UNITED STATES | ||||
SECURITIES AND EXCHANGE COMMISSION | ||||
Washington, D.C. 20549 | ||||
SCHEDULE 14A | ||||
(Rule 14a-101) | ||||
INFORMATION REQUIRED IN PROXY STATEMENT | ||||
SCHEDULE 14A INFORMATION | ||||
Proxy Statement Pursuant to Section 14(a) | ||||
of the Securities Exchange Act of 1934 | ||||
______________ | ||||
Filed by the Registrant x | ||||
Filed by a Party other than the Registrant ¨ | ||||
Check the appropriate box: | ||||
x | Preliminary Proxy Statement | |||
¨ | Confidential, for the 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 | |||
______________ | ||||
eLEC COMMUNICATIONS CORP. | ||||
(Name of Registrant as Specified in Its Charter) | ||||
(Name(s) of Person Filing Proxy Statement, if Other than Registrant) | ||||
______________ | ||||
Payment of Filing Fee (Check the appropriate box): | ||||
x | No fee required | |||
¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | |||
(1) | Title of each class of securities to which transaction applies: | |||
(2) | Aggregate number of securities to which transaction applies: | |||
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0- | |||
11 (set forth the amount on which the filing fee is calculated and state how it was determined): | ||||
(4) | Proposed maximum aggregate value of transaction: | |||
(5) | Total fee paid: | |||
¨ | Fee paid previously with preliminary materials: | |||
¨ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-1l(a)(2) and identify the filing | |||
for which the offsetting fee was paid previously. Identify the previous filing by registration statement | ||||
number, or the Form or Schedule and the date of its filing. | ||||
(1) | Amount Previously Paid: | |||
(2) | Form, Schedule or Registration Statement No.: | |||
(3) | Filing Party: | |||
(4) | Date Filed: | |||
eLEC COMMUNICATIONS CORP. | ||
75 South Broadway, Suite 302 | ||
White Plains, New York 10601 | ||
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS | ||
TO BE HELD ON THURSDAY, JUNE 7, 2007 | ||
May 7, 2007 | ||
To the shareholders of eLEC Communications Corp.: | ||
Notice is hereby given that the annual meeting of shareholders of eLEC Communications Corp., a New | ||
York corporation, will be held at our executive offices located at 75 South Broadway, White Plains, New York | ||
10601 on Thursday, June 7, 2007 at 10:00 A.M., local time, for the following purposes: | ||
1. | To elect five directors to our board of directors for the fiscal year ending November 30, 2007; | |
2. | To consider and vote upon a proposal to approve and adopt our 2007 Equity Incentive Plan; | |
3. | To consider and vote upon a proposal to amend our Certificate of Incorporation to change the | |
name of our company from eLEC Communications Corp. to Pervasip Corp.; | ||
4. | To consider and vote upon a proposal to amend our Certificate of Incorporation to increase the | |
total number of shares of capital stock that we are authorized to issue to one hundred fifty-one | ||
million (151,000,000) shares, of which one hundred fifty million (150,000,000) shares shall be | ||
common stock, par value $.10 per share, and one million (1,000,000) shares shall be preferred | ||
stock, par value $.10 per share; | ||
5. | To consider and vote upon a proposal to amend our Certificate of Incorporation to change the par | |
value of our shares of capital stock from $.10 per share to $.001 per share and reclassify the | ||
outstanding shares of capital stock into such lower par value shares; | ||
6. | To consider and vote upon a proposal to ratify the appointment of Nussbaum Yates & Wolpow, | |
P.C., independent auditors, as our independent auditors for the fiscal year ending November 30, | ||
2007; and | ||
7. | To consider and act upon such other business as may properly come before the meeting. | |
The foregoing items of business are more fully described in the proxy statement accompanying this notice. | ||
Our board of directors has fixed the close of business on Monday, April 30, 2007 as the record date for the | ||
determination of shareholders entitled to notice of and to vote at the annual meeting and at any adjournment or | ||
postponement thereof. | ||
Whether or not you plan to attend the annual meeting, you should complete, sign, date and promptly return | ||
the enclosed proxy card, to ensure that your shares will be represented at the meeting. If you attend the annual | ||
meeting and wish to vote in person, you may withdraw your proxy and vote in person. You should not send any | ||
certificates representing stock with your proxy card. | ||
Sincerely, | ||
PAULH. RISS | ||
Chairman of the Board | ||
eLEC COMMUNICATIONS CORP. | ||
75 South Broadway, Suite 302 | ||
White Plains, New York 10601 | ||
PROXY STATEMENT | ||
Date, Time and Place of the Annual Meeting | ||
This proxy statement is furnished to the shareholders of eLEC Communications Corp. in connection with | ||
the solicitation, by order of our board of directors, of proxies to be voted at the annual meeting of shareholders to be | ||
held on Thursday, June 7, 2007 at 10:00 A.M., local time, at our executive offices located at 75 South Broadway, | ||
Suite 302, White Plains, New York 10601, and at any adjournment or adjournments thereof. The accompanying | ||
proxy is being solicited on behalf of our board of directors. We intend to release this proxy statement and the | ||
enclosed proxy card to our shareholders on or about Monday, May 7, 2007. | ||
Purpose of the Annual Meeting | ||
At the annual meeting, you will be asked to consider and vote upon the following matters: | ||
1. | To elect five directors to our board of directors for the fiscal year ending November 30, 2007; | |
2. | To consider and vote upon a proposal to approve and adopt our 2007 Equity Incentive Plan; | |
3. | To consider and vote upon a proposal to amend our Certificate of Incorporation to change the | |
name of our company from eLEC Communications Corp. to Pervasip Corp.; | ||
4. | To consider and vote upon a proposal to amend our Certificate of Incorporation to increase the | |
total number of shares of capital stock that we are authorized to issue to one hundred fifty-one | ||
million (151,000,000) shares, of which one hundred fifty million (150,000,000) shares shall be | ||
common stock, par value $.10 per share, and one million (1,000,000) shares shall be preferred | ||
stock, par value $.10 per share; | ||
5. | To consider and vote upon a proposal to amend our Certificate of Incorporation to change the par | |
value of our shares of capital stock from $.10 per share to $.001 per share and reclassify the | ||
outstanding shares of capital stock into such lower par value shares; | ||
6. | To consider and vote upon a proposal to ratify the appointment of Nussbaum Yates & Wolpow, | |
P.C., independent auditors, as our independent auditors for the fiscal year ending November 30, | ||
2007; and | ||
7. | To consider and act upon such other business as may properly come before the meeting. |
Voting and Revocation of Proxies; Adjournment |
All of our voting securities represented by valid proxies, unless the shareholder otherwise specifies therein |
or unless revoked, will be voted FOR each of the director nominees set forth herein, FOR the approval of the |
adoption of our 2007 Equity Incentive Plan, FOR the amendment to our Certificate of Incorporation to change our |
name, FOR the amendment to our Certificate of Incorporation to increase the total number of shares of capital stock |
that we are authorized to issue, FOR the amendment to our Certificate of Incorporation to reduce the par value of our |
shares of capital stock, FOR the ratification of Nussbaum Yates & Wolpow, P.C. as our independent auditors and at |
the discretion of the proxy holders on any other matters that may properly come before the annual meeting. Our |
board of directors does not know of any matters to be considered at the annual meeting other than as set forth herein. |
If a shareholder has appropriately specified how a proxy is to be voted, it will be voted accordingly. Any |
shareholder has the power to revoke such shareholder’s proxy at any time before it is voted. A shareholder may |
revoke a proxy by delivering a written statement to our corporate secretary stating that the proxy is revoked, by |
submitting a subsequent proxy signed by the same person who signed the prior proxy, or by voting in person at the |
annual meeting. |
As of March 31, 2007, we had a total of 22,459,282 shares of common stock outstanding. A plurality of the |
votes cast at the annual meeting by the shareholders entitled to vote in the election is required to elect the director |
nominees and a majority of the votes cast by the shareholders entitled to vote at the annual meeting is required to |
approve the proposed adoption of our 2007 Equity Incentive Plan and to take any other action, including the |
amendments to our Certificate of Incorporation and the approval of our independent auditors. For purposes of |
determining whether a proposal has received the required vote, abstentions will be included in the vote totals, with |
the result being that an abstention will have the same effect as a negative vote. In instances where brokers are |
prohibited from exercising discretionary authority for beneficial holders who have not returned a proxy (so-called |
"broker non-votes"), those shares will not be included in the vote totals and, therefore, will also have the same effect |
as a negative vote. Shares that abstain or for which the authority to vote is withheld on certain matters will, however, |
be treated as present for quorum purposes on all matters. |
In the event that sufficient votes in favor of any of the matters to come before the meeting are not received |
by the date of the annual meeting, the persons named as proxies may propose one or more adjournments of the |
annual meeting to permit further solicitation of proxies. Any such adjournment will require the affirmative vote of |
the holders of a majority of the shares of common stock present in person or by proxy at the annual meeting. The |
persons named as proxies will vote in favor of any such proposed adjournment or adjournments. Under New York |
law, shareholders will not have appraisal or similar rights in connection with any proposal set forth in this proxy |
statement. |
Solicitation |
The solicitation of proxies pursuant to this proxy statement will be primarily by mail. In addition, certain of |
our directors, officers or other employees may solicit proxies by telephone, telegraph, mail or personal interviews, |
and arrangements may be made with banks, brokerage firms and others to forward solicitation material to the |
beneficial owners of shares held by them of record. No additional compensation will be paid to our directors, |
officers or other employees for such services. We will bear the cost of the solicitation of proxies related to the |
annual meeting. |
Quorum and Voting Rights |
Our board of directors has fixed Monday, April 30, 2007, as the record date for the determination of |
shareholders entitled to notice of and to vote at the annual meeting. Holders of record of shares of our common |
stock at the close of business on the record date will be entitled to one vote for each share held. The presence, in |
person or by proxy, of the holders of a majority of the outstanding voting securities entitled to vote at the annual |
meeting is necessary to constitute a quorum at the annual meeting. |
2 |
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF | ||||||
The following table sets forth, as of April 2, 2007, the names, addresses and number of shares of our | ||||||
common stock beneficially owned by all persons known to us to be beneficial owners of more than 5% of the | ||||||
outstanding shares of common stock, and the names and number of shares beneficially owned by all of our directors | ||||||
and all of our executive officers and directors as a group (except as indicated, each beneficial owner listed exercises | ||||||
sole voting power and sole dispositive power over the shares beneficially owned). As of April 2, 2007, we had a | ||||||
total of 22,459,282 shares of common stock outstanding. | ||||||
Number of Shares | Percent of Shares | |||||
Name and Address | Beneficially Owned | Beneficially Owned | ||||
Paul H. Riss | 2,302,000(1) | 10.1% | ||||
eLEC Communications Corp. | ||||||
75 South Broadway, Suite 302 | ||||||
White Plains, New York 10601 | ||||||
Michael H. Khalilian | ||||||
478 E. Altamonte Drive, Suite 108-480 | 800,000(2) | 3.5% | ||||
Altamonte Springs, Florida 32701 | ||||||
Mark Richards | 660,000(3) | 2.9% | ||||
610 Sycamore Street, Suite 120 | ||||||
Celebration, Florida 34747 | ||||||
S. Miller Williams | 500,000 | 2.2% | ||||
PO Box 15055 | ||||||
Asheville, NC 28813 | ||||||
Greg M. Cooper | 125,000(4) | * | ||||
Cooper, Niemann & Co., CPAs, LLP | ||||||
PO Box 190 | ||||||
Mongaup Valley, New York 12762 | ||||||
53,300(5) | * | |||||
Gayle Greer | ||||||
75 South Broadway, Suite 302 | ||||||
White Plains, New York 10601 | ||||||
All directors and executive officers | 4,440,300 | 18.4% | ||||
as a group (six individuals) | ||||||
* Less than 1%. | ||||||
(1) | Includes 350,000 shares of common stock subject to options that are presently exercisable or exercisable within | |||||
60 days after April 2, 2007. | ||||||
(2) | Includes 675,000 shares of common stock subject to options that are presently exercisable or exercisable within | |||||
60 days after April 2, 2007. | ||||||
(3) | Includes 550,000 shares of common stock subject to options that are presently exercisable or exercisable within | |||||
60 days after April 2, 2007. | ||||||
3 |
(4) | Includes 85,000 shares of common stock subject to options that are presently exercisable or exercisable within | |||||
60 days after April 2, 2007. | ||||||
(5) | Includes 50,000 shares of common stock subject to options that are presently exercisable or exercisable within | |||||
60 days after April 2, 2007. | ||||||
ELECTION OF DIRECTORS | ||||||
(Proxy Item 1) | ||||||
Our amended and restated by-laws provide that the number of our directors shall be at least three, except | ||||||
that when all the shares are owned beneficially and of record by fewer than three shareholders, the number of | ||||||
directors may be less than three but not less than the number of shareholders. Subject to the foregoing limitation, | ||||||
such number may be fixed from time to time by action of our board of directors or of the shareholders, or, if the | ||||||
number of directors is not so fixed, the number shall be five. In March 2005, our board of directors fixed the number | ||||||
of directors at five. The board currently consists of five members, and all of those members are standing for re- | ||||||
election. The term of office of the directors is one year, expiring on the date of the next annual meeting, or when | ||||||
their respective successors shall have been elected and shall qualify, or upon their prior death, resignation or | ||||||
removal. | ||||||
Except where the authority to do so has been withheld, it is intended that the persons named in the enclosed | ||||||
proxy will vote for the election of the nominees to our board of directors listed below to serve until the date of the | ||||||
next annual meeting and until their successors are duly elected and qualified. Although our directors have no reason | ||||||
to believe that the nominees will be unable or decline to serve, in the event that such a contingency should arise, the | ||||||
accompanying proxy will be voted for a substitute (or substitutes) designated by our board of directors. | ||||||
Directors and Officers | ||||||
The following table sets forth certain information regarding our director nominees, as furnished by the | ||||||
nominees as of March 31, 2007. All of the following individuals currently serve as directors of our company. | ||||||
Age | Principal Occupation for Past Five Years and | |||||
Name | Current Public Directorships or Trusteeships | |||||
Paul H. Riss | 51 | Director since 1995; Chairman of our board of directors since March 2005; our | ||||
Chief Executive Officer since August 1999 and our Chief Financial Officer and | ||||||
Treasurer since November 1996. | ||||||
Greg M. Cooper | 47 | Director since April 2004; partner for more than five years of Cooper, Niemann | ||||
& Co., CPAs, LLP, certified public accountants; member of the board of | ||||||
directors of Mid Hudson Cooperative Insurance Company in Montgomery, New | ||||||
York, a privately-held insurance company. | ||||||
Gayle Greer | 65 | Director since January 2005; Ms. Greer retired in 1998 from Time Warner | ||||
Entertainment after serving over 20 years in a number of executive positions, | ||||||
including most recently Senior Vice President of Time Warner Cable; co- | ||||||
founder of GS2.Net, a business service provider, and served as its Chairwoman | ||||||
from 1999 to April 2001; co-founder of the National Association of Minorities | ||||||
in Cable and Telecommunications and served as its Chairwoman from 1981 to | ||||||
1985; director of ING North America Financial Services Company, an insurance | ||||||
and financial services company, since 1997. | ||||||
Michael H. Khalilian | 43 | Director and our Chief Technology Officer since October 2004; Chief | ||||
Technology Officer of VoX Communications Corp., our wholly-owned | ||||||
subsidiary, since October 2004; Chairman of the Board of Directors and | ||||||
4 |
President of IMS Forum, an industry association dedicated to applications | ||||
delivery for IP Multimedia Subsystem architecture, of which Mr. Khalilian was | ||||
a founding member, since July 2001; Chief Technology Officer and director of | ||||
Volo Communications Inc., a wholesale VoIP service provider, from January | ||||
2003 to July 2004; Chief Technologist and advisor for the Telecom Business | ||||
Groups at NTT from January 2002 to June 2003; Senior Engineer and Senior | ||||
Director for the Cable, Communications and Telecom business groups at Time | ||||
