SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
[X] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-12
Z-TEL TECHNOLOGIES, 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)(4) and 0-11.
i Title of each class of securities to which transaction applies:
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ii Aggregate number of securities to which transaction applies:
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iii 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.)
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iv Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] 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.
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1. Amount Previously Paid:
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2. Form, Schedule or Registration Statement No.:
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3. Filing Party:
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4. Date Filed:
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Z-TEL TECHNOLOGIES, INC.
601 South Harbour Island Boulevard, Suite 220
Tampa, Florida 33602
April __, 2000
TO OUR STOCKHOLDERS:
You are cordially invited to attend our 2000 Annual Meeting of
Stockholders, which will be held at the Wyndham Harbour Island Hotel, Tampa,
Florida 33602 on Tuesday, May 30, 2000 at 1:00 p.m., local time.
We believe that the Wyndham Harbour Island Hotel in Tampa will be an
excellent venue for our first Annual Meeting of Stockholders since we became a
publicly-traded company. I look forward to this opportunity to let you become
better acquainted with our company, our directors and officers, our achievements
and our exciting plans for the future.
Please read these materials so that you'll know what we plan to do at
the meeting. Also, please sign and return the accompanying proxy card. That way,
your shares will be voted as you direct even if you can't attend the meeting.
D. GREGORY SMITH
Chief Executive Officer and
Chairman of the Board
<PAGE>
Z-TEL TECHNOLOGIES, INC.
601 South Harbour Island Boulevard, Suite 220
Tampa, Florida 33602
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 30, 2000
To the Stockholders of
Z-TEL TECHNOLOGIES, INC.:
TIME 1:00 p.m., Local Time, on Tuesday, May 30, 2000
PLACE Wyndham Harbour Island Hotel, Tampa, Florida 33602
ITEMS
OF BUSINESS 1. To approve an amendment to the company's Certificate of
Incorporation to provide for a classified Board of
Directors;
2. To approve the company's 2000 Equity Participation Plan;
3. To elect directors; and
4. To transact such other business as may properly come
before the meeting or any adjournments or postponements
thereof.
RECORD DATE You can vote if you were a stockholder of record on April
11, 2000.
ANNUAL REPORT Our 2000 Annual Report to Stockholders, which is not a part
of this proxy statement, is enclosed.
PROXY VOTING It is important that your shares be represented and voted at
the Annual Meeting. Please vote by dating, signing and
mailing the enclosed proxy card promptly in the enclosed
postage paid pre-addressed envelope. If you should be
present at the meeting and desire to vote in person, you
may withdraw your proxy.
By Order of the Board of Directors,
JOHN M. HUTCHENS, Chief Financial
Officer
April __, 2000
<PAGE>
Z-TEL TECHNOLOGIES, INC.
601 South Harbour Island Boulevard, Suite 220
Tampa, Florida 33602
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 30, 2000
To the Stockholders of April __, 2000
Z-Tel Technologies, Inc.
These proxy materials are delivered in connection with the solicitation
by the Board of Directors of Z-Tel Technologies, Inc. ("Z-Tel," the "company,"
"we," or "us"), a Delaware corporation, of proxies to be voted at our 2000
Annual Meeting of Stockholders and at any adjournments or postponements thereof.
You are invited to attend our Annual Meeting of Stockholders on May 30,
2000, beginning at 1:00 p.m., local time. The Annual Meeting will be held at the
Wyndham Harbour Island Hotel, Tampa, Florida 33602. Stockholders will be
admitted beginning at 12:30 p.m.
It is important that your proxy be returned promptly to avoid
unnecessary expense to the company. Therefore, whether you plan to attend the
Annual Meeting or not and regardless of the number of shares of stock you own,
please date, sign and return the enclosed proxy promptly.
ABOUT THE ANNUAL MEETING
WHAT IS THE PURPOSE OF THE MEETING?
At the Annual Meeting, stockholders will act upon the matters outlined
in the accompanying notice of meeting, including 1) the Second Amendment to our
Certificate of Incorporation to provide for a classified board of directors, 2)
the approval of our 2000 Equity Participation Plan; and 3) the election of
directors. In addition, our management will report on our performance during
1999 and respond to questions from stockholders.
WHEN ARE THESE MATERIALS BEING MAILED?
This Proxy Statement, form of proxy and voting instructions are being
mailed starting on approximately April 24, 2000.
WHO IS ENTITLED TO VOTE?
Only stockholders of record at the close of business on the record
date, April 11, 2000, are entitled to receive notice of the Annual Meeting and
to vote at the Annual Meeting (or any adjournment or postponement thereof) the
shares of common stock that they held on the record date. As of that date, there
were 31,938,798 common shares outstanding. Each common share is entitled to one
vote on each matter properly brought before the Annual Meeting. Shares of common
stock, par value $.01 per share (the "Common Stock"), are the only outstanding
voting securities of the company.
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WHAT CONSTITUTES A QUORUM?
The presence at the Annual Meeting, in person or by proxy, of the
holders of a majority of the shares of common stock entitled to vote on the
record date will constitute a quorum, permitting us to conduct the business of
the meeting. Proxies received but marked as abstentions and broker non-votes
will be included in the calculation of the number of shares considered to be
present at the Annual Meeting, but will not be counted for any other purpose. A
broker non-vote occurs when a nominee holding shares for a beneficial owner does
not vote on a particular proposal because the nominee does not have
discretionary voting power for that particular item and has not received
instructions as to that item from the beneficial owner.
HOW DO I VOTE?
If you complete and properly sign the accompanying proxy card and
return it to our transfer agent, it will be voted as you direct. If you are a
registered stockholder and attend the Annual Meeting, you may vote at the Annual
Meeting either by delivering your completed proxy card in person or by voting
instead by ballot. If your shares are held in the name of a bank, broker or
other holder of record, you must obtain a proxy, executed in your favor, from
the holder of record to be able to vote at the Annual Meeting.
CAN I VOTE BY TELEPHONE OR ELECTRONICALLY?
No, you must vote by completing and returning the enclosed proxy card
in the enclosed postage page pre-addressed envelope, or by voting in person at
the meeting.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. Even after you have submitted your proxy, you may revoke the proxy
and you may change your vote at any time before the proxy is exercised by filing
with the Secretary of Z-Tel either a written notice of revocation or a duly
executed proxy bearing a later date or by attending the Annual Meeting and
voting the shares in person. No such notice of revocation or later dated proxy,
however, will be effective until received by us at or prior to the Annual
Meeting. Unless the proxy is revoked, the shares represented thereby will be
voted at the Annual Meeting or any adjournment thereof as indicated on the proxy
card. Sending in a proxy does not affect your right to vote in person if you
attend the meeting, although attendance at the meeting will not by itself revoke
a previously granted proxy.
IF I SUBMIT A PROXY, HOW WILL MY SHARES BE VOTED?
Unless you give other instructions on your proxy card, the persons
named as proxy holders on the proxy card will vote in accordance with the
recommendations of the Board of Directors.
WHAT ARE THE BOARD'S RECOMMENDATIONS?
The Board's recommendations are set forth, together with the
description of each item, in this proxy statement. In summary, The Board
recommends a vote:
FOR approval of the amendment to the company's Certificate of
Incorporation to provide for a classified board of directors
(see page __);
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FOR approval of the adoption of the company's 2000 Equity
Participation Plan (see page __); and
FOR election of the nominees for director positions (see
page ____).
With respect to any other matter that properly comes before the
meeting, the proxy holders will vote as recommended by the Board of Directors
or, if no recommendation is given, in their own discretion. As of the date this
proxy statement went to press, we did not know of any other matter to be raised
at the Annual Meeting.
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION. The affirmative
vote of a majority of the shares of outstanding Common Stock of the company
entitled to vote is required for approval of the Second Amendment to the
Certificate of Incorporation. A properly executed proxy marked "ABSTAIN" with
respect to the Second Amendment will not be voted, even though it will be
counted for purposes of determining whether there is a quorum present at the
Annual Meeting.
ELECTION OF DIRECTORS. The affirmative vote of a plurality of the votes
cast at the Annual Meeting is required for the election of directors. A properly
executed proxy marked "WITHHOLD AUTHORITY" with respect to the election of one
or more directors will not be voted with respect to the director or directors
indicated, even though it will be counted for purposes of determining whether
there is a quorum present at the Annual Meeting.
OTHER ITEMS. For each other item, the item will be approved if a
majority of the votes cast on the matter are affirmative. A properly executed
proxy marked "ABSTAIN" with respect to any such matter will not be voted, even
though it will be counted for purposes of determining whether there is a quorum
present at the Annual Meeting.
HOW WILL VOTES BE COUNTED?
All votes will be tabulated by employees of American Stock Transfer &
Trust Company, our transfer agent for the Common Stock, whose representatives
will serve as one or more of the inspectors of election. Although abstentions
and broker non-votes are each included in the determination of the number of
shares present, they are not counted on any matters brought before the meeting.
WHO IS PAYING FOR THE PREPARATION AND MAILING OF THE PROXY MATERIALS AND HOW
WILL SOLICITATIONS BE MADE?
We will pay the expenses of soliciting proxies. Proxies may be
solicited on our behalf by directors, officers or employees in person or by
telephone, mail, electronic transmission, facsimile transmission or telegram.
The company will request brokerage houses and other custodians, nominees and
fiduciaries to forward soliciting material to stockholders and the company will
reimburse such institutions for their out-of-pocket expenses.
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PROPOSAL NO. 1 - APPROVAL OF THE SECOND CERTIFICATE
OF AMENDMENT TO OUR AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
The Board of Directors has unanimously approved and recommended for
stockholder approval the Second Amendment to our Amended and Restated
Certificate of Incorporation, the text of which is set forth in Exhibit A to
this Proxy Statement (the "Second Amendment"), to create a classified Board of
Directors and make certain related changes. Under Delaware law, the amendment
would become effective upon stockholder approval and upon filing the Second
Amendment with the Secretary of State of the State of Delaware. The background,
reasons and effects of the proposal are set forth below, followed by a more
detailed description of the proposal and how it would operate.
THE PROPOSAL
We believe that Z-Tel may be vulnerable to certain tactics - such as
the accumulation of substantial voting blocks of our stock as a prelude to an
attempt to gain control of the company or to effect significant corporate
restructuring, a proxy fight and other similar devices - which have become
relatively more common in recent years. For the reasons discussed below, the
Board of Directors believes that such tactics can be highly disruptive to the
operation of a company and can result in dissimilar and unfair treatment of a
company's stockholders. This proposal is being submitted to help protect Z-Tel
from these kinds of tactics, but not in response to any pending or threatened
attempt to acquire control of Z-Tel. Rather, the proposal is being submitted in
order to help ensure that the company is adequately prepared for any such
activities that might arise in the future.
The Second Amendment provides that, at the 2000 Annual Meeting, our
Board of Directors will be divided into three classes (denominated Class I,
Class II and Class III), which shall be as nearly equal in number as possible.
The directors in each class will hold office following their initial
classification for terms of one year, two years and three years, respectively.
Thus, the term of office of the Class I Directors will expire at the year 2001
Annual Meeting of Stockholders, the term of office of the Class II Directors
will expire at the year 2002 Annual Meeting of Stockholders, and the term of
office of the Class III Directors will expire at the year 2003 Annual Meeting of
Stockholders. Thereafter, the successors to each class of directors shall be
elected for three-year terms. If this proposal is not approved by the
stockholders, the directors will be elected to serve for a term of one year and
until their successors are elected and qualified.
Under Delaware law, a director of a corporation with a classified board
of directors may be removed by the stockholders only "for cause" unless the
corporation's certificate of incorporation provides otherwise (ours does not).
The Second Amendment would also provide that directors may be removed during
their terms only "for cause," and only by affirmative vote of at least 80
percent in voting power of all shares of the corporation entitled to vote
generally in the election of directors, voting as a single class. In this
context, the term "for cause" is not defined by statute.
Under the Second Amendment, the number of directors may be fixed or
changed by the Board of Directors. If the number of directors is changed, any
increase or decrease shall be apportioned among each class so as to keep the
number of directors in each class as nearly equal as possible. No decrease in
the number of directors may shorten the term of any incumbent.
<PAGE>
The Second Amendment also provides that if a vacancy occurs during the
term of any director, including any vacancy occurring because of the Board of
Directors' creation of an additional director position or positions, the
majority of the remaining directors then in office will fill the vacancy, and
the director so appointed will hold office until the next election of the class
to which he or she was appointed.
If the Second Amendment is approved, because only one of the three
classes of a classified Board of Directors will be elected annually, at least
two annual stockholders' meetings, instead of one, will be required to effect a
change in control of the Board of Directors through the normal election
processes. The Second Amendment and related changes would require a person
seeking to acquire control of Z-Tel to wait up to two years to obtain control of
the Board of Directors, even though that person has acquired ownership of a
majority or controlling minority interest in the company.
The Second Amendment and related changes, of course, would affect all
stockholders, not just those seeking to acquire control of the company, in the
following ways: (1) because at least two annual meetings will be required to
change majority control on the Board of Directors, the Second Amendment would
tend to perpetuate present management and (2) the Second Amendment may tend to
discourage accumulations of large blocks of stock by reducing the control effect
of such blocks, thus reducing temporary fluctuations in market price that could
be caused by such accumulations.
ADVANTAGES OF PROPOSAL. Classification of the Board of Directors will
promote continuity and stability in the company's management and policies since
a majority of the company's directors at any given time will have prior
experience with the company. The Board of Directors further believes that such
continuity and stability will facilitate long-range planning and will have a
beneficial effect on employee loyalty and customer confidence. Currently, the
entire Board of Directors must stand for election each year. Accordingly, it is
possible that all or a majority of the current directors could be replaced at
any given Annual Meeting. If this proposal is approved, the Board of Directors
will be divided into three classes effective with the 2000 Annual Meeting, only
one of which will stand for election at each Annual Meeting thereafter.
The Second Amendment is also intended to encourage persons seeking to
acquire control of Z-Tel to initiate such an acquisition through arm's length
negotiations with our Board of Directors. If the Board of Directors is presented
with a proposal from a third party that has acquired a substantial block of our
Common Stock, the directors will be able to evaluate the proposal and study
alternative proposals without the imminent threat of removal. This will help
ensure that the best price is obtained in any acquisition transaction that may
ultimately be consummated.
DISADVANTAGES OF PROPOSAL. Adoption of the Second Amendment may have
the effect of delaying, deferring or preventing a change of control that some or
even a majority of our stockholders believe to be in their best interest, and
may make removal of management more difficult even if such removal would be
beneficial to stockholders generally.
The provisions for electing only one out of three classes of the Board
of Directors each year, rather than the entire Board of Directors, will be
applicable to every annual election of directors, and not just to any election
occurring after a change in control of Z-Tel. A classified Board of Directors
could delay stockholders who do not like the policies of the Board of Directors
from removing a majority of the Board of Directors for up to two years.
<PAGE>
Not all takeovers or changes in control of the Board of Directors that
are proposed and effected without prior consultation and negotiation with the
incumbent Board of Directors are necessarily detrimental to the company and its
stockholders. However, the Board of Directors believes that the benefits of
enhanced board continuity and protection of Z-Tel's ability to negotiate with
the proponent of an unfriendly or unsolicited proposal outweigh the
disadvantages associated with the Second Amendment.
RELATIONSHIP OF THE SECOND AMENDMENT TO CERTAIN PROVISIONS OF THE COMPANY'S
CERTIFICATE OF INCORPORATION AND BYLAWS
The Certificate of Incorporation authorizes the issuance of up to
150,000,000 shares of Common Stock, not all of which have been issued or
reserved for issuance. This authorized and available Common Stock could (within
the limits imposed by applicable law and the rules of the Nasdaq National
Market) be issued by the company and used to discourage a change in control of
the company. For example, the company could privately place shares with
purchasers who might side with the Board of Directors in opposing a hostile
takeover bid. Shares of Common Stock could also be issued to a holder that would
thereafter have sufficient voting power to assure that any proposal to amend or
repeal the bylaws or certain provisions of the Certificate of Incorporation
would not receive the required vote.
The Certificate of Incorporation also authorizes the issuance of up to
50,000,000 shares of Preferred Stock, in one or more series, approximately
40,000,000 shares of which are currently available for future issuance. The
Board of Directors is authorized, without any further action by the
stockholders, to determine the dividend rights, dividend rate, conversion
rights, voting rights, rights and terms of redemption, liquidation preferences,
sinking fund terms and other rights, preferences, privileges and restrictions of
any series and the designation thereof. The Board of Directors may, without
stockholder approval, issue Preferred Stock with rights and privileges which
could, among other things, have the effect of delaying, deferring or preventing
a change in control of the company. The company has no present plans to issue
any shares of Preferred Stock.
In addition, the bylaws of the company do not permit stockholders of
the company to call a special meeting of stockholders.
The affirmative vote of the holders of a majority of the issued and
outstanding shares of Common Stock entitled to vote at the Annual Meeting is
required for approval of the Second Amendment to provide for a classified Board
of Directors. The persons named in the enclosed form of proxy intend, unless
otherwise directed, to vote such proxy "FOR" the Second Amendment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE SECOND AMENDMENT,
WHICH IS PROPOSAL NO. 1 ON YOUR PROXY CARD.
<PAGE>
PROPOSAL NO. 2 -
APPROVAL OF THE 2000 EQUITY PARTICIPATION PLAN
BACKGROUND
In April 2000, the Board of Directors adopted The 2000 Equity
Participation Plan of Z-Tel Technologies, Inc. (the "2000 Plan"). The purpose of
the 2000 Plan is to enable Z-Tel to continue to effectively attract and retain
executive officers, other key employees, directors, and consultants. The Board
of Directors determined that the number of shares available for grant to such
persons under The 1998 Equity Participation Plan was insufficient for the future
needs of the company, and that the 2000 Plan would offer the company additional
flexibility in the use of incentive compensation.
