DC1DOCS1\0081860.01
-1-
ACE*COMM CORPORATION
704 Quince Orchard Road
Gaithersburg, Maryland 20878
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of ACE*COMM
Corporation (the "Company"), will be held at ACE*COMM
Corporation, 704 Quince Orchard Road, Gaithersburg, MD
20878, on November 17, 1998, at 10:00 a.m. local time for
the following purposes:
1. To elect one Class II director and
one Class III director, to serve until the
2001 and 1999 Annual Stockholders' Meetings,
respectively, and until their successors are
elected and qualify;
2. To consider and act upon a proposal
to adopt the ACE*COMM Qualified Employee
Stock Purchase Plan;
3. To consider and act upon a proposal
to ratify the appointment of
PricewaterhouseCoopers LLP as the Company's
independent auditors for the fiscal year
ending June 30, 1999; and
4. To consider and act upon such other
business as may properly come before the
meeting.
The Board of Directors has fixed the close of business
on October 19, 1998, as the record date for the purpose of
determining stockholders entitled to notice of, and to vote
at, the meeting.
All stockholders are cordially invited to attend the
meeting in person. TO ENSURE YOUR REPRESENTATION AT THE
MEETING, PLEASE COMPLETE AND PROMPTLY MAIL YOUR PROXY IN THE
RETURN ENVELOPE PROVIDED. This will not prevent you from
voting in person, should you so desire, but will help to
secure a quorum and will avoid added solicitation costs.
By Order of the Board of
Directors
LORETTA L. RIVERS
Secretary
October 20, 1998
Gaithersburg, Maryland
<PAGE>
ACE*COMM CORPORATION
704 Quince Orchard Road
Gaithersburg, Maryland 20878
PROXY STATEMENT
Annual Meeting of Stockholders
November 17, 1998
SOLICITATION OF PROXIES
The enclosed proxy is solicited by the Board of
Directors of ACE*COMM Corporation (the "Company") for use at
the Annual Meeting of Stockholders of the Company to be held
on November 17, 1998 and at any and all adjournments or
postponements thereof. It is anticipated that such proxy,
together with this Proxy Statement, will be first
transmitted to the Company's stockholders on or about
October 20, 1998. All shares represented by each properly
executed, unrevoked proxy received in time for the meeting
will be voted. Any proxy given may be revoked at any time
prior to its exercise by filing with the Secretary of the
Company an instrument revoking it or a duly executed proxy
bearing a later date, or by attending the meeting and voting
in person.
In addition to use of the mails, proxies may be
solicited, in person and by telephone, by regular employees
of the Company, who will not receive any additional
compensation for such solicitation. Any cost of
solicitation of proxies will be borne by the Company.
EQUITY SECURITIES AND CERTAIN HOLDERS THEREOF
Stockholders of record at the close of business on
October 19, 1998, are entitled to vote at the meeting (the
"Record Date"). As of the Record Date, the Company had
outstanding 8,869,025 shares of ACE*COMM Corporation Common
Stock. Stockholders of shares are entitled to one vote for
each share held and will vote as a single class on each
matter to be considered at the meeting. The presence in
person or by proxy of the stockholders entitled to cast a
majority of the votes at the meeting is required to
constitute a quorum for the transaction of business.
The following table sets forth certain information with
respect to the beneficial ownership of Common Stock for (i)
each of the Company's directors and nominees, each of the
Company's executive officers named in the Summary
Compensation Table below (see "Executive Compensation and
Other Information"), and all directors, nominees and
executive officers of the Company as a group, and (ii) each
person known by the Company to own more than 5% of the
Company's Common Stock as of October 1, 1998,
<PAGE>
based solely on the contents of Schedules 13D and 13G filed
with the Securities and Exchange Commission as of such date.
"Beneficial ownership" is determined in accordance with
Rule 13d-3(d)(1) of the Securities Exchange Act of 1934 and
includes as to each officer of the Company any options to
purchase shares of Company Common Stock which are
exercisable within 60 days of October 1, 1998. Except as
indicated in the footnotes to this table, the Company
believes that the persons and entities named in the table
have sole voting and investment power with respect to all
shares of Common Stock shown beneficially owned by them,
subject to community property laws where applicable.
<PAGE>
<TABLE>
<CAPTION>
Name and Address(1) Amounts and Nature Percent of
of Ownership Outstanding
Shares
<S> <C> <C>
Directors, Nominees and
Officers
George T. Jimenez 2,211,606(2) 24.69%
Gilbert A. Wetzel 39,500(3) *
Gary P. Golding 2,628(4) *
Paul G. Casner, Jr. 29,000(5) *
Thomas V. Russotto 143,089(6) 1.61
S. Joseph Dorr 507,895(7) 5.70
William R. Newlin 70,238(4) *
All Directors, Nominees 3,043,776(4)(8) 33.59
and Executive Officers
as a group (8 persons)
Other 5% Stockholders
Amerindo Investment 1,254,700 14.15
Advisors Inc.
One Embarcadero Center,
Suite 2300
San Francisco,
California 94111
CEO Venture Fund II 1,254,546(9) 14.14
2000 Technology Drive
Pittsburgh,
Pennsylvania 15219
</TABLE>
___________________
*Less than one percent of stock outstanding.
(1) Unless otherwise indicated, the address is c/o ACE*COMM
Corporation, 704 Quince Orchard Road, Gaithersburg,
Maryland 20878 and the designated owner has voting and
investment power with respect to the shares.
(2) Includes 88,644 shares issuable upon the exercise of
options. Does not include 950 shares held by his mother-in-
law, as to which his wife has voting and investment power
and as to which Mr. Jimenez disclaims beneficial ownership.
<PAGE>
(3) Includes 12,000 shares issuable upon the exercise of
options.
(4) As to Messrs. Golding and Newlin, includes only shares
held individually. Does not include shares held by CEO
Venture Fund II (see note 9).
(5) Includes 13,500 shares issuable upon the exercise of
options.
(6) Includes 12,462 shares issuable upon the exercise of
options.
(7) Includes 43,753 shares issuable upon the exercise of
options.
(8) Includes 192,372 shares issuable upon the exercise of
options.
(9) Includes 1,254,546 shares held by CEO Venture Fund II.
Does not include the following shares held directly:
70,238 shares by William R. Newlin, 32,888 shares by
James Colker, 2,628 shares by Gary P. Golding and
44,000 shares by E. R. Yost. Mr. Colker and Newlin
Management Associates II ("CNMA II"), as the general
partner of CEO Venture Fund II, exercise voting and
investment power with respect to the 1,254,546 shares
held by CEO Venture Fund II. Messrs. Colker and
Newlin, as managing general partners of CNMA II,
exercise shared voting and investment power with
respect to these shares and Messrs. Golding, E.R. Yost
and G.F. Chatfield, as general partners of CNMA II,
exercise shared investment power with respect to these
shares. CNMA II and Messrs. Colker, Newlin, Golding,
Yost and Chatfield disclaim beneficial ownership of the
shares held by CEO Venture Fund II other than to the
extent of its or his individual partnership interest.
ELECTION OF DIRECTORS
The Board of Directors has nominated Paul G. Casner,
Jr. for election as a Class II director and William R.
Newlin for election as a Class III director.
