SCHEDULE 14A 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:
[ ] 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 ss.240.14a-11(c) or ss.240.14a-12
US LEC Corp.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box)
[X] No fee required.
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item
22(a)(2) of Schedule 14A.
[ ] 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: N/A .
-----------
2. Aggregate number of securities to which transaction applies: N/A .
--------------
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): N/A.
-----
4. Proposed maximum aggregate value of transaction: N/A.
---
5. Total fee paid: N/A.
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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: N/A.
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<PAGE>
US LEC CORP.
TRANSAMERICA SQUARE
401 NORTH TRYON STREET, SUITE 1000
CHARLOTTE, NORTH CAROLINA 28202
April 28, 2000
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, May 16, 2000 at the
Marriott City Center, 100 West Trade Street, 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.
Following completion of the formal portion of the Annual Meeting,
management will comment on the company's affairs. A question and answer period
will follow. We look forward to seeing you at the meeting.
Sincerely,
Richard T. Aab
CHAIRMAN
<PAGE>
US LEC CORP.
TRANSAMERICA SQUARE
401 NORTH TRYON STREET, SUITE 1000
CHARLOTTE, NORTH CAROLINA 28202
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD MAY 16, 2000
To the Stockholders of US LEC Corp.:
The Annual Meeting of Stockholders of US LEC Corp. (the "Company") will
be held at the Marriott City Center, 100 West Trade Street Charlotte, North
Carolina on Tuesday, May 16, 2000 at 10:00 a.m., for the following purposes:
1. To elect five directors for a one-year term and, in each case,
until their successors are elected and qualified, two of whom
will be elected by the holders of Class B Common Stock;
2. To amend the US LEC Corp. 1998 Omnibus Stock Plan to increase the
number of shares reserved for issuance under the plan from
2,000,000 to 3,500,000;
3. To approve the US LEC Corp. Employee Stock Purchase Plan;
4. To adopt an amendment to the Company's Restated Certificate of
Incorporation increasing the number of authorized shares of Class
A Common Stock from 72,924,728 to 122,924,728;
5. To adopt an amendment to the Company's Restated Certificate of
Incorporation to permit the Board of Directors to declare and pay
a stock dividend on shares of Class B Common Stock in shares of
Class A Common Stock, subject to receipt of the consent of the
holders of a majority of Class B Common Stock; and
6. 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 17,
2000 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.
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, YOU ARE
REQUESTED TO DATE, SIGN AND MAIL THE ENCLOSED PROXY IN THE POSTAGE-PAID ENVELOPE
THAT HAS BEEN PROVIDED. 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.
This notice is given pursuant to direction of the Board of Directors.
Aaron D. Cowell, Jr.
PRESIDENT
April 28, 2000
<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" or "US LEC") for use at the Annual Meeting of Stockholders
to be held at 10:00 a.m. on Tuesday, May 16, 2000, at the Marriott City Center,
100 West Trade Street, 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 or Class B Common
Stock (collectively, the "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
five director nominees named herein and in favor of each of the other proposals.
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 five directors for a one-year term and, in each case, to
serve until their successors are elected and qualified, two of
whom will be elected by the holders of Class B Common Stock;
2. To amend the US LEC Corp. 1998 Omnibus Stock Plan (the "1998
Stock Plan") to increase the number of shares reserved for
issuance under the plan from 2,000,000 to 3,500,000;
3. To approve the US LEC Corp. Employee Stock Purchase Plan (the
"Stock Purchase Plan");
4. To adopt an amendment to the Company's Restated Certificate of
Incorporation (the "Certificate") increasing the number of
authorized shares of Class A Common Stock from 72,924,728 to
122,924,728;
5. To adopt an amendment to the Certificate to permit the Board of
Directors to declare and pay a stock dividend on shares of Class
B Common Stock in shares of Class A Common Stock, subject to
receipt of the consent of the holders of a majority of Class B
Common Stock (the "Stock Dividend Proposal"); and
6. To transact such other business as may properly come before the
meeting or any reconvened session thereof.
<PAGE>
The representation in person or by proxy of a majority of the votes
entitled to be cast will be necessary to provide a quorum at the Annual Meeting.
Provided a quorum is present, directors will be elected by a plurality of the
votes of shares of Class A Common Stock and Class B Common Stock, voting
together as a group, 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 Stock
Purchase Plan and the amendment to the 1998 Stock Plan will require the
affirmative vote of a majority of the votes of shares of Class A Common Stock
and Class B Common Stock, voting together as a group, present and entitled to
vote on these proposals. Abstentions will not be counted as votes cast or as
votes entitled to be cast on these proposals and, therefore, will have no effect
on the result of the vote. Approval of the amendments to the Certificate will
require the affirmative vote of a majority of the votes of shares of Class A
Common Stock and Class B Common Stock outstanding, voting together as a group.
Accordingly, abstentions and broker non-votes will have the effect of votes
against these proposals. In addition, the Stock Dividend Proposal must be
approved by a majority of the votes of shares of Class B Common Stock voting
separately as a class.
The approximate date on which these proxy materials were first sent or
given to stockholders is April 28, 2000. 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 17, 2000
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 10,443,541 shares of Class A Common Stock and 17,075,250 shares of
Class B 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.
