SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934 (Amendment No. )
Filed by the registrant
Filed by a party other than the registrant
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule
14(a)-12
CORNERSTONE INTERACTIVE SOLUTIONS COMPANY
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(Name of Registrant as Specified in Their Charters)
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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.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
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(1) Title of each class of securities to which transaction
applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
<PAGE>
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(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
Fee paid previously with preliminary materials.
Check box if any part 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:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
CORNERSTONE INTERNET SOLUTIONS COMPANY
584 BROADWAY, SUITE 509
NEW YORK, NY 10012
(212) 343-3920
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 13, 2000
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders ("Annual
Meeting")of CORNERSTONE INTERNET SOLUTIONS COMPANY, a Delaware corporation (the
"Company"), will be held at the Mayfair Farms, West Orange, New Jersey
commencing at 10:00 A.M., local time, on Thursday, April 13, 2000, for the
following purposes as described in more detail in the accompanying Proxy
Statement:
1 To elect five directors for the Company to hold
office until the next Annual Meeting of stockholders
or until their successors are duly elected and have
qualified;
2 To approve an amendment to the Company's 1994
Incentive and Non-Qualified Stock Option Plan
increasing the number of shares of the Company's
Common Stock, $.01 par value (the "Common Stock")
that may be subject to options granted thereunder
from 3,250,000 to 4,500,000;
3 To approve amendments to the Company's 1995 Stock
Option Plan for Outside Directors increasing the
number of shares of the Company's Common Stock that
may be (i) subject to options granted thereunder from
150,000 to 500,000 and (ii) granted to any
non-employee Director in any calendar year from 5,000
to 10,000;
4 To approve an amendment to the Company's 1994
Consultant Stock Option Plan increasing the number of
shares of the Company's Common Stock that may be
subject to options granted thereunder from 1,000,000
to 1,600,000; and
5 To transact such other business as may properly come
before the Annual Meeting or any adjournment thereof.
Except with respect to procedural matters incident to
the conduct of the Annual Meeting, management is not
aware of any other matters which could come before
the Annual Meeting.
The Board of Directors has fixed February 16, 2000 as the voting record
date for the determination of stockholders entitled to notice of and to vote at
the Annual Meeting. Only stockholders of record at the close of business on that
date are entitled to notice of and to vote at the meeting or any adjournments
thereof.
BY ORDER OF THE BOARD OF DIRECTORS
Edward Schroeder, President and
Chief Executive Officer
New York, New York
March 16, 2000
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. EVEN IF YOU PLAN TO BE
PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
CARD IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING, YOU MAY VOTE EITHER IN
PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING OR IN
PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
<PAGE>
CORNERSTONE INTERNET SOLUTIONS COMPANY
584 BROADWAY, SUITE 509
NEW YORK, NY 10012
----------------------------------
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 13, 2000
-------------------------
INTRODUCTION
This Proxy Statement is being furnished to the holders of common stock,
$.01 par value (the "Common Stock"), of Cornerstone Internet Solutions Company
(the "Company") on or about March 16, 2000, in connection with the solicitation
of proxies by the Board of Directors (the "Board") of the Company, for use at
the Annual Meeting of Stockholders (the "Annual Meeting") to be held at the
Mayfair Farms, West Orange, New Jersey at 10:00 AM., local time, on Thursday,
April 13, 2000, and at any and all adjournments thereof.
A copy of the Company's Annual Report, including financial statements
for the fiscal year ended May 31, 1999, is being mailed with this Proxy
Statement.
As of February 16, 2000, the record date for the Annual Meeting (the
"Record Date"), there were outstanding 25,197,971 shares of Common Stock.
Holders of record of the Company's Common Stock at the close of business on the
Record Date are entitled to vote at the Annual Meeting. A list of stockholders
entitled to vote at the Annual Meeting, arranged alphabetically and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder, is available at the Company's offices located at 584 Broadway,
Suite 509, New York, New York 10012 for examination by any stockholder. The list
will also be available at the meeting for examination by any stockholder.
The proxy solicited hereby, if properly signed and returned to the
Company and not revoked prior to its use, will be voted in accordance with the
instructions contained on the proxy card. If no contrary instructions are given,
each proxy received will be voted FOR the nominees for director described
herein, FOR the approval of an amendment to the Company's 1994 Incentive and
Non-Qualified Stock Option Plan (the "1994 Plan"), FOR the approval of
amendments to the Company's 1995 Stock Option Plan for Outside Directors (the
"Outside Directors Plan"), FOR the approval of an amendment to the Company's
1994 Consultant Stock Option Plan (the "Consultant Plan"), and FOR adjournment,
if necessary, and in the discretion of the proxy holder as to the transaction of
such other business as may properly come before the Annual Meeting. Any
stockholder who returns a signed proxy but fails to provide instructions as to
the manner in which such shares are to be voted will be deemed to have voted in
favor of each of the matters set forth in the preceding sentence. The Board does
not know of any other matters that may be brought before the Annual Meeting nor
does it foresee or have reason to believe that proxy holders will have to vote
for substitute or alternate nominees. In the event that any other matter should
come before the meeting or any nominee is not available for election, the
persons named in the enclosed proxy will have discretionary authority to vote
all proxies with respect to such matters in accordance with their best judgment.
A proxy card is enclosed for your use. You are solicited on behalf of
the Board of Directors to SIGN AND RETURN THE PROXY CARD IN THE ACCOMPANYING
POSTAGE-PAID ENVELOPE. The cost of soliciting proxies, including the
preparation, assembly and mailing of the proxies and solicitation
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<PAGE>
materials, as well as the cost of forwarding such materials to the beneficial
owners of the Company's Common Stock, will be borne by the Company. Directors,
officers and regular employees of the Company may, without compensation other
than their regular compensation, solicit proxies by telephone, telegram or
personal conversation. The Company may retain a proxy solicitation firm to
assist in the solicitation of proxies. The costs of retaining such firm, which
the Company does not anticipate will exceed $20,000, would depend upon the
amount and type of services rendered. The Company may reimburse brokerage firms
and other fiduciaries, custodians and nominees for expenses incurred in
forwarding proxy material to the beneficial owners of the Company's Common
Stock.
Any stockholder giving a proxy has the power to revoke it at any time
prior to its use at the Annual Meeting by: (i) filing with the Secretary of the
Company written notice thereof (Cornerstone Internet Solutions Company, 584
Broadway, Suite 509, New York, New York 10012); (ii) submitting a duly executed
proxy bearing a later date; or (iii) appearing at the Annual Meeting and giving
the Secretary notice of his or her intention to vote in person. Proxies
solicited hereby may be exercised only at the Annual Meeting and any adjournment
thereof and will not be used for any other meeting.
VOTING OF SHARES
Only holders of record on the Record Date will be entitled to vote at
the Annual Meeting. Holders of Common Stock are entitled to one vote for each
share held on all matters.
