SCHEDULE 14A
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[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
NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY KNOWN AS 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:
- - --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
- - --------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- - --------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
- - --------------------------------------------------------------------------------
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by Registration Statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:------------------------------------------------
2) Form, Schedule or Registration Statement No.:--------------------------
3) Filing Party:----------------------------------------------------------
4) Date Filed:------------------------------------------------------------
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NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.)
425 BROAD HOLLOW ROAD, MELVILLE, NEW YORK 11747
(516) 501-0466
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
DECEMBER __, 1998
---------------
A special meeting of stockholders of Northeast Digital Networks, Inc.,
a Delaware corporation (the "Company") will be held at the Wyndham Wind Watch
Hotel, 1717 Vanderbilt Motor Parkway, Hauppauge, Long Island, New York 11788, on
________, December __, 1998 at 10:00 A.M. local time, for the following
purposes:
1. To authorize and approve a one-for ______ reverse stock split of the
issued and outstanding 25,452,825 shares of common stock, par value
$.60 per share (the "Common Stock") thereby changing such shares of
Common Stock into approximately _______ shares of Common Stock as
well as to effect a one-for ______ reverse stock split of the shares
of Common Stock reserved for issuance and/or issuable upon exercise
of the Company's outstanding Class A Warrants and options and upon
conversion of the Company's outstanding convertible notes,
convertible debentures and Series C Preferred Stock and Series D
Preferred Stock (Proposal One).
2. To approve the issuance of additional shares of Common Stock to
permit conversion in full of the Series D Preferred Stock (Proposal
Two).
3. 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 Monday, November 9, 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
Joseph A. Rosio
President
Dated: November 16, 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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NORTHEAST DIGITAL NETWORKS, INC.
(FORMERLY ELECTRONICS COMMUNICATIONS CORP.)
425 BROAD HOLLOW ROAD, MELVILLE, NEW YORK 11747
(516) 501-0466
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PROXY STATEMENT
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SPECIAL MEETING OF STOCKHOLDERS
DECEMBER __, 1998
--------------
This Proxy Statement of Northeast Digital Networks, Inc., a Delaware
corporation (the "Company") is first being mailed to Stockholders on or about
November __, 1998 in connection with the solicitation of proxies by the
Company's Board of Directors to be voted at the Special Meeting of Stockholders
of the Company to be held on ________, December __, 1998 at 10:00 A.M. (local
time) at the Wyndham Wind Watch Hotel, 1717 Vanderbilt Motor Parkway, Hauppauge,
Long Island, New York 11788. Accompanying this Proxy Statement is a Notice of
Special Meeting of Stockholders, a form of Proxy, a copy of the Company's 1998
Annual Report on Form 10K-SB containing financial statements and related data,
and a copy of the Company's quarterly report on Form 10QSB for the quarter ended
September 30, 1998 also containing financial statements for the three 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
Proposal One and Proposal Two. 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 Monday, November 9, 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, and by telephone. The Company has requested banks, brokerage firms
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. In
addition, the Company intends to retain the services of a professional proxy
solicitation firm, Georgeson & Company, Inc. ("Georgeson"), or another similar
firm to solicit proxies for fees and expenses not expected to exceed $15,000.
Pursuant to its agreement with the Company, Georgeson will solicit proxies from
brokers, banks and other institutional holders, non-objecting beneficial owners
and individual holders of record of the Company's Common Stock.
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VOTE REQUIRED, PRINCIPAL STOCKHOLDERS
AND STOCKHOLDINGS OF MANAGEMENT
The Board of Directors has fixed the close of business on Monday,
November 9, 1998 as the record date (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 25,452,825 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. Approval of (i) the
one-for-________ reverse stock split (Proposal One), and (ii) the issuance of
additional shares of Common Stock to permit full conversion of the Company's
Series D Preferred Stock ("Proposal Two"), requires the affirmative vote of a
majority of the issued and outstanding Common Stock.
The following table sets forth, as of the November 9, 1998 record date,
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 and all persons, to the best of the Company's knowledge, that beneficially
own five (5%) percent or more of the issued and 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
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. Shares issuable upon conversion of outstanding convertible notes
and debentures and Series C Preferred Stock and Series D Preferred Stock are not
deemed outstanding for these purposes as the number of shares of Common Stock
issuable upon conversion of each such security fluctuates based on changes in
the market price for the Common Stock. 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 Number of Shares Percent
Beneficial Owner Beneficially Owned of Class
- - ------------------- -------------------- --------
Joseph A. Rosio 423,817(1) 1.6%
John P. Cassella 66,667(2) **
Christopher J. Garcia -0- (3) --
Mal Gurian 45,000(4) **
Invest Quest, Inc. 6,088,816(5) 23.9%
All executive officers and
directors as a group
(four persons) 535,484(1)(2)(3)(4) 2.0%
- - ----------
* The address of each executive officer and director is c/o the Company, 425
Broad Hollow Road, Melville, New York 11747.
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** Owns less than one (1%) percent.
