<PAGE> 1
PIA MERCHANDISING SERVICES, INC.
19900 MacArthur Boulevard, Suite 900
Irvine, California 92612
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 12, 1998
TO THE STOCKHOLDERS OF PIA MERCHANDISING SERVICES, INC.:
The 1998 Annual Meeting of Stockholders (the "1998 Annual Meeting") of
PIA Merchandising Services, Inc. (the "Company" or "PIA") will be held at 10:00
a.m., Pacific Time, on Tuesday, May 12, 1998 at The Sutton Place Hotel, 4500
MacArthur Boulevard, Newport Beach, California 92660, for the following
purposes:
1. To elect seven Directors of the Company to serve during the
ensuing year and until their successors are elected and
qualified.
2. To approve an amendment to the 1995 Stock Option Plan to increase
the number of shares that may be issued pursuant to such Plan
from 1,000,000 to 1,300,000.
3. To ratify the appointment of Deloitte & Touche LLP as the
Company's independent auditors for the year ending December 31,
1998.
4. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only the stockholders of record at the close
of business on March 13, 1998 will be entitled to notice of and to vote at the
1998 Annual Meeting or any adjournment or postponement thereof.
A copy of the Company's Annual Report to Stockholders and Form 10-K for
the fiscal year ended December 31, 1997 is being mailed with this Notice but is
not to be considered part of the proxy soliciting material.
By Order of the Board of Directors
CATHY L. WOOD
Secretary
April 1, 1998
Irvine, California
YOU ARE URGED TO VOTE UPON THE MATTERS PRESENTED AND TO SIGN, DATE AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED. IT IS IMPORTANT FOR
YOU TO BE REPRESENTED AT THE MEETING. PROXIES ARE REVOCABLE AT ANY TIME AND THE
EXECUTION OF YOUR PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ARE
PRESENT AT THE MEETING.
REQUESTS FOR ADDITIONAL COPIES OF PROXY MATERIALS SHOULD BE ADDRESSED TO
CATHY L. WOOD, EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY,
AT THE OFFICES OF THE COMPANY, 19900 MACARTHUR BOULEVARD, SUITE 900, IRVINE,
CALIFORNIA 92718.
<PAGE> 2
PIA MERCHANDISING SERVICES, INC.
19900 MACARTHUR BOULEVARD, SUITE 900
IRVINE, CALIFORNIA 92718
PROXY STATEMENT
1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 12, 1998
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of PIA Merchandising Services,
Inc., a Delaware corporation (the "Company"), for use at the 1998 Annual Meeting
of Stockholders (the "1998 Annual Meeting") to be held on Tuesday, May 12, 1998
at 10:00 a.m., Pacific Time, at The Sutton Place Hotel, 4500 MacArthur
Boulevard, Newport Beach, California 92660, and any adjournment or postponement
thereof. This Proxy Statement and the form of proxy to be utilized at the 1998
Annual Meeting were mailed or delivered to the stockholders of the Company on or
about April 8, 1998.
MATTERS TO BE CONSIDERED
The 1998 Annual Meeting has been called to (1) elect seven Directors of
the Company to serve during the ensuing year and until their successors are
elected and qualified, (2) approve an amendment to the 1995 Stock Option Plan to
increase the number of shares that may be issued pursuant to such Plan from
1,000,000 to 1,300,000, (3) ratify the appointment of Deloitte & Touche LLP as
the Company's independent auditors for the year ending December 31, 1998 and (4)
transact such other business as may properly come before the meeting or any
adjournment or postponement thereof.
RECORD DATE AND VOTING
The Board has fixed the close of business on March 13, 1998 as the record
date (the "Record Date") for the determination of stockholders entitled to vote
at the 1998 Annual Meeting and any adjournment or postponement thereof. As of
the Record Date, there were outstanding 5,392,558 shares of the Company's common
stock, $.01 par value (the "Common Stock").
QUORUM AND VOTING REQUIREMENTS
The holders of record of a majority of the outstanding shares of Common
Stock will constitute a quorum for the transaction of business at the 1998
Annual Meeting. As to all matters, each stockholder is entitled to one vote for
each share of Common Stock held. Abstentions and broker non-votes are counted
for purposes of determining the presence or absence of a quorum for the
transaction of business. The Director nominees who receive the greatest number
of votes at the 1998 Annual Meeting will be elected to the Board of the Company.
Stockholders are not entitled to cumulate votes. Votes against a candidate and
votes withheld have no legal effect. In matters other than the election of
Directors, abstentions are counted as votes against in tabulations of the vote's
cast on proposals presented to stockholders, whereas broker non-votes are not
counted for purposes of determining whether a proposal has been approved.
All proxies which are properly completed, signed and returned prior to
the 1998 Annual Meeting will be voted. Any proxy given by a stockholder may be
revoked at any time before it is exercised, by filing with the
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<PAGE> 3
Secretary of the Company an instrument revoking it, by delivering a duly
executed proxy bearing a later date or by the stockholder attending the 1998
Annual Meeting and voting his or her shares in person.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 1, 1998 by: (i) each person
(or group of affiliated persons) who is known by the Company to own beneficially
more than 5% of the Company's Common Stock; (ii) each of the Company's
directors; (iii) each of the executive officers named in the Summary
Compensation Table; and (iv) the Company's directors and executive officers as a
group. Except as indicated in the footnotes to this table, the persons named in
the table, based on information provided by such persons, have sole voting and
sole investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where applicable.
<TABLE>
<CAPTION>
AMOUNT OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENTAGE
- ------------------------------------ ------------------ ----------
<S> <C> <C>
Riordan, Lewis & Haden(1) 1,637,151 (2) 30.2
300 S. Grand Avenue, 29th Floor
Los Angeles, California 90071
Clinton E. Owens 734,720 (3) 13.1
c/o PIA Merchandising Services, Inc.
19900 MacArthur Boulevard, Suite 900
Irvine, California 92718
Heartland Advisors, Inc. 1,124,200 (4) 20.8
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
California Community Foundation 484,872 (5) 8.9
606 S. Olive Street, Suite 2400
Los Angeles, California 90014
Terry R. Peets 40,000 *
Michael J. Skinner 3,703 (6) *
Edwin J. Werner 14,071 (7) *
Jay F. Smyre 5,500 (8) *
Larry M. Dorr 137,476 (9) 2.5
Roy L. Olofson -- *
John A. Colwell 65,359 (10) 1.2
Patrick C. Haden 1,639,651 (11) 30.2
Joseph H. Coulombe 15,810 (12) *
Edwin E. Epstein 14,459 (13) *
J. Christopher Lewis 1,639,651 (14) 30.2
All directors and executive officers as a 2,673,249 45.7
group
(12 persons)
</TABLE>
* Less than 1%.
(1) Shares are owned by RVM/PIA, a California limited partnership managed by
Riordan, Lewis & Haden ("RLH").
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<PAGE> 4
(2) Includes 29,729 shares issuable upon exercise of certain warrants to
purchase Common Stock owned by RLH.
(3) Includes 498,394 shares held by Clinton E. and Mary Ann Owens as
Trustees of The Owens Family Trust dated June 20, 1994, 9,300 shares
held by Clinton E. Owens as Trustee of the Welch Trust for Marcia
Browning and 227,026 shares issuable upon the exercise of options which
are exercisable as of, or will become exercisable within 60 days of
March 1, 1998.
(4) All information regarding share ownership is taken from and furnished in
reliance upon the Schedule 13G (Amendment No. 2), dated February 2,
1998, filed by Heartland Advisors, Inc.
(5) Includes 66,666 shares issuable upon exercise of a warrant to purchase
Common Stock.
(6) Includes 2,703 shares issuable upon the exercise of options, which are
exercisable as of, or will become exercisable within 60 days of March 1,
1998.
(7) Includes 12,838 shares issuable upon the exercise of options, which are
exercisable as of, or will become exercisable within 60 days of March 1,
1998.
(8) Includes 500 shares issuable upon the exercise of options, which are
exercisable as of, or will become exercisable within 60 days of March 1,
1998.
(9) Includes 93,920 shares issuable upon the exercise of options, which are
exercisable as of, or will become exercisable within 60 days of March 1,
1998.
(10) Includes 59,054 shares issuable upon the exercise of options, which are
exercisable as of, or will become exercisable within 60 days of March 1,
1998.
(11) Includes 1,637,151 shares owned by RLH. Mr. Haden, a director of the
Company, may be deemed to share voting and investment power with respect
to all such shares as a general partner of RLH. No other person, other
than J. Christopher Lewis, a director of the Company, has voting power
or investment power with respect to such shares. Also includes 2,500
shares issuable upon the exercise of an option held by Mr. Haden, which
is exercisable as of, or will become exercisable within 60 days of March
1, 1998.
(12) Includes 5,405 shares held by Joseph H. Coulombe as Trustee of The
Coulombe Family Trust dated July 26, 1980 and 10,405 shares issuable
upon the exercise of options, which are exercisable as of, or will
become exercisable within 60 days of March 1, 1998.
(13) Includes 10,405 shares issuable upon the exercise of options, which are
exercisable as of, or will become exercisable within 60 days of March 1,
1998.
(14) Includes 1,637,151 shares owned by RLH. Mr. Lewis, a director of the
Company, may be deemed to share voting and investment power with respect
to all such shares as a general partner of RLH. No other person, other
than Patrick C. Haden, a director of the Company, has voting power or
investment power with respect to such shares. Also includes 2,500 shares
issuable upon the exercise of an option held by Mr. Lewis, which is
exercisable as of, or will become exercisable within 60 days of March 1,
1998.
PROPOSAL 1 - ELECTION OF DIRECTORS
Seven Directors are to be elected at the 1998 Annual Meeting to serve
until the next Annual Meeting of Stockholders and until their respective
successors have been elected and qualified. In the absence of instructions to
the contrary, proxies covering shares of Common Stock will be voted in favor of
the election of the persons listed below. In the event that any nominee for
election as Director should become unavailable to serve, it is intended that
votes will be cast, pursuant to the enclosed proxy, for such substitute nominee
as may be nominated
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<PAGE> 5
by the Company. Management has no present knowledge that any of the persons
named will be unavailable to serve.
