SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
C-PHONE CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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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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<PAGE>
C-PHONE CORPORATION
6714 NETHERLANDS DRIVE
WILMINGTON, NORTH CAROLINA 28405
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 6, 1999
The Annual Meeting of shareholders of C-Phone Corporation (the
"Company") will be held at the Landfall Park Hampton Inn & Suites, 1989 Eastwood
Road, Wilmington, North Carolina at 9:00 a.m., on August 6, 1999, for the
following purposes:
1. To elect six directors to serve until the next Annual Meeting
of shareholders and until their respective successors are
elected and qualified;
2. To approve an amendment to the Company's 1994 Stock Option
Plan increasing the number of shares authorized for issuance
upon exercise of options granted thereunder from 500,000 to
875,000;
3. To ratify the selection of PricewaterhouseCoopers LLP as the
Company's independent accountants for the fiscal year ending
February 29, 2000; and
4. To transact such other business as properly may come before
the Annual Meeting and any adjournments thereof.
The Board of Directors has fixed the close of business on June 10, 1999
as the record date for determining shareholders entitled to receive notice of
and to vote at the Annual Meeting and any adjournments thereof.
By Order of the Board of Directors,
/s/ TINA L. JACOBS
----------------------------------------
Tina L. Jacobs,
SECRETARY
June 11, 1999
IMPORTANT: THE COMPANY INVITES YOU TO ATTEND THE ANNUAL MEETING IN PERSON.
HOWEVER, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE VOTE BY
COMPLETING, SIGNING AND DATING THE ENCLOSED PROXY AND RETURNING IT PROMPTLY TO
THE COMPANY IN THE ENCLOSED SELF-ADDRESSED, POSTAGE PREPAID ENVELOPE. IF YOU
ATTEND THE ANNUAL MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE YOUR SHARES IN
PERSON.
<PAGE>
C-PHONE CORPORATION
6714 NETHERLANDS DRIVE
WILMINGTON, NORTH CAROLINA 28405
----------
PROXY STATEMENT
----------
1999 ANNUAL MEETING OF SHAREHOLDERS
This Proxy Statement is furnished to shareholders of C-Phone
Corporation, a New York corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company (the "Board of
Directors") for use at the Annual Meeting of shareholders of the Company (the
"Annual Meeting") to be held at 9:00 a.m. on August 6, 1999 at the Landfall Park
Hampton Inn & Suites, 1989 Eastwood Road, Wilmington, North Carolina, and any
adjournments thereof, for the purposes set forth in the accompanying Notice of
Annual Meeting. This Proxy Statement, the attached Notice of Annual Meeting, the
accompanying form of proxy and the Annual Report to shareholders for the fiscal
year ended February 28, 1999 ("Fiscal 1999") are first being sent to
shareholders of the Company on or about June 24, 1999.
Only holders of record of shares of the Company's common stock, par
value $.01 per share (the "Common Stock") at the close of business on June 10,
1999 (the "Record Date") are entitled to notice of, and to vote at, the Annual
Meeting or any adjournment thereof. On the Record Date, there were issued and
outstanding 7,978,605 shares of Common Stock. All of such shares are of one
class, with equal voting rights, and each holder thereof is entitled to one vote
on all matters voted on at the Annual Meeting for each share registered in such
holder's name.
Presence in person or by proxy of holders of [3,989,303 shares of
Common Stock will constitute a quorum at the Annual Meeting. Assuming a quorum
is present, (a) directors will be elected by a plurality of the votes cast at
the Annual Meeting by the holders of shares of Common Stock entitled to vote,
(b) the proposal to approve the amendment to the Company's 1994 Stock Option
Plan (the "Option Plan Amendment"), increasing the number of shares authorized
for issuance upon exercise of options granted thereunder from 500,000 to
875,000, will require the affirmative vote by the holders of a majority of all
outstanding shares entitled to vote at the Annual Meeting, and (c) all other
matters to come before the Annual Meeting, including ratification of the
selection of PricewaterhouseCoopers LLP as independent accountants for the
current fiscal year, will require the affirmative vote of a majority of the
votes cast at the Annual Meeting by the holders of shares of Common Stock
entitled to vote.
If a shareholder, present in person or by proxy, abstains on any
matter, the shareholder's shares will not be voted on such matter. Abstentions
may be specified on all proposals submitted to a shareholder vote, other than
the election of directors. In accordance with New York law, abstentions will not
be counted in determining the votes cast in connection with the approval of the
Option Plan Amendment or the ratification of the selection of independent
accountants. Votes withheld in connection with the election of one or more of
the nominees for director will not be counted as votes cast for such
individuals.
A proxy submitted by a shareholder also may indicate that all or a
portion of the shares represented by such proxy are not being voted by such
shareholder with respect to a particular matter. This could occur, for example,
when a broker is not permitted to vote shares held in street name on certain
matters in the absence of instructions from the beneficial owner of the shares.
Brokers who hold shares in street name have the authority to vote on certain
<PAGE>
routine matters on which they have not received instructions from their
beneficial owners. Brokers holding shares in street name, who do not receive
instructions, are entitled to vote on the election of directors and ratification
of the appointment of the independent accountants, since such matters are
considered to be routine. Under applicable rules, the proposal to approve the
Option Plan Amendment also should be considered routine as it involves an
additional allocation of less than 5% of the outstanding Common Stock for
issuance upon exercise of options granted and to be granted under the Company's
1994 Stock Option Plan (the "Stock Option Plan"). Under applicable New York law,
"broker non-votes" on any proposal (where a broker submits a proxy but does not
have authority to vote a customer's shares on such proposal) will be considered
to be not entitled to vote on that proposal and, thus, will not be counted in
determining whether such proposal receives the vote of the required amount of
shares present and entitled to vote at the Annual Meeting. Since a broker is not
required to vote shares held in "street name" in the absence of instructions
from the beneficial shareholder, a shareholder's failure to instruct his or her
broker will result in the shareholder's shares not being voted on such proposal.