Warner Communications from March 1996 to May 2002. | ||||
S. Miller Williams | 54 | Director since April 2, 2007. He was Executive Vice President of Strategic | ||
Development of Vartec Telecom, Inc., an international consumer | ||||
telecommunications services company, from August 2002 until May 2004, and | ||||
was appointed interim Chief Financial Officer of Vartec in November 2003. | ||||
From 2000 to August 2003, Mr. Williams served as Executive Chairman of the | ||||
Board of PowerTel, Inc., a public company which provided telecommunications | ||||
services in Australia. From 1991 to 2002, he served in various executive | ||||
positions with Williams Communications Group, a subsidiary of The Williams | ||||
Companies, that provided global network and broadband media services, most | ||||
recently as Senior Vice President Corporate Development and General Manager | ||||
International. He was President and owner of MediaTech, Incorporated, a | ||||
manufacturer and dealer of computer tape and supplies, from 1987 until the | ||||
company was sold in 1992. Mr. Williams has served on the Board of Directors | ||||
of Willbros Group, Inc. since May 2004. | ||||
Vote Required | ||||
Assuming a quorum is present, a plurality of the votes cast at the annual meeting of shareholders by the | ||||
shareholders entitled to vote in the election, either in person or by proxy, is required to elect the director nominees. | ||||
Our board of directors recommends a voteFORelection of each of the nominees listed above. | ||||
DIRECTORS AND OFFICERS | ||||
Biographical information concerning our directors and officers is set forth above under the caption | ||||
“Election of Directors – Directors and Officers”. | ||||
Section 16(a) Beneficial Ownership Reporting Compliance | ||||
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires our | ||||
directors and executive officers, and persons who own more than ten percent of a registered class of our equity | ||||
securities (“10% Shareholders”), to file with the Securities and Exchange Commission (the “Commission”) initial | ||||
reports of ownership and reports of changes in ownership of our common stock and other equity securities. Officers, | ||||
directors and 10% Shareholders are required by Commission regulation to furnish us with copies of all Section 16(a) | ||||
forms they file. | ||||
Based solely on our review of the copies of such reports received by us, we believe that for the fiscal year | ||||
ended November 30, 2006, all Section 16(a) filing requirements applicable to our officers, directors and 10% | ||||
shareholders were complied with. | ||||
Board Meetings and Committees; Management Matters | ||||
Our board of directors held six meetings during the fiscal year ended November 30, 2006. Each director | ||||
(with the exception of Mr. Williams, who was elected to the board of directors in April 2007 to fill a vacancy, | ||||
5 |
consistent with our amended and restated by-laws) attended at least 75% of the board of directors and committee |
meetings of which he was a member during such time as he served as a director. We do not have a formal policy |
regarding attendance by members of our board of directors at the annual meeting of shareholders, but we strongly |
encourage all members of our board of directors to attend the annual meeting of shareholders, and expect such |
attendance except in the event of exigent circumstances. However, to minimize travel costs, we have asked our out- |
of-state directors to attend the June 7, 2007 meeting telephonically rather than in person. |
We did not hold an annual meeting of shareholders in 2006. All of the members of our board of directors at |
the time of the 2005 annual meeting of shareholders were in attendance at the 2005 annual meeting of shareholders |
held on June 15, 2005. From time to time, the members of our board of directors act by unanimous written consent |
pursuant to the laws of the State of New York. No fees are paid to directors for attendance at meetings of the board |
of directors. |
Our board of directors has a stock option committee, which did not meet separately from the full board of |
directors during the fiscal year ended November 30, 2006. The stock option committee, which currently consists of |
Greg M. Cooper and Gayle Greer, has authority to grant options to our executive officers under our 2007 Equity |
Incentive Plan. In October 1997, our board of directors established an audit committee, which met four times during |
the fiscal year ended November 30, 2006. Our board of directors does not have a standing nominating committee or |
any committee performing similar functions. Our entire board of directors is responsible for these functions. |
Compensation Committee |
We have a compensation committee currently composed of Greg M. Cooper and Gayle Greer. The |
compensation committee establishes remuneration levels for our executive officers. The compensation committee |
met once during the fiscal year ended November 30, 2006. |
Nominating Committee |
Our board of directors does not have a nominating committee. Our entire board of directors is responsible |
for this function. Due to the relatively small size of our company and the resulting efficiency of a board of directors |
that is also limited in size, our board of directors has determined that it is not necessary or appropriate at this time to |
establish a separate nominating committee. Our board of directors intends to review periodically whether such a |
nominating committee should be established. |
Our board of directors uses a variety of methods for identifying and evaluating nominees for director. It |
regularly assesses the appropriate size of the board of directors, and whether any vacancies exist or are expected due |
to retirement or otherwise. If vacancies exist, are anticipated or otherwise arise, our board of directors considers |
various potential candidates for director. Candidates may come to their attention through current members of our |
board of directors, shareholders or other persons. These candidates are evaluated at regular or special meetings of |
our board of directors, and may be considered at any point during the year. Our board of directors will consider |
candidates for director that are nominated by shareholders in accordance with the procedures regarding the inclusion |
of shareholder proposals in proxy materials set forth in the section entitled “Shareholder Proposals” in this proxy |
statement. In evaluating such recommendations, our board of directors uses the qualifications and standards |
discussed below and seeks to achieve a balance of knowledge, experience and capability on our board of directors. |
Qualifications for consideration as a director nominee may vary according to the particular areas of expertise |
that may be desired in order to complement the qualifications that already exist among our board of directors. |
Among the factors that our directors consider when evaluating proposed nominees are their independence, financial |
literacy, business experience, character, judgment and strategic vision. Other considerations would be their |
knowledge of issues affecting our business, their leadership experience and their time available for meetings and |
consultation on company matters. Our directors seek a diverse group of candidates who possess the background |
skills and expertise to make a significant contribution to our board of directors, our company and our shareholders. |
6 |
Audit Committee |
We have an audit committee that, during the fiscal year ended November 30, 2006, was composed of Greg |
M. Cooper and Gayle Greer. S. Miller Williams was elected to the audit committee on April 2, 2007. Each audit |
committee member is an independent director as defined by the rules of the National Association of Securities |
Dealers. The audit committee is governed by a written charter approved by our board of directors and attached to |
this proxy statement as Annex A. |
Our board of directors has determined that Greg M. Cooper qualifies as an “audit committee financial |
expert,” as defined under the rules of the Commission adopted pursuant to the Sarbanes-Oxley Act of 2002. Our |
board of directors has determined that Ms. Greer and Mr. Williams are financially literate and experienced in |
business matters and fully qualified to monitor the performance of management, the public disclosures by our |
company of our financial condition and performance, our internal accounting operations, and our independent |
auditors. |
Report of the Audit Committee |
The audit committee reviews our financial reporting process on behalf of our board of directors. |
Management has the primary responsibility for the financial statements and the reporting process, including the |
system of internal controls. The independent auditors are responsible for performing an independent audit of the |
consolidated financial statements to ensure that those statements were prepared in accordance with generally |
accepted accounting principles and report thereon to our board of directors. The audit committee reviews and |
monitors these processes. |
Within this framework, the audit committee has reviewed and discussed the audited financial statements |
with management and the independent auditors. Management has affirmed to the audit committee that our |
consolidated financial statements were prepared in accordance with generally accepted accounting principles. The |
audit committee has discussed with the independent auditors those matters required to be discussed by Statement of |
Auditing Standards No. 61 (Codification of Statements on Auditing Standards, AU § 380). |
In addition, the audit committee has received the written disclosures and the letter from the independent |
auditors required by Independence Standards Board Standard No. 1 (Independent Standards Board Standard No. 1, |
Independence Discussions with Audit Committees), and has also discussed with the independent auditors, the |
auditor’s independence from management and our company. In connection with the new standards for independence |
of our independent auditors promulgated by the Commission, the audit committee has undertaken to consider |
whether the provision of any non-audit services (such as internal audit assistance and tax-related services) by our |
independent auditors is compatible with maintaining the independence of the independent auditors when the |
independent auditors are also engaged to provide non-audit services. |
The audit committee also discussed with our independent auditors the overall scope and plans for their |
audit, their evaluation of our internal controls and the overall quality of our financial reporting. |
In reliance on the reviews and discussions referred to above, the audit committee has recommended to the |
board of directors that the audited consolidated financial statements be included in our Annual Report on Form 10-K |
for the year ended November 30, 2006, which was filed with the Commission on March 8, 2007. |
Audit Committee |
Greg M. Cooper, Member |
Gayle Greer, Member |
7 |
Shareholder Communications |
Our board of directors has implemented a process for our shareholders to send communications to our |
board of directors. Any shareholder desiring to communicate with our board of directors, or with specific individual |
directors, may do so by writing to Mr. Eric M. Hellige, Corporate Secretary, at eLEC Communications Corp., 75 |
South Broadway, Suite 302, White Plains, New York 10601. The Corporate Secretary has the authority to disregard |
any inappropriate communications or take other appropriate actions with respect to any such inappropriate |
communications. If deemed an appropriate communication, the Corporate Secretary will submit a shareholder’s |
correspondence to the Chairman of the Board of Directors or to any specific director to whom the correspondence is |
directed. |
Code of Ethics |
We have adopted a code of business conduct and ethics for our directors, officers and employees, including |
our chief executive officer and chief financial officer. In addition, we have adopted a supplemental code of ethics |
for our financial executives and all employees in our accounting department. The text of our codes are posted on our |
Internet website at www.elec.net. |
8 |
EXECUTIVE COMPENSATION | ||||||||||||
Summary of Cash and Certain Other Compensation | ||||||||||||
The following table sets forth, for the fiscal years indicated, all compensation awarded to, earned by or | ||||||||||||
paid to Mr. Paul H. Riss, our Chief Executive Officer, Chief Financial Officer and Treasurer, Mr. Michael H. | ||||||||||||
Khalilian, our Chief Information Officer, and Mr. Mark Richards, the President of VoX Communications Corp., | ||||||||||||
our wholly-owned subsidiary (collectively, the “Named Executives”). None of our other executive officers | ||||||||||||
received more than $100,000 in compensation during fiscal 2006. | ||||||||||||
Compensation Table | ||||||||||||
Long-Term | ||||||||||||
Annual Compensation | Compensation Awards | |||||||||||
Name and | Fiscal | Other Annual | All Other | |||||||||
Principal Position | Year | Salary($) | Bonus($) | Compensation ($) | Options(#) | Compensation | ||||||
Paul H. Riss | 2006 | $175,000 | None | None | None | None | ||||||
Chief Executive Officer, | 2005 | 150,000 | None | None | None | None | ||||||
Chief Financial Officer | 2004 | 150,000 | None | None | 100,000 | None | ||||||
and Treasurer | ||||||||||||
Michael H. Khalilian(1) | ||||||||||||
Chief Technology | 2006 | $125,000 | None | None | None | None | ||||||
Officer since October | 2005 | 120,000 | None | None | None | None | ||||||
26, 2004 | 2004 | 12,000 | None | None | 900,000 | None | ||||||
Mark Richards(2) | ||||||||||||
President of VoX | 2006 | $125,000 | None | None | None | None | ||||||
Communications Corp. | 2005 | 120,000 | None | None | None | None | ||||||
Subsidiary since | 2004 | 22,569 | None | None | 1,000,000 | None | ||||||
October 4, 2004 | ||||||||||||
Stock Option Grants | ||||||||||||
No grants of stock options or stock appreciation rights (“SARs”) were made during fiscal 2006 to the | ||||||||||||
Named Executives. | ||||||||||||
9 |
Stock Option Exercises | ||||||||||||||
The following table contains information relating to the exercise of our stock options by the Named | ||||||||||||||
Executives in fiscal 2006, as well as the number and value of their unexercised options as of November 30, 2006. | ||||||||||||||
Aggregated Option Exercises in Last Fiscal Year | ||||||||||||||
and Fiscal Year-End Option Values | ||||||||||||||
Number of Securities Underlying | Value of Unexercised In-the- | |||||||||||||
Shares | Unexercised Options at Fiscal | Money Options at Fiscal Year- | ||||||||||||
Acquired on | Value | Year-End(#)(1) | End ($)(2) | |||||||||||
Name | Exercise (#) | Realized($) | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||
Paul H. Riss | -- | -- | 350,000 | -- | $37,500 | -- | ||||||||
Michael Khalilian | -- | -- | 675,000 | 225,000 | -- | -- | ||||||||
Mark Richards | -- | -- | 550,000 | 450,000 | -- | -- | ||||||||
(1) | The sum of the numbers under the Exercisable and Unexercisable column of this heading represents the Named | |||||||||||||
Executives’ total outstanding options to purchase shares of common stock. | ||||||||||||||
(2) | The dollar amounts shown under the Exercisable and Unexercisable columns of the heading represent the | |||||||||||||
number of exercisable and unexercisable options, respectively, that were “In-the-Money” on November 30, | ||||||||||||||
2006, multiplied by the difference between the closing price of our common stock on November 30, 2006, | ||||||||||||||
which was $0.23 per share, and the exercise price of the options. For purposes of these calculations, In-the- | ||||||||||||||
Money options are those with an exercise price below $0.23 per share. | ||||||||||||||
Board of Directors Compensation | ||||||||||||||
We do not currently compensate directors for service on our board of directors. We maintain a Non- | ||||||||||||||
Employee Director Stock Option Plan (the “Director Option Plan”). Under the Director Option Plan, each non- | ||||||||||||||
employee director is granted a non-statutory option to purchase 10,000 shares of our common stock on the date on | ||||||||||||||
which he or she is elected, re-elected or appointed to our board of directors. Options granted pursuant to the | ||||||||||||||
Director Option Plan will vest in full on the one-year anniversary of the grant date, provided the non-employee | ||||||||||||||
director is still our director at that time. The exercise price granted under the Director Option Plan is 100% of the | ||||||||||||||
fair market value per share of the common stock on the date of the grant as reported on The OTC Bulletin Board. | ||||||||||||||
The following table provides information as of March 31, 2007 with respect to shares of our common stock | ||||||||||||||
that are issuable under equity compensation plans. | ||||||||||||||
10 |
Number of Securities | ||||||||
remaining available to | ||||||||
Number of securities | Weighted-average | future issuance under | ||||||
to be issued upon | exercise price of | equity compensation | ||||||
exercise of | outstanding | plans (excluding | ||||||
outstanding options, | options, warrants | securities reflected in | ||||||
warrants and rights | and rights | column (a)) | ||||||
Plan Category | (a) | (b) | (c) | |||||
Equity compensation plans approved | ||||||||
by security holders: | ||||||||
1995 Stock Option Plan(1) | 800,500 | $0.28 | - | |||||
1996 Restricted Stock Plan(2) | - | 400,000 | ||||||
Subtotal | 800,500 | 400,000 | ||||||
Equity compensation plans not | ||||||||
approved by security holders: | ||||||||
Employee stock options | 1,900,000 | 0.24 | - | |||||
2004 Equity Incentive Plan(3) | 788,000 | 0.38 | 212,000 | |||||
Laurus Master Fund, Ltd.(4) | 7,037,434 | 0.21 | - | |||||
Source Capital Group, Inc.(4) | 1,347,234 | 0.36 | - | |||||
Institutional Marketing Services, | 100,000 | 0.63 | - | |||||
