- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
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
[_]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[_]Confidential, For Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
CAIS INTERNET, 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) (1) and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
[_]Fee paid previously with preliminary materials:
[_]Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount previously paid: ________________________________________________
2) Form, Schedule or Registration Statement No. ___________________________
3) Filing Party: __________________________________________________________
4) Date Filed: ____________________________________________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CAIS INTERNET, INC.
1255 22nd Street, N.W.
Washington, D.C. 20037
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 26, 2001
----------------
To the Stockholders of CAIS Internet, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of CAIS
Internet, Inc. (the Company) will be held at the Hyatt Arlington, 1325 Wilson
Boulevard, Arlington, Virginia 22209, on July 26, 2001, at 9:00 a.m., local
time, to consider and act upon the following proposals:
1. To elect three Class I directors and one Class II director of the
Company, each to serve a term in accordance with their respective class term
expiration date, or until his successor has been duly elected and qualified or
until his earlier resignation or removal;
2. To approve an amendment to Article I of the Company's Amended and
Restated Certificate of Incorporation to change the name of the Company to
Ardent Communications, Inc.;
3. To ratify the selection of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending December 31, 2001;
and
4. To transact such other business as may properly come before the meeting.
The Board has fixed the close of business on June 8, 2001 as the record date
for the determination of stockholders entitled to receive notice of and to
vote at the meeting or any adjournment or postponement thereof. Shares can be
voted at the meeting only if the holder is present at the meeting in person or
by valid proxy.
The officers and directors of the Company cordially invite you to attend the
meeting. However, to ensure your representation at the meeting, you are urged
to mark, date, sign and return the enclosed proxy as promptly as possible in
the postage-prepaid envelope enclosed for that purpose. YOU MAY REVOKE YOUR
PROXY IN THE MANNER DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT AT ANY TIME
BEFORE IT HAS BEEN VOTED AT THE MEETING. ANY STOCKHOLDER ATTENDING THE MEETING
MAY VOTE IN PERSON EVEN IF HE OR SHE HAS RETURNED A PROXY.
By Order of the Board of Directors,
/s/ Andre P. Hines
--------------------------
Andrew P. Hines
Chief Financial Officer
Washington, D.C.
June 26, 2001
IMPORTANT
STOCKHOLDERS ARE EARNESTLY REQUESTED TO DATE, SIGN AND MAIL THE
ENCLOSED PROXY, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. A POSTAGE PAID
ENVELOPE IS PROVIDED FOR MAILING.
CAIS INTERNET, INC.
1255 22nd Street, N.W.
Washington, DC 20037
(202) 715-1300
----------------
PROXY STATEMENT
----------------
This Proxy Statement and the accompanying proxy card are furnished to the
holders of Common Stock, par value $.01 per share (Common Stock), the holders
of Series C Convertible Preferred Stock, par value $.01 per share (Series C
Stock), the holders of Series D Convertible Participating Preferred Stock, par
value $.01 per share (Series D Stock), the holders of Series F Convertible
Participating Preferred Stock, par value $.01 per share (Series F Stock) and
the holders of Series G Convertible Participating Preferred Stock, par value
$.01 per share (Series G Stock), of CAIS Internet, Inc. a Delaware corporation
(the Company), in connection with the solicitation of proxies by the Board of
Directors of the Company (the Board) for use at the Company's Annual Meeting
of Stockholders (the Meeting) to be held at the Hyatt Arlington, 1325 Wilson
Boulevard, Arlington, Virginia 22209, on July 26, 2001, at 9:00 a.m., local
time, and at any and all adjournments or postponements thereof (all holders of
Common Stock and Preferred Stock entitled to vote at the Meeting are referred
to herein collectively as the Stockholders). The enclosed Proxy is solicited
by the Board.
The purpose of the Meeting will be to consider and vote upon the following
proposals (collectively, the Proposals):
1. To elect three Class I directors and one Class II director of the
Company, each to serve a term in accordance with their respective class
term expiration date, or until his successor has been duly elected and
qualified or until his earlier resignation or removal;
2. To approve an amendment to Article I of the Company's Amended and
Restated Certificate of Incorporation to change the name of the Company to
Ardent Communications, Inc;
3. To ratify the selection of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending December 31,
2001; and
4. To transact such other business as may properly come before the
Meeting.
This Proxy Statement, together with the Notice of Annual Meeting of
Stockholders and the accompanying proxy card, is being first mailed to
Stockholders on or about June 28, 2001.
The solicitation of proxies will initially be made by mail and may
thereafter be made in person or by mail, telephone, telecopy, telegram,
facsimile or other means of communication by the directors, officers and
regular employees of the Company for no additional or special compensation. In
addition, brokerage houses, banks, nominees, trustees, custodians and other
fiduciaries will be requested by the Company to forward proxy solicitation
materials for shares of Preferred and Common Stock held of record by them to
the beneficial owners of such shares, and such fiduciaries will, upon request,
be reimbursed by the Company for their reasonable out-of-pocket expenses
incurred in connection therewith. The cost of the solicitation of proxies for
use at the Meeting will be borne by the Company.
Voting Rights and Procedures
Only Stockholders of record as of the close of business on June 8, 2001 (the
Record Date) are entitled to notice of and to vote at the Meeting. As of the
Record Date, there were issued and outstanding: (1) 23,656,790 shares of
Common Stock; (2) 125,000 shares of Series C Stock; (3) 7,367,123 shares of
Series D Stock; (4) 40,342 shares of Series F Stock; and (5) 20,270 shares of
Series G Stock. Each holder of Common Stock issued
1
and outstanding on the Record Date is entitled to one vote for each such share
held on each matter to be considered at the Meeting. Each holder of Series C
Stock, Series D Stock, Series F Stock and Series G Stock issued and
outstanding on the Record Date is entitled to the number of votes equal to the
number of whole shares of Common Stock into which all of their shares are then
convertible. As of the Record Date, each share of Series C Stock was
convertible into 10 shares of Common Stock, each share of Series D Stock was
convertible into approximately 0.84848 of one share of Common Stock, each
Series F Stock was convertible into approximately 41.67 shares of Common Stock
and each Series G Stock was convertible into approximately 27.78 shares of
Common Stock. As of the Record Date, all issued and outstanding shares of
Common Stock represented a total of 23,656,790 votes. As of the Record Date,
all issued and outstanding shares of Preferred Stock represented a total of
9,744,874 votes. The holders of Common Stock and Preferred Stock will vote
together as a single class on each of the Proposals.
The holders of a majority of the voting power of all issued and outstanding
shares of the Company's capital stock entitled to vote, present in person or
represented by proxy, shall constitute a quorum at the Meeting. Treasury
shares, if any, will not be voted and are not counted in determining the
number of outstanding shares for voting purposes. Abstentions and broker non-
votes (shares held of record by brokers or nominees which are not voted on a
particular matter because the broker or nominee has not received voting
instructions from the beneficial owner of such shares and does not have
discretionary voting power with respect to that matter) will be counted for
purposes of determining the presence of a quorum for the transaction of
business at the Meeting, but will have no effect with respect to the
Proposals.
If a proxy card is properly signed and returned to the Company at or prior
to the Meeting, unless subsequently properly revoked, the shares represented
by that proxy card will be voted at the Meeting in accordance with the
instructions specified thereon. If a proxy card is properly signed and
returned to the Company at or prior to the Meeting without voting
instructions, it will be voted as follows:
1.FOR each of the four nominees for director described in this proxy
statement;
2. FOR the amendment to the Amended and Restated Certificate of
Incorporation changing the name of the Company to Ardent
Communications, Inc.;
3. FOR the ratification of the selection of Arthur Andersen LLP as
independent public accountants of the Company for 2001; and
4. In respect of such other business as may properly come before the
Meeting, in accordance with the recommendation of the Board of
Directors.
Any Stockholder may revoke a proxy at any time before it is exercised,
either by delivering to the Chief Financial Officer of the Company a written
notice of revocation or a properly signed proxy bearing a later date, or by
attending the Meeting and voting in person. Attendance at the Meeting will not
in and of itself constitute the revocation of a proxy.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board currently consists of nine directors. The Company's Amended and
Restated Certificate of Incorporation (the Certificate of Incorporation) and
Bylaws stipulate that the Board shall be divided into three classes after the
date on which the Company's Common Stock is registered pursuant to a
registered, initial public offering. The Certificate of Incorporation and
Bylaws require that the classes should be as nearly equal in size as possible,
with each class serving staggered three-year terms of office expiring each
year at the Annual Meeting of the Company's Stockholders (or until its
successors have been duly elected and qualified).
