<PAGE>
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
<TABLE>
<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or
Rule 14a-12
MPHASE TECHNOLOGIES, INC.
-----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/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:
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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</TABLE>
<PAGE>
MPHASE TECHNOLOGIES, INC.
587 CONNECTICUT AVENUE
NORWALK, CONNECTICUT 06854-0566
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FRIDAY, MAY 5, 2000
------------------------
TO THE SHAREHOLDERS OF MPHASE TECHNOLOGIES, INC.:
NOTICE IS HEREBY GIVEN that the Annual Shareholders Meeting of mPhase
Technologies, Inc. (the "Company") will be held at the Four Seasons Hotel at 57
East 57(th) Street, New York, New York 10022, on May 5, 2000, at 10:00 a.m.
Eastern Time, for the purpose of considering the voting upon:
(1) A proposal to elect eight (8) Directors to hold office until the next
Annual Meeting or until a successor is duly elected and qualified.
(2) A proposal to approve and adopt an amendment to the Company's Amended
Certificate of Incorporation whereby the authorized capitalization of the
Company will be increased to 150,000,000 shares of Common Stock, no par
value per share.
(3) A proposal to approve and adopt the Company's Long-Term Stock Incentive
Plan, as amended, to increase the amount of authorized shares reserved
for issuance under the Plan.
(4) A proposal to ratify the appointment of Arthur Andersen, CPA, as the
independent accountants for the Company's 2000 fiscal year.
(5) Such other business as may properly come before the meeting and any
adjournment thereof.
The above items are more fully described in the attached Proxy Statement,
which is hereby made a part of this Notice. Only shareholders of record at the
close of business on Thursday, April 6, 2000 are entitled to notice of and to
vote at the meeting or any adjournment or postponement thereof.
By Order of the Board of Directors
[LOGO]
GUSTAVE T. DOTOLI
CORPORATE SECRETARY
April 22, 2000
IMPORTANT
Whether or not you expect to be present at the meeting, PLEASE FILL IN, SIGN,
DATE AND MAIL THE ENCLOSED PROXY as promptly as possible in order to save the
Company further solicitation expense. Shareholders of record attending the
meeting may revoke their proxies at that time and personally vote all matters
under consideration. There is an addressed envelope enclosed with the Proxy for
which no postage is required if mailed in the United States.
<PAGE>
MPHASE TECHNOLOGIES, INC.
------------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 5, 2000
------------------------
This Proxy Statement is furnished to the shareholders of mPhase
Technologies, Inc. (the "Company") in connection with the solicitation of
proxies by the Board of Directors of the Company to be voted at the Annual
Meeting of Shareholders (the "Annual Meeting") and at any adjournments thereof.
The Annual Meeting will be held at the Four Seasons Hotel at 57 East 57(th)
Street, New York, New York 10022, at 10:00 a.m. Eastern Time on Friday, May 5,
2000.
The approximate date on which this Proxy Statement and the accompanying
Proxy Card are first being sent or given to shareholders is April 22, 2000.
VOTING
GENERAL
The securities that may be voted at the Annual Meeting consist of common
stock of the Company, no par value per share (the "Common Stock"), with each
share entitling its owner to one vote on each matter submitted to the
shareholders. The record date for determining the holders of Common Stock who
are entitled to notice of and to vote at the Annual Meeting was April 6, 2000.
On the record date, 28,104,825 shares of Common Stock were outstanding and
eligible to be voted at the Annual Meeting.
QUORUM AND VOTE REQUIRED
The presence, in person or by proxy, of a majority of the outstanding shares
of Common Stock of the Company is necessary to constitute a quorum at the Annual
Meeting. Under New Jersey law, abstentions and broker non-votes will not have
the effect of votes in opposition and, therefore, will not affect the outcome of
such matter, but shall be counted for quorum purposes. The affirmative vote of
the holders of not less than a majority of the outstanding shares of the
Company, present in person or represented by proxy and entitled to vote at the
Annual Meeting, is required to approve all proposals detailed herein.
VOTING BY PROXY
The Company's Common Stock represented by properly executed proxies received
at or before the Annual Meeting that have not been revoked will be voted at the
Annual Meeting in accordance with the instructions contained therein. The
Company's Common Stock represented by properly executed proxies for which no
instruction is given will be voted "FOR" approval of the herein referenced
proposals. If any other matters properly come before the Annual Meeting, the
persons named as proxies will vote upon such matters according to their
judgment. The Company's shareholders are requested to complete, sign, date and
promptly return the enclosed Proxy Card in the postage-prepaid envelope provided
for this purpose to ensure that their shares are voted. A shareholder may revoke
a proxy at any time before it is voted by signing and returning a later-dated
proxy with respect to the same shares, by filing with the Secretary of the
Company, a written revocation bearing a later date or by attending and voting in
person at the Annual Meeting. Mere attendance at the Annual Meeting will not in
and of itself revoke a proxy.
If the Annual Meeting is postponed or adjourned for any reason at any
subsequent reconvening of the Annual Meeting, all proxies (except for any
proxies that have theretofore effectively been revoked or withdrawn) will be
voted in the same manner as such proxies would have been voted at the original
convening of the Annual Meeting, notwithstanding that such proxies may have been
effectively voted on the same or any other matter at a previous meeting.
The accompanying proxy is solicited by and on behalf of the Company's Board
of Directors. The Company will bear the cost of soliciting proxies from its
shareholders. In addition to solicitation by mail,
<PAGE>
directors and officers of the Company may solicit proxies by telephone, telegram
or otherwise. Such directors and officers will not receive additional
compensation for such solicitation. Brokerage firms, nominees, custodians and
fiduciaries also may be requested to forward proxy materials to beneficial
owners of shares held of record by them.
PROPOSAL I
ELECTION OF DIRECTORS
On February 23, 2000, the Board of Directors approved a resolution to amend
the Company's By-Laws, Article III, paragraph 2, to increase the number of
members of the Board from seven (7) to nine (9) Directors. Pursuant to the
Company's By-Laws, Article III, paragraph 4, the Board of Directors appointed
two directors on February 23, 2000, J. Allen Layman and Anthony H. Guerino, and
one director on March 4, 2000, Craig Vickers, to fill the vacant directorships
until the upcoming Annual Meeting and until each of their successors shall have
been elected and qualified. The Board has nominated Messrs. Layman, Guerino and
Vickers to be elected as Directors in addition to the existing five
(5) Directors which the Board has nominated for re-election, Necdet F. Ergul,
Ronald A. Durando, Gustave T. Dotoli, David Klimek and J. Lee Barton, and to
serve on the Board of Directors until the next Annual Meeting and until their
successors shall have been elected and qualified.
The Board of Directors recommends that you vote FOR the election of these
eight nominees to serve on the Board of Directors until the next Annual Meeting.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- -------- -------------------------------------
<S> <C> <C>
Necdet F. Ergul 75 Chairman of the Board and Director
Ronald A. Durando 42 Chief Executive Officer and Director
Gustave T. Dotoli 62 Chief Operating Officer and Director
David Klimek 44 Chief Technology Officer and Director
J. Lee Barton 45 Director
J. Allen Layman 54 Director
Anthony H. Guerino, Esq. 54 Director
Craig Vickers 54 Director
</TABLE>
The following is biographical information about each of the nominees.
NECDET F. ERGUL has served as the Company's Chairman of the Board since
October 1996 with the exception of a three-month period when he temporarily
resigned due to the press of personal business. Mr. Ergul also currently serves
as the President and Chief Executive Officer of Microphase Corporation, which he
founded in 1955. In addition to his management responsibilities at Microphase,
he is active in engineering design and related research and development.
Mr. Ergul holds a Masters Degree in Electrical Engineering from the Polytechnic
Institute of Brooklyn, New York.
RONALD A. DURANDO is a co-founder of mPhase Technologies, Inc. and has
served as the Company's President and Chief Executive Officer since our
inception in October 1996. Prior to joining the Company, Mr. Durando was
President and Chief Executive Officer of Nutley Securities, Inc., a registered
broker-dealer. In addition, Mr. Durando currently serves as the Chief Operating
Officer of Microphase Corporation, a leading developer of telecommunications
technology. He is also Chairman of the Board of Janifast Ltd., a U.S. Holding
Corp. for operational and manufacturing companies in Hong Kong and China. On
November 26, 1999, Mr. Durando acquired, via a 100% ownership of Packet
Port, Inc., a controlling interest in Linkon Corporation, now known as
PacketPort.com, Inc.
