<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
[X] Definitive Proxy Statement RULE 14C-5(D)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
ERGO SCIENCE CORPORATION
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
ERGO SCIENCE CORPORATION
THIS IS YOUR PROXY
Dear Stockholder:
Your Proxy is being solicited by the Board of Directors of Ergo Science
Corporation for the Annual Meeting of Stockholders to be held on June 25, 1996,
at 10:00 a.m. local time, at the Royal Sonesta Hotel, 5 Cambridge Parkway,
Cambridge, Massachusetts.
Enclosed with this Proxy is a Proxy Statement containing important information
about the four issues that you are being asked to approve.
Your vote is important to us. Whether or not you plan to attend the Annual
Meeting, you can be sure your shares are represented at the meeting by promptly
returning your completed Proxy card prior to the Annual Meeting.
Please mark the boxes on the Proxy card below to indicate how your shares are to
be voted, then sign the card, detach it and return your Proxy card in the
enclosed envelope.
Thank you in advance for your prompt consideration of these matters.
<PAGE>
ERGO SCIENCE CORPORATION
Charlestown Navy Yard
100 First Avenue
Charlestown, MA 02129
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD TUESDAY, JUNE 25, 1996
To our Stockholders:
You are cordially invited to attend the 1996 Annual Meeting of Stockholders
of Ergo Science Corporation (the "Company") on Tuesday, June 25, 1996, at 10:00
a.m., local time, at the Royal Sonesta Hotel, 5 Cambridge Parkway, Cambridge,
Massachusetts. The meeting will be held for the following purposes:
(1) To elect two directors as Class I directors of the Company to serve
for a three-year term ending at the Annual Meeting of stockholders
in 1999 and until their successors are duly elected and qualified or
their earlier resignation or removal;
(2) To approve an amendment to the Ergo Science Corporation Amended and
Restated 1995 Long Term Incentive Plan that will increase the number
of shares of the Company's common stock available to be issued
thereunder from 731,525 shares to 1,431,525 shares;
(3) To approve a Stock Option Plan for Non-Employee Directors of the
Company;
(4) To ratify the selection of Coopers & Lybrand L.L.P. as independent
accountants of the Company for fiscal 1996;
(5) To transact any other business that may properly come before the
meeting.
This notice is accompanied by a form of proxy, a Proxy Statement and the
Company's 1995 Annual Report to stockholders. These items of business are more
fully described in the Proxy Statement.
The close of business on May 10, 1996, has been fixed as the record date to
determine stockholders entitled to receive notice of and to vote at the Annual
Meeting and any adjournments. A list of stockholders entitled to vote at the
Annual Meeting will be available for inspection by any stockholder for any
purpose germane to the meeting during ordinary business hours for ten days
before the meeting at the Company's offices at the address on this notice and at
the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, please sign, date and
return the enclosed proxy as promptly as possible in accordance with the
instructions on the proxy card to ensure your representation at the meeting. A
return envelope is enclosed for that purpose. You may revoke your proxy at any
time before the shares to which it relates are voted at the Annual Meeting, and
you may still vote in person if you attend the Annual Meeting. Please note,
however, that if your shares are held in the name of a broker, bank, or other
nominee and you wish to attend and vote at the Annual Meeting, you must obtain a
proxy issued in your name from such broker, bank or other nominee.
By Order of the Board of Directors,
Manuel Cincotta, Jr.
Chairman of the Board and Secretary
Charlestown, Massachusetts
May 24, 1996
<PAGE>
Ergo Science Corporation
Charlestown Navy Yard
100 First Avenue
Charlestown, MA 02129
____________________
PROXY STATEMENT
____________________
ANNUAL MEETING OF STOCKHOLDERS
The Board of Directors of Ergo Science Corporation (the "Company")
requests your Proxy for use at the Annual Meeting of Stockholders to be held on
Tuesday, June 25, 1996, at 10:00 a.m., local time, at the Royal Sonesta Hotel, 5
Cambridge Parkway, Cambridge, Massachusetts, and at any adjournments thereof.
By signing and returning the enclosed Proxy, you authorize the persons named on
the Proxy to represent you and vote your shares at the Annual Meeting. This
Proxy Statement and Proxy were first mailed to stockholders of the Company on or
about May 24, 1996.
If you attend the Annual Meeting, you may vote in person. If you are
not present at the Annual Meeting, your shares can be voted only if you have
returned a properly signed Proxy or are represented by another Proxy. You may
revoke the enclosed Proxy at any time before it is exercised at the Annual
Meeting by (a) signing and submitting a later-dated Proxy to the Secretary of
the Company, (b) written notice of revocation to the Secretary of the Company,
or (c) voting in person at the Annual Meeting.
VOTING AND QUORUM
The only outstanding voting security of the Company is its common
stock, par value $.01 per share ("Common Stock"). On May 10, 1996, the record
date for the Annual Meeting, there were 10,168,080 shares of Common Stock
outstanding and entitled to be voted at the Annual Meeting.
Each outstanding share of Common Stock is entitled to one vote. The
presence in person or by proxy of a majority of the shares of Common Stock
outstanding on the record date is required to constitute a quorum at the Annual
Meeting. If a quorum is not present, the stockholders entitled to vote who are
present in person or represented by proxy at the Annual Meeting have the power
to adjourn the Annual Meeting from time to time, without notice other than an
announcement at the Annual Meeting, until a quorum is present. At any adjourned
Annual Meeting at which a quorum is present, any business may be transacted that
might have been transacted at the Annual Meeting as originally notified.
Abstentions and broker non-votes will count in determining whether a quorum is
present at the Annual Meeting. A broker non-vote occurs if a broker or other
nominee does not have discretionary authority and has not received instructions
with respect to a particular item.
PROPOSAL ONE - ELECTION OF DIRECTORS
The Company's Board of Directors consists of seven members divided
into three classes serving staggered three-year terms. The terms of Class I
directors expire at this Annual Meeting. Two directors are to be elected as
Class I directors at this Annual Meeting.
1
<PAGE>
The Board of Directors has designated Messrs. J. Warren Huff and
Stephen A. Duzan as nominees for re-election as Class I directors of the Company
at the Annual Meeting. If elected, each nominee for Class I director will serve
until expiration of his term at the 1999 Annual Meeting of stockholders and
until his successor is elected and qualified. Each nominee is currently a
director of the Company. For information about each nominee, see "Directors and
Executive Officers."
Unless otherwise instructed or unless authority to vote is withheld,
the enclosed Proxy will be voted for the election of the nominees. The Board of
Directors has no reason to believe that any of its nominees will be unable or
unwilling to serve if elected. If a nominee becomes unable or unwilling to
serve, your Proxy will be voted for the election of a substitute nominee
recommended by the current Board of Directors, or the number of the Company's
directors will be reduced.
The election of directors requires the affirmative vote of a plurality
of the shares of Common Stock present or represented by proxy and entitled to
vote at the Annual Meeting. Accordingly, under Delaware law and the Company's
Certificate of Incorporation and Bylaws, abstentions and broker non-votes will
not have any effect on the election of a particular director.
The Board of Directors recommends that the stockholders vote FOR the election of
each of these nominees.
PROPOSAL TWO - AMENDMENT TO THE COMPANY'S
AMENDED AND RESTATED 1995 LONG TERM INCENTIVE PLAN
The Company has used stock options as a key element of its overall
compensation program for employees of the Company. The Board of Directors and
the Compensation Committee of the Board of Directors believe that it is
important to have equity-based incentives available to attract and retain
quality employees. The Board of Directors has approved, subject to stockholder
approval, an amendment to the Company's Amended and Restated 1995 Long Term
Incentive Plan (the "Incentive Plan"). A description of the Incentive Plan,
including information regarding persons eligible for participation in the plan
and the tax effects of the plan, is set forth under "Compensation Plans- The
Incentive Plan."
Currently, the maximum number of shares of Common Stock that may be
issued pursuant to awards granted under the Incentive Plan is 731,525 (subject
to adjustment in certain circumstances). Of that number, 8,445 shares remained
available for grant as of May 24, 1996. The proposed amendment will increase
the number of shares available under the Incentive Plan by 700,000 (to
1,431,525). Specifically, the proposed amendment would amend Section 2.1 of the
Incentive Plan by replacing the number "731,525" with the number "1,431,525."
Approval of this amendment to the Incentive Plan requires the
affirmative vote of a majority of the shares of Common Stock present or
represented by proxy and entitled to vote at the Annual Meeting. Under Delaware
law and the Company's Certificate of Incorporation and Bylaws, an abstention
will have the same effect as a vote against this amendment and each broker non-
vote will reduce the absolute number, but not the percentage, of affirmative
votes necessary for approval of this amendment.
The Board of Directors recommends that the stockholders vote FOR the amendment
to the Incentive Plan.
2
<PAGE>
PROPOSAL THREE - APPROVAL OF THE COMPANY'S
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The Board of Directors believes that it is important to have equity-
based incentives available to attract and retain quality independent directors.
Directors of the Company currently do not receive cash compensation for their
services as directors. The Board of Directors has approved, subject to
stockholder approval, the Stock Option Plan for Non-Employee Directors (the
"Director Stock Plan"). A description of the Director Stock Plan, including
information regarding persons eligible for participation in the plan and the tax
effect of the plan, is set forth under "Compensation Plans - The Director
Compensation Plan."
Approval of the Director Stock Plan requires the affirmative vote of a
majority of the shares of Common Stock present or represented by proxy and
entitled to a vote at the Annual Meeting. Under Delaware law and the Company's
Certificate of Incorporation and Bylaws, an abstention will have the same effect
as a vote against this amendment and each broker non-vote will reduce the
absolute number, but not the percentage, of affirmative votes for approval of
this amendment.
The Board of Directors recommends that the stockholders vote FOR the approval of
the Director Stock Plan.
PROPOSAL FOUR - SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Coopers & Lybrand L.L.P. as the
Company's independent accountants for 1996, subject to stockholder approval. In
August 1995, Coopers & Lybrand L.L.P. was selected as the Company's independent
accountants for 1995. See "Additional Information - Change in Independent
Accountants." The Company expects that representatives of Coopers & Lybrand
L.L.P. will be present at the Annual Meeting to respond to appropriate questions
and will have an opportunity to make a statement if they desire to do so.
Ratification of Coopers & Lybrand L.L.P. as the Company's independent
accountants requires the affirmative vote of a majority of the shares of Common
Stock present or represented by proxy and entitled to vote at the Annual
Meeting. Under Delaware law and the Company's Certificate of Incorporation and
Bylaws, an abstention will have the same effect as a vote against the
ratification of Coopers & Lybrand L.L.P., and each broker non-vote will reduce
the absolute number, but not the percentage, of affirmative votes necessary for
approval of the ratification. If the independent accountants are not ratified,
the Board of Directors will consider the appointment of other independent
accountants. The Board of Directors may terminate the appointment of Coopers &
Lybrand L.L.P. as independent accountants without the approval of the Company's
stockholders whenever the Board of Directors deems termination necessary or
appropriate.
The Board of Directors recommends that stockholders vote FOR the ratification of
the selection of Coopers & Lybrand L.L.P.
3
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table provides information concerning directors and executive
officers of the Company:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Manuel Cincotta, Jr. (2)(3).. 49 Chairman of the Board of Directors,
Treasurer and Secretary
J. Warren Huff............... 42 President, Chief Executive Officer
and Director
Anthony H Cincotta,.......... 38 Director of Research and Director
Ph.D.(3).
Ronald H. Abrahams,.......... 53 Executive Vice President and Chief
Ph.D. Operating Officer
Thomas N. Thurman............ 52 Senior Vice President, Marketing
and Business Development
Alan T. Barber............... 42 Vice President, Finance and
Administration and Chief Financial
Officer
David R. Burt................ 32 Vice President, Corporate Development
Robert M. Powell............. 40 Vice President of Operations
Stephen A. Duzan (1)......... 54 Director
Ray L. Hunt (1)(2)........... 53 Director
Thomas F. McWilliams......... 53 Director
(1)(2)
Albert H. Meier, Ph.D........ 66 Director and Chief Scientist
(Consultant)
- -------------
</TABLE>
(1) Member of the Audit Committee and the Compensation Committee.
(2) Member of the Nominating Committee.
(3) Manuel Cincotta, Jr., and Dr. Anthony H. Cincotta are brothers.
The Board of Directors is divided into three classes and is presently
comprised of seven members. The directors of each class are elected for three-
year terms, with the terms of the three classes staggered so that directors from
a single class are elected at each annual meeting of stockholders. Stephen A.
Duzan and J. Warren Huff are Class I directors whose terms of office expire at
the annual meeting of stockholders in 1996; Ray L. Hunt and Thomas F. McWilliams
are Class II directors whose terms of office expire at the annual meeting of
stockholders in 1997; and Anthony H. Cincotta, Ph.D., Manuel Cincotta, Jr., and
Albert H. Meier, Ph.D., are Class III directors whose terms of office expire at
the annual meeting of stockholders in 1998.
Executive officers are generally elected annually by the Board of Directors
to serve, subject to the discretion of the Board of Directors, until their
successors are appointed. A brief biography of each director and executive
officer follows.
Manuel Cincotta, Jr., has been Chairman of the Board, Treasurer and
Secretary of the Company since January 1990. From January 1990 until November
1995, Mr. Cincotta was Chief Executive Officer of the Company. For health
reasons, Mr. Cincotta retired as Chief Executive Officer in November 1995. From
1969 until 1992, Mr. Cincotta was employed as a scientist by the Department of
the Navy's Research and Technology Branch of the Naval Underwater Systems
Center, most recently as a chief scientist and senior project engineer. Mr.
Cincotta received his B.S. and M.S. in chemical engineering from the Lowell
Technological Institute.
J. Warren Huff has been President and Chief Executive Officer of the
Company since November 1995. Mr. Huff joined the Company as its Executive Vice
President, Commercial Development and Finance, in February 1993. He became
President and Chief Operating Officer of the Company in January 1994, and he has
served as a director of the Company since January 1994. From 1979 until 1993,
Mr. Huff was an attorney at Johnson & Gibbs, P.C., a law firm in Dallas, Texas,
where most recently he was chairman of the firm's corporate/securities
4
<PAGE>
department. Mr. Huff represented companies in the medical science,
biotechnology, computer and telecommunications industries. Mr. Huff received a
B.B.A. in accounting from the University of Texas at Austin and a J.D. from
Southern Methodist University.
Anthony H. Cincotta, Ph.D., has been Director of Research of the Company
and a director since January 1990. From 1989 through July 1995 he was an
instructor at the Harvard Medical School, an Assistant Instructor in
Biochemistry at Massachusetts General Hospital, and an Adjunct Assistant
Professor of Zoology and Physiology at Louisiana State University ("LSU"). From
1987 to 1989, Dr. Cincotta was a Research Assistant Professor of Zoology and
Physiology at LSU and a research consultant at the Rowland Institute of Science,
Inc. Dr. Cincotta received his B.S. in biochemistry and molecular biology from
the University of California at Santa Barbara and his M.S. and Ph.D. degrees in
physiology from LSU. He is the author of approximately 19 publications
regarding temporal neuroendocrine organization.
Ronald H. Abrahams, Ph.D., joined the Company as Senior Vice President,
Scientific Affairs, in April 1994 and was appointed Chief Operating Officer in
March 1996. From 1972 until joining the Company, Dr. Abrahams held various
scientific, quality assurance, and regulatory affairs positions with Baxter
International Incorporated, an international healthcare company. From 1990
until 1994, Dr. Abrahams was a corporate vice president and corporate officer
with Baxter International responsible for quality and regulatory affairs. Dr.
Abrahams currently serves on the board of directors and is Chair-Elect of the
Association for the Advancement of Medical Instrumentation. Dr. Abrahams
received a B.S. in pharmacology from the University of Illinois and a Ph.D. in
pharmacology and experimental therapeutics from Loyola University in Chicago,
Illinois.
Thomas N. Thurman joined the Company as Senior Vice President, Marketing
and Business Development, in June 1994. Before then, Mr. Thurman was a Vice
President and Member of the Executive Committee of Boots Pharmaceuticals, Inc.,
a pharmaceutical company in Lincolnshire, Illinois. At Boots, he was
responsible for new products marketing, business development and public affairs.
In addition, Mr. Thurman has over 21 years of experience in domestic and
international pharmaceutical marketing, strategic planning and business
development with companies including The Upjohn Company, E.R. Squibb & Sons, and
Wyeth International. He has written extensively on pharmaceutical marketing and
management and served as an Adjunct Professor of Marketing and Management at
Western Michigan University. Mr. Thurman holds a B.A. from Syracuse University,
an M.B.A. from the University of Michigan, and an M.A. from Western Michigan
University.
Alan T. Barber joined the Company as Vice President, Finance and
Administration, in November of 1993 and became Chief Financial Officer in
October 1995. Before joining the Company, Mr. Barber was a partner with the
accounting firm Coopers & Lybrand L.L.P. in Dallas, Texas, and Tokyo, Japan,
where he specialized in global and domestic corporate finance and strategic
alliances. Mr. Barber received a B.S. in accounting from Florida State
University. Mr. Barber is a Certified Public Accountant.
David R. Burt joined the Company as Vice President, Corporate Development,
in March 1993. From 1990 until 1993, Mr. Burt practiced corporate and
securities law at Johnson & Gibbs, P.C., a law firm in Dallas, Texas. Mr. Burt's
practice involved representing issuers and underwriters in financing
transactions in a variety of high technology industries. Mr. Burt received a
B.A. in government from Dartmouth College and a J.D. from the University of
Maryland Law School. Before attending law school, Mr. Burt worked on the staff
of United States Senator Paul S. Sarbanes.
Robert M. Powell joined the Company as Vice President of Operations in
March 1996. Mr. Powell has close to 20 years of experience in the field of
pharmaceutical production and quality control. Most recently, Mr. Powell served
as Vice President, Quality Assurance/Quality Control at Biogen, Inc. in
Cambridge, Massachusetts. From 1978 to 1994, Mr. Powell served in positions of
increasing management responsibilities at Baxter Healthcare Corporation, located
in Deerfield, Illinois, including his tenure as Vice President,
Manufacturing/Global Sourcing for the V. Mueller Division, Deerfield, Illinois.
In that capacity, Mr. Powell had direct responsibility for all aspects
5
<PAGE>
of manufacturing operations, facilities and human resources. Mr. Powell
received a B.S. in biology from Mississippi College.
Stephen A. Duzan became a director of the Company in October 1994. He is
currently Chairman, Chief Executive Officer and a director of Key Computer
Systems, Inc., a privately held company located in Seattle, Washington. Mr.
Duzan was a co-founder of Immunex Corporation, Seattle, Washington, and served
as its Chairman, Chief Executive Officer and director from its formation in 1981
until his retirement in September 1993. He also held the title of President of
Immunex from 1981 through 1990. Mr. Duzan serves on the Boards of Directors of
Targeted Genetics Corporation of Seattle, Washington, the International
Biotechnology Trust of London, England, and Numera Corporation of Seattle,
Washington.
Ray L. Hunt became a director of the Company in January 1994 in connection
with Hunt Financial Corporation's purchase of convertible securities of the
Company. Mr. Hunt has been the Chairman of the Board, President and Chief
Executive Officer of Hunt Consolidated, Inc. and the Chairman of the Board and
Chief Executive Officer of Hunt Oil Company for over twenty years. Mr. Hunt is
a director of Dresser Industries, Inc., an international oil field service
company in Dallas, Texas, and has recently been elected a director of Pepsico,
Inc., Purchase, New York, effective April 1, 1996. Mr. Hunt also has been
elected a director of Electronic Data Systems Corporation, located in Dallas,
Texas, effective upon completion of its spin-off from General Motors
Corporation. Mr. Hunt received his B.B.A. in economics from Southern Methodist
University.
Thomas F. McWilliams became a director of the Company during September 1992
in connection with the purchase of the Company's convertible securities by
Citicorp Venture Capital Ltd. ("CVC") . Mr. McWilliams is Managing Director of
CVC, a small business investment company, and has been affiliated with CVC since
1983. Between 1978 and 1983, Mr. McWilliams held various positions, including
President, with Shelter Resources Corporation, a company with interests in
industries related to manufactured housing and consumer products. From 1967
until 1978, Mr. McWilliams served in various corporate finance and management
positions at Citibank, N.A. He is a director of Chase Brass Industries, Inc., a
metals processing company. Mr. McWilliams received his A.B. from Brown
University and his M.B.A. from the Wharton School, University of Pennsylvania.
Albert H. Meier, Ph.D. has been a director of the Company since January
1990 and a consultant to the Company since June 1992. Since June 1995, Dr.
Meier has been employed by the Company as Chief Scientist on a consultant basis.
From 1972 until his retirement in the summer of 1995, Dr. Meier was a Professor
of Zoology and Physiology at LSU. Previously at LSU, Dr. Meier was an Associate
Professor (1967-1972) and an Assistant Professor (1964-1967). From 1962 to
1964, Dr. Meier was an NIH Postdoctoral Fellow at Washington State University;
and from 1961 to 1962 was a Postdoctoral Associate at Wabash College. Dr. Meier
received his B.A. in Zoology from Washington University, St. Louis, Missouri and
his M.S and Ph.D. in Zoology from the University of Missouri. He is the author
of over 120 publications regarding temporal neuroendocrine organization.
