SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
|_| Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
U.S. DIGITAL COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
|_| Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
U.S. DIGITAL COMMUNICATIONS, INC.
2 Wisconsin Circle, Suite 700
Chevy Chase, MD 20815
(301) 961-1540
----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held on May 6, 1999
TO THE STOCKHOLDERS OF
U.S. DIGITAL COMMUNICATIONS INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of U.S.
Digital Communications Inc., a Nevada corporation (the "Company"), will be held
at Ristorante Terrazza, 2 Wisconsin Circle, Chevy Chase, MD 20815 on Thursday,
May 6, 1999 at 9:00 a.m. EDT (the "Annual Meeting"), for the following
purposes:
(i) To elect seven nominees to the Board of Directors to hold office
until the 2000 Annual Meeting of Stockholders and until their
respective successors are elected and qualified;
(ii) To approve the 1998 Stock Option, Deferred Stock and Restricted
Stock Plan;
(iii) To ratify the appointment of independent auditors for the fiscal
year ending December 31, 1999; and
(iv) To transact such other business as may properly come before the
Annual Meeting or any adjournments or postponements thereof.
Holders of record of the Company's $0.01 par value Common Stock (the
"Common Stock") at the close of business on April 9, 1999 will be entitled to
vote at the Annual Meeting or any adjournments or postponements thereof. All
stockholders are cordially invited to attend the Annual Meeting in person.
However, whether or not you expect to attend the Annual Meeting in person, it
is requested that you promptly fill in, sign and return the enclosed proxy.
By order of the Board of Directors,
EDWARD KOPF
Executive Vice President and Secretary
Chevy Chase, Maryland
April 14, 1999
YOU ARE URGED TO FILL IN, SIGN, DATE AND MAIL THE ENCLOSED PROXY. IF YOU ATTEND
THE ANNUAL MEETING AND VOTE IN PERSON, THE PROXY WILL NOT BE USED. IF THE PROXY
IS MAILED IN THE UNITED STATES IN THE ENCLOSED ENVELOPE, NO POSTAGE IS
REQUIRED. THE PROMPT RETURN OF YOUR PROXY WILL SAVE THE EXPENSE INVOLVED IN
FURTHER COMMUNICATION.
<PAGE>
U.S. DIGITAL COMMUNICATIONS, INC.
2 Wisconsin Circle, Suite 700
Chevy Chase, MD 20815
(301) 961-1540
----------
PROXY STATEMENT
for the Annual Meeting of Stockholders
to be held on May 6, 1999
----------
April 14, 1999
TO THE STOCKHOLDERS OF
U.S. DIGITAL COMMUNICATIONS, INC.:
This Proxy Statement (the "Proxy Statement") is being furnished to
stockholders of U.S. Digital Communications, Inc., a Nevada Corporation (the
"Company"), in connection with the solicitation of proxies in the accompanying
form by the Board of Directors for use at the Annual Meeting of Stockholders
(including any adjournments or postponements thereof, the "Annual Meeting") to
be held at Ristorante Terrazza, 2 Wisconsin Circle, Chevy Chase, MD 20815 on
Thursday, May 6, 1999 at 9:00 a.m. EDT. The approximate date on which this
Proxy Statement and the accompanying form of proxy will be sent to the
stockholders is April 14, 1999.
All holders of record (the "Stockholders") of the Company's common stock,
par value $0.01 per share (the "Common Stock"), at the close of business on
April 9, 1999 (the "Record Date"), are entitled to vote at the meeting and
their presence is desired. Each outstanding share of Common Stock as of the
Record Date is entitled to one vote. At the close of business on the Record
Date, 20,767,966 shares of Common Stock were outstanding.
If a Stockholder cannot be present in person at the Annual Meeting, the
Board of Directors of the Company requests such Stockholder to execute and
return the enclosed proxy as soon as possible. The person who signs the proxy
must be either (i) the registered Stockholder of such shares of Common Stock or
(ii) a trustee, executor, administrator, guardian, attorney-in-fact, officer of
a corporation or any other person acting in a fiduciary or representative
capacity on behalf of such registered Stockholder. A Stockholder can, of
course, revoke a proxy at any time before it is voted, if so desired, by filing
with the Secretary of the Company an instrument revoking the proxy or by
returning a duly executed proxy bearing a later date, or by attending the
Annual Meeting and voting in person. Any such filing should be sent to U.S.
Digital Communications, Inc., 2 Wisconsin Circle, Suite 700, Chevy Chase, MD
20815; Attention: Secretary. Attendance at the Annual Meeting will not by
itself constitute revocation of a proxy.
The Company is paying all costs of the solicitation of proxies, including
the expenses of printing and mailing to its Stockholders this Proxy Statement,
the accompanying Notice of Annual Meeting of Stockholders, the enclosed proxy
and the Annual Report.
The Company has retained Morrow & Co. ("Morrow") to solicit proxies in
connection with the Annual Meeting. For such services, the Company has agreed
to pay Morrow a fee of $5,000. In addition, if Morrow is requested to make
calls to, or receive calls from, individual record holders or non-objecting
beneficial owners, the Company will pay Morrow $5.00 per each such call. The
Company has also agreed to reimburse Morrow for costs and expenses incurred in
connection with the distribution and mailing of solicitation materials.
The Company will also reimburse brokerage houses and other custodians,
nominees and fiduciaries for their expenses, in accordance with the regulations
of the Securities and Exchange Commission, in sending proxies and proxy
materials to the beneficial owners of the Company's Common Stock. Officers or
employees of the Company may also solicit proxies in person, or by mail,
telegram, telegraph, facsimile or telephone, but such persons will receive no
compensation for such work, other than their normal compensation as such
officers or employees.
<PAGE>
PURPOSE OF THE ANNUAL MEETING
At the Annual Meeting, the Stockholders will consider and vote upon (1)
the election of seven directors to hold office until the next annual meeting
and until their respective successors shall have been elected and qualified,
or, until resignation, removal or death as provided in the Bylaws of the
Company; (2) the approval of the 1998 Stock Option, Deferred Stock and
Restricted Stock Plan; (3) the ratification of the appointment of independent
auditors for the fiscal year ending December 31, 1999; and (4) such other
matters as may properly come before the Annual Meeting.
VOTE REQUIRED; PROXIES
The presence in person or by proxy of a majority of the shares of Common
Stock outstanding and entitled to vote as of the Record Date is required for a
quorum at the Annual Meeting. If a quorum is present, those nominated directors
receiving a plurality of the votes cast will be elected. Accordingly, shares
not voted in the election of directors (including shares covered by a proxy as
to which authority is withheld to vote for all nominees) and shares not voted
for any particular nominee (including shares covered by a proxy as to which
authority is withheld to vote for only one or less than all of the identified
nominees) will not prevent the election of any of the nominees for director.
For all other matters submitted to Stockholders at the meeting, if a quorum is
present, the affirmative vote of a majority of the shares represented at the
meeting and entitled to vote is required for approval. As a result, abstention
votes will have the effect of a vote against such matters.
Shares of Common Stock which are represented by properly executed
proxies, unless such proxies shall have previously been properly revoked, will
be voted in accordance with the instructions indicated in such proxies. If no
contrary instructions are indicated, such shares will be voted (1) FOR the
election of all of the nominees for director named in this Proxy Statement; (2)
FOR the approval of the 1998 Stock Option, Deferred Stock and Restricted Stock
Plan; (3) FOR the ratification of the appointment of Reznick Fedder & Silverman
P.C. as independent auditors for the fiscal year ending December 31, 1999; and
(4) in the discretion of the persons named in the proxies as proxy appointees
as to any other matter that may properly come before the Annual Meeting.