(1) Mr. Rosio is the Chairman of the Board, President, Chief Executive
Officer and a Director of the Company. Includes 55,000 shares owned directly,
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.
(2) Mr. Cassella is a Director of the Company. Includes 66,667 shares
of Common Stock purchasable upon exercise of non-qualified options at an
exercise price of $1.453125 per share. Does not include 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.
(3) Mr. Garcia is the Chief Financial Officer, Secretary and a Director
of the Company. 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 respect to the balance). They were granted pursuant to the October
30, 1997 Stock Option Plan.
(4) Mr. Gurian is a Director of the Company. Such 45,000 shares of
Common Stock are purchasable upon exercise of non-qualified options at an
exercise price of $1.453125 per share. Such options were granted pursuant to the
October 30, 1997 Stock Option Plan.
(5) Such shares were issued on approximately November 4, 1998 as a
result of the conversion by such person of approximately $173,152 of outstanding
principal and accrued interest of a 10% convertible promissory note (the "10%
Convertible Note") of the Company held by such person. Does not include any
additional shares that may be issued upon conversion of the remaining
outstanding approximately $40,000 principal amount of the 10% Convertible Note,
which amount does not include an interest that may accrue.
ACTION TO BE TAKEN AT THE MEETING
APPROVE THE ONE-FOR-____________ REVERSE STOCK SPLIT
(PROPOSAL ONE)
The Board of Directors of the Company has adopted resolutions to effect
a one-for-______ reverse stock split of the outstanding Common Stock, as well as
to effect a one-for-_______ reverse stock split of the shares of Common Stock
reserved for issuance and/or issuable upon exercise of the Company's outstanding
Class A Warrants and options and upon conversion of the Company's outstanding
convertible notes, convertible debentures and Series C Preferred Stock and
Series D Preferred Stock.
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If this Proposal is adopted, certificates for new Common Stock will be
issued in place of and upon surrender of certificates for old Common Stock on
the basis of one new share of Common Stock for every ________ shares of old
Common Stock surrendered. In connection with the reverse stock split, fractional
shares of Common Stock will not be issued but any stockholder entitled to a
fractional share will be issued one whole share of Common Stock therefor.
On November 9, 1998, the record date (the "Record Date"), the Company
had an aggregate 25,452,825 shares of Common Stock outstanding and an additional
7,250,415 shares of Common Stock reserved for issuance upon exercise of
outstanding warrants and options. Therefore, assuming effectiveness of the
proposed one-for-______ reverse stock split, the Company will have approximately
______ shares of new Common Stock outstanding and an additional approximately
_______ shares of Common Stock reserved for issuance upon exercise of
outstanding warrants and options.
On the Record Date, the Company had an aggregate $440,000 principal
amount of convertible notes and convertible debentures outstanding as well as
21.15 shares of Series C Preferred Stock outstanding. All of these securities
are convertible into shares of Common Stock at a conversion rate based upon a
35% discount from the five-day average closing bid price for the Common Stock
preceding the date of conversion. The five-day average closing bid price for the
Common Stock preceding the Record Date was $.15625. Based upon such conversion
rate and such five-day average closing bid price, the convertible notes,
convertible debentures and Series C Preferred Stock were convertible into
3,347,692, 984,615, and 20,824,615 shares of Common Stock (without giving effect
to the proposed reverse stock split), respectively. In addition, on the Record
Date, the Company had five hundred (500) shares of Series D Preferred Stock
outstanding. The Series D Preferred Stock is eligible for conversion commencing
on February 1, 1998 and converts at the conversion price equal to the lower of
(i) seventy-five (75%) percent of the average closing bid price of the Common
Stock for the five (5) trading days immediately preceding the date on which the
Company receives notice of conversion from a holder, or (ii) the closing bid
price of the Common Stock on the date of issuance of the Series D Preferred
Stock being converted.
With the exception of the reduction in outstanding shares caused by the
one-for-______ reverse stock split, the old Common Stock and the new Common
Stock are identical. As was the case with the old Common Stock, holders of the
new Common Stock will be entitled to dividends when and as declared by the Board
of Directors from funds legally available therefor, and, upon liquidation will
be entitled to share pro rata in any distribution to shareholders. Holders of
the Common Stock (as was the case with holders of the Old Common Stock) will
have one non-cumulative vote for each share held so that holders of more than
50% of the Common Stock will be able to elect all the directors and the
remaining stockholders will be unable to elect any directors. There are no
preemptive, conversion or redemption privileges, nor sinking fund provisions
with respect to either the new Common Stock or the old Common Stock. All of the
outstanding shares of the old Common Stock are (and all of the shares of the
Common Stock issued upon the reverse stock split will be) validly issued, fully
paid and non-assessable.
The reverse stock split will not effect any change in the rights of
minority stockholders concerning a change in control or takeover of the Company.
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Receipt of shares of new Common Stock upon surrender of old Common Stock in
connection with the reverse stock split will not constitute taxable income to
stockholders under federal income tax laws.
As of the Record Date, the Company had approximately 7,296,760 shares
of Common Stock authorized but unissued and unreserved for future issuances.
