SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, For Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
DIGITEC 2000, 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)(l) 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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1
<PAGE>
DIGITEC 2000, INC.
8 West 38th Street, Fifth Floor
New York, New York 10018
----------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on December 9, 1999
----------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Digitec 2000, Inc., a Nevada corporation (the "Company"), will be held at the
offices of the Company, 8 West 38th Street, Fifth Floor, New York, New York
10018 on Wednesday, December 9, 1999 at 10:00 a.m., New York time, for the
following purposes:
1. To elect three directors, each to serve for a term of one
year.
2. To approve the appointment of BDO Seidman, LLP to act as
the Company's independent certified public accountants for the Company's fiscal
year ending June 30, 2000; and
3. To act upon any other matter which may properly be brought
before the meeting or any adjournment thereof.
Only shareholders of record at the close of business on October 19,
1999 will be entitled to notice of and to vote at the Annual Meeting and at any
adjournment thereof.
You are cordially invited to attend the Annual Meeting. Whether or
not you plan to attend, please mark, date and sign the accompanying proxy and
return it in the enclosed envelope. If you do attend, you may revoke your proxy
and vote your shares in person if you wish to do so.
By Order of the Board of Directors,
DIEGO E. ROCA
Secretary
New York, New York
October 20, 1999
<PAGE>
DIGITEC 2000, INC.
----------
PROXY STATEMENT
for
ANNUAL MEETING OF SHAREHOLDERS
To Be Held on December 9, 1999
----------
This Proxy Statement and accompanying proxy is being furnished to
shareholders of Digitec 2000, Inc., a Nevada corporation (the "Company"), in
connection with the solicitation of proxies on behalf of the Board of Directors
of the Company for use at the Annual Meeting of Shareholders to be held on
Thursday, December 9, 1999 at 10:00 a.m., New York time at the offices of the
Company, 8 West 38th Street, Fifth Floor, New York, New York 10018, and at any
adjournment thereof (the "Annual Meeting"). The mailing address of the principal
executive offices of the Company is 8 West 38th Street, New York, New York
10018. It is anticipated that this Proxy Statement and related form of proxy
will be first mailed to shareholders of the Company on or about October 27,
1999.
VOTING
If the enclosed form of proxy is executed and returned, all shares
represented thereby will be voted in accordance with the shareholder's
instructions. If no such instructions are specified, the proxy will be voted FOR
the election as directors of the nominees named herein, or of such substitute
nominee or nominees as may be designated by the Board of Directors if the
nominees named herein are unable to serve and FOR approval of the appointment of
BDO Seidman, LLP, independent certified public accountants, as the Company's
independent auditors for its 2000 fiscal year and until their successor is
appointed and approved. A proxy may be revoked at any time before it is
exercised either by executing and filing, prior to the commencement of the
Annual Meeting, a subsequently dated proxy revoking the proxy previously given
or by voting in person at the Annual Meeting.
The Company will bear its own cost of the solicitation of proxies.
Proxies will be solicited initially by mail. Further solicitation may be made by
directors, officers and employees of the Company personally, by telephone or
otherwise, but such person will not be specifically compensated for such
services. The Company also intends to make, through bankers, brokers or other
persons, a solicitation of proxies of beneficial holders of the Common Stock,
$.001 par value per share (the "Common Stock") and the Series A Preferred Stock,
$.001 par value per share (the "Preferred Stock"), of the Company. Upon request,
the Company will reimburse
<PAGE>
2
brokers, dealers, banks or similar entities acting as nominees for reasonable
expenses incurred in forwarding copies of the proxy materials relating to the
Annual Meeting to the beneficial owners of Common Stock which such persons hold
of record. The Company has retained Corporate Investors Communications, Inc. to
perform solicitation services in connection with this proxy statement. For such
services, Corporate Investors Communications, Inc. will receive a fee of up to
$4,500 and will be reimbursed for certain out-of-pocket expenses and indemnified
against certain liabilities incurred in connection with this proxy solicitation.
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
Holders of the Common Stock and the Preferred Stock of the Company,
as of October 19, 1999, the record date for determining persons entitled to
notice of, and to vote at, the Annual Meeting, are entitled to vote on all
matters at the Annual Meeting. Each share of Common Stock entitles the holder to
one vote, and each share of Preferred Stock entitles the holder to 11.98 votes
(the number of shares of Common Stock into which a share of Preferred Stock may
be converted upon regular conversion at the current conversion price of $8.3463
per share), on each matter submitted to a vote of the shareholders. The holders
of shares representing a majority of the votes of the issued and outstanding
stock and entitled to vote, present in person or represented by proxy,
constitute a quorum for the meeting. As of October 19, 1999, the Company had
outstanding and entitled to vote 7,058,988 shares of Common Stock and 61,050
shares of Preferred Stock entitled to 731,462 votes. The holders of Common Stock
and Preferred Stock vote together as a class, except as required by law and as
otherwise provided in the Certificate of Designation establishing the Preferred
Stock.
