<PAGE>
UNITED STATES
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 June 30, 1999
-----------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to_____
Commission File Number 000-25599
-----------
ONEMAIN.COM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 7375 11-3460073
--------- ---- ----------
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) industrial classification identification
number) number)
8150 Leesburg Pike
6th Floor
Vienna, Virginia 22182
703-883-8262
(Address, including zip code, and telephone number, including area code,
of principal executive offices)
_______________________
Stephen E. Smith
Chairman, Chief Executive Officer
OneMain.com, Inc.
8150 Leesburg Pike
6th Floor
Vienna, Virginia 22182
(703) 883-8262
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 August 12, 1999.
Common Stock $.001 par value Number of Shares
----------------------- ----------------
22,549,000
ONEMAIN.COM, INC.
1
<PAGE>
Form 10-Q For the Quarterly Period Ended June 30, 1999
<TABLE>
<CAPTION>
Index Page
<S> <C>
Part I. - Financial Information 3
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of
June 30, 1999 and December 31, 1998 4
Condensed Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 1999 5
Condensed Consolidated Statement of Cash Flows
For the Six Months Ended June 30, 1999 6
Condensed Consolidated Statement of Stockholders'
(Deficit) Equity For the Six Months Ended
June 30, 1999 7
Notes to Condensed Consolidated Financial Statements 8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II. -Other Information 21
Exhibit Index 21
Signatures 22
</TABLE>
2
<PAGE>
ONEMAIN.COM, INC.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying unaudited condensed consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company, all adjustments necessary
for the fair presentation of the Company's results of operations, financial
position and changes therein for the periods presented have been included.
3
<PAGE>
ONEMAIN.COM, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
--------------- ----------------
June 30, December 31,
1999 1998
--------------- ----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 93,605,000 $ 172,000
Accounts receivable, net 3,475,000 -
Deferred offering costs - 6,159,000
Prepaid expenses and other current assets 2,006,000 -
------------ ----------
Total current assets 99,086,000 6,331,000
Property and equipment, net 22,459,000 -
Goodwill, net 167,851,000 -
Customer lists, net 107,474,000 -
Other assets 1,278,000 -
------------ ----------
Total assets $398,148,000 $6,331,000
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable and accrued expenses $ 11,299,000 $6,549,000
Unearned revenue 14,457,000 -
Current portion of capital lease obligations 3,620,000 -
Deferred tax liability 13,662,000 -
Other current liabilities 577,000 500,000
------------ ----------
Total current liabilities 43,615,000 7,049,000
Capital lease obligations, net of current portion 3,138,000 -
Deferred tax liability and other 24,423,000 -
------------ ----------
Total liabilities 71,176,000 7,049,000
Stockholders' equity (deficit)
Preferred stock, $.001 par value; 10,000,000 shares authorized,
no shares issued or outstanding - -
Common stock, $.001 par value; 100,000,000 shares authorized,
22,471,141 and 4,782,500 shares issued and outstanding
at June 30, 1999 and December 31, 1998, respectively 23,000 5,000
Additional paid-in capital 350,797,000 53,000
Accumulated deficit (23,848,000) (765,000)
Stock subscriptions receivable - (11,000)
------------ ----------
Total stockholders' equity (deficit) 326,972,000 (718,000)
------------ ----------
Total liabilities and stockholders' equity (deficit) $398,148,000 $6,331,000
============ ==========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
4
<PAGE>
ONEMAIN.COM, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
-------------- ------------
Three Months Six Months
Ended Ended
June 30, June 30,
1999 1999
-------------- ------------
<S> <C> <C>
Revenues:
Access revenues $ 21,469,000 $ 21,469,000
Other revenues 1,543,000 1,543,000
------------ ------------
Total revenues 23,012,000 23,012,000
Costs and expenses:
Cost of access revenues 8,616,000 8,616,000
Cost of other revenues 533,000 533,000
------------ ------------
Total costs of revenues 9,149,000 9,149,000
------------ ------------
Gross margin 13,863,000 13,863,000
Operating expenses:
Operations and customer support 3,161,000 3,161,000
Sales and marketing 3,327,000 3,327,000
General and administrative 7,456,000 8,366,000
Equity compensation - 2,469,000
Amortization 22,296,000 22,296,000
Depreciation 1,586,000 1,586,000
Other income, net (83,000) (83,000)
------------ ------------
Total operating expenses 37,743,000 41,122,000
Loss from operations (23,880,000) (27,259,000)
Interest income 1,242,000 1,266,000
Interest expense (162,000) (178,000)
------------ ------------
Total nonoperating income 1,080,000 1,088,000
------------ ------------
Loss before income tax benefit (22,800,000) (26,171,000)
Income tax benefit 3,088,000 3,088,000
------------ ------------
Net loss $(19,712,000) $(23,083,000)
============ ============
Basic and diluted net loss per share $ (0.90) $ (1.09)
============ ============
Shares used in the calculation of basic
and diluted net loss per share 21,893,000 21,212,000
============ ============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
--------------
For The Six
Months Ended
June 30, 1999
--------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C>
Net loss $ (23,083,000)
Adjustments to reconcile net loss to
net cash provided by operating activities
Amortization of goodwill and customer lists 22,296,000
Depreciation expense 1,586,000
Allowance for doubtful accounts 562,000
Income tax benefit (3,088,000)
Equity compensation 2,594,000
Changes in operating assets and liabilities:
Accounts receivable, (420,000)
Prepaid expenses and other current assets (346,000)
Unearned revenue 450,000
Accounts payable and accrued expenses 1,982,000
Other assets (340,000)
Other current liabilities 385,000
--------------
Net cash provided by operating activities 2,578,000
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses, net of cash acquired (90,024,000)
Purchases of property, plant and equipment (2,461,000)
Proceeds from disposal of property and equipment 84,000
--------------
Net cash used in investing activities (92,401,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock in initial public offering
net of underwriters discounts and commissions and offering costs 190,625,000
Proceeds from note payable from stockholder 500,000
Repayment of notes payable from stockholder (1,000,000)
Repayment of long-term debt assumed through acquisitions (6,545,000)
Repayment of capital lease obligations (570,000)
Proceeds from exercise of common stock options 230,000
Proceeds from stock subscriptions receivable 16,000
--------------
Net cash provided by financing activities 183,256,000
--------------
Net increase in cash and cash equivalents 93,433,000
Cash and cash equivalents, beginning of period 172,000
--------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 93,605,000
==============
Supplemental disclosure of cash flow information:
Interest paid $ 184,000
==============
Issuance of common stock for acquisitions $ 157,546,000
==============
Acquisition of property and equipment through assumption of
capital lease obligations $ 1,506,000
==============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
6
<PAGE>
ONEMAIN.COM, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF
STOCKHOLDERS' (DEFICIT) EQUITY
For The Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
Additional Stock
Common Stock Paid-In Subscriptions Accumulated
Shares Amount Capital Receivable Deficit
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 4,782,000 $ 5,000 $ 53,000 $ (11,000) $ (765,000)
Issuance of Common Stock on January 1, 1999 100,000 - 5,000 (5,000) -
Issuance of Common Stock in connection with initial
public offering and exercise of underwriters'
over-allotment, net of offering costs and
underwriters' discounts 9,775,000 10,000 190,378,000 - -
Issuance of Common Stock in connection with the
Transactions and Acquisitions 7,804,000 8,000 157,537,000 - -
Repayment of stock subscriptions receivable - - - 16,000 -
Exercise of Common Stock options 10,000 - 230,000 - -
Equity compensation expense - - 2,594,000 - -
Net loss for the six months ended June 30, 1999 - - - - (23,083,000)
-----------------------------------------------------------------
Balance at June 30, 1999 22,471,000 $23,000 $ 350,797,000 $ - $(23,848,000)
=================================================================
<CAPTION>
Total
Stockholders'
Equity
--------------
<S> <C>
Balance at December 31, 1998 $ (718,000)
Issuance of Common Stock on January 1, 1999 -
Issuance of Common Stock in connection with initial
public offering and exercise of underwriters'
over-allotment, net of offering costs and
underwriters' discounts 190,388,000
Issuance of Common Stock in connection with the
Transactions and Acquisitions 157,545,000
Repayment of stock subscriptions receivable 16,000
Exercise of Common Stock options 230,000
Equity compensation expense 2,594,000
Net loss for the six months ended June 30, 1999 (23,083,000)
-------------
Balance at June 30, 1999 $ 326,972,000
=============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
7
<PAGE>
ONEMAIN.COM, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1) Organization and Basis of Presentation
In connection with the closing of the initial public offering of its Common
Stock on March 30, 1999 (the "Offering"), OneMain.com, Inc. (the "Company" or
"ONEM") acquired 17 Internet service providers (the "ISPs") effective March 30,
1999, in a series of separate business combination transactions (the
"Transactions"). The Company is one of the largest Internet service providers in
the United States focused on offering high levels of customer service to
individuals and businesses located predominantly in smaller metropolitan markets
and rural communities.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation of the consolidated financial statements have been
included. These adjustments consisted of normal recurring adjustments in
addition to a one-time, non-cash equity compensation charge of $2,469,000
associated with the hiring of one executive and certain other consultants. The
results of interim periods are not necessarily indicative of the results that
may be expected for the year ended December 31, 1999. The consolidated financial
statements and footnotes should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in this Form 10-Q and the Company's Form S-4 Registration Statement,
filed on April 27, 1999 with the Securities and Exchange Commission (File No.
333-77063), which included the financial statements and footnotes for the year
ended December 31, 1998.
2) Initial Public Offering
On March 30, 1999, ONEM completed its Offering of 8,500,000 shares of its Common
Stock at $22.00 per share. On April 9, 1999, the underwriters exercised their
over-allotment option to purchase 1,275,000 shares of Common Stock at the
initial public offering price of $22.00 per share. The gross proceeds from the
Offering were $215,050,000. The net proceeds after underwriter discounts and
commissions and offering costs were approximately $190,625,000.
The net proceeds have been used as follows: (1) approximately $10,147,000 for
legal, accounting, printing fees and other costs associated with the Offering,
(2) approximately $94,074,000 to pay the cash portion of the purchase prices for
the Transactions and Acquisitions, (3) $1,021,000 to pay the founders notes and
accrued interest and (4) approximately $6,545,000 to retire debt assumed by ONEM
in the Transactions. The remaining net proceeds will be used for general
corporate purposes, which may include future acquisitions, working capital and
the payment of any additional amounts payable to former owners of the ISPs under
the earn-out provisions of the acquisition agreements.
3) Business Combinations - ISPs
During the second quarter of 1999, the Company acquired all of the outstanding
common stock of two ISPs and certain assets of two ISPs (the "Acquisitions").
The Acquisitions have been accounted for using the purchase method of
accounting. Accordingly, the statements of operations include the results of
operations for these ISPs from the date of acquisition. The total consideration
paid by the Company for the Acquisitions was $38,205,000, comprised of
$22,022,000 in cash and 664,000 shares of Common Stock.
8
<PAGE>
ONEMAIN.COM, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3) Business Combinations - ISPs (continued)
The total purchase price of $38,205,000 has been preliminarily allocated to the
fair value of the net assets acquired in the Acquisitions as follows:
Goodwill $ 22,351,000
Customer lists 23,165,000
Cash 71,000
Other current assets 854,000
Property and equipment 3,537,000
Deferred tax liability (6,030,000)
Other liabilities, net (5,743,000)
------------
$ 38,205,000
============
On March 30, 1999, the Company acquired all of the outstanding common stock and
limited liability company interests of 17 ISPs. The Transactions have been
accounted for using the purchase method of accounting assuming the acquisitions
were consummated on March 31, 1999, as opposed to the March 30, 1999 acquisition
date. Accordingly, the statements of operations include the results of
operations for these ISPs since March 31, 1999. Activity occurring on March 31,
1999 was not material to the results of operations for the periods presented.
The total consideration for the Transactions was $214,615,000, comprised of
$72,052,000 in cash, 7,140,000 shares of Common Stock and $1,200,000 in
estimated purchase price adjustments accrued through June 30, 1999.
The total purchase price of $214,615,000 has been preliminarily allocated to the
fair value of the net assets acquired in the Transactions as follows:
Goodwill $ 159,405,000
Customer lists 92,710,000
Cash 3,979,000
Other current assets 4,422,000
Property and equipment 16,631,000
Deferred tax liability (34,954,000)
Other liabilities, net (27,578,000)
-------------
$ 214,615,000
=============
During the quarter ended June 30, 1999, the Company accrued $1,200,000 in
estimated additional purchase price adjustments related to the earn-out
arrangements included in the definitive agreements and other contractual
adjustments. The estimated additional consideration may be adjusted further. The
payment of additional consideration is contingent upon certain operational and
earning margin requirements being met. The amount of the additional
consideration will be payable in either cash or stock at the option of the
Company.
4) Commitments and Contingencies
The Company is engaged in ordinary and routine litigation incidental to its
business. Management does not anticipate that any amounts the Company may be
required to pay by reason thereof will have a material effect on the Company's
financial position or results of operations.
The Company entered into a seven-year lease agreement to occupy 14,352 square
feet of office space for its executive offices commencing June 15, 1999. The
monthly lease payments are $28,704 and will increase 3% per annum commencing
June 15, 2000 through the end of the lease term. The lease includes one
five-year renewal option.
9
<PAGE>
5) Related Party Transactions
During 1998, the Company issued a promissory note in the amount of $500,000 to
one of its founders (the "founders notes"). During the first quarter of 1999,
the Company issued a second promissory note in the amount of $500,000 to the
founder. During the second quarter of 1999, the promissory notes and accrued
interest in the aggregate of $1,021,000 were paid in full.
On January 5, 1999, M. Cristina Dolan, an Executive Vice President and the Chief
Content and Strategic Alliances Officer of the Company, purchased 100,000 shares
of Common Stock of the Company for $5,000, or $.05 per share. In addition, the
Company issued options to purchase shares of the Company's Common Stock at
$22.00 per share to certain outside consultants on March 25, 1999. The Company
recognized a one-time, non-cash compensation charge of $2,469,000 in connection
with these transactions during the three months ended March 31, 1999. The
Company does not anticipate incurring similar equity compensation charges in the
future.
6) Pro Forma Combined Financial Information
The following pro forma combined financial information for the six months ended
June 30, 1999 and June 30, 1998, includes the results of OneMain.com as if the
Transactions and Acquisitions had occurred on January 1 of each respective
period. This pro forma combined financial information includes the effects of
(a) the Transactions and Acquisitions; (b) the Offering; (c) the amortization of
goodwill resulting from the Transactions and Acquisitions; (d) the elimination
of interest expense for the debt that was paid from the Offering proceeds; and
(e) an income tax benefit at an appropriate rate.
The pro forma combined financial information does not purport to represent what
the Company's financial position or results of operations would actually have
been if such transactions and events in fact had occurred on those dates or to
project the Company's results of operations for any future period.
<TABLE>
<CAPTION>
--------------------------------
Six months ended
June 30, June 30,
1999 1998
------------ ------------
<S> <C> <C>
Total revenues $ 49,581,000 $ 30,279,000
Net loss $(46,087,000) $(42,899,000)
============ ============
Basic and diluted net loss per share $ (2.12) $ (2.03)
============ ============
Shares used in calculation of basic and
diluted net loss per share 21,772,000 21,086,000
============ ============
</TABLE>
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
This filing contains forward-looking statements within the meaning of Section
27A of The Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended. Those statements reflect the intent, belief
or current expectations of the Company and members of the management team.