The directors are divided into three classes,
denominated as Class I, Class II, and Class III, with the
terms of office of each Class expiring at the 2000, 1998 and
1999 annual meetings of stockholders, respectively. At each
annual meeting, directors elected to succeed those directors
whose terms expire shall be elected for a term to expire at
the third succeeding annual meeting of stockholders after
their election. Directors otherwise elected by the
stockholders are elected for a term expiring upon expiration
of the term of the Class to which he was elected. The
directors are divided into classes as follows: Class I:
Gary P. Golding and Gilbert A. Wetzel; Class II: Paul G.
Casner, Jr.; Class III: George T. Jimenez. The Board
comprises five directors. Mr. Newlin was elected by the
Board as a Class III director to fill a vacancy on the
Board, effective as of immediately prior to the Annual
Meeting. Mr. Golding will resign effective as of
immediately following
<PAGE>
the Annual Meeting. There are no family relationships
among any of the Company's directors and executive officers.
Shares represented by the enclosed proxy are intended
to be voted at the Annual Meeting of Stockholders to be held
on November 17, 1998, unless authority is withheld, for the
election of Paul G. Casner, Jr. as a Class II director, and
of William R. Newlin as a Class III director. Messrs.
Casner and Newlin each has consented to the nomination and
has informed the Company that he will be available to serve
as a director. If either nominee should not be available
for election, the persons named as proxies may vote for
other persons in their discretion.
The Board of Directors recommends a vote FOR the
nominees for director.
<PAGE>
<TABLE>
<CAPTION>
Directo Class
Name of Age r Since of Recent Business Experience
Director Directo
or r
Nominee <C> <C> <C>
<S>
<C>
George T. 6 1983 III Chief Executive Officer of
Jimenez 2 the Company, since 1996, and
President and Treasurer of
the Company since 1983.
Paul G. 6 1983 II President of DRS Electronic
Casner, 0 Systems Group, a division of
Jr. DRS Technologies, Inc., a
defense electronics
corporation, since 1994; and
Chairman and Chief Executive
Officer of Technology
Applications & Service
Company from March 1991 to
September 1993.
Gilbert 6 1992 I Executive Vice President,
A. Wetzel 6 Right Management
Consultants, an
international human
resources consulting firm,
since 1994; retired Chairman
and Chief Executive Officer
of Bell of Pennsylvania and
Diamond State Telephone and
founder and retired Chief
Executive Officer of
Geographic Business
Publishers, Inc.
William 5 1998 III President and Chief
R. Newlin 7 Executive Officer of
Buchanan Ingersoll
Professional Corporation
(attorneys at law) since
1980. Co-founder and
Managing General Partner of
the CEO Venture Funds
(private venture capital
funds). Chairman of the
Board of Directors of
Kennametal Inc., a producer
of cutting tools and wear-
resistant parts, and of JLK
Direct Distribution Inc., a
metalworking and industrial
supply business. Director
of Black Box Corporation,
National City Bank of
Pennsylvania, and
Parker/Hunter Incorporated.
</TABLE>
<PAGE>
Information as to the directors' or nominees'
beneficial ownership of Common Stock is set forth above,
under "Equity Securities and Certain Holders Thereof."
The Board of Directors has an Audit Committee and a
Compensation Committee. The Audit Committee oversees
actions taken by the Company's independent auditors,
recommends the engagement of auditors and reviews any
internal audits the Company may perform. The current
members of the Audit Committee are Messrs. Golding, Wetzel
and Casner. The Audit Committee met two times during fiscal
1998. The Compensation Committee reviews the compensation
of executives of the Company, makes recommendations to the
Board of Directors with respect to standards for setting
compensation levels and administers the Company's Amended
and Restated Omnibus Stock Plan (the "Stock Plan"). The
current members of the Compensation Committee are
Messrs. Golding, Wetzel and Casner, none of whom is employed
by the Company. The Compensation Committee met three times
during fiscal 1998.
During fiscal year 1998, the Board of Directors held
thirteen meetings. All of the Directors were in attendance
at more than 75% of the Board meetings and each of the
Committee meetings of which he was a member.
Directors received $8,000 each for fiscal 1998 and will
receive $12,000 each for fiscal 1999 and for each fiscal
year thereafter, payable in quarterly installments, and are
reimbursed for their travel expenses in attending Board and
Committee meetings. In addition, upon his election or
appointment to serve, each director receives an option to
purchase 3,000 shares of the Company's Common Stock for each
year such director is elected or appointed to serve, at an
exercise price equal to the fair market value on the date of
grant, pursuant to the Amended and Restated Directors' Plan.
Each option becomes exercisable in equal installments of
3,000 shares on each anniversary of the date of grant,
provided that the option holder still serves as a director
on such date or, if he ceases to be a director (other than
by reason of termination for cause) within 45 days prior to
such date, he has served as a director for at least 12
consecutive months as of such date. Each option expires
upon the earlier of five years from the date of grant, the
expiration of six months following death, resignation or
removal other than for cause, and, immediately, upon removal
of a director for cause. If elected, Messrs. Casner and
Newlin would each be granted on the date of the Annual
Meeting an option to purchase 9,000 and 3,000 shares of
Common Stock, respectively.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Compensation Committee Report
The Company's officer compensation policy is to offer a
package that includes a competitive salary, an incentive
bonus based upon achievement of the Company's financial
objectives and of individual performance goals, and
competitive benefits. The Company also encourages
<PAGE>
broad-based employee ownership of Company stock through a
stock option program in which key employees are eligible to
participate.
The Company's compensation policy for officers is
similar to that for other employees, and is designed to
promote continued performance and attainment of corporate
and personal goals.
The Compensation Committee of the Board of Directors
(comprised entirely of non-employee directors) reviews and
approves individual officer salaries, bonus plan financial
performance goals, bonus plan allocations, and stock option
grants. The Committee also reviews guidelines for
compensation, bonus, and stock option grants for all
employees. Based on the advice of an independent consulting
firm, the Compensation Committee has established the
following compensation guidelines: (i) to enable the
Company to attract highly qualified executives and
management talent from within the telecommunications and
other relevant industries, (ii) to retain top performers and
ensure future management continuity, (iii) to reward
achievement of the Company's strategic goals and financial
targets, and (iv) to provide compensation that is consistent
with marketplace competitiveness for companies of similar
size, Company and individual performance, and stockholder
returns.
Officers of the Company are paid salaries in line with
their responsibilities and experience. These salaries are
structured to be within the range of salaries paid by
competitors in the telecommunications and other relevant
industries. Competitors selected for salary comparison
purposes may differ from the companies included in the
comparative performance indexes in the Performance Graph
below.
Officers also participate in a cash bonus plan. Each
officer other than the Chief Executive Officer is eligible
to receive a discretionary cash bonus of up to 10% of base
salary based upon achievement of certain subjective
performance goals established for each individual by the
Chief Executive Officer. Officers are also eligible for
financial performance bonuses of up to a pre-determined 65-
75% of base salary, with amounts payable based on the level
of achievement of predetermined corporate revenue and pre-
tax income goals and, in the case of officers with
divisional profit and loss responsibility, divisional
revenue and operational profit goals. The maximum total
bonus under the Executive Bonus Plan is 75% of base salary.
