<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
KNOW ALL MEN BY THESE PRESENTS that I (we), the undersigned
Stockholder(s) of Northeast Digital Networks, Inc. (the "Company"), do hereby
nominate, constitute and appoint Joseph A. Rosio, with full power to act alone,
my (our) true and lawful attorney(s) with full power of substitution, for me
(us) and in my (our) name, place and stead to vote all the Common Stock of said
Company, standing in my (our) name on the books on the record date, August 25,
2000, at the Special Meeting of its Stockholders to be held at the Offices of
Feldman Sherb & Co., P.C. at 805 Third Avenue, New York, New York, on September
29, 2000, at 3:00 p.m., local time, or at any postponement or adjournment
thereof, with all the powers the undersigned would possess if personally
present.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BELOW. IN
THE ABSENCE OF ANY DIRECTION, THE SHARES REPRESENTED HEREBY WILL BE VOTED FOR
THE (A) RATIFICATION OF THE APPOINTMENT OF THE AUDITORS, (B) APPROVAL OF THE
PROPOSAL TO ADOPT THE COMPANY'S 2000 STOCK OPTION PLAN, (C) APPROVAL OF PROPOSAL
TO INCREASE AUTHORIZED SHARES, (D) APPROVAL OF THE PROPOSAL TO REVERSE STOCK
SPLIT ALL ISSUED AND OUTSTANDING COMMON STOCK OF THE COMPANY AND (E) APPROVAL OF
THE PROPOSAL TO CHANGE THE PAR VALUE OF THE COMPANY'S COMMON STOCK FROM $0.60 TO
$0.001 PER SHARE.
[ ] Please mark your votes in this example.
1. Approval of the appointment of Feldman Sherb & Co., P.C., as independent
auditors of the Company for the fiscal year ending March 31, 2000.
[ ] For [ ] Against [ ] Abstain
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL.
2. Approval of the proposal to adopt the Company's 2000 Stock Option Plan.
[ ] For [ ] Against [ ] Abstain
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL.
3. Approval of the proposal to increase the authorized shares of Common Stock
of the Company from 40,000,000 shares to 300,000,000 shares.
[ ] For [ ] Against [ ] Abstain
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL.
4. Approval of the proposal to reverse stock split all issued and outstanding
shares of common stock of the Company and in accordance with such reverse
stock split to add those shares of common stock otherwise canceled as a
result of the reverse stock split to the Company's currently authorized
shares thereby increasing the number of authorized and unissued shares of
its common stock; it being understood that the number of currently
authorized but unissued shares of Company common stock are not subject to
reversal.
[ ] For [ ] Against [ ] Abstain
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL.
5. Approval of the proposal to change the par value of the Company's common
stock from $0.60 to $0.001 per share.
[ ] For [ ] Against [ ] Abstain
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL.
6. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before such meeting or adjournment or
postponement thereof.
SIGNATURE(S) ________________________
------------------------
DATE ________________________________
NOTE: PLEASE SIGN EXACTLY AS THE NAME(S) APPEAR HEREON. JOINT OWNERS SHOULD
SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE, OR
GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
P.O. BOX 1400
WANTAGH, NY 11793
August 29, 2000
Dear Stockholder:
You are cordially invited to attend the Special Meeting (the "Special
Meeting") of Stockholders of Northeast Digital Networks, Inc. (the "Company"),
which will be held at the Offices of Feldman Sherb & Co., P.C. at 805 Third
Avenue, New York, New York, on September 29 , 2000, commencing at 3:00 p.m.
(local time). By attending the meeting, you will have an opportunity to hear a
report on the current and proposed operations of your Company and to meet your
directors and executives. We look forward to greeting as many of our
stockholders as are able to be with us.
At the Special Meeting, you will be asked to (1) ratify the Board of
Directors' action of its appointment of Feldman Sherb & Co., P.C. as the
Company's independent public accountants for the fiscal year ending March 31,
2000; (2) consider and act upon the proposal to adopt the Northeast Digital
Networks, Inc. 2000 Stock Option Plan; (3) consider and act upon the proposal to
increase authorized shares of Common Stock of the Company from 40,000,000 shares
to 300,000,000 shares, (4) consider and act upon the proposal to approve a
reverse stock split of all issued and outstanding shares of Company common stock
thereby reducing the number of issued and outstanding shares in accordance with
such reverse stock split and adding those shares of common stock otherwise
canceled as a result of the reverse stock split to the Company's currently
authorized shares thereby increasing the number of authorized and unissued
shares of its common stock; it being understood that the number of currently
authorized but unissued shares of Company common stock are not subject to
reversal, (5) consider and act upon the proposal to change the par value of the
Company's common stock from $0.60 to $0.00l per share and (6) transact such
other business as may properly come before the Special Meeting and any
adjournment thereof.
We hope you will find it convenient to attend the meeting in person.
Whether or not you expect to attend, to assure your representation at the
meeting and the presence of a quorum, please read the Proxy Statement, then
complete, date, sign and mail promptly the enclosed proxy card (the "Proxy"),
for which a return envelope is provided. No postage need be affixed to the Proxy
if it is mailed in the United States. After returning your Proxy, you may, of
course, vote in person on all matters brought before the meeting.
Yours sincerely,
Joseph A. Rosio
Chairman of the Board
<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
P.O. Box 1400
Wantagh, NY 11793
----------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 29, 2000
NOTICE IS HEREBY GIVEN that the Special Meeting of Stockholders (the
"Special Meeting") of Northeast Digital Networks, Inc., a Delaware corporation
(the "Company"), will be held at the Offices of Feldman Sherb & Co., P.C. at 805
Third Avenue, New York, New York, on September 29 , 2000, at 3:00 p.m. (local
time) for the purpose of considering and voting upon the following matters:
(1) To ratify the Board of Directors' action of its appointment of
Feldman Sherb & Co., P.C. as the Company's independent public
accountants for the fiscal year ending March 31, 2000;
(2) To consider and act upon a proposal to adopt the Northeast
Digital Networks, Inc. 2000 Stock Option Plan;
(3) To consider and act upon the proposal to increase authorized
shares of Common Stock of the Company from 40,000,000 shares to
300,000,000 shares.
(4) To consider and act upon a proposal to approve a reverse stock
split of all issued and outstanding shares of Company common
stock thereby reducing the number of issued and outstanding
shares in accordance with such reverse stock split and adding
those shares of common stock otherwise canceled as a result of
the reverse stock split to the Company's currently authorized
shares thereby increasing the number of authorized and unissued
shares of its common stock; it being understood that the number
of currently authorized but unissued shares of Company common
stock are not subject to reversal.
(5) To consider and act upon the proposal to change the par value of
the Company's common stock from $0.60 to $0.00l per share; and
(6) To transact such other business as may properly come before the
Special Meeting and any adjournment thereof.
The accompanying proxy is solicited by the Board of Directors of the
Company.
Only stockholders of record as of the close of business on August 25,
2000 are entitled to notice of, and to vote at, the Special Meeting and any
adjournment thereof. Such stockholders may vote in person or by proxy.
You are cordially invited to be present at the Special Meeting. It is
important to you and the Company that your shares be voted at the Special
Meeting.
By Order of the Board of Directors
Joseph A. Rosio
Chairman of the Board
August 29, 2000
IMPORTANT NOTICE:
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, YOU
ARE URGED TO READ THE ATTACHED PROXY STATEMENT CAREFULLY AND THEN TO SIGN, DATE
AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED STAMPED AND ADDRESSED
ENVELOPE. AS SET FORTH IN THE PROXY STATEMENT, THE GIVING OF THE PROXY WILL NOT
AFFECT YOUR RIGHT TO ATTEND AND TO VOTE AT THE SPECIAL MEETING.
<PAGE>
NORTHEAST DIGITAL NETWORKS, INC.
------------------------------
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 29, 2000
This Proxy Statement and the accompanying form of proxy ("Proxy") are
being furnished to the stockholders of Northeast Digital Networks, Inc., a
Delaware corporation (the "Company"), in connection with the solicitation of
Proxies by the Board of Directors of the Company for use at the Special Meeting
of Stockholders (the "Special Meeting") to be held at the Offices of Feldman
Sherb & Co., P.C. at 805 Third Avenue, New York, New York, on September 29 ,
2000, at 3:00 p.m. (local time) and at any adjournment thereof. Only
stockholders of record as of the close of business on August 25, 2000 (the
"Record Date") will be entitled to notice of, and to vote at, the Special
Meeting.
This Proxy Statement and the accompanying Proxy are being sent or given
to the stockholders on or about August 25, 2000.
At the Special Meeting, the Stockholders of the Company will be asked
to: (1) ratify the Board of Directors' action of its appointment of Feldman
Sherb & Co., P.C. as the Company's independent public accountants for the fiscal
year ending March 31, 2000; (2) consider and act upon the proposal to adopt the
Northeast Digital Networks, Inc. 2000 Stock Option Plan; (3) consider and act
upon the proposal to increase authorized shares of Common Stock of the Company
from 40,000,000 shares to 300,000,000 shares, (4) consider and act upon the
proposal to approve a reverse stock split of all issued and outstanding shares
of Company common stock thereby reducing the number of issued and outstanding
shares in accordance with such reverse stock split and adding those shares of
common stock otherwise canceled as a result of the reverse stock split to the
Company's currently authorized shares thereby increasing the number of
authorized and unissued shares of its common stock; it being understood that the
number of currently authorized but unissued shares of Company common stock are
not subject to reversal, (5) consider and act upon the proposal to change the
par value of the Company's common stock from $0.60 to $0.00l per share and (6)
transact such other business as may properly come before the Special Meeting and
any adjournment thereof.
Principal executive offices of the Company are located at P.O. Box
1400, Wantagh, New York 11793.
STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ACCOMPANYING
FORM OF PROXY AND RETURN IT PROMPTLY TO THE COMPANY IN THE ENCLOSED POSTAGE PAID
ENVELOPE.