Prospective investors are cautioned that any forward-looking statements are not
guarantees of future performance, involve risk and uncertainties, and that
actual results may differ materially from those contemplated by the forward-
looking statements as a result of, among other things, reflecting changed
assumptions, the occurrence of unanticipated events or changes to future
operating results over time.
Introduction
The following discussion of the Company's results of operations and of its
liquidity and capital resources should be read in conjunction with the unaudited
condensed consolidated financial statements of the Company and the related notes
thereto appearing in this filing.
Overview
The Company successfully completed an initial public offering of 8,500,000
shares of its Common Stock on March 30, 1999, concurrently with the acquisitions
of 17 ISPs (the "Transactions"). On April 9, 1999, the underwriters exercised
their over-allotment option to purchase 1,275,000 shares of Common Stock at the
initial public offering price of $22.00 per share. During the second quarter
of 1999 the Company acquired all of the outstanding common stock of two ISPs and
certain assets of two ISPs for approximately $38,205,000 in cash and Common
Stock (the "Acquisitions"). The purchase of these companies and strategic
organic growth increased the Company's subscribers to approximately 472,000 at
June 30, 1999.
Now serving nearly a half million customers in 27 states through over 965 access
points, the Company is one of the largest Internet service providers in the
United States focused on offering high levels of customer service to individuals
and businesses located predominantly in smaller metropolitan markets and rural
communities. The Company believes that its customers have traditionally been
under-served by other national on-line service providers, and that an
opportunity exists to meet their growing demand for Internet services.
Beyond the markets it serves, the Company is differentiating itself by providing
an online experience for its customers with high level of local content.
Instead of a virtual community where every customer is given the same
information regardless of the customer's home address, the Company is creating a
series of online geographic communities. When a customer logs onto the service,
by virtue of his or her area code, the customer will enter an online geographic
community specific to his or her region of the country. These geographic
communities enable the Company to customize local content with links to
information and entertainment that are relevant to its customers.
With a talented staff of network engineers and programmers, a knowledgeable team
of sales and marketing professionals and a dedicated group of customer care and
technical support specialists, the Company is positioned as a national ISP with
a strong presence in the local communities it serves.
The Company offers 56K-modem access through its dial-up locations and
dedicated high-speed Internet access, Web hosting and other services in certain
locations. The Company's ISPs support these services with superior customer
service at reasonable prices.
The Company launched its new logo and branding concept through its web site
http://www.onemain.com which includes a new Investor Relations section titled
- ----------------------
"Investor Corner." Shareholders, investors and analysts can now request
information on the Company and its ISPs through the Investor Corner. Current
enhancements to the Investor Corner were made which allow shareholders,
investors and analysts to connect and become more informed about the Company.
The Company's Common Stock is listed on the NASDAQ National Market under the
symbol ONEM.
----
11
<PAGE>
Results of Operations
The Company conducted no significant operations prior to March 31, 1999. The
Transactions closed on March 30, 1999. For financial reporting purposes, the
Transactions have been accounted for under the purchase method of accounting
from March 31, 1999. Activity that occurred on March 31, 1999 was not material
to the results of operations for the quarter.
From April 1, 1999 to June 30, 1999 the Company reported significant operations.
For a discussion of operations for the three and six months ended June 30, 1999
and 1998, see Results of Operations.
The Company reported net losses of $19,712,000 or $(.90) per share and
$23,083,000 or $(1.09) per share, for the three and six months ended June 30,
1999, respectively. The net loss for the three months ended June 30, 1999 was
the result of $19,208,000 of non-cash amortization, net of the related income
tax benefit and $2,551,000 of corporate-related expenses. The net loss for the
six months ended June 30, 1999 was the result of $19,208,000 of non-cash
amortization, net of the related income tax benefit, $3,453,000 of corporate
related expenses and a one-time, non-cash equity compensation charge of
$2,469,000 relating to the hiring of one executive and several outside
consultants. The Company does not anticipate incurring such equity compensation
charges in the future.
Liquidity and Capital Resources
As of June 30, 1999, the Company's combined cash and cash equivalents balance
was $93,605,000, compared with $172,000 at December 31, 1998. This increase is
mainly attributable to the receipt of $190,625,000 of net proceeds from the
Offering, the aggregate cash portion of the purchase price of the Transactions
and Acquisitions of $90,024,000, net of cash acquired, and the repayment of
$6,545,000 of debt assumed in the Transactions. In addition, the Company earned
net interest income of $1,088,000. At closing of the Transactions, the Company
retired substantially all of the acquired companies' debt obligations except to
the extent such obligations related to capitalized leases.
Net cash provided by operating activities amounted to $2,578,000 for the six
months ended June 30, 1999.
Net cash used in investing activities amounted to $92,401,000 during the six
months ended June 30, 1999, representing the payment of the cash portion of the
purchase prices for the Transactions and Acquisitions, net of cash acquired, and
the purchases of property, plant and equipment.
Net cash provided by financing activities amounted to $183,256,000 for the six
months ended June 30, 1999. The Company received net proceeds from the Offering
of $190,625,000. The Company repaid $6,545,000 of debt assumed in the
Transactions. Additionally, during the three months ended March 31, 1999 the
Company issued a second promissory note in the amount of $500,000 to one of its
founders to fund the payment of pre-Offering expenses. During the six months
ended June 30, 1999 the founders notes and accrued interest, in the aggregate of
$1,021,000 were paid in full.
Management expects the Company's capital expenditures to increase as its
operations continue to expand. It is anticipated that financial resources will
be utilized in acquiring additional communications equipment and improvements to
technology that will allow the Company's networks to grow to support new and
acquired subscribers, build a network operations center and integrate billing
and financial reporting systems. The Company expects to pay out additional
consideration that may be issued pursuant to earn-out arrangements included in
the definitive agreements for the Transactions. The payment of additional
consideration is contingent upon certain operational and earning margin
requirements being met. The amount of the additional consideration will be
payable in either cash or stock at the option of the Company. Through June 30,
1999 the Company estimates the amount of additional consideration to be
approximately $1,200,000 net of purchase price adjustments related to the
definitive agreements. Such amounts are anticipated to be adjusted further in
future quarters.
The Company anticipates that its current cash on hand and cash flow from
operations will be sufficient to meet the Company's liquidity requirements for
its operations through the remainder of the fiscal year. However, the Company is
currently pursuing, and intends to continue to pursue additional acquisitions,
which are expected to be funded through a combination of cash and the issuance
by the Company of shares of its Common Stock. To the extent the Company elects
to pursue acquisitions involving the payment of significant amounts of cash (to
fund the purchase price of such acquisitions and the repayment of assumed
indebtedness), the Company is likely to require additional sources of
12
<PAGE>
financing to fund such non-operating cash needs. The Company may determine to
raise additional debt or equity capital to finance potential acquisitions and/or
to fund accelerated growth. Any significant acquisitions or increases in the
Company's growth rate could materially affect the Company's operating and
financial expectations and results, liquidity and capital resources.
13
<PAGE>
Three Months Ended June 30, 1999 and June 30, 1998
Results of Operations
The following combined financial information for the three months ended June 30,
1999 includes the results of operations for the acquired ISPs of the
Transactions and Acquisitions from the dates of acquisition. The following pro
forma combined financial information for the three months ended June 30,1998,
and the six months ended June 30, 1999 and June 30, 1998 includes the results of
OneMain.com combined with the 17 ISPs as if the Transactions had occurred on
January 1, 1998. The actual combined financial information for the three months
ended June 30, 1999 and the pro forma combined financial for the six months
ended June 30, 1999, includes the results of operations of the acquisitions from
the date of acquisition only. This pro forma combined financial information
includes the effects of (a) the Transactions; (b) the Offering; (c) the
amortization of goodwill resulting from the Transactions; (d) the elimination of
interest expense for the debt that was paid from the Offering proceeds; and (e)
an income tax benefit at an appropriate rate.
The pro forma combined financial information does not purport to represent what
the Company's financial position or results of operations would actually have
been if such transactions and events in fact had occurred on those dates or to
project the Company's results of operations for any future period.
<TABLE>
<CAPTION>
----------------------------------- -------------------------------
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
(Actual) (Pro Forma) (Pro Forma) (Pro Forma)
----------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Revenues:
Access revenues $ 21,469,000 $ 12,117,000 $ 39,436,000 $ 22,434,000
Other revenues 1,543,000 1,090,000 3,077,000 2,244,000
------------- ------------- ------------- --------------
Total revenues 23,012,000 13,207,000 42,513,000 24,678,000
Costs and expenses:
Cost of access revenues 8,616,000 5,112,000 16,333,000 9,162,000
Cost of other revenues 533,000 301,000 907,000 573,000
------------- ------------- ------------- --------------
Total costs of revenues 9,149,000 5,413,000 17,240,000 9,735,000
------------- ------------- ------------- --------------
Gross margin 13,863,000 7,794,000 25,273,000 14,943,000
Operating expenses:
Operations and customer support 3,161,000 2,176,000 5,946,000 3,807,000
Sales and marketing 3,327,000 1,626,000 5,696,000 2,985,000
General and administrative 7,456,000 3,852,000 12,955,000 7,334,000
Equity compensation - - 2,469,000 -
Amortization 22,296,000 19,704,000 43,110,000 39,380,000
Depreciation 1,586,000 1,037,000 2,888,000 2,073,000
Other (income) expense (83,000) 77,000 (95,000) 245,000
------------- ------------- ------------- --------------
Total operating expenses 37,743,000 28,472,000 72,969,000 55,824,000
Loss from operations (23,880,000) (20,678,000) (47,696,000) (40,881,000)
Interest income 1,242,000 33,000 1,291,000 46,000
Interest expense (162,000) (56,000) (260,000) (101,000)
------------- ------------- ------------- --------------
Loss before income tax benefit (22,800,000) (20,701,000) (46,665,000) (40,936,000)
Income tax benefit 3,088,000 2,585,000 5,971,000 5,188,000
------------- ------------- ------------- --------------
Net loss $ (19,712,000) $ (18,116,000) $ (40,694,000) $ (35,748,000)
============= ============= ============= ==============
Basic and diluted net loss per share $ (0.90) $ (0.89) $ (1.92) $ (1.75)
============= ============= ============= ==============
Shares used in the calculation of basic
and diluted net loss per share 21,893,000 20,422,000 21,212,000 20,422,000
============= ============= ============= ==============
Subscribers at the end of the period 472,000 236,000 472,000 236,000
============= ============= ============= ==============
</TABLE>
14
<PAGE>
The Company reported a net loss of $19,712,000 or $(.90) per share for the three
months ended June 30, 1999 compared to a net loss of $18,116,000 or $(.89) per
share for the three months ended June 30, 1998. The net loss included non-cash
amortization costs, net of the related income tax benefits of $19,208,000 and
$17,119,000, associated with the purchase of the ISPs for the three months ended
June 30, 1999 and 1998, respectively. In addition to the non-cash amortization
and related income tax benefit, the net loss for the second quarter of 1999
included corporate-related expenses of $2,551,000 and net interest income of
$1,080,000. There were no corporate-related expenses included in the three
months ended June 30, 1998.
Exclusive of the non-cash amortization and related income tax benefit, the
Company's net loss would have been $504,000 or $(.02) per share for the three
months ended June 30, 1999 compared to a net loss of $997,000 or $(.05) per
share for the three months ended June 30, 1998.
Revenues. Total revenues for the three months ended June 30, 1999 were
approximately $23,012,000, compared to approximately $13,207,000 for the three
months ended June 30, 1998, an increase of 74.2%. The increase was primarily
attributable to an increase in the number of subscribers. Total subscribers at
June 30, 1999 were approximately 472,000 compared to approximately 236,000 at
June 30, 1998, an increase of 100%.
Access revenues for the three months ended June 30, 1999 were approximately
$21,469,000, compared to approximately $12,117,000 for the three months ended
June 30, 1998, an increase of 77.2%. The increase was primarily attributable to
the increase in subscribers discussed above. The subscriber increase is a
function of organic growth and acquisitions.
Access revenues are a recurring revenue stream for the Company. The Company
derives Internet access revenues primarily from subscriptions from individuals
and small businesses for dial-up access to the Internet. Subscription fees vary
among ISPs and by billing plan within the subscriber base for a particular ISP.
The Company also earns revenues by providing dedicated Internet access and Web
hosting services.
Other revenues for the three months ended June 30, 1999 totaled approximately
$1,543,000 compared to approximately $1,090,000 for the three months ended June
30, 1998, an increase of 41.6%. The increase is primarily the result of an
increase in set-up and installation fees resulting from an increase in the
number of subscribers.
Other revenues are derived primarily from set-ups and installations, Web page
design and development, and equipment and software sales.
Costs and Expenses. The following table provides a comparison of actual and pro
forma costs of revenues, operations and customer support, sales and marketing
and general and administrative expenses as a percentage of total revenues for
the three months ended June 30, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
1999 1998
(Actual) (Pro Forma)
------------------------------------
<S> <C> <C>
Total costs of revenues 39.8% 41.0%
Operations and customer support 13.7% 16.5%
Sales and marketing 14.5% 12.3%
General and administrative 32.4% 29.2%
</TABLE>
Total Costs of Revenues. Total costs of revenues as a percentage of revenues for
the three months ended June 30, 1999 decreased to 39.8% from 41.0% for the three
months ended June 30, 1998. The decline in percentage terms is due to the
individual ISPs growing size which enables them to benefit from economies of
scale in negotiating local access capacity.
Cost of access revenues consists primarily of the costs of maintaining
sufficient telecommunications capacity to provide service to the Company's
subscribers. For an ISP, capacity is a measurement of the ISP's ability to
connect subscribers to the Internet. Capacity costs include the costs to carry
subscriber calls to our points of presence, or "POPs", the costs associated with
connecting POPs to operations centers and the Internet, and Internet backbone
costs.
Cost of access revenues may increase over time to support the Company's growing
subscriber base. The Company will seek to leverage the combined scale of its
ISPs to lower telecommunications capacity costs as a percentage of revenues
15
<PAGE>
by negotiating one or more relationships with national Internet backbone
providers, negotiating more favorable local loop contracts with local exchange
carriers, establishing co-location arrangements with local exchange carriers,
establishing private peering relationships with other Internet connectivity
providers and negotiating discounts with equipment vendors. Increases in
individual subscriber usage may tend to offset the per subscriber cost savings
the Company may be able to achieve.
Cost of other revenues consists primarily of the salaries and benefits of the
personnel providing installation of equipment and software, Web development and
technical services and the costs of purchasing equipment and software for
resale.
Operations and customer support. Operations and customer support expense as a
percentage of revenues for the three months ended June 30, 1999 decreased to
13.7% from 16.5% for the three months ended June 30, 1998. The decrease is a
result of the Company's ability to leverage this relatively fixed costs over a
larger subscriber base.
Operations and customer support expense includes the costs associated with
customer service and technical support, consisting primarily of salaries and
benefits. The Company plans to extend customer service and technical support
hours to 24 hours a day, 7 days a week in certain markets. In the longer term,
as a percentage of revenues, the Company believes operations and customer
support expense should decline as these costs are leveraged over a growing
subscriber and revenue base. Therefore, the Company expects operations and
customer support expense to increase over time to support new and existing
subscribers.