GUSTAVE T. DOTOLI has served as the Company's Chief Operating Officer since
October 1996. In addition, Mr. Dotoli currently serves as the Vice President of
Corporate Development of Microphase Corporation. He is formerly the President
and Chief Executive Officer of the following corporations:
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Imperial Electro-Plating, Inc., World Imports USA, Industrial Chemical
Supply, Inc., SISCO Beverage, Inc. and Met Pack, Inc. Mr. Dotoli received a B.S.
in Industrial Engineering from Fairleigh Dickinson University in 1959.
DAVID KLIMEK is a co-founder of mPhase Technologies, Inc. and has served as
the Company's Chief Technology Officer since June 1997 and as Director of
Engineering since its inception in October 1996. He has more than 18 years of
technical engineering and design expertise and presently holds 13 individual or
co-authored U.S. patents. From 1982 to 1990, Mr. Klimek was the R&D manager of
Digital Controls, Inc. Mr. Klimek received his B.S. in Electrical Engineering in
1982 from Milwaukee School of Engineering, Milwaukee, Wisconsin. In addition, he
graduated from the U.S. Navy Basic Electronics School at Great Lakes Naval
Training Center in 1972.
J. LEE BARTON has served as one of the Company's directors since
February 1999. Mr. Barton also serves as President and Chief Executive Officer
of Lintel, Inc., a holding company that owns Hart Telephone Company, a
10,000-line local exchange carrier in northeast Georgia, Hart Communications, an
interconnect carriers' carrier and long distance company, Hart Cellular, a
partnership in two RSA's in north Georgia, and Hart Cable, a recently formed
cable television company and Hart GlobalNet.
J. ALLEN LAYMAN became a member of the Board on February 23 2000.
Mr. Layman is the President and Chief Executive Officer of R&B Communications
and its subsidiaries, R&B Telephone, R&B Cable, R&B Telecom, R&B Network and The
Beeper Company, which companies provide services in the telecommunications
industry, and has been employed by R&B Telephone since 1974. Mr. Layman is a
member of several boards of directors, including R&B Communications and its
subsidiaries, The Bank of Fincastle, the United States Telephone Association,
the Organization for the Promotion and Advancement of Small Telecommunications
Companies, Virginia Telephone Industry Association, Valley Network Partnership,
Layman Development Corporation, Botetourt County Public Schools Education
Foundation, Inc., Virginia PCS Alliance, West Virginia PCS Alliance and the Blue
Ridge Mountains Council, Boy Scouts of America. Mr. Layman holds a B.A. from
Bridgewater College in Business Administration and Economics.
ANTHONY H. GUERINO, ESQUIRE became a member of the Board on February 23,
2000. Mr. Guerino is an attorney in private practice in New Jersey. Prior to
January, 1998, Mr. Guerino served as a judge of the Newark Municipal Courts for
over twenty (20) years, periodically sitting in the Essex County Central
Judicial Processing Court at the Essex County Courthouse. Mr. Guerino has been a
chairperson for and member of several judicial committees and associations in
New Jersey, and has been an instructor for the Seton Hall School of Law's Trial
Moot Court Program. Mr. Guerino received both his B.S. and Juris Doctorate
degrees from Seton Hall University.
CRAIG VICKERS became a member of the Board of on March 4, 2000. Mr. Vickers
currently is a principal of Convergence Capital, a firm that provides advisory
services in international and domestic investment banking, in corporate finance
and in the industry sectors of media, information communications and
entertainment. Mr. Vickers is responsible for advising management of mid-stage
companies on strategic relationships, mergers and acquisition matters. Prior to
his position at Convergence Capital, Mr. Vickers served as the Director,
Business Development, Sports Information Services at Infotechnology.
Mr. Vickers holds a B.S. from California State University, and is a member of
the Internet Society, the MIT Enterprise Forum, the New York Media Association,
the New York Venture Group, ABANA and the US/Arab Chamber of Commerce.
Should any nominee become unable or unwilling to accept nomination or
election, the Board of Directors will either select a substitute nominee or will
reduce the size of the Board. If you have submitted a proxy and a substitute
nominee is selected, the holders of the proxy will vote your shares FOR the
election of the substitute nominee. The Board of Directors has no reason to
believe that any nominee will be unable or unwilling to serve if elected.
3
<PAGE>
BOARD COMMITTEES
The Board of Directors approved the creation of both an Audit and
Compensation committee on February 23, 2000.
The Audit Committee is responsible for the Company's relations with the
independent accountants. Specifically, the Audit Committee recommends the
appointment of the Company's independent accountants and determines the
appropriateness of their fees, reviews the scope and results of the audit plans
of the independent accountants, oversees the scope and adequacy of the Company's
internal accounting control and record-keeping systems and confers independently
with the independent accountants. The Audit Committee is comprised of
Messrs. Durando, Layman, Vickers and Guerino, of which Messrs. Layman, Vickers
and Guerino are outside directors.
The Compensation Committee is responsible for the Company's management and
employee compensation. Specifically, the Compensation Committee determines the
adequacy of management and employee compensation including the administration of
the Company's Long-Term Stock Incentive Plan. The Compensation Committee is
comprised of Messrs. Dotoli, Layman, Vickers and Guerino.
During fiscal year ended June 30, 1999, the Board of Directors held six
meetings. There were no committee meetings during 1999 since the committees were
not formed until February, 2000.
DIRECTOR COMPENSATION
The Company pays each of the directors $15,000 annually for their services
as a Director and for their attendance of Board and Committee meetings.
Additionally, certain of the Directors have been granted options under the
Company's Long-Term Stock Incentive Plan, which grants are included in the table
"Security Ownership of Certain Beneficial Owners and Management" and the notes
thereto.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ABOVE
NOMINEES FOR DIRECTOR. THE 8 NOMINEES RECEIVING THE GREATEST NUMBER OF
AFFIRMATIVE VOTES SHALL BE THE DIRECTORS. SHARES OF COMMON STOCK REPRESENTED AT
THE MEETING BY EXECUTED BUT UNMARKED PROXIES WILL BE VOTED "FOR" EACH OF THE
ABOVE NOMINEES.
PROPOSAL II
PROPOSAL TO AMEND THE AMENDED CERTIFICATE OF
INCORPORATION TO INCREASE THE AUTHORIZED
SHARES OF COMMON STOCK OF THE COMPANY
The Board of Directors recommends the approval of an increase in the
authorized shares of Common Stock of the Company, no par value per share, from
50,000,000 to 150,000,000. As of April 6, 2000, the Company has 28,104,825
issued and outstanding shares, no par value.
REASONS FOR AND EFFECTS OF THE PROPOSAL
The Board of Directors has proposed an increase in the number of authorized
shares of Common Stock for several reasons. First, the Company currently has
50,000,000 shares of Common Stock authorized, no par value, of which 28,104,825
are issued and outstanding. However, the Company has issued warrants and options
to purchase an additional 8,976,500 shares of Common Stock and has reserved an
additional 6,832,500 shares which are eligible to be granted under the proposed
Long-Term Stock Incentive Plan as amended. The Board wishes to have available a
sufficient reserve of shares for issuance from time to time at the discretion of
the Board of Directors, and without further authorization by the shareholders,
in furtherance of the Company's business purposes. Such purposes might include,
without limitation, the issuance and sale of Common Stock (i) in public or
private offerings as a means of obtaining additional
4
<PAGE>
capital for the Company's business; (ii) as part or all of the consideration
required to be paid for the acquisition of ongoing businesses or other assets;
(iii) to satisfy any current or future financial obligations of the Company;
(iv) in connection with the exercise of options, warrants or rights, or the
conversion of convertible securities that may be issued by the Company; or
(v) pursuant to any benefit, option or stock ownership plan or employment
agreement.
The proposed increase in the number of authorized shares of Common Stock
will not change the number of shares of Common Stock outstanding or the rights
of the holders of such stock. Other than for the possibility of issuing new
shares of Common Stock upon the exercise of outstanding stock options or
warrants, the Company does not have any immediate plans, arrangements,
commitments or understandings with respect to the issuance of any of the
additional shares of Common Stock that would be authorized by the proposed
amendment to the Amended Certificate of Incorporation. However, the Company
anticipates that it will need to raise additional equity capital in the near
future through the issuance of Common Stock or other securities that are
convertible into or otherwise grant the holder thereof the right to purchase
Common Stock.
