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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. 2)
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 Section 240.14a-11(c) or
Section 240.14a-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 approximate 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 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:
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INTERNET COMMERCE & COMMUNICATIONS, INC.
999 EIGHTEENTH STREET, SUITE 2201
DENVER, COLORADO 80202
(303) 672-0700
JUNE __, 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 __________________, ___, 2001 at 10:00 a.m. (local time), at
the Hotel Monaco, 1717 Champa Street, 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 adoption of the 2001 Stock Option Plan;
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
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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 _______, 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 ________, _______, 2001 at 10:00 a.m. (local time), at the Hotel Monaco,
1717 Champa Street, 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 adopt the 2001 Stock Option Plan;
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, 2001; 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 _______, 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/ DOUGLAS H. HANSON
Douglas H. Hanson
Chairman, Chief Executive Officer and President
Denver, Colorado
June _____, 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.
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INTERNET COMMERCE & COMMUNICATIONS, INC.
999 EIGHTEENTH STREET, SUITE 2201
DENVER, COLORADO 80202
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON _______, 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 ________, _______, 2001, beginning at 10:00
a.m. (local time) at the Hotel Monaco, 1717 Champa Street, Denver, Colorado and
at any postponements or adjournments thereof.
ABOUT THE ANNUAL MEETING
WHAT IS THE PURPOSE OF THE MEETING?
At the 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, _______, 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 9:00 a.m. (local
time) and the meeting will begin at 10:00 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.
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.
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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.
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.
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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 Corporation. 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 June 20, 2001.
AGGREGATE NUMBER OF PERCENT OF
SHARES BENEFICIALLY SHARES
NAME OWNED(1) OUTSTANDING
- --------------------------- ------------------- -----------
Douglas H. Hanson 5,852,500(2) 19.0 %
Robert W. Grabowski 17,800(3) *
D. D. Hock 10,000(4) *
M. Doak Jacoway 10,000(5) *
Lewis H. Silverberg 65,000(6) *
Michael T. Victor 2,000(7) *
Charles R. Eazor 8,465(8) *
Paula M. Eazor 527(9) *
William H. Heuston 7,234(10) *
Christopher J. Melcher 71,133(11) *
E. Stephen Shriver 4,847(12) *
Thomas A. Stein -0-(13) *
Interwest Group, Inc.,
Anschutz Company, and
Philip F. Anschutz 3,800,377(14) 12.4%
All Directors and Executive
Officers as a group (14
persons) 9,879,883(15) 31.9%
* Less than one percent.
- ----------
(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 June 20, 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.
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(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, 266,385 shares of common stock that Mr. Hanson has the
right to acquire within 60 days of June 20, 2001 pursuant to 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 June 20, 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 June 20, 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 10,000 shares of common stock directly owned by Mr. Jacoway.
(6) 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 June 20, 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.
(7) 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. Mr.
Victor will not stand for reelection as a director at the 2001 Annual
Meeting of Stockholders.
(8) 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.
(9) 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.
(10) Includes 7,234 shares of common stock directly owned by Mr. Heuston.
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.
(11) Includes 71,133 shares of common stock that Mr. Melcher has the right
to acquire within 60 days of June 20, 2001 pursuant to options. Mr.
Melcher resigned in the second quarter of 2001. The share ownership
data included in this table represents the best information available
to the Company.
(12) Includes 4,847 shares of common stock directly owned by Mr. Shriver.
(13) 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.
(14) 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.
(15) Includes 5,711,988 shares of common stock directly owned by the
fourteen officers and directors as a group, 367,518 shares of common
stock that fourteen officers and directors as a group have the right to
acquire within 60 days of June 20, 2001 pursuant to options, and
3,800,377 shares of common stock for which the Company's Board of
Directors shares voting and dispositive power with Interwest Group,
Inc., Anschutz Company, and Philip F. Anschutz.
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WHO ARE THE LARGEST OWNERS OF THE COMPANY'S STOCK?
As of June 20, 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
was 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), and as a
Director on 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.
M. DOAK JACOWAY New Nominee
Mr. Jacoway, 51, is a financial planning consultant specializing in investment
and estate planning for business owners and corporate executives. He is
president of Jacoway Financial Corporation, a company he formed in 1987.
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Mr. Jacoway currently serves as Chair-Elect of the Denver Metro Chamber of
Commerce. He also serves on the Board of Directors of The Metropolitan State
College of Denver Foundation, Inc., the Board of Trustees of the Denver Area
Council Boy Scouts of America, and the Board of Directors of Colorado UpLIFT.
Mr. Jacoway is engaged in many other civic activities.
LEWIS H. SILVERBERG Director since 1998
Mr. Silverberg, 66, has been a director of the Company since January 1998. 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.
RETIRING DIRECTOR
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.
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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
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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 two times in
2000.
REPORT OF THE AUDIT COMMITTEE
The Report of the Audit Committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filing under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent the Company specifically incorporates this
Report by reference therein.