Sales and marketing. Sales and marketing expense as a percentage of revenues
for the three months ended June 30, 1999 increased to 14.5% from 12.3% for the
three months ended June 30, 1998. The increase is the result of increased
marketing promotions during 1999.
Sales and marketing expense includes costs associated with acquiring
subscribers, including salaries, bonuses, sales commissions, advertising,
promotion and referral bonuses. On a percentage of revenue basis, sales and
marketing expense is a relatively variable cost and may increase with the
Company's development of a common brand supported by a community-based marketing
program. The Company expects that, over time, the increase in sales and
marketing expense will be more than offset by anticipated increases in revenues
attributable to overall subscriber growth.
General and administrative. General and administrative expense as a percentage
of revenues for the three months ended June 30, 1999 increased to 32.4% from
29.2% for the three months ended June 30, 1998. The increase in general and
administrative expense is attributable to putting together the corporate team
for the various integration projects and the management of the Company.
General and administrative expenses consist primarily of salaries and related
benefits, voice telephone lines, rent and credit card processing fees. The
Company expects general and administrative costs to increase to support its
growth, particularly as it establishes a network operations center and
implements common billing and financial reporting systems. Over time, the
Company expects these relatively fixed expenses to decrease as a percentage of
revenues.
Amortization, Depreciation and Income Tax Benefit. The following table provides
a comparison of actual and pro forma amortization, depreciation and income tax
benefit for three months ended June 30, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
1999 1998
(Actual) (Pro Forma)
-----------------------------------------------
<S> <C> <C>
Amortization $22,296,000 $19,704,000
Depreciation 1,586,000 1,037,000
Income tax benefit 3,088,000 2,585,000
</TABLE>
Amortization. Amortization expense for the three months ended June 30, 1999
totaled approximately $22,296,000 compared to approximately $19,704,000 for the
three months ended June 30, 1998. This increase is attributable to the increase
in subscribers or customer lists acquired in the Transactions and Acquisitions.
Amortization expense primarily relates to goodwill and customer lists acquired
in the Transactions and Acquisitions. The amortization period for both goodwill
and customer lists is three years.
16
<PAGE>
Depreciation. Depreciation expense for the three months ended June 30, 1999
totaled approximately $1,586,000 compared to approximately $1,037,000 for the
three months ended June 30, 1998. The increase is the result of increased
capital expenditures resulting from the Company's continuing effort to improve
its infrastructure to support its continued growth.
Depreciation primarily relates to the Company's hardware infrastructure and is
provided over the estimated useful lives of the assets ranging from three to
five years using the straight-line method. The Company expects depreciation
expense to increase as it grows its networks to support new and acquired
subscribers, builds a network operations center and implements common billing
and financial reporting systems.
Income Tax Benefit. The income tax benefit for the three months ended June 30,
1999 totaled approximately $3,088,000 compared to approximately $2,585,000 for
the three months ended June 30, 1998. As a result of the Acquisitions, the
Company recognized a deferred tax liability of $6,030,000 for the three months
ended June 30, 1999. The Company will amortize the deferred tax liability into
earnings over the three-year period in which it records the related amortization
expense associated with the customer lists. The Company anticipates recording
quarterly amortization expense of $24,700,000 relating to the amortization of
all intangibles and a deferred tax benefit of $3,415,000 related to the
amortization of customer lists. The Company does not anticipate recognizing any
other deferred tax benefits associated with its anticipated operating losses
because no asset will be established for such benefit until the Company has a
history of earnings.
Six Months Ended June 30, 1999 and June 30, 1998
Results of Operations
The Company reported a net loss of $40,694,000 or $(1.92) per share for the six
months ended June 30, 1999 compared to a net loss of $35,748,000 or $(1.75) per
share for the six months ended June 30, 1998. The net loss included non-cash
amortization costs, net of the related income tax benefit of $37,139,000 and
$34,192,000, associated with the purchase of the ISPs for the six months ended
June 30, 1999 and 1998, respectively. In addition to the non-cash amortization
and related income tax benefit, the net loss for the six months ended June 30,
1999 included corporate related expenses of $3,453,000, equity compensation
expense of $2,469,000 and net interest income of $1,088,000. There were no
corporate related expenses included in the six months ended June 30, 1998.
Exclusive of the non-cash amortization and related income tax benefit, the
Company's net loss would have been $3,555,000 or $(.17) per share for the six
months ended June 30, 1999 compared to $1,556,000 or $(.08) per share for the
six months ended June 30, 1998.
Revenues. Total revenues for the six months ended June 30, 1999 were
approximately $42,513,000, compared to approximately $24,678,000 for the six
months ended June 30, 1998, an increase of 72.3%. The increase was primarily
attributable to an increase in the number of subscribers. Total subscribers at
June 30, 1999 were approximately 472,000 compared to approximately 236,000 at
June 30, 1998, an increase of 100%.
Access revenues for the six months ended June 30, 1999 were approximately
$39,436,000, compared to approximately $22,434,000 for the six months ended June
30, 1998, an increase of 75.8%. The increase was primarily attributable to the
increase in subscribers discussed above. The subscriber increase is a function
of organic growth and acquisitions.
Other revenues for the six months ended June 30, 1999 totaled approximately
$3,077,000 compared to approximately $2,244,000 for the six months ended June
30, 1998, an increase of 37.1%. The increase is primarily the result of an
increase in set-up and installation fees resulting from an increase in the
number of subscribers.
Costs and Expenses. The following table provides a comparison of costs of
revenues, operations and customer support, sales and marketing and general and
administrative expenses as a percentage of total revenues:
17
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
(Pro Forma) (Pro Forma)
------------------------------------
<S> <C> <C>
Total costs of revenues 40.6% 39.4%
Operations and customer support 14.0% 15.4%
Sales and marketing 13.4% 12.1%
General and administrative 30.5% 29.7%
Equity compensation 5.8% -%
</TABLE>
Total Costs of Revenues. Total costs of revenues as a percentage of revenues for
the six months ended June 30, 1999 increased to 40.6% from 39.4% for the six
months ended June 30, 1998. This increase is attributable to increased costs
associated with adding telecommunications capacity to serve new subscribers. The
increase was partially offset by the individual ISPs benefitting from economies
of scale in negotiating local access capacity.
Operations and customer support. Operations and customer support expense as a
percentage of revenues for the six months ended June 30, 1999 decreased to 14%
from 15.4% for the six months ended June 30, 1998. The decrease is a result of
the Company's ability to leverage this relatively fixed costs over a larger
subscriber base.
Sales and marketing. Sales and marketing expense as a percentage of revenues
for the six months ended June 30, 1999 increased to 13.4% from 12.1% for the six
months ended June 30, 1998. The increase is the result of increased marketing
promotions during 1999.
General and administrative. General and administrative expense as a percentage
of revenues for the six months ended June 30, 1999 increased to 30.5% from 29.7%
for the six months ended June 30, 1998. The increase in general and
administrative expense is attributable to putting together the corporate team
for the various integration projects and the management of the Company.
Amortization, Depreciation and Income Tax Benefit. The following table provides
a comparison of pro forma amortization, depreciation and income tax benefit for
six months ended June 30, 1999 and June 30, 1998.
<TABLE>
<CAPTION>
1999 1998
(Pro Forma) (Pro Forma)
-----------------------------------------------
<S> <C> <C>
Amortization $ 43,110,000 $ 39,380,000
Depreciation 2,888,000 2,073,000
Income tax benefit 5,971,000 5,188,000
</TABLE>
Amortization. Amortization expense for the six months ended June 30, 1999
totaled approximately $43,110,000 compared to approximately $39,380,000 for the
six months ended June 30, 1998. This increase is attributable to the increase
in subscribers or customer lists acquired in the Transactions and Acquisitions.
Depreciation. Depreciation expense for the six months ended June 30, 1999
totaled approximately $2,888,000 compared to approximately $2,073,000 for the
six months ended June 30, 1998. The increase is the result of increased capital
expenditures resulting from the Company's continuing effort to improve its
infrastructure to support its continued growth.
Income Tax Benefit. Income tax benefit for the six months ended June 30, 1999
totaled approximately $5,971,000 compared to approximately $5,188,000 for the
six months ended June 30, 1998. As a result of the Transactions and the
Acquisitions, the Company recognized a deferred tax liability of $40,984,000
related to the portion of the purchase price allocated to the customer lists.
This deferred tax liability is being amortized over thirty six months.
Effects of Inflation
The Company does not believe that inflation has had a material impact on the
Company's results of operations during the six months ended June 30, 1999.
18
<PAGE>
Additional Factors That May Affect the Company's Future Results
The future operating results of the Company may be affected by a number of
factors, including the matters discussed below:
FLUCTUATION IN QUARTERLY RESULTS OF OPERATIONS. The Company's Internet service
is subject to seasonal influences. The ISPs' revenues and profitability have
generally been lower in the second and third quarter of a calendar year,
primarily due to the lower level of business activity in the mid-spring and
summer months.
BUSINESS MODEL. With the combination of the ISPs, the Company will be applying a
business model that has not yet been tested in its industry. The success of this
business model depends on the Company's ability to build on the strengths of its
ISPs and to centralize many of its business functions. It may take the Company
longer than anticipated to implement its business model, and some components of
its model may not prove to be feasible or possible. As a result, the business
may not produce the level of profitability the Company expects to achieve.
The Company's success as a new national Internet service provider will depend
largely on its ability to integrate the operations and management its
independent ISPs acquired and its ability to integrate additional ISPs it may
acquire in the future. Failure to integrate its ISPs successfully may result in
significant operating inefficiencies, which may reduce the Company's
profitability. The Company will expend substantial managerial, operating,
financial and other resources to integrate these businesses and implement its
business model. In particular, to integrate its newly acquired ISPs
successfully, the Company must install and standardize adequate operational and
control systems, deploy equipment and telecommunications facilities, implement
new marketing efforts in new as well as existing locations, employ qualified
personnel to provide technical and marketing support for its various operating
sites and continue to expand its managerial, operational, technical and
financial resources.
ACQUISITIONS. If the Company cannot acquire additional Internet service
providers, or its acquisition activities are delayed, it may not be able to
execute its business strategy. The Company's business strategy depends, in
part, upon its ability to expand into new markets and broaden the services the
Company provides by identifying and acquiring additional ISPs. In pursuing
acquisitions, the Company competes against other Internet service providers,
some of which are larger than the Company and have greater financial and other
resources available. The Company competes for potential acquisitions based on a
number of factors, including price, terms and conditions, size and growth
potential, and ability to offer cash, stock or other forms of consideration.
Since the Company intends to offer a combination of cash and stock to potential
sellers of Internet service providers, any reduction in the Company's stock
price due to market or other factors would negatively impact the Company's
ability to pursue its acquisition strategy.
In addition, there can be no assurance that acquisitions will be available to
the Company on favorable terms. If the Company is unable to use its Common
Stock as consideration in acquisitions, for example, because it believes that
the market price of the Common Stock is too low or because the owners of
potential acquisition targets conclude that the market price of the Company's
Common Stock is too volatile, the Company would need to use cash to make such
acquisitions. This might adversely affect the pace of the Company's acquisition
program and the impact of acquisitions on the Company's quarterly results.
Failure to acquire additional businesses or to acquire such businesses on
favorable terms in accordance with the Company's growth strategy could have a
material adverse impact on growth.
There can be no assurance that companies acquired, or acquired in the future,
will achieve sales and profitability levels that justify the investment therein.
Acquisitions may involve a number of special risks that could have a material
adverse effect on the Company's operations and financial performance, including
adverse short-term effects on the Company's reported operating results;
diversion of management's attention; difficulties with the retention, hiring and
training of key personnel; risks associated with unanticipated problems or legal
liabilities; and amortization of acquired tangible assets.
COMPETITION. The Company has faced a competitive environment in the market for
Internet access and related services. The Company expects that competition will
continue to intensify as more people begin using the Internet. The Company's
current competitors consist of other national, regional and local Internet
service providers, long-distance and local telecommunications companies, cable
television companies, direct broadcast satellite companies and wireless
communications providers and national on-line service providers. As a result of
an increase in the number of
19
<PAGE>
Year 2000 Readiness Disclosure Statement
The Year 2000 issue is the result of computer programs using two digits rather
than four to define the applicable year. As a result, date-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failures or miscalculations causing disruptions of
operations, including, among others, a temporary inability to process
transactions, send invoices or engage in similar business activities. In
connection with the acquisition of its ISPs, the Company contacted each of its
ISPs to determine its Year 2000 readiness and received representation from the
former owners of each ISP that it does not face material, unresolved Year 2000
issues. Based on these representations and review of its Year 2000 readiness,
the Company does not expect significant Year 2000 problems in its network.
During the second quarter of 1999 the Company entered into an agreement with
Kenan/Arbor Systems, a wholly owned subsidiary of Lucent Technologies, to help
deliver a single, fully integrated billing system for its growing customer base.
The new system is Year 2000 compliant and will be implemented in three of the
company's ISPs by December 31, 1999. The Company plans to complete its
implementation to the new billing system for the remainder of the ISPs by the
end of the second quarter of 2000. The Company is developing a contingency plan
for these ISPs that will be implemented after 1999.
The company is currently in negotiations with two fully integrated financial
system suppliers and expect to engage one of the suppliers by the end of the
third quarter of 1999. The financial systems of both these suppliers are Year
2000 compliant, and are expected to be implemented in the majority of the ISPs
by the end of 1999. The Company is developing a contingency plan for these ISPs
that will be implemented after 1999.
Subsequent to second quarter 1999 the Company hired an outside consulting firm
to assist in analyzing and inventorying all its ISPs hardware and software
applications, to determine how these applications might be affected by the Year
2000 problem. All of the Company's ISPs are in the process of, or have
completed, testing their software systems and computer systems to assure they
are Year 2000 compliant. Additionally, many of its ISPs have contacted their
major vendors to assess their Year 2000 readiness.
Costs. As of June 30, 1999, the Company has not incurred any material expense
relating in connection with the implementation of the Year 2000 Program Office
and Year 2000 program. The Company estimates that approximately $750,000 of
expenses will be incurred through the remainder of the Year 2000 program. These
costs will be expensed as incurred. The costs and estimates provided include our
estimate of the cost of internal resources directly attributable to the Year
2000 program. We have funded, and anticipate that we will continue funding, the
costs of the Year 2000 program from cash flows. The estimates for the costs of
the Year 2000 program are based upon management's best estimates and may be
updated or revise as additional information becomes available. We currently
believe these costs will not have a material effect on our financial condition,
liquidity or results of operations. There may, however, be interruptions or
other limitations of financial and operating systems' functionality, and the
Company may incur additional costs to avoid these interruptions or limitations.
Risks. To the extent that the ISPs rely on external vendors or third-party
network service providers with Year 2000 exposure, any failure by these vendors
or service providers to resolve any Year 2000 issues on a timely basis or in a
manner that is compatible with its systems could adversely affect the Company's
ability to provide services to its subscribers. The inability to provide
Internet access could have an adverse impact on one or more of the Company's
ISPs or OneMain.com as a whole. Although some of its ISPs have investigated the
readiness of their electrical, heating and telephone providers, most of them
have not contacted these providers to determine Year 2000 readiness.