Accordingly, the terms of office of directors in Class I will expire at the
2001 Annual Meeting of the Company's Stockholders, the terms of office of
directors in Class II will expire at the 2002 Annual Meeting of
2
the Company's Stockholders, and the terms of office of directors in Class III
will expire at the 2003 Annual Meeting of the Company's Stockholders, or when
their successors have been duly elected and qualified thereafter.
During March 2001, Michael Lee, the Company's President and Chief Executive
Officer, and John K. Saer, Jr. were appointed to the Company's Board while
Ulysses G. Auger, Sr. resigned from the Board.
The names of the nominees for election as Class I and Class II directors at
the Meeting and of the incumbent Class II and Class III directors are included
below.
Nominees for election as Class I Directors--Terms Expiring in 2004
Michael Lee
Richard F. Levin
Vernon L. Fotheringham
Nominees for election as Class II Directors--Terms Expiring in 2002
John K. Saer, Jr.
Incumbent Class II Directors--Terms Expiring in 2002
R. Theodore Ammon
James H. Greene, Jr.
Incumbent Class III Directors--Terms Expiring in 2003
Ulysses G. Auger, II
William M. Caldwell, IV
Alexander Navab, Jr.
All of the nominees and incumbents are presently, and were as of the date of
this Proxy Statement, directors of the Company. Each nominee has agreed to
serve if elected, and management has no reason to believe that any nominee
will be unavailable to serve. In the event a nominee is unable or declines to
serve as a director at the time of the Meeting, the proxies will be voted for
any nominee who may be designated by the present Board to fill the vacancy.
The business experience and other information respecting each nominee is set
forth in Business Experience of the Directors and Executive Officers below.
In connection with a Warrant Agreement, dated as of October 25, 2000, among
the Company, CII Ventures LLC (CII Ventures) a limited liability company
affiliated with Kohlberg Kravis Roberts & Co. L.P. (KKR), Ulysses G. Auger II
and R. Theodore Ammon the Board was increased to nine directors. CII Ventures
was granted the right to nominate the new director. CII Ventures nominated
John K. Saer, Jr. who was appointed to the Company's Board in March 2001.
Pursuant to the terms of a Stockholders Agreement dated December 20, 1999
(the CII Stockholders Agreement) between the Company and CII Ventures LLC, the
Board was expanded from six persons to eight persons, and CII Ventures was
granted the right to nominate two members of the Board (Investor Directors).
Messrs. James H. Greene, Jr. and Alexander Navab, Jr., principals of KKR
and/or its affiliates, have been designated to serve as Investor Directors.
The terms of the Stockholders Agreement further provide that, in addition to
any other Board or Stockholder action that may be required, the written
consent of at least one Investor Director will be required to take certain
corporate governance actions with respect to the Company, its securities,
certain transactions, or certain changes to the Company's Certificate of
Incorporation or Bylaws. CII Venture's right to designate nominees as Investor
Directors and to require the consent of at least one Investor Director to
certain of the Company's activities is dependent on CII Ventures' continuing
to own specified percentages of the Company's Common Stock. Under a Voting
Agreement dated as of December 20, 1999 (the Voting Agreement), among CII
Ventures and certain holders of the Company's Common Stock, including Ulysses
G. Auger, Sr., a former director of the Company, Ulysses G. Auger, II,
Chairman of the Board, a former Chief Executive Officer and a director of the
Company, William M. Caldwell, IV, President, Vice Chairman of the Board and a
director of the Company and Chancery Lane, L.P., a limited partnership
affiliated with
3
R. Theodore Ammon, a director of the Company (collectively the Holders), each
of the Holders has agreed to vote all of their shares of the Company's voting
securities to cause each of the Investor Directors to be elected to the Board.
As of the Record Date, the Holders beneficially owned a total of 14,845,439
shares of Common Stock which may be voted at the Meeting.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for each of the nominees named above. In the event that
additional persons are nominated for election as directors other than by the
Board, the proxy holders intend to vote all proxies received by them for the
nominees listed above and any additional nominee(s) of the Board as described
above. Proxies will not be voted for a greater number of persons than the
number of nominees named above. The candidates receiving the highest number of
affirmative votes of the shares represented and voting on this particular
matter at the Meeting will be elected directors of the Company, to serve the
terms set forth above or until their successors have been duly elected and
qualified.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF EACH OF THE
RESPECTIVE NOMINEES AS CLASS I AND CLASS II DIRECTORS, AS DESCRIBED ABOVE.
BOARD MEETINGS AND COMMITTEES
The Board held 23 meetings during 2000, including action by unanimous
written consent on 18 occasions. The Board has an Audit Committee and a
Compensation Committee. Each of the incumbent directors attended at least 75%
of the aggregate of (i) meetings of the Board and (ii) meetings held by
committees on which he served during fiscal 2000. The CII Stockholders
Agreement provides that at least one Investor Director shall be a member of
the Audit Committee and Compensation Committee.
The Audit Committee currently consists of three directors, Messrs. Levin,
Navab and Ammon. The Audit Committee's duties include reviewing internal
financial information, monitoring cash flow, budget variances and credit
arrangements, reviewing the external audit approach of the Company, reviewing
with the Company's independent accountants the results of audits upon their
completion, annually selecting and recommending independent accountants,
overseeing the quarterly unaudited reporting process and taking such other
action as may be necessary to assure the adequacy and integrity of all
financial information distributed by the Company. The Audit Committee held 22
meetings during fiscal 2000.
The Compensation Committee currently consists of four directors, Messrs.
Levin, Navad, Ammon and Greene, none of whom is an employee of the Company.
The Compensation Committee has the exclusive authority to administer the
Company's Amended and Restated 1998 Equity Incentive Plan. In addition, the
Compensation Committee is responsible for providing recommendations to the
Board concerning compensation levels for the Company's senior executive
officers and working with senior executive officers on benefit and
compensation programs for Company's employees, including matters related to
participation in profit sharing, bonus plans and stock option plans and
preparing reports to the extent necessary to comply with applicable disclosure
requirements established by the Securities and Exchange Commission (SEC) or
other regulatory bodies. All meetings of the Compensation Committee were held
concurrently with the Board meetings.
DIRECTORS' COMPENSATION
Non-employee Board members were reimbursed for their reasonable expenses
incurred in connection with attending Board meetings in 2000. Non-employee
Board members received no additional compensation for attending Board
meetings, or otherwise in connection with the performance of their duties in
2000. Non-employee Board members are eligible to receive option grants under
the Company's Amended and Restated 1998 Equity Incentive Plan, however, no
such options were granted to non-employee Board members in 2000. The Company
anticipates no increase in such directors' compensation during fiscal 2001.
4
PROPOSAL TWO
APPROVAL OF AN AMENDMENT TO ARTICLE I OF THE AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION TO CHANGE THE NAME OF THE COMPANY TO ARDENT COMMUNICATIONS,
INC.
As part of the Company's renewed focus on offering tier-one converged data
communications services the Company's Board of Directors has approved the
change of its corporate name to Ardent Communications, Inc. Article I of the
Company's Amended and Restated Certificate of Incorporation stipulates the
name of the Company. Pursuant to Article VII of the Company's Amended and
Restated Certificate of Incorporation a corporate name change must be approved
by the stockholders. Consequently, in connection with the corporate name
change, the Board of Directors approved, and is recommending to the
stockholders for approval at the Meeting, an amendment to Article I of the
Amended and Restated Certificate of Incorporation to change the name of the
Company to Ardent Communications, Inc.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS APPROVE AN AMENDMENT
TO ARTICLE I OF THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO
CHANGE THE NAME OF THE COMPANY TO ARDENT COMMUNICATIONS, INC.
PROPOSAL THREE
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board has selected Arthur Andersen LLP as the Company's independent
public accountants for the fiscal year ending December 31, 2001, and is asking
the Stockholders to ratify this selection. Arthur Andersen LLP served as the
Company's principal independent public accountants for fiscal 2000. The
affirmative vote of a majority of the shares represented and voting at the
Meeting is required to ratify the selection of Arthur Andersen LLP.
In the event the Stockholders fail to ratify the appointment, the Board will
reconsider its selection. Even if the selection is ratified, the Board in its
discretion may direct the appointment of a different independent accounting
firm at any time during the year if the Board believes that such a change
would be in the best interests of the Company and its Stockholders.
