SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Amendment No. 1
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
[X] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
USA DIGITAL, INC.
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(Name of Registrant as Specified In Its Charter)
Board of Directors -- USA Digital, Inc.
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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)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number 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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5) Total fee paid:
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[ ] 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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
August 18, 2000
Dear Shareholder:
You are cordially invited to attend the year 2000 Annual Meeting of
Shareholders of USA Digital, Inc. (the "Company"), which will be held on
September 21, 2000 at 11:00 a.m., local time, at the Tampa Marriott Waterside,
700 South Florida Avenue, Tampa, FL 33602 (the "Annual Meeting").
The attached Notice of Annual Meeting and Proxy Statement describe the
formal business that we will transact at the Annual Meeting. In addition to the
formal items of business, management will report on the operations and
activities of the Company, and you will have an opportunity to ask questions.
The Board of Directors of the Company has determined that an affirmative
vote on each matter to be considered at the Annual Meeting is in the best
interests of the Company and its shareholders and unanimously recommends a vote
"FOR" each of these matters.
Please complete, sign and return the enclosed proxy card promptly, whether
or not you plan to attend the Annual Meeting. YOUR VOTE IS IMPORTANT REGARDLESS
OF THE NUMBER OF SHARES YOU OWN. VOTING BY PROXY WILL NOT PREVENT YOU FROM
VOTING IN PERSON AT THE ANNUAL MEETING BUT WILL ASSURE THAT YOUR VOTE IS COUNTED
IF YOU CANNOT ATTEND.
On behalf of the Board of Directors and the employees of the Company, we
thank you for your continued support and look forward to seeing you at the
Annual Meeting.
Sincerely yours,
/s/ Peter J. Lyons
------------------
Peter J. Lyons
Chief Executive Officer and a Director
<PAGE>
USA DIGITAL, INC.
100 WEST LUCERNE CIRCLE
SUITE 600
ORLANDO, FL 32801
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
DATE: THURSDAY, SEPTEMBER 21, 2000
TIME: 11:00 A.M., LOCAL TIME
PLACE: TAMPA MARRIOTT WATERSIDE
700 SOUTH FLORIDA AVENUE
TAMPA, FL 33602
At our 2000 Annual Meeting, we will ask you to:
1. Elect four directors to serve for a one year term to expire at the
2001 annual meeting. The following directors are the Board of
Directors' nominees:
Peter J. Lyons Mark D. Cobb
Donald E. Darden Daniel J. Montague
2. Ratify the appointment of Ernst & Young LLP as our independent public
accountants for the fiscal year ending March 31, 2001;
3. Transact any other business as may properly come before the Annual
Meeting or at any adjournment or postponement thereof.
You may vote at the Annual Meeting if you were a shareholder of the Company
at the close of business on August 15, 2000, the record date.
By Order of the Board of Directors,
/s/ Peter J. Lyons
------------------
Peter J. Lyons
Chief Executive Officer and a Director
August 18, 2000
Orlando, Florida
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER OF SHARES YOU OWN. THE BOARD
OF DIRECTORS URGES YOU TO SIGN, DATE AND MARK THE ENCLOSED PROXY CARD PROMPTLY
AND RETURN IT IN THE ENCLOSED ENVELOPE. RETURNING THE PROXY CARD WILL NOT
PREVENT YOU FROM VOTING IN PERSON IF YOU ATTEND THE ANNUAL MEETING.
<PAGE>
GENERAL INFORMATION
GENERAL
We have sent you this Proxy Statement and enclosed proxy card because the
Board of Directors is soliciting your proxy to vote at the Annual Meeting. This
Proxy Statement summarizes the information you will need to know to cast an
informed vote at the Annual Meeting. You do not need to attend the Annual
Meeting to vote your shares. You may simply complete, sign and return the
enclosed proxy card and your votes will be cast for you at the Annual Meeting.
This process is described below in the section entitled "Voting Rights."
We began mailing this Proxy Statement, the Notice of Annual Meeting and the
enclosed proxy card on or about August 18, 2000 to all shareholders entitled to
vote. If you owned common stock of the Company at the close of business on
August 15, 2000, the record date, you are entitled to vote at the Annual
Meeting. On the record date, there were 10,190,070 shares of common stock
outstanding.
QUORUM
A quorum of shareholders is necessary to hold a valid meeting. If the
holders of at least a majority of the total number of the outstanding shares of
common stock entitled to vote are represented in person or by proxy at the
Annual Meeting, a quorum will exist. We will include proxies marked as
abstentions and broker non-votes to determine the number of shares present at
the Annual Meeting.