GENERAL
SOLICITATION OF PROXIES
If the accompanying Proxy is properly executed and returned, the shares
represented thereby will be voted in accordance with the instructions specified
in the proxy. In the absence of instructions to the contrary, such shares will
be voted to (1) ratify the Board of Directors' action of its appointment of
Feldman Sherb & Co., P.C. as the Company's independent public accountants for
the fiscal year ending March 31, 2000; (2) adopt the Northeast Digital Networks,
Inc. 2000 Stock Option Plan; (3) increase authorized shares of Common Stock of
the Company from 40,000,000 shares to 300,000,000 shares, (4) approve
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<PAGE>
a reverse stock split of all issued and outstanding shares of Company common
stock thereby reducing the number of issued and outstanding shares in accordance
with such reverse stock split and adding those shares of common stock otherwise
canceled as a result of the reverse stock split to its currently authorized
shares thereby increasing the number of authorized and unissued shares of the
Company's common stock; it being understood that the number of currently
authorized but unissued shares of Company common stock are not subject to
reversal, (5) change the par value of the Company's common stock from $0.60 to
$0.00l per share and (6) transact such other business as may properly come
before the Special Meeting and any adjournment thereof. The Board of Directors
does not currently intend to bring any other matters before the Special Meeting
and is not aware of any matters that will come before the Special Meeting other
than as described herein. In the absence of instructions to the contrary,
however, it is the intention of each of the persons named in the accompanying
proxy to vote all properly executed Proxies on behalf of the stockholders they
represent in accordance with their discretion with respect to any such other
matters properly coming before the Special Meeting. The expenses with respect to
this solicitation of Proxies will be paid by the Company.
REVOCATION OF PROXIES
Any stockholder may revoke such stockholder's Proxy at any time prior
to the voting thereof on any matter (without, however, affecting any vote taken
prior to such revocation). A Proxy may be revoked by written notice of
revocation received prior to the Special Meeting, by attending the Special
Meeting and voting in person or by submitting a signed proxy bearing a
subsequent date. A written notice revoking a previously executed Proxy should be
sent to the Company at P.O. Box 1400, Wantagh, New York 11793, Attention: Mr.
Joseph A. Rosio. Attendance at the Special Meeting will not in and of itself
constitute a revocation of a Proxy.
VOTING SECURITIES AND BENEFICIAL OWNERSHIP
Only holders of record of the Common Stock of the Company as of the
close of business on the Record Date will be entitled to vote at the Special
Meeting. Each share of Common Stock entitles the registered holder thereof to
one vote on each matter to come before the Special Meeting. As of the close of
business on August 25, 2000, there were 26,648,879 shares of the Common Stock
outstanding.
The presence, in person or by proxy, of stockholders entitled to cast a
majority of all votes entitled to be cast at the Special Meeting will constitute
a quorum. Each outstanding share is entitled to one vote at the meeting for all
items set forth in the Notice and Proxy.
Ratification of Proposal 1 as well as stockholder approval of Proposals
2 through 5 inclusive each require the affirmative vote of a majority of the
shares of Common Stock present in person or represented by proxy at the Special
Meeting and entitled to vote.
Votes that are withheld will be counted for purposes of determining the
presence or absence of a quorum but will have no other effect. Abstention and
broker non-votes, if any, will similarly be counted for purposes of determining
the presence or absence of a quorum but will have no other effect on the vote.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of August 25, 2000 (except where otherwise
noted) with respect to (a) each person known by the Registrant to be the
beneficial owner of more than five percent of the
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<PAGE>
outstanding shares of Common Stock, (b) each director of the Registrant, (c) the
Registrant's executive officers and (d) all officers and directors of the
Registrant as a group. Except as indicated in the footnotes to the table, all of
such shares of Common Stock are owned with sole voting and investment power. The
title of class of all securities indicated below is Common Stock with $.60 par
value per share.
No. Of Shares Percentage of
Beneficially Shs. Beneficially
Name and Address of Beneficial Owner Owned (1) Owned (1)
------------------------------------ -------------- -----------------
Joseph A. Rosio 1,810,000(2) %
c/o Northeast Digital Networks, Inc.
P.O. Box 1400
Wantagh, New York 11793
Meridian Equities, Inc. (3) %
Tower 56
126 EAST 56TH STREET, 19TH Floor
New York, New York 10022
Investquest 6,088,816 %
c/o Thomson Kernaghan & Co. Ltd.
365 Bay Street
Toronto, Ontario M5H 2V2
Canada
Dominion Capital Fund, Ltd. (4) (5) %
Bahamas Financial Centre
Shirley & Charlotte Streets
P.O. Box CB 13136
Nassau, Bahamas
Canadian Advantage Limited Partnership (4) (6) %
c/o Thomson Kernaghan & Co. Ltd.
365 Bay Street
Toronto, Ontario M5H 2V2
Canada
SOVEREIGN PARTNERS LP (4) (7) %
90 Grove Street - Suite 01
Ridgefield, Connecticut 06877
All directors and officers as
a group (one person) 5,035,000(2) %
(1) Unless otherwise indicated, the Company believes that all persons named
in the table have sole voting and investment power with respect to all
shares of the Common Stock beneficially owned by them. A person is
deemed to be the beneficial owner of securities which may be acquired
by such person within 60 days from the date indicated above upon the
exercise of options, warrants or convertible securities. Each
beneficial owner's percentage ownership is determined by assuming that
options, warrants or convertible securities that are held by such
person (but not those held by any other person) and which are
exercisable within 60 days of the date indicated above, have been
exercised.
(2) The number of shares indicated include (a) 35,000 shares of common
stock, (b) warrants to purchase (through September 2007) up to
1,000,000 shares of Company common stock at an exercise price of
$0.09375 per share, (c) incentive stock options ("ISO's") to purchase
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<PAGE>
(through September 2007) up to 200,000 shares of Company common stock
at an exercise price of $0.3125 per share and (d) an aggregate of
575,000 Non-ISO's with 300,000 of such Non-ISO's exercisable (through
September 2007) at $0.3125 per share and the balance of 275,000 Non-
ISO's exercisable (through December 2008) at $0.375 per share.
(3) As of August 25, 2000, an aggregate principal outstanding balance
(exclusive of interest) for those convertible promissory notes (the
"Convertible Notes") referred to herein amounts to $596,165.
Accordingly, beneficial ownership indicated above includes __________
shares which normally could be issued at any time, upon conversion of
the two previously issued Convertible Notes. The first of such two
Convertible Notes is dated July 27, 1999, matures July 27, 2000 and is
in the principal amount of $316,165 with interest at the rate of 10%
per annum. The second of such notes is dated January 27, 2000, matures
January 27, 2001 and is in the principal amount of $280,000 with
interest at the rate of 10% per annum. The July 27, 1999 Convertible
Note is convertible at a price equal to the lesser of (a) $0.065 per
share or (b) 35% discount from the average closing bid price for the
common stock in the OTC market for the five trading days immediately
preceding date of conversion while the conversion rate on the January
27, 2000 Convertible Note is convertable at a price equal to the lesser
of $0.055 per share or the aforesaid 35% discount. For purposes of the
computations contained herein we are assuming a conversion price based
upon record date information, at which time the bid price was $______.
Meridian Equities, Inc. ("Meridian") is managed and directed by Charles
Victor Patterson, its sole director. Voting control of Meridian's
shares is exercised by Mr. Patterson, a Bahamas Company controlled by
Mr. Patterson. None of these Convertible Notes are owned by officers
and/or directors of the Company.
The foregoing information contained in footnote 3 above assumes
conversion based upon the indicated discount from market based upon the last
reported sales price on August 25, 2000. This number of shares, if issued, would
require disclosure of beneficial ownership of in excess of 5%. However, pursuant
to terms of Convertible Notes, the holder thereof may not beneficially own more
than 4.9% of outstanding Company shares. The 4.9% limitation is only contractual
in nature.
(4) Dominion Capital Fund, Ltd. and Canadian Advantage Limited Partnership
each own both Series C and Series D Convertible Preferred Stock while
Sovereign Partners LP owns Series D Convertible Preferred Stock only.
All Series C Convertible Preferred Stock is convertible at 35% discount
from the average closing bid price for the five consecutive trading
days prior to conversion and all Series D Convertible Preferred Stock
is convertible at 25% discount from the average closing bid price for
the five consecutive trading days prior to conversion. Pursuant to the
terms of both the Series C and Series D Convertible Preferred Stock,
the holders thereof may not beneficially own more than 4.99% of
outstanding Company shares. The 4.99% limitation is only contractual by
nature.
As of August 25, 2000 the aggregate of unconverted Series C and Series
D Convertible Preferred Stock (exclusive of 10% dividend) held by those entities
referred to in footnotes 5 through 7 inclusive below amounts to $2,935,000. None
of these Preferred Shares are owned by officers and/or directros of the Company.
(5) Includes _________ shares currently owned as well as up to _________
shares which normally could be issued, at any time, upon conversion of
Convertible Preferred Stock referred to in footnote 4 above. Dominion
Capital Fund, Ltd. is managed and directed by Navigator Management
Limited, a Bahamas Company, and its sole director is Navigator
Management Limited which is controlled by David Sims. Voting control of
Dominion Capital Fund, Ltd.'s shares is exercised by Livingstone Asset
Management Limited, a Bahamas Company controlled by David Sims.
(6) Includes _______ shares currently owned as well as up to _________
shares which normally could be issued, at any time, upon conversion of
Convertible Preferred Stock referred to in footnote 4 above. Canadian
Advantage Limited Partnership is managed and directed by VMH
International Ltd. its sole director. Voting control of Canadian
Advantage Limited Partnership's shares is exercised by VMH
International Ltd., a Bahamas Company controlled by Mark Valentine.
4
<PAGE>
(7) Includes up to _________ shares which normally could be issued, at any
time, upon conversion of Convertible Preferred Stock referred to in
footnote 4 above. Sovereign Partners LP who is managed by and has
voting control of Sovereign Partners LP is Southridge Capital
Management LLC, P.P., Steven Hicks (President) - Connecticut.