SUMMARY OF THE PLAN
Under the 2000 Plan, incentive stock options, nonqualified stock
options, restricted stock, performance awards, dividend equivalents, stock
payments, deferred stock, stock appreciation rights, or any combination thereof
(collectively, the "Awards") may be granted to eligible individuals. The 2000
Plan is to be administered by the Compensation Committee of the Board of
Directors, except with respect to certain matters as to which only the entire
Board of Directors may act. See "Election of Directors" for information
regarding the Compensation Committee, its responsibilities and its members.
The Compensation Committee may grant Awards to any person who is an
employee or consultant of Z-Tel or any of its subsidiaries, including any
officer, on the date of a grant of such Award. Z-Tel currently has approximately
1,400 employees who would be eligible for grants under the 2000 Plan. The Board
of Directors may grant Awards to non-employee directors, of which there are
currently four persons eligible for awards under the 2000 Plan. Awards are to be
made primarily to officers, other key employees, and non-employee directors of
Z-Tel. Any individual who has been granted an Award (a "Participant") is bound
by the terms of the plan as well as the terms and conditions of the specific
agreement issued in connection with the grant of the Award. We will not receive
any consideration for the granting of any Awards under the 2000 Plan other than
the services rendered to us by the employee or director.
The aggregate number of shares of Common Stock which may be issued upon
exercise of Awards under the 2000 Plan is 2,000,000, plus an annual increase to
be added on the first day of the company's fiscal year beginning in 2001 equal
to the lesser of (i) 3,000,000 shares, (ii) 6% of the outstanding shares of
Common Stock on such date, or (iii) a lesser amount determined by the Board of
Directors. Subject to certain limitations, the Board of Directors may amend the
2000 Plan (or suspend or discontinue it) without stockholder approval. However,
no amendment may adversely affect any then outstanding Award.
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PLAN BENEFITS TABLE
The following table sets forth information regarding the number and
value of Awards to be granted under the 2000 Plan.
NEW PLAN BENEFITS
The 2000 Equity Participation Plan
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Number
Name and Position Dollar Value Of Units
- ----------------- ------------ --------
D. Gregory Smith (1) (1)
President, Chief Executive Officer and
Chairman of the Board
Russell T. Alba* * *
Senior Vice President - Business
Development and Chief Legal Officer
James A. Kitchen (1) (1)
Senior Vice President - Chief Architect
J. Bryan Bunting (1) (1)
Senior Vice President - Engineering and
Technical Support
Charles W. McDonough (1) (1)
Senior Vice President - Chief Technology
Officer
David J. Malfara, Sr. (1) (1)
President, Z-Tel Network Services, Inc.
Executive Group (2) (1) (1)
Non-Executive Director Group (1) (1)
Non-Executive Officer Employee Group (1) (1)
----------------------------
* Not eligible for participation. Effective September 1999, Mr. Alba was
no longer employed by us.
(1) The nature, timing and amounts of any future awards and the benefits
thereof are generally not known and cannot be determined at this time,
because such awards are within the discretion of the Compensation
Committee or the Board of Directors. However, during the term of the
2000 Plan, option grants to independent directors (non-executive
directors) will occur automatically, in the amount of 1,100 options
upon the director's initial appointment to the Board of Directors, and
1,100 options each year thereafter during the director's continued
service.
(2) Consists of thirteen executive officers, including the five listed
above, but does not include Russell T. Alba.
<PAGE>
TYPES OF AWARDS UNDER THE 2000 PLAN
Set forth below is a summary of the principal kinds of Awards that can
be granted under the 2000 Plan and the expected usual terms of such Awards.
However, the Compensation Committee generally has broad discretion to grant
Awards on terms other than as described below, subject only to any limitations
under the 2000 Plan or under applicable law.
STOCK OPTIONS. Generally, options to purchase shares of our Common
Stock may become exercisable at any time. However, options granted to
independent directors will expire ten years after the date of grant, and
incentive stock options will not be exercisable more than ten years after the
date of grant (or five years after the date of grant if the recipient of the
option owns more than ten percent of the voting power of the stock of the
company on the date of grant). Options granted to executive officers and
directors may not be exercisable until at least six months after the date of
grant. Subject to limitations set forth in the 2000 Plan, the vesting of options
is determined at the time of grant in the discretion of the Compensation
Committee, except that options which are automatically granted to independent
directors will become exercisable in equal annual installments on each of the
first, second, third, and fourth anniversaries of the date of grant. If an
individual's affiliation with us as an employee, officer, consultant, or
director is terminated during the term of an option granted to that individual,
the vesting of that option will cease. The Committee may in its own discretion
accelerate the period during which an option vests.
Generally, an individual may not transfer any option granted under the
2000 Plan, although, in some circumstances after the individual's death, the
individual's personal representative may exercise the option.
For federal income tax purposes, a stock option may be classified as
either an incentive stock option ("ISO") or a non-qualified stock option
("NSO"), as further described below. The Compensation Committee (or the Board of
Directors in the case of grants to independent directors) may determine whether
options granted under the 2000 Plan will be ISOs or NSOs. No stock option issued
under the 2000 Plan may be treated for tax purposes as an ISO unless the 2000
Plan is approved by the stockholders at the Annual Meeting.
The exercise price of each option will generally be set by the
Committee. The exercise price of any ISO may not be less than the fair market
value of our Common Stock on the date of grant, but the option price of certain
NSOs may be less than the fair market value of our Common Stock on the date of
grant. The exercise price of any option automatically granted to an independent
director shall equal the fair market value of our Common Stock on the date of
grant. On April ____, 2000, the last sale price of our Common Stock on the
Nasdaq National Market System was $_______.
STOCK PAYMENTS, RESTRICTED STOCK, AND DEFERRED STOCK. Shares of Common
Stock which are not Restricted Stock may be awarded ("Stock Payments").
"Restricted Stock" and "Deferred Stock" are shares of Common Stock awarded
subject to the fulfillment of certain performance or other conditions. When the
conditions are fulfilled, the shares are delivered free and clear of all
restrictions.
PERFORMANCE AWARDS. A Performance Award entitles the recipient, upon
achievement of a time or price/time goal or a performance goal established by
the Committee (or the Board of Directors in the case of an award to an
independent director), to receive cash and/or shares of Common Stock based on
the market value, book value, net profits, or other measure of the value of our
Common Stock on a specified date or over a period of time. Performance Awards
may also be valued by reference to the performance of a Z-Tel subsidiary or
division, or to the performance of particular individuals.
<PAGE>
STOCK APPRECIATION RIGHTS. A Stock Appreciation Right ("SAR") award
entitles the recipient, upon exercise, to receive either cash and/or shares of
Common Stock based on the amount by which the market price of the Common Stock
at the time of exercise exceeds the market price of the Common Stock when the
SAR was awarded.
DIVIDEND EQUIVALENTS. With respect to any Option, SAR, Deferred Stock,
or Performance Award, participants may also be granted dividend equivalents
based on any dividends declared on our Common Stock.
FEDERAL INCOME TAX CONSEQUENCES OF STOCK OPTION GRANTS
Participants in the 2000 Plan generally have tax consequences
associated with stock option grants. As indicated above, for federal income tax
purposes, a stock option may be classified as either an ISO or NSO. Generally,
no taxable income is recognized by the optionee at the time either an ISO or NSO
is granted. On the date of exercise, (i) the holder of an NSO recognizes
ordinary income in an amount equal to the difference between the exercise price
and the fair market value of the shares on the date of exercise, and the Company
receives a tax deduction for the same amount, but (ii) the holder of an ISO does
not recognize income and the company does not receive a tax deduction, although
the difference between the exercise price and the market price of the Common
Stock may be subject to the alternative minimum tax. Upon disposition of the
shares acquired, an optionee generally recognizes appreciation or depreciation
on the shares as either short-term or long-term capital gain or loss depending
on how long the shares have been held. There are holding period, exercise price
and other requirements applicable to ISOs that do not apply to NSOs. ISOs cannot
be granted under a stock option plan unless the plan is approved by our
stockholders.
Section 162(m) of the Internal Revenue Code limits the deductibility of
certain compensation in excess of $1,000,000 paid to certain executive officers.
The 2000 Plan has been designed such that, if the 2000 Plan is approved by the
Company's stockholders, the plan should meet the requirements of Section 162(m),
so that the compensation expense associated with Awards would be deductible for
grants to executive officers.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE 2000
PLAN - ITEM 2 ON YOUR PROXY CARD. If the stockholders do not approve the 2000
Plan, the Compensation Committee and the Board of Directors will reconsider the
adoption of the plan.
<PAGE>
PROPOSAL NO. 3 -
ELECTION OF DIRECTORS
At the Annual Meeting, five directors are to be elected. Presently, all
directors are elected annually for one year terms. If Proposal No. 1 is adopted,
then, to establish the classified terms contemplated by the Second Amendment,
there will be elected at the Annual Meeting one Class I director to serve an
initial one year term, two Class II directors to serve an initial two year term,
and two Class III directors to serve an initial three year term (or, in all
cases, until their successors have been elected and qualified). As the term of
each director expires, his or her successor will be elected to a three year
term. If Proposal No. 1 is not approved each director elected will serve a one
year term as director until the next Annual Meeting of Stockholders or until his
successor is duly elected and qualified. The Board of Directors has nominated
the following named persons to stand for election at the 2000 Annual Meeting of
Stockholders.
Each of the proposed nominees for election as a director has consented
to serve if elected. If, as a result of circumstances not now known or foreseen,
one or more of the nominees shall be unavailable or unwilling to serve as a
director, proxies may be voted for the election of such other persons as the
Board of Directors may select. The Board of Directors has no reason to believe
that any of the nominees will be unable or unwilling to serve.
The persons named in the enclosed form of proxy intend, unless
otherwise directed, to vote such proxy "FOR" the election of the nominees listed
below. The nominees that receive a plurality of the votes cast by the shares
entitled to vote at the Annual Meeting shall be elected as the directors.
DIRECTORS STANDING FOR ELECTION
The following discussion sets forth certain information with respect to
the nominees.
LAURENCE S. GRAFSTEIN (CLASS I), 39, has been a director of Z-Tel since
October 1999. Mr. Grafstein is a co-founder of Gramercy Communications Partners,
a private equity fund based in New York specializing in telecommunications
investments. Previously, he was head of the global telecommunications practice
at Credit Suisse First Boston. He is currently a member of the Executive
Committee of the Wall Street Division of the United Jewish Appeal and a member
of the boards of the Arts Connection and the Jerusalem Foundation. Mr. Grafstein
received his B.A. from Harvard University, his M. Phil from Balliol College of
Oxford University and an LL.B from the University of Toronto Law.
EDUARD J. MAYER (CLASS II), 47, has been a director of Z-Tel since July
1998 and vice president--strategic alliances since July 1999. Mr. Mayer is the
president of Acorn Ventures, Inc., a venture investment company. Mr. Mayer holds
a Bachelor of Commerce from the University of Windsor and an M.B.A. from New
York University.
BUFORD H. ORTALE (CLASS II), 38, has been a director of Z-Tel since
July 1998. Since 1996 Mr. Ortale has been the president of Sewanee Ventures,
LLC, a private investment firm. From 1993 to 1996 Mr. Ortale was a director and
then a managing director of NationsBanc Capital Markets Inc. He is a member of
the board of directors of Digital Medical Systems. Mr. Ortale received his B.A.
degree from The University of the South and a M.B.A. from Vanderbilt University.
<PAGE>
JEFFREY A. BOWDEN (CLASS III), 55, a founder of Z-Tel, has served as a
director of Z-Tel since July 1998. Mr. Bowden is currently a director of the
Boston Consulting Group. Mr. Bowden was vice president of Bell Atlantic
Corporation from 1997 to 1998. Mr. Bowden was a vice president of The Nynex
Corporation from 1994 to 1997 and vice president and a director of The Boston
Consulting Group from 1988 to 1994. Mr. Bowden received his B.S. from the
University of Michigan and his M.B.A. from the Harvard Graduate School of
Business.
D. GREGORY SMITH (CLASS III), 40, a founder of Z-Tel, has served as
chairman of the board and chief executive officer of Z-Tel since its inception.
Mr. Smith was a director of Premiere Technologies, Inc. from 1991 to 1997,
executive vice president from 1994 to 1997 and vice president from 1991 to 1994.
From 1987 to 1991, Mr. Smith was a management and financial consultant with
Olympus Telecommunications, Inc. and Olympus Partners, Inc., companies that he
founded. Mr. Smith has also held positions with NationsBank of Florida, N.A. and
Chase Bank of Florida. Mr. Smith received his B.S. in Commerce from the
University of Virginia.
MEETINGS OF THE BOARD OF DIRECTORS AND STANDING COMMITTEES
The Board of Directors held five formal meetings during 1999. In 1999,
each incumbent Director other than Mr. Grafstein attended 100% of the total
number of Board meetings. One Board meeting was held during 1999 while Mr.
Grafstein was a director, which he was unable to attend. All other actions
during the year were accomplished through unanimous written consents without a
meeting.
The Board of Directors has a standing Audit Committee and Compensation
Committee, but does not have a Nominating Committee. The Board of Directors
functions as a Nominating Committee, and the Board will consider written
recommendations from stockholders for positions on the Board of Directors in
accordance with the procedures set forth in the Amended and Restated Certificate
of Incorporation of the Company. See "Stockholder Proposals for Presentation at
the 2001 Annual Meeting" for further information.
The current members of the Audit Committee are Jeffrey A. Bowden and
Douglas Williamson. The Audit Committee had one formal meeting during 1999 apart
from meetings of the full Board of Directors. The Audit Committee's principal
responsibilities are to recommend annually a firm of independent certified
public accountants to the Board of Directors, to review the annual audit of the
Company's financial statements and to meet with the independent certified public
accountants of the Company from time to time in order to review the Company's
internal controls and financial management practices.
The current members of the Compensation Committee are Buford H. Ortale
and Douglas C. Williamson. The Compensation Committee did not formally meet
during 1999 apart from meetings of the full Board of Directors. The principal
responsibilities of the Compensation Committee to date have been to serve as the
committee responsible for administering the 1998 Equity Participation Plan, a
function which in practice has been assumed by the full Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION OF EACH OF THE NOMINEES AS
DIRECTORS OF THE COMPANY - ITEM 3 ON YOUR PROXY CARD.
<PAGE>
COMPENSATION COMMITTEE REPORT
TO: THE BOARD OF DIRECTORS
OVERVIEW AND PHILOSOPHY; ROLE OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the "Compensation
Committee") was originally formed in late 1998 and is currently composed of two
members, Mr. Ortale and Mr. Williamson, each of whom is a "non-employee
director" for purposes of Rule 16b-3 under the Exchange Act and an "outside
director" under Section 162(m) of the Internal Revenue Code. The principal
responsibilities of the Compensation Committee to date have been to serve as the
committee responsible for administering the 1998 Equity Participation Plan, a
function which in practice has been assumed by the full Board of Directors. It
is expected that in the future the Compensation Committee will play a more
active role in Z-Tel's compensation and benefits philosophy, and, in addition,
will approve and monitor our executive compensation and benefits programs,
executive employment agreements, and The 2000 Equity Participation Plan.
The primary objectives of the Compensation Committee are to assure that
our executive compensation and benefits program:
o is competitive with other growing companies in our industry,
o safeguards the interests of the company and its stockholders,
o is effective in driving performance to achieve financial goals and
create stockholder value,
o fosters teamwork on the part of management,
o is cost-effective and fair to employees, management, and
stockholders, and
o is well communicated and understood by program participants.
Z-Tel's executive compensation policies are designed to attract,
motivate, and retain highly qualified executive officers who can enhance
stockholder value, and to support a performance-oriented environment that
rewards achievement of our planned financial goals. To that end, we compensate
our executive officers through two principal types of compensation: annual base
salary and equity-based incentive compensation, which to date has consisted
primarily of stock options. Our philosophy with respect to executive officer
compensation is to establish relatively low base salaries and to place
substantial emphasis on equity-based incentive compensation, which is viewed by
the company as very effective at correlating executive officer compensation with
corporate performance and increases in stockholder value.
1998 EQUITY PARTICIPATION PLAN
Equity-based incentive compensation to date has been awarded by the
company under The 1998 Equity Participation Plan of Z-Tel Technologies, Inc.
(the "1998 Plan"), the principal purpose of which was to attract, retain and
motivate selected officers, employees, consultants and directors through the
granting of stock-based compensation awards. The 1998 Plan provides for
non-qualified and incentive stock options. A total of 8,250,000 shares of common
stock are reserved for issuance under the Equity Plan, ________________ of which
are currently subject to outstanding awards. Awards under the plan were
generally made at no less than fair market value. The maximum number of shares
which may be subject to awards granted under the 1998 Plan to any individual in
any calendar year cannot exceed 550,000. If the 2000 Plan is approved by the
stockholders at the 2000 Annual Meeting of Stockholders, it is intended to serve
the same purpose in our company's compensation structure as the 1998 Plan.
<PAGE>
The Compensation Committee is authorized to administer grants under the
1998 Plan to employees and consultants, while the full Board administers the
Equity Plan with respect to options granted to independent directors. To date,
in practice, the full Board has administered both aspects of the 1998 Plan.
The 1998 Plan provides that the Compensation Committee has the
authority to select the employees and consultants to whom awards are to be made,
to determine the number of shares to be subject to awards and the terms and
conditions of the awards, and to make all other determinations and to take all
other actions necessary or advisable for the administration of the 1998 Plan
with respect to employees or consultants.
