EXHIBIT 20(iii)
Safe Harbor Statement
Statements in this document that are not historical, including statements
regarding Global's, IGW's or management's intentions, hopes, beliefs,
expectations, representations, projections, plans or predictions of the future
are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 21E of the Securities Exchange Act of
1934, as amended, and Section 27A of the Securities Act of 1933, as amended.
It is important to note that the Company's actual results could differ
materially from those in any forward-looking statements. By making these
forward-looking statements, the Company undertakes no obligation to update these
statements for revisions or changes after the date of this release. There are
numerous factors that could cause actual results to differ materially including
other risk factors as listed from time to time in the Company's SEC reports,
including but not limited to, the annual report on form 10-KSB for the year
ended December 31, 2002 and the quarterly report on form 10-QSB for the period
ending March 31, 2003, June 30, 2003 and September 30, 2003.
Reference Document
1. 2001/2 MAJOR MANAGEMENT INITIATIVES AND MAJOR CHALLENGES REMAINING AS
DELIVERED BY TOM GLAZA, BOARD CHAIRMAN
Your board is very proud of the progress made by the company to put in
place initiatives that has led to more effective management. This
progress can be attributed to the leadership of Bryan Abboud, by far
the most effective CEO to lead this company. The key items that have
occurred include:
a. Effective Budgetary Controls. The company has done a very
effective job of establishing budgets to the department level and
has affected tight controls to make sure all personnel are aware
of their budget constraints and targets. The board examines the
budget very closely, i.e. major deviations are reviewed quarterly
to help assure adjustments are put in place if targets are in
danger of being missed. Before Bryan's leadership the budgetary
process was best characterized as a wish list of what the company
hoped to obtain along with no detail reviews or corrective paths
taken at the board level.
b. Establishment of a Strategy. The first cut at establishing a
corporate strategy was conducted in mid 2001 under Tom Glaza's
leadership. Since that time two more iterations have been made.
Most importantly, an action plan to support the key elements of
the strategy has been implemented. The board reviews progress
against the strategy along with any major revisions to it.
c. Executive Bonus Program Tied to Key Business Targets. All key
executives receive bonuses if they achieve targets they mutually
establish with Bryan. These mutual targets are also approved by
the board. Although the bonus is focused on revenue and profit
targets, it also includes targets in personnel management,
customer satisfaction, system availability and other measurements
of key operational parameters.
d. Establishment of a Corporate Culture. Bryan has started to
instill an effective corporate culture by focusing on results and
customer satisfaction. He has instilled guidelines in hiring and
development of executives following precepts outlined in a book
called Topgrading and is focusing our executives on key
management philosophies that have proven to yield very successful
corporate organizations. Many of these philosophies come from a
book called Good to Great. Both of these books are required
reading for all executives.
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e. Focus on Planning and Results Against the Plan. In 2003, Bryan
initiated a "plans and controls technique," where each executive
and all department managers itemize their future quarterly plans
and business targets. Reviews of their progress against the prior
plan are also done on a quarterly basis. This keeps everyone
focused on the key targets and automatically forces all managers
to plan and be conscious of their commitments.
f. Business Development Initiatives. Bryan and your board have
strategically decided to focus on key skills and seek
complementary partnerships to supplement skills better delivered
by others. This is a common practice in the software industry
where it is virtually impossible to have skills in all the areas
required to provide a broad based, fully integrated business
solution sought by most of our clients and prospects. This has
already resulted in one partnership and should provide a
significant impact on revenue and profit while lowing costs and
reducing risk. We are presently working on several other
partnerships of a similar nature.
Despite these accomplishments, your company faces many challenges that
must be effectively managed if it is to enjoy the long-term success we
believe possible. These challenges include:
g. Managing Cash Flow. This company got off on a very poor financial
footing. The initial targets to raise money did not materialize
under the leadership of Steve Abboud. The amount of money raised
that was actually invested in product development was far too
little (please see section 5.3.iii for more detail on Steve's
capital raising efforts). As a result of inadequate funding,
Global has struggled because of the lack of working capital.
Fortunately, we were able to reach a financial arrangement with
our key client that has allowed us to make the investments in
product and company infrastructure required to make this company
successful. Our challenge is to improve our bottom line and
generate internally the profits and cash necessary to fund future
investments.
Operating on cash flow will be particularly difficult in early
2004 as a number of significant expenditures were necessary in
2003. This is primarily because of revenue pressures in the
industry caused by restricted money flow between our licensees
and their customers; this has reduced current revenues and
projected growth rates in the industry. Additionally, several of
our competitors are in trouble financially and this has resulted
in reduced software prices across the industry; historically
troubled software companies heavily discount their product on the
assumption any revenue is better than none. This highly
competitive environment cuts into margins as the company strives
to keep the product competitively priced.
h. Enhancing the Product. Society has experienced breakneck speed of
new technological advancements in computers and associated
services, e.g. Internet transmission rates, processor capacity
and programming languages available to our industry. To remain
competitive we must incorporate these new technologies into our
products. This will take investment in new software and we will
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need to manage the risk of evolving to these new strategies
without causing outages to our clients and their customers. To do
this without the benefit of capital resources will be very
challenging and will require good judgment and low cost execution
of our development plan from our executives. We will continue to
need up-to-date technical leadership infused with a good vision
of trends in the gaming industry and the best way apply this
information to satisfy the requirements of our clients.
i. Expanding the Product Line. Your company's area of expertise is
providing software and hosting facilities to support an online
sports book. However, our clients are seeking new revenue sources
such as poker, bingo, and lottery. We must find a way to supply
these facilities using a common back office so that a player can
easily move from game to game. The solution lies in the effective
development of business partnerships.
j. Changing Our Revenue Model. The gaming software industry was
initiated on a revenue stream based on the net win obtained from
their clients. The industry has started to move to revenue models
that disassociate the software company from gaming revenue
streams and instead uses models linked to traditional software
metrics, such as the number of users or transactions. Global has
received legal advice that it should follow this direction and we
are in the process of defining and implementing a new revenue
model. We must manage the risk of establishing a new model that
is fair to our clients and does not impose a negative impact on
our revenues.
The company needs to seek other revenue sources for growth. We
disposed of two revenue streams inside the past year, namely, 1)
Prevail, that was losing money and 2) Marketing Services, a
department with significant revenue, but with marginal
profitability. These areas were consuming too much executive time
in relation to their contribution. Another reason for
discontinuing the Marketing Services business was a possible
source of legal exposure. Our legal counsel advised us, that the
preparation of marketing materials could be construed to be a
direct link to gambling activities. Elimination of these revenue
sources will result in lower revenue for the 2003 fiscal year.
The company is seeking other revenue opportunities, such as
professional services and information provisioning.
k. Continuing to Reduce Our Costs and Improve Productivity. In the
third quarter of 2003, the company achieved major moves of its
server farm, client services department and the software
maintenance and development center. As the result of these moves,
we expect improvements in productivity, reduced costs of
development and communications, and improved services to our
clients. No moves of this magnitude are made without some
disruption and short-term costs. Our systems are expected to have
excellent response times during peak loads along with virtually
no down time. Another challenge is to make adjustments in the
organization to realize the potential cost savings and
productivity enhancements.
2. 2002 COMPANY PERFORMANCE. One of the key agenda items of any annual meeting
is to review the progress and future challenges facing the company. In the
previous section Mr. Glaza focused on the tremendous strides the company
has made in basic management since Bryan was appointed CEO. The following
section, extracted from material presented by Bryan Abboud, highlights
significant progress.
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a. Royalty Revenue Has Increased. Revenues are up from 2001 to 2002,
not down as claimed by the Dissidents. Even though the company
was obliged per the contract to reduce the royalty from our
largest customer, our total revenues as reported are up according
to the audited financial statements included in the SEC filed
form 10-KSB. This is not only because of their success, but also
as a result of the expanded set of games we have been able to
provide all our clients and the addition of new clients.
b. Financially The Company is More Sound.
i. The short-term debt Steve Abboud saddled the corporation
with at the start-up of the company has been reduced by over
$880,000 since January 1, 2002. This is primarily due to the
favorable contract your company signed with our largest
licensee. The company would have been in serious trouble if
we did not have the cash flow provided by this revised
contract to fund the repayment of these loans.
ii. Expenses were higher in line with revenues and as a result
we did not meet our profit target for 2002. The primary
reason for this was increased investments in software that
could not be capitalized and could not be deferred because
they were targeted to improve reliability and the
scalability required to handle the unanticipated large
increases in 2002 transaction volume. In addition, your
company 1) made significant investments in sales, marketing
and financial support, 2) began to move all accounting,
development and client services to Miami, and 3) spent
significantly in legal expenses to respond to an illegal
proxy solicitation by the Dissidents that we did not
anticipate and initiated the legal case against Steve
Abboud. As a result of these unanticipated expenses, most of
which occurred near the end of the fiscal year, profit was
up only marginally to $166,000. We did not lose money as
claimed by the Dissidents.
iii. Our liquidity ratio (current assets versus current
liabilities) improved. Cash flow increases were used to pay
off the short-term loans.
c. Global Performed Well When Compared To Other Public Companies In
Our Sector. There are five publicly traded companies that our
performance can be compared: Cryptologic, IQ-L, World Gaming,
Chartwell, and Boss Media. Of the five, during 2002:
i. Global was the only company who made a profit.
ii. Global had the largest percentage increase in revenue -
Chartwell was the only other company that showed any
increase in revenue.
iii. Although we are not at all proud of the performance of our
stock, it should be noted that in 2002 no stock of these
five competitors performed relatively better than that of
Global. The point is that all gaming software stocks are
down dramatically.
d. Added Five New Accounts (Through the Annual Meeting date). Two of
our accounts ceased business for a net new account accomplishment
of three. This was a result of investment in more resources in
sales and marketing.
