UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. ___________)
Filed by Registrant [X]
File by a Party Other Than Registrant [ ]
Check the appropriate box:
[X] | Preliminary Proxy Statement |
[ ] | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
[ ] | Definitive Proxy Statement |
[ ] | Definitive Additional Materials |
[ ] | Soliciting Material Pursuant to §240.14a-12 |
DIGITAL LEARNING MANAGEMENT CORPORATION
(Name of Registrant as Specified in Its Charter)
___________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] | No fee required. |
[ ] | Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
(1) | Title of each class of securities to which transaction applies: __________________________________________________________ | |
(2) | Aggregate number of securities to which transaction applies: __________________________________________________________ | |
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): __________________________________________________________ |
(4) | Proposed maximum aggregate value of transaction: __________________________________________________________ | |
(5) | Total fee paid: __________________________________________________________ | |
[ ] | Fee paid previously with preliminary materials. | |
[ ] | Check box if any part of the fee is offset as provided by the Exchange Act Rule 0-11(a)(2)and identify the filing for which the offsetting fee was paid previously. Identify the previous filing byregistration statement number, or the Form or Schedule and the date of its filing. |
(1) | Amount Previously Paid: __________________________________________________________ | |
(2) | Form, Schedule or Registration Statement No.: __________________________________________________________ | |
(3) | Filing Party: __________________________________________________________ | |
(4) | Date Filed: __________________________________________________________ | |
Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. | ||
2 |
[DLI Letterhead] |
August __, 2004 |
Dear Shareholders:
You are cordially invited to attend Digital Learning Management Corporation’s Annual Meeting of Shareholders, which will be held at 19950 Mariner Avenue, Torrance, California, on August 26, 2004 at 10:00 a.m., local time.
At the Meeting, shareholders will be asked to (i) elect directors for the ensuing year, (ii) approve the Digital Learning Management Corporation 2004 Stock Option, Deferred Stock and Restricted Stock Plan, (iii) approve the reincorporation of Digital Learning Management Corporation from the State of Nevada to the State and Delaware and (iv) ratify the appointment of accountants. Information regarding the nominees for election of directors, the 2004 Stock Option, Deferred Stock and Restricted Stock Plan, the reincorporation and ratification of the appointment of accountants is set forth in the accompanying Proxy Statement.
It is important that your shares be represented at the Meeting, whether or not you plan to attend. Please indicate on the enclosed proxy card your vote on the matters presented, and sign, date and return the proxy card in the enclosed envelope. If you do attend the Meeting and wish to vote in person, your proxy will be withdrawn at that time. We urge you to vote “FOR” the election of all of the nominees named in the Proxy Statement, “FOR” approval of the 2004 Stock Option, Deferred Stock and Restricted Stock Plan, “FOR” the reincorporation and “FOR” ratification of the appointment of accountants.
/s/ AURANGZEB BHATTI ______________________________ Aurangzeb Bhatti President and Director |
3 |
DIGITAL LEARNING MANAGEMENT CORPORATION
19950 Mariner Avenue
Torrance, California 90503
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held August 26, 2004 |
TO THE SHAREHOLDERS OF
DIGITAL LEARNING MANAGEMENT CORPORATION:
Notice is hereby given that the Annual Meeting of Shareholders (the “Meeting”) of Digital Learning Management Corporation (“DGTL” or the “Company”) will be held at 19950 Mariner Avenue, Torrance, California, on August 26, 2004 at 10:00 a.m., local time, for the purpose of considering and voting upon the following matters:
1. | Election of Directors.To elect seven persons to serve as directors of DGTL until their successors are duly elected and qualified. |
Aurangzeb Bhatti Umesh Patel Robert Pearson Gregory Frazer Khalid Sheikh Richard Rappaport Al Jinnah |
2. | Approval of the Digital Learning Management Corporation 2004 Stock Option, Deferred Stock and Restricted Stock Plan.To approve the Digital Learning Management Corporation 2004 Stock Option, Deferred Stock and Restricted Stock Plan. |
3. | Approval of Reincorporation.To approve the reincorporation of DGTL from the State of Nevada to the State of Delaware. |
4. | Ratification of Appointment of Accountants.To ratify the appointment of AJ. Robbins, PC as DGTL’s independent public accountants. |
5. | Transaction of Other Business.To transact such other business as may properly come before the Meeting and any adjournment or adjournments thereof. |
The board of directors has fixed the close of business on July 29, 2004 as the record date for determination of shareholders entitled to notice of, and to vote at, the Meeting.
BY ORDER OF THE BOARD OF DIRECTORS | |||
/s/ Al Jinnah | |||
Dated: August __, 2004 | Al Jinnah, Secretary |
WE URGE YOU TO VOTE IN FAVOR OF MANAGEMENT’S PROPOSALS BY SIGNING AND RETURNING THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. THE ENCLOSED PROXY IS SOLICITED BY DGTL’S BOARD OF DIRECTORS. ANY SHAREHOLDER GIVING A PROXY MAY REVOKE IT PRIOR TO THE TIME IT IS VOTED BY FILING WITH THE SECRETARY OF DGTL AN INSTRUMENT REVOKING IT OR A DULY EXECUTED PROXY BEARING A LATER DATE, OR BY ATTENDING THE MEETING AND VOTING IN PERSON. PLEASE INDICATE ON THE PROXY WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING SO THAT WE CAN ARRANGE ADEQUATE ACCOMMODATIONS.
4 |
DIGITAL LEARNING MANAGEMENT CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To be held August 26, 2004
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of Proxies for use at the 2004 Annual Meeting of Shareholders (the “Meeting”) of Digital Learning Management Corporation (“DGTL” or the “Company”) to be held on August 26, 2004 at 10:00 a.m., local time, at 19950 Mariner Avenue, Torrance, California, and at any and all adjournments thereof.
It is anticipated that this Proxy Statement and the accompanying Notice and form of Proxy will be mailed to shareholders eligible to receive notice of, and to vote at, the Meeting on or about August 6, 2004.
Revocability of Proxies |
A form of Proxy for voting your shares at the Meeting is enclosed. Any shareholder who executes and delivers such Proxy has the right to and may revoke it at any time before it is exercised by filing with the Secretary of DGTL an instrument revoking it or a duly executed Proxy bearing a later date. In addition, the powers of the proxyholders will be suspended if the person executing the Proxy is present at the Meeting and elects to vote in person by advising the chairman of the Meeting of his or her election to vote in person, and voting in person at the Meeting. Subject to such revocation or suspension, all shares represented by a properly executed Proxy received in time for the Meeting will be voted by the proxyholders in accordance with the instructions specified on the Proxy. UNLESS OTHERWISE DIRECTED IN THE ACCOMPANYING PROXY, THE SHARES REPRESENTED BY YOUR EXECUTED PROXY WILL BE VOTED “FOR” ELECTION OF THE DIRECTORS NAMED HEREIN, “FOR” THE APPROVAL OF DIGITAL LEARNING MANAGEMENT CORPORATION 2004 STOCK OPTION, DEFERRED STOCK AND RESTRICTED STOCK PLAN, “FOR” THE REINCORPORATION FROM THE STATE OF NEVADA TO THE STATE OF DELAWARE, “FOR” THE RATIFICATION OF AJ. ROBBINS, PC AS DGTL’S INDEPENDENT PUBLIC ACCOUNTANTS AND IF ANY OTHER BUSINESS IS PROPERLY PRESENTED AT THE MEETING, SUCH PROXY WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF MANAGEMENT.
Persons Making the Solicitation |
This solicitation of Proxies is being made by the DGTL’s board of directors (the “Board”). The expense of preparing, assembling, printing and mailing this Proxy Statement and the materials used in the solicitation of Proxies for the Meeting will be borne by DGTL. It is contemplated that Proxies will be solicited principally through the use of the mail, but directors, officers and employees of DGTL may solicit Proxies personally or by telephone, without receiving special compensation therefore. In addition, DGTL may request banks, brokers or other custodians to solicit customers for whom they hold DGTL stock and will reimburse them for their reasonable out-of-pocket expenses.