The holders of a majority of the outstanding shares of Common Stock,
whether present in person or represented by proxy, will constitute a quorum for
the election of directors, the vote on the amendment to the 1994 Plan, the vote
on the amendments to the Outside Directors Plan and the vote on the amendment to
the Consultant Plan. Abstentions are counted as present in determining whether
the quorum requirements are satisfied. Proxies returned by brokers as
"non-votes" on behalf of shares held in street name because beneficial owners'
discretion has been withheld as to one or more matters on the agenda for the
Annual Meeting will not be treated as present for purposes of determining a
quorum for the Annual Meeting unless they are voted by the broker on at least
one matter on the agenda.
A plurality of the total votes cast by holders of Common Stock is
required for the election of directors. In tabulating the vote on the election
of directors, abstentions will be disregarded and will have no effect on the
outcome of such vote. The affirmative vote of a majority of the votes cast by
holders of Common Stock is required to approve the amendments to the 1994 Plan,
the Outside Directors Plan and the Consultant Plan. In tabulating the votes on
the amendments to the 1994 Plan, the Outside Directors Plan and the Consultant
Plan, shares as to which a stockholder abstains are considered shares entitled
to vote on the applicable amendment and therefore an abstention would have the
effect of a vote against the amendment. Broker non-votes, however, are not
considered shares entitled to vote on the applicable amendment and are not
included in determining whether such amendment is approved.
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<PAGE>
PROPOSAL FOR ELECTION OF DIRECTORS
Nomination
The Board of Directors (the "Board") has nominated the five individuals
named below to serve until the next annual meeting of stockholders or until
their respective successors have been duly elected and qualified. There are no
arrangements or understandings between the persons named as nominees for
director at the Annual Meeting and any other person pursuant to which such
nominee was selected as a nominee for election as director at the Annual
Meeting. Except with respect to the relationship of Mr. Andrew Gyenes and Mr.
Peter Gyenes described below, no director or nominee for director is related to
any other director or executive officer of the Company by blood, marriage or
adoption.
The election of each nominee requires the affirmative vote of a
plurality of the shares of the Common Stock represented in person or by proxy at
the Annual Meeting. The Board recommends a vote FOR the election of each of the
nominees listed below. In the absence of other instructions, the proxies will be
voted FOR the election of the nominees named below. All nominees currently serve
on the Board. Each nominee elected is expected to serve until the next annual
meeting and until his successor shall be duly elected and qualified. The Board
has been informed that all persons listed below are willing to serve as
directors. If, prior to the Annual Meeting, the Board shall learn that any
nominee will be unable or unwilling to stand for election or serve if elected,
the proxies that would have been voted for such nominee will be voted for such
substitute nominee as selected by the Board. Alternatively, the proxies, at the
Board's discretion, may be voted for such fewer number of nominees as results
from such inability or unwillingness to serve. The Board has no reason to
believe that any nominee will be unable or unwilling to stand for election or
serve if elected.
Information About Nominees
The following table presents information concerning each nominee for
director and reflects his age, position with the Company and tenure as a
director of the Company.
<TABLE>
<CAPTION>
Director
Name Age Position Since
---- --- -------- -----
<S> <C> <C> <C>
Andrew Gyenes 64 Chairman of the Board 1994
Edward Schroeder 51 President and Chief Executive Officer 1997
Peter Gyenes 54 Director 1995
Harrison Weaver(1,2) 68 Director 1993
Rino Bergonzi (1,2) 55 Director 1995
</TABLE>
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
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THE BOARD OF DIRECTORS RECOMMENDS THAT YOU
VOTE FOR THE ELECTION OF THE ABOVE NOMINEES FOR DIRECTOR
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<PAGE>
Biographical Information About Nominees
Andrew Gyenes has been Chairman of the Board since January 1994 and
Chief Executive Officer of the Company from January 1994 to December 1997. He
was President and a director of the Company from January 1994 through May 1994.
Mr. Gyenes has been Chairman of the Board of the Company's subsidiary,
B2Bgalaxy.com, Inc. ("B2Bgalaxy"), since March 1999. For more than five years
before joining the Company, Mr. Gyenes was Vice President of Gyenes & Co., a
computer software consulting company, and Marketing Manager of Ann-Mar
Manufacturing, Inc. ("Ann-Mar"), a family owned textile company. Mr. Gyenes
continued in such positions on a part-time basis through January 1995, and since
January 1995, has been a consultant to Ann-Mar. Most of Mr. Gyenes' career has
been in the computer industry, including positions with Warner Communications
(last serving as an Assistant Vice President responsible for Worldwide
Information Systems), with IBM Corporation (last serving as Eastern Regional
Manager for Scientific Systems at Service Bureau Corporation, a former
wholly-owned IBM subsidiary), and with Western Union (last serving as Assistant
Vice President of Data Processing).
Edward Schroeder has been the Company's President and Chief Executive
Officer and a member of the Board of Directors since December 1997. From
September 1997 to December 1997 Mr. Schroeder was a Vice President and General
Manager of USWeb/CKS Cornerstone ("USWeb"), a wholly-owned subsidiary of the
Company. Mr. Schroeder has been B2Bgalaxy's President and Chief Executive
Officer and a member of the Board of B2Bgalaxy since March 1999. Before joining
USWeb, Mr. Schroeder had been affiliated with IBM Corporation for over 25 years.
Most recently he was the Vice President, Northeast Area.
Rino Bergonzi has served as a director of the Company since January
1995. Since November 1993, Mr. Bergonzi has served as Vice President and
Division Executive of Corporate Information Technology Services at AT&T, and has
25 years of experience in the information services field that includes working
for such companies as Western Union, United Parcel Service Information Services
and EDS Corp. Mr. Bergonzi is a Director of QueryObject Systems Corporation, a
public company which develops and markets proprietary business intelligence
solutions.
Peter Gyenes has served as a director of the Company since January
1995. Mr. Peter Gyenes has served as Chairman and Chief Executive Officer and
Executive Vice President, International Operations and Worldwide Sales, of
Ardent Software, Inc., formerly VMARK Software, Inc. ("Ardent") since August
1996. From May 1996 to August 1996, he served as Executive Vice President,
International Operations of Ardent. Mr. Peter Gyenes served as President and
Chief Executive Officer of Racal InterLan, Inc., a leading supplier of local
area networking products, from May 1995 to May 1996. Since January 1986, he has
also served as a director of Axis Computer Systems, Inc. From January 1994 to
April 1995, he was President of the Americas Division of Fibronics
International, Inc. and, from August 1990 to December 1993, Vice President and
General Manager of Data General Corporation's international operations and
mini-computer business unit. Mr. Peter Gyenes has also held management,
marketing, sales and technical positions with Encore Computer, Prime Computer,
Xerox and IBM. Mr. Peter Gyenes is the brother of Andrew Gyenes, Chairman of the
Board of the Company.
Harrison Weaver has been a director of the Company since December 1993.
He was a Vice President of the Company from December 1993 through May 1994. Mr.
Weaver was a Director and Officer of The Continuum Group, Inc. ("Continuum"). In
September 1995, Continuum applied for protection under Chapter 11 of the United
States Bankruptcy Code. In 1999, Continuum came out of bankruptcy. Mr. Weaver is
the founder and President of Weaver Associates, a diversified printing concern
located in Cranford, New Jersey, which has been in business for over 35 years.
