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, as amended.
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Under Rule 14a-12
JUNO ONLINE SERVICES, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
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(4) 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.
(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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[LOGO]
1540 BROADWAY, 27TH FLOOR
NEW YORK, NEW YORK 10036
March 30, 2001
Dear Fellow Stockholders:
On behalf of the Board of Directors of Juno Online Services, Inc. ("Juno"),
I cordially invite you to attend the Annual Meeting of Stockholders which will
be held on Wednesday, May 16, 2001, at 10:00 A.M. at the Hudson Hotel, 356 West
58th Street, New York, New York 10019.
At the meeting, you are being asked to elect two directors, approve
amendments to the Juno 1999 Stock Incentive Plan, provide the necessary
authorization to increase the maximum number of shares of our common stock that
we may issue in connection with a specific capital-raising transaction from
7,784,978 to 12,000,000, and ratify the selection of PricewaterhouseCoopers LLP
as our independent accountants for the year 2001. In the pages that follow, you
will find the Notice of Meeting and the Proxy Statement which describes these
matters in detail.
You will also find enclosed a proxy form appointing proxies to vote your
shares at the Annual Meeting. Please sign, date and return your proxy form as
soon as possible so that your shares can be represented and voted in accordance
with your instructions even if you cannot attend the Annual Meeting in person.
Sincerely,
/s/ Charles E. Ardai
Charles E. Ardai
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
JUNO ONLINE SERVICES, INC.
1540 BROADWAY, 27TH FLOOR
NEW YORK, NEW YORK 10036
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 16, 2001
TO THE STOCKHOLDERS OF JUNO ONLINE SERVICES, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Juno
Online Services, Inc., a Delaware corporation (the "Company"), will be held at
the Hudson Hotel, 356 West 58th Street, New York, New York 10019 on Wednesday,
May 16, 2001 at 10:00 A.M. Eastern Time for the following purposes, as more
fully described in the Proxy Statement accompanying this Notice:
1. To elect two directors, each to serve for a three-year term ending at
the 2004 Annual Meeting of Stockholders or until his successor is duly
elected and qualified;
2. To approve amendments to the Company's 1999 Stock Incentive Plan (the
"1999 Plan") to (i) increase the number of shares of Common Stock
reserved for issuance over the term of the 1999 Plan by an additional
4,250,000 shares and (ii) increase to 45,000 shares of Common Stock the
option grant that an eligible non-employee Board member receives upon
initial appointment or election to the Board and to 15,000 shares of
Common Stock the option grant that a continuing eligible non-employee
Board member receives at each Annual Stockholders Meeting;
3. To provide the consent required by the Nasdaq National Market to permit
the Company to issue shares of Common Stock in excess of 7,784,978 (up to
a maximum of 12,000,000) in connection with its "equity line" financing
facility, if the Company determines such issuances to be in the best
interests of stockholders;
4. To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company for the fiscal year ending December 31, 2001;
and
5. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
The foregoing items of business are more thoroughly described in the Proxy
Statement accompanying this notice. Only stockholders of record at the close of
business on March 23, 2001 are entitled to notice of and to vote at the Annual
Meeting. The stock transfer books of the Company will remain open between the
record date and the date of the meeting. A list of stockholders entitled to vote
at the Annual Meeting will be available for inspection at the executive offices
of the Company.
All stockholders are cordially invited to attend the meeting in person.
Whether or not you plan to attend, please sign and return the enclosed proxy as
promptly as possible in the envelope enclosed for your convenience. Should you
receive more than one proxy because your shares are registered in different
names and addresses, each proxy should be signed and returned to insure that all
your shares will be voted. You may revoke your proxy at any time prior to the
Annual Meeting. If you attend the Annual Meeting and vote by ballot, your proxy
will be revoked automatically and only your vote at the Annual Meeting will be
counted.
PLEASE NOTE THAT ATTENDANCE AT THE MEETING WILL BE LIMITED TO STOCKHOLDERS
OF JUNO AS OF THE RECORD DATE (OR THEIR AUTHORIZED REPRESENTATIVES) HOLDING
EVIDENCE OF THEIR OWNERSHIP AND PRESENTING VALID PHOTO IDENTIFICATION. IF YOUR
SHARES ARE HELD BY A BANK OR BROKER, YOU WILL NEED TO BRING TO THE MEETING A
BANK OR BROKER STATEMENT EVIDENCING YOUR BENEFICIAL OWNERSHIP OF JUNO COMMON
STOCK.
Sincerely,
/s/ Richard D. Buchband
Richard D. Buchband
SENIOR VICE PRESIDENT AND
GENERAL COUNSEL; SECRETARY
New York, New York
March 30, 2001
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED
ENVELOPE.
JUNO ONLINE SERVICES, INC.
1540 BROADWAY, 27TH FLOOR
NEW YORK, NEW YORK 10036
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 16, 2001
GENERAL
The enclosed proxy ("Proxy") is solicited on behalf of the Board of
Directors of Juno Online Services, Inc., a Delaware corporation (the "Company"),
for use at the Annual Meeting of Stockholders to be held on May 16, 2001 (the
"Annual Meeting"). The Annual Meeting will be held at 10:00 A.M. at the Hudson
Hotel, 356 West 58th Street, New York, New York 10019. These proxy solicitation
materials will be mailed on or about April 4, 2001, to all stockholders entitled
to vote at the Annual Meeting.
VOTING
The specific proposals to be considered and acted upon at the Annual Meeting
are summarized in the accompanying Notice and are described in more detail in
this Proxy Statement. On March 23, 2001, the record date for determination of
stockholders entitled to notice of and to vote at the Annual Meeting, 41,635,295
shares of the Company's common stock, par value $0.01 ("Common Stock"), were
issued and outstanding. No shares of the Company's preferred stock, par value
$0.01, were outstanding. Each stockholder is entitled to one vote for each share
of Common Stock held by such stockholder on March 23, 2001. Stockholders may not
cumulate votes in the election of directors.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions and broker non-votes are counted
as present for purposes of determining the presence or absence of a quorum for
the transaction of business. Abstentions will be counted towards the tabulations
of votes cast on proposals presented to the stockholders and will have the same
effect as negative votes, whereas broker non-votes will not be counted for
purposes of determining whether a proposal has been approved.
PROXIES
If the enclosed form of proxy is properly signed and returned, the shares
represented thereby will be voted at the Annual Meeting in accordance with the
instructions specified thereon. If the proxy does not specify how the shares
represented thereby are to be voted, the proxy will be voted FOR the election of
the directors proposed by the Board unless the authority to vote for the
election of such directors is withheld and, if no contrary instructions are
given, the proxy will be voted FOR the approval of Proposals 2, 3 and 4
described in the accompanying Notice and Proxy Statement. You may revoke or
change your Proxy at any time before the Annual Meeting by filing with the
Secretary of the Company at the Company's principal executive offices, 1540
Broadway, 27th Floor, New York, New York 10036, a notice of revocation or
another signed Proxy with a later date. You may also revoke your Proxy by
attending the Annual Meeting and voting in person.
SOLICITATION
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional solicitation materials furnished to the stockholders. We have
retained a proxy solicitation firm, MacKenzie Partners, to assist us in
soliciting proxies, for which we expect to pay MacKenzie Partners approximately
$5,000 in fees and
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reimbursement of expenses. Copies of solicitation materials will be furnished to
brokerage houses, fiduciaries and custodians holding shares in their names that
are beneficially owned by others so that they may forward this solicitation
material to such beneficial owners. In addition, the Company may reimburse such
persons for their costs in forwarding the solicitation materials to such
beneficial owners. The original solicitation of proxies by mail may be
supplemented by a solicitation by telephone, telegram or other means by
directors, officers or employees of the Company. No additional compensation will
be paid to these individuals for any such services. Except as described above,
the Company does not presently intend to solicit proxies other than by mail.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 2002 Annual Meeting must be received no
later than December 31, 2001, in order that they may be included in the proxy
statement and form of proxy relating to that meeting. In addition, the proxy
solicited by the Board of Directors for the 2002 Annual Meeting will confer
discretionary authority to vote on any stockholder proposal presented at that
meeting, unless the Company receives notice of such proposal on or before
February 19, 2002.
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MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL ONE
ELECTION OF DIRECTORS
GENERAL
The Company's Certificate of Incorporation provides for a classified Board
of Directors consisting of three classes of directors with staggered three-year
terms, with each class consisting, as nearly as possible, of one-third of the
total number of directors. The Board currently consists of five persons. The
class whose term of office expires at the Annual Meeting currently consists of
two directors. The directors elected to this class will each serve for a term of
three years, expiring at the 2004 annual meeting of stockholders or until his
successor has been duly elected and qualified. The nominees listed below are
currently directors of the Company. If this proposal is approved, the Board will
consist of five persons, with two classes consisting of two directors each and
the third class consisting of one director.
The nominees for election have agreed to serve if elected, and management
has no reason to believe that such nominees will be unavailable to serve. In the
event a nominee is unable or declines to serve as a director at the time of the
Annual Meeting, the proxies will be voted for any nominee who may be designated
by the present Board of Directors to fill the vacancy. Unless otherwise
instructed, the proxy holders will vote the proxies received by them FOR the
nominees named below.
NOMINEES FOR TERM ENDING UPON THE 2004 ANNUAL MEETING OF STOCKHOLDERS
LOUIS K. SALKIND, 43, has served as a director of Juno since March 1999.
Since January 1991, Dr. Salkind has been a Managing Director of D. E. Shaw &
Co., L.P. ("DESCO, L.P."), where he manages the firm's proprietary trading
business. Since June 2000, Dr. Salkind has been the Vice Chairman of D. E.
Shaw & Co., Inc., the parent of DESCO, L.P. Since May 1993, he has also been a
Director of D. E. Shaw Securities International, a London-based affiliate of
DESCO, L.P., and since November 1997, he has been a Director of D. E. Shaw
Securities Hong Kong, Ltd. Dr. Salkind graduated CUM LAUDE with an A.B. from
Princeton University and received his M.S. and Ph.D degrees from New York
University.