The 1998 Plan also provides that at certain times our independent
directors will automatically be granted options to purchase shares of our common
stock. All options granted to our independent directors will have an exercise
price per share equal to the fair market value per share of our common stock as
of the date of grant. Each individual who was an independent director at the
time of the initial public offering of our common stock was granted an option to
purchase 1,100 shares of our common stock at the time of the initial public
offering and will be granted an option to purchase an additional 1,100 shares of
our common stock at each annual meeting of our stockholders at which he or she
is reelected to our Board of Directors. Independent directors who are initially
elected to our Board of Directors in the future will be granted an option to
purchase 1,100 shares of our common stock at on the date of such initial
election and will be granted an option to purchase an additional 1,100 shares of
our common stock at each annual meeting of our stockholders after the initial
public offering at which he or she is reelected to our Board of Directors. The
2000 Plan contains a similar provision, and also permits discretionary grants of
options to independent directors.
The Compensation Committee (and the Board) is authorized to adopt,
amend and rescind rules relating to the administration of the 1998 Plan, and to
amend, suspend and terminate the 1998 Plan. We have attempted to structure the
1998 Plan so that remuneration attributable to stock options and other awards
will not be subject to the deduction limitation contained in Section 162(m) of
the Internal Revenue Code.
1999 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
The general policies described above for the compensation of the
executive officers also applies to the compensation approved by the Board of
Directors during 1999 for Mr. Smith, our President, Chairman of the Board and
Chief Executive Officer. Mr. Smith received a base salary of $162,000 during
1999, and was granted a total of 1,100 options to purchase Common Stock at an
exercise price of $3.64 per share. Those options expire in August of 2004. Mr.
Smith has an employment agreement with the company, the initial term of which
expires in July 2001. The agreement provides for (i) automatic renewal for
subsequent one year terms (subject to nonrenewal by either party 90 days prior
to the end of the term), (ii) a bonus or other incentive compensation in an
amount to be determined by the Compensation Committee, (iii) the payment of his
base salary and benefits for the term of the agreement in the event of
termination without cause, and (iv) in the event of a change in control of
Z-Tel, the payment of 2.9 times his base salary and any incentive or bonus paid
in the prior year if certain specified events occur within three years of the
occurrence of a change of control. Under the agreement, Mr. Smith has also
agreed to certain to noncompetition and nonsolicitation covenants.
<PAGE>
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m)
The Compensation Committee has reviewed the applicability of Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), which
disallows a tax deduction for compensation to an executive officer when the
included compensation exceeds $1 million per year. No executive officer of the
company exceeded this threshold in 1999 and the Compensation Committee does not
anticipate that any executive officer of the company will exceed this threshold
during 2000. The Compensation Committee intends to periodically review the
potential consequences of Section 162(m) and, depending upon the risk of
applicability of this provision to us, may elect to structure the
performance-based portion of its executive officer compensation in a manner so
as to comply with certain exemptions provided for in Section 162(m).
This report has been provided by the Compensation Committee.
COMPENSATION COMMITTEE:
Buford H. Ortale
Douglas C. Williamson
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total return on Z-Tel's
Common Stock with the cumulative total return of the companies in the Nasdaq
Composite Index and the Nasdaq Telecommunications Index. Cumulative total return
shown in the Performance Graph is measured assuming an initial investment of
$100 on December 15, 1999, the date of Z-Tel's initial public offering, and
assuming the reinvestment of dividends.
COMPARISON OF CUMULATIVE TOTAL RETURN
[GRAPH OMITTED]
Nasdaq
Z-Tel Nasdaq-US Telecommunications
Date Index Index Index
- ---- ----- ----- -----
12/14/99 100.00 100.00 100.00
12/16/99 208.09 104.62 100.81
12/20/99 249.26 106.32 102.11
12/22/99 209.56 110.41 105.26
12/27/99 212.50 111.82 107.07
12/29/99 244.12 113.87 107.87
12/31/99 237.50 114.36 109.19
<PAGE>
EXECUTIVE OFFICERS AND KEY EMPLOYEES
NON-DIRECTOR EXECUTIVE OFFICERS
The following sets forth certain information regarding our non-director
executive officers as of April ____, 2000.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
David J. Malfara, Sr. 45 President, Z-Tel Network Services, Inc.
John M. Hutchens 52 Senior Vice President--Chief Financial Officer
Charles W. McDonough 48 Senior Vice President--Chief Technology Officer
J. Bryan Bunting 53 Senior Vice President--Engineering and Technical Support
James A. Kitchen 40 Senior Vice President--Chief Architect
N. Dumas Garrett 39 Senior Vice President--Business Development
Mark H. Johnson 43 Secretary and Treasurer
Jeffrey H. Kupor 31 General Counsel
Andrew L. Graham 42 Chief Legal Officer
Robert A. Curtis 32 Senior Vice President--Strategic Planning
Doug W. Jackson 34 Vice President--Marketing
</TABLE>
David J. Malfara, Sr. has served as president of Z-Tel Network
Services, Inc. since February 1999. Mr. Malfara has over twenty-four years of
telecommunications experience. He founded and sold Pace Long Distance Service
and Pace Network Services. He has previously served as vice president of
engineering at National Computer Corporation, as technical
advisor/telecommunications at Honeywell Information Systems and as senior
engineer at GTE Telenet.
John M. Hutchens has served as senior vice president--chief financial
officer since September 1999. From 1982 through 1999 he was an employee and then
a partner at Arthur Andersen LLP. Mr. Hutchens received a B.S. in Accountancy
from the University of Illinois, and a Masters of Health Administration from the
Ohio State University. Mr. Hutchens is a Certified Public Accountant licensed in
Florida.
Charles W. McDonough has served as senior vice president--chief
technology officer since August 1998. From 1975 through 1998, he was an employee
and then a partner at Andersen Consulting LLP. Mr. McDonough received a B.A. in
Industrial Engineering and a M.S. in Industrial Administration from Carnegie
Mellon University.
J. Bryan Bunting has served as senior vice president-engineering and
technical services since January 1999. Mr. Bunting served as senior vice
president--Z-Tel Business Networks from August l998 to January 1999. From 1968
through 1998, he was an officer of NationsBank, serving most recently as senior
vice president of direct banking. Mr. Bunting attended Old Dominion University.
James A. Kitchen, a founder of Z-Tel, has served as senior vice
president--chief architect of Z-Tel since January 1999. He served as vice
president, engineering from January 1998 to December 1998 and was a chief
architect and developer of Premiere Communications, Inc. from 1992 to 1997. Mr.
Kitchen received his B.S. in Engineering from Georgia Institute of Technology.
N. Dumas Garrett has served as senior vice president--business
development of Z-Tel since December
<PAGE>
1999. From 1987 through 1999, he was an officer of Stephens, Inc., serving most
recently as managing director and senior vice president and head of the
technology and telecomunications group. Mr. Garrett has a B.S. in Industrial
Engineering from the University of Arkansas and an M.B.A. from the University of
Virginia.
Mark H. Johnson has served as secretary and treasurer of Z-Tel since
August 1999. From May 1998 until his arrival at Z-Tel, Mr. Johnson was an
employee of Olympus Management, a venture firm. From November 1991 until May
1998, Mr. Johnson was a credit policy executive of First Union National Bank.
Mr. Johnson holds a B.A. from the University of Virginia.
Jeffrey H. Kupor has served as General Counsel of Z-Tel since November
1999. From September 1993 until January 1998, Mr. Kupor was an attorney with the
Houston office of Fulbright & Jaworski LLP, specializing in complex commercial
and securities litigation. From January 1998 until November 1999 Mr. Kupor was a
Staff Attorney and later Counsel at AIM Management Group, Inc., an investment
adviser to a group of registered investment companies, where his
responsibilities included securities registration, corporate and fund
litigation, and labor and employment-related legal issues. Mr. Kupor has a B.S.
in Economics from the University of Pennsylvania and a J.D. from the Boalt Hall
School of Law at the University of California at Berkeley.
Andrew L. Graham has served as chief legal officer of Z-Tel since
September 1999. He has practiced corporate and tax law in Tampa, Florida since
1988, most recently with the firm of Cass & Graham. He earned his Bachelor's in
accounting from Florida State University and his law degree, with honors, from
the University of Florida College of law in 1987 and went on to earn a Master of
Laws in Taxation there in 1988.
Robert A. Curtis has served as senior vice president--strategic
planning since July 1999. From May 1998 to June 1999, Mr. Curtis was vice
president--business development and legal affairs at Z-Tel. From September 1995
to April 1998, Mr. Curtis was an attorney at the Houston office of Fulbright &
Jaworski LLP, where he specialized in antitrust and complex federal litigation.
Mr. Curtis graduated from the Duke University School of Law in 1995. Mr. Curtis
received his B.A. in Philosophy from Trinity University and his Doctor of
Philosophy (D. Phil) from the University of Oxford (England).
Doug W. Jackson has served as vice president--marketing of Z-Tel since
June 1999. From 1996 through 1999 he held the position of senior brand manager
for the Coca-Cola Company and prior to that from 1992 to 1996 he was an
associate product manager for Kraft General Foods Corp. Mr. Jackson received his
B.A. from University of Virginia and his M.B.A. from University of Michigan.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
All Section 16(a) filing requirements have been complied with since our
initial public offering on December 15, 1999, except that for each of the
following directors and officers, one form was not timely filed relating to the
indicated number of transactions: Messrs. Bowden, Ortale, Grafstein, and
Williamson, one transaction; Mr. Garrett, two transactions and his initial
report upon becoming a Section 16(a) reporting person. In addition, the initial
beneficial ownership report of Mr. Curtis did not accurately reflect the
character of certain of his holdings.
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides summary information concerning
compensation paid or accrued by us to, or on behalf of, our "Named Executive
Officers," which are (1) our Chief Executive Officer, (2) our four most highly
compensated executive officers serving as executive officers at December 31,
1999 and (3) one additional individual who was an executive officer during 1999
but was not serving in that capacity on December 31, 1999. The aggregate amount
of perquisites and other personal benefits, securities or property received by
each of the Named Executive Officers was less than either $50,000 or 10% of the
total annual salary and bonus reported for that Named Executive Officer:
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards
------
Shares All Other
Salary Bonus Underlying Compensation
Name and Principal Position ($) ($) Options ($)
- --------------------------- --- --- ------- ---
<S> <C> <C> <C> <C>
D. Gregory Smith 162,000 --- 1,100 --
President, Chief Executive Officer and
Chairman
Russell T. Alba (1) 131,625 --- -- 40,500
Senior Vice President--Business
Development and Chief Legal Officer
James A. Kitchen 162,000 --- 27,500 --
Senior Vice President - Chief Architect
J. Bryan Bunting 162,000 --- 27,500 --
Senior Vice President--Engineering and
Technical Services
Charles W. McDonough 162,000 --- 27,500 --
Senior Vice President-Chief Technology Officer
David J. Malfara, Sr. 137,500 --- 357,500 12,000 (2)
President--Z-Tel Network Services, Inc.
</TABLE>
- --------
(1)Effective September 1999, Mr. Alba was no longer employed by us. "All Other
Compensation" for Mr. Alba reflects amounts paid to him pursuant to a severance
agreement.
(2) Represents compensation for consulting services provided by Malfara
Associates, an assumed name of Mr. Malfara.
<PAGE>
OPTION GRANTS DURING LAST FISCAL YEAR
The following table contains information concerning the stock option
grants made to each of the Named Executive Officers during the fiscal year ended
December 31, 1999, subject to the following:
Under our 1998 Equity Participation Plan, stock options are generally
granted as of the employee's start date. The options generally vest over a three
year period commencing on the start date and expire ten years thereafter (unless
the employee at the time of grant owned more than 10% of the total combined
voting power of all classes of stock, in which case they expire over five
years).
The 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by the rules of the Securities and Exchange
Commission. We cannot be certain that the actual stock price appreciation over
the ten-year option term will be at the assumed 5% and 10% levels or at any
other defined level. Unless the market price of the common stock appreciates
over the option term, no value will be realized from the option grants. The
potential realizable value is calculated by assuming that the fair market value
of the common stock as determined by the Board of Directors on the date of grant
of the options appreciates at the indicated rate of the entire term of the
option and that the option is exercised at the exercise price and sold on the
last day at the appreciated price.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
NUMBER OF SHARES % OF TOTAL WEIGHTED PRICE
OF COMMON OPTIONS AVERAGE APPRECIATION FOR OPTION
STOCK GRANTED TO EXERCISE TERM
UNDERLYING EMPLOYEES IN PRICE EXPIRATION ----
NAME OPTIONS GRANTED 1999 ($/SH) DATE (5%) ($) 10% ($)
---- --------------- ----------------- ------ ---- -------- -------
<S> <C> <C> <C> <C> <C> <C>
D. Gregory Smith 1,100 <1% 3.64 08/01/04 1,106 2,444
*Russell T. Alba -- -- -- -- -- --
James A. Kitchen 27,500 <1% 5.45 10/09/09 94,256 238,862
J. Bryan Bunting 27,500 <1% 5.45 10/09/09 94,256 238,862
Charles W. McDonough 27,500 <1% 5.45 10/09/09 94,256 238,862
David J. Malfara, Sr. 40,700 <1% 3.64 01/26/09 93,169 236,110
103,400 3% 3.64 02/01/09 236,701 599,846
185,900 5% 3.64 07/26/09 425,558 1,078,447
27,500 <1% 5.45 10/09/09 94,256 238,862
</TABLE>
- --------
* Effective September 1999, Mr. Alba was no longer employed by us.
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUE TABLE
The following table shows information concerning stock option
exercises during 1999 and stock option values as of the year ending December 31,
1999 by each of the Named Executive Officers. The value of unexercised
in-the-money options is determined by subtracting the exercise price from the
fair market value of the common stock based on $40.375, the closing price of
Z-Tel common stock as of December 31, 1999, multiplied by the number of shares
underlying the options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
SHARES UNDERLYING UNEXERCISED MONEY OPTIONS AT FISCAL YEAR-
ACQUIRED OPTIONS AT FISCAL YEAR-END (#) END ($)
ON VALUE
EXERCISE REALIZED
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ------------ ------------ --------------- ------------------ ---------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
D. Gregory Smith - - 336,111 214,989 12,347,042 $7,897,617
*Russell T. Alba - - 129,800 -- 4,768,203 0
James A. Kitchen - - 351,389 226,111 12,908,271 8,256,416
J. Bryan Bunting 10,000 133,600 119,861 172,639 4,403,098 6,292,115
Charles W. McDonough 197,490 3,008,951 0 270,010 0 10,323,557
David J. Malfara, Sr. - - 0 357,500 0 13,082,988
</TABLE>
--------
* Effective September 1999, Mr. Alba was no longer employed by us.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consisted of
Messrs. Ortale and Williamson during the year ended December 31, 1999, both of
whom are non-employee directors. The compensation committee is responsible for
all decisions concerning executive officer compensation, including decisions
regarding grants of incentive stock options.
DIRECTOR COMPENSATION
Directors do not currently receive any cash compensation for services
rendered to Z-Tel in their capacities as directors. Pursuant to the terms of The
1998 Equity Participation Plan of Z-Tel Technologies, Inc., each outside
director who served as such as of the date of Z-Tel's initial public offering
received options to purchase 1,100 shares of Z-Tel's common stock, and will
receive options to purchase an additional 1,100 shares of Z-Tel's common stock
on the date of each annual meeting of shareholders following such initial public
offering.
<PAGE>
EMPLOYMENT AGREEMENTS
We have entered into the following employment agreements:
<TABLE>
<CAPTION>
Annual
------
Officer Term Salary Position
------- ---- ------ --------
<S> <C> <C> <C>
D. Gregory Smith July 1998 - July 2001 $162,000 President, Chief Executive Officer and
Chairman
Charles W. McDonough August 1998 - August 2001 $162,000 Senior Vice President - Chief Technology
Officer
J. Bryan Bunting August 1998 - August 2001 $162,000 Senior Vice President - Engineering and
Technical Services
James A. Kitchen July 1998 - July 2001 $162,000 Senior Vice President - Chief Architect
</TABLE>
The employment agreements with Messrs. Smith, McDonough, Bunting and
Kitchen also provide for:
o automatic renewal for subsequent one year terms unless either party elects
not to renew prior to 90 days from the end of the then current term of the
agreement;
o a bonus or other incentive compensation in an amount to be determined by
our compensation committee;
o the payment of his base salary and any other benefits to which he would
have been entitled for the term of the agreement if he is terminated
without cause (as defined in the agreements);
o generally, if a change of control occurs, the payment of two and
nine-tenths (2.9) times his base salary and any incentive or bonus paid in
the prior year if, within three years of the occurrence of a change of
control, specified events occur;
o his obligation to keep our nonpublic information confidential; and
o his obligation not to compete with us in the United States and not to
solicit our employees.
SEVERANCE AGREEMENT
We and Mr. Russell T. Alba are parties to an agreement, dated September
3, 1999, where we, among other things, agreed to pay a total severance amount of
$324,000, which amount is payable monthly for a period of two years, provide
health benefits and provide for the extension of the exercise period of stock
options for Mr. Alba. Mr. Alba and we also provided each other with a mutual
release of any prior legal claims.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PURCHASES OF COMMON STOCK
On January 15, 1998, Rob Curtis purchased 110,000 shares of our common
stock for a purchase price of $125,000. Mr. Curtis' note to us in the principal
amount of $93,750, bears interest at a rate of 8% per annum, matures on December
31, 2001 and is secured by a pledge of his common stock. The largest amount of
indebtedness under the note during 1999 was $93,750, and the outstanding balance
as of April 13, 2000 was $0.
In agreements dated September 1, 1998, each of D. Gregory Smith, James
A. Kitchen, Charles W. McDonough and J. Bryan Bunting, together referred to as
the officer investors, purchased, in the aggregate, 9,570,000 shares of our
common stock for an aggregate purchase price of $10.88 million. In connection
with the purchase of these shares, we loaned: (1) $750,000 to Mr. Smith for the
purchase price of 660,000 of his shares, (2) $750,000 to Mr. Kitchen for the
purchase price of 660,000 of his shares; (3) $468,750 to Mr. McDonough for the
purchase price of 550,000 of his shares and (4) $187,500 to Mr. Bunting for the
purchase price of 220,000 of his shares. These loans, which bear interest at an
8% annual rate and mature on December 31, 2001, are secured by a pledge to us of
the common stock. The largest amount of indebtedness under the notes during 1999
was $750,000; $750,000; $468,750; and $187,500, respectively and the outstanding
note balances as of April 13, 2000 were $0; $500,000; $468,750 and $187,500,
respectively.