VOTING RIGHTS
You are entitled to one vote at the Annual Meeting for each share of the
common stock of the Company that you owned as of record at the close of business
on August 15, 2000. The number of shares you own (and may vote) is listed at the
top of the back of the proxy card.
You may vote your shares at the Annual Meeting in person or by proxy. To
vote in person, you must attend the Annual Meeting and obtain and submit a
ballot, which we will provide to you at the Annual Meeting. To vote by proxy,
you must complete, sign and return the enclosed proxy card. If you properly
complete 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 FOR EACH OF THE PROPOSALS IDENTIFIED IN THE NOTICE
OF THE ANNUAL MEETING.
If any other matter is presented, your proxy will vote the shares
represented by all properly executed proxies on such matters as a majority of
the Board of Directors determines. As of the date of this Proxy Statement, we
know of no other matters that may be presented at the Annual Meeting, other than
those listed in the Notice of the Annual Meeting.
VOTE REQUIRED
For the election of directors under Proposal 1, the nominees who receive
the most votes will be elected. Under this voting standard, a failure to vote or
an indication of "WITHHOLD AUTHORITY" on your proxy card with respect to any
nominee will not count "FOR" or "AGAINST" that nominee. A broker non-vote will
have no effect on the outcome of this proposal because only a plurality of votes
cast is required to elect a director. You may not vote your shares cumulatively
for the election of directors.
1
<PAGE>
In order to implement each of Proposal 2 and Proposal 3, we must obtain the
affirmative vote of the holders of a majority of the shares of our common stock
represented in person or by proxy at the Annual Meeting and entitled to vote on
each proposal. Under this voting standard, shares as to which the "ABSTAIN" box
has been selected on the proxy card will count as shares represented and
entitled to vote and will be treated as votes "AGAINST" a proposal. Shares for
which no vote is cast with respect to a proposal will be treated as shares that
are not represented and will have no effect on the outcome of the vote for that
proposal. A broker non-vote with respect to either of these proposals will be
treated as shares that are not represented and will have no effect on the
outcome of that proposal.
CONFIDENTIAL VOTING POLICY
The Company maintains a policy of keeping shareholder votes confidential.
We only let our Inspector of Election and certain employees of our independent
tabulating agent examine the voting materials. We will not disclose your vote to
management unless it is necessary to meet legal requirements. We will, however,
forward any written comments that you may have to management.
REVOKING YOUR PROXY
You may revoke your proxy at any time before it is exercised by:
o Filing with the secretary a letter revoking the proxy;
o Submitting another signed proxy with a later date; and
o Attending the Annual Meeting and voting in person, provided you file a
written revocation with the secretary of the Annual Meeting prior to the
voting of such proxy.
IF YOUR SHARES ARE NOT REGISTERED IN YOUR OWN NAME, YOU WILL NEED
APPROPRIATE DOCUMENTATION FROM YOUR SHAREHOLDER OF RECORD TO VOTE PERSONALLY AT
THE ANNUAL MEETING. Examples of such documentation include a broker's statement,
letter or other document that will confirm your ownership of shares of the
Company.
SOLICITATION OF PROXIES
The Company will pay the costs of soliciting proxies from its shareholders.
Directors, officers or employees of the Company may solicit proxies by:
o mail;
o telephone; and
o other forms of communication.
We will also reimburse banks, brokers, nominees and other fiduciaries for
the expenses they incur in forwarding the proxy materials to you.
2
<PAGE>
OBTAINING AN ANNUAL REPORT ON FORM 10-KSB
If you would like a copy of our Annual Report on Form 10-KSB and audited
financials for the year ended March 31, 2000, which has been filed with the
Securities and Exchange Commission ("SEC"), we will send you one (without
exhibits) free of charge. Please write to:
Mark D. Cobb, President
USA Digital, Inc.
P.O. Box 172574
Tampa, FL 33672
3
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table contains common stock ownership information for each
director, and all directors and executive officers of the Company as a group,
and persons known to the Company to "beneficially own" 5% or more of the
Company's common stock as of June 30, 2000. Except as otherwise indicated, each
person and each group shown in the table has sole voting and investment power
with respect to the shares of common stock listed next to their name. In
general, beneficial ownership includes those shares that a person has the power
to vote, sell, or otherwise dispose. Beneficial ownership also includes that
number of shares which an individual has the right to acquire within 60 days
(such as stock options) of the date this table was prepared. Two or more persons
may be considered the beneficial owner of the same shares. We obtained the
information provided in the following table from filings with the SEC and with
the Company. "Voting power" is the power to vote or direct the voting of shares,
and "investment power" includes the power to dispose or direct the disposition
of shares. All persons shown in the table below have sole voting and investment
power, except as otherwise indicated.
