<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
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
--------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
--------------------------------------------------------------------------------
(3) Filing party:
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(4) Date filed:
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<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 14, 2000, at 10:00 a.m. local time for the
following purposes:
1. To elect two Class I directors, to serve until the 2003
Annual Stockholders' Meeting, and until their successors
are elected and qualify;
2. To consider and act upon a proposal to approve the 2000
Stock Option Plan for Directors;
3. 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,
2001; and
4. To consider and act upon such other business as may
properly come before the meeting.
The Board of Directors has fixed the close of business on October 3,
2000, 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
George T. Jimenez
Chairman of the Board
October 17, 2000
Gaithersburg, Maryland
<PAGE> 3
ACE*COMM CORPORATION
704 Quince Orchard Road
Gaithersburg, Maryland 20878
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 14, 2000
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 14, 2000 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 17, 2000. 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 3, 2000, are
entitled to vote at the meeting (the "Record Date"). As of the Record Date, the
Company had outstanding 9,210,710 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 3, 2000, 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 and
director of the Company any options to purchase shares of Company Common Stock
which are exercisable within 60 days of October 3, 2000. 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
--------- ------
<S> <C> <C>
DIRECTORS, NOMINEES AND NAMED
EXECUTIVE OFFICERS
George T. Jimenez 2,219,283(2) 23.82%
Paul G. Casner, Jr. 38,334(3) *
Harry M. Linowes 9,334(4) *
William R. Newlin 79,572(5) *
Gilbert A. Wetzel 48,834(6) *
Gino O. Picasso 66,667(7) *
Thomas V. Russotto 185,071(8) 1.99
S. Joseph Dorr 534,552(9) 5.75
James K. Eckler 59,000(10) *
ALL DIRECTORS, NOMINEES AND 3,240,647(5)(11) 35.18
EXECUTIVE OFFICERS AS A GROUP (9
PERSONS)
OTHER 5% STOCKHOLDERS
CEO Venture Fund II 1,154,546(12) 12.53
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 106,171 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 22,834 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. Also includes 7,334 shares issuable upon the exercise of
options.
2
<PAGE> 5
(5) Includes 9,334 shares issuable upon the exercise of options. Includes
only shares held individually. Does not include shares held by CEO
Venture Fund II (see note 12).
(6) Includes 21,334 shares issuable upon the exercise of options.
(7) Includes 66,667 shares issuable upon the exercise of options.
(8) Includes 72,719 shares issuable upon the exercise of options.
(9) Includes 82,010 shares issuable upon the exercise of options.
(10) Includes 54,000 shares issuable upon the exercise of options.
(11) Includes 442,403 shares issuable upon the exercise of options.
(12) Includes 1,154,546 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 and 48,285 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 1,154,546 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. G. P. 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 and Gilbert A.
Wetzel for election as Class I 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
Annual Meeting of stockholders; Class II expires at the 2001 annual meeting of
stockholders; and Class III expires at the 2002 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. At the Annual Meeting, Messrs. Linowes and Wetzel will
be subject to election for a three-year term. 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 14, 2000, unless authority
is withheld, for the election of Harry M. Linowes and Gilbert A. Wetzel as Class
I directors. Messrs. Linowes and Wetzel 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 64 1983 III Chief Executive Officer of the Company
since 1996, and Treasurer from 1983 to
present. President from 1983 to
September 1999. Mr. Jimenez has been
Chairman of the Board of Directors
since 1983.
Paul G. Casner, Jr. 62 1983 II Executive Vice President, Chief
Operating Officer of DRS Technologies,
Inc., a defense electronics
corporation, since June 2000.
Executive Vice President, Operations,
DRS, from December 1998 to May 2000;
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 68 1992 I Managing Director, Mayer & Associates,
a human resources consulting firm,
since 1999. Executive Vice President,
Right Management Consultants from 1994
to 1999; 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 59 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 72 1999 I Business Management 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."