THOMAS L. PHILLIPS, JR., 45, has served as a director of Juno since
March 2001. From December 1998 to March 2001, Mr. Phillips served as the Chief
Executive Officer of Deja.com, Inc., which offered an online discussion forum
and a comparison shopping service. From April 1997 to September 1998, he served
as the President of ESPN Internet Ventures and President of ABC News Internet
Ventures. From August 1993 to April 1997, he served as a Senior Vice President
of Starwave Corporation, a Web development company where he managed the
development of a dozen Web sites including ESPN.com, ABCNews.com, NBA.com and
Mrshowbiz.com. Mr. Phillips also co-founded and served as President of Spy
magazine between 1985 and 1991. Mr. Phillips graduated with a B.A. in Applied
Mathematics from Harvard University and received his M.B.A. from Stanford
University.
CONTINUING DIRECTORS FOR TERM ENDING UPON THE 2002 ANNUAL MEETING OF
STOCKHOLDERS
DAVID E. SHAW, 50, has served as Chairman of Juno from its inception in
June 1995. He has served as a director of Juno since July 1996, and was named
Chairman of the Board of Juno in February 1999. Since November 1992, Dr. Shaw
has been the Chairman and President of D. E. Shaw & Co., Inc., the parent of
DESCO, L.P. Prior to founding a predecessor to DESCO, L.P. in 1988, Dr. Shaw was
a Vice President at Morgan Stanley & Co., where he managed the firm's automated
trading technology group. Earlier, he served on the faculty of the Department of
Computer Science at Columbia University. In 1994, Dr. Shaw was appointed by
President Clinton to the President's Committee of Advisors on Science and
Technology, in which capacity he served as Chairman of the Panel on Educational
Technology. Dr. Shaw is also the Treasurer of the American Association for the
Advancement of Science and a member of the executive committee of the Council on
Competitiveness. He also serves
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as the (non-executive) Chairman of the Board of Directors of Schrodinger, Inc.,
a developer of computational chemistry software. Dr. Shaw graduated with highest
honors from the University of California at San Diego, and received his Ph.D.
from Stanford University following several years of research at the Stanford
Artificial Intelligence Laboratory.
EDWARD J. RYEOM, 31, has served as a director of Juno since March 1999.
Since December 1999, Mr. Ryeom has been the Chief Executive Officer and
President of Axalon Ventures, a New York-based venture capital firm focused on
information technology investments. From January 1999 through December 1999,
Mr. Ryeom was a Partner of Prospect Street Ventures, a venture capital firm
focused on information technology investments. From May 1998 to December 1998,
he was a Vice President of Prospect Street Ventures. From August 1995 to
May 1998, he was a Vice President in investment banking for Brenner Securities.
From May 1994 to June 1995, he worked at Cowen & Company, in the information
technology group. From May 1993 to May 1994, he was a consultant with Andersen
Consulting. Mr. Ryeom also serves as a director for private information
technology companies. Mr. Ryeom graduated with a bachelor's degree in Electrical
Engineering from Columbia University, and an M.E. in Systems Engineering from
the University of Virginia.
CONTINUING DIRECTOR FOR TERM ENDING UPON THE 2003 ANNUAL MEETING OF STOCKHOLDERS
CHARLES E. ARDAI, 31, has served as President of Juno since its inception in
June 1995 and was named Chief Executive Officer of Juno in May 1999. Mr. Ardai
has served as a director of Juno since October 1997. From January 1992 until
June 1995, Mr. Ardai was employed by D. E. Shaw & Co., L.P., where he served in
a number of positions--first as Director of Strategic Growth from January 1992
until January 1993, where he was responsible for the development and execution
of DESCO, L.P.'s recruitment strategies, then as Vice President from
January 1993 until January 1995. From January 1995 until June 1995, Mr. Ardai
served as Senior Vice President at DESCO, L.P., with responsibility for
development of Internet-related business ventures. Mr. Ardai also served as a
Managing Director of DESCO, L.P. from January 1998 until February 1999. Prior to
joining DESCO, L.P. in January 1992, Mr. Ardai worked at Davis Publications,
where he was responsible for the development and marketing of products derived
from the firm's media properties. During this period, he also maintained an
independent career as a freelance writer and editor. Mr. Ardai graduated SUMMA
CUM LAUDE from Columbia University.
BOARD COMMITTEES AND MEETINGS
The Board of Directors held five meetings and acted by unanimous written
consent on ten occasions during the fiscal year ended December 31, 2000 (the
"2000 Fiscal Year"). The Board of Directors has an Audit Committee and a
Compensation Committee. During the 2000 Fiscal Year, all directors attended or
participated in more than 75% of the combined total of the meetings of the Board
of Directors and the committees of the Board on which they served.
The Audit Committee currently consists of three directors, Messrs. Phillips
and Ryeom and Dr. Salkind. The Audit Committee reviews, acts on and reports to
the Board of Directors with respect to various auditing and accounting matters,
including the recommendation of the Company's auditors, the scope of the annual
audits, fees to be paid to the auditors, the performance of the Company's
independent auditors and the accounting practices of the Company. The Audit
Committee held four meetings during the 2000 Fiscal Year.
The Compensation Committee currently consists of three directors,
Messrs. Ardai and Ryeom, and Dr. Shaw. The Compensation Committee recommends,
reviews and oversees the salaries, benefits and equity-based plans for the
Company's employees, consultants, directors, and other individuals compensated
by the Company. The Compensation Committee also administers the Company's
compensation plans. The Compensation Committee held one meeting and acted by
unanimous written consent eleven times during the 2000 Fiscal Year.
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DIRECTOR COMPENSATION
Juno provides certain cash and equity forms of compensation to its
directors. Non-employee directors are paid cash compensation of $15,000 per year
for serving on the Board of Directors. In addition, our 1999 Stock Incentive
Plan provides that each individual who first joins the Juno Board after May 25,
1999 as a non-employee Board member will automatically receive an option to
purchase 22,222 shares of Common Stock at the time of his or her commencement of
Board service and will automatically be granted an option to purchase 7,777
shares of Common Stock on the date of each annual stockholders meeting if he or
she has completed six months of service as a non-employee Board member and will
continue as a Board member at such time. On March 12, 2001, the Board of
Directors amended the 1999 Stock Incentive Plan so that, subject to stockholder
approval at this Meeting, each individual who first joins the Juno Board after
March 12, 2001 as a non-employee Board member will automatically receive an
option to purchase 45,000 shares of Common Stock at the time of his or her
commencement of Board service and, on the date of each annual stockholders
meeting beginning with the 2001 meeting, each non-employee member of the Board
of Directors who has completed six months of service as a non-employee Board
member and who is to continue to serve as a non-employee Board member will
automatically be granted an option to purchase 15,000 shares of Common Stock.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF THE NOMINEES LISTED ABOVE.
PROPOSAL TWO
APPROVAL OF AMENDMENT TO THE
1999 STOCK INCENTIVE PLAN
The Company's stockholders are being asked to approve an amendment to the
Company's 1999 Stock Incentive Plan (the "1999 Plan") which will effect the
following changes:
(i) increase the number of shares of our Common Stock reserved for issuance
under the 1999 Plan by an additional 4,250,000 shares; and
(ii) amend the non-employee director automatic option grant program to
increase the number of shares of our Common Stock subject to the
initial grant to individuals who join the Company's Board as eligible
non-employee directors from 22,222 to 45,000 and, starting on the date
of the 2001 Annual Meeting, increase the number of shares subject to
the annual grant to continuing eligible non-employee Board members from
7,777 to 15,000.
The Board of Directors adopted the amendment described above on March 12,
2001, subject to stockholder approval at this Meeting.
The Board believes that increasing the number of shares of Common Stock
reserved for issuance under the 1999 Plan is necessary to insure that a
sufficient reserve of Common Stock remains available for issuance to allow the
Company to continue to utilize equity incentives to attract and retain the
services of key individuals essential to the Company's long-term growth and
financial success. The Company relies significantly on equity incentives in the
form of stock option grants in order to attract and retain key employees and
believes that such equity incentives are necessary for the Company to remain
competitive in the marketplace for executive talent and other key employees.
Option grants made to newly-hired and continuing employees will be based on
competitive market conditions, experience and individual performance.
The Board believes that increasing the number of shares of Common Stock
subject to automatic option grants to non-employee directors is necessary to
insure that the Company can continue to attract and retain qualified individuals
to serve as members of the Board of Directors.
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Except for option grants to eligible non-employee directors under the
automatic program of the 1999 Plan, the Board does not have any specific current
plans to utilize the additional shares of Common Stock that would become
available under the 1999 Plan if this Proposal Two is approved by the Company's
stockholders.
The following is a summary of the principal features of the 1999 Plan, as
most recently amended. Any stockholder of the Company who wishes to obtain a
copy of the actual plan document may do so upon written request to the Company's
Secretary at 1540 Broadway, 27th Floor, New York, New York 10036.
EQUITY INCENTIVE PROGRAMS
The 1999 Plan consists of four (4) separate equity incentive programs:
(i) the Discretionary Option Grant Program, (ii) the Salary Investment Option
Grant Program, (iii) the Stock Issuance Program and (iv) the Automatic Option
Grant Program for non-employee Board members. The principal features of each
program are described below. The Compensation Committee of the Board has the
exclusive authority to administer the Discretionary Option Grant and Stock
Issuance Programs with respect to option grants and stock issuances made to the
Company's executive officers and non-employee Board members and also has the
authority to make option grants and stock issuances under those programs to all
other eligible individuals. However, the Board may at any time appoint a
secondary committee of one or more Board members to have separate but concurrent
authority with the Compensation Committee to make option grants and stock
issuances under those two programs to individuals other than the Company's
executive officers and non-employee Board members. The Compensation Committee
has complete discretion to select the individuals who are to participate in the
Salary Investment Option Grant Program, but all grants made to the selected
individuals are governed by the express terms of that program.
The term Plan Administrator, as used in this summary, will mean the
Compensation Committee and any secondary committee, to the extent each such
entity is acting within the scope of its administrative jurisdiction under the
1999 Plan. However, neither the Compensation Committee nor any secondary
committee exercises any administrative discretion under the Automatic Option
Grant Program. All grants under that program are made in strict compliance with
the express provisions of such program.