During fiscal 2000, the Audit Committee of the Board of Directors
developed an updated charter for the Committee, which was approved by the full
Board on June 14, 2000. The complete text of the new charter, which reflects
standards set forth in new SEC regulations and Nasdaq rules, is reproduced in
the appendix to this proxy statement.
As set forth in more detail in the charter, the Audit Committee's
primary responsibilities fall into three broad categories:
o first, the Committee is charged with monitoring the preparation of
quarterly and annual financial reports by the Company's management,
including discussions with management and the Company's outside
auditors about draft annual financial statements and key accounting and
reporting matters;
o second, the Committee is responsible for matters concerning the
relationship between the Company and its outside auditors, including
recommending their appointment or removal; reviewing the scope of their
audit services and related fees, as well as any other services being
provided to the Company; and determining whether the outside auditors
are independent (based in part on the annual letter provided to the
Company pursuant to Independence Standards Board Standard No. 1); and
o third, the Committee oversees management's implementation of effective
systems of internal controls, including review of policies relating to
legal and regulatory compliance, ethics and conflicts of interests; and
review of the activities and recommendations of the Company's internal
auditing program.
The Committee has implemented procedures to ensure that during the
course of each fiscal year it devotes the attention that it deems necessary or
appropriate to each of the matters assigned to it under the Committee's charter.
To carry out its responsibilities, the Committee met two times during fiscal
2000.
In overseeing the preparation of the Company's financial statements,
the Committee met with both management and the Company's outside auditors to
review and discuss all financial statements prior to their issuance and to
discuss significant accounting issues. Management advised the Committee that all
financial statements were prepared in accordance with generally accepted
accounting principles, and the Committee discussed the statements with both
management and the outside auditors. The Committee's review included discussion
with the outside auditors of matters required to be discussed pursuant to
Statement on Auditing Standards No. 61 (Communication With Audit Committees).
With respect to the Company's outside auditors, the Committee, among
other things, discussed with Ernst & Young LLP matters relating to its
independence, including the disclosures made to the Committee as required by the
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees). The Audit Committee does not believe that the outside auditors'
performance of non-audit services, representing approximately $232,000 of fees
that are almost entirely attributable to tax-related services, will have an
adverse effect on the outside auditors' independence.
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On the basis of these reviews and discussions, the Committee
recommended to the Board of Directors that the Board approve the inclusion of
the Company's audited financial statements in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000, for filing with the
Securities and Exchange Commission.
Respectfully submitted,
Members of the Audit Committee
Robert W. Grabowski
D.D. Hock
Lewis H. Silverberg
COMPENSATION COMMITTEE. The Compensation Committee reviews the
salaries, benefits, and other compensation of the Company's 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 one time 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 UPON
DIRECTOR 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
=====
- ----------
* Not standing for reelection at the Annual Meeting of Stockholders.
** Resigned as of June 15, 2000.
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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.
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
======
- ----------
* Not standing for reelection at the Annual Meeting of Stockholders.
** Resigned as of June 15, 2000.
2001 STOCK OPTION PLAN. If stockholders adopt the 2001 Stock Option
Plan by approving Proposal 2 below, each Non-Employee Director will be eligible
to receive stock options under the 2001 Stock Option Plan.
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.
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CHARLES EAZOR, 54, joined the Company through its November 2000 merger
with Internet Communications Corporation and currently serves as Senior Vice
President, Operations. Prior to the merger, Mr. Eazor served as Vice
President/General Manager of Internet Communications Corporation 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 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. Mr.
Eazor is the spouse of Paula M. Eazor, the Company's Sales Manager-Voice System
Division.
PAULA M. EAZOR, 41, joined the Company through its November 2000 merger
with Internet Communications Corporation 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. Ms. Eazor is the spouse of Charles R. Eazor, the
Company's Senior Vice President, Operations.
RICHARD E. KISSER, 47, joined the Company in May 2001 and serves as
Chief Financial Officer for the Company. Mr. Kisser served as Chief Financial
Officer, Secretary, Treasurer, and Vice President Accounting and Finance, for
Meteor Industries, Inc. (a petroleum marketing and distribution company) from
June 1998 through April 2001. From 1981 through 1997, Mr. Kisser was employed by
Total Petroleum, Inc. (an integrated petroleum company) and served in various
accounting and financial management positions, including Director of Internal
Audit. From 1978 through 1981, he worked in the audit division of
Pricewaterhouse LLP (now PricewaterhouseCoopers LLP). Mr. Kisser has a diverse
background in accounting, financial reporting, finance, risk management, and
systems. Mr. Kisser graduated from Central Michigan University, where he
received a Bachelor of Science degree in Accounting and Business Management in
1978.
E. STEPHEN SHRIVER, 41, joined the Company through its November 2000
merger with Internet Communications Corporation and currently serves as Senior
Account Manager-Voice Systems. Mr. Shriver served as Senior Account Manager of
Internet Communications Corporation 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.