4
<PAGE> 7
The Board of Directors has an Audit Committee and a Compensation
Committee. The Audit Committee monitors the integrity of the financial
statements and the independence and performance of the Company's independent
auditors, oversees the preparation by management and the Company's independent
auditors of the financial statements, receives and reviews reports from time to
time from the Company's independent auditors, and recommends the engagement of
auditors. The current members of the Audit Committee are Messrs. Casner,
Linowes, Newlin and Wetzel, with Mr. Linowes serving as Chairman. The Audit
Committee met two times during fiscal 2000. The Compensation Committee reviews
the compensation of executives of the Company, makes recommendations to the
Board of Directors with respect to standards for setting compensation levels and
administers the Company's Amended and Restated Omnibus Stock Plan (the "Stock
Plan"). The current members of the Compensation Committee are Messrs. Casner,
Linowes, Newlin and Wetzel, none of whom is employed by the Company, with Mr.
Casner serving as Chairman. The Compensation Committee met two times during
fiscal 2000.
During fiscal year 2000, the Board of Directors held nine meetings. All
directors were in attendance at 75% or more of the Board and Committee meetings
of which he was a member, except for Messrs. Casner and Newlin.
Outside directors receive $12,000 each per fiscal year ($16,000 in the
case of the Chairman of the Audit Committee), 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 (4,000 shares in the case
of the Chairman of the Audit Committee) 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 (or any successor plan such as the 2000 Stock Option
Plan for Directors (the "Successor Directors' Plan") (the "Directors' Plan"). At
the 1999 Annual Meeting, each outside Director received a one-time grant of an
option for 10,000 shares (the "1999 Options") pursuant to the Directors' Plan,
as approved by the stockholders at that meeting. Each option granted becomes
exercisable in installments of one-third of the option shares on each
anniversary of the date of grant, provided that the option holder still serves
as a director on such date or, if he ceases to be a director (other than by
reason of termination for cause) within 45 days prior to such date, he has
served as a director, for at least 12 consecutive months as of such date. Each
option expires upon the earlier of five years from the date of grant, the
expiration of six months following death, resignation or removal other than for
cause, and, immediately, upon removal of a director for cause. If the Successor
Directors' Plan is approved, and if elected, Messrs. Linowes (serving as
Chairman of the Audit Committee) and Wetzel, on the date of the Annual Meeting,
would be granted options to purchase 12,000 and 9,000 shares of Common Stock,
respectively.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
COMPENSATION COMMITTEE REPORT
The Company's officer compensation policy is to offer a package that
includes a competitive salary, an incentive bonus based upon achievement of the
Company's financial objectives and of individual performance goals, and
competitive benefits. The Company also encourages 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.
5
<PAGE> 8
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.
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 an executive bonus plan. Under
the plan, awards are granted in cash and stock in the form of stock options. In
fiscal 2000, officers were eligible for cash bonuses of up to a pre-determined
45-75% of base salary, with amounts payable based on the level of achievement of
predetermined corporate revenue and pre-tax income goals. The maximum total
bonus under the executive bonus plan was 75% of base salary. Because the Company
did not meet the predetermined revenue and pre-tax income goals established for
fiscal 2000, the officers did not receive any cash bonuses for that period.
Stock option grants to officers are designed to promote success by
aligning the officers' financial interests with long-term stockholder value and
by providing an incentive for individual long-term performance and the
achievement of short-term financial performance of the Company. Grants of stock
options are based on various subjective factors primarily relating to the
responsibilities of the individual officers, and also to their expected future
contributions and prior option grants. Generally, as part of the executive bonus
plan, officers are granted performance options which vest and become exercisable
six to eight years from the date of grant, subject to earlier, accelerated
vesting based on Company financial performance. Performance options which vest
as a result of acceleration generally become exercisable over three years,
provided that the officer remains in the continuous employ of the Company.
Performance options were granted in fiscal 2000, subject to accelerated
vesting based upon achievement of the 2000 performance targets. In addition,
certain outstanding options granted in prior fiscal years, whose vesting was not
previously accelerated, were amended to allow for accelerated vesting based on
FY00 performance. Based on the Company's results for fiscal 2000, none of the
performance options containing the 2000 performance targets was accelerated.
