SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by Registrant [X]
Filed by a Party other than 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 to Section 240.14a-11(c)
or Section 240.14a-12
CTC COMMUNICATIONS 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.
[ ] Fee computed on table below per Exchange Act
Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction
applies:
2) Aggregate number of securities to which transaction
applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth
the amount on which the filing fee is calculated and
state how it was determined)
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing:
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
Copies of all communications to:
LEONARD R. GLASS, ESQ.
Law Offices of Leonard R. Glass, P.A.
45 Central Ave, P.O. Box 579
Tenafly, New Jersey 07670-0579
(201) 894-9300
<PAGE>
CTC COMMUNICATIONS CORP.
360 Second Ave.
Waltham, Massachusetts 02154
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of CTC Communications Corp.
Notice is hereby given that the Annual Meeting of Stockholders of CTC
Communications Corp. (the "Company") will be held at the offices of the
Company, 360 Second Avenue, Waltham, Massachusetts 02154 on November 16, 1998
at 9:30 a.m., local time, for the following purposes, all of which are more
completely set forth in the accompanying Proxy Statement:
1. To elect two persons to the Board of Directors to serve as Class I
Directors for three-year terms, and until their respective successors are
elected and qualified;
2. To approve a proposal to reorganize the Company as a Delaware holding
company organized by the Company by merging a subsidiary of the Delaware
holding company into the Company.
3. To approve the Company's 1998 Incentive Plan;
4. To ratify the appointment of Ernst & Young LLP as the independent
accountants of the Company for the fiscal year ending March 31, 1999; and
5. To consider and transact any other business that may lawfully come before
the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on October 9,
1998 as the record date for the determination of stockholders entitled to
vote at the Meeting and to receive notice thereof. Accordingly, only
stockholders of record on such date will be entitled to vote at the meeting.
The stock transfer books of the Company will not be closed.
Please sign the enclosed proxy and return it in the enclosed envelope.
By Order of the Board of Directors
Robert J. Fabbricatore, Chairman
October __, 1998
Mailed at Boston, Massachusetts
IMPORTANT
STOCKHOLDERS ARE REQUESTED TO DATE, SIGN AND MAIL PROMPTLY THE ENCLOSED PROXY
SO THAT YOUR SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES AND IN ORDER
THAT THE PRESENCE OF A QUORUM MAY BE ASSURED, A POSTAGE-PAID ENVELOPE IS
PROVIDED FOR MAILING IN THE UNITED STATES. YOU ARE ENTITLED TO REVOKE YOUR
PROXY AT ANY TIME BEFORE IT IS EXERCISED BY WRITTEN NOTICE TO THE COMPANY.
ALSO, IF YOU ATTEND THE MEETING AND VOTE IN PERSON, THE PROXY WILL NOT BE
USED.
PROXY STATEMENT
1998 ANNUAL MEETING OF STOCKHOLDERS OF
CTC COMMUNICATIONS CORP.
TO BE HELD NOVEMBER 16, 1998
Approximate Date of Mailing to Stockholders:
October __, 1998
TIME AND PLACE OF MEETING
This Proxy Statement is furnished to stockholders by the Board of
Directors of CTC Communications Corp., a Massachusetts corporation (the
"Company"), for solicitation of Proxies for use at the 1998 Annual Meeting
of Stockholders to be held on November 16, 1998 at 9:30 a.m., and at all
adjournments thereof, for the purposes set forth in the attached Notice of
Annual Meeting.
The Company's principal executive offices are located at 360 Second
Avenue, Waltham, Massachusetts (781-466-8080).
Proxies in the form enclosed are solicited on behalf of the Company's
Board of Directors. Any stockholder giving a proxy in such form has the
power to revoke it at any time before it is exercised by filing a later
dated proxy with the Company, by attending the meeting and voting in
person, or by notifying the Company of the revocation in a later dated
writing to its Clerk at 360 Second Ave., Waltham, MA 02154. Any such
proxy, if received in time for voting and not revoked, will be voted at the
meeting in accordance with the instructions indicated on the proxy. If no
instructions are indicated on a properly executed proxy, the shares
represented by that proxy will be voted as recommended by the Board of
Directors.
VOTING RIGHTS AND VOTE REQUIRED
As of October 9, 1998 (the "Record Date"), the Company had
outstanding and entitled to vote_____________ shares of Common Stock (the
"Common Stock") and 666,666 shares of Series A Convertible Preferred Stock
(the "Series A Preferred Stock"). There is no other class of Common Stock
or Preferred Stock of the Company outstanding. Only stockholders of record
at the close of business on the Record Date are entitled to vote at the
Annual Meeting. Each outstanding share of Common Stock entitles the record
holder to one (1) vote. Each holder of shares of Series A Preferred Stock
is entitled to such number of votes for the Series A Preferred Stock held
by such holder equal to the lesser of (i) the whole number of shares of the
Company's Common Stock issuable upon conversion and exercise of all shares
of Series A Preferred Stock and warrants held by such holder and (ii) the
number of shares of Series A Preferred Stock held by such holder multiplied
by 2.476 (a total of 1,552,220 votes for all such Series A Preferred
Stockholders). The holders of the Common Stock and Series A Preferred
Stock vote together as a single class.
The holders of a majority interest of all of the Common Stock and
Preferred Stock issued, outstanding and entitled to vote at the meeting,
present in person or by proxy, constitute a quorum pursuant to the
Company's By-laws. In the absence of a quorum, the Annual Meeting may be
postponed from time to time until stockholders holding the requisite amount
are present or represented by proxy.
Consistent with state law and under the Company's by-laws, a majority
of the shares entitled to be cast on a particular matter, present in person
or represented by proxy, constitutes a quorum as to such matter. Votes cast
by proxy or in person at the Annual Meeting will be counted by persons
appointed by the Company to act as election inspectors for the meeting. The
two nominees for election as directors at the Annual Meeting who receive
the greatest number of votes properly cast for the election of directors
shall be elected directors. Approval of the 1998 Incentive Plan and the
ratification of Ernst & Young as accountants for the company for the fiscal
year ending March 31, 1999 requires the affirmative vote of a majority of
the shares present, in person or by proxy and entitled to vote. The
affirmative vote of two-thirds of the shares of the Company's Common Stock
and Series A Preferred Stock voting together as a single class outstanding
and entitled to vote is required to approve the reorganization of the
Company as a holding company incorporated in Delaware.
The election inspectors will count the total number of votes cast
"for" approval of proposals, other than the election of directors, for
purposes of determining whether sufficient affirmative votes have been
cast. The election inspectors will count shares represented by proxies that
withhold authority to vote for a nominee for election as a director or that
reflect abstentions and "broker non-votes" (i.e., shares represented at the
meeting held by brokers or nominees as to which (i) instructions have not
been received from the beneficial owners or persons entitled to vote and
(ii) the broker or nominee does not have the discretionary voting power on
a particular matter) as shares that are present and entitled to vote on the
matter for purposes of determining the presence of a quorum. For purposes
of Proposal 2, abstentions and broker non-votes have the effect of a vote
cast against such proposals, but neither abstentions nor broker non-votes
have any effect on the outcome of voting on Proposals 1,3 and 4.
Security Ownership of Certain Beneficial Owners
The following table sets forth certain information as of September 30,
1998 with respect to each stockholder known by the Company to beneficially
own more than 5% of the outstanding shares of the Company's Common Stock, the
beneficial ownership of the Company's Common Stock by each Nominee for
Director, by each continuing Director and by each Named Executive Officer (as
defined below) of the Company, and by all of the Directors and Executive
Officers of the Company as a group. Based on the information furnished by
the beneficial owners of the Common Stock listed below, the Company believes
that, except as described below, each such stockholder exercises sole voting
and investment power with respect to the shares beneficially owned.
Name and Address Number of Shares Percentage
of Beneficial Owner Beneficially Owned of Class
Robert J. Fabbricatore(1) 2,759,891 27.5%
Spectrum Equity Investors II, L.P.(2) 1,558,165 13.5%
Henry Hermann(4) 215,922 2.2%
Richard J. Santagati(5) 84,500 *
J. Richard Murphy(6) 19,334 *
Ralph C. Sillari(7) 3,834 *
Kevin J. Maroni(2) 1,558,135 13.5%
Robert A. Nicholson(2)(3) 1,559,171 13.5%
Steven P. Milton(8) 436,682 4.3%
David E. Mahan(9) 162,100 1.6%
Michael H. Donnellan(10) 118,588 1.2%
Anthony J. Vermette(11) 109,307 1.1%
All directors and executive
officers as a group
(14 persons)(12) 5,832,932 49.1%
- ---------------
Less than 1%.
(1) Includes 62,498 shares owned by Mr. Fabbricatore as trustee of a trust
for his children and 1,133,239 shares as a general partner of a family
partnership; also includes 43,917 shares issuable upon exercise of
options exercisable within 60 days of September 30, 1998. Mr.
Fabbricatore's address is c/o CTC Communications Corp., 360 Second
Avenue, Waltham, Massachusetts 02154.
(2) Includes 187,066 shares issuable upon the exercise of a warrant
exercisable within 60 days of September 30, 1998 and 1,344,943 shares
issuable upon conversion of Series A Preferred Stock as of September
30, 1998. As general partners of Spectrum Equity Investors II, L.P.
("Spectrum"), Mr. Maroni, Mr. Nicholson, Mr. Collatos and Brion B.
Applegate may be deemed to be beneficial owners of the shares
beneficially owned by Spectrum. The address of Spectrum and its general
partners is One International Place, 29th Floor, Boston, Massachusetts
02110.
(3) Includes 83 shares issuable upon the exercise of warrants exercisable
within 60 days of September 30, 1998 and 853 shares issuable upon
conversion of Series A Preferred Stock as of September 30, 1998. The
address of Spectrum and its general partners is One International
Place, 29th Floor, Boston, Massachusetts 02110.
(4) Includes 9,750 shares held by Mr. Hermann's spouse and 10,334 shares
issuable upon the exercise of options exercisable within 60 days of
September 30, 1998.
(5) Includes 9,500 shares issuable upon the exercise of options exercisable
within 60 days of September 30, 1998.
(6) Includes 1,000 shares owned by Mr. Murphy as trustee of a trust for his
spouse and 18,334 shares issuable upon the exercise of options
exercisable within 60 days of September 30, 1998.
(7) Includes 3,334 shares issuable upon the exercise of options exercisable
within 60 days of September 30, 1998.
(8) Includes 4,500 shares owned by Mr. Milton as trustee of a trust for his
children and 45,750 shares issuable upon the exercise of options
exercisable within 60 days of September 30, 1998.
(9) Includes 95,000 shares issuable upon the exercise of options exercisable
within 60 days of September 30, 1998.
(10) Includes 98.876 shares issuable upon the exercise of options exercisable
within 60 days of September 30, 1998.
(11) Includes 83,399 shares issuable upon the exercise of options exercisable
within 60 days of September 30, 1998.
(12) Includes the shares described in footnotes (1) through (11) above.
PREFERRED STOCK
As of September 30, 1998, Spectrum owned 657,555 of the 666,666 shares, or
98.6 of the outstanding Series A Preferred Stock of the Company.
PROPOSAL 1:
ELECTION OF DIRECTORS
As provided in the Company's Amended and Restated By-laws ("By-laws"),
the Company's Board of Directors must consist of not less than three nor
more than eleven members, as determined by the Board of Directors, and that
the Board of Directors is classified into three classes, as nearly as equal
in number as possible, so that each Director (after a transitional period)
will serve for three years, with one class of directors being elected each
year. The Board has set the number of Directors at seven, and is currently
comprised of two Class I Directors, two Class II Directors and three Class
III Directors.
The Class I Directors, whose terms of office expire in 1998, are
Henry Hermann and Ralph C. Sillari. Messrs. Hermann and Sillari have been
nominated to stand for re-election as Class I Directors at the Annual
Meeting to hold office until 2001 and until their respective successors are
elected and qualified.
J. Richard Murphy and Richard J. Santagati, presently serving as
Class II Directors for terms expiring in 1999 and until their respective
successors are elected and qualified, will continue in office .
Robert J. Fabbricatore, Kevin J. Maroni and William P. Collatos are
presently serving as Class III Directors. Mr. Fabbricatore and Mr. Maroni
will continue in office, and Mr. Collatos has indicated that he will not
continue as a Director after the Annual Meeting. Mr. Robert A. Nicholson,
as a designee of the Series A Preferred Stockholders, as been appointed to
replace Mr. Collatos as a Class III Director to serve with Mr. Fabbricatore
and Mr. Maroni for the term expiring in 2000 and until their respective
successors are elected and qualified.
It is intended that all shares represented by a proxy in the
accompanying form will be voted for the election of Henry Hermann and Ralph
C. Sillari as Class I Directors for a three year term unless otherwise
specified in such proxy. In the event either of the nominees shall be
unable to serve as Director, votes will be cast, pursuant to the authority
granted in the enclosed proxy, for such person or persons as may be
designated by the Board of Directors. The Board of Directors has no reason
to believe that the nominees will decline to serve as Director.
The following table sets forth the name and age of each Director
continuing to serve after the Annual Meeting and each Nominee for Director,
the period during which he has served as Director and the other capacities
in which he currently serves the Company:
<TABLE>
<CAPTION>
Period Other Capacities
Served as in which
Name Age Director Currently Serving
<S> <C> <C> <C>
Robert J. Fabbricatore 55 Since 1980 Chairman and
Chief Executive
Officer
Richard J. Santagati 54 Since 1991 None
J. Richard Murphy 53 Since 1995 None
Henry Hermann 56 Since 1996 Consultant
Ralph C. Sillari 43 Since 1997 None
Kevin J. Maroni 35 Since 1998 None
Robert A. Nicholson 30 As of 11/16/98 None
- -----------------
</TABLE>
Class I Directors Standing for Election
Mr. Hermann became a director of the Company in September 1996. Since
November 1997, he has operated Hermann Companies, a financial services
company engaged in portfolio management, securities analysis and financial
consulting. Mr. Hermann is registered as an Investment Advisor with the
State of Texas, a Chartered Financial Analyst and, as an independent
contractor, offers general securities through Brokers Transaction Services.
From May 1997 to November 1997, he was employed by Kuhns Brothers &
Company, Inc., as a principal and Executive Vice President. For the
previous nine years, he was employed by WR Lazard, Laidlaw and Luther,
Inc., a securities brokerage firm, as Vice President, Securities Analyst
and Portfolio Manager. Mr. Hermann has been an NASD Board of Arbitrators
Member since 1991. Mr. Hermann has provided financial consulting services
to the Company since 1993.
Mr. Sillari became a director of the Company in October 1997. Since
1991, Mr. Sillari has been employed by Fleet National Bank where he is
currently an Executive Vice President in the Business and Entrepreneurial
Services Division located in Boston, Massachusetts.
Class II Directors Whose Terms Expire in 1999
Mr. Santagati became a director of the Company in September 1991. He
has been the President of Merrimack College in North Andover, Massachusetts
since 1994. Mr. Santagati was a partner of Lighthouse Management, Inc., a
private investment firm located in Boston, Massachusetts from 1991 to 1993
and, from 1991 to February 1994, the Chairman of the Board, Chief Executive
Officer and President of Artel Communications Corp., a publicly held data
communications firm located in Hudson, Massachusetts.
Mr. Murphy became a Director of the Company in August 1995. Mr. Murphy
has been the Director of the Financial Consulting Group of Moody, Cavanaugh
and Company, LLP, a North Andover, Massachusetts public accounting firm,
since April 1996. Mr. Murphy was an officer, director and principal
stockholder (ii) from 1990 to 1995 of Arlington Data Corporation, a systems
integration company located in Amesbury, Massachusetts; (ii) from 1992 to
1996 of Arlington Data Consultants, Inc., a company engaged in the
installation and maintenance of computer systems and hardware; and (iii)
from 1994 to 1996 of Computer Emporium, Inc., a company engaged in
processing parking violations for municipalities. In June 1996, Arlington
Data Corporation filed for bankruptcy under Chapter 11 of the Bankruptcy
Code.
Class III Directors Whose Terms Expire in 2000
Mr. Robert Fabbricatore, a founder of the Company and a Director since
its inception in 1980, became Chairman of the Board of Directors in March
1983 and served as President from October 1993 to August 1995. Robert
Fabbricatore is the brother of Thomas Fabbricatore, Vice President -
Regulatory and Electronic Media.
Mr. Maroni became a director of the Company in April 1998 as a one of
the two designees of the Series A Preferred Stockholders. Mr. Maroni is a
General Partner of Spectrum Equity Investors II, L.P. ("Spectrum") which he
joined in 1994. Spectrum is a leading private equity fund which manages
$360 million of capital for investment in the communications and media
industries. Prior to joining Spectrum, he served as Manager, Finance and
Development at Time Warner Telecommunications, where he was involved in
corporate development projects. Mr. Maroni is a director of Pathnet, Inc.,
Formus Communications, Inc., WNP Communications, Inc. and American Cellular
Corp.
Mr. Nicholson as the designee of the Series A Preferred Stockholders,
is the Class III Director replacing Mr. Collatos, who is not standing for
reelection. Mr. Nicholson joined Spectrum in 1995 as a Vice President, and
became a Partner of Spectrum in July 1998. Spectrum is a leading private
equity fund which manages $360 million of capital for investment in the
communications and media industries. Prior to joining Spectrum, Mr.
Nicholson was an Associate Consultant and then Consultant at Bain & Company
(1990-1993), a leading strategy consulting firm, where he was responsible
for strategy and operations projects in the communications industry. Mr.
Nicholson currently serves as a Director of 3460983 Canada Inc., a Canadian
competitive local exchange carrier. Mr. Nicholson received an MBA with
high distinction from Harvard University in 1995 and a bachelor's degree
with honors, cum laude, from Williams College in 1990.
Voting Agreement
Pursuant to a Voting Agreement dated April 10, 1998 between Robert J.
Fabbricatore and certain of his affiliates and Spectrum, Mr. Fabbricatore
and certain of his affiliates agreed to vote at each annual or special
meeting at which directors of the Company are to be elected all of the
shares of Common Stock held by them in favor of two persons designated by a
majority of the outstanding shares of Series A Preferred Stock as nominees
for directors, subject to certain limitations based on the number of shares
of Series A Preferred Stock outstanding at any time. As of the record
date, Spectrum owned 657,555 of the 666,666 shares, or 98.6%, of the Series
A Preferred Stock outstanding.
Kevin J. Maroni and William P. Collatos, general partners of Spectrum and
designees of the Series A Preferred Stockholders, were elected Class III
directors of the Registrant effective April 10, 1998. Mr. Collatos has
elected not to continue as a Director after the 1998 Annual Meeting of
Stockholders, and Mr. Nicholson has been named as the designee of the
Series A Preferred Stockholders to serve in Mr. Collatos' place and stead.
Certain Relationships And Related Transactions
The Company leases from trusts, of which Robert J. Fabbricatore, the
Company's Chairman and Chief Executive Officer, is a beneficiary, office
space in Springfield, Massachusetts and southern New Hampshire. Rental
payments under the leases totaled approximately $133,000 for the fiscal
year ended March 31, 1998 ("Fiscal 1998") and approximately $66,000 for the
six months ended September 30, 1998. The Company subleases part of its
Waltham facility at its cost to Comm-Tract Corp., a company in which Mr.
Fabbricatore is a principal stockholder. Sublease income totaled $119,416
for Fiscal 1998 and approximately $80,000 for the six months ended
September 30, 1998. The Company also contracts with Comm-Tract Corp. for
the installation of telephone lines and for the service and maintenance of
equipment marketed by the Company. During Fiscal 1998 and the six months
ended September 30, 1998, Comm-Tract Corp. provided the Company with
services, inventory and equipment aggregating $233,034 and approximately
$157,000 respectively. The Company believes that the payments to the trusts
and Comm-Tract Corp. are comparable to the costs for such services,
inventory and equipment, and for rentals of similar facilities, which the
Company would be required to pay to unaffiliated individuals in arms-length
transactions.
In connection with the exercise of Company stock options in the fiscal
year ended March 31, 1995, Steven P. Milton was advanced the sum of
$135,825 by the Company, which remained outstanding at September 30, 1998.
The loan is payable on demand and bears interest at 8.0% per annum.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who
own more than ten percent of a registered class of the Company's equity
securities, 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 greater than ten percent shareholders 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 a review of the copies of
such reports furnished to the Company and, with respect to its officer and
directors, written representations that no other reports were required,
during Fiscal 1998, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners were
complied with. In making the foregoing statement, the Company has relied on
the written representations of its directors and officers and copies of the
reports that have been filed with the Commission.
Committees of the Board of Directors
The Company has established an Audit Committee, Compensation Committee
and a Nominating Committee.
The Audit Committee consists of Messrs. Murphy and Hermann. The Audit
Committee is responsible for reviewing the internal accounting controls of
the Company, meeting and conferring with the Company's certified public
accountants and reviewing the results of the accountants' auditing
engagement. During the fiscal year ended March 31, 1998, the Audit
Committee held one meeting.
The Compensation Committee consists of Messrs. Maroni, Santagati and
Murphy. The Compensation Committee establishes compensation and benefits
for the Company's senior executives. The Committee also determines the
number and terms of stock options granted to employees, directors and
consultants of the Company under the Company's stock option plans. During
the fiscal year ended March 31, 1998, the Compensation Committee held three
meetings.
The Nominating Committee consists of Messrs. Santagati, Murphy and
Sillari. The Nominating Committee recommends candidates for nomination to
the Board of Directors. The Committee also reviews and makes
recommendations regarding compensation for non-employee directors. The
Nominating Committee does not consider nominees recommended by security
holders. During the fiscal year ended March 31, 1998, the Nominating
Committee held two meetings.
During the fiscal year ended March 31, 1998, the Board of Directors
held 11 meetings and took action by unanimous written consent on three
occasions. All directors and committee members attended their respective
meetings.
Director Compensation
Directors of the Company who are employees do not receive compensation
for their services as directors. Directors who are not employees receive an
annual retainer of $10,000. On May 16, 1997, the Company granted to Messrs.
Hermann, Murphy and Santagati stock options to purchase 10,000, 10,000 and
15,000 shares, respectively, of its Common Stock at a purchase price of
$7.44 per share. On October 20, 1997, the Company granted to Mr. Sillari a
stock option to purchase 10,000 shares of its Common Stock at a purchase
price of $8.25 per share upon his becoming a director of the Company. These
options were repriced on March 20, 1998 to $7.19 per share.
Executive Officers and Significant Employees
The following table sets forth the name and age of each executive
officer and significant employee of the Company and the office held.
<TABLE>
<CAPTION>
Name Age Current Office Held
<S> <C> <C>
Robert J. Fabbricatore 55 Chairman, Chief Executive
Officer
Steven P. Milton 44 President, Chief Operating
Officer
Steven C. Jones 35 Executive Vice President,
Chief Financial Officer and
Director of
Corporate Development
John D. Pittenger 45 Executive Vice President-
Finance and Administration,
Treasurer and Clerk
David E. Mahan 56 Vice President-Marketing
and Strategic Planning
Michael H. Donnellan 44 Vice President-Operations
Thomas Fabbricatore 39 Vice President-Regulatory
and Electronic Media
Anthony D. Vermette 37 Vice President-Sales
Frederick Kunzi __ Vice President and Chief
Technology Officer
Jeffrey C. Lavin __ Vice President-Corporate
Development
</TABLE>
Mr. Milton has been employed by the Company since 1984 and has served
as President and Chief Operating Officer since August 1995. Prior to that,
he held various positions within the Company including Branch Manager,
District Manager, Regional Manager and, most recently, Vice President-
Sales and Marketing.
Mr. Jones joined the Company in early 1998 and has served as an
Executive Vice President and Chief Financial Officer since April 1998. From
1994 to April 1998, Mr. Jones worked in the telecommunications investment
banking division of Merrill Lynch & Co., most recently as a Vice President.
From 1991 to 1994, Mr. Jones was an Associate at BT Securities Corp.
Mr. Pittenger has served as Executive Vice President-Finance and
Administration since April 1998 and as Treasurer and Clerk of the Company
since August 1989. Mr. Pittenger served as Vice President-Finance from
1991 until April 1998, and as Chief Financial Officer from 1989 to April
1998.
Mr. Mahan joined the Company in October 1995 as Vice President-
Marketing and Strategic Planning and in June 1996 became an executive
officer of the Company. Prior to joining the Company, Mr. Mahan held a
number of senior management level positions with NYNEX, most recently as
Vice President-Sales Channel Management from 1993 to 1995.
Mr. Donnellan has been employed by the Company since 1988 in a number
of positions. He was named Vice President-Operations in 1995 and became an
executive officer of the Company in October 1997.
Mr. Thomas J. Fabbricatore joined the Company in 1982. He was named
Vice President-Regulatory and Electronic Media in 1991 and became an
executive officer of the Company in October 1997. Thomas Fabbricatore is
the brother of Robert J. Fabbricatore.
Mr. Vermette has been employed by the Company in a variety of positions
since 1987. Mr. Vermette was named Vice President-Sales in 1996 and became
an executive officer in October 1997.
Mr. Kunzi joined the Company as a Vice President and Chief Technology
Officer in September 1998. Mr. Kunzi has over 25 years experience in
information technology. From 1985 to September 1998, he was employed by
Digital Equipment Corporation, most recently as Senior Manager, Global
Network Services where he was responsible for Digital's worldwide
enterprise network infrastructure serving over 60,000 domestic and
international clients.
Mr. Lavin joined the Company in June 1998 as Vice President-Corporate
Development. Mr. Lavin has extensive sales and operational management
experience. From 1997 to June 1998, Mr. Lavin was Vice President of Sales,
Americas/Asia Pacific for NovaSoft Systems, Inc., a venture capital funded
corporation providing enterprise Intranet integrated workflow and document
management solutions to its clients. From 1979 to 1996, Mr. Lavin was
employed by Comlink Incorporated, a communications networking value added
reseller, most recently as Senior Vice President, Network Systems.
Following Comlink's acquisition in 1996 by WilTel (Williams Communications
Solutions LLC), Mr. Lavin served as Vice President and General Manager.
For a description of the business background of Mr. Robert
Fabbricatore see "Class III Directors Whose Terms Expire in 2000" above.
OPTION REPRICING
The Company has had one option repricing since its inception. On
March 20, 1998, all options with an exercise price in excess of $7.00 per
share were repriced to provide for a $7.19 exercise price. The following
table sets forth certain information regarding the repricing of options
held by the Company's Chief Executive Officer and each of the four other
most highly paid executive officers of the Company ("Named Executive
Officers"):
<TABLE>
<CAPTION>
NUMBER OF MARKET
SECURITIES PRICE EXERCISE EXPIRATION
UNDERLYING OF STOCK PRICE AT NEW DATE OF
REPRICED AT TIME OF TIME OF EXERCISE REPLACED
NAME DATE OPTIONS REPRICING REPRICING PRICE OPTIONS
- - -------------------- ----------- --------- --------- ---------------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Fabbricatore 3/20/98 75,000 $7.19 $8.18 $7.91 5/16/02
Steven P. Milton 3/20/98 75,000 7.19 7.44 7.19 5/16/02
Anthony D. Vermette 3/20/98 50,000 7.19 7.44 7.19 5/16/02
Michael H. Donnellan 3/20/98 40,000 7.19 7.44 7.19 5/16/02
David E. Mahan 3/20/98 80,000 7.19 7.44 7.19 5/16/02
</TABLE>
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During the fiscal year ended March 31, 1998, the Compensation
Committee, then comprised of two independent non-employee directors, made
decisions regarding executive compensation. The Compensation Committee is
currently comprised of three independent non-employee directors. The
Compensation Committee is charged with establishing and administering the
policies and plans which govern compensation for executive officers,
including those individuals listed in the compensation tables in this proxy
statement. The Compensation Committee also determines the number and terms
of stock options granted to employees, directors and consultants of the
Company under its stock option plans.
Compensation Policies. The Company's executive compensation
philosophy is to provide compensation opportunities for its officers which
are competitive within the Company's industry and community so that the
Company can attract and retain high quality executives and to align the
interests of the Company's executives and its stockholders by providing for
payment of a significant portion of executive compensation in the form of
bonuses based on the Company's sales performance. Thus, the value
generated for the Company's stockholders is a key factor in determining the
value ultimately received by the executive officers.
Base Salary. Base salaries for executive officers are established at
levels considered appropriate in light of the scope of the duties and
responsibilities for each officer's position. Annual increases are
provided in base salary to further protect the Company's vested interest
due to their prior service and key strategic roles.