VOTING SECURITIES |
There were issued and outstanding _________ shares of the DGTL’s common stock (“Common Stock”) on July 29, 2004 which has been fixed as the record date for the purpose of determining shareholders entitled to notice of, and to vote at, the Meeting (the “Record Date”). On any matter submitted to the vote of the shareholders, each holder of Common Stock will be entitled to one vote, in person or by Proxy, for each share of Common Stock he or she held of record on the books of DGTL as of the Record Date. In connection with the election of directors, there is no cumulative voting. The effect of broker non-votes is that such votes are not counted as being voted; however, such votes are counted for purposes of determining a quorum. A broker non-vote occurs when a broker submits a proxy card with respect to shares held in a fiduciary capacity (typically referred to as being held in “street name”), but declines to vote on a particular matter because the broker has not received voting instructions from the beneficial owner. The effect of a vote of abstention on any matter is that such vote is not counted as a vote for or against the matter, but is counted as an abstention.
5 |
PROPOSAL NO. 1 ELECTION OF DIRECTORS |
The persons named below, all of whom are current members of the Board, will be nominated for election as directors at the Meeting to serve until the next Annual Meeting of Shareholders and until their successors are elected and have qualified. Votes of the proxyholders will be cast in such a manner as to effect the election of all seven nominees, as appropriate. Abstentions and broker non-votes will each be counted for purposes of determining the presence of a quorum, but will have no effect on the vote. If a quorum is present at the meeting, the seven nominees for directors receiving the most votes will be elected directors. Abstentions and broker non-votes will each be counted for purposes of determining the presence of a quorum, but will have no effect on the vote. In the event that any of the nominees should be unable to serve as a director, it is intended that the Proxy will be voted for the election of such substitute nominee, if any, as shall be designated by the Board. The Board has no reason to believe that any of the nominees named below will be unable to serve if elected. Additional nominations for directors may only be made by complying with the nomination procedures which are included in the Notice of Annual Meeting of Shareholders accompanying this Proxy Statement.
The following table sets forth, as of July 29, 2004, the names of, and certain information concerning, the persons nominated for election as directors of DGTL:
Name and Title Other than Director | Age | Year First Appointed Director | Principal Occupation During the Past Five Years | |||
Aurangzeb Bhatti, President | 49 | 2004 | Mr. Bhatti has over 25 years experience in information technology and the education field. In 1995, Mr. Bhatti founded WebVision, Inc. and served as its Chief Executive Officer and Chief Technology Officer until 2001. In 2001, after leaving WebVision, Inc., Mr. Bhatti co-founded another company by the name of School of I.T. with Mr. Patel. This company is the forerunner of Digital Learning Management Corporation. | |||
Umesh Patel, Vice President, Chief Financial Officer | 47 | 2004 | Mr. Patel has over 14 years experience in business development and sales. From 1990 to 2001, Mr. Patel served as the President of Tech Med Billing Services, where he was responsible for managing and projecting financials for the company. In 2001, Mr. Patel co-founded School of I.T. with Mr. Bhatti. Mr. Patel served as its Vice President and was responsible for marketing. | |||
Al Jinnah, General Counsel and Secretary | 64 | 2004 | Mr. Jinnah has been a practicing attorney for over 35 years. He has wide experience in business law and civil litigation, having served as in-house counsel in various industries. He has operated his own private practice for the past 5 years. | |||
Robert Pearson | 68 | 2004 | Mr. Pearson has been Senior Vice-President for Investments for RENN Capital Group, Inc., of Dallas, Texas since 1997. RENN Capital Group, Inc. is an investment management firm. | |||
Gregory Frazer | 51 | 2004 | From 1996 to 2001, Dr. Frazer was Vice-President of Business Development and on the Board of Directors of Sonus-USA, Inc., a publicly traded corporation. From 2001 to 2003, Dr. Frazer was a professor at Arizona School for Health Sciences in the Au.D. Program. In 2003, Dr. Frazer entered private practice and is now the Director of Audiology at Pacific Eye & Ear Specialists, Inc. in Brentwood, California. | |||
Khalid Sheikh | 65 | 2004 | Dr. Sheik has a Doctorate degree in Physiology from the University of London. His entire career has been devoted to the hospital environment. Since 1985, he been a consultant in the Radiation Oncology department at Long Beach Memorial Medical center. In his career Dr. Sheik has served on numerous Boards in the medical field. At present, he serves on the Board of Endocurietherapy Research Foundation, Long Beach, California. | |||
Richard Rappaport | 44 | 2004 | Mr. Rappaport is the founder of WestPark Capital, Inc. and has been its Chief Executive Officer since September 1999. From April 1998 through September 1999, Mr. Rappaport was Director of Corporate Finance for Global Securities, where he was responsible for all of the firms North American corporate finance activities. |
6 |
None of the director-nominees were selected pursuant to any arrangement or understanding other than with the directors and executive officers of DGTL acting within their capacities as such. There are no family relationships between any of the directors of DGTL.
Management recommends that the shareholders vote “FOR” the director-nominees listed above.
The Board of Directors and Committees |
The sole director during 2003 was Eric Borgeson, who resigned in January 2004. Therefore, the Board held no formal meetings in 2003 and all votes were cast by written consent pursuant to applicable Nevada laws.
The Board does not maintain a separate audit, nominating or compensation committee. Functions customarily performed by such committees are performed by the Board as a whole. DGTL is not required to maintain such committees under the applicable rules of the Over-the-Counter Bulletin Board.
Policy on Accounting Matters; Pre-Approval of Audit and Non-Audit Services of Independent Auditor
The Board oversees DGTL’s corporate accounting and reporting practices and the quality and integrity of DGTL’s financial statements and reports, selects, hires, oversees and terminates DGTL’s independent auditors, monitors DGTL’s independent auditors’ qualifications, independence and performance, monitors DGTL’s and its affiliates’ compliance with legal and regulatory requirements, oversees all internal auditing functions and controls, and oversees DGTL’s and its affiliates’ risk management function.
The Board’s policy is to pre-approve all audit and non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the full Board regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date.
Director Compensation |
DGTL’s outside directors have agreed to waive compensation for the first six months of service. Commencing on September 1, 2004, each outside director shall be compensated $1,000 for each Board meeting attended in person and $500 for each telephonic Board meeting attended. In addition, each outside director shall receive an option to purchase 20,000 shares of DGTL Common Stock. Directors that are also executive officers of DGTL receive no additional compensation for their Board service.
7 |
Consideration of Director-Nominees |
Shareholder Nominees |
DGTL’s Board as a whole will consider nominees to the Board proposed by shareholders, although the Board has no formal policy with regard to shareholder nominees as it considers all nominees on their merits as discussed below. Any shareholder nominations proposed for consideration by the Board should include the nominee’s name and qualifications for Board membership and should be addressed to:
Secretary Digital Learning Management Corporation 19950 Mariner Avenue Torrance, California 90503 |
Selection and Evaluation of Director Candidates |
The Board is responsible for identifying candidates for membership on the Board and makes determinations as to whether to recommend such candidates nomination to the Board based on their character, judgment, and business experience, as well as their ability to add to the Board’s existing strengths. This assessment typically includes issues of expertise in industries important to DGTL, functional expertise in areas such as marketing, human resources, operations, finance and information technology and an assessment of an individual’s abilities to work constructively with the existing Board and management, all in the context of an assessment of the perceived needs of the Board at that point in time. The Board does not have any written specific minimum qualifications or skills that a candidate must meet in order to serve on the committee. The Board identifies nominees by first evaluating the current members of the Board of Directors qualified and willing to continue in service. Current members of the Board with skills and experience that are relevant to DGTL’s business and who are willing to continue in service are considered for re-nomination, balancing the value of continuity of service by existing members of the Board with that of obtaining a new perspective. If any member of the Board does not to wish to continue in service or if the majority of the Board decided not to re-nominate a member for re-election, the Board identifies the desired skills and experience of a new nominee in light of the following criteria. When identifying and evaluating new directors, the Board considers the diversity and mix of the existing board of directors, including, but not limited to, such factors as: the age of the current directors, employment experience, public interest considerations and the implementation of the DGTL’s strategic plan. Among other things, when examining a specific candidate’s qualifications, the Board considers: the ability to represent the best interest of DGTL, existing relationships with DGTL, interest in the affairs of the DGTL and its purpose, the ability to fulfill director responsibilities, leadership skill, integrity, business judgment, ability to develop business for DGTL and the ability to work as a member of a team.