Any issuance of additional shares of Common Stock could reduce the current
shareholders' proportionate interests in the Company, depending on the number of
shares issued and the purpose, terms and conditions of the issuance. Moreover,
the issuance of additional shares of Common Stock could discourage attempts to
acquire control of the Company by tender offer or other means. In such a case,
shareholders might be deprived of benefits that could result from such an
attempt, such as realization of a premium over the market price of their shares
in a tender offer or the temporary increase in market price that could result
from such an attempt. Also, the issuance of stock to persons supportive of the
Board of Directors could make it more difficult to remove incumbent management
and directors from office. Although the Board of Directors intends to issue
Common Stock only when it considers such issuance to be in the best interest of
the Company, the issuance of additional shares of Common Stock may have, among
others, a dilutive effect on earnings per share of Common Stock and on the
equity and voting rights of holders of shares of Common Stock. The Board of
Directors believes, however, that the benefits of providing the flexibility to
issue shares without delay for any business purpose outweigh any such possible
disadvantages.
Ownership of shares of Common Stock entitle each shareholder to one vote per
share of common stock. Holders of shares of Common Stock do not have preemptive
rights to subscribe to additional securities that may be issued by the Company,
which means that current shareholders do not have a prior right to purchase any
new issue of capital stock of the Company in order to maintain their
proportionate ownership. Shareholders wishing to maintain their interest,
however, may be able to do so through normal market purchases.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE
AMENDED CERTIFICATE OF INCORPORATION THEREFORE INCREASING THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK FROM 50,000,000 TO 150,000,000, AS SET FORTH
ABOVE. THE AFFIRMATIVE VOTE OF HOLDERS OF A MAJORITY OF THE SHARES OF COMMON
STOCK REPRESENTED AT THE MEETING IS REQUIRED TO APPROVE THE AMENDMENT TO THE
AMENDED CERTIFICATE OF INCORPORATION. SHARES OF COMMON STOCK REPRESENTED AT THE
MEETING BY EXECUTED BUT UNMARKED PROXIES WILL BE VOTED "FOR" APPROVAL OF THE
AMENDED CERTIFICATE OF INCORPORATION.
PROPOSAL III
PROPOSAL TO APPROVE AND ADOPT THE AMENDMENT
TO THE COMPANY'S LONG-TERM STOCK INCENTIVE PLAN
On February 23, 2000, the Board of Directors adopted the Amended Long-Term
Stock Incentive Plan (the "Plan"), subject to shareholder approval. Accordingly,
at the Annual Meeting, shareholders will be asked to approve and adopt the Plan,
as amended. The Plan shall be amended to increase the reserved shares of Common
Stock for issuance from time to time under the Plan from 5,000,000 to 15,000,000
shares. All of the other terms of the original Plan are the same.
5
<PAGE>
The full text of the Plan is set forth as Appendix B hereto, and
shareholders are urged to refer to it for a complete description of the proposed
Plan as amended. The summary description of the Plan which follows is qualified
entirely by such reference.
The purposes of the Plan are to advance the interests of the Company by
providing equity incentives to selected key employees and consultants of the
Company and its subsidiaries who contribute and are expected to contribute
materially to the success of the company and its subsidiaries, to provide a
means of rewarding outstanding performance, and to protect the long-term
interests of the Company and its subsidiaries by enabling them to maintain a
competitive position in attracting and retaining the key personnel and
consultants necessary for growth and profitability.
The Plan is administered by the Compensation Committee which was established
by the Board of Directors. The Committee shall from time to time at its
discretion determine which key employees or consultants of the Company and its
subsidiaries shall be granted stock options and the amount of Common Stock
covered by such stock options. Each Optionee shall receive a notice from the
Company and executed by an officer of the Company describing the specific terms
of his or her option.
Under the terms of the original Plan, the Board of Directors reserved
5,000,000 shares of its Common Stock which may be issued and sold pursuant to
stock options granted under the Plan, which shall be increased to 15,000,000
shares. The Plan shall be effective until August 15, 2007. Any stock option
shall be exercisable in whole or in part from time to time during the term
thereof as may be determined by the Committee, but no stock option will be
exercisable more than five (5) years after the date of grant. Further, unless
otherwise provided by the Committee, no stock option may be exercised prior to
the first anniversary of the date of granting of such stock option.
Stock options may be granted only to salaried employees of the Company and
its subsidiaries who are officers (including officers who are members of the
Board of Directors of the Company or any of its subsidiaries) as well as to
other key employees and consultants of the Company and its subsidiaries.
Successive stock options may be granted to the same persons whether or not the
stock option or stock options first granted to such persons remain unexercised,
including one or more Incentive Stock Options, provided that the aggregate Fair
Market Value (as defined below) determined at the time that such Incentive Stock
Options are granted of the Common Stock with respect to which Incentive Stock
Options are exercisable for the first time by such individual during any
calendar year shall not exceed $1,000,000.
Stock options granted may be (i) stock options which are intended to qualify
as Incentive Stock Options, (ii) stock options which are not intended to qualify
("Non-Qualified Stock Options"), or (iii) combinations of the foregoing. In the
case of Incentive Stock Options, the option price will not be less than the Fair
Market Value of the Stock on the date of the grant. In the case of Non-Qualified
Stock Options, the option price shall not be less than the lowest of (i) the
Fair Market Value of the Company's Common Stock on the date of the grant,
(ii) the Fair Market Value of the Stock on January 1 of a calendar year within
three years of the calendar year in which the grant is made or (iii) the book
value per share of the Common Stock on the date on which such stock option first
becomes exercisable. An amendment to an outstanding Incentive Stock Option that
constitutes a modification, extension, or renewal of the stock option, pursuant
to Section 425(h) of the Code, shall be considered as the grant of a new stock
option on the date of such amendment and, therefore, the option price shall be
adjusted so that it shall not be less than the Fair Market Value of the
Company's Common Stock on the date of such amendment.
"Fair Market Value" means the average of the bid and asked price of the
Company's Common Stock on the relevant date as quoted by the National
Association of Securities Dealers on the OTC Bulletin Board or such other stock
exchange such as the NASDAQ Small Cap Market on which the shares are traded. If
no sale shall have been made on that date, the Fair Market Value shall be the
average price on the next preceding day there is a sale. During such times as
the shares are not traded, the Compensation Committee shall exercise its best
judgment and good faith to determine the Fair Market Value of the
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<PAGE>
Company's Common Stock on the relevant date and shall consider all factors
deemed to be relevant to such determination.
Under the Plan, in the event of any change in the number of issued and
outstanding shares which results from a stock split, reverse stock split, the
payment of a stock dividend or any other change in capital structure of the
Company such as a merger, consolidation, reorganization or recapitalization, the
Compensation Committee shall appropriately adjust (a) the maximum number of
shares of Common Stock which may be issued under stock options pursuant to the
Plan, (b) the number of shares subject to each outstanding stock option and the
price per share thereof (but not the total price) so that, upon exercise of the
stock option, the Optionee shall receive the same number of shares he or she
would have received had he or she been the holder of all shares subject to his
or her outstanding stock option or options immediately before the effective date
of such change in the capital structure of the Company. Such adjustments shall
not result in the issuance of fractional shares.
However, no stock option granted pursuant to this Plan shall be adjusted in
a manner that causes an Incentive Stock Option to fail to continue to qualify as
an "Incentive Stock Option" within the meaning of Section 422A of the Internal
Revenue Code of 1986, as amended (the "Code"). The grant of stock options
pursuant to the Plan shall not affect in any way the discretionary right or
power of the Company to make adjustments, reclassifications, reorganizations or
changes in its capital or business structure or to merge or consolidate or
dissolve, liquidate or sell, or transfer all or any part of its business or
assets.
