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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_]Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
US SEARCH.com Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box)
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
6. Amount Previously Paid:
7. Form, Schedule or Registration Statement No.:
8. Filing Party:
9. Date Filed:
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US SEARCH.COM INC.
5401 Beethoven Street
Los Angeles, CA 90066
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 31, 2000
----------------
TO THE STOCKHOLDERS OF US SEARCH.COM INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of US
Search.com Inc., a Delaware corporation (the "Company"), will be held on
Wednesday, May 31, 2000 at 10:00 a.m. local time at the Marriot Marina Beach,
4100 Admiralty Way, Marina Del Rey, CA 90292, for the following purposes:
1. To elect two directors to hold office until the 2003 Annual Meeting of
Stockholders.
2. To approve the amendment to the Company's Amended and Restated 1998
Stock Incentive Plan to increase the aggregate number of shares of Common
Stock authorized for issuance under such plan by 2,900,000 shares.
3. To ratify the selection of PricewaterhouseCoopers, LLP as independent
auditors of the Company for its fiscal year ending December 31, 2000.
4. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 14, 2000 as
the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
/s/ Karol Pollock
Karol Pollock
Secretary
Los Angeles, California
April 28, 2000
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN
PERSON. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING. A
RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED
STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE GIVEN YOUR
PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK
OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN
FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
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US SEARCH.COM INC.
5401 Beethoven Street
Los Angeles, CA 90066
----------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
May 31, 2000
----------------
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of Directors of US
Search.com Inc., a Delaware corporation (the "Company"), for use at the Annual
Meeting of Stockholders to be held on May 31, 2000, at 10:00 a.m. local time
(the "Annual Meeting"), or at any adjournment or postponement thereof, for the
purposes set forth herein and in the accompanying Notice of Annual Meeting.
The Annual Meeting will be held at the Marriot Marina Beach, 4100 Admiralty
Way, Marina Del Rey, CA 90292. The Company intends to mail this proxy
statement and accompanying proxy card on or about April 28, 2000, to all
stockholders entitled to vote at the Annual Meeting.
Solicitation
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
card and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses,
fiduciaries and custodians holding in their names shares of Common Stock
beneficially owned by others to forward to such beneficial owners. The Company
may reimburse persons representing beneficial owners of Common Stock for their
costs of forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company. No additional compensation will be paid to directors, officers or
other regular employees for such services.
Voting Rights and Outstanding Shares
Only holders of record of Common Stock at the close of business on April
14, 2000 will be entitled to notice of and to vote at the Annual Meeting. At
the close of business on April 14, 2000 the Company had outstanding and
entitled to vote 17,937,744 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual
Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter
has been approved.
Voting Via the Internet
You may vote your shares via the Internet at the following Web site:
http://www.eproxy.com/srch/.
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For Shares Registered in the Name of a Broker or Bank
A number of brokers and banks are participating in a program provided
through ADP Investor Communication Services that also offer Internet voting
options. If your shares are held in an account with a broker or bank
participating in the ADP Investor Communication Services program, you may vote
those shares via the Internet at ADP Investor Communication Services' voting
Web site (www.proxyvote.com).
General Information for All Shares Voted Via the Internet
Votes submitted via the Internet must be received by 12:00 p.m., Pacific
Daylight Time on May 26, 2000. Submitting your proxy via the Internet will not
affect your right to vote in person should you decide to attend the Annual
Meeting.
The Internet voting procedures are designed to authenticate stockholders'
identities, to allow stockholders to give their voting instructions and to
confirm that stockholders' instructions have been recorded properly.
Stockholders voting via the Internet should understand that there may be costs
associated with electronic access, such as usage charges from Internet access
providers and telephone companies, that must be borne by the stockholder.
Revocability of Proxies
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 5401
Beethoven Street, Los Angeles, CA 90066, a written notice of revocation or a
duly executed proxy bearing a later date, or it may be revoked by attending
the meeting and voting in person. Attendance at the meeting will not, by
itself, revoke a proxy.
Stockholder Proposals
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2001 annual
meeting of stockholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission is December 31, 2000. Stockholders wishing to submit proposals or
director nominations that are not to be included in such proxy statement and
proxy must do so no later than 90 days nor earlier than 120 days prior to the
first anniversary of the preceding year's annual meeting of stockholders.
Stockholders are also advised to review the Company's Bylaws, which contain
additional requirements with respect to advance notice of stockholder
proposals and director nominations.
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PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation and Bylaws provide that
the Board of Directors shall be divided into three classes, each class
consisting, as nearly as possible, of one-third of the total number of
directors, with each class having a three-year term. Vacancies on the Board
may be filled only by persons elected by a majority of the remaining
directors. A director elected by the Board to fill a vacancy (including a
vacancy created by an increase in the number of directors) shall serve for the
remainder of the full term of the class of directors in which the vacancy
occurred and until such director's successor is elected and qualified.
The Board of Directors is presently composed of six members and one
vacancy. There are two directors in the class whose term of office expires in
2000. One of the two nominees for election to this class, Mr. Nicholas
Rockefeller, is currently a director of the Company who was previously elected
by the stockholders, and the other nominee for election to this class, Mr.
Harry Chandler, is currently a director of the Company who was previously
elected by the Board to fill a vacancy. If elected at the Annual Meeting, each
of the nominees would serve until the 2003 annual meeting and until his or her
successor is elected and has qualified, or until such director's earlier
death, resignation or removal.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting. Shares represented
by executed proxies will be voted, if authority to do so is not withheld, for
the election of the two nominees named below. In the event that any nominee
should be unavailable for election as a result of an unexpected occurrence,
such shares will be voted for the election of such substitute nominee as
management may propose. Each person nominated for election has agreed to serve
if elected, and management has no reason to believe that any nominee will be
unable to serve.
Set forth below is biographical information for each person nominated and
each person whose term of office as a director will continue after the Annual
Meeting.
Nominees for Election for a Three-year Term Expiring at the 2003 Annual
Meeting
Nicholas Rockefeller
Nicholas Rockefeller has served as one of the Company's directors since
February 1999. Mr. Rockefeller is an attorney with the law firm of Troop
Meisinger Steuber Pasich Reddick & Tobey, LLP, and has been with the firm
since June 1997, prior to which he was engaged in the private practice of law
for ten years. Mr. Rockefeller also serves as a Managing Principal of the
Rockvest Development Group and its affiliate, the Rockefeller International
Fund, which supervises investments in publicly traded securities and private
enterprises and maintains an active venture capital portfolio. Mr. Rockefeller
is also Chairman of Rockefeller Asia, a financial services company. Mr.
Rockefeller is a member of the California and Washington, D.C. bars, and holds
a J.D. from Yale Law School. Mr. Rockefeller is the trustee of The SHMNM
Investment Trust, which is currently a stockholder of the Company and which
was established pursuant to a stockholders' agreement between Mr. Nicholas
Matzorkis and The Kushner-Locke Company. Mr. Rockefeller was elected a
director of the Company as the director designated by the trust pursuant to
the stockholders' agreement.
Harry B. Chandler
Harry B. Chandler has served as one of the Company's directors since April
1999. Mr. Chandler has served as the Executive Vice President of Goto.com, a
Pasadena company since March 1999. From April 1994 until March 1999, Mr.
Chandler served as Director of New Business Development at the Los Angeles
Times, where he was responsible for investments, acquisitions and operations
of much of its Internet activities. From 1991 to 1994, Mr. Chandler served as
founder and President of Dream City Films. Mr. Chandler holds a B.A. from
Stanford University and attended UCLA Graduate School of Film/TV and Anderson
School of Business.
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THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
Directors Continuing in Office Until the 2001 Annual Meeting
Donald Kushner
Donald Kushner has served as Co-Chairman and one of the Company's directors
since November 1997. Mr. Kushner co-founded The Kushner-Locke Company, a
feature film and television production and distribution company, with Peter
Locke in 1983 and currently serves as its Co-Chairman, Co-Chief Executive
Officer and Secretary. The Kushner-Locke Company currently owns a controlling
interest in the Company. Mr. Kushner has served as executive producer on
substantially all of Kushner-Locke's programming since its inception.
Mr. Kushner was the producer of Tron, a 1982 Walt Disney theatrical film which
was nominated for two Academy Awards. Mr. Kushner holds a B.A. from Syracuse
University and a J.D. from Boston University, and is a member of the
Massachusetts state bar.
There is currently one vacancy in this class of directors.
Directors Continuing in Office Until the 2002 Annual Meeting
Brent N. Cohen
Brent Cohen has served as our President and Chief Executive Officer since
February 2000. Mr. Cohen served on the advisory boards of several Internet
start-up companies from October 1998 through January 2000. From July 1987
through October 1998, Mr. Cohen held senior management positions with Packard
Bell NEC (formerly Packard Bell Electronics), including Chief Operating
Officer, Chief Financial Officer and President- Consumer and International.
From January 1980 through December 1982 and from January 1985 through
June 1987 Mr. Cohen held various management positions in both the consulting
and auditing practice of Arthur Young & Company (now Ernst & Young). From
January 1983 through December 1984 Mr. Cohen completed compulsory service in
the South African military. Mr. Cohen holds a Bachelor of Commerce degree, a
Graduate Diploma in Accounting and an MBA from the University of Cape Town in
South Africa. He is also a charted accountant.
Peter Locke
Peter Locke has served as Co-Chairman and one of the Company's directors
since November 1997. From September 1998 to February 1999, Mr. Locke served as
the Company's President. Mr. Locke co-founded The Kushner-Locke Company, a
feature film and television production and distribution company, with Donald
Kushner in 1983 and currently serves as its Co-Chairman and Co-Chief Executive
Officer. The Kushner-Locke Company currently owns a controlling interest in
the Company. Mr. Locke has served as executive producer on substantially all
of Kushner-Locke's programming since its inception and has produced over 1,000
hours of film and television programming. Prior to 1983, Mr. Locke produced
several prime-time television programs and independent feature films. Mr.
Locke holds a B.A. from Syracuse University.
Alan C. Mendelson
Alan C. Mendelson has served as one of the Company's directors since
February 1999. Mr. Mendelson is a senior partner of Cooley Godward LLP and has
been with the firm since 1973, where he currently heads the companies and the
life sciences groups and is a member of its Management Committee. He served as
Managing Partner of the firm's Palo Alto office from May 1990 to March 1995
and from November 1996 to September 1997. Mr. Mendelson served as Secretary
and Acting General Counsel of Amgen, Inc., from April 1990 to April 1991 and
as Acting General Counsel of Cadence Design Systems, Inc. from November 1995
to June 1996. Mr. Mendelson serves as the Secretary of a number of public
companies and is a member of the board of directors of Axys Pharmaceuticals,
Inc., Isis Pharmaceuticals, Inc. and Aviron. Mr. Mendelson holds a J.D., cum
laude, from Harvard University Law School and an A.B., Phi Beta Kappa, from
the University of California, Berkeley.
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Board Committees and Meetings
During the fiscal year ended December 31, 1999 the Board of Directors held
five meetings and acted by unanimous written consent five times. The Board has
an Audit Committee and a Compensation Committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained;
outlines to the Board improvements made, or to be made, in internal accounting
controls; and consults with the independent auditors and discusses with
management the scope and quality of internal accounting and financial
reporting controls in effect. The Audit Committee is composed of three non-
employee directors: Messrs. Kushner, Chandler, and Mendelson. The Audit
Committee was formed by the Board in March 1999 and it met once during the
fiscal year ended December 31, 1999, and it did not act by unanimous written
consent during the fiscal year ended December 31, 1999.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants
under the Company's stock option plans and otherwise determines compensation
levels and performs such other functions regarding compensation as the Board
may delegate. The Compensation Committee is composed of two non-employee
directors: Messrs. Locke and Rockefeller. Prior to his resignation from the
Board in September 1999, Mr. Russell I. Pillar was also a member of the
Compensation Committee. The Compensation Committee was formed by the Board in
March 1999 and it did not meet or act by unanimous written consent during the
fiscal year ended December 31, 1999.
During the fiscal year ended December 31, 1999, each Board member attended
75% or more of the aggregate of the meetings of the Board and of the
committees on which he served, held during the period for which he was a
director or committee member, respectively.
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PROPOSAL 2
APPROVAL OF THE AMENDMENT TO THE AMENDED AND
RESTATED 1998 STOCK INCENTIVE PLAN
In July 1998, the Board adopted, and the stockholders subsequently
approved, the Company's 1998 Stock Incentive Plan ("Incentive Plan"). In
February 1999, the Board amended and restated the Incentive Plan, and the
stockholders subsequently approved such amendment and restatement.
The Board subsequently amended the Incentive Plan, subject to stockholder
approval, to increase the number of shares of Common Stock authorized for
issuance under the Incentive Plan from a total of 2,600,650 shares to a total
of 5,500,650 shares. The Board adopted this amendment in order to ensure that
the Company can continue to grant stock options at levels determined
appropriate by the Board.
As of December 31, 1999, 1,077,598 shares of Common Stock (plus any shares
that might in the future be returned to the Incentive Plan as a result of
cancellations or expiration of awards) remained available for future grant
under the Incentive Plan. As of April 14, 2000, awards (net of canceled or
expired awards) covering an aggregate of 2,729,644 shares of the Company's
Common Stock had been granted under the Incentive Plan, which includes awards
subject to stockholder approval of this Proposal to increase the number of
shares reserved for issuance under the Incentive Plan.
Stockholders are requested in this Proposal 2 to approve the amendment to
the Incentive Plan, as amended. The affirmative vote of the holders of a
majority of the shares present in person or represented by proxy and entitled
to vote at the meeting will be required to approve the amendment to the
Incentive Plan. Abstentions will be counted toward the tabulation of votes
cast on proposals presented to the stockholders and will have the same effect
as negative votes. Broker non-votes are counted towards a quorum, but are not
counted for any purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the Incentive Plan are outlined below:
General
The Incentive Plan provides for the grant of incentive stock options,
nonstatutory stock options, stock appreciation rights, stock bonuses and
restricted stock awards (collectively "awards"). Incentive stock options
granted under the Incentive Plan are intended to qualify as "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"). Nonstatutory stock options granted under the
Incentive Plan are not intended to qualify as incentive stock options under
the Code. Stock appreciation rights granted under the Incentive Plan may be
concurrent rights or independent rights. See "Federal Income Tax Information"
for a discussion of the tax treatment of awards. To date, the Company has
granted only stock options under the Plan. A complete copy of the Incentive
Plan, as amended, is attached hereto as Exhibit A.
Purpose
The Board adopted the Incentive Plan to provide a means by which employees,
directors and other persons who provide valuable services to the Company
(collectively, "consultants") and its subsidiaries may be given an opportunity
to purchase stock in the Company, to assist in retaining the services of such
persons, to secure and retain the services of persons capable of filling such
positions and to provide incentives for such persons to exert maximum efforts
for the success of the Company and its subsidiaries. All of the approximately
209 employees of the Company and its subsidiaries are eligible to participate
in the Incentive Plan.
