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 |_| Confidential, for Use of the
Commission Only (as permitted
|X| Definitive Proxy Statement by Rule 14a-6(e)(2))
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ePHONE TELECOM, INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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|_| Fee paid previously with preliminary materials
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|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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<PAGE>
[ePHONE Telecom, Inc. Letterhead]
August 1, 2000
Dear Stockholder:
On behalf of the Board of Directors and management of ePHONE Telecom,
Inc., I invite you to our Annual Meeting to be held on August 23, 2000, 4:30
p.m. EST at the Queen Elizabeth Hotel, 900 Rene Levesque Boulevard W., Montreal,
Quebec, Canada H3B4A5.
At the Annual Meeting you will be asked to vote for:
(1) the election of directors,
(2) a proposal to amend ePHONE's Articles of Incorporation to
increase the number of authorized shares of Common Stock from
50,000,000 to 150,000,000,
(3) a proposal to amend ePHONE's Articles of Incorporation to
authorize 10,000,000 shares of preferred stock which can be
issued by the Board of Directors without any further action on
the part of the stockholders,
(4) a proposal to ratify the amendment to ePHONE's Articles of
Incorporation pursuant to which the name of the company was
changed to "ePHONE Telecom, Inc.",
(5) a proposal to approve the ePHONE Telecom, Inc. 2000 Long-Term
Incentive Plan, and
(6) a proposal to ratify Grant Thornton, LLP as our independent
public accountants for fiscal year 2000.
The meeting also will include an update of key milestones for the last
year. We will also share our vision and plans for the upcoming year. We hope
that it will be possible for many of you to attend in person.
It is important to us that your shares be represented at the Annual
Meeting whether or not you plan to attend. You can be sure your shares are voted
at the meeting in accordance with your preferences by properly completing,
signing and returning your proxy card in the enclosed envelope as soon as
possible.
Thank you for your continuing interest and support.
Sincerely,
/s/ Row J. Zadeh
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Row J. Zadeh
President and CEO
<PAGE>
EPHONE TELECOM, INC.
1145 Herndon Parkway
Suite 100
Herndon, Virginia 20170
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 23, 2000
To the Stockholders of ePHONE Telecom, Inc.:
Notice is hereby given that the Annual Meeting of the Stockholders of
ePHONE Telecom, Inc. (the "Company") will be held on August 23, 2000, 4:30 p.m.
EST, at the Queen Elizabeth Hotel, 900 Rene Levesque Boulevard W., Montreal,
Quebec, Canada H3B4A5, for the following purposes:
1. To elect five Directors to the Board of Directors to hold office for a
one-year term until the next annual meeting of stockholders or until
their successors are elected and qualified;
2. To consider and act upon a proposal to approve the ePHONE Telecom, Inc.
2000 Long-Term Incentive Plan;
3. To approve an amendment to the Company's Articles of Incorporation to
increase the number of authorized shares of common stock from 50
million shares to 150 million shares;
4. To approve an amendment to the Company's Articles of Incorporation to
authorize the Company to issue up to 10 million shares of preferred
stock;
5. To ratify the amendment to the Company's Articles of Incorporation
pursuant to which the Company changed its name to ePHONE Telecom, Inc.;
6. To consider and act upon a proposal to ratify the selection of Grant
Thornton, LLP as the Company's independent public accountants for
fiscal year ending December 31, 2000; and
7. To transact such other business as may properly come before the meeting
or any adjournment thereof.
These business items are more fully described in the Proxy Statement
accompanying this Notice.
<PAGE>
Stockholders of record at the close of business on July 28, 2000, are
entitled to vote at the Annual Meeting or any adjournment, postponement or
continuation thereof.
By order of the Board of Directors,
Bahram Ossivand
Secretary
Herndon, Virginia
August 1, 2000
All Stockholders are cordially invited to attend the Annual Meeting in person.
Whether or not you expect to attend the meeting, please complete, date, sign and
return the enclosed proxy as promptly as possible to ensure your representation
at the meeting. A return envelope (which is postage prepaid if mailed in the
United States) is enclosed for that purpose. Even if you have given your proxy,
you may still vote in person if you attend the meeting. Please note, however,
that if your shares are held of record by a broker, bank or other nominee and
you wish to vote at the Annual Meeting, you must obtain from the record holder a
proxy issued in your name.
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<PAGE>
EPHONE TELECOM, INC.
1145 Herndon Parkway
Suite 100
Herndon, Virginia 20170
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
AUGUST 23, 2000
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of Directors of
ePHONE Telecom, Inc., a Florida corporation (referred to herein as ePHONE), for
use at the Annual Meeting of Stockholders to be held on August 23, 2000, at 4:30
p.m., EST. The Annual Meeting will be held at the Queen Elizabeth Hotel, 900
Rene Levesque Boulevard W., Montreal, Quebec, Canada H3B4A5.
Solicitation
We sent you this Proxy Statement and the enclosed proxy card because
ePHONE Telecom Inc.'s Board of Directors is soliciting your proxy to vote at the
2000 Annual Meeting of Stockholders. This Proxy Statement summarizes the
information you need to know to cast an informed vote at the Annual Meeting.
However, you do not need to attend the Annual Meeting to vote your shares.
Instead, you may simply complete, sign and return the enclosed proxy card.
We will begin sending this Proxy Statement, the attached Notice of
Annual Meeting and the enclosed proxy card on August 3, 2000 to all stockholders
entitled to vote. Stockholders who owned ePHONE common stock at the close of
business on July 28, 2000 are entitled to vote. On this record date, there were
13,342,400 shares of ePHONE common stock outstanding. ePHONE common stock is our
only class of voting stock. We are also sending along with this Proxy Statement,
the ePHONE 1999 Annual Report filed on Form 10-KSB with the Securities and
Exchange Commission, which includes our financial statements.
Voting
Each share of ePHONE common stock that you own entitles you to one
vote. The proxy card indicates the number of shares of ePHONE common stock that
you own.
Whether you plan to attend the Annual Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. Returning the proxy card will not affect your right to attend
the Annual Meeting and vote.
If you properly fill in your proxy card and send it to us in time to
vote, your "proxy" (one of the individuals named on your proxy card) will vote
your shares as you have directed. If you sign the proxy card but do not make
specific choices, your proxy will vote your shares as recommended by the Board
of Directors as follows:
<PAGE>
o "FOR" the election of all five nominees for director;
o "FOR" approval of our 2000 Long-Term Incentive Plan;
o "FOR" the amendment to our Articles of Incorporation, authorizing an
increase in the total number of shares of common stock from 50,000,000
to 150,000,000;
o "FOR" the amendment to our Articles of Incorporation, authorizing
10,000,000 shares of preferred stock;
o "FOR" ratification of the amendment to our Articles of Incorporation
pursuant to which our name was changed to "ePHONE Telecom, Inc."; and
o "FOR" ratification of the selection of Grant Thornton, LLP as our
independent auditors for 2000.
If any other matter is presented, your proxy will vote in accordance
with his or her best judgment. At the time this Proxy Statement went to press,
we knew of no matters which needed to be acted on at the Annual Meeting, other
than those discussed in this Proxy Statement.
Revocability of Proxies
If you give a proxy, you may revoke it at any time before it is
exercised. You may revoke your proxy in any one of three ways:
o You may send in another proxy with a later date.
o You may notify ePHONE's Secretary in writing before the Annual Meeting
that you have revoked your proxy.
o You may vote in person at the Annual Meeting.
If you plan to attend the Annual Meeting and vote in person, we will
give you a ballot form when you arrive. However, if your shares are held in the
name of your broker, bank or other nominee, you must bring an account statement
or letter from the nominee indicating that you are the beneficial owner of the
shares on July 28, 2000, the record date for voting.