2
<PAGE>
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 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 NATURE OF PERCENT OF PERCENT OF TOTAL PERCENT OF
TITLE OF BENEFICIAL OWNERSHIP CLASS (2) SHARES TOTAL VOTING
NAME CLASS (1) OUTSTANDING (2) POWER (2)
<S> <C> <C>
Richard T. Aab Class A 78,175 (3) * * *
Class B 17,075,270 (4) 100.0 62.0 94.2
Joyce M. Aab Class B 4,309,500 (4) 25.2 15.7 23.8
Tansukh V. Ganatra Class B 4,044,000 (5) 23.7 14.7 22.3
Wachovia Corporation Class A 872,652 (6) 8.4 3.2 *
David C. Conner Class A 610,000 (7) 5.8 2.2 *
Michael K. Simmons Class A 567,000 (8) 5.4 2.1 *
David M. Flaum Class A 200,000 (9) 1.9 * *
Craig Simpson Class A 174,000 (10) 1.6 * *
Steven L. Schoonover Class A 100,000 (11) * * *
Aaron D. Cowell, Jr. Class A 91,000 (12) * * *
Michael K. Robinson Class A 50,000 (13) * * *
John W. Harris Class A 33,000 (14) * * *
Robert D. Ingram (15) --- --- --- --- ---
Michael A. Krupka (16) --- --- --- --- ---
Anthony J. DiNovi (16) --- --- --- --- ---
All directors and executive
Officers as a group (10 persons) Class A 726,175 6.7 2.6 *
Class B 17,075,270 100.0 62.0 94.2
</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) An "*" indicates less than one percent.
(3) Includes 61,995 shares held by Global Vista Communications, LLC, a
limited liability company controlled by Mr. Aab.
(4) 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. 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.
(5) 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.
(6) Wachovia Corporation's address is 100 North Main Street, Winston-Salem,
NC 27104. This information is based on a statement on Schedule 13G
filed by Wachovia Corporation and its subsidiary, Wachovia Bank,
National Association, with the U.S. Securities and Exchange Commission
on February 14, 2000.
3
<PAGE>
(7) Of the 610,000 shares beneficially owned by David C. Conner, 445,000
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 7 Braemer Way, Pittsford, NY 14534.
(8) Includes 247,500 shares held by Michael K. Simmons Family Limited
Partnership as to which Mr. Simmons, the sole general partner, has
voting and dispositive power. Mr. Simmons address is 834 Ardsley Place,
Charlotte, NC 28207.
(9) Includes 20,000 shares subject to presently exercisable stock options.
(10) Includes 165,000 shares subject to a presently exercisable warrant.
(11) Includes 20,000 shares subject to presently exercisable stock options
and 80,000 shares held by Schoonover Investments Limited Partnership, a
limited partnership controlled by Mr. Schoonover.
(12) Includes 90,000 shares subject to a presently exercisable stock option.
In addition, Mr. Cowell holds options to purchase 295,000 shares of
Class A Common Stock that are not presently exercisable.
(13) Comprised entirely of shares subject to a presently exercisable stock
option. In addition, Mr. Robinson holds options to purchase 175,000
shares of Class A Common Stock that are not presently exercisable.
(14) Includes 15,000 shares subject to a presently exercisable stock option.
(15) Mr. Ingram holds options to purchase 104,000 shares of Class A Common
Stock that are not presently exercisable.
(16) See "Certain Relationships and Related Transactions."
4
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors currently consists of seven directors. Two
directors are elected annually by the holders of Class B Common Stock ("Class B
Directors") and two directors are elected annually by holders of Series A
Preferred Stock ("Preferred Stock Directors"). The remaining three directors are
elected annually by the holders of Class A Common Stock and Class B Common Stock
voting together as a group ("Class A Directors"). Class A Directors generally
serve until the next annual meeting of stockholders. Three 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>
David M. Flaum 47 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 and office
buildings in the eastern United States.
John W. Harris 52 1999 Mr. Harris was appointed to the Board of Directors during
1999. He is the co-founder, President and Chief Executive
Officer of Lincoln Harris, LLC, a national full service
corporate real estate firm based in Charlotte, North
Carolina. Prior to Lincoln Harris, Mr. Harris was
President of The Harris Group and President of The Bissell
Companies, Inc., a major commercial real estate and
investment management company. He also serves on the
boards of directors of Dominion Resources, Inc., Piedmont
Natural Gas Company and The Charlotte-Mecklenburg Hospital
Authority.
Steven L. Schoonover 54 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>
RECOMMENDATION
The Board of Directors recommends a vote "FOR" each of the three
nominees named above.
CLASS B DIRECTORS
5
<PAGE>
Two Class B Directors will be elected at the Annual Meeting. Richard T.
Aab, who holds voting power with respect to all issued and outstanding shares of
Class B Common Stock, has informed the Company that he intends to vote these
shares in favor of both nominees described below:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE BUSINESS EXPERIENCE
- ----------------------- ------------------ -------------- -----------------------------------------------------------
<S> <C> <C> <C>
Richard T. Aab 51 1996 Mr. Aab co-founded US LEC in June 1996 and has served as
Chairman of the Board of Directors since that time. He
also served as Chief Executive Officer from June 1996
until July 1999. Between 1982 and 1997, Mr. Aab held
various positions with ACC Corp., an international
telecommunications company, including Chairman and Chief
Executive Officer, and served as a director. ACC Corp.
was acquired by Teleport Communications Group, Inc. in
1998.
