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:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
ELECTRONICS COMMUNICATIONS CORP.
(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)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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PRELIMINARY COPY
ELECTRONICS COMMUNICATIONS CORP.
425 BROAD HOLLOW ROAD, MELVILLE, NEW YORK 11747
516-501-0466
---------------
NOTICE OF SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF STOCKHOLDERS
MAY __, 1998
---------------
A special meeting in lieu of annual meeting of stockholders of
Electronics Communications Corp., a Delaware corporation (the "Company") will be
held at ______________ ____________________ __________________ _____________, on
Thursday, May __, 1998 at 1:00 P.M. local time, for the following purposes:
1. To elect a four (4) member Board of Directors to serve until
the next annual meeting of stockholders of the Company and
until their successors are duly elected and shall qualify
(Proposal One).
2. To amend the Company's Certificate of Incorporation (the
"Certificate of Incorporation") to change the Company's name
to "Northeast Digital Networks, Inc." (Proposal Two).
3. To amend the Certificate of Incorporation to limit the
liability of a director for monetary damages to the Company or
its stockholders for breach of fiduciary duty, to liability
(i) for breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for willful or negligent
violations by the director of the provisions of Delaware law
concerning unlawful stock purchases or redemptions and the
unlawful payment of dividends, and (iv) for any transaction
from which the director derived an improper personal benefit
(Proposal Three).
4. To amend the Certificate of Incorporation to ratify the change
in the par value of the Common Stock from $.05 par value to
$.60 par value and in connection therewith, to ratify the
one-for-twelve reverse stock split of the Common Stock
authorized by the Board of Directors effective July 31, 1997
(Proposal Four).
5. To approve the Company's October 30, 1997 Stock Option Plan
which provides for the grant of options to officers, directors
and key employees with respect to a maximum
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1,000,000 shares of Common Stock, $.60 par value (Proposal
Five).
6. To transact such other business as may properly be brought
before the meeting or any adjournment thereof.
Pursuant to the provisions of the By-Laws, the Board of Directors has
fixed the close of business on April __, 1998 as the record date for determining
the stockholders of the Company entitled to notice of, and to vote at the
meeting or any adjournment thereof.
Stockholders who do not expect to be present in person at the meeting
are urged to date and sign the enclosed proxy and promptly mail it in the
accompanying postage-paid envelope.
By Order of the Board of Directors
/s/ JOSEPH A. ROSIO
----------------------------------
JOSEPH A. ROSIO
President
Dated: April __, 1998
PLEASE COMPLETE AND PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED
ENVELOPE. THIS WILL NOT PREVENT YOU FROM VOTING IN PERSON AT THE MEETING BUT
WILL, HOWEVER, HELP TO ASSURE A QUORUM AND AVOID ADDED PROXY SOLICITATION COSTS.
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PRELIMINARY COPY
ELECTRONICS COMMUNICATIONS CORP.
425 BROAD HOLLOW ROAD, MELVILLE, NEW YORK 11747
516-501-0466
---------------
PROXY STATEMENT
---------------
SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF STOCKHOLDERS
MAY __, 1998
--------------
This Proxy Statement of Electronics Communications Corp., a Delaware
corporation (the "Company") is first being mailed to Stockholders on or about
April __, 1998 in connection with the solicitation of proxies by the Company's
Board of Directors to be used at the Special Meeting in Lieu of Annual Meeting
of Stockholders of the Company to be held on Thursday, May __, 1998 at 1:00 P.M.
(local time) at ______________________ ______________________ __________________
__________________ ___________________ . Accompanying this Proxy Statement is
a Notice of Special Meeting in Lieu of Annual Meeting of Stockholders, a form of
Proxy, a copy of the Company's 1996 Annual Report containing financial
statements and related data, and a copy of the Company's quarterly report on
Form 10QSB for the quarter ended December 31, 1997 also containing financial
statements for the nine months then ended.
All proxies which are properly filled in, signed and returned to the
Company prior to or at the Meeting will be voted in accordance with the
instructions thereon. A proxy may be revoked by any stockholder giving the same
prior to the exercise thereof by: (a) written notice delivered to the Company's
principal offices prior to the commencement of the Meeting, (b) providing a
signed proxy bearing a later date, or (c) appearing in person and voting at the
Meeting. The Company intends to vote executed but unmarked proxies in favor of
Proposals One, Two, Three, Four and Five. Broker non-votes will be counted for
purposes of determining a quorum but otherwise will be considered not
represented with regard to voting on any matter with respect to which there is a
broker non-vote. The Board has fixed the close of business on April __, 1998 as
the record date for the determination of stockholders who are entitled to notice
of, and to vote at the meeting or any adjournment thereof.
The expenses of preparing, assembling, printing and mailing the form of
proxy and the material used in solicitation of proxies will be borne by the
Company. In addition to the solicitation of proxies by use of the mails, the
Company may utilize the services of some of its officers and regular employees
(who will receive no additional compensation therefor) to solicit proxies
personally,
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and by telephone. The Company has requested banks, brokers and other custodians,
nominees and fiduciaries to forward copies of the proxy material to their
principals and to request authority for the execution of proxies and will
reimburse such persons for their services in doing so. The cost of such
additional solicitation incurred otherwise than by use of the mails is estimated
not to exceed $5,000.
VOTE REQUIRED, PRINCIPAL STOCKHOLDERS
AND STOCKHOLDINGS OF MANAGEMENT
The Board of Directors has fixed the close of business on April __,
1998 as the record date for the determination of stockholders who are entitled
to notice of, and to vote at the meeting or any adjournment thereof. At the
record date, the Company had _,___,___ shares of its Common Stock, $.60 par
value (the "Common Stock") outstanding, the holders of which are each entitled
to one vote per share. The presence in person or by proxy of at least a majority
of the outstanding Common Stock of the Company is necessary to constitute a
quorum at the meeting. Election of directors (Proposal One) requires the
affirmative vote of a majority of the votes cast by the holders of Common Stock
present in person or by proxy at the meeting. Approval of each of the amendments
to the Certificate of Incorporation (i) to change the Company's name (Proposal
Two), (ii) to limit director liability (Proposal Three) and (iii) to ratify the
change in the par value of the Common Stock as well as the one-for-twelve
reverse stock split (Proposal Four), and approval of the October 30, 1997 Stock
Option Plan (Proposal Five), require the affirmative vote of a majority of the
outstanding Common Stock.
Unless otherwise indicted, all share and per share information
contained in this Proxy Statement gives effect to the one-for-twelve reverse
split of the Company's Common Stock effective July 31, 1997. In addition, unless
otherwise indicated, actual prices for the Company's Common Stock and the Common
Stock exercise purchase prices for the Company's Class A Warrants and Class B
Warrants have been adjusted throughout this Proxy Statement by multiplying the
actual prices and/or exercise prices for periods prior to July 31, 1997 by 12.
No assurance can be given that the actual prices for the Common Stock during
such pre-split periods would have approximated such adjusted prices if the
one-for-twelve reverse stock split had been effectuated at such times.
The following table sets forth, as of April __, 1998, the number of
shares of Common Stock owned beneficially to the knowledge of the Company by
each director and by all officers and directors of the Company as a group.
Management has no knowledge of any individual or entity being the beneficial
owner of more than 5% of the outstanding Common Stock. The percentages have been
calculated on the basis of treating as outstanding for purposes of computing the
percentage ownership of a particular individual, all
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shares of Common Stock outstanding as of such date and all shares of Common
Stock issuable to such individual in the event of exercise of outstanding
options owned by such holder at such date which are exercisable within 60 days
of such date. Except as indicated in the footnote to the table, each individual
is the sole beneficial owner with sole voting rights and investment power with
respect to the shares set forth opposite his name (except for shares issuable
upon exercise of his options, none of which have been exercised).
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficially Ownership of Class
- ------------------- ---------------------- --------
Directors*
- ----------
Joseph A. Rosio 368,817(1) %
John P. Cassella 33,334(2) %
Christopher J. Garcia -0-(3) %
Mal Gurian 45,000(4) %
All executive officers and
directors as a group
(four persons) 447,151(1)(2)(3)(4) %
- ------------
*The address of each executive officer and director is c/o the Company, 425
Broad Hollow Road, Melville, New York 11747.
(1) Includes 300,000 shares of Common Stock purchasable upon exercise
of non-qualified options at exercise prices ranging from $1.453125 to $2.00 per
share and 68,817 shares purchasable upon exercise of incentive stock options at
an exercise price of $1.453125 per share. Does not include an additional
aggregate 131,183 shares purchasable upon exercise of incentive stock options at
an exercise price of $1.453125 per share, which options are first exercisable in
1999 (68,817 shares) and in 2000 (62,366 shares). All of these options have been
granted pursuant to the October 30, 1997 Stock Option Plan and are subject to
stockholder approval of the Plan. See "Stock Options" and Proposal Five.
