<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-25741
---------------------------
PROXICOM, INC.
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(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware 52-1770631
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(State of Organization) (I.R.S. Employer Identification Number)
11600 Sunrise Valley Drive, Reston, VA 20191
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (703) 262-3200
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 [__].
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Class Outstanding at May 11, 2000
- ----------------------------------------- -----------------------------------
Common Stock, $0.01 par value per share 55,618,669
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PROXICOM, INC.
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2000
TABLE OF CONTENTS
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PAGE
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
as of December 31, 1999 and March 31, 2000 .................................... 1
Consolidated Statements of Operations
for the Three-Month Periods Ended March 31, 1999 and
March 31, 2000................................................................. 2
Consolidated Statements of Cash Flows
for the Three-Month Periods Ended March 31, 1999
and March 31, 2000............................................................. 3
Notes to Consolidated Financial Statements .................................... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................ 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk...................... 14
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............................. 16
Item 6. Exhibits and Reports on Form 8-K................................................ 16
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
PROXICOM, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
--------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................... $ 113,819 $ 95,464
Investments ............................................................. 5,819 31,043
Accounts receivable, net of allowance of $655 and $660, respectively .... 24,043 30,915
Unbilled services ....................................................... 1,865 1,722
Prepaid income taxes .................................................... 173 --
Prepaid expenses ........................................................ 1,886 2,629
Deferred tax and other current assets ................................... 1,295 2,773
--------- ---------
Total current assets ................................................. 148,900 164,546
Property and equipment, net ................................................ 5,063 7,452
Deferred tax and other non-current ......................................... 6,151 11,500
--------- ---------
Total assets ......................................................... $ 160,114 $ 183,498
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable .................................................. $ 1,345 $ 4,879
Accrued compensation .................................................... 8,298 8,139
Employee withholdings, stock purchase plan .............................. 2,140 1,322
Deferred revenue ........................................................ 3,533 3,927
Other accrued liabilities ............................................... 1,539 6,939
--------- ---------
Total current liabilities ............................................ 16,855 25,206
--------- ---------
Commitments and contingencies (Note 4)
Stockholders' equity:
Preferred stock, $0.01 par value; 10,000,000 share authorized,
no shares issued and outstanding at December 31, 1999 and
March 31, 2000 (unaudited) .............................................. -- --
Common stock, $0.01 par value, 100,000,000 shares authorized,
52,642,482 shares issued and 52,536,224 shares outstanding at
December 31, 1999; 53,898,528 shares issued and outstanding
at March 31, 2000 (unaudited) ........................................ 526 538
Additional paid-in capital .............................................. 162,715 174,823
Retained deficit ........................................................ (19,884) (17,192)
Accumulated other comprehensive income .................................. 124 123
Treasury stock .......................................................... (222) --
--------- ---------
Total stockholders' equity ........................................... 143,259 158,292
--------- ---------
Total liabilities and stockholders' equity ................................. $ 160,114 $ 183,498
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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PROXICOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
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THREE MONTHS ENDED
MARCH 31,
--------------------------------
1999 2000
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Revenue ......................................................... $ 13,254 $ 38,167
Cost of revenue (exclusive of non-cash compensation
expense of $117 and $35, respectively) ....................... 7,792 18,382
-------- --------
Gross profit .................................................... 5,462 19,785
-------- --------
Operating expenses:
General and administrative ................................... 4,562 13,097
Selling and marketing ........................................ 650 3,594
Acquisition and merger costs ................................. 300 --
Stock-based compensation ..................................... 117 35
-------- --------
Total ..................................................... 5,629 16,726
-------- --------
Income (loss) from operations ................................... (167) 3,059
Interest income (expense), net .................................. (65) 1,689
-------- --------
Net income (loss) before income taxes ........................... (232) 4,748
Income tax (benefit) provision .................................. (84) 2,056
-------- --------
Net income (loss) ............................................... (148) 2,692
Non-cash dividend on beneficial conversion of Series D
convertible preferred stock (see Note 3) ..................... (4,873) --
-------- --------
Net (loss) income available to common stockholders .............. $ (5,021) $ 2,692
======== ========
Basic net income (loss) per common share ........................ $ (0.16) $ 0.05
======== ========
Diluted net income (loss) per common share ...................... $ (0.16) $ 0.04
======== ========
Weighted average common shares outstanding ...................... 30,834 53,382
======== ========
Weighted average common shares and common share equivalents ..... 30,834 63,017
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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PROXICOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
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THREE MONTHS ENDED
MARCH 31,
-----------------------------------
1999 2000
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Cash flows from operating activities:
Net (loss) income ................................................... $ (148) $ 2,692
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Non-cash stock compensation ....................................... 117 35
Non-cash warrant reduction of revenue ............................. - 519
Depreciation and amortization ..................................... 413 441
Provision for doubtful accounts ................................... (35) 5
Income tax benefit from stock based award ......................... - 7,618
Increase in deferred income taxes ................................. (21) (5,540)
Changes in assets and liabilities:
Increase in accounts receivable ................................ (2,074) (6,877)
(Increase) decrease in unbilled services ....................... (1,283) 143
Decrease in prepaid income taxes ............................... - 173
Increase in prepaid expenses ................................... (584) (743)
Increase in other assets ....................................... (121) (1,287)
Increase in trade accounts payable ............................. 1,172 3,534
Decrease in accrued compensation ............................... (1,284) (159)
Decrease in employee withholdings .............................. - (818)
(Decrease) increase in deferred revenue ........................ (19) 394
(Decrease) increase in other accrued liabilities ............... (771) 5,400
--------- ---------
Net cash (used in) provided by operating activities .......... (4,638) 5,530
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment ................................. (464) (2,830)
Purchases of investments ............................................ - (31,042)
Sales of investments ................................................ 246 5,818
--------- ---------
Net cash used in investing activities ........................ (218) (28,054)
--------- ---------
Cash flows from financing activities:
Issuance of preferred stock, Series D ............................... 7,279 -
Exercise of stock options ........................................... 483 2,041
Borrowings on lines of credit ....................................... 3,450 -
Payments on lines of credit ......................................... (6,798) -
Issuance of common stock ............................................ - 2,129
Subchapter S Corporation distributions .............................. (130) -
--------- ---------
Net cash provided by financing activities .................... 4,284 4,170
--------- ---------
Effect of exchange rate change ...................................... - (1)
Net decrease in cash and cash equivalents ............................. (572) (18,355)
Cash and cash equivalents at beginning of period ...................... 2,586 113,819
--------- ---------
Cash and cash equivalents at end of period ............................ $ 2,014 $ 95,464
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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PROXICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements of Proxicom, Inc.
("Proxicom" or the "Company") include the accounts of Proxicom and all of its
wholly owned subsidiaries. All material intercompany transactions and balances
have been eliminated in consolidation.
In the opinion of management, the consolidated financial statements for
the three-month periods ended March 31, 1999 and 2000 reflect all normal and
recurring adjustments, which are necessary for a fair presentation of Proxicom's
financial position, results of operations and of cash flows as of the dates and
for the periods presented. The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Consequently, these consolidated statements do not
include all the disclosures normally required by generally accepted accounting
principles for annual financial statements. Accordingly, these unaudited
consolidated financial statements should be read in conjunction with Proxicom's
audited consolidated financial statements and notes thereto for the period ended
December 31, 1999, included in the Form 10-K filed by Proxicom with the
Securities and Exchange Commission (SEC File No. 0-25741). The consolidated
results of operations for the three-month period ended March 31, 2000 are not
necessarily indicative of results for the full year ending December 31, 2000.
On January 24, 2000, the Board of Directors approved a two-for-one stock
split, effective February 24, 2000, for common shareholders of record as of
February 9, 2000. The financial statements of the Company, including references
to all common stock shares and per share data, have been retroactively restated
to reflect the stock split.
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2. BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
The following is a reconciliation of the numerator and denominator of the
basic and diluted earnings per common share computations.
Basic Net Income (Loss) Per Common Share
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THREE MONTHS ENDED MARCH 31,
----------------------------
1999 2000
---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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Net (loss) income available to common stockholders ......... $ (5,021) $ 2,692
========== ==========
Weighted average shares of common stock outstanding ........ 30,834 53,382
========== ==========
Basic net (loss) income per common share ................... $ (0.16) $ 0.05
========== ==========
</TABLE>
Basic net income per share is computed using the weighted average number
of common shares outstanding and excludes the effect of common stock
equivalents.
Diluted Net Income (Loss) Per Common Share
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<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 2000
---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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Net (loss) income available to common stockholders ................... $ (5,021) $ 2,692
======== ========
Weighted average shares of common stock outstanding .................. 30,834 53,382
Incremental shares for rights to receive shares and options
assumed exercised under common stock option plans ................. -- 9,635
-------- --------
Adjusted shares of common stock equivalents for computation .......... 30,834 63,017
======== ========
Diluted net (loss) income per common share ........................... $ (0.16) $ 0.04
======== ========
</TABLE>
Diluted net income per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Diluted net income per share is
computed using the weighted average number of common shares oustanding and
dilutive stock options and warrants using the treasury stock method.
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Potentially dilutive shares as of March 31, 1999 have not been included
in the diluted per share calculation for the three-month period ended March 31,
1999 because the effect would have been anti-dilutive due to the loss incurred
by the Company during that period. Accordingly, for the three-month period ended
March 31, 1999, diluted net loss per common share is the same as basic net loss
per common share.
3. CAPITAL STOCK
In February 1999, the Company issued a total of 1,218,333 shares of
Series D convertible preferred stock (the "Series D Preferred Stock") at a price
of $6.00 per share for an aggregate purchase price of approximately $7.3
million. In connection with this transaction, 1,517,334 shares of common stock
were purchased by the investors from selling stockholders in amounts
proportionate to the investors participation in the Series D Preferred Stock
issuance. The Series D Preferred Stock had essentially the same rights and
privileges as the Company's other three then outstanding series of convertible
preferred stock (Series A, B and C). Because the Series D Preferred Stock was
sold at a price of $6.00, the securities were accounted for giving effect to
their beneficial conversion features. Under such accounting, the Company
recorded a charge of $4.9 million against additional paid-in-capital to reflect
the difference between the conversion feature and the fair value of the
underlying common stock. Although not reflected in net income from operations,
the beneficial conversion charge is reflected as a reduction to income and
earnings per share available for common shareholders for the three-month period
ended March 31, 1999.
On April 23, 1999, the Company completed its initial public offering of
securities and issued 8,000,000 shares of common stock at $6.50 per share. An
additional 1,000,000 shares were sold by the existing stockholders at $6.50 per
share. Automatically upon the initial public offering of securities, all
4,231,194 of the then outstanding shares of convertible preferred stock were
converted to 8,462,388 shares of common stock. At the same time, Proxicom
amended its Certificate of Incorporation to increase the number of authorized
common shares from 20,000,000 to 100,000,000 shares and to increase the number
of authorized shares of preferred stock from 5,000,000 to 10,000,000 shares.
In connection with the initial public offering, Proxicom offered the
underwriters of the offering an option to purchase an additional 1,350,000
shares of common stock at the offering's $6.50 per share offering price. This
was exercised on May 21, 1999. Proceeds to the Company from its initial public
offering, net of underwriting discounts and costs of the offering, were
approximately $54.3 million.
