SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
US LEC CORPORATION
(Name of Person(s) Filing Proxy Statement, if other than 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)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
US LEC CORP.
TRANSAMERICA SQUARE
401 NORTH TRYON STREET, SUITE 1000
CHARLOTTE, NORTH CAROLINA 28202
March 23, 1999
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders
of US LEC Corp. to be held at 10:00 a.m. on Tuesday, April 20, 1999 at the
Company's corporate offices, 401 North Tryon Street, Suite 1000, Charlotte,
North Carolina.
The Notice of Annual Meeting of Stockholders and Proxy Statement, which
describe the formal business to be conducted at the meeting, follow this letter.
It is important that your shares be represented at the meeting, whether or not
you plan to attend. Accordingly, please take a moment now to sign, date and mail
the enclosed proxy in the envelope provided.
Included with this Proxy Statement is a copy of the Company's Annual
Report to stockholders. We encourage you to read the Annual Report. It includes
the Company's audited financial statements for the year ended December 31, 1998
as well as information on the Company's operations, markets, products and
services.
Following completion of the formal portion of the Annual Meeting,
management will comment on US LEC's affairs. A question and answer period will
follow. We look forward to seeing you at the Annual Meeting.
Sincerely,
Richard T. Aab
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
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US LEC CORP.
TRANSAMERICA SQUARE
401 NORTH TRYON STREET, SUITE 1000
CHARLOTTE, NORTH CAROLINA 28202
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 20, 1999
To the Stockholders of US LEC Corp.:
The Annual Meeting of Stockholders of US LEC Corp. (the "Company") will
be held at the Company's corporate offices, 401 North Tryon Street, Suite 1000,
Charlotte, North Carolina on Tuesday, April 20, 1999 at 10:00 a.m., Eastern
Standard Time, for the following purposes:
1. To elect two Directors for a one-year term and, in each case,
until their successors are elected and qualified;
2. To amend the US LEC Corp. 1998 Omnibus Stock Plan to increase the
number of shares of Class A Common Stock reserved for issuance
under the plan from 1,300,000 to 2,000,000; and
3. To transact such other business as may properly come before the
meeting or any reconvened session thereof.
The Board of Directors has fixed the close of business on March 1, 1999
as the record date for the determination of stockholders entitled to notice of
and to vote at the meeting and at any reconvened session thereof. Accordingly,
only holders of Common Stock of record on such date will be entitled to vote at
the meeting or at any reconvened session thereof.
YOUR PROXY IS IMPORTANT TO ENSURE A QUORUM AT THE MEETING. EVEN IF YOU
HOLD ONLY A FEW SHARES, AND WHETHER OR NOT YOU EXPECT TO BE PRESENT, PLEASE
DATE, SIGN AND RETURN THE ENCLOSED PROXY. A RETURN ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE, WHICH REQUIRES NO POSTAGE IF MAILED WITHIN THE UNITED STATES. THE
PROXY MAY BE REVOKED BY YOU AT ANY TIME, AND THE GIVING OF YOUR PROXY WILL NOT
AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING.
By order of the Board of Directors,
AARON D. COWELL, JR.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
March 23, 1999
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<PAGE>
US LEC CORP.
TRANSAMERICA SQUARE
401 NORTH TRYON STREET, SUITE 1000
CHARLOTTE, NORTH CAROLINA 28202
PROXY STATEMENT
The accompanying proxy is solicited by the Board of Directors of US LEC
Corp. (the "Company") for use at the Annual Meeting of Stockholders to be held
at 10:00 a.m. on Tuesday, April 20, 1999, at the Company's corporate offices,
401 North Tryon Street, Suite 1000, Charlotte, North Carolina, and at any
reconvened session thereof (the "Annual Meeting"). When such proxy is properly
executed and returned, the shares of the Company's Class A Common Stock it
represents will be voted at the meeting. If a choice has been specified by the
stockholder as to any matter referred to on the proxy, the shares will be voted
accordingly. If no choice is indicated on the proxy, the shares will be voted in
favor of election of the two director nominees named herein and in favor of the
proposal to increase the number of shares reserved for issuance under the Stock
Plan. A stockholder giving a proxy has the power to revoke it at any time before
it is voted. Presence at the meeting by a stockholder who has signed a proxy
does not alone revoke that proxy; the proxy may be revoked by a later dated
proxy or by notice to the Secretary at the meeting. At the meeting, votes will
be counted by written ballot.