Although there are no present plans or arrangements to issue any such shares,
the Company will be required to arrange substantial additional financing in
order to, among other things, build out and operate its planned PCS Systems. Any
such financings, the availability of which cannot be assured, will in all
likelihood require the Company to issue as part of the consideration therefor,
additional shares of Common Stock and/or securities convertible into shares of
Common Stock in amounts not presently ascertainable. Any such issuances could
have a dilutive effect on the Company's stockholders. In addition, large numbers
of the authorized but unissued and unreserved shares of Common Stock could be
issued by management to counter unwanted hostile takeover attempts, even if such
proposed takeovers are on terms advantageous to the existing stockholders.
REASONS FOR THE PROPOSED REVERSE STOCK SPLIT
The Common Stock is currently quoted and traded in the over-the-counter
market on the NASDAQ SmallCap Market under the symbol "GSMI." The NASDAQ
Marketplace Rules provide that to be eligible for continued listing on NASDAQ,
the Common Stock is required to maintain a minimum bid price of $1.00. The
closing bid price for the Common Stock has been lower than $1.00 at all times in
fiscal year 1999. The closing bid price for the Common Stock on the Record Date
was $.15625 As a result, NASDAQ informed the Company that the Common Stock is
subject to delisting. To attempt to stay the delisting, the Company on October
29, 1998 had a hearing with the NASDAQ Listing Qualifications Hearing Panel.
Although NASDAQ has not informed the Company of the results of the hearing, in
an attempt to increase the bid price of the Common Stock to $1.00 or more, the
Board of Directors of the Company has authorized and recommends the proposed
one-for-________ reverse stock split.
It should be noted that even if the reverse stock split of the Common
Stock is effected, no assurances can be given that it will trade at a market
price at or above $1.00 per share or that it will continue to be listed on
NASDAQ. The Board of Directors believes that the proposed reduction in the
number of outstanding shares of Common Stock will afford a better opportunity
for the market price for such securities to increase on a per share basis,
although no assurances can be given that such will be the case. However, the
Board of Directors believes that the failure to effectuate the proposed reverse
stock split could significantly increase the possibility that the Common Stock
will be delisted from trading on NASDAQ which would result in a limited trading
market for such securities and thereby, in all likelihood, adversely affecting
their liquidity.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" FOREGOING
APPROVAL OF THE ONE-FOR-__________ REVERSE STOCK SPLIT.
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APPROVAL OF ISSUANCE OF ADDITIONAL
SHARES OF COMMON STOCK TO PERMIT
CONVERSION IN FULL OF THE SERIES D PREFERRED STOCK
(PROPOSAL TWO)
Rule 4310(c)(25)(H) of the Nasdaq Marketplace Rules (the "NASDAQ
Rule"), prevents the Company from issuing a number of shares of Common Stock
equal to or greater than twenty (20%) percent of the number of the Company's
outstanding shares of Common Stock unless such issuance is either approved by
the Company's shareholders at a shareholders' meeting or Nasdaq waives such
requirement.
Pursuant to a Subscription Agreement (the "Agreement") dated November
4, 1998, the Company commenced a best efforts offering (the "Offering") pursuant
to Rule 506 of Regulation D of the Securities Act of 1933, as amended (the
"Act"), of a minimum of five hundred (500) shares and a maximum of five thousand
(5,000) shares of its Series D Preferred Stock, par value $.01 per share, $1,000
stated value (the "Series D Preferred Stock"), at a purchase price of $1,000 per
share.
The Series D Preferred Stock pays a dividend (provided the Company has
either sufficient surplus or net profits), at the rate of ten (10%) percent of
the stated value per annum, payable upon conversion of the shares of Series D
Preferred Stock, in cash or, at the option of the holders, in shares of Common
Stock. The shares of the Series D Preferred Stock are non-voting prior to
conversion, and, subject to certain limitations, are convertible commencing
February 1, 1999 into shares of Common Stock of the Company, at a conversion
price equal to the lower of (i) seventy-five (75%) percent of the average
closing bid price of the Common Stock for the five (5) trading days immediately
preceding the date on which the Company receives notice of conversion from a
holder or (ii) the closing bid price of the Common Stock on the date of issuance
of the Series D Preferred Stock being converted (the "Conversion Rate"). The
terms of the Series D Preferred Stock permit the Company at any time, on five
(5) days prior written notice, to redeem the outstanding Series D Preferred
Stock at a redemption price (the "Redemption Price"), equal to (i) the stated
value and the accrued dividends thereon, multiplied by (ii) 133% percent.
The terms of the Series D Preferred Stock provide that the Company
shall not be required to issue more than twenty (20%) percent of the number of
shares of Common Stock outstanding on the first date of issuance of any shares
of Series D Preferred Stock upon conversion of the Series D Preferred Stock
unless the stockholders of the Company have approved such issuance in accordance
with NASDAQ Rule. In the event that the Company's stockholders have not approved
the issuance of such additional shares of Common Stock, and twenty (20%) percent
of the number of shares of Common Stock outstanding on the date of issuance of
the Series D Preferred Stock have been issued upon conversion of the Series D
Preferred Stock, then any holder of Series D Preferred Stock who is restricted
from converting shall have the right to require the Company to redeem at the
Redemption Price such holder's Series D Preferred Stock within five (5) business
days after such redemption election.