<TABLE>
<CAPTION>
POSITION WITH THE AMOUNT AND NATURE OF PERCENT OF COMMON
NAME COMPANY BENEFICIAL OWNERSHIP STOCK OUTSTANDING (1)
--------------------------- ------------------------ ---------------------- ---------------------
<S> <C> <C> <C>
Mark D. Cobb President, Chief Operating
Officer and Director 1,834,495 (2) 18.0%
Vice President of
Kenneth D. Allen Operations 120,000 1.2%
Donald E. Darden Director 70,000 *
Chief Executive Officer
Peter J. Lyons and Director 500,000 (3) 4.9%
Daniel J. Montague Director 50,000 (4) *
Bell Entertainment, Inc. Shareholder 781,260 (5) 7.6%
Dunn Capital Corp., Inc. Shareholder 2,009,495 (6) 19.7%
All directors and executive
officers as a group 2,574,495 (2)(3)(4) 25.2%
</TABLE>
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* Less than 1.0%.
(1) Percentages with respect to each person or group of persons have been
calculated on the basis of 9,754,070 shares of common stock, the total
number of shares of the Company's common stock outstanding as of June 30,
2000, plus the number of shares of common stock which such person or group
has the right to acquire within 60 days after June 30, 2000.
(2) Does not include options to purchase 250,000 shares of the common stock at
$1.25 per share or options to purchase 500,000 shares of common stock at
$1.50 per share.
(3) Includes options to purchase 400,000 shares of common stock at prices
ranging from $0.50 to $1.75 per share. Does not include options to purchase
1,000,000 shares of common stock at prices ranging from $1.75 to $3.00.
(4) Includes options to purchase 50,000 shares of common stock at $6.75 per
share.
(5) Includes options to purchase 125,000 shares of common stock at $0.75 per
share. Does not include options to purchase 125,000 shares of common stock
at $1.25 per share or options to purchase 250,000 shares of common stock at
$1.50 per share. Bell Entertainment, Inc. is owned and controlled by Elliot
L. Bellen.
(6) Does not include options to purchase 250,000 shares of common stock at
$1.25 per share or options to purchase 500,000 shares of common stock at
$1.50 per share. Dunn Capital Corp. is owned and controlled by Rose
Strohmeyer Bosso and William J. Bosso.
4
<PAGE>
DISCUSSION OF PROPOSALS RECOMMENDED BY BOARD
-----------------------------------------------------
PROPOSAL 1
ELECTION OF DIRECTORS
-----------------------------------------------------
GENERAL
The Board has nominated four persons for election as directors at the
Annual Meeting. The nominees are currently serving on the Company's Board of
Directors. If you elect the nominees, they will hold office until the Annual
Meeting in 2001, or until their successors have been elected.
We know of no reason why any nominee may be unable to serve as a director.
If any nominee is unable to serve, your proxy may vote for another nominee
proposed by the Board. If for any reason these nominees prove unable or
unwilling to stand for election, the Board will nominate alternates or reduce
the size of the Board of Directors to eliminate the vacancy. The Board has no
reason to believe that its nominees would prove unable to serve if elected.
NOMINEES
<TABLE>
<CAPTION>
TERM DIRECTOR
NOMINEES AGE(1) EXPIRES POSITION(S) HELD WITH THE COMPANY SINCE
----------------- ------ ------- ------------------------------------------------ --------
<S> <C> <C> <C> <C>
Mark D. Cobb 51 2000 President, Chief Operating Officer and Director 1999
Donald E. Darden 53 2000 Director 1999
Peter J. Lyons 54 2000 Chief Executive Officer and Director 1999
Daniel J. Montague 64 2000 Director 2000
</TABLE>
---------------
(1) As of June 30, 2000
The principal occupation and business experience of each nominee for
election as director is set forth below.
NOMINEES
MARK D. COBB has been the President, Chief Operating Officer and Director
of the Company since its inception, and served as its Chief Executive Officer
from inception through February 1, 2000. Mr. Cobb has more than 20 years of
telecommunications experience. From 1996-1998, he was employed as Chief
Operating Officer by TSC, a full service facility-based carrier, located in
Tampa, Florida. Under Mr. Cobb's leadership TSC grew from $100,000 monthly
billings to $2.5 million a month in just a twelve month period. Prior to that he
was Vice President of Sales & Marketing for Phone One, Inc. which was acquired
by Intermedia Communications, Inc. in December of 1994, where he pioneered a
wholesale division and generated more than $23 million in contracts in less than
six months. Mr. Cobb has also held management positions with AT&T, ITT,
ATC/Microtel, Southern Bell and Metromedia. In addition to his successful career
in the telecommunications industry, Mr. Cobb enjoyed a distinguished career as a
U.S. Army helicopter pilot, flying 2,000 hours of combat time in Vietnam. Mr.