A proxy, in the accompanying form, which is properly executed, duly
returned to the Company and not revoked, will be voted in accordance with the
instructions contained thereon. If no specific instructions are indicated on the
proxy, the shares represented thereby will be voted FOR the (a) election of the
persons nominated herein as directors, (b) approval of the Option Plan
Amendment, and (c) ratification of the selection of PricewaterhouseCoopers LLP
as the Company's independent accountants for the current fiscal year; as well as
FOR the transaction of such other business as properly may come before the
Annual Meeting.
Each proxy granted may be revoked by the person granting it at any time
(a) by giving written notice to such effect to the Secretary of the Company, (b)
by execution and delivery of a proxy bearing a later date, or (c) by attendance
and voting in person at the Annual Meeting; except as to any matter upon which,
prior to such revocation, a vote shall have been cast at the Annual Meeting
pursuant to the authority conferred by such proxy. The mere presence at the
Annual Meeting of a person appointing a proxy does not revoke the appointment.
PRINCIPAL SHAREHOLDERS
Set forth below is information, as of June 10, 1999, with respect to
the beneficial ownership of the Common Stock by (a) each person or group who is
known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock, (b) each of the current directors of the Company (who
also constitute the nominees for election as directors at the Annual Meeting),
(c) each of the executive officers of the Company named in the Summary
Compensation Table below, and (d) all directors and executive officers of the
Company, as a group (eight persons). Except as indicated in the footnotes to
this table, the Company believes that the persons named in this table have sole
voting and investment power with respect to the shares of Common Stock
indicated.
Name Shares Beneficially Owned Percent of Class
- --------------- ------------------------- ----------------
Daniel P. Flohr 1,097,375(1) 13.8%
Tina L. Jacobs 1,097,375(1) 13.8%
Stuart E. Ross 65,850(2) *
Paul H. Albritton 48,333(3) *
Seymour L. Gartenberg 30,000(4) *
E. Henry Mize 16,000(5) *
Donald S. McCoy 12,500(2) *
James Jarvis 0 --
All executive officers and 1,270,058(6) 15.6%
directors, as a group
- ---------------
* less than 1%
2
<PAGE>
(1) Consists of (a) 755,298 shares owned directly by Mr. Flohr, (b) 335,925
shares owned directly by Ms. Jacobs, and (c) 6,152 shares owned by a
trust for the benefit of Mr. Flohr's and Ms. Jacobs' minor daughter,
the sole trustee of which is Mr. Flohr's mother. Mr. Flohr and Ms.
Jacobs are husband and wife and their address is c/o C-Phone
Corporation, 6714 Netherlands Drive, Wilmington, North Carolina 28405.
(2) Consists of shares issuable upon exercise of that portion of options
granted pursuant to the Stock Option Plan that are presently
exercisable or are scheduled to become exercisable within 60 days of
the date hereof.
(3) Consists of (a) 5,000 shares owned directly by Mr. Albritton and (b)
43,333 shares issuable upon exercise of that portion of options granted
pursuant to the Stock Option Plan that are presently exercisable or are
scheduled to become exercisable within 60 days of the date hereof.
(4) Consists of (a) 20,000 shares owned directly by Mr. Gartenberg and (b)
10,000 shares issuable upon exercise of that portion of options granted
pursuant to the Stock Option Plan that are presently exercisable or are
scheduled to become exercisable within 60 days of the date hereof.
(5) Consists of (a) 1,000 shares owned directly by Mr. Mize and (b) 15,000
shares issuable upon exercise of that portion of options granted
pursuant to the Stock Option Plan that are presently exercisable or are
scheduled to become exercisable within 60 days of the date hereof.
(6) Consists of the shares referred to in notes (1), (2), (3), (4) and (5)
to this table.
The Company does not know of any arrangements, including any pledge by
any person of securities of the Company, the operation of which at a subsequent
date may result in a change in control of the Company.
Based solely upon a review of Forms 3, 4 and 5 filed with the
Securities and Exchange Commission and the Company under the Securities Exchange
Act of 1934 (the "Exchange Act") and a review of written representations
received by the Company, no person who at any time during Fiscal 1999 was a
director, executive officer or beneficial owner of 10% or more of the
outstanding shares of Common Stock failed to file, on a timely basis, reports
required by Section 16(a) of the Exchange Act.
ELECTION OF DIRECTORS
(ITEM 1 ON THE PROXY CARD)
DIRECTORS AND NOMINEES
The Company's By-Laws provide for a Board of Directors of not less than
three directors. The Board of Directors has fixed the number of directors at
six. The persons named in the accompanying form of proxy, unless otherwise
3
<PAGE>
instructed, intend to vote the shares of Common Stock covered by valid proxies
FOR the election of the six persons named in the following table, each of whom
has been designated by the Board of Directors as a nominee for election as
director. In the event that any of such persons does not continue to be
available for election, the persons named in the accompanying form of proxy will
have discretionary power to vote for a substitute and will have discretionary
power to vote or withhold their vote for any additional nominees named by
shareholders. There are no circumstances presently known to the Board of
Directors which would render any of the following persons unavailable to
continue to serve as a director, if elected.