The Series D Preferred Stock also contains a penalty provision if the
Company does not have a sufficient number of authorized shares of Common Stock
available for conversion of the Series D Preferred Stock at the time a holder
submits a notice of conversion. This penalty provision requires the Company to
pay all holders of outstanding Series D Preferred Stock a default payment in the
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amount of (N/365) x (.24) x the initial stated value of the outstanding and/or
tendered but not converted shares of Preferred Stock held by each holder where N
= the number of days from the conversion default date that the Company
authorizes a sufficient number of shares of Common Stock to effect conversion of
all remaining outstanding shares of the Series D Preferred Stock by the fifth
day of the following calendar month.
In addition, in the event the shares of Common Stock issuable upon
conversion of the Series D Preferred Stock are not delivered to the holder
within five (5) days after the holder provides written notice of conversion to
the Company, the Company is required to pay to the holder one (1%) percent of
the stated value of the Series D Preferred Stock in cash or shares of Common
Stock at the option of the holder for each day after the 5th business day
following the date the Company receives the holder's conversion notice that
certificates are not received.
The Company has agreed with the holders of the Series D Preferred Stock
that the Company shall prepare and file with the SEC, no later than forty-five
(45) days after the final closing date of the Offering, a registration statement
covering a sufficient number of shares of Common Stock, but in no event less
than the number of shares of Common Stock into which the Series D Preferred
Stock would be convertible at the time of filing of the registration statement.
In the event that the Company does not file the registration statement within
forty-five (45) days from the final closing date of the Offering, then the
Company shall pay to the holders an amount equal to two (2%) percent of the
stated value and the accrued dividends on the Series D Preferred Stock for each
month or portion thereof, commencing forty-five (45) days from the final closing
date of the Offering and continuing each month thereafter until the date the
registration statement is filed. Such payment shall at the holder's option be
paid either in shares of Common Stock or cash. Moreover, subject to certain
limitations, if the registration statement is not declared effective by the SEC
within one hundred twenty (120) days after the filing of the registration
statement, then the Company shall also make payments to the holders equal to two
(2%) percent of the stated value and accrued dividends for each thirty (30) day
period after the initial 120 day period that the registration statement has not
been declared effective.
In connection with the Offering, on approximately November 6, 1998, the
Company sold the minimum five hundred (500) shares of Series D Preferred Stock
and received gross proceeds of $500,000.
Because, as indicated above, the NASDAQ Rule prevents the Company from
issuing a number of shares of Common Stock equal to or greater than twenty (20%)
percent of the number of the Company's outstanding shares of Common Stock unless
such issuance is approved by the Company's shareholders at a shareholders'
meeting, the Company may only convert the Series D Preferred Stock into
approximately 5,090,565 shares of Common Stock, based upon the number of shares
outstanding as of the Record Date unless this Proposal is approved.
The Board of Directors believes that it is in the Company's best
interest to be able to convert the Series D Preferred Stock in accordance with
its terms rather than be required to redeem such securities at the Redemption
Price as provided in the event any shares of Series D Preferred Stock cannot be
converted. If the remaining 4,500 shares of Series D Preferred Stock are sold,
and this Proposal Two is approved at the meeting, the holders thereof may
convert such
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shares into approximately 28,800,000 shares of Common Stock, based upon the
closing bid price of $0.15625 for the Common Stock on the Record Date.
THE FOREGOING DESCRIPTION OF THE SERIES D PREFERRED STOCK IS A SUMMARY
ONLY, AND STOCKHOLDERS SHOULD PRIOR TO VOTING READ IN ITS ENTIRETY THE
CERTIFICATE OF DESIGNATION PREFERENCES, RIGHTS AND LIMITATIONS OF THE SERIES D
PREFERRED STOCK ANNEXED HERETO AS EXHIBIT 1 WHICH SETS FORTH ALL OF THE
PREFERENCES, RIGHTS AND LIMITATIONS OF THE SERIES D PREFERRED STOCK.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
ISSUANCE OF ADDITIONAL SHARES TO PERMIT THE CONVERSION IN FULL OF THE SERIES D
PREFERRED STOCK.
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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
Joseph A. Rosio
President
Melville, New York
December __, 1998
PLEASE COMPLETE, DATE, SIGN AND RETURN YOUR PROXY PROMPTLY
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PROXY CARD FRONT
NORTHEAST DIGITAL NETWORKS, INC.
PROXY SOLICITED BY BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Joseph A. Rosio and
Christopher J. Garcia and each of them, with full power of substitution, as
proxies to represent the undersigned and vote all the shares of Common Stock of
Northeast Digital Networks, Inc., which the undersigned is entitled to vote at
the Special Meeting of Shareholders to be held on December ---, 1998, at 10:00
a.m. local time at the Wyndham Wind Watch Hotel, 1717 Vanderbilt Motor Parkway,
Hauppage, New York 11788, and at any adjournments thereof, in the following
manner:
Management recommends that you vote FOR Proposal 1 and FOR Proposal 2.
