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 Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ePHONE TELECOM, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials
|_| Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of
its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
2
August XX, 2002
Dear Stockholder:
On behalf of the Board of Directors and management of ePHONE Telecom,
Inc., I invite you to our Annual Meeting to be held on September 12, 2002, 10:00
a.m. EST at the Queen Elizabeth Hotel, 900 Rene Levesque Boulevard W., Montreal,
Quebec, Canada H3B 4A5.
At the Annual Meeting you will be asked to vote for:
(1) the election of directors, and
(2) a proposal to amend ePHONE's Restated Articles of Incorporation to
authorize up to 10,000,000 shares of preferred stock which can be
issued by the Board of Directors without any further action on the part
of the stockholders,
(3) a proposal to approve the ePHONE Telecom, Inc. 2002 Long-Term Incentive
Plan, and
(4) a proposal to ratify Grant Thornton, LLP as our independent public
accountants for fiscal year 2002.
The meeting also will include an update of key milestones achieved
during the last year. We will also share our vision and plans for the upcoming
year. We hope that it will be possible for many of you to attend in person.
It is important to us that your shares be represented at the Annual
Meeting whether or not you plan to attend. You can be sure your shares are voted
at the meeting in accordance with your preferences by properly completing,
signing and returning your proxy card in the enclosed envelope as soon as
possible.
Thank you for you continuing interest and support.
Sincerely,
Carmine Taglialatela, Jr.
President and CEO
3
ePHONE TELECOM, INC.
1145 Herndon Parkway, Suite 100
Herndon, Virginia 20170
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 12, 2002
To the Stockholders of ePHONE Telecom, Inc.:
Notice is hereby given that the Annual Meeting of the Stockholders of
ePHONE Telecom, Inc. (the "Company") will be held on September 12, 2002, 10:00
a.m. EST, at the Queen Elizabeth Hotel, 900 Rene Levesque Boulevard W.,
Montreal, Quebec, Canada H3B 4A5 for the following purposes:
1. To elect seven Directors to the Board of Directors to hold office for a
one-year term until the next annual meeting of stockholders or until
their successors are elected and qualified;
2. To approve an amendment to the Company's Restated Articles of
Incorporation to authorize the Company to issue up to 10 million shares
of preferred stock;
3. To consider and act upon a proposal to approve the ePHONE Telecom, Inc.
2002 Long-Term Incentive Plan;
4. To consider and act upon a proposal to ratify the selection of Grant
Thornton, LLP as the Company's independent public accountants for
fiscal year ending December 31, 2002; and
5. To transact such other business as may properly come before the meeting
or any adjournment thereof.
These business items are more fully described in the Proxy Statement
accompanying this Notice.
4
Stockholders of record at the close of business on July 25, 2002, are
entitled to vote at the Annual Meeting or any adjournment, postponement or
continuation thereof.
By order of the Board of Directors,
Charlie Rodriguez
Secretary
Herndon, Virginia
August XX, 2002
All Stockholders are cordially invited to attend the Annual Meeting in person.
Whether or not you expect to attend the meeting, please complete, date, sign and
return the enclosed proxy as promptly as possible to ensure your representation
at the meeting. A return envelope (which is postage prepaid if mailed in the
United States) is enclosed for that purpose. Even if you have given your proxy,
you may still vote in person if you attend the meeting. Please note, however,
that if your shares are held of record by a broker, bank or other nominee and
you wish to vote at the Annual Meeting, you must obtain from the record holder a
proxy issued in your name.
5
ePHONE TELECOM, INC.
1145 Herndon Parkway
Suite 100
Herndon, Virginia 20170
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
September 12, 2002
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of Directors of
ePHONE Telecom, Inc., a Florida corporation (referred to herein as ePHONE), for
use at the Annual Meeting of Stockholders to be held on September 12, 2002, at
10:00 AM, EST. The Annual Meeting will be held at the Queen Elizabeth Hotel, 900
Rene Levesque Boulevard W., Montreal, Quebec, Canada H3B 4A5.
Solicitation
We sent you this Proxy Statement and the enclosed proxy card because
ePHONE's Board of Directors is soliciting your proxy to vote at the 2002 Annual
Meeting of Stockholders. This Proxy Statement summarizes the information you
need to know to cast an informed vote at the Annual Meeting. However, you do not
need to attend the Annual Meeting to vote your shares. Instead, you may simply
complete, sign and return the enclosed proxy card.
We will begin sending this Proxy Statement, the attached Notice of
Annual Meeting and the enclosed proxy card on August XX, 2002 to all
stockholders entitled to vote. Stockholders who owned ePHONE common stock at the
close of business on July 25, 2002 are entitled to vote. On this record date,
there were 36,625,294 shares of ePHONE common stock outstanding. ePHONE common
stock is our only class of voting stock. We are also sending along with this
Proxy Statement, the ePHONE 2001 Annual Report on Form 10-KSB/A and the ePHONE
Quarterly Report on Form 10-QSB for the quarter ended March 31, 2002, each filed
with the Securities and Exchange Commission, which includes our financial
statements.
Voting
Each share of ePHONE common stock that you own entitles you to one
vote. The proxy card indicates the number of shares of ePHONE common stock that
you own.
Whether you plan to attend the Annual Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. Returning the proxy card will not affect your right to attend
the Annual Meeting and vote.
6
If you properly fill in your proxy card and send it to us in time to
vote, your "proxy" (one of the individuals named on your proxy card) will vote
your shares as you have directed. If you sign the proxy card but do not make
specific choices, your proxy will vote your shares as recommended by the Board
of Directors as follows:
o "FOR" the election of all seven nominees for director;
o "FOR" the amendment to our Restated Articles of Incorporation,
authorizing 10,000,000 shares of preferred stock;
o "FOR" approval of our 2002 Long-Term Incentive Plan;
o "FOR" ratification of the selection of Grant Thornton, LLP as our
independent auditors for 2002.
If any other matter is presented, your proxy will vote in accordance
with his or her best judgment. At the time this Proxy Statement went to press,
we knew of no matters which needed to be acted on at the Annual Meeting, other
than those discussed in this Proxy Statement.
Revocability of Proxies
If you give a proxy, you may revoke it at any time before it is
exercised. You may revoke your proxy in any one of three ways:
o You may send in another proxy with a later date.
o You may notify ePHONE's Secretary in writing before the Annual Meeting
that you have revoked your proxy.
o You may vote in person at the Annual Meeting.
If you plan to attend the Annual Meeting and vote in person, we will
give you a ballot form when you arrive. However, if your shares are held in the
name of your broker, bank or other nominee, you must bring an account statement
or letter from the nominee indicating that you are the beneficial owner of the
shares on July 25, 2002, the record date for voting.