MEETINGS AND COMMITTEES OF DIRECTORS
The Board of Directors held 8 meetings during 1995. No director attended
fewer than 75% of such meetings and of meetings of committees of the Board of
Directors on which he served.
The Board of Directors has three standing committees: the Audit Committee,
the Compensation Committee and the Nominating Committee.
The Audit Committee reviews the results and scope of the annual audit and
other services provided by the Company's public accountants. During fiscal
1995, the members of the Audit Committee were Stephen A. Duzan, Ray L. Hunt and
Thomas F. McWilliams. This committee held no meetings, but took action by
unanimous written consent on one occasion during 1995.
6
<PAGE>
The Compensation Committee determines salaries and incentive compensation
for officers of the Company. Additionally, the Board of Directors has
designated the Compensation Committee as the administrator of the Incentive
Plan. During fiscal 1995, the members of the Compensation Committee were
Stephen A. Duzan, Ray L. Hunt and Thomas F. McWilliams. This committee held no
meetings, but took action by unanimous written consent on three occasions during
1995.
The Nominating Committee of the Board of Directors identifies and recruits
candidates to serve as directors of the Company for recommendation to the full
Board of Directors. In recommending candidates to the Board of Directors, the
Nominating Committee seeks persons of proven judgement and experience.
Stockholders who wish to suggest qualified candidates may write to the Secretary
of the Company at the address on the first page of this Proxy Statement, stating
in detail the qualifications of the persons they recommend. The Nominating
Committee was established on February 16, 1996, and the members are Manuel
Cincotta, Jr., Ray L. Hunt and Thomas F. McWilliams.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Compensation of Directors
Directors of the Company do not receive cash compensation for their
services as directors. The Company reimburses them for the expenses incurred in
attending meetings of the Board of Directors and its committees. On November
15, 1994, the Company granted Mr. Duzan a nonqualified option to purchase 7,500
shares of Common Stock at an exercise price of $0.80 per share in consideration
for his service as a director. This option becomes exercisable in three equal
amounts on the date of grant and on each of the first two anniversaries of the
date of grant. The option expires in July 2004. On October 6, 1995, the
Company granted Mr. Duzan a nonqualified option to purchase 17,500 shares of
Common Stock at an exercise price of $6.71 per share in consideration for his
service as a director. This option becomes exercisable in four equal amounts on
each of the first four anniversaries of the date of grant, or, if earlier, upon
a change in control of the Company. The option expires 10 years from the date
of grant.
In conjunction with the Annual Meeting, the Board of Directors is
recommending that the stockholders of the Company approve a Stock Option Plan
for Non-Employee Directors that would provide option grants to non-employee
directors of the Company. See "Proposal Three" and "Compensation Plans - The
Director Compensation Plan."
7
<PAGE>
Compensation of Executive Officers
Summary Compensation Table
The following table summarizes the compensation paid during fiscal years
1995 and 1994 to the Company's Chief Executive Officer and the Company's four
most highly compensated executive officers other than the Chief Executive
Officer, who were serving as executive officers at the end of fiscal 1995 (the
"Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
-------------
Annual Compensation
------------------------------------ Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary ($) Bonus Compensation Options (#) Compensation
--------------------------- ---- ---------- ------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
J. Warren Huff................. 1995 $203,125 -- -- 125,000 --
President and Chief 1994 200,000 -- -- -- --
Executive Officer
Manuel Cincotta, Jr............ 1995 225,000 -- -- -- $53,015(1)
Chairman of the Board, 1994 225,000 -- $26,705(2) -- 23,842(3)
Treasurer and Secretary
Ronald H. Abrahams............. 1995 200,000 -- -- 70,000 --
Executive Vice President, 1994 150,000 $75,000 -- 43,750 --
and Chief Operating Officer
Thomas N. Thurman.............. 1995 175,000 -- -- 42,500 --
Senior Vice President, 1994 92,188 -- -- 31,250 --
Marketing and Business
Development
Alan T. Barber................. 1995 138,333 -- -- 25,000 --
Vice President, Finance 1994 110,000 -- -- -- --
and Administration, and
Chief Financial Officer
- ---------------------
</TABLE>
(1) Reflects the value of the use of the Company's automobile, term life and
disability insurance premiums and tax reimbursement for these items.
(2) Reflects the value of the use of the Company's automobile, including tax
reimbursement for this compensation, and tax reimbursement for items in
footnote 3.
(3) Consists of term life and disability insurance premiums.
8
<PAGE>
Option Grants in 1995
The following table sets forth information regarding the stock option
grants the Company made to the Named Executive Officers during fiscal year 1995.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Potential Realized Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants (1) for Option Term (2)
----------------------------------------------------------------- --------------------------------
Number of % of Total
Securities Options Fair Market
Underlying Granted to Excercise or Value on
Options Employees in Base Price Grant Date Expiration
Granted (#) Fiscal Year ($/Sh) ($/Sh) Date 0%($) 5%($) 10%($)
------------ ------------ ------------ ----------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. Warren Huff........ 125,000 20.11 $6.71 $9.00 10-06-2005 $286,250 $707,501 $1,792,958
Manuel Cincotta, Jr... -- -- -- -- -- -- -- --
Ronald H. Abrahams.... 70,000 11.26 6.71 9.00 10-06-2005 160,300 396,201 1,004,056
Thomas N. Thurman..... 42,500 6.84 6.71 9.00 10-06-2005 97,325 240,550 609,606
Alan T. Barber........ 25,000 4.02 6.71 9.00 10-06-2005 57,250 141,500 358,592
- --------------------
</TABLE>
(1) Options granted are nonqualified options under the Company's Amended and
Restated 1995 Long Term Incentive Plan that become exercisable in four
equal amounts on each of the first four anniversaries of the date of
grant, subject to earlier termination in accordance with the option
agreement. Exercisability of options will accelerate upon a change in
control of the Company, termination of employment by the Company without
cause, or termination of employment by the optionee with good reason.
(2) Amounts represent hypothetical gains that could be achieved for the
options if they are exercised at the end of the option term. Those gains
are based on assumed rates of stock price appreciation of 0%, 5% and 10%
compounded annually from the date the option was granted through the
expiration date.
Option Exercises and Fiscal Year End Values
The following table provides information about the number of shares
issued upon option exercises by the Named Executive Officers during fiscal 1995,
and the value realized by the Named Executive Officers. The table also provides
information about the number and value of options held by the Named Executive
Officers at December 31, 1995.
<TABLE>
<CAPTION>
Aggregate Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values
Value of Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options at
Shares Options at FY-End(#) FY-End($)(1)
Acquired or ---------------------------- -------------------------------
Name Exercised(#) Value Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Warren Huff. -- -- 144,700 125,000 $2,061,975 $1,781,250
Manuel Cincotta, Jr. -- -- 100,000 -- 1,425,000 --
Ronald H. Abrahams -- -- 14,584 99,166 207,822 1,413,116
Thomas N. Thurman -- -- 10,417 63,333 148,442 902,495
Alan T. Barber -- -- 12,500 31,250 178,125 445,313
- ------------
</TABLE>
(1) Value based on the December 29, 1995, closing price of the Common Stock
on the Nasdaq National Market System of $14.25 per share.
9
<PAGE>
Employment Contracts
The Company has entered into employment agreements with J. Warren
Huff, Manuel Cincotta, Jr., Dr. Ronald H. Abrahams, Thomas N. Thurman and Alan
T. Barber. The agreements provide for the payment of base salary amounts of
$225,000 for Mr. Huff, $225,000 for Manuel Cincotta, Jr., $200,000 for Dr.
Abrahams, $175,000 for Mr. Thurman and $135,000 for Mr. Barber. The
Compensation Committee of the Board of Directors may increase the base amounts
at its discretion. The Company also agreed to provide Manuel Cincotta, Jr.,
with use of a Company automobile and to pay premiums on term life and disability
insurance policies on Mr. Cincotta with a death benefit of at least $2,500,000
for his beneficiary. The Company has also agreed to reimburse Mr. Cincotta for
taxes he incurs because of those benefits and this reimbursement. The
employment agreements expire in October 1998.
Either party may terminate employment with or without cause on five
days written notice. Under the employment agreement, an executive officer is
entitled to receive a lump sum payment equal to his base salary if his
employment is terminated (i) by the Company for any reason other than disability
or for cause, or (ii) by the executive officer for good reason. However, if
either termination described in the preceding sentence follow a change in
control of the Company, the executive officer is entitled to receive a lump sum
payment equal to two times the sum of his base salary and budgeted bonus. After
any such termination, or any termination resulting from the executive officer's
disability or death, the executive officer or his family is entitled to continue
participation in any benefit plan maintained by the Company until the end of the
employment term stated in the employment agreement.
Each executive officer has agreed that all work product discovered,
created or developed by him, alone or with others, will belong to the Company.
Each executive officer has agreed to maintain the confidentiality of the
Company's proprietary information. In addition, each executive officer has
agreed not to compete with the Company for three years following the end of his
employment; however, the Company is required to pay to the executive an amount
equal to 50% of his base salary within 10 days after termination and 100% of his
base salary on the first and second anniversaries following termination of his
employment to maintain the non-competition obligation.
Other Options
At various times since its formation, the Company granted options not
under the Incentive Plan for 100,000 shares to Manuel Cincotta, Jr., 75,000
shares to Dr. Anthony H. Cincotta, 75,000 shares to Dr. Albert H. Meier, 144,725
shares to J. Warren Huff, 43,750 shares to Dr. Ronald H. Abrahams, 31,250 shares
to Thomas N. Thurman, and 18,750 shares to Alan T. Barber, all at an exercise
price of $.80 per share. The options are fully exercisable other than those
granted to Dr. Abrahams, Mr. Thurman and Mr. Barber. The options for Dr.
Abrahams, Mr. Thurman and Mr. Barber were granted on March 31, 1994, June 21,
1994, and November 8, 1993, respectively, and become exercisable in equal
increments on each of the first three anniversaries of their dates of grant.
Each option expires at various times between December 31, 2002, and June 30,
2004. These options automatically become exercisable upon a change in control,
termination of the holder's employment with the Company by the Company without
cause, or termination of the holder's employment with the Company by the holder
for good reason.
In connection with these options, the Company agreed to assist these
officers in paying all federal, state and local income tax liabilities with
respect to the Common Stock issued upon exercise of his options by facilitating
a sale of the Common Stock or arranging for the Company to repurchase a portion
of these shares issued.
10
<PAGE>
Director and Officer Indemnification
The Company has entered into indemnification agreements with each of
its directors and executive officers agreeing to indemnify the director or
officer to the fullest extent permitted by law, and to advance expenses, if the
director or officer becomes a party to or witness or other participant in any
threatened, pending or completed action, suit or proceeding (a "Claim") by
reason of any occurrence related to the fact that the person is or was a
director, officer, employee, agent or fiduciary of the Company or a subsidiary
of the Company or another entity of the Company's request (an "Indemnifiable
Event") , unless a reviewing party (either outside counsel or a committee
appointed by the Board of Directors) determines that the person would not be
entitled to indemnification under applicable law. In addition, if a change in
control or a potential change in control of the Company occurs and if the person
indemnified so requests, the Company will establish a trust for the benefit of
the indemnitee and fund the trust in an amount sufficient to satisfy all
expenses reasonably anticipated at the time of the request to be incurred in
connection with any Claim relating to an Indemnifiable Event. The reviewing
party will determine the amount deposited in the trust. An indemnitee's rights
under the indemnification agreement are not exclusive of any other rights under
the Company's Certificate of Incorporation or Bylaws or applicable law.
COMPENSATION PLANS
The Incentive Plan
General. The Company may grant officers, directors, employees and
consultants awards with respect to shares of Common Stock under the Incentive
Plan. The awards under the Incentive Plan include both incentive and non-
statutory stock options, stock appreciation rights and restricted stock awards.
The number of shares of Common Stock that may be issued under the Incentive Plan
is currently 731,525 shares. The Company has granted options under the
Incentive Plan for 723,080 shares of Common Stock. Accordingly, the number of
shares currently available for additional awards under the Incentive Plan is
8,445.
Administration. The Compensation Committee selects Incentive Plan
participants, determines the type and size of awards, determines when awards
will be granted, and determines the terms of each award. References to the
Committee in the remainder of this Proxy Statement refer to the Compensation
Committee in its administrative capacity under the Incentive Plan unless
otherwise specified. The Compensation Committee may grant options to employees
and officers of the Company contingent on shareholder approval of Proposal Two.
Eligibility. The Committee determines who will receive awards from
among the officers, directors and employees of the Company and its subsidiaries.
The Committee may also grant awards to persons who provide consulting or
advisory services to the Company.
Stock Options. Options that may be awarded under the Incentive Plan
are incentive options (as defined in the Incentive Plan) meeting the
requirements of Section 422 of the Internal Revenue Code and nonstatutory
options (as defined in the Incentive Plan) that do not meet those requirements.
Options are rights to purchase a specified number of shares of Common Stock at a
price fixed when the option is granted. Incentive options must have an exercise
price of at least the fair market value of the shares on the date of grant.
Options are exercisable when and on the terms set by the Committee, but no
incentive option may be exercised more than ten years after the date of its
grant. Payment of the exercise price may be made in cash, with other shares of
Common Stock or a combination of both. Pyramiding of stock option exercises may
be permitted, which could allow a participant to exercise the options without
paying any significant amount of cash.
Stock Appreciation Rights. A stock appreciation right (sometimes
called an "SAR") may be granted in connection with an option or without relation
to an option. An SAR entitles the holder to receive an amount of Common Stock
or cash equal to the excess of the fair market value of a share of Common Stock
on the date of
11
<PAGE>
exercise over either the exercise price of a related option or the exercise
price of the SAR if it is not related to an option. The Committee may limit the
amount payable on exercise of an SAR by imposing the limit on the date of grant.
Restricted Stock Awards. A restricted stock award is an award of
shares of Common Stock that the recipient cannot sell, transfer, hypothecate
(pledge), or otherwise alienate until conditions to the removal of those
restrictions have been satisfied. If the conditions are not satisfied before
specified times, the shares are forfeited to the Company. The conditions to
removal of the restrictions may require the recipient to continue as a director,
officer, consultant, advisor or employee for a specified period or achievement
of certain performance objectives. The Committee may impose any conditions on
any shares of Common Stock granted or sold as restricted stock that it believes
advisable. When the restrictions lapse, the Company will deliver to the
recipient of the restricted stock award a certificate representing the number of
shares for which restrictions have lapsed, free of any restrictive legend
relating to those lapsed restrictions. The Committee may, in its discretion,
prospectively reduce the restriction period applicable to a particular
restricted stock award.
Change in Control. Awards granted under the Incentive Plan may
provide that, upon a change of control of the Company, (1) each holder of an
option will be granted a corresponding SAR, (2) all outstanding SARs and stock
options will become immediately and fully vested and exercisable in full, and
(3) the restriction period on any restricted stock award will be accelerated and
the restrictions will expire. In general, a change of control of the Company
occurs in any of four situations: (1) a person other than the Company, certain
affiliated companies or benefit plans, or a company with the same ownership as
the Company acquires fifty percent or more of the voting power of the Company's
outstanding voting securities; (2) a majority of the Board is not comprised of
the members of the Board at September 15, 1995, and persons whose elections as
directors were approved by those original directors or their approved
successors; (3) the Company merges or consolidates or participates in a
securities exchange with another corporation or entity, or the Company's
stockholders approve such a merger or consolidation or securities exchange,
other than mergers or consolidations or securities exchanges in which the
Company's voting securities are converted into securities having the majority of
voting power in the surviving company; or (4) the Company liquidates or sells
all or substantially all its assets, or the Company's stockholders approve such
a liquidation or sale, except sales to corporations having substantially the
same ownership as the Company.
Restructurings. Awards granted under the Incentive Plan may provide
that, if a restructure of the Company occurs that does not constitute a change
in control of the Company, the Committee may (but need not) cause the Company to
take any one or more of the following actions: (1) accelerate in whole or in
part the time of vesting and exercisability of any outstanding SARs and options
in order to permit those SARs and options to be exercisable before, upon, or
after the completion of the restructure; (2) grant each option holder
corresponding SARs; (3) accelerate in whole or in part the expiration of some or
all of the restrictions on any restricted stock award so that the Common Stock
subject to the awards will be owned without restriction or risk of forfeiture;
(4) if the restructure involves a transaction in which the Company is not the
surviving entity, cause the surviving entity to assume in whole or in part any
one or more of the outstanding awards upon such terms and provisions as the
Committee deems desirable; or (5) redeem in whole or in part any one or more of
the outstanding awards (whether or not then exercisable) in consideration of a
cash payment, adjusted for withholding obligations. A restructure generally is
any merger or consolidation of the Company, the consummation of a securities
exchange involving the stockholders of the Company, or the direct or indirect
transfer of all or substantially all of the Company's assets (whether by sale,
merger, consolidation, liquidation, or otherwise) in one transaction or a series
of transactions.
Federal Income Tax Consequences. Participants in the Incentive Plan
who receive an incentive option will not recognize income for federal income tax
purposes as a result of the receipt or exercise of the incentive option.
However, exercise of the incentive option will increase the optionee's
alternative minimum taxable income for purposes of the alternative minimum tax
in an amount equal to the excess of the fair market value of the
12
<PAGE>
Common Stock received over the exercise price. The Company will not be entitled
to a deduction with respect to the grant or exercise of an incentive option.
Provided the shares are held as a capital asset, gain recognized on
the disposition of Common Stock acquired by exercise of an incentive option
("incentive stock") will be treated as long-term capital gain if (a) the
incentive stock has been held by the optionee more than two years after the date
the incentive option was granted and more than one year after the date the
incentive option was exercised (the "Statutory Holding Period") and (b) certain
other requirements of the Internal Revenue Code are satisfied by the holder of
the incentive stock. Gain recognized on disposition of incentive stock held by
the optionee for less than the Statutory Holding Period (a "disqualifying
disposition") generally will be compensation income to the optionee to the
extent of the excess of the fair market value of the incentive stock when
received (or, if less, the amount realized on disposition of the incentive
stock) over the applicable exercise price. However, if upon receipt the
incentive stock is subject to a substantial risk of forfeiture within the
meaning of Section 83(c) of the Internal Revenue Code, then special rules apply
concerning the date when the fair market value of the incentive stock is
determined. Any gain recognized in excess of the amount taxed as compensation
generally will be characterized as capital gain. If an optionee pays the
exercise price of an incentive option solely with cash, the optionee's initial
tax basis of the incentive stock received is equal to the amount of cash paid.
An optionee who pays all or a portion of the exercise price of an incentive
option with shares of Common Stock will be subject to detailed rules as provided
in regulations concerning recognition of income or gain and the determination of
basis in the shares received. In the event of a disqualifying disposition, the
Company will be entitled to a corresponding deduction for federal income tax
purposes equal to the amount of compensation income includible by the optionee
(provided the optionee's total compensation for that year is otherwise
deductible and the applicable withholding requirements are satisfied).
The grant of a nonstatutory option should neither result in
recognition of taxable income by the optionee nor give rise to a deduction by
the Company. However, an optionee who exercises a nonstatutory option must
generally, as of the exercise date, recognize compensation income equal to the
excess (if any) of the then fair market value of the Common Stock received over
the exercise price of the option. If the Common Stock received upon exercise of
a nonstatutory option is subject to a substantial risk of forfeiture within the
meaning of Section 83(c) of the Internal Revenue Code, then, unless the optionee
makes an election pursuant to Section 83(b) of the Internal Revenue Code to be
taxed currently on the excess of the fair market value of the shares over the
price paid, the excess would not be includible as compensation income unless and
until the substantial risk of forfeiture has lapsed. Any gain or loss on the
subsequent sale or exchange of Common Stock received on exercise of a
nonstatutory option will be treated as capital gain or loss, provided the stock
is held as a capital asset. If an optionee pays the exercise price of a
nonstatutory option solely with cash, the tax basis of the Common Stock received
will equal the sum of the cash paid plus the amount of compensation income
includible by the optionee resulting from the exercise. An optionee who pays
all or a portion of the exercise price of a nonstatutory option with shares of
Common Stock is subject to detailed rules as provided in regulations concerning
recognition of income or gain and the determination of basis in the shares
received. The amount of compensation income includible in gross income by an
optionee is deductible by the Company during its taxable year in which the
income is includible by the optionee (provided the optionee's total compensation
for that year is otherwise deductible and the applicable withholding
requirements are satisfied).
A participant generally will not recognize taxable income upon the
grant under the Incentive Plan of an SAR. Upon the exercise of an SAR, the
participant will recognize ordinary income in an amount equal to the cash and
fair market value of other property received, including Common Stock. The value
of the shares will be determined (1) on the date received, if the shares are
substantially vested as of that date or (2) the first date on which the shares
become substantially vested. Delivery of shares of Common Stock previously
owned by the participant to the Company to satisfy any tax withholding
obligations of the Company will be a taxable event to the participant with
respect to the surrendered shares. The Company will be entitled to a deduction
in the amount and at the time that the participant recognizes ordinary income in
connection with the exercise of an SAR provided that the participant's
compensation is otherwise deductible and the Company withholds the applicable
federal
13
<PAGE>
income taxes (if required to do so). If the SAR is paid, in whole or in part,
in shares of Common Stock, the amount recognized by the participant as ordinary
income with respect to such shares becomes the participant's basis in the shares
of Common Stock for purposes of determining any gain or loss on the subsequent
sale of those shares.