The Company's expectations about future costs associated with the Year 2000
issue are limited by uncertainties that could cause actual results to have a
greater financial impact than currently anticipated. Factors that could
influence the amount and timing of future costs include:
the Company's success in identifying systems and programs that contain two-digit
year codes;
the nature and amount of programming required to upgrade or replace each of the
affected programs;
the rate and magnitude of related labor and consulting costs; and,
the Company's success in addressing Year 2000 issues with third-parties with
whom it does business.
Our failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, normal business activities or operations.
Presently, however, we perceive that our most reasonably likely worst case
scenario related to the Year 2000 is associated with potential concerns with
third party services or products. Specifically, we are heavily dependent on a
significant number of third party vendors to provide both network services and
equipment. A significant Year 2000-related disruption of the network services or
equipment provided to us by third party vendors could cause customers to
consider seeking alternate providers or cause an unmanageable burden on customer
service and technical support, which in turn could materially and adversely
affect our results of operations, liquidity and financial condition. We are not
presently aware of any vendor related Year 2000 issue that is likely to result
in this type of disruption. Furthermore, our business depends on the continued
operation of, and widespread access to, the Internet. To the extent that the
normal operation of the Internet is disrupted by the Year 2000 issue, our
results of operations, liquidity and financial condition could be materially and
adversely affected. Although there is inherent uncertainty in the Year 2000
issue, we expect that as we progress in our Year 2000 program the level of
uncertainty about the impact of the Year 2000 issue will be reduced
significantly, and we should be better positioned to identify the nature and
extent of material risk to us as a result of any Year 2000 disruptions.
Contingency Plans. The Year 2000 program calls for the development of
contingency plans for at-risk functions. We have established a Contingency Plan
Committee to monitor and address the development of contingency plans. Due to
the current phase of the Year 2000 program in which we are in, we are currently
unable at this time to fully assess our risks and determine what contingency
plans, if any, need to be implemented. As we progress in our Year 2000 program
and identify specific risk areas, we intend to timely implement appropriate
remedial actions and contingency plans. The estimates and conclusions included
in this discussion contain forward-looking statements and are based on
management's best estimates of future events. Our expectations about risks,
future costs and the timely completion of its Year 2000 modifications may turn
out to be incorrect and any variance from these expectations could cause actual
results to differ materially from what has been discussed above. Factors that
could influence risks, amount of future costs and the effective timing of
remediation efforts include our success in identifying and correcting potential
Year 2000 issues and the ability of third parties to appropriately address their
Year 2000 issues. The foregoing Year 2000 discussion and the information
contained herein is provided as a "Year 2000 Readiness Disclosure" as defined in
the Year 2000 Information and Readiness Disclosure Act of 1998 (Public Law 105-
271, 112 Stat. 2386) enacted on October 19, 1998.
20
<PAGE>
PART II: OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
1) From the effective date of the initial public offering registration to
June 30, 1999, the amount of net offering proceeds used for any purpose
for which at least 5% of the offering proceeds or $100,000 (whichever is
less) was used is as follows:
<TABLE>
<S> <C>
Repayment of indebtedness - directors
and officers 140,000
Repayment of indebtedness - other 6,405,000
Repayment of the founder notes 1,021,000
Cash portion of purchase price for
Transactions and Acquisitions 94,074,000
--------------
Total $ 101,640,000
==============
</TABLE>
Item 5. Other Information
On June 7, 1999, the Company announced the hiring effective June 16, 1999
of Michael D. Read, a former senior executive at British Telecom and
American Online, as the Company's new President and Chief Operating
Officer. Mr. Read's duties include oversight of all the Company's day-to-
day operations, including its marketing, technology, telecommunication
and engineering functions. Over the next 12 months, Mr. Read will receive
$225,000 in base salary and $125,000 in bonus for his services. In
addition, the Company granted Mr. Read options to purchase 500,000 shares
of the Company's Common Stock at an exercise price of $14.25 per share.
The options will vest as described in the Senior Management Agreement dated
as of June 7, 1999 between the Company and Mr. Read, a copy of which is
filed as Exhibit 10.1 to this quarterly report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: (27) Financial Data Schedule
(b) Reports on Form 8-K: None
(10.1) Senior Management Agreement dated as of June 7, 1000 between the
Company and Michael D. Read.
(10.2) OneMain.com, Inc. 1999 Stock Option Plan
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ONEMAIN.COM, INC.
-----------------
Date: August 16, 1999 By: /s/Dewey K. Shay
------------------- ----------------
Dewey K. Shay
Executive Vice President
Chief Financial Officer
(Authorized Officer on behalf of
Registrant and Principal Financial Officer)
22
<PAGE>
Exhibit 10.1
SENIOR MANAGEMENT AGREEMENT
---------------------------
THIS SENIOR MANAGEMENT AGREEMENT (this "Agreement") is made as of June
---------
7, 1999, but is effective as of the Executive's Start Date (as defined in
Section 1 below), between ONEMAIN.COM, INC., a Delaware corporation (the
- ---------
"Company"), and MICHAEL D. READ ("Executive").
- -------- ---------
The parties hereto agree as follows:
1. Employment. The Company agrees to employ Executive and Executive
----------
accepts such employment for the period beginning as of that date which is as
soon as practicable following Executive's resignation from his current
employment ("Executive's Start Date") hereof and ending on the fourth
----------------------
anniversary of Executive's Start or upon Executive's earlier separation pursuant
to Section 1(d) hereof (the "Employment Period"); provided, however, that the
------------ -----------------
Employment Period shall automatically be renewed for an additional two year
period commencing on the fourth anniversary of Executive's Start Date unless
either the Company or the Executive gives the other at least 60 days written
notice prior to the Expiration of the Employment Period of its desire to
terminate this Agreement.
(a) Position and Duties. During the Employment Period, Executive
-------------------
shall serve as the President and Chief Operating Officer of the Company and
shall have the normal duties, responsibilities and authority of the President
and Chief Operating Officer, subject to the power of the Chairman, the Chief
Executive Officer or the Company's board of directors (the "Board") to expand or
-----
limit such duties, responsibilities and authority and to override actions of the
President and Chief Operating Officer. Executive's office shall be located at
the Company's offices in Northern Virginia and Executive shall report to the
Chief Executive Officer of the Company and Executive shall devote his best
efforts and of his full business time and attention to the business and affairs
of the Company and its Subsidiaries; provided, however, that Executive shall be
permitted (and it shall not be a conflict for him) to serve on the boards of
directors of the two private companies on which he sits as of the Executive's
Start Date. After the first anniversary of Executive's Start Date and so long
thereafter as Executive is employed by the Company, Executive shall be eligible
to be considered for appointment to the Board.
(b) Salary, Bonus and Benefits. The Company will pay Executive a base
--------------------------
salary of $225,000 per annum, subject to any annual increase during the
Employment Period as determined by the Board based upon the Company's
achievements of budgetary and other objectives set by the Board (the "Annual
------
Base Salary"). In addition, Executive shall be eligible to receive an annual
- -----------
cash bonus based upon the Company's achievement of budgetary and other
objectives set by the Board; provided, however, that in respect of the first
year of the Employment Period, Executive shall receive an annual bonus of
$125,000, payable as follows:
<PAGE>
(i) $50,000 upon execution by the parties of this Agreement, (ii) $25,000 on or
before September 30, 1999; (iii) $25,000 on or before December 31, 1999; and
(iv) $25,000 on the first anniversary of Executive's Start Date; and, provided,
further, however, that during the initial three-year Employment Period,
Executive's aggregate Annual Base Salary plus annual bonus shall not be less
that $350,000 per year. Executive's Annual Base Salary for any partial year will
be prorated based upon the number of days elapsed in such year. Executive shall
be entitled to reimbursement of his reasonable and documented relocation/moving
expenses up to a total of $25,000. In addition, during the Employment Period,
Executive will be entitled to three (3) weeks of vacation plus two (2) personal
and five (5) sick days per year (all with pay), a car allowance of $700 per
month, plus such other benefits approved by the Board and made available to the
Company's senior executives, including tuition reimbursement, reimbursement of
business expenses and healthcare benefits.
(c) Issuance of Stock and Stock Options. Executive shall also receive
-----------------------------------
options for the purchase of 500,000 shares of the Common Stock in accordance
with the terms of the Company's employee stock option plan. Subject to
paragraph 1(d) below, the options will vest as follows: (i) 100,000 of the
- --------------
shares will vest upon execution by the parties of this Agreement, (ii) 50,000
options vest on the first anniversary of Executive's Start Date; (iii) 50,000
options will vest on each of the next three anniversary dates of Executive's
Start Date for so long as Executive is employed by the Company; (iv) 50,000
options vest upon the Company's achievement of a certain ratio of cost of access
revenue to access revenue, as defined in the Company's published quarterly
financial statements, for two consecutive quarters, such ratio to be set by
mutual agreement of the Company's Chief Executive Officer and Executive on or
before the 30th day following Executive's Start Date (which agreement shall be
subject to the ratification of the Board or committee thereof, if and as
required on advice of the Company's counsel); (v) 50,000 options vest upon the
Company's achievement of a certain second (and reduced as compared to the ratio
set under clause (iv) above) ratio of cost of access revenue to access revenue
-----------
(as defined above) for two consecutive quarters, such ratio to be set by mutual
agreement of the Company's Chief Executive Officer and Executive on or before
the 30th day following Executive's Start Date (which agreement shall be subject
to the ratification of the Board or committee thereof, if and as required on
advice of the Company's counsel); and (vi) 100,000 options vest upon the Board's
adoption of a comprehensive Strategic Telecom Plan including a long-term
Broadband Solution and Existing Network Rationalization Plan; provided, however,
that the performance-based option is provided for under clauses (iv), (v) and
------------ ---
(vi) shall vest in any event upon the seventh anniversary of Executive's Start
- ----
Date, regardless of the foregoing vesting provisions. Executive shall have the
discretion to fix the date on which the Company grants the above-referenced
options (which will effectively allow Executive to chose the strike price on
such options) at any time during the first sixty (60) days following Executive's
Start Date; provided, however, that in order for Executive to take advantage of
the foregoing right he shall provide written notice to the Company's Chief
Executive Officer (with a copy
2
<PAGE>
to the Company's counsel) and the Board or committee thereof shall thereupon
authorize such grant if and as required on advice of the Company's counsel; and
provided, further, however, that if Executive fails to provide such notice
within such time frame, the Company shall grant such options on the 30th day
following Executive's Start Date. So long as Executive is an employee of the
Company, Executive shall be able to purchase shares of stock underlying any of
Executive's vested options at any time for a period of six (6) years from the
date of vesting at the specified price, subject, however, to any shorter period
as may be contained in the Company's employee stock option plan applicable to
such vested options. Executive will be eligible for grants of additional options
during the Employment Period approved by the Board based on Executive's and the
Company's performance. All shares and options issued to Executive shall be made
through stock purchase agreements or options agreements, as appropriate, based
on the Company's standard form for its executives.
(d) Separation. Executive's employment by the Company during the
----------
Employment Period will continue until Executive's resignation at any time or
until Executive's disability or death or until the Board terminates Executive's
Employment at any time during the Employment Period. If the Employment Period
is terminated by the Executive without Good Reason, then the termination will be
effective sixty (60) days after the date of delivery of written notice of
termination. If the Employment Period is terminated by the Board without Cause
or by the Executive with Good Reason, then the termination will be effective
thirty (30) days after the date of delivery of written notice of termination.
If the Employment Period is terminated by the Board with Cause, termination will
be effective as of the date of notice of termination. If the Employment Period
is terminated by the Board with Cause or by the Executive without Good Reason,
then the Executive shall be entitled to receive his Annual Base Salary, bonuses
and his fringe benefits only through the effective date of termination. If the
Employment Period is terminated by the Board without Cause or by the Executive
with Good Reason, then (i) the aggregate 300,000 options issued to the Executive
as of the date hereof under clauses (i), (ii) and (iii) of paragraph (c) above
----------- ---- ----- -------------
shall vest immediately and (ii) the Executive shall be entitled to receive his
Annual Base Salary and his life insurance, medical insurance and disability
insurance benefits, if any, (but no bonuses or other fringe benefits) for one
year from the effective date of termination (such payments, the "Severance
---------
Payment") shall be payable over time in accordance with normal payroll
- -------
practices. If the Employment Period is terminated due to death, then the Annual
Base Salary and medical insurance will be continued through the next full
calendar month following the month in which the Executive died. If the
Employment Period is terminated due to Disability, then the Annual Base Salary,
medical insurance and disability insurance will be continued until the last day
of the six-month period following Disability; provided, however, that such
Annual Base Salary shall be reduced by the amount of any disability income
payments made to the Executive during such six-month period from any insurance
or other policies provided by the Company.
3
<PAGE>
2. Confidential Information.
------------------------
(a) Executive acknowledges that the Company and its Subsidiaries are
engaged in the internet service provider business and related internet services
(the "Business"). Executive further acknowledges that the Business and its
--------
continued success depend upon the use and protection of a large body of
confidential and proprietary information, and that he holds a position of trust
and confidence by virtue of which he necessarily possesses, has access to and,
as a consequence of his signing this Agreement, will continue to possess and
have access to, highly valuable, confidential and proprietary information of the
Company and its Subsidiaries not known to the public in general, and that it
would be improper for him to make use of this information for the benefit of
himself and others. All of such confidential and proprietary information now
existing or to be developed in the future will be referred to in this Agreement
as "Confidential Information." This includes, without specific limitation,
------------------------
information relating to the nature and operation of the Business or any other
business conducted by the Company's Subsidiaries (the "Subsidiary Business"),
-------------------
the persons, firms and corporations which are customers or active prospects of
the Company or the Subsidiary Business during Executive's employment by the
Company, the Company's and the Subsidiary Business' development transition and
transformation plans, methodology and methods of doing business, strategic,
acquisition, marketing and expansion plans, including plans regarding planned
and potential acquisitions and sales, financial and business plans, employee
lists, numbers and location of sales representatives, new and existing programs
and services (and those under development), prices and terms, customer service,
integration processes requirements, costs of providing service, support and
equipment and equipment maintenance costs. Confidential Information shall not
include any information that has become generally known to and available for use
by the public other than as a result of Executive's acts or omissions.
(b) Disclosure of any Confidential Information of the Company shall
not be prohibited if such disclosure is directly pursuant to a valid and
existing order of a court or other governmental body or agency within the United
States; provided, however, that (i) Executive shall first have given prompt
notice to the Company of any such possible or prospective order (or proceeding
pursuant to which any such order may result) and (ii) Executive shall afford the
Company a reasonable opportunity to prevent or limit any such disclosure.
(c) During the Employment Period and for a period of five (5) years
thereafter, Executive will preserve and protect as confidential all of the
Confidential Information known to Executive or at any time in Executive's
possession. In addition, during the Employment Period and at all times
thereafter, Executive will not disclose to any unauthorized person or use for
his own account any of such Confidential Information without the Board's written
consent.
4
<PAGE>
Executive agrees to deliver to the Company at a Separation, or at any other time
the Company may request in writing, all memoranda, notes, plans, records,
reports and other documents (and copies thereof) containing or otherwise
relating to any of the Confidential Information (including, without limitation,
all acquisition prospects, lists and contact information) which he may then
possess or have under his control. Executive acknowledges that all such
memoranda, notes, plans, records, reports and other documents are and at all
times will be and remain the property of the Company.
