<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------- --------------
Commission File Number 000-26451
PRO NET LINK CORP.
Incorporated in the IRS Employer Identification
State of Nevada Number 88-0333454
----------
645 Fifth Avenue
New York, New York 10022
(212) 688-8838
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Registrant had 51,378,070 shares of common stock outstanding as of
March 31, 2000.
- --------------------------------------------------------------------------------
This report consists of 17 pages
<PAGE> 2
PRO NET LINK CORP.
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements (Unaudited) Page No.
--------
<S> <C>
Condensed Statements of Operations - Nine and
Three Months ended March 31, 2000 and 1999 3-4
Condensed Balance Sheets - as of
March 31, 2000 and June 30, 1999 5
Condensed Statements of Cash Flows -
Nine Months Ended March 31, 2000
and 1999 6-7
Notes to Condensed Financial Statements 8-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10-15
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds 16
Item 6. Exhibits and Reports on Form 8K 16
SIGNATURES 17
</TABLE>
<PAGE> 3
Item 1. FINANCIAL STATEMENTS
PRO NET LINK CORP.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
==============================================
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
2000 1999
---------- ----------
<S> <C> <C>
Revenue
Membership $ 7,071 $ 13,199
Barter 1,040,000 -
Advertising 44,745 -
---------- ----------
Total revenue 1,091,816 13,199
---------- ----------
Expenses
Barter expenses 1,040,000 -
Website development 312,569 244,582
Commission 136,250 37,125
Selling, general and administrative 1,699,765 741,571
Non-cash compensation expense 1,020,213 -
Depreciation 37,428 11,972
Interest expense (net) 15,220 16,727
---------- ----------
Total expenses 4,261,445 1,051,977
---------- ----------
Net loss ($3,169,629) ($1,038,778)
========== ==========
Basic loss per share of common stock ($ .06) ($ .02)
========== ==========
Weighted average common shares outstanding 50,663,100 42,151,309
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
-3-
<PAGE> 4
PRO NET LINK CORP.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
==============================================
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
---------- ----------
<S> <C> <C>
Revenue
Membership $ 2,935 $ -
Barter 418,000 -
Advertising 21,745 -
---------- ----------
Total revenues 442,680 -
---------- ----------
Expenses
Barter expenses 418,000 -
Website development 51,348 48,486
Commission 27,375 5,310
Selling, general and administrative 668,092 283,236
Non-cash compensation expense 340,071 -
Depreciation 12,933 2,285
Interest expense (net) 2,967 528
---------- ----------
Total expenses 1,520,786 339,845
---------- ----------
Net loss ($1,078,106) ($ 339,845)
========== ==========
Basic loss per share of common stock ($ .02) ($ .01)
========== ==========
Weighted average common shares outstanding 51,065,882 45,478,904
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
-4-
<PAGE> 5
PRO NET LINK CORP.
CONDENSED BALANCE SHEETS
========================
<TABLE>
<CAPTION>
ASSETS
------
March 31, June 30,
2000 1999 *
------------- -----------
Unaudited
<S> <C> <C>
Current assets
Cash $ 385,786 $ 285,259
Accounts receivable 24,450 -
Prepaid expenses 18,829 104,912
------------ -----------
Total current assets 429,065 390,171
Fixed assets, net of accumulated depreciation
of $60,176 at March 31, 2000 and
$22,748 at June 30, 1999 320,912 113,985
Other assets 48,667 144,385
------------ -----------
Total assets $ 798,644 $ 648,541
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable and accrued expenses $ 125,472 $ 396,664
Deferred income 33,480 42,325
Notes payable - shareholder 3,520 3,520
------------ -----------
Total current liabilities 162,472 442,509
------------ -----------
Shareholders' equity
Common stock $.001 par value, 150,000,000 shares authorized; issued 51,378,070
shares at March 31, 2000 and 50,068,570 shares at
June 30, 1999 51,379 50,069
Common stock to be issued; 800,000 shares at
June 30, 1999 - 800
Additional paid-in capital 7,620,627 5,221,368
Deficit ( 7,035,834) ( 3,866,205)
Stock subscriptions receivable - ( 1,200,000)
------------ -----------
Total shareholders' equity 636,172 206,032
------------ -----------
Total liabilities and shareholders'
equity $ 798,644 $ 648,541
============ ===========
</TABLE>
* Derived from the audited financial statements as of June 30, 1999
The accompanying notes are an integral part of these financial statements
-5-
<PAGE> 6
PRO NET LINK CORP.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
==============================================
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
2000 1999
----------- ----------
<S> <C> <C>
Cash flows from operating activities
Net loss ($3,169,629) ($1,038,778)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 37,428 11,972
Amortization of deferred rental income ( 8,845) ( 5,388)
Stock issued for services 79,558
Non-cash compensation 1,020,213 -
Changes in assets and liabilities
Increase in accounts receivable ( 24,450) -
Decrease in prepaid expenses 86,083 9,839
Decrease in other assets 95,718 -
(Decrease) in accounts payable and
accrued expenses ( 271,194) ( 13,695)
---------- ----------
Net cash used in operating activities ( 2,155,118) ( 1,036,050)
---------- ----------
Cash flows from investing activities
Purchase of fixed assets ( 244,355) ( 66,906)
---------- ----------
Net cash used in investing activities ( 244,355) ( 66,906)
---------- ----------
Cash flows from financing activities
Proceeds from sale of common stock 2,500,000 1,680,000
Repayment of notes payable to others - ( 126,956)
---------- ----------
Net cash provided by financing activities 2,500,000 1,553,044
---------- ----------
Net increase in cash and cash equivalents 100,527 450,088
Cash - beginning of period 285,259 258,139
---------- ----------
Cash - end of period $ 385,786 $ 708,227
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
-6-
<PAGE> 7
PRO NET LINK CORP.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
==============================================
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
2000 1999
-------- --------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest $ 15,220 $ 20,281
======== ========
Supplemental schedule of non cash financing and investing activities:
Barter sales in exchange for website and
marketing expenses $1,040,000 $ -
========== ========
Stock options issued in conjunction with
consulting agreement - non-cash
compensation $1,020,213 $ -
========== ========
Issuance of stock for services $ 79,558 $
Debt converted to common stock $ - $443,814
========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
-7-
<PAGE> 8
PRO NET LINK CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
Note - 1 Interim Financial Statements.