A participant who receives a restricted stock award will recognize
ordinary income equal to the fair market value of the restricted Common Stock
received at the time the restrictions lapse, unless the participant makes an
election under Section 83(b) of the Internal Revenue Code to report the fair
market value of the restricted Common Stock as ordinary income at the time of
receipt. At the time the participant is required to include such ordinary
income in gross income, the Company may deduct a corresponding amount, provided
the participant's compensation is reasonable and the Company withholds the
applicable federal income taxes (if required to do so). During the period in
which a participant holds restricted Common Stock, before the lapse of the
restrictions, if dividends are declared but not distributed to the participant
until the restrictions lapse, the dividends will be treated for tax purposes by
the participant and the Company in the following manner: (1) if the participant
makes an election under Section 83(b) of the Internal Revenue Code to recognize
income at the time of receipt of the restricted Common Stock, the dividends will
be taxed as dividend income to the participant when the restrictions lapse and
the Company will not be entitled to a deduction and will not be required to
withhold income tax, and (2) if no election is made under Section 83(b) by the
participant, the dividends will be taxed as compensation to the participant at
the time the restrictions lapse and will be deductible by the Company and
subject to any required income tax withholding at that time.
In each case, the Company's ability to deduct amounts with respect to
any awards for U.S. federal income tax purposes will be subject to compliance
with the conditions or limitations of Section 162(m) of the Internal Revenue
Code.
Plan Benefits Table. Future awards, if any, that will be made to
eligible participants in the Incentive Plan are subject to the discretion of the
Committee and, therefore, are not determinable at this time. The following
table sets forth, for certain executive officers and groups, the awards that
have been received under the Incentive Plan through April 26, 1996. Each award
is a nonstatutory stock option that vests in equal increments on each of the
first four anniversaries of its grant date.
<TABLE>
<CAPTION>
Number of
Name Shares (#)
---------- --------------
<S> <C>
J. Warren Huff............. 125,000
Manuel Cincotta, Jr........ --
Ronald H. Abrahams......... 70,000
Thomas N. Thurman.......... 42,500
Alan T. Barber............. 25,000
</TABLE>
Amendment and Termination. The Board of Directors may amend, modify,
suspend or terminate the Incentive Plan. The Incentive Plan may not be amended,
however, without the consent of the holders of a majority of the shares of
Common Stock present or represented and entitled to vote, or without the consent
of a majority of the shares then outstanding to (1) increase materially the
aggregate number of shares of Common Stock that may be issued under the
Incentive Plan (except for adjustments pursuant to Section 9 of the Incentive
Plan), (2) increase materially the benefits accruing to participants under the
Incentive Plan, or (3) modify materially the requirements about eligibility for
participation in the Incentive Plan.
14
<PAGE>
The Director Compensation Plan
General. On May 15, 1996, the Board of Directors approved, subject to
stockholder approval, a proposal to adopt the Director Stock Plan. The
Director Stock Plan provides for an initial grant of an option to purchase
10,000 shares of Common Stock to each eligible non-employee director upon first
being elected or appointed to serve on the Board of Directors. Those eligible
directors already serving at the time the Director Stock Plan is approved by
the stockholders of the Company (other than Stephen A. Duzan who has previously
been granted stock options under the Incentive Plan) will each be granted a
stock option to purchase 10,000 shares of Common Stock with a deemed date of
grant of May 15, 1996. If a director remains eligible to receive stock options
under the Director Stock Plan on the second anniversary of the date that a
director is first granted a stock option under the Director Stock Plan, that
director will be granted a second stock option to purchase 10,000 shares of
Common Stock. If Stephen A. Duzan remains eligible to receive stock options
under the Director Stock Plan, he will be granted a stock option to purchase
10,000 shares of Common Stock on October 6, 1999, the date that his awards
previously granted under the Incentive Plan are to become fully vested and
exercisable.
Aggregate Shares. The aggregate number of shares of Common Stock that
may be issued under the Director Stock Plan is 200,000 shares (subject to
adjustment in certain circumstances).
Administration. The Director Stock Plan is self-administering. It
provides for the grant of specific stock options upon the occurrence of
specific events. Stock options granted under the Director Stock Plan are not
subject to discretion.
Eligibility. Only directors of the Company who are not employees or
paid consultants of the Company or any of its subsidiaries will be granted
stock options under the Director Stock Plan.
General Terms of Stock Options. Each stock option granted under the
Director Stock Plan will have an exercise price equal to the fair market value
of the shares of Common Stock thereunder on the date of grant. Stock options
granted under the Director Stock Plan will vest and become exercisable in equal
increments on the first and second anniversary of their date of grant, but no
stock options may be exercised more than ten years after the date of its grant.
Payment of the exercise price must be made in cash.
Change in Control. Upon the occurrence of a change in control of the
Company, all stock options granted under the Director Stock Plan shall
immediately become fully vested and exercisable with respect to all shares of
Common Stock thereunder (the total number of shares of Common Stock as to which
an option is exercisable upon the occurrence of a change in control is referred
to herein as the "Total Shares"). If a change in control involves the merger or
consolidation of the Company with or into another entity or the exchange of all
of the shares of Common Stock for securities of another entity (collectively, a
"Restructuring"), then the optionee will be entitled to purchase or receive (in
lieu of the Total Shares that the optionee would otherwise be entitled to
purchase) the number of securities, cash or property to which that number of
Total Shares would have been entitled in connection with such Restructuring (and
at an aggregate exercise price equal to the exercise price that would have been
payable if that number of Total Shares had been purchased on the exercise of the
option immediately before the consummation of the Restructuring). A change in
control has the meaning ascribed to such term in the Incentive Plan. See
"Compensation Plans - The Incentive Plan."
Death and Disability. Upon the death or disability of a director, each
stock option granted to that director under the Director Stock Plan will become
vested and exercisable with respect to all shares of Common Stock thereunder for
a period of the lesser of (A) 180 days from the date of death or disability or
(B) the remainder of the term of the stock option.
Other Termination. Upon a director no longer serving on the Board of
Directors for any reason other than his death or disability, the portion of all
stock options granted to that director under the Director Stock Plan that
15
<PAGE>
is not yet exercisable will become null and void; provided, however, that the
portion, if any, of all stock options granted to that director that are then
exercisable will then be exercisable for a period of 180 days from the date that
the director ceases to serve as a director.
Federal Income Tax Consequences. Stock options that may be granted
under the Director Stock Plan are nonstatutory options not meeting the
requirements of Section 422 of the Internal Revenue Code. See the discussion of
the federal income tax consequences associated with nonstatutory stock options
in "Compensation Plans - The Incentive Plan."
Plan Benefits Table. The following table sets forth the stock options
that will be granted under the Director Stock Plan upon approval of the Director
Stock Plan. These options will have an exercise price equal to the fair market
value of the shares of Common Stock on May 15, 1996, the effective date of
grant.
<TABLE>
<CAPTION>
Name Number of Shares
---- ----------------
<S> <C>
Ray L. Hunt 10,000
Thomas F. McWilliams 10,000
</TABLE>
Amendment and Termination. The Board of Directors, in its discretion,
may terminate the Director Stock Plan at any time with respect to any shares
of Common Stock for which stock options have not theretofore been granted.
The Board of Directors has the right to alter or amend the Director Stock Plan
from time to time; provided, however, that (i) no change in any stock option
granted may be made that would impair the rights of an optionee without the
consent of such optionee and (ii) that the Director Stock Plan may not be
amended without stockholder approval (unless federal securities and tax laws
are amended to no longer require such stockholder approval) more than once
every six months, to materially increase the benefits accruing to participants,
to increase the aggregate number of shares that may be issued, or to modify
the requirements as to eligibility for participation therein.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Executive Compensation Program
The Company's executive compensation program is designed to help the
Company attract, motivate and retain the individuals that the Company needs to
maximize its return to stockholders. To meet this overall objective, the
Company provides competitive compensation opportunities and incentive award
payments based on Company and individual performance. The Company attempts to
provide each of its executives with a compensation package that, at expected
levels of performance, is competitive with those provided to executives who hold
comparable positions or have similar qualifications in other organizations of
the Company's size and in the Company's industry.
Cash Compensation. Cash compensation for the executive officers named
in the Summary Compensation Table consists of a base salary and an annual bonus.
The base salaries are consistent with the biotechnology industry for companies
at a stage of development comparable to that of the Company and are fixed
pursuant to employment agreements entered into between the Company and each of
its executives. The Compensation Committee determines an executive's
competitive level of compensation based on information from a variety of
sources, including proxy statements of other companies and special surveys. The
Compensation Committee believes it is crucial to provide salaries within a
competitive market range to attract and retain highly talented executives. The
specific competitive markets considered depend on the nature and level of the
executive position in question and the labor markets from which qualified
individuals would be recruited. Annual salary increases
16
<PAGE>
for the Company's executive group may be given based on general levels of market
salary increase, individual performance and the Company's overall financial
results without any specific weighting among these factors. Any base salary
increases are expected to be consistent with the Company's philosophy of pay-
for-performance.
An executive of the Company may also be awarded cash bonuses when the
executive meets or exceeds the Board of Directors expectations for that
executive in advancing the Company toward its key corporate objectives. These
objectives typically focus on results of the Company's operations, scientific
accomplishments and, as the Company remains in the developmental stage, critical
milestones in bringing the Company's science to the marketplace. As shown in
the Summary Compensation Table, the Company's executives received no bonuses
during 1995.
Incentive Plan. Equity based incentive compensation may be awarded
under the Company's Incentive Plan to the Company's executives. The Incentive
Plan allows grants of stock options, SARs and restricted stock awards. To date,
only stock options have been awarded under the Incentive Plan. The Compensation
Committee believes that providing equity based compensation to executives can be
critical in attracting and retaining qualified individuals and in bringing out
their superior performance.
Chief Executive Officer Compensation
As previously described, the Company structures the pay for all
executives, including the Chief Executive Officer, considering both a pay-for-
performance philosophy and market rates of compensation for the job. In
November 1995, Manuel Cincotta, Jr., retired as Chief Executive Officer of the
Company for health reasons. At that time, J. Warren Huff, formerly the
Company's President and Chief Operating Officer, assumed the position of Chief
Executive Officer. Mr. Huff continues to act as the Company's President.
Specific actions taken by the Compensation Committee regarding the compensation
of Mr. Huff are summarized below.
Base Salary. Concurrent with Mr. Huff's assumption of the duties of
the Company's Chief Executive Officer, Mr. Huff 's annual base salary was
increased from $200,000 to $225,000. This adjustment was intended to bring Mr.
Huff 's salary closer to the market rate and to recognize the performance that
made him the choice to succeed Mr. Cincotta. The criteria used in establishing
the size of Mr. Huff 's salary increase included a comparison of salaries of
other officers in comparable companies, as well as progress made in the
implementation of the Company's business strategy while Mr. Huff served as Chief
Operating Officer, without any specific weighting among these factors.
Bonus. Mr. Huff received no cash bonus during fiscal 1995.
Incentive Stock Plan. The Compensation Committee believes that equity
based compensation, in the form of stock options, is an important component of
Mr. Huff 's compensation. In 1995, Mr. Huff was granted options to purchase
125,000 shares of the Company's stock based upon his and the Company's
performance.
COMPENSATION COMMITTEE
Ray L. Hunt
Stephen A. Duzan
Thomas F. McWilliams, Chairman
17
<PAGE>
PERFORMANCE GRAPH
The Performance Graph compares the cumulative total return of the
Company, the Nasdaq Stock Market (US Companies) and Nasdaq Pharmaceuticals
Stocks. The graph assumes that $100 was invested in the stock or the index on
December 14, 1995, the date of the Company's initial inclusion on the Nasdaq
National Market System, and also assumes reinvestment of dividends. Historical
stock price performance is not necessarily indicative of future stock price
performance.
ERGO SCIENCE CORPORATION
COMPARATIVE TOTAL RETURNS
DECEMBER 14, 1995 THROUGH DECEMBER 29, 1995
<TABLE>
<CAPTION>
December 14, 1995 December 29, 1995
----------------- -----------------
<S> <C> <C>
Ergo Science Corporation(1)... $100 $143
Nasdaq Stock Market........... $100 $101
Nasdaq Pharmaceuticals........ $100 $115
</TABLE>
____________________
(1) Based upon a stock price of $10.00 per share, the closing per share
price of the Common Stock on the day of the initial public offering.
As of May 15, 1996, the closing price of the Company's Common Stock on the
Nasdaq National Market System was $21.13 per share.
18
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the shares of the Company's Common Stock as of May 15, 1996, by (i)
each person the Company knows to be the beneficial owner of 5% or more of the
outstanding shares of Common Stock, (ii) each Named Executive Officer, (iii)
each director of the Company, and (iv) all executive officers and directors of
the Company as a group. Except as indicated in the footnotes to the table, the
Company believes that the persons named in the table have sole voting and
investment power with respect to the shares of Common Stock indicated.
<TABLE>
<CAPTION>
Shares Percentage
Beneficially Beneficially
Beneficial Owner Owned(1) Owned(1)
---------------- ------------ ------------
<S> <C> <C>
Hunt Financial Corporation............. 1,842,904 18.1%
1445 Ross at Field
Dallas, Texas 75202
Citicorp Venture Capital Ltd (2)....... 1,678,910 16.5%
399 Park Avenue
New York, New York 10043
Anthony H. Cincotta (3)................ 868,578 8.4%
Charlestown Navy Yard
100 First Avenue, Fourth Floor
Charlestown, Massachusetts 02129
Albert H. Meier (4).................... 709,168 7.0%
Charlestown Navy Yard
100 First Avenue, Fourth Floor
Charlestown, Massachusetts 02129
Manuel Cincotta, Jr (5)................ 578,811 5.6%
Charlestown Navy Yard
100 First Avenue, Fourth Floor
Charlestown, Massachusetts 02129
Citi Growth Fund, L.P. (2)............. 343,357 3.4%
c/o Sycamore Management
989 Lenox Drive
Building 1, Suite 208
Lawrenceville, New Jersey 08648
J. Warren Huff (6)..................... 122,225 1.2%
Ronald H. Abrahams (7)................. 29,167 *
Thomas N. Thurman (8).................. 20,834 *
Alan T. Barber (9)..................... 12,500 *
Stephen A. Duzan (10).................. 5,000 *
Ray L. Hunt (11)....................... 83,976 *
1445 Ross at Field
Dallas, Texas 75202
Thomas F. McWilliams (12).............. 59,054 *
All executive officers and directors
as a group (12 persons)................ 2,504,313 23.2%
- --------------
</TABLE>
* Represents less than 1% of outstanding Common Stock or voting power.
19
<PAGE>
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or disposition power with respect to
securities.
(2) Excludes shares of Common Stock beneficially owned by the employees of CVC
and Citi Growth Fund, L.P., including shares owned by Mr. McWilliams, as to
which CVC and Citi Growth Fund, L.P. disclaim beneficial ownership. CVC
and Citi Growth Fund, L.P. are affiliates, but each disclaims beneficial
ownership of the shares held by the other.
(3) Includes 75,000 shares of Common Stock subject to exercisable stock options
and 146,078 shares held in a trust for the benefit of the children of
Manuel Cincotta, Jr., for which Dr. Anthony Cincotta serves as trustee.
(4) Includes 75,000 shares of Common Stock subject to exercisable stock
options.
(5) Includes 100,000 shares of Common Stock subject to exercisable stock
options.
(6) Includes 122,200 shares of Common Stock subject to exercisable stock
options.
(7) Includes 29,167 shares of Common Stock subject to exercisable stock
options.
(8) Includes 20,834 shares of Common Stock subject to exercisable stock
options.
(9) Includes 12,500 shares of Common Stock subject to exercisable stock
options.
(10) Includes 5,000 shares of Common Stock subject to exercisable stock options.
(11) Consists entirely of shares owned by Lafayette Investment Company, a
limited partnership, the sole general partner of which is a corporation
owned entirely by Mr. Hunt. Excludes shares owned by Hunt Financial
Corporation, the capital stock of which is held, indirectly, through a
series of corporations, by certain trusts for the benefit of Mr. Hunt and
members of his family.
(12) Excludes shares owned by CVC, Citi Growth Fund, L.P., and other employees
of CVC, as to which Mr. McWilliams disclaims beneficial ownership.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Hunt Financial Corporation ("Hunt Financial") loaned the Company
$1,000,000 on February 3, 1995; $2,009,863 on March 10, 1995 ($1,009,863 of
which the Company used to repay the February 1995 loan); and $3,028,845 on April
13, 1995 ($2,028,845 of which the Company used to repay the March 1995 loan).
The Company used the loans for working capital. The loans bore interest at 1%
over the prime rate and were unsecured. On May 30, 1995, Hunt Financial
purchased 10,426 shares of the Company's Series C Preferred Stock for
$4,999,892. At that time, the Company issued to Hunt Financial, for $.0004 per
warrant, warrants to purchase an additional 50,650 shares of Common Stock at
$16.20 per share. The Company used a portion of the proceeds of Hunt Financial's
purchase of Series C Preferred Stock to repay the $3,067,847 principal and
interest on the April 1995 loan.
On September 1, 1995, CVC, Citi Growth Fund, L.P. ("Citi Growth"), an
affiliate of CVC, CVC employees (including Mr. McWilliams), Hunt Financial, and
Lafayette Investment Company ("Lafayette"), a company controlled by Mr. Hunt,
entered into a loan agreement (the "Loan Agreement") pursuant to which they
loaned to the Company $4,000,000 at an interest rate of 10% per annum. Upon the
closing of the Company's initial public offering in December 1995, the principal
and interest on the loan were converted into Common Stock at $9.00 per share,
resulting in 451,767 shares of Common Stock being issued. Hunt Financial and
CVC are each greater than five percent shareholders of the Company's Common
Stock.
20
<PAGE>
In September 1995, CVC, Citi Growth, CVC employees (including Mr.
McWilliams), Hunt Financial and Lafayette agreed with other stockholders and the
Company to amend the certificates of designations of the Company's then
outstanding Series A, Series B and Series C Preferred Stock to provide that the
shares of Series A, Series B and Series C Preferred Stock would automatically
convert to Common Stock upon the closing of the Company's initial public
offering at a weighted average conversion price of $6.41 per share of Common
Stock. Before then, the Series A, Series B and Series C Preferred Stock had
conversion prices of $16.90, $19.18, and $19.18 per share of Common Stock,
respectively, but would not have converted to Common Stock upon closing of the
Company's initial public offering. Also, all warrants previously issued to Hunt
Financial were canceled. In connection with these amendments, the Company
recorded a preferred stock dividend in the amount of $7,123,536.
The following table sets forth (i) the amount that each of CVC, Citi
Growth, Mr. McWilliams, Hunt Financial, and Lafayette had invested in Series A,
Series B and Series C Preferred Stock and loaned under the Loan Agreement,
including accrued dividends and interest, and (ii) the number of shares of
Common Stock into which the Preferred Stock, the loan and accrued dividends and
interest were converted .
<TABLE>
<CAPTION>
Amount Invested or Loaned Including Accrued Dividends and
Interest and the Number of Shares of Common Stock Issued Therefore
------------------------------------------------------------------
Series A Series B Series C Total Amount
Preferred Stock Preferred Stock Preferred Stock Loan Invested, Total
---------------- ---------------- ---------------- ------------ Loaned Common
Amount/No. Amount/No. Amount/No. Amount/No. and Accrued Stock
---------------- ---------------- ---------------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
CVC............... $3,557,781/ $8,551,134/ -- $1,579,058/ $13,687,973 1,520,885
395,309 950,126 175,450
Citi Growth....... 1,513,917/ 979,326/ -- 324,697/ 2,817,967 313,107
168,213 108,814 36,077
Mr. McWilliams.... 151,389/ 275,049/ -- 55,554/ 481,992 53,554
16,821 30,561 6,172
Hunt Financial.... -- 2,948,850/ $11,328,660/ 1,939,858/ 16,217,368 1,801,929
327,650 1,258,740 215,539
Lafayette -- 589,491/ -- 92,502/ 681,993 75,776
65,499 10,277
</TABLE>
In addition, the Company granted demand and piggyback registration
rights to the purchasers of Preferred Stock and to these lenders with respect to
the Common Stock issuable upon conversion of the Series A, Series B and Series C
Preferred Stock or issuable in payment of the loan at the closing of the
Company's initial public offering.
In 1992, the company agreed to purchase from Dr. Anthony H. Cincotta
his interest in patents and patent applications relating to the Company's
technology. Under the agreement, the Company was to pay Dr. Cincotta $200,000
each year for five years. The Company made one of those payments. In December,
1995, the Company paid to Dr. Cincotta $800,000 in full satisfaction of those
obligations.
The Company licenses certain patents and patent applications from LSU
that relate to inventions of Drs. Anthony H. Cincotta and Albert H. Meier.