Under a deferral plan (the "Bonus Deferral Plan"), the
Compensation Committee has the right to cause deferral of
the payment of any or all of the bonus to which the officer
otherwise would be entitled, except such portion as is
attributable to achievement of cash flow targets. Deferred
bonuses are payable to the extent vested, on the October 1
which follows the third anniversary of the end of the fiscal
year for which the bonus was awarded, or earlier termination
of employment. One third of the deferred amount vests on
October 1 which follows the first anniversary of the end of
the fiscal year with respect to which the bonus was payable,
and one third each vests on the second and third October 1
thereafter, provided that the employee remains in the employ
of the Company as of such vesting date, and subject to
acceleration
<PAGE>
under certain circumstances, including a change of control
or termination of the employee by the Company without cause
(as defined in the plan). Pursuant to the terms of the
Bonus Deferral Plan, the Compensation Committee elected to
defer payment of all bonuses otherwise payable to executive
officers for fiscal 1997 performance. Because the Company
did not meet the predetermined revenue and pre-tax income
goals established for fiscal 1998, the officers did not
receive any cash bonuses for that period.
Stock option grants to officers are designed to promote
success by aligning the officers' financial interests with
long-term stockholder value and by providing an incentive
for individual long-term performance and the achievement of
short-term financial performance of the Company. Grants of
stock options 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. Generally, officers are granted
performance options which vest and become exercisable six to
eight years from the date of grant, subject to earlier,
accelerated vesting. For officers other than the CEO, a
portion of the option shares is subject to such accelerated
vesting based on the level of achievement of predetermined
corporate revenue and pre-tax income goals and, in the case
of officers with divisional profit and loss responsibility,
divisional revenue and operational profit goals and, a
portion of the option shares is subject to such accelerated
vesting based on the achievement of certain subjective
individual performance goals established by the CEO.
Performance options which vest as a result of acceleration
become exercisable over three years, provided that the
officer remains in the continuous employ of the Company.
Performance options granted to officers in fiscal 1997
were subject to accelerated vesting based on the achievement
of certain performance targets (referred to above) for
fiscal 1997. Based on the Company's results for fiscal
1997, only a portion of the 1997 options was accelerated.
For fiscal 1998, the unvested portion of the 1997
performance options was amended to allow accelerated vesting
based on performance targets for fiscal 1998. Additional
performance options were granted in fiscal 1998 subject to
accelerated vesting based upon achievement of the 1998
performance targets and, as to officers other than the CEO,
the achievement of certain subjective individual performance
criteria established by the CEO. Based on the Company's
results for 1998, none of the performance options containing
the 1998 performance targets was accelerated.
In April 1998, in order to assist the Company in
conserving cash, Mr. Jimenez and the other executive
officers volunteered to accept a reduced salary for the
balance of the fiscal year. The amounts received in fiscal
1998 set forth in the Summary Compensation Table below
reflect such reductions. In return for such reductions, the
Company issued to the officers in April 1998 additional
options which become exercisable to the extent of 25% of the
options over each of the four fiscal calendar quarters
following the date of grant. The options are reflected in
the "Option Grants" table below.
<PAGE>
As noted above, the Company's compensation policy is
based primarily upon the practice of pay-for-performance.
Section 162(m) of the Internal Revenue Code imposes a
limitation on the deductibility of nonperformance-based
compensation in excess of $1 million paid to Named Executive
Officers. The Committee currently believes that the Company
should be able to continue to manage its executive
compensation program for Named Executive Officers so as to
preserve the related federal income tax deductions.
The Compensation Committee annually reviews and
approves the compensation of George Jimenez, the Chief
Executive Officer. Mr. Jimenez participates in the bonus
plan, with his bonus tied to corporate revenue and pre-tax
income goals. His maximum possible bonus for fiscal 1998
was 75% of his base salary. Based on the Company's
performance for fiscal 1998, Mr. Jimenez was awarded no cash
bonus for fiscal 1998. Mr. Jimenez received performance
options subject to accelerated vesting based on the level of
achievement of predetermined corporate revenue and pre-tax
income goals. Based on the Company's results for fiscal
1997, only a portion of his 1997 performance options was
accelerated. For fiscal 1998, the unvested portion of the
1997 options was amended to allow accelerated vesting based
on performance targets for fiscal 1998. He was granted
additional performance options in fiscal 1998 subject to
accelerated vesting based upon achievement of the 1998
performance targets (see "Option Grants" below). Based on
the Company's results for 1998, none of such performance
options was accelerated.
COMPENSATION COMMITTEE
Paul G. Casner, Jr.
Gary P. Golding
Gilbert A. Wetzel
Cash Compensation
Cash compensation paid or accrued for services in all
capacities for 1996, 1997 and 1998 fiscal years for the
Chief Executive Officer and each of the other four most
highly compensated present and former executive officers of
the Company whose salary and bonus exceeded $100,000 (the
"Named Executive Officers") is set forth in the following
table.
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long-
Term
Annual Compensation(1) Compensa
__________________________ tion
__________ Awards
________
____
Name Fis- Salary Bonus Other Number All
and cal (2) Annual of Other
Principal Yea Compen- Shares Compen-
Position r sation Underlyi sation
(3) ng (5)
Options(
4)
<S> <C> <C> <C> <C> <C> <C>
George T. Jimenez 199 $155,6 $0 -- 26,628 $11,52
President, Chief 8 54 173,1 -- 32,637 1
Executive Officer 199 14(6) -- 71,384 15,046
and Chairman of 7 190,00 54,07 15,778
the Board 199 0 9
6
158,00
0
Thomas V. 199 157,68 0 -- 17,445 1,453
Russotto 8 8 96,63 -- 26,922 4,420
Vice President of 199 145,00 2 -- 69,071 5,851
Operations 7 0 67,60
199 121,00 1
6 0
S. Joseph Dorr 199 117,42 0 -- 10,331 1,253
Vice President of 8 1 65,36 -- 19,704 4,088
Sales 199 128,20 2 -- 36,753 4,526
7 0 37,28
199 120,00 1
6 0
James M. Moore(7) 199 121,52 0 $13,54 0 0
Vice President of 8 2 52,48 6 16,691 0
Marketing 199 132,20 6 26,255 81,000 0
7 0 0 --
199 129,00
6 0
Jeffrey S. 199 124,08 0 -- 0 0
Simpson(7) 8 0 48,51 -- 11,477 0
Vice President of 199 122,20 5 -- -- --
Finance 7 0 --
199 --
6
</TABLE>
(1) Includes salary deferrals under the Company's 401(k) plan and, as to
fiscal 1997, bonus amounts deferred by the Compensation Committee under
the Bonus Deferral Plan, vesting over three years (subject to
acceleration in the event of termination without cause, or
death, disability or change of control) and payable to the extent
vested on the earlier of October 1, 2000, or the termination of the
officer's employment with the Company.
(2) For 1998, reflects a voluntary reduction in salary (see
"_Compensation Committee Report").
(3) Comprises certain relocation expenses. Does not
include perquisites and personal benefits aggregating
less than 10% of the officer's salary and bonus.
(4) For fiscal 1996, includes options granted in fiscal
1997 for performance in fiscal 1996, based on the
Company's previously existing compensation program.
<PAGE>
(5) Consists of, as to fiscal 1996 and 1997, Company
contributions to the Company's 401(k) plan on behalf of
each Named Executive Officer and, as to all fiscal
years, amounts paid in connection with a life insurance
policy for Mr. Jimenez and disability insurance
policies for certain Named Executive Officers. For
fiscal 1998, the amounts paid were as follows: (i) Mr.
Jimenez, $6,975 for life insurance and $4,546 for
disability insurance; (ii) Dr. Russotto, $1,453 for
disability insurance, and (iii) Mr. Dorr, $1,253 for
disability insurance.