Shares held by brokers and other Stockholder nominees may be voted on
certain matters but not others. This can occur, for example, when the broker or
nominee does not have the discretionary authority to vote shares of Common
Stock and is instructed by the beneficial owner thereof to vote on a particular
matter but is not instructed on other matters. These are known as "non-voted"
shares. Non-voted shares will be counted for purposes of determining whether
there is a quorum at the meeting, but with respect to the matters as to which
they are "non-voted," they will have no effect upon the outcome of the vote
thereon.
2
<PAGE>
----------------------------
PROXY PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Bylaws of the Company require that the Board of Directors be
comprised of not less than three nor more than nine members. There are
currently five members of the Board of Directors and one vacancy. The Company
did not hold an annual meeting of shareholders in 1997 or 1998.
All five members of the Board of Directors have been renominated for
election at the Annual Meeting. Two other individuals have also been nominated
for election at the Annual Meeting, one to fill the current vacancy and one to
fill a new vacancy to be created by the Board of Directors, which plans to
increase the number of director positions from six to seven prior to the date
of the Annual Meeting. If elected, such directors will hold office until the
next annual meeting of stockholders and until their respective successors shall
have been elected and qualified, or, until resignation, removal or death as
provided in the Bylaws of the Company.
The seven nominees have indicated a willingness to serve as directors,
but in the event any nominee should become unavailable to serve as a director
at the time of the Annual Meeting, an event which the Board of Directors does
not expect, the Board of Directors will nominate a different person, and the
proxies named on the enclosed proxy will vote for the election of such nominee.
If a quorum is present at the Annual Meeting, the election of directors
will require the affirmative vote of a plurality of the votes cast at the
Annual Meeting in person or by proxy.
Directors
The following table sets forth certain information as of April 12, 1999,
regarding the seven nominees for director:
<TABLE>
<CAPTION>
Name Age Position
- ---------------------------- ----- -----------------------------------------------------
<S> <C> <C>
Robert Wussler 62 Chairman of the Board, President and Chief Executive
Officer of the Company
Lawrence Siegel 50 Director of the Company
Thomas Glenndahl 53 Director of the Company
Henrikas Iouchkiavitchious 64 Director of the Company
A. Frans Heideman 56 Director of the Company
Irving Goldstein 61 Nominated for Director of the Company
Thomas Wheeler 53 Nominated for Director of the Company
</TABLE>
Robert Wussler. Mr. Wussler has been Chairman of the Board since March
1997, a Director of the Company since May 1996 and President and Chief
Executive Officer of the Company since May 1998. From June 1995 to May 1998,
Mr. Wussler was the President and Chief Executive Officer of Affiliate
Enterprises, Inc., a company owned by ABC television affiliates. Since February
1992, Mr. Wussler has been the President and Chief Executive Officer of the
Wussler Group, a media consulting group. From 1989 to 1992, he was the
President and Chief Executive Officer of COMSAT Video Enterprises, which was in
the business of satellite delivery of entertainment to the U.S. lodging
industry. Mr. Wussler is the former President of CBS Television and of CBS
Sports and is the former Senior Executive Vice President of Turner Broadcasting
System, Inc. Mr. Wussler is a member of the Board of Directors of the following
public companies: EDnet, INC. (OTC-DNET); Nostalgia Network, Inc. (OTC-NNET);
The Translation Group, Ltd. (OTC-THEO); and Beachport Entertainment Corporation
(OTC-BPRT).
Lawrence Siegel. Mr. Siegel has been a Director of the Company since
March 1997. From March 1997 to July 1998, Mr. Siegel was the President and
Chief Executive Officer of the Company, and had performed such duties
3
<PAGE>
since January 1997 upon the resignation of William Buck. From January 1996
until January 1997, Mr. Siegel was an independent consultant. From November
1994 until December 1995, Mr. Siegel was the President of Yellow Pearl, Inc., a
software company founded by him in 1994. From 1992 to 1994, Mr. Siegel was the
President of T-HQ, Inc., a software company. From 1989 to 1992, he was the
President of the Entertainment Division of Atari Corporation.
Thomas Glenndahl. Mr. Glenndahl was elected to the Board of Directors in
August 1996. In 1982, Mr. Glenndahl founded the ASPECT Group, an international
education consortium, which was acquired in 1998 by Sylvan Learning Systems
(NASDAQ: SLVN). Mr. Glenndahl also co-founded Alpha Online, now part of the
Internet group Razorfish. He also serves on the Boards of Directors of Aksu
Pharmaceuticals in Turkey and Harling Properties in Sweden.
Henrikas Iouchkiavitchious. Mr. Iouchkiavitchious has been a Director of
the Company since February 1998. Since September 1990, Mr. Iouchkiavitchious
has been an assistant director-general of UNESCO, a division of the United
Nations.
A. Frans Heideman. Mr. Heideman has been a Director of the Company since
February 1998. Since 1993, Mr. Heideman has been the President of New Dominion
Capital Group, an investment banking firm. Mr. Heideman is a director of
Pyrocap International Corporation (OTC-PYOC), a manufacturer of specialty
products related to fire suppression and odor control and a director of Orion
Technologies, Inc., a Calgary-based company that provides professional internet
services to businesses.
Irving Goldstein. Mr. Goldstein served as Director General and Chief
Executive Officer of INTELSAT, the International Telecommunications Satellite
Organization, from 1992 to 1998. From 1966 to 1992, Mr. Goldstein was
associated with COMSAT, the Communications Satellite Corporation, where he
served as Chairman and Chief Executive Officer from 1985 to 1992. He is a
Director of Computer Associates International, Inc. (NYSE: CA) and IDT Corp.
(NASDAQ: IDTC).
Thomas Wheeler. Mr. Wheeler is President and CEO of the Cellular
Telecommunications Industry Association (CTIA), a position he has held since
1992. From 1976 to 1984, Mr. Wheeler was associated with the National Cable
Television Association (NCTA), where he was President from 1979 to 1984. In
1994 President Clinton appointed Mr. Wheeler to a six-year term on the Board of
Trustees of the John F. Kennedy Center for the Performing Arts. He is also a
Director of the U.S. Capitol Historical Society, National Captioning Institute,
and Tech Corps.
Compensation of Directors
Non-employee members of the Board of Directors are entitled to a retainer
fee of $6,000 per year, payable monthly, and $1,000 per meeting attended, as
well as reasonable expenses incurred in attending such meetings.
Non-Employee Director Stock Option Plan
Since March 1997, each non-employee Director has received every quarter
an option to purchase up to 40,000 shares of Common Stock, with the options
vesting on the 15th day of the month preceding the following quarter, under the
provisions of the 1996 Non-Employee Directors' Stock Option Plan as amended
(the "1996 Stock Option Plan"). On March 25, 1999, the Company and the
recipients of options awarded under the 1996 Stock Option Plan (the
"Participating Directors") agreed to cancel all of the options outstanding that
had been awarded under the 1996 Stock Option Plan and any other options that
had been awarded to the Participating Directors. A total of 1,250,000 options
were cancelled. The Company simultaneously awarded new options to the
Participating Directors at a ratio of 1.3 options for each option cancelled.
Both the cancelled and newly issued options were priced at the fair market
value of the Company's Common Stock at the time of issue and both were
exercisable for five years from award. Of the 1,625,050 options newly awarded,
300,000 options were awarded pursuant to the terms of the 1996 Stock Option
Plan and 1,325,050 pursuant to the terms of the 1998 Stock Option, Deferred
Stock and Restricted Stock Plan (the "1998 Stock Option Plan").
4
<PAGE>
The quarterly option grants to non-employee Directors described above
will continue to be awarded in 1999. None of the shares underlying any of the
Company's stock option plans have been registered with the Securities and
Exchange Commission. Furthermore, many of the cancelled options described
above, as well as certain other options still outstanding, were not granted
pursuant to a written plan. No family relationships exist between any of the
Directors or executive officers of the Company, Skysite Communications
Corporation, or International Satellite Group, Inc. ("INSAT"), or any other
subsidiary.