LSU's bylaws give inventors of LSU's patents the right to share in any royalties
LSU receives from those patents. In April 1995, the Company issued to each of
Drs. Cincotta and Meier 60,000 shares of Common Stock to acquire their
investors' share of royalties attributable to the Company's license payments to
LSU under that license. The number of shares of Common Stock issued was
negotiated between Drs. Cincotta and Meier and the Board of Directors.
21
<PAGE>
In October 1995, the Company entered into a consulting agreement with
Dr. Meier in which the Company agreed to pay Dr. Meier $100,000 per year for at
least 20 hours of consulting services per week through October 1998. Dr. Meier
agreed that all work product discovered, created or developed by him, alone or
with others, will belong to the Company. Dr. Meier also agreed to maintain the
confidentiality of the Company's proprietary information. In addition, Dr.
Meier agreed not to compete with the Company for two years following the end of
his consulting services; however, the Company is required to pay Dr. Meier an
amount equal to 50% of his annual consulting fee within 10 days after the end of
his consulting services and 100% of his annual consulting fee on the first
anniversary of termination of his consulting services to maintain the
noncompetition obligation. The Company may terminate the consulting arrangement
at any time. However, if the termination is without cause, the Company must pay
Dr. Meier the lesser of $100,000 or the amount of fees he would have received
under the remaining term of the agreement.
COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION
The members of the Compensation Committee are Stephen A. Duzan, Ray L.
Hunt, and Thomas F. McWilliams. None of them is or has been an employee of the
Company. No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of the Company's Board of Directors or Compensation
Committee. Messrs. Hunt and McWilliams, or their affiliates, have acquired
capital stock of the Company and loaned funds to the Company. See "Certain
Relationships and Related Transactions."
ADDITIONAL INFORMATION
Solicitation
This solicitation of proxies is made by the Board of Directors and
will be conducted primarily by mail. Officers, directors and employees of the
Company may solicit proxies personally or by telephone, telegram or other forms
of wire or facsimile communication. The Company may also request banking
institutions, brokerage firms, custodians, nominees and fiduciaries to forward
solicitation material to the beneficial owners of Common Stock that those
companies hold of record. The costs of the solicitation, including
reimbursement of such forwarding expenses, will be paid by the Company.
Stockholder Proposals
Stockholder proposals which are intended to be presented at the
Company's Annual Meeting of Stockholders to be held in 1997 must be received by
the Company at its executive offices, 33 Third Avenue, Charlestown,
Massachusetts 02129, no later than January 24, 1997, in order that they may be
included in the proxy statement and form of proxy for that meeting.
Change in Independent Accountants
In August 1995, the Company dismissed Ernst & Young LLP as its
independent auditors. The decision to dismiss Ernst & Young LLP was made by the
Company's management and was ratified by the Company's Board of Directors and
Audit Committee. During 1993, 1994 and 1995 there were no disagreements with
Ernst & Young LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Ernst & Young LLP, would have caused it to
make reference to the subject matter of the disagreements in its reports.
During 1993 through the date of dismissal in 1995, Ernst & Young LLP did not
advise the Company that any of the following circumstances existed:
22
<PAGE>
(1) that the internal controls necessary for the Company to develop reliable
financial statements do not exist; (2) that information had come to their
attention that made them no longer able to rely on management's representations,
or that made them unwilling to be associated with the financial statements
prepared by management; (3) that they needed to expand significantly the scope
of their audit of the Company; or (4) that information had come to their
attention that materially affected, or if investigated further may materially
affect, the fairness or reliability of a previously issued audit report or
financial statements or the fairness of financial statements issued or to be
issued for fiscal periods following the last audit report. Coopers & Lybrand
L.L.P. was engaged as the Company's independent accountants in August 1995.
Annual Report
The Company's annual report to stockholders for the year ended
December 31, 1995, including financial statements, is being mailed herewith to
all stockholders entitled to vote at the Annual Meeting. The annual report does
not constitute a part of the proxy solicitation material.
Other Matters
The Board of Directors of the Company knows of no other business that
will be submitted for consideration at the Annual Meeting. If any other matters
are properly brought before the meeting, it is the intention of the persons
named in the accompanying proxy to vote the shares represented thereby on such
matters in accordance with their best judgement.
By Order of the Board of Directors,
Manuel Cincotta, Jr.
Chairman of the Board and Secretary
Charlestown, Massachusetts
May 24, 1996
23
<PAGE>
ERGO SCIENCE CORPORATION
PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR THE ANNUAL MEETING, JUNE 25, 1996
The undersigned hereby constitutes and appoints each of J. Warren Huff and
Manuel Cincotta, Jr., his or her true and lawful agents and proxies with full
power of substitution in each, to represent the undersigned, with all the powers
which the undersigned would possess if personally present, and to vote the
Common Stock of Ergo Science Corporation held of record by the undersigned on
the record date, at the Annual Meeting of Stockholders of Ergo Science
Corporation, to be held at the Royal Sonesta Hotel, 5 Cambridge Parkway,
Cambridge, Massachusetts, on Tuesday, June 25, 1996, at 10:00 a.m. local time,
and at any adjournment thereof, on all matters coming before said meeting.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICE BY MARKING THE APPROPRIATE BOX ON
THE REVERSE SIDE BUT YOU NEED NOT MARK ANY BOX IF YOU WISH TO VOTE IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS WHICH ARE FOR THE ELECTION OF THE
NAMED NOMINEES AS DIRECTORS AND FOR PROPOSALS 2,3 AND 4. THE PROXIES CANNOT
VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD. THIS PROXY MAY BE
REVOKED IN WRITING AT ANY TIME PRIOR TO THE VOTING THEREOF.
CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE
[X] Please mark your votes as in this example.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
AND AUTHORIZE THE PROXIES TO TAKE ACTION IN THEIR DISCRETION UPON OTHER MATTERS
THAT MAY PROPERLY COME BEFORE THE MEETING. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES FOR
DIRECTOR AND FOR PROPOSALS 2,3 AND 4.
1. ELECTION OF DIRECTORS: To elect each of J. Warren Huff and Stephen A.
Duzan as Class I directors for a three year term ending at the Annual Meeting of
stockholders in 1999 and until their successors are duly elected and qualified
or their earlier resignation or removal.
[_] FOR BOTH NOMINEES [_] WITHHELD FROM BOTH NOMINEES
[_] ___________________________________
FOR BOTH NOMINEES EXCEPT AS NOTED ABOVE
2. To approve an amendment to the Ergo Science Corporation Amended and
Restated 1995 Long Term Incentive Plan to increase the number of shares of the
Company's common stock available to be issued thereunder from 731,525 shares to
1,431,525 shares.
[_] FOR [_] AGAINST [_] ABSTAIN
3. To approve a Stock Option Plan for Non-Employee Directors of the Company.
[_] FOR [_] AGAINST [_] ABSTAIN
4. To ratify the selection of Coopers & Lybrand L.L.P. as independent
accountants for the Company for fiscal 1996.
[_] FOR [_] AGAINST [_] ABSTAIN
Please sign this Proxy exactly as your name appears on this card. Joint owners
should each sign personally. If you are signing as a representative of the named
stockholder (e.g. as a trustee, corporate officer or other agent on behalf of a
trust, corporation or other entity) you should indicate your title or the
capacity in which you sign.
Signature: ______________ Date: ________ Signature:_____________ Date: _________
<PAGE>
ERGO SCIENCE CORPORATION
SECOND AMENDED AND RESTATED 1995 LONG-TERM INCENTIVE PLAN
SCOPE AND PURPOSE OF PLAN
-------------------------
Ergo Science Corporation, formerly known as Ergo Science Holdings,
Incorporated, a Delaware corporation (the "Corporation"), previously adopted a
1995 Long-Term Incentive Plan, first amended and restated on October 6, 1995,
and hereby further amended and restated effective June 25, 1996, (the "Plan") to
provide for the granting of:
(a) Incentive Options (hereafter defined) to certain Key Employees
(hereafter defined);
(b) Nonstatutory Options (hereafter defined) to certain Key
Employees, Non-employee Directors (hereafter defined), and other persons;
(c) Restricted Stock Awards (hereafter defined) to certain Key
Employees, Non-employee Directors, and other persons; and
(d) Stock Appreciation Rights (hereafter defined) to certain Key
Employees, Non-employee Directors, and other persons.
The purpose of the Plan is to provide an incentive for Key Employees,
directors, and certain consultants and advisors of the Corporation or its
Subsidiaries (hereafter defined) to remain in the service of the Corporation or
its Subsidiaries, to extend to them the opportunity to acquire a proprietary
interest in the Corporation so that they will apply their best efforts for the
benefit of the Corporation, and to aid the Corporation in attracting able
persons to enter the service of the Corporation and its Subsidiaries.
The Plan is hereby amended and restated in its entirety as follows:
SECTION 1. DEFINITIONS
1.1 "Acquiring Person" means any Person other than (a) the Corporation,
(b) any Subsidiary of the Corporation, (c) any employee benefit plan of the
Corporation or of a Subsidiary of the Corporation or of a corporation owned
directly or indirectly by the stockholders of the Corporation in substantially
the same proportions as their ownership of Stock of the Corporation, (d) any
trustee or other fiduciary holding securities under an employee benefit plan of
the Corporation or of a Subsidiary of the Corporation or of a corporation owned
directly or indirectly by the stockholders of the Corporation in substantially
the same proportions as their ownership of Stock of the Corporation or (e) any
corporation a majority of the Voting Securities of which is, immediately
following that corporation's first acquisition of Stock, owned directly or
indirectly by the stockholders of the Corporation at that point in time
immediately prior to such acquisition.
1
<PAGE>
1.2 "Award" means the grant of any form of Option, Restricted Stock
Award, or Stock Appreciation Right under the Plan, whether granted individually,
in combination, or in tandem, to a Holder pursuant to the terms, conditions, and
limitations that the Committee may establish in order to fulfill the objectives
of the Plan.
1.3 "Award Agreement" means the written document or agreement evidencing
the terms, conditions, and limitations of the Award the Corporation has granted
to a Holder.
1.4 "Board of Directors" means the board of directors of the
Corporation.
1.5 "Business Day" means any day other than a Saturday, a Sunday, or a
day on which banking institutions in the Commonwealth of Massachusetts are
authorized or obligated by law or executive order to close.
1.6 "Change in Control" means the event that is deemed to have occurred
if:
(a) any Acquiring Person is or becomes the "beneficial owner" (as
defined in Rule l3d-3 under the Exchange Act), directly or indirectly, of
securities of the Corporation representing fifty percent or more of the combined
voting power of the then outstanding Voting Securities of the Corporation; or
(b) members of the Incumbent Board cease for any reason to
constitute at least a majority of the Board of Directors; or
(c) the Corporation merges or consolidates with any other
corporation or entity , or the stockholders of the Corporation and such other
corporation or entity (or the Corporation and the holders of Voting Securities
in such other corporation or entity) participate in a securities exchange, other
than a merger, consolidation or securities exchange that would result in the
Voting Securities of the Corporation outstanding immediately before the
completion thereof continuing to represent (either by remaining outstanding or
by being converted into Voting Securities of the surviving entity or of a parent
of the surviving entity) a majority of the combined voting power of the Voting
Securities of the surviving entity (or its parent) outstanding immediately after
that merger, consolidation or securities exchange; or
(d) the Corporation liquidates or sells or disposes of all or
substantially all the Corporation's assets in one transaction or a series of
transactions other than a liquidation, sale or disposition of all or
substantially all the Corporation's assets in one transaction or a series of
related transactions to an entity owned directly or indirectly by the
stockholders of the Corporation in substantially the same proportions as their
ownership of Stock of the Corporation.
1.7 "Code" means the Internal Revenue Code of 1986, as amended.
1.8 "Committee" means the committee of Disinterested Persons appointed
pursuant to Section 3 by the Board of Directors to administer this Plan with
respect to Eligible Individuals who are subject to Section 16 of the Exchange
Act.
2
<PAGE>
1.9 "Corporation" means Ergo Science Corporation, a Delaware
corporation, formerly known as Ergo Science Holdings, Incorporated.
1.10 "Date of Grant" has the meaning set forth in Subsection 4.3.
1.11 "Disability" has the meaning set forth in Subsection 10.5.
1.12 "Disinterested Person" means a person who is both a "disinterested
person" under Rule 16b-3 and an "outside director" as defined in Section 162(m),
unless the Board of Directors has determined that the Plan should not comply
with Rule 16b-3 or Section 162(m), or both.
1.13 "Effective Date" means the date the Plan is adopted by the Board.
1.14 "Eligible Individuals" means (a) Key Employees, (b) Non-employee
Directors, and (c) any other Person that the Committee designates as eligible
for an Award (other than for Incentive Options) because the Person performs bona
fide consulting or advisory services for the Corporation or any of its
Subsidiaries (other than services in connection with the offer or sale of
securities in a capital-raising transaction) and the Committee determines that
the Person has a direct and significant effect on the development of the
Corporation or any of its Subsidiaries. Notwithstanding the foregoing
provisions of this Subsection 1.14, the Board of Directors may from time to time
specify individuals who shall not be eligible for the grant of Awards or equity
securities under any plan of the Corporation or its Affiliates. Nevertheless,
the Board of Directors may at any time determine that an individual who has been
so excluded from eligibility shall become eligible for grants of Awards and
grants of such other equity securities under any plans of the Corporation or its
Affiliates so long as that eligibility will not impair the Plan's satisfaction
of the conditions of Rule 16b-3.
1.15 "Employee" means any employee of the Corporation or of any of its
Subsidiaries, including officers and directors of the Corporation who are also
employees of the Corporation or of any of its Subsidiaries.
1.16 "Exchange Act" means the Securities Exchange Act of 1934 and the
rules and regulations promulgated thereunder, or any successor law, as it may be
amended from time to time.
1.17 "Exercise Notice" has the meaning set forth in Subsection 5.5.
1.18 "Exercise Price" has the meaning set forth in Subsection 5.4.
1.19 "Fair Market Value" means, for a particular day:
(a) If shares of Stock of the same class are listed or admitted to
unlisted trading privileges on any national or regional securities exchange at
the date of determining the Fair Market Value, then the last reported sale
price, regular way, on the composite tape of that exchange on the last Business
Day before the date in question or, if no such sale takes place on that Business
Day, the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to unlisted trading privileges on that
securities exchange; or
3
<PAGE>
(b) If shares of Stock of the same class are not listed or admitted
to unlisted trading privileges as provided in Subsection 1.19(a) and sales
prices for shares of Stock of the same class are reported by the National
Association of Securities Dealers, Inc. Automated Quotations, Inc. ("NASDAQ")
National Market System (or such other system then in use) at the date of
determining the Fair Market Value, then the last reported sales price so
reported on the last Business Day before the date in question or, if no such
sale takes place on that Business Day, the average of the high bid and low asked
prices so reported; or
(c) If shares of Stock of the same class are not listed or admitted
to unlisted trading privileges as provided in Subsection 1.19(a) and sales
prices for shares of Stock of the same class are not reported by the NASDAQ
National Market System (or a similar system then in use) as provided in
Subsection 1.19(b), and if bid and asked prices for shares of Stock of the same
class in the over-the-counter market are reported by NASDAQ (or, if not so
reported, by the National Quotation Bureau Incorporated) at the date of
determining the Fair Market Value, then the average of the high bid and low
asked prices on the last Business Day before the date in question; or
(d) If shares of Stock of the same class are not listed or admitted
to unlisted trading privileges as provided in Subsection 1.19(a) and sales
prices or bid and asked prices therefor are not reported by NASDAQ (or the
National Quotation Bureau Incorporated) as provided in Subsection 1.19(b) or
Subsection 1.19(c) at the date of determining the Fair Market Value, then the
value determined in good faith by the Committee, which determination shall be
conclusive for all purposes; or
(e) If shares of Stock of the same class are listed or admitted to
unlisted trading privileges as provided in Subsection 1.19(a) or sales prices or
bid and asked prices therefor are reported by NASDAQ (or the National Quotation
Bureau Incorporated) as provided in Subsection 1.19(b) or Subsection 1.19(c) at
the date of determining the Fair Market Value, but the volume of trading is so
low that the Committee determines in good faith that such prices are not
indicative of the fair value of the Stock, then the value determined in good
faith by the Committee, which determination shall be conclusive for all purposes
notwithstanding the provisions of Subsections 1.19(a), (b), or (c).
For purposes of valuing Incentive Options, the Fair Market Value of Stock
shall be determined without regard to any restriction other than one that, by
its terms, will never lapse. For purposes of the redemption provided for in
Subsection 9.3(d)(v), Fair Market Value shall have the meaning and shall be
determined as set forth above; provided, however, that the Committee, with
-------- -------
respect to any such redemption, shall have the right to determine that the Fair
Market Value for purposes of the redemption should be an amount measured by the
value of the shares of Stock, other securities, cash, or property otherwise
being received by holders of shares of Stock in connection with the
Restructuring and upon that determination the Committee shall have the power and
authority to determine Fair Market Value for purposes of the redemption based
upon the value of such shares of Stock, other securities, cash, or property.
Any such determination by the Committee, as evidenced by a resolution of the
Committee, shall be conclusive for all purposes.
1.20 "Holder" means an Eligible Individual to whom an outstanding Award
has been granted.
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1.21 "Incentive Option" means an incentive stock option as defined under
Section 422 of the Code and regulations thereunder.
1.22 "Incumbent Board" means the individuals who, as of September 15,
1995, constitute the Board of Directors and any other individual who becomes a
director of the Corporation after that date and whose election or appointment by
the Board of Directors or nomination for election by the Corporation's
stockholders was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board.
1.23 "Key Employee" means any Employee whom the Committee identifies as
having provided a benefit to the Corporation or any of its Subsidiaries.
1.24 "Non-Employee Director" means a director of the Corporation who is
not an employee of the Corporation.
1.25 "Nonstatutory Option" means a stock option that does not satisfy the
requirements of Section 422 of the Code or that is designated at the Date of
Grant or in the applicable Award Agreement to be an option other than an
Incentive Option.
1.26 "Non-Surviving Event" means an event of Restructuring as described
in either Subsection 1.34(b) or Subsection 1.34(c).
1.27 "Normal Retirement" means the separation of the Holder from
employment with the Corporation and its Subsidiaries on account of retirement at
any time on or after the date on which the Holder reaches age 65.
1.28 "Option" means either an Incentive Option or a Nonstatutory Option,
or both.
1.29 "Person" means any person or entity of any nature whatsoever,
specifically including (but not limited to) a firm, company, corporation,
partnership, limited liability company, trust, or other entity. A Person,
together with that Person's affiliates and associates (as "affiliate" and
"associate" are defined in Rule 12b-2 under the Exchange Act for purposes of
this definition only), and any Persons acting as a partnership, limited
partnership, joint venture, association, syndicate, or other group (whether or
not formally organized), or otherwise acting jointly or in concert or in a
coordinated or consciously parallel manner (whether or not pursuant to any
express agreement), for the purpose of acquiring, holding, voting, or disposing
of securities of the Corporation with that Person, shall be deemed a single
"Person."
1.30 "Plan" means this Second Amended and Restated 1995 Long-Term
Incentive Plan of Ergo Science Corporation, as it may be amended from time to
time.
1.31 "Reload Option" has the meaning set forth in Subsection 5.14.
1.32 "Restricted Stock" means Stock that is nontransferable or subject to
substantial risk of forfeiture until specified conditions are met or upon the
occurrence of specified events.
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1.33 "Restricted Stock Award" means the grant or purchase, on the
terms and conditions of Section 7 or that the Committee otherwise determines, of
Restricted Stock.
1.34 "Restructuring" means the occurrence of any one or more of the
following:
(a) The merger or consolidation of the Corporation with any Person,
or the consummation of a securities exchange between the stockholders of the
Corporation and such other corporation or Person (or the Corporation and the
holders of Voting Securities in such other corporation or entity), whether
effected as a single transaction or a series of related transactions, with the
Corporation remaining the continuing or surviving entity of that merger,
consolidation or securities exchange and the Stock remaining outstanding and not
changed into or exchanged for stock or other securities of any other Person or
of the Corporation, cash, or other property;
(b) The merger or consolidation of the Corporation with any Person,
or the consummation by the Corporation or the stockholders of the Corporation
and such other Person or the holders of Voting Securities in such other Person
of a securities exchange, whether effected as a single transaction or a series
of related transactions, with (i) the Corporation not being the continuing or
surviving entity of that merger, consolidation or securities exchange or (ii)
the Corporation remaining the continuing or surviving entity of that merger,
consolidation or securities exchange but all or a part of the outstanding shares
of Stock are changed into or exchanged for stock or other securities of any
other Person or the Corporation, cash, or other property; or
(c) The transfer, directly or indirectly, of all or substantially
all of the assets of the Corporation (whether by sale, merger, consolidation,
liquidation, or otherwise) to any Person, whether effected as a single
transaction or a series of related transactions.
1.35 "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the Exchange
Act, or any successor rule, as it may be amended from time to time, and
references herein to paragraphs or clauses of Rule 16b-3 shall refer to the
corresponding paragraphs or clauses of rule 16b-3 as it exists or the comparable
paragraphs or clauses of Rule 16b-3 as it may be amended.
1.36 "SAR Exercise Price" has the meaning set forth in Subsection 1.40.
1.37 "Section 162(m)" means Section 162(m) of the Code and the proposed,
temporary, or final Treasury Regulations adopted from time to time under that
section, or any successor law or regulations as they may be amended from time to
time.