Inc.(5) | ||||||||
Gilford Securities(6) | 100,000 | 0.40 | ||||||
Capital TT, LLC(6) | 150,000 | 0.63 | - | |||||
Subtotal | 11,422,668 | 212,000 | ||||||
Total | 12,233,168 | 612,000 | ||||||
(1) | Options are no longer issuable under our 1995 Stock Option Plan. | |||||||
(2) | Our 1996 Restricted Stock Plan provides for the issuance of restricted share grants to officers and non-officer | |||||||
employees. | ||||||||
(3) | Our 2004 Equity Incentive Plan allows for the granting of share options to members of our board of directors, | |||||||
officers, non-officer employees and consultants. | ||||||||
(4) | Warrants were issued in conjunction with financings provided by Laurus Master Fund, Ltd | |||||||
(5) | Warrants were granted for investor relation services. | |||||||
(6) | Warrants were issued for consulting services. | |||||||
11 |
ADOPTION OF THE eLEC COMMUNICATIONS CORP. 2007 EQUITY INCENTIVE PLAN |
(Proxy Item 2) |
General |
In connection with the July 2005 expiration of our 1995 Stock Option Plan, adopted in 1995 (the “1995 |
Plan”) and because our board of directors wishes to allow for the possibility of providing incentives to employees |
and consultants of our company in excess of the 1,000,000 shares of Common Stock that may be granted pursuant to |
our 2004 Equity Incentive Plan (the “2004 Plan”), our board of directors adopted at its meeting on March 30, 2007, |
the eLEC Communications Corp. 2007 Equity Incentive Plan (the “2007 Incentive Plan”), a copy of which is |
attached to this proxy statement as Annex B. The 2007 Incentive Plan gives us the ability to grant stock options, |
SARs and restricted stock (collectively, “Awards”) to employees or consultants of our company or of any subsidiary |
of our company and to non-employee members of our advisory board or our board of directors or the board of |
directors of any of our subsidiaries. Our board of directors believes that adoption of the 2007 Incentive Plan is in the |
best interests of our company and our shareholders because the ability to grant stock options and make other stock- |
based awards under the 2007 Incentive Plan is an important factor in attracting, stimulating and retaining qualified |
and distinguished personnel with proven ability and vision to serve as employees, officers, consultants or members of |
the board of directors or advisory board of our company and our subsidiaries, and to chart our course towards continued |
growth and financial success. Therefore, our board of directors views the 2007 Incentive Plan as a key component of |
our compensation program. |
As of March 31, 2007, under the 1995 Plan, no shares of our common stock remained available for future |
grants and 810,500 shares of our common stock were allocated to outstanding options. As of March 31, 2007, under |
the 2004 Plan, 212,000 shares of our common stock remained available for future grants and 788,000 shares of our |
common stock were allocated to outstanding options. The weighted average exercise price of all options, warrants |
and rights outstanding as of March 31, 2007 was $0.28 per share. |
Summary of the Provisions of the 2007 Incentive Plan |
The following summary briefly describes the material features of the 2007 Incentive Plan and is qualified, |
in its entirety, by the specific language of the 2007 Incentive Plan, a copy of which is attached to this proxy |
statement as Annex B. |
Shares Available |
Our board of directors has authorized, subject to shareholder approval, 2,000,000 shares of our common |
stock for issuance under the 2007 Incentive Plan. In the event of any stock dividend, stock split, reverse stock split, |
share combination, recapitalization, merger, consolidation, spin-off, split-up, reorganization, rights offering, |
liquidation, or any similar change event of or by our company, appropriate adjustments will be made to the shares |
subject to the 2007 Incentive Plan and to any outstanding Awards. Shares available for Awards under the 2007 |
Incentive Plan may be either newly-issued shares or treasury shares. |
In certain circumstances, shares subject to an outstanding Award may again become available for issuance |
pursuant to other Awards available under the 2007 Incentive Plan. For example, shares subject to forfeited, |
terminated, canceled or expired Awards will again become available for future grants under the 2007 Incentive Plan. |
In addition, shares subject to an Award that are withheld by us to satisfy tax withholding obligations shall also be |
made available for future grants under the 2007 Incentive Plan. |
Administration |
The 2007 Incentive Plan is administered by the stock option committee of our board of directors or such |
other committee as may be appointed by our board of directors to administer the 2007 Incentive Plan or if such a |
committee is not appointed or unable to act, then our entire board of directors (the “Committee”). The Committee |
will consist of at least two members who are non-employee directors within the meaning of Rule 16b-3 under the |
12 |
Exchange Act. With respect to the participation of individuals who are subject to Section 16 of the Exchange Act, |
the 2007 Incentive Plan is administered in compliance with the requirements of Rule 16b-3 under the Exchange Act. |
Subject to the provisions of the 2007 Incentive Plan, the Committee determines the persons to whom grants of |
options, SARs and shares of restricted stock are to be made, the number of shares of common stock to be covered by |
each grant and all other terms and conditions of the grant. If an option is granted, the Committee determines whether |
the option is an incentive stock option or a nonstatutory stock option, the option’s term, vesting and exercisability, |
the amount and type of consideration to be paid to our company upon the option’s exercise and the other terms and |
conditions of the grant. The terms and conditions of restricted stock and SAR Awards are also determined by the |
Committee. The Committee has the responsibility to interpret the 2007 Incentive Plan and to make determinations |
with respect to all Awards granted under the 2007 Incentive Plan. All determinations of the Committee are final and |
binding on all persons having an interest in the 2007 Incentive Plan or in any Award made under the 2007 Incentive |
Plan. The costs and expenses of administering the 2007 Incentive Plan are borne by our company. |
Eligibility |
Eligible individuals include our and our subsidiaries’ employees (including our and our subsidiaries’ |
officers and directors who are also employees) or consultants whose efforts, in the judgment of the Committee, are |
deemed worthy of encouragement to promote our growth and success. Non-employee directors of our board of |
directors are also eligible to participate in the 2007 Incentive Plan. All eligible individuals may receive one or more |
Awards under the Plan, upon the terms and conditions set forth in the 2007 Incentive Plan. Currently, approximately |
40 individuals are eligible to receive Awards under the 2007 Incentive Plan. Of this total, approximately 35 |
individuals are employees and three individuals are non-employee directors. At this time, there are three individuals |
who are consultants that are eligible to receive Awards under the 2007 Incentive Plan. There is no assurance that an |
otherwise eligible individual will be selected by the Committee to receive an Award under the 2007 Incentive Plan. |
Because future Awards under the 2007 Incentive Plan will be granted in the discretion of the Committee, |
the type, number, recipients and other terms of such Awards cannot be determined at this time. Information |
regarding our recent practices with respect to annual, long-term and stock-based compensation under other plans and |
stock options under such plans is presented above in this proxy statement. See “Executive Compensation” herein |
and note 15 to our financial statements for the year ended November 30, 2006 in our Annual Report on Form 10-K |
that accompanies this proxy statement. |
Stock Options and SARs |
Under the 2007 Incentive Plan, the Committee is authorized to grant both stock options and SARs. Stock |
options may be either designated as non-qualified stock options or incentive stock options. Incentive stock options, |
which are intended to meet the requirements of Section 422 of the Internal Revenue Code such that a participant can |
receive potentially favorable tax treatment, may only be granted to employees. Therefore, any stock option granted |
to consultants and non-employee directors are non-qualified stock options. The tax treatment of incentive and non- |
qualified stock options is generally described later in this summary. SARs may be granted either alone or in tandem |
with a stock option. A SAR entitles the participant to receive the excess, if any, of the fair market value of a share on |
the exercise date over the strike price of the SAR. This amount is payable in cash, except that the Committee may |
provide in an Award agreement that benefits may be paid in shares of our common stock. In general, if a SAR is |
granted in tandem with an option, the exercise of the option will cancel the SAR, and the exercise of the SAR will |
cancel the option. Any shares that are canceled will be made available for future Awards. The Committee, in its |
sole discretion, determines the terms and conditions of each stock option and SAR granted under the 2007 Incentive |
Plan, including the grant date, option or strike price (which, in no event, will be less than the par value of a share), |
whether a SAR is paid in cash or shares, the term of each option or SAR, exercise conditions and restrictions, |
conditions of forfeitures, and any other terms, conditions and restrictions consistent with the terms of the 2007 |
Incentive Plan, all of which will be evidenced in an individual Award agreement between us and the participant. |
Certain limitations apply to incentive stock options and SARs granted in tandem with incentive stock |
options. The per share exercise price of an incentive stock option may not be less than 100% of the fair market value |
of a share of our common stock on the date of the option’s grant and the term of any such option shall expire not |
13 |
later than the tenth anniversary of the date of the option’s grant. In addition, the per share exercise price of any |
option granted to a person who, at the time of the grant, owns stock possessing more than 10% of the total combined |
voting power or value of all classes of our stock must be at least 110% of the fair market value of a share of our |
common stock on the date of grant and such option shall expire not later than the fifth anniversary of the date of the |
option’s grant. |
Options and SARs granted under the 2007 Incentive Plan become exercisable at such times as may be |
specified by the Committee. In general, options and SARs granted to participants become exercisable in three equal |
annual installments, subject to the optionee’s continued employment or service with us. However, the aggregate |
value (determined as of the grant date) of the shares subject to incentive stock options that may become exercisable |
by a participant in any year may not exceed $100,000. If a SAR is granted in tandem with an option, the SAR will |
become exercisable at the same time or times as the option becomes exercisable. |
The maximum term of options and SARs granted under the 2007 Incentive Plan is ten years. If any |
participant terminates employment due to death or disability or retirement, the portion of his or her option or SAR |
Awards that were exercisable at the time of such termination may be exercised for one year from the date of |
termination. In the case of any other termination, the portion of his or her option or SAR Awards that were |
exercisable at the time of such termination may be exercised for three months from the date of termination. |
However, if the remainder of the option or SAR term is shorter than the applicable post-termination exercise period, |
the participant’s rights to exercise the option or SAR will expire at the end of the term. In addition, if a participant’s |
service terminates due to cause, all rights under an option or SAR will immediately expire, including rights to the |
exercisable portion of the option or SAR. Shares attributable to an option or SAR that expire without being |
exercised will be forfeited by the participant and will again be available for Award under the 2007 Incentive Plan. |
Unless limited by the Committee in an Award agreement, payment for shares purchased pursuant to an |
option exercise may be made (i) in cash, check or wire transfer, (ii) subject to the Committee’s approval, in shares |
already owned by the participant (including restricted shares held by the participant at least six months prior to the |
exercise of the option) valued at their fair market value on the date of exercise, or (iii) through broker-assisted |
cashless exercise procedures. |
Restricted Stock |
Under the 2007 Incentive Plan, the Committee is also authorized to make Awards of restricted stock. A |
restricted stock Award entitles the participant to all of the rights of a shareholder of our company, including the right |
to vote the shares and the right to receive any dividends. However, the Committee may require the payment of cash |
dividends to be deferred and if the Committee so determines, re-invested in additional shares of restricted stock. |
Before the end of a restricted period and/or lapse of other restrictions established by the Committee, shares received |
as restricted stock shall contain a legend restricting their transfer, and may be forfeited (i) in the event of termination |
of employment, (ii) if our company or the participant does not achieve specified performance goals after the grant |
date and before the participant’s termination of employment or (iii) upon the failure to achieve other conditions set |
forth in the Award agreement. |
An Award of restricted stock will be evidenced by a written agreement between us and the participant. The |
Award agreement will specify the number of shares of our common stock subject to the Award, the nature and/or |
length of the restrictions, the conditions that will result in the automatic and complete forfeiture of the shares and the |
time and manner in which the restrictions will lapse, subject to the Award holder’s continued employment by us, and |
any other terms and conditions the Committee shall impose consistent with the provisions of the 2007 Incentive Plan. |
The Committee also determines the amount, if any, that the participant shall pay for the shares of restricted stock. |
However, the participant must be required to pay at least the par value for each share of restricted stock. Upon the |
lapse of the restrictions, any legends on the shares of our common stock subject to the Award will be re-issued to the |
participant without such legend. |
14 |
Unless the Committee determines otherwise in the Award or other agreement, if a participant terminates |
employment for any reason, all rights to restricted stock that are then forfeitable will be forfeited. Restricted stock |
that is forfeited by the participant will again be available for Award under the 2007 Incentive Plan. |
Fair Market Value |
Under the 2007 Incentive Plan, fair market value means the fair market value of the shares based upon the |
closing selling price of a share of our common stock as quoted on any national securities exchange or the OTC |
Bulletin Board on the relevant date. If there is no closing selling price on the relevant date, then the fair market |
value shall mean the closing selling price on the last preceding date for which such quotation exists. If shares are not |
readily tradable on a national securities exchange or other market system, fair market value means an amount |
determined in good faith by the Committee to be the fair market value of the shares. |
Transferability Restrictions |
Generally and unless otherwise provided in an Award agreement, shares or rights subject to an Award |
cannot be assigned or transferred other than by will or by the laws of descent and distribution and Awards may be |
exercised during the participant’s lifetime only by the participant or his or her guardian or legal representative. |
However, a participant may, if permitted by the Committee, in its sole discretion, transfer an Award, or any portion |
thereof, to one or more of the participant’s spouse, children or grandchildren, or may designate in writing a |
beneficiary to exercise an Award after his or her death. |
Termination or Amendment of the 2007 Incentive Plan |
Unless sooner terminated, no Awards may be granted under the 2007 Incentive Plan after April 2, 2017. |
Our board of directors may amend or terminate the 2007 Incentive Plan at any time, but our board of directors may |
not, without shareholder approval, amend the 2007 Incentive Plan to increase the total number of shares of our |
common stock reserved for issuance of Awards. In addition, any amendment or modification of the 2007 Incentive |
Plan shall be subject to shareholder approval as required by any securities exchange on which our common stock is |
listed. No amendment or termination may deprive any participant of any rights under Awards previously made under |
the 2007 Incentive Plan. |
Summary of Federal Income Tax Consequences of the 2007 Incentive Plan |
The following summary is intended only as a general guide as to the federal income tax consequences under |
current law with respect to participation in the 2007 Incentive Plan and does not attempt to describe all possible |
federal or other tax consequences of such participation. Furthermore, the tax consequences of awards made under |
the 2007 Incentive Plan are complex and subject to change, and a taxpayer’s particular situation may be such that |
some variation of the described rules is applicable. |
Options and SARs |
There are three points in time when a participant and our company could potentially incur federal income |