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e. Significantly Upgraded Sales Collaterals And The Sales Process.
Our investments in marketing resulted in better tools to
communicate our story to our prospects.
f. Signed A Strategic Business Development Partnership. This was
executed with DCEG of Toronto to sub-license their download
casino and bingo games. This type of gaming was a high priority
to our clients who would have sought other suppliers if we did
not provide the capability.
g. Added New Wagering Products. This includes a horse racing book,
index wagering, and new casino games.
h. Enhanced E-commerce Capabilities. As a result of US pressure on
the major credit card issuing banks, about 80% of these issuers
decline online gaming transactions. These actions are the major
reason revenue growth in the online gaming industry has
diminished. Your company continues to make investments in our
software system to support the new money exchange systems
emerging to accommodate the industry.
3. The Dissidents on the Company's Performance. Following are direct quotes
from comments made by the Dissidents at the stockholders' meeting. The main
observations they presented and our answers to them are listed below.
a. Steve Abboud asserted, "You guys have been unable to make the
market price increase" and "the financial condition of the
company has not improved. We (the company) have been extremely
ineffective in promoting this company in any way shape or form".
Answer: In Section 2 above, we presented information that our
stock, in the last two years, has done as well as any of the
other public companies in our business sector. This does not mean
we are happy with its performance. However, the board feels it
would not be prudent or lead to any long-term benefit to make
significant investments in stock promotion schemes at this time
for the following reasons:
i. Online gaming has an unattractive public image and we are
forced to face this as a public company;
ii. Issuing banks rejecting online gaming transactions make it
more difficult for our customers to attract players
resulting in deterioration of revenues and profits
industry-wide;
iii. The unfavorable public image regarding legal battles over
voting and the shareholder's meeting. Although such legal
proceedings are necessary to protect the company against
illegal proxy fights and the other harassing activities of
Steve Abboud, it is a wet blanket for the investor
community;
iv. The unfavorable perception regarding high legal expenses.
The legal expenses resulting from efforts to recover what we
believe to be illegally issued stock and other damages
caused by multiple breaches of fiduciary responsibility of
Steve Abboud are high. The potential of additional legal
expenses under the continued threats by the Dissidents (see
sections 7 and 10) and reinforced in this stockholder's
meeting are detrimental in attracting new investors.
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b. Lisa asserted "It is perfectly evident the pluses to the bottom
line were achieved by pushing expenses out of 2002, into 2003 and
I will demonstrate that."
Answer: First of all, Lisa is accusing our personnel of a
criminal offense. The company employs a well-respected CFO and
auditing company to create and examine our financial statements
respectively. The auditors report gives an opinion on these
financials to ensure that we have internal controls to avoid
"pushing expenses" and the like. The auditor reports on any
exposures directly to the Audit Committee of the board every
year. We have confidence in both our personnel and our auditor.
c. Lisa attempted to account for his claim of recording excess
revenue by stating, "you are leaving off [our licensee]'s paying
its past due account and that is where the (excess) revenue is
coming from."
Answer: Such a statement reveals a poor understanding of
accounting. Revenue is booked when the receivable is set up, not
when it is paid.
d. Lisa asserted, "In 2002 you purchased equipment of over $1
million. Bryan Abboud has been promising or the company has
forecast economy of scale or scalability since 1999 which has
never been achieved and the purchase of $1 million worth of
hardware in one year without public disclosure regarding economy
of scale belies it completely".
Answer: Economies of scale come about as a result of such things
as spreading relatively fixed costs over an expanding revenue
base. Economies of scale means that as your revenue grows and
your costs stay the same, you can offer a lower price or
experience higher income because you are a bigger operation. We
are confused as to how Lisa views scalability (see below) and
economies of scale as relating to each other in any significant
way. The company did not hide the purchases of this hardware; it
was reflected in our financial statement in the quarter in which
it occurred and very clearly disclosed on the statement of cash
flows.
Scalability is something a company's software and its server
facility must always try to maintain, not something, as Lisa
indicated, you can complete at a point in time. Scalability is a
function of the combination of software and hardware and is a
measure of how well these combined resources can handle increases
in volume of transactions without deterioration of performance,
such as response time. Our customers, and thus our server farm
personnel, underestimated the significant increase in volume of
transactions in the 2002 football season. Hardware purchases were
required to respond quickly to the unexpected volumes that gave
rise to this company's best financial quarter ever in the fourth
quarter, 2002.
In this past quarter the company has also made significant
investments in its software to improve its scalability; and it
will, under our leadership, continue to do so as long as it stays
in the computer software business.
e. Lisa asserted, "last September you had to set up a new note
receivable with [our licensee] and [it] has gone unpaid to the
tune of two to three hundred thousand dollars. They have used
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this retained cash to literally buy all of our licensees." He
went on, "At the same time you are letting them reduce their
royalties letting them pay off the note [set up to pay off most
of the $1.8 million of receivables booked during the reign of
Steve and Lisa they could not pay] and not paying their accounts
receivable."
Answer: Our licensee failed to adequately forecast the rate of
redemptions in cash positions of its customers and this resulted
in a cash crunch for them. As a result, their current payables to
Global's IGW subsidiary increased. The company entered into an
agreement to convert some of these receivables to a note carrying
a high rate of interest. We felt this was a superior approach to
constantly badgering them for money and not earning any interest
on the receivable owed us. They have been meeting their payments
very timely on both the original note and the short-term note:
Lisa is incorrect in implying that it is going unpaid. We fully
expect both notes to be paid off this year and thus will avoid
the conflict Lisa implied we might have. Our bottom line has
benefited from this arrangement. However, this arrangement also
created a cash crunch for Global that, as a result of a
well-managed budget and good planning by our CFO, we have handled
nicely.
As to our largest licensee buying all of our clients, this simply
is not true. First of all, we have numerous clients other than
this particular client. However, from time to time, some of our
smaller clients have not been able to meet their business plan
and were in the danger of defaulting on monies owed their
customers; this would be bad news for us as the software supplier
and the industry. In most cases we have been able to help broker
an arrangement where this licensee assumes the liability for the
current money owed in return for obtaining the customers of the
company going out of business. As a result of such arrangements
we protect our revenue stream and, to our knowledge, no customer
of our clients has ever been cheated for a deposit, a statement
that cannot be made by most of our competitors.
f. Lisa asserted, "It is my understanding that very substantial
amounts of memory stays in boxes in Curacao because the computers
needed to hold [it] have not been paid [for]."
Answer: First, the company pays for all computers when they are
acquired either through outright payment or leasing arrangements.
This liability is reflected in our balance sheet. What Lisa is
probably referring to is some equipment acquired early last fall
in the rush to upgrade our ability to handle increased volumes
discussed in pont 3d. It turned out the server farm did not need
some of the hardware because we changed our software architecture
for better performance. The equipment, wholly owned by us
including software licensing, has retail value of about $175,000;
we are attempting to dispose of it in the secondary market.
g. Lisa asserted, "Mr. [Bryan] Abboud has forecasted multi-language,
multi-currency software since 1999 and its never been achieved".
Answer: It has been an objective for sometime to add functions to
our software that would enable an easily changeable
multi-language, multi-currency functionality. Although several of
our client sites are in multiple languages, the company does not
today have an easy solution for this. These requirements were
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first documented as a result of our initial strategy meeting in
mid-2001. The requirements were added to our software plan
because the company thought they would give us a significant
competitive advantage in the European market. Since then, the
company has changed its priorities to focus more on English
speaking markets, and system reliability, scalability, and
stability.
h. Lisa asserted, "Your [income] report shows that in 2001, 2002 and
the first 3 months of 2003 this company lost $2.48 million
through marketing services."
Answer: This statement is simply incorrect. It is difficult to
ascertain from our published income statements how Lisa
determined the profit margins on this revenue source. However, we
did disclose in our form 10-KSB that we lost $74,137 in 2001 and
$6,260 in 2002 from Marketing Services. Further, in our quarterly
report for the first three months of 2003, we did not give any
disclosure on a loss from Marketing Services. Therefore, it is
questionable as to the source or methodology used by Lisa to
arrive at such a precise number. However, the fact remains that
this revenue source did not show any profit. The lack of
profitability combined with the exposure that our legal counsel
advised us of, is why we chose to discontinue this activity.
i. Lisa asserted, "The Company has further wasted hundreds and
hundreds and hundreds of thousands of dollars on legal fees by
conducting vendettas against shareholders. That is a total
disgrace for a public company. I am speaking specifically about
your lawsuit against Steve Abboud and your attempt to diminish
and hurt James Angelakis with the unproven allegations that have
been made against him."
