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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant toss.240.14a-11(c) orss.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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2. Form, Schedule or Registration Statement No.: N/A.
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3. Filing Party: N/A.
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4. Date Filed: N/A.
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<PAGE>
US LEC CORP.
TRANSAMERICA SQUARE
401 NORTH TRYON STREET, SUITE 1000
CHARLOTTE, NORTH CAROLINA 28202
April __, 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 9, 2000 at the Marriott
City Center, 100 W. 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 9, 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 W. Trade Street Charlotte, North
Carolina on Tuesday, May 9, 2000 at 10:00 a.m., Eastern Standard Time, for the
following purposes:
1. To elect three 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 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 amend 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 or 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 ____, 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") for use at the Annual Meeting of Stockholders to be held
at 10:00 a.m. on Tuesday, May 9, 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 three 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 three 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 "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 increasing the number of authorized shares of Class A
Common Stock from 72,924,728 to 122,924,728 (the "Certificate");
and
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 or 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.
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
proposals to approve the Stock Purchase Plan and the amendment to the 1998 Stock
Plan will require the
<PAGE>
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 the 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 the shares of Class B Common Stock voting separately as a class.
The approximate date on which this proxy statement and form of proxy
were first sent or given to stockholders is April 7, 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 17,075,252 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.
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 PERCENT PERCENT OF TOTAL PERCENT OF
OF BENEFICIAL OF SHARES TOTAL VOTING
NAME TITLE OF CLASS OWNERSHIP(1) CLASS (2) OUTSTANDING (2) POWER (2)
<S> <C> <C> <C> <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) * * *
All directors and executive
Officers as a group (8 persons) Class A 726,175 6.7 2.6 *
Class B 17,075,270 100.0 62.0 94.2
</TABLE>
2
<PAGE>
(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,
North Carolina 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.
(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, Charlotte, North Carolina 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.
(13) Comprised entirely of shares subject to a presently exercisable stock
option.
(14) Includes 15,000 shares subject to a presently exercisable stock option.
3
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors currently consists of five directors. Two
directors are elected annually by the holders of Class B Common Stock ("Class B
Directors"). The remaining three 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. 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> <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,
office buildings and high technology facilities in the eastern United
States.
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.
John W. Harris 52 1999 Mr. Harris was appointed to the Board of Directors during 1999. He
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 prior to The Harris Group was
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.
</TABLE>
The Board of Directors recommends that you vote "FOR" each of the three
nominees named above.
4
<PAGE>
CLASS B DIRECTORS
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 the re-election of both incumbent Class
B Directors at the Annual Meeting. Certain information regarding the incumbent
Class B Directors is set forth below.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE BUSINESS EXPERIENCE
- --------------------------- -------- ------------- ----------------------------------------------------------------------
<S> <C> <C> <C>
Richard T. Aab 50 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. In 1982, he
co-founded ACC Corp., a publicly-traded international
telecommunications company that was acquired by Teleport
Communications Group, Inc. ("Teleport"). Teleport was subsequently
acquired by AT&T. Between 1982 and 1997, Mr. Aab held various
positions with ACC Corp., including Chairman and Chief Executive
Officer, and served as a director. Under Mr. Aab's leadership, ACC
Corp. participated in the introduction of competition into local and
long distance telecommunications markets in the United States,
Canada and the United Kingdom.
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. Mr. Ganatra is a
specialist in the field of intelligent switching technology and
transport network systems. 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. (now Frontier Corp.), culminating with the position
of Director of Network Engineering.
</TABLE>
PENDING CHANGE IN BOARD COMPOSITION
On February 25, 2000, the Company announced that it had executed a
letter of intent with affiliates of Bain Capital, Inc. ("Bain") and Thomas H.
Lee Partners, L.P. ("THL") to invest up to $300 million in the Company. Under
the letter of intent, Bain and THL have each agreed to invest up to $150 million
in convertible preferred stock in US LEC, subject to definitive documentation
and other standard closing conditions and approvals. The investments will be
made in two tranches yielding a 6% dividend and at a weighted average conversion
price of approximately $39, which represents approximately a 7% premium to the
30-day trailing average stock price. The letter of intent contemplates that
holders of the new series of preferred stock to be issued in the transaction
will be entitled to elect two directors of the Company. Consequently, the Board
of Directors will be increased from five to seven seats and the Bain and THL
designees will be appointed directors immediately after the first tranche of the
transaction is consummated, which management expects to occur early in the
second quarter of 2000.
5
<PAGE>
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 Outside Director received an option to purchase
5,000 shares of Class A Common Stock upon his initial election to the Board of
Directors. Outside Directors also receive discretionary annual grants of options
to purchase shares of Class A Common Stock if nominated to stand for
re-election. Outside Directors received annual 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
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 1998 Stock Plan.
6
<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> <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 1997
FINANCIAL OFFICER
Robert D. Ingram 1999 82,329 24,200 --- 100,000 993
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 $256 for Messrs. Aab, Ganatra, Cowell, Robinson, Ingram,
Simpson and Conner, respectively.
(2) During 1999, the Board of Directors determined that it was no longer
appropriate to classify the Company's Senior Vice Presidents as
executive officers.
(3) Mr. Conner retired from the Company during 1999.
7
<PAGE>
The following table set forth information with respect to option grants
to Named Executive Officers during 1999. All such grants were made under the
Stock Purchase Plan.
<TABLE>
<CAPTION>
OPTION GRANTS IN 1999
INDIVIDUAL GRANTS
--------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE OR GRANT DATE
GRANTED 1999 BASE PRICE EXPIRATION VALUE*
NAME (#) (%) ($/SH.) DATE ($)
---------------------------- -------------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Aaron D. Cowell, Jr. 25,000 3.1 26.13 12-23-09 303,093
Michael K. Robinson 25,000 3.1 26.13 12-23-09 303,093
Robert D. Ingram 100,000 12.6 24.13 9-29-09 1,097,370
</TABLE>
---------------
(*) The grant date values presented were estimated using the Black-Scholes
option pricing model assuming no dividend yield, volatility of 40%, an
average risk-free rate of return of 6.5%, and an expected life of 5.1
years.
<TABLE>
<CAPTION>
AGGREGATED OPTION / W ARRANT EXERCISES IN 1999
AND OPTION VALUES AT DECEMBER 31, 1999
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS / WARRANTS OPTIONS / WARRANTS
AT DECEMBER 31, 1999 (#) AT DECEMBER 31, 1999 ($)
-------------------------------------- ----------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------- ------------------- ------------------ ------------------ ---------------------
<S> <C> <C> <C> <C>
Aaron D. Cowell, Jr. 90,000 295,000 2,244,375 6,886,250
Michael K. Robinson 50,000 175,000 1,247,000 3,893,750
Robert D. Ingram --- 100,000 --- 812,500
Craig K. Simpson 165,000 -- 4,849,350 ---
</TABLE>
COMPENSATION COMMITTEE REPORT
GENERAL. During 1999, the compensation of the Company's executive
officers was determined by the Board of Directors. The objective of the
Company's executive compensation program is to attract, motivate, reward and
retain qualified executives. 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 and
retain qualified executive officers. The Company's executive compensation
program consisted 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 1999, an executive
committee consisting of the Company's Chief Executive Officer, its President and
the Chief Financial Officer (the "Executive Committee") met to determine the
range of potential bonus amounts to be paid in early 2000 for performance during
1999 and base salary increases to become effective for 2000. In December 1999,
the Company's Chief Executive Officer performed a detailed review of the
performance of each executive officer other than the Chief Executive Officer.
The appraisal report produced as a result of this review assigned a score to
each executive officer's performance in different skill categories. The
executive officer's aggregate score was then used to determine his increase in
base salary for 2000 and the bonus to be paid in early 2000 for performance
during 1999.
8
<PAGE>
LONG-TERM COMPENSATION. The Company adopted the 1998 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 1998 Stock Plan authorizes
the issuance of a broad range of stock-based incentive awards, the Compensation
Committee relied primarily on stock options to recruit and retain executive
officers during 1999. One executive officer was granted a stock option during
1999 in connection with his initial employment by the Company. The number of
shares covered by the option was determined through individual negotiations with
the Chief Executive Officer. Two other executives were granted options to
purchase 25,000 shares each based on a qualitative review of their performance
during 1999. 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 salary and annual bonus for the Company's Chairman and its Chief
Executive Officer were determined by the Compensation Committee based on a
subjective evaluation of each officer's contribution to the financial
performance and condition of the Company and execution of its business plan.
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
Compensation Committee 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 by the Compensation Committee.
MEMBERS OF THE COMPENSATION COMMITTEE:
DAVID M. FLAUM
JOHN W. HARRIS
STEVEN L. SCHOONOVER
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1998, an affiliate of Mr. Aab acquired an indirect controlling
interest in Metacomm, LLC ("Metacomm"). During 1999, Metacomm was 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 1999, the Company recorded approximately $9.51
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 $38.90 million in
reciprocal compensation commission expenses earned by Metacomm. As of December
31, 1999, the Company had a liability to Metacomm in the amount of approximately
$22.81 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 1999, the Company paid Metacomm approximately $12.02
million prior to collecting the earned reciprocal compensation from BellSouth.
These payments are subject to a repayment agreement if the related reciprocal
compensation is ultimately determined not to be collectible. A more detailed
discussion of the transactions between the Company and Metacomm and the
BellSouth litigation appears in the Company's 2000 Annual Report to Stockholders
and other filings with the U.S. Securities and Exchange Commission.
9
<PAGE>
During 1999, the Company acquired $2.08 million in software from Global
Vista Communications, LLC ("GVC"), a company controlled by Mr. Aab. 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 is a software company that
provided the Company with solutions in the areas of switch mediation, CABS
billing, network traffic analysis and network costing.
During 1999, the Company capitalized $185,000 in site acquisition costs
for services performed by Lincoln Harris LLC, a company controlled by Mr.
Harris. In addition, the company incurred $3,000 in expenses for services
provided by Lincoln 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
LLC.