Cobb left active duty as a Captain at the age of 23 having earned the following
military awards: Distinguished Flying Cross, Bronze Star, 38 Air Medals, Air
Medal w/Combat V for Valor, Navy Commendation Medal w/Combat V, Vietnamese Cross
of Gallantry/Bronze Star, Army Commendation Medal, Good Conduct Ribbon, and
National Defense Ribbon.
5
<PAGE>
DONALD E. DARDEN has been a director of the Company since its inception.
From 1973 to present, Mr. Darden has run an architectural firm located in
Tallahassee, Florida.
PETER J. LYONS has been the Company's Chief Executive Officer since
February 1, 2000 and a director of the Company since July 1, 1999. Mr. Lyons has
more than 35 years of telecommunications experience. From 1998-June 1, 1999, Mr.
Lyons was President & General Manager of the Broad Band Carrier Division of
Siemens ICN. From 1996-1998, he was Vice President of the DCO & AIN Business
Units for Siemens Telecom Networks, where he was credited with bringing in $31
million net profit from previously abandoned Narrow Band Switching Product. From
1988-1996, Mr. Lyons was Director of OCC/CAP Sales at Siemens Stromberg-Carlson.
Mr. Lyons is a member of the International Engineering Consortium (IEC)
Executive Advisory Council. In 1999 he received Telecom Business Magazine's
Outstanding Achievement Award for Leadership & Vision in telecommunications.
DANIEL J. MONTAGUE has been a director of the Company since April 25, 2000.
Mr. Montague has more than 25 years of telecommunications experience and is
currently a founder, vice president and treasurer of Intellysis Capital
Advisors, LLC, a venture capital firm. From July 1998 to July 1999, he was
treasurer and corporate secretary for Second Century Communication, Inc. He was
an independent consultant from August 1993 to June 1998 and served as Vice
President, Chief Financial Officer and Corporate Secretary for Intermedia
Communications, Inc. From September 1990 to July 1993, he was responsible for
financial matters during its transition to a public company. From 1982 to 1990,
Mr. Montague was Managing Director and Chief Financial Officer for Southport
Financial Corporation and, from 1968 to 1982, held a number of financial
management assignments with telecommunications subsidiaries of ITT.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" ALL OF THE NOMINEES
FOR ELECTION AS DIRECTORS.
6
<PAGE>
INFORMATION ABOUT BOARD OF DIRECTORS AND MANAGEMENT
BOARD OF DIRECTORS
The Company's Board of Directors currently consists of four members. The
Company's Certificate of Incorporation provides that the terms of all of the
directors expire at each Annual Meeting.
The Board of Directors oversees our business and monitors the performance
of our management. In accordance with our corporate governance procedures, the
Board of Directors does not involve itself in the day-to-day operations of the
Company. The Company's executive officers and management oversee the day-to-day
operations of the Company. Our directors fulfill their duties and
responsibilities by attending regular meetings of the Board which are held on a
monthly basis. Our directors also discuss business and other matters with the
Chairman, other key executives, and our principal external advisers (legal
counsel, auditors, financial advisors and other consultants).
The Board of Directors held 36 meetings during the fiscal year ended March
31, 2000. Each incumbent director attended at least 75% of the meetings of the
Board of Directors, plus meetings of committees on which that particular
director served during this period.
COMMITTEES OF THE BOARD
The Board of Directors of the Company has established the following
committee:
<TABLE>
<S> <C>
AUDIT The Audit Committee oversees the audit process. Directors Cobb, Darden
COMMITTEE and Montague currently serve as members of the committee. Mr. Montague
is the Chairman of the Committee. The Audit Committee did not meet in the
1999 fiscal year.
</TABLE>
The Board of Directors, acting as the nominating committee, met in June
2000 to select the nominees for election as directors at the Annual Meeting.
DIRECTORS' COMPENSATION
Meeting Fees. Currently, non-employee directors of the Company do not
receive any fees for attending directors meetings.
We do not compensate our employee-directors for service as directors.
Directors are also entitled to the protection of certain indemnification
provisions in our Certificate of Incorporation and Bylaws.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following individuals are executive officers of the Company, and hold
the offices set forth below opposite their names.
