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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
----------
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for the use of the Commission only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PentaStar Communications, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-1l(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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[PENTASTAR LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of PentaStar Communications, Inc.
Notice is hereby given that the Annual Meeting of Shareholders of PentaStar
Communications, Inc., a Delaware corporation, will be held at The Oxford Hotel
at 1600 17th Street, Denver, Colorado, 80202 on Wednesday, May 31, 2000 at 10:00
am, Denver time, for the following purpose:
1. To elect two directors to the Board of Directors for the ensuing
year;
2. To approve an amendment to the PentaStar Communications, Inc. Stock
Option Plan which will increase the number of shares under the plan
by 500,000 shares;
3. To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on May 3, 2000 will be
entitled to vote at the Annual Meeting.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, please
mark, sign and promptly return the enclosed proxy as soon as possible in the
postpaid envelope provided. If you receive more than one proxy because your
shares are registered in different names or addresses, each such proxy should be
signed and returned so that all your shares will be represented at the meeting.
Sincerely,
/s/ ROBERT S. LAZZERI
------------------------------------
Robert S. Lazzeri
Chief Executive Officer and Director
Denver, CO 80202
May 5, 2000
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[PENTASTAR LOGO]
PROXY STATEMENT
This Proxy Statement is furnished to shareholders of PentaStar
Communications, Inc. (the "Company" or "PentaStar"), in connection with the
solicitation of proxies to be voted at the Annual Meeting of Shareholders to be
held on Wednesday, May 31, 2000, at 10:00 A.M., Denver time, at The Oxford Hotel
at 1600 17th Street, Denver, Colorado, 80202, and at any postponement or
adjournment thereof (the "Annual Meeting"). The accompanying proxy is being
solicited on behalf of the Board of Directors of the Company. This Proxy
Statement and the enclosed proxy card were first mailed to shareholders of the
Company on or about May 5, 2000, accompanied by the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1999, and the Company
incorporates the contents of such report herein by reference thereto. The
principal executive offices of the Company are located at 1522 Blake St.,
Denver, Colorado, 80202.
At the Annual Meeting, the following matters will be considered and voted
upon:
1. The election of two directors to the Board of Directors for the
ensuing year;
2. The approval of an amendment to the PentaStar Communications, Inc.
Stock Option Plan (the "Stock Option Plan") which will increase the
number of shares under the plan by 500,000 shares;
3. Such other business as may properly come before the meeting.
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ABOUT THE MEETING
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?
At the Company's Annual Meeting, shareholders will vote on the matters
outlined in the notice of meeting on the cover page of this proxy statement,
including election of directors and the approval of an amendment to the Stock
Option Plan.
WHO IS ENTITLED TO VOTE?
Only shareholders of record at the close of business on the record date,
May 3, 2000 (the "Record Date"), are entitled to vote at the Annual Meeting, or
any postponements or adjournments of the meeting.
WHAT ARE THE BOARD'S RECOMMENDATIONS ON THE PROPOSALS?
The Board of Directors recommends a vote FOR each of the nominees and the
amendment to the Stock Option Plan.
HOW DO I VOTE?
Sign and date each proxy card you receive and return it in the
postage-prepaid envelope enclosed with your proxy materials. If you are a
registered shareholder and attend the meeting, you may deliver your completed
proxy card in person.
If your shares are held by your broker or bank, in "street name," you will
receive a form from your broker or bank seeking instructions as to how your
shares should be voted. If you do not instruct your broker or bank how to vote,
your broker or bank will vote your shares if it has discretionary power to vote
on a particular matter.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes, you have the right to revoke your proxy at any time before the Annual
Meeting by notifying the Secretary of the Company in writing, voting in person
or returning a later-dated proxy card.
WHO WILL COUNT THE VOTE?
American Securities Transfer & Trust, Inc., ("AST") will count the votes
and act as the inspector of election.
WHAT SHARES ARE INCLUDED ON THE PROXY CARD(S)?
The shares on your proxy card(s) represent ALL of your shares. If you do
not return your proxy card(s), your shares will not be voted.
WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
If your shares are registered differently and are in more than one account,
you will receive more than one proxy card. Sign and return all proxy cards to
ensure that all your shares are voted. We encourage you to have all accounts
registered in the same name and address (whenever possible). You can accomplish
this by contacting our transfer agent, AST at (303) 986-5400 or for shares that
are held in "street name," by contacting the broker or bank who holds your
shares.
HOW MANY VOTES DO I HAVE?
Holders of record of shares of common stock at the close of business on the
Record Date will be entitled to one vote for each share held. As of April 25,
2000, there were 4,915,382 shares of common stock outstanding.
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WHAT IS A "QUORUM"?
A "quorum" is a majority of the outstanding shares entitled to vote. They
may be present in person or represented by proxy. For the purposes of
determining a quorum, shares held by brokers or nominees for which the Company
receives a signed proxy will be treated as present even if the broker or nominee
does not have discretionary power to vote on a particular matter or if
instructions were never received from the beneficial owner. These shares are
called "broker non-votes." Abstentions will be counted as present for quorum
purposes.
WHAT IS REQUIRED TO APPROVE EACH PROPOSAL?
For the election of the Class I directors, once a quorum has been
established, the nominees for director who receive the most votes will become
Class I directors of the Company.
For the amendment to the Stock Option Plan, the affirmative vote of a
majority of the votes cast is required for the approval of the amendment to the
Stock Option Plan. Abstentions will be considered shares entitled to vote in the
tabulation of votes cast on proposals presented to the shareholders and will
have the same effect as negative votes. If a broker indicates on its proxy that
it does not have discretionary authority to vote on a particular matter, the
affected shares will be treated as not present and not entitled to vote with
respect to that matter, even though the same shares may be considered present
for quorum purposes and may be entitled to vote on other matters. Broker
non-votes are not counted for any purpose in determining whether a matter has
been approved.
WHAT HAPPENS IF I ABSTAIN?
Proxies marked "abstain" will be counted as shares present for the purpose
of determining the presence of a quorum, but for purposes of determining the
outcome of a proposal, shares represented by such proxies will not be treated as
affirmative votes. For proposals requiring an affirmative vote of a majority of
the shares present, an abstention is equivalent to a "no" vote.
HOW WILL THE COMPANY SOLICIT PROXIES?
AST was retained by the Company to assist in the distribution of the proxy
materials. The cost of soliciting proxies, which will be conducted by mail, will
be borne by the Company. These costs will include the expense of preparing and
mailing proxy solicitation materials for the Annual Meeting and reimbursements
paid to brokerage firms and others for their reasonable out-of-pocket expenses
for forwarding proxy solicitation materials to shareholders. Proxies may also be
solicited in person, by telephone, or by facsimile by directors, officers and
employees of the Company without additional compensation.