Notwithstanding anything herein to the contrary, if the Company adopts a
plan of dissolution or liquidation of the Company, or approves the
reorganization, merger or consolidation of the Company with or into one or more
corporations, as a result of which the Company will not be the surviving entity,
or if the Company shall agree to sell substantially all of the assets of the
Company to one or more entities, the Company may give a person holding stock
options written notice of such transaction. The Optionee then must either
(a) exercise his or her stock options within thirty days after receipt of such
notice, including all installments whether or not they would otherwise be
exercisable at that date, or (b) to surrender such stock options or any
unexercised portion thereof. Those stock options which the Company requests to
be exercised and which shall not have been exercised in accordance with the
provisions of the Plan by the end of such thirty day period shall automatically
lapse irrevocably and the Optionee shall have no further rights with respect to
such stock options.
The shareholders of the Company or its Board of Directors may at any time,
without the consent of any Optionee, alter, amend, revise, suspend, or
discontinue the Plan, provided that such action may not (i) adversely affect any
stock options theretofore granted under the Plan, or (ii) cause any Incentive
Stock Option to fail to qualify as such under Section 422A of the Code.
The Company or its subsidiaries may withhold from an Optionee, as a
condition of exercise of a stock option any taxes that it or its subsidiaries
are required to withhold in connection with the exercise of a stock option. An
Optionee may satisfy any tax obligation in whole or in part by electing (the
"Election") to have the Company withhold shares having a value equal to the
amount required to be withheld or by tendering to the Company shares having a
value equal to the amount required to be withheld. The value of the shares to be
withheld or tendered shall be based on the Fair Market Value of the Company's
Common Stock on the date that the amount of tax to be withheld shall be
determined ("Tax Date"). However, each Election must be made prior to the Tax
Date and the Committee may disapprove of any Election, may suspend or terminate
the right to make such Election, or may provide with respect to any stock option
that the right to make Elections shall not apply to such stock option. Any
Election once made is irrevocable.
Additionally, if the Optionee is an officer or director of the Company
within the meaning of Section 16 of the Securities Exchange Act of 1934, then an
Election is subject to the following additional restrictions (i) no Election
shall be effective for a Tax Date which occurs within six months of the grant of
a stock option, except that this limitation shall not apply in the event that an
Optionee dies or becomes permanently and totally disabled prior to the
expiration of such six month period; and (ii) the Election
7
<PAGE>
must be made either six months prior to the Tax Date or must be made during a
period beginning on the third business day following the date of the release for
publication the Company's quarterly or annual statements of earnings and ending
on the twelfth business day following such date.
If any stock option granted under this Plan shall expire or be forfeited
prior to being exercised in full, the unpurchased shares subject to such stock
option shall be available for the granting of further stock options under the
Plan. Unless otherwise provided by the Committee, unexercised stock options will
expire (i) if an employee's employment is terminated for cause; (ii) if an
employee's employment is terminated as a result of death, permanent and total
disability or retirement (pursuant to a retirement plan of the Company or its
subsidiaries or pursuant to a resolution of the Committee that such employee
shall be deemed to have retired), such employee's stock options will expire on
the sooner of (x) twelve (12) months from the date of death, permanent and total
disability or such retirement or (y) the expiration date established in the
grant; and (iii) if an employee's employment is terminated for any other reason,
such employee's stock options will expire on the sooner of (x) three (3) months
from the date of such termination or (y) the expiration date established in the
grant.
For purposes of the Plan, an Optionee shall be considered permanently and
totally disabled if he or she is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
as determined in accordance with the applicable benefit plans of the Company and
its subsidiaries. An Optionee shall not be considered to be permanently and
totally disabled unless he or she furnishes proof of the existence thereof in
such form and manner and at such times as is required under the applicable
benefit plan of the Company and its subsidiaries. Unless otherwise provided by
the Committee, a stock option shall not be exercisable for more shares than the
number of shares which could have been purchased if the stock option were
exercised on the date of termination of employment.
An Optionee or assignee of a stock option shall have any rights with respect
to any shares covered by such stock option until the date of the issuance of a
stock certificate for such shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as otherwise provided herein for stock
dividends.
The employee may exercise stock options by notifying the secretary of the
Company that he or she is exercising the stock options and by presenting payment
for the shares for which stock options are being exercised. Payment for the
shares may be in the form of cash, banker's check, certified check or personal
check.
At the time of exercise of any stock option, the Company may require the
Optionee to execute any documents or take any action which may be then necessary
to comply with any and all applicable federal or state laws, regulations or
rules regulating the sale and issuance of securities by the Company, and the
Company may, if it deems necessary, include provisions in the stock option
agreements to assure such compliance. With respect to Non-Qualified stock
options, income recognized at the time the stock options are exercised (measured
by the excess of the market value of the Company's Common Stock on the date of
exercise over the option price) will be subject to federal and state income tax
withholding requirements. The Company may, from time to time, change its
requirements with respect to enforcing compliance with the applicable securities
laws, such requirements to be determined by the Company in its judgment as
necessary to assure compliance with said laws. Such changes may be made with
respect to any particular stock option or Common Stock issued upon exercise
thereof.
The Company shall not be obligated to sell or issue any shares upon exercise
of any stock option unless (a) the shares with respect to which the stock option
is being exercised have been registered under all applicable federal and state
laws, regulations or rules or are exempt from such registration; and (b) in the
event the Common Stock has been listed on any recognized stock exchange such as
the NASDAQ Small Cap Market, the shares with respect to which the stock option
is being exercised have been duly listed on such exchange in accordance with the
procedure specified therefor.
8
<PAGE>
The provisions of the Plan and any option agreement issued pursuant to its
provisions are to be governed under New Jersey law.
FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE OPTION PLAN
The federal income tax consequences of an employee's participation in the
Plan are complex and subject to change and Optionees should consult their own
tax advisors as to the tax consequences that each individual may encounter upon
issuance and exercise of any option under the Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE
AMENDED LONG-TERM STOCK INCENTIVE PLAN AS SET FORTH ABOVE. THE AFFIRMATIVE VOTE
OF HOLDERS OF A MAJORITY OF THE SHARES OF COMMON STOCK REPRESENTED AT THE
MEETING IS REQUIRED TO APPROVE THE ADOPTION OF THE AMENDED PLAN. SHARES OF
COMMON STOCK REPRESENTED AT THE MEETING BY EXECUTED BUT UNMARKED PROXIES WILL BE
VOTED "FOR" APPROVAL OF THE AMENDED LONG-TERM STOCK INCENTIVE PLAN.
PROPOSAL IV
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Company has engaged Arthur Andersen, CPAs, certified public accountants
having offices in Stamford, Connecticut, as the Company's independent
accountants for the fiscal year ending June 30, 2000. Arthur Andersen has
audited the Company's operations for the year ended June 30, 1999. It is
anticipated that representatives of such firm will be present at the Annual
Meeting, will have an opportunity to make a statement if they desire to do so
and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION OF
APPOINTMENT OF ARTHUR ANDERSEN, CPAS, AS THE EXTERNAL AUDITORS FOR THE COMPANY
FOR THE FISCAL YEAR ENDING JUNE 30, 2000. THE AFFIRMATIVE VOTE OF HOLDERS OF A
MAJORITY OF THE SHARES OF COMMON STOCK REPRESENTED AT THE MEETING IS REQUIRED TO
RATIFY THE APPOINTMENT OF THE AUDITORS. SHARES OF COMMON STOCK REPRESENTED AT
THE MEETING BY EXECUTED BUT UNMARKED PROXIES WILL BE VOTED "FOR" RATIFICATION OF
ARTHUR ANDERSEN, CPAS.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Several of the individuals who have served as directors or executive
officers of the Company have been issued warrants and/or options to purchase
shares of the Company's Common Stock. Further, the directors and officers are
eligible to receive options under the Plan, as amended, and therefore will be
eligible for future grants of options pursuant thereto. Accordingly, if the
increased authorization is not approved as requested in Proposal II hereof and
such directors and officers are unable to exercise such warrants and options,
such directors and officers may have claims against the Company for breach of
contract or otherwise.
