<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
LEAPNET, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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<PAGE>
Leapnet, Inc.
May 14, 1999
Dear Leap Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Leapnet, Inc., formerly The Leap Group, Inc., which will be held at the 410 Club
and Conference Center, The Wrigley Building, 410 North Michigan Avenue, Chicago,
Illinois, 60611 on June 15, 1999, at 9:00 a.m. The 410 Club and Conference
Center is accessible to handicapped persons. I look forward to greeting as many
of you as possible.
The Leap Group, Inc. changed its name on April 9, 1999 to Leapnet, Inc. to
reflect the nature and future of our Internet advertising and development
business. The name change was effected through the merger of The Leap Group,
Inc. with and into Leapnet, Inc., a newly created, wholly owned subsidiary of
The Leap Group, Inc.
Details of the matters to be considered at the Annual Meeting are provided in
the attached Notice of Annual Meeting and Proxy Statement. Also enclosed you
will find your proxy card, which allows you to vote on these matters, and the
Company's Annual Report for fiscal 1999.
Your vote is important. Please complete and mail in your proxy card promptly,
even if you plan to attend the Annual Meeting. You can attend the Annual Meeting
and vote in person, even if you have sent in a proxy card.
On behalf of the Board of Directors, I would like to express our appreciation
for your continued interest in the Company.
Sincerely,
Frederick A. Smith
Chairman and Chief Executive Officer
<PAGE>
Leapnet, Inc.
May 14, 1999
Notice of Annual Meeting of Stockholders
Dear Leapnet Stockholders:
The Annual Meeting of the Stockholders of Leapnet, Inc. will be held at the 410
Club and Conference Center, The Wrigley Building, 410 North Michigan Avenue,
Chicago, Illinois, 60611 on June 15, 1999, at 9:00 a.m. for the purpose of
voting on the following proposals:
1. To elect two directors to the Board;
2. To approve an amendment to the Company's Employee Incentive Compensation
Plan that would increase the number of common shares available for issuance
under the Plan;
3. To ratify the appointment of Arthur Andersen LLP as independent auditors
for the fiscal year ending January 31, 2000; and
4. To transact such other business as may properly come before the Annual
Meeting.
The Board of Directors recommends that Stockholders vote FOR the nominees for
the Board of Directors and FOR Proposals 2 and 3.
Only Stockholders of record at the close of business on April 19, 1999 are
entitled to notice of, and to vote at, the Annual Meeting.
All Stockholders are cordially invited to attend the Annual Meeting in person.
An admission ticket, which will be required for entry into the Annual Meeting,
is attached to the proxy card accompanying this Proxy Statement. Beneficial
owners of Leap stock who hold stock through a third party, such as a broker, may
gain admission by bringing account statements or similar documentation
evidencing ownership. Whether or not you plan to attend the Annual Meeting in
person, please vote, sign, date and return the enclosed proxy card in the
postage-paid envelope provided to ensure your representation.
You may revoke your proxy at any time before it has been voted, and if you
attend the Annual Meeting you may vote in person even if you have previously
returned your proxy card. Your prompt cooperation will be greatly appreciated.
The Company's Annual Report to Stockholders for fiscal 1999 is enclosed with
this Proxy Statement.
By Order of the Board of Directors.
Robert C. Bramlette
Chief Legal and Strategic Officer and Corporate Secretary
<PAGE>
Leapnet, Inc.
May 14, 1999
Proxy Statement
These proxy materials are furnished in connection with the solicitation by the
Board of Directors of Leapnet, Inc. ("Leap" or the "Company"), a Delaware
corporation, of proxies to be used at the 1999 Annual Meeting of Stockholders of
the Company and at any adjournment thereof.
The enclosed proxy is solicited by the Board of Directors of the Company. The
items enumerated herein constitute the only business which the Board of
Directors intends to present or is informed that others will present at the
Meeting. The proxy does, however, confer discretionary authority upon Robert C.
Bramlette, or his substitutes, to vote the shares of the Stockholders at the
Annual Meeting with respect to any other business which may properly come before
the Meeting. Mr. Bramlette is an executive officer of the Company.
Annual Meeting Admission
An admission ticket, which will be required for entry into the Annual Meeting,
is attached to the proxy card accompanying this Proxy Statement. If you plan to
attend the Annual Meeting in person, please retain the admission ticket.
Beneficial owners of Leap stock who hold stock through a third party, such as a
broker, may gain admission by bringing account statements or similar
documentation evidencing ownership.
Voting of Proxies
Your vote is important. Because many Stockholders cannot personally attend the
Meeting, it is necessary that they be represented by proxy. Stockholders may
vote, sign, date and mail their proxies in the postage-paid envelope provided.
Please promptly return your proxy card.
Proxies may be revoked at any time before they are exercised by written notice
to the Corporate Secretary, by timely notice of a properly executed later-dated
proxy or by voting in person at the Meeting.
Voting your proxy by mail will in no way limit your right to vote at the Annual
Meeting if you later decide to attend in person. If your shares are held in the
name of a broker, bank or other holder of record, you must obtain a proxy,
executed in your favor, from the holder of record to be able to vote at the
Meeting.
All shares entitled to vote and represented by properly executed proxies
received prior to the Annual Meeting and not revoked will be voted at the Annual
Meeting in accordance with the instructions indicated on those proxies. If no
instructions are indicated on a properly executed proxy, the shares represented
by that proxy will be voted as recommended by the Board of Directors.
If any other matters are properly presented at the Annual Meeting for
consideration, including, among other things, consideration of a motion to
adjourn the Annual Meeting to another time or place, the persons named in the
enclosed form of proxy and acting
<PAGE>
thereunder will have discretion to vote on those matters in accordance with
their best judgment to the same extent as the person signing the proxy would be
entitled to vote. The Board of Directors does not currently anticipate that any
other matters will be raised at the Annual Meeting.
Stockholders Entitled to Vote
Holders of record of the Company's Common Stock at the close of business on
April 19, 1999, the record date, are entitled to notice of and to vote at the
Annual Meeting. On April 19, 1999, there were 14,089,785 shares of Common Stock
outstanding. Each share of Common Stock is entitled to one vote on each matter
properly brought before the Meeting.
In accordance with Delaware law, a list of Stockholders entitled to vote at the
Annual Meeting will be available during regular business hours at the offices of
the Company which are located at 22 West Hubbard Street, Chicago, Illinois,
60610, beginning June 1, 1999, and ending on the date of the Annual Meeting.
Required Vote
The presence, in person or by proxy, of the holders of a majority of the Common
Stock issued and outstanding on the record date, April 19, 1999, is necessary to
constitute a quorum. Abstentions and broker "non-votes" are counted as present
and entitled to vote for purposes of determining a quorum. A broker "non-vote"
occurs when a nominee holding shares for a beneficial owner does not vote on a
particular proposal because the nominee does not have discretionary voting power
with respect to that item and has not received instructions from the beneficial
owner.
A plurality of the votes cast in person or by proxy is required for the election
of directors (i.e., the nominees receiving the greatest number of votes will be
elected). Stockholders will not be entitled to cumulate their votes in the
election of directors. Abstentions and broker "non-votes" are not counted for
the purpose of electing the directors. The affirmative vote of the majority of
votes cast in person or by proxy, affirmatively or negatively, is required to
approve the increase in the number of shares of Common Stock available for
issuance under the Employee Incentive Compensation Plan and to ratify the
appointment of Arthur Andersen LLP. Abstentions and broker "non-votes" will have
no effect on the voting of such proposal.
Cost of Proxy Solicitation
The cost of soliciting proxies will be borne by the Company. Proxies may be
solicited on behalf of the Company by officers, directors, or employees of the
Company in person or by telephone, facsimile transmission, telegram or
electronic transmission. In accordance with the regulations of the Securities
and Exchange Commission, The NASDAQ Stock Market, Inc. and securities exchanges,
the Company will also reimburse brokerage houses and other custodians, nominees
and fiduciaries for their expenses incurred in sending proxies and proxy
material to the beneficial owners of Common Stock.
Stockholder Communications
Stockholders' comments pertaining to any aspect of Company business are welcome.
Stockholders may write to the Company in care of the Corporate Secretary, or
visit our web site at http://www.leapnet.com. Stockholder comments assist
Company management in understanding the needs of the Company's Stockholders.