These agreements permit Messrs. Smith and Kitchen, first, and us,
second, to purchase from the officer investors a portion of their shares in the
event of a termination (as defined in the agreements) of the officer's
employment with us. This purchase option must be exercised within 30 days after
the termination of the respective officer's employment with us. In addition, the
purchase option lapses automatically if we are involved in a corporate
transaction (as defined in the agreements).
After March 1, 2000, the officer investors have a right, subject to
quantity limitations we determine, or determined by underwriters, if applicable,
to request that we register their common stock that is no longer subject to the
purchase option.
On September 1, 1999, Mr. Smith purchased an additional 85,800 shares
of our common stock for $97,500 as a result of his exercise of his purchase
option to buy shares from an individual who left the company. Mr. Smith paid for
this purchase with a note under which the largest amount of indebtedness during
1999 was $97,500. The principal balance of the note on April 13, 2000 was $0,
and was on substantially the same terms as Mr. Smith's other note to the
company.
PURCHASE OF SERIES B PREFERRED STOCK
On September 22, 1999, we sold an additional 2,964,500 shares of Series
B Preferred Stock for an aggregate consideration of approximately $10 million.
Included in that offering were 148,519 shares purchased for $3.37 per share by
Fulmead Ventures Limited, which is beneficially owned by a trust of which Eduard
J. Mayer is a beneficiary, and 148,267 shares purchased for $3.37 per share by
Buford H. Ortale.
PURCHASE OF SERIES C PREFERRED STOCK
On October 8, 1999, Gramercy Z-Tel L.P. purchased 3,074,280 shares of
Series C Preferred Stock for a purchase price of $15 million.
<PAGE>
STOCK PURCHASE AGREEMENT AND STOCKHOLDERS' AGREEMENT
REGISTRATION RIGHTS. The terms of the Series A Preferred Stock and
Series C Preferred Stock provide that the holders of common stock issued upon
conversion of, or as a dividend on, Series A Preferred Stock or Series C
Preferred Stock, as the case may be, may require us to register that common
stock under the Securities Act beginning no earlier than 180 days after the
effective date of a registration statement for an initial public offering of our
common stock. Holders of common stock issued upon conversion of, or as a
dividend on, Series A Preferred Stock and Series C Preferred Stock also have the
right to cause us to register that common stock on Form S-3 when it becomes
available to us if they propose to register securities having a value of at
least $10 million. We will bear all registration expenses incurred in connection
with the first three of these demands for registration. In addition, if we
propose to register securities under the Securities Act, other than
registrations on Form S-4 or Form S-8, then, the holders of common stock issued
upon conversion of, or as a dividend on, Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock have a right, subject to quantity
limitations determined by underwriters if the offering involves an underwriting,
to request that we register such holders' common stock. If holders of common
stock issued upon conversion of, or as a dividend on, Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock participate in that
registration, holders of common stock issued upon conversion of, or as a
dividend on, Series A Preferred Stock and Series C Preferred Stock will have
priority over all other holders of common stock (other than Z-Tel).
TRANSACTIONS WITH OLYMPUS MANAGEMENT GROUP, INC.
Since January 1, 2000, Z-Tel Communications, Inc., one of our wholly
owned subsidiaries, has sub-sub leased, on a month-to-month basis, two pieces of
real property from Olympus Management Group, Inc., an entity of which Mr. Smith
is a 100% shareholder. The rental obligation under these sub-sub leases is
$6,800 per month. The sub-sub leases are terminable by either party at any time.
<PAGE>
SECURITY OWNERSHIP
The following table sets forth, as of April ______, 2000 (unless
otherwise stated), the number of shares of our common stock beneficially owned
by:
o each person who we know to be a beneficial owner of 5% or more of our
outstanding common stock;
o each of our directors;
o each of our Named Executive Officers; and
o all executive officers and directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF CLASS
BENEFICIAL OWNER OWNERSHIP (1)
- ---------------- ---------
<S> <C> <C>
D. Gregory Smith (2)(3) . . . . . . . . . . . . . . . . . . . . . . 7,743,022 23.90
Carol Jane Smith (2)(3) . . . . . . . . . . . . . . . . . . . . . . 7,743,022 23.90
G/CJ Investments, L.P. (3) . . . . . . . . . . . . . . . . . . . . . 5,500,000 17.18
Russell T. Alba (2)(4) . . . . . . . . . . . . . . . . . . . . . . . 425,425 1.32
David J. Malfara, Sr. (2)(5) . . . . . . . . . . . . . . . . . . . . 60,042 *
James A. Kitchen (2)(6) . . . . . . . . . . . . . . . . . . . . . . 1,803,278 5.56
Charles W. McDonough (2)(7) . . . . . . . . . . . . . . . . . . . . 806,667 2.52
J. Bryan Bunting (2)(8) . . . . . . . . . . . . . . . . . . . . . . 380,417 1.18
Eduard J. Mayer (2)(9) . . . . . . . . . . . . . . . . . . . . . . . -0- *
Buford H. Ortale (2)(10) . . . . . . . . . . . . . . . . . . . . . . 1,829,061 5.71
Douglas C. Williamson (2)(11). . . . . . . . . . . . . . . . . . . . -0- *
Jeffrey Bowden (2)(12) . . . . . . . . . . . . . . . . . . . . . . . 339,167 1.05
Laurence S. Grafstein (13) . . . . . . . . . . . . . . . . . . . . . -0- *
Fulmead Ventures Limited (14) . . . . . . . . . . . . . . . . . . . 2,348,520 7.34
BA Capital Company, L.P. (15) . . . . . . . . . . . . . . . . . . . 1,780,325 5.56
Gramercy Z-Tel, L.P. (16) . . . . . . . . . . . . . . . . . . . . . 3,074,280 9.61
All directors and officers as a group (18 persons) 13,559,079 40.57
</TABLE>
- --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the aggregate number of shares
beneficially owned by the individual stockholders and groups of stockholders
described above and the percentage ownership of such individuals and groups,
shares of common stock subject to options or warrants that are currently
exercisable or exercisable within 60 days of the date of this report are deemed
outstanding. Such shares, however, are not deemed outstanding for the purposes
of computing the percentage ownership of the other stockholders or groups of
stockholders.
(2) The address for each of Messrs. Smith, Alba, Malfara, Kitchen,
McDonough, Bunting, Mayer, Ortale, Williamson and Bowden and Mrs. Smith is c/o
Z-Tel Technologies, Inc., 601 South Harbour Island Boulevard, Suite 220, Tampa,
Florida 33602.
(3) D. Gregory Smith and Carol Jane Smith are husband and wife. The number
of shares shown for D. Gregory Smith
<PAGE>
and for Carol Jane Smith each includes all of the shares held by G/CJ
Investments, L.P., a Delaware limited partnership. G/CJ Investments, Inc., a
Delaware corporation established and controlled by Mr. and Mrs. Smith, is the
sole general partner of G/CJ Investments, L.P. The share amount also includes
397,222 shares for Mr. Smith and Mrs. Smith which are deemed to be beneficially
owned by them by virtue of certain stock options that are currently exercisable
or become exercisable within 60 days. The address of G/CJ Investments, L.P. is
300 Delaware Avenue, Suite 900, Wilmington, DE 19801.
(4) Includes 129,800 shares deemed to be beneficially owned by Mr. Alba by
virtue of certain stock options that are currently exercisable or which become
exercisable within 60 days. Effective September 1999, Mr. Alba was no longer
employed by us.
(5) Includes 60,042 shares deemed to be beneficially owned by Mr. Malfara
by virtue of certain stock options that are currently exercisable or which
become exercisable within 60 days.
(6) Includes 427,778 shares deemed to be beneficially owned by Mr. Kitchen
by virtue of certain stock options that are currently exercisable or which
become exercisable within 60 days.
(7) Includes 59,177 shares deemed to be beneficially owned by Mr. McDonough
by virtue of certain stock options that are currently exercisable or which
become exercisable within 60 days.
(8) Includes 150,417 shares deemed to be beneficially owned by Mr. Bunting
by virtue of certain stock options that are currently exercisable or which
become exercisable within 60 days.
(9) Does not include 2,348,520 shares owned directly by Fulmead Ventures
Limited, which is beneficially owned by The Mayer Trust. Mr. Mayer is a
principal beneficiary of The Mayer Trust. Mr. Mayer disclaims beneficial
ownership of these shares as he does not have voting or dispositive power with
respect to these shares.
(10) Includes 158,036 shares held by a general partnership with which Mr.
Ortale is affiliated and 68,622 shares held by a trust of which Mr. Ortale is a
trustee.
(11) Excludes 1,780,325 shares owned by BA Capital Company, L.P., of which
Mr. Williamson is a senior officer. Mr. Williamson disclaims beneficial
ownership of the shares owned by BA Capital Company, L.P.
(12) Includes 229,167 shares deemed to be beneficially owned by Mr. Bowden
by virtue of certain stock options that are currently exercisable or which
become exercisable within 60 days.
(13) Excludes 3,074,280 shares owned by Gramercy Z-Tel L.P., of which Mr.
Grafstein is a senior officer. Mr. Grafstein disclaims beneficial ownership of
the shares owned by Gramercy Z-Tel L.P.
(14) This information is derived from a Schedule 13G dated February 4, 2000
filed jointly by The Mayer Trust, Eduard J. Mayer, Mutual Risk Management Ltd.,
Mutual Risk Management (Holdings) Limited, Hemisphere Trust (Jersey) Limited,
Hemisphere Trustees Limited, Hemisphere Nominees Limited, Hemisphere Investments
Limited, and Fulmead Ventures Limited. Each of these parties is shown to have
shared voting and dispositive power with respect to all of the shares shown.
Eduard J. Mayer disclaims beneficial ownership of the shares shown. The address
of Fulmead Ventures Limited is Akara Bldg., 24 Castro Street, Wickhams Cay I,
Road Town, Tortola, British Virgin Islands.
(15) This information is derived from a Schedule 13G dated February 14,
2000 filed jointly by BA Capital Company, L.P., BA SBIC Management, LLC, BA
Equity Management, L.P., BA Equity Management GP, LLC, Walter W. Walker, Jr.,
and Bank of America Corporation. Each of these parties is shown to have sole
voting and dispositive power with respect to all of the shares shown. The
address of BA Capital Company, L.P., is 901 Main Street, 22nd Floor, Dallas, TX
75202-3714.
(16) This information is derived from a Schedule 13G filed February 14,
2000 and dated February 2000 filed jointly by Gramercy Z-Tel L.P., Gramercy
Z-Tel LLC and Communicapital Partners (Cayman), L.P. Each of these parties is
shown
<PAGE>
to have shared voting and dispositive power with respect to all of the shares
shown. The address of Gramercy Z-Tel L.P. is 712 Fifth Avenue, New York, NY
10019.
OTHER BUSINESS
It is not expected that any other matters are likely to be brought before the
meeting. However, if any other matters are presented, it is the intention of the
persons named in the proxy to vote the proxy in accordance with their best
judgment.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The firm of PricewaterhouseCoopers LLP has been our independent certified public
accountants since ____________________. PricewaterhouseCoopers LLP has been
recommended by the Audit Committee and approved by the Board of Directors as our
independent certified public accountants for the year ending December 31, 2000.
Representatives of PricewaterhouseCoopers LLP are expected to be present at the
Annual Meeting of Stockholders. They will have the opportunity to make a
statement if they desire to do so and are expected to be available to respond to
appropriate questions by stockholders.
STOCKHOLDER PROPOSALS FOR PRESENTATION AT THE 2001 ANNUAL MEETING
Stockholder proposals intended to be considered for inclusion in next
year's Proxy Statement and form of proxy for presentation at the 2001 Annual
Meeting of Stockholders must be submitted in writing and received by us on or
before December ______, 2000. Address proposals to Z-Tel Technologies, Inc.,
Attention: Secretary, 601 South Harbour Island Boulevard, Suite 220, Tampa,
Florida 33602. In addition, our bylaws provide that stockholder proposals
intended to be presented at an Annual Meeting of Stockholders must be received
by us not less than 60 nor more than 90 days before the date of the meeting
(unless less than 70 days notice or disclosure of the date of the meeting is
given to stockholders, in which case the proposal must be received by us no
later than the close of business on the tenth day following the date on which
notice was given or public disclosure was made). The specific requirements for
submitting such proposals are set forth in our bylaws.
By Order of the Board of Directors,
JOHN M. HUTCHENS, Chief Financial
Officer
Dated: April __, 2000
<PAGE>
APPENDIX A
FORM OF PROXY
Z-TEL TECHNOLOGIES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 30, 2000
The undersigned, a stockholder of Z-Tel Technologies, Inc. ("Z-Tel"),
hereby appoints D. Gregory Smith, John M. Hutchens, Mark H. Johnson, and Jeffrey
H. Kupor, and each of them, attorney and proxy of the undersigned, each with
full powers of substitution, for and on behalf of the undersigned, to represent
the undersigned at the Annual Meeting of Stockholders of Z-Tel to be held at the
Wyndham Harbour Island Hotel Tampa, Florida at 1:00 P.M., local time, on May 30,
2000, and any adjournments or postponements thereof (the "Annual Meeting"), and
to vote at the Annual Meeting all the shares of Common Stock of Z-Tel that the
undersigned is entitled to vote at the Annual Meeting, with the same effect as
if the undersigned were personally present at the Annual Meeting, all as
described in the Company's Proxy Statement dated April _____, 2000 relating to
the Annual Meeting, and the undersigned hereby authorizes and instructs the
above named proxies to vote as specified on the reverse side:
The shares represented by this Proxy will be voted in the manner
directed herein only if this Proxy is properly executed and timely returned. IF
THE UNDERSIGNED DOES NOT SPECIFY A CHOICE, THE SHARES WILL BE VOTED FOR THE
PROPOSAL TO APPROVE THE SECOND AMENDMENT TO Z-TEL'S AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION, FOR THE PROPOSAL TO APPROVE THE 2000 EQUITY
PARTICIPATION PLAN, FOR THE NOMINEES FOR DIRECTOR LISTED ON THE REVERSE SIDE,
AND IN THE DISCRETION OF THE PROXIES FOR OTHER MATTERS WHICH MAY PROPERLY COME
BEFORE THE ANNUAL MEETING.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
APPENDIX B
2000 PLAN
THE 2000 EQUITY PARTICIPATION PLAN
OF
Z-TEL TECHNOLOGIES, INC.,
EFFECTIVE APRIL 10, 2000
Z-Tel Technologies, Inc., a Delaware corporation, has adopted The 2000
Equity Participation Plan of Z-Tel Technologies, Inc. (the "Plan"), effective
April 10, 2000, for the benefit of its eligible employees, consultants and
directors. The Plan consists of two plans, one for the benefit of Employees (as
such term is defined below), Independent Directors (as such term is defined
below) and consultants and one exclusively for the benefit of Independent
Directors.
The purposes of this Plan are as follows:
(1) To provide an additional incentive for directors, Employees and
consultants to further the growth, development and financial success of the
Company by personally benefiting through the ownership of Company stock and/or
rights which recognize such growth, development and financial success.
(2) To enable the Company to obtain and retain the services of
directors, Employees and consultants considered essential to the long range
success of the Company by offering them an opportunity to own stock in the
Company and/or rights which will reflect the growth, development and financial
success of the Company.
ARTICLE I.
DEFINITIONS
SECTION 1.1 GENERAL.
Wherever the following terms are used in this Plan they shall have the
meanings specified below, unless the context clearly indicates otherwise.
SECTION 1.2 AWARD LIMIT.
"Award Limit" shall mean 550,000 shares of Common Stock.
SECTION 1.3 BOARD OR BOARD OR DIRECTORS.
"Board" or "Board of Directors" shall mean the Board of Directors of
the Company.
<PAGE>
SECTION 1.4 CHANGE IN CONTROL.
"Change in Control" shall mean a change in ownership or control of the
Company effected through either of the following transactions:
(a) any person or related group of persons (other than the
Company or a person that directly or indirectly controls, is controlled
by, or is under common control with, the Company) directly or
indirectly acquires beneficial ownership (within the meaning of Rule
13d-3 under the Exchange Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Company's
outstanding securities pursuant to a tender or exchange offer made
directly to the Company's stockholders which the Board does not
recommend such stockholders to accept; or;
(b) there is a change in the composition of the Board over a
period of thirty-six (36) consecutive months (or less) such that a
majority of the Board members (rounded up to the nearest whole number)
ceases, by reason of one or more proxy contests for the election of
Board members, to be comprised of individuals who either (i) have been
Board members continuously since the beginning of such period or (ii)
have been elected or nominated for election as Board members during
such period by at least a majority of the Board members described in
clause (i) who were still in office at the time such election or
nomination was approved by the Board.
SECTION 1.5 CODE.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
SECTION 1.6 COMMITTEE.
"Committee" shall mean the Compensation Committee of the Board, or
another committee of the Board, appointed as provided in Section 9.1.
SECTION 1.7 COMMON STOCK.
"Common Stock" shall mean the common stock of the Company, par value
$0.01 per share, and any equity security of the Company issued or authorized to
be issued in the future, but excluding any preferred stock and any warrants,
options or other rights to purchase Common Stock. Debt securities of the Company
convertible into Common Stock shall be deemed equity securities of the Company.
SECTION 1.8. COMPANY.
"Company" shall mean Z-Tel Technologies, Inc., a Delaware corporation.
SECTION 1.9. CORPORATE TRANSACTION.