He served for seventeen years as President of the New Jersey State Opera,
becoming President Emeritus in 1987. Mr. Weaver has received many distinguished
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<PAGE>
achievement awards, including the Governor's Award Medal for outstanding
contributions to the Arts for the State of New Jersey in 1978.
Information About the Board and Its Committees
The business and affairs of the Company are managed by the Company's
Board of Directors. The Board has established a number of committees, described
below, which meet on an as-required basis during the year. The Board held eight
(8) meetings during the Company's last fiscal year ended May 31, 1999. All of
the directors attended at least 75% of the aggregate number of meetings of the
Board and the aggregate number of meetings of committees of the Board during the
fiscal year ended May 31, 1999. From time to time, members of the Board of
Directors and the committees of the Board of Directors act by unanimous written
consent pursuant to the laws of the State of Delaware.
The Board of Directors has established the following committees:
Audit Committee. The Audit Committee reviews and approves internal
accounting controls, internal audit operations and activities, the Company's
annual report and audited financial statements, the selection of the Company's
independent auditors, the activities and recommendations of the Company's
independent auditors, material changes in the Company's accounting procedures,
the Company's policies regarding conflict of interest and such other matters as
nay be delegated by the Board. The Audit Committee composed of Messrs. Bergonzi
and Weaver, both non-employee directors, did not meet during the Company's last
fiscal year.
Compensation and Stock Option Committee. The Compensation and Stock
Option Committee sets the compensation for the Company's key employees and
administers the 1994 Plan, the Consultant Plan, and the Outside Directors Plan
and awards stock options pursuant to each. The Compensation and Stock Option
Committee composed of Messrs. Bergonzi and Weaver met four (4) times during the
Company's last fiscal year. From time to time, members of the Compensation and
Stock Option Committee act by unanimous written consent pursuant to the laws of
the State of Delaware.
The Company does not have a standing nominating committee.
Directors Compensation. Directors do not receive a fee for attending
Board or committee meetings and all members of the Board are reimbursed for all
ordinary travel expenses related to attendance at Board or committee meetings.
Under the terms of the Outside Directors Plan each non-employee director will be
granted on January 1 of each year, non-qualified stock options to purchase 5,000
shares of Common Stock, provided the director is serving on the Board on the
date of the grant. Grants under the Outside Directors Plan will be 100% vested
as of the date of grant. On January 1, 1999, each of Messrs. Bergonzi, Peter
Gyenes and Weaver (being all of the non-employee directors) were each granted
non-qualified options to purchase 5,000 shares of Common Stock. No other
director receives compensation for his services as such.
Other Executive Officers
Kenneth Gruber has been Executive Vice President and Chief Financial
Officer of both the Company and B2Bgalaxy since January 24, 2000. From January
1999 to January 2000, he was with the Oracle Corporation in marketing and sales
of ERP and CRM Applications. Between November 1994 and January 1999 he served in
several capacities at the Company, including Chief Financial Officer and
Secretary. Prior to joining the Company, Mr. Gruber was employed by Children's
Television Workshop ("CTW") since 1984, and served as CTW's Vice President and
Chief Financial Officer from 1993 to
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November 1994, as CTW's Vice President of Finance and Administration from 1989
to 1993 and as Vice President of Finance from 1988 to 1989.
David Rowe has been Chief Operating Officer and a director of B2Bgalaxy
since April 1999. From April 1998 to April 1999, Mr. Rowe was a Vice-President
of Development of USWeb. Before joining USWeb, Mr. Rowe had been affiliated with
New Technology Partners ("NTP") where he managed a variety of e-commerce web
site development projects. Prior to NTP, Mr. Rowe spent close to 10 years in the
financial services area where he held the positions of Vice President of System
and Technology at Financial Times Information, and Director of Technical
Services at Interactive Data.
Principal Stockholders and Beneficial Ownership of Management
-------------------------------------------------------------
The following table sets forth beneficial ownership of the Company's
Common Stock as of February 16, 2000 by (a) each stockholder known by the
Company to be the beneficial owner of five percent or more of the outstanding
Common Stock, (b) each director and Named Executive Officer (as defined below)
of the Company individually, and (c) all directors and executive officers as a
group. Except as otherwise indicated in the footnotes below, (x) the Company
believes that each of the beneficial owners of the Common Stock listed in the
table, based on information furnished by such owner, has sole investment and
voting power with respect to such shares, and (y) where no address is indicated,
the address of the beneficial owner is the address of the principal executive
offices of the Company.
Name and Address of Beneficial Owner Number of Shares (1) % of Class
- ----------------------------------- ---------------- ----------
Barry Rubenstein 5,048,951(2) 19.9%
68 Wheatley Road
Brookville, NY 11545
Irwin Lieber 4,591,951(3) 18.2%
767 Fifth Avenue
45th Floor
NY, NY 10153
21st Century Communications 1,997,951(4) 7.9%
Foreign Partners, L.P.
c/o Fiduciary Trust (Cayman) Limited
P.O. Box 1062
Grand Cayman,B.W.I
21st Century 1,997,951(5) 7.9%
Communications Partners, L.P.
767 Fifth Avenue
45th floor
New York, NY 10153
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21st Century 1,997,951(6) 7.9%
Communications T-E Partners, L.P.
767 Fifth Avenue
45th floor
NY, NY 10153
Michael J. Marocco 1,997,951(7) 7.9%
767 Fifth Avenue
45th floor
NY, NY 10153
John Kornreich 1,997,951(7) 7.9%
767 Fifth Avenue
45th floor
NY, NY 10153
Harvey Sandler 1,997,951(7) 7.9%
767 Fifth Avenue
45th floor
NY, NY 10153
Andrew Sandler 1,997,951(7) 7.9 %
767 Fifth Avenue
45th floor
NY, NY 10153
Douglas Schimmel 1,997,951(7) 7.9%
767 Fifth Avenue
45th Floor
New York, New York 10153
Hannah Stone 1,997,951(7) 7.9%
767 Fifth Avenue
45th Floor
New York, New York 10153
David Lee 1,997,951(7) 7.9%
767 Fifth Avenue
45th Floor
New York, New York 10153
Barry Fingerhut 4,586,951(8) 18.2%
767 Fifth Avenue
45th floor
NY, NY 10153
Wheatley Partners II, L.P. 2,588,000(9) 10.3%
68 Wheatley Road
Brookville, NY 11545
Applewood Capital Corp. 2,588,000(9) 10.3%
68 Wheatley Road
Brookville, NY 11545
Seth Lieber 2,588,000(9) 10.3%
767 Fifth Avenue
New York, NY 10153
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<PAGE>
Jonathan Lieber 2,588,000(9) 10.3%
767 Fifth Avenue
New York, NY 10153
Andrew Gyenes 910,053(10) 3.5%
Harrison Weaver 27,500(11) *
Rino Bergonzi 35,000(12) *
Peter Gyenes 48,000(13) *
Edward Schroeder 329,166(14) 1.3%
David Rowe 55,136(14) *
Kenneth Gruber 9,583(15) *
All directors and executive 1,414,438(16) 5.3%
officers as a group
- ----------------------------
* less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes any person
who, directly or indirectly, through any contract, arrangement,
understanding or otherwise, has or shares voting or investment power
with respect to securities. Shares of Common Stock issuable upon the
exercise of options, warrants and convertible notes currently
exercisable or convertible, or exercisable or convertible within 60
days are deemed outstanding for computing the percentage ownership of
the person holding such options or warrants or convertible notes but
are not deemed outstanding for computing the percentage ownership of
any other person.