On October 14, 1999, the Company completed a follow-on public offering of
its securities, which resulted in the issuance of 2,000,000 shares of common
stock at $26.19 per share. An additional 5,200,000 shares were sold by certain
existing shareholders at $26.19 per share. In connection with the follow-on
offering, the selling shareholders offered the underwriters an option to
purchase 1,080,000 additional shares of common stock ("Underwriters
Over-allotment") at the offering's $26.19 per share offering price. Proceeds to
the Company from the follow-on
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offering, net of underwriting discounts and costs of the offering, were
approximately $49.0 million. The Company did not receive any proceeds from the
sale of the common stock of the related Underwriters Over-allotment by the
selling stockholders.
In January 2000, employee participants in the Company's Employee Stock
Purchase Plan ("ESPP") were distributed 385,388 shares of common stock at $5.53
per share for the semi-annual participation period ended December 31, 1999. A
total of 2,000,000 shares are available for purchase under the ESPP.
On September 24, 1999, Proxicom and General Electric Company entered into
a Master Services Agreement. Under this agreement, General Electric has agreed
to have Proxicom perform Internet services for fees totaling no less than $6.0
million during the 12-month period ending September 24, 2000. As part of the
agreement, Proxicom issued General Electric a warrant to purchase 300,000 shares
of common stock at an exercise price of $24.94 per share, the closing price of
the common stock on the date of the agreement. The fair value of the warrant has
been reflected as a reduction to the related contract revenue over the service
period of the agreement. In February 2000, General Electric exercised this
warrant and received net 156,122 shares of common stock of the Company.
The Company's treasury stock was re-issued to employees through the ESPP
and the 1996 Stock Option Plan during the three-months ended March 31, 2000.
4. CONTINGENCIES
The Company has certain contingent liabilities that arise in the ordinary
course of its business activities. The Company accrues liabilities when it is
probable that future expenditures will be made and such expenditures can be
reasonably estimated. The Company doesn't believe that such liabilities,
individually or in the aggregate, will have a materially adverse effect on the
Company's consolidated financial position or results of operations.
5. ACCUMULATED OTHER COMPREHENSIVE INCOME
Effective January 1, 1999, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." The Company has no material components of other
comprehensive income (loss) and, accordingly, the Company's comprehensive income
(loss) is the same as its net income (loss) for all periods presented.
6. SUBSEQUENT EVENTS
On April 19, 2000, Proxicom completed its acquisition of Clarity IBD
Limited, a United Kingdom e-business development consultancy company
("Clarity"). Proxicom acquired all of the issued shares of Clarity in exchange
for 1,291,046 shares of Proxicom common stock and approximately $16.0 million in
cash. The acquisition will be recorded under the purchase method of accounting.
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Stock options outstanding under Clarity's share option plan converted
into options to acquire an aggregate of 43,558 shares of Proxicom common stock.
The Company anticipates recording charges of approximately $49.5 million and
$16.1 million of goodwill and compensation expense, respectively, as a result of
this transaction. These charges will be amortized on a straight-line basis over
two to four years. The goodwill recorded in the Clarity acquisition is based on
estimates and may be adjusted as additional information becomes available.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The matters discussed in this Form 10-Q include forward-looking
statements that involve risks or uncertainties. While forward-looking statements
are sometimes presented with numerical specificity, they are based on various
assumptions made by management regarding future circumstances over many of which
Proxicom has little or no control. A number of important factors, including
those identified under the caption "Risk Factors" in Proxicom's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999 (SEC File No. 000-25741)
(the "Form 10-K") which hereby is incorporated by reference, as well as factors
discussed elsewhere in this Form 10-Q, could cause Proxicom's actual results to
differ materially from those in forward-looking statements or financial
information. Actual results may differ from forward-looking results for a number
of reasons, including the following: (a) changes in the demand for professional
Internet services; (b) Proxicom's ability to manage growth and hire and retain
skilled employees; (c) Proxicom's loss of a major client or significant project;
(d) competitive factors; (e) lack of growth or decline in Internet usage; (f)
Proxicom's failure to keep pace with changing technologies and protect its
intellectual property; and (g) future acquisitions or international expansion
(including the ability to integrate acquired businesses into Proxicom's
operations and the ability of acquired business to achieve satisfactory
operating results). Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated or projected.
OVERVIEW
Proxicom is a leading provider of Internet solutions to Global 1000
companies and other large organizations. Our Internet solutions include
business-to-consumer electronic commerce Internet sites, business-to-business
electronic commerce extranets, and company-specific intranets. We apply our
proprietary methodology, the Proxicom Process, in all of our client engagements.
Using the Proxicom Process, we integrate strategy, technology and creative
design to help our clients transform their businesses with Internet solutions.
Our revenue generally consists of fees generated from professional
services. We provide our services on a time and materials basis and fixed-price,
fixed-timeframe basis. When we provide services on a time and materials basis,
we recognize revenue as we incur costs. In time and materials service
situations, we also use our estimation process and a Proxicom senior management
member approves these proposals. When we provide services on a fixed-fee,
fixed-timeframe basis, we use an internally developed process to estimate and
propose fixed prices for such projects. The estimation process accounts for
standard billing rates particular to each project, the technology environment
and application type to be applied, and the project's timetable and overall
fixed-price proposals. For these contracts, we recognize revenue using a
percentage-of-completion method primarily based on costs incurred. We make
provisions for estimated losses on uncompleted
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contracts on a contract-by-contract basis and recognize such provisions in the
period in which the losses are determined.
Our financial results may fluctuate from quarter to quarter based on such
factors as the number, complexity, size, scope and lead-time of projects in
which we are engaged. More specifically, these fluctuations can result from the
contractual terms and degree of completion of such projects, any delays incurred
in connection with projects, employee utilization rates, the adequacy of
provisions for losses, the accuracy of estimates of resources required to
complete ongoing projects and general economic conditions. In addition, revenue
from a large client may constitute a significant portion of our total revenue in
a particular quarter.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the relative
composition of revenue and selected statements of operations data as a
percentage of revenue:
<TABLE>
<CAPTION>
THREE-MONTH PERIOD
ENDED MARCH 31,
----------------------------
1999 2000
--------- --------
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Revenue ..................................... 100.0% 100.0%
Cost of revenue ............................. 58.8 48.2
------ ------
Gross profit ................................ 41.2 51.8
------ ------
Operating expenses:
General and administrative ................ 34.4 34.3
Selling and marketing ..................... 4.9 9.4
Acquisition and merger costs .............. 2.3 --
Stock-based compensation .................. 0.9 0.1
------ ------
Total .................................. 42.5 43.8
------ ------
Income (loss) from operations ............... (1.3) 8.0
Interest income (expense), net .............. (0.5) 4.4
------ ------
Income (loss) before income taxes ........... (1.8) 12.4
Income tax (benefit) provision .............. (0.6) 5.3
------ ------
Net income (loss) ........................... (1.2)% 7.1%
====== ======
</TABLE>
THREE-MONTH PERIOD ENDED MARCH 31, 2000 COMPARED TO THE THREE-MONTH PERIOD ENDED
MARCH 31, 1999
Revenue. For the three-month period ended March 31, 2000, revenue
increased $24.9 million, or 188.0%, to $38.2 million from $13.3 million for the
three-month period ended March 31, 1999. This increase was primarily
attributable to the increases in both the size and number of our client
engagements. For the three-month period ended March 31, 2000, no customer
represented more than 10% of our revenue. For the three-month period ended March
31, 1999, our largest client accounted for approximately 14.1% of our revenue.
We believe that period-to-period
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<PAGE> 13
comparisons of our revenue and operating results are not necessarily meaningful
and that you should not rely on these comparisons as indicators of future
performance.
Cost of Revenue. Cost of revenue consists primarily of compensation and
associated employee benefits for personnel directly assigned to client projects,
non-research and development efforts and non-reimbursed direct expenses incurred
to complete projects, such as technical consulting fees. Cost of revenue
increased $10.6 million, or 135.9%, to $18.4 million for the three-month period
ended March 31, 2000 from $7.8 million for the three-month period ended March
31, 1999. This increase was due primarily to increases in the number of
personnel needed to service our client engagements and the related complexity of
the engagements. Service project personnel increased from 366 at March 31, 1999
to 678 at March 31, 2000. As a percentage of revenue, cost of revenue decreased
to 48.2% for the three-month period ended March 31, 2000 as compared to 58.8%
for the three-month period ended March 31, 1999.
Gross Profit. For the three-month period ended March 31, 2000, gross
profit increased $14.3 million, or 262.2%, to $19.8 million from $5.5 million
for the three-month period ended March 31, 1999. As a percentage of revenue,
gross profit increased to 51.8% for the three-month period ended March 31, 2000
as compared to 41.2% for the three-month period ended March 31, 1999. The
percentage increase reflects increased revenue and overall billing rates and
improvements in gross profit per billable consulting and delivery personnel.
General and Administrative. General and administrative costs consist of
salaries for executive and selected senior management, finance, recruiting,
administrative groups and associated employee benefits, facilities costs
including depreciation and amortization, computer and office equipment operating
leases, training, travel and all other branch and corporate costs. These costs
increased $8.5 million, or 187.1%, to $13.1 million for the three-month period
ended March 31, 2000 from $4.6 million for the three-month period ended March
31, 1999. This increase was due primarily to increased facilities and related
expenses incurred to support our growth. Approximately 44.1% of the increase is
attributable to increased personnel cost for the three-month period ended March
31, 2000. As a percentage of revenue, general and administrative expenses
decreased to 34.3% for the three-month period ended March 31, 2000 as compared
to 34.4% for the three-month period ended March 31, 1999. We wrote off $330,000
in doubtful accounts in the three-months ended March 31, 2000. We believe the
current allowance for doubtful accounts balance of $660,000 is sufficient for
other potential doubtful accounts.
Selling and Marketing. Selling and marketing costs consist primarily of
salaries, benefits and travel expenses of selling and marketing personnel and
promotional expenses. Selling and marketing costs increased $2.9 million, or
452.9%, to $3.6 million for the three-month period ended March 31,2000 from
$650,000 for the three-month period ended March 31, 1999. This increase was
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primarily attributable to increased marketing and promotion initiatives
associated with the Company's advertising campaign for the three-months ended
March 31, 2000. As a percentage of revenue, selling and marketing costs
increased to 9.4% for the three months ended March 31, 2000 from 4.9% for the
three-month period ended March 31, 1999.
Acquisition and Merger Costs. We did not incur any acquisition charges
for the three-month period ended March 31, 2000. We incurred charges of
approximately $300,000 for the three-month period ended March 31, 1999 for costs
associated with the ad hoc Interactive transaction. All transaction costs were
related to professional fees and other direct expenses.
Stock-based and Other Compensation. We incurred charges of $35,000 in the
three months ended March 31, 2000 for costs associated with various stock rights
issued for less than fair market value under the historical ad hoc Interactive
plan. We incurred charges of $117,000 in the three months ended March 31, 1999
for costs associated with our IBIS Consulting and ad hoc Interactive
transactions.
Interest Income (Expense), Net. Interest income (expense), net increased
$1.8 million to interest income of $1.7 million for the three-month period ended
March 31, 2000 from interest expense of $65,000 for the three-month period ended
March 31, 1999. This increase was due primarily to interest income earned on
proceeds raised in our initial and follow-on public offerings during 1999. We
generally invest in high-rated commercial paper, U.S. Treasury bills and money
market accounts. The amount of interest income fluctuates based upon the amount
of funds available for investment and prevailing interest rates.