Communications with the Board and Annual Meeting Attendance
Individuals who wish to communicate with DGTL’s Board may do so by sending correspondence to the Company’s Board at 19950 Mariner Avenue, Torrance, California 90503. Any communications intended for non-management directors should be sent to the above address above to the attention of Mr. Richard Rappaport.
DGTL does not have a policy regarding Board member attendance at Annual Meetings of Shareholders. DGTL did not hold an Annual Meeting of Shareholders in 2003.
8 |
PROPOSAL NO. 2:
APPROVAL OF THE DIGITAL LEARNING MANAGEMENT CORPORATION
2004 STOCK OPTION, DEFERRED STOCK AND RESTRICTED STOCK PLAN
Introduction |
The Digital Learning Management Corporation 2004 Stock Option, Deferred Stock and Restricted Stock Plan (the “Plan”), subject to approval by DGTL’s shareholders, provides for the granting of options to purchase up to 2,000,000 shares of authorized and unissued Common Stock at option prices per share which must not be less than one hundred percent (100%) of the fair market value per share of Common Stock at the time each option is granted. The Board believes it is advisable for the shareholders to adopt the Plan so that DGTL will have stock options, deferred stock and restricted stock available to grant as an additional means of retaining and attracting competent directors and personnel for DGTL, and for inducing high levels of performance and efforts for the benefit of DGTL and its shareholders.
Options granted pursuant to the Plan are intended to qualify for treatment either as “incentive stock options” within the meaning of Section 422 of the Code, or as “nonqualified stock options,” as shall be determined and designated upon the grant of each option. Though there have been no grants of stock options and no determination of intended grants to specific optionees under the Plan by the Board, it is expected that stock options will be granted under the Plan to directors, executive officers and management level employees of DGTL after shareholder approval of the Plan. The summary below is subject to the provisions of the Plan, a form of which is attached to this Proxy Statement asExhibit A.
Summary of the Plan |
The Plan will be administered by the Board of DGTL or a committee appointed by the Board. All incentive options under the Plan will be granted at an exercise price of not less than 100% of the fair market value of the shares of Common Stock on the date of grant, except for an incentive stock option granted to an optionee who at the time of grant owns more than 10% of the total combined voting power of all classes of stock of DGTL, in which case the option price shall not be less than 110% of the fair market value of such stock. Non qualified stock options may be granted at an exercise price of less than 100% of the fair market value, but in no event less than 85% of the fair market value. The purchase price of any shares purchased upon exercise is payable in full in cash or, subject to applicable law, with Common Stock previously acquired by the optionee. The equivalent dollar value of shares used to effect a purchase shall be the fair market value of the Common Stock on the date of exercise.
Options granted pursuant to the Plan shall be for a term of up to ten years, except for certain incentive stock options described below. Each option shall be exercisable in installments and upon such conditions as the Board shall determine. Options granted shall vest at least 20% per year over a period of five years. Optionees shall have the right to exercise all or a portion of the option at any time or from time to time with respect to the vested part of their stock options. If any option shall expire without being exercised in full, the shares will again become available for granting of stock options under the Plan.
Incentive stock options may be granted to full-time salaried officers and management level employees of DGTL. No director who is not also a full-time salaried officer or management level employee may be granted an incentive stock option pursuant to the Plan. No incentive stock option with a term of more than five years may be granted to any person who at the time of grant owns stock possessing more than 10% of the total combined voting power or value of all classes of stock of DGTL. Nonqualified stock options may be granted to directors, full-time salaried officers and management level employees of DGTL.
The Plan also allows DGTL, subject to Board consent, to make deferred stock and restricted stock awards to its employees, directors, consultants or advisors.
9 |
Tax Consequences to the Optionee |
The following describes, generally, the major federal income tax consequences relating to stock options issued under the Plan. If all of the requirements of the Plan are met, generally no taxable income will result to an optionee upon the grant of an incentive or nonqualified stock option.
Incentive Stock Options. If the optionee is employed by DGTL continuously from the date of grant until at least three months before the option is exercised and otherwise satisfies the requirements of the Plan and applicable law, the optionee will not recognize taxable income upon exercise of the option. If the optionee is not employed by DGTL continuously from the date of grant until at least three months before the option is exercised for a reason other than death or disability, the optionee will recognize ordinary income at the time the option is exercised. DGTL will be allowed a deduction for federal income tax purposes only if, and to the extent that, the optionee recognizes ordinary income. Upon exercise of an incentive stock option, the excess of the fair market value of the shares received over the option price at the time of exercise is treated as an item of tax preference which may result in the imposition of the alternative minimum tax.
On a subsequent sale of shares acquired by the exercise of an incentive stock option, gain or loss will be recognized in an amount equal to the difference between the amount realized on the sale and the optionee’s tax basis of the shares sold. If a disposition (generally a sale, exchange, gift or similar lifetime transfer of legal title) of stock received pursuant to an incentive stock option does not take place until more than two years after the grant of such option and more than one year after the exercise of such option, any gain or loss realized on such disposition will be treated as long-term capital gain or loss. Under such circumstances, DGTL will not be entitled to a deduction for income tax purposes in connection with the exercise of the option. If a disposition of stock received pursuant to an exercise of an incentive stock option occurs within two years after the grant of such option or one year after the exercise of such option, the optionee must treat any gain realized as ordinary income to the extent of the lesser of (i) the fair market value of such stock as of the date of exercise less the option price, or (ii) the amount realized on disposition of the stock less the option price. Such ordinary income realized is deductible by DGTL for federal income tax purposes. Any additional amount realized on the disposition will be taxable as either long-term or short-term capital gain, depending on the holding period.
Nonqualified Stock Option.In general, when an optionee exercises a nonqualified stock option, the optionee recognizes ordinary income in the amount of the excess of the fair market value of the shares received upon exercise over the aggregate amount paid for those shares, and DGTL may deduct as an expense the amount of income so recognized by the optionee. For capital gains purposes, the holding period of the shares begins upon the exercise of the option, and the optionee’s basis in the shares is equal to the fair market value of the shares on the date of exercise.
If, upon exercise of a nonqualified option, the optionee pays all or part of the purchase price by delivering to DGTL shares of already-owned stock, there are no federal income tax consequences to the optionee or DGTL to the extent of the number of shares so delivered. As to any additional shares issued, the optionee recognizes ordinary income equal to the aggregate fair market value of the additional shares received, less any cash paid to DGTL, and DGTL is allowed to deduct as an expense the amount of such income. For purposes of calculating tax upon disposition of the shares acquired, the holding period and basis of the new shares, to the extent of the number of old shares delivered, is the same as for those old shares. The holding period for the additional shares begins on the date the option is exercised, and the basis in those additional shares is equal to the taxable income recognized by the optionee, plus the amount of any cash paid to DGTL.
Upon a subsequent disposition of the shares received on exercise, the difference between the amount realized on such disposition and the fair market value of the shares on the date of exercise generally will be treated as a separate capital gain or loss.
Excise Tax.In addition, the exercise of outstanding options that become exercisable upon certain major corporate events may result in all or a portion of the difference between the fair market value of the option shares and the exercise price of any shares issuable in respect to such options being characterized “parachute payments.” A 20% excise tax is imposed on the optionee on any amount so characterized and DGTL will be denied any tax deduction for such amount.
10 |
�� Withholding Taxes.DGTL is generally required to withhold applicable payroll taxes with respect to compensation income recognized by optionees. DGTL is also generally required to make certain information reports to the Internal Revenue Service with respect to any income of an optionee attributable to transactions involving the grant or exercise of options and/or the disposition of shares acquired on exercise of options.
Other Terms and Conditions
Options under the Plan shall not be transferable by the optionee during the optionee’s lifetime. In the event of termination of employment or cessation as a director as a result of the optionee’s death or disability, to the extent exercisable on the date employment or directorship terminates, the option shall remain exercisable for up to six months (but not beyond the end of the original option term) by the disabled optionee or, in the event of death of the optionee, by the person or persons to whom rights under the option shall have passed by will or the laws of descent and distribution.