During 1999, the Company entered into an operating lease with H-C REIT,
Inc., a company controlled by Mr. Harris. 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 their existing lease
agreement to $500,000 for early termination and lease incentive costs. The
company has recognized this expense in 1999. Future minimum rental payments
under the new lease total $23.9 million.
Company management believes that all of the above transactions were
under terms no less favorable to the Company than could be arranged with
unrelated parties.
10
<PAGE>
PROPOSAL 2
AMENDMENT OF THE 1998 STOCK PLAN
BACKGROUND AND REASONS
The Company adopted the 1998 Omnibus Stock Plan in January 1998 the
("1998 Stock Plan"). 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 had increased from 300 to approximately 500 at
February 29, 2000. 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.
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 Common Stock
reserved for issuance thereunder from 2,000,000 shares to 3,500,000 shares.
DESCRIPTION OF THE 1998 STOCK PLAN
The 1998 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 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 Committee 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 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
11
<PAGE>
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 1998 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 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
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 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.
12
<PAGE>
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 of the Company
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, totaling approximately 500 persons as of February 29, 1999,
will be eligible to participate in the Stock Purchase Plan. The Stock Purchase
Plan is intended to qualify under Section 423 of the Internal Revenue Code of
1986, as amended (the "Code").
ADMINISTRATION
The Stock Purchase Plan will be administered by the Compensation
Committee or such other standing committee as the Board of Directors may
designate (the "Committee"). 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; provided, unless
stockholder approval is obtained, no such amendment may increase the aggregate
number of shares of Class A Common Stock that may be issued under the Stock
Purchase Plan, change the method of determining the purchase price for shares of
the Company's Class A Common Stock, or materially change the eligibility
requirement for participation in the Stock Purchase Plan. 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 consecutive six-month
offering periods, beginning on January 1 and July 1 of each year, 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"). The
initial Offering Period begins on July 1, 2000 and ends on December 31, 2000. An
eligible employee may elect to participate in the Stock Purchase Plan by
delivering to the Committee 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 Committee 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.
If as of the last day of any Offering Period, the aggregate Stock
Purchase Accounts available for the purchase of shares of Class A Common Stock
would purchase a number of shares of Class A Common Stock in excess of the
number of shares of Class A Common Stock then available for purchase under the
Stock Purchase Plan, (i) the number of shares of Class A Common Stock which
would otherwise be
13
<PAGE>
purchased for each Participant on that date shall be reduced proportionately to
the extent necessary to eliminate the excess, (ii) the remaining balance to the
credit of each Participant in each Participant's Stock Purchase Account shall be
distributed to each such Participant, and (iii) the Stock Purchase Plan shall
terminate automatically upon the distribution of the remaining balance in such
Stock Purchase Accounts.
PURCHASE OF SHARES
The purchase price per share of Class A Common Stock shall 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 that certain Offering
Period or 85% of the Fair Market Value of a share of Class A Common Stock as of
the last day of that certain Offering Period; provided, however, in no event
shall the purchase price be lower than the par value of a share of Class A
Common Stock. The closing price of a share of Class A Common Stock on the Nasdaq
National Market on March 17, 2000 was $45.25 per share. As of the end of each
Offering Period, the amount in that Participant's Stock Purchase Account shall
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 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
14
<PAGE>
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.
The Board of Directors recommends a vote "FOR" approval of the Stock
Purchase Plan.
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 (a) increase the number of authorized shares of Class A
Common Stock from 72,924,728 shares to 155,000,000 shares and (b) to increase
the number of authorized shares of Class B Common Stock from 17,075,272 shares
to 35,000,000 shares. The text of the resolutions are as follows (new language
is indicated in bold, 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 AND 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 Million (17,075,272) shares of Class B
Common Stock, $.01 par value per share ("Class B Common").
On March 7, 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 and Class B Common Stock would be available for
future issuance by the Company and would give the Company flexibility in its
corporate planning and in responding to future business developments, including
possible stock splits or dividends, financings and acquisition transactions,
issuances under the Company's stock-based incentive plans and other general
corporate purposes.
Under some circumstances, issuance of additional shares of Class B
Common Stock could dilute the voting rights, equity and earnings per share of
existing stockholders. This increase in authorized but unissued Class A and
Class B Common Stock could also be considered an anti-takeover measure because
the additional authorized but unissued shares of Class A and Class B Common
Stock could be used by the Board of Directors to make a change in control of the
Company more difficult. The Board of
15
<PAGE>
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 and Class B 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.
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 Restated 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 of Class B Common Stock in shares of Class A Common Stock. The text of
the resolution is as follows (new language is indicated in bold, underscored
text):
RESOLVED, that the first sentence of Section 2, Article IV of the
Restate 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 shall be payable to holders of
shares of Class B Common; 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 that
will not have a disproportionate effect on the voting power of existing
stockholders.
16
<PAGE>
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 Restated Certificate.
17
<PAGE>
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 February 29, 2000 assuming an investment of $100. The base
price for the Company's stock is the initial public offering price of $15.00 per
share.
<TABLE>
<CAPTION>
[PERFORMANCE GRAPH APPEARS HERE WITH THE FOLLOWING PLOT POINTS}
NASDAQ STOCK MARKET (U.S) NASDAQ
DATE US LEC CORP. TELECOMMUNICATIONS
----------------------- ---------------------- -------------------------- --------------------------------
<S> <C> <C> <C>
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
2/29/00 290 251 252
</TABLE>
18
<PAGE>
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 Audit Committee of the Board of
Directors has not yet acted to select the Company's independent accountants for
the year ending December 31, 2000.
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, 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 November 27, 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 __, 2000
19
<PAGE>
APPENDIX A
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 9:00 a.m., Eastern Standard Time on Tuesday, May 9, 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> <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)
- ---------------------------------------------------------------------------------------------------------------------
(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. 2000 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 79,924,728 to 122,924,728:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(5) To amend the Company's Restated Certificate of Incorporation to permit the Board of Directors to declare and
pay stock dividends on shares of Class B Common Stock in either shares of Class A Common Stock or 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
--------------------------------------------------------------------------
X
--------------------------------------------------------------------------
Dated: , 2000
---------------------------------------------------------------
</TABLE>
<PAGE>
APPENDIX B
US LEC CORP.
1998 OMNIBUS STOCK PLAN
1
<PAGE>
APPENDIX B
US LEC CORP.
1998 OMNIBUS STOCK PLAN
ARTICLE I
NAME, PURPOSE, AND DEFINITIONS
------------------------------
SECTION 1.1. NAME. The Plan shall be known as the "US LEC Corp. 1998
Omnibus Stock Plan" (the "Plan").
SECTION 1.2. PURPOSE. The purpose of the Plan is to benefit the
Company, Subsidiaries, and their stockholders by encouraging and enabling key
Employees and such other persons as are eligible to participate herein to
acquire a financial interest in the Company. The Plan is intended to aid the
Company and Subsidiaries in attracting and retaining directors, officers and key
employees and in attracting and retaining persons in key relationships with the
Company and Subsidiaries, to stimulate the efforts of those individuals, and to
strengthen their desire to remain in the office or in the employ of, or in a
beneficial relationship with, the Company and Subsidiaries.
SECTION 1.3. DEFINITIONS. Whenever used in the Plan, unless the context
clearly indicates otherwise, the following terms shall have the following
meanings:
(a) "AWARD" or "AWARDS" means an award granted pursuant
to Article III.
(b) "AWARD DOCUMENT" means a document described in Article IV
hereof setting forth the terms, conditions, and limitations applicable
to the Award granted to the Participant.
(c) "BENEFICIARY," with respect to a Participant, means (i)
one or more persons as the Participant may designate as primary or
contingent beneficiary in a writing delivered to the Company or
Committee or, (ii) if there is no such valid designation in effect at
the Participant's death, either (A) the Participant's spouse or (B) if
the Participant is not married at the date of the Participant's death,
the Participant's estate. This definition shall not, however, supersede
or adversely affect any definition or designation of beneficiary which
may be included in any Award.
(d) "BOARD" means the Board of Directors of the Company as it
may be comprised from time to time.
(e) "CODE" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute, and applicable
regulations.
(f) "COMMITTEE" means the committee appointed by the Board
from among its members and shall be comprised of not less than two (2)
persons. Unless and until otherwise appointed, the Committee shall be
the Compensation Committee of the Board or any successor committee with
substantially the same responsibilities if the members of that
committee satisfy the requirements of the following sentence. A member
of the Committee must not be an Employee and must otherwise satisfy
Rule 16b-3 with respect to grants to executive officers and directors.
If at any time there shall be no Compensation Committee of the Board or
any successor committee with substantially the same responsibilities
whose members satisfy the requirements of the foregoing sentence or if
the Board shall not have otherwise appointed a committee to administer
the Plan, the Board shall have the responsibilities assigned to the
Committee herein and references to the Committee herein shall refer to
the Board. In addition, the Board shall have the right to exercise, in
whole or in part, authority of the Committee
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hereunder with respect to certain persons or classes of persons as
Participants, in which case as to those persons and as to such
authority taken or retained by the Board, references to the Committee
herein shall refer to the Board.
(g) "COMPANY" means US LEC Corp., a Delaware corporation, and
any successor corporation.
(h) "DIRECTOR" means any individual who is a member of the
Board.
(i) "DISABILITY" shall mean the inability, in the opinion of
the Company's group health insurance carrier (or claims processor, if
applicable), of a Participant, because of injury or sickness, to work
at a reasonable occupation which is available with the Participant's
employer (the Company or a Subsidiary) or at any gainful occupation for
which the Participant is or may become fitted.
(j) "EMPLOYEE" means any individual who is an employee of the
Company or any Subsidiary, whether or not he or she is a Director.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended and in effect from time to time, or any successor statute.
