<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT
OF 1934
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 '240.14a-11(c) or '240.14a-12
EMERGE INTERACTIVE, INC.
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE> 2
(eMerge Interactive Logo)
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 19, 2000
---------------------
To Our Stockholders:
The Annual Meeting of Stockholders of eMerge Interactive, Inc. will be held
on Wednesday, July 19, 2000, at 2:30 p.m., Eastern Daylight Savings Time, at the
Desmond Great Valley Hotel and Conference Center, One Liberty Boulevard,
Malvern, PA. At the meeting, we will
- elect seven directors;
- request approval of a proposal to amend the eMerge Interactive, Inc. 1999
Equity Compensation Plan to increase the number of shares available for
grant from 2,500,000 to 4,000,000; and
- act upon such other matters 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. Only holders of record of class A common
stock and class B common stock at the close of business on June 21, 2000, are
entitled to notice of, and to vote at, the meeting and at any postponement or
adjournment thereof. A list of stockholders entitled to vote at the Annual
Meeting will be available for inspection at our offices for ten business days
prior to the meeting.
The address of our principal office is 10315 102nd Terrace, Sebastian,
Florida 32958, and the phone number is (561) 589-7331.
By Order of the Board of Directors
/s/ KAREN M. KEATING
Karen M. Keating
Secretary
Sebastian, Florida
June 29, 2000
YOUR VOTE IS IMPORTANT.
PLEASE ENSURE THAT YOUR SHARES WILL BE REPRESENTED AT THE MEETING BY COMPLETING,
SIGNING, AND RETURNING YOUR PROXY CARD IN THE ENVELOPE PROVIDED, EVEN IF YOU
PLAN TO ATTEND THE MEETING.
SENDING US YOUR PROXY WILL NOT PREVENT YOU FROM VOTING IN PERSON
AT THE MEETING SHOULD YOU WISH TO DO SO.
<PAGE> 3
PROXY STATEMENT FOR THE
2000 ANNUAL MEETING OF STOCKHOLDERS
PROXY INFORMATION
The accompanying proxy is solicited on behalf of our board of directors for
use at our Annual Meeting of Stockholders to be held on Wednesday, July 19,
2000, at 2:30 p.m. Eastern Daylight Savings Time, or at any adjournment or
adjournments thereof, at the place and for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. If properly signed and
returned and not revoked, the proxy will be voted in accordance with the
instructions it contains. The persons named in the accompanying proxy will vote
the proxy for the board of director's slate of directors (Proposal 1) and for
the amendment to the 1999 Equity Compensation Plan (Proposal 2) unless contrary
instructions are given. At any time before it is voted, each proxy granted may
be revoked by the stockholder by a later dated proxy, by written revocation
addressed to our corporate secretary at eMerge Interactive, Inc., 10315 102nd
Terrace, Sebastian, Florida 32958, or by voting by ballot at the Annual Meeting.
This Proxy Statement, Notice of Annual Meeting of Stockholders and the
accompanying proxy card will be mailed to stockholders on or about June 29,
2000.
COMMON STOCK, VOTING PROCESS AND QUORUM FOR MEETING
Our class A common stock and class B common stock are the only classes of
security entitled to vote at the Annual Meeting. Only holders of record of our
class A common stock and class B common stock at the close of business on June
21, 2000, will be entitled to vote on all matters to come before the meeting.
Each outstanding share of class A common stock entitles its holder to cast one
vote for each matter to be voted upon. Each outstanding share of class B common
stock entitles its holder to cast two and one-half votes for each matter to be
voted upon. On June 21, 2000, there were 28,644,746 shares of class A common
stock outstanding and entitled to vote at the Annual Meeting and 5,694,445
shares of class B common stock outstanding and entitled to vote at the Annual
Meeting. Unless otherwise indicated, the class A common stock and the class B
common stock are collectively referred to herein as common stock.
Votes cast by proxy or in person at the Annual Meeting will be tabulated to
determine whether or not a quorum is present. The presence at the Annual
Meeting, in person or by proxy, of the holders of a majority of the shares of
common stock outstanding on June 21, 2000, will constitute a quorum. All proxies
representing shares that are entitled to vote at the meeting will be counted
toward establishing a quorum, regardless of whether such proxies contain
abstentions or broker non-vote notifications. Abstentions are counted in
tabulations of the votes cast on proposals presented to stockholders and have
the effect of negative votes. A "withheld" vote is treated the same as an
abstention. Broker non-votes are not counted for purposes of determining whether
a proposal has been approved.
SOLICITATION
The cost of preparing, printing, and mailing the proxy materials will be
borne by us. We may use the services of our officers and employees (who will
receive no additional compensation) to solicit proxies. We do not anticipate
hiring an agency to solicit votes at this time. We intend to request banks and
brokers holding shares of our stock to forward copies of the proxy materials to
those persons for whom they hold shares and to request authority for the
execution of proxies. We will reimburse banks, brokers, and other custodians,
nominees and fiduciaries for their out-of-pocket expenses incurred in connection
with sending the proxy materials to the beneficial owners of our common stock.
<PAGE> 4
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
Directors are elected annually and serve a one-year term. There are seven
nominees for election this year. Each nominee is currently serving as a
director. Each nominee has consented to serve until the next annual meeting, if
elected. If any director is unable to stand for re-election after distribution
of this proxy statement, the board may reduce its size or designate a
substitute. If the board designates a substitute, proxies voting on the original
director candidate will be cast for the substituted candidate. You will find
information on each nominee below.
THE BOARD RECOMMENDS A VOTE FOR EACH NOMINEE. THE SEVEN NOMINEES WHO
RECEIVE THE HIGHEST NUMBER OF AFFIRMATIVE VOTES WILL BE ELECTED AS DIRECTORS.
CHARLES L. ABRAHAM, 44, has served as Chief Executive Officer and as a
member of the board of directors of eMerge Interactive, Inc. since July 1998.
From July 1997 until July 1998, Mr. Abraham was Vice President and General
Manager with the Home Care Division of Nellcor Puritan Bennett Incorporated.
From 1994 until July 1997, Mr. Abraham was Manager of the Global Vascular
Business of General Electric Medical Systems, located in Paris, France.
JOHN S. SCOTT, PH.D., 48, has served as Chairman of the Board of eMerge
Interactive, Inc. since September 1994 and has served as Chief Executive Officer
and Chairman of the Board of XL Vision, Inc. since its inception in May 1993.
From August 1991 until July 1993, Dr. Scott was President of Lenzar
Electro-Optics, Inc., a manufacturer of imaging devices. Dr. Scott also
currently serves as Chairman of the Board of Who? Vision Systems, Inc., and is a
director of ChromaVision Medical Systems, Inc., both of which are affiliated
with Safeguard Scientifics, Inc.
DOUGLAS A. ALEXANDER, 38, has served as a member of the board of directors
of eMerge Interactive, Inc. since April 1999. Mr. Alexander is a managing
director of Internet Capital Group, Inc., an affiliate of Safeguard Scientifics,
Inc., Chairman of the Board of VerticalNet, Inc., a public company, and serves
as a director of Arbinet Communications, Inc., Blackboard Inc., ComputerJob.com,
Inc., Deja.com, Inc., LinkShare Corporation, SageMaker, Inc. and Star-Cite!
Solutions, Inc., all of which are privately held companies that are affiliated
with Internet Capital Group. Mr. Alexander co-founded Reality Online, Inc., a
company that developed financial planning tools and online services aimed at the
individual investor, and continued to serve as its President and Chief Executive
Officer after its acquisition by Reuters Group PLC until September 1997.
THOMAS C. LYNCH, 58, has served as a member of the board of directors of
eMerge Interactive, Inc. since June 1997 and currently serves as the President,
Chief Operating Officer and a member of the board of directors of CompuCom
Systems, Inc., a public company which is affiliated with Safeguard Scientifics,
Inc. From November 1995 until October 1998, Mr. Lynch held the position of
Senior Vice President at Safeguard Scientifics, Inc. Mr. Lynch is also a
director of Sanchez Computer Associates, Inc., an affiliate of Safeguard
Scientifics, Inc., the Eastern Technology Council, and AFBA Life Insurance
Company. From September 1994 until October 1995, Mr. Lynch was Director of the
Navy Staff, where he was responsible for coordinating Navy defense issues. Prior
to August 1994, Mr. Lynch held several positions in the United States Navy,
including Superintendent of the U.S. Naval Academy.
JOHN W. PODUSKA, SR., PH.D., 62, has served as a member of the board of
directors of eMerge Interactive, Inc. since January 1997. Since 1992, Dr.
Poduska has served as the Chairman of Advanced Visual Systems Inc., a provider
of visualization software. From December 1989 until December 1991, Dr. Poduska
was President and Chief Executive Officer of Stardent Computer Inc., a computer
manufacturer. Dr. Poduska is also a member of the board of directors of
Safeguard Scientifics, Inc., Cambridge Technology Partners (Massachusetts),
Inc., an affiliate of Safeguard Scientifics, and Union Pacific Resources Group
Inc., all public companies, and XL Vision, Inc., an affiliate of Safeguard
Scientifics, Inc.
ANTHONY A. IBARGUEN, 40, has served as a member of the board of directors
of eMerge Interactive, Inc. since March 2000 and is the President of
Professional Services and managing director of operations of Internet
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Capital Group, Inc. Mr. Ibarguen joined Internet Capital Group, Inc. in 1999.
From 1996 to 1999, he was President, Chief Operating Officer and Board Director
of Tech Data Corporation, a Fortune 150 global technology products and services
provider offering pre- and post-sale training and technical support, financing
options, configuration and assembly services as well as a range of electronic
commerce solutions. Prior to joining Tech Data, Mr. Ibarguen served as Executive
Vice President of ENTEX Information Services Inc., a $2 billion PC Systems
Integrator. He co-founded ENTEX in 1993 through the management-led buyout of
JWP's Information Services Division. Mr. Ibarguen joined JWP Inc. in 1990 as
Vice President of Business Development and previously worked as a Development
Associate with Trammell Crow Company. He began his career at IBM Corporation
where he held a variety of sales and marketing line and staff positions spanning
a seven-year period. Mr. Ibarguen also serves on the board of directors of
Smartdisk Corporation, Inc., a public company, and CommerceQuest, Inc.
CHRISTOPHER J. DAVIS, 48, has served as a member of the board of directors
of eMerge Interactive, Inc. since June 2000. Mr. Davis has held the position of
Vice President, Strategic Development at Safeguard Scientifics, Inc. since March
2000. From September 1995 until March 2000, Mr. Davis was an independent
consultant and private investor in several early stage technology-oriented
companies. Prior to September 1995, he served as President and Chief Executive
Officer of LFC Financial Corporation, a privately held merchant banking company
engaged in complex financing transactions.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
We had no securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934 during 1999. Therefore, no Section 16(a) filings were
required by our officers, directors, or 10% or greater owners of our securities
during 1999.
INFORMATION CONCERNING THE OPERATION OF THE BOARD OF DIRECTORS
BOARD MEETINGS AND COMMITTEES
During the year ended December 31, 1999, there were six meetings of the
board of directors. The board had two standing committees during 1999 -- the
audit committee and the compensation committee. Each director attended at least
75% of the total number of meetings of the board, with the exception of Messrs.
Alexander and Lynch, who attended 60% and 33% of the board meetings,
respectively.
Audit Committee
Our audit committee consists of three independent directors, Douglas A.
Alexander, John W. Poduska, Sr. and Christopher Moller, who is not standing for
re-election. The audit committee reviews the scope and result of the audit and
other services provided by our independent auditors and reviews and evaluates
our internal control functions. There were no meetings held by the audit
committee during 1999.
Compensation Committee
Our compensation committee currently consists of two directors who are
non-employee directors. During 1999, the compensation committee consisted of
John S. Scott, Thomas C. Lynch and E. Michael Forgash, who is not standing for
re-election. The compensation committee evaluates and approves the compensation
and benefits for our executive officers, administers our equity compensation
plans, and makes recommendations to the board regarding such matters. Actions
undertaken by the committee during the period were approved via unanimous
consents.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee is responsible for determining salaries,
incentives and other forms of compensation for our directors, officers and other
employees and administering various incentive compensation and benefit plans.
During fiscal year 1999, the compensation committee consisted of Dr. Scott and
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<PAGE> 6
Messrs. Forgash and Lynch. Dr. Scott is the Chief Executive Officer and Chairman
of the Board of XL Vision and Mr. Forgash was an officer at Safeguard
Scientifics until his resignation in March 2000. At the end of fiscal year 1999,
we owed XL Vision and Safeguard Scientifics $1.7 million and $10.3 million,
respectively.
DIRECTOR COMPENSATION
We reimburse each member of our board for out-of-pocket expenses incurred
in connection with attending board meetings. We do not pay our directors cash
compensation for attending meetings of the board and committee meetings.
Directors are eligible to receive options to purchase common stock under our
equity compensation plans. All grants are discretionary and may vary as to the
number of shares. In March 1999, the board granted Dr. Poduska an option to
purchase 31,250 shares of common stock under our 1996 Equity Compensation Plan
at an exercise price of $1.60 per share. In April 1999, the board granted Mr.
