<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION PROXY STATEMENT
PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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
</TABLE>
MGC COMMUNICATIONS, INC.
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(Name of Registrant as Specified in Its Charter)
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(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.
Title of each class of securities to which transaction applies:
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Aggregate number of securities to which transaction applies:
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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):
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Proposed maximum aggregate value of transaction:
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Total fee paid:
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[ ] 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:
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2. Form, Schedule or Registration Statement No.:
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3. Filing Party:
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4. Date Filed:
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<PAGE> 2
[MGC COMMUNICATIONS LOGO]
MGC COMMUNICATIONS, INC.
171 SULLY'S TRAIL
SUITE 200
PITTSFORD, NY 14534
Dear Stockholder:
We cordially invite you to attend the annual meeting of stockholders of MGC
Communications, Inc.. The meeting will be held on Thursday, June 22, 2000, at
10:00 a.m. at The Delmonte Lodge, 41 North Main Street, Pittsford, NY 14534.
At this year's meeting, you will vote on the election of three directors,
amendments to our Articles of Incorporation to increase the amount of authorized
shares of capital stock and common stock and to officially change our corporate
name to "Mpower Communications Corp.", and to increase the number of authorized
shares under our Stock Option Plan.
We have attached a notice of annual meeting and a proxy statement that
contains more information about these items and the meeting.
Your vote is important. We encourage you to sign, date and return the
enclosed proxy card as soon as possible, even if you currently plan to attend
the meeting. Returning the enclosed proxy card will not prevent you from voting
in person but will assure that your vote is counted if you are unable to attend
the meeting.
Thank you for your support of MGC Communications, Inc.
/s/ Rolla P. Huff
Rolla P. Huff
Chief Executive Officer
President & Director
<PAGE> 3
MGC COMMUNICATIONS, INC.
171 SULLY'S TRAIL
SUITE 200
PITTSFORD, NY 14534
(716) 218-6550
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the stockholders of MGC Communications, Inc.:
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of MGC
Communications, Inc., a Nevada corporation (the "Company"), will be held on
Thursday, June 22, 2000 at 10:00 a.m. local time, at The Delmonte Lodge, 41
North Main Street, Pittsford, NY 14534, for the following purposes:
1. To elect three directors for a three-year term expiring in 2003;
2. To consider and vote on a proposal to amend the Company's Articles of
Incorporation to increase the number of authorized shares of capital
stock of the Company from 110,000,000 shares to 250,000,000 shares of
capital stock and to correspondingly increase the number of
authorized shares of common stock, par value $.001, of the Company
from 60,000,000 shares to 200,000,000 shares of common stock;
3. To consider and vote on a proposal to amend the Company's Articles of
Incorporation to officially change the Company's name from MGC
Communications, Inc. to Mpower Communications Corp.;
4. To consider and vote on a proposal to amend the Company's Stock
Option Plan to increase the number of shares of common stock
available for purchase under the Stock Option Plan from 4,640,000
shares to 8,640,000 shares; and
5. To transact such other business as may properly come before the
meeting or any postponement or adjournment thereof.
The foregoing items of business are more fully described in the proxy
statement accompany this notice.
Only holders of outstanding shares of the Company's common stock and/or
Series C preferred stock are entitled to vote at the annual meeting. The close
of business on May 9, 2000 is the record date for determining stockholders
entitled to notice of and to vote at the annual meeting and any adjournment
thereof. A list of stockholders will be available at the Company's headquarters,
171 Sully's Trail, Suite 200, Pittsford, NY 14534, and at the annual meeting.
Please sign, date and return the enclosed proxy card as promptly as
possible in the enclosed envelope so that your shares will be represented
whether or not you attend the annual meeting. Returning the enclosed proxy card
will not prevent you from voting in person but will assure that your vote is
counted if you are unable to attend the meeting.
By order of the Board of Directors
/s/ Russell I. Zuckerman
Russell I. Zuckerman
Corporate Secretary
<PAGE> 4
MGC COMMUNICATIONS, INC.
171 SULLY'S TRAIL
SUITE 200
PITTSFORD, NY 14534
(716) 218-6550
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 22, 2000
This proxy statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of MGC Communications, Inc., a
Nevada corporation (the "Company"), to be voted at the annual meeting of
stockholders of the Company to be held on June 22, 2000 and any postponement or
adjournment thereof, for the purposes set forth in the accompanying notice of
annual meeting of stockholders. The annual meeting of stockholders will be held
on Thursday, June 22, 2000 at 10:00 a.m. local time at The Delmonte Lodge, 41
North Main Street, Pittsford, NY 14534. The Company intends to mail this proxy
statement and the accompanying proxy card on or about June 5, 2000 to all
stockholders entitled to vote at the annual meeting. The Company's Annual Report
for the year ended December 31, 1999 has already been sent to each such
stockholder of record.
ABOUT THE MEETING
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?
At the Company's annual meeting, stockholders entitled to vote will act
upon the matters outlined in the accompanying notice of annual meeting of
stockholders, including the election of directors. In addition, the Company's
management will report on the performance of the Company during 1999 and respond
to questions from stockholders.
WHO IS ENTITLED TO VOTE?
Only holders of common stock and/or Series C preferred stock (each, a
"Stockholder" and, collectively, the "Stockholders") of record at the close of
business on the record date, May 9, 2000, are entitled to receive notice of the
annual meeting and to vote the shares of common stock or Series C preferred
stock, as the case may be, that they held on that date at the meeting, or any
postponement or adjournment of the meeting. At the close of business on the
record date, the Company had outstanding and entitled to vote 35,495,019 shares
of common stock and 1,250,000 shares of Series C preferred stock. The holders of
common stock and Series C preferred stock will vote together as one class and
each outstanding share of common stock and Series C preferred stock entitles its
holder to cast one vote on each matter to be voted upon.
WHO CAN ATTEND THE MEETING?
All Stockholders as of the record date, or their duly appointed proxies,
may attend the meeting. Seating, however, may be limited. Admission to the
meeting will be on a first-come, first-served basis. Each Stockholder may be
asked to present valid picture identification, such as a driver's license or
passport. Cameras, recording devices and other electronic devices will not be
permitted at the meeting.
Please note that if you hold your shares in "street name" (that is, through
a broker or other nominee), you will need to bring a copy of a brokerage
statement reflecting your stock ownership as of the record date.
WHAT CONSTITUTES A QUORUM?
The presence at the meeting, in person or by proxy, of the holders of a
majority of the shares of common stock and Series C preferred stock,
collectively, outstanding on the record date will constitute a quorum,
permitting the meeting to conduct its business. As of the record date, a total
of 35,495,019 shares of common
<PAGE> 5
stock and, 1,250,000 shares of Series C preferred stock of the Company were
outstanding. Proxies received but marked as abstentions and broker non-votes
will be included in the calculations of the number of shares considered to be
present at the meeting.
HOW DO I VOTE?
As a Stockholder, you are entitled to one vote on each matter considered
and voted upon at the annual meeting for each share of common stock or Series C
preferred stock, as the case may be, held by you as of the record date. If you
complete and properly sign the accompanying proxy card and return it to us, and
if it is received in time and not revoked, it will be voted at the annual
meeting in accordance with the instructions indicated in such proxy. If you are
a registered Stockholder and attend the meeting, you may deliver your completed
proxy card at that time or vote in person. If your shares of common stock or
Series C preferred stock are held in "street name" and you wish to vote at the
meeting, you must obtain a proxy card from the institution that holds your
shares. If no instructions are indicated, these shares will be voted "FOR" the
election, as directors of the Company, of the three nominees named in the proxy,
"FOR" the approval of the amendment to the Company's Articles of Incorporation
to increase the number of authorized shares of capital stock and common stock,
"FOR" the approval of the amendment to the Company's Articles of Incorporation
to officially change the Company's name to "Mpower Communications Corp." and
"FOR" the approval of the amendments to the Company's Stock Option Plan to
increase the number of authorized shares thereunder.
CAN I REVOKE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use either (1) by delivering to us a
written notice of revocation or a duly executed proxy bearing a later date or
(2) by attending the annual meeting and voting in person. All written notices of
revocation or other communications with respect to revocation of proxies should
be addressed as follows: Mpower Communications Corp., 171 Sully's Trail, Suite
202, Pittsford, New York 14534, Attention: Russell I. Zuckerman, Corporate
Secretary.
WHAT ARE THE BOARD'S RECOMMENDATIONS?
Unless you give other instructions on your proxy card, the persons named as
proxy holders on the proxy card will vote in accordance with the recommendations
of the Board of Directors. The Board recommends a vote:
(1) FOR election of the three nominees as directors of the Company
(see pages 3 to 8);
(2) FOR approval of the amendments to the Company's Articles of
Incorporation to increase number of the authorized shares of capital stock
from 110,000,000 to 250,000,000 shares of capital stock and to
correspondingly increase the number of authorized shares of common stock
from 60,000,000 shares to 200,000,000 shares of common stock (see pages 8
to 9);
(3) FOR approval of the amendment to the Company's Articles of
Incorporation to officially change the Company's name from MGC
Communications, Inc. to Mpower Communications Corp. (see page 9); and
(4) FOR approval of the amendment to the Company's Stock Option Plan
to increase the number of shares of common stock available for purchase
thereunder from 4,640,000 shares to 8,640,000 shares (see pages 9 to 11).
With respect to any other matter that properly comes before the meeting,
the proxy holders will vote as recommended by the Board of Directors or, if no
recommendation is given, in their own discretion.