<PAGE>
Stockholder Account Maintenance
Leap has selected First Chicago Trust Company, a division of EquiServe, as its
Transfer Agent. All communications concerning your Stockholder account,
including address changes, name changes, requirements to transfer shares, etc.,
can be handled by calling 1-800-446-2617 or 1-201-222-4955 (tdd for hearing
impaired) or by writing First Chicago Trust Company, a division of EquiServe, at
P.O. Box 2500, Jersey City, NJ 07303-2500.
Governance of the Company
Pursuant to the Delaware General Corporation Law, as implemented by the
Company's Certificate of Incorporation and By-Laws, the Company's business,
property and affairs are managed under the direction of the Board of Directors.
Members of the Board are kept informed of the Company's business through
discussions with the Chairman and other officers, by reviewing materials
provided to them and by participating in Board and Committee meetings.
The Board held ten meetings in the fiscal year ended January 31, 1999. Each of
the current directors attended at least eighty percent (80%) of the meetings
held during the period in which he served as a director. The Audit Committee
held one meeting and the Stock Committee and the Compensation Committee each
held two meetings during fiscal 1999. All of the committee members attended all
of the Committee meetings.
PROPOSAL 1 . ELECTION OF DIRECTORS
The Board of Directors is divided into three classes. The Board is composed of
two Class I Directors (Messrs. John G. Keane and Frederick Smith) whose terms
expire in 2000, two Class II Directors (Nominees: Messrs. George Gier and Thomas
R. Sharbaugh) whose terms expire in 2001 and two Class III Directors (Messrs.
Gregory J. Garville and Charles J. Ruder) whose terms will expire at the Annual
Meeting. At each Annual Meeting, successors to the class of Directors whose term
expires at that Annual Meeting will be elected for a three-year term.
Two Class III Directors are to be elected at the Annual Meeting to hold office
until the Annual Meeting of Stockholders to be held in the year 2002. All of the
directors that are elected will hold office until their terms expire and their
successors are elected and qualified. It is intended that the accompanying proxy
will be voted in favor of the following persons to serve as directors unless the
Stockholder indicates to the contrary on the proxy.
Nominees for Director
Gregory J. Garville . 46 . Director
Mr. Garville joined the Company's Board of Directors in June 1998. Since 1994,
Mr. Garville has been President of Union Capital Corporation, a private
investment company founded in 1968. Prior to becoming President of Union
Capital, he was Vice President of Mergers & Acquisitions for Mickelberry
Communications Inc., formerly traded on the New York Stock Exchange. During the
last 15 years, Mr. Garville has been involved in investing in and operating
several marketing services businesses. Mr. Garville currently serves on the
Board of Directors of Excel Importing, Inc., Sandy - Alexander, Inc., and Bender
Browning Dolby & Sanderson, Inc.
<PAGE>
Charles J. Ruder . 61 . Director
Mr. Ruder joined the Company's Board of Directors in September 1997. Mr. Ruder
served as the President and Chief Executive Officer of the Chicago United Way /
Crusade of Mercy for the greater Chicagoland area from 1994 to 1996. Mr. Ruder
worked at Sears, Roebuck and Co. from 1959 to 1993 in many management
capacities, including Vice President of Public Affairs from 1985 to 1993. Prior
to that time, he served as region manager for stores located in the Washington,
D.C. area and prior to that for the Minnesota area.
The Board of Directors recommends a vote for each of the nominees listed above.
The other members of the Board of Directors are as follows:
Frederick Smith . 45 . Chairman and Chief Executive Officer
Mr. Smith, a co-founder of Leap, was elected Chairman of the Board of Directors
and Chief Executive Officer of the Company in February 1998. In addition, Mr.
Smith serves as President of Quantum Leap Communications, Inc., a subsidiary of
the Company. From January 1991 until the formation of Leap in September 1993,
Mr. Smith was employed by DDB Needham Chicago, where he was a Vice President,
Executive Producer. While there, his principal accounts were Bud Light,
Michelob, Discover Card Services, General Mills, and Audi. Mr. Smith's previous
experience included one year at Young and Rubicam Chicago, and five years at Leo
Burnett in Chicago where his client list included McDonald's, Kellogg and United
Airlines.
George Gier . 39 . Director: Executive Vice President and Chief Marketing
Officer
Mr. Gier co-founded Leap, has served as a director and officer of Leap since its
inception and was appointed Executive Vice President, Chief Marketing Officer in
May 1996. From March 1990 until joining the Company, he was employed by DDB
Needham Chicago, where he was a Vice President, Creative Director. Mr. Gier's
previous experience includes Hal Riney & Partners in San Francisco, where his
principal assignment was the introduction of Saturn automobiles. Prior to
joining Hal Riney & Partners, Mr. Gier spent four years at Fallon McElligott in
Minneapolis, where his client list included Lee Jeans, Porsche, Federal Express,
Gilbey's Gin and Time/Life Books.
John G. Keane . 69 . Director
Mr. Keane has been a member of the Company's Board of Directors since September
1996. Mr. Keane is the Korth Professor of Strategic Management at The University
of Notre Dame's College of Business Administration. He joined The University of
Notre Dame in January 1989 as Dean of the Business School. Prior to such time,
Mr. Keane held various management and consulting positions in the advertising
industry and elsewhere. From 1972 to 1984, he was the founding President of
Managing Change, Inc., a marketing consulting firm, and from 1961 to 1972 he was
employed by Needham, Harper & Steers, Inc., Wade Advertising, Inc., North
Advertising, Inc. and J. Walter Thompson Company, where his clients included
Seven-Up, Kraft Foods, Oscar Mayer, Quaker Oats, S.C. Johnson, Campbell Taggert
and Northwestern Mutual Life. Mr. Keane is a Director of Excel Industries, Inc.,
a publicly held manufacturer of automotive parts.
<PAGE>
Thomas R. Sharbaugh . 55 . Director and President
Mr. Sharbaugh joined the Company in April 1996, became a director at that time
and was appointed President in May 1996. In addition, Mr. Sharbaugh serves as
the President of YAR Communications, Inc., a subsidiary of the Company. Prior
to joining Leap, Mr. Sharbaugh was employed by Sears, Roebuck and Co. from March
1994 until February 1996 as Vice President, Strategic Marketing and Advertising.
Prior to joining Sears, Mr. Sharbaugh held various senior-level executive
marketing positions during his 16-year tenure at Anheuser-Busch. As Vice
President of Brand Management and, prior to that, as Vice President of Budweiser
Brands, he was responsible for managing brand marketing activities and new
product marketing. Mr. Sharbaugh's responsibilities at Anheuser-Busch included
the development and market launch of Bud Light; management of the "This Bud's
For You" campaign for Budweiser; the "Gimme a Light", "Spuds McKenzie" and "Make
it a Bud Light" campaigns for Bud Light; and the "Bud Bowl" promotional
campaign.
Committees of the Board of Directors
The Board of Directors has established the following three Committees:
Audit Committee. The Audit Committee is presently composed of Gregory J.
Garville and John G. Keane. In December 1998, Mr. Garville was appointed to the
Committee and Mr. Ruder resigned from the Committee. The Audit Committee makes
recommendations concerning the engagement of independent public accountants,
reviews with the independent public accountants the plans and results of the
audit engagement, approves professional services provided by the independent
public accountants, reviews the independence of the independent public
accountants, considers the range of audit and non-audit fees and reviews the
adequacy of the Company's internal accounting controls. The Audit Committee met
once during the fiscal year ended January 31, 1999. At the time of such meeting,
the members were John G. Keane and Charles J. Ruder.
Compensation Committee The Compensation Committee is presently comprised of
John G. Keane, Charles J. Ruder and Frederick Smith. The Compensation Committee
determines the compensation of the Company's Executive Officers and makes
recommendations concerning the grant of options to purchase shares of the
Company's stock under the Company's Employee Incentive Compensation Plan. The
Compensation Committee met twice during the fiscal year ended January 31, 1999.
Stock Committee The Stock Committee is comprised of Gregory J. Garville,
Charles J. Ruder and Frederick Smith. The Stock Committee is responsible for
the administration of the Company's 1996 Stock Option Plan, Employee Incentive
Compensation Plan and Employee Stock Purchase Plan. The Stock Committee met
twice during the fiscal year ended January 31, 1999. During such period, the
members were John G. Keane, Charles J. Ruder, and Frederick Smith.