Bonus. Each executive officer receives a bonus conditional upon the
achievement of certain quarterly performance goals set by management.
During the three fiscal years ended March 31, 1998, the Company has
exceeded the performance goals. The establishment of performance goals is
believed by the Committee to be the most objective measurement of executive
performance during the relevant period, where the overriding objective of
the Company is to build its business by increasing sales.
Stock Options. Incentive stock options are granted to executive
officers at the discretion of the Stock Option Committee. Stock options
are granted with an exercise price equal to the fair market value of the
Company's common stock on the date of the grant. Stock options become
exercisable in full in installments over periods of three or more years and
have terms of up to ten years from the date of the grant. Such stock
options thus provide incentive for the creation of stockholder value over
the long term since the full benefit of the option cannot be realized
unless an appreciation in the price of the Company's common stock occurs
over a specified number of years and the executive officer remains employed
for the periods required for the stock options to become exercisable.
CEO Compensation. During the fiscal years ended March 31, 1998, 1997
and 1996 the Company's most highly compensated officer was Robert J.
Fabbricatore, Chairman of the Board and Chief Executive Officer, who
received a base salary of $240,000 and bonuses aggregating $60,000.
Deductibility of Executive Compensation. Section 162(m) of the
Internal Revenue Code denies publicly held companies a deduction for
compensation paid to a named executive officer in a taxable year to the
extent it exceeds $1 million per officer, unless the compensation qualifies
as "performance based compensation." The Committee has no present policy
in respect of Section 162(m) because compensation paid to any named
executive officer of the Company does not reach $1 million.
The Compensation Committee
J. Richard Murphy and Richard J. Santagati
Compensation Tables
The following summary compensation table sets forth information
concerning the compensation paid or accrued by the Company to or on behalf
of the Named Executive Officers during the fiscal year ended March 31,
1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
---------------------------- -------------------------------------
Other Securities All
Annual Underlying Other
Name and Principal Salary Bonus Compensation Options Compen-
Position Year ($) ($) ($) (#)(1) sation(2)
- ------------------ ---- ------ ---- ----------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Fabbricatore, 1998 240,000 60,000 - 150,000 $19,550
Chairman and Chief 1997 240,000 60,000 - - 18,075
Executive Officer 1996 240,000 60,000 - - 16,100
Steven P. Milton, 1998 100,000 40,000 5,200 150,000 4,200
President and 1997 100,000 40,000 5,200 - 4,075
Chief Operating Officer 1996 100,000 40,000 5,200 - 4,200
Anthony D. Vermette, 1998 86,647 58,424 4,000 100,000 3,456
Vice President 1997 80,000 54,198 4,000 - 3,776
1996 80,000 28,000 4,000 - 3,240
Michael H. Donnellan, 1998 92,500 4,000 4,000 80,000 3,975
Vice President of 1997 80,000 32,000 4,000 - 3,360
Operations 1996 63,000 132,119 4,000 - 3,887
David E. Mahan 1998 100,000 40,000 5,004 260,000 4,075
Vice President-Market 1997 100,000 40,000 5,004 - 4,075
Planning & Development 1996(3) 50,000 20,000 2,500 100,000 -
<FN>
(1) On March 20, 1998, the Company repriced all previously granted options that had an exercise price
in excess of $7.00 per share. Includes 75,000, 75,000, 50,000, 40,000 and 180,000 shares underlying
options previously granted to Messrs. Fabbricatore, Milton, Vermette, Donnellan, and Mahan,
respectively, that were canceled as a result of the repricing.
(2) Includes 50% matching contributions in the amounts of $4,750, $4,200, $4,200, $3,456, $3,975 and
$4,075 accrued on behalf of Messrs. Fabbricatore, Milton, Vermette, Donnellan, and Mahan,
respectively, to the CTC Communications Corp. 401(k) Savings Plan. Also included is the actuarial
benefit in the amount of approximately $14,800 on the "split-dollar" life insurance policy for the
benefit of Mr. Fabbricatore.
(3) Mr. Mahan commenced employment with the Company on October 1, 1995.
</FN>
</TABLE>
The following table sets forth information concerning option grants and
option holdings for the fiscal year ended March 31, 1998 with respect to the
Named Executive Officers.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
% of Total Potential Realizable Value
Options/ at Assumed Annual Rates
No. of SARs of Stock Price
Securities Granted to Appreciation
Underlying Employees Exercise for Option Term
Options in Fiscal Price Expiration --------------------
Name Granted(#) Year ($/Sh) Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Robert J. Fabbricatore 75,000(1) 3% $8.18 5/16/2002 $ 98,339 $284,788
75,000 3% 7.91 5/16/2002 95,033 275,216
Steven P. Milton 75,000(1) 3% 7.44 5/16/2002 154,124 340,573
75,000 3% 7.19 5/16/2002 148,943 329,126
Anthony D. Vermette 50,000(1) 2% 7.44 5/16/2002 102,749 227,049
50,000 2% 7.19 5/16/2002 99,296 219,417
Michael H. Donnellan 40,000(1) 1% 7.44 5/16/2002 82,199 181,639
40,000 1% 7.19 5/16/2002 79,436 175,534
David E. Mahan 80,000(1) 3% 7.44 5/16/2002 164,399 363,278
80,000 3% 7.19 5/16/2002 158,873 351,068
100,000 4% 7.19 10/02/2002 198,391 438,835
- ---------------------
<FN>
(1) Canceled as a result of option repricing.
</FN>
</TABLE>
The following table sets forth information cerning the exercise of options by
the Named Executive Officers during the fiscal year ended March 31, 1998 and
the March 31, 1998 aggregate value of unexercised options held by each of the
Named Executive Officers.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised
acquired on Value Underlying Unexercised In-the-Money Options at
Name exercise (#) Realized($) Options at FY-End (1) Fiscal Year End ($)(1)(2)
- ---------------- ------------ ----------- -------------------------- ---------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Fabbricatore - - 25,167 83,389 143,704 106,401
Anthony D. Vermette 13,251 142,484 59,649 69,500 412,913 209,731
Michael H. Donnellan - - 77,626 61,750 545,503 208,188
Steven P. Milton - - 27,000 84,000 161,487 166,329
David E. Mahan - - 50,000 130,000 75,000 195,000
- ------------
<FN>
(1) All shares and amounts, as necessary, have been adjusted to reflect the 25% Common Stock dividend effected
in March 1995, the three-for-two stock split effected in July 1995 and the two-for-one stock split effected
in October 1995.
(2) Assumes a fair market value of the Common Stock of the Company at March 31, 1998 of $8.69 per share.
</FN>
</TABLE>
The Company made no Long-Term Incentive Plan Awards during the fiscal year
ended March 31, 1998. The Company has no defined benefit or actuarial plan.
Employment Agreement
Mr. Jones is currently employed as Executive Vice-President, Chief
Financial Officer and Director of Corporate Development pursuant to an
agreement dated as of February 27, 1998. The agreement provides for an
initial term of three years and will automatically be extended for additional
one-year periods on the anniversary of the Effective Date (as defined
therein) provided that neither Mr. Jones nor the Company gives notice of
termination 90 days prior to any such anniversary. Under this agreement, Mr.
Jones is entitled to receive an annual salary of $150,000. Mr. Jones is
eligible to receive an annual bonus of at least $75,000 based upon the
achievement of certain performance objectives. Pursuant to his employment
agreement, Mr. Jones was granted options to purchase 300,000 shares of Common
Stock exercisable at $7.06 per share and vesting over a three year period. If
the Company terminates Mr. Jones without cause, or Mr. Jones terminates the
agreement for (i) ''good reason'' as defined therein or (ii) in connection
with a change of control, Mr. Jones is entitled to a severance payment equal
to a lump sum amount in cash, equal to the sum of (i) two year's base salary
at the highest annual base salary then in effect and (ii) the greater of
twice his highest annual bonus or $150,000.
Performance Graph
The following table shows a comparison of cumulative total return to
stockholders for the Company's Common Stock, the Nasdaq Composite Index and
the Nasdaq Telecommunications Index* for the period March 31, 1993 through
March 31, 1998. Assumes $100 invested on March 31, 1993 in CTC Communications
Corp. Common Stock, the Nasdaq Composite Index and the Nasdaq
Telecommunications Index.*
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
------ ------ ------ -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
CTC Communications Corp. 100.00 76.00 425.00 1335.00 870.00 1042.50
Nasdaq Stock Market (US Companies) 100.00 107.77 119.39 161.17 179.50 272.61
Nasdaq Telecommunications Stocks 100.00 88.89 91.00 122.36 112.97 217.35
</TABLE>
* The Nasdaq Telecommunications Index began trading in November 1993.
Board Recommendation
The Board of Directors recommends that the stockholders vote FOR the
election of the nominees named above.
PROPOSAL 2:
THE PROPOSED REORGANIZATION OF THE COMPANY AS A DELAWARE HOLDING
COMPANY ORGANIZED BY THE COMPANY BY MERGING A SUBSIDIARY
OF THE DELAWARE HOLDING COMPANY INTO THE COMPANY
GENERAL
The Board of Directors has unanimously approved a proposal for the
reorganization of the Company as a holding company incorporated in Delaware
by merging a subsidiary of a Delaware holding company organized by the
Company into the Company (the "Reorganization"). Under the terms of a Loan
and Security Agreement between the Company, as Borrower, and Goldman Sachs
Partners L.P. and Fleet National Bank, as Lenders ("Loan and Security
Agreement"), under the terms of which the Lenders provided a $75 million
senior secured revolving credit facility, the Company is obligated no later
than December 7, 1998 to obtain the approval of the Company's Board of
Directors and shareholders for the organization of a Delaware holding
corporation.
To accomplish the Reorganization, the Company organized CTC Telecom
Corp. under the laws of the State of Delaware ("CTC Telecom" or "Delaware
Holding Company") and CTC-Newco, Inc. ("CTC-Newco" or "Delaware Subsidiary"),
as a Delaware subsidiary of the Delaware Holding Company.
In order to complete the Reorganization, the Company, as a provider of
long distance services, will require the approval of the applicable state
regulatory agencies in Ohio, North Carolina, Minnesota and California.
Under the terms of an Agreement and Plan of Merger (the "Merger
Agreement"), a copy of which is attached hereto as Appendix A, CTC-Newco will
merge into the Company which will continue to exist as a Massachusetts
corporation and carry out its existing business and all of the issued and
outstanding common and preferred stock of the Company will be converted into
a like number of shares of common and preferred stock of the Delaware Holding
Company. Following the merger, the Delaware Holding Company will pledge the
shares of the Company to the Lenders as collateral for the Goldman
Sachs/Fleet Bank loan.
In addition to complying with the obligation under the Loan and
Security Agreement to effect the Reorganization, the Board of Directors
believes that a holding company structure would allow the Company to create
levels of debt for more effective financing. For example, the Company could
issue a structurally junior financing as a holding company.
The Board of Directors further believes that it is beneficial and
important that the Company also obtain the advantages of Delaware law. The
Board believes the proposed change in domicile is in the best interests of
the Company and its stockholders for several reasons, including: (i) the
greater predictability and flexibility afforded by Delaware corporate law and
its greater responsiveness to corporate needs, (ii) the more favorable and
predictable corporate environment afforded by Delaware to corporate directors
and officers, and (iii) the greater certainty afforded by Delaware law with
respect to directors' duties in the face of takeover offers and with respect
to anti-takeover measures.
CAPITALIZATION OF THE DELAWARE HOLDING COMPANY
The Delaware Holding Company has an authorized capital consisting of
100,000,000 shares of Common Stock, par value $.01 per share and 10,000,000
shares of undesignated Preferred Stock.
Article 3 of the Company's Articles of Incorporation currently
authorize the Company to issue up to 25,000,000 shares of Common Stock, par
value $.01 per share, and up to 1,000,000 shares of "blank check" Preferred
Stock, $1.00 par value per share, of which _______ shares Common Stock are
outstanding and 666,666 shares of Series A Preferred Stock are outstanding.
In addition to the shares of Common Stock outstanding, the Board of Directors
has reserved for issuance ______ shares of Common Stock which may be issued
upon exercise of options currently held by employees, 188,888 shares of
Common Stock reserved for issuance upon exercise of outstanding Common Stock
Purchase Warrants and 1,333,332 shares reserved for issuance upon conversion
of the Series A Preferred Stock. As a result, the Company has at the present
time, ______ shares of authorized but unissued and uncommitted shares of
Common Stock available for issuance. Under the Company's existing stock
option plans, up to _______ shares may be issued as a result of the grant and
exercise of employee stock options. In addition, if stockholders approve the
adoption of the 1998 Incentive Plan, and additional 1,500,000 shares will be
reserved for issuance upon the exercise of options granted under the
Incentive Plan.
Although at present, the Board of Directors has no plans to approve
future issuances of additional shares of Common Stock, it desires to have
such shares available to providgbe additional flexibility for business and
financial purposes in the future. The additional shares may be used under
Delaware law, without further shareholder approval, including, without
limitation, issuing additional dividends in the form of stock splits, raising
capital, providing equity incentives to employees, officers or directors,
establishing strategic relationships with other companies, and expanding the
Company's business or product lines through the acquisition of other
businesses.
The additional shares of Common Stock that would become available for
issuance could also be used by the Company to oppose a hostile takeover
attempt or delay or prevent changes in control or management of the Company.
For example, without further shareholder approval, the Board could
strategically sell shares of Common Stock in a private transaction to
purchasers who would oppose a takeover or favor the current Board. Although
this proposal to increase the authorized Common Stock has been prompted by
business and financial considerations and not by the threat of any hostile
takeover attempt (nor is the Board currently aware of any such attempts
directed at the Company), shareholders should be aware that approval of this
proposal could facilitate future efforts by the Company to deter or prevent
changes in control of the Company, including transactions in which the
shareholders might otherwise receive a premium for their shares over then
current market prices.
The Certificate of Incorporation of the Delaware Holding Company will
vest in the Board of Directors the authority to designate one or more
additional series of Preferred Stock. Such provisions are often referred to
as "blank check" provisions, since they afford the Board of Directors the
flexibility, at any time or from time to time, without further shareholder
approval, to create one or more series of Preferred Stock and to determine
the designations, preferences and limitations of each such series, including,
but not limited to, (i) the number of shares, (ii) dividend rights, (iii)
voting rights, (iv) conversion privileges, (v) redemption provisions, (vi)
sinking fund provisions, (vii) rights upon liquidation, dissolution or
winding up of the Company and (viii) other relative rights, preferences and
limitations of such series.
If any series of Preferred Stock authorized by the Board provides for
dividends, such dividends, when and as declared by the Board of Directors out
of any funds legally available therefore, may be cumulative and may have a
preference over the Common Stock as to the payment of such dividends. In
addition, if any series of Preferred Stock authorized by the Board so
provides, in the event of any dissolution, liquidation or winding up of the
Company, whether voluntary or involuntary, the holders of each such series of
the then outstanding Preferred Stock may be entitled to receive, prior to the
distribution of any assets or funds to the holders of Common Stock, a
liquidation preference established by the Board of Directors, together with
all accumulated and unpaid dividends. Depending upon the consideration paid
for Preferred Stock, the liquidation preference of Preferred Stock and other
matters, the issuance of Preferred Stock could therefore result in a
reduction in the assets available for distribution to the holders of Common
Stock in the event of liquidation of the Company. Holders of Common Stock do
not have any preemptive rights to acquire Preferred Stock or any other
securities of the Company.
Increasing the number of authorized shares of Preferred Stock provides
the Company with the flexibility to address potential future financing needs
by creating a series of Preferred Stock customized to meet the needs of any
particular transaction and market conditions. The Company also could issue
Preferred Stock for other corporate purposes such as to raise capital,
implement joint ventures or to make acquisitions. In addition, while the
proposed amendment to authorize additional shares of preferred stock is not
designed to deter or to prevent a change in control, under certain
circumstances, the Company could use the Preferred Stock to create voting
impediments or to frustrate persons seeking to effect a takeover or otherwise
gain control of the Company and thereby to protect the continuity of the
Company's management. In addition, the issuance of additional Preferred Stock
at below market rates would dilute the value of the outstanding securities of
the Company. The Company could also privately place such shares with
purchasers who might favor the Board of Directors in opposing a hostile
takeover bid, although the Company has no present intention to do so. The
Company does not currently have any plans, agreements, commitments or
understandings with respect to the issuance of additional shares of Preferred
Stock.
The Board of Directors of the Company believes that it is necessary for
the Company to permit additional shares of Preferred Stock to be issued by
the Board of Directors of the Company in the future, to the extent deemed
advisable by the Board.
The Certificate of Incorporation of the Delaware Holding Company is
attached to the Merger Agreement, a copy of which is attached to this Proxy
Statement as Appendix A. The Board of Directors has unanimously approved the
Merger Agreement for submission to the Company's stockholders.
The Merger Agreement provides for the issuance of Common Stock and
Preferred Stock of the Delaware Holding Company on a share-for-share basis to
the stockholders of the Company which will then become a wholly-owned
subsidiary of the Delaware Holding Company. The Company will continue to
operate under the name "CTC Communications Corp." as a Massachusetts
corporation. The officers and directors of the Delaware Holding Company will
initially be the same as the officers and directors of the Company.
Except as described below, stockholders of CTC Telecom Corp., as
stockholders of a Delaware corporation, will, in general, have the same
rights that they possess as stockholders of the Company, a Massachusetts
corporation, except for changes inherent in being incorporated in Delaware
rather than in Massachusetts. A summary of these changes, as they might
affect the stockholders, are discussed below in the section entitled
"Significant Changes Caused by the Reorganization."
In addition, in connection with the Reorganization, CTC Telecom Corp.
will adopt the Certificate of Incorporation (the "Certificate of
Incorporation") and Bylaws, attached as "Appendix B" and "Appendix C" to this
Proxy Statement. Approval of the Merger Agreement by the stockholders will
also constitute approval of the Certificate of Incorporation and Bylaws of
CTC Telecom Corp.
REASONS FOR THE REORGANIZATION
Predictability, Flexibility and Responsiveness to Corporate Needs.
Delaware has adopted comprehensive and flexible corporate laws which are
revised regularly to meet changing business circumstances. The Delaware
Legislature is particularly sensitive to issues regarding corporate law and
is especially responsive to developments in modern corporate law. In
addition, Delaware offers a system of specialized chancery courts to deal
with corporate law questions. These courts have developed considerable
expertise in dealing with corporate issues as well as a substantial and
influential body of case law construing Delaware's corporate law. In
addition, the Delaware Secretary of State is particularly flexible, expert
and responsive in its administration of the filings required for mergers,
acquisitions and other corporate transactions. Delaware has become a
preferred domicile for most major American corporations and Delaware law and
administrative practices have become comparatively well-known and widely
understood. As a result of these factors, it is anticipated that Delaware law
will provide greater efficiency, predictability and flexibility in the
Company's legal affairs than is presently available under Massachusetts law.
Directors and Officers. The Board believes that organizing a holding
company under Delaware law will enhance the Company's ability to attract and
retain qualified directors and officers. The law of Delaware offers greater
certainty and stability from the perspective of those who serve as corporate
officers and directors. The parameters of director and officer liability are
more extensively addressed in Delaware court decisions and are therefore
better defined and better understood than under Massachusetts law. The
intense competition that has characterized the telecommunications industry
has greatly expanded the challenges and risks facing the directors and
officers of companies within the telecommunications industry. To date, the
Company has not experienced difficulty in retaining directors or officers.
However, as a result of the significant potential liability and relatively
small compensation associated with service as a director, the Company
believes that the better understood, and comparatively stable corporate
environment afforded by Delaware will enable it to compete more effectively
with other public companies, most of which are incorporated in Delaware, in
the recruitment of talented and experienced directors and officers.
The Board believes that reincorporation in Delaware will continue to
provide appropriate protection for stockholders from possible abuses by
directors and officers. In this regard, it should be noted that directors'
personal liability is not, and cannot be, eliminated under Delaware law for
(i) any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) unlawful payment
of dividends or unlawful repurchases or redemptions of stock or (iv) any
transactions from which the director derived an improper personal benefit.
Takeover Response. The Company does not currently have in place
measures designed to protect stockholder interests in the event of a hostile
takeover attempt against the Company. The Company intends to consider such
measures in the future. Many of such measures have not been as fully tested
in the Massachusetts courts as in the Delaware courts. As a result, Delaware
law affords greater certainty that any such measures would be interpreted,
sustained and applied in accordance with the intentions of the Board. In
general, Delaware case law provides a well developed body of law defining the
proper duties and decision making process expected of a board of directors in
evaluating potential and proposed corporate takeover offers and business
combinations. The Board believes that such measures and related Delaware law
will help the Board to protect the Company's corporate strategies, to
consider fully any proposed takeover and alternatives, and, if appropriate,
to negotiate terms that maximize the benefit to the Company's stockholders.
REORGANIZATION PROCEDURE
The proposed Reorganization would be accomplished by merging CTC-Newco
into the Company, and the Company will become a wholly-owned Massachusetts
subsidiary of the newly organized CTC Telecom Corp. pursuant to the Merger
Agreement. The Merger will not result in any change in the Company's name,
state of incorporation, business, assets or liabilities, will not cause its
corporate headquarters to be moved and will not result in any relocation of
management or other employees.
On the effective date of the proposed Reorganization, each outstanding
share of Common Stock and Preferred Stock of the Company will automatically
convert into one share of Common Stock and one share of Preferred Stock,
respectively, of CTC Telecom, and stockholders of the Company will
automatically become stockholders of CTC Telecom. At the effective time of
the Reorganization, the number of outstanding shares of common stock and
preferred stock of CTC Telecom will be equal to the number of shares of
Common Stock and Preferred Stock of the Company outstanding immediately prior
to the effective time of the merger. In addition, each outstanding option or
right to acquire shares of Common Stock of the Company will be converted into
an option or right to acquire an equal number of shares of Common Stock of
CTC Telecom, under the same terms and conditions as the original options or
rights. All of the Company's employee benefit plans, including the 1993
Employee Stock Option Plan, the 1996 Employee Stock Option Plan, the Employee
Stock Purchase Plan, the Employee Stock Benefit Plan and the 401(k) Savings
Plan, and, upon approval of the stockholders, the 1998 Incentive Plan, will
be adopted and continued by CTC Telecom following the Reorganization. For a
description of the 1998 Incentive Plan see Proposal 3. The Company's
stockholders should recognize that approval of the proposed Reorganization
will constitute approval of the adoption and assumption of those plans by CTC
Telecom.
No action need be taken by the Company's stockholders to exchange their
stock certificates as a result of the Reorganization. Certificates for shares
of the Company's stock will automatically represent an equal number of shares
of CTC Telecom stock upon completion of the merger.
INTERESTS OF THE COMPANY'S DIRECTORS AND OFFICERS
The Company's stockholders should be aware that reincorporation in
Delaware may be of benefit to the Company's directors by reducing the
directors' potential personal liability and increasing the scope of permitted
indemnification, by strengthening the directors' ability to resist a takeover
bid, by limiting the ability of stockholders to remove directors, and in
other respects. The Reorganization is not intended to and will not affect the
rights of any of the parties to any of the lawsuits to which the Company is a
party. For a more complete discussion of the principal differences between
Massachusetts and Delaware law and the charters and bylaws of the Company and
CTC Telecom as they affect stockholders, see "Significant Changes Caused by
the Reorganization".
In considering the Reorganization proposal, the Company's stockholders
should be aware that the overall effect of the Reorganization may be to make
it more difficult for holders of a majority of the outstanding shares of the
Company's Common Stock to replace directors or to remove existing management
in circumstances where a majority of the stockholders may be dissatisfied
with the performance of the incumbent directors and management or otherwise
desire to make changes. In particular, the Reorganization could make a proxy
contest a less effective means of removing or replacing existing directors or
could make it more difficult to make a change in control of the Company which
is opposed by the Board. This in turn could enable the Board to resist the
desires of a majority of the stockholders. However, the Board believes that
the Company's directors will be committed to, and will act in, the interests
of the Company and its stockholders, and not for self-entrenchment.
SIGNIFICANT CHANGES CAUSED BY THE REORGANIZATION
In general, the Company's corporate affairs are governed at present by
the corporate law of Massachusetts, the Company's state of incorporation, and
by the Articles of Organization and By-Laws of the Company (the
"Massachusetts Articles" and the "Massachusetts Bylaws," respectively, and
the "Massachusetts Articles and Bylaws" collectively), which have been
adopted pursuant to Massachusetts law. The Massachusetts Articles and
Massachusetts Bylaws are available for inspection during business hours at
the principal executive offices of the Company. In addition, copies may be
obtained by writing to CTC Communications Corp., 360 Second Ave., Waltham,
Massachusetts, 02154. Attention: John D. Pittenger, Executive Vice President-
Finance and Administration, Treasurer and Clerk.
If the Merger Agreement is adopted and approved, CTC-Newco, the wholly-
owned subsidiary of CTC Telecom, will merge into the Company. Following the
Reorganization, issues of corporate governance and control would be
determined under Delaware rather than Massachusetts law. The Massachusetts
Articles and Bylaws, will, in effect, be replaced by the Certificate of
Incorporation and By-Laws of CTC Telecom (the "Delaware Certificate" and the
"Delaware Bylaws," respectively, and the "Delaware Certificate and Bylaws"
collectively). Accordingly, it is important for stockholders to understand
the differences among these documents and between Delaware and Massachusetts
law in deciding whether to approve the Reincorporation.
A number of differences between Massachusetts and Delaware law and among
the various charter documents of the Company and CTC Telecom are summarized
below. The following discussion summarizes the more important differences in
the corporation laws of Delaware and Massachusetts and does not purport to be
an exhaustive discussion of all of the differences. Such differences can only
be determined in full by reference to the Massachusetts General Laws
Annotated (the "MGLA") and to the Delaware General Corporation Law (the
"DGCL") and to the case law interpreting these statutes. In addition, both
Massachusetts and Delaware law provide that many of the statutory provisions
as they affect various rights of holders of shares may be modified by
provisions in the charter or bylaws of the corporation.
SPECIAL MEETING OF STOCKHOLDERS
The DGCL provides that special meetings of stockholders may be called
only by the directors or by any other person or persons as may be authorized
by the corporation's certificate of incorporation or bylaws. The Delaware
Bylaws provide that special meetings may be called at any time by the
Chairman of the Board of Directors, the Chief Executive Officer (or, if there
is not a Chief Executive Officer, the President) or the CTC Telecom board of
directors.
Under the MGLA, special meetings of stockholders of a corporation with a
class of voting stock registered under the Securities Exchange Act of 1934,
unless otherwise provided in the articles of organization or bylaws, must be
called by the Clerk (or, in certain circumstances, any other officer) upon
written application by stockholders who hold at least 40% in interest of the
capital stock entitled to vote thereon. The Massachusetts Bylaws provide that
special meetings of stockholders may be called by the President or by the
board of directors of the Company, and shall be called by the Clerk or, in
case of death, absence, incapacity or refusal of the Clerk, by any other
officer upon written application of stockholders who hold at least 40% in
interest of the capital stock entitled to be voted at the proposed meeting.
VOTING REQUIREMENTS AND QUORUMS FOR STOCKHOLDER MEETINGS
Under the DGCL, a majority of the issued and outstanding stock entitled
to vote at any meeting of stockholders shall constitute a quorum for the
transaction of business at such meeting, unless the certificate of
incorporation or bylaws specify a different percentage, but in no event may a
quorum consist of less than one-third of the shares entitled to vote at the
meeting. Under the DGCL, the affirmative vote of the majority of shares
present in person or represented by proxy at a duly held meeting at which a
quorum is present and entitled to vote on the subject matter is deemed to be
the act of the stockholders, unless the DGCL, the certificate of
incorporation or the bylaws specify a different voting requirement.
The Delaware Bylaws provide that, except as otherwise provided by law or
in the Delaware Certificate or Delaware Bylaws, the holders of a majority of
the issued and outstanding stock of CTC Telecom entitled to vote shall
constitute a quorum for the transaction of business. The Delaware Bylaws
provide that when a quorum is present, action on a matter is approved by the
affirmative vote of a majority of the total vote cast, unless the Delaware
Certificate, Delaware Bylaws or DGCL requires a higher percentage of
affirmative votes.
Under the MGLA, unless the articles of organization or bylaws provide
otherwise, a majority of the issued and outstanding stock entitled to vote at
any meeting constitutes a quorum. Except for the election of directors and
other fundamental matters, the MGLA does not prescribe the percentage vote
required for stockholder action.