Income Tax Provision (Benefit). The $2.1 million income tax provision in
the three months ended March 31, 2000 represents combined federal, international
and state income taxes at an effective rate of 43.3%. The $84,000 income tax
benefit in the three-month period ended March 31, 1999 represents a benefit from
combined federal and state income taxes at an effective rate of 36.2%. Our
effective tax rate for the three-month period ended March 31, 1999 was favorably
impacted by the transactions with IBIS, ad hoc and Square Earth, which were
Subchapter S Corporations with pass-through tax status before the transactions.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $10.0 million revolving credit facility with Bank of
America, N.A. to be used for working capital purposes and permitted
acquisitions. The interest rate on the amounts borrowed under the credit
agreement is the Eurodollar Daily Floating Rate plus 1.25%. The credit facility
expires on August 31, 2000 and will renew automatically for one additional year
at the sole discretion of Bank of America, N.A. The credit facility requires the
Company to maintain liquid assets of at least $10.0 million. As of the date of
this report, Proxicom had no outstanding borrowings under the credit facility.
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<PAGE> 15
Additionally, the Company has an Uncommitted Standby Letter of Credit
with Bank of America, N.A. for $15.0 million. This credit facility expires on
March 31, 2002. The letter of credit fee is 1% annually of the outstanding
letters of credit written on this facility. As of March 31, 2000, the Company
had $12.9 million of outstanding letters of credit.
At March 31, 2000, the Company had approximately $95.5 million in cash
and cash equivalents and $31.0 million in short-term investments. Net cash
provided by (used in) operating activities was $5.5 million and ($4.6) million
for the three months ended March 31, 2000 and 1999, respectively. Net cash used
in investing activities increased $27.8 million to $28.1 million from $218,000
for the three months ended March 31, 1999. This increase was primarily
attributable to net purchases of $25.2 million of commercial paper classified as
short-term investments. Net cash provided by financing activities was $4.2
million and $4.3 million for the three-month periods ended March 31, 2000 and
1999, respectively.
On April 23, 1999, the Company completed its initial public offering of
securities. After deducting expenses, Proxicom received approximately $46.9
million in proceeds from this transaction. In connection with the initial public
offering, Proxicom offered the underwriters of the offering an option to
purchase an additional 1,350,000 shares of common stock at the offering's $6.50
per share offering price. Proxicom received approximately $8.2 million in
proceeds from this option, which was exercised on May 21, 1999.
On October 14, 1999, Proxicom completed a follow-on public offering of
its securities. After deducting expenses, Proxicom received approximately $49.0
million in proceeds from this transaction
On March 26, 1999, Proxicom merged with ad hoc Interactive, Inc., a
California-based Internet solutions provider, by exchanging 1,659,542 shares of
Proxicom common stock and rights to receive 78,666 shares of Proxicom common
stock for all of the outstanding stock and stock rights of ad hoc Interactive.
The transaction was accounted for as a pooling of interests.
During the three-month period ended March 31, 2000, the Company issued
1,198,214 shares of common stock through the exercise of stock options and the
sale of stock through the Company's Employee Stock Purchase Plan. The Company
received net proceeds of approximately $4.2 million from these issuances.
Proxicom anticipates the existing sources of liquidity and funds
generated from operations should provide adequate cash to fund its currently
anticipated cash needs through at least the next 18 months. To the extent
Proxicom is unable to fund its operations from cash flows, it may need to obtain
financing from external sources in the form of either additional equity or
indebtedness. There can be no assurance that additional financing will be
available at all, or that, if available, such financing will be obtainable on
terms favorable to Proxicom.
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<PAGE> 16
SUBSEQUENT EVENTS
On April 19, 2000, Proxicom completed its acquisition of Clarity IBD
Limited, a United Kingdom e-business development consultancy company
("Clarity"). Proxicom acquired all of the issued shares of Clarity in exchange
for 1,291,046 shares of Proxicom common stock and approximately $16.0 million in
cash. The acquisition will be recorded under the purchase method of accounting.
Stock options outstanding under Clarity's share option plan converted
into options to acquire an aggregate of 43,558 shares of Proxicom common stock.
The Company anticipates recording charges of approximately $49.5 million and
$16.1 million of goodwill and compensation expense, respectively, as a result of
this transaction. These charges will be amortized on a straight-line basis over
two to four years. The goodwill recorded in the Clarity acquisition is based on
estimates and may be adjusted as additional information becomes available.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. Subsequently,
the SEC released SAB 101A, which delayed the implementation date of SAB 101 for
registrants with fiscal years that begin between December 16, 1999 and March 15,
2000. We are required to be in conformity with the provisions of SAB 101, as
amended by SAB 101A, no later than April 1, 2000. We believe the adoption of SAB
101, as amended by SAB 101A, has not had a material adverse effect on our
financial position, results of operations or cash flows.
In June 1999, the Financial Accounting Standards Board issued SFAS No.
137, which delays the effective date of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which will be effective for our fiscal year
2001. This statement establishes accounting and reporting standards requiring
that every derivative instrument, including certain derivative instruments
embedded in other contracts, be recorded in the balance sheet as either an asset
or liability measured at its fair value. The statement also requires that
changes in the derivative's fair value be recognized in earnings unless specific
hedge accounting criteria are met. We believe the adoption of SFAS Nos. 133 and
137 will not have a material effect on our financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Proxicom is exposed to interest rate risk related to its borrowings under
the credit facility with Bank of America, N.A. There were no borrowings
outstanding under the credit facility as of March 31, 2000.
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<PAGE> 17
The Company is exposed to interest rate risk primarily through its
investments in short-term marketable securities and cash equivalents and debt
agreements. The Company's investment policy calls for investment in short-term,
low risk instruments. At March 31, 2000, the Company had $126.5 million invested
in commercial paper. A rise in interest rates would have an adverse impact on
the fair market value of fixed rate securities. If interest rates fall, floating
rate securities may generate less interest income. The Company manages its
exposure to interest rate risk through investing in securities with maturities
of one year or less.
The Company's international operations are subject to foreign exchange
rate fluctuations. The Company derived 4.9% of its revenues for period ended
March 31, 2000, from services performed in Germany, Italy, Spain and the United
Kingdom. Since the revenue and expenses of the Company's international
operations generally are denominated in local currencies, exchange rate
fluctuations between such local currencies and the United States dollar will
subject the Company to currency translation risk with respect to the reported
results of its foreign operations as well as to risk sometimes associated with
international operations. In addition, the Company may be subject to currency
risk when the Company's service contracts are denominated in a currency other
than the currency in which the Company incurs expenses related to such
contracts. Germany, Spain and Italy have traditionally had relatively stable
currencies. The Company does not hedge its foreign currency exposure. Management
does not believe that the Company's exposure to foreign currency rate
fluctuations is material.
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<PAGE> 18
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Proxicom held a Special Meeting of Stockholders on January 27, 2000 for
the purpose of considering and voting upon a proposal to approve an amendment to
the Proxicom, Inc. 1996 Stock Option Plan to increase the number of authorized
shares of Proxicom common stock, par value $0.01 per share, to be issued under
the plan from 7,000,000 to 14,000,000 shares. The proposal was approved by the
stockholders. A total of 15,571,203 votes were cast for the proposal, 3,688,321
votes were cast against the proposal, 2,405 votes abstained and there were no
broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits:
10.1 Proxicom, Inc. Amended and Restated 1996 Stock Option Plan
10.2 Executive Employment Agreement between Proxicom, Inc. and
Heiner Rutt
27.1 Financial Data Schedule
b. Reports on Form 8-K:
Proxicom filed a current report on Form 8-K on January 26, 2000
announcing that its Board of Directors had declared a two-for-one stock split to
be effected in the form of a stock dividend. The 8-K also noted that Proxicom
issued a press release on January 26, 2000 describing the stock split and
announcing financial results for the three-month period and year ended December
31, 1999.
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<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Form 10-Q to be signed on its behalf by the
undersigned thereunto duly authorized.
PROXICOM, INC.
Date: May 15, 2000 /s/ Kenneth J. Tarpey
----------------------------------------
Kenneth J. Tarpey
Executive Vice President, Chief Financial
and Officer and Treasurer (duly authorized
to sign on behalf of the Registrant)
<PAGE> 1
EXHIBIT 10.1
PROXICOM, INC.
1996 STOCK OPTION PLAN
Proxicom, Inc., a Delaware corporation (the "Company"), sets forth
herein the terms of the 1996 Stock Option Plan (the "Plan") as follows:
1. PURPOSE
Under the Plan, Awards may be granted to Eligible Employees and
Eligible Nonemployees to purchase shares of the Company's capital stock. The
Plan is designed to enable the Company to attract, retain and motivate its
Employees, consultants and others by providing for or increasing the proprietary
interests of such persons in the Company.
2. DEFINITIONS
For purposes of interpreting the Plan and related documents
(including Agreements), the following definitions shall apply:
2.1. "AFFILIATE" means the Company and any company or other
trade or business that is controlled by or under common control with the
Company, determined in accordance with the principles of Section 414(b) and
414(c) of the Code and the regulations thereunder, or is an affiliate of the
Company within the meaning of Rule 405 of Regulation C under the Securities Act.
2.2. "AGREEMENT" means the Stock Option Agreement under which
the Grantee accepts the Award terms and conditions and receives an Award
pursuant to the Plan.
2.3. "AWARD" means individually, collectively or in tandem, an
incentive award granted under the Plan, whether in the form of Options, SARs,
Restricted Stock Awards, or performance shares, or such other form and subject
to such terms as the Committee may determine.
2.4. "AWARD PRICE" means the purchase price for each share of
Common Stock subject to an Award.
2.5. "BOARD" means the Board of Directors of the Company.
2.6. "CODE" means the Internal Revenue Code of 1986, as amended.
Any section thereof referenced in the Plan or an Agreement shall include the
rules and regulations thereunder, and any successor provisions thereto.
2.7. "COMMITTEE" means the Compensation Committee of the Board,
which must consist of no fewer than two members of the Board who satisfy the
definition under Rule 16b-3 of the Exchange Act for "nonemployee director".
2.8. "COMMON STOCK" means common stock, par value $.01, issued
by the Company.
<PAGE> 2
2.9. "COMPANY" means Proxicom, Inc., a Delaware corporation, any
Affiliates and any other entity as determined by the Committee.
2.10. "EFFECTIVE DATE" means August 26, 1996, the date of
adoption of the Plan by the Board.
2.11. "ELIGIBLE EMPLOYEE" means any Employee of the Company who
the Committee selects to receive an Award.
2.12. "ELIGIBLE NONEMPLOYEE" means any former Employee,
consultant or advisor to the Company who the Committee selects to receive an
Award.
2.13. "EMPLOYEE" means, for the purposes of the Plan, an
individual who is an employee of the Company.
2.14. "EMPLOYER" means the Company.
2.15. "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as now in effect or as hereafter amended. Any section thereof referenced in the
Plan or an Agreement shall include the rules and regulations thereunder, and any
successor provisions thereto.