No arrangement or understanding exists between any nominee and any other
person or persons pursuant to which any nominee was or is to be selected as a
Director or nominee. None of the nominees has any family relationship to any
other nominee or to any executive officer of the Company.
INFORMATION CONCERNING NOMINEES TO BOARD OF DIRECTORS
Information is set forth below concerning the nominees for election as
Directors. Each nominee has consented to being named in this Proxy Statement as
a nominee for Director and has agreed to serve as a Director if elected.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Clinton E. Owens 53 Chairman of the Board and Director
Terry R. Peets 56 Chief Executive Officer, President and Director
Patrick W. Collins 69 Director
John A. Colwell 47 Director
Joseph H. Coulombe(2) 67 Director
Patrick C. Haden(1)(2) 45 Director
J. Christopher Lewis 42 Director
</TABLE>
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Mr. Owens has been the Chairman of the Company since its acquisition in
August 1988, and served as Chief Executive Officer until August 1997. Mr. Owens
has over 30 years experience in the merchandising services and packaged goods
industries. Mr. Owens previously has served as Senior Vice President of Sales
and Marketing of Coca Cola Foods, and has also served in various management
positions with RJR Foods and Procter & Gamble, among others.
Mr. Peets joined PIA in August 1997 as Chief Executive Officer,
President and Director. Mr. Peets served as Executive Vice President of The Vons
Companies from 1995 to April 1997. Prior to joining Vons, Mr. Peets served in
various sales, marketing and operation roles as Senior Vice President for Ralphs
Grocery Company from 1977 to 1994, until he was named Executive Vice President
in 1994. Mr. Peets also serves as a director of Supermarkets Online, a division
of Catalina Marketing Corporation, a provider of in-store electronic marketing
services.
Mr. Collins served as Chief Operating Officer of Ralphs Grocery Company
for 18 years, 17 of which he served and President and one year as Vice Chairman.
Mr Collins also serves as a director of Catalina Marketing Corporation, a
provider of in-store electornic marketing services, and New Bristol Farms, Inc.,
a gourmet food grocery chain.
Mr. Colwell has been a member of the Board of Directors of the Company
since March 1991, and currently serves as a consultant to PIA. From February
1997 through August 1997, he served as interim Vice Chairman of the Board. Mr.
Colwell is sole proprietor of a consulting and interim management firm bearing
his
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name, and President of Facility Development Corporation. Since 1991, he has
served as a Managing Director of Lineberger & Co., a private equity investment
firm. From November 1991 through February 1997, he was Senior Vice President of
River City Plastics, Inc., a manufacturer of polyvinyl chloride pipe.
Mr. Coulombe has been a member of the Board of Directors of the Company
since May 1993. Mr. Coulombe is the founder and former Chief Executive Officer
of Trader Joe's, a specialty food grocery chain that was founded in 1958. Mr.
Coulombe sold Trader Joe's in 1979 and remained the Chief Executive Officer of
Trader Joe's until January 1989. From February 1995 to April 1995, Mr. Coulombe
served as President and Chief Executive Officer of Sport Chalet, and served as a
director of Sport Chalet from February 1993 to June 1994. From February 1994 to
January 1995, Mr. Coulombe served as Chief Executive Officer of Provigo Corp.,
the Northern California subsidiary of Provigo Inc., of Montreal. From June 1992
to January 1994, Mr. Coulombe served as a member of the Board of Directors of
Imperial Bank, a subsidiary of Imperial Bancorp. From March 1992 to October
1992, Mr. Coulombe served as Executive Vice President of Pacific Enterprises in
charge of Thrifty Corporation, and also served as Co-Chairman of Thrifty
Corporation. From June 1989 through March 1992, Mr. Coulombe acted as an
independent business consultant. Mr. Coulombe also serves as a director of Cost
Plus World Market, a home furnishings store chain, and New Bristol Farms, Inc.,
a gourmet food grocery chain.
Mr. Haden became a member of the Board of Directors of the
Company in August 1988 in connection with PIA's acquisition. Since 1987, Mr.
Haden has been a general partner of Riordan, Lewis & Haden, a Los Angeles based
partnership, which invests in management buy-out and venture capital
transactions. Mr. Haden also serves as a director of Tetra Tech, Inc., an
environmental engineering and consulting firm, Data Processing Resources
Corporation, a provider of information technology specialty staffing services,
and several privately held companies.
Mr. Lewis has been a member of the Board of Directors of the Company
since April 1997. Since 1982, Mr. Lewis has been a general partner of Riordan,
Lewis & Haden. Mr. Lewis also serves as a director of Tetra Tech, Inc., an
environmental engineering and consulting firm, Data Processing Resources
Corporation, a provider of information technology specialty staffing services,
Steven Myers & Associates, a proposal management and consultant firm, California
Beach Restaurants, Inc., an owner and operator of restaurants, and several
privately-held companies.
THE BOARD OF DIRECTORS
COMMITTEES
The standing committees of the Board of Directors (the "Board") are the
Audit Committee (the "Audit Committee") and the Compensation Committee (the
"Compensation Committee"). PIA does not have a standing nominating committee or
any committee performing the functions thereof.
The Audit Committee, which presently consists of Messrs. Haden and
Coulombe, met once during 1997. The Audit Committee makes recommendations
concerning the engagement of independent public accountants; reviews with the
independent public accountants the plans for and scope of the audit, the audit
procedures to be utilized and results of the audit; approves the professional
services provided by the independent public accountants; reviews the
independence of the independent public accountants; and reviews the adequacy and
effectiveness of the Company's internal accounting controls.
The Compensation Committee, which presently consists of Messrs. Haden
and Epstein, met twice during 1997. The Compensation Committee determines
compensation for the Company's executive officers and administers the Company's
stock incentive plans. See "Report of the Compensation Committee of the Board of
Directors."
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<PAGE> 7
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Neither member of the Compensation Committee was at any time during the
year ended December 31, 1997 or at any other time an officer or employee of the
Company. No executive officer of the Company serves as a member of the Board of
Directors or compensation committee of any other entity, which has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
MEETINGS AND REMUNERATION
During 1997, the Board held six meetings and took various actions by
written consent. Each incumbent Director attended at least 75% of the aggregate
of (i) the total number of meetings held by the Board during 1997 and (ii) the
total number of meetings held by all committees of the Board during that period
within which he was a Director or member of such committee of the Board. Each
Director is elected to hold office until the next annual meeting of stockholders
and until his respective successor is elected and qualified.
During the year ended December 31, 1997, the Company paid to Messrs.
Coulombe and Epstein an aggregate of $6,000 and $24,750, respectively, for
services as members of the Company's Board and as consultants, and also
reimbursed Messrs. Coulombe and Epstein for certain expenses in connection with
their attendance at Board and committee meetings. Messrs. Haden and Lewis
received no compensation for their services as directors. In addition, Mr
Colwell received a salary of $16,667 per month. Commencing on April 1, 1998, Mr
Colwell will receive a salary of $50,000 annually for consulting services. Mr
Colwell is also entitled to receive a success fee payable in the event certain
transactions are completed by the Company.
1995 Stock Option Plan for Nonemployee Directors. The Company adopted
its 1995 Stock Option Plan for Nonemployee Directors in December 1995 (the
"Nonemployee Directors Plan"). The purpose of the Nonemployee Directors Plan is
to promote the interests of the Company and its stockholders by strengthening
the Company's ability to attract and retain the services of experienced and
knowledgeable nonemployee directors. The Nonemployee Directors Plan provides for
the grant of non-qualified stock options only. A reserve of 100,000 shares of
the Company's Common Stock has been established for issuance under the
Nonemployee Directors Plan. Each of Messrs. Haden, Coulombe, Epstein and Lewis
holds an option to purchase 1,500 shares of Common Stock under the Nonemployee
Directors Plan that will become exercisable on the date of the 1998 Annual
Meeting if the optionee is reelected as a director of the Company.
The Nonemployee Directors Plan is administered by the Company's
Compensation Committee. Each member of the Company's Board of Directors who is
not otherwise an employee or officer of the Company or any subsidiary of the
Company (each an "Eligible Director") is eligible to participate in the
Nonemployee Directors Plan. Directors who are consultants of, but not otherwise
employees or officers of, the Company are Eligible Directors.
Under the Nonemployee Directors Plan, an option to purchase 1,500 shares
of Common Stock is granted to each Eligible Director immediately following each
annual meeting of stockholders of the Company. Each option vests and becomes
exercisable in full at the next annual meeting of stockholders, provided that
the optionee is reelected as a director of the Company. The maximum term of
options granted under the Nonemployee Directors Plan is ten years and one day,
subject to earlier termination following an optionee's cessation of service with
the Company.
The exercise price of stock options granted under the Nonemployee
Directors Plan will be the fair market value of the Common Stock on the date of
grant. The exercise price is immediately payable upon exercise of the option.
Such payment may be made in cash, by check or in such other form of lawful
consideration (including promissory notes or shares of Common Stock then held)
as the Compensation Committee may approve from time to time.
Options granted under the Nonemployee Directors Plan are
non-transferable except to immediate family members, a trust for their benefit
or a partnership in which such family members are the only partners. Such
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<PAGE> 8
options generally expire three months after the termination of any optionee's
service to the Company. In general, if an optionee is permanently disabled or
dies during his service to the Company, such option may be exercised up to six
months after such disability or death; provided, however, that the Compensation
Committee may in its discretion extend the period for up to five years, provided
that such extension does not extend the period during which the option may be
exercised beyond the original term of the option.
Upon the dissolution or liquidation of the Company or upon any
reorganization, merger or consolidation in which the Company does not survive,
the Nonemployee Directors Plan and each outstanding option granted thereunder
shall terminate; provided, that each optionee to whom no substitute option has
been tendered by the surviving corporation will have the right to exercise in
whole or in part any unexpired option or options issued to him, without regard
to the vesting provisions thereof.
The Board of Directors may amend or modify the Nonemployee Directors
Plan and outstanding options at any time, including but not limited to
accelerating the time at which an option may be exercised, provided that no such
amendment or modification may adversely affect the rights and obligations of the
participants with respect to their outstanding options without their consent.