(l) "FAIR MARKET VALUE" in reference to the Stock of the
Company means as of a given date either:
(i) The closing price of a share of Stock on the
National Market System or national securities exchange on
which the Stock is then trading as of the day immediately
prior to such date, or if Stock was not traded on that day,
then on the next preceding trading day during which a sale
occurred; or
(ii) if the Stock is not traded on the National
Market System or listed on a national securities exchange, the
mean between the bid and asked prices per share last reported
by the National Association of Securities Dealers, Inc., for
the over-the-counter market on the day immediately prior to
such date, or in the absence of any bid and asked prices on
that day, the mean of the bid and asked prices per share of
such Stock quoted on the next preceding day for which there
were such quotations; or
(iii) if the Stock is not traded on the National
Market System or listed on a national securities exchange, and
quotations for the Stock are not reported by the National
Association of Securities Dealers, Inc., the fair market value
determined by the Committee on the day immediately preceding
such date on the basis of available prices for the Stock or in
such manner as the Committee shall agree.
The Committee shall determine the Fair Market Value of any security
that is not publicly traded, using such criteria as it shall determine,
in its sole discretion, to be appropriate for such valuation.
(m) "INSIDER" means any person who is subject to Section 16.
(n) "PARTICIPANT" means an Employee, Director, or other person
designated by the Committee to be eligible for an Award pursuant to
this Plan.
(o) "RESTRICTED STOCK" means shares of Stock which have
certain restrictions attached to the ownership thereof, which may be
issued under Section 3.4.
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(p) "RETIREMENT" means termination of employment with the
Company or a Subsidiary for any reason other than death or Disability
on or after age 65.
(q) "RULE 16b-3" means Rule 16b-3 as promulgated by the
Securities and Exchange Commission on May 31, 1996, effective August
15, 1996, as such regulation or successor regulation shall be hereafter
amended.
(r) "SECTION 16" means Section 16 of the Exchange Act or any
successor regulation and the rules promulgated thereunder as they may
be amended from time to time.
(s) "SPOUSE" means the person of the opposite sex to whom the
Participant is married, as determined by the law of the Participant's
legal domicile, on the date of the Participant's death.
(t) "STOCK" means shares of the Class A Common Stock of the
Company.
(u) "STOCK APPRECIATION RIGHT" means a right, the value of
which is determined relative to the appreciation in value of shares of
Stock, which may be issued under Section 3.3.
(v) "STOCK OPTION" means a right to purchase shares of Stock
granted pursuant to Section 3.2 and includes Incentive Stock Options
and Non-Qualified Stock Options as defined in Section 3.2(a).
(w) "SUBSIDIARY" means any corporation (other than the
Company), limited liability company, or other business organization in
an unbroken chain of entities beginning with the Company in which each
of such entities other than the last one in the unbroken chain owns
stock, units or other interests possessing 50 percent or more of the
total combined voting power of all classes of stock, units or other
interests in one of the other entities in that chain.
(x) "SUBSTANTIAL STOCKHOLDER" means an Employee who is, at the
time of the grant to the Employee of an Award, an "owner" (as defined
in Section 422(b)(6) of the Code, modified as provided in Section 424
of the Code) of more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any Subsidiary.
ARTICLE II
ELIGIBILITY
-----------
Awards may be granted to any Employee who is or class of Employees who
are designated as Participants from time to time by the Committee and to such
other person, such as a non-Employee Director or consultant, whose relationship
with the Company or a Subsidiary is deemed by the Committee to be sufficiently
important to the Company or Subsidiary as to warrant receipt by such person of
an Award or such person that the Company or a Subsidiary or the Committee wishes
to secure as a key employee or director of the Company or a Subsidiary for whom
the grant of an Award will, in the Committee's judgment, act as an inducement to
such person to accept such position. The Committee shall determine which
Employees, Directors, or other eligible persons shall be Participants, the types
of Awards to be made to Participants, and the terms, conditions, and limitations
applicable to the Awards.
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ARTICLE III
AWARDS
------
SECTION 3.1. GENERAL. Awards may include, but are not limited to, those
described in this Article III, including its sections. The Committee may grant
Awards singly, in tandem, or in combination with other Awards, as the Committee
may in its sole discretion determine. Subject to the other provisions of this
Plan, Awards also may be granted in combination or in tandem with, in
replacement of, or as alternatives to, grants or rights under this Plan and any
other employee plan of the Company.
SECTION 3.2. STOCK OPTIONS. A Stock Option is a right to purchase a
specified number of shares of Stock at a specified price during such specified
time as the Committee shall determine, subject to the following:
(a) An option granted may be either of a type that complies
with the requirements of incentive stock options as defined in Section
422 of the Code ("Incentive Stock Option") or of a type that does not
comply with such requirements ("Non-Qualified Option").
(b) The exercise price per share of any Incentive Stock Option
shall be no less than the Fair Market Value per share of the Stock
subject to the option on the date such Stock Option is granted, except
that, if an Incentive Stock Option is granted to a Substantial
Stockholder, the exercise price per share shall be no less than one
hundred ten percent (110%) of the Fair Market Value per share of Stock
subject to the option on the date such Stock Option is granted.
(c) The exercise price per share of any Non-Qualified Option
may be less than the Fair Market Value per share of Stock subject to
the option on the date such Stock Option is granted.
(d) No Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date on which the Incentive Stock
Option is granted, except that, if an Incentive Stock Option is granted
to a Substantial Stockholder, such Stock Option shall not be
exercisable after the expiration of five (5) years from the date on
which the Incentive Stock Option is granted.
(e) A Stock Option may be exercised, in whole or in part, by
giving written notice of exercise to the Company specifying the number
of shares of Stock to be purchased and complying with such other terms
and conditions as the Committee may specify.
(f) The exercise price of the Stock subject to the Stock
Option may be paid in cash or, at the discretion of the Committee, may
also be paid by the tender of shares of Stock already owned by the
Participant, or through a combination of cash and shares of Stock, or
through such other means that the Committee determines are consistent
with the Plan's purpose and applicable law. No fractional shares of
Stock will be issued or accepted.
(g) The exercise price of the Stock subject to the Stock
Option may be paid, at the discretion of the Committee, by delivery to
the Company or its designated agent of an irrevocable written notice of
exercise form together with irrevocable instructions to a broker-dealer
to sell or margin a sufficient portion of the shares as to which the
Stock Option is to be exercised and to deliver the sale or margin loan
proceeds directly to the Company to pay the exercise price.
SECTION 3.3. STOCK APPRECIATION RIGHTS. A Stock Appreciation Right is a
right to receive, upon surrender of the right, but without payment of an
exercise price, an amount payable in cash and/or shares of Stock under such
terms and conditions as the Committee shall determine, subject to the following:
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(a) A Stock Appreciation Right may be granted in tandem with
all or part of a Stock Option, in addition to a Stock Option, or
completely independent of a Stock Option or any other Award under this
Plan. A Stock Appreciation Right issued in tandem with a Stock Option
may be granted at the time of grant of the related Stock Option or at
any time thereafter during the term of the Stock Option.
(b) The amount payable by the Company or Subsidiary in cash
and/or shares of Stock with respect to each right shall be equal in
value to a percent of the amount by which the Fair Market Value per
share of Stock on the exercise date exceeds the base value per share
established for the Stock Appreciation Right. The applicable percent
shall be established by the Committee. The amount payable in shares of
Stock, if any, is determined with reference to the Fair Market Value on
the date of exercise.
(c) Stock Appreciation Rights issued in tandem with Stock
Options shall be exercisable only to the extent that the Stock Options
to which they relate are exercisable. Upon the exercise of the Stock
Appreciation Right, the Participant shall surrender to the Company the
underlying Stock Option. Stock Appreciation Rights issued in tandem
with Stock Options shall automatically terminate upon the exercise of
such Stock Options.
(d) A Stock Appreciation Right may be a "limited" Stock
Appreciation Right, such as, for example, a Stock Appreciation Right
exercisable upon the occurrence of a certain event or certain events.
SECTION 3.4. RESTRICTED STOCK. Restricted Stock is shares of Stock that
are issued to a Participant or awarded to a Participant as "phantom stock" and
are subject to such terms, conditions, and restrictions as the Committee deems
appropriate, which may include, but are not limited to, restrictions upon the
sale, assignment, transfer, or other disposition of the Restricted Stock and the
requirement of forfeiture of the Restricted Stock upon termination of employment
or membership on the Board under certain specified conditions. The Committee may
provide for the lapse of any such term or condition based on such factors or
criteria as the Committee may determine. If the shares subject to a Restricted
Stock Award are issued to a Participant, the Participant shall have, with
respect to the Restricted Stock, all of the rights of a stockholder of the
Company, including, but not limited to, the right to vote the Restricted Stock
and the right to receive any cash or stock dividends on such Stock.
SECTION 3.5 PERFORMANCE AWARDS. Performance Awards may be granted under
this Plan from time to time based on such terms and conditions as the Committee
deems appropriate provided that such Awards shall not be inconsistent with the
terms and purposes of this Plan. Performance Awards are Awards which are
contingent upon the performance of all or a portion of the Company and/or
subsidiaries or which are contingent upon the individual performance of the
Participant. Performance Awards may be in the form of performance units,
performance shares, and such other forms of performance Awards which the
Committee shall determine. The Committee shall determine the performance
measurements and criteria for such performance Awards.
SECTION 3.6 OTHER AWARDS. The Committee may from time to time grant
other Stock and Stock-based Awards under the Plan, including, but not limited
to, those Awards pursuant to which shares of Stock are or may in the future be
acquired, Awards denominated in Stock units, securities convertible into shares
of Stock, and dividend equivalents. The Committee shall determine the terms and
conditions of such other Stock and Stock-based Awards provided that such Awards
shall not be inconsistent with the terms and purpose of this Plan.
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ARTICLE IV
AWARD DOCUMENTS
---------------
SECTION 4.1 GENERAL. Each Award under this Plan shall be evidenced by
an Award Document issued by the Company or the Committee setting forth the
number of shares of Stock or other security, Stock Appreciation Rights, or units
subject to the Award and such other terms and conditions applicable to the Award
as are determined by the Committee. When deemed required or desirable by the
Committee, the Award Document shall be signed by the Participant.