(2) Based on Amendment Number 12 to a Schedule 13D and a Form 4 - Statement
of Changes in Beneficial Ownership filed in February 2000 and March
2000, respectively, by Barry Rubenstein, Woodland Venture Fund
("Woodland Fund"), Seneca Ventures ("Seneca"), Woodland Services Corp.
("Woodland Corp."), 21st Century Communications Partners, L.P. ("21st
Partners"), 21st Century Communications T-E Partners, L.P. ("21st
T-E"), 21st Century Communications Foreign Partners, L.P. ("21st
Foreign"), Michael J. Marocco, John Kornreich, Harvey Sandler, Andrew
Sandler, Barry Fingerhut, Irwin Lieber, Woodland Partners, Wheatley
Partners II, L.P. ("Wheatley II") formerly known as Applewood
Associates, L.P., Applewood Capital Corp., Seth Lieber, Jonathan
Lieber, Marilyn Rubenstein, The Marilyn and Barry Rubenstein Family
Foundation (the "Foundation"), Brian Rubenstein, Rebecca Rubenstein,
Douglas Schimmel, Hannah Stone and David Lee (the "February 2000 13D"),
Barry Rubenstein has sole beneficial ownership of 263,000 shares of
Common Stock (including 175,000 shares of Common Stock underlying
presently exercisable options). Mr. Rubenstein may also be deemed to
share beneficial ownership of 4,785,951 shares of Common Stock by
virtue of being: (i) a stockholder, officer and director of InfoMedia
Associates, Ltd. ("InfoMedia") which is a general partner of 21st
Partners, 21st T-E and 21st Foreign; (ii) a trustee of the Foundation;
and (iii) a general partner of each of Wheatley II, Seneca, the
Woodland Fund and Woodland Partners. Mr. Rubenstein disclaims
beneficial ownership of these securities, except to the extent of his
equity interest therein.
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<PAGE>
(3) Based on the February 2000 13D, Irwin Lieber has sole beneficial
ownership of 6,000 shares of Common Stock. By virtue of being a
stockholder, officer and director of InfoMedia and a general partner of
Wheatley II, Irwin Lieber may be deemed to share beneficial ownership
of 4,585,951 shares of Common Stock. Mr. Lieber disclaims beneficial
ownership of these securities, except to the extent of his equity
ownership therein.
(4) Based on the February 2000 13D, this amount includes 178,708 shares of
Common Stock. 21st Foreign disclaims beneficial ownership of 1,353,661
shares of Common Stock owned by 21st Partners and 465,582 shares of
Common Stock owned by 21st T-E.
(5) Based on the February 2000 13D, this amount includes 1,353,661 shares
of Common Stock. 21st Partners disclaims beneficial ownership of
465,582 shares of Common Stock owned by 21st T-E and 178,708 shares of
Common Stock owned by 21st Foreign.
(6) Based on the February 2000 13D, this amount includes 465,582 shares of
Common Stock. 21st T-E disclaims beneficial ownership of 1,353,661
shares of Common Stock owned by 21st Partners and 178,708 shares of
Common Stock owned by 21st Foreign.
(7) Based on the February 2000 13D, Messrs. Marocco, Lewis, Kornreich, H.
Sandler, A. Sandler, Schimmel, Lee and Ms. Stone are each the sole or
majority stockholder, officer and director of an entity which is a
general partner of an entity which is a general partner of 21st
Partners, 21st T-E and 21st Foreign. Accordingly, they may each be
deemed to share beneficial ownership of 1,997,951 shares of Common
Stock which are collectively held by 21st Partners, 21st T-E and 21st
Foreign. Each individual disclaims beneficial ownership of these
securities, except to the extent of his equity interest therein.
(8) Based on the February 2000 13D, Barry Fingerhut has sole beneficial
ownership of 1,000 shares of Common Stock. By virtue of being a
stockholder, officer and director of InfoMedia and a general partner of
Wheatley II, Barry Fingerhut may be deemed to share beneficial
ownership of 4,585,951 shares of Common Stock. Mr. Fingerhut disclaims
beneficial ownership of these securities, except to the extent of his
equity interest therein.
(9) Based on the February 2000 13D, these amounts include 2,588,000 shares
of Common Stock beneficially owned by Wheatley II. By virtue of being a
general partner of Wheatley II, Applewood Capital may be deemed to
share beneficial ownership of these shares. In addition, by virtue of
being officers of Applewood Capital, Seth and Jonathan Lieber may also
be deemed to share beneficial ownership of these shares. Applewood
Capital, Seth Lieber, and Jonathan Lieber each disclaim beneficial
ownership of these securities, except to the extent of their equity
interests therein.
(10) Consists of 893,053 shares of Common Stock issuable upon exercise of
presently exercisable options and 10,000 shares owned by the AnnMar
Manufacturing Inc. Employee Pension Plan as trustee and 7,000 shares
owned jointly by Mr. Gyenes and his wife.
(11) Consists of 2,500 shares of Common Stock and 25,000 shares of Common
Stock issuable upon exercise of presently exercisable options granted
pursuant to the Outside Directors Plan.
(12) Consists of 35,000 shares of Common Stock issuable upon exercise of
presently exercisable options granted pursuant to the Outside
Directors' Plan.
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(13) Consists of 3,000 shares of Common Stock owned by Mr. Peter Gyenes,
35,000 shares of Common Stock issuable upon exercise of presently
exercisable options granted pursuant to the Outside Directors' Plan,
and 10,000 shares owned by the AnnMar Manufacturing Inc. Employee
Pension Plan as trustee.
(14) Consists of shares of Common Stock issuable upon the exercise of
presently exercisable options.
(15) Consists of 9,583 shares of Common Stock.
(16) Consists of 27,083 shares of Common Stock and presently exercisable
options to purchase 1,387,355 shares of Common Stock.
Summary of Cash and Certain Other Compensation
The following table sets forth the cash and non-cash compensation paid
or earned during the fiscal years ended May 31,1999, 1998 and 1997, by the
Chairman of the Board, President and Chief Executive Officer, and the Chief
Operating Officer of the Company's B2Bgalaxy subsidiary, the only other
executive officers of the Company or its subsidiaries whose salary and bonus
exceeded $100,000 with respect to the fiscal year ended May 31, 1999 (the "Named
Executive Officers.")
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
Securities
Name and Other Annual Underlying
Principal position Fiscal Year Salary($) Bonus($) Compensation Options(#)
- ----------------------------------------------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Andrew Gyenes, 1999 $125,000 - $10,851(1) 575,000
Chairman of the 1998 $125,000 - $10,500(1) -
Board 1997 $100,000 - $13,357(1) -
Edward Schroeder 1999 $120,000 $30,000 $10,882(1) 100,000
(2) President and 1998 $85,500 $41,250 $4,676(1) 300,000
Chief Executive 1997 - - - -
Officer
David Rowe (3) 1999 $140,000 $58,000 $3,664(1) 225,000
Chief Operating 1998 $11,818 $7,500 $612(1) -
Officer 1997 - - - -
</TABLE>
- ---------------------
(1) Represents payments by the Company for a leased automobile and related
insurance and amounts paid by the Company toward health insurance
premiums.