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ELECTION OF DIRECTORS
(PROXY ITEM 1)
Our certificate of incorporation and bylaws provide that the number of
directors shall be determined from time to time by the Board of Directors. The
Board of Directors has fixed the number of directors at five. Our certificate of
incorporation provides for, among other things, a classified Board of Directors.
The certificate of incorporation states that the Board of Directors will be
divided into three classes (Class I, Class II and Class III), serving staggered
three-year terms with each class to be nearly equal in number as possible. At
the Annual Meeting of shareholders the Class I directors will be elected to
serve for a term until the 2003 annual meeting and until their successors have
been elected and qualified.
Except where the authority to do so has been withheld, it is intended that
the persons named in the enclosed proxy will vote for the election of the
nominees to the Board of Directors listed below. Each nominee has consented to
serve if elected. Although the members of the Board of Directors of the Company
have no reason to believe that the nominees will be unable to serve, in the
event that such a contingency should arise, the Board of Directors may designate
a substitute. In that case, the accompanying proxy will be voted for a
substitute (or substitutes) designated by the Board of Directors.
DIRECTORS STANDING FOR ELECTION FOR TERMS EXPIRING IN 2003
The Board of Directors has nominated Carleton A. Brown and Reynaldo U.
Ortiz for election as Class I directors. Both of the nominees are presently
directors of the Company whose terms expire at the Annual Meeting. The nominees
for election as Class I directors are:
CARLETON A. BROWN
Mr. Brown, age 52, has served as a director of PentaStar since August 1999.
Since July 1998, Mr. Brown has served as executive vice president-corporate
development of Orion Systems, Inc., a start-up competitive local exchange
carrier or CLEC and Internet telephony company. From October 1996 to January
1998, Mr. Brown served as senior vice president of global sales and marketing
for Intergram International, Inc., an Internet-based telecommunications
messaging company. From November 1994 to September 1996, Mr. Brown served as
president and chief executive officer of American Lightwave Systems, Inc., a
worldwide provider of broadband video solutions. From January 1994 to November
1994, Mr. Brown served as president and chief executive officer of ATx Telecom
Systems, Inc., a network technology solutions company. From January 1992 to
January 1994, Mr. Brown served as senior vice president and general manager of
Teleport Communications Group, a national CLEC. Mr. Brown also was president and
chief operating officer of Alcatel Network Systems, a communications technology
company, and served as president, Southwest division, of MCI. He holds a B.S.
degree from Norwich University and an M.B.A. from Fairleigh Dickinson
University.
REYNALDO U. ORTIZ
Mr. Ortiz, age 52, has served as a director of PentaStar since October 26,
1999. Since July 1999, Mr. Ortiz has been president and chief executive officer
of Highpoint Telecommunications, Inc., a company engaged in providing
international facilities-based voice and data services in North America and
Europe. From January 1999 until July 1999, Mr. Ortiz performed work related to
the development and formation of Highpoint. From October 1997 until December
1998, Mr. Ortiz served as managing director and senior vice president,
international for Qwest Communications International. From May 1997 until
October 1997, Mr. Ortiz served as a consultant to Qwest and the Anshutz
Corporation, a company involved in the telecommunications, railroad and other
industries. From July 1996 until May 1997, Mr. Ortiz was president and chief
executive officer of SOPHIA Communications, Inc., a two-way wireless data
messaging network service company. From March 1996 until July 1996, Mr. Ortiz
was president and chief executive officer of LYNCSTAR Integrated Communications,
LLC, a company he founded which focused on providing wireless cable television
and telephone service for multi-dwelling complexes. From October 1995 to March
1996, Mr. Ortiz was chairman of the strategic alliances and development group,
and from December 1993 to
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October 1995, was the chief executive officer of the Jones Education Network, of
Jones International, Inc., a cable television and interactive multimedia
company. From 1986 to 1993, Mr. Ortiz held various positions at U S WEST
Communications, Inc., including president and chief executive officer of U S
WEST New Vector Group (U S WEST's cellular and paging subsidiary), president and
chief executive officer of U S WEST International, Inc., and vice president of
development and ventures of U S WEST Diversified Group. Since September 1999,
Mr. Ortiz has been a director of Global Light Telecommunications, Inc., a
company with interests in companies engaged in international voice, data and
Internet services. Global Light is listed on the American Stock Exchange. Since
April 1992, he has been a director of Public Service Company of New Mexico, a
public utility company primarily engaged in the generation, transmission and
sale of electricity and natural gas in the state of New Mexico. Public Service
Company of New Mexico is listed on the New York Stock Exchange. Mr. Ortiz holds
a B.S. degree from New Mexico State University and a M.S. in Management from
Stanford University.
RECOMMENDATION OF THE BOARD
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
NOMINEES LISTED ABOVE.
DIRECTORS CONTINUING IN OFFICE
The following Class II director is serving a term that expires at the 2001
annual meeting:
ROBERT S. LAZZERI
Mr. Lazzeri, age 38, has served as the Company's chief executive officer
and a director since October 26, 1999. From October 1989 to his employment by
the Company, Mr. Lazzeri worked for Daniels & Associates, L.P., a leading
international telecommunications investment banking firm, most recently as a
senior vice president. While at Daniels & Associates, Mr. Lazzeri specialized in
providing merger, acquisition and advisory services to clients in the wired and
wireless telecommunications industry, participating in over 100
telecommunications transactions. He holds a B.S. degree from the University of
Colorado.
The following Class III directors are serving a term that expires at the
2002 annual meeting:
RICHARD M. TYLER
Mr. Tyler, age 42, has been vice president, secretary and a director of the
Company from March 1999 to April 24, 2000, at which time Mr. Tyler resigned as
vice president and secretary. Mr. Tyler continues as a director of the Company.
Since November 1988 he has been a member (or a partner in the predecessor
partnership), of BACE Investments, LLC, a significant shareholder of the
Company, and BACE Industries, LLC, a private company that has completed
consolidations in several industries. Mr. Tyler has been an executive officer or
director of various companies for which BACE Industries has led consolidation
efforts. Those companies include BACE Plastics Group, Inc. from March 1989 to
March 1995, SoftWorld Services Corporation from January 1995 to November 1996,
and RentX Industries, Inc. from March 1996 to July 1999. He holds a B.A. degree
from The Colorado College.