If an optionee’s employment is terminated, the option shall expire within 30 days of the date of termination. If an optionee is changing his or her status from employee or employee-director to director, an incentive stock option granted to such optionee shall convert to a nonqualified stock option following the such optionee’s change in status. However, in no event may any option be exercised after the end of its original option term.
In the event of certain changes in the outstanding Common Stock, such as stock dividends, stock splits, recapitalization, reclassification, reorganization, merger, stock consolidation or otherwise, appropriate and proportionate adjustments shall be made in the number, kind and exercise price of shares covered by any unexercised options or portions thereof.
The Board reserves the right to suspend, amend or terminate the Plan, and, with the consent of the optionee, make such modifications of the terms and conditions of his/her option as it deems advisable, except that the Board may not, without further approval of a majority of the shareholders, increase the maximum number of shares covered by the Plan, change the employees or class of employees eligible to participate in the Plan, or extend the maximum option period under the Plan. No option granted pursuant to the Plan shall be exercisable until all necessary regulatory and shareholder approvals are obtained.
New Plan Benefits
Total benefits or amounts that will be received by or allocated to each of DGTL’s executive officers and directors under the Plan cannot be determined at this time. However, each outside director shall receive an option to purchase 20,000 shares of DGTL Common Stock following approval of the Plan. See also “Director Compensation” above.
If a quorum is present at the Meeting, adoption of the Plan requires the affirmative vote of a majority of the votes cast at the Meeting. Abstentions and broker non-votes will each be counted as present for purposes of determining a quorum, but will not be counted as having been voted on the proposal.
Management recommends that the shareholders vote “FOR” adoption of the Digital Learning Management Corporation 2004 Stock Option, Deferred Stock and Restricted Stock Plan.
11 |
PROPOSAL NO. 3:
APPROVAL OF DGTL’S REINCORPORATION
FROM THE STATE OF NEVADA TO THE STATE OF DELAWARE
The Board of Directors believes that the reincorporation of DGTL from the State of Nevada to the State of Delaware (the “Reincorporation”) will benefit DGTL and its shareholders. The State of Delaware is recognized for adopting comprehensive modern and flexible corporate laws which are periodically revised to respond to the changing legal and business needs of corporations. For this reason, many major corporations have initially incorporated in Delaware or have changed their corporate domiciles to Delaware in a manner similar to that proposed by DGTL Nevada. Consequently, the Delaware judiciary has become particularly familiar with corporate law matters and a substantial body of court decisions has developed construing Delaware law. Delaware corporate law, accordingly, has been, and is likely to continue to be, interpreted in many significant judicial decisions, a fact which may provide greater clarity and predictability with respect to DGTL Nevada’s corporate legal affairs. For these reasons, the Board of Directors believes that DGTL Nevada’s business and affairs can be conducted to better advantage if DGTL Nevada is able to operate under Delaware law. See “Certain Significant Differences between the Corporation Laws of Nevada and Delaware.”
Principal Features of the Reincorporation |
The Reincorporation will be effected by the merger of DGTL Nevada with and into DGTL Delaware, a wholly-owned subsidiary of DGTL Nevada is incorporated under the Delaware General Corporation Law for the sole purpose of effecting the Reincorporation. The Reincorporation will become effective upon the filing of the requisite merger documents in Delaware and Nevada, which filings will occur after the requisite shareholder approval is obtained. A copy of the proposed Delaware Certificate of Incorporation and Bylaws are in the forms substantially attached hereto asExhibit B andExhibit C, respectively.
On the effective date, (i) each outstanding share of DGTL Nevada common stock shall be converted into one share of DGTL Delaware common stock and (ii) each outstanding share of DGTL Nevada common stock held by DGTL Nevada shall be retired and canceled and shall resume the status of authorized and unissued the DGTL Delaware stock.
Upon completion of the Reincorporation, the daily business operations of DGTL Delaware will continue as they are presently conducted by DGTL Nevada. The Board of Directors will consist of those persons elected at the Meeting as directors of DGTL Nevada. The individuals who will serve as executive officers of DGTL Delaware are those who currently serve as executive officers of DGTL Nevada.
The Reincorporation will not effect a change in DGTL Nevada’s name. The name will remain “Digital Learning Management Corporation.”
Significant Differences Between the Corporation Laws of Nevada and Delaware
DGTL Nevada is incorporated under the laws of the State of Nevada and DGTL Delaware is incorporated under the laws of the State of Delaware. On consummation of the merger, the shareholders of DGTL Nevada, whose rights currently are governed by Nevada law and the DGTL Nevada Articles and DGTL Nevada Bylaws, which were created pursuant to Nevada law, will become shareholders of a Delaware company, DGTL Delaware, and their rights as shareholders will then be governed by Delaware law and a Delaware Certificate and Delaware Bylaws which will be created under Delaware law.
Although the corporate statutes of Nevada and Delaware are similar, certain differences exist. The most significant differences, in the judgment of the management of DGTL Nevada, are summarized below. This summary is not intended to be complete, and shareholders should refer to the General Corporation Law of the State of Delaware (“Delaware law”) and the Nevada Business Corporation Act (“Nevada law”) to understand how these laws apply to DGTL Nevada and DGTL Delaware.
12 |
Classified Board of Directors. Both Delaware law and Nevada law permit a corporation to classify its board of directors into as many as three classes as equally as possible with staggered terms of office. After initial implementation of a classified board, one class will be elected at each annual meeting of the shareholders to serve for a term of one, two or three years (depending upon the number of classes into which directors are classified) or until their successors are elected and take office. Because neither DGTL Nevada or DGTL Delaware utilize a classified board, there will be no difference with respect to this issue.
Removal of Directors. With respect to removal of directors, under the Nevada law, any one or all of the directors of a corporation may be removed by the holders of not less than two-thirds of the voting power of a corporation’s issued and outstanding stock. Nevada does not distinguish between removal of directors with and without cause. Under the Delaware law, directors of a corporation without a classified board may be removed with or without cause, by the holders of a majority of shares then entitled to vote in an election of directors.
Special Meetings of Shareholders. Delaware law permits special meetings of shareholders to be called by the board of directors or by any other person authorized in the certificate of incorporation or bylaws to call a special shareholder meeting. Nevada law does not address the manner in which special meetings of shareholders may be called.
Cumulative Voting. Cumulative voting for directors entitles shareholders to cast a number of votes that is equal to the number of voting shares held multiplied by the number of directors to be elected. Shareholders may cast all such votes either for one nominee or distribute such votes among up to as many candidates as there are positions to be filled. Cumulative voting may enable a minority shareholder or group of shareholders to elect at least one representative to the board of directors where such shareholders would not otherwise be able to elect any directors. Nevada law permits cumulative voting in the election of directors as long as the articles of incorporation provide for cumulative voting and certain procedures for the exercise of cumulative voting are followed. A Delaware corporation may provide for cumulative voting in the corporation’s certificate of incorporation. DGTL Nevada opted out of cumulative voting by failing to include a provision granting cumulative voting rights in the DGTL Nevada Articles. DGTL Delaware will not adopt cumulative voting in that the Delaware Certificate will not provide for cumulative voting in the election of directors. Because neither DGTL Nevada or DGTL Delaware utilize cumulative voting, there will be no difference in shareholders’ rights with respect to this issue.
Vacancies. Under Delaware law, subject to the rights, if any, of any series of preferred stock to elect directors and to fill vacancies on the board of directors, vacancies on the board of directors may be filled by the affirmative vote of a majority of the remaining directors then in office, even if less than a quorum. Any director so appointed will hold office for the remainder of the full term of the class of directors in which the vacancy occurred. Similarly, Nevada law provides that vacancies may be filled by a majority of the remaining directors, though less than a quorum, unless the articles of incorporation provide otherwise. DGTL Nevada Bylaws and the Delaware Bylaws will address the issue of director vacancies in the same manner. Therefore, the change from Nevada law to Delaware law will not alter shareholders’ rights with respect to filling vacancies.