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Administration
The Board administers the Incentive Plan. Subject to the provisions of the
Incentive Plan, the Board has the power to construe and interpret the
Incentive Plan and to determine the persons to whom and the dates on which
awards will be granted, the number of shares of Common Stock to be subject to
each award, the time or times during the term of each award within which all
or a portion of such award may be exercised, the exercise price, the type of
consideration and other terms of the award.
The Board has delegated administration of the Incentive Plan to the
Compensation Committee of the Board. As used herein with respect to the
Incentive Plan, the "Board" refers to any committee the Board appoints as well
as to the Board itself.
The regulations under Section 162(m) of the Code require that the directors
who serve as members of the committee must be "outside directors." The
Incentive Plan provides that, in the Board's discretion, the committee may
consist solely of "outside directors" within the meaning of Section 162(m).
This limitation would exclude from the committee directors who are (i) current
employees of the Company or an affiliate, (ii) former employees of the Company
or a subsidiary receiving compensation for past services (other than benefits
under a tax-qualified pension Incentive Plan), (iii) current and former
officers of the Company or an affiliate, (iv) directors currently receiving
direct or indirect remuneration from the Company or an affiliate in any
capacity (other than as a director), and (v) any other person who is otherwise
considered an "outside director" for purposes of Section 162(m). The
definition of an "outside director" under Section 162(m) is generally narrower
than the definition of a "non-employee director" under Rule 16b-3 of the
Exchange Act.
Eligibility
Incentive stock options and stock appreciation rights appurtenant thereto
may be granted under the Incentive Plan only to employees (including officers
and employee directors) of the Company and its subsidiaries. Employees
(including officers and employee directors), directors, and consultants of
both the Company and its subsidiaries are eligible to receive all other types
of awards under the Incentive Plan.
No incentive stock option may be granted under the Incentive Plan to any
person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any affiliate of the Company, unless the exercise price is at least 110% of
the fair market value of the stock subject to the option on the date of grant
and the term of the option does not exceed five years from the date of grant.
In addition, the aggregate fair market value, determined at the time of grant,
of the shares of Common Stock with respect to which incentive stock options
are exercisable for the first time by a participant during any calendar year
(under the Incentive Plan and all other such plans of the Company and its
affiliates) may not exceed $100,000.
No person may be granted options and stock appreciation rights under the
Incentive Plan exercisable for more than 1,813,564 shares of Common Stock
during any calendar year ("Section 162(m) Limitation").
Stock Subject to the Incentive Plan
Subject to this Proposal, an aggregate of 5,500,650 shares of Common Stock
is reserved for issuance under the Incentive Plan. If awards granted under the
Incentive Plan expire or otherwise terminate without being exercised, the
shares of Common Stock not acquired pursuant to such awards will again become
available for issuance under the Incentive Plan. If the Company reacquires
unvested stock issued under the Incentive Plan, the reacquired stock will
again become available for reissuance under the Incentive Plan for awards
other than incentive stock options.
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Terms of Options
The following is a description of the permissible terms of options under
the Incentive Plan. Individual option grants may be more restrictive as to any
or all of the permissible terms described below.
Exercise Price; Payment. The exercise price of options granted under the
Incentive Plan is determined by the Board, but , in the case of incentive
stock options, may not be less than 100% of the fair market value of the stock
subject to the option on the date of the grant and, in some cases (see
"Eligibility" above), may not be less than 110% of such fair market value. If
options were granted with exercise prices below market value, deductions for
compensation attributable to the exercise of such options could be limited by
Section 162(m) of the Code. See "Federal Income Tax Information." As of April
14, 2000, the closing price of the Company's Common Stock as reported on the
Nasdaq National Market System was $2.9375 per share.
The exercise price of options granted under the Incentive Plan must be paid
either in cash at the time the option is exercised or at the discretion of the
Board, (i) by delivery of other Common Stock of the Company or (ii) pursuant
to a deferred payment arrangement.
Repricing. In the event of a decline in the value of the Company's Common
Stock, the Board has the authority to offer participants the opportunity to
replace outstanding higher priced options with new lower priced options. To
the extent required by Section 162(m) of the Code, a repriced option will be
deemed to be canceled and a new option granted. Both the option deemed to be
canceled and the new option deemed to be granted will be counted against the
Section 162(m) Limitation.
Option Exercise. Options granted under the Incentive Plan may become
exercisable in cumulative increments ("vest") as determined by the Board.
Shares covered by currently outstanding options under the Incentive Plan
typically vest at the rate of one-fourth on each of the four anniversaries of
the date of grant during the participant's employment by, or service as a
director or consultant to, the Company or a subsidiary (collectively,
"service"). Shares covered by options granted in the future under the
Incentive Plan may be subject to different vesting terms. The Board has the
power to accelerate the time during which an option may vest or be exercised.
To the extent provided by the terms of an option, a participant may satisfy
any federal, state or local tax withholding obligation relating to the
exercise of such option by a cash payment upon exercise, by authorizing the
Company to withhold a portion of the stock otherwise issuable to the
participant, by delivering already-owned Common Stock of the Company or by a
combination of these means.
Term. The maximum term of options under the Incentive Plan is 10 years,
except that in certain cases (see "Eligibility") the maximum term is five
years. Options under the Incentive Plan generally terminate three months after
termination of the participant's service unless (i) such termination is due to
the participant's permanent and total disability (as defined in the Code), in
which case the option may be exercised (to the extent the option was
exercisable at the time of the termination of service) at any time within 12
months of such termination; (ii) the participant dies before the participant's
service has terminated, or within 12 months after termination of service due
to disability, it may be exercised (to the extent the option was exercisable
at the time of the participant's death) within 12 months of the participant's
death by the person or persons to whom the rights to such option pass by will
or by the laws of descent and distribution; (iii) such termination is due to
the participant's retirement and the option is a nonstatutory option, in which
case the option may be exercised (to the extent the option was exercisable at
the time of the termination of service) at any time within 12 months of such
termination; or (iv) the participant is discharged for cause, in which case
the option shall terminate immediately upon such discharge.
Terms of Stock Bonuses and Restricted Stock Awards
Payment. The Board determines the purchase price under a restricted stock
award agreement. The Board may award stock bonuses in consideration of past
services without a purchase payment.
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The purchase price of stock acquired pursuant to a restricted stock award
agreement under the Incentive Plan must be paid either in cash at the time the
option is exercised or at the discretion of the Board, (i) by delivery of
other Common Stock of the Company, (ii) pursuant to a deferred payment
arrangement or (iii) in any other form of legal consideration acceptable to
the Board.
Vesting. Shares of stock sold or awarded under the Incentive Plan may, but
need not be, subject to a repurchase option in favor of the Company in
accordance with a vesting schedule as determined by the Board. The Board has
the power to accelerate the vesting of stock acquired pursuant to a restricted
stock purchase agreement under the Incentive Plan.
Restrictions on Transfer. Rights under a stock bonus or restricted stock
bonus agreement may not be transferred other than by will or the laws of
descent or distribution except that shares underlying the awards may be
transferred if all applicable restrictions have lapsed.
Stock Appreciation Rights
The Incentive Plan authorizes two types of stock appreciation rights.
Concurrent Stock Appreciation Rights. Concurrent stock appreciation rights
are tied to an underlying option and are exercised automatically at the same
time the underlying option is exercised. The participant receives an
appreciation distribution equal to the market price of the vested shares
purchased under the option less the aggregate exercise price payable for such
shares. Appreciation distributions payable upon exercise of concurrent stock
appreciation rights must be made in cash.
Independent Stock Appreciation Rights. Independent stock appreciation
rights are granted independently of any option and entitle the participant to
receive upon exercise an appreciation distribution equal to the market price
of a number of shares equal to the number of share equivalents to which the
participant is vested under the independent stock appreciation right less than
fair market value of such number of shares of stock on the date of grant of
the independent stock appreciation rights. Appreciation distributions payable
upon exercise of independent stock appreciation rights may, at the Board's
discretion, be made in cash, in shares of stock or a combination thereof.
Restrictions on Transfer
The participant may not transfer an award otherwise than by will or by the
laws of descent and distribution, except that shares underlying the awards may
be transferred if all applicable restrictions have lapsed. During the lifetime
of the participant, the award may be exercised only by the participant or the
participant's personal representative in the event of the participant's
disability or incompetence.
Adjustment Provisions
Transactions not involving receipt of consideration by the Company, such as
a merger, consolidation, reorganization, stock dividend or stock split, may
change the class and number of shares of Common Stock subject to the Incentive
Plan and outstanding awards. In that event, the Incentive Plan will be
appropriately adjusted as to the class and the maximum number of shares of
Common Stock subject to the Incentive Plan and the Section 162(m) Limitation,
and outstanding awards will be adjusted as to the class, number of shares and
price per share of Common Stock subject to such awards.
Effect of Certain Corporate Events
The Incentive Plan provides that, in the event of a dissolution,
liquidation or sale of substantially all of the assets of the Company,
specified types of merger or other corporate reorganization ("change in
control"), any surviving corporation will be required to either assume awards
outstanding under the Incentive Plan or substitute similar awards for those
outstanding under the Incentive Plan. If any surviving corporation declines to
assume
9
<PAGE>
awards outstanding under the Incentive Plan, or to substitute similar awards,
then, with respect to participants whose service has not terminated, the
vesting and the time during which such awards may be exercised will be
accelerated in full. An outstanding award will terminate if the participant
does not exercise it before a change in control. The acceleration of an award
in the event of an acquisition or similar corporate event may be viewed as an
anti-takeover provision, which may have the effect of discouraging a proposal
to acquire or otherwise obtain control of the Company.
Duration, Amendment and Termination
The Board may suspend or terminate the Incentive Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the Incentive Plan will terminate on June 1, 2008.
The Board may also amend the Incentive Plan at any time or from time to
time. However, no amendment will be effective unless approved by the
stockholders of the Company within 12 months before or after its adoption by
the Board if the amendment would (i) modify the requirements as to eligibility
for participation (to the extent such modification requires stockholder
approval in order for the Incentive Plan to satisfy Section 422 of the Code,
if applicable or Rule 16b-3 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")); (ii) increase the number of shares reserved for
issuance upon exercise of awards; or (iii) change any other provision of the
Incentive Plan in any other way if such modification requires stockholder
approval in order to comply with Rule 16b-3 of the Exchange Act or satisfy the
requirements of Section 422 of the Code or any securities exchange listing
requirements. The Board may submit any other amendment to the Incentive Plan
for stockholder approval, including, but not limited to, amendments intended
to satisfy the requirements of Section 162(m) of the Code regarding the
exclusion of performance-based compensation from the limitation on the
deductibility of compensation paid to certain employees.
Federal Income Tax Information
Long-term capital gains currently are generally subject to lower tax rates
than ordinary income or short-term capital gains. The maximum long-term
capital gains rate for federal income tax purposes is currently 20% while the
maximum ordinary income rate and short-term capital gains rate is effectively
39.6%. Slightly different rules may apply to participants who acquire stock
subject to certain repurchase options or who are subject to Section 16(b) of
the Exchange Act.
Incentive Stock Options. Incentive stock options under the Incentive Plan
are intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the participant
or the Company by reason of the grant or exercise of an incentive stock
option. However, the exercise of an incentive stock option may increase the
participant's alternative minimum tax liability, if any.
If a participant holds stock acquired through exercise of an incentive
stock option for at least two years from the date on which the option is
granted and at least one year from the date on which the shares are
transferred to the participant upon exercise of the option, any gain or loss
on a disposition of such stock will be a long-term capital gain or loss if the
participant held the stock for more than one year.
Generally, if the participant disposes of the stock before the expiration
of either of these holding periods (a "disqualifying disposition"), then at
the time of disposition the participant will realize taxable ordinary income
equal to the lesser of (i) the excess of the stock's fair market value on the
date of exercise over the exercise price or (ii) the participant's actual
gain, if any, on the purchase and sale. The participant's additional gain or
any loss upon the disqualifying disposition will be a capital gain or loss,
which will be long-term or short-term depending on whether the stock was held
for more than one year.
To the extent the participant recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of
10
<PAGE>
Section 162(m) of the Code and the satisfaction of a tax reporting obligation)
to a corresponding business expense deduction in the tax year in which the
disqualifying disposition occurs.
Nonstatutory Stock Options, Restricted Stock Awards and Stock
Bonuses. Nonstatutory stock options, restricted stock awards and stock bonuses
granted under the Incentive Plan generally have the following federal income
tax consequences:
There are no tax consequences to the participant or the Company by reason
of the grant. Upon acquisition of the stock, the participant normally will
recognize taxable ordinary income equal to the excess, if any, of the stock's
fair market value on the acquisition date over the purchase price. However, to
the extent the stock is subject to certain types of vesting restrictions, the
taxable event will be delayed until the vesting restrictions lapse unless the
participant elects to be taxed on receipt of the stock. With respect to
employees, the Company is generally required to withhold from regular wages or
supplemental wage payments an amount based on the ordinary income recognized.
Subject to the requirement of reasonableness, the provisions of Section 162(m)
of the Code and the satisfaction of a tax reporting obligation, the Company
will generally be entitled to a business expense deduction equal to the
taxable ordinary income realized by the participant.
Upon disposition of the stock, the participant will recognize a capital
gain or loss equal to the difference between the selling price and the sum of
the amount paid for such stock plus any amount recognized as ordinary income
upon acquisition (or vesting) of the stock. Such gain or loss will be long-
term or short-term depending on whether the stock was held for more than one
year. Slightly different rules may apply to participants who acquire stock
subject to certain repurchase options or who are subject to Section 16(b) of
the Exchange Act.
Stock Appreciation Rights. No taxable income is realized upon the receipt
of a stock appreciation right, but upon exercise of the stock appreciation
right the fair market value of the shares (or cash in lieu of shares) received
must be treated as compensation taxable as ordinary income to the participant
in the year of such exercise. Generally, with respect to employees, the
Company is required to withhold from the payment made on exercise of the stock
appreciation right or from regular wages or supplemental wage payments an
amount based on the ordinary income recognized. Subject to the requirement of
reasonableness, Section 162(m) of the Code and the satisfaction of a reporting
obligation, the Company will be entitled to a business expense deduction equal
to the taxable ordinary income recognized by the participant.
Potential Limitation on Company Deductions. Section 162(m) of the Code
denies a deduction to any publicly-held corporation for compensation paid to
certain "covered employees" in a taxable year to the extent that compensation
to such covered employee exceeds $1 million. It is possible that compensation
attributable to awards, when combined with all other types of compensation
received by a covered employee from the Company, may cause this limitation to
be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options and stock appreciation rights will qualify as
performance-based compensation if the award is granted by a compensation
committee comprised solely of "outside directors" and either (i) the plan
contains a per-employee limitation on the number of shares for which such
awards may be granted during a specified period, the per-employee limitation
is approved by the stockholders, and the exercise price of the award is no
less than the fair market value of the stock on the date of grant or (ii) the
award is granted (or exercisable) only upon the achievement (as certified in
writing by the compensation committee) of an objective performance goal
established in writing by the compensation committee while the outcome is
substantially uncertain, and the award is approved by stockholders.