All votes will be tabulated by the inspector of election appointed for
the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved, except that a broker non-vote will have the same effect as a
negative vote with respect to the proposed amendments to the Articles of
Incorporation.
ePHONE will pay all the costs of soliciting these proxies. In addition
to mailing proxy soliciting material, our directors and employees also may
solicit proxies in person, by telephone or by other electronic means of
communications. They will not be paid any additional compensation for doing so.
In addition, we have engaged the services of Interwest Stock Transfer Company
for the purpose of assisting in the solicitation of proxies at a cost of
approximately $7,000, plus the reimbursement of expenses.
7
Stockholder Proposals
If you wish to submit proposals to be included in our 2003 proxy
statement, we must receive them on or before March 1, 2003. Please address your
proposals to ePHONE Telecom, Inc., 1145 Herndon Parkway, Suite 100, Herndon,
Virginia 20170, Attention: Corporate Secretary.
PROPOSAL 1: ELECTION OF DIRECTORS
ePHONE's Articles of Incorporation and Bylaws provide that the Board of
Directors shall consist of not less than one nor more than nine individuals. A
director elected by the Board to fill a vacancy shall serve for the remainder of
the full term of the director whose vacancy he or she is filling, and until such
director's successor is elected and qualified.
The Board of Directors is presently composed of eight members. There
are seven nominees for election as directors of ePHONE. All of these individuals
are currently directors of ePHONE. If elected at the Annual Meeting, the
nominees would serve until the 2003 annual meeting and until their successors
are elected and qualified, or until such directors' earlier death, resignation
or removal.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at a meeting at which a quorum is
present. Shares represented by executed proxies will be voted, if authority to
do so is not withheld, for the election of the nominees named below. In the
event that any nominee is unavailable for election as a result of an unexpected
occurrence, such shares will be voted for the election of such substitute
nominee as management may propose. Each person nominated for election has agreed
to serve if elected, and management has no reason to believe that the nominees
will be unable to serve.
Set forth below is biographical information for each person nominated
as a director.
Nominees for Election For a Term Expiring At the 2003 Annual Meeting:
Robert G. Clarke. On December 12, 2001, Mr. Clarke was reelected as Chairman of
the Board of Directors and President and Chief Executive Officer and served in
both of those capacities until Carmine Taglialatela Jr. was appointed Chief
Executive Officer on July 1, 2001. During the last five years, Mr. Clarke
has served as a Director and as President and Chief Executive Officer at various
times, including serving as the Chairman of the Board of Directors from August
9, 1999 to a meeting of the Board of Directors on July 21, 2000, and from
December 1, 2000 to December 12, 2001. Mr. Clarke also served as the President
and Chief Executive Officer from December 1, 2000 to April 1, 2001, March 9,
2000 until April 1, 2000 and from June 3, 1999 to August 8, 1999. Mr. Clarke has
also acted an independent business consultant, assisting high technology
start-up companies with public and private financings, business planning,
assembling management teams and business opportunity assessments. Mr. Clarke
holds a Bachelor of Commerce degree from Memorial University and Master of
Business Administration from the University of Western Ontario.
8
Lawrence M. Codacovi. Mr. Codacovi was appointed as a member of the Board of
Directors on January 1, 2002 and on February 22, 2002 was appointed Vice
Chairman of the Board. Prior to joining ePHONE, Mr. Codacovi was Chairman of
Pangea Ltd., a pan-European fiber optic network spanning northern Europe from
1999 to 2002. From 1988 to 1999, Mr. Codacovi served as Senior Vice President
International Services for MCI WorldCom with the responsibility for expanding
MCI's global reach. Mr. Codacovi previously served as Executive Vice President
and a Board Member with RCA Global Communications. From 1980 to 1988, Mr.
Codacovi continued in that position under the GE acquisition of RCA.
Sheldon B. Kamins. Mr. Kamins was appointed as a member of the Board of
Directors on October 11, 2001. Mr. Kamins has been a real estate developer in
the greater metropolitan Washington, D.C. area and a venture capitalist
assisting technology and other companies with public and private financing. Mr.
Kamins holds a Juris Doctor degree from the Georgetown University Law Center.
Charlie Rodriguez. On December 1, 2000, Mr. Rodriguez was elected as a Director
and appointed as Chief Financial Officer and Vice President - Corporate Affairs.
Mr. Rodriguez previously served as Vice-President of Corporate Affairs and
Corporate Secretary from June 1999 to April 2000. Mr. Rodriguez is also the
President of Management Services of Arizona, a business consulting company
specializing in mergers, acquisitions and financing. Prior to joining ePHONE,
Mr. Rodriguez served as the Chief Financial Officer for Zephyr Technologies,
Inc., biometrics and smartcard software integration companies. Mr. Rodriguez was
a member of the board of directors of Wave Rider Communications, Inc. (WAVC -
otc.bb), a wireless communication company, from January to November 1997, and
served as its President and Chief Executive Officer from May 1995 to January
1997. Mr. Rodriguez holds a Bachelor of Science in Accounting and Masters in
Business Administration Accounting from the University of Arizona.
Eugene A. Sekulow Mr. Sekulow was appointed as a director of ePHONE Telecom Inc.
on February 22, 2002. During the last five years, Mr. Sekulow has been an
independent business consultant focusing on global telecommunications strategy,
policy, planning, strategic partnering, risk analysis and business development.
Since January 1995, Mr. Sekulow has been an Adjunct Professor at Columbia
University, Graduate School of Business teaching at the Institute for
Tele-Information, concentrating on telecommunications and media network
development and change. On December 1, 1991, Mr. Sekulow was appointed as
Executive Vice President, International, NYNEX Corporation. Where he previously
was the President of NYNEX International Company. Prior to that Mr. Sekulow was
named President of RCA International Ltd., responsible for the foreign
subsidiary manufacturing and distribution operations of RCA. He is currently
Chairman of the German American Chamber of Commerce. Previous directorship
positions Mr. Sekulow has held are Member of the U.S. State Department Advisory
Committee on International Communications and Information Policy, and Member of
the State Department Task Force on Telecommunications in Eastern Europe. In
addition, he is Co-Chairman of the Board of Trustees of the American Institute
for Contemporary German Studies of The Johns Hopkins University. Mr. Sekulow
earned a MA and PhD in Political Science and Economics at The Johns Hopkins
University.
9
Robert W. Stuart. On June 12, 2002, Mr. Stuart was appointed as a director of
ePHONE Telecom Inc. He is currently the President and CEO of InDepth Financial
Advisors, which he founded in 2000. InDepth is an investment banking/financial
advisory firm specializing in the business plan development and early stage
capital raising process for emerging telecommunications firms. Prior to founding
InDepth Financial Advisors, Mr. Stuart spent more than 20 years as a leading
telecom banker at Chase Manhattan Bank, Bankers Trust and most recently as
Managing Director and Co-Head of the Global Telecommunications Industry Group at
CIBC World Markets where he led several high visibility telecom transactions.
