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 quarter ended June 30, 1999
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 0-23349
DISPATCH MANAGEMENT SERVICES CORP.
(Exact name of registrant as specified in its charter)
Delaware 13-3967426
(State of Incorporation) (I.R.S. Employer Identification No.)
1981 Marcus Ave., Suite C131
Lake Success, New York 11042 11042
(Address of principal executive offices) (Zip Code)
(516) 326-9810
(Registrant's telephone number, including area code)
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 |_|
As of August 3, 1999, there were 12,003,549 shares of Common Stock outstanding.
<PAGE>
DISPATCH MANAGEMENT SERVICES CORP.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets as of December 31, 1998 and June 30, 1999
Consolidated Statements of Operations for the Three and Six Months ended
June 30, 1998 and 1999
Consolidated Statements of Cash Flows for the Six Months ended June 30,
1998 and 1999
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
Item 6. Exhibits and Reports on Form 8-K.
Signatures
Exhibit Index
2
<PAGE>
DISPATCH MANAGEMENT SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except for share amounts)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents ..................................................... $ 3,012 $ 2,745
Accounts receivable, less allowances of $4,416 and $2,391 .................... 36,416 31,094
Prepaid and other current assets .............................................. 1,890 2,673
Income tax receivable ......................................................... 2,784 1,184
--------- ---------
Total current assets ................................................ 44,102 37,696
Property and equipment, net ................................................... 8,851 8,183
Deferred financing costs, net ................................................. 1,501 715
Intangible assets, primarily goodwill, net of amortization of $3,186 and $5,801 154,923 159,648
Notes receivable .............................................................. 9,002 3,698
Other assets .................................................................. 1,031 853
Deferred income taxes ......................................................... 291 291
--------- ---------
Total assets ........................................................ $ 219,701 $ 211,084
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank overdrafts ............................................................... $ 2,944 $ 252
Current portion of long-term debt ............................................. 900 3,600
Accounts payable .............................................................. 5,758 6,242
Accrued liabilities ........................................................... 13,356 11,333
Accrued payroll and related expenses .......................................... 5,527 4,708
Income tax payable ............................................................ 1,817 2,032
Capital lease obligations ..................................................... 886 704
Acquisition-related notes payable, current portion ............................ 7,207 7,399
--------- ---------
Total current liabilities ........................................... 38,395 36,270
Long-term debt ................................................................ 70,600 70,750
Acquisition-related notes payable ............................................. 5,337 2,691
Other long-term liabilities ................................................... 5,996 5,312
--------- ---------
Total liabilities ................................................... $ 120,328 $ 115,023
--------- ---------
Commitments and contingencies - (see footnotes)
Stockholders' equity
Common stock, $.01 par value, 100,000,000 shares authorized;
11,817,634 and 11,917,377 shares issued and outstanding ................... 118 119
Additional paid-in capital .................................................... 117,686 117,867
Value of stock to be issued ................................................... 3,197 1,846
Accumulated deficit ........................................................... (21,523) (23,008)
Accumulated other comprehensive loss .......................................... (105) (763)
--------- ---------
Total stockholders' equity .......................................... 99,373 96,061
--------- ---------
Total liabilities and stockholders' equity .......................... $ 219,701 $ 211,084
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
DISPATCH MANAGEMENT SERVICES CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except for share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------ ----------------
June 30, June 30,
-------- --------
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenue .......................................... $ 51,053 $ 56,453 $ 75,369 $ 113,582
Cost of revenue ...................................... 30,965 34,102 45,994 69,517
------------ ------------ ------------ ------------
Gross profit ....................................... 20,088 22,351 29,375 44,065
Selling, general and administrative expenses ......... 14,595 17,347 22,125 36,142
Depreciation and amortization ........................ 1,182 2,168 1,888 4,115
------------ ------------ ------------ ------------
Income from operations ............................. 4,311 2,835 5,362 3,808
Interest expense ..................................... 436 1,827 664 3,584
Amortization and write-off of deferred financing costs -- 1,074 -- 1,185
Acquired in-process research and
development .......................................... -- -- 700 --
Other expense (income) ............................... 57 (2) 139 (6)
------------ ------------ ------------ ------------
Income (loss) before income tax provision ............ 3,818 (64) 3,859 (955)
Income tax provision ................................. 1,627 85 1,700 530
------------ ------------ ------------ ------------
Income (loss) before extraordinary item ............ 2,191 (149) 2,159 (1,485)
Extraordinary loss on early extinguishment of debt
(net of income tax benefit of $384) ................ -- -- 713 --
------------ ------------ ------------ ------------
Net income (loss) .................................. $ 2,191 $ (149) $ 1,446 $ (1,485)
============ ============ ============ ============
Income (loss) per common share - basic
Income (loss) before extraordinary item $ 0.19 $ (0.01) $ 0.24 $ (0.12)
Extraordinary item -- -- (0.08) --
------------ ------------ ------------ ------------
Net income (loss) $ 0.19 $ (0.01) $ 0.16 $ (0.12)
------------ ------------ ------------ ------------
Income (loss) per common share - diluted
Income (loss) before extraordinary item $ 0.19 $ (0.01) $ 0.23 $ (0.12)
Extraordinary item -- -- (0.08) --
------------ ------------ ------------ ------------
Net income (loss) $ 0.19 $ (0.01) $ 0.15 $ (0.12)
------------ ------------ ------------ ------------
Weighted average shares
Common shares outstanding 11,545,545 11,917,100 9,175,915 11,919,252
------------ ------------ ------------ ------------
Adjusted common shares assuming dilution 11,839,348 11,917,100 9,354,963 11,919,252
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
DISPATCH MANAGEMENT SERVICES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six months ended
----------------
June 30,
--------
1998 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ..................................................... $ 1,446 $ (1,485)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities ................................................
Depreciation ........................................................ 721 1,500
Amortization of goodwill and other intangibles ...................... 1,167 2,615
Amortization and write-off of deferred financing costs .............. -- 1,185
Acquired in-process research and development ........................ 700 --
Extraordinary item .................................................. 713 --
Changes in operating assets and liabilities (net of assets acquired
and liabilities assumed in business combinations)
Accounts receivable ........................................... (5,799) 6,139
Prepaid expenses and other current assets ..................... (2,347) 215
Accounts payable and accrued liabilities ...................... 2,457 (5,235)
-------- --------
Net cash (used in) provided by operating activities (942) 4,934
-------- --------
Cash flows from investing activities:
Cash used in acquisitions, net of cash acquired ....................... (85,415) (5,474)
Additions to property and equipment ................................... (3,071) (832)
-------- --------
Net cash used in investing activities (88,486) (6,306)
-------- --------
Cash flows from financing activities:
Proceeds from initial public offering, net ............................ 76,276 --
Proceeds from bank borrowings ......................................... 27,070 3,150
Payments on bank borrowings ........................................... -- (300)
Deferred financing costs .............................................. -- (399)
Principal payments on long and short-term obligations ................. (11,997) (688)
-------- --------
Net cash provided by financing activities 91,349 1,763
-------- --------
Effect of exchange rate changes on cash and cash equivalents ............ -- (658)
-------- --------
Net increase (decrease) in cash and cash equivalents 1,921 (267)
Cash and cash equivalents, beginning of period .......................... 354 3,012
-------- --------
Cash and cash equivalents, end of period ................................ $ 2,275 $ 2,745
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
DISPATCH MANAGEMENT SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Basis of Presentation and Financial Condition
In connection with the closing of the initial public offering (the
"Offering") of the common stock, $.01 par value (the "Common Stock"), of
Dispatch Management Services Corp. (the "Company" or "DMS") in February
1998, the Company acquired, in separate combination transactions (the
"Combinations"), 38 urgent, on-demand, point-to-point courier firms and
one software firm which was subsequently liquidated (each, a "Founding
Company," and collectively, the "Founding Companies").
The accompanying consolidated financial statements and related notes to
consolidated financial statements include the accounts of the Company, the
Founding Companies and the other businesses acquired subsequent to the
Offering (the "Recent Acquisitions").
The interim financial statements have been prepared in accordance with the
instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of
Regulation S-X, and should be read in conjunction with the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
Accordingly, significant accounting policies and other disclosures
normally provided have been omitted since such items are disclosed
therein. In the opinion of management, the information contained herein
reflects all adjustments (consisting of only normal recurring items)
considered necessary to make the consolidated financial position,
consolidated results of operations and cash flows for the interim periods
a fair presentation. The results of operations for the interim periods are
not necessarily indicative of the results that may be expected for the
year ending December 31, 1999.
During the first quarter of 1999, the Company notified its senior lenders
of an event of default in relation to certain financial covenants
described in the syndicated senior credit facility led by NationsBank,
N.A. Following this notification of default, the Company operated under a
forbearance agreement that deferred certain lender remedies pending a
restructuring of the senior credit facility. In April 1999, the Company
entered into a definitive Amended and Restated Credit Agreement with
NationsBank N.A. and a syndicate of senior lenders. The amended facility
had a maturity date of May 31, 2000, and provided for revised financial
covenants and other provisions. Effective August 2, 1999, the maturity of
this facility was extended to October 15, 2000. There can be no assurances
that the Company will be successful in negotiating further maturity date
extensions beyond October 15, 2000.
During the six months ended June 30, 1999, the senior management team has
established a number of strategic priorities designed to strengthen
operations, including i) an aggressive cost reduction program, ii) a focus
on receivables management and collection procedures, and iii)
implementation of a technology investment program designed to deliver
integrated operating systems, as well as enhanced cost control and
reporting mechanisms.
During the first six months of 1999, the Company also executed a number of
structural changes, including the appointment of four new independent
directors to the Company's Board and the creation of a United States
regional management team designed to oversee and support the 22
metropolitan operating centers.
The Company believes that the cumulative impact of such initiatives and
actions will provide the Company with sufficient cash flow to continue as
a going concern for the next twelve months. The Company's ability to
continue as a going concern is dependent upon; i) achieving and
maintaining cash flow from operations sufficient to satisfy its current
obligations, ii) complying with the financial covenants described in the
senior credit facility, and iii) negotiating further extensions of its
senior credit facility terms beyond its maturity date of October 15, 2000.
2. Initial Public Offering
6
<PAGE>
On February 6, 1998, DMS completed the Offering of 6,000,000 shares of
Common Stock at $13.25 per share. In March 1998, the underwriters
exercised their over-allotment option to purchase an additional 900,000
shares of Common Stock at the initial public offering price. The total
proceeds from the Offering of the 6,900,000 shares of Common Stock, net of
underwriter commissions and offering costs, was $76.3 million.
The net proceeds were used primarily for the cash portion of the purchase
prices for the Founding Companies, for the early extinguishment of certain
note payable obligations of the Company which resulted in an extraordinary
loss of $0.7 million, and for the repayment of certain indebtedness of the
Founding Companies.
3. Business Combinations
On February 11, 1998, the Company acquired all of the outstanding Common
Stock and/or net assets of the Founding Companies simultaneously with the
closing of the Offering. The aggregate consideration for these
acquisitions included $62.7 million in cash, the issuance of 3,378,590
shares of Common Stock, and $4.6 million of notes payable.
During the period following the Offering to December 31, 1998, the Company
acquired an additional 28 messenger or same-day courier companies in the
United States, the United Kingdom, Australia and New Zealand. The
aggregate consideration for these acquisitions included $47.6 million in
cash, the issuance of 355,160 shares of Common Stock, $3.2 million in
value of stock to be issued, and $7.9 million of notes payable.
The acquisitions have been accounted for using the purchase method of
accounting. The consideration does not reflect certain additional
contingent consideration which may be issued pursuant to earn-out
arrangements included in the definitive agreements with the acquired
Companies.
During the six months ended June 30, 1999, goodwill associated with the
1998 acquisitions increased by $7.3 million, primarily due to contingent
consideration earned.
Acquisition Liabilities
In connection with completed acquisitions, the Company recorded
liabilities for employee severance and for operating lease payments as a
result of exit plans formulated as of the respective acquisition dates
(the "Acquisition Liabilities"). The severance accrual relates to the
involuntary termination of administrative and middle management personnel
from the integration of the acquired operations. The operating lease
payment accrual relates to equipment and facilities leases assumed by the
Company. Amounts accrued represent management's estimate of the cost to
exit the equipment and facilities leases.
The changes in the Acquisition Liabilities during the six month period
ended June 30, 1999 were as follows (dollars in thousands):
Severance Lease
Liability Liability Total
--------- --------- -----
Balance December 31, 1998 ...... $ 195 $ 666 $ 861
Additions ...................... -- 11 11
Utilization .................... (35) (117) (152)
----- ----- -----
Balance June 30, 1999 .......... $ 160 $ 560 $ 720
===== ===== =====
Pro Forma Financial Information
The following unaudited condensed pro forma financial information of the
Company for the six-month period ended June 30, 1998 includes the combined
operations of the Company, and the 1998 Acquisitions as if the Offering
and the
7
<PAGE>
acquisitions had occurred on January 1, 1998 (dollars in thousands).
