SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X] Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only( as permitted by Rule
14(a-6(e)(2)) [ ] Definitive Proxy Statement [ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Rule 14a-11(c) or Rule 14a-12
AMERICAN COMMUNICATIONS SERVICES, INC.
--------------------------------------
(Name of Registrant as Specified In Its Charter)
KEVIN T. COLLINS, ESQ.
----------------------
(Name of Person(s) filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] 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:
(4) Proposed maximum aggregate value of transaction:
..................................................................
(5) Total Fee Paid:
..........................................................
[ ] Fee previously paid with preliminary materials.
Set forth the amount on which the filing fee is calculated and
state how it was determined.
[ ] 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:
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3) Filing Party:
4) Date Filed:
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PRELIMINARY COPY
AMERICAN COMMUNICATIONS SERVICES, INC.
131 National Business Parkway, Suite 100
Annapolis Junction, Maryland 20701
(301) 617-4200
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To our Stockholders
The annual meeting of stockholders (the "Annual Meeting") of American
Communications Services, Inc., a Delaware corporation ("ACSI" or the "Company")
will be held at the BWI Airport Marriott, 1743 West Nursery Road, Baltimore,
Maryland 21240 on Friday November 15, 1996 at 10:00 A.M. local time, for the
following
purposes:
1. To elect seven (7) directors (Proposal No. 1);
2. To vote on a proposal to approve an amendment to the Company's 1994
Stock Option Plan, as amended (the "1994 Plan"), to increase the number
of shares of Common Stock reserved for issuance upon exercise of
options granted under the 1994 Plan from 1,910,000 to 3,000,000
(Proposal No. 2);
3. To vote on a proposal to approve the 1996 Employee Stock
Purchase Plan (Proposal No. 3);
4. To consider and vote upon a proposal to amend the Company's
Certificate of Incorporation to increase the number of
authorized shares of Preferred Stock from 813,336 to 1,464,164
(Proposal No. 4);
5. To ratify the selection of KPMG Peat Marwick LLP, independent certified
public accountants, to audit the consolidated financial statements of
the Company for the transition period ending December 31, 1996 and for
the fiscal year ending December 31, 1997 (Proposal No. 5); and
6. To transact such other matters as may properly come
before the Annual Meeting.
Only stockholders of record of the Company at the close of business on
October 4, 1996 are entitled to notice of and to vote at the Annual Meeting.
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ACSI hopes that as many stockholders as possible will personally attend
the Annual Meeting. Whether or not you plan to attend the Annual Meeting, please
complete the enclosed proxy and sign, date and return it promptly so that your
shares will be represented. Sending in your proxy will not prevent you from
voting in person at the Annual Meeting.
By Order of the Board of Directors,
RILEY M. MURPHY, Secretary
Annapolis Junction, Maryland
October __, 1996
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AMERICAN COMMUNICATIONS SERVICES, INC.
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
of proxies for use at the annual meeting of stockholders (the "Annual Meeting")
of American Communications Services, Inc. ("ACSI" or the "Company") to be held
at the BWI Airport Marriott, 1743 West Nursery Road, Baltimore, Maryland 21240]
on Friday, November 15, 1996 at 10:00 a.m. local time and at any adjournments
thereof. The accompanying proxy is solicited by the Board of Directors of the
Company and is revocable by the stockholder at any time before it is voted. For
more information concerning the procedure for revoking the proxy see "General."
This Proxy Statement was first mailed to stockholders of the Company on or about
October 24, 1996, accompanied by the Company's 1996 Annual Report to
Stockholders. The principal executive offices of the Company are located at 131
National Business Parkway, Suite 100, Annapolis Junction, Maryland 20701,
telephone (301) 617-4200.
OUTSTANDING SHARES AND VOTING RIGHTS
Only holders of record of the Company's Common Stock, $.01 par value
(the "Common Stock" or "Common Shares") and Preferred Stock (as hereinafter
defined) at the close of business on October 4, 1996 (the "Record Date") are
entitled to receive notice of and vote at the Annual Meeting. Each Common Share
is entitled to one vote and, except as otherwise set forth below with respect to
the election of directors, each share of Preferred Stock is entitled to one vote
for each share of Common Stock into which such share of Preferred Stock is
convertible. No other class of securities will be entitled to vote at the Annual
Meeting. There are no cumulative voting rights.
As of the Record Date, the number and classes of stock that were
outstanding and will be entitled to vote at the meeting were 6,761,466 shares of
Common Stock; 186,664 shares of 9% Series A-1 Convertible Preferred Stock (the
"Series A-1 Preferred") which are convertible into an aggregate of 7,466,560
Common Shares; 100,000 shares of 9% Series B-1 Convertible Preferred Stock (the
"Series B- 1 Preferred") which are convertible into an aggregate of 3,571,428
Common Shares; 102,500 shares of 9% Series B-2 Convertible Preferred Stock (the
"Series B-2 Preferred") which are convertible into an aggregate of 3,660,706
Common Shares; 25,000 shares of 9% Series B-3 Convertible Preferred Stock (the
"Series B-3 Preferred") which are convertible into an aggregate of 892,856
Common Shares; and 50,000 shares of 9% Series B-4 Convertible Preferred Stock
(the "Series B-4 Preferred") which are convertible into an aggregate of
1,785,714 Common Shares. The Series B-1 Preferred, the Series B-2
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Preferred, the Series B-3 Preferred and the Series B-4 Preferred are herein
collectively referred to as the "Series B Preferred." The Series A-1 Preferred
and the Series B Preferred are herein collectively referred to as the "Preferred
Stock." The Common Stock and the Preferred Stock vote together as a single
class, except as required by Delaware General Corporation Law (the "DGCL") and
by the Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation").
To be elected, a director must receive a plurality of the votes of the
shares present in person or represented by proxy at the Annual Meeting and
entitled to vote on the election of such director. With respect to the election
of directors at the Annual Meeting, the holders of shares of Common Stock shall
have the right to elect four of the seven directors (the "Common Directors") and
the holders of shares of the Preferred Stock shall have the right to elect three
directors of the seven (the "Preferred Directors"). In connection with any vote
for the Preferred Directors, each holder of Preferred Stock is entitled to one
vote per share of Preferred Stock.
The affirmative vote of at least a majority of the shares of Common
Stock and Preferred Stock (voting on an as-converted basis) present in person or
by proxy at the Annual Meeting, voting together as a single class and entitled
to vote at the Annual Meeting, whether or not a quorum is present when the vote
is taken, is necessary for the approval of Proposal Nos. 2, 3 and 5.
The affirmative votes of at least (i) a majority of the Common Stock
and Preferred Stock (voting on an as converted basis) outstanding as of the
Record Date, voting together as a single class, (ii) a majority of the Common
Stock outstanding as of the Record Date, voting as a separate class, and (iii)
75% of the Preferred Stock outstanding as of the Record Date, voting as a
separate class, are required for the approval of Proposal No. 4.
Except as set forth below, a quorum is representation in person or by
proxy at the Annual Meeting of a majority of the shares of Common Stock and
Preferred Stock issued and outstanding as of the Record Date, entitled to vote,
considered as a single class. In connection with the election of the Preferred
Directors by the holders of the Preferred Stock, the presence in person or by
proxy of the holders of 50% of the outstanding shares of Preferred Stock
entitled to vote thereon shall constitute a quorum.
Pursuant to the DGCL, only votes cast "For" a matter constitute
affirmative votes. Further, under the DGCL proxies which are voted by marking
"Withheld" or "Abstain" on a particular matter are counted for quorum purposes,
but since they are not cast "For" a particular matter, they will have the same
effect as negative votes or votes "Against" a particular matter. If a validly
executed proxy is not marked to indicate a vote on a
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particular matter and the proxy granted thereby is not revoked before it is
voted, it will be voted "For" such matter. Where brokers are prohibited from
exercising discretionary authority for beneficial owners who have not provided
voting instructions (commonly referred to as "broker non-votes"), such broker
non-votes will be counted for quorum purposes, but since they are not cast "For"
a particular matter, they will have the same effect as negative votes or votes
"Against" a particular matter.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
Pursuant to the Certificate of Incorporation, the Board is currently
comprised of seven members, four of whom shall be elected by the holders of the
Company's Common Stock and three of whom shall be elected by the holders of the
Company's Preferred Stock.
Other than as described in this proxy statement, no arrangement or
understanding exists between an officer or director and any other person under
which any officer or director was elected. All directors of the Company hold
office until the next annual meeting of stockholders and until their successors
are duly elected and qualified. No director or officer is related to any other
director or officer by blood, marriage, or adoption.
In connection with certain changes made to the Company's governance
structure in 1995, certain holders of the Company's Preferred Stock and Common
Stock (including The Huff Alternative Income Fund, L.P. ("Huff"), ING Equity
Partners, L.P. I ("ING") and Apex Investment Fund, L.P. and Apex Investment Fund
II, L.P. (collectively, "Apex")) have entered into a Voting Rights Agreement,
dated November 8, 1995, as amended as of December 14, 1995 ("the Voting Rights
Agreement"), pursuant to which such stockholders have agreed to vote their
shares of Preferred Stock and Common Stock for the election of directors
designated by Huff, ING and Apex. As of the Record Date, the parties to the
Voting Rights Agreement own approximately 98% of the Preferred Stock outstanding
and approximately 50% of the Common Stock outstanding. The Voting Rights
Agreement provides that it shall terminate upon the earliest of (i) a Qualifying
Offering (as defined therein), (ii) ten years from the date of the Voting Rights
Agreement or (iii) upon the written agreement of Huff and ING.
Pursuant to the Voting Rights Agreement, the parties thereto have
agreed to vote all of their shares of Preferred Stock to elect Christopher L.
Rafferty and Edwin M. Banks (designated by Huff) and Olivier L. Trouveroy
(designated by ING) to the Board. Such holders have also agreed to vote all of
their shares of Common Stock to elect Peter C. Bentz (designated by Huff),
George M. Middlemas (designated by Apex), Benjamin P. Giess (designated by ING)
and Anthony J. Pompliano (designated by Huff and ING) to the Board.
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In addition to the aforementioned provisions, the Voting Rights
Agreement contains provisions regarding the selection of substitute board
members, members of board committees and board members of the Company's
subsidiaries.
Pursuant to the Certificate of Incorporation, proxies cannot be voted
for a greater number of persons than the number of nominees named for each class
of directors.
The nominees for election to the office of director, and certain
information with respect to their ages and backgrounds, are set forth below. It
is the intention of the persons named in the accompanying proxy, unless
otherwise instructed, to vote to elect the nominees named herein as directors.
If any nominee declines to serve or becomes unavailable for any reason, or if a
vacancy should occur before the election (although management knows of no reason
to anticipate that this will occur), the proxies may be voted for such
substitute nominees as the parties to the Voting Rights Agreement may designate.
Nominees for Election to the Office of
Director by holders of the Common Stock
<TABLE>
<CAPTION>
Director
Name Age Position Since
- ---- --- -------- -----
<S> <C> <C> <C>
Anthony J. Pompliano 57 Chairman of the 1993
Board of Directors
- ----------------------------------------------------------------------------------------------
Benjamin P. Giess 33 Director 1995
- ----------------------------------------------------------------------------------------------
Peter C. Bentz 31 Director 1995
- ----------------------------------------------------------------------------------------------
George M. Middlemas(1) 50 Director 1993
- ----------------------------------------------------------------------------------------------
</TABLE>
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Nominees for Election to the Office of Director
by holders of the Preferred Stock
<TABLE>
<CAPTION>
Director
Name Age Position Since
- ---- --- -------- -----
<S> <C> <C> <C>
Christopher L. Rafferty(1) 48 Director 1994
- ----------------------------------------------------------------------------------------
Olivier L. Trouveroy(1)(2) 41 Director 1995
- ----------------------------------------------------------------------------------------
Edwin M. Banks (2) 34 Director 1994
- ----------------------------------------------------------------------------------------
</TABLE>
(1) Member of Compensation Committee
(2) Member of Audit Committee
The Board of Directors recommends a vote FOR each of the above-listed
nominees as Directors (Proposal No. 1 on the proxy card).
BUSINESS EXPERIENCE OF DIRECTORS
Anthony J. Pompliano, Chairman of the Board of Directors, has 30 years of
experience in the telecommunications industry. Mr. Pompliano was elected a
director of the Company in November 1993. He was co-founder and President of
Metropolitan Fiber Systems, the predecessor organization to MFS, a
publicly-traded competitive local exchange carrier. Mr. Pompliano served as
President, CEO and Vice Chairman of MFS from April 1988 until March 1991. He
joined ACSI in August 1993 after the expiration of his non-competition agreement
with MFS. Before his association with MFS and its predecessor, he was Vice
President - Operations and Sales for MCI Telecommunication International from
1981 to 1987; and prior thereto was Vice President - National Operations for
Western Union International, Inc. from 1960 to 1981.
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Benjamin P. Giess, Director, was elected a director of the Company in June 1995.
Since 1992, Mr. Giess has been employed by ING Equity Partners, L.P. I and its
predecessors and affiliates and currently serves as a Partner responsible for
originating, structuring and managing equity and debt investments. From 1991 to
1992, Mr. Giess worked in the Corporate Finance Group of ING Capital. From 1990
to 1991, Mr. Giess was employed by the Corporate Finance Group of General
Electric Capital Corporation where he worked in the media and entertainment
group. Prior to attending business school, from 1986 to 1988 Mr. Giess was the
Credit Department Manager of the Boston Branch of ABN Amro North America, Inc.
From 1984 to 1986, Mr. Giess was employed at the Shawmut Bank of Boston. Mr.
Giess also serves as a director of Matthews Studio Equipment Group and CMI
Holding Corp. Mr. Giess received his undergraduate degree from Dartmouth College
and his Masters of Business Administration degree from the Wharton School of the
University of Pennsylvania.
Peter C. Bentz, Director, was elected a director of the Company in June, 1995,
and has been employed by W.R. Huff Asset Management Co. L.L.C., an affiliate of
Huff, since 1992 as a research analyst specializing in telecommunications, media
and healthcare. Mr. Bentz received his Bachelor of Science degree from Boston
College and his Masters of Business Administration from the Wharton School of
the University of Pennsylvania in 1992.
George M. Middlemas, Director, was elected a director of the Company in December
1993. Mr. Middlemas is a general partner of APEX Management Partnership, which
is the general partner of Apex Investment Fund I, L.P. and Apex Investment Fund
II, L.P., both of which are venture capital funds, and affiliates of First
Analysis Corporation, a principal stockholder of the Company. See "Security
Ownership of Certain Beneficial Owners and Management." From March 1991 to
December 1991, Mr. Middlemas acted as an independent consultant providing fund
raising and other advisory services. From 1985 until March 1991, Mr. Middlemas
was a Senior Vice President and Principal of Inco Venture Capital Management, a
venture capital firm. Mr. Middlemas also serves on the Board of Directors of
PureCycle Corporation, Security Dynamics Technologies, Inc. and several
privately held companies.
Christopher L. Rafferty, Director, was elected a director of the Company in
October 1994. Mr. Rafferty has been employed by WRH Partners, L.L.C., the
general manager of Huff, since June 1994. From January 1993 to February 1994,
Mr. Rafferty was the Vice President - Acquisitions for Windsor Pet Care, Inc., a
venture capital-backed firm focusing on consolidating the pet care services
industry. From October 1990 to January 1993, Mr. Rafferty was a consultant
specializing in merchant banking, leveraged acquisitions and venture capital
transactions. From June 1987 to the time he started his consulting business, Mr.
Rafferty was a Managing Director of Chase Manhattan Capital Corporation, the
merchant banking and private equity investment affiliate of Chase Manhattan
Corporation. Mr. Rafferty also serves as a director of Del Monte Foods Company.
Mr. Rafferty received his undergraduate degree from Stanford University and his
law degree from Georgetown University.
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Olivier L. Trouveroy, Director, was elected a director of the Company in June
1995. Since 1992, Mr. Trouveroy has been employed by ING Equity Partners, L.P. I
and its predecessors and affiliates and currently serves as a Managing Partner
responsible for originating, structuring and managing equity and debt
investments. From 1990 to 1992, Mr. Trouveroy was a Managing Director in the
Corporate Finance Group (the "CFG") of General Electric Capital Corporation in
charge of running the CFG's office in Paris, France. From 1984 to 1990, Mr.
Trouveroy worked in the Mergers and Acquisitions department of Drexel Burnham
Lambert in New York, most recently as a First Vice President. Mr. Trouveroy also
serves as a director of AccessLine Technologies, Inc. and Cost Plus, Inc. Mr.
Trouveroy holds Bachelor of Science and Masters degrees in Economics from the
University of Louvain in Belgium, as well as a Masters of Business
Administration degree from the University of Chicago.
Edwin M. Banks, Director, was elected a director of the Company in October 1994.
Since 1988, Mr. Banks has been employed by W. R. Huff Asset Management Co.,
L.L.C. and currently serves as a portfolio manager concentrating in the
healthcare, communications, food and food services industries. From 1985 until
he joined W. R. Huff Asset Management Co. L.L.C., Mr. Banks was employed by
Merrill Lynch & Company. Mr. Banks received his Bachelor of Arts degree from
Rutgers College and his Masters of Business Administration degree from Rutgers
University. Mr. Banks also serves as a director of Charter Medical Corporation,
Del Monte Foods Company and ABCO Food Service.
Directors' Cash Compensation
Members of the Board do not receive cash compensation for acting as
members of the Board or Committees of the Board, other than reimbursement for
travel and related expenses incurred in connection with their attendance at
meetings of the Board and its committees. The Company is obligated to pay the
reasonable fees and expenses of two counsel selected by the Preferred Directors
from time to time to represent them in their capacity as directors. During the
fiscal year ended June 30, 1996, the Company paid no such counsel fees.
Directors who also serve as executive officers receive cash compensation for
acting in their capacity as executive officers. See "Summary Compensation Table"
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Directors' Stock Options
From time to time the Board has granted options to purchase shares of
Common Stock to members of the Board who are not also officers of the Company in
consideration for their service as directors. However, other than "formula
grants" under the Company's 1994 Stock Option Plan, no formal arrangement
exists. For the fiscal year ended June 30, 1996, no directors were granted
options.
Section 16(a) Beneficial Ownership Reporting Compliance
Ownership of and transactions in the Company's stock by executive
officers and directors of the Company and owners of 10% or more of the Company's
outstanding Common Stock are required to be reported to the Securities and
Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act of
1934 (the "Exchange Act"). George M. Tronsrue, III, the Company's Chief
Operating Officer, George M. Middlemas, Benjamin P. Geiss and Oliver L.
Trouveroy, directors of the Company, Riley M. Murphy and Douglas R. Hudson, two
of the Company's Executive Vice Presidents, and Apex Investment Fund L.P., ING
and First Analysis Corporation, principal shareholders of the Company each
inadvertently did not file on a timely basis during the fiscal year ended June
30, 1996, a report regarding the beneficial ownership of or transaction in
certain shares of the Company's Common Stock. Each of the foregoing persons or
entities have since filed reports regarding the beneficial ownership of or
transactions in certain shares of the Company's Common Stock.
INFORMATION CONCERNING BOARD MEETINGS
Seven meetings of the Company's Board of Directors were held during the
fiscal year ended June 30, 1996. Each incumbent director attended at least 75%
(except Peter Bentz, who attended 71%) of the total number of meetings of the
Board and any Committees of the Board of which he was a member.
INFORMATION CONCERNING COMMITTEES OF THE BOARD
The only Committees of the Company's Board are the Audit
Committee and the Compensation Committee.