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
Election of Directors. The affirmative vote of a plurality of the votes
cast by the holders of shares of common stock and Series C preferred stock,
voting together as a class, is required for the election of the
2
<PAGE> 6
directors identified in this proxy statement. Because directors are elected by a
plurality of the votes cast, votes to "WITHHOLD AUTHORITY" with respect to one
or more nominees and any broker non-votes will not be counted and will not have
an effect on the outcome of the election.
Amendments to the Articles of Incorporation. The affirmative vote of a
majority of the outstanding shares of common stock and Series C preferred stock,
collectively, is required for the approval of the amendments to the Company's
Articles of Incorporation. Abstentions and broker non-votes will have the same
effect as negative votes.
Amendments to the Company's Stock Option Plan. The affirmative vote of a
majority of the outstanding shares of common stock and Series C preferred stock,
collectively, is required for the approval of the amendments to the Company's
Stock Option Plan. Abstentions and broker non-votes will have the same effect as
negative votes.
HOW WILL PROXIES BE SOLICITED?
Proxies will be solicited by Beacon Hill Partners, who have been appointed
as proxy solicitors by the Company. The proxy solicitor will solicit the proxies
by mail. Banks, brokers, nominees and other custodians and fiduciaries will be
reimbursed for their reasonable out-of-pocket expenses in forwarding soliciting
material to their principals, the beneficial owners of common stock and Series C
preferred stock of the Company. The expense of preparing, assembling, printing,
mailing and soliciting proxies will be borne by the Company.
PROPOSAL NO. 1: ELECTION OF DIRECTORS
The Company's by-laws provide that there shall be not less than three, nor
more than nine directors. The Board of Directors currently consists of nine
directors. Following the election of directors and upon the resignation of Jack
L. Hancock, which will occur on the date of the annual meeting, the Board of
Directors has determined that the Board shall consist of eight directors. Each
year, one-third of the Board of Directors of the Company shall be elected for a
term of three years and until their successors are elected and qualified. The
Board of Directors is divided into three classes. Class I consists of three
directors -- Maurice J. Gallagher, Jr., Rolla P. Huff and David
Kronfeld -- whose term expires in 2001. Class II consists of three
directors -- Timothy P. Flynn, Mark J. Masiello and Richard W. Miller -- whose
term expires at this annual meeting and each of whom are nominees for
re-election for a three-year term that will expire in 2003. Class III currently
consists of three directors -- Thomas Neustaetter, Jack L. Hancock and Mark
Pelson -- whose terms will expire in 2002. Following the resignation of Jack L.
Hancock on the date of the annual meeting, Class III will consist of two
directors.
3
<PAGE> 7
The following table sets forth certain information with respect to the
Company's Board of Directors on April 30, 2000:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION SINCE CLASS
---- --- -------- -------- -----
<S> <C> <C> <C> <C>
Maurice J. Gallagher, Jr.(1)(2)............ 49 Chairman of the Board of 1996 I
Directors
Rolla P. Huff(1)(2)........................ 43 Chief Executive Officer, 1999 I
President, Director
Timothy P. Flynn(3)(6)..................... 49 Director 1996 II
Jack L. Hancock(4)......................... 69 Director 1996 III
David Kronfeld(5)(6)....................... 52 Director 1998 I
Mark J. Masiello(1)(2)..................... 32 Director 1999 II
Richard W. Miller(1)(2)(5)................. 59 Director 2000 II
Thomas Neustaetter(3)(4)(5)................ 48 Director 1998 III
Mark Pelson(5)(6).......................... 38 Director 2000 III
</TABLE>
---------------
(1) Member of the Executive Committee
(2) Member of the Nominating Committee
(3) Member of the Audit Committee during 1999 through May 12, 2000
(4) Member of the Compensation Committee during 1999 through May 12, 2000
(5) Member of the Audit Committee since May 12, 2000
(6) Member of the Compensation Committee since May 12, 2000
Nominees for Election as Directors for a Three-year Term Expiring in 2003
Three directors are to be elected at this annual meeting. The Board of
Directors has nominated the three current members of the Board constituting
Class II to be re-elected and to serve a three-year term expiring at the annual
meeting of stockholders to be held in 2003. The nominees for election are
Timothy P. Flynn, Mark J. Masiello and Richard W. Miller. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for these
nominees. If for any reason any such nominee is not a candidate when the
election occurs, although such an event is not anticipated, it is the intention
of the persons named in the accompanying proxy form to vote for the remaining
nominees named and to vote in accordance with their best judgment if any
substitute nominees are named.
TIMOTHY P. FLYNN has served as a member of the Board of Directors since
1996. Mr. Flynn served as a member of the Board of Directors of ValuJet Airlines
since he participated in its founding in 1993, until November 1997. Mr. Flynn
and Mr. Maurice J. Gallagher, a Class I director, are affiliated in a number of
transactions.
MARK J. MASIELLO was elected to serve as a member of the Board of Directors in
November 1999. Mr. Masiello is a principal of Providence Equity Partners, Inc.,
which provides investment management services to Providence Equity Partners III
L.P. ("PEP") and has since its founding in 1998 served as a member of Providence
Equity Partners III LLC, the general partner of PEP. Mr. Masiello has been with
Providence since 1989 and he currently serves as a director of VIA NET.WORKS,
Inc., Netcom Internet Limited and Netcom Canada Inc.
RICHARD W. MILLER was elected to serve as a member of the Board of
Directors in March 2000. Mr. Miller has served as a director of Avalon Bay
Communities, a real estate investment trust, and its predecessor, Avalon
Properties, since May 1997. From 1993 until 1997, Mr. Miller served as senior
executive vice president and chief financial officer of AT&T and as a member of
AT&T's chairman's office. Mr. Miller also serves as a director of Closure
Medical Corporation and SBA Communications, Inc.
4
<PAGE> 8
Directors Whose Term of Office Continues
MAURICE J. GALLAGHER, JR. has served as the Chairman of the Board of
Directors since our inception. Mr. Gallagher was a founder of ValuJet Airlines,
Inc. in 1993 and served as a director of ValuJet from 1993 until November 1997
and served as vice chairman from 1994 to 1997. As a Class I director, Mr.
Gallagher's term will expire in 2001.
ROLLA P. HUFF was elected as our Chief Executive Officer and President and
as a member of the Board of Directors as of November 1, 1999. From March 1999 to
September 1999, Mr. Huff served as president and chief operating officer of
Frontier Corporation and served as executive vice president and chief financial
officer of that corporation from May 1998 to March 1999. From July 1997 to May
1998, Mr. Huff was president of AT&T Wireless for the Central U.S. region and
Mr. Huff served as senior vice president and chief financial officer of that
company from March 1995 to July 1997. From July 1994 to March 1995, Mr. Huff was
financial vice president of mergers and acquisitions for AT&T. As a Class I
director, Mr. Huff's term will expire in 2001.
DAVID KRONFELD was elected to serve as a member of the Board of Directors
in February 1998. Mr. Kronfeld is the founder of JK&B Management, L.L.C., a
venture capital firm, and has managed its affairs since 1995. Since 1989, Mr.
Kronfeld has also been a partner at Boston Capital Ventures, a venture capital
firm where he specialized in the telecommunications and software industries. As
a Class I director, Mr. Kronfeld's term will expire in 2001.
THOMAS NEUSTAETTER was elected to serve as a member of the Board of
Directors in February 1998. Since March 1999, Mr. Neustaetter has been an
executive member of JK&B Capital. From January 1996 to December 1999, Mr.
Neustaetter was a partner of The Chatterjee Group, an investment firm which is
an affiliate of Soros Fund Management. Before joining The Chatterjee Group, he
was the president and founder of Bancroft Capital, a general consulting firm,
from December 1994 to December 1996. Mr. Neustaetter also serves as a director
of 21st Century Telecom Group, Inc., Gloss.com, Update Marketing, Selectica,
Inc. and Vector Holdings. As a Class III director, Mr. Neustaetter's term will
expire in 2002.
MARK PELSON was elected to serve as a member of the Board of Directors in
March 2000. Mr. Pelson has been a managing director of Providence Equity
Partners Inc. since August 1996. Before joining Providence, Mr. Pelson was a
co-founder and director of TeleCorp, Inc., a wireless telecommunications
company. From 1989 to 1995, Mr. Pelson served in various management positions
with AT&T, most recently as a general manager of strategic planning and mergers
and acquisitions. Mr. Pelson also serves as a director of Carrier1 International
S.A., Madison River Telephone Company and Language Line Holdings, LLC.
Messrs. Kronfeld and Neustaetter were initially selected to serve on the
Board of Directors by the holders of the Company's Series A convertible
preferred stock. The Series A convertible preferred stock was automatically
converted into common stock upon the Company's initial public offering.
Messrs. Masiello and Pelson were selected to serve on the Board of
Directors by the purchasers of the Company's Series B convertible preferred
stock and Series C convertible preferred stock.
Directors Whose Term of Office Terminates at the Annual Meeting
JACK L. HANCOCK was elected to serve as a member of the Board of Directors
in 1996. Mr. Hancock was vice president of systems technology and executive vice
president, product and technology for PacBell from 1988 to 1993. He has served
as a member of the Board of Directors of Union Bank of California and Wittaker
Corporation since 1994. Mr. Hancock will be resigning as a director at the
annual meeting on June 22, 2000.