9
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock by each person or group that is known by
the Company to be the beneficial owner of more than five percent (5%) of its
outstanding Common Stock, each director of the Company, each person named in the
Summary Compensation Table, and all directors and executive officers of the
Company as a group as of April 6, 2000. Unless otherwise indicated, the Company
believes that the persons named in the table below, based on information
furnished by such owners, have sole voting and investment power with respect to
the Common Stock beneficially owned by them, subject to community property laws,
where applicable.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES OF COMMON PERCENTAGE OWNERSHIP OF
BENEFICIAL OWNER(1) STOCK BENEFICIALLY OWNED COMMON STOCK OUTSTANDING(2)
- ------------------- -------------------------- ---------------------------
<S> <C> <C>
Necdet F. Ergul....................... 1,537,500(3) 5.40%
Ronald A. Durando..................... 3,566,148(4) 11.94%
Gustave T. Dotoli..................... 1,475,000(5) 5.09%
J. Lee Barton......................... 3,395,000(6) 11.59%
David Klimek.......................... 1,195,000(7) 4.16%
Hal L. Willis......................... 250,000(8)(9) *
Susan E. Cifelli...................... 255,000(10) *
J. Allen Layman....................... 25,000(11) *
Anthony H. Guerino, Esq............... 25,000(11) *
Craig Vickers......................... 110,000(12) *
Lintel, Inc........................... 2,445,000(13) 8.40%
All Executive Officers and Directors
as a Group (10 Persons)............. 11,833,648(14) 35.34%
</TABLE>
- ------------------------
* Less than 1%
(1) Unless otherwise indicated, the address of each beneficial owner is 587
Connecticut Avenue, Norwalk, Connecticut 06854-0566.
(2) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. The percentage for each
beneficial owner listed above is based on 28,104,825 shares outstanding on
April 6, 2000. In accordance with the rules of the Securities and Exchange
Commission, options to purchase shares of Common Stock that are exercisable
within 60 days after April 1, 2000, are deemed to be outstanding and
beneficially owned by the person holding such options for the purpose of
computing such person's percentage ownership, but are not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person.
(3) Includes options to purchase 387,500 shares of Common Stock.
(4) Includes (i) options to purchase 1,750,000 shares of Common Stock; and
(ii) 120,000 shares of Common Stock held by Nutley Securities, Inc., a
company wholly-owned by Mr. Durando.
(5) Includes options to purchase 850,000 shares of Common Stock.
(6) Includes (i) options to purchase 200,000 shares of Common Stock; (ii) a
Common Stock Purchase Warrant for 1,000,000 shares of Common Stock held by
Lintel, Inc., of which company Mr. Barton is the President and Chief
Executive Officer; and (iii) 1,445,000 shares of Common Stock owned by
Lintel, Inc.
(7) Includes options to purchase 630,000 shares of Common Stock.
10
<PAGE>
(8) Includes (i) options to purchase 150,000 shares of Common Stock;
(ii) 25,000 shares of Common Stock held in an IRA in the name of Hal Willis,
Jr.; and (iii) 50,000 shares of Common Stock beneficially owned by
Mr. Willis' son.
(9) Mr. Willis tendered his resignation to the Board of Directors on
February 18, 2000 and the Board accepted his resignation on February 23,
2000. He was, however, an officer of the Company during the entire fiscal
year ended June 30, 1999.
(10) Includes options to purchase 255,000 shares of Common Stock.
(11) Includes options to purchase 25,000 shares of Common Stock.
(12) Includes options to purchase 110,000 shares of Common Stock.
(13) Includes a Common Stock Purchase Warrant for 1,000,000 shares of Common
Stock.
(14) Includes (i) options to purchase 4,382,500 shares of Common Stock; and
(ii) a Common Stock Purchase Warrant for 1,000,000 shares of Common Stock.
11
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company to,
as well as any other compensation paid to or earned by, the Chief Executive
Officer of the Company and those executive officers compensated at or greater
than $100,000 for services rendered to the Company in all capacities during the
fiscal year ended June 30, 1999 and for the two previous fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -----------------------------
RESTRICTED UNDERLYING
NAME OF INDIVIDUAL STOCK AWARD(S) OPTIONS/SARS
AND PRINCIPAL POSITION YEAR SALARY BONUS (SHARES) (SHARES)
- ---------------------- -------- -------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Ronald A. Durando....................... 1999 $250,000 $275,000 400,000 562,500
Chief Executive Officer and 1998 150,000 -- -- --
President 1997 75,000 -- -- 1,000,000
Gustave T. Dotoli....................... 1999 $175,000 $100,000 175,000 300,000
Chief Operating Officer 1998 120,000 -- -- --
1997 60,000 -- -- 750,000
David Klimek............................ 1999 $ 77,138 $ 35,000 275,000 150,000
Chief Technology Officer 1998 68,500 -- -- --
1997 63,1000 -- -- 500,000
Hal L. Willis(1)........................ 1999 $105,000 $105,000 -- 100,000
Executive Vice President-- 1998 -- -- -- --
Corporate Development 1997 -- -- -- --
</TABLE>
- ------------------------
(1) Mr. Willis tendered his resignation to the Board of Directors on
February 18, 2000 and the Board accepted his resignation on February 23,
2000. He was, however, an officer of the Company during the entire fiscal
year ended June 30, 1999.
No individual named above received pre-requisites or non-cash compensation
during the years indicated which exceeded the lesser of $50,000 or an amount
equal to 10% of such person's salary. No other executive officer received
compensation and bonuses that exceeded $100,000 during any year.
STOCK OPTIONS
The following table sets forth certain information concerning individual
issues of options made during the year ended June 30, 1999 to the Company's
executive officers.
12
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED
UNDERLYING OPTIONS TO EMPLOYEES IN EXERCISE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE
- ---- -------------------- ------------------- -------------- ----------
<S> <C> <C> <C> <C>
Ronald A. Durando................... 312,500 21.2 1.00 2004
250,000 17.0 2.50 2004
Gustave T. Dotoli................... 150,000 10.2 1.00 2004
150,000 10.2 2.50 2004
David Klimek........................ 50,000 3.4 1.00 2004
100,000 6.8 2.50 2004
Hal L. Willis....................... 50,000 3.4 1.00 2004
50,000 3.4 2.50 2004
</TABLE>
The following table sets forth information with respect to the number and
value of outstanding options held by executive officers named in the Summary
Compensation Table above at June 30, 1999. The value of unexercised in-the-money
options is based upon the difference between $8.00, the closing price of our
Common Stock on June 30, 1999 and the exercise price of the options.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT YEAR END (#) MONEY OPTIONS AT YEAR END ($)
--------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Ronald A. Durando.......................... 1,562,500 -- 10,545,500 --
Gustave T. Dotoli.......................... 1,050,000 -- 7,113,350 --
David Klimek............................... 650,000 -- 4,440,000 --
Hal L. Willis.............................. 100,000 -- 625,000 --
</TABLE>
COMPENSATION OF DIRECTORS
Directors of the Company are currently entitled to receive $15,000 annually
for their services and for attendance at each Board meeting. Directors must
attend at least three Board meetings as well as at least three committee
meetings of each of the committees to which the Director is a member.
13
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Ronald A. Durando, the
Company's President, Chief Executive Officer and Director. The agreement,
executed June 24, 1999, is for a period of thirty-six months commencing on
July 1, 1999. Under the terms of the agreement, Mr. Durando receives a base
annual salary of $275,000, a bonus and a salary increase based upon performance
review every six months, beginning six months from the effective date of the
agreement, as well as health benefits, vacation and such other fringe benefits
as would be paid to similarly situated senior management of the Company. In
consideration of devoting such time as would be required of the Chief Executive
Officer of the Company to the business of the Company and specifically to his
duties under the agreement to provide investor relations, Mr. Durando is
entitled to a bonus at the end of each year equal to five percent (5%) of the
increase in the market value of the issued and outstanding shares of the
Company's Common Stock, of which bonus twenty-five percent (25%) shall be
payable in cash and the remaining balance in Common Stock.
Such agreement is terminable upon Mr. Durando's death, permanent disability,
or for just cause, and is renewable within two months of the expiration date of
the agreement upon the mutual terms agreed to by Mr. Durando and the Company.
Mr. Durando shall be deemed "permanently disabled" under the agreement if he
shall fail to render and perform the executive services required under the
agreement for a continuous period of three consecutive months. "Just cause" is
defined under the agreement as the commission of acts constituting theft,
embezzlement, the receipt of funds or property under false pretenses or similar
acts of gross misconduct with respect to the Company's property, or the
conviction of a felony involving matters not directly related to the Company's
business if, in the Board's discretion, it adversely affects his ability to
perform his executive duties.
The agreement also contains work-for-hire, confidentiality and
non-disclosure provisions. In the event that Mr. Durando breaches such
provisions, the Company is entitled to injunctive relief restraining him from
any further breach, in addition to any other remedies that the Company may have
arising out of such breach.