Tansukh V. Ganatra 56 1996 Mr. Ganatra co-founded US LEC in June 1996 and has served
as a director since that time. He also served as
President and Chief Operating Officer from June 1996
until July 1999, when he was named Vice Chairman and
Chief Executive Officer. From 1987 to 1997, Mr. Ganatra
held various positions with ACC Corp., including serving
as its President and Chief Operating Officer. Prior to
joining ACC Corp., Mr. Ganatra held various positions
during a 19-year career with Rochester Telephone Corp.,
culminating with the position of Director of Network
Engineering.
</TABLE>
PREFERRED STOCK DIRECTORS
On April 11, 2000, affiliates of Bain Capital, Inc. ("Bain") and Thomas
H. Lee Partners, L.P. ("THL") each purchased $100 million of the Company's
Series A Convertible Preferred Stock (the "Series A Preferred Stock") and each
obtained an option to purchase up to an additional $50 million of the Company's
Series B Convertible Preferred Stock (the "Series B Preferred Stock"). The
holders of the Series A Preferred Stock are entitled to elect two directors of
the Company. Consequently, upon the closing of this transaction, the Board of
Directors was increased from five to seven seats and the persons designated by
Bain and THL were appointed on the following day to fill the vacancies thereby
created to serve until the 2001 annual meeting of stockholders. The Preferred
Stock Directors are described below:
6
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE BUSINESS EXPERIENCE
- ----------------------- ------------------ -------------- -----------------------------------------------------------
<S> <C> <C>
Anthony J. DiNovi 37 2000 Mr. DiNovi is a Managing Director of THL. Prior to
joining THL in 1988, he was in the Corporate Finance
Department at Wertheim Schroder & Co., Inc. Mr. DiNovi
is a director of Big Flower Holdings, Inc., Eye Care
Centers of America, Inc., Fisher Scientific
International, Inc., MJD Communications, Inc., Safelite
Glass Corporation and a number of privately held
companies.
Michael A. Krupka 35 2000 Mr. Krupka joined Bain and has been a Managing Director
since 1997. Prior to joining Bain, he spent several years
as a management consultant at Bain where he focused on
technology and technology-related companies. In
addition, Mr. Krupka has served in several senior
operating roles at Bain portfolio companies. He
currently serves as a director of Sealy Mattress Co.
</TABLE>
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 and $500 for each meeting of any committee thereof
attended. In addition, each Class A Director received an option to purchase
5,000 shares of Class A Common Stock upon his initial election to the Board of
Directors. Class A Directors also receive discretionary annual grants of options
to purchase shares of Class A Common Stock if nominated to stand for
re-election. Each Class A Director received discretionary grants of options to
purchase 5,000 shares and 10,000 shares in 1999 and 2000, respectively. 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.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held five meetings during 1999. The Board of
Directors currently has an Audit Committee and a Compensation Committee. Messrs.
Flaum, Harris and Schoonover serve as the members of these committees. The Audit
Committee met four times during 1999. 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 Compensation Committee met one time during 1999. The primary
function of the Compensation Committee in 1999 was to review and make
recommendations to the Board of Directors regarding compensation for the
Company's Chairman and Chief Executive Officer.
7
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table summarizes all compensation paid to (i) the two
persons who served as the Company's Chief Executive Officer during 1999, (ii)
the three most highly compensated executive officers incumbent at December 31,
1999 and (iii) two former executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------
ANNUAL COMPENSATION AWARDS
---------------------------------------- ---------------
OTHER
ANNUAL SECURITIES ALL OTHER
SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS (#) ($) (1)
------------------------------ --------- ---------------------------------------- --------------- ---------------
<S> <C> <C> <C>
Richard T. Aab 1999 168,000 --- --- --- 2,178
CHAIRMAN 1998 197,462 --- --- --- 451
1997 --- --- --- --- ---
Tansukh V. Ganatra 1999 164,505 --- 2,925 --- 2,132
VICE CHAIRMAN AND 1998 188,077 --- 1,018 --- 805
CHIEF EXECUTIVE OFFICER 1997 6,750 --- 7,968 --- 423
Aaron D. Cowell, Jr. 1999 157,000 102,400 --- 25,000 4,254
PRESIDENT 1998 127,409 56,300 --- 360,000 41
Michael K. Robinson 1999 156,700 102,400 --- 25,000 3,891
EXECUTIVE VICE PRESIDENT - 1998 75,102 56,300 --- 200,000 63
FINANCE AND CHIEF
FINANCIAL OFFICER
Robert D. Ingram 1999 82,329 24,200 --- 104,000 993
EXECUTIVE VICE PRESIDENT -
ENGINEERING AND CHIEF
TECHNICAL OFFICER
Craig K. Simpson (2) 1999 156,022 40,000 --- --- 2,401
SENIOR VICE PRESIDENT - 1998 127,025 59,400 --- 165,000 331
SALES 1997 61,757 15,000 --- --- ---
David C. Conner (3) 1999 147,766 --- --- --- 3,481
EXECUTIVE VICE PRESIDENT- 1998 128,037 95,400 --- --- 375
ENGINEERING AND 1997 79,785 25,000 --- --- 260
OPERATIONS AND CHIEF
TECHNICAL OFFICER
</TABLE>
- ----------------------------
(1) Amounts presented for 1999 include matching contributions to each
executive officer's account under the Company's 401(k) retirement plan
in the amounts of $1,904, $1,868, $3,998, $3,635, $908, $2,145 and
$3,225 and life insurance premiums of $274, $264, $256, $256, $84, $256
and $256 for Messrs. Aab, Ganatra, Cowell, Robinson, Ingram, Simpson
and Conner, respectively.