tax consequences: date of grant, upon exercise and upon disposition. First, when an option or a SAR is granted to a |
participant, the participant does not recognize any income for federal income tax purposes on the date of grant. We |
similarly do not have any federal income tax consequences at the date of grant. Second, depending upon the type of |
option, the exercise of an option may or may not result in the recognition of income for federal income tax purposes. |
With respect to an incentive stock option, a participant will not recognize any ordinary income upon the option’s |
exercise (except that the alternative minimum tax may apply). However, a participant will generally recognize |
ordinary income upon the exercise of a non-qualified stock option. In this case, the participant will recognize |
income equal to the difference between the option price and the fair market value of shares purchased pursuant to the |
option on the date of exercise. With respect to the exercise of a SAR, the participant must generally recognize |
ordinary income equal to the cash received (or, if applicable, value of the shares received). |
15 |
Incentive stock options are subject to certain holding requirements before a participant can dispose of the |
shares purchased pursuant to the exercise of the option and receive capital gains treatment on any income realized |
from the exercise of the option. Satisfaction of the holding periods determines the tax treatment of any income |
realized upon exercise. If a participant disposes of shares acquired upon exercise of an incentive stock option before |
the end of the applicable holding periods (called a “disqualifying disposition”), the participant must generally |
recognize ordinary income equal to the lesser of (i) the fair market value of the shares at the date of exercise of the |
incentive stock option minus the exercise price or (ii) the amount realized upon the disposition of the shares minus |
the exercise price. Any excess of the fair market value on the date of such disposition over the fair market value on |
the date of exercise must be recognized as capital gains by the participant. If a participant disposes of shares |
acquired upon the exercise of an incentive stock option after the applicable holding periods have expired, such |
disposition generally will result in long-term capital gain or loss measured by the difference between the sale price |
and the participant’s tax “basis” in such shares (generally, in such case, the tax “basis” is the exercise price). |
Generally, we will be entitled to a tax deduction in an amount equal to the amount recognized as ordinary |
income by the participant in connection with the exercise of options and SARs. However, we are generally not |
entitled to a tax deduction relating to amounts that represent capital gains to a participant. Accordingly, if the |
participant satisfies the requisite holding period with respect to an incentive stock option before disposition to |
receive the favorable tax treatment accorded incentive stock options, we will not be entitled to any tax deduction |
with respect to an incentive stock option. In the event the participant has a disqualifying disposition with respect to |
an incentive stock option, we will be entitled to a tax deduction in an amount equal to the amount that the participant |
recognized as ordinary income. |
Restricted Stock Awards |
A participant will not be required to recognize any income for federal income tax purposes upon the grant |
of shares of restricted stock. With respect to Awards involving shares or other property, such as restricted stock |
Awards, that contain restrictions as to their transferability and are subject to a substantial risk of forfeiture, the |
participant must generally recognize ordinary income equal to the fair market value of the shares or other property |
received at the time the shares or other property become transferable or are no longer subject to a substantial risk of |
forfeiture, whichever occurs first. We generally will be entitled to a deduction in an amount equal to the ordinary |
income recognized by the participant. A participant may elect to be taxed at the time he or she receives shares (e.g., |
restricted stock) or other property rather than upon the lapse of transferability restrictions or the substantial risk of |
forfeiture. However, if the participant subsequently forfeits such shares he or she would not be entitled to any tax |
deduction or, to recognize a loss, for the value of the shares or property on which he or she previously paid tax. |
Alternatively, if an Award that results in a transfer to the participant of cash, shares or other property does not |
contain any restrictions as to their transferability and is not subject to a substantial risk of forfeiture, the participant |
must generally recognize ordinary income equal to the cash or the fair market value of shares or other property |
actually received. We generally will be entitled to a deduction for the same amount. |
Vote Required |
Assuming a quorum is present, the affirmative vote of a majority of the votes cast at the annual meeting of |
shareholders, either in person or by proxy, is required for approval of this proposal. |
Our board of directors recommends a voteFORapproval of the proposed adoption of our 2007 Equity |
Incentive Plan. |
PROPOSAL TO AMEND OUR CERTIFICATE OF |
INCORPORATION TO CHANGE OUR CORPORATE NAME |
(Proxy Item 3) |
On September 26, 2006, our board of directors adopted, subject to shareholder approval, a resolution to |
amend Article FIRST of our Certificate of Incorporation to change our corporate name from eLEC Communications |
Corp. to Pervasip Corp. In the judgment of our board of directors, the change of our corporate name is desirable |
16 |
because the focus of our business has evolved to telephony services and other applications over IP networks rather |
than local exchange carrier services. We believe we have a significant technological advantage in our IP platform, |
and the ubiquitous nature of the Internet allows our services to be available everywhere there is broadband. |
We have selected the name “Pervasip” to signify pervasive IP services. Unlike other words in the IP sector |
that are generic in nature and used by several carriers, we believe we can obtain trademark protection for the name |
Pervasip, which we created. Furthermore, in the telephone industry, the letters “LEC” in our name are known to |
stand for “local exchange carrier.” While the name eLEC would signify a local exchange carrier that utilizes the |
Internet to provide services, there is still a close tie to traditional wireline services in any company that is considered |
a LEC. Given that we plan to sell our local exchange carrier subsidiaries, we believe that retaining the letters “LEC” |
in our name would not be appropriate. |
Text of Proposed Amendment |
Article FIRST of our Certificate of Incorporation is proposed to be amended to read as follows: |
“FIRST: That the name of the corporation is Pervasip Corp. (the “Corporation”).” |
If the proposed amendment is adopted, shareholders will not be required to exchange outstanding stock |
certificates for new stock certificates. |
Vote Required for Approval |
The proposed amendment to our Certificate of Incorporation to change the corporate name of our company |
will become effective only upon approval by a majority of the votes cast by the shareholders entitled to vote at the |
annual meeting and the filing of a Certificate of Amendment to our Certificate of Incorporation with the Secretary of |
the State of New York, which filing is expected to take place shortly after the annual meeting. If this proposed |
amendment is not approved by the shareholders, then the Certificate of Amendment will not be filed. |
Our board of directors recommends that the shareholders voteFORadoption of the proposed amendment to |
our Certificate of Incorporation. |
PROPOSAL TO AMEND OUR CERTIFICATE OF INCORPORATION |
TO INCREASE AUTHORIZED SHARES OF COMMON STOCK |
(Proxy Item 4) |
Our board of directors has proposed an amendment to Article FOURTH of our Certificate of Incorporation. |
This amendment would increase the total number of shares of capital stock that we are authorized to issue to one |
hundred fifty-one million (151,000,000), of which one hundred-fifty million (150,000,000) shall be common stock, |
par value $.10 per share, and one million (1,000,000) shall be preferred stock, par value $.10 per share. The par |
value of the common stock, currently $.10 per share, will be reduced to $.001 per share if the proposed amendment |
to our Certificate of Incorporation to effectuate such a reduction in par value (Proxy Item 5) is approved at the |
annual meeting. No increase in the authorized number of shares of preferred stock is requested. |
We have no specific plans for the issuance of additional shares of common stock. However, the board of |
directors believes that the proposed increase is desirable so that, as the need may arise, we will have more financial |
flexibility and be able to issue additional shares of common stock without the expense and delay associated with a |
special shareholders’ meeting, except where shareholder approval is required by applicable law or stock exchange |
regulations. The additional shares of common stock might be used, for example, in connection with an expansion of |
our business through investments or acquisitions, sold in a financing transaction or issued under an employee stock |
option, savings or other benefit plan or in a stock split or dividend to shareholders. The board of directors does not |
intend to issue any shares except on terms that it considers to be in the best interests of the company and its |
shareholders. |
17 |
The additional shares of common stock for which authorization is sought would be a part of the existing |
class of common stock. If and when issued, these shares would have the same rights and privileges as the shares of |
common stock presently outstanding. No holder of common stock has any preemptive rights to acquire additional |
shares of the common stock. |
The issuance of additional shares could reduce existing shareholders’ percentage ownership and voting |
power in our company and, depending on the transaction in which they are issued, could affect the per share book |
value or other per share financial measures. |
Although the proposed amendment is not intended to be an anti-takeover measure, shareholders should note |
that, under certain circumstances, the additional shares of common stock could be used to make any attempt to gain |
control of our company or the board of directors more difficult or time-consuming. Any of the additional shares of |
common stock could be privately placed with purchasers who might side with the board of directors in opposing a |
hostile takeover bid. It is possible that such shares could be sold with or without an option, on our part, to |
repurchase such shares, or on the part of the purchaser, to put such shares to us. |
The amendment to increase the authorized shares of common stock might be considered to have the effect |
of discouraging an attempt by another person or entity, through the acquisition of a substantial number of shares of |
our capital stock, to acquire control of us, since the issuance of the additional shares of common stock could be used |
to dilute the stock ownership of a person or entity seeking to obtain control and to increase the cost to a person or |
entity seeking to acquire a majority of the voting power of our company. If so used, the effect of the additional |
authorized shares of common stock might be (i) to deprive shareholders of an opportunity to sell their stock at a |
temporarily higher price as a result of a tender offer or the purchase of shares by a person or entity seeking to obtain |
control of us or (ii) to assist incumbent management in retaining its present position. |
Text of Proposed Amendment |
The first paragraph of Article FOURTH of our Certificate of Incorporation is proposed to be amended to |
read as follows: |
“FOURTH: A.Authorized Shares. The total number of shares of all classes of capital stock which the Company |
shall have the authority to issue is one hundred fifty-one million (151,000,000), of which one hundred-fifty million |
(150,000,000) shall be common stock, par value $.10 per share and one million (1,000,000) shall be preferred stock, |
par value $.10 per share.” |
If the proposal to reduce the par value of our shares of capital stock (Proxy Item 5) is approved by our |
shareholders at the annual meeting, the references to the par value of our common stock and our preferred stock in |
the foregoing Article FOURTH of our Certificate of Incorporation shall be $.001 per share rather than $.10 per |
share. |
A copy of the foregoing proposed amendment, including the proposed amendment to reduce the par value |
of our common stock and our preferred stock from $.10 per share to $.001 per share, is attached to this proxy |
statement as Annex C and is marked to show changes from our current Certificate of Incorporation. |
Vote Required for Approval |
The proposed amendment to the Certificate of Incorporation to increase the total number of shares of |
capital stock that we are authorized to issue will become effective only upon approval by a majority of the votes cast |
by the shareholders entitled to vote at the annual meeting and the filing of a Certificate of Amendment to the |
Certificate of Incorporation with the Secretary of the State of New York, which filing is expected to take place |
shortly after the annual meeting. If this proposed amendment is not approved by the shareholders, then the language |
pertaining to this Proxy Item 4 will not be included in the Certificate of Amendment filed with the Secretary of the |
State of New York. |
18 |
Our board of directors recommends that the shareholders voteFORadoption of the proposed amendment to |
our Certificate of Incorporation. |
PROPOSAL TO AMEND OUR CERTIFICATE OF INCORPORATION TO CHANGE THE PAR VALUE |
OF OUR SHARES OF CAPITAL STOCK FROM $.10 PER SHARE TO $.001 PER SHARE; |
(Proxy Item 5) |
Our board of directors has proposed an amendment to Article FOURTH of our Certificate of Incorporation. |
This amendment would reduce the par value of our common stock and our preferred stock from $.10 per share to |
$.001 per share and reclassify the outstanding shares of capital stock into such lower par value shares. |
Our Certificate of Incorporation currently authorizes the issuance of shares of common stock with a par |
value of $.10 per share. The board of directors believes it is in the best interests of our company to amend our |
Certificate of Incorporation to reduce the par value of our capital stock to $.001 per share. The proposed reduction |
in par value is intended to bring us into line with the practice of other public companies with respect to par value. |
Historically, the concept of par value served to protect creditors and senior security holders by ensuring that |
a company received at least the par value as consideration for issuance of stock. Over time, the concept of par value |
has lost much of its significance. Today many companies incorporate using a nominal par value or have no par value |
at all. |
The reduction in the par value would not change the number of authorized shares of our common stock or |
preferred stock. The reduction in the par value would reduce the amount required to be carried by us as capital, |
thereby potentially increasing our surplus capital available for dividends and other distributions and for other |
corporate purposes. The board of directors has not proposed the reduction in the par value with the intention of |
declaring dividends on our common stock. The reduction in the par value should have no effect on the rights of the |
holders of our capital stock except for the minimum amount per share we may receive upon the issuance of |
authorized but unissued shares and added dividend flexibility. |
If this proposal is approved, certificates representing shares of our capital stock, $.10 par value per share, |
issued and outstanding prior to the effective date of filing of the amendment to our Certificate of Incorporation, will |
be changed to represent the same number of shares of common stock, $.001 par value per share, as they did prior to |
such effective date. Existing certificates will not be exchanged for new certificates. Please do not return any |
certificates to us. |
A copy of the proposed amendment, including the proposed amendment pursuant to Proxy Item 4 to |
increase the total number of shares of capital stock that we are authorized to issue, is attached to this proxy statement |
as Annex C and is marked to show changes from our current Certificate of Incorporation. |
Vote Required for Approval |
The proposed amendment to our Certificate of Incorporation to reduce the par value of our capital stock |
from $.10 per share to $.001 per share and reclassify the outstanding shares of capital stock into such lower par value |
shares will become effective only upon approval by a majority of the votes cast by the shareholders entitled to vote at |
the annual meeting and the filing of a Certificate of Amendment to the Certificate of Incorporation with the Secretary |
of the State of New York, which filing is expected to take place shortly after the annual meeting. If this proposed |
amendment is not approved by the shareholders, then the language pertaining to this Proxy Item 5 will not be |
included in the Certificate of Amendment filed with the Secretary of the State of New York. |
Our board of directors recommends that the shareholders voteFORadoption of the proposed amendment to |
our Certificate of Incorporation. |
19 |
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS |
(Proxy Item 6) |
Nussbaum Yates & Wolpow, P.C. (“Nussbaum”), is serving as our independent public accountants for the |