Mr. Stuart earned a BS in Engineering & Economics at the US Naval Academy, where
he graduated with distinction, and Master Degrees in International Relations and
International Law & Diplomacy from The Fletcher School of Law & Diplomacy, Tufts
University. He was awarded his PhD in International Economics from The Fletcher
School in 1982.
Carmine Taglialatela, Jr. On April 1, 2001 Mr. Taglialatela was appointed
President and Chief Operating Officer of ePHONE and elected to the Board of
Directors. Effective July 1, 2001, Mr. Taglialatela was appointed Chief
Executive Officer of ePHONE. Prior to joining ePHONE Mr. Taglialatela was
President and Chief Operating Officer of TELRON Communications, responsible for
the day-to-day operations of the company and the development of service
offerings and expansion of services into new markets. Mr. Taglialatela has also
held executive Vice President positions at TELRON and CompassRose International
Inc. At CompassRose he managed a team of professionals on a variety of client
assignments requiring extensive international telecommunications experience and
expertise in strategic business development, public policy and regulatory
matters. Mr. Taglialatela has secured, on behalf of clients, service
authorizations in off shore markets and advised senior management on courses of
action for the development of their telecommunications business. Between
1989-1997 he was Director International Public Policy and Regulatory Affairs at
MCI Telecommunications Corporation where he developed and implemented MCI's
regulatory and business strategy for access to international markets and was a
member of an expansion team devoted to expanding MCI's presence in the global
market. Mr. Taglialatela holds a BA Economics from Hunter College, City
University of New York and a MBA Finance/Marketing from Fordham University.
The Board of Directors recommends a vote in favor of the named
nominees.
PROPOSAL 2: PROPOSAL TO AMEND EPHONE'S ARTICLES OF INCORPORATION TO
AUTHORIZE PREFERRED STOCK ISSUABLE IN ONE OR MORE SERIES
On June 12, 2002, the Board of Directors unanimously approved a
proposal to amend ePHONE's Restated Articles of Incorporation to authorize the
issuance of up to 10,000,000 shares of Preferred Stock, par value $0.001 per
share (the "Preferred Stock"). The full text of the proposed amendment to
ePHONE's Restated Articles of Incorporation with respect to this Proposal is set
forth in Appendix A to this Proxy Statement and the following description is
qualified in its entirety by reference thereto.
10
No preferred stock is presently authorized by ePHONE's Restated
Articles of Incorporation. The proposed amendment would authorize the Board of
Directors, without any further stockholder action (unless such action is
required in a specific case by applicable laws or regulations or by applicable
rules of a trading market or stock exchange), to issue from time to time shares
of Preferred Stock in one or more series, to determine the number of shares to
be included in any series and to fix the designation, voting power, other
powers, preferences and rights of the shares of each series and any
qualifications, limitations or restrictions of the series. The Preferred Stock
to be authorized is of the type commonly known as "blank-check" preferred stock.
The amendment would authorize the Board of Directors, from time to
time, to divide the Preferred Stock into series, to designate each series, and
to determine for each series its respective rights and preferences, including,
without limitation, any of the following:
i. the rate of dividends, and whether dividends were cumulative or had a
preference over the Common Stock in right of payment;
ii. the terms and conditions upon which shares may be redeemed and the
redemption price;
iii. sinking fund provisions for the redemption of shares;
iv. the amount payable in respect of each share upon a voluntary or
involuntary liquidation of ePHONE;
v. the terms and conditions upon which shares may be converted into other
securities of ePHONE, including Common Stock;
vi. limitations and restrictions on payment of dividends or other
distributions on, or redemptions of, other classes of stock of ePHONE
junior to such series, including the Common Stock;
(vii) conditions and restrictions on the creation of indebtedness or the
issuance of other senior classes of stock; and
vii. voting rights.
Any series of Preferred Stock could, as determined by the Board of
Directors at the time of issuance, rank, with respect to dividends, voting
rights, redemption and liquidation rights, senior to ePHONE's Common Stock.
In the Board of Directors' opinion, the primary reason for authorizing
the Preferred Stock is to provide flexibility for ePHONE's capital structure.
The Board of Directors believes that this flexibility is necessary to enable it
to tailor the specific terms of a series of Preferred Stock that may be issued
to meet market conditions and financing opportunities as they arise, without the
expense and delay that would be entailed in calling a stockholders meeting to
approve the specific terms of any series of Preferred Stock.
The Preferred Stock may be used by ePHONE for any proper corporate
purpose. Such purposes might include, without limitation, issuance in public or
private sales for cash as a means of obtaining additional capital for use in
ePHONE's business and operations. Other purposes could include issuances in
connection with the acquisition of other businesses or properties.
11
ePHONE is investigating different alternatives for raising capital and
also for ePHONE's future. The Preferred Stock proposed to be authorized at the
Annual Meeting could be used in connection with any financing transactions.
ePHONE currently has no arrangements, agreements or understandings for the
issuance of any Preferred Stock.
Effects
It is not possible to state the precise effects of the authorization of the
Preferred Stock upon the rights of the holders of ePHONE's Common Stock until
the Board of Directors determines the respective preferences, limitations, and
relative rights of the holders of the class as a whole or of any series of the
Preferred Stock. Such effects might include:
i. reduction of the amount otherwise available for the payment of
dividends on Common Stock to the extent dividends are payable on any
issued Preferred Stock;
ii. restrictions on dividends on the Common Stock;
iii. rights of any series or the class of Preferred Stock to vote
separately, or to vote with the Common Stock;
iv. conversion of the Preferred Stock into Common Stock at such prices as
the Board of Directors determines, which could include issuance at
below the fair market value or original issue price of the Common
Stock, diluting the book value or per share value of the outstanding
Common Stock; and
v. the holders of Common Stock not being entitled to shares in ePHONE's
assets upon liquidation until satisfaction of any liquidation
preference granted to holders of the Preferred Stock.
Holders of ePHONE's Common Stock do not have preemptive rights to
purchase shares in future issuances.