1.38 "Securities Act" means the Securities Act of 1933 and the rules and
regulations promulgated thereunder, or any successor law, as it may be amended
from time to time.
1.39 "Stock" means the Corporation's authorized Common Stock, par value
$.01 per share, or any other securities that are substituted for the Stock as
provided in Section 9.
1.40 "Stock Appreciation Right" means the right to receive an amount
equal to the excess of the Fair Market Value of a share of Stock (as determined
on the date of exercise) over, as
6
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appropriate, the Exercise Price of a related Option or a price specified in the
related Award Agreement (the "SAR Exercise Price").
1.41 "Stockholder Approved Standard" means (a) total stockholder return
(stock price appreciation plus dividends), (b) net income, (c) earnings per
share, (d) return on sales or revenues, (e) return on equity, (f) return on
assets, (g) increase in the market price of the Stock or other securities of the
Corporation, or (h) the performance of the Corporation in any of the foregoing
items in comparison to the average performance of the companies included in a
self-constructed peer group established before the beginning of the related
performance period. "Stockholder Approved Standard" shall also mean any pre-
established, objective performance goal qualifying under Section 162(m) and
approved by the stockholders of the Corporation in accordance with Section
162(m).
1.42 "Subsidiary" means, with respect to any Person, any corporation or
other entity of which a majority of the Voting Securities or equity securities
is owned, directly or indirectly, by that Person.
1.43 "Total Shares" has the meaning set forth in Subsection 9.2.
1.44 "Voting Securities" means any securities that are entitled to vote
generally in the election of directors, in the admission of general partners, or
in the selection of any other similar governing body.
SECTION 2. SHARES OF STOCK SUBJECT TO THE PLAN
2.1 Maximum Number of Shares. Subject to the provisions of Subsections
------------------------
2.2 and 2.5 and Section 9, the aggregate number of shares of Stock that may be
issued or transferred pursuant to Awards under the Plan shall be 1,431,525
shares of Stock, all or any part of which may be issued to any Eligible
Individual.
2.2 Limitation of Shares. For purposes of determining the number of
--------------------
shares of Stock available for Awards under the Plan at any time, the following
principles shall apply.
(a) The following shall count against and decrease the number of
shares of Stock available for issuance as set forth in Subsection 2.1: (i) the
number of shares of Stock that have been issued upon the exercise or settlement
of outstanding Awards or for which all restrictions on a Restricted Stock Award
have lapsed; (ii) shares of Stock subject to issuance upon exercise or
settlement of outstanding Awards; and (iii) shares of Stock subject to
outstanding Restricted Stock Awards. In the case of outstanding Options granted
in tandem with outstanding Stock Appreciation Rights, the number of shares of
Stock determined pursuant to clause (ii) above shall be the number of shares of
Stock subject to the Option. In the case of Stock Appreciation Rights not
granted in connection with an Option and that may be settled in stock, the
number of shares of Stock determined pursuant to clause (ii) above shall be the
number of shares of Stock to which the Stock Appreciation Right relates.
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<PAGE>
(b) If Stock subject to any Award is not issued or transferred, or
ceases to be issuable or transferable for any reason, including (but not
exclusively) because an Award is forfeited or terminated, expires unexercised,
is settled in cash in lieu of Stock, or is exchanged for other Awards, the
shares of Stock that were subject to that Award shall no longer be charged
against the number of available shares and shall again be available for issue,
transfer, or exercise pursuant to Awards under the Plan to the extent of such
forfeiture, termination, expiration, or other cessation of their subjection to
an Award. In addition, if the number of shares of Stock issued pursuant to an
Award is less than the number of shares of Stock by which such Award had
previously reduced the number of shares of Stock available under the Plan
pursuant to Subsection 2.2(a), then the difference between the actual number of
shares of Stock so issued and the number of shares of Stock so previously
deducted shall again be available for grant under the Plan.
(c) Shares of Stock that are transferred by a Holder of an Award (or
withheld by the Corporation) as full or partial payment to the Corporation of
the purchase price of shares of Stock subject to an Award or the Corporation's
or any Subsidiary's tax withholding obligations shall not be added back to the
number of shares of Stock that may be issued for purposes of Subsection 2.1 and
shall not again be subject to Awards.
2.3 Description of Shares. The shares to be delivered under the Plan
---------------------
shall be made available from (a) authorized but unissued shares of Stock, (b)
Stock held in the treasury of the Corporation, or (c) previously issued shares
of Stock reacquired by the Corporation, including shares purchased on the open
market, in each situation as the Board of Directors or the Committee may
determine from time to time in its sole discretion.
2.4 Registration and Listing of Shares. The Board of Directors and
----------------------------------
appropriate officers of the Corporation are authorized to take whatever actions
may be deemed necessary by the Board of Directors to make shares of Stock
available for issuance pursuant to the exercise of Awards, including, without
limitation, filing required documents with governmental authorities, stock
exchanges, and other appropriate Persons.
2.5 Reduction in Outstanding Shares of Stock. Nothing in this Section 2
----------------------------------------
shall impair the right of the Corporation to reduce the number of outstanding
shares of Stock pursuant to repurchases, redemptions, or otherwise; provided,
--------
however, that no reduction in the number of outstanding shares of Stock shall
- -------
(a) impair the validity of any outstanding Award, whether or not that Award is
fully exercisable or fully vested, or (b) impair the status of any shares of
Stock previously issued pursuant to the exercise of an Award or thereafter
issued pursuant to a then-outstanding Award as duly authorized, validly issued,
fully paid, and nonassessable shares.
SECTION 3. ADMINISTRATION OF THE PLAN
3.1 Committee. The Committee shall administer the Plan with respect to
---------
all Eligible Individuals who are subject to Section 16(b) of the Exchange Act,
but shall not have the power to appoint members of the Committee or to
terminate, modify, or amend the Plan. The Board of Directors may administer the
Plan with respect to all other Eligible Individuals or may delegate all or part
of that duty to the Committee or to any other person or persons. Except for
references in
8
<PAGE>
Subsections 3.1, 3.2, and 3.3, and unless the context otherwise requires,
references herein to the Committee shall also refer to the Board of Directors or
its deligee as administrator of the Plan for Eligible Individuals who are not
subject to Section 16(b) of the Exchange Act. Unless the Board of Directors
determines not to have Awards comply with the requirements of Rule 16b-3 and
Section 162(m), the Committee shall be constituted so that, as long as Stock is
registered under Section 12 of the Exchange Act, (a) each member of the
Committee shall be a Disinterested Person that is a member of the Board of
Directors, (b) the Plan in all other applicable respects will qualify
transactions related to the Plan for the exemptions from Section 16(b) of the
Exchange Act provided by Rule 16b-3, to the extent exemptions thereunder may be
available, and (c) no discretion regarding Awards to Eligible Individuals who
are subject to Section 16(b) of the Exchange Act shall be afforded to a person
who is not a Disinterested Person. The number of Persons that shall constitute
the Committee shall be determined from time to time by a majority of all the
members of the Board of Directors and, unless a majority of the Board of
Directors determines otherwise, shall be no less than two Persons. Persons
elected to serve on the Committee as Disinterested Persons shall not (i) receive
Awards or equity securities under any plan of the Corporation or its affiliates
while they are serving as members of the Committee and (ii) have been granted or
awarded equity securities under the Plan or any other plan of the Corporation or
its affiliates within one year before their appointment to the Committee becomes
effective or (if applicable) the Stock is registered under Section 12 of the
Exchange Act, in each case except for receiving Awards or equity securities
pursuant to paragraphs (c)(2)(i)(A), (B), (C), or (D) of Rule 16b-3.
3.2 Duration, Removal, Etc. The members of the Committee shall serve at
-----------------------
the pleasure of the Board of Directors, which shall have the power, at any time
and from time to time, to remove members from or add members to the Committee.
Removal from the Committee may be with or without cause. Any individual serving
as a member of the Committee shall have the right to resign from membership in
the Committee by at least three days' written notice to the Board of Directors.
The Board of Directors, and not the remaining members of the Committee, shall
have the power and authority to fill vacancies on the Committee, however caused.
The Board of Directors shall promptly fill any vacancy that causes the number of
members of the Committee to be below two or any other number that Rule 16b-3 or
Section 162(m) may require from time to time (unless the Board of Directors
expressly determines not to have Awards comply with Rule 16b-3 or Section
162(m), as applicable).
3.3 Meetings and Actions of Committee. The Board of Directors shall
---------------------------------
designate which of the Committee members shall be the chairman of the Committee.
If the Board of Directors fails to designate a Committee chairman, the members
of the Committee shall elect one of the Committee members as chairman, who shall
act as chairman until that director ceases to be a member of the Committee or
until the Board of Directors elects a new chairman. The Committee shall hold
its meetings at those times and places as the chairman of the Committee may
determine. At all meetings of the Committee, a quorum for the transaction of
business shall be required. A quorum shall be deemed present if at least a
majority of the members of the Committee are present. At any meeting of the
Committee, each member shall have one vote. All decisions and determinations of
the Committee shall be made by the majority vote or majority decision of all of
its members present at a meeting at which a quorum is present; provided,
--------
however, that any decision or determination reduced to writing and signed by all
- -------
of the members of the Committee shall be as fully effective as if it had been
made at a meeting that was duly called and held. The Committee may make any
rules and regulations
9
<PAGE>
for the conduct of its business that are not inconsistent with the provisions of
the Plan, the Certificate of Incorporation, the by-laws of the Corporation, Rule
16b-3 (so long as it is applicable) and Section 162(m) (so long as it is
applicable) as the Committee may deem advisable.
3.4 Committee's Powers. Subject to the express provisions of the Plan,
------------------
and (unless the Board determines not to have Awards comply with such provisions)
Rule 16b-3 and Section 162(m), the Committee shall have the authority, in its
sole and absolute discretion, (a) to adopt, amend, and rescind administrative
and interpretive rules and regulations relating to the Plan; (b) to determine
the Eligible Individuals to whom, and the time or times at which, Awards shall
be granted; (c) to determine the amount of cash and the number of shares of
Stock, Stock Appreciation Rights, or Restricted Stock Awards, or any combination
thereof, that shall be the subject of each Award; (d) to determine the terms and
provisions of each Award Agreement, including provisions defining or otherwise
relating to (i) the term and the period or periods and extent of exercisability
of the Options, (ii) the extent to which the transferability of shares of Stock
issued or transferred pursuant to any Award is restricted, (iii) the effect of
termination of employment of the Holder on the Award, and (iv) the effect of
approved leaves of absence (consistent with any applicable regulations of the
Internal Revenue Service); (e) to accelerate, pursuant to Section 9, the time of
exercisability of any Option that has been granted; (f) to construe the
respective Award Agreements and the Plan; (g) to make determinations of the Fair
Market Value of the Stock pursuant to the Plan; (h) to delegate its duties under
the Plan to such agents as it may appoint from time to time, provided that the
Committee may not delegate its duties with respect to making Awards to, or
otherwise with respect to Awards granted to, Eligible Individuals who are
subject to Section 16(b) of the Exchange Act if such delegation would cause
Awards not to qualify for the performance-based compensation exemption of
section 162(m) or the exemptions provided by Rule 16b-3 (unless the Board of
Directors expressly determines not to have Awards under the Plan comply with
Rule 16b-3 or Section 162(m)); and (i) to make all other determinations, perform
all other acts, and exercise all other powers and authority necessary or
advisable for administering the Plan, including the delegation of those
ministerial acts and responsibilities as the Committee deems appropriate. The
Committee may correct any defect, supply any omission, or reconcile any
inconsistency in the Plan, in any Award, or in any Award Agreement in the manner
and to the extent it deems necessary or desirable to carry the Plan into effect,
and the Committee shall be the sole and final judge of that necessity or
desirability. The determinations of the Committee on the matters referred to in
this Subsection 3.4 shall be final and conclusive.
SECTION 4. ELIGIBILITY AND PARTICIPATION
4.1 Eligible Individuals. Awards may be granted pursuant to the Plan
--------------------
only to persons who are Eligible Individuals at the time of the grant thereof.
4.2 Grant of Awards. Subject to the express provisions of the Plan, the
---------------
Committee shall determine which Eligible Individuals shall be granted Awards
from time to time. In making grants, the Committee shall take into
consideration the contribution the potential Holder has made or may make to the
success of the Corporation or its Subsidiaries and such other considerations as
the Board of Directors may from time to time specify. The Committee shall also
determine the number of shares subject to each of the Awards and shall authorize
and cause the Corporation to grant Awards in accordance with those
determinations.
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4.3 Date of Grant. The date on which the Award covered by an Award
-------------
Agreement is granted (the "Date of Grant") shall be (a) the date specified by
the Committee as the effective date or date of grant of an Award or, (b) if the
Committee does not so specify, the date the Committee adopts the resolution
approving the offer of the Award to an individual, including the specification
of the number (or method of determining the number) of shares of Stock and the
amount (or method of determining the amount) of cash to be subject to the Award,
even though certain terms of the Award Agreement may not be determined at that
time and even though the Award Agreement may not be executed or delivered until
a later time. In no event shall a Holder gain any rights in addition to those
specified by the Committee in its grant, regardless of the time that may pass
between the grant of the Award and the actual execution or delivery of the Award
Agreement by the Corporation and the Holder. The Committee may invalidate any
Award at any time before the Award Agreement is signed by the Holder (if
signature is required) or is delivered to the Holder (if signature is not
required), and, upon such invalidation, the Award will be treated as never
having been granted.
4.4 Award Agreements. Each Award granted under the Plan shall be
----------------
evidenced by an Award Agreement incorporating those terms that the Committee
shall deem necessary or desirable. More than one Award may be granted under the
Plan to the same Eligible Individual and be outstanding concurrently. In the
event an Eligible Individual is granted both one or more Incentive Options and
one or more Nonstatutory Options, those grants shall be evidenced by separate
Award Agreements, one for each of the Incentive Option grants and one for each
of the Nonstatutory Option grants.
4.5 Limitation for Incentive Options. Notwithstanding any provision
--------------------------------
contained herein to the contrary, (a) a person shall not be eligible to receive
an Incentive Option unless he is an Employee of the Corporation or a corporate
Subsidiary (but not a partnership or other non-corporate Subsidiary) and (b) a
person shall not be eligible to receive an Incentive Option if, immediately
before the time the Option is granted, that person owns (within the meaning of
Sections 422 and 424(d) of the Code) stock possessing more than ten percent of
the total combined voting power or value of all classes of stock of the
Corporation or a Subsidiary. Nevertheless, Subsection 4.5(b) shall not apply
if, at the time the Incentive Option is granted, the Exercise Price of the
Incentive Option is at least one hundred ten percent of Fair Market Value and
the Incentive Option is not, by its terms, exercisable after the expiration of
five years from the Date of Grant.
4.6 No Right to Award. The adoption of the Plan shall not be deemed to
-----------------
give any Person a right to be granted an Award.
SECTION 5. TERMS AND CONDITIONS OF OPTIONS
All Options granted under the Plan shall comply with, and the related Award
Agreements shall be deemed to include and be subject to, the terms and
conditions set forth in this Section 5 (to the extent each term and condition
applies to the form of Option) and also to the terms and conditions set forth in
Sections 9 and 10; provided, however, that the Committee may authorize an Award
-------- -------
Agreement that expressly contains terms and provisions that differ from the
terms and provisions set forth in Subsections 9.2, 9.3, and 9.4 and any of the
terms and provisions of Section 10 (other than Subsections 10.10 and 10.11).
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5.1 Number of Shares. Each Award Agreement shall state the total number
----------------
of shares of Stock to which it relates.
5.2 Vesting. Each Award Agreement shall state the time or periods in
-------
which, or the conditions upon satisfaction of which, the right to exercise the
Option or a portion thereof shall vest and the number of shares of Stock for
which the right to exercise the Option shall vest at each such time, period, or
fulfillment of condition.
5.3 Expiration of Options. Options may be exercised during the term
---------------------
determined by the Committee and set forth in the Award Agreement; provided that
-------- ----
no Incentive Option shall be exercised after the expiration of a period of ten
years commencing on the Date of Grant of the Incentive Option.
5.4 Exercise Price. Each Award Agreement shall state the exercise price
--------------
per share of Stock (the "Exercise Price"); provided, however, that the exercise
-------- -------
price per share of Stock subject to an Incentive Option shall not be less than
the greater of (a) the par value per share of the Stock or (b) 100% of the Fair
Market Value per share of the Stock on the Date of Grant of the Option.
5.5 Method of Exercise. The Option shall be exercisable only by written
------------------
or recorded electronic notice of exercise (the "Exercise Notice") delivered to
the Corporation or its designated agent during the term of the Option, which
notice shall (a) state the number of shares of Stock with respect to which the
Option is being exercised, (b) be signed or otherwise given by the Holder of the
Option or, if the Holder is dead or Disabled, by the person authorized to
exercise the Option pursuant to Subsection 10.3 or 10.5, (c) be accompanied by
the Exercise Price for all shares of Stock for which the Option is being
exercised, unless provision for the payment of the Exercise Price has been made
pursuant to Subsection 5.7 (if payment is made with Stock) or Subsection 5.8,
and (d) include such other information, instruments, and documents as may be
required to satisfy any other condition to exercise contained in the Award
Agreement. The Option shall not be deemed to have been exercised unless all of
the requirements of the preceding provisions of this Subsection 5.5 have been
satisfied.
5.6 Incentive Option Exercises. During the Holder's lifetime, only the
--------------------------
Holder may exercise an Incentive Option. The Holder of an Incentive Option
shall immediately notify the Corporation in writing of any disposition of the
Stock acquired pursuant to the Incentive option that would disqualify the
Incentive Option from the Incentive Option tax treatment afforded by section 422
of the Code. The notice shall state the number of shares disposed of, the dates
of acquisition and disposition of the shares, and the consideration received
upon such disposition.
5.7 Medium and Time of Payment. The Exercise Price of an Option shall
--------------------------
be payable in full upon the exercise of the Option (a) in cash or by an
equivalent means (such as that specified in Subsection 5.8) acceptable to the
Committee, (b) on the Committee's prior consent, with shares of Stock owned by
the Holder (including shares received upon exercise of the Option or restricted
shares already held by the Holder) and having a Fair Market Value at least equal
to the aggregate Exercise Price payable in connection with such exercise, or (c)
by any combination of clauses (a) and (b). If the Committee elects to accept
shares of Stock in payment of all or any portion of the Exercise Price, then
(for purposes of payment of the Exercise Price) those shares of Stock shall be
deemed to have a cash value equal to their aggregate Fair Market Value
determined as of the date of the delivery of the Exercise Notice. If the
Committee elects to accept shares of Restricted Stock in payment of all
12
<PAGE>
or any portion of the Exercise Price, then an equal number of shares issued
pursuant to the exercise shall be restricted on the same terms and for the
restriction period remaining on the shares used for payment.
5.8 Payment with Sale Proceeds. In addition, at the request of the
--------------------------
Holder and to the extent permitted by applicable law, the Committee may (but
shall not be required to) approve arrangements with a brokerage firm under which
that brokerage firm, on behalf of the Holder, shall pay to the Corporation the
Exercise Price of the Option being exercised and the Corporation shall promptly
deliver the exercised shares of Stock to the brokerage firm. Such transaction
shall be effected in accordance with the procedures that the Committee may
establish from time to time.
5.9 Payment of Taxes. The Committee may, in its discretion, require a
----------------
Holder to pay to the Corporation (or the Corporation's Subsidiary if the Holder
is an employee of a Subsidiary of the Corporation), at the time of the exercise
of an Option, the amount that the Committee deems necessary to satisfy the
Corporation's or its Subsidiary's current or future obligation to withhold
federal, state, or local income or other taxes that the Holder incurs by
exercising an Option. Upon the exercise of an Option requiring tax withholding,
a Holder may (a) direct the Corporation to withhold from the shares of Stock to
be issued to the Holder the number of shares necessary to satisfy the
Corporation's obligation to withhold taxes, that determination to be based on
the shares' Fair Market Value as of the date of exercise; (b) deliver to the
Corporation sufficient shares of Stock (based upon the Fair Market Value at date
of withholding) to satisfy the Corporation's tax withholding obligations, which
tax withheld is based on the shares' Fair Market Value as of the date of
exercise; or (c) deliver sufficient cash to the Corporation to satisfy its tax
withholding obligations. Holders who elect to use such a stock withholding
feature must make the election at the time and in the manner that the Committee
prescribes. The Committee may, at its sole option, deny any Holder's request to
satisfy withholding obligations through Stock instead of cash or may impose any
conditions or actions it deems appropriate, including the escrow of shares of
Stock. If the Committee subsequently determines that the aggregate Fair Market
Value (as determined above) of any shares of Stock withheld or delivered as
payment of any tax withholding obligation is insufficient to discharge that tax
withholding obligation, then the Holder shall pay to the Corporation,
immediately upon the Committee's request, the amount of that deficiency in the
form of payment requested by the Committee.