Proxies indicating shareholder abstentions will be counted for
purposes of determining whether there is a quorum at the Annual Meeting, but
will not be voted on any matter and, therefore, except in the case of director
elections, will have the same effect as a vote against the matter. Shares
represented by "broker non-votes" (i.e., shares held by brokers or nominees that
are represented at a meeting, but with respect to which the broker or nominee is
not empowered to vote on a particular proposal) will be counted for purposes of
determining whether there is a quorum at the Annual Meeting, but will not be
voted on any matter and will not be included for purposes of determining the
aggregate voting power or number of votes cast at the Annual Meeting.
PRINCIPAL SECURITY HOLDERS
The following table sets forth certain information with respect to
the only persons known by the Company, based on statements filed by such persons
pursuant to Section 13(d) or
<PAGE>
3
13(g) of the Securities Exchange Act of 1934, as amended (the "34 Act"), to own
beneficially in excess of 5% of the Common Stock as of October 19, 1999.
Shares
Name and Address Beneficially Percent
of Beneficial Owner Position Owned(1) of Class
- ------------------- -------- -------- --------
Frank C. Magliato Chairman, Chief 2,666,859(2) 33.0%
8 West 38th Street Executive Officer,
Fifth Floor President and
New York, NY 10018 Director
Telephone Electronics Shareholder 1,475,126 20.9%
Corporation
200 Southwest Street
Jackson, MS 39201
Dealer Capital Corporation Shareholder 1,927,273(3) 21.4%
3635 Garden Brook, Suite 8600
Farmers Branch, TX 75324
Premiere Shareholder 731,462(4) 10.3%
Communications, Inc.
3399 Peachtree Road, NE
Lenox Building, Suite 600
Atlanta, GA 30326
- ----------
(1) Pursuant to Rule 13d-3(d)(1) under the 34 Act, the table includes shares
of Common Stock that can be acquired through the exercise of options,
warrants or convertible securities within 60 days. The percent of the
class owned by each such person has been computed assuming the exercise of
all such options, warrants or convertible securities deemed to be
beneficially owned by such person, and assuming that no options held by
any other person have been exercised. Except as indicated, each individual
has sole voting power and sole investment power over all shares listed
opposite his name.
(2) Includes 250,000 shares of Common Stock held in trust for Kendall
Magliato, daughter of Mr. Magliato. Mr. Magliato's spouse is the trustee
for such shares and Mr. Magliato disclaims beneficial interest therein.
Also includes 1,029,167 shares of Common Stock
<PAGE>
4
underlying warrants to purchase Common Stock and 181.8 shares of Common
Stock issuable upon conversion of promissory notes held by Mr. Magliato
and his wife.
(3) Includes 1,200,000 shares of Common Stock underlying warrants to purchase
Common Stock and 727,273 shares of Common Stock issuable upon conversion
of promissory notes
(4) Assumes the conversion of 61,050 shares of the Preferred Stock into Common
Stock.
<PAGE>
5
SECURITY OWNERSHIP OF MANAGEMENT
The table below sets forth information concerning the shares of
Common Stock beneficially owned, as of October 19, 1999, by each director, the
Chief Executive Officer and the other executive officers who were serving at the
end of the Company's last fiscal year.
Shares
Name and Address Beneficially Percent
of Beneficial Owner Position Owned(1) of Class
- ------------------- -------- -------- --------
Frank C. Magliato Chairman, Chief 2,666,859(2) 33.0%
8 West 38th Street Executive Officer,
Fifth Floor President and
New York, NY 10018 Director
Lori Ann Perri Director 122,911(3) 1.7%
8 West 38th Street
Fifth Floor
New York, NY 10018
Francis J. Calcagno Director 140,000(4) 2.0%
8 West 38th Street
Fifth Floor
New York, NY 10018
Diego E. Roca Senior Vice President, 356,250(5) 4.8%
8 West 38th Street Treasurer and
Fifth Floor Secretary
New York, NY 10018
Barry Catmur Vice President 15,996 .23%
8 West 38th Street of Operations
Fifth Floor
New York, NY 10018
Charles Nelson Garber Former Vice President 0(6) 0%
8 West 38th Street & Chief Financial
Fifth Floor Officer
New York, NY 10018
All Named Executive 3,302,016(7) 38.2%
Officers and Directors
as a Group (6 Persons)
<PAGE>
6
- ----------
(1) Pursuant to Rule 13d-3(d)(1) under the 34 Act, the table includes shares
of Common Stock that can be acquired through the exercise of options
within 60 days. The percent of the class owned by each such person has
been computed assuming the exercise of all such options deemed to be
beneficially owned by such person, and assuming that no options held by
any other person have been exercised. Except as indicated, each individual
has sole voting power and sole investment power over all shares listed
opposite his name.
