<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-14299
NATIONSRENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 31-1570069
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
450 E. LAS OLAS BLVD., FORT LAUDERDALE, FL. 33301
(Address of principal executive offices) (Zip Code)
(954) 760-6550
(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 [ ] No [X]
The number of shares of Common Stock, par value $0.01 per share,
outstanding on August 31, 1998 was 43,1189,694.
<PAGE> 2
NATIONSRENT, INC.
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
PART I
FINANCIAL INFORMATION
Page
Number
Item 1. Unaudited Financial Statements
Consolidated Balance Sheets as of June 30, 1998
and December 31, 1997......................................... 1
Consolidated Statements of Income for the Three and Six Months
Ended June 30, 1998........................................... 2
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1998........................................... 3
Notes to Consolidated Financial Statements...................... 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 7
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds....................... 12
Item 4. Submission of Matters to a Vote of Security Holders............. 13
Item 6. Exhibits and Reports on Form 8-K................................ 13
Signatures................................................................. 15
<PAGE> 3
PART I -- FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
NATIONSRENT, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- -------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,169 $ 1,493
Accounts receivable, net of allowance for doubtful
accounts of $1,582 and $587 June 30, 1998 and
December 31, 1997, respectively 23,052 5,008
Inventories 9,577 1,840
Prepaid expenses and other assets 9,227 755
Rental equipment, net 137,606 30,619
Property and equipment, net 6,291 2,334
Intangible assets related to acquired businesses, net 107,034 37,108
-------- -------
Total Assets $295,956 $79,157
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 22,034 $ 2,303
Accrued repair and maintenance expenses 2,329 950
Accrued compensation and related taxes 2,999 328
Accrued expenses and other liabilities 10,064 2,579
Debt 177,168 42,928
Income taxes payable 216 1,523
Deferred income taxes 2,852 2,545
-------- -------
Total liabilities 217,662 53,156
-------- -------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock - $0.01 par value, 5,000,000 shares authorized,
no shares issued and outstanding -- --
Common stock - $0.01 par value, 100,000,000 shares
authorized, 30,118,694 in 1998 and 25,000,000 in 1997
shares issued and outstanding 301 250
Additional paid-in capital 75,699 24,750
Retained earnings 2,294 1,001
-------- -------
Total stockholders' equity 78,294 26,001
-------- -------
Total Liabilities and Stockholders' Equity $295,956 $79,157
======== =======
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
1
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NATIONSRENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
For The Three For The Six
Months Ended Months Ended
June 30, 1998 June 30, 1998
-------------- -------------
(Unaudited)
<S> <C> <C>
Revenue:
Equipment rentals $ 18,108 $ 24,019
Sales of equipment, parts and supplies 17,251 20,379
-------- --------
Total revenue 35,359 44,398
-------- --------
Cost of revenue:
Cost of equipment rentals, excluding depreciation 6,823 9,484
Rental equipment depreciation 4,042 5,118
Cost of sales of equipment, parts and supplies 12,226 14,479
-------- --------
Total cost of revenue 23,091 29,081
-------- --------
Gross profit 12,268 15,317
Operating expenses:
Selling, general and administrative expenses 7,093 8,852
Non-rental equipment depreciation and amortization 621 1,066
-------- --------
Operating income 4,554 5,399
-------- --------
Other (income)/expense:
Interest expense 2,635 3,443
Interest income (21) (42)
Other, net (130) (232)
-------- --------
2,484 3,169
-------- --------
Income before provision for income taxes 2,070 2,230
Provision for income taxes 870 937
-------- --------
Net income $ 1,200 $ 1,293
======== ========
Net income per share - basic and diluted $ 0.04 $ 0.05
======== ========
Weighted average common shares outstanding:
Basic 26,726 25,820
======== ========
Diluted 26,908 25,945
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
2
<PAGE> 5
NATIONSRENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
For The Six
Months Ended
June 30, 1998
-------------
(Unaudited)
<S> <C>
Cash flows from operating activities:
Net income $ 1,293
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,184
Gain on sale of rental equipment (1,321)
Deferred income tax provision 795
Changes in operating assets and liabilities:
Accounts receivable (4,717)
Inventories (52)
Prepaid expenses and other assets (6,654)
Accounts payable 15,246
Accrued expenses and other liabilities (263)
Income taxes payable (1,308)
---------
Net cash provided by operating activities 9,203
---------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired (75,732)
Purchases of rental equipment (42,692)
Purchases of property and equipment (2,234)
Proceeds from sale of rental equipment 5,685
---------
Net cash used in investing activities (114,973)
---------
Cash flows from financing activities:
Proceeds from issuance of common stock 27,600
Capital contribution 23,400
Proceeds from debt 131,918
Repayments of debt (75,472)
---------
Net cash provided by financing activities 107,446
---------
Net increase in cash and cash equivalents 1,676
Cash and cash equivalents, beginning of period 1,493
---------
Cash and cash equivalents, end of period $ 3,169
=========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 2,050
=========
Cash paid for income taxes $ 1,520
=========
Supplemental schedule of noncash investing and financing activities:
The Company acquired the net assets and assumed certain liabilities
of certain businesses as follows:
Total assets, net of cash acquired $ 168,982
Total liabilities assumed (64,491)
Amounts paid through the issuance of debt (28,759)
---------
Net cash paid $ 75,732
=========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
3
<PAGE> 6
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited interim consolidated financial statements
have been prepared by NationsRent, Inc. (the "Company") and reflect all
adjustments of a normal recurring nature which are, in the opinion of
management, necessary for a fair presentation of financial results for the three
and six months ended June 30, 1998, in accordance with generally accepted
accounting principles for interim financial reporting and pursuant to Article 10
of Regulation S-X. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. These unaudited
interim consolidated financial statements should be read in conjunction with the
consolidated financial statements for the year ended December 31, 1997 appearing
in the Company's Registration Statement on Form S-1, as amended (Commission File
No. 333-56233), filed with the Securities and Exchange Commission. The results
of operations for the three and six months ended June 30, 1998 are not
necessarily indicative of the results which may be reported for the year ending
December 31, 1998.
The unaudited consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All material intercompany
transactions and balances have been eliminated in consolidation.
Impact of recently issued accounting standards
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company adopted SFAS No. 130 during the
quarter ended June 30, 1998. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components in a full set
of financial statements. The objective of SFAS No. 130 is to report a measure
(comprehensive income) of all changes in equity of an enterprise that result
from transactions and other economic events in a period other than transactions
with owners. The adoption of SFAS 130 did not have a material impact on the
Company's consolidated financial statements, as comprehensive income was equal
to net income for all periods presented. The Company is currently evaluating the
reporting formats recommended under this Statement. SFAS No. 131 establishes a
new method by which companies will report operating segment information. This
method requires disclosure of information which is based on the manner in which
management organizes the segments within a company for making operating
decisions and assessing performance. The Company continues to evaluate the
provisions of SFAS No. 131 and, upon adoption, the Company may report operating
segments.
In March 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 establishes criteria for determining which
costs of developing or obtaining internal-use computer software should be
charged to expense and which should be capitalized. SOP 98-1 is effective for
all transactions entered into in fiscal years beginning after December 15, 1998.
The Company does not believe that the adoption of SOP 98-1 will have a material
effect on the Company's financial position or results of operations.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-5. SOP 98-5 requires that all
non-governmental entities expense costs of start-up activities, including
pre-operating, pre-opening and organization activities, as those costs are
incurred. In the opinion of management, the adoption of this Statement will not
have a material effect on the Company's financial position or results of
operations.
.
Note 2 - Acquisitions
The Company is building a nationally branded network of equipment
rental locations. Pursuant to this strategy, the Company made eight acquisitions
of equipment rental businesses during the six months ended June 30, 1998. The
aggregate consideration for these acquisitions consisted of $76,688,000 of cash,
$28,759,000 of debt payable to former
4
<PAGE> 7
owners and warrants to purchase 100,000 shares of the Company's $0.01 par value
per share common stock ("Common Stock"). The cash portion of the consideration
was funded through borrowings under the Company's revolving credit facility (the
"Credit Facility"), capital contributions by the founders of the Company and the
private placement of the Company's Common Stock. In addition, the Company repaid
or assumed outstanding indebtedness of the acquired companies in the aggregate
amount of $50,986,000. The acquisitions have been accounted for using the
purchase method and, accordingly, the acquired assets and assumed liabilities,
including goodwill, have been recorded at their estimated fair values as of the
date of acquisition. Purchase accounting values for all acquisitions have been
assigned on a preliminary basis, and are subject to adjustment when final
information as to the fair values of the net assets acquired is available. The
operations of the acquired businesses have been included in the Company's
consolidated statement of income since the date of each respective acquisition.