CRAIG J. ZOELLNER
Mr. Zoellner, age 42, has served as a director and treasurer of the Company
from March 1999. From October 26, 1999, he has also served as a vice president
of the Company. Effective April 24, 2000, Mr. Zoellner resigned as the Company's
treasurer and vice president, but assumed the role as the Company's secretary.
Since November 1988 he has been a member (or a partner in the predecessor
partnership), of BACE Investments, LLC and BACE Industries, LLC. Mr. Zoellner
has been an executive officer or director of various companies for which BACE
Industries has led consolidation efforts. Those companies include BACE Plastics
Group, Inc. from March 1989 to March 1995, SoftWorld Services Corporation from
January 1995 to November 1996, and RentX Industries, Inc. from March 1996 to
July 1999. He holds a B.A. degree from The Colorado College and an M.B.A. from
the Stanford Graduate School of Business.
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BOARD MEETINGS AND COMMITTEES; MANAGEMENT MATTERS
During the fiscal year ended December 31, 1999, the Board of Directors held
two regular meetings and acted by written consent fourteen times as if such
action had been taken at a meeting of the Board of Directors. All directors
attended at least 75% of such meetings during their tenure as a director.
The Board of Directors has two committees, a compensation committee and an
audit committee.
The compensation committee consists of Mr. Brown, Mr. Zoellner and Mr.
Tyler. The compensation committee makes recommendations to the Board of
Directors regarding compensation and benefits for PentaStar's executive
officers. The compensation committee held no meetings during the period from
October 26, 1999 to December 31, 1999.
The audit committee consists of Mr. Brown, Mr. Ortiz and Mr. Zoellner. The
functions of the audit committee are to:
- review the scope of the audit procedures utilized by our independent
auditors;
- review with the independent auditors our accounting practices and
policies;
- consult with the Company's independent auditors during the year;
- approve the audit fee charged by the independent auditors; and
- report to the Board of Directors with respect to these matters and to
recommend the selection of independent auditors.
The audit committee held no meetings during the period from October 26,
1999 to December 31, 1999.
The Company has no nominating committee.
DIRECTOR COMPENSATION
Directors who are not receiving compensation as officers, employees or
consultants are entitled to receive an annual retainer fee of $5,000 and to be
reimbursed for expenses incurred in connection with each meeting of the Board of
Directors attended in person. In addition, each of these directors receives a
grant of options to acquire 10,000 shares of common stock under our Stock Option
Plan upon becoming a director and an annual grant of options to purchase 5,000
shares of common stock on each annual meeting date on which the individual is
still a director.
AMENDMENT TO THE STOCK OPTION PLAN
(PROXY ITEM 2)
STOCK OPTION PLAN
PentaStar's Stock Option Plan was adopted on August 13, 1999. The plan will
terminate on the tenth anniversary of the date of its adoption, unless earlier
terminated by the Board of Directors pursuant to the terms of the plan. The plan
is administered by the Board of Directors.
Our shareholders are being asked to approve an amendment to the Stock
Option Plan which will increase the number of shares of common stock reserved
for issuance under the Stock Option Plan by 500,000 shares.
The amendment is designed to ensure that we can continue to grant stock
options at levels determined appropriate by the Board of Directors. Stock
options serve as an incentive, which reward employees for their performance and
for business successes, reflected in the stock price appreciation. PentaStar has
granted options to purchase 735,170 shares of its common stock and 264,830
shares remain available for future grants. PentaStar's business plan provides
for future growth through acquisitions of other communications services agents.
An important aspect of our acquisition strategy is the ability to provide
personnel of the acquired companies with the opportunity to participate in the
Stock Option Plan. The Board of Directors believes that
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in order to attract, motivate and retain highly qualified employees and to
provide such employees adequate incentive through their proprietary interest in
the Company, it is necessary to increase the number of shares available for
issuance under the Stock Option Plan by increasing the number of shares of
common stock reserved for issuance under the Stock Option Plan.
Set forth below is a summary of the essential features of the Stock Option
Plan.
RECOMMENDATION OF THE BOARD
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF THE AMENDMENT TO THE PENTASTAR COMMUNICATIONS, INC. STOCK OPTION
PLAN
The essential features of the Stock Option Plan are outlined below:
STOCK OPTION PLAN
Grants may be made to full-time employees of PentaStar or any of its
subsidiaries and non-employees selected by the Board of Directors or the
committee appointed by the Board of Directors to administer the Stock Option
Plan, in their discretion, whose judgment, initiative and efforts are, or will
be, important to the successful conduct of its business. Grants under the Stock
Option Plan may consist of:
- options intended to qualify as incentive stock options within the meaning
of Section 422 of the Internal Revenue Code ("ISO's); and
- options that are not intended to so qualify (non-statutory stock options
or "NSO's").
The Stock Option Plan currently provides for the issuance of 1,000,000
shares pursuant to the exercise of options granted under the Stock Option Plan.
An additional 500,000 shares will become available for future grants upon
shareholder approval of this proposal. As of April 25, 2000, the closing price
of the common stock was $19.50.
The Board of Directors or a committee appointed by the Board of Directors
determines the exercise price of options granted under the Stock Option Plan in
accordance with the guidelines set forth in the Stock Option Plan. The exercise
price of incentive stock options granted pursuant to the Stock Option Plan
cannot be less than 100% of the fair market value of the common stock on the
date of the grant and the term of these options cannot exceed ten years. The
exercise price of incentive stock options granted to any person who at the time
of grant owns stock representing more than 10% of the total combined voting
power of all classes of PentaStar's capital stock or any of its affiliates must
be at least 110% of the fair market value of PentaStar's common stock on the
date of grant and the term of these incentive stock options cannot exceed five
years. PentaStar, as a condition to its initial public offering, has agreed
until October 26, 2000, non-qualified options will not be granted at an exercise
price of less than 100% of the fair market value of PentaStar's common stock on
the date of grant and the terms will not exceed five years. The Board of
Directors or a committee appointed by the Board of Directors determines the
exercise price of nonqualified stock options. Options granted under the Stock
Option Plan vest at the rate specified in the option agreement.
Upon a change of control (as defined in the Stock Option Plan) of
PentaStar, the Board of Directors or a committee appointed by the Board of
Directors in its sole discretion, without obtaining shareholder approval unless
otherwise required by the Stock Option Plan, may take any or all of the
following actions:
- accelerate or partially accelerate the vesting and exercise date of any
outstanding options or make all such options fully vested and
exercisable;
- grant a cash bonus award to any option holder in an amount necessary to
pay the option price of all or any portion of the options then held by
each option holder;
- pay cash to any or all option holders in exchange for the cancellation of
their outstanding options in an amount equal to the difference between
the option price of such options and the greater of the per share
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tender offer price, the per share value of the consideration to be paid
in the change of control transaction for the underlying stock or the fair
market value of the underlying stock on the date of the cancellation of
the options;
- cause the surviving or acquiring corporation to substitute or assume the
options; and
- make any other adjustments or amendments to the outstanding options.