PROPOSAL NO. 1 PROPOSAL TO RATIFY THE BOARD OF DIRECTORS'
SELECTION OF FELDMAN SHERB & CO., P.C. AS
INDEPENDENT AUDITORS FOR THE COMPANY
On June 1, 2000 the Board of Directors selected Feldman Sherb & Co.,
P.C. as the Company's auditors for the fiscal year ending March 31, 2000.
Feldman Sherb & Co., PC. has audited the books, records and accounts of the
Company for the fiscal year ended March 31, 1999. Representatives of Feldman
Sherb & Co., P.C. are expected to attend the Special Meeting, will have the
opportunity to make a statement if they so choose and will be available to
respond to appropriate questions.
During the two most recent fiscal years prior to March 31, 1998 and
subsequent interim period, if any, there were no disagreements made known or
expressed to management by its former accountants (Wiss & Co. LLP), who audited
the Company's books and records for fiscal year ended March 31, 1998 and three
months ended March 31, 1997 and Stetz, Belgiovine CPA's, P.C. who audited the
Company's books and records for fiscal year ended December 31, 1997, on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure which disagreements (if not resolved to the
satisfaction of the former accountants) would have caused them to make reference
in connection with their report to the subject matter of the disagreements. Such
former accountants' report on the financial statements of the Company for the
years indicated did not contain any adverse opinion or disclaimer of opinion and
was not qualified or modified as to uncertainty or audit scope or accounting
principles.
During the two most recent fiscal years, and any subsequent interim
period neither the Company nor anyone on the Company's behalf consulted the
newly engaged accountants regarding either the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's financial statements.
VOTE REQUIRED FOR APPROVAL
Ratification of the selection of Feldman Sherb & Co., P.C. as
independent public accountants will require the affirmative vote of a majority
of the shares of Common Stock present in person or represented by Proxy at the
Special Meeting and entitled to vote.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF FELDMAN SHERB
& CO., P.C. AS INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR
ENDED MARCH 31, 2000.
PROPOSAL NO. 2 - APPROVAL OF THE NORTHEAST DIGITAL NETWORKS, INC.
2000 STOCK OPTION PLAN
The Board of Directors in July 2000 adopted the Company's 2000
Non-Statutory Stock Option Plan so as to provide a critical long-term incentive
for employees, non-employee directors, consultants, attorneys and advisors of
the Company and its subsidiaries. The Board of Directors believes that the
Company's policy of granting stock options to such persons will continue to
provide it with a critical advantage in attracting and retaining qualified
candidates. In addition, the Stock Option Plan is intended to provide the
Company with maximum flexibility to compensate plan participants. It is expected
that such flexibility will be an integral part of the Company's policy to
encourage employees, non-employee directors, consultants, attorneys and advisors
to focus on the long-term growth of stockholder value. The Board of Directors
believes that important advantages to the Company are gained by an option
program such as the 2000 Non-Statutory Stock Option Plan which includes
incentives for motivating employees of the Company, while at the same time
promoting a closer identity of interest between employees, non-employee
directors, consultants, attorneys and advisors on the one hand, and the
stockholders on the other.
5
<PAGE>
The principal terms of the Stock Option Plan are summarized below and a
copy of the Stock Option Plan is annexed to this Proxy Statement as Exhibit A.
The summary of the Stock Option Plan set forth below is not intended to be a
complete description thereof and such summary is qualified in its entirety by
the actual text of the Stock Option Plan to which reference is made.
SUMMARY DESCRIPTION OF THE NORTHEAST DIGITAL NETWORKS, INC. 2000 NON-STATUTORY
STOCK OPTION PLAN
The purpose of the Non-Statutory Stock Option Plan ("Plan"), attached
hereto as Exhibit A, is to provide directors, officers and employees of,
consultants, attorneys and advisors to the Company and its subsidiaries with
additional incentives by increasing their ownership interest in the Company.
Directors, officers and other employees of the Company and its subsidiaries are
eligible to participate in the Plan. Options in the form of Non-Statutory Stock
Options ("NSO") may also be granted to directors who are not employed by the
Company and consultants, attorneys and advisors to the Company providing
valuable services to the Company and its subsidiaries. In addition, individuals
who have agreed to become an employee of, director of or an attorney, consultant
or advisor to the Company and/or its subsidiaries are eligible for option
grants, conditional in each case on actual employment, directorship or attorney,
advisor and/or consultant status. The Plan provides for the issuance of NSO's
only, which are not intended to qualify as "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code, as amended.
The maximum number of options that may be granted under this Plan shall
be options to purchase 4,000,000 shares of Common Stock.
The Board of Directors of the Company or a Compensation Committee (once
established) will administer the Stock Option Plan with the discretion generally
to determine the terms of any option grant, including the number of option
shares, exercise price, term, vesting schedule and the post-termination exercise
period. Notwithstanding this discretion (i) the term of any option may not
exceed 10 years and (ii) an option will terminate as follows: (a) if such
termination is on account of termination of employment for any reason other than
death, without cause, such options shall terminate one year thereafter; (b) if
such termination is on account of death, such options shall terminate 15 months
thereafter; and (c) if such termination is for cause (as determined by the Board
of Directors and/or Compensation Committee), such options shall terminate
immediately. Unless otherwise determined by the Board of Directors or
Compensation Committee, the exercise price per share of Common Stock subject to
an option shall be equal to no less than 50% of the fair market value of the
Common Stock on the date such option is granted. No NSO shall be assignable or
otherwise transferable except by will or the laws of descent and distribution or
except as permitted in accordance with SEC Release No.33-7646 as effective April
7, 1999 and in particular that portion thereof which expands upon
transferability as is contained in Article III entitled "Transferable Options
and Proxy Reporting" as indicated in Section A 1 through 4 inclusive and Section
B thereof.
The Stock Option Plan may be amended, altered, suspended, discontinued
or terminated by the Board of Directors without further stockholder approval,
unless such approval is required by law or regulation or under the rules of the
stock exchange or automated quotation system on which the Common Stock is then
listed or quoted. Thus, stockholder approval will not necessarily be required
for amendments which might increase the cost of the Stock Option Plan or broaden
eligibility except that no amendment or alteration to the Plan shall be made
without the approval of stockholders which would (a) increase the
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<PAGE>
total number of shares reserved for the purposes of the Plan or decrease the NSO
price (except as provided in paragraph 9 of the Plan) or change the classes of
persons eligible to participate in the Plan or (b) extend the NSO period or (c)
materially increase the benefits accruing to Plan participants or (d) materially
modify Plan participation eligibility requirements or (e) extend the expiration
date of the Plan. Unless otherwise indicated the Stock Option Plan will remain
in effect until terminated by the Board of Directors.
FEDERAL TAX CONSEQUENCES
The following is a brief description of the federal income tax
consequences generally arising with respect to options that may be granted under
the Stock Option Plan. This discussion is only intended for the information of
stockholders considering how to vote at the Special Meeting, and not as tax
guidance to individuals who participate in the Stock Option Plan.
The grant of an option will create no tax consequences for the grantee
or the Company. Upon exercising a NSO, the participant must generally recognize
ordinary income equal to the difference between the exercise price and fair
market value of the freely transferable and non- forfeitable stock received. In
such case, the Company will be entitled to a deduction equal to the amount
recognized as ordinary income by the participant.
The participant's disposition of shares acquired upon the exercise of
an option generally will result in capital gain or loss measured by the
difference between the sale price and the participant's tax basis in such
shares.
Additionally, the following tax effects on Stock Option Plan
participation may be considered:
Tax Treatment to the Participants. The Stock Option Plan provides for
the grant of nonqualified stock options. A description of these options and
certain federal income tax aspects associated therewith is set forth below.
Because tax results may vary due to individual circumstances, each participant
in the Stock Option Plan is urged to consult his personal tax adviser with
respect to the tax consequences of the exercise of an option or the sale of
stock received upon the exercise thereof, especially with respect to the effect
of state tax laws.
Federal Income Tax Treatment of Nonqualified Stock Options. No income
is recognized by an optionee when a non-qualified stock option is granted.
Except as described below, upon exercise of a nonqualified stock option, an
optionee is treated as having received ordinary income at the time of exercise
in an amount equal to the difference between the option price paid and the then
fair market value of the Common Stock acquired. The Company is entitled to a
deduction at the same time and in a corresponding amount. The optionee's basis
in the Common Stock acquired upon exercise of a nonqualified stock option is
equal to the option price plus the amount of ordinary income recognized, and any
gain or loss thereafter recognized upon disposition of the Common Stock is
treated as capital gain or loss.
Stock acquired by "insiders' (i.e., officers, directors or persons
holding 10% or more of the stock of the Company who are subject to the
restrictions on short-swing trading imposed by Section 16(b) of the Securities
Exchange Act of 1934) upon exercise of nonqualified stock options constitutes
"restricted property" and, unless the optionee elects otherwise, the recognition
of income upon exercise is deferred to the date upon which the stock acquired
upon exercise may first be sold without incurring Section 16(b) liability
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(generally six months after exercise). If such an optionee does not elect to
recognize income upon exercise, the insider will realize ordinary income in an
amount equal to the difference between the option price and the fair market
value on the date the stock may first be sold without incurring Section 16(b)
liability.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the outstanding shares of the
Common Stock present in person or represented by Proxy at the Special Meeting
and entitled to vote is required to approve the adoption of the Stock Option
Plan.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THIS PROPOSAL
AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE ADOPTION OF THE COMPANY'S 2000 STOCK OPTION PLAN
GENERAL INFORMATION WITH RESPECT TO PROPOSALS 3, 4 AND 5 BELOW.
Each of the following proposals (designated 3, 4 and 5) is being
submitted to stockholders for a separate and distinct vote notwithstanding that
same have a relationship, to some extent, with each other. For example, Proposal
No. 4, the "Reverse Stock Split" proposal, if approved by stockholders and
subsequently acted upon by the Company's Board, will necessarily increase the
number of authorized but unissued shares of common stock without increasing
total authorized shares. Proposal No. 3, the "Increase in Authorized Shares"
proposal will permit an increase of authorized shares without having any effect
upon currently issued and outstanding shares. Proposal No. 5, the "Change of Par
Value" proposal is separate and distinct from the increase in authorized shares
- Proposal No. 3. If stockholders approve Proposal 3, the to be filed amended
Certificate of Incorporation will be as indicated in Exhibit B while if
stockholders approve both Proposals 3 and 5, the amended Certificate of
Incorporation will be as indicated in Exhibit C. Conversely, if stockholders
approve Proposal 5 and not Proposal 3 the amended Certificate will only be filed
for purposes of reduction of par value.