Board of Directors and Committee Meetings
The Board of Directors held five meetings in 1998. Each Director attended
at least 75% of all meetings held during the period in 1998 for which he had
been a director, except that Mr. Glenndahl was unable to attend four meetings.
The Board has no committees.
The Board of Directors recommends that the stockholders vote FOR each of
the nominees listed above.
THE EXECUTIVE OFFICERS OF THE COMPANY
Executive Officers
The following table sets forth the names, ages as of April 12, 1999 and
business experience of the executive officers of the Company. Officers of the
Company serve at the discretion of the Board of Directors of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ------------------- ----- ----------------------------------------------------------
<S> <C> <C>
Robert Wussler 62 Chairman of the Board, President and Chief Executive
Officer of the Company
Edward Kopf 52 Executive Vice President and Secretary of the Company
Timothy Rockwood(1) 40 Senior Vice President of the Company
David Ives 46 Vice President, Treasurer and Controller of the Company
Charles Maynard 55 Chief Executive Officer of International Satellite Group,
Inc. ("Insat"), a wholly-owned subsidiary of the
Company.
</TABLE>
- ----------
(1) Mr. Rockwood will be recommended to the Board of Directors for election as
an officer on the day of the Annual Meeting.
Robert Wussler. For a description of the business experience of Mr.
Wussler, see "Directors."
Edward Kopf. Mr. Kopf has been the Executive Vice President and Secretary
of the Company since July 1998. Prior to that, from January 1997 to May 1998,
Mr. Kopf was an independent consultant and from July 1991 to August 1996, he
was the President and Chief Operating Officer of American Political Network, an
information company located in Alexandria, Virginia. Mr. Kopf was Vice
President of Circuit Cities Stores, Inc. from 1982 to 1990.
Timothy Rockwood. Mr. Rockwood joined the Company in December 1998 as
Senior Vice President with responsibilities for marketing, communications and
investor relations. Previously, he served as Acting Director of the Discovery
Health Channel and, earlier, as Vice President of Affiliate Enterprises, Inc.,
a company owned by ABC television affiliates. Mr. Rockwood's experience
includes over 15 years of network television production and business
development.
David Ives. Mr. Ives joined the Company in November 1998 as Vice
President, Treasurer and Controller. Prior to that, from May 1997 to August
1998, Mr. Ives was the Corporate Controller of Telco Communications Group, Inc.
and was Assistant Corporate Controller from November 1996 to May 1997. From
February 1994 to October 1996 he was Controller of LCC International, Inc. Mr.
Ives was U.S. Corporate Controller of ADT Inc. from 1987 to 1993.
5
<PAGE>
Charles Maynard. Mr. Maynard has been the Chief Executive Officer of
Skysite since July 1997 and of International Satellite Group, Inc, ("INSAT")
since its formation in 1998. Prior to joining Skysite, Mr. Maynard was the
President and Chief Executive Officer of Cybernetics Services, Inc., a public
media and satellite network company engaged in the creation and delivery of
specialized programs and advertising to various markets. From 1995 to 1997, Mr.
Maynard was the President and Chief Executive Officer of Progressive World
Messaging, a company engaged in the marketing and delivery of wireless data
text messaging, voice messaging, extended cordless telephone service and
interactive video services. From 1992 to 1995, Mr. Maynard served on the Board
of Directors of Source Media Inc. and from 1992 to 1994, he was the managing
director of TeleDiffusion de France.
6
<PAGE>
Compensation of Executive Officers
The following table sets forth the annual and long-term compensation paid
by the Company for services performed on the Company's behalf for the fiscal
years ended December 31, 1996, 1997 and 1998, with respect to those persons who
served as the Company's Chief Executive Officer during the fiscal year ended
December 31, 1998 and the Company's other most highly compensated executive
officers who earned over $100,000 during the fiscal year ended December 31,
1998 (the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
------------------------------------------------------ ----------------------------
Securities
Underlying
Other Options
Annual (Number All Other
Name and Principal Position Year Salary Bonus Compensation of Shares) Compensation
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert Wussler,
Chairman of the Board,
President and Chief 1998(1) $189,583 -- -- 80,000 $54,140
Executive Officer of the 1997 -- -- -- 160,000 --
Company 1996 -- -- -- 25,000 --
- ------------------------------------------------------------------------------------------------------------------------
Lawrence Siegel,
President and Chief 1998(2) -- -- -- 160,000 112,497
Executive Officer of the 1997(2) 250,288 -- -- 160,000 --
Company 1996 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Charles Maynard, 1998 171,999 -- -- 60,000 --
Chief Executive Officer of 1997 64,000 -- -- 60,000 --
Insat 1996 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Philip Kernan, 1998(3) 161,020 -- -- 54,000 --
President and Chief Financial 1997 50,002 -- -- 54,000 --
Officer of Insat 1996 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) Mr. Wussler was appointed President and Chief Executive Officer in May
1998. Prior to May 1998, Mr. Wussler received payments as a consultant.
(2) Upon the resignation of William Buck, Mr. Siegel replaced him as interim
President and Chief Executive Officer of the Company in January 1997, and
in March 1997, Mr. Siegel was appointed to such position until May 1998,
when Mr. Wussler succeeded him. During 1998 Mr. Siegel received payments
as a consultant.
(3) Mr. Kernan served as an officer of the Company's INSAT subsidiary through
December 31, 1998.
7
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth certain information regarding awards of
options for Common Stock to the Named Executive Officers during the fiscal year
ended December 31, 1998.
Common Stock Options Granted for the Fiscal Year Ended December 31, 1998(4)
(Individual Grants in fiscal Year)
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term (2)
------------------------------------------------------------ ---------------------------------
Shares % of Total
Underlying Options Granted Exercise
Options to Employees in Price Per Expiration
Name Granted Fiscal Year Share(1) Date 0% ($) 5% ($) 10%($)
- -------------------- ------------ ----------------- ----------- ----------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert Wussler(2) 40,000 13.6 $ 1.41 1/1/03 -- 15,582 34,443
40,000 13.6 $ 1.00 4/1/03 -- 11,051 24,420
Lawrence Siegel(2) 40,000 13.6 $ 1.41 1/1/03 -- 15,582 34,433
40,000 13.6 $ 1.00 4/1/03 -- 11,051 24,420
40,000 13.6 $ 4.86 7/1/03 -- 53,709 118,683
40,000 13.6 $ 4.00 10/1/03 -- 44,205 97,681
Charles Maynard(3) 10,000 3.4 $ 0.3125 1/31/02 1,725 2,770 3,976
10,000 3.4 $ 0.3125 2/28/02 -- 133 799
10,000 3.4 $ 0.3125 3/31/02 -- 254 945
10,000 3.4 $ 0.3125 4/30/02 6,155 8,155 10,462
10,000 3.4 $ 0.3125 5/31/02 12,345 15,679 19,525
10,000 3.4 $ 0.3125 6/30/02 12,965 16,433 20,432
Philip Kernan(3) 9,000 3.1 $ 0.3125 1/31/02 1,553 2,493 3,976
9,000 3.1 $ 0.3125 2/28/02 -- 119 719
9,000 3.1 $ 0.3125 3/31/02 -- 229 851
9,000 3.1 $ 0.3125 4/30/02 5,540 7,339 9,416
9,000 3.1 $ 0.3125 5/31/02 11,111 14,111 17,572
9,000 3.1 $ 0.3125 6/30/02 11,669 14,789 18,389
--------------------------------------------------------------------------------------------
354,000 120.4 63,061 233,685 440,735
--------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) All grants of options have been made with exercise prices equal to or above
fair market value as determined by the Company at date of grant.
(2) Grants vest 75 days after award and have a term of 5 years.
(3) Grants vest on award and have a term of 4 years.
(4) See "Compensation of Directors--Non-Employee Director Stock Option Plan,"
for a discussion of certain option grants and cancellations subsequent to
December 31, 1998.