Committees of the Board of Directors
The Company has a standing Audit Committee and Compensation Committee. On
May 12, 2000, the Board of Directors also established a Nominating Committee and
an Executive Committee.
5
<PAGE> 9
Audit Committee
During the 1999 fiscal year, the Audit Committee, which consisted of
Timothy P. Flynn and Thomas Neustaetter, met once. At its meeting held on May
12, 2000, the Board of Directors appointed a new Audit Committee which consists
of Thomas Neustaetter, Richard W. Miller, Mark Pelson and David Kronfeld.
The Board of Directors and the Audit Committee also adopted a charter for
the Audit Committee setting forth the structure, powers and responsibilities of
the Audit Committee. Pursuant to the charter, the Audit Committee will be
comprised of at least three members appointed by the Board of Directors, each of
whom shall satisfy the membership requirements of independence, financial
literacy or accounting or financial expertise as prescribed by the rules of the
Nasdaq Stock Market. The Board determined that members of the Audit Committee
need to satisfy these requirements by June 14, 2001, as permitted by such rules.
The purpose of the Audit Committee is to assist the Board of Directors in
fulfilling its responsibilities to oversee the Company's financial reporting
process, including monitoring the integrity of the Company's financial
statements and the independence and performance of the Company's internal and
external auditors. Under its charter, the responsibilities of the Audit
Committee include:
- evaluating and proposing to the Board of Directors annually the
appointment, or nomination for shareholder approval (or, where
appropriate, the removal), of the independent auditors who shall be
accountable to the Board of Directors and the Audit Committee;
- determining whether to recommend to the Board of Directors that the
Company's financial statements be included in its Annual Report on Form
10-K for filing with the Securities and Exchange Commission.
- reviewing and discussing the audited financial statements with management
and the independent auditors;
- discussing with the independent auditors the matters required by
Statement on Auditing Standards No. 61 (which requires the auditors to
communicate to the Audit Committee matters related to the conduct of the
audit);
- reviewing and discussing with the independent auditors the written
disclosures required by Independence Standards Board Standard No. 1
regarding their independence and, where appropriate, recommend that the
Board of Directors take appropriate action in response to the disclosures
to satisfy itself of the independence of the Company's independent
auditors;
- reviewing and discussing with management and the independent auditors the
Company's interim financial statements as included in the Company's
quarterly reports;
- meeting privately with the independent auditors and with the Company's
internal auditors, as well as the Company's financial staff and
management to review the Company's accounting practices, internal
accounting controls and such other matters as the Audit Committee deems
appropriate;
- reporting to the Board of Directors its conclusions with respect to the
matters that the Audit Committee has considered; and
- reviewing and reassessing the adequacy of its charter annually and submit
it to the Board of Directors for approval.
Compensation Committee
During the 1999 fiscal year, the Compensation Committee, which consisted of
Jack L. Hancock and Thomas Neustaetter, met three times. The Compensation
Committee was empowered to: (i) approve compensation levels for each executive
officer who also serves as a member of the Board of Directors, and for any other
officer or employee of the Company whose annual base salary is in excess of
$150,000, provided however, that the Board of Directors must approve the annual
salary, bonus and other benefits of the Chief Executive Officer; (ii) approve
all incentive payments to each executive officer who also serves as a member of
6
<PAGE> 10
the Board of Directors; (iii) administer the Company's Stock Option Plan; and
(iv) undertake administration, upon specific direction of the Board of
Directors, of any other employee benefit plans.
At its annual meeting held on May 12, 2000, the Board of Directors
appointed a new Compensation Committee which consists of Timothy P. Flynn, Mark
Pelson and Richard W. Miller. The Board of Directors and the Compensation
Committee also adopted a charter for the Compensation Committee setting forth
the powers and responsibilities of the Compensation Committee. Under its
charter, the Compensation Committee is empowered and authorized, among other
things, to: (i) evaluate and recommend to the Board of Directors for its
approval of the compensation, including the annual salary, bonus, incentive
payments and other benefits, of the Chief Executive Officer of the Company and
(ii) approve the compensation levels, including the annual salary, bonus,
incentive payments and other benefits of (a) each other executive officer who
also serves as a member of the Board of Directors and (b) any other officer or
employee of the Company whose annual base salary is in excess of $250,000; (iii)
administer the Company's Stock Option Plan; and (iv) review and approve any new
employee benefit plan or change to an existing plan.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee during the 1999 fiscal year was
ever an officer or employee of the Company. No interlocking relationship existed
during the 1999 fiscal year between any executive officer of the Company and the
board of directors or compensation committee of another company.
Executive Committee
At its annual meeting held on May 12, 2000, the Board of Directors
established an Executive Committee and appointed Maurice J. Gallagher, Jr.,
Rolla P. Huff, Mark J. Masiello, and Richard. W. Miller to the Committee. The
Executive Committee is authorized and empowered to act on behalf of the Board of
Directors to authorize the Company's management to pursue (including, but, not
limited to, investigating, commencing negotiations or exploring financing
options), but not to consummate, significant transactions that are outside the
ordinary course of the Company's business, including, but not limited to,
financings, acquisitions of other businesses or lines of business, dispositions
of assets, or undertaking other strategic initiatives. The Chief Executive
Officer of the Company is hereby authorized and empowered to act on behalf of
the Board of Directors to authorize and approve any capital expenditure that is
(x) reflected in the Company's capital budget or within the Company's ordinary
or normal course of business or (y) is not reflected in the Company's capital
budget or not within the Company's ordinary or normal course of business and, in
each case, is less than $5 million. Any capital expenditure that is greater than
$5 million but equal to or less than $10 million and is outside the ordinary
course of the Company's business or is not reflected in the Company's capital
budget shall require the approval of the Executive Committee; provided, however
that any such capital expenditure that exceeds $10 million shall require the
approval of the Board of Directors. At each meeting of the Board of Directors, a
member of the Executive Committee shall report to the Board as to the Executive
Committee's activities during the period since that last Board meeting.
Nominating Committee
On May 12, 2000, the Board of Directors also established a Nominating
Committee that is authorized and empowered to submit to the entire Board of
Directors for its approval the committee's recommendations for nominees to the
Board of Directors. The Board of Directors appointed Maurice J. Gallagher, Jr.,
Rolla J. Huff, Mark J. Masiello, and Richard W. Miller, as members of the
Nominating Committee.
Director Compensation
The Company's outside directors (Messrs. Flynn, Hancock, Kronfeld,
Masiello, Miller, Neustaetter and Pelson) receive meeting fees of $1,000 per
meeting of the Board of Directors or committee attended in person in addition to
reimbursement of their expenses in attending meetings of the Board of Directors,
and $1,000 for each day of service on behalf of the Company other than the
attendance of Board or Committee meetings.
7
<PAGE> 11
Meetings of the Board of Directors
The Board of Directors met six times during the Company's 1999 fiscal year
and took action on other occasions by unanimous consent. Each incumbent director
attended at least 75% of the total of all Board and committee meetings he was
entitled to attend during the 1999 year.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL THE
ABOVE NOMINEES. Any proxy received will be so voted unless the Stockholder
executing the proxy specifically votes against the amendment or abstains from
voting by marking the appropriately designated box on the proxy.
PROPOSAL NO. 2: AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO INCREASE
THE NUMBER OF AUTHORIZED SHARES OF CAPITAL STOCK AND TO CORRESPONDINGLY INCREASE
THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
General
The Company is currently authorized to issue 110,000,000 shares of capital
stock, consisting of 60,000,000 shares of common stock, par value $.001 per
share and 50,000,000 shares of preferred stock. The Board of Directors
recommends that the Company's Stockholders approve an amendment to the Company's
Articles of Incorporation that would increase the authorized shares of the
Company's capital stock from 110,000,000 shares to 250,000,000 shares of capital
stock and to correspondingly increase the number of authorized shares of common
stock from 60,000,000 shares to 200,000,000 shares of common stock.
If the amendment is approved by the Stockholders, the first paragraph and
the subsequent clause (i) of Section 4.01 of the Company's Articles of
Incorporation will read as follows:
The authorized capital stock of the Corporation shall consist of not
more than 250,000,000 shares of stock which are divided into classes and
which have such designations, preferences, limitations and relative rights
as follows:
(i) 200,000,000 shares of common stock with a par value of $.001
per share, designated as "common stock."
The Company proposes to increase the number of authorized shares of its
capital stock and to correspondingly increase the number of authorized shares of
its common stock to provide additional shares for general corporate purposes,
including stock dividends and splits, raising additional capital, issuances
pursuant to employee stock and option plans and possible future acquisitions.
The Company's officers from time to time engage in discussions with other
businesses concerning the possible acquisition of such companies by the Company,
in which the Company has considered issuing stock as part or all of the
acquisition price. The Company may consider similarly structured acquisitions in
the future. The Board of Directors believes that an increase in the total number
of shares of authorized common stock will better enable the Company to meet its
future needs and give it greater flexibility in responding quickly to business
opportunities. The proposed increase will also provide additional shares for
corporate purposes generally.
The Company's issuance of shares of common stock, including the additional
shares that will be authorized if the proposed amendment is adopted, may dilute
the present equity ownership position of current holders of common stock and may
be made without Stockholder approval, unless otherwise required by applicable
laws.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE PROPOSAL
TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION TO INCREASE THE COMPANY'S
AUTHORIZED SHARES OF CAPITAL STOCK AND TO CORRESPONDINGLY INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK. Any proxy received will be so voted unless
the Stockholder executing the proxy specifically votes against the amendment or
abstains from voting by marking the appropriately designated box on the proxy.