SHARE RESERVE
An aggregate of 15,512,320 shares of Common Stock has been reserved for
issuance over the term of the 1999 Plan. Such share reserve consists of (i) the
5,768,611 shares initially reserved for issuance under the 1999 Plan, (ii) the
348,335 shares added to the reserve on January 3, 2000 pursuant to the automatic
share increase provisions of the 1999 Plan, (iii) the additional increase of
3,500,000 shares of Common Stock added to the reserve on May 24, 2000 pursuant
to stockholder approval, (iv) the 1,645,374 shares added to the reserve on
January 2, 2001 pursuant to the automatic share increase provisions of the 1999
Plan, plus (v) an increase of 4,250,000 shares which forms a part of this
Proposal. On the first trading day of each calendar year during the term of the
1999 Plan, the number of shares of Common Stock available for issuance under the
1999 Plan will automatically increase by an amount equal to four percent (4%) of
the shares of the Company's Common Stock outstanding on the last trading day of
the immediately preceding calendar year, subject to a maximum annual increase of
2,400,000 shares.
No participant in the 1999 Plan may receive option grants, separately
exercisable stock appreciation rights or direct stock issuances for more than
1,111,111 shares of Common Stock in the aggregate per calendar year. Stockholder
approval of this Proposal will also constitute a reapproval of the
1,111,111-share limitation for purposes of Internal Revenue Code
Section 162(m).
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The shares of Common Stock issuable under the 1999 Plan may be drawn from
shares of the Company's authorized but unissued shares of Common Stock or from
shares of Common Stock reacquired by the Company, including shares purchased on
the open market.
In the event any change is made to the outstanding shares of Common Stock by
reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to the securities issuable (in the aggregate, annually and per participant)
under the 1999 Plan and the securities and the exercise price per share in
effect under each outstanding option.
ELIGIBILITY
Officers and employees, non-employee Board members and independent
consultants in the service of the Company or its parent and subsidiaries
(whether now existing or subsequently established) are eligible to participate
in the Discretionary Option Grant and Stock Issuance Programs. Executive
officers and other highly paid employees are also eligible to participate in the
Salary Investment Option Grant Program. Participation in the Automatic Option
Grant Program will be limited to non-employee members of the Board.
As of March 8, 2001, one executive officer, four non-employee Board members
and approximately 303 other employees and consultants were eligible to
participate in the Discretionary Option Grant and Stock Issuance Programs. The
executive officer was also eligible to participate in the Salary Investment
Option Grant Program, and the four non-employee Board members were also eligible
to participate in the Automatic Option Grant Program.
VALUATION
The fair market value per share of Common Stock on any relevant date under
the 1999 Plan will be deemed to be equal to the closing selling price per share
on that date on the Nasdaq National Market. On March 8, 2001 the fair market
value per share determined on such basis was $1.41.
DISCRETIONARY OPTION GRANT PROGRAM
The Plan Administrator has complete discretion under the Discretionary
Option Grant Program to determine which eligible individuals are to receive
option grants, the time or times when those grants are to be made, the number of
shares subject to each such grant, the status of any granted option as either an
incentive stock option or a non-statutory option under the federal tax laws, the
vesting schedule (if any) to be in effect for the option grant and the maximum
term for which any granted option is to remain outstanding.
Unless otherwise determined by the Plan Administrator, each option will have
an exercise price per share equal to the fair market value of the shares on the
date of grant. No option will have a term in excess of ten years, and each
option will generally become exercisable in one or more installments over a
specified period of service measured from the grant date.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise any outstanding option to the extent exercisable for vested
shares. The Plan Administrator will have complete discretion to extend the
period following the optionee's cessation of service during which his or her
outstanding options may be exercised and/or to accelerate the exercisability or
vesting of such options in whole or in part. Such discretion may be exercised at
any time while the options remain outstanding, whether before or after the
optionee's cessation of service.
The Plan Administrator is authorized to issue tandem stock appreciation
rights under the Discretionary Option Grant Program, which provide the holders
with the right to surrender their options for an appreciation distribution from
the Company equal to the excess of (i) the fair market value of the vested
shares of Common Stock subject to the surrendered option over (ii) the aggregate
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exercise price payable for such shares. Such appreciation distribution may, at
the discretion of the Plan Administrator, be made in cash or in shares of Common
Stock.
The Plan Administrator also has the authority to effect the cancellation of
any or all options outstanding under the Discretionary Option Grant Program and
to grant, in substitution therefor, new options covering the same or a different
number of shares of Common Stock but with an exercise price per share based upon
the fair market value of the option shares on the new grant date.
SALARY INVESTMENT OPTION GRANT PROGRAM
The Compensation Committee has complete discretion in implementing the
Salary Investment Option Grant Program for one or more calendar years and in
selecting the executive officers and other individuals who are eligible to
participate in the program for those years. As a condition to such
participation, each selected individual must, prior to the start of each
calendar year of participation, file with the Compensation Committee an
irrevocable authorization directing the Company to reduce his or her base salary
for the upcoming calendar year by a specified dollar amount not less than $5,000
nor more than $50,000 and to apply that amount to the acquisition of a special
option grant under the program.
Each selected individual who files such a timely election will automatically
be granted a non-statutory option on the first trading day in January of the
calendar year for which that salary reduction is in effect.
The number of shares subject to each such option will be determined by
dividing the salary reduction amount by two-thirds of the fair market value per
share of Company Common Stock on the grant date, and the exercise price will be
equal to one-third of the fair market value of the option shares on the grant
date. As a result, the total spread on the option shares at the time of grant
(the fair market value of the option shares on the grant date less the aggregate
exercise price payable for those shares) will be equal to the amount by which
the optionee's salary is to be reduced for the calendar year. In effect, the
salary reduction serves as an immediate prepayment, as of the time of the option
grant, of two thirds of the then current market price of the shares of Common
Stock subject to the option.
Each option will become exercisable in a series of twelve equal monthly
installments upon the optionee's completion of each month of service in the
calendar year for which such salary reduction is in effect and will become
immediately exercisable for all the option shares on an accelerated basis should
the Company experience certain changes in ownership or control. Each option will
remain exercisable for any vested shares until the earlier of (i) the expiration
of the ten-year option term or (ii) the end of the three-year period measured
from the date of the optionee's cessation of service.
The Company has not yet implemented the Salary Investment Option Grant
Program.
STOCK ISSUANCE PROGRAM
Shares of Common Stock may be issued under the Stock Issuance Program at a
price per share equal to the fair market value of the shares unless otherwise
determined by the Plan Administrator and for such valid consideration under the
Delaware General Corporation Law as the Plan Administrator deems appropriate,
including cash and promissory notes. The shares may also be issued as a bonus
for past services without any cash outlay required of the recipient. The shares
issued may be fully vested upon issuance or may vest upon the completion of a
designated service period or the attainment of pre-established performance
goals. The Plan Administrator will, however, have the discretionary authority at
any time to accelerate the vesting of any and all unvested shares outstanding
under the Stock Issuance Program.
9
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, each eligible non-employee Board
member receives a series of option grants over his or her period of Board
service. Each non-employee Board member is entitled, at the time of his or her
initial election or appointment to the Board, to receive an option grant for
22,222 shares of Common Stock. In addition, on the date of each annual
stockholders meeting, each individual who continues to serve as a non-employee
Board member automatically is granted an option to purchase 7,777 shares of
Common Stock, provided he or she has served as a non-employee Board member for
at least six months. There is no limit on the number of annual 7,777-share
option grants any one eligible non-employee Board member may receive over his or
her period of continued Board service. On March 12, 2001, the Board of Directors
amended the 1999 Plan so that, subject to stockholder approval at this Meeting,
each non-employee Board member will, at the time of his or her initial election
or appointment to the Board, receive an option grant for 45,000 shares of Common
Stock and on the date of each annual stockholders meeting each individual who
continues to serve as a non-employee Board member will automatically be granted
an option to purchase 15,000 shares of Common Stock, provided he or she has
served as a non-employee Board member for at least six months on such date.
Stockholder approval of this Proposal will also constitute pre-approval of
each option granted under the Automatic Option Grant Program on or after the
date of the Annual Stockholders Meeting and the subsequent exercise of that
option in accordance with the terms of the program summarized below.
Each automatic grant will have an exercise price per share equal to the fair
market value per share of Common Stock on the grant date and will have a maximum
term of ten years, subject to earlier termination following the optionee's
cessation of Board service. Each initial 45,000-share option will become
exercisable upon the optionee's completion of four months of Board service
measured from the grant date. Each annual 15,000-share option will become
exercisable upon the optionee's completion of six months of Board service
measured from the grant date. However, each outstanding option grant will
automatically accelerate and become immediately exercisable in full upon certain
changes in control or ownership of the Company or upon the optionee's death or
disability while a Board member. Following the optionee's cessation of Board
service for any reason, each option will remain exercisable for a 12-month
period and may be exercised during that time for any or all shares in which the
optionee is vested at the time of such cessation of Board service.
If Proposal Two is approved by the Company's stockholders, then the grant of
options to be made following the 2001 Annual Meeting to David E. Shaw and Edward
J. Ryeom, as continuing directors, and to Louis Salkind, if he is re-elected at
the Annual Meeting, would be increased from 7,777 to 15,000 shares of Common
Stock. Except for these option grants, the Board does not have any specific
current plans to utilize the additional shares of Common Stock that would become
available under the 1999 Plan if this Proposal Two is approved by the Company's
stockholders.
GENERAL PROVISIONS
In the event that the Company is acquired by merger, asset sale or sale by
the stockholders of more than 50% of the Company's outstanding voting stock
recommended by the Board, each outstanding option under the Discretionary Option
Grant Program that is not to be assumed or replaced by the successor corporation
or otherwise continued in effect will automatically accelerate in full, and all
unvested shares outstanding under the Discretionary Option Grant and Stock
Issuance Programs will immediately vest, except to the extent the Company's
repurchase rights with respect to those shares are to be assigned to the
successor corporation or otherwise continued in effect.