(2) Includes 250,000 shares of Common Stock held in trust for Kendall
Magliato, daughter of Mr. Magliato. Mr. Magliato's spouse is the trustee
for such shares and Mr. Magliato disclaims beneficial interest therein.
Also includes 1,029,167 shares of Common Stock underlying warrants to
purchase Common Stock and 181.8 shares of Common Stock issuable upon
conversion of promissory notes held by Mr. Magliato and his wife.
(3) Includes a warrant to purchase 72,911 shares of Common Stock and an option
to purchase 50,000 shares.
(4) Includes options to purchase 100,000 shares of Common Stock.
(5) Includes an option to purchase 268,750 shares of Common Stock and warrants
to purchase 62,500 shares of Common Stock.
(6) An option to purchase 62,500 shares of Common Stock expired 90 days from
the date of termination of Mr. Garber's employment with the Company on
December 7, 1998, pursuant to the Severance Agreement and Mutual Releases
between Mr. Garber and the Company dated as of the same date.
(7) These shares include all of the shares issuable pursuant to the options
and warrants described above.
<PAGE>
7
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth information regarding the directors
and executive officers of the Company.
Name Age Position
---- --- --------
Frank C. Magliato 48 Chairman, Chief Executive
Officer, President and Director
Francis J. Calcagno 50 Director
Lori Ann Perri 36 Director
Barry Catmur 37 Vice President of Operations
Diego E. Roca 31 Senior Vice President,
Secretary and Treasurer
The principal occupation for the past five years, and other
biographical information with respect to each of the directors and executive
officers of the Company is as follows:
Frank C. Magliato has served as Chairman, Chief Executive Officer,
President and a director of the Company since June of 1995. From February of
1993 to June of 1995, he was employed as President of Windsor Associates of New
York City, a telecommunications consulting firm. From December of 1988 to
February of 1993, he was employed as President of Telecorp Funding, Inc. and
subsidiaries, a telecommunications company in New York City. Mr. Magliato
received a Bachelor of Science degree in Engineering from Rensselaer Polytechnic
Institute in 1973. He is a sibling of Lori Ann Perri.
Francis J. Calcagno, a director of the Company since December 22,
1997, has been employed by Dominick & Dominick, LLC since February 1998 as a
Senior Managing Director. From February of 1994 to January of 1998 he was
employed as managing director in the corporate finance practice of Deloitte &
Touche LLP ("Deloitte & Touche"). Prior to joining Deloitte & Touche, Mr.
Calcagno was the Vice President in charge of Corporate Development of Franklin
Holding Company, a publicly-held company from 1993 to 1994. Mr. Calcagno
received a Bachelor of Science degree in Electrical Engineering from Worcester
Polytechnic Institute in 1971 and an MBA from Washington University in 1973.
Lori Ann Perri, CPA, sibling of Frank C. Magliato, has served as a
director of the Company since November of 1995. She has been employed by the
publishing division of Time,
<PAGE>
8
Inc. in New York City since August of 1995 and presently serves as Director of
Finance. From August of 1993 to August of 1995, she was employed by Computer
Dynamics, Inc. of Virginia Beach, Virginia as Director of Finance and
Accounting. Ms. Perri received a Bachelor of Science degree in Accounting from
Hofstra University in 1987. She is a member of the American Institute of
Certified Public Accountants and the New York State Society of Certified Public
Accountants.
Barry P. Catmur has been employed by the Company since June of 1996
as the Vice President of Special Projects and Business Development. In November
of 1998 he was promoted to Vice President of Operations. From 1989 through 1996
he was involved in the management and operation of restaurants and clubs in
Newport, Rhode Island, New York City, New York and Southampton, New York. Prior
to this he was a licensed Stock Broker in New York City. Mr. Catmur received a
Bachelor of Science degree in Resource Economics from the University of Vermont
in 1983.
Diego E. Roca began employment with the Company during July of 1995
on a part-time basis. He began full-time employment during September 1996 when
he became Vice President of Operations. On June 8, 1998 he was named Chief
Operating Officer. As of June, 1999 he bacame Vice President of National
Business Development. From May of 1995 to September of 1996, he served as a
consultant to various entities in the telecommunications industry. From October
of 1991 to May of 1995, he was employed by Telecorp Funding, Inc. and
subsidiaries. He served as Assistant Controller in 1991 and became Controller in
1992. Mr. Roca received a Bachelor of Science degree in Accounting from Queens
College in 1992.
BOARD OF DIRECTORS AND COMMITTEES
Board of Directors and Committee Meetings
During fiscal year ended June 30, 1999, the Board of Directors met
ten times. On March 31, 1998, the Board of Directors established the following
additional Committees to perform duties previously performed by the Board of
Directors acting as a whole, which Committees met as follows during the
remainder of the fiscal year: the Audit Committee met one time; the Compensation
Committee met twice; and the Awards Committee did not meet. Each of the
Company's Directors attended at least 75% of the total number of meetings of the
Board and Committees on which he served during the Company's fiscal year ended
June 30, 1999.