In addition, the existence of unissued stock could, in certain
instances, render more difficult or discourage a merger, tender offer, or proxy
contest and thus potentially have an "anti-takeover" effect, especially if stock
were issued in response to a potential takeover. Issuances of stock, including
preferred stock with conversion rights, can and have been implemented by some
companies in a manner intended to make acquisition of the companies more
difficult or more costly. An issuance of stock could deter the types of takeover
transactions that may be proposed or could discourage or limit the stockholders'
participation in certain types of transactions that might be proposed (such as a
tender offer), whether or not such transactions were favored by the majority of
the stockholders and could enhance the ability of officers and directors to
retain their positions. Stockholders should be aware, however, that the Board of
Directors has a fiduciary obligation to analyze the potential effects of the
issuance of any shares upon ePHONE and its stockholders and to issue shares only
when the Board of Directors believes the issuance to be in the best interests of
ePHONE and its stockholders.
12
Implementation
If the amendment is adopted by the stockholders, it will become
effective upon filing and recording of Restated Articles of Incorporation in
compliance with the Florida Business Corporation Act.
The affirmative vote of a majority of the outstanding shares of Common
Stock entitled to vote is required to approve the amendment to the Restated
Articles of Incorporation. The votes represented by the Proxies received will be
voted FOR approval of the adoption of the proposed amendment to the Articles of
Incorporation, unless a vote against such approval or an abstention from voting
is specifically indicated on the Proxy. A broker non-vote will have the effect
of a vote against the amendment.
The Board Of Directors recommends a vote in
favor of Proposal 2.
PROPOSAL 3: APPROVAL OF THE EPHONE TELECOM, INC. 2002 LONG-TERM INCENTIVE PLAN
On June 12, 2002, the Board of Directors adopted the 2002 Long-Term
Incentive Plan (the "Plan") and reserved 10,000,000 shares of common stock for
issuance under the Plan subject to the stockholder approval solicited by this
proxy statement.
We are asking the stockholders to approve the Plan as described below.
Approval of the Plan requires the affirmative vote of the holders of a majority
of the votes cast at the meeting. An abstention or a broker nonvote with respect
to approving the Plan will not constitute a vote cast and therefore will not
affect the outcome of the vote.
Description of the Plan
The purpose of the 2002 Long-Term Incentive Plan is to assist
management in attracting, retaining and providing incentives to key individuals
who serve ePHONE by offering them the opportunity to acquire or increase their
proprietary interest in ePHONE and to promote the identification of their
interests with those of the stockholders of ePHONE.
The following summary of the material terms of the Plan is qualified in
its entirety by reference to the full text of the Plan, a copy of which is
available by writing Charlie Rodriguez, Corporate Secretary, ePHONE Telecom,
Inc., 1145 Herndon Parkway, Suite 100, Herndon, VA 20170. Unless otherwise
specified, capitalized terms used herein have the meaning assigned to them in
the Plan.
13
Eligibility; Shares Available for Grants and Awards. The Plan provides
for grants and awards of nonqualified stock options, incentive stock options,
stock appreciation rights, restricted stock and incentive shares, referred to
herein as the Awards, to officers, key employees, directors, persons hired to be
employees of ePHONE and who the Board determines will be officers or key
employees upon commencement of employment, and consultants or independent
contractors to ePHONE who are determined to render key services. Incentive stock
options may not be granted to persons who are not employees of ePHONE.
Subject to the terms of the Plan, if an option or right expires or
terminates without having been fully exercised, or if shares of restricted stock
or incentive shares are forfeited, the unissued or forfeited shares of Common
Stock which had been covered thereby will become available for the grant of
additional Awards under the Plan. Upon the exercise of a right (regardless of
whether such right is settled in cash or shares of Common Stock), the number of
shares of Common Stock with respect to which the right is exercised will be
charged against the number of shares available for Awards under the Plan.
Administration. The Plan is administered by the Board which currently
is comprised of eight directors, and will be comprised of seven directors
following the Annual Meeting. Subject to the terms of the Plan, the Board is
authorized to determine eligibility, to make Awards, and to otherwise administer
the Plan.
Our Board may terminate the Plan at any time and may amend it in any
respect, except that no amendment, alteration or termination of the Plan may be
made by the Board without approval of (a) ePHONE's stockholders to the extent
stockholder approval of an amendment is required to comply with the requirements
of applicable laws or regulations; and (b) each affected participant if such
amendment, alteration or termination would impair the rights of a participant
under any prior Award. The Plan will terminate on June 12, 2012. The Plan will
remain in effect after its termination for the purpose of administering
outstanding Awards.
Except as otherwise provided by the Board, Awards under the Plan are
not transferable other than by will, by the laws of descent and distribution.
Awards under the Plan generally may be exercised only by the Participant during
his lifetime or, in the event of legal disability, by his legal representative.
Limits on Aggregate Awards. The Plan limits the number of shares of
Common Stock with respect to which any employee may receive Awards during the
term of the Plan to 1,250,000 shares. Under current tax law requirements, to the
extent that the aggregate fair market value of stock with respect to which
incentive stock options granted under the Plan are exercisable for the first
time by an employee during any calendar year exceeds $100,000 (determined at the
time of the grant of the option), the option will not be treated as an incentive
stock option for federal income tax purposes.
Stock Options. The Plan authorizes the grant of nonqualified stock
options and incentive stock options. The exercise of an option permits the
optionee to purchase shares of Common Stock from us at a specified exercise
price per share. Options granted under the Plan are exercisable upon such terms
and conditions, as the Board shall determine.
14
The exercise price per share and manner of payment for shares purchased
pursuant to options are determined by the Board, subject to the terms of the
Plan. The per share exercise price of incentive stock options granted under the
Plan may not be less than the fair market value per share of the Common Stock at
the time of the grant, except that incentive stock options granted to an
employee who is a 10% stockholder (after applying certain stock ownership
attribution rules) may not have an exercise price less than 110% of such fair
market value.
The Plan provides that the term during which options granted may be
exercised shall be determined by the Board, except that no option may be
exercised after ten years (five years in the case of incentive stock options
granted to an employee who is a 10% stockholder after applying certain stock
ownership attribution rules) following its date of grant.
Stock Appreciation Rights. The Plan authorizes the Board to grant stock
appreciation rights in connection with, and at the same time as, the grant of an
option under the Plan or by amendment of an outstanding option granted under the
Plan ("related rights"). Stock appreciation rights may also be granted
independently of any option granted under the Plan ("nonrelated rights").
Subject to the terms of a particular grant, a stock appreciation right entitles
the grantee upon exercise to elect to receive in cash, Common Stock or a
combination thereof, the excess of the fair market value of a specified number
of shares of Common Stock at the time of exercise over the fair market value of
such number of shares of Common Stock at the date of grant, or, in the case of a
related right, the exercise price provided in the related option. The period
during which a right may be exercised is determined by the Board, but a right
may not be exercised after ten years from the date of grant or, in the case of a
related right, the expiration of the related option.