5.10 Limitation on Aggregate Value of Shares That May Become First
-------------------------------------------------------------
Exercisable During Any Calendar Year Under an Incentive Option. Except as is
- --------------------------------------------------------------
otherwise provided in Subsection 9.3, with respect to any Incentive Option
granted under this Plan, the aggregate Fair Market Value of shares of Stock
subject to an Incentive Option and the aggregate Fair Market Value of shares of
Stock or stock of any Subsidiary (or a predecessor of the Corporation or a
Subsidiary) subject to any other incentive stock option (within the meaning of
Section 422 of the Code) of the Corporation or its Subsidiaries (or a
predecessor corporation of any such corporation) that first become purchasable
by a Holder in any calendar year may not (with respect to that Holder) exceed
$100,000, or such other amount as may be prescribed under Section 422 of the
Code or applicable regulations or rulings from time to time. As used in the
previous sentence, Fair Market Value shall be determined as of the date the
Incentive Option is granted. For purposes of this Subsection 5.10, "predecessor
corporation" means (a) a corporation that was a party to a transaction described
in Section 424(a) of the Code (or which would be so described if a substitution
or assumption under that Section had been effected) with
13
<PAGE>
the Corporation, (b) a corporation which, at the time the new incentive stock
option (within the meaning of Section 422 of the Code) is granted, is a
Subsidiary of the Corporation or a predecessor corporation of any such
corporations, or (c) a predecessor corporation of any such corporations.
Failure to comply with this provision shall not impair the enforceability or
exercisability of any Option, but shall cause the excess amount of shares to be
reclassified in accordance with the Code.
5.11 No Fractional Shares. The Corporation shall not in any case be
--------------------
required to sell, issue, or deliver a fractional share with respect to any
Award. In lieu of the issuance of any fractional share of Stock, the Corporation
shall pay to the Holder an amount in cash equal to the same fraction (as the
fractional Stock) of the Fair Market Value of a share of Stock determined as of
the date of the applicable Exercise Notice.
5.12 Modification, Extension, and Renewal of Options. Subject to the
-----------------------------------------------
terms and conditions of and within the limitations of the Plan, Rule 16b-3, the
performance-based compensation exemption of section 162(m), and any consent
required by the last sentence of this Subsection 5.12, the Committee may (a)
modify, extend, or renew outstanding Options granted under the Plan, (b) accept
the surrender of Options outstanding hereunder (to the extent not previously
exercised) and authorize the granting of new Options in substitution for
outstanding Options (to the extent not previously exercised), and (c) amend the
terms of an Incentive Option at any time to include provisions that have the
effect of changing the Incentive Option to a Nonstatutory Option. Nevertheless,
without the consent of the Holder, the Committee may not modify any outstanding
Incentive Options so as to specify a higher or lower Exercise Price or accept
the surrender of outstanding Incentive Options and authorize the granting of new
Options in substitution therefor specifying a higher or lower Exercise Price.
In addition, no modification of an Option granted hereunder shall, without the
consent of the Holder, impair any rights or obligations under any Option
theretofore granted to such Holder under the Plan except, with respect to
Incentive Options, as may be necessary to satisfy the requirements of Section
422 of the Code or as permitted in clause (c) of this Subsection 5.12.
5.13 Other Agreement Provisions. The Award Agreements authorized under
--------------------------
the Plan shall contain such provisions in addition to those required by the Plan
(including without limitation restrictions or the removal of restrictions upon
the exercise of the Option and the retention or transfer of shares thereby
acquired) as the Committee may deem advisable. Each Award Agreement shall
identify the Option evidenced thereby as an Incentive Option or Nonstatutory
Option, as the case may be, and no Award Agreement shall cover both an Incentive
Option and a Nonstatutory Option. Each Award Agreement relating to an Incentive
Option granted hereunder shall contain such limitations and restrictions upon
the exercise of the Incentive Option to which it relates as shall be necessary
for the Incentive Option to which such Award Agreement relates to constitute an
incentive stock option, as defined in Section 422 of the Code.
5.14 Reload Options. An Award Agreement related to an Option may, in the
--------------
discretion of the Committee, contain a provision pursuant to which a Holder who
pays all or a portion of the Exercise Price of an Option or the tax required to
be withheld pursuant to the exercise of an Option by surrendering shares of
Stock shall automatically be granted an Option for the purchase of the number of
shares of Stock equal to the number of shares surrendered (a "Reload Option").
The Date of Grant of the Reload Option shall be the date on which the Holder
surrenders the shares of Stock in respect of which the Reload Option is granted.
The Reload Option shall have an Exercise Price
14
<PAGE>
equal to the Fair Market Value of a share of Stock on the Date of Grant of the
Reload Option. The Reload Option shall have a term that expires on the
expiration date of the original Option. Other terms and conditions of a Reload
Option, including the time or times at which it becomes exercisable, shall be
the same as the original Option with respect to which it is granted.
SECTION 6. STOCK APPRECIATION RIGHTS
All Stock Appreciation Rights granted under the Plan shall comply
with, and the related Award Agreements shall be deemed to include and be subject
to, the terms and conditions set forth in this Section 6 (to the extent each
term and condition applies to the form of Stock Appreciation Right) and also the
terms and conditions set forth in Sections 9 and 10; provided, however, that the
-------- -------
Committee may authorize an Award Agreement related to a Stock Appreciation Right
that expressly contains terms and provisions that differ from the terms and
provisions set forth in Subsections 9.2, 9.3, and 9.4 and any of the terms and
provisions of Section 10 (other than Subsections 10.10 and 10.11).
6.1 Form of Right. A Stock Appreciation Right may be granted to an
-------------
Eligible Individual (a) in connection with an Option, either at the time of
grant or at any time during the term of the Option, or (b) independent of an
Option.
6.2 Rights Related to Options. A Stock Appreciation Right granted
-------------------------
pursuant to an Option shall entitle the Holder, upon exercise, to surrender that
Option or any portion thereof, to the extent unexercised, and to receive payment
of an amount computed pursuant to Subsection 6.2(b). That Option shall then
cease to be exercisable to the extent surrendered. Stock Appreciation Rights
granted in connection with an Option shall be subject to the terms of the Award
Agreement governing the Option, which shall comply with the following provisions
in addition to those applicable to Options:
(a) Exercise and Transfer. Subject to Subsection 10.10, a Stock
---------------------
Appreciation Right granted in connection with an Option shall be exercisable
only at such time or times and only to the extent that the related Option is
exercisable and shall not be transferable except to the extent that the related
Option is transferable.
(b) Value of Right. Upon the exercise of a Stock Appreciation Right
--------------
related to an Option, the Holder shall be entitled to receive payment from the
Corporation of an amount determined by Multiplying:
(i) The difference obtained by subtracting the Exercise Price
of a share of Stock specified in the related Option from the Fair Market Value
of a share of Stock on the date of exercise of the Stock Appreciation Right, by
(ii) The number of shares as to which that Stock Appreciation
Right has been exercised.
15
<PAGE>
6.3 Right Without Option. A Stock Appreciation Right granted
--------------------
independent of an Option shall be exercisable as determined by the Committee and
set forth in the Award Agreement governing the Stock Appreciation Right, which
Award Agreement shall comply with the following provisions:
(a) Number of Shares. Each Award Agreement shall state the total
----------------
number of shares of Stock to which the Stock Appreciation Right relates.
(b) Vesting. Each Award Agreement shall state the time or periods
-------
in which the right to exercise the Stock Appreciation Right or a portion thereof
shall vest and the number of shares of Stock for which the right to exercise the
Stock Appreciation Right shall vest at each such time or period.
(c) Expiration of Rights. Each Award Agreement shall state the date
--------------------
at which the Stock Appreciation Rights shall expire if not previously exercised.
(d) Value of Right. Each Stock Appreciation Right shall entitle the
--------------
Holder, upon exercise thereof, to receive payment of an amount determined by
multiplying:
(i) The difference obtained by subtracting the SAR Exercise
Price from the Fair Market Value of a share of Stock on the date of exercise of
that Stock Appreciation Right, by
(ii) The number of rights as to which the Stock Appreciation
Right has been exercised.
6.4 Limitations on Rights. Notwithstanding Subsections 6.2(b) and
---------------------
6.3(d), the Committee may limit the amount payable upon exercise of a Stock
Appreciation Right. Any such limitation must be determined as of the Date of
Grant and be noted on the Award Agreement evidencing the Holder's Stock
Appreciation Right.
6.5 Payment of Rights. Payment of the amount determined under
-----------------
Subsection 6.2(b) or 6.3(d) and Subsection 6.4 may be made, in the sole
discretion of the Committee, solely in whole shares of Stock valued at Fair
Market Value on the date of exercise of the Stock Appreciation Right, solely in
cash, or in a combination of cash and whole shares of Stock. If the Committee
decides to make full payment in shares of Stock and the amount payable results
in a fractional share, payment for the fractional share shall be made in cash.
6.6 Payment of Taxes. The Committee may, in its discretion, require a
----------------
Holder to pay to the Corporation (or the Corporation's Subsidiary if the Holder
is an employee of a Subsidiary of the Corporation), at the time of the exercise
of a Stock Appreciation Right, the amount that the Committee deems necessary to
satisfy the Corporation's or its Subsidiary's current or future obligation to
withhold federal, state, or local income or other taxes that the Holder incurs
by exercising a Stock Appreciation Right. Upon the exercise of a Stock
Appreciation Right requiring tax withholding, a Holder may (a) direct the
Corporation to withhold from the shares of Stock to be issued to the Holder the
number of shares necessary to satisfy the Corporation's obligation to withhold
taxes, that determination to be based on the shares' Fair Market Value as of the
date of exercise; (b) deliver to the Corporation sufficient shares of Stock
(based upon the Fair Market Value at date of withholding)
16
<PAGE>
to satisfy the Corporation's tax withholding obligations, based on the shares'
Fair Market Value as of the date of exercise; or (c) deliver sufficient cash to
the Corporation to satisfy its tax withholding obligations. Holders who elect
to have Stock withheld pursuant to (a) or (b) above must make the election at
the time and in the manner that the Committee prescribes. The Committee may, in
its sole discretion, deny any Holder's request to satisfy withholding
obligations through Stock instead of cash. In the event the Committee
subsequently determines that the aggregate Fair Market Value (as determined
above) of any shares of Stock withheld or delivered as payment of any tax
withholding obligation is insufficient to discharge that tax withholding
obligation, then the Holder shall pay to the Corporation, immediately upon the
Committee's request, the amount of that deficiency in the form of payment
requested by the Committee.
6.7 Other Agreement Provisions. The Award Agreements authorized
--------------------------
relating to Stock Appreciation Rights shall contain such provisions in addition
to those required by the Plan (including without limitation restrictions or the
removal of restrictions upon the exercise of the Stock Appreciation Right and
the retention or transfer of shares thereby acquired) as the Committee may deem
advisable.
SECTION 7. RESTRICTED STOCK AWARDS
All Restricted Stock Awards granted under the Plan shall comply with and be
subject to, and the related Award Agreements shall be deemed to include, the
terms and conditions set forth in this Section 7 and also to the terms and
conditions set forth in Sections 9 and 10; provided, however, that the Committee
-------- -------
may authorize an Award Agreement related to a Restricted Stock Award that
expressly contains terms and provisions that differ from the terms and
provisions set forth in Subsections 9.2, 9.3, and 9.4 and the terms and
provisions set forth in Section 10 (other than Subsections 10.10 and 10.11).
7.1 Restrictions. All shares of Restricted Stock Awards granted or sold
------------
pursuant to the Plan shall be subject to the following conditions:
(a) Transferability. The shares may not be sold, transferred, or
---------------
otherwise alienated or hypothecated until the restrictions are removed or
expire.
(b) Conditions to Removal of Restrictions. Conditions to removal or
-------------------------------------
expiration of the restrictions may include, but are not required to be limited
to, achievement of specific numeric targets under one or more Stockholder
Approved Standards, continuing employment or service as a director, officer,
consultant, or advisor or achievement of performance objectives described in the
Award Agreement.
(c) Performance Based. For Restricted Stock Awards that are
-----------------
intended to qualify for the performance based compensation exception to Section
162(m), the Committee shall select a specific period of time of no less than six
months during which numeric targets of Stockholder Approved Standards must be
achieved. Before 90 days following the start of the period of service to which
the Award relates (or 25% of that period, if sooner), the Committee will specify
in writing the period of time, the Stockholder Approved Standard, and the
numeric targets.
17
<PAGE>
(d) Legend. Each certificate representing Restricted Stock Awards
------
granted pursuant to the Plan shall bear a legend making appropriate reference to
the restrictions imposed.
(e) Possession. The Committee, at its sole discretion, may (i)
----------
authorize issuance of a certificate for shares of Stock in the Holder's name
only upon lapse of the applicable restrictions, (ii) require the Corporation to
retain physical custody of the certificates representing Restricted Stock Awards
during the restriction period and may require the Holder of the Award to execute
stock powers in blank for those certificates and deliver those stock powers to
the Corporation, or (iii) require the Holder to enter into an escrow agreement
providing that the certificates representing Restricted Stock Awards granted or
sold pursuant to the Plan shall remain in the physical custody of an escrow
holder until all restrictions are removed or expire. The Corporation may issue
shares of Stock subject to stop-transfer instructions or may issue such shares
subject only to the restrictive legend described in Subsection 7.1(c).
(f) Other Conditions. The Committee may impose other conditions on
----------------
any shares granted or sold as Restricted Stock Awards pursuant to the Plan as it
may deem advisable, including without limitation (i) restrictions under the
Securities Act or Exchange Act, (ii) the requirements of any securities exchange
upon which the shares or shares of the same class are then listed, and (iii) any
state securities law applicable to the shares.
7.2 Expiration of Restrictions. The restrictions imposed in Subsection
--------------------------
7.1 on Restricted Stock Awards shall lapse as determined by the Committee and
set forth in the applicable Award Agreement, and the Corporation shall promptly
deliver to the Holder of the Restricted Stock Award a certificate representing
the number of shares for which restrictions have lapsed, free of any restrictive
legend relating to the lapsed restrictions. Each Restricted Stock Award may
have a different restriction period as determined by the Committee in its sole
discretion. The Committee may, in its discretion, prospectively reduce the
restriction period applicable to a particular Restricted Stock Award. With
respect to any Restricted Stock Award intended to constitute performance-based
compensation under Section 162(m), the Committee will certify, prior to the
lapse of the restrictions imposed in Subsection 7.1, that the applicable
Stockholder Approved Standard has been achieved. This requirement will be
satisfied if approved written minutes are kept of the meeting of the Committee
at which certification occurs.
7.3 Rights as Stockholder. Subject to the provisions of Subsections 7.1
---------------------
and 10.11, the Committee may, in its discretion, determine what rights, if any,
the Holder shall have with respect to the Restricted Stock Awards granted or
sold, including the right to vote the shares and receive all dividends and other
distributions paid or made with respect thereto.
7.4 Payment of Taxes. The Committee may, in its discretion, require a
----------------
Holder to pay to the Corporation (or the Corporation's Subsidiary if the Holder
is an employee of a Subsidiary of the Corporation) the amount that the Committee
deems necessary to satisfy the Corporation's or its Subsidiary's current or
future obligation to withhold federal, state, or local income or other taxes
that the Holder incurs by reason of the Restricted Stock Award. The Holder may
(a) direct the Corporation to withhold from the shares of Stock to be issued to
the Holder the number of shares necessary to satisfy the Corporation's
obligation to withhold taxes, that determination to be based on the shares' Fair
Market Value as of the date on which tax withholding is to be made; (b) deliver
to the Corporation sufficient shares of Stock (based upon the Fair Market Value
at date of withholding) to
18
<PAGE>
satisfy the Corporation's tax withholding obligations, which tax withheld is
based on the shares' Fair Market Value as of the date of exercise; or (c)
deliver sufficient cash to the Corporation to satisfy its tax withholding
obligations. Holders who elect to have Stock withheld pursuant to (a) or (b)
above must make the election at the time and in the manner that the Committee
prescribes. The Committee may, in its sole discretion, deny any Holder's
request to satisfy withholding obligations through Stock instead of cash. In
the event the Committee subsequently determines that the aggregate Fair Market
Value (as determined above) of any shares of Stock withheld or delivered as
payment of any tax withholding obligation is insufficient to discharge that tax
withholding obligation, then the Holder shall pay to the Corporation,
immediately upon the Committee's request, the amount of that deficiency.
7.5 Other Agreement Provisions. The Award Agreements relating to
--------------------------
Restricted Stock Awards shall contain such provisions in addition to those
required by the Plan as the Committee may deem advisable.
SECTION 8. AWARDS TO NON-EMPLOYEE DIRECTORS
8.1 Eligibility for Certain Awards. Non-employee Directors shall be
------------------------------
eligible to receive any Awards under the Plan other than Incentive Options.
8.2 Tax Withholding. The Corporation shall have the right to require a
---------------
Non-employee Director to pay to the Corporation the amount necessary to satisfy
the Corporation's current or future obligation to withhold federal, state or
local income or other taxes that the Non-employee Director incurs by vesting of
any Award. Tax withholding obligations in respect to Awards to Non-employee
Directors may not be satisfied by the Corporation's withholding of Stock subject
to the Award or by the Non-employee Director's transfer of Stock to the
Corporation.
SECTION 9. ADJUSTMENT PROVISIONS
9.1 Adjustment of Awards and Authorized Stock. The terms of an Award
-----------------------------------------
and the number of shares of Stock authorized pursuant to Section 2.1 for
issuance under the Plan shall be subject to adjustment from time to time, in
accordance with the following provisions:
(a) If at any time, or from time to time, the Corporation shall
subdivide as a whole (by reclassification, by a Stock split, by the issuance of
a distribution on Stock payable in Stock, or otherwise) the number of shares of
Stock then outstanding into a greater number of shares of Stock, then (i) the
maximum number of shares of Stock available for the Plan as provided in Section
2.1 shall be increased proportionately, and the kind of shares or other
securities available for the Plan shall be appropriately adjusted, (ii) the
number of shares of Stock (or other kind of shares or securities) that may be
acquired under any Award shall be increased proportionately, and (iii) the price
(including Exercise Price) for each share of Stock (or other kind of shares or
securities) subject to then outstanding Awards shall be reduced proportionately,
without changing the aggregate purchase price or value as to which outstanding
Awards remain exercisable or subject to restrictions.
19
<PAGE>
(b) If at any time, or from time to time, the Corporation shall
consolidate as a whole (by reclassification, reverse stock split, or otherwise)
the number of shares of Stock then outstanding into a lesser number of shares of
Stock, (i) the maximum number of shares of Stock available for the Plan as
provided in Section 2.1 shall be decreased proportionately, and the kind of
shares or other securities available for the Plan shall be appropriately
adjusted, (ii) the number of shares of Stock (or other kind of shares or
securities) that may be acquired under any Award shall be decreased
proportionately, and (iii) the price (including Exercise Price) for each share
of Stock (or other kind of shares or securities) subject to then outstanding
Awards shall be increased proportionately, without changing the aggregate
purchase price or value as to which outstanding Awards remain exercisable or
subject to restrictions.
(c) Whenever the number of shares of Stock subject to outstanding
Awards and the price for each share of Stock subject to outstanding Awards are
required to be adjusted as provided in this Subsection 9.1, the Committee shall
promptly prepare a notice setting forth, in reasonable detail, the event
requiring adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the change in price and the number of shares of
Stock, other securities, cash, or property purchasable subject to each Award
after giving effect to the adjustments. The Committee shall promptly give each
Holder such a notice.
(d) Adjustments under Subsections 9(a) and (b) shall be made by the
Committee, and its determination as to what adjustments shall be made and the
extent thereof shall be final, binding, and conclusive. No fractional interest
shall be issued under the Plan on account of any such adjustments.
9.2 Changes in Control. Any Award Agreement or other agreement between
------------------
the Corporation and the Holder may provide that, upon the occurrence of a Change
in Control, (a) each Holder of an Option shall immediately be granted
corresponding Stock Appreciation Rights; (b) all outstanding Stock Appreciation
Rights and Options shall immediately become fully vested and exercisable in
full, including that portion of any Stock Appreciation Right or Option that
pursuant to the terms and provisions of the applicable Award Agreement had not
yet become exercisable (the total number of shares of Stock as to which a Stock
Appreciation Right or Option is exercisable upon the occurrence of a Change in
Control is referred to herein as the "Total Shares"); and (c) the restriction
period of any Restricted Stock Award shall immediately be accelerated and the
restrictions shall expire. If a Change in Control involves a Restructuring or
occurs in connection with a series of related transactions involving a
Restructuring and if such Restructuring is in the form of a Non-Surviving Event
and as a part of such Restructuring shares of Stock, other securities, cash, or
property shall be issuable or deliverable in exchange for Stock, then the Holder
of an Award shall be entitled to purchase or receive (in lieu of the Total
Shares that the Holder would otherwise be entitled to purchase or receive), as
appropriate for the form of Award, the number of shares of Stock, other
securities, cash, or property to which that number of Total Shares would have
been entitled in connection with such Restructuring (and, for Options, at an
aggregate exercise price equal to the Exercise Price that would have been
payable if that number of Total Shares had been purchased on the exercise of the
Option immediately before the consummation of the Restructuring). Nothing in
this Subsection 9.2 shall impose on a Holder the obligation to exercise any
Award immediately before or upon the Change of Control, nor shall the Holder
forfeit the right to exercise the Award during the remainder of the original
term of the Award because of a Change in Control or because the Holder's
20
<PAGE>
employment is terminated for any reason following a Change in Control; provided
that the related Award Agreement or a written employment agreement governing the
terms of employment of such Holder may impose such obligation or cause such
forfeiture.