Indemnification of Officers and Directors and Advancement of Expenses. Delaware and Nevada have substantially similar provisions regarding indemnification by a corporation of its officers, directors, employees and agents. Delaware and Nevada law do differ in their provisions for advancement of expenses incurred by an officer or director in defending a civil or criminal action, suit or proceeding. Delaware law provides that expenses incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of the action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined that he or she is not entitled to be indemnified by the corporation. A Delaware corporation has the discretion to decide whether or not to advance expenses, unless its certificate of incorporation or bylaws provides for mandatory advancement. Under Nevada law, the articles of incorporation, bylaws or an agreement made by the corporation may provide that the corporation must pay advancements of expenses in advance of the final disposition of the action, suit or proceedings upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined that he or she is not entitled to be indemnified by the corporation. Thus, a Nevada corporation may have no discretion to decide whether or not to advance expenses to directors or officers. There will be no difference in shareholders’ rights with respect to this issue because the DGTL Nevada and DGTO Delaware will address the issue in the same manner by providing for the mandatory advancement of expenses of directors and officers. In addition, the board of directors of DGTL Delaware will be required to indemnify directors and officers. The board of directors of DGTL Delaware will retain the discretionary authority to authorize the indemnification of employees and agents, subject to certain conditions under the Delaware law.
13 |
Limitation on Personal Liability of Directors. A Delaware corporation is permitted to adopt provisions in its certificate of incorporation limiting or eliminating the liability of a director to a company and its shareholders for monetary damages for breach of fiduciary duty as a director, provided that such liability does not arise from certain proscribed conduct, including breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law or liability to the corporation based on unlawful dividends or distributions or improper personal benefit. The Delaware Certificate will limit the liability of directors to DGTL Delaware to the fullest extent permitted by law. While Nevada law has a similar provision permitting the adoption of provisions in the articles of incorporation limiting personal liability, the Nevada provision differs in two respects. First, the Nevada provisions apply to both directors and officers. Second, while the Delaware provision excepts from limitation on liability of breach of the duty of loyalty, the Nevada counterpart does not contain this exception. Thus, the Nevada provision expressly permits a corporation to limit the liability of officers, as well as directors, and permits limitation of liability arising from a breach of the duty of loyalty. The DGTL Nevada Articles limits the personal liability to DGTL Nevada of both directors and officers. The Delaware Certificate will adopt a narrower limitation on liability, and officers will therefore remain potentially liable to DGTL Delaware. DGTL Delaware, however, may determine to indemnify such persons in its discretion subject to the conditions of the Delaware law and the Delaware Certificate.
Dividends. Delaware law is more restrictive than Nevada law with respect to when dividends may be paid. Under the Delaware law, unless further restricted in the certificate of incorporation, a corporation may declare and pay dividends, out of surplus, or if no surplus exists, out of net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year (provided that the amount of capital of the corporation is not less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets). In addition, the Delaware law provides that a corporation may redeem or repurchase its shares only if the capital of the corporation is not impaired and such redemption or repurchase would not impair the capital of the corporation. Nevada law provides that no distribution (including dividends on, or redemption or repurchases of, shares of capital stock) may be made if, after giving effect to such distribution, the corporation would not be able to pay its debts as they become due in the usual course of business, or, except as specifically permitted by the articles of incorporation, the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed at the time of a dissolution to satisfy the preferential rights of preferred shareholders.
Amendment to Articles of Incorporation/Certificate of Incorporation or Bylaws. In general, both Delaware law and Nevada law require the approval of the holders of a majority of all outstanding shares entitled to vote to approve proposed amendments to a corporation’s certificate/articles of incorporation. Both Delaware law and Nevada law also provide that in addition to the vote above, the vote of a majority of the outstanding shares of a class may be required to amend the certificate of incorporation or articles of incorporation. Neither state requires shareholder approval for the board of directors of a corporation to fix the voting powers, designation, preferences, limitations, restrictions and rights of a class of stock provided that the corporation’s organizational documents grant such power to its board of directors. Both Nevada law and Delaware law permit, in general, the number of authorized shares of any such class of stock to be increased or decreased (but not below the number of shares then outstanding) by the board of directors unless otherwise provided in the articles of incorporation or resolution adopted pursuant to the certificate of incorporation, respectively.
Actions by Written Consent of Shareholders. Nevada law and Delaware law each provide that, unless the articles/certificate of incorporation provides otherwise, any action required or permitted to be taken at a meeting of the shareholders may be taken without a meeting if the holders of outstanding stock having at least the minimum number of votes that would be necessary to authorize or take such action at a meeting consents to the action in writing. In addition, Delaware law requires the corporation to give prompt notice of the taking of corporate action without a meeting by less than unanimous written consent to those shareholders who did not consent in writing.
14 |
Shareholder Vote for Mergers and Other Corporation Reorganizations. In general, both jurisdictions require authorization by an absolute majority of outstanding shares entitled to vote, as well as approval by the board of directors, with respect to the terms of a merger or a sale of substantially all of the assets of the corporation. Delaware law does not require a shareholder vote of the surviving corporation in a merger (unless the corporation provides otherwise in its certificate of incorporation) if: (a) the merger agreement does not amend the existing certificate of incorporation; (b) each share of stock of the surviving corporation outstanding immediately before the effective date of the merger is an identicaloutstanding share after the merger; and (c) either no shares of common stock of the surviving corporation and no shares, securities or obligations convertible into such stock are to be issued or delivered under the plan of merger, or the authorized unissued shares or shares of common stock of the surviving corporation to be issued or delivered under the plan of merger plus those initially issuable upon conversion of any other shares, securities or obligations to be issued or delivered under such plan do not exceed 20% of the shares of common stock of such constituent corporation outstanding immediately prior to the effective date of the merger. Nevada law does not require a shareholder vote of the surviving corporation in a merger under substantially similar circumstances.
Effect of the ReincorporationThe Reincorporation will not have any effect on the transferability of outstanding stock certificates. The Reincorporation will be reflected by DGTL’s transfer agent in book-entry. For those shareholders that hold physical certificates, please do not destroy or send to DGTL your stock certificates, as those stock certificates should be carefully preserved by you.
If a quorum is present at the Meeting, approval of the Reincorporation requires the affirmative vote of a majority of the votes cast at the Meeting.Abstentions and broker non-votes will each be counted as present for purposes of determining a quorum, but will not be counted as having been voted on the proposal.
Management recommends that the shareholders vote “FOR” approval of the Reincorporation from the State of Nevada to the State of Delaware.
Dissenters’ Rights of Appraisal |
Under Nevada law, a shareholder is entitled to dissent from, and obtain cash payment for the fair value of his or her shares (i) in the event of consummation of a plan of merger or plan of exchange in which the Nevada corporation is a constituent entity, and (ii) any corporate action taken pursuant to a vote of the shareholders to the extent that the articles of incorporation, by-laws or a resolution of the board of directors provides that voting or non-voting shareholders are entitled to dissent and obtain payment for their shares.
You do have the right to dissent from the Reincorporation and obtain cash payment for the “fair value” of your shares, as determined in accordance with the NRS. Below is a description of the steps you must take if you wish to exercise dissenters’ rights with respect to the Reincorporation under NRS Sections 92A.300 to 92A.500, the Nevada dissenters’ rights statute. The text of the statute is set forth inExhibit D. This description is not intended to be complete. If you are considering exercising your dissenters’ rights with respect to the Reincorporation, you should review NRS Sections 92A.300 to 92A.500 carefully, particularly the steps required to perfect dissenters’ rights. Failure to take any one of the required steps may result in termination of your dissenters’ rights under Nevada law. If you are considering dissenting, you should consult with your own legal advisor.
To exercise your right to dissent, you must:
- before the effective date of the Reincorporation, deliver written notice to Digital Learning Management Corporation, 19950 Mariner Avenue, Torrance, California 90503, Attn: Secretary, stating that you intend to demand payment for your shares if the Reincorporation is completed; and
- not vote your shares in favor of the Reincorporation, either by proxy or in person.
Failure to vote against the Reincorporation will note constitute a waiver of dissenters’ rights. A vote against is not deemed to satisfy the written notice requirement.