(d) Executive will fully comply with any agreement reasonably required
by any of the Company's Subsidiaries, business partners, suppliers or
contractors with respect to the protection of the confidential and proprietary
information of such entities.
3. Noncompetition and Nonsolicitation. Executive acknowledges that
----------------------------------
in the course of his employment with the Company he will become familiar with
the Confidential Information concerning the Company and such Subsidiaries and
that his services will be of special, unique and extraordinary value to the
Company. Executive agrees that the Company has a protectable interest in the
Confidential Information acquired by Executive during the course of his
employment with the Company. Therefore, Executive agrees that:
(a) Noncompetition. So long as Executive is employed or affiliated
--------------
with the Company or any Subsidiary and for an additional one year (1) thereafter
(the "Noncompete Period"), he shall not, anywhere within 100 miles of any of the
-----------------
Company's and its subsidiaries' offices in the United States, directly or
indirectly own, manage, control, participate in, consult with, render services
for, or in any manner engage in the provision of dial-up and dedicated Internet
access for consumers.
(b) Nonsolicitation. During the Noncompete Period and for an
---------------
additional one (1) year thereafter, other than individuals employed in
administrative capacities by the Company whose job skills can be found in other
individuals and who if they left the employment of the Company would not have a
material adverse effect on the Company, the Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce any employee
of the Company or any of its Subsidiaries to leave the employ of the Company or
such Subsidiary, or in any way interfere with the relationship between the
Company or any of its Subsidiaries and any employee thereof, (ii) hire any
person who was an employee of the Company or any of its Subsidiaries within 180
days prior to the time such employee was hired by the Executive, (iii) induce or
attempt to induce any owner of a site location, customer, supplier, licensee or
other business relation of the Company or any of its Subsidiaries to cease doing
business with the Company or such Subsidiary or in any way interfere with the
relationship between any such customer, supplier, licensee or business relation
and the Company or any of its
5
<PAGE>
Subsidiaries or (iv) directly or indirectly acquire or attempt to acquire an
interest in any business relating to the business of the Company or any of its
Subsidiaries and with which, to Executive's knowledge, the Company or any of its
Subsidiaries has entertained discussions or has requested and received
information relating to the acquisition of such business by the Company or any
of its Subsidiaries in the one-year period immediately preceding a Separation.
(c) Enforcement. If, at the time of enforcement of Section 2 or 3 of
-----------
this Agreement, a court holds that the restrictions stated herein are
unreasonable under circumstances then existing, the parties hereto agree that
the maximum duration, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope or area and that
the court shall be allowed to revise the restrictions contained herein to cover
the maximum duration, scope and area permitted by law. Because Executive's
services are unique and because Executive has access to Confidential
Information, the parties hereto agree that money damages would be an inadequate
remedy for any breach of this Agreement. Therefore, in the event of a breach or
threatened breach of Section 2 or Section 3 of this Agreement, the Company or
any of its successors or assigns shall, in addition to other rights and remedies
existing in its favor, be entitled to specific performance and/or injunctive or
other relief in order to enforce, or prevent any violations of, the provisions
of Section 2 or Section 3 from any court of competent jurisdiction.
(d) Additional Acknowledgments. Executive acknowledges that the
--------------------------
provisions of this Section are in consideration of: (i) employment with the
Company and (ii) additional good and valuable consideration as set forth in this
Agreement. Executive expressly agrees and acknowledges that the restrictions
contained in Sections 2 and 3 do not preclude Executive from earning a
livelihood, nor does it unreasonably impose limitations on Executive's ability
to earn a living. In addition, Executive agrees and acknowledges that the
potential harm to the Company of its non-enforcement outweighs any harm to the
Executive of its enforcement by injunction or otherwise. Executive acknowledges
that he has carefully read this Agreement and has given careful consideration to
the restraints imposed upon the Executive by this Agreement, and is in full
accord as to their necessity for the reasonable and proper protection of the
Confidential Information. Executive expressly acknowledges and agrees that each
and every restraint imposed by this Agreement is reasonable with respect to
subject matter, time period and geographical area.
4. Representations and Warranties of Executive. Executive represents
-------------------------------------------
and warrants that he has full right and authority to enter into this Agreement
and fully perform his obligations hereunder, that he is not subject to any non-
competition agreement that would prevent or restrict him in any way from
rendering the services hereunder anywhere in the world, and that his past,
present and anticipated future activities have not and will not infringe on the
proprietary rights of others. Executive further represents and warrants that he
is not obligated
6
<PAGE>
under any contract (including licenses, covenants or commitments of any nature)
or other agreement, or subject to any judgment, decree or order of any court or
administrative agency which would conflict with his obligation to use his best
efforts to promote the interests of the Company or which would conflict with the
Company's business as conducted or proposed to be conducted. Neither the
execution nor delivery of this Agreement, nor the carrying on of the Company's
business as an officer, director or employee by Executive, will conflict with or
result in a breach of the terms, conditions or provisions of or constitute a
default under any contract, covenant or instrument under which Executive is now
obligated.
GENERAL PROVISIONS
5. Definitions.
-----------
"Cause" means (i) the commission of a felony or a crime involving
-----
moral turpitude or the intentional commission of any other act or omission
involving dishonesty or fraud with respect to the Company or any of its
Subsidiaries or any of their customers or suppliers, (ii) conduct tending to
bring the Company or any of its Subsidiaries into substantial public disgrace or
disrepute, (iii) substantial and repeated failure to perform duties of the
office held by Executive as reasonably directed by the Board not cured within
ten (10) business days after written notice thereof, (iv) gross negligence or
willful misconduct with respect to the Company or any of its Subsidiaries; or
(v) any intentional breach of Section 2 or 3 of this Agreement by Executive not
cured within ten (10) business days after written notice thereof from the
Company. Any election by the Company not to renew the Employment Period on the
fourth anniversary of the date hereof or any renewal thereof shall be deemed to
be a termination by the Company without Cause. The failure of the Company or
the Executive to achieve budgetary or other operational objectives established
by the Board of Directors shall not in and of itself constitute Cause.
"Disability" means a physical or mental condition which, for a
----------
continuous period of at least six (6) months has or will prevent the Executive
from performing his duties on a full time basis and in a professional and
consistent manner. Any dispute as to the Executive's Disability shall be
referred to and resolved by a licensed physician selected and approved by the
Company and the Executive.
"Good Reason" means (i) Executive's resignation within 30 days after
-----------
his discovery of any material breach of Section 1 of this Agreement by the
Company which is not cured within ten (10) business days after written notice
thereof from Executive, or (ii) a material reduction of Executive's duties and
responsibilities and/or compensation and benefits which is not cured within
thirty (30) days after written notice thereof from Executive.
7
<PAGE>
"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.
"Subsidiary" means any corporation of which fifty percent (50%) or
----------
more of the securities having ordinary voting power in electing the board of
directors are, at the time as of which any determination is being made, owned by
the Company either directly or through one or more Subsidiaries. The term
Subsidiary shall also include any joint venture arrangement between the Company
and any other entity.
6. Notices. Any notice provided for in this Agreement must be in
-------
writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by facsimile transmission
or reputable overnight courier service (charges prepaid) to the recipient at the
address below indicated:
If to the Company:
OneMain.com, Inc.
8150 Leesburg Pike, Suite 622
Vienna, VA 22182
Attention: Stephen E. Smith
Tel: (703) 883-8262
Fax: (703) 883-8279
with a copy to:
Hogan & Hartson L.L.P.
555 13th Street, N.W.
Washington, D.C. 20004
Attention: J. Hovey Kemp
Tel: (202) 637-5623
Fax: (202) 637-5910
If to the Executive:
Michael D. Read
"Santa Barbara"
20659 N.W. 27th Avenue
Boca Raton, FL 33434
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
8
<PAGE>
this Agreement will be deemed to have been given when so delivered or sent or,
if mailed, five days after deposit in the U.S. mail.
7. 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; Facsimile Transmission. 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, and executed
signature pages sent to the other party by facsimile transmission shall be
evidence of a party's intention to be bound hereby.
(d) Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall bind and inure to the benefit of and be enforceable by Executive
and the Company and their respective successors and assigns.
(e) Choice of Law. All questions concerning the construction,
-------------
validity and interpretation of this Agreement and the exhibits hereto will be
governed by and construed in accordance with the internal laws of the State of
Delaware, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Delaware or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of Delaware.
(f) Remedies. Each of the parties to this Agreement will be entitled
--------
to enforce its rights under this Agreement specifically, to recover damages and
costs (including attorney's fees) caused by any breach of any provision of this
Agreement and to exercise all other rights existing in its favor. The parties
hereto agree and acknowledge that money damages may not be an adequate remedy
for any breach of the provisions of this Agreement and that any party may in its
sole discretion apply to any court of law or equity of competent jurisdiction
(without posting any bond or
9
<PAGE>
deposit) for specific performance and/or other injunctive relief in order to
enforce or prevent any violations of the provisions of this Agreement.
(g) Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended and waived only with the prior written consent of the Company and the
Executive.
(h) 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 principal place of business is located, the time
period shall be automatically extended to the business day immediately following
such Saturday, Sunday or holiday.
(i) Termination. This Agreement (except for the provisions of
-----------
Sections 1(a) and 1(b)) shall survive a Separation and shall remain in full
force and effect after such Separation.
* * * * *
[THE REST OF THIS PAGE LEFT BLANK INTENTIONALLY]
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Senior
Management Agreement on the date first written above.
ONEMAIN.COM, INC.
By: _______________________________________
Stephen E. Smith
Chairman and Chief Executive Officer
_____________________________________________
Michael D. Read
11
<PAGE>
Exhibit 10.2
ONEMAIN.COM, INC.
1999 PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
1. PURPOSE............................................................................. 1
2. DEFINITIONS......................................................................... 1
3. ADMINISTRATION OF THE PLAN.......................................................... 4
3.1. Board................................................................... 4
3.2. Committee............................................................... 5
3.3. Awards.................................................................. 5
3.4. No Liability............................................................ 6
4. STOCK SUBJECT TO THE PLAN........................................................... 6
5. EFFECTIVE DATE AND TERM OF THE PLAN................................................. 6
5.1. Effective Date.......................................................... 6
5.2. Term.................................................................... 6
6. OPTION GRANTS....................................................................... 6
6.1. Company or Subsidiary Employees; Service Providers; Other Persons....... 6
6.2. Successive Awards....................................................... 7
6.3. Reload Options.......................................................... 7
7. LIMITATIONS ON GRANTS............................................................... 7
8. AWARD AGREEMENT..................................................................... 7
9. OPTION PRICE........................................................................ 7
10. VESTING, TERM AND EXERCISE OF OPTIONS............................................... 8
10.1. Vesting and Option Period............................................... 8
10.2. Term.................................................................... 8
10.3. Acceleration............................................................ 8
10.4. Termination of Employment or Other Relationship......................... 8
10.5. Rights in the Event of Death............................................ 9
10.6. Rights in the Event of Disability....................................... 9
10.7. Limitations on Exercise of Option....................................... 9
10.8. Method of Exercise...................................................... 9
10.9. Delivery of Stock Certificates.......................................... 10
11. STOCK APPRECIATION RIGHTS........................................................... 10
11.1. Right to Payment........................................................ 10
11.2. Other Terms............................................................. 10
12. TRANSFERABILITY OF OPTIONS.......................................................... 11
12.1. Transferability of Options.............................................. 11
12.2. Family Transfers........................................................ 11
13. RESTRICTED STOCK.................................................................... 11
13.1. Grant of Restricted Stock or Restricted Stock Units..................... 11
13.2. Restrictions............................................................ 12
13.3. Restricted Stock Certificates........................................... 12
13.4. Rights of Holders of Restricted Stock................................... 12
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
13.5. Rights of Holders of Restricted Stock Units............................. 12
13.6. Termination of Employment or Other Relationship......................... 13
13.7. Rights in the Event of Death............................................ 13
13.8. Rights in the Event of Disability....................................... 13
13.9. Delivery of Stock and Payment Therefor.................................. 14
14. DEFERRED STOCK AWARDS............................................................... 14
14.1. Nature of Deferred Stock Awards......................................... 14
14.2. Election to Receive Deferred Stock Awards in Lieu of Compensation....... 14
14.3. Rights as a Stockholder................................................. 14
14.4. Restrictions............................................................ 15
14.5. Termination............................................................. 15
15. UNRESTRICTED STOCK AWARDS........................................................... 15
15.1. Grant or Sale of Unrestricted Stock..................................... 15
16. PERFORMANCE STOCK AWARDS............................................................ 15
16.1. Nature of Performance Stock Awards...................................... 15
16.2. Rights as a Stockholder................................................. 16
16.3. Termination............................................................. 16
16.4. Acceleration, Waiver, Etc............................................... 16
17. DIVIDEND EQUIVALENT RIGHTS.......................................................... 16
17.1. Dividend Equivalent Rights.............................................. 16
17.2. Interest Equivalents.................................................... 17
17.3. Termination............................................................. 17
18. CERTAIN PROVISIONS APPLICABLE TO AWARDS............................................. 17
18.1. Stand-Alone, Additional, Tandem, and Substitute Awards.................. 17
18.2. Term of Awards.......................................................... 18
18.3. Form and Timing of Payment Under Awards; Deferrals...................... 18
19. PARACHUTE LIMITATIONS............................................................... 18
20. REQUIREMENTS OF LAW................................................................. 19
20.1. General................................................................. 19
20.2. Rule 16b-3.............................................................. 20
21. AMENDMENT AND TERMINATION OF THE PLAN............................................... 20
22. EFFECT OF CHANGES IN CAPITALIZATION................................................. 21
22.1. Changes in Stock........................................................ 21
22.2. Reorganization in Which the Company Is the Surviving Entity and
in Which No Change of Control Occurs.................................... 21
22.3. Reorganization, Sale of Assets or Sale of Stock Which Involves a
Change of Control....................................................... 21
22.4. Adjustments............................................................. 22
22.5. No Limitations on Company............................................... 22
23. DISCLAIMER OF RIGHTS................................................................ 22
24. NONEXCLUSIVITY OF THE PLAN.......................................................... 23
25. WITHHOLDING TAXES................................................................... 23
26. CAPTIONS............................................................................ 24
27. OTHER PROVISIONS.................................................................... 24
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
28. NUMBER AND GENDER................................................................... 24
29. SEVERABILITY........................................................................ 24
30. GOVERNING LAW....................................................................... 24
</TABLE>
-iii-
<PAGE>
ONEMAIN.COM, INC.
1999 PLAN
OneMain.com, Inc., a Delaware corporation (the "Company"), sets forth
herein the terms of its 1999 Plan (the "Plan") as follows:
1. PURPOSE
The purpose of the Plan is to enhance the Company's ability to attract,
retain, and compensate highly qualified officers, key employees, and other
persons, and to motivate such officers, key employees, and other persons to
serve the Company and its affiliates (as defined herein) and to expend maximum
effort to improve the business results and earnings of the Company, by providing
to such officers, key employees and other persons an opportunity to acquire or
increase a direct proprietary interest in the operations and future success of
the Company and with other financial incentives. To this end, the Plan provides
for the grant of stock options, stock appreciation rights, restricted stock,
restricted stock units, deferred stock awards, unrestricted stock awards,
performance stock awards, and dividend equivalent rights in accordance with the
terms hereof.