SECTION 4.2 REQUIRED TERMS. In any event, Award Documents shall
include, at a minimum, explicitly or by reference, the following terms:
(a) Assignability. Provisions defining the conditions under
which and transferees to whom an Award may be assigned, pledged, or
otherwise transferred. In the absence of any such provision, an Award
may not be assigned, pledged, or otherwise transferred except by will
or by the laws of descent and distribution and, during the lifetime of
a Participant, the Award may be exercised only by such Participant or
by the Participant's guardian or legal representative.
(b) Termination of Employment. A provision describing the
treatment of an Award in the event of the Retirement, Disability,
death, or other termination of an Employee Participant's employment
with the Company, including but not limited to terms relating to the
vesting, time for exercise, forfeiture, or cancellation of an Award in
such circumstances.
(c) Rights of Stockholder. A provision that a Participant
shall have no rights as a stockholder with respect to any securities
covered by an Award until the date the Participant becomes the holder
of record. Except as provided in Article VII hereof, no adjustment
shall be made for dividends or other rights, unless the Award Document
specifically requires such adjustment, in which case grants of dividend
equivalents or similar rights shall not be considered to be a grant of
any other stockholder right.
(d) Withholding. A provision requiring the withholding of
applicable taxes required by law from all amounts paid in satisfaction
of an Award. In the case of an Award paid in cash, the withholding
obligation shall be satisfied by withholding the applicable amount and
paying the net amount in cash to the Participant. In the case of Awards
paid in shares of Stock or other securities of the Company, a
Participant may satisfy the withholding obligation by paying the amount
of any taxes in cash or, with the approval of the Committee, shares of
Stock or other securities may be deducted from the payment to satisfy
the obligation in full or in part as long as such withholding of shares
does not violate any applicable laws, rules or regulations of federal,
state, or local authorities. The number of shares to be deducted shall
be determined by reference to the Fair Market Value of such shares of
Stock on the applicable date (the "given" date of Section 1.3(l)).
SECTION 4.3 OPTIONAL TERMS. Award Documents may include the following
terms:
(a) Replacement, Substitution, and Reloading. Any provisions:
(i) Permitting the surrender of outstanding Awards or
securities held by the Participant in order to exercise or
realize rights under other Awards, under similar or different
terms (including the grant of reload options); or
(ii) requiring holders of Awards to surrender
outstanding Awards as a condition precedent to the grant of
new Awards under the Plan.
(b) Holding Period. In the case of an Award to an Insider:
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(i) of an equity security, a provision stating (or
the effect of which is to require) that such security must be
held for at least six months (or such longer period as the
Committee in its discretion specifies) from the date of
acquisition;
(ii) of a derivative security with a fixed exercise
price within the meaning of Section 16, a provision stating
(or the effect of which is to require) that at least six
months (or such longer period as the Committee in its
discretion specifies) must elapse from the date of acquisition
of the derivative security to the date of disposition of the
derivative security (other than upon exercise or conversion)
or its underlying equity security; or
(iii) of a derivative security without a fixed
exercise price within the meaning of Section 16, a provision
stating (or the effect of which is to require) that at least
six months (or such longer period as the Committee in its
discretion specifies) must elapse from the date upon which
such price is fixed to the date of disposition of the
derivative security (other than by exercise or conversion) or
its underlying equity security.
(c) Other Terms. Such other terms as are necessary and
appropriate to effect an Award to the Participant including, but not
limited to, the term of the Award, vesting provisions, deferrals, any
requirements for continued employment with the Company or a Subsidiary,
any other restrictions or conditions (including performance
requirements) on the Award and the method by which restrictions or
conditions lapse, the effect on the Award of a Change of Control as
defined in Section 8.2, or the price, amount, or value of Awards.
ARTICLE V
SHARES OF STOCK
---------------
SUBJECT TO THE PLAN
-------------------
SECTION 5.1 GENERAL. Subject to the adjustment provisions of Article
VII hereof, the number of shares of Stock for which Awards may be granted under
the Plan shall not exceed Three Million Five Hundred Thousand (3,500,000)
shares.
SECTION 5.2 ADDITIONAL SHARES. Any unexercised or undistributed portion
of the terminated, expired, exchanged, or forfeited Award or Awards settled in
cash in lieu of shares of Stock shall be available for further Awards in
addition to those available under Section 5.1.
SECTION 5.3 COMPUTATION RULES. For the purpose of computing the total
number of shares of Stock granted under the Plan, the following rules shall
apply to Awards payable in shares of Stock or other securities, where
appropriate:
(a) Except as provided in subsection (e) of this Section, each
Stock Option shall be deemed to be the equivalent of the maximum number
of shares that may be issued upon exercise of the particular Stock
Option;
(b) except as provided in subsection (e) of this Section, each
other Stock-based Award payable in some other security shall be deemed
to be equal to the number of shares to which it relates;
(c) except as provided in subsection (e) of this Section,
where the number of shares available under the Award is variable on the
date it is granted, the number of shares shall be deemed to be the
maximum number of shares that could be received under that particular
Award;
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(d) where one or more types of Awards (both of which are
payable in shares of Stock or another security) are granted in tandem
with each other, such that the exercise of one type of Award with
respect to a number of shares cancels an equal number of shares of the
other, the number of shares under each type of Award shall be deemed to
be equivalent to the number of shares under the other type of Award;
and
(e) each share awarded or deemed to be awarded under the
preceding subsections shall be treated as share(s) of Stock, even if
the Award is for a security other than Stock.
Additional rules for determining the number of shares of Stock granted under the
Plan may be made by the Committee, as it deems necessary or appropriate.
SECTION 5.4 SHARES TO BE USED. The shares of Stock which may be issued
pursuant to an Award under the Plan may be authorized but unissued Stock or
Stock that is or has been acquired by the Company.
ARTICLE VI
ADMINISTRATION
--------------
SECTION 6.1 GENERAL. The Plan and all Awards pursuant thereto shall be
administered by the Committee so as to permit the Plan and any Award to comply
with Rule 16b-3. A majority of the members of the Committee shall constitute a
quorum. The vote of a majority of a quorum shall constitute action by the
Committee.
SECTION 6.2 DUTIES. The Committee shall have the duty to administer the
Plan, and to determine periodically the Participants in the Plan and the nature,
amount, pricing, timing, and other terms of Awards to be made to such
individuals.
SECTION 6.3 POWERS. The Committee shall have all powers necessary to
enable it to carry out its duties under the Plan properly, including, but not
limited to, the power to interpret and administer the Plan. All questions of
interpretation with respect to the Plan, the number of shares of Stock or other
security, Stock Appreciation Rights, or units granted, the terms of any Award
Documents, and other matters arising hereunder shall be determined by the
Committee, and its determination shall be final and conclusive upon all parties
in interest. In the event of any conflict between an Award Document and the
Plan, the terms of the Plan shall govern. In addition, the Committee may
delegate to the officers or employees of the Company the authority to execute
and deliver such instruments and documents, to do all such acts and things, and
to take all such other steps deemed necessary, advisable or convenient for the
effective administration of the Plan in accordance with its terms and purpose,
except that the Committee may not delegate any discretionary authority with
respect to substantive decisions or functions regarding the Plan or Awards
thereunder as those relate to Insiders including, but not limited to, decisions
regarding the timing, eligibility, pricing, amount or other material term of
such Awards. The Committee may, in its discretion and consistent with the terms
of the Plan, the requirements of Section 16 and Rule 16b-3 with respect to
Insiders, the requirements of other applicable law, and the terms of an Award
Document, amend, modify, or waive the provisions of an Award Document or grant a
new Award with respect to or in replacement of an existing Award; provided,
however, that no such amendment, modification, or waiver shall, without the
Participant's consent, alter or impair any rights or obligations under an Award
Document unless that is specifically permitted by the Award Document.
SECTION 6.4 INTENT TO AVOID INSIDER TRADING. It is the intent of the
Company that the Plan and Awards hereunder satisfy and be interpreted in a
manner, that, in the case of Participants who are or may be Insiders, satisfies
the applicable requirements of Rule 16b-3, so that such persons will be entitled
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to the benefits of Rule 16b-3 or other exemptive rules under Section 16 and will
not be subjected to avoidable liability thereunder. If any provision of the Plan
or of any Award would otherwise frustrate or conflict with the intent expressed
in this Section 6.4, that provision to the extent possible shall be interpreted
and deemed amended so as to avoid such conflict. To the extent of any remaining
irreconcilable conflict with such intent, the provision shall be deemed void as
applicable to Insiders.
ARTICLE VII
ADJUSTMENTS UPON CHANGES
------------------------
IN CAPITALIZATION
-----------------
In the event of a reorganization, recapitalization, Stock split, Stock
dividend, exchange of Stock, combination of Stock, merger, consolidation or any
other change in corporate structure of the Company affecting the Stock, or in
the event of a sale by the Company of all or a significant part of its assets,
or any distribution to its stockholders other than a normal cash dividend, the
Committee shall make appropriate adjustment in the number, kind, price and value
of shares of Stock authorized by this Plan and any adjustments to outstanding
Awards as it determines appropriate so as to prevent dilution or enlargement of
rights, unless the Award or Award Document provides otherwise.
ARTICLE VIII
CHANGES OF CONTROL
------------------
SECTION 8.1 GENERAL. In the event of a Change of Control of the
Company, in addition to any action required or authorized by the terms of an
Award Document, the Committee may, in its discretion, recommend that the Board
of Directors take any of the following actions as a result of, or in
anticipation of, any such event to assure fair and equitable treatment of the
Plan Participants:
(a) Accelerate time periods for purposes of vesting in, or
realizing gain from, any outstanding Award made pursuant to the Plan;
(b) offer to purchase any outstanding Award made pursuant to
this Plan from the holder for its equivalent cash value, as determined
by the Committee, as of the date of the Change of Control; or
(c) make adjustments or modifications to outstanding Awards as
the Committee deems appropriate to maintain and protect the rights and
interests of Plan Participants following such Change of Control.