All votes will be tabulated by the inspector of election appointed for
the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved, except that a broker non-vote will have the same effect as a
negative vote with respect to the proposed amendments to the Articles of
Incorporation.
ePHONE will pay all the costs of soliciting these proxies. In addition
to mailing proxy soliciting material, our directors and employees also may
solicit proxies in person, by telephone or by other electronic means of
communications. They will not be paid any additional compensation for doing so.
In addition, we have engaged the services of ADP for the purpose of assisting in
the solicitation of proxies at a cost of approximately $7,000, plus the
reimbursement of expenses
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<PAGE>
Stockholder Proposals
If you wish to submit proposals to be included in our 2001 proxy
statement, we must receive them on or before March 1, 2001. Please address your
proposals to ePHONE Telecom, Inc., 1145 Herndon Parkway, Suite 100, Herndon,
Virginia 20170, Attention: Corporate Secretary .
PROPOSAL 1
ELECTION OF DIRECTORS
ePHONE's Articles of Incorporation and Bylaws provide that the Board of
Directors shall consist of not less than one nor more than nine individuals. A
director elected by the Board to fill a vacancy shall serve for the remainder of
the full term of the director whose vacancy he or she is filling, and until such
director's successor is elected and qualified.
The Board of Directors is presently composed of seven members. There
are five nominees for election as directors of ePHONE. Three of these
individuals are currently directors of ePHONE. If elected at the Annual Meeting,
the nominees would serve until the 2001 annual meeting and until their
successors are elected and qualified, or until such directors' earlier death,
resignation or removal. The size of the Board of Directors will be decreased to
five immediately following the Annual Meeting and the terms of the current
directors not nominated for reelection will expire.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at a meeting at which a quorum is
present. Shares represented by executed proxies will be voted, if authority to
do so is not withheld, for the election of the nominees named below. In the
event that any nominee is unavailable for election as a result of an unexpected
occurrence, such shares will be voted for the election of such substitute
nominee as management may propose. Each person nominated for election has agreed
to serve if elected, and management has no reason to believe that the nominees
will be unable to serve.
Set forth below is biographical information for each person nominated
as a director.
Nominees For Election For A Term Expiring At The 2001 Annual Meeting:
Row J. Zadeh. Mr. Zadeh, 49, has been President and Chief Executive Officer of
ePHONE as well as a member of our board of directors since April 2000. Prior to
joining ePHONE, from November 1998 to March 2000, Mr. Zadeh was President and
Chief Executive Officer of Array Telecom Corporation, a provider of carrier
class voice over internet protocol gateway systems. From 1993 to 1998, Mr. Zadeh
was President of I.T.S. Corporation, a provider and implementer of sophisticated
voice and data convergence networks. From 1990 to 1993, Mr. Zadeh was the
General Manager for Southeast Asia for Northern Telecom (Nortel). Mr. Zadeh has
also held executive positions with Unify Corporation of Australasia, a software
company, and IBM Corporation. Mr. Zadeh has a Masters in Science from the
University of Louisville and a Bachelors of Science from National Northern
University of Iran.
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<PAGE>
Bahram H. Ossivand. Mr. Ossivand, 47, has been Chief Financial Officer of ePHONE
as well as a member of our board of directors since April 2000. Prior to joining
ePHONE, Mr. Ossivand was Chief Financial Officer and Vice-President of Finance
at S.N.E Systems Inc., one of the largest process logic control and systems
engineering firms in the United States, where he was responsible for the
accounting, administration, human resources and information technology divisions
of the company. From 1996 until 1999, Mr. Ossivand held a similar position at
Integrated Telecom Services Inc., a voice and data communications company, where
he was responsible for the accounting, warehouse, information technology, human
resources and customer service departments. Mr. Ossivand holds a Bachelors of
Science in Accounting from Tehran University and a Masters in Business
Administration from Bellarmine College.
William Porter. Mr. Porter, 55, is the Founder and President of Interactive
Consumer, Inc., an internet portal focused on African-American cultural matters.
From May 1997 to January 1999, Mr. Porter was Executive Vice-President of
Comdial Corporation, a leading provider of communications equipment and
solutions. From April 1994 to January 1997, Mr. Porter was a Senior Vice
President at Trigon Healthcare, Inc. Mr. Porter has also served as the Vice
President for Systems Integration at CENTECH Corporation (1992-1994) and the
Deputy Chief of Staff to the Governor of the Commonwealth of Virginia
(1990-1992). Mr. Porter is a member of the board of directors of the National
Council of Christians and Jews, the Richmond Carpenter Center for the Performing
Arts, the Virginia Center for Innovative Technology, the Thomas Jefferson Area
United Way and the Martha Jefferson Community Hospital. Mr. Porter holds a
Bachelors of Science in Mathematics from Syracuse University, a Masters in
Computer Science from Purdue University and a Juris Doctor from George
Washington University.
John G. Fraser. Mr. Fraser, 53, has been a director and Executive Vice-President
of ePHONE since June 1999. Prior to joining ePHONE, Mr. Fraser was Vice-Chairman
of KPMG Canada, Chartered Accountants. Mr. Fraser's held various positions
within KPMG Canada from November 1976 until February 1998. Mr. Fraser has a
Masters in Business Administration from University of Pittsburgh and a Bachelor
of Commerce and Administration from Victoria University, Wellington, New
Zealand.
Dr. Fariborz Ghadar. Dr. Ghadar, 53, is the William A. Schreyer, Merrill Lynch
Chair of Global Management, Policies and Planning of The Pennsylvania State
University Smeal College of Business Administration. Prior to joining The
Pennsylvania State University, Dr. Ghadar was Professor and Chairman of the
International Business Department at The George Washington University School of
Business and Public Management. Dr. Ghadar received a D.B.A. and M.B.A. from
Harvard Business School, an M.S. in Mechanical Engineering and a B.S. in
Chemical Engineering from M.I.T. Dr. Ghadar currently serves on the Board of
Directors of Lason, Inc.
The Board Of Directors recommends a vote in favor of the named nominees.
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<PAGE>
PROPOSAL 2
APPROVAL OF THE EPHONE TELECOM, INC. 2000 LONG-TERM INCENTIVE PLAN
On May 5, 2000, the Board of Directors adopted the 2000 Long-Term
Incentive Plan (the "Plan") and reserved 6,000,000 shares of common stock for
issuance under the Plan subject to the stockholder approval solicited by this
proxy statement.
We are asking the stockholders to approve the Plan as described below.
Approval of the Plan requires the affirmative vote of the holders of a majority
of the votes cast at the meeting. An abstention or a broker nonvote with respect
to approving the Plan will not constitute a vote cast and therefore will not
affect the outcome of the vote.
Description of the Plan
The purpose of the 2000 Long-Term Incentive Plan is to assist
management in attracting, retaining and providing incentives to key individuals
who serve ePHONE by offering them the opportunity to acquire or increase their
proprietary interest in ePHONE and to promote the identification of their
interests with those of the stockholders of ePHONE.
The following summary of the material terms of the Plan is qualified in
its entirety by reference to the full text of the Plan, a copy of which is
available by writing Bahram Ossivand, Corporate Secretary, ePHONE Telecom, Inc.,
1145 Herndon Parkway, Suite 100, Herndon, VA 20170. Unless otherwise specified,
capitalized terms used herein have the meaning assigned to them in the Plan.
Eligibility; Shares Available for Grants and Awards. The Plan provides
for grants and awards of nonqualified stock options, incentive stock options,
stock appreciation rights, restricted stock and incentive shares, referred to
herein as the Awards, to officers, key employees, directors, persons hired to be
employees of ePHONE and who the Board determines will be officers or key
employees upon commencement of employment, and consultants or independent
contractors to ePHONE who are determined to render key services. Incentive stock
options may not be granted to persons who are not employees of ePHONE.