Additionally, in the event of a change in control of the Company that is not
approved by Mr. Durando as a Director or shareholder of the Company, he is
entitled to exercise an option to purchase 3,000,000 shares of Common Stock at a
price of $1.00 per share.
The Company also has an employment agreement with Gustave T. Dotoli, the
Company's Chief Operating Officer and Director. The agreement, executed
June 24, 1999, is for a period of thirty-six months commencing from July 1,
1999, and Mr. Dotoli receives a base annual salary of $200,000, a bonus and a
salary increase based upon performance review every six months, beginning six
months from the effective date of the agreement, as well as health benefits,
vacation and such other fringe benefits as would be paid to similarly situated
senior management of the Company. In consideration, Mr. Dotoli must devote such
time as would be required of a Chief Operating Officer of the Company to the
business of the Company.
Such agreement is terminable upon Mr. Dotoli's death, permanent disability,
or for just cause, and is renewable within two months of the expiration date of
the agreement upon the mutual terms agreed to by Mr. Dotoli and the Company.
Mr. Dotoli shall be deemed "permanently disabled" under the agreement if he
shall fail to render and perform the executive services required under the
agreement for a continuous period of three consecutive months. "Just cause" is
defined under the agreement as the commission of acts constituting theft,
embezzlement, the receipt of funds or property under false pretenses or similar
acts of gross misconduct with respect to the Company's property, or the
conviction of a felony involving matters not directly related to the Company's
business if, in the Board's discretion, it adversely affects his ability to
perform his executive duties. The agreement also contains work-for-hire,
confidentiality and non-disclosure provisions.
No other executive officers of the Company have an employment agreement with
the Company.
14
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's management is affiliated by employment at and/or ownership of
a related group of companies, including Microphase Corporation, Complete
Telecommunications, Inc. (which was dissolved subject to a settlement dated
August 16, 1999), Packet Port, Inc. and PacketPort.com and Janifast
Holdings, Ltd., which may record material transactions with the Company. As a
result of such affiliations, the Company's management in the future may have
conflicting interests with these affiliated companies.
Necdet F. Ergul, Ronald A. Durando and Gustave T. Dotoli, our Chairman,
Chief Executive Officer and Chief Operating Officer, respectively, are executive
officers and shareholders of Microphase and Ronald Durando and Gustave Dotoli
are president and vice-president of PacketPort.com.
The Company reimburses Microphase $50,000 per month for research and
development services and administrative expenses incurred for the use of
Microphase's office space, lab facilities and administrative staff.
On June 25, 1998, the Company issued 2,500,000 shares to several
individuals, including Necdet F. Ergul, Ronald A. Durando and Gustave T. Dotoli,
in consideration for all the issued and outstanding shares of Microphase
Telecommunications, Inc., which at the time was an affiliate of Microphase.
At June 30, 1999, the Company owed Microphase $14,335 in respect to research
and development and general administrative expenses.
In June 1999, the Company issued 200,000 shares of Common Stock to David
Klimek, one of the Company's directors and executive officers, as a technical
advisory fee in connection with the Company's acquisition of Microphase
Telecommunications, Inc. referred to above.
Ronald A. Durando is the owner/sole shareholder of Nutley Securities, Inc.,
a former registered broker-dealer, which is not a private investment company
under the Investment Advisors Act of 1940.
In February 1997, the Company issued 600,000 shares to Nutley Securities as
a "finder's fee" in connection with the acquisition of Lightpaths, Inc. of which
280,000 shares were contemporaneously assigned to co-finders.
During the period ended June 30, 1997, the Company paid $95,141 to Nutley
Securities in offering costs, and during the period ended June 30, 1998, the
Company incurred offering costs with Nutley Securities totaling $153,999.
In August 1997, the Company granted Thomas A. Murphy, a former director and
officer of the Company, options to purchase 750,000 shares of Common Stock at an
exercise price of $1.00 per share. Mr. Murphy has agreed to waive his right to
purchase such shares as part of a settlement relating to his termination as an
employee at the Company.
In October 1997, in connection with a planned joint venture licensing
agreement with Global Music & Media, Inc., a Tennessee corporation, the Company
became the 41.724% owner of Complete Telecommunications, Inc. The Company
invested $300,000 in Complete Telecommunications and issued to Global Music &
Media 250,000 shares of Common Stock. The Company also loaned $150,000 to the
joint venture. No payments have been received by the Company from the joint
venture with Global Music & Media. During the fiscal year 1998, Global Music &
Media commenced an action against the Company alleging it was the holder of an
exclusive license to market the Company's Traverser technology and related
projects, which action was settled on August 16, 1999.
One of the Company's directors, J. Lee Barton, is the president and chief
executive officer of Lintel, Inc. Lintel is the parent corporation of Hart
Telephone Company, the Company's beta customer located in Hartwell, Georgia,
where the Company has installed its prototype product and commenced beta
testing. In December 1998, the Company issued 3,115,000 shares in a private
placement to J. Lee Barton, several members of his family, Lintel, several
employees of Lintel and two employees of Microphase for a purchase price of
approximately $1.03 per share, or an aggregate purchase price of $3,197,416.
Janifast Holdings, Ltd., a Delaware corporation, is the parent corporation
of the manufacturer which has produced components for the Company's prototype
Traverser DVDDS product, and may produce such
15
<PAGE>
components for the Company in the future. Necdet F. Ergul, Ronald A. Durando and
Gustave T. Dotoli are controlling shareholders of Janifast with an aggregate
ownership interest of greater than 75% of Janifast. Mr. Durando is chairman of
the board of directors and each of Messrs. Dotoli and Ergul are directors of
Janifast.
On November 26, 1999, Packet Port, Inc. a company owned 100% by
Mr. Durando, acquired controlling interest in Linkon Corp., which subsequently
changed its name to PacketPort.com, Inc. In connection with this transaction,
Mr. Durando transferred 350,000 shares of the Company's Common Stock to Packet
Port, Inc. Mr. Durando was elected president and Mr. Dotoli vice president of
PacketPort.com, Inc.
SHAREHOLDERS PROPOSALS FOR THE 2001 ANNUAL MEETING
Shareholders who may wish to present proposals for inclusion in the
Company's proxy materials and for consideration at the 2001 Annual Meeting of
Shareholders must submit such proposals in writing to the Secretary of the
Company in accordance with all applicable rules and regulations of the SEC for
receipt by the Company no later than January 31, 2001. A signed proxy shall
confer discretionary authority upon the Company to vote on all shareholder
proposals that are not received by the Company on or before January 31, 2001.
COST OF SOLICITATION
All expenses incurred in the solicitation of the proxies will be borne by
the Company. In addition to the use of the mails, proxies may be solicited on
behalf of the Company by directors, officers and employees of the Company or by
telephone or telecopy. The Company will reimburse brokers and others holding
Common Stock as nominees for their expenses in sending proxy material to the
beneficial owners of such Common Stock and obtaining their proxies.
APPRAISAL RIGHTS
Under New Jersey law and the Company's Amended Certificate of Incorporation,
no appraisal rights are available to dissenting stockholders with regard to the
corporate actions contemplated by the above Proposals.
ADDITIONAL INFORMATION
A copy of the Company's Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1999, is being provided to all shareholders with this Proxy
Statement. In addition, the Company's Annual Report on Form 10-KSB with exhibits
is available via the internet at the website http://www.freeedgar.com.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors knows of no
matters which will be presented for consideration at the Annual Meeting other
than the proposals set forth in this Proxy Statement. If any other matters
properly come before the meeting, it is intended that the persons named in the
Proxy will act in respect thereof in accordance with their best judgment.
By Order of the Board of Directors
[LOGO]
GUSTAVE T. DOTOLI
CORPORATE SECRETARY
Norwalk, Connecticut
April 22, 2000
16
<PAGE>
APPENDIX A
MPHASE TECHNOLOGIES, INC.
