April 11, 1997
Dear Shareholder:
You are cordially invited to attend the annual meeting of shareholders of
Telco Communications Group, Inc., which will be held at Hyatt Fair Lakes,
12777 Fair Lakes Circle, Fairfax, Virginia, on Thursday, May 15, 1997, at
10:30 a.m.
The Notice of Meeting and the Proxy Statement that follow describe the
business to be conducted at the meeting. Management will report on current
operations and there will be an opportunity for discussion concerning the
Company and its activities.
Your vote is very important. Whether or not you plan to attend the
meeting, and regardless of the number of shares you own, it is important that
your shares be represented at the meeting. Please sign and return your proxy
card in the enclosed envelope to ensure that your shares will be represented
and voted at the meeting in the event that you are unable to attend. You are
urged to sign and return the enclosed proxy card even if you plan to attend
the meeting. If you do plan to be present at the meeting and wish to vote in
person, you may withdraw your proxy at that time.
I hope you can attend and look forward to personally meeting you on May
15th.
Sincerely,
Donald A. Burns
President and Chief Executive Officer
<PAGE>
<PAGE>
TELCO COMMUNICATIONS GROUP, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 15, 1997
To the Shareholders of Telco Communications Group, Inc.
NOTICE IS HEREBY GIVEN that the annual meeting of the shareholders (the
"Meeting") of Telco Communications Group, Inc. (the "Company") will be held at
Hyatt Fair Lakes, 12777 Fair Lakes Circle, Fairfax, Virginia, on Thursday, May
15, 1997, at 10:30 a.m. (local time), with registration beginning at 9:30
a.m., for the following purposes:
1. To elect two directors as set forth in the accompanying Proxy
Statement to hold office for a three-year term, until the
Company's annual meeting of shareholders in the year 2000, or
until their successors are duly elected and qualified;
2. To approve the Telco Communications Group, Inc. 1997 Directors
Stock Option Plan;
3. To ratify the selection by the Board of Directors of Deloitte &
Touche, LLP as the Company's independent public accountants; and
4. To transact such other business as may properly come before the
Meeting or any postponement or adjournment thereof.
The Board of Directors has fixed the close of business on March 18, 1997
as the record date for the purpose of determining shareholders entitled to
notice of and to vote at the Meeting or at any postponement or adjournment
thereof.
In order to assure a quorum, it is important that shareholders who do not
expect to attend the Meeting in person complete, sign, date and promptly
return the enclosed proxy card in the accompanying envelope.
By Order of the Board of Directors,
Bryan K. Rachlin
Secretary
Chantilly, Virginia
April 11, 1997
<PAGE>
<PAGE>
TELCO COMMUNICATIONS GROUP, INC.
4219 LAFAYETTE CENTER DRIVE
CHANTILLY, VIRGINIA 20151
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
To be Held on May 15, 1997
The enclosed proxy is solicited by the Board of Directors of Telco
Communications Group, Inc. (the "Company") for use at the 1997 annual meeting
of shareholders to be held at Hyatt Fair Lakes, 12777 Fair Lakes Circle,
Fairfax, Virginia, on Thursday, May 15, 1997, at 10:30 a.m. (local time), and
at any postponement or adjournment thereof (the "Meeting"). The enclosed
proxy, properly executed and received by the Secretary of the Company prior to
the Meeting, and not revoked, will be voted in accordance with the directions
thereon. If no directions are indicated, the persons named in the enclosed
proxy intend to vote: (i) FOR each nominee for election as a director, (ii)
FOR approval of the Telco Communications Group, Inc. 1997 Directors Stock
Option Plan and (iii) FOR approval of the selection of Deloitte & Touche, LLP
as the Company's independent public accountants for 1997.
The Company's management knows of no matter to be brought before the
Meeting which is not referred to in the Notice of Meeting and this Proxy
Statement. If, however, any other matter should be presented at the Meeting
upon which a vote properly may be taken, the shares represented by the proxy
will be voted with respect thereto at the discretion of the person or persons
holding such proxy. Proxies may be revoked by shareholders at any time prior
to the voting of the proxy by written notice to the Secretary of the Company,
by submitting a new proxy to the Secretary of the Company or by personal
ballot at the Meeting. Attendance at the Meeting shall not have the effect of
revoking a proxy unless the shareholder so attending shall, in writing, so
notify the Secretary of the Meeting at any time prior to the voting of the
proxy. The first date on which this Proxy Statement and the enclosed form of
proxy are being sent to the Company's shareholders is on or about April 11,
1997.
The holders of a majority of the shares of common stock, no par value
("Common Stock"), entitled to vote at the Meeting, present in person or by
proxy, shall constitute a quorum. Abstentions will be considered shares of
Common Stock that are present and entitled to vote for purposes of determining
the presence of a quorum, but as not voted for purposes of determining the
approval of any matter submitted to shareholders for a vote. If a broker
indicates on a proxy that such broker does not have discretionary authority as
to certain shares of Common Stock to vote on a particular matter, such shares
of Common Stock will not be considered as present and entitled to vote with
respect to that matter.
<PAGE>
<PAGE>
As of the close of business on March 18, 1997, the record date for
determining shareholders entitled to vote at the Meeting, the Company had
issued and outstanding 33,062,662 shares of Common Stock, held of record by
2,877 shareholders. Only shareholders of record at the close of business on
March 18, 1997 will be entitled to vote at the Meeting. Shareholders do not
have cumulative voting rights. Each share of Common Stock is entitled to one
vote at the Meeting.
A listing of shareholders entitled to vote at the Meeting will be
available for inspection by any shareholder ten days prior to the date of the
Meeting between the hours of 8:00 a.m. and 5:00 p.m. at the offices of the
Company located at 4219 Lafayette Center Drive, Chantilly, Virginia 20151.
The Common Stock is traded on the Nasdaq National Market ("Nasdaq-NMS")
under the symbol "TCGX."
PROPOSAL NUMBER ONE
-------------------
ELECTION OF DIRECTORS
The Company's Board of Directors (the "Board") is divided into three
classes, as nearly equal in number as possible. Each class serves three
years, with the terms of office of the respective classes expiring in
successive years. The directors whose terms will expire at the Meeting are
Robert W. Ross and Gary L. Nelson, each of whom has been nominated for
election at the Meeting as a director to hold office until the annual meeting
of shareholders in the year 2000 or until their successors are duly elected
and qualified. It is intended that the accompanying proxy will be voted in
favor of the two nominees to serve as directors unless the shareholder
indicates to the contrary on the proxy. The Board has no reason to believe
that either of the nominees will not serve if elected, but if either of them
should become unavailable to serve as a director, and if the Board designates
a substitute nominee, it is intended that such proxy will be voted for the
substitute nominee designated by the Board.
NOMINEES FOR ELECTION AS DIRECTORS
ROBERT W. ROSS, 55, has been a director of the Company since June 1996.
Mr. Ross served as Vice President, International Business Development, of
Turner Broadcasting System, Inc. ("TBS") from August 1990 through June 1996.