Six months ended
June 30, 1998
----------------
Net revenue $114,872
Income before extraordinary item $ 2,114
Per share data:
Income before extraordinary item - basic and diluted $ 0.18
The unaudited condensed pro forma financial information includes
adjustments to the Company's historical results of operations which
provide for reductions in salaries, bonuses and benefits payable or
provided to the acquired companies' managers to which they agreed
prospectively, incremental amortization of goodwill, reduction in royalty
payments made by certain Founding Companies in accordance with franchise
agreements that terminated as a result of the Combinations, income tax
adjustments, incremental interest expense associated with borrowings to
fund the acquisitions and the reduction in expense related to amounts
allocated to in-process research and development activities. This
summarized pro forma information may not be indicative of actual results
if the transactions had occurred on the dates indicated or of the results
which may be realized in the future.
4. Senior Credit Facility
In February 1998, the Company obtained a $25 million revolving line of
credit from NationsBank, N.A. pursuant to a credit agreement. Outstanding
principal balances under this line incurred interest at increments between
2.50% and 1.50% over the LIBOR rate, depending on the Company's ratio of
Funded Debt to EBITDA (as defined in the credit agreement).
In May 1998, NationsBank provided the Company an additional $10 million
short-term line of credit facility in anticipation of closing a syndicated
credit facility. The short-term line of credit facility was
cross-defaulted and cross-collateralized with the revolving line of credit
and matured in June 1998.
In June 1998, the Company entered into a credit agreement with NationsBank
N.A. as underwriter of a new $60 million senior credit facility. In August
1998, NationsBank led a syndication for a $105 million committed line of
credit with a group of senior lenders, including First Union National
Bank, BankBoston N.A., CIBC, Inc., and Fleet Bank N.A.
Subsequent to December 31, 1998, the Company notified the senior lenders
of an event of default in relation to certain financial covenants
described in the senior credit agreement. Following this notification of
default, the Company operated under a forbearance agreement that deferred
certain lender remedies pending a restructuring of the senior credit
facility. On April 8, 1999, the Company entered into a definitive Amended
and Restated Credit Agreement (the "Credit Agreement") with NationsBank
N.A. and a syndicate of senior lenders. The Credit Agreement provides a
revolving credit facility in an amount equal to the outstanding
indebtedness as of June 30, 1999 of $78.2 million, which includes a
sub-limit of $3.8 million for existing standby letters of credit. All
amounts drawn down under the line of credit must be repaid on October 15,
2000, with minimum principal payments of $0.3 million per quarter required
in 1999 and $1.5 million per quarter required in 2000.
Outstanding principal balances under the line of credit bear interest,
payable monthly, at increments between 1.75% and 4.00% over the LIBOR
rate, depending on the Company's ratio of Funded Debt to trailing quarter
annualized EBITDA (as defined in the Credit Agreement). The initial
pricing level between April 8, 1999 and June 30, 1999 will be at LIBOR +
4.00% (30 Day LIBOR at June 30, 1999 was 5.2%).
Borrowings under the line of credit are secured by a first lien on all of
the assets of the Company, including the shares of common stock of certain
of the Company's subsidiaries. The Company is required to maintain minimum
quarterly EBITDA targets through the maturity of the facility, provided
that for the last fiscal quarter of 1999, and for the fiscal
8
<PAGE>
quarters of 2000, the EBITDA targets are modified such that the Company
can still meet the financial covenant criteria by maintaining a Funded
Debt to EBITDA ratio at no more than 3.0x (as defined in the Credit
Agreement).
Other financial covenants include: (i) maintenance of a monthly positive
pre-tax income on a consolidated basis after June 30, 1999 (adjusted for
certain non-cash gains and losses), (ii) maintenance of a collateral
coverage ratio whereby accounts receivable less than 60 days as a
proportion of the total outstanding under the revolving line of credit
cannot fall below levels ranging from 35% - 40%, and (iii) minimum
quarterly interest coverage ratio; defined as EBITDA as a ratio to cash
interest expense. The Credit Agreement prohibits (i) liens, pledges and
guarantees that can be granted by the Company, (ii) the declaration or
payment of cash dividends, and (iii) the sale of stock of the Company's
subsidiaries. The Credit Agreement also limits (i) the amount of
indebtedness the Company can incur, (ii) the amount of finance lease
commitments, and (iii) certain capital expenditures. Material acquisitions
and disposals of certain operations require approval by the lender. The
Credit Agreement contains customary representations and warranties,
covenants, defaults and conditions. The line of credit is intended to be
used for short-term working capital, and for the issuance of letters of
credit. The facility specifically allows for the payment of various
acquisition-related notes payable disclosed in the consolidated financial
statements related to the 1998 acquisitions.
The Company paid $1.5 million in financing fees during fiscal year 1998,
which were deferred and amortized over the term of the 1998 credit
facility. As a result of the Company entering into the Credit Agreement in
1999, the Company wrote-off $0.9 million of the fees associated with the
1998 credit facility. The Company amortized an additional $0.3 million of
the deferred financing fees during the six months ended June 30, 1999.
Interest expense incurred on the senior bank debt during the six months
ended June 30, 1999 amounted to $3.4 million.
5. Stockholders' Equity and Comprehensive Loss
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No.
130"). SFAS No. 130 requires the reporting and display of comprehensive
loss and its components in the financial statements.
SFAS No. 130 also requires the Company to classify items of other
comprehensive income or loss by their nature in financial statements.
Changes in stockholders' equity and comprehensive loss during the six
months ended June 30, 1999 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
Stockholders' Comprehensive
Equity Loss
------------- -------------
<S> <C> <C>
Stockholders' equity at December 31, 1998 $ 99,373
Comprehensive loss:
Net income (loss) (1,485) $ (1,485)
Common stock 1
Additional paid-in capital 181
Value of stock to be issued (1,351)
Foreign currency translation adjustment (658) (658)
-------- --------
Total (3,312) $ (2,143)
-------- --------
Stockholders' equity balance at June 30, 1999 $ 96,061
========
</TABLE>
6. Earnings (loss) per Share
The following table sets forth the calculation of basic and diluted
earnings (loss) per share (dollars in thousands, except per share data):
9
<PAGE>
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------ ----------------
June 30, June 30,
-------- --------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE:
Income (loss) before extraordinary item $ 2,191 $ (149) $ 2,159 $ (1,485)
Extraordinary item-loss on early
Extinguishment of debt, net of income taxes -- -- 713 --
-------- -------- -------- --------
Net income (loss) $ 2,191 $ (149) $ 1,446 $ (1,485)
======== ======== ======== ========
Weighted average shares outstanding 11,546 11,917 9,176 11,919
======== ======== ======== ========
Income (loss) before extraordinary item $ 0.19 $ (0.01) $ 0.24 $ (0.12)
Extraordinary item-loss on early
Extinguishment of debt, net of income taxes -- -- (0.08) --
-------- -------- -------- --------
Net income (loss) per share $ 0.19 $ (0.01) $ 0.16 $ (0.12)
======== ======== ======== ========
DILUTED EARNINGS (LOSS) PER SHARE:
Income (loss) before extraordinary item $ 2,191 $ (149) $ 2,159 $ (1,485)
Extraordinary item-loss on early
Extinguishment of debt, net of income taxes -- -- 713 --
-------- -------- -------- --------
Net income (loss) $ 2,191 $ (149) $ 1,446 $ (1,485)
======== ======== ======== ========
Weighted average shares outstanding 11,546 11,917 9,176 11,919
Potential common shares from stock options 293 -- 179 --
-------- -------- -------- --------
Total weighted average shares outstanding 11,839 11,917 9,355 11,919
======== ======== ======== ========
Income (loss)before extraordinary item $ 0.19 $ (0.01) $ 0.23 $ (0.12)
Extraordinary item-loss on early
extinguishment of debt, net of income taxes -- -- (0.08) --
-------- -------- -------- --------
Net income (loss) per share $ 0.19 $ (0.01) $ 0.15 $ (0.12)
======== ======== ======== ========
</TABLE>
7. Litigation
Following the acquisition of certain of the Founding Companies, the
Company terminated a relationship with an equipment vendor due to repeated
and substantial problems with certain telecommunications and computer
equipment. In July 1998, the Company was served with a claim for unpaid
monthly fees due under the full term of each respective service agreement.
The Company is also involved in several acquisition-related disputes
concerning acquisition contract interpretation, non-compete enforcement,
and status of unregistered stock issued in connection with the Offering.
The Company has accrued approximately $5.3 million as an estimate of the
liability with respect to these cases at June 30, 1999.
The Company also becomes involved in various legal matters from time to
time, which it considers to be in the ordinary course of business. While
the Company is not currently able to determine the potential liability, if
any, related to such matters, the Company believes, after consulting with
legal counsel, that none of the matters, individually or in the aggregate,
will have a material adverse effect on its financial position, results of
operations or liquidity.
8. Segment Information
The Company's reportable segments are based on geographic area. The
Company evaluates the performance of its geographic areas based on
operating profit (loss) excluding interest expense, other income and
expense, the effects of non-recurring items, and income tax expense. The
following is a summary of local operations by geographic region for the
six months ended June 30, 1999 (dollars in thousands):
10
<PAGE>
Six months ended United
June 30, 1999 United States Kingdom Australasia Total
------------- ------------- ------- ----------- -----
Net Revenue $ 65,757 39,221 8,604 $113,582
Operating income $ 275 3,077 456 $ 3,808
Identifiable assets $ 29,399 18,890 3,147 $ 51,436
Capital expenditures $ 366 358 108 $ 832
Depreciation $ 1,053 384 63 $ 1,500
Six months ended United
June 30, 1998 United States Kingdom Australasia Total
------------- ------------- ------- ----------- -----
Net Revenue $ 46,344 28,509 516 $ 75,369
Operating income $ 2,559 2,724 79 $ 5,362
Identifiable assets $ 48,282 17,947 297 $ 66,526
Capital expenditures $ 2,550 499 22 $ 3,071
Depreciation $ 543 160 18 $ 721
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the information
contained in the Company's consolidated financial statements, including the
notes thereto, and the other financial information appearing elsewhere in this
report. Statements regarding future economic performance, management's plans and
objectives, and any statements concerning its assumptions related to the
foregoing contained in this Management's Discussion and Analysis of Financial
Condition and Results of Operations constitute forward-looking statements.
Certain factors which may cause actual results to vary materially from these
forward-looking statements accompany such statements or are listed in "Factors
Affecting the Company's Prospects" set forth in the Company's annual report on
Form-10K for the fiscal year ended December 31, 1998.
11
<PAGE>
Introduction
The following discussion of the Company's results of operations and of its
liquidity and capital resources should be read in conjunction with the
consolidated financial statements of the Company and the related notes thereto
appearing elsewhere herein.
Overview
The Company was formed in 1997 to create one of the largest providers of
point-to-point delivery services in the world. The Company focuses on
point-to-point delivery by foot, bicycle, motorcycle, car and truck and operates
in 22 of the largest metropolitan markets in the United States as well as the
United Kingdom, Australia and New Zealand.
Prior to the Initial Public Offering (the "Offering") on February 6, 1998, the
Company conducted no operations other than in connection with the Offering and
generated no revenues other than the receipt of licensing fees. Simultaneous
with the Offering, the Company acquired, in separate combination transactions,
38 urgent, on-demand, point-to-point courier firms and one software company
which was subsequently liquidated in 1998.
Results of Operations
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0% 100.0%
Costs of revenue 60.6 60.4 61.0 61.2
------ ------ ------ ------
Gross profit 39.4 39.6 39.0 38.8
Selling, general and
Administrative 28.6 30.7 29.4 31.8
Depreciation and amortization 2.3 3.9 2.5 3.6
------ ------ ------ ------
Operating income 8.4 5.0 7.1 3.4
Interest expense 0.8 3.2 0.9 3.2
Amortization and write-off of deferred financing costs -- 1.9 -- 1.0
Acquired in-process research and development -- -- 0.9 --
Other expense (income) 0.1 -- 0.2 --
------ ------ ------ ------
Income (loss) before income taxes and
and extraordinary item 7.5 (0.1) 5.1 (0.8)
Provision for income taxes 3.2 (0.2) 2.3 0.5
------ ------ ------ ------
Income (loss) before extraordinary item 4.3 (0.3) 2.9 (1.3)
====== ====== ====== ======
</TABLE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1998
Net Revenue
Net revenue for the three months ended June 30, 1999 increased $5.4 million, or
10.6%, to $56.5 million from $51.1 million for the three months ended June 30,
1998. This increase was primarily due to acquisitions of 27 urgent, on-demand,
point-to-point courier firms that occurred at various dates since February 6,
1998. Excluding the effect of the acquisitions, net revenues from comparable
centers showed no increase at $51.1 million. These revenues were predominantly
earned from urgent delivery services throughout the United States, the United
Kingdom, and Australasia, generated as follows (dollars in thousands):
12
<PAGE>
Three months ended Three months ended
June 30, 1998 June 30, 1999
------------- -------------
United States $30,235 59.2% $32,647 57.8%
United Kingdom 20,514 40.1 19,309 34.2
Australasia 304 0.7 4,497 8.0
------- ----- ------- -----
Total 51,053 100.0 56,453 100.0
Following certain acquisitions, the Company re-priced or ceased providing
certain services which failed to meet required margin criteria, or were not pure
urgent, point-to-point delivery services. There can be no assurance that any
such initiatives in the future will not have a material adverse effect on the
Company's business, financial condition or results of operations.