The Plan Administrator will have the authority under the Discretionary
Option Grant Program to provide that any option granted under such program will
automatically vest in full (i) upon an acquisition of the Company, whether or
not those options are assumed or replaced, (ii) upon a hostile
10
change in control of the Company effected through a tender offer for more than
50% of the Company's outstanding voting stock or by proxy contest for the
election of Board members, or (iii) in the event of certain terminations of
service (including forced terminations) following an acquisition or a hostile
change in control. The vesting of outstanding shares under the Stock Issuance
Program may be accelerated upon similar terms and conditions. The options
granted under the Salary Investment Option Grant Program and the Automatic
Option Grant Program will automatically accelerate and become exercisable in
full upon any acquisition or change in control transaction.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
Each option granted under the Salary Investment Option Grant Program and the
Automatic Option Grant Program will include a limited stock appreciation right
so that upon the successful completion of a hostile tender offer for more than
50% of the Company's outstanding voting securities or a change in a majority of
the Board as a result of one or more contested elections for Board membership,
the option may be surrendered to the Company in return for a cash distribution
from the Company. The amount of the distribution per surrendered option share
will be equal to the excess of (i) the fair market value per share at the time
the option is surrendered or, if greater, the tender offer price paid per share
in the hostile take-over over (ii) the exercise price payable per share under
such option. In addition, the Plan Administrator may grant such rights to
officers of the Company who are subject to Section 16 of the Securities Exchange
Act of 1934, as amended, as part of their option grants under the Discretionary
Option Grant Program.
Stockholder approval of this Proposal will also constitute pre-approval of
each limited stock appreciation right granted under the Salary Investment Option
Grant Program and the Automatic Option Grant Program and the subsequent exercise
of those rights in accordance with the foregoing terms.
The Plan Administrator may institute a loan program to assist one or more
participants in financing the exercise of outstanding options under the
Discretionary Option Grant Program or the purchase of shares under the Stock
Issuance Program through full-recourse interest-bearing promissory notes.
However, the maximum amount of financing provided any participant may not exceed
the cash consideration payable for the issued shares plus all applicable taxes
incurred in connection with the acquisition of those shares. The Plan
Administrator may provide one or more holders of non-statutory options or
unvested share issuances under the 1999 Plan with the right to have the Company
withhold a portion of the shares otherwise issuable to such individuals in
satisfaction of the withholding taxes to which such individuals become subject
in connection with the exercise of those options or the vesting of those shares.
Alternatively, the Plan Administrator may allow such individuals to deliver
previously acquired shares of Common Stock in payment of such withholding tax
liability.
AMENDMENT AND TERMINATION
The Board may amend or modify the 1999 Plan at any time, subject to any
required stockholder approval pursuant to applicable laws and regulations.
Unless sooner terminated by the Board, the 1999 Plan will terminate on the
earliest of (i) March 25, 2009, (ii) the date on which all shares available for
issuance under the 1999 Plan have been issued as fully-vested shares or
(iii) the termination of all outstanding options in connection with certain
changes in control or ownership of the Company.
STOCK AWARDS
The table below shows, for each of the Company's executive officers named in
the Summary Compensation Table of the Executive Compensation and Other
Information section of this Proxy Statement and the other individuals and groups
indicated, the number of shares of Common Stock subject to option grants made
under the 1999 Plan through March 8, 2001, together with the weighted average
exercise price payable per share. The Company has not made any direct stock
issuances to date under the 1999 Plan.
11
OPTION TRANSACTIONS
WEIGHTED
NUMBER OF SHARES AVERAGE
UNDERLYING EXERCISE
NAME AND POSITION OPTION GRANTS PRICE PER SHARE
- ----------------- ---------------- ---------------
Charles E. Ardai ........................................... 1,990,170 $ 6.54
President, Chief Executive Officer
Richard M. Eaton, Jr. (1) .................................. 486,679 11.54
Chief Financial Officer and Treasurer
Mark Moraes (2) ............................................ 550,069 8.79
Executive Vice President, Technology
Robert H. Cherins (3) ...................................... 450,067 9.15
Executive Vice President, Sales and Marketing
All current executive officers as a group (1 person)........ 1,990,170 6.54
All current non-employee directors as a group (4 persons)... 87,666 8.94
All employees, including current officers who are not
executive officers, as a group (303 persons).............. 12,801,303 7.74
- ------------------------------
(1) Mr. Eaton resigned from the Company on February 28, 2001. The number of
shares presented reflects option grants through the date of Mr. Eaton's
resignation.
(2) Mr. Moraes resigned from the Company on September 8, 2000. The number of
shares presented reflects option grants through the date of Mr. Moraes's
resignation.
(3) Mr. Cherins resigned from the Company on June 22, 2000. The number of shares
presented reflects option grants through the date of Mr. Cherins's
resignation.
As of March 8, 2001, 9,000,655 shares of Common Stock were subject to
outstanding options under the 1999 Plan, 1,195,366 shares of Common Stock had
been issued under the 1999 Plan, and 5,316,299 shares of Common Stock remained
available for future issuance, assuming stockholder approval of the Proposal to
increase the number of shares reserved for issuance over the term of the 1999
Plan.
FEDERAL INCOME TAX CONSEQUENCES
OPTION GRANTS
Options granted under the 1999 Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
INCENTIVE OPTIONS. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise disposed
of. For Federal tax purposes, dispositions are divided into two categories:
(i) qualifying and (ii) disqualifying. A qualifying disposition occurs if the
sale or other disposition is made after the optionee has held the shares for
more than two years after the option grant date and more than one year after the
exercise date. If either of these two holding periods is not satisfied, then a
disqualifying disposition will result.
If the optionee makes a disqualifying disposition of the purchased shares,
the Company will be entitled to an income tax deduction, for the taxable year in
which such disposition occurs, equal to the excess of (i) the fair market value
of such shares on the option exercise date over (ii) the exercise price
12
paid for the shares. If the optionee makes a qualifying disposition, the Company
will not be entitled to any income tax deduction.
NON-STATUTORY OPTIONS. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will generally recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy any tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income, in the year of exercise of the option, an amount
equal to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the
Section 83(b) election is made, the optionee will not recognize any additional
income as and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.
STOCK APPRECIATION RIGHTS
No taxable income is recognized upon receipt of a stock appreciation right.
The holder will recognize ordinary income, in the year in which the stock
appreciation right is exercised, in an amount equal to the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
the appreciation distribution in the taxable year in which such ordinary income
is recognized by the optionee.
DIRECT STOCK ISSUANCES
The tax principles applicable to direct stock issuances under the 1999 Plan
will be substantially the same as those summarized above for the exercise of
non-statutory option grants.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Internal Revenue Code Section 162(m) limits to $1 million per person the
federal income tax deduction in respect of compensation paid in a calendar year
to certain of the Company's executive officers. The 1999 Plan contains
provisions that permit the Company, on a grant-by-grant basis, to make awards of
incentive stock options and non-statutory options that will qualify as
performance-based compensation so that the compensation deemed paid upon the
exercise of such options is excluded from the deduction limitation.
ACCOUNTING TREATMENT
Option grants under the Discretionary Option Grant and Automatic Option
Grant Programs with exercise prices equal to the fair market value of the option
shares on the grant date will not result in any direct charge to the Company's
reported earnings. However, the fair value of those options is required to be
disclosed in the notes to the Company's financial statements, and the Company
must also disclose, in footnotes to the Company's financial statements, the
pro-forma impact those options
13
would have upon the Company's reported earnings were the fair value of those
options at the time of grant treated as a compensation expense. In addition, the
number of outstanding options may be a factor in determining the Company's
earnings per share on a fully-diluted basis.
Option grants or stock issuances made under the 1999 Plan with exercise or
issue prices less than the fair market value of the shares on the grant or issue
date will result in a direct compensation expense to the Company in an amount
equal to the excess of such fair market value over the exercise or issue price.
The expense must be amortized against the Company's earnings over the period
that the option shares or issued shares are to vest.
In March 2000, the Financial Accounting Standards Board issued an
interpretation of APB Opinion No. 25 governing the accounting principles
applicable to equity incentive plans. Under the interpretation, option grants
made to non-employee consultants (but not non-employee Board members), will
result in a direct charge to the Company's reported earnings based upon the fair
value of the option measured initially as of the grant date and then
subsequently on the vesting date of each installment of the underlying option
shares. Such charge will accordingly include the appreciation in the value of
the option shares over the period between the grant date of the option and the
vesting date of each installment of the option shares. In addition, under the
interpretation, any options which are repriced will also trigger a direct charge
to the Company's reported earnings measured by the appreciation in the value of
the underlying shares over the period between the grant date of the option and
the date the option is exercised for those shares.
Should one or more individuals be granted tandem stock appreciation rights
under the 1999 Plan, then such rights would result in a compensation expense to
be charged against the Company's reported earnings. Accordingly, at the end of
each fiscal quarter, the amount (if any) by which the fair market value of the
shares of Common Stock subject to such outstanding stock appreciation rights has
increased from the prior quarter-end would be accrued as compensation expense,
to the extent such fair market value is in excess of the aggregate exercise
price in effect for those rights.
STOCKHOLDER APPROVAL
The affirmative vote of at least a majority of the outstanding shares of
Common Stock present in person or by proxy at the Annual Meeting and entitled to
vote is required for approval of the amendment to the 1999 Plan. Should such
stockholder approval not be obtained, then the 4,250,000-share increase to the
share reserve under the 1999 Plan will not be implemented, the increase in the
number of shares of our Common Stock subject to option grants to qualifying
members of the Board under the automatic grant option program will not be
implemented, any stock options granted under the 1999 Plan on the basis of the
increases will immediately terminate without ever becoming exercisable for the
shares of Common Stock subject to those options, and no additional options or
stock issuances will be made on the basis of such increases. The 1999 Plan will,
however, continue in effect, and option grants and direct stock issuances may
continue to be made under the 1999 Plan until all the shares available for
issuance under the 1999 Plan have been issued pursuant to such option grants and
direct stock issuances or until the 1999 Plan's earlier expiration or
termination by the Board.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE AMENDMENT AND RECOMMENDS
THAT THE STOCKHOLDERS VOTE FOR THE AMENDMENT TO THE 1999 PLAN.