The Nonemployee Directors Plan will terminate in December 2005, unless sooner
terminated by the Board.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law provides
that directors of a company will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except for liability (i) for
any breach of their duty of loyalty to the company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for unlawful payments of dividends or unlawful
stock repurchases or redemption's as provided in Section 174 of the Delaware
General Corporation Law, or (iv) for any transaction from which the director
derived an improper personal benefit.
The Company's Bylaws provide that the Company shall indemnify its
officers and directors and may indemnify its employees and other agents to the
fullest extent permitted by law. The Company's Bylaws also permit it to secure
insurance on behalf of any officer, director, employee or other agent for any
liability arising out of his or her actions in such capacity, regardless of
whether the Bylaws would permit indemnification.
The Company maintains director and officer liability insurance.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company in which indemnification
will be required or permitted. The Company is not aware of any threatened
litigation or proceeding which may result in a claim for such indemnification.
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<PAGE> 9
EXECUTIVE OFFICERS, COMPENSATION AND OTHER INFORMATION
EXECUTIVE OFFICERS
Set forth in the table below are the names, ages and current offices
held by all executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Terry R. Peets 53 Chief Executive Officer, President and Director
Cathy L. Wood 50 Executive Vice President, Chief Financial Officer and
Secretary
Michael J. Skinner 44 Executive Vice President - Sales and Client
Development
John R. Bain 51 Senior Vice President - Operations
Mark J. Hallsman 43 Senior Vice President - Human Resources
Jay F. Smyre 44 Senior Vice President - General Manager
</TABLE>
Executive officers of the Company are elected by and serve at the
discretion of the Board. None of the executive officers has any family
relationship to any nominee for Director or to any other executive officer of
the Company. Set forth below is a brief description of the business experience
for the previous five years of all executive officers except Mr. Peets. See
"Information Concerning Nominees to Board of Directors."
Ms. Wood joined PIA in August 1997 as Executive Vice President, Chief
Financial Officer and Secretary. Ms. Wood served as Vice President and Chief
Financial Officer of Giant Group Ltd., a NYSE listed company specializing in
acquisitions, from 1995 to 1997. From 1989 to 1995, Ms. Wood served in various
capacities at Wherehouse Entertainment, Inc. prior to being named Senior Vice
President and Chief Financial Officer in 1993. From 1972 to 1989, Ms. Wood
served in various credit and lending positions at Mellon Bank, N.A., including
from 1982 to 1989, Vice President of Consumer Products and Retail Credit
Analysis.
Mr. Skinner joined PIA in February 1995 as Senior Vice President --
Marketing, and was named Executive Vice President--Sales and Client Development
in February 1996. From August 1992 to February 1995, Mr. Skinner served as
President and Chief Executive Officer of Winterbrook Corp., a manufacturer and
marketer of beverages. Winterbrook Corp. filed a petition under the federal
bankruptcy laws during 1996. From August 1987 until August 1992, Mr. Skinner
served as Vice President -- Marketing of Shasta Beverages, Inc., a manufacturer
and marketer of soft drinks.
Mr. Bain joined the Company in November 1997 as Senior Vice President of
Operations. Mr. Bain served as Executive Vice President of Shasta Beverages in
the Western Division from October 1995 to November 1997. Before joining Shasta
Beverages, Mr. Bain served as Vice President of Sales and Marketing for
Casablanca Food Company, and Divisional Vice President for Continental Baking
Company, from 1992 to 1994. From 1989 to 1992, Mr Bain served as Division Vice
President, Coca Cola Enterprises. From 1981 to 1989, Mr Bain served in various
capacities at Pepsico Inc.
Mr. Hallsman joined PIA in August 1993 as Vice President - Human
Resources and became a Senior Vice President in December 1995. From September
1985 to August 1993, Mr. Hallsman served as Director, Human Resources of Con-Way
Western Express, a provider of short-haul trucking services.
Mr. Smyre joined PIA in January 1996 as Vice President-General Manager,
and was named Senior Vice President-General Manager in December 1997. Prior to
joining PIA, Mr. Smyre served in a variety of sales and marketing positions at
the Coca Cola/Minute Maid Company from 1981 to 1994 until he was named Vice
President of Strategic Sales in 1995.
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<PAGE> 10
COMPENSATION
The following table sets forth all compensation received for services
rendered to the Company in all capacities for the three years ended December 31,
1997 by (i) each of the Company's Chief Executive Officers during 1997, (ii)
each of the other four most highly compensated executive officers of the Company
who were serving as executive officers at December 31, 1997, and (iii) two other
individuals who were executive officers of the Company during the last year and
whose salary and bonus would have placed them in the group of the four most
highly compensated executive officers, but were not so included because they
were not executive officers of the Company at December 31, 1997 (collectively,
the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
NAME AND PRINCIPAL YEAR ENDED ------------------------- UNDERLYING ALL OTHER
POSITIONS DECEMBER 31 SALARY ($)(1) BONUS ($) OPTIONS (#) COMPENSATION ($)(2)
----------- ------------- --------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Terry R. Peets(3)............. 1997 $111,757 $ -- 250,000 $ 10,675
Chief Executive 1996 -- -- -- --
Officer, President, 1995 -- -- -- --
and Director
Clinton E. Owens(4)........... 1997 400,000 -- -- 34,557
Chairman 1996 400,000 50,000 -- 36,820
1995 407,840 10,000 -- 22,673
John A. Colwell(5)............ 1997 200,000 -- 62,500 4,000
Director/Consultant 1996 83,333 -- 5,000 --
1995 -- -- -- --
Michael J. Skinner............ 1997 175,000 -- 54,000 3,500
Executive Vice 1996 168,750 12,500 54,000(6) 3,084
President-- Sales and 1995 125,214 -- 5,405 --
Client Development
Edwin J. Werner(7)............ 1997 189,583 -- -- 3,792
Vice Chairman 1996 157,500 10,000 40,540 1,983
1995 138,667 -- 5,405 --
Jay F. Smyre (8).............. 1997 142,500 -- 25,000 --
Senior Vice President 1996 110,000 25,000 -- --
--General Manager 1995 -- -- -- --
Larry M. Dorr(9).............. 1997 171,375 -- -- 3,428
Senior Vice President 1996 177,000 18,000 -- 3,393
--Non Foods 1995 177,000 25,000 -- 3,490
Roy L. Olofson(10)............ 1997 176,026 -- -- 3,167
Executive Vice President and 1996 81,438 -- 100,000 --
Chief Financial Officer 1995 -- -- -- --
</TABLE>
(1) For the year ended December 31, 1995, includes $9,240 and $6,980
deferred at the election of Messrs. Owens and Dorr, respectively; for
the year ended December 31, 1996, includes $109,500, $21,768, $14,500
and $25,248 deferred at the election of Messrs. Owens, Dorr, Skinner and
Werner, respectively; and for the year ended December 31, 1997, includes
$2,500, $95,833, $14,000, $8,000, $98,792, $25,706 and $6,333 deferred
at the election of Messrs. Peets, Owens, Skinner, Colwell, Werner, Dorr
and Olofson respectively, pursuant to the Company's 401(k) Plan and
Deferred Compensation Arrangement. See "-- Compensation Plans -- 401(k)
Plan" and "-- Deferred Compensation Arrangement."
(2) Consists of contributions to the 401(k) Plan made by the Company on
behalf of each of Messrs. Peets, Owens, Skinner, Colwell, Werner, Dorr
and Olofson, respectively. Also includes an aggregate of $4,236 in
-10-
<PAGE> 11
insurance premiums paid by the Company on behalf of Mr. Peets during the
year ended December 31, 1997 for certain life insurance and disability
insurance policies of which Mr. Peets is the sole beneficiary. Also
includes an aggregate of $18,826, $29,820 and $14,891 in insurance
premiums paid by the Company on behalf of Mr. Owens during the years
ended December 31, 1995, 1996 and 1997, respectively, for certain life
and disability insurance policies of which Mr. Owens is the sole
beneficiary.
(3) Mr. Peets was named Chief Executive Officer and President in August
1997.
(4) Mr. Owens also served as Chief Executive Officer until August 1997.
(5) Mr. Colwell became a consultant on January 1, 1998.
(6) This option was cancelled in December 1997.
(7) Mr. Werner retired from the Company as of January 26, 1998.
(8) Mr. Smyre was named Senior Vice President -- General Manager in December
1997.
(9) Mr. Dorr was named Senior Vice President - Non Foods in October 1997.
(10) Mr. Olofson resigned from the Company as of June 10, 1997.
Mr. Peets entered into an employment agreement with the Company on June
25, 1997. Such agreement is terminable by the Company at any time, subject,
among other things, to severance payments as provided in the employment
agreement. From June 25, 1997 through August 10, 1997, Mr. Peets received a
fixed salary of $1,200 per day. Thereafter, throughout the term of the
employment agreement, Mr. Peets will receive a fixed salary of $20,834 per
month, subject to annual review by the Board for possible increases, with a
minimum increase tied to the Los Angeles-Long Beach-Anaheim, consumer price
index. Mr. Peets is also entitled to a yearly bonus of up to 100% of his base
salary based upon the Company achieving certain operating income targets.
The Company currently has no employment contracts with any of the Named
Executive Officers other than Mr. Peets. As described below under "--
Compensation Plans," under certain circumstances, the exercisability of options
granted to the Named Executive Officers may be accelerated in the event of a
merger.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding each grant of stock
options made during the year ended December 31, 1997 to each of the Named
Executive Officers. No stock appreciation rights ("SARs") were granted during
such period to such persons.