Other Committees The Board of Directors may establish such other committees as
are deemed necessary and appropriate from time to time.
Compensation of Directors
The Company pays a fee of $2,000 per Board meeting attended, $1,000 per
telephonic Board meeting attended and $500 per Committee meeting attended to its
directors who are not employees of the Company. The Directors may elect to
receive options in lieu of the cash payment. The Company reimburses such
Directors for travel and lodging expenses
<PAGE>
incurred in connection with their activities on behalf of the Company. During
fiscal 1999, Messrs. Garville, Keane, and Ruder received cash compensation of $
2,000, $ 13,000, and $ 12,000, respectively. In addition, Messrs. Garville,
Keane, and Ruder were granted options to purchase 6,000 shares, 12,500 shares,
and 7,500 shares of Common Stock, respectively, pursuant to the Employee
Incentive Compensation Plan. Mr. Garville also was granted options to purchase
5,000 shares of Common Stock pursuant to the Non-Employee Directors' Stock
Option Plan.
Other Executive Officers
Set forth below are the Executive Officers of the Company who are not directors
of the Company. The Board of Directors elects officers annually and all officers
serve at the discretion of the Board.
Joseph A. Sciarrotta . 37 . Executive Vice President and Chief Creative
Officer
Mr. Sciarrotta is a co-founder of Leap. From January 1991 to August 1993, he was
employed by DDB Needham Chicago, where he was a Senior Vice President, Group
Creative Director. While at DDB Needham, Mr. Sciarrotta was responsible for the
Bud Light, Frito Lay, and Busch Garden Theme Parks accounts, among others. Prior
to his move to DDB Needham, Mr. Sciarrotta spent six years at J. Walter Thompson
Chicago where he was a Senior Vice President, Creative Director. His work, while
at J. Walter Thompson, on 7-11, Lowenbrau, Oscar Mayer, Kraft Miracle Whip,
Quaker Oats and Godfather's Pizza earned him various creative awards as well as
Effie awards for effective advertising. In 1990, Mr. Sciarrotta was named to the
Adweek Creative All-Star team as TV Art Director of the Year for the Midwest,
and in 1994, he was named a National Creative All-Star by Adweek magazine.
Robert C. Bramlette . 49 . Mr. Bramlette has served as Chief Legal and
Strategic Officer and as Secretary of the Company since May 1996. In addition,
Mr. Bramlette serves as Vice President of YAR Communications, Inc. Prior to
joining Leap, Mr. Bramlette was Of Counsel to the law firm Krupa & Braun, which
he joined in February 1996. Prior to joining Krupa & Braun, Mr. Bramlette was
employed by Sears, Roebuck and Co. for sixteen years, most recently as its
Assistant General Counsel, Real Estate, and prior to that time in a number of
positions including Director of Corporate Communications. Currently, Mr.
Bramlette is Of Counsel to the firm of Braun & Edwards, Chtd.
Executive Compensation and Certain Transactions
Summary Compensation Table
The following table sets forth information with respect to the cash compensation
paid for services rendered during each of the last three fiscal years to the
officers who acted as its Chief Executive Officer, its other current executive
officers, and three former executive officers who received the highest
compensation in fiscal 1999 (each, a "Named Executive Officer").
<TABLE>
<CAPTION>
Securities
Year Ended Underlying All Other
Name January 31, Salary Bonus ($) Options(#) Compensation
<S> <C> <C> <C> <C> <C>
Frederick Smith 1999 $ 52,000 (1) -- -- --
Chairman of the Board and 1998 236,177 (2) -- -- --
Chief Executive Officer 1997 200,000 -- -- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Thomas R. Sharbaugh 1999 $ 52,000 (1) -- -- --
President 1998 280,923 -- -- --
1997 248,077 (3) -- -- --
George Gier 1999 $ 53,846 (1) -- -- --
Executive Vice President and 1998 200,000 -- -- --
Chief Marketing Officer 1997 200,000 -- -- --
Joseph A. Sciarrotta 1999 $200,000 -- -- --
Executive Vice President and 1998 200,000 -- -- --
Chief Creative Officer 1997 200,000 -- -- --
Robert C. Bramlette 1999 $127,846 -- -- --
Chief Legal and 1998 125,999 -- -- --
Strategic Officer 1997 82,384 (4) -- -- --
Eliot Kang 1999 $192,307 (5) -- -- --
Former Managing Partner 1998 78,012 (5) -- -- --
One World 1997 -- -- -- --
Communications, Inc.
Yuri Radzievsky 1999 168,733 (6) -- -- --
Former Chief Executive 1998 242,235 (6) -- -- --
Officer and President, YAR 1997 -- -- -- --
Communications, Inc.
Anna Radzievsky 1999 168,733 (6) -- -- --
Former Chief Operating 1998 242,235 (6) -- -- --
Officer, YAR 1997 -- -- -- --
Communications, Inc.
</TABLE>
(1) Messrs. Smith, Sharbaugh, and Gier voluntarily reduced their salaries
during fiscal 1999.
(2) The former Chairman of the Board and Chief Executive Officer, authorized
additional payments to Mr. Smith totaling $36,177 for additional
responsibilities assumed during fiscal 1998 including those of acting Chief
Executive Officer. Mr. Smith's annual salary was $200,000 under the terms
of his employment agreement.
(3) Mr. Sharbaugh joined the Company in April 1996. This amount represents the
salary paid to him by the Company since his employment began.
(4) Mr. Bramlette joined the Company in June, 1996.
(5) Mr. Kang joined a subsidiary of the Company in November, 1997 and left
effective September, 1998.
(6) Mr. Radzievsky and Ms. Radzievsky joined a subsidiary of the Company in
April, 1997 and left in October, 1998.
<PAGE>
Stock Option Grants in Last Fiscal Year
The following table sets forth certain information on options granted in fiscal
1999 to the Named Executive Officers.
No stock appreciation rights were granted to the Named Executive Officers during
fiscal 1999.
<TABLE>
<CAPTION>
Individual grants
<S> <C> <C> <C> <C> <C>
Number of Percent of total
securities options granted Exercise Grant Date
underlying to employees price Grant Expiration present
options in fiscal year ($/share) Date Date value $ (1)
granted (#)
Robert C. Bramlette
25,000 4.3% $1.66 3/18/98 3/18/03 $21,266
50,000 8.6% $3.31 4/30/98 4/30/03 $84,820
</TABLE>
Option Exercises in the Last Fiscal Year and Year-End Option Values
The following table provides information on option exercises in fiscal 1999 by
the Named Executive Officers and their unexercised options at January 31, 1999
<TABLE>
<CAPTION>
Shares Acquired on Exercise Value Received
<S> <C> <C>
Robert C. Bramlette 21,250 $23,162
Number of securities underlying Value of unexercised
underlying unexercised options in-the-money options
at fiscal year-end (#) at fiscal year-end ($)
Exercisable Unexercisable Exercisable Unexercisable
Thomas R. Sharbaugh 1,600,000 200,000 0 0
Robert C. Bramlette 83,750 5,000 3,188 0
</TABLE>
(1) The Grant Date present value in the far right column of the above table was
calculated using the Black-Scholes option pricing model applied as of the Grant
Date, as specified in the table. The values generated by this model depend upon
certain assumptions, as follows: an estimated option lives ranging from 3 to 5
years; an assumed annual volatility of underlying stock of 72 percent; and risk-
free rates of return on the Grand Dates ranging from 5.57 to 6.76 percent. The
Company made no assumptions regarding restrictions on vesting or the likelihood
of vesting.
Employment Agreements
The Company entered into an employment agreement with Mr. Smith, which provides
for an annual base salary of $200,000, expires on March 11, 2001, and is
terminable by the Company on ninety (90) days prior written notice or in the
event of death or disability or for "Cause" (as defined within the agreements).
Mr. Smith may terminate the agreement on two hundred seventy (270) days prior
written notice, and said notice may not be given
<PAGE>
prior to July 1, 1999. The employment agreement contains provisions that
restricts the misappropriation of confidential information during the term of
employment and thereafter and from soliciting Leap's clients, prospects or
employees for one year following termination of employment.