The Company does not have a committee of directors concerned with
the selection of nominees for election as directors, a matter which is
considered by the entire Board of Directors.
<PAGE>
9
Committees of the Board of Directors
Audit Committee. The Audit Committee consists of one independent
director, Francis J. Calcagno, and Lori Ann Perri, a relative of the Chief
Executive Officer and President of the Company. The Audit Committee is charged
with providing oversight of the Company's financial reporting process,
recommending the engagement of independent accountants to audit the Company's
financial statements, discussing the scope and results of the audit with the
independent accountants, reviewing the need for internal auditing procedures,
reviewing the Company's system of internal controls and performing such other
related duties and functions as are deemed appropriate by the Audit Committee
and the Board of Directors.
Compensation Committee; Compensation Committee Interlocks and
Insider Participation. The Compensation Committee consists of one independent
director, Francis J. Calcagno, and Frank C. Magliato, who is also the President
and Chief Executive Officer of the Company. The Compensation Committee is
responsible for reviewing general policy matters relating to compensation and
benefits of directors and officers, and determining the total compensation of
the officers and directors of the Company.
Awards Committee. The Awards Committee consists of Francis J.
Calcagno. The Awards Committee is comprised solely of "disinterested persons"
and "Non-Employee Directors" as such terms are used in Rule 16b-3 promulgated
under the Exchange Act, and "outside directors" as such term is used in Treasury
Regulation Section 1.162-27(c)(3) promulgated under the Internal Revenue Code of
1986, as amended (the "Code"). The Awards Committee is responsible for
administering the Digitec 2000, Inc. Stock Incentive Plan (the "Plan"),
including the granting of awards pursuant to the Plan.
ELECTION OF DIRECTORS
At this Annual Meeting three directors will be elected, to serve
until the 2000 Annual Meeting of Shareholders and until their respective
successors are elected and qualify. Unless otherwise specified, shares
represented by proxies solicited hereby will be voted for the election of Mr.
Frank C. Magliato, Mr. Francis J. Calcagno and Ms. Lori Ann Perri to serve a
one-year term.
Set forth above under "Directors and Executive Officers of the
Company" is certain information regarding the nominees. All nominees have agreed
to serve if elected. If for any reason not now known by the Company any of said
nominees should not be able to serve, the proxies will be voted for a substitute
nominee or nominees who will be designated by the Board of Directors. The
affirmative vote of a plurality of the total votes cast is required for the
election of directors.
<PAGE>
10
APPOINTMENT OF AUDITORS
On October 12, 1999 the Board of Directors of the Company, on the
recommendation of its Audit Committee, appointed the accounting firm of BDO
Seidman, LLP ("BDO"), independent certified public accountants, as the
independent auditors of the Company for its fiscal year ending June 30, 2000.
BDO has no financial interest of any kind in the Company and has no other
connection with the Company except for providing occasional management
consultation services. BDO has been the Company's independent certified public
accountants since July, 1995.
A representative of BDO is expected to be present at the Annual
Meeting. He will have an opportunity to make a statement if he desires to do so
and will be available to respond to appropriate questions from any shareholders.
The affirmative vote of a majority of the votes cast by holders of
the outstanding shares of Common Stock and the outstanding shares of Preferred
Stock present in person or by proxy and entitled to vote at the Annual Meeting,
voting as a single class, is required to approve the appointment of BDO.
The Board of Directors recommends that the shareholders vote for the
proposal to approve the appointment of BDO as the Company's independent
certified public accountants for the fiscal year ending June 30, 2000.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the
aggregate remuneration paid by the Company to the Chief Executive Officer and
three other executive officers (the "Named Executives") of the Company for the
fiscal years ended June 30, 1999, 1998 and 1997.
<PAGE>
11
<TABLE>
<CAPTION>
Annual Long Term
(a) (b) Compensation Compensation Awards
--- --- ------------ -------------------
Name and Fiscal Salary Bonus Securities Underlying
Principal Position Year ($) ($) Options/SARs
<S> <C> <C> <C> <C>
Frank C. Magliato, Chief 1999 $155,208 $ -- --
Executive Officer, President and
Director 1998 $173,958 $ -- --
1997 $125,000 $ 35,000 --
Diego E. Roca, Senior Vice 1999 $150,827 $ -- --
President, Secretary and
Treasurer 1998 $143,958 $ -- 50,000(1)
100,000(2)
1997 $ 75,342 $ 25,000 187,500(3)
Barry Catmur, Vice President of 1999 $77,369 $ -- --
Operations
1998 $ -- $ -- --
1997 $ -- $ -- --
Charles Nelson Garber, Vice 1999 $88,032 $ -- --
President and Chief Financial
Officer(4) 1998 $10,156 $ 25,000(4) 150,000(2)
1997 $ -- $ -- --
</TABLE>
<PAGE>
12
- ----------
(1) Such Options vest quarterly over a one-year period commencing on the date
of grant and expire ten years from date of grant.