10
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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.
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------------------------------
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING
POSITIONS 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 --
Christopher 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. Ms. Eazor is the spouse of Charles R.
Eazor.
(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
11
15
services performed in 1999, and options to purchase 632 shares of the
Company's common stock in 1998 for services performed in 1998. Mr.
Eazor is the spouse of Paula M. Eazor.
(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. Mr. Melcher resigned in the second quarter of 2001.
(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 Corporation 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 Corporation which were
extinguished in the November 2000 merger between Internet
Communications Corporation 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
NUMBER OF TOTAL
SECURITIES OPTIONS POTENTIAL REALIZABLE VALUE AT
UNDERLYING GRANTED TO ASSUMED ANNUAL RATE OF STOCK
OPTIONS EMPLOYEES IN EXERCISE GRANT EXPIRATION PRICE APPRECIATION FOR THE
NAME GRANTED(1) FISCAL YEAR PRICE DATE DATE(1) OPTION TERM
----------------------------
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 -- -- $ -- -- -- $ -- $ --
Christopher 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. With the exception
of options granted to Mr. Hanson, all options have a ten-year term and
become exercisable in three equal annual installments beginning one
year after the date of grant. The options granted to Mr. Hanson have a
five-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 Corporation, all of which were extinguished in
the November 2000 merger between Internet Communications Corporation
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.
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NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT DECEMBER 31, 2000 AT DECEMBER 31, 2000(2)
ACQUIRED VALUE ----------------------------- -----------------------------
NAME ON 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 -- $ -- -- -- $ -- $ --
Christopher J. Melcher -- $ -- 71,133 188,267 $ -- $ --
- ----------
(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 are or have been an
employee of the Company. In addition, none of the Company's executive officers
have ever served as a member of the Board of Directors or Compensation Committee
of any other entity that has or has had one or more executive officers serving
as a member of the Company's Board or Compensation Committee.
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
13
17
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.
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 ten years (or five years in the case of an
optionee beneficially owning more than 10% of the outstanding common stock). 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). In its discretion, the Company may match
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.
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 $2.4063. Mr. Hanson's salary for 2000
was based on the Company's performance and the compensation of chief executive
officers of comparable companies. In particular, the Compensation Committee used
a number of criteria to assess Mr. Hanson's performance, including the
following:
o the dedication, knowledge, integrity, and experience that
Mr. Hanson provides to the Company;
o his ability to grow the Company, as evidenced by the fact that the
Company, which was a small, regional Internet service provider
with $5 million in assets when he arrived in December 1997, now
has over $62 million of assets and offers a variety of web-related
products with nationwide capability;
o his ability to negotiate, as evidenced by the acquisition over 20
companies over a 30-month period;
o his knowledge of the industry, as evidenced by his position as
Chairman of CompTel, an organization that represents over 250
telecommunication companies, and his prior employment experience
at what is now Qwest Communications; and
o the number of hours he devotes to the Company, which frequently
range from 80 to 100 hours per week.
The Compensation Committee also compared the total compensation provided to
executives of other telecommunications companies that have infrastructure and
offer connectivity, web hosting, web development, long distance voice service,
dedicated access, and network management. The Committee believes that Mr.
Hanson's salary is well supported by his and the Company's performance, and is
below the average compensation package offered to most executives in the
industry.
14
18
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 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) the Company,
(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 Internet Index
Communications, Inc. Index (U.S.)
- ---------------------- ---------------------- ---------------------- ----------------------
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
None of the members of the Compensation Committee are or have been an
employee of the Company. In addition, none of the Company's executive officers
have ever served as a member of the Board of Directors or Compensation Committee
of any other entity that has or has had one or more executive officers serving
as a member of the Company's Board or Compensation Committee.
To the extent that the Company's officers and directors receive stock
options under the 2001 Stock Option Plan, they may have a conflict of interest
in recommending approval of Proposal 2.
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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. Ms. Vitale and Messrs. Hanson and Grabowski were
late in filing their stock ownership reports and thus, were not in compliance
with the time deadlines established by Section 16(a) for reporting changes in
beneficial ownership.
PROPOSAL 2
ADOPTION OF THE 2001 STOCK OPTION PLAN
The Board of Directors has approved and recommends that the
stockholders adopt the 2001 Stock Option Plan. The Board of Directors further
directed that the 2001 Stock Option Plan (the "2001 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
2001 Plan. Unless otherwise instructed on the proxy, a properly executed proxy
will be voted in favor of the 2001 Plan.
The purpose of the amendment to the 2001 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 2001 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.
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DESCRIPTION OF THE 2001 PLAN
The following is a summary of the material provisions of the 2001 Plan
and is qualified in its entirety by reference to the complete text of the 2001
Plan, which is attached as Appendix A.