The following table sets forth the estimated fair value of the assets
acquired and liabilities assumed for the aforementioned acquisitions (in
thousands):
Assets, including cash $99,522
Goodwill 70,025
Other intangibles 389
Liabilities 64,491
The following table sets forth the unaudited pro forma consolidated
results of operations for the six months ended June 30, 1998 giving effect to
the aforementioned acquisitions as if such acquisitions had occurred on January
1, 1998 (in thousands, except per share data):
Revenue $83,183
Net income 2,250
Basic and diluted earnings per share $ 0.11
Note 3 - Common Stock
In June 1998, the founding stockholders of the Company made an
additional capital contribution of $17,400,000. Also, in June 1998, the Company
sold an aggregate of 5,118,694 shares of common stock in a private placement for
aggregate proceeds of $27,600,000. Investors in the private placement included
Company employees and associates of the founding stockholders of the Company.
Note 4 - Seasonality
The Company's initial acquisitions have been primarily in the Midwest
region of the United States. The Company's revenue and income are dependent upon
the activity in the construction industry in the markets served by the Company.
Construction activity is dependent upon weather and the traditional seasons for
construction work. Because of this variability in demand, the Company's
quarterly revenue may fluctuate, and revenue for the first quarter of each year
can be expected to be lower than the remaining quarters. Although the Company
believes that the historical trend in quarterly revenue for the second, third
and fourth quarters of each year is generally higher than the first quarter,
there can be no assurance that this will occur in future periods. Accordingly,
quarterly or other interim results should not be considered indicative of
results to be expected for any quarter or for the full year.
5
<PAGE> 8
Note 5 - Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30,1998 June 30,1998
------------ ------------
(In Thousands, Except Per Share Data)
<S> <C> <C>
Numerator:
Net income $ 1,200 $ 1,293
======= =======
Denominator:
Denominator for basic earnings per share - weighted-average shares 26,726 25,820
Effect of dilutive securities:
Employee stock options 182 125
------- -------
Denominator for diluted earnings per share - adjusted weighted-
average shares 26,908 25,945
======= =======
Basic earnings per share $ 0.04 $ 0.05
======= =======
Diluted earnings per share $ 0.04 $ 0.05
======= =======
</TABLE>
Note 6 - Subsequent Events
The Company has completed 13 acquisitions of rental equipment
businesses since June 30, 1998 for aggregate consideration of $155,503,000. Such
consideration consisted of $130,426,000 of cash, $15,850,000 of subordinated
convertible debt and 1,241,640 shares of Common Stock. The cash portion of the
consideration was funded through borrowings under the Credit Facility. Each of
the acquisitions has been accounted for using the purchase method.
In July 1998, the Company amended its Credit Facility to increase the
limit for cash borrowings and letters of credit from $165,000,000 to
$265,000,000.
In August 1998, the Company consummated its initial public offering
of 13,000,000 shares of common stock at $8.00 per share. The Company received
net proceeds of approximately $96,470,000 after deducting underwriting discounts
and commissions and offering expenses. The Company used all of the net proceeds
to repay a portion of the outstanding borrowings of the Company under its Credit
Facility.
In September 1998, the Company received a commitment letter from its
lenders to increase its Credit Facility to $440,000,000 by adding a $175,000,000
term loan to the Credit Facility.
6
<PAGE> 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the Company's consolidated
results of operations and financial condition should be read in conjunction with
the unaudited interim consolidated financial statements and notes thereto,
included herein and the consolidated financial statements for the year ended
December 31, 1997 appearing in the Company's Registration Statement on Form S-1,
as amended (Commission File No. 333-56233), filed with the Securities and
Exchange Commission.
General
The Company was formed on August 14, 1997 for the purpose of creating
a nationally branded network of equipment rental locations offering a broad
selection of equipment primarily to the construction and industrial segments of
the equipment rental industry in the United States.
The Company made eight acquisitions of equipment rental businesses
during the six months ended June 30, 1998. Consideration for these acquisitions
consisted of $76,688,000 of cash, $28,759,000 of debt payable to former owners
and warrants to purchase 100,000 shares of the Company's $0.01 par value per
share common stock ("Common Stock"). The cash portion of the consideration was
funded through borrowings under the Company's Credit Facility. In addition, the
Company repaid or assumed outstanding indebtedness of the acquired companies in
the aggregate amount of $50,986,000. The acquisitions have been accounted for
using the purchase method and, accordingly, the acquired assets and assumed
liabilities, including goodwill, have been recorded at their estimated fair
values as of the date of acquisition. Purchase accounting values for all
acquisitions have been assigned on a preliminary basis, and are subject to
adjustment when final information as to the fair values of the net assets
acquired is available. The operations of the acquired businesses have been
included in the Company's consolidated statement of income since the date of
each respective acquisition.
The Company derives its revenue from (i) equipment rental, (ii) sale
of used equipment, (iii) sale of new equipment and (iv) sale of spare parts and
supplies, maintenance and repair services. The growth of rental revenue is
dependent on several factors including demand for rental equipment, the amount
and quality of equipment available for rent, rental rates and general economic
conditions. Revenue generated from the sale of used equipment is affected by
price, general economic conditions and the condition of the equipment. Revenue
from the sale of new equipment is affected by price and general economic
conditions. Revenue from the sale of spare parts and supplies, maintenance and
repair services is primarily affected by equipment rental and sales volume.
The principal components of the Company's cost of revenue include
depreciation of rental equipment, costs of new and used equipment sold,
personnel costs, occupancy costs, repair and maintenance costs and vehicle
operations. Rental equipment depreciation is calculated using the straight-line
method over the estimated useful life of such equipment. The range of useful
lives estimated by management for rental equipment is two to eight years and is
depreciated to a salvage value of zero to ten percent of original cost. Certain
lift equipment is depreciated over a ten-year period.
Selling, general and administrative expense includes management
salaries, advertising and marketing, travel, administrative and clerical
salaries and data processing.
Non-rental equipment depreciation and amortization includes the
depreciation of fixed assets that are not offered for rent, amortization of
leasehold improvements and amortization of intangible assets related to the
acquired businesses.
Since the Company was not in existence during the second quarter of
1997, the following discussion of the results of operations does not set forth
any prior year comparisons.
7
<PAGE> 10
Results of Operations
Three and Six Months Ended June 30, 1998
Revenue. The following table sets forth the Company's revenue by type
for the three and six months ended June 30, 1998 (in thousands, except
percentages):
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1998 1998
------------------ ------------------
<S> <C> <C> <C> <C>
Equipment rentals $18,108 51% $24,019 54%
Sales of equipment, parts, supplies and service 17,251 49 20,379 46
------- --- ------- ---
$35,359 100% $44,398 100%
======= === ======= ===
</TABLE>
The Company expects the proportion of equipment rental revenue as a
percentage of total revenue to increase as it expands rental equipment inventory
at its locations and as it targets acquisition candidates with equipment rental
revenue as a percentage of total revenue of greater than 60%.
Gross profit. Gross profit for the three and six months ended June
30, 1998 was $12,268,000 or 34.7% of revenue and $15,317,000 or 34.5% of
revenue, respectively.
Operating expenses. Selling, general and administrative ("SGA")
expenses for the three and six months ended June 30, 1998 were $7,093,000 or
20.0% of revenue and $8,852,000 or 19.9% of revenue, respectively. Non-rental
equipment depreciation and amortization for the three and six months ended June
30, 1998 was $621,000 or 1.8% of revenue and $1,066,000 or 2.4% of revenue,
respectively.
Other income and expense. Interest expense for the three and six
months ended June 30, 1998 was $2,635,000 or 7.4% of revenue and $3,443,000 or
7.8% of revenue, respectively. Interest expense is primarily attributable to the
Company's Credit Facility and subordinated notes issued for acquisitions.
Income taxes. The Company's effective income tax rate for the three
and six months ended June 30, 1998 was 42%. The amount above statutory income
tax rates is attributable to non-deductible goodwill amortization for federal
income tax purposes.
Liquidity and Capital Resources
The Company's primary uses of cash have been the funding of
acquisitions and capital expenditures. To date, the Company has funded its cash
requirements with (i) borrowings under its Credit Facility, (ii) $48,400,000 of
equity contributions from the founders of the Company, (iii) $27,600,000 of
proceeds from a private placement of the Company's Common Stock and (iv) the use
of equipment leases. In August 1998, the Company consummated an initial public
offering (the "Offering") of 13,000,000 shares of its Common Stock at $8.00 per
share. The Company received net proceeds of approximately $96,470,000 after
deducting underwriting discounts and commissions and offering expenses.
The Company's net cash provided by operations was $9,203,000 for the
six months ended June 30, 1998. Net cash used in investing activities was
$114,973,000 for the six months ended June 30, 1998. Cash used in investing
activities in 1998 was primarily a result of cash consideration of $75,732,000
for the acquisition of businesses, net of cash acquired and $42,692,000 for
purchases of rental equipment. Cash provided by financing activities was
$107,446,000 for the six months ended June 30, 1998. Cash provided by financing
activities was primarily a result of (i) the $23,400,000 of additional equity
contributions from the Company's founders, (ii) the $27,600,000 in proceeds from
the private placement of the Company's Common Stock and (iii) borrowings under
the Company's Credit Facility.