<TABLE>
<CAPTION> INDIVIDUAL GRANTS(1)
--------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO TERM(2)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION --------------------------
GRANTED (#) IN PERIOD(%) PRICE ($/SH) DATE 5% ($) 10% ($)
----------- ------------- ------------ ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Terry R. Peets ........... 250,000 26.6 5.75 06/25/07 905,000 2,290,000
Clinton E. Owens ......... -- -- -- -- -- --
John A. Colwell .......... 12,500 1.3 5.25 12/16/07 41,250 104,625
50,000 5.3 5.62 04/15/07 176,500 448,000
Michael J. Skinner ....... 54,000(3) 5.8 5.25 12/16/07 178,200 451,980
Edwin J. Werner .......... -- -- -- -- -- --
Jay F. Smyre ............. 23,000 2.5 5.25 12/16/07 75,900 192,510
2,000 .2 5.62 04/15/07 7,060 17,920
Larry M. Dorr ............ -- -- -- -- -- --
Roy L. Olofson ........... -- -- -- -- -- --
</TABLE>
-11-
<PAGE> 12
(1) All options are nonqualified stock options and were granted under the
Company's 1995 Stock Option Plan. Such options, except Mr. Colwell's
grant of 50,000 stock options, vest over four year periods at an annual
rate of 25% beginning on the first anniversary of the date of grant. Mr.
Colwell's grant of 50,000 stock options vested at the date of grant.
(2) The potential realizable value is determined by multiplying the exercise
price per share by the stated annual appreciation rate compounded
annually for the term of the option (ten years), subtracting the
exercise price per share from the product, and multiplying the remainder
by the number of options granted. The actual value realized may be
greater or less than the potential realizable values set forth in the
table. No gain to the optionee is possible unless the stock price
increases over the option term, which will benefit all stockholders.
(3) This option replaces an option covering 54,000 shares that was granted
in March 1996 and cancelled in December 1997.
AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth the number and value of the exercisable
and unexercisable options held by each of the Named Executive Officers at
December 31, 1997. None of the Named Executive Officers exercised any options
during the fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)(1)
----------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Terry R. Peets ... -- 250,000 -- --
Clinton E. Owens . 227,026 -- 263,998 --
John A. Colwell .. 59,054 16,554 -- --
Michael J. Skinner 2,703 56,702 -- --
Edwin J. Werner .. 12,838 33,107 -- --
Jay F. Smyre ..... -- 25,000 -- --
Larry M. Dorr .... 93,920 3,378 36,000 --
Roy L. Olofson ... -- -- -- --
</TABLE>
(1) Value is determined by subtracting the exercise price from the fair
market value of $5.00 per share (the closing price for the Company's
Common Stock as reported on the NASDAQ National Market as of December
31, 1997) and multiplying the remainder by the number of underlying
shares of Common Stock.
COMPENSATION PLANS
1990 Stock Option Plan. The Company's 1990 Stock Option Plan became
effective in June 1990 (as amended through February 1997, the "1990 Option
Plan"). The purpose of the 1990 Option Plan and of granting options to specified
employees and directors of the Company pursuant thereto is to assist such
persons in acquiring shares of Common Stock of the Company and thereby
benefiting directly from the Company's growth, development and financial
success. The 1990 Option Plan provides for the grant of non-qualified stock
options only. The Company has authorized 810,811 shares of Common Stock for
issuance upon the exercise of options granted under the 1990 Option Plan. As of
December 31, 1997, there were 617,986 options outstanding under the 1990 Plan at
a weighted average exercise price of $6.42 per share, and 66,986 shares of
Common Stock had been issued upon exercise of options at a weighted average
price of $6.09 per share. In December 1995, the Board determined that no further
option grants would be made under the 1990 Option Plan.
-12-
<PAGE> 13
The 1990 Option Plan is administered by the Company's Compensation
Committee. The Compensation Committee has discretion to determine, among other
things, which eligible individuals are to receive option grants, the number of
shares subject to each such grant, and the vesting schedule to be in effect for
the option grant. The maximum term of options granted under the 1990 Option Plan
is ten years and one week, subject to earlier termination following an
optionee's cessation of service with the Company.
The exercise price of stock options granted under the 1990 Option Plan
must be equal to at least 85% of the fair market value of the stock subject to
the option on the date of grant. The purchase price is payable immediately upon
the exercise of the option. Such payment may be made in cash, by check or in
such other form of lawful consideration (including promissory notes or shares of
Common Stock then held) as the Board of Directors of the Company may approve
from time to time.
Options granted under the 1990 Option Plan are non-transferable except
to immediate family members, trusts for their benefit or a partnership in which
such family members are the only partners. Such options generally expire three
months after the termination of an optionee's service to the Company. In
general, if an optionee is permanently disabled or dies during his or her
service to the Company, such option may be exercised up to one year following
such disability or death.
Upon the dissolution or liquidation of the Company or upon any
reorganization, merger or consolidation in which the Company does not survive,
the 1990 Option Plan and each outstanding option granted thereunder terminates;
provided, that each optionee to whom no substitute option has been tendered by
the surviving corporation has the right to exercise in whole or in part any
unexpired option or options issued to him or her, without regard to the vesting
provisions thereof.
The Board of Directors may amend or modify the 1990 Option Plan and
outstanding options at any time, including but not limited to accelerating the
time at which an option may be exercised, provided that no such amendment or
modification may adversely affect the rights and obligations of the participants
with respect to their outstanding options or unvested shares without their
consent.
1995 Stock Option Plan. The Company's 1995 Stock Option Plan became
effective in December 1995 (as amended through February 1997, the "1995 Option
Plan"). The purpose of the 1995 Option Plan and of granting options to specified
employees, consultants and directors of the Company pursuant thereto is to
assist such persons in acquiring shares of Common Stock of the Company and
thereby benefiting directly from the Company's growth, development and financial
success. The 1995 Option Plan provides for the grant of either incentive or
non-qualified stock options to employees, outside directors and consultants of
the Company. A reserve of 1,000,000 shares of the Company's Common Stock has
been established for issuance under the 1995 Option Plan. As of December 31,
1997, there were 882,865 options outstanding under the 1995 Plan at a weighted
average exercise price of $6.05 per share, and 2,000 shares of Common Stock had
been issued upon exercise of options at a weighted average price of $9.81 per
share.
The 1995 Option Plan is administered by the Company's Compensation
Committee. The Compensation Committee has discretion to determine, among other
things, which eligible individuals are to receive option grants, the number of
shares subject to each such grant, and the vesting schedule to be in effect for
the option grant. The vesting of all options granted pursuant to the 1995 Option
Plan may be based upon the Company's attaining of specified performance criteria
and/or may also be based on the passage of time. The maximum term of options
granted under the 1995 Option Plan is ten years, except in the case of incentive
stock options granted to greater than ten percent stockholders of the Company,
for which the term is five years, and subject in all cases to earlier
termination following an optionee's cessation of service with the Company. The
exercise price of non-qualified stock options granted under the 1995 Option Plan
must be equal to at least 85% of the fair market value of the Common Stock
subject to the option on the date of grant. The exercise price of incentive
stock options granted under the 1995 Option Plan must be equal to at least the
fair market value of the Common Stock subject to the option on the date of
grant, or 110% of such fair market value with respect to options granted to
greater than ten percent stockholders of the Company. The Compensation Committee
determines the fair market value of the Common Stock underlying each option
using a formula specified in the 1995 Option Plan. The purchase price
-13-
<PAGE> 14
is payable immediately upon the exercise of the option. Such payment may be made
in cash, by check or in such other form of lawful consideration (including
shares of Common Stock then held) as the Compensation Committee may approve from
time to time.
Options granted under the 1995 Option Plan are non-transferable except
to immediate family members, trusts for their benefit or a partnership in which
such family members are the only partners. Such options generally expire three
months after the termination of an optionee's service to the Company. In
general, if an optionee is permanently disabled or dies during his or her
service to the Company, such option may be exercised up to six months following
such disability or death.
Upon the dissolution or liquidation of the Company or upon any
reorganization, merger or consolidation in which the Company does not survive,
the 1995 Option Plan and each outstanding option granted thereunder shall
terminate; provided, that each optionee to whom no substitute option has been
tendered by the surviving corporation shall have the right to exercise in whole
or in part any unexpired option or options issued to him or her, without regard
to the vesting provisions thereof.
The Board of Directors may amend or modify the 1995 Option Plan and
outstanding options at any time, including but not limited to accelerating the
time at which an option may be exercised, provided that no such amendment or
modification may adversely affect the rights and obligations of the participants
with respect to their outstanding options or unvested shares without their
consent. Generally, no amendment of the 1995 Option Plan may, without the
approval of the Company's stockholders, (i) modify the class of individuals
eligible to receive incentive stock options, (ii) increase the number of shares
available for issuance, except in the event of certain changes to the Company's
capital structure, or (iii) modify the 1995 Option Plan such that it fails to
meet the requirements of Rule 16b-3 of the Securities Exchange Act of 1934, as
amended. The 1995 Option Plan will terminate in December 2005, unless sooner
terminated by the Board.
See "Proposal 2 -- Amendment of 1995 Stock Option Plan."
Employee Stock Purchase Plan. On February 17, 1997, the Company adopted
an Employee Stock Purchase Plan ("ESP Plan"). The ESP Plan allows employees of
the Company to purchase Common Stock at a discount, without having to pay any
commissions on the purchases. The maximum amount that any employee can
contribute to the Purchase Plan per quarter is $6,250, and the total number of
shares which are reserved by the Company for purchase under the Purchase Plan is
200,000.
401(k) Plan. The PIA Savings and Retirement 401(k) Plan (the "401(k)
Plan") covers all Company employees that do not participate in the pension plans
described below. An employee may elect to defer, in the form of Company
contributions to the 401(k) Plan on his or her behalf, up to 15% of the total
compensation that would otherwise be paid to the employee, not to exceed the
amount allowed by applicable Internal Revenue Service guidelines. In addition,
the Company makes matching contributions to the 401(k) Plan each year equal to
50% of the participant's elective contributions (not to exceed 4% of the total
compensation) for such year, and may also make additional contributions to the
401(k) Plan for one or more plan years to be allocated to eligible participants
in proportion to their total compensation (including deferred salary
contributions) for the year. Contributions are allocated to each employee's
individual account and are invested in a variety of mutual funds according to
the directions of the employee. Employee contributions are fully vested and
non-forfeitable at all times. Company matching contributions vest over five
years.