A representative of Arthur Andersen LLP is expected to be present at the
Meeting, will have the opportunity to make a statement if he or she desires to
do so, and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS RATIFY THE SELECTION
OF ARTHUR ANDERSEN LLP TO SERVE AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR FISCAL 2001.
5
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth, as of the Record Date, the number and
percentage of outstanding shares of Common Stock and Preferred Stock
beneficially owned by (a) each person known by the Company to beneficially own
more than 5% of such stock, (b) each director of the Company, (c) each of the
executive officers of the Company required to be disclosed pursuant to Item
403(b) of Regulation S-K, and (d) all directors and executive officers of the
Company as a group.
Shares of Shares of
Name and Address of Common Stock Percent of Preferred Stock Percent of
Beneficial Owner Beneficially Owned(1) Common Stock Beneficially Owned(1) Preferred Stock
------------------- --------------------- ------------ --------------------- ---------------
CII Ventures LLC........ 7,994,825(3) 25.3% 7,589,794(4) 97.6%
c/o Kohlberg Kravis
Roberts & Co. L.P.
9 W. 57th Street
New York, NY 10019(2)
Microsoft Corporation... 1,740,273(5) 6.9 41,767(6) 0.5%
One Microsoft Way
Redmond, WA 98052
U.S. Telesource, Inc. .. 750,000(8) 6.9 125,000(9) 1.6%
700 Qwest Tower
555 Seventeenth Street
Denver, CO 80202(7)
Ulysses G. Auger II..... 5,176,674(10) 21.6
William M. Caldwell,
IV..................... 1,300,441(11) 5.2
Evans K. Anderson....... 301,420(12) 1.3
Gary Rabin.............. 113,332(13) *
Kevin Brand............. 75,000(14) *
Stephen Price........... 105,000(15) *
Wendell S. Nye.......... 167,919(16) *
Thomas Caldwell......... 99,946(17) *
R. Theodore Ammon....... 3,559,620(18) 14.5
Vernon L. Fotheringham.. 15,000(19) *
James H. Greene, Jr. ... -- *
Richard F. Levin........ 15,000(19) *
Alexander Navab, Jr. ... 12,500 *
John K. Saer, Jr. ...... -- *
Ulysses G. Auger, Sr. .. 4,808,704 20.3
All directors and
executive officers as a
group of 22 persons.... 11,454,552(20) 42.3
- --------
*Less than 1%
(1) For purpose of this table, the number and percent of class of shares
beneficially owned are determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
such information is not necessarily indicative of beneficial ownership
for any other purpose. Under Rule 13d-3, beneficial ownership includes
any shares as to which the person has sole or shared voting power or
investment power and any shares subject to options, warrants or other
rights to acquire
6
shares held by that person that are currently exercisable or exercisable
within 60 days of the Record Date. In addition, such shares are deemed to
be outstanding in calculating the percent of class of such person, but are
not deemed to be outstanding as to any other person. Unless otherwise
indicated in the footnotes, each beneficial owner has sole voting and
investment power (or shares such powers with his spouse) with respect to
the shares shown as beneficially owned, subject to community property laws
where applicable. Unless otherwise noted, the address of each of the
persons listed is c/o CAIS Internet, Inc., 1255 22nd Street, N.W., Fourth
Floor, Washington, D.C. 20037.
(2) CII Ventures LLC is a limited liability company of which KKR 1996 Fund
L.P. is the managing member. KKR 1996 GP L.L.C. is the sole general
partner of KKR Associates 1996 L.P., which is the sole general partner of
KKR 1996 Fund L.P. KKR 1996 GP L.L.C. is a limited liability company, the
managing members of which are Messrs. Henry R. Kravis and George R.
Roberts, and the other members of which are Messrs. Paul E. Raether,
Michael W. Michelson, James H. Greene, Jr., Michael T. Tokarz, Edward A.
Gilhuly, Perry Golkin, Scott M. Stuart and Robert I. MacDonnell. Mr.
Greene is a director of the Company. Each of the individuals who are the
members of KKR 1996 GP L.L.C. may be deemed to share beneficial ownership
of any shares beneficially owned KKR 1996 GP L.L.C. Each of such
individuals disclaims beneficial ownership. Mr. Alexander Navab, Jr., is
also an executive of KKR and a limited partner of KKR Associates 1996
L.P. Mr. Navab disclaims that he is the beneficial owner of securities in
which he has no economic interest. KKR Partners II, L.P. owns less than a
4% membership interest in CII Ventures LLC.
(3) Comprises 7,994,825 shares of Common Stock issuable upon conversion of
shares of Series D Stock (based on a conversion ratio of approximately
0.8484 of one share of Common Stock for each issued and outstanding share
of Series D Stock), and warrants to purchase 1,555,000 shares of Common
Stock.
(4) Comprises 7,589,794 shares of Series D Stock.
(5) Comprises 1,740,273 shares of Common Stock issuable upon the conversion
of 41,767 shares of Series F Stock.
(6) Comprises 41,767 shares of Series F Stock.
(7) Information based upon Schedule 13D filed by U.S. Telesource, Inc.
("USTI"), Qwest Communications Corporation ("Qwest Communications"),
Qwest Corporation ("Qwest"), Qwest Communications International Inc.
("QCI"), Anshutz Company ("Anshutz Company") and Philip F. Anshutz
("Anshutz"). USTI is a Delaware corporation and a direct wholly-owned
subsidiary of Qwest Communications. Qwest Communications is a Delaware
corporation and a direct wholly-owned subsidiary of Qwest. Qwest is a
Colorado corporation and is a direct wholly-owned subsidiary of QCI. QCI
is a publicly traded Delaware corporation. Anshutz Company is a Delaware
corporation and the beneficial owner of approximately 39% of the
outstanding shares of QCI. Anshutz is the beneficial owner of 100% of the
capital stock of Anshutz Company. USTI's, Qwest Communication's, Qwest's,
QCI's, Anshutz Company's and Anshutz's principal and business address is
555 17th Street, Denver, Colorado 80202.
(8) Includes 1,250,000 shares of Common Stock issuable upon conversion of
125,000 shares of Series C Stock owned by USTI and 500,000 shares of
Common Stock issuable upon exercise of a warrant owned by USTI.
(9) Comprises 125,000 shares of Series C Stock.
(10) Comprises 4,824,214 shares of Common Stock, 97,460 shares of Common Stock
held in family trusts, and warrants to purchase 255,000 shares of Common
Stock.
(11) Comprises 1,300,441 shares of Common Stock that may be acquired by Mr.
William Caldwell, IV upon the exercise of currently exercisable options.
(12) Comprises 301,420 shares of Common Stock that may be acquired by Mr.
Anderson upon the exercise of currently exercisable options.
(13) Comprises 113,332 shares of Common Stock that may be acquired by Mr.
Rabin upon the exercise of currently exercisable options.
(14) Comprises 105,000 shares of Common Stock that may be acquired by Mr.
Brand upon the exercise of currently exercisable options.
(15) Comprises 105,000 shares of Common Stock that may be acquired by Mr.
Price upon the exercise of currently exercisable options.
7
(16) Includes 105,000 shares of Common Stock that may be acquired by Mr. Nye
upon the exercise of currently exercisable options.
(17) Includes 77,000 shares of Common Stock that may be acquired by Mr. Thomas
Caldwell upon the exercise of currently exercisable options.
(18) Includes 833,140 shares of Common Stock that may be may be acquired by
Mr. Ammon upon the exercise of currently exercisable warrants and
options.
(19) Includes 15,000 shares of Common Stock that may be acquired upon the
exercise of currently exercisable options.
(20) Includes 3,408,833 shares of Common Stock that may be acquired upon the
exercise of currently exercisable options.