Name Age Positions With the Company
---- --- --------------------------
Daniel P. Flohr 44 Chairman of the Board, President and
Chief Executive Officer;
Director since 1986
Tina L. Jacobs 39 Executive Vice President, Chief
Operating Officer, Secretary and
Treasurer; Director since 1986
Stuart E. Ross 39 Vice President and Director of
Engineering; Director since 1993
Seymour L. Gartenberg 68 Director since 1994
Donald S. McCoy 68 Director since 1995
E. Henry Mize 57 Director since 1994
The business experience of each of the foregoing persons, during the
past five years, is as follows:
DANIEL P. FLOHR co-founded the Company in March 1986 with Ms. Jacobs
and has served as an executive officer and a director for more than the past
five years. See "Employment Contracts and Termination of Employment and
Change-in-Control Arrangements."
TINA L. JACOBS co-founded the Company in March 1986 with Mr. Flohr and
has served as an executive officer and a director for more than the past five
years.
STUART E. ROSS has served as an executive officer and a director of the
Company since January 1994.
SEYMOUR L. GARTENBERG has been a business consultant and private
investor since 1991. For more than five years prior thereto, Mr. Gartenberg was
Executive Vice President of Sony Music Entertainment Inc. (and its predecessors,
CBS Records Inc. and CBS/Records Group, a division of CBS Inc.), a multinational
record company.
DONALD S. MCCOY has been a technology assessment and planning
consultant, specializing in the field of consumer electronics since 1989.
Previously, Dr. McCoy was Vice President of CBS Inc and general manager of the
CBS Technology Center.
E. HENRY MIZE has been a private investor since 1992. For more than
five years prior thereto, Mr. Mize was Vice President, Regional Sales for the
Northeast and Southeast United States, of Philip Morris USA, a consumer goods
company.
4
<PAGE>
All directors hold office until the next Annual Meeting of shareholders
of the Company and until their successors are elected and qualified or until
their earlier resignation. Except with respect to Mr. Flohr and Ms. Jacobs,
there are no family relationships among the directors or executive officers of
the Company.
The business and affairs of the Company are managed under the direction
of the Board of Directors. The Board has responsibility for establishing broad
corporate policies and for the overall performance of the Company, rather than
day-to-day operating details. Members of the Board of Directors are kept
informed of the Company's business by various reports and documents sent to them
at least quarterly, as well as by reports presented at meetings of the Board and
its Committees by executive officers and other employees of the Company.
The Board of Directors has an Audit Committee and a Compensation
Committee, the members of which serve at the discretion of the Board of
Directors. The Audit Committee currently consists of Mr. Gartenberg (Chairman),
Ms. Jacobs, Dr. McCoy and Mr. Mize. This Committee, among other things, confers
with the independent accountants and financial officers of the Company,
recommends to the Board of Directors the independent accountants to be selected
to audit the Company's annual financial statements and approves any special
assignments given to such accountants. The Compensation Committee currently
consists of Mr. Mize (Chairman), Mr. Gartenberg and Dr. McCoy. This Committee,
among other things, reviews the compensation levels of the Company's executive
officers, makes recommendations to the Board of Directors regarding salaries and
incentive programs and administers the Stock Option Plan and make grants
thereunder.
During Fiscal 1999, there were eight meetings of the Board of
Directors, six meetings of the Compensation Committee and four meetings of the
Audit Committee. During this period, each director attended at least 75% of all
meetings of the Board of Directors and of the committees thereof on which he or
she served.
The Board of Directors does not have a separate nominating committee.
The Board of Directors will consider nominees recommended by shareholders for
election as director at the 2000 Annual Meeting, provided that any such
recommendation is submitted in writing by February 28, 2000 to the Board of
Directors, c/o the Secretary of the Company, 6714 Netherlands Drive, Wilmington,
North Carolina 28405, accompanied by a description of the proposed nominee's
qualifications and other relevant biographical information and the consent of
the proposed nominee to serve.
The Company currently pays its non-employee directors (Seymour L.
Gartenberg, E. Henry Mize and Donald S. McCoy) an annual fee of $5,000, payable
quarterly, and reimburses them for out-of-pocket expenses incurred in connection
with their services as directors. In addition, the Company annually grants to
each of its non-employee directors a non-qualified option under the Stock Option
Plan to purchase 2,500 shares of Common Stock (exercisable at the fair market
value of the Common Stock on the date of grant).
EXECUTIVE OFFICERS OF THE COMPANY
Executive officers of the Company are appointed by, and serve at the
discretion of, the Board of Directors. In addition to Mr. Flohr, Ms. Jacobs and
Mr. Ross, whose business experience is set forth above, the executive officers
of the Company are:
Paul H. Albritton, age 55, has been Vice President and Chief Financial
Officer of the Company since May 1994.
5
<PAGE>
James Jarvis, age 48, has been Vice President, Sales and Marketing, of
the Company since September 1998. From November 1997 until he joined the
Company, Mr. Jarvis was self-employed as a business consultant. From June 1995
to September 1997, Mr. Jarvis was Vice President of Sales and Marketing for
Examen, Inc., a provider of legal cost containment software and services. From
May 1993 until October 1995, he was Vice President and General Manager for the
Acsys Division of AMP, Inc., a manufacturer of data communication products.