(2) Mr. Schroeder's employment commenced September 15, 1997.
-11-
<PAGE>
(3) Mr. Rowe's employment commenced April 27, 1998.
Option Grants in Last Fiscal Year
The following table provides further information with respect to the
options granted in fiscal 1999 to Mr. Schroeder and Mr. Rowe under the 1994
Plan.
STOCK OPTION TABLE
<TABLE>
<CAPTION>
Number o
Securities % of Total Options
Name and Principal Underlying Granted-to-Employees Exercise of
Position Option in Fiscal Year Base Price Expiration Date
-------- ------ -------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Edward Schroeder 100,000 9.5% $1.06 09/04/03
President and Chief
Executive Officer
David Rowe 35,000 3.0% $2.40 04/27/03
Chief Operating
Officer of B2Bgalaxy
65,000 6.0% $1.75 06/01/03
50,000 4.7% $0.81 06/01/03
25,000 2.3% $0.81 09/15/08
50,000 4.7% $1.40 12/24/03
</TABLE>
The following table shows, for the named Executive Officers, the number
of shares covered by both exercisable and unexercisable employee stock options
as of May 31, 1999, and the values for the "in-the-money" options, which
represent the positive spread between the exercise price of any outstanding
stock options and the price of Common Stock as of May 31, 1999 which was $2.625.
Fiscal Year End Option Values
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options at FY in the Money Options at
End(#) FY-End($)
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Andrew Gyenes 875,000/25,000 $336,875/$0
Edward Schroeder 175,000/225,000 $97,211/$183,989
David Rowe 52,222/172,778 $51,763/$209,617
</TABLE>
-12-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February 1998, the Company consummated an exchange offer whereby the
Company issued one share of Common Stock for every 2.8 Common Stock Purchase
Warrants tendered in the exchange offer. The following 5% or greater
stockholders (or entities affiliated with 5% or greater stockholders) purchased
Common Stock of the Company: Applewood (446,429 shares), Seneca (35,714 shares),
21st Foreign (34,286 shares), 21st T-E (103,036 shares), Woodland (35,714
shares) and Woodland Fund (53,571 shares).
In February 1998, the Company consummated a private placement of 2,000
shares of Class B Preferred Stock at a purchase price of $1,000 per share. The
following entities which may be deemed to be 5% stockholders of the Company (or
entities affiliated with 5% or greater stockholders) purchased Class B Preferred
Stock in the private placement: Wheatley II (1,500 Shares) and Woodland Partners
(250 Shares). Each share of Class B Preferred Stock was subsequently exchanged
for .8 of a share of Class D Preferred Stock. Each share of Class D Preferred
Stock was subsequently converted into 1,250 shares of Common Stock.
On November 10, 1998, the Company consummated a private placement of
1,600 shares of newly created Class D Preferred Stock for $1,250 per share. The
following entities which may be deemed to be 5% stockholders of the Company
purchased Class D Preferred Stock in the private placement: Wheatley II, 21st
Foreign, 21st T-E and 21st Partners. Each share of Class D Preferred Stock was
subsequently converted into 1,250 shares of Common Stock.
In October 1999, Barry Rubenstein, a 5% stockholder, exercised options
to purchase 200,000 shares of common stock at an exercise price of $2.35 per
share.
In April 2000, B2Bgalaxy consummated a private placement of Class A
Preferred Stock The purchase price per share was $1,000. Each share of Class A
Convertible Preferred Stock of B2Bgalaxy can be converted into Common Stock of
the Company under certain conditions. The following 5% or greater stockholders
(or entities affiliated with 5% or greater stockholders) purchased shares of
Class A Preferred Stock of B2Bgalaxy.com: Seneca (50 shares), Wheatley Foreign
Partners, L.P. (24 shares), Wheatley Partners, L.P. (276 shares), Woodland
Partners (50 shares), and Woodland Ventures Fund (100 shares).
In February 2000, B2Bgalaxy consummated a private placement of common
stock. The purchase price per share was $2.80. The following 5% or greater
stockholders (or entities affiliated with 5% or greater stockholders) and
Directors and officers of the Company purchased Common Stock of B2Bgalaxy in
which the consideration paid by such individuals or entities exceeded $60,000;
Wheatley Partners, L.P.(1,764,405 shares); Wheatley Foreign Partners, L.P.
(28,452 shares); Seneca (178,571 shares); Woodland Fund (357,143); Woodland
Partners (178,571); Brookwood Partners, L.P. (71,429 shares); Barry Rubenstein
(107,143 shares); Irwin Lieber (107,143 shares); Barry Fingerhut (107,143
shares); and Andrew Gyenes (35,000 shares).
All of the above transactions resulted from arms-length negotiations
and were approved by the independent members of the Company's Board of Directors
who did not have an interest in the transactions. The Company believes that the
terms of such transactions were on terms that were no less favorable than were
available from unaffiliated third parties. Future and ongoing transactions with
affiliates of the Company, if any, will be on terms believed by the Company to
be no less favorable than are available from unaffiliated third parties and will
be approved by a majority of the independent members of the Company's Board of
Directors who do not have an interest in the transaction.
-13-
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors, executive officers, and persons who own more
than 10% of a registered class of the Company's equity securities, to file
initial reports of ownership and reports of changes in ownership of the Common
Stock and other equity securities of the Company with the Securities and
Exchange Commission (the "SEC"). Executive officers, directors and beneficial
owners of greater than 10% of the Common Stock are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on its review of the copies of
such forms furnished to the Company and written representations from certain
reporting persons that no other reports or forms were required for such persons,
during the fiscal year ended May 31, 1999 all Section 16(a) filing requirements
applicable to its officers, directors and greater than 10% owners were
satisfied.
APPROVAL OF AMENDMENT TO THE COMPANY'S
1994 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
General
The Board has approved an amendment to the 1994 Plan, whereby the
number of shares reserved for issuance pursuant to the exercise of options
granted under the Outside Directors Plan will be increased from 3,250,000 shares
of Common Stock to 4,500,000 shares of Common Stock, and recommended that it be
submitted to the Company's stockholders at the Annual Meeting for their
ratification.
The Company has adopted the 1994 Plan to attract, retain and provide
incentive to employees. Under the 1994 Plan and amendments thereto, options may
be granted from time to time to employees of the Company or of any subsidiary.
Summary of the Amendment to the 1994 Plan
The amendment to the 1994 Plan, if approved by the stockholders, will
increase the number of shares of Common Stock authorized for issuance upon
exercise of the options granted pursuant to the 1994 Plan from 3,250,000 to
4,500,000. The Board believes that the proposed increase in the number of shares
available for issuance under the 1994 Plan is necessary to continue the
effectiveness of the 1994 Plan in attracting, motivating and retaining employees
with appropriate experience and ability and to increase the grantees' alignment
of interest with the Company's stockholders.