Compensation attributable to restricted stock and stock bonuses will
qualify as performance-based compensation, provided that: (i) the award is
granted by a compensation committee comprised solely of "outside directors"
and (ii) the purchase price of the award is no less than the fair market value
of the stock on the date of grant. Stock bonuses qualify as performance-based
compensation under the Treasury regulations only if (i) the award is granted
by a compensation committee comprised solely of "outside directors," (ii) the
award is granted
11
<PAGE>
(or exercisable) only upon the achievement of an objective performance goal
established in writing by the compensation committee while the outcome is
substantially uncertain, (iii) the compensation committee certifies in writing
prior to the granting (or exercisability) of the award that the performance
goal has been satisfied and (iv) prior to the granting (or exercisability) of
the award, stockholders have approved the material terms of the award
(including the class of employees eligible for such award, the business
criteria on which the performance goal is based, and the maximum amount--or
formula used to calculate the amount--payable upon attainment of the
performance goal).
New Plan Benefits
The following table presents certain information with respect to options
granted under the Incentive Plan as of April 14, 2000, subject to the
stockholders' approval of Proposal 2 to amend the Amended and Restated 1998
Stock Incentive Plan to increase the total number of shares reserved for
issuance, to (i) (a) the two individuals who served as the Company's Chief
Executive Officer during the fiscal year ending December 31, 1999, and (b) its
other four most highly compensated executive officers at December 31, 1999
(the "Named Executive Officers"); (ii) all executive officers as a group;
(iii) all non-executive officer employees as a group and (iv) all non-employee
directors as a group.
Amended and Restated 1998 Stock Incentive Plan
<TABLE>
<CAPTION>
Number of Shares
Dollar Underlying
Name and Position Value(1) Options Granted
----------------- ----------- ----------------
<S> <C> <C>
Peter Locke...................................... $ 0 0
Director and Former President(2)
C. Nicholas Keating, Jr. ........................ 165,413 53,359
Former President and Chief Executive Officer and
Former Director(3)
Nicholas Matzorkis............................... 0 0
Founder and Senior Strategist
William G. Langley............................... 1,000,956 175,915
Vice President and Chief Financial Officer
Robert J. Richards............................... 782,822 175,915
Former Vice President, Operations(4)
Meg Shea-Chiles.................................. 782,822 175,915
Vice President, Business Development
All Executive Officers as a Group (6
persons)(5)..................................... 16,636,903 2,101,830
All Non-Executive Officer Employees as a Group
(104 persons) .................................. 2,680,126 398,534
All Non-Employee Directors as a Group (5
persons)........................................ $ 0 0
</TABLE>
- --------
(1) Exercise price multiplied by the number of shares underlying the
option(s).
(2) Peter Locke, a director of the Company, served as the Company's President
from September 1998 through February 1999.
(3) C. Nicholas Keating, Jr. served as the Company's President and Chief
Executive Officer, and one of its directors from February 1999 through the
end of January 2000. The options held by Mr. Keating expire and will no
longer be exercisable 90 days after January 31, 2000.
(4) Robert J. Richards resigned from his position as Vice President,
Operations of the Company effective March 2000. The options held by Mr.
Richards expire and will no longer be exercisable 90 days after March 14,
2000.
(5) Does not include Mr. Keating, since his employment was terminated at the
end of January 2000. Does not include Mr. Richards since he resigned from
his position as Vice President, Business Development of the Company
effective March 2000. Does include 1,600,000 shares subject to an option
granted to Brent N. Cohen since he has served as the Company's President
and Chief Executive Officer and one of its directors since February 2000.
Mr. Cohen's option is subject to the approval of the stockholders of
Proposal 2 to amend the Amended and Restated 1998 Stock Incentive Plan to
increase the total number of shares reserved for issuance.
12
<PAGE>
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected PricewaterhouseCoopers, LLP as the
Company's independent auditors for the fiscal year ending December 31, 2000,
and has further directed that management submit the selection of independent
auditors for ratification by the stockholders at the Annual Meeting.
PricewaterhouseCoopers, LLP has audited the Company's financial statements
since 1995. Representatives of PricewaterhouseCoopers, LLP are expected to be
present at the Annual Meeting, will have an opportunity to make a statement if
they so desire and will be available to respond to appropriate questions.
Stockholder ratification of the selection of PricewaterhouseCoopers, LLP as
the Company's independent auditors is not required by the Company's By-laws or
otherwise. However, the Board is submitting the selection of
PricewaterhouseCoopers, LLP to the stockholders for ratification as a matter
of good corporate practice. If the stockholders fail to ratify the selection,
the Audit Committee and the Board will reconsider whether or not to retain
that firm. Even if the selection is ratified, the Audit Committee and the
Board in their discretion may direct the appointment of different independent
auditors at any time during the year if they determine that such a change
would be in the best interests of the Company and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of PricewaterhouseCoopers, LLP.
Abstentions will be counted toward the tabulation of votes cast on proposals
presented to the stockholders and will have the same effect as negative votes.
Broker non-votes are counted towards a quorum, but are not counted for any
purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.
13
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the common stock of the Company as of April 14, 2000:
. each stockholder who is known by us to own beneficially more than 5% of
Company's common stock;
. each of our Named Executive Officers;
. each of our directors; and
. all of our directors and executive officers as a group.
Unless otherwise indicated, to our knowledge, all persons listed below have
sole voting and investment power with respect to their shares of Company's
common stock, except to the extent authority is shared by spouses under
applicable law. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission. Applicable percentage
ownership is based on 17,937,744 shares of common stock outstanding as of
April 14, 2000, together with options for that stockholder that are currently
exercisable or exercisable within 60 days of April 14, 2000. In computing the
number and percentage of shares beneficially owned by a person, shares of
common stock subject to options currently exercisable, or exercisable within
60 days of April 14, 2000 are counted as outstanding, while these shares are
not counted as outstanding for computing the percentage ownership of any other
person.
<TABLE>
<CAPTION>
Shares Beneficially
Owned (Including
Shares Issuable
pursuant to Options
Exercisable within
60 days of
April 14, 2000)
-----------------------
Name of Beneficial Owner** Number Percent
-------------------------- ------------ ----------
<S> <C> <C>
The Kushner-Locke Company........................... 9,608,080 53.56%
11601 Wilshire Boulevard, 21st Floor
Los Angeles, California 90025
The SHMNM Investment Trust.......................... 1,751,064 9.76
2029 Century Park East, 24th Floor
Los Angeles, California 90067
Brent N. Cohen(1)................................... 170,000 *
William G. Langley(2)............................... 43,978 *
Nicholas Matzorkis(3)............................... 1,761,064 9.82
Meg Shea-Chiles(4).................................. 43,978 *
Peter Locke(5)...................................... 9,619,868 53.59
Donald Kushner(6)................................... 9,619,868 53.59
Nicholas Rockefeller(7)............................. 1,762,852 9.82
Harry B. Chandler(8)................................ 11,788 *
Alan C. Mendelson(9)................................ 14,288 *
All executive officers and directors as a group (11
persons)(10)....................................... 11,689,540 64.07%
</TABLE>
- --------
* Represents beneficial ownership of less than one percent of the common
stock.
** Does not include information as to C. Nicholas Keating, Jr. and Robert J.
Richards, who were no longer officers or directors of the Company as of
April 14, 2000.
(1) Represents 10,000 shares held by Mr. Cohen and 160,000 shares subject to
options held by Mr. Cohen that are exercisable within 60 days. Mr.
Cohen's option is subject to the approval of the stockholders of
Proposal 2 to amend the Amended and Restated 1998 Stock Incentive Plan to
increase the total number of shares reserved for issuance.
(2) Represents 43,978 shares subject to options held by Mr. Langley that are
exercisable within 60 days.
14
<PAGE>
(3) Represents 10,000 shares held by Mr. Matzorkis and 1,751,064 shares held
by The SHMNM Investment Trust, an irrevocable trust managed by Nicholas
Rockefeller, a director of the Company, as trustee for the sole benefit
of Susan Hanle, Mr. Matzorkis' spouse. Mr. Matzorkis, an executive
officer of the Company, may be deemed to share voting and investment
power as to all of the shares held by The SHMNM Investment Trust because
his spouse, Susan Hanle, is its sole beneficiary, and therefore may be
deemed to be a beneficial owner of such shares. Mr. Matzorkis disclaims
beneficial ownership as to all of such 1,751,064 shares held by The SHMNM
Investment Trust.
(4) Represents 43,978 shares subject to options held by Ms. Shea-Chiles that
are exercisable within 60 days.
(5) Represents 9,608,080 shares held by The Kushner-Locke Company ("Kushner-
Locke") and 11,788 shares subject to options held by Mr. Locke that are
exercisable within 60 days. Mr. Locke served as the Company's President
from September 1998 through February 1999, and currently serves as a
director of the Company. Mr. Locke may be deemed to share voting and
investment power as to all of the shares held by Kushner-Locke because of
his position as Co-Chairman, Co-Chief Executive Officer and a director of
Kushner-Locke, and therefore may be deemed to be a beneficial owner of
such shares. Mr. Locke disclaims beneficial ownership as to all of the
9,608,080 shares held by Kushner-Locke.
(6) Represents 9,608,080 shares held by Kushner-Locke and 11,788 shares
subject to options held by Mr. Kushner that are exercisable within 60
days. Mr. Kushner, a director of the Company, may be deemed to share
voting and investment power as to all of the shares held by Kushner-Locke
because of his position as Co-Chairman, Co-Chief Executive Officer and a
director of Kushner-Locke, and therefore may be deemed to be a beneficial
owner of such shares. Mr. Kushner disclaims beneficial ownership as to
all of the 9,608,080 shares held by Kushner-Locke.
(7) Represents 1,751,064 shares held by The SHMNM Investment Trust, of which
Mr. Rockefeller is trustee, and 11,788 shares subject to options held by
Mr. Rockefeller that are exercisable within 60 days.
(8) Represents 11,788 shares subject to options held by Mr. Chandler that are
exercisable within 60 days.
(9) Represents 2,500 shares held by City National Bank, as Trustee for the
Cooley Godward LLP Profit Sharing Plan, F/B/O Alan C. Mendelson and
11,788 shares subject to options held by Mr. Mendelson that are
exercisable within 60 days.
(10) Includes shares described in the notes above, as applicable. Includes
shares which the following executive officers and directors of the
Company have the right to acquire within 60 days after the date of this
table pursuant to outstanding options: Brent N. Cohen, 160,000 shares;
William G. Langley, 43,978; Nicholas Matzorkis, 0 shares; Karol Pollock,
0 shares; Robert Anderson, 0 shares; Meg Shea-Chiles, 43,978; Peter
Locke, 11,788 shares; Donald Kushner, 11,788 shares; Nicholas
Rockefeller, 11,788 shares; Harry B. Chandler, 11,788 shares; Alan C.
Mendelson, 11,788 shares; and all executive officers and directors as a
group, 306,896 shares.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity
securities, to file with the SEC initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the
Company. Officers, directors and greater than ten percent stockholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1999, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with; except that
three reports, covering an aggregate of one transaction in July 1999, were
filed late by Mr. Locke, Mr. Kushner, and The Kushner-Locke Company.
15
<PAGE>
EXECUTIVE COMPENSATION
Compensation of Directors
Each non-employee director of the Company receives stock option grants
under the 1999 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan"). Only non-employee directors of the Company are eligible to receive
options under the Directors' Plan. Options granted under the Directors' Plan
are intended by the Company not to qualify as incentive stock options under
the Code.
Option grants under the Directors' Plan are non-discretionary. Each new
non-employee director who is elected or appointed for the first time will
automatically be granted an option to purchase 35,364 shares of common stock
of the Company ("Initial Grants") On the day prior to each annual meeting of
stockholders of the Company, each member of the Company's Board of Directors
who is not an employee of the Company is automatically granted under the
Directors' Plan, without further action by the Company, the Board of Directors
or the stockholders of the Company, an option to purchase 9,067 shares of
Common Stock of the Company; provided, however, that if the person has not
been serving as a non-employee director for the entire period since the
preceding annual meeting of stockholders, then the number of shares of common
stock subject to the option shall be reduced pro-rata for each full quarter
prior to the date of grant during which the person did not serve as a non-
employee director ("Annual Grants"). No other options may be granted at any
time under the Directors' Plan. The exercise price of options granted under
the Directors' Plan is 100% of the fair market value of the Common Stock
subject to the option on the date of the option grant. Options granted under
the Directors' Plan have a term of ten years and vest as follows: Initial
Grants vest as to 1/3rd of the shares on each anniversary of the date of
grant; and Annual Grants vest as to 1/12th of the shares each month for 12
months after the date of grant. In the event the services of a holder of an
option under the Director's Plan are terminated, the holder may exercise his
or her options that have vested as of the termination date only within the
period of time ending on the earlier of (1) the date 12 months (18 months if
the termination is as a result of the option holder's death) following the
termination of the holder's services or (2) the expiration of the term of the
option as set forth in the option agreement. All options granted under the
Directors' Plan are non-transferrable.
In the event of a merger of the Company with or into another corporation or
a consolidation, acquisition of assets or other change-in-control transaction
involving the Company, all outstanding options under the Directors' Plan shall
be assumed by the surviving entity or the surviving entity shall substitute
similar options for the outstanding options. If the surviving entity
determines not to assume the outstanding options or substitute similar options
therefor, then with respect to persons whose services with the Company has not
terminated prior to such change-in-control transaction, the vesting of the
options shall accelerate and the options terminated if not exercised prior to
such transaction.
During the last fiscal year, the Company granted options covering 35,364
shares to each non-employee director of the Company, at an exercise price per
share of $4.45 in the case of those granted in February 1999, and at an
exercise price per share of $6.95 in the case of one option granted in April
1999. The fair market value of such Common Stock on the date of each grant was
equal to the exercise price per share. As of April 14, 2000 no options had
been exercised under the Directors' Plan.
16
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
Summary of Compensation
The following table shows for the fiscal years ended December 31, 1998 and
1999, compensation awarded or paid to, or earned by: (i) the two individuals
who served as the Company's Chief Executive Officer during the fiscal year
ending December 31, 1999, and (ii) its other four most highly compensated
executive officers at December 31, 1999 (the "Named Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Compensation
Annual Compensation Awards
--------------------- ------------
Securities
Name and Principal Other Annual Underlying All Other
Position Year(1) Salary Compensation Options Compensation
------------------ ------ -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Peter Locke(2).......... 1999 -- -- 35,364(6) --
Director and (Former)
President 1998 -- -- -- $ 97,000(7)
C. Nicholas Keating,
Jr.(3)................. 1999 $225,962 -- 569,459 --
(Former) President and 1998 -- -- -- --
Chief Executive Officer
and (Former) Director
William G. Langley...... 1999 127,500 -- 175,915 --
Vice President and
Chief Financial Officer 1998 -- -- -- --
Robert J. Richards(4)... 1999 116,923 -- 175,915 --
(Former) Vice
President, Operations 1998 -- -- -- --
Nicholas Matzorkis(5)... 1999 175,481 -- -- 27,600(8)
Founder and Senior
Strategist 1998 127,460 -- -- 340,400(9)
Meg Shea-Chiles......... 1999 98,077 -- 175,915 --
Vice President,
Business Development 1998 -- -- -- --
</TABLE>
- --------
(1) The Company's Registration Statement on Form S-1 for its initial public
offering was declared effective by the Securities and Exchange Commission
in June 1999, and therefore, as permitted by the rules promulgated by the
Securities and Exchange Commission, no amounts are shown for the fiscal
year ending December 31, 1997.
