<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ACE*Comm Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
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 18, 1999, at 10:00 a.m. local time for the
following purposes:
1. To elect one Class I director and two Class
III directors, to serve until the 2000, and
2002 Annual Stockholders' Meetings,
respectively, and until their successors are
elected and qualify;
2. To consider and act upon a proposal to amend
the Amended and Restated Omnibus Stock Plan;
3. To consider and act upon a proposal to amend
the Amended and Restated Stock Option Plan
for Directors;
4. To consider and act upon a proposal to
ratify the appointment of Ernst & Young LLP
as the Company's independent auditors for
the fiscal year ending June 30, 2000; and
5. 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 4,
1999, 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 18, 1999
Gaithersburg, Maryland
<PAGE> 3
ACE*COMM CORPORATION
704 Quince Orchard Road
Gaithersburg, Maryland 20878
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 18, 1999
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 18, 1999 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 18, 1999. 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 4, 1999
are entitled to vote at the meeting (the "Record Date"). As of the Record Date,
the Company had outstanding 8,910,559 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 4, 1999, 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 4, 1999. 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> 4
<TABLE>
<CAPTION>
NAME AND ADDRESS(1) AMOUNTS AND NATURE OF PERCENT OF OUTSTANDING
- ------------------- --------------------- ----------------------
OWNERSHIP SHARES
--------- ------
DIRECTORS, NOMINEES AND NAMED
EXECUTIVE OFFICERS
<S> <C> <C>
George T. Jimenez 2,222,825(2) 24.67%
Paul G. Casner, Jr. 32,000(3) *
Harry M. Linowes 2,000(4) *
William R. Newlin 73,238(5) *
Gilbert A. Wetzel 42,500(6) *
Thomas V. Russotto 199,597(7) 2.22
S. Joseph Dorr 506,607(8) 5.65
James K. Eckler 29,500(9) *
ALL DIRECTORS, NOMINEES AND EXECUTIVE 3,152,436(5)(10) 35.38
OFFICERS AS A GROUP (10 PERSONS)
OTHER 5% STOCKHOLDERS
CEO Venture Fund II 1,254,546(11) 14.08
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 99,863 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.
(3) Includes 16,500 shares issuable upon the exercise of options.
(4) Includes 2,000 shares held directly, as to which Mr. Linowes has
sole voting and investment power. Does not include 300 shares held
by his wife in a retirement account, as to which his wife has sole
voting and investment power and as to which Mr. Linowes disclaims
beneficial ownership.
(5) Includes 3,000 shares issuable upon the exercise of options.
Includes only shares held individually. Does not include shares held
by CEO Venture Fund II (see note 11).
2
<PAGE> 5
(6) Includes 15,000 shares issuable upon the exercise of options.
(7) Includes 68,970 shares issuable upon the exercise of options.
(8) Includes 48,065 shares issuable upon the exercise of options.
(9) Includes 29,500 shares issuable upon the exercise of options.
(10) Includes 303,444 shares issuable upon the exercise of options.
(11) 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. 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 Harry M. Linowes for election
as a Class I director and George T. Jimenez and William R. Newlin for election
as Class III directors.
The directors are divided into three classes, denominated as Class
I, Class II, and Class III. Current terms expire as follows: Class I expires at
the 2000 annual meeting of stockholders; Class II expires at the 2001 annual
meeting of stockholders; and Class III expires at the Annual Meeting. 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: Gilbert A. Wetzel and Harry M. Linowes; Class II: Paul G.
Casner, Jr.; Class III: George T. Jimenez and William R. Newlin. The Board
comprises five directors. Mr. Linowes was elected by the Board as a Class I
director to fill a vacancy on the Board, effective as of January 26, 1999. At
the Annual Meeting, Messrs. Jimenez and Newlin and Mr. Linowes will be subject
to election for three-year and one-year terms, respectively. 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 18, 1999, unless
authority is withheld, for the election of Harry M. Linowes as a Class I
director, and George T. Jimenez and William R. Newlin as Class III directors.
Messrs. Linowes, Jimenez and Newlin each has consented to the nomination and has
informed the Company that he will be available to serve as a director. If any
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.
3
<PAGE> 6
<TABLE>
<CAPTION>
NAME OF DIRECTOR DIRECTOR CLASS OF
- ---------------- -------- --------
OR NOMINEE AGE SINCE DIRECTOR RECENT BUSINESS EXPERIENCE
- ---------- --- ----- -------- --------------------------
<S> <C> <C> <C> <C>
George T. Jimenez 63 1983 III Chief Executive Officer of the Company since 1996, and
Treasurer from 1983 to present. President from 1983 to
September 1999.
Paul G. Casner, Jr. 61 1983 II Executive Vice President, Operations, of DRS
Technologies, Inc., a defense electronics corporation,
since December 1998; President of DRS Electronic Systems
Group, a division of DRS Technologies, from 1994 to
1998; and Chairman and Chief Executive Officer of
Technology Applications & Service Company from March
1991 to September 1993.
Gilbert A. Wetzel 67 1992 I Executive Vice President, 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 R. Newlin 58 1998 III President and Chief 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.
Harry M. Linowes 71 1999 I Consultant. Senior Partner (1992 to retirement in 1996)
and Managing Partner (1986 to 1992) of BDO Seidman,
Accountants and Consultants.
</TABLE>
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. Casner, Linowes, Newlin and Wetzel. The Audit Committee
met three times during fiscal 1999. The Compensation Committee reviews the
compensation of executives of the Company, makes recommendations to the Board of
Directors with respect to standards for setting
4
<PAGE> 7
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. Casner, Linowes, Newlin and Wetzel, none of whom is employed by the
Company. The Compensation Committee met three times during fiscal 1999.
During fiscal year 1999, the Board of Directors held 26 meetings.
Except for Mr. Linowes, all directors were in attendance at 75% or more of the
Board and Committee meetings of which he was a member.
Outside directors receive $12,000 each per fiscal year, 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 outside 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 (the
"Directors' Plan"). In addition, if the proposed amendment to the Directors'
Plan is approved, each Director will receive an option for 10,000 shares as of
the Annual Meeting date (the "1999 Options"). Each option becomes exercisable in
equal installments of 3,000 shares (or one third of the option in the case of
the 1999 options) 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. Linowes and Newlin would each be granted on the date of the
Annual Meeting an option to purchase 3,000 and 9,000 shares of Common Stock,
respectively. In addition, if the proposed amendment to the Directors' Plan is
approved, Messrs. Casner, Linowes, Newlin and Wetzel would each be granted on
the date of the Annual Meeting an option to purchase 10,000 shares of Common
Stock.
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 broad-based employee ownership
of Company stock through a stock option program in which key employees are
eligible to participate. In addition, all employees (excluding those possessing
5% or more total voting power or value of all classes of stock of the Company)
are eligible to purchase stock through payroll deductions under the Company's
Qualified Employee Purchase Plan.
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 related 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.
5
<PAGE> 8
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 typically participate in a cash bonus plan. Because of
the Company's performance in fiscal 1998, no cash bonus plan was put in place
for fiscal 1999 and officers did not receive cash bonuses for fiscal 1999.
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. 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.
No performance options were granted in fiscal 1999 and the vesting
of no performance options granted previously were accelerated in fiscal 1999.
In connection with the hiring and retention of certain officers, the
Company granted certain options that are not performance based. Messrs. Russotto
and Eckler were each granted such options, the terms of which are reflected in
"-- Option Grants in Last Fiscal Year."
In July 1998, the voluntary salary reductions which had been
initiated for all executive officers during fiscal 1998 were eliminated for all
of the executive officers except Mr. Jimenez, who elected to remain on reduced
salary through the end of fiscal year 1999.
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. Because of the
Company's performance in fiscal 1998, Mr. Jimenez was not eligible to receive a
cash bonus and received no performance-based options for fiscal 1999 and the
vesting of no performance options granted previously were accelerated in fiscal
1999.
COMPENSATION COMMITTEE
Paul G. Casner, Jr.
Harry M. Linowes
William R. Newlin
Gilbert A. Wetzel
6
<PAGE> 9
CASH COMPENSATION
Cash compensation paid or accrued for services in all capacities for
1997, 1998 and 1999 fiscal years for the Chief Executive Officer and each of the
other three 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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
---------
COMPENSATION
------------
ANNUAL COMPENSATION(1) AWARDS
-------------------------------------------------------- ------------
FISCAL SALARY(2) BONUS OTHER NUMBER OF ALL
------ --------- ----- ----- --------- ---
NAME YEAR ANNUAL SHARES OTHER
---- ---- ------ ------ -----
AND COMPEN- UNDERLYING COMPEN-
--- ------- ---------- -------
PRINCIPAL POSITION SATION OPTIONS SATION(3)
------------------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
George T. Jimenez 1999 $30,115 $0 -- 0 $12,469
Chief Executive Officer and 1998 155,654 0 -- 26,628 11,521
Chairman of the Board 1997 190,000 173,114(4) -- 32,637 15,046
Thomas V. Russotto 1999 167,391 $0 -- 150,000 3,757
Executive Vice President - 1998 157,688 0 -- 17,445 1,453
Technology 1997 145,000 96,632 -- 26,922 4,420
S. Joseph Dorr 1999 128,693 $0 -- 0 3,642
Executive Vice President - 1998 117,421 0 -- 10,331 1,253
Business Development 1997 128,200 65,362 -- 19,704 4,088
James K. Eckler 1999 105,577(5) $0 -- 88,500 0
Executive Vice President - 1998 -- -- -- -- --
Finance and Administration 1997 -- -- -- -- --
</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) Reflects a voluntary reduction in salary for fiscal 1998 for Messrs.
Jimenez, Dorr and Russotto. For fiscal 1999, reflects a voluntary
reduction in salary for Mr. Jimenez.
(3) Consists of, as to calendar years 1997 and 1999, 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 1999, the amounts paid were as follows: (i) Mr. Jimenez,
$1,298 for the 401(k) plan, $6,975 for life insurance and $4,196 for
disability insurance; (ii) Dr. Russotto, $2,400 for the 401(k) plan
and $1,357 for disability insurance, and (iii) Mr. Dorr, $1,821 for
the 401(k) plan and $1,170 for disability insurance.
7
<PAGE> 10
(4) 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)).
(5) Reflects compensation beginning October 19, 1998, when Mr. Eckler
was employed.