Any such action approved by the Board of Directors shall be conclusive and
binding on the Company, a Subsidiary, and all Participants.
SECTION 8.2 "CHANGE OF CONTROL". For the purposes of this Section, a
"Change of Control" shall mean the earliest date on which one of the following
events shall occur:
(a) Any Person (as defined hereafter) or Persons as a group
beneficially own more than 50% of the combined voting power of all
classes of the Company's outstanding capital stock;
(b) The Company shall be merged into another corporation or
shall be consolidated with another corporation and immediately
following the effective date of any such merger or consolidation, the
Founding Group members do not, as a group, beneficially own more than
50%
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of the combined voting power of all classes of the outstanding capital
stock of the surviving corporation in any such merger or consolidation;
(c) The Company shall sell substantially all of its assets to
another entity which is not a wholly-owned Subsidiary; or
(d) The persons who were directors of the Company on the date
30 days after the effective date of the Plan (Article XI), together
with those who subsequently become directors of the Company and whose
election, or nomination for election by the Company's stockholders, is
approved by the vote of at least a majority of the directors who were
directors on the date 30 days after the effective date of the Plan
(Article XI) or directors whose nomination or election is approved as
provided above, shall cease to constitute a majority of the Board or of
its successor by merger, consolidation or sale of assets.
SECTION 8.3 DEFINITIONS APPLICABLE TO CHANGE OF CONTROL.
-------------------------------------------
(a) "PERSON" means any individual, firm, corporation,
partnership, limited liability company, trust, or other entity;
PROVIDED, HOWEVER, that "Person" does not include:
(i) Any member of the Founding Group (as defined in
this Section);
(ii) a Permitted Transferee (as defined in Exhibit A
hereto);
(iii) the Company or any Subsidiary; or
(iv) any employee benefit plan of the Company or any
Subsidiary or any entity appointed or established by the
Company or Subsidiary as a fiduciary for or pursuant to the
terms of any such employee benefit plan.
(b) "FOUNDING GROUP" means Richard T. Aab, Melrich Associates,
L.P., Tansukh V. Ganatra, and Super STAR Associates Limited
Partnership.
ARTICLE IX
AMENDMENT AND TERMINATION
-------------------------
SECTION 9.1 AMENDMENT OF PLAN. The Company expressly reserves the
right, at any time and from time to time, to amend in whole or in part any of
the terms and provisions of the Plan and any or all Award Documents under the
Plan to the extent permitted by law for whatever reason(s) the Company may deem
appropriate; provided, however, no amendment may be effective, without the
approval of the stockholders of the Company, if approval of such amendment is
required in order that transactions in Company securities under the Plan be
exempt from the operation of Section 16(b) of the Securities Exchange Act of
1934 or if such amendment, with respect to the issuance of Incentive Stock
Options, either:
(a) Materially increases the number of shares of Stock which
may be issued under the Plan, except as provided for in Article VII; or
(b) materially modifies the requirements as to eligibility for
participation in the Plan (unless designed to comport with the Code,
the Employee Retirement Security Act of 1974, or other laws).
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SECTION 9.2 TERMINATION OF PLAN. The Company expressly reserves the
right, at any time, to suspend or terminate the Plan and any or all Award
Documents under the Plan to the extent permitted by law for whatever reason(s)
the Company may deem appropriate, including, but not limited to, suspension or
termination as to the Company, any participating Subsidiary, any Participant, or
any class of Participants.
SECTION 9.3. PROCEDURE FOR AMENDMENT OR TERMINATION. Any amendment to
the Plan or termination of the Plan shall be made by the Company by resolution
of the Board and shall not require the approval or consent of any Subsidiary,
Participant, or Beneficiary in order to be effective, to the extent permitted by
law. Any amendment to the Plan or termination of the Plan may be retroactive to
the extent not prohibited by applicable law.
ARTICLE X
MISCELLANEOUS
-------------
SECTION 10.1 RIGHTS OF EMPLOYEES. Status as an eligible Employee shall
not be construed as a commitment that any Award will be made under the Plan to
such eligible Employee or to eligible Employees generally. Nothing contained in
the Plan (or in any other documents related to this Plan or to any Award) shall
confer upon any Employee or Participant any right to continue in the employ or
other service of or relationship with the Company or constitute any contract or
limit in any way the right of the Company to change such person's compensation
or other benefits or to terminate the employment or relationship of such person
with or without cause.
SECTION 10.2 COMPLIANCE WITH LAW. No certificate for Stock
distributable pursuant to this Plan shall be issued and delivered unless the
issuance of such certificate complies with all applicable legal requirements
including, without limitation, compliance with the provisions of applicable
state securities laws, the Securities Act of 1933, as amended from time to time
or any successor statute, the Exchange Act and the requirements of the market
systems or exchanges on which the Stock may, at the time, be traded or listed.
SECTION 10.3 UNFUNDED STATUS. The Plan shall be unfunded. Neither the
Company nor the Board of Directors shall be required to segregate any assets
that may at any time be represented by Awards made pursuant to the Plan. Neither
the Company, the Committee, nor the Board of Directors shall be deemed to be a
trustee of any amounts to be paid under the Plan.
SECTION 10.4 LIMITS ON LIABILITY. Any liability of the Company to any
Participant with respect to an Award shall be based solely upon contractual
obligations created by the Plan and the Award Document. Neither the Company nor
any member of the Board of Directors or the Committee, nor any other person
participating in any determination of any question under the Plan, or in the
interpretation, administration or application of the Plan, shall have any
liability to any party for any action taken or not taken, in good faith under
the Plan and that do not constitute willful misconduct. To the extent permitted
by applicable law, the Company shall indemnify and hold harmless each member of
the Board of Directors and the Committee from and against any and all liability,
claims, demands, costs, and expenses (including, but not limited to, the costs
and expenses of attorneys incurred in connection with the investigation or
defense of claims) in any manner connected with or arising out of any actions or
inactions in connection with the administration of the Plan except for such
actions or inactions which are not in good faith or which constitute willful
misconduct.
SECTION 10.5 SECTION REFERENCES. All references in this Plan to
sections or articles shall refer to sections and articles of this Plan unless
specifically noted otherwise.
12
<PAGE>
ARTICLE XI
EFFECTIVE DATE OF PLAN
----------------------
This Plan shall become effective on the date of its adoption by the
Board; provided, however, the effectiveness of this Plan is subject to its
approval and ratification by the stockholders of the Company within one year
from the date of adoption hereof by the Board. The Committee shall have
authority to grant Awards hereunder until one day before the ten year
anniversary of the date of adoption of the Plan by the Board, subject to the
ability of the Company to terminate the Plan as provided in Article IX.
13
<PAGE>
APPENDIX C
US LEC CORP.
2000 EMPLOYEE STOCK PURCHASE PLAN
<PAGE>
APPENDIX C
US LEC CORP.
2000 EMPLOYEE STOCK PURCHASE PLAN
Table of Contents
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
ARTICLE I
NAME, PURPOSE, CONSTRUCTION, AND DEFINITIONS.............................................................. 1
- --------------------------------------------
Section 1.1. Name.................................................................................... 1
----
Section 1.2. Purpose................................................................................. 1
-------
Section 1.3. Intent.................................................................................. 1
------
Section 1.4. Definitions............................................................................. 1
-----------
ARTICLE II
PARTICIPATION 4
- -------------
Section 2.1. General................................................................................. 4
-------
Section 2.2. Participation Requirements.............................................................. 4
--------------------------
Section 2.3. Eligibility of Former Participants...................................................... 4
----------------------------------
Section 2.4. Exclusions.............................................................................. 4
----------
ARTICLE III
OFFERING OF COMMON STOCK.................................................................................. 4
- ------------------------
Section 3.1. Reservation of Common Stock............................................................. 4
---------------------------
Section 3.2. Offering of Common Stock................................................................ 5
------------------------
Section 3.3. Determination of Purchase Price for Offered Common Stock................................ 6
--------------------------------------------------------
Section 3.4. Effect of Certain Transactions.......................................................... 6
------------------------------
ARTICLE IV
PAYROLL DEDUCTIONS........................................................................................ 6
- ------------------
Section 4.1. Payroll Deduction Elections............................................................. 6
---------------------------
Section 4.2. Termination of Election upon Termination of Employment.................................. 6
------------------------------------------------------
Section 4.3. Change or Termination not Retroactively Effective....................................... 7
-------------------------------------------------
Section 4.4. Form, Timing, and Frequency of Elections................................................ 7
----------------------------------------
ARTICLE V
STOCK PURCHASE ACCOUNTS AND PURCHASE OF COMMON STOCK...................................................... 7
- ----------------------------------------------------
Section 5.1. Stock Purchase Accounts................................................................. 7
-----------------------
Section 5.2. Purchase of Common Stock................................................................ 7
------------------------
Section 5.3. Withdrawal from Plan Prior to Purchase of Common Stock.................................. 8
------------------------------------------------------
i
<PAGE>
ARTICLE VI
COMMITTEE ........................................................................................ 9
- ---------
Section 6.1. Appointment, Term of Office, and Vacancies.............................................. 9
------------------------------------------
Section 6.2. Powers of Committee..................................................................... 9
-------------------
Section 6.3. Indemnification of Committee............................................................ 10
----------------------------
ARTICLE VII
AMENDMENT AND TERMINATION................................................................................. 10
- -------------------------
Section 7.1. Amendment of Plan....................................................................... 10
-----------------
Section 7.2. Termination of Plan..................................................................... 10
-------------------
Section 7.3. Procedure for Amendment or Termination.................................................. 10
--------------------------------------
ARTICLE VIII
MISCELLANEOUS ........................................................................................ 10
- -------------
Section 8.1. Transferability of Rights............................................................... 10
-------------------------
Section 8.2. No Employment Rights.................................................................... 11
--------------------
Section 8.3. Compliance with Law..................................................................... 11
-------------------
Section 8.4. Restriction on Sale or Disposition of Closely-Held Stock................................ 11
--------------------------------------------------------
Section 8.5. Obligation to Sell Common Stock to the Company.......................................... 11
----------------------------------------------
Section 8.6. Sale of Company......................................................................... 12
---------------
Section 8.7. Section References...................................................................... 12
------------------
Section 8.8. Approval of Plan........................................................................ 13
----------------
</TABLE>
ii
<PAGE>
US LEC CORP.