Subject to the terms of the Plan, if an option or right expires or
terminates without having been fully exercised, or if shares of restricted stock
or incentive shares are forfeited, the unissued or forfeited shares of Common
Stock which had been covered thereby will become available for the grant of
additional Awards under the Plan. Upon the exercise of a right (regardless of
whether such right is settled in cash or shares of Common Stock), the number of
shares of Common Stock with respect to which the right is exercised will be
charged against the number of shares available for Awards under the Plan.
Administration. The Plan is administered by the Board which currently
is comprised of six directors, and will be comprised of five directors following
the Annual Meeting. Subject to the terms of the Plan, the Board is authorized to
determine eligibility, to make Awards, and to otherwise administer the Plan.
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<PAGE>
Our Board may terminate the Plan at any time and may amend it in any
respect, except that no amendment, alteration or termination of the Plan may be
made by the Board without approval of (a) ePHONE's stockholders to the extent
stockholder approval of an amendment is required to comply with the requirements
of applicable laws or regulations; and (b) each affected participant if such
amendment, alteration or termination would impair the rights of a participant
under any prior Award. The Plan will terminate on May 5, 2010. The Plan will
remain in effect after its termination for the purpose of administering
outstanding Awards.
Except as otherwise provided by the Board, Awards under the Plan are
not transferable other than by will, by the laws of descent and distribution.
Awards under the Plan generally may be exercised only by the Participant during
his lifetime or, in the event of legal disability, by his legal representative.
Limits on Aggregate Awards. The Plan limits the number of shares of
Common Stock with respect to which any employee may receive Awards during the
term of the Plan to 1,250,000 shares. Under current tax law requirements, to the
extent that the aggregate fair market value of stock with respect to which
incentive stock options granted under the Plan are exercisable for the first
time by an employee during any calendar year exceeds $100,000 (determined at the
time of the grant of the option), the option will not be treated as an incentive
stock option for federal income tax purposes.
Stock Options. The Plan authorizes the grant of nonqualified stock
options and incentive stock options. The exercise of an option permits the
optionee to purchase shares of Common Stock from us at a specified exercise
price per share. Options granted under the Plan are exercisable upon such terms
and conditions as the Board shall determine.
The exercise price per share and manner of payment for shares purchased
pursuant to options are determined by the Board, subject to the terms of the
Plan. The per share exercise price of incentive stock options granted under the
Plan may not be less than the fair market value per share of the Common Stock at
the time of the grant, except that incentive stock options granted to an
employee who is a 10% stockholder (after applying certain stock ownership
attribution rules) may not have an exercise price less than 110% of such fair
market value.
The Plan provides that the term during which options granted may be
exercised shall be determined by the Board, except that no option may be
exercised after ten years (five years in the case of incentive stock options
granted to an employee who is a 10% stockholder after applying certain stock
ownership attribution rules) following its date of grant.
Stock Appreciation Rights. The Plan authorizes the Board to grant stock
appreciation rights in connection with, and at the same time as, the grant of an
option under the Plan or by amendment of an outstanding option granted under the
Plan ("related rights"). Stock appreciation rights may also be granted
independently of any option granted under the Plan ("nonrelated rights").
Subject to the terms of a particular grant, a stock appreciation right entitles
the grantee upon exercise to elect to receive in cash, Common Stock or a
combination thereof, the excess of the fair market value of a specified number
of shares of Common Stock at the time of exercise over the fair market value of
such number of shares of Common Stock at the date of grant, or, in the case of a
related right, the exercise price provided in the related option. The period
during which a right may be exercised is determined by the Board, but a right
may not be exercised after ten years from the date of grant or, in the case of a
related right, the expiration of the related option.
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<PAGE>
Restricted Stock. Restricted stock awards consist of shares of Common
Stock, awarded without payment of cash consideration by the grantee unless
otherwise specified in the agreement relating thereto, that are restricted
against transfer, subject to forfeiture and subject to such other terms,
conditions and restrictions, for such period or periods, as shall be determined
by the Board. Such terms may provide, in the discretion of the Board, for the
vesting of restricted stock awards to be contingent upon the achievement of one
or more performance goals established by the Board and specified in the
agreement. The performance goals may be based on earnings or earnings growth,
sales, return on assets, equity or investment, regulatory compliance,
satisfactory internal or external audits, improvement of financial ratings,
achievement of balance sheet, income statement or other financial statement
objectives, or any other objective goals established by the Board and specified
in the agreement. The goals may be absolute in their terms or measured against
or in relationship to other companies similarly or otherwise situated.
Restricted stock awarded under the Plan and the right to vote shares of
such restricted stock and to receive dividends thereon may not be sold,
assigned, transferred, exchanged, pledged, hypothecated or encumbered during the
restriction period. With the exception of these restrictions upon transfer, the
recipient of a restricted stock award has all other rights of a stockholder
including, but not limited to, the right to receive dividends and the right to
vote shares awarded.
Incentive Shares. Incentive shares awarded under the Plan are
contingent awards of shares of Common Stock that may be issued subject to
achievement of such performance goals (as described above with respect to
restricted stock awards) or other goals and on such other terms and conditions
as the Board deems appropriate and specifies in the agreement relating thereto.
Unlike in the case of restricted stock, shares of Common Stock would not be
issued immediately pursuant to incentive share awards, but instead would be
issued upon the achievement or satisfaction of such performance goals or other
goals or terms and conditions. Accordingly, a person who has received an award
of incentive shares may not vote or receive dividends with respect to the shares
of Common Stock subject to the award until such shares are issued upon the
achievement or satisfaction of such performance goals or other goals or terms
and conditions. The grantee would not have to pay any cash consideration to
ePHONE upon the award of incentive shares or upon the issuance of the shares of
Common Stock pursuant to the award.
Summary of Certain Federal Income Tax Consequences.
The following discussion briefly summarizes certain federal income tax
aspects of stock options, stock appreciation rights, restricted stock and
incentive shares granted or awarded under the Plan. State and local tax
consequences may differ.
Incentive Stock Options. In general, an optionee is not required to
recognize income on the grant or exercise of an incentive stock option. However,
the difference between the exercise price and the fair market value of the stock
on the exercise date is an adjustment item for purposes of the alternative
minimum tax. Further, if an optionee does not exercise an incentive stock option
within certain specified periods of time after termination of employment, the
option is treated for federal income tax purposes in the same manner as a
nonqualified stock option, as described below.
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<PAGE>
Nonqualified Stock Options, Stock Appreciation Rights and Incentive
Shares. An optionee or grantee generally is not required to recognize income on
the grant of a nonqualified stock option or a stock appreciation right, or on
the award of incentive shares. Instead, ordinary income generally is required to
be recognized on the date the nonqualified stock option or stock appreciation
right is exercised, or in the case of an award of incentive shares, on the date
such shares are issued. In general, the amount of ordinary income required to be
recognized, (a) in the case of a nonqualified stock option, is an amount equal
to the excess, if any, of the fair market value of the shares on the exercise
date over the exercise price, (b) in the case of a stock appreciation right, the
amount of cash and the fair market value of any shares received on the exercise
date, and (c) in the case of an award of incentive shares, the fair market value
of the shares on the date of issue.
Restricted Stock. Shares of restricted stock awarded under the Plan
will be subject to a substantial risk of forfeiture for the period of time
specified in the award. Unless a grantee of shares of restricted stock makes an
election under Section 83(b) of the Code as described below, the grantee
generally is not required to recognize ordinary income on the award of
restricted stock. Instead, on the date the substantial risk of forfeiture
lapses, the grantee will be required to recognize ordinary income in an amount
equal to the fair market value of the shares on such date. If a grantee makes a
Section 83(b) election to recognize ordinary income on the date the shares are
awarded, the amount of ordinary income required to be recognized is an amount
equal to the fair market value of the shares on the date of award. In such case,
the grantee will not be required to recognize additional ordinary income when
the substantial risk of forfeiture lapses.