8
<PAGE> 12
PROPOSAL NO. 3 -- AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO
OFFICIALLY CHANGE ITS NAME TO MPOWER COMMUNICATIONS CORP.
The Board of Directors has determined to officially change the corporate
name of the Company from MGC Communications, Inc. to Mpower Communications Corp.
by an amendment to its Articles of Incorporation. In connection with the
national rollout of its services, the Company began using the name Mpower
Communications Corp. beginning in January, 2000 to enhance its marketing
efforts.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF AN AMENDMENT
TO THE COMPANY'S ARTICLES OF INCORPORATION TO EFFECT THE CHANGE OF THE COMPANY'S
NAME FROM MGC COMMUNICATIONS, INC. TO MPOWER COMMUNICATIONS CORP. Any proxy
received will be so voted unless the Stockholder executing the proxy
specifically votes against the amendment or abstains from voting by marking the
appropriately designated box on the proxy.
PROPOSAL NO. 4: AMENDMENT TO STOCK OPTION PLAN
General
On May 12, 2000, the Board of Directors of the Company adopted an amendment
to the Company's Stock Option Plan, subject to approval of the Stockholders,
under which the number of shares of common stock available for purchase under
the Stock Option Plan will be increased from 4,640,000 shares to 8,640,000
shares.
The Board of Directors believes that Stockholder approval of the proposed
amendment to the Stock Option Plan is desirable since the Company's ability to
attract qualified executive employees and the Company's compensation policy rely
to a significant degree on the ability of the Company to grant stock options
and, without the amendment, the number of options that may be granted under the
Stock Option Plan is limited. The Company believes that the granting of stock
options increases the incentive for employees, consultants and directors to
contribute to the future success and prosperity of the Company and, therefore,
enhances the value of the Company's stock for the benefit of stockholders.
Furthermore, the availability and offering of stock options to employees,
consultants and directors strengthens the ability of the Company to attract and
retain quality personnel.
Of particular significance at this time with respect to the need to
increase the number of stock options are (i) the Company's need to continue to
employ qualified personnel in the current competitive hiring market, (ii) the
Company's recent acquisition of Primary Networks, Inc. and (iii) the Company's
intention to seek additional acquisition targets. It is essential that the
owners and employees of acquired companies be compensated in part through the
issuance of Mpower stock options. The Company needs the flexibility to act
quickly and decisively when a desirable acquisition candidate is found.
The future success of the Company depends in large part on management
having the tools not only to hire and retain excellent employees, but also to
take immediate advantage of acquisition opportunities essential to the Company's
expansion strategy.
The following is a summary of the material features of the Company's Stock
Option Plan.
Stock Option Plan Administration
Subject to the provisions of the Stock Option Plan, the Stock Option Plan
is administered by the Compensation Committee of the Board of Directors which is
composed of non-employee directors of the Company. The Compensation Committee
has the authority to grant options and set the terms and conditions of such
grants.
Eligibility
In general, all employees, consultants and directors of the Company are
eligible to receive options under the Company's Stock Option Plan. Stock options
are granted to all employees of the Company upon commencing employment with the
Company. Each employee's initial option grant is based on his or her
9
<PAGE> 13
responsibilities and position. As of March 31, 2000, the Company had 1,510
employees, all of whom have been granted or are eligible to receive stock
options. Subsequent stock option awards are based primarily on an employee's
performance and responsibilities.
Although the Company's executive officers are eligible for future grants of
stock options under the Plan, it is not possible to determine at this time the
number of options that may be granted to the Company's executive officers from
the proposed increase in the number of shares available under the Stock Option
Plan.
Shares Subject to the Stock Option Plan
Currently, a maximum of 4,640,000 shares of the Company's common stock are
authorized for issuance upon exercise of stock options under the Stock Option
Plan, subject to adjustment by the Compensation Committee upon stock splits,
stock dividends or the occurrence of certain other events set forth in the Stock
Option Plan. The proposed amendment to the Stock Option Plan will increase that
number to 8,640,000 shares. The shares may be either treasury or authorized but
unissued shares. As of March 31, 2000, 822,068 options had been exercised and
there were 4,847,932 options outstanding at an average exercise price of $32.32
per share. There are no shares available for future grant under the Stock Option
Plan and the number of options granted under the Stock Option Plan exceeded the
number of shares authorized for issuance thereunder by 1,030,000 shares. The
closing price of the Company's common stock in the NASDAQ Stock Market on June
2, 2000, was $52 15/16 per share.
The actual value of the securities issued under the Stock Option Plan will
be determined by the fair market value of the underlying securities on the dates
such securities are issued. The actual aggregate amount to be received by the
Company upon issuance of such shares will be determined by the exercise price of
options granted.
Option Features
The types of stock options that may be granted under the Stock Option Plan
are nonqualified stock options, as governed by Section 83 of the Internal
Revenue Code of 1986, as amended (the "Code"), and incentive stock options
intended to be qualified under Code Section 422. The option price per share is
determined by the Compensation Committee, in its discretion.
No stock option may expire more than ten years from the date of grant. The
Compensation Committee may establish vesting provisions for a stock option so
that the option becomes fully vested over a period of time. Options granted in
lieu of a cash bonus typically provide for vesting after one year. Other options
have been granted with three to five year vesting schedules. The Compensation
Committee may also accelerate the vesting of any stock option or portion
thereof.
No stock option granted under the Stock Option Plan is assignable or
transferable except by will or the laws of descent and distribution.
Amendment and Termination
The Board of Directors may terminate or amend the Stock Option Plan in any
respect at any time, except that (i) no modification may, without the
participant's consent, alter or impair any of the rights or obligations under
any stock option theretofore granted, and that without Stockholder approval,
(ii) no modification may materially modify the eligibility requirements for
receiving stock options, change the class or persons eligible to participate in
the Stock Option Plan, increase the maximum number of shares for which options
may be granted under the Stock Option Plan, extend the period of granting stock
options or materially increase in any other way the benefits accruing to
participants.
No stock options may be granted under the Stock Option Plan after June 30,
2006.
10
<PAGE> 14
Federal Income Tax Aspects of Stock Option Plan
The following general summary is based upon the applicable provisions of
Pre Code and does not include a discussion of any state or local tax
consequences.
Incentive Stock Options. An optionee does not realize taxable income upon
the grant or exercise of an incentive stock option. Although an optionee will
not realize ordinary income upon his exercise of an incentive stock option, the
excess of the fair market value of the common stock acquired at the time of
exercise over the option price may constitute an adjustment in computing
alternative minimum taxable income under Section 56 of the Code and, thus, may
result in the imposition of the "alternative minimum tax" pursuant to Section 55
of the Code.
The income tax treatment of any gain or loss realized upon an optionee's
disposition of shares of common stock received upon exercise of an incentive
stock option depends on the timing of the disposition. If the optionee holds the
shares received upon exercise of an incentive stock option for at least two
years from the date such incentive stock option was granted and one year from
the date of exercise, the difference between the amount realized from the sale
of such shares and the optionee's tax basis will be taxed as long-term capital
gain or loss.
If an optionee disposes of the shares of common stock before the end of the
applicable holding periods described above (i.e., the optionee makes a
"disqualifying disposition"), such optionee may have taxable income in the year
of the disqualifying disposition, depending on the selling price. If the selling
price exceeds the fair market value of the incentive stock option on the date of
exercise, the excess of that fair market value over the exercise price is
taxable to the optionee as ordinary income, and the excess of the selling price
over the fair market value is taxable to the optionee as capital gain. If the
selling price exceeds the exercise price but not the fair market value on the
date of exercise, the excess of the selling price over the exercise price is
taxable to the optionee as ordinary income. If the selling price is less than
the exercise price, the difference is treated as capital loss.
The Company is not entitled to a deduction for federal income tax purposes
with respect to the grant or exercise of an incentive stock option or the
disposition of shares of common stock acquired upon exercise (if the applicable
holding periods have been met). In the event of a disqualifying disposition,
however, the Company is entitled to a federal income tax deduction in an amount
equal to the ordinary income recognized by the optionee.
Nonqualified Stock Options.An optionee will not recognize any taxable
income upon the grant of a nonqualified option. However, upon exercise of a
nonqualified option, an optionee must recognize ordinary income in an amount
equal to the excess of the fair market value of the shares of common stock at
the time of exercise over the exercise price. Upon the subsequent disposition of
the shares, the optionee will realize a capital gain or loss, depending or
whether the selling price exceeds the fair market value of shares on the date of
exercise.
An optionee's tax basis in the shares of common stock received on exercise
of a nonqualified option will be equal to the amount of consideration paid by
the optionee on exercise, plus the amount of ordinary income recognized as a
result of the receipt of such shares. The Company will be entitled to a
deduction for federal income tax purposes at the same time and in the same
amount as the optionee recognizes taxable income.
The summary of federal income tax consequences set forth above is for
general information only and may not be applicable to or complete with respect
to all individuals. Individuals to whom options are granted should consult their
own tax advisors for a determination as to the specific tax consequences
applicable to them.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE STOCK
OPTION PLAN. Any proxy received will be so voted unless the Stockholder
executing the proxy specifically votes against the amendment or abstains from
voting by marking the appropriately designated box on the proxy.