fiscal year ended November 30, 2006 and has been appointed by our board of directors to continue as our independent |
auditors for the fiscal year ending November 30, 2007. In the event that ratification of this appointment of independent |
auditors is not approved by the affirmative vote of a majority of votes cast on the matter, the appointment of independent |
auditors will be reconsidered by our board of directors. Unless marked to the contrary, proxies received will be voted for |
ratification of the appointment of Nussbaum as our independent auditors for the fiscal year ending November 30, 2007. |
A representative of Nussbaum is expected to attend the annual meeting, and such representative will have |
the opportunity to make a statement if he so desires and will be available to respond to appropriate questions from |
shareholders. |
Your ratification of the appointment of Nussbaum as our independent auditors for the fiscal year ending |
November 30, 2007 does not preclude our board of directors from terminating its engagement of Nussbaum and |
retaining a new independent auditor, if it determines that such an action would be in our best interests. |
Audit Fees |
Audit Fees |
The aggregate fees billed by Nussbaum for professional services rendered for the audit of our annual |
financial statements for the last two fiscal years and for the reviews of the financial statements included in our |
Quarterly Reports on Form 10-Q during the last two fiscal years was $142,226 and $103,936, respectively. |
Audit-Related Fees |
We did not engage our principal accountants to provide assurance or related services during the last two |
fiscal years. |
Tax Fees |
The aggregate fees billed by our principal accountants for tax compliance, tax advice and tax planning |
services rendered to us during the last two fiscal years was $20,000 and $15,000 respectively. |
All Other Fees |
We did not engage our principal accountants to render services to us during the last two fiscal years, other |
than as reported above. |
Pre-Approval Policies and Procedures |
Our board of directors has the sole authority to appoint or replace our independent auditor. Our board is |
directly responsible for the compensation and oversight of the work of our independent auditor (including resolution |
of disagreements between management and the independent auditor regarding financial reporting) for the purpose of |
preparing or issuing an audit report or related work. Our independent auditor is engaged by, and reports directly to, |
our Board. |
Our board of directors pre-approves all auditing services and permitted non-audit services (including the |
fees and terms thereof) to be performed for us by our independent auditor, subject to thede minimisexceptions for |
non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934, all of which are |
approved by our board prior to the completion of the audit. In the event pre-approval for such auditing services and |
permitted non-audit services cannot be obtained as a result of inherent time constraints in the matter for which such |
20 |
services are required, our Chairman of the Board may pre-approve such services, and will report for ratification such |
pre-approval to our board of directors at its next scheduled meeting. Our board has complied with the procedures set |
forth above and all services reported above were approved in accordance with such procedures. |
Vote Required and Board of Directors' Recommendation |
Assuming a quorum is present, the affirmative vote of a majority of the votes cast at the annual meeting of |
shareholders, by the shareholders entitled to vote at the annual meeting of shareholders, either in person or by proxy, |
is required for approval of this proposal. |
Our board of directors recommends a voteFORratification of the appointment of Nussbaum as our |
independent auditors for the fiscal year ending November 30, 2007. |
SHAREHOLDER PROPOSALS |
Proposals of shareholders intended for presentation at our 2008 annual meeting of shareholders and |
intended to be included in our proxy statement and form of proxy relating to that meeting must be received at our |
executive offices by January 8, 2008 and comply with the requirements of Rule 14a-8(e) promulgated under the |
Securities Exchange Act of 1934. |
OTHER BUSINESS |
Other than as described above, our board of directors knows of no matters to be presented at the annual |
meeting, but it is intended that the persons named in the proxy will vote your shares according to their best judgment |
if any matters not included in this proxy statement do properly come before the meeting or any adjournment thereof. |
ANNUAL REPORT |
Our Annual Report on Form 10-K for the year ended November 30, 2006, including financial statements, is |
being mailed with this proxy statement. If, for any reason, you do not receive your copy of the Annual Report, |
please contact Mr. Paul H. Riss, Chief Executive Officer, eLEC Communications Corp., 75 South Broadway, Suite |
302, White Plains, New York 10601, and another will be sent to you. |
By Order of the Board of Directors, |
PAULH. RISS |
Chairman of the Board |
Dated: May 7, 2007 |
White Plains, New York |
21 |
ANNEX A | ||
eLEC COMMUNICATIONS CORP. | ||
AUDIT COMMITTEE CHARTER | ||
PURPOSE | ||
There shall be an Audit Committee (the “Committee”) of the Board of Directors (the “Board”) of eLEC | ||
Communications Corp., a New York corporation (the “Company”). The primary function of the Committee is to | ||
assist the Board of Directors in fulfilling its oversight responsibilities, primarily through: 1) overseeing | ||
management’s conduct of the Company’s financial reporting process and systems of internal accounting and | ||
financial controls; and 2) monitoring the independence and performance of the Company’s outside auditors. | ||
COMPOSITION AND MEETINGS | ||
The Committee shall have at least three (3) members at all times, each of whom must be independent of | ||
management and the Company;provided, however, the Committee may include one non-independent director until | ||
such time as three qualified independent directors serve as members of the Board of Directors. Members of the | ||
Committee shall be considered independent if: 1) in the sole discretion of the Board, it is determined that they have | ||
no relationship that may interfere with the exercise of their independent judgment; and 2) they meet the NASDAQ | ||
rules regarding independence of audit committee members. Members of the Committee shall be appointed by the | ||
Board and shall serve until the earlier to occur of the date on which he or she shall: 1) be replaced by the Board; 2) | ||
resign from the Committee; or 3) resign from the Board. All members of the Committee shall have a basic | ||
understanding of finance and accounting and be able to read and understand fundamental financial statements or be | ||
able to do so within a reasonable period of time after appointment to the Committee, and at least one member of the | ||
Committee shall have accounting or related financial management expertise. | ||
The Committee shall meet as frequently as circumstances dictate, but no less than four times annually. The | ||
Board shall name a chairperson of the Committee. A majority of the members of the Committee shall constitute a | ||
quorum. | ||
LIMITATION ON COMMITTEE RESPONSIBILITIES | ||
The Company’s management is responsible for preparing the Company’s financial statements and the | ||
outside auditors are responsible for auditing and/or reviewing those financial statements. In carrying out its purpose, | ||
the Committee is not providing any expert or special assurance as to the Company’s financial statements or any | ||
professional certification as to the outside auditors’ work. The Committee’s specific responsibilities are as follows: | ||
GENERAL | ||
1. | The Committee shall have the power to conduct or authorize investigations into any matters consistent | |
with its purpose. The Committee shall be empowered to retain independent counsel, accountants, or others to assist | ||
it in the conduct of any investigation. The Committee shall have unrestricted access to members of management and | ||
all information relevant to its responsibilities. | ||
2. | The Committee shall report through its chairperson to the Board following the meetings of the | |
Committee. | ||
3. | The Committee shall review this charter and the powers and responsibilities of the Committee at least | |
annually and report and make recommendations to the Board with respect to these powers and responsibilities. | ||
4. | The Committee shall maintain minutes or other records of meetings and activities of the Committee. |
5. | The Committee shall prepare annual Committee reports for inclusion in the proxy statements for the | |
Company’s annual meetings, as required by rules promulgated by the Securities and Exchange Commission (the | ||
“SEC”). | ||
6. | The Committee shall, in addition to the performance of the duties described herein, undertake such | |
additional duties as may from time to time be delegated to it by the Board. | ||
INTERNAL CONTROLS AND RISK ASSESSMENT | ||
1. | The Committee shall consider and review with management and the outside auditors the effectiveness of | |
or weaknesses in the Company’s internal controls, including computerized information system controls and security, | ||
the overall control environment and accounting and financial controls. | ||
2. | The Committee shall obtain from the outside auditors their recommendations regarding internal controls | |
and other matters relating to the accounting procedures and the books and records of the Company and its | ||
subsidiaries and reviewing the correction of controls deemed to be deficient. | ||
OUTSIDE AUDITOR | ||
1. | The outside auditors are ultimately accountable to the Board and the Committee, as the representatives | |
of the stockholders. The Board and the Committee shall have the ultimate authority and responsibility to select, | ||
evaluate and, where appropriate, replace the outside auditor (or to nominate the outside auditor to be proposed for | ||
shareholder approval in any proxy statement). In this regard, the Committee shall recommend to the Board the | ||
outside auditor to be nominated. | ||
2. | The Committee shall confer with the outside auditors concerning the scope of their examinations of the | |
books and records of the Company and its subsidiaries; review and approve the Company’s annual audit plans; direct | ||
the special attention of the outside auditors to specific matters or areas deemed by the Committee or the outside | ||
auditors to be of special significance; and authorize the outside auditors to perform such supplemental reviews or | ||
audits as the Committee may deem desirable. | ||
3. | The Committee shall receive from the outside auditor on a periodic basis a formal written statement | |
delineating all relationships between the outside auditor and the Company, consistent with applicable standards. The | ||
statement shall include a description of all services provided by the auditor and the related fees. The Committee | ||
shall review costs of all audit and other services performed by the outside auditors. | ||
4. | The Committee shall take, or recommend that the Board take, appropriate action to monitor the | |
independent status of the outside auditors. | ||
FINANCIAL REPORTING | ||
1. | The Committee shall review and discuss with the outside auditors and management the Company’s | |
audited annual financial statements that are to be included in the Company’s Annual Report on Form 10-KSB and | ||
the outside auditors’ opinion with respect to such financial statements, including reviewing the nature and extent of | ||
any significant changes in accounting principles or the application thereof; and determine whether to recommend to | ||
the Board that the financial statements be included in the Company’s Form 10-KSB for filing with the SEC. | ||
2. | The Committee shall review and discuss with the outside auditors and management, and require the | |
outside auditors to review, the Company’s interim financial statements to be included in the Company’s Quarterly | ||
Reports on Form 10-Q prior to the filing thereof with the SEC. | ||
3. | The Committee shall review the existence of significant estimates and judgments underlying the financial | |
statements, including the rationale behind those estimates as well as the details on material accruals and reserves and | ||
the Company’s accounting principles. |
COMPLIANCE WITH LAWS |
1. The Committee shall review with the Company’s counsel and others any legal, tax or regulatory matters |
that may have a material impact on the Company’s. |
2. The Committee shall periodically review the rules promulgated by the SEC and NASDAQ relating to the |
qualifications, activities, responsibilities and duties of audit committees and shall take, or recommend that the Board |
take, appropriate action to comply with such rules. |
ANNEX B | ||||||
eLEC COMMUNICATIONS CORP. | ||||||
2007 EQUITY INCENTIVE PLAN | ||||||
This eLEC Communications Corp. 2007 Equity Incentive Plan (the “Plan”) is established by eLEC | ||||||
Communications Corp., a New York corporation (the “Company”), effective as of April 2, 2007 (the “Effective | ||||||
Date”). Capitalized terms not otherwise defined shall have the meanings set forth in Section 25. | ||||||
1. | Purpose. The Plan is intended to provide qualifying Employees (including officers and Directors), | |||||
Independent Directors and Consultants with equity ownership in the Company, thereby strengthening their | ||||||
commitment to the success of the Company, promoting the identity of interests between the Company’s shareholders | ||||||
and such Employees, Independent Directors and Consultants and stimulating their efforts on behalf of the Company, | ||||||
and to assist the Company in attracting and retaining talented personnel. | ||||||
2. | Scope of the Plan. Subject to adjustment in accordance with Section 20, the total number of | |||||
Shares for which grants under the Plan shall be available is 2,000,000. If any Shares subject to any Award granted | ||||||
hereunder are forfeited or such Award otherwise terminates without the issuance of such Shares or for other | ||||||
consideration in lieu of such Shares, the Shares subject to such Award, to the extent of any such forfeiture or | ||||||
termination, shall again be available for grant under the Plan. Shares awarded under the Plan may be treasury shares | ||||||
or newly-issued shares. | ||||||
3. | Administration. | |||||
(a) | The Plan shall be administered by a Committee which shall consist of at least two or more | |||||
members of the Board, all of whom, so long as the Company remains a Public Company, shall qualify as “non- | ||||||
employee directors” under Section (b)(3)(i) of Rule 16b-3. The number of members of the Committee may from | ||||||
time to time be increased or decreased, and so long as the Company remains a Public Company, shall be subject to | ||||||
such conditions, as the Board deems appropriate to permit transactions in Shares pursuant to the Plan to satisfy such | ||||||
conditions of Rule 16b-3 as then in effect. | ||||||
(b) | Subject to the express provisions of the Plan, the Committee has full and final authority | |||||
and discretion as follows: | ||||||
(i) | to determine when and to whom Awards should be granted and the terms, | |||||
conditions and restrictions applicable to each Award, including, without limitation, (A) the exercise price of | ||||||
the Award, (B) the method of payment for Shares purchased upon the exercise of the Award, (C) the | ||||||
method of satisfaction of any tax withholding obligation arising in connection with the Award, (D) the | ||||||
timing, terms and conditions of the exercisability of the Award or the vesting of any Shares acquired upon | ||||||
the exercise thereof, (E) the time of the expiration of the vesting of any Shares acquired upon the exercise | ||||||
thereof, (F) the effect of the Grantee’s termination of employment or service with the Company on any of | ||||||
the foregoing, (G) all other terms, conditions and restrictions applicable to the Award or such Shares not | ||||||
inconsistent with the terms of the Plan, (H) the benefit payable under any SAR or Performance Share, and | ||||||
(I) whether or not specific Awards shall be identified with other specific Awards, and if so whether they | ||||||
shall be exercisable cumulatively with, or alternatively to, such other specific Awards; | ||||||
(ii) | to determine the amount, if any, that a Grantee shall pay for Restricted Shares, | |||||
whether to permit or require the payment of cash dividends thereon to be deferred and the terms related | ||||||
thereto, when Restricted Shares (including Restricted Shares acquired upon the exercise of any Award) shall | ||||||
be forfeited and whether such Shares shall be held in escrow; | ||||||
(iii) | to interpret the Plan and to make all determinations necessary or advisable for | |||||
the administration of the Plan; |
(iv) | to make, amend and rescind rules, guidelines and policies relating to the Plan, or | |||||
to adopt supplements to, or alternative versions of, the Plan, including, without limitation, rules with respect | ||||||
to the exercisability and forfeitability of Awards upon the termination of employment or service of a | ||||||
Grantee; | ||||||
(v) | to determine the terms, conditions and restrictions of all Award Agreements | |||||
(which need not be identical) and, with the consent of the Grantee, to amend any such Award Agreement at | ||||||
any time, among other things, to permit transfers of such Awards to the extent permitted by the Plan, except | ||||||
that the consent of the Grantee shall not be required for any amendment which (A) does not adversely affect | ||||||
the rights of the Grantee or (B) is necessary or advisable (as determined by the Committee) to carry out the | ||||||
purpose of the Award as a result of any change in applicable law; | ||||||