All full-time employees of the Company, independent contractors,
consultants, directors, and advisors are eligible to receive options under the
2001 Plan, which is administered by the Compensation Committee of the Board of
Directors (with the exception of grants to Non-Employee Directors, which are
administered by the entire Board of Directors). Options granted to full-time
employees under the 2001 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. Independent contractors, consultants,
directors, and advisors of the Company may not be granted incentive stock
options under the 2001 Plan. Under the 2001 Plan, 1,500,000 shares of common
stock are reserved and authorized for issuance upon the exercise of options
issued pursuant to the 2001 Plan.
The option exercise price for incentive stock options granted under the
2001 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 2001 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
2001 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 2001 Plan), unless the applicable agreement
with respect to any option provides otherwise, each outstanding option under the
2001 Plan vests immediately, regardless of any vesting schedule in the
particular agreement.
Payment for shares purchased under the 2001 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 (commonly known as a
"cashless exercise"). 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 2001 Plan at any
time. Unless previously terminated, the 2001 Plan will terminate automatically
on July 26, 2011, ten years after the date of adoption of the 2001 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
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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,
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) ON THIS PROPOSAL 2
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 2001 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
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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 2001 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 2001
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.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2
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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
BACKGROUND AND DESCRIPTION OF DELAWARE STATE LAW REQUIREMENTS
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 Delaware law, the
Reverse Stock Split cannot occur unless stockholders approve the proposed
amendment to Article 4. 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
Nasdaq Listing Requirements. 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 Nasdaq
National Market required the Company to 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
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delisted from the Nasdaq National Market. In an attempt to demonstrate its
ability to comply with the Nasdaq maintenance standards, the Company requested a
hearing before a panel authorized by the Nasdaq Board of Directors. At the
hearing, which was held on February 22, 2001 in Washington, DC, the Company
informed the Nasdaq panel about the Reverse Stock Split and other steps the
Company was taking to achieve compliance with Nasdaq's listing standards. As of
the date of this proxy statement, the Nasdaq panel has still not rendered a
verdict on the Company's listing status.
Proposed New Nasdaq Listing Requirements. In April 2001, Nasdaq
proposed certain changes to its listing requirements. Among other things, the
proposed changes would eliminate the $4 million net tangible asset test and
establish a new $10 million stockholders' equity test. This change in Nasdaq's
listing requirements is effective immediately under a pilot program that was
approved by the Securities and Exchange Commission ("SEC") on May 1, 2001. The
pilot program is scheduled to expire on July 1, 2001, or at such earlier time
that the SEC grants permanent approval of the changes. However, there is no
assurance that the Securities and Exchange Commission will approve the proposed
changes in Nasdaq's listing requirements. If the SEC does not approve the
proposed new listing requirements, the $4 million net tangible asset test will
continue in effect.
The proposed changes to Nasdaq's listing requirements will have no
effect on the $1.00 minimum bid price criteria. In order for the Company's
common stock to be listed on the Nasdaq National Market, among other things, the
Company's 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 the Nasdaq National Market. If Nasdaq were to delist the Company's
common stock, 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 the Nasdaq Stock Market.
Current Status of the Company With Regard to Nasdaq Listing
Requirements. As of March 31, 2001, the Company had net tangible assets of
negative $15,357,372 and stockholders' equity of $23,262,255. As a result, the
Company is not in compliance with the $4 million net tangible asset test, but is
in compliance with the proposed $10 million stockholders' equity test.
Realistically, the Company does not believe that its common stock will continue
to be listed on the Nasdaq Stock Market unless the SEC approves the proposed new
listing criteria.
On June 18, 2001, the Company's common stock closed at $0.20 per share.
Moreover, the market value of the Company's common stock has not closed above
$1.00 per share since January 5, 2001. As a result, the Company is not currently
in compliance with Nasdaq $1.00 minimum bid price test. Although the Company's
common stock may still be delisted from the Nasdaq Stock Market due to the
Company's failure to meet the $4 million net tangible asset test, the Board of
Directors believes that stockholder approval of the Reverse Stock Split will
improve the Company's chances of complying with the $1.00 minimum bid price
criteria.
REASONS FOR DISCRETION IN DETERMINING THE SIZE OF THE REVERSE STOCK SPLIT
The proposed Reverse Stock Split will give the Board of Directors
discretion 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. The reason that the
Board of Directors needs discretion in determining the size of the Reverse Stock
Split is to increase the probability, at least initially, that the Reverse Stock
Split will achieve compliance with Nasdaq's $1.00 minimum bid price requirement.
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
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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, including:
o the market price of the Company's common stock;
o quarterly results during 2001;
o internal cash flow and earnings forecasts; and
o the economic outlook for the economy as a whole.
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 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
June 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 June 20,
2001, there were 30,612,928 shares of common stock outstanding.