FEDERAL INCOME TAX CONSEQUENCES OF AWARDS UNDER THE STOCK OPTION PLAN.
We have been advised by our counsel that under currently applicable
provisions of the Internal Revenue Code ("Code"), the following federal income
tax consequences may be expected by a participant and by PentaStar in respect of
the grant and exercise of awards under the Stock Option Plan:
Non-Statutory Stock Options. The grant of an NSO will not result in taxable
income to the participant. Except as described below, the participant will
realize ordinary income at the time of exercise in an amount equal to the excess
of the fair market value of the shares of common stock acquired over the
exercise price for those shares, and PentaStar will be entitled to a
corresponding deduction. The participant also will be subject to FICA tax upon
exercise of the NSO. The holding period for capital gains purposes will begin on
the date of exercise, with the basis in such shares equal to the fair market
value of the shares at the time of exercise.
The exercise of an NSO through the delivery of previously acquired shares
of common stock generally will be treated as a non-taxable, like-kind exchange
as to the number of shares surrendered and the identical number of shares
received under the option. That number of shares will take the same basis and,
for capital gains purposes, the same holding period as the shares that are given
up. The value of the shares received upon such an exchange that are in excess of
the number given up will be taxed to the participant at the time of the exercise
as ordinary income. The excess shares will have a new holding period for capital
gains purposes and a basis equal to the value of such shares determined at the
time of exercise.
Incentive Stock Options. The grant of an ISO will not result in taxable
income to the participant. The exercise of an ISO will not result in taxable
income to the participant provided that the participant was, without a break in
service, an employee of PentaStar or a parent or subsidiary during the period
beginning on the date of the grant of the option and ending on the date three
months prior to the date of exercise (one year prior to the date of exercise if
the participant is disabled, as that term is defined in the Code). If the
participant does not sell or otherwise dispose of the common stock within two
years from the date of the grant of the ISO or within one year after the
transfer of such common stock to the participant, then, upon disposition of such
shares, any amount realized in excess of the exercise price will be taxed to the
participant as capital gain, and PentaStar will not be entitled to any deduction
for federal income tax purposes. If the foregoing holding period requirements
are not met, the participant generally will realize ordinary income, and a
corresponding deduction will be allowed to PentaStar, at the time of the
disposition of the shares, in an amount equal to the lesser of (i) the excess of
the fair market value of the shares on the date of exercise over the exercise
price, or (ii) the excess, if any, of the amount realized upon disposition of
the shares over the exercise price. The excess of the fair market value of the
shares at the time of the exercise of an ISO over the exercise price is an
adjustment that is included in the calculation of the participant's alternative
minimum taxable income for the tax year in which the ISO is exercised. For
purposes of determining the participant's alternative minimum tax liability for
the year of disposition of the shares acquired pursuant to the ISO exercise, the
participant will have a basis in those shares equal to the fair market value of
the shares at the time of exercise.
The exercise of an ISO through the exchange of previously acquired shares
of common stock will generally be treated in the same manner as such an exchange
would be treated in connection with the exercise of an NSO; that is, as a
non-taxable, like-kind exchange as to the number of shares given up and the
identical number of shares received under the option. That number of shares will
take the same basis and, for capital gains purposes, the same holding period as
the shares that are given up. However, such holding period will not be credited
for purposes of the holding period required for the new shares to receive ISO
treatment. Shares received in excess of the number of shares given up will have
a new holding period and will have a basis of zero
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or, if any cash was paid as part of the exercise price, the excess shares
received will have a basis equal to the amount of the cash.
If the exercise price of an ISO is paid with shares of common stock of
PentaStar acquired through a prior exercise of an ISO, gain will be realized on
the shares given up (and will be taxed as ordinary income) if those shares have
not been held for the minimum ISO holding period (two years from the date of
grant and one year from the date of transfer), but the exchange will not affect
the tax treatment, as described in the immediately preceding paragraph, of the
shares received.
Withholding of Taxes. Pursuant to the Stock Option Plan, PentaStar may
deduct, from any payment or distribution of shares under the Stock Option Plan,
the amount of any tax required by law to be withheld with respect to such
payment, or may require the participant to pay such amount to PentaStar prior
to, and as a condition of, making such payment or distribution. Subject to rules
and limitations established by the compensation committee, a participant may
elect to satisfy the withholding required, in whole or in part, either by having
PentaStar withhold shares of its common stock from any payment under the Stock
Option Plan or by the participant delivering shares of PentaStar common stock to
PentaStar. The portion of the withholding that is so satisfied will be
determined using the fair market value of the common stock on the date when the
amount of taxes to be withheld is determined.
The use of shares of common stock to satisfy any withholding requirement
will be treated, for federal income tax purposes, as a sale of such shares for
an amount equal to the fair market value of the stock on the date when the
amount of taxes to be withheld is determined. If previously-owned shares of
PentaStar common stock are delivered by a participant to satisfy a withholding
requirement, the disposition of such shares would result in the recognition of
gain or loss by the participant for tax purposes, depending on whether the basis
in the delivered shares is less than or greater than the fair market value of
the shares at the time of disposition.
Change In Control. Any acceleration of the vesting of NSOs or ISOs under
the Stock Option Plan in the event of a change in control in PentaStar may cause
part or all of the consideration involved to be treated as an "excess parachute
payment" under the Code, which may subject the participant to a 20% excise tax
and which may not be deductible by PentaStar.
Tax Advice. The preceding discussion is based on federal tax laws and
regulations presently in effect, which are subject to change, and the discussion
does not purport to be a complete description of the federal income tax aspects
of the Stock Option Plan.
EXECUTIVE OFFICERS
The following table lists the name, age and position of the executive
officers of the Company. Additional information regarding the business
experience, length of time served in each capacity and other matters relevant to
each individual is set forth below the table.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Robert S. Lazzeri.......................... 38 Chief Executive Officer and Director
R. Neal Tomblyn............................ 44 President and Chief Operating Officer
David L. Dunham............................ 41 Chief Financial Officer and Treasurer
Craig J. Zoellner.......................... 42 Secretary and Director
</TABLE>
Robert S. Lazzeri See "Proxy Item 1 -- Election of Directors"
R. Neal Tomblyn has served as the Company's president and chief operating
officer since October 26, 1999. From July 1998 to his employment by the Company,
he owned and operated NTC Corporation, a company that provided strategic
planning and operational consulting to companies in the communications, Internet
and broadband industries. From January 1997 until its acquisition in June 1998,
Mr. Tomblyn was chief executive officer of IEG, Inc., a private Internet based
multimedia, software and database company. From May 1995 to January 1997, Mr.