In March 1998, the Company entered into the Credit Facility, as
amended in July 1998, with a syndicate of lenders to provide for up to
$265,000,000 of cash borrowings and letters of credit. The Credit Facility has a
three-year term scheduled to expire in July 2001. The Credit Facility can be
used to complete permitted acquisitions, make capital expenditures, enter into
standby letters of credit, or for working capital and other general corporate
purposes.
8
<PAGE> 11
Borrowings under the Credit Facility bear interest at either the BankBoston base
rate plus a percentage ranging from 0.00% to 0.50% or, at the Company's option,
the Eurodollar market rate plus a percentage ranging from 1.50% to 2.75%. The
percentage over the BankBoston base rate or the Eurodollar market rate is based
on the Company's financial performance as measured by the total funded debt
ratio (the "Pricing Ratio"). The Credit Facility is secured by a security
interest in substantially all of the assets of the Company. The Credit Facility
also imposes, among other covenants, a tangible assets to senior debt covenant,
a restriction on all of the Company's retained earnings including the
declaration and payment of cash dividends, consent requirements on certain
acquisitions and a restriction on the ratio of total funded debt to earnings
before interest, income taxes, depreciation and amortization. The proceeds from
the Credit Facility were used to repay substantially all of the notes payable to
financial institutions that were outstanding at December 31, 1997. On June 30,
1998, $106,300,000 of cash borrowings were outstanding under the Credit
Facility. In September 1998, the Company received a commitment letter from its
lenders to increase its Credit Facility to $440,000,000 by adding a $175,000,000
term loan to the Credit Facility.
The Company's short-term cash requirements for its existing
operations consist of (i) capital expenditures to maintain, modernize and expand
its rental equipment inventory, (ii) working capital requirements, and (iii)
operating activities such as repair and maintenance of rental equipment,
merchandise inventory and other operating activities. The Company estimates that
equipment expenditures for its existing locations will be in the range of
$90,000,000 to $100,000,000, net of proceeds from used equipment sales, over the
next 12 months. In addition, the Company believes that it will be required to
make equipment expenditures in connection with new acquisitions. The Company
believes that it will be able to finance its short-term cash needs through
borrowings under the Credit Facility, the use of equipment leases and cash
generated from operations. The Company estimates that such sources will be
sufficient to fund the cash required for the Company's existing operations for
at least 12 months.
The Company has opened six new locations within identified
"clusters." The Company estimates that the aggregate capital costs associated
with each such new location will be in the range of $2,000,000 to $4,500,000.
The Company believes that cash generated from operations and borrowings under
the Credit Facility will be sufficient to fund these costs without additional
debt or equity financings.
The Company is customizing a management information system, that it
expects will be operational in the fourth quarter of 1998. The Company estimates
the total cost of installation of such system at the Company's existing
locations will range between $5,000,000 and $7,000,000 and believes cash
generated from operations and borrowings under the Credit Facility will be
sufficient to fund these costs. The Company expects that the incremental costs
of installation of such system at additional locations will not be significant
on a per location basis.
The Company plans to continue its acquisition strategy and expects to
finance future acquisitions using cash, capital stock, notes and/or assumption
of indebtedness. To fully implement its growth strategy and meet the resulting
capital requirements, the Company will be required to increase amounts available
under the Credit Facility, issue future debt instruments or raise additional
capital through equity financings. There can be no assurance that any such
increase to the Credit Facility will be available or, if available, will be on
terms satisfactory to the Company, or that the Company will be able to
successfully complete any future debt or equity financings.
Seasonality and Fluctuations in Operating Results
The Company's revenue and income are dependent upon activity in the
construction industry in the markets served by the Company. Construction
activity is dependent upon weather and other seasonal factors affecting
construction in the geographic areas where the Company has operations,
particularly in the Midwest. Because of this variability in demand, the
Company's quarterly revenue may fluctuate, and revenue for the first quarter of
each year can be expected to be lower than the remaining quarters. Although the
Company believes that the historical trend in quarterly revenue for the second,
third and fourth quarters of each year is generally higher than the first
quarter, there can be no assurance that this will occur in future periods.
Accordingly, quarterly or other interim results should not be considered
indicative of results to be expected for any other quarter or for a full year.
Operating results may fluctuate due to other factors including, but
not limited to (i) changes in general economic conditions including changes in
national, regional and local construction or industrial activities, (ii) the
timing of acquisitions and opening of new locations, (iii) the timing of
expenditures for new rental equipment and the disposition of used equipment,
(iv) competitive pricing pressures and (v) increases in interest rates.
9
<PAGE> 12
The Company will incur significant expenses in opening new locations,
such as employee training, marketing and facility set-up costs. Initially, new
locations may generate lower operating margins than established locations and
may operate at a loss. In addition, when the Company purchases new rental
equipment, the depreciation related to such equipment may contribute to
near-term margin decline, because such equipment may not initially generate
revenue at a rate that is sufficient to match such increased depreciation
expense. As such, the opening of new rental locations and the purchase of new
equipment to expand the Company's current rental equipment inventory may reduce
the Company's operating margins during a start-up period.
Inflation
The Company does not believe that inflation has been a significant
factor to the cost of its operations or the operations of the Company's
predecessor, Sam's Equipment Rental, Inc.
Impact of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company adopted SFAS No. 130 during the
quarter ended June 30, 1998. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components in a full set
of financial statements. The objective of SFAS No. 130 is to report a measure
(comprehensive income) of all changes in equity of an enterprise that result
from transactions and other economic events in a period other than transactions
with owners. The adoption of SFAS 130 did not have a material impact on the
Company's consolidated financial statements, as comprehensive income was equal
to net income for all periods presented. The Company is currently evaluating the
reporting formats recommended under this Statement. SFAS No. 131 establishes a
new method by which companies will report operating segment information. This
method requires disclosure of information which is based on the manner in which
management organizes the segments within a company for making operating
decisions and assessing performance. The Company continues to evaluate the
provisions of SFAS No. 131 and, upon adoption, the Company may report operating
segments.
In March 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 establishes criteria for determining which
costs of developing or obtaining internal-use computer software should be
charged to expense and which should be capitalized. SOP 98-1 is effective for
all transactions entered into in fiscal years beginning after December 15, 1998.
The Company does not believe that the adoption of SOP 98-1 will have a material
effect on the Company's financial position or results of operations.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-5. SOP 98-5 requires that all
non-governmental entities expense costs of start-up activities, including
pre-operating, pre-opening and organization activities, as those costs are
incurred. In the opinion of management, the adoption of this Statement will not
have a material effect on the Company's financial position or results of
operations.
Year 2000
The Company's management information system is being developed to
ensure that it is Year 2000 compliant. Although the Company does not believe it
will suffer any major effects from the Year 2000 issue, there can be no
assurance that the Company, or any business acquired by the Company, or any of
the Company's customers or vendors will not experience interruptions of
operations because of Year 2000 problems. The Company expects to convert all of
the systems of the businesses it acquires to the Company's system as soon as
practicable after each acquisition is completed. There can be no assurance,
however, that all such systems will be converted prior to December 31, 1999.
Although the Company does not expect to incur significant expense to address the
Year 2000 issue, Year 2000 problems might require the Company to incur
unanticipated expenses and such expenses could have a material adverse effect on
the Company's business, financial condition, results of operations or prospects.
The Company is currently gathering information to comply with the
recently issued guidance from the Securities and Exchange Commission with regard
to disclosure of Year 2000 issues.
10
<PAGE> 13
Forward-looking Statements
Certain statements and information included herein constitute
"forward-looking statements" within the meaning of the Federal Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance, or achievements of the Company to be materially
different from any future results, performance, or achievements expressed or
implied by such forward-looking statements. Such factors include, among other
things, the ability to develop and implement operational and financial systems
to manage rapidly growing operations; competition in the Company's lines of
business; the ability to integrate and successfully operate acquired businesses
and the risks associated with such businesses; the ability to obtain financing
on acceptable terms to finance the Company's operations and growth strategy and
for the Company to operate within the limitations imposed by financing
arrangements; the possibility of unfavorable changes to the cost or financing
of the Company's equipment rental fleet; the Company's dependence on key
personnel; and other factors contained in the Company's filings with the
Securities and Exchange Commission.
11
<PAGE> 14
PART II -- OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Recent Sales of Unregistered Securities
During the period covered by this report (April 1998 through June
1998), the Company has issued securities in the following transactions. Each of
these transactions was intended to be exempt from the registration requirements
of the Securities Act of 1933, as amended, by virtue of either Section 4(2)
thereunder based on being issued in a transaction not involving a public
offering to a limited number of accredited investors or Section 3(b) thereunder
based on being issued to a limited number of non-executive employees pursuant to
written contracts relating to compensation of such persons.