2. DEFINITIONS
For purposes of interpreting the Plan and related documents (including
Award Agreements), the following definitions shall apply:
2.1 "affiliate" of, or person "affiliated" with, a person means any
company or other trade or business that controls, is controlled by or is under
common control with such person within the meaning of Rule 405 of Regulation C
under the Securities Act.
2.2 "Award" means a grant of an Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Unit, Deferred Stock, Unrestricted Stock,
Performance Stock, or Dividend Equivalent Rights under the Plan.
2.3 "Award Agreement" means the stock option agreement, stock
appreciation rights agreement, restricted stock agreement, restricted stock unit
agreement, deferred stock award agreement, unrestricted stock award agreement,
performance stock award agreement, dividend equivalent rights agreement or other
written agreement between the Company and a Grantee that evidences and sets out
the terms and conditions of an Award.
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2.4 "Benefit Arrangement" shall have the meaning set forth in Section
19 hereof.
2.5 "Board" means the Board of Directors of the Company.
2.6 "Code" means the Internal Revenue Code of 1986, as now in effect
or as hereafter amended.
2.7 "Committee" means a committee of, and designated from time to time
by resolution of, the Board, which shall consist of no fewer than two members of
the Board, none of whom shall be an officer or other salaried employee of the
Company or any affiliate of the Company.
2.8 "Company" means OneMain.com, Inc.
2.9 "Deferred Stock" means a right, granted to a Grantee under Section 14
hereof, to receive Stock, cash or a combination thereof at the end of a
specified deferral period.
2.10 "Dividend Equivalent" means a right, granted to a Grantee under
Section 17 hereof, to receive cash, Stock, other Awards or other property equal
in value to dividends paid with respect to a specified number of shares of
Stock, or other periodic payments.
2.11 "Effective Date" means [May 24, 1999], the date on which the Plan
was adopted by the Board.
2.12 "Exchange Act" means the Securities Exchange Act of 1934, as now
in effect or as hereafter amended.
2.13 "Fair Market Value" means the value of a share of Stock,
determined as follows: if on the Grant Date or other determination date the
Stock is listed on an established national or regional stock exchange, is
admitted to quotation on the NASDAQ National Market, or is publicly traded on an
established securities market, the Fair Market Value of a share of Stock shall
be the closing price of the 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 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, if no sale of Stock is reported for such trading day, on the next
preceding day on which any sale shall have been reported. If the Stock is not
listed on such an exchange, quoted on such system or traded on such a market,
Fair Market Value shall be the value of the Stock as determined by the Board in
good faith.
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2.14 "Grant" means an award of an Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Unit, Deferred Stock, Unrestricted Stock,
Performance Stock, or Dividend Equivalent Rights under the Plan.
2.15 "Grant Date" means, as determined by the Board or authorized
Committee, (i) the date as of which the Board or such Committee approves an
Award, (ii) the date on which the recipient of such Award first became an
employee of or otherwise entered into a relationship with the Company or an
affiliate of the Company or (iii) such other date as may be specified by the
Board or such Committee.
2.16 "Grantee" means a person who receives or holds a grant of an
Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit,
Deferred Stock, Unrestricted Stock, Performance Stock, or Dividend Equivalent
Rights under the Plan.
2.17 "Immediate Family Members" means the spouse, children and
grandchildren of the Grantee.
2.18 "Option" means an option to purchase one or more shares of Stock
pursuant to the Plan.
2.19 "Option Period" means the period during which Options may be
exercised as set forth in Section 10 hereof.
2.20 "Option Price" means the purchase price for each share of Stock
subject to an Option.
2.21 "Other Agreement" shall have the meaning set forth in Section 19
hereof.
2.22 "Performance Stock Award" means Awards granted pursuant to Section
16.
2.23 "Plan" means this OneMain.com, Inc. 1999 Plan.
2.24 "Reporting Person" means a person who is required to file reports
under Section 16(a) of the Exchange Act.
2.25 "Restricted Period" means the period during which Restricted Stock
or Restricted Stock Units are subject to restrictions or conditions pursuant to
Section 13.2 hereof.
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2.26 "Restricted Stock" means shares of Stock, awarded to a Grantee
pursuant to Section 13 hereof, that are subject to restrictions and to a risk of
forfeiture.
2.27 "Restricted Stock Unit" means a unit awarded to a Grantee pursuant
to Section 13 hereof, which represents a conditional right to receive a share of
Stock in the future, and which is subject to restrictions and to a risk of
forfeiture.
2.28 "Securities Act" means the Securities Act of 1933, as now in
effect or as hereafter amended.
2.29 "Service Provider" means a consultant or adviser to the Company, a
manager of the Company's properties or affairs, or other similar service
provider or affiliate of the Company, and employees of any of the foregoing, as
such persons may be designated from time to time by the Board pursuant to
Section 6 hereof.
2.30 "Stock" means the common stock, par value $0.001 per share, of the
Company.
2.31 "Stock Appreciation Rights" or "SAR" means a right granted to a
Grantee under Section 11 hereof.
2.32 "Subsidiary" means any "subsidiary corporation" of the Company
within the meaning of Section 424(f) of the Code.
2.33 "Termination Date" shall be the date upon which an Option shall
terminate or expire, as set forth in Section 10.2 hereof.
2.34 "Unrestricted Stock Award" means any Award granted pursuant to
Section 15.
3. ADMINISTRATION OF THE PLAN
3.1. Board
The Board shall have such powers and authorities related to the
administration of the Plan as are consistent with the Company's certificate of
incorporation and by-laws and applicable law. The Board shall have full power
and authority to take all actions and to make all determinations required or
provided for under the Plan, any Award or any Award Agreement, and shall have
full power and authority to take all such other actions and make all such other
determinations not inconsistent with the specific terms and provisions of the
Plan that the Board deems to be necessary or appropriate to the administration
of the Plan, any Award or any Award Agreement. All such actions and
determinations shall be by the affirmative
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vote of a majority of the members of the Board present at a meeting or by
unanimous consent of the Board executed in writing in accordance with the
Company's articles of incorporation and by-laws and applicable law. The
interpretation and construction by the Board of any provision of the Plan, any
Award or any Award Agreement shall be final and conclusive. As permitted by law,
the Board may delegate its authority under the Plan to a member of the Board of
Directors or an executive officer of the Company.
3.2. Committee.
The Board from time to time may delegate to a Committee such powers and
authorities related to the administration and implementation of the Plan, as set
forth in Section 3.1 above and in other applicable provisions, as the Board
shall determine, consistent with the certificate of incorporation and by-laws of
the Corporation and applicable law. In the event that the Plan, any Award or any
Award Agreement entered into hereunder provides for any action to be taken by or
determination to be made by the Board, such action may be taken or such
determination may be made by the Committee if the power and authority to do so
has been delegated to the Committee by the Board as provided for in this
Section. Unless otherwise expressly determined by the Board, any such action or
determination by the Committee shall be final, binding and conclusive. As
permitted by law, the Committee may delegate its authority under the Plan to a
member of the Board of Directors or an executive officer of the Company.
3.3. Awards
Subject to the other terms and conditions of the Plan, the Board shall have
full and final authority (i) to designate Grantees, (ii) to determine the type
or types of Awards to be made to a Grantee, (iii) to determine the number of
shares of Stock to be subject to an Award,(iv) to establish the terms and
conditions of each Award (including, but not limited to, the exercise price of
any Option, the nature and duration of any restriction or condition (or
provision for lapse thereof) relating to the vesting, exercise, transfer, or
forfeiture of an Award or the shares of Stock subject thereto), (v) to prescribe
the form of each Award Agreement evidencing an Award, and (vi) to amend, modify,
or supplement the terms of any outstanding Award. Such authority specifically
includes the authority, in order to effectuate the purposes of the Plan but
without amending the Plan, to modify Awards to eligible individuals who are
foreign nationals or are individuals who are employed outside the United States
to recognize differences in local law, tax policy, or custom. As a condition to
any subsequent Award, the Board shall have the right, at its discretion, to
require Grantees to return to the Company Awards previously made under the Plan.
Subject to the terms and conditions of the Plan, any such new Award shall be
upon such terms and conditions as are specified by the Board at the time the new
Award is made.
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3.4. No Liability.
No member of the Board or of the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any Award or
Award Agreement.
4. STOCK SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 22 hereof, the number of
shares of Stock available for issuance under the Plan shall be three million
(3,000,000), no more than eight hundred thousand (800,000) of which may be
issued pursuant to awards of other than Options. Stock issued or to be issued
under the Plan shall be authorized but unissued shares. If any shares covered by
a Grant are not purchased or are forfeited, or if a Grant otherwise terminates
without delivery of any Stock subject thereto, then the number of shares of
Stock counted against the aggregate number of shares available under the Plan
with respect to such Grant shall, to the extent of any such forfeiture or
termination, again be available for making Grants under the Plan.
5. EFFECTIVE DATE AND TERM OF THE PLAN
5.1. Effective Date.
The Plan shall be effective as of the Effective Date.
5.2. Term.
The Plan has no termination date.
6. OPTION GRANTS
6.1. Company or Subsidiary Employees; Service Providers; Other Persons
Awards may be made under the Plan to: (i) any employee of, or a Service
Provider to, the Company or of any Subsidiary, including any such employee who
is an officer or director of the Company or of any Subsidiary, as the Board
shall determine and designate from time to time, and (ii) any other individual
whose participation in the Plan is determined to be in the best interests of the
Company by the Board. Notwithstanding the foregoing, a resident of Florida,
Virginia, or Missouri who is not an employee of the Company or of any wholly-
owned subsidiary of the Company shall not be eligible to receive an Award under
the Plan.
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6.2. Successive Awards.
An eligible person may receive more than one Award, subject to such
restrictions as are provided herein.
6.3. Reload Options.
At the discretion of the Board and subject to such restrictions, terms and
conditions as the Board may establish, Options granted under the Plan may
include a "reload" feature pursuant to which a Grantee exercising an Option by
the delivery of a number of shares of Stock in accordance with Section 10.8
hereof would automatically be granted an additional Option (with an exercise
price equal to the Fair Market Value of the Stock on the date the additional
Option is granted and with such other terms as the Board may provide) to
purchase that number of shares of Stock equal to the number delivered to
exercise the original Option with an Option term equal to the remainder of the
original Option term unless the Board otherwise determines in the Option Award
Agreement for the original grant.
7. LIMITATIONS ON GRANTS
During any time when the Company has a class of equity security registered
under Section 12 of the Exchange Act, the maximum number of shares of Stock
subject to Options that can be awarded under the Plan to any person eligible for
a Grant under Section 6 hereof is one million (1,000,000) per year. During any
time when the Company has a class of equity security registered under Section 12
of the Exchange Act, the maximum number of shares that can be awarded under the
Plan, other than pursuant to an Option to any person eligible for a Grant under
Section 6 hereof is two hundred fifty thousand (250,000) per year.
8. AWARD AGREEMENT
Each Award granted pursuant to the Plan shall be evidenced by an Award
Agreement, to be executed by the Company and by the Grantee, in such form or
forms as the Board shall from time to time determine. Award Agreements granted
from time to time or at the same time need not contain similar provisions but
shall be consistent with the terms of the Plan.
9. OPTION PRICE
The Option Price of each Option shall be fixed by the Board and stated in
the Award Agreement evidencing such Option. The Option Price shall be the
aggregate Fair Market Value on the Grant Date of the shares of Stock subject to
the Option. In no case shall the Option Price of any Option be less than the par
value of a share of Stock.
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10. VESTING, TERM AND EXERCISE OF OPTIONS
10.1. Vesting and Option Period.
Subject to Sections 10.2 and 22.3 hereof, each Option granted under the
Plan shall become exercisable at such times and under such conditions as shall
be determined by the Board and stated in the Award Agreement. For purposes of
this Section 10.1, fractional numbers of shares of Stock subject to an Option
shall be rounded down to the next nearest whole number. The period during which
any Option shall be exercisable shall constitute the "Option Period" with
respect to such Option.
10.2. Term.
Each Option granted under the Plan shall terminate, and all rights to
purchase shares of Stock thereunder shall cease, upon the expiration of ten
years from the date such Option is granted, or under such circumstances and on
such date prior thereto as is set forth in the Plan or as may be fixed by the
Board and stated in the Award Agreement relating to such Option (the
"Termination Date").
10.3. Acceleration.
Any limitation on the exercise of an Option contained in any Award
Agreement may be rescinded, modified or waived by the Board, in its sole
discretion, at any time and from time to time after the Grant Date of such
Option, so as to accelerate the time at which the Option may be exercised.
10.4. Termination of Employment or Other Relationship.
Upon the termination of a Grantee's employment or other relationship with
the Company other than by reason of death or "permanent and total disability"
(within the meaning of Section 22(e)(3) of the Code), any Option or portion
thereof held by such Grantee that has not vested in accordance with the
provisions of Section 10.1 hereof shall terminate immediately, and any Option or
portion thereof that has vested in accordance with the provisions of Section
10.1 hereof but has not been exercised shall terminate at the close of business
on the 90th day following the Grantee's termination of employment or other
relationship, unless the Board, in its discretion, extends the period during
which the Option may be exercised (which period may not be extended beyond the
original term of the Option). Upon termination of an Option or portion thereof,
the Grantee shall have no further right to purchase shares of Stock pursuant to
such Option or portion thereof. Whether a leave of absence or leave on military
or government service shall constitute a termination of employment or other
relationship for purposes of the Plan shall be determined by the Board, which
determination shall be final and conclusive. For purposes of the Plan, a
termination of employment, service or other relationship shall not be deemed to
occur if the Grantee is immediately thereafter a director of the Company.
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10.5. Rights in the Event of Death.
If a Grantee dies while employed by or providing services to the Company,
all Options granted to such Grantee shall fully vest on the date of death, and
the executors or Boards or legatees or distributees of such Grantee's estate
shall have the right, at any time within one year after the date of such
Grantee's death (or such longer period as the Board, in its discretion, may
determine prior to the expiration of such one-year period) and prior to
termination of the Option pursuant to Section 10.2 above, to exercise any Option
held by such Grantee at the date of such Grantee's death.
10.6. Rights in the Event of Disability.
If a Grantee terminates employment or other relationship with the Company
by reason of the "permanent and total disability" (within the meaning of Section
22(e)(3) of the Code) of such Grantee, such Grantee's Options shall continue to
vest, and shall be exercisable to the extent that they are vested, for a period
of one year after such termination of employment or service (or such longer
period as the Board, in its discretion, may determine prior to the expiration of
such one-year period), subject to earlier termination of the Option as provided
in Section 10.2 above. Whether a termination of employment or service is to be
considered by reason of "permanent and total disability" for purposes of the
Plan shall be determined by the Board, which determination shall be final and
conclusive.
10.7. Limitations on Exercise of Option.
Notwithstanding any other provision of the Plan, in no event may any Option
be exercised, in whole or in part, after ten years following the date upon which
the Option is granted, or after the occurrence of an event referred to in
Section 22 hereof which results in termination of the Option.