Deferred Compensation Arrangement. The Deferred Compensation Arrangement
("DCA") permits a certain group of highly compensated employees who are
designated by the Board of Directors to defer the receipt of some or all of
their compensation until a subsequent year. Participants are not subject to
income tax on the amount of their contributions to the DCA ("Deferrals"), but
those amounts are subject to federal employment taxes. The Company will
generally make matching contributions on behalf of the contributions made by
participants to the DCA and participants will gain a vested interest in the
matching contributions, to the same extent as under the 401(k) Plan.
Participants always have a fully vested right to their Deferrals. Although no
amounts are set aside by the Company to pay the benefits under the DCA, a trust
has been established to
-14-
<PAGE> 15
"informally" fund the benefits under the DCA. Participants can direct the manner
in which the amounts held on their behalf under the DCA are invested. Although
the DCA is not a tax-qualified retirement plan, under certain circumstances, a
participant's Deferrals may be transferred to the 401(k) Plan. A participant's
benefit under the DCA will be paid in either a lump sum or in installments, as
elected by the participant.
Exec-U-Care Plan. Under the Exec-U-Care Plan (the "Exec-U-Care Plan"),
the Company provides the Chairman and certain other officers of the Company up
to $100,000 supplemental medical coverage in addition to the standard medical
coverage offered to such persons generally by the Company. The Exec-U-Care Plan
requires that the employees covered thereunder have a primary medical insurance
plan which meets certain minimum standards of coverage; the Exec-U-Care Plan
then covers the deductible and certain other expenses not paid for by the basic
medical insurance plan.
Pension Plans. Certain of the Company's employees are covered by
union-sponsored, collectively bargained, multi-employer pension plans. The
Company has no current intention of withdrawing from any of these plans.
Incentive Compensation Plan. The Company has established its Incentive
Compensation Plan (the "Incentive Plan") for the compensation of its employees
and executives. All payments under the Incentive Plan are contingent on the
Company achieving its corporate profit goals, the Company's operating divisions
achieving their profit goals, the employee achieving his/her expected
performance level, and approval by the Board of Directors of the Company.
KEY MAN LIFE INSURANCE
The Company currently maintains term life insurance policies in the
aggregate amount of $4.5 million on the life of Mr. Owens under which the
Company is the beneficiary.
-15-
<PAGE> 16
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board is comprised of Messrs. Haden
and Epstein, two non-employee directors, who administer the Company's executive
compensation programs and policies. The Company's executive compensation
programs are designed to attract, motivate and retain the executive talent
needed to optimize stockholder value in a competitive environment. The programs
are intended to support the goal of increasing stockholder value while
facilitating the business strategies and long-range plans of the Company.
The following is the Compensation Committee's report submitted to the
Board addressing the compensation of the Company's executive officers for 1997.
COMPENSATION POLICY
The Company's executive compensation policy is (i) designed to establish
an appropriate relationship between executive pay and the Company's annual
performance, its long-term growth objectives and its ability to attract and
retain qualified executive officers; and (ii) based on the belief that the
interests of the executives should be closely aligned with the Company's
stockholders. The Compensation Committee attempts to achieve these goals by
integrating competitive annual base salaries with (i) annual incentive bonuses
based on corporate performance and individual contribution, and (ii) stock
options through the 1995 Plan. The Compensation Committee believes that cash
compensation in the form of salary and performance-based incentive bonuses
provides Company executives with short term rewards for success in operations,
and that long-term compensation through the award of stock options encourages
growth in management stock ownership which leads to expansion of management's
stake in the long-term performance and success of the Company. The Compensation
Committee considers all elements of compensation and the compensation policy
when determining individual components of pay.
EXECUTIVE COMPENSATION COMPONENTS
As discussed below, the Company's executive compensation package is
primarily comprised of three components: base salary, annual incentive bonuses
and stock options.
Base Salary. In establishing base salary levels for executive officer
positions, the Committee and the Company's Chief Executive Officer, consider
levels of compensation at comparable companies, levels of responsibility and
internal issues of consistency and fairness. In determining the base salary of a
particular executive, the Committee and the Chief Executive Officer consider
individual performance, including the accomplishment of short- and long-term
objectives, and various subjective criteria including initiative, contribution
to overall corporate performance and leadership ability. The Compensation
Committee reviews executive officer salaries annually and exercises its judgment
based on all the factors described above. No specific formula is applied to
determine the weight of each criteria.
Annual Incentive Bonuses. For 1997, the Company's executive officers
were eligible for annual bonuses based upon recommendations made by the Chief
Executive Officer based upon their individual performance and the Company's
achievement of certain operating results. Amounts of individual awards were
based principally upon the results of the Company's financial performance during
the year. The amount of awards for senior officers were within guidelines
established by the Committee and the Chief Executive Officer as a result of
their review of total compensation for senior management of peer companies. The
actual amount awarded, within these guidelines, was determined principally by
the Committee's and the Chief Executive Officer's assessment of the individual's
contribution to the Company's overall financial performance. Consideration was
also given to such factors such as the individual's successful completion of a
special project and any significant increase or decrease in the level of the
participant's ability to discharge the responsibilities of his position. No
bonuses were paid to executive officers in 1997.
-16-
<PAGE> 17
For 1998, the Compensation Committee has approved the 1998 Incentive
Compensation Plan (the "ICP") which is based upon the Company's 1998 Business
Plan (the "Business Plan"). Under the ICP, 75% of the specified bonuses will be
payable in the event the Company meets its earnings per share goal, as specified
in the Plan, and earnings per share in the fourth quarter of 1998 satisfy the
specified goal; and 100% of the specified bonuses will be payable in the event
the Company meets it earnings per share goal, as specified in the Plan, and
earnings per share in the fourth quarter of 1998 satisfy the specified goal. In
the event bonuses are payable under the ICP, the Company will then determine
whether the executive officer met his or her previously established annual
performance goal. An executive officer's failure to achieve this goal will
disqualify that officer from earning payment under the ICP.
Stock Options. Stock options encourage and reward effective management
which results in long-term corporate financial success, as measured by stock
price appreciation. Stock options covering 631,500 shares were granted to the
executive officers of the Company and stock options covering 300,825 shares were
granted to other employees of the Company during 1997 under the 1995 Plan. The
number of options that each executive officer or employee was granted was based
primarily on the executive's or employee's ability to influence the Company's
long-term growth and profitability. The Compensation Committee believes that
option grants afford a desirable long-term compensation method because they
closely ally the interests of management with stockholder value and that grants
of stock options are the best way to motivate executive officers to improve
long-term stock market performance. The vesting provisions of options granted
under the 1995 Plan are designed to encourage longevity of employment with the
Company and generally extend over a four-year period.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Compensation Committee believes that its current Chief Executive
Officer, Terry R. Peets provides valuable services to the Company and that his
compensation should therefore be competitive with that paid to executives at
comparable companies. In addition, the Compensation Committee believes that an
important portion of his compensation should be based on Company performance.
Mr. Peets' base salary and bonus are determined pursuant to his employment
agreement, as described under "Executive Officers, Compensation and Other
Information." In 1997, Mr. Peets' base salary was $111,757 and he did not
receive a bonus for his performance in 1997.
Mr. Owens served as Chief Executive Officer from January 1 through
August, 1997. The factors which the Compensation Committee considered in setting
his annual base salary were his individual performance and pay practices of peer
companies relating to executives of similar responsibility. Mr. Owens' annual
base salary for 1997 was $400,000 and he did not receive a bonus for his
performance in 1997.
INTERNAL REVENUE CODE SECTION 162(M)
Under Section 162(m) of the Internal Revenue Code (the "Code"), the
amount of compensation paid to certain executives that is deductible with
respect to the Company's corporate taxes is limited to $1,000,000 annually. It
is the current policy of the Compensation Committee to maximize, to the extent
reasonably possible, the Company's ability to obtain a corporate tax deduction
for compensation paid to executive officers of the Company to the extent
consistent with the best interests of the Company and its stockholders.
COMPENSATION COMMITTEE
Patrick C. Haden
Edwin E. Epstein
-17-
<PAGE> 18
COMPANY PERFORMANCE
The following graph shows a comparison of cumulative total returns for
the Company, the NASDAQ Stock Market (U.S. Companies) Index and the NASDAQ
Stocks (SIC 7380-7389 U.S. Companies) Miscellaneous Business Services Index for
the period during which the Company's Common Stock has been registered under
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The graph assumes that the value of an investment in Common Stock and in
each such index was $100 on February 29, 1996 (the date the Company's Common
Stock was registered under the Exchange Act), and that all dividends have been
reinvested.