(2) During 1999, the Board of Directors determined that it was no longer
appropriate to classify the Company's Senior Vice Presidents as
executive officers.
(3) Mr. Conner retired from the Company during 1999.
8
<PAGE>
The following table set forth information with respect to option grants
to executive officers named on the Summary Compensation Table during 1999. All
such grants were made under the 1998 Stock Plan.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION GRANT DATE
NAME GRANTED (#) 1999 (%) ($/SH.) DATE VALUE ($)*
---------------------------- -------------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Aaron D. Cowell, Jr. 25,000 3.1 26.13 12-23-09 303,093
Michael K. Robinson 25,000 3.1 26.13 12-23-09 303,093
Robert D. Ingram 100,000 12.6 24.13 9-29-09 1,097,370
4,000 0.5 26.13 12-23-09 48,495
</TABLE>
-------------
* The grant date values presented were estimated using the
Black-Scholes option pricing model assuming no dividend yield,
volatility of 40%, an average risk-free rate of return of 6.5% and an
expected life of 5.1 years.
AGGREGATED OPTION EXERCISES IN 1999
AND OPTION VALUES AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1999 (#) AT DECEMBER 31, 1999 ($)
-------------------------------------- ----------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------- ----------------- -------------------- ------------------ ---------------------
<S> <C> <C> <C> <C> <C> <C>
Aaron D. Cowell, Jr. 90,000 295,000 (1) 2,244,375 6,886,250 (1)
Michael K. Robinson 50,000 175,000 (2) 1,246,875 3,893,750 (2)
Robert D. Ingram --- 104,000 (3) --- 837,000 (3)
Craig K. Simpson 165,000 --- 4,849,350 ---
</TABLE>
------------
(1) Includes 270,000 shares under a partially vested option, the balance
of which vests in three equal annual installments commencing on
September 18, 2000, and 25,000 shares under an option that vests in
four equal annual installments commencing on December 23, 2000. In
the event of a change in control of the Company (as defined in the
1998 Stock Plan), all unexercisable options held by Mr. Cowell become
fully vested and exercisable.
(2) Includes 150,000 shares under a partially vested option, the balance
of which vests in three equal annual installments commencing on
September 18, 2000, and 25,000 shares under an option that vests in
four equal annual installments commencing on December 23, 2000. In
the event of a change in control of the Company (as defined in the
1998 Stock Plan), all unexercisable options held by Mr. Robinson
become fully vested and exercisable.
(3) Includes 100,000 shares under options that vest in four equal annual
installments commencing on September 29, 2000 and an option to
purchase 4,000 shares that vests in four equal annual installments
commencing on December 23, 2000. In the event of a change in control
of the Company (as defined in the 1998 Stock Plan), an unexercisable
option covering 83,420 shares held by Mr. Ingram becomes fully vested
and exercisable.
EXECUTIVE COMPENSATION REPORT
GENERAL. The objective of the Company's executive compensation program
is to attract, motivate, reward and retain qualified executives. For 1999, the
Company's executive compensation program consisted of (i) annual compensation
comprised of a base salary combined with a cash incentive bonus based upon the
executive's performance and (ii) long-term compensation comprised of stock
option grants. The Board of Directors and its Compensation Committee determined
the compensation for Mr. Aab and Mr. Ganatra and the Board of Directors reviewed
and approved the recommended compensation for the Company's other executive
officers.
9
<PAGE>
ANNUAL COMPENSATION. During the fourth quarter of 1999, Mr. Aab and Mr.
Ganatra met to determine the recommendations for 1999 bonuses to be submitted to
the Board of Directors for all executive officers other than themselves. These
recommendations were based on a qualitative review of the performance of such
executive officers. The recommendations were approved by the Board of Directors.
LONG-TERM COMPENSATION. The Company adopted the 1998 Stock Plan
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 1998 Stock Plan authorizes the issuance
of a broad range of stock-based incentive awards, the Board of Directors relied
primarily on stock options to recruit and retain executive officers during 1999.
One executive officer was granted options to purchase 100,000 shares in
September 1999 in connection with his initial employment by the Company. In
December 1999, this executive officer was also granted an option to purchase
4,000 shares and two other executive officers were granted options to purchase
25,000 shares each based on a qualitative review of their performance during
1999 by Mr. Aab and Mr. Ganatra. All options granted in 1999 have a 10-year term
and vest in four annual installments commencing on the first anniversary of the
grant date, with exercise prices equal to the market value of the underlying
shares on the date of grant.
COMPENSATION OF THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER. During
1999, the base salaries for Mr. Aab and Mr. Ganatra were determined by the Board
of Directors and its Compensation Committee based on the expressed desire of
each executive officer to rely primarily upon appreciation in their holdings of
US LEC stock as compensation for their services to the Company.
CERTAIN INCOME TAX CONSIDERATIONS. Under federal tax law, certain
non-performance based executive compensation which is in excess of $1.0 million
is not tax deductible by the Company. During 1999, 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 2000. Accordingly, no
formal policy with respect to the tax deductibility of executive compensation
has been adopted.