Alexander an option to purchase 100,000 shares of common stock under our 1996
Equity Compensation Plan at an exercise price of $2.40 per share. Each of the
options vests 25% each year commencing on the first anniversary of the grant and
has a term of 10 years.
EXECUTIVE COMPENSATION
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation committee of the board of directors is composed of at
least two directors who are non-employees of the company (see the section
entitled "Board Committees" in this Proxy Statement). The committee is
responsible for setting and administering the policies that govern both the
annual compensation and benefits programs for our executive officers as well as
our equity compensation plans.
We use cash and stock-based compensation for three purposes: (1) to focus
executives on short- and long-term business strategy; (2) to reward individual
and corporate performance; and (3) to align our executives' interests with those
of stockholders. Ultimately, the goal is to maximize the success of the company.
As detailed in the Summary Compensation Table contained in this Proxy Statement,
a substantial portion of our executives' compensation is variable and linked to
performance.
CASH COMPENSATION
Our goal for cash compensation is to pay competitive base salaries, coupled
with a possible incentive bonus based on the achievement of annual objectives,
and to award stock options to motivate the building of stockholder wealth and
align the interests of our employees with those of our stockholders.
BASE SALARY
Base salary initially is established for new executives on the basis of
subjective factors, including experience, individual achievements and the level
of responsibility to be assumed. Base salary increases, if any, for executive
officers are determined annually by the committee based on subjective factors,
including the individual performance of the executive officer, maintaining an
appropriate scale among the executive officers based on relative positions and
responsibilities, and the competitiveness of the labor market. The budgeted
salary increase for all employees is also considered in determining base salary
increases for executive officers.
1999 base salary for Mr. Abraham and the other named executive officers
Mr. Abraham's base salary was determined when he was appointed Chief
Executive Officer in April 1998. There was no salary increase in 1999. Base pay
and salary increases for 1999 for the other named executive officers were
determined by considering the subjective factors discussed previously.
MANAGEMENT INCENTIVE PLAN
Annual cash incentive awards are granted by the committee to executive
officers based on corporate and individual performance. Awards to key executives
are based on subjective factors, including the comparative
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impact of the individual's position to the overall corporate results as measured
by the position level, base salary of the individual, and the degree to which
such individual is able to affect the group or overall corporate results.
1999 incentive bonuses for Mr. Abraham and the other named executive officers
Mr. Abraham was paid an incentive bonus of $35,000 during 1999 based on the
achievement of the company's business objectives for 1998. Incentive bonuses
paid in 1999 for the other named executive officers were determined based on the
same factors.
STOCK-BASED COMPENSATION
The committee uses the equity compensation plan to attract and retain able
employees by awarding stock options. The committee and management believe that
broad and deep employee stock ownership effectively motivates the building of
stockholder wealth and aligns the interests of employees with those of the
stockholders. Awards are made to employees, advisors and consultants, and
non-employee directors who are responsible for the growth and sound development
of the company's business. Stock options are granted by the committee to the
executive officers and other employees based on subjective factors, including
their potential impact on corporate results and on their individual performance.
The size of stock option grants to the Chief Executive Officer and other
executive officers is periodically reviewed against option grants made by other
companies of similar size and background.
1999 Stock Option Grants
The committee granted stock options in 1999 to certain of its new
executives and also granted options to certain executives for performance during
1999. The relative number of options granted was based on each person's
responsibilities and their individual performance.
SUMMARY
The committee is satisfied that the compensation and incentive plans
provided to the Chief Executive Officer and the other executive officers of the
company are structured and operated so as to support the company's business
strategy and to create strong linkage and alignment with the long-term best
interests of the company and its stockholders. The committee will periodically
reevaluate these programs to ensure they continue to do so.
Compensation Committee:
John S. Scott, Ph.D.
Thomas C. Lynch
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SUMMARY COMPENSATION TABLE
The table below provides information concerning the compensation the
company paid to our chief executive officer and each other executive officer who
was paid compensation greater than $100,000 in 1999.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS COMPENSATION
--------------------------- ---- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Charles L. Abraham.......................... 1999 $175,791 $35,000 -- $30,248
Chief Executive Officer 1998 84,469 -- 750,000 41,878
T. Michael Janney........................... 1999 136,744 5,625 31,250 3,771
Chief Financial Officer and Treasurer
Scott L. Mathews............................ 1999 113,136 50,000 225,000 65,935
President and Chief Operating Officer
Marvin L. Slosman........................... 1999 144,517 18,670 31,250 48,309
Executive Vice President, Sales
</TABLE>
The amount appearing in the All Other Compensation column consists of the
following for each of the named executive officers:
- Mr. Abraham: $13,714 for reimbursement of relocation expenses, $11,050
for car allowance and $5,484 for 401(k) employer contributions and term
life insurance
- Mr. Janney: $3,771 for 401(k) employer contributions and term life
insurance
- Mr. Mathews: $63,435 for relocation expenses and $2,500 for 401(k)
employer contributions and term life insurance
- Mr. Slosman: $46,586 for relocation expenses and $1,723 for 401(k)
employer contributions and term life insurance.
OPTION GRANTS DURING LAST FISCAL YEAR
The following table provides information regarding options granted in 1999
to the executive officers named in the Summary Compensation Table. The values
listed represent the hypothetical gains that could be achieved from the
respective options if exercised at the end of the option term. These gains are
based on assumed rates of stock appreciation of 5% and 10% compounded annually
from the date the respective options were granted to their expiration date based
upon the grant price.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL RATES OF
------------------------------------------------------------- STOCK PRICE APPRECIATION FOR
NUMBER OF SHARES PERCENTAGE EXERCISE OPTION TERM
UNDERLYING OPTIONS OF TOTAL PRICE EXPIRATION -----------------------------
NAME GRANTED OPTIONS GRANTED ($/SHARE) DATE 5% 10%
---- ------------------ --------------- --------- ---------- ------------------ --------
<S> <C> <C> <C> <C> <C> <C>
Charles L. Abraham... -- -- -- -- -- --
------- ---- ----- ------- -------- --------
T. Michael Janney.... 31,250 2.2% $2.40 4/21/09 $ 47,167 $119,531
------- ---- ----- ------- -------- --------
Scott L. Mathews..... 225,000 15.9 2.40 4/21/09 339,603 860,621
------- ---- ----- ------- -------- --------
Marvin L. Slosman.... 31,250 2.2 2.40 4/21/09 47,167 119,531
------- ---- ----- ------- -------- --------
</TABLE>
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information concerning year end option values
for fiscal 1999 for the executive officers named in the Summary Compensation
Table. The value of unexercised in-the-money options is calculated based on an
assumed value equal to our initial public offering price of $15.00 per share.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles L. Abraham........... 37,500 $60,000 150,000 562,500 $2,130,000 $7,987,500
------ ------- ------- ------- ---------- ----------
T. Michael Janney............ 3,313 33,788 82,625 101,563 1,160,775 1,404,690
------ ------- ------- ------- ---------- ----------
Scott L. Mathews............. -- -- 56,250 168,750 708,750 2,126,250
------ ------- ------- ------- ---------- ----------
Marvin L. Slosman............ -- -- 85,938 101,563 1,207,815 1,404,690
------ ------- ------- ------- ---------- ----------
</TABLE>
EMPLOYMENT, CHANGE OF CONTROL AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Charles L. Abraham holds the position of Chief Executive Officer and
receives an annual salary of $175,000 per year, subject to adjustment in the
discretion of the compensation committee, and a bonus of up to 40% of his base
salary each year based on performance objectives established by the board. Mr.
Abraham will receive continued salary and benefits for a period of six months if
his employment is terminated without cause. Mr. Abraham also received options to
purchase 750,000 shares of common stock at $0.80 per share, of which 25% or
187,500 shares, vested on the day of grant with the remaining options vesting in
three annual installments of 25% each. If the company experiences a change of
control, 100% of the options will automatically vest.
T. Michael Janney holds the position of Chief Financial Officer and
receives an annual salary of $150,000 per year, subject to adjustment in the
discretion of the compensation committee, and a bonus of up to 30% of his base
salary each year based on performance objectives established by the board. Mr.
Janney will receive continued salary and benefits for a period of six months if
his employment is terminated without cause. Mr. Janney also received options to
purchase 156,250 shares of common stock at $0.80 per share and 31,250 shares of
common stock at $2.40 per share. These options vested 25% on the day of grant
with the remaining options vesting in three annual installments of 25% each. If
the company experiences a change of control, 100% of the options will
automatically vest.
Scott L. Mathews holds the position of President and Chief Operating
Officer and receives an annual salary of $160,000 per year, subject to
adjustment in the discretion of the compensation committee, and a bonus of up to
40% of his base salary each year based on performance objectives established by
the board. Mr. Mathews will receive continued salary and benefits for a period
of six months if his employment is terminated without cause. Mr. Mathews also
received options to purchase 225,000 shares of common stock at $2.40 per share.
These options vested 25% on the day of grant with the remaining options vesting
in three annual installments of 25% each. If the company experiences a change of
control, 100% of the options will automatically vest.
Until May 2000, Marvin L. Slosman held the position of Executive Vice
President of Sales. Mr. Slosman received an annual salary of $150,000 per year,
subject to adjustment in the discretion of the compensation committee, and a
bonus of up to 40% of his base salary each year based on performance objectives
established by the board. Mr. Slosman also received options to purchase 156,250
shares of common stock at $0.80 per share and 31,250 shares of common stock at
$2.40 per share. Pursuant to a separation agreement, Mr. Slosman will remain
employed by us and receive continued salary and benefits through November 2000.
Mr. Slosman will also retain rights to purchase 83,750 option shares vested at
the time of his resignation as well as 39,063 option shares vesting through
September 2000. We will accelerate the vesting of the remaining 54,687 option
shares held by Mr. Slosman and he will retain the rights to then purchase all
vested option
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<PAGE> 10
shares in accordance with the terms of his stock option agreements and the terms
of the Amended and Restated 1996 Equity Compensation Plan.
PERFORMANCE GRAPH
The company had no securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934 during 1999. Therefore, performance comparisons
of our securities as of the end of the 1999 fiscal year are precluded.
SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of our common stock as of May 31, 2000 by:
- Each person or entity who is known by us to beneficially own more than 5%
of our outstanding common stock;
- Each of the executive officers named in the Summary Compensation Table;
- Each of our directors; and
- All directors and executive officers as a group.
A person has beneficial ownership of shares if the individual has the power
to vote or dispose of the shares. This power can be exclusive or shared, direct
or indirect. In addition, a person beneficially owns shares underlying options
or warrants that are presently exercisable or will become exercisable within 60
days of May 31, 2000. Applicable percentage ownership in the following table is
based on 33,094,612 shares of common stock outstanding as of May 31, 2000.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OUTSTANDING OPTIONS OWNED
SHARES EXERCISABLE ASSUMING
BENEFICIALLY WITHIN 60 EXERCISE OF PERCENT OF
NAME OWNED DAYS OPTIONS SHARES
---- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
Safeguard Scientifics, Inc................... 20,866,068 1,138,889 22,004,957 64.3%
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087(1)
Internet Capital Group, Inc.................. 20,866,068 1,138,889 22,004,957 64.3
435 Devon Park Drive
Building 600
Wayne, PA 19087(2)
XL Vision, Inc............................... 5,533,125 0 5,533,125 16.7
10315 102nd Terrace
Sebastian, FL 32958(3)
Technology Leaders I......................... 854,062 74,442 928,504 2.8
435 Devon Park Drive
Building 700
Wayne, PA 19087(4)(6)
Technology Leaders II........................ 920,000 0 920,000 2.8
435 Devon Park Drive
Building 700
Wayne, PA 19087(5)(6)
</TABLE>
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<PAGE> 11
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OUTSTANDING OPTIONS OWNED
SHARES EXERCISABLE ASSUMING
BENEFICIALLY WITHIN 60 EXERCISE OF PERCENT OF
NAME OWNED DAYS OPTIONS SHARES
---- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
Charles Abraham.............................. 67,500 463,750 531,250 1.6
Douglas A. Alexander......................... 0 25,000 25,000 *
Christopher J. Davis......................... 1,000 0 1,000 *
Anthony A. Ibarguen.......................... 0 0 0 *
T. Michael Janney............................ 3,313 90,435 93,748 *
Thomas C. Lynch.............................. 36,795 0 36,795 *
Scott L. Mathews............................. 0 112,500 112,500 *
John W. Poduska, Sr., Ph.D................... 85,450 0 85,450 *
John S. Scott, Ph.D.(7)...................... 25,000 0 25,000 *
Marvin Slosman............................... 10,000 83,750 93,750 *
Executive officers and directors as a group
(11 persons)............................... 229,058 826,060 1,055,118 3.1
</TABLE>
---------------
The symbol * means that the percentage is less than 1%.
(1) Includes 8,083,334 shares beneficially owned by Internet Capital Group, Inc.