The comparison in the graph below is based on historical data and is not
intended to forecast the possible future performance of the Company's Common
Stock.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
PIA, NASDAQ STOCK MARKET (U.S. COMPANIES)
AND THE NASDAQ STOCKS (SIC 7380-7389 U.S. COMPANIES)
MISCELLANEOUS BUSINESS SERVICES INDEX
<TABLE>
<CAPTION>
Company Market Peer
Date Index Index Index
---------- ------- ------- -------
<S> <C> <C> <C>
12/31/92 -- 61.230 51.288
1/29/93 -- 62.972 51.637
2/26/93 -- 60.623 49.321
3/31/93 -- 62.378 49.586
4/30/93 -- 59.716 47.485
5/28/93 -- 63.281 45.122
6/30/93 -- 63.572 46.399
7/30/93 -- 63.648 50.680
8/31/93 -- 66.937 48.705
9/30/93 -- 68.931 50.951
10/29/93 -- 70.479 53.922
11/30/93 -- 68.379 51.483
12/31/93 -- 70.286 52.678
1/31/94 -- 72.419 52.964
2/28/94 -- 71.743 52.653
3/31/94 -- 67.331 45.999
4/29/94 -- 66.457 47.591
5/31/94 -- 66.619 46.220
6/30/94 -- 64.182 46.323
7/29/94 -- 65.499 46.391
8/31/94 -- 69.674 49.001
9/30/94 -- 69.496 51.044
10/31/94 -- 70.862 52.332
11/30/94 -- 68.511 49.976
12/30/94 -- 68.703 51.647
1/31/95 -- 69.088 52.587
2/28/95 -- 72.742 52.696
3/31/95 -- 74.899 52.301
4/28/95 -- 77.258 54.418
5/31/95 -- 79.251 55.176
6/30/95 -- 85.673 57.485
7/31/95 -- 91.971 64.985
8/31/95 -- 93.836 70.176
9/29/95 -- 95.994 72.697
10/31/95 -- 95.443 76.471
11/30/95 -- 97.684 87.043
12/29/95 -- 97.164 89.145
1/31/96 -- 97.643 99.098
2/29/96 -- 101.359 99.029
3/1/96 100.000 100.000 100.000
3/29/96 120.161 101.695 109.537
4/30/96 169.355 110.132 125.605
5/31/96 104.839 115.189 132.691
6/28/96 93.548 109.997 131.553
7/31/96 94.355 100.202 117.580
8/30/96 92.742 105.816 130.236
9/30/96 82.258 113.910 146.904
10/31/96 77.419 112.652 131.105
11/29/96 58.065 119.616 131.031
12/31/96 67.742 119.508 121.456
1/31/97 70.161 128.001 127.105
2/28/97 56.452 120.925 107.668
3/31/97 33.065 113.031 89.217
4/30/97 39.516 116.565 77.944
5/30/97 35.484 129.780 99.810
6/30/97 37.097 133.751 101.707
7/31/97 35.484 147.869 98.212
8/29/97 48.387 147.644 93.061
9/30/97 45.565 156.379 100.351
10/31/97 50.806 148.284 92.513
11/28/97 45.161 149.027 86.381
12/31/97 32.258 146.686 87.073
</TABLE>
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/30/94 12/29/95 12/31/96 12/31/97
<S> <C> <C> <C> <C> <C> <C>
PIA Merchandising Services, Inc. 67.7 32.3
Nasdaq Stock Market (US Companies) 61.2 70.3 68.7 97.2 119.5 146.7
NASDAQ Stocks (SIC 7380-7389 US Companies) 51.3 52.7 51.6 89.1 121.5 87.1
Miscellaneous Business Services
</TABLE>
Notes:
a. The lines represent monthly index levels derived from compounded daily
returns that include all dividends
b. The indexes are reweighted daily, using the market capitalization on the
previous trading day
c. If the monthly interval, based on the fiscal year-end is not a trading day
the preceding trading day is used.
d. The index level for all series was set to $100.00 on 03/01/96.
-18-
<PAGE> 19
[PERFORMANCE GRAPH]
Comparison of Five Year-Cumulative Total Returns
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
67.7 32.3
61.2 70.3 68.7 97.2 119.5 146.7
51.3 52.7 51.6 89.1 121.5 87.1
</TABLE>
<PAGE> 20
PROPOSAL 2 -- AMENDMENT OF 1995 STOCK OPTION PLAN
At the 1998 Annual Meeting, the stockholders will be asked to approve an
amendment (the "Amendments") to the Company's 1995 Stock Option Plan (the "1995
Plan"). Such approval will require the affirmative vote of a majority of the
voting power of all outstanding shares of the Company's Common Stock present or
represented and entitled to vote at the 1998 Annual Meeting. On February 20,
1998, the Board adopted the Amendment, subject to stockholder approval as
described herein, to increase the number of shares that may be issued pursuant
to the Plan from 1,000,000 to 1,300,000. The 1995 Plan and information regarding
options granted thereunder is summarized below, but these descriptions are
subject to and are qualified in their entirety by the full text of the 1995
Plan, as amended by the proposed Amendments, which is attached as Appendix 1 to
this Proxy Statement.
SUMMARY OF THE 1995 PLAN
The 1995 Plan was initially adopted by the Board of Directors and
stockholders of the Company in December 1995. Under the 1995 Plan, employees,
certain directors, officers and consultants (collectively referred to as
"Participants") providing services to the Company or its subsidiaries may be
granted options to purchase shares of common stock of the Company ("Common
Stock"). The 1995 Plan permits the granting of both options that qualify for
treatment as incentive stock options ("Incentive Stock Options") under Section
422 of the Code, and/or options that do not qualify as Incentive Stock Options
("Nonqualified Stock Options"). Incentive Stock Options may only be granted to
employees of the Company.
The purpose of the 1995 Plan and of granting options to specified
persons is to promote the interests of the Company and its stockholders, by
providing stock-based incentives to certain Participants. Under the 1995 Plan,
Participants can receive certain options ("Options") to purchase Common Stock,
thus strengthening the mutuality of interests between Participants and the
Company because the Participants have a proprietary interest in pursuing the
Company's long-term growth and financial success. In addition, by allowing
Participants to participate in the Company's success, the Company is able to
better attract, retain and reward quality employees, directors, officers and
consultants.
Persons eligible to participate in the 1995 Plan are Participants
providing services to the Company and/or its subsidiaries (collectively referred
to as the "Company") who are in positions which enable them to make significant
contributions to the Company's long-term performance and growth. In selecting
Participants to whom Options may be granted, consideration is given to factors
such as employment position, duties and responsibilities, ability, productivity,
length of service, morale, interest in the Company and recommendations of
supervisors. The maximum number of shares that may be issued to a single
Employee is 1,000,000.
The 1995 Plan is administered by the Compensation Committee (the
"Committee"). The members of the Committee must qualify as "outside directors"
under Section 162(m) of the Code, and the Committee must be constituted so as to
permit the 1995 Plan to comply with Rule 16b-3 of the Exchange Act.
The Committee has full and complete authority, in its discretion, but
subject to the express provisions of the 1995 Plan (1) to select the
Participants, to specify the number of shares of Common Stock with respect to
which Options are granted to each Participant, to specify the terms of the
Options and whether such Options shall be Incentive Stock Options or
Nonqualified Stock Options, and in general to grant Options; (2) to determine
the dates upon which Options shall be granted and the terms and conditions
thereof in a manner consistent with the 1995 Plan, which terms and conditions
need not be identical as to the various Options granted; (3) to interpret the
1995 Plan; (4) to prescribe, amend and rescind rules relating to the 1995 Plan;
(5) to authorize any person to execute on behalf of the Company any instrument
required to effectuate the grant of an Option previously granted by the
Committee; (6) to determine the rights and obligations of Participants under the
1995 Plan; (7) to specify the Option price; (8) to accelerate the time during
which an Option may be exercised, including, but not limited to, upon a change
of control of the Company, and to otherwise accelerate the time or extend the
post-termination exercise period during which an Option may be exercised; and
(9) to make all other determinations deemed necessary or advisable for the
administration of the Plan.
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The number of shares of Common Stock in respect of which options may be
granted under the 1995 Plan shall not exceed 1,000,000 shares. In the event of
certain changes in the Company's capitalization or structure, an appropriate
adjustment shall be made by the Committee in the number, kind or exercise price
of shares as to which options may thereafter be granted and as to shares covered
by unexercised outstanding options.
Each option granted under the 1995 Plan shall be evidenced by a written
agreement ("Option Agreement") in a form approved by the Committee and executed
by the Company and the Participant to whom the Option is granted. Options are
exercisable at such time(s) and are subject to such terms and conditions as may
be set forth in the Option Agreement between the Participant and the Company.
The purchase price of shares of Common Stock subject to each Option
which is intended to qualify as an Incentive Stock Option shall be equal to the
fair market value of such shares (110% of fair market value in the case of a
holder of more than 10% of the Company's Common Stock) on the date of grant of
such Option. The purchase price of any Option which shall not qualify as an
Incentive Stock Option shall be determined by the Committee, but shall not be
less than the fair market value of the Common Stock in the case of a Stock
Option granted to an individual who is a "covered employee" under 162(m) of the
Code. The fair market value of such shares is the closing price of the Common
Stock on the date of grant on the NASDAQ National Market System.
Options granted under the 1995 Plan may be exercised, to the extent
vested, by the Participant by payment of the full purchase price therefor in
cash, by cashier's or certified check or by surrender of outstanding shares of
the Company's Common Stock. Options granted to a Participant are not
transferable during the individual's lifetime, other than to the Employee's
immediate family members, a trust for their benefit or a partnership in which
such family members are the only partners, and may be transferred in the event
of death only by will or the laws of descent and distribution.
Each option granted under the 1995 Plan shall set forth a termination
date thereof, which shall be not later than ten years (five years in the case of
a holder of more than 10% of the Company's Common Stock) from the date such
option is granted subject to earlier termination or forfeiture as set forth
below, or as otherwise set forth in each particular Option Agreement.
Unless earlier terminated by the Board, the 1995 Plan shall terminate on
December 5, 2005. The Board may at any time amend the 1995 Plan; provided,
however, that no amendment or modification may be adopted without approval of
the stockholders which would (1) increase the number of shares of Common Stock
which may be issued under the 1995 Plan (except for adjustments due to a change
in capitalization), (2) modify the requirements as to eligibility for receipt of
Incentive Stock Options or (3) modify the 1995 Plan such that it fails to meet
the requirements of Section 16(b) of the Exchange Act.
Future Participants in the 1995 Plan and the amounts of their allotments
are to be determined by the Committee subject to any restrictions outlined
above. Since no such determinations have yet been made, it is not possible to
state the terms of any individual awards which may be issued under the 1995 Plan
or the names or positions of or respective amounts of the allotment to any
individual who may participate.
FEDERAL INCOME TAX CONSEQUENCES APPLICABLE TO THE 1995 PLAN
Incentive Stock Options. No taxable income will be recognized by an
optionee upon the grant or exercise of any Incentive Stock Option under the 1995
Plan. The Company will not be entitled to any income tax deduction as the result
of the grant or exercise of any incentive stock option.
Gain or loss resulting from the subsequent sale of stock acquired upon
exercise of an Incentive Stock Option will be long-term capital gain or loss if
such sale is made after two years from the date of the grant of the option and
after one year from the transfer of such stock to the optionee upon exercise,
provided that the optionee is an employee of the Company from the date of grant
until three months before the date of exercise. In the event of the optionee's
death or disability prior to exercise of an Incentive Stock Option, special
rules apply in
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<PAGE> 22
determining whether gain or loss upon sale of the stock acquired upon exercise
of such option will be taxable as long-term capital gain or loss.