14
PROPOSAL THREE
AUTHORIZATION TO INCREASE MAXIMUM ISSUANCE OF SHARES OF OUR COMMON STOCK IN
CONNECTION WITH A FINANCING ARRANGEMENT FROM 7,784,978 TO 12,000,000
On October 6, 2000, we entered into a common stock investment agreement with
a private investment fund, The Kingston Limited Partnership, providing for the
issuance and purchase of shares of our Common Stock. This agreement and a
related registration rights agreement constitute what is commonly referred to as
an "equity line facility." Under the equity line facility, we may sell, subject
to various volume- and price-related limitations, up to $7.5 million of Common
Stock in each of up to 20 drawdown periods of 22 trading days each over the
course of a period of up to two years, provided that we cannot sell more than
$125 million worth of shares in total under the facility and may in practice
only be able to sell a much lower amount. The total number of shares that may be
issued under the facility depends on a number of factors, including the market
price and trading volume of our Common Stock during each drawdown period we
choose to initiate. Any stock issued to the fund under this facility will
generally be purchased at a price equal to 94 percent of the volume-weighted
average price of our Common Stock on each purchase day.
The lowest price at which Kingston is obligated to purchase shares from us
under the equity line facility is $1.50 per share. We and Kingston have
previously agreed to waive this condition with respect to one drawdown period
when the lowest price would have otherwise been $2.50 per share and we and
Kingston may agree to waive this condition from time to time in the future in
order to allow us to sell shares to them at lower prices.
In addition to the foregoing volume- and price-related limitations, the
equity line facility is subject to a requirement of the Nasdaq National Market
that we may not issue, and Kingston may not purchase, a number of shares that,
when added to all other shares purchased under the facility, would exceed 19.99%
of the number of shares of our Common Stock issued and outstanding on
October 6, 2000, unless we obtain stockholder approval of issuances in excess of
that amount. As of October 6, 2000, we had a total of 38,944,360 shares of
Common Stock issued and outstanding, 19.99% of which would be 7,784,978 shares.
While there is no guarantee that any additional capital will actually be
available to the Company under the equity line in the future, the Board of
Directors considers the equity line facility to be one of the Company's primary
potential sources of additional capital, and believes it to be in the best
interests of the Company for the Board to be able to utilize as much capacity
under the equity line facility as is available and the Board deems appropriate.
Accordingly, even though the Company has issued only a small number of shares
under the equity line facility as of the date of this Proxy Statement, the Board
believes that it could become desirable to issue more than 7,784,978 shares in
the future. Under this Proposal, we ask that you approve an increase in the
maximum number of shares we may issue under the equity line facility from
7,784,978 to 12,000,000.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE TO INCREASE THE
MAXIMUM NUMBER OF SHARES OF OUR COMMON STOCK THE COMPANY MAY ISSUE IN CONNECTION
WITH THIS FINANCING ARRANGEMENT FROM 7,784,978 TO 12,000,000.
PROPOSAL FOUR
RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of PricewaterhouseCoopers LLP,
independent accountants for the Company during the 2000 Fiscal Year, to serve in
the same capacity for the year ending December 31, 2001, and is asking the
stockholders to ratify this appointment. The affirmative vote of a majority of
the shares represented and voting at the Annual Meeting is required to ratify
the selection of PricewaterhouseCoopers LLP.
15
In the event the stockholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the selection is ratified, the
Board of Directors in its discretion may direct the appointment of a different
independent auditing firm at any time during the year if the Board of Directors
believes that such a change would be in the best interests of the Company and
its stockholders.
A representative of PricewaterhouseCoopers LLP is expected to be present at
the Annual Meeting, will have the opportunity to make a statement if he or she
desires to do so, and will be available to respond to appropriate questions.
AUDIT FEES
The aggregate fees billed by PricewaterhouseCoopers LLP for professional
services rendered for the audit of the Company's annual financial statements for
the year ended December 31, 2000 and reviews of the financial statements
included in the Company's Forms 10-Q for that year were $237,575.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
PricewaterhouseCoopers LLP provided no professional services of this nature
to the Company in the year ended December 31, 2000.
ALL OTHER FEES
The aggregate fees billed for services rendered to the Company by
PricewaterhouseCoopers LLP, other than fees for audit services, for the year
ended December 31, 2000 were $315,750.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP TO SERVE AS THE
COMPANY'S INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2001.
OTHER MATTERS
The Company knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board of Directors may
recommend. Discretionary authority with respect to such other matters is granted
by the execution of the enclosed Proxy.
16
OWNERSHIP OF SECURITIES
The following table sets forth certain information known to the Company with
respect to the beneficial ownership of the Company's Common Stock as of
March 8, 2001, by (i) all persons who are beneficial owners of five percent (5%)
or more of the Company's Common Stock, (ii) each director and nominee for
director, (iii) the executive officers named in the Summary Compensation Table
of the Executive Compensation and Other Information section of this Proxy
Statement and (iv) all directors and executive officers as a group. Unless
otherwise indicated, each of the stockholders has sole voting and investment
power with respect to the shares beneficially owned, subject to community
property laws, where applicable. Unless otherwise indicated, the address of each
beneficial owner listed below is c/o Juno Online Services, Inc., 1540 Broadway,
New York, New York 10036.
NUMBER
OF SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
BENEFICIAL OWNER OWNED OWNED
- ---------------- ------------ ------------
DIRECTORS AND EXECUTIVE OFFICERS
David E. Shaw (1)........................................... 14,283,750 34.4%
Thomas L. Phillips, Jr. (2)................................. -- *
Edward J. Ryeom (3)......................................... 29,999 *
Louis K. Salkind (4)........................................ 187,605 *
Charles E. Ardai (5)........................................ 569,719 1.4
Richard M. Eaton, Jr. (6)................................... 177,897 *
Mark Moraes (7)............................................. 15,000 *
Robert Cherins (8).......................................... -- *
All directors and executive officers as a group
(8 persons) (9)......................................... 15,263,970 36.1
5% STOCKHOLDERS
Shaw Family Trust V (10).................................... 7,962,090 19.2
D. E. Shaw & Co., L.P. (11)................................. 4,868,434 11.7
News America Incorporated (12).............................. 3,135,198 7.6
- ------------------------
* Less than 1%.
(1) Includes (i) 81,627 shares held directly by D. E. Shaw & Co., Inc.,
(ii) 13,000 shares held by an irrevocable stock trust in the name D. E.
Shaw & Co., Inc., of which Wilmington Trust Co. is trustee, (iii) 4,174,234
shares held directly by D. E. Shaw & Co., L.P., (iv) 694,200 shares held by
an irrevocable stock trust in the name of D. E. Shaw & Co., L.P., of which
Wilmington Trust Co. is trustee, (v) 7,962,090 shares held directly by Shaw
Family Trust V, (vi) 925,600 shares held by an irrevocable stock trust in
the name of Shaw Family Trust IV, of which Wilmington Trust Co. is trustee,
(vii) 29,999 shares that are issuable upon the exercise of stock options
held by David E. Shaw and (viii) 403,000 shares held by an irrevocable stock
trust in the name of David E. Shaw, of which Wilmington Trust Co. is
trustee. David E. Shaw is the trustee of the Shaw Family Trust IV and the
Shaw Family Trust V. Dr. Shaw disclaims beneficial ownership of the shares
held by D. E. Shaw & Co., L.P., Shaw Family Trust IV and Shaw Family Trust
V, except to the extent of his pecuniary interest therein. The address of
the foregoing entities is 120 West 45th Street, New York, New York 10036. In
addition to the shares included above, (i) 176,134 shares are held directly
by the Shaw Juno Trust, and (ii) 29,700 shares are held by an irrevocable
trust in the name of Shaw Juno Trust, of which Wilmington Trust Co. is
trustee. The Company obtains certain services from
17
D. E. Shaw & Co., L.P. and another entity affiliated with Dr. Shaw. For a
description of these relationships, please see "Certain Transactions."
(2) This number does not include 45,000 shares issuable upon the exercise of
stock options that do not vest within 60 days of March 8, 2001.
(3) Includes 29,999 shares that are issuable upon the exercise of stock options.
The address of Mr. Ryeom is c/o Axalon Ventures, 440 Ninth Avenue, 11th
Floor, New York, New York 10001.
(4) Includes shares held by the Louis K. Salkind 1999 Grantor Retained Annuity
Trust and 29,999 shares that are issuable upon the exercise of stock
options. Although Dr. Salkind is neither the trustee nor a beneficiary of
the Louis K. Salkind 1999 Grantor Retained Annuity Trust, some of the
beneficiaries of this trust reside in Dr. Salkind's household. The address
of the Louis K. Salkind 1999 Grantor Retained Annuity Trust is 120 West 45th
Street, New York, New York 10036.
(5) Includes 564,515 shares that are issuable upon the exercise of stock
options. This number does not include 1,240,593 shares issuable upon the
exercise of stock options that do not vest within 60 days of March 8, 2001.
(6) Mr. Eaton resigned from the Company on February 28, 2001. Includes 172,703
shares that are issuable upon the exercise of stock options held by
Mr. Eaton on the date of his resignation and exercisable as of March 8,
2001. Mr. Eaton will forfeit these stock options in the event that he does
not exercise them within 90 days of the date he resigned.
(7) Mr. Moraes resigned from the Company on September 8, 2000. As of March 8,
2001, Mr. Moraes held no exercisable stock options.
(8) Mr. Cherins resigned from the Company on June 22, 2000. As of March 8, 2001,
Mr. Cherins held no exercisable stock options.
(9) Includes 827,215 shares that are issuable upon the exercise of stock
options.
(10) David E. Shaw is the trustee of the Shaw Family Trust V. The address of the
Shaw Family Trust V is 120 West 45th Street, New York, New York 10036.