In April 1998, the Company granted options to one of its employees to
purchase an aggregate of 84,382 shares of Common Stock at exercise price of
$6.67 per share. These options vest over a four year period at the rate of 25%
per year beginning on the first anniversary of the date of grant.
In April 1998, in connection with the acquisition of certain assets
of Revco Equipment Rentals, Inc., the Company issued a promissory note in the
principal amount of $900,000, which is convertible into shares of Common Stock
at the option of the holder at $8.00 per share.
In April 1998, in connection with the acquisition of certain assets
of Naples Rent-All and Sales Company ("Naples"), the Company issued a promissory
note in the principal amount of $1,000,000, which is convertible into shares of
Common Stock at the option of the holder at $8.00 per share.
In May 1998, in connection with the acquisition of The Bode-Finn
Company ("Bode-Finn"), the Company issued promissory notes in an aggregate
principal amount of $10,000,000, which are convertible into shares of Common
Stock at the option of the holder at $8.00 per share. The Company also issued
warrants to purchase 100,000 shares of Common Stock at an exercise price equal
to $8.00 per share and with a term of five years commencing 18 months following
the consummation of the Company's initial public offering.
In May 1998, in connection with the acquisition of certain assets of
U-Rent-It Company, Inc., the Company issued a promissory note in the principal
amount of $500,000, which is convertible into shares of Common Stock at the
option of the holder at $8.00 per share.
In June 1998, the Company issued an aggregate of 5,118,694 shares of
Common Stock to accredited investors in a private placement transaction for
aggregate proceeds of $27,600,000.
In June 1998, in connection with the acquisition of A-Action Rentals,
Inc., the Company issued a promissory note in the principal amount of
$1,000,000, which is convertible into shares of Common Stock at the option of
the holder at $8.00 per share.
In June 1998, in connection with the acquisition of Raymond Equipment
Company, Inc. ("Jobs"), the Company issued promissory notes with an aggregate
principal amount of $12,000,000, which are convertible into shares of Common
Stock at the option of the holder at $8.00 per share.
(d) Use of Proceeds from Sales of Registered Securities.
On August 12, 1998, the Company completed an initial public offering
(the "Offering") of 13,000,000 shares of Common Stock. The shares of Common
Stock sold in the Offering were registered under the Securities Act of 1933, as
amended, pursuant to a Registration Statement on Form S-1 (Commission File No.
333-56233), that was declared effective by the Securities and Exchange
Commission (the "SEC") on August 6, 1998. The managing underwriters for the
Offering were Bear, Stearns & Co. Inc., BT Alex. Brown Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation and NationsBanc Montgomery Securities
LLC. The Offering was completed after all of the 13,000,000 shares of Common
Stock that were registered were sold to the public at a price of $8.00 per
share. The aggregate price of the Offering amount registered and sold for the
Company's account was $104,000,000, including an aggregate of
12
<PAGE> 15
$5,530,000 in underwriting commissions and discounts. The following table sets
forth an estimate of all expenses incurred in connection with the Offering,
other than underwriting commissions and discounts, all of which amounts are
estimated except for the fees of the SEC and the National Association of
Securities Dealers, Inc. ("NASD"):
SEC registration fee ....................... $ 52,923
NASD filing fee ............................ 25,000
New York Stock Exchange original listing fee 100,000*
Accounting fees and expenses ............... 1,000,000*
Legal fees and expenses .................... 300,000*
Printing and engraving expenses ............ 425,000*
Miscellaneous fees and expenses ............ 97,077*
Total ...................................... $2,000,000
---------------------
* Estimated
After deducting underwriting discounts and commissions and estimated
offering expenses described above, on August 12, 1998, the Company received net
proceeds from the Offering of approximately $96,470,000. On August 12, 1998, the
Company used all of the net proceeds to repay a portion of the outstanding
borrowings of the Company under its Credit Facility, as described in the
Registration Statement. None of the net proceeds from the Offering were paid
directly or indirectly to any directors or officers of the Company or their
associates, to persons owning 10 percent or more of any class of equity
securities of the Company, or to affiliates of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
In June 1998, in anticipation of the Company's initial public
offering, the stockholders of the Company, by unanimous written consent in lieu
of a special meeting, approved, adopted and ratified the grant of certain stock
options to employees of the Company, the election of H. Wayne Huizenga, Harris
W. Hudson, Gary L. Gabriel and Thomas H. Bruinooge as directors of the Company
and the amendment of the certificate of incorporation of the Company.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
- ------ -----------
3.1 Amended and Restated Certificate of Incorporation of the Company.
3.2* Amended and Restated By-Laws of the Company.
4.1* Form of Certificate of Common Stock.
4.2* Amended and Restated Revolving Credit Agreement, dated as of June 29,
1998, by and among the Company, BankBoston, N.A., LaSalle National
Bank, Fleet Bank N.A., NationsBank, N.A., BancBoston Securities, Inc.
and other lending institutions named therein.
4.3* Security Agreement, dated as of March 18, 1998, between the Company and
Bank Boston, N.A.
4.4* Omnibus Amendment to Security Documents, dated as of June 29, 1998,
among the Company, its subsidiaries and Bank Boston, N.A.
4.5* Joinder and Commitment Increase Agreement, dated as of July 15, 1998,
among the Company, its subsidiaries, Bank Boston N.A., US Trust and
Bankers Trust Company.
4.6* Notice of Increase in Total Commitment, dated July 15, 1998, by Bank
Boston N.A.
10.1* Stock Purchase Agreement dated March 24, 1998 among the Company,
Bode-Finn and the shareholders of Bode- Finn, together with Amendment
No. I dated April 6, 1998 and Amendment No. 2 dated April 17, 1998.
10.2* Form of Unsecured Convertible Subordinated Promissory Notes - Bode-Finn
10.3* Form of Warrant - Bode-Finn
10.4* Registration Rights Agreement dated May 5, 1998 among the Company,
Bode-Finn, L.P. and Raymond E. Mason Foundation
10.5* Asset Purchase Agreement dated March 25, 1998 among NationsRent of
Indiana, Inc., R.F.L. Enterprises, Inc. ("RFL") and the shareholder of
RFL
13
<PAGE> 16
Exhibit
Number Description
- ------ -----------
10.6* Asset Purchase Agreement dated April 21, 1998 among NationsRent of
Florida, Inc. and Naples
10.7* Form of Unsecured Convertible Subordinated Promissory Note - Naples
10.8* Stock Purchase Agreement dated May 7, 1998 among the Company, Jobs and
the shareholders of Jobs
10.9* Form of Unsecured Subordinated Promissory Notes - Jobs
10.10* Form of Unsecured Convertible Subordinated Promissory Note - Jobs
10.11* Asset Purchase Agreement dated May 14, 1998 among the Company and
General Rental, Inc.
10.12* Stock Purchase Agreement dated May 30, 1998 among the Company, The J.
Kelly Co. ("J. Kelly") and the shareholders of J. Kelly
10.13* Form of Unsecured Convertible Subordinated Promissory Note - J. Kelly
10.14* Form of Registration Rights Agreement among the Company and the
shareholders of J. Kelly
10.15* Asset Purchase Agreement dated June 7, 1998 among the Company,
Associated Rental Equipment Management Company, Inc. ("Associated") and
the sole shareholder of Associated
10.16* Form of Unsecured Convertible Subordinated Promissory Note - Associated
10.17* Form of Registration Rights Agreement - Associated
10.18* Form of Subscription Agreement, dated May 1998, between the Company and
certain subscribers
10.19 NationsRent 1998 Stock Option Plan
10.20* Form of Stock Option Agreement
27.1 Financial data schedule (for SEC use only)
- ------------------------------------------
* Incorporated by reference to the Registrant's Registration Statement on
Form S-1, SEC File No. 333-56233
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
1998.
14
<PAGE> 17
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.
NATIONSRENT, INC.
Date: September 21, 1998 By /s/ James L. Kirk
-------------------------------------
James L. Kirk
Chairman of the Board
President and Chief Executive Officer
(Duly Authorized Officer)
Date: September 21, 1998 By /s/ Gene J. Ostrow
-------------------------------------
Gene J. Ostrow
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: September 21, 1998 By /s/ Kris E. Hansel
-------------------------------------
Kris E. Hansel
Vice President and Controller
(Principal Accounting Officer)
15
<PAGE> 18
EXHIBIT LIST
------------
3.1 Amended and Restated Certificate of Incorporation of the Company
10.19 NationsRent 1998 Stock Option Plan
27.1 Financial Data Schedule (for SEC use only)
<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NATIONSRENT, INC.