If the subsequent sale of stock is made prior to the expiration of such
two-year or one-year periods, the optionee will recognize ordinary income in the
year of sale in an amount equal to the difference between the exercise price and
the fair market value of the stock on the date of exercise, provided that if
such sale is a transaction in which a loss (if sustained) would have been
recognized by the optionee, the amount of ordinary income recognized by the
optionee will not exceed the excess (if any) of the amount realized on the sale
over the option price. The Company will then be entitled to an income tax
deduction of like amount. Any excess gain recognized by the optionee upon such
sale would then be taxable as capital gain, either long-term or short-term
depending upon whether the stock had been held for more than one year prior to
sale.
If an individual sale of shares of Common Stock received upon exercise
of an option qualifies for long term capital gain treatment, the capital gain
from such sale would be taxed at the current maximum federal tax rate of 28% if
the Common Stock has been held for more than one year but less than 18 months,
and at a rate of 20% if the Common Stock has been held for more than 18 months.
Ordinary income is currently taxed at a maximum federal income tax rate of
39.6%. The amount by which the fair market value of stock purchased upon
exercise of an incentive stock option exceeds the option price of such stock
constitutes an item of tax preference which could then be subject to the
alternative minimum tax in the year that the option is exercised.
Nonqualified Stock Options. Generally, at the time of the grant of any
option under the 1995 Plan, no taxable income will be recognized by the optionee
and the Company will not be entitled to a deduction. Upon the exercise of such
option, the optionee generally will recognize taxable income, and the Company
will then be entitled to a deduction, in the amount by which the then fair
market value of the shares of Common Stock issued to such optionee exceeds the
option price.
Income recognized by the optionee upon exercise of a Nonqualified Stock
Option will be taxed as ordinary income up to the current maximum rate of 39.6%.
Such income constitutes "wages" with respect to which the Company is required to
deduct and withhold federal and state income tax. Such deductions will be made
from the wages, salary, bonus or other income to which the optionee would
otherwise be entitled and, at the Company's election, the optionee may be
required to pay to the Company (for withholding on the optionee's behalf) any
amount not so deducted but required to be so withheld.
Upon the subsequent disposition of shares acquired upon the exercise of
an option other than an incentive stock option, the optionee will recognize
capital gain or loss in an amount equal to the difference between the proceeds
received upon disposition and the fair market value of such shares at the time
of exercise. If such shares have been held for more than one year at the time of
such disposition, the capital gain or loss will be long-term.
Exercising Options with Shares of Common Stock. To the extent an
optionee pays all or part of the option price by tendering shares of Common
Stock owned by the optionee, the tax consequences described above generally
would apply. However, the number of shares received (upon exercise) equal to the
number of shares surrendered in payment of the aggregate option price will have
the same basis and tax holding period as the shares surrendered. The additional
shares received upon such exercise will have a tax basis equal to the amount of
ordinary income recognized and any cash paid on such exercise and a holding
period which commences on the date of exercise.
If an optionee exercises an option by tendering shares previously
acquired on the exercise of an Incentive Stock Option, a disqualifying
disposition will occur if the applicable holding period requirements have not
been satisfied with respect to the surrendered stock. The consequences of such a
disqualifying disposition is that the optionee may recognize ordinary income at
the time.
Acceleration of Stock Options Upon a Transfer of Control. If, upon a
reorganization, merger, sale or other transaction resulting in a change in
control of the Company or of a substantial portion of its assets, the
exercisability of stock options held by certain employees (generally officers,
stockholders and highly compensated
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<PAGE> 23
employees of the Company) is accelerated (or payments are made to cancel
unexercisable options of such employees), such acceleration or payment will be
determined to be a "parachute payment" for federal income tax purposes. If the
present value of all of the optionee's parachute payments exceeds three times
the optionee's average compensation for the past five years, the optionee will
be subject to a 20% excise tax on the amount of such parachute payment which is
in excess of the greater of such average compensation of the optionee or an
amount which the optionee establishes as reasonable compensation. In addition,
the Company will not be allowed a deduction for such excess parachute payment.
Limitation on Compensation Deduction. Upon exercise, options granted to
a "covered employee" with an option price equal to or greater than the fair
market value of the Common Stock at the time of grant should not be subject to
the $1.0 million deduction cap for compensation paid to certain executives of
publicly held corporations such as the Company. The Plan should satisfy the
rules governing exemption from the deduction cap for "performance based"
compensation since (1) stockholders should have received adequate disclosure of
the terms of the Plan in this Proxy Statement and (2) the Plan has been approved
by a compensation committee consisting solely of two or more "Outside Directors"
of the Company.
Upon exercise, options granted to a covered employee with an option
price less than the fair market value of the Common Stock at the time of grant
would be subject to the $1.0 million deduction cap for the Company. A "covered
employee" is an optionee who, on the last day of the taxable year of the
Company, is the Chief Executive Officer or one of the four other most highly
compensated executive officers for proxy disclosure purposes. An "Outside
Director" is a Director who is not (1) a current employee of the Company or
related entity, (2) a former employee who is receiving compensation for prior
services, (3) a former officer or (4) receiving compensation from the Company
for personal services other than regular directors' compensation.
The foregoing summary of the effects of federal income taxation upon
optionees, holders of restricted stock and the Company with respect to shares
issued under the Plan does not purport to be complete and reference is made to
the applicable provisions of the Code.
THE BOARD BELIEVES THAT THE AMENDMENTS ARE IN THE BEST INTERESTS OF THE
COMPANY AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL
THEREOF. PROXIES WILL BE VOTED FOR THIS PROPOSAL UNLESS OTHERWISE SPECIFICALLY
INDICATED.
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<PAGE> 24
PROPOSAL 3 -- RATIFICATION OF THE APPOINTMENT OF
DELOITTE & TOUCHE LLP AS INDEPENDENT ACCOUNTANTS
The Audit Committee of the Board has selected Deloitte & Touche LLP as
independent public accountants to audit the financial statements of the Company
for 1998. Deloitte & Touche LLP served as the Company's independent pubic
accountants for 1997. A member of that firm is expected to be present at the
1997 Annual Meeting, will have an opportunity to make a statement if so desired,
and will be available to respond to appropriate questions. If the stockholders
do not ratify the selection of Deloitte & Touche LLP, if it should decline to
act or otherwise become incapable of acting, or if its employment is
discontinued, the Audit Committee will appoint independent public accountants
for 1998. Proxies solicited by the Board will be voted in favor of ratification
unless stockholders specify otherwise.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS
FOR 1998. PROXIES WILL BE VOTED FOR THIS PROPOSAL UNLESS OTHERWISE SPECIFICALLY
INDICATED.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act ("Section 16(a)") requires the
Company's directors and certain of its officers, and persons who own more than
10% of a registered class of the Company's equity securities (collectively,
"Insiders"), to file reports of ownership and changes in ownership with the
Commission. Insiders are required by Commission regulations to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Forms 5s were
required for those persons, the Company believes that its Insiders complied with
all applicable Section 16(a) filing requirements for 1997.
OTHER BUSINESS
The Company is not aware of any other business to be presented at the
1998 Annual Meeting. All shares represented by Company proxies will be voted in
favor of the proposals of the Company described herein unless otherwise
indicated on the form of proxy. If any other matters properly come before the
meeting, Company proxy holders will vote thereon according to their best
judgment.
SUBMISSION OF STOCKHOLDER PROPOSALS
Any stockholder who wishes to present a proposal for action at the 1998
Annual Meeting and who wishes to have it set forth in the corresponding proxy
statement and identified in the corresponding form of proxy prepared by
management must notify the Company no later than December 9, 1998 in such form
as required under the rules and regulations promulgated by the Securities and
Exchange Commission.
ANNUAL REPORTS
A COPY OF THE COMPANY'S 1997 ANNUAL REPORT AND FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1997 ARE BEING MAILED TO EACH STOCKHOLDER OF RECORD TOGETHER
WITH THIS PROXY STATEMENT. THE ANNUAL REPORT AND FORM 10-K ARE NOT PART OF THE
COMPANY'S SOLICITING MATERIAL.
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<PAGE> 25
PROXIES AND SOLICITATION
Proxies for the 1998 Annual Meeting are being solicited by mail directly
and through brokerage and banking institutions. The Company will pay all
expenses in connection with the solicitation of proxies. In addition to the use
of mails, proxies may be solicited by Directors, officers and regular employees
of the Company personally or by telephone. The Company will reimburse banks,
brokers custodians, nominees and fiduciaries for any reasonable expenses in
forwarding proxy materials to beneficial owners.
All stockholders are urged to complete, sign and promptly return the
enclosed proxy card.
By Order of the Board of Directors
CATHY L. WOOD
Secretary
Irvine, California
April 1, 1998
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<PAGE> 26
APPENDIX-1
PIA MERCHANDISING SERVICES, INC.
1995 STOCK OPTION PLAN, AS AMENDED
Section 1. Description of Plan. This is the 1995 Stock Option Plan,
dated December 5, 1995 (the "Plan"), of PIA Merchandising Services, Inc., a
Delaware corporation (the "Company"). Under the Plan, officers, certain
directors, key employees and consultants of the Company or its wholly-owned
Subsidiaries (as defined below), to be selected as set forth below, may be
granted options ("Options") to purchase shares of the common stock of the
Company ("Common Stock"). The Plan permits the granting of both Options that
qualify for treatment as incentive stock options ("Incentive Stock Options")
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
and Options that do not qualify as Incentive Stock Options ("Nonqualified Stock
Options"). For purposes of the Plan, the term "Subsidiary" shall mean any
corporation or other entity of which 50% or more of the voting stock (or
equivalent thereof) is owned by the Company or by another Subsidiary (as so
defined) of the Company.
Section 2. Purpose of Plan. The purpose of the Plan and of granting
Options to specified persons is to further the growth, development and financial
success of the Company and the Subsidiaries by providing additional incentives
to certain officers, directors, key employees and consultants of the Company. By
assisting such persons in acquiring shares of the Company's Common Stock, the
Company can ensure that such persons will themselves benefit directly from the
Company's and the Subsidiaries' growth, development and financial success.