(11) Includes (i) 4,174,234 shares held directly by D. E. Shaw & Co., L.P. and
(ii) 694,200 shares held by an irrevocable stock trust in the name of D. E.
Shaw & Co., L.P., of which Wilmington Trust Co. is trustee. D. E. Shaw &
Co., Inc., which is wholly owned by David E. Shaw, is the general partner of
D. E. Shaw & Co., L.P. Dr. Shaw, as President of D. E. Shaw & Co., Inc., has
voting and dispositive powers with respect to the shares held by D. E.
Shaw & Co., L.P. The address of D. E. Shaw & Co., L.P. is 120 West 45th
Street, New York, New York 10036. The Company obtains certain services from
D. E. Shaw & Co., L.P and another entity affiliated with it. For a
description of these relationships, please see "Certain Transactions."
(12) News America Incorporated is an affiliate of News Corporation, a publicly
traded company. The address of News America Incorporated is 1211 Avenue of
the Americas, New York, New York 10036. For a description of the
relationship between News America Incorporated and Juno, please see "Certain
Transactions."
18
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE OFFICERS AND KEY EMPLOYEES
The executive officers and key employees of the Company, and their ages and
positions as of March 8, 2001, are as follows:
NAME AGE POSITION WITH THE COMPANY
- ---- -------- ------------------------------------------
Charles E. Ardai.......................... 31 President, Chief Executive Officer and
Director
David E. Baade............................ 52 Senior Vice President, Customer
Relationship Management
Harshan Bhangdia.......................... 35 Senior Vice President and Corporate
Controller; Acting Chief Financial Officer
Richard D. Buchband....................... 37 Senior Vice President and General Counsel
V. S. Mani................................ 36 Senior Vice President, Database Systems
C. S. Murali.............................. 40 Senior Vice President, India Operations
Wendy Rosenberg........................... 28 Senior Vice President, Business Operations
Alex C. Sarafian.......................... 32 Senior Vice President, Server and Network
Operations
Peter D. Skopp............................ 30 Senior Vice President and Chief Technology
Officer
Clark D. Swain............................ 38 Senior Vice President, Corporate
Development
INFORMATION CONCERNING EXECUTIVE OFFICERS AND KEY EMPLOYEES WHO ARE NOT
DIRECTORS
DAVID E. BAADE has served as Juno's Senior Vice President, Customer
Relationship Management since February 2001. From October 2000 to
February 2001, he served as Vice President, Customer Relationship Management.
From December 1997 to December 1999, Mr. Baade worked for Pitney Bowes, Inc.,
where he last served as Vice President of Customer Care Services. From
September 1969 to February 1997, he worked for Sears, Roebuck and Co., where he
last served as Vice President of Customer Service in the credit division.
Mr. Baade attended the University of Central Oklahoma.
HARSHAN BHANGDIA has served as Juno's Senior Vice President and Corporate
Controller since January 2001 and has also served as Acting Chief Financial
Officer since March 2001. Mr. Bhangdia served as Vice President and Corporate
Controller from February 2000 until January 2001 and as Director of Financial
Reporting from September 1999 to February 2000. From September 1994 to
September 1999, Mr. Bhangdia worked for PricewaterhouseCoopers LLP, where he
last served as an audit manager. Mr. Bhangdia graduated with a B.S. from Wagner
College and received an M.B.A. from Pace University.
RICHARD D. BUCHBAND has served as Juno's Senior Vice President and General
Counsel since February 1998, and is responsible for oversight of Juno's legal
and human resources policies. From January 1997 to February 1998, he served as
Vice President of Juno, and from September 1995 until January 1997 as associate
counsel of DESCO, L.P. Prior to September 1995, Mr. Buchband was a corporate and
transactional lawyer in New York. Mr. Buchband graduated MAGNA CUM LAUDE with an
A.B. from the Woodrow Wilson School of Public and International Affairs at
Princeton University and received his J.D. from Columbia Law School.
C. S. MURALI has served as Juno's Senior Vice President, India Operations
since July 1998. From February 1988 through July 1998, Mr. Murali worked for
AT&T and Bell Labs as a technical manager with responsibility for
telecommunications network operations and switching technologies and the
development of interactive voice response (IVR) products. Mr. Murali received a
B.S. from the Indian Institute of Technology (Chennai), an M.S. in Aerospace
Engineering from the Georgia Institute of Technology and an M.B.A from Columbia
University.
19
V. S. MANI has served as Juno's Senior Vice President, Database Systems
since February 1998. From February 1997 until February 1998, Mr. Mani served as
a Vice President, and from April 1996 until February 1997 as a software engineer
at Juno, with responsibility for the design of many of Juno's advertising and
electronic commerce systems. From February 1993 until March 1996, Mr. Mani held
a number of positions at the Matsushita Information Technology Laboratory in
Princeton, New Jersey, where he conducted research in information retrieval and
mobile computing. Mr. Mani received his bachelor's degree with honors in
Mechanical Engineering from the Indian Institute of Technology (Chennai) and his
M.S. in Computer Science from the University of Wisconsin.
WENDY ROSENBERG has served as Juno's Senior Vice President, Business
Operations since February 2000. From February 1998 to February 2000,
Ms. Rosenberg served as a Vice President with responsibility for product sales,
network development, telecommunications and advertising services. From
December 1996 to February 1998, Ms. Rosenberg held various positions in Juno's
network development and telecommunications groups. Ms. Rosenberg received a B.A.
degree from Duke University in May 1994.
PETER D. SKOPP has served as Juno's Senior Vice President and Chief
Technology Officer since October 2000. From February 1998 until October 2000,
Mr. Skopp served as Senior Vice President, Network Development. He served as a
Vice President of Juno from February 1997 to February 1998, with responsibility
for designing Juno's server software, and as a member of Juno's technical staff
from December 1995 until February 1997. From December 1992 until December 1995,
Mr. Skopp was a manager at the Programming Systems Laboratory of the Computer
Science Department at Columbia University. Mr. Skopp received his B.S. and M.S.
degrees from Columbia University.
ALEX C. SARAFIAN has served as Juno's Senior Vice President, Server and
Network Operations since February 2000. From August 1997 to February 2000,
Mr. Sarafian served as Vice President, Server and Network Operations. From
May 1996 to July 1997, he served as a member of Juno's technical staff. From
June 1994 to May 1996, Mr. Sarafian was a network specialist at the
Massachusetts Institute of Technology Laboratory for Computer Science.
Mr. Sarafian attended Suffolk University.
CLARK D. SWAIN has served as Juno's Senior Vice President, Corporate
Development since December 2000, and is responsible for oversight of corporate
and strategic transactions, including subscriber acquisition and technology
licensing. From June 1994 to March 2000, Mr. Swain served as Senior Vice
President and Principal of Kaiser Associates, Inc., a consulting firm, where he
oversaw the firm's telecommunications practice. Mr. Swain received a B.A. in
economics from Northwestern University.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning the
compensation that in 2000 was awarded to, earned or paid to the Company's Chief
Executive Officer and each of the three other most highly compensated executive
officers of the Company whose salary and bonus for the 2000 fiscal year was in
excess of $100,000. No other executive officer who would have otherwise been
includable in such table on the basis of salary and bonus earned for the 2000
fiscal year has been excluded by reason of his or her termination of employment
or change in executive status during that year. The listed individuals shall be
hereinafter referred to as the "Named Officers."
20
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION(1) AWARDS
------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
- --------------------------- -------- -------- -------- ---------------------
Charles E. Ardai (2)............................ 2000 $225,000 $275,000 406,126
President and Chief Executive Officer 1999 223,353 165,000 462,933
Richard M. Eaton, Jr. (3)....................... 2000 177,121 100,000 180,000
Chief Financial Officer and Treasurer 1999 125,000 125,000 217,789
Mark Moraes (4)................................. 2000 131,250 -- 200,000
Executive Vice President, Technology 1999 150,000 175,000 150,067
Robert H. Cherins (5)........................... 2000 93,201 71,405 100,000
Executive Vice President, Sales and 1999 150,000 200,000 150,067
Marketing
- ------------------------------
(1) The aggregate amount of perquisites and other personal benefits provided to
each executive officer above is less than the lesser of $50,000 and 10% of
the total annual salary and bonus of that officer.
(2) Amounts presented for 2000 represent amounts paid or payable for services
rendered in 2000. The amounts presented for 2000 include a bonus of $60,000
expected to be paid in July 2001 for services rendered in 2000 and exclude a
bonus of $165,000 paid in 2000 for services rendered in 1999.
(3) Amounts presented for 2000 represent amounts earned for services rendered in
2000. The amounts presented for 2000 exclude a bonus of $108,333 paid in
2000 for services rendered in 1999. Mr. Eaton resigned from the Company on
February 28, 2001.
(4) Amounts presented for 2000 represent amounts earned for services rendered in
2000. The amounts presented for 2000 exclude a bonus of $150,000 paid in
2000 for services rendered in 1999. Mr. Moraes resigned from the Company on
September 8, 2000.
(5) Amounts presented for 2000 represent amounts earned for services rendered in
2000. The amounts presented for 2000 exclude a bonus of $14,333 paid in 2000
for services rendered in 1999. Mr. Cherins resigned from the Company on
June 22, 2000.
21
OPTION GRANTS IN LAST YEAR
The following table contains information concerning the stock options
granted to the Named Officers during the 2000 fiscal year. No stock appreciation
rights were granted to the Named Officers during such fiscal year.