MEMBERS OF THE BOARD OF DIRECTORS DURING 1999:
RICHARD T. AAB
DAVID M. FLAUM
JOHN W. HARRIS
STEVEN L. SCHOONOVER
TANSUKH V. GANATRA
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Aab holds an indirect controlling interest in Metacomm, LLC
("Metacomm"). Metacomm was engaged in the business of developing and operating a
high-speed data network in North Carolina and was a customer of the Company and
BellSouth Telecommunications, Inc. ("BellSouth"). As discussed under the caption
"Management's Discussion and Analysis of Financial Condition -- Disputed
Reciprocal Compensation Revenue" in the Company's 1999 Annual Report to
Stockholders, BellSouth filed a claim before the North Carolina Utilities
Commission (the "NCUC") on September 14, 1998 seeking to be relieved of any
obligation under its interconnection agreements with the Company to pay
reciprocal compensation for traffic related to the Metacomm network. On March
31, 2000, the NCUC issued an order in this proceeding that relieves BellSouth
from paying reciprocal compensation to US LEC for any minutes of use
attributable to the Metacomm or any similar network (the "March 31 Order"). The
Company is considering its options with respect to an appeal of the March 31
Order, but
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plans to comply fully with it. As a result of the March 31 Order, the Company
estimates that it will record a pre-tax, nonrecurring charge of approximately
$55 million in the quarter ending March 31, 2000. The charge, which is non-cash,
is composed of the write-off of approximately $153 million in receivables
related to reciprocal compensation revenue offset by a previously established
allowance of $39 million and a reduction of approximately $59 million in
reciprocal compensation commissions payable to Metacomm.
In accordance with existing agreements between Metacomm and the
Company, approximately $21 million in commission advances to Metacomm and
approximately $16 million in receivables for services provided to Metacomm are
due to the Company. Metacomm has assured the Company that these amounts will be
paid.
During 1999, the Company acquired software valued at $2.1 million from
Global Vista Communications, LLC ("GVC"), a company controlled by Mr. Aab. The
consideration paid by the Company consisted of 61,995 shares of Class A Common
Stock and approximately $300,000 in cash. In addition, the Company incurred
approximately $50,000 in expenses for consulting services provided by GVC. As of
December 31, 1999, the Company owed GVC approximately $66,000 for software and
consulting services. GVC provided the Company with software applications in the
areas of switch mediation, CABS billing, network traffic analysis and network
costing.
Of the $100 million of Series A Preferred Stock purchased by affiliates
of THL, $245,000 of Series A Preferred Stock was purchased by Mr. DiNovi for his
own account. Mr. DiNovi also received an option to purchase up to $122,500 of
Series B Preferred Stock. Of the $100 million of Series A Preferred Stock
purchased by affiliates of THL, $83.5 million of Series A Preferred Stock was
purchased by Thomas H. Lee Equity Fund IV, L.P., $2.9 million was purchased by
Thomas H. Lee Foreign Fund IV, L.P. and $8.1 million was purchased by Thomas H.
Lee Foreign Fund IV-B, L.P. All such securities may be deemed to be beneficially
owned by THL Equity Advisors IV, LLC, the general partner of each of the
foregoing entities, and by Mr. DiNovi as a managing director of THL. Mr. DiNovi
disclaims beneficial ownership of all such securities except to the extent of
his pecuniary interest therein.
Bain Capital CLEC Investors, LLC ("Bain Investors"), an affiliate of
Bain, purchased $100 million of Series A Preferred Stock. The Administrative
Member of Bain Investors is Bain Capital Fund VI, L.P., whose sole general
partner is Bain Capital Partners VI, L.P., whose sole general partner is Bain
Capital Investors VI, Inc. ("BCI VI"), a Delaware corporation wholly-owned by W.
Mitt Romney. Michael A. Krupka is an officer of BCI VI, but disclaims beneficial
ownership of all securities held by Bain Investors except to the extent of his
pecuniary interest therein.
See "Compensation Committee Interlocks and Insider Participation" below
for a discussion of certain transactions between the Company and Mr. Harris.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Flaum, Schoonover and Harris served as members of the
Compensation Committee during 1999. Also during 1999, the Company paid
approximately $468,000 for real estate services performed by Lincoln Harris, LLC
("Lincoln Harris"), a company controlled by Mr. Harris. As of December 31, 1999,
a liability totaling $46,000 was recorded in accounts payable in the Company's
financial statements relating to leasehold improvements and services purchased
from Lincoln Harris. During 1999, the Company entered into an operating lease
with H-C REIT, Inc., a company controlled by Mr. Harris, for the Company's new
headquarters. The lease commences on May 1, 2000 and continues for a period of
ten years. As part of the new lease agreement, H-C REIT, Inc. agreed to limit
the Company's liability under its existing headquarters lease to $500,000 for
early termination and lease
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incentive costs. Future minimum rental payments under the new headquarters lease
total $23.9 million. Lincoln Harris and other companies controlled by Mr. Harris
have been providing real estate services to US LEC since 1997.
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 for the period commencing April 24, 1998 (the first day
of trading of the Class A Common Stock following the Company's initial public
offering and ended December 31, 1999 assuming an investment of $100. The base
price for the Company's stock is the initial public offering price of $15.00 per
share.