(2) Includes 33,334 shares of Common Stock purchasable upon exercise of
non-qualified options at an exercise price of $1.453125 per share. Does not
include 33,333 shares purchasable commencing November 1, 1998, or an additional
33,333 shares purchasable commencing November 1, 1999 upon exercise of
non-qualified options at an exercise price of $1.453125 per share. All of these
options have been granted pursuant to the October 30, 1997 Stock Option Plan and
are subject to stockholder approval of the Plan. See "Stock Options" and
Proposal Five.
(3) Mr. Garcia has been granted incentive stock options exercisable to
purchase an aggregate 100,000 shares of Common Stock at an exercise price of
$2.109375 per share. These options are first exercisable in 1999 (with respect
to 47,407 shares), in 2000 (with respect to an additional 47,407 shares) and in
2001 (with
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respect to the balance). They were granted pursuant to the October 30, 1997
Stock Option Plan and are subject to stockholder approval of the Plan. See
"Stock Options" and Proposal Five.
(4) These 45,000 shares of Common Stock are purchasable upon exercise
of non-qualified options at an exercise price of $1.453125 per share. These
options were granted pursuant to the October 30, 1997 Stock Option Plan and are
subject to stockholder approval of the Plan. See "Stock Options" and Proposal
Five.
ACTION TO BE TAKEN AT THE MEETING
ELECTION OF DIRECTORS
(Proposal One)
Four directors of the Company are to be elected at the meeting, each to
serve until the next Annual Meeting and until his successor is elected and
qualifies. The shares represented by proxies will be voted in favor of the
election as directors of the persons named below who are nominees for election
and authority to vote for the election of directors shall be deemed granted
unless specifically withheld. Management has no reason to believe that any of
the nominees for the office of director will not be available for election as a
director. However, should any of them become unwilling or unable to accept
nomination for election, it is intended that the individuals named in the
enclosed proxy may vote for the election of such other person as Management may
recommend. The Company does not have a nominating committee. During the twelve
month period ended December 31, 1997, the Company's board of directors held a
total of seven meetings.
NOMINEES FOR ELECTION AS DIRECTORS
Director
Nominee Age Since Position with Company
- ------- --- -------- ---------------------
Joseph A. Rosio 35 1997 Chairman of the Board,
President, Chief Executive
Officer and Director
Christopher J. Garcia(a) 30 1998 Treasurer, Chief Financial
Officer, Secretary and
Director
John P. Cassella(a) 38 1997 Director
Mal Gurian(a) 71 1995 Director
- ------------
(a) Member of the Audit Committee.
The Audit Committee, established in February 1998, confers with the
Company's auditors and reviews, evaluates and advises the Board of Directors
concerning the adequacy of the Company's
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accounting systems, its financial reporting practices, the maintenance of its
books and records and its internal controls. In addition, the Audit Committee
reviews the scope of the audit of the Company's financial statements and the
results thereof.
The Company does not have an Executive Committee. The term of office of
each director expires at the next annual meeting of stockholders and when his
successor is elected and qualified. The term of office of each executive officer
expires at the next organizational meeting of the board of directors following
the next annual meeting of stockholders and when his successor is elected and
qualified.
The following is a brief account of the business experience of each
nominee for director of the Company.
Joseph A. Rosio is a graduate of Pace University with a Bachelor of
Science degree in accounting (1986). He became duly licensed by New York State
as a certified public accountant in December 1989. From 1986 through 1988, Mr.
Rosio was employed as an assistant accountant and then as a senior accountant by
Arthur Andersen & Co. in New York City. From June 1988 through 1990, he was a
financial reporting analyst and then a senior analyst at Reliance Group Holdings
Inc., a holding company with interests in property, casualty, life and title
insurance companies, and other diversified investments. From July 1990 through
1992, Mr. Rosio was a senior accountant in the Emerging Business Group of Ernst
& Young in New York City. From July 1992 through 1996, Mr. Rosio was initially,
assistant to the chief financial officer of Troster Singer, a division of the
securities trading firm of Spear Leeds & Kellogg and subsequently became a
trader, conducting market making activities for Troster Singer. From August 1996
through August 1997, Mr. Rosio was a senior trader conducting market making
activities for the securities trading firm of Knight Securities LP in Jersey
City, New Jersey. Mr. Rosio subsequently rendered general business consulting
services until he became the president and chief executive officer of the
Company in October 1997.
Christopher J. Garcia is a graduate of St. John's University with a
Bachelor of Science degree in accounting (1989) and of Boston College Law School
with a J.D. degree (1996). He became duly licensed by New York State as a
certified public accountant in November 1991 and was admitted to the Connecticut
Bar in 1996. Mr. Garcia was employed as a senior accountant at Ernst & Young in
New York City from 1989 through 1992 and through 1993 as an auditor by Time
Warner. In 1996 and 1997, he was an associate at the Hartford, Connecticut law
firm of Murtha, Cullina, Richter and Pinney. Mr. Garcia became the treasurer,
chief financial officer, secretary and a director of the Company in early 1998.
From 1982 through the present, John P. Cassella has been employed by
the Nortel Division of Northern Telecom Corporation, a
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manufacturer and provider of telecommunications products and services and since
May 1997, by the successor in interest to the Nortel Division's business, Wiltel
Communications, LLC. From 1982 through 1992, Mr. Cassella was a technician, then
a supervisor and finally the Branch Manager of the New York City office of the
Nortel Division. In 1992, Mr. Cassella became the customer support center
director and in 1994 the National Service Director for the Nortel Division,
employed at its Rocky Hill, Connecticut headquarters. In May 1997, Wiltel
Communications, LLC succeeded to the business of the Nortel Division and Mr.
Cassella now serves at such Rocky Hill, Connecticut location as National Service
Director for Wiltel. Mr. Cassella was elected as a director of the Company in
October 1997. He is not actively engaged in the business of the Company.
From January 1995 to the present, Mal Gurian has been Chairman of the
Board of Authentix Network, Inc., provider of subscriber authentication for
cellular telephone carriers, with principal offices in Tucson, Arizona. Mr.
Gurian began his career as the Vice President of Radio Telephone Corporation in
1960. He then became Senior Vice President of Aerotron Inc., a Siemens Company.
In 1980, three years before the launch of the first commercial cellular service
in the U.S., Mr. Gurian was recruited by OKI Electric Industries Company of
Japan to start and build OKI Telecom, the company's Cellular Telephone Division.
While President and a member of the Board of Directors of OKI Telecom's Cellular
Telephone Division, the world's first manufacturer of a cellular telephone, Mal
Gurian was responsible for OKI receiving the first FCC type certification for a
cellular telephone. Following their divestiture by AT&T, Mr. Gurian was
instrumental in negotiating for OKI, private label contracts with the seven
Regional Bell Operating Companies. Under Mr. Gurian's leadership, OKI Telecom
quickly became one of the two major manufacturers of cellular phones for the
U.S. market. Also under Mr. Gurian's leadership, the company successfully
introduced and marketed several new products, including the first briefcase
portable cellular telephone, the OKI/Chrysler "Visor Phone" and OKI's credit
card "Swipe" Telephone. After leaving OKI in 1987, Mr. Gurian served as
President of Cartell, Inc. in Detroit and Cellcom Cellular Corporation in New
Jersey until late 1991. Mr. Gurian served as Chief Executive Officer and a
Director of Universal Cellular Corporation in early 1992. Mr. Gurian has
developed strong relationships with most of the major cellular carriers and is
frequently consulted by key industry leaders in important issues affecting the
industry. Mr. Gurian serves as a moderator and speaker in numerous industry
conventions and forums. Mr. Gurian has served as an advisor to many major
companies including OKI, Sony, TRW and the Communications Division of Murata as
a corporate and strategic consultant. He has served as an Arbitrator for the
American Arbitration Association. Mr. Gurian is a recipient of the "Sarnoff
Citation" from the Radio Club of America in addition to the "Special Service
Award" and the "Fred Link Mobile Award." He also received the "Chairman's
Award,"
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the highest recognition bestowed by the National Association of Business and
Educational Radio (NABER), Washington, D.C. (now known as "PCIA") and has served
as a Director of that organization. He is currently a Fellow and President
Emeritus of the Radio Club of America and has served that organization as a
Director from 1977 to 1980, Vice President from 1980 to 1992, Executive Vice
President in 1993 and President in 1994. Mr. Gurian is a 1995 recipient of an
honorary degree of the Popov Scientific Society from the St. Petersburg
Electrotechnical University in St. Petersburg, Russia. He is a veteran of World
War II having served in the U.S. Marine Corps where he participated in seven
major South Pacific Campaigns; and he is listed in Marquis "Who's Who in
America" and "Who's Who in the World." Mr. Gurian was elected as a director of
the Company in March 1995. He is not actively engaged in the business of the
Company.
COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT
Based solely upon a review of Forms 3 and 4 and on representations
made, the Company believes that with respect to the twelve-month period ended
December 31, 1997, all Section 16(a) filing requirements applicable to its
officers, directors and beneficial owners of more than 10% of its equity
securities were timely complied with except that Joseph A. Rosio and John P.
Cassella, who were elected directors on October 8, 1997, filed their Form 3s on
November 10, 1997.
INFORMATION REGARDING EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
paid or accrued by the Company during the three calendar years ended December
31, 1996 to its Chief Executive Officer as well as to any other executive
officer of the Company or a subsidiary who earned at least $100,000 during
calendar year 1996.
SUMMARY COMPENSATION TABLE
(1994-1996)
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------- Awards Payouts
------ ------------
Restricted
Name and Other Annual Stock Options/ LTIP All other
Principal Position Year Salary Bonus Compensation Award(s) SARs Payouts Compensation
- ------------------ ---- ------ ----- ------------ -------- -------- ------- ------------
(1) (2) (3) ($) ($) ($)
--- --- --- --- --- ---
<S> <C> <C> <C> <C>
William S. Taylor* 1996 $150,000 -- $4,065 -- -- -- (4)(5)(6)
President, CEO 1995 $166,641 $67,500 $6,132 -- -- -- (5)
and Chairman of 1994 $ 83,212 $50,000 $3,800 -- -- -- (5)
the Board(7)
</TABLE>
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<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------- Awards Payouts
------ ------------
Restricted
Name and Other Annual Stock Options/ LTIP All other
Principal Position Year Salary Bonus Compensation Award(s) SARs Payouts Compensation
- ------------------ ---- ------ ----- ------------ -------- -------- ------- ------------
(1) (2) (3) ($) ($) ($)
--- --- --- --- --- ---
<S> <C> <C> <C> <C>
Les Winder 1996 $137,500 -- $2,225 -- -- -- (4)(5)(6)
Executive Vice 1995 $117,245 $42,500 $2,778 -- -- -- (5)
President and 1994 $ 70,786 $50,000 $2,275 -- -- -- (5)
Treasurer, Director(8)
Brenda Taylor* 1996 $ 75,000 -- $1,557 -- -- -- (4)(5)(6)
Secretary and 1995 $ 38,278 -- $ 779 -- -- -- (5)
Director 1994 $ 36,173 -- $-0- -- -- -- (5)
Robert DePalo 1996 $ 75,000 -- $-0- -- -- -- (4)(5)(6)
Director, Finance 1995 $-0- -- $-0- -- -- -- (5)
1994 $-0- -- $-0- -- -- -- (5)
</TABLE>
- ---------
*William S. Taylor is Brenda Taylor's son.
(1) On September 12, 1996, the Board approved a 20% increase in the
annual compensation of Messrs. Taylor and Winder, effective December 1, 1996.
Messrs. Taylor and Winder agreed to defer such increases, subject to accrual,
until an improvement in the Company's cash flow. All rights to these increases
have been waived. See "Settlements with Prior Management."
(2) The payment of bonuses to Messrs. Taylor and Winder for 1994 and
1995 was deferred until an improvement in the Company's cash flow. No payments
on account of these bonuses were made. All rights to these increases have been
waived. See "Settlements with Prior Management."
(3) Messrs. Taylor and Winder and Mrs. Taylor were also entitled to
certain fringe benefits in connection with their employment including an
automobile allowance and medical insurance benefits. The amount listed in this
column reflects the aggregate value of such fringe benefits for the applicable
period.
(4) On June 3, 1996, subject to certain conditions, the Board of
Directors of the Company authorized the issuance to officers and directors of
the Company of Class A Warrants, exercisable to purchase an aggregate 191,667
shares of Common Stock, at an exercise price of $60 per share (reduced to $27
per share on December 24, 1996 and further reduced to $2.25 per share effective
September 16, 1997), as compensation for certain loans and guarantees made by
Brenda Taylor and Messrs. William S. Taylor, Winder and DePalo. The Company
reserved 191,667 shares of Common Stock for issuance upon the exercise of such
Class A Warrants. This authorization was part of an overall plan to compensate
such persons for providing personal guarantees and for posting certain
collateral to facilitate loans by the Company to fund its bid deposits required
to make the Company eligible for the FCC's PCS licenses auction. These
compensation arrangements included the right to purchase up to six (6) shares of
the capital stock of the
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Company's PCN subsidiary for $1,000 per share by each of Messrs. Taylor, Winder
and DePalo and Mrs. Taylor, for an aggregate of 24% of the stock of PCN. Two of
the six (6) shares allocated to Mr. DePalo were purchased by his wife. The grant
of the Class A Warrants and the purchase and delivery of the PCN stock was
conditioned on the grant to the Company of the PCS Licenses and the delivery and
acceptance of the Company's FCC Notes and related Security Agreements by the
FCC. See "Settlements with Prior Management" as to agreements pursuant to which
Brenda Taylor and Messrs. William S. Taylor, Winder and DePalo waived any rights
to these Class A Warrants and rescinded their purchases of PCN stock, and
pursuant to which, the Company repurchased Mrs. DePalo's shares of PCN stock.
(5) On November 20, 1994, the Company's Board of Directors authorized
the sale of Class B Warrants exercisable to purchase an aggregate 82,500 shares
of Common Stock to William S. Taylor (39,167 shares), Les Winder (8,333 shares),
Brenda Taylor (16,667 shares), Stewart Taylor, who is the husband of Brenda
Taylor and father of William S. Taylor (16,667 shares) and to Fawn
Taylor-McCauley, sister of William S. Taylor and daughter of Brenda and Stewart
Taylor (1,666 shares) for an aggregate $99,000 in principal amount of 8%
promissory notes or $1.20 per warrant. The Class B Warrants were initially
exercisable at $60 per share during the four-year period ending May 12, 1999. On
January 20, 1995, the Company reduced the exercise price to $30 per share for
Class B Warrants exercisable to purchase an aggregate 25,000 shares owned by
William S. Taylor (12,500 shares), Brenda Taylor (6,250 shares) and Stewart
Taylor (6,250 shares) and in exchange, received certain financial guarantees and
the extension of the due date of certain loans owed by the Company to William S.
Taylor and Stewart Taylor. On November 20, 1995, the Board of Directors
authorized the conversion of the remaining Class B Warrants exercisable to
purchase 57,500 shares of Common Stock into a like number of Class A Warrants
exercisable to purchase 57,500 shares of Common Stock at an exercise price of
$60 per share (reduced to $27 per share on December 24, 1996 and further reduced
to $2.25 per share effective September 16, 1997). Of the $99,000 purchase price
for the Class B Warrants, an aggregate $93,299 had been paid at December 31,
1996. The Company subsequently wrote off the $5,701 balance. On November 16,
1995, William S. Taylor, Brenda Taylor, Stewart Taylor and Les Winder each sold
Class B Warrants exercisable to purchase 6,937.5 shares (or an aggregate 27,750
shares of Common Stock) to five individuals at the $1.20 per warrant purchase
price. A portion of these Class B Warrants, exercisable to purchase an aggregate
11,083 shares of Common Stock were purchased by Joseph Albanese, at the time, a
49% owner of the Company's TCI subsidiary. In connection with settlement
agreements signed by them with the Company in the first quarter of calendar year
1998, William S. Taylor, Brenda Taylor and Les Winder each represented that he
(or she) no longer owned any Class A Warrants or Class B Warrants. See
"Settlements with Prior Management."
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(6) On July 23, 1996, the Company's Board of Directors authorized the
sale of an aggregate 4,000,000 shares of Series B Preferred Stock in equal
amounts to Brenda Taylor and Messrs. William S. Taylor, Winder and DePalo for
$6,000,000 in principal amount of 7% non-recourse promissory notes (the "7%
Notes") to be collateralized by a pledge of the Stock. The issuance of the
Series B Preferred Stock was approved by the Company's stockholders at the
Annual Meeting of Shareholders held on October 17, 1996. The Series B Preferred
Stock was convertible into an aggregate 500,000 shares of Common Stock. The
Company did not issue the Series B Preferred Stock and did not receive any 7%
Notes in payment therefor. Brenda Taylor and Messrs. William S. Taylor, Winder
and DePalo subsequently waived any rights to and rescinded their purchases of
the Series B Stock. See "Settlements with Prior Management."