8
BUSINESS EXPERIENCE OF THE DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, their ages as of the
Record Date, and summaries of their respective business experiences are set
forth below:
Name Age Position
---- --- --------
Michael Lee............. 39 President, Chief Executive Officer and Director
Andrew P. Hines......... 61 Chief Operating Officer and Chief Financial Officer
Michael Abbott.......... 41 Chief Technology Officer
Peter Benedict.......... 35 Senior Vice President, Marketing
Michael Martinez........ 35 Senior Vice President, Hospitality Sales
Amit Rikhy.............. 36 Senior Vice President, Strategic Planning
Stephen R. Roberts...... 41 Senior Vice President, Data Connectivity Sales
Ulysses G. Auger, II.... 48 Chairman of the Board
William M. Caldwell, 53
IV..................... Vice Chairman of the Board
R. Theodore 51
Ammon(1)(2)............ Director
Vernon L. 52
Fotheringham(1)........ Director
James H. Greene, 50
Jr.(1)................. Director
Richard F. Levin(1)(2).. 48 Director
Alexander Navab Jr.(2).. 35 Director
John K. Saer, Jr. ...... 44 Director
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Michael Lee has served as President and Chief Executive Officer of CAIS
Internet since March 2001. Mr. Lee has more than 12 years of experience in the
high technology and Internet industries. Most recently, Mr. Lee was Chief
Business Development Officer at TelePacific Communications, a Los Angeles-
based next generation integrated communications provider of converged voice
and data services to businesses in the western United States. Mr. Lee also
served as Chief Technology Officer of TelePacific and was one of its original
employees since the founding of the Company.
Prior to joining TelePacific, Mr. Lee founded DigitalVelocityTM, a Los
Angeles-based Internet Service Provider that provides superior connectivity to
multiple backbone carriers. Mr. Lee developed network methodology, marketing,
and operational plans, and assembled a technical and management team to fully
develop and deploy the service. DigitalVelocityTM was successfully launched in
Los Angeles in 1998 and was merged with TelePacific in January 1999.
Previously, Mr. Lee was a principal at CERFnet, one of the original commercial
ISP's in 1994. CERFnet was acquired by TCG, which was later acquired by AT&T.
Subsequent to this acquisition, Mr. Lee served as National Director of
Internet Sales for AT&T CERFnet.
Andrew P. Hines has served as Chief Operating Officer and Chief Financial
Officer of CAIS Internet since October 2000. Mr. Hines is responsible for
financial and operational strategies for CAIS Internet. Prior to joining CAIS,
Mr. Hines held various senior executive positions at both Fortune 100 and
entrepreneurial companies, directing operational and strategic aspects of
global business. He is a Certified Public Accountant.
Michael Abbott joined CAIS in January 2000 and is currently the Chief
Technology Officer. Previously he served as the Company's Director and Vice
President of Engineering. Prior to CAIS, Mr. Abbott was director of ISM
security and e-business at INTELSAT, the world's largest commercial satellite
service provider, where he was both senior technical officer and senior
systems engineering architect. At INTELSAT, Mr. Abbott had also served as the
company's manager of network engineering and operations. Prior to INTELSAT
Abbott held technology positions at ACT, Systems Engineering and Management
Associates and the Defense Communications Support Group.
9
Peter Benedict has served as the Company's Senior Vice President of
Marketing since March 2001. Mr. Benedict has experience in developing and
executing comprehensive public relations and marketing programs with a variety
of established and startup communications companies. Most recently
Mr. Benedict was the Director of Product Marketing at Tachion Networks. He has
experience running media and analyst relations, having launched and promoted a
wide variety of service provider data solutions including Internet protocol
(IP) telephony, multi-service access, ATM/frame relay, Internet access
management, virtual private network (VPN) policy management and dial/broadband
remote access services.
Michael Martinez has served as the Company's Senior Vice President for
Hospitality Sales since April 2001. Mr. Martinez has 12 years experience in
the computer and telecommunications industries. In his most recent position as
VP of Alternate Channels at TelePacific Communications, Mr. Martinez was
responsible for all channel activities, including strategic partnerships,
hospitality services, multi-dwelling units, agents, alternate channel sales
and processes, business plans, marketing strategies, and operations
relationships.
Amit Rikhy has served as the Company's Senior Vice President of Strategic
Planning since March 2001. Mr. Rikhy joined CAIS with over 14 years of
domestic and international experience in corporate finance, strategy, mergers
and acquisitions, and business development. Mr. Rikhy most recently comes from
TelePacific Communications where he was acting CFO and Vice President of
Corporate Development. He was responsible for all aspects of the finance
department, including financial development activities, reporting, budgeting,
and analysis. Mr. Rikhy has also managed finance and equity investment
activities, including capital raising, strategic partnerships, due diligence,
and negotiations.
Stephen R. Roberts has served as Senior Vice President, Data Connectivity
Sales for CAIS Internet since November 1999. Mr. Roberts served as the
President of Cleartel Communications, Inc., a telecommunications company, from
February 1999 until joining CAIS in November 1999. Mr. Roberts previously was
Cleartel's Vice President of Sales and General Manager. Mr. Roberts has 16
years experience in the telecommunications industry including a variety of
sales and sales management positions.
Ulysses G. Auger, II has served as the Chairman of the Board since January
1998, and was the Company's Chief Executive Officer from January 1998 to
October 2000. Mr. Auger has an extensive background in the telecommunications
industry, and is a three-term member of the Board of Directors of Comptel, a
telecommunications industry trade association with approximately 225 member
companies. Until February 1999, Mr. Auger chaired Comptel's IP Committee,
which was formed to address Internet issues affecting the telecommunications
industry. In 1987, Mr. Auger founded Cleartel Communications, Inc. and has
served as a director since July 1987. Mr. Auger also served as President of
Cleartel from August 1987 to June 1988, and then again from June 1990 to
February 1999.
William M. Caldwell, IV has served as a member of the Board of CAIS Internet
since January 1998 and of CAIS, Inc. since May 1996, as CAIS Internet's Vice
Chairman from January 1998 to February 1999 and as CAIS Internet's and CAIS,
Inc.'s President beginning February 1999 and as Chief Executive Officer from
October 2000 to March 2001. Mr. Caldwell also served as the Vice Chairman of
CAIS, Inc. and Cleartel Communications, Inc. from September 1997 to February
1999. Since June 1995, Mr. Caldwell also has served as a member of the Board
of Directors of Cleartel. Prior to joining CAIS, Inc. and Cleartel, from 1993
to August 1997, Mr. Caldwell served as President of Digital Satellite
Broadcasting Corporation. Prior to 1993, Mr. Caldwell founded The Union Jack
Group, an investment banking advisory firm, and served as a Vice President in
Corporate Finance at Kidder Peabody. In addition, Mr. Caldwell also has served
as both President and Chief Financial Officer of Van Vorst Industries, an
international home furnishing manufacturer; as Vice President of Marketing for
Flying Tiger Line, Inc., one of the world's largest all-cargo air carriers
before its acquisition by Federal Express Corporation; and as a consultant
with Booz Allen, Hamilton Inc. Mr. Caldwell currently sits on the Board of
Directors for both Lee Pharmaceuticals and King Koil Franchising, Inc.
R. Theodore Ammon has served as a member of the Board of CAIS Internet since
February 1999. Mr. Ammon has served as the Chairman of the Board of Big Flower
Holdings, Inc. (and predecessors) since its
10
inception in 1993 and was the Chief Executive Officer of Big Flower Holdings,
Inc. predecessor from inception until April 1997. Mr. Ammon is also a director
of Big Flower Press Holdings, Inc., a subsidiary of Big Flower Holdings, Inc.
Mr. Ammon was a General Partner of KKR from 1990 to 1992, and an executive of
such firm prior to 1990. Mr. Ammon is also a member of the Board of Directors
of Host Marriott Corporation and Chairman of the Board of Directors of 24/7
Media, Inc. In addition, Mr. Ammon serves on the Board of Directors of the New
York YMCA, The Municipal Art Society of New York, Jazz@Lincoln Center and on
the Board of Trustees of Bucknell University.
Vernon L. Fotheringham has served as a member of the Board of CAIS Internet
since January 1999. Mr. Fotheringham has served as Chairman, President and
Chief Executive Officer of Nutel Corporation since August 1998. From December
1995 to August 1998, Mr. Fotheringham served as Chairman and Chief Executive
Officer of Advanced Radio Telecom. From April 1993 to December 1995, Mr.
Fotheringham served as President and Chief Executive Officer of Norcom
Networks Corporation, a nationwide provider of mobile satellite services. Over
the last ten years, Mr. Fotheringham has advised several businesses in the
telecommunications industry, including American Mobile Satellite Corporation,
ClairCom Communications and McCaw Cellular Communications, Inc.
