SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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Rule 14a-11(c) or Rule 14a-12
The Network Connection, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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[X] No fee required.
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2) Aggregate number of securities to which transaction applies:
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number, or the form or schedule and the date of its filing.
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THE NETWORK CONNECTION, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 11, 2000
To the Shareholders of THE NETWORK CONNECTION, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting (the "Meeting") of
Shareholders of The Network Connection, Inc. (the "Company" or the
"Corporation") will be held at the Rihga Royal Hotel, located at 151 West 54th
Street, New York, New York on Thursday, May 11, 2000, at 2:00 p.m. local time,
for the following purposes:
1. To elect four (4) directors to hold office as follows: two
directors to hold office until the 2001 Annual Meeting; one director to hold
office until the 2002 Annual Meeting; and one director to hold office until 2003
Annual Meeting.
2. To ratify the selection of KPMG LLP as auditors of the Company for
the fiscal year ending June 30, 2000; and
3. To transact such other business as may properly come before the
meeting and at any postponements or adjournments thereof.
The Board of Directors has fixed the close of business on March 17, 2000 as
the record date for the determination of shareholders entitled to notice of, and
to vote at, the Meeting and at any postponements or adjournments thereof. Only
shareholders of record at the close of business on March 17, 2000, will be
entitled to notice of and to vote at the meeting or any adjournment or
adjournments thereof.
April 19, 2000 By Order of The Board of Directors
/s/ Morris C. Aaron
----------------------------------------
Morris C. Aaron
Secretary
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN AND
RETURN YOUR PROXY CARD PROMPTLY IN THE ENCLOSED STAMPED ENVELOPE PROVIDED FOR
YOUR USE. IF YOU DO ATTEND THE MEETING AND DECIDE THAT YOU WISH TO VOTE IN
PERSON, YOU MAY WITHDRAW YOUR PROXY.
<PAGE>
THE NETWORK CONNECTION, INC.
1811 Chestnut Street
Suite 110
Philadelphia, Pennsylvania 19103
(215) 832-1046
PROXY STATEMENT
For the Annual Meeting of Shareholders
To be Held on May 11, 2000
GENERAL INFORMATION CONCERNING THE SOLICITATION
This proxy statement is furnished in connection with the solicitation of
proxies by and on behalf of the Board of Directors of The Network Connection,
Inc. (the "Company"), for its Annual Meeting of Shareholders (the "Meeting") to
be held at the Rihga Royal Hotel, located at 151 West 54th Street, New York, New
York, on Thursday, May 11, 2000, and at any postponements or adjournments
thereof, at 2:00 p.m. local time. Shares cannot be voted at the Meeting unless
present in person or represented by proxy. Only holders of record of the
outstanding shares of the common stock of the Company and holders of record of
the outstanding shares of Series D Preferred Stock of the Company at the close
of business on March 17, 2000 (the "Record Date"), will be entitled to vote at
the Meeting. Copies of this proxy statement and the accompanying form of proxy
shall be mailed to the shareholders of the Company on or about April 19, 2000,
accompanied by a copy of the Annual Report of the Company for the transition
period ended June 30, 1999 and a Letter to Shareholders.
If a proxy is properly executed and returned, the shares represented
thereby will be voted in accordance with the specifications made, or if no
specification is made the shares will be voted to approve each proposition and
to elect the nominees for director identified on the proxy. Any shareholder
giving a proxy has the power to revoke it at any time before it is voted by
filing with the Secretary of the Company a notice in writing revoking it. A
proxy may also be revoked by any shareholder present at the Meeting who
expresses a desire in writing to revoke a previously delivered proxy and to vote
his or her shares in person. The mere presence at the Meeting of the person
appointing a proxy does not revoke the appointment. In order to revoke a
properly executed and returned proxy, the Company must receive a duly executed
written revocation of that proxy before it is voted. A proxy received after a
vote is taken at the Meeting will not revoke a proxy received prior to the
Meeting; and a subsequently dated proxy received prior to the vote will revoke a
previously dated proxy.
The holders of a majority of all issued and outstanding shares of capital
stock of the Company entitled to vote, present in person or represented by
proxy, shall constitute a quorum at the Meeting. Treasury shares, if any, will
not be voted and are not counted in determining the number of outstanding shares
for voting purposes. Votes cast in person or by proxy at the Meeting will be
tabulated by the inspectors of elections appointed for the Meeting and will
determine whether or not a quorum is present. The inspectors of elections will
treat abstentions as shares that are present and entitled to vote for purposes
of determining the presence of a quorum, but as unvoted for purposes of
determining the approval of any matter submitted to the shareholders for a vote.
<PAGE>
If a broker indicates on the proxy that it does not have discretionary authority
as to certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter. If a
quorum is present at the Meeting, the persons receiving a plurality of the votes
cast for the election of directors shall be elected director. The Bylaws provide
that, except as otherwise provided by statute, the Articles of Incorporation of
the Company or the Bylaws, any corporate action to be taken by vote of the
shareholders shall be authorized by a majority of the votes cast at a meeting at
which a quorum is present. There are no rights of appraisal or similar rights of
dissenters with respect to any matter to be acted upon at the Meeting.
All expenses in connection with the solicitation of proxies, including the
cost of preparing, handling, printing and mailing the Notice of Annual Meeting,
Proxies and Proxy Statements, will be borne by the Company. Directors, officers
and regular employees of the Company, who will receive no additional
compensation therefor, may solicit proxies by telephone or personal call, the
cost of which will be nominal and will be borne by the Company. In addition, the
Company will reimburse brokerage houses and other institutions and fiduciaries
for their expenses in forwarding proxies and proxy soliciting material to their
principals.