(7) Effective December 1, 1994, the Company entered into an employment
agreement with William S. Taylor for a term of five years. In October 1996, this
Agreement was modified to provide for an option for an additional three years,
with annual one-year renewals thereafter, exercisable in the sole discretion of
Mr. Taylor. The agreement provided for annual compensation of $150,000 during
the term of his employment and entitled Mr. Taylor to certain fringe benefits,
including an automobile and maintenance, disability insurance, medical benefits
and life insurance coverage. Mr. Taylor agreed that during the term of his
agreement and for twelve months thereafter (unless the agreement was terminated
without cause), he would be subject to non-competition provisions. Upon
termination of employment without cause, Mr. Taylor would be entitled to a lump
sum payment of $75,000 multiplied by the number of years of his employment by
the Company. See "Settlements with Prior Management" as to the cancellation of
this employment agreement and the waiver by Mr. Taylor of all rights thereunder.
(8) On May 17, 1995, the Company entered into an employment agreement
with Les Winder, which agreement was also amended in October 1996. The term of
the agreement was for five years with an option for an additional three-year
term, renewable annually thereafter at the option of Mr. Winder. The agreement
provided for annual compensation of $137,500 during the term of his employment
and entitled Mr. Winder to certain fringe benefits, including an automobile
(leasing and insuring), disability insurance, medical benefits and life
insurance coverage. Mr. Winder agreed that during the term of his agreement and
for six months thereafter (unless the agreement was terminated without cause),
he would be subject to non-competition provisions. Upon termination of
employment without cause, Mr. Winder would be entitled to a lump sum payment of
$50,000 multiplied by the number of years of his employment by the Company. See
"Settlements with Prior Management" as to the cancellation of this employment
agreement and the waiver by Mr. Winder of all rights thereunder.
On August 18, 1997, the Company filed a current report on Form 8-K
reporting a change as of August 11, 1997 in its certifying accountant from the
firm of Stetz, Belgiovine CPAs, P.C. to Wiss &
10
<PAGE>
Company, LLP, CPAs and reporting a change in its fiscal year end from December
31 to March 31. As a result, the three month period ended March 31, 1997 is a
transition period and the Company's current fiscal year is the twelve-month
period ending March 31, 1998. In order to provide comparative executive
compensation information, the following table sets forth certain information
concerning the compensation paid or accrued during the twelve-month period ended
December 31, 1997 (including the three-month transition period ended March 31,
1997 and the first nine months of the current fiscal year) by the Company to its
Chief Executive Officer as well as to any other executive officer of the Company
or a subsidiary who earned at least $100,000 during such twelve-month period or
who is named in the earlier table.
SUMMARY COMPENSATION TABLE
(1997)
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------- Awards Payouts
12 mos. ------ ------------
ended Restricted
Name and Dec. 31 Other Annual Stock Options/ LTIP All other
Principal Position 1997 Salary Bonus Compensation Award(s) SARs Payouts Compensation
- ------------------ ---- ------ ----- ------------ -------- -------- ------- ------------
(1) ($) ($) ($)
--- --- --- ---
<S> <C> <C> <C>
William S. Taylor* $124,133 $0 $ 8,978 -- 176,923shs(2) -- --
President, CEO
and Chairman of
the Board (until
10/8/97)(7)
Joseph A. Rosio $ 29,006 $0 -0- -- 500,000shs(3) -- --
President, CEO
and Chairman of
the Board (commencing
10/8/97)(8)
Les Winder $101,282 $0 $17,585 -- 103,846shs(4) -- --
Executive Vice
President and
Treasurer, Director
(until 10/8/97)(9)
Brenda Taylor* $ 57,386 $0 $ 7,799 -- 50,000shs(5) -- --
Secretary and
Director (until 10/8/97)
Robert DePalo $ 87,808 $0 $0 -- 272,308shs(6) -- --
Director (until 3/24/98)(10)
</TABLE>
- ---------
*William S. Taylor is Brenda Taylor's son.
(1) William S. Taylor, Les Winder and Brenda Taylor were also entitled
to certain fringe benefits in connection with their employment including an
automobile allowance and medical insurance benefits. The amount listed in this
column reflects the aggregate value of such fringe benefits for the applicable
period.
(2) These options, exercisable to purchase 176,923 shares of Common
Stock at $1.30 per share, were granted to William S. Taylor
11
<PAGE>
pursuant to the unanimous written consent of the Board of Directors dated
September 29, 1997 for various items of consideration including cancellation of
his employment agreement. Mr. Taylor exercised the options and paid the exercise
price by releasing his claims to certain credits including amounts due him on
the Company's books. The shares were issued to him in October 1997. The Company
issued W-2s to Mr. Taylor and to the IRS for 1997 indicating in addition to any
other compensation paid to Mr. Taylor by the Company in 1997, additional
compensation of $183,357 equal to the difference between the number of shares
multiplied by the mean between the closing bid and asked prices for the
Company's Common Stock in the over-the-counter market on October 8, 1997 of
$1.65625 per share or $293,029 on the one hand, and the net amount of the loans
and advances owed by the Company to Mr. Taylor as indicated by the Company's
books of account, plus a credit for rescission of his prior PCN stock purchase,
plus legal fees paid by Mr. Taylor on behalf of the Company, aggregating
$109,672, on the other. Such additional compensation is not reflected in the
table. See "Settlements with Prior Management."
(3) These options granted to Mr. Rosio by the Board of Directors on
October 30, 1997, include incentive stock options exercisable to purchase
200,000 shares of Common Stock at $1.453125 per share and non-qualified stock
options exercisable to purchase 300,000 shares at exercise prices ranging from
$1.453125 to $2.00 per share. All of these options have been granted pursuant to
the October 30, 1997 Stock Option Plan and are subject to stockholder approval
of the Plan. See Proposal Five.
(4) These options, exercisable to purchase 103,846 shares of Common
Stock at $1.30 per share, were granted to Les Winder pursuant to the unanimous
written consent of the Board of Directors dated September 29, 1997 for various
items of consideration including cancellation of his employment agreement. Mr.
Winder exercised the options and paid the exercise price by releasing his claims
to certain net credits owed him by the Company. The shares were issued to him in
October 1997. The Company issued W-2s to Mr. Winder and to the IRS for 1997
indicating in addition to any other compensation paid to Mr. Winder by the
Company in 1997, additional compensation of $157,801 equal to the difference
between the number of shares multiplied by the mean between the closing bid and
asked prices for the Company's Common Stock in the over-the-counter market on
October 8, 1997 of $1.65625 per share or $171,995 on the one hand, and a credit
for rescission of his prior PCN stock purchase plus legal fees paid by Mr.
Winder on behalf of the Company aggregating $14,194 after offset of the $11,806
net amount of the loans and advances owed by Mr. Winder to the Company as
indicated by the Company's books of account, on the other. Such additional
compensation is not reflected in the table. See "Settlements with Prior
Management."
(5) These options, exercisable to purchase 50,000 shares of Common
Stock at $1.30 per share, were granted to Brenda Taylor pursuant to the
unanimous written consent of the Board of Directors dated September 29, 1997 for
various items of consideration. Ms.
12
<PAGE>
Taylor exercised the options and paid the exercise price by releasing her claims
to certain credits including amounts due her on the Company's books. The shares
were issued to her in October 1997. The Company issued W-2s to Ms. Taylor and to
the IRS for 1997 indicating in addition to any other compensation paid to Ms.
Taylor by the Company in 1997, additional compensation of $17,813 equal to the
difference between the number of shares multiplied by the mean between the
closing bid and asked prices for the Company's Common Stock in the
over-the-counter market on October 8, 1997 of $1.65625 per share or $82,813 on
the one hand, and the net amount of the loans and advances owed by the Company
to Ms. Taylor as indicated by the Company's books of account, plus a credit for
rescission of her prior PCN stock purchase aggregating $65,000, on the other.
Such additional compensation is not reflected in the table. See "Settlements
with Prior Management."
(6) Includes options exercisable to purchase 80,000 shares of Common
Stock at $2.00 per share and options exercisable to purchase 192,308 shares of
Common Stock at $1.30 per share. These options were granted to Robert DePalo
pursuant to the unanimous written consent of the Board of Directors dated
September 29, 1997 for various items of consideration including cancellation of
his employment agreement. Mr. DePalo exercised the options, exercisable at $1.30
per share, and paid the exercise price by releasing certain credits including
amounts due him on the Company's books. The shares were issued to him in October
1997. The Company issued W-2s to Mr. DePalo and to the IRS for 1997 indicating
in addition to any other compensation paid to Mr. DePalo by the Company in 1997,
additional compensation of $78,764 equal to the difference between the number of
shares multiplied by the mean between the closing bid and asked prices for the
Company's Common Stock in the over-the-counter market on October 8, 1997 of
$1.65625 per share or $318,510 on the one hand, and the net amount of the loans
and advances owed by the Company to Mr. DePalo as indicated by the Company's
books of account, plus a credit for rescission of his prior PCN stock purchase,
plus legal fees paid by Mr. DePalo on behalf of the Company, aggregating
$239,746, on the other. Such additional compensation is not reflected in the
table. See "Settlements with Prior Management."