11
<PAGE> 15
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN
BENEFICIAL OWNERS
The following table sets forth, as of May 10, 2000 (unless otherwise
indicated in the footnotes), certain information with respect to the Company's
voting securities owned beneficially by (1) each director, including the
nominees, (2) each of the executive officers named in the Summary Compensation
Table beginning on page 21, (3) directors and executive officers as a group and
(4) each person known by the Company to be a beneficial owner of more than 5% of
the outstanding voting securities of the Company.
<TABLE>
<CAPTION>
COMMON STOCK SERIES C PREFERRED STOCK
---------------------------------- ----------------------------------
NUMBER OF SHARES PERCENT OF NUMBER OF SHARES PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OWNERSHIP BENEFICIALLY OWNED(1) OWNERSHIP
------------------------ --------------------- ---------- --------------------- ----------
<S> <C> <C> <C> <C>
Providence Equity Partners III
LLC(2)............................... 5,231,488 14.4% 892,857 71.5%
Maurice J. Gallagher, Jr., Chairman of
the Board and director(3)............ 3,287,608 9.2% -- --
David Kronfeld, director(4)............ 2,091,816 5.8% 357,143 28.5%
Timothy P. Flynn, director(5).......... 900,900 2.5%
Rolla P. Huff, president, chief
executive officer and director....... 150,000 * -- --
Jack L. Hancock, director(6)........... 39,600 * -- --
Thomas Neustaetter, director........... 8,800 * -- --
Richard W. Miller, director............ 1,500 * -- --
Mark J. Masiello, director(7).......... -- -- -- --
Mark Pelson, director(7)............... -- -- -- --
James Mitchell, President -- Eastern
Region(9)............................ 62,200 * -- --
James J. Hurley, III,
President -- Midwest Region(8)....... 42,200 * -- --
John Boersma, Senior Vice
President(10)........................ 151,333 * -- --
David S. Clark, Senior Vice
President(11)........................ 57,753 * -- --
Linda M. Sunbury, Senior Vice
President(12)........................ 126,853 * -- --
All executive officers and directors as
a group (23 persons)(3)(4)(5)(6)(7)
(9)(10)(11)(12)(13).................. 7,151,239 19.8% 357,143 28.5%
</TABLE>
---------------
* Less than 1% of the total
(1) In accordance with the Commission's rules, each beneficial owner's holdings
have been calculated assuming the full exercise of options and the
conversion of all shares of convertible preferred stock held by the holder
which are currently exercisable or convertible or which will become
exercisable or convertible within 60 days after the date indicated and no
exercise of options or conversion of preferred stock held by any other
person.
(2) The common stock ownership indicated includes 892,857 shares of Series C
convertible preferred stock. The shares of Series C convertible preferred
stock are convertible into common stock on a one-for-one
12
<PAGE> 16
basis. The address of this beneficial owner is 901 Fleet Center, 50 Kennedy
Plaza, Providence, Rhode Island 02903.
(3) Includes options to purchase 52,000 shares of common stock which are
presently exercisable and 3,190,898 shares of common stock owned by various
partnerships, trusts or corporations with respect to which Mr. Gallagher is
a general partner, beneficiary and/or controlling stockholder. Also
includes 44,730 shares owned by a trust for the benefit of Mr. Gallagher's
minor children with respect to which Mr. Gallagher disclaims any beneficial
ownership interest. Mr. Gallagher's address is 3291 N. Buffalo Drive, Las
Vegas, Nevada 89129.
(4) The common stock ownership indicated includes 1,725,873 shares of common
stock and 357,143 shares of Series C convertible preferred stock owned by
partnerships in which Mr. Kronfeld is a general partner or manager of a
general partner. The shares of Series C convertible preferred stock are
convertible into common stock on a one-for-one basis. Mr. Kronfeld's
address is JK&B Management, L.L.C., 205 North Michigan, Suite 808, Chicago,
Illinois 60601.
(5) Includes options to purchase 9,600 shares which are presently exercisable
or will become exercisable within 60 days after the date indicated above
and 102,000 shares of common stock owned by various partnerships or
corporations with respect to which Mr. Flynn is a general partner and/or
controlling stockholder.
(6) Includes options to purchase 9,600 shares that are presently exercisable or
will become exercisable within 60 days after the date indicated above.
(7) Excludes 4,338,631 shares of common stock and 892,857 shares of Series C
convertible preferred stock owned by Providence Equity Partners III L.P.
and its affiliates. Mr. Masiello and Mr. Pelson disclaim beneficial
ownership of these shares except to the extent of their pecuniary interest
in the general partner of Providence Equity Partners III L.P.
(8) Includes options to purchase 14,600 shares which are presently exercisable.
Mr. Hurley's stock ownership information is as of January 31, 2000. Mr.
Hurley's employment as an officer of the Company terminated in November
1999.
(9) Includes 19,600 options that are presently exercisable or will become
exercisable within 60 days after the date indicated above. As of May 12,
2000, Mr. Mitchell is no longer an executive officer of the Company but
continues as an officer and employee of the Company.
(10) Includes 26,333 options that are presently exercisable or will become
exercisable within 60 days after the date indicated above. As of May 12,
2000, Mr. Boersma is no longer an executive officer of the Company but
continues as an officer and employee of the Company.
(11) Includes 44,133 options that are presently exercisable or will become
exercisable within 60 days after the date indicated above. As of May 12,
2000, Mr. Clark is no longer an executive officer of the Company but
continues as an officer and employee of the Company.
(12) Includes 25,953 options that are presently exercisable or will become
exercisable within 60 days after the date indicated above. As of May 12,
2000, Ms. Sunbury is no longer an executive officer of the Company but
continues as an officer and employee of the Company.
(13) Includes options to purchase 57,267 shares owned by executive officers not
named above which are presently exercisable or which will become
exercisable within 60 days after the date of indicated above.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of the Company's equity
securities, to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission. Such persons are required
by the Exchange Act to furnish the Company with copies of all Section 16(a)
forms they file.
Reports received by the Company indicate that Providence Equity Partners
III LLC, Paul Salem, Jonathan Nelson and Glenn Creamer all failed to file Forms
4 for 1999 in a timely manner. Furthermore, John Boersma, James Hurley and Nield
Montgomery all failed to file Forms 5 for 1999 in a timely manner.
13
<PAGE> 17
Based solely on a review by the Company of Forms 3, Forms 4 and Forms 5 and
amendments to those forms furnished to the Company pursuant to Rule 16a-3(e)
during the fiscal year ended December 31, 1999 and except as specified in the
preceding paragraph, the Company believes that all directors, executive officers
and beneficial owners of more than 10% of the Company's equity securities have
filed with the Securities and Exchange Commission on a timely basis, all reports
required to be filed under Section 16(a) of the Securities Act.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company as of May 12, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Maurice J. Gallagher, Jr............... 49 Chairman of the Board of Directors
Rolla P. Huff.......................... 43 President and Chief Executive Officer
S. Gregory Clevenger................... 36 Senior Vice President -- Corporate Development
Michael R. Daley....................... 39 Executive Vice President -- Chief Financial Officer
Neil Hediger........................... 42 Senior Vice President -- Marketing
Kent F. Heyman......................... 44 Senior Vice President and General Counsel
Roger J. Pachuta....................... 47 Senior Vice President -- Engineering and Operations
Russell I. Zuckerman................... 53 Secretary
Frank Szabo............................ 48 Comptroller
</TABLE>
MAURICE J. GALLAGHER, JR. has served as the Chairman of the Board of
Directors since our inception. Mr. Gallagher was a founder of ValuJet Airlines,
Inc. in 1993 and served as a director of ValuJet from 1993 until November 1997
and served as vice chairman from 1994 to 1997. As a Class I director, Mr.
Gallagher's term will expire in 2001.
ROLLA P. HUFF was elected as our chief executive officer and president and
as a member of our board of directors as of November 1, 1999. From March 1999 to
September 1999, Mr. Huff served as president and chief operating officer of
Frontier Corporation and served as executive vice president and chief financial
officer of that corporation from May 1998 to March 1999. From July 1997 to May
1998, Mr. Huff was president of AT&T Wireless for the Central U.S. region and
Mr. Huff served as senior vice president and chief financial officer of that
company from March 1995 to July 1997. From July 1994 to March 1995, Mr. Huff was
financial vice president of mergers and acquisitions for AT&T. As a Class I
director, Mr. Huff's term will expire in 2001.
S. GREGORY CLEVENGER has served as senior vice president -- corporate
development since January 2000. From March 1997 to December 1999, Mr. Clevenger
was vice president of investment banking at Goldman, Sachs & Co. in the
communications, media and entertainment group in Singapore and New York. From
September 1992 to March 1997, Mr. Clevenger was an associate and vice president
in the investment banking division of Morgan Stanley & Co. Incorporated in New
York, Hong Kong and Singapore in a variety of groups including the global
telecommunications group and the global project finance and leasing group. From
May 1990 to September 1992, Mr. Clevenger was an associate and vice president at
Argent Group Ltd. in New York.
MICHAEL R. DALEY has served as executive vice president and chief financial
officer since November 1999. From November 1998 to November 1999, Mr. Daley
served as executive vice president and chief financial officer of Concentrix
Corporation. From 1984 through ACC Corp.'s merger with Teleport Communications
Group, Inc. in 1998, Mr. Daley served in various capacities at ACC Corp.,
including as executive vice president and chief financial officer from March
1994 to October 1998 with responsibilities including operations support,
investor relations, human resources, legal, mergers and acquisitions and
business development.