("ICG"), 2,460,515 shares owned by Safeguard Delaware, Inc. ("SDI"),
4,153,921 shares owned by Safeguard Scientifics (Delaware), Inc. ("SSD"),
5,533,125 shares beneficially owned by XL Vision, Inc., a corporation that
Safeguard may be deemed to control, and 1,774,062 shares beneficially owned
by Technology Leaders Management, Inc. ("TLM"). SDI, SSD and TLM are wholly
owned subsidiaries of Safeguard. Safeguard, SDI and SSD each has shared
voting and dispositive power with respect to the shares held by each of SDI
and SSD because Safeguard is the sole stockholder of each of SDI and SSD.
The shares beneficially owned by TLM are held through various partnerships
of which TLM is a general partner and may be deemed to control. Safeguard
and ICG have entered into a joint venture agreement that, among other
things, governs how the shares of our common stock that are beneficially
owned by each of them will be voted. Of the 5,533,125 shares beneficially
owned by XL Vision, Inc., 120,721 may be acquired by SDI, 34,757 shares may
be acquired by Technology Leaders L.P., and 39,685 shares may be acquired by
Technology Leaders MI Corp. in payment of a portion of various outstanding
notes of XL Vision, Inc.; 340,000 shares may be acquired upon conversion of
debt of XL Vision by Safeguard 98 Capital L.P., a Delaware limited
partnership of which SDI is the sole general partner; and 160,000 shares may
be acquired by an unrelated third party upon conversion of debt of XL
Vision. The shares beneficially owned by Safeguard include 10,000 shares
subject to an option granted by Safeguard to a third party.
(2) Includes 13,921,623 shares beneficially owned by Safeguard. Safeguard and
ICG have entered into a joint venture agreement that, among other things,
governs how the shares of our common stock that are beneficially owned by
each of them will be voted. Also includes 1,250,000 shares of class A common
stock, 5,694,445 shares of class B common stock, and a warrant to purchase
1,138,889 shares of class B common stock held by 1999 Internet Capital L.P.
("ICG LP"), a Delaware limited partnership of which ICG's wholly owned
subsidiary, ICG Holdings, Inc., is the sole general partner. ICG, ICG LP and
ICG Holdings each has shared voting and dispositive power with respect to
the shares held by ICG LP because ICG is the sole stockholder of ICG
Holdings and ICG Holdings is the sole general partner of ICG LP.
(3) Includes 3,058,125 shares owned by XL Partners, L.P., 500,000 shares that
are subject to an option to holders of its 6% convertible subordinated
notes, 75,000 shares that are subject to options granted to certain XL
Vision employees, and 195,163 shares that XL Vision has an obligation to
transfer to SDI, Technology Leaders L.P. and Technology Leaders MI Corp. in
payment of a portion of various outstanding notes. XL Vision, Inc. is the
sole general partner of XL Partners, L.P.
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(4) Technology Leaders I consists of Technology Leaders L.P. and Technology
Leaders Offshore C.V. Technology Leaders Management L.P., the sole general
partner of Technology Leaders L.P. and a co-general partner of Technology
Leaders Offshore C.V. exercises, through its executive committee, sole
investment, voting and dispositive power with respect to the Shares owned by
such entities. Of the 854,062 Shares beneficially owned by Technology
Leaders I, 398,761 Shares are owned by Technology Leaders L.P. and 455,301
Shares are owned by Technology Leaders MI Corp., a wholly owned subsidiary
of Technology Leaders Offshore C.V. Also includes 34,757 shares that may be
acquired by Technology Leaders L.P. and 39,685 shares that may be acquired
by Technology Leaders MI Corp. in payment of a portion of various
outstanding notes of XL Vision, Inc.
(5) Technology Leaders II consists of Technology Leaders II L.P. and Technology
Leaders II Offshore C.V. Technology Leaders II Management L.P., the sole
general partner of Technology Leaders L.P. and a co-general partner of
Technology Leaders Offshore C.V. exercises, through its executive committee,
sole investment, voting and dispositive power with respect to the Shares
owned by such entities. Of the 920,000 Shares beneficially owned by
Technology Leaders II, 512,716 Shares are owned by Technology Leaders II
L.P. and 407,284 Shares are owned by Technology Leaders II Offshore C.V.
(6) Technology Leaders L.P., Technology Leaders Offshore C.V., Technology
Leaders Management L.P., Technology Leaders MI Corp., Technology Leaders II
L.P., Technology Leaders II Offshore C.V., and Technology Leaders II
Management L.P. may be deemed to be members of a group for purposes of
Sections 13(d) and 13(g) of the Securities Exchange Act of 1934. Technology
Leaders I disclaims beneficial ownership of the securities owned by
Technology Leaders II and Technology Leaders II disclaims beneficial
ownership of the securities owned by Technology Leaders I.
(7) John S. Scott, Ph.D. is Chief Executive Officer and Chairman of the Board of
XL Vision, and disclaims beneficial ownership of the 5,533,125 shares held
by XL Vision.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Equity and Debt Financial Agreements with XL Vision
We were incorporated in September 1994 as a subsidiary of XL Vision, Inc.,
a private company that provides strategic, technical and business support to
create imaging-related technology companies. From inception through June 1999,
we funded our operating and investing cash requirements principally through
private placements of common stock and preferred stock and from borrowings from
XL Vision. As of May 31, 2000, XL Vision owned 16.7% of our common stock.
In July 1997, we signed a subordinated purchase money note with XL Vision
for $4.4 million related to the transfer of infrared technology to the Company.
Approximately $1.4 million was outstanding under the notes as of December 31,
1999. This balance was paid in full with the proceeds we received from our
initial public offering in February 2000.
In December 1998, we issued 2,400,000 shares of series B junior preferred
stock to XLVision, one of our significant stockholders, at a purchase price of
$2.00 per share. As payment for the shares, XL Vision cancelled our debt of $4.8
million, which represented working capital expenditures previously funded by XL
Vision. As a result of that transaction, XL Vision's ownership of our common
stock increased from 22.0% to 35.8% as of December 1998. Also during 1998, XL
Vision canceled $7.5 million of debt, which represented working capital
expenditures previously funded by XL Vision, as a contribution of debt to
equity. The shares of series B preferred stock were converted into 3,000,000
shares of class A common stock concurrent with our initial public offering.
In January 1999, we signed a revolving promissory note with XL Vision for
up to $3.0 million, of which approximately $232,000 was outstanding as of
December 31, 1999. The revolving promissory note bore interest at the prime
lending rate plus 1% and was paid in full with the proceeds received from our
initial public offering.
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Equity and Debt Financing Agreements with Affiliates of Safeguard Scientifics,
Inc.
In April 1999, we signed two promissory notes, totaling $1.1 million with
Safeguard Delaware, a wholly-owned subsidiary of Safeguard Scientifics and the
sole general partner of Safeguard XL Capital and Safeguard 99 Capital L.P., two
of our significant stockholders. Safeguard Scientifics beneficially owns
approximately 42% of the outstanding shares of capital stock of XL Vision. These
promissory notes were paid in full with the proceeds received from the sale of
our series C preferred stock.
In May 1999, we issued 1,000,000 shares of series C preferred stock to
Safeguard 99 Capital L.P., an affiliate of Safeguard Scientifics, at a price of
$5.00 per share. The shares of series C preferred stock converted into 1,250,000
shares of class A common stock concurrent with our initial public offering.
In July 1999, we signed a revolving promissory note with Safeguard Delaware
for up to $3.0 million. At September 30, 1999, Safeguard Delaware had advanced
$3.0 million. The revolving promissory note bore interest at the prime lending
rate plus 1% and was paid in full with the proceeds received from our initial
public offering.
In August 1999, we signed a demand note with Safeguard Delaware in the
principal amount of $2.5 million. The note bore interest at the prime rate plus
1% was payable on demand. In September 1999, we signed a demand note with
Safeguard Delaware in the principal amount of $2.0 million. The note bore
interest at the prime rate plus 1% was payable on demand. In October 1999, we
signed a demand note with Safeguard Delaware in the principal amount of $2.5
million. The note bore interest at the prime rate plus 1% was payable on demand.
In October 1999, we cancelled these outstanding notes in exchange for a note in
the amount of $7.1 million. As of December 31, 1999, we owed a total of
approximately $10.3 million to Safeguard Delaware. This balance was paid in full
with the proceeds received from our initial public offering.
Issuance of Preferred Stock and a Warrant to Internet Capital Group, Inc.
On November 16, 1999, we issued 4,555,556 shares of series D preferred
stock and a warrant to purchase 1,138,889 shares of class B common stock for the
aggregate consideration of $38.8 million to Internet Capital Group, Inc.
We received $18.0 million of the total purchase price in cash and $23.0
million in the form of a promissory note. The note will be due and payable one
year after its issue and does not bear interest. The note is secured by
3,194,445 shares of class B common stock, which Internet Capital Group received
upon conversion of its series D preferred stock in connection with our initial
public offering. Interest on the promissory note was imputed at 9.5% and amounts
to $2.2 million over the life of the note.
The series D preferred stock automatically converted into shares of class B
common stock concurrent with our initial public offering. The class B common
stock is entitled to two and one-half votes per share. The warrant expires three
years from the date of issuance and is exercisable at $15 per share. The class B
common stock automatically converts into class A common stock upon transfer by
Internet Capital Group to a non-affiliated party.
Douglas A. Alexander, one of our directors, is an executive officer of
Internet Capital Group. Anthony A. Ibarguen, also one of our directors, is a
managing director of Internet Capital Group. Additionally, Safeguard Scientifics
beneficially owns 13.6% of the outstanding shares of common stock of Internet
Capital Group as of May 31, 2000.
Internet Capital Group and Safeguard Scientifics are parties to a joint
venture agreement under which each has agreed to:
- Use best efforts to agree and vote on a course of action that is in the
best interest of both parties in all matters submitted to the
stockholders for approval;
- Vote its shares for the election of two designees of Safeguard
Scientifics and two designees of Internet Capital Group in any election
of directors of eMerge Interactive, Inc.;
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<PAGE> 14
- Offer shares of our stock to the other party at the fair market price of
the shares before offering the shares to any unaffiliated party, other
than in a sale of all of its shares; and
- Discuss its intentions with the other party before selling all of its
shares to an unaffiliated party and use its best efforts to provide the
other party with the opportunity to purchase or participate in the
purchase of the shares.
Together, Internet Capital Group and Safeguard Scientifics beneficially own
64.3% of our capital stock and as a result control approximately 73% of the
voting power of our capital stock as of May 31, 2000.
Service Agreements with XL Vision and Safeguard Scientifics, Inc.
We have contractual service agreements with XL Vision and Safeguard
Scientifics. Under an administrative services agreement dated December 15, 1997,
as amended on August 17, 1999, XL Vision and Safeguard Scientifics provide us
with management consultation, investor relations, financial management, human
resource management, legal services, insurance programs, and administrative
services. We pay a fee pursuant to a formula that is based on a percentage of
our revenue, not to exceed $300,000 annually. The fee is not due until we
achieve positive cash flow from operations. We owe XL Vision and Safeguard
Scientifics each $26,600 for fiscal 1999. The agreement with XL Vision, Inc.
extends through December 31, 2002, and continues unless terminated by either
party. The agreement with Safeguard Scientifics, Inc. was terminated effective
April 1, 2000.
Under a direct charge administrative services agreement dated April 14,
1997, XL Vision also provides us with management services on a time and
materials basis. We owe XL Vision $455,000 for fiscal 1999. This agreement
continues on a month-to-month basis, and may be terminated at any time by either
party.
Real Estate Lease with XL Vision
We currently lease our facilities in Sebastian, Florida from XL Vision,
Inc., which leases the entire facility from XL Realty, Inc., a subsidiary of
Safeguard Scientifics. We believe that the rent that we pay pursuant to the
lease is consistent with the market rent for similar space in the area. The
lease terminates on January 1, 2001, and we will have the option to renew the
lease for an additional one-year term.
Loan Agreement with Mr. Abraham
On January 28, 2000, we entered into a term note with Charles L. Abraham,
our Chief Executive Officer, under which Mr. Abraham borrowed $100,000. The
proceeds of the loan were used to finance the exercise of options to purchase
30,000 shares of our common stock and to pay related taxes. The note bore
interest at the prime lending rate plus 1% and was payable on the earlier of the
second anniversary of the date of the note or the date on which Mr. Abraham
received a bonus from us relating to the successful completion of our initial
public offering. The note was secured by shares of our common stock owned by Mr.
Abraham pursuant to a pledge agreement. On April 18, 2000, the note was paid in
full when Mr. Abraham received a bonus from us relating to the successful
completion of our initial public offering.
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PROPOSAL 2
ADOPTION OF AN AMENDMENT TO THE 1999 EQUITY COMPENSATION PLAN
BACKGROUND
The 1999 Equity Compensation Plan (the 1999 Plan) became effective on, and
was adopted by our Board on, April 22, 1999, and was approved by our
stockholders on May 10, 1999. Our Board has approved and recommended to the
stockholders that they approve an amendment to increase the number of shares
authorized for issuance under the 1999 Plan from 2,500,000 to 4,000,000 shares.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO THE 1999 PLAN.