2.16. "FAIR MARKET VALUE" means the value of each share of Common
Stock subject to the Plan determined as follows: (a) if on the Grant Date or
other determination date the shares of Common Stock are listed on an established
national or regional stock exchange, are admitted to quotation on the National
Association of Securities Dealers Automated Quotation System, or are publicly
traded on an established securities market, the Fair Market Value of the shares
of Common Stock shall be the closing price of the shares of Common Stock on such
exchange or in such market (the highest such closing price if there is more than
one such exchange or market) on the trading day immediately preceding the Grant
Date or such other determination date (or if there is no such reported closing
price, the Fair Market Value shall be the mean between the highest bid and
lowest asked prices or between the high and low sale prices on such trading
day); or (b) if no sale of the shares of Common Stock is reported for such
trading day, on the next preceding day on which any sale shall have been
reported. If the shares of Common Stock are not listed on such an exchange,
quoted on such System or traded on such a market, Fair Market Value shall be
determined by the Board or Committee in good faith.
2.17. "GRANT DATE" means for a particular Award (i) the date as
of which the Committee approves the Award or (ii) any other date specified by
the Committee, if any.
2.18. "GRANTEE" means an individual to whom one or more Awards
have been granted.
2.19. "INCENTIVE STOCK OPTION" or "ISO" means an incentive stock
option within the meaning of section 422 of the Code. Any Option that is not
specifically designated as an Incentive Stock Option shall under no
circumstances be considered an Incentive Stock Option.
2.20. "NONQUALIFIED STOCK OPTION" means any Option that does not
qualify under section 422 of the Code.
2.21. "OPTION" means an option granted by the Company to purchase
Common Stock pursuant to the provisions of the Plan, including ISOs,
Nonqualified Stock Options and Reload Options.
<PAGE> 3
2.22. "OPTION PERIOD" means the period during which Options may
be exercised as defined in section 13.
2.23. "OPTION TERM" means the period defined under section 13
herein.
2.24. "PLAN" means the Proxicom, Inc. 1996 Stock Option Plan.
2.25. "PUBLICLY TRADED" means that time when the shares of Common
Stock are listed on an established national or regional stock exchange, are
admitted to quotation on the National Association of Securities Dealers
Automated Quotation System, or are publicly traded on an established securities
market
2.26. "RELOAD OPTION" means the right to receive a further Option
for a number of shares of Common Stock surrendered by the Grantee upon exercise
of the original Option.
2.27. "RESTRICTED PERIOD" means the period of time from the date
of grant of Restricted Stock until the lapse of restrictions attached thereto
under the terms of the Agreement granting such Restricted Stock, pursuant to the
provisions of the Plan or by action of the Committee.
2.28. "RESTRICTED STOCK" shall mean an Award granted by the
Committee entitling the Grantee to acquire, at no cost or for a purchase price
determined by the Committee at the time of grant, shares of Common Stock which
are subject to restrictions in accordance with the provisions hereof.
2.29. "SECURITIES ACT" means the Securities Act of 1933, as now
in effect or as hereafter amended. Any section thereof referenced in the Plan or
an Agreement shall include the rules and regulations thereunder, and any
successor provisions thereto.
2.30. "STOCK APPRECIATION RIGHT" or "SAR" means a grant entitling
the Grantee to receive an amount in cash or shares of Common Stock or a
combination thereof having a value equal to (or if the Committee shall so
determine at the time of a grant, less than) the excess of the Fair Market Value
of a share of Common Stock on the date of exercise over the Fair Market Value of
a share of Common Stock on the date of grant (or over the Award Price, if the
SAR was granted in tandem with an Option), multiplied by the number of shares
with respect to which the SAR shall have been exercised, with the Committee
having sole discretion to determine the form or forms of payment at the time of
grant of the SAR.
2.31. "STOCK AWARDS" means any Award which is in the form of
Restricted Stock and any outright grants of Common Stock approved by the
Committee pursuant to the Plan.
2.32. "STOCKHOLDER" means a holder of record of at least one
share of the voting stock of the Company.
2.33. "TERMINATION OF EMPLOYMENT" means that event when a person
is no longer employed by the Company or any Affiliate as an employee, advisor,
consultant or otherwise. The Committee may in its discretion determine (a)
whether any leave of absence constitutes a termination of employment for
purposes of the Plan; (b) the impact, if any, of any such leave of absence on
awards theretofore made under the Plan; and (c) when a change in a nonemployee's
association with the Company constitutes a termination of employment for
purposes of the Plan. Such determinations of the Committee shall be final,
binding and conclusive.
<PAGE> 4
3. ADMINISTRATION
3.1 ADMINISTRATION OF THE PLAN
Prior to the time that the securities of the Company become
Publicly Traded, the Plan shall be administered by the Board (unless and until
the Board appoints the Committee and the members thereof to administer the
Plan), in which case the term "Committee" when used herein with respect to the
administration of the Plan shall be deemed to mean the Board. After the
securities of the Company become Publicly Traded, the Plan shall be administered
by the Committee.
3.2 SCOPE OF AUTHORITY
The Committee shall have the full power and authority to take all
actions and to make all determinations required or provided for under the Plan,
any Award granted or Agreement entered into hereunder, and all such other
actions and determinations not inconsistent with the specific terms and
provisions of the Plan deemed by the Committee to be necessary or appropriate to
the administration of the Plan, any Award or Agreement entered into hereunder.
Actions of the Committee shall be taken by the vote of a majority of its
members; provided, however, that the Plan shall be administered so that Awards
granted under the Plan will qualify for the benefits provided by Rule 16b-3 (or
any successor rule) under the Exchange Act and section 162(m) of the Code, and
the regulations thereunder. The interpretation and construction by the Committee
of any provision of the Plan or of any Award granted or Agreement entered into
hereunder shall be final and conclusive.
3.3 NO LIABILITY
No member of the Board or of the Committee shall be liable for any
action or determination made, or any failure to take or make an action or
determination, in good faith with respect to the Plan or any Option granted or
Agreement entered into hereunder.
4. AWARDS; COMMON STOCK
4.1 AWARDS
Awards granted under the Plan may be Incentive Stock Options,
Nonqualified Stock Options, Restricted Stock, Stock Appreciation Rights, and
performance shares, all as more fully set forth herein. No Incentive Stock
Option may be granted to a person who is not an employee of the Company on the
date of grant. Unless otherwise specified in a particular grant, Awards granted
under the Plan are intended to qualify as performance-based compensation for the
purposes of section 162(m) of the Code.
4.2 COMMON STOCK
The stock that may be issued pursuant to Awards granted under the
Plan shall be Common Stock, which shares may be treasury shares or authorized
but unissued shares. The number of shares of Common Stock that may be issued
pursuant to Awards granted under the Plan shall not exceed in the aggregate
14,000,000 shares of Common Stock, which number of shares is subject to
adjustment as provided herein. If any Award expires, terminates or is terminated
for any reason prior to exercise in full, the shares of Common Stock that were
subject to the unexercised portion of such Award shall be available for future
Awards granted under the Plan. When the exercise price for an Award under this
Plan is paid with previously outstanding shares or with shares as to which the
Award is being exercised, as permitted in section 13, the total number of shares
of stock for which options granted under this Plan
<PAGE> 5
may thereafter be exercised shall be irrevocably reduced by the total number of
shares for which such option is thus exercised, without regard to the number of
shares received or retained by the Company in connection with that exercise.
5. ELIGIBILITY
Awards may be granted under the Plan to all current and former
officers and executive, administrative, technical or professional employees of
the Company; to current and former consultants of the Company; and to any other
individual whose participation in the Plan is determined to be in the best
interests of the Company by the Committee. An individual may hold more than one
Award, subject to such restrictions as are provided herein.
6. EFFECTIVE DATE AND PLAN TERM
6.1 EFFECTIVE DATE
The Plan is effective as of August 26, 1996, the date of adoption
by the Board, subject to Stockholders' approval of the Plan within one year of
such Effective Date by a majority of the votes cast at a duly held meeting of
the Stockholders of the Company at which a quorum representing a majority of all
outstanding Common Stock is present, either in person or by proxy, and voting on
the matter, or by written consent in accordance with applicable state law and
the Certificate of Incorporation and By-Laws of the Company and in a manner that
satisfies the requirements of section 162(m) of the Code; provided, however,
that upon approval of the Plan by the Stockholders of the Company, all Awards
granted under the Plan on or after the Effective Date shall be fully effective
as if the Stockholders of the Company had approved the Plan on the Effective
Date. If the Stockholders fail to approve the Plan within one year of such
Effective Date, any Awards granted hereunder shall be null, void and of no
effect.
6.2 TERM
The Plan shall terminate on the date ten (10) years after the
Effective Date.
7. GRANT OF AWARDS
7.1 AWARDS
The Committee shall determine the type or types of Awards to be
made to each Grantee. Awards may be granted singly, in combination or in tandem
subject to restrictions set forth herein. Without limiting the foregoing, the
Committee may at any time amend the terms of outstanding Awards or issue new
Awards in exchange for the surrender and cancellation of outstanding Awards. The
date on which the Committee approves the Award shall be considered the date on
which such Award is granted, unless the Committee approves a separate grant
date. The terms and conditions of the Awards granted under this section shall be
determined from time to time by the Committee, as set forth in the Agreement,
and the conditions herein.
7.2 NONQUALIFIED OPTIONS
The Award Price for each share of Common Stock issuable pursuant a
Nonqualified Stock Option shall be set by the Committee, but may not be less
than par value.
<PAGE> 6
7.3 INCENTIVE STOCK OPTIONS
The Award Price for each share of Common Stock issuable pursuant
to an Incentive Stock Option may not be less than the Fair Market Value on the
Grant Date.
7.4 INCENTIVE STOCK OPTIONS - SPECIAL RULES
Options granted in the form of ISOs shall be subject to the
following provisions:
(a) Grant. No Incentive Option shall be granted pursuant to this
plan more than ten (10) years after the Effective Date.
(b) Annual Limit. An Option shall constitute an ISO only to the
extent that the aggregate Fair Market Value (determined at the
time the Option is granted) of the Common Stock with respect
to which ISOs are exercisable for the first time by any
Grantee during any calendar year under the Plan and all other
plans of the Grantee's employer Company and its parent and
Affiliates does not exceed $100,000. This limitation shall be
applied by taking Options into account in the order in which
such Options were granted.
(c) 10% Stockholder. If any Grantee to whom an ISO is to be
granted pursuant to the provisions of the Plan is, on the date
of grant, an individual described in section 422(b)(6) of the
Code, then the following special provisions shall be
applicable to the Option granted to such individual:
(i) the Award Price of shares subject to such ISO
shall not be less than 110% of the Fair Market
Value of Common Stock on the date of grant; and
(ii) the Option shall not have a term in excess of
five (5) years from the date of grant.
7.5 CHANGES IN LAW
The Committee may establish rules with respect to, and may grant
to Eligible Employees and Eligible Nonemployees, Options to comply with any
amendment to the Code made after the Effective Date.
7.6 RELOAD OPTIONS
Without in any way limiting the authority of the Committee to make
Awards hereunder, the Committee shall have the authority to grant Reload
Options. Any such Reload Option shall be subject to such other terms and
conditions as the Committee may determine. Notwithstanding the above, (i) the
Committee shall have the right, in its sole discretion, to withdraw a Reload
Option to the extent that the grant thereof will result in any adverse
accounting consequences to the Company and (ii) no additional Reload Options
shall be granted upon the exercise of a Reload Option.
8. AGREEMENTS
All Awards granted pursuant to the Plan shall be evidenced by
written Agreements in such form or forms as the Committee shall from time to
time determine. Agreements covering Awards
<PAGE> 7
need not contain similar provisions; provided, however, that all such Agreements
shall comply with the terms of the Plan and all applicable laws and regulations.
By accepting an Award pursuant to the Plan, a Grantee thereby agrees that the
Award shall be subject to all of the terms and provisions of the Plan and the
applicable Agreement.