James H. Greene, Jr. has served as a director of the Company since February
2000. Mr. Greene is a member of KKR & Co., LLC, the limited liability company
which serves as the General Partner of KKR. From January 1, 1993 until January
1, 1996, he was a general partner of KKR. Mr. Greene also is a director of
Accuride Corporation, Birch Telecom, Inc., Intermedia Communications, Inc.,
Owens-Illinois, Inc., Safeway Inc. and Zhone Technologies, Inc.
Richard F. Levin has served as a member of the Board of CAIS Internet since
December 1997. Mr. Levin also served as a member of the Board of Directors of
Cleartel Communications, Inc. from June 1995 to June 1998. Mr. Levin is a
partner in the Washington, D.C. law firm of Grossberg, Yochelson, Fox and
Beyda, where he has practiced since 1979.
Alexander Navab, Jr. has served as a director of the Company since February
2000. Mr. Navab has been a member of KKR & Co., LLC, the limited liability
company which serves as the General Partner of KKR since January 2001. From
1998 until January 2001 he was Director of KKR. He was an executive at KKR
from 1993 through 1998. He is also a director of Birch Telecom, Inc., Borden,
Inc., Intermedia Communications, Inc., KSL Recreation Group, Inc., Regal
Cinemas, World Kitchen Inc., and Zhone Technologies, Inc.
John K. Saer, Jr. has served as a director of the Company since March 2001
and has been an executive of KKR since 2001. Prior to joining KKR in 2001, Mr.
Saer was the Chief Financial Officer of KSL Recreation Corporation, a KKR
sponsored company organized in 1992 as a management buildup. He joined KSL
Recreation in 1993, initially serving as Vice President of Business
Development and Acquisitions. Mr. Saer was appointed to the Board following
the resignation of Ulysses G. Auger, Sr.
All officers serve at the discretion of the Board.
11
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning
compensation for services in all capacities awarded to, earned by or paid to,
each of the individuals serving as the Company's Chief Executive Officer
during the fiscal year ended December 31, 2000, each of the four other most
highly compensated executive officers, whose total cash and cash equivalent
compensation exceeded $100,000, and two additional individuals who would have
been among the four most highly compensated executive officers during fiscal
2000 but were not employed by the Company at the end of fiscal 2000. Each of
the Company's officers received perquisites and other personal benefits in
addition to salary and bonuses. The aggregate amount of these perquisites and
other personal benefits, however, did not exceed the lesser of $50,000 or 10%
of the total of the annual salary and bonus reported for any of the persons
listed in this chart for 2000.
Summary Compensation Table
Long-Term
Annual Compensation
Compensation Awards
------------------ ------------
Other Annual Securities
Salary Bonus Compensation Underlying All Other
Name and Principal Position Year ($) ($) ($) Options(#) Compensation
- --------------------------- ---- ------- ------- ------------ ------------ ------------
Ulysses G. Auger, II 2000 270,481 125,000 -- -- --
(1)..................... 1999 339,253 50,000 -- -- --
Chairman of the Board 1998 280,140 28,000 -- --
and --
Chief Executive Officer
William M. Caldwell, IV 2000 317,885 125,000 -- 100,000 --
(2) .................... 1999 263,462 50,000 -- -- --
Vice Chairman of the 1998 237,498(3) -- -- -- --
Board and
Chief Executive Officer
Evans K. Anderson (4)... 2000 271,442 100,000 -- 80,000 --
Executive Vice President 1999 242,309 50,000 -- 20,000 --
of Sales and Marketing 1998 179,956 -- -- 135,800 --
Gary Rabin (5).......... 2000 242,883 100,000 -- 80,000 --
Executive Vice President 1999 134,225 -- -- 340,000 --
of Finance and Strategic
Planning
Kevin Brand (6)......... 2000 225,000 50,000 -- -- --
Executive Vice President 1999 17,308 -- -- 200,000 --
of Operations
Stephen Price (7) ...... 2000 170,000 90,000 -- 60,000 --
Vice President of 1999 115,385 -- -- 180,000 --
Business Development
Wendell S. Nye (8) ..... 2000 230,841 309,583 -- 120,783 --
Executive Vice President 1999 72,396 -- -- 338,825 --
of
CAIS Internet and
President of
CAIS Software Solutions,
Inc.
Thomas Caldwell (9)..... 2000 154,671 273,012 -- 86,470 --
Vice President of 1999 46,161 -- -- 73,295 --
Engineering and
Design of CAIS Software
Solutions, Inc.
- --------
(1) Mr. Auger ceased being Chief Executive Officer in October 2000.
(2) Mr. Caldwell ceased being Chief Executive Officer in March 2001.
(3) During 1998, Mr. Caldwell received a base salary of $176,922 for services
performed in 1998 and $60,576 in deferred income for services performed in
1997.
12
(4) Mr. Anderson ceased being Executive Vice President of Sales and Marketing
in April 2001.
(5) Mr. Rabin ceased being Executive Vice President of Finance and Strategic
Planning in February 2001.
(6) Mr. Brand ceased being Executive Vice President of Operations in February
2001.
(7) Mr. Price ceased being Vice President of Business Development in March
2001.
(8) Mr. Nye ceased being Executive Vice President of CAIS Internet and
President of CAIS Software Solutions, Inc. in December 2000.
(9) Mr. Caldwell ceased being Vice President of Engineering and Design of CAIS
Software Solutions, Inc. in December 2000.
Options Granted in Fiscal Year 2000
The following table sets forth certain information regarding options to
acquire Common Stock granted to each of the individuals serving as the
Company's Chief Executive Officer during the fiscal year ended December 31,
2000, each of the four other most highly compensated executive officers, whose
total cash and cash equivalent compensation exceeded $100,000 and two
additional individuals who would have been among the four most highly
compensated executive officers during fixed 2000 but were not employed by the
Company at the end of fiscal 2000. There were no stock appreciation rights
granted in 2000. The assumed rates of growth were selected for illustration
purposes only. They are not intended to forecast possible future appreciation,
if any, of stock prices. No gain to the recipients is possible without an
increase in stock prices, which will benefit all Stockholders.
Potential
Realizable
Value at Assumed
Annual Rates of
Stock Price
Number of Percent of Appreciation for
Securities Total Options Option Term(1)
Underlying Granted in Exercise Price -----------------
Name Options Granted Fiscal Year ($/sh) Expiration Date 5%($) 10%($)
---- --------------- ------------- -------------- --------------- ------- ---------
Ulysses G. Auger, II.... -- -- -- -- -- --
William M. Caldwell,
IV..................... 100,000 5.8 12.00 April 17, 2010 754,674 1,912,491
Evans K. Anderson....... 80,000 4.6 12.00 April 17, 2010 603,739 1,529,993
Gary Rabin.............. 80,000 4.6 12.00 April 17, 2010 603,739 1,529,993
Kevin Brand............. -- -- -- -- -- --
Stephen Price........... 60,000 3.5 4.31 November 1, 2010 162,632 412,142
Wendell S. Nye.......... 15,783 0.9 12.00 April 17, 2010 119,110 301,848
Wendell S. Nye.......... 105,000 6.1 3.00 December 1, 2005 87,029 192,311
Thomas Caldwell......... 9,470 0.5 12.00 April 17, 2010 71,468 181,113
Thomas Caldwell......... 77,000 4.4 3.00 December 1, 2005 63,821 141,028
- --------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date based upon the exercise prices of the options, which
were granted at the fair market value of the Company's Common Stock on the
date of grant. These assumptions are not intended to forecast future
appreciation of the Company's stock price. The potential realizable value
computation does not take into account federal or state income tax
consequences of option exercises or sales of appreciated stock.
Fiscal Year End Option Values
The following table sets forth certain information regarding unexercised
options held by each of the individuals serving as the Company's Chief
Executive Officer during the fiscal year ended December 31, 2000, and each of
the four other most highly compensated executive officers, whose total cash
and cash equivalent compensation exceeded $100,000 and two additional
individuals who would have been among the four most highly compensated
executive officers during fiscal 2000 but were not employed by the Company at
the end of fiscal
13
2000. Mr. Price exercised 15,000 options in 2000. The calculations of the
value of unexercised options are based on the difference between the closing
price of the Company's Common Stock of $0.9688 per share on the NASDAQ
National Market System on December 29, 2000, and the exercise price of each
option, multiplied by the number of shares covered by the option.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year End(#) at Fiscal Year End($)
-------------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- --------------- --------------- ----------- -------------
Ulysses G. Auger, II ... -- -- -- --
William M. Caldwell, IV
....................... 1,275,441 408,902 -- --
Evans K. Anderson ...... 175,039 362,181 -- --
Gary Rabin ............. 113,332 186,668 -- --
Kevin Brand ............ 50,000 150,000 -- --
Stephen Price .......... 45,000 180,000 -- --
Wendell S. Nye ......... 170,275 -- -- --
Thomas Caldwell......... 87,922 -- 141 --
Employment Agreements
On October 1, 2000, the Company entered into an employment agreement with
Andrew P. Hines. The agreement provides that Mr. Hines will be employed as the
Company's Chief Operating Officer and Chief Financial Officer. The term of the
agreement is for a period of two years commencing on October 1, 2000. The
agreement establishes a base salary of $400,000 per annum. Effective February
12, 2001 this base salary is subject to periodic increases as the Company may
determine. Starting in 2001, Mr. Hines is entitled to participate in all bonus
programs generally available to all executive officers of the Company. Mr.