Restricted Stock. Restricted stock awards consist of shares of Common
Stock, awarded without payment of cash consideration by the grantee unless
otherwise specified in the agreement relating thereto, that are restricted
against transfer, subject to forfeiture and subject to such other terms,
conditions and restrictions, for such period or periods, as shall be determined
by the Board. Such terms may provide, in the discretion of the Board, for the
vesting of restricted stock awards to be contingent upon the achievement of one
or more performance goals established by the Board and specified in the
agreement. The performance goals may be based on earnings or earnings growth,
sales, return on assets, equity or investment, regulatory compliance,
satisfactory internal or external audits, improvement of financial ratings,
achievement of balance sheet, income statement or other financial statement
objectives, or any other objective goals established by the Board and specified
in the agreement. The goals may be absolute in their terms or measured against
or in relationship to other companies similarly or otherwise situated.
Restricted stock awarded under the Plan and the right to vote shares of
such restricted stock and to receive dividends thereon may not be sold,
assigned, transferred, exchanged, pledged, hypothecated or encumbered during the
restriction period. With the exception of these restrictions upon transfer, the
recipient of a restricted stock award has all other rights of a stockholder
including, but not limited to, the right to receive dividends and the right to
vote shares awarded.
Incentive Shares. Incentive shares awarded under the Plan are
contingent awards of shares of Common Stock that may be issued subject to
achievement of such performance goals (as described above with respect to
restricted stock awards) or other goals and on such other terms and conditions
as the Board deems appropriate and specifies in the agreement relating thereto.
15
Unlike in the case of restricted stock, shares of Common Stock would not be
issued immediately pursuant to incentive share awards, but instead would be
issued upon the achievement or satisfaction of such performance goals or other
goals or terms and conditions. Accordingly, a person who has received an award
of incentive shares may not vote or receive dividends with respect to the shares
of Common Stock subject to the award until such shares are issued upon the
achievement or satisfaction of such performance goals or other goals or terms
and conditions. The grantee would not have to pay any cash consideration to
ePHONE upon the award of incentive shares or upon the issuance of the shares of
Common Stock pursuant to the award.
Summary of Certain Federal Income Tax Consequences.
The following discussion briefly summarizes certain federal income tax
aspects of stock options, stock appreciation rights, restricted stock and
incentive shares granted or awarded under the Plan. State and local tax
consequences may differ.
Incentive Stock Options. In general, an optionee is not required to
recognize income on the grant or exercise of an incentive stock option. However,
the difference between the exercise price and the fair market value of the stock
on the exercise date is an adjustment item for purposes of the alternative
minimum tax. Further, if an optionee does not exercise an incentive stock option
within certain specified periods of time after termination of employment, the
option is treated for federal income tax purposes in the same manner as a
nonqualified stock option, as described below.
Nonqualified Stock Options, Stock Appreciation Rights and Incentive
Shares. An optionee or grantee generally is not required to recognize income on
the grant of a nonqualified stock option or a stock appreciation right, or on
the award of incentive shares. Instead, ordinary income generally is required to
be recognized on the date the nonqualified stock option or stock appreciation
right is exercised, or in the case of an award of incentive shares, on the date
such shares are issued. In general, the amount of ordinary income required to be
recognized, (a) in the case of a nonqualified stock option, is an amount equal
to the excess, if any, of the fair market value of the shares on the exercise
date over the exercise price, (b) in the case of a stock appreciation right, the
amount of cash and the fair market value of any shares received on the exercise
date, and (c) in the case of an award of incentive shares, the fair market value
of the shares on the date of issue.
Restricted Stock. Shares of restricted stock awarded under the Plan
will be subject to a substantial risk of forfeiture for the period of time
specified in the award. Unless a grantee of shares of restricted stock makes an
election under Section 83(b) of the Code as described below, the grantee
generally is not required to recognize ordinary income on the award of
restricted stock. Instead, on the date the substantial risk of forfeiture
lapses, the grantee will be required to recognize ordinary income in an amount
equal to the fair market value of the shares on such date. If a grantee makes a
Section 83(b) election to recognize ordinary income on the date the shares are
awarded, the amount of ordinary income required to be recognized is an amount
equal to the fair market value of the shares on the date of award. In such case,
the grantee will not be required to recognize additional ordinary income when
the substantial risk of forfeiture lapses.
16
Gain or Loss on Sale or Exchange of Plan Shares. In general, gain or
loss from the sale or exchange of shares granted or awarded under the Plan will
be treated as capital gain or loss, provided that the shares are held as capital
assets at the time of the sale or exchange. However, if certain holding period
requirements are not satisfied at the time of a sale or exchange of shares
acquired upon exercise of an incentive stock option (a "disqualifying
disposition"), an optionee may be required to recognize ordinary income upon
such disposition.
Deductibility by Company. ePHONE generally is not allowed a deduction
in connection with the grant or exercise of an incentive stock option. However,
if an optionee is required to recognize income as a result of a disqualifying
disposition, ePHONE will be entitled to a deduction equal to the amount of
ordinary income so recognized. In the case of a nonqualified stock option
(including an incentive stock option that is treated as a nonqualified stock
option, as described above), a stock appreciation right, an award of incentive
shares, or a grant of restricted stock, at the same time the optionee or grantee
is required to recognize ordinary income, ePHONE generally will be allowed a
deduction in an amount equal to the amount of ordinary income so recognized.
Subject to certain exceptions, Section 162(m) of the Code disallows
federal income tax deductions for compensation paid by a publicly-held company
to certain executives to the extent it exceeds $1 million for the taxable year.
The Plan has been designed to allow the Board to make awards under the plan that
qualify under an exception to the deduction limit for "performance-based
compensation."
Accounting Treatment
Under current accounting principles, neither the grant nor the exercise
of an incentive stock option or a nonqualified stock option under the Plan with
an exercise price not less than the fair market value of Common Stock at the
date of grant requires any charge against earnings. ePHONE is required to
disclose in a footnote to its financial statements the pro forma effects of
stock-based compensation arrangements on net income and earnings per share,
based on the estimated grant date fair value of stock options that are expected
to vest.
Stock appreciation rights require a charge against the earnings of
ePHONE each accounting period to reflect appreciation in the value of such
rights. The charge related to stock appreciation rights will vary depending
upon, among other factors, the amount of stock appreciation rights granted,
stock price changes above the grant price, and the length of time that stock
appreciation rights have been outstanding. Such charge is based, generally
speaking, on the difference between the exercise price specified in the related
right, or the market value of Common Stock on the date of grant, and the current
market price of Common Stock. In the event of a decline in the market price of
Common Stock subsequent to a charge against earnings related to the estimated
costs of stock appreciation rights, a reversal of prior charges is made (but not
to exceed aggregate prior charges).