OPTION GRANTS
The following table shows, as to the Named Executive Officers, the
options to purchase Common Stock granted by the Company in fiscal 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------
NUMBER OF PERCENTAGE OF POTENTIAL REALIZABLE VALUE AT
--------- ------------- -----------------------------
SHARES TOTAL OPTIONS ASSUMED RATES OF STOCK PRICE
------ ------------- ----------------------------
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR OPTION
---------- ---------- -------- -----------------------
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION TERM(1)
------- ------------ --------- ---------- -------
NAME GRANTED FISCAL 1999 SHARE DATE
- ---- ------- ----------- ----- ----
0% 5% 10%
-- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
George T. Jimenez 0 0% $0
Thomas V. Russotto 150,000(2) 18.47 2.00 3/24/09 $0 $188,700 $478,050
S. Joseph Dorr 0 0 0
James K. Eckler 88,500(3) 10.90 3.125 3/3/09 0 173,902 440,730
0 0 0
</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:
<TABLE>
<CAPTION>
Exercise price Term of Option 0% 5% 10%
-------------- -------------- -- -- ---
<S> <C> <C> <C> <C> <C>
$ 2.00 10 years $0 $3.258 5.187
3.125 10 years 0 5.090 8.105
</TABLE>
(2) Options vest and become exercisable in one-third increments as of
7/22/99, 7/22/00 and 7/22/01, provided that the officer is then
employed by the Company (or sooner, under certain circumstances such
as a change of control of the Company or certain events of
termination). (see "-Employment Agreements, Change in Control and
Separation Arrangements.)
(3) Options vest and become exercisable in one-third increments as of
8/13/99, 10/7/00 and 10/7/01 (or sooner, under certain circumstances
such as a change of control of the Company or certain events of
termination), provided that the officer is then employed by the
Company. (see "-Employment Agreements, Change in Control and
Separation Arrangements.)
8
<PAGE> 11
FISCAL 1999 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
1999 fiscal year-end option values.
FISCAL 1999 STOCK OPTION EXERCISES AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF SHARES
------ ----------------
ACQUIRED UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
-------- ---------------------- --------------------
ON VALUE OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
-- ----- ----------------- -----------------------
NAME EXERCISE REALIZED(1) YEAR-END FISCAL YEAR-END(2)
- ---- -------- ----------- -------- ------------------
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
George T. Jimenez 33,413 $78,855 94,000 36,649 $0 $0
Thomas V. Russotto 0 0 13,190 181,177 0 196,950
S. Joseph Dorr 0 0 45,457 21,331 0 0
James K. Eckler 0 0 0 88,500 0 16,638
</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.
(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, 1999.
EMPLOYMENT AGREEMENTS, CHANGE IN CONTROL AND SEPARATION ARRANGEMENTS
The Company entered into an employment agreement with Thomas
Russotto, effective October 1, 1998, for a three-year term. Under the terms of
the agreement, Dr. Russotto is entitled to a minimum annual base salary of
$185,000, certain perquisites, and is eligible for an annual bonus of up to
$100,000 payable in cash or shares of Common Stock of equivalent value and an
option for up to 22,000 shares, based on achievement of financial performance
and personal objectives determined in advance by the Board of Directors and the
Chief Executive Officer. Pursuant to the Agreement, Dr. Russotto was granted on
March 23, 1999, a non-qualified stock option exercisable for 150,000 shares of
common stock of the Company, vesting in one-third increments on July 22 of the
years 1999, 2000 and 2001, respectively (or sooner under certain circumstances).
In the event of a change of control, Dr. Russotto is entitled to remain eligible
for a minimum stated annual bonus, to participate in benefit plans at least as
favorable as he participated in prior to the change of control, and to certain
relocation benefits. In the event the Company terminates Dr. Russotto other than
for cause (as defined in the Agreement) prior to a change of control, Dr.
Russotto is entitled to a lump sum payment equal to one year's salary at the
rate then in effect and, depending on the date of termination, to acceleration
of vesting of certain of his option shares granted under the Agreement. If
following a change of control Dr. Russotto is terminated other than for cause
(as defined in the Agreement) or terminates his employment for good reason (as
defined in the Agreement), Dr. Russotto is entitled to a lump sum payment equal
to one year's salary at the rate then in effect and to acceleration of vesting
of the option granted under the Agreement and of certain other options granted
pursuant to the Company's Stock Plan. The Agreement contains certain
confidentiality, non-solicitation and non-compete provisions.
9
<PAGE> 12
The Company entered into an Employment Agreement with James Eckler,
dated as of October 7, 1999. Under the terms of the Agreement, Mr. Eckler is
entitled to a minimum annual base salary of $150,000, certain perquisites, and
is eligible (beginning with respect to the 2000 fiscal year), for an annual
bonus of (1) up to $75,000 payable in cash or shares of Common Stock of the
Company of equivalent value and (2) an option for up to 20,000 shares of Common
Stock, based on achievement of financial performance and personal objectives
determined in advance by the Board of Directors and the Chief Executive Officer.
In connection with his initial hiring, Mr. Eckler was granted as of on March 4,
1999, an incentive stock option exercisable for 88,500 shares of common stock of
the Company, vesting in one-third increments on August 13, 1999, October 7, 2000
and October 7, 2001, respectively (or sooner under certain circumstances). In
the event of a change of control, Mr. Eckler is entitled to remain eligible for
a minimum stated annual bonus, to participate in benefit plans at least as
favorable as he participated in prior to the change of control, and to certain
relocation benefits. In the event the Company terminates Mr. Eckler other than
for cause (as defined in the Agreement) prior to a change of control, Mr. Eckler
is entitled to a lump sum payment equal to one year's salary at the rate then in
effect and, depending on the date of termination and whether the termination is
in anticipation of a change of control (as defined in the Agreement) to
acceleration of vesting of certain of his option shares granted under the
Agreement. If following a change of control Mr. Eckler is terminated other than
for cause (as defined in the Agreement) or terminates his employment for good
reason (as defined in the Agreement), Mr. Eckler is entitled to a lump sum
payment equal to one year's salary at the rate then in effect and to
acceleration of vesting of the option granted under the Agreement. The Agreement
contains certain confidentiality, non-solicitation and non-compete provisions.
CERTAIN TRANSACTIONS
In September 1998, Mr. Jimenez agreed that in the event that
alternative financing could not be obtained by the Company in a timely manner
and that, at any time during the next twelve months the Company's working
capital became inadequate to support the business at its then current level, he
would make available through a loan guarantee or a loan, 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. Mr. Jimenez also 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 had agreed to
reimburse Mr. Jimenez for any amounts that he was required to pay under such
guarantee. These arrangements expired as of November 2, 1998, when alternative
Company funding was secured.
10
<PAGE> 13
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
<TABLE>
<CAPTION>
1996 1997 1998 1999
<S> <C> <C> <C> <C>
ACE*COMM CORP. 100.00 261.67 75.00 44.17
NASDAQ TELECOMMUNICATIONS 100.00 125.72 190.43 280.32
NASDAQ MARKET INDEX 100.00 132.29 175.37 245.75
</TABLE>
ASSUMES $100 INVESTED ON AUGUST 14, 1996
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING JUNE 30, 1999
11
<PAGE> 14
SECTION 16A BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Mr. Eckler filed a Form 3 late, reporting no transactions.
PROPOSAL TO AMEND THE AMENDED AND RESTATED OMNIBUS STOCK PLAN
The Board of Directors finds it desirable to amend the Company's
Amended and Restated Omnibus Stock Plan (the "Stock Plan"), to increase the
number of shares issuable pursuant to options granted under the plan. The Board
of Directors has approved and recommends that the stockholders approve the
amendment to the Plan. The maximum number of shares of Common Stock in respect
of which stock-based awards may be granted under the Stock Plan will be
increased from 3,200,000 to 4,200,000. The shares of Common Stock to be
delivered under the plan are available from the authorized but unissued shares
of Common Stock.
A copy of the Stock Plan is attached as an exhibit hereto and the
description set forth below is qualified in its entirety by reference to such
Plan.
The Stock Plan is administered by the Compensation Committee of the
Board of Directors (the "Committee"), upon which no director who is an officer
of the Company may serve, and which comprises only Directors who are
"non-employee directors" within the meaning of Rule 16b-3 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and who are "outside
directors" within the meaning of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"). All employees of the Company, including employee
directors, are eligible to participate in the Stock Plan. The Committee's
determinations of which eligible individuals are granted awards and the terms
thereof are based on each individual's present and potential contribution to the
success of the Company.
Stock options may be granted under the Stock Plan at the discretion
of the Committee and subject to such terms and conditions determined by the
Committee and set forth in a grant agreement. Options granted under the Stock
Plan may be either nonqualified options or incentive stock options. The
Committee has discretion to fix the exercise price of such options at a price
not less than 100% of the fair market value of the underlying shares of Common
Stock at the time of grant thereof. The closing price of the Common Stock on
October 6, 1999 was $3.813. The Committee has broad discretion as to the terms
and conditions upon which options shall be exercisable, but under no
circumstances will an incentive stock option have a term exceeding 10 years from
date of grant.
The option exercise price may be satisfied in cash or, in the
discretion of the Committee, by exchanging shares of Common Stock owned or
surrendered by the optionee, by a combination of cash and shares of Common Stock
or by such other means as the Committee may prescribe. The ability to pay the
option exercise price in shares of Common Stock would, if permitted by the
Committee, enable an optionee to engage in a series of successive
stock-for-stock exercises of an option (sometimes referred to as "pyramiding")
and thereby fully exercise an option with little or no cash investment. The
Company also may make or guarantee loans to optionees to assist optionees in
exercising stock options.
The terms of an option may provide for the automatic grant of a new
award, exercisable for not more than the number of shares tendered when the
exercise price of the option and/or related tax obligation is paid by tendering
shares of Common Stock (sometimes referred to as "reload options"), subject to
certain limitations set forth in the Stock Plan.
Incentive stock option awards under the Stock Plan must comply with
Section 422 of the Code. Incentive stock option awards made to an optionee who
owns more than 10% of the outstanding stock of the Company must have an exercise
price that is not less than 110% of the fair market value of the underlying
shares on the date of grant, a term not exceeding five years, and the aggregate
fair market value
12
<PAGE> 15
of shares of Common Stock with respect to which all incentive stock options
first become exercisable by an optionee in any calendar year shall either not
exceed $100,000 or be treated as non-qualified options.
The Committee also may grant stock appreciation rights. Upon the
exercise of a stock appreciation right with respect to a share of Common Stock,
a participant would be entitled to receive the excess of the fair market value
of such shares over the base price of such right, which is specified by the
Committee upon grant and may not be less than 100% of the fair market value of
the underlying shares at the date of grant. The Committee has the authority to
determine whether the value of a stock appreciation right is paid in cash or
shares of Common Stock or a combination of both.
The Committee also has discretion to make contingent grants of
performance shares which will be earned to the extent performance goals
established by the Committee are achieved over a period of time specified by the
Committee. The Committee will have discretion to determine the value of each
performance share, to adjust the performance goals as it deems equitable to
reflect events affecting the Company or changes in law or accounting principles
or other factors, and to determine the number of performance shares which have
been earned based on performance relative to such performance goals. The value
of performance shares that are earned may, in the discretion of the Committee,
be paid in the form of cash, shares of Common Stock, or a combination of both.