Hines is also entitled to receive an annual cash bonus in an amount between 0%
and 300% of his base salary based upon the Company meeting or exceeding EBITDA
performance targets. Mr. Hines is also entitled to a guaranteed cash bonus of
$125,000 after the close of each fiscal year. If the Company terminates Mr.
Hines's employment without cause, Mr. Hines will be entitled to receive a lump
sum equal to the sum of two times Mr. Hines's base salary plus a cash bonus
prorated for the portion of the year Mr. Hines was employed. The agreement
contains non-competition and non-solicitation covenants which prohibit Mr.
Hines, during the term of his employment and for a period of 24 months
thereafter, from engaging in competition with the Company or from soliciting
any of the Company's customers. The agreement also prohibits Mr. Hines from
disclosing confidential or proprietary information of the Company. In
connection with his employment agreement, Mr. Hines was granted an option to
purchase 300,000 shares of common stock of the Company with an exercise price
of $1.375 and 100,000 shares of common stock with an exercise price of $1.00
on March 25, 2001. On January 2, 2001, 150,000 of these options vested, 50,000
options vested March 26, 2001 and the remaining 200,000 options will vest on
the earliest of: (i) December 31, 2001; (ii) the date of a change in control
of the Company; or (iii) Mr. Hines's termination date, if he is terminated by
the Company without cause. All vested options will remain exercisable for a
period of at least one-year after Mr. Hines's termination date. The Company
also granted to Mr. Hines 100,000 shares of restricted stock which will vest
on the earliest of: (i) September 30, 2002; (ii) the date of a change in
control of the Company; or (iii) Mr. Hines's termination of employment if such
termination is without cause or Mr. Hines resignes for good reason.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors was expanded in
February, 2000 from three members to four, and currently consists of Messrs.
Levin, Navad, Ammon and Greene. No member of the Compensation Committee was at
any time during fiscal 2000 or at any other time an officer or employee of the
Company.
14
No executive officer of the Company served on the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board or Compensation Committee.
For a description of transactions between the Company and members of the
Compensation Committee or their affiliates, see the Certain Relationships and
Related Transactions section below.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Bridge Loan
In the fourth quarter of 2000, the Company entered into a credit agreement
with Ulysses G. Auger II (Chairman of the Board), R. Theodore Ammon (Director)
and CII Ventures (administrative agent for KKR), collectively called the
Lenders. The Lenders made a bridge loan of $20 million available to the
Company which was repaid from proceeds of the CAIS Software Solutions, Inc.
assets sale to Cisco Systems, Inc in December 2000. Borrowings incurred
interest at LIBOR plus 6 percent or approximately 12.6 percent per annum. The
Company paid approximately $164,000 in interest expense. In connection with
the loan, the Company granted 2,000,000 warrants to the Lenders at an exercise
price of $4.56 per share. Per the warrant agreement, the warrants were
repriced subsequent to year end to the average of the ten lowest trading days
from October 25, 2000 through January 25, 2001, or $1.00 per share. The
warrants expire on October 25, 2010.
Real Property Leases
The Company entered into a ten year lease in 1999 for approximately 39,000
square feet of office space in Washington, DC, which is used as the Company's
corporate headquarters. The initial base annual rent is approximately $861,000
per year with annual rent escalations of 2 percent each year thereafter. The
Company recognizes rental expense on a straight-line basis over the lease term
based on the total lease commitment, including escalations. Other long-term
liabilities as of December 31, 2000 primarily reflect the value of leasehold
improvements in the Washington, DC location paid for by the landlord, which
are being amortized against rent expense. In April 2001, the Company subleased
approximately 16,000 square feet of office space under this lease for
approximately seven years.
The building is approximately 45% owned by Ulysses G. Auger, Sr., a former
director of the Company, and his wife. The Company believes that the terms of
the lease, including the rental rate, are at least as favorable to the Company
as those which could have been negotiated with an unaffiliated third party.
Executive Officer Loans
In June 1999, the Company advanced a $400,000 unsecured loan to Gary Rabin,
former Executive Vice President of Finance and Strategic Planning executives
as part of Mr. Rabin's employment contract. The Company provided a valuation
reserve against the loan in the fourth quarter of 2000 and forgave the note
upon the resignation of Mr. Rabin in lieu of contractual severance payments in
2001. In December 1999, the Company advanced a $50,000 unsecured loan to
Stephen R. Roberts, Senior Vice President, Data Connectivity Sales. In lieu of
bonus payments, the Company did not require the loan to be repaid and it was
written off in the fourth quarter of 2000.
Other Transactions
For the past several years, Richard F. Levin, a director of the Company, has
performed legal services on the Company's behalf in his capacity as a partner
in the Washington, D.C., law firm of Grossberg, Yochelson, Fox & Beyda.
However, at no time were the fees paid by the Company to the law firm in
excess of 5% of the law firm's gross revenues. The Company believes that the
costs of such services are at least as favorable to the Company as those which
could have been negotiated with an unaffiliated third party.
15
REPORT OF THE AUDIT COMMITTEE
The following is the report of the audit committee with respect to the
Company's audited financial statements for the fiscal year end December 31,
2000. The information contained in this report shall not be deemed to be
"soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent that the Company
specifically incorporates by reference in such filing.
Composition. The audit committee of the Board of Directors is composed of
three independent directors, as defined by Nasdaq rules and operates under a
written charter adopted by the Board of Directors a copy of which is attached
as Appendix A. The members of the audit committee are Richard F. Levin,
Alexander Navab, Jr. and A. Theodore Ammon.
Responsibilities. The responsibilities of the audit committee include
recommending to the Board a firm to be engaged as the Company's independent
auditors. Management is responsible for the preparation, presentation and
integrity of the Company's financial statements, accounting and financial
reporting principles and internal controls and procedures designed to assure
compliance with accounting standards and applicable laws and regulations. The
independent auditors, Arthur Andersen LLP, are responsible for performing an
independent audit of the Company's consolidated financial statements in
accordance with generally accepted auditing standards and for issuing a report
thereon. The audit committee's responsibility is to oversee these processes.
Review with Management and Independent Accountants. In this context, the
audit committee has met and held discussions with management and the
independent auditors. Management represented to the audit committee that the
Company's consolidated financial statements were prepared in accordance with
generally accepted accounting principles, and the audit committee has reviewed
and discussed the consolidated financial statements with management and the
independent auditors. The audit committee discussed with the independent
auditors matters required to be discussed by Statement on Auditing Standards
No. 61, "Communication with Audit Committees."
The Company's independent auditors also provided to the audit committee the
written disclosures and the letter required by Independent Standards Board
Standard No. 1, "Independence Discussions with Audit Committees," and the
audit committee discussed with the independent auditors, Arthur Andersen LLP,
the firm's independence.
Summary. Based upon the audit committee's discussions with management and
the independent auditors and the audit committee's review of the
representations of management, and the report of the independent auditors to
the audit committee, the audit committee recommended that the Board of
Directors include the audited consolidated financial statements in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000, as
filed with the Securities and Exchange Commission.
This report has been furnished by the members of the Audit Committee of the
Board of Directors of CAIS Internet, Inc.
Richard F. Levin
Alexander Navad, Jr.
R. Theodore Ammon
Audit and Related Fees
Audit Fees. The aggregate fees billed by Arthur Andersen LLP for
professional services for the audit of the Company's annual consolidated
financial statements for fiscal 2000 and the review of the consolidated
financial statements included in the Company's Forms 10-Q for fiscal 2000 were
$550,000.