9. STOCK APPRECIATION RIGHTS
The Committee shall have the authority to grant SARs to Eligible
Employees and Eligible Nonemployees either alone or in connection with an
Option. SARs granted in connection with an Option shall be granted either at the
time of grant of the Option or by amendment to the Option. SARs granted in
connection with an Option shall be subject to the same terms and conditions as
the related Option and shall be exercisable only at such times and to such
extent as the related Option is exercisable. An SAR granted in connection with
an Option may be exercised only when the Fair Market Value of the Common Stock
of the Company exceeds the Award Price of the related Option. An SAR granted in
connection with an Option shall entitle the Grantee to surrender to the Company
unexercised the related Option, or any portion thereof and to receive from the
Company cash and/or shares of Common Stock equal to that number of shares of
Common Stock having an aggregate value equal to the excess of (i) the Fair
Market Value of one share of Common Stock on the day of the surrender of such
Option over (ii) the Award Price per share of Common Stock multiplied by (iii)
the number of shares of Common Stock that may be exercised under the Option, or
surrendered; provided, however, that no fractional shares shall be issued. An
SAR granted singly shall entitle the Grantee to receive the excess of (i) the
Fair Market Value of a share of Common Stock on the date of exercise over (ii)
the Fair Market Value of a share of Common Stock on the date of grant of the
SAR, multiplied by (iii) the number of SARs exercised. Payment of any fractional
shares of Common Stock shall be made in cash.
10. RESTRICTED STOCK
The Committee may in its sole discretion grant Restricted Stock to
Eligible Employees and Eligible Nonemployees, subject to the following
provisions. At the time a grant of Restricted Stock is made, the Committee shall
establish a period of time (the "Restricted Period") applicable to such
Restricted Stock. Each grant of Restricted Stock may be subject to a different
Restricted Period. The Committee may, in its sole discretion, at the time a
grant of Restricted Stock is made, prescribe restrictions in addition to or
other than the expiration of the Restricted Period, including the satisfaction
of corporate or individual performance objectives, which may be applicable to
all or any portion of the Restricted Stock. Such performance objectives shall be
established in writing by the Committee prior to the ninetieth day of the year
in which the grant is made and while the outcome is substantially uncertain.
Performance objectives shall be based on Common Stock price, market share,
sales, earnings per share, return on equity or costs.
Performance objectives may include positive results, maintaining
the status quo or limiting economic losses. The Committee also may, in its sole
discretion, shorten or terminate the Restricted Period or waive any other
restrictions applicable to all or a portion of the Restricted Stock. Restricted
Stock may not be sold, transferred, assigned, pledged or otherwise encumbered or
disposed of during the Restricted Period or prior to the satisfaction of any
other restrictions prescribed by the Committee with respect to such Restricted
Stock.
10.1 RESTRICTIONS
A Common Stock certificate representing the number of shares of
Restricted Stock granted shall be held in custody by the Company for the
Grantee's account. The Grantee shall have all
<PAGE> 8
rights and privileges of a Stockholder as to such Restricted Stock, including
the right to receive dividends and the right to vote such shares, except that
subject to the provisions below, the following restrictions shall apply: (i) The
Grantee shall not be entitled to delivery of the certificate until the
expiration of the Restricted Period; (ii) none of the shares of Restricted Stock
may be sold, transferred, assigned, pledged or otherwise encumbered or disposed
of during the Restricted Period; (iii) the Grantee shall, if requested by the
Company, execute and deliver to the Company, a Common Stock power endorsed in
blank. If a Grantee ceases to be an Employee of the Company prior to the
expiration of the Restricted Period applicable to such shares, shares of
Restricted Stock still subject to restrictions shall be forfeited unless
otherwise determined by the Committee, and all rights of the Grantee to such
shares shall terminate without further obligation on the part of the Company.
10.2 DELIVERY OF RESTRICTED SHARES
At the end of the Restricted Period, a Common Stock certificate
for the number of shares of Restricted Stock with respect to which the
restrictions have lapsed shall be delivered (less any amount in satisfaction of
any withholding obligation), free of all such restrictions, except applicable
securities laws, to the Grantee. The Company shall not be required to deliver
any fractional shares of Common Stock but shall pay, in lieu thereof, the Fair
Market Value (as of the date the restrictions lapse) of such fractional share to
the Grantee. Notwithstanding the foregoing, the Committee may authorize the
delivery of the Restricted Stock to a Grantee during the Restricted Period, in
which event any Common Stock certificates in respect of any shares of Restricted
Stock thus delivered to a Grantee during the Restricted Period applicable to
such shares shall bear an appropriate legend referring to the terms and
conditions, including the restrictions, applicable thereto.
11. PERFORMANCE SHARES
The Committee may in its sole discretion grant performance share
awards to such individuals and under such terms and conditions as the Committee
shall determine, subject to the provisions of the Plan. Such an award shall
entitle a Grantee to acquire shares of Common Stock of the Company, or to be
paid the value thereof in cash, as the Committee shall determine, if specified
performance goals are met. Performance shares may be awarded independently of or
in connection with any other Award under the Plan. The Grantee of a performance
share award will have the rights of a shareholder only as to shares for which a
certificate has been issued pursuant to the award and not with respect to any
other shares subject to the award. Except as otherwise may be provided by the
Committee at any time prior to termination of employment, the rights of a
Grantee of a performance share award shall automatically terminate upon the
Grantee's Termination of Employment for any reason.
12. AWARD PRICE
The purchase price of each share of Common Stock subject to an
Award shall be fixed by the Committee and stated in each Agreement.
13. TERM, VESTING AND EXERCISE OF AWARDS
13.1 TERM
Each Award granted under the Plan shall terminate and all rights
to purchase Common Stock thereunder shall cease upon the expiration of ten (10)
years from the Grant Date, as otherwise provided herein, or on such date prior
thereto as may be fixed by the Committee and stated in the Agreement relating to
such Award; provided, however, that in the event the Grantee would otherwise be
<PAGE> 9
ineligible to receive an Incentive Stock Option by reason of the provisions of
Sections 422(b)(6) and 424(d) of the Code (relating to Common Stock ownership of
more than 10 percent), an Option granted to such Grantee which is intended to be
an Incentive Stock Option shall in no event be exercisable after the expiration
of five years from the Grant Date (collectively, the "Option Term").
13.2 VESTING
Unless otherwise expressly provided in an Agreement and approved
by the Committee, Options granted hereunder shall become vested and exercisable
at the following schedule if the Grantee is an Employee on the relevant
anniversary date and has not experienced a Termination of Employment prior to
such anniversary date: no more than 25% of the total number of shares optioned
on the first anniversary of the Grant Date; no more than 50% of the total number
of shares optioned on the second anniversary of the Grant Date; no more than 75%
of the total number of shares optioned on the third anniversary of the Grant
Date; and 100% of the total number of shares optioned on and after the fourth
anniversary of the Grant Date. All Awards that do not vest are forfeited.
13.3 EXERCISE BY GRANTEE
Only the Grantee receiving an Award (or, in the event of the
Grantee's legal incapacity or incompetency, the Grantee's guardian or legal
representative, and in the case of the Grantee's death, the Grantee's estate)
may exercise the Award.
13.4 LIMITATIONS ON EXERCISE AND SALE; FORFEITURE
The Committee, subject to the terms and conditions of the Plan,
may in its sole discretion provide in an Agreement that an Option may not be
exercised in whole or in part for any period or periods of time during which
such Option is outstanding as the Committee shall determine (and as set forth in
the Agreement relating to such Option). Any such limitation on the exercise of
an Option contained in any Agreement may be rescinded, modified or waived by the
Committee, in its sole discretion, at any time and from time to time after the
date of grant of such Option. The Committee may also include such other terms
and conditions as it deems effect the purpose of the Plan and are in the best
interest of the Company.
13.5 METHOD OF EXERCISE
(a) Payment. An Award 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 Committee (or such other person
identified in an Agreement), of written notice of exercise, which notice shall
specify the number of shares for which the Award is being exercised, and shall
be accompanied by payment in full of the Award Price of the shares of Common
Stock for which the Award is being exercised. Payment of the Award Price for the
shares of Common Stock purchased pursuant to the exercise of an Award shall be
made, as determined by the Committee and set forth in the Agreement pertaining
to an Award, (i) in cash or by certified check payable to the order of the
Company; (ii) to the extent the Company is not prohibited from purchasing or
acquiring shares of Common Stock, 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 Award Price has been paid thereby, at their Fair Market
Value on the date of exercise; or (iii) by a combination of the methods
described in sections 13.5(a)(i) and (ii) hereof, or such other method permitted
by the Committee; provided, however, that the Committee may in its discretion at
any time impose such limitations or prohibitions on the use of shares of Common
Stock to exercise Awards as it deems appropriate. If and while payment with
Common Stock is permitted for the exercise of an Award
<PAGE> 10
granted under this Plan in accordance with the foregoing provision, the
instrument evidencing the Award may also provide that, in lieu of using
previously outstanding shares therefore, the Grantee may pay the Award Price by
directing the Company to retain so many of the underlying shares as have a
market value on the date of exercise equal to the Award Price, and any such
exercise will cause the surrender and cancellation of the Award to the extent of
the shares so retained by the Company.
As soon as practical after receipt of the foregoing written notice
of exercise, full payment of the Award Price, and full payment of all amounts
due to satisfy any applicable tax withholding requirements (which the Grantee
shall be required to pay in cash, rather than by application of shares of Common
Stock otherwise deliverable upon exercise of the Award), the Company shall
deliver to the Grantee, in the Grantee's name, a certificate evidencing the
number of shares of Common Stock purchased upon exercise of the Award. An
attempt to exercise any Award granted hereunder other than as set forth above
shall be invalid and of no force and effect.
An Agreement may provide that on and after the date shares of
Common Stock are publicly traded on an established securities market, payment in
full of the Award Price need not accompany the written notice of exercise
provided the notice directs that the Common Stock certificate or certificates
for the shares for which the Award is exercised be delivered to a licensed
broker acceptable to the Company as the agent for the individual exercising the
Award and, at the time such Common Stock certificate or certificates are
delivered, the broker tenders to the Company cash (or cash equivalents
acceptable to the Company) equal to the Award Price.
(b) Rights. Except as provided in section 10.1, an individual
holding or exercising an Award shall have none of the rights of a Stockholder
until the shares of Common Stock covered thereby are fully paid and issued to
such individual and, except as provided in section 21 hereof, no adjustment
shall be made for dividends or other rights for which the record date is prior
to the date of such issuance.
13.6 FINANCIAL ASSISTANCE
The Company is vested with authority under this Plan to assist any
Employee to whom an Award is granted hereunder in the payment of the Award Price
payable on exercise of the Award, by lending part or all of the amount of such
Award Price to such Employee on such terms and at such rates of interest and
upon such security (or no security) as shall have been authorized by or under
authority of the Committee. The Company is under no obligation to provide such
assistance, however.
14. TRANSFERABILITY OF AWARDS; COMPANY'S RIGHT OF FIRST PURCHASE
14.1 TRANSFERABILITY
Unless otherwise expressly provided in an Agreement, no Award
granted under the Plan may be sold, transferred, pledged, assigned, hypothecated
or otherwise alienated, other than by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order, as defined
under the Code or the Employee Retirement Income Security Act, as amended, or
the rules thereunder. The designation of a beneficiary with respect to an Award
shall not constitute a transfer for purposes of this section.