(vi) | to cancel, with the consent of the Grantee, outstanding Awards and to grant new | |||||
Awards in substitution therefor; | ||||||
(vii) | to accelerate the exercisability of, and to accelerate or waive any or all of the | |||||
terms, conditions and restrictions applicable to, any Award or any group of Awards for any reason and at | ||||||
any time, including in connection with a termination of employment (other than for Cause); | ||||||
(viii) | subject to Section 6(c), to extend the time during which any Award or group of | |||||
Awards may be exercised; | ||||||
(ix) | to make such adjustments or modifications to Awards to Grantees working | |||||
outside the United States as are advisable to fulfill the purposes of the Plan; | ||||||
(x) | to impose such additional terms, conditions and restrictions upon the grant, | |||||
exercise or retention of Awards as the Committee may, before or concurrent with the grant thereof, deem | ||||||
appropriate; and | ||||||
(xi) | to take any other action with respect to any matters relating to the Plan for which | |||||
it is responsible. | ||||||
The determination of the Committee on all matters relating to the Plan or any Award | ||||||
Agreement shall be final. | ||||||
4. | Indemnification and Reimbursement. Service as a member of the Committee or any other duly | |||||
appointed subcommittee shall constitute service as a Board member, and such members shall accordingly be entitled | ||||||
to full indemnification and reimbursement as Board members for their service as members of the Committee or any | ||||||
other duly appointed subcommittee. No Committee or other duly appointed subcommittee member shall be liable for | ||||||
any act or omission made in good faith with respect to the Plan or any Award granted under the Plan. | ||||||
5. | Eligibility. The Committee may, in its discretion, grant Awards to any Eligible Person, whether or | |||||
not he or she has previously received an Award, except in the case of an ISO, which can only be granted to an | ||||||
Employee of the Company or any Subsidiary. | ||||||
6. | Conditions to Grants. | |||||
(a) | General Conditions. Awards shall be evidenced by written Award Agreements specifying | |||||
the number of Shares covered thereby, in such form as the Committee shall from time to time establish. Award | ||||||
Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to | ||||||
the following terms and conditions: | ||||||
(i) | The Grant Date of an Award shall be the date on which the Committee grants the | |||||
Award or such later date as specified in advance by the Committee; |
(ii) | In the case of an Award of options, the Option Term shall under no | |||
circumstances extend more than ten (10) years after the Grant Date and shall be subject to earlier | ||||
termination as herein provided; and | ||||
(iii) | Any terms and conditions of an Award not set forth in the Plan shall be set forth | |||
in the Award Agreement related to that Award. | ||||
(b) | Grant of Options. No later than the Grant Date of any option, the Committee shall | |||
determine the Option Price of such option. Subject to Section 6(c), the Option Price of an option may be the Fair | ||||
Market Value of a Share on the Grant Date or may be less than or more than that Fair Market Value. An option shall | ||||
be exercisable for unrestricted Shares, unless the Award Agreement provides that it is exercisable for Restricted | ||||
Shares. | ||||
(c) | Grant of ISOs. At the time of the grant of any option, the Committee may, in its | |||
discretion, designate that such option shall be made subject to additional restrictions to permit the option to qualify | ||||
as an “incentive stock option” under the requirements of Section 422 of the Code. Any option designated as an ISO: | ||||
(i) | shall have an Option Price that is not less than the Fair Market Value of a Share | |||
on the Grant Date and, if granted to a Ten Percent Owner, have an Option Price that is not less than 110% | ||||
of the Fair Market Value of a Share on the Grant Date; | ||||
(ii) | shall be for a period of not more than ten (10) years and, if granted to a Ten | |||
Percent Owner, not more than five (5) years, from the Grant Date and shall be subject to earlier termination | ||||
as provided herein or in the applicable Award Agreement; | ||||
(iii) | shall meet the limitations of this subparagraph 6(c)(iii). If the aggregate Fair | |||
Market Value of Shares with respect to which ISOs first become exercisable by a Grantee in any calendar | ||||
year exceeds the limit determined in accordance with the provisions of Section 422 of the Code (the | ||||
“Limit”) taking into account Shares subject to all ISOs granted by the Company that are held by the | ||||
Grantee, the excess will be treated as nonqualified options. To determine whether the Limit is exceeded, | ||||
the Fair Market Value of Shares subject to options shall be determined as of the Grant Dates of the options. | ||||
In reducing the number of options treated as ISOs to meet the Limit, the most recently granted options will | ||||
be reduced first. If a reduction of simultaneously granted options is necessary to meet the Limit, the | ||||
Committee may designate which Shares are to be treated as Shares acquired pursuant to an ISO; | ||||
(iv) | shall be granted within ten (10) years from the Effective Date; | |||
(v) | shall require the Grantee to notify the Committee of any disposition of any | |||
Shares issued upon the exercise of the ISO under the circumstances described in Section 421(b) of the Code | ||||
(relating to certain disqualifying dispositions, a “Disqualifying Disposition”), within ten (10) business days | ||||
after such Disqualifying Disposition; and | ||||
(vi) | unless otherwise permitted by the Code, shall by its terms not be assignable or | |||
transferable other than by will or the laws of descent and distribution and may be exercised, during the | ||||
Grantee’s lifetime, only by the Grantee, except that the Grantee may, in accordance with Section 7, | ||||
designate in writing a beneficiary to exercise his or her ISOs after the Grantee’s death. | ||||
(d) | Grant of SARs. | |||
(i) | When granted, SARs may, but need not, be identified with a specific option, | |||
specific Restricted Shares, or specific Performance Shares of the Grantee (including any option, Restricted | ||||
Shares, or Performance Shares granted on or before the Grant Date of the SARs) in a number equal to or | ||||
different from the number of SARs so granted. If SARs are identified with Shares subject to an option, with | ||||
Restricted Shares, or with Performance Shares, then, unless otherwise provided in the applicable Award |
Agreement, the Grantee’s associated SARs shall terminate upon (A) the expiration, termination, forfeiture, | ||||||
or cancellation of such option, Restricted Shares or Performance Shares, (B) the exercise of such option or | ||||||
Performance Shares, or (C) the date such Restricted Shares become nonforfeitable. | ||||||
(ii) | The strike price (the “Strike Price”) of any SAR shall equal, for any SAR that is | |||||
identified with an option, the Option Price of such option, or for any other SAR, one hundred percent | ||||||
(100%) of the Fair Market Value of a Share on the Grant Date of such SAR, except that the Committee may | ||||||
(A) specify a higher Strike Price in the Award Agreement or (B) provide that the benefit payable upon | ||||||
exercise of any SAR shall not exceed such percentage of the Fair Market Value of a Share on such Grant | ||||||
Date as the Committee shall specify. | ||||||
(e) | Grant of Performance Shares. | |||||
(i) | Before the grant of Performance Shares, the Committee shall: | |||||
(A) | determine objective performance goals, which may consist of any one | |||||
or more of the following goals deemed appropriate by the Committee: earnings (either in the | ||||||
aggregate or on a per share basis), operating income, cash flow, EBITDA (earnings before interest, | ||||||
taxes, depreciation and amortization), return on equity, indices related to EVA (economic value | ||||||
added), per share rate of return on the Common Stock (including dividends), general indices | ||||||
relative to levels of general customer service satisfaction, as measured through various randomly- | ||||||
generated customer service surveys, market share (in one or more markets), customer retention | ||||||
rates, market penetration rates, revenues, reductions in expense levels, the attainment by the | ||||||
Common Stock of a specified market value for a specified period of time, and any other object | ||||||
performance goal deemed appropriate by the Committee, in each case where applicable to be | ||||||
determined either on a company-wide basis, individual basis or in respect of any one or more | ||||||
business units, and the amount of compensation under the goals applicable to such grant; | ||||||
(B) | designate a period for the measurement of the extent to which | |||||
performance goals are attained, which may begin simultaneously with, prior to or following the | ||||||
Grant Date (the “Performance Period”); and | ||||||
(C) | assign a performance percentage to each level of attainment of | |||||
performance goals during the Performance Period, with the percentage applicable to minimum | ||||||
attainment being zero percent and the percentage applicable to maximum attainment to be | ||||||
determined by the Committee from time to time (the “Performance Percentage”). | ||||||
(ii) | If a Grantee is promoted, demoted, or transferred to a different business unit of | |||||
the Company during a Performance Period, then, to the extent the Committee determines any one or more | ||||||
of the performance goals, Performance Period or Performance Percentage are no longer appropriate, the | ||||||
Committee may make any changes thereto as it deems appropriate in order to make them appropriate. | ||||||
(iii) | When granted, Performance Shares may, but need not, be identified with Shares | |||||
subject to a specific option, specific Restricted Shares or specific SARs of the Grantee granted under the | ||||||
Plan in a number equal to or different from the number of the Performance Shares so granted. If | ||||||
Performance Shares are so identified, then, unless otherwise provided in the applicable Award Agreement, | ||||||
the Grantee’s associated Performance Shares shall terminate upon (A) the expiration, termination, forfeiture | ||||||
or cancellation of the option, Restricted Shares or SARs with which the Performance Shares are identified, | ||||||
(B) the exercise of such option or SARs, or (C) the date Restricted Shares become nonforfeitable. | ||||||
(f) | Grant of Restricted Shares. | |||||
(i) | The Committee shall determine the amount, if any, that a Grantee shall pay for | |||||
Restricted Shares, subject to the following sentence. The Committee shall require the Grantee to pay at |
least the Minimum Consideration for each Restricted Share. Such payment shall be made in full by the | ||||||||
Grantee before the delivery of the shares and in any event no later than ten (10) business days after the | ||||||||
Grant Date. In the discretion of the Committee and to the extent permitted by law, payment may also be | ||||||||
made in accordance with Section 9. | ||||||||
(ii) | The Committee may, but need not, provide that all or any portion of a Grantee’s | |||||||
Restricted Shares, or Restricted Shares acquired upon exercise of an option, shall be forfeited: | ||||||||
(A) | except as otherwise specified in the Plan or the Award Agreement, upon | |||||||
the Grantee’s termination of employment within a specified time period after the Grant Date; or | ||||||||
(B) | if the Company or the Grantee does not achieve specified performance | |||||||
goals (if any) within a specified time period after the Grant Date and before the Grantee’s | ||||||||
termination of employment; or | ||||||||
(C) | upon failure to satisfy such other conditions as the Committee may | |||||||
specify in the Award Agreement. | ||||||||
(iii) | If Restricted Shares are forfeited and the Grantee was required to pay for such | |||||||
shares or acquired such Restricted Shares upon the exercise of an option, the Grantee shall be deemed to | ||||||||
have resold such Restricted Shares to the Company at a price equal to the lesser of (A) the amount paid by | ||||||||
the Grantee for such Restricted Shares or (B) the Fair Market Value of the Restricted Shares on the date of | ||||||||
forfeiture, which shall be paid to the Grantee in cash as soon as administratively practicable. Such | ||||||||
Restricted Shares shall cease to be outstanding and shall no longer confer on the Grantee thereof any rights | ||||||||
as a shareholder of the Company, from and after the date of the event causing the forfeiture, whether or not | ||||||||
the Grantee accepts the Company’s tender of payment for such Restricted Shares. | ||||||||
(iv) | The Committee may provide that the certificates for any Restricted Shares (A) | |||||||
shall be held (together with a stock power executed in blank by the Grantee) in escrow by the Secretary of | ||||||||
the Company until such Restricted Shares become nonforfeitable or are forfeited or (B) shall bear an | ||||||||
appropriate legend restricting the transfer of such Restricted Shares. If any Restricted Shares become | ||||||||
nonforfeitable, the Company shall cause certificates for such shares to be issued without such legend. | ||||||||
(v) | At the time of a grant of Restricted Shares, the Committee may require the | |||||||
payment of cash dividends thereon to be deferred and, if the Committee so determines, reinvested in | ||||||||
additional Restricted Shares. Stock dividends or deferred cash dividends issued with respect to Restricted | ||||||||
Shares shall be subject to the same restrictions and other terms as apply to the Restricted Shares with | ||||||||
respect to which such dividends are issued. The Committee may in its discretion provide for payment of | ||||||||
interest on deferred cash dividends. | ||||||||
(g) | Grant of Compensatory Shares. The Committee may grant Compensatory Shares to any | |||||||
Eligible Person. | ||||||||
7. | Non-Transferability. An Award granted hereunder shall not be assignable or transferable other | |||||||
than by will or the laws of descent and distribution and may be exercised during the Grantee’s lifetime only by the | ||||||||
Grantee or his or her guardian or legal representative, except that, subject to Section 6(c) in respect of ISOs, a | ||||||||
Grantee may, if permitted by the Committee, in its discretion, (a) designate in writing a beneficiary to exercise an | ||||||||
Award after his or her death (if that designation has been received by the Company prior to the Grantee’s death) and | ||||||||
(b) transfer the Award to one or more members of the Grantee’s Immediate Family or any other individuals or | ||||||||
entities. |
8. | Exercise. | |||||||
(a) | Exercise of Options. | |||||||
(i) | Subject to Section 6, each option shall become exercisable at such time or times | |||||||
as may be specified by the Committee from time to time in the applicable Award Agreement. | ||||||||
(ii) | An option shall be exercised by the delivery to the Company during the Option | |||||||
Term of (A) a written notice of intent to purchase a specific number of Shares subject to the option in | ||||||||
accordance with the terms of the option by the person entitled to exercise the option and (B) payment in full | ||||||||
of the Option Price of such specific number of Shares in accordance with Section 8(a)(iii). | ||||||||
(iii) | Payment of the Option Price may be made by any one or more of the following | |||||||
means: | ||||||||
(A) | cash, check, or wire transfer; | |||||||
(B) | with the approval of the Committee, Mature Shares, valued at their Fair | |||||||
Market Value on the date of exercise; | ||||||||
(C) | with the approval of the Committee, Restricted Shares held by the | |||||||
Grantee for at least six (6) months prior to the exercise of the option, each such share valued at the | ||||||||
Fair Market Value of a Share on the date of exercise; | ||||||||
(D) | so long as the Company remains a Public Company, in accordance with | |||||||
procedures previously approved by the Company, through the sale of the Shares acquired on | ||||||||
exercise of the option through a bank or broker-dealer to whom the Grantee has submitted an | ||||||||
irrevocable notice of exercise and irrevocable instructions to deliver promptly to the Company the | ||||||||
amount of sale or loan proceeds sufficient to pay for such Shares, together with, if requested by the | ||||||||
Company, the amount of federal, state, local or foreign withholding taxes payable by Grantee by | ||||||||
reason of such exercise; or | ||||||||
(E) | in the discretion of the Committee, payment may also be made in | |||||||
accordance with Section 9. | ||||||||
(F) | with the approval of the Committee, in any combination of the | |||||||
foregoing or such other manner determined by the Committee. | ||||||||
The Committee may in its discretion specify that, if any Restricted Shares are used to pay the Option Price | ||||||||
(“Tendered Restricted Shares”), (A) all the Shares acquired on exercise of the option shall be subject to the same | ||||||||
restrictions as the Tendered Restricted Shares, determined as of the date of exercise of the option or (B) a number of | ||||||||
Shares acquired on exercise of the option equal to the number of Tendered Restricted Shares shall be subject to the | ||||||||
same restrictions as the Tendered Restricted Shares, determined as of the date of exercise of the option. | ||||||||
(b) | Exercise of SARs. | |||||||
(i) | Subject to Section 6(d), (A) each SAR not identified with any other Award shall | |||||||
become exercisable at such time or times as may be specified by the Committee from time to time in the | ||||||||
applicable Award Agreement and (B) except as otherwise provided in the applicable Award Agreement, | ||||||||