In connection with hiring and retention, the Company granted certain
options that generally vest over a three-year period and are not performance
based. Messrs. Picasso, Dorr, Russotto, and Eckler have each been granted such
options. The options referred to above are reflected in "Summary Compensation
Table" and "-- Option Grants in Last Fiscal Year."
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.
6
<PAGE> 9
The Compensation Committee annually reviews and approves the
compensation of George Jimenez, the Chief Executive Officer. Mr. Jimenez
participates in the executive bonus plan, with his bonus tied to corporate
revenue and pre-tax income goals. In fiscal 2000, Mr. Jimenez was eligible for a
maximum cash bonus of 75% of his base salary, payable based on the level of
achievement of predetermined corporate revenue and pre-tax income goals.
Performance based options for 27,764 shares were granted in fiscal 2000 and made
subject to accelerated vesting based upon achievement of the 2000 performance
targets. In addition, outstanding options for 22,236 shares, granted in prior
fiscal years, whose vesting was not previously accelerated, were amended to
allow for accelerated vesting based on the 2000 performance targets. Based on
the Company's results for fiscal 2000, Mr. Jimenez received no cash bonus and
none of the performance options containing the 2000 performance targets was
accelerated.
COMPENSATION COMMITTEE
Paul G. Casner, Jr.
Harry M. Linowes
William R. Newlin
Gilbert A. Wetzel
7
<PAGE> 10
CASH COMPENSATION
Cash compensation paid or accrued for services in all capacities for
1998, 1999 and 2000 fiscal years for the Chief Executive Officer and each of the
other four most highly compensated present and former executive officers of the
Company whose salary and bonus exceeded $100,000 (the "Named Executive
Officers") is set forth in the following table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
---------
COMPENSATION
------------
ANNUAL COMPENSATION(1) AWARDS
---------------------- ------
------------------------------------ ---------------
NAME FISCAL SALARY(2) BONUS OTHER NUMBER OF ALL
---- ------ --------- ----- ----- --------- ---
AND YEAR ANNUAL SHARES OTHER
--- ---- ------ ------ -----
PRINCIPAL POSITION COMPEN- UNDERLYING COMPEN-
------------------ ------- ---------- -------
SATION(3) OPTIONS SATION(4)
--------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
George T. Jimenez 2000 $198,262 $0 -- 27,764 $11,171
Chief Executive Officer 1999 30,115 0 -- 0 12,469
and Chairman of the Board 1998 155,654 0 -- 26,628 11,521
Gino O. Picasso 2000 156,750(5) 0 -- 250,000(6) 0
President and Chief 1999 -- -- -- -- --
Operating Officer 1998 -- -- -- -- --
Thomas V. Russotto 2000 203,880 0 -- 3,253 1,357
Executive Vice President 1999 167,391 0 -- 150,000(6) 3,757
and Chief Technology 1998 157,688 0 -- 17,445 1,453
Officer
S. Joseph Dorr 2000 164,466 0 -- 99,422(6) 1,170
Executive Vice President - 1999 128,693 0 -- 0 3,642
Business Development and 1998 117,421 0 -- 10,331 1,253
Customer Engagement
James K. Eckler 2000 162,462 0 $3,823 35,000 0
Executive Vice President 1999 105,577(7) 0 -- 88,500(6) 0
-Finance and Administration 1998 -- -- -- -- --
</TABLE>
(1) Includes salary deferrals under the Company's 401(k) plan.
(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) Comprises certain relocation expenses. Does not include perquisites and
personal benefits aggregating less than 10% of the officer's salary and
bonus.
(4) 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
8
<PAGE> 11
certain Named Executive Officers. For fiscal 2000, the amounts paid were
as follows: (i) Mr. Jimenez, $6,975 for life insurance and $4,196 for
disability insurance; (ii) Dr. Russotto, $1,357 for disability
insurance, and (iii) Mr. Dorr, $1,170 for disability insurance.