Answer: How Lisa has calculated that the company has spent in
excess of $300,000 on the specific legal activities mentioned is
interesting since our filings do not list how legal expenses are
incurred. Much of our increased legal expenses have resulted from
defending the company from illegal proxy actions and other
harassments by the Dissidents that are not a subject of the legal
actions Lisa mentioned above. That aside, the company has
incurred significant legal expenses in the areas mentioned by
Lisa. In the case of the actions against Steve Abboud, the
company expects to recover enough of his stock to more than cover
the expenses incurred. The company has a large amount of evidence
that Steve has damaged the company in many ways, including
issuing stock to himself and to outside entities in which he
controlled under questionable agreements. If your company did not
aggressively pursue this case, the board would be guilty of not
upholding its fiduciary responsibility to the stockholders.
Regarding Angelakis, we have sufficient evidence to support
proceeding with our investigation that he passed confidential
company information and assets to outsiders.
The following are other statements taken from the Dissident's previous
proxy action (which did not include Allender) that they failed to
substantiate. They are presented here because the company has reason to
suspect they may be still promoting them.
j. The proxy stated, "that stock options to management have been
excessive in percentage terms relative to the revenues
generated."
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Answer: This claim had some validity prior to 2002, ironically
however, these options were issued during the time period when
Lisa and Steve were leading the company. When it was first
brought up in a board meeting, Lisa and Steve were asked by Glaza
what they felt the level of awards should be, to which they had
no reply. The problem was never addressed while Lisa was CEO, yet
he took this position when he resigned and again in 2001's
illegal proxy fight. Mr. Glaza, using a well-known annual survey
of hundreds of companies compiled by NASPP/Price Waterhouse
Coopers, was able to easily convince IGW operating management
that in fact the rate options were being issued was too high when
compared with other similar companies. As a result, he helped
revise the award plan to bring it in line with the survey
guidelines. The results were presented to the Stockholders Review
Committee who approved the rational of the revised plan.
k. The proxy states (and the Dissidents again surfaced this claim),
"The Company gave inadequate disclosure of certain material
events, namely the revised sale of [a licensee]".
Answer: The material part of the new contract was that this
licensee had agreed to start paying off the very large receivable
booked during the period of time in which Steve and Lisa ran the
business. In return, Global agreed to lower the royalty
percentage charged to this licensee similar to that paid by
competitors. A Stockholder Review Committee was asked to review
the transaction and agreed it was fair to Global. The precise
terms of this agreement are confidential, as are most contracts
in the business world (see section 6.b for more detail on this
contract).
l. The proxy asserted that the current board and management has been
unable or is unwilling to create a liquid market for the publicly
traded Class A common stock. "The benefit to management is that
the exercise price of [their] stock options are tied to the
trading price of the stock, thus the lower the market price the
lower the price of [management's] options."
Answer: It would appear that the Dissidents are accusing
management of violating securities laws by artificially
manipulating the price of the stock. The facts are that the
outside board members, at the time that statement was made by the
Dissidents, received very little compensation (10,000 options per
year). Currently, neither board members nor employee have any
options with value.
m. The proxy asserted "at the current rate in which the company is
consuming assets, Global will have substantially depleted equity
in about three years".
Answer: This is a very misleading statement, which was again
inserted in the Dissidents recent Temporary Restraining Order
(TRO) action against the company (see section 11a.). The fact is
most of the company assets, in the form of investments in its
stock, were consumed while Steve and Lisa were leading the
company, leaving it with a very small asset base. As pointed out
in section 5.e.iii, less that $694,000 of the approximately
$1,800,000 raised in equity capital ever reached IGW, the
development and sales arm of the company. The rest was spent on
stock promotion costs and other corporate expenditures that were
expensed against this investment asset.
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Profit is another way stockholders equity and its investment in
assets increase. The profits in the days of Steve and Lisa had no
positive impact on cash flow to invest in new assets since most
of the book revenue showed up as a receivable. Borrowed money can
be invested in assets; however, to get a true picture of asset
base of a company you must subtract the balance of the money
borrowed to invest in assets and the depreciation booked against
these assets. The primary assets of a software company are the
investments it makes in software development (not maintenance
which must be expensed) and computer hardware. Both classes of
assets are depreciated at a rapid rate, following governmental
guidelines, that attests to their short life due to rapidly
advancing technologies that have always been present in the
computer software industry. Therefore, unless the company makes
significant investments in these areas, its asset base will
quickly dissipate. Much of our software investments over the last
two years do not qualify to be booked as an asset and must be
expensed.
However, the main reason assets have depleted is that because of
the revised contract with our major licensee, this licensee has
been paying off the receivable that was booked as an asset during
the reigns of Steve and Lisa. These payments were largely used to
pay off the short-term loans the company was saddled with.
4. The Quality of Your Company's Current Leadership Versus the Leadership
Proposed by the Dissidents
a. The Company's Leadership
i. Bryan Abboud, Your CEO/COO. You can read Bryan's
qualifications in the annual report and the company's proxy
statement. He founded the gaming software business on which
the company's revenues are now based. He and his team have
made great personal sacrifices in time and effort to get the
company started with minimal financial resources. He is
considered a leader in the industry. Your board considers
him to be a man of high integrity, who is a good leader. He
is young, energetic, and is very enthusiastic about the
business. He has demonstrated good technical leadership
combined with a willingness to listen to and implement
suggestions of others more experienced than he. He, by far,
is best qualified to lead this company.
ii. Your Board. Two members of your board have extensive
operational experience in the software business. They
provide extensive experience in sales, marketing, business
development accounting and strategic planning. One has
taught courses to executives on how to manage businesses
more effectively with computers. One is recognized
internationally as a leader in how to more effectively sell,
having recently published a book on the subject now in its
second printing and, as a result, is in great demand as a
speaker throughout the USA and in Europe. One was the
founder and CEO of a $10 million revenue per year software
and services company. One was an Executive VP and founder of
a successful company providing engineering services to
relocation and real estate companies nationwide. Additional
information is available in the proxy you received.
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b. The Dissident's Recommended Leadership. The Dissidents nominated
seven individuals to be considered for board seats: Lisa, Steve,
Keri Allender, Jason Abboud, James Angelakis, David Abboud and
Ron Abboud. The Dissidents were informed that as one condition
(imposed by the bylaws of the corporation) for running for a
board seat, the candidates had to agree in writing to serve if
elected. Lisa claimed they could make their consent after they
were elected. Steve stated, "You can trust that we have already
spoken to them and they indicated they would like to serve on the
board". Against recommendation of company counsel, the chair
accepted the word of the Dissidents that they the submitted slate
had agreed to serve.
The Dissidents were given a list of guidelines that appear in the
Company's governance documents that outline the factors that the
board is to consider before nominating a new or replacement board
member. There were eleven criteria to be considered. They were
asked to do their best to articulate how these nominees fit the
criteria. For example, the criteria listed such things as
previous successful business experience and prestige they would
bring to the company.
i. Steve's Stated Qualifications. Steve went next and stated
that he had success in starting Global, raising $2.8 million
($2.2 million in equity) and acted as the company's CEO,
investment banker and financial consultant. Under his
leadership he claimed the company had achieved an $18
million market cap. The chair expressed some concerns about
the diminished prestige Steve would bring to the board given
the understanding that Steve was asked to resign from Global
in early 2000 as a result of unfavorable publicity the
company had received. This publicity came from an article in
Barron's that used Steve as an example of the unsavory
nature of the online gaming business, citing two felony
convictions. Steve denied he was asked to resign, claiming
he had left voluntarily.
When asked about these felony convictions he and Lisa
responded by assailing against the bylaw of the corporation
that excluded candidates with such backgrounds. They did not
deny the convictions. The chair, with agreement from its
legal counsel, did not allow Steve to run for a board seat
citing the Global bylaw that prohibits a board member or
officer to be elected if they have been convicted of a
felony in the last 20 years. Lisa objected to this ruling
because in his view the rule was established as a "vendetta"
against Steve "who has only had the best interests of the
company at heart from day one". The board does not believe
that "the best interests of the company" was the primary
driver of Steve's actions. The following section outlines
why it takes this position.
The Facts Regarding Steve's Qualifications and History In
the Business. The company has a letter from a board member
at the time Steve was asked to resign that disputes Steve's
claim he voluntarily resigned. According to this board
member, Steve was "dragged kicking and screaming" from his
positions as CEO and board member". The board requested that
he resign primarily because of unfavorable publicity the
company was receiving as a result of an article that
appeared in Barron's in May of 1999 that publicize Steve's
failure to disclosure his criminal record. The following is
extracted from that article: "While on probation
11
for drug possession in the late 80's, (Steve) Abboud
allegedly tried to purchase 50 pounds of marijuana from an
undercover officer, newspapers reported at the time. Shortly
thereafter, FBI agents arrested Abboud in Los Angeles, where
he held a plane ticket to Korea and a passport in the name
of a man who'd died 10 years before. Abboud served about 18
months in prison, after pleading guilty to falsely applying
for a passport." Steve has repeatedly failed to reveal this
information when raising money or when submitting a proxy
proposal. Failure to disclose such information violates, in
the opinion of our SEC council, Rule 14a-r(a) of Regulation
14A because it could be material for any investor to
consider when deciding to vote for Steve.