The Company is not currently a party to employment agreements with any other
Named Executive Officer.
Compensation Committee Report on Executive Compensation
The Compensation Committee met twice during fiscal 1999. At the both meetings,
the Committee reviewed the employment contracts of Named Executive Officers and
other senior executives of the Company. The salaries paid to the Named Executive
Officers (other than Mr. Bramlette, as described below) were determined by their
respective employment agreements. Mr. Bramlette's compensation was recommended
by Mr. Smith and approved by the Committee.
The Committee's goal is to provide a compensation package that will enable the
Company to attract and retain talented executives, reward outstanding
performance and link the interests of the Company's executives to the interests
of the Company's Stockholders. The Board of Directors currently intends for all
compensation paid to the Named Executive Officers to be tax deductible to the
Company pursuant to Section 162(m) of the Internal Revenue Code of 1986, as
amended ("Section 162(m)"). Section 162(m) provides that compensation paid to
the Named Executive Officers in excess of $1,000,000 cannot be deducted by the
Company for federal income tax purposes unless, in general, such compensation is
performance based, is established by an independent committee of directors, is
objective and the plan or agreement providing for such performance-based
compensation has been approved in advance by Stockholders. In the future,
however, if, in the judgment of the Board, the benefits to the Company of a
compensation program that does not satisfy the arbitrary and inflexible
conditions of Section 162(m) outweigh the costs to the Company of the failure to
satisfy these conditions, the Board may adopt such a program.
Report submitted by the Compensation Committee of the Board of Directors:
John G. Keane Charles J. Ruder Frederick A. Smith
Compensation Committee Interlocks and Insider Participation
Messrs. Keane, Ruder, and Smith are members of the Compensation Committee.
Committee members have no "interlocking" relationships as defined by the
Securities and Exchange Commission.
Certain Transactions
On February 2, 1998, the Company received proceeds of a loan from Alliance
Banking Company ("Alliance") of New Buffalo, Michigan, in the amount of $665,000
that is secured by a mortgage on the property located at 22 West Hubbard,
Chicago, IL. 60610. The loan is due on January 27, 2001. The full amount of such
indebtedness was personally guaranteed by Mr. Smith. The loan was approved by
all of the directors; however, R. Steven Lutterbach, then a director of the
Company, did not vote because he is a significant stockholder in Alliance.
<PAGE>
The Company has adopted a policy that all transactions with affiliated entities
or persons will be on terms no less favorable than could be obtained from
unrelated parties and all future transactions between the Company and its
officers, directors, principal Stockholders and affiliates will be approved by a
majority of the Company's independent directors.
Total Return Performance Graph
The total return graph is presented for the approximate 28-month period since
the Company's initial public offering on September 27, 1996. The total
stockholder return assumes that $100 is invested at the beginning of the period
in the Common Stock of the Company, the NASDAQ U.S. Stock Market Index, and the
Company's Peer Group. The Company's Peer Group is comprised of The Interpublic
Group of Companies, Inc.; Omnicom Group, Inc.; Think New Ideas, Inc.; and USWeb
Corporation (the "Peer Group" in the graph below). In December, 1998, CKS Group,
Inc. and USWeb Corporation merged with USWeb Corporation surviving. In the
Company's proxy statement for fiscal 1998, both CKS Group, Inc. and USWeb
Corporation were part of the Peer Group. The Company has selected this Peer
Group because it includes companies that offer a blend of traditional
advertising and new media marketing and communication services which are similar
to the range of services that Leap provides. The companies within the Peer Group
are of different sizes and two of the companies also provide dividend income.
Total shareholder return is weighted according to market capitalization so that
companies with a larger market capitalization have a greater impact on the Peer
Group Index results. Historical stock price performance during the period shown
may not be indicative of future stock performance.
Comparison of 28-Month Cumulative Total Return*
Among The Leap Group, Inc., The NASDAQ Stock Market (U.S.) Index, and the
Peer Group
<TABLE>
<CAPTION>
Leapnet, Inc. The NASDAQ
(formerly The Stock Market, U.S. Index
Date Leap Group, Inc.) U.S. Index Peer Group
<S> <C> <C> <C>
9/27/96 $100 $100 $100
9/30/96 $101 $100 $100
10/31/96 $ 68 $ 99 $103
11/30/96 $ 61 $105 $106
12/31/96 $ 69 $105 $100
1/31/97 $ 70 $112 $105
2/28/97 $ 78 $106 $108
3/31/97 $ 43 $ 99 $109
4/30/97 $ 48 $102 $116
5/31/97 $ 31 $114 $126
6/30/97 $ 28 $117 $132
7/31/97 $ 28 $129 $147
8/31/97 $ 20 $129 $151
9/30/97 $ 26 $137 $161
10/31/97 $ 19 $130 $153
11/30/97 $ 18 $130 $153
12/31/97 $ 14 $128 $167
1/31/98 $ 13 $133 $163
2/28/98 $ 15 $145 $190
3/31/98 $ 14 $150 $207
4/30/98 $ 34 $152 $212
5/31/98 $ 28 $144 $202
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
6/30/98 $ 28 $154 $213
7/31/98 $ 44 $152 $215
8/31/98 $ 25 $122 $196
9/30/98 $ 26 $140 $185
10/31/98 $ 27 $146 $203
11/30/98 $ 44 $160 $232
12/31/98 $ 27 $181 $261
1/31/99 $ 29 $207 $274
</TABLE>
* $100 invested on 9/27/96 in stock or index--including reinvestment of
dividends. Fiscal year ending January 31, 1999.
Peer Group
The Interpublic Group of Companies, Inc.
Omnicom Group, Inc.
Think New Ideas, Inc.
USWeb Corporation
Security Ownership of Management
and Certain Beneficial Owners
The following table sets forth information concerning the beneficial ownership
of the Company's Common Stock as of April 19, 1999, for: (a) each incumbent
Director and each of the nominees for Director; (b) each of the current Named
Executive Officers not listed as a Director; (c) each person known by the
Company to own beneficially more than 5% of the outstanding Common Stock; and
(d) Directors and Executive Officers as a group.
<TABLE>
<CAPTION>
Amount of Shares Percent of Total
Name of Individual Beneficially Owned(1) Stock Outstanding
<S> <C> <C>
Frederick Smith (2), (3) 2,340,000 16.6%
Joseph A. Sciarrotta (2),(4) 1,966,000 14.0%
George Gier (2), (5) 1,950,000 13.8%
Thomas R. Sharbaugh (2),(6) 1,700,000 12.1%
R. Steven Lutterbach (2), (7) 1,407,000 10.0%
Robert C. Bramlette (2),(8) 84,250 *%
John G. Keane (2), (9) 55,000 *%
Charles J. Ruder (2), (10) 27,500 *%
Gregory Garville (2), 11) 21,500 *%
All Directors and Executive Officers
as a group (8 individuals) (12) 8,144,250 57.8%
</TABLE>
*Less than one percent.
(1) Unless otherwise noted below, the persons in the above table have sole
voting and investment power with respect to all shares shown as
beneficially owned by them.
(2) The address of the stockholder is: c/o Leapnet, Inc., 22 W. Hubbard Street,
Chicago, IL 60610.
<PAGE>
(3) Includes 174,000 shares held by trusts for Mr. Smith's children, for which
Mr. Smith, as co-trustee, shares voting and investment power.
(4) Includes 50,000 shares held by a trust for Mr. Sciarrotta's family, for
which Mr. Sciarrotta, as co-trustee, shares voting and investment power.
(5) Includes 100,000 shares held by trusts for Mr. Gier's children, for which
Mr. Gier, as co-trustee, shares voting and investment power.
(6) The shares shown are issuable to Mr. Sharbaugh pursuant to currently
exercisable options.
(7) Excludes 30,000 shares held by trusts for Mr. Lutterbach's children, as to
which Mr. Lutterbach disclaims beneficial ownership. On April 8, 1998, Mr.
Lutterbach resigned as a director of the Company.
(8) Includes 83,750 shares issuable pursuant to currently exercisable options.
(9) Includes 36,500 shares issuable pursuant to currently exercisable options.
(10) Includes 26,000 shares issuable pursuant to currently exercisable options.