If the amendment to the 1994 Plan is approved, the first sentence of
Section 4 of the 1994 Plan will read as follows in its entirety:
"Subject to adjustment as provided in Section 7 hereof, a
total of four million five hundred thousand (4,500,000) shares
of the Company's Common Stock $.01 par value (the "Stock")
shall be subject to the Plan."
-14-
<PAGE>
Summary of Plan
The 1994 Plan is administered by the Compensation and Stock Option
Committee, which consists of two non-employee directors. The Compensation and
Stock Option Committee is generally empowered to interpret the 1994 Plan,
prescribe rules and regulations relating thereto, determine the terms of the
option agreements, amend them with the consent of the optionee, determine the
employees to whom options are being granted, and determine the number of shares
subject to each option and the exercise price thereof. Under the 1994 Plan, the
per-share exercise price for incentive stock options ("ISOs") will not be less
than 100% of the fair market value of a share of Common Stock on the date the
option is granted (110% of fair market value on the date of grant of an ISO if
the optionee owns more than 10% of all classes of stock of the Company) and for
non-qualified stock options ("NQSOs") will not be less than 75% of the fair
market value of the Common Stock on the date of grant. Upon exercise of an
option, the optionee may pay the purchase price in cash, by check or, as
determined by the Compensation and Stock Option Committee, with previously
acquired securities of the Company, provided that, with respect to incentive
stock options applicable holding requirements under the Internal Revenue Code of
1986 (the "Code") are satisfied.
Options granted pursuant to the 1994 Plan may be designated as ISOs,
with the attendant tax benefits provided under Sections 421 and 422 of the Code.
Accordingly, the 1994 Plan provides that the aggregate fair market value
(determined at the time an ISO is granted) of the Common Stock subject to ISOs
exercisable for the first time by an employee during any calendar year (under
all plans of the Company and its subsidiaries) may not exceed $100,000.
The Board may amend, suspend or terminate the 1994 Plan; provided,
however, that the 1994 Plan may not be amended without stockholder approval to
the extent that such approval is required (i) for the 1994 Plan to meet the
requirements of Rule 16b-3, or (ii) by any other provision of applicable law.
The Compensation and Stock Option Committee may amend the terms of options
previously granted; provided, however, that no such amendment may impair an
optionee's rights under an option previously granted without the consent of the
optionee.
Options may not be transferred other than by will or the laws of
descent and distribution, and options may be exercised solely by the optionee
during his or her lifetime. No options may be granted pursuant to the 1994 Plan
on or after January 3, 2004.
New Plan Benefits
Grants under the 1994 Plan are generally made at the discretion of the
Compensation and Stock Option Committee and are therefore not determinable with
respect to dollar value or amount. The following table sets forth the total
number of Options granted under the 1994 Plan during the 1999 and 2000 fiscal
years and the dollar value of such Options as of February 16, 2000 based on the
closing trading price of the Common Stock on such date.
-15-
<PAGE>
NEW PLAN BENEFITS - 1994 PLAN
Number of Options
Granted in Fiscal
Name and Position Dollar Value ($) 1999 and 2000
----------------- ---------------- -------------
Edward Schroeder $356,300 225,000
Andrew Gyenes $650,000 100,000
Ken Gruber $113,475 105,000
Executive Group $1,474,810 675,000
Non-Executive Director Group $257,812 45,000
Non-Executive Officer Group - -
Registration of Shares
The Company has filed a registration statement under the Securities Act
with respect to 3,250,000 shares of Common Stock issuable pursuant to the Plan.
The Company intends to file an additional registration statement under the
Securities Act with respect to the additional 1,250,000 shares of Common Stock
issuable pursuant to the amendment's approval by the Company's stockholders.
Required Vote
Approval of this proposal requires the affirmative vote of a majority
of the total votes cast on the proposal in person or by proxy.
THE BOARD RECOMMENDS A VOTE IN FAVOR OF THE APPROVAL
OF THE AMENDMENT TO THE 1994 PLAN
APPROVAL OF THE AMENDMENTS TO THE COMPANY'S
1995 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
General
The Board has approved amendments to the Outside Directors Plan,
whereby (i) the number of shares reserved for issuance pursuant to the exercise
of options granted under the Outside Directors Plan will be increased from
150,000 shares of Common Stock to 500,000 shares of Common Stock and (ii) the
number of shares subject to options that may be granted to a director in any
calendar year will be increased from 5,000 to 10,000, and recommended that they
be submitted to the Company's stockholders at the Annual Meeting for their
ratification.
The Outside Directors Plan is designed to advance the interests of the
Company by inducing persons of outstanding ability and potential to join and
remain with the Company as directors, by encouraging and enabling non-employee
directors to acquire proprietary interests in the Company and by providing
participating non-employee directors with additional incentive to promote the
success of the Company.
-16-
<PAGE>
Summary of Amendments to the Outside Directors Plan
The amendments to the Outside Directors Plan, if approved by the
stockholders, will increase from (i) 150,000 to 500,000 the number of shares of
Common Stock authorized for issuance upon exercise of options granted pursuant
to the Outside Directors Plan and (ii) 5,000 to 10,000 the number of shares
authorized for issuance upon the exercise of options granted to any non-employee
director in any calendar year. The Board believes that the proposed amendments
to the Outside Directors Plan are necessary to continue the effectiveness of the
Outside Directors Plan in inducing persons of outstanding ability and potential
to join and remain with the Company as directors, by encouraging and enabling
non-employee directors to acquire proprietary interests in the Company and by
providing participating non-employee directors with additional incentive to
promote the success of the Company.
If the amendments to the Outside Directors Plan is approved, all
references to 5,000 in Section II(b) of the Outside Directors Plan will change
to 10,000 and the first sentence of Section IV of the Outside Directors Plan
will read as follows:
"Subject to adjustment as provided in Section 7 hereof, a
total of five hundred thousand (500,000) shares of common
stock, $.01 par value ("Stock"), of the Company shall be
subject to the Plan."
Summary of Plan
The purpose of the Outside Directors Plan is to promote the growth and
profitability of the Company, to provide outside directors of the Company with
an incentive to achieve the long-term objectives of the Company, to attract and
retain non-employee directors of outstanding competence and to provide them with
an opportunity to acquire an equity interest in the Company.
The Outside Directors Plan provides for the granting of options
("Options" or "Nonqualified Stock Options") which are not intended to satisfy
the requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"). An aggregate of 150,000 shares of Common Stock (subject to
adjustment in the event of certain corporate events) have been reserved for
issuance under the Outside Directors Plan, which number of shares will be
increased to 500,000 if the proposed amendment is ratified.
The Outside Directors Plan is intended to be "formula award" plan as
recognized by Rule 16b-3(c)(2)(ii) promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and the Outside Directors Plan will be
administered accordingly. To the extent consistent with such intent, the Outside
Directors Plan shall be administered by the Committee. Awards of Options under
the Outside Directors Plan are automatic.
Each member of the Board who is not also an employee of the Company
(each, for purposes of the Outside Directors Plan, an "Outside Director") is
eligible to receive Options under the Outside Directors Plan.