1. Proposal to effectuate a one-for- ------ reverse stock split of the
Common Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Proposal to approve the issuance of additional shares to permit
conversion in full of the Series D Preferred Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. IN ACCORDANCE WITH THEIR BEST JUDGMENT, the Proxy is authorized to
vote upon any other matter which may properly come before the Meeting.
THIS PROXY, IF PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN.
UNLESS OTHERWISE DIRECTED, OR IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1 AND 2.
Date: ----------------------- , 1998
- - ------------------------------------
Signature
- - ------------------------------------
Signature if jointly held
Please date and sign exactly as your name appears
hereon. If shares are jointly held, all joint owners
should sign. Trustees and others signing in a
representative capacity shall sign as such. If the
owner is a corporation or partnership, a duly
authorized officer or partner shall sign the full
corporate or partnership name.
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EXHIBIT INDEX
Exhibit 4.1 Certificate of Designation
CERTIFICATE OF DESIGNATION, PREFERENCES
RIGHTS AND LIMITATIONS
OF
SERIES D PREFERRED STOCK
OF
NORTHEAST DIGITAL NETWORKS, INC.
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware (the "DGCL"), NORTHEAST DIGITAL NETWORKS, INC., a Delaware corporation
(the "Corporation"), does hereby certify that:
FIRST: The Corporation was incorporated in the State of Delaware on May
10, 1984 and the authorized number of shares of Preferred Stock, par value $.01
per share, of the Corporation is 8,000,000 shares, 21.35 shares of which are
presently outstanding;
SECOND: Pursuant to authority conferred upon the Board of Directors by
the Certificate of Incorporation of the Corporation and by the provisions of
Sections 141 and 151 ET SEQ of the DGCL, the Board of Directors have adopted the
following resolutions authorizing the issuance of an aggregate of 5,000 shares
of Series D Preferred Stock (as described below), which resolutions are still in
full force and effect and are not in conflict with any provisions of the
Certificate of Incorporation or By-Laws of the Corporation:
WHEREAS, the Board of Directors of the Corporation is authorized,
within the limitations and restrictions stated in the Certificate of
Incorporation, to fix by resolution or resolutions the designation of each
series of Preferred Stock and the powers, preferences, and
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relative participating, optional, voting or other special rights, and the
qualifications, limitations, or restrictions thereof; and
WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to its authority as aforesaid, to fix the terms of the Series D
Preferred Stock;
NOW, THEREFORE, BE IT RESOLVED, that pursuant to authority vested in
the Board of Directors of the Corporation by Section 151 of the DGCL, and in
accordance with the provisions of the Certificate of Incorporation of the
Corporation, one series of Preferred Stock, par value $.01 per share, of the
Corporation be and hereby is created and provided for with the terms,
designation, relative rights, preferences, and limitations as follows:
A. DESIGNATION AND NUMBER.
Five Thousand (5,000) of the 8,000,000 authorized shares of Preferred
Stock of the Corporation shall be designated Series D Preferred Stock (the
"Series D Preferred Stock") and shall possess the rights and privileges set
forth below.
B. PAR VALUE STATED VALUE, PURCHASE PRICE AND CERTIFICATES.
1. Each share of Series D Preferred Stock shall have a par value of
$.01, and a stated value (face amount) of One Thousand Dollars ($1,000) (the
"Stated Value").
2. The Series D Preferred Stock shall be offered for sale at a purchase
price of One Thousand Dollars ($1,000) per share.
3. Certificates representing the shares of Series D Preferred Stock
purchased shall be issued by the Corporation to the purchasers immediately upon
acceptance of the subscriptions to purchase such shares.
C. DIVIDENDS.
Holders of the shares of Series D Preferred Stock shall be entitled to
receive out of the assets of the Corporation legally available therefor, cash
dividends at the rate of 10% of the Stated Value per annum, payable upon the
conversion of the shares of Common Stock. Such dividend shall be payable in
shares of Common Stock of the Corporation, at the option of the Holder. If such
dividends are paid in shares of Common Stock, then the number of shares of
Common Stock to be issued on account of the accrued dividends shall be equal to
the amount
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of the dividend divided by the lower of (i) the Closing Bid Price, as
hereinafter defined, on the date of issuance (the "Fixed Conversion Price") or
(ii) 75% of the Closing Bid Price, for the five (5) trading days preceding the
Notice Date, as hereinafter defined.