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS(1) VALUE AT ASSUMED
----------------------- ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(2)
OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION -----------------------
NAME GRANTED IN 2000 PER SHARE DATE 5% 10%
- ---- ---------- ---------- -------------- ---------- ---------- ----------
Charles E. Ardai................ 250,000 4.5 $19.81 3/23/2010 $3,114,601 $7,893,010
156,126 2.8 6.56 5/24/2010 644,351 1,632,912
Richard M. Eaton, Jr. (3)....... 100,000 1.8 19.81 3/23/2010 1,245,840 3,157,204
80,000 1.4 6.56 5/24/2010 330,170 836,715
Mark Moraes (4)................. 100,000 1.8 19.81 3/23/2010 1,245,840 3,157,204
100,000 1.8 6.56 5/24/2010 412,712 1,045,893
Robert H. Cherins (5)........... 100,000 1.8 19.81 3/23/2010 1,245,840 3,157,204
- ------------------------------
(1) Each option represents the right to purchase one share of Common Stock and
generally vests at a rate of 25% per annum over four years.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The 5% and
10% assumed annual rates of compounded stock price appreciation are mandated
by rules of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of the Company's future Common Stock
prices. These amounts represent assumed rates of appreciation in the value
of the Company's Common Stock from the fair market value on the date of
grant. Actual gains, if any, on stock option exercises are dependent on the
future performance of the Common Stock. The amounts reflected in the table
may not necessarily be achieved.
(3) Mr. Eaton resigned from the Company on February 28, 2001.
(4) Mr. Moraes resigned from the Company on September 8, 2000.
(5) Mr. Cherins resigned from the Company on June 22, 2000.
22
AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 2000 AND YEAR-END
OPTION VALUES
The following table provides information, with respect to the Named
Officers, concerning the exercise of options during the 2000 fiscal year and
unexercised options held by them at of the end of that fiscal year. None of the
Named Officers exercised any stock appreciation rights during the 2000 fiscal
year.
AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 2000 AND YEAR-END
OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED DECEMBER 31, 2000 AT DECEMBER 31, 2000(1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
Charles E. Ardai................... 130,632 $506,949 378,514 781,024 $28,857 $20,792
Richard M. Eaton, Jr. (2).......... 5,000 10,407 150,422 311,063 2,305 2,840
Mark Moraes (3).................... 73,598 219,982 -- -- -- --
Robert H. Cherins (4).............. 73,221 629,955 -- -- -- --
- ------------------------------
(1) The last reported sale price of the Company's Common Stock as of
December 31, 2000 was $0.66 per share.
(2) Mr. Eaton resigned from the Company on February 28, 2001.
(3) Mr. Moraes resigned from the Company on September 8, 2000.
(4) Mr. Cherins resigned from the Company on June 22, 2000.
EMPLOYMENT, SEVERANCE AND OTHER ARRANGEMENTS
The Company has entered into an employment agreement with Charles E. Ardai,
dated March 9, 2001, which may be terminated by either party upon 30 days
notice. The agreement provides for Mr. Ardai to receive a base salary of
$275,000 for calendar year 2001 and to receive semi-annual payments of $25,000
each on June 30 and December 31 of 2001 as non-refundable advances against a
year-end bonus of $200,000. Mr. Ardai is eligible under the agreement to receive
additional bonus amounts for 2001 at the sole discretion of Juno. Subsequent to
calendar year 2001, Mr. Ardai's base salary and bonus amount may be increased,
decreased or eliminated in the sole discretion of Juno.
Juno has also granted specified rights to some of our officers in the event
that they are terminated without cause or in the event that they voluntarily
resign following a material reduction in their duties and responsibilities or
their cash compensation or following a relocation of their place of employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of Juno serves on the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of Juno's Board of Directors or Compensation Committee.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our officers,
directors and 10% stockholders to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and the Nasdaq Stock
Market. Officers, directors and greater than 10% holders are required to furnish
us with copies of all reports that they file pursuant to Section 16(a).
To the Company's knowledge, based solely on its review of the copies of such
reports received or written representations from such reporting persons that no
other reports were filed, the Company believes that during fiscal year 2000, all
reporting persons complied with all applicable filing requirements.
23
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors advises the Chief
Executive Officer and the Board of Directors on matters of the Company's
compensation philosophy and the compensation of executive officers and other
individuals compensated by the Company. The Compensation Committee is also
responsible for the administration of the Company's stock option plans under
which option grants may be made to executive officers. The Compensation
Committee has reviewed and is in accord with the compensation paid to executive
officers for 2000.
GENERAL COMPENSATION POLICY
The fundamental policy of the Compensation Committee is to provide the
Company's executive officers with competitive compensation opportunities based
upon their contribution to the development and financial success of the Company
and their personal performance. It is the Compensation Committee's objective to
have a portion of each executive officer's compensation contingent upon the
Company's performance as well as upon such executive officer's own level of
performance.
COMPONENTS OF EXECUTIVE COMPENSATION
The Compensation Committee focuses primarily on the following three
components in forming the total compensation package for its executive officers:
- Base Salary
- Annual Bonus
- Long-Term Stock-Based Incentive Awards
BASE SALARY
The suggested base salary for each executive officer is determined on the
basis of the following factors: experience, personal performance, the salary
levels in effect for comparable positions within and without the industry and
internal base salary comparability considerations. The weight given to each of
these factors differs from individual to individual, as the Compensation
Committee deems appropriate.
ANNUAL BONUS
During the year, the executive officers of the Company were eligible for
discretionary annual bonuses, as determined by the Compensation Committee. Among
factors considered in determining the bonus were personal performance and the
Company's achievements and performance.
Long-term stock-based incentives are provided through grants of stock
options. The grants are designed to align the interests of each executive
officer with those of the stockholders and provide each individual with a
significant incentive to manage the Company from the perspective of an owner
with an equity stake in the Company. Each option generally becomes exercisable
in installments over a four-year period, contingent upon the executive officer's
continued employment with the Company. Accordingly, the option grant will
provide a return to the executive officer only if the executive officer remains
employed by the Company during the vesting period, and then only if the market
price of the underlying shares appreciates. The number of shares subject to each
option grant is set at a level intended to create a meaningful opportunity for
stock ownership based on the executive officer's current position with the
Company, the base salary associated with that position, the size of comparable
awards made to individuals in similar positions within the industry, the
individual's potential for increased responsibility and promotion over the
option term and the individual's personal performance in recent periods. The
Compensation Committee also considers the number of unvested options held
24
by the executive officer in order to maintain an appropriate level of equity
incentive for that individual. However, the Compensation Committee does not
adhere to any specific guidelines as to the relative option holdings of the
Company's executive officers. Stock options to purchase an aggregate of 886,126
shares of Common Stock were granted to executive officers in 2000.
SUPPLEMENTAL STOCK INCENTIVE PLAN
In January 2001, the Company adopted an additional stock incentive plan, the
2001 Supplemental Stock Incentive Plan (the "2001 Supplemental Plan"), to
complement the 1999 Plan. As of March 8, 2001, options to purchase 863,400
shares had been granted under the 2001 Supplemental Plan. The 2001 Supplemental
Plan permits stock option and stock issuance awards to non-executive employees
of the Company. No executive officer or non-employee Board member is eligible to
participate in the 2001 Supplemental Plan. The number of shares reserved under
the 2001 Supplemental Plan is 1,500,000, subject to an automatic increase each
year beginning with 2002, of 0.5% of the number of shares of Common Stock
outstanding as of the close of the preceding year, up to a maximum of 400,000
shares per year.
CEO COMPENSATION
The plans and policies discussed above were the basis for the 2000
compensation of the Company's Chief Executive Officer, Mr. Charles E. Ardai. In
advising the Board of Directors with respect to the compensation of the
Company's Chief Executive Officer, the Compensation Committee seeks to achieve
two objectives: (i) establish a level of base salary competitive with that paid
by companies within the industry which are of comparable size to the Company and
by companies outside of the industry with which the Company competes for
executive talent and (ii) make a significant percentage of the total
compensation package contingent upon the Company's performance. In accordance
with these objectives, Mr. Ardai earned a base salary and bonus of $225,000 and
$275,000, respectively, for fiscal year 2000. Stock options to purchase 406,126
shares of Common Stock were granted to Mr. Ardai in fiscal year 2000. As of
March 8, 2001, he held a total of 1,805,108 unexercised stock options.
DISCUSSION OF COMPENSATION IN EXCESS OF $1 MILLION PER YEAR
Section 162(m) of the Internal Revenue Code of 1986, as amended, precludes a
public corporation from taking a tax deduction for individual compensation in
excess of $1 million for its chief executive officer or any of its four other
highest-paid officers. This limitation applies to all compensation paid to the
covered executive officers which is not considered to be performance-based. The
Compensation Committee considers the implications of this deduction limitation
as one of many factors when setting compensation policy and making individual
compensation determinations. The 1999 Plan contains provisions that permit
certain grants to be made so as to qualify for the performance-based exception,
but not all grants under the 1999 Plan have been so qualified. The Compensation
Committee does not expect that the Company would be denied a deduction under
Code Section 162(m) for compensation paid during 2000; however, it is possible
that in 2001 or some future year, a portion of the compensation paid to a
Company executive will not be deductible under Code Section 162(m).
SUMMARY
The Compensation Committee believes that its executive compensation policy
serves the interests of the Company and its stockholders.
THE COMPENSATION COMMITTEE
David E. Shaw
Edward J. Ryeom
Charles E. Ardai
25
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of the Board of Directors (the "Committee") operates
under a written charter adopted by the Board of Directors. The Audit Committee
Charter, as in effect on the date hereof, is attached as Annex A. The Committee
recommends to the Board of Directors, subject to stockholder ratification, the
selection of the Company's independent accountants.
Management is responsible for the Corporation's internal controls and the
financial reporting process. The independent accountants are responsible for
performing an independent audit of the Company's consolidated financial
statements in accordance with generally accepted auditing standards and to issue
a report thereon. The Committee's responsibility is to monitor and oversee these
processes.
In this context, the Committee has met and held discussions with management
and the independent accountants. Management represented to the Committee that
the Company's consolidated financial statements were prepared in accordance with
generally accepted accounting principles, and the Committee has reviewed and
discussed the consolidated financial statements with management and the
independent accountants. The Committee discussed with the independent
accountants matters required to be discussed by Statement on Auditing Standards
No. 61 "Communication with Audit Committees."
The Corporation's independent accountants also provided to the Committee the
written disclosures required by Independence Standards Board Standard No. 1
"Independence Discussions with Audit Committees," and the Committee discussed
with the independent accountants that firm's independence.
Currently, two of the three members of the Committee are independent as
defined by the listing standards of the Nasdaq National Market. The Company is
currently seeking an independent candidate for the Board of Directors who could
also serve on the Committee and replace the current member who is not
independent.
