1
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 (AMENDMENT NO. )
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-12
INTERNET COMMERCE & COMMUNICATIONS, 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:
-----------------------------------------------------------------------
2
INTERNET COMMERCE & COMMUNICATIONS, INC.
999 EIGHTEENTH STREET, SUITE 2201
DENVER, COLORADO 80202
(303) 672-0700
MAY __, 2001
Dear Stockholder:
You are cordially invited to attend the 2001 Annual Meeting of
Stockholders of Internet Commerce & Communications, Inc. (the "Company"), which
will be held on Thursday, June 14, 2001 at _____ a.m. (local time), at ________
_____________________, Denver, Colorado.
At this meeting, you will be asked to vote, in person or by proxy, on
the following matters:
1. the election of five directors to serve on the Board of Directors
for a one-year term;
2. the approval of an amendment to the Internet Commerce &
Communications' 2000 Employees' Stock Option Plan to increase the
number of shares of the Company's common stock that may be issued
thereunder;
3. the approval of an amendment to the Company's Certificate of
Incorporation to effect a Reverse Stock Split of the Company's
common stock of up to one-for-ten, in the event that the Board of
Directors determines that a Reverse Stock Split is desirable at
any time within one year from the date of the 2001 Annual Meeting
of the Stockholders of the Company, with the exact size of the
Reverse Stock Split to be determined by the Board of Directors.
4. the approval of the issuance of all shares of common stock that
the Company would be entitled to issue upon exercise of the Class
B Warrants;
5. the ratification of the appointment of Ernst & Young LLP as the
Company's independent auditors; and
6. any other business as may properly come before the meeting or any
adjournments thereof.
The official Notice of Meeting, Proxy Statement, and form of proxy are included
with this letter. The matters listed in the Notice of Meeting are described in
detail in the accompanying Proxy Statement.
Regardless of your plans for attending in person, it is important that
your shares be represented and voted at the 2001 Annual Meeting of Stockholders.
Accordingly, you are urged to complete, sign, and mail the enclosed proxy card
as soon as possible.
Sincerely,
/s/ DOUGLAS H. HANSON
Douglas H. Hanson
Chairman, Chief Executive Officer, and President
3
INTERNET COMMERCE & COMMUNICATIONS, INC.
999 EIGHTEENTH STREET, SUITE 2201
DENVER, COLORADO 80202
(303) 672-0700
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 14, 2001
NOTICE IS HEREBY GIVEN that the 2001 Annual Meeting of Stockholders (the "Annual
Meeting") of Internet Commerce & Communications, Inc. (the "Company") will be
held on Thursday, June 14, 2001 at _____ a.m. (local time), at the ____________
__________________, Denver, Colorado and any postponements and adjournments
thereof, to consider and act upon the following proposals:
1. To elect five directors to serve on the Board of Directors for a
one-year term and until their successors are appointed or elected
and duly qualified;
2. To approve an amendment to the Internet Commerce &
Communications' 2000 Employees' Stock Option Plan to increase the
number of shares of the Company's common stock that may be issued
thereunder;
3. To approve an amendment to the Company's Certificate of
Incorporation to effect a Reverse Stock Split of the Company's
common stock of up to one-for-ten, in the event that the Board of
Directors determines that a Reverse Stock Split is desirable at
any time within one year from the date of the Annual Meeting,
with the exact size of the Reverse Stock Split to be determined
by the Board of Directors.
4. To approve the issuance of all shares of common stock that the
Company would be entitled to issue upon exercise of the Class B
Warrants;
5. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31,
2000; and
6. To transact such other business as may properly come before the
Annual Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on April 27, 2001 as the
record date for the determination of stockholders entitled to notice of and to
vote at the Annual Meeting. Only holders of common stock of record at the close
of business on that date will be entitled to notice of and to vote at the Annual
Meeting or any adjournments thereof. A list of the Company's stockholders
entitled to vote at the Annual Meeting will be open to the examination of any
stockholder for any purpose germane to the Annual Meeting during ordinary
business hours for a period of ten days before the meeting at the Company's
offices. All stockholders are cordially invited to attend the Annual Meeting.
By Order of the Board of Directors
/s/ CHRISTOPHER J. MELCHER
Christopher J. Melcher
Corporate Secretary
Denver, Colorado
May _____, 2001
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE, SIGN, AND RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. YOU MAY, IF YOU WISH, REVOKE YOUR PROXY AT ANY TIME
PRIOR TO THE TIME IT IS VOTED.
4
INTERNET COMMERCE & COMMUNICATIONS, INC.
999 EIGHTEENTH STREET, SUITE 2201
DENVER, COLORADO 80202
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 14, 2001
This proxy statement contains information related to the Annual Meeting
of Stockholders (the "Annual Meeting" or the "meeting") of Internet Commerce &
Communications, Inc. to be held on Thursday, June 14, 2001, beginning at _____
a.m. (local time) at __________________________________, Denver, Colorado 80202
and at any postponements or adjournments thereof.
ABOUT THE ANNUAL MEETING
WHAT IS THE PURPOSE OF THE MEETING?
At our Annual Meeting, stockholders will act upon the matters outlined
in the accompanying notice of meeting. In addition, the Company's management
will report on the performance of the Company during fiscal 2000 and respond to
questions from stockholders.
WHO IS ENTITLED TO VOTE?
Only stockholders of record at the close of business on the record
date, April 27, 2001, are entitled to receive notice of the Annual Meeting and
to vote the shares of common stock that they held on that date at the meeting,
or any postponement or adjournment of the meeting. Each outstanding share
entitles its holder to cast one vote on each matter to be voted upon.
WHO CAN ATTEND THE MEETING?
All stockholders as of the record date, or their duly appointed
proxies, may attend the meeting, and each may be accompanied by one guest.
Seating, however, is limited. Admission to the meeting will be on a first-come,
first-served basis. Registration and seating will begin at _____ a.m. (local
time) and the meeting will begin at _____ a.m. (local time). Each stockholder
may be asked to present valid picture identification, such as a driver's license
or passport. Cameras, recording devices, and other electronic devices, will not
be permitted at the meeting.
Many of you hold your shares in "street name," that is, through a
broker or other nominee. If you hold your shares in street name, you will need
to bring a copy of a brokerage statement reflecting your stock ownership as of
the record date and check in at the registration desk at the meeting.
WHAT CONSTITUTES A QUORUM?
The presence at the meeting, in person or by proxy, of the holders of a
majority of the shares of common stock outstanding on the record date will
constitute a quorum, permitting the meeting to conduct its business. As of the
record date, ______________________ shares of common stock of the Company were
outstanding and entitled to vote at the meeting. Proxies received but marked as
abstentions and broker non-votes will be included in the calculation of the
number of shares considered to be present at the meeting.
5
HOW DO I VOTE?
If you complete and properly sign the accompanying proxy card and
return it to the Company, it will be voted as you direct. If you are a
registered stockholder and attend the meeting, you may deliver your completed
proxy card in person. "Street name" stockholders who wish to vote at the meeting
will need to obtain a proxy form from the institution that holds their shares.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. Even after you have submitted your proxy, you may change your vote
at any time before the proxy is exercised by filing with the Secretary of the
Company either a notice of revocation or a duly executed proxy bearing a later
date. The powers of the proxy holders will be suspended if you attend the
meeting in person and so request, although attendance at the meeting will not by
itself revoke a previously granted proxy.
WHAT ARE THE BOARD'S RECOMMENDATIONS?
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION OF THE NOMINATED
SLATE OF DIRECTORS AND FOR EACH OF THE PROPOSALS IN THIS PROXY STATEMENT.
The Board's recommendation is also set forth together with the
description of each item in this proxy statement. Unless you give other
instructions on your proxy card, the persons named as proxy holders on the proxy
card will vote in accordance with the recommendations of the Board of Directors.
With respect to any other matter that properly comes before the
meeting, the proxy holders will vote as recommended by the Board of Directors
or, if no recommendation is given, in their own discretion.
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
For each item, the affirmative vote of the holders of a majority of the
shares represented in person or by proxy and entitled to vote on the matter is
required for approval, except that approval of Proposal 3 requires the vote of a
majority of the outstanding shares of the Company's common stock. A properly
executed proxy marked:
o "WITHHOLD AUTHORITY" with respect to the election of one or
more directors; or
o "ABSTAIN" with respect to any other matters
will not be voted, although it will be counted for purposes of determining
whether there is a quorum. Accordingly, such a proxy will have the effect of a
negative vote. A properly executed, but unmarked proxy will be voted for the
election of the nominated slate of five directors and for each of the proposals.
WHAT ARE "BROKER NON-VOTES" AND HOW WILL THEY BE COUNTED?
"Broker non-votes" occur when you hold your shares in "street name"
through a broker or other nominee, and you do not give your broker or nominee
specific instructions on your proxy card. If you fail to complete your proxy
card:
o your broker or nominee may not be permitted to exercise
voting discretion with respect to some of the matters to be
acted upon; and
o your shares may not be voted on those matters and will not
be counted in determining the number of shares necessary for
approval.
Broker non-votes will have the effect of a negative vote. Shares represented by
such "broker non-votes" will, however, be counted in determining whether there
is a quorum.
2
6
WHO WILL BEAR THE COST OF SOLICITING PROXIES?
The Company will bear the cost of soliciting proxies, including
expenses in connection with preparing and mailing this Proxy Statement. In
addition, the Company will reimburse brokerage firms and other persons
representing you for their expenses in forwarding proxy material to you. The
Company's directors, officers, and employees may also solicit you by telephone
and other means, but they will not receive any additional compensation for the
solicitation.
STOCK OWNERSHIP
HOW MUCH STOCK DO THE COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS OWN AND HOW DO
THEY INTEND TO VOTE?
The following table shows the amount of common stock of the Company
beneficially owned (unless otherwise indicated) by: (1) the directors and
executive officers of the Company named in the Summary Compensation Table below;
(2) a group comprised of Interwest Group, Inc., Anschutz Company, and Philip F.
Anschutz; and (3) the directors and executive officers of the Company as a
group. The Company's Board of Directors has voting power over the shares owned
by Interwest Group, Inc., Anschutz Company, and Philip F. Anschutz as a result
of a voting trust agreement that was executed in conjunction with the Company's
November 2000 merger with Internet Communications, Inc. The officers and
directors have indicated that they intend to vote for election of the nominated
slate of directors and for each of the proposals in this proxy statement. Except
as otherwise indicated, all information is as of February 1, 2001.
AGGREGATE NUMBER OF PERCENT OF
SHARES BENEFICIALLY SHARES
NAME OWNED(1) OUTSTANDING
---------------------------- ------------------------ ---------------
Douglas H. Hanson 5,752,500(2) 19.1%
Robert W. Grabowski 17,800(3) *
D. D. Hock 10,000(4) *
Lewis H. Silverberg 65,000(5) *
Michael T. Victor 2,000(6) *
Charles R. Eazor 8,465(7) *
Paula M. Eazor 527(8) *
William H. Heuston 23,900(9) *
Chris J. Melcher 71,133(10) *
E. Stephen Shriver 2,347(11) *
Thomas A. Stein - 0 -(12) *
Interwest Group, Inc.,
Anschutz Company, and
Philip F. Anschutz 3,800,377(13) 12.7%
All Directors and Executive
Officers as a group (12
persons) 9,784,049(14) 32.4%
* Less than one percent.
3
7
- ----------
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a
person is deemed to be the beneficial owner, for purposes of this table, of
any shares of common stock if such person has or shares voting power or
investment power with respect to such security, or has the right to acquire
beneficial ownership at any time within 60 days from March 31, 2001. For
purposes of this table, "voting power" is the power to vote or direct the
voting of shares and "investment power" is the power to dispose or direct
the disposition of shares.
(2) Includes 3,686,115 shares of common stock directly owned by Mr. Hanson,
1,600,000 shares owned by Mr. Hanson's spouse, 300,000 shares held in
family trust, 166,385 shares of common stock that Mr. Hanson has the right
to acquire within 60 days of March 31, 2001 pursuant to incentive stock
options, and excludes 3,800,377 shares for which Mr. Hanson, as a member of
the Company's Board of Directors, shares voting and dispositive power with
Interwest Group, Inc., Anschutz Company, and Philip F. Anschutz.
(3) Includes 7,800 shares of common stock directly owned by Mr. Grabowski,
10,000 shares of common stock that Mr. Grabowski has the right to acquire
within 60 days of March 31, 2001 pursuant to options, and excludes
3,800,377 shares for which Mr. Grabowski, as a member of the Company's
Board of Directors, shares voting and dispositive power with Interwest
Group, Inc., Anschutz Company, and Philip F. Anschutz.
(4) Includes 10,000 shares of common stock that Mr. Hock has the right to
acquire within 60 days of March 31, 2001 pursuant to options and excludes
3,800,377 shares for which Mr. Hock, as a member of the Company's Board of
Directors, shares voting and dispositive power with Interwest Group, Inc.,
Anschutz Company, and Philip F. Anschutz.
(5) Includes 55,000 shares of common stock directly owned by Mr. Silverberg,
10,000 shares of common stock that Mr. Silverberg has the right to acquire
within 60 days of March 31, 2001 pursuant to options, and excludes
3,800,377 shares for which Mr. Silverberg, as a member of the Company's
Board of Directors, shares voting and dispositive power with Interwest
Group, Inc., Anschutz Company, and Philip F. Anschutz.
(6) Includes 2,000 shares of common stock directly owned by Mr. Victor and
excludes 3,800,377 shares for which Mr. Victor, as a member of the
Company's Board of Directors, shares voting and dispositive power with
Interwest Group, Inc., Anschutz Company, and Philip F. Anschutz.
(7) Includes 8,465 shares of common stock owned directly by Mr. Eazor. Excludes
indirect ownership of shares held by Mr. Eazor's spouse, Paula M. Eazor,
who is listed separately in this stock ownership table.
(8) Includes 527 shares of common stock owned directly by Ms. Eazor. Excludes
indirect ownership of shares held by Ms. Eazor's spouse, Charles R. Eazor,
who is listed separately in this stock ownership table.
(9) Includes 7,234 shares of common stock directly owned by Mr. Heuston and
16,666 shares of common stock that Mr. Heuston has the right to acquire
within 60 days of March 31, 2001 pursuant to options. Mr. Heuston resigned
in the fourth quarter of 2000. The share ownership data included in this
table represents the best information available to the Company.
(10) Includes 71,133 shares of common stock that Mr. Melcher has the right to
acquire within 60 days of March 31, 2001 pursuant to options.
(11) Includes 2,347 shares of common stock directly owned by Mr. Shriver.
(12) Mr. Stein resigned during the third quarter of 2000. The share ownership
data included in this table represents the best information available to
the Company.
(13) Based on a Schedule 13G filed on December 11, 2000, Interwest Group, Inc.,
Anschutz Company, and Philip F. Anschutz have shared power to vote or
direct the vote of 3,800,377 shares of common stock and shared power to
vote or direct the disposition of 3,800,377 shares of common stock. These
shares were issued pursuant to the Company's November 2000 merger with
Internet Communications, Inc. The Company's Board of Directors shares
voting and dispositive power with Interwest Group, Inc. Anschutz Company,
and Philip F. Anschutz.
(14) Includes 5,699,488 shares of common stock directly owned by the twelve
officers and directors as a group, 284,184 shares of common stock that
twelve officers and directors as a group have the right to acquire within
60 days of March 31, 2001 pursuant to options, and 3,800,377 shares of
common for which the Company's Board of Directors shares voting and
dispositive power with Interwest Group, Inc., Anschutz Company, and Philip
F. Anschutz.
4
8
WHO ARE THE LARGEST OWNERS OF THE COMPANY'S STOCK?
As of February 1, 2001, the Company is not aware of any persons or
entities that beneficially own more than five percent of the Company's common
stock other than Douglas H. Hanson and Interwest Group, Inc., Anschutz Company,
and Philip F. Anschutz, as disclosed in the stockholder table on page 3.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors will be made up of five directors. Each director
is elected for a one-year term that expires at the 2001 Annual Meeting. The
Board of Directors proposes that the nominees described below be elected for a
new term of one year and until their successors are appointed or elected and
duly qualified.