(7) See footnote (7) to the earlier Summary Compensation Table herein
as to the terms of William S. Taylor's employment agreement and "Settlements
with Prior Management" as to the cancellation of this employment agreement and
the waiver by Mr. Taylor of all rights thereunder.
(8) See "Current Employment and Consulting Agreements" as to the terms
of Mr. Rosio's employment agreement with the Company effective November 1, 1997.
(9) See footnote (8) to the earlier Summary Compensation Table herein
as to the terms of Mr. Winder's employment agreement and "Settlements with Prior
Management" as to the cancellation of this employment agreement and the waiver
by Mr. Winder of all rights thereunder.
13
<PAGE>
(10) Effective May 28, 1997, the Company entered into an employment
agreement with Mr. DePalo for a term of five years. The agreement provided for
Mr. DePalo to provide a minimum of 30 hours per month of financial, investment
banking, strategic planning and related services to the Company for an initial
annual base salary of $130,000 per year increasing by 10% in each succeeding
year as well as a 10% finder's fee with respect to any merger or acquisition
transaction involving the Company which Mr. DePalo procured. See "Settlements
with Prior Management" as to the cancellation of this employment agreement and
the waiver by Mr. DePalo of all rights thereunder, and "Current Employment and
Consulting Agreements" as to the terms of Mr. DePalo's consulting agreement with
the Company effective February 1, 1998.
STOCK OPTIONS
The Company has a Stock Option Plan adopted in September 1994 and
subsequently approved by shareholders (the "1994 Plan") permitting the granting
of stock options exercisable to purchase an aggregate 25,000 shares of Common
Stock to employees, directors and consultants. Pursuant to the 1994 Plan,
options to purchase 1,667 shares at an exercise price of $45.60 per share were
issued to a director, Mal Gurian on July 10, 1995. On June 3, 1996, options to
purchase 833 shares at an exercise price of $21.60 per share were issued to
another director, Ira Tabankin, and options to purchase an additional 4,166
shares at an exercise price of $21.60 per share were issued to Mr. Gurian. Mr.
Tabankin's options have since terminated and Mr. Gurian agreed to the
cancellation of his options at the time of the October 30, 1997 grant to him of
options exercisable to purchase 45,000 shares pursuant to the October 1997 Plan.
No other options were granted pursuant to the 1994 Plan.
Pursuant to the unanimous written consent of the Board of Directors on
September 29, 1997, options exercisable to purchase the following number of
shares of Common Stock at $1.30 per share were granted to the following officers
and directors:
William S. Taylor 176,923 shares
Les Winder 103,846 shares
Brenda Taylor 50,000 shares
Robert DePalo 192,308 shares
All of such options were exercised. See "Settlements with Prior
Management" as to the issuance by the Company to each of such individuals of
Form W-2 indicating in addition to any other compensation paid to each by the
Company in 1997, additional compensation in an amount equal to the difference
between the number of shares issued to the individual multiplied by $1.65625
(the mean between the per share closing bid and asked prices for the Common
Stock on October 8, 1997) and certain credits including amounts due on the
Company's books. Additional options granted to William S. Taylor, Les Winder,
Brenda Taylor and Robert DePalo on
14
<PAGE>
September 29, 1997, exercisable to purchase an aggregate 290,000 shares at $2.00
per share and an aggregate 270,000 shares at $4.00 per share were cancelled
prior to issuance. Mr. DePalo was also granted options on September 29, 1997
exercisable to purchase 90,000 shares at $2.00 per share which options were
subsequently reduced to permit the purchase of 80,000 shares at $2.00. These
options remain outstanding.
On October 30, 1997, the Board of Directors adopted the October 30,
1997 Stock Option Plan (the "October 1997 Plan") reserving a maximum of
1,000,000 shares of Common Stock, $.60 par value for options which could be
granted under the October 1997 Plan. The October 1997 Plan and any options
granted pursuant to such Plan are subject to stockholder approval of the
adoption of the Plan. See Proposal Five.
On October 30, 1997, the Board of Directors granted incentive stock
options pursuant to the October 1997 Plan, exercisable to purchase 200,000
shares of Common Stock to Joseph A. Rosio at an exercise price of $1.453125 per
share equal to the mean between the closing bid price and the closing asked
price for such Common Stock in the over-the-counter market on said date. On the
same date, the Board of Directors granted non-qualified options pursuant to the
October 1997 Plan; (i) to Mr. Rosio, exercisable to purchase an additional
300,000 shares of Common Stock at prices ranging from $1.453125 to $2.00 per
share; (ii) to John Cassella, exercisable to purchase 100,000 shares of Common
Stock at $1.453125 per share; and (iii) to Mal Gurian, exercisable to purchase
45,000 shares of Common Stock at $1.453125 per share.
Effective January 2, 1998, the Board of Directors granted incentive
stock options pursuant to the October 1997 Plan to Christopher J. Garcia,
exercisable to purchase 100,000 shares of Common Stock at $2.109375 per share,
the mean between the closing bid and asked prices for the Common Stock in the
over-the-counter market on said date. On February 4, 1998, the Board of
Directors granted incentive stock options pursuant to the October 1997 Plan to a
non-officer employee, exercisable to purchase 50,000 shares of Common Stock at
$2.296875 per share and non-qualified options to Mr. DePalo, exercisable to
purchase 150,000 shares of Common Stock at $2.25 per share. The mean between the
closing bid and asked prices for the Common Stock in the over-the-counter market
on February 4, 1998 was $2.296875.
The above described options, granted pursuant to the October 1997 Plan
and exercisable to purchase an aggregate 945,000 shares of Common Stock, are
subject to stockholder approval of the adoption of the October 1997 Plan. See
Proposal Five.
No options were granted to any of the Company's executive officers in
1996. The following table illustrates information concerning stock option grants
made during the 12 months ended
15
<PAGE>
December 31, 1997 to each officer named in the "Summary Compensation Table."
OPTION GRANTS IN THE TWELVE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Number of Percent of
Shares of Total Options
Common Stock Granted to
Underlying Officers, Directors Market Price
Options and Employees Exercise on Date of Expiration
Name Granted In the Period Price Grant Date
---- ------------- ---------------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C>
William S. Taylor 176,923shs 14% $ .62(b) $1.65625 9/29/02
Joseph A. Rosio 300,000shs(a) 24% $1.453125 $1.453125 10/30/07
100,000shs(a) 8% $1.75 $1.453125 10/30/07
100,000shs(a) 8% $2.00 $1.453125 10/30/07
Les Winder 103,846shs 8% $ .14(b) $1.65625 9/29/02
Brenda Taylor 50,000shs 4% $1.30(b) $1.65625 9/29/02
Robert DePalo 80,000shs 6% $2.00 $1.65625 9/29/02
192,308shs(a) 15% $1.25 $1.65625 9/29/02
</TABLE>
- ------------
(A) Issued pursuant to the October 1997 Plan and subject to stockholder
approval of adoption of the Plan. See Proposal Five.
(B) Based upon the amount of credits recognized by the Company in
connection with the exercise of the options divided by the number of shares
purchased. See "Settlements with Prior Management."
AGGREGATED OPTION EXERCISES DURING TWELVE MONTHS ENDED
DECEMBER 31, 1997 AND VALUE OF UNEXERCISED OPTIONS
AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Acquired Value Options at December 31, 19 at December 31, 1997(2)
Name on Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William S. Taylor 176,923shs $183,357 -0- -0- -0- -0-
Joseph A. Rosio -0- -0- 368,817shs 131,183shs $174,950 $92,238
Les Winder 103,846shs $157,801 -0- -0- -0- -0-
Brenda Taylor 50,000shs $ 17,813 -0- -0- -0- -0-
Robert DePalo 192,308shs $ 78,764 80,000shs -0- $ 12,500 -0-
</TABLE>
- ------------
(1) Based on the market value of the Common Stock on October 8, 1998
($1.65625 per share) minus certain credits recognized by the Company. See
"Settlements with Prior Management."
(2) Based on the market value of the Common Stock on December 31, 1997
minus the exercise price.
CURRENT EMPLOYMENT AND CONSULTING AGREEMENTS
Effective November 1, 1997, the Company entered into an employment
agreement with Joseph A. Rosio employing him on a full-time basis as president
and chief executive officer. The employment agreement expires on March 31, 2001
and provides for annual compensation of $125,000 the first year, increasing by
$25,000 in
16
<PAGE>
each successive year with a salary for the final five months of $72,917,
provided that his salary will be increased to $200,000 with respect to any
fiscal year in which the Company realizes at least $2 million of pre-tax income.