KENNETH D. ALLEN, age 44, has served as Vice President of Operations since
the Company's inception. Mr. Allen has more than 21 years of managerial
experience in the telecommunications industry with an emphasis on operations,
MIS and technical support. From 1996-1998 he was Vice President of
Operations/Business Development at Melbourne International Communications Ltd.,
Melbourne, Florida, where his duties included responsibility for all operations
including MIS, Switching, Technical and Customer Service. Prior
7
<PAGE>
to that Mr. Allen was employed at Ameritech Communications, Inc., Rosemont,
Illinois, as a Director Product Marketing Manager where he designed and managed
a network that handled a $75 million customer base. Additionally, Mr. Allen has
held managerial positions with Phonetel Technologies, Inc., LCI International
and MCI Communications.
The Board of Directors annually elects the executive officers of the
Company. The elected officers hold office until their respective successors have
been elected and qualified, or until death, resignation or removal by the Board
of Directors.
EXECUTIVE COMPENSATION
The following table sets forth cash and noncash compensation for the fiscal
years ended March 31, 2000 and 1999 awarded to or earned by Peter J. Lyons, the
Company's Chief Executive Officer, and Mark D. Cobb, the Company's President and
Chief Operating Officer. No other officer's total annual salary and bonus for
the fiscal years 1999 or 1998 was in excess of $100,000.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------------- --------------------------------- ALL OTHER
NAME AND PRINCIPAL FISCAL RESTRICTED STOCK COMPENSATION
POSITIONS YEAR SALARY ($) BONUS AWARD ($) OPTIONS (#) ($)
---------------------- -------- ------------ ------- ------------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Peter J. Lyons, Chief 1999 26,666 (1) -- -- 1,400,000 --
Executive Officer 1998 -- -- -- -- --
Mark D. Cobb, President 1999 108,000 -- -- -- --
1998 108,000 -- -- 1,500,000 --
</TABLE>
---------------
(1) Represents amount paid to Mr. Lyons for services as the Company's Chief
Executive Officer in 1999. Mr. Lyons' annual salary is $160,000.
CERTAIN EMPLOYEE BENEFIT PLANS AND EMPLOYMENT AGREEMENTS
Employment Agreements. On January 5, 1999, the Company entered into an
employment agreement with Mark D. Cobb. The agreement is for a period of five
years at which time it can be renewed by mutual agreement of both parties. The
agreement may be terminated at the mutual agreement of both parties. However,
unless Mr. Cobb is terminated for gross malfeasance, the Company is obligated to
pay him all salary and benefits otherwise due for the remaining term of the
agreement in the event his employment terminates. The agreement provides for a
minimum base salary of $96,000. Under the agreement, Mr. Cobb was also granted
an option to purchase 1,500,000 shares of Company common stock at exercise
prices per share ranging from $.50 to $1.50. This option vests in varying
installments on annual vesting dates from January 5, 1999 to January 15, 2002.
All options granted to Mr. Cobb expire five years from their initial vesting
date.
The Company entered into employment agreement with Kenneth D. Allen on
January 1, 2000 and an employment agreement with Peter J. Lyons on February 1,
2000. The initial term of each agreement is five years from its effective date.
After the expiration of this initial term, each agreement automatically will be
extended for successive one year renewal terms unless either the executive or
the Company gives prior notice to the contrary. The agreements provide for
minimum base salaries of $160,000 in the case of Mr. Lyons and $84,000 in the
case of Mr. Allen. Under his employment agreement, Mr. Lyons was granted an
option to purchase 200,000 shares of Company common at an exercise price of
$1.75 per share. This option is exercisable immediately. Pursuant to the
agreement, Mr. Lyons was also granted an option to purchase 1,000,000 shares of
Company common stock at exercise prices per share ranging from $1.75 to $3.00.
This option vests in varying installments on annual vesting dates from February
1, 2001 through February 1, 2004. All options granted to Mr. Lyons expire five
years from their initial vesting date.
8
<PAGE>
The Company may terminate Mr. Lyon's or Mr. Allen's employment, and each
executive may resign, with or without cause. However, if the executive is
terminated without cause or resigns after a demotion or diminution of
responsibility, the executive will be entitled to severance benefits equal to
the aggregate of all salary payments that would otherwise be due the executive
for each month remaining in the employment agreement. The employment agreements
also provide certain uninsured disability benefits. Under the employment
agreements, Mr. Lyons and Mr. Allen are subject to non-compete and
non-solicitation covenants during their period of employment and for a period of
one year thereafter.
1998 Compensatory Stock Option Plan. The Stock Option Plan ("Stock Option
Plan") has been adopted by the Board of Directors of the Company and approved by
the Company's stockholders. The purpose of the Stock Option Plan is to promote
the growth of the Company and its affiliates by linking the incentive
compensation of officers, key executives and directors with the profitability of
the Company. The Stock Option Plan is not subject to ERISA and is not a
tax-qualified plan. The Company has reserved an aggregate of 1,500,000 shares of
common stock for issuance upon the exercise of stock options granted under the
Plan.