Each of the nominees has consented to serve a one-year term. If any of
them should become unavailable to serve as a director, the Board may designate a
substitute nominee. In that case, the persons named as proxies will vote for the
substitute nominee designated by the Board.
DIRECTORS STANDING FOR ELECTION
The directors standing for election are:
DOUGLAS H. HANSON Director since 1997
Mr. Hanson, 57, has served as Chief Executive Officer and Chairman of the Board
of Directors of the Company since October 1997 and the President of the Company
since January 2000. Mr. Hanson also served as the Company's President from
October 1997 until January 1999. From 1987 to 1997, Mr. Hanson was the
President, Chief Executive Officer, and a director of Qwest Communications,
Inc., a Colorado-based telecommunications company, as well as founder of Qwest's
predecessor, SP Telecom. Before founding SP Telecom, Mr. Hanson was Vice
President of FiberTrak, a telecommunications joint venture among Santa Fe,
Norfolk, and SP railroads. He also held various positions at Southern Pacific
Transportation Co. Mr. Hanson currently serves as Chairman of the Board of
Directors of the Competitive Telecommunications Association (CompTel), The
Metropolitan State College Foundation Board, and the Board of Trustees of the
Salvation Army, Intermountain Division, and is engaged in other civic
activities.
ROBERT W. GRABOWSKI Director since 1998
Mr. Grabowski, 60, has been a director of the Company since January 1998. He has
been the Vice President of Finance and Administration to Sunny Side, Inc./Temp
Side, a private employment service, since 1988. He has been a certified public
accountant since 1968 and holds a Bachelor of Science degree from De Paul
University.
D.D. HOCK Director since 1997
Mr. Hock, 66, has been a director of the Company since October 1997. Prior to
becoming a director, Mr. Hock was an executive with Public Service Company of
Colorado, including the President, Chief Executive Officer, and Chairman of the
Board of Directors from February 1989 to July 1994, Chairman and Chief Executive
Officer from July 1994 to January 1996, and Chairman from January 1996 to
February 1997, when he retired. Mr. Hock currently serves on the Board of
Directors of Hathaway Corporation, J.D. Edwards & Co., American Century Mutual
Funds, Wagner Equipment Company, and Colorado Natural Gas, Inc.
5
9
LEWIS H. SILVERBERG Director since 1998
Mr. Silverberg, 66, has been a director of the Company since January 1988.
Mr. Silverberg has been a private investor and a business consultant since 1994,
advising businesses on matters of formation, finance, mergers, and sales. He
practiced law in San Diego, CA from 1959 to 1989. From 1989 to 1994 he was
employed in an executive capacity to a subsidiary of a public company.
MICHAEL T. VICTOR Director since 1999
Mr. Victor, 39, is a Professor of Business at Gannon University, Dahlkemper
School, teaching at the graduate and undergraduate level. Mr. Victor served as
President of Pyramid Industries from 1993 to 1998 and as Chairman and CEO, from
1993 and 1991 respectively, until his sale of the company to Lanson & Sessions
in September 2000. From 1986 to 1988, he was an Attorney in the Corporate Law
Department of MacDonald, Illig, Jones & Britton. Mr. Victor is currently
Chairman of the Victor Family Foundation. He also serves on the Board of
Directors of the Erie Conference on Community Development, the President's
Advisory Board at Gannon University, the Board of Corporators to Hamot Medical
Center and St. Vincent Health Center, the Board of Visitors of Mercyhurst
College's D'Angelo School of the Arts, and the Council of Fellows at
Pennsylvania State University's Behrend College. Mr. Victor is engaged in many
other civic activities.
Unless otherwise instructed on the proxy, properly executed proxies
will be voted for the election of the five director nominees.
----------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE ELECTION OF THE NOMINATED SLATE OF DIRECTORS.
----------
CORPORATE GOVERNANCE AND OTHER MATTERS
The Board of Directors conducts its business through meetings and
through its committees. The Board of Directors acts as a nominating committee
for selecting candidates to stand for election as directors.
HOW OFTEN DID THE BOARD MEET IN 2000?
During the year ended December 31, 2000, the Board of Directors held
seven meetings. All directors attended all meetings of the Board of Directors
and any committee on which the director served.
WHAT COMMITTEES HAS THE BOARD ESTABLISHED?
The Board of Directors currently has two committees: the Audit
Committee and the Compensation Committee.
AUDIT COMMITTEE. The Audit Committee, among other things, recommends
the firm to be appointed as independent accountants to audit the Company's
financial statements, discusses the scope and results of the audit with the
independent accountants, reviews with management and the independent accountants
the Company's interim and year-end operating results, considers the adequacy of
the internal accounting controls and audit procedures of the Company, and
reviews the non-audit services to be performed by the independent accountants.
The Audit Committee is comprised of three non-employee directors. The current
members of the Audit Committee are Messrs. Grabowski, Hock, and Silverberg.
Mr. Grabowski serves as Chairman of the Audit Committee. The Audit Committee met
three times in 2000.
REPORT OF THE AUDIT COMMITTEE [To be provided by amendment.]
6
10
COMPENSATION COMMITTEE. The Compensation Committee reviews the
salaries, benefits, and other compensation of our officers and key employees.
The Compensation Committee's responsibilities include employment contracts,
pensions, performance and incentive-based compensation, and stock option plans,
including reviewing management's recommendations regarding issuance of stock
options to officers and directors who are subject to stock ownership reporting
obligations under Section 16 of the Securities Exchange Act of 1934, as amended.
The Compensation Committee then makes recommendations to the Board of Directors
based on its review. The current members of the Compensation Committee are
Messrs. Hock, Grabowski, and Victor. Mr. Hock serves as Chairman of the
Compensation Committee. The members of the Compensation Committee review and
establish the salaries, benefits, and other compensation of all other employees.
The Compensation Committee met two times in 2000.
HOW ARE DIRECTORS COMPENSATED?
BASE COMPENSATION. Each non-employee director receives an annual
retainer based on a prorated rate of $12,000 per year.
1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN. Under the 1996
Non-Employee Directors' Stock Option Plan, each non-employee director receives
an option to purchase 1,500 shares of common stock upon appointment or election
to the Board of Directors. Thereafter, on the first, second, and third
anniversary of appointment or election, each non-employee director is eligible
to receive a grant of options to purchase an additional 1,500 shares of common
stock, up to a maximum of 6,000 shares. Each option grant, vesting six months
after the date of grant and having a five-year term, permits the holder to
purchase shares at their fair market value on the date of grant. Although a
total of 18,000 shares of common stock have been reserved for issuance over the
10-year term of the 1996 Non-Employee Directors' Stock Option Plan, the Company
has only issued options to purchase 6,000 shares under this plan and has not
issued any options under this plan since 1996. To date, the following options
have been issued:
NUMBER OF
SHARES ISSUABLE
DIRECTOR UPON EXERCISE
--------------------------- -------------------
Robert Grabowski 1,500
D.D. Hock 1,500
Lewis H. Silverberg 1,500
Michael T. Victor 0
Mary Beth Vitale * 1,500
-------------------
Total 6,000
===================
- ----------
* Resigned as of June 15, 2000.
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN. Under the 1998
Non-Employee Directors' Stock Option Plan, each non-employee director receives
an option to purchase 8,500 shares of common stock upon appointment or election
to the Board of Directors. During 2000, the Company did not grant any options
under this plan. Under the 1998 Directors' Plan, the options expire five years
from the date of grant, unless the Compensation Committee or the Board of
Directors (in the absence of the Compensation Committee) terminates the options
earlier. The options vest based on the non-employee director's continued service
at the following rate: (1) 1,500 on December 31, 1998; (2) 3,500 on December 31,
1999; and (3) 3,500 on December 31, 2000. Notwithstanding the foregoing, in the
event of a change in control (as defined in the 1998 Directors' Plan), each
outstanding option vests immediately. Each option grant permits the holder to
purchase shares at their fair market value on the date of grant.
7
11
In the event of a change in control, as defined in the 1998
Non-Employee Directors' Stock Option Plan, the Compensation Committee (or the
Board of Directors in the absence of such a committee) may:
o grant a cash bonus award to any optionee in an amount equal
to the exercise price of all or any portion of the options
then held by the optionee;
o pay cash to any or all optionees in exchange for the
cancellation of their outstanding options in an amount equal
to the difference between the exercise price and the greater
of the tender offer price for the common stock underlying
such options (in the event of a tender offer for the
securities of the Company) or the fair market value of the
stock on the date of cancellation; and
o make any other adjustments or amendments to the outstanding
options.
Although a total of 68,000 shares of common stock were reserved for issuance
over the three-year term of the 1998 Non-Employee Directors' Stock Option Plan,
the Company has only issued options to purchase 34,000 shares under this plan
and has not issued any options under this plan since 1998. The plan expired on
December 31, 2000 and no further options will be issued under this plan. The
following options were issued:
NUMBER OF SHARES
ISSUABLE UPON
DIRECTOR EXERCISE
--------------------------- -------------------
Robert Grabowski 8,500
D.D. Hock 8,500
Lewis H. Silverberg 8,500
Michael T. Victor 0
Mary Beth Vitale * 8,500
-------------------
Total 34,000
===================
- ----------
* Resigned as of June 15, 2000.
EXECUTIVE OFFICERS AND KEY EMPLOYEES
Other than Douglas H. Hanson, whose biography appears above under the
caption "Directors Standing for Election," the following individuals are
executive officers or key employees of the Company.
SHAUNA CALLAHAN, 31, joined the Company in October 2000 as Controller.
Ms. Callahan worked as Controller for Corporate Express Australia Limited from
December 1996 to January 2000 and as Finance Manager for Coram Healthcare
Corporation from May 1995 to December 1996. Prior to her position at Coram
Healthcare Corporation, she worked in the audit division of Arthur Andersen, LLP
in Denver, Colorado. Ms. Callahan received her Bachelor of Science in Business
Administration from the University of Colorado in 1992.
CHARLES EAZOR, 54, joined the Company through its November 2000 merger
with Internet Communications, Inc. and currently serves as Senior Vice
President, Operations. Prior to the merger, Mr. Eazor served as Vice
President/General Manager of Internet Communications, Inc. from October 1998 to
November 2000. From January 1992 through December 1997, Mr. Eazor was the head
of the telecommunications division of General Analytics Corporation, a
government systems integrator, where he was responsible for implementing the
United Stated General Services Administration's national frame relay network and
the Treasury's national local telecommunications initiative. In 1983, Mr. Eazor
and his partners purchased the interconnect subsidiaries of Sprint and operated
them as Southern Phone Corporation until acquired by AIM Telephones, Inc. in
1988, at which time Mr. Eazor served as
8
12
Senior Vice President until 1992. From 1978 to 1983, Mr. Eazor served as Manager
of Business Development for Sprint. Mr. Eazor currently serves as Vice President
and as a member of the Board of Directors of NESCI, the association of
distributors of NEC America telecommunications products in the United States and
Canada. Mr. Eazor received his Master of Business Administration from the
University of Baltimore.
PAULA M. EAZOR, 41, joined the Company through its November 2000 merger
with Internet Communications, Inc. and currently serves as Sales Manager-Voice
System Division. Ms. Eazor served as Senior Account Manager for the Central
Office Division and Wide Area Network Divisions to Internet Communications from
November 1998 to November 2000. From January 1998 to November 1998, Ms. Eazor
was responsible for State and Federal Government Sales business development at
Vision Communications. From January 1997 to January 1998, Ms. Eazor was Major
Account Executive with GTE Customer Networks. From 1994 to 1996, Ms. Eazor
served as Project Manager-VA Programs to United Communications and from 1992 to
1994 as Project Manager-Federal Government with General Analytics Corporation.
CHRISTOPHER J. MELCHER, 42, joined the Company in January 1999, and
currently serves as Executive Vice President - Strategic Development, General
Counsel, and Corporate Secretary. Previously, Mr. Melcher served as Assistant
General Counsel for KN Energy, Inc. from September 1997 to December 1998,
providing legal services on regulated and unregulated market activities and
directing corporate strategy in federal and state proceedings across the
company's 15-state territory. Prior to KN Energy, he was Senior Regulatory
Counsel with Southern California Edison, a subsidiary of Edison International,
Inc., from July 1996 to August 1997. Mr. Melcher represented corporate clients
with the firm of Brownstein Hyatt & Farber, P.C. from January 1995 to July 1996.
From March 1990 to December 1994, he served as Associate Independent Counsel
with the Office of Independent Counsel in Washington, D.C. Mr. Melcher practiced
law with the firm of Wilmer Cutler & Pickering from September 1987 to March
1990. Mr. Melcher received his Bachelor of Arts degree from Carleton College and
his Juris Doctor degree from Yale Law School.
E. STEPHEN SHRIVER, 41, joined the Company through its November 2000
merger with Internet Communications, Inc. and currently serves as Senior Account
Manager-Voice Systems. Mr. Shriver served as Senior Account Manager of Internet
Communications, Inc. from the time of its September 1996 merger with Interwest
Communications Inc. until November 2000. Mr. Shriver served as a Senior Account
Executive for Interwest Communications, Inc. from March 1992 to 1996 and held
sales positions at two different Denver-based interconnect companies, Omega
Business Communications, Inc. and Another Telephone Company, Inc, from 1982 to
1992.
W. JEFF SWENSON, 47, joined the Company in January 2001 and currently
serves as Executive Vice President and Chief Operating Officer. Previously, Mr.
Swenson served as Vice President, International and Strategic Accounts for
Global Crossing from August 2000 to December 2000. In this capacity, Mr. Swenson
was responsible for development and implementation of Global Crossings carrier
sales strategy for all International and Strategic Accounts. Prior to this
assignment, Mr. Swenson served Global Crossing as Vice President of Western
Region Carrier Sales, responsible for revenue growth and receivables and expense
management from December 1998 to August 2000. From April 1986 through November
1998, Mr. Swenson served as President of National Network Corporation. National
Network Corporation was started by Mr. Swenson to serve as an underlying carrier
for the long distance reseller market and continues to operate as such today.
Prior to starting National Network Corporation, Mr. Swenson held the position of
Director of Communications for Manville Corporation responsible for all voice
and data communications worldwide. From March 1981 through December 1983, Mr.
Swenson held several marketing and sales positions with Mountain Bell and AT&T.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the
compensation paid during the periods indicated to the Chief Executive Officer
and President of the Company, to each of the four other most highly-compensated
executive officers of the Company, and to two additional individuals who
resigned in 2000, but whose salary and bonus still placed them among the
Company's four most highly compensated officers for the fiscal year ended
December 31, 2000.
9
13
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------------------ ----------------
SECURITIES
NAME AND PRINCIPAL POSITIONS OTHER ANNUAL UNDERLYING
YEAR SALARY BONUS COMPENSATION OPTIONS(8)
- ----------------------------- ------ -------------- ------------- -------------- ----------------
Douglas H. Hanson(1) 2000 $ 250,000 $ -- $ 2,100 300,000
Chairman, President, 1999 $ 180,654 $ 600,000 $ 1,945 --
and CEO 1998 $ 120,000 $ - $ 537,946 --
Paula M. Eazor(2) 2000 $ 320,003 $ 10,527 $ 6,164 12,000
Sales Manager 1999 $ 76,866 $ 10,642 $ 1,492 -
Voice Systems Division 1998 $ 7,190 $ 6,667 $ -- 27
E. Stephen Shriver(3) 2000 $ 207,930 $ 11,602 $ 5,457 12,000
Senior Account Manager 1999 $ 173,220 $ 60,308 $ 4,309 --
Voice Systems 1998 $ 133,710 $ 34,053 $ 2,253 128
William H. Heuston(4) 2000 $ 137,270 $ 59,721 $ 3,150 30,000
Regional Vice President- 1999 $ 124,879 $ 10,000 $ 3,137 30,000
Rocky Mountain Region 1998 $ 116,037 $ 2,500 $ 2,787 15,000
Charles R. Eazor(5) 2000 $ 123,159 $ 36,000 $ 4,500 45,000
Senior Vice President, 1999 $ 127,309 $ -- $ 1,710 733
Operations 1998 $ 57,625 $ 15,000 $ -- 632
Thomas A. Stein(6) 2000 $ 153,405 $ 3,852 $ 1,979 --
Vice President 1999 $ 37,990 $ 10,217 $ 1,364 --
Network Systems Sales 1998 $ 38,259 $ -- $ 784 --
Chris J. Melcher(7) 2000 $ 145,385 $ -- $ 3,750 100,000
Executive Vice President, 1999 $ 114,667 $ -- $ -- 105,400
Strategic Development, 1998 $ -- $ -- $ -- 54,000
General Counsel
- ----------
(1) Mr. Hanson was granted options to purchase 300,000 shares of the
Company's common stock in 2000 for services performed in 2000. Mr.