Under the Massachusetts Bylaws, a majority of the shares of the Company
then outstanding and entitled to vote constitutes a quorum for the
transaction of business. The Massachusetts Bylaws provide, except where a
different vote is required by law, the Massachusetts Articles or the
Massachusetts Bylaws, all questions shall be determined by a vote of a
majority of each class voting. Generally, under Massachusetts law, the
affirmative vote of two-thirds of the shares of each class of stock
outstanding and entitled to vote or which would be adversely affected by a
merger or asset sale are necessary to approve a merger or a sale of all or
substantially all of the corporation's assets such as the Reorganization
proposals submitted for approval in this proxy statement.
BUSINESS CONDUCTED AT STOCKHOLDER MEETINGS
The Delaware Bylaws provide that at an annual meeting, subject to any
other applicable requirements, only such business may be conducted as has
been either specified in the notice of meeting, proposed at the time of the
meeting by or at the direction of the CTC Telecom board of directors, or
proposed at such time by a stockholder who had given timely prior written
notice to the Secretary of CTC Telecom of such stockholder's intention to
bring such business before the meeting. In all cases, to be timely, notice
must be received by CTC Telecom not less than sixty days nor more than ninety
days prior to the meeting (or if fewer than seventy days' notice or prior
public disclosure of the meeting date is given or made to stockholders, not
later than the tenth day following the day on which the notice of the date of
the meeting was mailed or such public disclosure was made, whichever first
occurs). The notice must contain certain information about such business and
the stockholder who proposes to bring the business before the meeting,
including a brief description of the business the stockholder proposes to
bring before the meeting, the name and address of the stockholder proposing
such business, the reasons for conducting the business at the meeting, the
class and number of shares of stock of CTC Telecom beneficially owned by such
stockholder, and any material interest of such stockholder in the business so
proposed. If the Chairman of a meeting of CTC Telecom stockholders determines
that business was not properly brought before the meeting in accordance with
the foregoing procedures, such business will not be conducted at the meeting.
Nothing in the Delaware Bylaws precludes discussion by any stockholder of any
business properly brought before the annual meeting in accordance with the
above-mentioned procedures.
The Massachusetts Bylaws contain the same provisions as the Delaware
Bylaws described above.
NOMINATION AND ELECTION OF DIRECTORS
The Delaware Bylaws provide that, except as otherwise provided by law,
directors are elected by the vote of the holders of a plurality of the shares
of stock present, in person or by proxy, at the meeting and entitled to vote.
Neither the Delaware Certificate nor the Delaware Bylaws allows cumulative
voting for the election of directors. The Delaware Bylaws provide that notice
of proposed stockholder nominations of candidates for election as directors
must be received by the Secretary of CTC Telecom not less than sixty days nor
more than ninety days prior to the meeting. In the event that less than
seventy days' notice or prior public disclosure of the date of the meeting is
given or made to stockholders, notice from the stockholder must be mailed or
delivered to the Secretary not later than the tenth day following the day on
which such notice of the date of the meeting was mailed or such public
disclosure was made, whichever occurs first. The notice must contain certain
information about the proposed nominee, including age, business and residence
addresses and principal occupation, the number of shares of stock of CTC
Telecom beneficially owned and such other information as would be required to
be included in a proxy statement soliciting proxies for the election of the
proposed nominee, and certain information about the stockholder proposing to
nominate that person. CTC Telecom may also require any proposed nominee to
furnish other information reasonably required by CTC Telecom to determine the
proposed nominee's eligibility to serve as a director. If the Chairman of a
meeting of CTC Telecom stockholders determines that a person was not
nominated in accordance with the foregoing procedures, such person shall not
be eligible for election as a director.
The Massachusetts Bylaws contain provisions substantially similar to the
provisions of the Delaware Bylaws described above.
INSPECTION RIGHTS
Under the DGCL, every stockholder has a right to examine, in person or
by agent or attorney, during the usual hours for business, and for any proper
purpose, the corporation's stock ledger, a list of its stockholders and its
other books and records, and to make copies or extracts therefrom. In order
to exercise the foregoing right, a stockholder must submit a written demand
to the corporation, under oath, stating the purpose of the inspection. Upon
refusal of the corporation (or its agent or an officer of the corporation) to
permit an inspection demanded by a stockholder, or of a failure to reply to a
stockholder's demand within five business days after such demand has been
made, a stockholder may apply to the Delaware Court of Chancery to compel the
inspection. Where a stockholder seeks to have the Chancery Court compel an
inspection of the corporation's books and records, other than its stock
ledger or list of stockholders, the stockholder must first establish that it
has complied with the formal requirements of making a demand for inspection
and that the inspection is for a proper purpose. For purposes of this
provision of the DGCL, a "proper purpose" is one that is reasonably related
to such person's interest as a stockholder. The Delaware Bylaws provide that
CTC Telecom shall prepare a complete list of stockholders entitled to vote at
a given meeting, at least ten days before such meeting. Such list shall be
open for examination by any stockholder for any purpose germane to the
relevant meeting, during ordinary business hours, for a period of at least
ten days prior to such meeting.
The MGLA requires that every domestic corporation maintain in
Massachusetts, and make available for inspection by its stockholders, the
original, or attested copies of, the corporation's articles of organization,
bylaws, records of all meetings of incorporators and stockholders, and the
stock and transfer records listing the names of all stockholders and their
record addresses and the amount of stock held by each. The MGLA further
provides that if any officer or agent of a corporation having charge of such
corporate records (or copies thereof) refuses or neglects to exhibit them in
legible form or to produce for examination a list of stockholder names,
record addresses and amount of stock held by each, such officer or agent or
the corporation will be liable to any stockholder for actual damages
sustained by reason of such refusal or neglect. In an action for damages or a
proceeding in equity under the foregoing provision, however, it is a defense
to such action that the actual purpose and reason for the inspection being
sought is to secure a list of stockholders or other information for the
purpose of selling the list or other information or of using them for
purposes other than in the interest of the person seeking them, as a
stockholder, relative to the affairs of the corporation. The foregoing rights
relating to inspection are deemed to include the right to copy materials and
to be represented by agent or counsel in exercising these rights. In addition
to the rights of inspection provided by the MGLA, a stockholder of a
Massachusetts corporation has a common law right to inspect additional
documents which, if such request is refused by the corporation, may be
obtained by petitioning a court for the appropriate order. In petitioning a
court for such an order, the granting of which is discretionary, the
stockholder has the burden of demonstrating (i) that such holder is acting in
good faith and for the purposes of advancing the interests of the corporation
and protecting such holder's own interest as a stockholder and (ii) that the
requested documents are relevant to those purposes.
ACTION BY CONSENT OF STOCKHOLDERS
Under the DGCL and the Delaware Certificate, any action required or
permitted to be taken by stockholders at any annual or special meeting may be
taken without a meeting and without prior notice, if the stockholders having
the number of votes that would be necessary to take such action at a meeting
at which all stockholders were present and voted, consent to the action in
writing and the written consents are filed with the records of the meetings
of stockholders. All such consents must, in order to be effective, be signed
and delivered to the corporation within sixty days after the earliest dated
consent is delivered to the corporation.
Under the MGLA, any action required or permitted to be taken by
stockholders at a meeting may be taken without a meeting if all stockholders
entitled to vote on the matter consent to the action in writing and the
written consents are filed with the records of the meetings of stockholders.
The Massachusetts Bylaws provide that any action by stockholders may be taken
without a meeting if all stockholders entitled to vote on the matter consent
to the action by writing.
DIVIDENDS AND STOCK REPURCHASES
Under the DGCL, a corporation generally is permitted to declare and pay
dividends out of surplus or out of net profits for the current and/or
preceding fiscal year, provided that the capital of the corporation is not
less than the aggregate amount of capital represented by the issued and
outstanding stock of all classes having a preference upon the distribution of
assets. In addition, under the DGCL a corporation may generally redeem or
repurchase shares of its stock if the capital of the corporation is not
impaired and if such redemption or repurchase will not impair the capital of
the corporation. Under the DGCL, the directors of a corporation are jointly
and severally liable for negligently or willfully making improper dividend
payments, stock repurchases or redemptions. Directors held to be liable
pursuant to this provision of the DGCL are entitled to be subrogated to the
rights of the corporation against stockholders receiving dividends on, or
assets for the sale or redemption of, their stock with knowledge that such
dividend, repurchase or redemption was unlawful.
The Delaware Certificate provides that dividends may be declared and
paid on the CTC Telecom Common Stock from funds lawfully available therefor
as and when determined by the CTC Telecom board of directors and subject to
any preferential dividend rights of any then outstanding Preferred Stock.
Under the MGLA, the directors of a corporation will be jointly and
severally liable if a payment of dividends or a repurchase of a corporation's
stock is (i) made when the corporation is insolvent, (ii) renders the
corporation insolvent or (iii) violates the corporation's articles of
organization. Stockholders to whom a corporation makes any distribution
(except a distribution of stock of the corporation) if the corporation is, or
is thereby rendered, insolvent, are liable to the corporation for the amount
of such distribution made, or for the amount of such distribution which
exceeds that which could have been made without rendering the corporation
insolvent, but in either event only to the extent of the amount paid or
distributed to them, respectively. In such event, a stockholder who pays more
than such holder's proportionate share of such distribution or excess shall
have a claim for contribution against the other stockholders.
CLASSIFICATION, NUMBER AND QUALIFICATION OF THE BOARD OF DIRECTORS
The DGCL permits (but does not require) classification of a
corporation's board of directors into one, two or three classes. Under the
DGCL, the number of directors shall be fixed or determined in the manner the
bylaws provide, unless the corporation's certificate of incorporation fixes
the number of directors, in which case the number of directors may only be
changed by amending the certificate of incorporation. The Delaware
Certificate and Bylaws provide for the classification of the CTC Telecom
board of directors into three classes, with the terms of the classes
staggered so that only one class is elected each year, in each case for a
three-year term or until a successor to each director in each such class is
duly elected and qualified. The classification of CTC Telecom's Board is
substantially similar to the classfication provided in the Massachusetts
ByLaws.
The MGLA requires classification of a public corporation's board of
directors into three classes (each having a three-year term) and imposes
certain other obligations, unless the directors of such public corporation
elect by vote to be exempt from such requirement or the stockholders of such
public corporation, at a meeting duly called for such purpose, elect to be
exempt from such requirement by a vote of two-thirds of each class of stock
outstanding. The Massachusetts Articles and Bylaws provide for the
classification of the Company's board of directors into three classes, as
nearly equal in number as possible, with the terms of the classes staggered
so that only one class is elected each year, in each case for a three-year
term or until a successor to each director in each such class is duly elected
and qualified.
The MGLA requires that the number of directors be fixed or determined
in the corporation's bylaws but shall not be less than three directors
whenever there are more than two stockholders of record. The Massachusetts
Bylaws provide that the number of directors of the Company shall consist of
at least three but not more than eleven members. The Massachusetts Bylaws
provide that the number of directors may be increased or decreased by the
affirmative vote of a majority of the directors then in office.
Neither the Massachusetts Articles nor the Massachusetts Bylaws set forth
specific qualification requirements for directors.
REMOVAL OF DIRECTORS
Under the DGCL and Delaware Certificate, stockholders may generally
remove directors with or without cause by a majority vote; however,
stockholders may remove members of a classified board only for cause, unless
the certificate of incorporation provides otherwise.
The Massachusetts Bylaws provide that a director may be removed from
office at any time, but only for cause and only by either the vote of not
less than a majority of the holders of the shares then entitled to vote or by
the vote of a majority of the directors then in office.
VACANCIES ON THE BOARD OF DIRECTORS
Under the DGCL, unless otherwise provided in the certificate of
incorporation or bylaws, vacancies on the board of directors and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by the vote of a majority of directors then in
office, even though less than a quorum. The DGCL also provides that where
directors are elected by classes or series of stock, vacancies are to be
filled by the remaining directors elected by the class or series in whose
directorships the vacancy occurs. The Delaware Certificate and Bylaws provide
that newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the CTC Telecom board of
directors for any other reason may be filled only by a majority vote of the
directors then in office, although less than a quorum, or by a sole remaining
director. A director elected to fill a vacancy shall be elected to hold
office until the next election of the class for which such director shall
have been chosen, subject to the election and qualification of his or her
successor and to his or her earlier death, resignation or removal.
The MGLA provides that in the case of a classified board (such as the
Company's), any vacancy in the board of directors, including a vacancy
resulting from the enlargement of the board of directors, shall be filled
solely by the affirmative vote of a majority of the directors then in office,
even though less than a quorum. The Massachusetts Bylaws also provide that
newly created directorships resulting from any increase in the number of
directors shall be filled by the Company's board of directors or if not so
filled by the stockholders at the next annual meeting or at a special meeting
called for that purpose.
EXCULPATION OF DIRECTORS
The DGCL permits a corporation to provide in its certificate of
incorporation that a director shall not be personally liable for monetary
damages stemming from breaches of fiduciary duties. Under the DGCL, a charter
provision limiting directorial liability cannot relieve a director of
personal liability for (i) any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
unlawful payment of dividends or unlawful repurchases or redemptions of stock
or (iv) any transactions from which the director derived an improper personal
benefit.
In Massachusetts, a corporation's articles of organization may limit the
personal liability of its directors for breaches of their fiduciary duties.
Under the MGLA, this limitation is generally unavailable for acts or omission
by a director which (i) were in violation of such director's duty of loyalty
to the corporation or its stockholders, (ii) were not in good faith or which
involved intentional misconduct or a knowing violation of law or (iii)
involved a financial profit or other advantage to which the director was not
legally entitled. The MGLA also prohibits the elimination or limitation of
director liability for unauthorized loans to insiders or distributions that
occur when a corporation is, or which renders a corporation, insolvent.
The Delaware Certificate and the Massachusetts Articles provide for
limitations on directors' liability as permitted by the DGCL and the MGLA,
respectively.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
Both the DGCL and the MGLA generally permit indemnification of
directors, officers, employees and certain others for expenses incurred by
them by reason of their position with the corporation, if such person has
acted in good faith and with the reasonable belief that his or her conduct
was in or not opposed to the best interest of the corporation. However,
unlike the MGLA, the DGCL does not permit a corporation to indemnify persons
against judgments in actions brought by or in the right of the corporation
(although it does permit indemnification in such situations if approved by
the Delaware Court of Chancery) and for expenses related to such actions.
The Delaware Certificate provides that no director shall be personally
liable for any monetary damages for any breach of fiduciary duty as a
director to the maximum extent permitted under Delaware law. The Delaware
Certificate also provides that CTC Telecom shall indemnify any director or
officer of CTC Telecom (i) against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement incurred in connection with
any litigation or other legal proceeding (other than an action by or in the
right of CTC Telecom) brought against him by virtue of his position as a
director or officer of CTC Telecom if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of CTC
Telecom, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (ii) against all
expenses (including attorneys' fees) and amounts paid in settlement incurred
in connection with any action by or in the right of CTC Telecom brought
against him by virtue of his position as a director or officer of CTC Telecom
if he acted in good faith and in a manner he reasonably believed to be in, or
not opposed to, the best interest of CTC Telecom, except that no
indemnification shall be made with respect to any matter as to which such
person shall have been adjudged to be liable to CTC Telecom, unless a court
determines that he is entitled to indemnification of such expenses.
Notwithstanding the foregoing, to the extent that a director or officer has
been successful, on the merits or otherwise, including the dismissal of an
action without prejudice, he is required to be indemnified by CTC Telecom
against all expenses (including attorneys' fees) incurred in connection
therewith. Indemnification is required to be made unless CTC Telecom
determines that the applicable standard of conduct required for
indemnification has not been met. In the event of a determination by CTC
Telecom that the director or officer did not meet the applicable standard of
conduct required for indemnification, or if CTC Telecom fails to make an
indemnification payment within sixty days after such payment is claimed by
such person, such person is permitted to petition the court to make an
independent determination as to whether such person is entitled to
indemnification. As a condition precedent to the right of indemnification,
the director or officer must give CTC Telecom notice of the action for which
indemnity is sought and CTC Telecom has the right to participate in such
action or assume the defense thereof. The Delaware Certificate further
provides that, in the event that Delaware law is amended to expand the
indemnification permitted to directors or officers, CTC Telecom must
indemnify those persons to the fullest extent permitted by such law as so
amended.
The Massachusetts Bylaws provide that the Company shall, to the fullest
extent legally permissible, indemnify each of its directors and officers
(including persons who were acting at its request as directors, trustees or
officers of another organization), against all expenses and liabilities
(including attorneys' fees, judgments, court costs, and the costs of
reasonable settlement) reasonably incurred by such person in connection
therewith; provided, however, no such indemnification shall be made in
relation to matters as to which such director or officer shall be finally
adjudged in any such action, suit or proceeding not to have acted in good
faith in the reasonable belief that his action was in the best interests of
the Company. In the event that a settlement or compromise of such action,
suit or proceeding is effected, indemnification may be had but only if the
Board of Directors shall have been furnished with an opinion of counsel for
the Company to the effect that such settlement or compromise is in the best
interest of the Company and that such director or officer does not appear not
to have acted in good faith in the reasonable belief that his action was in
the best interests of the Company, and if the Board of Directors shall have
adopted a resolution approving such settlement or compromise.
TRANSACTIONS WITH INTERESTED PARTIES
The DGCL provides that no transaction between a corporation and one or
more of its directors or officers, or an entity in which one or more of its
directors or officers are directors or officers or have a financial or other
interest, shall be void or voidable solely for that reason, nor will such a
transaction be void or voidable solely because the director or officer is
present at or votes at the meeting of the board of directors or committee
which authorizes the transaction or solely because his or her votes are
counted for such purpose, provided that (i) the material facts as to the
relationship or interest and as to the transaction are disclosed or are known
to the board of directors or a committee thereof and the board or committee
authorizes the transaction by the affirmative vote of a majority of the
disinterested directors even though the disinterested directors number less
than a quorum, (ii) the material facts as to the interested director's or
officer's relationship or interest and as to the transaction are disclosed or
are known to the stockholders entitled to vote thereon and the transaction is
specifically approved in good faith by vote of those stockholders or (iii)
the transaction is fair as to the corporation as of the time it is
authorized, approved or ratified by the board of directors or committee or
the stockholders. The DGCL permits common or interested directors to be
counted in determining the presence of a quorum at a meeting of the board or
of a committee that authorizes an interested director or officer transaction.
The Delaware Bylaws contain a provision regarding transactions with
interested parties which substantially tracks the provisions of the DGCL
summarized above.
The MGLA contains no provision comparable to that of the DGCL. The MGLA
only expressly provides that directors who vote for and officers who
knowingly participate in loans to officers or directors are jointly and
severally liable to the corporation for any part of the loan which is not
repaid, unless (i) a majority of the directors who are not direct or indirect
recipients of such loans, or (ii) the holders of a majority of the shares
entitled to vote for such directors, have approved or ratified the loan as
one which in the judgment of such directors or shareholders, as the case may
be, may reasonably be expected to benefit the corporation.
FUNDAMENTAL TRANSACTIONS
The DGCL generally requires that mergers and consolidations, and sales,
leases or exchanges of all or substantially all of a corporation's property
and assets, be approved both by the directors and by a vote of the holders of
a majority of the outstanding stock entitled to vote, though a corporation's
certificate of incorporation may require a greater-than-majority vote. Under
the DGCL, a corporation that is the surviving corporation in a merger need
not have stockholder approval for the merger if (i) each share of the
surviving corporation's stock outstanding prior to the merger remains
outstanding in identical form after the merger, (ii) there is no amendment to
its certificate of incorporation and (iii) the consideration going to
stockholders of the non-surviving corporation is not common stock (or
securities convertible into common stock) of the surviving corporation or, if
it is such stock or securities convertible into such stock, the aggregate
number of shares of common stock actually issued or delivered, or initially
issuable upon conversion, does not exceed twenty percent of the shares of the
surviving corporation's common stock outstanding immediately prior to the
effective date of the merger. The Delaware Certificate does not provide
anything different from the DGCL requirements.
The MGLA generally requires approval of mergers and consolidations and
sales, mortgages, leases or exchanges of all or substantially all of a
corporation's property by a vote of two-thirds of the shares of each class of
stock outstanding and entitled to vote thereon, except that (i) the articles
of organization may provide (which the Massachusetts Articles do not) for a
vote of a lesser proportion but not less than a majority of each such class
and (ii) unless required by the corporation's articles of incorporation
(which the Massachusetts Articles do not), an agreement providing for a
merger need not be submitted to the stockholders of a corporation surviving a
merger but may be approved by vote of its directors if (a) the agreement of
merger does not change the name, the amount of shares authorized of any class
of stock or other provisions of the articles of organization of such
corporation, (b) the authorized unissued shares or shares held in the
treasury of such corporation of any class of stock of such corporation to be
issued or delivered pursuant to the agreement of merger do not exceed 15% of
the shares of such corporation of the same class outstanding immediately
prior to the effective date of the merger, and (c) the issue by vote of the
directors of any unissued stock to be issued pursuant to the agreement of
merger has been authorized in accordance with the provision of the MGLA
governing the issue of authorized but unissued capital stock.
ANTITAKEOVER LEGISLATION
The Company is subject to the provisions of Chapter 110F of the MGLA, an
antitakeover law. In general, this statute prohibits a Massachusetts
corporation with more than 200 stockholders of record from engaging in a
"business combination" with "interested stockholders" for a period of three
years after the date of the transaction in which the person becomes an
interested stockholder, unless (i) the interested stockholder obtains the
approval of the board of directors prior to becoming an interested
stockholder, (ii) the interested stockholder acquires ninety percent of the
outstanding voting stock of the corporation (excluding shares held by certain
affiliates of the corporation) at the time the stockholder becomes an
interested stockholder, or (iii) the business combination is approved by both
the board of directors and holders of two-thirds of the outstanding voting
stock of the corporation (excluding shares held by the interested
stockholder). An "interested stockholder" is a person who, together with
affiliates and associates, owns (or at any time within the prior three years
did own) five percent or more of the corporation's voting stock. A "business
combination" includes a merger, consolidation, certain stock or asset sales,
and certain other specified transactions resulting in a financial benefit to
the interested stockholder. The Company may at any time elect not to be
governed by Chapter 110F by amending its Restated Articles of Organization or
By-Laws, but such an amendment would not be effective for twelve months and
would not apply to a business combination with any person who became an
interested stockholder prior to the adoption of the amendment.
DGCL Section 203 regulates tender offers by restricting permitted
business combinations with "interested stockholders," which provision is
intended to limit coercive takeovers of companies. Under that section,
certain "business combinations" with "interested stockholders" of Delaware
corporations are subject to a three year moratorium unless specified
conditions are met.
MGLA Chapter 110D, entitled "Regulation of Control Shares Acquisitions,"
provides, in general, that any stockholder of a corporation subject to this
statute who acquires twenty percent or more of the outstanding voting stock
of such corporation may not vote such stock unless the other stockholders of
such corporation so authorize. The Company has elected to "opt out" of MGLA
Chapter 110D in its Massachusetts Bylaws.
MGLA Chapter 156B, Section 50A, requires that publicly held
Massachusetts corporations that have not "opted out" of Section 50A have a
classified board of directors consisting of three classes as nearly equal in
size as possible. Section 50A also provides that directors who are so
classified shall be subject to removal by the stockholders only for cause.
The Company's Amended and Restated By-Laws contain provisions which reflect
Section 50A.
ANTI-TAKEOVER MEASURES
The Board believes that a hostile takeover attempt may have a negative
effect on the Company and its stockholders. Takeover attempts that have not
been negotiated or approved by the board of a corporation can seriously
disrupt the business and management of a corporation and generally present
the risk of terms which are less favorable to all of the stockholders than
would be available in a negotiated, board-approved transaction. By contrast,
board-approved transactions can be carefully planned and undertaken at an
opportune time in order to obtain maximum value for the corporation and all
of its stockholders, with due consideration to matters such as capturing the
value from longer term strategies, the recognition or postponement of gain or
loss for tax purposes and the management and business of the acquiring
corporation.
The Massachusetts Articles and Bylaws already include certain provisions
available to the Company under Massachusetts law to deter hostile takeover
attempts and to help provide adequate opportunity for the Board to consider
and respond to a takeover offer. These provisions include a classified board,
elimination of cumulative voting, and an advance notice requirement for
stockholder proposals. These provisions will also be included in the Delaware
Certificate and Bylaws following the Reorganization.
CTC Telecom will also retain the rights currently available to the
Company under Massachusetts law to issue shares of its authorized but
unissued capital stock. Following the effectiveness of the proposed
Reorganization, shares of authorized and unissued common stock and preferred
stock of CTC Telecom could (within the limits imposed by applicable law) be
issued, or preferred stock could be created and issued with terms, provisions
and rights, to make more difficult, and therefore less likely, a takeover of
CTC Telecom. Any such issuance of additional stock could have the effect of
diluting the earnings per share and book value per share of existing shares
of Common Stock and Preferred Stock, and such additional shares could be used
to dilute the stock ownership of persons seeking to obtain control of CTC
Telecom.
In addition to specific anti-takeover measures, a number of differences
between Massachusetts and Delaware law, which are effective without action by
CTC Telecom, could have a bearing on unapproved takeover attempts. One such
difference is the existence of a DGCL provision regulating tender offers by
restricting permitted business combinations with "interested stockholders,"
which provision is intended to limit coercive takeovers of companies. See
"Antitakeover Legislation" above. Any corporation may decide to opt out of
the statute in its original certificate of incorporation or, at anytime, by
action of its stockholders. The Company has no present intention of opting
out of the statute. The MGLA has a comparable provision which prohibits a
Massachusetts corporation from engaging in a business combination with an
interested stockholder (a person owning 5% or more of the outstanding voting
stock) for three years following the date on which the person becomes an
interested stockholder.
Delaware law may permit a corporation greater flexibility in governing
its internal affairs and its relationships with stockholders and other
parties, including various anti-takeover measures, than do the laws of many
other states, including Massachusetts. In addition to the measures described
above, certain types of "poison pill" defenses (such as stockholder rights
plans) have been upheld by Delaware courts, but have not yet been
dispositively addressed by Massachusetts courts, thus rendering their
effectiveness and interpretation in Massachusetts less certain.
The Board recognizes that hostile takeover attempts do not always have
the unfavorable consequences or effects described above and may frequently be
beneficial to the stockholders, providing all of the stockholders with
considerable value for their shares. To the extent that the Reorganization
may provide greater deterrence to takeover offers and greater defenses
against takeovers, the Reorganization may have the effect of discouraging or
defeating future takeover attempts which a substantial number or majority of
CTC Telecom's stockholders might wish to accept and which might provide a
substantial premium over market prices. However, the Board believes that the
potential suddenness and disadvantages of unapproved takeover attempts (such
as disruption of the Company's business and the possibility of terms which
may be less favorable to all of the stockholders than would be available in a
board-approved transaction) are sufficiently great that, on balance, prudent
steps to reduce the likelihood of such takeover attempts and to help ensure
that the Board has adequate opportunity to fully consider and respond to any
takeover attempt and actively negotiate its terms, are in the best interests
of the Company and its stockholders. The Board also believes that any
additional defenses and deterrence provided by the Reorganization are
incremental in light of the Company's existing takeover defenses.
CHARTER AMENDMENTS
Under the DGCL, charter amendments require the approval of the board of
directors and both a general vote of a majority of all outstanding shares
entitled to vote thereon, and a class vote of a majority of outstanding
shares of each class entitled to vote as a class. In addition, the DGCL
requires a class vote when, among other things, an amendment will adversely
affect the powers, preferences or special rights of a particular class of
stock. Under the DGCL, a provision in a corporation's certificate of
incorporation requiring a supermajority vote of the Board of Directors or
stockholders may be amended only by such supermajority vote.
Under the MGLA, a majority vote of each class of stock outstanding and
entitled to vote thereon is required to authorize an amendment of the
articles of organization effecting one or more of the following: (i) an
increase or reduction of the capital stock of any authorized class; (ii) a
change in the par value of authorized shares with par value, or any class
thereof; (iii) a change of authorized shares (or any class thereof) from
shares with par value to shares without par value, or from shares without par
value to shares with par value; (iv) certain changes in the number of
authorized shares (or any class thereof); or (v) a corporate name change.
Subject to certain conditions, a two-thirds vote of each class of stock
outstanding and entitled to vote thereon is required to authorize any other
amendment of the articles of organization, or, if the articles of
organization so provide for a vote of a lesser proportion but not less than a
majority of each class of stock outstanding and entitled to vote thereon. If
any amendment requiring a two-thirds vote would adversely affect the rights
of any class or series of stock a two-thirds vote of such class voting
separately, or a two-thirds vote of such series, voting together with any
other series of the same class adversely affected in the same manner, is also
necessary to authorize such amendment.