14
<PAGE> 18
NEIL HEDIGER has served as senior vice president -- marketing since January
2000. From September 1995 to November 1999, Mr. Hediger served as vice president
of business communications for BellSouth and as vice president of marketing for
BellSouth business systems. From April 1991 to September 1995, he served as
director of marketing for MCI -- business markets.
KENT F. HEYMAN has served as vice president and general counsel since June
1996 and was designated senior vice president in December 1999. Mr. Heyman has
18 years of legal experience, most recently as chairman of the litigation
department and senior trial counsel of the Dowling, Magarian, Aaron & Heyman law
firm. Mr. Heyman has served as a California Superior Court Judge pro tempore
presiding over trial, settlement conference and other proceedings from 1990 to
1996.
ROGER J. PACHUTA has served as senior vice president -- engineering and
operations since March of this year. From 1993 through February 2000, Mr.
Pachuta served in various roles for AT&T Wireless, his last position being vice
president of field operations.
RUSSELL I. ZUCKERMAN joined Mpower in January, 2000 as Director of National
Legal Affairs. Mr. Zuckerman is a graduate of Columbia College (1968) and Yale
Law School (1971). Before joining Mpower, he had been in private practice since
1973 with Underberg & Kessler, LLP, a Rochester firm. Mr. Zuckerman had served
as Managing Partner and Chairman of the litigation department at Underberg &
Kessler, and specialized in all aspects of litigation, including commercial,
banking and employment.
FRANK C. SZABO has served as the Company's Comptroller since March, 2000.
From 1997 to February, 2000, Mr. Szabo served as Vice President and Comptroller
of AT&T Local Services Division (formerly ACC Corp). From 1981 to 1997, Mr.
Szabo served as Vice President and Comptroller of First Federal Savings and Loan
of Rochester and, in such capacity, served as a member of several management
committees, including Operations, Credit Policy and Information Services
Steering Committee.
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table shows, for the fiscal years ended December 31, 1997,
December 31, 1998, and December 31, 1999, the cash compensation paid by the
Company, as well as certain other compensation paid or accrued for such year,
for the Company's Chief Executive Officer and four most highly compensated
executive officers other than the Chief Executive Officer and one other officer
who was one of the four most highly compensated officers for 1999 (the "Named
Executive Officers"). Such table also indicates all capacities in which they
served.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
--------------------- COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
--------------------------- ---- --------- --------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Rolla P. Huff, President and Chief
Executive Officer.................. 1999 77,923 1,000,000(1) 400,000 0
Nield J. Montgomery, President and
Chief Executive Officer(2)......... 1999 137,456 0 0 0
1998 158,707 20,000(3) 45,000 0
1997 139,424 0 0 0
James Mitchell, President -- Eastern
Region(4).......................... 1999 114,615 36,125 10,000 0
1998 88,275 45,000 48,000 0
James J. Hurley, III, President --
Midwest Region(5).................. 1999 120,000 6,676 10,000 0
1998 93,991 30,000 48,000 0
</TABLE>
15
<PAGE> 19
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
--------------------- COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
--------------------------- ---- --------- --------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
John Boersma, Senior Vice
President.......................... 1999 112,308 0 95,000 0
1998 109,442 6,000 15,000 0
1997 53,308 0 60,000 0
David S. Clark, Senior Vice
President(6)....................... 1999 107,115 10,000 95,000 0
1998 96,058 6,000 18,000 0
1997 46,750 0 36,000 0
Linda M. Sunbury, Senior Vice
President.......................... 1999 107,115 10,000 95,000 0
1998 90,876 10,000 22,000 0
1997 81,231 0 12,000 0
</TABLE>
---------------
(1) Mr. Huff commenced employment with the Company in November 1999 and
therefore, the salary shown for him for 1999 is for the period from November
1999 through December 1999. Mr. Huff received a signing bonus in the amount
indicated in the above table upon his employment as an officer of the
Company.
(2) Mr. Montgomery served as the Company's President and Chief Executive Officer
until November 1999.
(3) A portion of this bonus was paid in the form of common stock in the Company.
(4) Mr. Mitchell commenced employment with the Company in February 1998 and
therefore, the compensation shown for him for 1998 is for the period from
February 1998 through December 1998.
(5) Mr. Hurley commenced employment with the Company in March 1998 and
therefore, the compensation shown for him for 1998 is for the period from
March 1998 through December 1998. Mr. Hurley's employment as an officer of
the Company terminated in November 1999.
(6) Mr. Clark commenced employment in May 1997 and therefore, the salary shown
for him for 1997 is for the period from May 1997 through December 1997.
Option Grants During Year Ended December 31, 1999
The table below sets forth information regarding all stock options granted
in the 1999 fiscal year under the Company's Stock Option Plan to those executive
officers of the Company named in the Summary Compensation Table above.
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO MARKET PRICE OR
UNDERLYING EMPLOYEES IN EXERCISE FAIR VALUE ON EXPIRATION
NAME OPTIONS GRANTED FISCAL YEAR PRICE DATE OF GRANT DATE
---- --------------- ------------ -------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Rolla P. Huff(2)........... 400,000 16.4% $ 20.00 $ 28.81 10/13/09
Nield J. Montgomery........ 0 n/a n/a n/a n/a
James Mitchell............. 10,000 4% 6.09 6.03 3/1/09
James J. Hurley, III....... 10,000 4% 6.03 6.03 3/1/09
John Boersma............... 20,000 8% 6.03 6.03 3/1/09
John Boersma............... 75,000 3.1% 27.50 27.50 11/1/09
David S. Clark............. 20,000 8% 6.03 6.03 3/1/09
David S. Clark............. 75,000 3.1% 27.50 27.50 11/1/09
Linda M. Sunbury........... 20,000 8% 6.03 6.03 3/1/09
Linda M. Sunbury........... 75,000 3.1% 27.50 27.50 11/1/09
<CAPTION>
POTENTIAL REALIZED VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
OPTION TERM(1)
----------------------------------
NAME APPRECIATION 5% APPRECIATION 10%
---- --------------- ----------------
<S> <C> <C>
Rolla P. Huff(2)........... $ 10,773,001 $ 21,892,882
Nield J. Montgomery........ n/a n/a
James Mitchell............. 37,343 95,535
James J. Hurley, III....... 37,942 96,122
John Boersma............... 75,885 192,245
John Boersma............... 1,297,095 3,287,094
David S. Clark............. 75,885 192,245
David S. Clark............. 1,297,095 3,287,094
Linda M. Sunbury........... 75,885 192,245
Linda M. Sunbury........... 1,297,095 3,287,094
</TABLE>
---------------
(1) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates set by the Securities and Exchange Commission and therefore
are not intended to forecast possible future appreciation, if any, of the
price of the Company's stock.
16
<PAGE> 20
(2) The potential realized value of the option grants to Mr. Huff would be
$3,250,000 even if there was no appreciation in the value of the stock from
the date of the grant.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
The following table shows aggregate exercises of options during 1999 and
the values of options held as of December 31, 1999 by those executive officers
of the Company named in the Summary Compensation Table above.
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF IN-THE-MONEY
NUMBER UNEXERCISED OPTIONS OPTIONS
OF SHARES DECEMBER 31, 1999 DECEMBER 31, 1999
ACQUIRED ON VALUE EXERCISABLE(E)/ EXERCISABLE(E)/
NAME EXERCISE REALIZED UNEXERCISABLE(U) UNEXERCISABLE(U)
---- ----------- -------- ------------------- -----------------
<S> <C> <C> <C> <C>
Rolla P. Huff...................... -- -- 400,000U $12,300,000U
Nield J. Montgomery................ -- -- 261,333E 12,726,359E
Nield J. Montgomery................ -- -- 168,667U 8,283,903U
James Mitchell..................... 19,200 $265,800 48,400U 2,171,528U
James J. Hurley, III............... 9,600 232,032 43,409U 1,852,528U
John Boersma....................... 34,000 729,080 1,000E 42,750E
John Boersma....................... -- -- 135,000U 4,426,270U
David S. Clark..................... -- -- 26,000U 646,848E
David S. Clark..................... -- -- 123,000U 3,882,022U
Linda M. Sunbury................... -- -- 35,200E 1,629,156E
Linda M. Sunbury................... -- -- 123,800U 3,960,934U
</TABLE>
---------------
(1) Amounts shown are based upon the closing sale price for the Company's common
stock on December 31, 1999, which was $50.75 per share.
Employment Agreements
Rolla P. Huff. The Company's employment agreement with Mr. Huff provides
for a base salary of $500,000 per year and an annual bonus of up to 100% of his
base salary based on the Company's achievement of certain annual targets to be
established by the Board of Directors in conjunction with the Company's annual
operating budget or in the discretion of the Board of Directors. Mr. Huff
received a $1,000,000 signing bonus upon his employment with the Company. The
signing bonus is subject to repayment if Mr. Huff's employment with the Company
is terminated before three years of employment under certain circumstances. Mr.
Huff is required to devote his full time and efforts to the business of the
Company during the term of his employment agreement which expires in October
2002. Mr. Huff's employment may be terminated by either the Company or Mr. Huff
at any time. Mr. Huff has agreed not to participate in a competitive business
during the term of his employment and for a period of twelve months following
termination. If Mr. Huff's employment is terminated by the Company without cause
or after a change of control, Mr. Huff will be entitled to severance pay (not
less than $1,000,000) equal to two times the salary and bonus paid to him during
the previous 12 months with payments to be made over the 24 month period
following his termination of employment. Mr. Huff's initial stock options will
also become immediately vested in the event of a change of control of the
Company.