Gain or Loss on Sale or Exchange of Plan Shares. In general, gain or
loss from the sale or exchange of shares granted or awarded under the Plan will
be treated as capital gain or loss, provided that the shares are held as capital
assets at the time of the sale or exchange. However, if certain holding period
requirements are not satisfied at the time of a sale or exchange of shares
acquired upon exercise of an incentive stock option (a "disqualifying
disposition"), an optionee may be required to recognize ordinary income upon
such disposition.
Deductibility by Company. ePHONE generally is not allowed a deduction
in connection with the grant or exercise of an incentive stock option. However,
if an optionee is required to recognize income as a result of a disqualifying
disposition, ePHONE will be entitled to a deduction equal to the amount of
ordinary income so recognized. In the case of a nonqualified stock option
(including an incentive stock option that is treated as a nonqualified stock
option, as described above), a stock appreciation right, an award of incentive
shares, or a grant of restricted stock, at the same time the optionee or grantee
is required to recognize ordinary income, ePHONE generally will be allowed a
deduction in an amount equal to the amount of ordinary income so recognized.
Subject to certain exceptions, Section 162(m) of the Code disallows
federal income tax deductions for compensation paid by a publicly-held company
to certain executives to the extent it exceeds $1 million for the taxable year.
The Plan has been designed to allow the Board to make awards under the plan that
qualify under an exception to the deduction limit for "performance-based
compensation."
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<PAGE>
Accounting Treatment
Under current accounting principles, neither the grant nor the exercise
of an incentive stock option or a nonqualified stock option under the Plan with
an exercise price not less than the fair market value of Common Stock at the
date of grant requires any charge against earnings. ePHONE is required to
disclose in a footnote to its financial statements the pro forma effects of
stock-based compensation arrangements on net income and earnings per share,
based on the estimated grant date fair value of stock options that are expected
to vest.
Stock appreciation rights require a charge against the earnings of
ePHONE each accounting period to reflect appreciation in the value of such
rights. The charge related to stock appreciation rights will vary depending
upon, among other factors, the amount of stock appreciation rights granted,
stock price changes above the grant price, and the length of time that stock
appreciation rights have been outstanding. Such charge is based, generally
speaking, on the difference between the exercise price specified in the related
right, or the market value of Common Stock on the date of grant, and the current
market price of Common Stock. In the event of a decline in the market price of
Common Stock subsequent to a charge against earnings related to the estimated
costs of stock appreciation rights, a reversal of prior charges is made (but not
to exceed aggregate prior charges).
Restricted stock and incentive shares will require a charge to earnings
representing the value of the benefit conferred, which, in the case of
restricted stock, may be spread over the restrictive period. Such charge is
based on the market value of the shares transferred at the time of issuance.
Awards Pursuant to the Plan
The Board of Directors has granted a total of 4,000,000 options to
purchase shares of Common Stock pursuant to the Plan. Options to purchase
1,247,307 shares of Common Stock have been granted to Mr. Row Zadeh, the
President and Chief Executive Officer of ePHONE, options to 748,885 to purchase
shares of Common Stock have been granted to other executive officers of ePHONE,
and options to purchase 2,003,808 shares of Common Stock have been granted to
other employees of ePHONE.
The Board Of Directors recommends a vote in favor of Proposal 2.
PROPOSAL 3
PROPOSAL TO AMEND EPHONE'S ARTICLES OF
INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
On May 5, 2000, the Board of Directors of ePHONE adopted, subject to
stockholder approval, an amendment to our Articles of Incorporation to increase
the number of authorized shares of Common Stock available for issuance by ePHONE
from 50 million shares to 150 million shares. The full text of the proposed
amendment to ePHONE's Articles of Incorporation with respect to this Proposal is
set forth in Appendix A to this Proxy Statement and the following description is
qualified in its entirely with reference thereto.
-9-
<PAGE>
As of July 28, 2000, 13,350,000 shares of common stock were outstanding
and 35,895,925 shares were reserved for issuance out of the 50 million currently
authorized shares. Thus, we only have 754,075 shares of common stock available
for use for all purposes at this time.
Purposes
The management and the Board of Directors of ePHONE believe that it is
in the best interests of ePHONE and its stockholders to have additional shares
of Common Stock available to issue. ePHONE cannot fulfill certain current
contractual commitments and implement certain incentive compensation plans
unless ePHONE's number of authorized shares of Common Stock is increased. The
Board of Directors believes that ePHONE's ability to implement its business
plans will be adversely effected if ePHONE is unable to comply with its
contractual commitments and implement its planned incentive compensation plans.
In particular, certain current and former directors and officers of
ePHONE and consultants to ePHONE have agreed to not exercise options previously
granted to them by ePHONE unless and until the number of authorized shares of
Common Stock is increased. The individuals who have entered into such
commitments and the number of shares of Common Stock subject to options held by
such persons are as follows:
Name/Position Common Shares Subject to
------------- Options
-------------------------
Robert G. Clarke (Current Director) 1,000,000
Jean Paul Langlais (Consultant) 1,000,000
Peter Francis (Former Director) 250,000
Hans van Yzeren (Current Director) 250,000
John G. Fraser (Current Director) 250,000
Charles Rodriguez (Former Officer) 250,000
Ben D. Leboe (Former Officer) 250,000
Benoit Langlais (Consultant) 175,000
Nada Guirguis (Consultant) 50,000
Caroline Locher-Lo (Consultant) 25,000
In addition, ePHONE has agreed to issue for no additional consideration
to the following individuals who have served as consultants to ePHONE during the
period in which it devised its business plan and raised the initial capital to
fund its business plan, the number of shares of Common Stock set forth beside
his name:
Name No. of Shares
---- -------------
Jean Paul Langlais 1,500,000
Benoit Langlais 466,447
Marc Herbert 1,500,000
Michael Dyde 200,000
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<PAGE>
These shares of Common Stock are being issued to these individuals in
consideration of services rendered to ePHONE and in lieu of participation in a
performance share plan, pursuant to which up to 15,000,000 shares of Common
Stock would have been issued to certain current and former officers and
directors and consultants upon ePHONE achieving certain performance objectives,
which had been previously approved by the Board of Directors but has since been
cancelled by the Board of Directors. These shares of Common Stock cannot be
issued until the number of authorized shares of Common Stock of ePHONE is
increased.
Moreover, in lieu of participation in the cancelled performance share
plan, ePHONE has agreed to grant (i) to Row Zadeh, its President and Chief
Executive Officer, options to purchase 3,000,000 shares of Common Stock at an
exercise price of $0.50 per share, which will vest and become exercisable if Mr.
Zadeh continues to be employed by ePHONE on April 1, 2001; and (ii) to Bahram
Ossivand, its Chief Financial Officer and Secretary, options to purchase
1,000,000 shares of Common Stock at an exercise price of $0.60 per share, which
will vest and become exercisable if Mr. Ossivand continues to be employed by
ePHONE on April 17, 2001. These options cannot be granted by ePHONE unless the
authorized number of shares of Common Stock of ePHONE is increased.
Finally, in March 2000, ePHONE agreed to grant to Sobois-Livert
Investment Corporation warrants expiring on March 31, 2002, to purchase 250,000
shares of Common Stock at a price of $0.60 per share and warrants expiring on
March 31, 2002 to purchase 488,833 shares of Common Stock at a price of $1.10
per share in connection with entering into a consulting agreement, pursuant to
which Sobois-Livert shall assist ePHONE in obtaining financing and prepare a
market analysis report for ePHONE. Sobois-Livert may not exercise these warrants
until the number of authorized shares of Common Stock of ePHONE is increased.
In addition to these particular needs to increase the number of
authorized shares of Common Stock, management and the Board of Directors believe
it is necessary for ePHONE to have additional shares of Common Stock available
for general corporate purposes, including convertible debt financings, equity
financings, acquisitions, strategic collaborations, employee equity incentives
and other corporate purposes. In particular, ePHONE's operations to date have
consumed, and will continue to consume, substantial amounts of cash, and in the
past, ePHONE has relied upon equity financings to raise additional capital.