Cost of Revenue
Cost of revenue for the three months ended June 30, 1999 increased $3.1 million,
or 10.1%, to $34.1 million from $31.0 million for the three months ended June
30, 1998. This increase was primarily due to acquisitions of 27 urgent,
on-demand, point-to-point courier firms that occurred at various dates since
February 6, 1998. Expressed as a percentage of net revenue, cost of revenue for
the three months ended June 30, 1999 decreased to 60.4%, from 60.6% for the
three months ended June 30, 1998. Cost of revenue percentages in the United
States, the United Kingdom, and Australasia vary considerably as a result of
different compensation structures, the proportion of owner-operated vehicles,
the type of benefit plans, and the mix of business. For the three months ended
June 30, 1999, cost of revenue percentages for the United States, United Kingdom
and Australasia were 59.2%, 62.1%, and 62.0%, respectively, as compared to
58.1%, 64.4%, and 59.9%, respectively, for the comparable 1998 period. Cost of
revenue percentages were positively impacted during the 1999 period by the
benefits associated with the continued physical integration of a number of
previously independent courier fleets. As of June 30, 1999, the Company still
had a comprehensive courier fleet integration program remaining to execute. This
program is expected to be substantially completed during the balance of 1999.
Selling, General and Administrative Costs
Selling, general and administrative costs for the three months ended June 30,
1999 increased $2.7 million, or 18.9%, to $17.3 million from $14.6 million for
the three months ended June 30, 1998. This increase was primarily due to
acquisitions of 27 urgent, on-demand, point-to-point courier firms that occurred
at various dates since February 6, 1998, and to a lesser extent, investment in
technology programs designed to develop the next generation of the proprietary
operating system. Expressed as a percentage of net revenue, selling, general and
administrative costs for the three months ended June 30, 1999 increased to
30.7%, from 28.6% for the three months ended June 30, 1998. Selling, general and
administrative percentages in the United States (including corporate), the
United Kingdom, and Australasia vary considerably as a result of the degree of
physical integration, different compensation structures and the mix of business.
For the three months ended June 30, 1999, selling, general and administrative
percentages for the United States, United Kingdom, and Australasia were 31.8%,
29.0%, and 30.8%, respectively, as compared to 31.4%, 24.5%, and 24.8%,
respectively, for the comparable 1998 period.
Interest Expense and Deferred Financing Costs
Interest expense for the three months ended June 30, 1999 was $1.8 million, or
3.2% of the Company's net revenues. This represents an increase of $1.4 million
over the same period in 1998. The increase was primarily due to higher average
principal balances outstanding. Interest expense included interest on senior
debt, acquired debt, acquisition-related debt, and capital lease obligations, as
well as bank charges. Interest rates on the senior credit facility ranged from
9.0% to 9.2% during the three months ended June 30, 1999, compared with 6.2% to
7.1% for the three months ended June 30, 1998. As a result of the Company
entering into the Amended and Restated Credit Agreement (the "Credit Agreement")
in 1999, the Company wrote off $0.9 million of the fees associated with the
preceding credit facility. The Company amortized an additional $0.2 million of
the deferred financing fees during the three months ended June 30, 1999.
Interest expense incurred on the senior bank debt during the three months ended
June 30, 1999 amounted to $1.7 million.
13
<PAGE>
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998
Net Revenue
Net revenue for the six months ended June 30, 1999 increased $38.2 million, or
50.7%, to $113.6 million from $75.4 million for the six months ended June 30,
1998. This increase was primarily due to acquisitions of 27 urgent, on-demand,
point-to-point courier firms that occurred at various dates since February 6,
1998. Excluding the effect of the acquisitions, net revenues from comparable
centers increased $2.0 million, or 2.7%. These revenues were predominantly
earned from Point-to-Point delivery services throughout the United States, the
United Kingdom, and Australasia, generated as follows (dollars in thousands):
Six months ended Six months ended
June 30, 1998 June 30, 1999
United States $ 46,344 61.5% $ 65,757 57.9%
United Kingdom 28,509 37.8 39,221 34.5
Australasia 516 0.7 8,604 7.6
-------- ----- -------- -----
Total 75,369 100.0 113,582 100.0
Cost of Revenue
Cost of revenue for the six months ended June 30, 1999 increased $23.5 million,
or 51.1%, to $69.5 million from $46.0 million for the six months ended June 30,
1998. This increase was primarily due to acquisitions of 27 urgent, on-demand,
point-to-point courier firms that occurred at various dates since February 6,
1998. Expressed as a percentage of net revenue, cost of revenue for the six
months ended June 30, 1999 increased to 61.2%, from 61.0% for the six months
ended June 30, 1998. Cost of revenue percentages in the United States, the
United Kingdom, and Australasia vary considerably as a result of different
compensation structures, the proportion of owner-operated vehicles, the type of
benefit plans, and the mix of business. For the six months ended June 30, 1999,
cost of revenue percentages for the United States, United Kingdom and
Australasia were 60.0%, 62.9%, and 62.4%, respectively, as compared to 58.8%,
64.6%, and 59.9%, respectively, for the comparable 1998 period.
Selling, General and Administrative Costs
Selling, general and administrative costs for the six months ended June 30, 1999
increased $14.0 million, or 63.4%, to $36.1 million from $22.1 million for the
six months ended June 30, 1998. This increase was primarily due to acquisitions
of 27 urgent, on-demand, point-to-point courier firms that occurred at various
dates since February 6, 1998, and to a lesser extent, investment in technology
programs designed to develop the next generation of the proprietary operating
system. Expressed as a percentage of net revenue, selling, general and
administrative costs for the six months ended June 30, 1999 increased to 31.8%,
from 29.4% for the six months ended June 30, 1998. Selling, general and
administrative percentages in the United States (including corporate), the
United Kingdom, and Australasia vary considerably as a result of the degree of
physical integration, different compensation structures and the mix of business.
For the six months ended June 30, 1999, selling, general and administrative
percentages for the United States, United Kingdom, and Australasia were 34.4%,
27.8%, and 30.4%, respectively, as compared to 32.7%, 24.0%, and 24.8%,
respectively, for the comparable 1998 period.
Interest Expense and Deferred Financing Costs
Interest expense for the six months ended June 30, 1999 was $3.6 million, or
3.2% of the Company's net revenues. This represents an increase of $2.9 million
over the same period in 1998. The increase was primarily due to higher average
principal balances outstanding. Interest expense included interest on senior
debt, acquired debt, acquisition-related debt, and capital lease obligations, as
well as bank charges. Interest rates on the senior credit facility ranged from
6.9% to 9.2% during the six months ended June 30, 1999, compared with 6.2% to
7.1% for the six months ended June 30, 1998. As a result of the Company entering
into the Amended and Restated Credit Agreement (the "Credit Agreement") in 1999,
14
<PAGE>
the Company wrote off $0.9 million of the fees associated with the preceding
credit facility. The Company amortized an additional $0.3 million of the
deferred financing fees during the six months ended June 30, 1999. Interest
expense incurred on the senior bank debt during the six months ended June 30,
1999 amounted to $3.4 million.
Liquidity and Capital Resources
The Company is a holding company that conducts all of its operations through its
wholly-owned subsidiaries. Accordingly, the Company's principal sources of
liquidity are the cash flow of its subsidiaries, and cash available, if any,
from its credit facility.
At June 30, 1999, the Company had $2.7 million in cash and cash equivalents,
$74.3 million of senior bank debt, and $10.1 million of short and long-term
acquisition-related debt. Net cash provided from operating activities for the
six months ended June 30, 1999 was $4.9 million. Net cash used in investing
activities and provided by financing activities was $6.3 million and $1.8
million, respectively, for the six months ended June 30, 1999.
On February 11, 1998, the Company acquired all of the outstanding common stock
and/or net assets of the Founding Companies simultaneously with the closing of
the Offering. The aggregate consideration for these acquisitions included
approximately $62.7 million in cash, the issuance of 3,378,590 shares of common
stock, and $4.6 million of notes payable. The cash portion of these acquisitions
was funded through the proceeds of the Offering.
During the period following the Offering to December 31, 1998, the Company
acquired an additional 28 messenger or same-day courier companies in the United
States, the United Kingdom, and Australasia. The aggregate consideration for
these acquisitions included approximately $47.6 million in cash, the issuance of
355,160 shares of common stock, $3.2 million in value of stock to be issued, and
approximately $7.9 million of notes payable. Subsequent to December 31, 1998,
the Company converted $2.0 million of the stock consideration payable to cash
consideration payable. The cash portion of the consideration for the
acquisitions consummated after the Offering was provided by borrowings under the
Company's credit facility.
In addition, in connection with certain acquisitions, the Company agreed to pay
the sellers additional consideration if the acquired operations meet certain
performance goals related to their earnings before interest, taxes, depreciation
and amortization, as adjusted for certain other financial related matters. The
estimated maximum amount of additional consideration payable, if all of the
performance goals are met, is approximately $9.0 million, of which $3.2 million
is payable in cash and $5.8 million is payable in shares of the Company's common
stock. These payments of additional consideration are to be made on specified
dates through December 31, 2000. Management intends to fund the cash portion of
this additional consideration with internally generated cash flow.
Capital expenditures totaled approximately $0.8 million in the six months ended
June 30, 1999, primarily for office and computer equipment. The Company expects
to make additional capital expenditures of approximately $1.0 million during
1999 to upgrade certain components of its management and financial reporting
systems and to install an internal computer intranet network and communications
system integrating the metropolitan operating centers. In addition, application
of DMS operating practices requires investment in existing operating centers.
Management presently anticipates that such additional capital expenditures will
total approximately $4.3 million over the next two years, including
approximately $1.8 million of computer equipment, $1.3 million of communications
equipment, and $1.2 million of leasehold improvements. However, no assurance can
be made with respect to the actual timing and amount of such expenditures.
Senior Credit Facility
In June 1998, the Company entered into a credit agreement with NationsBank N.A.
as underwriter of a new $60 million senior credit facility. In August 1998,
NationsBank led a syndication for a $105 million committed line of credit with a
group of senior lenders, including First Union National Bank, BankBoston N.A.,
CIBC, Inc., and Fleet Bank N.A.
15
<PAGE>
Subsequent to December 31, 1998, the Company notified the senior lenders of an
event of default in relation to certain financial covenants described in the
senior credit agreement. Following this notification of default, the Company
operated under a forebearance agreement that deferred certain lender remedies
pending a restructuring of the senior credit facility. On April 8, 1999, the
Company entered into a credit agreement with NationsBank N.A. and a syndicate of
senior lenders. The Credit Agreement provides a revolving credit facility equal
to the outstanding indebtedness as of June 30, 1999 of $78.2 million, which
includes a sub-limit of $3.8 million for existing standby letters of credit. All
amounts drawn down under the line of credit must be repaid on October 15, 2000,
with minimum principal payments of $0.3 million per quarter required in 1999 and
$1.5 million per quarter required in 2000.
Outstanding principal balances under the line of credit bear interest, payable
monthly, at increments between 1.75% and 4.00% over the LIBOR rate, depending on
the Company's ratio of Funded Debt to trailing quarter annualized EBITDA (as
defined in the Credit Agreement). The initial pricing level between April 8,
1999 and June 30, 1999 will be at LIBOR + 4.00% (30 Day LIBOR at June 30, 1999
was 5.2%).
Borrowings under the line of credit are collateralized by a first lien on all of
the assets of the Company, including the shares of common stock of certain of
the Company's subsidiaries. The Company is required to maintain minimum absolute
quarterly EBITDA targets through the maturity of the facility, provided that for
the last fiscal quarter of 1999, and for the fiscal quarters of 2000, the
absolute EBITDA targets are modified such that the Company can still meet the
financial covenant criteria by maintaining a Funded Debt to EBITDA ratio at no
more than 3.0x (as defined in the Credit Agreement).