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation for
services in all capacities awarded or paid to or earned by the Company's chief
executive officer and the other executive officers of the Company who received
cash compensation from the Company aggregating at least $100,000 during Fiscal
1999.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-term
---------
Compensation
Annual ------------
Compensation(1) Awards
--------------- ------
Name and Fiscal Number of Securities All Other
Principal Position Year Salary Underlying Options(#)(2) Compensation
- ------------------ ---- ------ -------------------- ------------
<S> <C> <C> <C> <C>
Daniel P. Flohr 1999 $122,846 -- --
President and Chief 1998 $130,000 -- --
Executive Officer 1997 $130,000 -- --
Tina L. Jacobs 1999 $110,000 -- --
Executive Vice President and 1998 $110,000 -- --
Chief Operating Officer 1997 $110,000 -- --
Stuart E. Ross 1999 $115,833 14,150 --
Vice President and 1998 $112,288 -- --
Director of Engineering 1997 $100,000 30,850 --
Paul Albritton 1999 $113,178 15,000 --
Vice President and Chief 1998 $ 80,000 10,000 --
Financial Officer 1997 $ 80,000 20,000 --
James Jarvis(3) 1999 $ 67,614 100,000 $38,013
Vice President, Marketing
and Sales
</TABLE>
- ---------------------------
(1) During each of the three fiscal years ended February 28, 1999, the
Company provided certain personal benefits to its executive officers
which benefits to any such individual did not exceed the lesser of
$50,000 or 10% of the cash compensation received by such individual.
See "Employment Contracts and Termination of Employment and
Change-in-Control Arrangements."
(2) Represents shares of Common Stock issuable upon exercise of incentive
stock options granted under the Stock Option Plan. See "Stock Option
Plan."
(3) Mr. Jarvis joined the Company on September 18, 1998. Other compensation
consisted of a relocation allowance paid to Mr. Jarvis in connection
with his relocation to North Carolina.
6
<PAGE>
STOCK OPTION PLAN
The Stock Option Plan is intended to provide an incentive to continued
employment or association of key employees and other individuals by enabling
them to acquire a proprietary interest in the Company and by offering comparable
incentives to enable the Company better to attract, compete for and retain
highly qualified individuals, as well as to associate the interests of such
persons with those of the Company and its shareholders. The Stock Option Plan
currently authorizes the issuance, within ten years from the date of its
adoption, of options covering up to 500,000 shares of Common Stock, subject to
adjustment in certain circumstances. See "Approval of the Option Plan
Amendment."
STOCK OPTIONS GRANTED IN FISCAL 1999
The following table sets forth information concerning individual grants
of stock options made during Fiscal 1999 to each of the Company's executive
officers named in the Summary Compensation Table who received a grant of options
during such fiscal year. The Company did not grant any stock appreciation rights
during Fiscal 1999.
<TABLE>
<CAPTION>
Number of Securities % of Total Options Exercise
Underlying Options Granted to Price Expiration
Name Granted (#) Fiscal Year (per share) Date
- ---- -------------------- ------------------ ----------- ----------
<S> <C> <C> <C> <C>
Stuart E. Ross 14,150 8.5% $2.938 12/2/03
James Jarvis 100,000 59.8% $2.688 9/15/03
Paul H. Albritton 15,000 9.0% $2.938 12/2/03
</TABLE>
STOCK OPTIONS HELD AT THE END OF FISCAL 1999
The following table sets forth the total number of exercisable and
unexercisable stock options held by each of the Company's executive officers
named in the Summary Compensation Table who held any stock options as of
February 28, 1999. No options to purchase Common Stock were exercised by any of
the Company's executive officers during Fiscal 1999 and no stock appreciation
rights were outstanding at February 28, 1999.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options
at February 28, 1999 at February 28, 1999(1)
------------------------------ -----------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stuart E. Ross 59,183 20,817 $0 $0
James Jarvis 0 100,000 $0 $0
Paul H. Albritton 36,667 28,333 $0 $0
</TABLE>
- -----------
(1) Based upon the $2.688 closing sales price of the Common Stock on
February 26, 1999.
7
<PAGE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Daniel Flohr serves as President and Chief Executive Officer of the
Company pursuant to an employment agreement, dated as of March 1, 1994, as
amended, at an annual base salary of $130,000. During December 1998, Mr. Flohr
advised the Board of Directors of the Company that he wanted to devote part of
his business time to a venture that the Company had investigated and the Board
of Directors had determined that the Company should not further pursue. The
Board of Directors gave Mr. Flohr permission to do so with the understanding
that the venture would not materially interfere with his full-time
responsibilities to the Company and that Mr. Flohr's annual salary would be
reduced to $100,000. Mr. Flohr's employment agreement is automatically renewed
annually unless notice of non-renewal is given by either party at least six
months prior to the end of the then current term. In the event that Mr. Flohr's
employment is terminated by the Company for any reason without cause and prior
to expiration of the then current term, Mr. Flohr would be entitled to receive,
in one lump sum, the aggregate base salary that he would have received had he
been employed through the end of the then current term.
Tina Jacobs serves as Executive Vice President and Chief Operating
Officer of the Company pursuant to an employment agreement, dated as of March 1,
1994, as amended, at an annual base salary of $110,000. Ms. Jacobs' employment
agreement is automatically renewed annually unless notice of non-renewal is
given by either party at least six months prior to the end of the then current
term. In the event that Ms. Jacobs' employment is terminated by the Company for
any reason without cause and prior to expiration of the then current term, Ms.
Jacobs would be entitled to receive, in one lump sum, the aggregate base salary
that she would have received had she been employed through the end of the then
current term.