The proposed increase in the number of shares of Common Stock
authorized under ePHONE's Articles of Incorporation is necessary for ePHONE to
comply with the particular contractual commitments described above and to enable
ePHONE to implement the performance share plan described above. Further, we
believe that the proposed increase in the number of shares of Common Stock
authorized under ePHONE's Articles of Incorporation will give ePHONE greater
flexibility in responding to business and financing opportunities by allowing
shares of Common Stock to be issued by the Board of Directors without the delay
of a special meeting of stockholders. The Board of Directors will determine
whether, when and upon what terms the issuance of shares of Common Stock may be
warranted in connection with any of the foregoing purposes.
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<PAGE>
Effect
The additional Common Stock to be authorized by adoption of the
amendment to ePHONE's Articles of Incorporation would have rights identical to
the currently outstanding Common Stock of ePHONE. Adoption of the amendment and
issuance of the Common Stock would not affect the rights of the holders of
currently outstanding Common Stock of ePHONE, except for effects incidental to
increasing the number of shares of ePHONE's Common Stock outstanding, such as
dilution of the earnings per share and voting rights of current holders of
Common Stock.
If the amendment to ePHONE's Articles of Incorporation is adopted, the
authority of the Board of Directors to issue the authorized but unissued shares
of Common Stock might be considered as having the effect of discouraging an
attempt by another person or entity to effect a takeover or otherwise gain
control of ePHONE since the issuance of additional shares of the Common Stock
would dilute the voting power of the Common Stock then outstanding. Although the
issuance of any additional shares will be on terms deemed to be in the best
interests of ePHONE and its stockholders, under certain circumstances, the
issuance of additional shares of Common Stock could have an adverse effect on
the market price per share of ePHONE's Common Stock.
Implementation
If the amendment is adopted by the stockholders, it will become
effective upon filing and recording of Restated Articles of Incorporated in
compliance with the Florida Business Corporation Act.
The affirmative vote of a majority of the outstanding shares of Common
Stock entitled to vote is required to approve the amendment to the Articles of
Incorporation. The votes represented by the Proxies received will be voted FOR
approval of the adoption of the proposed amendment to the Articles of
Incorporation, unless a vote against such approval or an abstention from voting
is specifically indicated on the Proxy. A broker non-vote will have the effect
of a vote against the amendment.
The Board Of Directors recommends a vote in favor of Proposal 3.
PROPOSAL 4
PROPOSAL TO AMEND EPHONE'S ARTICLES OF INCORPORATION
TO AUTHORIZE PREFERRED STOCK ISSUABLE IN ONE OR MORE SERIES
On May 5, 2000, the Board of Directors unanimously approved a proposal
to amend ePHONE's Articles of Incorporation to authorize the issuance of up to
10,000,000 shares of Preferred Stock, par value $0.001 per share (the "Preferred
Stock"). The full text of the proposed amendment to ePHONE's Articles of
Incorporation with respect to this Proposal is set forth in Appendix B to this
Proxy Statement and the following description is qualified in its entirety by
reference thereto.
No preferred stock is presently authorized by ePHONE's Articles of
Incorporation. The proposed amendment would authorize the Board of Directors,
without any further stockholder action (unless such action is required in a
specific case by applicable laws or regulations or by applicable rules of a
trading market or stock exchange), to issue from time to time shares of
Preferred Stock in one or more series, to determine the number of shares to be
included in any series and to fix the designation, voting power, other powers,
preferences and rights of the shares of each series and any qualifications,
limitations or restrictions of the series. The Preferred Stock to be authorized
is of the type commonly known as "blank-check" preferred stock.
-12-
<PAGE>
The amendment would authorize the Board of Directors, from time to
time, to divide the Preferred Stock into series, to designate each series, and
to determine for each series its respective rights and preferences, including,
without limitation, any of the following:
(i) the rate of dividends, and whether dividends were cumulative
or had a preference over the Common Stock in right of payment;
(ii) the terms and conditions upon which shares may be redeemed and
the redemption price;
(iii) sinking fund provisions for the redemption of shares;
(iv) the amount payable in respect of each share upon a voluntary
or involuntary liquidation of ePHONE;
(v) the terms and conditions upon which shares may be converted
into other securities of ePHONE, including Common Stock;
(vi) limitations and restrictions on payment of dividends or other
distributions on, or redemptions of, other classes of stock of
ePHONE junior to such series, including the Common Stock;
(vii) conditions and restrictions on the creation of
indebtedness or the issuance of other senior classes of stock;
and
(viii) voting rights.
Any series of Preferred Stock could, as determined by the Board of
Directors at the time of issuance, rank, with respect to dividends, voting
rights, redemption and liquidation rights, senior to ePHONE's Common Stock.
In the Board of Directors' opinion, the primary reason for authorizing
the Preferred Stock is to provide flexibility for ePHONE's capital structure.
The Board of Directors believes that this flexibility is necessary to enable it
to tailor the specific terms of a series of Preferred Stock that may be issued
to meet market conditions and financing opportunities as they arise, without the
expense and delay that would be entailed in calling a stockholders meeting to
approve the specific terms of any series of Preferred Stock.
The Preferred Stock may be used by ePHONE for any proper corporate
purpose. Such purposes might include, without limitation, issuance in public or
private sales for cash as a means of obtaining additional capital for use in
ePHONE's business and operations. Other purposes could include issuances in
connection with the acquisition of other businesses or properties.
ePHONE is investigating different alternatives for raising capital and
also for ePHONE's future. The Preferred Stock proposed to be authorized at the
Annual Meeting could be used in connection with any financing transactions.
ePHONE currently has no arrangements, agreements or understandings for the
issuance of any Preferred Stock.
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<PAGE>
Effects
It is not possible to state the precise effects of the authorization of
the Preferred Stock upon the rights of the holders of ePHONE's Common Stock
until the Board of Directors determines the respective preferences, limitations,
and relative rights of the holders of the class as a whole or of any series of
the Preferred Stock. Such effects might include:
(i) reduction of the amount otherwise available for the payment of
dividends on Common Stock to the extent dividends are payable
on any issued Preferred Stock;
(ii) restrictions on dividends on the Common Stock;
(iii) rights of any series or the class of Preferred Stock to vote
separately, or to vote with the Common Stock;
(iv) conversion of the Preferred Stock into Common Stock at such
prices as the Board of Directors determines, which could
include issuance at below the fair market value or original
issue price of the Common Stock, diluting the book value or
per share value of the outstanding Common Stock; and
(v) the holders of Common Stock not being entitled to shares in
ePHONE's assets upon liquidation until satisfaction of any
liquidation preference granted to holders of the Preferred
Stock.
Holders of ePHONE's Common Stock do not have preemptive rights to
purchase shares in future issuances.
In addition, the existence of unissued stock could, in certain
instances, render more difficult or discourage a merger, tender offer, or proxy
contest and thus potentially have an "anti-takeover" effect, especially if stock
were issued in response to a potential takeover. Issuances of stock, including
preferred stock with conversion rights, can and have been implemented by some
companies in a manner intended to make acquisition of the companies more
difficult or more costly. An issuance of stock could deter the types of takeover
transactions that may be proposed or could discourage or limit the stockholders'
participation in certain types of transactions that might be proposed (such as a
tender offer), whether or not such transactions were favored by the majority of
the stockholders and could enhance the ability of officers and directors to
retain their positions. Stockholders should be aware, however, that the Board of
Directors has a fiduciary obligation to analyze the potential effects of the
issuance of any shares upon ePHONE and its stockholders and to issue shares only
when the Board of Directors believes the issuance to be in the best interests of
ePHONE and its stockholders. ePHONE has no present intention to use any of the
Preferred Stock to be authorized in the Annual Meeting (or its currently
authorized Common Stock) for anti-takeover purposes.