Tomblyn was president and chief operating officer of Ingenius, an educational
programming joint venture of Reuters and Tele-Communications, Inc. From December
1992 to
9
<PAGE> 12
April 1994, Mr. Tomblyn was the executive director, and from April 1994 to April
1995, Mr. Tomblyn was chief operating officer, of Bell Atlantic Video Services,
a start-up subsidiary of Bell Atlantic Corporation. While at Bell Atlantic
Video, he helped create an interactive multimedia business and founded the
Internet services group for Bell Atlantic Corporation. He has experience working
with Regional Bell Operating Companies, Internet Service Providers,
inter-exchange carriers such as AT&T and MCI/WorldCom, and cable companies. Mr.
Tomblyn holds a B.S. degree from Eastern Kentucky University.
David L. Dunham has served as the Company's chief financial officer since
October 26, 1999 and effective April 24, 2000 has assumed the role as the
Company's treasurer. From September 1997 to his employment by the Company, Mr.
Dunham was chief financial officer of Strategic Marketing International, LLC, a
PGA Tour licensee company that has developed the Golfwatch program for tour
events nationwide. Golfwatch provides priority access and hospitality services
for PGA Tour spectators for a premium fee. From January 1996 to July 1997, Mr.
Dunham was corporate controller for Birner Dental Management Services, Inc., a
company that owns and is acquiring dental practices. From September 1989 to
December 1995, Mr. Dunham was corporate controller for Gillett Holdings, Inc., a
holding company that had 18 subsidiaries in a variety of businesses. Mr. Dunham
also worked for Arthur Andersen for eight years, most recently as an audit
manager. Mr. Dunham holds a B.S. degree from the University of Wyoming and is a
licensed CPA.
Craig J. Zoellner See "Proxy Item 1 -- Election of Directors"
DIRECTOR AND OFFICER INVOLVEMENT IN LEGAL PROCEEDINGS
From January 1995 until November 1996, Richard M. Tyler and Craig J.
Zoellner were vice president and secretary and vice president, assistant
secretary and director, respectively, of SoftWorld Services Corporation, which
provided turnkey manufacturing and fulfillment services to software developers.
In April 1997, SoftWorld filed a petition for relief under the Federal
Bankruptcy Code and has been liquidated.
From October 1996 to January 1998, Carleton A. Brown served as a senior
vice president of global sales and marketing for Intergram International, Inc.
In July 1998, Intergram filed a voluntary petition for relief under Chapter 7 of
the Federal Bankruptcy Code. The case is currently pending.
10
<PAGE> 13
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 25, 2000, the names, addresses
and number of shares of common stock beneficially owned by each director and
executive officer named in the summary compensation table below, all persons
known to the management of the Company to be beneficial owners of more than 5%
of the outstanding shares of common stock, and by all executive officers and
directors of the Company as a group. Where the persons listed have the right to
acquire additional shares of common stock through the exercise of options or
warrants within sixty days as of April 25, 2000, such additional shares are
deemed to be outstanding for the purpose of computing the percentage of
outstanding shares owned by such person, but are not deemed to be outstanding
for the purpose of computing the percentage ownership interest of any other
person. Unless otherwise indicated, each beneficial owner listed exercises sole
voting power and sole dispositive power over the shares beneficially owned.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED PERCENT
------------ -------
<S> <C> <C>
BACE Investments, LLC(1)(5)................................. 1,674,800 34.1
Craig J. Zoellner(2)(5)..................................... 1,674,800 34.1
Richard M. Tyler(2)(5)...................................... 1,674,800 34.1
Black Diamond Capital, LLC(1)(5)............................ 732,419 14.9
7101 LaVista Place, Suite 100
Niwot, Colorado 80503
Blair W. McNea(3)(5)........................................ 732,419 14.9
7101 LaVista Place, Suite 100
Niwot, Colorado 80503
Robert S. Lazzeri(5)........................................ 469,499 9.6
Jeffrey A. Veres(4)......................................... 424,100 8.6
7076 S. Alton Way, Suite 100
Englewood, CO 80503
Carleton A. Brown(6)........................................ 10,000 *
Reynaldo U. Ortiz(6)........................................ 10,000 *
All directors and executive officers as a group (7
persons).................................................. 2,238,049 44.7
</TABLE>
- ---------------
Unless otherwise indicated in the table above, the address of each beneficial
owner of common stock is 1522 Blake Street, Denver, Colorado, 80202.
* Asterisks on the foregoing table indicate beneficial ownership of less than
1%.
(1) The shares listed as being owned by BACE Investments, LLC and Black Diamond
Capital, LLC include 140,000 and 60,000 shares respectively, that have been
placed in escrow pursuant to an agreement with Schneider Securities, Inc. as
the representative of the underwriters in the Company's October 26, 1999
public offering as to which BACE Investments, LLC and Black Diamond Capital,
LLC will have voting but not dispositive power until the occurrence of
certain events (see "Certain Transactions").
(2) The shares listed as being owned by Messrs. Zoellner and Tyler, the members
of BACE Investments, LLC, include the shares listed as being owned by BACE
Investments, LLC.
(3) The shares listed as being owned by Mr. McNea, the sole member of Black
Diamond Capital, LLC include shares listed as being owned by Black Diamond
Capital, LLC.
(4) The shares listed as being owned by Mr. Veres include 68,265 shares that are
subject to an escrow and contingent stock agreement, as to which he has
voting but not dispositive power until the earlier of the sale of all or
substantially all of the assets or stock of the Company or October 26, 2004.
Mr. Veres is also contractually bound by the Company and Schneider
Securities, Inc. as the representative of the
11
<PAGE> 14
underwriters in the Company's October 26, 1999 public offering, not to sell
or otherwise dispose of 219,100 shares until October 26, 2001, at which time
he may sell up to 33.33% of the shares, an additional 16.67% after October
26, 2002 and the remaining 50% only at the earlier of October 26, 2004 or a
purchase of the Company's common stock by an unaffiliated purchaser, subject
to certain transfer restrictions (see "Certain Transactions").