14.2 RIGHT OF FIRST PURCHASE
<PAGE> 11
While and so long as the securities of the Company have not been
Publicly Traded for at least ninety (90) days, any Common Stock issued on
exercise of any Award granted under this Plan shall be subject to the Company's
right of first purchase. By virtue of that right, (a) such Common Stock may not
be transferred during the Grantee's lifetime to any person other than the
Grantee's spouse, brothers/sisters, parents or other ancestors, and children and
other direct descendants of that individual or of his or her spouse ("Immediate
Family"); a partnership whose members are the Grantee and/or members of the
Grantee's Immediate Family; or a trust for the benefit of the Grantee and/or
members of the Grantee's Immediate Family, unless such transfer occurs within
fifteen (15) days following the expiration of thirty (30) days after the Company
has been given a written notice which correctly identified the prospective
transferee or transferees and which offered the Company an opportunity to
purchase the Common Stock at its Fair Market Value in cash, and such offer was
not accepted within thirty (30) days after the Company's receipt of that notice;
and (b) upon the Grantee's death, the Company shall have the right to purchase
all or some of such Common Stock at its Fair Market Value within nine (9) months
after the date of death. This right of first purchase shall continue to apply to
any such Common Stock after the transfer during the Grantee's lifetime of that
Common Stock to a member of the Grantee's Immediate Family or to a family
partnership or trust as aforesaid, and after any transfer of that Stock with
respect to which the Company expressly waived its right of first purchase
without also waiving it as to any subsequent transfers thereof, but it shall not
apply after a transfer of that Common Stock with respect to which the Company
was offered but did not exercise or waive its right of first purchase or more
than nine months after the Grantee's death. The Company may assign all or any
portion of its right of first purchase to any one or more of its Stockholders,
or to a pension, retirement or savings plan for Employees of the Company, who
may then exercise the right so assigned. Stock certificates evidencing Common
Stock subject to this right of first purchase shall be appropriately legended to
reflect that right.
15. TERMINATION OF EMPLOYMENT
In the case of Termination of Employment, unless otherwise
provided in an Agreement and other than upon death or Disability (as hereafter
defined), Awards otherwise exercisable on the date of the Termination of
Employment will remain exercisable for a period of three (3) months. If, on the
date of the Termination of Employment, the Grantee is not entitled to exercise
the Grantee's entire Award, the Common Stock covered by the unexercisable
portion of the Award shall revert to the Plan. If, after Termination of
Employment, the Grantee does not exercise the Award within the time prescribed,
the Award shall terminate and the Common Stock covered by such Award shall
revert to the Plan. For purposes of the Plan, a Termination of Employment with
the Company or an Affiliate shall not be deemed to occur if the Grantee is
immediately thereafter employed with the Company or any Affiliate.
16. RIGHTS IN THE EVENT OF DEATH OR DISABILITY
16.1 DEATH
If a Grantee dies while employed by the Company or an Affiliate,
the executors, administrators, legatees or distributees of such Grantee's estate
shall have the right (subject to the general limitations on exercise set forth
in section 13 hereof), at any time within one (1) year (unless otherwise
provided in an Agreement) after the date of such Grantee's death and prior to
the end of the Award Term, to exercise any Award held by such Grantee at the
date of such Grantee's death, to the extent such Award was otherwise exercisable
immediately prior to such Grantee's death.
16.2 DISABILITY
<PAGE> 12
If a Grantee experiences a Termination of Employment with the
Company or an Affiliate by reason of a "permanent and total disability" within
the meaning of Section 22(e)(3) of the Code ("Disability") of such Grantee, then
such Grantee shall have the right (subject to the general limitations on
exercise set forth in section 13 hereof), at any time within one (1) year
(unless otherwise provided in an Agreement) after such Termination of Employment
and prior to the expiration of the Award Term, to exercise, in whole or in part,
any Award held by such Grantee at the date of such Termination of Employment, to
the extent such Award was exercisable immediately prior to such Termination of
Employment.
17. USE OF PROCEEDS
The proceeds received by the Company from the sale of Common Stock
pursuant to Awards granted under the Plan shall constitute general funds of the
Company.
18. SECURITIES LAWS
The Company shall not be required to sell or issue any Award or
shares of Common Stock under any Award if the sale or issuance of such Award or
shares would constitute a violation of any provisions of any law or regulation
of any governmental authority, including, without limitation, any federal or
state securities laws or regulations. If at any time the Company shall
determine, in its discretion, that the listing, registration or qualification of
any shares subject to the Award upon any securities exchange or under any state
or federal law, or the consent of any government regulatory body, is necessary
or desirable as a condition of, or in connection with, the issuance or purchase
of shares, the Award 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, and
any delay caused thereby shall in no way affect the date of termination of the
Award. Specifically in connection with the Securities Act, upon exercise of any
Award, unless a registration statement under the Securities Act is in effect
with respect to the shares of Common Stock covered by such Award, the Company
shall not be required to sell or issue such shares unless the Company has
received evidence satisfactory to the Company that the Grantee may acquire such
shares pursuant to an exemption from registration under the Securities Act. Any
determination in this connection by the Company shall be final and conclusive.
The Company may, but shall in no event be obligated, to register any securities
covered hereby pursuant to the Securities Act. The Company shall not be
obligated to take any affirmative action in order to cause the exercise of an
Award or the issuance of shares pursuant thereto to comply with any law or
regulation of any governmental authority. As to any jurisdiction that expressly
imposes the requirement that an Award shall not be exercisable unless and until
the shares of Common Stock covered by such Award are registered or are subject
to an available exemption from registration, the exercise of such Award (under
circumstances in which the laws of such jurisdiction apply) shall be deemed
conditioned upon the effectiveness of such registration or the availability of
such an exemption.
19. EXCHANGE ACT: RULE 16B-3
19.1 GENERAL
The Plan is intended to comply with Rule 16b-3 (and any successor
thereto) ("Rule 16b-3") under the Exchange Act. Any provision or action
inconsistent with Rule 16b-3 shall, to the extent permitted by law and
determined to be advisable by the Committee, be inoperative and void.
19.2 RESTRICTION ON TRANSFER OF COMMON STOCK
<PAGE> 13
Unless otherwise permitted under an exemption under Rule 16b-3, no
officer or other "insider" of the Company subject to section 16 of the Exchange
Act shall be permitted to sell Common Stock (which such "insider" had received
upon exercise of an Award) during the six months immediately following the grant
of such Award.
20. AMENDMENT AND TERMINATION
The Board may, at any time and from time to time, amend, suspend
or terminate the Plan or an Agreement governing any Award that has not vested;
provided, however, that no amendment by the Board shall, without approval by a
majority vote of the votes cast at a duly held meeting of the Stockholders of
the Company at which a quorum representing a majority of all outstanding Common
Stock is present, either in person or by proxy, 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, materially change the requirements
as to eligibility to receive Awards or increase the maximum number of shares of
Common Stock in the aggregate that may be sold pursuant to Awards granted under
the Plan (except as permitted under section 21 hereof). Except as permitted
under this Plan, no amendment, suspension or termination of the Plan or an
Agreement shall, without the consent of the Grantee, alter or impair rights or
obligations under any vested Award.
21. EFFECT OF CHANGES IN CAPITALIZATION
21.1 CHANGES IN COMMON STOCK
If the shares of Common Stock are changed into or exchanged for a
different number or kind of shares or securities of the Company, whether through
reorganization, recapitalization, reclassification, stock dividend or other
distribution, split, reverse split, combination of interest, exchange of
interests, change in corporate structure or the like, an appropriate and
proportionate adjustment shall be made in the number and kind of shares of
Common Stock subject to the Plan and in the number, kind and per share exercise
price of shares of Common stock subject to unexercised Awards, or portions
thereof granted prior to any such change. In the event of any such adjustment in
an outstanding Award, the Grantee thereafter shall have the right to purchase
the number of shares of Common Stock under such Award at the per share price, as
so adjusted, which the Grantee could purchase at the total purchase price
applicable to the Award immediately prior to such adjustment.
21.2 REORGANIZATION WITH COMPANY SURVIVING
Subject to section 20, if the Company shall be the surviving
entity in any reorganization, merger, consolidation or the like of the Company
with one or more other entities, any Award theretofore granted pursuant to the
Plan shall apply to the securities resulting immediately following such
reorganization, merger, consolidation or the like, with a corresponding
proportionate adjustment of the number of shares and Award Price per share so
that the aggregate number of shares and Award Price thereafter shall be the same
as the aggregate share number and Award Price immediately prior to such
reorganization, merger, consolidation or the like.
21.3 OTHER REORGANIZATIONS; SALE OF ASSETS OR COMMON STOCK
Unless otherwise provided in an Agreement, upon the dissolution or
liquidation of the Company, or upon a merger, consolidation or reorganization of
the Company with one or more other entities in which the Company is not the
surviving entity, or upon a sale of substantially all of the assets of the
Company to another entity, or upon any transaction (including, without
limitation, a merger or
<PAGE> 14
reorganization in which the Company is the surviving entity) approved by the
Board that results in any person or entity (other than persons who are holders
of Common Stock of the Company at the time the Plan is approved by the
Stockholders and other than an Affiliate) owning fifty (50) percent or more of
the combined voting power of all classes of Common Stock of the Company, the
Plan and all Awards outstanding hereunder shall terminate on the date of such
transaction, except to the extent provision is made in connection with such
transaction for the continuation of the Plan and/or the assumption of the Awards
theretofore granted, or for the substitution for such Awards of new awards
covering the Common Stock of a successor entity, or a parent or Affiliate
thereof, with appropriate adjustments as to the number and kinds of shares and
exercise prices, in which event the Plan and Awards theretofore granted shall
continue in the manner and under the terms so provided. In the event of any such
termination of the Plan, each Grantee shall have the right (subject to the
general limitations on exercise set forth in section 13 hereof and except as
otherwise specifically provided in the Agreement relating to such Award),
immediately prior to the occurrence of such termination and during such period
occurring prior to such termination as the Committee in its sole discretion
shall designate, to exercise such Award in whole or in part, to the extent such
Award was otherwise exercisable at the time such termination occurs. The
Committee shall send written notice of an event that will result in such a
termination to all Grantees not later than the time at which the Company gives
notice thereof to its stockholders. Notwithstanding anything herein to the
contrary, the Committee in its discretion may provide for the acceleration of
the vesting of any Award in the case of a merger, a significant sale of the
common stock or assets of the Company (as determined by the Committee).
21.4 ADJUSTMENTS
Adjustments under this Section 21 relating to Common Stock or
securities of the Company shall be made by the Committee, whose determination in
that respect shall be final 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.
21.5 NO LIMITATIONS ON COMPANY
The grant of an Award 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.
22. WITHHOLDING
The Company or an Affiliate may be obligated to withhold federal
and local income taxes and Social Security taxes to the extent that an Grantee
realizes income in connection with the exercise of an Award. The Company or a
Affiliate may withhold amounts needed to cover such taxes from payments
otherwise due and owing to an Grantee, and upon demand the Grantee will promptly
pay to the Company or a Affiliate having such obligation any additional amounts
as may be necessary to satisfy such withholding tax obligation. Such payment
shall be made in cash or cash equivalents. The Company may also withhold shares
or amounts payable to a Grantee pursuant to court order.