The Audit Committee is comprised of three directors, one of whom shall
be a senior executive officer of the Company (but not the chief financial or
chief accounting officer) and two of whom shall not be employees of the Company
or any of its subsidiaries and shall be Preferred Directors elected by a
majority of the Preferred Directors.
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Currently only Olivier L. Trouveroy and Edwin M. Banks are members of the Audit
Committee. The Audit Committee is responsible for selecting the Company's
independent auditors and reviewing their audit, as well as reviewing and
approving the Company's internal controls and accounting systems. The Audit
Committee may be granted additional powers and duties as the Board may from time
to time determine. The Audit Committee held two meetings during the fiscal year
ended June 30, 1996.
The Compensation Committee is comprised of three directors, none of
whom may be an employee of the Company or any of its subsidiaries, and two of
whom shall be Preferred Directors elected by a majority of the Preferred
Directors. The Compensation Committee's current members are Olivier L.
Trouveroy, Christopher L. Rafferty and George M. Middlemas. The Compensation
Committee is responsible for recommending to the full Board all stock option
grants, bonuses and other compensation arrangements for executives and key
employees and loans and other nonsalary payments and other benefits and
arrangements with employees, affiliates and associates of the Company. The
Compensation Committee may be granted additional powers and duties as the Board
may from time to time determine. There were eighteen meetings of the
Compensation Committee during the fiscal year ended June 30, 1996.
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BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS
The following is a description of the background of the executive
officers of the Company who are not directors and certain other significant
employees:
Richard A. Kozak, 50, President and Chief Executive Officer, served as a
consultant to the Company starting in July 1993 and joined the Company as
President and Chief Operating Officer in November 1993. Mr. Kozak served as
Chief Financial Officer of the Company from September 30, 1994, until November
30, 1994. Mr. Kozak served on the Board from November 15, 1994, until June 1995,
when he resigned voluntarily to allow the investors in the Company's June 1995
private placement to elect representatives to the Board without unduly
increasing its size and from November 1995 until February 26, 1996 when he
resigned to allow the Board to return to seven members. Mr. Kozak was elected as
Chief Executive Officer on November 1, 1995. Mr. Kozak has more than twenty
years of experience in the telecommunications industry. He was President of the
Southern Division of MFS from October 1992 until June 1993, where he was
responsible for networks in Atlanta, Baltimore, Dallas, Houston, Philadelphia,
Pittsburgh, and Washington, D.C., as well as for establishing networks in
additional markets in the southern U.S. Previously, he was President of MFS
Development from July 1991 until October 1992, where he was responsible for the
planning, development and implementation of more than $100 million of major
expansions of networks throughout the U.S., and Senior Vice President of Network
Services for MFS. Prior to joining MFS in 1990, he was a Vice-President and
General Manager for Telenet Communications Corporation (now Sprint
International) from 1986 through 1989 and an Executive Vice-President and Chief
Financial Officer for TRT Communications from 1982 until 1986. Mr. Kozak holds
an engineering degree from Brown University, studied at the University of
Chicago Graduate School of Business, and completed his MBA in Finance at the
George Washington University School of Government and Business Administration.
George M. Tronsrue, III, 40, Chief Operating Officer, has 17 years of
telecommunications industry and management experience. Mr. Tronsrue served as
Executive Vice President-Strategic Planning and Business Development from
February 1994 until January 31, 1996. From 1993 until he joined ACSI in February
1994, Mr. Tronsrue was the Regional Vice President for the Central Region for
Teleport Communications Group and the Vice President of Emerging Markets,
responsible for start-up and profit and loss management of joint ventures with
major cable television providers in eight major markets. From 1987 until 1992,
he was a member of the initial management team at MFS, where he held senior
positions in planning and market development, served as Vice President of Sales
and the Vice President/General Manager for the initial start-up of MFS' New York
operations, and served as the Executive Vice President for MFS-Intelenet. Prior
to joining MFS, he was a Director of
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Operations for MCI Telecommunications International. Mr. Tronsrue has a B.S.
degree in applied sciences and engineering from the United States Military
Academy at West Point.
Riley M. Murphy, 40, Executive Vice President - Legal and Regulatory Affairs,
and Secretary, had 12 years of experience in the private practice of
telecommunications regulatory law for inter-exchange, cellular, paging and other
competitive telecommunication services providers prior to joining the Company.
Since February 1995, she has served as an officer and director of The
Association for Local Telecommunications Services. Ms. Murphy joined ACSI on a
full-time basis in April 1994 and was senior counsel to Locke Purnell Rain
Harrell, a Dallas-based law firm through December 1994. From 1987 to 1992, Ms.
Murphy was a partner of Wirpel and Murphy, a telecommunications law firm she
co-founded, and from 1992 to 1993 she was a sole practitioner. Ms. Murphy holds
a B.A. degree from the University of Colorado and a J.D. from the Catholic
University of America, and is admitted to practice law in the District of
Columbia and Louisiana.
Harry J. D'Andrea, 40, Chief Financial Officer, has over fifteen years of
experience in financial management. Mr. D'Andrea joined the Company on February
6, 1996. From 1989 through 1995, Mr. D'Andrea was employed by Caterair
International Corporation ("CIC"), where he served as Vice President, Finance
and Treasurer from 1989 through 1993 and Executive Vice President, Chief
Financial Officer and Treasurer from 1993 through 1995. As Chief Financial
Officer of CIC, Mr. D'Andrea was responsible for all of CIC's financial planning
and analysis, treasury operations, financial and management reporting, tax and
internal audit operations. From 1987 to 1989, Mr. D'Andrea served as Controller
of Marriott Corporation ("Marriott"), where he was responsible for twelve
airline catering units in five countries. Mr. D'Andrea also served as Director
of Pricing of Marriott from 1986 to 1987. Mr. D'Andrea has a B.A. degree from
Pennsylvania State University and completed his MBA in Finance at Drexel
University.
Robert H. Ottman, 58, Executive Vice President - Network Services and Technical
Support, joined the Company in May 1995. Mr. Ottman has 30 years of experience
in telecommunications and has been involved in network services, operations,
quality assurance, human resources and labor relations within the
telecommunications industry. Prior to joining ACSI, Mr. Ottman was the Vice
President of Operations and Quality Assurance for MCI International and was
directly responsible for the New York City, Washington, Atlanta, Boston, Miami,
Chicago, Detroit, San Francisco, Los Angeles, Puerto Rico, Hawaii and Guam
Networks from 1993 to 1995. From 1981 to 1982, Mr. Ottman was Assistant Vice
President of Operations and Labor Relations for Western Union International,
Inc. (which was acquired by MCI in 1982). From 1982 to 1993, Mr. Ottman held
various positions with MCI International, as follows: from 1982 to 1983,
Director of Metro Operations; from 1983 to 1988, Director of
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Administration and Labor Relations; and from 1988 to 1993, Vice President of
Administration and Labor Relations. While at MCI International, in 1989 Mr.
Ottman initiated Quality Programs for the support and assistance of MCI
customers.
Douglas R. Hudson, 35, Executive Vice President/General Manager Network
Services, has 10 years of sales and marketing experience within the
telecommunications industry. For seven years prior to joining ACSI in May 1994,
Mr. Hudson had been with MFS having served as a director of field sales from
September 1987 to September 1989, Vice President of Industry Sales and Marketing
from September 1989 to July 1992 and as Vice President and General Manager in
charge of MFS's Mid-Atlantic region from July 1992 until May 1994. Prior to
joining MFS, Mr. Hudson was a regional sales manager for Microtel International,
Inc., a national telecommunications company providing competitive long distance
and private line services.
Other Significant Employees
Robert F. Ryan, 53, President -- Advanced Data Services, joined the Company in
August, 1996. Prior to joining the Company, Mr. Ryan served for five years as
President of EOS, Inc. a privately held company specializing in developing
wireless networks in the Former Soviet Union. Prior to EOS, Mr. Ryan consulted
for British Aerospace Communications, Ltd. (Stevenage, UK) where he directed
their mergers and acquisitions operations in the United States. During the
period 1986 through 1989, Mr. Ryan was the President of TCOM, Inc., an
electronic mail company. Starting in 1970 and through 1985, Mr. Ryan was the
founder, President and Chairman of Dialcom, Inc. Mr. Ryan sold Dialcom to ITT in
1982. Concurrent with his role in Dialcom, Mr. Ryan co-founded in 1979 "The
Source", a consumer based information service company. "The Source" was sold to
Readers Digest in 1980. Mr. Ryan received a BS from New York University in 1965.
Richard B. Robertson, 53, Executive Vice President/General Manager -- Switched
Services, joined the Company in April 1996. Prior to joining the Company, Mr.
Robertson was employed by BellSouth for 16 years where, since 1991, he directed
marketing activities for its network interconnection business. In that role, Mr.
Robertson was responsible for negotiating interconnection agreements with
competitive local exchange companies, development and implementation of
BellSouth's advanced intelligent network (AIN) services for the interconnection
market and also formulating the company's plan for and entry into the customer
premise equipment (CPE) market in the mid-1980s. In other assignments during his
28- year career in the telecommunications industry, Mr. Robertson's experience
included outside plant, manufacturing, finance, purchasing and strategy
development and R&D positions with Western Electric, Bellcore, and the U.S.
Army. Mr. Robertson received a B.S. in Electrical Engineering from Virginia Tech
and an MBA from the University of Virginia.
11
<PAGE>
Michael H. Mansouri, 45, Executive Vice President/General Manager - - Advanced
Data Services, joined the Company in August 1995. Before joining ACSI, Mr.
Mansouri spent nearly ten years at Global One formerly Sprint International,
serving as director of international multimedia services, director of global
messaging, director of global-value added systems and director of business
development. Prior to his employment by Sprint International, Mr. Mansouri was a
senior branch manager of Applied Communications Services at Tymshare/Tymnet,
Inc. (now British Telecom). He received a B.S. in Computer Science and
Statistics from Utah State University and an M.S. in Operations Research from
The George Washington University.
Dennis J. Ives, 60, Senior Vice President -- Network Development, joined the
Company's predecessor in 1992 as Vice President Operations. Prior to that, from
1990, Mr. Ives was involved in the planning and implementation of other fiber
optic networks and broadband systems in Illinois and Wisconsin at DigiNet
Communications, Inc. Mr. Ives spent over 30 years with AT&T in various
engineering and operations management positions and has 38 years of
telecommunications industry and management experience.
Martin F. McDermott, 52, Senior Vice President -- Marketing, joined the Company
in April 1996. From July 1995 until he joined the Company, Mr. McDermott served
as chief operating officer for American Wireless Communications Corporation.
Prior thereto, Mr. McDermott spent three years at WilTel Inc. as Vice President
of Marketing following his service as Chief Operating Officer of the National
Telecommunications Network, a joint venture of six long distance carriers. Mr.
McDermott attended Georgetown University, is active in industry associations
such as ACTA, NATA and Comptel and has 30 years of telecommunications industry
experience.
12
<PAGE>
EXECUTIVE COMPENSATION
The following table provides a summary of compensation for each of the last
three fiscal years ended June 30, 1996, 1995 and 1994, with respect to the
Company's Chief Executive Officer, and the other four most highly compensated
officers of the Company during the fiscal year ended June 30, 1996 whose annual
salary and bonus during such fiscal year exceeded $100,000 (collectively, the
"Named Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensa-
Annual Compensation tion
Awards
--------------------------------------------------------------------
----------------
Other Securities
Annual Underlying All Other
Name and Salary Bonus Compensation Options Compensation
Principal Position Year ($) ($) ($)(1) (#)(2) ($)
<S> <C> <C> <C> <C> <C> <C>
Anthony J. Pompliano 1996 239,583 175,000(3) - 0 - - 0 - 6,187(4)
Chairman of the 1995 219,500 175,000(5) - 0 - 500,000 6,977(6)
Board of Directors 1994 110,000 - 0 - 25,000(7) 1,349,899 61,507(8)
Richard A. Kozak 1996 233,334 200,000(9) - 0 - - 0 - 5,400(10)
President and Chief 1995 184,378 175,000(11) - 0 - 399,999 3,750(12)
Executive Officer 1994 87,500 - 0 - 39,728(7) 899,932 - 0 -
George M. Tronsrue 1996 191,128 54,116(13) - 0 - 50,000 4,800(14)
Chief Operating Officer 1995 150,000 135,417(15) 68,800(16) 350,001(17) - 0 -
1994 53,827 50,000 - 0 - - 0 - - 0 -
Riley M. Murphy 1996 162,499 118,504(18) - 0 - 50,000 3,536(19)
Executive Vice President - 1995 150,000 81,500(20) - 0 - 250,001(17) 9,783(21)
Legal and Regulatory 1994 37,500 - 0 - 48,620(22) - 0 - - 0 -
Affairs, General Counsel
and Secretary
Robert H. Ottman 1996 170,000 150,000(23) - 0 - - 0 - - 0 -
Executive Vice 1995 28,333(24) - 0 - - 0 - 250,000 - 0 -
President/Network Services
and Technical Support
</TABLE>
(Footnotes commence on following page)
13
<PAGE>
(Footnotes from previous page)
(1) Excludes perquisites and other personal benefits that in the aggregate
do not exceed 10% of the Named Officers' total annual salary and bonus.
(2) See information provided in "Option Grants in Last Fiscal
Year," and "Option Exercises and Fiscal Year-End Values."
(3) Pursuant to his Employment Agreement, Mr. Pompliano is entitled to
receive cash bonuses upon attainment of certain performance goals. This
amount represents cash bonuses paid during fiscal 1996 relating to the
attainment of such performance goals.
(4) Includes $1,600 for car allowance and $3,834 for medical
insurance in excess of that provided to other employees.
(5) Pursuant to his Employment Agreement, Mr. Pompliano is entitled to
receive cash bonuses upon attainment of certain performance goals. This
amount represents cash bonuses paid during fiscal 1995 relating to the
attainment of such performance goals.
(6) Includes $3,800 for car allowance and $3,177 in premiums for disability
insurance in excess of that provided to other employees.
(7) Consists of amounts paid to Messrs. Pompliano and Kozak as consultants
for services rendered prior to their employment by the Company in
August 1993 and November 1993, respectively.
(8) Consists of $20,000 received as compensation in connection with the
Company's November 1993 sale of 400,000 shares of Common Stock and
$41,507 received as compensation in connection with the Company's June
1994 issuance of $4,300,720 principal amount of 15% convertible notes.
(9) Pursuant to his Employment Agreement, Mr. Kozak is entitled to receive
cash bonuses upon attainment of certain performance goals. This amount
represents cash bonuses paid during fiscal 1996 relating to the
attainment of such performance goals.
(10) Includes $5,400 for medical insurance in excess of that
provided to other employees.
(11) Pursuant to his Employment Agreement, Mr. Kozak is entitled to receive
cash bonuses upon attainment of certain performance goals. This amount
represents cash bonuses paid during fiscal 1995 relating to the
attainment of such performance goals.
14
<PAGE>
(12) Includes $3,750 in premiums for disability insurance in excess of that
provided to other employees.
(13) This payment represents the second installment of a bonus of $244,500,
$135,417 of which was paid on February 28, 1995, $54,116 of which was
paid on February 24, 1996, and $54,116 of which is due on February 24,
1997.
(14) Includes $4,800 for car allowance.
(15) This payment represents the first installment of a bonus of $244,500,
$135,417 of which was paid on February 28, 1995, $54,116 of which was
paid on February 24, 1996 and $54,116 of which is payable on February
24, 1997.
(16) Includes $65,000 paid in connection with relocation and moving expenses
relating to the relocation of the Company's headquarters from Oak
Brook, Illinois to Annapolis Junction, Maryland.
(17) 150,000 of these options were originally granted in the fiscal year
ended June 30, 1994 at an exercise price of $2.50 per share and such
exercise price was subsequently reduced to $2.25 per share in
connection with the Company's October 1994 private placement.
(18) This payment represents the second installment of a cash bonus of
$224,500, $81,500 of which was paid on each of January 31, 1995 and
January 31, 1996, and $81,500 of which will be paid on January 31,
1997, as well as an additional bonus of $37,004 which was paid at the
discretion of the Company.
(19) Includes $3,536 for medical insurance in excess of that provided to
other employees.
(20) This payment represents the first installment of a bonus of $244,500,
$81,500 of which was paid on each of January 31, 1995 and January 31,
1996 and $81,500 which is payable on January 31, 1997.
(21) Includes $3,360 of premiums for disability and life insurance paid for
by the Company in excess of that provided for other employees and
$6,423 of premiums in connection with professional liability insurance
for the period prior to her employment with the Company.
(22) Consists of $43,620 received for performing legal services for the
Company as outside counsel and $5,000 received pursuant to a relocation
agreement.
15
<PAGE>
(23) Represents $100,000 which was awarded to Mr. Ottman as a signing bonus
when he joined the Company, but which was not paid to him until fiscal
1996, and $50,000 awarded to Mr. Ottman under the Company's Management
Incentive Performance Plan.
(24) Mr. Ottman commenced employment with the Company in May 1995.
16
<PAGE>
Option Grants In Last Fiscal Year
The following table contains information concerning the grant of stock options
to the Named Officers during the fiscal year ended June 30, 1996.
Individual Grants
<TABLE>
<CAPTION>
Number of % of Total
Securities Options Exercise Market Price
Underlying Granted to or Base of Underlying
Options Employees in Price Securities on Expiration
Name Granted (#) Fiscal Year ($/Share) Date of Grant Date
<S> <C> <C> <C> <C> <C>
Anthony J. Pompliano None -- -- -- --
Richard A. Kozak None -- -- -- --
George M. Tronsrue, III 25,000(1) 2.2% 3.40 3.875(i) 2/22/03
25,000(2) 2.2% 3.40 3.875(i) 2/22/04
Riley M. Murphy 25,000(3) 2.2% 3.40 3.875(i) 3/30/03
25,000(4) 2.2% 3.40 3.875(i) 3/30/04
Robert H. Ottman None -- -- -- --
</TABLE>
(i) Underlying market price is based on the average bid and asked price on
the date of grant as reported by the NASDAQ Small Cap Market.
(1) These options were granted on July 6, 1995, with an exercise price of
$3.40. These options will vest on February 23, 1998 provided that Mr.
Tronsrue does not voluntarily terminate his employment with the Company
or is not terminated for cause prior to the vesting date.
(2) These options were granted on July 6, 1995, with an exercise price of
$3.40. These options will vest on February 23, 1999 provided that Mr.
Tronsrue does not voluntarily terminate his employment with the Company
or is not terminated for cause prior to the vesting date.
(3) These options were granted on July 6, 1995, with an exercise price of
$3.40. These options will vest on March 31, 1998 provided that Ms.
Murphy does not voluntarily terminate her employment with the Company
or is not terminated for cause prior to the vesting date.
(4) These options were granted on July 6, 1995 with an exercise price of
$3.40. These options will vest on March 31, 1999 provided that Ms.
Murphy does not voluntarily terminate her employment with the Company
or is not terminated for cause prior to the vesting date.