8
<PAGE>
Option Exercises and Year-End Option Values
No options were exercised in fiscal year 1998 by any of the Named
Executive Officers. The following table sets forth, as of December 31, 1998,
the number of stock options and the value of unexercised in-the-money stock
options held by the Named Executive Officers.
Aggregate Option Exercises During the Fiscal Year Ended December 31, 1998
and Fiscal Year End Option Values(2)
<TABLE>
<CAPTION>
Number of Shares Underlying Value of Unexercised In-the-
Unexercised Options as of Money Options as of
December 31, 1998 December 31, 1998(1)
------------------------------- ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ----------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Robert Wussler 265,000 0 $ 78,752 --
Lawrence Siegel 320,000 0 $ 78,752 --
Charles Maynard 120,000 0 $118,500 --
Philip Kernan 108,000 0 $106,715 --
- ------------------------------------------------------------------------------------
Total 813,000 0 $382,719 --
- ------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The dollar value of the unexercised options has been calculated by
determining the difference between the fair market value of the securities
underlying the options and the exercise price of the option at fiscal
year-end.
(2) See "Compensation of Directors--Non-Employee Director Stock Option Plan,"
for a discussion of certain option grants and cancellations subsequent to
December 31, 1998.
Employment and Severance Agreements
In December 1998, the Company entered into an employment agreement with
the Mr. Wussler, the President and Chief Executive Officer of the Company. The
term of the agreement was five years starting on June 1, 1998. In addition to
an annual salary and bonus starting at $325,000, subject to increases each
year, the agreement provides for the granting of 200,000 options annually at a
price of $2.00 per share and additional options upon the achievement of certain
performance measures. Pursuant to the agreement, the Company will advance
$150,000 to Mr. Wussler to be used to exercise options to purchase common stock
held by him at December 31, 1998. The Company cannot terminate Mr. Wussler
without cause except in the event of a change in control of the Company, in
which case Mr. Wussler is to continue to receive all compensation through May
1, 2003.
The Company does not have employment contracts with any of its other
Named Executive Officers.
Stock Option Plans
The Company has adopted three stock option plans, two of which, the 1996
Stock Option Plan and the 1998 Stock Option Plan, were adopted to provide a
means of performance-based compensation in an effort to attract and retain
qualified personnel. The Company can grant no further options pursuant to the
terms of its third stock option plan -- the 1995 Stock Option Plan.
1996 Stock Option Plan
Effective May 1996, the Board of Directors adopted the 1996 Non-Employee
Directors' Stock Option Plan (the "1996 Stock Option Plan"). The 1996 Stock
Option Plan provides for the grant of stock options to the non-employee
Directors of the Company. The terms of the 1996 Stock Option Plan provide that
the exercise price of any options granted shall be no less than the fair market
value of the Common Stock at the time of grant. The exercise period for any
options granted under the 1996 Stock Option Plan is five years.
9
<PAGE>
The 1996 Stock Option Plan authorizes the grant of options to purchase
300,000 shares of Common Stock and as of December 28, 1998, 300,000 shares
underlying the outstanding options were available for issue upon the exercise
of such options. Subject to anti-dilution provisions for a stock split, stock
dividend, combination or exchange of shares, recapitalization or other change
in the capital structure of the Company, corporate separation or division of
the Company, sale by the Company of all or a substantial portion of its assets,
reorganization, rights offering, a partial or complete liquidation, or any
other similar corporate transaction, the Board of Directors may adjust the
number of shares available for grant under the 1996 Stock Option Plan, the
number of shares underlying outstanding options, the exercise price of
outstanding options and any other characteristics the Board of Directors deems
necessary or appropriate. In the event of a change in control, as defined in
the 1996 Stock Option Plan, any options not currently exercisable will become
exercisable immediately upon the occurrence of an event constituting a change
in control. Unless previously terminated by the Board of Directors, no options
may be granted under the 1996 Stock Option Plan after December 31, 2000.
The exercise price of any option granted under the 1996 Stock Option Plan
is payable in full (i) in cash, (ii) by surrender of shares of the Company's
Common Stock already owned by the option holder having a market value equal to
the aggregate exercise price of all shares to be purchased, (iii) by the
delivery of cash or the extension of credit by a broker-dealer, (iv) by the
delivery of a note executed by the optionholder, (v) by requesting that the
Company withhold whole shares of Common Stock then issuable upon exercise of
any option, (vi) by certifying ownership of shares to the Board of Directors
for later delivery, or (vii) by any combination of the foregoing.
The Board of Directors may from time to time revise or amend the 1996
Stock Option Plan, and may suspend or discontinue it at any time. However, no
such revision or amendment may impair the rights of any participant under any
outstanding Award without such participant's consent.
The Company has granted options to purchase 300,000 shares of Common
Stock at a per share exercise price $0.58 per share, vesting on the date of
grant under the 1996 Stock Option Plan.
1995 Stock Option Plan
In 1995, the Company adopted a stock option plan which permitted the
grant of options to purchase up to 2,400,000 shares of the Company's common
stock pursuant to Rule 701 of the Securities Act (the "1995 Stock Option
Plan"). Rule 701 exempts the sale of securities pursuant to the exercise of
stock options for those companies that are not required to make reports
pursuant to Section 13 or 15(d) of the Exchange Act, if certain other
conditions and restrictions are satisfied. Because the Company is required to
file reports pursuant to Section 13 of the Exchange Act, the Company can no
longer grant options pursuant to this Plan. The Company has granted options to
purchase 895,200 shares pursuant to the 1995 Stock Option Plan, of which 50,000
shares have been issued, 200,000 shares have been cancelled and 645,200 are
available for issue upon the exercise of such options. All grants made pursuant
to the 1995 Stock Option Plan were made at a per share exercise price of
approximately $0.63.
------------------------
PROXY PROPOSAL NO. 2
APPROVAL OF THE 1998 STOCK OPTION, DEFERRED STOCK
AND RESTRICTED STOCK PLAN
Effective January 1998, the Board of Directors adopted, subject to the
approval of the Stockholders, the 1998 Stock Option, Deferred Stock and
Restricted Stock Plan (the "1998 Stock Option Plan"), which provides for the
grant of qualified incentive stock options ("ISOs") that meet the requirements
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
stock options not so qualified ("NQSOs"), deferred stock, restricted stock,
stock appreciation rights ("SARs") and limited stock appreciation rights awards
("LSARs," and together with ISOs, NQSOs, deferred stock, restricted stock and
SARs, "Awards"). The 1998 Stock Option Plan is proposed to be approved by the
Stockholders. The purpose of the 1998 Stock Option Plan is to enable the
Company and its subsidiaries to obtain
10
<PAGE>
and retain competent personnel who will contribute to the Company's success by
their ability, ingenuity and industry, and to provide incentives to such
personnel and other important persons that are linked directly to increases in
shareholder value, and will therefore inure to the benefit of all shareholders
of the Company.
Under the 1998 Stock Option Plan a maximum of 6,000,000 shares of the
Company's Common Stock have been authorized for the granting of Awards, subject
to adjustment upon certain corporate transactions, stock splits, or other
events affecting the Company's Common Stock. If an option granted under the
1998 Stock Option Plan expires or terminates, or an Award is forfeited, the
shares subject to any unexercised portion of such option or such Award will
again become available for the issuance of further Awards under the 1998 Stock
Option Plan.
The 1998 Stock Option Plan permits the Administrator to grant to eligible
employees stock options and/or SARs that are intended to qualify as
"performance-based compensation" under Section 162(m) of the Code. Section
162(m) of the Code limits the deductibility of compensation paid to the
Company's Chief Executive Officer and to each of the next four most highly paid
officers unless that compensation is "performance based." Shareholder approval
of the 1998 Stock Option Plan is necessary in order for compensation under the
1998 Stock Option Plan to be deemed "performance based."
The following summary description of the 1998 Stock Option Plan is
qualified in its entirety by the full text of the 1998 Stock Option Plan,
copies of which may be obtained by the Stockholders upon request to the Office
of the Secretary of the Company.