Restricted stock and incentive shares will require a charge to earnings
representing the value of the benefit conferred, which, in the case of
restricted stock, may be spread over the restrictive period. Such charge is
based on the market value of the shares transferred at the time of issuance.
17
Awards Pursuant to the Plan
The Board of Directors has not granted any options to purchase shares
of Common Stock pursuant to the Plan.
Equity Compensation Plan Information
The following table sets forth information regarding our equity compensation
plans as of December 31, 2001.
- ---------------------------- -------------------------- -------------------------- --------------------------
Number of securities
remaining available for
future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflecting in
warrants and rights warrants and rights column (a))
Plan category (a) (b) (c)
- ---------------------------- -------------------------- -------------------------- --------------------------
Equity compensation plans
approved by security 4,947,782 $0.42 1,052,218
holders
- ---------------------------- -------------------------- -------------------------- --------------------------
Equity compensation plans
not approved by security (1)19,673,758 0.41 N/A
holders ---------- ----
- ---------------------------- -------------------------- -------------------------- --------------------------
Total 24,621,540 $0.41 N/A
========== =====
- ---------------------------- -------------------------- -------------------------- --------------------------
(1) Below are the individual compensation arrangements not approved
by security holders as described in the footnotes to our audited
financial statements filed with the Commission on form 10-KSB as of
December 31, 2000 and form 10KSB/A as of December 31, 2001.
o Options to purchase common stock issued to consultants in 1999 (expired
unexercised June 30, 2002)..................................................... 1,250,000
o Options to purchase common stock issued to certain directors and officers in
1999(expired unexercised June 30, 2002)........................................ 2,250,000
o Regulation S Warrants sold to investors during 1999 and 2000 (expired
unexercised March 30, 2002).................................................... 409,357
o Warrants and Options issued to Groome Capital in connection with Special
Warrant offering during 2000 (expired unexercised March 30, 2002).............. 1,139,251
o Warrants issued to consultants during 2000 (expired unexercised May 24,
2002).......................................................................... 738,833
o Options issued to consultants during 2001...................................... 450,000
o Warrants issued in connection with exercise of Special Warrants in 2001
(9,115,000 expired unexercised on March 31, 2002)........ 13,436,317
----------
Total............................................................................ 19,673,758
==========
18
The Board Of Directors recommends a vote in
favor of Proposal 3.
PROPOSAL 4: RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Grant Thornton, LLP as ePHONE's
independent public accountants for the fiscal year ending December 31, 2002 and
has further directed that management submit the selection of independent
auditors for ratification by the stockholders at the Annual Meeting. Grant
Thornton has audited ePHONE's financial statements for the fiscal years 1999,
2000 and 2001. Stockholders ratification of the selection of Grant Thornton as
ePHONE's independent public accountants is not required by ePHONE's Bylaws or
otherwise. However, the Board of Directors is submitting the selection of Grant
Thornton to the stockholders for ratification as a matter of good corporate
practice. If the stockholders fail to ratify the selection, the Board of
Directors will reconsider whether or not to retain that firm. Even if the
selection is ratified, the Board of Directors at their discretion may direct the
appointment of a different independent accounting firm at any time during the
year.
A representative of Grant Thornton, LLP will be present at the Annual
Meeting.
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the Annual Meeting
will be required to ratify the selection of Grant Thornton.
Audit Fees
ePHONE incurred fees of $69,693 to Grant Thornton for the 2001
annual audit.
Financial Information Systems Design and Implementation Fees
ePHONE did not pay any financial information systems design and
implementation fees to Grant Thornton during 2001.
All Other Fees
ePHONE incurred additional fees of $97,017 to Grant Thornton during
2001 for services other than the annual audit. These services were for
compliance with Federal and State Income taxes, assistance with filing of
registration statements in selected provinces in Canada and SAS 71 quarterly
reviews of financial statements. The Board of Directors has considered whether
Grant Thornton's provision of other non-audit services to ePHONE is compatible
with maintaining Grant Thornton's independence.
19
The Board of Directors recommends a vote in favor of Proposal 4.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of ePHONE's Common Stock as of July 22, 2002 by: (i) each nominee for
director; (ii) each director; (iii) each executive officer listed in the table
entitled Compensation of Executive Officers (iv) all executive officers and
directors of ePHONE as a group; and (v) all those known by ePHONE to be
beneficial owners of more than five percent of its Common Stock.
In general, a person is deemed to be a "beneficial owner" of a security
if that person has or shares the power to vote or direct the voting of such
security, or has the power to dispose or direct the disposition of such
security. A person is also deemed to be a beneficial owner of any securities of
which the person has the right to acquire beneficial ownership within 60 days.
For purposes of calculating these beneficial ownership percentages for
each person below, all options held by such person, if applicable, are assumed
to have been exercised and the shares of common stock issuable upon such
exercise have been issued to such person. All options held by the persons listed
below are exercisable within 60 days after July 22, 2002.
20
- ------------------------------ ----------------------------------------- ------------------------- ------------------
NAME AND POSITION ADDRESS NUMBER OF COMMON SHARES PERCENT OF
OWNERSHIP
- ------------------------------ ----------------------------------------- ------------------------- ------------------
Robert G. Clarke, Chairman 1304 Kinwick Centre 466,668(1) 1.16%
32 Hollywood Rd
Central, Hong Kong
- ------------------------------ ----------------------------------------- ------------------------- ------------------
Lawrence M. Codacovi , 18 Reynolds Lane 100,000 (2) 0.25%
Director, Vice Chairman Katonah, NY 10536
- ------------------------------ ----------------------------------------- ------------------------- ------------------
John Fraser, Director 104 Elm Avenue 466,668(3) 1.16%
Toronto, Ontario M4W 1P2
- ------------------------------ ----------------------------------------- ------------------------- ------------------
Sheldon B. Kamins, Director 10220 River Road 100,000(2) 0.25%
Potomac, Maryland, 20854
- ------------------------------ ----------------------------------------- ------------------------- ------------------
Charlie Rodriguez, Director, 1662 W. Petunia Place 1,228,500(4) 3.05%
Chief Financial Officer Tucson, Arizona 85737
- ------------------------------ ----------------------------------------- ------------------------- ------------------
Eugene A. Sekulow, Director 50 Main Street, Suite 1000 100,000 (2) 0.25%
White Plains, NY 10606
- ------------------------------ ----------------------------------------- ------------------------- ------------------
Robert W. Stuart, Director 1237 Balfour Drive 100,000 (2) 0.25%
Arnold, MD 21012
- ------------------------------ ----------------------------------------- ------------------------- ------------------
Carmine Taglialatela ,Jr. 9565 Briar Lane 1,600,000 (5) 3.97%
Director, Chief Executive Delaplane, Virginia, 20144
Officer and President
- ------------------------------ ----------------------------------------- ------------------------- ------------------
Executive Officers and 4,161,836 10.34%
Directors Combined
- ------------------------------ ----------------------------------------- ------------------------- ------------------
Credit Lyonis Bahnnh of Strasse 1,329,545 3.30%
CH 8001
Zurich, Switzerland
- ------------------------------ ----------------------------------------- ------------------------- ------------------
Desjardins Securities Inc in 2 Complexe Desjardins, E. Tower 1,529,496 3.79%
trust for 138613 Canada, Inc. Montreal, Quebec H5B 1J2
- ------------------------------ ----------------------------------------- ------------------------- ------------------
1) Includes 66,668 shares of common stock and options to acquire 400,000
shares of common stock.