Mr. Ross served as President of Turner International, Inc., a subsidiary of
TBS, from September 1994 through July 1996. Since July 1996 he has served as
President of SaTeleNet Export, LLC, a telecommunications consulting company.
GARY L. NELSON, 53, has been a director of the Company since December
1996. Mr. Nelson was Vice President/General Manager of Sprint's Wholesale
Division from 1992 to 1994. In 1995, Mr. Nelson started and managed a real
estate investment company. Mr. Nelson joined<PAGE>
<PAGE>
Telwares, Inc., a telecommunications consulting company, as Executive Vice
President in the last half of 1996 and continues in that capacity today.
If a quorum is present at the Meeting, the nominees for election as
directors who receive the greatest number of votes cast for the election of
directors by the shares present in person or by proxy at the Meeting and
entitled to vote will be elected directors.
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION AS DIRECTORS OF THE TWO
NOMINEES NAMED ABOVE. UNLESS INDICATED OTHERWISE ON THE PROXY, THE SHARES
REPRESENTED THEREBY WILL BE VOTED FOR THIS PROPOSAL.
The remainder of the Board constitutes directors whose terms do not
expire until the 1998 or 1999 annual meetings of shareholders, and who
therefore will not stand for election at the Meeting.
INCUMBENT DIRECTOR - TERM EXPIRING AT THE 1998 ANNUAL MEETING
THOMAS J. CIRRITO, 48, has served as the President of the Company's
Consumer Division since April 1996 and as a director of the Company since June
1996. Mr. Cirrito is a co-founder of Long Distance Wholesale Club ("LDWC") and
has served as its president and chief executive officer since its formation in
September 1993. From November 1991 through September 1993, Mr. Cirrito served
as president and chief executive officer of Telecommunications Associates,
Inc., an operator assisted services company. Mr. Cirrito was vice president of
marketing/sales with Mid Atlantic Telecom, Inc. ("Mid Atlantic"), a regional
long distance carrier based in Washington, D.C. from November 1988 to November
1991.
INCUMBENT DIRECTORS - TERM EXPIRING AT THE 1999 ANNUAL MEETING
HENRY G. LUKEN, III, 37, a co-founder of the Company, has served as the
Chairman of the Board since the Company=s formation in July 1993. Mr. Luken
served as the Company's Chief Executive Officer and Treasurer from July 1993
to April 1996. Mr. Luken has also served as chairman of Tel Labs, Inc., a
telecommunications billing company ("Tel Labs"), since 1991, and as chairman
of Telco Development Group, Inc., a computer systems company owned by Mr.
Luken, since 1987, both of which entities he founded.
DONALD A. BURNS, 33, a co-founder of the Company, has served as Chief
Executive Officer and Vice Chairman of the Board since April 1996, and has
served as the President and as a director of the Company since its formation
in July 1993. Mr. Burns served as the Company's Secretary from July 1993 to
April 1996. Prior to joining the Company, Mr. Burns held several positions
with Mid Atlantic, including executive vice president and chief operating
officer from October 1992 to July 1993 and director of operations from 1988 to
October 1992.
<PAGE>
<PAGE>
COMMITTEES OF THE BOARD; MEETINGS
The Board met two times in 1996. During 1996, each director attended all
Board meetings during the time he was a member of the Board.
In accordance with the Amended and Restated By-Laws of the Company, the
Board recently established an Audit Committee and a Compensation Committee.
The Board currently does not have a standing nominating committee.
AUDIT COMMITTEE. In January 1997, the Board established an Audit
Committee, consisting of Messrs. Nelson and Ross. Prior to such time, the
entire Board performed the functions which have been delegated to the Audit
Committee, including recommending to the Board the engagement of the
independent public accountants of the Company and reviewing with the
independent public accountants the scope and results of their audits of the
Company. The Audit Committee also meets with management and with the
Company's independent public accountants to review matters relating to the
quality of financial reporting and internal accounting control, including the
nature, extent and results of the audits, and otherwise maintains
communications between the Company's independent public accountants and the
Board. The Audit Committee held its first meeting on February 7, 1997.
COMPENSATION COMMITTEE. In January 1997, the Board established a
Compensation Committee consisting of Messrs. Nelson and Ross. Prior to such
time, the entire Board performed the functions which have been delegated to
the Compensation Committee, including establishing overall employee
compensation policies and reviewing any proposals for major compensation
programs, reviewing and approving salary arrangements and other remuneration
for executive officers of the Company and reviewing and administering certain
benefit plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Company's initial public offering in August 1996, all
members of the Board participated in all compensation deliberations. Since
becoming a publicly traded company, the Company has adopted a policy that each
of the directors who is also an executive officer of the Company will recuse
himself from any Board deliberations regarding and/or affecting his own
compensation and the criteria by which he will be evaluated.
No executive officer of the Company served on any board of directors or
compensation committee of any entity other than the Company with which any
member of the Board is affiliated.
<PAGE>
<PAGE>
COMPENSATION OF DIRECTORS
Directors who are also full-time employees of the Company receive no
additional compensation for service as directors. During 1996, nonemployee
directors did not receive any compensation from the Company. Commencing in
1997, nonemployee directors will receive an annual fee of $20,000. All
directors are reimbursed for out-of-pocket expenses. The Company may, from
time to time and in the sole discretion of the Board, grant options to
nonemployee directors under the Telco Communications Group, Inc. 1997
Directors Stock Option Plan. This plan has been approved by the Board, but
has not yet been approved by the shareholders. The Company is seeking
shareholder approval of the Telco Communications Group, Inc. 1997 Directors
Stock Option Plan at the Meeting. Please see "Proposal Number Two" below.
BOARD REPORT ON EXECUTIVE COMPENSATION
This report is not deemed to be "soliciting material" or deemed to be
"filed" with the Securities and Exchange Commission (the "SEC") or subject to
the SEC's proxy rules or to the liabilities of Section 18 of the Securities
Exchange Act of 1934, as amended (the Exchange Act), and the report shall not
be deemed to be incorporated by reference into any prior or subsequent filing
by the Company under the Securities Act of 1933 or the Exchange Act.
EXECUTIVE COMPENSATION. The Company's executive compensation program is
intended to attract, retain and reward experienced, highly motivated executive
officers who are capable of effectively leading and continuing the growth of
the Company. Officers of the Company are paid salaries in line with their
responsibilities and generally comparable to industry standards. Executive
officers are also eligible to receive discretionary bonuses upon the
achievement of revenue and profit goals established by the Company as an
incentive for superior individual, group and corporate performance. Likewise,
stock option grants to officers (and other employees) promote success by
aligning employee financial interests with long-term shareholder value. Stock
option grants are based on various subjective factors primarily relating to
the responsibilities of the individual officers, and also to their expected
future contributions and prior option grants. Many executive officers are also
significant shareholders and/or holders of options to purchase significant
amounts of Common Stock. To the extent that the performance of such
individual officers translates into an increase in the value of the Common
Stock, all shareholders, including such officers, share the benefits.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. The Compensation Committee
will annually review and approve the compensation of Mr. Burns, the Chief
Executive Officer. The Board believes that Mr. Burns is paid a reasonable
salary based on the same corporate financial goals as the other officers of
the Company. Mr. Burns is also eligible to receive a discretionary bonus
awardable upon the achievement of specific revenue and profitability goals for
the Company as a whole. In addition, Mr. Burns is a significant shareholder
in the Company, and to the extent his performance as Chief Executive Officer
translates into an increase in the value of the Common Stock, all
shareholders, including him, share the benefits.