Administration. The 1998 Stock Option Plan is administered by a committee
of directors, who qualify as Non-Employee Directors as defined in Rule 16b-3
promulgated by the Securities and Exchange Commission, appointed by the Board
of Directors or by the full Board of Directors (the "Administrator"). The
Administrator is authorized to interpret and administer the 1998 Stock Option
Plan and to act in selecting from among the eligible participants the
directors, employees, consultants and advisors to whom Awards will be granted,
in determining the type and amount of Awards to be granted to each such person
and the terms and conditions of such Awards. In the event that option or SAR
grants are intended to qualify as performance-based compensation, as described
above, the Administrator must be a committee comprised solely of at least two
directors who qualify as "outside directors" under Section 162(m) of the Code,
or the full unanimous Board of Directors. The Board of Directors may from time
to time revise or amend the 1998 Stock Option Plan and any outstanding Awards,
and may suspend or discontinue the 1998 Stock Option Plan at any time. However,
no such revision or amendment may impair the rights of any participant under
any outstanding Award without such participant's consent or may, without
shareholder approval, increase the number of shares subject to the 1998 Stock
Option Plan, modify the employees or class of employees to participate under
the 1998 Stock Option Plan, or extend the maximum option term under the 1998
Stock Option Plan.
Eligibility. Officers and other key employees, directors, consultants and
advisors of the Company, or a subsidiary or affiliate who are responsible for
or contribute to the management, growth, and/or profitability of the business
of the Company, would be eligible to receive NQSOs, deferred stock, restricted
stock, SARs and LSARs. Officers and other key employees of the Company or a
subsidiary or affiliate, including any director who is an employee would be
eligible to receive ISOs.
Awards. Under the 1998 Stock Option Plan, eligible participants may be
awarded stock options and/or SARs. Stock options may be either ISOs or NQSOs.
Unless otherwise determined by the Administrator, the per share price at which
an option or a SAR could be exercised would be at least equal to the fair
market value of a share of Common Stock (or 110% of fair market value for
certain ISOs) on the date of grant of the Award.
A SAR would entitle the recipient to receive a payment equal to the
excess of the fair market value of the shares of Common Stock covered by the
SAR on the date of exercise over the exercise price of the SAR. Such payment
could be in cash, in shares of Common Stock, or in any combination thereof, as
the Administrator may determine. A SAR could be awarded in tandem with options
or separately.
11
<PAGE>
Stock options and SARs would be exercisable over a period to be
designated by the Administrator, but not more than ten years (or five years for
certain ISOs) after the date of the Award. All ISOs awarded under the 1998
Stock Option Plan would be non-transferable other than by will or by operation
of the laws of descent and distribution. The total number of shares of the
Company's Common Stock that would be available for option grants under the 1998
Stock Option Plan is 6,000,000 shares (subject to adjustments as described
above), and no more than 4,000,000 shares could be made subject to options and
SARs granted to any one employee over the life of the plan.
Under the 1998 Stock Option Plan, the Company may make loans available to
stock option plan holders, subject to the Administrator's approval, in
connection with the exercise of stock options granted under the 1998 Stock
Option Plan. If shares of Common Stock are pledged as collateral for such
indebtedness, such shares may be returned to the Company in satisfaction of
such indebtedness. If so returned, such shares shall again be available for
issuance in connection with future stock options and Awards under the 1998
Stock Option Plan.
The exercise price of any option granted under the 1998 Stock Option Plan
is payable in full (i) in cash, (ii) by surrender of shares of the Company's
Common Stock already owned by the option holder having a market value equal to
the aggregate exercise price of all shares to be purchased including, in the
case of the exercise of NQSOs, restricted stock subject to an Award under the
1998 Stock Option Plan, (iii) by cancellation of indebtedness owed by the
Company to the optionholder, (iv) by a full recourse promissory note executed
by the optionholder, (v) by requesting that the Company withhold whole shares
of Common Stock then issuable upon exercise of any option, (vi) by arrangement
with a broker which is acceptable to the Administrator, or (vii) by any
combination of the foregoing. The terms of any promissory note may be changed
from time to time by the Board of Directors to comply with applicable Internal
Revenue Service or Commission regulations or other relevant pronouncements.
Eligible participants also may be awarded LSARs under the 1998 Stock
Option Plan. A LSAR is an Award granted in tandem with either an option or a
SAR which may only be exercised within the 30-day period following a Change in
Control, as defined in the 1998 Stock Option Plan, and only to the extent the
related option or SAR, is exercisable. A LSAR permits the holder of an option
or a SAR, as applicable, to receive a cash payment equal to the difference
between the Change of Control Price, as defined in the 1998 Stock Option Plan,
and the exercise price of the option or SAR, as applicable. The exercise of a
LSAR is in lieu of the exercise of the related option or SAR. The terms of
LSARs, subject to the terms of the 1998 Stock Option Plan, will be determined
by the Administrator at the time of grant.
The 1998 Stock Option Plan authorizes the award of restricted stock and
deferred stock to eligible participants. Such restricted stock and deferred
stock shall be subject to such restrictions, as the Administrator may
determine. Except as otherwise determined by the Administrator, upon a
termination of a restricted or deferred stock holder's employment by the
Company for any reason during the applicable restricted period, all shares of
restricted stock and all shares of deferred stock still subject to restriction
shall be forfeited to the Company, and the participant shall only receive the
amount, if any, paid by the participant for such restricted stock and deferred
stock, plus simple interest on such amount at the rate of 8% per year. The
Administrator may waive any or all remaining restrictions with respect to such
restricted stock or deferred stock in its sole discretion, including but not
limited to, upon the attainment of certain performance goals, the participant's
termination, death or disability, or a Change of Control.
Change of Control. Upon a Change of Control, unless otherwise determined
by the Administrator or the Board of Directors prior the occurrence of such
change, (i) any SARs outstanding for at least six months and any outstanding
options under the 1998 Stock Option Plan shall become immediately vested and
exercisable, (ii) the restrictions applicable to any restricted stock or
deferred stock awards shall lapse and such shares shall be fully vested, (iii)
any indebtedness incurred in connection with the exercise of an option shall be
forgiven and (iv) at the discretion of the Administrator, all outstanding
Awards shall be cashed out at the Change of Control Price.
Term. The 1998 Stock Option Plan is, subject to the approval of the
Stockholders, effective as of January 1, 1998, and will remain in full force
and effect until the earlier of December 31, 2008 or the date it is terminated
by the Board of Directors.
12
<PAGE>
Federal Tax Treatment. Under the present federal tax laws, the federal
income tax treatment of Awards under the 1998 Stock Option Plan would be as
follows:
An employee would recognize no taxable income and the Company would not
be entitled to a deduction when an ISO is awarded or exercised. (However, the
exercise of an ISO (if the holding period rules described below were satisfied)
would give rise to income includable by the option holder in his or her
alternative minimum taxable income for purposes of the alternative minimum tax
in an amount equal to the excess of the fair market value of the stock acquired
on the date of the exercise of the option over the exercise price.) If an
employee were to sell Common Stock acquired upon exercise, after complying with
requisite holding periods, any gain or loss realized upon such sale would be
long-term capital gain or loss. The Company would not be entitled to take a
deduction as a result of any such sale. If the employee disposes of such Common
Stock before complying with requisite holding periods, the employee generally
will recognize ordinary income equal to the difference between the fair market
value of the Common Stock on the date of exercise and the exercise price, and
the Company will be entitled to a corresponding income tax deduction. Any
excess of the amount realized upon such a disqualifying disposition over the
fair market value at exercise would generally be long-term or short-term
capital gain depending on the holding period involved. Special rules may apply
to disqualifying dispositions where the amount realized is less than the value
at exercise. Also, notwithstanding the foregoing, in the event that exercise of
the option is permitted other than by cash payment of the exercise price,
various special tax rules may apply.