The board member present at that time also states "Almost
from the start (of my term) Steve was so argumentative that
we never got anything done." We have been advised that other
board members will support that this contentious nature has
been present throughout Steve's tenure as a company
executive. As part of his highly contentious agreement to
resign, he extracted an 18-month contract at $5,000 per
month (a total of $90,000) to act as a "financial
consultant" to the company. In addition, he extracted an
agreement that he was to be paid a commission of up to 20%
for all monies he raised, by all measurements an
unrealistically high amount. This resulted in a $45,000
commission being paid to raise approximately $250,000 of
short-term (2 year life) loans. In your board's opinion this
is way out of line with normal practices especially
considering the fact we paid him a retainer of $90,000. The
net is that your company paid $135,000 plus his travel
expenses plus his medical plan expenses to raise $250,000 of
short-term capital.
The board, in its meeting following the 2001 stockholders
meeting, unanimously rejected Steve's request to extend this
contract. In that meeting Glaza tried to get other board
members, which included Lisa, to define some role for Steve
in the company. Lisa was vociferous in insisting we sever
our relations with Steve. This opposition was primarily
based on Steve's constantly disruptive actions and on
Steve's admitted recent action to try and turn over, in
return for a commission, a purported hot sales lead to one
of our competitors. It was shortly after the cancellation of
this contract that Steve started leading efforts to unseat
the board.
In his nomination speech for a director's seat, Steve cited
that while he was CEO of Global he had raised $2.8 million
to finance Global and its subsidiary IGW, with $2.2 million
in equity capital and, through his leadership, achieved a
market cap of $18 million. The facts, according to a report
from our auditors, are that in total financing efforts he
raised $1.9 million in total capital of which $654,000 was
in the form of short-term loans. Of this amount only
$694,000 reached the income-producing arm of the company,
IGW; the remaining $1.2 million, being spent on Global
corporate level activities, e.g. salaries, stock promotion
schemes. Moreover, as we are contending in the suit against
Steve, he spent excessive, non-substantiated monies claimed
to assist in fund raising and stock promotional activities.
This money was spent in less than two years. This
under-funding of IGW's product development and other
operational activities such
12
as marketing and sales has been a drag on Global's
performance since the company was formed. For this
performance he and the entities that he controlled ended up
with over 30% of the common stock of Global. This percentage
is an estimate based on what was actually issued to Steve
and on our understanding of the percent of the entities he
owned to which he also issued stock. We have evidence he did
not reveal these interests to stockholders while raising
money from outside investors; we believe this is a violation
of SEC rules and regulations that generally prohibit
material misstatements of fact as well as material omissions
of fact. Specifically, in the company's opinion, Steve's
conduct is actionable under the SEC's expansive anti-fraud
section 10b-5 of the Securities Exchange Act.
Steve has tried to justify this excessive award of stock to
himself on the basis he saved IGW from going out of
business. Although funding is required of all start-ups, it
must be tempered with reasonable costs.
As to his track record as a CEO of Global and his claim of
$18 million market cap, the fact is that at the time he was
asked to leave, the company's market cap was less than $13
million and rapidly deteriorating. This deterioration in
stock price was not only due to company performance but also
by the burst of the dot.com bubble. At Lisa's departure the
company had a market cap of $6 million. However, during this
time the online gaming industry was doing much better than
most dot.com based industries. Global could not adequately
capitalize on this opportunity because of the following
items, in the opinion of your current board, the inadequate
funding at the start up of the company; over spending in
stock promotion schemes and under investing in product
development, sales and marketing.
Steve mentions (in the resume he submitted in his proxy
fight of 2002) as points of experience the companies
Beverage Source Worldwide and Vista International. These
companies were not successful; they generated very little if
any revenue and were never profitable. He also mentions he
is President and director of Shining Star Investments
("SSI"). He is SSI's only employee. The only known asset of
SSI is Global stock, most of which is a subject of our legal
action against Steve. Steve was also a founder to Massadi
Resources, the original company on which Global is based
because of a merger he arranged with the failed Beverage
Source Worldwide that had evolved from Massadi Resources. He
is also a principal in Massadi Financial, an investment
company he founded whose only current asset is Global stock,
some of which the company is challenging as to its validity.
Steve has no experience in software technologies, is not
recognized in the gaming industry and has never operated or
even been associated with a successful business to our
knowledge, other than Global.
ii. Qualifications of James Angelakis. Lisa spoke on behalf of
Angelakis. He cited his presidency of a dental lubricant
company (which is now defunct) and that he was hired by Lisa
to try to resurrect the Prevail division of Global. This
13
division, which he managed for 2 years, was shut down for
lack of profitability by current management. He mentioned
that Angelakis is not presently employed. It should be noted
that, in the opinion of your directors, the failure of the
Prevail division should not be attributed to Angelakis's
performance, but primarily to the deterioration of revenue
opportunities for Internet sites of the type supplied by
Prevail.
Under questioning, Lisa admitted "Angelakis had three
convictions for DUI, served 4 months (in jail) and has been
released on probation". When asked if this conviction was a
felony he said, "I do not know". It is noteworthy to mention
that Lisa is representing Angelakis in a legal case related
to the defunct lubricant company. The chair pointed out that
Angelakis was under investigation by Global for illegally
accessing the company's corporate database and distributing
company assets.
Despite the question on the felony conviction and the
investigation on the theft of company assets, the chair
allowed the nomination of Angelakis to stay in place on the
assumption that if either proved to be true he would be
disqualified to serve.
iii. Allender's Stated Qualifications. Allender went first and
stated that she presently was the 100% owner of a successful
software business and is considered a leader in her
community. No details were given on her company or her
community activities.
iv. Don Lisa, a former CEO of Global, who resigned near the end
of 2001 (after approximately one year) stating, amongst
other reasons, that the job took too much of his time. Lisa
did most of the talking for the group. He is a retired
patent attorney. He is referred to in this document as Lisa.
v. Remaining Nominees, Qualifications. The chair accepted the
nominations of the remaining board nominees, including Lisa,
after only cursory statements of who they are and in what
capacity they were currently employed. None of the other
nominees with the exception of Dave Abboud has had any
experience in successfully leading a sizable business
operation, i.e. where they had to manage many operational
disciplines manned by a significant number of people. Two
are lawyers. None, except as indicated, has a technical
background or any significant experience in the software
business.
c. Summary of Both Nominated Slates of Directors.
Some of the current outside board members had the opportunity of
witnessing the performance of both of these former CEO's and also
have reviewed their historical performance with several
individuals present at the time they held their positions. In
their opinion, neither of the two former CEO's is of the caliber
of Bryan Abboud.
14
In the board's observations, Steve Abboud focused primarily on
stock promotion; he did little to establish the organization,
strategy or sound financial basis any company needs to be
successful.
Don Lisa, a semi-retired lawyer, nominated to the CEO position by
Steve Abboud, during his tenure focused primarily on the legal
issues facing the corporation. We now outsource most of the
activities he performed to legal professionals that are qualified
in areas other than patent law. Most of his other activities have
been eliminated or disbursed to administrative personnel.
IT WOULD APPEAR, BASED ON PROXIES GRANTED TO THE DISSIDENTS THAT
CERTAIN SHAREHOLDERS FEEL STEVE ABBOUD AND DON LISA COULD DO A
BETTER JOB OF RUNNING THE COMPANY. THOSE SHAREHOLDERS ALSO HAVE
INDICATED THAT THEY AND THE PEOPLE THEY NOMINATED AS DIRECTORS
WILL BETTER BE ABLE TO MEET THE SIGNIFICANT CHALLENGES FACING THE
COMPANY THAN CURRENT MANAGEMENT. The board hopes that the
information provided in this letter will change this perception.
We encourage you to have a discussion with your board or
management on any issues facing the industry or the operations of
a software company. Please contrast the skills, experience,
industry knowledge and track record of those who wish to regain
leadership to those of your current executive team.
5. How the Dissidents Used Their Proxies
a. To Dismiss the Current Board and Replace Them With the Nominated
Group. The Dissidents nominated the seven names previously listed
to replace the current board, including Bryan Abboud, who the
board considers almost indispensable to the business. Steve first
inquired if the board could be expanded from four to seven, so
they could vote for all seven. This was not possible under the
rules governing the proxy process. However, one would assume by
this action they intended to have all seven serve if they
prevailed.
b. Vote on the Adequacy of Our Largest Licensee's Contract. Another
action that Lisa tried was to vote on a proposal he had made to
be placed on the company's 2002 proxy. The SEC ruled this
proposal could be excluded from the ballot; thus the chair
refused to consider a new nomination to place it into
consideration at this meeting. This proposal was in regard to
Global's relationship with one of its major customers. This area
continues to be a topic of profound interest to the Dissidents.
Accordingly, your board believes this topic merits clarification
in this document by including previously published material.
This licensee has been IGW's largest single client since
inception. The original contract was for a period of six years
and provided that 70% of the licensee's "gross take" (player
losses less player winnings) would be paid to IGW. The Dissidents
claim that somehow this contract was kept secret from them when
they were managing the company; this cannot be substantiated. The
15
CEO and board members have by definition access to all records of
the corporation. It was provided to Glaza upon his request after
he joined the board. However, virtually as soon as the contract
was signed, it became apparent that the licensee could not pay
the 70% royalty and remain in business. Consequently, our
licensee's receivables obligations began to grow at a rapid rate
Because both Global and the licensee recognized the problems with
the structure of this original contract, in 1999 and 2000
multiple steps were taken to reduce the royalty rate. The
Dissidents have claimed that such reductions were again somehow
kept secret from the Board and the CEO; these allegations cannot
be substantiated and do not make sense since even a cursory
review of the revenue stream would reveal a reduction. Despite
these adjustments and reductions the royalty rate still remained
excessively high as compared to rates paid by other IGW clients
and the industry at large. Thus, the licensee was still unable to
meet the royalty payments being billed by IGW and stay
competitive. They continually complained about being
uncompetitive and they needed a rate reduction akin to other
customers and competitors.