Awards of stock under the Stock Plan will be made at the discretion
of the Committee and may be subject to forfeiture and restrictions on transfer.
In general, a participant who has been granted restricted stock will from the
date of grant have the benefits of ownership in respect of such shares,
including the right to vote such shares and to receive dividends and other
distributions thereon, subject to the restrictions set forth in the Stock Plan
and in the instrument evidencing such award. The shares of restricted stock will
be held by the Company, or by an escrow agent designated by the Company, during
the restricted period and may not be sold, assigned, transferred, pledged, or
otherwise encumbered until the restrictions have lapsed. The Committee has
authority to determine the duration of the restricted period and the conditions
under which stock may be forfeited, as well as the other terms and conditions of
such awards.
The Stock Plan also authorizes the Committee to grant to
participants awards that are valued in whole or in part by reference to, or are
otherwise based on, the value of shares of Common Stock ("Stock Unit Awards").
The Committee has discretion to determine the participants to whom Stock Unit
Awards are to be made, the times at which such awards are to be made, the size
of such awards, and all other conditions of such awards, including any
restrictions, deferral periods, or performance requirements. The provisions of
the Stock Unit Awards will be subject to such rules and regulations as the
Committee shall determine at the time of grant.
Any award under the Stock Plan may provide that the participant has
the right to receive currently or on a deferred basis dividends or dividend
equivalents and/or other cash payments in addition to or in lieu of such award,
all as the Committee shall determine.
If the Committee determines that any stock split, stock dividend or
other distribution (whether in the form of cash, securities, or other property),
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of shares, issuance of warrants or other
rights to purchase shares at a price below fair market value, or other similar
corporate event affects the Common Stock such that an adjustment is required in
order to preserve the benefits intended under the Stock Plan, then the Committee
has discretion to make (i) equitable adjustments (a) in the number and kind of
shares that may be the subject of future awards under the Stock Plan or (b) the
number and kind of shares (or other securities or property) subject to
outstanding awards and the respective grant of exercise prices thereof and/or,
(ii) if appropriate, to provide for the payment of cash to a participant.
The Committee has broad discretion as to the specific terms and
conditions of each award and any rules applicable thereto, including but not
limited to the effect thereon of the death, retirement, or other termination of
employment of the participant and the effect, if any, of a change in control of
the Company.
13
<PAGE> 16
The terms of each award are to be evidenced by a written instrument delivered to
the participant. The awards authorized under the Stock Plan are subject to
applicable tax withholding by the Company which may be satisfied by the
withholding of shares issuable under the Stock Plan.
No award may be granted under the Stock Plan after the tenth
anniversary of the effective date of the Stock Plan.
The Stock Plan may be amended or terminated at any time by the Board
of Directors, except that no amendment may be made without stockholder approval
if such approval is necessary to comply with any tax or regulatory requirement.
The Stock Plan is not subject to any provision of the Employee
Retirement Income Security Act of 1974, as amended, and is not qualified under
Section 401(a) of the Code.
Special rules apply to a participant who is subject to Section 16 of
the Exchange Act. Certain additional special rules apply if the exercise price
for an option is paid in shares of Common Stock previously owned by the optionee
rather than in cash.
Counsel has provided the Company with the following brief summary of
the Federal income tax consequences under the Code as currently in effect with
respect to (i) incentive stock options, (ii) non-qualified stock options and
(iii) restricted stock awards:
(i) Incentive Stock Options. No taxable income is realized by the
optionee upon the grant or (unless the optionee is subject to the alternative
minimum tax) exercise of an incentive stock option. If there were no disposition
of the option shares until more than two years after the option is granted and
more than one year after the option is exercised, the gain or loss realized by
the optionee on the sale of such shares would be eligible for long term capital
gain or loss treatment, and the Company would not be entitled to any income tax
deduction by reason of the grant or exercise of the option. The maximum federal
income tax rate on long term capital gain is presently 20 percent.
If the option shares were disposed of in a sale, exchange, gift or
other "disqualifying disposition" prior to the expiration of the
two-years-from-grant/one-year-from-exercise holding period, generally the
optionee would realize taxable ordinary income in the year of such disposition
in an amount equal to the excess (if any) of the fair market value of such
shares at the time of exercise of the option over the option price thereof.
However, if the disposition is a sale or exchange of the type on which a loss,
if sustained, would be recognized to such optionee, ordinary income would be
realized by such optionee in an amount equal to only the gain realized on such
sale or exchange if such gain is less than such excess. The optionee would
realize capital gain on the balance of the gain in a disqualifying disposition
which would be long term capital gain if disposition occurs more than 12 months
from the date of option exercise and short term capital gain if not. The Company
generally would be entitled to a deduction for the year in which a disqualifying
disposition occurs in the amount of the ordinary taxable income to the optionee.
(ii) Non-Qualified Options. No taxable income is realized by the
optionee upon the grant of a non-qualified option. On exercise, the excess of
the fair market value of the shares at the time of exercise over the option
price of such shares would be treated as compensation. Special rules may apply
to a participant who is subject to Section 16 of the Exchange Act. Any amounts
treated as compensation (a) would be taxable at ordinary income tax rates in the
year of exercise, (b) would be subject to withholding for Federal income tax
purposes in the case of an employee, and (c) generally would be an allowable
income tax deduction to the Company. The optionee's tax basis for shares
acquired upon exercise of a non-qualified option would be equal to the option
price paid for the shares plus any amounts treated as compensation. An optionee
would generally be entitled to capital gain treatment on the difference between
his tax basis and the sale price of the shares acquired upon exercise which
would be long term capital gain if the sale occurs more than one year from
exercise and short term capital gain if not.
14
<PAGE> 17
(iii) Restricted Stock Awards. No income would be realized by an
employee in connection with the grant of a restricted stock award. When the
restrictions lapse, the employee would be required to include as taxable
ordinary income the fair market value of such shares at the time the
restrictions lapse. The Company would be entitled to a deduction for Federal
income tax purposes equal to the amount so included in such employee's income.
An employee may, by making a Section 83(b) election within 30 days after the
transfer of stock, choose to recognize income upon the grant of a restricted
stock award. Any appreciation in the stock value after the grant date will be
eligible for capital gain treatment upon the subsequent sale of the stock.
However, if the stock is forfeited later, the loss deduction allowable is
limited to the price paid for the stock (if any) minus any amounts received upon
such forfeiture.
(iv) Payment of Withholding Taxes. The Company may withhold, or
require a participant to remit to the Company, an amount sufficient to satisfy
any Federal, state and local withholding tax requirements. The Committee may
permit a participant to satisfy a tax withholding requirement on exercise of an
option by delivery to the Company of shares of its Common Stock owned by the
participant, including shares the participant is entitled to receive upon
exercise of the option.
(v) Code Section 162(m). Section 162(m) of the Code limits the tax
deduction available for compensation paid to the Company's five most
highly-compensated individuals in excess of $1,000,000. To the extent
practicable, awards under the Stock Plan to designated executives will qualify
as "performance-based" compensation which is excluded from the Section 162(m)
cap on deductibility. Stock options and stock appreciation rights issued under
the Stock Plan are expected to be fully deductible (to the extent otherwise
deductible under the Code) as performance-based.
(vi) Other. To the extent payments which are contingent on a change
in control are determined to exceed certain Code limitations, they may be
subject to a 20% nondeductible excise tax and the Company's deduction with
respect to the associated compensation expense may be disallowed in whole or in
part.
The foregoing discussion summarizes the Federal income tax
consequences of the Stock Plan based on current provisions of the Code which are
subject to change. This summary does not cover any state or local tax
consequences of participation in the Stock Plan.
No benefits have been granted under the Stock Plan pending
stockholder approval of the amendment of the plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO AMEND
THE AMENDED AND RESTATED OMNIBUS STOCK PLAN.
PROPOSAL TO AMEND THE AMENDED AND RESTATED STOCK OPTION PLAN
FOR DIRECTORS
The Board of Directors finds it desirable to amend the Company's
Amended and Restated Stock Option Plan for Directors (the "Directors' Stock
Plan"), to provide for a one-time grant of options at the Annual Meeting. The
Board of Directors has approved and recommends that the stockholders approve the
amendments to the Plan. Under the plan, the Directors currently are eligible to
receive options for 3,000 shares per year, upon election. Under the plan as
proposed to be amended, the directors would receive in addition to such shares a
one-time grant of an option for 10,000 shares as of the Annual Meeting date. The
shares of Common Stock to be delivered under the plan are available from the
authorized but unissued shares of Common Stock.
A copy of the Directors' Stock Plan is attached as an exhibit hereto
and the description set forth below is qualified in its entirety by reference to
the plan.
15
<PAGE> 18
The Directors' Stock Plan is a formula plan, in which only
non-employee Directors, who have been approved by the Chairman of the Board for
participation are eligible. An eligible non-employee Director who is elected (or
re-elected) by the stockholders or appointed by the Board to serve as a Director
on or after July 1, 1997, shall receive an option to purchase 3,000 shares of
Common Stock, multiplied by the number of years for which such Director has then
been elected or appointed to serve, which option shall be granted as of the date
on which such Director has been elected, reelected or appointed, as the case may
be. The number of years in a Director's term of office shall be rounded to the
nearest whole number of years. In addition, as a result of the proposed
amendment, Directors also would receive a one-time grant at the Annual Meeting
of an option for 10,000 shares (the "1999 Options"). The exercise price of each
option granted under the plan shall be equal to the fair market value per share
of the Common Stock on the date of grant of the option.
Each option granted under the Directors' Stock Plan shall become
exercisable in equal installments of 3,000 shares (in the case of options
granted on or after July 1, 1997), or one-third of 10,000 shares in the case of
the 1999 Options, upon each successive anniversary of the date on which such
option was granted (the "Vesting Date"), provided that: (i) the holder still
serves as a Director on such Vesting Date; or (ii) in the event of the
expiration or termination of the holder's term of office (other than by reason
of his or her removal for cause) within 45 days prior to such Vesting Date, such
holder has served as a Director for at least twelve consecutive months as of the
date of the expiration or termination of his or her term of office. All or any
part of an exercisable, but unexercised, installment shall be exercisable at any
time thereafter, except to the extent the option has terminated or expired.
Each option shall expire and terminate, to the extent not then
exercised, upon the earliest of: (1) the expiration of five years following the
date of grant of such option; or (2) the expiration of six months following the
optionee's death, resignation, or removal as a Director for any reason other
than for cause; or (3) the removal of the optionee as a Director for cause.
To exercise an option in whole or in part, the optionee shall give
written notice of exercise to the Secretary of the Company, which notice shall
specify the number of shares as to which the option is being exercised,
accompanied by payment in full of the option Price for such shares in cash. Not
less than 500 shares may be purchased at any one time unless the number
purchased is the total number purchasable under the option. Options are
transferable only by will or the laws of descent and distribution.