Other financial covenants include: (i) maintenance of a positive monthly pre-tax
income on a consolidated basis after June 30, 1999 (adjusted for certain
non-cash gains and losses), (ii) maintenance of a collateral coverage ratio
whereby accounts receivable less than 60 days as a proportion of the total
outstanding under the revolving line of credit cannot fall below levels ranging
from 35% - 40%, and (iii) minimum quarterly interest coverage ratio; defined as
EBITDA as a ratio to cash interest expense. The Credit Agreement prohibits (i)
liens, pledges and guarantees that can be granted by the Company, (ii) the
declaration or payment of cash dividends, and (iii) the sale of stock of the
Company's subsidiaries. The Credit Agreement also limits (i) the amount of
indebtedness the Company can incur, (ii) the amount of finance lease
commitments, and (iii) certain capital expenditures. Material acquisitions and
disposals of certain operations require approval by the lender. The Credit
Agreement contains customary representations and warranties, covenants, defaults
and conditions. The line of credit is intended to be used for short-term working
capital, and for the issuance of letters of credit. The facility specifically
allows for the payment of various acquisition-related notes payable disclosed in
the consolidated financial statements related to the 1998 acquisitions.
Pursuant to the establishment of the April 8, 1999 Credit Agreement, the Company
wrote off $0.9 million of deferred financing fees related to the preceding
Credit Facility dated June 11, 1998, in the second quarter of 1999.
The Company believes that cash flow from operations will be sufficient to fund
the Company's operations and the revised acquisition-related notes payable
repayment schedule for the next twelve months. The Company's ability to continue
as a going concern is dependent upon, i) achieving and maintaining cash flow
from operations sufficient to satisfy its current obligations, ii) complying
with the financial covenants described in the Credit Agreement, and iii)
negotiating further extensions of the Credit Agreement beyond its maturity date
of October 15, 2000. Given the current Credit Agreement restrictions, the
Company is unlikely to pursue further acquisition opportunities during the next
12 to 18 months.
Impact of Year 2000
The Year 2000 issue refers to the impact on information technology and
non-information technology systems, including codes embedded in chips and other
hardware devices, of date-related issues including the identification of a year
by two digits and not four so that a date using "00" would be recognized as the
year "1900" rather than "2000". This date related problem could result in system
failures, miscalculations or errors causing disruptions of operations or other
business problems, including, among others, a temporary inability to process
transactions, send invoices or engage in normal business activities.
16
<PAGE>
The Company has identified operating and software issues to address Year 2000
readiness in its internal systems and with its customers and suppliers. The
Company is addressing its most critical internal systems first, including the
Company's proprietary capture and dispatch system ("KIWI"), and targets to have
them Year 2000 compliant by September 30, 1999. The Company is also addressing
all major categories of information technology and non-information technology
systems in use by the Company, including customer service, dispatch and finance.
The Company plans to use both internal and external resources to reprogram and
test the software for Year 2000 modifications. The cost of this and all other
efforts to achieve Year 2000 compliance is estimated to be less than $1.0
million. To date, the Company's expenses have been mostly limited to internal
costs. The amount of external expenditures for Year 2000 compliance for the six
months ended June 30, 1999 was $0.5 million. The Company has not separately
tracked internal costs, which were primarily associated with payroll costs. The
Company expects future costs to be funded by internally generated funds. The
Company has begun to communicate with its major customers, suppliers and
financial institutions to determine the extent to which the Company is
vulnerable to those third parties' failure to remedy their own Year 2000 issues.
The feedback from some of the Company's major suppliers and customers contacted
confirmed that they anticipate being Year 2000 compliant on or before December
31, 1999.
The Company currently expects that the Year 2000 issue will not pose significant
operational problems. However, delays in the implementation of Year 2000
compliant systems, a failure to identify all of the Year 2000 dependencies in
the Company's systems and in the systems of its suppliers, customers and
financial institutions, or a failure of such third parties to adequately address
their respective Year 2000 issues could have a material adverse effect on the
Company's business, financial condition and results of operations. Therefore,
the Company has developed contingency plans with respect to possible problems it
has already identified, and expects to continue to develop contingency plans, as
the testing and implementation phases near completion, for continuing operations
in the event such problems arise. However, there can be no assurance that such
contingency plans will be sufficient to handle all of the problems, which may
arise.
FACTORS AFFECTING THE COMPANY'S PROSPECTS
In addition to other information in this report, certain risk factors should be
considered carefully in evaluating the Company and its business. This report
contains forward-looking statements, which involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in the Annual Report on Form 10-K for the year ended December 31, 1998 and
elsewhere in this report.
Item 3: Quantitative and Qualitative Disclosure about Market Risk
The Company is exposed to market risk, i.e. the risk of loss arising from
adverse changes in interest rates and foreign currency exchange rates.
Interest Rate Exposure
17
<PAGE>
The Company has not entered into interest rate protection agreements on
borrowings under its Credit Agreement, but may do so in the future. A one
percent change in interest rates on variable rate debt would increase interest
expense by $0.7 million per annum based upon the variable rate debt outstanding
at June 30, 1999.
Foreign Exchange Exposure
Significant portions of the Company's operations are conducted in Australia, New
Zealand and the United Kingdom. Exchange rate fluctuations between the US
dollar/Australian dollar, US dollar/New Zealand dollar and US dollar/pound
sterling result in fluctuations in the amounts relating to the Australian, New
Zealand, and United Kingdom operations reported in the Company's consolidated
financial statements.
The Company has not entered into hedging transactions with respect to its
foreign currency exposure, but may do so in the future.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The annual stockholders meeting was held on June 8, 1999. Holders on the record
date for the annual meeting of 11,921,404 shares of Common Stock were entitled
to cast one vote per share on each matter presented at the meeting.
The agenda items received the following votes:
1. Approval of amendment to Article Sixth of the Company's Amended and Restated
Certificate of Incorporation (the "Charter") to clarify the designation of the
terms of the classes of directors. The amendment was not approved pursuant to
the following vote:
For Against Abstain Broker non-votes
--- ------- ------- ----------------
3,580,018 535,875 28,180 3,728,193
2. Election of Directors. The nominees for Director were elected pursuant to the
following vote:
18
<PAGE>
Nominee For Authority Withheld
------- --- ------------------
Edward N. Allen 7,894,964 118,683
Thomas J. Saporito 7,894,564 119,083
D. Keith Cobb 7,876,097 137,550
Michael Fiorito 7,869,401 144,246
3. Approval of amendment of the Charter to add a new Article Tenth to provide
for stockholder action by unanimous written consent. The amendment was not
approved pursuant to the following vote:
For Against Abstain Broker non-votes
--- ------- ------- ----------------
3,421,954 619,926 35,340 3,795,046
4. Approval of amendment to 1997 Stock Incentive Plan, as amended, to increase
the number of shares of Common Stock available for issuance under the plan from
1,350,000 shares to 2,000,000 shares. The amendment was approved pursuant to the
following vote:
For Against Abstain Broker non-votes
--- ------- ------- ----------------
3,578,920 464,493 33,807 3,795,046
5. Ratification of the appointment of the Company's independent accountants for
the fiscal year ending December 31, 1999. The appointment was ratified by the
following vote:
For Against Abstain Broker non-votes
--- ------- ------- ----------------
7,715,322 129,592 27,352 0
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
10.1 1997 Stock Incentive plan, as amended.
27.1 Financial data schedule.
b) Reports on Form-8K.
On July 29, 1999, the Company filed a Form 8-K reporting a change in independent
accountants.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DISPATCH MANAGEMENT SERVICES CORP.
Date: August 5, 1999 By: /s/ Marko Bogoievski
---------------------------
Marko Bogoievski
Chief Financial Officer
19
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
10.1 1997 Stock Incentive Plan, as amended
27.1 Financial data schedule
20
DISPATCH MANAGEMENT SERVICES CORP.
1997 STOCK INCENTIVE PLAN
(as amended)
<PAGE>
DISPATCH MANAGEMENT SERVICES CORP.
1997 STOCK INCENTIVE PLAN
1. Purpose.
The purpose of this Plan is to strengthen Dispatch Management
Services Corp., a Delaware corporation (the "Company"), by providing an
incentive to its employees, officers, consultants and directors and thereby
encouraging them to devote their abilities and industry to the success of the
Company's business enterprise. It is intended that this purpose be achieved by
extending to employees, officers, consultants and directors of the Company and
its Subsidiaries an added long-term incentive for high levels of performance and
unusual efforts through the grant of Incentive Stock Options, Nonqualified Stock
Options, Stock Appreciation Rights, Dividend Equivalent Rights, Performance
Awards and Restricted Stock (as each term is herein defined).
2. Definitions.
For purposes of the Plan:
2.1 "Adjusted Fair Market Value" means, in the event of a Change in
Control, the greater of (i) the highest price per Share paid to holders of the
Shares in any transaction (or series of transactions) constituting or resulting
in a Change in Control or (ii) the highest Fair Market Value of a Share during
the ninety (90) day period ending on the date of a Change in Control.
2.2 "Affiliate" means any entity, directly or indirectly, controlled
by, controlling or under common control with the Company or any corporation or
other entity acquiring, directly or indirectly, all or substantially all the
assets and business of the Company, whether by operation of law or otherwise.
2.3 "Agreement" means the written agreement between the Company and
an Optionee or Grantee evidencing the grant of an Option or Award and setting
forth the terms and conditions thereof.
2.4 "Award" means a grant of Restricted Stock, a Stock Appreciation
Right, a Performance Award, a Dividend Equivalent Right or any or all of them.
2.5 "Board" means the Board of Directors of the Company.
2.6 "Cause" means:
(a) for purposes of Section 6.4, the commission of an act of
fraud or intentional misrepresentation or an act of embezzlement,
misappropriation or conversion of assets or opportunities of the Company or any
of its Subsidiaries; and
(b) in all other cases, (i) intentional failure to perform
reasonably assigned duties, (ii) dishonesty or willful misconduct in the
performance of duties, (iii) involvement in a transaction in connection with the
performance of duties to the Company or any of its Subsidiaries which
transaction is adverse to the interests of the Company or any of its
Subsidiaries and which is engaged in for personal profit or (iv) willful
violation of any law, rule or regulation in connection with the performance of
duties (other than traffic violations or similar offenses).
2.7 "Change in Capitalization" means any increase or reduction in
the number of Shares, or any change (including, but not limited to, a change in
value) in the Shares or exchange of Shares for a different
2
<PAGE>
number or kind of shares or other securities of the Company or another
corporation, by reason of a reclassification, recapitalization, merger,
consolidation, reorganization, spin-off, split-up, issuance of warrants or
rights or debentures, stock dividend, stock split or reverse stock split, cash
dividend, property dividend, combination or exchange of shares, repurchase of
shares, change in corporate structure or otherwise.
2.8 A "Change in Control" shall mean the occurrence during the term
of the Plan of:
(a) An acquisition (other than directly from the Company) of
any voting securities of the Company (the "Voting Securities") by any "Person"
(as the term person is used for purposes of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately
after which such Person has "Beneficial Ownership" (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of thirty percent (30%) or more of the
then outstanding Shares or the combined voting power of the Company's then
outstanding Voting Securities; provided, however, in determining whether a
Change in Control has occurred, Shares or Voting Securities which are acquired
in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control. A "Non-Control Acquisition"
shall mean an acquisition by (i) an employee benefit plan (or a trust forming a
part thereof) maintained by (A) the Company or (B) any corporation or other
Person of which a majority of its voting power or its voting equity securities
or equity interest is owned, directly or indirectly, by the Company (for
purposes of this definition, a "Subsidiary"), (ii) the Company or its
Subsidiaries, or (iii) any Person in connection with a "Non-Control Transaction"
(as hereinafter defined);
(b) The individuals who, as of the date of the consummation of
the Company's Initial Public Offering are members of the Board (the "Incumbent
Board"), cease for any reason to constitute at least two-thirds of the members
of the Board; provided, however, that if the election, or nomination for
election by the Company's common stockholders, of any new director was approved
by a vote of at least two-thirds of the Incumbent Board, such new director
shall, for purposes of this Plan, be considered as a member of the Incumbent
Board; provided further, however, that no individual shall be considered a
member of the Incumbent Board if such individual initially assumed office as a
result of either an actual or threatened "Election Contest" (as described in
Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board (a "Proxy Contest") including by reason of any agreement intended to avoid
or settle any Election Contest or Proxy Contest; or
(c) The consummation of:
(i) A merger, consolidation or reorganization with or
into the Company or in which securities of the Company are
issued, unless such merger, consolidation or reorganization is
a "Non-Control Transaction." A "Non-Control Transaction" shall
mean a merger, consolidation or reorganization with or into
the Company or in which securities of the Company are issued
where:
(A) the stockholders of the Company, immediately
before such merger, consolidation or reorganization, own
directly or indirectly immediately following such
merger, consolidation or reorganization, at least fifty
percent (50%) of the combined voting power of the
outstanding voting securities of the corporation
resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in
substantially the same proportion as their ownership of
the Voting Securities immediately before such merger,
consolidation or reorganization,
(B) the individuals who were members of the
Incumbent Board immediately prior to the execution of
the agreement providing for such merger, consolidation
or reorganization constitute at least two-thirds of the
members of the board of directors of the Surviving
Corporation, or a corporation beneficially
3
<PAGE>
directly or indirectly owning a majority of the Voting
Securities of the Surviving Corporation, and
(C) no Person other than (i) the Company, (ii) any
Subsidiary, (iii) any employee benefit plan (or any
trust forming a part thereof) that, immediately prior to
such merger, consolidation or reorganization, was
maintained by the Company or any Subsidiary, or (iv) any
Person who, immediately prior to such merger,
consolidation or reorganization had Beneficial Ownership
of thirty percent (30%) or more of the then outstanding
Voting Securities or Shares, has Beneficial Ownership of
thirty percent (30%) or more of the combined voting
power of the Surviving Corporation's then outstanding
voting securities or its common stock.