Despite the increasing receivables and obvious inability to pay,
the company, under the leadership of Steve and Lisa continued to
invoice this licensee and thus book revenue at these inflated
rates until late 2000. About this time, Mr. Glaza was asked by
Steve to join the Global board of directors. While conducting due
diligence on Global, Glaza reviewed this receivable and refused
to join the board unless and until the issue was resolved. As a
result, an agreement was reached whereby the receivable was
converted into a short-term note; the licensee obtained outside
financing to support monthly payments against this note. In
consideration for signing the note and making the payments, IGW
with approval of the board (that included Lisa) lowered the
royalty rate charged in stages. This occurred with the full
knowledge of Steve who was interfacing with the board at its
meetings because of his role as "financial consultant". However,
even at its lowest point, the reduced royalty rate charged to
this licensee still exceeded that paid by other IGW clients. It
was made clear that they expected additional reductions until
their royalty level was lowered to that paid by others.
In December 2001, Global signed a letter of understanding that
resolved the long-standing issue of lowering their royalty rate
to a competitive level. The approach used to help obtain the
agreement to the new terms was to simulate a purchase price, for
reference purposes only, as if it was done in December of 2001
rather than when the original contract for service was executed
in 1998. This approach was discussed at the board level and the
board approved giving it a try.
The valuation used actual revenues, costs and profit through the
licensee's 3rd quarter of 2001 and then projected such figures
for the next 5 years based on industry projections. The royalties
already paid, including payments against the above-described note
that were in excess of the rate paid by other clients, were
considered payments against this simulated purchase price and
formed the basis for establishing the subsequent reductions in
royalty to the normal rate until the total of the excess royalty
payments equaled the amount of the simulated purchase price. The
Stockholder Review Committee reviewed this approach. Every
16
stockholder in that meeting signed a statement that they believed
the agreement reached was reasonable and fair to Global's
shareholders. In February 2001, an agreement reflecting the
reduction in royalty, based quite similarly on the simulation
exercise, was executed. This revised contract cemented much
better relations between Global and its single largest client and
thus helped assure that the licensee would not seek other
suppliers in an effort to secure an industry competitive royalty
rate.
Steve has constantly maintained that the company had no right to
revise the contract. Any reasonable, experienced business
executive will acknowledge that contracts are quite frequently
revised to adjust to current business conditions. Steve states
that the investing stockholders made their commitment to invest
on his promise that the royalty rate of 70% was made in
"perpetuity", i.e. forever. Such an aggressive forward-looking
statement in an effort to obtain investments from potential
stockholders is inappropriate. The claim of perpetuity had no
basis. If Steve made this claim to you, he did so without regard
for the explicit six (6) year term set forth in the contract. In
addition, experienced businessmen realize no contract is forever,
especially if one of the parties to the contract cannot comply
with its terms. We believe Steve seriously misled stockholders
when he made such a promise; and if he is promising to rectify
"our error" once he gains control, he is also misleading you. It
can't be done and if foolishly attempted it would probably result
in the loss of our major licensee.
Members of the Dissident group have made several public comments
implying "that the threat of this customer going to a competitor
if the Dissidents took over the company is without merit." The
following quote is extracted from a letter sent to Global by the
owner of our licensee last September (after the last illegal
proxy action to unseat your current management): "If GAMM
shareholders are not happy with the terms of our royalty
agreement, then we are ready to deal with someone else who can
give us more favorable terms- as are readily available in the
current competitive marketplace. Additionally, I [Managing
Director] am having my lawyer review our contract to identify how
much damage has occurred with the disclosure of our finances, the
constant threat of more disclosure, and the harassment to which
we are being subjected. We have no intention of renegotiating
this deal and recommend that you make this clear to your
stockholders, or regrettably we will be forced to consider
terminating our relationship."
6. Allender's Role. The company was aware that Allender was going to be at the
meeting with Steve. It was rumored that she was going to support Steve's
initiatives and potentially even finance his legal defense against the
charges the company has brought against him
Jim Doukas, a company director, set up a meeting with Allender the night
before the stockholder's meeting. His stated purpose was to inform her of
the facts regarding the legal issues surrounding Steve as perceived by the
company, since the company was not at all sure she had been given the
opportunity to hear all of the facts. She did meet with Doukas who
presented our position.
She responded with an offer that would have allowed Steve to maintain his
current stock holdings and would have stopped the current legal action by
the company against him. This proposal would not have redressed the losses
suffered by the company and its shareholders because of Steve's actions
deemed by the company to caused this loss, as stated in our legal case. The
proposal was rejected by your board.
17
7. The Dissidents Attempts to Disrupt the Meeting. Throughout the meeting, the
group, primarily led by Lisa, was very disruptive. Lisa was warned several
times to cease his disruptive actions or he would be asked to leave the
meeting. He was also asked to lower his voice and try to restrain his
anger. It has come to the company's attention that Lisa has published his
version of the meeting and distributed it to stockholders. It would appear,
in Lisa's document, that he is trying to make a case that the Dissidents
were somehow mistreated and railroaded and that the election was
fraudulent. Following are some of the disruptive actions the group tried to
initiate and our response. If you received Lisa's letter please take the
time to review how the company saw this group acting and the apparent
reasons behind their actions. You may have noticed in Lisa's version that
no reasons were given as to why we rejected the Dissident's motions. That
dimension follows.
a. Challenged the Ruling That a Quorum Was Present. The first order
of business was a declaration by the inspector of elections,
outside SEC counsel Kevin Woltjen, that a quorum of votes was
present and therefore the meeting could be called to order. At
this point, approximately two minutes from the start, Lisa
brought the first of his many "points of order". Lisa asked that
a roll call be taken to establish that in fact there was a quorum
present. Since it was quite obvious that there was (the
Dissidents later claimed they represented over 4,000,000 votes in
person or by proxy) a quorum present, they obviously had
something else in mind. After much discussion it was acknowledged
by Isabelle Lisa (Don's spouse) and confirmed by Lisa is what
they were after was a list of how each stockholder had voted. The
inspector of elections pointed out that Colorado law does not
allow this.
The inspector made an offer, supported by the chair, to have all
aspects of the meeting, the quorum as well as results of the
actual voting (which had yet to be addressed), audited by any
shareholder's independent agent, presuming confidentiality and
non-disclosure agreements were executed. Subsequently, the chair
denied the motion to take a roll call vote at the public
stockholders meeting. The discussion around this point lasted
over 10 minutes. At this point the chair pointed out that the
meeting was targeted to last no longer than 12:00 pm and that he
would do everything appropriate to make sure the key agenda items
were accomplished, that is, the election of a board, the approval
of the auditors, and a vote on a shareholder proposal to amend
the by-laws.
b. Insistence That Roberts Rules of Order Be Followed. Lisa inserted
many points of order throughout the meeting. He was allowed to
state his points of order and many other attempts to alter the
stated agenda. Most were denied by the chair for one of the
following reasons:
i. Not appropriate to the meeting
ii. Corporate bylaws are the primary source for guidance on
handling shareholders meetings
iii. Colorado law specifically supplements the company bylaws
before any secondary source of structure is to be followed.
18
Whenever Lisa's motions were denied he insisted that a roll call
vote be taken of stockholders to rule on his motion. When
reminded that such a vote was already ruled out of order, he
attempted to make a point of order to appeal the chair's decision
and to call for a vote on his appeal. The chair denied all of
these attempts. He at several times tried to invoke that this
meeting was to be conducted under "Roberts Rules of Order". He
was reminded by counsel that although these rules were guidelines
for any meeting that the State of Colorado provided great leeway
as to how a stockholder meeting was to be conducted and that the
chair of the meeting, in this case Glaza; Glaza was allowed to
establish rules as deemed necessary to efficiently and legally
run the meeting.
It was this type of conduct, primarily on Lisa's part that
consumed much of the meeting's time and prevented more
substantive matters to be discussed.
c. Attempt to Discover How Each Stockholder Had Voted. As previously
pointed out, the major objective of the Dissenters was, for some
reason, to get an actual roll call of how each stockholder voted.
In any voting situation, if the voter fears intimidation from
individuals supporting a position opposite theirs, it cannot be
considered a fair election. We are aware of attempts at
intimidation of our shareholders.
d. Attempted to Table the Election of Board Members Nominated by the
Company. Lisa at several points tried to interfere with the
orderly process of nomination of board members. For example,
Lisa, via a point of order, attempted to table the issue and
asked for a vote of stockholders on his motion. Glaza denied the
motion and again Lisa made the point we were violating Roberts
Rules of Order and again he was told that Robert's rules were not
governing in this meeting. He then accused the chair of trying to
railroad him. Again he finally calmed down only after being
repeatedly warned that if he persisted in trying to stop the
meeting from proceeding he would be asked to leave.
e. Attempt to Change the Agenda. Lisa then stated his intent to
change the order of business. Woltjen, the company's counsel then
informed him that under the company bylaws and Colorado law only
the company is authorized to establish the agenda. Lisa again
followed with attempting to make a point of order, make a motion,
after denial for a specific reason, call for a vote on his
objection to the denial, etc.