16
<PAGE>
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth the information with respect to the
Named Officers concerning the exercise of options during the fiscal year ended
June 30, 1996 and unexercised options held as of June 30, 1996.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at Fiscal Year-End In-the-Money Options
(#) at Fiscal Year-End($)(1)
Shares Value
Name Acquired Realized Exercisable Unexercisable Exercisable Unexercisable
on ($)
Exercise
(#)
<S> <C> <C> <C> <C> <C> <C>
Anthony J. -0- -0- 1,599,899 250,000 19,055,025.37 2,687,500.00
Pompliano
Richard A. Kozak -0- -0- 1,133,265 166,666 13,369,672.44 1,699,993.20
George M. -0- -0- 250,000 150,001 2,687,500.00 1,555,000.00
Tronsrue, III
Riley M. Murphy -0- -0- 137,500 162,501 1,478,135.75 1,689,385.75
Robert H. Ottman -0- -0- 100,000 150,000 1,000,000.00 1,500,000.00
</TABLE>
(1) Represents the difference between the exercise price and a fair market
value of $13.00 as determined by the last sale price on June 28, 1996,
the last trading day in the fiscal year ended June 30, 1996, as
reported on NASDAQ National Market.
17
<PAGE>
Employment Agreements
Anthony J. Pompliano. The Company has entered into an employment
agreement with Anthony J. Pompliano, its Chairman, which terminates on August
23, 1998. Under the terms of the agreement, as amended, Mr. Pompliano is
entitled to an annual base salary of $250,000 and is entitled to a cash bonus of
up to $175,000 for each of the fiscal years ending June 30, 1997 and 1998 based
upon the Company's achievement of certain performance goals for the relevant
fiscal year. Under his current employment agreement, Mr. Pompliano received a
bonus of $175,000 for the fiscal year ended June 30, 1996 based upon the
Company's achievement of certain performance goals for such fiscal year. Under
his prior employment agreement, Mr. Pompliano previously earned bonuses
aggregating $225,000 based upon the Company's achievement of certain performance
goals ($25,000 of which was earned subsequent to June 30, 1995) and will
entitled to an additional bonus of $25,000 in the event an additional
performance goal is achieved. Mr. Pompliano was granted options to purchase an
aggregate of 1,349,899 shares of the Company's Common Stock at an exercise price
of $0.875 per share (the "Initial Stock Options"), all of which are currently
vested and exercisable. Mr. Pompliano was also granted (i) options to purchase
an additional 150,000 shares at an exercise price of $2.25 per share, all of
which vested and became exercisable based upon the Company's achievement of
certain performance goals, and (ii) options to purchase an additional 350,000
shares of Common Stock at exercise prices ranging from $2.25 per share to $2.80
per share, of which 100,000 have vested and the remainder of which will vest and
become exercisable on August 24, 2001, if Mr. Pompliano is then employed by the
Company or earlier, as to specified tranches of such shares, based upon the
Company's achievement of certain performance goals related to each such tranche
or upon a "change in control," as defined in the agreement (collectively, the
"Performance Stock Options"). Mr. Pompliano has the right to obtain a 30-day
loan from the Company for the purpose of paying the aggregate exercise price of
the options granted to him.
In the event Mr. Pompliano's employment is terminated pursuant to the
Company's material breach of the agreement, upon a "change in control," or by
the Company without cause, all of the Performance Stock Options, regardless of
whether they have then vested, will become immediately exercisable in accordance
with their terms. In the event Mr. Pompliano's employment is terminated due to
his death or disability, the Company's material breach of the agreement, upon a
change in control or by the Company without cause, he (or his estate) shall be
entitled to receive a lump sum severance payment equal to the greater of his
base salary for one year or his base salary from the date of termination through
August 23, 1998, and continuation of his health and medical benefits for a
minimum of one year.
Mr. Pompliano shall have the right, for a period of 90 days after the
termination of his employment with the Company (unless such employment is
terminated by the Company "for cause" (as defined in the agreement) or
Mr. Pompliano voluntarily resigns), to
19
<PAGE>
sell to the Company, and the Company is required to purchase, the shares of
Common Stock issued or issuable pursuant to the options granted to Mr. Pompliano
under his employment agreement, at a price equal to the publicly-traded price of
the Common Stock (as defined in the agreement), less the exercise price of the
options with respect to unexercised options. The aggregate purchase price paid
by the Company for such shares shall not exceed $1 million (which amount shall
be reduced by the net proceeds received by Mr. Pompliano from his sales of
shares of Common Stock in the market or otherwise). This right may be exercised
by Mr. Pompliano only if at the time of exercise the aggregate value (based on
the publicly traded price) of the Company's outstanding shares of Common Stock
and the shares of Common Stock issuable pursuant to options, warrants and other
convertible securities which have an exercise or conversion price which is equal
to or less than the then publicly traded price of the Common Stock is greater
than $200 million and at least 5,000,000 outstanding shares of Common Stock are
neither held by "affiliates" (as defined in Rule 405 under the Securities Act)
of the Company nor "restricted securities" (as defined in Rule 144 under the
Securities Act). Mr. Pompliano's agreement contains non-compete,
non-solicitation and confidentiality provisions.
Richard A. Kozak. The Company has entered into an employment agreement
with Richard A. Kozak, its President and Chief Executive Officer, which
terminates on October 31, 1998. Under the terms of the agreement, Mr. Kozak is
entitled to a minimum annual base salary of $250,000. Mr. Kozak is entitled to
cash bonuses of up to $175,000 for the fiscal year ending June 30, 1997, and
$200,000 for the fiscal year ending June 30, 1998, based upon the Company's
achievement of certain performance goals for the relevant fiscal year. Mr. Kozak
earned a bonus of $200,000 during fiscal 1996 and a bonus of $175,000 during
fiscal 1995 based upon the Company's achievement of certain performance goals in
each of such fiscal years. Under his prior employment agreement, Mr. Kozak
previously earned bonuses aggregating $225,000 based upon the Company's
achievement of certain performance goals ($25,000 of which was earned subsequent
to June 30, 1995) and will be entitled to an additional bonus of $25,000 in the
event an additional performance goal is achieved. Mr. Kozak was granted Initial
Stock Options to purchase an aggregate of 899,932 shares of the Company's Common
Stock at an exercise price of $0.875 per share, all of which are currently
vested and exercisable. Mr. Kozak was also granted Performance Stock Options
that will allow him to (i) purchase an additional 70,000 shares at an exercise
price of $2.25 per share, all of which vested and became exercisable based upon
the Company's achievement of certain performance goals and (ii) purchase an
additional 329,999 shares of Common Stock at exercise prices ranging from $2.25
per share to $2.80 per share, of which 163,333 have vested, and the remainder of
which will vest and become exercisable on November 1, 2001, if Mr. Kozak is then
employed by the Company or earlier, as to specified tranches of such shares,
based upon the Company's achievement of certain performance goals related to
each such tranche or upon a change in control, as defined in the agreement. Mr.
Kozak has the right to obtain a 30-
20
<PAGE>
day loan from the Company for the purpose of paying the aggregate exercise price
of the options granted to him.
In the event Mr. Kozak's employment is terminated pursuant to his
death, disability or voluntary resignation, the Performance Stock Options,
regardless of whether they have then vested, will become immediately exercisable
in accordance with their terms. In the event Mr. Kozak's employment is
terminated pursuant to the Company's material breach of the agreement, upon a
"change in control", or by the Company without cause, all of the Performance
Stock Options, regardless of whether they have then vested, will become
immediately exercisable in accordance with their terms. In the event Mr. Kozak's
employment is terminated due to his death or disability, the Company's material
breach of the agreement, upon a change in control, or by the Company without
cause prior to November 1, 1996, Mr. Kozak (or his estate) is entitled to
receive a lump sum severance payment equal to his base salary for two years and
the continuation of his health and medical benefits for two years; or if Mr.
Kozak's employment is so terminated subsequent to November 1, 1996, he (or his
estate) shall be entitled to receive a lump sum severance payment equal to the
greater of his base salary for one year or his base salary from the date of
termination through October 31, 1998, and continuation of his health and medical
benefits for a minimum of one year.
Mr. Kozak shall have the right, for a period of 90 days after
termination of his employment with the Company (unless such employment is
terminated by the Company "for cause" (as defined in the agreement) or Mr. Kozak
voluntarily resigns), to sell to the Company, and the Company is required to
purchase, the shares of Common Stock issued or issuable pursuant to the options
granted to Mr. Kozak under his employment agreement, at a price equal to the
publicly-traded price of the Common Stock (as defined in the agreement), less
the exercise price of the options with respect to unexercised options. The
aggregate purchase price paid by the Company for such shares shall not exceed $1
million (which amount shall be reduced by the net proceeds received by Mr. Kozak
from his sales of shares of Common Stock in the market or otherwise). This right
may be exercised by Kozak only, if at the time of exercise, the aggregate value
(based on the publicly traded price) of the Company's outstanding shares of
Common Stock and shares of Common Stock issuable pursuant to options, warrants
and other convertible securities which have an exercise or conversion price
which is equal to or less than the then publicly traded price of the Common
Stock is greater than $200 million and at least 5,000,000 outstanding shares of
Common Stock are neither held by "affiliates" (as defined, in Rule 405 under the
Securities Act) of the Company nor "restricted securities" (as defined in Rule
144 under the Securities Act). Mr. Kozak's agreement contains non-compete, non-
solicitation and confidentiality provisions.
George M. Tronsrue, III. The Company has entered into an employment
agreement with George M. Tronsrue, III, its Chief Operating Officer, which
terminates on February 23, 1999. The agreement, as amended, calls for an annual
salary $200,000, a $400
21
<PAGE>
per month car allowance and a guaranteed bonus of $244,500, $135,417 of which
was received on February 24, 1995, $54,116 of which was received on February 24,
1996, and $54,116 of which will be received by Mr. Tronsrue on February 24,
1997. Mr. Tronsrue was granted Initial Stock Options to purchase 150,000 shares
of Common Stock at a price of $2.25 per share. These options vested as to 50,000
shares at the commencement of Mr. Tronsrue's employment and vested as to 33,333
shares on each of February 23, 1995 and February 23, 1996 (the first and second
anniversaries, respectively, of his employment with the Company). The options
will vest as to 33,334 shares on the third anniversary of Mr. Tronsrue's
employment with the Company. Mr. Tronsrue was granted five year options to
purchase up to 100,001 shares of Common Stock at an exercise price of $2.25 per
share. These options vested with respect to 16,667 shares on each of February
23, 1995 and February 23, 1996, and will vest as to 16,667 shares on February
23, 1997, and as to the remaining 50,000 shares on February 23, 1998. Mr.
Tronsrue was granted Performance Stock Options to purchase 20,000 shares of
Common Stock exercisable at a price of $2.25 per share through March 31, 2000,
based upon the achievement of certain performance goals, all of which are
currently vested and exercisable. Upon the achievement of certain performance
goals, Mr. Tronsrue also has received five year Performance Stock Options to
purchase up to 80,000 shares of Common Stock at an exercise price of $2.25 per
share, all of which options have vested. On July 6, 1995, pursuant to the
agreement, Mr. Tronsrue was granted options to purchase 50,000 shares of Common
Stock at an exercise price of $3.40 per share. These options will vest as to
25,000 shares on each of February 23, 1998, and February 23, 1999. None of the
foregoing options granted to Mr. Tronsrue shall be deemed earned if, as to any
given year, Mr. Tronsrue's employment is terminated for cause or if he
voluntarily resigns. In the event Mr. Tronsrue's employment is terminated
without cause or pursuant to his death, disability or the Company's material
breach of the agreement, Mr. Tronsrue or his estate shall be entitled to receive
his earned bonus and exercise the Initial Stock Options to purchase 150,000
shares in accordance with their terms. In the event Mr. Tronsrue's employment is
terminated without cause or pursuant to his death, disability or the Company's
material breach of the agreement prior to February 24, 1997, he will receive his
then current base salary and health and medical benefits coverage at the
Company's expense for two years from the date of such termination or if his
employment is so terminated on or subsequent to February 24, 1997, he will
receive his then current base salary and health and medical benefits coverage at
the Company's expense for the longer of (i) the period from the date of
termination through February 23, 1999, or (ii) one year from the date of
termination. Mr. Tronsrue's employment agreement also contains a two year non-
compete/non-solicit provision.
Riley M. Murphy. The Company has entered into an employment
agreement with Riley M. Murphy, its Executive Vice President for Legal and
Regulatory Affairs, which terminates on March 31, 1999. This agreement, as
amended, calls for an annual salary of $175,000 and a guaranteed bonus of
$244,500, payable in three annual
22
<PAGE>
installments. $81,500 of this bonus was received by Ms. Murphy on January 31,
1995, $81,500 was received by her on January 31, 1996, and $81,500 will be
received by her on January 31, 1997. The agreement includes Initial Stock
Options to purchase 150,000 shares of Common Stock at a price of $2.25 per
share. These options vested with respect to 25,000 shares upon the signing of
her employment agreement and vested as to 41,666 shares on each of March 31,
1995 and March 31, 1996, and will vest as to 41,667 shares on the third
anniversary of her employment with the Company. The agreement also includes
options to purchase 100,002 shares which were granted on December 14, 1994, with
an exercise price of $2.25. These options vested with respect to 14,584 shares
on each of March 31, 1995 and March 31, 1996, and will vest as to 14,584 shares
on March 31, 1997, and as to the remaining 56,250 shares on March 31, 1998. On
July 6, 1995, pursuant to the agreement, Ms. Murphy was also granted options to
purchase 50,000 shares of Common Stock at an exercise price of $3.40 per share.
These options will vest as to 25,000 shares on each of March 31, 1998, and March
31, 1999. None of the foregoing options granted to Ms. Murphy shall be deemed
earned if, as to any given year, Ms. Murphy's employment is terminated for cause
or if she voluntarily resigns. In the event Ms. Murphy's employment is
terminated without cause or pursuant to her death, disability or the Company's
material breach of the agreement, Ms. Murphy or her estate shall be entitled to
receive her earned bonus and exercise the Initial Stock Options to purchase
150,000 shares in accordance with their terms. In the event Ms. Murphy's
employment is terminated without cause or pursuant to her death, disability or
the Company's material breach of the agreement prior to April 1, 1997, she will
receive her then current base salary and health and medical benefits coverage at
the Company's expense for two years from the date of such termination or if her
employment is so terminated on or subsequent to April 1, 1997, she will receive
her then current base salary and health and medical benefits coverage at the
Company's expense for the longer of (i) the period from the date of termination
through March 31, 1999, or (ii) one year from the date of termination. Ms.
Murphy's employment agreement also contains a two year non-compete/non-solicit
provision.
Robert H. Ottman. The Company has entered into an employment agreement
with Robert Ottman, its Executive Vice President/Network Services and Technical
Support, which terminates on April 30, 1998. This agreement calls for an annual
salary of $170,000 and additional compensation based on the Company's
performance as well as Mr. Ottman's individual contribution to that performance,
and shall be determined at the sole discretion of the Company's Chief Executive
Officer and Board of Directors. The agreement also includes options to purchase
up to 250,000 shares of Common Stock at a price of $3.00 per share. These
options vested with respect to 50,000 shares upon the signing of his employment
agreement and as to 50,000 shares on April 23, 1996, and will vest as to 75,000
shares on each of the second anniversary and the third anniversary of his
employment. None of the foregoing options granted to Mr. Ottman shall be deemed
earned if, prior to the relevant vesting date, Mr. Ottman's employment is
terminated for cause, pursuant to
23
<PAGE>
his death or disability or upon a determination by the Company's Board of
Directors that Mr. Ottman has failed to meet the performance criteria which
would reasonably be expected of someone in his position or if Mr. Ottman
voluntarily resigns. In the event that Mr. Ottman's employment is terminated
without cause or pursuant to the Company's material breach of the agreement, Mr.
Ottman or his estate shall be entitled to exercise the options to purchase
250,000 shares in accordance with their terms. In the event Mr. Ottman's
employment is terminated without cause or pursuant to his death, disability, the
Company's material breach of the agreement, or upon a determination by the
Company's Board of Directors that Mr. Ottman has failed to meet the performance
criteria which would reasonably be expected of someone in his position, he will
receive his then current base salary and health and medical benefits coverage at
the Company's expense for one year from the date of termination. Mr. Ottman's
employment agreement also contains a two year non-compete/non-solicit provision.
The shares of Common Stock underlying the stock options held by Messrs.
Pompliano, Kozak and Tronsrue, and Ms. Murphy which are discussed above are the
subject of a registration rights agreement among the Company and Mr. Pompliano,
Mr. Kozak, Mr. Tronsrue, Ms. Murphy and Douglas R. Hudson pursuant to which
these executive officers have been granted certain demand and piggy-back
registration rights with respect to the shares of Common Stock underlying
options granted to them under their employment agreements with the Company.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information as of August 30,
1996, concerning stock ownership of all persons known by the Company to own 5%
or more of the outstanding shares of the Company's voting securities, each
director of the Company, each executive officer of the Company named in the
Summary Compensation Table and all of the executive officers and directors of
the Company as a group.
Name and Address Amount and Percent
of Beneficial Nature of
Owner or of Beneficial Stock
Identity of Group(1) Ownership (2) Outstanding(3)
-------------------- ------------- --------------
Anthony J. Pompliano(4) 1,599,999 6.2%
Richard A. Kozak(5) 1,133,465 4.5%
George M. Tronsrue, III(6) 250,000 *
Riley M. Murphy(7) 137,500 *
Robert H. Ottman(8) 100,000 *
George M. Middlemas(9) 1,433,679 5.9%
Christopher Rafferty(10) 8,000 *
Edwin M. Banks(10) - 0 - *
Peter C. Bentz(10) - 0 - *
Olivier L. Trouveroy(11) - 0 - *
Benjamin P. Giess(11) - 0 - *
The Huff Alternative Income 11,246,782 46.2%
Fund, L.P.(12)
67 Park Place, Morristown, New
Jersey 07960
ING Equity Partners, L.P. I(13) 6,100,000 25.3%
135 East 57th Street, 16th
Floor, New York, NY 10022
First Analysis Corporation(14) 2,840,185 11.8%
233 South Wacker Drive, Suite
9600, Chicago, IL 60606
Russell T. Stern, Jr.(15) 1,355,860 5.6%
660 Mews, Winnetka, IL 60093
All executive officers and 4,800,144 19.9%
directors as a group (13
persons)
- -----------------------------
*Less than one percent.
(Footnotes commence on following page)
25
<PAGE>
(Footnotes from previous page)
(1) The address of all officers and directors listed above is in the care of
the Company.
(2) The numbers listed represent the voting power of the shares of Common Stock
and Preferred Stock as well as the voting power of Common Stock subject to
warrants and options which were exercisable as of August 30, 1996, or which
will become exercisable within 60 days of such date, held by each
individual or entity listed. Except as discussed below, none of these
shares are subject to rights to acquire beneficial ownership, as specified
in Rule 13d-3(d)(1) under the Exchange Act, and the beneficial owner has
sole voting and investment power, subject to community property laws where
applicable.
(3) Gives effect to 186,664 shares of Series A-1 Preferred Stock outstanding as
of August 30, 1996, which are convertible into 7,466,560 shares of Common
Stock and 277,500 shares of Series B Preferred Stock outstanding as of
August 30, 1996, which are convertible into 9,910,704 shares of Common
Stock. Except with respect to the election of directors and certain
transactions set forth in the Company's Certificate of Incorporation, the
Preferred Stock and Common Stock vote together as a single class. In the
case of a vote for the election of directors each share of Preferred Stock
has one vote. Otherwise, each share of Preferred Stock is entitled to that
number of votes equal to the number of shares of Common Stock into which it
is convertible. The percentage of voting stock outstanding for each
stockholder is calculated by dividing (i) the number of shares of Common
Stock deemed to be beneficially owned by such stockholder as of August 30,
1996 (assuming that each share of Preferred Stock has been converted into
shares of Common Stock), by (ii) the sum of (A) the number of shares of
Common Stock outstanding as of August 30, 1996, plus (B) the number of
shares of Common Stock into which the shares of Preferred Stock outstanding
as of August 30, 1996, are convertible plus (C) the number of shares
issuable upon exercise of options or warrants held by such stockholder
which were exercisable as of August 30, 1996, or which will become
exercisable within 60 days after August 30, 1996.