<PAGE>
"Corporate Transaction" shall mean any of the following
stockholder-approved transactions to which the Company is a party:
(a) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of
which is to change the State in which the Company is incorporated, form
a holding company or effect a similar reorganization as to form
whereupon this Plan and all Options are assumed by the successor entity;
(b) the sale, transfer, exchange or other disposition of all
or substantially all of the assets of the Company, in complete
liquidation or dissolution of the Company in a transaction not covered
by the exceptions to subsection (a), above; or
(c) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent (50%)
of the total combined voting power of the Company's outstanding
securities are transferred or issued to a person or persons different
from those who held such securities immediately prior to such merger.
SECTION 1.10. DEFERRED STOCK.
"Deferred Stock" shall mean Common Stock awarded under Article VII of
this Plan.
SECTION 1.11. DIRECTOR.
"Director" shall mean a member of the Board.
SECTION 1.12. DIVIDEND EQUIVALENT.
"Dividend Equivalent" shall mean a right to receive the equivalent value
(in cash or Common Stock) of dividends paid on Common Stock, awarded under
Article VII of this Plan.
SECTION 1.13. EMPLOYEE.
"Employee" shall mean any officer or other employee (as defined in
accordance with Section 3401(c) of the Code) of the Company, or of any
corporation that is a Subsidiary.
SECTION 1.14. EXCHANGE ACT.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
SECTION 1.15. FAIR MARKET VALUE.
"Fair Market Value" of a share of Common Stock as of a given date shall
be (i) the closing price of a share of Common Stock on the principal exchange on
which shares of Common Stock are then trading, if any (or as reported on any
composite index which includes such principal exchange), on the trading day
previous to such date, or if shares were not traded on the trading day previous
to such date, then on the next preceding date on which a trade occurred, or (ii)
if Common Stock
<PAGE>
is not traded on an exchange but is quoted on Nasdaq or a successor quotation
system, the mean between the closing representative bid and asked prices for the
Common Stock on the trading day previous to such date as reported by Nasdaq or
such successor quotation system; or (iii) if Common Stock is not publicly traded
on an exchange and not quoted on Nasdaq or a successor quotation system, the
Fair Market Value of a share of Common Stock as established by the Committee (or
the Board, in the case of Options granted to Independent Directors) acting in
good faith.
SECTION 1.16. GRANTEE.
"Grantee" shall mean an Employee, Independent Director or consultant
granted a Performance Award, Dividend Equivalent, Stock Payment or Stock
Appreciation Right, or an award of Deferred Stock, under this Plan.
SECTION 1.17. INCENTIVE STOCK OPTION.
"Incentive Stock Option" shall mean an option which conforms to the
applicable provisions of Section 422 of the Code and which is designated as an
Incentive Stock Option by the Committee.
SECTION 1.18. INDEPENDENT DIRECTOR.
"Independent Director" shall mean a member of the Board who is not an
Employee of the Company.
SECTION 1.19. NON-QUALIFIED STOCK OPTION.
"Non-Qualified Stock Option" shall mean an Option that is not designated
as an Incentive Stock Option by the Committee.
SECTION 1.20. OPTION.
"Option" shall mean a stock option granted under Article III of this
Plan. An Option granted under this Plan shall, as determined by the Committee,
be either a Non-Qualified Stock Option or an Incentive Stock Option; PROVIDED,
HOWEVER, that Options granted to Independent Directors and consultants shall be
Non-Qualified Stock Options.
SECTION 1.21. OPTIONEE.
"Optionee" shall mean an Employee, consultant or Independent Director
granted an Option under this Plan.
SECTION 1.22. PERFORMANCE AWARD.
"Performance Award" shall mean a cash bonus, stock bonus or other
performance or incentive award that is paid in cash, Common Stock or a
combination of both, awarded under Article VII of this Plan.
<PAGE>
SECTION 1.23. PLAN.
"Plan" shall mean The 2000 Equity Participation Plan of Z-Tel
Technologies, Inc.
SECTION 1.24. RESTRICTED STOCK.
"Restricted Stock" shall mean Common Stock awarded under Article VI of
this Plan.
SECTION 1.25. RESTRICTED STOCKHOLDER.
"Restricted Stockholder" shall mean an Employee, Independent Director or
consultant granted an award of Restricted Stock under Article VI of this Plan.
SECTION 1.26. RULE 16B-3.
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act,
as such Rule may be amended from time to time.
SECTION 1.27. SECTION 162(M) PARTICIPANT.
"Section 162(m) Participant" shall mean any Employee designated by the
Committee as an Employee whose compensation for the fiscal year in which the
Employee is so designated or a future fiscal year may be subject to the limit on
deductible compensation imposed by Section 162(m) of the Code.
SECTION 1.28. STOCK APPRECIATION RIGHT.
"Stock Appreciation Right" shall mean a stock appreciation right
granted under Article VIII of this Plan.
SECTION 1.29. STOCK PAYMENT.
"Stock Payment" shall mean (i) a payment in the form of shares of Common
Stock, or (ii) an option or other right to purchase shares of Common Stock, as
part of a deferred compensation arrangement, made in lieu of all or any portion
of the compensation, including without limitation, salary, bonuses and
commissions, that would otherwise become payable to an Employee, Independent
Director or consultant in cash, awarded under Article VII of this Plan.
SECTION 1.30. SUBSIDIARY.
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing 50 percent
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
SECTION 1.31. TERMINATION OF CONSULTANCY.
<PAGE>
"Termination of Consultancy" shall mean the time when the engagement of
an Optionee, Grantee or Restricted Stockholder as a consultant to the Company or
a Subsidiary is terminated for any reason, with or without cause, including, but
not by way of limitation, by resignation, discharge, death or retirement; but
excluding terminations where there is a simultaneous commencement of employment
with the Company or any Subsidiary. The Committee, in its sole discretion, shall
determine the effect of all matters and questions relating to Termination of
Consultancy, including, but not by way of limitation, the question of whether a
Termination of Consultancy resulted from a discharge for good cause, and all
questions of whether particular leaves of absence constitute Terminations of
Consultancy. Notwithstanding any other provision of this Plan, the Company or
any Subsidiary has an absolute and unrestricted right to terminate a
consultant's service at any time for any reason whatsoever, with or without
cause, except to the extent expressly provided otherwise in writing.
SECTION 1.32. TERMINATION OF DIRECTORSHIP.
"Termination of Directorship" shall mean the time when an Optionee who
is an Independent Director ceases to be a Director for any reason, including,
but not by way of limitation, a termination by resignation, failure to be
elected, death or retirement. The Board, in its sole discretion, shall determine
the effect of all matters and questions relating to Termination of Directorship
with respect to Independent Directors.
SECTION 1.33. TERMINATION OF EMPLOYMENT.
"Termination of Employment" shall mean the time when the
employee-employer relationship between an Optionee, Grantee or Restricted
Stockholder and the Company or any Subsidiary is terminated for any reason, with
or without cause, including, but not by way of limitation, a termination by
resignation, discharge, death, disability or retirement; but excluding (i)
terminations where there is a simultaneous reemployment or continuing employment
of an Optionee, Grantee or Restricted Stockholder by the Company or any
Subsidiary, (ii) at the discretion of the Committee, terminations which result
in a temporary severance of the employee-employer relationship, and (iii) at the
discretion of the Committee, terminations which are followed by the simultaneous
establishment of a consulting relationship by the Company or a Subsidiary with
the former employee. The Committee, in its sole discretion, shall determine the
effect of all matters and questions relating to Termination of Employment,
including, but not by way of limitation, the question of whether a Termination
of Employment resulted from a discharge for good cause, and all questions of
whether particular leaves of absence constitute Terminations of Employment;
PROVIDED, HOWEVER, that, unless otherwise determined by the Committee in its
discretion, a leave of absence, change in status from an employee to an
independent contractor or other change in the employee-employer relationship
shall constitute a Termination of Employment if, and to the extent that, such
leave of absence, change in status or other change interrupts employment for the
purposes of Section 422(a)(2) of the Code and the then applicable regulations
and revenue rulings under said Section. Notwithstanding any other provision of
this Plan, the Company or any Subsidiary has an absolute and unrestricted right
to terminate an Employee's employment at any time for any reason whatsoever,
with or without cause, except to the extent expressly provided otherwise in
writing.
<PAGE>
ARTICLE II.
SHARES SUBJECT TO PLAN
SECTION 2.1. SHARES SUBJECT TO PLAN.
(a) The shares of stock subject to Options, awards of
Restricted Stock, Performance Awards, Dividend Equivalents, awards of
Deferred Stock, Stock Payments or Stock Appreciation Rights shall be
Common Stock, initially shares of the Company's Common Stock, par value
$0.01 per share. The aggregate number of such shares which may be issued
upon exercise of such options or rights or upon any such awards under
the Plan shall be Two Million (2,000,000) plus an annual increase to be
added on the first day of the Company's fiscal year beginning in 2001
equal to the lesser of (i) Three Million (3,000,000) shares of the
Company's Common Stock, (ii) 6% of the outstanding shares on such date,
or (iii) a lesser amount determined by the Board. The shares of Common
Stock issuable upon exercise of such options or rights or upon any such
awards may be either previously authorized but unissued shares or
treasury shares.
(b) The maximum number of shares which may be subject to
Options, awards of Restricted Stock, Performance Awards, Dividend
Equivalents, awards of Deferred Stock, Stock Payments or Stock
Appreciation Rights granted under the Plan to any individual in any
calendar year shall not exceed the Award Limit. To the extent required
by Section 162(m) of the Code, shares subject to Options which are
canceled continue to be counted against the Award Limit and if, after
grant of an Option, the price of shares subject to such Option is
reduced, the transaction is treated as a cancellation of the Option and
a grant of a new Option and both the Option deemed to be canceled and
the Option deemed to be granted are counted against the Award Limit.
Furthermore, to the extent required by Section 162(m) of the Code, if,
after grant of a Stock Appreciation Right, the base amount on which
stock appreciation is calculated is reduced to reflect a reduction in
the Fair Market Value of the Company's Common Stock, the transaction is
treated as a cancellation of the Stock Appreciation Right and a grant of
a new Stock Appreciation Right and both the Stock Appreciation Right
deemed to be canceled and the Stock Appreciation Right deemed to be
granted are counted against the Award Limit.
SECTION 2.2. ADD-BACK OF OPTIONS AND OTHER RIGHTS.
If any Option, or other right to acquire shares of Common Stock under
any other award under this Plan, expires or is canceled without having been
fully exercised, or is exercised in whole or in part for cash as permitted by
this Plan, the number of shares subject to such Option or other right but as to
which such Option or other right was not exercised prior to its expiration,
cancellation or exercise may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. Furthermore, any shares subject to
Options or other awards which are adjusted pursuant to Section 10.3 and become
exercisable with respect to shares of stock of another corporation shall be
considered canceled and may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. Shares of Common Stock which are
delivered by the Optionee or Grantee or withheld by the Company upon the
exercise of any Option or other award under this Plan, in payment of the
exercise price thereof, may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. If any share of Restricted Stock is
forfeited by the Grantee or repurchased by the Company pursuant to Section 6.6
hereof, such share may again be optioned,
<PAGE>
granted or awarded hereunder, subject to the limitations of Section 2.1.
Notwithstanding the provisions of this Section 2.2, no shares of Common Stock
may again be optioned, granted or awarded if such action would cause an
Incentive Stock Option to fail to qualify as an incentive stock option under
Section 422 of the Code.
ARTICLE III.
GRANTING OF OPTIONS
SECTION 3.1. ELIGIBILITY.
Any Employee, Independent Director or consultant selected by the
Committee(or the Board, in the case of Options granted to Independent Directors)
pursuant to Section 3.4(a)(i) shall be eligible to be granted an Option. In
addition, each Independent Director of the Company shall be eligible to be
granted Options at the times and in the manner set forth in Section 3.4(d).
SECTION 3.2. DISQUALIFICATION FOR STOCK OWNERSHIP.
No person may be granted an Incentive Stock Option under this Plan if
such person, at the time the Incentive Stock Option is granted, owns stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any then existing Subsidiary or parent
corporation (within the meaning of Section 422 of the Code) unless such
Incentive Stock Option conforms to the applicable provisions of Section 422 of
the Code.
SECTION 3.3. QUALIFICATION OF INCENTIVE STOCK OPTIONS.
No Incentive Stock Option shall be granted to any person who is not an
Employee.
SECTION 3.4. GRANTING OF OPTIONS.
(a) The Committee (or the Board, in the case of Options
granted to Independent Directors) shall from time to time, in its sole
discretion, and subject to applicable limitations of this Plan:
(i) Determine which Employees are Employees and
select from among the Employees, Independent Directors or
consultants (including Employees or consultants who have
previously received Options or other awards under this Plan)
such of them as in its opinion should be granted Options;
(ii) Subject to the Award Limit, determine the number
of shares to be subject to such Options granted to the
selected Employees, Independent Directors or consultants;
(iii) Subject to Section 3.3, determine whether such
Options are to be Incentive Stock Options or Non-Qualified
Stock Options and whether such Options are to qualify as
performance-based compensation as described in Section
162(m)(4)(C) of the Code; and
<PAGE>
(iv) Determine the terms and conditions of such
Options, consistent with this Plan; PROVIDED, HOWEVER, that
the terms and conditions of Options intended to qualify as
performance-based compensation as described in Section
162(m)(4)(C) of the Code shall include, but not be limited to,
such terms and conditions as may be necessary to meet the
applicable provisions of Section 162(m) of the Code.
(b) Upon the selection of an Employee, Independent Director or
consultant to be granted an Option, the Committee (or the Board, in the
case of Options granted to Independent Directors) shall instruct the
Secretary of the Company to issue the Option and may impose such
conditions on the grant of the Option as it deems appropriate. Without
limiting the generality of the preceding sentence, the Committee (or the
Board, in the case of Options granted to Independent Directors) may, in
its discretion and on such terms as it deems appropriate, require as a
condition on the grant of an Option to an Employee, Independent Director
or consultant that the Employee, Independent Director or consultant
surrender for cancellation some or all of the unexercised Options,
awards of Restricted Stock or Deferred Stock, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments or other
rights which have been previously granted to him under this Plan or
otherwise. An Option, the grant of which is conditioned upon such
surrender, may have an option price lower (or higher) than the exercise
price of such surrendered Option or other award, may cover the same (or
a lesser or greater) number of shares as such surrendered Option or
other award, may contain such other terms as the Committee (or the
Board, in the case of Options granted to Independent Directors) deems
appropriate, and shall be exercisable in accordance with its terms,
without regard to the number of shares, price, exercise period or any
other term or condition of such surrendered Option or other award.
(c) Any Incentive Stock Option granted under this Plan may be
modified by the Committee to disqualify such option from treatment as an
"incentive stock option" under Section 422 of the Code.
(d) In addition to the discretionary Options provided for by
this Article III, during the term of the Plan, a person who is initially
elected to the Board and who is an Independent Director at the time of
such initial election automatically shall be granted (i) an Option to
purchase Eleven Hundred (1,100) shares of Common Stock (subject to
adjustment as provided in Section 10.3) on the date of such initial
election and (ii) an Option to purchase Eleven Hundred (1,100) shares of
Common Stock (subject to adjustment as provided in Section 10.3) on the
date of each annual meeting of stockholders after such initial election
if the Independent Director is reelected to the Board at such meeting or
is continuing as a member of the Board; provided, however, that, no such
grant to an Independent Director shall be made on the date of an annual
meeting pursuant to the preceding clause (ii) if a grant is made to such
Independent Director on such date pursuant to the corresponding
provision of The 1998 Equity Participation Plan Of Z-Tel Technologies,
Inc. Members of the Board who are employees of the Company who
subsequently retire from the Company and remain on the Board will not
receive an initial Option grant pursuant to clause (i) of the preceding
sentence, but to the extent that they are otherwise eligible, will
receive, after retirement from employment with the Company, Options as
described in clause (ii) of the preceding sentence. All the foregoing
Option grants authorized by this Section 3.4(d) are subject to
stockholder approval of the Plan.
<PAGE>
ARTICLE IV.
TERMS OF OPTIONS
SECTION 4.1. OPTION AGREEMENT.
Each Option shall be evidenced by a written Stock Option Agreement,
which shall be executed by the Optionee and an authorized officer of the Company
and which shall contain such terms and conditions as the Committee (or the
Board, in the case of Options granted to Independent Directors) shall determine,
consistent with this Plan. Stock Option Agreements evidencing Options intended
to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall contain such terms and conditions as may be
necessary to meet the applicable provisions of Section 162(m) of the Code. Stock
Option Agreements evidencing Incentive Stock Options shall contain such terms
and conditions as may be necessary to meet the applicable provisions of Section
422 of the Code.
SECTION 4.2. OPTION PRICE.
The price per share of the shares subject to each Option shall be set by
the Committee; PROVIDED, HOWEVER, that such price shall be no less than the par
value of a share of Common Stock, unless otherwise permitted by applicable state
law, and (i) in the case of Incentive Stock Options and Options intended to
qualify as performance-based compensation as described in Section 162(m)(4)(C)
of the Code, such price shall not be less than 100% of the Fair Market Value of
a share of Common Stock on the date the Option is granted; (ii) in the case of
Incentive Stock Options granted to an individual then owning (within the meaning
of Section 424(d) of the Code) more than 10% of the total combined voting power
of all classes of stock of the Company or any Subsidiary or parent corporation
thereof (within the meaning of Section 422 of the Code) such price shall not be
less than 110% of the Fair Market Value of a share of Common Stock on the date
the Option is granted; and (iii) in the case of Options granted to Independent
Directors pursuant to Section 3.4(d), such price shall equal 100% of the Fair
Market Value of a share of Common Stock on the date the Option is granted;
PROVIDED, HOWEVER, that the price of each share subject to each Option granted
to Independent Directors on the date of the initial public offering of Common
Stock shall equal the initial public offering price (net of underwriting
discounts and commissions) per share of Common Stock.
SECTION 4.3. OPTION TERM.