The interim financial statements of Pro Net Link Corp. (the
"Company" or "Pro Net Link") have been prepared in accordance
with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all
information and disclosures necessary for a presentation of
the Company's financial position, results of operations and
cash flows in conformity with generally accepted accounting
principles. In the opinion of management, these financial
statements reflect all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation of the
Company's financial position, results of operations and cash
flows for the periods presented. The results of operations
for any interim periods are not necessarily indicative of the
results for the full year.
Note - 2 (Loss) per Common Share:
The reconciliation of basic and diluted (loss) per common
share computation is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
2000 1999
----------- ----------
<S> <C> <C>
Net (loss) available for common
stock equivalent shares
deemed to have a dilutive effect ($3,169,629) ($1,038,778)
========== ==========
(Loss) per common share
Basic ($ .06) ($ .02)
========== ==========
Diluted ($ .06) ($ .02)
========== ==========
Shares used in computation:
Basic:
Weighted average common shares 50,663,100 42,151,309
========== ==========
Diluted:
Weighted average common shares
Common stock equivalents (1) (1)
---------- ----------
50,663,100 42,151,309
========== ==========
</TABLE>
-8-
<PAGE> 9
PRO NET LINK CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
---------- ----------
<S> <C> <C>
Net (loss) available for common
stock equivalent shares
deemed to have a dilutive effect ($1,078,106) ($ 339,845)
========== ==========
(Loss) per common share
Basic ($ .02) ($ .01)
========== ==========
Diluted ($ .02) ($ .01)
========== ==========
Shares used in computation:
Basic:
Weighted average common shares 51,065,882 45,478,904
========== ==========
Diluted:
Weighted average common shares
Common stock equivalents (1) (1)
---------- ----------
51,065,882 45,478,904
========== ==========
</TABLE>
(1) For the nine and three months ended March 31, 2000
and the nine and three months ended March 31, 1999
the effect of exercising the outstanding stock
options would have been anti-dilutive and, therefore,
the use of common stock equivalent shares was not
considered.
Note - 3 Related Party Agreements.
On February 19, 2000, the Company renewed the consulting
agreement with Zagoren-Zozzora, Inc. ("ZZI"), under which ZZI
provides on-going marketing and business functions to Pro Net
Link, including the development of marketing plans, general
business consultation, supervision of marketing tools and the
investigation and recommendation of strategic alliances and
other business opportunities. Glenn Zagoren, the President of
ZZI, currently serves as Chairman of the Board of Directors
of Pro Net Link, and spends substantially all of his time in
such capacity. The renewed consulting agreement which expires
in February 2001 provides that ZZI be paid $14,000 per month
by Pro Net Link for its services. For the nine months ended
March 31, 2000 Pro Net Link paid ZZI $94,000. In addition,
the Company recognized $1,020,213 of non-cash compensation
expense related to options granted to Mr. Zagoren during the
prior fiscal year.
Note - 4 Sales and Issuance of Securities.
During the nine months ended March 31, 2000, the Company sold
360,000 shares of Common Stock at $2.50 per share and 100,000
shares of Common Stock at $4.00 per share for an aggregate of
$1,300,000. In addition, the Company issued 49,501 shares of
Common Stock for the payment of $79,558 in services.
Note - 5 Stock Option Plan.
In February 2000, the Board of Directors of the Company
approved the Company's 2000 Stock Option Plan, which provides
for grants of incentive and non-statutory stock options and
grants of stock for up to 3,000,000 shares of Common Stock,
to key employees of the Company and to directors,
consultants, and other individuals and entities providing
services to the Company.
-9-
<PAGE> 10
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================
Results of Operations
- ---------------------
Overview
- --------
Pro Net Link is a startup corporation with a limited operating history, formed
in July 1997. Pro Net Link has recently completed its development and testing
stages of operations, having launched the current and most advanced operational
version of its website, the Global Trade Internetwork. Operating expenses have
increased significantly since inception, reflecting the costs associated with
the formation of Pro Net Link, the building of operating infrastructure, product
development, solicitation of new members and the promotion of product awareness.
Pro Net Link has a limited operating history on which to base an evaluation of
its business and prospects. Pro Net Link's prospects must be considered in light
of the risks frequently encountered by companies in their early stages of
development, particularly for companies in the rapidly evolving technology
industry. Certain risks for Pro Net Link include, but are not limited to, having
an unproven business model, capital requirements and growth management. To
address these risks, Pro Net Link must, among other things, successfully
continue to develop and execute its business and marketing plan, continue to
expand and otherwise improve its website and increase the operating
infrastructure. There can be no assurances that Pro Net Link will be successful
in addressing its risks, and the failure to do so could prevent us from ever
generating a profit. Since inception, Pro Net Link has incurred significant
losses, and as of March 31, 2000, had an accumulated deficit of approximately
$7,036,000.