(4) Includes 1,599,899 shares subject to options held by Mr. Pompliano which
were exercisable as of August 30, 1996, or which will become exercisable
within 60 days after August 30, 1996, and 100 shares of Common Stock owned
directly.
(5) Includes 1,133,265 shares subject to options held by Mr. Kozak which were
exercisable as of August 30, 1996, or which will become exercisable within
60 days after August 30, 1996, and 200 shares of Common Stock owned
directly.
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<PAGE>
(6) Includes 250,000 shares subject to options held by Mr. Tronsrue which were
exercisable as of August 30, 1996, or which will become exercisable within
60 days after August 30, 1996.
(7) Includes 137,500 shares subject to options held by Ms. Murphy which were
exercisable as of August 30, 1996, or which will become exercisable within
60 days after August 30, 1996.
(8) Includes 100,000 shares subject to options held by Mr. Ottman which were
exercisable as of August 30, 1996, or which will become exercisable within
60 days after August 30, 1996.
(9) Includes 20,000 shares of Common Stock and 20,000 shares subject to options
held by Mr. Middlemas which were exercisable as of August 30, 1996, or
which will become exercisable within 60 days after August 30, 1996. Also
includes 245,560 shares of Common Stock, 16,803 shares of Series A-1
Preferred Stock convertible into 672,120 shares of Common Stock and 3,269.9
shares of Series B-3 Preferred Stock convertible into 116,785 shares of
Common Stock currently owned by Apex. Includes 2,595 shares of Series A-1
Preferred Stock convertible into 103,800 shares of Common Stock, 4,904.85
shares of Series B-3 Preferred Stock convertible into 175,173 shares of
Common Stock and 80,241 shares of Common Stock currently owned by Apex
Investment Fund Limited Partnership ("Apex I"). Mr. Middlemas is a general
partner of Apex Management Partnership which is the general partner of Apex
and Apex I. Mr. Middlemas disclaims beneficial ownership of the shares
owned by Apex and Apex I, except to the extent of his ownership in the
general partner of Apex I and in the general partner of Apex.
(10) Messrs. Banks and Bentz are employees of W.R. Huff Asset Management Co.,
L.L.C., an affiliate of Huff, but do not exercise sole or shared voting or
dispositive power with respect to the shares held by Huff which are
described in footnote (12) and thus, are not deemed to beneficially own
such shares. Mr. Rafferty is an employee of WRH Partners, L.L.C., the
general partner of Huff, but does not exercise sole or shared voting or
dispositive power with respect to the shares held by Huff which are
described in footnote (12) and thus, is not deemed to beneficially own such
shares. Mr. Rafferty's amounts include 200 shares of Series B-2 Preferred
Stock convertible into 7,143 shares of Common Stock and 857 shares of
Common Stock.
(11) Mr. Trouveroy is a Managing Partner of ING and Mr. Giess is a Partner of
ING but they do not exercise sole or shared voting or dispositive power
with respect to the shares held by ING which are described in footnote (13)
and thus, are not deemed to beneficially own such shares.
(12) Includes 1,919,793 shares of Common Stock, 138,889 shares of Series A-1
Preferred Stock convertible into 5,555,560 shares
27
<PAGE>
of Common Stock, 100,000 shares of Series B-2 Preferred Stock convertible
into 3,571,429 shares of Common Stock and 200,000 shares of Common Stock
subject to currently exercisable warrants.
(13) Includes 642,857 shares of Common Stock, 100,000 shares of Series B-1
Preferred Stock convertible into 3,571,429 shares of Common Stock, 100,000
shares subject to currently exercisable warrants owned by ING and 50,000
shares of Series B-4 Preferred Stock convertible into 1,785,714 shares of
Common Stock.
(14) Includes 245,560 shares of Common Stock, 16,803 shares of Series A-1
Preferred Stock convertible into 672,120 shares of Common Stock and 3,269.9
shares of Series B-3 Preferred Stock convertible into 116,785 shares of
Common Stock currently owned by Apex. Includes 2,595 shares of Series A-1
Preferred Stock convertible into 103,800 shares of Common Stock, 4,904.85
shares of Series B-3 Preferred Stock convertible into 175,173 shares of
Common Stock and 80,241 shares of Common Stock currently owned by Apex I.
Includes 272,945 shares of Common Stock, 10,249 shares of Series A-l
Preferred Stock convertible into 409,960 shares of Common Stock and
1,380.61 shares of Series B-3 Preferred Stock convertible into 49,308
shares of Common Stock currently owned by The Productivity Fund II, L.P.
("Productivity"). Includes 6,056 shares of Series A-1 Preferred Stock
convertible into 242,240 shares of Common Stock, 11,444.64 shares of Series
B-3 Preferred Stock convertible into 408,737 shares of Common Stock and
63,316 shares of Common Stock currently owned by Environmental Private
Equity Fund II, L.P. ("EPEF"). First Analysis Corporation ("FAC") is an
ultimate general partner of Apex, Apex I, Productivity and EPEF and may be
deemed to be the beneficial owner of the shares owned by them. FAC
disclaims beneficial ownership of these shares. This information was
obtained from a Schedule 13D filed with the Securities and Exchange
Commission on August 4, 1995, as amended in October 1995.
(15) Mr. Stern owns 1,084,012 shares of the Company's Common Stock, an option to
purchase 30,000 additional shares and a warrant to purchase 3,542 shares.
The Thurston Group, Inc., of which Mr. Stern is a principal, owns 199,677
shares of the Company's Common Stock.
For a description of the Voting Rights Agreement pursuant to which certain
stockholders of the Company have agreed to vote their shares of Preferred Stock
and Common Stock for the election of directors designated by certain
stockholders, see "Proposal No. 1--Election of Directors."
28
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 1, 1992, Russell T. Stern, Jr., Patrick J. Haynes and
Willard McNitt, the stockholders of Alabama Lightwave, Inc., North Carolina
Lightwave, Inc., Chicago Lightwave, Inc., Delaware Lightwave, Inc., and Virginia
Lightwave, Inc. (collectively referred to as the "ALI subsidiaries") entered
into stock exchange agreements with ALI. Under these agreements, the
stockholders of the ALI subsidiaries received 650 shares of ALI mandatorily
redeemable, nonvoting, cumulative Series A preferred stock (the "ALI Preferred
Stock") and 103,920 shares of ALI common stock (the "ALI Common Stock").
Additionally, ALI issued 363,720 shares of ALI Common Stock to existing
stockholders for $.0042 per share.
At the time of the exchange agreements, ALI also entered into a
stock subscription agreement under which an aggregate of 500 shares of ALI
Preferred Stock and an aggregate of 181,860 shares of ALI Common Stock were
issued to Apex, The Productivity Fund II, L.P. ("Productivity") and Brian Boyer
for a total of $500,875. The ALI Preferred Stock was issued for $1,000 per share
and the ALI Common Stock was issued for $.0048 per share.
On December 15, 1992, 100 additional shares of ALI Preferred Stock
and 36,372 shares of ALI Common Stock were issued to Apex II, Productivity and
Brian Boyer for a total of $100,175, under the stock subscription agreement
noted above on the same terms and at the same per share price as noted above.
On September 14, 1993, an acquisition agreement and related
agreements, among other things, resulted in the acquisition of ALI by Golf Links
Ltd. ("GLL"), a dormant publicly-held company, with GLL as the surviving
corporation, in exchange for newly issued shares of GLL's preferred and common
stock. Under the agreements, each outstanding common share of ALI Common Stock
was exchanged for 207.84 shares of GLL common stock and each outstanding share
of ALI Preferred Stock was exchanged for one share of GLL preferred stock and
the shares of American Consolidated Communications, Inc. ("ACC") and American
Communication Services, Inc., an Illinois corporation ("ACS") which were held by
certain stockholders of ALI were assigned to GLL. Additionally, notes receivable
for common stock of ACC totaling $50,000 held by Russell T. Stern, Jr. and
Patrick J. Haynes were forgiven in conjunction with the merger. After the
merger, GLL changed its name to American Communication Services, Inc. (a
Colorado corporation).
On September 15, 1993, the Company's former subsidiary, ALI, issued
promissory notes to Apex, Productivity, Russell T. Stern, Jr. and Brian Boyer
for $68,825, $68,825, $7,083 and $1,350, respectively (the "ALI Notes"). These
ALI Notes were originally due September 15, 1994, but ALI had the option to
extend the maturity date to September 15, 1995. Interest was payable on the
notes at ten percent (10%) per annum. The noteholders had warrants to purchase,
at any time up to September 14, 1996, shares of ALI Common Stock at a price of
$181.86 per share, subject to anti-dilution adjustments. ALI elected to extend
the maturity date to
29
<PAGE>
September 14, 1995, and the number of ALI shares that the noteholder could
purchase pursuant to the warrant increased as provided therein. The holders of
ALI Notes converted the ALI Notes and warrants into notes and warrants
substantially similar to notes and warrants issued by the Company on or about
September 14, 1993. The converted warrants along with the additional warrants
issued upon the extension of the ALI Notes gave the four holders listed above
the right to purchase an aggregate of 36,500 shares of the Company's Common
Stock at a price of $0.875 per share. The unexpired term of the three-year
warrants carried over to the converted warrants. In connection with the October
1994 Private Placement (as hereinafter defined), Apex and Productivity agreed to
reduce the number of warrants held by each of them by 50% in exchange for the
exercise price of 50% of such remaining warrants being reduced to $0.44 and 50%
of such remaining warrants being reduced to $0.01. Apex and Productivity each
exercised warrants for 8,353 shares of Common Stock at $0.44 per share during
November 1994 and each exercised warrants for 8,353 shares of Common Stock at
$0.01 per share during December 1994.
In November 1993, the Company executed a financial consulting and
advisory agreement with The Thurston Group, Inc. for a period of six months. The
Company believes that Russell T. Stern, Jr., who owned in excess of 5% of the
Company's outstanding voting stock and was a director of the Company at the time
the consulting agreement was executed, and Patrick J. Haynes, who at the time
the consulting agreement was executed was an executive officer of the Company
and owned in excess of 5% of the Company's outstanding voting stock, had
controlling interests in The Thurston Group, Inc. Mr. Stern owned in excess of
5% of the Company's outstanding voting stock as of August 30, 1996. See
"Security Ownership of Certain Beneficial Owners and Management." In
consideration, The Thurston Group, Inc. or its transferees received warrants to
purchase 300,000 shares of ACSI Common Stock, exercisable at $.875 per share.
The holders of these warrants had the right to resell the shares to ACSI for
$2.25 per share for two years from the date of the agreement. Pursuant to an
Assignment and Assumption Agreement dated June 21, 1995, Apex assumed the
Company's obligation to purchase such shares for a purchase price of $2.25 per
share.
On June 1, 1994, the Company entered into a Stock Exchange Agreement
with the following holders of 1,700 shares of its preferred stock, some of whom
were affiliates of the Company: Apex--247.5 shares; Productivity--247.5 shares;
Brian Boyer--5 shares; Russell T. Stern, Jr.--550 shares and The Thurston Group,
Inc.--650 shares. George Middlemas, who is a director of the Company, is a
general partner of a partnership which is the general partner of Apex.
Productivity, until the closing of the October 1994 Private Placement owned in
excess of 5% of the Company's outstanding voting stock. Brian Boyer is a former
officer and director of the Company. Russell T. Stern, Jr. owned in excess of 5%
of the Company's outstanding voting stock and was a director of the Company at
the time such exchange was effective. The Company believes that Mr. Stern is
also a principal stockholder of The Thurston Group, Inc. Mr. Stern owned in
excess of 5% of the
30
<PAGE>
Company's outstanding voting stock as of August 30, 1996. See "Security
Ownership of Certain Beneficial Owners and Management." The preferred stock had
a face value of $1,000 per share, and represented all of the then issued and
outstanding shares of the Company's preferred stock. As of June 30, 1994, none
of the preferred stock remained outstanding. The Company exchanged each share of
such preferred stock for the number of shares of Common Stock determined by
dividing the face amount of such shares of preferred stock by $3.10 (which
equals the average of the high bid and low ask prices for the Company's Common
Stock during the five trading days immediately preceding June 1, 1994). The
preferred stockholders were granted piggy-back registration rights for the
Common Stock received in the exchange, and demand registration rights on two
occasions for the two year period, June 1, 1995, to June 1, 1997, upon written
request of the holders of 60% of such Common Stock received in the exchange. The
preferred stockholders also each executed a general release in favor of the
Company.
On June 9, 1994, the Company issued Secured Convertible Notes to,
and executed Security Agreements with, Apex and Productivity, and with Russell
T. Stern, Jr. The notes, which were repaid immediately following the October
1994 Private Placement, had principal amounts of $264,680, $264,680 and $77,281,
respectively, with an interest rate of 15% per annum. The notes were secured
pari passu by the tangible assets of the Company's subsidiaries in the first two
cities to complete construction, American Communication Services of Louisville,
Inc. and American Communication Services of Little Rock, Inc. The Company paid
the principal and accrued interest on Mr. Stern's note in cash and paid Apex and
Productivity in shares of its Series A Preferred Stock. Under the terms of the
notes, because the notes held by Apex and Productivity were paid in shares of
Series A Preferred Stock valued at $90 per share, the Company was obligated to
pay an additional $77,250 each to Apex and Productivity, payable also in shares
of Series A Preferred Stock valued at $90 per share.
On June 16, 1994, the Company entered into a financial consulting
agreement with Thurston Partners, Inc. and Global Capital, Inc., both of which
the Company believes to be affiliates of Russell T. Stern, Jr. and Patrick J.
Haynes. The Company agreed to pay $153,750 for consulting services rendered
through the date of the agreement, and a monthly payment of $7,500 continuing
for a period of two years.
In June 1994, Apex II, Productivity and William G. Salatich, then a
director of the Company, purchased notes with the aggregate principal amount of
$1,300,720. These notes paid interest at a rate of 15% per annum and were
originally due December 31, 1994. The principal of these notes was converted
into 14,453 shares of Series A Preferred Stock as part of the October 1994
Private Placement and the holders thereof received warrants to purchase 86,714
shares of Common Stock at an exercise price of $1.125 per share and warrants to
purchase 86,714 shares of Common Stock at an exercise price of $0.01 per share,
all of which warrants were
31
<PAGE>
exercised. The accrued interest of $62,736 on these Notes as of October 21,
1994, was paid by the Company in cash.
Effective July 1, 1994, the Company engaged SGC Advisory Services,
Inc. ("SGC") as a financial and business consultant for three years. SGC is an
affiliate of Steven G. Chrust, who was then a director of the Company. Pursuant
to the agreement, the Company will compensate SGC as follows: (1) a monthly fee
of $5,000; (2) options to purchase up to 50,000 shares of the Company's Common
Stock that vest on July 1, 1997, and are exercisable on or before July 1, 1999;
and (3) a fee equal to 4% of the total aggregate consideration received by the
Company or its shareholders in any transaction that the Company completes with a
strategic partner, merger partner or buyer if SGC is the finder of such entity;
or in the case where SGC is not the finder but proves instrumental in completing
the transaction then a fee of 2% will be payable to SGC. In either case, 50% of
the fee will be payable in cash at the time of closing and 50% will be payable
in warrants to purchase securities or instruments similar to those received by
the Company or its shareholders, unless the entire purchase price is paid in
cash. In the latter case, the entire fee will be payable in cash at closing. Any
warrants will have an exercise life of five years from date of issuance or
vesting whichever is later and will be exercisable at the same price as
established by the transaction that generates the warrant fee. At the end of
each month of the term of the agreement, SGC earns a credit against the exercise
price of the options referred to in (2) above equal to 1/36th of the exercise
price. The shares issued upon exercise of the options were priced at the average
of the high bid and low asked price on the closing date of the October 1994
Private Placement and have piggy-back registration rights.
In August, 1994, Apex II loaned the Company $250,000. The terms of
this loan were 15% per annum interest on a note due December 31, 1994, the grant
of a security interest in the tangible assets of the Company's operating
subsidiary which was then constructing a CAP network, and the issuance of the
Company's warrants in the amount of $250,000 to purchase shares of Preferred
Stock at $90 per share. Apex II converted the principal of this loan into 2,778
shares of Series A Preferred Stock at $90 per share as part of the October 1994
Private Placement. In addition, Apex II received warrants to purchase 3,333
shares of Common Stock at $1.125 per share and warrants to purchase 3,333 shares
of Common Stock at $0.01 per share in connection with this conversion. All of
these warrants were exercised.
In October 1994, the Company completed a private placement in which
it sold an aggregate of 186,664 shares of its Series A Preferred Stock and
issued warrants to purchase an aggregate of 2,674,506 shares of Common Stock for
an aggregate consideration of $16.8 million, including the conversion of $4.3
million of outstanding debt (the "October 1994 Private Placement"). Each share
of the Series A Preferred Stock was, prior to its exchange and retirement,
convertible into 40 shares of Common Stock, subject to anti-dilution
adjustments, generally at the option of the
32
<PAGE>
holder. Huff acquired control of the Company through its purchase, for an
aggregate purchase price of $12.5 million, of 138,889 shares of the Series A
Preferred Stock and associated warrants to purchase 77,000 and 1,414,222 shares
of Common Stock at prices of $1.125 and $0.01 per share, respectively, all of
which were exercised in November 1994. Huff is an investment limited partnership
and the consideration for the Series A Preferred Stock was obtained from its
general and limited partners through capital calls for investments by the fund.
Upon completion of these transactions, Huff owned approximately 55.1% of the
Company's outstanding voting stock.
In June 1995, the Company completed a private placement (the "June
1995 Private Placement") of its currently outstanding Series B Preferred Stock
in which ING purchased an aggregate of 100,000 shares of the Company's Series
B-1 Preferred Stock, warrants to purchase 428,571 shares of Common Stock at an
exercise price of $0.01 per share and a warrant to purchase 100,000 shares of
Common Stock at an exercise price of $2.50 per share. In connection with the
June 1995 Private Placement, the Series A Preferred Stock was exchanged for an
identical number of shares of Series A-1 Preferred Stock and subsequently
retired. Huff and certain of its affiliates purchased an aggregate of 100,975
shares of Series B-2 Preferred Stock, a warrant to purchase 432,749 shares of
Common Stock at an exercise price of $0.01 per share, a warrant to purchase
100,000 shares of Common Stock at an exercise price of $1.79 per share and a
warrant to purchase 100,000 shares of Common Stock at an exercise price of $2.50
per share. In the June 1995 Private Placement, Apex II and certain of its
affiliates purchased an aggregate of 21,000 shares of Series B-3 Preferred Stock
and warrants to purchase an aggregate of 90,000 shares of Common Stock at an
exercise price of $.01 per share. The price per unit in the June 1995 Private
Placement was $100. Pursuant to the Series B Purchase Agreement, ING purchased
50,000 shares of the Company's Series B-4 Convertible Preferred Stock and a
warrant entitling ING to purchase 214,286 shares of Common Stock at an exercise
price of $0.01 per share. In connection with the June 1995 Private Placement,
the Company entered into the Registration Rights Agreement, dated June 26, 1995,
with the holders of the Series A-1 Preferred Stock, the holders of the Series B
Preferred Stock, certain holders of Common Stock and certain holders of options
or warrants convertible into Common Stock (the "Registration Rights Agreement")
wherein the parties were granted piggy-back registration rights with respect to
any registration statements (other than registration statements filed on Forms
S-4 or S-8) filed by the Company with the Commission at any time prior to the
sixth anniversary of the agreement, and certain demand registration rights
following the occurrence of, among other things, a Qualifying Offering (as
defined in the Company's Certificate of Incorporation).