2) Consists of options to acquire shares of common stock
3) Includes 66,668 shares of common stock and options to acquire 400,000
shares of common stock.
4) Consists of 128,500 shares and options to acquire 1,100,000 shares of
common stock.
5) Consists of 214,000 shares of common stock and options to acquire
1,386,000 shares of common stock
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"1934 Act") requires officers and directors of a company with securities
registered pursuant to Section 12 of the 1934 Act, and persons who own more than
10% of the registered class of such company's equity securities, to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission (the "SEC"). Officers, directors and greater than 10% stockholders
are required by SEC regulation to furnish the subject company with copies of all
Section 16(a) forms filed. All reports required to be filed under Section 16
have been filed.
21
INFORMATION ABOUT DIRECTORS AND OFFICERS
The Board of Directors
The Board of Directors oversees the business and affairs of ePHONE and
monitors the performance of management. In accordance with corporate governance
principles, the Board of Directors does not involve itself in day-to-day
operations.
The Board of Directors will consider stockholder nominations for
directors submitted to ePHONE. A notice relating to the nomination must be
timely and given in writing to the secretary of ePHONE prior to the meeting. To
be timely, the notice must be delivered within the time permitted for submission
of a stockholder proposal as described under "Stockholder Proposals." Such
notice must be accompanied by the nominee's written consent, contain information
relating to the business experience and background of the nominee and contain
information with respect to the nominating stockholder and persons acting in
concert with the nominating stockholder.
Executive Officers and Directors of ePHONE
- --------------------------------------------------------------------------------------------------
Name Age Position Held
- --------------------------------------------------------------------------------------------------
Robert G. Clarke 56 Chairman of the Board
- --------------------------------------------------------------------------------------------------
Larry M. Codacovi 68 Director, Vice Chairman
- --------------------------------------------------------------------------------------------------
Carmine Taglialatela, Jr. 55 Director, Chief Executive Officer and President
- --------------------------------------------------------------------------------------------------
Charlie Rodriguez 56 Director, Chief Financial Officer
- --------------------------------------------------------------------------------------------------
Sheldon B. Kamins 54 Director
- --------------------------------------------------------------------------------------------------
Eugene A. Sekulow 71 Director
- --------------------------------------------------------------------------------------------------
Robert W. Stuart 55 Director
- --------------------------------------------------------------------------------------------------
Biographical information and information regarding the qualifications and
experience of Messrs. Clarke, Codacovi, Taglialatela, Rodriguez, Kamins, Sekulow
and Stuart are included above under the heading "Proposal I: Election of
Directors" on page 3.
Board Committees
On July 26, 2002, the Board of Directors established two standing
committees consisting of independent members only: an Audit Committee and a
Compensation Committee. The following are descriptions of the functions intended
to be performed by the committees of the Board of Directors.
The Audit Committee has not yet proposed a written charter to be
considered by the ePHONE Board of Directors. The Audit Committee's primary
purpose is to provide assistance to the Board in fulfilling the Board's
oversight responsibilities relating to: overseeing management's conduct of
ePHONE's financial reporting process, management's maintenance of internal
control, and management's maintenance of processes regarding compliance with
applicable laws and regulations; and overseeing the audit function, including
private discussion, as appropriate, with the independent and the internal
auditors.
The Audit Committee consisting of independent members only, is
presently composed of Messrs. Stuart (Chairman), Sekulow and Kamins.
The Compensation Committee is responsible for recommending to the Board
of Directors the persons to be elected as Chairman, Chief Executive Officer and
President of ePHONE and providing oversight for ePHONE's executive compensation
program. The Compensation Committee will make recommendations to the Board of
Directors or otherwise take action regarding the adoption or amendment of
employee benefit, bonus, incentive compensation or similar plans. The
Compensation Committee also administers certain executive compensation plans
maintained by ePHONE. The Compensation Committee is presently composed of
independent board members Messrs. Codacovi (Chairman), Clarke and Kamins.
The Board of Directors met nine (9) times during 2001. There were no
Board Committees in existence in 2001. In 2001, each director then serving
attended at least 75% of the total meetings of the Board of Directors.
Compensation Of Executive Officers
Summary Compensation Table. The following sets forth certain summary
information concerning compensation paid for the years ended December 31, 2001
and 2000 to (i) Robert Clarke, Chairman of the Board of Directors; (ii) Carmine
Taglialatela, Jr. President, Chief Executive Officer and Director; (iii) Charlie
Rodriguez, Chief Financial Officer and Director; and (iv) Roy Olmstead, former
General Manager.
22
Summary Compensation Table
- ------------------------- ------- ------------------------------------------------ -----------------------------------
Annual Compensation Long Term Compensation
- ------------------------- ------- ------------------------------------------------ -----------------------------------
Name and Principal Other Annual Awards Options All Other
Position at Fiscal Year Compensation ($) (Shares) Compensation ($)
End Year Salary ($) Bonus ($)
- ------------------------- ------- ---------------- ------------- ----------------- ----------------- -----------------
Robert Clarke 2001 (1)-- -- -- (1) 1,350,000 --
Chairman of the 2000 (1)-- -- -- 1,000,000 --
Board of Directors 1999 (1)-- -- -- -- --
and former Chief
Executive Officer
- ------------------------- ------- ---------------- ------------- ----------------- ----------------- -----------------
Carmine Taglialatela, 2001 (2)185,000 50,000 -- (2)1,600,000 --
Jr.