(2) Mr. Locke, a director of the Company, served as its President from
September 1998 through February 1999. Compensation for his services as
President was paid as part of the amounts billed to the Company pursuant
to the Administrative Services Agreement between the Company and Kushner-
Locke dated July 1998. See "Certain Relationships and Related
Transactions."
(3) Mr. Keating served as the President and Chief Executive Officer and a
director of the Company from February 1999 through January 2000. Mr.
Keating's employment was terminated effective January 31, 2000. In
connection with such termination, Mr. Keating entered into a Separation
Agreement with the Company, providing for, among other things, the payment
of $250,000.00 as severance over twelve (12) months and the pro-rata share
of any bonus due for the period prior to the termination date, if any. In
addition, any and all unvested shares subject to Mr. Keating's options
vested in full as of February 1, 2000. The options held by Mr. Keating
expire and will no longer be exercisable 90 days after January 31, 2000.
See "Employment Agreements."
(4) Mr. Richards resigned from his position as Vice President, Operations of
the Company effective March 2000. The options held by Mr. Richards expire
and will no longer be exercisable 90 days after March 14, 2000.
(5) Mr. Matzorkis, a Founder and Senior Strategist of the Company, served as
its President and a director from the Company's inception in November 1994
through September 1998. Mr. Matzorkis entered into a 3-year
17
<PAGE>
employment agreement with the Company as of November 1997, and amended and
restated as of September 1998, which provides for, among other things, an
annual base compensation of $150,000, plus a $25,000 per year increase,
until the Company completed its initial public offering, at which time the
base compensation was increased to $175,000, with the same $25,000 annual
increases. See "Employment Agreements."
(6) This represents 35,364 shares underlying options granted to Mr. Locke as a
non-employee director in February 1999 under the Company's 1999 Non-
Employee Director Stock Option Plan.
(7) This amount represents the portion attributable to Mr. Locke's services
under the administrative services agreement between the Company and
Kushner-Locke.
(8) This amount includes (a) $6,000 paid to Mr. Matzorkis as an automobile
allowance, and (b) reimbursement to Mr. Matzorkis of $21,600 in interest
previously paid by him on a $296,000 note which was assumed by the Company
in September 1998.
(9) This amount includes (a) the assumption by the Company of Mr. Matzorkis'
obligations under a $296,000 note in connection with the September 1998
negotiation of the three year employment agreement and reimbursement to
Mr. Matzorkis of $7,200 in interest payments he previously made under the
note, (b) $10,000 paid to Mr. Matzorkis for the rights to music used in
the Company's advertisements, and (c) $27,200 for reimbursement of legal
expenses and automobile allowance.
Stock Option Grants And Exercises
The Company grants options to its executive officers under its Amended and
Restated 1998 Stock Incentive Plan, as amended. Subject to the stockholders'
approval of Proposal 2 to amend the Incentive Plan to increase the total
number of shares reserved for issuance, as of April 14, 2000, options to
purchase a total of 2,729,644 shares were outstanding under the Incentive Plan
and options to purchase 2,254,906 shares remained available for grant
thereunder.
The following tables show for the fiscal year ended December 31, 1999,
certain information regarding options granted to, exercised by, and held at
year end by, the Named Executive Officers:
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
------------------------------------------ Value at Assumed
Number of % of Total Annual Rates of Stock
Securities Options Price Appreciation
Underlying Granted to Exercise for Option Term(2)
Options Employees Price Per Expiration ---------------------
Granted in 1999(1) Share(3) Date 5% 10%
---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Peter Locke(4).......... -- -- -- -- -- --
C. Nicholas Keating,
Jr.(5)................. 569,459 35.79% $3.10 1/6/09 $5,191,592 $9,312,402
William G. Langley...... 175,915 11.06 $5.69 3/24/09 1,148,146 2,421,130
Robert J. Richards(6)... 175,915 11.06 $4.45 2/25/09 1,366,281 2,639,265
Nicholas Matzorkis...... -- -- -- -- -- --
Meg Shea-Chiles......... 175,915 11.06 $4.45 2/25/09 1,366,281 2,639,265
</TABLE>
- --------
(1) Based on an aggregate of options to purchase 1,591,025 shares of common
stock granted to employees of the Company during the fiscal year ending
December 31, 1999, including the Named Executive Officers.
(2) In order to comply with the rules of the Securities and Exchange
Commission, the gains or "option spreads" that would exist for the
respective options the Company has granted to the named executive officers
are included. The Company calculates these gains based upon the closing
price of our common stock on December 31, 1999 ($7.50) per share
appreciating at 5% and 10% compounded annually from the date of the option
grant until the termination date of the option. These gains do not
represent the Company's estimate or projection of the future common stock
price.
18
<PAGE>
(3) The exercise price of the options was equal to the fair market value of
the Company's common stock on the date of grant.
(4) Mr. Locke, a director of the Company, served as its President from
September 1998 through February 1999. This does not include 35,364 shares
underlying options granted to Mr. Locke as a non-employee director in
February 1999 pursuant to the Company's 1999 Non-Employee Director Stock
Option Plan. Such shares are subject to vesting as follows: one-third vest
on each of the 3 anniversaries of the date of grant.
(5) Mr. Keating served as the Company's President, Chief Executive Officer,
and one of its directors from February 1999 through January 2000. At the
time of grant, such shares were subject to vesting as follows: one-third
upon date of grant, one-third on the first anniversary of the date of
grant and one-third on the second anniversary of the date of grant. The
options would also vest immediately in the event Mr. Keating was
terminated without cause or in the event of a change in control of the
Company in connection with a sale of substantially all of our assets or a
merger. Mr. Keating's employment was terminated effective January 31,
2000. In connection with such termination, Mr. Keating entered into a
Separation Agreement with the Company providing for, among other things,
the payment of $250,000.00 as severance over twelve (12) months and the
pro-rata share of any bonus due for the period prior to the termination
date, if any. In addition, any and all unvested shares subject to Mr.
Keating's options vested in full as of February 1, 2000. The options held
by Mr. Keating expire and will no longer be exercisable 90 days after
January 31, 2000.
(6) Mr. Richards resigned from his position as Vice President, Operations of
the Company effective March 2000. The options held by Mr. Richards expire
and will no longer be exercisable 90 days after March 14, 2000.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Securities Value of In-the-Money
Underlying Options at Options at
Shares December 31, 1999 December 31, 1999(1)
Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter Locke(2).......... -- -- -- -- -- --
C. Nicholas Keating,
Jr..................... -- -- 189,820 379,639 $835,208 $1,670,412
William G. Langley...... -- -- -- 175,915 -- 318,406
Robert J. Richards...... -- -- -- 175,915 -- 536,541
Nicholas Matzorkis...... -- -- -- -- -- --
Meg Shea-Chiles......... -- -- -- 175,915 -- 536,541
</TABLE>
- --------
(1) The amount set forth represents the difference between the fair market
value of the underlying common stock as of December 31, 1999 ($7.50) and
the exercise price of the option, multiplied by the number of shares
underlying the option.
(2) Mr. Locke, a director of the Company, served as its President from
September 1998 through February 1999. This does not include 35,364 shares
underlying options granted to Mr. Locke as a non-employee director in
February 1999 pursuant to the Company's 1999 Non-Employee Director Stock
Option Plan. These shares are subject to vesting as follows: one-third
vest on each of the 3 anniversaries of the date of grant.
19
<PAGE>
EMPLOYMENT, SEVERANCE, AND CHANGE OF CONTROL AGREEMENTS
C. Nicholas Keating, Jr. entered into an employment agreement with the
Company effective February 1999 for the position of President and Chief
Executive Officer. The term of the employment agreement was one year and the
Company had the option to extend the agreement for an additional two year
term. The employment agreement provided for annual base compensation of
$250,000, in addition to stock options to purchase 569,459 shares of common
stock at an exercise price equal to $3.10 per share, which options were
subject to vesting as follows: one-third upon date of grant, one-third on the
first anniversary of the date of grant and one-third on the second anniversary
of the date of grant. The options would also vest immediately in the event
Mr. Keating was terminated without cause or in the event of a change in
control of the Company in connection with a sale of substantially all of our
assets or a merger. Mr. Keating's employment agreement also provided for an
annual performance bonus based on goals and objectives agreed upon by him and
the Board, a monthly housing allowance and a severance package in the event he
was terminated without cause. This severance package consisted of twelve
months base salary if terminated without cause during the first two years, or
if during the third year, base salary for the remainder of the third year.
On January 26, 2000 the Company informed Mr. Keating that it would not be
extending the term of this employment agreement and his employment was
terminated effective January 31, 2000. In connection with this termination and
in conformity to the terms of this employment agreement, Mr. Keating entered
into a Separation Agreement with the Company providing for, among other
things, the payment of $250,000.00 as severance over twelve (12) months and
the pro-rata share of any bonus due for the period prior to the termination
date, if any. In addition, any and all unvested shares subject to Mr.
Keating's options vested in full as of February 1, 2000. The options held by
Mr. Keating expire and will no longer be exercisable 90 days after January 31,
2000.
William G. Langley entered into an at-will employment agreement with the
Company effective March 1999 for the position of Vice President, Chief
Financial Officer. Mr. Langley may terminate his employment with the Company
at any time and for any reason, and the Company can terminate his employment
at any time and for any reasons, with or without cause or notice. The
employment agreement provides for annual base compensation of $170,000, in
addition to stock options to purchase 175,915 shares of common stock at an
exercise price equal to $5.69 per share, which options will vest one-fourth on
each of the four anniversaries of the date of grant. Mr. Langley's employment
agreement also provides for an annual performance bonus based on goals and
objectives agreed upon by him and the CEO, and a severance package in the
event he is terminated without cause. The severance package consists of six
months base salary if Mr. Langley is terminated without cause during the first
twelve months, or if terminated after the first twelve months, twelve months
base salary and a pro-rata share of any bonus due.
Robert J. Richards entered into an at-will employment agreement with the
Company effective April 1999 for the position of Vice President, Operations.
Mr. Richards could terminate his employment with the Company at any time and
for any reason, and the Company could terminate his employment at any time and
for any reasons, with or without cause or notice. The employment agreement
provided for annual base compensation of $160,000, in addition to stock
options to purchase 175,915 shares of common stock at an exercise price equal
to $4.45 per share, which options will vest one-fourth on each of the four
anniversaries of the date of grant. Mr. Richards' employment agreement also
provided for an annual performance bonus based on goals and objectives agreed
upon by him and the CEO, and a severance package in the event he is terminated
without cause. The severance package consisted of six months base salary if
Mr. Richards is terminated without cause during the first twelve months, or if
terminated after the first twelve months, twelve months base salary and a pro-
rata share of any bonus due. Robert J. Richards resigned from his position as
Vice President, Operations of the Company effective March 2000. The options
held by Mr. Richards expire and will no longer be exercisable 90 days after
March 14, 2000.
Meg Shea-Chiles entered into an at-will employment agreement with the
Company effective May 1999 for the position of Vice President, Business
Development. Ms. Shea-Chiles may terminate her employment with the Company at
any time and for any reason, and the Company can terminate her employment at
any time and for
20
<PAGE>
any reason, with or without cause or notice. The employment agreement provides
for base compensation of $150,000, in addition to stock options to purchase
175,915 shares of common stock at an exercise price equal to $4.45 per share,
which options will vest one-fourth on each of the four anniversaries of the
date of grant. Ms. Shea-Chile's employment agreement also provides for an
annual performance bonus based on goals and objectives agreed upon by her and
the CEO, and a severance package in the event she is terminated without cause.
The severance package consists of six months base salary if Ms. Shea-Chiles is
terminated without cause during the first twelve months, or if terminated
after the first twelve months, twelve months base salary and a pro-rata share
of any bonus due.
Nicholas Matzorkis entered into an employment agreement with the Company in
November 1997, as amended and restated effective September 1998. The term of
the employment agreement is three years, commencing in September 1998,
provided that the Company may terminate his employment at any time for cause.
The employment agreement provides for base compensation of $150,000 per year
for the first year, with annual increases of $25,000, until the Company
completed its initial public offering, at which time the base compensation for
the first year was increased to $175,000, with the same annual increases. Mr.
Matzorkis' title is "Founder," his duties include the position of Senior
Strategist. In addition, the Company agreed to pay the premiums on a $1.0
million life insurance policy on the life of Mr. Matzorkis, for the benefit of
Mr. Matzorkis' designated beneficiaries.
Brent N. Cohen entered into an at-will employment agreement with the
Company effective February 2000 for the position of President and Chief
Executive Officer, providing for, among other things, annual base compensation
of $400,000, and stock options to purchase 1,600,000 shares of Common Stock at
$8 3/8 per share, which options vest as follows: 160,000 shares on the date of
grant, 160,000 shares six months after the date of grant; 680,000 in equal
monthly installments for the next 30 months thereafter; an additional 300,000
shares will vest 3 years after the date of grant or when the closing price of
the Company's stock equals or exceeds $15.00 per share for 20 consecutive
days, whichever is earlier; and the final 300,000 shares will vest 3 years
after the date of grant or when the closing price of the Company's stock
equals or exceeds $25.00 per share for 20 consecutive days, whichever is
earlier. In addition, Mr. Cohen's agreement provides that in the event of a
change in control of the Company, any unvested shares subject to the option
will vest immediately. In addition, the agreement provides that in the event
of termination without cause during the first 12 months of employment, the
Company shall pay 12 months of base salary as severance, a pro-rata share of
any bonus due, and an additional 300,000 of unvested option shares shall
immediately vest beyond that number of shares that have vested, or would have
vested absent termination, as of February 2, 2001. In the event of termination
without cause after the first 12 months of employment, the Company shall pay
base salary for the remainder of the term of employment or 12 months,
whichever is greater; any bonus for the remainder of the term of employment or
12 months, whichever is greater; and any unvested options shares shall vest
immediately. In addition, the agreement provides that Mr. Cohen will be
appointed Chairman of the Board on the first anniversary or when the closing
price of the Company's stock exceeds $25.00 for 20 consecutive trading days,
whichever is earlier.
21
<PAGE>
REPORT OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION(1)
The Compensation Committee of the Board of Directors (the "Committee") is
composed of two or more non-employee directors. The Committee is responsible
for determining salaries, incentive compensation, and awarding stock options
for our employees and officers and establish policies governing our stock
programs. The Committee was formed in March 1999 and it did not meet during
the fiscal year ended December 31, 1999. The determination of executive
compensation, stock options grants and compensation policies for the year
ended December 31, 1999 was made by the Company's Board of Directors.
Compensation Policy
The goals of the compensation program are to align compensation with
business objectives and performance and to enable the Company to attract,
retain and award the highest quality officers and key employees. The key
elements of this policy are:
. The Company pays competitively with leading providers of Internet based
products and services with which the Company competes for talent.
. The Company provides significant equity-based incentives for executives
and employees to ensure that they are motivated over the long-term to
respond to the Company's business challenges and opportunities as owners
and not just as employees and to emphasize the link between executive
incentives and the creation of stockholder value as measured by the
equity markets.