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Reverse Stock Split Common Stock Outstanding After Authorized but Unissued Shares
Number Reverse Stock Split After Reverse Stock Split
- ------------------- -------------------------------- ------------------------------
Two 15,306,464 84,693,536
Five 6,122,586 93,877,415
Ten 3,061,293 96,938,707
The Company's equity compensation plans and outstanding warrants and
shares of convertible preferred stock provide 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. The Company's equity compensation
plans are 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. Furthermore, 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. In addition, the
number of shares of common stock subject to each warrant and each share of
convertible preferred stock outstanding will be divided by the Reverse Split
Number and the per share exercise price under each warrant and each share of
convertible preferred stock outstanding 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. As of the record date, management
estimates that approximately 50 of the 13,665 beneficial holders of the
Company's common stock would be cashed out if the Company implemented a 1 for 10
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 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.
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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 constitute a
reorganization within the meaning of Section 368(a)(1)(E) of the Internal
Revenue Code of 1986, as amended (the "Code") and will have the following income
tax effects:
o The Company will not recognize any gain or loss as a result of the
Reverse Stock Split.
o 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.
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o 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.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3
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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
BACKGROUND OF THE DECEMBER 1999 PRIVATE PLACEMENT
The Company's Class B warrants were issued as part of a December 1999
private placement with Advantage Fund II Ltd. ("Advantage") and Koch Investment
Group ("Koch"), two institutional investors. In the 18 months preceding the
December 1999 private placement, the Company acquired all of the outstanding
common stock or substantially all of the assets of 22 companies. The task of
integrating the newly acquired customers and assets into the Company's business
placed a considerable strain on the Company's working capital. The Company
believed that additional working capital was needed to assimilate the acquired
companies and assets. However, the Company experienced a great deal of
difficulty finding sources of capital. After an extensive search, the Company
came to the conclusion that Advantage and Koch were the only viable sources of
capital available to the Company.
On December 7, 1999, the Company sold the following securities to
Advantage and Koch 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. The proceeds
from the December 1999 private placement were used for general corporate
purposes and for working capital.
Summary of Class B Warrant Exercise Terms. 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 (the "Adjustment Date")
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 during the Adjustment Period, the number
of shares issuable upon exercise of Class B warrants will decrease. If the
Adjustment Price decreases at any time during the Adjustment Period, the number
of shares issuable upon exercise of Class B warrants will increase. A detailed
explanation of the exercise formulas and the number of shares issuable upon
exercise of the Class B warrants is included below under the caption "Terms of
the Class B Warrants."
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As a result, 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 declines substantially, 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."
Rationale for Issuing the Class B Warrants. The periodic adjustments in
the number of shares issuable pursuant to the Class B warrants were negotiated
with the two institutional investors in the context of their total investment in
the Company. The institutional investors purchased their initial 761,610 shares
of common stock on December 7, 1999 at a 60% premium to the then current market
price. In exchange for paying such a substantial premium and agreeing to delay
the initial adjustment until June 2000, six months after the private placement,
the institutional investors received Class B warrants entitling them to acquire
additional shares based on the future market price of the common stock and the
number of initial shares held by the selling stockholders on each adjustment
date. These adjustment provisions were intended to give Koch and Advantage an
opportunity to earn a satisfactory return on their total investment in the event
the market price did not increase to levels above the premium price they paid on
December 7, 1999. The periodic adjustments in the exercise terms of the Class B
warrants do not ensure that the holders will receive additional shares with a
specified resale value relative to their initial investment. However, the
adjustments do allow the Class B warrant holders to reduce the risk of loss on
their initial investment in the event that the Company's stock price declines.
Furthermore, the adjustments give the institutional investors an opportunity to
profit substantially if they are able to resell these additional shares at
favorable market prices.
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.
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% 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.
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.
POSSIBLE REDEMPTION IF THE COMPANY FAILS TO OBTAIN STOCKHOLDER APPROVAL
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
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greater. To avoid redemption under certain circumstances, the Company is
obligated under the terms of the Class B warrants 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.
POTENTIAL DILUTION AND OTHER EFFECTS OF THE PROPOSAL
The Company would be required to issue 17,412,334 shares of common
stock based on the Adjustment Price on April 30, 2001, the most recent
Adjustment Date. However, the potential dilution will continue to vary over the
course of the Adjustment Period, 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, the chart below sets forth the maximum number of shares of
common stock that the Company would be required to issue through December 2002.
For purposes of computing the potential dilution, the closing bid price of the
common stock is assumed to equal to 200%, 100%, and 50% of the closing price of
the Company's common stock on June 18, 2001 ($0.20 per share) and stays at that
level through the end of the Adjustment Period.