An option holder would recognize no taxable income and the Company would
not be entitled to an income tax deduction if a NQSO were awarded. Upon
exercise of a NQSO, the holder generally would realize ordinary income in an
amount equal to the excess of the fair market value of the Common Stock over
the exercise price, and, provided that the applicable conditions of Section
162(m) of the Internal Revenue Code are met, the Company would be entitled to a
corresponding income tax deduction. Upon sale of the Common Stock acquired, the
holder would realize short-term or long-term capital gain or loss, depending
upon whether the stock had been held for more than one year, equal to the
difference between the sale price of the Common Stock and the fair market value
of the Common Stock on the date that the holder recognizes income with respect
to the option exercise. Notwithstanding the foregoing, in the event that the
exercise of the option is permitted other than by cash payment of the exercise
price, various special tax rules may apply.
The employee, director, consultant or advisor would recognize no taxable
income and the Company would not be entitled to an income tax deduction if a
SAR or LSAR were awarded. Upon exercise of a SAR or LSAR, the holder generally
would realize ordinary income in an amount equal to the difference between the
fair market value of the Common Stock on the date of exercise and the exercise
price under the SAR or LSAR, and, provided any applicable conditions of Section
162(m) of the Internal Revenue Code were met, the Company would be entitled to
a corresponding income tax deduction.
Unless a holder of restricted stock makes an "83(b) election" (as
discussed below), there generally would be no tax consequences as a result of
the grant of restricted stock until the restricted stock is no longer subject
to a substantial risk of forfeiture or is transferable. Generally, upon the
lapse of the restrictions, the holder would recognize ordinary income, and the
Company would be entitled to a deduction, equal to the difference between the
fair market value of the stock at such time and the amount, if any, paid by the
holder for the restricted stock. Subsequently realized changes in the value of
the stock generally would be treated as long-term or short-term capital gain or
loss, depending on the length of time the shares were held prior to disposition
of such shares. In general terms, if a holder were to make an 83(b) election
(under Section 83(b) of the Code) upon the award of restricted stock, the
holder would recognize ordinary income on the date of the award of restricted
stock, and the Company would be entitled to a deduction, equal to (i) the fair
market value of the restricted stock as though the stock were (A) not subject
to a substantial risk of forfeiture or (B) transferable, minus (ii) the amount,
if any, paid for the restricted stock. If an 83(b) election were made, there
would generally be no tax consequences to the holder upon the lapse of the
restrictions, and all subsequent appreciation in the restricted stock would
generally be eligible for capital gains treatment.
The deferred stock has been designed with the intention that there would
generally be no tax consequences as a result of the grant of a share of
deferred stock until payment is made with respect to such deferred stock.
Generally,
13
<PAGE>
when payment is made (and, it intended, not until such time), the holder of
deferred stock would recognize ordinary income, and the Company would be
entitled to a deduction, equal to the fair market value of the Common Stock and
cash, as applicable, received upon payment.
Additional special tax rules may apply to those Award holders who are
subject to the rules set forth in Section 16 of the Securities Exchange Act.
The foregoing tax discussion is a general description of certain expected
federal income tax results under current law, and all affected individuals
should consult their own advisors if they wish any further details or have
special questions.
Vote Required for Approval of the 1998 Stock Option Plan. The affirmative
vote of holders of at least a majority of the shares of Common Stock present in
person or by proxy and entitled to vote at the Annual Meeting, voting together
as a single class, is required to approve the 1998 Stock Option Plan.
The Board of Directors recommends that the Stockholders vote FOR approval
of the 1998 Stock Option Plan.
Compensation Committee Interlocks and Insider Participation
The Company does not have a Compensation Committee of the Board of
Directors. Decisions regarding the compensation of the Company's executive
officers are made by the Board of Directors. The only current or former
officers or employees of the Company that participated in decisions regarding
the compensation of the executive officers of the Company during the year ended
December 31, 1998 were Mr. Wussler, Mr. Siegel, Mr. Kopf and Jerome Greenberg,
the Company's former Chairman of the Board of Directors, Vice President and
Treasurer.
Board of Directors Report on Executive Compensation
The Board of Directors is responsible for guiding the Company in the
development and implementation of the Company's compensation policies, plans
and programs. The intended purposes of these programs are to: (i) promote the
interests of the Company and its stockholders by attracting and retaining
officers and other key employees of exceptional ability; (ii) maximize the
Company's long-term success and investment returns to stockholders; (iii)
provide officers and key employees who are important to the Company's sustained
growth with a proprietary interest in, and greater incentives to contribute to
the success of the Company through ownership of the Company's Common Stock and
stock options; and (iv) provide incentives for officers and other key employees
which are competitive with those offered by other corporations in the business
and geographic areas in which the Company operates. The Board of Directors
reviews and recommends the annual compensation of the Company's executive
officers and other members of management, which consists principally of base
salary and stock option grants. The Board of Directors considers generally,
among other things, the compensation of other executives in the Company's
industry, to the extent known by the Board of Directors and other factors
necessary to attract highly qualified management employees to the Company in
its development stage. Mr. Wussler has entered into an employment agreement and
severance agreement with the Company. See "Employment Agreements" on page 9 of
this Proxy Statement.
Base Salary. Base salary is designed to compensate executives and other
key employees for individual performance. Such base salaries are intended to
(x) take into consideration the relative intrinsic value of the subject
executive position to the Company, as measured by the position's scope of
responsibility, strategic importance, technological requirements and
complexity; (y) competitive salaries; and (z) individual performance.
Executives and other key employees may or may not receive annual base salary
increases, depending upon performance in the prior year and upon the
achievement of individual and corporate performance goals.
Long Term Incentives. Long term incentives are provided through annual
stock option grants to executives, principally through the 1998 Stock Option
Plan. Generally, stock options will have a term of three years and will vest
14
<PAGE>
in one year or less after the date of the award. Option exercise prices will
equal the fair market value of the Common Stock on the date of grant.
Outstanding options held by an employee are considered in connection with the
award of new options.
The proposed 1998 Stock Option, Deferred Stock and Restricted Stock will
permit awards to eligible employees of stock options and/or SARs that qualify
as "performance based compensation" under Section 162(m) of the Internal
Revenue Code and restricted stock and deferred stock. Stock options may be
either incentive stock options ("ISOs") under Section 422 of the Internal
Revenue Code or non-qualified stock options. The total number of shares of the
Company's Common Stock available for awards under the 1998 Plan will be
6,000,000 shares (subject to adjustments for reorganizations, stock splits,
stock dividends and the like). Option exercise prices for ISOs will be at least
equal to fair market value of the Company's Common Stock at the date of grant
or 110% of fair market value for certain incentive stock options. See "Proxy
Proposal No. 2" on page 10 of this Proxy Statement.
CEO Compensation. Mr. Wussler, the President and Chief Executive Officer
of the Company, is compensated pursuant to the terms of his Employment
Agreement with the Company. See "Employee Agreements" on page 9 of this Proxy
Statement. In developing Mr. Wussler's compensation, the Board of Directors
considered Mr. Wussler's significant history of leadership in highly
successful, large-scale public companies -- in particular at Turner
Broadcasting System at a time of very rapid growth. In light of the Company's
plans to expand at a rapid pace, this experience is expected to be critical to
success. The Board also noted the importance of Mr. Wussler's credibility in
the telecommunications industry generally. The Board believes that the assets
that Mr. Wussler is able to provide to the Company are difficult to attract to
a firm of the Company's current size -- but will be crucial to carrying out its
ambitious plans -- and the Board was prepared to offer the compensation
required to engage a person of the required quality.