The present name of the corporation is NationsRent, Inc. The
corporation was incorporated under the name NationsRent, Inc. by the filing of
its original Certificate of Incorporation with the Secretary of the State of
Delaware on August 14, 1997. This Amended and Restated Certificate of
Incorporation of the corporation amends and restates the provisions of the
corporation's Certificate of Incorporation as heretofore amended and
supplemented. This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Sections 242, 245 and 228 of the
General Corporation Law of the State of Delaware. The Certificate of
Incorporation of the corporation is hereby restated to read in its entirety as
follows:
FIRST: The name of the Corporation is:
NationsRent, Inc.
SECOND: (a) The address of the registered office of the
Corporation in Delaware is:
Lexis Document Services Inc.
30 Old Rudnick Lane
Suite 100
County of Kent
Dover, Delaware 19901
(b) The name of the Corporation's registered
agent at the address of its registered
office is:
Lexis Document Services Inc.
THIRD: The purpose of the Corporation is to engage in,
promote, and carry on any lawful act or activity for
which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: (a) The total number of shares of stock that the
Corporation shall have authority to issue is
Two Hundred Fifty-Five Million
(255,000,000), consisting of Two Hundred
Fifty Million (250,000,000) shares of Common
Stock with a par value of One Cent ($0.01)
per share and Five Million (5,000,000)
shares of Preferred Stock with a par value
of One Cent ($0.01) per share.
<PAGE> 2
(b) Each share of Common Stock shall be equal to
every other share of Common Stock. The
holders of shares of Common Stock shall be
entitled to one vote for each share of
Common Stock upon all matters presented to
the stockholders.
(c) Shares of Preferred Stock may be issued from
time to time in one or more series. Subject
to any limitations prescribed by the laws of
the State of Delaware, the Board of
Directors is expressly authorized, prior to
the issuance of any series of Preferred
Stock, to fix by resolution or resolutions
providing for the issue of any series the
number of shares included in such series and
the designation, relative powers,
preferences and rights, and the
qualifications, limitations or restrictions
of such series. Pursuant to the foregoing
general authority vested in the Board of
Directors, but not in limitation of the
powers conferred on the Board of Directors
thereby and by the law of the State of
Delaware, the Board of Directors is
expressly authorized to determine with
respect to each series of Preferred Stock:
(i) the distinctive designation of such
series and the number of shares
(which number from time to time may
be decreased by the Board of
Directors, but not below the number
of such shares then outstanding, or
may be increased by the Board of
Directors unless otherwise provided
in creating such series)
constituting such series;
(ii) the rate and time at which, and the
preferences and conditions under
which, dividends shall be payable on
shares of such series, the status of
such dividends as cumulative, or
noncumulative, the date or dates
from which dividends, if cumulative,
shall accumulate, and the status of
such shares as participating or
nonparticipating after the payment
of dividends as to which such shares
are entitled to any preference;
(iii) the right, if any, of holders of
shares of such series to convert
such shares into, or to exchange
such shares for, shares of any other
class or classes or of any other
series of the same class, the prices
or rates of conversion or exchange,
and adjustments thereto, and any
other terms and conditions
applicable to such conversion or
exchange;
(iv) the rights and preferences, if any,
of the holders of shares of such
series upon the liquidation,
dissolution or winding up of
2
<PAGE> 3
the affairs of, or upon any
distribution of the assets of, the
Corporation, which amount may vary
depending upon whether such
liquidation, dissolution, or winding
up is voluntary or involuntary, and,
if voluntary, may vary at different
dates, and the status of the shares
of such series as participating or
nonparticipating after the
satisfaction of any such rights and
preferences;
(v) the voting powers, if any, of the
holders of shares of such series
which may, without limiting the
generality of the foregoing, include
(A) the general right to vote (or
more or less than one vote) per
share on every matter (including,
without limitation, the election of
directors) voted on by the
stockholders without regard to class
and (B) the limited right to vote,
as a series by itself or together
with other series of Preferred Stock
or together with all series of
Preferred Stock as a class, upon
such matters, under such
circumstances and upon such
conditions as the Board of Directors
may fix, including, without
limitation, the right, voting as a
series by itself or together with
other series of Preferred Stock or
together with other series of
Preferred Stock as a class, to elect
one or more directors of the
Corporation in the event one or more
directors of the Corporation in the
event there shall have been a
default in the payment of dividends
on any one or more series of
Preferred Stock;
(vi) the times, terms and conditions, if
any, upon which shares of such
series shall be subject to
redemption, including the amount
which the holders of shares of such
series shall be entitled to receive
upon redemption (which amount may
vary under different conditions or
at different redemption dates) and
the amount, terms, conditions and
manner of operation of any purchase,
retirement or sinking fund to be
provided for the shares of such
series;
(vii) the limitations, if any, applicable
while such series is outstanding on
the payment of dividends or making
of distributions on, or the
acquisition or redemption of, Common
Stock or any other class of shares
ranking junior, either as to
dividends or upon liquidation, to
the shares of such series;
(viii) the conditions or restrictions, if
any, upon the issue of any
additional shares (including
additional shares of such series
3
<PAGE> 4
or any other class) ranking on a
parity with or prior to the shares
of such series either as to
dividends or upon liquidation; and
(ix) any other relative powers,
preferences and participating,
option or other special rights, and
the qualifications, limitations or
restrictions thereof, of shares of
such series; in each case, so far as
not inconsistent with the provisions
of the Certificate of Incorporation
or the law of the State of Delaware.
All shares of Preferred Stock shall
be identical and of equal rank
except as to the particulars that
may be fixed by the Board of
Directors as provided above, and all
shares of each series of Preferred
Stock shall be identical and of
equal rank except as to the dates
from which cumulative dividends, if
any, thereon shall be cumulative.
FIFTH: Meetings of stockholders may be held within or
without the State of Delaware, as the Bylaws may
provide. The books of the Corporation may be kept
(subject to any provisions contained in the statutes)
outside the State of Delaware at such place or places
as may be designated from time to time by the Board
of Directors or in the Bylaws of the Corporation.
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: Elections of Directors need not be by written ballot
unless the Bylaws of the Corporation shall so
provide.
EIGHTH: The Board of Directors shall consist of one or more
members, the number thereof to be fixed in the manner
provided in the Bylaws.
NINTH: Except as otherwise provided in the Certificate of
Incorporation of the Corporation, the Board of
Directors shall be authorized to adopt, amend or
repeal the Bylaws of the Corporation.
TENTH: The Corporation shall indemnify its officers and
directors to the fullest extent permitted by Section
145 of the General Corporation Law of the State of
Delaware, as it may be amended from time to time
("Section 145"), (i) in each and every situation
where the Corporation is obligated to make such
indemnification pursuant to Section 145, and (ii) in
each and every situation where, under Section 145,
the Corporation is not obligated, but is permitted or
empowered, to make such indemnification. The
Corporation shall promptly make or cause to be made
any determination which Section 145 requires.
4
<PAGE> 5
ELEVENTH: A Director of the Corporation shall not be personally
liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a
Director. This provision shall not eliminate or limit
the liability of a Director (i) for any breach of the
Director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of
the General Corporation Law of the State of Delaware,
or (iv) for any transaction from which the Director
derived any improper personal benefit. If the General
Corporation Law of the State of Delaware is
subsequently amended to further eliminate or limit
the liability of a Director, then a Director of the
Corporation, in addition to the circumstances in
which a Director is not personally liable as set
forth herein, shall not be liable to the fullest
extent permitted by the amended General Corporation
Law of the State of Delaware.
TWELFTH: The Corporation reserves the right at any time, and
from time to time, to amend, alter, change or repeal
any provision contained in this Certificate of
Incorporation, and other provisions authorized by the
laws of the State of Delaware at the time in force
may be added or inserted, in the manner now or
hereafter prescribed by law; and all rights,
preferences and privileges of whatsoever nature
conferred upon stockholders, directors or any other
persons whomever by and pursuant to this Certificate
of Incorporation in its present form or as hereafter
amended are granted subject to the rights reserved in
this Article TWELFTH.
THIRTEENTH: The Corporation shall not be governed by Section 203
of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, NationsRent., Inc. has caused this Amended and
Restated Certificate of Incorporation to be executed by its authorized officer
on this 6th day of August 1998.
NATIONSRENT, INC.
By: /s/ KRIS HANSEL
------------------------------
Name: Kris Hansel
Title: Vice President and Controller
5
<PAGE> 1
Exhibit 10.19
NATIONSRENT, INC.
1998 STOCK OPTION PLAN
1. ESTABLISHMENT, EFFECTIVE DATE AND TERM
NationsRent, Inc., a Delaware corporation (the "Company") hereby
establishes the "NationsRent, Inc. 1998 Stock Option Plan" (the "Plan"). The
effective date of the Plan shall be August 6, 1998 (the "Effective Date"), which
is the date that the Plan was approved and adopted by the Board of Directors of
the Company (the "Board") and the stockholders of the Company. Unless earlier
terminated pursuant to Section 17 hereof, the Plan shall terminate on August 6,
2008.