Hanson's bonus of $600,000 was paid in full during fiscal year 1999 for
services performed in 1999. In 1998, Mr. Hanson's "Other Annual
Compensation" is comprised of $1,946 of 401(k) Plan matching funds and
the $536,000 dollar value difference between the price paid by Mr.
Hanson for securities of the Company and the fair market value of such
securities on the date of purchase.
(2) Ms. Eazor was granted options to purchase 12,000 shares of the
Company's common stock in 2000 for services performed in 2000 and
options to purchase 27 shares of the Company's common stock in 1998 for
services performed in 1998.
(3) Mr. Shriver was granted options to purchase 12,000 shares of the
Company's common stock in 2000 for services performed in 2000 and
options to purchase 128 shares of the Company's common stock in 1998
for services performed in 1998.
(4) Mr. Heuston was granted options to purchase 30,000 shares of the
Company's common stock in 2000 for services performed in 2000, options
to purchase 30,000 shares of the Company's common stock in 1999 for
services performed in 1999, and options to purchase 15,000 shares of
the Company's common stock in 1998 for services performed in 1998. Mr.
Heuston resigned in the fourth quarter of 2000.
(5) Mr. Eazor was granted options to purchase 45,000 shares of the
Company's common stock in 2000 for services performed in 2000, options
to purchase 733 shares of the Company's common stock in 1999 for
services performed in 1999, and options to purchase 632 shares of the
Company's common stock in 1998 for services performed in 1998.
(6) Mr. Stein resigned during the third quarter of 2000.
(7) Mr. Melcher was granted options to purchase 100,000 shares of the
Company's common stock in 2000 for services performed in 2000, options
to purchase 105,400 shares of the Company's common stock in 1999 for
services performed in 1999, and options to purchase 54,000 shares of
the Company's common stock in 1998 pursuant to his Employment Letter
Agreement.
10
14
(8) Securities underlying options for Ms. Eazor, Mr. Shriver, Mr. Eazor,
and Mr. Stein represent either: a) the number of equivalent shares of
the Company's common stock that the individuals had the right to
receive pursuant to the terms and conditions of the Amended and
Restated Agreement and Plan of Merger, dated October 18, 2000, between
Internet Communications, Inc. and the Company; or b) a post-merger
option grant made by the Company. The disclosure of securities
underlying options granted for Ms. Eazor, Mr. Shriver, Mr. Eazor, and
Mr. Stein excludes grants made to these individuals during 2000, 1999,
and 1998 by Internet Communications, Inc. which were extinguished in
the November 2000 merger between Internet Communications, Inc. and the
Company.
STOCK OPTION GRANTS IN FISCAL YEAR 2000. The following table sets forth
information with respect to grants of stock options to each of the Named
Executive Officers during the year ended December 31, 2000. All grants were made
under the Company's 2000 Employees' Stock Option Plan.
INDIVIDUAL GRANTS IN 2000
-----------------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE AT
NUMBER OF TOTAL ASSUMED ANNUAL RATE OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR THE
UNDERLYING GRANTED TO OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE GRANT EXPIRATION -------------------------------
NAME GRANTED(1) FISCAL YEAR PRICE DATE DATE(1) 5% 10%
- --------------------- ------------- ------------- ---------- -------- ---------- ------------- ---------------
Douglas H. Hanson 300,000 14.98 $ 2.4063 8/3/00 8/2/05 $ 181,309.78 $ 400,647.20
Paula M. Eazor 12,000 0.60 $ 1.00 11/29/00 11/28/10 $ 7,546.74 $ 19,124.90
E. Stephen Shriver 12,000 0.60 $ 1.00 11/29/00 11/28/10 $ 7,546.74 $ 19,124.90
William H. Heuston 30,000 1.50 $ 2.1875 8/3/00 8/2/10 $ 41,271.21 $ 104,589.36
Charles R. Eazor 45,000 2.25 $ 1.00 11/29/00 11/28/10 $ 28,300.28 $ 71,718.39
Thomas A. Stein -- -- $ -- -- -- $ -- $ --
Chris J. Melcher 100,000 5.00 $ 2.1875 8/3/00 8/2/10 $ 137,570.70 $ 348,631.20
- ----------
(1) All option grants represent shares of common stock. These options have
a ten-year term and become exercisable in three equal annual
installments beginning one year after the date of grant. The disclosure
of options granted to Ms. Eazor, Mr. Shriver, Mr. Eazor, and Mr. Stein
excludes grants made to these individuals during 2000, if any, by
Internet Communications, Inc., all of which were extinguished in the
November 2000 merger between Internet Communications, Inc. and the
Company.
OPTION EXERCISES AND FISCAL YEAR-END VALUES. The following table sets
forth information with respect to the Named Executive Officers concerning the
exercise of options during the fiscal year ended December 31, 2000, and the
number of securities underlying unexercised options and the of all unexercised
in-the-money options held at year-end.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT DECEMBER 31, 2000 AT DECEMBER 31, 2000(2)
ACQUIRED ON VALUE ---------------------------- --------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- ----------- ------------ ----------- ------------- ----------- -------------
Douglas H. Hanson -- $ -- 166,385 -- $ -- $ --
Paula M. Eazor 27 $ 27.00 -- 12,000 $ -- $ --
E. Stephen Shriver 128 $ 128.00 -- 12,000 $ -- $ --
William H. Heuston -- $ -- 16,666 55,000 $ -- $ --
Charles R. Eazor 1,365 $ 1,365.00 -- 45,000 $ -- $ --
Thomas A. Stein -- $ -- -- -- $ -- $ --
Chris J. Melcher -- $ -- 71,133 188,267 $ -- $ --
11
15
- ----------
(1) The value realized represents the excess, if any, of the closing price
of the common stock on the Nasdaq National Market on the date of
exercise over the option exercise price.
(2) Represents the excess, if any, of the closing price of the common stock
on the Nasdaq National Market at year-end ($0.375) over the option
exercise price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee is or has been an
employee of the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors has prepared the
following report on the Company's policies with respect to the compensation of
executive officers for 2000. Decisions on compensation of the Company's
executive officers generally are made by the Compensation Committee. The
Compensation Committee also administers all of the Company's Stock Option Plans.
WHAT IS THE COMPANY'S PHILOSOPHY OF EXECUTIVE OFFICER COMPENSATION?
The Company's executive compensation policies are designed to:
o attract, motivate, and retain experienced and
qualified executives;
o increase the overall performance of the Company;
o increase stockholder value; and
o enhance the performance of individual executives.
The Company seeks to pay competitive salaries and annual cash bonuses based upon
individual performance combined with the Company's overall performance relative
to corporate objectives, taking into account individual contributions and
performance levels. The Compensation Committee believes that the level of base
salaries plus bonuses should generally fall in the mid-range of executive
compensation paid by comparable telecommunications and Internet service
companies. In addition, it is the Company's policy to grant stock options to
executives upon commencement of their employment with the Company and
periodically thereafter as appropriate in order to strengthen the alliance of
interest between such executives and the Company's stockholders.
The following describes in more specific terms the elements of
compensation that implement the Company's executive compensation policies, with
specific reference to compensation reported for 2000:
BASE SALARIES. Base salaries for executive officers are initially
determined by evaluating the responsibilities of the position, the experience
and knowledge of the individual, and the competitive marketplace for executive
talent, including a comparison to base salaries paid for similar positions at
other companies which are deemed appropriate comparisons for compensation
purposes. Base salaries for executive officers are to be reviewed annually by
the Compensation Committee and the Board of Directors.
Annual salary adjustments are recommended by the Chief Executive
Officer after evaluating the previous year's performance and considering the new
responsibilities of each executive officer. The members of the Compensation
Committee (Messrs. Hock, Grabowski, and Victor) review the Chief Executive
Officer's recommendations and also review the performance of the Chief Executive
Officer. Individual performance evaluations take into account such factors as
achievement of specific goals that are driven by the Company's strategic plan
and attainment of specific individual objectives. The weight given to the
various factors affecting an executive officer's base salary level is determined
by the Compensation Committee on a case-by-case basis.
12
16
ANNUAL CASH BONUSES. The Company's annual cash bonuses to its executive
officers are based on both corporate and individual performance. Corporate
performance is measured by reference to factors that reflect objective
performance criteria over which management generally has the ability to exert
some degree of control. These corporate performance factors consist of revenue
and earnings targets established in the Company's strategic plan.
STOCK OPTION GRANTS. Pursuant to the Company's 2000 Employees' Stock
Option Plan, executive officers and other employees are eligible to receive
compensation in the form of options to purchase shares of the Company's common
stock.
The Compensation Committee grants stock options to the Company's
executive officers in order to align their interests with the interests of the
stockholders. Stock options are considered by the Compensation Committee to be
an effective long-term incentive because the executives' gains are linked to
increases in the stock value, which in turn provide stockholder gains. The
Compensation Committee generally grants options to new executive officers and
other key employees upon commencement of their employment with the Company and
periodically thereafter upon the attainment of certain performance goals
established by the Compensation Committee. The options generally are granted at
an exercise price equal to the market price of the common stock on the date of
grant (or 110% of the market price in the case of an optionee beneficially
owning more than 10% of the outstanding common stock). Options granted to
executive officers generally vest over a period of three years following the
date of grant. The option term is five years. The greater the appreciation of
the stock price in future periods, the greater the benefit to the holder of the
options, thus providing an additional incentive to executive officers to create
additional value for the Company's stockholders. Management of the Company
believes that stock options have been helpful in attracting and retaining
skilled executive personnel.
In determining grants of options for executive officers, the
Compensation Committee has reviewed competitive data of long-term incentive
practices at other companies that are deemed appropriate comparisons for
compensation purposes.
OTHER COMPENSATION. The Company has adopted a contributory retirement
plan (the "401(k) Plan") for all of its employees, including executive officers,
with at least three months of service to the Company. The 401(k) Plan provides
that each participant may contribute up to 15% of the participant's salary (not
to exceed the annual statutory limit). The Company matches 50% of the first six
percent contributed by a 401(k) Plan participant.
CHIEF EXECUTIVE OFFICER COMPENSATION. The executive compensation policy
described above is followed in setting Mr. Hanson's compensation. Mr. Hanson
generally participates in the same executive compensation plans and arrangements
available to the other senior executives. Accordingly, his compensation consists
of an annual base salary, an annual cash bonus and long-term equity-linked
compensation in the form of stock options. The Compensation Committee's general
approach in establishing Mr. Hanson's compensation is to be competitive with
peer companies, but to have a large percentage of his target compensation based
upon objective performance criteria and targets established in the Company's
strategic plan.
Mr. Hanson's compensation for the year ended December 31, 2000
consisted of a base salary of $250,000 and a grant of options to purchase
300,000 shares of Company common stock at $2.1875. Mr. Hanson's salary for 2000
was based on, among other factors, the Company's performance and the
compensation of chief executive officers of comparable companies, although his
compensation was not targeted to any particular group of these companies.
COMPENSATION DEDUCTIBILITY POLICY. Under Section 162(m) of the Internal
Revenue Code of 1986, as amended, and applicable Treasury regulations, no tax
deduction is allowed for annual compensation in excess of $1 million paid to any
of the Company's five most highly compensated executive officers. However,
performance-based compensation that has been approved by stockholders is
excluded from the $1 million limit if, among other requirements, the
compensation is payable only upon attainment of pre-established, objective
performance goals and the board committee that establishes such goals consists
only of "outside directors" as defined for purposes of Section 162(m). All of
the members of the Compensation Committee qualify as "outside directors"
(Messrs. Hock, Grabowski, and Victor) and are responsible for setting the
objective performance goals used as the basis for
13
17
Mr. Hanson's performance-based compensation. The Compensation Committee intends
to maximize the extent of tax deductibility of executive compensation under the
provisions of Section 162(m) so long as doing so is compatible with its
determinations as to the most appropriate methods and approaches for the design
and delivery of compensation to the Company's executive officers.
Respectfully submitted,
Compensation Committee
D.D. Hock, Chairman
Robert W. Grabowski
Michael T. Victor
STOCK PERFORMANCE GRAPH
The following indexed line graph indicates the Company's total return
to stockholders from September 6, 1996, the date on which the Company's common
stock began trading on Nasdaq, to December 29, 2000, as compared to the total
return for the Nasdaq Stock Market--US Index, an index of 518 Internet companies
(including Amazon.com, America Online, Earthlink, and Yahoo), and an index of
527 telecommunications companies (including AT&T, WorldCom, and Sprint). The
telecommunications and Internet indices were compiled by Media General Financial
Services, Inc. The Company's common stock traded on the Nasdaq SmallCap Market
from September 6, 1996 through March 4, 1999 and has traded on the Nasdaq
National Market since March 5, 1999. The calculations in the graph assume that
$100 was invested on September 5, 1996, in each of the Company's common stock
and each index and also assume dividend reinvestment.
Comparison of 51 Month Cumulative Total Return Among (a) Internet
Commerce & Communications, Inc, (b) The Nasdaq Stock Market (U.S.)
Index, (c) an 518 company Internet Index and (d) a 527 company
telecommunications index
(EDGAR Representation of Data Points Used in Printed Graphic)
Internet Commerce & Telecommunications NASDAQ Stock Market
Communications, Inc. Index (U.S.) Internet Index
- -------------------- -------------------- --------------------- -------------------
9/5/96 100.00 9/5/96 100.00 9/5/96 100.00 9/5/96 100.00
12/31/96 44.90 12/31/96 110.45 12/31/96 112.02 12/31/96 113.41
12/31/97 97.96 12/31/97 141.70 12/31/97 137.02 12/31/97 157.17
12/31/98 412.24 12/31/98 207.75 12/31/98 193.26 12/31/98 644.60
12/31/99 271.43 12/31/99 360.94 12/31/99 340.85 12/31/99 1698.06
12/29/00 12.24 12/29/00 211.32 12/29/00 214.24 12/29/00 418.28
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a summary of certain transactions and relationships among the
Company and its associated entities, and among the directors, executive
officers, and stockholders of the Company and its associated entities, see
"Compensation Committee Interlocks and Insider Participation."
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, officers, and persons who
beneficially own more than ten percent of a registered class of the Company's
equity securities to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Directors, officers, and greater than ten
percent beneficial owners are required by the SEC's regulations to furnish the
Company with copies of all Section 16(a) forms they file.
Based upon a review of filings with the Securities and Exchange
Commission and written representations that no other reports were required, the
Company believes that all of the Company's directors and executive officers
complied during fiscal 2000 with the reporting requirements of Section 16(a) of
the Securities Exchange Act of 1934, with the exception of Ms. Vitale, who
resigned as President in January 2000 and as a director in June 2000, and
Messrs. Hanson and Grabowski.
14
18
PROPOSAL 2
APPROVAL OF AN AMENDMENT TO THE
INTERNET COMMERCE & COMMUNICATIONS'
2000 EMPLOYEES' STOCK OPTION PLAN TO
INCREASE THE NUMBER OF SHARES OF
COMMON STOCK THAT MAY BE ISSUED THEREUNDER
The Board of Directors has approved and recommends that the
stockholders approve an amendment to the Internet Commerce & Communications'
2000 Employees' Stock Option Plan to increase the number of shares of common
stock that may be issued thereunder from 1,500,000 shares to 2,500,000 shares.
The Board of Directors further directed that the entire 2000 Employees' Stock
Option Plan, as amended (the "2000 Employees' Plan"), be submitted to the
stockholders for approval in order for awards under the plan to qualify under
the exception to Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), as "qualified performance-based compensation" if the requirements
of the exception are otherwise satisfied. At the Annual Meeting, the
stockholders of the Company will be asked to consider and vote to approve the
2000 Employees' Plan. Unless otherwise instructed on the proxy, a properly
executed proxy will be voted in favor of the 2000 Employees' Plan.