PROPOSAL NO. 3 - INCREASE THE AUTHORIZED SHARES OF
COMMON STOCK OF THE COMPANY BY 260,000,000 SHARES
The Board of Directors of the Company has adopted a resolution
unanimously approving and recommending to the Company's stockholders for their
approval an amendment to the Company's Certificate of Incorporation to provide
for an increase of the number of shares of common stock which the Company shall
be authorized to issue from 40,000,000 to 300,000,000.
As of the close of business on August 25, 2000 there were 26,648,879
shares of common stock outstanding. In addition the Company currently has
certain principal obligations requiring the issuance of stock as a result of
entering into the following financing agreements: (a) a Convertible Promissory
Note dated July 27, 1999 in the principal sum of $316,165 bearing interest at
the rate of 10% per annum and due and payable one year from date of issuance and
(b) a Convertible Promissory Note dated January 27, 2000 in the principal sum of
$280,000 bearing interest at the rate of 10% per annum and due and payable one
year from the date of issuance. The first of such two Convertible Promissory
Notes entitles the holder to convert such outstanding indebtedness into shares
of Company common stock at a conversion price equal to the lesser of (i) $.065
per share or (ii) a 35% discount from the average closing bid price for the
common stock in the Pink Sheets for the five trading days
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immediately preceding the date of conversion while the second of such
Convertible Promissory Notes provides for the same terms of conversion excepting
that the conversion price is the lesser of (i) $.055 per share or (ii) the
aforesaid 35% discount from market. Based upon the above referenced conversion
terms and the fact that the average closing bid price for the common stock was
$______ on August 25, 2000, the "lesser of" provision applies thereby obligating
the Company to issue approximately ____________ shares of its common stock if
conversions were to occur on August 25, 2000. This is exclusive of shares which
must be issued for interest earned through date of conversion.
The foregoing is also exclusive of the Company further being obligated
to have available for issuance 4,000,000 shares of common stock upon the
exercise of stock options which may be issued if Proposal 5 entitled "Approval
of the Northeast Digital Networks, Inc. 2000 Stock Option Plan" is approved.
Accordingly, as of August 25, 2000 the number of shares of common stock
issued plus the number of shares of common stock reserved for issuance and/or
obligated to be issued in accordance with terms of aforesaid Convertible
Promissory Notes is greater than the number of shares of common stock available
for issuance. Additionally, there are no additional shares of common stock
available for issuance in connection with any potential future financings, any
refinancing of outstanding financing obligations and/or for any other matters.
Due to the fact that a significant percentage of authorized shares have
been issued as referred to above (and a further __________ shares must be
reserved for issuance pursuant to Convertible Promissory Note obligations and
Non-Statutory Stock Option Plan - 4,000,000 shares if Proposal No. 2 is
approved), the number of authorized, non-designated or reserved shares of common
stock to be available for issuance by the Company in the future (for financing
purposes or otherwise) necessitates an immediate increase in authorized shares.
Hence, much of the Company's flexibility with respect to possible future equity
and/or debt financings, stock-for-stock acquisitions, stock dividends or other
transactions that involve the issuance of common stock would otherwise be lost
absent an increase in authorized shares.
The Board of Directors recommends stockholder approval of the proposal
to increase authorized shares of common stock so as to insure that a sufficient
number of authorized and unissued shares are available (i) to meet existing
obligations regarding aforementioned Convertible Promissory Notes, (ii) to
reserve shares of common stock for issuance, assuming stockholder approval of
the Company's 2000 Stock Option Plan (iii) to raise additional capital for the
operations of the Company, if and when needed and (iv) for the financing of the
acquisition of any businesses if the opportunities therefore were to occur in
the future. As of the date hereof, the Company has no plans or arrangements for
the issuance of any additional shares of common stock proposed to be authorized
excepting with respect to meeting its obligations under items (i) and (ii)
above. Assuming stockholder approval of this Proposal and if the opportunity
arises in the future, such newly authorized shares would be available for
issuance by the Board of Directors of the Company without further action by the
stockholders, unless required by the Company's Certificate of Incorporation, its
By-laws and/or by any regulatory agency including the Nasdaq rules. Neither the
presently authorized shares of common stock nor the additional shares of common
stock that may be authorized pursuant to this proposal have any preemptive
rights.
Notwithstanding the fact that, as heretofore indicated, the Company has
no current plans for the issuance of the additional shares of common stock
proposed to be authorized if such proposal is approved by the stockholders, no
assurance can be given that the Company will not consider effecting an equity
and/or debt offering of common stock or otherwise issuing
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such stock in the future for the purpose of raising additional working capital,
acquiring businesses or assets or otherwise.
The additional shares of common stock, if issued, would have a dilutive
effect upon the percentage of equity of the Company owned by present
stockholders. The issuance of such additional shares of common stock might be
disadvantageous to current stockholders in that any additional issuances would
potentially reduce per share dividends, if any. Stockholders should consider,
however, that the possible impact upon dividends is likely to be minimal in view
of the fact that the Company has never paid dividends, has never adopted any
policy with respect to the payment of dividends and does not intend to pay any
cash dividends in the foreseeable future. In addition, the issuance of such
additional shares of common stock, by reducing the percentage of equity of the
Company owned by present shareholders, would reduce such present shareholders'
ability to influence the election of directors or any other action taken by the
holders of common stock.
The authorization to issue the additional shares of common stock would
provide management with the capacity to negate the efforts of unfriendly tender
offerors through the issuance of securities to others who are friendly or
desirable to management. This proposal is not the result of management's
knowledge of any specific effort to accumulate shares of the Company's common
stock or to obtain control of the Company in opposition to management or
otherwise. The Company is not submitting this proposal to enable it to frustrate
any efforts by another party to acquire a controlling interest or to seek
representation on the Board of Directors. The submission of this proposal is not
part of any plan by the Company's management to adopt a series of amendments to
the Certificate of Incorporation or By-laws so as to render the takeover of the
Company more difficult.
This proposal to increase the number of shares of common stock is
deemed by the Company's Board to be necessary notwithstanding the fact that as
recently as July 1997 shareholders had approved a 1 for 12 reverse stock split
which at the time provided the Company with a significant number of authorized
but not yet issued shares of common stock. At the time of such stock split
14,700,564 shares were outstanding which were immediately reduced to 1,225,047
shares outstanding out of the then authorized 40,000,000 shares of Company
common stock.
If the increase in common stock proposal is adopted by the Company's
stockholders, such proposal will become effective on the date a Certificate of
Amendment is filed with the Secretary of State of the State of Delaware (the
Company's state of incorporation). The proposed form of such Amendment to the
Certificate of Incorporation is annexed hereto as Exhibit B.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the outstanding shares of the
Common Stock present in person or represented by Proxy at the Special Meeting
and entitled to vote is required to approve the Increase in Authorized Common
Stock Proposal.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THIS PROPOSAL
AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE INCREASE IN COMMON STOCK PROPOSAL
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PROPOSAL NO. 4 - REVERSE STOCK SPLIT
NO LESS THAN 1 FOR 4 BUT NO MORE THAN 1 FOR 50
GENERAL
The Board of Directors of the Company has approved a proposal (the
"Reverse Stock Split Proposal") to effect a reverse stock split of the Company's
outstanding Common Stock, $.60 par value per share (the "Common Stock"), subject
to the approval by the shareholders of the Company. Approval of the reverse
stock split will authorize the Board in its discretion to effectuate a reverse
stock split on no less than a 1 for 4 basis and no more than a 1 for 50 basis
dependent upon current stock price and related considerations. For purposes of
this Proxy Statement an assumption is being made - solely for illustrative
purposes - that the Board will choose to effectuate a 1 for 4 reverse stock
split. However, such may not be the case as the Board has the discretion to
authorize up to a 1 for 50 reverse stock split. The Reverse Stock Split Proposal
provides for the combination and reclassification of the presently issued and
outstanding shares of Common Stock, into a smaller number of shares of identical
Common Stock, on the basis of one share of Common Stock for each four (or
greater number of shares up to 50) shares of Common Stock previously issued and
outstanding (the "Reverse Stock Split"). Except as may result from the payment
of cash for fractional shares as described below, each shareholder will hold the
same percentage of Common Stock outstanding immediately following the Reverse
Stock Split as each shareholder did immediately prior to the Reverse Stock
Split. If approved by the shareholders of the Company as provided herein, the
Reverse Stock Split will be effected in as timely a manner as is practicable and
in accordance with applicable law (the "Effective Time" or "Effective Date").
Upon effectiveness the reverse split shall have the effect of reducing the
number of issued and outstanding shares in accordance with such reverse stock
split (thereby adding those shares of Common Stock otherwise canceled as a
result of the reverse split to its currently authorized shares and thereby
increasing the number of authorized and unissued shares of Company Common Stock
which are not subject to reversal).
The following discussion assumes, solely for illustrative purposes, a 1
for 4 reverse stock split.
At the Effective Time, each share of Common Stock issued and
outstanding will automatically be reclassified and converted into one-fourth of
a share of Common Stock. Fractional shares of Common Stock will not be issued as
a result of the Reverse Stock Split. Shareholders entitled to receive a
fractional share of Common Stock as a consequence of the Reverse Stock Split
will, instead, receive from the Company a cash payment in U.S. dollars equal to
such fraction multiplied by four times the arithmetic mean average closing bid
price per share of the Common Stock on the Pink Sheets LLC ("Pink Sheets") for
the five trading days immediately preceding the Effective Date.