Stuart Ross serves as Vice President and Director of Engineering of the
Company pursuant to a two-year employment agreement, dated as of December 3,
1998, at an annual base salary of $120,000. Mr. Ross' employment agreement is
automatically renewed at the end of each calendar year beginning in 2000 unless
notice of non-renewal is given by either party at least four months prior to the
end of the then current year. In the event that Mr. Ross' employment is
terminated by the Company without cause, and prior to expiration of the then
current term, Mr. Ross would be entitled to continue to receive his base salary
for a period of six months. Mr. Ross' employment agreement also provides that,
for a period of one year following his termination of employment, he will not,
in any capacity, compete with the Company in any business which existed at the
time during his employment with the Company or was being developed by the
Company.
James Jarvis serves as Vice President, Marketing and Sales, of the
Company pursuant to an employment agreement, dated as of September 15, 1998, at
an annual base salary of $150,000. At the commencement of his employment with
the Company, and to assist him in his relocation to Wilmington, North Carolina,
Mr. Jarvis received a non-accountable relocation expense allowance of $38,014.
Pursuant to his employment agreement, Mr. Jarvis is entitled to receive
incentive compensation of up to $100,000 if the Company achieves certain
performance goals. At the commencement of his employment, Mr. Jarvis was granted
a non-qualified option to purchase 12,500 shares of Common Stock at an exercise
price of $2.6875 per share (the closing sales price of the Common Stock), which
option vested on December 14, 1998, and an incentive stock option, at the same
exercise price, to purchase 37,500 shares, which option will vest in three equal
annual installments beginning on September 15, 1999. At the same time, Mr.
Jarvis also was granted options to purchase an additional 50,000 shares of
Common Stock at the same exercise price, which option vests in two equal annual
installments beginning on May 31, 2000, if the Company achieves certain
performance goals. The Company may terminate Mr. Jarvis' employment without
cause at any time upon payment of the sum of $25,000. Mr. Jarvis' employment
agreement also provides that, for a period of two years following his
termination of employment, he will not, in any capacity, compete with the
Company.
8
<PAGE>
The Company maintains a $1,500,000 key person insurance policy on the
life of Mr. Flohr, of which the Company is the beneficiary for $1,000,000 and
Ms. Jacobs (Mr. Flohr's wife) is the beneficiary for $500,000. Ms. Jacobs
reimburses the Company for the cost of her pro rata share of the policy. The
Company also maintains a $500,000 key person insurance policy on the life of Mr.
Ross, of which the Company is the sole beneficiary.
CERTAIN TRANSACTIONS
Mr. Flohr and Ms. Jacobs own the Company's Wilmington, North Carolina
facility, including the land on which the facility is located, and lease it to
the Company pursuant to a triple net lease at the annual rate of $75,360. The
Company is responsible for all costs and expenses, including applicable taxes,
relating to the facility. In April 1999, the Company exercised the second of two
successive three-year options to extend the lease term until April 30, 2002. In
connection with this renewal, Mr. Flohr and Ms. Jacobs agreed to delay, until
May 1, 2000, their right to adjust the annual rent to the fair market value on
the facility. The Company believes that the terms and conditions of the lease
are no less favorable to the Company than those available from unaffiliated
third parties. Mr. Flohr and Ms. Jacobs also allow the Company to use
approximately 9,000 square feet of a 1.4 acre adjacent parcel of land owned by
them as a parking area for the Company's employees and customers, in
consideration for which the Company provides minimal maintenance of the parking
area and pays approximately $330 per year of real estate taxes on this parcel.
The Company's facility is presently being fully utilized. In the event that the
Company needs additional space, Mr. Flohr and Ms. Jacobs have offered to
construct an additional building to the Company's specifications on the adjacent
parcel, and to lease such building, when constructed, to the Company on terms
similar to the existing lease, including at a rental no greater than fair market
value at the commencement of the lease term.
APPROVAL OF THE OPTION PLAN AMENDMENT
(ITEM 2 ON THE PROXY CARD)
The Stock Option Plan initially was adopted by the Board of Directors
of the Company on August 16, 1994 and approved by shareholders of the Company on
August 4, 1995. The Stock Option Plan was subsequently amended by the Board of
Directors on November 28, 1995 and August 1, 1996. The Stock Option Plan, as
amended, currently authorizes the issuance of options covering up to 500,000
shares of Common Stock (subject to adjustment in certain circumstances) to
directors, executive officers and other key employees of, and consultants to,
the Company. As of June 10, 1999, options for an aggregate of 83,420 shares of
Common Stock granted under the Stock Option Plan had been exercised, and options
for 437,508 shares of Common Stock, at exercise prices ranging from $2.6875 to
$10.375 per share, were outstanding. If the Option Plan Amendment is not
approved, options to purchase up to 21,000 shares of Common Stock, which were
granted subject to shareholder approval, will be canceled, and, in the absence
of forfeitures, the Company will not have any shares of Common Stock available
for the grant of future options.
On December 2, 1998, the Board of Directors, subject to shareholder
approval, amended the Stock Option Plan to increase the number of shares of
Common Stock authorized for issuance upon exercise of options granted under the
Stock Option Plan from 500,000 shares to 875,000 shares. The increase in the
number of shares will enable the Company to continue to provide an incentive to
continued employment or association of key employees and other persons.
The following is a description of the Stock Option Plan, as amended.
9
<PAGE>
GENERAL
The Stock Option Plan provides for the grant of options to directors,
executive officers and other key employees of the Company and consultants to the
Company and is intended to provide an incentive to continued employment or
association by enabling such persons to acquire a proprietary interest in the
Company and by offering comparable incentives to enable the Company better to
attract, compete for and retain highly qualified individuals, as well as to
associate the interests of such persons with those of the Company and its
shareholders. The Stock Option Plan permits the grant of options that are either
"Incentive Stock Options" within the meaning of Section 422 of the Internal
Revenue Code of 1986 (the "Code") or options which do not qualify as Incentive
Stock Options ("Non-Qualified Stock Options").