. The Company awards executives and key employees who contribute to the
Company's progress and long-term success.
Base Salary and Long-Term Incentives for Executives
The compensation policies of the Board with respect to executive officers,
including the CEO, are to provide compensation sufficient to attract, motivate
and retain executives of outstanding ability and potential and to establish an
appropriate relationship between executive compensation and the creation of
stockholder value.
The Company's former CEO, C. Nicholas Keating, and three of the other
executive officers were hired in 1999 and prior to the Company's IPO which was
completed in June 1999. Each of these officers entered into employment
agreements after arms length negotiations with the Board of Directors. Each
executive's annual base compensation, stock option grant, vesting and
severance provisions under the employment agreements was established by the
Board based on the determination of several factors, including, executive's
prior experience, levels of responsibility, competitive pay practices and the
necessity to attract qualified executives that could contribute to the
Company's progress and long-term success.
In general, the annual base compensation and stock options awarded to
executive officers in 1999 were not determined by the Company's achievement of
specific corporate performance criteria but rather a subjective evaluation of
the executive's ability to contribute to the Company's success especially as
the Company prepared for and completed its initial public offering and planned
for the expansion of its operations and infrastructure. In awarding stock
options, the Board considered each executive's prior experience, overall
ability to contribute to the Company's long-term success, officer retention,
and the total number of stock options to be awarded. In general, payment of
bonuses is based on performance and attainment of specific corporate goals. In
1999, no bonuses were awarded to executive officers.
Brent N. Cohen was hired in February 2000 to serve as the Company's new
President and Chief Executive Officer. In connection with Mr. Cohen's
employment, the Company's Board of Directors negotiated an employment
agreement that provides for, among other things, annual base compensation of
$400,000 and stock options to purchase 1,600,000 shares of Common Stock at the
exercise per share of $8 3/8. The substantial majority of the stock options
granted to Mr. Cohen, 1,440,000 shares, are subject to vesting over a period
of
22
<PAGE>
three years from the date of the grant. Notwithstanding the vesting period, if
the Company's common stock price equals or exceeds $15 per share for 20
consecutive days, 300,000 shares under the option will be immediately vested.
An additional 300,000 shares under the option will be immediately vested if
the Company's common stock price equals or exceeds $25 per share for 20
consecutive days.
In negotiating Mr. Cohen's employment agreement and establishing the
compensation amounts and stock grants, the Board took into account (i) Mr.
Cohen's significant and broad-based experience in the computer and consumer
technology industry; (ii) the scope of Mr. Cohen's responsibility and the
Board's confidence in Mr. Cohen's ability to manage the expansion and growth
of the Company's services and product offerings especially those intended for
the corporate and professional markets; (iii) the need to attract a seasoned
executive that could manage the Company's operational activities as a public
company; and (iv) close alignment of Mr. Cohen's compensation package, stock
awards and related vesting to creation of stockholder value and increases in
the Company's stock price.
Section 162(m) of the Internal Revenue Code (the "Code") limits the Company
to a deduction for federal income tax purposes of no more than $1 million of
compensation paid to certain named executive officers in a taxable year.
Compensation above $1 million may be deducted if it is "performance-based
compensation" within the meaning of the Code. The Compensation Committee has
not yet established a policy for determining which forms of incentive
compensation awarded to its named executive officers shall be designed to
qualify as "performance-based compensation."
From the members of the Board of Directors:
Harry B. Chandler
Brent N. Cohen
Donald Kushner
Peter Locke
Alan C. Mendelson
Nicholas Rockefeller
- --------
(1) The material in this report is not "soliciting material," is not deemed
"filed" with the SEC and is not to be incorporated by reference in any
filing of the Company under the 1933 Act or the 1934 Act whether made
before or after the date hereof and irrespective of any general
incorporation language in any such filing.
23
<PAGE>
Compensation Committee Interlocks and Insider Participation
As noted above, the Company's compensation committee consists of Mr. Locke
and Mr. Rockefeller. In addition, prior to his resignation from the Board in
September 1999, Mr. Pillar was a member of the compensation committee. Mr.
Locke was President of the Company from September 1998 through February 1999.
Mr. Locke is Co-Chairman, Co-Chief Executive Officer and Director of The
Kushner-Locke Company, a controlling stockholder of the Company ("Kushner-
Locke"). Prior to the formation of the Compensation Committee, all decisions
regarding compensation for directors, officers, employees and consultants and
administration of stock and incentive plans were made solely by the Board of
Directors.
In September 1998, the Company granted to Kushner-Locke a warrant to
purchase up to 453,391 shares of common stock at an aggregate exercise price
of approximately $5.00 in consideration for (1) advances of capital to the
Company by Kushner-Locke, (2) administrative services provided by Kushner-
Locke and (3) provision of guarantees. These warrants were exercised in full
in connection with the closing of the Company's initial public offering in
June 1999.
In January 1999, the Company issued a convertible subordinated note to
Kushner-Locke. Under the convertible subordinated note, Kushner-Locke agreed
to provide US SEARCH advances of up to $5.5 million, bearing interest at a
rate of 10% per annum. The entire outstanding principal amount and any accrued
interest under the convertible subordinated note were converted into shares of
the Company's common stock at a rate of approximately one share of common
stock for each $2.21 owed under the convertible subordinated note in
connection with the closing of the Company's initial public offering in June
1999. The convertible subordinated note included a 10% origination fee payable
to Kushner-Locke based upon the total amount borrowed under the convertible
subordinated note.
In January 1999, in connection with the convertible subordinated note, the
Company granted to Kushner-Locke a warrant to purchase up to 906,782 shares of
common stock. One-half of the shares granted were at an exercise price of
$2.76 per share, and the remaining half of the shares were at an exercise
price of $3.31 per share. The warrants were exercised in full in connection
with the closing of the Company's initial public offering in June 1999.
In June 1999, the Company received an additional $200,000 from Kushner-
Locke in the form of advances.
In June 1998, the Company became a guarantor of Kushner-Locke's $60 million
Credit, Security, Guaranty and Pledge Agreement (the "credit facility") with
The Chase Manhattan Bank ("Chase"). In connection with the credit facility,
the Company granted Chase a security interest in all of its assets. Chase also
has a security interest in the common stock of the Company held by Kushner-
Locke. The credit facility was amended in May 1999 to release the Company from
its obligations under this credit facility and to release the common stock of
the Company held by Kushner-Locke and the assets of the Company from the
security interest. This release became effective in June 1999 when the
registration statement relating to the Company's initial public offering was
declared effective by the Securities and Exchange Commission.
Effective July 1998, the Company and Kushner-Locke entered into an
Administrative Services Agreement, under which Kushner-Locke provided
administrative services to US SEARCH, including human resources, legal
services, accounting services and management services, as well as the services
of Peter Locke and Donald Kushner. This agreement terminated on June 30, 1999.
In connection with this agreement, the Company paid Kushner-Locke a monthly
fee of $35,000.
Effective February 1998, Kushner-Locke retained Alan Mazursky to provide
consulting services to Kushner-Locke for a minimum six month term at a rate of
$13,100 per month. From May 1998 through July 1998, Kushner-Locke provided Mr.
Mazursky's services to the Company as a financial consultant. From August 1998
through May 1999, Mr. Mazursky's services to the Company were provided as part
of his duties as an employee of Kushner-Locke under the Administrative
Services Agreement.
24
<PAGE>
On June 30, 1999, The Kushner-Locke Company sold 1,500,000 shares of Common
Stock of the Company as a selling stockholder in connection with the Company's
initial public offering.
In September 1998, Mr. Matzorkis and Kushner-Locke entered into a
stockholders' agreement in which Mr. Matzorkis agreed to transfer his shares
of common stock to an irrevocable trust administered and controlled solely by
an independent trustee. In March 1999, the SHMNM Investment Trust was
established pursuant to such stockholders' agreement. The beneficiary of The
SHMNM Investment Trust is Susan Hanle, Mr. Matzorkis' spouse. The provisions
relating to the administration and control of the trust shall terminate on the
fifth anniversary date of the completion of the Company's initial public
offering. Nicholas Rockefeller, the trustee of The SHMNM Investment Trust, is
a member of the Board of Directors of the Company began serving as the
director designated by the trust pursuant to such stockholders' agreement.
Kushner-Locke agreed to vote all shares held by Kushner-Locke in favor of one
director, subject to various conditions, nominated by the trust, and the trust
agreed to vote all shares held by the trust in favor of three directors
nominated by Kushner-Locke. The provisions with respect to designation and
voting for directors, as well as other provisions relating to voting
agreement, tag-along rights, and drag-along rights set forth in the
stockholders' agreement terminated automatically in June 1999 upon completion
of the Company's initial public offering.
On February 18, 1999, the Company, Mr. Matzorkis and Kushner-Locke entered
into a General Release in which, subject to certain conditions, Mr. Matzorkis
delivered a general release on behalf of himself and his associated parties in
favor of the Company, Kushner-Locke and their associated parties in exchange
for a general release from the Company, Kushner-Locke and their associated
parties, a payment from the Company to Mr. Matzorkis of $25,000 for
reimbursement of certain legal expenses and a grant from Kushner-Locke of an
option to purchase 45,000 shares of common stock of Kushner-Locke. On March 9,
1999, the Company, Mr. Matzorkis, The SHMNM Investment Trust, Susan Hanle, and
Kushner-Locke entered into an Amendment to the General Release entered into on
February 18, 1999 to add The SHMNM Investment Trust and Susan Hanle as parties
to the General Release.
C. Nicholas Keating, Jr. entered into an employment agreement with the
Company effective February 1999 for the position of President and Chief
Executive Officer. The term of the employment agreement was one year and the
Company had the option to extend the agreement for an additional two year
term. The employment agreement provided for annual base compensation of
$250,000, in addition to stock options to purchase 569,459 shares of common
stock at an exercise price equal to $3.10 per share, which options were
subject to vesting as follows: one-third upon date of grant, one-third on the
first anniversary of the date of grant and one-third on the second anniversary
of the date of grant. The options would also vest immediately in the event
Mr. Keating was terminated without cause or in the event of a change in
control of the Company in connection with a sale of substantially all of our
assets or a merger. Mr. Keating's employment agreement also provided for an
annual performance bonus based on goals and objectives agreed upon by him and
the Board, a monthly housing allowance and a severance package in the event he
was terminated without cause. This severance package consisted of twelve
months base salary if terminated without cause during the first two years, or
if during the third year, base salary for the remainder of the third year.
On January 26, 2000 the Company informed Mr. Keating that it would not be
extending the term of this employment agreement and his employment was
terminated effective January 31, 2000. In connection with this termination and
in conformity to the terms of this employment agreement, Mr. Keating entered
into a Separation Agreement with the Company providing for, among other
things, the payment of $250,000.00 as severance over twelve (12) months and
the pro-rata share of any bonus due for the period prior to the termination
date, if any. In addition, any and all unvested shares subject to Mr.
Keating's options vested in full as of February 1, 2000. The options held by
Mr. Keating expire and will no longer be exercisable 90 days after January 31,
2000.
25
<PAGE>
Performance Measurement Comparison(1)
The following graph shows the total stockholder return of an investment of
$100 in cash on June 25, 1999 for (i) the Company's Common Stock, (ii) the
Nasdaq Stock Market (U.S.) Index and (iii) the Chase H&Q Internet 100 Index.
All values assume reinvestment of the full amount of all dividends and are
calculated as of December 31 of each year:
COMPARISON OF 6 MONTH CUMULATIVE TOTAL RETURN*
among US Search.com, Inc., the Nasdaq Stock Market (U.S.) Index and
the Chase H&Q Internet 100 Index
CUMULATIVE TOTAL RETURN
AMONG US SEARCH COM. INC., NASDAQ STOCK MARKET (U.S.)
CHASE H&Q INTERNET 100
<TABLE>
<CAPTION>
Measurement Period US SEARCH NASDAQ STOCK CHASE H&Q
(Fiscal Year Covered) COM. INC. MARKET (U.S.) INTERNET 100
- --------------------- ---------- ------------- ------------
<S> <C> <C> <C>
Measurement Pt- 6/25/99 $100.00 $100.00 $100.00
FYE 6/99 $115.32 $105.41 $112.54
FYE 7/99 $156.76 $103.54 $ 99.27
FYE 8/99 $114.41 $107.87 $104.50
FYE 9/99 $141.44 $107.96 $115.68
FYE 10/99 $110.81 $116.39 $127.91
FYE 11/99 $110.82 $129.99 $161.21
FYE 12/99 $108.11 $159.06 $223.94
</TABLE>
- --------
* $100 invested on 6/25/99 in stock or index, including reinvestment of
dividends. Fiscal year ending December 31.
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the
Company under the 1933 Act or the 1934 Act whether made before or after
the date hereof and irrespective of any general incorporation language in
any such filing.
26
<PAGE>
CERTAIN TRANSACTIONS
In September 1998, the Company granted to Kushner-Locke a warrant to
purchase up to 453,391 shares of common stock at an aggregate exercise price
of approximately $5.00 in consideration for (1) advances of capital to the
Company by Kushner-Locke, (2) administrative services provided by Kushner-
Locke and (3) provision of guarantees. These warrants were exercised in full
in connection with the closing of the Company's initial public offering in
June 1999.
In January 1999, the Company issued a convertible subordinated note to
Kushner-Locke. Under the convertible subordinated note, Kushner-Locke agreed
to provide US SEARCH advances of up to $5.5 million, bearing interest at a
rate of 10% per annum. The entire outstanding principal amount and any accrued
interest under the convertible subordinated note were converted into shares of
the Company's common stock at a rate of approximately one share of common
stock for each $2.21 owed under the convertible subordinated note in
connection with the closing of the Company's initial public offering in June
1999. The convertible subordinated note included a 10% origination fee payable
to Kushner-Locke based upon the total amount borrowed under the convertible
subordinated note.
In January 1999, in connection with the convertible subordinated note, the
Company granted to Kushner-Locke a warrant to purchase up to 906,782 shares of
common stock. One-half of the shares granted were at an exercise price of
$2.76 per share, and the remaining half of the shares were at an exercise
price of $3.31 per share. The warrants were exercised in full in connection
with the closing of the Company's initial public offering in June 1999.
In June 1999, the Company received an additional $200,000 from Kushner-
Locke in the form of advances.
In June 1998, the Company became a guarantor of Kushner-Locke's $60 million
Credit, Security, Guaranty and Pledge Agreement (the "credit facility") with
The Chase Manhattan Bank ("Chase"). In connection with the credit facility,
the Company granted Chase a security interest in all of its assets. Chase also
has a security interest in the common stock of the Company held by Kushner-
Locke. The credit facility was amended in May 1999 to release the Company from
its obligations under this credit facility and to release the common stock of
the Company held by Kushner-Locke and the assets of the Company from the
security interest. This release became effective in June 1999 when the
registration statement relating to the Company's initial public offering was
declared effective by the Securities and Exchange Commission.
Effective July 1998, the Company and Kushner-Locke entered into an
Administrative Services Agreement, under which Kushner-Locke provided
administrative services to US SEARCH, including human resources, legal
services, accounting services and management services, as well as the services
of Peter Locke and Donald Kushner. This agreement terminated on June 30, 1999.