AMENDMENTS TO BYLAWS
Under the DGCL, the power to adopt, amend or repeal bylaws lies in the
stockholders entitled to vote; provided, however, that any corporation may,
in its certificate of incorporation, confer the power to adopt, amend or
repeal bylaws upon the directors.
The Delaware Bylaws grant the CTC Telecom board of directors the
authority to amend or repeal the Delaware Bylaws by the affirmative vote of a
majority of the directors present at any regular or special meeting of the
CTC Telecom board of directors at which a quorum is present. The stockholders
may amend or repeal the Delaware Bylaws by the affirmative vote of the
holders of a majority of the outstanding shares of capital stock of CTC
Telecom entitled to vote at a meeting of the stockholders, provided the
notice of such meeting sent to stockholders contained notice of such
amendment or repeal. The affirmative vote of the holders of at least 75% of
the outstanding shares of capital stock of CTC Telecom entitled to vote is
required to amend or repeal provisions (or adopt any inconsistent provision)
of the Delaware Bylaws relating to special meetings of stockholders,
nomination of directors, notice of business at annual meetings, stockholder
action without meetings, organization of stockholder meetings, amendment of
the Bylaws and any provisions relating to the election, powers, meetings and
removal of directors.
Under the MGLA, the power to make, amend or repeal bylaws also lies in
the stockholders entitled to vote; provided, that the directors may also
make, amend or repeal the bylaws, except with respect to any provision which
by applicable law, the articles of organization, or the bylaws requires
action by the stockholders.
The Massachusetts Articles provide that the Company's board of directors
may amend or repeal the Massachusetts Bylaws, except as provided by law or
the Massachusetts Bylaws. The Massachusetts Bylaws provide that the
Massachusetts Bylaws may be amended or repealed by either the stockholders or
a majority of the directors then in office, except that no amendment may be
made by the board of directors on matters reserved to the stockholders by law
or the Massachusetts Articles or which changes the provisions of the
Massachusetts Bylaws relating to meetings of stockholders, removal of
directors, or the election of committees by directors and the delegation of
powers thereto.
APPRAISAL RIGHTS
Under the DGCL, appraisal rights are available to dissenting
stockholders in connection with a statutory merger or consolidation in
certain specified situations. Appraisal rights are not available under the
DGCL when a corporation is to be the surviving corporation and no vote of its
stockholders is required in order to approve the merger. In addition, unless
otherwise provided in a corporation's charter, no appraisal rights are
available under the DGCL to holders of shares of any class of stock which is
either (i) listed on a national securities exchange or designated as a
national market system security on an inter-dealer quotation system by the
National Association of Securities Dealers, Inc. or (ii) held of record by
more than 2,000 stockholders, unless such stockholders (in (i) or (ii)) are
required by the terms of the merger to accept in exchange for their shares
anything other than: (a) shares of stock of the surviving corporation; (b)
shares of stock of another corporation which are or will be listed on a
national securities exchange or designated as a national market system
security on an inter-dealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 stockholders;
(c) cash in lieu of fractional shares of such stock; or (d) any combination
thereof. Appraisal rights are not available under the DGCL in the event of
the sale, lease or exchange of all or substantially all of a corporation's
assets or the adoption of an amendment to its certificate of incorporation,
unless such rights are granted in the certificate of incorporation. The
Delaware Certificate does not grant such rights.
Under the MGLA, a properly dissenting stockholder is entitled to receive
the appraised value of his shares when the corporation votes (i) to sell,
lease or exchange all or substantially all of its property and assets, (ii)
to adopt an amendment to its articles of organization which adversely affects
the rights of the stockholder, or (iii) to merge or consolidate with another
corporation, unless a vote of the stockholders was not required to approve
such merger or consolidation. See "Dissenters' Rights of Appraisal for a more
detailed description of those rights.
DISADVANTAGES OF REINCORPORATION IN DELAWARE
Despite the belief of the Board of Directors of the Company as to the
benefits or advantages of reincorporation in Delaware, some stockholders may
find the Reorganization disadvantageous for several reasons. As discussed
above, Delaware law, unlike Massachusetts law, contains a statutory provision
intended to discourage certain takeover attempts of Delaware corporations
which are not approved by the Board of Directors. This anti-takeover
provision could have the effect of lessening the possibility that
stockholders of CTC Telecom would be able to receive a premium above market
value for their shares in the event of a takeover. This provision could
also have an adverse effect on the market value of the shares of CTC Telecom
Stock. To the extent that this provision may restrict or discourage takeover
attempts, it may render less likely a takeover opposed by the Company's Board
of Directors and may make removal of the Board of Directors or management
less likely as well.
As discussed above, the Certificate of Incorporation of CTC Telecom
will contain a provision limiting director liability under certain
circumstances and the Bylaws of CTC Telecom will contain provisions relating
to indemnification of directors and officers. The inclusion of these
provisions could operate to the potential disadvantage of the stockholders of
CTC Telecom. For example, their inclusion may have the effect of reducing
the likelihood of CTC Telecom's recovering monetary damages from directors as
a result of derivative litigation against directors for breach of their duty
of care, even though such an action, if successful, might otherwise have
benefitted CTC Telecom and its stockholders. In addition, if the
Reorganization is effected and the limitation on liability provision is part
of the Certificate of Incorporation of CTC Telecom, the stockholders of CTC
Telecom will forego potential causes of action for breach of duty of care
involving grossly negligent business decisions, including those relating to
attempts to change control of CTC Telecom.
The proposed Certificate of Incorporation authorizes the issuance of up
to ________ shares of preferred stock by the Board of Directors, without any
further vote or action by the Company's stockholders, in one or more series
and authorizes the Board of Directors to determine the designations, powers,
preferences and relative, participating, optional or other rights thereof,
including without limitation, the dividend rate (and whether dividends are
cumulative), conversion rights, voting rights, rights and terms of
redemption, redemption price and liquidation preference. Although the Company
has no current plans to issue any additional shares preferred stock, the
rights of the holders of shares of Common Stock would be subject to, and may
be adversely affected by, the rights of the holders of any preferred stock
that may be issued in the future. Issuance of preferred stock could have the
effect of delaying, deterring or preventing a change in control of the
Company, including the imposition of various procedural and other
requirements that could make it more difficult for holders of Common Stock to
effect certain corporate actions, including the ability to replace incumbent
directors and to accomplish transactions opposed by the incumbent Board of
Directors.
The Board of Directors may in the future seek stockholder approval of
any amendments to, or make changes in, the Company's charter documents that
may be deemed to have "anti-takeover" implications.
FEDERAL INCOME TAX CONSEQUENCES
The following description of federal income tax consequences is based
on the Internal Revenue Code of 1986, as amended (the "Code"), and applicable
Treasury regulations promulgated thereunder, judicial authority and current
administrative rulings and practices as in effect on the date of this Proxy
Statement. This discussion should not be considered tax or investment
advice, and the tax consequences may not be the same for all stockholders.
IN PARTICULAR, THIS DISCUSSION DOES NOT ADDRESS THE TAX TREATMENT OF SPECIAL
CLASSES OF STOCKHOLDERS, SUCH AS BANKS, INSURANCE COMPANIES, TAX-EXEMPT
ENTITIES AND FOREIGN PERSONS. STOCKHOLDERS DESIRING TO KNOW THEIR INDIVIDUAL
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES SHOULD CONSULT THEIR OWN
TAX ADVISORS.
The Reorganization is intended to qualify as a tax-free reorganization
under Section 368(a)(1)(F) or 368(a)(1)(A) of the Code. Assuming such tax
treatment, no taxable income, gain, or loss will be recognized by the Company
or the stockholders as a result of the exchange of shares of Common Stock for
shares of CTC Telecom Stock upon consummation of the transaction.
The combination and change of each share of the Company's Common Stock
into one share of CTC Telecom Stock will be a tax-free transaction, and the
holding period and tax basis of Common Stock will be carried over to a
portion of CTC Telecom Stock received in exchange therefor.
SECURITIES ACT CONSEQUENCES
After the Reorganization, CTC Telecom will be a publicly-held company,
CTC Telecom Stock will be listed for trading in the Nasdaq National Market
under the symbol "CPTL" and CTC Telecom will file periodic reports and other
documents with the Commission and provide to its stockholders the same types
of information that the Company has previously filed and provided.
Stockholders whose Common Stock is freely tradeable before the Reorganization
will have freely tradeable shares of CTC Telecom Stock. Stockholders holding
restricted shares of Common Stock will have shares of CTC Telecom Stock
which are subject to the same restrictions on transfer as those to which
their present shares of Common Stock are subject, and their stock
certificates, if surrendered for replacement certificates representing shares
of CTC Telecom Stock, will bear the same restrictive legend as appears on
their present stock certificates. For purposes of computing compliance with
the holding period requirement of Rule 144 under the 1933 Act, stockholders
will be deemed to have acquired their shares of CTC Telecom Stock on the date
they acquired their shares of Common Stock of the Company. In summary, CTC
Telecom and its stockholders will be in the same respective positions under
the federal securities laws after the Reorganization as were the Company and
the stockholders prior to the Reorganization.
DISSENTERS' RIGHTS OF APPRAISAL
The following summary of the rights of dissenting shareholders is qualified
in its entirety by reference to the provisions of Sections 86 through 98,
inclusive, of Chapter 156B of the General Laws of Massachusetts, a copy of
which is attached hereto as Appendix D.
Any shareholder (1) who files with the Company before the taking of the
vote on the approval of the Reorganization Proposal (the "Proposal") written
objection to the proposed action stating that he intends to demand payment
for his shares if the action is taken, and (2) whose shares are not voted in
favor of such action, has or may have the right to demand in writing from CTC
Telecom within 20 days after the date of mailing to him of notice in writing
that the corporate action has become effective, payment for his shares and an
appraisal of the value thereof. CTC Telecom and any such shareholder shall in
such case have the rights and duties and shall follow the procedure set forth
in Sections 88 to 98, inclusive, of Chapter 156B of the General Laws of
Massachusetts.
A shareholder intending to exercise his dissenter's right to receive
payment for his shares must file with the Company written objection to the
Proposal before the taking of the vote by the shareholders on such Proposal
and must not vote in favor of the Proposal at the Annual Meeting. A
shareholder's failure to vote against a Proposal will not constitute a waiver
of his appraisal rights with respect to such Proposal, provided that such
shareholder does not vote in favor of such Proposal; and provided, further,
that a vote against the Proposal without the filing of a written objection
with the Company as described above will not be deemed to satisfy notice
requirements under Massachusetts law with respect to appraisal rights. The
written objection must state that he intends to demand payment for his shares
if the Proposal is consummated. Within 10 days after the Reorganization
becomes effective, CTC Telecom will give written notice of the effectiveness
by registered or certified mail to each shareholder who filed a written
objection and who did not vote in favor of such Proposal. Within 20 days
after the mailing of that notice, any shareholder to whom CTC Telecom was
required to give that notice may make written demand for payment for his
shares from CTC Telecom and CTC Telecom will be required to pay to him the
fair market value of his shares within 30 days after the expiration of the
20-day period.
If during the 30-day period CTC Telecom and the dissenting shareholder do
not agree as to the fair value of the shares, CTC Telecom or the shareholder
may, within four months after the end of the 30-day period, have the fair
value of stock of all dissenting shareholders determined by judicial
proceedings by filing a bill in equity in the Superior Court in Middlesex
County, Massachusetts. For the purposes of the Superior Court's
determination, the value of the shares of the Company would be determined as
of the date preceding the date of the vote of the shareholders approving the
Proposal and would be exclusive of any element of value arising from the
expectation or accomplishment of the Reorganization. Upon making written
demand for payment, the dissenting shareholder will not thereafter be
entitled to notices of meetings of shareholders, to vote, or to dividends
unless (i) no suit is filed within four months to determine the value of the
stock, (ii) any suit is dismissed as to that shareholder, or (iii) the
shareholder, with the written approval of CTC Telecom, withdraws his
objection in writing.
The enforcement by an objecting shareholder of his appraisal rights as set
forth in Sections 85 through 98, inclusive, of Chapter 156B of the
Massachusetts General Laws shall be an exclusive remedy except for the right
of any such objecting shareholder to bring or maintain an appropriate
proceeding to obtain relief on the ground that the merger will be or is
illegal or fraudulent as to such objecting shareholder.
The provisions of Sections 85 through 98 of Chapter 156B of the
Massachusetts General Laws are technical in nature and are complex. Any
shareholder desiring to exercise his appraisal rights should consult legal
counsel for assistance since the failure to comply strictly with the
provisions may nullify such appraisal rights.
APPROVAL BY STOCKHOLDERS OF THE REINCORPORATION MERGER WILL CONSTITUTE
APPROVAL OF THE AGREEMENT OF MERGER, THE CERTIFICATE OF INCORPORATION OF CTC
TELECOM AND THE BYLAWS OF CTC TELECOM.
VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS
Under the Company's Articles of Incorporation and Massachusetts law,
the Reorganization must be approved by the affirmative vote of the holders of
2/3 of the issued and outstanding shares of the Company's Common Stock.
The Board of Directors recommends a vote "for" the proposed
Reorganization. Unless instructed to the contrary, the enclosed proxy will
be voted in favor of the proposal.
PROPOSAL 3:
PROPOSAL TO APPROVE OF THE COMPANY'S 1998 INCENTIVE PLAN
For many years, the Company has utilized stock options in its overall
compensation program and stockholders have previously approved the Company's
1993 and 1996 Stock Option Plans. As of September 30, 1998, no shares were
available for the grant of future options under either the 1993 or the 1996
Stock Option Plan unless additional shares become available upon the lapse or
termination of options previously granted under the Plans.
On October 5, 1998, the Board of Directors adopted, subject to
stockholder approval, the CTC Communications Corp. 1998 Incentive Plan (the
"1998 Incentive Plan"). The Board of Directors believes that approval of the
1998 Incentive Plan will advance the interests of the Company by providing
eligible participants the opportunity to receive a broad variety of equity-
based and cash incentives ("Awards"). The 1998 Plan is intended to expand
upon the Company's existing stock option plans and increase the Company's
flexibility in awarding equity and non-equity incentives. A total of
1,500,000 shares of Common Stock have been reserved for issuance under the
1998 Incentive Plan, subject to adjustment as provided in the 1998 Incentive
Plan.
SUMMARY OF THE 1998 INCENTIVE PLAN
The following summary description of the 1998 Incentive Plan is
qualified in its entirety by reference to the full text of the 1998 Incentive
Plan attached to this proxy statement as Appendix E.
Administration. The 1998 Incentive Plan will be administered by the
Board of Directors or one or more committees (the "Administrator"), which in
the case of Awards granted to officers of the Company shall be comprised
solely of two or more outside directors (within the meaning of Section 162(m)
of the Internal Revenue Code ("Section 162(m)")). Subject to the terms of
the 1998 Incentive Plan, the Administrator has authority to interpret the
1998 Incentive Plan; determine eligibility for and grant Awards; determine,
modify or waive the terms and conditions of any Award; proscribe forms, rules
and procedures (which it may modify or waive); and otherwise do all things
necessary to carry out the purposes of the 1998 Incentive Plan. In the case
of any award intended to be eligible for the performance-based compensation
exception under Section 162(m), the Administrator shall exercise its
discretion consistent with qualifying the Award for such exception.
Eligibility and Participation. In general, the Administrator will
select participants in the 1998 Incentive Plan from among key employees of
the Company and its affiliates who, in the opinion of the Administrator, are
in a position to make a significant contribution to the success of the
Company or its affiliates. The Administrator also has discretion to include
as participants in the 1998 Incentive Plan members of the Company's Board of
Directors and other persons who provide services to the Company or its
affiliates. The maximum number of shares for which stock options may be
granted to any person in any calendar year, and the aggregate maximum number
of shares of Common Stock which may be delivered to any person pursuant to
Awards that are not stock options or stock appreciation rights are each
limited to 1,000,000. In addition, no more than $1 million may be paid to
any individual with respect to any single cash performance-based bonus, and
no more than $1 million in cash performance-based bonuses may be paid to any
individual with respect to performance periods ending in the same fiscal
year. No Award of an incentive stock option (as defined below) may be
granted under the 1998 Incentive Plan after November 16, 2008, but incentive
stock options previously granted may extend beyond such date.
Types of Awards. The Administrator, in its discretion, may award (i)
options to purchase Common Stock, (ii) stock appreciation rights, (iii)
restricted or unrestricted Common Stock, (iv) promises to deliver stock or
other securities in the future, (v) convertible securities, (vi) cash
bonuses, and (vii) cash bonuses or loans to help defray the costs of the
foregoing awards.
Performance Criteria. Awards under the 1998 Incentive Plan may be
conditioned upon satisfaction of specified performance criteria. In the case
of any such Award that is intended to qualify for the performance-based
compensation exception under Section 162(m) (an "Exempt Award"), the criteria
used in connection with the Award shall be objectively determinable measures
of performance relating to any of the following (determined either on a
consolidated basis or, as the context permits, on a divisional, subsidiary,
line of business, project or geographical basis or in combinations thereof):
(i) sales; revenues; assets; expenses; earnings before or after deduction for
all or any portion of interest, taxes, depreciation, amortization or other
items, whether or not on a continuing operations or an aggregate or per share
basis; return on equity, investment, capital or assets; one or more operating
ratios; borrowing levels, leverage ratios or credit rating; market share;
capital expenditures; cash flow; stock price; stockholder return; network
deployment; sales of particular products or services; customer acquisition,
expansion and retention; or any combination of the foregoing; or (ii)
acquisitions and divestitures (in whole or in part); joint ventures and
strategic alliances; spin-offs, split-ups and the like; reorganizations;
recapitalizations, restructurings, financings (issuance of debt or equity)
and refinancings; transactions that would constitute a change of control; or
any combination of the foregoing. In the case of an Exempt Award (other than
stock options or stock appreciation rights with an exercise price at least
equal to the fair market value of the underlying Common Stock on the date of
grant), the Administrator will preestablish the particular performance goals
in writing no later than 90 days after the commencement of the period of
service to which the performance relates (or earlier if so required under
applicable regulations) and will certify prior to payment whether the
performance goal or goals have been attained and such determination shall be
final and conclusive. If the performance goal with respect to an Exempt
Award is not attained, no other Award shall be provided in substitution.
Where rights under an Award depend in whole or in part on attainment of
performance objectives, actions by the Company that have an effect, however
material, on such performance objectives or on the likelihood that they will
be achieved will not be deemed an amendment or alteration of the Award.
Deductibility of Performance Awards. If the 1998 Incentive Plan is
approved by the stockholders, certain payments to executive officers under
the 1998 Incentive Plan will be eligible for treatment as "performance based"
compensation under Section 162(m). Section 162(m) generally limits to $1
million the annual corporate income tax deduction for compensation paid to
the chief executive officer or any of the four other highest paid executive
officers of a publicly-held corporation which is not "performance-based"
compensation. The 1998 Incentive Plan is intended to comply with Section
162(m) by allowing Awards granted under the 1998 Incentive Plan to qualify as
performance-based compensation. Under current regulations, in those cases
where an Award under the 1998 Incentive Plan would qualify for the Section
162(m) performance-based exception by reason of being conditioned upon one or
more of the specific performance criteria described above (see "Performance
Criteria"), continued availability of the exception will depend upon
reapproval by stockholders of the material terms of the performance criteria
not later than the first stockholder meeting that occurs in the fifth year
following the year in which the stockholders previously approved such terms.
Rules Applicable to Awards. The Company retains the right at any time
to extinguish rights under an Award in exchange for payment in cash, Common
Stock (subject to the limitation on the maximum number of shares available
with respect to Awards) or other property on such terms as the Administrator
determines, provided the holder of the Award consents to such exchange.
Except as the Administrator otherwise expressly provides, Awards may not be
transferred other than by will or by the laws of descent and distribution
and, during the lifetime of a participant, an Award requiring exercise may be
exercised only by the participant (or in the event of the participant's
incapacity, the person or persons legally appointed to act on the
participant's behalf). The Administrator may provide that upon the exercise
of an Award the participant will automatically receive a new Award of like
kind covering a number of shares of Common Stock equal to the number of
shares of Common Stock for which the first Award was exercised.
Vesting of Awards. The Administrator may determine the time or times
at which an Award will vest or become exercisable and the terms on which an
Award requiring exercise will remain exercisable. Unless the Administrator
expressly provides otherwise, immediately upon the cessation of the
participant's employment or other service relationship with the Company and
its affiliates, an Award requiring exercise will cease to be exercisable, and
all Awards to the extent not already fully vested will be forfeited, except
that: (A) all stock options and stock appreciation rights held by a
participant immediately prior to his or her death, to the extent then
exercisable, will remain exercisable by such participant's permitted
transferee, for the lesser of (i) a one-year period ending with the first
anniversary of the participant's death or (ii) the period ending on the
latest date on which such stock option or stock appreciation right could have
been exercised and shall thereupon terminate; (B) all stock options and stock
appreciation rights held by the participant immediately prior to the
cessation of the participant's employment or other service relationship for
reasons other than death and except as provided in (C) below, to the extent
then exercisable, will remain exercisable for the lesser of (i) a period of
three months or (ii) the period ending on the latest date on which such stock
option or stock appreciation rights could have been exercised, and shall
thereupon terminate; and (C) all stock options and stock appreciation rights
held by the participant whose cessation of employment or other service
relationship is determined by the Administrator in its sole discretion to
result for reasons which cast such discredit on the participant as to justify
immediate termination of the Award shall immediately terminate upon such
cessation.
Stock Options. The Administrator will determine the exercise price of
each stock option provided that each stock option intended to qualify for the
performance-based exception under Section 162(m) and each "incentive stock
option" ("ISO") within the meaning of Section 422 of the Internal Revenue
Code must have an exercise price equal to the fair market value of the Common
Stock subject to the stock option, determined as of the date of grant, except
that an ISO granted to a person who owns (or by application of attribution
rules is deemed to own) more than 10% of the total combined voting power of
all classes of stock of the Company will have an exercise price equal to at
least 110% of such fair market value.
Effect of Certain Transactions. In the event of a consolidation or
merger in which the Company is not the surviving corporation or which results
in the acquisition of substantially all the Company's outstanding Common
Stock by a single person or entity or by a group of persons and/or entities
acting in concert, or in the event of the sale or transfer of substantially
all the Company's assets or a dissolution or liquidation of the Company, all
outstanding Awards will vest and become exercisable immediately prior to the
covered transaction. Upon the consummation of such covered transaction, all
Awards outstanding and requiring exercise will be forfeited unless assumed by
an acquiring or surviving entity.
Equitable Adjustment. In the event of a stock dividend, stock split or
combination of shares, recapitalization or other change in the Company's
capital structure, the Administrator will make appropriate adjustments to the
maximum number of shares that may be delivered under the 1998 Incentive Plan,
subject to the maximum share limits under the 1998 Incentive Plan, to the
number and kind of shares of stock or securities subject to Awards then
outstanding or subsequently granted, to any exercise prices relating to
Awards, and to any other provision of Awards affected by such change. The
Administrator also may make such adjustments to take into account other
distributions or events, if the Administrator determines that adjustments are
appropriate to avoid distortion in the operation of the 1998 Incentive Plan
and to preserve the value of Awards; provided, that no such adjustment shall
be made to the maximum share limits, or otherwise to an Award intended to be
eligible for the performance-based exception under Section 162(m), except to
the extent consistent with that exception, nor shall any change be made to
ISOs except to the extent consistent with their continued qualification under
Section 422 of the Internal Revenue Code.
Amendment. Subject to the Administrator's right to exercise its
discretion consistent with qualifying Awards for the performance-based
exception under Section 162(m), the Administrator may at any time or times
amend the 1998 Incentive Plan or any outstanding Award for any purpose which
may at any time be permitted by law, or may at any time terminate the 1998
Incentive Plan as to any further grants of Awards, provided that no such
amendment will, without the approval of the stockholders of the Company,
effectuate a change for which stockholder approval is required in order for
the 1998 Incentive Plan to continue to qualify under Section 422 of the
Internal Revenue Code or for Awards to be eligible for the performance-based
exception under Section 162(m).
Other Compensation. The existence of the 1998 Incentive Plan and the
grant of Awards will not affect the Company's right to pay other bonuses or
compensation, except as provided under the 1998 Incentive Plan.
PRICE OF COMMON STOCK
The closing price of the Common Stock on NASDAQ on October 9, 1998 was
$________.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax
consequences of the issuance and exercise of stock options awarded under the
1998 Incentive Plan and is based on the law as in effect on September 1,
1998. The summary does not address all federal tax consequences, nor does it
cover state, local or non-U.S. tax consequences.
In general, a participant realizes no taxable income on either the
grant or the vesting of a stock option. The exercise of a nonstatutory, or
non-qualified, option (i.e., an option that does not qualify as an ISO)
results in ordinary income (generally subject to withholding if the option is
awarded in connection with employment) equal to the difference (the "Option
Spread") between the value of the Common Stock purchased and the option
exercise price. A corresponding deduction is available to the Company. In
general, the ordinary income associated with the exercise is measured and
taken into account at the time of exercise. Any gain or loss recognized upon
a subsequent sale of Common Stock purchased under a nonstatutory option will
be a capital gain or loss, long-term or short-term, depending on the
applicable tax holding period for the shares sold.
The exercise of an ISO does not produce ordinary taxable income.
However, because the Option Spread constitutes "alternative minimum taxable
income" (measured and taken into account, in general, at the time of
exercise), exercise of an ISO may result in an alternative minimum tax
liability. In addition, shares purchased under an ISO ("ISO Shares") are
subject to special tax holding rules. If a participant holds on to ISO
Shares for at least two years from the date of the ISO grant and at least one
year after exercise, any gain or loss recognized for tax purposes upon a
subsequent sale of the shares will be a long-term capital gain or loss.
However, a disposition of ISO Shares by the participant within either of
these special holding periods (a so-called "disqualifying disposition")
results in ordinary compensation income in the year of the disposition equal,
in general, to the Option Spread at the time the option was exercised. The
ordinary income realized upon a disqualifying disposition of ISO Shares is
deductible to the Company but under the current Internal Revenue Service
position is not subject to withholding. Any additional gain recognized for
tax purposes in a disqualifying disposition will be taxed as short-term or
long-term capital gain.
An ISO that is exercised by the participant more than three months
following termination of employment (one year, if termination occurred by
reason of total and permanent disability) is treated for tax purposes as a
nonstatutory option. ISOs granted to a participant under the 1998 Incentive
Plan (together with ISOs granted to the participant under any other plans of
the Company and certain affiliates) are also treated as nonstatutory options
to the extent that, in the aggregate, they first become exercisable in any
calendar year for shares of Company stock having a fair market value
(determined at time of grant) in excess of $100,000.
Under the so-called "golden parachute" provisions of the Code, certain
Awards vested or paid in connection with a change of control of the Company
may also be non-deductible to the Company and may be subject to an additional
20% federal excise tax. Non-deductible "parachute payments" will in general
reduce the $1 million limit on deductible compensation under Section 162(m)
of the Code, to the extent such limit is applicable to remuneration paid
under the 1998 Incentive Plan or otherwise.
Board Recommendation
The Board of Directors recommends that stockholders vote FOR the 1998
Incentive Plan. Unless instructed to the contrary, the enclosed proxy will
be voted in favor of adopting the 1998 Incentive Plan.
PROPOSAL 4:
RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT ACCOUNTANTS
The Board of Directors has concluded that the continued employment of
Ernst & Young LLP will be in the Company's best interest and recommends that
the appointment of Ernst & Young LLP as the Company's independent public
accountants for the fiscal year ending March 31, 1999 be ratified and
approved.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting and will have the opportunity to make a statement if they
desire to do so and are expected to be available to respond to appropriate
questions.
Ernst & Young LLP (and its predecessor Ernst & Whinney) has served as
independent public accountants for the Company continuously since January
1988. The Company has been advised by Ernst& Young LLP that neither the firm
nor any of its partners has any material direct or any indirect financial
interest in the Company.
Board Recommendation
The Board of Directors recommends that the stockholders vote FOR
ratification of the appointment of Ernst & Young LLP as independent public
accountants.
EXPENSE OF SOLICITATION
All costs connected with the solicitation of Proxies will be borne by the
Company. Brokers and other persons holding stock for the benefit of others
will be reimbursed for their expenses in forwarding Proxies and accompanying
material to the beneficial owners of such stock and obtaining their Proxies.