ACTION TO BE TAKEN UNDER THE PROXY
Unless otherwise directed by the grantor of the proxy, the persons acting
under the accompanying proxy will vote the shares represented thereby: (a) for
the election of the persons named in the next succeeding table as nominees for
directors of the Company; (b) for the proposal to ratify the appointment of KPMG
LLP as the Company's independent auditors for the current fiscal year; and (c)
in connection with the transaction of such other business that may be brought
before the Meeting, in accordance with the judgment of the person or persons
voting the proxy.
I. ELECTION OF DIRECTORS
NOMINEES
At the Meeting, four directors are to be elected to hold office until the
annual meeting of Shareholders set forth below opposite their respective names
or until their successors shall be elected and shall qualify. The names of the
nominees for election as directors and certain information furnished to the
Company by such nominees with respect to themselves are set forth below. The
Company has a classified Board of Directors, with three classes of directors
(Class A, Class B and Class C). Each nominee has been allocated to a class as
set forth below, to hold office, subject to the provisions of the Bylaws, until
the annual meeting set forth opposite such nominee's name and until such
nominee's successor shall have been duly elected and qualified. Unless authority
to vote for any or all of the nominees is withheld, it is intended that shares
represented by proxies in the accompanying form will be voted for the election
of all of the following nominees. In the event that any of the nominees may
become unable or unwilling to accept nomination or election, it is intended that
the proxies will be voted for the election in any such nominee's stead of such
person(s), in substitution, as the Board of Directors may recommend. The Board
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does not know of any reason why any nominee will be unable or unwilling to serve
if elected.
Name and Age Class Term Expires
- ------------ ----- ------------
Irwin L. Gross, 56 C 2003 Annual Meeting
Robert Pringle, 38 B 2002 Annual Meeting
M. Moshe Porat, 52 A 2001 Annual Meeting
Stephen Schachman, 55 A 2001 Annual Meeting
IRWIN L. GROSS has been the Chairman of the Board of Directors and Chief
Executive Officer of the Company since May 18, 1999. He is also Chairman of the
Board of Directors and Chief Executive Officer of Global Technologies, Ltd.
("GTL"), a publicly held company listed on the Nasdaq National Market. GTL is a
technology incubator that invests in, develops and manages emerging growth
companies focused on e-commerce, networking solutions, telecommunications and
gaming. Mr. Gross also currently sits on the Board of Directors of U.S. Wireless
Corporation, a publicly held company listed on the Nasdaq SmallCap Market. Mr.
Gross is a founder of Rare Medium, Inc., a publicly held company listed on the
Nasdaq National Market, and was Chairman of the Board of Directors of Rare
Medium from 1984 to 1998. In addition, Mr. Gross served as the Chief Executive
Officer of Engelhard/ICC, a joint venture between Rare Medium and Engelhard. Mr.
Gross has served as a consultant to, investor in and director of, numerous
publicly held and private companies, and serves on the board of directors of
several charitable organizations. Mr. Gross has a Bachelor of Science degree in
Accounting from Temple University and a Juris Doctor degree from Villanova
University.
ROBERT PRINGLE has served as President and Chief Operating Officer of the
Company since March 5, 2000. He is also a nominee for director. Before his
employment with the Company, Mr. Pringle served as President and Chief Operating
Officer of InteliHealth, Inc. from September 1997 to October 1999. Prior
thereto, Mr. Pringle was Vice President of InteliHealth, Inc. from January 1996
to September 1997. Prior thereto, Mr. Pringle was Vice President of Reality
Online, Inc. from September 1994 to January 1996.
MORRIS C. AARON has been a director, Executive Vice President and Chief
Financial Officer of the Company since May 18, 1999. Mr. Aaron has notified the
Company that he does not wish to be nominated for another term as a director
upon the termination of his current term as of the Meeting in accordance with
the Bylaws. From September 1998 to December 1999, Mr. Aaron served as Senior
Vice-President and Chief Financial Officer of GTL. From January 1996 to
September 1998, Mr. Aaron was the Chief Financial Officer and Treasurer of
Employee Solutions, Inc., a publicly held company. From 1986 to 1996, Mr. Aaron
was with the firm of Arthur Andersen, LLP in the corporate finance and corporate
restructuring group. Mr. Aaron holds a Bachelors Degree in Accounting from
Pennsylvania State University, an M.B.A. from Columbia University and is a
Certified Public Accountant in the State of New York.
M. MOSHE PORAT has been a Director of the Company since May 18, 1999. Dr.
Porat is also a director of GTL. Since September 1996, Dr. Porat has served as
the Dean of the School of Business and Management at Temple University. From
1988 to 1996 he was Chairman of the Risk Management, Insurance and Actuarial
Science Department at Temple University. Dr. Porat received his undergraduat
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degree in economics and statistics (with distinction) from Tel Aviv University
and his M.B.A. (MAGNA CUM LAUDE) from the Recanati Graduate School of Management
at Tel Aviv University, and he completed his doctoral work at Temple University.
Dr. Porat is the Chairholder of the Joseph E. Boettner Professorship in Risk
Management and Insurance and has won several other awards in the insurance
field. He holds the CPCU professional designation, and is a member of ARIA
(American 25 Risk and Insurance Association), IIS (International Insurance
Society), RIMS (Risk and Insurance Management Society) and Society of CPCU. Dr.
Porat has authored several monographs on captive insurance companies and their
use in risk management, and has published numerous articles on captive insurance
companies, self-insurance and other financial and risk topics.
STEPHEN SCHACHMAN has been a Director of the Company since May 18, 1999.