(11) Includes 14,500 shares issuable pursuant to currently exercisable options.
(12) The shares shown include 2,180,334 shares issuable pursuant to currently
exercisable options within 60 days of the date of this Proxy. The group
does not include Mr. Lutterbach.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act") requires
the Company's Executive Officers and Directors, and persons who beneficially own
more than ten percent (10%) of the Company's Common Stock, to file initial
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Based on a review of the copies of such forms furnished to the
Company and written representations from the Company's Executive Officers and
Directors, the Company believes that all forms were filed in a timely manner
during the 1999 fiscal year.
PROPOSAL 2 - AMENDMENT TO THE COMPANY'S EMPLOYEE INCENTIVE
COMPENSATION PLAN
As of March 19, 1999, subject to the approval of the Company's Stockholders at
the Annual Meeting, the Board of Directors approved an amendment to the
Company's Employee Incentive Compensation Plan (the "Incentive Plan") which
would increase the number of shares of Common Stock authorized for issuance
thereunder from 3,500,000 to 5,000,000. As of April 19, 1999, options to
purchase 429,920 shares of Common Stock have been exercised under the Incentive
Plan, options to purchase 1,006,083 shares of Common Stock are outstanding under
the Incentive Plan, options to 1,240,667 shares have been forfeited, and
2,063,997 shares of Common Stock remain available for grant thereunder. The
Company has not granted any options pursuant to the Incentive Plan that are
conditioned upon the Company's Stockholders approving the amendment proposed
hereby.
<PAGE>
The Board of Directors believes that it is desirable for the Company to have
available under the Incentive Plan additional authorized shares of Common Stock
to be used to provide incentives for existing employees as well as employees who
may join the Company as a result of future acquisitions. Approval of the
proposed amendment now will eliminate the delays and expense which otherwise
could be incurred if Stockholder approval were required to increase the shares
available under the Plan for possible future transactions involving the granting
of options.
The Board of Directors recommends that Stockholders vote FOR approval of the
amendment to the Company's Employee Incentive Compensation Plan.
The following is a brief summary of certain features of the Incentive Plan,
as proposed to be amended.
General
The Incentive Plan is a flexible plan permitting the issuance of awards in a
variety of forms, including: (i) non-qualified and incentive stock options for
the purchase of Common Stock, (ii) stock appreciation rights ("SARs"), (iii)
restricted stock ("Restricted Stock"), (iv) deferred stock ("Deferred Stock"),
(v) bonus stock and awards in lieu of obligations, (vi) dividend equivalents,
(vii) other stock-based awards, and (viii) performance awards and cash incentive
awards. The purpose of the Incentive Plan is to promote the overall financial
objectives of Company and its Stockholders by motivating eligible participants
to achieve long-term growth in shareholder equity in the Company and to retain
the association of these individuals.
The persons eligible to participate in the Incentive Plan are directors,
officers, employees and consultants of the Company or any subsidiary of the
Company who, in the opinion of the Stock Committee of the Board of Directors,
contribute to the growth and success of the Company or its subsidiaries. The
Incentive Plan is administered by the Stock Committee. In the discretion of the
Stock Committee, shares of Common Stock subject to an award under the Incentive
Plan that remain unissued upon termination of such award, are forfeited or are
received by the Company as consideration for the exercise or payment of an award
shall become available for additional awards under the Incentive Plan.
In the event of a stock dividend, stock split, recapitalization, sale of
substantially all of the assets of the Company, reorganization or other similar
event, the Stock Committee will adjust the aggregate number of shares of Common
Stock subject to the Incentive Plan, the number of shares available for awards
and subject to outstanding awards and the exercise price per share, performance
conditions and other terms of outstanding awards.
The Board of Directors or the Stock Committee may amend, modify or discontinue
the Incentive Plan at any time, except if such amendment (i) impairs the rights
of a participant without the participant's consent, or (ii) in any manner would
disqualify the Incentive Plan from the exemption provided by Rule 16b-3 under
the 1934 Act. Any amendment is subject to Stockholder approval, if required by
applicable law. Any amendment by the Stock Committee is subject to approval of
and any limitations imposed by the Board of Directors. The Stock Committee may
amend the terms of any award granted under the Incentive Plan (other than, in
the case of a stock option, to decrease the option price), subject to the
consent of a participant if such amendment impairs the rights of such
participant unless
<PAGE>
such amendment is necessary for the Company to obtain pooling of interest
accounting treatment in a transaction.
Awards Under the Incentive Plan
Stock Options. Options to purchase no more than 500,000 shares of Common Stock
shall be granted to any one participant in any fiscal year. Subject to such
limitation, the Stock Committee shall determine the number of shares of Common
Stock subject to the options to be granted to each participant. The Stock
Committee may grant non-qualified stock options, incentive stock options, or a
combination thereof, to the participants. Only persons who on the date of the
grant are employees of the Company or any parent or subsidiary of the Company
may be granted options which qualify as incentive stock options. Options granted
under the Incentive Plan will provide for the purchase of Common Stock at prices
determined by the Stock Committee, but in no event less than fair market value
on the date of grant. When incentive stock options are granted to an individual
who owns Common Stock possessing more than 10% of the combined voting power of
all classes of stock of the Company or any parent or subsidiary of the Company,
the option price shall not be less than 110% of fair market value. No stock
option shall be exercisable later than the tenth anniversary date of its grant.
In the case of an incentive stock option granted to a participant who owns more
than 10% of the combined voting power of all classes of stock of the Company or
any parent or subsidiary of the Company, such option shall not be exercisable
later than the fifth anniversary date of its grant. No incentive stock option
shall be granted later than the tenth anniversary date of the adoption of the
Incentive Plan.
Options granted under the Incentive Plan shall be exercisable at such times and
subject to such terms and conditions set forth in the Incentive Plan and as the
Stock Committee shall determine or provide in an option agreement. Except as
provided in any option agreement, options may only be transferred under the laws
of descent and distribution or if such transfer is permitted by Rule 16b-3
without liability under applicable law and is consistent with the use of
Commission Form S-8. The option exercise price is payable by the participant (i)
in cash, (ii) in shares of Common Stock having a fair market value equal to the
exercise price, (iii) by delivery of evidence of a note or other indebtedness,
(iv) by authorizing the Company to retain shares of Common Stock having a fair
market value equal to the exercise price, (v) by "cashless exercise" as
permitted under the Federal Reserve Board's Regulation T, or (vi) by any
combination of the foregoing. Unless otherwise provided in an option agreement
or determined by the Stock Committee, upon termination of a participant's
employment with the Company due to death or disability, all of such
participant's options shall be exercisable for the shorter of their remaining
term or one year after termination of employment in the case of disability or
appointment of a representative in the case of death, and a disabled
participant's subsequent death shall not affect the foregoing. Unless otherwise
provided in an option agreement or determined by the Stock Committee, if a
participant retires or involuntarily ceases to be an employee of the Company
(other than due to death, disability or as a result of termination for cause),
all of such participant's options shall terminate, except that, to the extent
such options are then exercisable, such options may be exercised for the shorter
of their remaining terms or 90 days after termination of employment. Unless
otherwise provided in an option agreement or determined by the Stock Committee,
if a participant voluntarily ceases to be an employee at the Company (other than
at retirement) or is terminated for cause, all of such participant's options
shall terminate immediately.
Upon receipt of a notice from a participant to exercise an option, the Stock
Committee may elect to cash out all or part of any such option by paying the
participant, in cash or shares of
<PAGE>
Common Stock, the following amount: (i) the excess of the fair market value of
the Common Stock subject to the unexercised option over the exercise price of
the option, multiplied by (ii) the number of shares for which the option is to
be exercised.