16
Financial Information Systems Design and Implementation Fees. There were no
fees billed by Arthur Andersen LLP to the Company for financial information
systems design and implementation fees for fiscal 2000.
All Other Fees. The aggregate fees billed to the Company for all other
services rendered by Arthur Andersen LLP for fiscal 2000, were $177,600.
The Audit Committee has considered whether the services provided under all
other fees are compatible with maintaining Arthur Andersen LLP's independence.
17
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Overview and Philosophy
The Company's executive compensation program is administered by the
Compensation Committee. The Company's overall compensation philosophy is to
link its executives' total compensation to the short-term and long-term
performance of the Company so as to maximize stockholder value. The Company
and the Compensation Committee utilize an independent consultant to assure
competitive compensation practices.
The Company's compensation program for executive officers consists primarily
of base salary, annual discretionary bonuses, and long-term incentives in the
form of stock options and restricted shares of Common Stock. Executives also
participate in various other benefit plans, including medical and retirement
plans that are generally available to all employees of the Company. The
Company pays base salaries to executives at levels that enable the Company to
attract, motivate, and retain highly qualified executives and key employees,
as well as structuring incentive plans to allow competitive pay-outs provided
that financial targets are achieved. These are designed to reward individuals
for performance based on the Company's financial results as well as the
achievement of personal and corporate objectives that contribute to the long-
term success of the Company. Stock option grants are intended to align the
interests of shareholders and executives by providing rewards to executives as
the Company's stockholders in general benefit from stock price appreciation.
Base Salary
The Company considers the experience of the individual, the scope and
complexity of the position and the size and growth rate of the Company and the
compensation paid by the Company's competitors in setting base salaries for
officers and employees. All full-time employees of the Company, including
executive officers to the extent they are not already entitled to receive a
bonus pursuant to the terms of their respective employment agreements, are
eligible to receive bonuses from the Company subject to satisfaction of
specific performance criteria. Due to the increasingly competitive nature of
the Company's industry segment, compensation amounts paid by the Company's
competitors are expected to continue to grow at rates above national averages.
The Company will continue to assess its compensation structure in order to
ensure its ability to attract and retain highly qualified executives and key
employees.
In determining the base salary and bonuses paid to Mr. Ulysses G. Auger in
2000, the Compensation Committee recognized his individual performance in
integrating newly acquired business units and new market ventures. The
Compensation Committee recognized the performance of Mr. William M. Caldwell
both for the above mentioned integration issues as well as his transition to
President and Chief Executive Officer.
Equity Incentive Awards
The Company strongly believes in granting awards with respect to the
Company's Common Stock, in order to tie executive compensation directly to the
long-term success of the Company and to increases in stockholder value. Equity
incentive awards also will enable executives to develop and maintain a
significant ownership position in the Company's Common Stock. The Company may
grant awards in the form of incentive stock options, non-qualified stock
options, stock appreciation rights and restricted stock grants, and direct
issuance of restricted shares of the Company's Common Stock.
Stock options represent rights to purchase shares of Common Stock in varying
amounts pursuant to a vesting schedule (generally forty-eight months)
determined by the Compensation Committee at a price per share specified on the
date of grant of the option, and which expire at the conclusion of a fixed
term (generally
18
10 years). Stock options may be granted under the Plan, subject to the terms
thereof, or may be granted outside of the Plan, subject to terms determined by
the Board and/or Compensation Committee.
Stock appreciation rights may be granted in tandem with options and, upon
exercise, entitle the holder to receive cash, Common Stock or a combination
thereof (at the discretion of the Compensation Committee) having a value equal
to the excess of fair market value per share of the Common Stock on the
exercise date multiplied by the number of shares with respect to which the
right is exercised over the option exercise price for such number of shares.
Restricted stock awards consist of a specified number of shares of the
Company's Common Stock with an appropriate restrictive legend affixed thereto.
Shares of restricted stock may not be sold or otherwise transferred until
ownership vests in the recipient, at the time and in the manner specified by
the Compensation Committee at the time of the award. Since the stock options,
stock appreciation rights and restricted stock awards vest and may grow in
value over time, these components of the Company's compensation plan are
designed to reward performance over a sustained period and to enhance
shareholder value through the achievement of corporate objectives. The Company
intends that these awards will strengthen the focus of its directors, officers
and employees on managing the Company from the perspective of a person with an
equity stake in the Company.
In selecting recipients and determining the size of grants, the Compensation
Committee considers various factors such as the potential of the recipient,
the salary of the recipient, and competitive factors affecting the Company's
ability to attract and retain employees, prior grants, a comparison of awards
made to officers in comparable positions at similar companies, and the
Company's performance. See Executive Compensation -- Options Granted in Fiscal
2000 in this Proxy Statement.
Other Benefits
Executive officers are eligible to participate in benefit programs designed
for all full-time employees of the Company. These programs include medical
insurance, a qualified retirement program allowed under Section 401(k) of the
Internal Revenue Code, and life insurance coverage.
Compliance with Internal Revenue Code Section 162(m)
As discussed above, Code Section 162(m) generally disallows a tax deduction
to public companies for compensation in excess of $1 million paid to each of
the Company's chief executive officer and four other most highly compensated
executive officers. Qualifying performance-based compensation is not subject
to the deduction limit if certain requirements are met. The Compensation
Committee intends to maximize the deductibility of compensation paid to its
executive officers and employees under Code Section 162(m) to the extent
practicable while maintaining competitive compensation. The Board has amended
the Plan, subject to Stockholder approval, and the Company and the
Compensation Committee have otherwise taken all action required under Section
162(m) to structure and qualify the performance-based portion of the
compensation of the Company's executive officers under Code Section 162(m), so
as to be deductible to the Company.
This report has been furnished by the members of the Compensation Committee
of the Board of Directors of CAIS Internet, Inc.
Richard F. Levin
Alexander Navad, Jr.
R. Theodore Ammon
James H. Greene, Jr.
19
COMPARISON OF STOCKHOLDER RETURN
The graph depicted below reflects a comparison of the cumulative total return
(change in stock price plus reinvestment dividends) of the Company's Common
Stock with the cumulative total returns of the NASDAQ National Market System
Index and an index of the Company's peer issuers in the broadband internet
services industry as listed below. The graph covers the period from May 20,
1999, the date of the Company's initial public offering, through the last
trading day of fiscal 2000.
The graph depicts cumulative returns calculated on an annual basis assuming
an investment of $100 (and the reinvestment of all dividends) in each of the
Company's Common Stock, the NASDAQ National Market System Index, a new self-
determined peer group index and a old self-determined peer group. For fiscal
year 2000 the Company selected a new self-determined peer group which more
closely reflected the Company's operations. The new self-determined peer group
is comprised of Covad Communications, DSL.NET, Rhythms NetConnections, High
Speed Access Corporation, Allied Riser Communications, Cypress Communications
and Savvis Communications. The old self-determined peer group was comprised of
Covad Communications, Northpoint Communications, Rhythms NetConnections,
Teligent, Inc., At Home Corporation, High Speed Access Corporation, Allied
Riser Communications, Cypress Communications and Net2Phone, Inc. No cash
dividends have been declared on the Company's Common Stock.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG CAIS INTERNET, INC., NASDAQ INDEX
AND PEER GROUP INDEX
[GRAPH]
Comparison of 19 Month Cumulative Total Return
Among CAIS Internet, The Nasdaq Stock Market (U.S.) Index,
A New Peer Group and an Old Peer Group
New Old
Self-Determined Self-Determined
CAIS Internet Nasdaq Sock Market Peer Group Peer Group
------------- ------------------ ---------- ----------
5/20/99 100 100 100 100
6/30/99 83.06 105.61 90.76 84.51
9/30/99 54.52 107.90 65.92 61.12
12/31/99 160.45 161.30 69.20 67.24
3/31/00 109.32 180.15 88.76 61.17
6/30/00 63.56 156.64 35.40 29.41
9/30/00 22.03 144.14 22.42 19.91
12/31/00 4.38 96.52 3.47 5.43
- -------
(1) The performance graph and all of the material in the Compensation Committee
Report is not deemed filed with the SEC, and is not incorporated by
reference to any filing of the Company under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, whether made before or
after the date of this Proxy Statement and irrespective of any general
incorporation language in any such filing.
(2) Stockholder returns over the indicated period should not be considered
indicative of future stockholder returns.