10.8. Method of Exercise.
An Option that is exercisable may be exercised by the Grantee's delivery to
the Company of written notice of exercise on any business day, at the Company's
principal office, addressed to the attention of the Board. Such notice shall
specify the number of shares of Stock with respect to which the Option is being
exercised and shall be accompanied by payment in full of the Option Price of the
shares for which the Option is being exercised. The minimum number of shares of
Stock with respect to which an Option may be exercised, in whole or in part, at
any time shall be the lesser of (i) 100 shares or such lesser number set forth
in the applicable Award Agreement and (ii) the maximum number of shares
available for purchase under the Option at the time of exercise. Payment of the
Option Price for the shares purchased pursuant to the exercise of an Option
shall be made (i) in cash or in cash equivalents; (ii) through the tender to the
Company of shares of Stock, which shares, if acquired from the Company, shall
have been held for at least six months and which shall be valued, for purposes
of determining the extent to which the Option Price has been
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paid thereby, at their Fair Market Value on the date of exercise; or (iii) by a
combination of the methods described in (i) and (ii). The Board may provide, by
inclusion of appropriate language in an Award Agreement, that payment in full of
the Option Price need not accompany the written notice of exercise provided that
the notice of exercise directs that the certificate or certificates for the
shares of Stock for which the Option is exercised be delivered to a licensed
broker acceptable to the Company as the agent for the individual exercising the
Option and, at the time such certificate or certificates are delivered, the
broker tenders to the Company cash (or cash equivalents acceptable to the
Company) equal to the Option Price for the shares of Stock purchased pursuant to
the exercise of the Option plus the amount (if any) of federal and/or other
taxes which the Company may in its judgment, be required to withhold with
respect to the exercise of the Option. An attempt to exercise any Option granted
hereunder other than as set forth above shall be invalid and of no force and
effect. Unless otherwise stated in the applicable Award Agreement, an individual
holding or exercising an Option shall have none of the rights of a shareholder
(for example, the right to receive cash or dividend payments or distributions
attributable to the subject shares of Stock or to direct the voting of the
subject shares of Stock ) until the shares of Stock covered thereby are fully
paid and issued to him. Except as provided in Section 22 hereof, no adjustment
shall be made for dividends, distributions or other rights for which the record
date is prior to the date of such issuance.
10.9. Delivery of Stock Certificates.
Promptly after the exercise of an Option by a Grantee and the payment in
full of the Option Price, such Grantee shall be entitled to the issuance of a
stock certificate or certificates evidencing his or her ownership of the shares
of Stock subject to the Option.
11. STOCK APPRECIATION RIGHTS
The Board each is authorized to grant SARs to Grantees on the following
terms and conditions:
11.1. Right to Payment.
A SAR shall confer on the Grantee to whom it is granted a right to receive,
upon exercise thereof, the excess of (A) the Fair Market Value of one share of
Stock on the date of exercise over (B) the grant price of the SAR as determined
by the Board. The grant price of an SAR shall not be less than the Fair Market
Value of a share of Stock on the date of grant except as provided in Section
18.1.
11.2. Other Terms.
The Board shall determine at the date of grant or thereafter, the time or
times at which and the circumstances under which a SAR may be exercised in
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whole or in part (including based on achievement of performance goals and/or
future service requirements), the time or times at which SARs shall cease to be
or become exercisable following termination of employment or upon other
conditions, the method of exercise, method of settlement, form of consideration
payable in settlement, method by or forms in which Stock will be delivered or
deemed to be delivered to Grantees, whether or not a SAR shall be in tandem or
in combination with any other Award, and any other terms and conditions of any
SAR. SARs may be either freestanding or in tandem with other Awards.
12. TRANSFERABILITY OF OPTIONS
12.1. Transferability of Options
Except as provided in Section 12.2, during the lifetime of a Grantee, only
the Grantee (or, in the event of legal incapacity or incompetency, the Grantee's
guardian or legal representative) may exercise an Option. Except as provided in
Section 12.2, no Option shall be assignable or transferable by the Grantee to
whom it is granted, other than by will or the laws of descent and distribution.
12.2. Family Transfers.
If authorized in the applicable Award Agreement, a Grantee may transfer all
or part of an Option to (i) any Immediate Family Member, (ii) a trust or trusts
for the exclusive benefit of any Immediate Family Member, or (iii) a partnership
in which Immediate Family Members are the only partners, provided that (x) there
may be no consideration for any such transfer, and (y) subsequent transfers of
transferred Options are prohibited except those in accordance with this Section
12.2 or by will or the laws of descent and distribution. Following transfer,
any such Option shall continue to be subject to the same terms and conditions as
were applicable immediately prior to transfer, provided that for purposes of
Section 12.2 hereof the term "Grantee" shall be deemed to refer the transferee.
The events of termination of the employment or other relationship of Section
10.4 hereof shall continue to be applied with respect to the original Grantee,
following which the Option shall be exercisable by the transferee only to the
extent, and for the periods specified in Sections 10.4, 10.5 or 10.6.
13. RESTRICTED STOCK
13.1. Grant of Restricted Stock or Restricted Stock Units.
The Board may from time to time grant Restricted Stock or Restricted Stock
Units to persons eligible to receive Awards under Section 6 hereof, subject to
such restrictions, conditions and other terms as the Board may determine.
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13.2. Restrictions.
At the time a Grant of Restricted Stock or Restricted Stock Units is made,
the Board shall establish a period of time (the "Restricted Period") applicable
to such Restricted Stock or Restricted Stock Units. Each Grant of Restricted
Stock or Restricted Stock Units may be subject to a different Restricted Period.
The Board may, in its sole discretion, at the time a Grant of Restricted Stock
or Restricted Stock Units is made, prescribe restrictions in addition to or
other than the expiration of the Restricted Period. Neither Restricted Stock
nor Restricted Stock Units may 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 Board with respect to
such Restricted Stock or Restricted Stock Units.
13.3. Restricted Stock Certificates.
The Company shall issue, in the name of each Grantee to whom Restricted
Stock has been granted, stock certificates representing the total number of
shares of Restricted Stock granted to the Grantee, as soon as reasonably
practicable after the Grant Date. The Board may provide in an Award Agreement
that either (i) the Secretary of the Company shall hold such certificates for
the Grantee's benefit until such time as the Restricted Stock is forfeited to
the Company or the restrictions lapse, or (ii) such certificates shall be
delivered to the Grantee, provided, however, that such certificates shall bear a
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legend or legends that complies with the applicable securities laws and
regulations and makes appropriate reference to the restrictions imposed under
the Plan and the Award Agreement.
13.4. Rights of Holders of Restricted Stock.
Unless the Board otherwise provides in an Award Agreement, holders of
Restricted Stock shall have the right to vote such Stock and the right to
receive any dividends declared or paid with respect to such Stock. The Board
may provide that any dividends paid on Restricted Stock must be reinvested in
shares of Stock, which may or may not be subject to the same vesting conditions
and restrictions applicable to such Restricted Stock. All distributions, if
any, received by a Grantee with respect to Restricted Stock as a result of any
stock split, stock dividend, combination of shares, or other similar transaction
shall be subject to the restrictions applicable to the original Grant.
13.5. Rights of Holders of Restricted Stock Units.
Unless the Board otherwise provides in an Award Agreement, holders of
Restricted Stock Units shall have no rights as stockholders of the Company. The
Board may provide in an Award Agreement evidencing a Grant of Restricted Stock
Units that the holder of such Restricted Stock Units shall be entitled to
receive, upon the Company's payment of a cash dividend on its outstanding Stock,
a cash payment for each Restricted Stock Unit held equal to the per-share
dividend paid on the Stock.
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Such Award Agreement may also provide that such cash payment will be deemed
reinvested in additional Restricted Stock Units at a price per unit equal to the
Fair Market Value of a share of Stock on the date that such dividend is paid.
13.6. Termination of Employment or Other Relationship.
Upon the termination of a Grantee's employment or other relationship with
the Company other than by reason of death or "permanent and total disability"
(within the meaning of Section 22(e)(3) of the Code), any Restricted Stock or
Restricted Stock Units held by such Grantee that has not vested, or with respect
to which all applicable restrictions and conditions have not lapsed, shall
immediately be deemed forfeited, unless the Board, in its discretion, determines
otherwise. Upon forfeiture of Restricted Stock or Restricted Stock Units, the
Grantee shall have no further rights with respect to such Grant, including but
not limited to any right to vote Restricted Stock or any right to receive
dividends with respect to shares of Restricted Stock or Restricted Stock Units.
Whether a leave of absence or leave on military or government service shall
constitute a termination of employment or other relationship for purposes of the
Plan shall be determined by the Board, which determination shall be final and
conclusive. For purposes of the Plan, a termination of employment, service or
other relationship shall not be deemed to occur if the Grantee is immediately
thereafter a director of the Company.
13.7. Rights in the Event of Death.
Unless otherwise provided in the Award Agreement, if a Grantee dies while
employed by the Company, all Restricted Stock or Restricted Stock Units granted
to such Grantee shall fully vest on the date of death, and the shares of Stock
represented thereby shall be deliverable in accordance with the terms of the
Plan to the executors, administrators, legatees or distributees of the Grantee's
estate.
13.8. Rights in the Event of Disability.
Unless otherwise provided in the Award Agreement, if a Grantee terminates
employment or other relationship with the Company by reason of the "permanent
and total disability" (within the meaning of Section 22(e)(3) of the Code) of
such Grantee, such Grantee's Restricted Stock or Restricted Stock Units shall
continue to vest in accordance with the applicable Award Agreement for a period
of one year after such termination of employment or service (or such longer
period as the Board, in its discretion, may determine prior to the expiration of
such one-year period), subject to the earlier forfeiture of such Restricted
Stock or Restricted Stock Units in accordance with the terms of the applicable
Award Agreement. Whether a termination of employment or service is to be
considered by reason of "permanent and total disability" for purposes of the
Plan shall be determined by the Board, which determination shall be final and
conclusive.
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13.9. Delivery of Stock and Payment Therefor.
Upon the expiration or termination of the Restricted Period and the
satisfaction of any other conditions prescribed by the Board, the restrictions
applicable to shares of Restricted Stock or Restricted Stock Units shall lapse,
and, unless otherwise provided in the Award Agreement, upon payment by the
Grantee to the Company, in cash or by check, of the aggregate par value of the
shares of Stock represented by such Restricted Stock or Restricted Stock Units
(or such other higher purchase price determined by the Board), a stock
certificate for such shares shall be delivered, free of all such restrictions,
to the Grantee or the Grantee's beneficiary or estate, as the case may be.
14. DEFERRED STOCK AWARDS
14.1. Nature of Deferred Stock Awards.
A Deferred Stock Award is an Award of phantom Stock units to a Grantee,
subject to restrictions and conditions as the Board may determine at the time of
grant. Conditions may be based on continuing employment (or other business
relationship) and/or achievement of pre-established performance goals and
objectives. The grant of a Deferred Stock Award is contingent on the Grantee
executing the Deferred Stock Award Agreement. The terms and conditions of each
such agreement shall be determined by the Board, and such terms and conditions
may differ among individual Awards and Grantees. At the end of the deferral
period, the Deferred Stock Award, to the extent vested, shall be paid to the
Grantee in the form of shares of Stock.
14.2. Election to Receive Deferred Stock Awards in Lieu of Compensation.
The Board may, in its sole discretion, permit a Grantee to elect to receive
a portion of the cash compensation or Restricted Stock Award otherwise due to
such Grantee in the form of a Deferred Stock Award. Any such election shall be
made in writing and shall be delivered to the Company no later than the date
specified by the Board and in accordance with rules and procedures established
by the Board. The Board shall have the sole right to determine whether and under
what circumstances to permit such elections and to impose such limitations and
other terms and conditions thereon as the Board deems appropriate.
14.3. Rights as a Stockholder.
During the deferral period, a Grantee shall have no rights as a
Stockholder; provided, however, that the Grantee may be credited with Dividend
Equivalent Rights with respect to the phantom Stock units underlying his
Deferred Stock Award, subject to such terms and conditions as the Board may
determine.
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<PAGE>
14.4. Restrictions.
A Deferred Stock Award may not be sold, assigned, transferred, pledged or
otherwise encumbered or disposed of during the deferral period.
14.5. Termination.
Except as may otherwise be provided by the Board either in the Award
Agreement or, in writing after the Award Agreement is issued, a Grantee's right
in all Deferred Stock Awards that have not vested shall automatically terminate
upon the Grantee's termination of employment or other relationship with the
Company for any reason.
15. UNRESTRICTED STOCK AWARDS
15.1. Grant or Sale of Unrestricted Stock.
The Board may, in its sole discretion, grant (or sell at par value or such
other higher purchase price determined by the Board) an Unrestricted Stock Award
to any Grantee pursuant to which such Grantee may receive shares of Stock free
of any restrictions ("Unrestricted Stock") under the Plan. Unrestricted Stock
Awards may be granted or sold as described in the preceding sentence in respect
of past services or other valid consideration, or in lieu of any cash
compensation due to such Grantee.
16. PERFORMANCE STOCK AWARDS
16.1. Nature of Performance Stock Awards.
A Performance Stock Award is an Award entitling the recipient to acquire
shares of Stock upon the attainment of specified performance goals. The Board
may make Performance Stock Awards independent of or in connection with the
granting of any other Award under the Plan. The Board in its sole discretion
shall determine whether and to whom Performance Stock Awards shall be made, the
performance goals applicable under each such Award, the periods during which
performance is to be measured, and all other limitations and conditions
applicable to the awarded Performance Stock; provided, however, that the Board
may rely on the performance goals and other standards applicable to other
performance unit plans of the Company in setting the standards for Performance
Stock Awards under the Plan.
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<PAGE>
16.2. Rights as a Stockholder.
A Grantee receiving a Performance Stock Award shall have the rights of a
Stockholder only as to shares actually received by the Grantee under the Plan
and not with respect to shares subject to the Award but not actually received by
the Grantee. A Grantee shall be entitled to receive a Stock certificate
evidencing the acquisition of Stock under a Performance Stock Award only upon
satisfaction of all conditions specified in the written instrument evidencing
the Performance Stock Award (or in a performance plan adopted by the Board).
16.3. Termination.
Except as may otherwise be provided by the Board either in the Award
Agreement in writing after the Award Agreement is issued, a Grantee's rights in
all Performance Stock Awards shall automatically terminate upon the Grantee's
termination of employment or other relationship with the Company and its
Subsidiaries for any reason.
16.4. Acceleration, Waiver, Etc.
At any time prior to the Grantee's termination of employment (or other
business relationship) by the Company and its Subsidiaries, the Board may in its
sole discretion accelerate, waive or amend any or all of the goals, restrictions
or conditions imposed under any Performance Stock Award.
17. DIVIDEND EQUIVALENT RIGHTS
17.1. Dividend Equivalent Rights.
A Dividend Equivalent Right is an Award entitling the recipient to receive
credits based on cash distributions that would have been paid on the shares of
Stock specified in the Dividend Equivalent Right (or other award to which it
relates) if such shares had been issued to and held by the recipient. A Dividend
Equivalent Right may be granted hereunder to any Grantee as a component of
another Award or as a freestanding award. The terms and conditions of Dividend
Equivalent Rights shall be specified in the grant. Dividend Equivalents credited
to the holder of a Dividend Equivalent Right may be paid currently or may be
deemed to be reinvested in additional shares of Stock, which may thereafter
accrue additional equivalents. Any such reinvestment shall be at Fair Market
Value on the date of reinvestment. Dividend Equivalent Rights may be settled in
cash or Stock or a combination thereof, in a single installment or installments,
all determined in the sole discretion of the Board. A Dividend Equivalent Right
granted as a component of another Award may provide that such Dividend
Equivalent Right shall be settled upon exercise, settlement, or payment of, or
lapse of restrictions on, such other
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<PAGE>
award, and that such Dividend Equivalent Right shall expire or be forfeited or
annulled under the same conditions as such other award. A Dividend Equivalent
Right granted as a component of another Award may also contain terms and
conditions different from such other award.