The Board of Directors has the power to amend the Stock Option Plan
from time to time and may terminate the Stock Option Plan. However, shareholder
approval is necessary if such amendment (a) materially increases the benefits
accruing to participants under the Stock Option Plan, (b) increases the
aggregate number of shares of Common Stock as to which options may be granted
under the Stock Option Plan, or (c) materially modifies the requirements as to
eligibility for participation in the Stock Option Plan. The Stock Option Plan
may not be amended in a manner which adversely affects the rights of an
optionee, without the consent of the optionee.
The Stock Option Plan will terminate on August 16, 2004, though options
granted prior thereto may expire after such date.
The Stock Option Plan is not subject to any provisions of the Employee
Retirement Income Security Act of 1974 and is not intended to be qualified under
Section 401(a) of the Code.
NUMBER OF SHARES SUBJECT TO THE STOCK OPTION PLAN
The maximum number of shares of Common Stock with respect to which
options may be issued under the Stock Option Plan is 875,000, assuming
shareholder approval of the Option Plan Amendment. This number is subject to
adjustment under certain circumstances as provided in the Stock Option Plan.
Shares subject to an option which, for any reason, expires or is terminated
without being fully exercised may again be subject to an option granted under
the Stock Option Plan.
ELIGIBLE PARTICIPANTS
Each of the Company's employees, as well as any person who renders
services as a director, consultant or advisor to the Company is eligible to be
granted options under the Stock Option Plan, without regard to length of
employment or association, except that only employees may be granted Incentive
Stock Options. The Compensation Committee anticipates granting options only to
those employees who have contributed or are expected to contribute to the growth
of the Company. The granting of an option does not confer upon the optionee any
right to continue in the services of the Company or in any way affect any right
or power of the Company to terminate the services of the optionee at any time.
ISSUANCE AND EXERCISE OF OPTIONS
The Stock Option Plan is administered by the Compensation Committee of
the Board of Directors, consisting of at least two non-employee directors. The
Compensation Committee has the exclusive authority to determine the persons
eligible to participate and to determine the amount and the terms and conditions
of the awards made to each participant, within the parameters of the Stock
Option Plan, including the number of shares subject to each grant, the vesting
schedule and expiration date of each option and the exercise price of the option
10
<PAGE>
and whether such option is an Incentive Stock Option or Non-Qualified Stock
Option. The Compensation Committee may make awards based on the nature of the
services rendered by the participant, the capacity of the participant to
contribute to the success of the Company and other factors (not inconsistent
with the provisions of the Stock Option Plan) that the Compensation Committee
may deem relevant.
Incentive Stock Options may be granted only to employees of the
Company. An Incentive Stock Option must expire within ten years from the date it
is granted (five years in the case of such options granted to a holder of more
than 10% of the outstanding Common Stock). Incentive Stock Options are first
exercisable not earlier than one year from the date of grant. The exercise price
of an Incentive Stock Option must be at least equal to the fair market value of
the Common Stock on the date such Incentive Stock Option is granted (or 110% of
the fair market value of the Common Stock in the case of such options granted to
a holder of more than 10% of the outstanding Common Stock). To the extent that
the aggregate fair market value of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by an optionee during
any calendar year exceeds $100,000, such options will be treated as
Non-Qualified Stock Options.
The Company may issue Non-Qualified Stock Options under the Stock
Option Plan to directors, executive officers and key employees of the Company
and advisors and consultants to the Company. The exercise price of a
Non-Qualified Stock Option must be at least equal to the fair market value of
the Common Stock on the date such option is granted and will have such
expiration date and vesting schedule as determined by the Compensation Committee
at the time of grant.
Upon exercise of an option issued under the Stock Option Plan, payment
is required to be made in cash, or if permitted by the applicable option
agreement, by delivery of shares of Common Stock, currently exercisable options
to acquire Common Stock or other property valued at its then fair market value.
Options are not transferable by the optionee, other than by will or applicable
laws of descent and distribution. In the event of termination of the optionee's
relationship with the Company other than for cause, the optionee's options will
expire on the earlier of stated expiration or three months after the date of
termination (except in the case of death, disability or retirement, in which
event the period is extended to 12 months). Upon a change in control of the
Company (as defined in the Stock Option Plan), all options outstanding become
immediately exercisable in full.
The following table sets forth information concerning options granted
under the Stock Option Plan to (a) each of the Company's executive officers
named in the Summary Compensation Table who received a grant of stock options,
(b) all current executive officers of the Company, as a group (five persons,
three of whom were granted options during Fiscal 1999 and held options at June
10, 1999), (c) all current directors of the Company (who are not executive
officers), as a group (three persons, all of whom were granted options during
Fiscal 1999 and held options at June 10, 1999), and (d) all current employees of
the Company (other than executive officers), as a group (35 persons, seven of
whom were granted options during Fiscal 1999 and 31 of whom held options at June
10, 1999).