The Company expects that, if the Reverse Stock Split Proposal is
approved by the shareholders at the Special Meeting, the Reverse Stock Split
will be effectuated promptly. However, notwithstanding approval of the Reverse
Stock Split Proposal by the shareholders of the Company, the Board of Directors
of the Company may elect not to effectuate or to delay the Effective Time of the
Reverse Stock Split, if the Board of Directors determines that the Reverse Stock
Split would not be in the best interest of the Company's shareholders at such
time. As heretofore indicated, the Board of Directors may also determine the
extent of the reverse stock split subject to the parameters hereinafter
indicated (but no greater than 1 for 50). Factors leading to such a
determination could include, without limitation, any possible
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effect on future securities offerings (see "Reasons for the Reverse Stock Split
Proposal," below).
REASONS FOR THE REVERSE STOCK SPLIT PROPOSAL
The primary purpose of the Reverse Stock Split is to combine the
outstanding shares of Common Stock so that the Common Stock outstanding after
giving effect to the Reverse Stock Split trades at a significantly higher price
per share than the Common Stock outstanding before giving effect to the Reverse
Stock Split.
During the 1999 calendar year, the closing bid price for the Common
Stock on the Pink Sheets LLC (the "Pink Sheets") ranged from $.375 to $.005 per
share. The closing bid price for the Common Stock on August 25, 2000, was $_____
per share. The Company believes that such a low quoted market price per share
may discourage potential new investors, increase market price volatility and
decrease the liquidity of the Common Stock. Conversely, the Company believes
that an increase in bid price of common stock may potentially minimize the
spread between the "bid" and "asked" prices quoted by market makers, may enhance
the Company's access to capital and may increase the Company's flexibility in
responding to anticipated capital requirements.
A secondary benefit that would be created as a result of approval of
the Reverse Stock Split proposal is that the number of authorized but unissued
shares would necessarily increase since only issued and outstanding shares are
subject to Reverse Stock Split and all shares canceled as a result of the
Reverse Stock Split will be added to authorized but unissued shares; it being
understood that the number of currently authorized but unissued shares of
Company Common Stock are not subject to reversal. The availability of additional
authorized but unissued shares may be of benefit to the Company in the event
that it engages in future (a) debt and/or equity financing and/or (b)
acquisitions, mergers or other forms of business combinations - in which
instances availability of such authorized but unissued shares may prove to be
essential.
For the above reasons, the Company believes that the Reverse Stock
Split is in the best interests of the Company and its shareholders. However,
there can be no assurances that the Reverse Stock Split will have the desired
consequences. The Company anticipates that, following the consummation of the
Reverse Stock Split, the Common Stock will trade at a price per share that is
significantly higher than the current market price of the Common Stock. However,
there can be no assurance that, following the Reverse Stock Split, the Common
Stock will trade at four times the market price of the Common Stock prior to the
Reverse Stock Split.
EFFECT OF THE REVERSE STOCK SPLIT PROPOSAL (ASSUMING 1 FOR 4 REVERSE STOCK SPLIT
FOR ILLUSIVE PURPOSES ONLY)
Subject to shareholder approval, the Reverse Stock Split Proposal will
be effected in as timely a manner as is practicable and in accordance with
applicable law (the "Effective Time" or "Effective Date"). The actual timing of
the Effective Date (assuming approval of the Reverse Stock Split Proposal at the
Special Meeting) will be determined by the Company's management (as well as the
extent of the Reverse Stock Split as heretofore indicated) based upon their
evaluation as to when such action will be most advantageous to the Company and
its shareholders. The Company reserves the right to forego or postpone
effectiveness of the Reverse Stock Split Proposal, if such action is determined
to be in the best interests of the
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Company and its shareholders.
Each shareholder that owns fewer than four shares of Common Stock will
have such shareholder's fractional share of Common Stock converted into the
right to receive cash as set forth below in "Exchange of Stock Certificates and
Payment for Fractional Shares." The interest of such shareholder in the Company
will thereby be terminated, and such shareholder will have no right to share in
the assets or future growth of the Company. Each shareholder that owns four or
more shares of Common Stock will continue to own shares of Common Stock and will
continue to share in the assets and future growth of the Company as a
shareholder. Such interest will be represented by one-fourth as many shares as
such shareholder owned before the Reverse Stock Split, subject to the adjustment
for fractional shares in which case such shareholder shall receive cash in lieu
of such fractional share. The number of shares of Common Stock that may be
purchased upon the exercise of outstanding options, warrants, and other
securities (including, but not limited to, Convertible Promissory Notes)
convertible into, or exercisable or exchangeable for, shares of Common Stock
(collectively, "Convertible Securities") and the per share exercise or
conversion prices thereof, will be adjusted appropriately as of the Effective
Date, so that the aggregate number of shares of Common Stock issuable in respect
of Convertible Securities immediately following the Effective Date will be
one-fourth of the number issuable in respect thereof immediately prior to the
Effective Date, the per share exercise price immediately following the Effective
Date will be 400% of the per share exercise or conversion price immediately
prior to the Effective Date, and the aggregate exercise or conversion prices
thereunder shall remain unchanged.
The Reverse Stock Split will also result in some shareholders owning
"odd lots" of less than 100 shares of Common Stock received as a result of the
Reverse Stock Split. Brokerage commissions and other costs of transactions in
odd lots may be higher, particularly on a per-share basis, than the cost of
transactions in even multiples of 100 shares.
The Company is currently authorized to issue 40,000,000 shares of
Common Stock, of which 26,648,879 shares were issued and outstanding at the
close of business on the Record Date (August 25, 2000).
Adoption of the Reverse Stock Split will reduce the shares of Common
Stock outstanding on the Record Date from 26,648,879 to approximately 6,662,220
(assuming a 1 for 4 Reverse Stock Split and could reduce the number of
outstanding common shares to approximately 532,978 assuming a 1 for 50 Reverse
Stock Split) but will not effect the number of authorized shares of Common
Stock. After the Reverse Stock Split, the Company estimates that it will have
approximately the same number of shareholders. Except for the receipt of cash in
lieu of fractional interests, the reverse stock split will not affect any
shareholder's proportionate equity interest in the Company.
As a result of the Reverse Stock Split, the Company will have a greater
number of authorized but unissued shares of Common Stock than prior to the
Reverse Stock Split. The increase in the authorized but unissued shares of
Common Stock could make a change in control of the Company more difficult to
achieve. Under certain circumstances, such shares of Common Stock could be used
to create voting impediments to frustrate persons seeking to effect a takeover
or otherwise gain control of the Company. Such shares could be sold privately to
purchasers who might side with the Board of Directors in opposing a takeover bid
that the Board determines is not in the best interests of the Company and its
shareholders.
The increase in the authorized but unissued shares of Common Stock also
may have
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the effect of discouraging an attempt by another person or entity, through
acquisition of a substantial number of shares of Common Stock, to acquire
control of the Company with a view to effecting a merger, sale of assets or a
similar transaction, since the issuance of new shares could be used to dilute
the stock ownership of such person or entity. Shares of authorized but unissued
Common Stock could be issued to a holder who would thereby have sufficient
voting power to assure that any such business combination or any amendment to
the Company's Articles of Incorporation would not receive the shareholder vote
required for approval thereof. The Board of Directors has no current plans to
issue any shares of Common Stock for any such or other purpose, and does not
intend to issue any stock except on terms or for reasons which the Board of
Directors deems to be in the best interests of the Company.
The Common Stock is currently listed on the Pink Sheets, under the
trading symbol GSMI.
EXCHANGE OF STOCK CERTIFICATES AND PAYMENT FOR FRACTIONAL SHARES
The combination and reclassification of shares of Common Stock pursuant
to the Reverse Stock Split will occur automatically on the Effective Date
without any action on the part of shareholders of the Company and without regard
to the date certificates representing shares of Common Stock prior to the
Reverse Stock Split are physically surrendered for new certificates. If the
number of shares of Common Stock to which a holder is entitled as a result of
the Reverse Stock Split would otherwise include a fraction, the Company will pay
to the shareholder, in lieu of issuing fractional shares of the Company, cash in
an amount equal to the same fraction multiplied by four times the average
closing price of the Common Stock on the Pink Sheets for the five days
immediately preceding the Effective Date. A change in the closing price of the
Common Stock will affect the amount received by shareholders in lieu of
fractional shares.
As soon as practicable after the Effective Date, transmittal forms will
be mailed to each holder of record of certificates for shares of Common Stock to
be used in forwarding such certificates for surrender and exchange for
certificates representing the number of shares of Common Stock such shareholder
is entitled to receive as a consequence of the Reverse Stock Split. The
transmittal forms will be accompanied by instructions specifying other details
of the exchange. Upon receipt of such transmittal form, each shareholder should
surrender the certificates representing shares of Common Stock prior to the
Reverse Stock Split, in accordance with the applicable instructions. Each holder
who surrenders certificates will receive new certificates representing the whole
number of shares of Common Stock that he holds as a result of the Reverse Stock
Split and any cash payable in lieu of a fractional share.
SHAREHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL FORM.
After the Effective Date, each certificate representing shares of
Common Stock outstanding prior to the Effective Date (an "Old Certificate")
will, until surrendered and exchanged as described above, be deemed, for all
corporate purposes, to evidence ownership of the whole number of shares of
Common Stock, and the right to receive from the Company the amount of cash for
any fractional shares, into which the shares of Common Stock evidenced by such
certificate have been converted by the Reverse Stock Split, except that the
holder of such unexchanged certificates will not be entitled to receive any
dividends or other distributions payable by the Company after the Effective
Date, until the Old Certificates have been surrendered. Such dividends and
distributions, if any, will be accumulated, and at the
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time of surrender of the Old Certificates, all such unpaid dividends or
distributions will be paid without interest.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain material federal income tax
considerations relating to the Reverse Stock Split. This discussion is based
upon the Internal Revenue Code of 1986 (the "Code"), existing and proposed
regulations thereunder, legislative history, judicial decisions, and current
administrative rulings and practices, all as amended and in effect on the date
hereof. Any of these authorities could be repealed, overruled, or modified at
any time. Any such change could be retroactive and, accordingly, could cause the
tax consequences to vary substantially from the consequences described herein.