The Stock Option Plan is administered by the members of the Board's
Compensation Committee who are disinterested directors ("Option Committee"). The
Stock Option Plan does not provide for the grant of "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and provides only for the grant of non-qualified stock
options to purchase common stock of the Company ("Options") to eligible
employees. The Option Committee has discretion under the Stock Option Plan to
establish certain material terms of the Options granted to officers and
employees provided such grants are made in accordance with the Plan's
requirements.
All costs of the Stock Option Plan are borne by the Company. The Company
has reserved the right to amend or terminate the Plan, in whole or in part,
subject to the requirements of all applicable laws.
The following table summarizes the grants that were made to the Named
Executive Officers during fiscal 2000.
OPTION/SAR GRANTS IN FISCAL YEAR STOCK
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
SECURITIES PERCENT OF
UNDERLYING OPTIONS/SARS-GRANTED
OPTIONS/SARS TO EMPLOYEES IN FISCAL EXERCISE OR BASE EXPIRATION
NAME GRANTED (#)1 YEAR (%) PRICE ($ PER SHARE) DATE
-------------------------------------------- ------------ ---------------------- ------------------- ----------
<S> <C> <C> <C> <C>
Peter J. Lyons, Chief Executive Officer and
Director 100,000 98.59 .50 5/31/04
100,000 1.50 12/22/04
200,000 1.75 1/31/05
250,000 1.75 1/31/06
250,000 2.00 1/31/07
250,000 2.50 1/31/08
250,000 3.00 1/31/09
Mark D. Cobb, President and Director -- -- --
</TABLE>
------------------
(1) The options granted to Mr. Lyons become exercisable as follows: 100,000 on
June 1, 1999; 100,000 on December 23, 1999; 250,000 on February 1, 2001;
250,000 on February 1, 2002; 250,000 on February 1, 2003; and 250,000 on
February 1, 2004.
9
<PAGE>
1998 Employee Stock Compensation Plan. The 1998 Employee Stock Compensation
Plan (the "Compensation Plan") is intended to further the growth of the Company
and its affiliates by supporting and increasing the Company's ability to
attract, retain and compensate officers and key employees of the Company. The
Compensation Plan is not subject to ERISA and is not a tax-qualified plan. The
Company has reserved 1,000,000 shares of common stock for issuance under the
Compensation Plan.
The Compensation Committee of the Board of Directors ("Committee") will be
responsible for the administration of the Compensation Plan and will have sole
power to award common stock under the Compensation Plan. Subject to the express
provisions of the Compensation Plan, the Committee shall have full authority and
sole and absolute discretion to interpret the Compensation Plan, to prescribe,
amend and rescind rules and regulations relating to it, and to make all other
determinations which it believes to be necessary or advisable in administering
this Plan. The determination of those eligible to receive an award shall rest in
the sole discretion of the Committee, subject to the provisions of the
Compensation Plan. Awards may be made as compensation for services rendered,
directly or in lieu of other compensation payable, as a bonus in recognition of
past service or performance or may be sold to an employee.
The following table provides the value for "in-the-money" options, which
represent the positive spread between the exercise price of any such existing
stock options and the fiscal year-end price of the common stock, which was $3.25
per share. Neither Peter Lyons nor Mark Cobb exercised any vested options during
the fiscal year ended March 31, 2000.
AGGREGATED OPTIONS IN 1999 FISCAL YEAR AND 1999 FISCAL YEAR END OPTIONS
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN THE
UNEXERCISED OPTIONS/SARS AT MONEY OPTIONS/SARS AT FISCAL
FISCAL YEAR END (#) YEAR END (1) ($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---------------------------------------------------- -------------------------------- ----------------------------
<S> <C> <C>
Peter J. Lyons, Chief Executive Officer and Director 400,000/1,000,000 750,000/937,500
Mark D. Cobb, President and Director 750,000/750,000 1,875,000/1,375,000
</TABLE>
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(1) The closing price per share of common stock on March 31, 2000 was $3.25,
and options have exercise prices ranging from $0.50 to $3.00 per share,
which equals spreads of $2.75 per share to $0.25 per share.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 5, 1999, effective November 10, 1998, the Company entered into a
five year consulting agreement with Dunn Capital Corp., beneficial owner of
approximately 20.3% of the Company's common stock, whereby the Company will be
provided with advice with regard to corporate finance, evaluations of business
partners, mergers and acquisitions and such other matters as requested. This
agreement may be extended by mutual written agreement of the parties. As
consideration for the services provided, the Company issued 300,000 shares of
the Company's common stock as a signing bonus. The Company pays a monthly fee of
$8,000 in semi-monthly installments. As additional compensation, the Company
issued a total of 1,500,000 options, exercisable at annual intervals ranging
from January 5, 1999 to February 15, 2002 at varying exercise prices from $.50
to $1.50. The Company also agreed to pay the organization a 2% finders fee,
payable in cash or stock at the Company's election, on the total value of any
acquisition, merger, reverse-merger and/or equity or debt financing introduced
to the Company. In addition, the Company shall provide the organization with a
monthly unaccountable expense allowance of $2,500.