Mr. Schachman is also a director of GTL. Since 1995, Mr. Schachman has been the
owner of his own consulting firm, Public Affairs Management, which is located in
the suburban Philadelphia area. From 1992 to 1995, Mr. Schachman was an
executive officer and consultant to Penn Fuel Gas Company, a supplier of natural
gas products. Prior thereto, he was an attorney with the Philadelphia law firm
Dilworth, Paxson, Kalish & Kaufman. Mr. Schachman was also an Executive Vice
President of Bell Atlantic Mobile Systems and prior thereto, President of the
Philadelphia Gas Works, the largest municipally owned gas company in the United
States. Mr. Schachman has a Bachelor of Arts degree from the University of
Pennsylvania and Juris Doctor degree from the Georgetown University Law School.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR
OF ALL OF THE NOMINEES FOR DIRECTOR.
COMMITTEES AND MEETINGS OF THE BOARD
The Company has Audit and Compensation Committees of its Board of
Directors. Messrs. Porat and Schachman are members of both the Audit and
Compensation Committees. The Company does not have a nominating committee.
During the year ended October 31, 1998 and the transition period ended June 30,
1999, there were two meetings of the Audit Committee and the Compensation
Committee. The function of the Audit Committee is to review the Company's
financial statements and its ongoing results of operations on a quarterly basis,
and to discuss and evaluate the financial controls that the Company has in place
in order to assess the integrity of the Company's operations and its accounting
and financial management practices. The function of the Compensation Committee
is to evaluate management's decisions with respect to overall compensation
levels for Company personnel, to make decisions with respect to the compensation
of the Company's senior management, and to administer the Company's 1994
Employee Stock Option Plan. The Company's Board of Directors held 15 meetings
during the year ended October 31, 1998 and the transition period ended June 30,
1999. No director attended fewer than 75% of the meetings of the Board of
Directors during any periods in which such person served as a director for such
periods.
All executive officers serve at the discretion of the Board of Directors.
There are no family relationships between any of the directors, nominees for
director or executive officers of the Company. There are no pending legal
proceedings to which any director, nominee for director or officer, or affiliate
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of the Company, or any owner of record or beneficially of more than five percent
of the common stock of the Company, or associate of any of them, is a party
adverse to the Company or has a material interest adverse to the Company.
II. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
FOR THE FISCAL YEAR ENDING JUNE 30, 2000
At the Meeting, a vote will be taken on a proposal to ratify the
appointment by the Board of Directors of KPMG LLP independent certified public
accountants, as the independent auditors of the Company for the fiscal year
ending June 30, 2000. KPMG LLP has no interest in or any relationship with the
Company except as its auditors.
CHANGE IN INDEPENDENT ACCOUNTANTS.
On May 18, 1999 the Company acquired the Interactive Entertainment Division
of GTL (See "Change of Control" on page 7). This transaction was treated as a
reverse acquisition of the Company by GTL. As a result of this reverse
acquisition, the Company determined to terminate its engagement of
PricewaterhouseCoopers, LLP as independent accountants, effective as of July 30,
1999.
None of the reports of PricewaterhouseCoopers on the financial statements
of the Company contained an adverse opinion or disclaimer of opinion, or was
modified as to uncertainty, audit scope or accounting principles, except that
such financial statements for the period ended December 31, 1998 contained a
modification as to the Company's ability to continue as a going concern.
There were no disagreements with PricewaterhouseCoopers, whether or not
resolved, on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which if not resolved to
the satisfaction of PricewaterhouseCoopers, would have caused it to make
reference to the subject matter of the disagreement in connection with its
report.
PricewaterhouseCoopers did not note any reportable conditions for the
period ended December 31, 1998. PricewaterhouseCoopers has not been engaged nor
has performed any audit procedures subsequent to their audit of the December 31,
1998 financial statements and up to the date of their termination.
The Board of Directors approved the decision to change accountants.
The Company engaged the firm of KPMG LLP, effective July 30, 1999, to audit
its financial statements commencing with the financial statements to be included
in the transition report to be filed on Form 10-KSB for the transition period
ended June 30, 1999.
Representatives of KPMG LLP will be present at the Meeting and will be
given an opportunity to make a statement to the shareholders if they so desire.
Such representatives will be available to respond to questions from
shareholders.
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THE BOARD OF DIRECTORS BELIEVES THE APPOINTMENT TO BE IN THE BEST INTEREST OF
THE COMPANY AND RECOMMENDS THAT IT BE RATIFIED
OTHER BUSINESS
While management of the Company does not know of any matters which may be
brought before the Meeting other than as set forth in the Notice of Meeting, the
proxy confers discretionary authority with respect to the transaction of any
other business. It is expected that the proxies will be voted in support of
management on any question that may properly be submitted to the meeting.
VOTING SECURITIES OUTSTANDING
As of the Record Date, there were 12,790,046 issued and outstanding shares
of common stock, par value $.001 per share ("Common Stock"), and 2,495,400
shares of Series D Convertible Preferred Stock, par value $.01 per share
("Series D Stock"). Each holder of Common Stock issued and outstanding on the
Record Date is entitled to one vote for each such share held on each matter of
business to be considered at the Meeting. Each holder of Series D Stock issued
and outstanding on the Record Date is entitled to six votes for each such share
held in each matter of business to be considered at the Meeting. As of the
Record Date, all issued and outstanding shares of (i) Common Stock represent a
total of 12,790,046 votes, (ii) Series D Stock represent a total of 14,972,400
votes and (iii) Common Stock and Series D Stock in the aggregate represent a
total of 27,762,446 votes.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information, as of March 31, 2000, with
respect to the number of shares of Common Stock, Series D Stock and Class A
Common Stock of GTL beneficially owned by persons known by the Company to own
more than 5% of Common Stock or Series D Stock, each of the Company's directors
and nominees for director, each of the Company's named executive officers, and
the Company's directors and executive officers as a group. Other than Common
Stock and the Series D Stock, the Company has no class of voting stock
outstanding.