No ruling from the Internal Revenue Service (the "IRS") with respect to the
matters discussed herein has been requested, and there is no assurance that the
IRS would agree with the conclusions set forth in this discussion. ALL
SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS.
This discussion may not address certain federal income tax consequences
that may be relevant to particular shareholders in light of their personal
circumstances or to certain types of shareholders (such as dealers in
securities, insurance companies, foreign individuals and entities, financial
institutions, and tax- exempt entities) who may be subject to special treatment
under the federal income tax laws. This discussion also does not address any tax
consequences under state, local, or foreign laws.
SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISERS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF THE REVERSE STOCK SPLIT, INCLUDING THE APPLICABILITY OF
ANY STATE, LOCAL, OR FOREIGN TAX LAWS, CHANGES IN APPLICABLE TAX LAWS, AND ANY
PENDING OR PROPOSED LEGISLATION.
The Company should not recognize any gain, or loss as a result of the
Reverse Stock Split. No gain or loss should be recognized by a shareholder who
receives only Common Stock upon the Reverse Stock Split. A shareholder who
receives cash in lieu of a fractional share of Common Stock that otherwise would
be held as a capital asset generally should recognize capital gain or loss on an
amount equal to the difference between the cash received and the shareholder's
basis in such fractional share of Common Stock. For this purpose, a
shareholder's basis in such fractional share of Common Stock will be determined
as if the shareholder actually received such fractional share. Except as
provided with respect to fractional shares, the aggregate tax basis of the
shares of Common Stock held by a shareholder following the Reverse Stock Split
will equal the shareholder's aggregate basis in the Common Stock held
immediately prior to the Reverse Stock Split and generally will be allocated
among the shares of Common Stock held following the Reverse Stock Split on a
pro-rata basis. Shareholders who have used the specific identification method to
identify their basis in shares of Common Stock combined in the Reverse Stock
Split should consult their own tax advisors to determine their basis in the
post-Reverse Stock Split shares of Common Stock received in exchange therefor.
DISSENTER'S RIGHTS
Under Delaware law, stockholders are not entitled to dissenter's rights
of appraisal with respect to the proposed amendment to the Certificate of
Incorporation to effect the Reverse Stock Split.
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REQUIRED VOTE FOR APPROVAL OF THE REVERSE STOCK SPLIT PROPOSAL
The affirmative vote of the holders of a majority of the Common Stock
present or represented at the Special Meeting is required to approve the Reverse
Stock Split Proposal. Proxies solicited by the Board of Directors will be voted
in favor of this Proposal unless stockholders specify otherwise.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THIS PROPOSAL AND UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE REVERSE STOCK SPLIT PROPOSAL.
PROPOSAL NO. 5 - REDUCTION IN PAR VALUE OF COMPANY
COMMON STOCK FROM $.60 TO $.001
The Board of Directors of the Company has adopted a resolution
unanimously approving and recommending to the Company's stockholders for their
approval an amendment to the Company's Certificate of Incorporation to provide
for a decrease of par value per share of common stock from $.60 to $.001 per
share.
As a result of the filing of an amended Certificate of Incorporation in
June 1998, the par value of the Company's common stock was changed from $.05 per
share to $.60 per share, thereby creating a potential problem for potential
purchasers of the Company's common stock. This potential problem arises by
virtue of the fact that Section 153(a) of the Delaware Corporation Law indicates
that "Shares of stock with par value may be issued for such CONSIDERATION,
HAVING A VALUE NOT LESS THAN THE PAR VALUE (emphasis added) thereof, .." while
subsequent Section 162(a) contains provisions for liability of stockholders who
purchase stock that has not been paid for in full and states, in part, that when
the whole consideration for shares has not been paid and corporate assets are
insufficient to satisfy claims of creditors, the holder of such shares shall be
bound to pay on each share held the sum necessary to complete the amount of the
unpaid balance.
In effect therefore, if one were to purchase shares at a price less
than the current par value of $.60 (which almost certainly would be the purchase
price considering current market price on August 25, 2000 of $_______) in
violation of Section 153(a) liability to satisfy creditors claims may arise
under Section 162(a), which liability, if imposed, would be based upon the
difference between the price per share paid and the then higher par value per
share. Under current circumstances this could lead a purchaser to be responsible
for the difference between $.60 per share and $______ per share for each share
of common stock purchased.
Unless and until par value is reduced it is unlikely that the Company
will be able to attract potential investors or any other purchasers of its
common stock or lenders of monies to the Company in accordance with either
Convertible Preferred Stock, Convertible Debentures and/or Convertible
Promissory Notes or otherwise. Any such financing participant would, in all
likelihood, defer from being involved in such a transaction due to the potential
liabilities described above. Management believes that this form of potential
liability triggered by the purchase of Company shares of common stock for less
that par value can, should be and may be eliminated by the reduction in the par
value and, accordingly, considers stockholder approval of this transaction to be
quite important for the future development of the Company and for the Company's
ability to negotiate with potential investors with a view towards raising funds
for future business operations.
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REQUIRED VOTE FOR APPROVAL OF THE REDUCTION IN PAR VALUE PROPOSAL
The affirmative vote of the holders of a majority of the Common Stock
present or represented at the Special Meeting is required to approve the
Reduction in Par Value Proposal. Proxies solicited by the Board of Directors
will be voted in favor of this Proposal unless stockholders specify otherwise.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THIS PROPOSAL AND UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE REDUCTION OF PAR VALUE PROPOSAL.
OTHER BUSINESS
The Board of Directors does not know of any matters to be presented for
consideration at the Special Meeting other than the matters described in the
Notice of Special Meeting, but if other matters are presented, it is the
intention of the persons named in the accompanying Proxy to vote on such matters
in accordance with their judgment.
STOCKHOLDERS PROPOSALS AND NOMINATIONS FOR THE 2000
ANNUAL MEETING OF STOCKHOLDERS
The Company anticipates that the 2000 Annual Meeting for fiscal year
ended March 31, 2000 will be held on or about December 15, 2000 and that the
proxy materials for the 2000 Annual Meeting will be mailed on or before November
15, 2000. If any stockholder wishes a proposal to be considered for inclusion in
the 2000 Proxy Statement, this material must be received by the Chairman of the
Board no later than September 13, 2000.
SOLICITATION OF PROXIES
The accompanying Proxy is solicited by the Board of Directors, and the
cost of such solicitation will be borne by the Company. Proxies may be solicited
by directors, officers and employees of the Company, none of whom will receive
any additional compensation for his or her services. Solicitation of Proxies may
be made personally or by mail, telephone, telegraph, facsimile or messenger. The
Company will pay persons holding shares of the Common Stock in their names or in
the names of nominees, but not owning such shares beneficially (such as
brokerage houses, banks and other fiduciaries) for the reasonable expense of
forwarding soliciting materials to their principals.
By Order of the Board of Directors
Joseph A. Rosio
Chairman of the Board of Directors
New York, New York
August 29, 2000
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EXHIBIT INDEX
NUMBER DESCRIPTION
Exhibit A 2000 Non-Statutory Stock Option Plan
Exhibit B Proposed Amended Certificate of Incorporation Increasing
Authorized Shares
Exhibit C Proposed Amended Certificate of Incorporation for Increasing
Authorized and Changing Par Value
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Exhibit A
NORTHEAST DIGITAL NETWORKS, INC.
2000 NON-STATUTORY STOCK OPTION PLAN
1. PURPOSE OF THIS PLAN.
This Non-Statutory Stock Option Plan (the "Plan") is intended as an
employment incentive, to aid in attracting and retaining in the employ or
service of Northeast Digital Networks, Inc. (the "Company"), a Delaware
corporation, and any Affiliated Corporation, persons of experience and ability
and whose services are considered valuable, to encourage the sense of
proprietorship in such persons, and to stimulate the active interest of such
persons in the development and success of the Company. This Plan provides for
the issuance of non-statutory stock options ("NSOs" or "Options") which are not
intended to qualify as "incentive stock options" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code").
2. ADMINISTRATION OF THIS PLAN.
The Company's Board of Directors ("Board") may appoint and maintain as
administrator of this Plan the Compensation Committee (the "Committee") of the
Board which shall consist of at least three members of the Board. Until such
time as the Committee is duly constituted, the Board itself shall have and
fulfill the duties herein allocated to the Committee. The Committee shall have
full power and authority to designate Plan participants, to determine the
provisions and terms of respective NSOs (which need not be identical as to
number of shares covered by any NSO, the method of exercise as related to
exercise in whole or in installments, or otherwise), including the NSO price,
and to interpret the provisions and supervise the administration of this Plan.
The Committee may, in its discretion, provide that certain NSOs not vest (that
is, become exercisable) until expiration of a certain period after issuance or
until other conditions are satisfied, so long as not contrary to this Plan.
A majority of the members of the Committee shall constitute a quorum.
All decisions and selections made by the Committee pursuant to this Plan's
provisions shall be made by a majority of its members. Any decision reduced to
writing and signed by all of the members shall be fully effective as if it had
been made by a majority at a meeting duly held. The Committee shall select one
of its members as its chairman and shall hold its meetings at such times and
places as it deems advisable. If at any time the Board shall consist of seven or
more members, then the Board may amend this Plan to provide that the Committee
shall consist only of Board members who shall not have been eligible to
participate in this Plan (or similar stock or stock option plan) of the Company
or its affiliates at any time within one year prior to appointment to the
Committee.
All NSOs granted under this Plan are subject to, and may not be
exercised before, the approval of this Plan by the holders of a majority of the
Company's outstanding shares, and if such approval is not obtained, all NSOs
previously granted shall be void. Each NSO shall be evidenced by a written
agreement containing terms and conditions established by the Committee
consistent with the provisions of this Plan.
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3. DESIGNATION OF PARTICIPANTS.