Stock Appreciation Rights. A SAR shall entitle a participant to receive Common
Stock, cash or a combination thereof. If granted in conjunction with an option,
the exercise of a SAR shall require the cancellation of the corresponding
portion of the option. SARs may be granted on or after the corresponding grant
of non-qualified stock options, but only at the same time as the corresponding
grant of incentive stock options. SARs with respect to no more than 500,000
shares of Common Stock shall be granted to any one participant in any fiscal
year. Subject to such limitation, the Stock Committee in its discretion shall
determine the number of SARs awarded to a participant. The Stock Committee shall
determine the terms and conditions of any SAR. The terms and conditions shall be
confirmed in and be subject to an agreement between the Company and the
participant. If granted in conjunction with options, a SAR shall be exercisable
for and during the same period as the corresponding options. Upon exercise of a
SAR, a participant shall receive an amount in cash, shares of Common Stock or
both equal to (i) the excess of the fair market value of the Common Stock over
the option price per share (if the SAR is granted in conjunction with an
option), multiplied by (ii) the number of shares of Common Stock subject to the
SAR. In the case of a SAR granted on a standalone basis, the Stock Committee
shall determine in its discretion the value to be used in lieu of the option
price. In no event shall a SAR granted in tandem with an incentive stock option
be exercised unless the fair market value of the Common Stock at the time of the
exercise exceeds the option price. With respect to participants who are subject
to Section 16(b) of the 1934 Act (generally Officers and Directors of the
Company) ("16(b) Persons"), the Stock Committee may require that the SARs be
exercised in compliance with Rule 16b-3, including the requirement that a SAR
not be exercisable within the first six months of its term. The transferability
and termination provisions of a SAR are as set forth above with respect to stock
options.
Restricted Stock. Restricted Stock awards are grants of shares of Common
Stock that are subject to certain restrictions and to a risk of forfeiture.
The Stock Committee in its discretion shall determine the persons to whom
Restricted Stock shall be granted, the number of shares of Restricted Stock
to be granted to each participant, the periods for which Restricted Stock
is restricted, and any other restrictions to which the Restricted Stock is
subject. The Stock Committee may condition the award of Restricted Stock on
such performance goals and other criteria as it may determine. The terms
and conditions of the Restricted Stock shall be confirmed in and subject to
an agreement between the Company and the participant. During the
restriction period, the Stock Committee may require that the certificates
evidencing the Restricted Stock be held by the Company. During the
restriction period, the Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered. Other than the foregoing
restrictions imposed by the Stock Committee, the participant shall have all the
rights of a holder of Common Stock. If a participant's employment terminates
during the restriction period due to death or disability, the restrictions on
the Restricted Stock shall lapse. If a participant's employment shall terminate
for any other reason, unless otherwise agreed by the Stock Committee, the
remaining Restricted Stock shall be forfeited by the participant to the Company.
Deferred Stock. Deferred Stock awards are grants of rights to receive
shares of Common Stock, cash or a combination thereof at the end of a
specified deferral period. The Stock Committee in its discretion shall
<PAGE>
determine the persons to whom Deferred Stock shall be granted, the number
of shares of Deferred Stock to be granted to each participant, the duration
of the period prior to which Common Stock will be delivered, the conditions
under which receipt of the Common Stock will be deferred, and any other
terms and conditions of the granting of the award. The terms and conditions
of the Deferred Stock shall be confirmed in and subject to an agreement
between the Company and the participant. The Stock Committee may condition
the award of Deferred Stock on such performance goals and criteria that it
may determine. During the deferral period, the Deferred Stock may not be
sold, assigned, transferred, pledged or otherwise encumbered. At the
expiration of the deferral period, the Stock Committee may deliver to the
participant Common Stock, cash equal to the fair market value of such
Common Stock or a combination thereof for the shares covered by the
Deferred Stock awards. Cash dividends on Common Stock, subject to Deferred
Stock awards, shall be automatically deferred and reinvested in Deferred
Stock; and stock dividends on Common Stock, subject to Deferred Stock
awards, shall be paid in the form of Deferred Stock. If a participant's
employment terminates during the deferral period due to death or
disability, the deferral restrictions shall lapse. If a participant's
employment terminates for any other reason, unless otherwise agreed by the
Stock Committee, the rights to the shares still covered by Deferred Stock
awards shall be forfeited by the participant.
Bonus Stock and Awards in Lieu of Cash Obligations. The Stock Committee is
authorized to grant shares of Common Stock as a bonus free of restrictions,
or to grant shares of Common Stock or other awards in lieu of Company
obligations to pay cash under other plans or compensatory arrangements,
subject to such terms as the Stock Committee may specify.
Dividend Equivalents. The Stock Committee is authorized to grant dividend
equivalents conferring on participants the right to receive, currently or
on a deferred basis, cash, shares of Common Stock, other awards or other
property equal in value to dividends paid on a specified number of shares
of Common Stock. Dividend equivalents may be granted on a free-standing
basis or in connection with another award, may be paid currently or on a
deferred basis, and, if deferred, may be deemed to have been reinvested in
additional shares of Common Stock, awards or other investment vehicles
specified by the Stock Committee.
Other Stock-Based Awards. The Incentive Plan authorizes the Stock Committee
to grant awards that are denominated or payable in, valued by reference to,
or otherwise based on or related to the Common Stock. Such awards might
include convertible or exchangeable debt securities, other rights
convertible or exchangeable into shares, purchase rights for shares, awards
with value and payment contingent upon performance of the Company or any
other factors designated by the Stock Committee, and awards valued by
reference to the book value of shares of Common Stock or the value of
securities of or the performance of specified subsidiaries. The Stock
Committee shall determine the terms and conditions of such awards,
including consideration to be paid to exercise awards in the nature of
purchase rights, the period during which awards will be outstanding and
forfeiture conditions and restrictions on awards.
<PAGE>
Performance Awards, including Cash Incentive Awards. The right of a
participant to exercise or receive a grant or settlement of an award, and
the timing thereof, may be subject to such performance conditions as may be
specified by the Stock Committee. In addition, the Incentive Plan
authorizes specific cash incentive awards, which represent a conditional
right to receive cash upon achievement of preestablished performance goals
during calendar years, quarters or other periods specified by the Stock
Committee. Performance awards and cash incentive awards granted to persons
the Stock Committee expects will, for the year in which a deduction arises,
be among the Named Executive Officers, will, if so intended by the Stock
Committee, be subject to provisions that should qualify such awards as
"performance-based compensation" not subject to the limitation on tax
deductibility by the Company under Section 162(m). The performance goals to be
achieved as a condition for payment or settlement of a performance award or
annual incentive award will consist of (i) one or more business criteria and
(ii) a targeted level or levels of performance with respect to each business
criteria. In the case of performance awards intended to meet the requirements of
Section 162(m), the business criteria used must be one of those specified in the
Incentive Plan, although for other participants, the Stock Committee may specify
any other criteria. The business criteria specified in the Incentive Plan are:
(1) total stockholder return; (2) such total stockholder return as compared to
total return (on a comparable basis) of a publicly available index such as, but
not limited to, the Standard & Poor's 500 or The Nasdaq Stock Market-U.S. Index;
(3) net income; (4) pre-tax earnings; (5) earnings before interest, depreciation
and amortization; (6) pre-tax operating earnings after interest expense and
before bonuses, service fees and extraordinary or special items; (7) operating
margin; (8) earnings per share; (9) return on equity; (10) return on capital;
(11) return on investment; (12) operating income before payment of executive
bonuses; and (13) working capital.
In granting cash incentive awards, the Stock Committee may grant awards on
an individual basis or may establish an unfunded cash incentive award
"pool." In either case, the amount of which will be based upon the
achievement of a performance goal or goals based on one or more of the
business criteria described in the preceding paragraph. During the period
required by Section 162(m), the Stock Committee will determine who will
potentially receive cash incentive awards for the specified performance
period, either individually or out of the pool or otherwise. After the end
of the specified performance period, the Stock Committee will determine the
amount, if any, of the maximum amount of any potential individual cash
incentive award payable to a participant or the maximum amount of potential
cash incentive awards payable to each participant in the pool. Pursuant to
the amendment and restatement proposed hereby, the maximum cash incentive
award payable to any one participant in any fiscal year shall not exceed
10.0% of the Company's operating income before payment of executive bonuses
for such fiscal year. The Stock Committee may, in its discretion, determine
that the amount payable as a final cash incentive award will be increased
or reduced from the amount of any potential award, but may not exercise
discretion to increase any such amount intended to qualify under Section
162(m).
<PAGE>
Subject to the requirements of the Incentive Plan, the Stock Committee will
determine other performance award and cash incentive award terms, including
the required levels of performance with respect to the business criteria,
the corresponding amounts payable upon achievement of such levels of
performance, termination and forfeiture provisions and the form of
settlement. All determinations by the Stock Committee relating to
performance awards and cash incentive awards will be made in writing with
respect to any award intended to qualify under Section 162(m).