15 |
If you satisfy those conditions, DGTL will send you a written dissenter’s notice within 10 days after the Reincorporation is effective. This dissenter’s notice will:
- specify where you should send your payment demand and where and when you must deposit yourstock certificates, if any;
- inform holders of uncertificated shares to what extent the transfer of their shares will be restricted aftertheir payment demand is received;
- supply a form of payment demand that includes the date the Reincorporation was first publiclyannounced and the date by which you must have acquired beneficial ownership of your shares in orderto dissent;
- set a date by when we must receive the payment demand, which may not be less than 30 or more than60 days after the date the dissenters’ notice is delivered; and
- provide you a copy of Nevada’s dissenters’ rights statute.
After you have received a dissenter’s notice, if you still wish to exercise your dissenters’ rights, you must:
- demand payment either through the delivery of the payment demand form to be provided or othercomparable means;
- certify whether you have acquired beneficial ownership of the shares before the date set forth in thedissenter’s notice; and
- deposit your certificates, if any, in accordance with the terms of the dissenter’s notice.
FAILURE TO DEMAND PAYMENT IN THE PROPER FORM OR DEPOSIT YOUR CERTIFICATES AS DESCRIBED IN THE DISSENTER’S NOTICE WILL TERMINATE YOUR RIGHT TO RECEIVE PAYMENT FOR YOUR SHARES PURSUANT TO NEVADA’S DISSENTERS’ RIGHTS STATUTE. YOUR RIGHTS AS A SHAREHOLDER WILL CONTINUE UNTIL THOSE RIGHTS ARE CANCELED OR MODIFIED BY THE COMPLETION OF THE REINCORPORATION.
Within 30 days after receiving your properly executed payment demand, DGTL will pay you what we determine to be the fair value of your shares, plus accrued interest (computed from the effective date of the Reincorporation until the date of payment). The payment will be accompanied by:
- DGTL’s balance sheet as of the end of a fiscal year ended not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders’ equity for that year, and the latest available interim financial statements, if any;
- an explanation of how we estimated the fair value of the shares and how the interest was calculated;
- information regarding your right to challenge the estimated fair value; and
- a copy of Nevada’s dissenters’ rights statute.
DGTL may elect to withhold payment from you if you became the beneficial owner of the shares on or after the date set forth in the dissenter’s notice. If we withhold payment, after the consummation of the Reincorporation, DGTL will estimate the fair value of the shares, plus accrued interest, and offer to pay this amount to you in full satisfaction of your demand. The offer will contain a statement of our estimate of the fair value, an explanation of how the interest was calculated, and a statement of dissenters’ rights to demand payment under NRS Section 92A.480.
If you believe that the amount DGTL pays in exchange for your dissenting shares is less than the fair value of your shares or that the interest is not correctly determined, you can demand payment of the difference between your estimate and DGTL’s. You must make such demand within 30 days after DGTL has made or offered payment; otherwise, your right to challenge calculation of fair value terminates.
16 |
If there is still disagreement about the fair market value within 60 days after DGTL receives your demand, DGTL will petition the District Court of Clark County, Nevada to determine the fair value of the shares and the accrued interest. If DGTL does not commence such legal action within the 60-day period, DGTL will have to pay the amount demanded for all unsettled demands. All dissenters whose demands remain unsettled will be made parties to the proceeding, and are entitled to a judgment for either:
- the amount of the fair value of the shares, plus interest, in excess of the amount DGTL paid; or
- the fair value, plus accrued interest, of the after-acquired shares for which we withheld payment.
DGTL will pay the costs and expenses of the court proceeding, unless the court finds the dissenters acted arbitrarily, vexatiously or in bad faith, in which case the costs will be equitably distributed. Attorney fees will be divided as the court considers equitable.
FAILURE TO FOLLOW THE STEPS REQUIRED BY NRS SECTIONS 92A.400 THROUGH 92A.480 FOR PERFECTING DISSENTERS’ RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS. IF DISSENTERS’ RIGHTS ARE NOT PERFECTED, YOU WILL BE ENTITLED TO RECEIVE THE CONSIDERATION RECEIVABLE WITH RESPECT TO SUCH SHARES IN ACCORDANCE WITH THE MERGER AGREEMENT. IN VIEW OF THE COMPLEXITY OF THE PROVISIONS OF NEVADA’S DISSENTERS’ RIGHTS STATUTE, IF YOU ARE CONSIDERING OBJECTING TO THE REINCORPORATION YOU SHOULD CONSULT YOUR OWN LEGAL ADVISOR.
17 |
PROPOSAL NO. 4:
RATIFICATION OF APPOINTMENT OF AJ. ROBBINS, PC AS
DGTL’S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
DGTL has selected AJ. Robbins, PC to serve as DGTL’s independent certified public accountants for the year 2004. DGTL’s board has determined the firm of AJ. Robbins, PC to be fully independent of the operations of DGTL. A representative of AJ. Robbins, PC is expected to be present at the Meeting and such representative will have an opportunity to make a statement and will be available to respond to appropriate questions.
Prior to March 30, 2004, Beckstead & Watts, LLP served as DGTL’s independent certified public accountant. Beckstead & Watts, LLP audited DGTL’s financial statements for the fiscal years ended December 31, 2003, 2002 and 2001. A representative of Beckstead & Watts, LLP will not be present at the Meeting.
Beckstead and Watts, LLP’s report on DGTL’s financial statements for the fiscal years ended December 31, 2002 and 2001 did not contain any adverse opinion or disclaimer of opinion and were not qualified as audit scope or accounting principles. The reports for the fiscal years ended December 31, 2002 and 2001 were qualified reports in that adverse financial conditions identified by the accountants raised substantial doubt about DGTL’s ability to continue as a going-concern. During the recent fiscal year ended December 31, 2003, there were no disagreements between DGTL and Beckstead & Watts, LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to the satisfaction of Beckstead & Watts, LLP, would have caused it to make reference to the subject matter of the disagreement in connection with its reports. The decision to replace Beckstead & Watts, LLP was not the result of any disagreement on any matter of accounting principle or practice, financial statement disclosure or audit procedure.
Aggregate fees billed by Beckstead & Watts, LLP to DGTL for the years ended 2003 and 2002 are as follows:
2003 | 2002 | ||||||
Audit fees | $ | 5,000 | $ | 1,500 | |||
Audit related fees | $ | — | $ | — | |||
Tax fees | $ | — | $ | — | |||
All other fees | $ | — | $ | — |
The Board of DGTL has considered the provision of non-audit services provided by Beckstead & Watts, LLP to be compatible with maintaining the independence of Beckstead & Watts, LLP. The Board will continue to approve all audit and permissible non-audit services provided by DGTL’s independent auditors. These services may include audit services and related services, tax services, and other services.
In the event shareholders do not ratify the appointment of AJ. Robbins, PC as DGTL’s independent certified public accountants for the forthcoming fiscal year, such appointment will be reconsidered by DGTL’s Board.
If a quorum is present at the Meeting, ratification of the appointment of AJ. Robbins, PC as DGTL’s independent certified public accountants for fiscal year 2004 requires the affirmative vote of a majority of the votes cast at the Meeting.
Management recommends that the shareholders vote “FOR” ratification of the appointment of AJ. Robbins, PC as DGTL’s independent certified public accountant for fiscal 2004.
18 |
SHAREHOLDINGS OF CERTAIN
BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE OFFICERS
Management of DGTL knows of no person who owns, beneficially or of record, either individually or together with associates, five percent (5%) or more of the outstanding shares of Common Stock, except as set forth in the table below. The following table sets forth, as of July 15, 2004, the number and percentage of shares of Common Stock beneficially owned, directly or indirectly, by each of DGTL’s directors, Named Executive Officer (as defined below) and principal shareholders and by the directors and executive officers of DGTL as a group. The shares “beneficially owned” are determined under applicable Securities and Exchange Commission rules, and do not necessarily indicate ownership for any other purpose. In general, beneficial ownership includes shares over which the director, principal shareholder or executive officer has sole or shared voting or investment power and shares which such person has the right to acquire within 60 days of July 15, 2004. Each person in the table, except as noted has sole voting and investment powers over the shares beneficially owned.
Unless indicated otherwise, the address for each person named is c/o Digital Learning Management Corporation, 19950 Mariner Avenue, Torrance, California 90503.
Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class(8) | |||
Current Directors and Executive Officers: | |||||
Aurangzeb Bhatti, President and Director | 6,929,180(1) | 34.9% | |||
Umesh Patel, Vice President, Chief Financial Officer and Director | 6,929,180(2) | 34.9% | |||
Al Jinnah, General Counsel, Secretary and Director | 1,046,040 | 5.3% | |||
Robert Pearson, Director | 6,699,834(3),(4) | 25.3% | |||
Gregory Frazer, Director | — | * | |||
Khalid Sheikh, Director | — | * | |||
Richard Rappaport, Director | 800,000(5) | 3.9% | |||
All Current Directors and Executive Officers as a Group (7 in all) | 22,404,234(6) | 82.3% | |||
Former President: | |||||
Eric Borgeson | —(7) | * | |||
5% Shareholders: | |||||
RENN Capital Group, Inc. 8080 N. Central Expressway, Suite 210, LB-59 Dallas, Texas 75206 | 6,699,834(4) | 25.3% | |||
Feisal H. Khan | 2,615,100 | 13.2% |
* Less than 1%
(1) Includes options to purchase 42,750 shares of Common Stock, all of which are held by the Bhatti Family Trust.
(2) Includes options to purchase 42,750 shares of Common Stock, all of which are held by the Patel Family Trust.
(3) Mr. Pearson is an executive officer of RENN Capital Group, Inc. He disclaims beneficial ownership of shares held by RENN Capital Group, Inc.
(4) Based on Schedule 13D filed April 13, 2004. RENN Capital Group, Inc. (“RENN”) is a registered investment advisor under the Investment Advisor Act of 1940, and is the investment advisor for BFS US Special Opportunities Trust PLC (“BFS”) and Renaissance Capital Growth & Income Fund II, Inc. (“Fund II”) and is the investment manager for Renaissance US Growth Investment Trust PLC (“Trust PLC”). The shares of Common Stock deemed to be beneficially owned by RENN Capital Group, Inc. are comprised of shares issuable upon the conversion of $1,000,000 7.00% Convertible Debentures held by each of BFS, Fund II and Trust PLC. RENN is considered a beneficial owner of the shares by reason of its voting and dispository power, but disclaims beneficial ownership of said shares.
(5) Includes warrants to purchase 670,000 shares of Common Stock held by Westpark Capital, Inc., an investment advisor of DLMC, of which Mr. Rappaport indirectly holds a 100% interest. Mr. Rappaport is an officer and director of Westpark Capital, Inc. and the sole shareholder of Westpark Holdings, LLC, the sole shareholder of Westpark Capital, Inc.
(6) Includes options to purchase 85,550 shares of Common Stock. Also includes 6,699,834 shares held by RENN Capital Group, Inc., which have been disclaimed by Mr. Pearson, and warrants to purchase 670,000 shares held by Westpark Capital, Inc. See also footnotes (3), (4) and (5) above.
(7) All of Mr. Borgeson’s shares were cancelled in the change-of-control transaction referenced below.
(8) Percentages based on 19,804,024 shares outstanding on July 15, 2004.
19 |
Section 16(a) Beneficial Ownership Compliance |
Section 16(a) of the Securities Exchange Act of 1934 requires the DGTL’s directors and certain executive officers and persons who own more than ten percent (10%) of a registered class of DGTL’s equity securities (collectively, the “Reporting Persons”), to file reports of ownership and changes in ownership with the Securities and Exchange Commission. The Reporting Persons are required by Securities and Exchange Commission regulation to furnish DGTL with copies of all Section 16(a) forms they file.
To the knowledge of DGTL, based solely on its review of the copies of such forms received by it, or written representations from the Reporting Persons, all of the insiders of DGTL complied with all filing requirements during 2003.
Change-in-Control Transaction
On January 16, 2004, DGTL (formerly known as FreePCSQuote.Com., Inc.), FPQT Acquisition Corporation, a Nevada corporation (“Merger Sub”) and Digital Learning Institute, Inc., a privately-held Delaware corporation (“DLI”), entered into an Agreement and Plan of Merger (the “Agreement”) pursuant to which DGTL, through its wholly-owned subsidiary, Merger Sub, acquired DLI in exchange for shares of DGTL’s Common Stock (the “Merger”); 2,215,803 shares were issued to the holders of DLI stock and 38,129 shares were issued into escrow to cover indemnification obligations, if any, of DLI. DGTL issued an additional 38,129 shares into escrow to cover its own indemnification obligations. Immediately after the Merger was consummated and further to the Agreement, Eric Borgeson, the controlling shareholder of DGTL, cancelled 2,500,00 shares of DGTL’s ‘s Common Stock held by him (the “Cancellation”). In addition, DGTL issued an aggregate of 66,088 shares of its Common Stock to certain individuals identified by DLI’s investment banker. The transaction contemplated by the Agreement was intended to be a “tax-free” reorganization pursuant to the provisions of Section 351 and 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended. The shareholders of DLI (four shareholders), as of the closing date of the Merger and after giving effect to the Cancellation, owned approximately 86.8% of DGTL’s Common Stock outstanding as of January 16, 2004 (excluding any additional shares issuable upon outstanding options, warrants and other securities convertible into common stock or shares issued pursuant to the aforementioned escrows). Under Nevada law, DGTL did not need the approval of its shareholders to consummate the Merger, as the constituent corporations in the Merger were Merger Sub and DLI, which are business entities incorporated under the laws of Nevada and Delaware, respectively. DGTL was not a constituent corporation in the Merger. For accounting purposes, this transaction was being accounted for as a reverse merger, since the shareholders of DLI now own a majority of the issued and outstanding shares of common stock of DGTL, and the directors and executive officers of DLI became the directors and executive officers of DGTL. No agreements exist among present or former controlling shareholders of DGTL or present or former members of DLI with respect to the election of the members of our board of directors, and to DGTL’s knowledge, no other agreements exist which might result in a change of control of the DGTL.
In connection with the Merger, the shareholders approved a name change from FreePCSQuote.Com, Inc. to Digital Learning Management Corporation and a 7.8680269:1 forward stock split, both of which were effectuated on March 19, 2004.
20 |
Information Regarding DGTL’S Executive Officers |
The following table sets forth information, as of July 15, 2004, concerning executive officers of DGTL.
Name | Age | Position and Principal Occupation For the Past Five Years | ||
Aurangzeb Bhatti, President | 49 | Mr. Bhatti has over 25 years experience in information technology and the education field. In 1995, Mr. Bhatti founded WebVision, Inc. and served as its Chief Executive Officer and Chief Technology Officer until 2001. In 2001, after leaving WebVision, Inc., Mr. Bhatti co-founded another company by the name of School of I.T. with Mr. Patel. This company is the forerunner of Digital Learning Management Corporation. | ||
Umesh Patel, Vice President, Chief Financial Officer | 47 | Mr. Patel has over 14 years experience in business development and sales. From 1990 to 2001, Mr. Patel served as the President of Tech Med Billing Services, where he was responsible for managing and projecting financials for the company. In 2001, Mr. Patel co-founded School of I.T. with Mr. Bhatti. Mr. Patel served as its Vice President and was responsible for marketing. | ||
Al Jinnah, General Counsel and Secretary | 64 | Mr. Jinnah has been a practicing attorney for over 35 years. He has wide experience in business law and civil litigation, having served as in-house counsel in various industries. He has operated his own private practice for the past 5 years. |
Summary Compensation Table |
The following table sets forth information concerning the compensation during each of the last three fiscal years by former principal executive officer (the “Named Executive Officer”). No DGTL executive officer received compensation in excess of $100,000 for the most recent fiscal year.
Long Term Compensation | ||||||||||||||||
Annual Compensation | Awards | Payouts | ||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | ||||||||
Name and Principal Position | Year | Salary ($) | Bonus ($) | Other Annual Compensation(1) ($) | Restricted Stock Award(s) ($) | Options/ SARs(2) | LTIP Payouts ($) | All Other Compensation(3) ($) | ||||||||
Eric Borgeson | 2003 | — | — | — | — | — | — | — | ||||||||
2002 | — | — | — | — | — | — | — | |||||||||
2001 | — | — | — | — | — | — | — |
Option/SAR Grants Table Option/SAR Grants in Last Fiscal Year Individual Grants |
No stock options were granted to the Named Executive Officer during the last fiscal year.