8. The Vote for Various Propositions, the Challenges and the Company's
Response
a. The Role of Kevin Woltjen, the Inspector of Elections. Mr.
Woltjen was appointed by the board of directors as an independent
Inspector of Elections. He had served in this role when Steve and
Lisa were the company's CEO. As inspector, his task is quite
straightforward. He compares the list of stockholders of record
with the proxies submitted by these identified holders to assure
that their vote agreed with the quantity listed by the transfer
company as being stockholders of record as of the official record
date. If the quantity of shares voted is in excess of that on the
list, he adjusts the number to be equal to that shown on the list
provided by the company's independent transfer agent. Note that
if the stock is held in "street name" (through a broker or bank),
the inspector receives their votes via the broker or bank's
agent, ADP Shareholder's Services (ADP), not the stockholder. If
a stockholder wishes to vote stock held in street name other than
through the broker or bank holding the stock, they must request a
form from the holding company.
19
The Inspector of Elections therefore does not know who voted the
"street" stock for what director; he just makes sure that the
amount voted from the holder does not exceed that shown by the
transfer company. This also means that stock held in street name
can not be voted via a proxy submitted directly to the company by
the individual who held it in a street name without first
alerting their broker or bank of their intention and having the
broker and bank alert ADP of such intentions; otherwise it would
be possible for a stockholder to vote twice, once directly in
person or by proxy and once via the broker or bank who held the
stock. In this matter, the inspector has no choice.
Because stockholders may, in a highly contested situation, change
their votes after submitting a proxy, by submitting a proxy dated
later than that previously submitted, the Inspector of Elections
also has the responsibility to assure that the latest proxy is
the one actually voted. It is here where the Dissidents
questioned the Inspector of Election's independence and
ultimately his honesty in making fair judgments.
Woltjen pointed out several times during the meeting that if the
Dissidents wished to challenge the votes, they could do so by
appointing an independent auditor who would be allowed to examine
the documentation supporting the election and confirm that the
vote was counted correctly. In order to be allowed to do that the
auditor would have to sign a confidentiality agreement and also
agree not to disclose the voting of any stockholder. Following
the election Woltjen forwarded a letter to the Dissidents
outlining how this was to be done. The Dissidents have since sent
an independent auditor to our Miami office. He was denied access
to the records because he did not follow the instructions given
via letter to the Dissidents.
To insure that a claim of unfair vote counting could not be made
against the company, we engaged the services of an independent
law firm to render an opinion on the Inspector of Election's
results. The attorney hired, Christopher M. Melton, of Denver
Colorado, has performed a review of the law and its application
by the Inspector of Elections along with the Inspector of
Election's voting results and has rendered an opinion that the
results were in accordance with rules, regulations and laws
governing your company.
b. Challenges to Various Blocks of Votes. The Dissidents challenged
the vote, submitting proxy votes that appeared questionable.
Under examination by the Inspector of Elections, it was found
that in fact many of the proxies submitted by the Dissidents did
not agree with the list of official holders of record supplied by
the transfer agent. As an example, the Dissidents attempted to
vote a proxy for 488,800 shares registered to Travina, when the
transfer agent list showed only 39,742 shares. The Dissidents
tried to bring up several other situations all of which the
inspector of elections resolved by comparing the official list to
that submitted by proxy.
c. Attempted to Put in Place a Proposal that the Recent Changes in
the Bylaws be Retroactively Rescinded and that a Two-thirds Vote
of the Stockholders Be Required to Change the Bylaws. Lisa had
already been informed that this proposal was allowed by the SEC
20
to be excluded from the Proxy. It was ruled out of order under
Colorado and federal law by calling for the retroactive amendment
and the retroactive elimination of actions already taken. They
then made a claim that just because the SEC excluded it does not
mean it cannot again be presented as a proposal at this meeting.
They were overruled.
d. Other Comments and Requests Made by the Dissidents.
i. Isabelle challenged why Glaza was acting as the Chairman of
the meeting, i.e. why was not Bryan conducting the meeting.
Simple answer, Glaza was appointed to the role by the board.
It is normal for a board chairman to conduct such meetings.
ii. Isabelle accused the chair of setting a "bad tone" for the
meeting. We must question who, in fact, actually set a bad
tone for the meeting. The only way someone not in attendance
could reasonably make a judgment as to who in fact set the
tone would have to listen to a recording of the meeting. The
consensus of those attending the meeting, many who have
participated in other stockholder meetings, was that they
have never seen such a blatant attempt to disrupt the
meeting to the extent that the official business of the
meeting was in serious jeopardy of not being accomplished.
iii. Isabelle requested that the meeting time be extended,
stating that the Dissident group traveled a long distance to
be at the meeting and that there were many issues they
needed to put on the table. As it was, the planned meeting
time was extended from 11:30 to almost 12:30 because of the
tactics of the Dissidents. A 1-1/2 day meeting to revise the
strategy was scheduled to start at 1:00 pm that same day. It
was to include 5 members in the stockholders meeting some of
whom had also traveled considerable distances. Her request
was denied.
9. Apparent Threats of Legal Action Communicated by the Dissidents in the
Meeting. The threat of future legal actions being taken by this group stem
from the following statements:
a. Lisa, at the conclusion of his defense of Angelakis, stated that
"the conduction of vendettas and using company money to do it is
a waste of company assets and is actionable as well in civil
courts, Tom [Glaza], and you should keep this in mind". The board
interprets this as meaning they are considering some form of
civil action against the board for its action against Steve.
b. Steve, in support of trying to get into consideration a vote on
the major licensee contract issue noted earlier, stated "just for
the sake of trying to avoid that [legal action] wouldn't it be
better to sit down [now at this meeting] and get this [the
contract] out in discovery." We have to assume by that statement
they are considering legal action regarding the licensee
contract.
c. Steve, in his recent testimony before a Federal judge, was asked
if he "had contemplated bringing derivative action against the
corporate directors for breaching their fiduciary duties? His
answer was, "yes, we have."
21
10. Subsequent Actions of the Dissidents. The Dissidents continue their
harassment. The following outlines some of their activities since the
meeting.
a. Filed a Temporary Restraining Order (TRO) With the Objective Of
Dismissing the Current Management. On August 29, 2003, the
Dissidents filed a temporary restraining order in the Denver
federal court. They claimed that they "will suffer immediate and
irreparable harm if the relief they were seeking was not
granted". When asked by the court to "explain to the court why
they believed that to be true they:
i. Put into the record a series of statistics including
revenues "down 16%", gross profit down 44%, salaries up
121%, etc." (Of course these are incorrect, or are
misleading because they did not indicate over what period of
time). Then stated "this [these statistics] shows extreme
gross negligence, if not intentionally ... just eating away
the balance sheet, then the profit and loss statement of the
company."
ii. Stated that the company has denied us (the Dissidents)
access to the corporate records and books to confirm the
tallies as indicated during the (stockholders) meeting. See
the earlier discussion to review why this access was denied.
To accommodate and in addition to independent third party
Kevin Woltjen, the board appointed an additional independent
individual to validate the vote confirming the stated
outcome.
iii. Stated, "Threats by management and the board of directors
that our largest licensee... is going to be absconding or
leaving the company [IGW] if management or the board
changes." We do have major concerns in this area. Please see
the earlier discussion as to why.
iv. Stated, "To prevent any additional possible actions by the
current board to change the bylaws that may wither away
shareholder rights." Your board is not aware of any change
it has made that significantly restricts stockholders
rights; unless you are a convicted felon, then you would not
be restricted from holding a management or board position in
the company.'
v. The actions they ask the court to enforce included:
1. "Submit proxy materials to its shareholders to hold a
new vote."
2. The stockholders meeting, "at least with respect to the
board of directors, would be ruled a nullity"
3. "Injunction precluding any violations under the
security and exchange act"
4. Added in the end, "to provide access to corporate
records regarding the election."
The court responded, "there is (has been) no real presentation
[on the part of the Dissidents] of immediate threat or harm" and
although you might have a valid claim "this is a waste of this
court's time" Your attempt at proof lacks:
o "Any meaningful proof of irreparable injury."
o "Proof that the harm done to a company to deprive it of
its governing body." "To have me [the court] put a
board of directors in jail is not in the public
interest by any stretch of the imagination that I can
think of" (emphasis added).
22
Subsequent to this request in Federal Court, and as part of
Steve's response to our claims against him, he has filed a
counter claim requesting the same temporary restraining order
sought in the Federal action and seeking other damages to
extent of $50,000,000. Needless to say your company's legal
costs are likely to escalate as a result of this frivolous
action.
b. Lisa Claimed Compensation From the Company for Travel Expenses.