(5) BACE Investments, LLC, Black Diamond Capital, LLC and Robert S. Lazzeri are
contractually bound by the Company and Schneider Securities, Inc. as the
representative of the underwriters in the Company's October 26, 1999 public
offering, not to sell or otherwise dispose of the above listed shares until
October 26, 2001, at which time they may sell up to 33.33% of the shares, an
additional 16.67% after October 26, 2002 and the remaining 50% only at the
earlier of October 26, 2004 or a purchase of the Company's common stock by
an unaffiliated purchaser, subject to certain transfer restrictions (see
"Certain Transactions").
(6) The shares listed as being owned by Messrs. Brown and Ortiz represent shares
underlying exercisable stock options to acquire common stock. These persons
are contractually bound by the Company and Schneider Securities, Inc. as the
representative of the underwriters in the Company's October 26, 1999 public
offering, not to sell or otherwise dispose of any shares acquired upon
exercise of the options until October 26, 2000.
12
<PAGE> 15
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to the Chief Executive Officer of the Company. Although the salaries of Mr.
Tomblyn and Mr. Dunham exceed $100,000, neither of them received compensation of
$100,000 or more during the fiscal year ended December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION -------------------------------------
----------------------------- SECURITIES
(A) OTHER ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
NAME AND (A) SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS/SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- ------------------ ---- ------ ----- ------------ ------------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert S. Lazzeri...... 1999 27,877 -- -- -- -- -- --
Chief Executive Officer
</TABLE>
- ---------------
(a) The Company was formed on March 15, 1999, thus the only applicable
disclosure year is 1999. Mr. Lazzeri began employment on October 26, 1999.
The following table sets forth individual grants of stock options and stock
appreciation rights ("SARs") made by the Company during the year ended December
31, 1999 to the named executive officers.
OPTIONS/SAR GRANTS IN THE LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/SARS GRANTED TO EXERCISE OR
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION
NAME (#) FISCAL YEAR ($/SH) DATE
- ---- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Robert S. Lazzeri............................ n/a n/a n/a n/a
Chief Executive Officer
</TABLE>
The following table summarizes the value of the unexercised options/SARs
held by the named executive officers. There were no options exercised during
1999.
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING THE VALUE OF UNEXERCISED
UNEXERCISED "IN-THE-MONEY"
OPTIONS/SARS AT FY-END OPTIONS/SARS AT FY-END
SHARES ACQUIRED VALUE --------------------------- ------------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE(A) UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
- ---- --------------- -------- ----------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert S. Lazzeri............. n/a n/a n/a n/a n/a n/a
Chief Executive Officer
</TABLE>
13
<PAGE> 16
CERTAIN TRANSACTIONS
Craig J. Zoellner, Richard M. Tyler, Blair W. McNea, Robert S. Lazzeri and
Jeffrey A. Veres are the founders of PentaStar. Mr. Zoellner and Mr. Tyler, who
are directors and executive officers of PentaStar, are the members of BACE
Investments, LLC ("BACE Investments") and BACE Industries, LLC ("BACE
Industries"). Mr. McNea is the sole member of Black Diamond Capital, LLC ("Black
Diamond"). Mr. Lazzeri is PentaStar's chief executive officer and a director.
Mr. Veres was the shareholder of DMA Ventures, Inc. dba Access Communications
("Access") and became an employee of PentaStar upon PentaStar's acquisition of
Access.
Pursuant to a consulting agreement, effective September 1, 1999, BIBD, LLC
("BIBD") provides consulting services to PentaStar concerning acquisitions. BIBD
is owned 60% by BACE Industries and 40% by Black Diamond, and is managed by BACE
Industries. BIBD was created for the purpose of entering into the consulting
agreement with, and rendering services, to PentaStar and does not have any other
activities. BIBD is compensated by a monthly fee that varies from $12,000 per
month to $21,000 per month depending on PentaStar's annualized revenue. This fee
is also subject to increase based on the Consumer Price Index. PentaStar is
obligated to reimburse BIBD for expenses incurred in providing services under
the consulting agreement and to provide medical, dental, disability and other
similar benefits for up to six employees or members of BIBD, BACE Industries and
Black Diamond. PentaStar made payments to BIBD of $67,000 during the period from
inception (March 15, 1999) through December 31, 1999. BIBD, BACE Industries and
Black Diamond are subject to non-competition provisions expiring one year after
the termination of the consulting agreement and are subject to confidentiality
provisions. The consulting agreement continues in effect until the earliest of:
- PentaStar's termination of the consulting agreement for cause;
- BIBD's termination of the consulting agreement on 30 days prior notice;
or
- automatic termination upon PentaStar's sale of all or substantially all
of its assets or its acquisition for cash by an unaffiliated party, or
upon PentaStar becoming the subject of a proceeding under Chapter 11 of
the Federal Bankruptcy Code.
On March 17, 1999, PentaStar issued 1,708,979 shares of common stock to
BACE Investments for $500.
On March 31, 1999, PentaStar issued 732,419 shares of common stock to Black
Diamond, for $321; 469,499 shares of common stock to Robert S. Lazzeri for $206;
and 219,100 shares of common stock to Jeffrey A. Veres for $96.
On March 31, 1999, Mr. Lazzeri, entered into agreements with each of BACE
Investments and Black Diamond pursuant to which Mr. Lazzeri purchased for $10.00
options to buy 167,480 shares of PentaStar's common stock held by BACE
Investments and 73,242 shares of PentaStar's common stock held by Black Diamond.
These options became effective on October 26, 1999 and can be exercised upon the
earlier of a sale of all or substantially all of PentaStar's assets or stock or
March 31, 2000. The options terminate on March 31, 2004. The exercise price per
share is $10.00.
During 1999, PentaStar issued promissory notes totaling $86,000 to BACE
Industries for funds loaned by BACE Industries to PentaStar for its use to pay
expenses associated with the organization of PentaStar, the acquisitions of ICM
Communications Integrations, Inc. ("ICM") and Access and the initial public
offering. The notes bear interest at 5% per annum. At September 23, 1999, the
outstanding principal amount of the notes was $86,000. On September 23, 1999,
the promissory notes were assigned from BACE Industries to BACE Investments.
Immediately prior to the initial public offering, PentaStar issued 86 shares of
Series A preferred stock to BACE Investments as payment in full of the principal
amount of the notes. The Series A preferred stock:
- has a stated value of $1,000 per share for dividend and liquidation
purposes;
- bears dividends on the stated value at the rate of 5% per year, payable
annually;
14
<PAGE> 17
- is non-voting (except for the limited voting rights mandated by the
Delaware General Corporation Law);
- is not convertible into common stock or any other capital stock of
PentaStar;
- is not redeemable or callable; and
- is junior to all other preferred stock.