Pro Net Link believes that its success depends, in large part, on its ability to
create market awareness and acceptance for its products, raise additional
operating capital to grow operations, build technology and non technology
infrastructures and continue product research and development.
-10-
<PAGE> 11
PRO NET LINK CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================
Nine Months Ended March 31, 2000 and March 31, 1999
- ---------------------------------------------------
Revenue
- -------
The Company's revenue increased from $13,199 for the nine month period ended
March 31, 1999 to $1,091,816 for the six month period ended March 31, 2000.
95.3% of the revenue in the latter period occurred as a result of Pro Net Link's
bartering transactions with approximately thirteen companies in exchange for
website development and marketing expenses. Such revenue increase also resulted
from increases in advertising revenues from $-0- in 1999 to $44,745 in the
latter period. Such revenue increase offsets a decrease in cash revenues from
membership fees from $13,199 to $7,071 in such periods. This reduction was the
result of the Company's gradual modification of its fee structure which
currently emphasizes streams of income other than membership fees.
As of March 31, 2000, Pro Net Link had over 6,700 registered members from
approximately 116 countries (of which 27 were subscription paying members and
42 were members who had previously paid subscriptions fees (and for whom the
Company waived further payment)). As of March 31, 1999, Pro Net Link had
approximately 830 registered members (of which 42 were subscription paying
members).
For much of the period beginning from the Company's inception in July 1997 to
the fiscal year ending June 30, 1999, the Company had been designing, developing
and marketing its Web site. The Company believes that the increases in its
revenue are generally the result of its transition to its revenue generation
stage, which has provided the Company with opportunities to generate revenues in
cash and in bartering transactions.
Expenses
- --------
Total expenses, excluding non-cash compensation expense of $1,020,213, increased
from $1,051,977 for the nine month period ended March 31, 1999 to $3,241,232 for
the nine month period ended March 31, 2000. Additionally, the expenses during
this period include a non-cash compensation expense of $1,020,213 which is the
fair market value of options issued with respect to consulting services being
provided by a company whose president is also the Chairman of the Company.
Bartering transactions resulted in $1,040,00 of expenses related to marketing
and website development. General and administrative expenses increased by
approximately $958,000 due to an increase of $638,000 in payroll and payroll
taxes for new employees, an increase in insurance costs of $53,000, an increase
in marketing expenses of $132,000, and an increase in shareholder expenses of
$56,000, with smaller increases in other expenses. Website development expense
increased by approximately $68,000 and commissions increased by approximately
$99,000.
-11-
<PAGE> 12
PRO NET LINK CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================
Three Months Ended March 31, 2000 and March 31, 1999
- ----------------------------------------------------
Revenue
- -------
The Company's revenue increased from $-0- for the three month period ended March
31, 1999 to $442,680 for the three month period ended March 31, 2000. 94.4% of
the revenue in 2000 occurred as a result of Pro Net Link's bartering
transactions with approximately thirteen companies in exchange for website
development and marketing expenses. Such revenue increases also resulted from
increases in advertising revenues from $- 0- in 1999 to $21,745 in 2000.
As noted above, the Company believes that the increases in its revenue are
generally the result of its transition to its revenue generation stage, which
has provided the Company with opportunities to generate revenues in cash and in
bartering transactions.
Expenses
- --------
Total expenses, excluding non-cash compensation expense of $340,071, increased
from $339,845 for the three month period ended March 31, 1999 to $1,180,715 for
the three month period ended March 31, 2000. Additionally, the expenses during
this period include a non-cash compensation expense of $340,071 which is the
fair market value of options issued with respect to consulting services being
provided by a company whose president is also the Chairman of the Company.
Bartering transactions resulted in $418,000 of expenses related to marketing and
Web site development. Commissions increased by approximately $22,065, and Web
site development expenses increased by approximately $3,000. General and
administrative expenses increased by approximately $385,000 principally due to
an increase of $302,000 in payroll and payroll taxes for new employees and
increases in professional fees of approximately $93,000, which offset a net
decrease in other expenses of $11,000.
-12-
<PAGE> 13
PRO NET LINK CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================
Liquidity and Capital Resources
- -------------------------------
Pro Net Link has used cash in its operating and investing activities in varying
amounts since the inception of its business in July 1997. For the nine months
ended March 31, 2000, net cash used in operating activities was $2,155,118 and
net cash used in investing activities was $244,355. Net cash provided by
financing activities was $2,500,000 which was principally from the proceeds of
the issuance of equity of the Company. At March 31, 2000, the Company had a cash
balance of $385,786.
At March 31, 2000 there was $500,000 available to the Company under its
revolving credit facility.
Historically, most of the Company's liquidity has been provided by private
placement of equity securities which reached approximately $5.2 million,
cumulatively, from the date of Pro Net Link's inception through March 31, 2000.
The substantial capital investments required to initiate Pro Net Link's services
and the funding of its initial operations has resulted in negative operating
cash flow in all periods since its inception. We currently estimate our cash
requirements for the next 12 months, which includes cash to fund our expansion
activities associated with the development of our markets, to equal
approximately $250,000 per month. As a result, Pro Net Link expects to continue
to have negative operating cash flow throughout 2000. Although we have no
material commitments during the next 12 months or beyond, Pro Net Link expects
that it will continue to have substantial capital requirements in connection
with the continued development, implementation and marketing of its products and
services. There can be no assurances that Pro Net Link will attain break-even
cash flow in any future fiscal periods.