2. PURPOSE
The purpose of the Plan is to advance the interests of the Company by
providing Eligible Individuals (as defined in Section 5 below) with an
opportunity to acquire or increase a proprietary interest in the Company, which
thereby will create a stronger incentive to expend maximum effort for the growth
and success of the Company and its subsidiaries, and will encourage such
individuals to remain in the employ of the Company or one or more of its
subsidiaries.
3. TYPE OF OPTIONS
Each stock option granted under the Plan (an "Option") may be
designated by the Board, in its sole discretion, either as (i) an "incentive
stock option" ("Incentive Stock Options") within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended from time to time (the "Code"), or
(ii) as a non-qualified option which is not intended to meet the requirements of
Section 422 of the Code; PROVIDED that Incentive Stock Options may only be
granted to employees of the Company or any "subsidiary corporation" as defined
in Section 424 of the Code (a "Subsidiary"). In the absence of any designation,
Options granted under the Plan will be deemed to be non-qualified options. The
Plan shall be administered and interpreted so that all incentive stock options
granted under the plan will qualify as incentive stock options under Section 422
of the Code. Options designated as Incentive Stock Options that fail to continue
to meet the requirements of Section 422 of the Code shall be redesignated as
non-qualified options automatically on the date of such failure to continue to
meet such requirements without further action by the Board.
4. ADMINISTRATION
(a) BOARD. The Plan shall be administered by the Board, which
shall have the full power and authority to take all actions,
and to make all determinations required or provided for under
the Plan or any Option granted or Option Agreement (as defined
in Section 9 below) entered into under the Plan and all such
other actions and determinations not inconsistent with the
specific terms and provisions of the Plan deemed by the
<PAGE> 2
Board to be necessary or appropriate to the administration of
the Plan or any Option granted or Option Agreement entered
into hereunder. The Board may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any
Option Agreement in the manner and to the extent it shall deem
expedient to carry the Plan into effect and shall be the sole
and final judge of such expediency. All such actions and
determinations shall be by the affirmative vote of a majority
of the members of the Board present at a meeting at which any
issue relating to the Plan is properly raised for
consideration or without a meeting by written consent of the
Board executed in accordance with the Company's Certificate of
Incorporation and By-Laws and applicable law. The
interpretation and construction by the Board of any provision
of the Plan or of any Option granted or Option Agreement
entered into hereunder shall be final and conclusive.
(b) COMMITTEE. The Board may, in its discretion, from time to
time appoint a Stock Option Committee (the "Committee")
consisting of not less than two members of the Board, none of
whom shall be an officer or other salaried employee of the
Company or any Subsidiary, and each of whom shall qualify in
all respects as a "non-employee director" as defined in Rule
16b-3 promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and an "outside director" for
purposes of Section 162(m) of the Code. The Board, in its sole
discretion, may provide that the role of the Committee shall
be limited to making recommendations to the Board concerning
any determinations to be made and actions to be taken by the
Board pursuant to or with respect to the Plan, or the Board
may delegate to the Committee such powers and authorities
related to the administration of the Plan, as set forth in
Section 4(a) above, as the Board shall determine, consistent
with the Certificate of Incorporation and By-Laws of the
Company and applicable law. The Board may remove members, add
members, and fill vacancies on the Committee from time to
time, all in accordance with the Company's Certificate of
Incorporation and By-Laws, and with applicable law. The
majority vote of the Committee, or acts reduced to or approved
in writing by a majority of the members of the Committee,
shall be the valid acts of the Committee.
(c) NO LIABILITY. No member of the Board or of the Committee shall
be liable for any action or determination made in good faith
with respect to the Plan or any Option granted or Option
Agreement entered into hereunder.
(d) DELEGATION TO THE COMMITTEE. In the event that the Plan or any
Option granted or Option Agreement entered into hereunder
provides for any action to be taken by or determination to be
made by the Board, such action may be taken by or such
determination may be made by the Committee if the power and
authority to do so has been delegated to the Committee by the
Board as provided for in Section 4(b) above. Unless otherwise
expressly determined by the Board, any such action or
determination by the Committee shall be final and conclusive.
2
<PAGE> 3
5. COMMON STOCK
The capital stock of the Company that may be issued pursuant to Options
granted under the Plan shall be shares of common stock, $.01 par value, of the
Company (the "Common Stock"), which shares may be treasury shares or authorized
but unissued shares. The total number of shares of Common Stock that may be
issued pursuant to Options granted under the Plan shall be 5,000,000 shares,
subject to adjustment as provided in Section 18 below. If any Option expires,
terminates, or is terminated or canceled for any reason prior to exercise in
full, the shares of Common Stock that were subject to the unexercised portion of
such Option shall be available for future Options granted under the Plan.
6. ELIGIBILITY
Options may be granted under the Plan to any employee or director
(employee and non-employee directors) of the Company or any Subsidiary, as well
as to any independent contractor or consultant performing services for the
Company or any Subsidiary as determined by the Board from time to time on the
basis of their importance to the business of the Company or any Subsidiary
(collectively, "Eligible Individuals"), provided that Incentive Stock Options
may only be granted to employees of the Company and its Subsidiaries. An
individual may hold more than one Option, subject to such restrictions as are
provided herein.
7. GRANT OF OPTIONS
(a) GENERAL. Subject to the terms and conditions of the Plan, the
Board may, at any time and from time to time, prior to the
date of termination of the Plan, grant to such Eligible
Individuals as the Board may determine ("Optionees"), Options
to purchase such number of shares of Common Stock on such
terms and conditions as the Board may determine. The date on
which the Board approves the grant of an Option (or such later
date as is specified by the Board) shall be considered the
date on which such Option is granted. The maximum number of
shares of Common Stock subject to Options that may be granted
during any calendar year under the Plan to any executive
officer or other employee of the Company or any Subsidiary
whose compensation is or may be subject to Section 162(m) of
the Code is 1,000,000 shares (subject to adjustment as
provided in Section 18 below).
(b) NON-EMPLOYEE DIRECTORS.
(i) Each member of the Board that is not an employee of the
Company, as determined by the Board in its sole discretion (a
"Non-Employee Director"), shall automatically be granted, as
of the effective date of the registration statement (the "IPO
Effective Date") relating to the Company's initial public
offering of its Common Stock ("IPO"), an Option to acquire
50,000 shares of Common Stock at a price per share equal to
the initial public offering price. Each Non-Employee
3
<PAGE> 4
Director who joins the Board after the closing date of the IPO
shall automatically be granted, as of the date he or she joins
the Board, an Option to acquire 50,000 shares of Common Stock
at a price per share equal to the closing price of a share of
Common Stock on the New York Stock Exchange on the last
trading date immediately prior to the grant date, provided if
the Common Stock is not listed on the NYSE, the price per
share shall be determined in accordance with Section 10.
(ii) Additionally, each Non-Employee Director as of the first
day of each fiscal year of the Company, shall automatically be
granted, as of such date, an Option to acquire 10,000 shares
of Common Stock at a price per share equal to the closing
price of a share of Common Stock on the New York Stock
Exchange on the last trading date immediately prior to the
grant date, provided if the Common Stock is not listed on the
NYSE, the price per share shall be determined in accordance
with Section 10.
(iii) All Options granted under this Section 7(b) shall be
fully vested and immediately exercisable, and shall remain
exercisable for a term of ten years from the date of grant so
long as such person remains a member of the Board. At such
time as such person ceases to be a Board member, any portion
of the Option that has not been exercised shall no longer be
exercisable and shall terminate.
(iv) No Option referred to herein shall be granted, awarded,
or exercised at any time prior to the IPO Effective Date. If
the IPO is not consummated, the Options referred to herein
shall not be granted or awarded or become exercisable.
8. LIMITATION ON INCENTIVE STOCK OPTIONS
(a) TEN PERCENT STOCKHOLDER. Notwithstanding any other provision
of this Plan to the contrary, no individual may receive an
Incentive Stock Option under the Plan if such individual, at
the time the award is granted, owns (after application of the
rules contained in Section 424(d) of the Code) stock
possessing more than 10 percent of the total combined voting
power of all classes of stock of the Company or its
subsidiaries, unless (i) the purchase price for each share of
Common Stock subject to such Incentive Stock Option is at
least 110 percent of the fair market value of a share of
Common Stock on the date of grant (as determined in good faith
by the Board) and (ii) such Incentive Stock Option is not
exercisable after the date which is five years from the date
of grant.
(b) LIMITATION ON GRANTS. The aggregate fair market value
(determined with respect to each Incentive Stock Option at the
time such Incentive Stock Option is granted) of the shares of
Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by an individual during any
calendar year (under this Plan or any other plan of the
Company or a subsidiary) shall not exceed $100,000.