At the Annual Meeting, stockholders will be asked:
1. To elect two Directors for a one-year term and, in each case,
until their successors are elected and qualified;
2. To amend the US LEC Corp. 1998 Omnibus Stock Plan (the "Stock
Plan") to increase the number of shares of Class A Common Stock
reserved for issuance under the Stock Plan from 1,300,000 to
2,000,000; and
3. To transact such other business as may properly come before the
meeting or any reconvened session thereof.
The representation in person or by proxy of a majority of the votes
entitled to be cast will be necessary for a quorum at the Annual Meeting. If a
quorum is present, Directors will be elected by a plurality of the votes of
shares present and entitled to vote on the election of Directors. With respect
to the election of Directors, votes may be cast in favor of nominees or
withheld. Withheld votes will not be treated as votes cast and, therefore, will
have no effect on the result of the vote. Approval of the other proposal will
require the affirmative vote of a majority of the votes of shares present and
entitled to vote on the proposal. Abstentions will not be counted as votes cast
or as votes entitled to be cast on the proposal and, therefore, will have no
effect on the result of the vote. Richard T. Aab, who holds voting power with
respect to shares that represent approximately 94% of the total votes eligible
to be cast at the Annual Meeting, has informed the Company that he intends to
vote in favor of both nominees for Director and "for" the proposal to amend the
Stock Plan. See "Outstanding Voting Securities" and "Security Ownership of
Certain Beneficial Owners and Management".
<PAGE>
The approximate date on which this proxy statement and form of proxy
were first sent or given to stockholders is March 20, 1999. The cost of
preparing, printing and mailing this proxy statement to stockholders will be
borne by the Company. In addition to the use of mail, employees of the Company
may solicit proxies personally and by telephone without compensation by the
Company other than their regular salaries. The Company may request banks,
brokers and other custodians, nominees and fiduciaries to forward copies of the
proxy materials to their principals and to request authority for the execution
of proxies.
OUTSTANDING VOTING SECURITIES
The Board of Directors has set the close of business on March 1, 1999 as
the record date for determination of stockholders entitled to notice of and to
vote at the Annual Meeting (the "Record Date"). As of the Record Date, the
Company had 10,346,600 shares of Class A Common Stock and 17,075,270 shares of
Class B Common Stock (collectively, the "Common Stock") issued and outstanding.
Each share of Class A Common Stock is entitled to one vote per share and each
share of Class B Common Stock is entitled to ten votes per share with respect to
all matters to be acted upon at the Annual Meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of the Record Date by: (i) each
person or group known to the Company to beneficially own more than five percent
of either class of the Common Stock; (ii) each director; (iii) each executive
officer named on the Summary Compensation Table appearing elsewhere in this
proxy statement; and (iv) all executive officers and directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT
NATURE OF PERCENT OF OF
TITLE BENEFICIAL PERCENT TOTAL SHARES TOTAL
NAME OF OWNERSHIP (1) OF CLASS OUTSTANDING VOTING
CLASS (2) (2) POWER
(2)
------------------------- -------- ------------------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Richard T. Aab Class A 181,180 1.8 * *
Class B 17,075,270 (3) 100.0 62.3 94.3
Joyce M. Aab Class B 4,309,500 (3) 25.2 15.7 23.8
Tansukh V. Ganatra Class B 4,044,000 (4) 23.7 14.7 22.3
David C. Conner Class A 660,000 (5) 6.4 2.4 *
Michael K. Simmons Class A 567,000 (6) 5.5 2.1 *
Gary D. Grefrath Class A 504,000 4.9 1.8 *
David M. Flaum Class A 190,000 (7) 1.8 * *
Craig K. Simpson Class A 174,000 (8) 1.7 * *
Steven L. Schoonover Class A 90,000 (9) * * *
All directors and Class A 2,367,180 22.5 8.6 1.3
executive officers as Class B 17,075,270 100.0 62.3 94.3
a group (10 persons)
</TABLE>
- -----------------
(1) Each beneficial owner's holdings have been calculated assuming full
exercise of outstanding warrants and options exercisable by such
holder within 60 days after the Record Date, but no exercise of
outstanding warrants and options held by any other person. Except as
otherwise indicated, each person named in this table has sole voting
and dispositive power with respect to the shares of Common Stock
beneficially owned by such person.