NASDAQ STOCK NASDAQ
DATE US LEC CORP. MARKET (U.S.) TELECOMMUNICATIONS
- --------------------------------------------------------------------------------
4/24/98 100 100 100
6/30/98 139 103 107
9/30/98 86 93 95
12/31/98 99 120 129
3/31/99 114 135 161
6/30/99 150 147 171
9/30/99 164 151 158
12/31/99 215 218 225
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PROPOSAL 2
AMENDMENT OF THE 1998 STOCK PLAN
BACKGROUND AND REASONS
The 1998 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 currently has reserved 2,000,000 shares of Class A Common
Stock for issuance under the 1998 Stock Plan. The Board of Directors has
approved and recommended to the stockholders that they approve an amendment to
the 1998 Stock Plan to increase the number of shares reserved for issuance
thereunder to 3,500,000 shares. As of December 31, 1999, options to purchase
approximately 1,795,000 shares of Class A Common Stock were outstanding under
the 1998 Stock Plan.
Since May 1999, when the 1998 Stock Plan was last amended, the number
of the Company's employees has increased from 300 to approximately 550.
Management relies heavily on options issued under the 1998 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 1998 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 1998 Stock Plan if the
proposed amendment is approved.
DESCRIPTION OF THE 1998 STOCK PLAN
The 1998 Stock Plan is administered by the Board of Directors. Awards
under the 1998 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 Board of Directors has
authority and discretion under the 1998 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. The awards may be granted singly or together with other awards, or as
replacement of, in combination with, or as alternatives to, grants or rights
under the 1998 Stock Plan or other employee benefit plans of the Company. Awards
under the 1998 Stock Plan may be issued based on past performance, as an
incentive for future efforts or contingent upon the future performance of the
Company.
Options granted under the 1998 Stock Plan must be exercised within the
period fixed by the Board of Directors, 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 Board of
Directors. Except as authorized by the Board of Directors, 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 Board of Directors. 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 Board of Directors as "incentive stock options"
intended to qualify
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under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
options granted under the 1998 Stock Plan are intended to be "nonqualified stock
options."
FEDERAL INCOME TAX CONSIDERATIONS
There are no tax consequences to the optionee upon the grant of an
incentive option pursuant to the 1998 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
the foregoing holding period requirements are not 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 1998 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 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.
RECOMMENDATION
The Board of Directors recommends a vote "FOR" approval of the proposal
to amend the 1998 Stock Plan to increase the number of shares of Class A Common
Stock reserved for issuance thereunder from 2,000,000 shares to 3,500,000
shares.
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PROPOSAL 3
APPROVAL OF AN EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors has adopted the Stock Purchase Plan, subject to
stockholder approval. The Stock Purchase Plan, which offers eligible employees
the opportunity to purchase shares of Class A Common Stock through payroll
deductions, is intended to encourage participation in the ownership and economic
progress of the Company. Eligible employees are those employed by the Company
continuously for six months prior to the applicable grant date and whose
customary employment is more than 20 hours per week and more than five months in
any calendar year. Substantially all salaried and hourly employees, currently
totaling approximately 550 persons, will be eligible to participate in the Stock
Purchase Plan. The Stock Purchase Plan is intended to qualify under Section 423
of the Code.
ADMINISTRATION
The Stock Purchase Plan will be administered by the Board of Directors
or a standing committee designated by the Board of Directors. The Board of
Directors may from time to time adopt amendments to the Stock Purchase Plan
consistent with Sections 421 and 423 of the Code without the approval of the
Company's stockholders. The Board of Directors may terminate the Stock Purchase
Plan at any time and such action will result in a refund to those employees
participating in the Plan (the "Participants") of the sums credited to their
accounts. Unless sooner terminated, the Stock Purchase Plan will terminate on
December 31, 2010.
ISSUANCE OF SHARES
The Board of Directors has reserved 1,000,000 shares of the Company's
authorized but unissued shares of Class A Common Stock for purchase under the
Stock Purchase Plan. The Stock Purchase Plan provides for specified offering
periods during which an eligible employee will be permitted to accumulate
payroll deductions in a plan account (for each Participant, his or her, "Stock
Purchase Account") for the purchase of shares of Class A Common Stock (each, an
"Offering Period"). An eligible employee may elect to participate in the Stock
Purchase Plan by delivering to the Board of Directors a written directive
authorizing payroll deductions from such Participant's basic compensation in an
amount not exceeding ten percent (10%) of that Participant's compensation
payable to the Participant during the Offering Period. Notwithstanding the
foregoing, the aggregate fair market value of shares of Class A Common Stock
that may be purchased by a Participant during any calendar year may not exceed
$25,000. In its discretion, the Board of Directors also may impose a maximum
dollar amount that a Participant may contribute to the Stock Purchase Plan
during and for any particular Offering Period. In addition, a Participant is
limited to owning 5% of the total combined voting power or value of all classes
of stock of the Company.
PURCHASE OF SHARES
The purchase price per share of Class A Common Stock will be the lower
of 85% of the Fair Market Value (as defined in the Stock Purchase Plan) of a
share of Class A Common Stock as of the first day of each Offering Period or 85%
of the Fair Market Value of a share of Class A Common Stock as of the last day
of each Offering Period. The closing price of a share of Class A Common Stock on
the Nasdaq National Market on April 20, 2000 was $28.88 per share. As of the end
of each Offering Period, the amount in that Participant's Stock Purchase Account
will be used to purchase from the Company the largest number of whole shares of
Class A Common Stock which can be purchased at the price determined subject to
certain limitations summarized herein and set forth in detail in the Stock
Purchase Plan regarding
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<PAGE>
the maximum number of shares of Class A Common Stock the Participant may
purchase. The remaining balance (if any) in a Participant's Stock Purchase
Account shall be credited to that Participant's Stock Purchase Account for the
immediately following Offering Period.