The company received a request from Lisa to pay $941.66 because
he claimed we had intentionally misinformed him of the start date
of the stockholders meeting. The facts are that he admittedly got
the date from Steve who had obtained it from Jim Doukas, a Global
board member. Jim initially mistakenly gave the wrong date to
Steve; however, he did correct that within 24 hours. It would
appear Steve failed to pass the correction to Lisa. It is the
company's position that Lisa should have called Global to
validate the date, reviewed the company website or sought the
public press release issued. To claim we intentionally misled him
is inappropriate given the fact that the meeting date had already
been publicized.
c. Sent An Auditor to the Global Office to Review the Voting
Records. At the stockholders meeting we agreed to allow an
independent auditor to review the voting records and sent a
letter to Dissidents within a few days outlining what the auditor
must do to get access. The Dissidents auditor arrived at the
office on the following week and was denied access for failing to
notify us properly and conform to the request outlined by the
company. In addition, it was the auditor's indication that he
wanted to copy all of the company's records and was not willing
to sign a non-disclosure agreement, to protect our shareholders'
confidentiality, both conditions of the letter we had
communicated to the Dissidents.
d. Published a Letter To Certain Stockholders Stating The Dissidents
View of the Meeting. The company has been forwarded a letter that
Lisa sent to selected stockholders. It would appear the objective
of his letter was to tell those stockholders that the chair
(Glaza) took a "dogmatic and adversarial approach" to the meeting
stating such things as "he [Glaza] would railroad the meeting
according to his pre-planned order of business and that he would
disallow any parliamentary or other attempt to derail it." It is
the chair's responsibility to assure that the publicized agenda
is accomplished. Some statements in that letter need
clarification in addition to those mentioned previously:
i. They "proposed retroactively repealing the July 2002 changes
to the by-laws". This was ruled out of order as the letter
states; however, the letter fails to state the reason given,
it would appear to lead the reader to think the chair was
being "dogmatic". It was rejected in accordance with the
legal reasons outlined in the notice sent to the proposing
stockholder.
ii. He Lisa "was given only 5 minutes to rebut" the companies
presentation of its results. The time limit was established
to allow all stockholders present to make comments rather
than allow one person to monopolize the limited time
available. The company presentation was cut short as a
result of Lisa's request. Several other stockholders took
their allotted time.
23
iii. His point 37 is totally without support, specifically,
"Glaza kept trying to shut the meeting down even though no
final tally had been given on the voting." The major
objective of the meeting was to conclude on the votes and it
is the responsibility of the chair to make sure this occurs
before the meeting is adjourned.
iv. Lisa references the company's "vendettas against former
employees and the waste of corporate funds that resulted
citing the situation where we withheld Steve's paycheck".
First, it was not a paycheck, it was a retainer fee. Lisa
does not cite the reason we delayed payment; Steve was asked
to account for a phone system worth several thousand dollars
that was placed on the books but not in the company's
possession, during his tenure as CEO, before we made our
last payment. Steve claimed this system was not the property
of GAMM, having been loaned to the company by Gene Abboud.
We questioned this on the basis that when an asset was put
on the books at a certain dollar amount, an offsetting entry
of the same amount has to show how it was paid for. We could
find no such entry. Steve blamed it on poor accounting
practices (for which he was responsible). The company lost
in court because it made an incorrect legal assumption and
we failed to appear, not because we were wrong.
v. He claimed we "ignored our fiduciary responsibility under
Colorado law to have at the meeting a complete list of all
shareholders and their holdings". We did have a list of
registered holders at the meeting and it was made available
to all attendees. We also had a list provided by ADP, called
the "Non-Objecting Beneficial Owners" schedule, which was
also made available to all attendees. As to stockholders who
held stock in "street name," please see section 9a for
clarification on identifying that type of stockholder.
vi. His inference that we cut the meeting off "because of an
alleged strategy meeting" is out of order. All shareholder
meeting participants were informed of the timeline at the
beginning of the meeting. Moreover, the strategy meeting
scheduled for 1:00 pm was addressed as well. The "alleged"
strategy meeting started one hour late and went well into
the evening of that day and continued to late afternoon of
the following day.
vii. His comment that "Dave Stein [is] Glaza's puppet
co-director" is out of line. Lisa had never been in a
meeting with him and therefore was not aware of the
interaction between board members. In fact, he did not even
know him, as made obvious when he had inadvertently tried to
appoint him to act as an independent auditor of the election
results. When finding out what he had done he "revoked that
appointment."
11. Possible Future Legal Action Against the Dissident Group.
The group of Dissidents emphasized in the meeting that none of the people
that were voting proxies had more than ten in hand. We assume they made
this point because they were aware of the SEC's rule that no individual or
group can solicit more than 10 proxies without registering with the SEC and
getting clearance on the points and data they intend to present to obtain
the proxies. The Dissidents did not register with the SEC and subsequently,
24
under Federal oath during the attempt to obtain the TRO, Steve stated he
did not solicit more than 10 stockholders. In our view this is unlikely. We
also believe they violated that law by acting in concert as a group. The
following is extracted from a legal opinion letter from our SEC counsel:
"The fact that the Dissidents presented proxies collectively on behalf of
approximately 30 different shareholders raises an incredibly high
likelihood that they violated the SEC's prohibition (set forth in Rule
14a-2(b)(2) under the Securities Exchange Act of 1934 ("1934 Act"), which
only allows solicitations to be made without a proxy where the
"solicitation [is] made otherwise than on behalf of the registrant [and]
where the total number of persons solicited is not more than 10.") Of any
single person soliciting without a formal proxy statement more than 10
persons. In my professional judgment, the odds that each of the Three did
not solicit more than 10 persons, and thereby commit a securities
violation, even though they each actually submitted proxies from 9 or 10
shareholders, are nearly unfathomable. The following additional facts
compel me to believe that the Dissidents acted in concert in obtaining
proxies in violation of 14a-2:
o Allender served as the notary for several of the proxies
allegedly given to Steve;
o One of the shareholders on whose behalf the Dissidents submitted
proxies modified their proxy by changing who was to serve as
their `proxy' from Steve to Allender;
o Management of Global indicated that they are aware that the
Dissident had approached other shareholders who did not give them
a proxy;
o The Dissident acted in concert throughout the Meeting, beginning,
for example, with entering the Meeting at precisely the same
time, and continuing their obvious alignment in each and every
aspect until the Meeting's adjournment;
o (The Dissidents) voted as a block on all matters, in a clearly
preconceived manner;
o Lisa and Steve have acted together in the past in various efforts
to unseat the board;
o James Doukas, a member of Global's board of directors prior and
subsequent to the Meeting, informed me that he had met with
Allender the day before the Meeting where she stated she would
financially support Steve's legal actions against Global."
"The facts above, in my opinion, unequivocally indicate a conspiracy to
commit securities violations by the Three [Dissidents]. Additionally, I am
of the opinion that the actions taken by the Three constitute an
intentional violation of securities laws. Because of the tremendous time
and effort Global has been compelled to expend, I recommend Global pursue
civil action against the Three for the damages Global has incurred in
connection with the Three's activities."
"In addition to pursuing redress of Global's civil damages, I further
recommend that Global identify all of the Three's actions to the SEC so
that the SEC may (a) enjoin any and all of the Three from any similar
actions, (b) institute a cease and desist against the Three from
participating in public securities, and (c) financially penalize, in a
punitive manner, the Three for their malicious actions."
"As a result of certain unfounded statements made by the Three at the
Meeting, I further believe a high likelihood exists that the Three utilized
unfounded and inappropriate representations and false and misleading
statements concerning Global and its incumbent management in obtaining the
25
proxies which they voted which is prohibited by Rule 14a-9 under the 1934
Act. Tending to support this assumption is the fact that Steve engaged in
similar tactics in conjunction with his attempt to vote shares via proxy at
Global's 2002 Annual Meeting. In the event misrepresentations were utilized
in connection with the Three's (Dissidents) procurement of proxies, any
such proxies would be void as having been obtained under false pretenses."
The cost of responding to illegal proxy actions and other disruptive
practices promises to increase. More importantly, the cost in time to your
management team continues to be very excessive, time that could much better
be spent on more productive company activities.
We do not wish to engage in any further lengthy legal confrontations, as
this will cost time and money. HOWEVER, STEVE HAS REPEATEDLY REJECTED OR
NOT RESPONDED TO THE COMPANY'S OFFERS TO BUY BOTH THE STOCK SUBJECT TO OUR
LEGAL ACTION AND ALL OTHER STOCK HE HAS ACQUIRED IN RETURN FOR DROPPING OUR
EXISTING LEGAL ACTIONS AGAINST HIM. Therefore, at this time we see no other
way to get the group to cease these illegal and ill-advised disruptions to
the business, other than to try to recover damages from the Dissident
Group. We will take further action based on our counsel's recommendations
and the board's evaluation of all the facts and circumstances.
12. The Company's Offers and Steve's Response. Your company has made, during
its investigation and subsequent filing against Steve, two formal and
several informal offers to buy the stock issued to himself and his entities
and to drop its legal case against him. The entities are Massadi Financial,
SSI, and Travina. The offer was made at near the current market price of
the stock. Steve's reported response to the first offer was "I would rather
burn it than sell it at that price". Steve never even responded, either
verbally or in writing to the second offer the company made just recently.
We believe this position is a result of Steve's inflated view of what the
stock is worth and his desire to again become the leader of Global. The
latter belief is based on our understanding that he is not gainfully
employed in any other capacity since he was dismissed as Global's
"financial consultant", choosing rather to focus on activities that will
result in his return to Global's board with a group of Directors he can
control.