23. DISCLAIMER OF RIGHTS
The existence of this Plan does not, and no provision in the Plan
or in any Award granted or Agreement entered into pursuant to the Plan shall be
construed to, create an employment contract;
<PAGE> 15
confer upon any individual the right to receive an Award; permit a Grantee to
remain in the employ of the Company or alter a Grantee's status as an at-will
employee; or allow the Grantee to interfere in any way with the right and
authority of the Company either to increase or decrease the compensation of any
individual at any time, or to terminate any employment or other relationship
between any individual and the Company. The obligation of the Company to pay any
benefits pursuant to the Plan shall be interpreted as a contractual obligation
to pay only those amounts described herein, in the manner and under the
conditions prescribed herein. The Plan shall in no way be interpreted to require
the Company to transfer any amounts to a third party trustee or otherwise hold
any amounts in trust or escrow for payment to any Grantee or beneficiary under
the terms of the Plan.
24. NONEXCLUSIVITY
Neither the adoption of the Plan nor the submission of the Plan to
the Stockholders of the Company for approval shall 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 Common Stock options otherwise
than under the Plan.
25. GOVERNING LAW
This Plan and all Agreements shall be executed and performed
under, and all Awards to be granted hereunder shall be provided under and
governed by, the laws of the Commonwealth of Virginia (but not including the
choice of law rules thereof). Any disputes concerning the Plan or an Agreement
shall be brought before the federal or state courts of the Commonwealth of
Virginia.
26. BINDING EFFECT
Subject to all restrictions provided in this Plan and all
applicable laws, this Plan and all Agreements hereunder shall be binding on and
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
27. DISMISSAL FOR CAUSE
Notwithstanding any other provision in this Plan or an Agreement,
in the event that a Grantee's employment is terminated by reason of a Dismissal
for Cause, the Award shall expire on the day immediately preceding the date of
the Termination of Employment. "Dismissal for Cause" means Termination of
Employment for: (a) theft or embezzlement of property of the Company; (b) fraud
or other wrongdoing against the Company; (c) a conviction of a crime of moral
turpitude; (d) receipt of consideration or acceptance of benefits from, or the
participation in business activities with, persons doing business with the
Company in violation of the business ethics of the Company; (e) malicious
destruction of property of the Company; (f) improper disclosure of confidential
information of the Company; (g) actively engaging in or working for a business
in competition with the Company while employed by the Company; or (h) such other
reason that has a material adverse effect on the Company. The Committee shall
have the sole discretion to determine whether a Termination of Employment has
occurred by reason of Dismissal for Cause.
28. MISCELLANEOUS REQUIREMENTS
28.1 OTHER AWARD PROVISIONS
<PAGE> 16
Awards granted under the Plan shall contain such other terms and
provisions that are not inconsistent with this Plan as the Committee may
authorize in its discretion, providing for (a) special vesting schedules
governing the exercisability of an Award; (b) provisions for acceleration of
such vesting schedules in certain events; (c) arrangements whereby the Company
may fulfill any tax obligations for Employees in connection with an Award; (d)
provisions imposing restrictions upon the transferability of stock acquired on
exercise of such Award, whether required by this Plan or applicable securities
laws or imposed for other reasons; and (e) provisions regarding the termination
or survival of any such Award upon the Grantee's death, retirement or other
termination of employment and the extent, if any, to which any such Award may be
exercised after such event. Any dispute concerning an Award must be brought in
the federal or state courts of Virginia. In interpreting any inconsistencies,
gaps or discrepancies between or among any documents, the Plan shall control
over an Agreement (unless there is an express specific exception in an Agreement
to the Plan), and an Agreement shall control over any letter or other notice or
document describing a grant of an Award.
28.2 CONSENTS
If the Committee shall at any time determine that any Consent (as
hereafter defined) is necessary or desirable as a condition of, or in connection
with, the granting of any Award under the Plan, the issuance or purchase of
shares or other rights thereunder, or the taking of any other action thereunder
("Plan Action"), then such Plan Action shall not be taken, in whole or in part,
unless and until such Consent shall have been effected or obtained to the full
satisfaction of the Committee. "Consent" with respect to any Plan Action means
(a) any and all listings, registrations or qualifications in respect thereof
upon any securities exchange or under any federal, state or local law, rule or
regulation; (b) any and all written agreements and representations by the
Grantee with respect to the disposition of shares of Common Stock, or with
respect to any other matter, which the Committee shall deem necessary or
desirable to comply with the terms of any such listing, registration, or
qualification or to obtain an exemption from the requirement that any such
listing, qualification or registration be made; and (c) any and all other
consents, clearances and approvals in respect of a Plan Action.
28.3 NOTICE
Any notice required to be given to the Company hereunder shall be
in writing and shall be addressed to Corporate Secretary, Proxicom, Inc. 11600
Sunrise Valley Drive, Reston, Virginia 20191, or at such other address the
Company may hereafter designate to the Grantee. Any notice to be given to the
Grantee hereunder shall be addressed to the Grantee at the address set forth
beneath his/her signature hereto, or as such other address as the Grantee may
hereafter designate to the Company by notice as provided herein. A notice shall
be deemed to have been duly given when personally delivered or mailed by
registered mail or certified mail to the party entitled to receive it.
28.4 NOTICE OF SECTION 83(b) ELECTION AND DISQUALIFYING
DISPOSITION
If any Grantee shall, in connection with the acquisition of Common
Stock make the election permitted under section 83(b) of the Code (i.e., an
election to include in gross income in the year of transfer the amounts
specified in section 83(b)), such Grantee shall notify the Company within ten
(10) days of filing the notice of election with the Internal Revenue Service.
Further, Grantee must notify the Company of any disposition of any Common Stock
issued pursuant to the exercise of such Award under the circumstances described
in section 421(b) of the Code (relating to certain disqualifying dispositions)
within 10 days of such disposition.
<PAGE> 17
The Plan was duly adopted and approved by the Board on August 26,
1996 and was duly adopted and approved by the Stockholders of the Company on
August 26, 1996.
/s/ Christopher Capuano
---------------------------------
Christopher Capuano
Proxicom, Inc.
General Counsel and Secretary
<PAGE> 1
EXHIBIT 10.2
RUTT EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "AGREEMENT") is made as of
April 28, 2000, between PROXICOM, INC., a Delaware corporation (the "COMPANY"),
and Heiner Rutt (the "EXECUTIVE").
RECITALS
A. An Affiliate has employed Executive prior to the date hereof as
an Executive and the Company wishes to Executive to serve as President on and
after the effective date hereof on the terms and conditions hereof.
B. This Agreement replaces and supercedes any prior employment
agreement entered into between Executive, the Company and any Affiliates.
AGREEMENT
NOW, THEREFORE, in consideration of the promises and mutual obligations
of the parties contained herein, and for other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. ENGAGEMENT. The Company hereby engages Executive to serve as
President of the Company, and Executive agrees to serve the Company in the
capacities, and subject to the terms and conditions, set forth in this
Agreement.
2. SERVICES. While employed by the Company or an Affiliate,
Executive, as President of the Company, shall have all the duties and
responsibilities customarily rendered by presidents of companies of similar size
and nature and as may be delegated from time to time by the Board in its sole
discretion. Executive will devote his best efforts and substantially all of his
business time and attention (except for vacation periods and periods of illness
or other incapacity) to the business of the Company and its Affiliates.
Notwithstanding the foregoing, and provided that such activities do not
interfere with the fulfillment of Executive's obligations hereunder, Executive
may (A) serve as a director or trustee of any charitable or non-profit entity;
(B) acquire investment interests in one (1) or more entities which are not,
directly or indirectly, in competition with the Company or its Affiliates and
which do not provide supplies to the Company; or (C) own up to one percent (1%)
of the outstanding voting securities of any publicly held company regardless of
whether such publicly held company is in competition with the Company. Unless
the Company and Executive agree to the contrary, Executive's place of employment
shall be at the Company's offices in New York City, New York; provided, however,
that Executive will travel to such other
<PAGE> 2
locations of the Company and its Affiliates as may be reasonably necessary
and/or as required by the Board in its sole discretion in order to discharge his
duties hereunder.
3. COMPENSATION
(a) SALARY, BONUS AND BENEFITS. The Company or an Affiliate
will pay Executive a base salary (the "ANNUAL BASE SALARY") as the Board may
designate from time to time, which initial Annual Base Salary shall be at the
rate of $400,000 per annum. Executive's Annual Base Salary may be reviewed by
the Board (or its Compensation Committee) periodically but shall be reviewed at
least annually. Executive's base salary shall be subject to increase in
connection with any such review(s) but shall not be subject to decrease except
as part of a general company or management reduction in salaries. Executive
shall be eligible to receive a bonus of up to 50% of Executive's Annual Base
Salary for each year as determined by the Board in its sole discretion, based
upon the Company's achievement of budgetary and other objectives set by the
Board. In addition, while employed, Executive will be entitled to such other
benefits approved by the Board and made generally available to the Company's or
Affiliate's senior management (including health, dental, vision, life insurance,
three weeks accrued vacation, sick leave accrual and paid holidays). Executive
will also receive life insurance and disability insurance consistent with that
provided by comparable companies to similarly situated executives.
(b) STOCK OPTIONS. On February 4, 2000, Executive received
options to purchase one million (1,000,000) post-stock split shares of Company
common stock at an option exercise price equal to the fair market value of the
shares of stock on the date of grant pursuant to the terms of the Proxicom Stock
Option Plan. The options vest in accordance with the following schedule: 100,000
options on the date of grant, 37,500 options at the end of each quarter for the
first four (4) quarters after the grant date and 62,500 options at the end of
each subsequent quarter until full vesting. On April 17, 2000 Executive received
an option to purchase two hundred thousand (200,000) shares of Company common
stock at an option exercise price equal to the fair market value of the stock on
the date of grant pursuant to the terms of the Proxicom Stock Option Plan. The
options vest in accordance with the following schedule: 100,000 options on the
date of grant, 6,250 options at the end of each quarter until full vesting. In
the event of a change of control of the Company (defined as the sale of greater
than fifty percent (50%) of the common stock or assets of the Company to a
purchaser), Executive will be credited with an additional twelve (12) months
towards vesting in the stock options if, after the change of control, any of the
following occur: (i) Executive's employment is terminated; (ii) Executive's then
current position, authority, duties or responsibilities are diminished; (iii)
Executive's base salary is reduced; or (iv) Executive is required to move his
primary office more than fifty (50) miles from the metropolitan area in which it
was located immediately before the change of control.
4. TERMINATION.
(a) EVENTS OF TERMINATION. Executive's employment with the
Company or its Affiliates shall cease upon:
2
<PAGE> 3
(i) Executive's death.
(ii) Executive's disability, which means his
incapacity due to physical or mental illness such that he is unable to
perform the duties and services required of his position for a
continuous period of ninety (90) days or for a period of one hundred
twenty (120) days out of any twelve (12) month period.
(iii) Termination by the Company or an Affiliate by the
delivery to Executive of a written notice from the Board that Executive
has been terminated ("NOTICE OF TERMINATION") with or without Cause.
"CAUSE" shall mean: Executive's (aa) conviction of a felony; (bb)
chronic alcoholism or substance abuse; or (cc) neglect of Executive's
duties and responsibilities to the Company after written notice of such
neglect and an opportunity to cure, all as determined in good faith by
the Company:
(iv) Executive's voluntary resignation by the delivery to the
Board of a written notice from Executive that Executive has resigned
with or without a "Constructive Discharge." In order to constitute a
termination for "Constructive Discharge", Executive must resign within
six (6) months of an event that constitutes Constructive Discharge.