MAXIMUM NUMBER OF SHARES
ISSUABLE UPON EXERCISE OF CLASS B PERCENTAGE OF
WARRANTS AT $0.01 PER SHARE OUTSTANDING SHARES AT
ASSUMED CLOSING BID PRICE (THROUGH DECEMBER 2002) JUNE 18, 2001(1)
- --------------------------------- --------------------------------- ---------------------
$0.40 - 200% of closing price
on 6/18/2001 27,714,799 47.5%
$0.20 - 100% of closing price
on 6/18/2001 55,429,597 64.4%
$0.10 - 50% of closing price on
6/18/2001 110,859,194 78.4%
- ----------
(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.
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.
The Company's Certificate of Incorporation authorizes the issuance of
100,000,000 shares of common stock. As of June 20, 2001, the Company has
30,612,928 shares of common stock outstanding. Therefore, the Company may need
to amend its Certificate of Incorporation to increase the number of authorized
shares in the event that the Company is required to issue more than 69,397,072
shares of common stock in the future.
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. Short sales by other investors,
in turn, could cause further declines in the market price of the Company's
common stock.
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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.
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 "Possible
Redemption if the Company Fails to Obtain Stockholder Approval" above.
EXERCISE TERMS. Over the 11 adjustment dates beginning on June 4, 2000
and occurring every 90th day thereafter through November 20, 2002, the number of
shares issuable upon exercise of the Class B warrants will increase or decrease
based on the following factors:
o Shares of Common Stock Held by the Selling Stockholders. If
the selling stockholders sell shares of common stock issued in
the December 1999 private placement prior to the adjustment
date, the number of shares issuable upon exercise of the Class
B warrants will decrease.
o Class B Warrant Shares. Due to the adjustment factor, which is
discussed below, the number of shares of common stock issued
and held or issuable upon exercise of the Class B warrants
immediately prior to the adjustment date will also increase
the amount of shares issuable as of the new adjustment date.
o Adjustment Factor. The adjustment factor for the first
adjustment date, June 4, 2000, equals 1.03, while the
adjustment factor for all subsequent adjustment dates through
November 20, 2002 declines to 1.015.
o The Market Price of the Common Stock. The exercise formula is
based on the average of the lowest closing bid prices of the
Company's common stock during the 30-day trading period
immediately preceding each adjustment date, provided that the
average adjustment price cannot exceed $9.8476. On the initial
adjustment date, June 4, 2000, the average adjustment price is
based on the lowest closing bid prices on 20 of the preceding
30 trading days. On the second adjustment date, September 2,
2000, the average adjustment price is based on the lowest
closing bid prices on 15 of the preceding 30 trading days. On
every adjustment date thereafter through November 20, 2002,
the average adjustment price is based on the lowest closing
bid prices on ten of the preceding 30 trading days. If the
average adjustment price declines from one adjustment date to
the next and does not exceed $9.8476, the number of shares
issuable upon exercise of the Class B warrants will increase.
If the average adjustment price increases from one adjustment
date to the next and does not exceed $9.8476, the number of
shares issuable upon exercise of the Class B warrants will
decrease. If the average adjustment price exceeds $9.8476, the
adjustment price equals $9.8476. In effect, this cap on the
average adjustment price allows the holders of the Class B
warrants to profit from a rise in the market price of the
common stock, if any, and to reduce the risk of loss on their
initial investment resulting from a decline in the Company's
stock price.
As summarized above, two terms in the exercise formula change over the
two and one-half year adjustment period, as highlighted in the table below. The
exercise formula, and these two factors in particular, were the subject of
lengthy negotiations between the Company and the selling stockholders and
represent a compromise for both parties.
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Number of Low Closing Bid
Adjustment Date Prices Out of 30 Trading Days Adjustment Factor
- ------------------------------ ----------------------------- ----------------
Initial Adjustment -
June 4, 2000 20 days 1.03
Second Adjustment --
September 2, 2000 15 days 1.015
Subsequent Adjustments -
through November 20, 2002 10 days 1.015
The first term, the number of trading days included in the computation
of the average lowest closing bid price during the preceding 30 trading days,
decreases from 20 days on the first adjustment date to 15 days on the second
adjustment date, and again to 10 days on every adjustment date thereafter
through November 20, 2002. This decrease in the number of trading days included
in the exercise formula is advantageous to the selling stockholders and
disadvantageous to the Company. Assuming that all other factors in the formula
remain constant, a reduction in the number of trading days considered in
computing the lowest closing bid price is likely to lead to a lower average
price and an increase in dilution to other investors. This will be especially
true if the stock price of the Company's common stock is relatively volatile
over the 30 trading day measurement period. However, this provision also
benefits the Company by creating an incentive for the selling stockholders to
hold their shares for longer periods of time.
Second, the adjustment factor declines from 1.03 on June 4, 2000 to
1.015 on each adjustment date thereafter. This adjustment factor is designed to
give the selling stockholders a minimum potential return of approximately 6% per
year if the stock price continues to decline on each adjustment date and the
selling stockholders continue to hold their initial shares. Because the first
adjustment date is 180 days after the date of the December 1999 private
placement and subsequent adjustments are made every 90 days thereafter, the
first adjustment factor is twice as large as subsequent adjustment factors.