In connection with this agreement, the Company paid Kushner-Locke a monthly
fee of $35,000.
Effective February 1998, Kushner-Locke retained Alan Mazursky to provide
consulting services to Kushner-Locke for a minimum six month term at a rate of
$13,100 per month. From May 1998 through July 1998, Kushner-Locke provided Mr.
Mazursky's services to the Company as a financial consultant. From August 1998
through May 1999, Mr. Mazursky's services to the Company were provided as part
of his duties as an employee of Kushner-Locke under the Administrative
Services Agreement.
On June 30, 1999, The Kushner-Locke Company sold 1,500,000 shares of Common
Stock of the Company as a selling stockholder in connection with the Company's
initial public offering.
In September 1998, Mr. Matzorkis and Kushner-Locke entered into a
stockholders' agreement in which Mr. Matzorkis agreed to transfer his shares
of common stock to an irrevocable trust administered and controlled solely by
an independent trustee. In March 1999, the SHMNM Investment Trust was
established pursuant to such stockholders' agreement. The beneficiary of The
SHMNM Investment Trust is Susan Hanle, Mr. Matzorkis' spouse. The provisions
relating to the administration and control of the trust shall terminate on the
fifth
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anniversary date of the completion of the Company's initial public offering.
Nicholas Rockefeller, the trustee of The SHMNM Investment Trust, is a member
of the Board of Directors of the Company began serving as the director
designated by the trust pursuant to such stockholders' agreement. Kushner-
Locke agreed to vote all shares held by Kushner-Locke in favor of one
director, subject to various conditions, nominated by the trust, and the trust
agreed to vote all shares held by the trust in favor of three directors
nominated by Kushner-Locke. The provisions with respect to designation and
voting for directors, as well as other provisions relating to voting
agreement, tag-along rights, and drag-along rights set forth in the
stockholders' agreement terminated automatically in June 1999 upon completion
of the Company's initial public offering.
On February 18, 1999, the Company, Mr. Matzorkis and Kushner-Locke entered
into a General Release in which, subject to certain conditions, Mr. Matzorkis
delivered a general release on behalf of himself and his associated parties in
favor of the Company, Kushner-Locke and their associated parties in exchange
for a general release from the Company, Kushner-Locke and their associated
parties, a payment from the Company to Mr. Matzorkis of $25,000 for
reimbursement of certain legal expenses and a grant from Kushner-Locke of an
option to purchase 45,000 shares of common stock of Kushner-Locke. On March 9,
1999, the Company, Mr. Matzorkis, The SHMNM Investment Trust, Susan Hanle, and
Kushner-Locke entered into an Amendment to the General Release entered into on
February 18, 1999 to add The SHMNM Investment Trust and Susan Hanle as parties
to the General Release.
Mr. Mendelson, a director of the Company, is a senior partner of Cooley
Godward LLP, a law firm which was retained by the Company in 1999 and
continues to be retained by the Company. The legal fees paid by the Company to
Cooley Godward LLP did not exceed 5% of the law firm's gross revenues for
1999.
Mr. Rockefeller, a director of the Company, is an attorney with Troop
Meisinger Steuber Pasich Reddick & Tobey, LLP, a law firm which was retained
by the Company in 1999. The legal fees paid by the Company to Troop Meisinger
Steuber Pasich Reddick & Tobey, LLP did not exceed 5% of the law firm's gross
revenues for 1999.
The Company has entered into indemnity agreements with certain officers and
directors which provide, among other things, that the Company will indemnify
such officer or director, under the circumstances and to the extent provided
for therein, for expenses, damages, judgments, fines and settlements he may be
required to pay in actions or proceedings which he is or may be made a party
be reason of his position as a director, officer or other agent of the
Company, and otherwise to the full extent permitted under Delaware law and the
Company's Bylaws.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment.
By Order of the Board of Directors
/s/ Karol Pollock
Karol Pollock
Secretary
April 28, 2000
A copy of the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year ended December 31, 1999 is
available without charge upon written request to: Karol Pollock, Secretary, US
SEARCH.com Inc., 5401 Beethoven Street, Los Angeles, CA 90066.
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EXHIBIT A
U.S. SEARCH.COM INC.
AMENDED AND RESTATED
1998 STOCK INCENTIVE PLAN
<TABLE>
<C> <S>
Amendment and Restatement: approved by Board on February 26, 1999
approved by Stockholders on April 8, 1999
approved by Board on January 31, 2000 and April
Amendment and Restatement: 18, 2000
approved by Stockholders on
reincorporation into Delaware effective June 21,
Also Revised to Reflect: 1999
906.782 for 1 stock split (via dividend)
effective June 22, 1999
</TABLE>
1. DEFINITIONS.
1.1 Definitions.
(a) "Award" shall mean an Option, which may be designated as a Nonqualified
Stock Option or an Incentive Stock Option, a Stock Appreciation Right, a
Restricted Stock Award or Performance Share Award, in each case granted under
this Plan.
(b) "Award Agreement" shall mean a written agreement setting forth the
terms of an Award.
(c) "Award Date" shall mean the date upon which the Committee took the
action or committed to take the action granting an Award or such later date as
is prescribed by the Committee.
(d) "Award Period" shall mean the period beginning on an Award Date and
ending on the expiration date of such Award.
(e) "Beneficiary" shall mean the person, persons, trust or trusts entitled
by will or the laws of descent and distribution to receive the benefits
specified under this Plan in the event of a Participant's death.
(f) "Board" shall mean the Board of Directors of the Corporation.
(g) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(h) "Commission" shall mean the Securities and Exchange Commission.
(i) "Committee" shall mean either the committee appointed by the Board,
consisting of two or more members, each of whom is a Non-Employee Director, or
the entire Board if each member is a Non-Employee Director (except as
otherwise permitted under Rule 16b-3 promulgated under the Exchange Act),
provided that, if there are two or more members of the Board who are "outside
directors," within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder, then the Committee shall consist of only
such members.
(j) "Common Stock" shall mean the Common Stock of the Corporation.
(k) "Company" shall mean, collectively, the Corporation and its
Subsidiaries.
(l) "Corporation" shall mean US SEARCH.com Inc., a Delaware corporation,
and its successors.
(m) "Eligible Person" shall mean an employee, director, officer, key
employee of the Company or any other person who, in the opinion of the board,
is rendering valuable services to the Company, including without limitation an
independent contractor, outside consultant or advisor to the Company.
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(n) "Event" shall mean any of the following:
(1) Approval by the shareholders of the Corporation of the dissolution
or liquidation of the Corporation;
(2) Approval by the shareholders of the Corporation of an agreement to
merge or consolidate, or otherwise reorganize, with or into one or more
entities which are not Subsidiaries, as a result of which less than 50% of
the outstanding voting securities of the surviving or resulting entity are,
or are to be, owned by former shareholders of the Corporation;
(3) Approval by the shareholders of the Corporation of the sale of
substantially all of the Corporation's business and/or assets to a person
or entity which is not a Subsidiary; or
(4) A Change in Control. A "Change in Control" shall be deemed to have
occurred if (A) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than The Kushner-Locke Company, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Corporation representing
30% or more of the combined voting power of the Corporation's then
outstanding securities; or (B) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board cease
for any reason to constitute at least a majority thereof, unless the
election, or nomination for election by the Corporation's shareholders, of
each new Board member was approved by a vote of at least three-fourths of
the Board members then still in office who were Board members at the
beginning of such period.
(o) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(p) "Fair Market Value" shall mean (i) if the stock is listed or admitted
to trade on a national securities exchange, the closing price of the stock on
the Composite Tape, as published in the Western Edition of The Wall Street
Journal, of the principal national securities exchange on which the stock is
so listed or admitted to trade, on such date, or, if there is no trading of
the stock on such date, then the closing price of the stock as quoted on such
Composite Tape on the next preceding date on which there was trading in such
shares; (ii) if the stock is not listed or admitted to trade on a national
securities exchange, the last price for the stock on such date, as furnished
by the National Association of Securities Dealers, Inc. ("NASD") through the
NASDAQ National Market Reporting System or a similar organization if the NASD
is no longer reporting such information; (iii) if the stock is not listed or
admitted to trade on a national securities exchange and is not reported on the
National Market Report System, the mean between the closing bid and asked
price for the stock on such date, as furnished by the NASD; (iv) if the stock
is not listed or admitted to trade on a national securities exchange, is not
reported on the National Market Reporting System and if bid and asked prices
for the stock are not furnished by the NASD or a similar organization, the
values established by the Committee for purposes of granting Options under the
Plan.
(q) "Non-Employee Director" shall mean a Non-Employee Director within the
meaning of the applicable regulatory requirements promulgated under Section 16
of the Exchange Act as in effect from time to time.
(r) "Incentive Stock Option" shall mean an option which is designated as an
incentive stock option within the meaning of Section 422 of the Code, the
award of which contains such provisions as are necessary to comply with that
section.
(s) "Listing Date" shall mean the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.
(t) "Nonqualified Stock Option" shall mean an option which is not
designated as an Incentive Stock Option.
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(u) "Option" shall mean an option to purchase Common Stock under this Plan.
An Option shall be designated by the Committee as a Nonqualified Stock Option
or an Incentive Stock Option.
(v) "Participant" shall mean an Eligible Person, who has been awarded an
Award.
(w) "Performance Share Award" shall mean an award of shares of Common
Stock, issuance of which is contingent upon attainment of performance
objectives specified by the Committee.
(x) "Personal Representative" shall mean the person or persons who, upon
the disability or incompetence of a Participant, shall have acquired on behalf
of the Participant by legal proceeding or otherwise the power to exercise the
rights and receive the benefits specified in this Plan.
(y) "Plan" shall mean the US SEARCH.com Inc. Company 1998 Stock Incentive
Plan as in effect from time to time.
(z) "Restricted Stock" shall mean those shares of Common Stock issued
pursuant to a Restricted Stock Award which are subject to the restrictions set
forth in the related Award Agreement.
(aa) "Restricted Stock Award" shall mean an award of a fixed number of
shares of Common Stock to the Participant subject, however, to payment of such
consideration, if any, and such forfeiture provisions, as are set forth in the
Award Agreement.
(bb) "Retirement" shall mean retirement as defined in termination of
employment with the Company pursuant to the Company's retirement policy, as in
effect from time to time.
(cc) "Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
(dd) "Stock Appreciation Right" shall mean a right to receive a number of
shares of Common Stock or an amount of cash, or a combination of shares and
cash, determined as provided in Section 4.3(a).
(ee) "Subsidiary" shall mean any corporation or other entity a majority or
more of whose outstanding voting stock or voting power is beneficially owned
directly or indirectly by the Corporation.
(ff) "Tax-Offset Bonus" shall mean a bonus payable pursuant to a
disqualifying disposition of Common Stock acquired pursuant to the exercise of
an Incentive Stock Option, determined as provided in Section 3.6.
(gg) "Ten-Percent Shareholder" shall mean an individual who, at the time an
Incentive Stock Options is granted, owns stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
Corporation or of its parent or subsidiary corporation, within the meaning of
Section 422 of the Code.
(hh) "Total Disability" shall mean a "permanent and total disability"
within the meaning of Section 22(e)(3) of the Code.
2. THE PLAN.
2.1 Purpose. The purpose of this Plan is to promote the success of the
Company by providing an additional means to attract and retain key personnel
through added long term incentives for high levels of performance and for
significant efforts to improve the financial performance of the Company by
granting Awards.
2.2 Administration.
(a) This Plan shall be administered by the Committee. Action of the
Committee with respect to the administration of this Plan shall be taken
pursuant to a majority vote or the written consent of a majority of its
members. In the event action by the Committee is taken by written consent, the
action shall be deemed to have been taken at the time specified in the consent
or, if none is specified, at the time of the last signature. The
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Committee may delegate administrative functions to individuals who are
officers or employees of the Company (other than functions which are required
to be performed by the Committee pursuant to regulations promulgated under
Section 16 of the Exchange Act or Section 162(m) of the Code and the
regulations promulgated thereunder).
(b) Subject to the express provisions of this Plan, the Committee shall
have the authority to construe and interpret this Plan and any agreements
defining the rights and obligations of the Company and Participants under this
Plan, to further define the terms used in this Plan, to prescribe, amend and
rescind rules and regulations relating to the administration of this Plan, to
determine the duration and purposes of leaves of absence which may be granted
to Participants without constituting a termination of their employment for
purposes of this Plan and to make all other determinations necessary or
advisable for the administration of this Plan. The determinations of the
Committee on the foregoing matters shall be conclusive.
(c) Any action taken by, or inaction of, the Corporation, any Subsidiary,
the Board or the Committee relating to this Plan shall be within the absolute
discretion of that entity or body and shall be conclusive and binding upon all
persons. No member of the Board or Committee, or officer of the Corporation or
Subsidiary, shall be liable for any such action or inaction of the entity or
body, of another person or, except in circumstances involving bad faith, of
himself or herself. Subject only to compliance with the express provisions
hereof, the Board and Committee may act in their absolute discretion in
matters related to this Plan.
(d) Subject to the requirements of Section 1.1(i), the Board, at any time
it so desires, may increase or decrease the number of members of the
Committee, may remove from membership on the Committee all or any portion of
its members, and may appoint such person or persons as it desires to fill any
vacancy existing on the Committee, whether caused by removal, resignation or
otherwise.
2.3 Participation. Awards may be granted only to Eligible Persons. An
Eligible Person who has been granted an Award may, if otherwise eligible, be
granted additional Awards if the Committee shall so determine.
2.4 Stock Subject to the Plan. The stock to be offered under this Plan
shall be shares of the Corporation's authorized but unissued Common Stock. The
aggregate amount of Common Stock that may be issued or transferred pursuant to
Awards granted under this Plan shall not exceed 5,500,650 shares, subject to
adjustment as set forth in Section 7.2. If any Option and any related Stock
Appreciation Right shall lapse or terminate without having been exercised in
full, or any Common Stock subject to a Restricted Stock Award shall not vest
or any Common Stock subject to a Performance Share Award shall not have been
transferred, the unpurchased shares subject thereto shall again be available
for purposes of this Plan; provided, however, that the counting of shares
subject to Awards granted under this Plan against the number of shares
available for further Awards shall in all cases conform to the requirements of
Rule 16b-3 under the Exchange Act; and provided, further, that with respect to
any Option and any Stock Appreciation Right granted to any Eligible Person who
is a "covered employee," as defined in Section 162(m) of the Code and the
regulations promulgated thereunder, that is canceled, the number of shares
subject to such Option and Stock Appreciation Right shall continue to count
against the maximum number of shares which may be the subject of Options and
Stock Appreciation Rights granted to such Eligible Person. For purposes of the
preceding sentence, if, after the grant, the exercise price of an Option
and/or the base amount of any Stock Appreciation Rights is reduced, such
reduction shall be treated as a cancellation of such Option and Stock
Appreciation Right, and the grant of a new Option and Stock Appreciation
Right, as applicable, and both such deemed cancellation and grant shall reduce
the maximum number of shares for which Options and Stock Appreciation Rights
may be granted to the holder of such Option and Stock Appreciation Right, to
the extent required by Section 162(m) of the Code and the regulations
promulgated thereunder.