(2) Of such Options, 50,000 vest immediately upon the date of grant and the
remainder vest quarterly over a two-year period commencing on the date of
grant; in the case of Mr. Garber, a vested option to purchase 62,500
shares expired 90 days from the date of termination of Mr. Garber's
employment with the Company on December 7,1998, and the remainder
scheduled to vest in the future expired on that date.
(3) Vested upon grant.
(4) Mr. Garber's affiliation with the Company terminated on December 7, 1999.
The amounts shown above represent all compensation paid to Mr. Garber
during the 1999 fiscal year, including the payments made pursuant to the
Severance Agreement and Mutual Releases, dated as of December 7, 1998,
between Mr. Garber and the Company.
Employment Agreements and a Severance Agreement
The Company entered into separate employment agreements with Messrs.
Magliato, Roca and Garber. Except with respect to the positions to be occupied,
the duties to be performed and the renumeration to be paid, the agreements of
Messrs. Magliato and Roca are on identical terms and conditions and provide for
the following: (i) a term of three years commencing June 30, 1997; (ii) the
Board of Directors to review each employee's base salary at least annually
during the term and the Board of Directors to be able to increase such salaries
in its sole discretion; (iii) if an employee's service is actually or
constructively terminated by the Company without cause, for the payment of the
employee's then base salary and performance bonus for the remainder of the term;
(iv) that in the event of the death of an employee, for the payment of the
employee's then base salary to the employee's surviving spouse or estate as is
applicable for a period of six months; (v) in the event of the disability of
employee, compensation will terminate except to the extent payment is provided
for in the then-existing disability or extended side plan; (vi) the full
participation by the employee in the Company's benefits available to the
Company's other employees; (vii) that all trade secrets, inventions, work
products, methods, software and similar property which relate to the Company's
business and are developed by the employee are the property of the Company;
(viii) in the event of either the employee's voluntary termination of
employment, the employee's involuntary termination for cause or the employee's
failure to accept an extension of the employment agreement on substantially
similar terms, the employee agrees not to conduct any activity competitive to
the Company for a period of two years from the termination; (ix) in the event
the Company does not renew the employment
<PAGE>
13
agreement on substantially similar terms at its expiration, employee shall
receive six months severance pay; and (x) other terms customarily contained in
similar employment agreements. Messrs. Magliato and Roca will devote full-time
to the affairs of the Company.
The employment agreements of Messrs. Magliato and Roca provide for
base salaries as follows: (i) Mr. Magliato-$175,000 in fiscal 1998, $225,000 in
fiscal 1999 and $250,000 in fiscal 2000 and (ii) Mr. Roca-$150,000 in fiscal
1998, $200,000 in fiscal 1999 and $225,000 in fiscal 2000. In connection with
his employment agreement Mr. Roca also received an option to purchase 187,500
shares of Common Stock at $14.50 per share.
In addition to the base salaries, the employment agreements of
Messrs. Magliato and Roca provide for an annual performance bonus commencing in
the fiscal year ending June 30, 1997 (prorated for the number of months the
agreements were in effect for the fiscal year ending June 30, 1997) to each of
the officers equivalent to a percentage of the Company's adjusted annual net
income before deprecation and amortization, interest and income tax as follows:
(i) Mr. Magliato-2% and (ii) Mr. Roca-1.5%.
The employment agreement of Mr. Garber provided for the following
terms and conditions: (i) an initial two-year term renewed automatically for an
additional year on June 30th of each succeeding year unless the Board of
Directors or the President gives Mr. Garber three months notice; (ii) an initial
base salary of $162,500 subject to adjustment to $212,500 upon a change in the
annual base salary of the President; (iii) Compensation Committee review of the
base salary at least annually; (iv) a signing bonus of $25,000 paid upon
commencement of employment; (v) eligibility for annual bonuses to be determined
by the Compensation Committee; (vi) an option to purchase 150,000 shares of the
Company's Common Stock at $8.25 per share; (vii) participation in benefit plans
typically provided to other executives of the Company; (viii) upon termination
of employment due to death or without cause, payment of the base salary earned
but not yet paid, immediate vesting of all stock options or other awards,
continuation of health benefits for 18 months, and a lump sum severance benefit;
(ix) upon voluntary termination or termination for cause, payment of accrued
base salary and any stock options or awards vested prior to such date; and (x)
during the term of the agreement employee shall not engage in any competitive
activity or take any corporate opportunity for himself or another entity. Mr.
Garber and the Company entered into the Severance Agreement and Mutual Releases
dated as of December 7, 1998 (the "Severance Agreement") in which the Company
accepted Mr. Garber's resignation as an officer and employee of the Company.