<PAGE>
<PAGE>
The SEC requires that this report comment upon the Company's policy with
respect to Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), which limits the deductibility on the Company's tax return of
compensation over $1 million to any of the named executive officers of the
Company unless, in general, the compensation is paid pursuant to a plan which
is performance related, non-discretionary and has been approved by the
Company's shareholders. The Company's policy with respect to Section 162(m)
is to make every reasonable effort to insure that compensation is deductible
to the extent permitted, while simultaneously providing Company executives
with appropriate awards for their performance. The deductibility limitation
outlined by Section 162(m) of the Code is not currently a consideration for
the Company because: (i) none of its executives earned sufficient
compensation income in 1996 nor are any of the Company's executives
anticipated to have sufficient compensation in the near future to be subject
to Section 162(m); and (ii) the Company's stock option plans are designed to
fall within various safe harbors contained within the Treasury Regulations
interpreting Section 162(m) that protect any grants or awards of stock from
triggering the Section 162(m) limitation.
Submitted by the Board of Directors
Donald A. Burns
Thomas J. Cirrito
Henry G. Luken, III
Gary L. Nelson
Robert W. Ross
EMPLOYMENT AGREEMENTS
On July 10, 1996, the Company entered into employment agreements with
each of Messrs. Burns and Luken and Bryan K. Rachlin pursuant to which Mr.
Burns has agreed to serve as the Company's Vice Chairman of the Board,
President and Chief Executive Officer, Mr. Luken has agreed to serve as the
Company's Chairman of the Board and Mr. Rachlin has agreed to serve as Chief
Operating Officer, General Counsel and Secretary. The agreements with Messrs.
Burns and Luken expire on July 10, 2001 and the agreement with Mr. Rachlin
expires on July 10, 1999, in each case unless earlier terminated in accordance
with the terms of the respective agreement. The annual base salary under such
agreements is reviewed annually but cannot be less than $400,000 for Messrs.
Burns and Luken and $375,000 for Mr. Rachlin.
On April 4, 1996, the Company entered into an employment agreement with
Stephen G. Canton, pursuant to which he has agreed to serve as President of
the Company's Commercial Division until April 3, 2001, unless earlier
terminated in accordance with the agreement. Mr. Canton's annual base salary
under the agreement is reviewed annually, but cannot be less than $300,000.
Pursuant to the agreement, Mr. Canton also received options to acquire
1,062,500 shares of Common Stock, exercisable at an option price of $7.53 per
share over a ten-year period from the date of grant and vesting in one-third
increments over the three-year period commencing with the date of the
agreement. The agreement provides that all unvested options<PAGE>
<PAGE>
shall vest immediately upon the occurrence of a "change in control" of the
Company (as defined in the agreement).
On April 15, 1996, the Company entered into an employment agreement with
Mr. Cirrito, pursuant to which he has agreed to serve as the President of the
Company's Consumer Division until April 15, 1999, unless earlier terminated in
accordance with the agreement. Mr. Cirrito's annual base salary under the
agreement is reviewed annually, but cannot be less than $375,000.
Under each of the agreements described above with Messrs. Burns, Luken,
Cirrito, Canton and Rachlin, in the event of termination "without cause," the
named individual will be entitled to receive termination payments equal to
100% of his base salary for the remainder of the term of the agreement (with a
minimum of one year's salary). In addition, Messrs. Burns's, Luken's,
Cirrito's, Rachlin's and Canton's agreements contain non-competition covenants
which prohibit such individuals for a period of one year (or, as to Mr.
Rachlin, six months) following termination of their employment agreements in
most circumstances from working for any company that competes with the Company
in the United States. The Company will pay each of Messrs. Burns, Luken and
Cirrito $1,000,000 in exchange for these non-competition covenants upon
termination of the individual's agreement.
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
In April 1996, the Board adopted and the shareholders of the Company
approved the Amended and Restated 1994 Stock Option Plan (the "Stock Option
Plan") which provides for the grant to officers, key employees and employee-
directors of the Company and its subsidiaries of both "incentive stock
options" within the meaning of Section 422 of the Code, and stock options that
are non-qualified for federal income tax purposes. The total number of shares
for which stock options may be granted pursuant to the Stock Option Plan and
the maximum number of shares for which options may be granted to any person is
7,500,000 shares, subject to certain adjustments reflecting changes in the
Company's capitalization. In 1996, the Stock Option Plan was administered by
the Board. Since the establishment of the Compensation Committee in January
1997, the Stock Option Plan has been and will continue to be administered by
the Compensation Committee. The Compensation Committee will determine, among
other things, which officers, employees and directors will receive options
under the plan, the time when options will be granted, the type of option
(incentive stock options, non-qualified stock options or both) to be granted,
the number of shares subject to each option, the time or times when the
options will become exercisable, and, subject to certain conditions discussed
below, the option price and duration of the options. Members of the
Compensation Committee will not be eligible to receive discretionary options
under the plan, but are entitled to receive options as directors under the
Telco Communications Group, Inc. 1997 Directors Stock Option Plan.
The exercise price of stock options granted pursuant to the Stock Option
Plan will be determined by the Compensation Committee, subject to certain
limitations as set forth in the Stock Option Plan. The term of the options
may not exceed ten years from the date of grant.<PAGE>
<PAGE>
The Compensation Committee has the right at any time and from time to
time to amend or modify the Stock Option Plan, without the consent of the
Company's shareholders or optionees, subject to certain limitations as set
forth in the Stock Option Plan. The expiration date of the Stock Option Plan
after which no option may be granted thereunder, is June 12, 2006.
As of December 31, 1996, options to purchase an aggregate of 4,619,829
shares of Common Stock had been granted under the Stock Option Plan with a
total of 2,880,171 shares of Common Stock remaining available for future
grants. The options outstanding at December 31, 1996 are exercisable at
prices ranging from $0.67 to $18.75 per share. Options to acquire 951,885
shares of Common Stock are exercisable as of March 18, 1997. All options have
an exercise period of ten years from the date of grant.
TEL LABS SIMPLIFIED EMPLOYEE PENSION PLAN
Tel Labs, a wholly owned subsidiary of the Company since the Company's
initial public offering in August 1996, has a Simplified Employee Pension Plan
("SEP") which allows employees to defer a portion of their salaries. Employer
contributions are optional, and the Board of Directors of Tel Labs will
determine annually whether Tel Labs will contribute amounts to the SEP and at
what level. The maximum amount that may be contributed annually per SEP
participant from a combination of salary deferrals plus Tel Labs optional
contributions is $22,500. The Company does not have a similar plan for any of
its other employees.