4
<PAGE> 5
If an incentive stock option is granted pursuant to which the
aggregate fair market value of shares with respect to which it
first becomes exercisable in any calendar year by an
individual exceeds such $100,000 limitation, the portion of
such option which is in excess of the $100,000 limitation, and
any such options issued subsequently in the same calendar
year, shall be treated as a non-qualified option pursuant to
Section 422(d)(1) of the Code. In the event that an individual
is eligible to participate in any other stock option plan of
the Company or any parent or subsidiary of the Company which
is also intended to comply with the provisions of Section 422
of the Code, such $100,000 limitation shall apply to the
aggregate number of shares for which incentive stock options
may be granted under this Plan and all such other plans.
9. OPTION AGREEMENTS
All Options granted pursuant to the Plan shall be evidenced by written
agreements ("Option Agreements"), to be executed by the Company and by the
Optionee, in such form or forms as the Board shall from time to time determine.
Option Agreements covering Options granted from time to time or at the same time
need not contain similar provisions; PROVIDED, HOWEVER, that all such Option
Agreements shall comply with all terms of the Plan.
10. OPTION PRICE
The purchase price of each share of Common Stock subject to an Option
(the "Option Price") shall be fixed by the Board and stated in each Option
Agreement, and subject to the provisions of Sections 7(b) and 8(a) above, shall
be not less than 100 percent of the fair market value of a share of Common Stock
on the date the Option is granted. If the Common Stock is then listed on any
national securities exchange, the fair market value shall be the closing price
of a share of Common Stock on such exchange on the last trading day immediately
prior to the date of grant; PROVIDED, HOWEVER, that when granting Incentive
Stock Options, the Board shall determine fair market value in accordance with
the provisions of Section 422 of the Code. If the Common Stock is not listed on
any such exchange, the fair market value shall be determined in good faith by
the Board. Notwithstanding the foregoing, the Option Price of Options granted on
the IPO Effective Date shall be equal to the initial public offering price.
11. TERM AND VESTING OF OPTIONS
(a) OPTION PERIOD. Subject to the provisions of Sections 8(a) and
14 hereof, each Option granted under the Plan shall terminate
and all rights to purchase shares thereunder shall cease upon
the expiration of 10 years from the date such Option is
granted, or on such date prior thereto as may be fixed by the
Board and stated in the Option Agreement relating to such
Option. Notwithstanding the foregoing, the Board may in its
discretion, at any time prior to the expiration or termination
of any Option, extend the term of any such Option for such
additional period as the Board in its discretion may
determine; PROVIDED, HOWEVER, that in no event shall the
aggregate
5
<PAGE> 6
option period with respect to any Option, including the
initial term of such Option and any extensions thereof, exceed
10 years.
(b) VESTING. Subject to the provisions of Section 14 hereof, and
except as set forth in Section 7(b)(iii), each Option shall
become exercisable with respect to 25% of the total number of
shares subject to the Option on the date that is 12 months
after the date of its grant (the "Vesting Date") and with
respect to an additional 25% of the number of such shares on
each of the next three succeeding anniversaries of the Vesting
Date. Notwithstanding the foregoing, the Board may in its
discretion provide that any vesting requirement or other such
limitation on the exercise of an Option may be rescinded,
modified or waived by the Board, in its sole discretion, at
any time and from time to time after the date of grant of such
Option, so as to accelerate the time at which the Option may
be exercised.
(c) CHANGE IN CONTROL. In the event of a Change in Control (as
defined below), except as the Board shall otherwise provide in
an Option Agreement with respect to an Option granted under
the Plan, all outstanding Options shall become immediately
exercisable in full, without regard to any limitation on
exercise imposed pursuant to Section 11(b) above. For purposes
of the Plan, a "Change in Control" shall be deemed to occur if
any person (excluding those persons or affiliates of those
persons who were stockholders of the Company prior to the
Company's initial public offering) shall acquire direct or
indirect beneficial ownership (whether as a result of stock
ownership, revocable or irrevocable proxies or otherwise) of
more than 50% of the total combined voting power with respect
to the election of directors of the issued and outstanding
capital stock of the Company (except that no Change in Control
shall be deemed to have occurred if the stockholders of the
Company immediately before such acquisition own more than 50%,
directly or indirectly, all or substantially all of the voting
stock or other interests of such acquiring person immediately
after such transaction). For purposes of the Plan, a "person"
shall mean any person, corporation, partnership, joint venture
or other entity or any group (as such term is defined for
purposes of Section 13(d) of the Exchange Act) and "beneficial
ownership" shall be determined in accordance with Rule 13d-3
under the Exchange Act.
12. MANNER OF EXERCISE AND PAYMENT
(a) EXERCISE. An Option that is exercisable hereunder may be
exercised by delivery to the Company on any business day, at
its principal office, addressed to the attention of the Stock
Option Administrator, of written notice of exercise, which
notice shall specify the number of shares with respect to
which the Option is being exercised, and shall be accompanied
by payment in full of the Option Price of the shares for which
the Option is being exercised, by one or more of the methods
provided below. The minimum number of shares of Common Stock
with respect to which an Option may
6
<PAGE> 7
be exercised, in whole or in part, at any time shall be the
lesser of 100 shares or the maximum number of shares available
for purchase under the Option at the time of exercise.
(b) PAYMENT. Payment of the Option Price for the shares of Common
Stock purchased pursuant to the exercise of an Option shall be
made (i) in cash or in cash equivalents; (ii) through the
tender to the Company of shares of Common Stock, which shares
shall be valued, for purposes of determining the extent to
which the Option Price has been paid thereby, at their fair
market value (determined in the manner described in Section 10
above) on the date of exercise; (iii) by delivering a written
direction to the Company that the Option be exercised pursuant
to a "cashless" exercise/sale procedure (pursuant to which
funds to pay for exercise of the Option are delivered to the
Company by a broker upon receipt of stock certificates from
the Company) or a cashless exercise/loan procedure (pursuant
to which the Optionees would obtain a margin loan from a
broker to fund the exercise) through a licensed broker
acceptable to the Company whereby the stock certificate or
certificates for the shares of Common Stock for which the
Option is exercised will be delivered to such broker as the
agent for the individual exercising the Option and the broker
will deliver to the Company cash (or cash equivalents
acceptable to the Company) equal to the Option Price for the
shares of Common Stock purchased pursuant to the exercise of
the Option plus the amount (if any) of federal and other taxes
that the Company, may, in its judgment, be required to
withhold with respect to the exercise of the Option; (iv) to
the extent permitted by applicable law and agreed to by the
Board in its sole and absolute discretion, by the delivery of
a promissory note of the Optionee to the Company on such terms
as the Board shall specify in its sole and absolute
discretion; or (v) by a combination of the methods described
in clauses (i), (ii), (iii) and (iv). Payment in full of the
Option Price need not accompany the written notice of exercise
if the Option is exercised pursuant to the cashless
exercise/sale procedure described above. An attempt to
exercise any Option granted hereunder other than as set forth
above shall be invalid and of no force and effect.
(c) ISSUANCE OF CERTIFICATES. Promptly after the exercise of an
Option, the individual exercising the Option shall be entitled
to the issuance of a certificate or certificates evidencing
his ownership of such shares of Common Stock. An individual
holding or exercising an Option shall have none of the rights
of a stockholder until the shares of Common Stock covered
thereby are fully paid and issued to him and, except as
provided in Section 18 below, no adjustment shall be made for
dividends or other rights for which the record date is prior
to the date of such issuance.
7
<PAGE> 8
13. TRANSFERABILITY OF OPTIONS
No Option shall be assignable or transferable by the Optionee to whom
it is granted, other than by will or the laws of descent and distribution.
14. TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY
(a) GENERAL. Upon the termination of the employment or other
service of an Optionee with the Company or any Subsidiary,
other than by reason of death or "permanent and total
disability" (within the meaning of Section 22(e)(3) of the
Code) of such Optionee, any Option granted to such Optionee
pursuant to the Plan shall terminate upon the date of such
termination of employment or service and such Optionee shall
have no further right to purchase shares of Common Stock
pursuant to such Option. Notwithstanding the foregoing
provisions of this Section 14, the Board may provide, in its
discretion, that following the termination of employment or
service of an Optionee with the Company or any Subsidiary, an
Optionee may exercise an Option, in whole or in part, at any
time subsequent to such termination of employment or service
and prior to termination of the Option pursuant to Section
11(a) above, either subject to or without regard to any
vesting or other limitation on exercise imposed pursuant to
Section 11(b) above. Unless otherwise determined by the Board,
temporary absence from employment or service because of
illness, vacation, approved leaves of absence, military
service and transfer of employment shall not constitute a
termination of employment or service with the Company or any
Subsidiary.