Pursuant to the terms of the Severance Agreement, Mr. Garber was paid $36,685.95
as deferred compensation owed to him by the Company and $16,346.16 as payment
for additional consulting services to be provided by Mr. Garber through January,
1999. Mr. Garber expressly waived all rights to additional sums, except as
expressly provided for in the Severance Agreement.
<PAGE>
14
Stock Option Grants
None granted during 1999 fiscal year.
The following table sets forth information concerning the year-end
value of unexercised in-the-money options held by each of the Named Executives.
Aggregated Option/SAR Exercises And Fiscal Year-end Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options/SARs at Fiscal Options/SARs at Fiscal Year End
Year-End(#) ($)(1)
Name Exercisable/Unexercisable Exercisable/Unexercisable
<S> <C> <C>
Diego E. Roca 250,000/87,500 $0/$0
Charles N. Garber 0/0 --
</TABLE>
(1) Based on a year-end fair market value of the underlying securities
equal to $2.44 per share.
Director Remuneration
All directors are reimbursed for out-of-pocket expenses incurred in
connection with attendance at Board of Directors and committee meetings. Each
non-employee director also receives annual compensation of $15,000, which shall
accrue until the Company achieves profitable operations.
Compensation Committee Report on Executive Compensation
Executive Compensation Policy. Since the formation of the
Compensation Committee and the Awards Committee on March 31, 1998, the Company's
compensation policy for all of its executive officers is formulated and
administered by the Compensation Committee of the Board of Directors. The Awards
Committee, which is comprised solely of "disinterested persons" or "Non-Employee
Directors," as such terms are used in Rule 16b-3 promulgated under the 34 Act,
and "outside directors," as such term is used in Treasury Regulation Section
1.162- 27(c)(3) promulgated under the Code, separately administers the Plan,
under which the Company periodically grants options to the executive officers
and other employees of the Company. Prior to the formation of the foregoing
Committees, executive and director compensation and the determination of the
individuals to be granted options and the exercise prices, vesting provisions
and other terms of options granted under the Plan were at the discretion of the
entire Board of Directors.
General. The primary goals of the Company's compensation policy are
to attract, retain and motivate skilled executive officers, and to provide
incentives for them to act in the best interests of the Company's shareholders.
In determining the level of executive compensation,
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15
certain quantitative and qualitative factors, including, but not limited to, the
Company's operating and financial performance, the individual's level of
responsibilities, experience, commitment, leadership and accomplishments
relative to stated objectives, and marketplace conditions are taken into
consideration.
In negotiating the terms of employment agreements with Messrs.
Magliato, Roca and Garber, the Board of Directors had taken into consideration
Mr. Magliato's and Mr. Roca's significant roles in establishing the Company as a
leader in an emerging new niche of the telecommunications industry and
marketplace conditions and Mr. Garber's experience in the telecommunications
industry. Summaries of the key provisions of these employment agreements are
included elsewhere in this Proxy Statement. See "Employment Agreements."
In view of the Company's financial performance during the fiscal
year ended June 30, 1999, no cash bonuses were authorized for the Chief
Executive Officer and the Named Executives. Messrs. Magliato's, Catmur's and
Roca's base salaries were reduced approximately fifty percent pending
significant improvement in the performance of the Company. The Committee feels
that the salaries called for by the employment agreements with the Chief
Executive Officer and Named Executives under current contractual arrangements
are consistent with the duties and experience of the individuals. Further
incremental adjustments to cash compensation not expressly provided for in the
individual employment agreements will be predicated upon the Company's
performance and individual achievements.
Chief Executive Officer's Compensation. For 1999, the compensation
of Frank C. Magliato, the Chief Executive Officer of the Company, was set by the
terms of his employment agreement. Mr. Magliato also participates in benefit
programs that are generally available to employees of the Company, including
medical benefits. Mr. Magliato has not participated in the Plan to date. Future
adjustments to compensation not provided for in Mr. Magliato's employment
agreement will be dependent upon the performance of the Company and his
individual performance and achievements.
Executive Officer Compensation. For the fiscal year ended June 30,
1999, compensation paid to Messrs. Roca and Garber was determined primarily
pursuant to the terms of the employment agreements negotiated by the Company
with the executives. Mr. Catmur's original base salary was felt to be in line
with his assumption of his dutes as Vice President of Operations. Future
adjustments to compensation not provided for in the employment agreements with
Mr. Roca and adjustments to Mr. Catmur's base salary will depend on the
Company's performance and individual performance and achievements.
Section 162(m) of the Code. Section 162(m) of the Code generally
limits to $1 million the deductibility by the Company of compensation paid in
any one year to any executive officer named in the Summary Compensation Table
below. As none of the executive officers of
<PAGE>
16
the Company are currently paid compensation in excess of $1 million, the Company
has not yet developed a policy with respect to Section 162(m) of the Code.