Respectfully Submitted,
Board of Directors
Robert Wussler
Lawrence Siegel
Thomas Glenndahl
Henrikas Iouchkiavitchious
A. Frans Heideman
15
<PAGE>
Performance Graph
The following graph compares the annual change in the cumulative total
return, assuming the reinvestment of dividends, on the Company's Common Stock
with the annual change in the cumulative total returns of the companies listed
in the Center for Research in Security Prices ("CRSP") Total Return Index for
the NASDAQ Stock Market--US Companies (the "NASDAQ Index") and the CRSP Total
Return Index for NASDAQ Telecommunications Stocks (the "NASDAQ Telecom Index")
for the period from December 8, 1995, the date on which the Common Stock began
publicly trading on a limited basis on the NASDAQ Bulletin Board, to December
31, 1998. In each case, the graph assumes an investment of $100 on December 8,
1995.
[performance graph omitted]
<TABLE>
<CAPTION>
NASDAQ U.S.
NASDAQ Telecomm. Digital
------ --------- -------
<S> <C> <C> <C>
December 8, 1995 100.00 100.00 100.00
December 31, 1995 99.07 100.73 102.44
December 31, 1996 121.83 103.00 24.39
December 31, 1997 149.42 152.99 36.59
December 31, 1998 210.55 251.70 76.83
</TABLE>
Security Ownership of Certain Beneficial Owners and Management
The table below is based on information obtained from the Company's
records or from the persons named below with respect to the shares of Common
Stock beneficially owned, as of March 31, 1999 (except as noted below), by (i)
each person known by the Company to be the owner of more than 5% of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each of the Named Executive Officers and (iv) all executive officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
Percentage of
Number of Shares Beneficially
Name of Beneficial Owner (1) (5) (6) Shares Beneficially Owned (2) Owned (3)
- ------------------------------------------ ------------------------------- --------------------
<S> <C> <C>
Robert Wussler 344,500 1.6
Charles Maynard 120,000 *
Philip Kernan (4) 108,000 *
Thomas Glenndahl 448,550 2.1
Lawrence Siegel 416,000 2.0
A. Frans Heideman 208,000 1.0
Henrikas Iouchkiavitchious 208,000 1.0
All directors and executive officers as a
group (9 persons) 1,745,050 7.8
</TABLE>
- ----------
* Less than one percent.
(1) To the Company's knowledge, except as set forth in the footnotes to this
table and subject to applicable community property laws, each person named
in the table has or would have sole voting and investment power
16
<PAGE>
with respect to the shares of Common Stock set forth opposite such person's
name. Each of such persons may be reached through the Company at 2 Wisconsin
Circle, Chevy Chase, Maryland 20815.
(2) For each of such persons, represents currently vested but unexercised
options to purchase Common Stock.
(3) The percentage of beneficial ownership is calculated using 20,767,966,
shares of Common Stock which were outstanding on March 31, 1999.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to the securities. In computing the number
of shares beneficially owned by a person and the percentage of ownership
of that person, shares of Common Stock subject to options held by that
person that are currently exercisable within 60 days of March 31, 1999 are
deemed outstanding. Such shares, however, are not deemed outstanding for
purposes of computing percentage ownership of any other person.
(4) Mr. Kernan served as an officer of the Company's INSAT subsidiary through
December 31, 1998. Mr. Kernans' shares beneficially owned are therefore
not included in the listing of shares owned by all directors and executive
officers as a group.
(5) In connection with two private offerings of the Company's Series A
Preferred Stock, the Company's placement agent, Wincap, Ltd., an
International Business Company incorporated in the Bahamas ("Wincap"),
received the right to acquire 2,380,000 shares of Common Stock. On March
19, 1999, Wincap exercised such right and directed the Company to issue
Wincap 840,000 shares of Common Stock and to issue the remaining 1,540,000
shares to each of eight sub-agents. Each of Wincap and the eight
sub-agents has separately advised the Company that it disclaims beneficial
ownership with respect to any securities not actually issued to it.
(6) As of March 31, 1998, Irving Goldstein and Thomas Wheeler did not
beneficially own any shares of the Company's Common Stock.
Certain Relationships and Related Transactions
General
Jerome Greenberg
On June 20, 1997, Jerome Greenberg agreed to contribute to the Company's
treasury 5,902,200 shares of Common Stock that he beneficially owned in
exchange for $10 and an agreement by the Company to use 6% of the funds raised
from the sale of its Series A Preferred Stock to repay outstanding notes
payable owed to Mr. Greenberg. As a result of this contribution, Mr. Greenberg
retained 655,800 shares (plus options to purchase an aggregate of 100,000
shares of Common Stock). The Company entered into a settlement agreement with
Mr. Greenberg on August 24, 1998 whereby the Company agreed to grant 200,000
shares of Common Stock to Mr. Greenberg and to pay him an aggregate of $750,000
in three equal installments on September 1, 1998 and January 5 and February 28,
1999 as payment in full for the Company's outstanding obligation. As of January
31, 1999, the Company has only paid the first installment which was due on
September 1, 1998.
Robert Wussler
In March 1997, the Board of Directors agreed to pay Robert Wussler a
consulting fee of $8,000 per month. This consulting fee arrangement was
discontinued when Mr. Wussler was appointed President and Chief Executive
Officer of the Company in July 1998. In December, 1998, the Board of Directors
approved an employment agreement between the Company and Mr. Wussler. See page
9 in this Proxy Statement for a description of that agreement.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and change in ownership with the Securities and Exchange Commission.
Officers, directors and greater than 10%
17
<PAGE>
shareholders are required by Securities and Exchange Commission regulations to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely on its understanding of the Section 16(a) filing requirements and the
absence of forms furnished to the Company, the Company believes that during
fiscal 1998 the following individuals failed to meet the Section 16(a) filing
requirements applicable to its directors, officers and greater than 10%
beneficial owners by not timely filing a Form 3, Initial Statement of
Beneficial Ownership of Securities and/or a Form 4, Statement of Changes of
Beneficial Ownership of Securities and/or a Form 5, Annual Statement of
Beneficial Ownership of Securities: Mr. Glenndahl, Hugh Jencks, Jerome
Greenberg, Mr. Wussler, Mr. Siegel, Mr. Maynard, Mr. Kernan, Mr. Kopf, Mr.
Ives, Mr. Heideman, and Mr. Iouchkiavitchious.
INDEPENDENT PUBLIC ACCOUNTANTS
Declination/Resignation of Blackman Kallick Bartelstein, LLP.
The Company's former independent public accountants, Blackman Kallick
Bartelstein, LLP ("BKB"), declined to stand for re-election as the Company's
auditors for the fiscal year ended December 31, 1997.
The declination/resignation of BKB was effected by letter dated September
24, 1997.
BKB's Report to the Company for the fiscal year ended December 31, 1996
was qualified with respect to the Company's ability to continue as a going
concern. BKB's report stated that the Company's financial statements had been
prepared assuming that it would continue as a going concern; that the Company
continues to be a development stage enterprise and to date has not generated
any revenues from product sales or positive cash flows from operations; that
the ultimate success of the Company is dependent upon its ability to complete
the development of its products and technology and to successfully introduce
its products to the consumer marketplace; and that the Company must also be
able to raise significant additional capital in debt or equity markets for both
the introduction and development of products and also to sustain the day-to-day
operations of the company. BKB concluded that these factors raised substantial
doubt about the Company's ability to continue as a going concern.
The decision to change accountants was not recommended or approved by the
Company's Board of Directors or Audit Committee, although the Board of
Directors understood that since the Company had moved its operations to
California, it was not feasible to continue to have its books audited by a
small, Chicago, Illinois based accounting firm and therefore understood that
BKB would probably voluntarily resign or decline to stand for re-election as
the Company's auditors.