(5) Reflects compensation beginning September 14, 1999, when Mr. Picasso
joined the Company.
(6) Of these shares, 200,000, 150,000, 90,000 and 88,500 were granted to
Messrs. Picasso, Russotto, Dorr and Eckler, respectively, as one-time
grants, in connection with hiring or retention, as the case may be.
(7) Reflects compensation beginning October 19, 1998, when Mr. Eckler joined
the Company.
OPTION GRANTS
The following table shows, as to the Named Executive Officers, the
options to purchase Common Stock granted by the Company in fiscal 2000.
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)
------- ------------ --------- ---------- -------
GRANTED FISCAL 2000 SHARE DATE
------- ----------- ----- ----
0% 5% 10%
-- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
George T. Jimenez 27,764(2) 3.55% $3.781 10/27/09 $0 $66,019 $167,304
Gino O. Picasso 50,000(2) 6.39 3.781 10/27/09 0 118,893 301,297
200,000(3) 25.55 4.188 9/21/09 0 526,762 1,334,919
Thomas V. Russotto 3,253(2) 0.42 3.781 10/27/09 0 7,735 19,602
S. Joseph Dorr 9,422(2) 1.20 3.781 10/27/09 0 22,404 56,776
90,000(4) 11.50 3.938 8/25/09 0 222,893 564,854
James K. Eckler 35,000(2) 4.47 3.781 10/27/09 0 83,225 210,908
</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:
9
<PAGE> 12
<TABLE>
<CAPTION>
Exercise price Term of Option 0% 5% 10%
-------------- -------------- -- -- ---
<S> <C> <C> <C> <C> <C>
$ 3.781 10 years $0 $6.159 $9.807
4.188 10 years 0 6.822 10.863
3.938 10 years 0 6.415 10.214
</TABLE>
(2) Performance options, subject to vesting in full or in part as of
10/1/00, based on the Company's achievement of previously established
performance targets for fiscal year 2000. Based on the Company's
results, the vesting of none of such options was accelerated in fiscal
year 2000. Accordingly, under the terms of the options, one-third of the
option shares will become exercisable on each of 10/26/05, 10/26/06,
10/26/07, provided that the officer is then employed by the Company (or
sooner, under certain circumstances such as achievement of certain
financial performance targets for fiscal year 2001 or a change of
control of the Company).
(3) Option granted in connection with hiring, which vests and becomes
exercisable in one-third increments as of 9/20/00, 9/20/01 and 9/20/02,
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.")
(4) Retention option, which vests and becomes exercisable in one-third
increments as of 8/14/00, 8/14/01 and 8/14/02 (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.")
10
<PAGE> 13
FISCAL 2000 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
2000 fiscal year-end option values.
FISCAL 2000 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 0 $0 106,171 52,242 $0 $42,534
Gino O. Picasso 0 0 0 250,000 0 301,600
Thomas V. Russotto 51,456 208,703 22,719 123,445 0 336,284
S. Joseph Dorr 0 0 52,010 114,200 0 138,185
James K. Eckler 5,000 23,750 24,500 94,000 53,606 182,712
</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, 2000.
EMPLOYMENT AGREEMENTS, CHANGE IN CONTROL AND SEPARATION ARRANGEMENTS
The Company entered into an Employment Agreement with S. Joseph Dorr,
effective October 1, 1999, for a three-year term. Under the terms of the
Agreement, Mr. Dorr is entitled to a minimum annual base salary of $175,000, to
participate in benefit plans generally available to all executive level
employees and reimbursement for business expenses in accordance with Company
policy, and is eligible for an annual bonus of up to $100,000 payable in cash
and an option for up to 20,000 shares, based on achievement of financial
performance and personal objectives determined in advance by the Board of
Directors and the Chief Executive Officer or President. Pursuant to the
Agreement, Mr. Dorr's non-qualified option for 90,000 shares granted on August
24, 1999 (the "Option") was amended and restated to provide for vesting in
one-third increments on August 14 of the years 2000, 2001 and 2002, respectively
(or sooner under certain circumstances) and certain other terms. In the event of
a change of control, Mr. Dorr 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. Dorr other than for cause (as
defined in the Agreement) prior to a change of control, Mr. Dorr 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. If following a change of control Mr. Dorr is terminated other
than for cause (as defined in the Agreement) or terminates his employment for
good reason (as defined in the Agreement), Mr. Dorr 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 his Option shares. The Agreement contains certain
confidentiality, non-solicitation and non-compete provisions.