Pursuant to the agreement, Mr. Rosio is also entitled to an annual bonus equal
to 5% of the first $10 million of the Company's pre-tax income and 7% of any
pre-tax income in excess of $10 million (in each case excluding extraordinary
items). Pursuant to the agreement, Mr. Rosio was granted options exercisable to
purchase 500,000 shares of the Company's Common Stock pursuant to the October
30, 1997 Stock Option Plan, subject to stockholder approval of the Plan. See
"Stock Options" and Proposal Five.
Effective January 1, 1998, the Company entered into an employment
agreement with Christopher J. Garcia, employing him on a full-time basis as
treasurer and chief financial officer. The agreement is for a one-year term and
provides for an annual salary of $85,000 plus a bonus at the discretion of the
Board of Directors. In addition, Mr. Garcia received a $15,000 signing bonus.
Pursuant to the agreement, Mr. Garcia was granted options exercisable to
purchase 100,000 shares of the Company's Common Stock pursuant to the October
30, 1997 Stock Option Plan, subject to stockholder approval of the Plan. See
"Stock Options" and Proposal Five.
Effective February 1, 1998, the Company entered into a two-year
consulting agreement with Robert DePalo. The agreement provides for Mr. DePalo
to provide a minimum of 30 hours per month of financial consulting and
investment banking services to the Company for an annual consulting fee of
$75,000. Pursuant to the agreement, Mr. DePalo is also entitled to a 6% finder's
fee in connection with any acquisition by the Company of an entity procured by
Mr. DePalo and a 10% finder's fee in connection with any transaction procured by
Mr. DePalo in which the Company is acquired, provided in each case that the
transaction is completed no later than one year after the consulting agreement
expires. Pursuant to the consulting agreement, the Company has agreed to pay Mr.
DePalo's cellular telephone bills of up to $1,000 per month for the two-year
term and to provide him with a private office for such period. See "Settlements
with Prior Management."
CERTAIN TRANSACTIONS WITH AFFILIATED PARTIES
William S. Taylor, Les Winder, Robert DePalo and Brenda Taylor provided
personal guarantees of certain Company bank loans in the aggregate amount of
$1,150,000 incurred in the fourth quarter of calendar year 1995, and posted
collateral in connection with such loans in order to enable the Company to fund
the bid deposits required to render it an eligible bidder for the FCC's PCS "C"
Block licenses auction conducted in December 1995 and in the first quarter of
calendar 1996. In order to compensate the individuals for their guarantees and
posting of collateral, on June 3, 1997,
17
<PAGE>
the Board of Directors authorized the issuance to them of Class A Warrants
exercisable to purchase an aggregate 191,667 shares of Common Stock at an
exercise price of $60 per share (reduced to $27 per share on December 24, 1996
and further reduced to $2.25 per share effective September 16, 1997) and also
granted each the right to purchase up to six (6) shares representing 6% of the
capital stock of the Company's PCN subsidiary for $1,000 per share. Two of the
six PCN shares allocated to Mr. DePalo were purchased by his wife. PCN was the
recipient of six PCS licenses awarded by the FCC on May 8, 1996 based on the
Company's bid. The grant of the Class A Warrants and the purchase and delivery
of the PCN stock was conditioned on the grant to the Company of the PCS licenses
and the delivery and acceptance of the Company's FCC Notes and related Security
Agreements by the FCC. See "Settlements with Prior Management" as to agreements
pursuant to which Messrs. William S. Taylor, Winder and DePalo and Brenda Taylor
waived any rights to the Class A Warrants and rescinded their purchases of PCN
stock, and pursuant to which the Company repurchased Mrs. DePalo's shares of PCN
stock.
During the fourth quarter of calendar 1996, the Company borrowed
$180,000 from Robert DePalo repayable on demand with interest at the rate of 10%
per annum. The Company borrowed the funds for working capital purposes. At March
31, 1997, the loan balance had been reduced by approximately $100,000 through
repayments to Mr. DePalo. In the quarter ended September 30, 1997, the Company
borrowed an additional $100,000 from Mr. DePalo on similar terms for working
capital purposes. During the fourth quarter of calendar year 1997, Mr. DePalo
loaned an additional $105,000 to the Company for working capital purposes which
amount was repaid by the Company to Mr. DePalo in December 1997 out of the net
proceeds of its December 1997 Regulation S Private Offering. At December 31,
1997, the net amount of the loans and advances made by Mr. DePalo to the Company
and payments made by him on behalf of the Company (excluding legal fees paid by
him on behalf of the Company) totalled approximately $200,000. See "Settlements
with Prior Management" as to the Company's settlement of these amounts with Mr.
DePalo.
In March 1996, the Company borrowed $134,000 from an unrelated
third-party, Technics in Design & Manufacturing, Inc. ("TDMI") for working
capital purposes and issued its promissory note in consideration for the loan.
The loan was payable on March 5, 1997 with interest at an annual rate of 10%. In
July 1996, the Company repaid $25,000 of the loan principal thereby reducing the
balance to $109,000. Although the Company has an assignment in its files dated
May 5, 1996 pursuant to which TDMI purportedly assigned the note to Mr. DePalo's
wife, Mr. DePalo has advised that it was not until October 1996 at a time when
TDMI was requesting early payment of the note, that Mrs. DePalo accommodated
TDMI by purchasing the note from TDMI for $109,000. The Company paid Mrs. DePalo
the $109,000 balance of the note together with accrued interest in
18
<PAGE>
January 1997 out of the net proceeds of its December 1996 private placement.
SETTLEMENTS WITH PRIOR MANAGEMENT
In January 1998, the Company entered into settlement agreements with
three former officer/directors, William S. Taylor, his mother Brenda Taylor and
Les Winder. Pursuant to the agreements, each of the three individuals agreed to
cancel his or her employment agreement or employment arrangement and proposed
consulting agreement with the Company, any rights to warrants and/or options
exercisable to purchase shares of the Company's Common Stock (excluding warrants
sold by the individual prior to August 31, 1997 and the options hereinafter
described) and any rights to shares of the Company's Series B Preferred Stock.
The issuance of the Series B Preferred Stock had been approved by the Company's
stockholders at the Annual Meeting of Shareholders held on October 17, 1996 but
the shares were never issued and the notes to be given in payment for the shares
were never delivered to the Company. Each individual also agreed to rescind the
transaction by which he or she had purchased 6% of the stock of the Company's
PCN subsidiary for $6,000. In consideration therefor, the Company agreed, unless
required to do so by court order, to take no action to challenge the issuance to
each individual of shares of its Common Stock issued to such individual (176,923
shares to William S. Taylor, 50,000 shares to Brenda Taylor and 103,846 shares
to Les Winder) pursuant to options granted to each such individual by the
September 29, 1997 unanimous written consent of the Company's Board of
Directors. The options, exercisable at $1.30 per share, were exercised and the
shares were issued to each of the three former officer/directors in October
1997.
The Company issued W-2s to William S. Taylor and to the IRS for 1997
indicating in addition to any other compensation paid to Mr. Taylor by the
Company in 1997, additional compensation in an amount equal to the difference
between the 176,923 shares issued to him multiplied by the mean between the
closing bid and asked prices for the Common Stock in the over-the-counter market
on October 8, 1997 of $1.65625 per share or $293,029 on the one hand, and the
net amount of the loans and advances owed by the Company to Mr. Taylor as
indicated by the Company's books of account ($63,671), plus a $6,000 credit for
rescission of his prior purchase of PCN stock, plus legal fees paid by Mr.
Taylor on behalf of the Company (a total of $109,672), on the other. The Company
also issued W-2s to Les Winder and to the IRS for 1997 indicating in addition to
any other compensation paid to Mr. Winder by the Company in 1997, additional
compensation in an amount equal to the 103,846 shares issued to him multiplied
by $1.65625 per share or $171,995 on the one hand, and the $20,000 of legal fees
paid by Mr. Winder on behalf of the Company, plus a $6,000 credit for rescission
of his prior purchase of PCN stock, less the $11,806 net amount of the loans and
advances owed by Mr. Winder to the Company as indicated
19
<PAGE>
by the Company's books of account (a total of $14,194), on the other. Similarly,
the Company issued W-2s to Brenda Taylor and to the IRS for 1997 indicating in
addition to any other compensation paid to her by the Company in 1997,
additional compensation in an amount equal to the 50,000 shares issued to her
multiplied by $1.65625 per share or $82,813 on the one hand, and the net amount
of the loans and advances owed by the Company to Ms. Taylor as indicated by the
Company's books of account ($59,000), plus a $6,000 credit for rescission of her
prior purchase of PCN stock (a total of $65,000), on the other. In connection
with these settlement agreements, William S. Taylor and Brenda Taylor have
advised the Company that it is their position that certain General Release,
Indemnity and Hold Harmless Provisions adopted by the directors on September 29,
1997 when William S. Taylor, Brenda Taylor and Les Winder constituted three of
the six members of the Board of Directors, indemnifying them from any claims
asserted in connection with any action taken for or their role with the Company
are in full force. It is present management's position that such releases and
hold harmless provisions are not in effect.
