.75
Fourth Quarter 6.25 4.75
<PAGE>
1996
First Quarter $6.50 $5.00
Second Quarter 7.00 5.75
Third Quarter 6.75 6.00
Fourth Quarter 6.00 3.13
1997
First Quarter $4.38 $2.75
Second Quarter 4.50 3.50
Third Quarter
(through July 8, 1997) 4.00 3.62
The 6,483,764 shares of Common Stock outstanding as of July 18, 1997 were
held by approximately 129 record holders, who the Company believes held for in
excess of 500 beneficial holders.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Common and Preferred Stock by (i) each person
known by the Company to be the beneficial owner of more than five percent of
the Common Stock, (ii) each director of the Company owning Common Stock, (iii)
each executive officer of the Company owning Common Stock named in the
"Executive Compensation" section and (iv) all executive officers and directors
of the Company as a group.
Name and Address(1) Number Percent(1)
Robert L.B. Diener(2). . . . . . . . . . . . . . . . 211,476 3.2%
Jerry Dackerman. . . . . . . . . . . . . . . . . . . 116,054 1.8%
Wouter van Biene . . . . . . . . . . . . . . . . . . 123,907 1.9%
Abe M. Sher(3) . . . . . . . . . . . . . . . . . . . 232,000 3.4%
Barry Epling(4). . . . . . . . . . . . . . . . . . . 202,851 3.1%
Royce Diener(5). . . . . . . . . . . . . . . . . . . 635,676 9.7%
Kamel B. Nacif(6). . . . . . . . . . . . . . . . . . 750,000 10.9%
Ann Graham Ehringer, PhD . . . . . . . . . . . . . . --- ---
Jordan Barness . . . . . . . . . . . . . . . . . . . --- ---
All directors and officers as a group (eight
persons)(7) . . . . 2,271,964 34.0%
__________
(1) In calculating percentage ownership, all shares of Common Stock which the
named stockholder has the right to acquire upon exercise of stock options
or conversion of convertible securities exercisable or convertible within
60 days of the Record Date are deemed to be outstanding for the purpose of
computing the percentage of Common Stock owned by such stockholder, but
are not deemed to be outstanding for the purpose of computing the
percentage of Common Stock owned by any other stockholder. Percentages
may be rounded. Each of such persons may be reached through the Company at
6167 Bristol Parkway, Suite 300, Culver City, California 90230.
(2) Consists of 6,476 shares of Common Stock and warrants exercisable to
purchase up to 100,000 shares of Common Stock owned by the Diener
Financial Group, and warrants to purchase up to an aggregate of 105,000
shares of Common Stock owned by Robert L.B. Diener, individually.
(3) Consists of 32,000 shares of Common Stock and 200,000 shares of Common
Stock issuable upon the exercise of warrants.
(4) Consists of 107,851 shares of Common Stock and 95,000 shares that Mr.
Epling has the right to acquire pursuant to the exercise of an option
granted by Noam Schwartz and his father, David Schwartz. The terms of the
options to acquire these shares are provided in separate Stock Option and
Repurchase Agreements between Mr. Epling and Noam and David Schwartz. The
Stock Option and Repurchase Agreements provide that the shares may be
purchased from such individuals at an exercise price of $1.00 per share.
The option is exercisable immediately and may be exercised at any time on
or before January 12, 1998, provided, however, that in the event Mr.
Epling's employment is terminated for reasons other than death or
disability, the option shall terminate immediately.
(5) Includes 267,211 shares of Common Stock owned by the Palisades USTL Trust,
a trust established by a group of investors for which Royce Diener serves
as trustee. As trustee, Mr. Diener is vested with the authority to
distribute any income and/or the principal of the Trust to its
beneficiaries in the future. Also consists of 285,132 shares of Common
Stock and warrants presently exercisable to purchase up to 83,333 shares
of Common Stock held by Royce Diener individually.
(6) Consists of 374,990 shares of Common Stock and 374,990 shares of Common
Stock underlying 275,000 shares of Series A Convertible Preferred Stock
issued to Mr. Nacif.
(7) Includes an aggregate of 596,184 shares of Common Stock as to which the
named directors and executive officers may acquire, as described in
footnotes (2), (3), (4) and (5) above.
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
BDO Seidman, LLP, independent accountants, have been the Company's
independent auditors since 1992 and have been selected by the Board of
Directors to serve as auditors for the year ending December 31, 1997.
Stockholders are being asked to ratify the selection. A representative of BDO
Seidman, LLP will be present at the Annual Meeting and will be given the
opportunity to make a statement if he or she wishes and will also be available
to respond to appropriate questions at the meeting.
This proposal may be adopted by the affirmative vote of the holders of a
majority of the outstanding shares present in person or by proxy and entitled
to vote at the Annual Meeting. The Board of Directors recommends a vote for
the proposal to ratify the selection of BDO Seidman, LLP as the Company's
independent accountants for 1997.
OTHER MATTERS
As of the date of this Proxy Statement, there are no other matters which
the Board of Directors intends to present or has reason to believe others will
present at the Annual Meeting. If other matters properly come before the
Annual Meeting, those who act as proxies will vote in accordance with their
judgment.
STOCKHOLDER PROPOSALS -- NEXT ANNUAL MEETING
Stockholders are entitled to present proposals for action at a forthcoming
stockholders' meeting if they comply with the requirements of the proxy rules.
Any proposals intended to be presented at the next Annual Meeting of
Stockholders of the Company must be received at the Company's offices on or
before April 23, 1998, in order to be considered for inclusion in the
Company's proxy statement and form of proxy relating to such meeting.
WOUTER van BIENE
Secretary
Culver City, CA
July 23, 1997
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING,
YOU ARE REQUESTED TO SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED
POSTAGE PREPAID ENVELOPE.