The term of an Option shall be set by the Committee in its discretion;
PROVIDED, HOWEVER, that, (i) in the case of Options granted to Independent
Directors pursuant to Section 3.4(d), the term shall be ten (10) years from the
date the Option is granted, without variation or acceleration hereunder, but
subject to Section 5.6, and (ii) in the case of Incentive Stock Options, the
term shall not be more than ten (10) years from the date the Incentive Stock
Option is granted, or five (5) years from such date if the Incentive Stock
Option is granted to an individual then owning (within the meaning of Section
424(d) of the Code) more than 10% of the total combined voting power of all
classes of stock of the Company or any Subsidiary or parent corporation thereof
(within the meaning of
<PAGE>
Section 422 of the Code). Except as limited by requirements of Section 422 of
the Code and regulations and rulings thereunder applicable to Incentive Stock
Options, the Committee may extend the term of any outstanding Option in
connection with any Termination of Employment or Termination of Consultancy of
the Optionee, or amend any other term or condition of such Option relating to
such a termination.
SECTION 4.4. OPTION VESTING.
(a) The period during which the right to exercise an Option in
whole or in part vests in the Optionee shall be set by the Committee and
the Committee may determine that an Option may not be exercised in whole
or in part for a specified period after it is granted; PROVIDED,
HOWEVER, that, unless the Committee otherwise provides in the terms of
the Option or otherwise, no Option shall be exercisable by any Optionee
who is then subject to Section 16 of the Exchange Act within the period
ending six months and one day after the date the Option is granted; and
PROVIDED, FURTHER, that Options granted to Independent Directors
pursuant to Section 3.4(d) shall become exercisable in cumulative annual
installments of 25% on each of the first, second, third and fourth
anniversaries of the date of Option grant, without variation or
acceleration hereunder except as provided in Section 10.3(b). At any
time after grant of an Option, the Committee may, in its sole discretion
and subject to whatever terms and conditions it selects, accelerate the
period during which an Option (except an Option granted to an
Independent Director pursuant to Section 3.4(d)) vests.
(b) No portion of an Option which is unexercisable at
Termination of Employment, Termination of Directorship or Termination of
Consultancy, as applicable, shall thereafter become exercisable, except
as may be otherwise provided by the Committee in the case of Options
granted to Employees, Independent Directors or consultants either in the
Stock Option Agreement or by action of the Committee following the grant
of the Option.
(c) To the extent that the aggregate Fair Market Value of
stock with respect to which "incentive stock options" (within the
meaning of Section 422 of the Code, but without regard to Section 422(d)
of the Code) are exercisable for the first time by an Optionee during
any calendar year (under the Plan and all other incentive stock option
plans of the Company and any Subsidiary) exceeds $100,000, such Options
shall be treated as Non-Qualified Options to the extent required by
Section 422 of the Code. The rule set forth in the preceding sentence
shall be applied by taking Options into account in the order in which
they were granted. For purposes of this Section 4.4(c), the Fair Market
Value of stock shall be determined as of the time the Option with
respect to such stock is granted.
SECTION 4.5. CONSIDERATION.
In consideration of the granting of an Option, the Optionee shall agree,
in the written Stock Option Agreement, to remain in the employ of (or to consult
for or to serve as an Independent Director of, as applicable) the Company or any
Subsidiary for a period of at least one year (or such shorter period as may be
fixed in the Stock Option Agreement or by action of the Committee following
grant of the Option) after the Option is granted (or, in the case of an
Independent
<PAGE>
Director, until the next annual meeting of stockholders of the Company). Nothing
in this Plan or in any Stock Option Agreement hereunder shall confer upon any
Optionee any right to continue in the employ of, or as a consultant for, the
Company or any Subsidiary, or as a director of the Company, or shall interfere
with or restrict in any way the rights of the Company and any Subsidiary, which
are hereby expressly reserved, to discharge any Optionee at any time for any
reason whatsoever, with or without good cause.
ARTICLE V.
EXERCISE OF OPTIONS
SECTION 5.1. PARTIAL EXERCISE.
An exercisable Option may be exercised in whole or in part. However, an
Option shall not be exercisable with respect to fractional shares and the
Committee (or the Board, in the case of Options granted to Independent
Directors) may require that, by the terms of the Option, a partial exercise be
with respect to a minimum number of shares.
SECTION 5.2. MANNER OF EXERCISE.
All or a portion of an exercisable Option shall be deemed exercised upon
delivery of all of the following to the Secretary of the Company or his office:
(a) A written notice complying with the applicable rules
established by the Committee (or the Board, in the case of Options
granted to Independent Directors) stating that the Option, or a portion
thereof, is exercised. The notice shall be signed by the Optionee or
other person then entitled to exercise the Option or such portion;
(b) Such representations and documents as the Committee (or
the Board, in the case of Options granted to Independent Directors), in
its sole discretion, deems necessary or advisable to effect compliance
with all applicable provisions of the Securities Act of 1933, as
amended, and any other federal or state securities laws or regulations.
The Committee or Board may, in its sole discretion, also take whatever
additional actions it deems appropriate to effect such compliance
including, without limitation, placing legends on share certificates and
issuing stop-transfer notices to agents and registrars;
(c) In the event that the Option shall be exercised pursuant
to Section 10.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the
Option; and
(d) Full cash payment to the Secretary of the Company for the
shares with respect to which the Option, or portion thereof, is
exercised. However, the Committee (or the Board, in the case of Options
granted to Independent Directors), may in its discretion (i) allow a
delay in payment up to thirty (30) days from the date the Option, or
portion thereof, is exercised; (ii) allow payment, in whole or in part,
through the delivery of shares of Common Stock owned by the Optionee,
duly endorsed for transfer to the Company with a
<PAGE>
Fair Market Value on the date of delivery equal to the aggregate
exercise price of the Option or exercised portion thereof; (iii) allow
payment, in whole or in part, through the surrender of shares of Common
Stock then issuable upon exercise of the Option having a Fair Market
Value on the date of Option exercise equal to the aggregate exercise
price of the Option or exercised portion thereof; (iv) allow payment,
in whole or in part, through the delivery of property of any kind which
constitutes good and valuable consideration; (v) allow payment, in
whole or in part, through the delivery of a full recourse promissory
note bearing interest (at no less than such rate as shall then preclude
the imputation of interest under the Code) and payable upon such terms
as may be prescribed by the Committee or the Board; (vi) allow payment,
in whole or in part, through the delivery of a notice that the Optionee
has placed a market sell order with a broker with respect to shares of
Common Stock then issuable upon exercise of the Option, and that the
broker has been directed to pay a sufficient portion of the net
proceeds of the sale to the Company in satisfaction of the Option
exercise price; or (vii) allow payment through any combination of the
consideration provided in the foregoing subparagraphs (ii), (iii),
(iv), (v) and (vi). To the extent permitted by applicable law and
regulations, the Board and/or the Committee may, in their respective
discretions, approve an arrangement with a brokerage firm under which
such brokerage firm, on behalf of the person electing to exercise the
Options, pays to the Company the full purchase price of the shares of
Common Stock being purchased together with an amount equal to any taxes
which the Company is required to withhold in connection with the
exercise of the Option and the Company, pursuant to an irrevocable
notice from such person, delivers the shares of Common Stock being
purchased to such brokerage firm. In the case of a promissory note, the
Committee (or the Board, in the case of Options granted to Independent
Directors) may also prescribe the form of such note and the security to
be given for such note. The Option may not be exercised, however, by
delivery of a promissory note or by a loan from the Company when or
where such loan or other extension of credit is prohibited by law.
SECTION 5.3. CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES.
The Company shall not be required to issue or deliver any certificate or
certificates for shares of stock purchased upon the exercise of any Option or
portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other qualification
of such shares under any state or federal law, or under the rulings or
regulations of the Securities and Exchange Commission or any other
governmental regulatory body which the Committee or Board shall, in its
sole discretion, deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Committee (or Board, in
the case of Options granted to Independent Directors) shall, in its sole
discretion, determine to be necessary or advisable;
<PAGE>
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Committee (or Board, in the case of
Options granted to Independent Directors) may establish from time to
time for reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such
shares, including payment of any applicable withholding tax.
SECTION 5.4. RIGHTS AS STOCKHOLDERS.
The holders of Options shall not be, nor have any of the rights or
privileges of, stockholders of the Company in respect of any shares purchasable
upon the exercise of any part of an Option unless and until certificates
representing such shares have been issued by the Company to such holders.
SECTION 5.5. OWNERSHIP AND TRANSFER RESTRICTIONS.
The Committee (or Board, in the case of Options granted to Independent
Directors), in its sole discretion, may impose such restrictions on the
ownership and transferability of the shares purchasable upon the exercise of an
Option as it deems appropriate. Any such restriction shall be set forth in the
respective Stock Option Agreement and may be referred to on the certificates
evidencing such shares. The Committee may require the Employee to give the
Company prompt notice of any disposition of shares of Common Stock acquired by
exercise of an Incentive Stock Option within (i) two years from the date of
granting such Option to such Employee or (ii) one year after the transfer of
such shares to such Employee. The Committee may direct that the certificates
evidencing shares acquired by exercise of an Option refer to such requirement to
give prompt notice of disposition.
SECTION 5.6. LIMITATIONS ON EXERCISE OF OPTIONS GRANTED TO INDEPENDENT
DIRECTORS.
No Option granted to an Independent Director may be exercised to any
extent by anyone after the first to occur of the following events:
(a) The expiration of twelve (12) months from the date of the
Optionee's death;
(b) the expiration of twelve (12) months from the date of the
Optionee's Termination of Directorship by reason of his permanent and
total disability (within the meaning of Section 22(e)(3) of the Code);
(c) the expiration of three (3) months from the date of the
Optionee's Termination of Directorship for any reason other than such
Optionee's death or his permanent and total disability, unless the
Optionee dies within said three-month period; or
(d) The expiration of ten years from the date the Option was
granted.
<PAGE>
ARTICLE VI.
AWARD OF RESTRICTED STOCK
SECTION 6.1. AWARD OF RESTRICTED STOCK.
(a) The Committee (or the Board, in the case of awards to
Independent Directors) may from time to time, in its sole discretion:
(i) Select from among the Employees, Independent
Directors or consultants (including Employees, Independent
Directors or consultants who have previously received other
awards under this Plan) such of them as in its opinion should
be awarded Restricted Stock; and
(ii) Determine the purchase price, if any, and other
terms and conditions applicable to such Restricted Stock,
consistent with this Plan.
(b) The Committee (or the Board, in the case of awards to
Independent Directors) shall establish the purchase price, if any, and
form of payment for Restricted Stock; PROVIDED, HOWEVER, that such
purchase price shall be no less than the par value of the Common Stock
to be purchased, unless otherwise permitted by applicable state law. In
all cases, legal consideration shall be required for each issuance of
Restricted Stock.
(c) Upon the selection of an Employee, Independent Director or
consultant to be awarded Restricted Stock, the Committee (or the Board,
in the case of awards to Independent Directors) shall instruct the
Secretary of the Company to issue such Restricted Stock and may impose
such conditions on the issuance of such Restricted Stock as it deems
appropriate.
SECTION 6.2. RESTRICTED STOCK AGREEMENT.
Restricted Stock shall be issued only pursuant to a written Restricted
Stock Agreement, which shall be executed by the selected Employee, Independent
Director or consultant and an authorized officer of the Company and which shall
contain such terms and conditions as the Committee (or the Board, in the case of
awards to Independent Directors) shall determine, consistent with this Plan.
SECTION 6.3. CONSIDERATION.
As consideration for the issuance of Restricted Stock, in addition to
payment of any purchase price, the Restricted Stockholder shall agree, in the
written Restricted Stock Agreement, to remain in the employ of, as Director of
or to consult for, the Company or any Subsidiary for a period of at least one
year after the Restricted Stock is issued (or such shorter period as may be
fixed in the Restricted Stock Agreement or by action of the Committee (or the
Board, in the case of awards to Independent Directors) following grant of the
Restricted Stock). Nothing in this Plan or in any Restricted Stock Agreement
hereunder shall confer on any Restricted Stockholder any right to continue in
the employ of, as a Director of, or as a consultant for, the Company or any
Subsidiary or shall interfere with or restrict in any way the rights of the
Company and any Subsidiary, which are
<PAGE>
hereby expressly reserved, to discharge any Restricted Stockholder at any time
for any reason whatsoever, with or without good cause.
SECTION 6.4. RIGHTS AS STOCKHOLDERS.
Upon delivery of the shares of Restricted Stock to the escrow holder
pursuant to Section 6.7, the Restricted Stockholder shall have, unless otherwise
provided by the Committee (or the Board, in the case of awards to Independent
Directors), all the rights of a stockholder with respect to said shares, subject
to the restrictions in his Restricted Stock Agreement, including the right to
receive all dividends and other distributions paid or made with respect to the
shares; PROVIDED, HOWEVER, that in the discretion of the Committee (or the
Board, in the case of awards to Independent Directors), any extraordinary
distributions with respect to the Common Stock shall be subject to the
restrictions set forth in Section 6.5.
SECTION 6.5. RESTRICTION.
All shares of Restricted Stock issued under this Plan (including any
shares received by holders thereof with respect to shares of Restricted Stock as
a result of stock dividends, stock splits or any other form of recapitalization)
shall, in the terms of each individual Restricted Stock Agreement, be subject to
such restrictions as the Committee (or the Board, in the case of awards to
Independent Directors) shall provide, which restrictions may include, without
limitation, restrictions concerning voting rights and transferability and
restrictions based on duration of employment with the Company, Company
performance and individual performance; PROVIDED, HOWEVER, that, unless the
Committee otherwise provides in the terms of the Restricted Stock Agreement or
otherwise, no share of Restricted Stock granted to a person subject to Section
16 of the Exchange Act shall be sold, assigned or otherwise transferred until at
least six months and one day have elapsed from the date on which the Restricted
Stock was issued, and PROVIDED, FURTHER, that by action taken after the
Restricted Stock is issued, the Committee (or the Board, in the case of awards
to Independent Directors) may, on such terms and conditions as it may determine
to be appropriate, remove any or all of the restrictions imposed by the terms of
the Restricted Stock Agreement. Restricted Stock may not be sold or encumbered
until all restrictions are terminated or expire. Unless provided otherwise by
the Committee (or the Board, in the case of awards to Independent Directors), if
no consideration was paid by the Restricted Stockholder upon issuance, a
Restricted Stockholder's rights in unvested Restricted Stock shall lapse upon
Termination of Employment or, if applicable, upon Termination of Consultancy
with the Company.
SECTION 6.6. REPURCHASE OF RESTRICTED STOCK.
The Committee (or the Board, in the case of awards to Independent
Directors) shall provide in the terms of each individual Restricted Stock
Agreement that the Company shall have the right to repurchase from the
Restricted Stockholder the Restricted Stock then subject to restrictions under
the Restricted Stock Agreement immediately upon a Termination of Employment or,
if applicable, upon a Termination of Directorship or a Termination of
Consultancy between the Restricted Stockholder and the Company, at a cash price
per share equal to the price paid by the Restricted Stockholder for such
Restricted Stock; PROVIDED, HOWEVER, that provision may be made that no such
<PAGE>
right of repurchase shall exist in the event of a Termination of Employment,
Termination of Directorship or Termination of Consultancy without cause, or
following a change in control of the Company or because of the Restricted
Stockholder's retirement, death or disability, or otherwise.
SECTION 6.7. ESCROW.
The Secretary of the Company or such other escrow holder as the
Committee (or the Board, in the case of awards to Independent Directors) may
appoint shall retain physical custody of each certificate representing
Restricted Stock until all of the restrictions imposed under the Restricted
Stock Agreement with respect to the shares evidenced by such certificate expire
or shall have been removed.
SECTION 6.8. LEGEND.
In order to enforce the restrictions imposed upon shares of Restricted
Stock hereunder, the Committee (or the Board, in the case of awards to
Independent Directors) shall cause a legend or legends to be placed on
certificates representing all shares of Restricted Stock that are still subject
to restrictions under Restricted Stock Agreements, which legend or legends shall
make appropriate reference to the conditions imposed thereby.
ARTICLE VII.
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS
DEFERRED STOCK, STOCK PAYMENTS
SECTION 7.1. PERFORMANCE AWARDS.
Any Employee, Independent Director or consultant selected by the
Committee may be granted one or more Performance Awards. The value of such
Performance Awards may be linked to the market value, book value, net profits or
other measure of the value of Common Stock or other specific performance
criteria determined appropriate by the Committee (or the Board, in the case of
grants to Independent Directors), in each case on a specified date or dates or
over any period or periods determined by the Committee (or the Board, in the
case of grants to Independent Directors), or may be based upon the appreciation
in the market value, book value, net profits or other measure of the value of a
specified number of shares of Common Stock over a fixed period or periods
determined by the Committee (or the Board, in the case of grants to Independent
Directors). In addition to valuing such Performance Awards upon the value of
Common Stock, the value of such Performance Awards may also be linked to the
performance criteria of the Company's Subsidiaries or divisions, or to the
performance of particular individuals. In making such determinations, the
Committee (or the Board, in the case of grants to Independent Directors) shall
consider (among such other factors as it deems relevant in light of the specific
type of award) the contributions, responsibilities and other compensation of the
particular Employee, Independent Director or consultant.
SECTION 7.2. DIVIDEND EQUIVALENTS.
<PAGE>
Any Employee, Independent Director or consultant selected by the
Committee may be granted Dividend Equivalents based on the dividends declared on
Common Stock, to be credited as of dividend payment dates, during the period
between the date an Option, Stock Appreciation Right, Deferred Stock or
Performance Award is granted, and the date such Option, Stock Appreciation
Right, Deferred Stock or Performance Award is exercised, vests or expires, as
determined by the Committee (or the Board, in the case of grants to Independent
Directors). Such Dividend Equivalents shall be converted to cash or additional
shares of Common Stock by such formula and at such time and subject to such
limitations as may be determined by the Committee (or the Board, in the case of
grants to Independent Directors). With respect to Dividend Equivalents granted
with respect to Options intended to be qualified performance-based compensation
for purposes of Section 162(m) of the Code, such Dividend Equivalents shall be
payable regardless of whether such Option is exercised.