The Company also has entered into the Stockholder's Agreement
(the "Stockholders Agreement"), dated as of June 26, 1995, with the holders of
the Series A-1 Preferred Stock and Series B Preferred Stock, Anthony J.
Pompliano and Richard A. Kozak. The Stockholders
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<PAGE>
Agreement, among other things, generally restricts the transfer of Common and
Preferred Stock owned by the parties to he Stockholders Agreement with the
exception of stock sold: (i) in a public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or (ii) in the public market pursuant to Rule 144 under the
Securities Act. The Stockholders Agreement further provides the stockholders
with rights of first refusal in the case of sales initiated by stockholders that
are parties to the Stockholders Agreement and certain "tag-along" rights, which
allow the stockholders to sell a proportionate amount of their stock in the
event a stockholder proposes to sell such stock to an unrelated purchaser.
In response to voting rights issues raised by the NASDAQ Stock
Market staff concerning the Company's governance structure, the Company amended
its Certificate of Incorporation, which amendments were approved by the
stockholders of the Company on January 26, 1996, such that the Board will be
comprised of seven members, four of whom will be elected by the holders of the
Company's Common Stock and three of whom will be elected by the holders of the
Company's Preferred Stock (a "Standard Board"). However, in the event of certain
triggering events set forth in the Company's Certificate of Incorporation occur,
the Board shall be increased to eleven members and the additional four directors
shall be elected by holders of the Company's Preferred Stock (a "Triggering
Event Board"). Pursuant to the Governance Agreement dated November 8, 1995
between the Company and certain holders of its Preferred Stock (the "Governance
Agreement"), until June 26, 1996, the Board was to consist of eleven members,
four of whom were elected by holders of the Common Stock and seven of whom were
elected by holders of the Preferred Stock. On February 26, 1996, the Company and
the other parties to the Governance Agreement signed the Supplemental Governance
Agreement pursuant to which the Board was reduced to seven members, four of whom
were elected by holders of the Common Stock and three of whom were elected by
holders of the Preferred Stock. When the Board was reduced to seven members on
February 26, 1996, Richard A. Kozak, Steven G. Chrust, Frederick Galland and
Cathy Markey, all of whom had been elected by the holders of the Company's
Preferred Stock, resigned.
The shares of Common Stock underlying the stock options discussed in
"Employment Agreements" are the subject of a registration rights agreement among
the Company and Mr. Pompliano, Mr. Kozak, Mr. Tronsrue, Ms. Murphy and
Mr. Hudson pursuant to which these executive officers have been granted certain
demand and piggy-back registration rights with respect to the shares of Common
Stock underlying options granted to them under their employment agreements with
the Company.
On December 28, 1995, the Company entered into an agreement with
Gerard Klauer Mattison & Co., LLC ("GKM"), wherein the Company agreed to (i) pay
to GKM approximately $1.4 million in full satisfaction of claims and as payment
for past services provided by GKM to the Company, (ii) issue GKM a Warrant
exercisable for 96 shares of the Company's Common Stock at an exercise price of
$0.01
34
<PAGE>
per share at any time before June 28, 1996 ("GKM Warrant I"), and (iii) issue a
GKM Warrant which will allow GKM to purchase 62,473 shares of the Company's
Common Stock at an exercise price of $2.80 per share (subject to certain
adjustments) at any time after 5:00 p.m. New York City time on December 28,
1996, until 5:00 p.m. New York City time on December 28, 2000 (the "GKM Warrant
II", the GKM Warrant I and GKM Warrant II collectively, the "GKM Warrants"). The
GKM Warrants were earned as a result of services that GKM performed in
connection with the June 1995 Private Placement. The Common Stock issuable upon
the exercise of the GKM Warrants have certain registration rights. The GKM
Warrant I was exercised.
For a description of the Voting Rights Agreement pursuant to which
certain stockholders of the Company have agreed to vote their shares of
Preferred Stock and Common Stock for the election of directors designated by
certain stockholders, see "Proposal No. 1-- Election of Directors."
PROPOSAL NO. 2 -- PROPOSED AMENDMENT TO THE COMPANY'S
1994 STOCK OPTION PLAN TO INCREASE THE NUMBER OF
SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UPON
EXERCISE OF OPTIONS GRANTED UNDER THE 1994 PLAN FROM
1,910,000 TO 3,000,000
The Compensation Committee recognizes that the Company experiences
intense competition from other companies for talented managers and employees and
that the Company's success is dependent upon its ability to attract and retain
such personnel. The Committee has concluded that one of the best ways to compete
for key personnel is to offer significant potential rewards based upon the
Company's success through the issuance of stock options. The Board believes that
all employees of the Company and its subsidiaries should be provided the
opportunity to acquire or increase their holdings of the Company's Common Stock.
Both incentive stock options (within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended), and nonqualified options may be granted under
the 1994 Stock Option Plan, as amended (the "1994 Plan").
Therefore, the Board adopted amendments to the 1994 Plan which
increased the number of shares reserved for options pursuant to discretionary
grants under the 1994 Plan by an aggregate of 1,090,000 to 2,790,000 for a total
of 3,000,000 including the 210,000 reserved for formula grants described below.
This amendment is subject to ratification by the stockholders.
1994 Stock Option Plan
On November 15, 1994, the Board adopted and on December 16, 1994,
the stockholders approved the 1994 Plan. In December 1995, the Board adopted and
on January 26, 1996, the stockholders approved amendments to the 1994 Plan. The
1994 Plan will terminate no later than November 15, 2004, ten years after
adoption by the Board of Directors and after such termination no additional
options may be granted. The 1994 Plan is administered by the Compensation
Committee who will make discretionary grants ("discretionary grants") of options
to employees (including employees who are officers and directors of the
Company), directors who are not employees of the Company ("Outside Directors")
and consultants. The 1994 Plan also provides for formula grants of options to
Outside Directors ("formula grants"). Under the 1994 Plan, 1,700,000 shares of
Common Stock have been reserved for discretionary grants and 210,000 shares of
Common Stock have been reserved for formula grants. As of August 30, 1996,
535,500 discretionary and 20,000 formula options had been granted under the 1994
Plan.
Options granted pursuant to discretionary grants may be nonqualified
options or incentive options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended. The selection of participants, allotment of
shares, determination of price and other conditions of purchase of such options
will be determined by the Compensation Committee, in its sole discretion.
Options granted pursuant to discretionary grants are exercisable for a period of
up to ten years, except that incentive options granted to optionees who, at the
time the option is granted, own
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stock representing greater than 10% of the voting power of all classes of stock
of the Company or any parent or subsidiary, are exercisable for a period of up
to five years. The per-share exercise price of incentive options granted
pursuant to discretionary grants must be no less than 100% of the fair market
value of the Common Stock on the date of grant, except that the per share
exercise price of incentive options granted to optionees who, at the time the
option is granted, own stock representing greater than 10% of the voting power
of all classes of stock of the Company or any parent or subsidiary, must be no
less than 110% of the fair market value of the Common Stock. The per share
exercise price of non-qualified stock options granted pursuant to discretionary
grants must be no less than 85% of the fair market value of the Common Stock on
the date of grant. To the extent options are granted at less than fair market
value, the Company incurs a non-cash cost for financial reporting purposes.
Under the formula grants, each Outside Director will be
automatically granted a non-qualified option to purchase 50,000 shares (subject
to adjustment as provided in the 1994 Plan). Each such director may decline such
grant. Each option granted pursuant to a formula grant will vest and become
exercisable as to 10,000 shares on the date such option is granted (the "Grant
Date"), as to 10,000 shares on the date of the first annual meeting of
stockholders held at least eight months after the Grant Date (the "First Annual
Meeting"), and as to 10,000 shares on the date of each of the next three annual
meetings of stockholders held after the First Annual Meeting; provided that the
option will only vest on the relevant annual meeting of stockholders date if the
Outside Director is re-elected to the Board at such meeting. Each such option
shall have a term of five years from the relevant vesting date. The exercise
price per share of Common Stock for options granted pursuant to a formula grant
shall be 100% of the fair market value as determined under the terms of the 1994
Plan.
Options granted under the 1994 Plan are nontransferable, other than
by will or by the laws of descent and distribution, and may be exercised during
the optionee's lifetime, only by the optionee, or in the event of the optionee's
legal incapacity to do so, by the optionee's guardian or legal representative.
As of September 30, 1996, there were 269 employees eligible to
participate and approximately 107 actual participants in the 1994 Plan. During
the fiscal year ended June 30, 1996 there were no grants of options pursuant to
the 1994 Plan to any executive officer of the Company, including the Named
Executive Officers. There were grants of options pursuant to the 1994 Plan to
all other employees as a group to acquire an aggregate of 904,413 shares of
Common Stock, at an average exercise price of $4.73 per share. There were no
grants of options to any directors who are not executive officers or any nominee
for election as a director, nor were there any grants of options to any
associates of any directors, nominees for director or executive officers.
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For a description of certain of the federal income tax consequences
associated with the grant and exercise of options under the 1994 Plan, see
"Stock Option Plan and Stock Purchase Plan - Federal Income Tax Consequences".
The Board of Directors recommends a vote FOR ratification of
amendments to the 1994 Stock Option Plan to increase the number of shares
reserved for issuance under the 1994 Stock Option Plan from 1,910,000 shares to
3,000,000 (Proposal No. 2 on the proxy card).
PROPOSAL NO. 3 -- ADOPTION OF THE 1996 EMPLOYEE STOCK
PURCHASE PLAN
Based on the Compensation Committee's recognition that the Company's
success is dependent upon its ability to attract and retain talented employees
and that one of the best ways to compete for such personnel is to offer
significant potential rewards which are tied to the Company's success, the Board
adopted the 1996 Employee Stock Purchase Plan (the "1996 Stock Plan") in October
1996, subject to approval by the stockholders. The Board of Directors is seeking
stockholder approval and ratification of the 1996 Stock Plan. The Board believes
that all employees of the Company and its subsidiaries should be provided the
opportunity to acquire or increase their holdings of the Company's Common Stock.
The 1996 Stock Plan, which is attached hereto as Appendix A,
reserves 500,000 shares of the Company's Common Stock for the grant of options
to eligible employees of the Company and its subsidiaries. Any employee working
more than 20 hours a week and who has been employed three months or more by the
Company or any subsidiary of the Company prior to the commencement of an
offering period under the Plan is eligible to participate in offers under the
1996 Stock Plan. Non-employee directors of the Company and its subsidiaries will
not be eligible to participate in the 1996 Stock Plan. The 1996 Stock Plan shall
be implemented by one or more offer periods ("Offer Periods") in which an offer
or offers under the Plan ("Offers") will commence and terminate. The first Offer
Period shall commence on November 1, 1996 and end on June 30, 1997, with new
Offer Periods commencing on the first day of July and January beginning July 1,
1997 (or at such other date as the Compensation Committee shall determine). The
Compensation Committee shall have the power to change the duration and/or the
frequency of Offer Periods with respect to future Offers without stockholder
approval if such change is announced at least 10 days prior to the scheduled
beginning of the first Offer Period to be affected. If the stockholders fail to
approve this Proposal No. 3, the 1996 Stock Plan will be terminated and no
purchases of shares will be be made thereunder.
The 1996 Stock Plan will be administered by the Compensation
Committee. The option price at which shares of Common Stock may be purchased
under any option granted under the 1996 Stock Plan is 85% of the fair market
value of a share of Common Stock on the date Common Stock is purchased pursuant
to an offering under the Plan.
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The Compensation Committee shall have the power to change the price under which
an option may be exercised with respect to future Offer Periods without
stockholder approval if (i) the new exercise price is within the minimum pricing
requirements of Section 423(b)(6) of the Internal Revenue Code of 1986, as
amended (the "Code"); and (ii) such change is announced at least 10 days prior
to the scheduled beginning of the first Offer Period to be affected. The
reported last sale price of the Company's Common Stock on August 30, 1996 on the
NASDAQ National Market was $12.13. The stock subject to options granted under
the 1996 Stock Plan shall be treasury shares or authorized and unissued shares
of Common Stock as the Compensation Committee may determine in its discretion.
The aggregate number of shares which may be issued pursuant to options exercised
under the 1996 Stock Plan may not exceed 500,000 and the number of shares
subject to options outstanding at any time may not exceed the number of shares
remaining available for issuance thereunder.
On the effective date of an Offer, each then eligible employee will
be granted an option to purchase, through payroll deductions, as many full
shares of Common Stock as he may with up to the maximum percentage of eligible
compensation to be received by such employee during the term of the Offer. An
eligible employee may elect to participate in the 1996 Stock Plan by authorizing
regular payroll deductions, which may not exceed the maximum percentage of the
employee's eligible compensation per pay period, to be applied toward the
purchase of Common Stock pursuant to the Offer. The "maximum percentage" means
the percent of eligible compensation available for payroll deductions which
shall be specified by the Committee at the beginning of the term of each Offer,
which shall not exceed 10%. The compensation of an employee which is "eligible
compensation" for payroll deductions under the 1996 Stock Plan includes only
base salary and commissions (if any) paid in each payroll period. On the last
trading day of each month during the term of an Offer, a participating employee
will be deemed to have exercised his option to purchase, at the applicable
option price, that number of full shares of Common Stock which may be purchased
with the amount deducted from such employee's compensation during that month and
excess funds from the preceding month, if any.
The maximum number of shares which an employee will be permitted to
purchase pursuant to any one Offer will be that number of shares determined by
multiplying (i) the amount of the employee's monthly eligible compensation on
the date he is first granted an option pursuant to that Offer by (ii) the number
of months from such date to the end of the term of the Offer, and dividing such
product by the fair market value of a share of Common Stock on such date. When
the foregoing participation limitation is reached, payroll deductions will
cease, and any amount of excess funds will be returned to the employee. In no
event will an employee be permitted to purchase any shares under the 1996 Stock
Plan if the employee, immediately after the purchase, owns or would own shares
(including all shares which may be purchased under outstanding options)
representing 5% or more of the total combined
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voting power or value of all classes of shares of capital stock of the Company
or its subsidiaries. In addition, in no event may shares be purchased under the
1996 Stock Plan with a value in excess of $25,000 in any calendar year. Once
enrolled in the Plan, an eligible employee shall be a participant in all Offers
under the Plan until he withdraws from further participation in the Plan. No
withdrawn participant may enroll in the Plan until the first anniversary of the
date of such participant's withdrawal. However, if the Compensation Committee
amends the Plan with respect to future Offers to change the Offer Period or
change the price under which shares of Common Stock may be purchased pursuant to
an Offer, the withdrawn participant may again become a participant as of the
commencement date of the Offer Period to which such change or changes apply.
The right to participate in the 1996 Stock Plan and the interest of
an employee in the shares of Common Stock or excess funds accumulated on his
behalf, is nontransferable, other than transfers by will or under the laws of
descent and distribution or as otherwise provided by law. A participant may not
sell or otherwise dispose of shares of Common Stock acquired pursuant to the
Plan for a period of 120 days from the purchase day of such shares. In the event
an employee's employment with the Company is terminated for any reason,
including upon the retirement or death of the employee, no payroll deductions
will be made from any compensation then due and owing to such employee at such
time, and a certificate representing the number of full shares of Common Stock
then credited to the participant's account, and a check for any amount of excess
funds contributed as of that date (and not eligible for the purchase of shares)
will be issued and delivered to the employee (or the representative of such
employee, if applicable).
The 1996 Stock Plan and all rights of participants will terminate
upon the earlier of (i) the date as of which participants have exercised options
to purchase a number of shares of Common Stock equal to or greater than the
number of shares then subject to the 1996 Stock Plan or (ii) the date as of
which the Compensation Committee or the Board terminates the 1996 Stock Plan.
For a description of certain of the federal income tax consequences
associated with the grant and exercise of options under the 1996 Stock Plan, see
"Stock Option Plan and Stock Purchase Plan - Federal Income Tax Consequences".
The Board of Directors recommends a vote FOR ratification of
the adoption of the 1996 Employee Stock Purchase Plan. (Proposal
No. 3 on the Proxy Card).
STOCK OPTION PLAN AND STOCK PURCHASE PLAN - FEDERAL INCOME TAX CONSEQUENCES
The following general summary is based upon the Internal Revenue
Code of 1986, as amended (the "Code") and does not include a discussion of any
state or local tax consequences.
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Stock Option Plan -- Nonqualified Stock Options
An optionee will not generally recognize any taxable income upon the
grant of a nonqualified option because, under current Treasury regulations
pursuant to Section 83 of the Code, the fair market value of an option at the
time it is granted is ordinarily not considered to be "readily ascertainable".
However, upon exercise of a nonqualified option, an optionee must recognize
ordinary income in an amount equal to the excess of the fair market value of the
Common Stock at the time of exercise over the exercise price. Upon the
subsequent disposition of the Common Stock, the optionee will realize a capital
gain or loss, depending on whether the selling price exceeds the fair market
value of the Common Stock on the date of exercise.
An optionee's tax basis in the shares received on exercise of a
nonqualified option will be equal to the amount of consideration paid by the
optionee on exercise, plus the amount of ordinary income recognized as a result
of the receipt of such shares, which together equals the fair market value of
the Common Stock on the date of exercise. The optionee's holding period in the
Common Stock, for capital gains and losses purposes, begins on the date of
exercise. Optionees who are required to report their holdings and transfers of
the Common Stock under Section 16(a) of the Exchange Act ("Section 16 Persons")
are subject to the trading restrictions of Section 16(b) of the Exchange Act and
unless the election described below is made will not recognize ordinary
compensation income until the date such trading restrictions terminate (the
"Deferred Date"), rather than the exercise date. If the election is not made,
the amount of such taxable income will equal the excess of the fair market value
on the Deferred Date of the Common Stock received over the exercise price for
such Common Stock and the holding period for long-term capital gain would not
begin until the Deferred Date.
Section 16 Persons may elect to recognize compensation income on the
date of exercise of the non-qualified option. In such event, the amount of
taxable income to be recognized would equal the excess of the fair market value
of the Common Stock on such exercise date, over the exercise price for such
Common Stock. The election to recognize income on the date of exercise of the
non-qualified option, may be made by the timely filing of an appropriate
statement with the Internal Revenue Service.
The Company will be entitled to a deduction for federal income tax
purposes at the same time and in the same amount as the optionee recognizes
compensation income, provided the Company satisfies any applicable withholding
tax obligation with respect to such income.
Stock Option Plan -- Incentive Stock Options
Under Section 422 of the Code, no taxable income is realized by the
optionee upon the grant or exercise of an incentive stock option, provided that
the optionee is continuously employed by the
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Company during the period beginning on the date of grant and ending on the date
three months before the date of exercise (or, in the case of disability, one
year before the date of exercise). However, the exercise of an incentive stock
option may result in alternative minimum tax liability for the optionee. If no
disposition of shares issued to an optionee pursuant to the exercise of an
incentive stock option is made by the optionee within two years from the date of
grant or within one year after the transfer of such shares to the optionee, then
upon sale of such shares, any amount realized in excess of the exercise price
will be taxed to the optionee as long-term capital gain (and any loss sustained
will be long-term capital loss) and no deduction will be allowed to the Company
for federal income tax purposes. The grant of an incentive stock option and the
optionee's exercise of the incentive stock option will result in no federal
income tax consequences to the Company.