<TABLE>
<CAPTION>
Series D Convertible Global Technologies
Common Stock Preferred Stock Class A Common Stock
- -------------------- ---------------------- ----------------------- -----------------------------
Name and Address of Number of Percent of Number of Percent of Percent of
Beneficial Owner (1) Shares Class (2) Shares Class Number of Shares Class (3)
- -------------------- ------ --------- ------ ----- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Irwin L. Gross 338,667(4) 2.6% -- -- 2,283,108(5) 21.0%
Morris C. Aaron 10,000(6) * -- -- 24,148(7) *
Frank Gomer 10,000(8) * -- -- 6,592(9) *
Wilbur L. Riner, Sr. (10) -- -- -- -- -- --
M. Moshe Porat -- -- -- -- 405,000(11) 3.9%
Stephen Schachman -- -- -- -- 26,400(12) *
Robert Pringle -- -- -- -- -- --
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Global Technologies, Ltd. 23,437,903(13) 80.9% 2,495,400(13) 100% -- --
All executive officers and
directors of the Company
as a group (7 persons) 358,667(14) 2.8% -- -- 2,745,248 25.13%
</TABLE>
- ----------
* Less than 1%.
(1) Except as otherwise indicated below, the address of each beneficial owner
is c/o The Network Connection, Inc., 1811 Chestnut Street, Philadelphia,
Pennsylvania 19103.
(2) Based on 12,790,046 shares of Common Stock outstanding.
(3) Based on 10,498,488 shares of Class A Common Stock outstanding.
(4) Includes 125,000 shares which may be acquired upon exercise of vested
options and 213,667 shares beneficially owned directly and indirectly
through various entities by Mr. Gross.
(5) Includes 50,949 shares owned by trusts for the benefit of Mr. Gross'
children as to which Mr. Gross disclaims beneficial ownership. Also
includes 375,000 shares issuable to Mr. Gross upon exercise of options
exercisable within 60 days.
(6) Represents 10,000 shares issuable to Mr. Aaron upon exercise of options
exercisable within 60 days. Mr. Aaron's address is 222 North 44th Street
Phoenix, AZ 85034.
(7) Includes 15,000 shares issuable to Mr. Aaron upon exercise of options
exercisable within 60 days.
(8) Represents 10,000 shares issuable to Mr. Gomer upon exercise of options
exercisable within 60 days. Mr. Gomer's address is 222 North 44th Street
Phoenix, AZ 85034.
(9) Includes 3,592 shares issuable to Mr. Gomer upon exercise of options
exercisable within 60 days.
(10) Does not include 420,120 shares held by Barbara Riner, Mr. Riner's wife.
Mr. Riner has disclaimed all beneficial interest in the shares held by his
wife. Mr. Riner's address is 1324 Union Hill Road, Alpharetta, GA 30201.
(11) Includes 375,000 shares over which Mr. Porat retains voting power pursuant
to a certain proxy agreement, and 15,000 shares issuable to Mr. Porat upon
exercise of options exercisable within 60 days.
(12) Includes 15,000 shares issuable to Mr. Schachman upon exercise of options
exercisable within 60 days.
(13) This information is presented in reliance on information disclosed in the
Schedule 13D (Amendment No. 2) filed with the Securities and Exchange
Commission on February 23, 2000. The address for Global Technologies is
1811 Chestnut Street, Suite 120, Philadelphia, Pennsylvania 19103.
(14) See footnotes 4, 6 and 8.
(15) See footnotes 5, 7, 9, 11 and 12.
CHANGE OF CONTROL
On May 18, 1999, GTL (formerly known as Interactive Flight Technologies,
Inc.) received from the Company 1,055,745 shares of its Common Stock and
2,495,400 shares of its Series D Stock in exchange for $4,250,000 in cash and
substantially all the assets and certain liabilities of GTL's Interactive
Entertainment Division ("IED") (the "Transaction"). The Transaction has been
accounted for as a reverse merger whereby, for accounting purposes, GTL is
considered the accounting acquiror and the Company is treated as the successor
to the historical operations of IED. Accordingly, the historical financial
statements of the Company, which previously have been reported to the Securities
and Exchange Commission ("SEC") on Forms 10-KSB and 10-QSB, among others, as of
and for all periods through March 31, 1999, have been replaced with those of
IED. The Company continues to file as a SEC registrant and continues to report
under the name The Network Connection, Inc. The financial statements as of and
for the years ended October 31, 1998 and 1997 reflect the historical results of
GTL's IED, as previously included in GTL's consolidated financial statements.
Included in the results of operations for the eight months ended June 30, 1999.
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are the historical results of GTL's IED through April 30, 1999, and the results
of the combined company for the two months ended June 30, 1999. The Transaction
date for accounting purposes was May 1, 1999. Contributed capital reflected the
cash consideration paid by GTL to the Company in the Transaction in addition to
funding of IED historical operations. GTL continues to report as a separate SEC
registrant, owning the shares of the Company as described above. As of June 30,
1999, the Company was a majority owned subsidiary of GTL whose ownership,
through a combination of transactions, including the Transaction and GTL's
purchase of Series B 8% preferred stock ("Series B Stock") of the Company and
110,000 shares of the Company's common stock from third party investors,
approximated 78% of the Company on an if-converted common stock basis. The
historical financial statements of the Company up to the date of the
Transaction, as previously reported, will no longer be included in future
filings of the Company.