Other Terms of Awards. Awards may be settled in the form of cash, shares,
other awards or other property, in the discretion of the Stock Committee.
The Stock Committee may accelerate the settlement of any award. The Stock
Committee may also require or permit participants to defer the settlement
of all or part of an award in accordance with such terms and conditions as
the Stock Committee may establish, including payment or crediting of
interest or dividend equivalents on deferred amounts, and the crediting of
earnings, gains and losses based on deemed investment of deferred amounts
in specified investment vehicles. The Stock Committee is authorized to
place cash, shares of Common Stock or other property in trusts or make
other arrangements to provide for payment of the Company's obligations
under the Incentive Plan. The Stock Committee may condition any payment
relating to an award on the withholding of taxes and may provide that a
portion of any shares of Common Stock or other property to be distributed
will be withheld (or previously acquired shares of Common Stock or other
property surrendered by the participant) to satisfy withholding and other
tax obligations. Awards granted under the Incentive Plan generally may not
be pledged or otherwise encumbered and are not transferable except by will
or by the laws of descent and distribution, or to a designated beneficiary
upon the participant's death.
Changes in Control
Upon the occurrence of a Change in Control (as hereinafter defined), the
following shall occur: (i) all unexercised stock options and SARs shall
become immediately exercisable, (ii) all restrictions on the Restricted
Stock and deferral limitations on the Deferred Stock shall lapse, and (iii)
the performance goals and other conditions with respect to any outstanding
performance award or cash incentive award shall be deemed satisfied in
full, and such award shall be fully distributable, to the extent provided
by the Stock Committee in an award agreement or otherwise. In addition,
unless the Stock Committee provides otherwise in an option agreement, after
the Change in Control a participant shall have the right to surrender all
or part of the outstanding awards and receive in cash from the Company the
following amount for each award: (i) the excess of the Change in Control
Price over the exercise price of the award, multiplied by (ii) the number
of shares of Common Stock subject to the award. The "Change in Control
Price" is the higher of (i) the highest reported sales price of a share of
Common Stock in any transaction reported on the principal exchange on which
such shares are listed or on The Nasdaq National Market during the 60-day
period prior to and including the Change of Control, or (ii) if the Change
in Control event is a tender offer, merger or other reorganization, the
highest price to be paid per share of Common Stock in such transaction.
For purposes of the Incentive Plan, a "Change in Control" shall be deemed
to have occurred if (i) any corporation, person or other entity (other than
<PAGE>
the Company, a majority-owned subsidiary of the Company or any of its
subsidiaries, or an employee benefit plan (or related trust) sponsored or
maintained by the Company), including a "group" as defined in Section
13(d)(3) of the 1934 Act, becomes the beneficial owner of stock
representing more than the greater of (a) 50% of the combined voting power
of the Company's then outstanding securities or (b) the percentage of the
combined voting power of the Company's then outstanding securities which
equals (1) 10% plus (2) the percentage of the combined voting power of the
Company's outstanding securities held by such corporation, person or entity
on the effective date of the Incentive Plan; (ii)(a) the Stockholders of
the Company approve a definitive agreement to merge or consolidate the
Company with or into another corporation other than a majority-owned
subsidiary of the Company, or to sell or otherwise dispose of all or
substantially all of the Company's assets, and (b) the persons who were the
members of the Board of Directors of the Company prior to such approval do
not represent a majority of the directors of the surviving, resulting or
acquiring entity or the parent thereof; (iii) the Stockholders of the
Company approve a plan of liquidation of the Company; or (iv) within any
period of 24 consecutive months, persons who were members of the Board of
Directors of the Company immediately prior to such 24-month period,
together with any persons who were first elected as directors (other than
as a result of any settlement of a proxy or consent solicitation contest or
any action taken to avoid such a contest) during such 24-month period by or
upon the recommendation of persons who were members of the Board of
Directors of the Company immediately prior to such 24-month period and who
constituted a majority of the Board of Directors of the Company at the time
of such election, cease to constitute a majority of the Board.
Discussion of Federal Income Tax Consequences
The following summary of Federal income tax consequences with respect to
awards under the Incentive Plan is not comprehensive and is based upon laws
and regulations currently in effect. Such laws and regulations are subject
to change.
Stock Options. There are generally no Federal income tax consequences
either to the participant or to the Company upon the grant of a stock
option. On exercise of an incentive stock option, the participant will not
recognize any income and the Company will not be entitled to a deduction
for tax purposes, although such exercise may give rise to liability for the
participant under the alternative minimum tax provisions of the Code.
Generally, if the participant disposes of shares acquired upon exercise of
an incentive stock option within two years of the date of grant or one year
of the date of exercise, the participant will recognize compensation income
and the Company will be entitled to a deduction for tax purposes in the
amount of the excess of the fair market value of the shares on the date of
exercise over the option exercise price (or the gain on sale, if less).
Otherwise, the Company will not be entitled to any deduction for tax
purposes upon disposition of such shares, and the entire gain for the
participant will be treated as a capital gain. On exercise of a
non-qualified stock option, the amount by which the fair market value of
the shares on the date of exercise exceeds the option exercise price (the
"spread") will generally be taxable to the participant as compensation
income and will generally be deductible for tax purposes by the Company. In
<PAGE>
determining the amount of the spread or the amount of consideration paid to
the participant, the fair market value of the Common Stock on the date of
exercise generally is used. However, in the case of a 16(b) Person, the
fair market value will be determined six months after the date on which the
option was granted if such date is later than the exercise date, unless
such participant elects to be taxed based on the fair market value at the
date of exercise. Any such election, a "Section 83(b) Election", must be
made and filed with the IRS within 30 days after exercise in accordance
with the regulations under Section 83(b) of the Code. The Company, in
computing its Federal income tax, will be entitled to a deduction in an
amount equal to the compensation taxable to the participant.
Stock Appreciation Rights. Upon the grant of a SAR, the participant will
not recognize any taxable income and the Company will not be entitled to a
deduction. Upon the exercise of a SAR, the consideration paid to the
participant upon exercise of the SAR will constitute compensation taxable
to the participant as ordinary income. In determining the amount of the
consideration paid to the participant upon the exercise of a SAR for Common
Stock, the fair market value of the shares on the date of exercise
generally is used. However, in the case of a 16(b) Person, the fair market
value will be determined six months after the date on which the SAR was
granted if such date is later than the exercise date, unless such
participant makes a Section 83(b) Election to be taxed based on the fair
market value at the date of exercise. The Company, in computing its Federal
income tax, generally will be entitled to a deduction in an amount equal to
the compensation taxable to the participant.
Other Awards. With respect to awards granted under the Incentive Plan that
result in the payment or issuance of cash or shares of Common Stock or other
property that is either not restricted as to transferability or not subject
to a substantial risk of forfeiture, the participant must generally
recognize ordinary income equal to the cash or the fair market value of
shares or other property received. Thus, deferral of the time of payment or
issuance will generally result in the deferral of the time at which the
participant will be liable for income taxes with respect to such payment or
issuance. The Company generally will be entitled to a deduction in an
amount equal to the ordinary income received by the participant. With
respect to awards involving the issuance of shares of Common Stock or other
property that is restricted as to transferability and subject to a
substantial risk of forfeiture, the participant must generally recognize
ordinary income equal to the fair market value of the shares or other
property received at the first time the shares or other property becomes
transferable or not subject to a substantial risk of forfeiture, whichever
occurs earlier. The Company will be entitled to a deduction in an amount
equal to the ordinary income received by the participant. A participant may
make a Section 83(b) Election to be taxed at the time of receipt of shares
or other property rather than upon lapse of restrictions on transferability
or the substantial risk of forfeiture. However, if the participant
subsequently forfeits such shares or property, such participant would not
be entitled to any tax deduction, including as a capital loss, for the
value of the shares or property on which such participant previously paid
tax. The participant must file the Section 83(b) Election with the Internal
Revenue Service within 30 days of the receipt of the shares or other
property.