(ii) A complete liquidation or dissolution of the
Company; or
(iii) The sale or other disposition of all or
substantially all of the assets of the Company to any Person
(other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the then outstanding
Shares or Voting Securities as a result of the acquisition of Shares or Voting
Securities by the Company which, by reducing the number of Shares or Voting
Securities then outstanding, increases the proportional number of shares
Beneficially Owned by the Subject Persons, provided that if a Change in Control
would occur (but for the operation of this sentence) as a result of the
acquisition of Shares or Voting Securities by the Company, and after such share
acquisition by the Company, the Subject Person becomes the Beneficial Owner of
any additional Shares or Voting Securities which increases the percentage of the
then outstanding Shares or Voting Securities Beneficially Owned by the Subject
Person, then a Change in Control shall occur.
If an Eligible Individual's employment is terminated by the Company
without Cause prior to the date of a Change in Control but the Eligible
Individual reasonably demonstrates that the termination (A) was at the request
of a third party who has indicated or intention or taken steps reasonably
calculated to effect a change in control or (B) otherwise arose in connection
with, or in anticipation of, a Change in Control which has been threatened or
proposed, such termination shall be deemed to have occurred after a Change in
Control for purposes of this Plan provided a Change in Control shall actually
have occurred.
2.9 "Code" means the Internal Revenue Code of 1986, as amended.
2.10 "Committee" means a committee, as described in Section 3.1,
appointed by the Board from time to time to administer the Plan and to perform
the functions set forth herein.
2.11 "Company" means Dispatch Management Services Corp.
2.12 "Director" means a director of the Company.
2.13 "Director Option" means an Option granted pursuant to Section
6.
2.14 "Disability" means:
(a) in the case of an Optionee or Grantee whose employment
with the Company or a Subsidiary is subject to the terms of an employment
agreement between such Optionee or Grantee and the Company or Subsidiary, which
employment
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agreement includes a definition of "Disability", the term "Disability" as used
in this Plan or any Agreement shall have the meaning set forth in such
employment agreement during the period that such employment agreement remains in
effect; and
(b) in all other cases, the term "Disability" as used in this
Plan or any Agreement shall mean a physical or mental infirmity which impairs
the Optionee's or Grantee's ability to perform substantially his or her duties
for a period of one hundred eighty (180) consecutive days.
2.15 "Division" means any of the operating units or divisions of the
Company designated as a Division by the Committee.
2.16 "Dividend Equivalent Right" means a right to receive all or
some portion of the cash dividends that are or would be payable with respect to
Shares.
2.17 "Eligible Director" means a director of the Company who is not
an employee of the Company or any Subsidiary.
2.18 "Eligible Individual" means any director (other than an
Eligible Director) , officer or employee of the Company or a Subsidiary, or any
consultant or advisor who is receiving cash compensation from the Company or a
Subsidiary, designated by the Committee as eligible to receive Options or Awards
subject to the conditions set forth herein.
2.19 "Employee Option" means an Option granted pursuant to Section
5.
2.20 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.21 "Fair Market Value" on any date means the closing sales prices
of the Shares on such date on the principal national securities exchange on
which such Shares are listed or admitted to trading, or, if such Shares are not
so listed or admitted to trading, the average of the per Share closing bid price
and per Share closing asked price on such date as quoted on the National
Association of Securities Dealers Automated Quotation System or such other
market in which such prices are regularly quoted, or, if there have been no
published bid or asked quotations with respect to Shares on such date, the Fair
Market Value shall be the value established by the Board in good faith and, in
the case of an Incentive Stock Option, in accordance with Section 422 of the
Code.
2.22 "Grantee" means a person to whom an Award has been granted
under the Plan.
2.23 "Incentive Stock Option" means an Option satisfying the
requirements of Section 422 of the Code and designated by the Committee as an
Incentive Stock Option.
2.24 "Initial Public Offering" means the consummation of the first
public offering of Shares pursuant to a registration statement (other than on
Form S-8 or successor forms) filed with, and declared effective by, the
Securities and Exchange Commission.
2 25 "Nonemployee Director" means a director of the Company who is a
"nonemployee director" within the meaning of Rule 16b-3 promulgated under the
Exchange Act.
2.26 "Nonqualified Stock Option" means an Option which is not an
Incentive Stock Option.
2.27 "Option" means a Nonqualified Stock Option, an Incentive Stock
Option, a Director Option, or any or all of them.
2.28 "Optionee" means a person to whom an Option has been granted
under the Plan.
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2.29 "Outside Director" means a director of the Company who is an
"outside director" within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder.
2.30 "Parent" means any corporation which is a parent corporation
(within the meaning of Section 424(e) of the Code) with respect to the Company.
2.31 "Performance Awards" means Performance Units, Performance
Shares or either of both of them.
2.32 "Performance Cycle" means the time period specified by the
Committee at the time Performance Awards are granted during which the
performance of the Company, a Subsidiary or a Division will be measured.
2.33 "Performance Objectives" has the meaning set forth in Section
11.
2.34 "Performance Shares" means Shares issued or transferred to an
Eligible Individual under Section 11.
2.35 "Performance Units" means Performance Units granted to an
Eligible Individual under Section 11.
2.36 "Plan" means the Dispatch Management Services Corp. 1997 Stock
Incentive Plan, as amended and restated from time to time.
2.37 "Pooling Transaction" means an acquisition of the Company in a
transaction which is intended to be treated as a "pooling of interests" under
generally accepted accounting principles.
2.38 "Restricted Stock" means Shares issued or transferred to an
Eligible Individual pursuant to Section 10.
2.39 "Shares" means the common stock, par value $0.01 per share, of
the Company.
2.40 "Stock Appreciation Right" means a right to receive all or some
portion of the increase in the value of the Shares as provided in Section 8
hereof.
2.41 "Subsidiary" means any corporation which is a subsidiary
corporation (within the meaning of Section 424(f) of the Code) with respect to
the Company.
2.42 "Successor Corporation" means a corporation, or a parent or
subsidiary thereof within the meaning of Section 424(a) of the Code, which
issues or assumes a stock option in a transaction to which Section 424(a) of the
Code applies.
2.43 "Ten-Percent Stockholder" means an Eligible Individual, who, at
the time an Incentive Stock Option is to be granted to him or her, owns (within
the meaning of Section 422(b)(6) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company, or of a Parent or a Subsidiary.
3. Administration.
3.1 The Plan shall be administered by the Committee, which shall
hold meetings at such times as may be necessary for the proper administration of
the Plan. The Committee shall keep minutes of its meetings. A quorum shall
consist of not fewer than two members of the Committee and a majority of a
quorum
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may authorize any action. Any decision or determination reduced to writing and
signed by a majority of all of the members of the Committee shall be as fully
effective as if made by a majority vote at a meeting duly called and held. Prior
to the date of an Initial Public Offering, the Committee shall consist of at
least two (2) directors of the Company and may consist of the entire Board. From
and after the date of an Initial Public Offering, the Committee shall consist of
at least two (2) directors of the Company and may consist of the entire Board;
provided, however, that (A) if the Committee consists of less than the entire
Board, each member shall be a Nonemployee Director and (B) to the extent
necessary for any Option or Award intended to qualify as performance-based
compensation under Section 162(m) of the Code to so qualify, each member of the
Committee, whether or not it consists of the entire Board, shall be an Outside
Director. No member of the Committee shall be liable for any action, failure to
act, determination or interpretation made in good faith with respect to this
Plan or any transaction hereunder, except for liability arising from his or her
own willful misfeasance, gross negligence or reckless disregard of his or her
duties. The Company hereby agrees to indemnify each member of the Committee for
all costs and expenses and, to the extent permitted by applicable law, any
liability incurred in connection with defending against, responding to,
negotiating for the settlement of or otherwise dealing with any claim, cause of
action or dispute of any kind arising in connection with any actions in
administering this Plan or in authorizing or denying authorization to any
transaction hereunder.
3.2 Subject to the express terms and conditions set forth herein,
the Committee shall have the power from time to time to:
(a) determine those Eligible Individuals to whom Employee
Options shall be granted under the Plan and the number of such Employee Options
to be granted and to prescribe the terms and conditions (which need not be
identical) of each such Employee Option, including the purchase price per Share
subject to each Employee Option, and make any amendment or modification to any
Option Agreement consistent with the terms of the Plan;
(b) select those Eligible Individuals to whom Awards shall be
granted under the Plan and to determine the number of Stock Appreciation Rights,
Performance Awards, Shares of Restricted Stock and/or Dividend Equivalent Rights
to be granted pursuant to each Award, the terms and conditions of each Award,
including the restrictions or Performance Objectives relating to Shares, the
maximum value of each Performance Share and make any amendment or modification
to any Award Agreement consistent with the terms of the Plan;
(c) to construe and interpret the Plan and the Options and
Awards granted hereunder and to establish, amend and revoke rules and
regulations for the administration of the Plan, including, but not limited to,
correcting any defect or supplying any omission, or reconciling any
inconsistency in the Plan or in any Agreement, in the manner and to the extent
it shall deem necessary or advisable so that the Plan complies with applicable
law including Rule 16b-3 under the Exchange Act and the Code to the extent
applicable, and otherwise to make the Plan fully effective. All decisions and
determinations by the Committee in the exercise of this power shall be final,
binding and conclusive upon the Company, its Subsidiaries, the Optionees and
Grantees, and all other persons having any interest therein;
(d) to determine the duration and purposes for leaves of
absence which may be granted to an Optionee or Grantee on an individual basis
without constituting a termination of employment or service for purposes of the
Plan;
(e) to exercise its discretion with respect to the powers and
rights granted to it as set forth in the Plan; and
(f) generally, to exercise such powers and to perform such
acts as are deemed necessary or advisable to promote the best interests of the
Company with respect to the Plan.
4. Stock Subject to the Plan.
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4.1 The maximum number of Shares that may be made the subject of
Options and Awards granted under the Plan is 2,000,000; provided, however, that
in the aggregate, not more than one-third of the number of allotted Shares may
be made the subject of Restricted Stock Awards under Section 10 of the Plan
(other than shares of Restricted Stock made in settlement of Performance Units
pursuant to Section 11.2(b). The maximum number of Shares that an Eligible
Individual may receive in respect of Options and Awards may not exceed the
greater of 500,000 shares or 5% of the outstanding shares and that any Eligible
Individual may receive during the term of the Plan in respect of Performance
Units denominated in dollars may not exceed $ 500,000. Upon a Change in
Capitalization, the maximum number of Shares referred to in the first two
sentences of this Section 4.1 shall be adjusted in number and kind pursuant to
Section 13. The Company shall reserve for the purposes of the Plan, out of its
authorized but unissued Shares or out of Shares held in the Company's treasury,
or partly out of each, such number of Shares as shall be determined by the
Board.
4.2 Upon the granting of an Option or an Award, the number of Shares
available under Section 4.1 for the granting of further Options and Awards shall
be reduced as follows:
(a) In connection with the granting of an Option or an Award
(other than the granting of a Performance Unit denominated in dollars), the
number of Shares shall be reduced by the number of Shares in respect of which
the Option or Award is granted or denominated.
(b) In connection with the granting of a Performance Unit
denominated in dollars, the number of Shares shall be reduced by an amount equal
to the quotient of (i) the dollar amount in which the Performance Unit is
denominated, divided by (ii) the Fair Market Value of a Share on the date the
Performance Unit is granted.
4.3 Whenever any outstanding Option or Award or portion thereof
expires, is canceled or is otherwise terminated for any reason without having
been exercised or payment having been made in respect of the entire Option or
Award, the Shares allocable to the expired, canceled or otherwise terminated
portion of the Option or Award may again be the subject of Options or Awards
granted hereunder.
4.4 Unless otherwise stated in the applicable Agreement, whenever
any portion of the purchase price of an Option is paid in previously owned
Shares, the Optionee shall be granted a new Option covering the same number of
Shares used to pay such portion of the purchase price. Such new Option shall
have a per share purchase price equal to the Fair Market Value of a Share on the
date of exercise of the first Option, shall be exercisable six months after the
date of grant of the new Option, and shall terminate on the same date as the
first Option.