-14-
<PAGE>
Implementation
If the amendment is adopted by the stockholders, it will become
effective upon filing and recording of Restated Articles of Incorporation in
compliance with the Florida Business Corporation Act.
The affirmative vote of a majority of the outstanding shares of Common
Stock entitled to vote is required to approve the amendment to the Articles of
Incorporation. The votes represented by the Proxies received will be voted FOR
approval of the adoption of the proposed amendment to the Articles of
Incorporation, unless a vote against such approval or an abstention from voting
is specifically indicated on the Proxy. A broker non-vote will have the effect
of a vote against the amendment.
The Board Of Directors recommends a vote in favor of Proposal 4.
PROPOSAL 5
RATIFICATION OF AMENDMENT TO
EPHONE's ARTICLES OF INCORPORATION TO
CHANGE THE COMPANY'S NAME TO
"EPHONE TELECOM, INC."
On March 22, 1999, a Certificate of Amendment changing our name to
"ePHONE Telecom, Inc." was filed with the Florida Secretary of State. Questions
have arisen regarding whether sufficient shareholder approval was received for
the approval of this amendment under Florida law. To remove any doubt regarding
the validity of our name, we are asking our current stockholders to ratify the
amendment to the Articles of Incorporation changing our name to "ePHONE Telecom,
Inc." The full text of the amendment to be ratified with respect to this
Proposal is set forth in Appendix C to this Proxy Statement.
If the amendment is ratified by the stockholders, it will be included
in Restated Articles of Incorporation to be filed and recorded in compliance
with the Florida Business Corporation Act.
The affirmative vote of a majority of the outstanding shares of Common
Stock entitled to vote is required to ratify the amendment to the Articles of
Incorporation. The votes represented by the Proxies received will be voted FOR
ratification of the amendment to the Articles of Incorporation, unless a vote
against such ratification or an abstention from voting is specifically indicated
on the Proxy. A broker non-vote will have the effect of a vote against
ratification of the amendment.
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<PAGE>
PROPOSAL 6
RATIFICATION OF SELECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Grant Thornton, LLP as ePHONE's
independent public accountants for the fiscal year ending December 31, 2000 and
has further directed that management submit the selection of independent
auditors for ratification by the stockholders at the Annual Meeting. Grant
Thornton has audited ePHONE's financial statements for the fiscal year 1999.
Stockholders ratification of the selection of Grant Thornton as ePHONE's
independent public accountants is not required by ePHONE's Bylaws or otherwise.
However, the Board of Directors is submitting the selection of Grant Thornton to
the stockholders for ratification as a matter of good corporate practice. If the
stockholders fail to ratify the selection, the Board of Directors will
reconsider whether or not to retain that firm. Even if the selection is
ratified, the Board of Directors at their discretion may direct the appointment
of a different independent accounting firm at any time during the year.
No representative of Grant Thornton, LLP will be present at the Annual
Meeting.
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the Annual Meeting
will be required to ratify the selection of Grant Thornton.
The Board Of Directors recommends a vote in favor of Proposal 6.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of ePHONE's Common Stock as of July 28, 2000 by: (i) each nominee for
director; (ii) each director; (iii) each executive officer listed in the table
entitled Compensation of Executive Officers (iv) all executive officers and
directors of ePHONE as a group; and (v) all those known by ePHONE to be
beneficial owners of more than five percent of its Common Stock.
<TABLE>
<CAPTION>
Name and Address or Identity of Number of Common Shares Beneficially Percent of Beneficial
Individual or Group Owned or Deemed Beneficially Owned(1) Ownership
----------------------------------------- --------------------------------------- -----------------------------
<S> <C> <C>
Robert G. Clarke 33,334 shares 6.46%
Suite 616 1,033,334 options and warrants
1489 Marine Drive
West Vancouver, B.C.
Canada
Director and Chairman
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Name and Address or Identity of Number of Common Shares Beneficially Percent of Beneficial
Individual or Group Owned or Deemed Beneficially Owned(1) Ownership
----------------------------------------- --------------------------------------- -----------------------------
<S> <C> <C>
Willem Johan Henri Van Yzeren 250,000 options 1.51%
Gorzendreef 12
2360 Oud-Turnhout
Belgium
Director
John Fraser 33,334 shares 1.92%
104 Elm Avenue 283,334 options
Toronto, Ontario M4W IP2
Director and Executive
Vice-President
Row J. Zadeh 1,000,000 options 6.06%
1145 Herndon Parkway
Suite 100
Herndon, Virginia 20170
Director, Chief Executive Officer
and President
Bahram Ossivand 500,000 options 3.03%
1145 Herndon Parkway
Suite 100
Herndon, Virginia 20170
Chief Financial Officer and Director
William Porter -- --
1145 Herndon Parkway
Suite 100
Herndon, Virginia 20170
Director Nominee
Fariborz Ghadar -- --
1145 Herndon Parkway
Suite 100
Herndon, Virginia 20170
Director Nominee
Charles Yang -- --
Director, Former President and
Chief Operating Officer(2)
Executive Officers and Directors 66,668 shares 18.98%
as a group of eight (8) persons 3,066,668 options and warrants
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
Name and Address or Identity of Number of Common Shares Beneficially Percent of Beneficial
Individual or Group Owned or Deemed Beneficially Owned(1) Ownership
----------------------------------------- --------------------------------------- -----------------------------
<S> <C> <C>
Americana International Inc.(3) 2,550,000 shares 15.45%
Hong Kong
Holder of more than 5%
</TABLE>
(1) Beneficial ownership as reported in the table has been determined in
accordance with applicable federal regulations and includes (a) shares
of our Common Stock as to which a person possesses sole or shared
voting and/or investment power and (b) shares of our Common Stock which
may be acquired within sixty days upon the exercise of outstanding
stock options and warrants.
(2) Mr. Yang ceased providing services to ePHONE by January 31, 2000. Mr.
Yang's positions as President and Chief Operating Office of ePHONE were
formally terminated March 9, 2000. For further information regarding
our relationship with Mr. Yang, see "Certain Relationships and Related
Transactions".
(3) Management is advised that the owner of 100% of the issued shares of
Americana International Inc. is Gary Kenneth Urwin, Chartered
Accountant, of 27 Hamilton Parade, Pymble, Sydney, Australia. Mr. Urwin
has no other relationship to ePHONE.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires ePHONE's directors and
executive officers, and persons who beneficially own more than ten percent of a
registered class of ePHONE's equity securities, to file with the SEC initial
reports of ownership and reports of changes in ownership of our Common Stock and
other securities of ePHONE. Officers, directors and greater than ten percent
stockholders are required by SEC regulations to furnish ePHONE with copies of
all Section 16(a) forms they file. In connection with ePHONE becoming a
reporting company as of December 15, 1999, Form 3 was inadvertently not filed on
a timely basis by all of the directors and executive officers of ePHONE at that
time or on behalf of Americana International Inc.
INFORMATION ABOUT DIRECTORS AND OFFICERS
The Board of Directors
The Board of Directors oversees the business and affairs of ePHONE and
monitors the performance of management. In accordance with corporate governance
principles, the Board of Directors does not involve itself in day-to-day
operations. We do not currently compensate directors for their services, but may
consider doing so in the future.
During the fiscal year ended December 31, 1999, all board actions were
taken by unanimous written consent and the Board of Directors held no meetings.
The Board of Directors has no committees at this time.
The Board of Directors will consider stockholder nominations for
directors submitted to ePHONE. A notice relating to the nomination must be
timely given in writing to the secretary of ePHONE prior to the meeting. To be
timely, the notice must be delivered within the time permitted for submission of
a stockholder proposal as described under "Stockholder Proposals." Such notice
must be accompanied by the nominee's written consent, contain information
relating to the business experience and background of the nominee and contain
information with respect to the nominating stockholder and persons acting in
concert with the nominating stockholder.