SECTION 7.3. STOCK PAYMENTS.
Any Employee, Independent Director or consultant selected by the
Committee (or the Board, in the case of grants to Independent Directors) may
receive Stock Payments in the manner determined from time to time by the
Committee (or the Board, in the case of grants to Independent Directors). The
number of shares shall be determined by the Committee (or the Board, in the case
of grants to Independent Directors) and may be based upon the Fair Market Value,
book value, net profits or other measure of the value of Common Stock or other
specific performance criteria determined appropriate by the Committee (or the
Board, in the case of grants to Independent Directors), determined on the date
such Stock Payment is made or on any date thereafter
SECTION 7.4. DEFERRED STOCK.
Any Employee, Independent Director or consultant selected by the
Committee may be granted an award of Deferred Stock in the manner determined
from time to time by the Committee (or the Board, in the case of grants to
Independent Directors). The number of shares of Deferred Stock shall be
determined by the Committee (or the Board, in the case of grants to Independent
Directors) and may be linked to the market value, book value, net profits or
other measure of the value of Common Stock or other specific performance
criteria determined to be appropriate by the Committee (or the Board, in the
case of grants to Independent Directors), in each case on a specified date or
dates or over any period or periods determined by the Committee (or the Board,
in the case of grants to Independent Directors). Common Stock underlying a
Deferred Stock award will not be issued until the Deferred Stock award has
vested, pursuant to a vesting schedule or performance criteria set by the
Committee (or the Board, in the case of grants to Independent Directors). Unless
otherwise provided by the Committee (or the Board, in the case of grants to
Independent Directors), a Grantee of Deferred Stock shall have no rights as a
Company stockholder with respect to such Deferred Stock until such time as the
award has vested and the Common Stock underlying the award has been issued.
SECTION 7.5. PERFORMANCE AWARD AGREEMENT, DIVIDEND EQUIVALENT AGREEMENT,
DEFERRED STOCK AGREEMENT, STOCK PAYMENT AGREEMENT.
<PAGE>
Each Performance Award, Dividend Equivalent, award of Deferred Stock
and/or Stock Payment shall be evidenced by a written agreement, which shall be
executed by the Grantee and an authorized Officer of the Company and which shall
contain such terms and conditions as the Committee shall determine, consistent
with this Plan.
SECTION 7.6. TERM.
The term of a Performance Award, Dividend Equivalent, award of Deferred
Stock and/or Stock Payment shall be set by the Committee (or the Board, in the
case of grants to Independent Directors) in its discretion.
SECTION 7.7. EXERCISE UPON TERMINATION OF EMPLOYMENT.
A Performance Award, Dividend Equivalent, award of Deferred Stock and/or
Stock Payment is exercisable or payable only while the Grantee is an Employee,
Independent Director or consultant; provided that the Committee (or the Board,
in the case of grants to Independent Directors) may determine that the
Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock
Payment may be exercised or paid subsequent to Termination of Employment,
Termination of Directorship or Termination of Consultancy without cause, or
following a change in control of the Company, or because of the Grantee's
retirement, death or disability, or otherwise.
SECTION 7.8. PAYMENT ON EXERCISE.
Payment of the amount determined under Section 7.1 or 7.2 above shall be
in cash, in Common Stock or a combination of both, as determined by the
Committee (or the Board, in the case of grants to Independent Directors). To the
extent any payment under this Article VII is effected in Common Stock, it shall
be made subject to satisfaction of all provisions of Section 5.3.
SECTION 7.9. CONSIDERATION.
In consideration of the granting of a Performance Award, Dividend
Equivalent, award of Deferred Stock and/or Stock Payment, the Grantee shall
agree, in a written agreement, to remain in the employ of, or to consult for,
the Company or any Subsidiary for a period of at least one year after such
Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock
Payment is granted (or such shorter period as may be fixed in such agreement or
by action of the Committee following such grant). Nothing in this Plan or in any
agreement hereunder shall confer on any Grantee any right to continue in the
employ of, or as a Director or consultant for, the Company or any Subsidiary or
shall interfere with or restrict in any way the rights of the Company and any
Subsidiary, which are hereby expressly reserved, to discharge any Grantee at any
time for any reason whatsoever, with or without good cause.
SECTION 7.10. PROVISIONS APPLICABLE TO SECTION 162(M) PARTICIPANTS.
(a) Notwithstanding anything in the Plan to the contrary, the
Committee may grant any performance or incentive awards described in
Article VII to a Section 162(m) Participant that vest or become
exercisable upon the attainment of performance targets for
<PAGE>
the Company which are related to one or more of the following
performance goals: (i) pre-tax income, (ii) operating income, (iii)
cash flow, (iv) earnings per share, (v) return on equity, (vi) return
on invested capital or assets and (vii) cost reductions or savings.
(b) To the extent necessary to comply with the
performance-based compensation requirements of Section 162(m)(4)(C) of
the Code, with respect to performance or incentive awards described in
Article VII which may be granted to one or more Section 162(m)
Participants, no later than ninety (90) days following the commencement
of any fiscal year in question or any other designated fiscal period (or
such other time as may be required or permitted by Section 162(m) of the
Code), the Committee shall, in writing, (i) designate one or more
Section 162(m) Participants, (ii) select the performance goal or goals
applicable to the fiscal year or other designated fiscal period, (iii)
establish the various targets and bonus amounts which may be earned for
such fiscal year or other designated fiscal period and (iv) specify the
relationship between performance goals and targets and the amounts to be
earned by each Section 162(m) Participant for such fiscal year or other
designated fiscal period. Following the completion of each fiscal year
or other designated fiscal period, the Committee shall certify in
writing whether the applicable performance targets have been achieved
for such fiscal year or other designated fiscal period. In determining
the amount earned by a Section 162(m) Participant, the Committee shall
have the right to reduce (but not to increase) the amount payable at a
given level of performance to take into account additional factors that
the Committee may deem relevant to the assessment of individual or
corporate performance for the fiscal year or other designated fiscal
period.
ARTICLE VIII.
STOCK APPRECIATION RIGHTS
SECTION 8.1. GRANT OF STOCK APPRECIATION RIGHTS.
A Stock Appreciation Right may be granted to any Employee, Independent
Director or consultant selected by the Committee. A Stock Appreciation Right may
be granted (i) in connection and simultaneously with the grant of an Option,
(ii) with respect to a previously granted Option, or (iii) independent of an
Option. A Stock Appreciation Right shall be subject to such terms and conditions
not inconsistent with this Plan as the Committee (or the Board, in the case of
grants to Independent Directors) shall impose and shall be evidenced by a
written Stock Appreciation Right Agreement, which shall be executed by the
Grantee and an authorized officer of the Company. The Committee (or the Board,
in the case of grants to Independent Directors), in its discretion, may
determine whether a Stock Appreciation Right is to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code and Stock
Appreciation Right Agreements evidencing Stock Appreciation Rights intended to
so qualify shall contain such terms and conditions as may be necessary to meet
the applicable provisions of Section 162(m) of the Code. Without limiting the
generality of the foregoing, the Committee (or the Board, in the case of grants
to Independent Directors) may, in its discretion and on such terms as it deems
appropriate, require as a condition of the grant of a Stock Appreciation Right
to an Employee, Independent Director or consultant that the Employee,
Independent Director or consultant surrender for cancellation some or all of the
unexercised Options, awards of Restricted Stock or Deferred Stock, Performance
<PAGE>
Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments, or
other rights which have been previously granted to him under this Plan or
otherwise. A Stock Appreciation Right, the grant of which is conditioned upon
such surrender, may have an exercise price lower (or higher) than the exercise
price of the surrendered Option or other award, may cover the same (or a lesser
or greater) number of shares as such surrendered Option or other award, may
contain such other terms as the Committee (or the Board, in the case of grants
to Independent Directors) deems appropriate, and shall be exercisable in
accordance with its terms, without regard to the number of shares, price,
exercise period or any other term or condition of such surrendered Option or
other award.
SECTION 8.2. COUPLED STOCK APPRECIATION RIGHTS
(a) A Coupled Stock Appreciation Right ("CSAR") shall be
related to a particular Option and shall be exercisable only when and to
the extent the related Option is exercisable.
(b) A CSAR may be granted to the Grantee for no more than the
number of shares subject to the simultaneously or previously granted
Option to which it is coupled.
(c) A CSAR shall entitle the Grantee (or other person entitled
to exercise the Option pursuant to this Plan) to surrender to the
Company unexercised a portion of the Option to which the CSAR relates
(to the extent then exercisable pursuant to its terms) and to receive
from the Company in exchange therefor an amount determined by
multiplying the difference obtained by subtracting the Option exercise
price from the Fair Market Value of a share of Common Stock on the date
of exercise of the CSAR by the number of shares of Common Stock with
respect to which the CSAR shall have been exercised, subject to any
limitations the Committee may impose.
SECTION 8.3. INDEPENDENT STOCK APPRECIATION RIGHTS.
(a) An Independent Stock Appreciation Right ("ISAR") shall be
unrelated to any Option and shall have a term set by the Committee (or
the Board, in the case of grants to Independent Directors). An ISAR
shall be exercisable in such installments as the Committee (or the
Board, in the case of grants to Independent Directors) may determine. An
ISAR shall cover such number of shares of Common Stock as the Committee
(or the Board, in the case of grants to Independent Directors) may
determine; provided, however, that unless the Committee (or the Board,
in the case of grants to Independent Directors) otherwise provides in
the terms of the ISAR or otherwise, no ISAR granted to a person subject
to Section 16 of the Exchange Act shall be exercisable until at least
six months have elapsed from (but excluding) the date on which the
Option was granted. The exercise price per share of Common Stock subject
to each ISAR shall be set by the Committee (or the Board, in the case of
grants to Independent Directors). An ISAR is exercisable only while the
Grantee is an Employee, Independent Director or consultant; provided
that the Committee (or the Board, in the case of grants to Independent
Directors) may determine that the ISAR may be exercised subsequent to
Termination of Employment, Termination of Directorship or Termination of
Consultancy without cause, or following a change in control of the
Company, or because of
<PAGE>
the Grantee's retirement, death or disability, or otherwise.
(b) An ISAR shall entitle the Grantee (or other person
entitled to exercise the ISAR pursuant to this Plan) to exercise all or
a specified portion of the ISAR (to the extent then exercisable pursuant
to its terms) and to receive from the Company an amount determined by
multiplying the difference obtained by subtracting the exercise price
per share of the ISAR from the Fair Market Value of a share of Common
Stock on the date of exercise of the ISAR by the number of shares of
Common Stock with respect to which the ISAR shall have been exercised,
subject to any limitations the Committee (or the Board, in the case of
grants to Independent Directors) may impose.
SECTION 8.4. PAYMENT AND LIMITATIONS ON EXERCISE.
(a) Payment of the amount determined under Section 8.2(c) and
8.3(b) above shall be in cash, in Common Stock (based on its Fair Market
Value as of the date the Stock Appreciation Right is exercised) or a
combination of both, as determined by the Committee (or the Board, in
the case of grants to Independent Directors). To the extent such payment
is effected in Common Stock it shall be made subject to satisfaction of
all provisions of Section 5.3 above pertaining to Options.
(b) Grantees of Stock Appreciation Rights may be required to
comply with any timing or other restrictions with respect to the
settlement or exercise of a Stock Appreciation Right, including a
window-period limitation, as may be imposed in the discretion of the
Board or Committee (or the Board, in the case of grants to Independent
Directors).
SECTION 8.5. CONSIDERATION.
In consideration of the granting of a Stock Appreciation Right, the
Grantee shall agree, in the written Stock Appreciation Right Agreement, to
remain in the employ of, as a Director of, or to consult for, the Company or any
Subsidiary for a period of at least one year after the Stock Appreciation Right
is granted (or such shorter period as may be fixed in the Stock Appreciation
Right Agreement or by action of the Committee (or the Board, in the case of
grants to Independent Directors) following grant of the Restricted Stock).
Nothing in this Plan or in any Stock Appreciation Right Agreement hereunder
shall confer on any Grantee any right to continue in the employ of, as a
Director or a consultant for, the Company or any Subsidiary or shall interfere
with or restrict in any way the rights of the Company and any Subsidiary, which
are hereby expressly reserved, to discharge any Grantee at any time for any
reason whatsoever, with or without good cause.
<PAGE>
ARTICLE IX
ADMINISTRATION
SECTION 9.1. COMPENSATION COMMITTEE.
To the extent the Board of Directors determines it to be desirable for
certain awards granted under the Plan to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the Plan shall
be administered by a Compensation Committee (or another committee or a
subcommittee of the Board assuming the functions of the Committee under this
Plan) solely of two or more Independent Directors within the meaning of Section
162(m) of the Code with respect to such awards. To the extent the Board of
Directors determines it to be desirable to qualify transactions under the Plan
as exempt under Rule 16b-3, the transactions comtempleted hereunder shall be
structured to satisfy the requirements for exemption under Rule 16b-3. Other
than as provided above, the Plan shall be administered by (i) the Board, or (ii)
a Committee appointed by the Board. Appointment of Committee members shall be
effective upon acceptance of appointment. Committee members may resign at any
time by delivering written notice to the Board. Vacancies in the Committee may
be filled by the Board.
SECTION 9.2. DUTIES AND POWERS OF COMMITTEE.
It shall be the duty of the Committee to conduct the general
administration of this Plan in accordance with its provisions. The Committee
shall have the power to interpret this Plan and the agreements pursuant to which
Options, awards of Restricted Stock or Deferred Stock, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments are granted or
awarded, and to adopt such rules for the administration, interpretation, and
application of this Plan as are consistent therewith and to interpret, amend or
revoke any such rules. Notwithstanding the foregoing, the full Board, acting by
a majority of its members in office, shall conduct the general administration of
the Plan with respect to grants to Independent Directors. Any such grant or
award under this Plan need not be the same with respect to each Optionee,
Grantee or Restricted Stockholder. Any such interpretations and rules with
respect to Incentive Stock Options shall be consistent with the provisions of
Section 422 of the Code. In its sole discretion, the Board may at any time and
from time to time exercise any and all rights and duties of the Committee under
this Plan except with respect to matters which under Rule 16b-3 or Section
162(m) of the Code, or any regulations or rules issued thereunder, are required
to be determined in the sole discretion of the Committee. The Committee shall
have the explicit power to construe and interpret the terms of the Plan and any
awards granted pursuant to the Plan.
SECTION 9.3. MAJORITY RULE; UNANIMOUS WRITTEN CONSENT.
The Committee shall act by a majority of its members in attendance at a
meeting at which a quorum is present or by a memorandum or other written
instrument signed by all members of the Committee.
<PAGE>
SECTION 9.4. COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS.
Members of the Committee shall receive such compensation for their
services as members as may be determined by the Board. All expenses and
liabilities which members of the Committee incur in connection with the
administration of this Plan shall be borne by the Company. The Committee may,
with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers, or other persons. The Committee, the Company and the
Company's officers and Directors shall be entitled to rely upon the advice,
opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee or the Board in good
faith shall be final and binding upon all Optionees, Grantees, Restricted
Stockholders, the Company and all other interested persons. No members of the
Committee or Board shall be personally liable for any action, determination or
interpretation made in good faith with respect to this Plan, Options, awards of
Restricted Stock or Deferred Stock, Performance Awards, Stock Appreciation
Rights, Dividend Equivalents or Stock Payments, and all members of the Committee
and the Board shall be fully protected by the Company in respect of any such
action, determination or interpretation.
ARTICLE X.
MISCELLANEOUS PROVISIONS
SECTION 10.1. NOT TRANSFERABLE.
Options, Restricted Stock awards, Deferred Stock awards, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments under
this Plan may not be sold, pledged, assigned, or transferred in any manner other
than by will or the laws of descent, unless and until such rights or awards have
been exercised, or the shares underlying such rights or awards have been issued,
and all restrictions applicable to such shares have lapsed. No Option,
Restricted Stock award, Deferred Stock award, Performance Award, Stock
Appreciation Right, Dividend Equivalent or Stock Payment or interest or right
therein shall be liable for the debts, contracts or engagements of the Optionee,
Grantee or Restricted Stockholder or his successors in interest or shall be
subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be voluntary
or involuntary or by operation of law by judgment, levy, attachment, garnishment
or any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect, except to
the extent that such disposition is permitted by the preceding sentence.
During the lifetime of the Optionee or Grantee, only he may exercise an
Option or other right or award (or any portion thereof) granted to him under the
Plan. After the death of the Optionee or Grantee, any exercisable portion of an
Option or other right or award may, prior to the time when such portion becomes
unexercisable under the Plan or the applicable Stock Option Agreement or other
agreement, be exercised by his personal representative or by any person
empowered to do so under the deceased Optionee's or Grantee's will or under the
then applicable laws of descent and distribution.
<PAGE>
SECTION 10.2. AMENDMENT, SUSPENSION OR TERMINATION OF THIS PLAN.
Except as otherwise provided in this Section 10.2, this Plan may be
wholly or partially amended or otherwise modified, suspended or terminated at
any time or from time to time by the Board or the Committee. However, without
approval of the Company's stockholders given within twelve months before or
after the action by the Board or the Committee, no action of the Board or the
Committee may, except as provided in Section 10.3, increase the limits imposed
in Section 2.1 on the maximum number of shares which may be issued under this
Plan or modify the Award Limit, and no action of the Board or the Committee may
be taken that would otherwise require stockholder approval as a matter of
applicable law, regulation or rule. No amendment, suspension or termination of
this Plan shall, without the consent of the holder of Options, Restricted Stock
awards, Deferred Stock awards, Performance Awards, Stock Appreciation Rights,
Dividend Equivalents or Stock Payments, alter or impair any rights or
obligations under any Options, Restricted Stock awards, Deferred Stock awards,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments theretofore granted or awarded, unless the award itself otherwise
expressly so provides. No Options, Restricted Stock, Deferred Stock, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments may be
granted or awarded during any period of suspension or after termination of this
Plan, and in no event may any Incentive Stock Option be granted under this Plan
after the first to occur of the following events:
(a) The expiration of ten years from the date the Plan is
adopted by the Board; or
(b) The expiration of ten years from the date the Plan is
approved by the Company's stockholders under Section 10.4.