DETAILED EXPLANATION OF EXERCISE FORMULAS. The detailed formulas used
to determine the number of shares to be issued upon exercise of the Class B
warrants on each of the 90-day adjustment dates beginning on June 4, 2000 and
ending on November 20, 2002 are set forth below.
The Initial Adjustment. On the first adjustment date, June 4, 2000, the
Class B warrants will become exercisable for a specified number of
shares equal to:
(1) the quotient obtained by dividing:
(a) the product of:
o number of shares of common stock originally issued in
the December 1999 private placement that continue to
be held by Class B warrant holders on June 4, 2000
(up to 761,610 shares),
o $13.1301 (the initial purchase price), and
o 1.03 (the initial adjustment factor)
by
(b) the initial "adjustment price," which is defined as the
lesser of:
o $9.8476, or
o the average market price of the common stock, which
is defined as the average of the closing bid prices
for the 20 trading days out of the 30 immediately
preceding trading days on which the lowest closing
bid prices occurred
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less
(2) the number of number of shares of common stock originally
issued in the December 1999 private placement that continue to
be held by the Class B warrant holders on June 4, 2000 (up to
761,610 shares).
The Second Adjustment. On the second adjustment date, September 2,
2000, the specified number of shares reserved for which the Class B
warrants are then exercisable will be adjusted by an amount equal to:
(1) the quotient obtained by dividing:
(a) the product of:
o the number of shares of common stock originally
issued in the December 1999 private placement that
continue to be held by Class B warrant holders on the
second day adjustment date (September 2, 2000), plus
shares issued and held by Class B warrant holders or
issuable immediately prior to such adjustment date
upon exercise of Class B warrants and then held by
Class B warrant holders,
o the initial adjustment price on the immediately
preceding adjustment date (June 4, 2000), and
o 1.015 (the adjustment factor)
by
(b) the "adjustment price," which is defined as the lesser of:
o $9.8476, or
o the average market price of the common stock, which
is defined as the average of the closing bid prices
for the 15 trading days out of the 30 immediately
preceding trading days on which the lowest closing
bid prices occurred
less
(2) the number of shares of common stock originally issued in the
December 1999 private placement that continue to be held by
Class B warrant holders on the second adjustment date
(September 2, 2000), plus shares issued and held by Class B
warrant holders or issuable immediately prior to such
adjustment date upon exercise of Class B warrants and then
held by Class B warrant holders.
If the amount of the adjustment is positive, then the number of
shares issuable upon exercise of Class B warrants on the first
adjustment date will be increased by the amount of the adjustment.
If the amount is negative, then the number of shares issuable upon
exercise of Class B warrants on the first adjustment date will be
decreased by the amount of the adjustment (but not less than
zero).
Subsequent Adjustments. The Company will be required to make similar
adjustments (increases or decreases) to the number of shares issuable
upon exercise of Class B warrants every 90 days after the second
adjustment date (September 2, 2000) until November 20, 2002. The amount
of each adjustment will equal:
(1) the quotient obtained by dividing:
(a) the product of:
o number of shares of common stock originally issued in
the December 1999 private placement that continue to
be held by Class B warrant holders on the day of
adjustment, plus shares issued and held by Class B
warrant holders or issuable immediately prior to
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such adjustment date upon exercise of Class B
warrants and then held by Class B warrant holders,
o the adjustment price on the immediately preceding
adjustment date, and
o 1.015 (the adjustment factor)
by
(b) the current adjustment price, which is defined as the
lesser of :
o $9.8476, or
o the average market price of the common stock, which
is defined as the average of the closing bid prices
for the 10 trading days out of the 30 immediately
preceding trading days on which the lowest closing
bid prices occurred
less
(2) the number of shares of common stock originally issued in the
December 1999 private placement that continue to be held by
Class B warrant holders on the day of adjustment, plus shares
issued and held by Class B warrant holders or issuable
immediately prior to such adjustment date upon exercise of
Class B warrants and then held by Class B warrant holders.
If the amount of the adjustment is positive, then the number of
shares issuable upon exercise of Class B warrants on the first
adjustment date will be increased by the amount of the adjustment.
If the amount is negative, then the number of shares issuable upon
exercise of Class B warrants on the first adjustment date will be
decreased by the amount of the adjustment (but not less than
zero).
Notwithstanding the above, if the "average market price" of the
Company's common stock exceeds $20.00 per share on any adjustment date, the
"adjustment price" used in the formulas shall be increased by 50% of the excess
of the "average market price" over $20.00.
On the second and each subsequent adjustment date, the number of shares
for which the Class B warrants are then exercisable is further reduced by the
number of shares for which the Class B warrant is exercised during the preceding
90-day period.