Submitted by,
The Compensation Committee
Francis J. Calcagno
Frank C. Magliato
PERFORMANCE GRAPH
The following graph compares the cumulative return on the Common
Stock from October 15, 1996, the first day of public trading of the Common Stock
to June 30, 1999 with such return of NASDAQ National Market Index ("NNM") and
the NASDAQ Telecommunications Index ("IXTC"), consisting of companies which
provide types of services similar to those presently offered by the Company. The
performance graph assumes (i) $100 was invested on October 15, 1996 and (ii)
reinvestment of dividends. Each measurement point on the graph below represents
the cumulative shareholder return as measured by the last sale price at the end
of each period during the period from October 15, 1996 through June 30, 1999.
Comparison of Cumulative Total Return
DGTT NNM IXTC
---- --- ----
October 15, 1996 100.00 100.00 100.00
December 31, 1996 73.15 102.62 101.08
March 31, 1997 88.89 97.11 94.49
June 30, 1997 96.30 114.62 116.43
September 30, 1997 105.56 133.99 135.52
September 31, 1997 46.30 124.82 143.54
March 31, 1998 65.28 145.91 181.78
June 30, 1998 44.44 150.60 193.31
September 30, 1998 25.89 134.64 170.18
<PAGE>
17
Comparison of Cumulative Total Return
DGTT NNM IXTC
---- --- ----
December 31, 1998 13.61 174.30 234.50
March 31, 1999 6.92 195.66 289.47
June 30, 1999 17.40 213.52 306.69
COMPLIANCE WITH SECTION 16(a)
OF THE 34 ACT
Section 16(a) of the 34 Act requires the Company's officers and
directors, and persons who own more than ten percent of the Company's Common
Stock, to file reports of ownership and changes in ownership with the Securities
and Exchange Commission and the National Association of Securities Dealers.
Officers, directors and beneficial owners of greater than ten percent of the
Company's Common Stock are required by regulation to furnish the Company with
copies of all Section 16(a) forms they file.
The Company has concluded, based solely on a review of the copies of
the Section 16(a) report forms furnished to the Company, that with respect to
the period from December 29, 1998 through June 30, 1999 all such forms were
filed in a timely manner by the Company's officers, directors and greater than
ten-percent beneficial owners.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 31, 1998, the Company entered into an agreement (the
"Investment Agreement") with Premiere Communications, Inc., a deemed beneficial
owner of over 5% of the Common Stock ("Premiere"), in which Premiere received
61,050 shares of Preferred Stock, valued by the Board of Directors at
$6,105,093. The $6,105,093 included approximately $4.6 million which was
attributable to prepaid telephone cards ("Cards") purchased in the normal course
of business and a $1.5 million one-time promotional expense for extra minutes
processed by Premiere on Cards activated under an existing program. The $4.6
million receivable included price adjustments on one of the Company's programs,
Cards returned by distributors to the Company due to service problems not
honored by Premiere and $1.5 million of excess minutes which the Company charged
its main distributor on March 31, 1998. During the fourth quarter of fiscal
1998, the distributor informed the Company that no monies were collected.
Therefore, the Company reversed the sale of these minutes and charged the $1.5
million as an additional promotional expense. The Preferred Stock is convertible
into Common Stock at any time at
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18
Premiere's option and the Company has the right to require Premiere to convert
the Preferred Stock after March 31, 1999. The Certificate of Designation for the
Preferred Stock provides for certain voting, liquidation, and registration
rights and calculates the conversion by multiplying 61,050, the number of shares
of Preferred Stock issued in connection with the Investment Agreement by $100,
the Investment Amount, as defined in the Certificate of Designation and then
dividing by $8.346, the Conversion Price, as defined in the Certificate of
Designation, resulting in a total of 731,462 shares of Common Stock to be issued
upon conversion, subject to adjustment in connection with certain subsequent
issues of securities. The Company may call the redemption of each share of
Preferred Stock at any time for $100 a share plus accrued dividends.
During September, 1998, the Company issued $1,200,000 of its 10%
six-month notes (the "10% Notes") with warrants to purchase 600,000 shares of
the Company's Common Stock at an exercise price of $2.375 per share (the $2.375
Warrants"), subject to certain adjustments. The $2.375 Warrants are exercisable
for five years from the date of issuance. The exercise price under the $2.375
Warrants was set at the closing price of the Common Stock on September 4, 1998.
Nine investors participated in this offering, including Mr. Magliato and his
family, and a former director of the Company. The issuance and sale of the 10%
Notes and $2.375 Warrants was exempt from registration under the Securities Act
pursuant to Regulation D.
During October, 1998, the Company borrowed $100,000 from Doreen
Porreca, the mother-in-law of Mr. Magliato.
During May, 1999, the Company exchanged its 10% Notes and $2.375
Warrants for the Company's 10% Two Year Notes in like principal amount bearing
interest at 10% per annum and convertible at $1.10 per share of Common Stock and
accompanying Warrants to purchase up to 1,800,000 shares of Common Stock at
$1.10 per share, pursuant to an exchange offer letter transmitted to the holders
of the outstanding 10% Notes and $2.375 Warrants.