5. Option Grants for Eligible Individuals.
5.1 Authority of Committee. Subject to the provisions of the Plan,
the Committee shall have full and final authority to select those Eligible
Individuals who will receive Employee Options, and the terms and conditions of
the grant to such Eligible Individuals shall be set forth in an Agreement.
5.2 Purchase Price. The purchase price or the manner in which the
purchase price is to be determined for Shares under each Employee Option shall
be determined by the Committee and set forth in the Agreement; provided,
however, that the purchase price per Share under each Employee Option shall not
be less than 100% of the Fair Market Value of a Share on the date the Employee
Option is granted (110% in the case of an Incentive Stock Option granted to a
Ten-Percent Stockholder).
5.3 Maximum Duration. Employee Options granted hereunder shall be
for such term as the Committee shall determine, provided that an Incentive Stock
Option shall not be exercisable after the expiration of ten (10) years from the
date it is granted (five (5) years in the case of an Incentive Stock Option
granted to a Ten-Percent Stockholder) and a Nonqualified Stock Option shall not
be exercisable after the expiration of ten (10)
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years from the date it is granted. The Committee may, subsequent to the granting
of any Employee Option, extend the term thereof, but in no event shall the term
as so extended exceed the maximum term provided for in the preceding sentence.
5.4 Vesting. Subject to Section 7.4, each Employee Option shall
become exercisable in such installments (which need not be equal) and at such
times as may be designated by the Committee and set forth in the Agreement. To
the extent not exercised, installments shall accumulate and be exercisable, in
whole or in part, at any time after becoming exercisable, but not later than the
date the Employee Option expires. The Committee may accelerate the
exercisability of any Employee Option or portion thereof at any time.
5.5 Modification. No modification of an Employee Option shall
adversely alter or impair any rights or obligations under the Employee Option
without the Optionee's consent.
6. Option Grants for Nonemployee Directors.
6.1 Grant. Director Options shall be granted (i) to Eligible
Directors who become members of the Board after the Initial Public Offering upon
election or appointment and (ii) to all Eligible Directors who are members of
the Board as follows:
(a) Initial Grant. Each Eligible Director who becomes a
Director after the date of the Initial Public Offering shall, upon becoming a
Director, be granted a Director Option in respect of 5,000 Shares.
(b) Annual Grant. Each Eligible Director shall be granted a
Director Option in respect of 3,000 Shares on the first business day after the
annual meeting of the stockholders of the Company in each year that the Plan is
in effect provided that the Eligible Director is a Director on such date. All
Director Options shall be evidenced by an Agreement containing such other terms
and conditions not inconsistent with the provisions of this Plan as determined
by the Board; provided, however, that such terms shall not vary the price,
amount or timing of Director Options provided under this Section 6, including
provisions dealing with vesting, forfeiture and termination of such Director
Options.
(c) Other Grants. The Board shall have full and final
authority to grant other Director Options to Eligible Directors.
6.2 Purchase Price. The purchase price for Shares under each
Director Option shall be equal to 100% of the Fair Market Value of such Shares
on the date the Director Option is granted.
6.3 Vesting. Subject to Sections 6.4 and 7.4, each Director Option
shall become fully vested and exercisable with respect to 20% of the Shares
subject thereto on each of the anniversaries of the date of grant; provided,
however, that the Optionee continues to serve as a Director as of such date. If
an Optionee ceases to serve as a Director for any reason, the Optionee shall
have no rights with respect to any Director Option which has not then vested
pursuant to the preceding sentence and the Optionee shall automatically forfeit
any Director Option which remains unvested.
6.4 Duration. Subject to Section 7.4, each Director Option shall
terminate on the date which is the tenth anniversary of the date of grant,
unless terminated earlier as follows:
(a) If an Optionee's service as a Director terminates for any
reason other than Disability, death or Cause, the Optionee may for a period of
three (3) months after such termination exercise his or her Option to the
extent, and only to the extent, that such Option or portion thereof was vested
and exercisable as of the date the Optionee's service as a Director terminated,
after which time the Option shall automatically terminate in full.
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(b) If an Optionee's service as a Director terminates by
reason of the Optionee's resignation or removal from the Board due to
Disability, the Optionee may, for a period of one (1) year after such
termination, exercise his or her Option to the extent, and only to the extent,
that such Option or portion thereof was vested and exercisable, as of the date
the Optionee's service as Director terminated, after which time the Option shall
automatically terminate in full.
(c) If an Optionee's service as a Director terminates for
Cause, the Option granted to the Optionee hereunder shall immediately terminate
in full and no rights thereunder may be exercised.
(d) If an Optionee dies while a Director or within three (3)
months after termination of service as a Director as described in clause (a) of
this Section 6.4 or within twelve (12) months after termination of service as a
Director as described in clause (b) of this Section 6.4, the Option granted to
the Optionee may be exercised at any time within twelve (12) months after the
Optionee's death by the person or persons to whom such rights under the Option
shall pass by will, or by the laws of descent or distribution, after which time
the Option shall terminate in full; provided, however, that an Option may be
exercised to the extent, and only to the extent, that the Option or portion
thereof was exercisable on the date of death or earlier termination of the
Optionee's services as a Director.
6.5 Limitations on Amendment. The provisions in this Section 6 shall
not be amended more than once every six months, other than to comport with
changes in the Code or the rules and regulations thereunder.
7. Terms and Conditions Applicable to All Options.
7.1 Non-Transferability. Unless set forth in the Agreement
evidencing the Option (other than an Incentive Stock Option) at the time of
grant or at any time thereafter, an Option granted hereunder shall not be
transferable by the Optionee to whom granted except by will or the laws of
descent and distribution or pursuant to a domestic relations order (within the
meaning of Rule 16a-12 promulgated under the Exchange Act), and an Option may be
exercised during the lifetime of such Optionee only by the Optionee or his or
her guardian or legal representative. The terms of such Option shall be final,
binding and conclusive upon the beneficiaries, executors, administrators, heirs
and successors of the Optionee.
7.2 Method of Exercise. The exercise of an Option shall be made only
by a written notice delivered in person or by mail to the Secretary of the
Company at the Company's principal executive office, specifying the number of
Shares to be purchased and accompanied by payment therefor and otherwise in
accordance with the Agreement pursuant to which the Option was granted. The
purchase price for any Shares purchased pursuant to the exercise of an Option
shall be paid, as determined by the Committee in its discretion, in either of
the following forms (or any combination thereof): (i) cash or (ii) the transfer
of Shares to the Company upon such terms and conditions as determined by the
Committee. In addition, both Employee Options and Director Options may be
exercised through a registered broker-dealer pursuant to such cashless exercise
procedures (other than Share withholding) which are, from time to time, deemed
acceptable by the Committee, and the Committee may authorize that the purchase
price payable upon exercise of an Employee Option may be paid by having Shares
withheld that otherwise would be acquired upon such exercise. Any Shares
transferred to the Company (or withheld upon exercise) as payment of the
purchase price under an Option shall be valued at their Fair Market Value on the
day preceding the date of exercise of such Option. The Optionee shall deliver
the Agreement evidencing the Option to the Secretary of the Company who shall
endorse thereon a notation of such exercise and return such Agreement to the
Optionee. No fractional Shares (or cash in lieu thereof) shall be issued upon
exercise of an Option and the number of Shares that may be purchased upon
exercise shall be rounded to the nearest number of whole Shares.
7.3 Rights of Optionees. Optionee shall not be deemed for any
purpose to be the owner of any Shares subject to any Option unless and until (i)
the Option shall have been exercised pursuant to the terms thereof, (ii) the
Company shall have issued and delivered Shares to the Optionee, and (iii) the
Optionee's name shall have been entered as a stockholder of record on the books
of the
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Company. Thereupon, the Optionee shall have full voting, dividend and other
ownership rights with respect to such Shares, subject to such terms and
conditions as may be set forth in the applicable Agreement.
7.4 Effect of Change in Control. In the event of a Change in
Control, all Options outstanding on the date of such Change in Control shall
become immediately and fully exercisable. In addition, to the extent set forth
in an Agreement evidencing the grant of an Employee Option, an Optionee will be
permitted to surrender to the Company for cancellation within sixty (60) days
after such Change in Control any Employee Option or portion of an Employee
Option to the extent not yet exercised and the Optionee will be entitled to
receive a cash payment in an amount equal to the excess, if any, of (x) (A) in
the case of a Nonqualified Stock Option, the greater of (1) the Fair Market
Value, on the date preceding the date of surrender, of the Shares subject to the
Employee Option or portion thereof surrendered or (2) the Adjusted Fair Market
Value of the Shares subject to the Employee Option or portion thereof
surrendered or (B) in the case of an Incentive Stock Option, the Fair Market
Value, on the date preceding the date of surrender, of the Shares subject to the
Employee Option or portion thereof surrendered, over (y) the aggregate purchase
price for such Shares under the Employee Option or portion thereof surrendered.
In the event an Optionee's employment with, or service as a Director of, the
Company terminates following a Change in Control, each Option held by the
Optionee that was exercisable as of the date of termination of the Optionee's
employment or service shall remain exercisable for a period ending not before
the earlier of (A) the first anniversary of the termination of the Optionee's
employment or service or (B) the expiration of the stated term of the Option.
8. Stock Appreciation Rights.
The Committee may in its discretion, either alone or in connection
with the grant of an Employee Option, grant Stock Appreciation Rights in
accordance with the Plan, the terms and conditions of which shall be set forth
in an Agreement. If granted in connection with an Option, a Stock Appreciation
Right shall cover the same Shares covered by the Option (or such lesser number
of Shares as the Committee may determine) and shall, except as provided in this
Section 8, be subject to the same terms and conditions as the related Option.
8.1 Time of Grant. A Stock Appreciation Right may be granted (i) at
any time if unrelated to an Option, or (ii) if related to an Option, either at
the time of grant, or at any time thereafter during the term of the Option.
8.2 Stock Appreciation Right Related to an Option.
(a) Exercise. A Stock Appreciation Right granted in connection
with an Option shall be exercisable at such time or times and only to the extent
that the related Options are exercisable, and will not be transferable except to
the extent the related Option may be transferable. A Stock Appreciation Right
granted in connection with an Incentive Stock Option shall be exercisable only
if the Fair Market Value of a Share on the date of exercise exceeds the purchase
price specified in the related Incentive Stock Option Agreement.
(b) Amount Payable. Upon the exercise of a Stock Appreciation
Right related to an Option, the Grantee shall be entitled to receive an amount
determined by multiplying (A) the excess of the Fair Market Value of a Share on
the date preceding the date of exercise of such Stock Appreciation Right over
the per Share purchase price under the related Option, by (B) the number of
Shares as to which such Stock Appreciation Right is being exercised.
Notwithstanding the foregoing, the Committee may limit in any manner the amount
payable with respect to any Stock Appreciation Right by including such a limit
in the Agreement evidencing the Stock Appreciation Right at the time it is
granted.
(c) Treatment of Related Options and Stock Appreciation Rights
Upon Exercise. Upon the exercise of a Stock Appreciation Right granted in
connection with an Option, the Option shall be canceled to the extent of the
number of Shares as to which the Stock Appreciation Right is exercised, and upon
the exercise of an Option granted in connection with a Stock Appreciation Right,
the Stock Appreciation Right shall be canceled to the extent of the number of
Shares as to which the Option is exercised or surrendered.
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8.3 Stock Appreciation Right Unrelated to an Option. The Committee
may grant to Eligible Individuals Stock Appreciation Rights unrelated to
Options. Stock Appreciation Rights unrelated to Options shall contain such terms
and conditions as to exercisability (subject to Section 8.7), vesting and
duration as the Committee shall determine, but in no event shall they have a
term of greater than ten (10) years. Upon exercise of a Stock Appreciation Right
unrelated to an Option, the Grantee shall be entitled to receive an amount
determined by multiplying (A) the excess of the Fair Market Value of a Share on
the date preceding the date of exercise of such Stock Appreciation Right over
the Fair Market Value of a Share on the date the Stock Appreciation Right was
granted, by (B) number of Shares as to which the Stock Appreciation Right is
being exercised. Notwithstanding the foregoing, the Committee may limit in any
manner the amount payable with respect to any Stock Appreciation Right by
including such a limit in the Agreement evidencing the Stock Appreciation Right
at the time it is granted.
8.4 Method of Exercise. Stock Appreciation Rights shall be exercised
by a Grantee only by a written notice delivered in person or by mail to the
Secretary of the Company at the Company's principal executive office, specifying
the number of Shares with respect to which the Stock Appreciation Right is being
exercised. If requested by the Committee, the Grantee shall deliver the
Agreement evidencing the Stock Appreciation Right being exercised and the
Agreement evidencing any related Option to the Secretary of the Company who
shall endorse thereon a notation of such exercise and return such Agreement to
the Grantee.