President and Chief
Executive Officer
- ------------------------- ------- ---------------- ------------- ----------------- ----------------- -----------------
Charlie Rodriguez 2001 (3)137,000 -- -- (3)1,350,000 --
Chief Financial 2000 (3)19,000 -- -- -- --
Officer 1999 -- -- -- 250,000 --
- ------------------------- ------- ---------------- ------------- ----------------- ----------------- -----------------
Roy Olmsted 2001 141,000 -- -- (4)333,333 --
Former Executive
Officer and General
Manager
- ------------------------- ------- ---------------- ------------- ----------------- ----------------- -----------------
(1) Mr. Clarke served as Chief Executive Officer and President at various
times during 2001, 2000 and 1999. While serving as an executive
officer, Mr. Clarke received no cash compensation. However, a company
in which he has a controlling interest, received consulting payments
totaling $25,000, $68,000 and $48,000 in 2001, 2000 and 1999,
respectively. Included in the total options awarded to Mr. Clarke
during 2001 are 1,000,000 stock options that were originally granted to
Mr. Clarke in 2000 and subsequently expired on June 30, 2002. The
exercise price of these stock options was reduced from $0.50 to $0.35
in September 2001. Due to the repricing, the options are being
characterized as an additional 2001 grant for purposes of this
presentation.
(2) Mr. Carmine Taglialatela, Jr. was appointed President and Chief
Operating Officer and began employment with ePHONE on April 1, 2001.
Mr. Taglialatela was appointed Chief Executive Officer on July 1, 2001.
The amounts paid to Mr. Taglialatela from April through December are
based on an annual salary of $200,000. Of the total stock options
issued to Mr. Taglialatela, 600,000 were issued in April 2001 with an
exercise price of $0.50 and were subsequently repriced to $0.35.
(3) Mr. Charlie Rodriguez began as ePHONE's Chief Financial Officer in
December 2000. The amounts paid to Mr. Rodriguez are based on an annual
salary of $145,000. In 2000, ePHONE paid $36,000 in consulting payments
to a Company controlled by Mr. Rodriguez prior to his employment with
ePHONE. Included in the total options awarded to Mr. Rodriguez during
2001 are 250,000 stock options that were originally granted in 1999 in
consideration for consulting services rendered to the Company and
subsequently expired on June 30, 2002. The exercise price of these
options was reduced in the current year from $0.50 to $0.35.
(4) Mr. Olmsted ceased employment with the Company effective December 31,
2001. During December 2001, ePHONE extended the expiration date of Mr.
Olmsted's stock options, which have an exercise price of $0.50, from
March 31, 2002 to October 1, 2002.
Option Grants Table. The following table sets forth information on
grants of stock options during fiscal 2000 to an officer of
ePHONE.
23
Number of % of Total Options/
Securities Underlying SARs Granted to Exercise or
Options/ SARs Granted Employees in Fiscal Base Price Expiration Date
Name (#) Year ($/Sh)
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Robert Clarke (1)1,000,000 (1)10.40% 0.35 6/30/02
Robert Clarke 350,000 3.64% 0.35 2/14/11
Carmine Taglialatela Jr. 1,600,000 16.64% 0.35 4/1/11 - 12/17/11
Charlie Rodriguez (1)250,000 (1)2.60% 0.35 6/30/02
Charlie Rodriguez 1,100,000 11.44% 0.35 2/14/11 - 12/17/11
Roy Olmsted 333,333 3.47% 0.50 10/1/02
Sonny Souvannavong 275,000 2.86% 0.50 5/16/11
(1) These options were repriced as previously described. For purposes
of this presentation, the percentage of total options issued to each executive
officer is based on the proportion that the number of options granted to each
executive bears to the total number of options granted to all employees during
the fiscal year plus the sum of all repriced options or 9,613,333 (5,713,333
options granted to all employees plus 3,900,000 repriced options).
Option Exercises and Values for Fiscal 2001
The following table sets forth as to each of the named Executive Officers
information with respect to option exercises during Fiscal 2001 and the status
of their options on December 31, 2001.
Number of Securities Underlying Value of Unexercised In-The-Money Options
Name Unexercised Options at Fiscal Year End at Fiscal Year End ($)
- ----------------------------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
Robert Clarke 1,350,000 -- -- --
Carmine Taglialatela, Jr. 1,240,000 360,000 -- --
Charlie Rodriguez 1,350,000 -- -- --
Roy Olmsted 333,333 -- -- --
Sonny Sovannavong 75,000 200,000 -- --
Compensation of Directors
Non-employee directors received no cash compensation during 2001 and were paid
$8,000 in 2000. With the exception of Mr. Fraser who received 350,000 stock
options with an exercise price of $0.35, directors received 50,000 stock options
with an exercise price of $0.35 during 2001. Directors are reimbursed for
expenses they incur in attending meetings at the board or any board committee.
In addition to making the consulting payments to a companies controlled by Mr.
Clarke and Mr. Rodriquez as mentioned above, ePHONE made consulting payments of
$43,000 and $36,000 to a company controlled by Mr. John Fraser during 2001 and
2000, respectively.
Employment Agreements
At December 31, 2001, ePHONE is a party to an employment agreement with
its President and Chief Executive Officer, Carmine Taglialatela, Jr.
Long-Term Incentive Plan Awards
Of the 5,713,333 options to purchase shares of Common Stock granted by
the Board of Directors during 2001, pursuant to ePHONE's 2000 Long-Term
Incentive Plan, 3,658,333 were granted to directors and executive officers of
ePHONE and the remaining 2,055,000 were granted to other employees of ePHONE.
24
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For the years ended 2001, 2000 and 1999, ePHONE paid $25,000, $68,000
and $48,000, respectively, for management services provided by a company in
which Chairman of the Board of Directors Robert Clarke has a controlling
interest. During 2000, $56,000 of sales was made to a company in which Mr.
Clarke has an interest.
As described under Executive Compensation, ePHONE made consulting
payments to companies controlled by Mr. Fraser and Mr. Rodriguez. The payments
to Mr. Rodriguez were made in 2000 before his employment with the Company as
Chief Financial Officer.
During 2001, ePHONE paid $100,000 as provided for in a Service and
Development Agreement with 7bridge Systems, LTD. Mr. Clarke, John Fraser and
Charlie Rodriguez have an interest in 7Bridge Capital Limited which owns 7Bridge
Systems, LTD.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented
for consideration at the Annual Meeting. If any other matters are properly
brought before the meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment.
By Order of the Board of Directors
-----------------------------
Charlie Rodriguez
Secretary
August XX, 2002
A COPY OF EACH OF EPHONE'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001, IS BEING
PROVIDED TO YOU WITH THIS PROXY STATEMENT. ADDITIONAL COPIES MAY BE OBTAINED
WITHOUT CHARGE UPON WRITTEN REQUEST TO: INVESTOR RELATIONS, ePHONE TELECOM, INC.
1145 HERNDON PARKWAY, SUITE 100, HERNDON, VIRGINIA 20170. OUR SEC FILINGS ARE
ALSO AVAILABLE AT THE SEC'S WEBSITE AT "HTTP://WWW.SEC.GOV".
25