If the shares of Common Stock acquired upon the exercise of an
incentive stock option are disposed of prior to the expiration of the two-year
and one-year holding periods described above (a "Disqualifying Disposition"),
generally the optionee will realize ordinary income in the year of disposition
in an amount equal to the excess (if any) of the fair market value of the shares
on the date of exercise (or, if less, the amount realized on an arms-length sale
of such shares) over the exercise price thereof, and the Company will be
entitled to deduct such amount as compensation expenses.
Stock Purchase Plan -- Employee Stock Purchase Options
Under Section 423 of the Code, no taxable income is realized by the
employee at the time the option issued pursuant to an employee stock purchase
plan (an "ESPO") is granted or exercised, provided that the employee (i) has not
severed his employment relationship more than three months before the exercise
and (ii) has not made a Disqualifying Disposition (as described under "Incentive
Stock Options", above).
When the Common Stock is disposed of after the required holding
period, the employee realizes ordinary compensation income equal to the lesser
of (1) the excess of the fair market value of the Common Stock at the time of
disposition (or death of the employee) over the exercise price of the ESPO, or
(2) the excess of the fair market value of the Common Stock at the time the ESPO
was granted over the exercise price of the ESPO. Any additional gain is capital
gain. If the sale price of the Common Stock is exceeded by the exercise price of
the ESPO, there is no compensation income and the employee will have a long term
capital loss. When the Common Stock is disposed of in a Disqualifying
Disposition, the employee realizes compensation income to the extent of the
excess of the fair market value of the Common Stock on the date such stock was
issued pursuant to the ESPO over the exercise price of the ESPO. In addition, if
the employee has disposed of the shares of Common Stock one year or less
following the date such shares were acquired, excess gain realized on such
disposition over the amount
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includible as compensation income if any, will be treated as short-term capital
gain.
As in the case of incentive stock options, the basis of the Common
Stock received upon the exercise of an ESPO is the purchase price. However, when
an employee is required to include compensation in his gross income, the amount
of compensation is added to the basis of his stock.
The grant of a ESPO or the issuance of stock thereunder will not
result in federal income tax consequences to the employer. Moreover, the
employer will not be entitled to deduct the difference between the fair market
value of the stock and the exercise price of the ESPO. However, if the employee
severed his or her employment in a Disqualifying Disposition, the employer will
be entitled to the compensation deduction equal to the amount that the employee
includes in income.
For federal income tax purposes, an ESPO issued under this Plan
shall be treated as having been granted on the date of its exercise.
CLOSING PRICE OF COMMON STOCK
The last reported sale price of a share of the Company's Common
Stock on October 4, 1996 on the NASDAQ National Market was $10.00.
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PROPOSAL NO. 4 -- PROPOSED AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF PREFERRED STOCK FROM 813,336 TO
1,464,164
At present the Company is authorized to issue 75,000,000 shares of
Common Stock, $.01 par value per share and 813,336 shares of Preferred Stock,
$1.00 par value per share. As of October 4, 1996 there were outstanding
6,761,466 shares of Common Stock and 464,164 shares of Preferred Stock, of which
186,664 shares are designated as 9% Series A-1 Convertible Preferred Stock,
100,000 shares are designated as 9% Series B-1 Convertible Preferred Stock,
102,500 shares are designated as 9% Series B-2 Convertible Preferred Stock,
25,000 shares are designated as 9% Series B-3 Convertible Preferred Stock and
50,000 shares are designated as 9% Series B-4 Convertible Preferred Stock. The
outstanding shares of Preferred Stock are convertible into an aggregate of
17,377,264 shares of Common Stock. All of the currently authorized but unissued
shares of preferred stock may be designated by the board without further
stockholder approval with such designations, preferences, and relative,
participating, optimal or other special rights and qualifications, limitations
or restrictions thereof as the board may determine. Such power is permissible
under Delaware General Corporate Law (the "DGCL") and is commonly referred to as
a board's "blank check" authority.
The board believes that it is in the best interests of the Company
to increase the authorized number of shares of preferred stock subject to the
board's blank check authority from 813,336 to 1,464,164 and on October 7, 1996
the board unanimously consented to submit to a vote of stockholders an amendment
to the Certificate of Incorporation so increasing the authorized preferred
stock. The board believes that an increase in the Company's authorized preferred
stock is advisable since it is likely that the Company will need to obtain
additional equity financing for the expansion and operation of its business in
the future and it is possible that the Company may be required to issue
additional shares of preferred stock in order to obtain such financing. The
Company may also be required to issue preferred stock in order to consummate
acquisitions. The Company is considering several forms of financing, some of
which would require the issuance of preferred stock, but at this time no
decision has been made in this regard and the Company has no present agreement
or commitment to issue any of the additional shares of preferred stock provided
for in this proposal. If, however, the need arises in the future to issue
additional shares it is anticipated that the terms of any preferred stock to be
issued will be the subject of negotiations with any potential investors and,
therefore, the board believes that it is advisable to allow the board to set
such terms in its discretion. The board believes that this flexibility is
necessary to enable the Company's executive officers to negotiate terms which
are the most advantageous to the Company while still complying with requirements
that may be specified by potential investors. In the event any preferred stock
is issued in the future the board will authorize such issuance and no further
authorization for the issuance of the
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preferred stock by a vote of the Company's security holders will be solicited
prior to such issuance.
The 650,828 additional authorized shares of Preferred Stock
resulting from this Proposal would have the same $1.00 par value as the existing
authorized shares of preferred stock. Such preferred stock would have such
voting rights and other rights as the Board shall determine in accordance with
the DGCL.
In the event this Proposal is approved, authorized shares of
preferred stock in excess of those shares outstanding will remain available for
general corporate purposes, may be privately placed and can be used to make a
change in control of the Company more difficult. Any preferred stock which is
issued in the future will, in all likelihood, have terms and preferences,
including without limitation dividend, voting and liquidation rights, which are
senior and superior to those of the Common Stock. The preferred stock may be
issued with such other terms and preferences so as to discourage any tender
offer for the Company's stock or other takeover bids, which in the opinion of
the board might not be in the best interests of the Company and its
stockholders, but in which unaffiliated stockholders may wish to participate.
It should be noted that the board currently has the power to take
such actions described in the preceding paragraph with regard to the currently
authorized but unissued shares of preferred stock and that the power of the
board actions will not be enhanced by this Proposal except in respect of the
increased number of authorized shares of preferred stock which will then be
available for issuance.
If Proposal No. 4 is approved and the amendment becomes effective,
the first three full sentences of Article IV of the Company's Certificate of
Incorporation, which sets forth the Company's presently authorized capital
stock, will be amended to read in their entirety as follows:
"4. The total number of shares of capital stock which the
Corporation shall have authority to issue is 76,464,164."
"4.1. Of the authorized shares, 75,000,000 shares shall
be common stock (the "Common Stock") with a par value of $.01
per share."
"4.2. Of the authorized shares, 1,464,164 shall be shares
of preferred stock (the "Preferred Stock" or "Preferred
Shares") with a par value of $1.00 per share."
The Board of Directors recommends a vote FOR approval of an
amendment to the Company's Certificate of Incorporation to increase the number
of authorized shares of Preferred Stock from 813,336 to 1,464,164 (Proposal No.
4 on the proxy card).
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PROPOSAL NO. 5 -- RATIFICATION OF THE SELECTION OF KPMG PEAT
MARWICK LLP, INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, TO
AUDIT THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY
FOR THE TRANSITION PERIOD ENDING DECEMBER 31, 1996 AND FOR
THE FISCAL YEAR ENDING DECEMBER 31, 1997
The Board has recently changed its fiscal year from July 1st through
June 30th to a calendar year basis. The Company has decided to change its fiscal
year to conform to industry standards and for certain administrative purposes.
The Board has recommended that KPMG Peat Marwick LLP ("KPMG") continue as the
Company's independent certified public accountants to audit the Company's
financial statements for the transition period ending December 31, 1996 and for
the fiscal year ending December 31, 1997. KPMG has served as the Company's
independent certified public accountants since April 1995. Representatives of
KPMG are expected to be available to answer questions at the Annual Meeting and
to make statements during the course of the meeting.
The Board authorized the officers of the Company to dismiss Coopers
& Lybrand LLP ("Coopers") as the Company's auditors and retain KPMG to audit the
Company's financial statements for the fiscal year ended June 30, 1995. On April
21, 1995, the Company dismissed Coopers which had audited the Company's
financial statements for the fiscal years ended June 30, 1993 and June 30, 1994
and retained KPMG. Coopers' report for each of the fiscal years ended June 30,
1993 and June 30, 1994 indicated uncertainties as to the Company's ability to
continue as a going concern. Coopers' report for each of the fiscal years ended
June 30, 1993 and June 30, 1994 did not contain an adverse opinion or a
disclaimer of opinion and was not qualified or modified as to audit scope or
accounting principles. During the fiscal years ended June 30, 1993 and June 30,
1994 and the subsequent interim periods immediately preceding the change in
accountants, there were no disagreements with Coopers on any matter of
accounting principles or practice, financial statement disclosure, or auditing
scope or procedure, which disagreements if not resolved to the satisfaction of
Coopers would have caused them to make reference to the subject matter of the
disagreement in connection with their reports on the Company's financial
statements. During the fiscal years ended June 30, 1993 and June 30, 1994 and
the subsequent interim periods immediately preceding the change in accountants,
there were no reportable events (as that term is used in Regulation S-K, Item
304(a)(1)(v)(A) through (D) of the Securities and Exchange Act of 1934), except
that at the March 30, 1994 meeting of the Audit Committee at which
representatives of Coopers were present, Coopers communicated to the Audit
Committee that through approximately August 1993, documentation of equity or
other noncash transactions and controls over cash were less than adequate. This
matter was then discussed. The Company has authorized Coopers to respond fully
to the inquiries of KPMG concerning such reportable events.
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The Board of Directors recommends a vote FOR ratification of the
selection of KPMG Peat Marwick LLP, independent certified public accountants, to
audit the consolidated financial statements of the Company for the transition
period ending December 31, 1996 and the fiscal year ending December 31, 1997
(Proposal No. 5 on the proxy card). If the appointment is not approved,
management will select other independent accountants. If the appointment is
approved, management reserves the right to appoint other independent auditors.
ANNUAL REPORT TO STOCKHOLDERS
The Company's 1996 Annual Report to Stockholders accompanies
this Proxy Statement.
STOCKHOLDERS' PROPOSALS
The Company welcomes comments or suggestions from its stockholders,
including any recommendations stockholders may have as to future directors of
the Company. In the event that a stockholder desires to have a proposal formally
considered at the 1996 Annual Stockholders' Meeting, and included in the Proxy
Statement for that meeting, the proposal must be received in writing by the
Company's Secretary on or before June 15, 1997.
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GENERAL
The cost of soliciting proxies will be borne by the Company. In
addition to the use of mailings, proxies may be solicited by personal interview,
telephone and telegraph, and by directors, officers and regular employees of the
Company, without special compensation therefor. The Company expects to reimburse
banks, brokers and other persons for their reasonable out-of-pocket expenses in
handling proxy materials for beneficial owners of the Company's Common Stock.
Unless contrary instructions are indicated on the proxy, all shares
of Common Stock and Preferred Stock represented by valid proxies received
pursuant to this solicitation (and not revoked before they are voted) will be
voted FOR the election of the nominees for directors named herein and FOR
Proposal No. 2, Proposal No. 3, Proposal No. 4 and Proposal No. 5.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by
filing with the Secretary of the Company prior to the date of the Annual Meeting
written notice of revocation bearing a later date than the proxy, by duly
executing and delivering to the Secretary of the Company prior to the date of
the Annual Meeting a subsequent proxy relating to the same shares of Common
Stock or Preferred Stock, as the case may be, or by attending the Annual Meeting
and voting in person. Attendance at the Annual Meeting will not in and of itself
constitute revocation of a proxy unless the stockholder votes his shares of
Common Stock or Preferred Stock in person at the Annual Meeting. Any notice
revoking a proxy should be sent to the Secretary of the Company, Riley M.
Murphy, American Communications Services, Inc., 131 National Business Parkway,
Suite 100, Annapolis Junction, Maryland 20701 in a manner designed to ensure
that it is received by the Secretary prior to the date of the Annual Meeting.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought
before the Annual Meeting. If matters other than the foregoing should arise at
the Annual Meeting, it is intended that the shares represented by proxies will
be voted in accordance with the judgment of the persons named in the proxy.
Please complete, sign and date the enclosed proxy, which is
revocable as described herein, and mail it promptly in the enclosed postage-paid
envelope.
By Order of the Board of Directors,
RILEY M. MURPHY, Secretary
Dated: October __, 1996
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APPENDIX A - STOCK PURCHASE PLAN
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American Communications Services, Inc.
Employee Stock Purchase Plan
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PLAN DOCUMENT
AMERICAN COMMUNICATIONS SERVICES, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose of Plan. The purpose of this plan (the "Plan") is to provide eligible
employees who wish to become stockholders of ACSI (the "Company"), or wish to
increase their stockholdings in the Company, with a method of doing so which is
both convenient and on a basis more favorable than would otherwise be available.
It is believed that employee participation in ownership of the Company on this
basis will be to the mutual benefit of both the employees and the Company. It is
intended that the Plan constitute an "employee stock purchase plan" within the
meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the
"Code").
2. Employees Eligible to Participate. Any employee who has been employed
continuously for three months or more by the Company or any subsidiary (as
defined in Section 424(f) of the Code) of the Company which adopts the Plan with
the consent of the Company (an "Employing Corporation") as of the commencement
date of any offer period under the Plan ("Offer Period"), is eligible to
participate in the Plan. Notwithstanding the foregoing and only to the extent
permitted by Section 423 of the Code and any rules or regulations promulgated
thereunder, if an employee is employed to render services primarily within the
jurisdiction of a union and his compensation, hours of work, or conditions of
employment are determined by collective bargaining with such union, he shall be
deemed an employee for purposes of the Plan, only if the applicable collective
bargaining agreement expressly so provides and only to the extent and on the
terms and conditions specified in such collective bargaining agreement. An
employee shall be eligible to enter the Plan on the first trading day of the
first month following the employee's third month anniversary of employment. Upon
re-employment of a former Participant whose employment with the Company or a
participating subsidiary is terminated, the former Participant will be required
to fulfill the eligibility requirements set forth
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in this paragraph anew. For purposes of the Plan, the term "employee" shall not
include (i) any person whose customary employment with an Employing Corporation
is 20 hours or less per week; or (ii) a non-employee member of the board of
directors of an Employing Corporation.
3. Eligible Compensation. Compensation eligible for payroll deductions
(AEligible Compensation@) shall be base salary and commissions (if any) paid in
each payroll period. Eligible Compensation does not include overtime, bonuses,
severance pay, incentive pay, shift premium differentials, pay in lieu of
vacation, imputed income for income tax purposes, patent and award fees, awards
and prizes, back pay awards, reimbursement of expenses and living allowances,
educational allowances, expense allowances, disability benefits under any
insurance program, fringe benefits, deferred compensation, compensation under
the Company's stock plans, amounts paid for services as an independent
contractor, or any other compensation excluded by the board of directors in its
discretion. Compensation shall be determined before giving effect to any salary
reduction agreement pursuant to a qualified cash or deferred arrangement within
the meaning of Section 401(k) of the Code or to any similar reduction agreement
pursuant to any cafeteria plan (within the meaning of Section 125 of the Code).
4. Offer Dates. The Plan shall be implemented by one or more Offer Periods in
which an offer or offers under the Plan ("Offers") will commence and terminate.
The first Offer Period shall commence on November 1, 1996 and end on June 30,
1997, with new Offer Periods commencing on the first day of July and January,
each beginning July 1, 1997 (or at such other date as the Compensation Committee
[the "Committee"] of the Company's board of directors shall determine). The
Committee shall have the power to change the duration and/or the frequency of
Offer Periods with respect to future Offers without stockholder approval if such
change is announced at least 10 days prior to the scheduled beginning of the
first Offer Period to be affected.
5. Participation. In order to become a participant in the Plan ("Participant"),
an eligible employee must sign and forward to the Company, not less than seven
days prior to the commencement date of
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any Offer Period, a payroll deduction authorization authorizing regular payroll
deductions, which may not exceed the maximum percentage of the employee's
Eligible Compensation per pay period, to be applied toward the purchase of
Common Stock pursuant to the Offer. The "maximum percentage" means the percent
of Eligible Compensation available for payroll deductions which shall be
specified by the Committee as of the commencement date of each Offer Period,
which shall not exceed 10%. On the commencement date of an Offer Period, each
Participant will be given the right to purchase, through payroll deductions, as
many full shares of Common Stock, subject to the limitation hereinafter set
forth, as he may with up to the maximum percentage of eligible compensation to
be received by him during the Offer Period. Each employee who is not eligible to
become a Participant as of the commencement day of an Offer Period but who
becomes eligible during the term of the Offer Period will, as of the first
trading day of the month next following in which such employee becomes eligible
(or as of such date if it is the first trading day of a month) be given the
right to purchase, through payroll deductions, as many full shares of Common
Stock, subject to the limitation hereinafter set forth, as he may with up to the
maximum percentage of eligible compensation to be received by him during the
remainder of the term of the Offer Period. Each eligible employee who has not
attempted to become a Participant within seven days prior to said commencement
date of the Offer (or such later date permitted an employee who is not eligible
to become a Participant as of the commencement day of an Offer Period but who
becomes eligible during the term of such Offer Period) may not participate in
the Plan until the commencement of the next Offer Period. Each Participant in an
Offer shall agree to notify the Company of any disposition of shares of Common
Stock purchased pursuant to the Plan prior to the expiration of two years
following the date in which shares of Common Stock of the Company are
transferred to the Participant pursuant to the Plan. All Participants shall have
the same rights and privileges under the Plan except that the number of shares
each Participant may purchase will depend upon his compensation and the
percentage payroll deduction he authorizes.
6. Participation Limitations. The maximum number of shares which an Participant
will be permitted to purchase pursuant to any one
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Offer will be that number of shares determined by multiplying (1) the amount of
the Participant's monthly eligible compensation on the date he is first granted
an option pursuant to that Offer by (ii) the number of months from such date to
the end of the Offer Period, and by dividing the product of such multiplication
by the Afair market value of a share of Common Stock@ on such date, which for
purposes hereof shall be the closing price of a share of Common Stock on the
NASDAQ National Market on such date or, if no reported sales take place on the
applicable date, the average of the high bid and low asked price of Common Stock
on such date, or if no such quotation is made on such date, on the next
preceding day on which there were quotations, provided that such quotations
shall have been made within the 10 trading days preceding the applicable date.
When the foregoing participation limitation is reached, payroll deductions shall
cease, and any amount of excess funds as of the date that the participation
limitation has been reached shall be returned to the Participant.
Notwithstanding, anything herein to the contrary, no Participant shall be
permitted to purchase any shares under the Plan if the Participant, immediately
after an option is granted to purchase such shares owns or would own shares
(including all shares which may be purchased under outstanding options)
possessing 5% or more of the total combined voting power or value of all classes
of shares of capital stock of the Employing Corporation or of its parent or
subsidiary corporations. The rules of Section 424(d) (relating to attribution of
stock ownership) of the Code shall apply in determining the 5% ceiling on stock
ownership. Further, no Participant shall be permitted to purchase shares under
the Plan which permits his rights to purchase shares under all employee stock
purchase plans of the Employing Corporation and its parent and subsidiary
corporations to accrue at a rate which exceeds $25,000 of the fair market value
of such shares (determined at the time options to purchase such shares are
granted) for each calendar year in which such option is outstanding at any time.