(6) Includes one-time cash bonus of $75,000 for performance
in connection with the Company's initial public
offering of stock, payment of which was deferred (See
note (1)).
(7) Messrs. Moore and Simpson resigned during fiscal 1998.
See "_Employment Agreements, Change in Control and
Separation Arrangements."
Option Grants
The following table shows, as to the Named Executive
Officers, the options to purchase Common Stock granted by
the Company in fiscal 1998.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
Number Percentag Potential
of e of Realizable Value
Shares Total Exerc at Assumed Rates
Underlyi Options ise Expirat of Stock Price
Name ng Granted Price ion Appreciation for
Options to Per Date Option Term(1)
Granted Employees Share
<S> in Fiscal 0% 5%
1998 <C> <C> 10%
<C> <C>
<C>
George T. 10,711(2) 1.52% $6.31 4/29/08 $0 $42,5 $107,7
Jimenez 15,917(3) 2.26 3 1/28/08 0 25 67
6.438 64,43 163,29
2 6
Thomas V. 1,456(2) 0.21 6.313 4/29/08 0 5,781 14,649
Russotto 15,989(3) 2.27 6.438 1/28/08 0 64,72 164,03
4 5
S. Joseph 3,408(2) 0.48 6.313 4/29/08 0 13,53 34,289
Dorr 6,923(3) 0.98 6.438 1/28/08 0 0 71,025
28,02
4
James M. 0 0 0
Moore
Jeffrey S. 0 0 0
Simpson
</TABLE>
_____________________________
(1) Amounts are based on the 0%, 5%, and 10% annual
compounded rates of appreciation of the Common Stock
price from the date of grant, prescribed by the
Securities and Exchange Commission, and are not
intended to forecast future appreciation of the
Company's Common Stock. The prices of the Common
Stock, assuming such annual compounded rates of
appreciation over the term of the option, would be as
follows:
<PAGE>
Exercise price Term of Option 0% 5% 10%
$ 6.438 10 years $0 $10.487 $16.699
6.313 10 years 0 10.283 16.374
(2) Options vest and become exercisable in one-quarter
increments as of 6/30/98, 9/30/98, 12/31/98 and
3/31/99, provided that the officer is then employed by
the Company (or sooner, under certain circumstances
such as a change of control of the Company).
(3) Options subject to vesting in full or in part as of
10/1/98, based on the Company's achievement of
previously established performance
targets and certain subjective performance targets for
fiscal year 1998. Based on the Company's results, the
vesting of none of such options was accelerated.
Accordingly, under the terms of the options, one-third
of option shares will become exercisable on each of
1/27/04, 1/27/05, and 1/27/06, provided that the
officer is then employed by the Company (or sooner,
under certain circumstances such as a change of control
of the Company).
Fiscal 1998 Stock Option Exercises and Year-End Option
Values
The following table shows, as to the Named Executive
Officers, the information concerning exercises of stock
options in the last fiscal year and 1998 fiscal year-end
option values.
Fiscal 1998 Stock Option Exercises and Year-End Option
Values
<TABLE>
<CAPTION>
Shares Number of Shares
Acquir Underlying Value of
ed Value Unexercised Unexercised
Name on Realized( Options at In-the-Money
Exerci 1) Fiscal Options at
se Year-End Fiscal Year-
End(2)
Exercisable/Unexe Exercisable/Unexe
rcis- rcis- able
<S> <C> able <C>
<C>
George T. 142,79 $1,303,0 113,51 50,54 $166,56 $0
Jimenez 8 85 6 6 4
Thomas V. 0 0 6,318 38,04 0 0
Russotto 9
S. Joseph 0 0 40,293 26,49 0 0
Dorr 5
James M. 0 0 0 0 0 0
Moore
Jeffrey S. 0 0 981 10,49 0 0
Simpson 6
</TABLE>
__________
(1) Value realized represents the positive spread between
the respective exercise prices of the exercised options
and the fair market value per share on the respective
dates of exercise.
<PAGE>
(2) Value for "in-the-money" options represent the positive
spread between the respective exercise prices of
outstanding options and the market price on June 30,
1998.
Employment Agreements, Change in Control and Separation
Arrangements
The Company currently has no employment contracts with
any of the Named Executive Officers, and the Company has no
compensatory plan or arrangement with such Named Executive
Officers where the amounts to be paid exceed $100,000 and
which are activated upon resignation, termination or
retirement of any such executive officers or upon a change
in control of the Company.
The Company entered into a Separation Agreement with
James Moore, pursuant to which he resigned as an officer but
remained as an employee through May 30, 1998, and continued
to receive salary and benefits during such period. The
Company agreed to forgive over the three years beginning on
January 1, 1999 a loan in the principal amount of $133,000
extended to Mr. Moore in connection with his relocation,
subject to his continuing compliance with the terms and
conditions of the Agreement, including non-competition and
non-disclosure agreements.
The Company entered into a separation arrangement with
Jeffrey Simpson, pursuant to which he resigned as an officer
but remained as an employee through July 24, 1998, and
continued to receive salary and benefits during such period.
Certain Transactions
In September 1998, Mr. Jimenez agreed that in the event
that alternative financing cannot be obtained by the Company
in a timely manner and that, at any time during the next
twelve months the Company's working capital becomes
inadequate to support the business at its then current
level, he will make available through a loan guarantee or a
loan, for working capital in the principal amount of up to
$3.5 million (less any amounts raised by the Company after
September 28, 1998, from financing activities or through the
sale or pledge of assets). Such loan, if any, would bear
interest at prime plus 2%, would be repayable out of the
first alternate funding available to the Company or upon a
change of control, if any, and would be collateralized by
the assets of the Company.
In addition, Mr. Jimenez has provided an unconditional
guarantee, fully secured by cash or marketable securities,
of the Company's reimbursement obligation for any amounts
paid by Crestar Bank in connection with a $450,000 letter of
credit issued on behalf of the Company in connection with
the Company's lease of its headquarters building. The
Company has agreed to reimburse Mr. Jimenez for any amounts
that he is required to pay under such guarantee.
<PAGE>
Performance Graph
In accordance with current Securities Exchange Act of
1934 regulations, the following performance graph compares
the performance of the Company's Common Stock to the Nasdaq
Stock Market Index and to the Nasdaq Telecommunications
Index. The graph assumes that the value of the investment
in the Company's Common Stock and each index was $100 at
August 14, 1996 and that all dividends were reinvested. The
measurement period is limited to that period during which
the Company's Common Stock has been registered under Section
12 of the Securities Exchange Act of 1934 (i.e., since the
initial public offering).
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
ACE*COMM CORPORATION, NASDAQ MARKET
INDEX AND NASDAQ TELECOMMUNICATIONS INDEX
ASSUMES $100 INVESTED ON AUGUST 14, 1996
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING JUNE 30, 1998
<PAGE>
APPROVAL OF THE QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
The ACE*COMM Qualified Employee Stock Purchase Plan
(the "Purchase Plan") is intended to provide eligible
employees an added incentive to advance the best interests
of the Company by enabling them to purchase voluntarily the
Common Stock of the Company at a favorable price and on
favorable terms. The Purchase Plan was declared advisable
and approved by the Board of Directors of the Company on
October 6, 1998. The adoption of the Purchase Plan is
subject to stockholder approval. A copy of the Purchase
Plan is attached as Exhibit A. The description of the
Purchase Plan that follows is qualified by reference to the
full text.