EXECUTIVE COMPENSATION SUMMARY TABLE
The following table sets forth the cash and non-cash compensation for
1995 and 1996 for the Chief Executive Officer and each of the Company's next
four most highly compensated executive officers whose compensation exceeded
$100,000 (hereinafter, the "Named Executive Officers").
<PAGE>
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
-------------------- ------------------
Securities
----------
Name of Individual Other Annual Underlying All Other
- ------------------ ------------ ---------- ---------
and Principal Position Year Salary($) Bonus ($) Compensation Options (#)Compensation
- ---------------------- ---- --------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Henry G. Luken, III 1996 $743,240(2) $220,000 $ 13,755(5) 0 $330
Chairman of the Board 1995 835,327 300,000 22,400(5) 0 0
Donald A. Burns
President and Chief 1996 $403,928(3) $220,000 0 0 $270
Executive Officer 1995 397,533(3) 300,000 0 0 0
Bryan K. Rachlin
Chief Operating Officer,
Secretary and General 1996 $238,428(4) $327,520(4) $ 22,500(5) 76,532(6) $8,320
Counsel 1995 450,355(4) 0 22,500(5) 0 0
Thomas J. Cirrito
President-Consumer 1996 $378,579(7) $206,250 $274,506(8) 0 $4,670
Division 1995 274,507(7) 0 257,661(8) 0 0
Stephen G. Canton
President-Commercial 1996 $259,849 $165,000 0 1,062,500 $2,243
Division 1995 0 0 0 0 0
- -------------------------------------
</TABLE>
(1) Includes compensation paid by the Company and its subsidiaries,
including LDWC. The figures also include compensation paid by Tel Labs
which became a wholly owned subsidiary of the Company upon the
completion of the Company=s initial public offering in August 1996.
(2) Mr. Luken's salary includes amounts paid by Tel Labs prior to the
Company's acquisition of Tel Labs in the amounts of $135,323 and
$424,017 for 1996 and 1995, respectively.
(3) Mr. Burns's annual salary was adjusted to $400,000 in 1996.
(4) Mr. Rachlin's salary includes amounts paid by Tel Labs prior to the
Company's acquisition of Tel Labs in the amounts of $47,248 and $440,355
for 1996 and 1995, respectively. Included in the 1996 bonus for Mr.
Rachlin was $121,270 paid by Tel Labs.
(5) Represents deferred compensation payable by Tel Labs under the Tel Labs
Simplified Employee Pension Plan.
(6) In October 1995, Mr. Rachlin was granted options to purchase two shares
of LDWC common stock at an exercise price of $181,060.77 per share,
exercisable for a period of ten years. In connection with the Company's
acquisition of the minority interest in LDWC, such LDWC options were
automatically converted into options to purchase a total of
102,043 shares of Common Stock at an exercise price of $3.55 per share,
with an exercise period expiring on October 1, 2005. Options to purchase
76,532 shares vested in January 1996 and the remaining options vested in
January 1997.
(7) Mr. Cirrito's annual salary was adjusted to $375,000 in 1996.
(8) Represents accrued deferred compensation payable by LDWC. <PAGE>
<PAGE>
OPTION GRANTS IN FISCAL YEAR 1996
The following table sets forth information with respect to options
granted during 1996 to each of the Named Executive Officers. As of December
31, 1996, no stock appreciation rights ("SARs") were outstanding.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
-----------------
Potential Realizable Value
of Assumed Annual Rates of
Stock Price Appreciation
Number of Percent of for Option Term
Securities Total Options -------------------------
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted (#) Fiscal Year(1) Per Share($) Date 5% 10%
- ---- ----------- --------------- ------------ ----------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Henry G. Luken III 0 - - - - -
Donald A. Burns 0 - - - - -
Bryan K. Rachlin 0 - - - - -
Thomas J. Cirrito 0 - - - - -
Stephen G. Canton 1,062,500 42.8% $7.53 4/4/2006 5,031,550 $12,750,936
_____________________________
</TABLE>
(1) The Company granted options to purchase a total of 2,482,000 shares of
Common Stock in 1996.
(2) Represents amounts that may be realized upon exercise of options
immediately prior to the expiration of their term assuming the
specified compounded rates of appreciation (5% and 10%) on the Common
Stock over the terms of the options. These assumptions do not reflect
the Company's estimate of future stock price appreciation. Actual
gains, if any, on the stock option exercises and Common Stock holdings
are dependent on the timing of such exercise and the future performance
of the Common Stock. There can be no assurance that the rates of
appreciation assumed in this table can be achieved or that the amounts
reflected will be received by the option holder.
OPTION EXERCISES AND VALUES FOR FISCAL YEAR 1996
The following table sets forth certain information concerning the
exercise of stock options, the number of unexercised options, and the value of
unexercised options at December 31, 1996 for the Named Executive Officers.
Value is considered to be, in the case of exercised options, the difference
between the exercise price and the market price on the date of exercise and,
in the case of unexercised options, the difference between the exercise price
and the market price on December 31, 1996.<PAGE>
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Number of Securities
Shares Underlying Unexercised Value of Unexercised
Acquired Options at December 31, In-the-Money Options
on Exer- Value 1996 at December 31, 1996($)
Name cise(#) Realized($)(Exercisable/Unexercisable)(Exercisable/Unexercisable)(1)
- ---- -------- ----------- -------------------------- -------------------------------
<S> <C> <C> <C> <C>
Henry G. Luken, III - - - -
Donald A. Burns - - - -
Bryan K. Rachlin 649,198 $4,604,554 51,021/25,511 $711,743/$355,878
Thomas J. Cirrito - - - -
Stephen G. Canton - - 0/1,062,500 0/$10,593,125
</TABLE>
(1) Options are "in the money" if the fair market value of the underlying
securities exceeds the exercise price of the options. The amounts set
forth represent the difference between $17.50 per share, the market
value of the Common Stock at December 31, 1996 (as determined by the
Board) issuable upon exercise of options, and the exercise price of the
option, multiplied by the applicable number of shares underlying the
options. Such fair market value has been adjusted to reflect the pro
forma effect of the stock split and the reorganization of the Company
effected in 1996.
PERFORMANCE GRAPH
The SEC requires that the Company include in this Proxy Statement a
line-graph presentation comparing its cumulative shareholder returns, on an
indexed basis, with a broad equity market index and a published industry or
line-of-business index. The following graph compares the cumulative total
shareholder return on the Common Stock against the cumulative total
return of the Center for Research in Security Prices ("CRSP") Total Return
Index for the Nasdaq Stock Market (which includes all U.S. stocks traded on
The Nasdaq National Market and Nasdaq Small-Cap Market) and the CSRP Total
Return Index for Nasdaq Telecommunications Stocks for the period beginning
with the initial issuance of the Common Stock on August 9, 1996 and ending on
December 31, 1996, assuming the reinvestment of all dividends throughout the
period shown, and assuming the value of the investment in the Company and in
each Index was $100 on August 9, 1996. The CSRP Total Return Index for Nasdaq
Telecommunications Stocks includes all telecommunications companies whose
stocks trade on The Nasdaq National Market and the Nasdaq Small-Cap Market.