In connection with Mr. Huff's employment with the Company, the Company sold
to Mr. Huff 150,000 shares of common stock at its value at that time ($28.81 per
share). The purchase price was payable by a non-recourse promissory note secured
by the shares purchased. The promissory note bears interest at 7.5% per annum
and is due in November 2002. The Company has agreed to forgive all payments due
under the promissory note if there is a change of control, if Mr. Huff is
continuously employed by the Company until November 2002 or if Mr. Huff's
employment is terminated prior to that time by the Company without cause or as a
result of Mr. Huff's disability. The shares of stock are subject to repurchase
by the Company if
17
<PAGE> 21
Mr. Huff's employment is terminated other than by the Company without cause or
as a result of a change of control or Mr. Huff's death or disability.
Michael R. Daley. The Company's employment agreement with Mr. Daley
provides for a base salary of $225,000 per year and an annual bonus of up to 75%
of his base salary based on the Company's achievement of certain annual targets
to be established by the Board of Directors in conjunction with the Company's
annual operating budget. Mr. Daley's employment may be terminated by either the
Company or Mr. Daley at any time. Mr. Daley has agreed not to participate in a
competitive business during the term of his employment and for a period of
twelve months following termination. If Mr. Daley's employment is terminated by
the Company without cause or after a change of control, Mr. Daley will be
entitled to severance pay equal to two times the salary and bonus paid to him
during the previous 12 months with payments to be made over the 24 month period
following his termination of employment. Mr. Daley's initial stock options will
also become immediately vested in the event of a change of control of the
Company.
Nield J. Montgomery. In November 1999, the Company and Mr. Montgomery
entered into an agreement superseding Mr. Montgomery's previous employment
agreement. Under the new agreement, Mr. Montgomery is to remain employed by the
Company until April 2001 and Mr. Montgomery will receive a base salary of $5,000
per month during the period of his employment. In addition, the agreement
provided for Mr. Montgomery to receive a lump sum payment of $360,000 in January
2000 in connection with his resignation as an executive officer and Director of
the Company. Under the agreement, the Company agreed to accelerate the vesting
of a portion of Mr. Montgomery's stock options.
Other Executive Officers. The Company has entered into Employment/Stock
Repurchase Agreements with John Boersma, David S. Clark and Linda M. Sunbury.
These agreements establish base salaries and provide that each employee may earn
a bonus of up to 50% of his or her base salary based on the employee's and the
Company's performance. Each employee's employment may be terminated at any time
by either the Company or the employee. Each of these executive officers has
agreed not to participate in a business offering local, long distance and
related telephone services in the area of his or her employment during the term
of employment and for a period of six months following termination. Each of
these executive officers has exercised rights to acquire common stock at $5.83
per share. All or a portion of such shares are subject to repurchase at their
cost if the executive officer's employment with the Company is terminated within
a three year period. The Company has financed the purchase price of certain of
these shares over a period of three years.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During fiscal 1999 and through May 12, 2000, the Compensation Committee
(the "Committee") was comprised of Messrs. Hancock and Neustaetter, each of whom
was a non-employee director. The role of the Committee was to approve
compensation levels of executive officers of the Company who also serve on the
Board of Directors and other officers or employees with an annual base salary in
excess of $150,000, to approve incentive payments to each executive officer who
serves on the Board of Directors and to administer the Company's Stock Option
Plan.
Compensation Philosophy
The Company's executive compensation programs are designed to enhance the
value of the Company to its stockholders. This is accomplished through policies
and practices that facilitate the achievement of the Company's performance
objectives, provide compensation that will attract and retain the talent
required to achieve the Company's goals and align the executive officers'
interests with the interests of the Company's stockholders.
The Company's approach to executive compensation has been designed to
provide a competitive compensation program that will enable the Company to
attract, motivate, reward and retain individuals who possess the skills,
experience and talents necessary to advance the growth and financial performance
of the Company. The Company's compensation policies are based on the principle
that each executive's financial rewards should be aligned with the financial
interests of the stockholders of the Company. The Committee
18
<PAGE> 22
also believes that the potential for equity ownership by management is
beneficial in aligning management's and stockholders' interest in the
enhancement of stockholder value. The Company's executive compensation policy
has three key elements: (i) a long-term component consisting of stock options
and stock purchases, (ii) an annual component (base salary), and (iii)
performance-based compensation consisting of stock options and/or cash
compensation.
Base Salary
The base salaries of executive officers are initially determined by
reference to: industry standards; individual performance; and the scope of
responsibility in relation to other officers and key executives within the
Company. These factors are considered subjectively in the aggregate and none of
the factors is accorded a specific weight. In selected cases, other factors may
also be considered. The base salaries of Nield J. Montgomery, Rolla P. Huff and
certain other officers were negotiated within the context of employment
agreements between them and the Company.
While it is the Committee's intent to continue to review periodically base
salary information to monitor competitive ranges within the applicable market,
including consideration of the Company's geographic location and individual job
responsibilities, it is further the intent of the Committee to maintain a close
relationship between the Company's performance and the base salary component of
its executive officers' compensation.
Deductibility of Executive Compensation
The Committee has considered the impact of Section 162(m) of the Internal
Revenue Code adopted under the Omnibus Budget Reconciliation Act of 1993, which
disallows a deduction with respect to any publicly held corporation for
individual compensation exceeding $1 million in any taxable year for the Chief
Executive Officer and four other most highly compensated executive officers,
unless such compensation meets the requirements for the "performance-based"
exception to the general rule. In November, 1999, Rolla P. Huff received a
$1,000,000 signing bonus from the Company which does not qualify as
"performance-based" under Section 162(m) and therefore any further compensation
received by Mr. Huff from the Company in excess of this $1,000,000 is not
deductible under Section 162(m). The signing bonus is subject to repayment if
Mr. Huff's employment with the Company is terminated before three years of
employment, under certain circumstances.
The cash compensation paid by the Company to its other executive officers
is expected to be well below $1 million and the Company believes that options
granted under the Company's Stock Option Plan will meet the requirements for
qualifying as performance-based. It will be the Committee's policy to qualify,
to the extent reasonable, the executive officers' compensation for deductibility
under applicable tax law.
Compensation of Chief Executive Officer
Nield J. Montgomery resigned as Chief Executive Officer in November 1999.
The Company's employment agreement with Mr. Montgomery provided for a base
salary of $150,000 per year. In November 1999, the Company and Mr. Montgomery
entered into an agreement which supersedes Mr. Montgomery's previous agreement
and provides that Mr. Montgomery will receive a base salary of $5,000 per month
until April 2001. The agreement also provides for Mr. Montgomery to receive a
lump sum payment of $360,000 in January 2000 and for the accelerated vesting of
a portion of Mr. Montgomery's options.
Rolla P. Huff entered into an employment agreement with the Company in
November 1999, which provides for a base salary of $500,000 per year and an
annual bonus of up to 100% of his base salary. The bonus is based on the
Company's achievement of certain annual targets established by the Board of
Directors in conjunction with the Company's annual operating budget or in the
discretion of the Board of Directors.
19
<PAGE> 23
Stock Options
Under the Company's Stock Option Plan, stock options are granted to
executive officers and all other employees of the Company. Upon joining the
Company, an individual's initial option grant is based on the individual's
responsibilities and position. Subsequent stock option awards are based
primarily on an individual's performance and responsibilities. Because of the
competitive nature of the Company's business, the Committee believes stock
option grants are an effective method of incentivising executives to take a
longer term view of the Company's performance and to ensure that the executive's
and the stockholders' interests are in alignment. In addition, during 1999,
stock options were granted to certain executive officers in lieu of base salary
increases.
The exercise price of each option has generally been the market price (or
estimated fair value before the Company was public) of the common stock on the
date of grant. Option grants given in lieu of a cash bonus typically provide for
vesting after one year. Other option grants generally provide for delayed
vesting over a period of three to five years. All options have a term of ten
years. The Committee believes that stock options give the executive officers
greater incentive throughout the term of the options to strive to operate the
Company in the manner that directly affects the financial interests of the
Stockholders both on a long term, as well as a short term, basis.
In determining the number of option shares to grant to executive officers,
the Committee considers on a subjective basis the same factors as it does in
determining the other components of compensation, with no single factor accorded
special weight. The recommendations of the Chairman of the Board and President
are of paramount importance in determining stock option awards.
Some of the Company's executive officers have also been provided the right
to purchase additional shares of the Company's common stock, with a portion of
the purchase price being financed by the Company. This stock purchase program is
designed to further align those executive officers' interests with those of the
stockholders.
Performance Bonuses
Before the Company generates positive EBITDA, all bonuses are
discretionary. Management input is given considerable weight in making these
discretionary determinations. After positive EBITDA is generated, all executive
officers will be eligible for a bonus each year based on individual and Company
performance. In such event, a bonus pool equal to a percentage of the Company's
EBITDA will be established for each such year with each such executive officer,
other than the Chief Executive Officer, being entitled to a bonus not to exceed
50% of his or her base salary.