All Options granted under the Outside Directors Plan will be
exercisable as to 100% of the shares of Common Stock subject thereto as of the
date of grant of the Option. Options expire on the earlier of (i) 60 months from
the date of grant or (ii) one year following the date on which the Outside
Director ceases to serve in such capacity for any reason other than for cause.
If an Outside Director's service is terminated for cause, all Options awarded to
such Outside Director expire on such cessation of service. If an Outside
Director dies before fully exercising any portion of an Option then exercisable,
such Option may be exercised by such Outside Director's personal representative,
designee, heir or
-17-
<PAGE>
devisee at any time within the one year period following the date of such
Outside Director's death, but in no event later than 60 months following the
date of grant.
The exercise price for Options is the fair market value of the Common
Stock on the date of grant. An Option granted under the Outside Directors Plan
may be exercised by delivering to the Chief Executive Officer of the Company
payment of the full purchase price of such shares in cash or previously acquired
Common Shares.
As of February 16, 2000, three Outside Directors were eligible to
participate in the Outside Directors Plan. As of February 16, 2000, Options to
purchase 110,000 shares of Common Stock, at exercise prices ranging from $1.56
to $7.25 per share have been granted under the Outside Directors Plan. Options
to purchase 25,000 shares of Common Stock were exercised in 1999 and in 2000
through the Record Date. Options to purchase 95,000 shares of Common Stock were
outstanding as of February 16, 2000.
The following table sets forth the total number of options granted
under the Outside Directors Plan during the 1999 and 2000 fiscal years and the
dollar value of such Options as of February 16, 2000 based on the closing
trading price of the Common Stock on such date.
NEW PLAN BENEFITS - OUTSIDE DIRECTORS PLAN
Number of Options Granted
Position Dollar Value ($) in Fiscal 1999 and 2000
-------- ---------------- --------------------
Non-Executive Director Group $281250 45,000
Registration of Shares
The Company has filed a registration statement under the Securities Act
with respect to 150,000 shares of Common Stock issuable pursuant to the Outside
Directors Plan. The Company intends to file an additional registration statement
under the Securities Act with respect to the additional 350,000 shares of Common
Stock issuable pursuant to the amendment subsequent to the amendment's approval
by the Company's stockholders.
Required Vote
Approval of this proposal requires the affirmative vote of a majority
of the total votes cast on the proposal in person or by proxy.
THE BOARD RECOMMENDS A VOTE IN FAVOR OF THE APPROVAL
OF THE AMENDMENTS TO THE OUTSIDE DIRECTORS PLAN
-18-
<PAGE>
RATIFICATION OF AMENDMENT TO THE COMPANY
1994 STOCK OPTION PLAN FOR CONSULTANTS
General
The Board has approved an amendment to the Consultant Plan, whereby the
number of shares reserved for issuance pursuant to the exercise of options
granted under the 1995 Plan will be increased from 1,000,000 shares of Common
Stock to 1,600,000 shares of Common Stock, and recommended that it be submitted
to the Company's stockholders at the Annual Meeting for their ratification. The
Consultant Plan is designed to advance the interests of the Company by
encouraging and enabling certain of the Company's consultants to acquire
proprietary interests in the Company and by providing participating consultants
with additional incentive to promote the success of the Company.
Summary of Amendment to the Consultant Plan
The amendment to the Consultant Plan, if approved by the stockholders,
will increase from 1,000,000 to 1,600,000 the number of shares of Common Stock
authorized for issuance upon exercise of options granted pursuant to the
Consultant Plan. The Board believes that the proposed increase in the number of
shares available for issuance under the Consultant Plan is necessary to continue
the effectiveness of the Consultant Plan in attracting, motivating, and
retaining consultants with appropriate experience and ability, and to increase
the grantees' alignment of interest with the Company's stockholders.
If the amendment to the Consultant Plan is allowed, the first sentence
of Section 4 of the Consultant Plan will read as follows:
"Subject to adjustment as provided in Section 7 hereof, a
total of one million six hundred thousand (1,600,000) shares
of common stock, $.01 par value ("Stock"), of the Company
shall be subject to the Plan."
Summary of Plan
The purpose of the Consultant Plan is to provide non-cash remuneration
to consultants (including director/consultants) whose services are considered
valuable, to encourage the sense of proprietorship and to stimulate the active
interest of such person in the development and financial success of the Company
and its subsidiaries.
The Consultant Plan provides for the granting of options ("Options" or
"Nonqualified Stock Options") that are not intended to satisfy the requirements
of Section 422 of the Internal Revenue code of 1986, as amended (the "Code"). An
aggregate of 1,000,000 shares of Common Stock (subject to adjustment in the
event of certain corporate events) have been reserved for issuance under the
Consultant Plan, which number of shares will be increased to 1,600,000 if the
proposed amendment is ratified.
Consultants, including persons who also serve as directors of the
Company or any subsidiary thereof, (each, for purposes of the Consultant Plan, a
"Consultant") are eligible to receive Options under the Plan.
-19-
<PAGE>
The Consultant Plan is administered by the Committee, which is composed
of two or more directors who are not employees of the Company. The composition
of the Committee is intended to at all times satisfy the provisions of Rule
16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any successor thereof. The Committee determines to whom Options are
granted, the number of shares of Common Stock subject to the Options granted,
the exercise price thereof, and the terms of such Options. No Option will be
granted under the Consultant Plan to any member of the Committee during his or
her term of membership.
The exercise price for Options will be determined by the Committee, but
will not be less than100% of the fair market value of the Common Stock on the
date of grant. Options are exercisable as to 100% of the shares of Common Stock
subject thereto not later than one year after the date of grant unless a shorter
vesting schedule is otherwise determined by the Committee. The term of each
Option is determined by the Committee, but no Option will be exercisable more
than ten year from the date of grant.
If an optionee's consultancy with the Company or any subsidiary thereof
is terminated for any reason, the Option may thereafter be immediately
exercised, to the extent then exercisable (or on such accelerated basis as the
Committee determines at or after the grant), by the optionee (or, if the
consultancy is terminated by the optionee's death, by the legal representative
of the estate or by the legatee of the optionee) for a period of one year from
the date of such termination, or until the expiration of the term of the Option,
whichever period is shorter, provided that if the optionee should die after his
or her consultancy has terminated for "Disability" (as defined in the Consultant
Plan), the Option will remain exercisable to the extent then exercisable at the
time of the optionee's death, for one year from the date of such optionee's
death or the stated term of the Option, whichever period is shorter.
An Option granted under the Consultant Plan may be exercised by payment
of the full purchase price of such shares in cash, check of such other
instrument as may be acceptable to the Committee, which may include previously
acquired Common Shares.
As of the date hereof, stock options to purchase 554,080 shares of
Common Stock, at exercise prices ranging from $1.75 to $3.75 per share have been
granted under the Consultant Plan, of which no options have lapsed. Options to
purchase 265,000 shares of Common Stock were exercised in 1999 and in 2000
through the Record Date. Options to purchase 289,080 shares of Common Stock were
outstanding as of February 16, 2000. During the last completed fiscal year and
through the Record Date, no options to purchase shares of Common Stock have been
granted pursuant to the Consultant Plan to (i) the Named Executive Officers,
(ii) all current executive officers as a group (iii) Outside Directors or (iv)
any employees.