2
<PAGE>
(2) An "*" indicates less than one percent.
(3) Includes 4,309,500 shares held by Melrich Associates, L. P.
("Melrich"). Mr. Aab and his wife, Joyce M. Aab, are the sole general
partners of Melrich and share voting and dispositive power with
respect to these shares. Mr. Aab's amount also includes 4,044,000
shares held by Mr. Ganatra and Super STAR Associates Limited
Partnership ("Super STAR") as to which Mr. Aab holds voting power.
Mr. and Mrs. Aab's address is 401 North Tryon Street, Suite 1000,
Charlotte, NC 28202.
(4) Includes 3,750,000 shares held by Super STAR. Mr. Ganatra, the
majority general partner, has dispositive power with respect to these
shares. Mr. Ganatra's address is 401 North Tryon Street, Suite 1000,
Charlotte, NC 28202.
(5) Of the 660,000 shares beneficially owned by David C. Conner, 495,000
are held of record by Mr. Conner and 165,000 are held of record by
his wife. Mr. and Mrs. Conner are deemed to share voting and
dispositive power with respect to the shares beneficially owned by
Mrs. Conner. Mr. and Mrs. Conner's address is for 401 North Tryon
Street, Suite 1000, Charlotte, North Carolina 28202.
(6) Includes 247,500 shares held by Michael K. Simmons Family Limited
Partnership.
(7) Includes 10,000 shares subject to a presently exercisable stock
options.
(8) Includes 165,000 shares subject to a presently exercisable warrant.
(9) Includes 10,000 shares subject to a presently exercisable options and
80,000 shares held by Schoonover Investments Limited Partnership.
3
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors consists of four directors. Two directors are
elected annually by the holders of Class B Common Stock ("Class B Directors").
The Class B Directors are Richard T. Aab and Tansukh V. Ganatra. The other two
directors are elected by the holders of Class A Common Stock and Class B Common
Stock voting together as a group ("Class A Directors"). Class A Directors are
elected annually and generally serve until the next annual meeting of
stockholders. Two Class A Directors will be elected at the Annual Meeting. The
nominees are described below.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE BUSINESS EXPERIENCE
- ---------------------- ----- -------- ----------------------------------------------------------
<S> <C> <C> <C>
David M. Flaum 46 1998 Mr. Flaum has served as President of Flaum Management
Company, Inc. ("Flaum Management"), a real estate
development firm based in Rochester, New York, since
1985, and President of The Hague Corporation, a
commercial real estate management firm, since 1993.
Flaum Management is active in the development of retail
centers, office buildings and high technology facilities
in the eastern United States.
Steven L. Schoonover 53 1998 Mr. Schoonover is President and Chief Executive Officer
of CellXion, Inc., which specializes in construction,
installation and management of cellular telephone and
personal communications systems. From 1990 until its
sale in November 1997 to Telephone Data Systems, Inc.,
Mr. Schoonover served as President of Blue Ridge
Cellular, Inc., a full-service cellular telephone
company. From 1983 to 1996, he served in various
positions, including President and Chief Executive
Officer, with Fibrebond Corporation, a firm involved in
site development, shelter and tower construction for the
cellular telecommunications industry.
</TABLE>
The Board of Directors recommends that you vote "FOR" both of the
nominees described above.