PentaStar leases 1,875 square feet of office space from BACE Real Estate,
LLC, which is owned by BACE Industries, for $3,000 per month (subject to
increases based on the Consumer Price Index and increases in operating
expenses). This lease agreement has a 36-month term commencing September 1,
1999.
PentaStar and Mr. Veres are parties to an agreement pursuant to which
PentaStar acquired Access on October 26, 1999 for $189,000 in cash and 205,000
shares of PentaStar common stock.
PentaStar also entered into an employment agreement with Mr. Veres
effective upon the acquisition of Access. Mr. Veres' employment agreement has a
term from October 26, 1999 until the earlier of the date of a change of control
of PentaStar (as defined in the agreement) or October 26, 2004 provided that it
can be earlier terminated for cause (as defined in the agreement). Mr. Veres'
annual salary is $120,000 and he is eligible to receive an annual cash bonus of
up to 5% of his area's operating income before amortization expense. This
agreement generally restricts Mr. Veres from competing with PentaStar for a
period that is the greater of three years from the date of the agreement or one
year after his termination date. PentaStar will also reimburse Mr. Veres for
reasonable out-of-pocket expenses and he will be eligible to participate in
PentaStar's benefit plans and programs.
PentaStar leases 4,800 square feet of office space from Mr. Veres for
$3,000 per month, under a lease that expires on December 31, 2001.
BACE Investments, Black Diamond, Mr. Lazzeri and Mr. Veres have entered
into agreements with PentaStar and Schneider Securities, Inc. as the
representative of the underwriters in the Company's October 26, 1999 public
offering restricting the transfer of their stock.
They are contractually bound not to sell or otherwise dispose of any of the
3,095,818 shares of PentaStar common stock that they owned prior to the initial
public offering date of October 26, 1999, or any stock dividends issued on those
shares, for 24 months after the completion of the offering. They may sell up to
33.33% of the shares after 24 months, an additional 16.67% after 36 months and
the remaining 50% only at the earlier of (1) five years after the completion of
the offering or (2) a bonafide tender offer, offer to merge or acquisition of
PentaStar's equity securities by an unaffiliated purchaser, effected pursuant to
a vote in favor of the transaction by a majority of the shareholders, pursuant
to which:
- if the transaction occurs within 24 months of the offering date, the
public shareholders of PentaStar receive cash or securities that are
listed or to be listed, or qualified in all respects for listing, on the
New York Stock Exchange, the American Stock Exchange or the Nasdaq
National Market(R) equal in value to at least two times the initial
public offering price per share of PentaStar's common stock; or
- if the transaction occurs more than 24 months after the offering date,
the public shareholders of PentaStar receive cash or securities equal in
value to at least one and one-half times the initial public offering
price per share of PentaStar's common stock.
The representative of the underwriters has agreed that it will not waive,
shorten or otherwise modify these transfer restrictions. The restrictions on
sale described in this paragraph will not apply:
- if for 60 consecutive trading days commencing at least 90 days after the
date of the offering, PentaStar's common stock trades in the public
market at a price of not less than 150% of the initial public offering
per share;
15
<PAGE> 18
- if for 90 consecutive trading days commencing at least 12 months after
the date of the offering, PentaStar's common stock trades in the public
market at a price of not less than 110% of the initial public offering
price per share;
- if for any fiscal year ending after the date of the offering, PentaStar
has earnings per share of at least (1) 5% of the initial public offering
price per share of common stock for that fiscal year, (2) 4% of the
initial public offering price per share of common stock for that fiscal
year and for the prior fiscal year, calculated independently, whether or
not the prior fiscal year ended after the date of the offering, or (3) 3%
of the initial public offering price per share of common stock for that
fiscal year and for each of the two prior fiscal years, calculated
independently, whether or not the prior fiscal years ended after the date
of the offering;
- if the common stock becomes a "covered security" as that term is defined
in subsection 18(b)(1)(a) of the Securities Act;
- to any transfers by will or descent and distribution;
- to any transfers by court order;
- to charitable contributions;
- to transfers among BACE Investments, Black Diamond, Mr. Lazzeri and Mr.
Veres; or
- to any transaction approved by a majority of the shareholders of
PentaStar other than BACE Investments, Black Diamond, Mr. Lazzeri and Mr.
Veres.
In addition, BACE Investments will deposit 140,000 shares and Black Diamond
will deposit 60,000 shares of common stock of PentaStar owned by those
shareholders in an escrow account pursuant to an escrow agreement with the
representative and American Securities Transfer & Trust, Inc. The common stock
deposited in the escrow account will be subject to release to the shareholders
on the earlier to occur of:
- PentaStar achieving pro forma (based on a full 12-month period for all
acquired operations, giving effect to such acquisitions as if they had
occurred on January 1, 2000) adjusted diluted earnings per share of $0.50
in fiscal year 2000;
- PentaStar achieving pro forma (based on a full 12-month period for all
acquired operations, giving effect to such acquisitions as if they had
occurred on January 1, 2001) adjusted diluted earnings per share of $1.25
in fiscal year 2001;
- a merger, acquisition or exchange in which PentaStar is not the surviving
entity or in which the shareholders of PentaStar own less than 50% of the
outstanding capital stock of the surviving entity following that
transaction or the sale of all or substantially all of the assets of
PentaStar that is approved by a majority of the holders of the
outstanding shares, excluding the shares held in the escrow account; or
- seven years after the initial public offering or October 26, 2006.
PentaStar believes that the transactions summarized above were made on
terms no less favorable than terms PentaStar could have obtained from
unaffiliated third parties. At the time certain of these transactions were
entered into, we lacked sufficient disinterested independent directors to ratify
those transactions. Those transactions were subsequently ratified by Carleton A.
Brown, the independent director of PentaStar prior to the initial public
offering. The Board of Directors has determined that any future transactions
between PentaStar and its officers, directors or principal shareholders will be
approved by a majority of the disinterested independent directors who have
access, at PentaStar's expense, to PentaStar's counsel or independent legal
counsel and will be on terms no less favorable than PentaStar could obtain from
an unaffiliated third party. The Board of Directors may obtain independent
counsel or other independent advice to assist in that determination.
16
<PAGE> 19
In connection with the acquisition of ICM, PentaStar acquired a note
receivable from Network Communications, Inc. ("NCI"). NCI is owned by certain of
the previous shareholders of ICM, who, upon PentaStar's acquisition of ICM,
became shareholders of PentaStar. At December 31, 1999, NCI owed PentaStar $601
under the terms of the note receivable for cash advances, commissions payable to
ICM and shared expenses. Subsequent to December 31, 1999, PentaStar acquired the
assets of NCI pursuant to an Asset Purchase Agreement for cash and forgiveness
of the outstanding balance of the note receivable.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities ("10% Shareholders"), to file with the
Securities and Exchange Commission (the "Commission") initial reports of
ownership and reports of changes in ownership of common stock and other equity
securities of the Company. Officers, directors and 10% Shareholders are required
by Commission regulation to furnish the Company with copies of all Section 16(a)
forms they file.