The Company will provide to any shareholder upon request the names of the
companies whose stocks comprise such index.<PAGE>
<PAGE>
[Performance Graph Comparing the Monthly Return of Telco Communications Group,
Inc. to the CRSP Total Return Index for the Nasdaq Stock Market and the CRSP
Total Return Index for Nasdaq Telecommunications Stocks for the period
beginning with the initial issuance of the Common Stock on August 9, 1996 and
ending on December 31, 1996.]
<TABLE>
<CAPTION>
COMPARISON OF TOTAL MONTHLY RETURNS (IN DOLLARS)
CRSP Total
Returns Index for: 8/09/96 8/30/96 9/30/96 10/31/96 11/29/96 12/31/96
- ------------------ ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Telco Communications Group, Inc. 100.0 104.8 129.3 113.5 114.0 122.3
Nasdaq Stock Market 100.0 100.2 107.9 106.7 113.3 113.2
(US Companies)
Nasdaq Telecommunications Stocks 100.0 99.4 102.4 98.2 99.8 102.5
</TABLE>
<PAGE>
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth certain information regarding the
ownership of the shares of Common Stock as of March 18, 1997 by (i) each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each of the Named Executive Officers,
(iii) each director of the Company and (iv) all directors and executive
officers of the Company as a group.
<TABLE>
Number of Shares Percentage of Outstanding
Beneficial Owner Beneficially Owned(1) Shares Beneficially Owned
- ---------------- ----------------------- -------------------------
<S> <C> <C>
Donald A. Burns 7,406,109 22.4%
Henry G. Luken, III 6,517,831 19.7
Gold & Appel Transfer, S.A. 6,232,403 18.9
Thomas J. Cirrito 4,717,868(2) 14.3
Bryan K. Rachlin 1,073,231(3) 3.2
Stephen G. Canton 354,167(4) 1.1
Gary L. Nelson 1,000 *
Robert W. Ross 500 *
All Directors and Executive
Officers as a Group
(ten persons, including
those named above) 21,157,414(5) 61.6
</TABLE>
* Represents beneficial ownership of less than 1% of the outstanding shares
of Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
SEC. In computing the number of shares beneficially owned by a person
and the percentage of ownership of that person, shares of Common Stock
subject to options and warrants held by that person that are currently
exercisable or exercisable within 60 days of March 18, 1997 are deemed
outstanding. Such shares, however, are not deemed outstanding for the
purpose of computing the percentage of ownership of any other person.
Except as otherwise indicated, and subject to community property laws
where applicable, the persons named in the table above have sole voting
and investment power with respect to all shares of Common Stock shown
as owned by them.
(2) Does not include 102,042 shares held by Mr. Cirrito's son, Michael
Cirrito, and 102,042 shares held by Mr. Cirrito's daughter, Nicole
Cirrito, as to which Mr. Cirrito disclaims beneficial ownership. All
shares are held by Cirrito-I, Limited, a Texas limited partnership.
(3) Includes options to acquire 76,532 shares.
(4) Includes options to acquire 354,167 shares.
(5) Includes options to acquire 1,306,112 shares.
<PAGE>
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a summary of certain transactions among the Company and
its directors, executive officers and certain of its current shareholders and
related persons:
LDWC ACQUISITION. Pursuant to an Agreement dated April 1, 1996, the
Company acquired the remaining 44.4% minority interest in LDWC in a
transaction in which all of the LDWC shares held by Mr. Cirrito and his two
children were exchanged for a total of 5,102,125 shares of Common Stock and
LDWC became a wholly owned subsidiary of the Company. In connection with such
transaction, all outstanding options under the LDWC stock option plan were
converted into options to purchase a total of 291,842 shares of Common Stock
under the Company's Stock Option Plan and the LDWC stock option plan was
terminated. Such options have exercise prices ranging from $0.67 to $3.55 per
share. As part of such conversion, Mr. Rachlin, the Chief Operating Officer,
Secretary and General Counsel of the Company, received options to purchase
102,043 shares of Common Stock having an exercise price of $3.55 per share.
TEL LABS. Pursuant to a Share Exchange Agreement dated as of June 1,
1996, concurrently with the completion of the initial public offering of the
Company in August 1996, Tel Labs became a wholly owned subsidiary of the
Company, and the Tel Labs shareholders received an aggregate of 593,334 shares
of Common Stock in exchange for all of their shares in Tel Labs. The Tel Labs
exchange ratio was negotiated between the principals of each company. Mr.
Luken exchanged 600 shares of Tel Labs common stock for 377,334 shares of the
Company's Common Stock, Mr. Rachlin exchanged 250 shares of Tel Labs common
stock for 135,000 shares of the Company's Common Stock, Michael Cheng
exchanged 100 shares of Tel Labs common stock for 54,000 shares of the
Company's Common Stock, and Kevin Yang exchanged 50 shares of Tel Labs common
stock for 27,000 shares of the Company's Common Stock. The difference between
the exchange ratio for Mr. Luken's shares and the exchange ratio for the other
Tel Labs' shareholders represents a control premium which the former Tel Labs'
shareholders agreed to convey to Mr. Luken. Prior to the Company's
acquisition of Tel Labs, Telco Development Group of Delaware, Inc. ("Telco
Delaware") was eighty percent (80%) owned by the Company and twenty percent
(20%) owned by Tel Labs. As a result of the Tel Labs share exchange described
above, Telco Delaware became a wholly owned subsidiary of the Company.
The Company purchases call translation and rating data process on a
month-to-month basis from Tel Labs. The Company paid a total of $751,382 for
these services for the year ended December 31, 1996.
LEASES OF REAL PROPERTY FROM AFFILIATE OF SHAREHOLDER. The Company
leases a portion of its corporate headquarters office space and its
Chattanooga, Tennessee switch site from Bricks in the Sticks, Ltd., a company
controlled by Mr. Luken. The lease for the Company's headquarters<PAGE>
<PAGE>
space expires on July 31, 1999 and the lease for the Chattanooga, Tennessee
switch site expires February, 1999. The Company paid total rent of $221,868
for these facilities for the year ended December 31, 1996. The headquarters
lease provides for a 4% rent increase and the switch lease provides for a $1
per square foot increase for each year of the lease term.
PURCHASE OF COMPUTER EQUIPMENT AND SUPPORT FROM COMPANY AFFILIATED WITH
SHAREHOLDER. The Company purchased computer equipment and support on a month-
to-month basis from Telco Development, a company owned by Mr. Luken until May,
1996. The Company paid $229,100 for these services for the year ended
December 31, 1996.