each SAR which is identified with any other Award shall become exercisable as and to the extent that the | ||||||||
option or Restricted Shares with which such SAR is identified may be exercised or becomes nonforfeitable, | ||||||||
as the case may be. |
(ii) | SARs shall be exercised by delivery to the Company of written notice of intent | |||||
to exercise a specific number of SARs. Unless otherwise provided in the applicable Award Agreement, the | ||||||
exercise of SARs that are identified with Shares subject to an option or Restricted Shares shall result in the | ||||||
cancellation or forfeiture of such option or Restricted Shares, as the case may be, to the extent of such | ||||||
exercise. | ||||||
(iii) | The benefit for each SAR exercised shall be equal to (A) the Fair Market Value | |||||
of a Share on the date of such exercise, minus (B) the Strike Price specified in such SAR. Such benefit shall | ||||||
be payable in cash, except that the Committee may provide in the Award Agreement that benefits may be | ||||||
paid wholly or partly in Shares. | ||||||
(c) | Payment of Performance Shares. Unless otherwise provided in the Award Agreement | |||||
with respect to an Award of Performance Shares, if the minimum performance goals applicable to such Performance | ||||||
Shares have been achieved during the applicable Performance Period, then the Company shall pay to the Grantee of | ||||||
such Award that number of Shares equal to the product of: | ||||||
(i) | the sum of (A) number of Performance Shares specified in the applicable Award | |||||
Agreement and (B) the number of additional Shares that would have been issuable if such Performance | ||||||
Shares had been Shares outstanding throughout the Performance Period and the stock dividends, cash | ||||||
dividends (except as otherwise provided in the Award Agreement), and other property paid in respect of | ||||||
such Shares had been reinvested in additional Shares as of each dividend payment date, multiplied by | ||||||
(ii) | the Performance Percentage achieved during such Performance Period. | |||||
The Committee may, in its discretion, determine that cash be paid in lieu of some or all of such Shares. The amount | ||||||
of cash payable in lieu of a Share shall be determined by valuing such Share at its Fair Market Value on the business | ||||||
day immediately preceding the date such cash is to be paid. Payments pursuant to this Section 8 shall be made as | ||||||
soon as administratively practical after the end of the applicable Performance Period. Any Performance Shares with | ||||||
respect to which the performance goals shall not have been achieved by the end of the applicable Performance | ||||||
Period shall expire. | ||||||
9. | Loans. The Committee may in its discretion allow a Grantee to defer payment to the Company of | |||||
all or any portion of (a) the Option Price of an option, (b) the purchase price of Restricted Shares, or (c) any taxes | ||||||
associated with the exercise, nonforfeitability of, or payment of benefits in connection with, an Award. Any such | ||||||
payment deferral by the Company shall be on such terms and conditions as the Committee may determine, except | ||||||
that a Grantee shall not be entitled to defer the payment of such Option Price, purchase price, or any related taxes | ||||||
unless the Grantee (a) enters into a binding obligation to pay the deferred amount and (b) other than with respect to | ||||||
treasury shares, pays upon exercise of an option or grant of Restricted Shares, as applicable, an amount at least equal | ||||||
to the Minimum Consideration therefor. If the Committee has permitted a payment deferral in accordance with this | ||||||
Section 9, then the Committee may require the immediate payment of such deferred amount upon the Grantee’s | ||||||
termination of employment or if the Grantee sells or otherwise transfers his or her Shares purchased pursuant to such | ||||||
deferral. The Committee may at any time in its discretion forgive the repayment of any or all of the principal of, or | ||||||
interest on, any such deferred payment obligation. | ||||||
10. | Notification under Section 83(b). If the Grantee, in connection with the exercise of any option or | |||||
the grant of Restricted Shares, makes the election permitted under Section 83(b) of the Code to include in such | ||||||
Grantee’s gross income in the year of transfer the amounts specified in Section 83(b) of the Code, then such Grantee | ||||||
shall notify the Company, in writing, of such election within ten (10) days after filing the notice of the election with | ||||||
the Internal Revenue Service, in addition to any filing and notification required pursuant to regulations issued under | ||||||
Section 83(b) of the Code. The Committee may, in connection with the grant of an Award or at any time thereafter, | ||||||
prohibit a Grantee from making the election described in this Section 10. |
11. | Mandatory Tax Withholding. | |||||
(a) | Whenever under the Plan, Shares are to be delivered upon exercise or payment of an | |||||
Award or upon Restricted Shares becoming nonforfeitable, or any other event with respect to rights and benefits | ||||||
hereunder, the Company shall be entitled to require (i) that the Grantee remit an amount in cash, or in the Company’s | ||||||
discretion, Mature Shares or any other form of consideration, sufficient to satisfy all federal, state and local tax | ||||||
withholding requirements related thereto (“Required Withholding”), (ii) the withholding of such Required | ||||||
Withholding from compensation otherwise due to the Grantee or from any Shares due to the Grantee under the Plan, | ||||||
or (iii) any combination of the foregoing. | ||||||
(b) | Any Grantee who makes a Disqualifying Disposition or an election under Section 83(b) of | |||||
the Code shall remit to the Company an amount sufficient to satisfy all resulting Required Withholding, except that | ||||||
in lieu of or in addition to the foregoing, the Company shall have the right to withhold such Required Withholding | ||||||
from compensation otherwise due to the Grantee or from any Shares or other payment due to the Grantee under the | ||||||
Plan. | ||||||
(c) | Any surrender by a Section 16 Grantee of previously owned shares of Common Stock to | |||||
satisfy tax withholding arising upon exercise of the Award must comply with the applicable provisions of Rule 16b- | ||||||
3(e) under the 1934 Act. | ||||||
12. | Elective Share Withholding. At the Company’s discretion, a Grantee may, with the prior consent | |||||
of the Committee, elect the withholding by the Company of a portion of the Shares otherwise deliverable to such | ||||||
Grantee upon the exercise of an Award or upon Restricted Shares becoming nonforfeitable (each, a “Taxable Event”) | ||||||
having a Fair Market Value equal to the minimum amount necessary to satisfy the Required Withholding liability | ||||||
attributable to the Taxable Event. | ||||||
13. | Termination of Employment. | |||||
(a) | For Cause. Except as otherwise provided by the Committee in an Award Agreement, if a | |||||
Grantee’s employment is terminated for Cause, (i) the Grantee’s Restricted Shares (and any SARs identified | ||||||
therewith) that are then forfeitable shall on the date of the Grantee’s termination of employment be forfeited on such | ||||||
date, subject to the provisions of Section 6(f)(iii) regarding repayment of certain amounts to the Grantee; and (ii) any | ||||||
unexercised option, SAR or Performance Share shall terminate effective immediately upon such termination of | ||||||
employment. | ||||||
(b) | On Account of Death. Except as otherwise provided by the Committee in the Award | |||||
Agreement, if a Grantee’s employment terminates on account of death, then: | ||||||
(i) | the Grantee’s Restricted Shares (and any SARs identified therewith) that are then | |||||
forfeitable shall on the date of the Grantee’s termination of employment be forfeited on such date; | ||||||
(ii) | any unexercised option or SAR, to the extent exercisable on the date of such | |||||
termination of employment, may be exercised, in whole or in part, within the first twelve (12) months after | ||||||
such termination of employment (but only during the Option Term) after the death of the Grantee by (A) his | ||||||
or her personal representative or by the person to whom the option or SAR, as applicable, is transferred by | ||||||
will or the applicable laws of descent and distribution, (B) the Grantee’s designated beneficiary, or (C) a | ||||||
Permitted Transferee; and | ||||||
(iii) any unexercised Performance Shares may be exercised in whole or in part, at any | ||||||
time within six (6) months after such termination of employment on account of the death of the Grantee, by | ||||||
(A) his or her personal representative or by the person to whom the Performance Shares are transferred by | ||||||
will or the applicable laws of descent and distribution, (B) the Grantee’s designated beneficiary, or (C) a | ||||||
Permitted Transferee, except that the benefit payable with respect to any Performance Shares for which the | ||||||
Performance Period has not ended as of the date of such termination of employment on account of death |
shall be equal to the product of Fair Market Value of such Performance Shares multiplied successively by | ||||||||
each of the following: | ||||||||
(A) | a fraction, the numerator of which is the number of months (including | |||||||
as a whole month any partial month) that has elapsed since the beginning of such Performance | ||||||||
Period until the date of such termination of employment and the denominator of which is the | ||||||||
number of months (including as a whole month any partial month) in the Performance Period; and | ||||||||
(B) | a percentage determined in the discretion of the Committee that would | |||||||
be earned under the terms of the applicable Award Agreement assuming that the rate at which the | ||||||||
performance goals have been achieved as of the date of such termination of employment would | ||||||||
continue until the end of the Performance Period, or, if the Committee elects to compute the | ||||||||
benefit after the end of the Performance Period, the Performance Percentage, as determined by the | ||||||||
Committee, attained during the Performance Period for such Performance Shares. | ||||||||
(c) | On Account of Disability. Except as otherwise provided by the Committee in the Award | |||||||
Agreement, if a Grantee’s employment terminates on account of Disability, then: | ||||||||
(i) | the Grantee’s Restricted Shares (and any SARs identified therewith) that are then | |||||||
forfeitable shall on the date of the Grantee’s termination of employment be forfeited on such date; | ||||||||
(ii) | any unexercised option or SAR, to the extent exercisable on the date of such | |||||||
termination of employment, may be exercised in whole or in part, within the first twelve (12) months after | ||||||||
such termination of employment (but only during the Option Term) by the Grantee, or by (A) his or her | ||||||||
personal representative or by the person to whom the option or SAR, as applicable, is transferred by will or | ||||||||
the applicable laws of descent and distribution, (B) the Grantee’s designated beneficiary, or (C) a Permitted | ||||||||
Transferee; and | ||||||||
(iii) | any unexercised Performance Shares may be exercised in whole or in part, at any | |||||||
time within six (6) months after such termination of employment on account of Disability by the Grantee, or | ||||||||
by (A) his personal representative or by the person to whom the Performance Shares are transferred by will | ||||||||
or the applicable laws of descent and distribution, (B) the Grantee’s designated beneficiary, or (C) a | ||||||||
Permitted Transferee, except that the benefit payable with respect to any Performance Shares for which the | ||||||||
Performance Period has not ended as of the date of such termination of employment on account of | ||||||||
Disability shall be equal to the product of the Fair Market Value of the Performance Shares multiplied | ||||||||
successively by each of the following: | ||||||||
(A) | a fraction, the numerator of which is the number of months | |||||||
(including as a whole month any partial month) that have elapsed since the beginning of such | ||||||||
Performance Period until the date of such termination of employment and the denominator of | ||||||||
which is the number of months (including as a whole month any partial month) in the Performance | ||||||||
Period; and | ||||||||
(B) | a percentage determined in the discretion of the Committee | |||||||
that would be earned under the terms of the applicable Award Agreement assuming that the rate at | ||||||||
which the performance goals have been achieved as of the date of such termination of employment | ||||||||
would continue until the end of the Performance Period, or, if the Committee elects to compute the | ||||||||
benefit after the end of the Performance Period, the Performance Percentage, as determined by the | ||||||||
Committee, attained during the Performance Period for such Performance Shares. | ||||||||
(d) | Any Reason Other Than For Cause Or On Account of Death or Disability. Except as | |||||||
otherwise provided by the Committee in the Award Agreement, if a Grantee’s employment terminates for any reason | ||||||||
other than for Cause, or on account of death or Disability, then: |
(i) | the Grantee’s Restricted Shares (and any SARs identified therewith), that are | |||||
then forfeitable shall on the date of the Grantee’s termination of employment be forfeited on such date; | ||||||
(ii) | any unexercised option or SAR (other than a SAR identified with a Restricted | |||||
Share or Performance Share), to the extent exercisable immediately before the Grantee’s termination of | ||||||
employment, may be exercised in whole or in part, not later than three (3) months after such termination of | ||||||
employment (but only during the Option Term); and | ||||||
(iii) | the Grantee’s Performance Shares (and any SARs identified therewith) shall | |||||
terminate effective immediately upon such termination of employment. | ||||||
14. | Substituted Awards. If the Committee cancels any Award (whether granted under the Plan or any | |||||
plan of any entity acquired by the Company or a Subsidiary), the Committee may, in its discretion, substitute a new | ||||||
Award therefor upon such terms and conditions consistent with the Plan as the Committee may determine, except | ||||||
that (a) the Option Price of any new option, and the Strike Price of any new SAR, shall not be less than one hundred | ||||||
percent (100%) (one hundred ten percent (110%) in the case of an incentive stock option granted to a Ten Percent | ||||||
Owner) of the Fair Market Value of a Share on the date of the grant of the new Award; and (b) the Grant Date of the | ||||||
new Award shall be the date on which such new Award is granted. | ||||||
15 | Securities Law Matters. | |||||
(a) | If the Committee deems necessary to comply with any applicable securities law, the | |||||
Committee may require a written investment intent representation by the Grantee and may require that a restrictive | ||||||
legend be affixed to certificates for Shares. If, based upon the advice of counsel to the Company, the Committee | ||||||
determines that the exercise or nonforfeitability of, or delivery of benefits pursuant to, any Award would violate any | ||||||
applicable provision of (i) federal or state securities laws or (ii) the listing requirements of any national exchange or | ||||||
national market system on which are listed any of the Company’s equity securities, then the Committee may | ||||||
postpone any such exercise, nonforfeitability or delivery, as applicable, but the Company shall use all reasonable | ||||||
efforts to cause such exercise, nonforfeitability or delivery to comply with all such provisions at the earliest | ||||||
practicable date. | ||||||
(b) | Grants of options to Section 16 Grantees shall comply with Rule 16b-3 and shall contain | |||||
such additional conditions or restrictions as may be required thereunder for such grants to qualify for exemption | ||||||
from liability under Section 16(b) of the 1934 Act. | ||||||
16. | No Employment Rights. Neither the establishment of the Plan nor the grant of any Award shall (a) | |||||
give any Grantee the right to remain employed by the Company or any Subsidiary or to any benefits not specifically | ||||||
provided by the Plan or (b) modify the right of the Company or any Subsidiary to modify, amend, or terminate the | ||||||
Plan or any other employee benefit plan or employment agreement. | ||||||
17. | No Rights as a Shareholder. A Grantee shall not have any rights as a shareholder of the Company | |||||
with respect to the Shares (other than Restricted Shares) which may be deliverable upon exercise or payment of an | ||||||
Award until such Shares have been delivered to him or her. Restricted Shares, whether held by a Grantee or in | ||||||
escrow by the Company, shall confer on the Grantee all rights of a shareholder of the Company, except as otherwise | ||||||
provided in the Plan or applicable Award Agreement. | ||||||
18. | Nature of Payments. Awards shall be special incentive payments to the Grantee and shall not be | |||||
taken into account in computing the amount of salary or compensation of the Grantee for purposes of determining | ||||||
any pension, retirement, death or other benefit under (a) any pension, retirement, profit-sharing, bonus, insurance or | ||||||
other employee benefit plan of the Company or any Subsidiary or (b) any agreement between (i) the Company or any | ||||||
Subsidiary and (ii) the Grantee, except as such plan or agreement shall otherwise expressly provide. | ||||||
19. | Non-uniform Determinations. The Committee’s determinations under the Plan need not be | |||||