<TABLE>
<CAPTION>
Shares Underlying Total Number % of Total
Options Granted Outstanding Options
During Options Owned Outstanding at
Name and Position Fiscal 1999 at June 10, 1999 June 10, 1999
- ----------------- ----------------- ---------------- -------------
<S> <C> <C> <C>
Paul H. Albritton, 15,000 65,000 14.7%
Vice President and Chief Executive Officer
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Shares Underlying Total Number % of Total
Options Granted Outstanding Options
During Options Owned Outstanding at
Name and Position Fiscal 1999 at June 10, 1999 June 10, 1999
- ----------------- ----------------- ---------------- -------------
<S> <C> <C> <C>
James Jarvis 100,000 100,000 22.6%
Vice President, Marketing and Sales
Stuart E. Ross 14,150 80,000 18.1%
Vice President and Director
All executive officers, as a group 129,150 245,000 55.4%
All directors (who are not executive officers), 7,500 37,500 8.5%
as a group
All current employees (other than executive 29,500 141,674 32.0%
officers), as a group
</TABLE>
FEDERAL INCOME TAX CONSEQUENCES
The grant of an option under the Stock Option Plan does not result in
any tax consequences to the Company or the optionee. The tax consequences of
exercising an option or disposing of the Common Stock purchased by an optionee
upon exercise of an option ("option stock") depend on whether the option is an
Incentive Stock Option or a Non-Qualified Stock Option.
If an optionee exercises a Non-Qualified Stock Option, the optionee
generally must include in gross income, as compensation for the taxable year in
which the option stock becomes substantially vested, an amount equal to the
excess of the fair market value at the time it becomes substantially vested over
the exercise price for the option stock, and the Company will be entitled to a
tax deduction in the same amount. At disposition, appreciation (or depreciation)
of the option stock, after the date of exercise, generally is treated as capital
gain (or loss), long-term or short-term, depending upon the length of time
elapsed between the time when the option stock became substantially vested and
the time of disposition.
If an optionee exercises an Incentive Stock Option, the optionee does
not recognize income upon exercise, provided that the optionee was an employee
of the Company at all times from the date when the option was granted until not
less than three months before exercise (or one year if the optionee's employment
terminates as a result a permanent and total disability or death). However, the
excess of the fair market value at the time of exercise of the option stock over
the exercise price generally constitutes an item of tax preference and, thus,
must be added to the optionee's taxable income for purposes of determining the
optionee's alternative minimum tax liability for the taxable year of the
exercise. If an optionee exercises an Incentive Stock Option and fails to
satisfy the three-month (or one-year) employment period requirement, the option
is generally treated as a Non-Qualified Stock Option.
If (a) an optionee disposes of option stock acquired pursuant to an
Incentive Stock Option less than one year after the date the option stock was
acquired or less than two years after the date the option was granted, and (b)
the amount realized in the disposition exceeds the exercise price, then the
optionee must include in the optionee's gross income, as compensation for the
year of the disposition, an amount equal to the excess of the fair market value
of the option stock at the time the option is exercised over the exercise price
of the option. This compensation income will be treated as an addition to the
optionee's tax basis of the option stock. The optionee also must include in
gross income, as capital gain for the taxable year of the disposition, an amount
equal to the difference between the amount realized in the disposition over the
12
<PAGE>
tax basis of the option stock. The Company is not entitled to any deduction with
respect to the capital gain recognized by the optionee. If the amount realized
by the optionee would result in the realization of a capital loss by the
optionee upon application of the foregoing rules, then the amount of
compensation income that the optionee will recognize is the excess, if any, of
the amount realized on the sale of the option stock over the exercise price of
the option. If the disposition of the option stock occurs in the taxable year in
which the option is exercised, the optionee must include in income for
alternative minimum tax purposes the gain on the disposition of the option
stock. Should the disposition occur in a later year, the gain on the disposition
will not be included in income for alternative minimum tax purposes. The basis
of the option stock for determining gain or loss for alternative minimum tax
purposes will be the exercise price increased by the amount, if any, by which
the optionee's alternative minimum tax income was increased as a result of the
earlier exercise of the option.
If (a) an optionee disposes of option stock acquired pursuant to an
Incentive Stock Option more than one year after the date the option stock was
acquired, and (b) the amount realized in the disposition exceeds both the
exercise price and the fair market value of the option stock on the date of
exercise, then the optionee must include in gross income, as compensation for
the taxable year of the disposition, an amount equal to the excess of such fair
market value over the exercise price, and must include in gross income, as gain,
an amount equal to the excess of the amount realized in the disposition over
such fair market value, and the Company is entitled to a deduction of such
amounts. Such gain is generally treated as capital gain, long-term or
short-term, depending upon the length of time elapsed between the time when the
option stock was acquired and the time of disposition. If, instead, the amount
realized in the disposition exceeds the exercise price, but is less than the
fair market value of the option stock on the date of exercise, the optionee must
include in gross income, as compensation for the taxable year of the
disposition, an amount equal to the excess of amount realized over the exercise
price, and the Company is entitled to a deduction of this amount. If the
exercise price exceeds the amount realized in the disposition, the optionee is
allowed to deduct an amount equal to such excess as a loss for the taxable year
of the disposition. This loss generally is treated as capital loss, long-term or
short-term, depending upon the length of time elapsed between the time when the
option stock was acquired and the time of disposition.
REQUIRED VOTE
The approval of the Option Plan Amendment requires the affirmative vote
by the holders of a majority of all outstanding shares entitled to vote at the
Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE OPTION PLAN AMENDMENT.
SELECTION OF INDEPENDENT ACCOUNTANTS
(ITEM 3 ON THE PROXY CARD)
The Board of Directors has selected, subject to ratification by the
shareholders of the Company at the Annual Meeting, the firm of
PricewaterhouseCoopers LLP as the independent accountants to audit the Company's
financial statements for its fiscal year ending February 29, 2000.