No Option may be granted under the Consultant Plan on or after August
17, 2004.
Registration of Shares
The Company has filed a registration statement under the Securities Act
with respect to 1,000,000 shares of Common Stock issuable pursuant to the
Consultant Plan. The Company intends to file an additional registration
statement under the Securities Act with respect to the additional 600,000 shares
of Common Stock issuable pursuant to the Consultant Plan amendment subsequent to
the Consultant Plan amendment's approval by the Company's stockholders.
-20-
<PAGE>
Required Vote
Approval of this proposal requires the affirmative vote of a majority
of the total votes cast on the proposal in person or by proxy.
THE BOARD RECOMMENDS A VOTE IN FAVOR OF THE APPROVAL
OF THE AMENDMENT TO THE CONSULTANT PLAN.
ADJOURNMENT OF ANNUAL METING
Each proxy solicited hereby requests authority to vote for an
adjournment of the Annual Meeting, if an adjournment is deemed to be necessary.
Each proxy solicited hereby, if properly signed and returned to the Company and
not revoked prior to its use, will be voted on any motion for adjournment in
accordance with the instructions contained therein. If no contrary instructions
are given, each proxy received will be voted in favor of any motion to adjourn
the meeting. Unless revoked prior to its use, any proxy solicited for the Annual
Meeting will continue to be valid for any adjournment of the Annual Meeting, and
will be voted in accordance with instructions therein, and if no contrary
instructions are given, for the proposal in question.
Any adjournment will permit the Company to solicit additional proxies
and will permit a greater expression of the stockholders' views. Such an
adjournment would be disadvantageous to stockholders who are against any given
proposal, because an adjournment will give the Company additional time to
solicit favorable votes and thus increase the chances of passing such proposal.
If a quorum is not present at the Annual Meeting, no proposal will be
acted upon and the Board of Directors will adjourn the Annual Meeting to a later
date in order to solicit additional proxies on each of the proposals being
submitted to stockholders.
SUBMISSION OF STOCKHOLDER PROPOSALS
Proposals of stockholders intending to be presented at the Company's
2000 Annual Meeting of Stockholders must be received by the Company, 584
Broadway, Suite 509, New York, New York 10012 by November 17, 2000 in order to
be considered for inclusion in the 2000 Proxy Statement.
RELATIONSHIP WITH INDEPENDENT AUDITORS
The Audit Committee of the Board of the Company approved the engagement
of the independent auditing firm of KPMG Peat Marwick LLP ("KPMG") to serve as
the Company's independent auditors for the fiscal year ending May 31, 2000.
Representatives of KPMG are expected to be available at the Annual Meeting and
will have the opportunity to make a statement if they so desire. Such
representatives are expected to be available to respond to appropriate questions
from stockholders.
OTHER BUSINESS
The Company knows of no other business that will be presented for
consideration at the Annual Meeting other than that described in this Proxy
Statement. As to other business, if any, that may properly come before the
Annual Meeting, it is intended that proxies by the Board will be voted in
accordance with the judgement of the person or persons voting the proxy.
-21-
<PAGE>
ANNUAL REPORTS AND FINANCIAL STATEMENTS
Stockholders of the Company as of the Record Date for the Annual
Meeting are being forwarded a copy of the Company's Annual Report to
Stockholders for the twelve months ended May 31, 1999 (the "Annual Report").
Included in the Annual Report are the Annual Report on Form 10-KSB/A (exclusive
of exhibits) as amended with the Securities and Exchange Commission, and the
consolidated statements of financial condition of the Company as of May 31, 1999
and 1998 and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years ended May 31,
1999, prepared in accordance with generally accepted accounting principles. A
copy of the Company's Form 10-KSB, for the fiscal year ended May 31, 1999 and
Forms 10-QSBs, for the quarterly periods ended August 31, 1999 and November 30,
1999 are available, upon written request, at no charge to all stockholders. For
a copy, write to Cornerstone Internet Solutions Company, 584 Broadway, Suite
509, New York, New York 10012 Attention: Investor Relations Department.
BY ORDER OF THE BOARD OF DIRECTORS
Edward Schroeder President and
Chief Executive Officer
New York, New York
March 16, 2000
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<PAGE>
REVOCABLE PROXY - CORNERSTONE INTERNET SOLUTIONS COMPANY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints Andrew Gyenes and Kenneth Gruber, and
each of them, proxies, with full powers of substitution, to act for and in the
name of the undersigned to vote all shares of the Common Stock, $.01 par value,
of CORNERSTONE INTERNET SOLUTIONS COMPANY (the "Company"), which the undersigned
is entitled to vote at the Annual Meeting of Stockholders (the "Annual Meeting")
and any adjournment thereof. The Annual Meeting will be held at the Mayfair
Farms, West Orange, New Jersey on Thursday April 13, 2000 at 10:00 A.M., local
time.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES FOR
DIRECTORS LISTED BELOW AND "FOR" PROPOSALS 2 THROUGH 4.
1. ELECTION OF DIRECTORS
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY
(except as marked to the to vote for all
contrary below) nominees
Edward Schroeder, Rino Bergonzi, Andrew Gyenes,
Peter Gyenes and Harrison Weaver
(INSTRUCTION: To withhold authority to vote for any individual
nominee, print that nominee's name on the line provided below.)
2. The approval of the amendment to the Company's 1994 Incentive and
Non-Qualified Stock Option Plan.
FOR / / AGAINST / / ABSTAIN / /
3. The approval of the amendments to the Company's 1995 Stock Option Plan for
Outside Directors.
FOR / / AGAINST / / ABSTAIN / /
4. The approval of the amendment to the Company's 1995 Consultant Stock Option
Plan.
FOR / / AGAINST / / ABSTAIN / /
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The shares represented by this proxy will be voted as directed by the
undersigned. IF NO INSTRUCTIONS ARE SPECIFIED, THE UNDERSIGNED'S VOTE WILL BE
CAST "FOR" THE ELECTION OF THE NOMINEES NAMED IN PROPOSAL 1, "FOR" PROPOSAL 2,
"FOR" PROPOSAL 3, "FOR" PROPOSAL 4 AND IN THE DISCRETION OF THE PROXIES AS TO
ANY OTHER MATTERS PRESENTED AT THE ANNUAL MEETING. At the present time, the
Board of Directors knows of no other business to be presented at the Annual
Meeting.
The undersigned stockholder may revoke this proxy at any time before it is voted
by delivering to the Secretary of the Company either a written revocation of the
proxy or a duly executed proxy bearing a later date, or by appearing at the
Annual Meeting and voting the shares subject to the proxy by written ballot.
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the Annual Meeting and any adjournment thereof.
Please sign exactly as your name appears on the certificate or certificates
representing shares to be voted by this proxy. When shares are held jointly,
both holders should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give your full title. If the signer is a
corporation, the full corporate name should be signed by a duly authorized
officer.
-------------------------------------
Signature
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Signature, if held jointly
Date: _________________________, 2000
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY CARD IN THE ENCLOSED
PREPAID ENVELOPE.
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