COMPENSATION OF DIRECTORS
The Company pays directors who are not officers or employees ("Outside
Directors") an annual retainer of $5,000 and a fee of $1,000 for each meeting of
the Board of Directors attended and $500 for each meeting of any committee
thereof attended. The Company also reimburses each Outside Director for
reasonable out-of-pocket expenses incurred in attending meetings of the Board of
Directors and any of its committees. In addition, upon completion of the
Company's initial public offering (the "IPO") in April 1998, the Company's two
Outside Directors each received a nonqualified stock option under the Stock Plan
covering 5,000 shares of Class A Common Stock with an exercise price equal to
the IPO price of $15.00 per share. Effective September 18, 1998, the exercise
price of these options was reduced to $7.3125. On February 25, 1999, each of the
two Outside Directors received an additional non-qualified stock option under
the Stock Plan covering 5,000 shares of Class A Common Stock with an exercise
price of $15.375 per share.
4
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held four meetings during 1998. Attendance at
meetings of the Board of Directors and its committees was 100% during the year.
The Board of Directors currently has an Audit Committee and a
Compensation Committee. The two Outside Directors, Messrs. Flaum and Schoonover,
serve as the only members of these committees. The Audit Committee met one time
during 1998 and has met once during 1999, with the full Board of Directors
performing the functions of the Audit Committee prior to the Audit Committee's
first meeting. The primary functions of the Audit Committee are to (i) establish
and review the activities of the independent accountants, (ii) review
recommendations of the independent accountants and responses of management and
(iii) review and discuss the Company's financial reporting and accounting
policies with the independent accountants and management. The primary functions
of the Compensation Committee are to (i) review and make recommendations to the
Board of Directors regarding compensation for the Company's executive officers
and (ii) administer the Stock Plan. Until the first meeting of the Compensation
Committee, the functions of the Compensation Committee were and will be
performed by the full Board of Directors. The Compensation Committee will first
meet in 1999.
COMPENSATION OF EXECUTIVE OFFICERS
The following table summarizes all compensation paid to the Company's
five most highly compensated executive officers (the "Named Executive Officers")
during 1997 and 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
-------------------------------------
OTHER
ANNUAL ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION COMPENSATION
POSITION YEAR ($) ($) ($) * ($) **
----------------------- ------ -------- ------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Richard T. Aab 1998 197,462 --- --- 451
CHAIRMAN AND 1997 --- --- --- ---
CHIEF EXECUTIVE
OFFICER
Tansukh V. Ganatra 1998 188,077 --- 1,018 805
PRESIDENT AND CHIEF 1997 6,750 --- 7,968 423
OPERATING OFFICER
Gary D. Grefrath 1998 128,948 95,400 --- 769
EXECUTIVE VICE 1997 81,012 25,000 --- 264
PRESIDENT -
ADMINISTRATION
David C. Conner 1998 128,037 95,400 --- 375
EXECUTIVE VICE 1997 79,785 25,000 --- 260
PRESIDENT -
ENGINEERING AND
OPERATIONS AND
CHIEF TECHNICAL
OFFICER
Craig K. Simpson 1998 127,025 59,400 --- 331
EXECUTIVE VICE 1997 61,757 15,000 --- ---
PRESIDENT - SALES
</TABLE>
- ----------------
* Amounts presented represent value of Company-paid auto lease.
** Amounts presented include matching contributions to each executive
officer's account under the Company's 401(k) retirement plan in the amount
of $250 and life insurance premiums of $201, $555, $125, $519 and $81 for
Messrs. Aab, Ganatra, Conner, Grefrath and Simpson, respectively.
5
<PAGE>
COMPENSATION COMMITTEE REPORT
GENERAL. During 1998, the compensation of the Company's executive
officers was determined by the Board of Directors. The objective of the
Company's executive compensation policy is to provide a fully competitive,
performance-based compensation program that will enable the Company to attract,
motivate, reward and retain qualified executive officers. The Company's
executive compensation program consists of (i) annual compensation consisting of
a base salary combined with a cash incentive bonus based upon the executive's
performance and (ii) long-term compensation consisting of grants of stock
options.