The persons eligible for participation in this Plan as recipients of
NSOs shall include full-time and part-time employees (as determined by the
Committee) and officers of the Company or of an Affiliated Corporation. In
addition, directors of the Company or any Affiliated Corporation who are not
employees of the Company or an Affiliated Corporation and any attorney,
consultant or other adviser to the Company or any Affiliated Corporation shall
be eligible to participate in this Plan. For all purposes of this Plan, any
director who is not also a common law employee and is granted an option under
this Plan shall be considered an "employee" until the effective date of the
director's resignation or removal from the Board of Directors, including removal
due to death or disability. The Committee shall have full power to designate,
from among eligible individuals, the persons to whom NSOs may be granted. A
person who has been granted an NSO hereunder may be granted an additional NSO or
NSOs, if the Committee shall so determine. The granting of an NSO shall not be
construed as a contract of employment or as entitling the recipient thereof to
any rights of continued employment.
4. STOCK RESERVED FOR THIS PLAN.
Subject to adjustment as provided in Paragraph 9 below, a total of
4,000,000 shares of Common Stock ("Stock"), of the Company shall be subject to
this Plan. The Stock subject to this Plan shall consist of unissued shares or
previously issued shares reacquired and held by the Company or any Affiliated
Corporation, and such amount of shares shall be and is hereby reserved for sale
for such purpose. Any of such shares which may remain unsold and which are not
subject to outstanding NSOs at the termination of this Plan shall cease to be
reserved for the purpose of this Plan, but until termination of this Plan, the
Company shall at all times reserve a sufficient number of shares to meet the
requirements of this Plan. Should any NSO expire or be canceled prior to its
exercise in full, the unexercised shares theretofore subject to such NSO may
again be subjected to an NSO under this Plan.
5. OPTION PRICE.
The purchase price of each share of Stock placed under NSO shall not be
less than fifty percent (50%) of the fair market value of such share on the date
the NSO is granted. The fair market value of a share on a particular date shall
be deemed to be the average of either (i) the highest and lowest prices at which
shares were sold on the date of grant, if traded on a national securities
exchange, (ii) the high and low prices reported in the consolidated reporting
system, if traded on a "last sale reported" system, such as NASDAQ, or (iii) the
high bid and high asked price for over-the-counter securities. If no
transactions in the Stock occur on the date of grant, the fair market value
shall be determined as of the next earliest day for which reports or quotations
are available. If the common shares are not then quoted on any exchange or in
any quotation medium at the time the option is granted, then the Board of
Directors or Committee will use its discretion in selecting a good faith value
believed to represent fair market value based on factors then known to them. The
cash proceeds from the sale of Stock are to be added to the general funds of the
Company.
6. EXERCISE PERIOD.
(a) The NSO exercise period shall be a term of not more than ten (10)
years from the date of granting of each NSO and shall automatically terminate:
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(i) Upon termination of the optionee's employment with the Company for
cause;
(ii) At the expiration of twelve (12) months from the date of
termination of the optionee's employment with the Company for any reason other
than death, without cause; provided, that if the optionee dies within such
twelve-month period, subclause (iii) below shall apply; or
(iii) At the expiration of fifteen (15) months after the date of death
of the optionee.
(b) "Employment with the Company" as used in this Plan shall include
employment with any Affiliated Corporation, and NSOs granted under this Plan
shall not be affected by an employee's transfer of employment among the Company
and any Parent or Subsidiary thereof. An optionee's employment with the Company
shall not be deemed interrupted or terminated by a bona fide leave of absence
(such as sabbatical leave or employment by the Government) duly approved,
military leave, maternity leave or sick leave.
7. EXERCISE OF OPTIONS.
(a) The Committee, in granting NSOs, shall have discretion to determine
the terms upon which NSOs shall be exercisable, subject to applicable provisions
of this Plan. Once available for purchase, unpurchased shares of Stock shall
remain subject to purchase until the NSO expires or terminates in accordance
with Paragraph 6 above. Unless otherwise provided in the NSO, an NSO may be
exercised in whole or in part, one or more times, but no NSO may be exercised
for a fractional share of Stock.
(b) NSOs may be exercised solely by the optionee during his lifetime,
or after his death (with respect to the number of shares which the optionee
could have purchased at the time of death) by the person or persons entitled
thereto under the decedent's will or the laws of descent and distribution.
(c) The purchase price of the shares of Stock as to which an NSO is
exercised shall be paid in full at the time of exercise and no shares of Stock
shall be issued until full payment is made therefor. Payment shall be made
either (i) in cash, represented by bank or cashier's check, certified check or
money order (ii) in lieu of payment for bona fide services rendered, and such
services were not in connection with the offer or sale of securities in a
capital raising transaction, (iii) by delivering shares of the Company's Common
Stock which have been beneficially owned by the optionee, the optionee's spouse,
or both of them for a period of at least six (6) months prior to the time of
exercise (the "Delivered Stock") in a number equal to the number of shares of
Stock being purchased upon exercise of the NSO or (iv) by delivery of shares of
corporate stock which are freely tradeable without restriction and which are
part of a class of securities which has been listed for trading on the NASDAQ
system or a national securities exchange, with an aggregate fair market value
equal to or greater than the exercise price of the shares of Stock being
purchased under the NSO, or (v) a combination of cash, services, Delivered Stock
or other corporate shares. An NSO shall be deemed exercised when written notice
thereof, accompanied by the appropriate payment in full, is received by the
Company. No holder of an NSO shall be, or have any of the rights and privileges
of, a shareholder of the Company in respect of any shares of Stock purchasable
upon exercise of any part of an NSO unless and until certificates representing
such shares shall have been issued by the Company to him or her.
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<PAGE>
8. ASSIGNABILITY.
No NSO shall be assignable or otherwise transferable (by the optionee
or otherwise) except by will or the laws of descent and distribution or except
as permitted in accordance with SEC Release No.33-7646 as effective April 7,
1999 and in particular that portion thereof which expands upon transferability
as is contained in Article III entitled "Transferable Options and Proxy
Reporting" as indicated in Section A 1 through 4 inclusive and Section B
thereof. No NSO shall be pledged or hypothecated in any manner, whether by
operation of law or otherwise, nor be subject to execution, attachment or
similar process.
9. REORGANIZATIONS AND RECAPITALIZATIONS OF THE COMPANY.
(a) The existence of this Plan and NSOs granted hereunder shall not
affect in any way the right or power of the Company or its shareholders to make
or authorize any and all adjustments, recapitalizations, reorganizations or
other changes in the Company's capital structure or its business, or any merger
or consolidation of the Company, or any issue of bonds, debentures, preferred or
prior preference stocks ahead of or affecting the Company's Common Stock or the
rights thereof, or the dissolution or liquidation of the Company, or any sale,
exchange or transfer of all or any part of its assets or business, or the other
corporation act or proceeding, whether of a similar character or otherwise.
(b) The shares of Stock with respect to which NSOs may be granted
hereunder are shares of the Common Stock of the Company as currently
constituted. If, and whenever, prior to delivery by the Company of all of the
shares of Stock which are subject to NSOs granted hereunder, the Company shall
effect a subdivision or consolidation of shares or other capital readjustment,
the payment of a Stock dividend, a stock split, combination of shares (reverse
stock split) or recapitalization or other increase or reduction of the number of
shares of the Common Stock outstanding without receiving compensation therefor
in money, services or property, then the number of shares of Stock available
under this Plan and the number of shares of Stock with respect to which NSOs
granted hereunder may thereafter be exercised shall (i) in the event of an
increase in the number of outstanding shares, be proportionately increased, and
the cash consideration payable per share shall be proportionately reduced; and
(ii) in the event of a reduction in the number of outstanding shares, be
proportionately reduced, and the cash consideration payable per share shall be
proportionately increased.
(c) If the Company is reorganized, merged, consolidated or party to a
plan of exchange with another corporation pursuant to which shareholders of the
Company receive any shares of stock or other securities, there shall be
substituted for the shares of Stock subject to the unexercised portions of
outstanding NSOs an appropriate number of shares of each class of stock or other
securities which were distributed to the shareholders of the Company in respect
of such shares of Stock in the case of a reorganization, merger, consolidation
or plan of exchange; provided, however, that all such NSOs may be canceled by
the Company as of the effective date of a reorganization, merger, consolidation,
plan of exchange, or any dissolution or liquidation of the Company, by giving
notice to each optionee or his personal representative of its intention to do so
and by permitting the purchase of all the shares subject to such outstanding
NSOs for a period of not less than thirty (30) days during the sixty (60) days
next preceding such effective date.
(d) Except as expressly provided above, the Company's issuance of
shares of Stock of any class, or securities convertible into shares of Stock of
any class, for cash or property, or for labor or services, either upon direct
sale or upon the exercise of rights or warrants to
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<PAGE>
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into shares of Stock or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number of shares
of Stock subject to NSOs granted hereunder or the purchase price of such shares.
10. PURCHASE FOR INVESTMENT.
Unless the shares of Stock covered by this Plan have been registered
under the Securities Act of 1933, as amended, each person exercising an NSO
under this Plan may be required by the Company to give a representation in
writing that he is acquiring such shares for his own account for investment and
not with a view to, or for sale in connection with, the distribution of any part
thereof.
11. EFFECTIVE DATE AND EXPIRATION OF THIS PLAN.
This Plan shall be effective as of __________, 2000 the date of its
adoption by the Board, subject to the approval of the Company's shareholders,
and no NSO shall be granted pursuant to this Plan after its expiration. This
Plan shall expire on __________, 2010 except as to NSOs then outstanding, which
shall remain in effect until they have expired or been exercised.
12. AMENDMENTS OR TERMINATION.
The Board may amend, alter or discontinue this Plan at any time in such
respects as it shall deem advisable in order to conform to any change in any
other applicable law, or in order to comply with the provisions of any rule or
regulation of the Securities and Exchange Commission required to exempt this
Plan or any NSOs granted thereunder from the operation of Section 16(b) of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), or in any other
respect not inconsistent with Section 16(b) of the Exchange Act; provided, that
no amendment or alteration shall be made which would impair the rights of any
participant under any NSO theretofore granted, without his consent (unless made
solely to conform such NSO to, and necessary because of, changes in the
foregoing laws, rules or regulations), and except that no amendment or
alteration shall be made without the approval of shareholders which would:
(a) Increase the total number of shares reserved for the purposes of this
Plan or decrease the NSO price provided for in Paragraph 5 (except as
provided in Paragraph 9), or change the classes of persons eligible to
participate in this Plan as provided in Paragraph 3; or
(b) Extend the NSO period provided for in Paragraph 6; or
(c) Materially increase the benefits accruing to participants under this
Plan; or
(d) Materially modify the requirements as to eligibility for participation
in this Plan; or
(e) Extend the expiration date of this Plan as set forth in Paragraph 11.