If there is any increase or decrease in the number of issued shares of
Class A Common Stock as a result of a stock split, consolidation of shares,
payment of a stock dividend or any other capital adjustment affecting the number
of issued shares of Class A Common Stock, then an appropriate adjustment will be
made in the number of shares of Class A Common Stock reserved for issuance and
purchasable under the Stock Purchase Plan. In the event that the outstanding
shares of Class A Common Stock are changed into or exchanged for a different
number or kind of securities of the Company or another corporation, whether
through reorganization, recapitalization, merger, consolidation, or otherwise,
then an appropriate adjustment will be made in the number and kind of securities
which may be issued and purchased under the Stock Purchase Plan.
FEDERAL INCOME TAX CONSIDERATIONS
The Stock Purchase Plan is intended to qualify as an "employee stock
purchase plan" within the meaning of Section 423 of the Code. A Participant will
not realize income subject to federal income tax at the time he or she elects to
participate in the Stock Purchase Plan or at the time shares of Class A Common
Stock are purchased for his or her account. No federal income tax consequences
result to the Company at the time the Participant elects to participate in the
Stock Purchase Plan, at the time shares of Class A Common Stock are purchased
under the Stock Purchase Plan or upon the disposition of shares of Class A
Common Stock acquired under the Stock Purchase Plan, other than with respect to
a disqualifying disposition (as described below). If a Participant does not
dispose of shares of Class A Common Stock within two years of the date of grant
(the first day of the Offering Period involved) and within one year from the
date of purchase (the first business day following the end of the Offering
Period involved), upon the disposition of such shares, ordinary income may be
realized by the Participant on the lesser of (i) the excess of the proceeds of
sale over the purchase price or (ii) the excess of the fair market value on the
date of grant over the purchase price. Any additional gain realized will be
capital gain and any loss realized will constitute a capital loss.
If any shares of Class A Common Stock purchased are disposed of within
either the two-year or one-year periods described above (a "disqualifying
disposition"), the Participant will realize ordinary income at the time of such
disposition in an amount equal to the difference between the fair market value
of the shares on the date of purchase and the purchase price of such shares, and
the Company generally will be entitled to a corresponding tax deduction from its
income. Any difference between such fair market value and the disposition price
will be treated as capital gain or loss to the Participant and will not be
deductible by the Company.
RECOMMENDATION
The Board of Directors recommends a vote "FOR" approval of the Stock
Purchase Plan.
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PROPOSAL 4
AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION TO
INCREASE THE AUTHORIZED SHARES OF CLASS A AND
CLASS B COMMON STOCK
The Board of Directors has adopted the following resolutions to amend
the Certificate to increase the number of authorized shares of Class A Common
Stock from 72,924,728 shares to 122,924,728 shares. The text of the resolutions
are as follows (new language is indicated in bold, italicized and underscored
text):
RESOLVED, that Section 1, Article IV of the Restated
Certificate be amended to read in its entirety as follows:
1. The total number of shares of all stock which the
Corporation shall have the authority to issue is ONE HUNDRED
FIFTY MILLION (150,000,000) shares, consisting of Ten Million
(10,000,000) shares of Preferred Stock, $.01 par value per
share, and ONE HUNDRED FORTY MILLION (140,000,000) shares of
Common Stock. The Common Stock shall be divided into two (2)
classes as follows:
(a) ONE HUNDRED TWENTY-TWO MILLION NINE
HUNDRED TWENTY-FOUR THOUSAND SEVEN HUNDRED TWENTY-EIGHT
(122,924,728) shares of Class A Common Stock, $.01 par value
per share ("Class A Common"); and
(b) Seventeen Million Seventy-Five Thousand
Two Hundred Seventy-Two (17,075,272) shares of Class B Common
Stock, $.01 par value per share ("Class B Common").
On March 17, 2000, the Company had 10,443,541 shares of Class A Common
Stock and 17,075,270 shares of Class B Common Stock outstanding. The additional
authorized shares of Class A Common Stock will be available for future issuance
by the Company to give it flexibility in corporate planning and in responding to
future business developments, including possible stock splits or dividends,
financings and acquisition transactions, issuances under stock-based incentive
plans and other general corporate purposes. Except for issuances upon conversion
of Class B Common Stock and Series A Preferred Stock, issuances under the 1998
Stock Plan and the Stock Purchase Plan and upon the exercise of outstanding
warrants, the Company currently has no plans to issue additional shares of Class
A Common Stock.
Under some circumstances, issuances of additional shares of Class A
Common Stock could dilute the voting rights, equity and earnings per share of
existing stockholders. This increase in authorized but unissued Class A Common
Stock could also be considered an anti-takeover measure because the additional
authorized but unissued shares of Class A Common Stock could be used by the
Board of Directors to make a change in control of the Company more difficult.
The Board of Directors' purpose in recommending this proposal is not as an
anti-takeover measure, however, but for the reasons discussed above.
Authorized shares of Class A Common Stock may be issued by the Board of
Directors from time to time without further stockholder approval, except in
situations where stockholder approval is required by state law or the rules of
The Nasdaq Stock Market, Inc.
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RECOMMENDATION
The Board of Directors has adopted the resolution set forth above,
declared the amendment to the Certificate contemplated thereby to be advisable
and recommends that the stockholders vote "FOR" approval of this amendment to
the Certificate.