2000 EMPLOYEE STOCK PURCHASE PLAN
WHEREAS, US LEC Corp. desires to establish an employee stock purchase
plan that will provide eligible employees of US LEC Corp. (the "Company") an
opportunity to purchase the Common Stock of the Company through payroll
deductions and that will encourage employee participation in the economic
progress of the Company through stock ownership; and
WHEREAS, it is the intent of the Company that the plan established
herein shall constitute an "employee stock purchase plan" within the meaning of
Section 423(b) of the Internal Revenue Code of 1986;
NOW, THEREFORE, for the purposes aforesaid, the Company hereby adopts
and establishes, effective as of the Effective Date, the "US LEC Corp. 2000
Employee Stock Purchase Plan" consisting of the terms and provisions set forth
as follows:
ARTICLE I
NAME, PURPOSE, CONSTRUCTION, AND DEFINITIONS
SECTION 1.1. NAME. The Plan shall be known as the "US LEC Corp. 2000
Employee Stock Purchase Plan" (the "Plan").
SECTION 1.2. PURPOSE. The purpose of the Plan is to provide
Participants in the Plan with an opportunity to purchase Common Stock in the
Company through payroll deductions, thereby encouraging Participants to share in
the economic growth and success of the Company through stock ownership.
SECTION 1.3. INTENT. The Company intends that the Plan shall at all
times constitute an "employee stock purchase plan" within the meaning of Section
423(b) of the Code, and the Plan shall be construed and interpreted to remain
so. The Plan shall be construed, administered, regulated, and governed by the
laws of the United States to the extent applicable, and to the extent such laws
are not applicable, by the laws of the State of North Carolina applicable to
contracts made and to be performed in North Carolina.
SECTION 1.4. DEFINITIONS. Whenever used in the Plan, unless the context
clearly indicates otherwise, the following terms shall have the following
meanings:
(a) "BENEFICIARY," with respect to a Participant, means (i)
such person as the Participant may designate in a writing delivered to
the Company or Committee or, (ii) if there is no such valid designation
in effect at the Participant's death, the Participant's spouse or,
(iii) if the Participant is not married at the date of the
Participant's death, the Participant's estate.
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<PAGE>
(b) "BOARD" or "BOARD OF DIRECTORS" means the Board of
Directors of the Company or any committee or committees of said Board
of Directors of the Company to which, and to the extent, said Board of
Directors of the Company has delegated some or all of its power,
authority, duties, or responsibilities with respect to the Plan.
(c) "CHAIRMAN" means the Chairman of the Board of Directors of
the Company designated as such by the Board of Directors from time to
time.
(d) "CODE" means the Internal Revenue Code of 1986, as the
same may be amended from time to time, and references thereto shall
include the valid Treasury regulations issued thereunder.
(e) "COMMITTEE" means the Committee described in Article VI.
(f) "COMMON STOCK" means shares of the $.01 par value Class A
common stock of the Company and any other stock or securities resulting
from the adjustment thereof or substitution therefor as described in
Section 3.4.
(g) "COMPANY" means US LEC Corp., a North Carolina
corporation.
(h) "COMPENSATION" means, with respect to a Participant, the
Participant's wages--that is, salary and hourly wages--but (without
limitation) specifically excluding (even if includible in gross income)
reimbursements or other expense allowances; fringe benefits (cash or
noncash); moving expenses; deferred compensation; welfare benefits;
overtime; commissions; bonuses; and contributions made by the Company
to a plan of deferred compensation to the extent that the contributions
are not includible in the gross income of the Participant for the
taxable year in which contributed; provided, however, that
"Compensation" does include amounts contributed by the Company pursuant
to a salary reduction agreement which are not includible in the gross
income of the Participant under Code Sections 125, and 402(h), and
employee contributions described in Code Section 414(h)(2) that are
treated as employer contributions.
(i) "EFFECTIVE DATE" means June 1, 2000.
(j) "EMPLOYEE" means a person employed by the Company. A
director of the Company is not an Employee unless otherwise employed as
a common law employee of the Company.
(k) "FAIR MARKET VALUE," with respect to a share of Common
Stock from time to time, means (i) the closing price of a share of
Common Stock on the principal exchange on which the Common Stock is
then trading on the applicable date, or (ii) if the Common Stock is not
traded on the National Market System or listed on a national securities
exchange, the mean between the bid and asked prices last reported by
the National Association of Securities Dealers, Inc. for the
over-the-counter market on the applicable
2
<PAGE>
date during an Offering Period or, if no bid and asked prices are
reported on said date, then on the next preceding date on which there
were such quotations, or (iii) if the Common Stock is not traded on the
National Market System or listed on a national securities exchange and
quotations for the Common Stock are not reported by the National
Association of Securities Dealers, Inc., the fair market value
determined by the Committee on the basis of available prices for the
Common Stock or in such manner as the Committee shall agree.
(l) "OFFERING" means the offering of shares of Common Stock to
Participants pursuant to this Plan that occurs on each Offering Date.
(m) "OFFERING DATE" means July 1, 2000 and each January 1 and
July 1 thereafter.
(n) "OFFERING PERIOD" means the period from an Offering Date
through the date immediately preceding the following Offering Date.
(o) "PARTICIPANT" means an Employee who has become a
Participant pursuant to Section 2.2 of the Plan.
(p) "PURCHASE PRICE" means the Purchase Price described in
Section 3.3.
(q) "STOCK PURCHASE ACCOUNT," with respect to a Participant,
means the account established on the books and records of the Company
for that Participant representing the payroll deductions credited to
the account in accordance with the provisions of the Plan.
(r) "SUBSIDIARY" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the
Company if each of the corporations other than the last corporation in
such unbroken chain owns stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of
the other corporations in such unbroken chain.
(s) "TERMINATION WITH CAUSE" means the dismissal or
termination of a Participant for willful misconduct (i.e., fraud,
embezzlement, other criminal acts or any willful action which is a
breach of a Participant's duty of loyalty to the Company) or for moral
turpitude.
(t) "VALUATION DATE" means July 1, 2000 and each January 1 and
July 1 thereafter.
3
<PAGE>
ARTICLE II
PARTICIPATION
SECTION 2.1. GENERAL. A person becomes a Participant when that person
is an Employee and satisfies the participation requirements of this Article. In
no event, however, shall any person be eligible to participate in the Plan
before the Effective Date.
SECTION 2.2. PARTICIPATION REQUIREMENTS.
(a) Eligibility Requirement. An Employee shall be eligible to
participate in the Plan when he or she completes six months of
continuous service as an Employee with the Company.
(b) Commencement of Participation. Each person who satisfies
the eligibility requirement of Section 2.2(a) becomes a Participant in
the Plan:
(1) on the first Offering Date after that person
satisfies the eligibility requirement, if that person is an
Employee on that Offering Date; or
(2) if that person is not an Employee on that
Offering Date, then on the first Offering Date coinciding with
or next following the date (if any) on which that person again
becomes an Employee.
SECTION 2.3. ELIGIBILITY OF FORMER PARTICIPANTS. If a person terminates
employment with the Company after becoming a Participant and subsequently
resumes employment with the Company that person shall again become a Participant
on the Offering Date coinciding with or next following that resumption of
employment with the Company, if such person is an Employee on that Offering
Date.
SECTION 2.4. EXCLUSIONS. Notwithstanding Sections 2.1 through 2.3 or
any other provision of the Plan, the following persons shall NOT be
Participants:
(1) Any Employee whose customary employment with the Company
is twenty (20) hours or less per week; or
(2) Any Employee whose customary employment with the Company
is for not more than five (5) months in any calendar year.
ARTICLE III
OFFERING OF COMMON STOCK
SECTION 3.1. RESERVATION OF COMMON STOCK. As of the Effective Date, the
Board of Directors shall reserve one million (1,000,000) shares of Common Stock
for the Plan, subject to adjustment in accordance with Section 3.4. The
aggregate number of shares of Common Stock
4
<PAGE>
which may be purchased under the Plan by Participants shall not exceed one
million (1,000,000) shares, subject to adjustment in accordance with Section
3.4.
SECTION 3.2. OFFERING OF COMMON STOCK.
(a) General. Subject to Section 3.2(b), each Participant in
the Plan on an Offering Date shall be entitled to purchase shares of
Common Stock on the last day of the Offering Period beginning with that
Offering Date with the amounts deducted from such Participant's
Compensation during the Offering Period pursuant to Article IV. The
purchase price for the shares of Common Stock shall be determined under
Section 3.3.
(b) Limitations. Notwithstanding Section 3.2(a), the maximum
number of shares of Common Stock a Participant may purchase pursuant to
an Offering under Section 3.2(a) shall be subject to the following
limitations:
(1) If as of the Offering Date for the Offering the
Participant owns stock (including stock which such Participant
is considered to own under Section 424(d) of the Code and
pursuant to an outstanding option, as determined under Code
Regulations section 1.423-2(d)(2), and including the Common
Stock the Participant would be entitled to purchase pursuant
to an Offering) possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock
of the Company or a Subsidiary, then the maximum number of
shares of Common Stock the Participant may purchase pursuant
to the Offering shall be reduced so that the number of shares
of Common Stock the Participant may purchase pursuant to such
Offering when added to the number of shares of stock of the
Company or a Subsidiary corporation the Participant owns or is
considered to own (as described above) (except excluding the
Common Stock such Participant would be entitled to purchase
pursuant to such Offering) is less than five percent (5%) of
the total combined voting power or value of all classes of
stock of the Company or Subsidiary corporation;
(2) If the Participant could acquire within the same
calendar year as an Offering shares of stock of the Company or
Subsidiary corporation under all "employee stock ownership
plans" within the meaning of Section 423(b) of the Code
sponsored by the Company or a Subsidiary (including the Common
Stock such Participant would be entitled to pursuant to such
Offering) having a total fair market value (determined as of
the date of such Offering) which exceeds Twenty-Five Thousand
Dollars ($25,000), then the maximum number of shares the
Participant may purchase pursuant to the Offering shall be
reduced so that such total fair market value does not exceed
Twenty-Five Thousand Dollars ($25,000); and
(3) The number of shares of Common Stock a
Participant may purchase in an Offering Period shall not
exceed the number which may be purchased with the maximum
dollar amount specified in Section 4.1.