The Purchase Plan initially will be governed by the
Compensation Committee. From time to time the Compensation
Committee will grant to eligible employees options to
purchase shares of Common Stock under the Purchase Plan
through a payroll deduction program. These options will be
granted initially each calendar quarter beginning on or
after January 1, 1999. The term of each option will be a
three-month period beginning on the day the option is
granted. The term of each option and the grant dates may be
revised from time to time by the Compensation Committee to
semi-annual or annual periods.
In order to participate in the Purchase Plan, eligible
employees must submit an election form prior to the
beginning of a calendar quarter authorizing payroll
deductions to be applied towards the exercise price under
their option at the end of the quarter. Amounts deducted
from a participant's pay will be credited to his stock
purchase account. Although the Purchase Plan authorizes
deductions of up to 10% of base pay the Compensation
Committee expects initially to authorize maximum deductions
of only up to 2% of base pay.
An option will be exercised automatically on the last
business day of the option period (the "exercise date"). On
that date, subject to applicable amounts, the payroll
deductions in the participant's stock purchase account will
be used to purchase the number of full shares of Common
Stock equal to the amount of such payroll deductions divided
by the exercise price per share. (Any balance in a
participant's stock purchase account insufficient to
purchase a full share will be carried over to purchase
shares in the next quarter, if the employee continues to
participate in the Purchase Plan, or otherwise will be
refunded without interest.) The exercise price per share
will be equal to 85% of the fair market value of the Common
Stock on the grant date or the exercise date, whichever is
less. The fair market value of the Common Stock on any
particular date is the Closing Price of the Common Stock on
that date (or, if not traded on that date, the nearest prior
date on which trading occurred.)
The maximum number of shares that may be purchased
under the Purchase Plan by all participants in any one
calendar quarter is limited to 20,000 (plus any portion of
the maximum number of shares for prior quarters that were
not purchased). The maximum number of shares that may be
purchased under the Plan by any one participant in a
calendar
<PAGE>
quarter is limited to 600. If the maximum shares available
during a quarter would otherwise be exceeded, a pro rata
allocation of the shares available will be made among
participants in a uniform and equitable manner. Any cash in
a participant's stock purchase account in excess of the
amount needed to purchase the maximum number of shares
available will be refunded promptly after the exercise date
without interest.
All employees of the Company are eligible to
participate in the Purchase Plan, except employees (such as
Messrs. Jimenez and Dorr) who immediately after the granting
of an option would own stock or have the right to purchase
stock of the Company representing more than 5% of the total
combined voting power of all classes of stock of the
Company. On October 1, 1998, the Company had approximately
163 employees, including executive officers, who may be
eligible to participate in the Purchase Plan.
An employee's participation in the Purchase Plan shall
be terminated when he or she voluntarily withdraws from the
Purchase Plan; resigns or is discharged; retires or dies or
takes a leave of absence. Upon termination other than for a
leave of absence, all funds in a participant's account will
be refunded without interest. A participant who takes a
leave of absence of 90 days or less, may elect to receive a
refund of contributions for the quarter or may continue to
participate in the Plan. A participant who withdraws from
the Purchase Plan shall be eligible to participate again in
the Purchase Plan upon expiration of the option period
during which he or she withdrew.
An aggregate of 240,000 shares of authorized but
unissued Common Stock of the Company has been reserved for
future issuance under the Purchase Plan. In the event of a
subdivision, combination or reclassification of the Common
Stock, the maximum number of shares subject to the purchase
Plan will be appropriately adjusted. (No adjustment will be
made for a stock dividend in an amount aggregating less than
20% of outstanding shares.) All or any portion of these
shares may be granted under the Purchase Plan. The Purchase
Plan will be implemented on January 1, 1999, provided that
it is approved by the shareholders. It is not practicable
to estimate the allocation of benefits under the plan to
individual employees at this time.
The Purchase Plan is intended to qualify as an
"employee stock purchase plan" under the provisions of
Sections 421 and 423 of the Code. Under these provisions,
no income will be taxable to a participant at the time of
grant or purchase of shares under the Purchase Plan. As
summarized below, a participant may become liable for tax
upon disposition of the shares acquired. The character of
any gain or loss upon disposition will depend upon how long
the shares have been held by the participant.
If shares are held by the participant for more than two
years after the grant or if the participant dies at any
time while owning the shares, the lesser of (a) the excess
of the fair market value of the shares on the date of such
disposition or death over the purchase price, or (b) 15% of
the fair market value of the shares on the date of grant
<PAGE>
will be treated as ordinary income to the participant at the
time of any disposition or for the taxable year closing with
his or her death. Any further gain upon such disposition
will be deemed a long-term capital gain. Under current tax
laws, the maximum tax rate applicable to long term capital
gains is 20%.
If the shares are sold or disposed of before the
expiration of the holding period described above, the excess
of the fair market value of the shares on the exercise date
over the purchase price will be treated as ordinary income
to the participant at the time of disposition. This excess
will constitute ordinary income in the year of sale or other
disposition even if no gain is realized on the sale or a
gratuitous transfer of the shares is made. The balance of
any gain will be treated as capital gain and would be deemed
a long-term gain if the shares have been held more than one
year.
There are no federal income tax consequences to the
Company by reason of the grant or exercise of options
pursuant to the Purchase Plan. The Company is not entitled
to a deduction for amounts taxed as ordinary income to a
participant, except to the extent that the ordinary income
is reportable by a participant upon disposition of shares
before the expiration of the holding period described above.
The Board recommends a vote FOR approval of the Purchase
Plan.
SELECTION OF INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP served as independent
auditors of the Company for its fiscal year ended June 30,
1998. PricewaterhouseCoopers LLP will serve as the
independent auditors of the Company for the current fiscal
year, subject to ratification by the stockholders. If the
appointment is not ratified, the Board of Directors will
appoint another firm as the Company's independent auditor
for the year ending June 30, 1999. The Board of Directors
also retains the power to appoint another independent
auditor for the Company to replace an auditor ratified by
the stockholders in the event that the Board of Directors
determines that the interests of the Company require such a
change.
PricewaterhouseCoopers LLP is not presently expected to
have a representative present at the meeting and, therefore,
will not make a statement or respond to questions at the
meeting.
The Board of Directors recommends a vote FOR the
appointment of PricewaterhouseCoopers LLP as independent
auditors of the Company for the fiscal year ending June 30,
1999.
VOTE REQUIRED TO APPROVE MATTERS
The presence in person or by proxy of stockholders
entitled to cast a majority of the votes at the Annual
Meeting will constitute a quorum. Votes cast by proxy or in
person at the meeting will be tabulated by the inspectors of
election appointed for the meeting. Proxies marked with
abstentions, broker non-votes (i.e., proxies from
<PAGE>
brokers or nominees marked to indicate that such persons
have not received instructions from the beneficial owner or
other persons entitled to vote shares as to the vote on a
particular matter with respect to which the brokers or
nominees do not have discretionary power to vote), and
stockholders present at the meeting who abstain from voting,
will be treated as present for purposes of determining the
presence of a quorum.
The election of directors requires a plurality of votes
cast at the Annual Meeting. The approval of the Purchase
Plan requires the affirmative vote of a majority of the
votes cast at the Annual Meeting. The ratification of the
appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company requires the affirmative vote of
a majority of the votes cast at the meeting. Any
abstentions or broker non-votes will be disregarded for
purposes of determining approval of the aforementioned
matters.
STOCKHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING OF
STOCKHOLDERS;
ADDITIONAL INFORMATION
Stockholder proposals to be presented at the 1999
Annual Meeting of Stockholders must be received at the
Company's executive offices at 704 Quince Orchard Road,
Gaithersburg, Maryland 20878 by June 22, 1999 in order to be
included in the Company's proxy statement relating to that
meeting.
OTHER MATTERS THAT MAY COME BEFORE THE MEETING
As of the date of this Proxy Statement, the Company
knows of no business other than that described herein that
will be presented for consideration at the meeting. If,
however, any other business shall come properly before the
meeting, the proxy holders intend to vote the proxies in
accordance with their best judgment, in their sole
discretion.
By Order of the Board of
Directors,
LORETTA L. RIVERS
Secretary
October 20, 1998
A-13
QUALIFIED ACE*COMM
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
PURPOSE
1.01. Purpose. The Qualified ACE*COMM Employee
Stock Purchase Plan is intended to provide a method whereby
employees of ACE*COMM Corporation (the "Company") and its
subsidiary corporations will have an opportunity to acquire
a proprietary interest in the Company through the purchase
of shares of the Common Stock of the Company. It is the
intention of the Company to have the Plan qualify as an
"employee stock purchase plan" under Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code"). The
provisions of the Plan shall be construed so as to extend
and limit participation in a manner consistent with the
requirements of that Section of the Code.
ARTICLE II
DEFINITIONS
2.01 Base Pay. "Base Pay" means regular straight-time
earnings excluding payments for overtime, shift premium,
bonuses and other special payments, commissions and other
marketing incentive payments.
2.02 Board. "Board of Directors" or "Board" means the
Board of Directors of the Company.
2.03 Committee. "Committee" means the individuals
described in Article XI.
2.04 Common Stock. "Common Stock" means the common
stock of the Company.
2.05 Designated Subsidiary Corporation. "Designated
Subsidiary Corporation" means a Subsidiary Corporation which
is designated by the Company's Board of Directors to
participate in the Plan.
2.06 Employee. "Employee" means any person who is
employed by the Company or a Designated Subsidiary
Corporation.
2.07 Subsidiary Corporation. "Subsidiary Corporation"
means any present or future corporation which would be a
"subsidiary corporation" of the Company as that term is
defined in Section 424 of the Code.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.01 Initial Eligibility. All Employees are eligible
to participate hereunder, commencing on any Offering
Commencement Date.
<PAGE>
3.02 Commencement of Participation. An eligible
Employee may become a participant by completing an
authorization for a payroll deduction on the form provided
by the Company and filing it with the office of the Human
Resources Director of the Company on or before the date set
therefor by the Committee, which date shall be prior to the
Offering Commencement Date for the Offering (as such terms
are defined below). Payroll deductions for a participant
shall commence on the applicable Offering Commencement Date
when his authorization for a payroll deduction becomes
effective and shall end on the Offering Termination Date of
the Offering to which such authorization is applicable
unless sooner terminated by the participant as provided in
Article VIII.
3.03 Restrictions on Participation. Notwithstanding
any provision of the Plan to the contrary, no Employee shall
be granted an option to participate in the Plan:
(a) if, immediately after the grant, such
Employee would own stock, and/or hold outstanding options to
purchase stock, possessing 5% or more of the total combined
voting power or value of all classes of stock of the Company
or any Subsidiary Corporation. (For purposes of this
paragraph, the rules of Section 424(d) of the Code shall
apply in determining stock ownership of any Employee); or
(b) which permits his rights to purchase stock
under all employee stock purchase plans of the Company and
its Subsidiary Corporations to accrue at a rate which
exceeds $25,000 in fair market value of the stock
(determined at the time such option is granted) for each
calendar year in which such option is outstanding.
3.04 Leave of Absence. For purposes of participation
in the Plan, a person on leave of absence shall be deemed to
be an Employee for the first 90 days of such leave of
absence and such Employee's employment shall be deemed to
have terminated at the close of business on the 90th day of
such leave of absence unless such Employee shall have
returned to regular full-time or part-time employment (as
the case may be) prior to the close of business on such 90th
day. Termination by the Company of any Employee's leave of
absence, other than termination of such leave of absence on
return to full time or part time employment, shall terminate
an Employee's employment for all purposes of the Plan and
shall terminate such Employee's participation in the Plan
and right to exercise any option.
ARTICLE IV
OFFERINGS
4.01 Quarterly Offering Periods.
(a) Offering Periods. The Plan will be
implemented by Offerings in consecutive Offering Periods,
each constituting a calendar quarter. Such Offering Periods
shall continue until the termination of the Plan in
accordance with Section 12.05. The first such Offering
<PAGE>
Period shall be the calendar quarter beginning on January 1,
1999, and ending on March 31, 1999. (Provided, however,
that the first Offering Period will not begin before the
effective date of the registration statement filed by the
Company for the Plan with the Securities and Exchange
Commission.) Subsequent Offering Periods will consist of
successive calendar quarters.
(b) Offering Commencement Date. The Offering
Commencement Date is the first day of an Offering Period
during which the NASDAQ system is open for trading.
(c) Offering Termination Date. The Offering
Termination Date is the last day of an Offering Period
during which the NASDAQ System is open for trading.
4.02 Revised Offering Periods. In the discretion of
the Committee, quarterly Offering Periods may be combined
into semi-annual or annual Offering Periods. The maximum
number of shares available during an Offering Period under
Section 10.01 shall be adjusted appropriately.
ARTICLE V
PAYROLL DEDUCTIONS
5.01 Amount of Deduction. At the time a participant
files his authorization for payroll deduction under the
Plan, he shall elect to have deductions made from his pay on
each payday during the Offering Period by a percentage, in
whole percentage amounts, of his base pay in effect at any
such payday. Such percentage shall be subject to a maximum
of ten percent (10%) of the participant's base pay per pay
period, or such lower maximum percentage limit as is
determined by the Committee in its sole discretion prior to
the beginning of the Offering Period.
5.02 Participant's Account. All payroll deductions
made for a participant shall be credited to his account
under the Plan. A participant may not make any separate
cash payment into such account except when on leave of
absence and then only as provided in Section 5.04.
5.03 Changes in Payroll Deductions. A participant may
discontinue his participation in the Plan as provided in
Article VIII, but no other change can be made during an
Offering and, specifically, a participant may not alter the
amount of his payroll deductions for that Offering. The
payroll deduction form may provide that it shall continue
from Offering Period to Offering Period unless changed by a
participant before the beginning of a subsequent Offering
Period.
5.04 Leave of Absence. If a participant goes on a
leave of absence, such participant shall have the right to
elect: (a) to withdraw the balance in his or her account
pursuant to Section 7.02, (b) to discontinue contributions
to the Plan but remain a participant in the Plan, or (c)
remain a participant in the Plan during such leave of
<PAGE>
absence (provided the individual was eligible to participate
at the Offering Commencement Date), authorizing deductions
to be made from payments by the Company or its Designated
Subsidiary Corporations to the participant during such leave
of absence and undertaking to make cash payments to the Plan
at the end of each payroll period to the extent that amounts
payable by the Company and its Designated Subsidiary
Corporations to such participant are insufficient to meet
such participant's authorized Plan deductions.