D. LIQUIDATION PREFERENCE.
1. In the event of any liquidation, dissolution or winding-up of the
Corporation, either voluntary or involuntary (a "Liquidation"), the Holders of
shares of the Series D Preferred Stock then issued and outstanding shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, whether from capital, surplus or earnings,
before any payment shall be made to the Holders of shares of the Common Stock or
upon any other series of Preferred Stock of the Corporation junior to the Series
D Preferred Stock, an amount per share equal to the sum of (i) the Stated Value
and (ii) an amount equal to ten percent (10%) of the Stated Value multiplied by
the fraction N/365, where N equals the number of days elapsed since full payment
for the shares of Series D Preferred Stock. If, upon any Liquidation of the
Corporation, the assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the Holders of shares of the Series D
Preferred Stock and the Holders of any other series of Preferred Stock with a
liquidation preference equal to the liquidation preference of the Series D
Preferred Stock the full amounts to which they shall respectively be entitled,
the Holders of shares of the Series D Preferred Stock and the Holders of any
other series of Preferred Stock with a liquidation preference equal to the
liquidation preference of the Series D Preferred Stock shall receive all the
assets of the Corporation available for distribution and each such Holder of the
Series D Preferred Stock and the Holders of any other series of preferred stock
with a liquidation preference equal to the liquidation preference of the Series
D Preferred Stock shall share ratably in any distribution in accordance with the
amounts due such stockholders. After payment shall have been made to the Holders
of shares of the Series D Preferred Stock of the full amount to which they shall
be entitled, as aforesaid, the Holders of shares of the Series D Preferred Stock
shall be entitled to no further distributions thereon and the Holders of shares
of the Common Stock and of shares of any other series of stock of the
Corporation shall be entitled to share, according to their respective rights and
preferences, in all remaining assets of the Corporation available for
distribution to its stockholders.
2. A merger or consolidation of the Corporation with or into any other
corporation, or a sale, lease, exchange, or transfer of all or any part of the
assets of the Corporation which shall not in fact result in the liquidation (in
whole or in part) of the Corporation and the distribution of its assets to its
stockholders shall not be deemed to be a voluntary or involuntary liquidation
(in whole or in part), dissolution, or winding-up of the Corporation.
E. CONVERSION OF SHARES OF SERIES D PREFERRED STOCK.
The Holders of Series D Preferred Stock shall have the following
conversion rights:
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1. RIGHT TO CONVERT. Each share of Series D Preferred Stock shall be
convertible, on the Conversion Dates and at the Conversion Prices set forth
below, into fully paid and nonassessable shares of Common Stock (sometimes
referred to herein as "Conversion Shares").
2. MECHANICS OF CONVERSION. Each Holder of Series D Preferred Stock who
desires to convert the same into shares of Common Stock shall provide notice
(the "Conversion Notice") via telecopy (or an original) to the Corporation. The
certificate or certificates representing the shares of Series D Preferred Stock
for which conversion is elected, shall accompany the Conversion Notice. The date
upon which a Conversion Notice is received by the Corporation shall be a "Notice
Date."
The Corporation shall use all reasonable efforts to issue and deliver
within five (5) business days after the Notice Date, to such Holder of Series D
Preferred Stock at the address of the Holder on the stock books of the
Corporation, a certificate or certificates for the number of shares of Common
Stock to which the Holder shall be entitled as aforesaid.
3. LOST OR STOLEN CERTIFICATES. Upon receipt by the Corporation of
evidence of the loss, destruction, theft or mutilation of any Series D Preferred
Stock certificates (the "Certificates") and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the
Corporation, and upon surrender and cancellation of the Certificates, if
mutilated, the Corporation shall execute and deliver new Series D Preferred
Stock Certificates of like tenor and date. However, the Corporation shall not be
obligated to re-issue such lost or stolen Series D Preferred Stock Certificates
if the Holder thereof contemporaneously requests the Corporation to convert such
Series D Preferred Stock into Common Stock, in which event the Corporation shall
be entitle to rely on an affidavit of loss, destruction or theft of the Series D
Preferred Stock Certificate or, in the case of mutilation, tender of the
mutilated certificate, and shall issue the Conversion Shares.
4. CONVERSION FORMULA/CONVERSION PRICE. Each share of Series D
Preferred Stock shall be convertible commencing February 1, 1999 into the number
of Conversion Shares by dividing the Stated Value by a conversion price (the
"Conversion Price") equal to the lower of (i) the Closing Bid Price of the
Common Stock on the date of issuance of the shares of Series D Preferred Stock
being converted, or (ii) 75% of the average Closing Bid Price of the Common
Stock for the five (5) trading days immediately preceding the Notice Date. For
purposes hereof, the term "Closing Bid Price" shall mean the closing bid price
on the NASDAQ SmallCap Stock Market ("NASDAQ") as reported by Bloomberg, LP, or
if no longer traded thereon, the closing bid price on the principal national
securities exchange on which the Common Stock is so traded.
(a) In the event that the Corporation shall at any time after
the date of issuance of the Series D Preferred Stock: (i) declare a dividend on
the outstanding Common Stock payable in shares of its capital stock; (ii)
subdivide the outstanding Common Stock; (iii) combine the outstanding Common
Stock into a smaller number of shares; or (iv) issue any shares of its capital
stock by reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Corporation is the continuing
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corporation), then, in each case, the Conversion Price per share in effect at
the time of the record date for the determination of stockholders entitled to
receive such dividend or distribution or of the effective date of such
subdivision, combination, or reclassification shall be adjusted so that it shall
equal the price determined by multiplying such Conversion Price by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such action, and the denominator of which shall be the
number of shares of Common Stock outstanding after giving effect to such action.