Option/SAR Exercises and Year End Value Table
Aggregated Option/SAR Exercises in Last Fiscal Year and Year End Option/SAR Value
No stock options were granted to or held by the Named Executive Officer during the last fiscal year.
21 |
Employment Contracts
DGTL has assumed employment contracts entered into by Digital Learning, Inc. with Messrs. Bhatti and Patel. Each contract is for a two-year term scheduled to expire in December 2005 and each provides for an annual salary of $250,000.
Policies on Executive Compensation
The Board is responsible for reviewing policies and human resource issues, granting stock options and approving other personnel matters which are in excess of management’s authority. The Board establishes the compensation plans and specific compensation levels of DGTL’s Principal Officer and other executive officers. The Board reviews its approach to executive compensation annually. As part of the due diligence, the Board conducts periodic outside reviews of peers.
The Board believes that executive officer compensation should be closely aligned with the performance of DGTL on a short-term and long-term basis, and that such compensation should be structured to assist DGTL in attracting and retaining key executives critical to its long-term success. To that end, the Board’s policy for compensation packages of executive officers consists of three components: (i) an annual base salary; (ii) an annual incentive bonus based on DGTL’s performance, and, in certain cases, individual performance as well; and (iii) stock option awards and salary continuation plans designed to link shareholder interests with those of executive management by providing long-term incentives to executive officers. The performance based aspects, items (ii) and (iii) above, are considered major elements of the overall compensation program.
Executive Officer Compensation |
Base Salary:The Board establishes a fixed base salary program for executive officers, which is reviewed annually. In establishing base salaries, the Board considers salaries of comparably sized peer companies. Executive officers may have their salaries adjusted from time to time as the size, complexity, and earnings of peer companies change, in order to ensure that total compensation remains competitive.
Annual Incentives:The Board believes that incentives for officers are a key component for ensuring continued growth in shareholder value through increased earnings. Accordingly, executive officers earn bonuses based upon formulas approved by the Board.
Long-term Incentives:Long-term incentives are provided through the grant of stock options to certain employees of DGTL including executive officers. Stock options are granted at the market value prevailing on the date of grant and are intended to retain and motivate key management to improve DGTL’s long-term shareholder value, as the options only have value if the market price of the underlying stock appreciates after the date granted.
Principal Executive Officer Compensation |
Base Salary:Mr. Bhatti is subject to the same annual salary review program as other executive officers of DGTL. As such, the Board targeted Mr. Bhatti’s base salary at the competitive median for comparable sized peer companies. Mr. Bhatti’s current base salary is believed reasonable by the Board based upon reference to competitive pay practices and the previously described compensation approach to executive officers. The Board believes that the performance based compensation program, as it related to the Principal Executive Officer, offers substantial additional compensation incentive to reward Mr. Bhatti for successful results.
Performance Based Compensation:Mr. Bhatti is eligible to participate in the same short-term and long-term Option, Deferred Stock and Restricted Stock Plans as the other executive officers of DGTL. In addition, some terms of the bonus plan for the Principal Executive Officer are different than the other executive officers.
Mr. Bhatti was retained in January 2004 following DGTL’s merger with Digital Learning Institute, Inc. Mr. Bhatti’s compensation in fiscal 2004 will be based on the criteria set forth above. Mr. Bhatti shall abstain on all board votes regarding his bonus or compensation.
22 |
There are no Compensation Committee interlocks between DGTL and other entities involving DGTL’s executive officers or board members.
Code of Ethics |
DGTL has adopted a Code of Ethics that is applicable to DGTL’s principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions. A copy of the Code of Ethics was filed with the SEC as an exhibit to DGTL’s Annual Report on Form 10-KSB/A, which is available free of charge on the Internet at www.sec.gov. Amendments to and waivers from the Code of Ethics will also be disclosed in filings with the SEC.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DGTL has entered into indemnification agreements with certain of its directors and executive officers pursuant to which DGTL has agreed to indemnify any officer or director against all costs associated with the defense of any action brought against him or her in his/her capacity as an officer or director of DGTL.
Each of Messrs. Bhatti, Patel and Jinnah were shareholders of Digital Learning, Inc. prior to the transaction referenced in “Change-in-Control Transaction.”The three individuals acquired approximately 74.0% of DGTL’s outstanding common stock as of January 20, 2004.
EQUITY COMPENSATION PLAN INFORMATION
DGTL does not currently maintain an equity compensation plan.
SHAREHOLDER PROPOSALS
The deadline for shareholders to submit proposals to be considered for inclusion in the Proxy Statement for DGTL’s 2005 Annual Meeting of Shareholders is April 29, 2005. As to shareholder proposals, which are not contained in the proxy statement, SEC rules specify that certain requirements in the bylaws of DGTL be satisfied. The bylaws require that any shareholder wishing to make a nomination for director give advance notice of the nomination which shall be sent or delivered to the President of DGTL the later of, 21 days prior to any meeting of shareholders called for the election of directors, or ten days after the date the notice of such meeting is sent to shareholders.
OTHER MATTERS
Management does not know of any matters to be presented at the Meeting other than those set forth above. However, if other matters come before the Meeting, it is the intention of the persons named in the accompanying Proxy as proxyholders to vote the shares represented by the Proxy in accordance with the recommendations of management on such matters, and discretionary authority to do so is included in the Proxy.
DIGITAL LEARNING MANAGEMENT | |||
CORPORATION | |||
/s/ AL JINNAH | |||
Dated: August __, 2004 | Al Jinnah,Secretary |
23 |
The Annual Report to Shareholders for the fiscal year ended December 31, 2003 is being mailed concurrently with this Proxy Statement to all shareholders of record as of July 29, 2004.
IT IS VERY IMPORTANT THAT EVERY SHAREHOLDER VOTE. WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON.
IN ORDER TO PROVIDE ADEQUATE MEETING ACCOMMODATIONS, PLEASE INDICATE ON THE PROXY WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING.
24 |
EXHIBIT A |
25 | ||
26 | ||
27 | ||
28 | ||
29 | ||
30 | ||
31 | ||
32 | ||
33 | ||
34 | ||
35 | ||
36 | ||
37 | ||
DIGITAL LEARING MANAGEMENT CORPORATION a Delaware corporation | ||
| | |
By: | ||
Name: Aurangzeb Bhatti | ||
Title: President |
38 |
EXHIBIT B
39 | ||
40 | ||
| | |
Aurangzeb Bhatti, President | ||
41 |
EXHIBIT C
42 | ||
43 | ||
44 | ||
45 | ||
46 | ||
47 | ||
48 | ||
49 | ||
50 | ||
51 | ||
52 | ||
53 | ||
54 | ||
55 | ||
56 | ||
57 |
EXHIBIT D
DISSENTERS’ RIGHTS STATUTE
58 |
59 |
60 |
61 |
62 |
63 |
64 |
\/DETACH PROXY CARD HERE\/ |
PROXY |
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS DIGITAL LEARNING MANAGEMENT CORPORATION
The undersigned hereby appoints Messrs. Aurangzeb Bhatti and Al Jinnah, each of them as proxyholders with full power of substitution, to represent, vote and act with respect to all shares of common stock of Digital Learning Management Corporation (the “DGTL”) which the undersigned would be entitled to vote at the meeting of shareholders to be held on August 26, 2004 at 10:00 a.m., local time, at 19950 Mariner Avenue, Torrance, California or any adjournments thereof, with all the powers the undersigned would possess if personally present as follows:
(Continued, and to be marked, dated and signed, on the other side)
65
(Please Print Your Name) | |
(Date) | |
(Signature of Shareholder) | |
(Signature of Shareholder) | |
(Email Address) | |
This Proxy may be revoked prior to its exercise by filing with theSecretary DGTL a duly executed proxy bearing a later date or an instrumentrevoking this Proxy, or by attending the meeting and voting in person. |
Please Detach Here
^You Must Detach This Portion of the Proxy Card^
Before Returning it in the Enclosed Envelope