GTL now beneficially owns, directly or indirectly 23,437,903 shares of
Common Stock, or 80.9% of the Common Stock of the Company, assuming conversion
of certain shares of Series B Stock and Series D Stock held by GTL, and exercise
of certain warrants to purchase shares of Common Stock. GTL currently owns all
of the outstanding shares of the Series D Stock and the Series B Stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and officers, and persons who own beneficially more than ten percent
(10%) of the Common Stock of the Company, to file reports of ownership and
changes of ownership with the Securities and Exchange Commission. Copies of all
reports are required to be furnished to the Company pursuant to Section 16(a).
Based solely on the reports received by the Company and on written
representations from reporting persons, the Company believes that during the
transition period ended June 30, 1999, all reports on Forms 3, 4 and 5 were
filed in a timely fashion, except for a Form 5 for Mr. Wilbur Riner, and a Form
4 for GTL reporting its conversion in December 1999 of the Secured Promissory
Note of the Company held by GTL.
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DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
DIRECTOR COMPENSATION
Each of the Company's non-employee directors is paid $1,000 for attendance
in person at each meeting of the Board of Directors and $500 for participation
in each telephonic Board meeting. In addition, each non-employee director
receives $500 for attendance at each meeting of a Board Committee of which he is
a member. In addition, the Company reimburses directors for their out-of-pocket
expenses incurred in connection with their service on the Board of Directors. On
June 11, 1999, Mr. Schachman and Dr. Porat were each granted a non-qualified
option under the 1995 Stock Option Plan for Non-Employee Directors to acquire
30,000 shares of our common stock at an exercise price of $2.25 per share, the
fair market value per share on the date of grant. All options granted to
non-employee directors vest in equal annual installments beginning June 11, 2000
and ending June 11, 2002.
EXECUTIVE COMPENSATION
The following table sets forth certain information for the transition
period ended June 30, 1999 and the Company's last three completed fiscal years
ended December 31, 1998, 1997 and 1996, with respect to compensation paid or
accrued by the Company to each person who served as its Chief Executive Officer
during such period, its other executive officers who were serving as such at
June 30, 1999 and whose combined salary and bonus exceeded $100,000, and one
other highly compensated officer who was not serving as an executive officer at
June 30, 1999.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
-------------------------------- ------------
Awards
------
Securities
Underlying
Name and Principal Position Year Salary ($) Other ($) (5) Options (#)
- --------------------------- ---- ---------- ------------- -----------
Irwin L. Gross 1999 -- -- --
Chairman of the Board and 1998 -- -- --
Chief Executive Officer (1) 1997 -- -- --
1996 -- -- --
Frank E. Gomer 1999 21,348 -- 50,000
President and Chief 1998 -- -- --
Operating Officer (1)(6) 1997 -- -- --
1996 -- -- --
Morris C. Aaron 1999 14,884 -- 50,000
Executive Vice President and 1998 -- -- --
Chief Financial Officer (1)(7) 1997 -- -- --
1996 -- -- --
Wilbur L. Riner, Sr 1999 104,000 3,600 25,000
Executive Vice President - 1998 156,000 22,900 100,000
Business Development (2) 1997 104,322 23,400 100,000
1996 101,414 24,375 20,000
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James E. Riner 1999 94,031 (3) 2,400 10,000
Vice President - Engineering 1998 91,790 3,600 25,000
1997 86,790 3,600 25,000
Bryan R. Carr 1999 70,000 2,800 --
Vice President - Finance and 1998 120,000 15,301 50,000
Chief Financial Officer (4) 1997 101,667 30,171 80,000
1996 95,625 18,888 99,000
- ----------
(1) Pursuant to the GTL acquisition of the Company, on May 18, 1999 Mr. Gross
became the Chairman of the Board of Directors, Mr. Aaron was appointed
Executive Vice President and Chief Financial Officer and Dr. Gomer was
appointed President and Chief Operating Officer of the Company. As of June
30, 1999, Mr. Aaron was also employed by GTL and devoted approximately 40%
of his time to GTL and receives a comparable portion of his compensation
from GTL. (see also footnote 7.)
(2) Served as Chairman, President and Chief Executive Officer of the Company
until May 18, 1999.
(3) Includes approximately $14,000 for moving expenses.
(4) Mr. Carr's employment was terminated on May 31, 1999.
(5) Consists of the following:
Automobile
Name Year Allowance ($) Commissions ($) Total ($)
---- ---- ------------- --------------- ---------
Wilbur L. Riner, Sr. 1999 3,600 -- 3,600
1998 5,400 17,500 22,900
1997 5,400 18,000 23,400
1996 5,625 18,750 24,375
James E. Riner 1999 2,400 -- 2,400
1998 3,600 -- 3,600
1997 3,600 -- 3,600
Bryan R. Carr 1999 2,800 -- 2,800
1998 4,800 10,501 15,301
1997 5,000 25,171 30,171
1996 4,800 14,088 18,888
(6) Dr. Gomer is currently President of the Company's systems group. At the end
of the transition period ended June 30, 1999 and until March 6, 2000, Dr.
Gomer was President and Chief Operating Officer of The Network Connection.
On March 6, 2000, Robert Pringle was hired as the President and Chief
Operating Officer of The Network Connection.
(7) Until December 15, 1999 (the date on which GTL hired its new Chief
Financial Officer, Patrick J. Fodale), Morris C. Aaron also served as Chief
Financial Officer of GTL and devoted approximately 40% of his time to GTL.
Mr. Aaron received approximately 40% of his compensation from GTL until the
hire of Mr. Fodale.
Wilbur L. Riner, Sr. and Bryan R. Carr, from time to time, have provided
significant assistance to the Company's sales and marketing staff in effecting
sales of the Company's products, for which sales they received commission
compensation.