However, we believe the trend for cash flows for Pro Net Link is positive. Due
to our transition from our development stage to the implementation of our
selling phase with the launch of the current version of our website in April of
1999, we have begun to generate more significant revenues. Since that time, Pro
Net Link's activities have included the launch of its Internet trade news
facility known as PNL-TV, whose programming includes paid advertising, and the
hiring of additional sales professionals. Pro Net Link believes that its
revenues will increase as it continues to implement its business plan. Pro Net
Link believes that these revenues will meet some of its capital requirements.
-13-
<PAGE> 14
PRO NET LINK CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================
Until sufficient cash flow is generated, Pro Net Link will be required to
utilize its revenues and current and future capital resources to meet all of its
cash flow requirements in the next 12 months and beyond. Pro Net Link's most
significant source of capital resources is currently its revolving credit
facility, which is secured by a standby letter of credit, and which provides a
$500,000 line of credit at terms which include an interest rate of 1% over the
lender's base rate. To the extent the revolving credit facility is insufficient
to meet its capital requirements at any time during the next twelve months and
beyond, the Company will be required to issue additional debt and/or equity
securities or secure additional credit facilities.
Quantitative and Qualitative Disclosure About Market Risk
- ---------------------------------------------------------
Since indebtedness under our revolving credit facility bears floating interest
rates, we run the risk that our cost of capital under the facility will
fluctuate based on changes in interest rates. Under our current risk management
policies, we do not use interest rate derivative instruments to manage our
exposure to interest rate changes.
-14-
<PAGE> 15
PRO NET LINK CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================
Information Regarding Forward-Looking Statements
- ------------------------------------------------
The information set forth above in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" includes forward-looking
statements that involve numerous risks and uncertainties including, but not
limited to, the demand for the Company's services and the ability of the
Company to successfully implement its strategies, each of which may be impacted,
among other things, by economic and competitive or technological conditions.
Forward-looking statements can be identified by use of forward-looking
terminology such as "estimates", "projects," "anticipates," "expects,"
"intends," "believes," or the negative thereof or other variations thereon or
comparable terminology or by discussions of strategy that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in such forward-looking statements contained in this report. The
Company undertakes no obligation to publish the results of any adjustments to
these forward-looking statements that may be made to reflect events on or after
the date of this report or to reflect the occurrence of unexpected events.
-15-
<PAGE> 16
PART II - OTHER INFORMATION
===========================
Item 2. Changes in Securities and Use of Proceeds
SALES OF UNREGISTERED SECURITIES. On February 2, 2000, the Company sold
150,000 shares of Common Stock at a purchase price of $2.50 per share. On
February 17, 2000, the Company sold an aggregate of 210,000 shares of Common
Stock at a purchase price of $2.50 per share. On March 4, 2000, the Company
sold 100,000 shares of Common Stock at a purchase price of $4.00 per share. The
proceeds of the sales of these securities was used for working capital. The
securities sold were issued only to accredited investors in reliance on an
exemption from registration contained in Section 4(2) of the Securities Act, as
amended (the "Securities Act") and were transactions not involving a public
offering within the meaning of the Securities Act.
In addition, in February 2000, the Company issued 49,501 shares of Common
Stock for the payment of $79,558 in services.
ADOPTION OF STOCK OPTION PLAN. In February 2000, the Board of Directors of
the Company approved the Company's 2000 Stock Option Plan, which provides for
grants of incentive and non-statutory stock options and grants of stock for up
to 3,000,000 shares of Common Stock, to key employees of the Company and to
directors, consultants, and other individuals and entities providing services to
the Company. A copy of the 2000 Stock Option Plan is attached hereto as Exhibit
10.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit Index
Number Exhibit
3.1 Amended and Restated Articles of Incorporation of Pro
Net Link. Exhibit 3.1 to the Company's Registration
Statement on Form 10, filed with the Commission on June
21, 1999 (No. 000-26451) is incorporated herein by
reference.
3.2 By-laws of Pro Net Link. Exhibit 3.2 to the Company's
Registration Statement on Form 10, filed with the
Commission on June 21, 1999 (No. 000-26451) is
incorporated herein by reference.
10 2000 Stock Option Plan
27.1 Financial Data Schedule (For SEC Use Only).
b. Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the third
quarter of the registrant's fiscal year ending June 30,
2000
-16-
<PAGE> 17
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report 10Q to be signed on its behalf by the
undersigned thereunto duly authorized.
PRO NET LINK CORP.
(Registrant)
By: /s/ JEAN PIERRE COLLARDEAU
-------------------------
Jean Pierre Collardeau
Chief Executive Officer
Dated: May 15, 2000
-17-
<PAGE> 1
2000 STOCK PLAN
1. PURPOSE. The purpose of this plan (the "Plan") is to secure for Pro Net
Link Corp. (the "Company") and its shareholders the benefits arising from
capital stock ownership by employees, officers and directors of, and consultants
or advisors to, the Company who are expected to contribute to the Company's
future growth and success. Under the Plan recipients may be awarded both (i)
Options (as defined in Section 2.1) to purchase the Company's common stock, par
value $.01 per share ("Common Stock") and (ii) shares of the Company's Common
Stock ("Grant Stock"). Except where the context otherwise requires, the term
"Company" shall include the parent and all future subsidiaries of the Company as
defined in Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as
amended or replaced from time to time (the "Code"). Those provisions of the Plan
which make express reference to Section 422 shall apply only to Incentive Stock
Options (as that term is defined in the Plan).