5
<PAGE>
SECTION 3.3. DETERMINATION OF PURCHASE PRICE FOR OFFERED COMMON STOCK.
The purchase price per share of the shares of Common Stock offered to
Participants pursuant to an Offering ("Purchase Price") shall be equal to
eighty-five percent (85%) of the lesser of:
(a) the Fair Market Value of a share of Common Stock as of the
first day of the Offering Period for that Offering; or
(b) the Fair Market Value of a share of Common Stock as of the
last day of the Offering Period for that Offering; provided, however,
in no event shall the Purchase Price be less than the par value of a
share of Common Stock.
SECTION 3.4. EFFECT OF CERTAIN TRANSACTIONS. The number of shares of
Common Stock reserved for the Plan and purchasable pursuant to Section 3.1, the
maximum number of shares of Common Stock a Participant may purchase pursuant to
an Offering under Section 3.2(a), and the determination under Section 3.3 of the
purchase price per share of the shares of Common Stock offered to Participants
pursuant to an Offering shall be appropriately adjusted to reflect any increase
or decrease in the number of issued shares of Common Stock resulting from a
stock split, a consolidation of shares, the payment of a stock dividend, or any
other capital adjustment affecting the number of issued shares of Common Stock.
In the event that the outstanding shares of Common Stock shall be changed into
or exchanged for a different number or kind of shares of stock or other
securities of the Company or another corporation, whether through
reorganization, recapitalization, merger, consolidation, or otherwise, then
there shall be substituted for each share of Common Stock reserved for issuance
under the Plan, but not yet purchased by Participants, the number and kind of
shares of stock or other securities into which each outstanding share of Common
Stock shall be so changed or for which each such share shall be exchanged.
ARTICLE IV
PAYROLL DEDUCTIONS
SECTION 4.1. PAYROLL DEDUCTION ELECTIONS. A Participant in the Plan (or
a person who will become a Participant in the Plan on the next Offering Date if
such person is an Employee on such Offering Date) who wishes to purchase shares
of Common Stock to be offered to such Participant on the next Offering Date
shall elect to have the Company deduct from the Compensation payable to such
Participant during the Offering Period beginning on such Offering Date any
dollar amount that does not exceed ten percent (10%) of the Participant's
Compensation payable to the Participant during the Offering Period. The election
shall be made by delivering to the Committee a written direction to make such
deductions during the sixty day period preceding the applicable Offering Date,
or in the case of the first Offering Period, during the June 1 - June 30, 2000.
Such election shall become effective as of the first day of the Participant's
first pay period that begins on or after the Offering Date and shall remain
effective for each successive pay period until changed or terminated pursuant to
this Article IV.
SECTION 4.2. TERMINATION OF ELECTION UPON TERMINATION OF EMPLOYMENT.
The termination of employment of a Participant's employment with the Company for
any reason shall
6
<PAGE>
automatically terminate any election of the Participant then in effect to have
amounts deducted from the Participant's Compensation pursuant to this Article
IV. The termination shall be effective immediately following the pay period
during which termination of employment occurs, but shall not affect the
deduction from Compensation for that pay period.
SECTION 4.3. CHANGE OR TERMINATION NOT RETROACTIVELY EFFECTIVE. Neither
a change nor a termination of any election to have amounts deducted from
Compensation under this Article IV shall increase, decrease, or otherwise affect
the deduction from the Compensation of a Participant for any period ending prior
to the effective date of that change or termination.
SECTION 4.4. FORM, TIMING, AND FREQUENCY OF ELECTIONS. Any written
direction by any Participant with respect to any deductions from Compensation
pursuant to this Article IV shall be on a form furnished by the Committee for
such purpose and shall be made by such Participant's completing, signing, and
filing the form with the Committee in the manner prescribed from time to time by
the Committee. A Participant shall be permitted to increase or decrease the
percentage amount of the deductions being made by the Company from the
Participant's Compensation only once during an Offering Period and the increase
or decrease must be made by the March 30 or September 30 that is within the then
current Offering Period; provided however, a Participant may terminate the
deductions being made by the Participating Employers from the Participant's
Compensation at any time during an Offering Period notwithstanding any prior
change in the amount of the Participant's Compensation deductions during that
Offering Period.
ARTICLE V
STOCK PURCHASE ACCOUNTS AND PURCHASE OF COMMON STOCK
SECTION 5.1. STOCK PURCHASE ACCOUNTS. A Stock Purchase Account shall be
established and maintained on the books and records of the Company for each
Participant. Amounts deducted from a Participant's Compensation pursuant to
Article IV shall be credited to such Participant's Stock Purchase Account. All
amounts credited to Stock Purchase Accounts shall be withdrawn, paid, or applied
toward the purchase of Common Stock pursuant to the provisions of this Article
V.
SECTION 5.2. PURCHASE OF COMMON STOCK.
------------------------
(a) General. As of the last day of each Offering Period, the
amount to the credit of a Participant in that Participant's Stock
Purchase Account shall be used to purchase from the Company on the
Participant's behalf the largest number of whole shares of Common Stock
which can be purchased at the price determined under Section 3.3 with
the amount then credited to such Participant's Stock Purchase Account
subject to the limitations set forth in Article III on the maximum
number of shares of Common Stock the Participant may purchase. As of
that date, the Participant's Stock Purchase Account shall be charged
with the aggregate purchase price of the shares of Common Stock
purchased on that Participant's behalf. The remaining balance (if any)
credited to that Participant's Stock Purchase Account shall be credited
to that Participant's Stock Purchase Account for the immediately
following Offering; provided, however, if the Participant has withdrawn
from
7
<PAGE>
the Plan pursuant to Section 5.3, the remaining balance shall be
distributed to the Participant as soon as administratively practical.
(b) Issuance of Common Stock. The shares of Common Stock
purchased for a Participant on the last day of an Offering Period shall
be deemed to have been issued by the Company for all purposes as of the
close of business on that date. Prior to that date, none of the rights
and privileges of a shareholder of the Company shall exist with respect
to the shares of Common Stock. As soon as practicable after that date,
the Company shall issue and deliver, or shall cause its stock transfer
agent to issue and deliver, a certificate for the number of shares of
Common Stock purchased for a Participant on that date, which shall be
issued in the Participant's name.
(c) Insufficient Common Stock Available. If as of the last day
of any Offering Period, the aggregate Stock Purchase Accounts available
for the purchase of shares of Common stock pursuant to Section 5.2(a)
would purchase a number of shares of Common Stock in excess of the
number of shares of Common Stock then available for purchase under the
Plan, (i) the number of shares of Common Stock which would otherwise be
purchased for each Participant on that date shall be reduced
proportionately to the extent necessary to eliminate the excess, (ii)
the remaining balance to the credit of each Participant in each
Participant's Stock Purchase Account shall be distributed to each such
Participant, and (iii) the Plan shall terminate automatically upon the
distribution of the remaining balance in such Stock Purchase Accounts.
SECTION 5.3. WITHDRAWAL FROM PLAN PRIOR TO PURCHASE OF COMMON STOCK. In
the event (i) a Participant terminates employment with the Company for any
reason during an Offering Period, or (ii) a Participant terminates deductions
from that Participant's Compensation pursuant to Article IV during an Offering
Period and the Participant elects to withdraw in writing from the Plan, then the
entire amount to the credit of the Participant in his Stock Purchase Account
shall be distributed to the Participant (or if the Participant is deceased, to
the Participant's Beneficiary) as soon as administratively practical after the
termination of employment or withdrawal (as the case may be). If a Participant
terminates deductions from such Participant's Compensation pursuant to Article
IV during an Offering Period but the Participant does not elect to withdraw in
writing from the Plan, the amount to the credit of the Participant in the
Participant's Stock Purchase Account shall be used to purchase shares of Common
Stock for Participant as of the last day of the Offering Period to the extent
provided in Section 5.2(a) and the remaining balance in the Participant's Stock
Purchase Account shall be distributed to the Participant as soon as
administratively practical. Notwithstanding the preceding sentence, if a
Participant terminates deductions from such Participant's Compensation pursuant
to Article IV during an Offering Period and the amount to the credit of the
Participant in the Participant's Stock Purchase Account upon such termination of
Compensation deductions does not exceed One Hundred Dollars ($100.00), then the
Participant shall be deemed to have withdrawn from the Plan upon the termination
of Compensation deductions for purposes of this Section 5.3.
8
<PAGE>
ARTICLE VI
COMMITTEE
SECTION 6.1. APPOINTMENT, TERM OF OFFICE, AND VACANCIES. A member of
the Committee must be a member of the Board, must not be an Employee, and must
otherwise meet the definition of "non-employee director" as provided under Rule
16b-3 of the Securities Exchange Act of 1934, as adopted May 31, 1996, effective
August 15, 1996. The Committee shall be the Company's Compensation Committee, if
any, or such other standing committee as the Board may designate. If there is no
such Compensation Committee or designation, the Committee shall be as follows:
The Committee shall consist of two (2) or more individuals appointed by
the Chairman of the Board who shall serve at the pleasure of the
Chairman of the Board. The Chairman of the Board shall have the
absolute right to remove any member of the Committee at any time, with
or without cause, and any member of the Committee shall have the right
to resign at any time. If a vacancy in the Committee should occur, from
death, resignation, removal, or otherwise, a successor shall be
appointed by the Chairman of the Board. The Chairman of the Board shall
designate one of the members of the Committee to serve as its Chairman,
one member as its Vice Chairman, and one member as its Secretary. The
Committee shall act by majority vote and may adopt such bylaws, rules,
and regulations as it deems desirable for the conduct of its affairs.