10
<PAGE>
AGGREGATED OPTION EXERCISES
AND OPTION VALUES AS OF JUNE 30, 1999
The following tables set forth certain information with respect to the
exercise of stock options by each of the named executive officers during the
transition period ended June 30, 1999 and the fiscal year ended October 31,
1998, and the value of unexercised options as of the end of the transition
period:
No. of Securities Underlying Value of Unexercised
Unexercised Options/SARs at In-The-Money Options/SARs at
June 30, 1999 (#) June 30, 1999 ($) (1)
--------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Irwin L. Gross -- -- -- --
Frank E. Gomer 10,000 40,000 -- --
Morris C. Aaron 10,000 40,000 -- --
Wilbur L. Riner, Sr -- 40,000 -- --
James E. Riner 12,500 54,348 3,125 --
Bryan R. Carr -- -- -- --
- ----------
(1) If no value is indicated, these options did not have an exercise price less
than the closing bid price per share of the Company's common stock on the
Nasdaq SmallCap Market at June 30, 1999.
OPTION GRANTS
The following tables set forth certain information with respect to
individual grants of stock options made to the named executive officers during
the transition period ended June 30, 1999 and the fiscal year ended October 31,
1998:
<TABLE>
<CAPTION>
Percent of
No. of Shares Total Options
Underlying Option Granted to Exercise Price
Name Grants (#) Employees (%) ($) (1) Expiration Date
- ---- ---------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Irwin L. Gross -- -- -- --
Frank E. Gomer (2) 50,000 14.50 2.25 6/11/09
Morris C. Aaron (2) 50,000 14.50 2.25 6/11/09
Wilbur L. Riner, Sr. (3) 25,000 7.25 2.25 6/11/09
James E. Riner (4) 10,000 2.90 2.25 6/11/09
Bryan R. Carr -- -- -- --
</TABLE>
- ----------
(1) Represents the closing bid price of the Common Stock on the grant date of
June 11, 1999.
(2) These qualified options vest as follows: 10,000 on the grant date of June
11, 1999 and thereafter 10,000 vest on June 11, 2000, June 11, 2001, June
11, 2002 and June 11, 2003.
(3) These qualified options vest 12,500 on June 11, 2000 and 12,500 on June 11,
2001.
(4) These qualified options vest 2,500 on June 11, 2000, June 11, 2001, June
11, 2002, and June 11, 2003.
EMPLOYMENT ARRANGEMENTS
Wilbur L. Riner, Sr. served as Executive Vice President - Business
Development pursuant to the terms of an employment agreement that would have
terminated on May 18, 2001, had the Company not entered into a separation and
release agreement with Mr. Riner providing for his termination on December 31,
1999. Pursuant to his employment agreement, Mr. Riner received a minimum annual
11
<PAGE>
base salary of $156,000 per year. The employment agreement provided for a
severance payment in the event the Company terminated Mr. Riner's employment
other than for "cause" as defined in the agreement. The severance payment amount
was to be equal to the lesser of Mr. Riner's base annual salary or his base
salary for the remaining term of the agreement. The employment agreement also
provided that the Company may pay other incentive compensation as may be set by
the Board of Directors from time to time and for such other fringe benefits as
are paid to the Company's other executive officers.
On December 2, 1999, the Company entered into a separation and release
agreement with Mr. Riner and his spouse pursuant to which Mr. Riner resigned all
positions with the Company as of December 31, 1999. In exchange, the Company
paid Mr. Riner a lump-sum payment equal to two months base salary (offset in
part by certain indebtedness owed to the Company), and acknowledged certain
option exercise rights belonging to him and his spouse and the right of his
spouse to sell certain restricted shares of the Common Stock. Each of Mr. Riner
and his spouse provided a full release to the Company with respect to any
potential claims arising prior to the date of the agreement. Pursuant to the
agreement, both Mr. Riner and his spouse entered into customary non-compete
covenants with the Company, and Mr. Riner acknowledged his obligations of
confidentiality under a non-disclosure agreement that he entered into with the
Company previously.
James E. Riner serves as Vice President - Engineering pursuant to the terms
of an employment agreement that terminates on October 31, 2001. Mr. Riner
receives a minimum annual base salary of $140,000 per year. The employment
agreement provides for a severance payment in the event that the Company
terminates Mr. Riner's employment other than for "cause" as defined in the
agreement. The severance payment amount would be equal to the lesser of his base
annual salary or his base salary for the remaining term of the agreement. The
employment agreement also provides that the Company may pay other incentive
compensation as may be set by the Board of Directors from time to time and for
such other fringe benefits as are paid to the Company's other executive
officers.
Bryan Carr served as the Company's Vice President - Finance, Treasurer,
Chief Financial Officer and Chief Operating Officer until May 1999, pursuant to
the terms of an employment agreement providing for a minimum annual base salary
of $120,000 per year and for commissions of .5% for net sales that exceed
$500,000 in any calendar month. The employment agreement also provided for a
severance payment in the event of termination due to certain events, including a
change-in-control or the disposition of substantially all of the Company's
business and/or assets, and any event that has the effect of significantly
reducing the duties or authority of Mr. Carr. The severance payment amount would
equal the greater of the present value of his base annual salary for one year or
the remainder of his term. The employment agreement also provided that the
Company may pay other incentive compensation as may be set by the Board of
Directors from time to time and for such other fringe benefits as are paid to
the Company's other executive officers. Mr. Carr's employment was terminated on
May 31, 1999. He received no severance payment in connection with the
termination and the Company does not believe any additional amounts are due to
Mr. Carr under the agreement. The Company is currently engaged in litigation
with Mr. Carr regarding his termination and intends to defend its position
vigorously.