2. TYPES OF AWARDS AND ADMINISTRATION.
2.1 OPTIONS. Options granted pursuant to the Plan ("Options") shall be
authorized by action of the Board of Directors of the Company and may be either
incentive stock options ("Incentive Stock Options") meeting the requirements of
Section 422 of the Code or non-qualified Options which are not intended to meet
the requirements of Section 422 of the Code. All Options when granted are
intended to be non-qualified Options, unless the applicable Option Agreement (as
defined in Section 5.1) explicitly states that the Option is intended to be an
Incentive Stock Option. If an Option is intended to be an Incentive Stock
Option, and if for any reason such Option (or any portion thereof) shall not
qualify as an Incentive Stock Option, then, to the extent of such
nonqualification, such Option (or portion thereof) shall be regarded as a
non-qualified Option appropriately granted under the Plan provided that such
Option (or portion thereof) otherwise meets the Plan's requirements relating to
non-qualified Options. The vesting of Options may be conditioned upon the
completion of a specified period of employment with the Company and/or such
other conditions or events as the Board may determine.
2.2 GRANT STOCK. Shares of the Grant Stock issued pursuant to the Plan
shall be authorized by the Board of Directors and may be free from restrictions
or may be subject to such conditions and restrictions as the Board may
determine. The vesting of Grant Stock may be conditioned upon the completion of
a specified period of employment with the Company and/or such other conditions
or events as the Board may determine, and any unvested Grant Stock may be made
subject to forfeiture upon termination of employment or the occurrence of other
events.
2.3 ADMINISTRATION. The Plan shall be administered by the Board of
Directors of the Company whose construction and interpretation of the terms and
provisions of the Plan shall be final and conclusive. The Board of Directors may
in its sole discretion issue Grant Stock and grant Options to purchase shares of
Common Stock, and issue shares upon exercise of such Options as provided in the
Plan. The Board shall have authority, subject to the express provisions of the
Plan, to construe the respective Grant Stock Agreements (as defined in Section
5.2), Option Agreements and
<PAGE> 2
the Plan, to prescribe, amend and rescind rules and regulations relating to the
Plan, to determine the terms and provisions of the respective Grant Stock
Agreements and Option Agreements, and to make all other determinations in the
judgment of the Board of Directors necessary or desirable for the administration
of the Plan. The Board of Directors may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any Grant Stock
Agreement or Option Agreement in the manner and to the extent it shall deem
expedient to carry the Plan into effect and it shall be the sole and final judge
of such expediency. No director or person acting pursuant to authority delegated
by the Board of Directors shall be liable for any action or determination under
the Plan made in good faith. The Board of Directors may, to the full extent
permitted by or consistent with applicable laws or regulations (including,
without limitation, applicable state law), delegate any or all of its powers
under the Plan to a committee (the "Committee") appointed by the Board of
Directors, and if the Committee is so appointed all references to the Board of
Directors in the Plan shall meet and relate to such Committee.
3. ELIGIBILITY. Options may be granted, and Grant Stock may be issued, to
persons who are, at the time of such grant or issuance, employees, officers or
directors of, or consultants or advisors to, the Company; provided, that the
class of persons to whom Incentive Stock Options may be granted shall be limited
to employees of the Company.
4. STOCK SUBJECT TO PLAN. Subject to adjustment as provided in Section 14
below, the maximum number of shares of Common Stock of the Company, which may be
issued under the Plan, shall not exceed an aggregate of 3,000,000. If an Option
shall expire or terminate for any reason without having been exercised in full,
the unpurchased shares subject to such Option shall again be available for
subsequent Option or Grant Stock awards under the Plan. If shares of Grant Stock
shall be forfeited to, or otherwise repurchased by, the Company pursuant to a
Grant Stock Agreement, such purchased shares subject to such Grant Stock
Agreement shall again be available for subsequent Option or Grant Stock awards
under the Plan. If shares issued upon exercise of an Option are tendered to the
Company in payment of the exercise price of an Option, such tendered shares
shall again be available for subsequent Option or Grant Stock awards under the
Plan.
5. FORMS OF GRANT STOCK AGREEMENTS AND OPTION AGREEMENTS.
5.1 OPTION AGREEMENT. As a condition to the grant of an Option, each
recipient of an Option shall execute an option agreement ("Option Agreement") in
such form not inconsistent with the Plan as may be approved by the Board of
Directors. Such Option Agreements may differ among recipients.
5.2 GRANT STOCK AGREEMENT. As a condition to the issuance of Grant Stock,
each recipient thereof shall execute an agreement ("Grant Stock Agreement") in
such form not inconsistent with the Plan as may be approved by the Board of
Directors. Such Grant Stock Agreements may differ among recipients and need not
be entitled "Grant Stock Agreements."
5.3 "STAND-OFF" AGREEMENT. Unless the Board of Directors specifies
otherwise, each Grant Stock Agreement and Option Agreement shall provide that
upon the request of the Company or the managing underwriter(s), the holder of
any Option or the purchaser of any Grant Stock shall, in connection with an
initial public offering of the Company's Common Stock, agree in writing that for
a period of time (not to exceed 180 days) from the effective date of the
Securities and Exchange Commission registration statement for such offering, the
holder or purchaser will not sell, make any
2
<PAGE> 3
short sale of, loan, grant any option for the purchase of, or otherwise dispose
of any shares of the Company's Common Stock owned or controlled by him.