If at any time there shall be no Compensation Committee of the Board or any
successor committee with substantially the same responsibilities whose members
satisfy the requirements for membership on the Committee or the Board shall not
otherwise have appointed a Committee to administer the Plan, the Board shall
have the responsibilities assigned to the Committee herein.
SECTION 6.2. POWERS OF COMMITTEE. The Committee shall administer the
Plan. The Committee shall have all powers necessary to enable it to carry out
its duties under the Plan properly. Not in limitation of the foregoing, the
Committee shall have the power to construe and interpret the Plan and to
determine all questions that shall arise thereunder. It shall decide all
questions relating to eligibility to participate in the Plan and to purchase
Common Stock under the Plan. The Committee shall have such other and further
specified duties, powers, authority, and discretion as are elsewhere in the Plan
either expressly or by necessary implication conferred upon it. The decision of
the Committee upon all matters within the scope of its authority shall be final
and conclusive on all persons, except to the extent otherwise provided by law.
The Committee may appoint such agents, who need not be members of the Committee,
as it may deem necessary for the effective performance of its duties, and may
delegate to such agents such administerial powers and duties as the Committee
may deem expedient or appropriate, except that the Committee may not delegate
any discretionary authority with respect to substantive decisions, including
interpretation and construction of the Plan, substantive questions that arise
under the Plan, and questions relating to eligibility under the Plan.
9
<PAGE>
SECTION 6.3. INDEMNIFICATION OF COMMITTEE. To the extent permitted by
applicable law, the Participating Employers shall indemnify and hold harmless
each member of the Committee from and against any and all liability, claims,
demands, costs, and expenses (including the costs and expenses of attorneys
incurred in connection with the investigation or defense of claims) in any
manner connected with or arising out of any actions or inactions in connection
with the administration of the Plan except for such actions or inactions which
are not in good faith or which constitute willful misconduct.
ARTICLE VII
AMENDMENT AND TERMINATION
SECTION 7.1. AMENDMENT OF PLAN. The Company expressly reserves the
right, at any time and from time to time, to amend in whole or in part any of
the terms and provisions of the Plan for whatever reason(s) the Company may deem
appropriate; provided, however, no amendment shall be effective without the
approval of the shareholders of the Company which (i) increases the number of
shares of Common Stock reserved under the Plan, (ii) changes the method of
determining the purchase price for shares of Common Stock, or (iii) materially
changes the eligibility requirement for participation in the Plan, and approval
of any amendment by the shareholders of the Company shall be required if
approval of that amendment BY SHAREHOLDERS is required to ensure that
transactions in Company securities under the Plan shall be exempt from the
operation of Section 16(b) of the Securities Exchange Act of 1934.
SECTION 7.2. TERMINATION OF PLAN. The Company expressly reserves the
right, at any time and for whatever reason it may deem appropriate, to terminate
the Plan. If not sooner terminated (i) by the Company pursuant to the preceding
sentence or (ii) pursuant to Section 5.2(c), the Plan shall continue in effect
through December 31, 2010. Upon any termination of the Plan, the entire amount
credited to the Stock Purchase Account of each Participant shall be distributed
to each such Participant.
SECTION 7.3. PROCEDURE FOR AMENDMENT OR TERMINATION. Any amendment to
the Plan or termination of the Plan may be retroactive to the extent not
prohibited by applicable law. Any amendment to the Plan or termination of the
Plan shall be made by the Company by resolution of the Board of Directors and
shall not require the approval or consent of any Participant or Beneficiary in
order to be effective.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. TRANSFERABILITY OF RIGHTS. To the extent permitted by law,
rights to purchase shares of Common Stock are exercisable only by the
Participant to whom such rights are granted and are not transferable by such
Participant other than by will or the laws of descent and distribution.
10
<PAGE>
SECTION 8.2. NO EMPLOYMENT RIGHTS. Participation in the Plan shall not
give any employee of the Company any right to remain in the employ of the
Company or, upon termination of employment, any right or interest in the Plan
except as expressly provided herein.
SECTION 8.3. COMPLIANCE WITH LAW. No shares of Common Stock shall be
issued under the Plan prior to compliance by the Company to the satisfaction of
its counsel with any applicable laws.
SECTION 8.4. RESTRICTION ON SALE OR DISPOSITION OF CLOSELY-HELD STOCK.
Provided that the Common Stock of the Company is not listed on a national stock
exchange, traded in the over-the-counter market or there otherwise is no public
market for the shares as determined by the Board, then Common Stock acquired by
a Participant under this Plan shall not be, directly or indirectly, sold,
assigned, transferred or otherwise disposed of, or pledged, hypothecated or
otherwise encumbered, except to the Company on the Valuation Date coincident
with or next following the date the Participant desires to sell such shares, at
the purchase price determined pursuant to Section 8.5(c). IN ADDITION, THE
COMPANY RETAINS THE RIGHT TO PAY SUCH PURCHASE PRICE IN SUBSTANTIALLY EQUAL
PERIODIC PAYMENTS (NOT LESS FREQUENTLY THAN ANNUALLY) OVER A PERIOD NOT TO
EXCEED FIVE (5) YEARS, PROVIDED ADEQUATE SECURITY IS GIVEN AND REASONABLE
INTEREST IS PAID ON ANY REMAINING UNPAID AMOUNTS.
SECTION 8.5. OBLIGATION TO SELL COMMON STOCK TO THE COMPANY.
(a) If the employment of the Participant is terminated on
account of (i) Termination With Cause or (ii) any reason other than
Termination With Cause, the Company shall have the right to purchase
and the Participant shall have the obligation to sell to the Company
upon the exercise of such right all the shares of Common Stock owned by
the Participant that were acquired by the Participant under the Plan,
at the purchase price determined below. The exercise date of such
purchase by the Company shall be the Valuation Date coincident with or
next following the Participant's termination of employment; provided,
however, if the Participant's termination of employment is on account
of Termination With Cause, the exercise date shall be the date of such
termination of employment. Such right shall be exercised by the Company
giving written notice of intent to exercise such right to the
Participant within thirty (30) days after termination of employment.
THE PURCHASE PRICE SHALL BE PAID IN CASH OVER A PERIOD NOT TO EXCEED
THREE YEARS (FIVE YEARS IN THE CASE OF TERMINATION DUE TO DEATH OF THE
PARTICIPANT), SUCH PURCHASE PRICE TO BE PAID IN SUBSTANTIALLY EQUAL
PERIOD PAYMENTS (NOT LESS FREQUENTLY THAN ANNUALLY), PROVIDED ADEQUATE
SECURITY IS GIVEN AND REASONABLE INTEREST IS PAID ON ANY REMAINING
UNPAID AMOUNTS. If the Company fails to give written notice of its
intent to exercise the right to purchase all shares of Common Stock
within the requisite time, such shares of Common Stock shall be free of
the restrictions imposed by this Section 8.5.
(b) The purchase price of the shares of Common Stock purchased
under Section 8.5(a)(i) above shall be determined as follows:
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(i) If, as of the exercise date, there is a public
trading market for the shares being valued for which price
quotations are readily available, then the purchase price per
share shall be the average of the closing prices thereof for
the thirty (30) trading days on which trading occurs
immediately prior to the exercise date.
(ii) If, as of the exercise date, there is no public
trading market for the shares being valued for which price
quotations are readily available, then the purchase price per
share shall be equal to the lesser of (a) the Purchase Price
of such shares or (b) the Fair Market Value as of the
Valuation Date coincident with or immediately preceding such
exercise date.
(c) The purchase price of the shares of Common Stock purchased
under Section 8.4 or Section 8.5(a)(ii) above shall be determined as
follows:
(i) If, as of the exercise date, there is a public
trading market for the shares being valued for which price
quotations are readily available, then the purchase price per
share shall be the average of the closing prices thereof for
the thirty (30) trading days on which trading occurs
immediately prior to the exercise date.
(ii) If, as of the exercise date, there is no public
trading market for the shares being valued for which price
quotations are readily available, then the purchase price per
share shall be equal to the lesser of (a) the Fair Market
Value as of the Valuation Date immediately preceding such
exercise date or (b) the Fair Market Value as of the Valuation
Date coincident with or next following such exercise date.
SECTION 8.6. SALE OF COMPANY. Notwithstanding any other provision in
the Plan to the contrary, in the event involving either the sale of fifty
percent (50%) or more of the common stock of the Company, the sale of
substantially all of the assets of the Company, or a merger following which
fifty percent (50%) or more of the common stock of the Company is owned by
parties who were not shareholders of the Company prior to such merger (a "Sale
of the Company"), the Company shall give each Participant not less than five (5)
days prior written notice thereof. Upon a Sale of the Company, the Board may, in
its sole discretion, elect to require each Participant to sell their Common
Stock acquired under this Plan, and each Participant may elect to sell his or
her Common Stock acquired under this Plan, on the same terms and conditions as
agreed to by the holders of fifty percent (50%) or more of the common stock of
the Company, and the Board shall notify each Participant of such terms and
conditions not less than five (5) days prior to such Sale of the Company.
SECTION 8.7. SECTION REFERENCES. All references in this Plan to
sections or articles shall refer to sections and articles of this Plan, unless
specifically noted otherwise.
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SECTION 8.8. APPROVAL OF PLAN. The effectiveness of this Plan is
subject to its approval and ratification by the shareholders of the Company
within one year from the date of adoption hereof by the Board. In the event that
the Plan is not approved in accordance with the preceding sentence, all amounts
deducted from the Compensation of Participants and credited to each
Participant's Stock Purchase Account shall be refunded to each such Participant
without interest as soon as administratively practical.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by
its duly authorized officer as of the _____ day of _______________, _____.
US LEC CORP.
By______________________________________
_______________, President
ATTEST:
- ----------------------------
Secretary
(CORPORATE SEAL)
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