Based upon Committee's discussion with management and the independent
accountants and the Committee's review of the representation of management and
the report of the independent accountants to the Committee, the Committee
recommended that the Board of Directors include the audited consolidated
financial statements in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000 filed with the Securities and Exchange Commission.
THE AUDIT COMMITTEE
Thomas L. Phillips, Jr.
Edward J. Ryeom
Louis K. Salkind
26
STOCK PERFORMANCE GRAPH
The graph depicted below shows a comparison of cumulative total stockholder
returns for the Company, the Nasdaq Stock Market (U.S.) Index and the J. P.
Morgan Hambrecht & Quist Internet Index.
CUMULATIVE TOTAL RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
[CHART]
05/26/99 12/31/99 12/31/00
-------- -------- --------
Juno Online Services, Inc................................... $100.00 $305.38 $ 5.64
Nasdaq Stock Market (U.S.).................................. 100.00 168.22 101.21
JP Morgan H&Q Internet 100.................................. 100.00 221.54 85.24
- ------------------------
(1) The graph covers the period from May 26, 1999, the commencement date of the
Company's initial public offering of shares of its Common Stock, to
December 31, 2000.
(2) The graph assumes that $100 was invested in the Company on May 26, 1999, in
the Company's Common Stock and in each index, and that all dividends were
reinvested. No cash dividends have been declared on the Company's Common
Stock.
(3) Stockholder returns over the indicated period should not be considered
indicative of future stockholder returns.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings made under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings made by the Company under those statutes, neither the preceding Stock
Performance Table nor the Compensation Committee Report is to be incorporated by
reference into any such prior filings, nor shall such graph or report be
incorporated by reference into any future filings made by the Company under
those statutes.
27
CERTAIN TRANSACTIONS
SHARED SERVICES
Juno receives certain telecommunications services from DESCO, L.P. for which
it pays $7,200 per month under the terms of an agreement between the parties,
which extends on a month-to-month basis until terminated by either party. Juno
believes that the amounts charged to it under this arrangement are generally
comparable to the amounts that would be charged by an independent third party.
We do not have any current plans to terminate this arrangement.
TRANSACTIONS WITH NEWS CORPORATION
Between March 1999 and January 2001, Juno obtained various forms of
advertising on media properties of News America Incorporated and its affiliates
under the terms of a March 1999 agreement with News America Incorporated in
which Juno prepaid $10.0 million for such advertising. Under the terms of the
agreement, the advertising was provided by News America and its affiliates at
then-current rates not greater than the rates customarily applied to purchasers
of similar amounts of comparable advertising. News America Incorporated is a
significant stockholder of Juno, and an affiliate of News Corporation.
In September 1999, Juno entered into an agreement with News America Digital
Publishing, an affiliate of News Corporation, under which Juno received revenues
for displaying Fox-branded news, sports, entertainment and business content on
the Juno Web site. This agreement was terminated by News America Digital
Publishing in February 2001.
LEASES
Juno's principal executive offices are located on a single floor at 1540
Broadway leased from Bertelsmann Property, Inc. under an Agreement of Lease
dated September 22, 1997 between DESCO, L.P., as lessee, and Bertelsmann. The
lease permits DESCO, L.P. to sublet all or a portion of the premises to Juno.
Juno has agreed to assume the performance of DESCO, L.P.'s payment obligations
under the lease. The term of the lease continues until March 2003 and DESCO,
L.P. has an option to renew for an additional five-year term. Juno also occupies
office space in an adjacent building in an arrangement by which DESCO, L.P.
subleases several of its leased floors to Juno. DESCO, L.P.'s leases for these
floors expire on various dates in 2003 and 2005, although either DESCO, L.P. or
Juno may terminate the subleasing arrangement prior to such dates. In addition,
Juno's India-based subsidiary subleases office space from an affiliate of DESCO,
L.P. We believe that our occupancy arrangements with DESCO, L.P. are on economic
terms generally comparable to those that could be obtained from independent
third parties.
ANNUAL REPORT
A copy of the Annual Report of the Company for the 2000 Fiscal Year has been
mailed concurrently with this Proxy Statement to all stockholders entitled to
notice of and to vote at the Annual Meeting. The Annual Report is not
incorporated into this Proxy Statement and is not considered proxy solicitation
material.
FORM 10-K
The Company filed an Annual Report on Form 10-K with the Securities and
Exchange Commission on March 16, 2001. Stockholders may obtain a copy of this
report, without charge, by writing to Richard D. Buchband, Senior Vice President
and General Counsel, at the Company's principal executive offices located at
1540 Broadway, 27th Floor, New York, New York 10036.
****
28
Management does not know of any business to be transacted at the meeting
other than as indicated herein. However, certain stockholders may present topics
for discussion from the floor. Should any matter other than as indicated herein
properly come before the meeting for a vote, the persons designated as proxies
will vote thereon in accordance with their best judgment.
You are urged to sign, date and return the enclosed proxy in the prepaid
envelope provided or, if applicable, to vote by telephone. Promptly voting may
save your Company the expense of a second mailing.
By Order of the Board of Directors
/s/ Richard D. Buchband
Richard D. Buchband
SENIOR VICE PRESIDENT AND
GENERAL COUNSEL; SECRETARY
Dated: March 30, 2001
29
ANNEX A
AUDIT COMMITTEE CHARTER
I. PURPOSE
The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing the
financial information which will be provided to the shareholders and others, the
systems of internal controls which management and the Board of Directors have
established, and the Corporation's audit and financial reporting process.
The independent accountants' ultimate responsibility is to the Board of
Directors and the Audit Committee, as representatives of the shareholders. These
representatives have the ultimate authority to select, evaluate, and, where
appropriate, replace the independent accountants.
The Audit Committee will primarily fulfill these responsibilities by
carrying out the activities enumerated in Section IV of this Charter.
II. COMPOSITION
In order to comply with the applicable requirements of the Nasdaq Stock
Market, the Audit Committee shall endeavor to make any necessary changes to its
composition so that, on or before June 14, 2001, the Audit Committee shall be
comprised of three or more independent directors.
In order to comply with the applicable requirements of the Nasdaq Stock
Market, the Audit Committee shall endeavor to make any necessary changes to its
composition so that, on or before June 14, 2001, all members of the Committee
shall have a working familiarity with basic finance and accounting practices,
and at least one member of the Committee shall have accounting or related
financial management expertise.
III. MEETINGS
The Committee shall meet on a regular basis and shall hold special meetings
as circumstances require.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
1. Review this Charter at least annually and recommend any changes to the
Board.
2. Review the organization's annual financial statements and any other
relevant reports or other financial information.
3. Review the regular internal financial reports prepared by management and
any internal auditing department.
4. Recommend to the Board of Directors the selection of the independent
accountants and approve the fees and other compensation to be paid to the
independent accountants. On an annual basis, the Committee shall obtain a
formal written statement from the independent accountants delineating all
relationships between the accountants and the Corporation consistent with
Independence Standards Board Standard 1, and shall review and discuss
with the accountants all significant relationships the accountants have
with the Corporation to determine the accountants' independence.
A-1
5. Review the performance of the independent accountants and approve any
proposed discharge of the independent accountants when circumstances
warrant.
6. Following completion of the annual audit, review separately with the
independent accountants, the internal auditing department, if any, and
management any significant difficulties encountered during the course of
the audit.
7. Perform any other activities consistent with this Charter, the
Corporation's By-laws and governing law, as the Committee or the Board
deems necessary or appropriate.
A-2
JUNO ONLINE SERVICES, INC.
PROXY
ANNUAL MEETING OF STOCKHOLDERS, MAY 16, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF JUNO ONLINE
SERVICES, INC.
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of the Annual Meeting of Stockholders to be held May 16, 2001 and the
Proxy Statement and appoints Charles E. Ardai, Harshan Bhangdia and Richard D.
Buchband, and each of them, the Proxy of the undersigned, with full power of
substitution, to vote all shares of Common Stock or Preferred Stock of Juno
Online Services, Inc. (the "Company") which the undersigned is entitled to vote,
either on his or her own behalf or on behalf of any entity or entities, at the
Annual Meeting of Stockholders of the Company to be held at the Hudson Hotel,
356 West 58th Street, New York, New York 10019 on Wednesday, May 16, 2001 at
10:00 A.M. Eastern Time (the "Annual Meeting"), and at any adjournment or
postponement thereof, with the same force and effect as the undersigned might or
could do if personally present thereat. The shares represented by this Proxy
shall be voted in the manner set forth on the reverse side.
1. To elect two directors, each to serve for a three-year term ending at the
2004 Annual Meeting of Stockholders or until his successor is duly elected
and qualified;
Thomas L. Phillips, For / / Withhold Authority to
Jr. Vote / /
Louis K. Salkind For / / Withhold Authority to
Vote / /
2. To approve amendments to the Company's 1999 Stock Incentive Plan, as more
fully described in the accompanying proxy statement.
For / / Against / / Abstain / /
3. To provide the consent required by the Nasdaq National Market to permit the
Company to issue up to 12,000,000 shares of common stock in connection with
the "equity line" financing facility, as more fully described in the
accompanying proxy statement.
For / / Against / / Abstain / /
4. To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company for the fiscal year ending December 31, 2001; and
For / / Against / / Abstain / /
5. In accordance with the discretion of the proxy holders, to act upon all
matters incident to the conduct of the meeting and upon other matters as may
properly come before the meeting.
The Board of Directors recommends a
vote FOR the directors listed above
and a vote FOR each of the listed
proposals. This Proxy, when
properly executed, will be voted as
specified above. IF NO
SPECIFICATION IS MADE, THIS PROXY
WILL BE VOTED FOR THE ELECTION OF
THE DIRECTORS LISTED ABOVE AND FOR
THE OTHER PROPOSALS.
Please print the name(s) appearing
on each share certificate(s) over
which you have voting authority:
___________________________________
(Print name(s) on certificate)
Please sign your name:
___________________________________
(Authorized Signature(s))
Date:
___________________________________