6. PURCHASE PRICE.
6.1 GENERAL. The purchase price per share of Grant Stock and per share of
stock deliverable upon the exercise of an Option shall be determined by the
Board of Directors, provided, however, that in the case of an Incentive Stock
Option, the exercise price shall not be less than 100% of the fair market value
of such stock, as determined by the Board of Directors, at the time of grant of
such Option, or less than 110% of such fair market value in the case of Options
described in Section 11.2.
6.2 PAYMENT OF PURCHASE PRICE. Option Agreements may provide for the
payment of the exercise price by delivery of cash or a check to the order of the
Company in an amount equal to the exercise price of such Options, or, to the
extent provided in the applicable Option Agreement, (i) by delivery to the
Company of shares of Common Stock of the Company already owned by the optionee
for a period of six months having a fair market value equal in amount to the
exercise price of the Options being exercised, (ii) by any other means
(including, without limitation, by delivery of a promissory note of the optionee
payable on such terms as are specified by the Board of Directors) which the
Board of Directors determines are consistent with the purpose of the Plan and
with applicable laws and regulations or (iii) by any combination of such methods
of payment. The fair market value of any shares of the Company's Common Stock or
other non-cash consideration, which may be delivered upon exercise of an Option,
shall be determined by the Board of Directors. Grant Stock Agreements may
provide for the payment of any purchase price in any manner approved by the
Board of Directors at the time of authorizing the issuance thereof.
7. OPTION PERIOD. Each Option and all rights thereunder shall expire on
such date as shall be set forth in the applicable Option Agreement, provided
that, in any event, in the case of an Incentive Stock Option, such date shall
not be later than 10 years after the date on which the Option is granted (or
five years in the case of Options described in Section 11.2), and, in the case
of non-qualified Options, not later than 10 years after the date on which the
Option is granted, and, in either case, shall be subject to earlier termination
as provided in the Plan.
8. EXERCISE OF OPTIONS. Each Option shall be exercisable either in full or
in installments at such time or times and during such period as shall be set
forth in the agreement evidencing such Option, subject to the provisions of the
Plan.
9. NONTRANSFERABILITY OF OPTIONS. No Option shall be assignable or
transferable by the person to whom it is granted, either voluntarily or by
operation of law, except by will or the laws of descent and distribution. During
the life of an optionee, an Option held by him or her shall be exercisable only
by the optionee. Notwithstanding the foregoing, non-qualified Options and shares
of Grant Stock may be transferred for valid estate planning purposes, if the
applicable Option Agreement or Grant Stock Agreement so provides.
10. EFFECT OF TERMINATION. No Incentive Stock Option may be exercised
unless, at the time of such exercise, the optionee is, and has continuously
since the date of grant of his or her Incentive Stock Option been, employed by
the Company, except that, unless the Option Agreement or instrument expressly
provides otherwise:
3
<PAGE> 4
10.1 the Incentive Stock Option may be exercised within the period of
thirty days after the date the optionee ceases to be an employee of the
Company (or within such lesser period as may be specified in the
applicable Option Agreement);
10.2 if the optionee dies while in the employ of the Company, the
Incentive Stock Option may be exercised in full by the person to whom it
is transferred by will or the laws of descent and distribution within the
period of 180 days after the date of death (or within such lesser period
as may be specified in the applicable Option Agreement); and
10.3 if the optionee becomes disabled (within the meaning of Section
22(e)(3) of the Code or any successor provision thereto) while in the
employ of the Company, the Incentive Stock Option may be exercised in full
within the period of 180 days after the date the optionee ceases to be
such an employee because of such disability (or within such lesser period
as may be specified in the applicable Option Agreement);
provided, however, that in no event may any Incentive Stock Option be exercised
after the expiration date of the Incentive Stock Option. For all purposes of the
Plan and any Incentive Stock Option granted hereunder, "employment" shall be
defined in accordance with the provisions of Section 1.421-7(h) of the Income
Tax Regulations (or any successor regulations).
A non-qualified Option granted to an employee shall be subject to the
foregoing provisions of this Section 10 as if it were an Incentive Stock Option,
but a non-qualified Option may also be exercised so long as the optionee
maintains a relationship with the Company as a director, consultant or adviser,
unless the Option Agreement provides otherwise.
11. INCENTIVE STOCK OPTIONS. Options that are intended to be Incentive
Stock Options shall be subject to the following additional terms and conditions:
11.1 EXPRESS DESIGNATION. All Incentive Stock Options shall, at the time
of grant, be specifically designated as such in the Option Agreement covering
such Incentive Stock Options.
11.2 10% SHAREHOLDER. If any employee to whom an Incentive Stock Option is
to be granted is, at the time of the grant of such Option, the owner of stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company (after taking into account the attribution of stock
ownership rules of Section 424(d) of the Code), then the following special
provisions shall be applicable to the Incentive Stock Option granted to such
individual:
11.2.1 the purchase price per share of the Common Stock subject to
such Incentive Stock Option shall not be less than 110% of the fair market
value of one share of Common Stock at the time of grant; and
11.2.2 the option exercise period shall not exceed five years from
the date of grant.
11.3 DOLLAR LIMITATION. For so long as the Code shall so provide, Options
granted to any employee under the Plan which are intended to constitute
Incentive Stock Options shall not constitute Incentive Stock Options to the
extent that such Options, in the aggregate, become exercisable for the first
time in any one calendar year for shares of Common Stock with an aggregate fair
market value (determined as of the respective date or dates of grant) of more
than $100,000.