TRANSACTIONS WITH ESPRIT TELECOM, LTD. Esprit Telecom, Ltd. ("Esprit"),
a corporation in which Gold & Appel Transfer S.A. is a minority shareholder,
is a provider of international long distance service. Esprit and the Company
purchase long distance service from one another, and Esprit purchases billing
services from Tel Labs. The Company paid Esprit $3,016,357 and Esprit paid
the Company $3,688,787 for transmission services during the year ended
December 31, 1996. Esprit paid Tel Labs $371,590 for billing services during
the year ended December 31, 1996.
LOANS TO CERTAIN EXECUTIVE OFFICERS. The Company made loans to two
executive officers in conjunction with the exercise of stock options. Natalie
Marine-Street, the Company's Executive Vice President, was loaned
approximately $298,500 in connection with the exercise of options to purchase
169,575 shares. Mr. Rachlin was loaned approximately $283,500 in connection
with the exercise of options to purchase 649,198 shares. Each of the loans
was made at the lowest interest rate permitted by law.
SECTION 16(A) DISCLOSURE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of the Company's Common
Stock, to file with the SEC and the NASDAQ initial reports of beneficial
ownership and changes in beneficial ownership of Common Stock. Such persons
are also required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file. To the Company's knowledge, based solely on a
review of the copies of such reports furnished to the Company as to
transactions for which reports are required, all Section 16(a) filing
requirements applicable to such individuals were complied with in 1996, except
that the Form 3 filed for Gold & Appel Transfer, S.A. in connection with the
Company's initial public offering was filed less than two weeks late and Gary
L. Nelson, who became a director on December 26, 1996, filed his Form 3 in
connection with such event approximately one month late.
<PAGE>
<PAGE>
PROPOSAL NUMBER TWO
APPROVAL OF 1997 DIRECTORS STOCK OPTION PLAN
The Board believes that ownership of Common Stock by nonemployee
directors supports the maximization of long-term shareholder value by aligning
the interests of directors with those of shareholders. The Telco
Communications Group, Inc. 1997 Directors Stock Option Plan (the "Director
Stock Plan") is designed to facilitate the ownership of Common Stock by
nonemployee directors. There are currently two nonemployee directors serving
as members of the Board. The Director Stock Plan was approved by the Board on
March 21, 1997, subject to shareholder ratification and approval. The purpose
of the Director Stock Plan is to promote the long-term growth of the Company
by enhancing its ability to attract and retain highly qualified and capable
directors with diverse backgrounds and experience and by increasing the
proprietary interest of directors in the Company. A description of the
material terms of the Director Stock Plan follows. This description is
qualified in its entirety by reference to the complete Director Stock Plan,
which is attached hereto as Exhibit A and is incorporated herein by reference.
Under the Director Stock Plan, the Board is given the authority to grant
options to purchase Common Stock to certain directors who are both
"Disinterested Persons" and "outside directors", as defined in the Director
Stock Plan. A maximum of 1,000,000 shares of Common Stock will be available
for the grant of options under the Director Stock Plan, subject to adjustment
in the event of stock splits, stock dividends or changes in corporate
structure affecting the Common Stock. The maximum number of shares of Common
Stock for which any one person may be granted options under the Director Stock
Plan is 200,000 shares. To the extent an option granted under the Director
Stock Plan expires or is terminated without having been exercised in full, the
shares of Common Stock allocable to the unexercised portion of such option
will be available for awards under the Director Stock Plan. In addition, to
the extent shares are delivered to pay all or a portion of an option exercise
price, such shares will become available for awards under the Director Stock
Plan. The Company is unable to determine the amount of any awards which may
be granted under the Director Stock Plan.
The exercise price per share of all options granted under the Director
Stock Plan will be as determined by the Board, but may not be less than the
"Fair Market Value" (as defined in the Director Stock Plan) of the Common
Stock on the date of the option grant. Options granted under the Director
Stock Plan will be exercisable over a period of ten years. Options may be
exercised in cash or, with the approval of the Compensation Committee, in
shares of Common Stock having a Fair Market Value in the aggregate equal to
the exercise price of the options being exercised, or in a combination of cash
and such shares. The Board may place restrictions upon the Common Stock
issued under the Director Stock Plan, including, but not limited to,
limitations on transferability that may constitute substantial risks of
forfeiture. Options granted under the Director Stock Plan are not
transferable other than upon the death of the optionee.<PAGE>
<PAGE>
During the optionee=s lifetime, options may be exercised only by the optionee.
As of March 28, 1997, the closing price of the Common Stock on the Nasdaq
National Market was $19.88.
Options may be granted pursuant to the Director Stock Plan for a period
of ten years from the date on which the Director Stock Plan was adopted by the
Board, which date was March 21, 1997. Pursuant to the terms of the Director
Stock Plan, it may be suspended, terminated, modified or amended from time to
time by the Board.
The options granted pursuant to the Director Stock Option will be treated
as nonqualified stock options that do not have a readily ascertainable fair
market value under Section 83 of the Code. The director recipients of such
options will not recognize income upon the granting of the options, but
instead will recognize income when they exercise the options. The amount of
income recognized by the director recipients upon exercise will equal the
difference between the amount the director recipient pays for the stock under
the terms of the option and the fair market value of such stock at the time of
exercise. This income will constitute compensation income and will be taxed
to the director recipient at ordinary income tax rates. When the director
ultimately sells the stock received pursuant to the exercise of options,
he/she will recognize capital gain (or loss) equal to the amount of
appreciation (depreciation) in the stock between the time of exercise and the
time of sale.
For tax purposes, the Company will be entitled to a deduction at the time
the options are exercised equal to the difference between the amount the
director recipient pays for the stock under the terms of the option and the
fair market value of such stock at the time of exercise. For book purposes,
the Company will be required to deduct from income the difference between the
exercise price of the option and the fair market value of the underlying stock
at the time of the grant. In order to avoid any negative impact on earnings,
the Company intends to ensure that all options granted pursuant to the
Director Stock Plan will have an exercise price equal to the fair market value
of the underlying stock on the date of grant.
The $1,000,000 limitation on deductions for executive compensation
contained in Section 162(m) of the Code is not implicated by the granting or
exercise of options pursuant to the Director Stock Plan because the directors
covered by the Director Stock Plan are not employees of the Company.
The affirmative vote of a majority of the Common Stock represented at the
Meeting and entitled to vote is required for approval of the proposal.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE DIRECTOR STOCK PLAN.
UNLESS INDICATED OTHERWISE ON THE PROXY, THE SHARES REPRESENTED THEREBY WILL
BE VOTED FOR APPROVAL OF THE DIRECTOR STOCK PLAN.
<PAGE>
<PAGE>
PROPOSAL NUMBER THREE
RATIFICATION OF THE SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
Upon recommendation of the Audit Committee, the Board proposes and
recommends that the shareholders ratify the selection of the firm of Deloitte
& Touche, LLP, which served as the Company's independent public accountants
during 1996, to serve as independent public accountants of the Company for
1997. Unless otherwise directed by the shareholders, proxies will be voted
for approval of the selection of Deloitte & Touche, LLP as the independent
public accountants of the Company for 1997. A representative of Deloitte &
Touche, LLP will attend the Meeting, and will have an opportunity to make a
statement if he or she so desires and to respond to appropriate questions.