12
<PAGE>
Frank E. Gomer served as the President and Chief Operating Officer of the
Company at the end of the transition period ended June 30, 1999, and most
recently as the President of the Company's systems group, pursuant to the terms
of an employment agreement that terminates on June 10, 2001. Dr. Gomer receives
a minimum annual base salary of $215,000. Beginning June 11, 1999 and ending
June 11, 2003, Dr. Gomer also received 50,000 10-year options under the
Company's employee stock option plan, which vest in increments of 10,000 options
per year pursuant to the terms and conditions of the employment agreement. The
employment agreement also provides for a severance payment in the event that the
Company terminates Dr. Gomer other than for "cause" as defined in the employment
agreement. The severance payment would be equal to two times the remaining
balance of his base salary for the remainder of the then current term. The
employment agreement also provides for a payment in the event the Company
terminates Dr. Gomer due to a termination of the Company's business as defined
in the employment agreement or upon termination without cause following a change
in control. In either such event, Dr. Gomer would receive an amount equal to two
times his remaining base salary for the then current term, but not less than his
annual base salary for one year. The employment agreement also provides that the
Company may pay other incentive compensation as may be set by the Board of
Directors from time to time and for such other fringe benefits as are paid to
the Company's other executive officers. Such fringe benefits take the form of
medical and dental coverage and an automobile allowance of $500 per month. The
Company and Dr. Gomer are currently discussing a separation arrangement.
Morris C. Aaron serves as the Company's Executive Vice President and Chief
Financial Officer pursuant to the terms of an employment agreement that
terminates on June 10, 2001. Mr. Aaron receives a minimum annual base salary of
$215,000. Beginning June 11, 1999 and ending June 11, 2003, Mr. Aaron also
received 50,000 10-year options under the Company's employee stock option plan,
which vest in increments of 10,000 options per year pursuant to the terms of the
employment agreement. The employment agreement provides for a severance payment
in the event that the Company terminates Mr. Aaron other than for "cause" as
defined in the employment agreement. The severance payment would be equal to two
times the remaining balance of his base salary for the remainder of the then
current term. The employment agreement also provides a payment in the event the
Company terminates Mr. Aaron due to a termination of the Company's business as
defined in the employment agreement. In the event of the termination of the
Company's business, Mr. Aaron would receive an amount equal to two times his
remaining base salary for the then current term, but not less than his annual
base salary for one year. The employment agreement also provides that the
Company may pay other incentive compensation as may be set by the Board of
Directors from time to time and for such other fringe benefits as are paid to
the Company's other executive officers. Such fringe benefits take the form of
medical and dental coverage and an automobile allowance of $500 per month.
Until December 15, 1999, the date on which GTL hired its new Chief
Financial Officer, Patrick J. Fodale, Mr. Aaron also served as Chief Financial
Officer of GTL and devoted approximately 40% of his time to Global Technologies.
Mr. Aaron received approximately 40% of his compensation from GTL until Mr.
Fodale's hire.
13
<PAGE>
REPORT ON REPRICING OF OPTIONS
On June 11, 1999, the Company cancelled existing options to purchase 20,000
shares of Common Stock previously granted to Wilbur L. Riner, Sr. at an exercise
price of $8.75 per share. The Company repriced these options and granted Mr.
Riner incentive stock options to purchase 20,000 shares of Common Stock at an
exercise price of $2.25 per share, half of which vest on the first anniversary
of the date of grant and half of which vest on the second anniversary of the
date of grant. The Company repriced these options in connection with GTL's
acquisition of the Company to provide additional incentive to Mr. Riner.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's Chief Executive Officer is a principal of Ocean Castle
Investments, LLC ("Ocean Castle") which maintains administrative offices for the
Company's Chief Executive Officer and certain other employees of GTL. During the
year ended October 31, 1998, Ocean Castle executed consulting agreements with
two shareholders of GTL, Don Goldman and Yuri Itkis. The rights and obligations
of Ocean Castle under the agreements were assumed by the Company in connection
with GTL's acquisition of its interest in the Company. The consulting agreements
require payments aggregating $1,000,000 to each of the consultants through
December 2003 in exchange for advisory services. Each of the consultants also
received stock options to purchase 50,000 shares of Class A common stock of GTL
at an exercise price of $3.00. As of June 30, 1999, the Company determined that
the consulting agreements had no future value due to the Company's shift away
from in-flight entertainment into alternative markets such as leisure cruise and
passenger rail transport. Only limited services were provided in 1999 and no
future services will be utilized. Accordingly, the Company recorded a charge to
general and administrative expenses in the eight month transition period ended
June 30, 1999 of $1.6 million representing the balance due under such contracts.
In August 1999, the Company executed a separation and release agreement
with Barbara Riner, a shareholder and former officer of the Company, pursuant to
which the Company paid approximately $85,000 in the form of unregistered shares
of the Company's common stock.
In June 1999, the Company loaned to James Riner, a vice president of the
Company, $75,000 for the purpose of assisting in a corporate relocation to the
Company's headquarters in Phoenix, Arizona. Such loan is secured by assets of
the employee. The note matures in August 2009 and bears an interest rate of
approximately 6%.
GTL had an Intellectual Property License and Support Services Agreement
(the "License Agreement") for certain technology with FortuNet, Inc.
("FortuNet"). FortuNet is owned by Yuri Itkis, a shareholder of GTL and previous
director of GTL. The License Agreement provides for an annual license fee of
$100,000 commencing in October 1994 and continuing through November 2002. GTL
was required to pay FortuNet $100,000 commencing in October 1994 and continuing
through November 2002. The Company assumed this liability in connection with
GTL's acquisition of its interest in the Company. The Company paid FortuNet
$100,000 during each of the years ended October 31, 1998 and 1997. Subsequent to
June 30, 1999, the Company agreed to a termination of this agreement and paid
FortuNet $100,000 plus legal fees. During the transition period ended June 30,
14
<PAGE>
1999, the Company had revised its estimated accrual to $200,000 which is
included in accrued liabilities at June 30, 1999.