In November 1998, as part of its transition to becoming a sales,
marketing and distribution company, the Company reached a verbal agreement with
TecNet, Inc., a holder of approximately 21% of the Common Stock of the Company,
to carry the remaining unprocessed minutes on the Company's facilities-based
debit cards. In January 1999 the Company began funding its operating shortfall
through the sale of demand promissory notes to TecNet, Inc. The demand
promissory notes bear interest at the rate of 10% per annum. The Company has no
commitment from TecNet, Inc. for continued financing. Subsequently, in the
fourth quarter of fiscal year 1999 the Company reached a verbal agreement with
TecNet, Inc. to sell their bundled cards, resulting in approximately $701,000 of
revenue. Also during the fourth quarter of fiscal year 1999, the Company was
provided a consultant through TecNet, Inc. Total services rendered amounted to
approximately $38,000 which was accounted for as capital contribution. The
following presents the detail of the amounts payable to TecNect, Inc. at June
30, 1999:
Demand notes payable(1) $1,884,190
Payable for bundled phone cards 574,028
Payable for unprocessed minutes 4,391,167
----------
6,849,385
- ----------
(1) Included in the balance of demand notes payable is a June 30, 1999
note in the amount of $260,000 which was not funded until July 2, 1999.
ANNUAL REPORT AND FINANCIAL INFORMATION
A copy of the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1999, containing audited consolidated financial statements
of the Company for the past two fiscal years, has been enclosed with this Proxy
Statement.
<PAGE>
19
DATE FOR SHAREHOLDER PROPOSALS
Shareholder proposals intended for submission at the 2000 Annual
Meeting of Shareholders must be received by the Company at its principal
executive offices, 8 West 38th Street, New York, New York 10018, no later than
June 28, 2000 to be eligible for inclusion in the Company's proxy statement and
form of proxy relating to the 2000 Annual Meeting of Shareholders.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought
before the Annual Meeting. However, if any other matters are properly brought
before the Annual Meeting, the persons named in the accompanying proxy intend to
vote the shares represented by such proxy in accordance with their best
judgment.
<PAGE>
20
PLEASE MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY
By Order of the Board of Directors,
DIEGO E. ROCA
Secretary
New York, New York
October 20, 1999
<PAGE>
DIGITEC 2000, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 9, 1999
The undersigned hereby appoints Diego E. Roca and Barry P. Catmur,
and each of them, proxies with full power of substitution to vote all shares of
the Common Stock, $.001 par value per share, and the Series A Preferred Stock,
$.001 par value per share, of DIGITEC 2000, INC. which the undersigned is
entitled to vote at the Annual Meeting of Shareholders of DIGITEC 2000, INC. to
be held on Wednesday, December 9, 1999 at 10:00 a.m. and at any adjournment
thereof, as designated below with respect to the election of three directors and
approval of the appointment of BDO Seidman, LLP as independent certified public
accountants for fiscal year ended June 30, 2000 and, in the discretion of such
proxies, with respect to such other matters as may properly come before the
meeting, hereby revoking any proxy heretofore given.
The undersigned hereby acknowledges receipt of the Notice of, and
Proxy Statement for, the aforesaid Annual Meeting.
1. Election of Directors: Francis J. Calcagno, Frank C. Magliato and Lori Ann
Perri:
FOR |_| WITHHOLD |_| FOR EXCEPT |_|
vote for all
nominees
To withhold authority to vote for any individual nominee while voting for
the remainder, write this nominees name in the following space:
2. Proposal to approve appointment of BDO Seidman, LLP as the Company's
independent certified public accountants for the fiscal year ending June
30, 2000.
FOR |_| AGAINST |_| ABSTAIN |_|
(PLEASE MARK, SIGN AND DATE ON REVERSE
SIDE AND RETURN IN THE ENCLOSED ENVELOPE.)
This proxy will be voted as directed on the reverse side by the
undersigned shareholder. The Board of Directors recommends a vote FOR the
election of each nominee above named, and if no direction is made, this proxy
will be voted FOR the election of each nominee. The Board of Directors
<PAGE>
2
also recommends a vote FOR the proposal to approve the appointment of BDO
Seidman, LLP as the Company's independent certified public accountants for the
fiscal year ending June 30, 2000, and if no direction is made, this proxy will
be voted FOR each such proposal.
Number of shares owned: ____________
Dated:________________________, ____
(X)_________________________________
(X)_________________________________
(Please date and sign exactly as indicated.
For joint accounts, each joint owner should
sign. When signing as attorney, executor,
administrator, trustee or guardian, or for a
corporation, please give your full title.)
Unless the date has been inserted above, the proxy shall be deemed
to be dated for all purposes as of the date on which it is received by Digitec
2000, Inc.
(PLEASE MARK, DATE AND SIGN AND RETURN IN THE ENCLOSED ENVELOPE.)