The purpose of the 2000 Employees' Plan is to advance the interests of
the Company by providing eligible individuals an opportunity to acquire or
increase a proprietary interest in the Company, which thereby will create a
stronger incentive to expend maximum effort for the growth and success of the
Company and will encourage such eligible individuals to remain in the employ of
the Company. The Board of Directors believes that stock options are important to
attract and to encourage continued employment and service of officers and other
key employees by facilitating their purchase of a stock interest in the Company.
Furthermore, approval of the 2000 Employees' Plan will afford the Company
additional flexibility in making awards deemed necessary in the future by
increasing the aggregate number of stock options available for issuance.
Section 162(m) of the Code generally provides that no federal income
tax business expense deduction is allowed for annual compensation in excess of
$1 million paid by a publicly-traded corporation to its chief executive officer
and the four other most highly compensated officers. However, there is no
limitation under the Code on the deductibility of "qualified performance-based
compensation." To satisfy this definition, (1) the compensation must be paid
solely on account of the attainment of one or more pre-established, objective
performance goals; (2) the performance goal under which compensation is paid
must be established by a compensation committee comprised solely of two or more
directors who qualify as "outside directors" for purposes of the exception; (3)
the material terms under which the compensation is to be paid must be disclosed
to and subsequently approved by stockholders of the corporation before payment
is made; and (4) the compensation committee must certify in writing before
payment of the compensation that the performance goals and any other material
terms were in fact satisfied.
In the case of compensation attributable to stock options, the
performance goal requirement is deemed satisfied, and the certification
requirement is inapplicable, if: (1) the grant or award is made by the
compensation committee; (2) the plan under which the option is granted states
the maximum number of shares with respect to which options may be granted to an
employee during a specified period; and (3) under the terms of the option, the
amount of compensation is based solely on an increase in the value of the stock
after the date of grant. Under the Code, a director is an "outside director" if
he or she is not a current employee of the corporation; is not a former employee
who receives compensation for prior services (other than under a qualified
retirement plan); has not been an officer of the corporation; and does not
receive, directly or indirectly (including amounts paid to an entity that
employs the director or in which the director has at least a 5% ownership
interest), remuneration from the corporation in any capacity other than as a
director. The regulations provide that the material terms of a performance goal
will be approved by stockholders for purposes of the foregoing rules if, in a
separate vote, affirmative votes are cast by a majority of the voting shares.
The following is a summary of the material provisions of the 2000
Employees' Plan and is qualified in its entirety by reference to the complete
text of the 2000 Employees' Plan, which is attached as Appendix A.
DESCRIPTION OF THE INTERNET COMMERCE & COMMUNICATIONS' 2000 EMPLOYEES' PLAN
All employees of the Company are eligible to receive options under the
2000 Employees' Plan, which is administered by the Compensation Committee of the
Board of Directors. Options granted under the 2000 Employees' Plan are intended
to qualify as incentive stock options under Section 422 of the Code, unless they
exceed certain limitations or are specifically designated otherwise. Under the
2000 Employees' Plan, 1,500,000 shares of common stock are reserved and
authorized for issuance upon the exercise of options. As of February 16, 2001,
options to
15
19
purchase 1,441,050 shares of common stock had been granted (net of forfeitures)
under the 2000 Employees' Plan, at exercise prices ranging from $2.1875 to
$7.313 per share. The Board of Directors is seeking stockholder approval of an
amendment to the 2000 Employees' Plan that would increase the number of shares
of common stock that may be issued thereunder from 1,500,000 shares to 2,500,000
shares. If the proposed amendment is approved by the stockholders at the Annual
Meeting, the number of shares of common stock reserved for issuance under the
2000 Employees' Plan will be increased accordingly.
The option exercise price for incentive stock options granted under the
2000 Employees' Plan may not be less than 100% of the fair market value of the
common stock on the date of grant of the option (or 110% in the case of an
incentive stock option granted to an optionee beneficially owning more than 10%
of the outstanding common stock). In the case of an option not intended to
constitute an incentive stock option, the option price shall be not less than
the par value of the stock covered by the option. The maximum option term is 10
years (or five years in the case of an incentive stock option granted to an
optionee beneficially owning more than 10% of the outstanding common stock).
The aggregate fair market value (as defined in the 2000 Employees'
Plan) of any incentive stock option plus any incentive options granted under any
other Company plan that are first exercisable by any participant during any
calendar year may not exceed $100,000. The Compensation Committee may, in its
discretion, impose a vesting schedule or vesting provision for any options
granted under the 2000 Employees' Plan. Options generally become exercisable as
follows: (i) one-third of the options become exercisable one year after the date
of grant, or in certain cases, the commencement date of the holder's employment;
(ii) an additional one-third of the options become exercisable two years after
the date of grant, or in certain cases, the commencement date of the holder's
employment; and (iii) the remaining one-third of the options become exercisable
three years after the date of grant, or in certain cases, the commencement date
of the holder's employment. Notwithstanding the foregoing, in the event of a
change of control of the Company (as defined in the 2000 Employees' Plan),
unless the applicable agreement with respect to any option provides otherwise,
each outstanding option under the 2000 Employees' Plan vests immediately,
regardless of any vesting schedule in the particular agreement.
Payment for shares purchased under the 2000 Employees' Plan may be made
either in cash or, if permitted by the particular option agreement, by
exchanging shares of common stock of the Company with a fair market value equal
to the total option exercise price plus cash for any difference. Options may, if
permitted by the particular option agreement, be exercised by directing that
certificates for the shares purchased be delivered to a licensed broker as agent
for the optionee, provided that the broker tenders to the Company cash or cash
equivalents equal to the option exercise price.
The Board of Directors may terminate or suspend the 2000 Employees'
Plan at any time. Unless previously terminated, the 2000 Employees' Plan will
terminate automatically on June 14, 2010, ten years after the date of adoption
of the 2000 Employees' Plan by the Board of Directors.
FEDERAL INCOME TAX CONSEQUENCES
The grant of an option is not a taxable event for the optionee or the
Company.
INCENTIVE STOCK OPTIONS. An optionee will not recognize taxable income
upon exercise of an incentive stock option (except that the alternative minimum
tax may apply), and any gain realized upon a disposition of shares of common
stock received pursuant to the exercise of an incentive stock option will be
taxed as long-term capital gain if the optionee holds the shares of common stock
for at least two years after the date of grant and for one year after the date
of exercise (the "holding period requirement"). The Company will not be entitled
to any business expense deduction with respect to the exercise of an incentive
stock option, except as discussed below.
For the exercise of an incentive stock option to qualify for the
foregoing tax treatment, the optionee generally must be an employee of the
Company from the date the option is granted through a date within three months
before the date of exercise of the option. In the case of an optionee who is
disabled, the three-month period is extended to one year. In the case of an
employee who dies, the three-month period and the holding period requirement for
shares of common stock received pursuant to the exercise of the option are
waived.
If all of the requirements for incentive option treatment are met
except for the holding period requirement, the optionee will recognize ordinary
income upon the disposition of shares of common stock received pursuant to the
exercise of an incentive stock option in an amount equal to the excess of the
fair market value of the shares of common stock at the time the option was
exercised over the exercise price. The balance of the realized gain, if any,
16
20
will be taxed at applicable capital gain tax rates. The Company will be allowed
a business expense deduction to the extent the optionee recognizes ordinary
income, subject to Section 162(m) of the Code as summarized below.
If an optionee exercises an incentive stock option by tendering shares
of common stock with a fair market value equal to part or all of the option
exercise price, the exchange of shares will be treated as a nontaxable exchange
(except that this treatment would not apply if the optionee had acquired the
shares being transferred pursuant to the exercise of an incentive stock option
and had not satisfied the holding period requirement summarized above). If the
exercise is treated as a tax-free exchange, the optionee would have no taxable
income from the exchange and exercise (other than alternative minimum taxable
income as noted above) and the tax basis of the shares of common stock exchanged
would be treated as the substituted basis for the shares of common stock
received. If the optionee used shares received pursuant to the exercise of an
incentive stock option (or another statutory option) as to which the optionee
had not satisfied the holding period requirement, the exchange would be treated
as a taxable disqualifying disposition of the exchanged shares, and the excess
of the fair market value of the shares tendered over the optionee's basis in the
shares would be taxable.
NON-QUALIFIED OPTIONS. Upon exercising an option that is not an
incentive stock option, an optionee will recognize ordinary income in an amount
equal to the difference between the exercise price and the fair market value of
the shares of common stock on the date of exercise. Upon a subsequent sale or
exchange of shares of common stock acquired pursuant to the exercise of a
non-qualified stock option, the optionee will have taxable gain or loss,
measured by the difference between the amount realized on the disposition and
the tax basis of the shares of common stock (generally, the amount paid for the
shares of common stock plus the amount treated as ordinary income at the time
the option was exercised).
If the Company complies with applicable reporting requirements and with
the restrictions of Section 162(m) of the Code, it will be entitled to a
business expense deduction in the same amount and generally at the same time as
the optionee recognizes ordinary income. Under Section 162(m) of the Code, if
the optionee is one of certain specified executive officers, then, unless
certain exceptions apply, the Company is not entitled to deduct compensation
with respect to the optionee, including compensation related to the exercise of
stock options, to the extent such compensation in the aggregate exceeds
$1,000,000 for the taxable year. The options are intended to comply with the
exception to Section 162(m) for "qualified performance-based compensation."
If the optionee surrenders shares of common stock in payment of part or
all of the exercise price for non-qualified stock options, no gain or loss will
be recognized with respect to the shares of common stock surrendered (regardless
of whether the shares were acquired pursuant to the exercise of an incentive
stock option) and the optionee will be treated as receiving an equivalent number
of shares of common stock pursuant to the exercise of the option in a nontaxable
exchange. The basis of the shares of common stock surrendered will be treated as
the substituted tax basis for an equivalent number of option shares received and
the new shares will be treated as having been held for the same holding period
as had expired with respect to the transferred shares. The difference between
the aggregate option exercise price and the aggregate fair market value of the
shares of common stock received pursuant to the exercise of the option will be
taxed as ordinary income. The optionee's basis in the additional shares of
common stock will be equal to the amount included in the optionee's income.
EFFECT OF PROPOSAL 3 - REVERSE STOCK SPLIT
As discussed in Proposal 3 below, the Company's Board of Directors has
also recommended that stockholders approve a proposed amendment to the
Certificate of Incorporation that will give the Board of Directors the
discretion to effect a reverse split of the Company's common stock at any time
within one year of the date of the Annual Meeting. Under the terms of the
reverse stock split, the Board of Directors would have the authority to issue
one new share of common stock in exchange for not more than ten outstanding
shares of common stock, with the exact ratio of the reverse stock split to be
determined by the Board of Directors in its discretion.
The Company's 2000 Employees' Plan provides for automatic equitable
adjustments in the event of a reverse stock split to both the aggregate number
of shares of common stock available for issuance under the plan and the terms of
the stock options outstanding under the plan. Thus, if the stockholders approve
the reverse stock split at the Annual Meeting and the Board of Directors
subsequently implements the reverse stock split, the number of shares of common
stock authorized for issuance under the 2000 Employees' Plan will be reduced
proportionately with the reverse stock split ratio. In addition, the number of
shares of common stock subject to each stock option outstanding under the 2000
Employees' Plan will be reduced proportionately and the per share exercise price
under each such option will be increased proportionately with the reverse stock
split ratio.
17
21
----------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2
----------
PROPOSAL 3
APPROVAL OF AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO EFFECT
A REVERSE STOCK SPLIT OF THE COMPANY'S COMMON STOCK OF UP TO ONE-FOR-TEN, IN THE
EVENT THAT THE BOARD OF DIRECTORS DETERMINES THAT A REVERSE STOCK SPLIT IS
DESIRABLE AT ANY TIME WITHIN ONE YEAR FROM THE DATE OF THE ANNUAL MEETING, WITH
THE EXACT SIZE OF THE REVERSE STOCK SPLIT TO BE DETERMINED BY THE
BOARD OF DIRECTORS
GENERAL
In February 2001, the Company's Board of Directors approved by
unanimous vote, and recommended that the stockholders approve, a proposed
amendment to Article 4 of the Company's Certificate of Incorporation, as
amended, that will give the Board of Directors the discretion to effect (or to
abandon) a reverse split of the common stock (the "Reverse Stock Split") at any
time within one year of the date of the Annual Meeting. Under the terms of the
Reverse Stock Split, the Board of Directors would have the authority to issue
one new share of common stock in exchange for not more than ten outstanding
shares of common stock, with the exact ratio of the Reverse Stock Split to be
determined by the Board of Directors in its discretion. If implemented, the
amendment of the Company's Certificate of Incorporation would be effective on
such date as a Certificate of Amendment reflecting the Reverse Stock Split is
filed with the Delaware Secretary of State (the "Effective Date").
Under the Reverse Stock Split, multiple shares of the Company's common
stock will be combined into one share, depending on a determination by the Board
of Directors that the Reverse Stock Split is in the best interests of the
Company and its stockholders. The Reverse Stock Split will not alter the par
value of the common stock or the number of shares authorized for issuance, but
will simply reduce the number of shares of common stock issued and outstanding
by a factor equal to the size of the Reverse Stock Split.
The complete text of the Certificate of Amendment that would be filed
in the office of the Delaware Secretary of State to effect the Reverse Stock
Split is set forth in Appendix B to this Proxy Statement, provided, however,
that such text is subject to amendment to include such changes as may be
required by the office of the Delaware Secretary of State and as the Company's
Board of Directors deems necessary and advisable to effect the Reverse Stock
Split in the range described above.
PURPOSE OF THE PROPOSED REVERSE STOCK SPLIT
The common stock is currently listed on the Nasdaq National Market. In
order for the common stock to continue to be listed on the Nasdaq National
Market, the Company must satisfy various continued listing requirements
established by Nasdaq. Among other things, the Company must maintain at least $4
million of net tangible assets and the common stock must have a minimum closing
bid price of at least $1.00 per share for at least one of 30 consecutive
business days.
In November 2000, the Company received a letter from Nasdaq stating
that the Company had failed to comply with the $4 million net tangible asset
test. The letter stated that if the Company were unable to demonstrate its
ability to sustain long-term compliance with all applicable maintenance
criteria, the common stock would be delisted from the Nasdaq National Market. As
of December 31, 2000, the Company has approximately $_____ of net tangible
assets. In an attempt to demonstrate its ability to comply with the Nasdaq
maintenance standards in the future, the Company has requested a hearing before
a panel authorized by the Nasdaq Board of Directors. The hearing is scheduled
for Thursday, February 22, 2001.
If the common stock is delisted from the Nasdaq National Market, the
Board of Directors plans to apply for transfer to the Nasdaq SmallCap Market. In
order for the Company's common stock to be listed on the Nasdaq
18
22
SmallCap Market, among other things, the Company must have at least $2 million
of net tangible assets and the common stock must have a minimum closing bid
price of at least $1.00 per share for at least one of 30 consecutive business
days. Under Nasdaq's listing maintenance standards, if the closing bid price of
the common stock is under $1.00 per share for 30 consecutive trading days and
does not thereafter regain compliance for a minimum of 10 consecutive trading
days during the 90 calendar days following notification by Nasdaq, Nasdaq may
delist the common stock from trading on The Nasdaq SmallCap Market. If Nasdaq
rejects the Company's application to list its common stock on the Nasdaq
SmallCap Market, the common stock would trade on the OTC Bulletin Board or in
the "pink sheets" maintained by the National Quotation Bureau, Inc. These
alternatives are generally considered to be less efficient markets that are not
as widely traded and will not attract as much attention from the investment
community as either the Nasdaq National or SmallCap Markets.
Although the Company is in compliance with Nasdaq SmallCap Market's $2
million net tangible asset test as of December 31, 2000, the Company must be
able to sustain compliance with the minimum bid price requirement and all other
listing criteria in order to list its stock on the Nasdaq SmallCap Market. The
Company currently meets all of the continued requirements of the Nasdaq SmallCap
Market, but the market value of its common stock has not closed above $1.00 per
share since January 5, 2001. As a result, the Board of Directors believes that
the Company may lose the opportunity to list its common stock on the Nasdaq
SmallCap Market unless it is able to implement the Reverse Stock Split.