ARTICLE VI
GRANTING OF OPTION
6.01 Number of Option Shares. On the Offering
Commencement Date of each Offering, a participating Employee
shall be deemed to have been granted a qualified option to
purchase on the Offering Termination Date of such Offering
Period (at the Option Price in Section 6.02) the number of
shares of the Company's Common Stock determined by dividing
such Employee's payroll deductions accumulated during such
Offering Period and retained in the participant's account as
of the Offering Termination Date by the applicable Option
Price.
6.02 Option Price. The Option Price of Common Stock
purchased with payroll deductions made during an Offering
Period for a participant therein shall be the lower of:
(a) 85% of the closing price of the stock on the
Offering Commencement Date, or (in the event the stock was
not traded on such date) the nearest prior business day on
which trading of the Company's Common Stock occurred, on the
NASDAQ National Market System; or
(b) 85% of the closing price of the stock on the
Offering Termination Date, or (in the event the stock was
not traded on such date) the nearest prior business day on
which trading of the Company's Common Stock occurred, on the
NASDAQ National Market System. If the Company's Common
Stock is not admitted to trading on the NASDAQ National
Market System on any of the aforesaid dates for which
closing prices of the stock are to be determined, then
reference shall be made to the fair market value of the
stock on that date, as determined on such basis as shall be
established or specified for the purpose by the Committee.
ARTICLE VII
EXERCISE OF OPTION
7.01 Automatic Exercise. Unless a participant gives
written notice to the Company as hereinafter provided, his
option for the purchase of stock with payroll deductions
made during any Offering will be deemed to have been
exercised automatically on the Offering Termination Date
applicable to such Offering, for the purchase of the number
of full shares of Common Stock which the accumulated payroll
deductions in his account at that time will purchase at the
applicable Option Price, subject to the maximum stated in
Section 10.01. Except as
<PAGE>
provided in Section 7.03, any excess in his account at that
time will be refunded to him.
7.02 Withdrawal of Account. By written notice to the
Human Resources Director of the Company, at any time prior
to the Offering Termination Date applicable to any Offering,
a participant may elect to withdraw all of the accumulated
payroll deductions in his account at such time.
7.03 Fractional Shares. Fractional shares will not be
issued under the Plan. Any accumulated payroll deductions
which would have been used to purchase fractional shares
will be carried over and applied to purchase shares in the
succeeding Offering Period, if the Employee elects to
participate in such Offering Period. If not, such excess
payroll deductions will be promptly returned to the
Employee.
7.04 Transferability of Option. During a participant's
lifetime, options held by such participant shall be
exercisable only by that participant.
7.05 Delivery of Stock. As promptly as practicable
after the Offering Termination Date of each Offering, the
Company will deliver to each participant, as appropriate,
the stock purchased upon exercise of his option.
ARTICLE VIII
WITHDRAWAL
8.01 In General. As indicated in Section 7.02, a
participant may withdraw payroll deductions credited to his
account under the Plan at any time prior to an Offering
Termination Date by giving written notice to the Human
Resources Director of the Company. All of the participant's
payroll deductions credited to his account will be paid to
him promptly after receipt of his notice of withdrawal, and
no further payroll deductions will be made from his pay
during such Offering. The Company may, at its option, treat
any attempt to borrow by an Employee on the security of his
accumulated payroll deductions as an election, under Section
7.02, to withdraw such deductions.
8.02 Effect on Subsequent Participation. A
participant's withdrawal from any Offering will not have any
effect upon his eligibility to participate in any succeeding
Offering or in any similar plan which may hereafter be
adopted by the Company.
8.03 Termination of Employment. Upon termination of
the participant's employment for any reason, including
retirement or death (but excluding continuation of a leave
of absence for a period beyond 90 days), the payroll
deductions credited to his account will be returned to him,
or, in the case of his death, to the person or persons
entitled thereto under Section 12.01.
<PAGE>
ARTICLE IX
INTEREST
9.01 No Payment of Interest. No interest will be paid
or allowed on any money paid into the Plan or credited to
the account of any participating Employee.
ARTICLE X
STOCK
10.01 Shares Subject to Plan. The stock subject to
the Plan shall be shares of the Company's Common Stock,
which may be (i) authorized but unissued shares, (ii)
treasury shares and/or (iii) shares purchased on the open
market by a broker designated by the Company. The maximum
number of shares of Common Stock which shall be issued under
the Plan, subject to adjustment upon changes in
capitalization of the Company as provided in Section 12.04,
shall be Twenty Thousand (20,000) shares in each Offering
plus in each Offering all unissued shares from prior
Offerings, whether offered or not, not to exceed Two Hundred
Forty Thousand (240,000) shares for all Offerings. No
participant may purchase more than Six Hundred (600) shares
in any one Offering Period. If the total number of shares
for which options are exercised on any Offering Termination
Date in accordance with Article VI exceeds the maximum
number of shares for the applicable offering, the Company
shall make a pro rata allocation of the shares available for
delivery and distribution in as nearly a uniform manner as
shall be practicable and as it shall determine to be
equitable, and the balance of payroll deductions credited to
the account of each participant under the Plan shall be
returned to him as promptly as possible.
10.02 Participant's Interest in Option Stock. The
participant will have no interest in stock covered by his
option until such option has been exercised.
10.03 Issuance of Stock. Stock purchased under the
Plan will be issued in the name of the participant, or, if
the participant so directs by written notice to the Human
Resources Director of the Company prior to the Offering
Termination Date applicable thereto, in the names of the
participant and one such other person as may be designated
by the participant, as joint tenants with rights of
survivorship or as tenants by the entireties, to the extent
permitted by applicable law.
10.04 Restrictions on Exercise. The Board of
Directors may, in its discretion, require as conditions to
the exercise of any option that the shares of Common Stock
reserved for issuance upon the exercise of the option shall
have been duly listed, upon official notice of issuance,
upon a stock exchange, and that either:
(a) a registration statement under the Securities
Act of 1933, as amended, with respect to said shares shall
be effective, or
<PAGE>
(b) the participant shall have represented at the
time of purchase, in form and substance satisfactory to the
Company, that it is his intention to purchase the shares for
investment and not for resale or distribution.
ARTICLE XI
ADMINISTRATION
11.01 Appointment of Committee. The Board of
Directors shall appoint a committee (the "Committee") to
administer the Plan, which shall consist of either (a) the
full Board of Directors or (b) no fewer than two members of
the Board of Directors.
11.02 Authority of Committee. Subject to the
express provisions of the Plan, the Committee shall have
plenary authority in its discretion to interpret and
construe any and all provisions of the Plan, to adopt rules
and regulations for administering the Plan, and to make all
other determinations deemed necessary or advisable for
administering the Plan. The Committee's determination on
the foregoing matters shall be conclusive.
11.03 Rules Governing the Administration of the
Committee. The Board of Directors may from time to time
appoint members of the Committee in substitution for or in
addition to members previously appointed and may fill
vacancies, however caused, in the Committee. The Committee
may select one of its members as its Chairman and shall hold
its meetings at such times and places as it shall deem
advisable and may hold telephonic meetings. A majority of
its members shall constitute a quorum. All determinations
of the Committee shall be made by a majority of its members.
The Committee may correct any defect or omission or
reconcile any inconsistency in the Plan, in the manner and
to the extent it shall deem desirable. Any decision or
determination reduced to writing and signed by a majority of
the members of the Committee shall be as fully effective as
if it had been made by a majority vote at a meeting duly
called and held. The Committee may appoint a secretary and
shall make such rules and regulations for the conduct of its
business as it shall deem advisable.