Solicitation will be made by mail, telephone, telegraph or otherwise, and
some of the directors, officers and regular employees of the Company may
assist in the solicitation without additional compensation.
STOCKHOLDERS' PROPOSALS
If a stockholder wishes to present a proposal to be voted on at the 1999
Annual Meeting, the proponent must, at the time the proposal is submitted, be
a record or beneficial owner of at least one (1%) percent or One Thousand
($1,000.00) Dollars in market value of the class of securities entitled to
vote at the meeting and have held such securities for at least one (1) year,
and such stockholder must continue to own such securities through the date on
which the 1999 Annual Meeting is held. The proposal, in order to be included
in the management proxy statement, must be received at the Company's
executive offices no later than February 1, 1999. In order to remove any
question as to the date on which a proposal was received by the Board of
Directors, it is suggested that proposals be submitted by certified mail,
return receipt requested.
OTHER MATTERS THAT MAY COME BEFORE THE MEETING
The Board of Directors knows of no other matters which may be presented
at the Annual Meeting, but if other matters do properly come before the
Annual Meeting, it is intended that the persons named in the Proxy will vote
according to their best judgment.
Stockholders are requested to date, sign and return the Proxy in the
enclosed envelope, to which no postage need be affixed if mailed in the
United States. If you attend the Annual Meeting, you may revoke your Proxy
at that time and vote in person if you so desire, otherwise your Proxy will
be voted for you.
By Order of the Board of Directors
Robert J. Fabbricatore, Chairman
October __, 1998
Waltham, Massachusetts
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
CTC TELECOM CORP.,
A DELAWARE CORPORATION,
CTC-NEWCO, INC.
A DELAWARE CORPORATION
AND
CTC COMMUNICATIONS, INC.,
A MASSACHUSETTS CORPORATION
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is dated as of
November __, 1998 between CTC COMMUNICATIONS CORP., a Massachusetts
corporation, CTC TELECOM CORP., a Delaware corporation, and CTC-NEWCO, INC.,
a Delaware corporation and a wholly-owned subsidiary of CTC TELECOM CORP.
BACKGROUND
A. CTC COMMUNICATIONS CORP ("CTC Massachusetts") is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and, on the date of this Agreement, has
authority to issue 26,000,000 shares consisting of 25,000,000 shares of
Common Stock, $.01 par value, and 1,000,000 shares of Preferred Stock, $1.00
par value, of which _______ shares of Common Stock and 666,666 shares of
Series A Convertible Preferred Stock are issued and outstanding.
B. CTC TELECOM CORP. ("Delaware Parent") is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and, on the date of this Agreement, has authority to issue
110,000,000 shares consisting of 100,000,000 shares of Common Stock, $.01 par
value, and 10,000,000 shares of Preferred Stock, $1.00 par value, none of
which are issued and outstanding.
C. CTC-NEWCO, INC. ("Delaware Subsidiary")is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and, on the date of this Agreement, has authority to issue 200
shares of Common Stock, $.01 par value, all of which are issued and
outstanding and owned by Delaware Parent.
D. The Board of Directors of each of CTC Massachusetts, Delaware Parent
and Delaware Subsidiary have determined that it is advisable and in the best
interests of each of such corporations that Delaware Subsidiary merge into
CTC Massachusetts upon the terms and subject to the conditions set forth in
this Agreement, for the purpose of effecting the reincorporation of CTC
Massachusetts in the State of Delaware by becoming a wholly-owned subsidiary
of Delaware Parent and have, by resolutions duly adopted, approved this
Agreement and directed that it be submitted to a vote of their respective
stockholders and executed by the undersigned officers.
THE PARTIES AGREE AS FOLLOWS:
ARTICLE I
DEFINITIONS
When used in this Agreement (and in any Exhibit in which such terms are
not otherwise defined) the following terms shall have the following meanings:
"Certificate of Merger" shall mean the Certificate of Merger of Delaware
Subsidiary into CTC Massachusetts to be filed with the Secretary of State of
the Commonwealth of Massachusetts.
"CTC Massachusetts Common Stock" shall mean shares of Common Stock, $.01
par value, of CTC Massachusetts.
"CTC Massachusetts Preferred Stock" shall mean shares of Preferred
Stock, $1.00 par value, of CTC Massachusetts.
"Delaware Parent Common Stock" shall mean shares of Common Stock, $0.01
par value, of Delaware Parent.
"Delaware Parent Preferred Stock" shall mean shares of Preferred Stock,
$1.00 par value, of Delaware Parent.
"Delaware Subsidiary Common Stock" shall mean shares of Common Stock,
$0.01 par value, of Delaware Subsidiary.
"Effective Time" shall mean the time when the Certificate of Merger is
filed with the Secretary of the Commonwealth of Massachusetts and the Merger
becomes effective.
"Merger" shall mean the merger of Delaware Subsidiary into CTC
Massachusetts.
"Shareholders' Meeting" shall mean the annual meeting of shareholders of
CTC Massachusetts to be held on November 16, 1998 to approve and adopt this
Agreement, among other things.
"Surviving Parent" shall mean Delaware Parent from and after the
Effective Time.
"Surviving Subsidiary" shall mean CTC Massachusetts from and after the
Effective Time.
ARTICLE II
MERGER
2.1 Merger. At the Effective Time, the Merger shall become effective
under Section 252 of the Delaware General Corporation Law and Section 79 of
Chapter 156B of the Massachusetts General Corporation Law, and Delaware
Subsidiary shall merge into CTC Massachusetts, the separate existence of
Delaware Subsidiary shall cease and CTC Massachusetts shall continue in
existence as the surviving wholly-owned subsidiary of Delaware Parent under
the Massachusetts General Corporation Law.
2.2 Filings. On or prior to the Effective Time, CTC Massachusetts and
Delaware Subsidiary shall cause:
(a) the Certificate of Merger to be filed with the Secretary of the
Commonwealth of Massachusetts; and
(b) the Certificate of Merger to be filed with the Secretary of
State of Delaware.
2.3 Effects of the Merger. At the Effective Time:
(a) the separate existence of Delaware Subsidiary shall cease and
Delaware Subsidiary shall be merged into CTC Massachusetts;
(b) the Articles of Incorporation of CTC Massachusetts shall
continue as the Articles of Incorporation of the Surviving Subsidiary;
(c) the Bylaws of CTC Massachusetts continue as the Bylaws of the
Surviving Subsidiary;
(d) the Articles of Incorporation of Delaware Parent shall continue
as the Articles of Incorporation of Surviving Parent;
(e) the Bylaws of Delaware Parent shall continue as the Bylaws of
Surviving Parent;
(f) each officer and director of CTC Massachusetts in office
immediately prior to the Effective Time shall serve in the same capacity as
officer or director of Surviving Parent immediately after the Effective Time;
(g) each share of CTC Massachusetts Common Stock and CTC
Massachusetts Preferred Stock outstanding immediately prior to the Effective
Time shall be converted into one share of Surviving Parent Common Stock and
one share of Surviving Parent Preferred Stock, respectively, pursuant to
Article III herein;
(f) without further transfer, act, or deed, the separate existence
of Delaware Subsidiary shall cease and CTC Massachusetts shall possess all
the rights, privileges, powers and franchises, and shall be subject to all
the restrictions, disabilities and duties, of Delaware Subsidiary; and all
property, real, personal and mixed, and all debts due to Delaware Subsidiary
on whatever account, as well as stock subscriptions and all other things
belonging to Delaware Subsidiary shall be vested in CTC Massachusetts; and
all property, rights, privileges, powers and franchises, and all and every
other interest of Delaware Subsidiary shall be thereafter as effectually the
property of the CTC Massachusetts as they were of Delaware Subsidiary, and
the title to any real estate vested by deed or otherwise in Delaware
Subsidiary shall not revert or be in any way impaired by reason of the
Merger; and all rights of creditors of Delaware Subsidiary and all liens upon
any property of Delaware Subsidiary shall be preserved unimpaired and all
debts, liabilities and duties of Delaware Subsidiary shall attach to CTC
Massachusetts and may be enforced against it to the same extent as if such
debts, liabilities and duties had been incurred or contracted by it.
2.4 Further Assurances. Delaware Subsidiary agrees that if, at any time
after the Effective Time, CTC Massachusetts shall consider or be advised that
any further deeds, assignments or assurances are necessary or desirable to
vest, perfect or confirm in the CTC Massachusetts title to any property or
rights of Delaware Subsidiary, the CTC Massachusetts and its officers and
directors may execute and deliver all such deeds, assignments and assurances
and do all other things necessary or desirable to vest, perfect or confirm
title to such property or rights in the CTC Massachusetts and otherwise to
carry out the purposes of this Agreement, in the name of Delaware Subsidiary
or otherwise.
ARTICLE III
CONVERSION OF STOCK
3.1 Conversion of Stock. At the Effective Time, the stock of CTC
Massachusetts shall be converted into stock of Surviving Parent, as follows:
(a) each share of CTC Massachusetts Common Stock and each share of
Preferred Stock issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into one share of Surviving Parent Common Stock
and one share of Preferred Stock, respectively; and
(b) each share of Delaware Subsidiary Common Stock issued and
outstanding immediately prior to the Effective Time shall be canceled and
retired and no stock shall be issued in the Merger in respect thereof.
3.2 Stock Certificates. At and after the Effective Time, all of the
outstanding certificates which immediately prior to the Effective Time
represented shares of CTC Massachusetts Common Stock and shares of Preferred
Stock shall be deemed for all purposes to evidence ownership of, and to
represent, shares of Surviving Parent Common Stock and Preferred Stock into
which the shares of CTC Massachusetts Common Stock and Preferred Stock
formerly represented by such certificates have been converted as provided in
this Agreement. The registered owner on the books and records of Surviving
Parent or its transfer agent of any outstanding stock certificate shall,
until such certificate shall have been surrendered for transfer or otherwise
accounted for to Surviving Parent or its transfer agents, have and be
entitled to exercise any voting and other rights with respect to, and to
receive any dividends and other distributions upon, the shares of CTC
Massachusetts Common Stock and Preferred Stock evidenced by such outstanding
certificates as provided above.
3.3 Stock Options. Each right or option to purchase shares of CTC
Massachusetts Common Stock granted under the 1993 Employee Stock Option Plan,
the 1996 Employee Stock Option Plan, the Employee Stock Purchase Plan, the
Employee Stock Benefit Plan and the 401(k) Savings Plan, and, upon approval
of the stockholders of CTC Massachusetts, the 1998 Incentive
Plan,(collectively, the "Plans"), and all other rights, options and warrants
to purchase CTC Massachusetts Common Stock which is outstanding immediately
prior to the Effective Time, shall by virtue of the Merger and without any
action on the part of the holder thereof, be converted into and become an
option, right and warrant to purchase the same number of shares of Surviving
Parent Common Stock at the same price per share, and upon the same terms and
subject to the same conditions as in effect at the Effective Time. The same
number of shares of Delaware Common Stock shall be reserved for purposes of
said Plans and upon exercise of such rights, options and warrants as is equal
to the number of shares of CTC Massachusetts Common Stock so reserved as of
the Effective Time. As of the Effective Time, Surviving Parent hereby assumes
the Plans and all obligations of CTC Massachusetts under the Plans including
the outstanding options or awards or portions thereof granted pursuant to the
Plans and assumes all obligations of CTC Massachusetts under all other
options, rights and warrants.
3.4 Validity of Surviving Parent Common Stock and Preferred Stock. All
shares of Surviving Parent Common Stock and Preferred Stock into which CTC
Massachusetts Common Stock and Preferred are to be converted pursuant to the
Merger shall not be subject to any statutory or contractual preemptive
rights, shall be validly issued, fully paid and nonassessable and shall be
issued in full satisfaction of all rights pertaining to such CTC
Massachusetts Common Stock and Preferred Stock.
3.5 Rights of Former Holders. From and after the Effective Time, no
holder of certificates which evidenced CTC Massachusetts Common Stock and
Preferred Stock immediately prior to the Effective Time shall have any rights
with respect to the shares formerly evidenced by those certificates, other
than to receive the shares of Surviving Parent Common Stock and Preferred
Stock into which such CTC Massachusetts Common Stock and Preferred Stock
shall have been converted pursuant to the Merger.
ARTICLE IV
GENERAL
4.1 Consents. Each of the parties hereto shall use its best efforts to
obtain the consent and approval of each person whose consent or approval
shall be required in order to permit consummation of the Merger.
4.2 Governmental Authorizations. Each of the parties shall cooperate in
filing any necessary reports or other documents with any federal, state,
local or foreign authorities having jurisdiction with respect to the Merger.
4.3 Waiver and Amendment. This Agreement may be amended by action of
the Board of Directors of each party hereto action by the stockholders of the
parties, except that (a) any amendment to Section 3.1, (b) any amendment
changing the terms, rights, powers or preferences of the Surviving Parent
Common Stock or Preferred Stock, or (c) any amendment altering any terms of
this Agreement if such alteration would adversely affect the holders of CTC
Massachusetts Common Stock or Preferred Stock, or Surviving Parent Common
Stock or Preferred Stock, must be approved by a majority of the voting power
of the outstanding CTC Massachusetts Common Stock and Preferred Stock.
4.4 Termination. This Agreement may be terminated and the Merger and
other transactions provided for by this Agreement abandoned at any time prior
to the Effective Time, whether before or after adoption and approval of this
Agreement at the Shareholders' Meeting, by action of the Board of Directors
of CTC Massachusetts if the Board determines that the consummation of the
transactions contemplated by this Agreement would not, for any reason, be in
the best interests of Delaware Subsidiary and its shareholders.
4.5 Entire Agreement. This Agreement (including any exhibits), contains
the entire agreement among the parties with respect to the Merger and
supersedes all prior and concurrent arrangements, letters of intent or
understandings relating to the Merger.
4.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which when taken
together shall constitute one and the same agreement. This Agreement shall
become effective when one or more counterparts has been signed by each of the
parties and delivered to each of the other parties.
4.7 Headings. The article, section and paragraph headings in this
Agreement have been inserted for identification and reference and shall not
by themselves determine the meaning or interpretation of any provision of
this Agreement.
4.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware and, so far as applicable,
the merger provisions of the Massachusetts General Corporation Law.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
CTC COMMUNICATIONS CORP.,
a Massachusetts corporation
____________________________
By:
Title:
CTC TELECOM CORP.
a Delaware corporation
____________________________
By:
Title:
CTC-NEWCO, INC.
a Delaware corporation
____________________________
By:
Title:
<PAGE>
APPENDIX B
CERTIFICATE OF INCORPORATION
OF
CTC TELECOM CORP.
The undersigned, being of legal age, in order to form a corporation
under and pursuant to the laws of the State of Delaware, do hereby set forth
as follows:
FIRST: The name of the corporation is CTC TELECOM CORP.
SECOND: The address of the initial registered and principal
office of this corporation in this state is c/o United Corporate Services,
Inc., 15 East North Street, in the City of Dover, County of Kent, State of
Delaware 19901 and the name of the registered agent at said address is United
Corporate Services, Inc.
THIRD: The purpose of the corporation is to engage in any
lawful act or activity for which corporations may be organized under the
corporation laws of the State of Delaware.
FOURTH: (a) The corporation shall be authorized to issue
two classes of stock to be designated respectively Common Stock and Preferred
Stock. The total number of shares of all classes of stock which the
Corporation has authority to issue is One-Hundred Ten Million (110,000,000),
consisting of One-Hundred Million (100,000,000) shares of Common Stock, $0.01
par value (the "Common Stock"), and Ten Million (10,000,000) shares of
Preferred Stock, $1.00 par value (the "Preferred Stock"). Of the authorized
shares of Preferred Stock, Six Thousand Six Hundred Sixty-Six (666,666)
shares shall be designated "Series A Convertible Preferred Stock.".
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized subject to limitations
prescribed by law, to fix by resolution or resolutions the designations,
powers, preferences and rights, and the qualifications, limitations or
restrictions thereof, of each such series of Preferred Stock, including
without limitation authority to fix by resolution or resolutions, the
dividend rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption (including sinking fund provisions), redemption price or
prices, and liquidation preferences of any wholly unissued series of
Preferred Stock, and the number of shares constituting any such series and
the designation thereof, or any of the foregoing.
The Board of Directors is further authorized to increase (but not
above the total number of authorized shares of the class) or decrease (but
not below the number of shares of any such series then outstanding) the
number of shares of any series, the number of which was fixed by it,
subsequent to the issue of shares of such series then outstanding, subject to
the powers, preferences and rights, and the qualifications, limitations and
restrictions thereof stated in the resolution of the Board of Directors
originally fixing the number of shares of such series. If the number of
shares of any series is so decreased, then the shares constituting such
decrease shall resume the status which they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
(b) The relative rights, preferences, privileges, and restrictions
granted to or imposed upon the Common Stock, the Series A Convertible
Preferred Stock and the holders thereof (collectively, the "Stockholders")
are as follows:
1. Designation. The series designated "Series A Convertible Preferred
Stock" (hereinafter referred to as the "Series A Preferred Stock") and the
number of shares constituting such series shall be 666,666, which number may
be decreased (but not increased) by the Board of Directors without a vote of
stockholders; provided, however, that such number may not be decreased below
the number of then currently outstanding shares of Series A Preferred Stock.
All capitalized terms used in this Certificate of Incorporation and not
otherwise defined shall have the meaning given to such terms in Paragraph 14
of this Section (b) of Article FOURTH.
2. Dividends. The holders of Series A Preferred Stock shall be entitled to
participate in all dividends that are declared and paid on Common Stock on
the same basis as if all of the Series A Preferred Stock had been converted
to Common Stock in accordance with Paragraph 7 of this Section (b) of Article
FOURTH.
3. Liquidation Preference. (a) In the event of any liquidation, dissolution
or winding up of the affairs of the Corporation, either voluntarily or
involuntarily, each holder of Series A Preferred Stock shall be entitled,
after provision for the payment of the Corporation's debts and other
liabilities, to be paid in cash in full, before any distribution is made on
any Junior Securities, an amount in cash (the "Liquidation Amount") equal to
the greater of (i) the Series A Preference Amount, or (ii) the Minimum
Preference Amount, provided, however, if the amount each such holder of
Series A Preferred Stock would have received had such holder converted all
Series A Preferred Stock held by such holder into Common Stock immediately
prior to such liquidation, dissolution or winding up of the Corporation would
be equal to or greater than the Liquidation Amount, the Series A Preferred
Stock shall be automatically converted into Common Stock in accordance with
the terms herein, effective immediately prior to such liquidation,
dissolution or winding up of the Corporation. If, upon any such liquidation,
dissolution or other winding up of the affairs of the Corporation, the net
assets of the Corporation distributable among the holders of all outstanding
Senior Preferred Stock shall be insufficient to permit the payment to such
holders of the full preferential amount to which they are entitled with
respect to their Senior Preferred Stock, then the entire net assets of the
Corporation remaining after the provision for the payment of the
Corporation's debts and other liabilities shall be distributed among the
holders of the Senior Preferred Stock ratably in proportion to the full
preferential amounts to which they would otherwise be respectively entitled
on account of their Senior Preferred Stock. Upon any such liquidation,
dissolution or winding up of the Corporation, after the holders of Senior
Preferred Stock shall have been paid in full the preferential amounts to
which they shall be entitled to receive on account of their Senior Preferred
Stock, the remaining net assets of the Corporation shall be distributed to
the other stockholders of the Corporation as their respective interests may
appear.
(b) Consolidation, Merger, etc. A consolidation or merger of the
Corporation with or into any other corporation or corporations (a "merger")
other than a merger in which the holders of the Corporation's Common Stock
own a majority of the voting power of the surviving corporation, or a Sale of
the Corporation, or the effectuation by the Corporation or its stockholders
of a transaction or a series of related transactions in which more than fifty
percent (50%) of the voting power of the Corporation is disposed of (a
"reorganization") shall be deemed to constitute a liquidation, dissolution or
winding up of the Corporation within the meaning of this Paragraph 3,
provided, however, the transfer of all or substantially all of the
Corporation's assets to one or more wholly owned subsidiaries of the
Corporation shall not be deemed a liquidation, dissolution or winding up of
the Corporation within the meaning of this Paragraph 3. Any reorganization
of the Corporation required by any court or administrative body in order to
comply with any provision of law shall be deemed to be an involuntary
liquidation, dissolution or winding up of the Corporation unless the
preferences, qualifications, limitations, restrictions and special or
relative rights granted to or imposed upon the holders of Series A Preferred
Stock are not adversely affected by such reorganization. Notwithstanding the
foregoing, a consolidation, merger, Sale of the Corporation or reorganization
shall not be deemed a liquidation, dissolution or winding up of the
Corporation for the purposes of this Paragraph 3 if (i) the holders of the
Requisite Percentage of the Series A Preferred Stock waive in writing the
provisions of the preceding two sentences, as applicable and (ii) the Board
of Directors of the Corporation consents to such waiver.
(c) Holders of Series A Preferred Stock shall not be entitled to any
additional distribution in the event of any liquidation, dissolution or
winding up of the affairs of the Corporation in excess of the amounts set
forth in this Paragraph 3.
4. Voting.
(a) Rights of Series A Preferred Stock. Except as otherwise required by law
or as provided herein and subject to the rights of any class or series of
capital stock of the Corporation that hereafter may be issued in compliance
with the terms of these Articles of Incorporation, the shares of the Series A
Preferred Stock shall vote together with the shares of the Corporation's
Common Stock and any other shares of the Corporation's stock which, by its
terms, is entitled to vote together with the Series A Preferred Stock and the
Common Stock as a single class at any annual or special meeting of
stockholders of the Corporation, or may act by written consent in the same
manner as the Corporation's Common Stock, upon the following basis: each
holder of shares of Series A Preferred Stock shall be entitled to such number
of votes for the Series A Preferred Stock held by such holder on the record
date fixed for such meeting, or on the effective date of such written
consent, as shall be equal to the lesser of (i) the whole number of shares of
the Corporation's Common Stock issuable upon conversion and exercise of all
shares of Series A Preferred Stock and Warrants held by such holder
immediately after the close of business on the record date fixed for such
meeting or the effective date of such written consent and (ii) the number of
shares of Series A Preferred Stock held by such holder multiplied by 2.476.
5. Special Approval Rights.
(a) Restricted Actions. So long as any shares of Series A Preferred Stock
are outstanding, the affirmative vote of the holders of the Requisite
Percentage of Series A Preferred Stock, acting by written consent or voting
separately as a single class in person or by proxy, at a special or annual
meeting of holders of Series A Preferred Stock called for the purpose, shall
be necessary to authorize the Corporation to take any of the following
actions (herein, each a "Restricted Action"):
(A) authorize, or increase or permit any Subsidiary to authorize or increase,
the authorized number of shares of, or issue additional shares of Series
A Preferred Stock or any class or series of the Corporation's or any
Subsidiary's capital stock or options, warrants or other rights to
acquire any such capital stock ranking with respect to liquidation
preference, dividends or voting rights, senior in right to, or on a
parity with, the Series A Preferred Stock or entitling the holders
thereof to receive any dividends or distributions (other than stock
dividends) at any time when any shares of Series A Preferred Stock are
outstanding; provided however, that nothing contained in this Paragraph 5
shall restrict the Company from authorizing or issuing (i) Common Stock
or warrants or options to acquire Common Stock or (ii) Straight Preferred
Stock;
(B) amend, repeal or change, directly or indirectly, any of the provisions of
the Certificate of Incorporation of the Corporation or the By-laws of the
Corporation in any manner that would alter or change the powers,
preferences or special rights of the shares of Series A Preferred Stock
so as to affect them adversely;
(C) at any time when the outstanding shares of Series A Preferred Stock and
Preferred Stock Derivatives represent at least four and 55/100 percent
(4.55%) of the Corporation's Common Stock Deemed Outstanding, authorize
or effect the declaration or payment of dividends or other distributions
(other than stock dividends) upon, or the redemption or repurchase of,
any equity securities of the Corporation other than repurchase of Common
Stock from departing employees that has been approved by the Compensation
Committee and the Board of Directors; or
(D) at any time when the outstanding shares of Series A Preferred Stock and
Preferred Stock Derivatives represent at least four and 55/100 percent
(4.55%) of the Corporation's Common Stock Deemed Outstanding, permit the
Board of Directors of the Corporation to consist of more than eleven (11)
members.
(b) Approval. The approval rights of the holders of shares of Series A
Preferred Stock to authorize the Corporation to take any of the Restricted
Actions as provided in this Paragraph 5 may be exercised at any annual
meeting of stockholders, at a special meeting of the holders of Series A
Preferred Stock held for such purpose or by written consent. At each meeting
of stockholders at which the holders of shares of Series A Preferred Stock
shall have the right, voting separately as a single class, to authorize the
Corporation to take any Restricted Action as provided in this Paragraph 5,
the presence in person or by proxy of the holders of the Requisite Percentage
of Series A Preferred Stock entitled to vote on the matter shall be necessary
and sufficient to constitute a quorum. At any such meeting or at any
adjournment thereof, in the absence of a quorum of the holders of shares of
Series A Preferred Stock, a majority of the holders of such shares present in
person or by proxy shall have the power to adjourn the meeting as to the
actions to be taken by the holders of shares of Series A Preferred Stock from
time to time and place to place without notice other than announcement at the
meeting until a quorum shall be present.
6. Compensation Committee. Unless otherwise consented to by the holders of
the Requisite Percentage of outstanding Series A Preferred Stock, so long as
any shares of Series A Preferred Stock are outstanding and so long as the
outstanding shares of Series A Preferred Stock and Preferred Stock
Derivatives represent at least four and 55/100 percent (4.55%) of the
Corporation's Common Stock Deemed Outstanding, the Board of Directors shall
elect a Compensation Committee of the Board of Directors consisting of three
(3) individuals, one of whom shall be a director designated in writing by the
holders of a majority of the Series A Preferred Stock, and the other two of
which shall consist of independent directors who are not employed by the
Corporation and are not Affiliates of those stockholders who are Affiliates
of the Corporation ("Independent Directors"), which Compensation Committee
shall be increased by one (1) member, which member shall be the member added
pursuant to Section 7.6 of the Purchase Agreement or another member
satisfactory to the holders of the Requisite Percentage of outstanding Series
A Preferred Stock and the Corporation's chief executive officer. So long as
any shares of Series A Preferred Stock are outstanding and so long as the
outstanding shares of Series A Preferred Stock and Preferred Stock
Derivatives represent at least four and 55/100 percent (4.55%) of the
Corporation's Common Stock Deemed Outstanding, decisions of the Compensation
Committee must be made by the affirmative vote of at least three (3) members.
The Compensation Committee shall approve all recommendations to the Board of
Directors as to the following, and the Board of Directors shall not have the
power to approve any of the following without such recommendation, so long as
any shares of Series A Preferred Stock are outstanding and so long as the
outstanding shares of Series A Preferred Stock and Preferred Stock
Derivatives represent at least four and 55/100 percent (4.55%) of the
Corporation's Common Stock Deemed Outstanding, provided however, that nothing
contained herein shall restrict the Corporation from honoring its contractual
obligations existing on April 10, 1998 and disclosed in the Purchase
Agreement:
(i) the terms of employment, including compensation, of all new senior
management employees;
(ii) any increases in the compensation or benefits of any senior management
employee;
(iii) the terms of, and allocations of awards to senior management employees
under, any bonus, profit-sharing, or similar incentive plan arrangements;
(iv) the award of any other incentive or bonus compensation to senior
management employees;
(v) the issuance of capital stock or Convertible Securities to any employees
or directors of the Corporation or its Subsidiaries; and
(vi) the issuance of capital stock or Convertible Securities to consultants to
the Corporation or its Subsidiaries other than Common Stock, warrants and
options to purchase Common Stock representing more than 40,000 shares of
Common Stock in the aggregate on a fully diluted basis with respect to
all such issuances during any fiscal year.
7. Conversion Rights.
(a) Conversion Procedure.
(i) At any time and from time to time, any holder of Series A Preferred
Stock shall have the right, at its option, to convert all or any portion
of each share of Series A Preferred Stock (including any fraction of a
share) held by such holder into a number of shares of fully paid and
nonassessable Common Stock computed by dividing the Series A Preference
Amount by the Conversion Price in effect on the Conversion Date;
provided, however, that in the event of the conversion of Series A
Preference Stock pursuant to Paragraph 3(a) or Paragraph 7(g) of this
Section (b) of Article FOURTH, the number of shares of fully paid and
nonassessable Common Stock into which each Share of Series A Preferred
Stock shall convert shall be computed by dividing the greater of the
Series A Preference Amount or $21.39 by the Conversion Price in effect on
the Conversion Date.