11
<PAGE> 14
The Company entered into an Employment Agreement with Gino Picasso,
dated as of September 14, 1999, for a three-year term. Under the terms of the
Agreement, Mr. Picasso is entitled to a minimum annual base salary of $195,000,
to participate in benefit plans generally available to all executive level
employees and reimbursement for business expenses in accordance with Company
policy, and is eligible (beginning with respect to the 2000 fiscal year) for an
annual bonus of (1) up to 75% of base salary as is in effect from time to time
and (2) an option for a minimum of 50,000 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. Picasso was granted on September 20, 1999, a
non-qualified stock option exercisable for 200,000 shares of common stock of the
Company, vesting in one-third increments on September 20 of the years 2000, 2001
and 2002, respectively (or sooner under certain circumstances). In the event of
a change of control, Mr. Picasso 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. Picasso other than for cause
(as defined in the Agreement) prior to a change of control, Mr. Picasso is
entitled to a lump sum payment equal to 1.5 times his base salary at the rate
then in effect and to acceleration of vesting of the option under the Agreement.
If, following a change of control, Mr. Picasso is terminated other than for
cause (as defined in the Agreement) or terminates his employment for good reason
(as defined in the Agreement), Mr. Picasso is entitled to a lump sum payment
equal 1.5 times his base 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.
12
<PAGE> 15
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 2000
<S> <C> <C> <C> <C> <C>
ACE*COMM CORP. 100.00 261.67 75.00 44.17 70.83
NASDAQ TELECOMMUNICATIONS 100.00 129.67 184.22 271.52 458.11
NASDAQ MARKET INDEX 100.00 132.29 175.37 245.75 369.77
</TABLE>
ASSUMES $100 INVESTED ON AUGUST 14, 1996
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING JUNE 30, 2000
13
<PAGE> 16
PROPOSAL TO APPROVE THE 2000 STOCK OPTION PLAN FOR DIRECTORS
The Company's Amended and Restated Stock Option Plan for Directors (the
"Directors' Stock Plan") expired on July 1, 2000 and new options no longer may
be granted under such plan. The Board of Directors has approved and recommends
that the stockholders approve a successor to the Plan on substantially the same
terms in order to continue to assure the Company's ability to attract and retain
qualified individuals to serve as Directors. A copy of the Successor Directors'
Plan is attached as an exhibit hereto and the description set forth below is
qualified in its entirety by reference to the plan.
The Successor Directors' 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. Options for up to 200,000 shares of common stock,
subject to adjustment in certain events, may be issued under the Plan. At
October 6, 2000, the closing price of the Common Stock was $6.75. 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 October 1, 2000, shall
receive an option to purchase 3,000 shares of Common Stock (4,000 in the case of
a director serving as Chairman of the Audit Committee), 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.
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 Successor Directors' Plan shall become
exercisable in one-third installments 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
14
<PAGE> 17
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 Successor Directors' 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.
No options may be granted after October 1, 2010. The Board may amend,
revise, suspend or discontinue the Successor Directors' Plan, from time to time,
provided that no amendments may be made within six months of the last date the
Successor Directors' 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:
The options are nonqualified options for federal income tax purposes. 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 taxable
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, and (b) generally would be
an allowable income tax deduction to the Company. The optionee's tax basis for
shares acquired upon exercise of an option would be equal to the option price
paid for the shares plus any amounts treated as taxable 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.
The difference would be long term capital gain (or loss) if the shares are sold
more than one year from the option exercise date and short term capital gain (or
loss) if not.