PricewaterhouseCoopers LLP has served as the independent accountants for the
Company for more than the past five years and is, therefore, familiar with the
affairs and financial procedures of the Company. A representative of
PricewaterhouseCoopers LLP is expected to be present at the Annual Meeting, will
have the opportunity to make a statement if such representative desires to do so
and is expected to be available to respond to appropriate questions.
13
<PAGE>
The ratification of the selection of PricewaterhouseCoopers LLP, as
independent accountants for the current fiscal year, requires the affirmative
vote of a majority of the votes cast on the matter at the Annual Meeting by the
holders of shares entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS.
SHAREHOLDERS' PROPOSALS FOR THE 2000 ANNUAL MEETING
A shareholder who desires to include a proposal in the proxy material
relating to the 2000 Annual Meeting of shareholders of the Company must submit
the same in writing, so as to be received at the principal executive office of
the Company (to the attention of the Secretary) on or before February 29, 2000
for such proposal to be considered for inclusion in the proxy statement for such
Annual Meeting. Such proposal must also meet the other requirements of the
Securities and Exchange Commission relating to shareholder proposals required to
be included in the Company's proxy statement.
OTHER MATTERS
As of the date of this Proxy Statement, management of the Company does
not know of any matters to be presented for consideration at the Annual Meeting
other than those described in this Proxy Statement. If any other matters
properly come before the Annual Meeting, the accompanying proxy confers
discretionary authority with respect to those matters, and the persons named in
the accompanying form of proxy intend to vote that proxy to the extent entitled
in accordance with their best judgment.
The Company will bear the cost of the Annual Meeting and the cost of
soliciting proxies in the accompanying form, including the cost of mailing this
proxy statement. In addition to solicitation by mail, directors, officers and
regular employees of the Company (none of whom will be additionally compensated
for such services) may solicit proxies by telephone or otherwise. Arrangements
will be made with brokerage firms and other custodians, nominees and fiduciaries
to forward forms of proxy and proxy materials to their principals and the
Company will reimburse them for their reasonable expenses in connection
therewith.
The Company will furnish, without charge, to each person whose proxy is
being solicited, upon written request, a copy of its Annual Report on Form
10-KSB for the fiscal year ended February 28, 1999 including the financial
statements, notes to the financial statements and the financial schedules
contained therein. Copies of any exhibits thereto also will be furnished upon
the payment of a reasonable duplicating charge. Written requests for copies of
any such materials should be directed to Paul H. Albritton, Chief Financial
Officer, C-Phone Corporation, 6714 Netherlands Drive, Wilmington, North Carolina
28405.
By Order of the Board of Directors,
/s/ TINA L. JACOBS
----------------------------------------
Tina L. Jacobs,
SECRETARY
June 11, 1999
----------
PLEASE DATE, SIGN AND RETURN THE ENCLOSED PROXY AT YOUR EARLIEST
CONVENIENCE IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED FOR MAILING IN THE
UNITED STATES.
14
<PAGE>
C-PHONE CORPORATION
PROXY - ANNUAL MEETING OF SHAREHOLDERS - AUGUST 6, 1999
(SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS)
The undersigned shareholder of C-Phone Corporation (the
"Company") hereby constitutes and appoints Daniel P. Flohr, Tina L. Jacobs and
Paul H. Albritton, and each of them, the attorneys and proxies of the
undersigned, with full power of substitution, to represent and to vote on behalf
of the undersigned all of the shares of the Company's Common Stock which the
undersigned is entitled to vote at the Annual Meeting of shareholders to be held
at the Landfall Park Hampton Inn & Suites, 1989 Eastwood Road, Wilmington, North
Carolina on August 6, 1999, at 9:00 a.m., and at any adjournments thereof, upon
the following proposals which are more fully described in the notice of, and
proxy statement for, the Annual Meeting.
1. Election of Directors
[ ] FOR all nominees list below (except as marked to the contrary
below)
[ ] WITHHOLD AUTHORITY to vote for all nominees
DANIEL P. FLOHR, SEYMOUR L. GARTENBERG, TINA L. JACOBS, DONALD S. MCCOY, E.
HENRY MIZE, STUART E. ROSS
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
--------------------------------
2. Proposal to approve the Option Plan Amendment.
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
3. Proposal to ratify the selection of PricewaterhouseCoopers LLP as the
Company's independent accountants for the fiscal year ending February
29, 2000.
4. In their discretion, upon such other matters as properly may come
before the Annual Meeting.
(Continued and to be signed on reverse side.)
<PAGE>
Said attorneys and proxies, or their substitutes (or if only one, that
one) at said Annual Meeting, and any adjournments thereof, may exercise all of
the powers hereby given. Any proxy heretofore given is hereby revoked.
Receipt is acknowledged of the Notice of Annual Meeting of
shareholders, the Proxy Statement accompanying said Notice and the Annual Report
to shareholders for the fiscal year ended February 28, 1999.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND EACH OF THE ABOVE
PROPOSALS.
IN WITNESS WHEREOF, the undersigned has signed this proxy.
Dated: ______________, 1999
----------------------------------------------
Shareholder(s) signature
----------------------------------------------
Shareholder(s) signature
NOTE: Signature(s) of shareholder should correspond exactly with the name(s)
shown hereon. If shares are held jointly, both holders should sign. Attorneys,
executors, administrators, trustees, guardians or others signing in a
representative capacity should give their full titles. Proxies executed in the
name of a corporation should be signed on behalf of the corporation by its
president or other authorized officer.
I DO [ ] DO NOT [ ] EXPECT TO ATTEND THE ANNUAL MEETING.
NOTE: This proxy, properly filled in, dated and signed, should be returned
promptly in the enclosed envelope.