Notwithstanding any other provision hereof, if a conversion of Series A
Preferred Stock is to be made in connection with a Sale of the
Corporation, such conversion may, at the election of any holder tendering
Series A Preferred Stock for conversion, be conditioned upon the
consummation of the Sale of the Corporation, in which case such
conversion shall not be deemed to be effective until immediately prior to
the consummation of such Sale of the Corporation.
(ii) Subject to the provisions of Paragraph 7(a)(i), each conversion of
Series A Preferred Stock shall be deemed to have been effected as of the
close of business on the effective date of such conversion specified in a
written notice (the "Conversion Date"); provided, however, that the
Conversion Date shall not be a date earlier than the date such notice is
so given, and if such notice does not specify a conversion date, the
Conversion Date shall be deemed to be the date such notice is given to
the Corporation. On the Conversion Date, the rights of the holder of
such Series A Preferred Stock as such holder (including the right to
receive dividends) shall cease and the Person or Persons in whose name or
names any certificate or certificates for shares of Common Stock are to
be issued upon such conversion shall be deemed to have become the holder
or holders of record of the shares of Common Stock represented thereby.
(iii) As soon as practicable after the Conversion Date, but in any event
within ten (10) business days after the holder has delivered the
certificates (or affidavits of loss in form and substance reasonably
satisfactory to the Company) evidencing the shares of Series A Preferred
Stock converted into shares of Common Stock in accordance herewith, the
Corporation shall deliver to the converting holder:
(x) a certificate or certificates representing, in the
aggregate, the number of shares of Common Stock issued upon such
conversion, in the same name or names as the certificates representing
the converted shares and in such denomination or denominations as the
converting holder shall specify and a check for cash with respect to
any fractional interest in a share of Common Stock as provided in
clause (vii) of this Paragraph 7(a); and
(y) a certificate representing any shares that were represented
by the certificate or certificates delivered to the Corporation in
connection with such conversion but that were not converted.
(iv) The issuance of certificates for shares of Common Stock upon conversion
of Series A Preferred Stock shall be made without charge to the holders
of such Series A Preferred Stock for any issuance tax in respect thereof
or other cost incurred by the Corporation in connection with such
conversion and the related issuance of shares of Common Stock. Upon
conversion of any shares of Series A Preferred Stock, the Corporation
shall take all such actions as are necessary in order to insure that the
Common Stock so issued upon such conversion shall be validly issued,
fully paid and nonassessable.
(v) The Corporation shall not close its books against the transfer of Series
A Preferred Stock or of Common Stock issued or issuable upon conversion
of Series A Preferred Stock in any manner that interferes with the timely
conversion of Series A Preferred Stock. The Corporation shall assist and
cooperate with any holder of shares of Series A Preferred Stock required
to make any governmental filings or obtain any governmental approval
prior to or in connection with any conversion of shares of Series A
Preferred Stock hereunder (including, without limitation, making any
filings required to be made by the Corporation).
(vi) The Corporation shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the
purpose of issuance upon the conversion of the Series A Preferred Stock,
such number of shares of Common Stock as are issuable upon the conversion
of all outstanding Series A Preferred Stock. All shares of Common Stock
that are so issuable shall, when issued, be duly and validly issued,
fully paid and nonassessable. The Corporation shall take all such
actions as may be necessary to assure that all such shares of Common
Stock may be so issued without violation of any applicable law or
governmental regulation applicable to the Corporation or any requirements
of any domestic securities exchange upon which shares of Common Stock may
be listed (except for official notice of issuance which shall be
immediately delivered by the Corporation upon each such issuance).
(vii) No fractional shares of Common Stock or script shall be issued upon
conversion of shares of the Series A Preferred Stock. If more than one
share of Series A Preferred Stock shall be surrendered for conversion at
any one time by the same holder, the number of full shares of Common
Stock issuable upon conversion thereof shall be computed on the basis of
the aggregate number of shares of Series A Preferred Stock so
surrendered. Instead of any fractional shares of Common Stock which
would otherwise be issuable upon conversion of any shares of Series A
Preferred Stock, the Corporation shall pay a cash adjustment in respect
of such fractional interest equal to the fair market value of such
fractional interest as determined by the Corporation's Board of
Directors.
(b) Conversion Price. The initial conversion price shall be nine dollars
($9.00), which may be adjusted from time to time hereafter (as so adjusted,
the "Conversion Price") . If and whenever on or after the original date of
issuance of the Series A Preferred Stock the Corporation issues or sells, or
in accordance with Paragraph 7(c) is deemed to have issued or sold, any
shares of its Common Stock or Convertible Securities for a consideration per
share less than the Conversion Price in effect immediately prior to the time
of such issue or sale, then upon such issue or sale, the Conversion Price
shall be reduced to an amount determined by dividing (a) the sum of (1) the
product derived by multiplying (i) the Conversion Price in effect immediately
prior to such issue or sale times (ii) the number of shares of Common Stock
Deemed Outstanding immediately prior to such issue or sale, plus (2) the
consideration, if any, received (or deemed received pursuant to Paragraph
7(c)(ii) below) by the Corporation upon such issue or sale, by (b) the number
of shares of Common Stock Deemed Outstanding immediately after such issue or
sale.
(c) Effect on Conversion Price of Certain Events. For purposes of
determining the adjusted Conversion Price under Paragraph 7, the following
shall be applicable:
(i) Issuance of Convertible Securities. If the Corporation in any manner
issues or sells any Convertible Securities, whether or not the rights to
exchange or convert any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is issuable
upon such conversion or exchange is less than the Conversion Price in
effect immediately prior to the time of such issue or sale, then the
maximum number of shares of Common Stock issuable upon conversion or
exchange of such Convertible Securities shall be deemed to be outstanding
and to have been issued and sold by the Corporation at the time of the
issuance or sale of such Convertible Securities for such price per share.
For the purposes of this paragraph, the "price per share for which Common
Stock is issuable" shall be determined by dividing (a) the total amount
received or receivable by the Corporation as consideration for the issue
or sale of such Convertible Securities, plus the cumulative minimum
aggregate amount of additional consideration, if any, payable to the
Corporation upon the exercise, conversion or exchange thereof and, if
applicable, the exercise, conversion and exchange of any other
Convertible Securities that such Convertible Securities may be converted
into or exchanged for, by (b) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. No further adjustment of the Conversion Price
shall be made when Common Stock and, if applicable, any other Convertible
Securities, are actually issued upon the exercise, conversion or exchange
of such Convertible Securities.
(ii) Change in Exercise Price or Conversion Rate. If the additional
consideration payable to the Corporation upon the exercise, conversion or
exchange of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exchangeable for Common
Stock should change at any time, the Conversion Price in effect at the
time of such change shall be readjusted to the Conversion Price that
would have been in effect at such time had such Convertible Securities
that are still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
such Convertible Securities were initially granted, issued or sold; and
on the termination date of any right to exercise, convert or exchange
such Convertible Securities without such right having been duly
exercised, the Conversion Price then in effect hereunder shall be
increased to the Conversion Price that would have been in effect at the
time of such termination had such Convertible Securities, to the extent
outstanding immediately prior to such termination, never been issued.
(iii) Exceptions for Excluded Securities. Notwithstanding the foregoing, no
adjustments shall be made under this Paragraph 7(c) with respect to the
issuance of any Excluded Securities.
(iv) Valuation of Non-Cash Consideration. In the event that Convertible
Securities are issued for consideration other than cash, the value of
such consideration shall be made by a good faith determination by the
Board.
(d) Subdivision or Combination of Common Stock. If the Corporation at any
time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such combination
shall be proportionately reduced, and conversely, in the event the
outstanding shares of Common Stock shall be combined (by reverse stock split
or otherwise) into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination shall be proportionately increased. In
any such event all numbers, percentages, computations and the like in this
Section (b) of Article FOURTH shall be deemed modified as necessary to give
appropriate effect to such subdivision or combination.
(e) Certain Events. If an event not specified in this Paragraph 7 occurs
that has substantially the same economic effect on the Series A Preferred
Stock as those specifically enumerated, then this Paragraph 7 shall be
construed liberally, mutatis mutandis, in order to give the Series A
Preferred Stock the intended benefit of the protections provided under this
Paragraph 7. In such event, the Corporation's Board of Directors shall make
an appropriate adjustment in the Conversion Price so as to protect the rights
of the holders of Series A Preferred Stock; provided that no such adjustment
shall increase the Conversion Price as otherwise determined pursuant to this
Paragraph 7 or decrease the number of shares of Common Stock issuable upon
conversion of each share of Series A Preferred Stock.
(f) Notices.
(i) Immediately upon any adjustment of the Conversion Price, the Corporation
shall give written notice thereof to all holders of Series A Preferred
Stock, setting forth in reasonable detail and certifying the calculation
of such adjustment.
(ii) The Corporation shall give written notice to all holders of Series A
Preferred Stock at least twenty (20) days prior to the date on which the
Corporation closes its books or takes a record (a) with respect to any
dividend or distribution upon Common Stock, (b) with respect to any pro
rata subscription offer to holders of Common Stock or (c) for determining
rights to vote with respect to any dissolution or liquidation.
(g) Mandatory Conversion. Each share of Series A Preferred Stock shall
automatically be converted into fully paid and nonassessable shares of Common
Stock of the Corporation on the basis set forth in Paragraph 7(a) upon not
less than 10 days prior written notice of conversion (the "Conversion
Notice") from the Corporation, which Conversion Notice and mandatory
conversion shall not be effective unless (i) the average closing bid price
(or closing sales price, as applicable) per share for the Corporation's
Common Stock on the Nasdaq Stock Market (or such national stock exchange upon
which the Corporation's Common Stock is then listed), for the period of
thirty (30) consecutive trading days ending on the last trading day prior to
the giving of the Conversion Notice, is (aa) in the case of a Conversion
Notice given prior to April 10, 2002, at least three hundred percent (300%)
of the highest Conversion Price in effect during any portion of such thirty
(30) trading day period or (bb) in the case of a Conversion Notice given on
or after April 10, 2002, at least one hundred percent (100%) of the highest
Conversion Price in effect during any portion of such thirty (30) trading day
period, and (ii) a "Shelf Registration" pursuant to the Registration Rights
Agreement with respect to the "Registrable Securities" (including those
issuable upon such conversion) shall be effective as of the time the Series A
Preferred Stock converts into Common Stock. Holders of shares of Series A
Preferred Stock so converted may deliver to the Corporation at its principal
office (or such other office or agency of the Corporation as the Corporation
may designate by notice in writing to such holders) during its usual business
hours, the certificate or certificates for the shares so converted. At such
time as at least 500,000 shares of Series A Preferred Stock shall have been
converted into Common Stock pursuant to this Paragraph 7, all other then
outstanding shares of Series A Preferred Stock shall thereupon automatically
be converted into fully paid and nonassessable shares of Common Stock of the
Corporation in the basis set forth in Paragraph 7(a). As promptly as
practicable after such conversion, the Corporation shall issue and deliver to
such holder a certificate or certificates for the number of whole shares of
Common Stock to which such holder is entitled, together with any cash
dividends and payment in lieu of fractional shares to which such holder may
be entitled pursuant to this Paragraph 7. Until such time as a holder of
shares of Series A Preferred Stock shall surrender its certificate or
certificates therefor as provided above, such certificates shall be deemed to
represent the shares of Common Stock to which such holder shall be entitled
upon the surrender thereof.
8. Redemption.
(a) The Series A Preferred Stock may be redeemed (in whole or in part) at
the option of the holders of the Requisite Percentage of Series A Preferred
Stock on or after the Maturity Date (an "Optional Redemption"). In any such
case, the holders of the Requisite Percentage of Series A Preferred Stock
shall notify the Corporation in writing of its or their intent to exercise
the rights afforded by this Paragraph 8(a) and specify a date not less than
90 nor more than 180 days from the date of such notice on which the Series A
Preferred Stock shall be redeemed (the "Optional Redemption Date"). Upon
receipt of such notice, the Corporation shall promptly notify the remaining
holders of the Series A Preferred Stock of the Optional Redemption Date. The
remaining holders have the right to participate in such redemption if they so
elect by giving the Corporation written notice to such effect within 20 days
of having received such notice. The Corporation shall redeem on the Optional
Redemption Date all shares of Series A Preferred Stock being redeemed in cash
by wire transfer of immediately available funds in an amount equal to the
greater of the Series A Preference Amount of such shares or the Minimum
Preference Amount of such shares to the extent funds are legally available
for such redemption.
(b) If the funds of the Corporation legally available for redemption of
shares of Series A Preferred Stock on an Optional Redemption Date are
insufficient to redeem the total number of outstanding shares of Series A
Preferred Stock entitled to redemption, the holders of shares of Series A
Preferred Stock entitled to redemption shall share ratably in any funds
legally available for redemption of such shares according to the respective
amounts that would be payable with respect to the full number of shares owned
by them if all such outstanding shares were redeemed in full. At any time
thereafter when additional funds of the Corporation are legally available for
the redemption of such shares of Series A Preferred Stock, such funds will be
used at the earliest permissible time, to redeem the balance of such shares,
or such portion thereof for which funds are then legally available. From and
after the Corporation's receipt of an Optional Redemption notice pursuant to
Paragraph 8(a), the Corporation shall be obligated to use its best efforts to
take such actions as may be necessary (including, without limitation, the
issuance of additional equity securities, the revaluation or recapitalization
of the Corporation or the consummation of a merger or sale of assets) in
order to permit the full and timely redemption of the shares of Series A
Preferred Stock entitled to redemption.
(c) If, for any reason, the Corporation fails to redeem all shares of Series
A Preferred Stock entitled to redemption on an Optional Redemption Date (i)
the unredeemed shares shall remain outstanding and shall continue to have all
rights and preferences (including, without limitation, dividend and voting
rights) provided for herein, and (ii) the holders of such unredeemed shares
shall have the ongoing right to be redeemed in accordance with this Paragraph
8, together with such rights and remedies as may be available under
applicable law.
(d) The notices provided for in this Paragraph 8 shall be sent, if by or on
behalf of the Corporation, to the holders of the Series A Preferred Stock at
their respective addresses as shall then appear on the records of the
Corporation, or if by any holder of Series A Preferred Stock to the
Corporation at its principal executive office as set forth in the Purchase
Agreement, by first class mail, postage prepaid, (i) notifying such recipient
of the redemption, the date of such redemption, the number of shares of
Series A Preferred Stock to be redeemed, and the redemption price therefor
and (ii) in the case of any notice by or on behalf of the Corporation,
stating the place or places at which the shares called for redemption shall,
upon presentation and surrender of such certificates representing such
shares, be redeemed.
9. Status of Reacquired Shares. Any shares of Series A Preferred
Stock redeemed pursuant to Paragraph 8 or otherwise acquired by the
Corporation in any manner whatsoever shall be canceled and shall not
under any circumstances be reissued; and the Corporation may from time
to time take such appropriate corporate action as may be necessary to
reduce accordingly the number of authorized shares of Series A Preferred
Stock.
10. Rank. The Series A Preferred Stock shall rank senior in right as
to dividends and upon liquidation, dissolution or winding up to all
Junior Securities, whenever issued.
11. Identical Rights. Each share of the Series A Preferred Stock
shall have the same relative rights and preferences as, and shall be
identical in all respects with, all other shares of the Series A
Preferred Stock.
12. Certificates. So long as any shares of the Series A Preferred Stock are
outstanding, there shall be set forth on the face or back of each stock
certificate issued by the Corporation a statement as required by Section
15(d) of the General Corporation Law of the State of Delaware.
13. Amendments. Any provision of these terms of the Series A Preferred
Stock may be amended, modified or waived if and only if the holder of the
Requisite Percentage of Series A Preferred Stock has consented in writing or
by an affirmative vote to such amendment, modification or waiver of any such
provision of this Section (b) of Article FOURTH.
14. Definitions.
"Affiliate or Affiliates" shall mean with respect to any Person, any other
Person that would be considered to be an affiliate of such Person under
Rule 144(a) under the Securities Act of 1933, as amended, as in effect on
April 10, 1998, if such Person were issuing securities.
"Certificate of Incorporation" shall mean this Certificate of Incorporation,
as amended from time to time.
"Common Stock" shall mean the Corporation's Common Stock, $.01 par value.
"Common Stock Deemed Outstanding" shall mean, at any given time, the number
of shares of Common Stock actually outstanding at such time, plus the
number of shares of Common Stock issuable upon conversion of the Series A
Preferred Stock, plus the number of shares of Common Stock issuable upon
the exercise in full of all Convertible Securities whether or not the
Convertible Securities are convertible into, exercisable or exchangeable
for Common Stock at such time.
"Conversion Price" shall have the meaning set forth in Paragraph 7(b) hereof.
"Convertible Securities" shall mean securities or obligations that are
exercisable for, convertible into or exchangeable for shares of Common
Stock. The term includes options, warrants or other rights to subscribe
for or purchase Common Stock or to subscribe for or purchase other
securities that are convertible into or exchanged for Common Stock.
"Excluded Securities" shall mean any (a) Common Stock or Convertible
Securities outstanding as of April 10, 1998 and disclosed in the Purchase
Agreement, (b) Common Stock issuable upon the exercise, conversion or
exchange of Convertible Securities described in clause (a), or (c) Common
Stock or warrants or options to acquire Common Stock issued after April
10, 1998 to (i) employees, directors or consultants to the Corporation or
its subsidiaries with the approval of the Compensation Committee to the
extent such approval is required under Paragraph 5(c) hereof, (ii)
lenders who are not Affiliates of the Corporation as partial
consideration for senior debt financing to the Corporation, (iii)
equipment lessors who are not Affiliates of the Corporation as partial
consideration for equipment lease financing to the Corporation, (iv)
licensors who are not Affiliates of the Corporation as partial
consideration for license agreements with the Corporation, (v) bond and
Straight Preferred Stock purchasers as partial consideration for
issuances of debt securities or Straight Preferred Stock pursuant to
underwritten public offerings of such debt securities or Straight
Preferred Stock under the Securities Act of 1933, as amended, (vi) bond
and Straight Preferred Stock purchasers as partial consideration for
issuance of such debt securities or Straight Preferred Stock pursuant to
offerings under Rule 144A yielding the Corporation, with respect to each
such offering, proceeds of at least $75,000,000 (net of any interest or
dividend escrows or similar arrangements), (vii) bond and Straight
Preferred Stock purchasers as partial consideration for issuances of such
debt securities or Straight Preferred Stock pursuant to offerings under
Rule 144A yielding the Corporation with respect to each such offering,
proceeds of at least $40,000,000 (net of any interest or dividend escrows
or similar arrangements) sold to at least five purchasers, who are not
Affiliates of one another, (viii) any Persons (including the stockholders
or owners of Persons) as all or part of the consideration paid for the
acquisition of ownership interests in, or assets of, such Person unless
(aa) such Person is an Affiliate of the Corporation (other than a
Subsidiary) or (bb) Affiliates of the Corporation collectively own more
than ten percent (10%) of the ownership interests in such Person or (ix)
to Comm-Tract Corp. and Comm-Tract Corp. of New York or their owners in
consideration for the acquisition of said companies by the Corporation
involving the issuance of Common Stock at a price which is not less than
$9.00 per share. For purposes of clause (viii) above, the value of
consideration other than cash received by the Corporation in return for
the issuance of Common Stock shall be determined in good faith by the
Board.
"Independent Directors" shall have the meaning set forth in Paragraph 6
hereof.
"Junior Securities" shall mean any of the Corporation's Common Stock and all
other equity securities of the Corporation other than (i) the Series A
Preferred Stock and (ii) any other shares of the Corporation's preferred
stock (a) which by their terms, state that they are not Junior Securities
or provide the holders thereof with rights pari passu with or senior to
those of the holders of Series A Preferred Stock and (b) are issued in
compliance with this Section (b) of Article FOURTH.
"Maturity Date" shall mean April 9, 2003; provided however, that if, on or
before October 9, 1998, the Corporation completes and closes a debt
financing yielding the Corporation proceeds of at least $75,000,000 (net
of any interest escrow or similar arrangement), then the Maturity Date
shall mean the earlier of April 9, 2010 or the 180th day following the
stated maturity date of such debt.
"Minimum Preference Amount" shall mean $25.41 per share of Series A Preferred
Stock.
"Person" shall mean an individual, partnership, corporation, association,
trust, joint venture, unincorporated organization and any government,
governmental department or agency or political subdivision thereof.
"Preferred Stock" shall mean the Series A Preferred Stock.
"Preferred Stock Derivatives" shall mean any Common Stock or Convertible
Securities issued to holders of Series A Preferred Stock in exchange
therefor, as a stock dividend thereon, in respect thereof in connection
with a stock split or recapitalization or in connection with the exercise
of preemptive rights pertaining thereto pursuant to the Purchase
Agreement.
"Purchase Agreement" shall mean that certain Securities Purchase Agreement
dated as of April 10, 1998 among the Purchasers named therein and the
Corporation, as it may be amended from time to time.
"Purchase Price" of any share of Series A Preferred Stock shall be $18.00.
"Registration Rights Agreement" shall mean that certain Registration Rights
Agreement between the Corporation and the holder(s) of the Series A
Preferred Stock, as it may be amended from time to time.
"Required Consent" shall have the meaning set forth in Paragraph 5.
"Requisite Percentage" shall mean a majority.
"Restricted Action" shall have the meaning set forth in Paragraph 5.
"Sale of the Corporation" shall mean a single transaction or a series of
transactions pursuant to which a Person or Persons acquire (i) capital
stock of the Corporation possessing the voting power to elect a majority
of the Corporation's board of directors (whether by merger, consolidation
or sale or transfer of the Corporation's capital stock); or (ii) all or
substantially all of the Corporation's assets determined on a
consolidated basis.
"Senior Preferred Stock" shall mean the Series A Preferred Stock and any
other preferred stock of the Corporation designated by the Corporation in
accordance with this Section (b) of Article FOURTH, the terms of which
preferred stock provide for it to be treated as Senior Preferred Stock
for purposes of the particular sections herein in which the term "Senior
Preferred Stock" is used.
"Series A Preference Amount" shall mean, as of any date, an amount per share
of Series A Preferred Stock equal to the Purchase Price increasing from
the date of issuance of such share through the date in question at a rate
of nine percent (9%) per annum, compounding semi-annually in arrears from
the date of issuance and prorated on a daily basis for partial periods.
"Series A Preferred Stock" shall mean the Corporation's Series A Preferred
Stock, $1.00 par value.
"Straight Preferred Stock" shall mean preferred stock of the Corporation
which (i) is neither a Convertible Security nor convertible into or
exchangeable for any other security other than preferred stock meeting
the requirements of this definition or debt securities, (ii) is issued
solely for cash payable upon issuance, (iii) accrues dividends only at a
rate or rates fixed in the certificate of designation or amendment to the
Certificate of Incorporation designating such preferred stock, (iv) has
no voting rights other than as required by law, (v) entitles the holders
thereof to receive, in the aggregate, not more than the purchase price
therefor plus the amount of any accrued unpaid dividends in respect
thereof, and (vi) does not otherwise directly or indirectly alter or
change the powers, preferences or special rights of the shares of Series
A Preferred Stock so as to affect them adversely.
"Subsidiary" shall mean, with respect to any Person, any corporation,
partnership, association or other business entity of which (i) if a
corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or
more of the other Subsidiaries of that Person or a combination thereof,
or (ii) if a partnership, association or other business entity, a
majority of the partnership or other similar ownership interest thereof
is at the time owned or controlled, directly or indirectly, by any Person
or one or more Subsidiaries of that person or a combination thereof. For
purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, association or other business entity
if such Person or Persons shall be allocated a majority of partnership,
association or other business entity gains or losses or shall be or
control the managing general partner of such partnership, association or
other business entity.
"Warrants" shall mean the Warrants issued pursuant to the Purchase Agreement
to purchase 133,333 shares of Common Stock, as adjusted from time to
time.
15. Severability of Provisions. If any right, preference or limitation of
the Series A Preferred Stock set forth in this Resolution (as such Resolution
may be amended from time to time) is invalid, unlawful or incapable of being
enforced by reason of any rule, law or public policy, all other rights
preferences and limitations set forth in this Resolution (as so amended)
which can be given effect without implicating the invalid, unlawful or
unenforceable right preference or limitation shall, nevertheless, remain in
full force and effect, and no right, preference or limitation herein set
forth shall be deemed dependent upon any other right, preference or
limitation unless so expressed herein.
FIFTH: The name and address of the incorporator are as follows:
NAME ADDRESS
Michael Barr 10 Bank Street
White Plains, New York 10606
SIXTH: The following provisions are inserted for the
management of the business and for the conduct of the affairs of the
corporation, and for further definition, limitation and regulation of the
powers of the corporation and of its directors and stockholders:
(1) The number of directors of the corporation shall be such as
from time to time shall be fixed by, or in the manner provided in the
by-laws. Election of directors need not be by ballot unless the by-
laws so provide.
(2) The Board of Directors shall have power without the assent
or vote of the stockholders:
(a) To make, alter, amend, change, add to or repeal the
By-Laws of the corporation; to fix and vary the amount to be
reserved for any proper purpose; to authorize and cause to be
executed mortgages and liens upon all or any part of the property
of the corporation; to determine the use and disposition of any
surplus or net profits; and to fix the times for the declaration
and payment of dividends.
(b) To determine from time to time whether, and to what
times and places, and under what conditions the accounts and
books of the corporation (other than the stock ledger) or any of
them, shall be open to the inspection of the stockholders.
(3) The directors in their discretion may submit any contract
or act for approval or ratification at any annual meeting of the
stockholders or at any meeting of the stockholders called for the
purpose of considering any such act or contract, and any contract or
act that shall be approved or be ratified by the vote of the holders of
a majority of the stock of the corporation which is represented in
person or by proxy at such meeting and entitled to vote thereat
(provided that a lawful quorum of stockholders be there represented in
person or by proxy) shall be as valid and as binding upon the
corporation and upon all the stockholders as though it had been
approved or ratified by every stockholder of the corporation, whether
or not the contract or act would otherwise be open to legal attack
because of director's interest, or for any other reason.
(4) In addition to the powers and authorities hereinbefore or
by statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and things
as may be exercised or done by the corporation; subject, nevertheless,
to the provisions of the statutes of Delaware, of this certificate, and
to any by-laws from time to time made by the stockholders, provided,
however, that no by-laws so made shall invalidate any prior act of the
directors which would have been valid if such by-law had not been made.
SEVENTH: No director shall be liable to the corporation or any
of its stockholders for monetary damages for breach of fiduciary duty as a
director, except with respect to (1) a breach of the director's duty of
loyalty to the corporation or its stockholders, (2) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (3) liability under Section 174 of the Delaware General Corporation Law
or (4) a transaction from which the director derived an improper personal
benefit, it being the intention of the foregoing provision to eliminate the
liability of the corporation's directors to the corporation or its
stockholders to the fullest extent permitted by Section 102(b)(7) of the
Delaware General Corporation Law, as amended from time to time. The
corporation shall indemnify to the fullest extent permitted by Sections
102(b)(7) and 145 of the Delaware General Corporation Law, as amended from
time to time, each person that such Sections grant the corporation the power
to indemnify.
EIGHTH: Whenever a compromise or arrangement is proposed
between this corporation and its creditors or any class of them and/or
between this corporation and its stockholders or any class of them, any court
or equitable jurisdiction within the State of Delaware, may, on the
application in a summary way of this corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers
appointed for this corporation under the provisions of Section 291 of Title 8
of the Delaware Code or on the application of trustees in dissolution or of
any receiver or receivers appointed for this corporation under the provisions
of Section279 Title 8 of the Delaware Code order a meeting of the creditors
or class of creditors, and/or of the stockholders or class of stockholders of
this corporation, as the case may be, to be summoned in such manner as the
said court directs. If a majority in number representing three-fourths (3/4)
in value of the stockholders of this corporation, as the case may be, agree
to any compromise or arrangement and to any reorganization of this
corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
NINTH: The corporation reserves the right to amend, alter, change
or repeal any provision contained in this certificate of incorporation in the
manner now or hereafter prescribed by law, and all rights and powers
conferred herein on stockholders, directors and officers are subject to this
reserved power.
IN WITNESS WHEREOF, the undersigned hereby executes this document and
affirms that the facts set forth herein are true under the penalties of
perjury this _____________day of October, 1998.
Michael Barr
__________________________________
Michael Barr, Incorporator
<PAGE>
APPENDIX C
BY-LAWS
OF
CTC TELECOM CORP.