Such adjustment shall be made successively whenever any event listed above shall
occur and shall become effective at the close of business on such record date or
at the close of business on the date immediately preceding such effective date,
as applicable.
5. AUTOMATIC CONVERSION. Each share of Series D Preferred Stock
outstanding sixty (60) months from the date of issuance automatically shall be
converted into Common Stock based upon the Conversion Price then in effect, and
such date shall be deemed to be the Notice Date with respect to such conversion.
6. NO FRACTIONAL SHARES. If any conversion of the Series D Preferred
Stock would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon conversion, if the aggregate,
shall be the next higher number of shares.
7. LIMITATION ON THE ISSUANCE OF SHARES OF COMMON STOCK. In no event
shall the Corporation be required to issue more than 20% of the number of shares
of Common Stock outstanding on the first date of issuance of any shares of
Series D Preferred Stock upon the conversion of the shares of Series D Preferred
Stock unless the stockholders of the Corporation approve the issuance of
additional shares of Common Stock upon the conversion of the shares of Series D
Preferred Stock or The NASDAQ Stock Market, Inc. ("NASDAQ") waives the
requirements of Market Place Rule 4460(i)(1)(D). In the event that 20% of the
number of shares of Common Stock outstanding on the date of issuance of the
Series D Preferred Stock have been issued upon the conversion of the Series D
Preferred Stock, and (i) NASDAQ has not waived the requirements of Market Place
Rule 4460(i)(1)(D) or (ii) the stockholders have not approved the issuance of
additional shares of Common Stock, then any shares of Series D Preferred Stock
that remain unconverted shall, at the election of the Holder, be redeemed by the
Corporation at the redemption price set forth in paragraph F below, within five
(5) business days of the Holder's election. The Corporation agrees to take such
corporate action as may be necessary to obtain the approval of the stockholders
to issue additional shares of Common Stock upon the conversion of the shares of
Series D Preferred Stock.
8. CONVERSION DEFAULTS.
(a) In the event that the Conversion Shares are not delivered
per the written instructions of the Holder, within five (5) business days after
the Notice Date, then in such event the Corporation shall pay to Holder one
percent (1%) of the Stated Value in cash or shares of Common Stock, based upon
the Conversion Price, at the option of the Holder, of the shares of
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Series D Preferred Stock being converted per each day after the fifth business
day following the Notice Date that the certificates for the Conversion Shares
are not delivered.
(b) To the extent that the failure of the Corporation to issue
the Conversion Shares is due to the unavailability of authorized but unissued
shares of Common Stock, the provisions of this subparagraph 8 hereof shall not
apply but instead the provisions of subparagraph 9 hereof shall apply.
(c) The Corporation shall make any cash payments in
immediately available funds or issue such shares of Common Stock incurred under
this subparagraph 8 within three (3) business days from the date of issuance of
the applicable shares of Common Stock. Nothing herein shall limit a Holder's
right to pursue actual damages or cancel the conversion for the Corporation's
failure to issue and deliver Common Stock to the Holder within ten (10) business
days after the Notice Date.
(d) If the original certificate(s) representing the Conversion
Shares have not been delivered to the Holder within ten (10) business days after
the Notice Date, the Conversion Notice shall become null and void at the option
of the Holder.
9. LACK OF AUTHORIZED SHARES. If, at any time a Holder submits a Notice
of Conversion and the Corporation does not have sufficient authorized but
unissued shares of Common Stock available to effect, in full, a conversion of
the shares of Series D Preferred Stock (a "Conversion Default"), the date of
such default being referred to herein as the "Conversion Default Date"), the
Corporation shall issue to the Holder all of the shares of Common Stock which
are available, and the Notice of Conversion as to any shares of Series D
Preferred Stock requested to be converted but not converted (the "Unconverted
Shares"), upon Holder's sole option. may be deemed null and void. The
Corporation shall provide notice of such Conversion Default ("Notice of
Conversion Default") to all existing Holders of outstanding shares of Series D
Preferred Stock, by facsimile, within one (1) business day of such default (with
the original delivered by overnight or two day courier), and the Holder shall
give notice to the Corporation by facsimile within five (5) business days of
receipt of the original Notice of Conversion Default (with the original
delivered by overnight or two day courier) of its election to either nullify or
confirm the Notice of Conversion.