On February 5, 1998, the Company entered into settlement agreements
with a director, Robert DePalo and his wife which resulted in the rescission by
Mr. DePalo of his previous purchase for $4,000 of 4% of the stock of the
Company's PCN subsidiary and the purchase by the Company from Ms. DePalo for
$67,000 of 2% of the stock of the PCN subsidiary which she had purchased for
$2,000 in August 1996. As a result of the agreements with William S. Taylor,
Brenda Taylor, Mr. Winder and Mr and Mrs. DePalo, PCN is now 100% owned by the
Company.
Pursuant to his February 5, 1998 agreement with the Company, Robert
DePalo agreed to cancel his prior employment agreement and a prior proposed
consulting agreement with the Company, any rights to warrants exercisable to
purchase shares of the Company's Common Stock (excluding warrants sold by him
prior to August 31, 1997) and any rights to shares of the Company's Series B
Preferred Stock. He also agreed to waive any and all options he held exercisable
to purchase shares of the Company's Common Stock excluding (a) options
exercisable at $1.30 per share granted to him pursuant to the September 29, 1997
unanimous written consent of the Board of Directors and exercised by him to
purchase 192,308 shares of the Company's Common Stock, (b) five-year options
previously granted to him and exercisable to purchase 80,000 shares of the
Company's Common Stock at $2.00 per share, and (c) five-year options to purchase
150,000 shares of the Company's Common Stock at $2.25 per share pursuant to a
consulting agreement with the Company executed on February 5, 1998 and
hereinafter described.
Pursuant to the settlement agreement with Mr. DePalo, the Company
issued a W-2 to him and to the IRS for 1997 indicating in addition to any other
compensation paid to him by the Company in 1997, additional compensation in an
amount equal to the difference
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between the 192,308 shares issued to him multiplied by the mean between the
closing bid and asked prices for the Company's Common Stock in the
over-the-counter market on October 8, 1997 of $1.65625 per share or $318,510 on
the one hand, and the net amount of the loans and advances owed by the Company
to Mr. DePalo as indicated by the Company's books of account ($198,746), plus a
$4,000 credit for rescission of his prior purchase of the PCN stock, plus
$37,000 of legal fees paid by Mr. DePalo on behalf of the Company (a total of
$239,746), on the other.
In consideration for Mr. DePalo's agreements and waivers, the Company
and Mr. DePalo executed a two-year consulting agreement previously described
pursuant to which Mr. DePalo was retained by the Company as a part-time
consultant for an annual consulting fee of $75,000 and was granted five-year
options pursuant to the Company's October 30, 1997 Stock Option Plan,
exercisable to purchase 150,000 shares of the Company's Common Stock at $2.25
per share but subject to stockholder approval of the Plan. See "Current
Employment and Consulting Agreements" and Proposal Five.
On March 24, 1998, Mr. DePalo resigned as a director of the Company.
The resignation does not affect his options or his consulting agreement.
---------------
PROPOSED AMENDMENT TO THE
CERTIFICATE OF INCORPORATION TO
CHANGE THE COMPANY'S NAME TO
"NORTHEAST DIGITAL NETWORKS, INC."
(PROPOSAL TWO)
The proposed amendment to the Company's Certificate of Incorporation
would authorize the change of the Company's name to "Northeast Digital Networks,
Inc." The Company is currently undergoing a change in focus and direction from
that of a distributor of communications, consumer and business-oriented
electronics products to that of a prospective wireless telecommunications
carrier through the proposed development and construction of a wireless
communications network based upon the PCS licenses it acquired in the December
1996 Federal Communications Commission C-Block auction. The licenses cover six
markets in the northeastern United States. Based on such change, the Board of
Directors is of the opinion that the name "Northeast Digital Networks, Inc." is
more descriptive of the Company's current activities.
The proposed resolution is as follows:
RESOLVED that Article FIRST of the Company's Certificate of
Incorporation be amended to read in its entirety as follows:
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"FIRST: The name of the Corporation is Northeast Digital
Networks, Inc."
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE FOREGOING
AMENDMENT TO ARTICLE FIRST OF THE COMPANY'S CERTIFICATE OF INCORPORATION.
---------------
PROPOSED AMENDMENT TO THE
CERTIFICATE OF INCORPORATION TO LIMIT
THE LIABILITY OF DIRECTORS FOR
MONETARY DAMAGES TO THE COMPANY
OR ITS STOCKHOLDERS FOR BREACH
OF FIDUCIARY DUTY
(PROPOSAL THREE)
The Board of Directors of the Company has adopted a resolution
proposing to amend the Company's Certificate of Incorporation by adding a new
Article EIGHTH designed to limit the liability of a director for monetary
damages to the Company or its stockholders for breach of fiduciary duty, to
liability (i) for breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for willful or
negligent violations by the director of the provisions of Delaware law
concerning unlawful stock purchases or redemptions and the unlawful payment of
dividends, and (iv) for any transaction from which the director derived an
improper personal benefit.
The Delaware General Corporation Law (the "Delaware Code") was amended
in 1986 to permit the stockholders of a corporation organized under the Delaware
Code to amend its Certificate of Incorporation to limit or eliminate any
director's liability for monetary damages for breach of his fiduciary duty of
care to the corporation and its stockholders. This change in the law was a
legislative response to the increasing unavailability of officers and directors
liability insurance to many corporations. Where such insurance is difficult or
impossible to obtain, a corporation may have difficulty attracting qualified
persons to serve as directors.
Management believes that the proposed amendment will assist the Company
in maintaining a highly qualified board of directors. Although the Company
currently maintains officers' and directors' liability insurance, coverage under
the policy is limited. The effect of stockholder approval of the proposed
amendment would be to eliminate both direct stockholder suits and derivative
suits on behalf of the Company against directors for money damages, when based
on allegations of breach of fiduciary duty of care by directors for negligence
or gross negligence. However, the proposed amendment will not eliminate or limit
any director's liability for breaches of his duty of loyalty, acts or omissions
not in good faith or knowing violations of law, unlawful dividend payments or
22
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stock redemptions as provided in Section 174 of the Delaware Code or
transactions in which he derived a personal benefit. The proposed amendment
would not eliminate the availability of equitable remedies, such as injunction
or rescission, for breach of fiduciary duty. The proposed amendment would limit
director liability only for future conduct and does not affect any liability a
director may have with respect to conduct pre-dating the effective date of such
amendment.
The proposed resolution is as follows:
RESOLVED that the Company's Certificate of Incorporation be amended by
adding a new Article EIGHTH to read:
"EIGHTH. No director of the Corporation shall have liability
to the Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director occurring after the date on which the
Certificate of Amendment amending the Certificate of Incorporation to
include this Article EIGHTH is filed with the Secretary of State of
Delaware; provided, however, that the foregoing shall not limit or
eliminate the liability of a director (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law or (iv) for any transaction from
which the director derived an improper personal benefit."
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE FOREGOING
AMENDMENT ADDING A NEW ARTICLE EIGHTH TO THE COMPANY'S CERTIFICATE OF
INCORPORATION.
---------------
PROPOSED AMENDMENT TO THE CERTIFICATE OF
INCORPORATION TO CHANGE THE PAR VALUE OF
THE COMMON STOCK AND TO RATIFY THE
ONE-FOR-TWELVE REVERSE STOCK SPLIT
(PROPOSAL FOUR)
On May 28, 1997, the Board of Directors adopted resolutions to effect a
one-for-twelve reverse stock split of the Company's outstanding Common Stock,
$.05 par value and to change the par value of such stock to $.60 per share as of
the close of business on July 31, 1997. The Board announced that it had
authorized the reverse stock split "...in an effort to spur interest in the
Company's stock and to enhance shareholder value." Stockholders are hereby being
requested to ratify the change in the par value of the Common Stock from $.05
par value to $.60 par value and the one-for-twelve reverse stock split of the
Common Stock as authorized by the Board of Directors effective July 31, 1997,
and in connection
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therewith, to amend Article FOURTH of the Company's Certificate of
Incorporation.