Approval of this amendment requires a majority of the votes cast at a meeting at
which a quorum representing a majority of all outstanding voting stock is
present, either in person or by proxy, and voting on the amendment.
PURPOSE OF THE 1999 PLAN
The 1999 Plan provides participants with an opportunity to receive grants
of incentive stock options, nonqualified stock options, stock appreciation
rights, restricted stock and performance units. We have historically granted
incentive stock options and nonqualified stock options with an exercise price
that generally has been equal to the fair market value on the grant date. We
most likely will continue to do so in the future. However, to remain competitive
and to be able to continue attracting and retaining outstanding employees,
directors, consultants and advisors, our 1999 Plan provides the flexibility for
other types of grants. The purpose of the 1999 Plan is to encourage the
participants to contribute to our growth, thus benefiting our stockholders, and
aligning the economic interests of the participants with those of our
stockholders. The 1999 Plan is not a tax-qualified plan under section 401(a) of
the Internal Revenue Code (the Code) and is not subject to the provisions of the
Employee Retirement Income Security Act of 1974.
SHARES SUBJECT TO THE 1999 PLAN
The 1999 Plan, as amended, authorizes the issuance of up to 4,000,000
shares of our common stock, subject to adjustment as discussed below. The
maximum number of shares that may be granted to any individual under the 1999
Plan during any calendar year is 625,000 shares. Shares of common stock issued
under the 1999 Plan may be authorized but unissued shares or may be reacquired
shares, including shares purchased by us on the open market. If options or stock
appreciation rights granted under the plan terminate, expire or are canceled,
forfeited, exchanged or surrendered without being exercised, or if a restricted
stock award or performance unit is forfeited, those shares will again be
available for purposes of the 1999 Plan.
There are no current plans to authorize any specific grants under the 1999
Plan from the additional 1,500,000 shares that were authorized. After giving
effect to the increase in the number of authorized shares in the plan, at June
21, 2000, of the 4,000,000 shares authorized for issuance, 9,375 shares have
been issued upon exercise of options, 1,957,226 shares are subject to options
outstanding under the plan, and 2,033,399 shares remain available for future
issuance. The closing price of a share of our common stock on June 21, 2000, was
$17.8125.
ADMINISTRATION OF THE 1999 PLAN
The 1999 Plan is administered by the compensation committee of the Board,
which is currently composed of John S. Scott and Thomas C. Lynch. The committee
has the authority to administer and interpret the 1999 Plan. Specifically, the
committee is authorized to
- determine the individuals to whom grants will be made,
- determine the type, size and terms of the grants,
- determine the time when the grants will be made and the duration of any
applicable exercise or restriction period, including the criteria for
exercisability and the acceleration of exercisability,
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<PAGE> 16
- make factual determinations and adopt or amend appropriate rules,
regulations, agreements, and instruments for implementing the 1999 Plan,
and
- deal with any other matters arising under the plan.
ELIGIBILITY FOR PARTICIPATION AND GRANTS
Those eligible to receive grants under the 1999 Plan are all of our
employees and employees of our subsidiaries, individuals to whom we have offered
employment, non-employee directors, and our advisors and advisors of our
subsidiaries. As of May 31, 2000, there were approximately 190 employees and 6
non-employee directors currently eligible to receive grants.
Grants may consist of incentive stock options, nonqualified stock options,
restricted stock, stock appreciation rights, and performance units. All grants
are subject to the terms and conditions of the 1999 Plan.
Grants will continue to vest and remain exercisable as long as a
participant remains in our service, and may be exercisable for a period of time
after termination of service. In determining whether a participant will be
considered to have terminated service for purposes of exercising options and
stock appreciation rights and satisfying conditions with respect to restricted
stock and performance units, a participant will not be considered to have
terminated service until the participant ceases to serve as an employee, advisor
or member of the board. The committee may waive or modify these termination
provisions.
STOCK OPTIONS
Grant of Stock Options. The committee may grant options qualifying as
incentive stock options only to employees. The committee may grant nonqualified
stock options to any participant. Grants to employees may be made in any
combination of incentive stock options and nonqualified stock options.
Option Price. The option exercise price is determined by the committee at
the time of grant. To qualify as an incentive stock option, the exercise price
may not be less than the fair market value of our common stock at the time of
grant. Also, the value (determined as of the grant date) of any incentive stock
options held by a participant that become exercisable for the first time during
any calendar year cannot exceed $100,000. If a grantee owns stock having more
than 10% of our voting power, the exercise price of an incentive stock option
may not be less than 110% of the fair market value of our common stock on the
date of grant.
Term and Exercisability of Stock Options. The committee determines the
term of stock options granted under the 1999 Plan, although the term may not
exceed ten years from the date of grant. If a grantee owns stock having more
than 10% of our voting power, the term of the incentive stock option may not
exceed five years from the date of grant. The committee determines how stock
options will become exercisable and may accelerate the exercisability at any
time for any reason.
Manner of Exercise of Stock Options. To exercise a stock option, a grantee
must deliver an exercise notice specifying the number of shares to be purchased
together with payment of the option exercise price. The exercise price may be
paid in any of the following ways:
- in cash,
- by delivering shares of our common stock already owned by the participant
having a fair market value equal to the exercise price,
- payment through a broker, or
- any other method of payment the committee may approve.
For a nonqualified stock option, we are also required to withhold
applicable taxes. If approved by the committee, the income tax withholding
obligation may be satisfied by withholding shares of an equivalent market value.
Shares of common stock tendered in payment of the exercise price must have
been held by the participant long enough to avoid adverse accounting
consequences to us.
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Termination of Stock Options as a Result of Termination of Employment,
Disability or Death. Generally, exercisable stock options will remain
exercisable for a period of time following termination of service as follows:
- one year following termination of service if an individual is disabled,
dies, or dies within 90 days after termination of service without cause
or
- 90 days following termination of service for any other reason other than
cause.
The committee may provide for different termination provisions. Options
which are not exercisable at the termination of service are terminated as of
that date.
If service is terminated for cause, all stock options held by a participant
will cease to be exercisable on the date of termination. In addition, all shares
underlying exercised options will be forfeited upon refund by us of the exercise
price for such shares.
RESTRICTED STOCK GRANTS
The committee may provide a participant with an opportunity to acquire
shares of our common stock contingent upon his or her continued service or the
satisfaction of other criteria. Restricted stock differs from a stock option in
that a participant must make an immediate decision whether to make an investment
in the stock. The committee determines the amount to be paid for the stock or
may decide to grant the stock for no consideration. The committee may specify
that the restrictions will lapse over a period of time or according to any other
factors or criteria. If a participant's service terminates during the period of
any restrictions, the restricted stock grant will terminate with respect to all
shares as to which the restrictions on transfer have not lapsed unless the
committee provides for an exception to this requirement. Until the restrictions
on the transfer have lapsed, a participant may generally not dispose of the
shares of common stock to which the restriction applies. All restrictions lapse
upon the expiration of the applicable restriction period. Unless the committee
determines otherwise, however, during the restriction period the participant has
the right to vote restricted shares and receive any dividends or other
distributions paid on them, subject to any restrictions specified by the
committee.
STOCK APPRECIATION RIGHTS
The committee may provide a participant with the right to receive a benefit
measured by the appreciation in a specified number of shares of our common stock
over a period of time. The amount of this benefit is equal to the difference
between the fair market value of the stock on the exercise date and the base
amount of the stock appreciation right (SAR). Generally, the base amount of a
SAR is equal to the per share exercise price of the related stock option or, if
there is no related option, the fair market value of a share of our common stock
on the date the SAR is granted. The committee may pay this benefit in cash, in
stock, or any combination of the two.
The committee may grant a SAR either separately or in tandem with all or a
portion of a stock option. SARs may be granted when the stock option is granted
or later while it remains outstanding, although in the case of an incentive
stock option, SARs may be granted only at the time the option is granted. Tandem
SARs may not exceed the number of shares of common stock that the participant
may purchase upon the exercise of the related stock option during the period.
Upon the exercise of a stock option, the SARs relating to the common stock
covered by the stock option terminate. Upon the exercise of SARs, the related
stock option terminates to the extent of an equal number of shares of common
stock.
SARs are subject to the same termination on death, disability or
termination of service provisions as stock options. The committee may accelerate
the exercisability of any or all outstanding SARs.
PERFORMANCE UNITS
The committee may grant performance units to a participant representing a
right to receive an amount based on the value of the performance unit if the
performance goals established by the committee are met. A
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<PAGE> 18
performance unit will be based on the fair market value of a share of our common
stock or on any other measurement base that the committee deems appropriate. The
committee will determine the number of performance units to be granted, the
requirements applicable to the performance units, the period during which the
performance will be measured, the performance goals applicable to the
performance units, and any other conditions that the committee deems
appropriate. At the end of each performance period, the committee will determine
to what extent the performance goals and other conditions of the performance
unit have been met and the amount, if any, to be paid with respect to the
performance units. Payments may be made in cash, in common stock, or in a
combination of the two, as determined by the committee. Unless the committee
provides for a complete or partial exception, performance units are forfeited if
the conditions of the grant are not met or if the participant terminates
service.
QUALIFIED PERFORMANCE-BASED COMPENSATION
The committee may designate performance units and restricted stock granted
to an employee as qualified performance-based compensation under section 162(m)
of the Code upon the establishment of appropriate performance goals and
performance periods as provided in section 162(m) of the Code. If restricted
stock or performance units, measured with respect to the fair market value of
our common stock, are granted, not more than 625,000 shares may be granted to an
employee for any performance period. If performance units are measured with
respect to other criteria, the maximum amount that may be paid to an employee
with respect to a performance period is $1,000,000. The committee will certify
and announce the results for each performance period to all participants
immediately following the announcement of our financial results for the
performance period. To the extent the committee does not certify that the
performance goals have been met, the grants of restricted stock or performance
units for the performance period will be forfeited.
TRANSFERABILITY OF GRANTS
Generally, only a participant may exercise rights under a grant during his
or her lifetime, and those rights may not be transferred except by will or by
the laws of descent and distribution. When a participant dies, the personal
representative or other person entitled to succeed to his or her rights may
exercise those rights upon furnishing satisfactory proof of that person's right
to receive the grant. The committee may nevertheless choose to provide with
respect to grants of nonqualified stock options that a participant may transfer
those grants to family members or other persons or entities. The committee may
also permit the transfer of grants, other than incentive stock options, pursuant
to a domestic relations order.
TERMINATION OF THE 1999 PLAN
The board may amend or terminate the 1999 Plan at any time. The 1999 Plan
will terminate, unless it is terminated earlier by the board or extended by the
board with the approval of our stockholders, on April 21, 2009.
ADJUSTMENT PROVISIONS
The committee will adjust the number and exercise price of outstanding
grants, as well as the number and kind of shares available for grants and
individual limits for any single participant under the 1999 Plan, to
appropriately reflect any of the following events:
- a stock dividend, spinoff, recapitalization, stock split, or combination
or exchange of shares;
- a merger, reorganization or consolidation in which we are the surviving
corporation;
- a reclassification or change in par value;
- any other extraordinary or unusual event affecting the outstanding common
stock as a class without our receipt of consideration; or
- a substantial reduction in the value of outstanding shares of common
stock as a result of a spinoff or our payment of an extraordinary
dividend or distribution.
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REORGANIZATION; CHANGE IN CONTROL
Unless the committee determines otherwise, upon a reorganization where we
are not the surviving corporation, or we survive only as a subsidiary of another
corporation, all outstanding stock options and SARs that are not exercised will
be assumed by, or replaced with comparable options or rights by, the surviving
corporation.
Unless the committee determines otherwise, a change of control will not
result in the acceleration of exercisability of outstanding stock options or
SARs, the removal of restrictions and conditions on outstanding restricted stock
awards, or any accelerated payments in connection with outstanding performance
units.
However, the committee may elect to take any of the following actions:
- require that participants surrender their outstanding options and SARs in
exchange for a payment, in cash or common stock, in an amount equal to
the amount by which the then fair market value subject to the grants
exceeds the exercise price of the options or the base amount of the SARs
or
- terminate any or all unexercised options or SARs after giving
participants an opportunity to exercise the options or SARs.
The committee does not have the right to take any actions that would make
the reorganization or change of control ineligible for pooling of interests
accounting treatment or desired tax treatment if the reorganization or change of
control would otherwise qualify for this treatment and we intend to use this
treatment with respect to the transaction.
FEDERAL INCOME TAX CONSEQUENCES
The current federal income tax treatment of grants under the 1999 Plan is
described below. Local and state tax authorities also may tax incentive
compensation awarded under the 1999 Plan. Because of the complexities involved
in the application of tax laws to specific circumstances and the uncertainties
as to possible future changes in those laws, we urge participants to consult
their own tax advisors concerning the application of the general principles
discussed below to their own situations and the application of state and local
tax laws.