PROXY
The undersigned hereby appoints Gustave T. Dotoli and Robert H. Jaffe, or
either of them individually, with full power of substitution, to act as proxy
and to represent the undersigned at the Annual Meeting of Shareholders and to
vote all shares of Common Stock of mPhase Technologies, Inc. which the
undersigned is entitled to vote and would possess if personally present at said
meeting to be held at the Four Seasons Hotel at 57 East 57(th) Street,
New York, New York 10022, on Friday, May 5, 2000 at 10:00 a.m. and at all
postponements or adjournments upon the following matters:
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THIS PROXY,
WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4 LISTED
ON THE REVERSE SIDE. PROXIES ARE ALSO GRANTED THE DISCRETION TO VOTE UPON ALL
OTHER MATTERS THAT MAY PROPERLY BE BROUGHT BEFORE THE MEETING OR ANY
POSTPONEMENT OR ADJOURNMENT THEREOF.
(Continued, and to be signed on next page)
A-1
<PAGE>
ANNUAL MEETING OF SHAREHOLDERS
MPHASE TECHNOLOGIES, INC.
FRIDAY, MAY 5, 2000
10:00 A.M.
------------------------
/X/ Please mark your votes as in this example.
<TABLE>
<S> <C> <C> <C> <C>
THE BOARD OF DIRECTORS 1. Election of Necdet F. Ergul,
RECOMMENDS A VOTE "FOR" EACH OF Ronald A. Durando, Gustave T.
THE PROPOSALS AT RIGHT. Dotoli, David Klimek, J. Lee
Barton, J. Allen Layman,
Anthony H. Guerino, Esq. and
Craig Vickers as Directors of
the Board of Directors until FOR AGAINST ABSTAIN
the next annual meeting / / / / / /
2. Approval of an amendment to
the Amended Certificate of
Incorporation whereby the
capitalization of the Company
will be increased to
150,000,000 shares of Common FOR AGAINST ABSTAIN
Stock, no par value per share / / / / / /
3. Authorization, approval and
adoption of the Company's
Amended Long-Term Stock FOR AGAINST ABSTAIN
Incentive Plan / / / / / /
4. Approval of the Company's
independent accountants,
Arthur Andersen, CPAs, for the
fiscal year ended June 30, FOR AGAINST ABSTAIN
2000 / / / / / /
</TABLE>
Change of Address / /
I plan to attend the meeting / / I do not plan to attend the
meeting / /
SIGNATURE(S) ________________________________________ DATE _____________
Note: Please sign exactly as your name appears hereon. Joint owners should
each sign. When signing as attorney, executor, administrator, trustee,
or guardian, please give full titles as such.
A-2
<PAGE>
APPENDIX B
MPHASE TECHNOLOGIES, INC.
AMENDED LONG TERM STOCK INCENTIVE PLAN
ARTICLE I
GENERAL PROVISIONS
SECTION 1.1 PURPOSES OF THE PLAN.
The purposes of the mPhase Technologies, Inc. Long Term Stock Incentive Plan
are to advance the interests of mPhase Technologies, Inc. by providing equity
incentives to selected key employees and consultants of the Company and its
subsidiaries who contribute and are expected to contribute materially to the
success of the company and/or its subsidiaries, to provide a means of rewarding
outstanding performance, and to protect the long-term interests of the Company
and its subsidiaries by enabling them to maintain a competitive position in
attracting and retaining the key personnel and consultants necessary for growth
and profitability.
SECTION 1.2 DEFINITIONS.
For the purposes of this Plan:
(a) "Board of Directors" means the Board of Directors of mPhase
Technologies, Inc.
(b) "Committee" means the Board of Directors setting as a Compensation
Committee.
(c) "Company" means mPhase Technologies, Inc.
(d) "Fair Market Value" means the average of the bid and asked price of the
Company's common stock on the relevant date as quoted by the National
Association of Securities Dealers on the OTC Bulletin Board or such other
stock exchange such as the NASDAQ Small Cap Market on which the shares
are traded. If no sale shall have been made on that date, the Fair Market
Value shall be the average price on the next preceding day there is a
sale. During such times as the shares are not traded, the Committee shall
exercise its best judgment and good faith to determine the Fair Market
Value of the Company's common stock on the relevant date and shall
consider all factors deemed to be relevant to such determination.
(e) "Plan" means the mPhase Technologies, Inc. Long Term Stock Incentive
Plan as set forth herein.
(f) "shares" means shares of the Company's no par value common stock.
(g) "stock option" means a right granted to purchase stock in accordance
with Article II of the Plan.
(h) "subsidiaries" means Lightpaths, Inc., a Delaware corporation, and any
other direct or indirect subsidiary of the Company.
SECTION 1.3 ADMINISTRATION.
(a) The Committee shall hold meetings relative to the Plan at such times and
places as it may determine. The Committee shall from time to time at its
discretion determine which key employees or consultants of the Company and its
subsidiaries shall be granted stock options and the amount of common stock
covered by such stock options.
(b) Except as hereinafter provided, the Committee shall have full and final
authority, binding upon all who have an interest in the Plan, to (i) interpret
the Plan, (ii) interpret the stock options granted or awarded under the Plan,
and (iii) make all determinations necessary or advisable. No member of the
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Committee shall incur any liability to any person for anything done or omitted
to be done by the member or by any other member of the Committee in connection
with the Plan, except for his own willful misconduct or gross negligence.
SECTION 1.4 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
In the event of any change in the number of issued and outstanding shares
which results from a stock split, reverse stock split, the payment of a stock
dividend or any other change in capital structure of the Company such as a
merger, consolidation, reorganization or recapitalization, the Committee shall
appropriately adjust (a) the maximum number of shares of common stock which may
be issued under stock options pursuant to the Plan, (b) the number of shares
subject to each outstanding stock option and the price per share thereof (but
not the total price) so that, upon exercise of the stock option, the optionee
shall receive the same number of shares he or she would have received had he or
she been the holder of all shares subject to his or her outstanding stock option
or options immediately before the effective date of such change in the capital
structure of the Company. Such adjustments shall not result in the issuance of
fractional shares.
The foregoing adjustments shall be made by the Committee. No stock option
granted pursuant to this Plan shall be adjusted in a manner that causes an
Incentive Stock Option (as defined in Article II) to fail to continue to qualify
as an "Incentive Stock Option" within the meaning of Section 422A of the
Internal Revenue Code of 1986, as amended (the "Code"). The grant of stock
options pursuant to the Plan shall not affect in any way the discretionary right
or power of the Company to make adjustments, reclassifications, reorganizations
or changes in its capital or business structure or to merge or consolidate or
dissolve, liquidate or sell, or transfer all or any part of its business or
assets.
Notwithstanding anything herein to the contrary, if the Company shall adopt
a plan of dissolution or liquidation of the Company, or if mPhase
Technologies, Inc. shall enter into a definitive agreement providing for the
reorganization, merger or consolidation of the Company with or into one or more
corporations, as a result of which the Company will not be the surviving entity
(it being understood that the Company shall not be deemed to be the surviving
entity if more than fifty (50%) percent of the Company's voting stock will be
held, after such transaction by another entity), or if the Company shall agree
to sell substantially all of the assets of the Company to one or more entities,
the Company may give a person holding stock options written notice thereof
requiring such Optionee either (a) to exercise his or her stock options within
thirty days after receipt of such notice, including all installments whether or
not they would otherwise be exercisable at that date, or (b) to surrender such
stock options or any unexercised portion thereof. Those stock options which the
Company requests to be exercised and which shall not have been exercised in
accordance with the provisions of the Plan by the end of such thirty day period
shall automatically lapse irrevocably and the Optionee shall have no further
rights with respect to such stock options.
SECTION 1.5 AMENDMENT, SUSPENSION OR TERMINATION OF PLAN.
The shareholders of the Company or its Board of Directors may at any time,
without the consent of any optionee, alter, amend, revise, suspend, or
discontinue the Plan, provided that such action may not (i) adversely affect any
stock options theretofore granted under the Plan or, (ii) cause any Incentive
Stock Option (as defined in Article II) to fail to qualify as such under
Section 422A of the Code.
SECTION 1.6 EFFECTIVENESS.
The Plan shall be effective until August 15, 2007.
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SECTION 1.7 WITHHOLDING TAXES.
(a) The Company or its subsidiaries may withhold from an optionee, as a
condition of exercise of a stock option any taxes that it or its subsidiaries
are required to withhold in connection with the exercise of a stock option.