Some stockholders have indicated that they actually have compassion for
Steve because he is being mistreated and the company is trying to somehow
"steal his stock." We would ask to whomever might feel this way to read our
court filing, to understand the scope of the legal case against Steve. This
case is not based just on the fact that stock was issued to him directly
and his entities without due process and consideration, but also on many
other issues that have damaged you as stockholders. He is being sued to
recover damages resulting from breaches of fiduciary responsibility that
have damaged all shareholders and benefited him or his entities. Your
company is determined to see that Steve ceases to benefit from these
illegal acts and pays for his multiple breaches of fiduciary
responsibility.
In the opinion of your board, as stockholders you have not been well served
by Steve. The magnitude of the company's stock he issued to himself, his
controlled entities and others for little, if any, consideration and the
very large percentage of the ownership for the amount of long-term equity
he raised, proves this position. We have several stockholders who are
willing to testify that he did not inform them of the percentage he had set
aside for himself and the entities (which we believe he had apparently set
26
up to cover this exceedingly large percentage). Most notably, this was at a
time when almost anybody that had a business centered on the Internet could
easily raise money; in our view, Steve's performance in raising money
during this time was very poor and extremely expensive to your company and
dilutive to you as stockholders. This kind of performance should not be
rewarded by excessively diluting the holdings of stockholders who actually
invested money.
13. How Steve Has Damaged Stockholders. The following is an overview of how
stockholders have been damaged. Some of these are dependent on further
discovery and our success in proving them in court. Note that all of the
numbers and dates mentioned in the following summary were taken from an
audit report prepared by Global's independent accountant, Mahoney Cohen &
Company, CPA, P.C. (formerly Kane Hoffman & Danner P.A.) under the
supervision of a legal firm, Garvey Schubert and Baer, both firms are well
respected in the Miami business community.
a. Excessive, Unapproved Dilution of Stockholders Who Actually
Invested Monies in Global. The fundamental tenet of general
corporate law provides that any transaction with an entity, which
is directly or indirectly controlled by any insider, requires the
receipt of adequate and fair consideration and the approval of
the independent members of the board of directors after full
disclosure of the existence of any conflict of interest.
At the formation of Global, Steve issued 360,000 shares to
himself, 447,000 to Massadi Financial Services, 112,500 shares to
Christina Stanger (Steve's girlfriend at the time) and 450,000 to
Travina, a grand total of 1,369,500 for a total of $377. The
company is not contending the 360,000 shares that could be
considered founders stock or the stock of any other "founder" who
played a role in the formation and early operation of Global. The
company is contending that the stock issued to Massadi and
Travina was given for no apparent reasonable consideration and
was not duly authorized by the board. We have evidence that Steve
was an owner of Massadi Financial Services and had at least a
major interest in Travina. We have considerable evidence that the
112,500 shares to Stanger were in fact placed in her name to
possibly avoid public disclosure. Steve did not publicly
acknowledge his ownership in any of these companies, at least to
some potential shareholders, until well after he raised money
from investors.
Several months later, as part of the acquisition of IGW,
1,408,000 shares were issued to Shining Star Investments (SSI), a
company that Steve owns an 87.5% interest; yet SSI did not appear
as having an ownership interest in IGW. Therefore, the company is
also contending this issuing of stock.
Until the acquisition of IGW only $159,000 of actual investment
had been made to Global on 6/25/98 for which 720,000 shares had
been given (at $0.22). This very low price was almost exclusively
given to Massadi and SSI. At the time of the acquisition of IGW
4,402,000 shares were given to the investors in IGW and the
employees of IGW in payment for services.
27
Therefore, at the point where outside investors started to invest
money, Steve and the entities in which he had an interest and/or
controlled, owned over 3,260,000 shares for of which only 697,000
were supported with any actual investment of dollars. The
investors and employees in IGW owned 4,402,000. THEREFORE, STEVE
AND THE ENTITIES IN WHICH HE HAD A MAJOR BENEFICIAL INTEREST AND
PLACES WHERE IT WOULD APPEAR HE HAD "PARKED" STOCK IN SOMEONE
ELSE'S NAME, OWNED AN EXCEEDINGLY HIGH PERCENTAGE OF THE STOCK OF
GLOBAL. If we were to subtract out the 720,000 shares for which
his entities paid only $159,000, insufficient compensation was
paid for the 2,540,000 other shares issued to himself and his
entities. This amount represented, at the time Steve started to
accept investments from outside investors, over 40% of the stock
in compensation for later raising approximately $1,230,000 in
stock investments. If the price of $0.61 per share (the price
paid by the initial outside investors) were used to calculate the
value of this consideration, Steve paid himself over $1.5 million
(3,260,000 minus 697,000 times $0.61) to raise $1.2 million in
equity investment. This is obviously too high a price and had the
investors known of this, they may have withheld their investment.
A fact within these figures discloses that the employees of IGW
who invested a lot of hours for several years at very low wages
have suffered excessive dilution because of these manipulations.
The investors, who paid in a range from $0.61 to $4.66 per share,
without being informed how they had been diluted, also got
severely damaged by Steve's excessive dilution in his favor.
b. Self-Serving Stock Transactions. There are many examples of how
Steve favored his entities and friends by selling stock to them
at prices well below the price he was selling it to others less
fortunate. There is no supporting entries in the minutes of the
company to try to justify the price difference in these sample
transactions:
i. Steve had the company sell 697,000 shares at $0.22 to
Massadi Financial and SSI on 6/25/98, just 5 days before the
announcement of Global's acquisition of IGW. Two months
later he directed the company to sell stock to outside
investors at $0.61 per share, allowing his entities to
obtain stock at beneficial pricing on inside information.
ii. Under Steve's direction the company sold 9000 shares of
stock to Massadi Financial Services at $2.50 while on the
same day the company sold stock to an individual investor
for $4.66.
iii. Sold 9000 shares to Don Lisa at $.89 while on the same day
30,000 shares were sold to other investors at $2.67
iv. Between 8/27/98 and 11/15/99 the company received $771,000
in capital investments at an average discount to the market
price in excess of 50%. Fund raising is easier when selling
at 50% off the market price.
The net result is that stockholders who did not receive favorable
treatment from Steve were damaged because they were diluted by
the stock that was sold for less than fair value.
c. Undocumented and Excessive Spending on Expenses. Steve spent over
$65,000 on travel, hotel and meal expenses over the 2 1/2 year
period he was CEO of and "financial advisor" to Global. He did
not document the business purpose of the trips, the names and
titles of the persons for whom he bought meals and the subject
28
matter discussed, as required by the IRS; therefore, we have to
assume at least some of these expenses were of a personnel
nature. His retort was "the company must have lost my expense
accounts." The amount charged was, by far, more than rest of the
entire organization of Global/IGW spent during the same period.
These expenses included:
i. 10 trips to Las Vegas
ii. 4 trips to Las Vegas for his girlfriend at the time,
Christina Stanger.
iii. Many upgrades for first/business class travel.
iv. A trip to London where he charged a $6,667 ticket and a
$1,267 hotel bill.
v. A trip to Taiwan with a $2,500 ticket and over $1,000 of
charges at a `dance hall".
vi. Many excessive charges for business meals. The minimum
charge for these meals is in the area of $500 and range to
over $900. One investor has informed the company of an
incident where Steve hired two limousines to take a group
two blocks and while waiting at the bar for their table was
asked by Steve "how many ounces of Beluga caviar [on the bar
menu] would you like while waiting [at $100 per ounce]". We
have been informed that subsequently Steve ordered "6 to 8
ounces for he and his girlfriend".
These unsubstantiated spending excesses are just another reason
your company has suffered because of the lack of adequate capital
to invest in product development and sales activities.
d. Selling Stock From His Entities Without Notifying the SEC While
He is Still Aggressively Promoting the Stock. Steve has admitted
that he sold stock out of one of his entities "to cover
expenses." He did not, as required by the SEC, disclose these
sales to the public. His retort was that our SEC counsel told him
that at the amounts he sold he did not have to report the
transactions. Our SEC counsel at the time has denied making any
such statement since it is well known by most executives in
public companies that all movement in stock in which an executive
holds a beneficial interest must be reported. It is not possible
at this time to trace how much stock was sold and when until we
subpoena the records to obtain stock transactions, an expense we
have deferred until the discovery phase of the case against
Steve. However, we have enough data to estimate the amount to be
in the area of 300,000 shares. There is much stock issued to
Steve and his entities that is no longer in his/its name for
which we will attempt to trace its disposition once we enter the
discovery phase of our legal action against Steve.
Stockholders are damaged by this lack of reporting because they
are entitled to know the direction of "insider trading" as it is
a major consideration in making an investment decision, and it is
required under Securities laws.
29
Steve authorized spending of at least $350,000 in cash and over
$125,000 of stock (that was likely disposed of in the market) on
stock promotion programs. While acting as "financial advisor" he
also convinced the board to fund an additional promotion campaign
that cost the company $25,000 and 100,000 stock options to
(perceived third party) Tavina, which the board now believes he
owns. This cash spent for stock promotion would appear to be out
of line considering the company was able to fund its product
development, sales, marketing, and operational support with less
than $800,000.
In conclusion, there are numerous incidents cited here that warrant the board
following its current course of action to place a stop to the harassment by the
Dissident group and to recover what we perceive as improper gains obtained by
the noted parties. Please contact the board or management if you have any
questions about these matters or the company in general.