In the event of a stock split, stock dividend, reclassification,
reorganization, or other capital adjustment of shares of Common Stock of the
Company, the number of shares of Common Stock covered by each outstanding
option, and the exercise price per share for each such option, shall be
proportionately adjusted without any change in the aggregate option Price.
In the event of any proposed change in control of the Company (as
defined in the plan), the Company shall take such action as it deems appropriate
and equitable to effectuate the purposes of this Plan and to protect the
grantees of options, which action may include, but without limitation, any one
or more of the following: (i) acceleration or change of the exercise dates of
any option; (ii) arrangements with grantees for the payment of appropriate
consideration to them for the cancellation and surrender of any option; and
(iii) in any case where equity securities other than Common Stock of the Company
are proposed to be delivered in exchange for or with respect to Common Stock of
the Company, arrangements providing that any option shall become one or more
options with respect to such other equity securities.
In the event the Company dissolves and liquidates (other than
pursuant to a plan of merger or reorganization), then notwithstanding any
restrictions on exercise set forth in this Plan or any option: (i) each holder
shall have the right to exercise his option, at any time up to ten (10) days
prior to the effective date of such liquidation and dissolution; and (ii) the
Company may make arrangements with the holders for the payment of appropriate
consideration to them for the cancellation and surrender of any option that is
so canceled or surrendered at any time up to ten (10) days prior to the
effective date of such liquidation and dissolution. The Company may establish a
different period (and different conditions) for such exercise,
16
<PAGE> 19
delivery, cancellation, or surrender to avoid subjecting the holder to liability
under Section 16(b) of the Exchange Act. Any option not so exercised, canceled,
or surrendered shall terminate on the last day for exercise prior to such
effective date.
No options may be granted after July 1, 2000. The Board may amend,
revise, suspend or discontinue the Plan, from time to time, provided that no
amendments may be made within six months of the last date the Plan was amended
by the Board, except as required to comply with ERISA or the Internal Revenue
Code, and no amendment may be made without approval of the stockholders, unless
such approval is not required to comply with Rule 16b-3 of the Securities
Exchange Commission, or any successor provision.
Counsel has provided the Company with the following brief summary of
the Federal income tax consequences under the Code as currently in effect:
No taxable income is realized by the optionee upon the grant of an
option. On exercise, the excess of the fair market value of the shares at the
time of exercise over the option price of such shares would be treated as
compensation. Special rules may apply to a participant who is subject to Section
16 of the Exchange Act. Any amounts treated as compensation (a) would be taxable
at ordinary income tax rates in the year of exercise, (b) would be subject to
withholding for Federal income tax purposes, and (c) generally would be an
allowable income tax deduction to the Company. The optionee's tax basis for
shares acquired upon exercise of a non-qualified option would be equal to the
option price paid for the shares plus any amounts treated as compensation. An
optionee would generally be entitled to capital gain treatment on the difference
between his tax basis and the sale price of the shares acquired upon exercise,
provided that the required holding periods are satisfied.
The Company may withhold, or require a participant to remit to the
Company, an amount sufficient to satisfy any Federal, state and local
withholding tax requirements.
The foregoing discussion summarizes the Federal income tax
consequences of the Directors' Stock Plan based on current provisions of the
Code which are subject to change. This summary does not cover any state or local
tax consequences of participation in the Directors' Stock Plan.
If the Directors' Stock Plan is approved by the stockholders,
Messrs. Linowes and Newlin would each be granted on the date of the Annual
Meeting an option to purchase 3,000 and 9,000 shares of Common Stock,
respectively. In addition, Messrs. Casner, Linowes, Newlin and Wetzel would each
be granted on the date of the Annual Meeting an option to purchase 10,000 shares
of Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO AMEND
THE AMENDED AND RESTATED STOCK OPTION PLAN FOR DIRECTORS.
SELECTION OF INDEPENDENT AUDITORS
The Company previously reported in a Current Report on Form 8-K
filed on January 26, 1999 and amended on February 2, 1999, (the "Current
Report") the resignation of its former auditors, PricewaterhouseCoopers LLP
("PwC"), effective January 19, 1999. PwC's reports on the Company's financial
statements for fiscal years 1997 and 1998 did not contain an adverse opinion or
a disclaimer of opinion, and were not qualified or modified as to uncertainty,
audit scope, or accounting principles. Furthermore, during those fiscal years
and any subsequent interim period preceding the resignation of PwC, there were
no disagreements with PwC on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of PwC, would have caused
them to make reference to the subject matter of the disagreements in connection
with their report.
17
<PAGE> 20
During the 1997 and 1998 fiscal years, and through January 19, 1999,
there were no reportable events within the meaning of Regulation S-K Item
304(a)(1)(v), except to the extent described in the Current Report. The Current
Report cites a draft report presented by PwC to management and the Company's
Audit Committee prepared in connection with its fiscal 1998 audit describing
certain material weaknesses in the Company's internal accounting control
structure, including recommendations (i) as to accounting and finance personnel
needs and staff expansion, (ii) that the Company formally document its revenue
recognition policies and procedures and ensure adherence to such policies, (iii)
that the Company further formalize and document its software capitalization
policy, and (iv) that the Company enhance the controls surrounding job costing.
The Current Report further reports that in connection with its
review of the Company's first quarter ended September 30, 1998, PwC had advised
the Company that there were certain areas described in the Current Report (the
"first quarter items") relating to the revenue recognized with respect to three
contracts, certain items in the account receivable reserve, the software
capitalization asset, and to the existence of a letter received from the
Company's then-Controller which had not been provided to PwC, where information
came to their attention that, if further investigated, may materially impact the
fairness or reliability of the financial statements for the first quarter and
that, as of January 19, 1999, PwC had not completed its investigation of such
information (PwC noted in the Current Report that it had not undertaken, and was
not obligated to undertake such an investigation). Although PwC did not discuss
each of the specific first quarter items with each of the members the Board of
Directors or Audit Committee of the Company, PwC discussed the subject matter
with the then-Chairman of the Audit Committee and with the Chief Executive
Officer and Chairman of the Board of Directors. The Company authorized PwC fully
to respond to inquiries by a successor accountant regarding the subject matter
of each of the first quarter items.
The Company carefully and thoroughly reviewed the issues referred to
above and described in more detail in its Current Report. In its Current Report,
the Company presented responses to the issues raised. In addition, as the
Company also previously reported, in order to assist the Company's Audit
Committee in ensuring that these issues were adequately addressed by management,
Ernst & Young LLP ("E&Y") was engaged through counsel to perform a review of
certain accounting matters relating to the first and second quarters of fiscal
1999 and the actions being taken by the Company to address the issues in the PwC
draft report. E&Y completed its review and, based on a consideration of various
factors, including the results of that review and presentations by management of
the Company, the Board of Directors concluded that management had adequately
addressed these issues.
Ernst & Young was appointed as the Company's new independent
accountants for fiscal year 1999 in May 1999. Ernst & Young 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, 2000. 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.
Ernst & Young LLP is expected to have a representative present at
the meeting and will respond to questions at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPOINTMENT OF
ERNST & YOUNG LLP AS INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR
ENDING JUNE 30, 2000.
18
<PAGE> 21
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 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 Stock Plan and of the Directors' Stock Plan
requires the affirmative vote of a majority of the votes present at the Annual
Meeting. The ratification of the appointment of Ernst & Young LLP as independent
accountants of the Company requires the affirmative vote of a majority of the
votes cast at the meeting. Abstentions or broker non-votes will be disregarded
for purposes of determining approval of the aforementioned matters, except in
the case of the approval of the stock plans, in which case an abstention or
broker non-vote will be deemed present and will have the effect of a vote
against the proposal.
ADVANCE NOTICE OF MATTERS TO BE PRESENTED AT THE 1999 ANNUAL MEETING OF
STOCKHOLDERS
Advance notice of matters 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 not less than 20 days nor more
than 30 days prior to the meeting. A stockholder's notice must be addressed to
the Secretary and set forth as to each matter the stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and address of the stockholder proposing
such business, (iii) the class and number of shares of the Corporation which are
beneficially owned by the stockholder, and (iv) any material interest of the
stockholder in such business.
STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING OF STOCKHOLDERS
Stockholder proposals to be presented at the 2000 Annual Meeting of
Stockholders must be received at the Company's executive offices at 704 Quince
Orchard Road, Gaithersburg, Maryland 20878 by June 15, 2000 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 18, 1999
19
<PAGE> 22
Exhibit A
ACE*COMM CORPORATION
AMENDED AND RESTATED OMNIBUS STOCK PLAN
1. Establishment, Purpose and Types of Awards
ACE*COMM CORPORATION hereby establishes the AMENDED AND RESTATED
ACE*COMM CORPORATION OMNIBUS STOCK PLAN (the "Plan"). The purpose of the Plan is
to promote the long-term growth and profitability of ACE*COMM CORPORATION (the
"Corporation") by (i) providing key people with incentives to improve
stockholder value and to contribute to the growth and financial success of the
Corporation, and (ii) enabling the Corporation to attract, retain and reward the
best available persons for positions of substantial responsibility.
The Plan permits the granting of stock options (including
nonqualified stock options and incentive stock options qualifying under Section
422 of the Code), stock appreciation rights (including free-standing, tandem and
limited stock appreciation rights), restricted or unrestricted stock awards,
phantom stock, performance awards, or any combination of the foregoing
(collectively, "Awards").
2. Definitions
Under this Plan, except where the context otherwise indicates, the
following definitions apply:
(a) "Award" shall mean any stock option, stock appreciation right,
stock award, phantom stock award, or performance award.
(b) "Board" shall mean the Board of Directors of the Corporation.
(c) "Change in Control" shall mean (i) any sale, exchange or other
disposition of substantially all of the Corporation's assets; or (ii) any
merger, share exchange, consolidation or other reorganization or business
combination in which the Company is not the surviving or continuing corporation,
or in which the Corporation's stockholders become entitled to receive cash or
securities of another issuer in exchange for their stock of the Company.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended,
and any regulations issued thereunder.
(e) "Committee" shall mean the compensation committee of the Board;
provided, however, that in the event all the members of such compensation
committee do not constitute both "Non-Employee Directors" within the meaning of
Rule 16b-3 and "outside directors" within the meaning of Section 162(m) of the
Code, than the term "Committee" shall mean such other committee of two or more
Board members appointed by the Board to administer the Plan whose members do
constitute both "Non-Employee Directors" within the meaning of Rule 16b-3 and,
to the extent that Section 162(m) of the Code is applicable to Awards granted
under the Plan, "outside directors" within the meaning of Section 162(m) of the
Code.