Incentive Stock Options
A participant will not recognize taxable income for the purpose of the
regular income tax upon either the grant or exercise of an incentive stock
option. However, for purposes of the alternative minimum tax imposed under the
Code, in the year in which an incentive stock option is exercised, the amount by
which the fair market value of the shares acquired upon exercise exceeds the
exercise price will be treated as an item of adjustment.
If a participant disposes of the shares acquired under an incentive stock
option after at least two years following the date of grant and at least one
year following the date of exercise, the participant will recognize a long-term
capital gain or loss equal to the difference between the amount realized upon
the disposition and the exercise price. We will not be entitled to any tax
deduction by reason of the grant or exercise of the incentive stock option.
If a participant disposes of shares acquired upon exercise of an incentive
stock option before satisfying both holding period requirements (known as a
disqualifying disposition), the gain recognized on the disposition will be taxed
as ordinary income to the extent of the difference between the lesser of the
sale price or the fair market value of the shares on the date of exercise and
the exercise price. We will be entitled to a federal income tax deduction in the
same amount. The gain, if any, in excess of the amount recognized as ordinary
income on a disqualifying disposition will be long-term or short-term capital
gain, depending upon the length of time the participant held the shares before
the disposition.
If a participant tenders shares of common stock received upon the exercise
of an incentive stock option to pay the exercise price within either the
two-year or one-year holding periods described above, the disqualifying
17
<PAGE> 20
disposition of the shares used to pay the exercise cost will result in income
(or loss) to the participant and, to the extent of a recognized gain, a tax
deduction to us. If, however, the holding period requirements are met and the
number of shares received on the exercise does not exceed the number of shares
surrendered, the participant will recognize no gain or loss with respect to the
surrendered shares and will have the same basis and holding period with respect
to the newly acquired shares as with respect to the surrendered shares. To the
extent that the number of shares received exceeds the number surrendered, the
participant's basis in the excess shares will equal the amount of cash paid by
the participant upon the original exercise of the stock option, and the
participant's holding period with respect to the excess shares will begin on the
date the shares are transferred to the participant. The tax treatment described
above for shares newly received upon exercise is not affected by using shares to
pay the exercise price.
Nonqualified Stock Options
There are no federal income tax consequences to a participant or us upon
the grant of a nonqualified stock option. Upon the exercise of a nonqualified
stock option, a participant will generally recognize ordinary income in an
amount equal to the excess of the fair market value of the shares at the time of
exercise over the exercise price, and we will be entitled to a corresponding
federal income tax deduction.
If a participant surrenders shares to pay the exercise price, and the
number of shares received on the exercise does not exceed the number of shares
surrendered, the participant will recognize no gain or loss on the surrendered
shares, and will have the same basis and holding period for the newly acquired
shares as for the surrendered shares. To the extent that the number of shares
received exceeds the number surrendered, the fair market value of the excess
shares on the date of exercise, reduced by any cash paid by the participant upon
exercise, will be includible in the gross income of the participant. The
participant's basis in the excess shares will equal the sum of the cash paid by
the participant upon the exercise of the stock option plus any amount included
in the participant's gross income as a result of the exercise of the stock
option.
The committee may permit a participant to elect to surrender or deliver
shares otherwise issuable upon exercise, or previously acquired shares, to
satisfy the federal income tax withholding, subject to the restrictions set
forth in the 1999 Plan. Such an election will result in a disposition of the
shares which are surrendered or delivered, and an amount will be included in the
participant's income equal to the excess of the fair market value of the shares
over the participant's basis in the shares.
Upon the sale of the shares acquired by the exercise of a nonqualified
stock option, a participant will have a capital gain or loss (long-term or
short-term depending upon the length of time the shares were held) in an amount
equal to the difference between the amount realized upon the sale and the
participant's adjusted tax basis in the shares (the exercise price plus the
amount of ordinary income recognized by the participant at the time of exercise
of the nonqualified stock options).
Restricted Stock
A participant normally will not recognize taxable income upon the award of
a restricted stock grant, and we will not be entitled to a deduction, until the
stock is transferable by the participant or no longer subject to a substantial
risk of forfeiture for federal tax purposes, whichever occurs earlier. When the
common stock is either transferable or is no longer subject to a substantial
risk of forfeiture, the participant will recognize ordinary compensation income
in an amount equal to the fair market value of the common stock at that time,
less any consideration paid by the participant for the shares, and we will be
entitled to a federal income tax deduction in the same amount. A participant
may, however, elect to recognize ordinary compensation income in the year the
restricted stock grant is awarded in an amount equal to the fair market value of
our common stock at that time less any consideration paid by the participant for
the shares, determined without regard to the restrictions. In such event, we
generally will be entitled to a corresponding federal income tax deduction in
the same year. Any gain or loss recognized by the participant upon a subsequent
disposition of the shares will be capital gain or loss. If, after making the
election, any shares subject to a restricted stock grant are forfeited, or if
the market value declines during the restriction period, the participant is not
entitled to any tax deduction
18
<PAGE> 21
or tax refund if the participant does not recover any consideration paid by the
participant for the restricted stock.
Stock Appreciation Rights
There are no federal income tax consequences to a participant or to us upon
the grant of a SAR. Upon the exercise of a SAR, a participant will recognize
ordinary compensation income in an amount equal to the cash and the fair market
value of the shares of common stock received upon exercise. We generally will be
entitled to a corresponding federal income tax deduction at the time of
exercise. Upon the sale of any shares acquired by the exercise of a SAR, a
participant will have a capital gain or loss (long-term or short-term depending
upon the length of time the shares were held) in an amount equal to the
difference between the amount realized upon the sale and the participant's
adjusted tax basis in the shares (the amount of ordinary income recognized by
the participant at the time of exercise of the SAR).
Performance Units
A participant will not recognize any income upon the grant of a performance
unit. At the time the committee determines an amount, if any, to be paid with
respect to performance units, the participant will recognize ordinary
compensation income in an amount equal to the cash and the fair market value of
the shares of common stock authorized for payment by the committee. We generally
will be entitled to a corresponding federal income tax deduction. Upon the sale
of any shares acquired, a participant will have a capital gain or loss
(long-term or short-term depending upon the length of time the shares were held)
in an amount equal to the difference between the amount realized upon the sale
and the participant's adjusted tax basis in the shares (the amount of ordinary
income recognized by the participant upon payment of the shares).
Transfer of Stock Options
The committee may permit participants to transfer nonqualified stock
options to family members or other persons or entities, consistent with
applicable law. The tax consequences of stock option transfers are complex and
should be carefully evaluated by a personal tax advisor.
Generally, a participant will not recognize income at the time the
participant makes a gift of a nonqualified stock option to a family member or
other person or entity. When the transferee later exercises the option, the
participant (and not the transferee) must recognize ordinary income on the
difference between the fair market value of the stock and the exercise price.
For federal gift tax purposes, if the participant transfers an option
before the option has become exercisable, the transfer will not be considered by
the Internal Revenue Service to be a completed gift until the option becomes
exercisable. Gifts of options may qualify for the $10,000 gift tax annual
exclusion. If the participant dies after transferring an option in a completed
gift transaction, the transferred option may be excluded from the participant's
estate for estate tax purposes if the applicable estate tax requirements have
been met.
Tax Withholding
All grants under the 1999 Plan are subject to applicable tax withholding
requirements. We have the right to deduct from all grants paid in cash, or from
other wages paid to a participant, any taxes required by law to be withheld with
respect to the grant. If grants are paid in shares of our common stock, we may
require a participant to pay the amount of any taxes that we are required to
withhold or may deduct the amount of withholding taxes from other wages paid to
the participant. If approved by the committee, the income tax withholding
obligation with respect to grants paid in common stock may be satisfied by
having shares withheld up to an amount that does not exceed the participant's
maximum marginal tax rate for federal (including FICA), state and local tax
liabilities. Our obligations under the 1999 Plan are conditional upon the
payment or arrangement for payment of any required withholding.
19
<PAGE> 22
Section 162(m)
Under section 162(m) of the Code, we may be precluded from claiming a
federal income tax deduction for total remuneration in excess of $1,000,000 paid
to the chief executive officer or to any of the other four most highly
compensated officers in any one year. Total remuneration may include amounts
received upon the exercise of stock options and SARs granted under the 1999
Plan, the value of shares subject to restricted stock grants when the shares
become nonforfeitable (or such other time when income is recognized) and the
amounts received pursuant to other grants under the 1999 Plan. An exception does
exist, however, for "performance-based compensation." Grants of stock options
and SARs generally will meet the requirements of "performance-based
compensation." Restricted stock grants generally will not qualify as, and
performance units may not qualify as, "performance-based compensation."
OTHER BUSINESS
The board is not aware of any other matter that may be presented for action
at the Annual Meeting of Stockholders. Should any other matter requiring a vote
of the stockholders arise, the enclosed proxy card gives authority to the
persons listed on the card to vote at their discretion in our best interest.
Representatives of KPMG LLP ("KPMG"), our independent certified public
accountants, will be present at the Annual Meeting to respond to appropriate
questions and to make a statement if the representatives so desire. KPMG has
audited our financial statements since 1996.
STOCKHOLDER PROPOSALS FOR THE 2001 ANNUAL MEETING OF STOCKHOLDERS
If you wish us to consider including a stockholder proposal in the proxy
statement for the annual meeting in 2001, you must submit the proposal, in
writing, so that our corporate secretary receives it no later than March 1,
2001. The proposal must meet the requirements established by the Securities and
Exchange Commission. If you wish to present a proposal at the annual meeting in
2001 that has not been included in the proxy statement, the management proxies
will be allowed to use their discretionary voting authority unless notice of
your proposal has been received by our corporate secretary no later than May 15,
2000. Your proposal should be sent to: eMerge Interactive, Inc., Attention:
Corporate Secretary, 10315 102nd Terrace, Sebastian, Florida 32958.
ANNUAL REPORT AND FINANCIAL STATEMENTS
A copy of our Form 10-K/A accompanies this proxy statement. Upon written
request, we will provide an additional Form 10-K/A copy or copies to any
stockholder as of the record date. Such requests should be directed to: eMerge
Interactive, Inc., Attention: Corporate Secretary, 10315 102nd Terrace,
Sebastian, Florida 32958.
We have chosen to mail our Financial Statements on Form 10-K/A with this
proxy material to stockholders, such mailing to take place on or about June 29,
2000.
20
<PAGE> 23
APPENDIX A
[eMERGE INTERACTIVE LOGO]
10315 102nd Terrace
Sebastian, Florida 32958
PROXY CARD
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Charles L. Abraham and T. Michael Janney (together or individually referred to
herein as the "Proxies"), or either of them, are hereby authorized, with full
power of substitution, to represent and to vote the stock of the undersigned at
the Annual Meeting of Stockholders of eMerge Interactive, Inc., or at any
adjournment, upon such business as may properly come before the meeting,
including the items set forth in the Proxy Statement. The Annual Meeting of
Stockholders of eMerge Interactive, Inc. will be held on Wednesday, July 19,
2000, at 2:30 p.m., Eastern Daylight Savings Time, at the Desmond Great Valley
Hotel and Conference Center, One Liberty Blvd., Malvern, PA, 19355.
ELECTION OF DIRECTORS
Nominees: Charles L. Abraham, John S. Scott, Ph.D., Douglas A. Alexander,
Thomas C. Lynch, John W. Poduska, Sr., Ph.D., Anthony A. Ibarguen, Christopher
J. Davis
FOR the above slate of nominees: _____
WITHHELD for the above slate: _____
If withheld for only part of the slate, please list the nominee(s)
that you are NOT in favor of:
---------------------------------------------------------------
AMENDMENT TO THE EMERGE INTERACTIVE, INC. 1999 EQUITY COMPENSATION PLAN TO
INCREASE THE NUMBER OF SHARES AVAILABLE FOR GRANT FROM 2,500,000 TO 4,000,000
FOR the amendment to increase the shares
available in the 1999 Equity Compensation Plan: _____
AGAINST the amendment to increase the shares
available in the 1999 Equity Compensation Plan: _____
ABSTAIN from the amendment to increase the
shares available in the 1999 Equity Compensation Plan: _____
Your are encouraged to specify your choices by marking the appropriate box.
This Proxy, when properly executed, is voted in the manner directed herein by
the undersigned stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE ELECTION OF THE DIRECTORS AND FOR THE AMENDMENT TO EMERGE INTERACTIVE,
INC.'S 1999 EQUITY COMPENSATION PLAN TO INCREASE SHARES AVAILABLE FOR GRANT
THEREUNDER. The Proxies cannot vote your shares unless you sign and return the
Card. The Proxies are hereby authorized to voted upon such other business as
may properly come before the meeting.
I plan to attend the meeting: ____
Signature: Date:
--------------------------------------- ------------
Signature: Date:
--------------------------------------- ------------
<PAGE> 24
APPENDIX B
EMERGE INTERACTIVE, INC.