ANNUAL COMPENSATION. During the fourth quarter of 1997, an executive
committee consisting of the Company's Chief Operating Officer and each of its
Executive Vice Presidents (the "Executive Committee") met to determine the range
of potential bonus amounts to be paid for performance during 1997 and base
salary increases to become effective for 1998. In November 1997, the Company's
Chief Operating Officer performed a detailed review of the performance of each
executive officer other than the Chief Executive Officer. The report produced as
a result of this review assigned a numerical score to each executive officer's
performance in 18 different skill categories. The executive officer's aggregate
score was then used to determine his percentage increase in base salary for 1998
and the bonus to be paid for performance during 1997. Both salary increases and
bonus amounts were computed as a percentage of base salary, and were determined
by reference to ranges determined by the Executive Committee. The base salary
increases and bonus amounts were then submitted as recommendations to the Board
of Directors, which approved them in early 1998. An identical procedure was
followed during the fourth quarter of 1998 to determine recommendations for
bonus amounts for 1998. Base salary increases for 1999 were 5% increases for all
executive officers.
LONG-TERM COMPENSATION. The Company adopted the Stock Plan in January
1998 primarily as a tool to recruit directors, executive officers and other
officers and employees on a basis competitive with industry practices for
emerging, growth-oriented businesses. Although the Stock Plan authorizes the
issuance of a broad range of stock-based incentive awards, the Board of
Directors relied exclusively on non-qualified stock options to recruit executive
officers during 1998. Two executive officers were granted nonqualified stock
options during 1998. In each case, the number of shares covered by the options
and the exercise price was determined through individual negotiations with the
Chief Executive Officer. The grants were then approved by the Board of
Directors, which administered the Stock Plan during 1998. The options granted to
these executive officers have a 10-year term and vest in four annual
installments commencing on the first anniversary of the grant date, with an
exercise price that was $1.00 less than the market value of the underlying
shares on the date of grant in one instance and equal to market value on the
date of grant in the other. In order to preserve the long-term incentives
intended to be associated with awards made under the Stock Plan to directors,
executive officers and other officers and employees, on September 18, 1998, the
Board of Directors offered to reduce the exercise price of all outstanding stock
options, including those held by two executive officers, to market value on that
date provided that the optionee adjusted the vesting schedule to commence on
that date. Virtually all optionees accepted this offer.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER AND THE CHIEF OPERATING
OFFICER. During 1998, the base salaries for the Company's Chief Executive
Officer and Chief Operating Officer were determined by the Board of Directors
based on a subjective evaluation of each officer's contribution to the financial
and operating performance of the Company and execution of its business plan.
There were no bonuses paid to these officers in 1998. The Board of Directors
recognizes that the compensation paid
6
<PAGE>
to these officers is less than market rates, which is a reflection of the
emerging nature of the Company's business.
CERTAIN INCOME TAX CONSIDERATIONS. Under federal tax law, certain
non-performance based executive compensation, which is in excess of $1.0
million, is not deductible by the Company. During 1998, no executive officer of
the Company received compensation in excess of this limit, and, at this time,
the Board of Directors does not expect that any executive officer of the Company
will receive compensation in excess of this limit during 1999. Accordingly, no
formal policy with respect to the tax deductibility of executive compensation
has been adopted by the Board of Directors.
PERFORMANCE GRAPH
THE PERFORMANCE GRAPH BELOW 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 THE SECURITIES
EXCHANGE ACT OF 1934, EXCEPT TO THE EXTENT THE COMPANY SPECIFICALLY INCORPORATES
THIS INFORMATION BY REFERENCE, AND SHALL NOT OTHERWISE BE DEEMED FILED UNDER
SUCH ACTS.
The following is a comparative performance graph which compares the
percentage change of cumulative total stockholder return on the Class A Common
Stock with (a) the total return index of The Nasdaq Stock Market (US Companies)
(the "Broad Index") and (b) the total return index for The Nasdaq
Telecommunications Index (the "Telecom Index") for the period commencing April
24, 1998 (the first day of trading of the Common Stock as a result of the
Company's initial public offering) and ended December 31, 1998 assuming an
investment of $100. The base price for the Company's stock is the initial public
offering price of $15.00 per share. The comparisons in the graph below are based
on historical data and are not indicative of, nor intended to forecast, future
performance of the Common Stock.