(f) "Common Stock" shall mean shares of common stock of the
Corporation, par value of $0.01 per share.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(h) "Fair Market Value" of a share of the Corporation's Common Stock
for any purpose on a particular date shall be determined in a manner such as the
Committee shall in good faith determine to be appropriate; provided, however,
that if the Common Stock is publicly traded, then Fair Market Value shall
A-1
<PAGE> 23
mean the last reported sale price per share of Common Stock, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on a national securities exchange or included for quotation
on the Nasdaq-National Market, or if the Common Stock is not so listed or
admitted to trading or included for quotation, the last quoted price, or if the
Common Stock is not so quoted, the average of the high bid and low asked prices,
regular way, in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System or, if such
system is no longer in use, the principal other automated quotations system that
may then be in use or, if the Common Stock is not quoted by any such
organization, the average of the closing bid and asked prices, regular way, as
furnished by a professional market maker making a market in the Common Stock as
selected in good faith by the Committee or by such other source or sources as
shall be selected in good faith by the Committee; and provided further, that in
the case of incentive stock options, the determination of Fair Market Value
shall be made by the Committee in good faith in conformance with the Treasury
Regulations under Section 422 of the Code. If, as the case may be, the relevant
date is not a trading day, the determination shall be made as of the next
preceding trading day. As used herein, the term "trading day" shall mean a day
on which public trading of securities occurs and is reported in the principal
consolidated reporting system referred to above, or if the Common Stock is not
listed or admitted to trading on a national securities exchange or included for
quotation on the Nasdaq-National Market, any day other than a Saturday, a Sunday
or a day in which banking institutions in the State of New York are closed.
(i) "Grant Agreement" shall mean a written agreement between the
Corporation and a grantee memorializing the terms and conditions of an Award
granted pursuant to the Plan.
(j) "Grant Date" shall mean the date on which the Committee formally
acts to grant an Award to a grantee or such other date as the Committee shall so
designate at the time of taking such formal action.
(k) "Parent" shall mean a corporation, whether now or hereafter
existing, within the meaning of the definition of "parent corporation" provided
in Section 424(e) of the Code, or any successor thereto of similar import.
(l) "Rule 16b-3" shall mean Rule 16b-3 as in effect under the
Exchange Act on the effective date of the Plan, or any successor provision
prescribing conditions necessary to exempt the issuance of securities under the
Plan (and further transactions in such securities) from Section 16(b) of the
Exchange Act.
(m) "Subsidiary" and "subsidiaries" shall mean only a corporation or
corporations, whether now or hereafter existing, within the meaning of the
definition of "subsidiary corporation" provided in Section 424(f) of the Code,
or any successor thereto of similar import.
3. Administration
(a) Procedure. The Plan shall be administered by the Committee.
The Committee shall meet at such times and places and upon such
notice as it may determine. A majority of the Committee shall constitute a
quorum. Any acts by the Committee may be taken at any meeting at which a quorum
is present and shall be by majority vote of those members entitled to vote.
Additionally, any acts reduced to writing or approved in writing by all of the
members of the Committee shall be valid acts of the Committee.
Members of the Committee who are either eligible for Awards or
have been granted Awards may vote on any matters affecting the administration
of the Plan or the grant of Awards pursuant to the Plan, except that no such
member shall act upon the granting of an Award to himself or herself, but
A-2
<PAGE> 24
any such member may be counted in determining the existence of a quorum at any
meeting of the Committee during which action is taken with respect to the
granting of an Award to him or her.
(b) Powers of the Committee. The Committee shall have all the powers
vested in it by the terms of the Plan, such powers to include authority, in its
sole and absolute discretion, to grant Awards under the Plan, prescribe Grant
Agreements evidencing such Awards and establish programs for granting Awards.
The Committee shall have full power and authority to take all other actions
necessary to carry out the purpose and intent of the Plan, including, but not
limited to, the authority to:
(i) determine the eligible persons to whom, and the time
or times at which Awards shall be granted,
(ii) determine the types of Awards to be granted,
(iii) determine the number of shares to be covered by or
used for reference purposes for each Award,
(iv) impose such terms, limitations, restrictions and
conditions upon any such Award as the Committee shall deem
appropriate,
(v) modify, extend or renew outstanding Awards, accept
the surrender of outstanding Awards and substitute new Awards,
provided that no such action shall be taken with respect to any
outstanding Award which would adversely affect the grantee without
the grantee's consent,
(vi) accelerate or otherwise change the time in which an
Award may be exercised or becomes payable and to waive or accelerate
the lapse, in whole or in part, of any restriction or condition with
respect to such Award, including, but not limited to, any
restriction or condition with respect to the vesting or
exercisability of an Award following termination of any grantee's
employment, and
(vii) to establish objectives and conditions, if any,
for earning Awards and determining whether Awards will be paid after
the end of a performance period.
The Committee shall have full power and authority to administer and interpret
the Plan and to adopt such rules, regulations, agreements, guidelines and
instruments for the administration of the Plan and for the conduct of its
business as the Committee deems necessary or advisable and to interpret same,
all within the Committee's sole and absolute discretion.
(c) Limited Liability. To the maximum extent permitted by law, no
member of the Board or Committee shall be liable for any action taken or
decision made in good faith relating to the Plan or any Award thereunder.
(d) Indemnification. To the maximum extent permitted by law, the
members of the Board and Committee shall be indemnified by the Corporation in
respect of all their activities under the Plan.
(e) Effect of Committee's Decision. All actions taken and decisions
and determinations made by the Committee on all matters relating to the Plan
pursuant to the powers vested in it hereunder shall be in the Committee's sole
and absolute discretion and shall be conclusive and binding on all parties
concerned, including the Corporation, its stockholders, any participants in the
Plan and any other employee of the Corporation, and their respective successors
in interest.
A-3
<PAGE> 25
4. Shares Available for the Plan; Maximum Awards
Subject to adjustments as provided in Section 12 of the Plan, the
shares of stock that may be delivered or purchased or used for reference
purposes (with respect to stock appreciation rights, phantom stock units or
performance awards payable in cash) with respect to Awards granted under the
Plan, including with respect to incentive stock options intended to qualify
under Section 422 of the Code, shall not exceed an aggregate of 4,200,000 shares
of Common Stock of the Corporation. The Corporation shall reserve said number of
shares for Awards under the Plan, subject to adjustments as provided in Section
12 of the Plan. If any Award, or portion of an Award, under the Plan expires or
terminates unexercised, becomes unexercisable or is forfeited or otherwise
terminated, surrendered or canceled as to any shares without the delivery of
shares of Common Stock or other consideration, the shares subject to such Award
shall thereafter be shares with respect to which further Awards may be granted
under the Plan.
The maximum number of shares of Common Stock subject to Awards of
any combination that may be granted during any one calendar year to any one
individual shall be limited to 500,000. To the extent required by Section 162(m)
of the Code and so long as Section 162(m) of the Code is applicable to persons
eligible to participate in the Plan, shares of Common Stock subject to the
foregoing limit with respect to which the related Award is terminated,
surrendered or canceled shall not again be available for grant under this limit.
5. Participation
Participation in the Plan shall be open to all employees of the
Corporation, or of any Parent or Subsidiary of the Corporation, as may be
selected by the Committee from time to time. Notwithstanding the foregoing,
participation in the Plan with respect to Awards of incentive stock options
shall be limited to employees of the Corporation or of any Parent or Subsidiary
of the Corporation.
Awards may be granted to such eligible persons and for or with
respect to such number of shares of Common Stock as the Committee shall
determine, subject to the limitations in Section 4 of the Plan. A grant of any
type of Award made in any one year to an eligible person shall neither guarantee
nor preclude a further grant of that or any other type of Award to such person
in that year or subsequent years.
6. Stock Options
Subject to the other applicable provisions of the Plan, the
Committee may from time to time grant to eligible participants Awards of
nonqualified stock options or incentive stock options as that term is defined in
Section 422 of the Code. The stock option Awards granted shall be subject to the
following terms and conditions.
(a) Grant of Option. The grant of a stock option shall be evidenced
by a Grant Agreement, executed by the Corporation and the grantee, stating the
number of shares of Common Stock subject to the stock option evidenced thereby
and the terms and conditions of such stock option, in such form as the Committee
may from time to time determine.
(b) Price. The price per share payable upon the exercise of each
stock option ("exercise price") shall be determined by the Committee; provided,
however, that in no event shall the exercise price be less than 100% of the Fair
Market Value of the shares on the date the stock option is granted.
(c) Payment. Stock options may be exercised in whole or in part by
payment of the exercise price of the shares to be acquired in accordance with
the provisions of the Grant Agreement, and/or such rules and regulations as the
Committee may have prescribed, and/or such determinations, orders, or decisions
as the Committee may have made. Payment may be made in cash (or cash equivalents
acceptable to the Committee) or, unless otherwise determined by the Committee,
in shares of Common Stock or a combination of cash and shares of Common Stock,
or by such other means as the Committee may
A-4
<PAGE> 26
prescribe. The Fair Market Value of shares of Common Stock delivered on exercise
of stock options shall be determined as of the date of exercise. Shares of
Common Stock delivered in payment of the exercise price may be previously owned
shares or, if approved by the Committee, shares acquired upon exercise of the
stock option. Any fractional share will be paid in cash. The Corporation may
make or guarantee loans to grantees to assist grantees in exercising stock
options.
If the Common Stock is registered under Section 12(b) or 12(g) of
the Exchange Act, the Committee, subject to such limitations as it may
determine, may authorize payment of the exercise price, in whole or in part, by
delivery of a properly executed exercise notice, together with irrevocable
instructions, to: (i) a brokerage firm designated by the Corporation to deliver
promptly to the Corporation the aggregate amount of sale or loan proceeds to pay
the exercise price and any withholding tax obligations that may arise in
connection with the exercise, and (ii) the Corporation to deliver the
certificates for such purchased shares directly to such brokerage firm.
(d) Terms of Options. The term during which each stock option may be
exercised shall be determined by the Committee; provided, however, that in no
event shall an incentive stock option be exercisable more than ten years from
the date it is granted. Prior to the exercise of the stock option and delivery
of the shares certificates represented thereby, the grantee shall have none of
the rights of a stockholder with respect to any shares represented by an
outstanding stock option.
(e) Reload Options. The terms of a stock option may provide for the
automatic grant of a new stock option Award when the exercise price of the stock
option and/or any related tax withholding obligation is paid by tendering shares
of Common Stock. Any stock option Award which would automatically be granted
pursuant to this Section 6(e) without any further Committee action may be
exercisable for not more than the number of shares tendered to exercise the
initial stock option and/or to pay any tax withholding obligation related to
such exercise, shall have an exercise price set at the then Fair Market Value of
such shares, and shall have a term that does not extend beyond the term of the
initial stock option. The Committee may include such a reload feature in a stock
option Award at the time of the initial grant of the Award or may add such a
reload feature to an outstanding stock option Award as the Committee deems
desirable; provided, however, that a reload feature shall not be added to any
outstanding incentive stock option Award without the consent of the grantee.