17.2. Interest Equivalents.
Any Award under this Plan that is settled in whole or in part in cash on a
deferred basis may provide in the grant for interest equivalents to be credited
with respect to such cash payment. Interest equivalents may be compounded and
shall be paid upon such terms and conditions as may be specified by the grant.
17.3. Termination.
Except as may otherwise be provided by the Board either in the Award
Agreement or in writing after the Award Agreement is issued, a Grantee's rights
in all Dividend Equivalent Rights or interest equivalents shall automatically
terminate upon the Grantee's termination of employment or other relationship
with the Company and its Subsidiaries for any reason.
18. CERTAIN PROVISIONS APPLICABLE TO AWARDS
18.1. Stand-Alone, Additional, Tandem, and Substitute Awards
Awards granted under the Plan may, in the discretion of the Board, be
granted either alone or in addition to, in tandem with, or in substitution or
exchange for, any other Award or any award granted under another plan of the
Company, any Subsidiary, or any business entity to be acquired by the Company or
a Subsidiary, or any other right of a Grantee to receive payment from the
Company or any Subsidiary. Such additional, tandem, and substitute or exchange
Awards may be granted at any time. If an Award is granted in substitution or
exchange for another Award, the Board shall require the surrender of such other
Award in consideration for the grant of the new Award. In addition, Awards may
be granted in lieu of cash compensation, including in lieu of cash amounts
payable under other plans of the Company or any Subsidiary, in which the value
of Stock subject to the Award is equivalent in value to the cash compensation
(for example, Deferred Stock or Restricted Stock), or in which the exercise
price, grant price or purchase price of the Award in the nature of a right that
may be exercised is equal to the Fair Market Value of the underlying Stock minus
the value of the cash compensation surrendered (for example, Options granted
with an exercise price "discounted" by the amount of the cash compensation
surrendered).
-17-
<PAGE>
18.2. Term of Awards
The term of each Award shall be for such period as may be determined by the
Board; provided that in no event shall the term of any Option or SAR exceed a
period of ten years.
18.3. Form and Timing of Payment Under Awards; Deferrals
Subject to the terms of the Plan and any applicable Award Agreement,
payments to be made by the Company or a Subsidiary upon the exercise of an
Option or other Award or settlement of an Award may be made in such forms as the
Board shall determine, including, without limitation, cash, Stock, other Awards
or other property, and may be made in a single payment or transfer, in
installments, or on a deferred basis. The settlement of any Award may be
accelerated, and cash paid in lieu of Stock in connection with such settlement,
in the discretion of the Board or upon occurrence of one or more specified
events. Installment or deferred payments may be required by the Board or
permitted at the election of the Grantee on terms and conditions established by
the Board. Payments may include, without limitation, provisions for the payment
or crediting of a reasonable interest rate on installment or deferred payments
or the grant or crediting of Dividend Equivalents or other amounts in respect of
installment or deferred payments denominated in Stock.
19. PARACHUTE LIMITATIONS
Notwithstanding any other provision of this Plan or of any other agreement,
contract, or understanding heretofore or hereafter entered into by a Grantee
with the Company or any Subsidiary, except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this paragraph (an "Other Agreement"), and notwithstanding any
formal or informal plan or other arrangement for the direct or indirect
provision of compensation to the Grantee (including groups or classes of
Grantees or beneficiaries of which the Grantee is a member), whether or not such
compensation is deferred, is in cash, or is in the form of a benefit to or for
the Grantee (a "Benefit Arrangement"), if the Grantee is a "disqualified
individual," as defined in Section 280G(c) of the Code, any Option, Restricted
Stock or Restricted Stock Unit held by that Grantee and any right to receive any
payment or other benefit under this Plan shall not become exercisable or vested
(i) to the extent that such right to exercise, vesting, payment, or benefit,
taking into account all other rights, payments, or benefits to or for the
Grantee under this Plan, all Other Agreements, and all Benefit Arrangements,
would cause any payment or benefit to the Grantee under this Plan to be
considered a "parachute payment" within the meaning of Section 280G(b)(2) of the
Code as then in effect (a "Parachute Payment") and (ii) if, as a result of
---
receiving a Parachute Payment, the aggregate after-tax amounts received by the
Grantee from the Company under this Plan, all
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<PAGE>
Other Agreements, and all Benefit Arrangements would be less than the maximum
after-tax amount that could be received by the Grantee without causing any such
payment or benefit to be considered a Parachute Payment. In the event that the
receipt of any such right to exercise, vesting, payment, or benefit under this
Plan, in conjunction with all other rights, payments, or benefits to or for the
Grantee under any Other Agreement or any Benefit Arrangement would cause the
Grantee to be considered to have received a Parachute Payment under this Plan
that would have the effect of decreasing the after-tax amount received by the
Grantee as described in clause (ii) of the preceding sentence, then the Grantee
shall have the right, in the Grantee's sole discretion, to designate those
rights, payments, or benefits under this Plan, any Other Agreements, and any
Benefit Arrangements that should be reduced or eliminated so as to avoid having
the payment or benefit to the Grantee under this Plan be deemed to be a
Parachute Payment.
20. REQUIREMENTS OF LAW
20.1. General.
The Company shall not be required to sell or issue any shares of Stock
under any Award if the sale or issuance of such shares would constitute a
violation by the Grantee, any other individual exercising an Option, or the
Company of any provision 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 an Award
upon any securities exchange or under any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the issuance or
purchase of shares hereunder, no shares of Stock may be issued or sold to the
Grantee or any other individual exercising an Option pursuant to such Award
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 the
exercise of any Option or the delivery of any shares of Stock underlying an
Award, unless a registration statement under such Act is in effect with respect
to the shares of Stock covered by such Award, the Company shall not be required
to sell or issue such shares unless the Board has received evidence satisfactory
to it that the Grantee or any other individual exercising an Option may acquire
such shares pursuant to an exemption from registration under the Securities Act.
Any determination in this connection by the Board shall be final, binding, 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
Option or the issuance of shares of Stock pursuant to the Plan to comply with
any law or regulation of any governmental authority. As to any jurisdiction that
expressly imposes the requirement that an Option shall not be exercisable until
the shares of Stock covered by such Option are registered or are
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<PAGE>
exempt from registration, the exercise of such Option (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.
20.2. Rule 16b-3.
During any time when the Company has a class of equity security registered
under Section 12 of the Exchange Act, it is the intent of the Company that
Awards pursuant to the Plan and the exercise of Options granted hereunder will
qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the
extent that any provision of the Plan or action by the Board does not comply
with the requirements of Rule 16b-3, it shall be deemed inoperative to the
extent permitted by law and deemed advisable by the Board, and shall not affect
the validity of the Plan. In the event that Rule 16b-3 is revised or replaced,
the Board may exercise its discretion to modify this Plan in any respect
necessary to satisfy the requirements of, or to take advantage of any features
of, the revised exemption or its replacement.
21. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend, or
terminate the Plan as to any shares of Stock as to which Awards have not been
made; provided, however, that the Board shall not, without approval of the
-------- -------
Company's shareholders, amend the Plan such that it does not comply with the
Code. The Company may retain the right in an Award Agreement to cause a
forfeiture of the gain realized by a Grantee on account of the Grantee taking
actions in "competition with the Company," as defined in the applicable Award
Agreement. Furthermore, the Company may annul an Award if the Grantee is an
employee of the Company or an affiliate and is terminated "for cause" as defined
in the applicable Award Agreement. Except as permitted under this Section 21 or
Section 22 hereof, no amendment, suspension, or termination of the Plan shall,
without the consent of the Grantee, alter or impair rights or obligations under
any Award theretofore awarded under the Plan.
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<PAGE>
22. EFFECT OF CHANGES IN CAPITALIZATION
22.1. Changes in Stock.
If the number of outstanding shares of Stock is increased or decreased or
the shares of Stock are changed into or exchanged for a different number or kind
of shares or other securities of the Company on account of any recapitalization,
reclassification, stock split, reverse split, combination of shares, exchange of
shares, stock dividend or other distribution payable in capital stock, or other
increase or decrease in such shares effected without receipt of consideration by
the Company occurring after the Effective Date, the number and kinds of shares
for which grants of Options and other Awards may be made under the Plan shall be
adjusted proportionately and accordingly by the Company. In addition, the number
and kind of shares for which Awards are outstanding shall be adjusted
proportionately and accordingly so that the proportionate interest of the
Grantee immediately following such event shall, to the extent practicable, be
the same as immediately before such event. Any such adjustment in outstanding
Options shall not change the aggregate Option Price payable with respect to
shares that are subject to the unexercised portion of an Option outstanding but
shall include a corresponding proportionate adjustment in the Option Price per
share.
22.2. Reorganization in Which the Company Is the Surviving Entity and in
Which No Change of Control Occurs.
Subject to Section 22.3 hereof, if the Company shall be the surviving
entity in any reorganization, merger, or consolidation of the Company with one
or more other entities, any Option theretofore granted pursuant to the Plan
shall pertain to and apply to the securities to which a holder of the number of
shares of Stock subject to such Option would have been entitled immediately
following such reorganization, merger, or consolidation, with a corresponding
proportionate adjustment of the Option Price per share so that the aggregate
Option Price thereafter shall be the same as the aggregate Option Price of the
shares remaining subject to the Option immediately prior to such reorganization,
merger, or consolidation. Subject to any contrary language in an Award Agreement
evidencing an Award, any restrictions applicable to such Grant shall apply as
well to any replacement shares received by the Grantee as a result of the
reorganization, merger or consolidation.
22.3. Reorganization, Sale of Assets or Sale of Stock Which Involves a
Change of Control.
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 reorganization in which
the Company is the surviving entity) approved by the Board that results in any
person or entity (or person or
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<PAGE>
entities acting as a group or otherwise in concert, owning fifty percent (50%)
or more of the combined voting power of all classes of securities of the
Company), (i) all outstanding shares subject to Grants shall be deemed to have
vested, and all restrictions and conditions applicable to such shares subject to
Grants shall be deemed to have lapsed, immediately prior to the occurrence of
such event, and (ii) all Options outstanding hereunder shall become immediately
exercisable for a period of fifteen days immediately prior to the scheduled
consummation of the event. Any exercise of an Option during such fifteen-day
period shall be conditioned upon the consummation of the event and shall be
effective only immediately before the consummation of the event. Upon
consummation of any such event, the Plan and all outstanding but unexercised
Options shall terminate, except to the extent provision is made in writing in
connection with such transaction for the continuation of the Plan or the
assumption of such Options theretofore granted, or for the substitution for such
Options of new options covering the stock of a successor entity, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kinds of
shares or units and exercise prices, in which event the Plan and Options
theretofore granted shall continue in the manner and under the terms so
provided. The Board shall send written notice of an event that will result in
such a termination to all individuals who hold Options not later than the time
at which the Company gives notice thereof to its shareholders.
22.4. Adjustments.
Adjustments under this Section 22 related to shares of Stock or securities
of the Company shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. No fractional shares or 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.
22.5. No Limitations on Company.
The making of Awards 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.
23. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Award or Award Agreement shall be
construed to confer upon any individual the right to remain in the employ or
service of the Company or any affiliate, or to interfere in any way with any
contractual or other right or authority of the Company either to increase or
decrease the compensation or other payments to any individual at any time, or to
terminate any employment or other relationship between any individual and the
Company. In
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<PAGE>
addition, notwithstanding anything contained in the Plan to the contrary, unless
otherwise stated in the applicable Award Agreement, no Award granted under the
Plan shall be affected by any change of duties or position of the Grantee, so
long as such Grantee continues to be a director, officer, consultant or employee
of the Company. The obligation of the Company to pay any benefits pursuant to
this 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. No Grantee shall have any of the rights of a shareholder with respect to
the shares of Stock subject to an Option except to the extent the certificates
for such shares of Stock shall have been issued upon the exercise of the Option.
24. NONEXCLUSIVITY OF THE PLAN
The adoption of the Plan shall not be construed as creating any limitations
upon the right and authority of the Board to adopt such other incentive
compensation arrangements (which arrangements may be applicable either generally
to a class or classes of individuals or specifically to a particular individual
or particular individuals) as the Board in its discretion determines desirable,
including, without limitation, the granting of stock options otherwise than
under the Plan.
25. WITHHOLDING TAXES
The Company or a Subsidiary, as the case may be, shall have the right to
deduct from payments of any kind otherwise due to a Grantee any Federal, state,
or local taxes of any kind required by law to be withheld with respect to the
vesting of or other lapse of restrictions applicable to an Award or upon the
issuance of any shares of Stock upon the exercise of an Option or pursuant to an
Award. At the time of such vesting, lapse, or exercise, the Grantee shall pay to
the Company or the Subsidiary, as the case may be, any amount that the Company
or the Subsidiary may reasonably determine to be necessary to satisfy such
withholding obligation. Subject to the prior approval of the Company or the
Subsidiary, which may be withheld by the Company or the Subsidiary, as the case
may be, in its sole discretion, the Grantee may elect to satisfy such
obligations, in whole or in part, (i) by causing the Company or the Subsidiary
to withhold shares of Stock otherwise issuable to the Grantee or (ii) by
delivering to the Company or the Subsidiary shares of Stock already owned by the
Grantee. The shares of Stock so delivered or withheld shall have an aggregate
Fair Market Value equal to such withholding obligations. The Fair Market Value
of the shares of Stock used to satisfy such withholding obligation shall be
determined by the Company or the Subsidiary as of the date that the amount of
tax to be withheld is to be determined. A Grantee who has made an election
pursuant to this Section 25 may satisfy his or her withholding obligation only
with shares of Stock that are not
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<PAGE>
subject to any repurchase, forfeiture, unfulfilled vesting, or other similar
requirements.
26. CAPTIONS
The use of captions in this Plan or any Award Agreement is for the
convenience of reference only and shall not affect the meaning of any provision
of the Plan or such Award Agreement.
27. OTHER PROVISIONS
Each Award granted under the Plan may contain such other terms and
conditions not inconsistent with the Plan as may be determined by the Board, in
its sole discretion.
28. NUMBER AND GENDER
With respect to words used in this Plan, the singular form shall include the
plural form, the masculine gender shall include the feminine gender, etc., as
the context requires.
29. SEVERABILITY
If any provision of the Plan or any Award Agreement shall be determined to
be illegal or unenforceable by any court of law in any jurisdiction, the
remaining provisions hereof and thereof shall be severable and enforceable in
accordance with their terms, and all provisions shall remain enforceable in any
other jurisdiction.
30. GOVERNING LAW
The validity and construction of this Plan and the instruments evidencing
the Awards granted hereunder shall be governed by the laws of the State of
Delaware (without giving effect to the choice of law provisions thereof).
* * *
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<PAGE>
The Plan was duly adopted and approved by the Board of Directors of the
Company as of the 24th day of May, 1999.
By:___________________________
Name: ________________________
Title:________________________
-25-
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<RECEIVABLES> 4,037,000
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