For purposes of the foregoing limitations, options to purchase shares of Common
Stock under an Offer that have an Option Price determined in accordance with the
first sentence of paragraph 7 shall be deemed granted simultaneously with the
purchase of such shares.
7. Option Price. Subject to the provision set forth in paragraph 8 to
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the effect that only full shares of Common Stock may be purchased, the option
price at which shares of Common Stock may be purchased under any option granted
under the Plan is 85% of the fair market value of a share of Common Stock on the
date Common Stock is purchased pursuant to the Offer (the "Option Price"). The
Committee shall have the power to change the price under which an option may be
exercised with respect to future Offers without stockholder approval if (i) the
new exercise price is within the minimum pricing requirements of Section
423(b)(6) of the Code; and (ii) such change is announced at least 10 days prior
to the scheduled beginning of the first Offer Period to be affected.
8. Exercise of Options. At the end of each payroll period, each participant
shall have deducted from his pay the amount authorized. This amount shall be
held for the credit of the Participant by the Company as part of its general
funds and shall not accrue any interest. On the last trading day of each month
during the term of the Offer a Participant will be deemed to have been granted
and exercised his option to purchase, at the Option Price (or such other price
determined under the second sentence of paragraph 7), that number of full shares
of Common Stock which may be purchased with the amount deducted from the
Participant's compensation during that month and excess funds from the preceding
month, if any. The custodian shall receive from the Company, at the Option Price
(or such other price determined under the second sentence of paragraph 7), as
many full shares of Common Stock as may be purchased with the funds received
from each Participant for that month. The excess of funds not expended in the
purchase of whole shares on any particular purchase date will, for each
Participant, be retained by the custodian and carried forward and applied to the
purchase of shares on the next subsequent purchase date. Any excess of funds not
expended on the last purchase date during the Offer Period will be returned to
Participants. Upon receipt of the Common Stock so purchased, the custodian will
allocate to the credit of each Participant the number of full shares of Common
Stock, and the amount of such excess funds, to which that Participant is
entitled. Subject to the provisions of paragraph 13 and the limitations imposed
by the Committee from time to time, a certificate representing the number of
shares of Common Stock to which a Participant is entitled will be issued to the
Participant upon written request. Unless otherwise requested, Common Stock
purchased under the
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Plan will be held by and in the name of, or in the name of a nominee of, the
custodian for the benefit of each Participant, who shall thereafter be a
beneficial stockholder of the Company. A Participant's rights as a stockholder
of rate, evidencing shares of Common Stock registered in his name, is issued.
9. Number of Shares Offered. The maximum number of shares of Common Stock that
may be purchased under the Plan is 500,000. Such shares may be treasury shares
or authorized and unissued shares as the Committee may determine in its
discretion.
10. Administration of The Plan. The Plan shall be administered by the Committee,
which shall consist of not less than three directors and shall be appointed from
time to time by and shall serve at the pleasure of the Company's board of
directors. The Committee may prescribe rules and regulations from time to time
for the administration of the Plan and may make decisions relating to questions
which may arise with respect to its interpretation or application. The Committee
may amend or modify the Plan and may determine the terms and conditions of
Offers under the Plan. The Committee may not, however, make any alterations
which would materially and adversely affect right previously granted to a
Participant under an outstanding Offer without the consent of the Participant.
Furthermore, the Committee may not increase the maximum number of shares which
may be purchased under the Plan either in the aggregate or by an individual
employee, or change the Option Price per share under an outstanding Offer, or
otherwise make any change or addition which would cause the Plan not to meet the
requirements of Section 423(b) of the Code as presently in effect or hereafter
amended. The Company reserves the right to modify and/or terminate this Plan at
any time.
11. Withdrawal from Participation. Once enrolled in the Plan, an eligible
employee shall be a Participant in all Offers under the Plan until he withdraws
from further participation in the Plan. A Participant may, at any time and for
any reason, by giving written notice of his desire in this regard to the
Committee or its designee, elect to withdraw from any further participation in
the Plan. The Participant withdrawing
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("Withdrawn Participant"), will, as soon as practicable, but only after
stockholder approval of the Plan, receive a certificate representing the number
of full shares of Common Stock credited to the Participant's account as of the
date of withdrawal and a check for any funds credited to his account and not
applied toward the purchase of shares as of that date. No Withdrawn Participant
may again become a Participant until the first anniversary of the date of such
Participant=s withdrawal. Notwithstanding the foregoing, if the Committee amends
the Plan with respect to future Offers to (i) change the Offer Period, as
described in paragraph 4, or (ii) change the price under which shares of Common
Stock may be purchased, as described in paragraph 7, then, the Withdrawn
Participant may again become a Participant as of the commencement date of the
Offer Period to which such change or changes apply.
12. Rights Not Transferable. Neither payroll deductions credited to a
Participant's account nor any rights with regard to the exercise of an option or
to receive shares of Common Stock under the Plan may be assigned, transferred,
pledged, or otherwise disposed of in any way by the Participant other than by
will or the laws of descent and distribution. Any such attempted assignment,
transfer, pledge or other disposition shall be without effect, except that the
Company may treat such act as an election to withdraw from participation in the
Plan in accordance with paragraph 11.
13. Holding Period. Participants shall not sell, transfer, loan, grant an option
for the purchase of, or otherwise dispose of any shares of Common Stock acquired
from the Company pursuant to the Plan for a period of 120 days from the purchase
date of such shares pursuant to the Plan (the "Hold Period"). Upon the
termination of the applicable Hold Period, a Participant in the Plan may request
in writing addressed to the Secretary of the Company, a share certificate for
shares of Common Stock issued to such Participant and no longer subject to a
Hold Period.
14. Termination of Employment. In the event of a Participant's retirement, death
or other termination of employment, no payroll deductions will be made from any
compensation then due and owing to
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such employee at such time, and a certificate representing the number of full
shares of Common Stock then credited to the Participant's account, and a check
for any amount of excess funds contributed as of that date (and not eligible for
the purchase of shares) will be issued and delivered to the employee or his
representative. Nothing in this Plan shall confer any greater employment rights
to any employee of the Company or a subsidiary, and the Employing Corporation
hereby reserves the right to terminate any employee's employment with or without
notice or cause.
15. Reorganization. In the event of a reorganization, recapitalization, stock
split, stock dividend, combination of shares, merger, consolidation, offering of
rights or any other change in the structure of Common Stock, the Company's board
of directors may make such adjustments, if any, as it may deem appropriate in
the number, kind and price of shares available for purchase under the Plan, and
in the minimum and maximum number of shares which a Participant is entitled to
purchase.
16. Approval of Stockholders. The Plan was adopted by the board of directors of
the Company on October 7, 1996. Shares of Common Stock of the Company will be
available for purchase under this Plan beginning in November, 1996 or at such
date designated by the board of directors as the commencement date of the first
Offer Period. The Plan and any increase in the number of shares reserved under
the Plan must be approved by the Company=s stockholders within 12 months before
or after the date the plan has been adopted or an increased in the number of
shares has been approved by the Board of Directors. Any purchases of shares
pursuant to the plan before stockholder approval is obtained must be rescinded
if stockholder approval is not obtained within 12 months after the Plan is
adopted. Such shares shall not be counted in determining whether such approval
is obtained.
17. Termination of Plan. The Plan and all rights of Participants will terminate
(a) on the date as of which Participants have exercised options to purchase a
number of shares equal to or greater than the number of shares then subject to
the Plan, or (b) if earlier, the date as of which the Committee or the board of
directors of the Company terminates the Plan.
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Upon termination, all payroll deductions shall cease and all amounts credited to
Participants' accounts shall be equitably applied to the purchase of the shares
then available under the Plan and all funds accumulated under the Plan not
utilized to purchase Common Stock will be refunded.
18. Required Governmental Approvals. The Plan, and all options granted under and
other rights inherent in the Plan, are subject to stockholder approval as
provided in paragraph 16 and to receipt by the Company of all necessary
approvals or consents of governmental agencies which the Company, in its sole
discretion, shall deem necessary or advisable. Notwithstanding any other
provision of the Plan, all options granted under the Plan and all other rights
inherent in the Plan are subject to such termination and/or modification as may
be required or advisable in order to obtain any such approval or consent or
which, as a result of consequences attaching to any such approval or consent,
may be required or advisable in the judgment of the Company's board of directors
in order to avoid adverse impact on the Company s overall wage and salary
policy.
19. Gender. Pronouns shall be deemed to include both the masculine and feminine
gender and words used in the singular shall be deemed to include both the
singular and the plural, unless the context indicates otherwise.
20. Expenses. Expenses of administering the Plan, including any expenses
incurred in connection with the purchase by the Company of shares for sale to
participating employees, shall be borne by the Employing Corporations.
21. Governing Law. All rights and obligations under the Plan shall be construed
and interpreted in accordance with the laws of the State of Delaware, without
giving effect to principles of conflict of laws.
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FORM OF PROXY CARD
COMMON STOCK
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AMERICAN COMMUNICATIONS SERVICES, INC.
Annual Meeting; November 15, 1996
This Proxy Is Solicited on Behalf of the Board of Directors
________________ and ______________ and each of them, as proxies, with
full power of substitution in each of them, are hereby authorized to represent
and to vote, as designated below and on the reverse side, upon the following
proposals and in the discretion of the proxies on such other matters as may
properly come before the Annual Meeting of Stockholders of American
Communications Services, Inc. to be held in Baltimore, Maryland on Friday,
November 15, 1996 at 10:00 A.M. or any adjournment(s), postponement(s), or other
delay(s) thereof (the "Annual Meeting"), all shares of common stock of American
Communications Services, Inc. to which the undersigned is entitled to vote at
the Annual Meeting. The following proposals are more fully described in the
Notice of and Proxy Statement for the Annual Meeting (receipt of which are
hereby acknowledged).
UNLESS OTHERWISE DIRECTED, THIS PROXY WILL BE VOTED "FOR" PROPOSALS 1,
2, 3, 4 AND 5 AND WILL BE VOTED IN THE DISCRETION OF THE PROXIES ON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING. THE BOARD OF DIRECTORS
RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" PROPOSALS 1, 2, 3, 4 AND 5.
PROPOSAL NO. 1
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Election of the following nominees as Directors to serve in such
capacities until their successors are duly elected and qualified:
Nominees for Election to the Office of Director by holders of the
Common Stock
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Anthony J. Pompliano
Benjamin P. Giess
Peter C. Bentz
George M. Middlemas
(Authority to vote for any nominee(s) may be withheld by lining through the
name(s) of any such nominee(s).)
<PAGE>
/ / FOR / / WITHHOLD AUTHORITY FOR ALL
PROPOSAL NO. 2
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To vote on a proposal to approve an amendment to the Company's 1994
Stock Option Plan, as amended (the "1994 Plan"), to increase the number
of shares of Common Stock reserved for issuance upon exercise of
options granted under the 1994 Plan from 1,910,000 to 3,000,000.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL NO. 3
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To vote on a proposal to approve the 1996 Employee Stock Purchase Plan.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL NO. 4
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To vote on a proposal to amend the Company's Certificate of
Incorporation to increase the number of authorized shares of Preferred
Stock from 813,336 to 1,464,164.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL NO. 5
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To vote on a proposal to ratify the selection of KPMG Peat Marwick LLP
to audit the consolidated financial statements of the Company for the
transition period ending December 31, 1996 and for the fiscal year
ending December 31, 1997.
/ / FOR / / AGAINST / / ABSTAIN
/ / Please check this box if you expect to attend the Annual
Meeting in person.
(Please sign exactly as name appears
to the left, date and return. If
shares are held by joint tenants,
both should sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give
full title as such. If a
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<PAGE>
corporation, please sign in full
corporate name by president or other
authorized officer. If a
partnership, please sign in
partnership name by authorized
person.)
Please Date:________________________
Sign Here:__________________________
------------------------------------
Signature (if held jointly)
------------------------------------
Capacity (Title or Authority,
i.e. President, Partner,
Executor, Trustee)
PLEASE SIGN AND DATE AND RETURN YOUR
PROXY TODAY.
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FORM OF PROXY CARD
PREFERRED STOCK
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AMERICAN COMMUNICATIONS SERVICES, INC.
Annual Meeting; November 15, 1996
This Proxy Is Solicited on Behalf of the Board of Directors
________________ and _______________ and each of them, as proxies, with
full power of substitution in each of them, are hereby authorized to represent
and to vote, as designated below and on the reverse side, upon the following
proposals and in the discretion of the proxies on such other matters as may
properly come before the Annual Meeting of Stockholders of American
Communications Services, Inc. to be held in Baltimore, Maryland on Friday,
November 15, 1996 at 10:00 A.M. or any adjournment(s), postponement(s), or other
delay(s) thereof (the "Annual Meeting"), all shares of preferred stock of
American Communications Services, Inc. to which the undersigned is entitled to
vote at the Annual Meeting. The following proposals are more fully described in
the Notice of and Proxy Statement for the Annual Meeting (receipt of which are
hereby acknowledged).
UNLESS OTHERWISE DIRECTED, THIS PROXY WILL BE VOTED "FOR" PROPOSALS 1,
2, 3, 4 AND 5 AND WILL BE VOTED IN THE DISCRETION OF THE PROXIES ON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING. THE BOARD OF DIRECTORS
RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" PROPOSALS 1, 2, 3, 4 AND 5.
PROPOSAL NO. 1
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Election of the following nominees as Directors to serve in such
capacities until their successors are duly elected and qualified:
Nominees for Election to the Office of Director by holders of the
Preferred Stock
---------------
Christopher L. Rafferty
Olivier L. Trouveroy
Edwin M. Banks
(Authority to vote for any nominee(s) may be withheld by lining through the
name(s) of any such nominee(s).)
<PAGE>
/ / FOR / / WITHHOLD AUTHORITY FOR ALL
PROPOSAL NO. 2
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To vote on a proposal to approve an amendment to the Company's 1994
Stock Option Plan, as amended (the "1994 Plan"), to increase the number
of shares of Common Stock reserved for issuance upon exercise of
options granted under the 1994 Plan from 1,910,000 to 3,000,000.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL NO. 3
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To vote on a proposal to approve the 1996 Employee Stock Purchase Plan.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL NO. 4
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To vote on a proposal to amend the Company's Certificate of
Incorporation to increase the number of authorized shares of Preferred
Stock from 813,336 to 1,464,164.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL NO. 5
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To vote on a proposal to ratify the selection of KPMG Peat Marwick LLP
to audit the consolidated financial statements of the Company for the
transition period ending December 31, 1996 and for the fiscal year
ending December 31, 1997.
/ / FOR / / AGAINST / / ABSTAIN
/ / Please check this box if you expect to attend the Annual
Meeting in person.
(Please sign exactly as name appears
to the left, date and return. If
shares are held by joint tenants,
both should sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give
full title as such. If a
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<PAGE>
corporation, please sign in full
corporate name by president or other
authorized officer. If a
partnership, please sign in
partnership name by authorized
person.)
Please Date:________________________
Sign Here:__________________________
------------------------------------
Signature (if held jointly)
------------------------------------
Capacity (Title or Authority,
i.e. President, Partner,
Executor, Trustee)
PLEASE SIGN AND DATE AND RETURN YOUR
PROXY TODAY.
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<PAGE>
AMERICAN COMMUNICATIONS SERVICES, INC.
Amended 1994 Stock Option Plan*
1. Purpose. The purposes of this 1994 Stock Option Plan are to attract and
retain the best available personnel, to provide additional incentive to the
Employees, Consultants and Outside Directors of American Communications
Services, Inc., a Delaware corporation (the "Company"), and to promote the
success of the Company's business.
Options granted hereunder may, consistent with the terms of this Plan, be
either Incentive Stock Options or Nonstatutory Stock Options, at the discretion
of the Committee and as reflected in the terms of the written Option agreement.
2. Definitions. As used in this Plan, the following definitions shall
apply:
a. "Board" means the Board of Directors of the Company.
b. "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder.
c. "Committee" means the Committee appointed by the Board or otherwise
determined in accordance with Section 4a. of this Plan.
d. "Common Stock" means the common stock of the Company, $.01 par value.
e. "Consultant" means any person who is engaged by the Company or any
Parent or Subsidiary to render consulting services and is compensated for
such consulting services; provided that the term "Consultant" shall not
include directors who are not compensated for their services or are paid
only a director's fee by the Company.
f. "Continuous Status as an Employee or Outside Director" means the absence
of any interruption or termination of service as an Employee or Outside
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* The Plan was amended by the Board of Directors on October 7, 1996 and such
amendments were ratified by the stockholders on _______________, 1996.
<PAGE>
Director, as applicable. Continuous Status as an Employee or Outside
Director shall not be considered interrupted in the case of sick leave,
military leave, or any other leave of absence approved by the Board or the
Committee; provided that such leave is for a period of not more than 90
days or resumption of such service upon the expiration of such leave is
guaranteed by contract or statute.
g. "Disinterested Person" has the meaning set forth in Rule 16b-3.
h. "Employee" means any person employed by the Company or any Parent or
Subsidiary of the Company, including employees who are also officers or
directors or both of the Company or any Parent or Subsidiary of the
Company. The payment of a director's fee by the Company shall not be
sufficient to constitute "employment" by the Company.
i. "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and the rules and regulations promulgated thereunder.
j. "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the code, and
the rules and regulations promulgated thereunder.
k. "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
l. "Option" means a stock option granted pursuant to this Plan.
m. "Optioned Stock" means the Common Stock subject to an Option.
n. "Optionee" means an Employee, Consultant or Outside Director who
receives an Option.
o. "Outside Director" means any member of the Board of Directors who is not
an Employee, and who was not a member of the Board on October 20, 1994.
p. "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
q. "Plan" means this American Communications Services, Inc. 1994 Stock
Option Plan, as amended from time to time.
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r. "Rule 16b-3" means Rule 16b-3, as promulgated by the Securities and
Exchange Commission under Section 16(b) of the Exchange Act, as such rule
is amended from time to time, and as interpreted by the Securities and
Exchange Commission.
s. "Share" means a share of the Common Stock, as adjusted in accordance
with Section 10 of this Plan.
t. "Subsidiary" means a "subsidiary corporation" of the Company, whether
nor or hereafter existing, as defined in Section 424(f) of the Code.
3. Scope of the Plan. Subject to the provisions of Section 10 of this Plan,
and unless otherwise amended by the Board and approved by the stockholders of
the Company the aggregate number of Shares issuable pursuant to Options granted
under this Plan to Employees and Consultants is 2,790,000 and the aggregate
number of shares issuable pursuant to Options granted under this Plan to Outside
Directors is 210,000, and such Shares are hereby made available and shall be
reserved for issuance under this Plan. The Shares may be authorized, but
unissued, or reacquired, Common Stock.
If an Option shall expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares subject thereto shall
(unless this Plan shall have terminated) become available for grants of other
Options under this Plan.