The affirmative vote of a majority of the Common Stock represented at the
Meeting and entitled to vote is required for approval of the proposal.
THE BOARD RECOMMENDS A VOTE FOR THE RATIFICATION OF THE SELECTION OF DELOITTE
& TOUCHE, LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR 1997.
UNLESS INDICATED OTHERWISE ON THE PROXY, THE SHARES REPRESENTED THEREBY WILL
BE VOTED FOR THIS PROPOSAL.
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
Any proposal of a shareholder intended to be presented at the Company's
1998 annual meeting must be received by the Company for inclusion in the
Company's proxy statement and form of proxy relating to that meeting on or
before December 9, 1997.
MISCELLANEOUS
The Company will bear all of the costs of the solicitation of proxies for
use at the Meeting. In addition to the use of the mails, proxies may be
solicited by personal interview, telephone and telegram by directors,
officers and employees of the Company, who will undertake such activities
without additional compensation. Banks, brokerage houses and other
institutions, nominees or fiduciaries will be requested to forward the proxy
materials to the beneficial owners of Common Stock held of record by such
persons and entities and will be reimbursed for their reasonable expenses
incurred in connection with forwarding such material.
Shareholders who do not expect to attend in person are urged to sign,
date and return the enclosed proxy in the envelope provided. In order to
avoid unnecessary expense, we ask your<PAGE>
<PAGE>
cooperation in mailing your proxy promptly, no matter how large or how small
your holdings may be. As of the date of this Proxy Statement, management had
no knowledge of any business, other than that described herein, which will be
presented for consideration at the Meeting. In the event any other business
is properly presented at the Meeting, it is intended that the persons named in
the enclosed proxy will have authority to vote such proxy in accordance with
their judgment on such business.
By Order of the Board of Directors,
Bryan K. Rachlin
Secretary
<PAGE>
<PAGE>
EXHIBIT A
TELCO COMMUNICATIONS GROUP, INC.
1997 DIRECTORS STOCK OPTION PLAN
I. PURPOSE
This 1997 Directors Stock Option Plan for Telco Communications Group,
Inc. (the "Company") is intended to provide incentive to directors of the
Company by providing those persons with opportunities to purchase shares of
the Company's Common Stock under certain stock options.
II. DEFINITIONS
Except as otherwise expressly provided herein or unless the context
otherwise requires, as used in this Plan, the following words and phrases will
have the meanings set forth in this Section II.
A. "Board" will mean the Board of Directors of the Company.
B. "Code" will mean the Internal Revenue Code of 1986, as amended.
C. "Common Stock" will mean the Common Stock, no par value, of the
Company.
D. "Company" will mean Telco Communications Group, Inc., which has
established this Plan.
E. "Disinterested" will mean disinterested within the meaning of any
applicable regulatory requirements, including Rule 16b-3, as
amended from time to time, as promulgated by the Securities and
Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended from time to time.
F. "Fair Market Value" per share as of a particular date will mean
(i) the closing sales price per share of Common Stock on the
principal national securities exchange, if any, on which the
Common Stock will then be listed for the last preceding date on
which there was a sale of such Common Stock on such exchange, or
(ii) if the Common Stock is not then listed on a national
securities exchange, the last sales price per share of Common
Stock entered on a national inter-dealer quotation system for the
last preceding date on which there was a sale of such Common Stock
on such national inter-dealer quotation system, or (iii) if no
closing or last sales price per share of Common Stock is entered
on a national inter-dealer quotation system, the average of the
closing bid and asked prices for the Common Stock in the over-the-
counter market for the last preceding date on which there was a
quotation for such Common Stock in<PAGE>
<PAGE>
such market or (iv) if no price can be determined under the
preceding alternatives, then the price per share as determined by
the Board in good faith.
G. "Option" will mean any option, including any SAR, issued pursuant
to this Plan.
H. "Optionee" will mean any person to whom an Option is granted under
this Plan.
I. "Plan" will mean this 1997 Directors Stock Option Plan.
III. GENERAL ADMINISTRATION
A. The Plan will be administered by the Board. The Board will have
the authority in its discretion, subject to the terms and conditions hereof,
to administer this Plan and to exercise all the powers and authorities either
specifically granted to it hereunder or that are necessary or that are
advisable in the administration of the Plan, including, without limitation,
the authority to grant Options; to determine the purchase price of shares of
Common Stock covered by each Option (the "Option Price"); to determine the
persons to whom, and the time or times at which, Options will be granted; to
determine the number of shares of Common Stock to be covered by each Option;
to interpret the Plan; to prescribe, amend and rescind rules and regulations
relating to the Plan; and to determine the terms and provisions of the Option
agreements (which need not be identical) entered into in connection with
Options granted under the Plan ("Option Agreements").
B. No member of the Board will be liable for any action taken or
determination made in good faith with respect to this Plan or any Option
granted hereunder.
IV. ELIGIBILITY
Options may be granted to any director of the Company who is both a
Disinterested person as well as an "outside director" within the meaning of
Treasury Regulation section 1.162-27(e)(3)(i). In determining from time to
time the directors to whom Options will be granted and the number of shares of
Common Stock to be covered by each Option, the Board will consider the duties
of the directors, their present and potential contributions to the success of
the Company, and such other factors as the Board will deem relevant in
connection with accomplishing the purposes of the Plan.
V. STOCK
A. The stock subject to the Options will be shares of Common Stock.
Such shares may, in whole or in part, be authorized but unissued shares
contributed directly by the Company or shares which will have been or which
may be acquired by the Company. The aggregate number of shares of Common
Stock for which Options may be granted from time to time under this Plan will
be 1,000,000 shares, subject to adjustment as provided in Section VI. G.
hereof. The maximum number<PAGE>
<PAGE>
of shares of Common Stock for which any one person may be granted Options
under the Plan is 200,000 shares.
B. If any outstanding Option under the Plan for any reason expires or
is terminated without having been exercised in full, the shares of Common
Stock allocable to the unexercised portion of such Option will (unless this
Plan will have been terminated) become available for subsequent grants of
Options hereunder.
VI. TERMS AND CONDITIONS OF OPTIONS
Each Option granted pursuant to this Plan will be evidenced by one or
more Option Agreements in such forms as the Board may from time to time
approve. Options will comply with and be subject to the following terms and
conditions:
A. Option Price. Each Option will state the Option Price. The
------------
Option Price will not be less than the Fair Market Value of the
shares of Common Stock on the date of grant of the Option. The
Option Price will be subject to adjustment as provided in Section
VI. G. hereof. The date on which the Board adopts a resolution
expressly granting an Option will be considered the day on which
such Option is granted.
B. Restrictions. Any Common Stock issued under this Plan may
------------
contain restrictions and limitations including, but not limited
to, limitations on transferability that may constitute substantial
risks of forfeiture, as the Board may determine.