[PERFORMANCE GRAPH APPEARS HERE WITH THE FOLLOWING PLOT POINTS]
<TABLE>
<CAPTION>
US LEC CORP. NASDAQ STOCK MARKET (U.S.) NASDAQ TELECOMMUNICATIONS
------------ -------------------------- -------------------------
<S> <C> <C> <C>
4/24/98 100.00 100.00 100.00
6/30/98 139.16 103.00 107.00
9/30/98 85.83 93.00 95.00
12/31/98 98.75 120.00 129.00
</TABLE>
7
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February 1998, the entire principal amount of a $5,000,000 loan
payable by the Company to Richard T. Aab, a director, the majority stockholder
and the Chief Executive Officer of the Company, was exchanged for 480,770 shares
of Class B Common Stock.
In June 1998, the Company repaid loans originated prior to the Company's
initial public offering in the amounts of $1,000,000 to Tansukh V. Ganatra, a
director and the Chief Operating Officer of the Company, and $2,289,150 to
Melrich Associates, L.P., an entity of which Mr. Aab is a general partner, and
paid $349,324 to Mr. Aab for interest that had accrued on loans payable to him
prior to their conversion to equity in February 1998.
During 1998, an affiliate of Mr. Aab, acquired an indirect controlling
interest in Metacomm, LLC ("Metacomm"). Metacomm is engaged in the business of
developing and operating a high-speed data network in North Carolina, and is a
customer of the Company and BellSouth Telecommunications, Inc. ("BellSouth").
During 1998, the Company recorded approximately $6.24 million in revenue earned
from services provided to Metacomm (which did not include revenue from
reciprocal compensation due from BellSouth). Metacomm also earns commissions
from the Company for reciprocal compensation revenue relating to Metacomm's
network. The Company recorded approximately $19.76 million in reciprocal
compensation commission expenses earned by Metacomm. As of December 31, 1998,
the Company had a liability to Metacomm in the amount of approximately $5.35
million. The Company and Metacomm are parties to agreements by which commissions
earned by Metacomm related to reciprocal compensation would not be paid to
Metacomm until the related reciprocal compensation is collected from BellSouth.
However, in 1998, the Company paid Metacomm approximately $8.26 million prior to
collecting the earned reciprocal compensation from BellSouth. These payments are
subject to a repayment agreement by which Metacomm would be obligated to refund
the payments to the degree to which the related reciprocal compensation is
ultimately determined not to be collectible.
During 1998, the Company incurred approximately $35,000 in expenses for
chartered aircraft services provided by an affiliate of Mr. Aab.
During 1998, the Company acquired $471,000 in software from Global Vista
Communications, LLC ("GVC"), a company controlled by Mr. Aab. In addition, the
Company incurred approximately $89,000 in expenses for consulting services
provided by GVC. As of December 31, 1998, the Company owed GVC approximately
$6,000 for software and consulting services. GVC is a software company that
provides the Company with solutions in the areas of switch mediation, CABS
billing, network traffic analysis and network costing.
8
<PAGE>
PROPOSAL 2
AMENDMENT OF THE STOCK PLAN
BACKGROUND AND REASONS
The Company adopted the Stock Plan in January 1998. The Stock Plan is
intended to enable the Company to recruit, reward, retain and motivate employees
and to attract and retain outside directors, agents and consultants on a basis
competitive with industry practices. The Company has reserved 1,300,000 shares
of Class A Common Stock for issuance under the Stock Plan. The Board of
Directors has approved and recommended to the stockholders that they approve an
amendment to the Stock Plan to increase the number of shares reserved for
issuance thereunder to 2,000,000 shares. As of December 31, 1998, options to
purchase 1,081,900 shares of Class A Common Stock were outstanding under the
Stock Plan.
Since January 1998, when the Stock Plan was originally adopted, the
number of the Company's employees has increased from 181 to approximately 253 at
December 31, 1998. Management relies heavily on options issued under the Stock
Plan to attract and retain experienced officers and employees and to motivate
employees to maximize stockholder value. The Board of Directors believes that
the proposed increase in the number of shares available under the Stock Plan is
essential to permit management to continue to provided long-term, equity-based
incentives to present and future key employees. The Board of Directors has not
determined who will receive awards relating to the additional shares of Class A
Common Stock that will be reserved for issuance under the Stock Plan if the
proposed amendment is approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE PROPOSAL
TO AMEND THE STOCK PLAN TO INCREASE THE NUMBER OF SHARES OF CLASS A COMMON STOCK
RESERVED FOR ISSUANCE THEREUNDER FROM 1,300,000 SHARES TO 2,000,000 SHARES.