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 as the result of exercise of an option.
The foregoing discussion summarizes the Federal income tax consequences
of the Successor Directors' 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 Successor Directors' Plan.
If the Successor Plan is approved, Messrs. Linowes (serving as Chairman
of the Audit Committee) and Wetzel, on the date of the Annual Meeting, would be
granted an option to purchase 12,000 and 9,000 shares of Common Stock,
respectively.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE THE
2000 STOCK OPTION PLAN FOR DIRECTORS.
15
<PAGE> 18
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 "8-K") 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 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.
During the 1998 fiscal year, 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 8-K. The 8-K cited 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 8-K further reported 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 8-K (the "first quarter items")
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 8-K and, based on a consideration of
various factors, including the results of a review by Ernst & Young LLP and
presentations by management of the Company, the Board of Directors concluded
that management had adequately addressed these issues.
Ernst & Young LLP served as the Company's independent accountants for
fiscal years 1999 and 2000 and has been appointed to 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, 2001. 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, will have the opportunity to make a statement if they desire to do so,
and is expected to be available to respond to appropriate 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, 2001.
16
<PAGE> 19
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. In
their discretion, the proxies are authorized to vote upon such other business as
may properly (including in accordance with the advance notice requirement set
forth below) come before the meeting or any adjournment thereof.
The election of directors requires a plurality of votes cast at the
Annual Meeting. The approval of the 2000 Stock Option Plan for Directors
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 plan, 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 2000 ANNUAL MEETING OF
STOCKHOLDERS
Advance notice of matters 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 not less than 20 days (October 25,
2000) nor more than 30 days (October 15, 2000) 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 2001 ANNUAL MEETING OF STOCKHOLDERS
Stockholder proposals to be presented at the 2001 Annual Meeting of
Stockholders must be received at the Company's executive offices at 704 Quince
Orchard Road, Gaithersburg, Maryland 20878 by June 11, 2001 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,
George T. Jimenez
Chairman of the Board
October 17, 2000
17
<PAGE> 20
Exhibit A
ACE*COMM CORPORATION
2000 STOCK OPTION PLAN FOR DIRECTORS
1. Purpose
The purpose of this 2000 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.
A-1
<PAGE> 21
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 2000 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 October 1, 2000 and prior to October 1, 2010, an Option to purchase
3,000 shares of Common Stock (4,000 shares in the case of a Director serving as
the Chairman of the Audit Committee as of immediately after the meeting),
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.
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.
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.
A-2
<PAGE> 22
5.3 Vesting. Each Option shall be and become exercisable in equal
installments of as near to one third as possible 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 shares issuable under the Plan, the
number of 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.
A-3
<PAGE> 23
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
October 1, 2010.
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 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.
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<PAGE> 24
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.
Approved by the Board of Directors on September 27, 2000
Approved by the Stockholders on ___________________
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<PAGE> 25
ACE*COMM CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints George T. Jimenez and S. Joseph Dorr, 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 3, 2000 at the
Annual Meeting of Stockholders of the Company to be held on Tuesday, November
14, 2000 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.
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<S> <C>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED BELOW AND A VOTE "FOR" PROPOSALS 2 AND 3. Please mark [X]
your votes as
indicated in
this example
1. ELECTION OF DIRECTORS Nominees: Harry M. Linowes
Gilbert A. Wetzel
FOR THE WITHHOLD
NOMINEES LISTED AUTHORITY
TO THE RIGHT FOR THE To withhold authority to vote for any nominee, write that nominee's name in the space
(EXCEPT NOMINEES provided.
AS INDICATED) LISTED
[ ] [ ] ----------------------------------------------------------------------------------------------
2. TO CONSIDER AND ACT UPON A PROPOSAL 3. RATIFICATION OF APPOINTMENT OF IN THEIR DISCRETION, THE PROXIES ARE
TO APPROVE THE 2000 STOCK OPTION PLAN ERNST & YOUNG LLP AS INDEPENDENT AUTHORIZED TO VOTE UPON SUCH
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.
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