C. Value of Shares. Options may be granted to any eligible person
---------------
for shares of Common Stock of any value.
D. Medium and Time of Payment. The Option Price will be paid in
--------------------------
full, at the time of exercise, in cash or, with the approval of
the Board, in shares of Common Stock having a Fair Market Value in
the aggregate equal to such Option Price or in a combination
of cash and such shares.
E. Term and Exercise of Options. Options will be exercisable over a
----------------------------
period of ten (10) years.
<PAGE>
<PAGE>
F. Nontransferability of Options. Options granted under this Plan
-----------------------------
are not transferable other than by will or by the laws of descent
and distribution, and, during Optionee's lifetime, Options may be
exercised only by the Optionee.
G. Effect of Certain Changes.
-------------------------
1. If there is any change in the number of shares of Common
Stock through the declaration of stock dividends,
recapitalization resulting in stock splits, or combinations
or exchanges of such shares, then the number of shares of
Common Stock available for Options, the number of such
shares covered by outstanding Options, and the Option Price
of such Options will be proportionately adjusted to reflect
any increase or decrease in the number of issued shares of
Common Stock; provided, however, that any fractional shares
resulting from such adjustment will be eliminated.
2. In the event of a proposed dissolution or liquidation of
the Company, each Option granted under this Plan will
terminate as of a date to be fixed by the Board, provided,
however, that each Optionee will have the right,
immediately prior to such termination, to exercise the
Options as to all or any part of the shares of Common Stock
covered thereby, including shares as to which such Options
would not otherwise be exercisable.
3. In the event of any merger, consolidation or reorganization
of the Company, the Board will promptly make an appropriate
adjustment to the number and class of shares of Common
Stock available for Options, and to the amount and kind of
shares or other securities or property receivable upon
exercise of any outstanding Options after the effective
date of such transaction, and the price thereof (subject to
the limitations of Section 424 of the Code), to preserve
each Optionee's proportionate interest therein and to
preserve unchanged the aggregate Option Price.
4. In the event of a change in the Common Stock as presently
constituted, which is limited to a change of all of its
authorized shares without par value into the same number of
shares with a par value or, if such shares have a par
value, then with a different par value, the shares
resulting from any such change will be deemed to be Common
Stock within the meaning of the Plan.
5. To the extent that the foregoing adjustments relate to
stock or securities of the Company, such adjustments will
be made by the Board, whose determination in that respect
will be final, binding and conclusive.
<PAGE>
<PAGE>
6. Except as expressly provided in this Section VI. G., the
Optionee will have no rights by reason of any subdivision
or consolidation of shares of stock of any class or the
payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class or
by reason of any dissolution, liquidation, merger, or
consolidation, and any issue by the Company of shares of
stock of any class, or securities convertible into or
exchangeable for shares of stock of any class, will not
affect, and no adjustment by reason thereof will be made
with respect to, the number or Option Price of shares of
Common Stock subject to an Option. The grant of an Option
pursuant to this Plan will not affect in any way the right
or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its
capital or business structure or to merge, consolidate, or
dissolve, liquidate, sell or transfer all or any part of
its business or assets.
H. Rights as a Shareholder. An Optionee or a transferee of an
-----------------------
Option will have no rights as a shareholder with respect to any
shares covered by an Option until the date of the issuance of a
stock certificate to such Optionee for such shares. No
adjustments will be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior
to the date such stock certificate is issued, except as
expressly provided in Section VI. G. hereof.
I. Other Provisions. The Option Agreements authorized under this
----------------
Plan will contain such other provisions, including, without
limitation, the imposition of restrictions upon the exercise of
an Option, as the Board will deem advisable, including
provisions with respect to compliance with federal and
applicable state securities laws.
VII. AGREEMENT BY OPTIONEE REGARDING WITHHOLDING TAXES
A. No later than the date of exercise of any Option granted
hereunder, the Optionee will pay to the Company or make arrangements
satisfactory to the Board regarding payment of any federal, state and/or local
taxes of any kind required by law to be withheld upon the exercise of such
Option, and
B. The Company will, to the extent permitted or required by law,
have the right to deduct from any payment of any kind otherwise due to the
Optionee any federal, state and/or local taxes of any kind required by law to
be withheld upon the exercise of such Option.
VIII. TERM OF PLAN
Options may be granted pursuant to this Plan from time to time within a
period of ten (10) years from the date on which this Plan is adopted by the
Board. <PAGE>
<PAGE>
IX. AMENDMENT AND TERMINATION OF THE PLAN
The Board may at any time and from time to time suspend, terminate,
modify or amend this Plan.
Adopted by the Board of Directors on , 1997.
--------- ----
Attest:
- ------------------------------- -------------------------------
Secretary
<PAGE>
<PAGE>
PROXY FOR ANNUAL MEETING OF THE SHAREHOLDERS OF
TELCO COMMUNICATIONS GROUP, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder hereby appoints Bryan K. Rachlin and Donald
A. Burns, and each of them, with full power of substitution, as proxies to
vote all shares in the Company which the undersigned is entitled to vote at
the Annual Meeting of the Company to be held at Hyatt Fair Lakes, 12777 Fair
Lakes Circle, Fairfax, Virginia on May 15, 1997 at 10:30 a.m. (local time) and
at any postponement or adjournment thereof, with the effect and as if the
undersigned were personally present and voting upon the matters set forth in
this proxy card.
- ------------------------------------------------------------------------------
[X] Please mark your votes as
indicated in this example
1. To elect the two nominees listed below as Directors:
For Withhold For All Except
Robert W. Ross [ ] [ ] [ ]
Gary L. Nelson [ ] [ ] [ ]
INSTRUCTIONS: To withhold authority to vote for any individual nominee,
mark "For All Except" and write that nominee's name in the space below:
-----------------------------------
2. Proposal to approve the Telco Communications Group, Inc. 1997 Directors
Stock Option Plan.
For [ ] Against [ ] Abstain [ ]
3. Proposal to ratify the selection by the Board of Directors of Deloitte &
Touche, LLP as the Company's independent public accountants.
For [ ] Against [ ] Abstain [ ]
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PROXIES WILL BE VOTED AS DIRECTED OR SPECIFIED. IF NO CHOICE IS
SPECIFIED, THIS PROXY WILL BE VOTED (1) FOR THE NOMINATED DIRECTORS, (2)
FOR APPROVAL OF THE DIRECTORS STOCK OPTION PLAN, (3) FOR RATIFICATION OF
THE BOARD'S SELECTION OF DELOITTE & TOUCHE, LLP AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS AND (4) FOR OR AGAINST ANY OTHER MATTERS
THAT MAY PROPERLY COME BEFORE THE MEETING AT THE DISCRETION OF THE PROXY
HOLDERS.
Signature(s) Date
----------------------------------- ----------------
IMPORTANT-- PLEASE SIGN AND RETURN PROMPTLY. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee, or guardian, please give full title as such. If
a corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
an authorized person.