ARTICLE I
Stockholders
Section 1. ANNUAL MEETING. The Annual Meeting of Stockholders shall
be held each year on a date and at a time designated by the Board of
Directors. At the Annual Meeting of Stockholders, only such business shall
be conducted as shall have been properly brought before the Meeting.
Section 2. SPECIAL MEETINGS. Special Meetings may be called at any
time by the Chairman of the Board of Directors, the Chief Executive Officer
(or, if there is not a Chief Executive Officer, the President) or the
Corporation's Board of Directors.
Section 3. PLACE OF MEETING. All meetings of stockholders shall be
held at the principal office of the Corporation unless a different place
(within the United States) is fixed by the Directors or the President and
stated in the notice of the meeting.
Section 4. NOTICE OF MEETINGS. Except as hereinafter provided, a
written notice of every meeting of stockholders, stating the place, date and
hour thereof, and the purposes for which the meeting is to be held, shall be
given by the Secretary or by the person calling the meeting at least ten (10)
but not more than (60) days before the meeting to each stockholder entitled
to vote thereat and to each stockholder, who, by law, by the Certificate of
Incorporation or by these By-Laws is entitled to such notice, by leaving such
notice with him or at his residence or usual place of business, or by mailing
it postage prepaid and addressed to such stockholder at his address as it
appears upon the books of the Corporation. No notice need be given to any
stockholder if a written waiver of notice, executed before or after the
meeting by the stockholder or his attorney thereunto authorized, is filed
with the records of the meeting.
Section 5. QUORUM. Except as otherwise provided by law or in the
Certificate of Incorporation or these By-Laws, the holders of a majority of
the issued and outstanding stock of the Corporation entitled to vote shall
constitute a quorum for the transaction of business.
Section 6. VOTING AND PROXIES. Each stockholder shall have one vote
for each share of stock entitled to vote held by him of record according to
the records of the Corporation, unless otherwise provided by the Certificate
of Incorporation. Stockholders may vote either in person or by written proxy
dated not more than three years before the meeting named therein, unless the
proxy provides for a longer period. Proxies shall be filed with the
Secretary of the meeting, or of any adjournment thereof, before being voted.
Except as otherwise limited therein, proxies shall entitle the persons named
therein to vote at any adjournment of such meeting. A proxy with respect to
stock held in the name of two or more persons shall be valid if executed by
one of them unless at or prior to exercise of the proxy the Corporation
receives a specific written notice to the contrary from any one of them. A
proxy purporting to be executed by or on behalf of a stockholder shall be
deemed valid unless challenged at or prior to its exercise.
Section 7. ACTION AT MEETING. When a quorum is present, the holders
of a majority of the stock present or represented and voting on a matter, (or
if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of
the stock of that class present or represented and voting on a matter) except
where a larger vote is required by law, the Certificate of Incorporation or
these By-Laws, shall decide any matter to be voted on by the stockholders.
Any election by stockholders shall be determined by a plurality of the votes
cast by the stockholders entitled to vote at the election. No ballot shall
be required for such election unless requested by a stockholder present or
represented at the meeting and entitled to vote in the election. The
Corporation shall not directly or indirectly vote any share of its stock.
Section 8. ACTION WITHOUT MEETING. Unless otherwise provided by the
Certificate of Incorporation, any action required or permitted to be taken by
stockholders at any annual or special meeting may be taken without a meeting
and without prior notice, if the stockholders having the number of votes that
would be necessary to take such action at a meeting at which all stockholders
were present and voted, consent to the action in writing and the written
consents are filed with the records of the meetings of stockholders. All such
consents must, in order to be effective, be signed and delivered to the
Corporation within sixty days after the earliest dated consent is delivered
to the Corporation. Such consent shall be treated for all purposes as a vote
at a meeting.
Section 9. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATION OF DIRECTORS.
(a) Annual Meetings of Stockholders.
(i) Nominations of persons for election to the Board of
Directors of the Corporation and the proposal of business to be
considered by the stockholders may be made at an annual meeting
of stockholders (x) pursuant to the Corporation's notice of
meeting, (y) by or at the direction of the Board of Directors or
(z) by any stockholder of the Corporation who was a stockholder
of record at the time of giving of notice provided for in this
Section 9, is entitled to vote at the meeting and has complied
with the notice procedures set forth in this Section 9.
(ii) For nomination or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (z)
of paragraph (a)(i) of this Section 9, the stockholder must have
given timely notice thereof in writing to the Secretary of the
Corporation at the principal executive office of the Corporation
not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is
advanced by more than 30 days or delayed by more than 60 days
from such anniversary date, notice by the stockholder to be
timely must be so delivered not earlier than the 90th day prior
to such annual meeting and not later than the close of business
on the later of (x) the 60th day prior to such annual meeting and
(y) the 10th day following the day on which public announcement
of the date of such meeting is first made. Such stockholder's
notice shall set forth: (1) as to each person whom the
stockholder proposes to nominate for election or reelection as a
Director all information relating to such person that is required
to be disclosed in solicitations of proxies for election of
Directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (including such person's written
consent to being named in the proxy statement as a nominee and to
serving as a Director if elected); (2) as to any other business
that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before
the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the
proposal is made; (3) as to the stockholder giving notice and the
beneficial owner, if any, on whose behalf the nomination or
proposal is made, (A) the name and address of such stockholder,
as they appear on the Corporation's books, and of such beneficial
owner and (B) the class and number of shares of the
Corporation which are owned beneficially and of record by such
stockholder and such beneficial owner.
(iii) Notwithstanding anything in the second sentence of
paragraph (a)(ii) of this Section 9 to the contrary, in the event
that any person nominated by the Board of Directors of the
Corporation for election as a Director (other than a person
nominated to fill a vacancy created by the death of a Director)
was not a Director or nominee named (x) in the Corporation's
proxy statement for the preceding annual meeting or (y) in a
public announcement made by this Corporation at least 60 days
prior to the first anniversary of the preceding year's annual
meeting (a "New Nominee"), a stockholder's notice required by
this Section 9 shall also be considered timely if it shall be
delivered to the Secretary of the Corporation at the principal
executive offices of the Corporation not later than the close of
business on the 10th day following the date on which public
announcement is first made by the Corporation of the election or
nomination of such New Nominee to the Board of Directors.
(iv) The Corporation shall set forth in its proxy statement
for each annual meeting of stockholders the date by which notice
of nominations by stockholders of persons for election as a
Director or for other business proposed to be brought by
stockholders at the next annual meeting of stockholders must be
received by the Corporation to be considered timely pursuant to
this Section 9. With respect to the first annual meeting of
stockholders after the adoption of this Section 9, the
Corporation shall issue a public announcement setting forth such
information not less than 30 days prior to the applicable date.
(b) Special Meetings of Stockholders. Only such business shall
be conducted at a special meeting of stockholders as shall have
been brought before the meeting pursuant to the Corporation's
notice of meeting. Nominations of persons for election to the
Board of Directors of the Corporation may be made at a special
meeting of stockholders at which Directors are to be elected
pursuant to the Corporation's notice of meeting (x) by or at the
direction of the Board of Directors or (y) by any stockholder of
the Corporation who (1) is a stockholder of record at the time of
giving of notice provided for in this Section 9, (2) is entitled
to vote at the meeting and (3) complies with the notice
procedures set forth in this Section 9. Stockholders desiring to
nominate persons for election to the Board of Directors at such a
special meeting of stockholders shall deliver the stockholder's
notice required by paragraph (a)(ii) of this Section 9 to the
Secretary of the Corporation at the principal executive offices
of the Corporation not earlier than the 90th day prior to such
special meeting and not later than the close of business on the
later of (A) the 60th day prior to such special meeting and (B)
the 10th day following the day on which public announcement is
first made of the date of the special meeting and of the nominees
proposed by the Board of Directors to be elected at such meeting.
(c) General.
(i) Only persons who are nominated in accordance with the
procedures set forth in this Section 9 shall be eligible to serve
as Directors. Only such business shall be conducted at a meeting
of stockholders as shall have been brought before the meeting in
accordance with the procedures set forth in Section 9. The
chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the
procedures set forth in this Section 9 and, if any proposed
nomination or business is not in compliance with this Section 9,
to declare that such defective proposal shall be disregarded.
(ii) For purposes of this Section 9, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Corporation with the Securities Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this
Section 9, a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this Section
9. Nothing in this Section 9 shall be deemed to limit the
Corporation's obligation to include stockholder proposals in its
proxy statement if such inclusion is required by Rule 14a-8 under
the Exchange Act or any successor Rule.
ARTICLE II
Directors
Section 1. POWERS. The business of the Corporation shall be managed
by a Board of Directors who may exercise all the powers of the Corporation
including, but not limited to, the issuance of stock, except as otherwise
provided by law, by the Articles of Organization or by these By-Laws. In the
event of a vacancy in the Board of Directors, the remaining Directors, except
as otherwise provided by law, may exercise the powers of the full Board until
the vacancy is filled.
Section 2. NUMBER. The Board of Directors shall fix the number of
Directors at not less than three nor more than eleven Directors; provided,
however, that the number of Directors shall be fixed at not less than two
whenever there shall be only two stockholders and not less than one whenever
there shall be only one stockholder. The number of Directors may be
increased or decreased at any time or from time to time by the vote of a
majority of the Directors then in office. No Director need be a stockholder.
Section 3. CLASSIFICATION, ELECTION AND TENURE. The Directors, other
than those who may be elected by the holders of any class or series of
Preferred Stock voting separately by class or series, shall be classified,
with respect to the duration of the term for which they severally hold
office, into three classes, designated Class I, Class II, and Class III,
which shall be as nearly equal in number as possible and as provided by
resolution of the Board of Directors in connection with such election.
Each initial Director in Class I shall hold office for a term expiring at the
1998 annual meeting of stockholders; each initial Director of Class II shall
hold office for a term expiring at the 1999 annual meeting of stockholders;
and each initial Director of Class III shall hold office for a term expiring
at the 2000 annual meeting of stockholders. Each Director shall serve until
his successor is duly elected and qualified or until his earlier death,
resignation, removal or disqualification. At each annual meeting of
stockholders following the 1998 annual meeting, the stockholders shall elect
the successors of the class of Directors whose term expires at that meeting
to hold office for a term expiring at the annual meeting of stockholders held
in the third year following the year of their election and until their
successors have been duly elected and qualified or until their earlier death,
resignation, removal or disqualification.
The Board of Directors shall increase or decrease the number of Directors in
one or more classes as may be appropriate whenever it increases or decreases
the number of Directors pursuant to Section 2 of this Article II, in order to
ensure that the three classes shall be as nearly equal in number as possible.
Section 4. VACANCIES. Subject to the rights of the holders of shares of any
class or series of Preferred Stock, any vacancies on the Board of Directors
resulting from death, resignation or removal shall only be filled by the
affirmative vote of a majority of the remaining Directors then in office,
even though less than a quorum of the Board of Directors, or by a sole
remaining Director, and newly created Directorships resulting from any
increase in the number of Directors shall be filled by the Board of
Directors, or if not so filled, by the stockholders at the next annual
meeting thereof or at a special meeting called for that purpose in accordance
with these By-laws. Any Director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the class of
Directors in which the new Directorship was created or the vacancy occurred
and until such Director's successor shall have been elected and qualified or
until his earlier death, resignation or removal. The Directors shall have
and may exercise all their powers notwithstanding the existence of one or
more vacancies in their number, subject to any requirement of law or of the
number of Directors as required for a quorum or for any vote or other
actions.
Section 5. RESIGNATION. Any Director may resign by delivering his written
resignation to the Corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some
other event.
Section 6. REMOVAL. Except as otherwise provided in the Articles of
Organization or these By-laws relating to the rights of the holders of any
class or series of Preferred Stock voting separately by class or series, to
elect Directors under specified circumstances any Director or Directors may
be removed from office but only for cause and only by either the affirmative
vote, at any regular meeting or special meeting of the stockholders, of not
less than a majority of the total number of votes of the then outstanding
shares of capital stock of the Corporation entitled to vote generally in the
election of Directors, voting together as a single class, but only if notice
of such proposal was contained in the notice of such meeting, or by the
affirmative vote of a majority of the Directors then in office. A Director
may be removed for cause only after reasonable notice and opportunity to be
heard before the body opposing him.
Section 7. MEETINGS. Regular meetings of the Directors may be held without
call or notice at such places and at such times as the Directors may from
time to time determine, provided that any Director who is absent when such
determination is made shall be given notice of the determination. A regular
meeting of the Directors may be held without a call or notice at the same
place as the annual meeting of stockholders or the special meeting held in
lieu thereof, following such meetings of stockholders.
Special meetings of the Directors may be held at any time and place
designated in a call by the President, Treasurer or two or more Directors.
Section 8. NOTICE OF MEETINGS. Notice of all special meetings of the
Directors shall be given to each Director by the Secretary, or in case of the
death, absence, incapacity or refusal of the Secretary, by the officer or one
of the Directors calling the meeting. Notice shall be given to each Director
in person, by telephone, facsimile or email at least twenty-four hours in
advance of the meeting, or by written notice mailed to his business or home
address at least forty-eight hours in advance of the meeting. Notice need
not be given to any Director if a written waiver of notice, executed by him
before or after the meeting, is filed with the records of the meeting, or to
any Director who attends the meeting without protesting prior thereto or at
its commencement the lack of notice to him. A notice or waiver of notice of
a Directors' meeting need not specify the purposes of the meeting.
Section 9. QUORUM. At any meeting of the Directors, a majority of the
Directors then in office shall constitute a quorum. Less than a quorum may
adjourn any meeting from time to time without further notice.
Section 10. ACTION AT MEETING. At any meeting of the Directors at which
a quorum is present, the vote of a majority of those present, unless a
different vote is specified by law, by the Articles of Organization, or by
these By-Laws, shall be sufficient to decide such matter.
Section 11. ACTION BY CONSENT. Any action by the Directors may be taken
without a meeting if a written consent thereto is signed by all the Directors
and filed with the records of the Directors' Meetings. Such consent shall be
treated as a vote of the Directors for all purposes.
Section 12. COMMITTEE. The Directors may, by vote of a majority of the
Directors then in office, elect from their number an executive or other
committees and may by like vote delegate thereto some or all of their powers
except those which by law, the Articles of Organization or these By-Laws,
they are prohibited from delegating. Except as the Directors may otherwise
determine, any such committee may make rules for the conduct of its business,
but unless otherwise provided by the Directors, or in such rules, its
business shall be conducted as nearly as may be in the same manner as is
provided by these By-Laws for the Directors.
Section 13. MEETING BY TELECOMMUNICATIONS. Members of the Board of
Directors or any committee elected thereby may participate in a meeting of
such board or committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in a
meeting can hear each other at the same time and participation by such means
shall constitute presence in person at the meeting.
ARTICLE III
Officers
Section 1. ENUMERATION. The officers of the Corporation shall consist of a
President, a Treasurer, a Secretary, and such other officers, including a
Chairman of the Board of Directors, one or more Vice Presidents, Assistant
Treasurer, Assistant Secretary as the Directors may determine.
Section 2. ELECTION. The President, Treasurer and Secretary shall be
elected annually by the Directors at their first meeting following the annual
meeting of stockholders. Other officers may be chosen by the Directors at
such meeting or at any other meeting.
Section 3. QUALIFICATION. The President may, but need not be, a Director.
No officer need be a stockholder. Any two or more officers may be held by
the same person provided that the President and Secretary shall not be the
same person. Any officer may be required by the Directors to give bond for
the faithful performance of his duties to the Corporation in such amount and
with such sureties as the Directors may determine.
Section 4. TENURE. Except as otherwise provided by law, the Certificate of
Incorporation or by these By-Laws, the President, Treasurer and Secretary
shall hold office until the first meeting of the Directors following the
annual meeting of stockholders and thereafter until his successor is chosen
and qualified; and all other officers shall hold office until the first
meeting of the Directors following the annual meeting of the stockholders,
unless a shorter term is specified in the vote choosing or appointing them.
An officer may resign by delivering his written resignation to the
Corporation at its principal office or to the President or Secretary, and
such resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event.
Section 5. REMOVAL. The Directors may remove any officer with or without
cause by a vote of a majority of the entire number of Directors then in
office, provided, that an officer may be removed for cause only after
reasonable notice and opportunity to be heard by the Board of Directors prior
to action thereon.
Section 6. CHAIRMAN, PRESIDENT AND VICE PRESIDENT. The Chairman of the
Board of Directors, if there be one, shall be the chief executive officer of
the Corporation and shall, when present, preside at all meetings of the
stockholders and at all meetings of the Board of Directors. The President
shall have such duties and powers as are prescribed by the Board of
Directors. Any Vice President shall have such powers as the Directors may
from time to time designate.
Section 7. TREASURER AND ASSISTANT TREASURER. The Treasurer shall,
subject to the direction of the Directors, have general charge of the
financial affairs of the Corporation and shall cause to be kept accurate
books of account. He shall have custody of all funds, securities, and
valuable documents of the Corporation, except as the Directors may otherwise
provide.
Any Assistant Treasurer shall have such powers as the Directors may from time
to time designate.
Section 8. SECRETARY. The Secretary shall keep a record of the meetings of
stockholders and of the meetings of the Directors. Unless a Transfer Agent
is appointed, the Secretary shall keep or cause to be kept at the principal
office of the Corporation or at his office, the stock and transfer records of
the Corporation, in which are contained the names of all stockholders and the
record address, and the amount of stock held by each.
Any Assistant Secretary shall have such powers as the Directors may from time
to time designate.
Section 9. ASSISTANT SECRETARY. Any Assistant Secretary shall have such
powers as the Directors may from time to time designate. In the absence of
the Secretary from any meeting of stockholders, an Assistant Secretary, if
one be elected, otherwise a Temporary Secretary designated by the person
presiding at the meeting, shall perform the duties of the Secretary.
Section 10. OTHER POWERS AND DUTIES. Each officer shall, subject to
these By-Laws, have in addition to the duties and powers specifically set
forth in these By-Laws, such duties and powers as are customarily incident to
his office, and such duties and powers as the Directors may from time to time
designate.
ARTICLE IV
Indemnification of Directors and Officers
The Corporation shall to the extent legally permissible indemnify each of its
directors and officers and each person who shall serve or shall have served
at its request as a director or officer of another Corporation (and the
heirs, executors and administrators of such director, officer and other
person) against all expenses and liabilities which he has reasonably incurred
in connection with or arising out of any actual or threatened action, suit or
proceeding in which he may be involved by reason of his being or having been
a director or officer of the Corporation or by reason of his serving or
having served at its request as a director or officer of another Corporation
(whether or not he continues to be a director, or officer, at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees
and the cost of reasonable settlements, provided no such indemnification
shall be made in relation to matters as to which such director or officer
shall be finally adjudged in any such action, suit or proceeding not to have
acted in good faith in the reasonable belief that his action was in the best
interests of the Corporation. In the event that a settlement or compromise
of such action, suit or proceeding is effected, indemnification may be had
but only if the Board of Directors shall have been furnished with an opinion
of counsel for the Corporation to the effect that such settlement or
compromise is in the best interest of the Corporation and that such director
or officer does not appear not to have acted in good faith in the reasonable
belief that his action was in the best interests of the Corporation, and if
the Board of Directors shall have adopted a resolution approving such
settlement or compromise.
The foregoing right of indemnification shall not be exclusive of other rights
to which any director, officer or other corporate personnel may be entitled
as a matter of law.
ARTICLE V
Capital Stock
Section 1. CERTIFICATE OF STOCK. Each stockholder shall be entitled to a
certificate of the capital stock of the Corporation in such form as may be
prescribed from time to time by the Directors. The certificate shall be
signed by the President or a Vice President, and by the Treasurer or an
Assistant Treasurer, but when a certificate is countersigned by a transfer
agent or a registrar, other than a Director, officer or employee of the
Corporation, such signatures may be facsimiles. In case any officer who has
signed or whose facsimile signature has been placed on such certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued by the Corporation with the same effect as if he were such officer at
the time of its issue.
Every certificate for shares of stock which are subject to any restriction on
transfer pursuant to the Articles of Organization, the By-Laws, or any
agreement to which the Corporation is a party, shall have the restriction
noted conspicuously on the certificate and shall also set forth on the face
or back either the full text of the restriction or a statement of the
existence of such restriction and a statement that the Corporation will
furnish a copy to the holder of such certificate upon written request and
without charge.
Every certificate issued when the Corporation is authorized to issue more
than one class or series of stock shall set forth on its face or back either
the full text of the preferences, voting powers, qualifications and special
and relative rights of the shares of each class and series authorized to be
issued or a statement of the existence of such preferences, powers,
qualifications and right, and a statement that the Corporation will furnish a
copy thereof to the holder of such certificate upon written request and
without charge.
Section 2. TRANSFERS. Subject to the restrictions, if any, stated or noted
on the stock certificates, shares of stock may be transferred on the books of
the Corporation by the surrender to the Corporation or its transfer agent of
the certificate therefor properly endorsed or accompanied by a written
assignment and power of attorney properly executed, with necessary transfer
stamps affixed, and with such proof of the authenticity of signature as the
Corporation or its transfer agent may reasonably require. Except as may be
otherwise required by law, the Articles of Organization or these By-Laws, the
Corporation shall be entitled to treat the record holder of stock as shown on
its books as the owner of such stock for all purposes, including the payment
of dividends and the right to vote with respect thereto, regardless of any
transfer, pledge or other disposition of such stock, until the shares have
been transferred on the books of the Corporation in accordance with the
requirements of the By-Laws.
It shall be the duty of each stockholder to notify the Corporation of his
post office address.
Section 3. RECORD DATE. The Directors may fix in advance a time of not more
than sixty days preceding the date of any meeting of stockholders, or the
date for the payment of any dividend or the making of any distribution to
stockholders, or the last day on which the consent or dissent of stockholders
may be effectively expressed for any purpose, as the record date for
determining the stockholders having the right to notice of and to vote at
such meeting, and any adjournment thereof, or the right to receive such
dividend or distribution or the right to give such consent or dissent. In
such case only stockholders of record on such record date shall have such
right, notwithstanding any transfer of stock on the books of the Corporation
after the record date. Without fixing such record date, the Directors may
for any of such purposes close the transfer books for all or any part of such
period.
Section 4. REPLACEMENT OF CERTIFICATES. In case of the alleged loss or
destruction or the mutilation of a certificate of stock, a duplicate may be
issued in place thereof, upon such terms as the Directors may prescribe.
ARTICLE VI
Miscellaneous
Section 1. FISCAL YEAR. Except as from time to time otherwise
determined by the Directors, the fiscal year of the Corporation shall be the
twelve months ending March 31.
Section 2. SEAL. The seal of the Corporation shall, subject to
alterations by the Directors, bear its name, the word "Delaware" and the year
of its incorporation.
Section 3. EXECUTION OF INSTRUMENTS. All deeds, leases, transfers,
contracts, bonds, notes and other obligations authorized to be executed by an
officer of the Corporation in its behalf shall be signed by the President or
the Treasurer except as the Directors may generally or in particular cases
otherwise determine.
Section 4. VOTING OF SECURITIES. Except as the Directors may
otherwise designate, the President or Treasurer may waive notice of, and
appoint any person or persons to act as proxy or attorney in fact for this
Corporation (with or without power of substitution) at any meeting of
stockholders or shareholders of any other Corporation or organization, the
securities of which may be held by this Corporation. The President shall
have the power to vote any such securities held by this Corporation unless
the Directors shall, by vote, otherwise stipulate.
Section 5. CORPORATE RECORDS. The original, or attested copies, of
the Certificate of Incorporation, By-Laws and records of all meetings of the
incorporates and stockholders, and the stock and transfer records, which
shall contain the names of all stockholders and the record address and the
amount of stock held by each, shall be kept at the principal office of the
Corporation, or at an office of its transfer agent or of the Secretary. Said
copies and records need not all be kept in the same office. They shall be
available at all reasonable times to the inspection of any stockholder for
any proper purpose but not to secure a list of stockholders for the purpose
of selling said list or copies thereof or of using the same for a purpose
other than in the interest of the applicant, as a stockholder, relative to
the affairs of the Corporation.
Section 6. CORPORATION MAY ACT AS PARTNER. The Corporation, in
accordance with the Certificate of Incorporation and the General Corporation
Law of the State of Delaware, is hereby empowered to be a partner in any
business enterprise which the Corporation would have power to conduct itself.
Section 7. CERTIFICATE OF INCORPORATION. All references in these By-
Laws to the Certificate of Incorporation shall be deemed to refer to the
Certificate of Incorporation of the Corporation, as amended and in effect
from time to time.
Section 8. AMENDMENTS. Except as otherwise required by law, these By-
Laws may at any time be amended by vote of the stockholders, provided that
notice of the substance of the proposed amendment is stated in the notice of
the meeting, or may be amended by vote of a majority of the Directors then in
office, except that no amendment may be made by the Directors which alters
the provisions of these By-Laws with respect to removal of Directors or the
election of committees by Directors and delegation of powers thereto, or
amendment of these By-Laws. Not later than the time of giving notice of the
meeting of stockholders next following the making, amending or repealing by
the Directors of any By-Law, notice thereof stating the substance of such
change shall be given to all stockholders entitled to vote on amending the
By-Laws.
ARTICLE VII
Repayment of Disallowed Expenses
Any payments made to an officer of the Corporation such as a salary,
commission, bonus, interest, or rent, or entertainment expense incurred by
him, which shall be disallowed in whole or in part as a deductible expense by
the Internal Revenue Service, shall be reimbursed by such officer to the
Corporation to the full extent of such disallowance. It shall be the duty of
the Directors, as a Board, to enforce payment of each amount disallowed. In
lieu of payment by the officer, subject to determination of the Directors,
proportionate amounts may be withheld from his future compensation payments
until the amount owed to the Corporation has been recovered.
<PAGE>
APPENDIX D
PROVISIONS OF THE GENERAL LAWS OF MASSACHUSETTS
RELATING TO THE RIGHTS OF DISSENTING SHAREHOLDERS
(SECTIONS 86 TO 98 OF CHAPTER 156B OF THE
GENERAL LAWS OF MASSACHUSETTS)
86. RIGHT OF APPRAISAL. If a corporation proposes to take a corporate action
as to which any section of this chapter provides that a stockholder who
objects to such action shall have the right to demand payment for his shares
and an appraisal thereof, sections eighty-seven to ninety-eight, inclusive,
shall apply except as otherwise specifically provided in any section of this
chapter. Except as provided in sections eighty-two and eighty-three, no
stockholder shall have such right unless (1) he files with the corporation
before the taking of the vote of the shareholders on such corporate action,
written objection to the proposed action stating that he intends to demand
payment for his shares if the action is taken and (2) his shares are not voted
in favor of the proposed action.
87. NOTICE OF STOCKHOLDERS MEETING TO CONTAIN STATEMENT AS TO APPRAISAL
RIGHTS. The notice of the meeting of stockholders at which the approval of
such proposed action is to be considered shall contain a statement of the
rights of objecting stockholders. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his stock, and the directors may authorize the inclusion in any
such notice of a statement of opinion by the management as to the existence or
non-existence of the right of the stockholders to demand payment for their
stock on account of the proposed corporate action. The notice may be in such
form as the directors or officers calling the meeting deem advisable, but the
following form of notice shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting
and effected by the corporation, any stockholder (1) who files with the
corporation before the taking of the vote on the approval of such action,
written objection to the proposed action stating that he intends to demand
payment for his shares if the action is taken and (2) whose shares are not
voted in favor of such action has or may have the right to demand in
writing from the corporation (or, in the case of a consolidation or merger,
the name of the resulting or surviving corporation shall be inserted),
within twenty days after the date of mailing to him of notice in writing
that the corporate action has become effective, payment for his shares and
an appraisal of the value thereof. Such corporation and any such
stockholder shall in such cases have the rights and duties and shall follow
the procedure set forth in section 88 to 98, inclusive, of Chapter 156B of
the General Laws of Massachusetts."
88. NOTICE TO OBJECTING STOCKHOLDER THAT CORPORATE ACTION HAS BECOME
EFFECTIVE. The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed written objection meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action approved at the meeting of the corporation of which he
is a stockholder has become effective. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his stock. The notice shall be sent by registered or certified
mail, addressed to the stockholder at his last known address as it appears in
the records of the corporation.
89. DEMAND FOR PAYMENT BY OBJECTING STOCKHOLDER. If within twenty days after
the date of mailing of a notice under subsection (e) of section eighty-two,
subsection (f) of section eighty-three, or section eighty-eight any
stockholder to whom the corporation was required to give such notice shall
demand in writing from the corporation taking such action, or in the case of a
consolidation or merger from the resulting or surviving corporation, payment
for his stock, the corporation upon which such demand is made shall pay to him
the fair value of his stock within thirty days after the expiration of the
period during which such demand may be made.