DESCRIPTION OF THE PLAN
The Stock Plan is administered by the Board of Directors or the
Compensation Committee of the Board of Directors (such committee or the Board of
Directors itself, as applicable, is hereinafter referred to as the "Committee").
Awards under the Stock Plan may include, but are not limited to, stock options,
stock appreciation rights, restricted stock, performance awards, or other
stock-based awards, such as stock units, securities convertible into stock,
phantom securities and dividend equivalents. The Committee has the authority and
discretion under the Stock Plan to (i) designate eligible participants and (ii)
determine the types of awards to be granted and the conditions and limitations
applicable to such awards, if any, including the acceleration of vesting or
exercise rights upon a change in control of the Company. In addition, the
Committee has empowered each of the Chief Executive Officer and Chief Operating
Officer to grant options under the Stock Plan to existing and prospective
employees provided that no more than 10,000 shares may be granted by either of
them to any one employee or prospective employee and options for no more than
100,000 shares may be granted by either of them. Awards under the Stock Plan may
be granted alone or together with other awards, or as replacement of, in
combination with, or as alternatives to, grants or rights under the Stock Plan
or other employee benefit plans of the Company. Awards under the Stock Plan may
be issued based on past performance, as an incentive for future efforts or
contingent upon the future performance of the Company.
9
<PAGE>
Options granted under the Stock Plan must be exercised within the period
fixed by the Committee, which may not exceed 10 years from the date of the
option grant, or in the case of incentive stock options granted to any 10%
stockholder, five years from the date of the option grant. Options may be made
exercisable in whole or in installments, as determined by the Committee. Except
as authorized by the Committee, options will not be transferable other than by
will or the laws of descent and distribution and, during the lifetime of an
optionee, may be exercised only by the optionee. The option price will be
determined by the Committee. However, the option price for incentive stock
options may not be less than the market value of the Class A Common Stock on the
date of grant of the option and the option price for incentive stock options
granted to any 10% stockholder may not be less than 110% of the market value of
the Class A Common Stock on the date of grant. Unless otherwise designated by
the Committee as "incentive stock options" intended to qualify under Section 422
of the Internal Revenue Code of 1986, as amended, options granted under the
Stock Plan are intended to be "nonqualified stock options."
There are no tax consequences to the optionee upon the grant of an
incentive option pursuant to the Stock Plan and no tax consequences to the
optionee upon exercise of an incentive stock option, except that the amount by
which the fair market value of the shares at the time of exercise exceeds the
option exercise price is a tax preference item possibly giving rise to
alternative minimum tax. If the shares of Class A Common Stock acquired are not
disposed of within two years from the date the option was granted and within one
year after the shares are transferred to the optionee, any gain realized upon
the subsequent disposition of the shares will be characterized as long-term
capital gain and any loss will be characterized as long-term capital loss. If
all requirements other than the above described holding period requirements are
met, a "disqualifying disposition" occurs and gain in an amount equal to the
lesser of (i) the fair market value of the shares on the date of exercise minus
the option exercise price or (ii) the amount realized on disposition minus the
option exercise price (except for certain "wash" sales, gifts or sales to
related persons) is taxed as ordinary income and the Company will be entitled to
a corresponding federal income tax deduction in an amount equal to the
optionee's ordinary income at that time. The gain in excess of this amount, if
any, will be characterized as long-term capital gain if the optionee held the
shares for more than one year.
There are no tax consequences to the recipient upon the grant of a
non-qualified option pursuant to the Stock Plan. Upon the exercise of a
non-qualified stock option, taxable ordinary income will be recognized by the
holder in an amount equal to the excess of the fair market value of the shares
purchased at the time of such exercise over the aggregate exercise price. The
Company will be entitled to a corresponding federal income tax deduction. Upon
any subsequent sale of the shares, the optionee will generally recognize a
taxable capital gain or loss based upon the difference between the per share
fair market value at the time of exercise and the per share selling price at the
time of the subsequent sale of the shares.