Specifically, the Board of Directors believes that the Reverse Stock
Split will achieve, at least initially, compliance with the minimum bid price
requirement. Although the Reverse Stock Split will not be effective by February
22, 2001, the date of the Nasdaq hearing, the Board of Directors believes that
the proposed Reverse Stock Split will serve as valuable evidence of the
Company's efforts to sustain compliance with Nasdaq's continued listing
standards. At a minimum, the Company will have an additional tool to use in
sustaining compliance with the Nasdaq minimum bid price requirement.
If implemented, the Reverse Stock Split will reduce the number of
shares of common stock issued and outstanding. The Board of Directors expects
that this reduction will result initially in an increase in the bid price of the
common stock to a level above the current bid price and to above $1.00 per
share. However, there are numerous factors and contingencies that could affect
the bid price of the common stock. There can be no assurance that an increase in
the bid price will occur, or if it occurs, that the bid price will be over $1.00
per share for a sustained period.
EFFECT OF REVERSE STOCK SPLIT
The effect of the Reverse Stock Split upon the market price for the
common stock cannot be predicted, and the history of similar stock split
combinations for companies in like circumstances is varied. There can be no
assurance that the market price per share of the common stock after the Reverse
Stock Split will rise in proportion to the reduction in the number of shares of
the common stock outstanding resulting from the Reverse Stock Split. In
addition, there can be no assurance that the market price per share of the
common stock after the Reverse Stock Split will either exceed or remain in
excess of the $1.00 minimum bid price as required by Nasdaq, or meet the other
requirements of Nasdaq for continued listing on the Nasdaq SmallCap Market. The
market price of the common stock may also be based on the Company's performance
and other factors, some of which may be unrelated to the number of shares
outstanding.
If the Amendment is approved by the stockholders, the Board of
Directors, in its discretion, will determine whether to effect the Reverse Stock
Split, when to effect the Reverse Stock Split and the appropriate number of
outstanding shares of common stock (the "Reverse Split Number") to be exchanged
for a single new share of common stock in the Reverse Stock Split. The Reverse
Split Number will be less than or equal to ten. The actual Reverse Split Number
will be determined in a manner that takes into consideration the prevailing
market conditions at the time.
Upon the Effective Date, each fixed number of shares of common stock
issued and outstanding or held in treasury ("Old Common Stock") equal to the
Reverse Split Number will be combined, reclassified and changed into one fully
paid and non-assessable share of common stock ("New Common Stock"). Each holder
of record of a
19
23
certificate representing shares of Old Common Stock will be entitled to receive,
upon surrender of such certificate, a certificate representing the number of
whole shares of New Common Stock to which the holder is entitled pursuant to the
Reverse Stock Split. Any certificates for shares of Old Common Stock not so
surrendered shall be deemed to represent one share of New Common Stock for each
such fixed number of shares equal to the Reverse Split Number of Old Common
Stock previously represented by such certificate. No fractional shares of common
stock or scrip representing fractional shares will be issued as a result of the
Reverse Stock Split. Although the number of each stockholder's shares of common
stock will be reduced as a result of the Reverse Stock Split, such stockholder's
voting rights and pro rata equity interest in the Company will not be reduced,
except for possible immaterial changes due to the Company's purchase of
fractional shares as described below. Similarly, the aggregate number of shares
of common stock that the Company has authority to issue will remain at
100,000,000 and the number of shares of preferred stock that the Company has
authority to issue will remain at 750,000. Only the number of unissued shares
available for issuance will increase, with the amount of the increase directly
proportional to the size of the Reverse Stock Split.
The following table shows the effect of the Reverse Stock Split, as of
February 20, 2001, assuming a Reverse Split Number of two, five and ten. This
table is not exhaustive of all possible Reverse Stock Splits that fall within
the Board approved range and is only intended for illustrative purposes. On
February 20, 2001, there were 29,873,976 shares of common stock outstanding.
Reverse Stock Split Common Stock Outstanding After Authorized but Unissued Shares
Number Reverse Stock Split After Reverse Stock Split
- ------------------- ------------------------------ ------------------------------
Two 14,936,988 85,063,012
Five 5,974,795 94,025,205
Ten 2,987,398 97,012,602
Each of the Company's equity compensation plans and outstanding
warrants provides for either automatic or permissive equitable adjustments on
account of a stock split to both the aggregate number of shares of common stock
available for issuance under the plan and the terms of the stock options
outstanding under the plan. Each of these plans is administered either by the
Board of Directors or its Compensation Committee. The Board of Directors and the
Compensation Committee intend to make these equitable adjustments to account for
the Reverse Stock Split. As a result, the number of shares of common stock
authorized for issuance under each plan will be divided by the Reverse Split
Number. In addition, the number of shares of common stock subject to each stock
option outstanding under the plans will be divided by the Reverse Split Number
and the per share exercise price under each such option will be multiplied by
the Reverse Split Number.
Except for changes resulting from the receipt of cash in lieu of
fractional shares as described below, the Reverse Stock Split will not change
the equity interests of the stockholders in the Company and will not affect the
relative rights of any stockholder or result in a dilution or diminution of any
stockholder's proportionate interest in the Company. Management does not
believe, nor does it intend, that the Reverse Stock Split will result in a
significant number of stockholders being cashed out by virtue of holding less
than one share after the Reverse Stock Split. If adopted, the amendment will not
affect the par value of the common stock of $.001 per share, however, an amount
equal to the difference between the aggregate par value of the Old Common Stock
and the aggregate par value of the New Common Stock will be transferred for
accounting purposes from the common stock account to the Company's additional
paid-in capital account. Although the Board of Directors of the Company has the
authority to use some or all of this increase in additional paid in capital to
pay dividends or to repurchase outstanding common stock, the Company has no
current plans to do so.
FRACTIONAL SHARES
Stockholders who otherwise would be entitled to receive fractional
shares because they hold a number of shares of Old Common Stock that is not
evenly divisible by the Reverse Split Number will be entitled to, upon surrender
of certificates representing such shares, a cash payment in lieu thereof at a
price equal to the fraction to
20
24
which the stockholder would otherwise be entitled multiplied by the closing
price of New Common Stock on the Effective Date as reported on The Nasdaq Stock
Market. The ownership of a fractional interest will not give the holder thereof
any voting, dividend or other rights, except to receive payment therefor as
described above.
PROCEDURE FOR IMPLEMENTING THE REVERSE STOCK SPLIT
If the amendment is approved by the stockholders at the Annual Meeting,
the Board of Directors, in its discretion, will have the authority to execute
the Reverse Stock Split and determine the Reverse Split Number at any time
within one year of the Annual Meeting. The Certificate of Amendment to the
Company's Certificate of Incorporation will become effective upon the filing
with the Delaware Secretary of State. If the Board of Directors determines a
Reverse Split Number and executes the Reverse Stock Split, the Company will
notify stockholders by a press release.
Each stockholder of record as of the close of business on the Effective
Date will be entitled to receive, upon surrender of a certificate of shares of
Old Common Stock, a new stock certificate representing the number of whole
shares of the Company's New Common Stock to which the holder shall be entitled
pursuant to the Reverse Stock Split. For example, if the Reverse Split Number
determined by the Board is five and a stockholder owned 500 shares of the
Company's Old Common stock on the Effective Date, upon surrender of the
certificate for 500 shares, the Company would mail to the stockholder a share
certificate for 100 shares of the Company's New Common Stock. Any certificates
for shares of Old Common Stock not so surrendered after the Effective Date shall
be deemed to represent one share of New Common Stock for each such fixed number
equal to the Reverse Split Number of Old Common Stock previously represented by
such certificates. Holders of fractional share interests will be entitled to
receive cash in lieu of fractional shares as described above.
The Company expects that its transfer agent will act as exchange agent
(the "Exchange Agent") for purposes of implementing the exchange of stock
certificates. Shortly after the Effective Date, each holder of an outstanding
certificate theretofore representing shares of Old Common Stock will receive
from the Exchange Agent instructions for the surrender of such certificate to
the Exchange Agent. No new certificates or cash in lieu of fractional shares
will be issued to a stockholder until such stockholder has surrendered to the
Exchange Agent such stockholder's outstanding certificates together with a
properly completed and executed letter of transmittal. Stockholders should not
destroy any stock certificate and should not submit any certificate until
requested to do so by the Company or the Exchange Agent.
NO APPRAISAL RIGHTS
Under Delaware law, stockholders of the Company are not entitled to
appraisal rights with respect to the proposed Reverse Stock Split.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion generally describes certain federal income tax
consequences of the proposed Reverse Stock Split to stockholders of the Company.
The following does not address any foreign, state, local tax or alternative
minimum income, or other federal tax consequences of the proposed Reverse Stock
Split. The actual consequences for each stockholder will be governed by the
specific facts and circumstances pertaining to such stockholder's acquisition
and ownership of the common stock.
Thus, the Company makes no representations concerning the tax
consequences for any of its stockholders and recommends that each stockholder
consult with such stockholder's own tax advisor concerning the tax consequences
of the Reverse Stock Split, including federal, state and local, or other income
tax.
The Company has not sought and will not seek an opinion of counsel or a
ruling from the Internal Revenue Service regarding the federal income tax
consequences of the proposed Reverse Stock Split. However, the Company believes
that, because the Reverse Stock Split is not part of a plan to periodically
increase a stockholder's proportionate interest in the assets or earnings and
profits of the Company, the proposed Reverse Stock Split will have the following
income tax effects:
21
25
1. A stockholder will not recognize taxable gain or loss as a result of
the Reverse Stock Split, except to the extent a stockholder receives cash in
lieu of fractional shares. Cash payments in lieu of a fractional share of New
Common Stock should be treated as if the fractional share were issued to the
stockholder and then redeemed by the Company for cash. Generally, a stockholder
receiving such payment should recognize gain or loss equal to the difference, if
any, between the amount of cash received and the stockholder's basis in the
fractional share. Such gain or loss generally will be capital gain or loss.
2. In the aggregate, the stockholder's basis in New Common Stock will
equal his basis in the shares of Old Common Stock exchanged therefor (but not
including the basis allocated to a fractional share for which the stockholder is
entitled to receive cash), and such stockholder's holding period for New Common
Stock will include the holding period for Old Common Stock exchanged therefor if
the shares of Old Common Stock were capital assets in the hands of such
stockholder.
3. The proposed Reverse Stock Split will constitute a reorganization
within the meaning of Section 368(a)(1)(E) of the Internal Revenue Code of 1986,
as amended (the "Code"), and the Company will not recognize any gain or loss as
a result of the Reverse Stock Split.
----------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3
----------
PROPOSAL 4
APPROVAL OF THE ISSUANCE OF ALL SHARES OF COMMON STOCK THAT THE COMPANY
WOULD BE REQUIRED TO ISSUE UPON EXERCISE OF THE COMPANY'S CLASS B WARRANTS
DECEMBER 1999 PRIVATE PLACEMENT OF SECURITIES, INCLUDING CLASS B WARRANTS
On December 7, 1999, the Company sold the following securities to two
institutional investors in a private placement for aggregate consideration of
$10 million:
o 761,610 shares of the Company's common stock at $13.13 per share, a 60%
premium above the closing bid price of the common stock on December 7,
1999;
o Class A warrants to purchase 182,786 shares of the Company's common stock
at an exercise price equal to $9.8476 per share, a price based on the
market price of the common stock on December 7, 1999; and
o Class B warrants to purchase a potentially unlimited number of shares of
the Company's common stock at an exercise price of $0.01 per share.
Both the Class A and Class B warrants are subject to anti-dilution clauses in
the event of a stock dividend, stock split, or similar transaction. As of
February 20, 2001, all of the Class A and Class B warrants are outstanding and
exercisable. However, the Class B warrants may not be exercised until the Class
B warrant holder has sold all of the common stock purchased from the Company on
December 7, 1999. The proceeds from the December 1999 private placement were
used for general corporate purposes and for working capital.
As discussed in greater detail below, the Company is asking
stockholders to approve the issuance of all shares of common stock that the
Company may be required to issue upon exercise of the Company's Class B
warrants.
22
26
TERMS OF THE CLASS B WARRANTS
Expiration Date and Exercise Price. The Class B warrants expire on
December 5, 2002 and have an exercise price of $0.01 per share.
Number of Shares Issuable upon Exercise of Class B Warrants. The number
of shares of common stock that may be issued upon exercise of the Class B
Warrants is subject to periodic adjustments that are made every 90th day over a
two and one-half year period that began on June 4, 2000 and ends on November 20,
2002 (the "Adjustment Period"). From now until November 20, 2002, adjustments
will be based on the average of the lowest ten closing bid prices of the
Company's common stock during the thirty consecutive trading days immediately
before each adjustment date (the "Adjustment Price"). If the Adjustment Price
increases at any time over the course of the Adjustment Period, the number of
shares issuable upon exercise of Class B warrants will decrease. If the
Adjustment Price decreases at any time over the course of the Adjustment Period,
the number of shares issuable upon exercise of Class B warrants will increase.
The number of shares issuable upon exercise of Class B warrants may fluctuate
widely over the Adjustment Period. If the market price of the Company's common
stock falls precipitously, there is theoretically no limit on the number of
shares of common stock that the Company may be required to issue upon exercise
of Class B warrants. However, under the terms of both the Class A and Class B
warrants, the holders, at any given time, may not beneficially own more than
4.9% of the Company's outstanding common stock (the "4.9% Beneficial Ownership
Restriction"). A chart analyzing the potential dilutive effect of the Class B
warrants has been included below under the caption "Potential Dilution and Other
Effects of the Proposal."
The periodic adjustment in the number of shares issuable upon exercise
of the Class B warrants was negotiated with the two institutional investors in
the context of their total investment in the Company, which included purchasing
761,610 shares of common stock on December 7, 1999 at a 60% premium to the then
current closing bid price. In exchange for paying such a substantial premium and
agreeing to delay any adjustment for at least six months, the institutional
investors received Class B warrants entitling them to acquire additional shares
based in large part on the future market price of the common stock and the
remaining number of initial shares held by the institutional investors on each
adjustment date. The periodic adjustments in the exercise terms of the Class B
warrants do not ensure that the institutional investors will receive additional
shares with a specified value relative to their initial investment, but do give
them an opportunity to profit substantially if they are able to resell these
additional shares from time to time at favorable market prices.
Redemption. Under certain circumstances, the institutional investors
may ask the Company to redeem a portion of the Class B warrants at a premium,
especially if the Company fails to obtain stockholder approval of this Proposal
4 under applicable Nasdaq rules. Although the Company is not required to redeem
the Class B warrants, the failure to do so could cause the Company's common
stock to be delisted from the Nasdaq Stock Market. The redemption provisions
relating to the Class B warrants are discussed under the caption "Nasdaq
Stockholder Approval Requirement" below.
Other Available Information. Documents governing the issuance of the
Class B warrants were filed as exhibits to the Company's Registration Statement
on Form S-3, which was filed with the Securities and Exchange Commission on
January 21, 2000. This registration statement related to the institutional
investor's resale of their common stock and the common stock to be issued upon
exercise of the Class A and Class B warrants. Copies of these documents may be
obtained free of charge by contacting Christopher J. Melcher, Vice President and
General Counsel, Internet Commerce & Communications, Inc., 999 Eighteenth
Street, Suite 2201, Denver, Colorado 80202, or through the Securities and
Exchange Commission EDGAR database located at http:/www.sec.gov on the worldwide
web.
NASDAQ STOCKHOLDER APPROVAL REQUIREMENT
Under the marketplace rules of the Nasdaq Stock Market, listed
companies are required to obtain stockholder approval for the sale or issuance
of a number of shares of common stock, or securities convertible into or
exchangeable for common stock (such as the Class B warrants), equal to or in
excess of 20% of the number of shares of common stock outstanding prior to such
issuance if such issuance is for a purchase price that is less than the greater
of the book or market value of the common stock at the time of such issuance
(the "Nasdaq 20%
23
27
Limitation"). The Class B warrants require common stock to be issued at a price
that is less than the book value or market value of the common stock on December
7, 1999. As a result, the Company is seeking stockholder approval of the
issuance of all shares that the Company would be required to issue upon exercise
of Class B warrants (including any shares that may be issued pursuant to
anti-dilution provisions) under the Nasdaq 20% Limitation.