(f) Restrictions on Incentive Stock Options. Incentive stock option
Awards granted under the Plan shall comply in all respects with Code Section 422
and, as such, shall meet the following additional requirements:
(i) Grant Date. An incentive stock option must be
granted within 10 years of the earlier of the Plan's adoption by the
Board of Directors or approval by the Corporation's shareholders.
(ii) Exercise Price and Term. The exercise price of an
incentive stock option shall not be less than 100% of the Fair
Market Value of the shares on the date the stock option is granted.
Also, the exercise price of any incentive stock option granted to a
grantee who owns (within the meaning of Section 422(b)(6) of the
Code, after the application of the attribution rules in Section
424(d) of the Code) more than 10% of the total combined voting power
of all classes of shares of the Corporation or its Parent or
Subsidiary corporations (within the meaning of Sections 422 and 424
of the Code) shall be not less than 110% of the Fair Market Value of
the Common Stock on the grant date and the term of such stock option
shall not exceed five years.
(iii) Maximum Grant. The aggregate Fair Market Value
(determined as of the Grant Date) of shares of Common Stock with
respect to which all incentive stock options first become
exercisable by any grantee in any calendar year under this or any
other plan of the Corporation and its Parent and Subsidiary
corporations may not exceed $100,000 or such other amount as may be
permitted from time to time under Section 422 of the Code. To the
extent that such aggregate
A-5
<PAGE> 27
Fair Market Value shall exceed $100,000, or other applicable amount,
such stock options shall be treated as nonqualified stock options.
In such case, the Corporation may designate the shares of Common
Stock that are to be treated as stock acquired pursuant to the
exercise of an incentive stock option by issuing a separate
certificate for such shares and identifying the certificate as
incentive stock option shares in the stock transfer records of the
Corporation.
(iv) Grantee. Incentive stock options shall only be
issued to employees of the Corporation, or of a Parent or Subsidiary
of the Corporation.
(v) Designation. No stock option shall be an incentive
stock option unless so designated by the Committee at the time of
grant or in the Grant Agreement evidencing such stock option.
(g) Other Terms and Conditions. Stock options may contain such other
provisions, not inconsistent with the provisions of the Plan, as the Committee
shall determine appropriate from time to time.
7. Stock Appreciation Rights
(a) Award of Stock Appreciation Rights. Subject to the other
applicable provisions of the Plan, the Committee may at any time and from time
to time grant stock appreciation rights ("SARs") to eligible participants,
either on a free-standing basis (without regard to or in addition to the grant
of a stock option) or on a tandem basis (related to the grant of an underlying
stock option), as it determines. SARs granted in tandem with or in addition to a
stock option may be granted either at the same time as the stock option or at a
later time; provided, however, that a tandem SAR shall not be granted with
respect to any outstanding incentive stock option Award without the consent of
the grantee. SARs shall be evidenced by Grant Agreements, executed by the
Corporation and the grantee, stating the number of shares of Common Stock
subject to the SAR evidenced thereby and the terms and conditions of such SAR,
in such form as the Committee may from time to time determine. The term during
which each SAR may be exercised shall be determined by the Committee. The
grantee shall have none of the rights of a stockholder with respect to any
shares of Common Stock represented by an SAR.
(b) Restrictions of Tandem SARs. No incentive stock option may be
surrendered in connection with the exercise of a tandem SAR unless the Fair
Market Value of the Common Stock subject to the incentive stock option is
greater than the exercise price for such incentive stock option. SARs granted in
tandem with stock options shall be exercisable only to the same extent and
subject to the same conditions as the stock options related thereto are
exercisable. The Committee may, in its discretion, prescribe additional
conditions to the exercise of any such tandem SAR.
(c) Amount of Payment Upon Exercise of SARs. An SAR shall entitle
the grantee to receive, subject to the provisions of the Plan and the Grant
Agreement, a payment having an aggregate value equal to the product of (i) the
excess of (A) the Fair Market Value on the exercise date of one share of Common
Stock over (B) the base price per share specified in the Grant Agreement (which
shall be determined by the Committee but which shall not be less than 100% of
the Fair Market Value of one share of Common Stock on the date of grant of the
SAR), times (ii) the number of shares specified by the SAR, or portion thereof,
which is exercised. In the case of exercise of a tandem SAR, such payment shall
be made in exchange for the surrender of the unexercised related stock option
(or any portion or portions thereof which the grantee from time to time
determines to surrender for this purpose).
(d) Form of Payment Upon Exercise of SARs. Payment by the
Corporation of the amount receivable upon any exercise of an SAR may be made by
the delivery of Common Stock or cash, or any combination of Common Stock and
cash, as determined in the sole discretion of the Committee from time to time.
If upon settlement of the exercise of an SAR a grantee is to receive a portion
of such payment in shares of Common Stock, the number of shares shall be
determined by dividing such portion by the Fair
A-6
<PAGE> 28
Market Value of a share of Common Stock on the exercise date. No fractional
shares shall be used for such payment and the Committee shall determine whether
cash shall be given in lieu of such fractional shares or whether such fractional
shares shall be eliminated.
8. Stock Awards (Including Restricted and Unrestricted Shares and
Phantom Stock)
(a) Stock Awards, In General. Subject to the other applicable
provisions of the Plan, the Committee may at any time and from time to time
grant stock Awards to eligible participants in such amounts and for such
consideration, including no consideration or such minimum consideration as may
be required by law, as it determines. A stock Award may be denominated in shares
of Common Stock or stock-equivalent units ("phantom stock"), and may be paid in
Common Stock, in cash, or in a combination of Common Stock and cash, as
determined in the sole discretion of the Committee from time to time.
(b) Restricted Shares. Each stock Award shall specify the applicable
restrictions, if any, on such shares of Common Stock, the duration of such
restrictions, and the time or times at which such restrictions shall lapse with
respect to all or a specified number of shares of Common Stock that are part of
the Award. Notwithstanding the foregoing, the Committee may reduce or shorten
the duration of any restriction applicable to any shares of Common Stock awarded
to any grantee under the Plan. Share certificates with respect to restricted
shares of Common Stock granted pursuant to a stock Award may be issued at the
time of grant of the stock Award, subject to forfeiture if the restrictions do
not lapse, or upon lapse of the restrictions. If share certificates are issued
at the time of grant of the stock Award, the certificates shall bear an
appropriate legend with respect to the restrictions applicable to such stock
Award or, alternatively, the grantee may be required to deposit the certificates
with the Corporation during the period of any restriction thereon and to execute
a blank stock power or other instrument of transfer therefor. Except as
otherwise provided by the Committee, during such period of restriction following
issuance of share certificates, the grantee shall have all of the rights of a
holder of Common Stock, including but not limited to the rights to receive
dividends (or amounts equivalent to dividends) and to vote with respect to the
restricted shares. If share certificates are issued upon lapse of restrictions
on a stock Award, the Committee may provide that the grantee will be entitled to
receive any amounts per share pursuant to any dividend or distribution paid by
the Corporation on its Common Stock to stockholders of record after grant of the
stock Award and prior to the issuance of the share certificates.
(c) Phantom Stock. The grant of phantom stock units shall be
evidenced by a Grant Agreement, executed by the Corporation and the grantee,
that incorporates the terms of the Plan and states the number of phantom stock
units evidenced thereby and the terms and conditions of such phantom stock units
in such form as the Committee may from time to time determine. Phantom stock
units granted to a participant shall be credited to a bookkeeping reserve
account solely for accounting purposes and shall not require a segregation of
any of the Corporation's assets. Phantom stock units may be exercised in whole
or in part by delivery of an appropriate exercise notice to the Committee in
accordance with the provisions of the Grant Agreement, and/or such rules and
regulations as the Committee may prescribe, and/or such determinations, orders,
or decisions as the Committee may make. Except as otherwise provided in the
applicable Grant Agreement, the grantee shall have none of the rights of a
stockholder with respect to any shares of Common Stock represented by a phantom
stock unit as a result of the grant of a phantom stock unit to the grantee.
Phantom stock units may contain such other provisions, not inconsistent with the
provisions of the Plan, as the Committee shall determine appropriate from time
to time.
9. Performance Awards
The Committee may in its discretion grant performance Awards which
become payable on account of attainment of one or more performance goals
established by the Committee. Performance Awards may be paid by the delivery of
Common Stock or cash, or any combination of Common Stock and cash, as determined
in the sole discretion of the Committee from time to time. Performance goals
established by the Committee may be based on the Corporation's operating income
or one or more other business criteria selected by the Committee that apply to
an individual or group of individuals, a business
A-7
<PAGE> 29
unit, or the Corporation as a whole, over such performance period as the
Committee may designate. The Committee in its discretion may recommend to the
Board of Directors of the Corporation that the material terms of any performance
Award or program with respect to some or all eligible participants be submitted
for approval by the stockholders.
10. Withholding of Taxes
The Corporation may require, as a condition to the grant of any
Award under the Plan or exercise pursuant to such Award or to the delivery of
certificates for shares issued or payments of cash to a grantee pursuant to the
Plan or a Grant Agreement (hereinafter collectively referred to as a "taxable
event"), that the grantee pay to the Corporation, in cash or, unless otherwise
determined by the Corporation, in shares of Common Stock, including shares
acquired upon grant of the Award or exercise of the Award, valued at Fair Market
Value on the date as of which the withholding tax liability is determined, any
federal, state or local taxes of any kind required by law to be withheld with
respect to any taxable event under the Plan. The Corporation, to the extent
permitted or required by law, shall have the right to deduct from any payment of
any kind (including salary or bonus) otherwise due to a grantee any federal,
state or local taxes of any kind required by law to be withheld with respect to
any taxable event under the Plan, or to retain or sell without notice a
sufficient number of the shares to be issued to such grantee to cover any such
taxes.
11. Transferability
To the extent required to comply with Rule 16b-3, and in any event
in the case of an incentive stock option or a stock appreciation right granted
with respect to an incentive stock option, no Award granted under the Plan shall
be transferable by a grantee otherwise than by will or the laws of descent and
distribution. The Committee shall have sole and absolute discretion to determine
whether and to whom an Award granted under the Plan is transferable. Unless
otherwise determined by the Committee in accord with the provisions of this
Section 11, an Award may be exercised during the lifetime of the grantee, only
by the grantee or, during the period the grantee is under a legal disability, by
the grantee's guardian or legal representative.