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 initially filed with the Securities and Exchange
Commission on January 21, 2000 and subsequently amended and filed with the
Securities and Exchange Commission on April 28, 2001. Copies of these documents
may be obtained free of charge by contacting Douglas H. Hanson, Chief Executive
Officer and Chairman of the Board, 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.
REASONS FOR THE PROPOSAL AND THE 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 $0.28 per share and a redemption price of $0.336 per share (a 20% premium
over the $0.28 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 $12 million or
approximately $0.40 per share of common stock outstanding as of the date of this
proxy statement. As a result, the redemption cost exceeds the market value of
the Company's common stock as of the date of this proxy statement.
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The Company does not presently have sufficient working capital
available to redeem the Class B warrants. Moreover, the Company has been
unsuccessful in its attempt to raise the additional capital necessary to redeem
the Excess Class B Warrants. As of the date of this proxy statement, the Company
could not redeem the Excess Class B Warrants without having to declare
bankruptcy.
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. Specifically, stockholder
approval of this Proposal 4 will allow the Company to:
o preserve the Company's working capital by avoiding redemption of the
Excess Class B Warrants; and
o maintain compliance with Nasdaq's 20% Limitation, thereby increasing
the likelihood that the Company's common stock will continue to be
listed on the Nasdaq Stock Market.
For these reasons, 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) ON THIS PROPOSAL 4
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 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.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 4
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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. Non-audit fees were almost
entirely attributable to tax consulting and preparation services.
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FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES: The
Company did not engage Ernst & Young LLP to provide advice 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/ DOUGLAS H. HANSON
Douglas H. Hanson
Chairman, Chief Executive Officer and President
Denver, Colorado
June ___, 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: DOUGLAS
H. HANSON, 999 EIGHTEENTH STREET, SUITE 2201, DENVER, COLORADO 80202.
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APPENDIX A
Internet Commerce & Communications, Inc.
2001 Stock Option Plan
Section 1
Introduction
1.1 Establishment. Internet Commerce & Communications, Inc., a Delaware
corporation, hereby establishes the Internet Commerce & Communications, Inc.
2001 Stock Option Plan (the "Plan"), for certain employees, independent
contractors, consultants, directors, 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 employees, independent contractors, consultants, directors, 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 or limited liability company)
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 July 26, 2001 subject to the approval of the Plan by the Company's
stockholders.
(f) "ELIGIBLE PERSONS" means full-time 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. 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, directors, and
advisors of the Company or any Affiliated Corporation or any division thereof;
provided that such independent contractors, consultants, directors, 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
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on a particular date, or if no such prices are reported on NASDAQ, then Fair
Market Value shall mean the average of 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) at least two Non-Employee Directors or (ii) the entire
Board ("16b-3 Committee"); PROVIDED THAT, with respect to the administration of
a grant or grants under the Plan to Non-Employee Directors, the Administrative
Committee shall consist of the entire Board. 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-Employee Director" shall have the same meaning prescribed by
paragraph 16.3 of Rule 16b-3.
(l) "NON-STATUTORY OPTION" means any Option other than an Incentive
Stock Option.
(m) "OPTION" means a right to purchase Stock at a stated price for a
specified period of time.
(n) "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).
(o) "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.
(p) "OPTIONED SHARES" means the Shares subject to an Option.
(q) "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.
(r) "RULE 16b-3" means Rule 16b-3 promulgated under the 1934 Act or any
successor rule.
(s) "SHARE" or "SHARES" means a share or shares of Stock.
(t) "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.
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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 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, 1,500,000
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 1,500,000 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
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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.
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
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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.
(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 an independent contractor, consultant, director 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, independent
contractor, consultant, director 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 an independent contractor, consultant, director 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 an independent contractor, consultant, director 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.
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(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) 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
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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.
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 independent contractor,
advisor, director 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.
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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.
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.
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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.
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 July 26, 2001.
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ATTEST/WITNESS: INTERNET COMMERCE & COMMUNICATIONS, INC.
By: By:
--------------------------- ----------------------------------
Name: Name:
------------------------- ----------------------------------
Secretary President
[SEAL]
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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:
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Name:
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Title:
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ATTEST:
By:
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Name:
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Title: Corporate Secretary
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APPENDIX C
INTERNET COMMERCE & COMMUNICATIONS, INC.
AUDIT COMMITTEE CHARTER
ORGANIZATION
This Charter governs the operation of the Audit Committee. 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 quarterly
review and any other matters required to be communicated to the Committee by the
independent auditors
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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.
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INTERNET COMMERCE & COMMUNICATIONS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
_______, 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 W. Jeff Swenson, 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
________, _______, 2001 at 10:00 a.m. (local time) at the Hotel Monaco, 1717
Champa Street, Denver, Colorado 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 M. Doak Jacoway.
[ ] 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 adopt the 2001 Stock Option Plan.
[ ] 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, 2001.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be dated and signed on reverse side.)
50
(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 June ___, 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
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Signature of Stockholder or Authorized Representative
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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 _______, 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.