The exercise terms of the Class B warrants were structured so that an
exercise would comply with the Nasdaq 20% Limitation regardless of whether
stockholders approve or disapprove of this Proposal 4. Under the terms of the
Class B warrants, the Company is not able to issue an amount of common stock in
excess of the Nasdaq 20% Limitation unless this Proposal 4 is approved by the
Company's stockholders. If the Company is unable to obtain stockholder approval
of this Proposal 4 and the exercise of Class B warrants would require the
issuance of a number of shares of common stock in excess of the Nasdaq 20%
Limitation, the holders may ask the Company to redeem the portion of the Class B
warrants that are in excess of the Nasdaq 20% Limitation at a premium instead of
issuing common stock. The redemption price would be equal to 120% of the 5-day
average market value of the underlying common stock immediately preceding the
redemption request date or the redemption date, whichever is greater. To avoid
redemption under certain circumstances, the Company is obligated under the terms
of the Class B Warrant to use its best efforts to obtain stockholder approval of
the issuance of all common stock required to be issued upon exercise of the
Class B warrants.
On the date the Class B warrants were issued, the Company had
18,865,448 shares of common stock outstanding. Thus, the Company would be
required to obtain stockholder approval if it issued more than 3,773,089 shares
upon exercise of Class B warrants.
POTENTIAL DILUTION AND OTHER EFFECTS OF THE PROPOSAL
If the holders exercised all of their Class B warrants as of the date
of this proxy statement, the Company would be required to issue 9,351,789 shares
of common stock. However, the potential dilution will vary with the closing bid
price of the Company's common stock, as outlined above under the caption "Terms
of the Class B Warrants." To assist you in understanding the potential dilution
that may result from exercise of the Class B warrants from now until the
expiration date, we have set forth the maximum number of shares of common stock
we would be required to issue through December 2002 in the following chart. We
have assumed that the closing bid price of the common stock is equal to 200%,
100%, 66.7%, and 33.3% of the closing price of our common stock on February 15,
2001 ($0.8125 per share) and stays at that level through the end of the
Adjustment Period.
MAXIMUM NUMBER OF SHARES ISSUABLE UPON
ISSUABLE UPON EXERCISE OF CLASS B PERCENTAGE OF
WARRANTS AT $0.01 PER SHARE OUTSTANDING SHARES AT
ASSUMED CLOSING BID PRICE (THROUGH DECEMBER 2002) FEBRUARY 21, 2001 (1)
--------------------------------- ---------------------------------------- ---------------------------
$1.625 - 200% of closing price
on 2/15/2001 ____%
$0.8125 - 100% of closing price To be filed by amendment.
on 2/15/2001 ____%
$0.5417 - 66.7% of closing
price on 2/15/2001 ____%
$0.2708 - 33.3% of closing
price on 2/15/2001 ____%
- ---------------------------------
(1) Assumes that all shares to be issued upon exercise of Class B Warrants are
issued and outstanding. However, under the terms of both the Class A and
Class B warrants, the holders, at any given time, may not beneficially own
more than 4.9% of the Company's outstanding common stock.
24
28
Because the number of shares issuable upon exercise of the Class B
warrants is based in part on the closing bid price of the Company's common
stock, the holders of the Class B warrants have, in effect, reduced the risk of
loss from a decline in the stock price. If the closing bid price of the
Company's common stock decreases, the Company will be required to issue a
greater number of shares upon exercise of the Class B warrants. There is
theoretically no limit on the number of shares of common stock that the Company
may be required to issue upon exercise of the Class B warrants. Your percentage
ownership of the Company's common stock could be diluted substantially.
In addition to the potential dilution, the Company may find it more
difficult to raise additional equity capital while the Class B warrants are
outstanding. To the extent that the holders exercise their Class B warrants and
then sell the underlying common stock, the market price of the Company's common
stock may decrease. This could allow the institutional investors to convert
their remaining Class B warrants into a greater amount of common stock, the
sales of which would further decrease the price of the common stock. Although
holders of the Class B warrants are restricted in their ability to engage in
short sales and are subject to the 4.9% Beneficial Ownership Restriction, this
downward pressure on the market price caused by the exercise of Class B warrants
could encourage short sales by other investors.
REASONS FOR THE PROPOSAL AND BOARD'S RECOMMENDATION
The Board of Directors seeks stockholder approval of the Company's
issuance of common stock upon exercise of the Class B warrants. Under the terms
of the Class B warrants, the Company is not permitted to issue an amount of
common stock that exceeds the Nasdaq 20% Limitation unless stockholders approve
this Proposal 4. If the Company is unable to obtain stockholder approval of this
Proposal 4 and exercise of the Class B warrants would require issuance of common
stock in excess of the Nasdaq 20% Limitation, the Company may choose to redeem
the portion of the Class B warrants that cannot be exercised at a premium
instead of issuing common stock. Assuming a five-day average closing bid price
of $0.75 per share and a redemption price of $0.90 per share (a 20% premium over
the $0.75 five-day average), the total cost of redeeming the Class B warrants
that would require issuance of common stock in excess of the Nasdaq 20%
Limitation (the "Excess Class B Warrants") would be approximately $5 million.
Redemption of the Excess Class B warrants could severely diminish the
Company's working capital and harm the Company's ability to raise additional
capital. It may cause the Company to declare bankruptcy. In the event that the
stockholders do not approve this Proposal 4 and the Company elects not to redeem
the Class B warrants, the Company will be required to delist its common stock
from the Nasdaq Stock Market in order to avoid the Nasdaq 20% Limitation and the
Class B warrant holders would then be entitled to receive an even greater number
of shares upon exercise of their Class B warrants. Stockholder approval of this
Proposal 4 will allow the Company to issue common stock in lieu of redeeming the
Excess Class B Warrants.
The Board of Directors believes that the potential adverse consequences
of a failure to obtain stockholder approval of this proposal far outweigh the
possible dilutive effect of approval of the proposal. Therefore, in order to
protect the Company's working capital and preserve the liquidity of your
investment in the Company's common stock, the Board of Directors has determined
that approving the issuance of all shares of common stock issuable upon exercise
of the Class B warrants is advisable and in the best interests of the Company.
EFFECT OF PROPOSAL 3 - REVERSE STOCK SPLIT
As discussed in Proposal 3 above, the Company's Board of Directors has
also recommended that stockholders approve a proposed amendment to the
Certificate of Incorporation that will give the Board of Directors the
discretion to effect a reverse split of the Company's common stock at any time
within one year of the date of the Annual Meeting. Under the terms of the
reverse stock split, the Board of Directors would have the authority to issue
one new share of common stock in exchange for not more than ten outstanding
shares of common stock, with the exact ratio of the reverse stock split to be
determined by the Board of Directors in its discretion.
The Class B warrants provide for automatic equitable adjustments in the
event of a reverse stock split to both the aggregate number of shares of common
stock available for issuance under the warrants. Thus, if the stockholders
approve the reverse stock split at the Annual Meeting and the Board of Directors
subsequently
25
29
implements the reverse stock split, the number of shares of common stock
authorized for issuance under the Class B warrants will be reduced
proportionately with the reverse stock split ratio. Furthermore, the number of
shares of common stock subject to the Class B warrants will be reduced
proportionately and the per share exercise price of the Class B warrants will be
increased proportionately with the reverse stock split ratio.
---------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 4
---------------
PROPOSAL 5
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has appointed Ernst & Young LLP ("Ernst &
Young") as the Company's independent auditors for the fiscal year ending
December 31, 2001, subject to ratification by stockholders at the Annual
Meeting. Representatives of Ernst & Young will be present at the Annual Meeting
and will have the opportunity to make a statement if they so desire and be
available to respond to appropriate questions. Unless otherwise instructed on
the proxy, properly executed proxies will be voted in favor of ratifying the
appointment of Ernst & Young to audit the books and accounts of the Company for
the fiscal year ending December 31, 2001.
FEES BILLED TO THE COMPANY BY ERNST & YOUNG LLP DURING FISCAL 2000
AUDIT FEES: Fees for the audit of the Company's December 31, 2000 financial
statements were $226,000 and all other fees were $313,524, including audit
related services of $81,213 and non-audit services of $232,311. Audit related
services generally include fees for pension audits, accounting consultations and
SEC registration statements.
26
30
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES: The
Company did not engage Ernst & Young LLP to provide advice to the company
regarding financial information systems design and implementation during the
fiscal year ended December 31, 2000.
Stockholder ratification of the selection of Ernst & Young LLP as the
Company's independent public accountants is not required by the Company's
by-laws or other applicable legal requirement. However, the Board is submitting
the selection of Ernst & Young LLP to the stockholders for ratification as a
matter of good corporate practice. If the stockholders fail to ratify the
selection, the Audit Committee and the Board will reconsider whether or not to
retain that firm. Even if the selection of Ernst & Young LLP is ratified, the
Board of Directors in its discretion may direct the appointment of a different
independent accounting firm at any time during the year if it determines that
such a change would be in the best interests of the Company and its
stockholders.
----------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 5
----------
OTHER BUSINESS TO BE TRANSACTED
As of the date of this Proxy Statement, the Board of Directors knows of
no other business that may come before the Annual Meeting. If any other business
is properly brought before the Annual Meeting, it is the intention of the proxy
holders to vote or act in accordance with their best judgment with respect to
such matters.
STOCKHOLDER PROPOSALS FOR THE YEAR 2002 ANNUAL MEETING OF STOCKHOLDERS
Any proposal or proposals intended to be presented by any stockholder
at the 2002 Annual Meeting of Stockholders must be received by the Company by
December 1, 2001 to be considered for inclusion in the Company's Proxy Statement
and form of proxy relating to that meeting.
ANNUAL REPORT
The Company's 2000 Annual Report on Form 10-K (which is not part of the
Company's proxy solicitation material) is being mailed to the Company's
stockholders with this proxy statement.
By Order of the Board of Directors
/s/ CHRISTOPHER J. MELCHER
Christopher J. Melcher
Corporate Secretary
Denver, Colorado
May ___, 2001
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K (WITHOUT EXHIBITS) FOR THE
YEAR ENDED DECEMBER 31, 2000 ACCOMPANIES THIS PROXY STATEMENT. STOCKHOLDERS MAY
OBTAIN, UPON PAYMENT OF A REASONABLE FEE, COPIES OF THE EXHIBITS TO THE FORM
10-K, BY WRITING TO INTERNET COMMERCE & COMMUNICATIONS, INC., ATTENTION:
CHRISTOPHER J. MELCHER, 999 EIGHTEENTH STREET, SUITE 2201, DENVER, COLORADO
80202.
27
31
APPENDIX A
Internet Commerce & Communications, Inc.
2000 Employees' Stock Option Plan, as amended
Section 1
Introduction
1.1 Establishment. Internet Commerce & Communications, Inc., a Delaware
corporation, hereby establishes the Internet Commerce & Communications, Inc.
2000 Employees' Stock Option Plan, as amended (the "Plan"), for certain key
employees, consultants and advisors of Internet Commerce & Communications, Inc.
(together with its affiliated corporations as defined in Section 2.1(a) below,
the "Company").
1.2 Purposes. The purposes of the Plan are to provide Eligible Persons (as
defined in Section 2.1(f) below) selected for participation in the Plan with
added incentives to continue in the long-term service of the Company and to
create in such persons a more direct interest in the future success of the
operations of the Company by relating incentive compensation to increases in
stockholder value, so that the income of the Eligible Persons is more closely
aligned with the income of the Company's stockholders. The Plan also is designed
to attract key employees, consultants, and advisors and to retain and motivate
Eligible Persons by providing an opportunity for investment in the Company.
Section 2
Definitions
2.1 Definitions. The following terms shall have the meanings set forth
below:
(a) "AFFILIATED CORPORATION" means any corporation or other entity
(including, but not limited to, a partnership) which is affiliated with Internet
Commerce & Communications, Inc. through stock ownership or otherwise and is
treated as a common employer under the provisions of Code Sections 414(b) and
(c).
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as it may be
amended from time to time.
(d) "DISABILITY" means a physical or mental condition which, in the
judgment of the Company, based on medical reports or other evidence satisfactory
to the Company, permanently prevents an employee from satisfactorily performing
his or her usual duties for the Company or the duties of such other position or
job which the Company makes available to him or her and for which such employee
is qualified by reason of his or her training, education or experience.
(e) "EFFECTIVE DATE" means the effective date of the Plan, which will
be June 15, 2000 subject to the approval of the Plan by the Company's
stockholders.
(f) "ELIGIBLE PERSONS" means full-time key employees of the Company or
any Affiliated Corporation or any division thereof, whose judgment, initiative
and efforts are, or will be, important to the successful conduct of its
business; provided that no person who is a director of the Company may be an
Eligible Person. An employee will be considered a "full-time" employee if such
employee is employed by the Company on a minimum basis of thirty hours of
service a week. Eligible Persons also include independent contractors,
consultants and advisors of the Company or any Affiliated Corporation or any
division thereof; provided that such independent contractors, consultants and
advisors may not be granted Incentive Stock Options under this Plan.
(g) "FAIR MARKET VALUE" means the officially quoted closing price of
the Stock on the National Market System of the National Association of
Securities Dealers, Inc. Automated Quotation ("NASDAQ") System on a particular
date, or if no such prices are reported on NASDAQ, then Fair Market Value shall
mean the average of
A-1
32
the high and low sale prices for the Stock (or if no sales prices are reported,
the average of the high and low bid prices) as reported by the principal
regional stock exchange, or if not so reported, as reported by a quotation
system of general circulation to brokers and dealers. If there are no Stock
transactions on such date, the Fair Market Value shall be determined as of the
immediately preceding date on which there were Stock transactions. If the Stock
is not publicly traded, the Fair Market Value of the Stock on any date shall be
determined in good faith by the Administrative Committee after such consultation
with outside legal, accounting and other experts as the Administrative Committee
may deem advisable.
(h) "ADMINISTRATIVE COMMITTEE" means a committee or committees, each
consisting of a member or members of the Board and/or such other person or
persons as may be appointed from time to time by the Board, or the entire Board
if no such Committee has been appointed. With respect to the administration of a
grant or grants under the Plan to Eligible Persons subject to Rule 16b-3, such
Administrative Committee shall be constituted so as to comply with Rule 16b-3
and shall consist of (1) two non-employee directors or (ii) the entire Board
("16b-3 Committee"); PROVIDED THAT if a 16b-3 Committee is not required for such
grant or grants to meet the exemption requirements under Rule 16b-3, then this
sentence shall not be applicable.
(i) "INCENTIVE STOCK OPTION" means any Option designated as such and
granted in accordance with the requirements of Code Section 422.
(j) "1934 ACT" means the Securities Exchange Act of 1934, as amended.
(k) "NON-STATUTORY OPTION" means any Option other than an Incentive
Stock Option.
(l) "OPTION" means a right to purchase Stock at a stated price for a
specified period of time.
(m) "OPTION PRICE" means the price at which Shares of Stock subject, to
an Option may be purchased, determined in accordance with Section 5.2(b).
(n) "OPTION HOLDER" means an Eligible Person of the Company designated
by the Administrative Committee from time to time during the term of the Plan to
receive one or more Options under the Plan.
(o) "OPTIONED SHARES" means the Shares subject to an Option.
(p) "PLAN YEAR" means each 12-month period beginning January 1 and
ending the following December 31, except that for the first year of the Plan,
the Plan Year shall begin on the Effective Date and extend to the first December
31 following the Effective Date.
(q) "RULE 16b-3" means Rule 16b-3 promulgated under the 1934 Act or any
successor rule.
(r) "SHARE" or "SHARES" means a share or shares of Stock.
(s) "STOCK" means the common stock of the Company.
2.2 Gender and Number. Except where otherwise indicated by the content, the
masculine gender also shall include the feminine gender, and the definition of
any term herein in the singular also shall include the plural.