SECTION 10.3. CHANGES IN COMMON STOCK OR ASSETS OF THE COMPANY, ACQUISITION
OR LIQUIDATION OF THE COMPANY AND OTHER CORPORATE EVENTS.
(a) Subject to Section 10.3(d), in the event that the
Committee (or the Board, in the case of grants to Independent
Directors) determines that any dividend or other distribution (whether
in the form of cash, Common Stock, other securities, or other
property), recapitalization, reclassification, stock split, reverse
stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, liquidation, dissolution, or sale, transfer,
exchange or other disposition of all or substantially all of the assets
of the Company (including, but not limited to, a Corporate
Transaction), or exchange of Common Stock or other securities of the
Company, issuance of warrants or other rights to purchase Common Stock
or other securities of the Company, or other similar corporate
transaction or event, in the Committee's sole discretion (or in the
case of grants to Independent Directors, the Board's sole discretion),
affects the Common Stock such that an adjustment is determined by the
Committee (or the Board, in the case of grants to Independent
Directors) to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made
available under the Plan or with respect to an Option, Restricted Stock
award, Performance Award, Stock Appreciation Right, Dividend
Equivalent, Deferred Stock award or Stock Payment, then the Committee
(or the Board, in
<PAGE>
the case of grants to Independent Directors) shall, in such manner as
it may deem equitable, adjust any or all of
(i) the number and kind of shares of Common Stock (or
other securities or property) with respect to which Options,
Performance Awards, Stock Appreciation Rights, Dividend
Equivalents or Stock Payments may be granted under the Plan,
or which may be granted as Restricted Stock or Deferred Stock
(including, but not limited to, adjustments of the limitations
in Section 2.1 on the maximum number and kind of shares which
may be issued and adjustments of the Award Limit),
(ii) the number and kind of shares of Common Stock
(or other securities or property) subject to outstanding
Options, Performance Awards, Stock Appreciation Rights,
Dividend Equivalents, or Stock Payments, and in the number and
kind of shares of outstanding Restricted Stock or Deferred
Stock, and
(iii) the grant or exercise price with respect to any
Option, Performance Award, Stock Appreciation Right, Dividend
Equivalent or Stock Payment.
(b) Subject to Sections 10.3(b)(vii) and 10.3(d), in the event
of any Corporate Transaction or other transaction or event described in
Section 10.3(a) or any unusual or nonrecurring transactions or events
affecting the Company, any affiliate of the Company, or the financial
statements of the Company or any affiliate, or of changes in applicable
laws, regulations, or accounting principles, the Committee (or the
Board, in the case of grants to Independent Directors) in its
discretion is hereby authorized to take any one or more of the
following actions whenever the Committee (or the Board, in the case of
grants to Independent Directors) determines that such action is
appropriate in order to prevent dilution or enlargement of the benefits
or potential benefits intended to be made available under the Plan or
with respect to any option, right or other award under this Plan, to
facilitate such transactions or events or to give effect to such
changes in laws, regulations or principles:
(i) In its sole discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the
Board, in the case of grants to Independent Directors) may
provide, either by the terms of the agreement or by action
taken prior to the occurrence of such transaction or event and
either automatically or upon the Optionee's request, for
either the purchase of any such Option, Performance Award,
Stock Appreciation Right, Dividend Equivalent, or Stock
Payment, or any Restricted Stock or Deferred Stock for an
amount of cash equal to the amount that could have been
attained upon the exercise of such option, right or award or
realization of the Optionee's rights had such option, right or
award been currently exercisable or payable or fully vested or
the replacement of such option, right or award with other
rights or property selected by the Committee (or the Board, in
the case of grants to Independent Directors) in its sole
discretion;
(ii) In its sole discretion, the Committee (or the
Board, in the case of
<PAGE>
grants to Independent Directors) may provide, either by the
terms of such Option, Performance Award, Stock Appreciation
Right, Dividend Equivalent, or Stock Payment, or Restricted
Stock or Deferred Stock or by action taken prior to the
occurrence of such transaction or event that it cannot be
exercised after such event;
(iii) In its sole discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the
Board, in the case of grants to Independent Directors) may
provide, either by the terms of such Option, Performance
Award, Stock Appreciation Right, Dividend Equivalent, or Stock
Payment, or Restricted Stock or Deferred Stock or by action
taken prior to the occurrence of such transaction or event,
that for a specified period of time prior to such transaction
or event, such option, right or award shall be exercisable as
to all shares covered thereby, notwithstanding anything to the
contrary in (i) Section 4.4 or (ii) the provisions of such
Option, Performance Award, Stock Appreciation Right, Dividend
Equivalent, or Stock Payment, or Restricted Stock or Deferred
Stock;
(iv) In its sole discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the
Board, in the case of grants to Independent Directors) may
provide, either by the terms of such Option, Performance
Award, Stock Appreciation Right, Dividend Equivalent, or Stock
Payment, or Restricted Stock or Deferred Stock or by action
taken prior to the occurrence of such transaction or event,
that upon such event, such option, right or award be assumed
by the successor or survivor corporation, or a parent or
subsidiary thereof, or shall be substituted for by similar
options, rights or awards covering the stock of the successor
or survivor corporation, or a parent or subsidiary thereof,
with appropriate adjustments as to the number and kind of
shares and prices; and
(v) In its sole discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the
Board, in the case of grants to Independent Directors) may
make adjustments in the number and type of shares of Common
Stock (or other securities or property) subject to outstanding
Options, Performance Awards, Stock Appreciation Rights,
Dividend Equivalents, or Stock Payments, and in the number and
kind of outstanding Restricted Stock or Deferred Stock and/or
in the terms and conditions of (including the grant or
exercise price), and the criteria included in, outstanding
options, rights and awards and options, rights and awards
which may be granted in the future.
(vi) In its sole discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the
Board, in the case of grants to Independent Directors) may
provide either by the terms of a Restricted Stock award or
Deferred Stock award or by action taken prior to the
occurrence of such event that, for a specified period of time
prior to such event, the restrictions imposed under a
Restricted Stock Agreement or a Deferred Stock Agreement upon
some or all shares of Restricted Stock or Deferred Stock may
be terminated, and, in the case of Restricted Stock, some or
all shares of such Restricted Stock may cease to be subject
<PAGE>
to repurchase under Section 6.6 or forfeiture under Section
6.5 after such event.
(vii) None of the foregoing discretionary actions
taken under this Section 10.3(b) shall be permitted with
respect to grants to Independent Directors to the extent that
such discretion would be inconsistent with the applicable
exemptive conditions of Rule 16b-3. In the event of a Change
in Control or a Corporate Transaction, to the extent that the
Board does not have the ability under Rule 16b-3 to take or to
refrain from taking the discretionary actions set forth in
Section 10.3(b)(iii) above, each Option granted to an
Independent Director shall be exercisable as to all shares
covered thereby upon such Change in Control or during the five
days immediately preceding the consummation of such Corporate
Transaction and subject to such consummation, notwithstanding
anything to the contrary in Section 4.4 or the vesting
schedule of such Options. In the event of a Corporate
Transaction, to the extent that the Board does not have the
ability under Rule 16b-3 to take or to refrain from taking the
discretionary actions set forth in Section 10.3(b)(ii) above,
no Option granted to an Independent Director may be exercised
following such Corporate Transaction unless such Option is, in
connection with such Corporate Transaction, either assumed by
the successor or survivor corporation (or parent or subsidiary
thereof) or replaced with a comparable right with respect to
shares of the capital stock of the successor or survivor
corporation (or parent or subsidiary thereof).
(c) Notwithstanding Sections 10.3(a) and 10.3(b), in the event
of any Corporate Transaction, each outstanding Option, Performance
Award, Stock Appreciation Right, Dividend Equivalent, Stock Payment,
Restricted Stock, or Deferred Stock award shall, immediately prior to
the effective date of the Corporate Transaction, automatically become
fully exercisable for all of the shares of Common Stock at the time
subject to such rights or fully vested, as applicable, and may be
exercised for any or all of those shares as fully-vested shares of
Common Stock. However, an outstanding right shall not so accelerate if
and to the extent: (i) such right is, in connection with the Corporate
Transaction, either to be assumed by the successor or survivor
corporation (or parent thereof) or to be replaced with a comparable
right with respect to shares of the capital stock of the successor or
survivor corporation (or parent thereof) or (ii) the acceleration of
exercisability of such right is subject to other limitations imposed by
the Plan Administrator at the time of grant. The determination of
comparability of rights under clause (i) above shall be made by the
Plan Administrator, and its determination shall be final, binding and
conclusive.
(d) Subject to Section 10.3(d) and 10.8, the Committee (or the
Board, in the case of grants to Independent Directors) may, in its
discretion, include such further provisions and limitations in any
Option, Performance Award, Stock Appreciation Right, Dividend
Equivalent, or Stock Payment, or Restricted Stock or Deferred Stock
agreement or certificate, as it may deem equitable and in the best
interests of the Company.
(e) With respect to Options, Stock Appreciation Rights and
performance or incentive awards described in Article VII which are
granted to Section 162(m) Participants
<PAGE>
and are intended to qualify as performance-based compensation under
Section 162(m)(4)(C), no adjustment or action described in this Section
10.3 or in any other provision of the Plan shall be authorized to the
extent that such adjustment or action would cause the Plan to violate
Section 422(b)(1) of the Code or would cause such option or stock
appreciation right to fail to so qualify under Section 162(m)(4)(C), as
the case may be, or any successor provisions thereto. Furthermore, no
such adjustment or action shall be authorized to the extent such
adjustment or action would result in short-swing profits liability
under Section 16 or violate the exemptive conditions of Rule 16b-3
unless the Committee (or the Board, in the case of grants to
Independent Directors) determines that the option or other award is not
to comply with such exemptive conditions. The number of shares of
Common Stock subject to any option, right or award shall always be
rounded to the next whole number.
SECTION 10.4. APPROVAL OF PLAN BY STOCKHOLDERS.
This Plan will be submitted for the approval of the Company's
stockholders within twelve months after the date of the Board's initial adoption
of this Plan. Options, Performance Awards, Stock Appreciation Rights, Dividend
Equivalents or Stock Payments may be granted and Restricted Stock or Deferred
Stock may be awarded prior to such stockholder approval, provided that such
Options, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or
Stock Payments shall not be exercisable and such Restricted Stock or Deferred
Stock shall not vest prior to the time when this Plan is approved by the
stockholders, and provided further that if such approval has not been obtained
at the end of said twelve-month period, all Options, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments previously granted
and all Restricted Stock or Deferred Stock previously awarded under this Plan
shall thereupon be canceled and become null and void.
SECTION 10.5. TAX WITHHOLDING.
The Company shall be entitled to require payment in cash or deduction
from other compensation payable to each Optionee, Grantee or Restricted
Stockholder of any sums required by federal, state or local tax law to be
withheld with respect to the issuance, vesting or exercise of any Option,
Restricted Stock, Deferred Stock, Performance Award, Stock Appreciation Right,
Dividend Equivalent or Stock Payment. The Committee (or the Board, in the case
of grants to Independent Directors) may in its discretion and in satisfaction of
the foregoing requirement allow such Optionee, Grantee or Restricted Stockholder
to elect to have the Company withhold shares of Common Stock otherwise issuable
under such Option or other award (or allow the return of shares of Common Stock)
having a Fair Market Value equal to the sums required to be withheld.
SECTION 10.6. LOANS.
The Committee may, in its discretion, extend one or more loans to
Employees in connection with the exercise or receipt of an Option, Performance
Award, Stock Appreciation Right, Dividend Equivalent or Stock Payment granted
under this Plan, or the issuance of Restricted Stock or Deferred Stock awarded
under this Plan. The terms and conditions of any such loan shall be set by the
Committee.
<PAGE>
SECTION 10.7. FORFEITURE PROVISIONS.
Pursuant to its general authority to determine the terms and conditions
applicable to awards under the Plan, the Committee (or the Board, in the case of
grants to Independent Directors) shall have the right (to the extent consistent
with the applicable exemptive conditions of Rule 16b-3) to provide, in the terms
of Options or other awards made under the Plan, or to require the recipient to
agree by separate written instrument, that (i) any proceeds, gains or other
economic benefit actually or constructively received by the recipient upon any
receipt or exercise of the award, or upon the receipt or resale of any Common
Stock underlying such award, must be paid to the Company, and (ii) the award
shall terminate and any unexercised portion of such award (whether or not
vested) shall be forfeited, if (a) a Termination of Employment, Termination of
Consultancy or Termination of Directorship occurs prior to a specified date, or
within a specified time period following receipt or exercise of the award, or
(b) the recipient at any time, or during a specified time period, engages in any
activity in competition with the Company, or which is inimical, contrary or
harmful to the interests of the Company, as further defined by the Committee (or
the Board, as applicable). In this regard, unless the terms of an Option or
other award made under the Plan provides otherwise, in the event of an award
recipient's Termination of Employment, Termination of Consultancy or Termination
of Directorship, and within eighteen (18) months after the date thereof accepts
employment with any competitor of, or otherwise engages in competition with, the
Company, the Committee, in its sole discretion, may require such award recipient
to return, or (if not received) to forfeit, to the Company the economic value of
any award under the Plan that is realized or obtained (measured at the date of
exercise, vesting or payment) by such recipient (i) at any time after the date
which is six months prior to the date of such recipient's Termination of
Employment, Termination of Consultancy or Termination of Directorship, or (ii)
during such other period as the Committee (or the Board, in the case of grants
to Independent Directors) may determine.
SECTION 10.8. LIMITATIONS APPLICABLE TO SECTION 16 PERSONS AND
PERFORMANCE-BASED COMPENSATION.
Notwithstanding any other provision of this Plan, this Plan, and any
Option, Performance Award, Stock Appreciation Right, Dividend Equivalent or
Stock Payment granted, or Restricted Stock or Deferred Stock awarded, to any
individual who is then subject to Section 16 of the Exchange Act, shall be
subject to any additional limitations set forth in any applicable exemptive rule
under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of
the Exchange Act) that are requirements for the application of such exemptive
rule. To the extent permitted by applicable law, the Plan, Options, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents, Stock Payments,
Restricted Stock and Deferred Stock granted or awarded hereunder shall be deemed
amended to the extent necessary to conform to such applicable exemptive rule.
Furthermore, notwithstanding any other provision of this Plan, any Option, Stock
Appreciation Right or performance or incentive award described in Article VII
which is granted to a Section 162(m) Participant and is intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the Code
shall be subject to any additional limitations set forth in Section 162(m) of
the Code (including any amendment to Section 162(m) of the Code) or any
regulations or rulings issued thereunder that are requirements for qualification
as performance-based compensation as
<PAGE>
described in Section 162(m)(4)(C) of the Code, and this Plan shall be deemed
amended to the extent necessary to conform to such requirements.
SECTION 10.9. EFFECT OF PLAN UPON OPTIONS AND COMPENSATION PLANS.
The adoption of this Plan shall not affect any other compensation or
incentive plans in effect for the Company or any Subsidiary. Nothing in this
Plan shall be construed to limit the right of the Company (i) to establish any
other forms of incentives or compensation for Employees, Directors or
consultants of the Company or any Subsidiary or (ii) to grant or assume options
or other rights otherwise than under this Plan in connection with any proper
corporate purpose including but not by way of limitation, the grant or
assumption of options in connection with the acquisition by purchase, lease,
merger, consolidation or otherwise, of the business, stock or assets of any
corporation, partnership, limited liability company, firm or association.
SECTION 10.10. COMPLIANCE WITH LAWS.
This Plan, the granting and vesting of Options, Restricted Stock
awards, Deferred Stock awards, Performance Awards, Stock Appreciation Rights,
Dividend Equivalents or Stock Payments under this Plan and the issuance and
delivery of shares of Common Stock and the payment of money under this Plan or
under Options, Performance Awards, Stock Appreciation Rights, Dividend
Equivalents or Stock Payments granted or Restricted Stock or Deferred Stock
awarded hereunder are subject to compliance with all applicable federal and
state laws, rules and regulations (including but not limited to state and
federal securities law and federal margin requirements) and to such approvals by
any listing, regulatory or governmental authority as may, in the opinion of
counsel for the Company, be necessary or advisable in connection therewith. Any
securities delivered under this Plan shall be subject to such restrictions, and
the person acquiring such securities shall, if requested by the Company, provide
such assurances and representations to the Company as the Company may deem
necessary or desirable to assure compliance with all applicable legal
requirements. To the extent permitted by applicable law, the Plan, Options,
Restricted Stock awards, Deferred Stock awards, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments granted or awarded
hereunder shall be deemed amended to the extent necessary to conform to such
laws, rules and regulations.
SECTION 10.11. TITLES.
Titles are provided herein for convenience only and are not to serve as
a basis for interpretation or construction of this Plan.
SECTION 10.12. GOVERNING LAW.
This Plan and any agreements hereunder shall be administered,
interpreted and enforced under the internal laws of the State of Delaware
without regard to conflicts of laws thereof.
<PAGE>
* * * * *
I hereby certify that the foregoing Plan was duly adopted by the Board of
Directors of Z-Tel Technologies, Inc. effective April 10, 2000.
Executed this 10th day of April 2000.
_____________________________________
Mark H. Johnson, Secretary