8.5 Form of Payment. Payment of the amount determined under Sections
8.2(b) or 8.3 may be made in the discretion of the Committee solely in whole
Shares in a number determined at their Fair Market Value on the date preceding
the date of exercise of the Stock Appreciation Right, or solely in cash, or in a
combination of cash and Shares. If the Committee decides to make full payment in
Shares and the amount payable results in a fractional Share, payment for the
fractional Share will be made in cash.
8.6 Modification or Substitution. Subject to the terms of the Plan,
the Committee may modify outstanding Awards of Stock Appreciation Rights or
accept the surrender of outstanding Awards of Stock Appreciation Rights (to the
extent not exercised) and grant new Awards in substitution for them.
Notwithstanding the foregoing, no modification of an Award shall adversely alter
or impair any rights or obligations under the Agreement without the Grantee's
consent.
8.7 Effect of Change in Control. In the event of a Change in
Control, all Stock Appreciation Rights shall become immediately and fully
exercisable. In addition, to the extent set forth in an Agreement evidencing the
grant of a Stock Appreciation Right unrelated to an Option, a Grantee will be
entitled to receive a payment from the Company in cash or stock, in either case,
with a value equal to the excess, if any, of (A) the greater of (x) the Fair
Market Value, on the date preceding the date of exercise, of the underlying
Shares subject to the Stock Appreciation Right or portion thereof exercised and
(y) the Adjusted Fair Market Value, on the date preceding the date of exercise,
of the Shares over (B) the aggregate Fair Market Value, on the date the Stock
Appreciation Right was granted, of the Shares subject to the Stock Appreciation
Right or portion thereof exercised. In the event a Grantee's employment with the
Company terminates following a Change in Control, each Stock Appreciation Right
held by the Grantee that was exercisable as of the date of termination of the
Grantee's employment shall remain exercisable for a period ending not before the
earlier of the first anniversary of (A) the termination of the Grantee's
employment or (B) the expiration of the stated term of the Stock Appreciation
Right.
9. Dividend Equivalent Rights.
Dividend Equivalent Rights may be granted to Eligible Individuals
and Eligible Directors in tandem with an Option or Award or as a separate award.
The terms and conditions applicable to each Dividend Equivalent Right shall be
specified in the Agreement under which the Dividend Equivalent Right is granted.
Amounts payable in respect of Dividend Equivalent Rights may be payable
currently or deferred until the lapsing of restrictions on such Dividend
Equivalent Rights or until the vesting, exercise, payment, settlement or other
lapse of restrictions on the Option or Award to which the Dividend Equivalent
Rights relate. In the event that the amount payable in respect of Dividend
Equivalent Rights are to be deferred, the Committee shall determine whether such
12
<PAGE>
amounts are to be held in cash or reinvested in Shares or deemed (notionally) to
be reinvested in Shares. If amounts payable in respect of Dividend Equivalent
Rights are to be held in cash, there may be credited at the end of each year (or
portion thereof) interest on the amount of the account at the beginning of the
year at a rate per annum. as the Committee, in its discretion, may determine.
Dividend Equivalent Rights may be settled in cash or Shares or a combination
thereof, in a single installment or multiple installments.
10. Restricted Stock.
10.1 Grant. The Committee may grant Awards to Eligible Individuals
of Restricted Stock, which shall be evidenced by an Agreement between the
Company and the Grantee. Each Agreement shall contain such restrictions, terms
and conditions as the Committee may, in its discretion, determine and (without
limiting the generality of the foregoing) such Agreements may require that an
appropriate legend be placed on Share certificates. Awards of Restricted Stock
shall be subject to the terms and provisions set forth below in this Section 10.
10.2 Rights of Grantee. Shares of Restricted Stock granted pursuant
to an Award hereunder shall be issued in the name of the Grantee as soon as
reasonably practicable after the Award is granted provided that the Grantee has
executed an Agreement evidencing the Award, the appropriate blank stock powers
and, in the discretion of the Committee, an escrow agreement and any other
documents which the Committee may require as a condition to the issuance of such
Shares. If a Grantee shall fail to execute the Agreement evidencing a Restricted
Stock Award, the appropriate blank stock powers and, in the discretion of the
Committee, an escrow agreement and any other documents which the Committee may
require within the time period prescribed by the Committee at the time the Award
is granted, the Award shall be null and void. At the discretion of the
Committee, Shares issued in connection with a Restricted Stock Award shall be
deposited together with the stock powers with an escrow agent (which may be the
Company) designated by the Committee. Unless the Committee determines otherwise
and as set forth in the Agreement, upon delivery of the Shares to the escrow
agent, the Grantee shall have all of the rights of a stockholder with respect to
such Shares, including the right to vote the Shares and to receive all dividends
or other distributions paid or made with respect to the Shares.
10.3 Non-transferabilily. Until all restrictions upon the Shares of
Restricted Stock awarded to a Grantee shall have lapsed in the manner set forth
in Section 10.4, such Shares shall not be sold, transferred or otherwise
disposed of and shall not be pledged or otherwise hypothecated, nor shall they
be delivered to the Grantee.
10.4 Lapse of Restrictions.
(a) Generally. Restrictions upon Shares of Restricted Stock
awarded hereunder shall lapse at such time or times and on such terms and
conditions as the Committee may determine. The Agreement evidencing the Award
shall set forth any such restrictions.
(b) Effect of Change in Control. Unless the Committee shall
determine otherwise at the time of the grant of an Award of Restricted Stock,
the restrictions upon Shares of Restricted Stock shall lapse upon a Change in
Control. The Agreement evidencing the Award shall set forth any such provisions.
10.5 Modification or Substitution. Subject to the terms of the Plan,
the Committee may modify outstanding Awards of Restricted Stock or accept the
surrender of outstanding Shares of Restricted Stock (to the extent the
restrictions on such Shares have not yet lapsed) and grant new Awards in
substitution for them. Notwithstanding the foregoing, no modification of an
Award shall adversely alter or impair any rights or obligations under the
Agreement without the Grantee's consent.
10.6 Treatment of Dividends. At the time an Award of Shares of
Restricted Stock is granted, the Committee may, in its discretion, determine
that the payment to the Grantee of dividends, or a specified portion thereof,
declared or paid on such Shares by the Company shall be (i) deferred until the
lapsing of the restrictions
13
<PAGE>
imposed upon such Shares and (ii) held by the Company for the account of the
Grantee until such time. In the event that dividends are to be deferred, the
Committee shall determine whether such dividends are to be reinvested in shares
of Stock (which shall be held as additional Shares of Restricted Stock) or held
in cash. If deferred dividends are to be held in cash, there may be credited at
the end of each year (or portion thereof) interest on the amount of the account
at the beginning of the year at a rate per annum as the Committee, in its
discretion, may determine. Payment of deferred dividends in respect of Shares of
Restricted Stock (whether held in cash or as additional Shares of Restricted
Stock), together with interest accrued thereon, if any, shall be made upon the
lapsing of restrictions imposed on the Shares in respect of which the deferred
dividends were paid, and any dividends deferred (together with any interest
accrued thereon) in respect of any Shares of Restricted Stock shall be forfeited
upon the forfeiture of such Shares.
10.7 Delivery of Shares. Upon the lapse of the restrictions on
Shares of Restricted Stock, the Committee shall cause a stock certificate to be
delivered to the Grantee with respect to such Shares, free of all restrictions
hereunder.
11. Performance Awards.
11.1 (a) Performance Objectives. Performance Objectives for
Performance Awards may be expressed in terms of (i) earnings per Share, (ii)
Share price, (iii) pre-tax profits, (iv) net earnings, (v) return on equity or
assets, (vi) revenues, (vii) EBITDA, (viii) market share or market penetration
or (ix) any combination of the foregoing. Performance Objectives may be in
respect of the performance of the Company and its Subsidiaries (which may be on
a consolidated basis), a Subsidiary or a Division. Performance Objectives may be
absolute or relative and may be expressed in terms of a progression within a
specified range. The Performance Objectives with respect to a Performance Cycle
shall be established in writing by the Committee by the earlier of (i) the date
on which a quarter of the Performance Cycle has elapsed or (ii) the date which
is ninety (90) days after the commencement of the Performance Cycle, and in any
event while the performance relating to the Performance Objectives remain
substantially uncertain. At the time of the granting of a Performance Award and
to the extent permitted under Section 162(m) of the Code and the regulations
thereunder, the Committee may provide for the manner in which the Performance
Objectives will be measured to reflect the impact of specified corporate
transactions, extraordinary events, accounting changes and other similar events.
(b) Determination of Performance. Prior to the vesting,
payment, settlement or lapsing of any restrictions with respect to any
Performance Award made to a Grantee who is subject to Section 162(m) of the
Code, the Committee shall certify in writing that the applicable Performance
Objectives have been satisfied.
11.2 Performance Units. The Committee, in its discretion, may grant
Awards of Performance Units to Eligible Individuals, the terms and conditions of
which shall be set forth in an Agreement between the Company and the Grantee.
Performance Units may be denominated in Shares or a specified dollar amount and,
contingent upon the attainment of specified Performance Objectives within the
Performance Cycle, represent the right to receive payment as provided in Section
11.2(b) of (i) in the case of Share-denominated Performance Units, the Fair
Market Value of a Share on the date the Performance Unit was granted, the date
the Performance Unit became vested or any other date specified by the Committee,
(ii) in the case of dollar-denominated Performance Units, the specified dollar
amount or (iii) a percentage (which may be more than 100%) of the amount
described in clause (i) or (ii) depending on the level of Performance Objective
attainment; provided, however, that, the Committee may at the time a Performance
Unit is granted specify a maximum amount payable in respect of a vested
Performance Unit. Each Agreement shall specify the number of Performance Units
to which it relates, the Performance Objectives which must be satisfied in order
for the Performance Units to vest and the Performance Cycle within which such
Performance Objectives must be satisfied.
14
<PAGE>
(a) Vesting and Forfeiture. Subject to Sections 11. 1 (b) and
11.4, a Grantee shall become vested with respect to the Performance Units to the
extent that the Performance Objectives set forth in the Agreement are satisfied
for the Performance Cycle.
(b) Payment of Awards. Subject to Section 11.1(b), payment to
Grantees in respect of vested Performance Units shall be made as soon as
practicable after the last day of the Performance Cycle to which such Award
relates unless the Agreement evidencing the Award provides for the deferral of
payment, in which event the terms and conditions of the deferral shall be set
forth in the Agreement. Subject to Section 11.4, such payments may be made
entirely in Shares valued at their Fair Market Value as of the day preceding the
date of payment or such other date specified by the Committee, entirely in cash,
or in such combination of Shares and cash as the Committee in its discretion
shall determine at any time prior to such payment; provided, however, that if
the Committee in its discretion determines to make such payment entirely or
partially in Shares of Restricted Stock, the Committee must determine the extent
to which such payment will be in Shares of Restricted Stock and the terms of
such Restricted Stock at the time the Award is granted.
11.3 Performance Shares. The Committee, in its discretion, may grant
Awards of Performance Shares to Eligible Individuals, the terms and conditions
of which shall be set forth in an Agreement between the Company and the Grantee.
Each Agreement may require that an appropriate legend be placed on Share
certificates. Awards of Performance Shares shall be subject to the following
terms and provisions:
(a) Rights of Grantee. The Committee shall provide at the time
an Award of Performance Shares is made the time or times at which the actual
Shares represented by such Award shall be issued in the name of the Grantee;
provided, however, that no Performance Shares shall be issued until the Grantee
has executed an Agreement evidencing the Award, the appropriate blank stock
powers and, in the discretion of the Committee, an escrow agreement and any
other documents which the Committee may require as a condition to the issuance
of such Performance Shares. If a Grantee shall fail to execute the Agreement
evidencing an Award of Performance Shares, the appropriate blank stock powers
and, in the discretion of the Committee, an escrow agreement and any other
documents which the Committee may require within the time period prescribed by
the Committee at the time the Award is granted, the Award shall be null and
void. At the discretion of the Committee, Shares issued in connection with an
Award of Performance Shares shall be deposited together with the stock powers
with an escrow agent (which may be the Company) designated by the Committee.
Except as restricted by the terms of the Agreement, upon delivery of the Shares
to the escrow agent, the Grantee shall have, in the discretion of the Committee,
all of the rights of a stockholder with respect to such Shares, including the
right to vote the Shares and to receive all dividends or other distributions
paid or made with respect to the Shares.
(b) Non-transferability. Until any restrictions upon the
Performance Shares awarded to a Grantee shall have lapsed in the manner set
forth in Sections 11. 3 (c) or 11.4, such Performance Shares shall not be sold,
transferred or otherwise disposed of and shall not be pledged or otherwise
hypothecated, nor shall they be delivered to the Grantee. The Committee may also
impose such other restrictions and conditions on the Performance Shares, if any,
as it deems appropriate.
(c) Lapse of Restrictions. Subject to Sections 11.1(b) and
11.4, restrictions upon Performance Shares awarded hereunder shall lapse and
such Performance Shares shall become vested at such time or times and on such
terms, conditions and satisfaction of Performance Objectives as the Committee
may, in its discretion, determine at the time an Award is granted.