Section 3
Plan Administration
3.1 Administrative Committee; Powers. The Plan shall be administered by the
Administrative Committee. In accordance with the provisions of the Plan, the
Administrative Committee shall have full power and authority, in its sole
discretion, to administer the Plan, including authority to interpret and
construe any provision of the Plan and any Option granted hereunder, to select
the Eligible Persons to whom Options will be granted, the amount of each Option,
and any other terms and conditions of each Option as the Administrative
Committee may deem necessary or
A-2
33
desirable and consistent with the terms of the Plan. The Administrative
Committee shall have full power and authority to determine the form or forms of
the agreements with Option Holders, which shall evidence the particular
provisions, terms, conditions, rights and duties of the Company and the Option
Holders with respect to Options granted pursuant to the Plan, which provisions
need not be identical except as may be provided herein. The Administrative
Committee in granting an Option may provide for the granting or issuance of
additional, replacement or alternative Options upon the occurrence of specified
events, including the exercise of the original Option.
3.2 Actions of Administrative Committee. The Administrative Committee may
from time to time adopt such rules and regulations for administering the Plan as
it may deem necessary in order to comply with the requirements of the Code or in
order to conform to any regulation or to any change in law or regulation
applicable thereto, or as it may otherwise deem proper and in the best interests
of the Company. The Administrative Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or in any agreement entered
into hereunder in the manner and to the extent it shall deem expedient and it
shall be the sole and final judge of such expediency. No member of the
Administrative Committee shall be liable for any action, interpretation or
determination made in good faith (including determinations of Fair Market
Value), and all members of the Administrative Committee shall, in addition to
their rights as directors, be fully protected by the Company with respect to any
action, interpretation or determination. All actions taken and all
interpretations and determinations made by the Administrative Committee pursuant
to the provisions of the Plan shall be final, binding and conclusive for all
purposes and on Option Holders, the Company and all other persons. Any
determination reduced in writing and signed by all of the members shall be fully
effective as if it had been made by a majority vote at a meeting duly called and
held.
Section 4
Stock Reserved for the Plan
4.1 Number of Shares. Subject to the provisions of Section 4.3 below,
2,500,000 Shares are authorized for issuance under the Plan, in accordance with
the provisions of the Plan. Shares that may be issued upon the exercise of
Options shall be applied to reduce the maximum number of Shares remaining
available under the Plan. The 2,500,000 Shares reserved for issuance under the
Plan may be either authorized and unissued or held in the treasury of the
Company.
4.2 Unused and Forfeited Stock. Any Shares that are subject to an Option
under this Plan which are not used because the terms and conditions of the
Option are not met, including any Shares that are subject to an Option which
expires or is terminated for any reason, any Shares which are used for full or
partial payment of the purchase price of Shares with respect to which an Option
is exercised and any Shares retained by the Company pursuant to Section 5 or
Section 11 automatically shall become available for use under the Plan.
4.3 Adjustments for Stock Split, Stock Dividend, Etc. If the Company shall
at any time increase or decrease the number of its outstanding Shares of Stock,
or change in any way the rights and privileges of such Shares by means of the
payment of a stock dividend or any other distribution upon such Shares payable
in Stock, or through a stock split, subdivision, consolidation, combination,
reclassification or recapitalization involving the Stock, except in connection
with an initial public offering, then in relation to the Stock that is affected
by one or more of the above events, such that an adjustment is required in order
to preserve the benefits or potential benefits intended to be made available
under this Plan, then the Administrative Committee shall, in its sole discretion
and in such manner as the Administrative Committee may deem equitable and
appropriate, make such adjustments to any or all of (i) the number and kind of
Shares which thereafter may be made subject to the benefits contemplated by the
Plan, (ii) the number and kind of Shares subject to outstanding Options, and
(iii) the purchase or exercise price with respect to any of the foregoing;
provided, however, that the number of Shares subject to any Option shall always
be a whole number. The Administrative Committee may, if deemed appropriate,
provide for a cash payment to any Option Holder of an Option in connection with
any adjustment made pursuant to this Section.
4.4 General Adjustment Rules. If any adjustment or substitution provided
for in this Section 4 shall result in the creation of a fractional Share under
any Option, the Company shall, in lieu of issuing such fractional Share, pay to
the Option Holder a cash sum in any amount equal to the product of such fraction
multiplied by the Fair Market Value of a Share on the date the fractional Share
otherwise would have been issued.
A-3
34
Section 5
Stock Options
5.1 Grant of Options. An Eligible Person may be granted one or more
Options. The Administrative Committee, in its sole discretion, shall designate
whether an Option is to be considered an Incentive Stock Option or a
Non-Statutory Option. The Administrative Committee may grant both an Incentive
Stock Option, and a Non-Statutory Option to the same Eligible Person at the same
time or at different times Incentive Stock Options and Non-Statutory Options,
whether granted at the same or different times, shall be deemed to have been
awarded in separate grants, shall be clearly identified, and in no event shall
the exercise of one Option affect the right to exercise any other Option or
affect the number of Shares for which any other Option may be exercised.
5.2 Option Agreements. Each Option granted under the Plan shall be
evidenced by a written stock option agreement which shall be entered into by the
Company and the Option Holder, and which shall contain the following terms and
conditions, as well as such other terms and conditions not inconsistent
therewith, as the Administrative Committee may consider appropriate in each
case. In the event of any inconsistency between the provisions of the Plan and
any such agreement entered into hereunder, the provisions of the Plan shall
govern. Any such agreement may be supplemented or amended from time to time as
approved by the Administrative Committee as contemplated herein.
(a) Number of Shares. Each stock option agreement shall state that it
covers a specified number of Shares, as determined by the Administrative
Committee. Notwithstanding any other provision of the Plan, the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by an Option Holder in any calendar year, under
the Plan and all other plans of the Company and its parent and subsidiary
companies, shall not exceed $100,000. For this purpose, the Fair Market Value of
the Shares shall be determined as of the time an Option is granted.
(b) Price. The price at which each Optioned Share may be purchased
shall be determined by the Administrative Committee and set forth in the stock
option agreement. In no event shall the Option Price for each Share covered by
an Incentive Stock Option be less than the Fair Market Value of the Stock on the
date the Option is granted; provided, however, that the Option Price for each
Share covered by an Incentive Stock Option granted to an Eligible Person who
then owns stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company must be at least 110% of the Fair Market
Value of the Stock subject to the Incentive Stock Option on the date the Option
is granted. The Option Price for each Share covered by a Non-Statutory Option
may be granted at any price equal to or less than Fair Market Value, in the sole
discretion of the Administrative Committee.
(c) Vesting. The Administrative Committee in its discretion may impose
a vesting schedule or vesting provision with respect to any Options granted
hereunder which shall be specified in the stock option agreement evidencing such
Option.
(d) Duration of Options. Each stock option agreement shall state the
period of time, determined by the Administrative Committee, within which the
Option may be exercised by the Option Holder (the "Option Period"). The Option
Period must expire, in all cases, not more than ten years from the date an
Option is granted; provided, however, that the Option Period of an Incentive
Stock Option granted to an Eligible Person who then owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company must expire not more than five years from the date such Option is
granted. Notwithstanding any other provision of the Plan, any Option Holder who
is subject to Section 16 of the 1934 Act may not exercise any portion of an
Option during the first six months following the grant of such Option, except
that this limitation shall not apply (i) if such Option was granted by a 16b-3
Committee as defined in Section 2.1(b) above or (ii) in the event of the Option
Holder's death or Disability during such six-month period.
A-4
35
(e) Termination of Employment, Death, Disability, Etc. Except as
otherwise determined by the Administrative Committee, each stock option
agreement shall provide as follows with respect to the exercise of the Option
upon termination of the employment or the death of the Option Holder.
(i) If the employment of the Option Holder is terminated (or,
in the case of a consultant or advisor, if the services of the Option Holder are
terminated) within the Option Period for cause, as determined by the Company,
the Option thereafter shall be void for all purposes. As used in this section,
"cause" shall mean an act of fraud or dishonesty, moral turpitude or a gross
violation, as determined by the Company, of the Company's established policies
and procedures. The effect of this section shall be limited to determining the
consequences of a termination, and nothing in this section shall restrict or
otherwise interfere with the Company's discretion with respect to the
termination of any employee, consultant or advisor.
(ii) If the Option Holder dies, or if the Option Holder
becomes Disabled during the Option Period while still employed (or, in the case
of a consultant or advisor, while the Option Holder is performing services), or
within the three-month period referred to in (iii) below, the Option may be
exercised by those entitled to do so under the Option Holder's will or by the
laws of descent and distribution within twelve months following the Option
Holder's death or Disability, but not thereafter. In any such case, the Option
may be exercised only as to the Shares as to which the Option had become
exercisable on or before the date of the Option Holder's death or Disability.
(iii) If the employment of the Option Holder by the Company is
terminated (which for this purpose means that the Option Holder is no longer
employed by the Company or by an Affiliated Corporation and which, in the case
of a consultant or advisor, means that the Option Holder is no longer performing
services for the Company or an Affiliated Corporation) within the Option Period
for any reason other than cause, Disability, or the Option Holder's death, the
Option may be exercised by the Option Holder within three months following the
date of such termination (provided that such exercise must occur within the
Option Period), but not thereafter. In any such case, the Option may be
exercised only as to the Shares as to which the Option had become exercisable on
or before the date of termination of employment or termination of services.
(f) Transferability. Each stock option agreement shall provide that the
Option granted therein is not transferable by the Option Holder except by will
or pursuant to the laws of descent and distribution, and that such Option is
exercisable during the Option Holder's lifetime only by him or her, or in the
event of Disability or incapacity, by his or her guardian or legal
representative.
(g) Exercise, Payments, Etc.
(i) Each stock option agreement shall provide that the method
for exercising the Option granted therein shall be by delivery to the Company of
written notice specifying the particular Option (or portion thereof) which is
being exercised, the number of Shares with respect to which such Option is
exercised and including payment of the Option Price. Such notice shall be in a
form satisfactory to the Administrative Committee. An Option for the purchase of
Shares granted hereunder may be exercised either in whole at any time, or from
time to time in part in lots of no less than 100 Shares or, in the event any
balance as to which the Option remains unexercised shall be less than 100
Shares, in a lot equal to such balance. The exercise of the Option shall be
deemed effective upon receipt of such notice by the Company and payment to the
Company of the Option Price. The purchase of such Stock shall take place at the
principal offices of the Company upon delivery of such notice, at which time the
purchase price of the Stock shall be paid in full by any of the methods or any
combination of the methods set forth in (ii) below. A properly executed
certificate or certificates representing the Stock shall be issued by the
Company and delivered to the Option Holder.
(ii) The method or methods of payment of the Option Price for
the Shares to be purchased upon exercise of an Option shall be determined by the
Administrative Committee and may consist of any of the following methods or any
combination of the following methods:
A-5
36
(A) in cash;
(B) by cashier's check payable to the order of the
Company;
(C) authorization from the Company to retain from the
total number of Shares as to which the Option is exercised that number of Shares
having a Fair Market Value on the date of exercise equal to the exercise price
for the total number of Shares as to which the Option is exercised;
(D) delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan proceeds required to pay the exercise price;
(E) by delivery to the Company of certificates
representing the number of Shares then owned by the Option Holder, the Fair
Market Value of which equals the purchase price of the Stock purchased pursuant
to the Option, properly endorsed for transfer to the Company; provided, however,
that Shares used for this purpose must have been held by the Option Holder for
such minimum period of time as may be established from time to time by the
Administrative Committee. The Fair Market Value of any Shares delivered in
payment of the purchase price upon exercise of the Option shall be the Fair
Market Value as of the exercise date and the exercise date shall be the day of
the delivery of the Certificates for the Stock used as payment of the Option
Price.
(h) Date of Grant. An Option shall be considered as having
been granted on the date specified in the grant resolution of the Administrative
Committee.
5.3 Stockholder Privileges. Prior to the exercise of the Option and the
transfer of Shares to the Option Holder, an Option Holder shall have no rights
as a stockholder with respect to any Shares subject to any Option granted to
such person under this Plan, and until the Option Holder becomes the holder of
record of such Stock, no adjustments shall be made for dividends or other
distributions or other rights as to which there is a record date preceding the
date such Option Holder becomes the holder of record of such Stock, except as
provided in Section 4.
Section 6
Change in Control
6.1 Change in Control. In the event of a change in control of the Company,
as defined in Section 6.2, notwithstanding any contrary vesting schedules unless
the applicable stock option agreement provides otherwise, each outstanding
Option shall become exercisable in full in respect of the aggregate number of
Shares covered thereby, upon the occurrence of the events described in clause
(a) and (b) of Section 6.2 or immediately prior to the consummation of the
events described in clause (c) of Section 6.2, and the Administrative Committee,
in its sole discretion, without obtaining stockholder approval, to the extent
permitted in Section 10, may take any or all of the following actions: (a) grant
a cash bonus award to any Option Holder in an amount necessary to pay the Option
Price of all or any portion of the Options then held by such Option Holder; (b)
pay cash to any or all Option Holders in exchange for the cancellation of their
outstanding Options in an amount equal to the difference between the Option
Price of such Options and the greater of the tender offer price for the
underlying Stock or the Fair Market Value of the Stock on the date of the
cancellation of the Options, and (c) make any other adjustments or amendments to
the outstanding Options. Notwithstanding the foregoing, unless otherwise
provided in the applicable stock option agreement, the Administrative Committee
may, in its discretion, determine that any or all outstanding Options granted
pursuant to the Plan will not vest or become exercisable or, an accelerated
basis in connection with an event described in clause (c) of Section 6.2 and/or
will not terminate if not exercised prior to consummation of such event, if the
Board of the surviving or acquiring corporation, as the case may be, shall have
taken or made effective provision for the taking of, such action as in the
opinion of the Administrative Committee is equitable and appropriate to
substitute a new Option for such Option or to assume such Option and in order to
make such new or assumed Option, as nearly as may be practicable, equivalent to
the old Option (before giving effect to any acceleration of the vesting or
exercisability thereof), taking into account, to the extent applicable, the kind
and amount of securities, cash or other assets into or for which the Stock may
be changed, converted or exchanged in connection with such event.
A-6
37
6.2 Definition. A "change in control" shall be deemed to have occurred if
(a) any "person" or "group" (within the meaning of Section 13(d) and 14(d)(2) of
the 1934 Act), other than a trustee or other fiduciary holding securities under
an employee benefit plan of the Company, is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of more
than 50% of the then outstanding voting stock of the Company; or (b) the
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least 50% of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
stockholders approve a plan or complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets; or (c) a tender offer or exchange offer to acquire
securities of the Company (other than such an offer made by the Company or any
subsidiary), whether or not such offer is approved or opposed by the Board is
made to acquire securities of the Company entitling the holders thereof to 50%
or more of the voting power in the election of directors of the Company.
6.3 Golden Parachute Payments. If the provisions of this Section would
result in the receipt by any Option Holder of a payment within the meaning of
Code Section 280G and the regulations thereunder and if the receipt of such
payment would result in the imposition of any excise tax under Code Sections
280G and 4999, then the amount of such payment will be reduced to the extent
required, in the opinion of independent tax counsel, to prevent the imposition
of such excise tax; provided, however, that the Administrative Committee, in its
sole discretion, may authorize the payment of all or any portion of the amount
of such reduction to the Option Holder. In such event, the Company will have no
obligation or liability with respect to the Option Holder for the amount of any
excise tax imposed on the Option Holder under Code Sections 280G and 4999.
Section 7
Rights of Employees and Option Holders
7.1 Employment. Nothing contained in the Plan or in any Option shall confer
upon any Eligible Person any right with respect to the continuation of his or
her employment by the Company (or, in the case of an advisor or consultant, to
the continuation of the performance of services for the Company), or interfere
in any way with the right of the Company, subject to the terms of any separate
employment agreement to the contrary, at any time to terminate such employment
or services or to increase or decrease the compensation of such Eligible Person
from the rate in existence at the time of the grant of an Option. Whether an
authorized leave of absence, or absence in military or government service, shall
constitute a termination of employment or a termination of services shall be
determined by the Administrative Committee at the time.
7.2 Nontransferability. No right or interest of any Option Holder in an
Option granted pursuant to the Plan shall be assignable or transferable during
the lifetime of the Option Holder, either voluntarily or involuntarily, or be
subjected to any lien, directly or indirectly, by operation of law, or
otherwise, including execution, levy, garnishment, attachment, pledge or
bankruptcy. In the event of an Option Holder's death, an Option Holder's rights
and interests in Options shall, to the extent provided in Section 5, be
transferable by testamentary will or the laws of decent and distribution. In the
opinion of the Administrative Committee, if an Option Holder is disabled from
caring for his affairs because of mental condition, physical condition or age,
such Option Holder's Options shall be exercised by such person's guardian,
conservator or other legal personal representative upon furnishing the
Administrative Committee with evidence satisfactory to the Administrative
Committee of such status.