"CONSTRUCTIVE DISCHARGE" shall mean (aa) any action by the Company which
results in a diminution in Executive's position, authority, duties or
responsibilities; or (bb) a reduction in Executive's base salary (except
as part of a general company or management reduction in salaries); or
(cc) Executive is not promoted by the date that is eighteen (18) months
after Executives commences employment with the Company, provided
Executive has then fully satisfied all the requirements for promotion as
determined in the sole discretion of the current-Chief Executive Officer
and the Board of Directors.
(b) RIGHTS ON TERMINATION.
(i) In the event that a termination of employment occurs by
Executive due to a Constructive Discharge or Executive is terminated or
removed from the position of President by the Company or an Affiliate
without Cause, the Executive will continue to serve as a consultant
providing services to the Company and reporting to the Chief Executive
Officer for a one year period. The Company or an Affiliate will continue
to pay Executive an amount equal to Executive's Annual Base Salary for a
one year period commencing on the date of termination of employment (the
"CONSULTING PERIOD") on regular salary payment dates (the "CONSULTING
PAYMENTS"). Executive's stock options will continue to vest during the
Consulting Period. Executive will continue to be provided health
benefits for the Consulting Period. To the extent that Executive is not
allowed to participate in the Company's or an Affiliate's health benefit
programs following his termination of employment, the Company or an
Affiliate will pay his COBRA premiums for the Consulting Period.
3
<PAGE> 4
(ii) If the Company or an Affiliate terminates Executive's
employment for Cause, if Executive dies or is disabled, or if Executive
resigns other than due to a Constructive Discharge, the Company's or an
Affiliate's obligations to pay any compensation or benefits under this
Agreement will cease effective the date of termination. Executive's
right to receive any other benefits will be determined under the
provisions of applicable plans, programs or other coverages.
(iii) During (aa) the period in which Executive is receiving
payments from the Company or any Affiliate and (bb) thereafter,
Executive shall not make, directly or indirectly, disparaging
statements, whether oral or written, regarding the Company or any
Affiliate. Furthermore, Executive shall not disclose in violation of the
Confidentiality and Non-solicitation Agreement referenced in Section 6
of this Agreement any confidential or proprietary information of the
Company or any Affiliate. Executive acknowledges that (cc) the
restrictions contained in this section 4(b)(iii) of this Agreement are
reasonable and necessary to protect the business and interests of the
Company, (dd) the Company is relying upon the enforceability of such
restrictions in entering into this Agreement, (ee) any violation of
these restrictions will cause substantial irreparable injury to the
Company, (ff) the full extent of Company's damages will be impossible to
ascertain and (gg) monetary damages will not be an adequate remedy for
Company. Therefore, Executive agrees that a violation of this Section
4(b)(iii) will result a forfeiture of payments and benefits provided to
Executive in this Section 4(b) and that the Company is entitled, in
addition to other remedies, to preliminary and permanent injunctive
relief to secure specific performance, and to prevent a breach or
contemplated breach, of this Section 4(b)(iii), to the fullest extent
permissible under state law. The restriction set forth herein shall be
construed as an independent covenant, and the existence of any claim or
cause of action against the Company, whether predicated upon this
Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of the restriction contained in this Section
4(b)(iii). Employee hereby consents to the jurisdiction over his person
of any courts within the Commonwealth of Virginia with respect to any
proceedings in equity arising out of this Agreement. If any court of
competent jurisdiction shall hold that the restriction contained in this
Section 4(b)(iii) is unreasonable as to time or scope, said restriction
shall be deemed to be reduced to the extent necessary in the opinion of
such court to make it reasonable.
(c) Non-Disparagement.
(i) Executive expressly agrees that he will not make any
knowingly false, disparaging or derogatory comments concerning the
Company or any Affiliate, with respect to the business affairs or
financial condition of the Company or any Affiliate or any of the
Company's or its Affiliate's employees.
(ii) The Company and its Affiliates expressly agree that
their officers and directors will not make any knowingly false,
disparaging or derogatory comments concerning the Executive.
(iii) No provision of this Agreement shall be construed as
prohibiting the provision of truthful and accurate information by
Executive or the Company in form of verified facts directly observed by
or known to either the Executive or the Company pursuant to a valid
subpoena issued by a court of competent jurisdiction or arbitrator
requesting the specific information to be disclosed. However, both the
Executive and the Company agree promptly to notify the other through
counsel before complying with any subpoena so that the Executive and
the Company may protect their respective proprietary and other
interests.
5. AT WILL EMPLOYMENT. Except as set forth in this Agreement, the
terms and conditions of Employment with the Company or an Affiliate do not
constitute an employment contract or guarantee of continued employment, and
either Executive, the Company or an Affiliate has the right to end the
employment relationship at will.
6. CONFIDENTIALITY AND NONSOLICITATION. Executive agrees that he is
subject to the Company's or its Affiliates' standard agreement governing
confidentiality and nonsolicitation and to execute such agreement.
4
<PAGE> 5
GENERAL PROVISIONS
7. DEFINITIONS.
"AFFILIATE" of any particular person or entity means any other person or
entity controlling, controlled by or under common control with such particular
person or entity.
"BOARD" means the Board of Directors of the Company.
"PERSON" means an individual, a partnership, a limited liability
company, a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
8. NOTICES. Any notice provided for in this Agreement must be in
writing and must be either personally delivered or sent by reputable overnight
courier service (charges prepaid) to the recipient at the address below
indicated:
If to the Company or an Affiliate:
Proxicom, Inc.
11600 Sunrise Valley Drive
Reston, Virginia 20191
Attention: David R. Fontaine
Tel No.: (703) 262-3200
Fax No.: (703) 262-3201
with a copy to:
Hogan & Hartson L.L.P.
555 13th Street, N.W.
Washington, D.C. 20004
Attention: Peter Romeo, Esq.
Tel. No.: (202) 637-5600
Fax No.: (202) 637-5910
If to Executive:
Heiner Rutt
49 Vineyard Lane
Greenwich, Connecticut 06831
5
<PAGE> 6
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or sent or, if mailed, five (5) days after deposit in the U.S. mail.
9. GENERAL PROVISIONS.
(a) SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(b) COMPLETE AGREEMENT. This Agreement, those documents
expressly referred to herein and other documents of even date herewith embody
the complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
(c) COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(d) SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, this Agreement shall bind and inure to the benefit of and be enforceable
by Executive, the Company, its Affiliates and their respective successors and
assigns; provided that the rights and obligations of Executive under this
Agreement shall not be assignable and, provided further that, the rights and
obligations of the Company may be assigned to any Affiliate of the Company.
(e) CHOICE OF LAW. This Agreement, the rights and
obligations of the parties hereto, and any claims or disputes relating thereto,
shall be governed by and construed in accordance with the laws of the
Commonwealth of Virginia (but not including the choice of law rules thereof).
(f) AMENDMENT AND WAIVER. The provisions of this Agreement
may be amended and or waived only with the prior written consent of the Company
or its Affiliate and Executive.
(g) BUSINESS DAYS. If any time period for giving notice or
taking action hereunder expires on a day which is a Saturday, Sunday or holiday
in the state in which the Company's chief executive office is located, the time
period shall be automatically extended to the business day immediately
following, such Saturday, Sunday or holiday.
6
<PAGE> 7
(h) NO WAIVER. A waiver by any party hereto of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which such party would otherwise have on any future occasion. No
failure to exercise nor any delay in exercising on the part of any party hereto,
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein provided are cumulative and may be exercised singly
or concurrently, and are not exclusive of any rights or remedies provided by
law.
(i) INSURANCE. The Company or an Affiliate, at its
discretion, may apply for and procure in its own name for its own benefit life
and/or disability insurance on Executive in any amount or amounts considered
available. Executive agrees to cooperate in any medical or other examination,
supply any information, and to execute and deliver any applications or other
instruments in writing as may be reasonably necessary to obtain and constitute
such insurance. Executive hereby represents that he has no reason to believe
that his life is not insurable at rates now prevailing for healthy men of his
age.
(j) WITHHOLDING TAXES. The Company and its Affiliates shall
be entitled to deduct or withhold from any amounts owing from the Company or any
of its Affiliates to Executive any federal, state, provincial, local or foreign
withholding taxes, excise taxes, or employment taxes ("TAXES") imposed with
respect to Executive's compensation or other payments from the Company or any of
its Affiliates or Executive's ownership interest in the Company, including, but
not limited to, wages, bonuses, dividends, the receipt or exercise of stock
options and/or the receipt or vesting of restricted stock.
(k) FURTHER ASSURANCES. Executive shall execute and deliver
all documents, provide all information, and take or refrain from taking such
actions as may be necessary or appropriate to achieve the purposes of this
Agreement.
(l) ARBITRATION. Except as provided in Section 4(b)(iii),
any dispute arising out of this Agreement, the Executive's relationship with the
Company or any of its Affiliates, or the Executive's separation from employment
shall be subject to binding arbitration. The arbitration shall be governed by,
and conducted in accordance with, the American Arbitration Association Labor
Arbitration Rules. Within ninety (90) days after the dispute, controversy or
claim arises, the party demanding arbitration shall give the other party written
notice of his/its intention to arbitrate, which notice shall contain a statement
setting forth the nature of the dispute and the remedy sought. Immediately
following a demand for arbitration, the parties shall request a list of
arbitrators from the American Arbitration Association. The list shall be limited
to arbitrators who are members of the National Academy of Arbitrators and who
are familiar with labor and employment disputes. Within fourteen (14) days after
the mailing date of the list, the parties shall select one arbitrator from the
list. The arbitration shall be confidential. The arbitration hearing shall be
held in the Commonwealth of Virginia, and shall be private and not open to the
public. The arbitrator's fees and expenses shall be shared equally by the
parties during the arbitration. In the arbitrator's final award, the arbitrator
may award, in the arbitrator's
7
<PAGE> 8
discretion, the party substantially prevailing all costs incurred by that party
in connection with the arbitration, including reasonable attorneys' fees and
that party's share, if any, of the fees charged by the arbitrator, and all
filing and/or arbitration administration fees incurred by that party in
connection with the arbitration.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
PROXICOM, INC.
By: /s/ Raul J. Fernandez
------------------------------------------------
Name: Raul J. Fernandez
-------------------------------------
Title: Chairman and Chief Executive Officer
------------------------------------
EXECUTIVE
/s/ Heiner Rutt
------------------------------------------------------
HEINER RUTT
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED 3/31/00 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 95,464
<SECURITIES> 31,043
<RECEIVABLES> 31,575
<ALLOWANCES> 660
<INVENTORY> 0
<CURRENT-ASSETS> 164,546
<PP&E> 12,139
<DEPRECIATION> 4,687
<TOTAL-ASSETS> 183,498
<CURRENT-LIABILITIES> 25,206
<BONDS> 0
0
0
<COMMON> 538
<OTHER-SE> 157,754
<TOTAL-LIABILITY-AND-EQUITY> 183,498
<SALES> 38,167
<TOTAL-REVENUES> 38,167
<CGS> 18,382
<TOTAL-COSTS> 18,382
<OTHER-EXPENSES> 16,726
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,689
<INCOME-PRETAX> 4,748
<INCOME-TAX> 2,056
<INCOME-CONTINUING> 2,692
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,692
<EPS-BASIC> 0.05
<EPS-DILUTED> 0.04
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