During the two most recent fiscal years, namely the fiscal years ended
December 31, 1996, and December 31, 1997, and the subsequent interim periods
preceding the decision of BKB to decline to stand for re-election as the
Company's auditors, there were no disagreements with BKB on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure.
Engagement/Resignation of Arthur Andersen
On April 1, 1998, the Company engaged Arthur Andersen LLP as the
Company's principal accountants to audit the Company's and its subsidiaries
financial statements for the fiscal year ended December 31, 1997. On September
30, 1998, the Company's auditors, Arthur Andersen LLP, resigned as the
Company's independent accountants. The change in accountant is a result of
Arthur Andersen LLP's resignation and was not recommended or approved by the
Company's Board of Directors, nor was such approval required in order to give
effect to the resignation.
Arthur Andersen LLP was engaged to perform an audit of the Company's and
its subsidiary's 1997 consolidated financial statements and had issued an
unqualified report, dated September 1, 1998, on the consolidated financial
statements of the Company and its subsidiary as of and for the year ended
December 31, 1997. That report, however, was not released by the Company, and
on September 30, 1998, Arthur Andersen LLP withdrew the report. Arthur Andersen
LLP's resignation and withdrawal were not related to the financial statements.
Further, there were
18
<PAGE>
no disagreements between the Company and Arthur Andersen LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure or reportable events during such periods or through the
interim period ended September 30, 1998 (date of resignation).
Arthur Andersen LLP has advised the Company that at the time of its
resignation, it was preparing to issue a management letter with comments and
suggestions for consideration related to the Company's internal controls. This
letter was to contain a reference to material weaknesses in the Company's
internal controls over financial reporting for the year ended December 31,
1997. However, Arthur Andersen LLP had expanded the scope of its audit to take
account of the weaknesses in internal control so as to be able to issue an
unqualified report and its resignation and withdrawal of the report were
unrelated to the Company's financial reporting for the year ended December 31,
1997. Management of the Company believes that it has begun to address the
issues during 1998 with the employment of qualified personnel in financial
reporting positions.
On September 17, 1998, the Company became aware that persons affiliated
with WS Marketing and Financial Services, Inc., the placement agent used by the
Company during its Series B and C stock offerings in 1998, are currently under
Federal indictment concerning matters unrelated to the Placement Agent's
relationship with the Company.
Engagement of Reznick Fedder & Silverman P.C.
The Company on October 15, 1998 engaged Reznick Fedder & Silverman P.C.
to perform an audit of its financial statements for the fiscal year ended
December 31, 1997. Prior to October 15, 1998, the Company had not consulted
Reznick Fedder & Silverman P.C. regarding the application of accounting
principles to a specified transaction where a written report or oral advice was
provided to the Company that it considered an important factor in reaching a
decision as to any accounting auditing or financial reporting issue. The
Company subsequently engaged Reznick Fedder & Silverman P.C. to perform an
audit of its financial statements for the fiscal year ended December 31, 1998.
----------
PROXY PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Company's independent auditors for the fiscal year ended December 31,
1998 were Reznick Fedder & Silverman P.C., independent public accountants. The
Board of Directors has appointed Reznick Fedder & Silverman P.C. to audit the
financial statements of the Company for the fiscal year ending December 31,
1999. The Board of Directors desires to obtain the Stockholders' ratification
of such appointment. A resolution ratifying the appointment will be offered at
the Annual Meeting. If the resolution is not adopted, the adverse vote will be
considered as direction to the Board of Directors to select other auditors.
Ratification requires the affirmative vote by holders of at least a majority of
the shares of Common Stock voting on such matter.
It is expected that representatives of Reznick Fedder & Silverman P.C.
will be present at the Annual Meeting to respond to appropriate questions, and
will have the opportunity to make a statement if they chose to do so.
The Board of Directors recommends that the Stockholders vote FOR the
ratification of Reznick Fedder & Silverman P.C. as the Company's independent
auditors for the fiscal year ending December 31, 1999.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Shareholder proposals intended to be presented at the 2000 Annual Meeting
of Stockholders must be received by the Company for inclusion in its Proxy
Statement and form of proxy relating to that meeting on or before December 16,
1999.
19
<PAGE>
OTHER MATTERS
The Board of Directors knows of no other matters to be presented for
action at the Annual Meeting. If any other matters should properly come before
the Annual Meeting, it is intended that votes will be cast pursuant to the
proxy in respect thereto in accordance with the best judgment of the persons
acting as proxies.
The Board of Directors
April 14, 1999
20
<PAGE>
U.S. DIGITAL COMMUNICATIONS, INC.
2 Wisconsin Circle, Suite 700
Chevy Chase, MD 20815
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
May 6, 1999
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby constitute(s) and appoint(s) Robert Wussler and Edward
Kopf, and each of them, as proxies of the undersigned, with full power of
substitution, to vote all shares of Common Stock of U.S. Digital
Communications, Inc. (the "Company") which the undersigned is (are) entitled to
vote at the Annual Meeting of the Stockholders of the Company to be held at
Ristorante Terrazza, 2 Wisconsin Circle, Chevy Chase, MD 20815, on Thursday,
May 6, 1999, at 9:00 a.m. EDT, and at any adjournment(s) or postponement(s)
thereof (the "Annual Meeting"), on all matters that may come before such Annual
Meeting. Said proxies are instructed to vote on the following matters in the
manner herein specified.
<TABLE>
<S> <C>
1. Election of the following Seven Nominees as Directors [ ] FOR all nominees listed above
of the Company: Robert Wussler; Lawrence Siegel; [ ] WITHHOLD AUTHORITY
Thomas Glenndahl; Henrikas Iouchkiavitchious; A. Frans to vote for all nominees listed above
Heideman; Irving Goldstein; and Thomas Wheeler. [ ] FOR all nominees listed above
except withhold authority to vote
for the following nominee(s):
------------------------------------------
2. Proposal to approve the Company's 1998 Stock [ ] FOR approval of the Plan
Option, Deferred Stock and Restricted Stock Plan [ ] AGAINST approval of the Plan [ ] ABSTAIN
(the "Plan").
3. Proposal to ratify the appointment of Reznick
Fedder & Silverman P.C. as independent auditors [ ] FOR ratification of the
for the Company for the fiscal year ended appointment of Reznick Fedder &
December 31, 1999. Silverman P.C. as independent
auditors for the Company
[ ] AGAINST ratification of the [ ] ABSTAIN
appointment of Reznick Fedder &
Silverman P.C. as independent
auditors for the Company
</TABLE>
(to be signed on other side)
<PAGE>
4. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the Annual Meeting.
IF THIS PROXY IS PROPERLY EXECUTED, THE SHARES OF COMMON STOCK COVERED HEREBY
WILL BE VOTED AS SPECIFIED HEREIN. IF NO SPECIFICATION IS MADE, SUCH SHARES
WILL BE VOTED "FOR" THE NOMINEES FOR DIRECTOR, "FOR" THE APPROVAL OF THE
COMPANY'S 1998 STOCK OPTION, DEFERRED STOCK AND RESTRICTED STOCK PLAN, "FOR"
THE RATIFICATION OF THE APPOINTMENT OF REZNICK FEDDER & SILVERMAN P.C. AS
INDEPENDENT AUDITORS FOR THE COMPANY AND AS THE PROXIES DEEM ADVISABLE ON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
The undersigned hereby revoke(s) all previous Proxies and acknowledge(s)
receipt of the Notice of the Meeting dated April 12, 1999, the Proxy Statement
attached thereto and the Annual Report of the Company for the fiscal year ended
December 31, 1998 forwarded therewith.
Dated: , 1999
-----------------------
-----------------------
Signature
-----------------------
Signature
Please mark, sign and
return this Proxy
promptly using the
enclosed envelope. If
stock is held in the
names of joint owners,
each should sign.
Persons signing as an
attorney, executor,
administrator,
guardian, trustee,
corporate officer or in
any other fiduciary or
representative capacity
should give full title.