Section 8
General Restrictions
8.1 Investment Representations. The Company may require any Option Holder,
as a condition of exercising such Option or receiving Stock under the Option, to
give written assurances, in the substance and form satisfactory to the Company
and its counsel, to the effect that such person is acquiring the Stock subject
to the Option for his own account for investment and not with any present
intention of selling or otherwise distributing the same, and to such other
effects as the Company deems necessary or appropriate in order to comply with
federal and applicable state securities laws. Legends evidencing such
restrictions may be placed on the certificates evidencing the Stock.
A-7
38
8.2 Compliance with Securities Laws. Each Option shall be subject to the
requirement that, if at any time counsel to the Company shall determine that the
listing registration or qualification of the Shares subject to such Option upon
any securities exchange or under any state or federal law, or the consent or
approval of any governmental or regulatory body, is necessary as a condition of,
or in connection with, the issuance or purchase of Shares thereunder, such
Option may not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained on conditions acceptable to the Administrative Committee. Nothing
herein shall be deemed to require the Company to apply for or to obtain such
listing, registration or qualification.
8.3 Stock Restriction Agreement. The Administrative Committee may provide
that Shares of Stock issuable upon the exercise of an Option shall, under
certain conditions, be subject to restrictions whereby the Company has a right
of first refusal with respect to such Shares or a right or obligation to
repurchase all or a portion of such Shares, which restrictions may survive an
Option Holder's term of employment or term of service with the Company.
8.4 Restriction on Disposition. To preserve tax treatment under Section 422
of the Code upon the disposition of any Optioned Shares acquired pursuant to any
Incentive Stock Option granted under this Plan, an Option Holder may not dispose
of any such Optioned Shares within two years from the date of the grant of such
Option nor within one year of the exercise of such Option.
Section 9
Other Employee Benefits
The amount of any compensation deemed to be received by an Option
Holder as a result of the exercise of an Option shall not constitute "earnings"
with respect to which any other employee benefits of such Option Holder are
determined, including without limitation benefits under any pension, profit
sharing, life insurance or salary continuation plan.
Section 10
Plan Amendment, Modification and Termination
The Board may at any time terminate, and from time to time may amend or
modify, the Plan; provided, however, that no amendment or modification may
become effective without approval of the amendment or modification by the
stockholders if stockholder approval is required to enable the Plan to satisfy
any applicable statutory or regulatory requirements, or if the Company, on the
advice of counsel, determines that stockholder approval otherwise is necessary
or desirable.
No amendment, modification or termination of the Plan shall in any
manner adversely affect any Options theretofore granted under the Plan without
the consent of the Option Holder holding such Options.
Section 11
Withholding
11.1 Withholding Requirement. The Company's obligation to deliver Shares
upon the exercise of an Option shall be subject to the satisfaction of all
applicable federal, state and local income and other tax withholding
requirements.
11.2 Withholding with Stock. At the time an Option is exercised by the
Option Holder, the Administrative Committee, in its sole discretion, may permit
the Option Holder to pay all such amounts of tax withholding, or any part
thereof, by transferring to the Company, or directing the Company to withhold
from Shares otherwise issuable to such Option Holder, Shares having a value
equal to the amount required to be withheld or such lesser amount as may be
determined by the Administrative Committee at such time. The value of Shares to
be withheld shall be based on the Fair Market Value of the Stock on the date
that the amount of tax to be withheld is to be determined.
A-8
39
Section 12
Nonexclusivity of the Plan
Neither the adoption of the Plan by the Board nor the submission of the
Plan to stockholders of the Company for approval shall be construed as creating
any limitations on the power or authority of the Board to adopt such other or
additional incentive or other compensation arrangements of whatever nature as
the Board may deem necessary or desirable or preclude or limit the continuation
of any other plan, practice or arrangement for the payment of compensation or
fringe benefits to employees generally, or to any class or group of employees,
which the Company or any Affiliated Corporation now has lawfully put into
effect, including, without limitation, any retirement, pension, savings and
stock purchase plan, insurance, death and disability benefits and executive
short-term incentive plans.
Section 13
Requirements of Law
13.1 Requirements of Law. The issuance of Stock and the payment of cash
pursuant to the Plan shall be subject to all applicable laws, rules and
regulations.
13.2 Federal Securities Law Requirements. With respect to Eligible Persons
subject to Section 16 of the 1934 Act, transactions under this Plan are intended
to comply with all applicable conditions of Rule 16b-3 or its successors under
the 1934 Act. To the extent any provision of the Plan or action by the
Administrative Committee fails to so comply, it shall be deemed null and void
with respect to such Eligible Persons, to the extent permitted by law and deemed
advisable by the Administrative Committee.
13.3 Governing Law. The Plan and all agreements hereunder shall be construed
in accordance with and governed by the laws of the State of Colorado.
Section 14
Duration of the Plan
The Plan shall terminate at such time as may be determined by the
Board, and no Option shall be granted after such termination. If not sooner
terminated under the preceding sentence, the Plan shall fully cease and expire
at midnight on the date that is ten years from the Effective Date of the Plan.
Options outstanding at the time of the Plan termination may continue to be
exercised in accordance with their terms.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by
its duly authorized officers and its seal to be affixed hereto, effective,
except as specified to the contrary herein, as of June 15, 2000.
ATTEST/WITNESS: INTERNET COMMERCE & COMMUNICATIONS, INC.
By: By:
-------------------------------- -----------------------------------
Name: Name:
------------------------------ ---------------------------------
Secretary President
[SEAL]
A-9
40
APPENDIX B
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF
INTERNET COMMERCE & COMMUNICATIONS, INC.
It is hereby certified that:
1. The name of the Corporation (hereinafter called the "Corporation")
is Internet Commerce & Communications, Inc.
2. The Certificate of Incorporation of the Corporation is hereby
amended by revising Section (d) to Article IV to read as follows:
(a) Authorized Shares. The aggregate number of shares which the
Corporation shall have authority to issue is 100,750,000. The
authorized shares shall consist of 100,000,000 shares of Common Stock
with a par value of $.001 per share ("Common Stock") and 750,000 shares
of Preferred Stock with a par value of $.001 ("Preferred Stock").
Effective at the time of filing this Certificate of Amendment of
Certificate of Incorporation with the Delaware Secretary of State, each
[Split Number] shares of the Corporation's Common Stock issued and
outstanding shall, automatically and without any action on the part of
the respective holders thereof, be converted into one share of Common
Stock of the Corporation (the "Reverse Stock Split"). No fractional
shares shall be issued, and, in lieu thereof, the Corporation shall pay
in cash the fair value of fractions of a share as of the time when
those entitled to receive such fractions are determined in accordance
with Section 155 of the Delaware General Corporation Law. From and
after the filing of this Certificate of Amendment, the amount of
capital represented by the shares of Common Stock which remain issued
and outstanding after the Reverse Stock Split shall be the same as the
amount of capital represented by the shares of Common Stock issued and
outstanding immediately prior to the Reverse Stock Split, until
thereafter reduced or increased in accordance with applicable law.
3. Pursuant to Section 242 of the General Corporation Law of the State
of Delaware, the proposed amendment of the Restated Certificate of Incorporation
as set forth in paragraph 2 hereinabove was adopted by the Board of Directors of
the Corporation on February 14, 2001 declaring said amendment to be advisable
and calling a meeting of the stockholders for consideration thereof. Thereafter,
a meeting of the stockholders of said Corporation was duly called and held, upon
notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware at which meeting the necessary number of shares as required by
statute were voted in favor of the amendment.
4. The effective time of the amendment herein certified shall be
__________, 2001.
IN WITNESS WHEREOF, this Corporation has caused this Certificate of
Amendment to be executed on its behalf by its duly authorized officer hereby
declaring and certifying that this is the act and deed of the Corporation and
that the facts stated herein are true, and attested by its Secretary.
Internet Commerce & Communications, Inc.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
ATTEST:
By:
------------------------
Name:
----------------------
Title: Corporate Secretary
--------------------
B-1
41
APPENDIX C
INTERNET COMMERCE & COMMUNICATIONS, INC.
AUDIT COMMITTEE CHARTER
ORGANIZATION
This Charter, to be effective as of June 1, 2000, governs the operation of the
Audit Committee. The Charter shall be approved by the Committee and Board of
Directors on or before June 14, 2000. The Committee shall review and reassess
the Charter at least annually. Any changes to the Charter shall be ratified by
the Board of Directors.
The Committee shall be appointed by the Board of Directors and shall comprise at
least three directors, each of whom are independent of management and the
Company. Members of the Committee shall be considered independent if they have
no relationship that may interfere with the exercise of their independence from
management and the Company. All Committee members shall be financially literate,
and at least one member, who shall be named the Chair of the Committee, shall
have accounting or related financial management expertise.
STATEMENT OF POLICY
The Audit Committee shall provide assistance to the Board of Directors in
fulfilling their oversight responsibility to the shareholders, potential
shareholders, the investment community, and others. The scope of the Committee's
oversight responsibility includes, but is not limited to, the Company's
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the internal audit function, the
annual independent audit of the Company's financial statements, and the legal
compliance and ethics programs as established by management and the Board of
Directors. In discharging its oversight responsibility, the Committee is
empowered to investigate any matter brought to its attention with full access to
all books, records, facilities, and personnel of the Company and the power to
retain outside counsel or other experts for this purpose. Further, it is the
responsibility of the Committee to maintain free and open communication with
independent auditors, internal auditors and management of the Company.
RESPONSIBILITIES AND PROCESSES
The primary responsibility of the Audit Committee is to oversee the Company's
financial reporting process on behalf of the Board of Directors and report the
results of their activities to the Board of Directors. Management is responsible
for preparing the Company's financial statements, and the independent auditors
are responsible for auditing those financial statements.
The Committee believes its policies and procedures should remain flexible in
order to react to changing conditions and circumstances while carrying out its
responsibilities. The Committee should take the appropriate actions to set the
overall corporate "tone" for quality financial reporting, sound business risk
practices, and ethical behavior.
The following shall be the principal recurring processes of the Audit Committee
in carrying out its oversight responsibilities. The processes are set forth as a
guide with the understanding that the Committee may supplement them as
appropriate.
The Committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately accountable to
the Board of Directors and the Audit Committee, as representatives of the
Company's shareholders. The Committee shall have the ultimate authority and
responsibility to evaluate and, where appropriate, replace the independent
auditors. The Committee shall discuss with the auditors their independence from
the Company and the Company's management, and the matters included in the
written disclosures required by the Independence Standards Board. Annually, the
Committee shall review and recommend to the Board of Directors the selection of
the Company's independent auditors, subject to stockholder approval.
The Committee shall discuss with the Company's controller (or internal auditors,
if any) and the independent auditors the overall scope and plans for their
respective audits, including the adequacy of staffing and compensation. Also,
the Committee shall discuss with management, the Company's controller, and the
independent auditors the adequacy and effectiveness of the accounting and
financial controls, including the Company's system to monitor and manage
business risk, and legal and ethical compliance programs. Further, the Committee
shall meet separately with the internal auditors, with and without management
present, to discuss the results of their examinations.
The Committee shall review the interim financial statements with management and
the independent auditors prior to the filing of the Company's Quarterly Report
on Form 10-Q. Also, the Committee shall discuss the results of the
C-1
42
quarterly review and any other matters required to be communicated to the
Committee by the independent auditors under generally accepted auditing
standards. The Chair of the Committee may represent the entire Committee for the
purposes of this review.
The Committee shall review with management and the independent auditors the
financial statements to be included in the Company's Annual Report on Form 10-K
(or the annual report to shareholders if distributed prior to the filing of the
Form 10-K), including their judgment about the quality (as opposed the mere
acceptability) of accounting principles, the reasonableness of significant
judgments, and the clarity of the disclosures in the financial statements. Also,
the committee shall discuss the results of the annual audit and any other
matters required to be communicated to the Committee by the independent auditors
under generally accepted auditing standards.
C-2
43
INTERNET COMMERCE & COMMUNICATIONS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
June 14, 2001
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Internet Commerce & Communications, Inc.
(the "Company") hereby appoints Douglas H. Hanson and Christopher J. Melcher, or
any of them, with full power of substitution, as proxy holders to cast all
votes, as designated below, which the undersigned stockholder is entitled to
cast at the 2001 Annual Meeting of Stockholders (the "Annual Meeting") to be
held on Thursday, June 14, 2000 at _____ a.m. (local time) at _________________
__________________, Denver, Colorado 80202, upon the following matters and any
other matters and any other matter as may properly come before the Annual
Meeting or any adjournments thereof.
1. Election of the five nominees to serve on the Board of Directors (or if any
nominee is not available for election, such substitute as the Board of
Directors may designate), namely: Douglas H. Hanson, D.D. Hock, Robert W.
Grabowski, Lewis H. Silverberg, and Michael T. Victor.
[ ] FOR all nominees listed above (except as marked to the contrary below).
[ ] WITHHOLD AUTHORITY to vote for all nominees listed above.
INSTRUCTION: To withhold authority to vote for any individual nominee, mark
"FOR" above and write the name of the nominee or nominees as to which you
wish to withhold authority in the space below.
2. Proposal to approve the Internet Commerce & Communications' 2000 Employees'
Stock Option Plan, as amended, to increase the number of shares of the
Company's common stock that may be issued thereunder.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to approve an amendment to the Company's Certificate of
Incorporation to effect a Reverse Stock Split of the Company's common stock
of up to one-for-ten, in the event that the Board of Directors determines
that a Reverse Stock Split is desirable at any time within one year from
the date of the 2001 Annual Meeting of the Stockholders of the Company,
with the exact size of the Reverse Stock Split to be determined by the
Board of Directors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to approval the issuance of all shares of common stock that the
Company would be entitled to issue upon exercise of the Class B Warrants;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Proposal to ratify the appointment of Ernst & Young LLP as the independent
auditors of the Company for the fiscal year ending December 31, 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be dated and signed on reverse side.)
44
(continued from other side)
This proxy, when properly executed, will be voted as directed by the
undersigned stockholder and in accordance with the best judgment of the proxies
as to other matters. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR"
THE NOMINEES LISTED IN PROPOSAL 1, "FOR" PROPOSALS 2, 3, 4 and 5 AND IN
ACCORDANCE WITH THE BEST JUDGMENT OF THE PROXY HOLDERS AS TO OTHER MATTERS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED IN PROPOSAL 1
AND "FOR" PROPOSALS 2, 3, 4 AND 5.
The undersigned hereby acknowledges prior receipt of the Notice of
Annual Meeting of Stockholders and Proxy Statement dated May ___, 2001 and the
2001 Annual Report to Stockholders, and hereby revokes any proxy or proxies
heretofore given. This Proxy may be revoked at any time before it is voted by
delivering to the Secretary of the Company either a written revocation of proxy
or a duly executed proxy bearing a later date, or by appearing at the Annual
Meeting and voting in person.
If you receive more than one proxy card, please sign and return all
cards in the accompanying envelope.
Date: , 2001
--------------------
-----------------------------------------------------
Signature of Stockholder or Authorized Representative
-----------------------------------------------------
Signature of Stockholder or Authorized Representative
(if held jointly)
Please date and sign exactly as name appears hereon.
Each executor, administrator, trustee, guardian,
attorney-in-fact, and other fiduciary should sign and
indicate his or her full title. In the case of stock
ownership in the name of two or more persons, all
persons should sign.
[ ] I PLAN TO ATTEND THE JUNE 14, 2001 ANNUAL STOCKHOLDERS MEETING
PLEASE COMPLETE, DATE AND SIGN THIS PROXY, AND RETURN IT PROMPTLY TO ENSURE A
QUORUM AT THE MEETING. IT IS IMPORTANT WHETHER YOU OWN FEW OR MANY SHARES. DELAY
IN RETURNING YOUR PROXY MAY SUBJECT THE COMPANY TO ADDITIONAL EXPENSE.