2.5 Grant of Awards. Subject to the express provisions of the Plan, and
subject to disapproval by the Board, the Committee shall determine from the
class of Eligible Persons those individuals to whom Awards under the Plan
shall be granted, the terms of Awards (which need not be identical) and the
number of shares of Common Stock subject to each Award; provided, however,
that no Eligible Person may be granted Options and
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Stock Appreciation Rights relating in the aggregate to more than 1,813,564
shares of Common Stock (subject to adjustment as provided in Section 7.2) in
any one year period; and provided, further, that any shares of Common Stock
relating to Stock Appreciation Rights granted concurrently with one or more
Options in accordance with Section 4.1 shall only be counted once for purposes
of such limit. Each Award shall be subject to the terms and conditions set
forth in the Plan and such other terms and conditions established by the
Committee as are not inconsistent with the purpose and provisions of the Plan.
The grant of an Award is made on the Award Date.
2.6 Exercise of Awards. An option or Stock Appreciation Right shall be
deemed to be exercised when the Secretary of the Corporation receives written
notice of such exercise from the Participant, together with payment of the
purchase price made in accordance with Section 3.2(a), except to the extent
payment may be permitted to be made following delivery of written notice of
exercise in accordance with Section 3.2(b). Notwithstanding any other
provision of this Plan, the Committee may impose, by rule and in Award
Agreements, such conditions upon the exercise of Awards (including, without
limitation, conditions limiting the time of exercise to specified periods) as
may be required to satisfy applicable regulatory requirements, including
without limitation Rule 16b-3 (or any successor rule) promulgated by the
Commission pursuant to the Exchange Act.
3. OPTIONS.
3.1 Grants. One or more Options may be granted to any Eligible Person. Each
Option so granted shall be designated by the Committee as either a
Nonqualified Stock Option or an Incentive Stock Option.
3.2 Option Price.
(a) The purchase price per share of the Common Stock covered by each Option
shall be determined by the Committee, but in the case of Incentive Stock
Options shall not be less than 100% (110% in the case of a Ten Percent
Shareholder) of the Fair Market Value of the Common Stock on the date the
Incentive Stock Option is granted. The purchase price of any shares purchased
shall be paid in full at the time of each purchase in one or a combination of
the following methods: (i) in cash, or by certified or cashier's check payable
to the order of the Corporation, (ii) if authorized by the Committee or
specified in the Option being exercised, by a promissory note made by the
Participant in favor of the Corporation, upon the terms and conditions
determined by the Committee but at a rate of interest at least equal to the
imputed interest specified under Section 483 or Section 1274, whichever is
applicable, of the Code, and secured by the Common Stock issuable upon
exercise in compliance with applicable law (including, without limitation,
state corporate law and federal margin requirements), or (iii) by shares of
Common Stock of the Corporation already owned by the Participant. Shares of
Common Stock used to satisfy the exercise price of an Option shall be valued
at their Fair Market Value on the date of exercise.
(b) In addition to the payment methods described in subsection (a), the
Option may provide that the Option can be exercised and payment made by
delivering a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Corporation the amount of
sale or loan proceeds necessary to pay the exercise price and, unless
otherwise allowed by the Committee, any applicable tax withholding under
Section 7.6. The Corporation shall not be obligated to deliver certificates
for the shares unless and until it receives full payment of the exercise price
therefor.
3.3 Option Period. Each Option and all rights or obligations thereunder
shall expire on such date as shall be determined by the Committee, but not
later than 10 years after the Award Date of an Incentive Stock Option (five
years in the case of an Incentive Stock Option granted to a Ten Percent
Shareholder) or 10 years and one day after the Award Date of a Nonqualified
Stock Option, and shall be subject to earlier termination as hereinafter
provided.
3.4 Exercise of Options. Except as otherwise provided in Section 7.4, an
Option may become exercisable, in whole or in part, on the date or dates
specified in the Award Agreement and thereafter shall remain exercisable until
the expiration or earlier termination of the Participant's Option. The
Committee may, at any time after grant of the Option and from time to time,
increase the number of shares purchasable at any time so long as the total
number of shares subject to the Option is not increased. No Option shall be
exercisable except
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in respect of whole shares, and fractional share interests shall be
disregarded. Not less than 10 shares of Common Stock may be purchased at one
time unless the number purchased is the total number at the time available for
purchase under the terms of the option.
3.5 Limitations On Grant of Incentive Stock Options.
(a) The aggregate Fair Market Value (determined as of the Award Date) of
the Common Stock for which Incentive Stock Options may first become
exercisable by any Participant during any calendar year under this Plan (other
than as a result of acceleration pursuant to Section 7.4 or 7.2), together
with that of common stock subject to incentive stock options first exercisable
by such Participant under any other plan of the Corporation, its "parent
corporation" or any "subsidiary corporation," as those terms are defined in
Section 424 of the Code, shall not exceed $100,000. To the extent such
limitation is exercised as a result of acceleration (or any other reason),
Options shall be treated as Nonqualified Stock Options.
(b) There shall be imposed in the Award Agreement relating to Incentive
Stock Options such terms and conditions as are required in order that the
Option be an "incentive stock option" as that term is defined in Section 422
of the Code.
(c) No Incentive Stock Option may be granted to any Ten Percent Shareholder
unless the exercise price of such Option is at least 110% of the Fair Market
Value of the stock subject to the Option and such Option by its terms is not
exercisable after the expiration of five years from the date such Option is
granted.
(d) No Incentive Stock Option may be granted to any person who is not an
employee of the Company or any subsidiary corporation as such term is defined
in Section 424 of the Code.
3.6 Additional Rights. In its discretion the Committee may, in the Award
Agreement, provide for a Tax-Offset Bonus to any Participant who elects to
make a disqualifying disposition (as defined in Section 422(a)(1) of the Code)
of Common Stock acquired pursuant to the exercise of an Incentive Stock
Option. The Tax-Offset bonus shall be in the form of a cash payment equal to a
percentage of the difference between the exercise price and the lesser of (i)
the Fair Market Value on the date of exercise of the Common Stock with respect
to which the disqualifying disposition occurs or (ii) the amount realized from
such disqualifying disposition. Such percentage shall be set out in the Award
Agreement and shall be designed to offset the impact of additional taxes which
result from the disqualifying disposition. Notwithstanding the preceding
sentence, the Committee may reserve the right to from time to time change the
percentage applicable with respect to the Award Agreement. Notwithstanding the
foregoing, no Award Agreements entered into after the Listing Date may provide
for a Tax-Offset Bonus to any Participant.
4. STOCK APPRECIATION RIGHTS.
4.1 Grants. In its discretion, the Committee may grant Stock Appreciation
Rights concurrently with the grant of Options. A Stock Appreciation Right
shall extend to all or a portion of the shares covered by the related Option.
A Stock Appreciation Right shall entitle the Participant who holds the related
Option, upon exercise of the Stock Appreciation Right and surrender of the
related Option, or portion thereof, to the extent the Stock Appreciation Right
and related Option each were previously unexercised, to receive payment of an
amount determined pursuant to Section 4.3. Any Stock Appreciation Right
granted in connection with an Incentive Stock Option shall contain such terms
as may be required to comply with the provisions of Section 422 of the Code
and the regulations promulgated thereunder. In its discretion, the Committee
may also grant Stock Appreciation Rights independently of any Option subject
to such conditions as the Committee may in its absolute discretion provide.
4.2 Exercise of Stock Appreciation Rights.
(a) A Stock Appreciation Right granted concurrently with an Option shall be
exercisable only at such time or times, and to the extent, that the related
Option shall be exercisable and only when the Fair Market Value of the stock
subject to the related Option exceeds the exercise price of the related
Option.
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(b) In the event that a Stock Appreciation Right granted concurrently with
an Option is exercised, the number of shares of Common Stock subject to the
related Option shall be charged against the maximum amount of Common Stock
that may be issued or transferred pursuant to Awards under this Plan. The
number of shares subject to the Stock Appreciation Right and the related
Option of the Participant shall be reduced by such number of shares.
(c) If a Stock Appreciation Right granted concurrently with an Option
extends to less than all the shares covered by the related Option and if a
portion of the related Option is thereafter exercised, the number of shares
subject to the unexercised Stock Appreciation Right shall be reduced only if
and to the extent that the remaining number of shares covered by such related
Option is less than the remaining number of shares subject to such Stock
Appreciation Right. The number of shares subject to unexercised SARs may also
be reduced proportionately.
(d) A Stock Appreciation Right granted independently of any Option shall be
exercisable pursuant to the Terms of the Award Agreement.
(e) In order to achieve the Plan's objective of encouraging ownership of
the Common Stock, the Committee may require the Stock Appreciation Rights can
only be exercised if the Participant uses all or a portion of any cash
received upon exercise of the Stock Appreciation Right to concurrently
exercise all or a portion of the Option he or she holds.
4.3 Payment.
(a) Upon exercise of a Stock Appreciation Right and surrender of an
exercisable portion of the related option, the Participant shall be entitled
to receive payment of an amount determined by multiplying
(i) The difference obtained by subtracting the exercise price per share
of Common Stock under the related option from the Fair Market Value of a
share of Common Stock on the date of exercise of the Stock Appreciation
Right, by
(ii) The number of shares with respect to which the Stock Appreciation
Right shall have been exercised.
(b) The Committee, in its sole discretion, may settle the amount determined
under paragraph (a) above solely in cash, solely in shares of Common Stock
(valued at Fair Market Value on the date of exercise of the Stock Appreciation
Right), or partly in such shares and partly in cash, provided that the
Committee shall have determined that such exercise and payment are consistent
with applicable law. In any event, cash shall be paid in lieu of fractional
shares. Absent a determination to the contrary, all Stock Appreciation Rights
shall be settled in cash as soon as practicable after exercise. The exercise
price for the Stock Appreciation Right shall be the exercise price of the
related Option. Notwithstanding the foregoing, the Committee may, in the Award
Agreement, determine the maximum amount of cash or stock or a combination
thereof which may be delivered upon exercise of a Stock Appreciation Right.
(c) Upon exercise of a Stock Appreciation Right granted independently of
any Option, the Participant shall be entitled to receive payment in cash of an
amount based on a percentage, specified in the Award Agreement, of the
difference obtained by subtracting the Fair Market Value per share of Common
Stock on the Award Date from the Fair Market Value per share of Common Stock
on the date of exercise of the Stock Appreciation Right.
5. RESTRICTED STOCK AWARDS.
5.1 Grants. Subject to Section 2.4, the Committee may, in its discretion
grant one or more Restricted Stock Awards to any Eligible Person. Each
Restricted Stock Award Agreement shall specify the number of shares of Common
Stock to be issued to the Participant, the date of such issuance, the price,
if any, to be paid for such shares by the Participant and the restrictions
imposed on such shares. Shares of Restricted Stock shall be evidenced by a
stock certificate registered only in the name of the Participant, which stock
certificate shall bear a
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legend making appropriate reference to the restrictions imposed and shall be
held by the Corporation until the restrictions on such shares shall have
lapsed and those shares shall have thereby vested.
5.2 Restrictions.
(a) Shares of Common Stock included in Restricted Stock Awards may not be
sold, assigned, transferred, pledged or otherwise disposed of or encumbered,
either voluntarily or involuntarily, until such shares have vested.
(b) Participants receiving Restricted Stock shall be entitled to dividend
and voting rights for the shares issued even though they are not vested,
provided that such rights shall terminate immediately as to any forfeited
Restricted Stock.
(c) In the event that the Participant shall have paid cash in connection
with the Restricted Stock Award, the Award Agreement shall specify whether and
to what extent such cash shall be returned upon a forfeiture (with or without
an earnings factor).
6. PERFORMANCE SHARE AWARDS.
6.1 Grants. The Committee may, in its discretion, grant Performance Share
Awards to Eligible Persons based upon such factors as the Committee shall
determine. A Performance Share Award Agreement shall specify the number of
shares of Common Stock subject to the Performance Share Award, the price, if
any, to be paid for such shares by the Participant and the conditions upon
which issuance to the Participant shall be based.
7. OTHER PROVISIONS.
7.1 Rights of Eligible Persons, Participants and Beneficiaries.
(a) Status as an Eligible Person shall not be construed as a commitment
that any Award will be made under this Plan to an Eligible Person or to
Eligible Persons generally.
(b) Nothing contained in this Plan (or in Award Agreements or in any other
documents related to this Plan or to Awards) shall confer upon any Eligible
Person or Participant any right to continue in the employ of the Company or
constitute any contract or agreement of employment, or interfere in any way
with the right of the Company to reduce such person's compensation or to
terminate the employment of such Eligible Person or Participant, with or
without cause, but nothing contained in this Plan or any document related
thereto shall affect any other contractual right of any Eligible Person or
Participant.
(c) Amounts payable pursuant to an Award shall be paid only to the
Participant or, in the event of the Participant's death, to the Participant's
Beneficiary or, in the event of the Participant's Total Disability, to the
Participants Personal Representative or, if there is none, to the Participant.
Other than by will or the laws of descent and distribution, no benefit payable
under, or interest in, this Plan or in any Award shall be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge and any such attempted action shall be void and no such
benefit or interest shall be, in any manner, liable for, or subject to, debts,
contracts, liabilities, engagements or torts of any Eligible Person,
Participant or Beneficiary. The Committee shall disregard any attempted
transfer, assignment or other alienation prohibited by the preceding sentence
and shall pay or deliver such cash or shares of Common Stock in accordance
with the provisions of this Plan.
(d) No Participant, Beneficiary or other person shall have any right, title
or interest in any fund or in any specific asset (including shares of Common
Stock) of the Company by reason of any Award granted hereunder. Neither the
provisions of this Plan (or of any documents related hereto), nor the creation
or adoption of this Plan, nor any action taken pursuant to the provisions of
this Plan shall create, or be construed to create, a trust of any kind or a
fiduciary relationship between the Company and any Participant, Beneficiary or
other person. To the extent that a Participant, Beneficiary or other person
acquires a right to receive an Award hereunder, such right shall be no greater
than the right of any unsecured general creditor of the Company.
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7.2 Adjustments Upon Changes in Capitalization.
(a) If the outstanding shares of Common Stock are increased, decreased or
changed into, or exchanged for, a different number or kind of shares or
securities of the Corporation through a reorganization or merger in which the
Corporation is the surviving entity, or through a combination,
recapitalization, reclassification, stock split, stock dividend, stock
consolidation or otherwise, an appropriate adjustment shall be made in the
number and kind of shares that may be issued pursuant to Awards. A
corresponding adjustment to the consideration payable with respect to Awards
granted prior to any such change and to the price, if any, paid in connection
with Restricted Stock Awards or Performance Share Awards shall also be made.
Any such adjustment, however, shall be made without change in the total
payment, if any, applicable to the portion of the Award not exercised but with
a corresponding adjustment in the price for each share. Corresponding
adjustments shall be made with respect to Stock Appreciation Rights based upon
the adjustments made to the Options to which they are related or, in the case
of Stock Appreciation Rights granted independently of any Option, based upon
the adjustments made to Common Stock.