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP served as the Company's independent accountants
for the year ended December 31, 1998. A representative of Deloitte & Touche LLP
is expected to be present at the Annual Meeting, will have an opportunity to
make a statement if he or she desires to do so and is expected to be available
to respond to appropriate questions. The Board of Directors has not selected the
Company's independent accountants for the year ending December 31, 1999 because
the Audit Committee intends to solicit proposals from its current accountants
and others for the year ending December 31, 1999.
10
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors and persons who own more than ten percent of
the Common Stock to file initial reports of ownership and reports of changes in
their ownership of the Common Stock with the Commission. Officers, directors and
greater than ten percent stockholders are required by Commission regulations to
furnish the Company with copies of all Section 16(a) forms they file. To the
Company's knowledge, based solely on its review of the copies of such reports
received by the Company, all Section 16(a) filing requirements applicable to the
Company's officers, directors and greater than ten percent stockholders were
complied with during the year ended December 31, 1998.
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
A stockholder intending to present a proposal at the 2000 Annual Meeting
of Stockholders must deliver the proposal in writing to the attention of the
Company's Secretary at its corporate offices, 401 North Tryon Street, Suite
1000, Charlotte, North Carolina 28202 no later than November 21, 1999. It is
suggested that proposals be submitted by certified mail-return receipt
requested.
TRANSACTION OF OTHER BUSINESS
As of the date of this proxy statement, the only business which the
Board of Directors intends to present or knows that others will present at the
meeting is as set forth above. If any other matter or matters are properly
brought before the meeting, or any adjournment or postponement thereof, it is
the intention of the persons named in the accompanying form of proxy to vote the
proxy on such matters in accordance with their best judgment.
By Order of the Board of Directors
Aaron D. Cowell, Jr.
EXECUTIVE VICE PRESIDENT, GENERAL
COUNSEL AND SECRETARY
March 23, 1999
11
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***********************************APPENDIX*************************************
US LEC CORP.
PROXY SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF US LEC CORP.
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON APRIL 20, 1999
The undersigned hereby appoints Richard T. Aab and Tansukh V. Ganatra, and
each of them, as proxies, with power of substitution and power to act alone, to
represent the undersigned at the Annual Meeting of Stockholders of US LEC Corp.
(the "Company") to be held at 10:00 a.m., on Tuesday, April 20, 1999, at the
Company's corporate offices, 401 North Tryon Street, Suite 1000, Charlotte,
North Carolina, and at any adjournments thereof, to vote the number of shares
which the undersigned would be entitled to vote if present in person in such
manner as such proxies may determine, and to vote on the following proposals as
specified below by the undersigned.
(1) Election of Directors:
<TABLE>
<CAPTION>
<S> <C>
[ ] VOTE FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote
(except as marked to the contrary below). for all nominees listed below.
</TABLE>
DAVID M. FLAUM AND STEVEN L. SCHOONOVER
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
(2) To amend the US LEC Corp. 1998 Omnibus Stock Plan to increase the number of
shares reserved for issuance under the plan from 1,300,000 to 2,000,000:
|_| FOR |_| AGAINST |_| ABSTAIN
<PAGE>
This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. IN THE ABSENCE OF SPECIFIED DIRECTIONS, THIS PROXY
WILL BE VOTED IN FAVOR OF THE ELECTION OF ALL NOMINEES NAMED IN THIS PROXY AND
IN FAVOR OF THE OTHER PROPOSAL LISTED IN THIS PROXY. The proxies are also
authorized to vote in their discretion upon such other matters as may properly
come before the meeting or any adjournment thereof.
Note: Joint owners should both sign. If signing
as attorney, administrator, executor, guardian,
trustee or as a custodian for a minor, please add
your title as such. If a corporation, please sign
in full corporate name and indicate the signer's
office. If a partner, please sign in the
partnership's name.
X
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X
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Dated: , 1999
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