4. Administration of the Plan.
a. Procedure. This Plan shall be administered by the Committee appointed
pursuant to this Section 4a. The Committee shall consist of two or more
Outside Directors appointed by the Board, but all Committee members must be
Disinterested Persons. If the Board fails to appoint such persons, the
Committee shall consist of all Outside Directors who are Disinterested
Persons.
b. Powers of the Committee. Subject to Section 5b. below and otherwise
subject to the provisions of this Plan, the Committee shall have full and
final authority in its discretion to (i) grant Incentive Stock Options and
Nonstatutory Stock Options; (ii) determine, upon review of relevant
information and in accordance with Section 7 below, the Fair Market Value
of the Common Stock; (iii) determine the exercise price per share of
Options to be granted, in accordance with this Plan; (iv) determine the
Employees and Consultants to whom, and the time or times at which, Options
shall be granted, and the number of Shares to be represented by each
Option; (v)
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cancel, with the consent of the Optionee, outstanding Options and grant new
Options in substitution therefor; (vi) accelerate or defer (with the
consent of the Optionee) the exercise date of any Option; (vii) prescribe,
amend and rescind rules and regulations relating to this Plan; (viii)
determine the terms and provisions of each Option Certificate granted
(which need not be identical) by which Options shall be evidenced and, with
the consent of the holder thereof, modify or amend any provisions
(including without limitation provisions relating to the exercise price and
the obligation of any Optionee to sell purchased Shares to the Company upon
specified terms and conditions) of any Option; (ix) require withholding
from or payment by an Optionee of any federal, state or local taxes; (x)
appoint and compensate agents, counsel, auditors or other specialists as
the Committee deems necessary or advisable; (xi) correct any defect or
supply any omission or reconcile any inconsistency in this Plan and any
agreement relating to any Option, in such manner and to such extent the
Committee determines is necessary or appropriate to carry out the purposes
of this Plan; and (xii) construe and interpret this Plan and any agreement
relating to any Option, and make all other determinations deemed by the
Committee to be necessary or advisable for the administration of this Plan.
A majority of the Committee shall constitute a quorum at any meeting, and
the acts of a majority of the members present, or acts unanimously approved
in writing by the entire Committee without a meeting, shall be the acts of
the Committee. A member of the Committee shall not participate in any
decisions with respect to himself or herself under this Plan.
c. Effect of Committee's Decision. All decisions, determinations and
interpretations of the Committee shall be final and binding on all
Optionees and any other holders of any Options granted under this Plan.
5. Eligibility.
a. Options may be granted to any Employee, Consultant or Outside Director
as the Committee may from time to time designate, provided that Incentive
Stock Options may be granted only to Employees. In selecting the
individuals to whom Options shall be granted, as well as in determining the
number of Options granted, the Committee shall take into consideration such
factors as it deems relevant in connection with accomplishing the purposes
of this Plan. Subject to the provisions of Section 3 above, an Optionee
may, if he or she is
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otherwise eligible, be granted an additional Option or Options if the
Committee shall so determine.
b. All grants of Options to Outside Directors under this Section 5b. of
this Plan shall be automatic and non- discretionary and shall be made
strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted options or to determine the number of
Shares to be covered by options granted to Outside Directors pursuant
to this Section 5b.; provided that nothing in this Plan shall be
construed to prevent an Outside Director from declining to receive an
Option under this Plan.
(ii) Each Outside Director shall be granted automatically on the later
of the date of the initial election of such Outside Director to the
Board (whether by the stockholders or by the Board) or the date this
Plan is first adopted by the Board, an Option to purchase Fifty
Thousand (50,000) Shares (subject to adjustment as provided in Section
10 below). The Option granted to an Outside Director shall vest and
become exercisable (A) as to TEN THOUSAND (10,000) Shares on the date
such Option is granted (the "Grant Date"), (B) as to TEN THOUSAND
(10,000) Shares on the date of the first annual meeting of
stockholders held at least eight months after the Grant Date (the
"First Annual Meeting") and (C) as to TEN THOUSAND (10,000) Shares on
the date of each of the next three annual meetings of stockholders
held after the First Annual Meeting, provided that such Option shall
not vest and become exercisable as provided in (B) and (C) above
unless the Outside Director is re-elected to the Board at the relevant
annual meeting of stockholders.
(iii) The terms of each Option granted under this Section 5b. shall be
as follows:
(A) the term of the Option shall be five (5) years from the
relevant vesting date;
(B) subject to Sections 8b(ii), 10a. and 10c. hereof, the Option
shall become exercisable as set forth in 5b(ii); provided that in
no event shall any Option be exercisable prior to obtaining
stockholder approval of this Plan; and
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(C) the exercise price per share of Common Stock for Options
granted to Outside Directors hereunder shall be one hundred
percent (100%) of the "Fair Market Value" (as defined in Section
7b. below) on the Grant Date of the Option.
c. Each Option granted under Section 5b. above shall be a Nonstatutory
Stock Option. Each other Option shall be designated in the written Option
Certificate as either an Incentive Stock Option or a Nonstatutory Stock
Option. Notwithstanding such designations, if and to the extent that the
aggregate Fair Market Value of the Shares with respect to which Options
designated as Incentive Stock Options are exercisable for the first time by
any Optionee during any calendar year (under all plans of the Company)
exceeds $100,000 such Options shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5c., Options shall be taken into
account in the order in which they are granted, and the Fair Market Value
of the Shares shall be determined as of the time the Option with respect to
such Shares is granted.
d. This Plan shall not confer upon any Optionee any right with respect to
continuation of employment by or the rendition of services to the Company
or any Parent or Subsidiary, nor shall it interfere in any way with his or
her right or the right of the Company or any Parent or Subsidiary to
terminate his or her employment or services at any time, with or without
cause, subject to the terms of any written employment agreement between the
Company and the Employee or Consultant. The terms of this Plan or any
Options granted hereunder shall not be construed to give any Optionee the
right to any benefits not specifically provided by this Plan or in any
manner modify the Company's right to modify, amend or terminate any of its
pension, retirement or other benefit plans.
6. Term of the Plan. This Plan shall become effective upon its adoption by
the Board (such adoption to include the approval of at least two Directors who
are not employees). This Plan shall terminate no later than ten (10) years after
the date this Plan is adopted by the Board. No grants shall be made under this
Plan after the date of termination of this Plan. Any termination of all or any
portion of this Plan shall not affect any Options then outstanding under this
Plan.
7. Exercise Price and Consideration.
a. Exercise Price. The per Share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be determined by the Committee as
follows:
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<PAGE>
(i) In the case of an Incentive Stock Option granted to any Employee,
the per Share exercise price shall be no less than one hundred percent
(100%) of the Fair Market Value per Share on the date of grant, but if
granted to an Employee who, at the time of the grant of such Incentive
Stock Options, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than one
hundred ten percent (110%) of the Fair Market Value per Share on the
date of grant.
(ii) In the case of a Nonstatutory Stock Option granted to any person,
other than an Outside Director, the per Share exercise price shall be
not less than eighty-five percent (85%) of the Fair Market Value per
Share on the date of grant. The exercise price of Options granted
pursuant to Section 5b. above shall be as set forth in Section
5b(iii)(C).
For purposes of this Section 7a., if an Option is amended to reduce the
exercise price, the date of grant of such Option shall thereafter be
considered to be the date of such amendment.
(iii) With respect to subparagraphs (i) or (ii) above, the per Share
exercise price is subject to adjustment as provided in Section 10
below.
(iv) For the purposes of subparagraphs (i) or (ii), as well as for the
purposes of Section 8a. hereof, with regard to determining whether the
ten percent (10%) threshold stockholder interest is attained, the
attribution rules as provided in Section 424(d) of 1the Code shall
apply.
b. Fair Market Value. The "Fair Market Value" of the Common Stock shall be
determined by the Committee in its discretion; provided that if the Common
Stock is listed on a stock exchange, the Fair Market Value per Share shall
be the closing price on such exchange on the date of grant of the Option as
reported in the Wall Street Journal (or, (i) if not so reported, as
otherwise reported by the exchange, and (ii) if not reported on the date of
grant, then on the last prior date on which a sale of the Common Stock was
reported); or if not listed on an exchange but traded on the National
Association of Securities Dealers Automated Quotation National Market
System ("NASDAQ"), the Fair Market Value per Share shall be the last
reported sale price on the date of grant of
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<PAGE>
the Option as reported in the Wall Street Journal (or (i) if not so
reported, as otherwise reported by NASDAQ and (ii) if not reported on the
date of grant, then on the last prior date on which a sale of the Common
Stock was reported) or if traded on NASDAQ Small Cap Market and not the
National Market System the Fair Market Value per Share shall be the mean of
the closing bid and asked price per share of the Common Stock for the date
of grant, as reported in the Wall Street Journal (or, (i) if not so
reported, as otherwise reported by NASDAQ, and (ii) if not so reported on
the date of grant, then on the last prior date on which a sale of the
Common Stock was reported); or, if the Common Stock is otherwise publicly
traded, but not listed on a stock exchange or traded on NASDAQ National
Market System or the Small Cap Market, the Fair Market Value per share
shall be determined in good faith by the Compensation Committee in its
discretion; provided that if such determination would cause the grant of an
Option to an Outside Director hereunder not to be a "formula award" under
Rule 16b-3, then the Fair Market Value for purposes of such Option shall be
determined in the same manner as if the Common Stock were traded on NASDAQ
Small Cap Market, except that the prices of such stock shall be as reported
by the National Quotations Bureau.
c. Consideration. The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be
determined by the Committee (and, in the case of an Incentive Stock Option,
shall be determined at the time of grant) and may consist entirely of (i)
cash; (ii) check; (iii) other Shares of common Stock which (x) either have
been owned by the Optionee for more than six (6) months on the date of
surrender or were not acquired directly or indirectly from the Company, and
(y) have a Fair Market Value on the date of surrender (determined without
regard to any limitations on transferability imposed by securities laws)
equal to the aggregate exercise price of the Shares as to which said Option
shall be exercised; (iv) any combination of such methods of payment; or (v)
such other consideration and method of payment for the issuance of Shares
to the extent permitted under applicable laws, as the Company shall
approve.
8. Options.
a. Term of Option. The term of each option granted (other than an Option
granted under Section 5b above) shall be for a period of no more than ten
(10) years from the date of grant thereof, or such shorter term as may be
provided in any written Option Certificate. However, in
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the case of an Option granted to an Optionee who, at the time the Option is
granted, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Option shall be five (5) years from the date of grant
thereof, or such shorter time as may be provided in the written Option
Certificate.
b. Exercise of Options.
(i) Procedure for Exercises; Rights as a Stockholder. Any Option
granted under this Plan (other than an Option granted pursuant to
Section 5b. above) shall be exercisable at such times, and under such
conditions, as determined by the Committee, including performance
criteria with respect to the Company and/or the Optionee, as shall
otherwise be permissible under the terms of this Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised
has been received by the Company. Full payment may, as authorized by
the Committee, consist of any consideration and method of payment
allowable under Section 7 of this Plan. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a shareholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the
Option. The Company shall issue (or cause to be issued) such stock
certificate promptly upon exercise of the Option. If the exercise of
an Option is treated in part as the exercise of an Incentive Stock
Option and in part as the exercise of a Nonstatutory Stock Option
pursuant to Section 5b. above, the Company shall issue a separate
stock certificate evidencing the Shares treated as acquired upon
exercise of any Incentive Stock Option and a separate stock
certificate evidencing the Shares treated as acquired upon exercise of
a Nonstatutory Stock Option and shall identify each such certificate
accordingly in its stock transfer records. No adjustment will be made
for a dividend
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<PAGE>
or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 10 of this
plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares that hereafter may be available, both for purposes of
this Plan and for sale under the Option, by the number of Shares as to
which the Option is executed.
(ii) Termination of Status as an Employee or Outside Director. If an
Optionee's Continuous Status as an Employee or Outside Director (as
the case may be) is terminated for any reason whatsoever, such
Optionee may, for a period of three (3) months after the date of his
or her separation from the Company (but in no event later than the
date of expiration of the term of such Option as set forth in such
Option Certificate), exercise the Option to the extent that such
Employee or Outside Director was entitled to exercise it at the date
of such termination pursuant to the terms of such written Option
Certificate; provided that the Committee may waive this provision in
its sole discretion with respect to any Nonstatutory Options granted,
except for Nonstatutory Options granted to Outside Directors pursuant
to Section 5b. To the extent that such Employee or Outside Director
was not entitled to exercise the Option at the date of such
termination, or if such Employee or Outside Director does not exercise
such Option (which such Employee or Outside Director was entitled to
exercise) within the foregoing periods of time, the Option shall
terminate.
9. Non-transferability of Options. An Option granted hereunder shall, by
its terms, not be sold, pledged, assigned, hypothecated, transferred, or
disposed of in any manner other than by will or the laws of descent and
distribution (which permitted transferees, for the purposes hereof, shall be
included within the definition of "Optionee"). An Option may be exercised during
the Optionee's lifetime only by the Optionee, or, in the event of his or her
legal incapacity to do so, the Optionee's guardian or legal representative. Upon
the Optionee's death an Option may be exercised by the executors,
administrators, legatees or heirs of such Optionee's estate.
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<PAGE>
10. Adjustments Upon Changes in Capitalization or Merger.
a. Capitalization. Subject to any required action by the stockholders of
the Company, the number of Shares of Common Stock that have been authorized
for issuance under this plan upon cancellation or expiration of an Option,
and the number of Shares of Common Stock subject to each outstanding
Option, as well as the price per share of Common Stock covered by each such
outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a
stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock of the Company or the payment of a
stock dividend with respect to the Common Stock. Except as expressly
provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of Shares of Common Stock subject to an Option.
b. Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, each Option will terminate immediately prior to
the consummation of such proposed action, unless otherwise provided by the
Committee. The Committee may, in the exercise of its sole discretion in
such instances, declare that any Option shall terminate as of a date fixed
by the Committee and give each Optionee the right to exercise his or her
Option as to all or any part of the Optioned Stock, including Shares as to
which the Option would not otherwise be exercisable.
c. Sale or Merger. "Sale" means: (i) sale (other than a sale by the
Company) of securities entitled to more than fifty percent (50%) of the
voting power of the Company in a single transaction or a related series of
transactions; or (ii) sale of substantially all of the assets of the
Company; or (iii) approval by the stockholders of the Company of a
reorganization, merger or consolidation of the Company, as a result of
which the persons who were the stockholders of the Company immediately
prior to such reorganization, merger or consolidation do not own securities
immediately after the reorganization, merger or consolidation entitled to
more than fifty (50%) percent of the voting power of the reorganized,
merged, or consolidated company. Immediately prior to a Sale, each Optionee
may exercise his or her option as to all the Shares then subject to the
Option, regardless of any vesting conditions otherwise expressed in the
Option Certificate, provided,
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<PAGE>
that in the case of any reorganization, merger or consolidation, any
outstanding Option shall pertain, apply and relate to the securities or
assets which a holder of the number of shares of Common Stock subject to
the Option would have been entitled to after the reorganization, merger or
consolidation. Voting power, as used in this Section 10c., shall refer to
those securities entitled to vote, but securities which are convertible
into, or exercisable for, securities of the Company entitled to vote
generally in the election of directors, shall be counted as if converted or
exercised, and each unit of voting securities shall be counted in
proportion to the number of votes such unit is entitled to cast.
d. Purchased Shares. No adjustment under this Section 10 shall apply to any
purchased Shares already deemed issued at the time any adjustment would
occur.
e. Notice of Adjustments. Whenever the purchase price or the number or kind
of securities issuable pursuant to this Section 10, the Company shall give
each Optionee written notice setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment and the method by
which such adjustment was calculated.
11. Time of Granting Options. The date of grant of an Option shall, for all
purposes, be the date on which the Committee makes the determination granting
such Option. Notice of the determination shall be given to each Employee,
Consultant or Outside Director to whom an Option is so granted within a
reasonable time after the date of such grant.
If the Committee cancels, with the consent of Optionee, any Option granted
under this Plan, and a new Option is substituted therefor, the date that the
cancelled Option was originally granted shall be the date used to determine the
earliest date for exercising the new substituted Option under Section 7 hereof
so that the Optionee may exercise the substituted Option at the same time as if
the Optionee had held the substituted Option since the date the cancelled Option
was granted.
12. Amendment and Termination of the Plan.
a. Amendment and Termination. The Board or the Committee may amend, waive,
or terminate this Plan from time to time in such respects as it shall deem
advisable; provided that in the event the Plan is approved by the Company's
stockholders, to the extent necessary to comply with Rule 16b-3 or with
Section 422 of the Code (or any other successor or applicable law or
regulation) the
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Company shall obtain stockholder approval of any Plan amendment in such
manner and to such a degree as is required by the applicable law, rule or
regulation. Notwithstanding the foregoing, once transactions in the
Company's securities become subject to Section 16b and Rule 16b thereunder,
the provisions pertaining to the automatic option grants to Outside
Directors, shall not be amended more than once every six (6) months, other
than to comport with changes in the Code or other applicable laws or any
rules or regulations promulgated thereunder.
b. Effect of Amendment or Termination. Any such amendment or termination of
this Plan shall not affect the Options already granted and such Option
shall remain in full force and effect as if this Plan had not been amended
or terminated, unless mutually agreed otherwise between the Optionee and
the Committee, which agreement must be in writing and signed by the
Optionee and the Company.
13. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant
to the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including without limitation the Securities Act of 1933, as
amended, the Exchange Act, and the rules and regulations promulgated thereunder,
and the requirements of any stock exchange upon which the Shares may then be
listed, and shall be further subject to the approval of counsel for the Company
with respect to such compliance.
As a condition to the exercise of an Option, as required by law, the
Company may require the person exercising such Option to represent and warrant
at the time of any such exercise that the shares are being purchased only for
investment and without any present intention to sell or distribute such Shares,
and the Company may place a restrictive legend to such effect on such Shares,
if, in the opinion of counsel for the Company, such a representation and/or
legend is required or appropriate by any of the aforementioned relevant
provisions of law.
14. Holding Period of Incentive Stock Option. No Shares acquired upon
exercise of an Incentive Stock Option granted under the Plan shall be sold or
otherwise disposed of, within the meaning of Section 425(c) of the Code, at any
time within two years from the date of the grant of an Option under the Plan or
within one year of the issuance by the Company of such Shares to such Optionee
pursuant to the Plan. However, an Optionee who has acquired Shares upon exercise
of an Incentive Stock Option granted under the Plan, who transfers such shares
to a trustee, receiver, or other similar fiduciary in any proceeding under Title
11 of the United States
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Bankruptcy Law or any other similar insolvency proceeding at a time when such
Optionee is insolvent shall not have been deemed to have made a transfer or
disposition for purposes of this subsection.
15. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to permit the exercise of all Options outstanding under this Plan.
The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained for any
reason.
16. Option Agreements. Options shall be evidenced by written Option
agreements in any such form as the Committee shall approve in general of for any
specific grant of Options.
17. Information to Optionees. To the extent required by applicable law, the
Company shall provide to each Optionee, during the period for which such
Optionee has one or more Options outstanding, copies of all annual reports and
other information that are provided to all stockholders of the Company. Except
as otherwise noted in the preceding sentence, the Company shall have no
obligation or duty to affirmatively disclose to any Optionee, and no Optionee
shall have any right to be advised of, any material information regarding the
Company or any Parent or Subsidiary at any time prior to, upon, or otherwise in
connection with, the exercise of an Option.
18. Funding. Benefits payable under this Plan to any person shall be paid
directly by the Company. The Company shall not be required to fund or otherwise
segregate assets to be used for payments of benefits under this Plan.
19. Controlling Law. This Plan shall be governed by the laws of the State
of Delaware.
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