Based solely on the Company's review of the copies of such reports received
by the Company, the Company believes that for the fiscal year 1999, all Section
16(a) filing requirements applicable to its officers, directors and 10%
Shareholders were in compliance.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen, LLP, served as the Company's independent public
accountants for the fiscal year ended December 31,1999 and will continue to
serve as the Company's independent public accountants in 2000. A representative
of Arthur Andersen is expected to attend the Annual Meeting, and such
representative will have the opportunity to make a statement if he so desires
and will be available to respond to appropriate questions from shareholders.
ANNUAL REPORT
The Company's Annual Report on Form 10-KSB for the year ended December 31,
1999, including financial statements, is being mailed with this Proxy Statement.
If, for any reason you do not receive your copy of the Report, please contact
Ms. Nancy Shipp, Director of Investor Relations, PentaStar Communications, Inc.,
1522 Blake Street, Denver, CO 80202, and another will be sent to you.
17
<PAGE> 20
SHAREHOLDER PROPOSAL FOR THE 2001 ANNUAL MEETING
Proposals of shareholders that are intended to be presented by such
shareholders at the Company's 2001 annual meeting must be received by the
Company no later than December 27, 2000 in order that they may be included in
the proxy statement and form of proxy relating to that meeting.
In addition, a shareholder-sponsored proposal submitted outside of the
process of Rule 14a-8 under the Securities Exchange Act of 1934 (i.e., a
proposal to be presented at the next annual meeting of shareholders but not
submitted for inclusion in the Company's proxy statement) will be considered
untimely under the Company's bylaws unless it contains the information required
under the bylaws and is received by the close of business no later than March 3,
2001 and not earlier than the close of business on February 1, 2001 provided,
however, that in the event the date of the annual meeting is advanced or delayed
more than 30 days after the anniversary of the preceding annual meeting, notice
must be delivered not earlier than the close of business on the 120 days prior
to such annual meeting and not later than the close of business on the later of
90 days prior to such annual meeting or 10 days following the day on which a
public announcement of the date of such annual meeting is made.
By Order of the Board of Directors
/s/ ROBERT S. LAZZERI
------------------------------------
Robert S. Lazzeri
Chief Executive Officer
Dated: May 5, 2000
Denver, CO
18
<PAGE> 21
APPENDIX 1
PROXY PENTASTAR COMMUNICATIONS, INC. PROXY
---------------------
PROXY SOLICITED BY BOARD OF DIRECTORS OF THE COMPANY
The undersigned shareholder of PentaStar Communications, Inc., a Delaware
corporation (the "Company"), hereby appoints Robert S. Lazzeri or David L.
Dunham as nominee of the undersigned to attend, vote and act for and in the name
of the undersigned at the Annual Meeting of the Shareholders of the Company (the
"Annual Meeting") to be held at The Oxford Hotel, 1600 17th Street, Denver,
Colorado, 80202 on Wednesday, May 31, 2000 at 10:00 a.m. (Denver time), and at
every postponement or adjournment thereof, and the undersigned hereby revokes
any former proxy given to attend and vote at the Annual Meeting.
THE NOMINEE IS HEREBY INSTRUCTED TO VOTE AS FOLLOWS WITH RESPECT TO THE
FOLLOWING MATTERS:
1. FOR [ ] All Nominees as Directors --
Carleton A. Brown and Reynaldo U. Ortiz.
WITHHELD [ ] From All Nominees.
FOR [ ] All Nominees Except the Following:
2. The approval to amend the PentaStar Communications, Inc. Stock Option Plan
which will increase the number of shares under the plan by 500,000 shares;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Any matter that may properly come before the Annual Meeting
THIS PROXY WILL BE VOTED FOR OR AGAINST OR WITHHELD OR ABSTAINED IN RESPECT
OF THE MATTERS LISTED IN ACCORDANCE WITH THE CHOICE, IF ANY, INDICATED IN THE
SPACE PROVIDED. IF NO CHOICE IS INDICATED, THE PROXY WILL BE VOTED FOR ALL
NOMINEES AS DIRECTORS AND THE AMENDMENT TO THE STOCK OPTION PLAN. IF ANY FURTHER
MATTERS COME BEFORE THE ANNUAL MEETING, THIS PROXY WILL BE VOTED ACCORDING TO
THE BEST JUDGMENT OF THE PERSON VOTING THE PROXY AT THE ANNUAL MEETING. THIS
FORM SHOULD BE READ IN CONJUNCTION WITH THE ACCOMPANYING NOTICE OF ANNUAL
MEETING AND PROXY STATEMENT.
1. Please date and sign (exactly as the name appears on this Proxy card) and
return promptly. If no date is stated by the Shareholder, the Proxy is deemed to
bear the date upon which it was mailed to the Shareholder.
2. To be valid, this Proxy form, duly signed and dated, must arrive at the
office of the Company's transfer agent, American Securities Transfer & Trust,
Inc., P.O. Box 1596, Denver, Colorado 80201-1596 not less than forty-eight (48)
hours (excluding Saturdays, Sundays and holidays) before the day of the Annual
Meeting or any postponement or adjournment thereof.
DATED this day of , 2000.
------------------------------------
Signature of Shareholder
------------------------------------
(Please print name of Shareholder)
1-1
<PAGE> 22
APPENDIX 2
AMENDMENT TO THE PENTASTAR COMMUNICATIONS, INC.
STOCK OPTION PLAN
1. Section 4.1 of the PentaStar Communications, Inc. Stock Option Plan
(the "Plan") is hereby amended by deleting the phrase "1,000,000 Shares"
therefrom and substituting therefor "1,500,000 Shares."
2. This amendment is subject to the approval by a majority of shares of
common stock of PentaStar Communications, Inc. present and entitled to vote on
the matter at the 2000 annual meeting of shareholders and shall not become
effective until such approval is obtained.
3. Except as amended by Paragraph 1 above, the Plan remains in full force
an effect.
IN WITNESS WHEREOF this Amendment is executed this 24th day of April 2000.
By Order of the Board of Directors
/s/ ROBERT S. LAZZERI
------------------------------------
Robert S. Lazzeri
Chief Executive Officer
Dated: April 24, 2000
Denver, CO
2-1