1999 EQUITY COMPENSATION PLAN
The purpose of the eMerge Interactive, Inc. 1999 Equity Compensation
Plan (the "Plan") is to provide (i) designated employees of eMerge Interactive,
Inc. (the "Company") and its subsidiaries, (ii) individuals to whom an offer of
employment has been extended, (iii) certain advisors who perform services for
the Company or its subsidiaries, and (iv) non-employee members of the Board of
Directors of the Company (the "Board") with the opportunity to receive grants
of incentive stock options, nonqualified stock options, stock appreciation
rights, restricted stock and performance units. The Company believes that the
Plan will encourage the participants to contribute materially to the growth of
the Company, thereby benefiting the Company's stockholders, and will align the
economic interests of the participants with those of the stockholders.
1. Administration
(a) Committee. The Plan shall be administered and interpreted
by a committee appointed by the Board (the "Committee"). The Committee shall
consist of two or more persons appointed by the Board, all of whom may be
"outside directors" as defined under section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code") and related Treasury regulations and may
be "non-employee directors" as defined under Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Except to the extent
prohibited by applicable law or the applicable rules of a stock exchange, the
Committee may allocate all or any portion of its responsibilities and powers to
any one or more of its members or may delegate all or any part of its
responsibilities and powers to any person or persons selected by it. Any such
allocation or delegation may be revoked by the Committee at any time. If the
Committee does not exist, or for any other reason determined by the Board, the
Board may take any action under the Plan that would otherwise be the
responsibility of the Committee.
(b) Committee Authority. The Committee shall have the sole
authority to (i) determine the individuals to whom grants shall be made under
the Plan, (ii) determine the type, size and terms of the grants to be made to
each such individual, (iii) determine the time when the grants will be made and
the duration of any applicable exercise or restriction period, including the
criteria for exercisability and the acceleration of exercisability, and (iv)
deal with any other matters arising under the Plan.
(c) Committee Determinations. The Committee shall have full
power and authority to administer and interpret the Plan, to make factual
determinations and to adopt or amend such rules, regulations, agreements and
instruments for implementing the Plan and for the conduct of its business as it
deems necessary or advisable, in its sole discretion. The Committee's
interpretations of the Plan and all determinations made by the Committee
pursuant to the powers vested in it hereunder shall be conclusive and binding
on all persons having any interest in the Plan or in any awards granted
hereunder. All powers of the Committee shall be executed in its sole
discretion, in the best interest of the Company, not as a fiduciary, and in
keeping with the objectives of the Plan and need not be uniform as to similarly
situated individuals.
2. Grants
Awards under the Plan may consist of grants of incentive stock options
as described in Section 5 ("Incentive Stock Options"), nonqualified stock
options as described in Section 5 ("Nonqualified Stock Options") (Incentive
Stock Options and Nonqualified Stock Options are collectively referred to as
"Options"), restricted stock as described in Section 6 (Restricted Stock"),
stock appreciation rights as described in Section 7 ("SARs"), and performance
units as described in Section 8 ("Performance Units") (hereinafter collectively
referred to as "Grants"). All Grants shall be subject to the terms and
conditions set forth herein and to such other terms and conditions consistent
with this Plan as the Committee deems appropriate and as are specified in
writing by the Committee to the individual in a grant instrument (the "Grant
Instrument") or an amendment to the Grant Instrument. The Committee shall
approve the basic form and provisions of each Grant Instrument. Grants under a
particular Section of the Plan need not be uniform as among the grantees.
<PAGE> 25
3. Shares Subject to the Plan
(a) Shares Authorized. Subject to the adjustment specified
below, the aggregate number of shares of common stock of the Company ("Company
Stock") that may be issued or transferred under the Plan is 4,000,000 shares.
The maximum aggregate number of shares of Company Stock that shall be subject
to Grants made under the Plan to any individual during any calendar year shall
be 625,000 shares. The shares may be authorized but unissued shares of Company
Stock or reacquired shares of Company Stock, including shares purchased by the
Company on the open market for purposes of the Plan. If and to the extent
Options or SARs granted under the Plan terminate, expire, or are canceled,
forfeited, exchanged or surrendered without having been exercised, or if any
shares of Restricted Stock or Performance Units are forfeited, the shares
subject to such Grants shall again be available for purposes of the Plan.
(b) Adjustments. If there is any change in the number or kind
of shares of Company Stock outstanding (i) by reason of a stock dividend,
spinoff, recapitalization, stock split or combination or exchange of shares,
(ii) by reason of a merger, reorganization or consolidation in which the
Company is the surviving corporation, (iii) by reason of a reclassification or
change in par value, or (iv) by reason of any other extraordinary or unusual
event affecting the outstanding Company Stock as a class without the Company's
receipt of consideration, or if the value of outstanding shares of Company
Stock is substantially reduced as a result of a spinoff or the Company's
payment of an extraordinary dividend or distribution, the maximum number of
shares of Company Stock available for Grants, the maximum number of shares of
Company Stock that any individual participating in the Plan may be granted in
any year, the number of shares covered by outstanding Grants, the kind of
shares issued under the Plan, and the price per share or the applicable market
value of such Grants shall be appropriately adjusted by the Committee to
reflect any increase or decrease in the number of, or change in the kind or
value of, issued shares of Company Stock to preclude, to the extent
practicable, the enlargement or dilution of rights and benefits under such
Grants; provided, however, that any fractional shares resulting from such
adjustment shall be eliminated by rounding any portion of a share equal to .5
or greater up, and any portion of a share equal to less than .5 down, in each
case to the nearest whole number. Any adjustments determined by the Committee
shall be final, binding and conclusive.
4. Eligibility for Participation
(a) Eligible Persons. All employees of the Company and its
subsidiaries ("Employees"), including Employees who are officers or members of
the Board, individuals to whom an offer of employment has been extended ("New
Hire"), and members of the Board who are not Employees ("Non-Employee
Directors") shall be eligible to participate in the Plan. Advisors who perform
services to the Company or any of its subsidiaries ("Key Advisors") shall be
eligible to participate in the Plan if the Key Advisors render bona fide
services and such services are not in connection with the offer or sale of
securities in a capital-raising transaction.
(b) Selection of Grantees. The Committee shall select the
Employees, New Hires, Non-Employee Directors and Key Advisors to receive Grants
and shall determine the number of shares of Company Stock subject to a
particular Grant in such manner as the Committee determines. Employees, New
Hires, Key Advisors, and Non-Employee Directors who receive Grants under this
Plan shall hereinafter be referred to as "Grantees."
5. Granting of Options
(a) Number of Shares. The Committee shall determine the
number of shares of Company Stock that will be subject to each Grant of Options
to Employees, New Hires, Non-Employee Directors, and Key Advisors.
(b) Type of Option and Price.
(i) The Committee may grant Incentive Stock Options
that are intended to qualify as "incentive stock options" within the meaning of
section 422 of the Code, Nonqualified Stock Options that are not intended so to
qualify, or any combination of Incentive Stock Options and Nonqualified Stock
Options, all in accordance with the terms and conditions set forth herein.
Incentive Stock Options may be granted only to
<PAGE> 26
Employees. Nonqualified Stock Options may be granted to Employees, New Hires,
Non-Employee Directors, and Key Advisors.
(ii) The purchase price (the "Exercise Price") of
Company Stock subject to an Option shall be determined by the Committee and may
be equal to, greater than, or less than the Fair Market Value (as defined
below) of a share of Company Stock on the date the Option is granted, provided,
however, that (x) the Exercise Price of an Incentive Stock Option shall be
equal to, or greater than, the Fair Market Value of a share of Company Stock on
the date the Incentive Stock Option is granted and (y) an Incentive Stock
Option may not be granted to an Employee who, at the time of grant, owns stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company or any parent or subsidiary of the Company,
unless the Exercise Price per share is not less than 110% of the Fair Market
Value of Company Stock on the date of grant.
(iii) If the Company Stock is publicly traded, then,
except as otherwise determined by the Committee, the following rules regarding
the determination of Fair Market Value per share apply:
(x) if the principal trading market for the
Company Stock is a national securities exchange or the
Nasdaq National Market, the mean between the highest and
lowest quoted selling prices on the relevant date or (if
there were no trades on that date) the latest preceding
date upon which a sale was reported, or
(y) if the Company Stock is not principally
traded on such exchange or market, the mean between the
last reported "bid" and "asked" prices of Company Stock
on the relevant date, as reported on Nasdaq or, if not so
reported, as reported by the National Daily Quotation
Bureau, Inc. or as reported in a customary financial
reporting service, as applicable and as the Committee
determines. If the Company Stock is not publicly traded
or, if publicly traded, is not subject to reported
transactions or "bid" or "asked" quotations as set forth
above, the Fair Market Value per share shall be as
determined by the Committee.
(c) Option Term. The Committee shall determine the term of
each Option. The term of any Option shall not exceed ten years from the date of
grant. However, an Incentive Stock Option that is granted to an Employee who,
at the time of grant, owns stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company, or any parent or
subsidiary of the Company, may not have a term that exceeds five years from the
date of grant.
(d) Exercisability of Options.
(i) Options shall become exercisable in accordance with
such terms and conditions, consistent with the Plan, as may be determined by
the Committee and specified in the Grant Instrument or an amendment to the
Grant Instrument. The Committee may accelerate the exercisability of any or all
outstanding Options at any time for any reason.
(ii) Notwithstanding the foregoing, the Option may, but
need not, include a provision whereby the Grantee may elect at any time while
an Employee, Non-Employee Director, or Key Advisor to exercise the Option as to
any part or all of the shares subject to the Option prior to the full vesting
of the Option. Any unvested shares so purchased shall be subject to a
repurchase right in favor of the Company, with the repurchase price to be equal
to the original purchase price, and any other restrictions the Committee
determines to be appropriate.
(e) Termination of Employment, Disability or Death.
(i) Except as provided below, an Option may only be
exercised while the Grantee is employed by the Company as an Employee, Key
Advisor or member of the Board. In the event that a Grantee ceases to be
employed by the Company for any reason other than a "disability," death or
"termination for cause," any Option which is otherwise exercisable by the
Grantee shall terminate unless exercised within 90 days after the date on which
the Grantee ceases to be employed by the Company (or within such other period
of time as may be
<PAGE> 27
specified by the Committee), but in any event no later than the date of
expiration of the Option term. Any of the Grantee's Options that are not
otherwise exercisable as of the date on which the Grantee ceases to be employed
by the Company shall terminate as of such date.
(ii) In the event the Grantee ceases to be employed by
the Company on account of a "termination for cause" by the Company, any Option
held by the Grantee shall terminate as of the date the Grantee ceases to be
employed by the Company. In addition to the immediate termination of all
Grants, the Grantee shall automatically forfeit all shares underlying any
exercised portion of an Option, upon refund by the Company of the Exercise
Price by the Grantee for such shares.
(iii) In the event the Grantee ceases to be employed
by the Company because the Grantee is "disabled," any Option which is otherwise
exercisable by the Grantee shall terminate unless exercised within one year
after the date on which the Grantee ceases to be employed by the Company (or
within such other period of time as may be specified by the Committee), but in
any event no later than the date of expiration of the Option term. Any of the
Grantee's Options which are not otherwise exercisable as of the date on which
the Grantee ceases to be employed by the Company shall terminate as of such
date.
(iv) If the Grantee dies while employed by the Company
or within 90 days after the date on which the Grantee ceases to be employed on
account of a termination of employment specified in Section 5(e)(i) above (or
within such other period of time as may be specified by the Committee), any
Option that is otherwise exercisable by the Grantee shall terminate unless
exercised within one year after the date on which the Grantee ceases to be
employed by the Company (or within such other period of time as may be
specified by the Committee), but in any event no later than the date of
expiration of the Option term. Any of the Grantee's Options that are not
otherwise exercisable as of the date on which the Grantee ceases to be employed
by the Company shall terminate as of such date.
(v) For purposes of Sections 5(e), 6, 7, and 8:
(A) "Company," when used in the phrase "employed
by the Company," shall mean the Company, its parent, and
any subsidiary corporations.
(B) "Employed by the Company" shall mean employment
or service as an Employee, Key Advisor, or member of the
Board (so that, for purposes of exercising Options and
SARs and satisfying conditions with respect to Restricted
Stock and Performance Units, a Grantee shall not be
considered to have terminated employment or service until
the Grantee ceases to be an Employee, Key Advisor, and
member of the Board), unless the Committee determines
otherwise. The Committee's determination as to a
participant's employment or other provision of services,
termination of employment or cessation of the provision
of services, leave of absence, or reemployment shall be
conclusive on all persons unless determined to be
incorrect.
(C) "Disability" shall mean a Grantee's becoming
disabled within the meaning of section 22(e)(3) of the
Code.