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<PAGE>
13. GOVERNMENT REGULATIONS.
This Plan, and the granting and exercise of NSOs hereunder, and the
obligation of the Company to sell and deliver shares of Stock under such NSOs,
shall be subject to all applicable laws, rules and regulations, and to such
approvals by any governmental agencies or national securities exchanges as may
be required.
14. LIABILITY.
No member of the Board of Directors, the Committee or officers or
employees of the Company or any Affiliated Corporation shall be personally
liable for any action, omission or determination made in good faith in
connection with this Plan.
15. MISCELLANEOUS.
(a) The term "Affiliated Corporation" used herein shall mean any Parent
or Subsidiary.
(b) The term "Parent" used herein shall mean any corporation owning 50
percent or more of the total combined voting stock of all classes of the Company
or of another corporation qualifying as a Parent within this definition.
(c) The term "Subsidiary" used herein shall mean any corporation more
than 50 percent of whose total combined voting stock of all classes is held by
the Company or by another corporation qualifying as a Subsidiary within this
definition.
16. OPTIONS IN SUBSTITUTION FOR OTHER OPTIONS.
The Committee may, in its sole discretion, at any time during the term
of this Plan, grant new options to an employee under this Plan or any other
stock option plan of the Company on the condition that such employee shall
surrender for cancellation one or more outstanding options which represent the
right to purchase (after giving effect to any previous partial exercise thereof)
a number of shares, in relation to the number of shares to be covered by the new
conditional grant hereunder, determined by the Committee. If the Committee shall
have so determined to grant such new options on such a conditional basis ("New
Conditional Options"), no such New Conditional Option shall become exercisable
in the absence of such employee's consent to the condition and surrender and
cancellation as appropriate. New Conditional Options shall be treated in all
respects under this Plan as newly granted options. Option may be granted under
this Plan from time to time in substitution for similar rights held by employees
of other corporations who are about to become employees of the Company or an
Affiliated Corporation, or the merger or consolidation of the employing
corporation with the Company or an Affiliated Corporation, or the acquisition by
the Company or an Affiliated Corporation of the assets of the employing
corporation, or the acquisition by the Company or an Affiliated Corporation of
stock of the employing corporation as the result of which it becomes an
Affiliated Corporation.
17. WITHHOLDING TAXES.
Pursuant to applicable federal and state laws, the Company may be
required to collect withholding taxes upon the exercise of a NSO. The Company
may require, as a condition to the exercise of a NSO, that the optionee
concurrently pay to the Company the entire amount
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or a portion of any taxes which the Company is required to withhold by reason of
such exercise, in such amount as the Committee or the Company in its discretion
may determine. In lieu of part or all of any such payment, the optionee may
elect to have the Company withhold from the shares to be issued upon exercise of
the option that number of shares having a Fair Market Value equal to the amount
which the Company is required to withhold.
18. TRANSFERABILITY IN ACCORDANCE WITH FORM S-8 AS AMENDED AND EFFECTIVE
APRIL 7, 1999.
Notwithstanding anything to the contrary as may be contained in this
Plan regarding rights as to transferability or lack thereof, all options granted
hereunder may and shall be transferable to the extent permitted in accordance
with SEC Release No. 33-7646 entitled "Registration of Securities on Form S-8"
as effective April 7, 1999 and in particular in accordance with that portion of
such Release which expands Form S-8 to include stock option exercise by family
members so that the rules governing the use of Form S-8 (a) do not impede
legitimate intra family transfer of options and (b) may facilitate transfer for
estate planing purposes - all as more specifically defined in Article III,
Sections A and B thereto, the contents of which are herewith incorporated by
reference.
Northeast Digital Networks, Inc.
ATTEST:
By: Joseph A. Rosio
Chairman of the Board
By: , Secretary
(SEAL)
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CERTIFICATION OF PLAN ADOPTION
I, the undersigned Secretary of this Corporation, hereby certify that
the foregoing 2000 Non-Statutory Stock Option Plan was duly approved by the
requisite number of holders of the issued and outstanding Common Stock of this
corporation as of September 29, 2000.
--------------------
, Secretary
(SEAL)
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OPTION AGREEMENT
The undersigned hereby grants (pursuant to the Northeast
Digital Networks, Inc. 2000 Non-Statutory Stock Option Plan dated _________,
2000 attached hereto) an option to purchase _________shares of Northeast
Digital Networks, Inc. (the "Corporation").
Option Period. This option shall be for a period of years from the date of
this Option Agreement ("Option Period").
Option Price. The option price shall be $ per share for an aggregate of $ if the
entire shares are purchased. The option price of the shares of Common Stock
shall be paid in full at the time of exercise and no shares of Common Stock
shall be issued until full payment is made therefor. Payment shall be made
either (i) in cash, represented by bank or cashier's check, certified check or
money order (ii) in lieu of payment for bona fide services rendered, and such
services were not in connection with the offer or sale of securities in a
capital-raising transaction, (iii) by delivering shares of the undersigned's
Common Stock which have been beneficially owned by the optionee, the optionee's
spouse, or both of them for a period of at least six (6) months prior to the
time of exercise (the "Delivered Stock") in a number equal to the number of
shares of Stock being purchased upon exercise of the Option or (iv) by delivery
of shares of corporate stock which are freely tradeable without restriction and
which are part of a class of securities which has been listed for trading on the
NASDAQ system or a national securities exchange, with an aggregate fair market
value equal to or greater than the exercise price of the shares of Stock being
purchased under the Option, or (v) a combination of cash, services, Delivered
Stock or other corporate shares.
Shareholder Rights. No holder of an Option shall be, or have any of the rights
and privileges of, a shareholder of the Corporation in respect of any shares of
Common Stock purchasable upon exercise of any part of an Option unless and until
certificates representing such shares shall have been issued by the Corporation
to him or her.
Determination of Exercise Date. This Option or a portion of this Option shall be
deemed exercised when written notice thereof, accompanied by the appropriate
payment in full, is received by the Corporation.
Date: ___________, 2000
NORTHEAST DIGITAL NETWORKS, INC.
By: Joseph A. Rosio
Chairman of the Board
By: , Secretary
<PAGE>
Exhibit B
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Northeast Digital Networks, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, at a meeting
duly held, adopted a resolution proposing and declaring advisable the following
amendment to the Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of Northeast Digital
Networks, Inc. be amended by adding a new Article Twelfth as hereinafter
indicated and by changing the current Fourth Article thereto so that, as
amended, said Article Fourth shall be and read as follows:
"FOURTH" The total number of shares of stock which the
Corporation shall have authority to issue is Three Hundred Eight Million
(308,000,000) of which 300,000,000 Shares shall be Common Stock, par value $.60
per share without cumulative voting rights and without any preemptive rights and
8,000,000 shares shall be Preferred Stock, par value $.01 per share.
"TWELFTH" No Director of the Corporation shall be liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (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) for the payment of unlawful dividends or unlawful stock
repurchases or redemptions under Section 174 of the Delaware General Corporation
Law; or (iv) for any transaction from which the Director derived an improper
personal benefit.
SECOND: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of sections 242 and 228 of the General
Corporation Law of the State of Delaware.
THIRD: That this Certificate of Amendment of the Certificate of
Incorporation shall be effective immediately upon filing.
FOURTH: The amendment to the Certificate of Incorporation was
authorized by an affirmative vote of the holders of at least a majority of all
outstanding shares entitled to vote on an amendment to the Certificate of
Incorporation at the Special Meeting of Shareholders. Said authorization being
subsequent to the affirmative vote of the Board of Directors
IN WITNESS WHEREOF, said Northeast Digital Networks, Inc. has caused
this certificate to be signed by Joseph A. Rosio, its Chairman of the Board, and
attested by _______________, its Secretary, THIS day of August, 2000.
NORTHEAST DIGITAL NETWORKS, INC.
Joseph A. Rosio
Chairman of the Board
ATTEST:
________________, Secretary
<PAGE>
Exhibit C
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Northeast Digital Networks, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, at a meeting
duly held, adopted a resolution proposing and declaring advisable the following
amendment to the Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of Northeast Digital
Networks, Inc. be amended by adding a new Article Twelfth as hereinafter
indicated and by changing the current Fourth Article thereto so that, as
amended, said Article Fourth shall be and read as follows:
"FOURTH" The total number of shares of stock which the
Corporation shall have authority to issue is Three Hundred Eight Million
(308,000,000) of which 300,000,000 shares shall be Common Stock, par value $.001
per share without cumulative voting rights and without any preemptive rights and
8,000,000 shares shall be Preferred Stock, par value $.01 per share.
"TWELFTH" No Director of the Corporation shall be liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (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) for the payment of unlawful dividends or unlawful stock
repurchases or redemptions under Section 174 of the Delaware General Corporation
Law; or (iv) for any transaction from which the Director derived an improper
personal benefit.
SECOND: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of sections 242 and 228 of the General
Corporation Law of the State of Delaware.
THIRD: That this Certificate of Amendment of the Certificate of
Incorporation shall be effective immediately upon filing.
FOURTH: The amendment to the Certificate of Incorporation was
authorized by an affirmative vote of the holders of at least a majority of all
outstanding shares entitled to vote on an amendment to the Certificate of
Incorporation at the Special Meeting of Shareholders. Said authorization being
subsequent to the affirmative vote of the Board of Directors
IN WITNESS WHEREOF, said Northeast Digital Networks, Inc. has caused
this certificate to be signed by Joseph A. Rosio, its Chairman of the Board, and
attested by _______________, its Secretary, THIS day of August, 2000.
NORTHEAST DIGITAL NETWORKS, INC.
Joseph A. Rosio
Chairman of the Board
ATTEST:
________________, Secretary