<PAGE>
Section 162(m) of the Code. Section 162(m) of the Code generally disallows
a public company's tax deduction for compensation to the Named Executive
Officers in excess of $1,000,000 in any tax year. Compensation that
qualifies as "performance-based compensation" is excluded from the
$1,000,000 deductibility cap, and therefore remains fully deductible by the
company that pays it.
The Company intends that options, SARs granted with an exercise price equal
to at least 100% of fair market value of the underlying shares at the date
of grant, and annual incentive awards and certain long-term
performance-based awards granted to employees whom the Stock Committee
expects to be Named Executive Officers at the time a deduction arises in
connection with such awards, qualify as "performance-based compensation."
Accordingly, such awards should not be subject to the Section 162(m)
deductibility cap of $1,000,000. Other awards may be granted under the
Incentive Plan which do not qualify as "performance-based compensation"
that is fully deductible by the Company under Section 162(m), so that
compensation paid to persons who are Named Executive Officers in connection
with such awards will, to the extent such compensation and other
compensation subject to the Section 162(m) deductibility cap in a given
year exceeds $1,000,000, be subject to the Section 162(m) deductibility cap.
Parachute Payments. In the event any payments or rights accruing to a
participant upon a Change in Control, or any other payments awarded or
accelerated under the Incentive Plan, constitute "parachute payments" under
Section 280G of the Code, depending upon the amount of such payments
accruing and the other income of the participant from the Company, the
participant may be subject to a 20% excise tax (in addition to ordinary
income tax) and the Company may be disallowed a deduction for the amount of
any excess parachute payment.
The Board of Directors recommends that Stockholders vote FOR approval of
the amendment to the Company's Employee Incentive Compensation Plan.
PROPOSAL 3 . APPOINTMENT OF INDEPENDENT AUDITORS
Arthur Andersen LLP has been appointed by the Company's Board of Directors to
serve as the independent auditors for the Company and its subsidiaries for the
fiscal year ending January 31, 2000. The appointment is being submitted to the
Stockholders for ratification. Representatives of Arthur Andersen LLP are
expected to be present at the Annual Meeting to respond to Stockholders'
questions and to have the opportunity to make any statements they consider
appropriate.
In April 1998 and March 1999, the Audit Committee met, reviewed and approved the
scope of Arthur Andersen LLP's professional services rendered to the Company.
Arthur Andersen LLP has acted as auditors for the Company since April 1996.
The Board of Directors recommends a vote FOR the appointment of Arthur Andersen
LLP as the independent auditors for fiscal year ending January 31, 2000. In view
of the difficulty and expense involved in changing independent accountants on
short notice, if the appointment is not approved, it is contemplated that the
appointment for fiscal 2000 will be permitted to stand unless the Board finds
other compelling reasons for making a change.
<PAGE>
Disapproval of the resolution will be considered as advice to the Board to
select other independent accountants for the following year.
PROPOSAL 4 . OTHER MATTERS
The Board of Directors does not intend to bring any other business before the
Meeting, and so far as is known to the Board, no matters are to be brought
before the Meeting except as specified in the Notice of the Meeting. However, as
to any other business which may properly come before the Meeting, it is intended
that proxies, in the form enclosed, will be voted in respect thereof in
accordance with the judgment of the person voting such proxies.
Stockholder Proposals for the 2000 Annual Meeting
Stockholders may submit proposals for Stockholder action at the Company's Annual
Meeting consistent with the regulations of the Securities and Exchange
Commission. It is expected that the 2000 Annual Meeting of the Company will be
held in June 2000. Stockholders who intend to present proposals at the 2000
Annual Meeting, and who wish to have such proposals included in the Company's
Proxy Statement for the 2000 Annual Meeting, must ensure that such proposals are
received by the Corporate Secretary of the Company at 22 West Hubbard Street,
Chicago, Illinois 60610, not less than 60 nor more than 90 days prior to May 14,
2000. Such proposals must meet the requirements set forth in the rules and
regulations of the Securities and Exchange Commission in order to be eligible
for inclusion in the Company's 2000 Proxy Statement. The Company will furnish
without charge to each person whose proxy is solicited, and to each person
representing that as of the record date for the Annual Meeting he or she was a
beneficial of owner of shares entitled to be voted at the Annual Meeting, on
written request, a copy of the Company's 1999 Annual Report to Stockholders and
Annual Report on Form 10-K, including the financial statements and schedules
included therein. Such written request should be directed to Leapnet, Inc.,
Attention: Investor Relations, 22 West Hubbard Street, Chicago, Illinois 60610.
<PAGE>
Please mark your 8598
[X] votes as in this
example.
This proxy when properly executed will be voted as directed. If no
direction is specified this Proxy will be voted as recommended by the Board of
Directors.
The Board of Directors recommends a vote FOR the Nominees listed below and FOR
Proposals 2 and 3.
FOR WITHHELD
1. Election of Directors [_] [_] Class II Nominees:
Gregory J. Garville
Charles J. Ruder
For, except vote withheld from the following nominee(s):
- -------------------------------------------------------
FOR AGAINST ABSTAIN
2. Amendment of Company's Employee [_] [_] [_]
Incentive Compensation Plan to
increase the number of shares of
Common Stock available for issuance
thereunder
3. Ratification of the Appointment of [_] [_] [_]
Arthur Andersen LLP as independent
auditors
In their discretion, the persons named in the enclosed form of Proxy and acting
thereunder are authorized to vote on such other matters as may properly come
before the Meeting, including, among other things, consideration of a motion to
adjourn the Annual Meeting to another time or place. The persons named in the
enclosed form of Proxy and acting thereunder will have discretion to vote for
those matters in accordance with their best judgment to the same extent as the
person signing the Proxy would be entitled to vote. The Company does not
currently anticipate that any other matters will be raised at the Annual
Meeting.
YES NO
I WILL BE ATTENDING THE ANNUAL MEETING TO BE HELD [_] [_]
ON JUNE 15, 1999
SIGNATURE(S)__________________________ DATE ________ The signatory hereby
acknowledges receipt of
Please sign exactly as your name appears. the accompanying Notice
Joint owners should each sign. Where of Annual Meeting of
applicable, indicate your official Stockholders and Proxy
position or representation capacity. Statement.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
IMPORTANT: THIS IS YOUR PROXY CARD: CAREFULLY FOLD AND TEAR ALONG PERFORATION.
PLEASE SIGN AND RETURN THIS PROXY CARD
PROMPTLY IN THE ENCLOSED ENVELOPE
LEAPNET INC.
To Our Stockholders:
Whether or not you are able to attend the Annual Meeting of Stockholders, it is
important that your shares be represented. Accordingly, please complete and sign
the Proxy Voting Card printed above, tear at the perforation, and mail the card
in the enclosed postage-paid envelope addressed to Leapnet, Inc., c/o First
Chicago Trust Company, a division of EquiServe.
<PAGE>
LEAPNET INC.
Proxy solicited on behalf of the Board of Directors
The signatory hereby appoints Robert C. Bramlette, or his substitutes with full
power of substitution, as attorney and proxy to vote all shares of common stock
which the signatory is entitled to vote, with all powers which the signatory
would possess if personally present, at the Annual Meeting of Stockholders of
Leapnet, Inc. (and any adjournment thereof) to be held at the 410 Club and
Conference Center, The Wrigley Building, 410 N. Michigan Avenue, Chicago,
Illinois, 60611, on June 15, 1999 at 9:00 a.m., upon the matters referred to on
the reverse side and, in his discretion, upon such other matters as may properly
come before the Meeting.
This Proxy when properly executed will be voted as directed. If no direction is
specified this Proxy will be voted FOR election of the Nominees to the Board of
Directors, FOR amendment of the Company's Employee Incentive Compensation, and
FOR ratification of Arthur Andersen LLP as independent auditors. PLEASE VOTE,
SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
.FOLD AND DETACH HERE.
Annual
Meeting of
Stockholders
Admission Ticket Tuesday, June 15, 1999
9:00 a.m. Chicago Time
LEAPNET INC. The 410 Club and
Conference Center
The Wrigley Building,
410 N. Michigan Avenue, 1st Floor
Chicago, Illinois
PLEASE PRESENT THIS ORIGINAL FOR ADMISSION.
PHOTOCOPIES WILL NOT BE ACCEPTED.
YOU MAY BE ASKED FOR IDENTIFICATION
AT THE TIME OF ADMISSION.