4
<PAGE> 5
12. ADDITIONAL PROVISIONS.
12.1 ADDITIONAL PROVISIONS. The Board of Directors may, in its sole
discretion, include additional provisions in Grant Stock Agreements and Option
Agreements, including, without limitation, restrictions on transfer, rights of
the Company to repurchase shares of Grant Stock or shares of Common Stock
acquired upon exercise of Options, commitments to pay cash bonuses, to make,
arrange for or guaranty loans or to transfer other property to optionees upon
exercise of Options, or such other provisions as shall be determined by the
Board of Directors; provided that such additional provisions shall not be
inconsistent with any other term or condition of the Plan and such additional
provisions shall not be such as to cause any Incentive Stock Option to fail to
qualify as an Incentive Stock Option within the meaning of Section 422 of the
Code.
12.2 ACCELERATION, EXTENSION, ETC. The Board of Directors may, in its sole
discretion, (i) accelerate the date or dates on which all or any particular
Option or Options may be exercised or (ii) extend the dates during which all, or
any particular, Option or Options may be exercised; provided, however, that no
such extension shall be permitted if it would cause the Plan to fail to comply
with Section 422 of the Code.
13. RIGHTS AS A SHAREHOLDER. The holder of an Option shall have no rights
as a shareholder with respect to any shares covered by the Option (including,
without limitation, any rights to receive dividends or non-cash distributions
with respect to such shares) until the date of issue of a stock certificate to
him or her for such shares. No adjustment shall be made for dividends or other
rights for which the record date is prior to the date such stock certificate is
issued.
14. ADJUSTMENT PROVISIONS FOR RECAPITALIZATIONS AND RELATED TRANSACTIONS.
14.1 GENERAL. If, through or as a result of any merger, consolidation,
sale of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, (i) the outstanding shares of Common Stock
are increased, decreased or exchanged for a different number or kind of shares
or other securities of the Company, or (ii) additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock or other securities, an
appropriate and proportionate adjustment may be made in (x) the maximum number
and kind of shares reserved for issuance under the Plan, (y) the number and kind
of shares or other securities subject to any then outstanding Options, and (z)
the price for each share subject to any then outstanding Options, without
changing the aggregate purchase price as to which such Options remain
exercisable. Notwithstanding the foregoing, no adjustment shall be made pursuant
to this Section 14 if such adjustment would cause the Plan to fail to comply
with Section 422 of the Code.
14.2 BOARD AUTHORITY TO MAKE ADJUSTMENTS. Any adjustments under this
Section 14 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
15. MERGER, CONSOLIDATION, ASSET SALE, LIQUIDATION, ETC.
5
<PAGE> 6
15.1 GENERAL. In the event of a consolidation or merger or sale of all or
substantially all of the assets of the Company in which outstanding shares of
Common Stock are exchanged for securities, cash or other property of any other
corporation or business entity, or in the event of a liquidation of the Company,
the Board of Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions, as to some or all outstanding
Options (and need not take the same action as to each such Option): (i) provide
that such Options shall be assumed, or equivalent Options shall be substituted,
by the acquiring or succeeding corporation (or an affiliate thereof), provided
that any such Options substituted for Incentive Stock Options shall meet the
requirements of Section 424(a) of the Code, (ii) upon written notice to the
optionees, provide that all unexercised Options will terminate immediately prior
to the consummation of such transaction unless exercised by the optionee (to the
extent otherwise then exercisable) within a specified period following the date
of such notice, (iii) in the event of a merger under the terms of which holders
of the Common Stock of the Company will receive upon consummation thereof a cash
payment for each share surrendered in the merger (the "Merger Price"), make or
provide for a cash payment to the optionees equal to the difference between (A)
the Merger Price times the number of shares of Common Stock subject to such
outstanding Options (to the extent then exercisable at prices not in excess of
the Merger Price) and (B) the aggregate exercise price of all such outstanding
Options, in exchange for the termination of such Options and (iv) provide that
all or any outstanding Options shall become exercisable in full immediately
prior to such event.
15.2 SUBSTITUTE OPTIONS. The Company may grant Options in substitution for
Options held by employees of another corporation who become employees of the
Company, or a subsidiary of the Company, as the result of a merger or
consolidation of the employing corporation with the Company or a subsidiary of
the Company, or as a result of the acquisition by the Company, or one of its
subsidiaries, of property or stock of the employing corporation. The Company may
direct that substitute Options be granted on such terms and conditions as the
Board of Directors considers appropriate in the circumstances.
15.3 GRANT STOCK. In the event of a business combination or other
transaction of the type detailed in Section 15.1, any securities, cash or other
property received in exchange for shares of Grant Stock shall continue to be
governed by the provisions of any Grant Stock Agreement pursuant to which they
were issued, including any provision regarding vesting, and such securities,
cash, or other property may be held in escrow on such terms as the Board of
Directors may direct, to insure compliance with the terms of any such Grant
Stock Agreement.
16. NO SPECIAL EMPLOYMENT RIGHTS. Nothing contained in the Plan or in any
Option or Grant Stock Agreement shall confer upon any optionee any right with
respect to the continuation of his or her employment by the Company or interfere
in any way with the right of the Company at any time to terminate such
employment or to increase or decrease the compensation of the optionee.
17. OTHER EMPLOYEE BENEFITS. The amount of any compensation deemed to be
received by an employee as a result of the issuance of shares of Grant Stock or
the grant or exercise of an Option or the sale of shares received upon such
award or exercise will not constitute compensation with respect to which any
other employee benefits of such employee are determined, including, without
<PAGE> 7
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board of Directors.