12. Adjustments; Business Combinations
In the event of a reclassification, recapitalization, stock split,
stock dividend, combination of shares, or other similar event, the maximum
number and kind of shares reserved for issuance or with respect to which Awards
may be granted under the Plan as provided in Section 4 shall be adjusted to
reflect such event, and the Committee shall make such adjustments as it deems
appropriate and equitable in the number, kind and price of shares covered by
outstanding Awards made under the Plan, and in any other matters which relate to
Awards and which are affected by the changes in the Common Stock referred to
above.
In the event of any proposed Change in Control, the Committee shall
take such action as it deems appropriate and equitable to effectuate the
purposes of this Plan and to protect the grantees of Awards, which action may
include, but without limitation, any one or more of the following: (i)
acceleration or change of the exercise dates of any Award; (ii) arrangements
with grantees for the payment of appropriate consideration to them for the
cancellation and surrender of any Award; and (iii) in any case where equity
securities other than Common Stock of the Corporation are proposed to be
delivered in exchange for or with respect to Common Stock of the Corporation,
arrangements providing that any Award shall become one or more Awards with
respect to such other equity securities.
The Committee is authorized to make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in the
preceding two paragraphs of this Section 12) affecting the Corporation, or the
financial statements of the Corporation or any Subsidiary, or of changes in
applicable laws, regulations, or accounting principles, whenever the Committee
determines that such adjustments are appropriate in order
A-8
<PAGE> 30
to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan.
In the event the Corporation dissolves and liquidates (other than
pursuant to a plan of merger or reorganization), then notwithstanding any
restrictions on exercise set forth in this Plan or any Grant Agreement, or other
agreement evidencing a stock option, stock appreciation right or restricted
stock Award: (i) each grantee shall have the right to exercise his stock option
or stock appreciation right, or to require delivery of share certificates
representing any such restricted stock Award, at any time up to ten (10) days
prior to the effective date of such liquidation and dissolution; and (ii) the
Committee may make arrangements with the grantees for the payment of appropriate
consideration to them for the cancellation and surrender of any stock option,
stock appreciation right or restricted stock Award that is so canceled or
surrendered at any time up to ten (10) days prior to the effective date of such
liquidation and dissolution. The Committee may establish a different period (and
different conditions) for such exercise, delivery, cancellation, or surrender to
avoid subjecting the grantee to liability under Section 16(b) of the Exchange
Act. Any stock option or stock appreciation right not so exercised, canceled, or
surrendered shall terminate on the last day for exercise prior to such effective
date; and any restricted stock as to which there has not been such delivery of
share certificates or that has not been so canceled or surrendered, shall be
forfeited on the last day prior to such effective date.
13. Termination and Modification of the Plan
The Board, without further approval of the stockholders, may modify
or terminate the Plan or any portion thereof at any time, except that no
modification shall become effective without prior approval of the stockholders
of the Corporation if stockholder approval is necessary to comply with any tax
or regulatory requirement or rule of any exchange or Nasdaq System upon which
the Common Stock is listed or quoted; including for this purpose stockholder
approval that is required to enable the Committee to grant incentive stock
options pursuant to the Plan.
The Committee shall be authorized to make minor or administrative
modifications to the Plan as well as modifications to the Plan that may be
dictated by requirements of federal or state laws applicable to the Corporation
or that may be authorized or made desirable by such laws. The Committee may
amend or modify the grant of any outstanding Award in any manner to the extent
that the Committee would have had the authority to make such Award as so
modified or amended.
14. Non-Guarantee of Employment
Nothing in the Plan or in any Grant Agreement thereunder shall
confer any right on an employee to continue in the employ of the Corporation or
shall interfere in any way with the right of the Corporation to terminate an
employee at any time.
15. Termination of Employment
For purposes of maintaining a grantee's continuous status as an
employee and accrual of rights under any Award, transfer of an employee among
the Corporation and the Corporation's Parent or Subsidiaries shall not be
considered a termination of employment. Nor shall it be considered a termination
of employment for such purposes if an employee is placed on military or sick
leave or such other leave of absence which is considered as continuing intact
the employment relationship; in such a case, the employment relationship shall
be continued until the date when an employee's right to reemployment shall no
longer be guaranteed either by law or contract.
A-9
<PAGE> 31
16. Written Agreement
Each Grant Agreement entered into between the Corporation and a
grantee with respect to an Award granted under the Plan shall incorporate the
terms of this Plan and shall contain such provisions, consistent with the
provisions of the Plan, as may be established by the Committee.
17. Non-Uniform Determinations
The Committee's determinations under the Plan (including without
limitation determinations of the persons to receive Awards, the form, amount and
timing of such Awards, the terms and provisions of such Awards and the
agreements evidencing same) need not be uniform and may be made by it
selectively among persons who receive, or are eligible to receive, Awards under
the Plan, whether or not such persons are similarly situated.
18. Compliance with Securities Law
Common Stock shall not be issued with respect to an Award granted
under the Plan unless the exercise of such Award and the issuance and delivery
of share certificates for such Common Stock pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, the Exchange Act, the rules and regulations promulgated thereunder,
and the requirements of any national securities exchange or Nasdaq System upon
which the Common Stock may then be listed or quoted, and shall be further
subject to the approval of counsel for the Corporation with respect to such
compliance to the extent such approval is sought by the Committee. All
certificates for Common Stock delivered under the Plan pursuant to any Award or
the exercise thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan or the rules,
regulations, and other requirements of the Securities and Exchange Commission,
any stock exchange or Nasdaq System upon which such securities are then listed
or quoted, and any applicable Federal or state laws, and the Committee may cause
a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
19. No Limit on Other Compensation Arrangements
Nothing contained in the Plan shall prevent the Corporation or its
Parent or Subsidiary corporations from adopting or continuing in effect other
compensation arrangements (whether such arrangements be generally applicable or
applicable only in specific cases) as the Committee in its discretion determines
desirable, including without limitation the granting of stock options, stock
awards, stock appreciation rights or phantom stock units otherwise than under
the Plan.
20. No Trust or Fund Created
Neither the Plan nor any Award shall create or be construed to
create a trust or separate fund of any kind or a fiduciary relationship between
the Corporation and a grantee or any other person. To the extent that any
grantee or other person acquires a right to receive payments from the
Corporation pursuant to an Award, such right shall be no greater than the right
of any unsecured general creditor of the Corporation.
21. Governing Law
The validity, construction and effect of the Plan, of Grant
Agreements entered into pursuant to the Plan, and of any rules, regulations,
determinations or decisions made by the Board or Committee relating to the Plan
or such Grant Agreements, and the rights of any and all persons having or
claiming to have any interest therein or thereunder, shall be determined
exclusively in accordance with applicable federal laws and the laws of the State
of Maryland, without regard to its conflict of laws rules and principles.
A-10
<PAGE> 32
22. Plan Subject to Charter and By-Laws
This Plan is subject to the Charter and By-Laws of the Corporation,
as they may be amended from time to time.
23. Effective Date; Termination Date
The Plan is effective as of the date on which the Plan is adopted by
the Board, subject to approval of the stockholders within twelve months before
or after such date. No Award shall be granted under the Plan after the close of
business on the day immediately preceding the tenth anniversary of the effective
date of the Plan. Subject to other applicable provisions of the Plan, all Awards
made under the Plan prior to such termination of the Plan shall remain in effect
until such Awards have been satisfied or terminated in accordance with the Plan
and the terms of such Awards.
Date Approved by the Board: September 21, 1999
Date Approved by the Shareholders: ___________________
A-11
<PAGE> 33
Exhibit B
ACE*COMM CORPORATION
AMENDED AND RESTATED STOCK OPTION PLAN FOR DIRECTORS
(as amended as of 1999)
1. Purpose
The purpose of this Amended and Restated Stock Option Plan for
Directors is to advance the interests of ACE*COMM Corporation by enhancing its
ability to attract, retain and motivate members of its Board of Directors who
are not employees of the company or any of its subsidiaries by providing for the
grant of nonqualified stock options to such members.
2. Definitions
For the purposes of this Plan, the following terms shall have the
meanings ascribed to them below:
2.1 "Board of Directors" or "Board" shall mean the Board of
Directors of the Company.
2.2 "Fair Market Value" of a share of Stock of the Company for any
purpose on a particular date shall be determined in a manner such as the
Committee shall in good faith determine to be appropriate; provided, however,
that if the Common Stock is publicly traded, then Fair Market Value shall mean
the last reported sale price per share of Common Stock, regular way, or, in case
no such sale takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on a national securities exchange or included for quotation on the
Nasdaq-National Market, or if the Common Stock is not so listed or admitted to
trading or included for quotation, the last quoted price, or if the Common Stock
is not so quoted, the average of the high bid and low asked prices, regular way,
in the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System or, if such system is no
longer in use, the principal other automated quotations system that may then be
in use or, if the Common Stock is not quoted by any such organization, the
average of the closing bid and asked prices, regular way, as furnished by a
professional market maker making a market in the Common Stock as selected in
good faith by the Committee or by such other source or sources as shall be
selected in good faith by the Committee; and provided further, that in the case
of ISOs, the determination of Fair Market Value shall be made by the Committee
in good faith in conformance with the Treasury Regulations under Section 422 of
the Code. If, as the case may be, the relevant date is not a trading day, the
determination shall be made as of the next preceding trading day. As used
herein, the term "trading day" shall mean a day on which public trading of
securities occurs and is reported in the principal consolidated reporting system
referred to above, or if the Common Stock is not listed or admitted to trading
on a national securities exchange or included for quotation on the
Nasdaq-National Market, any day other than a Saturday, a Sunday or a day in
which banking institutions in the State of New York are closed.
2.3 "Company" shall mean ACE*COMM Corporation, a Maryland
corporation.
2.4 "Common Stock" shall mean shares of the Company's common stock
having a par value of $.01 per share, subject to adjustment pursuant to Section
9.
2.5 "Option" shall mean any option granted under this Plan.
2.6 "Option Agreement" shall mean the agreement executed by the
Company and an Optionee pursuant to Section 5.5 of this Plan.
B-1
<PAGE> 34
2.7 "Option Price" shall mean the purchase price per share of Common
Stock subject to an Option.
2.8 "Optionee" shall mean any person to whom an Option has been
granted under this Plan.
2.9 "Plan" shall mean this Amended and Restated Stock Option Plan
for Directors, as amended from time to time.
2.10 "Subsidiary" shall mean a corporation in which the Company
owns, directly or indirectly, shares of stock representing 50% or more of the
outstanding voting power of all classes of stock of such corporation, at the
time of the granting of an Option under this Plan.
2.11 "Change in Control" shall mean (i) any sale, exchange or other
disposition of substantially all of the Company's assets; or (ii) any merger,
share exchange, consolidation or other reorganization or business combination in
which the Company is not the surviving or continuing corporation, or in which
the Corporation's stockholders become entitled to receive cash or securities of
another issuer in exchange for their stock of the Company.