(d) Treatment of Dividends. At the time the Award of
Performance Shares is granted, the Committee may, in its discretion, determine
that the payment to the Grantee of dividends, or a specified portion thereof,
declared or paid on actual Shares represented by such Award which have been
issued by the Company to the Grantee shall be (i) deferred until the lapsing of
the restrictions imposed upon such Performance Shares and (ii) held by the
Company for the account of the Grantee until such time. In the event that
dividends are to be deferred, the Committee shall determine whether such
dividends are to be reinvested in shares of Stock (which
15
<PAGE>
shall be held as additional Performance Shares) or held in cash. If deferred
dividends are to be held in cash, there may be credited at the end of each year
(or portion thereof) interest on the amount of the account at the beginning of
the year at a rate per annum as the Committee, in its discretion, may determine.
Payment of deferred dividends in respect of Performance Shares (whether held in
cash or in additional Performance Shares), together with interest accrued
thereon, if any, shall be made upon the lapsing of restrictions imposed on the
Performance Shares in respect of which the deferred dividends were paid, and any
dividends deferred (together with any interest accrued thereon) in respect of
any Performance Shares shall be forfeited upon the forfeiture of such
Performance Shares.
(e) Delivery of Shares. Upon the lapse of the restrictions on
Performance Shares awarded hereunder, the Committee shall cause a stock
certificate to be delivered to the Grantee with respect to such Shares, free of
all restrictions hereunder.
11.4 Effect of Change in Control. In the event of a Change in
Control:
(a) With respect to Performance Units, the Grantee shall (i)
become vested in a percentage of Performance Units as determined by the
Committee at the time of the Award of such Performance Units and as set forth in
the Agreement and (ii) be entitled to receive in respect of all Performance
Units which become vested as a result of a Change in Control a cash payment
within ten (10) days after such Change in Control in an amount as determined by
the Committee at the time of the Award of such Performance Unit and as set forth
in the Agreement.
(b) With respect to Performance Shares, restrictions shall
lapse immediately on all or a portion of the Performance Shares as determined by
the Committee at the time of the Award of such Performance Shares and as set
forth in the Agreement.
(c) The Agreements evidencing Performance Shares and
Performance Units shall provide for the treatment of such Awards (or portions
thereof) which do not become vested as the result of a Change in Control,
including, but not limited to, provisions for the adjustment of applicable
Performance Objectives.
11.5 Modification or Substitution. Subject to the terms of the Plan,
the Committee may modify outstanding Performance Awards or accept the surrender
of outstanding Performance Awards and grant new Performance Awards in
substitution for them. Notwithstanding the foregoing, no modification of a
Performance Award shall adversely alter or impair any rights or obligations
under the Agreement without the Grantee's consent.
12. Effect of a Termination of Employment.
The Agreement evidencing the grant of each Option and each Award
shall set forth the terms and conditions applicable to such Option or Award upon
a termination or change in the status of the employment of the Optionee or
Grantee by the Company, a Subsidiary or a Division (including a termination or
change by reason of the sale of a Subsidiary or a Division), which, except for
Director Options, shall be as the Committee may, in its discretion, determine at
the time the Option or Award is granted or thereafter.
13. Adjustment Upon Changes in Capitalization.
(a) In the event of a Change in Capitalization, the Committee shall
conclusively determine the appropriate adjustments, if any, to (i) the maximum
number and class of Shares or other stock or securities with respect to which
Options or Awards may be granted under the Plan, (ii) the maximum number and
class of Shares or other stock or securities with respect to which Options or
Awards may be granted to any Eligible Individual during the term of the Plan,
(iii) the number and class of Shares or other stock or securities which are
subject to outstanding Options or Awards granted under the Plan and the purchase
price therefor, if applicable, (iv) the number and class of Shares or other
securities in respect of which Director Options are to be granted under Section
6 and (v) the Performance Objectives.
16
<PAGE>
(b) Any such adjustment in the Shares or other stock or
securities subject to outstanding Incentive Stock Options (including any
adjustments in the purchase price) shall be made in such manner as not to
constitute a modification as defined by Section 424(h)(3) of the Code and only
to the extent otherwise permitted by Sections 422 and 424 of the Code.
(c) If, by reason of a Change in Capitalization, a Grantee of
an Award shall be entitled to, or an Optionee shall be entitled to exercise an
Option with respect to, new, additional or different shares of stock or
securities, such new, additional or different shares shall thereupon be subject
to all of the conditions, restrictions and performance criteria which were
applicable to the Shares subject to the Award or Option, as the case may be,
prior to such Change in Capitalization.
14. Effect of Certain Transactions.
Subject to Sections 7.4, 8.7, 10.4(b) and 11.4 or as otherwise
provided in an Agreement, in the event of (i) the liquidation or dissolution of
the Company or (ii) a merger or consolidation of the Company (a "Transaction"),
the Plan and the Options and Awards issued hereunder shall continue in effect in
accordance with their respective terms, except that following a Transaction each
Optionee and Grantee shall be entitled to receive in respect of each Share
subject to any outstanding Options or Awards, as the case may be, upon exercise
of any Option or payment or transfer in respect of any Award, the same number
and kind of stock, securities, cash, property or other consideration that each
holder of a Share was entitled to receive in the Transaction in respect of a
Share; provided, however, that such stock, securities, cash, property, or other
consideration shall remain subject to all of the conditions, restrictions and
performance criteria which were applicable to the Options and Awards prior to
such Transaction.
15. Interpretation.
Following the required registration of any equity security of the
Company pursuant to Section 12 of the Exchange Act:
(a) The Plan is intended to comply with Rule 16b-3 promulgated
under the Exchange Act and the Committee shall interpret and administer the
provisions of the Plan or any Agreement in a manner consistent therewith. Any
provisions inconsistent with such Rule shall be inoperative and shall not affect
the validity of the Plan.
(b) Unless otherwise expressly stated in the relevant
Agreement, each Option, Stock Appreciation Right and Performance Award granted
under the Plan is intended to be performance-based compensation within the
meaning of Section 162(m)(4)(C) of the Code. The Committee shall not be entitled
to exercise any discretion otherwise authorized hereunder with respect to such
Options or Awards if the ability to exercise such discretion or the exercise of
such discretion itself would cause the compensation attributable to such Options
or Awards to fail to qualify as performance-based compensation.
16. Pooling Transactions.
Notwithstanding anything contained in the Plan or any Agreement to
the contrary, in the event of a Change in Control which is also intended to
constitute a Pooling Transaction, the Committee shall take such actions, if any,
as are specifically recommended by an independent accounting firm retained by
the Company to the extent reasonably necessary in order to assure that the
Pooling Transaction will qualify as such, including but not limited to (i)
deferring the vesting, exercise, payment, settlement or lapsing of restrictions
with respect to any Option or Award, (ii) providing that the payment or
settlement in respect of any Option or Award be made in the form of cash, Shares
or securities of a successor or acquirer of the Company, or a combination of the
foregoing, and (iii) providing for the extension of the term of any Option or
Award to the extent necessary to accommodate the foregoing, but not beyond the
maximum term permitted for any Option or Award.
17
<PAGE>
17. Termination and Amendment of the Plan.
The Plan shall terminate on the day preceding the tenth anniversary
of the date of its adoption by the Board and no Option or Award may be granted
thereafter. Subject to Section 6.5, the Board may sooner terminate the Plan and
the Board may at any time and from time to time amend, modify or suspend the
Plan; provided, however, that:
(a) no such amendment, modification, suspension or termination
shall impair or adversely alter any Options or Awards theretofore granted under
the Plan, except with the consent of the Optionee or Grantee, nor shall any
amendment, modification, suspension or termination deprive any Optionee or
Grantee of any Shares which he or she may have acquired through or as a result
of the Plan; and
(b) to the extent necessary under applicable law, no amendment
shall be effective unless approved by the stockholders of the Company in
accordance with applicable law.
18. Non-Exclusivity of the Plan.
The adoption of the Plan by the Board shall not be construed as
amending, modifying or rescinding any previously approved incentive arrangement
or as creating any limitations on the power of the Board to adopt such other
incentive arrangements as it may deem desirable, including, without limitation,
the granting of stock options otherwise than under the Plan, and such
arrangements may be either applicable generally or only in specific cases.
19. Limitation of Liability.
As illustrative of the limitations of liability of the Company, but
not intended to be exhaustive thereof, nothing in the Plan shall be construed
to:
(i) give any person any right to be granted an Option or Award
other than at the sole discretion of the Committee;
(ii) give any person any rights whatsoever with respect to
Shares except as specifically provided in the Plan;
(iii) limit in any way the right of the Company or any
Subsidiary to terminate the employment of any person at any time; or
(iv) be evidence of any agreement or understanding, expressed
or implied, that the Company will employ any person at any particular rate of
compensation or for any particular period of time.
20. Regulations and Other Approvals; Governing Law.
20.1 Except as to matters of federal law, the Plan and the rights of
all persons claiming hereunder shall be construed and determined in accordance
with the laws of the State of Delaware without giving effect to conflicts of
laws principles thereof.
20.2 The obligation of the Company to sell or deliver Shares with
respect to Options and Awards granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Committee.
18
<PAGE>
20.3 The Board may make such changes as may be necessary or
appropriate to comply with the rules and regulations of any government
authority, or to obtain for Eligible Individuals granted Incentive Stock Options
the tax benefits under the applicable provisions of the Code and regulations
promulgated thereunder.
20.4 Each Option and Award is subject to the requirement that, if at
any time the Committee determines, in its discretion, that the listing,
registration or qualification of Shares issuable pursuant to the Plan is
required by any securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the grant of an Option or
Award or the issuance of Shares, no Options or Awards shall be granted or
payment made or Shares issued, in whole or in part, unless listing,
registration, qualification, consent or approval has been effected or obtained
free of any conditions as acceptable to the Committee.
20.5 Notwithstanding anything contained in the Plan or any Agreement
to the contrary, in the event that the disposition of Shares acquired pursuant
to the Plan is not covered by a then current registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), and is not otherwise
exempt from such registration, such Shares shall be restricted against transfer
to the extent required by the Securities Act and Rule 144 or other regulations
thereunder. The Committee may require any individual receiving Shares pursuant
to an Option or Award granted under the Plan, as a condition precedent to
receipt of such Shares, to represent and warrant to the Company in writing that
the Shares acquired by such individual are acquired without a view to any
distribution thereof and will not be sold or transferred other than pursuant to
an effective registration thereof under said Act or pursuant to an exemption
applicable under the Securities Act-or the rules and regulations promulgated
thereunder. The certificates evidencing any of such Shares shall be
appropriately amended to reflect their status as restricted securities as
aforesaid.
21. Miscellaneous.
21.1 Multiple Agreements. The terms of each Option or Award may
differ from other Options or Awards granted under the Plan at the same time, or
at some other time. The Committee may also grant more than one Option or Award
to a given Eligible Individual during the term of the Plan, either in addition
to, or in substitution for, one or more Options or Awards previously granted to
that Eligible Individual.
21.2 Withholding of Taxes.
(a) At such times as an Optionee or Grantee recognizes taxable
income in connection with the receipt of Shares or cash hereunder (a "Taxable
Event"), the Optionee or Grantee shall pay to the Company an amount equal to the
federal, state and local income taxes and other amounts as may be required by
law to be withheld by the Company in connection with the Taxable Event (the
"Withholding Taxes") prior to the issuance, or release from escrow, of such
Shares or the payment of such cash. The Company shall have the right to deduct
from any payment of cash to an Optionee or Grantee an amount equal to the
Withholding Taxes in satisfaction of the obligation to pay Withholding Taxes. In
satisfaction of the obligation to pay Withholding Taxes to the Company, the
Optionee or Grantee may make a written election (the "Tax Election"), which may
be accepted or rejected in the discretion of the Committee, to have withheld a
portion of the Shares then issuable to him or her having an aggregate Fair
Market Value equal to the Withholding Taxes.
(b) If an Optionee makes a disposition, within the meaning of
Section 424(c) of the Code and regulations promulgated thereunder, of any Share
or Shares issued to such Optionee pursuant to the exercise of an Incentive Stock
Option within the two-year period commencing on the day after the date of the
grant or within the one-year period commencing on the day after the date of
transfer of such Share or Shares to the Optionee pursuant to such exercise, the
Optionee shall, within ten (10) days of such disposition, notify the Company
thereof, by delivery of written notice to the Company at its principal executive
office.
19
<PAGE>
21.3 Effective Date. The effective date of this Plan shall be as
determined by the Board, subject only to the approval by the affirmative vote of
the holders of a majority of the securities of the Company present, or
represented, and entitled to vote at a meeting of stockholders duly held in
accordance with the applicable laws of the State of Delaware within twelve (12)
months of the adoption of the Plan by the Board.
20
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