(D) "Termination for cause" shall mean the
determination of the Committee that any one or more of
the following events has occurred:
(1) the Grantee's conviction of any act which
constitutes a felony under applicable federal or state
law, either in connection with the performance of the
Grantee's obligations on behalf of the Company or which
affects the Grantee's ability to perform his or her
obligations as an employee, board member or advisor of
the Company or under any employment agreement,
non-competition agreement, confidentiality agreement or
like agreement or covenant between the Grantee and the
Company (any such agreement or covenant being herein
referred to as an "Employment Agreement");
<PAGE> 28
(2) the Grantee's willful misconduct in connection
with the performance of his or her duties and
responsibilities as an employee, board member or advisor
of the Company or under any Employment Agreement, which
willful misconduct is not cured by the Grantee within 10
days of his or her receipt of written notice thereof from
the Committee;
(3) the Grantee's commission of an act of
embezzlement, fraud or dishonesty which results in a
loss, damage or injury to the Company;
(4) the Grantee's substantial and continuing
neglect, gross negligence or inattention in the
performance of his or her duties as an employee, board
member or advisor of the Company or under any Employment
Agreement which is not cured by the Grantee within 10
days of his or her receipt of written notice thereof from
the Committee;
(5) the Grantee's unauthorized use or disclosure or
any trade secret or confidential information of the
Company which adversely affects the business of the
Company, provided that any disclosure of any trade secret
or confidential information of the Company to a third
party in the ordinary course of business who signs a
confidentiality agreement shall not be deemed a breach of
this subparagraph;
(6) the Grantee's material breach of any of the
provisions of any Employment Agreement, which material
breach is not cured by the Grantee within 10 days of his
or her receipt of a written notice from the Company
specifying such material breach; or
(7) the Grantee has voluntarily terminated his or
her employment or service with the Company and breaches
his or her noncompetition agreement with the Company.
(f) Exercise of Options. A Grantee may exercise an Option
that has become exercisable, in whole or in part, by delivering a notice of
exercise to the Company with payment of the Exercise Price. The Grantee shall
pay the Exercise Price for an Option as specified by the Committee:
(i) in cash,
(ii) by delivering shares of Company Stock owned by the
Grantee for the period necessary to avoid a charge to the Company's earnings
for financial reporting purposes (including Company Stock acquired in
connection with the exercise of an Option, subject to such restrictions as the
Committee deems appropriate) and having a Fair Market Value on the date of
exercise equal to the Exercise Price,
(iii) after a Public Offering, by payment through a
broker in accordance with procedures permitted by Regulation T of the Federal
Reserve Board, or
(iv) by such other method of payment as the Committee
may approve.
Shares of Company Stock used to exercise an Option shall
have been held by the Grantee for the requisite period of time to avoid adverse
accounting consequences to the Company with respect to the Option. The Grantee
shall pay the Exercise Price and the amount of any withholding tax due
(pursuant to Section 9) at the time of exercise.
(g) Limits on Incentive Stock Options. Each Incentive Stock
Option shall provide that if the aggregate Fair Market Value of the stock on
the date of the grant with respect to which Incentive Stock Options are
exercisable for the first time by a Grantee during any calendar year, under the
Plan or any other stock option plan of the Company or a parent or subsidiary,
exceeds $100,000, then the option, as to the excess, shall be treated as a
Nonqualified Stock Option. An Incentive Stock Option shall not be granted to
any person who is not an Employee of the Company or a parent or subsidiary
(within the meaning of section 424(f) of the Code).
<PAGE> 29
6. Restricted Stock Grants
The Committee may issue or transfer shares of Company Stock to a
Grantee under a Grant of Restricted Stock upon such terms as the Committee
deems appropriate. The following provisions are applicable to Restricted Stock:
(a) General Requirements. Shares of Company Stock issued or
transferred pursuant to Restricted Stock Grants may be issued or transferred
for consideration or for no consideration, as determined by the Committee. The
Committee may establish conditions under which restrictions on shares of
Restricted Stock shall lapse over a period of time or according to such other
criteria as the Committee deems appropriate. The period of time during which
the Restricted Stock will remain subject to restrictions will be designated in
the Grant Instrument as the "Restriction Period."
(b) Number of Shares. The Committee shall determine the
number of shares of Company Stock to be issued or transferred pursuant to a
Restricted Stock Grant and the restrictions applicable to such shares.
(c) Requirement of Employment. If the Grantee ceases to be
employed by the Company (as defined in Section 5(e)) during a period designated
in the Grant Instrument as the Restriction Period, or if other specified
conditions are not met, the Restricted Stock Grant shall terminate as to all
shares covered by the Grant as to which the restrictions have not lapsed, and
those shares of Company Stock must be immediately returned to the Company. The
Committee may, however, provide for complete or partial exceptions to this
requirement as it deems appropriate.
(d) Restrictions on Transfer and Legend on Stock Certificate.
During the Restriction Period, a Grantee may not sell, assign, transfer, pledge
or otherwise dispose of the shares of Restricted Stock except to a Successor
Grantee under Section 10(a). Each certificate for a share of Restricted Stock
shall contain a legend giving appropriate notice of the restrictions in the
Grant. The Grantee shall be entitled to have the legend removed from the stock
certificate covering the shares subject to restrictions when all restrictions
on such shares have lapsed. The Committee may determine that the Company will
not issue certificates for shares of Restricted Stock until all restrictions on
such shares have lapsed, or that the Company will retain possession of
certificates for shares of Restricted Stock until all restrictions on such
shares have lapsed.
(e) Right to Vote and to Receive Dividends. Unless the
Committee determines otherwise, during the Restriction Period, the Grantee
shall have the right to vote shares of Restricted Stock and to receive any
dividends or other distributions paid on such shares, subject to any
restrictions deemed appropriate by the Committee.
(f) Lapse of Restrictions. All restrictions imposed on
Restricted Stock shall lapse upon the expiration of the applicable Restriction
Period and the satisfaction of all conditions imposed by the Committee. The
Committee may determine, as to any or all Restricted Stock Grants, that the
restrictions shall lapse without regard to any Restriction Period.
7. Stock Appreciation Rights
(a) General Requirements. The Committee may grant stock
appreciation rights ("SARs") to a Grantee separately or in tandem with any
Option (for all or a portion of the applicable Option). Tandem SARs may be
granted either at the time the Option is granted or at any time thereafter
while the Option remains outstanding; provided, however, that, in the case of
an Incentive Stock Option, SARs may be granted only at the time of the Grant of
the Incentive Stock Option. The Committee shall establish the base amount of
the SAR at the time the SAR is granted. Unless the Committee determines
otherwise, the base amount of each SAR shall be equal to the per share Exercise
Price of the related Option or, if there is no related Option, the Fair Market
Value of a share of Company Stock as of the date of Grant of the SAR.
(b) Tandem SARs. In the case of tandem SARs, the number of
SARs granted to a Grantee that shall be exercisable during a specified period
shall not exceed the number of shares of Company Stock that the
<PAGE> 30
Grantee may purchase upon the exercise of the related Option during such
period. Upon the exercise of an Option, the SARs relating to the Company Stock
covered by such Option shall terminate. Upon the exercise of SARs, the related
Option shall terminate to the extent of an equal number of shares of Company
Stock.
(c) Exercisability. A SAR shall be exercisable during the
period specified by the Committee in the Grant Instrument and shall be subject
to such vesting and other restrictions as may be specified in the Grant
Instrument. The Committee may accelerate the exercisability of any or all
outstanding SARs at any time for any reason. SARs may only be exercised while
the Grantee is employed by the Company or during the applicable period after
termination of employment as described in Section 5(e). A tandem SAR shall be
exercisable only during the period when the Option to which it is related is
also exercisable. No SAR may be exercised for cash by an officer or director of
the Company or any of its subsidiaries who is subject to Section 16 of the
Exchange Act, except in accordance with Rule 16b-3 under the Exchange Act.
(d) Value of SARs. When a Grantee exercises SARs, the Grantee
shall receive in settlement of such SARs an amount equal to the value of the
stock appreciation for the number of SARs exercised, payable in cash, Company
Stock or a combination thereof. The stock appreciation for a SAR is the amount
by which the Fair Market Value of the underlying Company Stock on the date of
exercise of the SAR exceeds the base amount of the SAR as described in
Subsection (a).
(e) Form of Payment. The Committee shall determine whether
the appreciation in a SAR shall be paid in the form of cash, shares of Company
Stock, or a combination of the two, in such proportion as the Committee deems
appropriate. For purposes of calculating the number of shares of Company Stock
to be received, shares of Company Stock shall be valued at their Fair Market
Value on the date of exercise of the SAR. If shares of Company Stock are to be
received upon exercise of an SAR, cash shall be delivered in lieu of any
fractional share.
8. Performance Units
(a) General Requirements. The Committee may grant performance
units ("Performance Units") to a Grantee. Each Performance Unit shall represent
the right of the Grantee to receive an amount based on the value of the
Performance Unit, if performance goals established by the Committee are met. A
Performance Unit shall be based on the Fair Market Value of a share of Company
Stock or on such other measurement base as the Committee deems appropriate. The
Committee shall determine the number of Performance Units to be granted and the
requirements applicable to such Units.
(b) Performance Period and Performance Goals. When
Performance Units are granted, the Committee shall establish the performance
period during which performance shall be measured (the "Performance Period"),
performance goals applicable to the Units ("Performance Goals") and such other
conditions of the Grant as the Committee deems appropriate. Performance Goals
may relate to the financial performance of the Company or its operating units,
the performance of Company Stock, individual performance, or such other
criteria as the Committee deems appropriate.
(c) Payment with respect to Performance Units. At the end of
each Performance Period, the Committee shall determine to what extent the
Performance Goals and other conditions of the Performance Units are met and the
amount, if any, to be paid with respect to the Performance Units. Payments with
respect to Performance Units shall be made in cash, in Company Stock, or in a
combination of the two, as determined by the Committee.
(d) Requirement of Employment. If the Grantee ceases to be
employed by the Company (as defined in Section 5(e)) during a Performance
Period, or if other conditions established by the Committee are not met, the
Grantee's Performance Units shall be forfeited. The Committee may, however,
provide for complete or partial exceptions to this requirement as it deems
appropriate.
9. Qualified Performance-Based Compensation.
(a) Designation as Qualified Performance-Based Compensation.
The Committee may determine that Performance Units or Restricted Stock granted
to an Employee shall be considered "qualified performance-based compensation"
under Section 162(m) of the Code. The provisions of this Section 9 shall apply
to
<PAGE> 31
Grants of Performance Units and Restricted Stock that are to be considered
"qualified performance-based compensation" under Section 162(m) of the Code.
(b) Performance Goals. When Performance Units or Restricted
Stock that are to be considered "qualified performance-based compensation" are
granted, the Committee shall establish in writing (i) the objective performance
goals that must be met in order for restrictions on the Restricted Stock to
lapse or amounts to be paid under the Performance Units, (ii) the Performance
Period during which the performance goals must be met, (iii) the threshold,
target and maximum amounts that may be paid if the performance goals are met,
and (iv) any other conditions, including without limitation provisions relating
to death, disability, other termination of employment or Reorganization, that
the Committee deems appropriate and consistent with the Plan and Section 162(m)
of the Code. The performance goals may relate to the Employee's business unit
or the performance of the Company and its subsidiaries as a whole, or any
combination of the foregoing. The Committee shall use objectively determinable
performance goals based on one or more of the following criteria: stock price,
earnings per share, net earnings, operating earnings, return on assets,
stockholder return, return on equity, growth in assets, unit volume, sales,
market share, or strategic business criteria consisting of one or more
objectives based on meeting specific revenue goals, market penetration goals,
geographic business expansion goals, cost targets or goals relating to
acquisitions or divestitures.
(c) Establishment of Goals. The Committee shall establish the
performance goals in writing either before the beginning of the Performance
Period or during a period ending no later than the earlier of (i) 90 days after
the beginning of the Performance Period or (ii) the date on which 25% of the
Performance Period has been completed, or such other date as may be required or
permitted under applicable regulations under Section 162(m) of the Code. The
performance goals shall satisfy the requirements for "qualified
performance-based compensation," including the requirement that the achievement
of the goals be substantially uncertain at the time they are established and
that the goals be established in such a way that a third party with knowledge
of the relevant facts could determine whether and to what extent the
performance goals have been met. The Committee shall not have discretion to
increase the amount of compensation that is payable upon achievement of the
designated performance goals.
(d) Maximum Payment. If Restricted Stock, or Performance
Units measured with respect to the fair market value of the Company Stock, are
granted, not more than 625,000 shares may be Granted to any Grantee for any
Performance Period. If Performance Units are measured with respect to other
criteria, the maximum amount that may be paid to an Employee with respect to a
Performance Period is $ 1,000,000.
(e) Announcement of Grants. The Committee shall certify and
announce the results for each Performance Period to all Grantees immediately
following the announcement of the Company's financial results for the
Performance Period. If and to the extent that the Committee does not certify
that the performance goals have been met, the grants of Restricted Stock or
Performance Units for the Performance Period shall be forfeited.
10. Withholding of Taxes
(a) Required Withholding. All Grants under the Plan shall be
subject to applicable federal (including FICA), state and local tax withholding
requirements. The Company shall have the right to deduct from all Grants paid
in cash, or from other wages paid to the Grantee, any federal, state or local
taxes required by law to be withheld with respect to such Grants. In the case
of Options and other Grants paid in Company Stock, the Company may require the
Grantee or other person receiving such shares to pay to the Company the amount
of any such taxes that the Company is required to withhold with respect to such
Grants, or the Company may deduct from other wages paid by the Company the
amount of any withholding taxes due with respect to such Grants.