(b) Upon the dissolution or liquidation of the Corporation, the Plan shall
terminate, and any outstanding Awards shall terminate and be forfeited.
(c) Upon a reorganization, merger or consolidation of the Corporation with
one or more corporations as a result of which the Corporation is not the
surviving corporation which occurs prior to the Listing Date, the Plan shall
terminate, and any outstanding Awards shall terminate and be forfeited.
Notwithstanding the foregoing, the Board may provide in writing in connection
with, or in contemplation of, any such transaction for any or all of the
following alternatives (separately or in combinations): (i) for the assumption
by the successor corporation of the Awards theretofore granted or the
substitution by such corporation for such Awards of awards covering the stock
of the successor corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and prices; (ii)
for the continuance of the Plan by such successor corporation in which event
the Plan and the Awards shall continue in the manner and under the terms so
provided; or (iii) for the payment in cash or shares of Common Stock in lieu
of and in complete satisfaction of such Awards.
(d) After the Listing Date, in the event of a (i) a sale, lease or other
disposition of all or substantially all of the assets of the Company, (ii) a
merger or consolidation in which the Company is not the surviving corporation
or (iii) a reverse merger in which the Company is the surviving corporation
but the shares of Common Stock outstanding immediately preceding the merger
are converted by virtue of the merger into other property, whether in the form
of securities, cash or otherwise, then any surviving corporation or acquiring
corporation shall assume any Awards outstanding under the Plan or shall
substitute similar awards (including an award to acquire the same
consideration paid to the shareholders in the transaction described in this
subsection 7.2(d) for those outstanding under the Plan. In the event any
surviving corporation or acquiring corporation refuses to assume such Awards
or to substitute similar awards for those outstanding under the Plan, then
with respect to Awards held by Participants whose employment by the Company
has not terminated, the vesting of such Awards (and, if applicable, the time
during which such Awards may be exercised) shall be accelerated in full, and
the Awards shall terminate if not exercised (if applicable) at or prior to
such event. With respect to any other Awards outstanding under the Plan, such
Awards shall terminate if not exercised (if applicable) prior to such event.
(e) In adjusting Awards to reflect the changes described in this Section
7.2, or in determining that no such adjustment is necessary, the Board may
rely upon the advice of independent counsel and accountants of the
Corporation, and the determination of the Board shall be conclusive. No
fractional shares of stock shall be issued under this Plan on account of any
such adjustment.
7.3 Termination of Employment.
(a) If the Participant's employment by the Company terminates for any
reason other than Retirement, death or Total Disability, the Participant shall
have, subject to earlier termination pursuant to or as contemplated by Section
3.3, three months from the date of termination of employment to exercise any
Option to the extent it shall have become exercisable on that date, and any
option not exercisable on that date shall terminate.
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Notwithstanding the preceding sentence, in the event the Participant is
discharged for cause as determined by the Committee in its sole discretion,
all Options shall lapse immediately upon such termination of employment.
(b) If the Participant's employment by the Company terminates as a result
of Retirement or Total Disability, the Participant or Participant's Personal
Representative, as the case may be, shall have, subject to earlier termination
pursuant to or as contemplated by Section 3.3, 12 months from the date of
termination of employment (or 3 months from the date of termination of
employment as a result of Retirement with respect to an Incentive Stock
Option) to exercise any Option to the extent it shall have become exercisable
by that date, and any Option not exercisable on that date shall terminate.
(c) If the Participant's employment by the Company terminates as a result
of death while the Participant is employed by the Company or during the 12
month period referred to in subsection (b) above, the Participant's Option
shall be exercisable by the Participant's Beneficiary, subject to earlier
termination pursuant to or as contemplated by Section 3.3, during the 12 month
period or such shorter period as is provided in the Award Agreements following
the Participant's death, as to all or any part of the shares of Common Stock
covered thereby including all shares as to which the option would not
otherwise be exercisable.
(d) Each Stock Appreciation Right granted concurrently with an Option shall
have the same termination provisions and exercisability periods as the Option
to which it relates. The termination provisions and exercisability periods of
any Stock Appreciation Right granted independently of an Option shall be
established in accordance with Section 4.2(d). The exercisability period of a
Stock Appreciation Right shall not exceed that provided in Section 3.3 or in
the related Award Agreement and the Stock Appreciation Right shall expire at
the end of such exercisability period.
(e) In the event of termination of employment with the Company for any
reason, (i) shares of Common Stock subject to the Participant's Restricted
Stock Award shall be forfeited in accordance with the provisions of the
related Award Agreement to the extent such shares have not become vested on
that date; and (ii) shares of Common Stock subject to the Participant's
Performance Share Award shall be forfeited in accordance with the provisions
of the related Award Agreement to the extent such shares have not been issued
or become issuable on that date.
(f) In the event of termination of employment with the Company for any
reason, other than discharge for cause, the Committee may, in its discretion,
increase the portion of the Participant's Award available to the Participant,
or Participant's Beneficiary or Personal Representative, as the case may be,
or extend the time of exercise of the rights granted hereunder (subject to
Section 3.3 hereto), upon such terms as the Committee shall determine.
(g) If an entity ceases to be a Subsidiary, such action shall be deemed for
purposes of this Section 7.3 to be a termination of employment of each
employee of that entity.
(h) Upon forfeiture of a Restricted Stock Award pursuant to this Section
7.3, the Participant, or his or her Beneficiary or Personal Representative, as
the case may be, shall transfer to the Corporation the portion of the
Restricted Stock Award not vested at the date of termination of employment,
without payment of any consideration by the Company for such transfer unless
the Participant paid a purchase price in which case repayment, if any, of that
price shall be governed by the Award Agreement. Notwithstanding any such
transfer to the Corporation, or failure, refusal or neglect to transfer, by
the Participant, or his or her Beneficiary or Personal Representative, as the
case may be, such nonvested portion of any Restricted Stock Award shall be
deemed transferred automatically to the Corporation on the date of termination
of employment. The Participant's original acceptance of the Restricted Stock
Award shall constitute his or her appointment of the Corporation and each of
its authorized representatives as attorney(s)-in-fact to effect such transfer
and to execute such documents as the Corporation or such representatives deem
necessary or advisable in connection with such transfer.
7.4 Acceleration of Awards. Unless prior to an Event (including by
agreement set forth in the Award Agreement) the Committee determines that,
upon its occurrence, there shall be no acceleration of Awards or
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determines those Awards which shall be accelerated and the extent to which
they shall be accelerated, upon the occurrence of an Event (i) each Option and
each Stock Appreciation Right shall become immediately exercisable to the full
extent theretofore not exercisable, (ii) Restricted Stock shall immediately
vest free of restrictions and (iii) the number of shares covered by each
Performance Share Award shall be issued to the Participant. Notwithstanding
the foregoing, Awards granted after the Listing Date shall not accelerate upon
the occurrence of an Event except as provided in Section 7.2(d).
7.5 Government Regulations. This Plan, the granting of Awards under this
Plan and the issuance or transfer of shares of Common Stock (and/or the
payment of money) pursuant thereto are subject to all applicable federal and
state laws, rules and regulations and to such approvals by any regulatory or
governmental agency (including without limitation "no action" positions of the
Commission) which may, in the opinion of counsel for the Corporation, be
necessary or advisable in connection therewith. Without limiting the
generality of the foregoing, no Awards may be granted under this Plan, and no
shares shall be issued by the Corporation, nor cash payments made by the
Corporation, pursuant to or in connection with any such Award, unless and
until, in each such case, all legal requirements applicable to the issuance or
payment have, in the opinion of counsel to the Corporation, been complied
with. In connection with any stock issuance or transfer, the person acquiring
the shares shall, if requested by the Corporation, give assurances
satisfactory to counsel to the Corporation in respect of such matters as the
Corporation may deem desirable to assure compliance with all applicable legal
requirements.
7.6 Tax Withholding.
(a) Upon the disposition by a Participant or other person of shares of
Common Stock acquired pursuant to the exercise of an Incentive Stock Option
prior to satisfaction of the holding period requirements of Section 422 of the
Code, or upon the exercise of a Nonqualified Stock Option, the exercise of a
Stock Appreciation Right, the vesting of a Restricted Stock Award, the payment
of a Performance Share Award or payment of a Tax-Offset Bonus, the Company
shall have the right to (i) require such Participant or such other person to
pay by cash, or certified or cashiers check payable to the Company, the amount
of any taxes which the Company may be required to withhold with respect to
such transactions or (ii) deduct from amounts paid in cash the amount of any
taxes which the Company may be required to withhold with respect to such cash
amounts. The above notwithstanding, in any case where a tax is required to be
withheld in connection with the issuance or transfer of shares of Common Stock
under this Plan, the Participant may elect, pursuant to such rules as the
Committee may establish, to have the Company reduce the number of such shares
issued or transferred by the appropriate number of shares to accomplish such
withholding; provided, the Committee may impose such conditions on the payment
of any withholding obligations as may be required to satisfy applicable
regulatory requirements, including, without limitation, Rule 16b-3 promulgated
by the Commission pursuant to the Exchange Act.
(b) The Committee may, in its discretion, permit a loan from the Company to
a Participant in the amount of any taxes which the Company may be required to
withhold with respect to shares of Common Stock received pursuant to a
transaction described in subsection (a) above. Such a loan will be for a term,
at a rate of interest and pursuant to such other terms and rules as the
Committee may establish.
7.7 Amendment, Termination and Suspension.
(a) The Board shall have the authority at any time to terminate or, from
time to time, amend or modify or suspend this Plan (or any part hereof)
without obtaining shareholder approval to the fullest extent permitted by Rule
16b-3 (or any successor rule) promulgated by the Commission pursuant to the
Exchange Act, except to the extent the Board determines that such shareholder
approval is required or is made advisable by other applicable law or
regulation (including, without limitation, Section 162(m) of the Code and the
regulations promulgated thereunder), in which case such amendment shall be
effective once approved by the Board and a majority of the shareholders. In
addition, the Committee may, from time to time, amend or modify any provision
of this Plan except Section 7.4 and, with the consent of the Participant, make
such modifications of the terms and conditions of such Participant's Award as
it shall deem advisable. The Committee, with the consent of the Participant,
may also amend the terms of any Option to provide that the Option price of the
shares remaining subject to the
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<PAGE>
original Award shall be reestablished at a price established on the effective
date of the amendment. No modification of any other term or provision of any
option which is amended in accordance with the foregoing shall be required,
although the Committee may, in its discretion, make such further modifications
of any such option as are not inconsistent with or prohibited by the Plan. No
Awards may be granted during any suspension of this Plan or after its
termination.
(b) In the case of Awards issued before the effective date of any
amendment, suspension or termination of this Plan, such amendment, suspension
or termination of the Plan shall not, without specific action of the Board or
the Committee and the consent of the Participant, in any way modify, amend,
alter or impair any rights or obligations under any Award previously granted
under the Plan.
7.8 Privileges of Stock Ownership; Nondistributive Intent. A Participant
shall not be entitled to the privilege of stock ownership as to any shares of
Common Stock not actually issued to him. Upon the issuance and transfer of
shares to the Participant, unless a registration statement is in effect under
the Securities Act, relating to such issued and transferred Common Stock and
there is available for delivery a prospectus meeting the requirements of
Section 10 of the Securities Act, the Common Stock may be issued and
transferred to the Participant only if he represents and warrants in writing
to the Corporation that the shares are being acquired for investment and not
with a view to the resale or distribution thereof. No shares shall be issued
and transferred unless and until there shall have been full compliance with
any then applicable regulatory requirements (including those of exchanges upon
which any Common Stock of the Corporation may be listed).
7.9 Effective Date of the Plan. This Plan has been approved by unanimous
consent of the entire Board of the Kushner-Locke Company, the Corporation's
eighty percent (80%) shareholder, and approved by the Board of the Corporation
and by the Shareholders, and is effective July 23, 1998.
7.10 Term of the Plan. Unless previously terminated by the Board, this plan
shall terminate at the close of business on June 1, 2008, and no Awards shall
be granted under it thereafter, but such termination shall not affect any
Award theretofore granted.
7.11 Governing Law. This Plan and the documents evidencing Awards and all
other related documents shall be governed by, and construed in accordance
with, the laws of the State of California. If any provision shall be held by a
court of competent jurisdiction to be invalid and unenforceable, the remaining
provisions of this Plan shall continue to be fully effective.
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US SEARCH.COM INC.
ANNUAL MEETING OF STOCKHOLDERS
Wednesday, May 31, 2000
10:00 a.m.
Marriot Marina Beach
4100 Admiralty Way
Marina Del Rey, CA 90292
This proxy is solicited by the Board of Directors for use at the Annual Meeting
on May 31, 2000.
The shares of stock you hold in your account will be voted as you specify on the
reverse side.
If no choice is specified, the proxy will be voted "FOR" Items 1 and 2 and 3.
By signing this proxy, you revoke all prior proxies and appoint Brent N. Cohen
and William G. Langley, and each of them, as attorneys and proxies of the
undersigned, with full power of substitution, to vote your shares on the matters
shown on the reverse side and any other matters which may come before the Annual
Meeting and all adjournments.
See reverse for voting instructions.
<PAGE>
COMPANY#________
CONTROL#________
There are two ways to vote your Proxy
Your Internet vote authorizes the Named Proxies to vote your shares in the same
manner as if you marked, signed and returned your proxy card.
VOTE BY INTERNET - http://www.eproxy.com/srch/
. Use the Internet to vote your proxy 24 hours a day, 7 days a week, until
12:00 p.m. on May 26, 2000.
. You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above to obtain your records and create an
electronic ballot.
VOTE BY MAIL
Mark, sign and date your proxy care and return it in the postage-paid envelope
we've provided or return it to US SEARCH.com Inc., c/o Shareowner Services, P.O.
Box 64873, St. Paul, MN 55164-0873.
If you vote by Internet, please do not mail your Proxy Card
Please detach here
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2 AND 3.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1. To elect two directors to hold office until 01 Nicholas Rockefeller [__] Vote FOR [__] Vote WITHHELD
the 2003 Annual Meeting of Stockholders 02. Harry B. Chandler. all nominees from all nominees
(except as marked)
(Instructions: To withhold authority to vote for any indicated nominee,
write the number(s) of the nominee(s) in the box provided t the right.) [__________________________]
2. To approve an amendment to the Company's 1998 Amended and [__] FOR [__] AGAINST [__] ABSTAIN
Restated Stock Incentive Plan to increase the aggregate number
of shares of Common Stock authorized for issuance under such
plan by 2,900,000 shares, from 2,600,650 shares to 5,500,650 shares.
3. To ratify selection of PricewaterhouseCoopers LLP as independent
auditors of the Company for December 31, 2000. [__] FOR [__] AGAINST [__] ABSTAIN
</TABLE>
THIS PROXY WHEN PROPERLY RECEIVED WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
---
Address Change? Mark Box [___]
Indicate changes below: DATE
---------------------------
[_________________________________]
SIGNATURE(S) in Box
Please sign exactly as your name(s)
appear on Proxy. If held in joint
tenancy, all persons must sign.
Trustees, administrators, etc. should
include title and authority.
Corporations should provide full name
of corporation and title of authorized
officer signing the proxy.