PROPOSAL 5
AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION TO
PERMIT PAYMENT OF STOCK DIVIDENDS ON CLASS B COMMON STOCK
IN SHARES OF CLASS A COMMON STOCK
The Board of Directors has adopted the following resolution to amend
the Certificate to permit the Board of Directors to declare and pay a stock
dividend on shares of Class B Common Stock in shares of Class A Common Stock,
subject to receipt of the consent of the holders of a majority of the Class B
Common Stock. The text of the resolution is as follows (new language is
indicated in bold, italicized and underscored text):
RESOLVED, that the first sentence of Section 2, Article IV of the
Restated Certificate of Incorporation of the Company be amended to read in its
entirety as follows:
(b) Dividends and Stock Splits. Whenever dividends upon
Preferred Stock at the time outstanding, to the extent of any
preference to which such stock is entitled, shall have been paid in
full, or declared and set apart for payment, for all current and, if
such Preferred Stock shall have cumulative rights, all past dividend
periods, and after the provisions for any sinking or purchase fund or
funds for any series of Preferred Stock shall have been complied with,
the Board of Directors may declare and pay dividends on the Common
Stock, payable in cash or otherwise, and the holders of shares of
Preferred Stock shall not be entitled to share therein, subject to the
certificate of designation for any outstanding series of Preferred
Stock, provided that, if dividends are declared on the Common Stock
which are payable in shares of Common Stock, dividends shall be
declared which are payable at the same rate on both classes of Common
Stock with dividends payable in shares of Class A Common payable to
holders of shares of Class A Common and dividends payable in shares of
EITHER CLASS A COMMON OR Class B Common payable to holders of shares of
Class B Common, PROVIDED THAT THE CONSENT TO PAY STOCK DIVIDENDS OF
SHARES ON CLASS B COMMON IN SHARES OF CLASS A COMMON SHALL BE RECEIVED
FROM THE HOLDERS OF NOT LESS THAN A MAJORITY OF THE THEN OUTSTANDING
SHARES OF CLASS B COMMON ON OR PRIOR TO THE DATE OF SUCH DECLARATION;
and provided further, that no dividends payable in shares of Class A
Common or Class B Common shall be declared unless an adequate number of
authorized but unissued shares of Class A Common or Class B Common, as
applicable, is available as of the date of such declaration.
Amending the Certificate to permit payment of stock dividends on
outstanding shares of Class B Common Stock in either additional shares of Class
B Common Stock, which are entitled to cast ten votes per share, or shares of
Class A Common Stock, which are entitled to cast one vote per share, will give
the Board of Directors greater flexibility in effecting stock dividends in
shares of Class A Common Stock, which will not have a disproportionate effect on
the voting power of existing stockholders. However, before the Board of
Directors can declare a stock dividend on shares of Class B Common Stock in
shares
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of Class A Common Stock, it must have received the consent of the holders of a
majority of the outstanding shares of Class B Common Stock. Richard T. Aab
currently owns, directly or indirectly, more than a majority of the outstanding
shares of Class B Common Stock. Accordingly, without his consent as required
under the proposed amendment to Section 2, Article IV of the Certificate, the
Board of Directors could not declare a stock dividend in shares of Class A
Common Stock on shares of Class A Common Stock or Class B Common Stock.
RECOMMENDATION
The Board of Directors has adopted the resolution set forth above,
declared the amendment to the Certificate contemplated thereby to be advisable
and recommends that the stockholders vote "FOR" approval of this amendment to
the Certificate.
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INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP served as the Company's independent accountants
for the year ended December 31, 1999. 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, 2000 because
management has not yet submitted its recommendations to the Audit Committee.
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 U.S. Securities and Exchange
Commission ("SEC"). Officers, directors and greater than ten percent
stockholders are required by SEC 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, 1999.
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
A stockholder intending to present a proposal at the 2001 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 December 26, 2000. 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.
PRESIDENT
April 28, 2000
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US LEC CORP.
PROXY SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF US LEC CORP.
The undersigned hereby appoints Richard T. Aab and Tansukh V. Ganatra, and
each of them, proxies, with power of substitution, 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, May 16, 2000, at the Marriott City Center, 100
West Trade Street, 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>
[ ] WITHHOLD AUTHORITY to vote for all [ ] VOTE FOR all nominees listed below.
(except as marked to the contrary below).
DAVID M. FLAUM STEVEN L. SCHOONOVER JOHN L. HARRIS
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW)
</TABLE>
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(2) To amend the US LEC Corp. 1998 Omnibus Stock Plan to increase the number of
shares reserved for issuance under the plan from 2,000,000 to 3,500,000.
[ ] FOR [ ]AGAINST [ ] ABSTAIN
(3) To approve the US LEC Corp. Employee Stock Purchase Plan.
[ ] FOR [ ]AGAINST [ ] ABSTAIN
(4) To adopt an amendment to the Company's Restated Certificate of
Incorporation increasing the number of authorized shares of Class A Common
Stock from 72,924,728 to 122,924,728; and
[ ] FOR [ ]AGAINST [ ] ABSTAIN
(5) To adopt an amendment to the Company's Restated Certificate of
Incorporation to permit the Board of Directors to declare and pay a stock
dividend on shares of Class B Common Stock in shares of Class A Common
Stock, subject to receipt of the consent of the holders of a majority of
Class B Common Stock;.
[ ] FOR [ ]AGAINST [ ] ABSTAIN
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 PROPOSALS 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.
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: , 2000
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