The Corporation agrees to pay all Holders of outstanding shares of
Series D Preferred Stock payments for a Conversion Default ("Conversion Default
Payments") in the amount of (N/365) x (.24) x the initial Stated Value of the
outstanding and/or tendered but not converted shares of Series D Preferred Stock
held by each Holder where N = the number of days from the Conversion Default
Date to the date (the "Authorization Date") that the Corporation authorizes a
sufficient number of shares of Common Stock to effect conversion of all
remaining shares of Series D Preferred Stock by the fifth day of the following
calendar month. The Corporation shall send notice ("Authorization Notice") to
each Holder of outstanding shares of Series D Preferred Stock that additional
shares of Common Stock have been authorized, the Authorization Date and the
amount of Holder's accrued Conversion Default
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Payments. The accrued Conversion Default Payments shall be paid in cash or shall
be convertible into shares of Common Stock at the Conversion Price, at the
Holder's option, payable as follows: (i) in the event Holder elects to take such
payment in cash, cash payments shall be made to such Holder or (ii) in the event
that the Holder elects to take such payment in Common Stock, the Holder may
convert such payment amount into Common Stock at the Conversion Price at anytime
after the fifth day of the calendar month following the month in which the
Authorization Notice was received, until the expiration of the twenty four month
(24) conversion period.
Nothing herein shall limit the Holder's right to pursue actual damages
for the Corporation's failure to maintain a sufficient number of authorized
shares of Common Stock.
10. LIMITATION ON CONVERSION. Except in the case of the provisions
contained in subparagraph 5 hereof in no event shall the Holder be entitled to
convert any shares of Series D Preferred Stock in excess of that number of
shares of Series D Preferred Stock upon conversion of which the sum of (l) the
number of shares of Common Stock beneficially owned by the Holder and its
affiliates (other than shares of Common Stock which may be deemed beneficially
owned through the ownership of the unconverted portion of the shares of Series D
Preferred Stock), and (2) the number of shares of Common Stock issuable upon the
conversion of the shares of Series D Preferred Stock with respect to which the
determination of this provision is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 4.9% of the outstanding
shares of Common Stock of the Corporation. For purposes of this provision,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13 D-G thereunder,
except as otherwise provided in clause (1) above.
11. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times use its best efforts to reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series D Preferred Stock, such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all then outstanding shares of Series D Preferred
Stock; and if at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all then outstanding
shares of the Series D Preferred Stock, the Corporation will take such corporate
action as may be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
F. REDEMPTION. The Company shall have the right at any time upon five (5) days
written notice to redeem the shares of Series D Preferred Stock at a redemption
price equal to (i) the Stated Value and the accrued dividends thereon,
multiplied by (ii) 133%.
G. VOTING. Except as otherwise provided below or by the DGCL, the Holders of the
Series D Preferred Stock shall have no voting power whatsoever, and no Holder of
Series D Preferred Stock shall vote or otherwise participate in any proceeding
in which action shall be taken by the
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Corporation or the stockholders thereof or be entitled to notification as to any
meeting of the Board of Directors or the stockholders.
H. PROTECTIVE PROVISIONS. So long as shares of Series D Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the approval (by
vote or written consent, as provided by Jaw) of the Holders of at least
seventy-five percent (75%) of the then outstanding shares of Series D Preferred
Stock:
1. alter or change the rights, preferences or privileges of the Series
D Preferred Stock so as to affect adversely the Series D Preferred Stock;
2. do any act or thing not authorized or contemplated by this Article
IV which would result in taxation of the Holders of shares of the Series D
Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as
amended (or any comparable provision of the Internal Revenue Code as hereafter
from time to time amended); or
3. enter into a merger in which the Corporation is not the surviving
corporation; provided, however, that the provisions of this subparagraph (3)
shall not be applicable to any such merger if the authorized capital stock of
the surviving corporation immediately after such merger shall include only
classes or series of stock for which no such consent or vote would have been
required pursuant to this section if such class or series had been authorized by
the Corporation immediately prior to such merger or which have the same rights,
preferences and limitations and authorized amount as a class or series of stock
of the Corporation authorized (with such consent or vote of the Series D
Preferred Stock) prior to such merger and continuing as an authorized class or
series at the time thereof.
I. STATUS OF CONVERTED STOCK. In the event any shares of Series D Preferred
Stock shall be converted as contemplated hereby, the shares so converted shall
be canceled, shall return to the status of authorized but unissued Preferred
Stock of no designated class or series, and shall not be issuable by the
Corporation as Series D Preferred Stock.
J. TAXES. All shares of Common Stock issued upon conversion of Series D
Preferred Stock will be validly issued, fully paid and nonassessable. The
Corporation shall pay any and all documentary stamp or similar issue or transfer
taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of Series D Preferred Stock pursuant hereto. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the Series D Preferred Stock so
converted were registered, and no such issue or delivery shall be made unless
and until the person requesting such transfer has paid to the Corporation the
amount of any such tax or has established to the satisfaction of the Corporation
that such tax has been paid or that no such tax is payable. The Corporation
shall adjust the amount of dividends paid or accrued so as to indemnify the
Holders of Series D Preferred Stock against any withholding or similar tax in
respect of such dividends.
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This instrument was adopted by the Board of Directors without
shareholder action and shareholder action was not required on October 27, 1998.
Signed on October 27, 1998
NORTHEAST DIGITAL NETWORKS, INC.
By:-----------------------------
Name: Joseph A. Rosio
Title: President
[Corporate Seal]
ATTEST:
- - ------------------------------
Name: Christopher J. Garcia
Title: Secretary