11.04 Limited Liability; Indemnification. To the
maximum extent permitted by Maryland law, neither the
Company, Board or Committee nor any of its members shall be
liable for any action or determination made in good faith
with respect to this Plan. In addition to such other rights
of indemnification that they may have, the members of the
Board and Committee shall be indemnified by the Company to
the maximum extent permitted by Maryland law against any and
all liabilities and expenses incurred in connection with
their service in connection with the Plan in such capacity.
<PAGE>
ARTICLE XII
MISCELLANEOUS
12.01 Designation of Beneficiary. A participant
may file a written designation of a beneficiary who is to
receive any Common Stock which has not been issued or cash
which is in the participant's account at the time of the
participant's death. Such designation of beneficiary may be
changed by the participant at any time by written notice to
the Human Resources Director of the Company. Upon the death
of a participant and upon receipt by the Company of proof of
identity and existence at the participant's death of a
beneficiary validly designated by him under the Plan, the
Company shall deliver such stock and/or cash to such
beneficiary. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death,
the Company shall deliver such stock and/or cash to the
executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its
discretion, may deliver such stock and/or cash to the spouse
or to any one or more dependents of the participant as the
Company may designate. No beneficiary shall, prior to the
death of the participant by whom he has been designated,
acquire any interest in the stock or cash credited to the
participant under the Plan.
12.02 Transferability. Neither payroll deductions
credited to a participant's account nor any rights with
regard to the exercise of an option or to receive stock
under the Plan may be assigned, transferred, pledged, or
otherwise disposed of in any way by the participant other
than by will or the laws of descent and distribution. Any
such attempted assignment, transfer, pledge or other
disposition shall be without effect, except that the Company
may treat such act as an election to withdraw funds in
accordance with Section 7.02.
12.03 Use of Funds. All payroll deductions
received or held by the Company under this Plan may be used
by the Company for any corporate purpose and the Company
shall not be obligated to segregate such payroll deductions.
12.04 Adjustment Upon Changes in Capitalization.
(a) If, while any options are outstanding, the
outstanding shares of Common Stock of the Company have
increased, decreased, changed into, or been exchanged for a
different number or kind of shares or securities of the
Company through reorganization, merger, recapitalization,
reclassification, stock split, reverse stock split or
similar transaction, appropriate and proportionate
adjustments may be made by the Committee in the number
and/or kind of shares which are subject to purchase under
outstanding options and on the option exercise price or
prices applicable to such outstanding options. In addition,
in any such event, the maximum number and/or kind of shares
which may be offered in the Offerings described in Articles
IV and Section 10.01 hereof shall also be proportionately
adjusted. No adjustments shall be made for stock dividends.
For the purposes of this Paragraph, any
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distribution of shares to shareholders in an amount
aggregating 20% or more of the outstanding shares shall be
deemed a stock split and any distributions of shares
aggregating less than 20% of the outstanding shares shall be
deemed a stock dividend.
(b) Upon the dissolution or liquidation of the
Company, or upon a reorganization, merger or consolidation
of the Company with one or more corporations as a result of
which the Company is not the surviving corporation, or upon
a sale of substantially all of the property or stock of the
Company to another corporation, the Committee shall take
such action as it deems appropriate and equitable, which
action may include, without limitation, one of the
following: (i) refund of payroll deductions for such
Offering Period; (ii) shortening of the Offering Period or
(iii) providing that the holder of each option then
outstanding under the Plan will thereafter be entitled to
receive at the next Offering Termination Date upon the
exercise of such option for each share as to which such
option shall be exercised, as nearly as reasonably may be
determined, the cash, securities and/or property which a
holder of one share of the Common Stock was entitled to
receive upon and at the time of such transaction. In the
event the Plan is continued after such event, the Board of
Directors shall take such steps in connection with such
transactions as the Board shall deem necessary to assure
that the provisions of this Section 12.04 shall thereafter
be applicable, as nearly as reasonably may be determined, in
relation to the said cash, securities and/or property as to
which such holder of such option might thereafter be
entitled to receive.
12.05 Amendment and Termination.
(a) Action by Board. The Board of Directors
shall have complete power and authority to terminate or
amend the Plan; provided, however, that the Board of
Directors shall not, without the approval of the
stockholders of the Company (i) increase the maximum number
of shares which may be issued under the Plan or under any
Offering (except pursuant to Section Section 4.02 and
12.04); or (ii) amend the requirements as to the class of
employees eligible to purchase stock under the Plan. Upon
termination of the Plan during an Offering Period, at the
discretion of the Committee, cash balances in participants
accounts may be refunded or the Offering Termination Date
may be accelerated. No termination, modification, or
amendment of the Plan may otherwise, without the consent of
an Employee then having an option under the Plan to purchase
stock, adversely affect the rights of such Employee under
such option.
(b) Automatic Termination. The Plan shall
automatically terminate on the earlier of October 1, 2008,
or the issuance of the maximum number of shares available
under the Plan pursuant to Section 10.01.
12.06 Tax Withholding. At the time an option is
exercised or at the time some or all of the Company's Common
Stock issued under the Plan is disposed of, the participant
must make adequate provision for the Company's federal,
state, or other tax withholding obligations, if any, which
arise upon the exercise of the option or the disposition of
the
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Common Stock. At any time, the Company may, but shall not
be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet
applicable withholding obligations.
12.07 Disqualifying Disposition. The Committee may
require that a participant notify the Company of any
disposition of shares of Common Stock purchased under the
Plan within a period of two (2) years subsequent to the
respective Offering Commencement Date or one (1) year from
the Offering Termination Date.
12.08 Effective Date. The Plan shall become
effective as of January 1, 1999, subject to approval by the
holders of the majority of the Common Stock present and
represented at a special or annual meeting of the
shareholders held on or before October 1, 1999. If the Plan
is not so approved, the Plan shall be discontinued, any
options which had been issued shall be considered
nonqualified options and any payroll deductions then held by
the Company shall be refunded to the respective Employees.
12.09 No Employment Rights. The Plan does not,
directly or indirectly, create in any Employee or class of
Employees any right with respect to continuation of
employment by the Company, and it shall not be deemed to
interfere in any way with the Company's right to terminate,
or otherwise modify, an Employee's employment at any time.
12.10 Exclusion from Retirement and Fringe Benefit
Computation. No portion of the award of options under this
Plan, or the proceeds from the sale of stock purchased under
the Plan, shall be taken into account as "wages," "salary"
or "compensation" for any purpose, whether in determining
eligibility, benefits or otherwise, under (i) any pension,
retirement, profit sharing or other qualified or non-
qualified plan of deferred compensation, (ii) any employee
welfare or fringe benefit plan including, but not limited
to, group insurance, hospitalization, medical, and
disability, or (iii) any form of extraordinary pay
including, but not limited to, bonuses, sick pay and
vacation pay.
12.11 Effect of Plan. The provisions of the Plan
shall, in accordance with its terms, be binding upon, and
inure to the benefit of, all successors of each Employee
participating in the Plan, including, without limitation,
such Employee's estate and the executors, administrators or
trustees thereof, heirs and legatees, and any receiver,
trustee in bankruptcy or representative of creditors of such
Employee.
12.12 Expenses. Expenses of administering the Plan
shall be borne by the Company except that brokerage expenses
incurred in connection with the purchase of shares shall be
included as part of the cost of the shares to participating
Employees.
12.13 Governing Law. The law of the State of
Maryland will govern all matters relating to this Plan
except to the extent it is superseded by the laws of the
United States.