During the year ended October 31, 1998, GTL extended by one year a
consulting agreement with a former officer of GTL pursuant to which GTL will pay
$55,000 for services received during the period November 1999 through October
2000. The Company has assumed the liability for the consulting agreement in
connection with the Transaction in the amount of $73,000 which is included in
accrued liabilities at June 30, 1999.
During the year ended October 31, 1998, GTL executed severance and
consulting agreements with three former officers, pursuant to which GTL paid the
former officers and set aside restricted funds in the amounts of $3,053,642 and
$735,000, respectively. The consulting agreements all expired by September 1999.
Payments totaling $735,000 have been and continue to be made from restricted
cash of GTL through September 1999. Expenses associated with these agreements
were charged to general and administrative expenses in the year ended October
31, 1998.
During the year ended October 31, 1996, GTL executed severance agreements
with three former officers pursuant to which the Company will pay severance of
$752,500 over a three-year period. As of June 30, 1999 and October 31, 1998,
$18,000 and $55,000 remained to be paid under these agreements. Such liabilities
were assumed by the Company in connection with the Transaction.
The Company has agreed to reimburse B.H.G. Flight, LLC ("BHG") for costs
and expenses associated with its use for corporate purposes of an airplane owned
by BHG. Irwin L. Gross, Chairman of the Board and Chief Executive Officer of the
Company, owns 50% of the interests in BHG. To date, the Company has reimbursed
BHG less than $60,000.
INCLUSION OF SHAREHOLDERS PROPOSALS
IN THE COMPANY'S PROXY STATEMENT
If any shareholder desires to put forth a proposal to be voted on at the
2001 Annual Meeting of Shareholders and wishes that proposal to be included in
the Company's Proxy Statement to be delivered to shareholders in connection with
such meeting, that shareholder must cause such proposal to be received by the
Company at its principal executive office no later than November 30, 2000.
AVAILABILITY OF FORM 10-KSB
The Company will provide, without charge, to any shareholder, upon written
request of such shareholder, a copy of the Transition Report on Form 10-KSB for
the transition period from November 1, 1998 to June 30, 1999, as filed with the
Securities and Exchange Commission. Any request for a copy of the Form 10-KSB
should include a representation that the person making the request was the
beneficial owner, as of the record date, of securities entitled to vote at the
15
<PAGE>
Meeting. Such request should be addressed to: The Network Connection, Inc., 222
North 44th Street, Phoenix, Arizona 85034; Attention: Morris C. Aaron.
PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED FOR
SUCH PURPOSE
April 19, 2000 /s/ Irwin L. Gross
----------------------------------------
Irwin L. Gross, Chairman of the Board
and Chief Executive Officer
16
<PAGE>
EXHIBIT A
PROXY
THE NETWORK CONNECTION, INC.
Annual Meeting of Shareholders
May 11, 2000
The undersigned, a shareholder of the Network Connection, Inc. (the
"Corporation"), hereby revoking any proxy hereinbefore given, does hereby
appoint Robert Pringle and Irwin L. Gross, or either of them acting in the
absence of the other as his proxy with full power of substitution, for and in
the name of the undersigned to attend the Annual Meeting of the Shareholders to
be held on May 11, 2000 at the Rihga Royal Hotel, located at 151 West 54th
Street, New York, New York, at 2:00 p.m., local time, and at any postponements
or adjournments thereof, and to vote upon all matters specified in the notice of
said meeting, as set forth herein, and upon such other business as may properly
come before the meeting, all shares of stock of said Corporation which the
undersigned would be entitled to vote if personally present at the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, SUCH SHARES WILL BE
VOTED FOR ALL NOMINEES FOR DIRECTOR IDENTIFIED BELOW AND FOR ALL PROPOSALS.
1. The Election of Directors
Election of the following proposed directors to hold office until the
Annual Meeting of Shareholders set forth opposite the name of each such proposed
director, and until their successors shall be elected and shall qualify:
Term Expires
------------
Irwin L. Gross 2003 Annual Meeting
Robert Pringle 2002 Annual Meeting
M. Moshe Porat 2001 Annual Meeting
Stephen Schachman 2001 Annual Meeting
[ ] FOR ALL NOMINEES (except as marked to the contrary)
[ ] WITHHOLD AUTHORITY TO VOTE FOR NOMINEES
AUTHORITY TO WITHHOLD A VOTE FOR ANY OF THE ABOVE NAMED INDIVIDUALS SHOULD
BE INDICATED BY LINING THROUGH OR OTHERWISE STRIKING OUT THE NAME OF THE
NOMINEE.
<PAGE>
2. Ratify the Appointment of KPMG LLP as independent auditors for the
Corporation for the fiscal year ending June 30, 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment or
postponement thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL
MEETING, PROXY STATEMENT AND THE CORPORATION'S ANNUAL REPORT.
Dated: ______________________, 2000
-------------------------------------------
Signature
-------------------------------------------
Print Name
-------------------------------------------
Signature of Joint-Tenant (if Jointly Held)
-------------------------------------------
Print Joint-Tenant Name
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREIN. If signing as attorney,
executor, administrator, trustee or guardian, please add your titles as such.
All joint tenants must sign. If a corporation, please sign in full corporate
name by president or by other authorized officer. If a partnership, please sign
in partnership name by authorized person.
The Board of Directors requests that you fill in the date and sign the
Proxy and return it in the enclosed envelope.
IF THE PROXY IS NOT DATED IN THE ABOVE SPACE, IT IS DEEMED TO BE DATED ON THE
DAY ON WHICH IT WAS MAILED BY THE CORPORATION.