9.3 Restructuring Without Change in Control. In the event a
---------------------------------------
Restructuring shall occur at any time while there is any outstanding Award
hereunder and that Restructuring does not occur in connection with a Change in
Control or a series of related transactions involving a Change in Control, then:
(a) no outstanding Option or Stock Appreciation Right shall
immediately become fully vested and exercisable in full merely because of the
occurrence of the Restructuring;
(b) no Holder of an Option shall automatically be granted
corresponding Stock Appreciation Rights;
(c) the restriction period of any Restricted Stock Award shall not
immediately be accelerated and the restrictions expire merely because of the
occurrence of the Restructuring; and
(d) at the option of the Committee, the Committee may (but shall not
be required to) cause the Corporation to take any one or more of the following
actions:
(i) accelerate in whole or in part the time of the vesting and
exercisability of any one or more of the outstanding Stock Appreciation Rights
and Options so as to provide that those Stock Appreciation Rights and Options
shall be exercisable before, upon, or after the consummation of the
Restructuring;
(ii) grant each Holder of an Option corresponding Stock
Appreciation Rights;
(iii) accelerate in whole or in part the expiration of some or
all of the restrictions on any Restricted Stock Award;
(iv) if the Restructuring is in the form of a Non-Surviving
Event, cause the surviving entity to assume in whole or in part any one or more
of the outstanding Awards upon such terms and provisions as the Committee deems
desirable (including, without limitation, in a Restructuring in which shares of
Stock, other securities, cash or property shall be issuable or deliverable in
exchange for Stock, causing the surviving entity to issue and deliver to the
Holder of an Award (in lieu of the total number of shares of Stock as to which a
Stock Appreciation Right or Option is exercisable in accordance with its terms),
as appropriate for the form of Award, the number of shares of Stock, other
securities, cash, or property to which that number of shares of Stock would be
entitled in connection with such Restructuring (and, for Options, at an
aggregate exercise price equal to the Exercise Price that would have been
payable if that number of shares of Stock had been purchased on the exercise of
the Option immediately before consummation of the Restructuring)); or
(v) redeem in whole or in part any one or more of the
outstanding Awards (whether or not then exercisable) in consideration of a cash
payment, as such payment may be reduced
21
<PAGE>
for tax withholding obligations as contemplated in Subsections 5.9, 6.6, or 7.4,
as applicable, in an amount equal to:
(A) for Options and Stock Appreciation Rights granted in
connection with Options, the excess of (1) the Fair Market Value, determined as
of the date immediately preceding the consummation of the Restructuring, of the
aggregate number of shares of Stock subject to the Award and as to which the
Award is being redeemed over (2) the Exercise Price for that number of shares of
Stock;
(B) for Stock Appreciation Rights not granted in
connection with an Option, the excess of (1) the Fair Market Value, determined
as of the date immediately preceding the consummation of the Restructuring, of
the aggregate number of shares of Stock subject to the Award and as to which the
Award is being redeemed over (2) the Fair Market Value of the number of shares
of Stock on the Date of Grant; and
(C) for Restricted Stock Awards, the Fair Market Value,
determined as of the date immediately preceding the consummation of the
Restructuring, of the aggregate number of shares of Stock subject to the Award
and as to which the Award is being redeemed.
The Corporation s hall promptly notify each Holder of any election or
action taken by the Corporation under this Subsection 9.3. In the event of any
election or action taken by the Corporation pursuant to this Subsection 9.3 that
requires the amendment or cancellation of any Award Agreement as may be
specified in any notice to the Holder thereof, that Holder shall promptly
deliver that Award Agreement to the Corporation in order for that amendment or
cancellation to be implemented by the Corporation and the Committee. The failure
of the Holder to deliver any such Award Agreement to the Corporation as provided
in the preceding sentence shall not in any manner affect the validity or
enforceability of any action taken by the Corporation and the Committee under
this Subsection 9.3, including without limitation any redemption of an Award as
of the consummation of a Restructuring. Any cash payment to be made by the
Corporation pursuant to this Subsection 9.3 in connection with the redemption of
any outstanding Awards shall be paid to the Holder thereof concurrently with the
delivery to the Corporation of the Award Agreement evidencing that Award;
provided, however, that any such redemption shall be effective upon the
- -------- -------
consummation of the Restructuring notwithstanding that the payment of the
redemption price may occur subsequent to the consummation. If all or any portion
of an outstanding Award is to be exercised, or accelerated to upon or after the
consummation of a Restructuring that is in the form of a Non-Surviving Event,
and as a part of that Restructuring shares of Stock, other securities, cash, or
property shall be issuable or deliverable in exchange for Stock, then the Holder
of the Award shall thereafter be entitled to purchase or receive (in lieu of the
number of shares of Stock that the Holder would otherwise be entitled to
purchase or receive) the number of shares of Stock, other securities, cash, or
property to which such number of shares of Stock would have been entitled in
connection with the Restructuring (and, for Options, upon payment of the
aggregate exercise price equal to the Exercise Price that would have been
payable if that number of Total Shares had been purchased on the exercise of the
Option immediately before the consummation of the Restructuring) and such Award
shall be subject to adjustments that shall be as nearly equivalent as may be
practical to the adjustments provided for in this Section 9.
22
<PAGE>
9.4 Notice of Restructuring. The Corporation shall attempt to keep all
-----------------------
Holders informed with respect to any Restructuring or of any potential
Restructuring to the same extent that the Corporation's stockholders are
informed by the Corporation of any such event or potential event.
SECTION 10. ADDITIONAL PROVISIONS
10.1 Termination of Employment. Subject to the last sentence of Section
-------------------------
9.2, and unless otherwise specified in a written employment agreement governing
the terms of employment of an Eligible Individual, if a Holder is an Eligible
Individual because the Holder is an Employee and if the employment relationship
is terminated for any reason other than Normal Retirement or that Holder's death
or Disability (hereinafter defined), then the following provisions shall apply
to all Awards held by that Holder that were granted in connection with that
Holder's employment:
(a) if the termination is by the Holder's employer (either the
Corporation or one of its Subsidiaries), then the following provisions shall
apply: (i) if the termination is without "cause" as defined in any written
employment agreement between the Holder and that Holder's employer, then all
Awards held by that Holder shall become immediately exercisable, all
restrictions on those Awards shall lapse, and the Awards shall survive the
termination of employment; or (ii) (a) if the termination is for "cause" as
defined in any written employment agreement between the Holder and that Holder's
employer, or (b) if the termination is with or without cause and if there is no
existing written employment agreement between that Holder and the Holder's
employer, then that portion, if any, of any and all Awards held by that Holder
that are not yet exercisable (or for which restrictions have not lapsed) as of
the date of the termination shall become null and void as of the date of the
termination; provided, however, that the portion, if any, of any and all Awards
-------- -------
held by that Holder which are exercisable (or for which restrictions have
lapsed) as of the date of such termination shall survive such termination.
(b) if the termination is by the Holder, then the following
provisions shall apply: (i) (a) if the termination is without "good reason," as
defined in any written employment agreement between the Holder and that Holder's
employer, or (b) if there is no existing written agreement between that Holder
and that Holder's employer, then that portion, if any, of any and all Awards
held by that Holder that are not yet exercisable (or for which restrictions have
not lapsed) as of the date of the termination shall become null and void as of
the date of the termination; provided, however, that the portion, if any, of any
-------- -------
and all Awards held by that Holder which are exercisable (or for which
restrictions have lapsed) as of the date of such termination shall survive such
termination; or (ii) if the termination is for "good reason," as defined in any
written employment agreement between that Holder and that Holder's employer,
then all Awards held by that Holder shall become immediately exercisable (and
all restrictions thereon shall lapse) and shall survive the termination of
employment.
With respect to any Option or Stock Appreciation Right that survives the
termination of employment pursuant to Subsections 10.1(a) and 10.1(b), the right
to exercise that Option or Stock Appreciation Right shall terminate in all cases
on the 180th day following the last date of employment with the Corporation or
its Subsidiary.
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10.2 Other Loss of Eligibility. If a Holder is an Eligible Individual
-------------------------
because the Holder is serving in a capacity other than as an Employee and if
that capacity is terminated for any reason other than the Holder's death, then
that portion, if any, of any and all Awards held by the Holder that were granted
because of that capacity which are not yet exercisable (or for which
restrictions have not lapsed) as of the date of the termination shall become
null and void as of the date of the termination; provided, however, that the
-------- -------
portion, if any, of any and all Awards held by the Holder that are then
exercisable (or for which restrictions have lapsed) as of the date of the
termination shall survive the termination.
10.3 Death. Upon the death of a Holder, any and all Awards held by the
-----
Holder that are not yet exercisable (or for which restrictions have not lapsed)
as of the date of the Holder's death shall become null and void as of the date
of death; provided, however, that the portion, if any, of any and all Awards
-------- -------
held by the Holder that are exercisable as of the date of death shall be
exercisable by that Holder's legal representatives, heirs, legatees, or
distributees for a period of the lesser of (a) the remainder of the term of the
Award or (b) 180 days following the date of the Holder's death. Any portion of
an Award not exercised upon the expiration of the lesser of the periods
specified in (a) or (b) above shall be null and void. Except as expressly
provided in this Subsection 10.3, no Award held by a Holder shall be exercisable
after the death of that Holder.
10.4 Retirement. If a Holder is an Eligible Individual because the
----------
Holder is an Employee and if that employment relationship is terminated by
reason of the Holder's Normal Retirement, then the portion, if any, of any and
all Awards held by the Holder that are not yet exercisable (or for which
restrictions have not lapsed) as of the date of that retirement shall become
null and void as of the date of retirement; provided, however, that the portion,
-------- -------
if any, of any and all Awards held by the Holder that are exercisable as of the
date of that retirement shall be exercisable for a period of the lesser of (a)
the remainder of the term of the Award or (b) 180 days following the date of
retirement. Any portion of an Award not exercised upon the expiration of the
lesser of the periods specified in (a) or (b) above shall be null and void
unless the Holder dies during such period, then the provisions of Subsection
10.3 shall govern.
10.5 Disability. If a Holder is an Eligible Individual because the
----------
Holder is an Employee and if that employment relationship is terminated by
reason of the Holder's Disability, then the portion, if any, of any and all
Awards held by the Holder that are not yet exercisable (or for which
restrictions have not lapsed) as of the date of that termination for Disability
shall become null and void as of the date of termination; provided, however,
-------- -------
that the portion, if any, of any and all Awards held by the Holder that are
exercisable as of the date of that termination shall survive the termination for
the lesser of (a) the remainder of the term of the Award or (b) 180 days
following the date of termination, and the Award shall be exercisable by the
Holder, his guardian or his legal representative. Any portion of an Award not
exercised upon the expiration of the lesser of the periods specified in (a) or
(b) above shall be null and void unless the Holder dies during such period, then
the provisions of Subsection 10.3 shall govern. "Disability" shall have the
meaning set forth in the employment agreement of the Holder; provided, however,
-------- -------
that if that Holder has no employment agreement, "Disability" shall mean, as
determined by the Board of Directors in the sole discretion exercised in good
faith of the Board of Directors, a physical or mental impairment of sufficient
severity that either the Holder is unable to continue performing the duties he
performed before such impairment or the Holder's condition entitles him to
disability benefits under any insurance or employee benefit plan of the
Corporation or its
24
<PAGE>
Subsidiaries and that impairment or condition is cited by the Corporation as the
reason for termination of the Holder's employment.
10.6 Leave of Absence. With respect to an Award, the Committee may, in
----------------
its sole discretion, determine that any Holder who is on leave of absence for
any reason will be considered to still be in the employ of the Corporation,
provided that rights to that Award during a leave of absence will be limited to
the extent to which those rights were earned, vested, or exercisable when the
leave of absence began.
10.7 Transferability of Awards. In addition to such other terms and
-------------------------
conditions as may be included in a particular Award Agreement, an Award
requiring exercise shall be exercisable during a Holder's lifetime only by that
Holder or by that Holder's guardian or legal representative. An Award requiring
exercise shall not be transferable other than by will or the laws of descent and
distribution.
10.8 Forfeiture and Restrictions on Transfer. Each Award Agreement may
---------------------------------------
contain or otherwise provide for conditions giving rise to the forfeiture of the
Stock acquired pursuant to an Award or otherwise and may also provide for those
restrictions on the transferability of shares of the Stock acquired pursuant to
an Award or otherwise that the Committee in its sole and absolute discretion may
deem proper or advisable. The conditions giving rise to forfeiture may include,
but need not be limited to, the requirement that the Holder render substantial
services to the Corporation or its Subsidiaries for a specified period of time.
The restrictions on transferability may include, but need not be limited to,
options and rights of first refusal in favor of the Corporation and stockholders
of the Corporation other than the Holder of such shares of Stock who is a party
to the particular Award Agreement or a subsequent holder of the shares of Stock
who is bound by that Award Agreement.
10.9 Delivery of Certificates of Stock. Subject to Subsection 10.10, the
---------------------------------
Corporation shall promptly issue and deliver a certificate representing the
number of shares of Stock as to which (a) an Option has been exercised after the
Corporation receives an Exercise Notice and upon receipt by the Corporation of
the Exercise Price and any tax withholding as may be requested, (b) a Stock
Appreciation Right has been exercised (to the extent the Committee determines to
pay such Stock Appreciation Right in shares of Stock pursuant to Subsection 6.5)
and upon receipt by the Corporation of any tax withholding as may be requested,
and (c) restrictions have lapsed with respect to a Restricted Stock Award and
upon receipt by the Corporation of any tax withholding as may be requested. The
value of the shares of Stock or cash transferable because of an Award under the
Plan shall not bear any interest owing to the passage of time, except as may be
otherwise provided in an Award Agreement. If a Holder is entitled to receive
certificates representing Stock received for more than one form of Award under
the Plan, separate Stock certificates shall be issued with respect to Incentive
Options and Nonstatutory Options.
10.10 Conditions to Delivery of Stock. Nothing herein or in any Award
-------------------------------
granted hereunder or any Award Agreement shall require the Corporation to issue
any shares with respect to any Award if that issuance would, in the opinion of
counsel for the Corporation, constitute a violation of the Securities Act or any
similar or superseding statute or statutes, any other applicable statute or
regulation, or the rules of any applicable securities exchange or securities
association, as then in effect. At the time of any exercise of an Option or
Stock Appreciation Right, or at the time of any grant of
25
<PAGE>
a Restricted Stock Award, the Corporation may, as a condition precedent to the
exercise of such Option or Stock Appreciation Right or vesting of any Restricted
Stock Award, require from the Holder of the Award (or in the event of his death,
his legal representatives, heirs, legatees, or distributees) such written
representations, if any, concerning the Holder's intentions with regard to the
retention or disposition of the shares of Stock being acquired pursuant to the
Award and such written covenants and agreements, if any, as to the manner of
disposal of such shares as, in the opinion of counsel to the Corporation, may be
necessary to ensure that any disposition by that Holder (or in the event of the
Holder's death, his legal representatives, heirs, legatees, or distributees)
will not involve a violation of the Securities Act or any similar or superseding
statute or statutes, any other applicable state or federal statute or
regulation, or any rule of any applicable securities exchange or securities
association.
10.11 Certain Directors and Officers. Except as otherwise permitted under
------------------------------
Rule 16b-3 and approved by the Committee, with respect to Holders who are
directors or officers of the Corporation or any of its Subsidiaries and who are
subject to Section 16(b) of the Exchange Act, Awards and all rights under the
Plan shall be exercisable during the Holder's lifetime only by the Holder or the
Holder's guardian or legal representative, but not for at least six months after
grant, unless death or disability of the Holder occurs before the expiration of
the six-month period. In addition, except as otherwise permitted under Rule
16b-3 and approved by the Committee, no such officer or director shall exercise
any Stock Appreciation Right or have shares of Stock withheld to pay tax
withholding obligations within the first six months of the term of an Award.
Except as otherwise permitted under Rule 16b-3 and approved by the Committee,
any election by any such officer or director to have tax withholding obligations
satisfied by the withholding of shares of Stock shall be irrevocable and shall
be communicated to the Committee during the period beginning on the third day
following the date of release of quarterly or annual summary statements of sales
and earnings and ending on the twelfth business day following such date (the
"Window Period") or by an irrevocable election communicated to the Committee at
least six months before the date of exercise of the Award for which such
withholding is desired. Any election by such an officer or director to receive
cash in full or partial settlement of a Stock Appreciation Right, as well as any
exercise by such individual of a Stock Appreciation Right for such cash, in
either case to the extent permitted under the applicable Award Agreement or
otherwise permitted by the Committee, shall be made during the Window Period or
within any other periods that the Committee shall specify from time to time.
10.12 Securities Act Legend. Certificates for shares of Stock, when
---------------------
issued, may have the following legend, or statements of other applicable
restrictions, endorsed thereon and may not be immediately transferable:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED,
TRANSFERRED, OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES
EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE
ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT
SUCH OFFER, SALE, PLEDGE, TRANSFER, OR OTHER DISPOSITION WILL NOT VIOLATE
APPLICABLE FEDERAL OR STATE LAWS.
26
<PAGE>
This legend shall not be required for shares of Stock issued pursuant to an
effective registration statement under the Securities Act.
10.13 Legend for Restrictions on Transfer. Each certificate representing
-----------------------------------
shares issued to a Holder pursuant to an Award granted under the Plan shall, if
such shares are subject to any transfer restriction, including a right of first
refusal, provided for under this Plan or an Award Agreement, bear a legend that
complies with applicable law with respect to the restrictions on transferability
contained in this Subsection 10.13, such as:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY IMPOSED BY THAT CERTAIN INSTRUMENT ENTITLED
"ERGO SCIENCE CORPORATION SECOND AMENDED AND RESTATED 1995 LONG-TERM
INCENTIVE PLAN" AS ADOPTED BY ERGO SCIENCE CORPORATION (THE "CORPORATION")
AND AN AGREEMENT THEREUNDER BETWEEN THE CORPORATION AND THE INITIAL HOLDER
THEREOF DATED _______________, 199__, AND MAY NOT BE TRANSFERRED, SOLD, OR
OTHERWISE DISPOSED OF EXCEPT AS THEREIN PROVIDED. THE CORPORATION WILL
FURNISH A COPY OF SUCH INSTRUMENT AND AGREEMENT TO THE RECORD HOLDER OF
THIS CERTIFICATE WITHOUT CHARGE ON REQUEST TO THE CORPORATION AT ITS
PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE.
10.14 Rights as a Stockholder. A Holder shall have no right as a
-----------------------
stockholder with respect to any shares covered by his Award until a certificate
representing those shares is issued in his name. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash or other property) or
distributions or other rights for which the record date is before the date that
certificate is issued, except as contemplated by Section 9 hereof.
Nevertheless, dividends and dividend equivalent rights may be extended to and
made part of any Award denominated in Stock or units of Stock, subject to such
terms, conditions and restrictions as the Committee may establish. The
Committee may also establish rules and procedures for the crediting of interest
on deferred cash payments and dividend equivalents for deferred payment
denominated in Stock or units of Stock.
10.15 Furnish Information. Each Holder shall furnish to the Corporation
-------------------
all information requested by the Corporation to enable it to comply with any
reporting or other requirement imposed upon the Corporation by or under any
applicable statute or regulation.
10.16 Obligation to Exercise. The granting of an Award hereunder shall
----------------------
impose no obligation upon the Holder to exercise the same or any part thereof.
10.17 Adjustments to Awards. Subject to the general limitations set
---------------------
forth in Sections 5, 6, and 9, the Committee may make any adjustment in the
exercise price of, the number of shares subject to, or the terms of a
Nonstatutory Option or Stock Appreciation Right by canceling an outstanding
Nonstatutory Option or Stock Appreciation Right and regranting a Nonstatutory
Option or Stock Appreciation Right. Such adjustment shall be made by amending,
substituting, or regranting an outstanding Nonstatutory Option or Stock
Appreciation Right. Such amendment, substitution, or regrant may result in
terms and conditions that differ from the terms and conditions of the original
27
<PAGE>
Nonstatutory Option or Stock Appreciation Right. The Committee may not,
however, impair the rights of any Holder of previously granted Nonstatutory
Options or Stock Appreciation Rights without that Holder's consent. If such
action is effected by amendment, the effective date of such amendment shall be
deemed effective as of the date of the original grant.
10.18 Remedies. The Corporation shall be entitled to recover from a
--------
Holder reasonable attorneys' fees incurred in connection with the enforcement of
the terms and provisions of the Plan and any Award Agreement whether by an
action to enforce specific performance or for damages for its breach or
otherwise.
10.19 Information Confidential. As partial consideration for the
------------------------
granting of each Award hereunder, the Holder shall agree with the Corporation
that he will keep confidential all information and knowledge that he has
relating to the manner and amount of his participation in the Plan; provided,
--------
however, that such information may be disclosed as required by law and may be
- -------
given in confidence to the Holder's spouse, tax or financial advisors, or to a
financial institution to the extent that such information is necessary to secure
a loan. In the event any breach of this promise comes to the attention of the
Committee, it shall take into consideration that breach in determining whether
to recommend the grant of any future Award to that Holder, as a factor
mitigating against the advisability of granting any such future Award to that
Person.