3. Participation
Each member of the Board of the Company who (i) is not an employee
of either the Company or any of its Subsidiaries (a "Non-Employee Director") and
(ii) is designated to participate under the Plan by the Chairman of the Board of
the Company, shall receive Options from time to time in accordance with Section
5 below.
4. Shares Subject to Plan
The stock subject to Options granted under this Plan shall be shares
of the authorized but unissued shares of Common Stock. The aggregate number of
shares of Common Stock which may be issued under the Plan pursuant to the
exercise of Options may not exceed 200,000 shares, subject to adjustment as
provided in Section 9. In the event that any outstanding Options expire or
terminate for any reason, without having been exercised in full, the shares of
Common Stock allocable to such unexercised portion shall become available for
issuance under other Options under this Plan.
5. Stock Option Grants
5.1 Option Shares and Date of Grant. The Company shall grant to each
Non-Employee Director:
(1) in the case of a Non-Employee Director who is elected (or
re-elected) by the stockholders or appointed by the Board to serve as a Director
on or after August 1, 1996 and prior to July 1, 1997, an Option to purchase
4,500 shares of Common Stock, multiplied by the number of years for which such
Director has then been elected or appointed to serve, which Option shall be
granted as of the date on which such Non Employee Director has then been
elected, reelected or appointed, as the case may be; and
(2) in the case of a Non-Employee Director who is elected (or
re-elected) by the stockholders or appointed by the Board to serve as a Director
on or after July 1, 1997, an Option to purchase 3,000 shares of Common Stock,
multiplied by the number of years for which such Director has then been elected
or appointed to serve, which Option shall be granted as of the date on which
such Director has been elected, reelected or appointed, as the case may be.
For the purposes of this Section 5.1, the number of years in a
Director's term of office shall be rounded to the nearest whole number of years.
B-2
<PAGE> 35
5.2 Option Price. The Option Price shall be equal to the fair market
value per share of the Common Stock on the date of grant of the Option.
5.3 Vesting. Each Option shall be and become exercisable in equal
installments of 4,500 shares of Common Stock (or 3,000 shares in the case of
Options granted on or after July 1, 1997) upon each successive anniversary of
the date on which such Option was granted (the "Vesting Date"), provided that:
(i) the Optionee still serves as a Director on such Vesting Date; or (ii) in the
event of the expiration or termination of the Optionee's term of office (other
than by reason of his or her removal for cause) within 45 days prior to such
Vesting Date, such Optionee has served as a Director for at least twelve
consecutive months as of the date of the expiration or termination of his or her
term of office. All or any part of an exercisable, but unexercised, installment
shall be exercisable at any time thereafter, except to the extent the Option has
terminated or expired.
5.4 Expiration. Each Option shall expire and terminate, to the
extent not then exercised, upon the earliest of:
(1) the expiration of five years following the date of grant of
such Option; or
(2) the expiration of six months following the Optionee's death,
resignation, or removal as a Director for any reason other than for cause; or
(3) the removal of the Optionee as a Director for cause.
5.5 Option Agreement. Promptly after the grant of an Option, the
Company and the Optionee shall execute an Option Agreement which incorporates
the terms of this Plan and specifies: (i) the Option Price; (ii) the number of
shares of Common Stock covered by the Option; and (iii) the other terms and
conditions of the Option and its exercise consistent with the terms of this
Plan.
6. Manner of Exercise
6.1 Manner. To exercise an Option in whole or in part, the Optionee
shall give written notice of exercise to the Secretary of the Company, which
notice shall specify the number of shares as to which the Option is being
exercised, accompanied by payment in full of the Option Price for such shares in
cash. Not less than 500 shares may be purchased at any one time unless the
number purchased is the total number purchasable under the Option.
6.2 Preconditions to Exercise. An Option may not be exercised unless
and until the Company has effected or obtained compliance with all laws and
regulations applicable to the issuance of shares under the Option, including
without limitation, federal and state tax and securities laws, to the Company's
satisfaction.
7. No Rights of Stockholder
No Optionee shall have any of the rights of a stockholder with
respect to the shares covered by his or her Option until such shares have been
issued to him or her upon the due exercise of the Option.
8. Non-Transferability of Options
No Option shall be transferable otherwise than by will or the laws
of descent and distribution.
9. Stock Adjustment
9.1 Adjustments. In the event of a stock split, stock dividend,
reclassification, reorganization, or other capital adjustment of shares of
Common Stock of the Company, the number of
B-3
<PAGE> 36
shares of Common Stock covered by each outstanding Option, and the Option Price
per share for each such Option, shall be proportionately adjusted without any
change in the aggregate Option Price.
9.2 Merger, Consolidation, Liquidation, or Dissolution. In the event
of any proposed Change in Control, the Company shall take such action as it
deems appropriate and equitable to effectuate the purposes of this Plan and to
protect the grantees of Options, which action may include, but without
limitation, any one or more of the following: (i) acceleration or change of the
exercise dates of any Option; (ii) arrangements with grantees for the payment of
appropriate consideration to them for the cancellation and surrender of any
Option; and (iii) in any case where equity securities other than Common Stock of
the Company are proposed to be delivered in exchange for or with respect to
Common Stock of the Company, arrangements providing that any Option shall become
one or more Options with respect to such other equity securities.
In the event the Company dissolves and liquidates (other than
pursuant to a plan of merger or reorganization), then notwithstanding any
restrictions on exercise set forth in this Plan or any Option: (i) each holder
shall have the right to exercise his Option, at any time up to ten (10) days
prior to the effective date of such liquidation and dissolution; and (ii) the
Company may make arrangements with the holders for the payment of appropriate
consideration to them for the cancellation and surrender of any Option that is
so canceled or surrendered at any time up to ten (10) days prior to the
effective date of such liquidation and dissolution. The Company may establish a
different period (and different conditions) for such exercise, delivery,
cancellation, or surrender to avoid subjecting the holder to liability under
Section 16(b) of the Exchange Act. Any Option not so exercised, canceled, or
surrendered shall terminate on the last day for exercise prior to such effective
date.
9.3 Limitation on Rights of Optionee. Except as expressly provided
in Section 9.1 or 9.2 hereof, an Optionee shall have no rights by reason of the
issuance of (i) shares of Common Stock of the Company pursuant to this Plan,
(ii) shares of preferred stock or Common Stock, (iii) any other security
convertible into Common Stock, (iv) or any other equity security, including
issuance pursuant to a plan of merger, consolidation, or statutory share
exchange, and no adjustment by reason thereof shall be made with respect to the
number of shares of Common Stock subject to an Option or the Option Price.
9.4 Rights of Company. The grant of an Option pursuant to the Plan
shall not affect in any way the right or power of the Company to make
adjustments, reclassification, reorganizations or changes in its capital or
business structure or to participate in a merger, consolidation, or share
exchange with another corporation, or to dissolve, liquidate or sell or transfer
all or any part of its business or assets.
10. Term of Plan
Options may be granted pursuant to the Plan from time to time until
July 1, 2000.
11. Amendment of the Plan
The Board may amend, revise, suspend or discontinue the Plan, from
time to time, provided that no amendments may be made within six months of the
last date the Plan was amended by the Board, except as required to comply with
ERISA or the Internal Revenue Code, and no amendment may be made without
approval of the stockholders, unless such approval is not required to comply
with Rule 16b-3 of the Securities Exchange Commission, or any successor
provision.
12. Withholding Taxes
The Company shall have the right to deduct from any compensation or
any other payment of any kind due Optionee the amount of any federal, state or
local taxes required by law to be withheld as the result of the exercise of an
Option. In lieu of such deduction, the Company may require the Optionee to make
a cash payment to the Company equal to the amount required to be withheld. In
the event the
B-4
<PAGE> 37
Optionee does not make such payment when requested, the Company may refuse to
issue any stock certificate pursuant to the exercise of any Option until
arrangements satisfactory to the Company for such payment have been made.
13. Miscellaneous
13.1 Gender. As used herein the masculine gender shall include the
feminine as the identity of an Optionee may require.
13.2 Governing Law. This Plan shall be governed by and construed in
accordance with the internal substantive laws of the State of Maryland, without
regard to its conflict of laws rules or principles.
13.3 Headings. The headings in this Plan are for reference purposes
only and shall not affect the meaning or interpretation of the Plan.
13.4 Notices. All notices and other communications made or given
pursuant to the Plan shall be in writing and shall be sufficiently made or given
if hand delivered or mailed by certified mail, addressed to the Optionee at the
address contained in the records of the Company, or to the Company at the
principal office of the Company.
AMENDED AS OF SEPTEMBER 21, 1999
B-5
<PAGE> 38
<TABLE>
<S> <C>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED BELOW AND A VOTE "FOR" PROPOSALS 2, 3 AND 4. Please mark
your votes as
indicated in [X]
this example
1. ELECTION OF DIRECTORS Nominees: Harry M. Linowes 2. TO CONSIDER AND ACT UPON A
George T. Jimenez PROPOSAL TO AMEND THE AMENDED
FOR THE WITHHOLD William R. Newlin AND RESTATED OMNIBUS STOCK PLAN
NOMINEES LISTED AUTHORITY
TO THE RIGHT FOR THE
(EXCEPT NOMINEES To withhold authority to vote for any nominee, write that
AS INDICATED) LISTED nominee's name in the space provided. FOR AGAINST ABSTAIN
[ ] [ ] _________________________________________________________ [ ] [ ] [ ]
3. TO CONSIDER AND ACT UPON A PROPOSAL 4. RATIFICATION OF APPOINTMENT OF IN THEIR DISCRETION, THE PROXIES
TO AMEND THE AMENDED AND RESTATED ERNST & YOUNG LLP AS INDEPENDENT ARE AUTHORIZED TO VOTE UPON SUCH
STOCK OPTION PLAN FOR DIRECTORS AUDITORS OTHER BUSINESS AS MAY PROPERLY
COME BEFORE THE MEETING OR ANY
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN ADJOURNMENT THEREOF.
[ ] [ ] [ ] [ ] [ ] [ ]
_______
|
|
|
Signature__________________________________________________Signature_____________________________________Date____________________
NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such.
- ----------------------------------------------------------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
</TABLE>
<PAGE> 39
ACE*COMM CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints George T. Jimenez and Loretta L. Rivers, or
either of them, the proxy or proxies of the undersigned with full power of
substitution, to vote all shares of Common Stock of ACE*COMM Corporation held
of record by the undersigned at the close of business on October 4, 1999 at the
Annual Meeting of Stockholders of the Company to be held on Thursday, November
18, 1999 at 10:00 am, Eastern Time and at any adjournment or adjournments
thereof, upon the matters set forth herein.
IF PROPERLY EXECUTED, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER, OR TO THE EXTENT
DIRECTIONS ARE NOT GIVEN, SUCH SHARES WILL BE VOTED FOR EACH OF THE NOMINEES
AND EACH OTHER PROPOSAL.
- --------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