20
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who beneficially own more than 10%
of the Company's Common Stock to file initial reports of ownership and reports
of changes in ownership with the SEC. Such persons are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms
filed by such persons.
Based solely on the Company's review of such forms and amendments thereto
furnished to the Company and written representations from certain reporting
persons, the Company believes that all executive officers, directors and
greater than 10% Stockholders complied with all filing requirements applicable
to them with respect to transactions during fiscal 2000.
STOCKHOLDER PROPOSALS
A proper proposal submitted by a stockholder in accordance with applicable
rules and regulations for presentation at the Company's next annual meeting
received at the Company's principal executive office by December 20, 2002 will
be included in the Company's proxy statement and form of proxy for that
meeting. Proposals must comply with U.S. Securities and Exchange Commission
Rule 14a-8.
OTHER MATTERS
The Board is not aware of any matter to be presented for action at the
Meeting other than the matters set forth herein. Should any other matter
requiring a vote of Stockholders arise, the proxies in the enclosed form
confer upon the person or persons entitled to vote the shares represented by
such proxies discretionary authority to vote the same in accordance with their
best judgment in the interest of the Company.
ANNUAL REPORT
The Company filed an Annual Report on Form 10-K with the SEC on April 16,
2001, and an amendment thereto on April 30, 2001. A copy of the Company's
Annual Report to Shareholders and this Proxy Statement will be sent to all
Stockholders entitled to notice of the Meeting on or about June 28, 2001.
Stockholders may obtain an additional copy of the Annual Report to
Shareholders, without charge, by writing to Peter Benedict, Senior Vice
President, Marketing, at the Company's executive offices at 1255 22nd Street,
N.W., Washington, D.C. 20037.
Dated: June 26, 2001
21
Appendix A
CAIS INTERNET, INC.
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
Purpose:
The Audit Committee of the Board of Directors of CAIS Internet, Inc. ("Audit
Committee") will make such examinations as are necessary to monitor CAIS
Internet, Inc. and its subsidiaries' (the "Company") systems of internal
control, corporate financial reporting and its internal and external audits,
to provide to the Board of Directors the results of its examinations and
recommendations derived therefrom, to outline to the Board of Directors
improvements made, or to be made, in internal accounting controls, to nominate
independent auditors, and to provide to the Board of Directors such additional
information and materials as it may deem necessary to make the Board of
Directors aware of significant financial matters that require the Board of
Directors' attention.
In addition, the Audit Committee will undertake those specific duties and
responsibilities listed below and such other duties as the Board of Directors
from time to time prescribe.
Membership:
The Audit Committee members will be appointed by, and will serve at the
discretion of, the Board of Directors and will consist of at least three (3)
members of the Board of Directors, each of whom:
1. Will be able to read and understand fundamental financial statements, in
accordance with the Nasdaq National Market Audit Committee requirements; and
2. At least one of whom will have past employment experience in finance or
accounting, requisite professional certification in accounting, or other
comparable experience or background, including a current or past position as a
chief executive or financial officer or other senior officer with financial
oversight responsibilities; and
3. Will (i) be an independent director; or (ii) if the Board of Directors
determines it to be in the best interests of the Company and its stockholders
to have one (1) non-independent director, and the Board of Directors discloses
the reasons for the determination in the Company's next annual proxy
statement, then the Company may appoint one (1) non-independent director to
the Audit Committee if the director is not a current employee or officer, or
an immediate family member of a current employee or officer.
Responsibilities:
The Audit Committee shall:
1. Review on a continuing basis the adequacy of the Company's system of
internal controls.
2. Review on a continuing basis the activities, organizational structure and
qualifications of the Company's internal audit function.
3. Review the independent auditors' proposed audit scope, approach, and
independence.
4. Conduct a post-audit review of the financial statements and audit
findings, including any significant suggestions for improvements provided to
management by the independent auditors.
5. Review the performance of the independent auditors, who shall be
accountable to the Board and the Audit Committee.
6. Recommend the appointment of independent auditors to the Board of
Directors.
7. Review fee arrangements with the independent auditors.
22
8. Review and determine to release the audited financial statements and
Management's Discussion and Analysis in the Company's annual report on Form
10-K;
9. Review before release the unaudited quarterly operating results in the
Company's quarterly earnings release;
10. Oversee compliance with the requirements of the Securities and Exchange
Commission for disclosure of independent auditor's services and audit
committee members and activities;
11. Review management's monitoring of compliance with the Company's
Standards of Business Conduct and with the Foreign Corrupt Practices Act;
12. Review, in conjunction with counsel, any legal matters that could have a
significant impact on the Company's financial statements;
13. Provide oversight and review of the Company's asset management policies,
including an annual review of the Company's investment policies and
performance for cash and short-term investments;
14. If necessary, institute special investigations and, if appropriate, hire
special counsel or experts to assist;
15. Review related party transactions for potential conflicts of interest;
16. Provide a report in the Company's proxy statement in accordance with the
requirements of Item 306 of Regulations S-K and S-B and Item 7(e)(3) of
Schedule 14A; and
17. Perform other oversight functions as requested by the full Board of
Directors.
In addition to the above responsibilities, the Audit Committee will
undertake such other duties as the Board of Directors delegates to it, and
will report, at least annually, to the Board regarding the Committee's
examinations and recommendations.
MEETINGS:
The Audit Committee will meet at least two times each year. The Audit
Committee may establish its own schedule which it will provide to the Board of
Directors in advance.
The Audit Committee will meet separately with the Chief Executive Officer
and separately with the Chief Financial Officer of the Company at least
annually to review the financial affairs of the Company. The Audit Committee
will meet with the independent auditors of the Company, at such times as it
deems appropriate, to review the independent auditor's examination and
management report.
MINUTES:
The Audit Committee will maintain written minutes of its meetings, which
minutes will be filed with the minutes of the meetings of the Board of
Directors.
23
Proxy Proxy
CAIS INTERNET, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF STOCKHOLDERS
TO BE HELD JULY 26, 2001
The undersigned Stockholder of CAIS Internet, Inc., a Delaware corporation
(the Company), hereby appoints Ulysses G. Auger, II and William M. Caldwell,
IV, or either of them, with full power of substitution (the proxies), as proxy
or proxies of the undersigned, to represent the undersigned, and to exercise
all the powers that the undersigned would have if personally present to act and
to vote all of the shares of the Company that the undersigned is entitled to
vote, at the Annual Meeting of Stockholders of the Company called to be held on
July 26, 2001, at 9:00 a.m., local time, at the Hyatt Arlington, 1325 Wilson
Boulevard, Arlington, Virginia 22209 and at any adjournments or postponements
thereof (the Meeting) as follows:
1. To elect three Class I directors and one Class II director of the
Company, each to serve a term in accordance with their respective class term
expiration date, or until his successor has been duly elected and qualified or
until his earlier resignation or removal.
CLASS I DIRECTORS--Terms Expiring in 2004
CLASS II DIRECTORS--Terms Expiring
in 2003
Michael Lee John K. Saer, Jr.
Richard F. Levin
Vernon L. Fotheringham
(Please select one option below)
For all nominees [_] Against all nominees [_] Against one or more
nominees [_]
(Please strike name(s) from list above)
2. To approve an amendment to Article I of the Company's Amended and Restated
Certificate of Incorporation to change the name of the Company to Ardent
Communications, Inc.
For [_] Against [_] Abstain [_]
(Please select one option)
3. To ratify the selection of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending December 31, 2001.
For [_] Against [_] Abstain [_]
(Please select one option)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, and 3
The shares represented by this proxy card when properly executed will be
voted as specified. If no specification is made, the shares will be voted (1)
FOR Items 1, 2 and 3 and (2) for or against any other matters that may properly
come before the Meeting at the discretion of the proxy holders. All proxies
previously given are hereby revoked. Receipt of the accompanying Proxy
Statement is hereby acknowledged.
Date: ________________________________
______________________________________
Signature
______________________________________
Additional signatures (if shares are
held jointly)
INSTRUCTIONS: Please sign exactly as
your name appears on the label above
and return this proxy card promptly
in the accompanying envelope. When
shares are held by joint tenants,
both should sign. When shares are
held in the name of a corporation,
partnership, limited liability
company or other entity, please sign
the full entity name by an authorized
officer, partner, manager, member or
other authorized person. When signing
as attorney, executor, administrator,
trustee, guardian or in any other
representative capacity, please give
your full title as such.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
SELF-ADDRESSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.