On February 17, 2000, the Company issued 210,000 shares of restricted stock
to Dunn Capital Corporation at $.50 per share. Dunn Capital Corp. paid for the
shares by converting accrued, but unpaid, consulting fees to equity in the
Company.
10
<PAGE>
On January 5, 1999, effective November 10, 1998, the Company entered into a
two year consulting agreement with Bell Entertainment, Inc., beneficial owner of
approximately 7.6% of the Company's common stock, whereby the Company will be
provided with advice with regard to corporate finance, evaluations of business
partners, mergers and acquisitions and such other matters as requested. This
agreement may be extended by mutual written agreement of the parties. As
consideration for the services provided, the Company shall pay a monthly fee of
$5,000, plus $200/hour for any time in excess of 50 hours in any calendar month.
As additional compensation, the Company issued a total of 875,000 options,
exercisable at annual intervals ranging from January 5, 1999 to February 15,
2002 at varying exercise prices between $.50 to $1.50.
During fiscal year 1999, the Company issued 200,000 shares of common stock
to Bell Entertainment, Inc. at $.50 per share in connection with private
placements of the Company's common stock pursuant to Rule 504 of Regulation D of
the Securities Act of 1933, as amended. Bell Entertainment paid for the shares
by converting accrued, but unpaid, consulting fees to equity in the Company.
All future affiliated transactions will be made or entered into on terms
that are no less favorable to the Company than those that can be obtained from
an unaffiliated third party. A majority of the independent, disinterested
members of the Company's Board of Directors must approve future affiliated
transactions and forgiveness of loans.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's directors and executive officers, and any person holding more than ten
percent of the Company's common stock, file with the SEC reports of ownership
and changes in ownership, and that such individuals furnish the Company with
copies of the reports. The following officers, directors, or shareholders of
more than ten percent of the Company's common stock failed to file their Initial
Statement of Beneficial Ownership on Form 3 required by Section 16(a) on a
timely basis: Kenneth D. Allen, Mark D. Cobb, Donald E. Darden, Peter J. Lyons
and Dunn Capital Corp. However, based solely on our review of the copies of such
reports that we have received, or written representations from certain reporting
persons, we believe that all of our executive officers, directors and
shareholders of more than ten percent of the Company's common stock have
complied with all Section 16(a) filing requirements applicable to them, as of
the date of this proxy statement.
11
<PAGE>
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PROPOSAL 2
RATIFICATION OF APPOINTMENT
OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------------------
The Board of Directors has appointed Ernst & Young LLP to act as the
independent public accountants for the Company for the fiscal year ending March
31, 2001, and we are asking shareholders to ratify the appointment.
Representatives of Ernst & Young LLP are expected to attend the Annual Meeting.
On May 3, 2000, USA Digital declined to reappoint its independent public
accountant, Weinberg & Company, P.A. ("Weinberg") for the fiscal year ended
March 31, 2000. The decision to decline to reappoint Weinberg as the Company's
independent public accountant was recommended and approved by the Board of
Directors.
During the two most recent fiscal years ending on March 31, 2000 and March
31, 1999, the financial statements of the Company did not contain any adverse
opinion or a disclaimer of opinion, and the financial statements did not contain
any qualified or modified opinion as to uncertainty, audit scope or accounting
principles. In addition, there were no disagreements between the Company and
Weinberg on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreement, if not
resolved to Weinberg's satisfaction, would have caused Weinberg to make
reference in connection with its report to the subject matter of the
disagreement.
Effective May 3, 2000, the Company appointed Ernst & Young LLP as the
Company's independent public accountants for the fiscal year ending March 31,
2000.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE
COMPANY.