10.20 Consideration. No Option or Stock Appreciation Right shall be
-------------
exercisable and no restriction on any Restricted Stock Award shall lapse with
respect to a Holder unless and until the Holder thereof shall have paid cash or
property to, or performed services for, the Corporation or any of its
Subsidiaries that the Committee believes is equal to or greater in value than
the par value of the Stock subject to such Award.
SECTION 11. DURATION AND AMENDMENT OF PLAN
11.1 Duration. No Awards may be granted hereunder after the date that is
--------
ten years after the Effective Date.
11.2 Amendment. The Board of Directors may, insofar as permitted by law,
---------
with respect to any shares which, at the time, are not subject to Awards,
suspend or discontinue the Plan or revise or amend it in any respect whatsoever
and may amend any provision of the Plan or any Award Agreement to make the Plan
or the Award Agreement, or both, comply with Section 16(b) of the Exchange Act
and the exemptions from that Section in the regulations thereunder. The Board
of Directors may also amend, modify, suspend, or terminate the Plan for the
purpose of meeting or addressing any changes in other legal requirements
applicable to the Corporation or the Plan or for any other purpose permitted by
law. On and after the date that any securities of the Corporation are first
registered pursuant to Section 12 of the Exchange Act, the Plan may not be
amended without the vote of the holders of a majority of the shares of Stock
present or represented and entitled to vote at a meeting, or without the consent
of the holders of a majority of the shares of Stock then outstanding to (a)
increase the aggregate number of shares of Stock that may be issued under the
Plan (except for adjustments pursuant to Section 9 hereof), (b) increase
materially the benefits accruing to Eligible Individuals under the Plan, or (c)
modify materially the requirements for eligibility for participation in
28
<PAGE>
the Plan; provided, however, that such amendments may be made without the vote
-------- -------
or consent of stockholders of the Corporation if changes occur in law or other
legal requirements (including Section 162(m) and Rule 16b-3) that would permit
such changes.
SECTION 12. GENERAL
12.1 Application of Funds. The proceeds received by the Corporation from
--------------------
the sale of shares pursuant to Awards may be used for any general corporate
purpose.
12.2 Right of the Corporation and Subsidiaries to Terminate Employment.
-----------------------------------------------------------------
Nothing contained in the Plan, or in any Award Agreement, shall confer upon any
Holder the right to continue in the employ of the Corporation or any Subsidiary
or interfere in any way with the rights of the Corporation or any Subsidiary to
terminate the Holder's employment at any time.
12.3 No Liability for Good Faith Determinations. Neither the members of
------------------------------------------
the Board of Directors nor any member of the Committee shall be liable for any
act, omission or determination taken or made in good faith with respect to the
Plan or any Award granted under it; and members of the Board of Directors and
the Committee shall be entitled to indemnification and reimbursement by the
Corporation in respect of any claim, loss, damage, or expense (including
attorneys' fees, the costs of settling any suit, provided such settlement is
approved by independent legal counsel selected by the Corporation, and amounts
paid in satisfaction of a judgment, except a judgment based on a finding of bad
faith) arising therefrom to the full extent permitted by law and under any
directors' and officers' liability or similar insurance coverage that may from
time to time be in effect and under any contractual right to indemnification.
This right to indemnification shall be in addition to, and not a limitation on,
any other indemnification rights any member of the Board of Directors or the
Committee may have.
12.4 Other Benefits. Participation in the Plan shall not preclude the
--------------
Holder from eligibility in any other stock or stock option plan of the
Corporation or any Subsidiary or any old age benefit, insurance, pension, profit
sharing, retirement, bonus, or other compensation or benefit plans that the
Corporation or any Subsidiary has adopted, or may, at any time, adopt for its
Employees. Neither the adoption of the Plan by the Board of Directors nor the
submission of the Plan to the stockholders of the Corporation for approval shall
be construed as creating any limitations on the power of the Board of Directors
to adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock options and the awarding of stock and
cash otherwise than under the Plan and such arrangements may be either generally
applicable or applicable only in specific cases.
12.5 Exclusion From Pension and Profit-Sharing Compensation. By
------------------------------------------------------
acceptance of an Award (regardless of form), as applicable, each Holder shall be
deemed to have agreed that the Award is special incentive compensation that will
not be taken into account in any manner as salary, compensation, or bonus in
determining the amount of any payment under any pension, retirement, or other
employee benefit plan of the Corporation or any Subsidiary. In addition, each
beneficiary of a deceased Holder shall be deemed to have agreed that the Award
will not affect the amount of any life insurance coverage, if any, provided by
the Corporation or a Subsidiary on the life of the Holder that is payable to the
beneficiary under any life insurance plan covering employees of the Corporation
or any Subsidiary.
29
<PAGE>
12.6 Unfunded Plan. Insofar as it provides for Awards of cash and Stock,
-------------
the Plan shall be unfunded. Although bookkeeping accounts may be established
with respect to Holders who are entitled to cash, Stock, or rights thereto under
the Plan, any such accounts shall be used merely as a bookkeeping convenience.
The Corporation shall not be required to segregate any assets that may at any
time be represented by cash, Stock, or rights thereto, nor shall the Plan be
construed as providing for such segregation, nor shall the Corporation nor the
Board of Directors nor the Committee be deemed to be a trustee of any cash,
Stock, or rights thereto to be granted under the Plan. Any liability of the
Corporation to any Holder with respect to a grant of cash, Stock, or rights
thereto under the Plan shall be based solely upon any contractual obligations
that may be created by the Plan and any Award Agreement; no such obligation of
the Corporation shall be deemed to be secured by any pledge or other encumbrance
on any property of the Corporation. Neither the Corporation nor the Board of
Directors nor the Committee shall be required to give any security or bond for
the performance of any obligation that may be created by the Plan.
12.7 No Guarantee of Interests. Neither the Committee nor the
-------------------------
Corporation guarantees the Stock of the Corporation from loss or depreciation.
12.8 Payment of Expenses. All expenses incident to the administration,
-------------------
termination, or protection of the Plan, including, but not limited to, legal and
accounting fees, shall be paid by the Corporation or its Subsidiaries; provided,
--------
however, the Corporation or a Subsidiary may recover any and all damages, fees,
- -------
expenses, and costs arising out of any actions taken by the Corporation to
enforce its right to purchase Stock under this Plan.
12.9 Corporation Records. Records of the Corporation or its Subsidiaries
-------------------
regarding the Holder's period of employment, termination of employment and the
reason therefor, leaves of absence, re-employment, and other matters shall be
conclusive for all purposes hereunder, unless determined by the Committee to be
incorrect.
12.10 Information. The Corporation and its Subsidiaries shall, upon
-----------
request or as may be specifically required hereunder, furnish or cause to be
furnished all of the information or documentation which is necessary or required
by the Committee to perform its duties and functions under the Plan.
12.11 No Liability of Corporation. The Corporation assumes no
---------------------------
obligation or responsibility to the Holder or his legal representatives, heirs,
legatees, or distributees for any act of, or failure to act on the part of, the
Committee.
12.12 Corporation Action. Any action required of the Corporation
------------------
hereunder shall be by resolution of its Board of Directors or by a person
authorized to act by resolution of the Board of Directors.
12.13 Severability. In the event that any provision of this Plan, or
------------
the application hereof to any Person or circumstance, is held by a court of
competent jurisdiction to be invalid, illegal, or unenforceable in any respect
under present or future laws effective during the effective term of any such
provision, such invalid, illegal, or unenforceable provision shall be fully
severable; and this Plan shall then be construed and enforced as if such
invalid, illegal, or unenforceable provision had not been
30
<PAGE>
contained in this Plan; and the remaining provisions of this Plan shall remain
in full force and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance from this Plan. Furthermore, in
lieu of each such illegal, invalid, or unenforceable provision, there shall be
added automatically as part of this Plan, a provision as similar in terms to
such illegal, invalid, or unenforceable provision as may be possible and be
legal, valid, and enforceable. If any of the terms or provisions of this Plan
conflict with the requirements of Rule 16b-3 (as those terms or provisions are
applied to Eligible Individuals who are subject to Section 16(b) of the Exchange
Act), then those conflicting terms or provisions shall be deemed inoperative to
the extent they so conflict with the requirements of Rule 16b-3. If any of the
terms or provisions of this Plan or any Award Agreement conflict with the
requirements of Section 162(m) (with respect to the exception for performance-
based compensation), other than with respect to Awards not intended to
constitute performance-based compensation, then those conflicting terms or
provisions shall be deemed inoperative to the extent they conflict with those
requirements. If any of the terms or provisions of this Plan with respect to
Incentive Options conflict with the requirements of Section 422 of the Code,
then those conflicting terms or provisions shall be deemed inoperative to the
extent they so conflict with the requirements of Section 422 of the Code. With
respect to Incentive Options, if this Plan does not contain any provision
required to be included herein under Section 422 of the Code, that provision
shall be deemed to be incorporated herein with the same force and effect as if
that provision had been set out at length herein; provided, however, that, to
-------- -------
the extent any Option that is intended to qualify as an Incentive Option cannot
so qualify, that Option (to that extent) shall be deemed a Nonstatutory Option
for all purposes of the Plan.
12.14 Notices. Whenever any notice is required or permitted hereunder,
-------
such notice must be in writing and personally delivered or sent by mail. Any
notice required or permitted to be delivered hereunder shall be deemed to be
delivered on the date on which it is personally delivered or, whether actually
received or not, on the third Business Day after it is deposited in the United
States mail, certified or registered, postage prepaid, addressed to the person
who is to receive it at the address which such person has theretofore specified
by written notice delivered in accordance herewith. The Corporation or a Holder
may change, at any time and from time to time, by written notice to the other,
the address which it or he had previously specified for receiving notices.
Until changed in accordance herewith, the Corporation and each Holder shall
specify as its and his address for receiving notices the address set forth in
the Award Agreement pertaining to the shares to which such notice relates. Any
person entitled to notice hereunder may waive such notice.
12.15 Successors. The Plan shall be binding upon the Holder, his legal
----------
representatives, heirs, legatees, and distributees, upon the Corporation, its
successors and assigns and upon the Committee and its successors.
12.16 Headings. The titles and headings of Sections and Subsections are
--------
included for convenience of reference only and are not to be considered in
construction of the provisions hereof.
12.17 Governing Law. All questions arising with respect to the provisions
-------------
of the Plan shall be determined by application of the laws of the State of
Delaware, without giving effect to any conflict of law provisions thereof,
except to the extent Delaware law is preempted by federal law. Questions arising
with respect to the provisions of an Award Agreement that are matters of
contract law shall be governed by the laws of the state specified in the Award
Agreement, except to the extent Delaware
31
<PAGE>
corporate law conflicts with the contract law of such state, in which event
Delaware corporate law, without giving effect to any conflict of law provisions
thereof, shall govern. The obligation of the Corporation to sell and deliver
Stock hereunder is subject to applicable federal and state laws and to the
approval of any governmental authority required in connection with the
authorization, issuance, sale, or delivery of such Stock.
12.18 Word Usage. Words used in the masculine shall apply to the
----------
feminine where applicable, and wherever the context of this Plan dictates, the
plural shall be read as the singular and the singular as the plural.
32
<PAGE>
IN WITNESS WHEREOF, Ergo Science Corporation, acting by and through its
officer hereunto duly authorized, has executed this instrument to be effective
on the 25th day of June, 1996.
ERGO SCIENCE CORPORATION
By:______________________________
J. Warren Huff
President
Attested by:
____________________________
David R. Burt
Assistant Secretary
33
<PAGE>
ERGO SCIENCE CORPORATION
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
Ergo Science Corporation, a Delaware corporation (the "Company") has
adopted this STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS (the "Plan") to
promote the Company and its stockholders by helping to attract and retain
highly-qualified independent directors and by allowing them to develop a sense
of proprietorship and personal involvement in the development and financial
success of the Company. Accordingly, the Company shall grant to directors of
the Company who are not, and who have not been at any time since their most
recent election (or re-election) as directors, employees or paid consultants of
the Company or any of its subsidiaries ("Non-employee Directors") options (each,
an "Option") to purchase shares of the common stock, $.01 par value per share,
of the Company ("Common Stock"), as hereinafter set forth. Options granted under
this Plan shall be options that do not constitute incentive stock options within
the meaning of section 422(b) of the Internal Revenue Code of 1986, as amended
(the "Code").
1. Shares Subject to the Plan.
(a) Aggregate Shares. The aggregate number of shares of Common Stock
that may be issued pursuant to Options granted under this Plan shall not exceed
200,000 (subject to adjustment as provided in Section 7). The Company shall
reserve at all times a sufficient number of shares of unissued or treasury stock
to meet the requirements of this Plan. Any of such shares that remain unissued
and that are not subject to outstanding Options at the termination of this Plan
shall cease to be subject to this Plan.
(b) Termination and Expiration of Options. To the extent that shares
of Common Stock that are the subject of an Option granted hereunder are not
issued or cease to be issuable for any reason, including because an Option
expires or terminates prior to its exercise in full, such shares of Common Stock
shall again be available to be granted under new options and for issuance
thereunder. Exercise of an Option in any manner shall result in a decrease in
the number of shares of Common Stock that may thereafter be available for
purposes of the Plan by the number of shares as to which the Option is
exercised.
2. Grant of Options. Options shall be granted under the Plan only to
individuals who are Non-employee Directors of the Company (the "Optionees"). All
Options shall be evidenced by an option agreement dated as of the date of grant
and signed by the Optionee and on behalf of the Company by an authorized
officer. Options shall be granted as follows:
(a) Initial Option Grants. On the date each Non-employee Director is
first appointed or elected to serve as a director of the Company, the Company
will grant to that Non-employee Director an option to purchase 10,000 shares of
Common Stock; provided, however, that each Non-Employee director first appointed
or elected to serve as such prior to approval of this Plan by the stockholders
of the Company (the "Stockholder Approval Date") shall be granted under this
Plan an option to purchase 10,000 shares of Common Stock, subject to stockholder
approval, with
<PAGE>
a deemed date of grant of May 15, 1996, for all purposes under this Plan.
Notwithstanding the prior sentence, no Option shall be granted under this
Section 2(a) to Stephen A. Duzan, who has previously been granted options
("Prior Options") pursuant to the Company's Amended and Restated 1995 Long Term
Incentive Plan (the "1995 LTIP") prior to the Stockholder Approval Date.
(b) Second Grants. On the second anniversary of the date that a Non-
employee Director is first granted (or deemed to have been granted) an Option
under Section 2(a), so long as that Non-employee director has remained a
director and has not been at any time since the date of such grant an employee
or paid consultant of the Company or any of its subsidiaries, the Company will
grant to that Non-employee Director an option to purchase 10,000 shares of
Common Stock. If Stephen A. Duzan remains a director from the Stockholder
Approval Date until October 6, 1999 (the date on which his Prior Options become
fully vested), and has not been at any time during that period an employee or
paid consultant of the Company or any of its subsidiaries, the Company will
grant to Stephen A. Duzan an option to purchase 10,000 shares of Common Stock on
October 6, 1999.
(c) Pro-Ration of Remaining Shares. If, as of any date that this
Plan is in effect, there are not sufficient shares of Common Stock available
under the Plan to allow for the grant to each Non-employee Director of an Option
for the number of shares provided herein, each such director shall receive his
pro rata share of Options for which shares of Common Stock are available for
issuance.
3. Exercise Price. The exercise price for a share of Common Stock issued
under each Option granted pursuant to this Plan shall be the fair market value
for the Common Stock at the time the Option is granted (or deemed to be
granted). For all purposes under the Plan, the fair market value of a share of
Common Stock on a particular date shall mean the reported closing price of the
Common Stock on the Nasdaq National Market on the last trading day immediately
prior to such date.
4. Exercise of Options. Each Option granted under this Plan shall be
exercisable for a period of ten years from its date of grant (the "Term"),
subject to the following:
(a) Vesting. Except as provided in subparagraphs (i), (ii) and (iii)
of this Section 4(a), each Option granted under the Plan shall vest over two
years from the date of grant, with half of the shares thereunder vesting on the
first anniversary of the date of grant and half of the shares thereunder vesting
on the second anniversary of the date of grant.
(i) Death and Disability. Upon the death or Disability of an
Optionee, each option granted to that Optionee shall become vested and
exercisable with respect to all shares of Common Stock thereunder for a period
of the lesser of (A) 180 days from the date of death or Disability or (B) the
remainder of the Term of the Option. The date of Disability shall be the date on
which the Optionee has had a physical or mental impairment of sufficient
severity that the Optionee has been unable to perform for a period of at least
180 days the duties as a director that the director performed immediately before
such impairment, and is not reasonably expected to be able to resume
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performance of such duties, as determined in the sole discretion of the
Company's board of directors (the "Board") exercised in good faith.
(ii) Other Termination. Upon an Optionee's no longer serving as a
director of the Company for any reason other than the Optionee's death or
Disability, the portion of all Options granted to that Optionee that are not yet
exercisable shall become null and void; provided, however, that the portion, if
any, of all Options granted to that Optionee that are then exercisable shall be
exercisable for a period of 180 days from the date of the Optionee ceases to
serve as a director.
(iii) Change in Control. Upon the occurrence of a change in control
of the Company, all Options granted under this Plan shall immediately become
fully vested and exercisable with respect to all shares of Common Stock
thereunder for the remainder of their Term (the total number of shares of Common
Stock as to which an Option is exercisable upon the occurrence of a change in
control is referred to herein as the "Total Shares"). If a change in control
involves the merger or consolidation of the Company with or into another entity
or the exchange of all of the shares of Common Stock for securities of another
entity (collectively, a "Restructuring"), then the Optionee shall be entitled to
purchase or receive (in lieu of the Total Shares that the Optionee would
otherwise be entitled to purchase) the number of securities, cash or property to
which that number of Total Shares would have been entitled in connection with
such Restructuring (and at an aggregate exercise price equal to the exercise
price that would have been payable if that number of Total Shares had been
purchased on the exercise of the Option immediately before the consummation of
the Restructuring). Nothing in this Section 4(a)(iii) shall impose on an
Optionee the obligation to exercise any Option immediately before or upon a
change in control, nor shall the Optionee forfeit the right to exercise an
Option during the remainder of its original term. A change in control shall have
the meaning ascribed to such term in the 1995 LTIP.
(b) Method of Payment. Each Option shall be exercisable by delivery
to the Company of (i) a notice setting forth the number of shares for which the
Option is being exercised and (ii) the exercise price with respect thereto.
Delivery shall be made in person or by certified mail to the President of the
Company. Payment of the exercise price shall be in cash (and may be made by the
Optionee's broker on behalf of the Optionee under an arrangement satisfactory to
the Company).
5. Non-Transferability of Options. Options may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent and distribution. The designation of a
beneficiary by an Optionee does not constitute a transfer.
6. Adjustments Upon Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the number of shares of Common Stock
covered by each outstanding Option, the number of shares of Common Stock covered
by each Option to be granted under Section 2, and the number of shares of Common
Stock which have been authorized for issuance under the Plan but as to which no
Options have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by
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each such outstanding Option, shall be proportionately adjusted for any increase
or decrease in the number of issued shares of Common Stock resulting from a
stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option.
7. Term of the Plan. This Plan shall be effective on approval by the
holders of the outstanding shares of Common Stock of the Company in the manner
required by Rule 16b-3 ("Rule 16b-3") of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and, except with respect to Options then
outstanding, shall terminate in accordance with Section 6 or Section 8 or when
there are no shares remaining available for grant hereunder.
8. Amendment and Termination of the Plan. The Board, in its discretion,
may terminate this Plan at any time with respect to any shares of Common Stock
for which Options have not theretofore been granted. The Board shall have the
right to alter or amend this Plan or any part hereof from time to time;
provided, however, that no change in any Option granted may be made that would
impair the rights of an Optionee without the consent of such Optionee.
Notwithstanding the prior sentence, unless Rule 16b-3, the Code or ERISA or the
rules and regulations thereunder are amended to not require stockholder approval
of such alterations or amendments of this Plan, this Plan shall not be amended
without the approval of the stockholders of the Company (i) more than once every
six months or other than to comport with changes in the Code, ERISA or the rules
thereunder or (ii) to materially increase the benefits accruing to participants
under this Plan, increase the aggregate number of shares that may be issued
pursuant to the provisions of this Plan, modify the requirements as to
eligibility for participation in the Plan or extend the terms of this Plan.
9. Compliance with Section 16. It is intended that this Plan and any
grant of an Option made to a person subject to Section 16 of the Exchange Act
meet all of the requirements of Rule 16b-3, as currently in effect or as
hereinafter modified or amended. If any provision of this Plan or any such
Option would disqualify this Plan or such Option under, or would otherwise not
comply with, Rule 16b-3, such provision or Option shall be construed or deemed
amended to conform to Rule 16b-3.
IN WITNESS WHEREOF, Ergo Science Corporation, acting by and through its
duly authorized officers, has executed this instrument and certifies that its
effective date is the 25th day of June, 1996.
ERGO SCIENCE CORPORATION
By:________________________
J. Warren Huff
Chief Executive Officer
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