(b) At any time when an optionee is required to pay to the Company an amount
required to be withheld under applicable income tax laws upon exercise of a
stock option, the optionee may satisfy this obligation in whole or in part by
electing (the "Election") to have the Company withhold shares having a value
equal to the amount required to be withheld or by tendering to the Company
shares having a value equal to the amount required to be withheld. The value of
the shares to be withheld or tendered shall be based on the Fair Market Value of
the Company's common stock on the date that the amount of tax to be withheld
shall be determined ("Tax Date").
(c) Each Election must be made prior to the Tax Date. The Committee may
disapprove of any Election, may suspend or terminate the right to make such
Election, or may provide with respect to any stock option that the right to make
Elections shall not apply to such stock option. Any Election once made is
irrevocable.
(d) If the optionee is an officer or director of the Company within the
meaning of Section 16 of the Securities Exchange Act of 1934, then an Election
is subject to the following additional restrictions:
(1) No Election shall be effective for a Tax Date which occurs within
six months of the grant of a stock option, except that this limitation shall
not apply in the event that an optionee dies or becomes permanently and
totally disabled prior to the expiration of such six month period.
(2) The Election must be made either six months prior to the Tax Date or
must be made during a period beginning on the third business day following
the date of the release for publication the Company's quarterly or annual
statements of earnings and ending on the twelfth business day following such
date.
ARTICLE II
STOCK OPTION PROGRAM
SECTION 2.1 NUMBER OF SHARES AUTHORIZED FOR STOCK OPTIONS.
The total number of shares of the Company's common stock which may be issued
and sold pursuant to stock options granted under the Plan shall not exceed
15,000,000 shares. The limitation established herein shall be subject to
adjustment as provided in Section 1.4 hereof. If any stock option granted under
this Plan shall expire or be forfeited prior to being exercised in full, the
unpurchased shares subject to such stock option shall be available for the
granting of further stock options under the Plan.
SECTION 2.2 ELIGIBILITY FOR STOCK OPTIONS.
Stock options may be granted only to salaried employees of the Company and
its subsidiaries who are officers (including officers who are members of the
Board of Directors of the Company or any of its subsidiaries) as well as to
other key employees and consultants of the Company and its subsidiaries. The
Committee may, from time to time and upon such terms and conditions and for such
consideration as it may determine, authorize the granting of stock options to
eligible employees and consultants and may fix the number of shares to be
covered by each stock option as it deems appropriate. Successive stock options
may be granted to the same persons whether or not the stock option or stock
options first granted to such persons remain unexercised. Stock options granted
may be (i) stock options which are intended to qualify as Incentive Stock
Options, (ii) stock options which are not intended to qualify ("Non-Qualified
Stock Options"), or (iii) combinations of the foregoing. Each stock option
granted shall be identified as to its status, Incentive Stock Option or
Non-Qualified Stock Option, and such status shall not thereafter be
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subject to change. The granting of a stock option to an employee shall not give
such employee any right to be granted any future stock option under the Plan, or
any right to be retained in the employ of the Company by virtue of his or her
participation in the Plan.
SECTION 2.3 TERMS AND CONDITIONS.
The grant of a stock option shall be evidenced by a notice to the optionee
of such grant signed on behalf of the Committee by the president or duly
authorized vice president of the Company. The notice shall describe such stock
option, state that such stock option is subject to all the terms and conditions
of Article II of the Plan, and set forth the terms and conditions of the stock
option. In addition:
(a) In the case of Incentive Stock Options, the option price will not be
less than the Fair Market Value of the Stock on the date of the grant. In
the case of Non-Qualified Stock Options, the option price shall not be
less than the lowest of (i) the Fair Market Value of the Company's common
stock on the date of the grant, (ii) the Fair Market Value of the Stock
on January 1 of a calendar year within three years of the calendar year
in which the grant is made or (iii) the book value per share of the
common stock on the date on which such stock option first becomes
exercisable. An amendment to an outstanding Incentive Stock Option that
constitutes a modification, extension, or renewal of the stock option,
pursuant to Section 425(h) of the Code, shall be considered as the grant
of a new stock option on the date of such amendment and, therefore, the
option price shall be adjusted so that it shall not be less than the Fair
Market Value of the Company's common stock on the date of such amendment.
(b) The number of shares in a given stock option will be adjusted pursuant
to Section 1.4 so that the total value of the stock option remains the
same after any such adjustment.
(c) No stock option by its terms will be exercisable more than five
(5) years after the date of grant.
(d) Unless otherwise provided by the Committee, unexercised stock options
will expire as follows:
(i) If an employee's employment is terminated for cause, such employee's
Stock Options will expire immediately upon termination.
(ii) If an employee's employment is terminated as a result of death,
permanent and total disability or retirement (pursuant to a
retirement plan of the Company or its subsidiaries or pursuant to a
resolution of the Committee that such employee shall be deemed to
have retired), such employee's stock options will expire on the
sooner of (x) twelve (12) months from the date of death, permanent
and total disability or such retirement or (y) the expiration date
established in the grant.
(iii) If an employee's employment is terminated for any other reason,
such employee's stock options will expire on the sooner of (x) three
(3) months from the date of such termination or (y) the expiration
date established in the grant.
For purposes of the Plan, an optionee shall be considered permanently
and totally disabled if he or she is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or
mental impair-ment as determined in accordance with the applicable
benefit plans of the Company and its subsidiaries. An optionee shall not
be considered to be permanently and totally disabled unless he or she
furnishes proof of the existence thereof in such form and manner and at
such times as is required under the applicable benefit plan of the
Company and its subsidiaries. Unless otherwise provided by the Committee,
a stock option shall not be exercisable for more shares than the number
of shares which could have been purchased if the stock option were
exercised on the date of termination of employment.
(e) An optionee or assignee of a stock option shall have any rights with
respect to any shares covered by such stock option until the date of the
issuance of a stock certificate for such shares. No
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adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other
rights for which the record date is prior to the date such stock
certificate is issued, except as otherwise provided herein for stock
dividends.
(f) The stock option shall be exercisable in whole or in part from time to
time during the term thereof as may be determined by the Committee;
provided, however, that unless otherwise provided by the Committee,
(i) no stock option may be exercised prior to the first anniversary of
the date of granting of such stock option and (ii) each stock option
shall be exercisable in part or in full at any time after such first
anniversary.
(g) The employee may exercise stock options by notifying the secretary of
the Company that he or she is exercising the stock options and by
presenting payment for the shares for which stock options are being
exercised. Payment for the shares may be in the form of cash, banker's
check, certified check or personal check.
(h) At the time of exercise of any stock option, the Company may require the
optionee to execute any documents or take any action which may be then
necessary to comply with any and all applicable federal or state laws,
regulations or rules regulating the sale and issuance of securities by
mPhase Technologies, Inc. and the Company may, if it deems necessary,
include provisions in the stock option agreements to assure such
compliance. With respect to Non-Qualified stock options, income
recognized at the time the stock options are exercised (measured by the
excess of the market value of the Company's common stock on the date of
exercise over the option price) will be subject to federal and state
income tax withholding requirements. The Company may, from time to time,
change its requirements with respect to enforcing compliance with the
applicable securities laws, such requirements to be determined by the
Company in its judgment as necessary to assure compliance with said laws.
Such changes may be made with respect to any particular stock option or
common stock issued upon exercise thereof.
(i) The Company shall not be obligated to sell or issue any shares upon
exercise of any stock option unless:
(a) the shares with respect to which the stock option is being exercised
have been registered under all applicable federal and state laws,
regulations or rules or are exempt from such registration; and
(b) in the event the common stock has been listed on any recognized stock
exchange such as the NASDAQ Small Cap Market, the shares with respect
to which the stock option is being exercised have been duly listed on
such exchange in accordance with the procedure specified therefor.
SECTION 2.4 LIMITS ON INCENTIVE STOCK OPTIONS.
An individual may be granted one or more Incentive Stock Options, provided
that the aggregate Fair Market Value (determined at the time that such Incentive
Stock Options are granted) of the common stock with respect to which Incentive
Stock Options are exercisable for the first time by such individual during any
calendar year shall not exceed $1,000,000.
SECTION 2.5 GOVERNING LAW.
The provisions of this Plan and any option agreement issued pursuant to its
provisions are to be governed under New Jersey law and the forum for any dispute
arising out of its provisions or any option agreement issued thereunder shall be
the state courts of New Jersey or the United States District of New Jersey.
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