18. AMENDMENT OF THE PLAN.
18.1 The Board of Directors may at any time, and from time to time, modify
or amend the Plan in any respect, except that if at any time the approval of the
shareholders of the Company is required under Section 422 of the Code or any
successor provision with respect to Incentive Stock Options, the Board of
Directors may not effect such modification or amendment without such approval.
18.2 The termination or any modification or amendment of the Plan shall
not, without the consent of an optionee, affect his or her rights under an
Option previously granted to him or her. With the consent of the recipient of
Grant Stock or optionee affected, the Board of Directors may amend outstanding
Grant Stock Agreements or Option Agreements in a manner not inconsistent with
the Plan. The Board of Directors shall have the right to amend or modify the
terms and provisions of the Plan and of any outstanding Incentive Stock Options
to the extent necessary to qualify any or all such Options for such favorable
federal income tax treatment (including deferral of taxation upon exercise) as
may be afforded incentive stock options under Section 422 of the Code.
19. WITHHOLDING. The Company shall have the right to deduct from payments
of any kind otherwise due to the optionee any federal, state or local taxes of
any kind required by law to be withheld with respect to issuance of any shares
of Grant Stock or shares issued upon exercise of Options. Subject to the prior
approval of the Company, which may be withheld by the Company in its sole
discretion, the obligor may elect to satisfy such obligations, in whole or in
part, (i) by causing the Company to withhold shares of Common Stock otherwise
issuable or (ii) by delivering to the Company shares of Common Stock already
owned by the obligor. The shares so delivered or withheld shall have a fair
market value equal to such withholding obligation. The fair market value of the
shares used to satisfy such withholding obligation shall be determined by the
Company as of the date that the amount of tax to be withheld is to be
determined. A person who has made an election pursuant to this Section 19 may
only satisfy his or her withholding obligation with shares of Common Stock which
are not subject to any repurchase, forfeiture, unfulfilled vesting or other
similar requirements.
20. EFFECTIVE DATE AND DURATION OF THE PLAN.
20.1 EFFECTIVE DATE. The Plan shall become effective when adopted by the
Board of Directors, but no Incentive Stock Option shall become exercisable
unless and until the Plan shall have been approved by the Company's
shareholders. If such shareholder approval is not obtained within twelve months
after the date of the Board's adoption of the Plan, no Options previously
granted under the Plan shall be deemed to be Incentive Stock Options and no
Incentive Stock Options shall be granted thereafter. Amendments to the Plan not
requiring shareholder approval shall become effective when adopted by the Board
of Directors; amendments requiring shareholder approval (as provided in Section
18) shall become effective when adopted by the Board of Directors, but no
Incentive Stock Option granted after the date of such amendment shall become
exercisable (to the extent that such amendment to the Plan was required to
enable the Company to grant such
<PAGE> 8
Incentive Stock Option to a particular optionee) unless and until such amendment
shall have been approved by the Company's shareholders. If such shareholder
approval is not obtained within twelve months of the Board's adoption of such
amendment, any Incentive Stock Options granted on or after the date of such
amendment shall terminate to the extent that such amendment to the Plan was
required to enable the Company to grant such Option to a particular optionee.
Subject to this limitation, Options may be granted under the Plan at any time
after the effective date and before the date fixed for termination of the Plan.
20.2 TERMINATION. Unless sooner terminated in accordance with Section 15
or by the Board of Directors, the Plan shall terminate upon the close of
business on the day next preceding the tenth anniversary of the date of its
adoption by the Board of Directors.
21. PROVISION FOR FOREIGN PARTICIPANTS. The Board of Directors may,
without amending the Plan, modify the terms of Option or Grant Stock Agreements
to differ from those specified in the Plan with respect to participants who are
foreign nationals or employed outside the United States to recognize differences
in laws, rules, regulations or customs of such foreign jurisdictions with
respect to tax, securities, currency, employee benefit or other matters.
22. REQUIREMENTS OF LAW. The Company shall not be required to sell or
issue any shares under any Option if the issuance of such shares shall
constitute a violation by the optionee or by the Company of any provisions of
any law or regulation of any governmental authority. In addition, in connection
with the Securities Act of 1933, as now in effect or hereafter amended (the
"Act"), the Company shall not be required to issue any shares upon exercise of
any Option unless the Company has received evidence satisfactory to it to the
effect that the holder of such Option will not transfer such shares except
pursuant to a registration statement in effect under the Act or unless an
opinion of counsel satisfactory to the Company has been received by the Company
to the effect that such registration is not required in connection with any such
transfer. Any determination in this connection by the Board shall be final,
binding and conclusive. In the event the shares issuable on exercise of an
Option are not registered under the Act or under the securities laws of each
relevant state or other jurisdiction, the Company may imprint on the
certificate(s) appropriate legends that counsel for the Company considers
necessary or advisable to comply with the Act or any such state or other
securities law. The Company may register, but in no event shall be obligated to
register, any securities covered by the Plan pursuant to the Act; and in the
event any shares are so registered the Company may remove any legend on
certificates representing such shares. The Company shall not be obligated to
take any affirmative action in order to cause the exercise of an Option or the
issuance of shares pursuant thereto to comply with any law or regulation of any
governmental authority.
23. GOVERNING LAW. This Plan and each Option shall be governed by the laws
of the State of Nevada, without regard to its principles of conflicts of law.
* * *
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