(b) DEATH. If an Optionee dies while in the employ or service of
the Company or any Subsidiary, Optionee's estate or the
devisee named in the Optionee's valid last will and testament
or the Optionee's heir at law who inherits the Option shall
have the right, at any time within three years after the date
of such Optionee's death and prior to termination of the
Option pursuant to Section 11(a) above, to exercise, in whole
or in part, any vested portion of the Option (in accordance
with Section 11(b) above) held by such Optionee at the date of
such Optionee's death. On the date of Optionee's death, the
unvested portion of the Option shall terminate.
(c) DISABILITY. If an Optionee terminates employment or service
with the Company or any Subsidiary by reason of the "permanent
and total disability" (within the meaning of Section 22(e)(3)
of the Code) of such Optionee, then Optionee shall have the
right at any time within three years after such termination of
employment or service and prior to termination of the Option
pursuant to Section 11(a) above, to exercise, in whole or in
part, any vested portion of the Option (in accordance with
Section 11(b) above) held by such Optionee at the date of such
termination of employment or service. On the date of such
termination of employment or service, the unvested portion of
the Option shall terminate. Whether a termination of
employment or
8
<PAGE> 9
service is to be considered by reason of "permanent and total
disability" for purposes of this Plan shall be determined by
the Board, which determination shall be final and conclusive.
15. USE OF PROCEEDS
The proceeds received by the Company from the sale of Common Stock
pursuant to Options granted under the Plan shall constitute general funds of the
Company.
16. REQUIREMENTS OF LAW
(a) VIOLATIONS OF LAW. The Company shall not be required to sell
or issue any shares of Common Stock under any Option if the
sale or issuance of such shares would constitute a violation
by the individual exercising the Option or the Company of any
provisions of any law or regulation of any governmental
authority, including without limitation any federal or state
securities laws or regulations. Any determination in this
connection by the Board shall be final, binding, and
conclusive. The Company shall not be obligated to take any
affirmative action in order to cause the exercise of an Option
or the issuance of shares pursuant thereto to comply with any
law or regulation of any governmental authority.
(b) REGISTRATION. At the time of any exercise of any Option, the
Company may, if it shall determine it necessary or desirable
for any reason, require the Optionee (or his or her heirs,
legatees or legal representative, as the case may be), as a
condition to the exercise thereof, to deliver to the Company a
written representation of present intention to purchase the
shares for their own account as an investment and not with a
view to, or for sale in connection with, the distribution of
such shares, except in compliance with applicable federal and
state securities laws with respect thereto. In the event such
representation is required to be delivered, an appropriate
legend may be placed upon each certificate delivered to the
Optionee (or his or her heirs, legatees or legal
representative, as the case may be) upon his or her exercise
of part or all of the Option and a stop transfer order may be
placed with the transfer agent. Each Option shall also be
subject to the requirement that, if at any time the Company
determines, in its discretion, that the listing, registration
or qualification of the shares subject to the Option upon 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 issuance or purchase of the shares thereunder, the
Option may not be exercised in whole or in part unless such
listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions
not acceptable to the Company in its sole discretion. The
Company shall not be obligated to take any affirmative action
in order to cause the exercisability or vesting of an Option
or to cause the exercise of an Option or the
9
<PAGE> 10
issuance of shares pursuant thereto to comply with any law or
regulation of any governmental authority.
(c) WITHHOLDING. The Board may make such provisions and take such
steps as it may deem necessary or appropriate for the
withholding of any taxes that the Company is required by any
law or regulation of any governmental authority, whether
federal, state or local, domestic or foreign, to withhold in
connection with the exercise of any Option, including, but not
limited to: (i) the withholding of delivery of shares of
Common Stock upon exercise of Options until the holder
reimburses the Company for the amount the Company is required
to withhold with respect to such taxes, (ii) the canceling of
any number of shares of Common Stock issuable upon exercise of
such Options in an amount sufficient to reimburse the Company
for the amount it is required to so withhold, or (iii)
withholding the amount due from any such person's wages or
compensation due such person.
(d) GOVERNING LAW. This Plan shall be governed by, and construed
and enforced in accordance with, the laws of the State of
Delaware.
17. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend or
terminate the Plan as to any shares of Common Stock as to which Options have not
been granted; PROVIDED, HOWEVER, that the approval by a majority of the votes
present and entitled to vote at a duly held meeting of the stockholders of the
Company at which a quorum representing a majority of all outstanding voting
stock is, either in person or by proxy, present and voting on the amendment, or
by written consent in accordance with applicable state law and the Certificate
of Incorporation and By-Laws of the Company shall be required for any amendment
(i) that changes the requirements as to Eligible Individuals to receive Options
under the Plan, (ii) that increases the maximum number of shares of Common Stock
in the aggregate that may be sold pursuant to Options that are granted under the
Plan (except as permitted under Section 18 hereof), or (iii) if approval of such
amendment is necessary to comply with federal or state law (including without
limitation Rule 162(m) of the Code and Rule 16b-3 under the Exchange Act) or
with the rules of any stock exchange or automated quotation system on which the
Common Stock may be listed or traded. Except as permitted under Section 18
hereof, no amendment, suspension or termination of the Plan shall, without the
consent of the holder of the Option, alter or impair rights or obligations under
any Option theretofore granted under the Plan.
18. EFFECT OF CHANGES IN CAPITALIZATION
(a) RECAPITALIZATION. If the outstanding shares of Common Stock
are increased or decreased or changed into or exchanged for a
different number or kind of shares or other securities of the
Company by reason of any recapitalization, reclassification,
reorganization (other than as described in Section 18(b)
below), stock split, reverse
10
<PAGE> 11
split, combination of shares, exchange of shares, stock
dividend or other distribution payable in capital stock of the
Company, or other increase or decrease in such shares effected
without receipt of consideration by the Company, occurring
after the Effective Date, an appropriate and proportionate
adjustment shall be made by the Board (i) in the aggregate
number and kind of shares of Common Stock available under the
Plan, (ii) in the number and kind of shares of Common Stock
issuable upon exercise of outstanding Options granted under
the Plan, and (iii) in the Option Price per share of
outstanding Options granted under the Plan.
(b) REORGANIZATION. In connection with a merger, consolidation,
reorganization or other business combination of the Company
with one or more other entities in which the Company is not
the surviving entity, each then outstanding Option shall upon
exercise thereafter entitle the holder thereof to such number
of shares of Common Stock or other securities or property to
which a holder of shares of Common Stock would have been
entitled to upon such merger, consolidation, reorganization or
other business combination.
(c) DISSOLUTION OR LIQUIDATION. Upon the dissolution or
liquidation of the Company, the Plan and all Options
outstanding hereunder shall terminate. In the event of any
termination of the Plan under this Section 18(c), each
individual holding an Option shall have the right, immediately
prior to the occurrence of such termination and during such
reasonable period as the Board in its sole discretion shall
determine and designate, to exercise such Option in whole or
in part, whether or not such Option was otherwise exercisable
at the time such termination occurs and without regard to any
vesting or other limitation on exercise imposed pursuant to
Section 11(b) above.
(d) ADJUSTMENTS. Adjustments under this Section 18 related to
stock or securities of the Company shall be made by the Board,
whose determination in that respect shall be final, binding,
and conclusive. No fractional shares of Common Stock or units
of other securities shall be issued pursuant to any such
adjustment, and any fractions resulting from any such
adjustment shall be eliminated in each case by rounding
downward to the nearest whole share or unit.
(e) NO LIMITATIONS. The grant of an Option pursuant to the Plan
shall not affect or limit in any way the right or power of the
Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve or liquidate, or
to sell or transfer all or any part of its business or assets.
19. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or Option Agreement
entered into pursuant to the Plan shall be construed to confer upon any
individual the right to remain in the employ of the
11
<PAGE> 12
Company or any Subsidiary or to interfere in any way with the right and
authority of the Company or any Subsidiary either to increase or decrease the
compensation of any individual, including any Option holder, at any time, or to
terminate any employment or other relationship between any individual and the
Company or any Subsidiary. A holder of an option shall not be deemed for any
purpose to be a stockholder of the Company with respect to such option except to
the extent that such option shall have been exercised with respect thereto and,
in addition, a stock certificate shall have been issued theretofore and
delivered to the holder. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the date such stock
certificate is issued, except as expressly provided in Section 18 hereof.
20. NONEXCLUSIVITY OF THE PLAN
The adoption of the Plan shall not be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or individuals) as the Board in its discretion determines desirable,
including, without limitation, the granting of stock options or stock
appreciation rights otherwise than under the Plan.
21. SEVERABILITY
If any provision of the Plan or any Option Agreement shall be
determined to be illegal or unenforceable by any court of law in any
jurisdiction, the remaining provisions hereof and thereof shall be severable and
enforceable in accordance with their terms, and all provisions shall remain
enforceable in any other jurisdiction.
22. NOTICES
Any communication or notice required or permitted to be given under the
Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to its principal place of business,
attention: President, and if to the holder of an option, to the address as
appearing on the records of the Company.
12
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