uniform and may be made by the Committee selectively among persons who receive, or are eligible to receive, |
Awards, whether or not such persons are similarly situated. Without limiting the generality of the foregoing, the | ||||
Committee shall be entitled to enter into non-uniform and selective Award Agreements as to (a) the identity of the | ||||
Grantees, (b) the terms and provisions of Awards, including, without limitation, vesting and manner of payment of | ||||
purchase price upon exercise, and (c) the treatment of terminations of employment. | ||||
20. | Adjustments. The Committee shall make equitable adjustment of: | |||
(a) | the aggregate number of Shares available under the Plan for Awards and the aggregate | |||
number of Shares for which Awards may be granted to any individual Grantee in any calendar year pursuant to the | ||||
second sentence of Section 2; | ||||
(b) | the number of Shares, SARs or Performance Shares covered by an Award; and | |||
(c) | the Option Price of all outstanding options and the Strike Price of all outstanding SARs; | |||
to reflect a stock dividend, stock split, reverse stock split, share combination, recapitalization, merger, consolidation, | ||||
spin-off, split-off, reorganization, rights offering, liquidation or similar event of or by the Company. | ||||
21. | Amendment of the Plan. The Committee may from time to time, in its discretion, amend the Plan | |||
without the approval of the Company’s shareholders, except (a) as such shareholder approval may be required under | ||||
the listing requirements of any securities exchange or national market system on which are listed the Company’s | ||||
equity securities and (b) that the Committee may not without the approval of the Company’s shareholders amend the | ||||
Plan to increase the total number of shares reserved for the purposes of the Plan (other than in accordance with | ||||
Section 20). | ||||
22. | Termination of the Plan. The Plan shall continue in effect until the earlier of its termination by the | |||
Committee or the date on which all of the shares of Common Stock available for issuance under the Plan have been | ||||
issued and all restrictions on such shares under the terms of the Plan and the agreements evidencing Awards granted | ||||
under the Plan have lapsed. However, all Awards shall be granted, if at all, within ten (10) years from the earlier of | ||||
the date the Plan is adopted by the Committee or the date the Plan is duly approved by the shareholders of the | ||||
Company. Notwithstanding the foregoing, if the maximum number of shares of Common Stock issuable pursuant to | ||||
the Plan has been increased at any time, all Awards shall be granted, if at all, no later than the last day preceding the | ||||
ten (10) year anniversary of the earlier of (a) the date on which the latest such increase in the maximum number of | ||||
shares of Common Stock issuable under the Plan was approved by the shareholders of the Company or (b) the date | ||||
such amendment was adopted by the Committee. No termination shall affect any Award then outstanding under the | ||||
Plan. | ||||
23. | No Illegal Transactions. The Plan and all Awards granted pursuant to it are subject to all | |||
applicable laws and regulations. Notwithstanding any provision of the Plan or any Award, Grantees shall not be | ||||
entitled to exercise, or receive benefits under any Award, and the Company shall not be obligated to deliver any | ||||
Shares or deliver benefits to a Grantee, if such exercise or delivery would constitute a violation by the Grantee or the | ||||
Company of any applicable law or regulation. | ||||
24. | Constructive Sales. The Grantee shall not directly or indirectly, through related parties or | |||
otherwise, “short” or “short against the box” (as those terms are generally understood in the securities markets), or | ||||
otherwise directly or indirectly (through derivative instruments or otherwise) dispose of or hedge, any securities of | ||||
the Company issuable upon exercise of such Grantee’s Award(s). | ||||
25. | Definitions. The terms set forth below have the indicated meanings which are applicable to both | |||
the singular and plural forms thereof: | ||||
“Award” shall mean options, including ISOs, Restricted Shares, Compensatory Shares, SARs or | ||||
Performance Shares granted under the Plan. |
“Award Agreement” shall mean the written agreement by which an Award shall be evidenced. | ||||
“Board” shall mean the Board of Directors of the Company. | ||||
“Cause”, with respect to any employee or consultant of the Company shall have the meaning set | ||||
forth in such person’s employment or consulting agreement or, in the absence of such an agreement or if such term is | ||||
not defined in such agreement, shall mean any one or more of the following, as determined by the Committee (in the | ||||
case of a Section 16 Grantee) or the Chief Executive Officer or President of the Company (in the case of any other | ||||
Grantee): | ||||
(i) | a Grantee’s commission of a crime that is likely to result in injury to the | |||
Company or a Subsidiary; | ||||
(ii) | the material violation by the Grantee of written policies of the Company or a | |||
Subsidiary; | ||||
(iii) | the habitual neglect by the Grantee in the performance of his or her duties to the | |||
Company or a Subsidiary; or | ||||
(iv) | a Grantee’s willful misconduct or inaction in connection with his or her duties to the Company or a | |||
Subsidiary resulting in a material injury to the Company or a Subsidiary. | ||||
“Code” shall mean the Internal Revenue Code of 1986, as amended or superseded, and the | ||||
regulations and rulings thereunder. Reference to a particular section of the Code shall include references to | ||||
successor provisions. | ||||
“Committee” shall mean the committee of the Board appointed pursuant to Section 3(a), or if not | ||||
so appointed or unable to act or with reference to Awards to Independent Directors, shall mean the entire Board. | ||||
“Common Stock” shall mean the common stock, $0.10 par value per share, of the Company. | ||||
“Compensatory Shares” shall mean Shares that are awarded to a Grantee without cost and without | ||||
restrictions either as a bonus, in lieu of cash compensation for services rendered to the Company or for any other | ||||
compensatory purpose. | ||||
“Consultant” shall mean any person, including a Director, who is engaged by the Company or any | ||||
Parent, Subsidiary or Affiliate thereof to render services to or for the benefit of the Company and is compensated for | ||||
such services, including any member of the Advisory Board of the Company. | ||||
“Director” shall mean a member of the Board. | ||||
“Disability” shall mean a permanent and total disability, within the meaning of Section 22(e)(3) of | ||||
the Code. | ||||
“Effective Date” shall mean the date set forth in the first paragraph hereof. | ||||
“Eligible Person” shall mean any Employee, Consultant or Director of the Company or any | ||||
Subsidiary, including any prospective Employee or Employee on an approved leave of absence or layoff, if such | ||||
leave or layoff does not qualify as a Disability. | ||||
“Employee” shall mean any person treated as an employee (including officers and directors) in the | ||||
records of the Company (or Subsidiary) and who is subject to the control and direction of the Company (or | ||||
Subsidiary) with regard to both the work to be performed and the manner and method of performance. The payment |
of a director’s fee by the Company (or Subsidiary) to a Director shall not be sufficient to constitute “employment” of | ||
the Director by the Company (or Subsidiary). | ||
“Fair Market Value” per share of Common Stock on any relevant date shall mean such value as | ||
determined in accordance with the following provisions: | ||
(i) | If the Common Stock is at that time listed on a national securities exchange, then | |
the Fair Market Value shall mean the closing selling price per share of Common Stock on the exchange on which | ||
such Common Stock is principally traded on the relevant date or, if there were no sales on that date, the closing | ||
selling price of such Common Stock on the last preceding date on which there were sales. | ||
(ii) | If the Common Stock is at that time traded on the Nasdaq Market®, Nasdaq | |
Small Cap MarketSMor OTC Bulletin Board®, as the case may be, then the Fair Market Value shall mean the closing | ||
selling price per share of Common Stock on the relevant date, as the price is reported by the National Association of | ||
Securities Dealers on the Nasdaq Market®, Nasdaq Small Cap MarketSMor OTC Bulletin Board®, as the case may | ||
be, or any successor system. If there is no closing selling price for the Common Stock on the relevant date, then the | ||
Fair Market Value shall mean the closing selling price on the last preceding date for which such quotation exists. | ||
(iii) | If the Common Stock is neither listed on any national securities exchange nor | |
traded on the Nasdaq Market®, Nasdaq Small Cap MarketSMor OTC Bulletin Board®, then the Fair Market Value | ||
shall mean that value determined by the Committee after taking into account such factors as the Committee shall in | ||
good faith deem appropriate. | ||
“Grant Date” shall have the meaning specified in Section 6(a). | ||
“Grantee” shall mean a person who has been granted an Award or any Permitted Transferee. | ||
“ISO” shall mean an incentive stock option within the meaning of Section 422 of the Code. | ||
“Immediate Family” shall mean, with respect to a particular Grantee, the Grantee’s spouse, | ||
children and grandchildren. | ||
“Independent Director” shall mean a member of the Board who in not an Employee of the | ||
Company. | ||
“Mature Shares” shall mean Shares for which the holder thereof has good title, free and clear of all | ||
liens and encumbrances, and which such holder has held for at least six (6) months. | ||
“Minimum Consideration” shall mean par value per Share or such other amount that is from time | ||
to time considered to be minimum consideration under applicable law. | ||
“1934 Act” shall mean the Securities Exchange Act of 1934, as amended. References to a | ||
particular section of the 1934 Act or rule thereunder, include references to successor provisions. | ||
“Option Price” shall mean the per share exercise price of an option. | ||
“Option Term” shall mean the period beginning on the Grant Date of an option and ending on the | ||
expiration date of such option, as specified in the Award Agreement for such option and as may, in the discretion of | ||
the Committee and consistent with the provisions of the Plan, be extended from time to time. | ||
“Performance Shares” shall mean an Award to a Grantee pursuant to Section 6(e). | ||
“Permitted Transferee” shall mean a person to whom an Award may be transferred or assigned in | ||
accordance with Section 7. |
“Public Company” shall mean any entity issuing any class of equity securities that has been, or is | ||
required to be, registered under Section 12 of the 1934 Act. | ||
“Restricted Shares” shall mean Shares that are subject to forfeiture if the Grantee does not satisfy | ||
the conditions specified in the Award Agreement applicable to those Shares. | ||
“Rule 16b-3” shall mean Rule 16b-3 of the SEC under the 1934 Act, as amended from time to | ||
time, together with any successor rule. | ||
“SAR” shall mean a stock appreciation right. | ||
“SEC” shall mean the Securities and Exchange Commission. | ||
“Section 16 Grantee” shall mean a person who is subject to potential liability under Section 16(b) | ||
of the 1934 Act with respect to transactions involving equity securities of the Company. | ||
“Share” shall mean a share of Common Stock. | ||
“Strike Price” shall have the meaning specified in Section 6(d)(ii). | ||
“Subsidiary” shall mean a subsidiary corporation, as defined in Section 424(f) of the Code (with | ||
the Company being treated as the employer corporation for purposes of this definition). | ||
“Ten Percent Owner” shall mean a person who owns capital stock (including stock treated as | ||
owned under Section 424(d) of the Code) possessing more than ten percent of the total combined Voting Power of | ||
all classes of capital stock of the Company or any Subsidiary. | ||
“Voting Power” shall mean the combined voting power of the then-outstanding securities of the | ||
Company entitled to vote generally in the election of directors. | ||
26. | Controlling Law. The law of the State of New York, except its law with respect to choice of law, | |
shall control all matters relating to the Plan. | ||
27. | Severability. If any part of the Plan is declared by any court or governmental authority to be | |
unlawful or invalid, such unlawfulness or invalidity shall not invalidate any other part of the Plan. Any Section or | ||
part of a Section so declared to be unlawful or invalid shall, if possible, be construed in a manner which will given | ||
effect to the terms of such Section to the fullest extent possible while remaining lawful and valid. |
ANNEX C |
PROPOSED AMENDMENT TO |
CERTIFICATE OF INCORPORATION OF |
eLEC COMMUNICATIONS CORP. |
Proposed Amendments to Certificate of Incorporation.The following provision reflects the manner in |
which the applicable section of the Certificate of Incorporation of eLEC Communications Corp. will be amended if |
Proxy Items 4 and 5 are both approved by the shareholders at the annual meeting. If one of the foregoing Proxy |
Items is not approved by the shareholders, then the language pertaining to such Proxy Item will not be included in |
the Certificate of Amendment filed with the Secretary of the State of New York. |
The first paragraph of Article FOURTH of the company’s Certificate of Incorporation is amended in its |
entirety to read as follows: |
“Fourth: A. Authorized Shares. The total number of shares of all classes of stock which the Company |
shall have the authority to issue |
which |
$.001per share, and One Million (1,000,000) shall be preferred stock, par value$.001per share.” |
REVOCABLE PROXY | ||||||||||
eLEC COMMUNICATIONS CORP. | ||||||||||
This Proxy is solicited on Behalf of the Board of Directors | ||||||||||
x | PLEASE MARK VOTES | For | With- | For all | ||||||
AS IN THIS EXAMPLE | hold | Except | ||||||||
PROPOSAL 1: ¨ | ¨ | ¨ | ||||||||
The undersigned hereby appoint(s) Paul H. Riss and Greg M. Cooper, or�� | The Election of Directors: | |||||||||
either of them, lawful attorneys and proxies of the undersigned with full power | ||||||||||
of substitution, for and in the name, place and stead of the undersigned to | ||||||||||
attend the Annual Meeting of Shareholders of eLEC Communications Corp. | Paul H. Riss, Greg M. Cooper, Michael H. Khalilian and Gayle Greer | |||||||||
(the “Company”) to be held at 75 South Broadway, Suite 302, White Plains, | ||||||||||
New York 10601 on Thursday, June 7, 2007 at 10:00 a.m., local time, and any | INSTRUCTION:To withhold authority to vote for any individual | |||||||||
adjournment(s) or postponement(s) thereof, with all powers the undersigned | nominee, mark “For All Except” and write that nominee’s name in the | |||||||||
would possess if personally present and to vote the number of votes the | space provided below. | |||||||||
undersigned would be entitled to vote if personally present. | ||||||||||
The Board of Directors recommends a vote "FOR" the proposals set forth | ||||||||||
below. | For | Against | Abstain | |||||||
PROPOSAL 2: ¨ | ¨ | ¨ | ||||||||
In accordance with their discretion, said Attorneys and Proxies are | ||||||||||
authorized to vote upon such other matters or proposals not known at the | 2007 Equity Incentive Plan: | |||||||||
time of solicitation of this proxy which may properly come before the | ||||||||||
meeting. | Proposal to approve the adoption of the 2007 Equity Incentive Plan of the | |||||||||
Company. | ||||||||||
This proxy when properly executed will be voted in the manner | ||||||||||
described herein by the undersigned shareholder. If no direction is made, | For | Against | Abstain | |||||||
this proxy will be voted for the Proposals set forth herein. Any prior | PROPOSAL 3: ¨ | ¨ | ¨ | |||||||
proxy authorized by the undersigned is hereby revoked. | ||||||||||
Change Name of Company: | ||||||||||
The undersigned hereby acknowledges receipt of the Notice of | ||||||||||
Annual Meeting of Shareholders and the related Proxy Statement dated | Proposal to amend the Certificate of Incorporation of the Company to change | |||||||||
May 7, 2007. | the name of the Company to PervasipCorp. | |||||||||
For | Against | Abstain | ||||||||
PROPOSAL 4: ¨ | ¨ | ¨ | ||||||||
Increase Authorized Shares of | ||||||||||
Capital Stock: | ||||||||||
Proposal to amend the Certificate of Incorporation of the Company to increase | ||||||||||
the total number of shares of capital stock the Company is authorized to issue. | ||||||||||
For | Against | Abstain | ||||||||
PROPOSAL 5: ¨ | ¨ | ¨ | ||||||||
Change Par Value: | ||||||||||
Proposal to amend the Certificate of Incorporation of the Company to change | ||||||||||
Please be sure to sign and date | the par value of shares of our Capital Stock from $.10 per share to $.001 per | |||||||||
this Proxy in the box below. | Date: | share. | ||||||||
For | Against | Abstain | ||||||||
PROPOSAL 6: ¨ | ¨ | ¨ | ||||||||
Independent Auditors: | ||||||||||
Ratification of the appointment of Nussbaum Yates & Wolpow, P.C. as the | ||||||||||
independent auditors of the Company for the fiscal year ending November 30, | ||||||||||
2007 | ||||||||||
Shareholder sign above Co-holder (if any) sign above | ||||||||||
eLEC COMMUNICATIONS CORP. | ||||||||||
Please sign exactly as your name appears on this proxy card. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or | ||||||||||
corporation, please sign in full corporate name by president or other authorized person. If a partnership, please sign in partnership name by authorized person. | ||||||||||
PLEASE ACT PROMPTLY | ||||||||||
SIGN, DATE & MAIL YOUR PROXY CARD TODAY | ||||||||||