90. DETERMINATION OF VALUE OF STOCK BY SUPERIOR COURT. If during the period
of thirty days provided for in section eighty-nine the corporation upon which
such demand is made and any such objecting stockholder fail to agree as to the
value of such stock, such corporation or any such stockholder may within four
months after the expiration of such thirty-day period demand a determination
of the value of the stock of all such objecting stockholders by a bill in
equity filed in the superior court in the county where the corporation in
which such objecting stockholder held stock had or has its principal office in
the commonwealth.
91. BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE ON VALUE THEREOF ETC.; PARTIES TO BILL ETC.; SERVICE OF BILL
IN CORPORATION; NOTICE TO STOCKHOLDER PARTIES ETC. If the bill is filed by the
corporation, it shall name as parties respondent all stockholders who have
demanded payment for their shares and with whom the corporation has not
reached agreement as to the value thereof. If the bill is filed by a
stockholder, he shall bring the bill in his own behalf and in behalf of all
other stockholders who have demanded payment for their shares and with whom
the corporation has not reached agreement as to the value thereof, and service
of the bill shall be made upon the corporation by subpoena with a copy of the
bill annexed. The corporation shall file with its answer a duly verified list
of all such other stockholders, and such stockholders shall thereupon be
deemed to have been added as parties to the bill. The corporation shall give
notice in such form and returnable on such date as the court shall order to
each stockholder party to the bill by registered or certified mail, addressed
to the last known address of such stockholder as shown in the records of the
corporation, and the court may order such additional notice by publication or
otherwise as it deems advisable. Each stockholder who makes demand as provided
in section eighty-nine shall be deemed to have consented to the provisions of
this section relating to notice, and the giving of notice by the corporation
to any such stockholder in compliance with the order of the court shall be a
sufficient service of process on him. Failure to give notice to any
stockholder making demand shall not invalidate the proceedings as to other
stockholders to whom notice was properly given, and the court may at any time
before the entry of a final decree make supplementary orders of notice.
92. BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE ON VALUE THEREOF, ETC.; ENTRY OF DECREE DETERMINING VALUE OF
STOCK; DATE ON WHICH VALUE IS TO BE DETERMINED. After hearing the court shall
enter a decree determining the fair value of the stock of those stockholders
who have become entitled to the valuation of and payment for their shares, and
shall order the corporation to make payment of such value, together with
interest, if any, as hereinafter provided, to the stockholders entitled
thereto upon the transfer by them to the corporation of the certificates
representing such stock if certificated or if uncertificated, upon receipt of
an instruction transferring such stock to the corporation. For this purpose,
the value of the shares shall be determined as of the day preceding the date
of the vote approving the proposed corporate action and shall be exclusive of
any element of value arising from the expectation, or accomplishments of the
proposed corporate action.
93. BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE ON VALUE THEREOF, ETC.; COURT MAY REFER BILL, ETC., TO
SPECIAL MASTER TO HEAR PARTIES, ETC. The court in its discretion may refer the
bill or any question arising thereunder to a special master to hear the
parties, make findings and report the same to the court, all in accordance
with the usual practice in suits in equity in the superior court.
94. BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE ON VALUE THEREOF, ETC.; STOCKHOLDER PARTIES MAY BE REQUIRED
TO SUBMIT THEIR STOCK CERTIFICATES FOR NOTATION THEREON OF PENDENCY OF BILL,
ETC. On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for notation thereon of the
pendency of the bill, and may order the corporation to note such pendency in
its records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
95. BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE ON VALUE THEREOF, ETC.; TAXATION OF COSTS, ETC.; INTEREST ON
AWARD, ETC. The costs of the bill including the reasonable compensation and
expenses of any master appointed by the court, but exclusive of fees of
counsel or of experts retained by any party, shall be determined by the court
and taxed upon the parties to the bill, or any of them, in such manner as
appears to be equitable, except that all costs of giving notice to
stockholders as provided in this chapter shall be paid by the corporation.
Interest shall be paid upon any award from the date of the vote approving the
proposed corporate action, and the court may on application of any interested
party determine the amount of interest to be paid in the case of any
stockholder.
96. STOCKHOLDER DEMANDING PAYMENT FOR STOCK NOT ENTITLED TO NOTICE OF
STOCKHOLDERS' MEETINGS OR TO VOTE STOCK OR TO RECEIVE DIVIDENDS, ETC.;
EXCEPTIONS. Any stockholder who has demanded payment for his stock as provided
in this chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled
to the payment of dividends or other distribution on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the date of the vote approving the proposed corporate
action) unless:
(1) A bill shall not be filed within the time provided in section ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the corporation,
or in the case of a consolidation or merger, the resulting or surviving
corporation, deliver to it a written withdrawal of his objections to and an
acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3) inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
97. CERTAIN SHARES PAID FOR BY CORPORATION TO HAVE STATUS OF TREASURY STOCK,
ETC. The shares of the corporation paid for by the corporation pursuant to the
provisions of this chapter shall have the status of treasury stock or in the
case of a consolidation or merger the shares or the securities of the
resulting or surviving corporation into which the shares of such objecting
stockholder would have been converted had he not objected to such
consolidation or merger shall have the status of treasury stock or securities.
98. ENFORCEMENT BY STOCKHOLDER OF RIGHT TO RECEIVE PAYMENT FOR HIS SHARES TO
BE EXCLUSIVE REMEDY; EXCEPTION. The enforcement by a stockholder of his right
to receive payment for his shares in the manner provided in this chapter shall
be an exclusive remedy except that this chapter shall not exclude the right of
such stockholder to bring or maintain an appropriate proceeding to obtain
relief on the ground that such corporate action will be or is illegal or
fraudulent as to him.
<PAGE>
APPENDIX E
CTC COMMUNICATIONS CORP.
1998 INCENTIVE PLAN
1. DEFINED TERMS
Exhibit A, which is incorporated by reference, defines the terms used
in the Plan and sets forth certain operational rules related to those terms.
2. GENERAL
The Plan has been established to advance the interests of the Company
by giving selected Employees, directors and other persons (including both
individuals and entities) who provide services to the Company or its
Affiliates Stock-based incentives or incentives based on Performance
Criteria.
3. ADMINISTRATION
The Administrator has discretionary authority, subject only to the
express provisions of the Plan, to interpret the Plan; determine eligibility
for and grant Awards; determine, modify or waive the terms and conditions of
any Award; prescribe forms, rules and procedures (which it may modify or
waive); and otherwise do all things necessary to carry out the purposes of
the Plan. Once an Award has been communicated in writing to a Participant,
the Administrator may not, without the Participant's consent, alter the
terms of the Award so as to affect adversely the Participant's rights under
the Award, unless the Administrator expressly reserved the right to do so in
writing at the time of such communication. In the case of any Award
intended to be eligible for the performance-based compensation exception
under Section 162(m), the Administrator shall exercise its discretion
consistent with qualifying the Award for such exception.
4. LIMITS ON AWARD UNDER THE PLAN
a. Number of Shares. A maximum of 1,500,000 shares of Stock may be
delivered in satisfaction of Awards under the Plan. For purposes of the
preceding sentence, the following shares shall not be considered to have
been delivered under the Plan: (i) shares remaining under an Award that
terminates without having been exercised in full; (ii) shares subject to an
Award, where cash is delivered to a Participant in lieu of such shares;
(iii) shares of Restricted Stock that have been forfeited in accordance
with the terms of the applicable Award; and (iv) shares held back, in
satisfaction of the exercise price or tax withholding requirements, from
shares that would otherwise have been delivered pursuant to an Award. The
number of shares of Stock delivered under an Award shall be determined net
of any previously acquired Shares tendered by the Participant in payment of
the exercise price or of withholding taxes.
b. Type of Shares. Stock delivered by the Company under the Plan
may be authorized but unissued Stock or previously issued Stock acquired by
the Company and held in treasury. No fractional shares of Stock will be
delivered under the Plan.
c. Option & SAR Limits. The maximum number of shares of Stock for
which Stock Options may be granted to any person in any calendar year, the
maximum number of shares of Stock subject to SARs granted to any person in
any calendar year and the aggregate maximum number of shares of Stock
subject to other Awards that may be delivered to any person in any calendar
year shall each be 1,000,000. For purposes of the preceding sentence, the
repricing of a Stock Option or SAR shall be treated as a new grant to the
extent required under Section 162(m). Subject to these limitations, each
person eligible to participate in the Plan shall be eligible in any year to
receive Awards covering up to the full number of shares of Stock then
available for Awards under the Plan.
d. Other Award Limits. No more than $1,000,000 may be paid to any
individual with respect to any Cash Performance Award. In applying the
limitation of the preceding sentence: (A) multiple Cash Performance Awards
to the same individual that are determined by reference to performance
periods of one year or less ending with or within the same fiscal year of
the Company shall be subject in the aggregate to one limit of such amount,
and (B) multiple Cash Performance Awards to the same individual that are
determined by reference to one or more multi-year performance periods ending
in the same fiscal year of the Company shall be subject in the aggregate to
a separate limit of such amount. With respect to any Performance Award
other than a Cash Performance Award or a Stock Option or SAR, the maximum
Award opportunity shall be 1,000,000 shares of Stock or their equivalent
value in cash, subject to the limitations of Section 4.c.
5. ELIGIBILITY AND PARTICIPATION
The Administrator will select Participants from among those key
Employees, directors and other individuals or entities providing services to
the Company or its Affiliates who, in the opinion of the Administrator, are
in a position to make a significant contribution to the success of the
Company and its Affiliates. Eligibility for ISOs is further limited to
those individuals whose employment status would qualify them for the tax
treatment described in Sections 421 and 422 of the Code.
6. RULES APPLICABLE TO AWARDS
a. ALL AWARDS
(1) Terms of Awards. The Administrator shall determine the
terms of all Awards subject to the limitations provided herein.
(2) Performance Criteria. Where rights under an Award depend
in whole or in part on satisfaction of Performance Criteria, actions by the
Company that have an effect, however material, on such Performance Criteria
or on the likelihood that they will be satisfied will not be deemed an
amendment or alteration of the Award.
(3) Alternative Settlement. The Company may at any time
extinguish rights under an Award in exchange for payment in cash, Stock
(subject to the limitations of Section 4) or other property on such terms as
the Administrator determines, provided the holder of the Award consents to
such exchange.
(4) Transferability Of Awards. Except as the Administrator
otherwise expressly provides, Awards may not be transferred other than by
will or by the laws of descent and distribution, and during a Participant's
lifetime an Award requiring exercise may be exercised only by the
Participant (or in the event of the Participant's incapacity, the person or
persons legally appointed to act on the Participant's behalf).
(5) Vesting, Etc. Without limiting the generality of Section
3, the Administrator may determine the time or times at which an Award will
vest (i.e., become free of forfeiture restrictions) or become exercisable
and the terms on which an Award requiring exercise will remain exercisable.
Unless the Administrator expressly provides otherwise, immediately upon the
cessation of the Participant's employment or other service relationship with
the Company and its Affiliates, an Award requiring exercise will cease to be
exercisable, and all Awards to the extent not already fully vested will be
forfeited, except that:
(A) all Stock Options and SARs held by a Participant immediately
prior to his or her death, to the extent then exercisable, will remain
exercisable by such Participant's executor or administrator or the person or
persons to whom the Stock Option or SAR is transferred by will or the
applicable laws of descent and distribution, for the lesser of (i) a one
year period ending with the first anniversary of the Participant's death or
(ii) the period ending on the latest date on which such Stock Option or SAR
could have been exercised without regard to this Section 6.a.(5) and shall
thereupon terminate;
(B) All Stock Options and SARs held by the Participant immediately
prior to the cessation of the Participant's employment or other service
relationship for reasons other than death and except as provided in (C)
below, to the extent then exercisable, will remain exercisable for the
lesser of (i) a period of three months or (ii) the period ending on the
latest date on which such Stock Option or SAR could have been exercised
without regard to this Section 6.a.(5), and shall thereupon terminate; and
(C) all Stock Options and SARs held by the Participant whose
cessation of employment or other service relationship is determined by the
Administrator in its sole discretion to result for reasons which cast such
discredit on the Participant as to justify immediate termination of the
Award shall immediately terminate upon such cessation.
Unless the Administrator expressly provides otherwise, a Participant's
"employment or other service relationship with the Company and its
Affiliates" will be deemed to have ceased, in the case of an employee
Participant, upon termination of the Participant's employment with the
Company and its Affiliates (whether or not the Participant continues in the
service of the Company or its Affiliates in some capacity other than that of
an employee of the Company or its Affiliates), and in the case of any other
Participant, when the service relationship in respect of which the Award was
granted terminates (whether or not the Participant continues in the service
of the Company or its Affiliates in some other capacity).
(6) Taxes. The Administrator will make such provision for the
withholding of taxes as it deems necessary. The Administrator may, but need
not, hold back shares of Stock from an Award or permit a Participant to
tender previously owned shares of Stock in satisfaction of tax withholding
requirements.
(7) Dividend Equivalents, Etc. The Administrator may provide
for the payment of amounts in lieu of cash dividends or other cash
distributions with respect to Stock subject to an Award.
(8) Rights Limited. Nothing in the Plan shall be construed as
giving any person the right to continued employment or service with the
Company or its Affiliates, or any rights as a shareholder except as to
shares of Stock actually issued under the Plan. The loss of existing or
potential profit in Awards will not constitute an element of damages in the
event of termination of employment or service for any reason, even if the
termination is in violation of an obligation of the Company or Affiliate to
the Participant.
(9) Section 162(m). In the case of an Award intended to be
eligible for the performance-based compensation exception under Section
162(m), the Plan and such Award shall be construed to the maximum extent
permitted by law in a manner consistent with qualifying the Award for such
exception. In the case of a Performance Award intended to qualify as
performance-based for the purposes of Section 162(m) (other than a Stock
Option or SAR with an exercise price at least equal to the fair market value
of the underlying Stock on the date of grant), the Committee shall in
writing preestablish one or more specific Performance Criteria no later than
90 days after the commencement of the period of service to which the
performance relates (or at such earlier time as is required to qualify the
Award as performance-based under Section 162(m)). Prior to payment of any
Performance Award (other than a Stock Option or SAR with an exercise price
at least equal to the fair market value of the underlying Stock on the date
of grant) intended to qualify as performance-based under Section 162(m), the
Committee shall certify whether the Performance Criteria have been attained
and such determination shall be final and conclusive. If the Performance
Criteria with respect to any such Award are not attained, no other Award
shall be provided in substitution of the Performance Award.
b. AWARDS REQUIRING EXERCISE
(1) Time And Manner Of Exercise. Unless the Administrator
expressly provides otherwise, (a) an Award requiring exercise by the holder
will not be deemed to have been exercised until the Administrator receives a
written notice of exercise (in form acceptable to the Administrator) signed
by the appropriate person and accompanied by any payment required under the
Award; and (b) if the Award is exercised by any person other than the
Participant, the Administrator may require satisfactory evidence that the
person exercising the Award has the right to do so.
(2) Exercise Price. The Administrator shall determine the
exercise price of each Stock Option provided that each Stock Option intended
to qualify for the performance-based exception under Section 162(m) of the
Code and each ISO must have an exercise price that is not less than the fair
market value of the Stock subject to the Stock Option, determined as of the
date of grant. An ISO granted to an Employee described in Section 422(b)(6)
of the Code must have an exercise price that is not less than 110% of such
fair market value.
(3) Payment Of Exercise Price, If Any. Where the exercise of
an Award is to be accompanied by payment, the Administrator may determine
the required or permitted forms of payment, subject to the following: (a)
all payments will be by cash or check acceptable to the Administrator, or,
if so permitted by the Administrator (with the consent of the optionee of an
ISO if permitted after the grant), (i) through the delivery of shares of
Stock which have been outstanding for at least six months (unless the
Administrator approves a shorter period) and which have a fair market value
equal to the exercise price, (ii) by delivery of a promissory note of the
person exercising the Award to the Company, payable on such terms as are
specified by the Administrator, (iii) by delivery of an unconditional and
irrevocable undertaking by a broker to deliver promptly to the Company
sufficient funds to pay the exercise price, or (iv) by any combination of
the foregoing permissible forms of payment; and (b) where shares of Stock
issued under an Award are part of an original issue of shares, the Award
shall require an exercise price equal to at least the par value of such
shares.
(4) Reload Awards. The Administrator may provide that upon
the exercise of an Award, either by payment of cash or (if permitted under
Section 6.b.(3) above) through the tender of previously owned shares of
Stock, the Participant or other person exercising the Award will
automatically receive a new Award of like kind covering a number of shares
of Stock equal to the number of shares of Stock for which the first Award
was exercised.
(5) ISOs. No ISO may be granted under the Plan after November
16, 2008, but ISOs previously granted may extend beyond that date.
c. AWARDS NOT REQUIRING EXERCISE
Awards of Restricted Stock and Unrestricted Stock may be made in
return for either (i) services determined by the Administrator to have a
value not less than the par value of the Awarded shares of Stock, or
(ii) cash or other property having a value not less than the par value of
the Awarded shares of Stock plus such additional amounts (if any) as the
Administrator may determine payable in such combination and type of cash,
other property (of any kind) or services as the Administrator may determine.
7. EFFECT OF CERTAIN TRANSACTIONS
a. MERGERS, ETC.
In the event of a Covered Transaction, all outstanding Awards shall
vest and if relevant become exercisable and all deferrals, other than
deferrals of amounts that are neither measured by reference to nor payable
in shares of Stock, shall be accelerated, immediately prior to the Covered
Transaction and upon consummation of such Covered Transaction all Awards
then outstanding and requiring exercise shall be forfeited unless assumed by
an acquiring or surviving entity or its affiliate as provided in the
following sentence. In connection with any Covered Transaction in which
there is an acquiring or surviving entity, the Administrator may provide for
substitute or replacement Awards from, or the assumption of Awards by, the
acquiring or surviving entity or its affiliates, any such substitution,
replacement or assumption to be on such terms as the Administrator
determines.
b. CHANGES IN AND DISTRIBUTIONS WITH RESPECT TO THE STOCK
(1) Basic Adjustment Provisions. In the event of a stock
dividend, stock split or combination of shares, recapitalization or other
change in the Company's capital structure, the Administrator will make
appropriate adjustments to the maximum number of shares that may be
delivered under the Plan under Section 4.a. and to the maximum share limits
described in Section 4.b., and will also make appropriate adjustments to the
number and kind of shares of stock or securities subject to Awards then
outstanding or subsequently granted, any exercise prices relating to Awards
and any other provision of Awards affected by such change.
(2) Certain Other Adjustments. The Administrator may also make
adjustments of the type described in paragraph (1) above to take into
account distributions to common stockholders other than those provided for
in Section 7.a. and 7.b.(1), or any other event, if the Administrator
determines that adjustments are appropriate to avoid distortion in the
operation of the Plan and to preserve the value of Awards made hereunder;
provided, that no such adjustment shall be made to the maximum share limits
described in Section 4.c. or 4.d., or otherwise to an Award intended to be
eligible for the performance-based exception under Section 162(m), except to
the extent consistent with that exception, nor shall any change be made to
ISOs except to the extent consistent with their continued qualification
under Section 422 of the Code.
(3) Continuing Application of Plan Terms. References in the
Plan to shares of Stock shall be construed to include any stock or
securities resulting from an adjustment pursuant to Section 7.b.(1) or
7.b.(2) above.
8. LEGAL CONDITIONS ON DELIVERY OF STOCK
The Company will not be obligated to deliver any shares of Stock
pursuant to the Plan or to remove any restriction from shares of Stock
previously delivered under the Plan until the Company's counsel has
approved all legal matters in connection with the issuance and delivery of
such shares; if the outstanding Stock is at the time of delivery listed on
any stock exchange or national market system, the shares to be delivered
have been listed or authorized to be listed on such exchange or system upon
official notice of issuance; and all conditions of the Award have been
satisfied or waived. If the sale of Stock has not been registered under the
Securities Act of 1933, as amended, the Company may require, as a condition
to exercise of the Award, such representations or agreements as counsel for
the Company may consider appropriate to avoid violation of such Act. The
Company may require that certificates evidencing Stock issued under the Plan
bear an appropriate legend reflecting any restriction on transfer applicable
to such Stock.
9. AMENDMENT AND TERMINATION
Subject to the last sentence of Section 3, the Administrator may at
any time or times amend the Plan or any outstanding Award for any purpose
which may at the time be permitted by law, or may at any time terminate the
Plan as to any further grants of Awards; provided, that (except to the
extent expressly required or permitted by the Plan) no such amendment will,
without the approval of the stockholders of the Company, effectuate a change
for which stockholder approval is required in order for the Plan to continue
to qualify under Section 422 of the Code and for Awards to be eligible for
the performance-based exception under Section 162(m).
10. NON-LIMITATION OF THE COMPANY'S RIGHTS
The existence of the Plan or the grant of any Award shall not in any
way affect the Company's right to Award a person bonuses or other
compensation in addition to Awards under the Plan.
11. GOVERNING LAW
The Plan shall be construed in accordance with the laws of the State
of Massachusetts.
EXHIBIT A
Definition of Terms
The following terms, when used in the Plan, shall have the meanings and be
subject to the provisions set forth below:
"Administrator": The Board or, if one or more has been appointed, the
Committee.
"Affiliate": Any corporation or other entity owning, directly or
indirectly, 50% or more of the outstanding Stock of the Company, or in which
the Company or any such corporation or other entity owns, directly or
indirectly, 50% of the outstanding capital stock (determined by aggregate
voting rights) or other voting interests.
"Award": Any or a combination of the following:
(i) Stock Options.
(ii) SARs.
(iii) Restricted Stock.
(iv) Unrestricted Stock.
(v) Deferred Stock.
(vi) Securities (other than Stock Options) that are convertible
into or exchangeable for Stock on such terms and
conditions as the Administrator determines.
(vii) Cash Performance Awards.
(viii) Performance Awards.
(ix) Grants of cash, or loans, made in connection with other
Awards in order to help defray in whole or in part the
economic cost (including tax cost) of the Award to the
Participant.
"Board": The Board of Directors of the Company.
"Cash Performance Award": A Performance Award payable in cash. The right
of the Company under Section 6.a.(3) to extinguish an Award in exchange for
cash or the exercise by the Company of such right shall not make an Award
otherwise not payable in cash a Cash Performance Award.
"Code": The U.S. Internal Revenue Code of 1986 as from time to time amended
and in effect, or any successor statute as from time to time in effect.
"Committee": One or more committees of the Board which in the case of
Awards granted to officers of the Company shall be comprised solely of two
or more outside directors within the meaning of Section 162(m). Any
Committee may delegate ministerial tasks to such persons (including
Employees) as it deems appropriate.
"Company": CTC Communications Corp.
"Covered Transaction": Any of (i) a consolidation or merger in which the
Company is not the surviving corporation or which results in the acquisition
of all or substantially all of the Company's then outstanding common stock
by a single person or entity or by a group of persons and/or entities acting
in concert, (ii) a sale or transfer of all or substantially all the
Company's assets, or (iii) a dissolution or liquidation of the Company.
"Deferred Stock": A promise to deliver Stock or other securities in the
future on specified terms.
"Employee": Any person who is employed by the Company or an Affiliate.
"ISO": A Stock Option intended to be an "incentive stock option" within the
meaning of Section 422 of the Code. No Stock Option Awarded under the Plan
will be an ISO unless the Administrator expressly provides for ISO
treatment.
"Participant": An Employee, director or other person providing services to
the Company or its Affiliates who is granted an Award under the Plan.
"Performance Award": An Award subject to Performance Criteria. The
Committee in its discretion may grant Performance Awards that are intended
to qualify for the performance-based compensation exception under Section
162(m) and Performance Awards that are not intended so to qualify.
"Performance Criteria": Specified criteria the satisfaction of which is a
condition for the exercisability, vesting or full enjoyment of an Award.
For purposes of Performance Awards that are intended to qualify for the
performance-based compensation exception under Section 162(m), a Performance
Criterion shall mean an objectively determinable measure of performance
relating to any of the following (determined either on a consolidated basis
or, as the context permits, on a divisional, subsidiary, line of business,
project or geographical basis or in combinations thereof): (i) sales;
revenues; assets; expenses; earnings before or after deduction for all or
any portion of interest, taxes, depreciation, amortization or other items,
whether or not on a continuing operations or an aggregate or per share
basis; return on equity, investment, capital or assets; one or more
operating ratios; borrowing levels, leverage ratios or credit rating; market
share; capital expenditures; cash flow; stock price; stockholder return;
network deployment; sales of particular products or services; customer
acquisition, expansion and retention; or any combination of the foregoing;
or (ii) acquisitions and divestitures (in whole or in part); joint ventures
and strategic alliances; spin-offs, split-ups and the like; reorganizations;
recapitalizations, restructurings, financings (issuance of debt or equity)
and refinancings; transactions that would constitute a change of control; or
any combination of the foregoing. A Performance Criterion measure and
targets with respect thereto determined by the Administrator need not be
based upon an increase, a positive or improved result or avoidance of loss.
"Plan": The CTC Communications Corp. 1998 Incentive Plan as from time to
time amended and in effect.
"Restricted Stock": An Award of Stock subject to restrictions requiring
that such Stock be redelivered to the Company if specified conditions are
not satisfied.
"Section 162(m)": Section 162(m) of the Code.
"SARs": Rights entitling the holder upon exercise to receive cash or Stock,
as the Administrator determines, equal to a function (determined by the
Administrator using such factors as it deems appropriate) of the amount by
which the Stock has appreciated in value since the date of the Award.
"Stock": Common Stock of the Company, par value $ .01 per share.
"Stock Options": Options entitling the recipient to acquire shares of Stock
upon payment of the exercise price.
"Unrestricted Stock": An Award of Stock not subject to any restrictions
under the Plan.
<PAGE>
PROXY
CTC COMMUNICATIONS CORP.
1998 ANNUAL MEETING OF STOCKHOLDERS
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Leonard R. Glass and John D.
Pittenger and each of them, the true and lawful attorneys and agents for
the undersigned, with full power of substitution, for and in the name of
the undersigned, to act for the undersigned and vote all stock the
undersigned is entitled to vote at the 1998 Annual Meeting of Stockholders
of CTC Communications Corp. to be held on Monday, November 16, 1998 at 9:30
a.m., local time, at the offices of the Company, 360 Second Avenue,
Waltham, Massachusetts, and at any and all adjournments thereof, on the
matters listed on the reverse side of this card.
The undersigned hereby acknowledges receipt of the Annual Report
to Stockholders for the Fiscal Year ended March 31, 1998, Proxy Statement
and Notice of Annual Meeting dated _____________, 1998.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED IN FAVOR OF BOTH NOMINEES TO SERVE AS CLASS I DIRECTORS AND IN FAVOR
OF PROPOSALS 2, 3 AND 4.
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE.
(Please sign exactly as your name appears on your stock certificate. If
stock is registered in more than one name, each holder should sign. When
signing as an attorney, administrator, executor, guardian or trustee,
please add your title as such. If executed by a corporation or
partnership, the Proxy should be signed in full corporate or partnership
name by a duly authorized officer or partner as applicable.)
Has your address changed? Do you have any comments?
______________________________ _______________________________
_____________________________ _______________________________
______________________________ _______________________________
<PAGE>
[X] PLEASE MARK VOTES CTC COMMUNICATIONS CORP.
AS IN THIS EXAMPLE
(1) In favor of the following nominees as Class I Directors to
serve until the Annual Meeting of Stockholders in 2001 and until each
successor is duly elected and qualified;
FOR [ ] WITHHOLD [ ] FOR BOTH EXCEPT [ ]
HENRY HERMANN RALPH C. SILLARI
Instruction: To withhold authority to vote for either or both
nominees, check the "For Both Except" box and strike a line through the
nominee's name in the list above. Unless authority to vote for both
foregoing nominees is withheld, this proxy will be deemed to confer
authority to vote for each nominee whose name is not struck.
(2) Proposal to approve the Reorganization.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(3) Proposal to approve the 1998 Incentive Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(4) Proposal to ratify the appointment of Ernst & Young LLP as the
independent accountants of the Company.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(5) In their discretion, on any other matters which may properly come
before the meeting or any adjournment thereof.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Mark the box at right if comments or address change have been noted on the
reverse side of this card. [ ]
Please be sure to sign and date this Proxy. Date________________
Stockholder sign here_____________________________
Co-owner sign here________________________________