12
<PAGE>
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PROPOSAL 3
AUTHORIZATION OF THE BOARD OF DIRECTORS, IN ITS DISCRETION, TO
DIRECT THE VOTE OF THE PROXIES UPON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE ANNUAL MEETING, AND ANY ADJOURNMENT
OR POSTPONEMENT THEREOF, INCLUDING, WITHOUT LIMITATION,
A MOTION TO ADJOURN THE ANNUAL MEETING
-----------------------------------------------------
The Board of Directors is not aware of any other business that may properly
come before the Annual Meeting. The Board seeks the authorization of the
shareholders of the Company, in the event matters properly come before the
meeting, including, but not limited to, the consideration of whether to adjourn
the Annual Meeting once called to order and to direct the manner in which those
shares represented at the Annual Meeting by proxies solicited pursuant to this
Proxy Statement shall be voted. As to all such matters, the Board intends that
it would direct the voting of such shares in the manner determined by the Board,
in its discretion, and in the exercise of its duties and responsibilities, to be
in the best interests of the Company and its shareholders, taken as a whole.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
AUTHORIZATION OF THE BOARD OF DIRECTORS, IN ITS DISCRETION, TO DIRECT THE VOTE
OF THE PROXIES UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL
MEETING, AND ANY ADJOURNMENT OR POSTPONEMENT THEREOF, INCLUDING, WITHOUT
LIMITATION, A MOTION TO ADJOURN THE ANNUAL MEETING.
13
<PAGE>
ADDITIONAL INFORMATION
INFORMATION ABOUT SHAREHOLDER PROPOSALS
If you wish to submit proposals to be included in our next proxy statement
for the 2001 Annual Meeting of Shareholders, we must receive them by April 5,
2001, pursuant to the proxy solicitation regulations of the SEC. SEC rules
contain requirements as to which shareholder proposals must be in the Proxy
Statement. Any such proposal will be subject to 17 C.F.R. Section 240.14a-8 of
the rules and regulations promulgated by the SEC.
In addition, under the Company's Bylaws, if you wish to nominate a director
or bring other business before an annual meeting:
o You must be a shareholder of record entitled to vote and have given
timely notice in writing to the Secretary of the Company.
o Your notice must contain the specific information required in our
Bylaws.
By Order of the Board of Directors,
/s/ Peter J. Lyons
------------------
Peter J. Lyons
Chief Executive Officer and Director
Orlando, Florida
August 18, 2000
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE ANNUAL MEETING, PLEASE
COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY CARD IN THE
POSTAGE-PAID ENVELOPE PROVIDED.
14
<PAGE>
USA DIGITAL, INC. REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF USA DIGITAL, INC.
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON SEPTEMBER 21, 2000.
The undersigned stockholder of USA Digital, Inc. hereby appoints Mark D.
Cobb and Peter J. Lyons, each of them, with full powers of substitution, to
represent and to vote as proxy, as designated, all shares of common stock of USA
Digital, Inc. held of record by the undersigned on August 15, 2000, at the
Annual Meeting of Stockholders (the "Annual Meeting") to be held at 11:00 a.m.,
Eastern Time, on September 21, 2000, or at any adjournment or postponement
thereof, upon the matters described in the accompanying Notice of the Annual
Meeting of Stockholders and Proxy Statement, dated August 18, 2000, and upon
such other matters as may properly come before the Annual Meeting. The
undersigned hereby revokes all prior proxies.
This Proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. IF NO DIRECTION IS GIVEN, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2 AND 3.
PLEASE MARK, SIGN AND DATE THIS PROXY ON THE REVERSE SIDE
AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE>
THE BOARD OF DIRECTORS OF USA DIGITAL, INC. I WILL ATTEND ANNUAL MEETING.
UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE / /
PROPOSALS IN ITEMS 1, 2 AND 3.
Please Mark Your Choice Like This
in Blue or Black Ink.
/X/
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1. Election of four directors to serve for a term of one year. The
following four directors are the Board of Directors' nominees: Mark D.
Cobb, Donald E Darden, Peter J. Lyons and Daniel J. Montague.
FOR AGAINST ABSTAIN
/ / / / / /
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2. Approval of the appointment of Ernst & Young LLP as our independent
public accountants for the fiscal year ending March 31, 2001.
FOR AGAINST ABSTAIN
/ / / / / /
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3. Authorization of the Board of Directors, in its discretion, to direct
the vote of proxies upon such matters incident to the conduct of the
Annual Meeting as may properly come before the Annual Meeting, and any
adjournment or postponement thereof, including, without limitation, a
motion to adjourn the Annual Meeting.
FOR AGAINST ABSTAIN
/ / / / / /
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The undersigned hereby acknowledges receipt of the Notice of
Annual Meeting of Stockholders and the Proxy Statement for
the Annual Meeting.
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Signature(s)
Dated: , 2000
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Please sign exactly as your name appears on this proxy.
Joint owners should each sign personally. If signing as
attorney, executor, administrator, trustee or guardian,
please include your full title. Corporate or partnership
proxies should be signed by an authorized officer.