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<PAGE>
Executive Officers and Current Directors of ePHONE
The biographies of the executive officers and current directors of
ePHONE, with the exception of Mr. Zadeh and Mr. Ossivand, whose biographies are
included above at pages 3 and 4 under Proposal 1, are set forth below.
Syd Rahman. Mr. Rahman, 48, has been Vice President of Sales and Marketing since
April 2000. Prior to joining ePHONE, Mr. Rahman was Vice President of Sales and
Marketing at Array Telecom Corporation, where he was responsible for the
company's market planning, market communications, distribution and sales
management activities. Previously, Mr. Rahman served as Vice President of Sales
and Service Delivery at Network Solutions from June 1998 to October 1999. From
1987 to 1998, Mr. Rahman was employed by AT&T, where he held several different
positions, including Client Services Executive and National Account Manager. Mr.
Rahman holds an Executive MBA from The George Washington University and B.S. in
Industrial Engineering from Northeastern University.
Mark Scott. Mr. Scott, 25, has been Vice President of Engineering since April
2000. Prior to joining ePHONE, Mr. Scott was the System Architect at Array
Telecom Corporation, where he was the chief architect and designer of the Array
Series 3000 family of Internet telephony gateway products. Prior to co-founding
Array Telecom Corporation, Mr. Scott was a software developer at Array Systems
Computing, Inc. Mr. Scott has several patents pending in areas of IP Telephony.
Mr. Scott has an Honors B.A.Sc. in Computer Engineering from the University of
Waterloo.
Robert D. Case. Mr. Case, 34, has been Vice President of Network Operations
since June 2000. Prior to joining ePHONE, Mr. Case was Chief Information Officer
at The Capital Markets Company. From April 1995 through March 1999, Mr. Case was
Director of Internet Systems for Global TeleSystems Group. Mr. Case holds a B.S.
in Aerospace Engineering from the University of Virginia.
Robert G. Clarke. Mr. Clarke, 55, was appointed Director, President and Chief
Executive Officer of ePHONE on June 3, 1999. Effective August 9, 1999, he
resigned as President and was appointed Chairman of the Board and deemed a
promoter of ePHONE. Mr. Clarke was re-appointed President March 9, 2000. During
the last 5 years he has acted an independent business consultant - principally
in the area of high tech start-ups - providing advice with respect to public and
private financings, creating business plans, assembling management teams and
business opportunity assessments. Mr. Clarke holds the degrees of Bachelor of
Commerce from Memorial University and Master of Business Administration from the
University of Western Ontario.
John G. Fraser. Mr. Fraser, 53, has been a director and Executive Vice-President
of ePHONE since June 1999. Prior to joining ePHONE, Mr. Fraser was Vice-Chairman
of KPMG Canada, Chartered Accountants. Mr. Fraser's held various positions
within KPMG Canada from November 1976 until February 1998. Mr. Fraser has a
Masters in Business Administration from University of Pittsburgh and a Bachelor
of Commerce and Administration from Victoria University, Wellington, New
Zealand.
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<PAGE>
Hans van Yzeren. Mr. van Yzeren, 52, has been a member of the board of directors
since June 1999. From April 1999 to the present, he has been providing services
to ePHONE with respect to researching and developing markets in Europe. From
1996 to April 1999, he was employed by Data Services NV, Belgium as a
Partner/Managing Director. From 1990 to 1996, he was a Partner/Director at G-Tel
Communications S.a.r.l., Luxembourg.
Charles Yang. Mr. Yang, 39, has been a member of the board of directors since
August 1999. Mr. Yang was the President and Chief Operating Officer from August
9, 1999 to March 9, 2000, when his executive positions with ePHONE were
terminated. For further information regarding the Company's relationship with
Mr. Yang, see "Certain Relationships and Related Transactions" below.
The officers of ePHONE hold office at the discretion of the Board of
Directors of ePHONE. During fiscal year 1999, the officers of ePHONE devoted
substantially all of their business time to the affairs of ePHONE for the period
in which they were employed, and they intend to do so during fiscal year 2000.
Compensation Of Executive Officers
A. Cash Compensation
During the fiscal years ending December 31, 1999 the company paid the
following compensation to its Chief Executive Officer and President.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Principal Position Year Compensation Securities Underlying Stock
--------------------------- ---- ------------ Options
---------------------------
<S> <C> <C> <C>
Robert Clarke, CEO, President 1999 $ 48,000 1,000,000
Charles Yang, Director, Former President 1999 $ 55,000 500,000
and COO (1)
</TABLE>
(1) Mr. Yang ceased providing services to the Company by January 31,
2000. Mr. Yang's positions as President and Chief Operating Office of the
Company were formally terminated March 9, 2000. For further information
regarding ePHONE's relationship with Mr. Yang, see "Certain Relationships and
Related Transactions".
No directors or executive officers are presently under any employment
agreement pursuant to which they are guaranteed tenure or a salary or other
direct compensation.
During 1999, certain directors and executive officers were paid
$232,000 to perform functions for the Company on a consulting basis. These
officers and directors were paid for their services rendered from time to time
on such basis as was negotiated by the Chief Executive Officer, Mr. Clarke.
During 1999, consulting fees were paid to Messrs. John Fraser ($38,000), Hans
van Yzeren ($32,000), Charles Rodriguez ($45,000), and Ben Leboe ($14,000).
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<PAGE>
B. Option Grants
The Company granted, effective June 7, 1999, share purchase incentive
options to 12 directors, executive officers, non-executive officers and
individuals providing services to the Company entitling them to purchase up to
an aggregate total of 3,500,000 shares of Common Stock exercisable at $0.50 per
share on or before June 30, 2002. Charles Yang was granted options on 500,000
shares in the agreement with him described below under "Certain Relationships
and Related Transactions". The numbers of shares optioned to each of the
Company's Directors and Executive Officers is shown above under "Security
Ownership of Certain Beneficial Owners and Management".
Upon joining the Company as Chief Executive Officer and President on
April 1, 2000, Row Zadeh was granted options to purchase up to an aggregate
total of 1,000,000 shares of Common Stock exercisable at $0.50 per share. Upon
joining the Company as Chief Financial Officer on April 17, 2000, Bahram
Ossivand was granted options to purchase up to an aggregate total of 500,000
shares of Common Stock exercisable at $0.60 per share.
For a description of options granted to directors, executive officers
and other employees of ePHONE pursuant to the 2000 Long-Term Incentive Plan, see
"Proposal 2--Approval of ePhone Telecom, Inc. 2000 Long-Term Incentive
Plan--Awards Pursuant to the Plan."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A. Founding Shares
On May 8, 1996, immediately following the incorporation of the Company,
the Company issued 1,000,000 common shares for services rendered to the Company
for a deemed price of $0.001 per share for a total of $1,000. Of these 975,000
shares were issued by the Company to Ira Schwartz, the Company's sole director
and officer at the time.
B. Charles Yang
By an agreement dated July 8, 1999, which is now in dispute and
referred to herein as the Yang Agreement, we engaged Charles Yang to provide his
services on a full-time basis as the President and Chief Operating Officer of
ePHONE for a basic term of 4 years. The Yang Agreement provided for the payment
to Mr. Yang of a fee of $7,500 per month initially, escalating to $17,500 per
month for the period April 1 - June 30, 2000.
The Yang Agreement also provided for Mr. Yang to be granted options to
purchase 500,000 shares of Common Stock during the term of the Yang Agreement,
exercisable at $0.50 per share. The options were to vest on the following
schedule:
(a) 100,000 shares upon execution of the Yang Agreement
(b) 200,000 shares by October 1, 1999
(c) 200,000 shares by January 1, 2000
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<PAGE>
In the Yang Agreement, we also agreed to acquire from Mr. Yang 100% of
the issued shares of a company owned by him, General-Tel Inc., in exchange for
1,500,000 of our voting common shares. The Yang Agreement also provided that we
must, within 6 months of the closing of the acquisition of General-Tel, raise
funding for ePHONE of not less than $1,100,000. As part of the dispute with Mr.