The proposed resolutions are as follows:
RESOLVED that Article FOURTH of the Company's Certificate of
Incorporation be amended to read in its entirety as follows:
"FOURTH: The total number of shares which the Corporation may
issue is 48,000,000 of which 40,000,000 shall be Common Stock having a
par value of $.60 each and 8,000,000 shall be Preferred Stock having a
par value of $.01 each. The Board of Directors, in its sole discretion
may, at any time or from time to time, without any vote of the holders
of the Corporation's capital stock, issue all or a part of the unissued
capital stock of the Corporation authorized under this Certificate of
Incorporation. The Board of Directors, in its sole discretion, shall
have full and complete authority, by resolution, from time to time, to
establish one or more series or classes and to issue shares of
Preferred Stock, and to fix, determine and vary the voting rights,
designations, preferences, restrictions, qualifications, privileges,
limitations, options, conversion rights and other special rights of
each series or class of Preferred Stock, including, but not limited to,
dividend rates and manner of payment, preferential amounts payable upon
voluntary or involuntary liquidation, voting rights, conversion rights,
redemption prices, terms and conditions, and sinking funds and stock
purchase prices, terms and conditions."
and be it further
RESOLVED that the one-for-twelve reverse stock split of the Company's
Common Stock, $.05 par value authorized by the Board of Directors and
changing each share of the Company's Common Stock, $.05 par value
outstanding at July 31, 1997 into one-twelfth (1/12th) of one share of
new Common Stock, $.60 par value, without reducing, distributing or
withdrawing the existing capital of this Corporation, be and the same
is confirmed, ratified and approved.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE FOREGOING
AMENDMENT TO ARTICLE FOURTH OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND
RATIFICATION OF THE ONE-FOR-TWELVE REVERSE STOCK SPLIT.
---------------
24
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APPROVAL OF ADOPTION OF THE
OCTOBER 30, 1997 STOCK OPTION PLAN
(PROPOSAL FIVE)
On October 30, 1997, the Board of Directors adopted the October 30,
1997 Stock Option Plan (the "October 1997 Plan") subject to stockholder
approval. The October 1997 Plan provides for the grant of options with respect
to a maximum 1,000,000 shares of Common Stock, $.60 par value. As of the record
date, the Company had issued options to six individuals under the October 1997
Plan, exercisable to purchase an aggregate 945,000 shares of Common Stock. These
options are subject to stockholder approval of the October 1997 Plan. See "Stock
Options."
DESCRIPTION OF THE OCTOBER 1997 PLAN
The October 1997 Plan provides for the grant of options to purchase up
to 1,000,000 shares of the Company's Common Stock to officers, directors and key
employees. Under the terms of the October 1997 Plan, options granted thereunder
may be designated as options which qualify for incentive stock option treatment
("ISOs") under Section 422A of the Internal Revenue Code of 1986, as amended, or
options which do not so qualify ("Non-ISOs").
The October 1997 Plan is administered by the Board of Directors or by a
Stock Option Committee designated by the Board of Directors. The Board or the
Stock Option Committee, as the case may be, has the discretion to determine the
eligible officers, directors and key employees to whom, and the times and the
prices at which, options will be granted; whether such options shall be ISOs or
Non-ISOs; the periods during which each option will be exercisable; and the
number of shares subject to each option. The Board or Committee shall have full
authority to interpret the October 1997 Plan and to establish and amend rules
and regulations relating thereto.
Under the October 1997 Plan, the exercise price of an option designated
as an ISO shall not be less than the fair market value of the Common Stock on
the date the option is granted. However, in the event an option designated as an
ISO is granted to a ten percent stockholder (as defined in the October 1997
Plan) such exercise price shall be at least 110% of such fair market value.
Exercise prices of Non-ISO options may be less than such fair market value. The
aggregate fair market value of shares subject to options granted to a
participant which are designated as ISOs which first become exercisable in any
calendar year shall not exceed $100,000.
The Board or the Stock Option Committee, as the case may be, may, in
its sole discretion, grant bonuses or authorize loans to or guarantee loans
obtained by an optionee to enable such optionee to
25
<PAGE>
pay any taxes that may arise in connection with the exercise or cancellation of
an option.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE
ADOPTION OF THE OCTOBER 30, 1997 STOCK OPTION PLAN.
AUDITORS
The firm of Wiss & Company, LLP, certified public accountants, has been
selected by the Board of Directors to audit the accounts of the Company and its
subsidiaries for the current fiscal year ending March 31, 1999. Said firm has
served as the Company's auditors since August 1997. Representatives of such firm
are not expected to be present at the May __, 1998 Special Meeting in Lieu of
Annual Meeting of Stockholders.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Under current rules of the Securities and Exchange Commission,
stockholders wishing to submit proposals for inclusion in the Proxy Statement of
the Board of Directors for the 1999 Annual Meeting of Stockholders must submit
such proposals so as to be received by the Company at 425 Broad Hollow Road,
Melville, New York 11747 on or
before March 31, 1999.
OTHER MATTERS
Management does not know of any other matters which are likely to be
brought before the Meeting. However, in the event that any other matters
properly come before the Meeting, the persons named in the enclosed proxy will
vote said proxy in accordance with their judgment in said matters.
By Order of the Board of Directors
/s/ JOSEPH A. ROSIO
----------------------------------
JOSEPH A. ROSIO
President
Melville, New York
April __, 1998
26
<PAGE>
PRELIMINARY COPY
ELECTRONICS COMMUNICATIONS CORP.
REVOCABLE PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Special Meeting in Lieu of Annual Meeting of Stockholders - May __, 1998
The undersigned, a stockholder of ELECTRONICS COMMUNICATIONS CORP.(the
"Company") hereby appoints Joseph A. Rosio and Christopher J. Garcia or either
of them, as proxy or proxies of the undersigned, with full power of
substitution, to vote, in the name, place and stead of the undersigned, with all
of the powers which the undersigned would possess if personally present, on
behalf of the undersigned, all the shares which the undersigned is entitled to
vote at the Special Meeting in Lieu of Annual Meeting of the Stockholders of
ELECTRONICS COMMUNICATIONS CORP. to be held at 1:00 P.M. (local time) on
Thursday, May __, 1998, at _____________________________________________________
________________________________________________________________________________
and at any and all adjournments thereof. The undersigned directs that this Proxy
be voted as follows:
1) To elect directors for the ensuing year (Proposal One).
FOR / / all nominees listed WITHHOLD AUTHORITY / / to vote
below (except as marked to for all nominees listed below
the contrary below)
Nominees: JOSEPH A. ROSIO, CHRISTOPHER J. GARCIA,
JOHN P. CASSELLA, MAL GURIAN
(INSTRUCTIONS: TO WITHHOLD AUTHORITY FOR AN INDIVIDUAL NOMINEE, WRITE THAT
NOMINEE'S NAME ON THE LINE PROVIDED.)
--------------------------------------------------------------------------
2) To amend the Certificate of Incorporation to change the Company's
name (Proposal Two).
FOR / / AGAINST / / ABSTAIN / /
3) To amend the Certificate of Incorporation to limit the liability of
a director for monetary damages to the Company or its stockholders for breach of
fiduciary duty (Proposal Three).
FOR / / AGAINST / / ABSTAIN / /
4) To amend the Certificate of Incorporation to ratify the change in
par value of the Common Stock from $.05 to $.60 per share and the one-for-twelve
reverse stock split of the Common Stock effective July 31, 1997 (Proposal Four).
FOR / / AGAINST / / ABSTAIN / /
5) To approve the Company's October 30, 1997 Stock Option Plan
(Proposal Five).
FOR / / AGAINST / / ABSTAIN / /
6) In their discretion, on all other matters as shall properly come
before the meeting
AUTHORITY GRANTED / / AUTHORITY WITHHELD / /
(Continued and To be Signed on the Reverse Side)
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE FOREGOING.
UNLESS OTHERWISE SPECIFIED AS ABOVE PROVIDED, THIS PROXY WILL BE VOTED "FOR"
PROPOSALS ONE THROUGH FIVE AS SET FORTH IN THE PROXY STATEMENT. IN ADDITION,
DISCRETIONARY AUTHORITY IS CONFERRED AS TO ALL OTHER MATTERS THAT MAY COME
BEFORE THE MEETING UNLESS SUCH AUTHORITY IS SPECIFICALLY WITHHELD. STOCKHOLDERS
WHO ARE PRESENT AT THE MEETING MAY WITHDRAW THEIR PROXY AND VOTE IN PERSON IF
THEY SO DESIRE.
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY. No postage is
required if returned in the enclosed envelope and mailed in the United States.
Receipt of the Notice of Annual Meeting of Stockholders, the accompanying Proxy
Statement of the Board of Directors, the Company's Annual Report for the year
ended December 31, 1996, and its quarterly report for the period ended December
31, 1997 is acknowledged.
Dated:------------------------------------, 1998
---------------------------------------------------------
---------------------------------------------------------
(Signature of Stockholder)
Please sign exactly as name appears on this Proxy. If
shares are registered in more than one name, the
signatures of all such persons are required. A
corporation should sign in its full corporate name by a
duly authorized officer, stating his title. Trustees,
guardians, executors and administrators should sign in
their official capacity, giving their full title as such.
If a partnership, please sign in partnership name by
authorized person.
PLEASE SIGN AND RETURN THIS PROXY PROMPTLY
No postage is Required if Returned in the Enclosed Envelope
and Mailed in the United States