Submitted by
COMPENSATION COMMITTEE
/s/ Jack L. Hancock
NAME: Jack L. Hancock
/s/ Thomas Neustaeter
NAME: Thomas Neustaetter
The foregoing report should not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
20
<PAGE> 24
Stock Performance Graph
The following stock price performance graph compares the Company's
performance to the CRSP Total Return Index for The NASDAQ Stock Market (US) and
the NASDAQ Telecommunications Index. The stock price performance graph assumes
an investment of $100 in the Company and the two indexes, respectively, on May
11, 1998, and further assumes the reinvestment of all dividends. Stock price
performance, presented for the period from May 11, 1998 (the date upon which the
common stock of the Company was first traded) through December 31, 1999 is not
necessarily indicative of future results. The May 11, 1998 stock price used for
the Company's stock is the initial public offering price.
[Performance Line Graph]
The stock price performance graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
CERTAIN TRANSACTIONS
The Company has entered into an agreement to lease approximately 60,995
square feet of office space from a limited liability company which is
principally owned by two of the Company's directors and principal stockholders,
Maurice J. Gallagher, Jr. and Timothy P. Flynn. The average rental rate is $1.60
per square foot per month which includes common area maintenance charges.
Management believes that the terms and conditions of this lease arrangement are
at least as favorable to the Company as those which the Company could have
received from an unaffiliated third party. During 1999, the Company paid
$1,335,211 in lease payments and leasehold improvements under this arrangement.
21
<PAGE> 25
The Company entered into a lease agreement for an Astra aircraft with
Messrs. Flynn and Gallagher in December 1999. The lease agreement provides for a
base rental of $65,000 per month. During 1999, the Company paid $97,500 under
this lease agreement.
Various executive officers purchased shares of common stock from the
Company in 1997-1999 for cash and/or by promissory note. In each case, the
promissory note is payable within three years, bears interest at 7.5% per annum
and is secured by the pledge of the shares of common stock purchased with such
promissory note. In each case, all or a portion of such shares are subject to
repurchase at their cost if the officer's employment with the Company is
terminated within three years. The following chart indicates the outstanding
debt as of February 29, 2000, under the promissory note from each executive
officer, which amount represents the highest amount of the debt since January 1,
1999, unless otherwise indicated.
<TABLE>
<CAPTION>
PROMISSORY NOTE BALANCE
EXECUTIVE OFFICER AS OF FEBRUARY 29, 2000
----------------- -----------------------
<S> <C>
Rolla P. Huff............................................... $4,446,129
David S. Clark.............................................. 114,604
Kent F. Heyman.............................................. 114,604
John Boersma................................................ 257,808
James J. Hurley, III........................................ 114,604
James Mitchell*............................................. -0 -
Mark W. Peterson............................................ 114,604
Linda M. Sunbury............................................ 114,604
</TABLE>
---------------
* The highest amount of debt from Mr. Mitchell since January 1, 1999 was
$197,019.
During April 1999, affiliates of JK&B Management, LLC agreed to purchase
555,556 shares of the Company's Series B preferred stock at $9.00 per share for
a total purchase price of $5,000,000. The purchase closed in May 1999. David
Kronfeld, a Director of the Company, manages JK&B Management, LLC. In addition,
prior to the transaction, Mr. Kronfeld and affiliated entities owned more than
5% of the Company's outstanding stock.
During November 1999, affiliates of Providence Equity Partners and JK&B
Management agreed to purchase 1,250,000 shares of the Company's Series C
preferred stock at $28.00 per share for a total purchase price of $35,000,000,
of which 892,857 shares were purchased by affiliates of Providence Equity
Partners for $25,000,000 and 357,143 shares were purchased by affiliates of JK&B
Management for $10,000,000. The purchase closed in December 1999. Affiliates of
JK&B Management paid a portion of their total purchase price by a promissory
note for $4,900,000, which was paid in full, including interest at 7.5% per
annum, in February 2000. Prior to the transaction, each of Providence Equity
Partners and JK&B Management (by virtue of its ownership of shares of Series B
preferred stock) was a more than 5% Stockholder of the Company. In addition,
Paul J. Salem, a former Director of the Company, and Mark J. Masiello, a current
Director of the Company, are members of Providence Equity Partners III, LLC,
which serves as the general partner of the entities which acquired the Series C
preferred stock.
RELATIONSHIP WITH INDEPENDENT AUDITORS
The Board of Directors and the Audit Committee have selected Arthur
Andersen LLP as the Company's independent auditors for the ensuing fiscal year.
Arthur Andersen LLP has served as the Company's independent auditors since
February 1998. Representatives of Arthur Andersen LLP are expected to be present
at the annual meeting with the opportunity to make a statement if they desire to
do so and to respond to appropriate questions.
The Company did not re-elect KPMG LLP ("KPMG") as its independent
accountants on February 6, 1998. KPMG's report on the Company's financial
statements for the years ended December 31, 1997 and 1996, did not contain an
adverse opinion or a disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope or accounting principles. The decision to change
accountants was approved by the
22
<PAGE> 26
Company's Board of Directors. During KPMG's engagement with the Company, there
were no disagreements with KPMG on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure which
were not resolved to KPMG's satisfaction. During KPMG's engagement with the
Company, there were no reportable events (as defined in Item 304(a)(1)(v) of
Regulation S-K issued under the Securities Act of 1933, as amended).
As of February 6, 1998, Arthur Andersen LLP has been retained by the
Company as its principal accountants to audit the Company's financial statements
for the years ended December 31, 1999 and 1998. The Company had not consulted
Arthur Andersen LLP prior to its engagement regarding the application of
accounting principles to a specified transaction, either completed or proposed,
the type of audit opinion that might be rendered on the Company's financial
statements or any matter that was either the subject of a disagreement with KPMG
or a reportable event.
STOCKHOLDERS' PROPOSALS FOR ANNUAL MEETING TO BE HELD IN 2001
The Company plans to hold its 2001 annual meeting of stockholders during
the month of June. Any proposal of a stockholder intended to be presented at
said annual meeting of stockholders must be received by the Company for
inclusion in the proxy statement and form of proxy for that meeting no later
than January 31, 2001.
ACTION ON OTHER MATTERS AT THE ANNUAL MEETING
At this time, the Company does not know of any other matters to be
presented for action at the annual meeting other than those mentioned in the
notice of annual meeting of stockholders and referred to in this proxy
statement. If any other matter comes before the meeting, it is intended that the
proxies will be voted in respect thereof in accordance with the judgment of the
persons voting the proxies.
INCORPORATION OF INFORMATION BY REFERENCE
The following information is incorporated by reference herein from the
Company's annual report for the year ended December 31, 1999, which has been
sent to each Stockholder of record: (i) the Company's financial statements for
the years ended December 31, 1997, 1998 and 1999, (ii) supplementary financial
information, (iii) management's discussion and analysis of financial condition
and results of operations, and (iv) quantitative and qualitative disclosures
about market risk.
STOCKHOLDERS ARE URGED TO DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY
IN THE ACCOMPANYING ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. YOUR COOPERATION WILL BE APPRECIATED. YOUR PROXY WILL BE VOTED, WITH
RESPECT TO THE MATTERS IDENTIFIED THEREON, IN ACCORDANCE WITH ANY SPECIFICATIONS
ON THE PROXY.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Russell I. Zuckerman
RUSSELL I. ZUCKERMAN
Corporate Secretary
23
<PAGE> 27
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD JUNE 22, 2000 MGC COMMUNICATIONS, INC.
The undersigned hereby appoints Rolla P. Huff and Kent F. Heyman, or either of
them, as Proxies, each with the power to appoint his substitute, and hereby
authorizes them to represent and to vote, as designated below, all the shares of
common stock and/or the Series C preferred stock, as the case may be, held of
record on May 9, 2000, at the Annual Meeting of the Stockholders to be held on
June 22, 2000, at 10:00 a.m. (local time) at The Delmonte Lodge, 41 North Main
Street, Pittsford, NY 14534, or any adjournment thereof.
1. Election of Directors
<TABLE>
<C> <S> <C> <C>
[ ] FOR ALL nominees listed below [ ] WITHHOLD AUTHORITY to vote for all
(except as marked to the contrary below) nominees listed below
</TABLE>
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE STRIKE
A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW).
Timothy P. Flynn Mark J.
Masiello Richard W. Miller
2. Proposal to approve an amendment to Company's Articles of Incorporation to
increase the number of authorized shares of capital stock of the Company from
110,000,000 to 250,000,000 shares of capital stock and to correspondingly
increase the number of authorized shares of common stock, par value $.001, of
the Company from 60,000,000 shares to 200,000,000 shares of common stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to approve an amendment to the Company's Articles of Incorporation
to change the Company's name to Mpower Communications Corp.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to approve an amendment to the Company's Stock Option Plan to
increase the number of shares of common stock available for purchase under
the Stock Option Plan from 4,640,000 shares to 8,640,000.
(Continued and to be signed on the other side)
<PAGE> 28
(Continued from other side)
5. In their discretion, the Proxies are authorized to vote upon such other
business as may come before the meeting or adjournment thereof.
THIS PROXY, DULY EXECUTED, WILL BE VOTED AS SPECIFIED. IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4.
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
I/We will attend the meeting. [ ] YES [ ] NO
-----------------------------------
(Signature of Stockholder)
Date:
-------------------------------------------------------------------------------,
2000
-----------------------------------
(Signature if held jointly)
Date:
-------------------------------------------------------------------------------,
2000
Note: Please sign this Proxy exactly as your name or names appear on the books
of the Corporation. Joint owners should each sign personally. When signing
as an attorney, executor, administrator, trustee or guardian please add
your full title as such. If a corporation or partnership, the signature
should be that of an authorized person who should state his or her title.