Yang, we will not purchase the shares of General-Tel.
Under the terms of the Yang Agreement, Mr. Yang was to receive
2,000,000 voting common shares (which ePHONE has not yet issued). Our Canadian
lawyers were to hold the certificates for these shares in escrow, and 25% of
such shares (500,000 shares) were to be released to Mr. Yang upon ePHONE
achieving certain performance thresholds.
The Agreement also required that Mr. Yang bring to the company the
benefit of all negotiations and technical knowledge initiated or held by him to
sell hardware or services with respect to a technology referred to as Wireless
Local Loop ("WLL").
We agreed to issue Mr. Yang 1,000,000 voting common shares if he
succeeded in developing an agreement for the sale by ePHONE of WLL to one or
more purchasers. These shares were to be issued on the following schedule:
(a) 300,000 shares upon completion of negotiation and signing of
Memorandum of Understanding with the purchaser of WLL;
(b) 300,000 shares upon completion of signing of a formal contract
for the sale of WLL;
(c) 400,000 shares upon the receipt by the Company from the sale
of WLL of payments and revenues of not less than $500,000.
Further, Mr. Yang would have received 10% of the gross profits earned by ePHONE
from the sales of WLL.
Mr. Yang was also, from the sale of our products or services, to
receive royalties on the following basis:
(a) from sales of equipment or services in China, Vietnam or
Taiwan, provided the our gross profit margin is not less than
20% from such sales, Mr. Yang will be paid 5% of the gross
profits from such business; and
(b) for countries other than China, Vietnam or Taiwan where we
would pay sales commissions to representatives or agents in
such other country, Mr. Yang would have been paid monies equal
to 1% of the amount of the gross sales revenues from such
countries;
(c) where sales to China, Vietnam or Taiwan produce gross profits
of less than 20% then Mr. Yang would have, in lieu of the
aforesaid 5%, receive commissions equal to 1% of the gross
sales revenues from such countries.
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<PAGE>
A breakdown in the relationship between ePHONE and Mr. Yang developed
and he ceased providing services to ePHONE by January 31, 2000. Mr. Yang's
positions as President and Chief Operating Officer of ePHONE were formally
terminated on March 9, 2000. Mr. Yang has given a notice that he requires his
dispute with ePHONE to be arbitrated. We believe that we have no further
liabilities or obligations to Mr. Yang. We believe that the termination of the
Yang Agreement with Mr. Yang will not have a material effect on our business.
C. Loans from Officers
During 1999, we were loaned approximately $62,000, interest free, by
our Promoter and Chief Executive Officer at the time, Robert Clarke, as ePHONE
needed capital from time to time. No formal loan documentation was executed in
connection with these advances of funds, Mr. Clarke was not granted any security
interest in any assets of ePHONE and no date was fixed for the repayment of
these advances. We repaid to Mr. Clarke these amounts in full prior to December
31, 1999.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented
for consideration at the Annual Meeting. If any other matters are properly
brought before the meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment.
By Order of the Board of Directors
/s/ Bahram Ossivand
-----------------------------
Bahram Ossivand
Secretary
August 1, 2000
A COPY OF EPHONE'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 IS BEING
PROVIDED TO YOU WITH THIS PROXY STATEMENT. ADDITIONAL COPIES MAY BE OBTAINED
WITHOUT CHARGE UPON WRITTEN REQUEST TO: INVESTOR RELATIONS, ePHONE TELECOM, INC.
1145 HERNDON PARKWAY, SUITE 100, HERNDON, VIRGINIA 20170. OUR SEC FILINGS ARE
ALSO AVAILABLE AT THE SEC'S WEBSITE AT "HTTP://WWW.SEC.GOV".
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<PAGE>
APPENDIX A
Proposed text of the first paragraph of Article IV of our Articles of
Incorporation:
"The capital stock of this corporation shall consist of 150,000,000 shares of
common stock, $.001 par value."
<PAGE>
APPENDIX B
Proposed text of the first paragraph of Article IV of our Articles of
Incorporation:
" The Corporation shall also have the authority to issue Ten Million
(10,000,000) shares of preferred stock (the "Preferred Stock"), with a par value
of $0.001 per share. The Board of Directors is hereby authorized, as it may
determine, to issue such number of the authorized shares of Preferred Stock at
any time and from time to time, in one or more series, and to fix or alter the
designations, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions, of such shares of
Preferred Stock, including without limitation of the generality of the
foregoing, dividend rights, dividend rates, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the
redemption price or prices and liquidation preferences of any wholly unissued
series of preferred shares and the number of shares constituting any such series
and the designation thereof, or any of them; and to increase or decrease the
number of share of that series, but not below the number of shares of such
series then outstanding. In case the number of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series."
<PAGE>
APPENDIX C
Proposed text of Article I of our Articles of Incorporation pursuant to Proposal
5:
"The name of the Corporation is ePhone Telecom, Inc."
<PAGE>
ePHONE TELECOM, INC.
PROXY
This Proxy is solicited by the Board of Directors of ePHONE for the
Annual Meeting of Stockholders to be held on August 23, 2000
The undersigned hereby (i) acknowledge(s) receipt of the Notice of
Annual Meeting of Stockholders and Proxy Statement dated August 1, 2000,
relating to the Annual Meeting of Stockholders of ePHONE TELECOM, INC. (the
"Company") to be held August 23, 2000 and (ii) appoints Row Zadeh and Bahram
Ossivand as proxies, with full power of substitution, and authorizes them, or
either of them, to vote all shares of Common Stock of ePHONE standing in the
name of the undersigned at said meeting or any postponement, continuation and
adjournment thereof, with all powers that the undersigned would possess if
personally present, upon the matters specified below and upon such other matters
as may be properly brought before the meeting, conferring discretionary
authority upon such proxies as to such other matters. This Proxy, when properly
executed, will be voted in the manner directed herein by the undersigned
Stockholder. If no direction is made, this Proxy will be voted for the nominees
listed in Proposal 1 and for Proposals 2, 3, 4, 5 and 6.
Stockholders who attend the meeting may vote in person even though they
have previously mailed this proxy card.
The Board of Directors recommends a vote for the nominees listed in
Proposal 1 and for Proposals 2, 3, 4, 5 and 6.
(Continued on reverse side)
<PAGE>
(Continued from reverse side)
1. To elect five directors to hold office until the 2001 Annual Meeting of
Stockholders.
Row J. Zadeh John Fraser
Bahram H. Ossivand Fariborz Ghadar
William Porter
|_| FOR all nominees listed above (except as marked
|_| WITHHOLD AUTHORITY to vote for nominees listed to the contrary
below). To withhold authority to vote for any nominee, write
such nominee's name below
2. To approve ePHONE's 2000 Long-Term Incentive Plan:
|_| FOR |_| AGAINST |_| ABSTAIN
3. To approve an amendment to ePHONE's Articles of Incorporation to
increase the total number of authorized shares of Common Stock from
50,000,000 shares to 150,000,000 shares.
|_| FOR |_| AGAINST |_| ABSTAIN
4. To approve an Amendment to ePHONE's Articles of Incorporation to
authorize 10,000,000 shares of Preferred Stock.
|_| FOR |_| AGAINST |_| ABSTAIN
5. To ratify the Amendment to ePHONE's Articles of Incorporation to change
the name of the company to ePHONE Telecom Inc.
|_| FOR |_| AGAINST |_| ABSTAIN
6. To ratify the Board of Directors' selection of Grant Thornton LLP as
ePHONE's independent public accountants for the fiscal year ended
December 31, 2000.
|_| FOR |_| AGAINST |_| ABSTAIN
Please check this box if you plan to attend the meeting. |_|
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in full
corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
___________________________
___________________________
Signature(s) Date:
Please mark, date, sign and
mail this proxy card in the
envelope provided. No
postage is required for
domestic mailing.