(b) Election to Withhold Shares. If the Committee so permits,
a Grantee may elect to satisfy the Company's income tax withholding obligation
with respect to an Option, SAR, Restricted Stock or Performance Units paid in
Company Stock by having shares withheld up to an amount that does not exceed
the Grantee's maximum marginal tax rate for federal (including FICA), state and
local tax liabilities. The election must be in a form and manner prescribed by
the Committee and shall be subject to the prior approval of the Committee.
11. Transferability of Grants
<PAGE> 32
(a) Nontransferability of Grants. Except as provided below,
only the Grantee may exercise rights under a Grant during the Grantee's
lifetime. A Grantee may not transfer those rights except by will or by the laws
of descent and distribution or, with respect to Grants other than Incentive
Stock Options, if permitted in any specific case by the Committee, pursuant to
a domestic relations order (as defined under the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended, or the regulations
thereunder). When a Grantee dies, the personal representative or other person
entitled to succeed to the rights of the Grantee ("Successor Grantee") may
exercise such rights. A Successor Grantee must furnish proof satisfactory to
the Company of his or her right to receive the Grant under the Grantee's will
or under the applicable laws of descent and distribution.
(b) Transfer of Nonqualified Stock Options. Notwithstanding
the foregoing, the Committee may provide, in a Grant Instrument, that a Grantee
may transfer Nonqualified Stock Options to family members or other persons or
entities according to such terms as the Committee may determine; provided that
the Grantee receives no consideration for the transfer of an Option and the
transferred Option shall continue to be subject to the same terms and
conditions as were applicable to the Option immediately before the transfer.
12. Reorganization of the Company.
(a) Reorganization. As used herein, a "Reorganization" shall
be deemed to have occurred if the stockholders of the Company approve (or, if
stockholder approval is not required, the Board approves) an agreement
providing for (i) the merger or consolidation of the Company with another
corporation where the stockholders of the Company, immediately prior to the
merger or consolidation, will not beneficially own, immediately after the
merger or consolidation, shares entitling such stockholders to more than 50% of
all votes to which all stockholders of the surviving corporation would be
entitled in the election of directors (without consideration of the rights of
any class of stock to elect directors by a separate class vote), (ii) the sale
or other disposition of all or substantially all of the assets of the Company,
or (iii) a liquidation or dissolution of the Company.
(b) Assumption of Grants. Upon a Reorganization where the
Company is not the surviving corporation (or survives only as a subsidiary of
another corporation), unless the Committee determines otherwise, all
outstanding Options and SARs that are not exercised shall be assumed by, or
replaced with comparable options or rights by, the surviving corporation.
(c) Other Alternatives. Notwithstanding the foregoing, in the
event of a Reorganization, the Committee may take one or both of the following
actions: the Committee may (i) require that Grantees surrender their
outstanding Options and SARs in exchange for a payment by the Company, in cash
or Company Stock as determined by the Committee, in an amount equal to the
amount by which the then Fair Market Value of the shares of Company Stock
subject to the Grantee's unexercised Options and SARs exceeds the Exercise
Price of the Options or the base amount of the SARs, as applicable, or (ii)
after giving Grantees an opportunity to exercise their outstanding Options and
SARs, terminate any or all unexercised Options and SARs at such time as the
Committee deems appropriate. Such surrender or termination shall take place as
of the date of the Reorganization or such other date as the Committee may
specify.
(d) Limitations. Notwithstanding anything in the Plan to the
contrary, in the event of a Reorganization, the Committee shall not have the
right to take any actions described in the Plan (including without limitation
actions described in Subsection (b) above) that would make the Reorganization
ineligible for pooling of interests accounting treatment or that would make the
Reorganization ineligible for desired tax treatment if, in the absence of such
right, the Reorganization would qualify for such treatment and the Company
intends to use such treatment with respect to the Reorganization.
13. Change of Control of the Company.
(a) As used herein, a "Change of Control" shall be deemed to
have occurred if
(i) Any "person" (as such term is used in Sections 13
(d) and 14(d) of the Exchange Act) becomes a "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
<PAGE> 33
securities of the Company representing a majority of the voting power of the
then outstanding securities of the Company except where the acquisition is
approved by the Board; or
(ii) Any person has commenced a tender offer or
exchange offer for a majority of the voting power of the then outstanding shares
of the Company.
(b) Notice and Acceleration. Unless the Committee determines
otherwise, a Change of Control shall not result in the acceleration of vesting
of outstanding Options and SARs, the removal of restrictions and conditions on
outstanding Restricted Stock grant, or any accelerated payments in connection
with outstanding Performance Units.
(c) Other Alternatives. Notwithstanding the foregoing, in the
event of a Change of Control, the Committee may take one or both of the
following actions: the Committee may (i) require that Grantees surrender their
outstanding Options and SARs in exchange for a payment by the Company, in cash
or Company Stock as determined by the Committee, in an amount equal to the
amount by which the then Fair Market Value of the shares of Company Stock
subject to the Grantee's unexercised Options and SARs exceeds the Exercise
Price of the Options or the base amount of the SARs, as applicable, or (ii)
after giving Grantees an opportunity to exercise their outstanding Options and
SARs, terminate any or all unexercised Options and SARs at such time as the
Committee deems appropriate. Such surrender or termination shall take place as
of the date of the Change of Control or such other date as the Committee may
specify.
(d) Limitations. Notwithstanding anything in the Plan to the
contrary, in the event of a Change of Control, the Committee shall not have the
right to take any actions described in the Plan (including without limitation
actions described in Subsection (c) above) that would make the Change of
Control ineligible for pooling of interests accounting treatment or that would
make the Change of Control ineligible for desired tax treatment if, in the
absence of such right, the Change of Control would qualify for such treatment
and the Company intends to use such treatment with respect to the Change of
Control.
14. Right of First Refusal
Prior to a Public Offering, if at any time an individual desires to
sell, encumber, or otherwise dispose of shares of Company Stock distributed to
him under this Plan, the individual shall first offer the shares to the Company
by giving the Company written notice disclosing: (a) the name of the proposed
transferee of the Company Stock; (b) the certificate number and number of
shares of Company Stock proposed to be transferred or encumbered; (c) the
proposed price; (d) all other terms of the proposed transfer; and (e) a written
copy of the proposed offer. Within 30 days after receipt of such notice, the
Company shall have the option to purchase all or part of such Company Stock at
the same price and on the same terms as contained in such notice.
In the event the Company (or a stockholder, as described below) does
not exercise the option to purchase Company Stock, as provided above, the
individual shall have the right to sell, encumber or otherwise dispose of his
shares of Company Stock on the terms of the transfer set forth in the written
notice to the Company, provided such transfer is effected within 30 days after
the expiration of the option period. If the transfer is not effected within
such period, the Company must again be given an option to purchase, as provided
above.
The Board, in its sole discretion, may waive the Company's right of
first refusal pursuant to this Section 14 and the Company's repurchase right
pursuant to Section 15 below. If the Company's right of first refusal or
repurchase right is so waived, the Board may, in its sole discretion, pass
through such right to the remaining stockholders of the Company in the same
proportion that each stockholder's stock ownership bears to the stock ownership
of all the stockholders of the Company, as determined by the Board. To the
extent that a stockholder has been given such right and does not purchase his
or her allotment, the other stockholders shall have the right to purchase such
allotment on the same basis.
On and after a Public Offering, the Company shall have no further
right to purchase shares of Company Stock under this Section 14 and Section 15
below, and its limitations shall be null and void.
<PAGE> 34
Notwithstanding the foregoing, the Committee may require that a
Grantee execute a stockholder's agreement, with such terms as the Committee
deems appropriate, with respect to any Company Stock distributed pursuant to
this Plan. Such agreement may provide that the provisions of this Section 14
and Section 15 below shall not apply to such Company Stock.
15. Purchase by the Company
Prior to a Public Offering, if a Grantee ceases to be employed by the
Company, whether terminated for cause or voluntarily, the Company shall have
the right to purchase all or part of any Company Stock distributed to him under
this Plan at the exercise price paid by the Grantee (unless otherwise
determined by the Board or the Committee), and in all other cases at its then
current Fair Market Value (as defined in Section 5(b)); provided, however, that
such repurchase shall be made in accordance with applicable accounting rules to
avoid adverse accounting treatment.
16. Requirements for Issuance or Transfer of Shares
(a) Stockholder's Agreement. The Committee may require that a
Grantee execute a stockholder's agreement, with such terms as the Committee
deems appropriate, with respect to any Company Stock distributed pursuant to
this Plan.
(b) Limitations on Issuance or Transfer of Shares. No Company
Stock shall be issued or transferred in connection with any Grant hereunder
unless and until all legal requirements applicable to the issuance or transfer
of such Company Stock have been complied with to the satisfaction of the
Committee. The Committee shall have the right to condition any Grant made to
any Grantee hereunder on such Grantee's undertaking in writing to comply with
such restrictions on his or her subsequent disposition of such shares of
Company Stock as the Committee shall deem necessary or advisable as a result of
any applicable law, regulation or official interpretation thereof, and
certificates representing such shares may be legended to reflect any such
restrictions. Certificates representing shares of Company Stock issued or
transferred under the Plan will be subject to such stop transfer orders and
other restrictions as may be required by applicable laws, regulations and
interpretations, including any requirement that a legend be placed thereon.
17. Amendment and Termination of the Plan
(a) Amendment. The Board may amend or terminate the Plan at
any time.
(b) Termination of Plan. The Plan shall terminate on the day
immediately preceding the tenth anniversary of its effective date, unless the
Plan is terminated earlier by the Board or is extended by the Board with the
approval of the stockholders.
(c) Termination and Amendment of Outstanding Grants. A
termination or amendment of the Plan that occurs after a Grant is made shall
not materially impair the rights of a Grantee unless the Grantee consents. The
termination of the Plan shall not impair the power and authority of the
Committee with respect to an outstanding Grant. Whether or not the Plan has
terminated, an outstanding Grant may be terminated or amended in accordance
with the Plan or may be amended by agreement of the Company and the Grantee
consistent with the Plan.
(d) Governing Document. The Plan shall be the controlling
document. No other statements, representations, explanatory materials or
examples, oral or written, may amend the Plan in any manner. The Plan shall be
binding upon and enforceable against the Company and its successors and
assigns.
18. Funding of the Plan
This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under this Plan. In no event shall
interest be paid or accrued on any Grant, including unpaid installments of
Grants.
19. Rights of Grantees
<PAGE> 35
Nothing in this Plan shall entitle any Grantee or other person to any
claim or right to be granted a Grant under this Plan. Neither this Plan nor any
action taken hereunder shall be construed as giving any individual any rights
to be retained by or in the employ of the Company or any other employment
rights.
20. No Fractional Shares
No fractional shares of Company Stock shall be issued or delivered
pursuant to the Plan or any Grant. The Committee shall determine whether cash,
other awards or other property shall be issued or paid in lieu of such
fractional shares or whether such fractional shares or any rights thereto shall
be forfeited or otherwise eliminated.
21. Headings
Section headings are for reference only. In the event of a conflict between a
title and the content of a Section, the content of the Section shall control.
22. Effective Date of the Plan
Subject to the approval of the Company's stockholders, the Plan shall
be effective on April 22, 1999.
23. Miscellaneous
(a) Grants in Connection with Corporate Transactions and
Otherwise. Nothing contained in this Plan shall be construed to (i) limit the
right of the Committee to make Grants under this Plan in connection with the
acquisition, by purchase, lease, merger, consolidation or otherwise, of the
business or assets of any corporation, firm or association, including Grants to
employees thereof who become Employees of the Company, or for other proper
corporate purposes, or (ii) limit the right of the Company to grant stock
options or make other awards outside of this Plan. Without limiting the
foregoing, the Committee may make a Grant to an employee of another corporation
who becomes an Employee by reason of a corporate merger, consolidation,
acquisition of stock or property, reorganization or liquidation involving the
Company or any of its subsidiaries in substitution for a stock option or
restricted stock grant made by such corporation. The terms and conditions of
the substitute grants may vary from the terms and conditions required by the
Plan and from those of the substituted stock incentives. The Committee shall
prescribe the provisions of the substitute grants.
(b) Compliance with Law. The Plan, the exercise of Options
and SARs and the obligations of the Company to issue or transfer shares of
Company Stock under Grants shall be subject to all applicable laws and to
approvals by any governmental or regulatory agency as may be required. With
respect to persons subject to section 16 of the Exchange Act, it is the intent
of the Company that the Plan and all transactions under the Plan comply with
all applicable provisions of Rule 16b-3 or its successors under the Exchange
Act. The Committee may revoke any Grant if it is contrary to law or modify a
Grant to bring it into compliance with any valid and mandatory government
regulation. The Committee may also adopt rules regarding the withholding of
taxes on payments to Grantees. The Committee may, in its sole discretion, agree
to limit its authority under this Section.
(c) Governing Law. The validity, construction, interpretation
and effect of the Plan and Grant Instruments issued under the Plan shall
exclusively be governed by and determined in accordance with the law of the
State of Delaware.