Section 3. Eligibility. The persons who shall be eligible to receive
grants of Options under the Plan shall be, at the time of the grant, the
officers, certain directors, key employees and consultants of the Company and
the Subsidiaries, excluding those directors of the Company and its Subsidiaries
who serve on the Committee (as defined in Section 4). Notwithstanding the
preceding sentence, only persons who are employees of the Company and the
Subsidiaries shall be eligible to receive grants of Incentive Stock Options
under the Plan. In addition, a person who holds an Option is herein referred to
as a "Participant." More than one Option may be granted to any Participant,
grants of Options may be made on more than one occasion to any Participant and
any individual Participant may receive grants of Options on up to 1,000,000
shares of Common Stock. Such grants of Options under the Plan may include an
Incentive Stock Option, Nonqualified Stock Option, or any combination thereof.
Notwithstanding the foregoing, the Board of Directors of the Company (the
"Board") may at any time or from time to time designate one or more Directors as
ineligible for selection as a Participant under the Plan for any period or
periods of time. The designation by the Board of a Director as ineligible for
selection as a Participant under the Plan shall not affect Options previously
granted to such Director under the Plan.
Section 4. Administration. The Plan shall be administered by the
Compensation Committee (the "Committee") established by the Board. The Committee
shall be constituted so as to permit the Plan to comply with the provisions of
Rule 16b-3 ("Rule 16b-3") under the Securities Exchange Act of 1934 (the
"Exchange Act") and so that each member of the Committee would be an "outside
director" within the meaning of Code Section 162(m). The Committee shall meet at
such times and places as it determines and may meet through a telephone
conference call. A majority of its members shall constitute a quorum, and the
decision of a majority of those present at any meeting at which a quorum is
present shall constitute the decision of the Committee. A memorandum signed by
all the members of the Committee shall constitute the decision of the Committee
without necessity, in such event, for holding an actual meeting. The Committee
is authorized and empowered to administer the Plan and, subject to the Plan (a)
to select the Participants, to specify the number of shares of Common Stock with
respect to which Options are granted to each Participant, to specify the terms
of the Options and whether such Options shall be Incentive Stock Options or
Nonqualified Stock Options, and in general to grant Options; (b) to determine
the dates upon which Options shall be granted and the terms and conditions
thereof in a manner consistent with the Plan, which terms and conditions need
not be identical as to the various Options granted; (c) to interpret the Plan;
(d) to prescribe, amend and rescind rules relating to the Plan; (e) to authorize
any person to execute on behalf of the Company any instrument required to
effectuate the grant of an Option
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<PAGE> 27
previously granted by the Committee; (f) to determine the rights and obligations
of Participants under the Plan; (g) to specify the Option Price (as hereinafter
defined); (h) to accelerate the time during which an Option may be exercised,
including, but not limited to, upon a change of control of the Company, and to
otherwise accelerate the time or extend the post-termination exercise period
during which an Option may be exercised, in each case notwithstanding the
provisions in the Option Agreement (as defined in Section 13) stating the time
during which it may be exercised; and (i) to make all other determinations
deemed necessary or advisable for the administration of the Plan. The good faith
interpretation and construction by the Committee of any provision of the Plan or
of any Option granted under it shall be final, conclusive and binding. No member
of the Committee shall be liable for any action or determination made in good
faith with respect to the Plan or any Option granted under it.
Section 5. Shares Subject to the Plan. The number of shares of Common
Stock in respect of which Options may be granted under the Plan is 1,300,000,
subject to adjustment as provided in Section 12 hereof. Upon the expiration or
termination, in whole or in part, for any reason of an outstanding Option or any
portion thereof which shall not have vested or shall not have been exercised in
full, any shares of Common Stock then remaining unissued which shall have been
reserved for issuance upon such exercise shall again become available for the
granting of additional Options under the Plan. Notwithstanding the foregoing,
shares subject to a terminated Option shall continue to be considered to be
outstanding for purposes of determining the maximum number of shares that may be
issued to a Participant. Similarly, the repricing of an Option will be
considered the grant of a new Option for this purpose.
Section 6. Option Price. Except as provided in Section 12 hereof, the
purchase price per share (the "Option Price") of the shares of Common Stock
underlying each Incentive Stock Option shall be not less than the fair market
value of such shares on the date of granting of the Incentive Stock Option;
provided, however, that if the Participant is a ten percent (10%) stockholder of
the Company as detailed in Code Section 422(b)(6) at the time such Option is
granted (determined after taking into account the constructive ownership rules
of Section 424(d) of the Code), the Option Price shall be not less than 110
percent (110%) of said fair market value. The Option Price of the shares of
Common Stock underlying each Nonqualified Stock Option shall be not less than
eighty-five percent (85%) of the fair market value of such shares on the date of
granting of the Nonqualified Stock Option; provided, however, that with respect
to any Nonqualified Stock Option granted to a "covered employee" (as such term
is defined in Section 162(m) of the Code), the Option Price of the shares of
Common Stock underlying such Nonqualified Stock Option shall be not less than
the fair market value of such shares on the date of granting of such
Nonqualified Stock Option. The fair market value of such shares shall be
determined by the Committee on the basis of the average, rounded to the nearest
eighth, of the Quoted Prices of a share of Common Stock for the five consecutive
business days prior to the day as of which the fair market value of the Common
Stock is being determined. The "Quoted Price" of a share of Common Stock shall
be the last reported sales price of the Common Stock as reported by the NASDAQ
National Market System ("NASDAQ") or, if the Common Stock is listed on a
securities exchange, the last reported sales price of the Common Stock on such
exchange which shall be for consolidated trading if applicable to such exchange
or, if the Common Stock is not so reported or listed, the average of the last
reported bid and asked price of the Common Stock.
Section 7. Restrictions on Grants; Vesting of Options. Notwithstanding
any other provisions set forth herein or in any Option Agreement, no Options may
be granted under the Plan subsequent to ten (10) years from December 5, 1995.
All Options granted pursuant to the Plan shall be granted pursuant to Option
Agreements, as described in Section 13 hereof. The vesting of all Options may be
based on the Company's attaining of performance criteria as specified at the
time of the granting thereof and/or may also be based on the passage of time.
The Committee shall determine the performance criteria, the performance
measurement period and the vesting schedule applicable to each Option or group
of Options in a schedule, a copy of which shall be filed with the records of the
Committee and attached to each Option Agreement to which the same applies. The
performance criteria, the performance measurement period and the vesting
schedule and period of exercisability need not be identical for all Options
granted hereunder. Following the conclusion of each applicable performance
measurement period, the Committee shall determine, in its sole good faith
judgment, the extent, if at all, that each Option subject thereto shall have
vested based upon the applicable performance criteria and vesting schedule. To
the extent each such Option shall not have vested, because the applicable
performance criteria has not been met, and does not also vest based on the
passage of time, it shall, to that extent, automatically terminate and cease to
be
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<PAGE> 28
exercisable to such extent notwithstanding the stated term during which it may
be exercised. The Committee shall promptly notify each affected Participant of
such determination. The Committee may periodically review the performance
criteria applicable to any Option or Options and, in its sole good faith
judgment, may adjust the same to reflect unanticipated major events, such as
catastrophic occurrences, mergers, acquisitions and the like.
Section 8. Special Limitations on Incentive Stock Options. To the extent
that the aggregate fair market value (determined at the time the respective
Incentive Stock Option is granted) of Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by a Participant
during any calendar year under all incentive stock option plans of the Company
and the Subsidiaries exceeds $100,000, or such other limit as may be required by
the Code, such excess Incentive Stock Options shall be treated as Nonqualified
Stock Options. The Committee shall determine, in accordance with applicable
provisions of the Code, Treasury Regulations and other administrative
pronouncements, which of a Participant's Incentive Stock Options will not
constitute Incentive Stock Options because of such limitation and shall notify
the Participant of such determination as soon as practicable after such
determination.
Section 9. Exercise of Options. Subject to all other provisions of the
Plan, once vested, each Option shall be exercisable for the full number of
shares of Common Stock subject thereto, or any part thereof, in such
installments and at such intervals as the Committee may determine in granting
such Option, provided that no option may be exercisable subsequent to its
termination date. Once vested, and prior to its termination date, an Option may
be exercised by the Participant by giving written notice to the Company
specifying the number of full shares to be purchased and accompanied by payment
of the full purchase price therefor in cash, by check or in such other form of
lawful consideration as the Committee may approve from time to time, including,
without limitation and in the sole discretion of the Committee, the assignment
and transfer by the Participant to the Company of outstanding shares of Common
Stock theretofore held by the Participant in a manner intended to comply with
the provisions of Rule 16b-3, if applicable. In connection with such assignment
and transfer, the Company shall have the right to deduct any fractional shares
to be paid to the Participant. Once vested, and prior to its termination date,
an Option may only be exercised by the Participant or, in the event of death of
the Participant, by the person or persons (including the deceased Participant's
estate) to whom the deceased Participant's rights under such Option shall have
passed by will or the laws of descent and distribution. Notwithstanding the
foregoing in the immediately preceding sentence, in the event of disability
(within the meaning of Section 22(e)(3) of the Code) of a Participant, a
designee, or if the Participant has no designee, the legal representative, of
such Participant may exercise the Option on behalf of such Participant (provided
such Option would have been exercisable by such Participant) until the right to
exercise such Option expires, as set forth in such Participant's particular
Option Agreement. No Option granted to a person subject to Section 16 of the
Exchange Act shall be exercisable during the first six (6) months after the date
such Option is granted.
Section 10. Issuance of Common Stock. The Company's obligation to issue
shares of its Common Stock upon exercise of an Option is expressly conditioned
upon the compliance by the Company with any registration or other qualification
obligations with respect to such shares under any state or federal law or
rulings and regulations of any government regulatory body and the making of such
investment representations or other representations and undertakings by the
Participant (or the Participant's legal representative, heir or legatee, as the
case may be) in order to comply with the requirements of any exemption from any
such registration or other qualification obligations with respect to such shares
which the Company in its sole discretion shall deem necessary or advisable. Such
required representations and undertakings may include representations and
agreements that such Participant (or the Participant's legal representative,
heir or legatee): (a) is purchasing such shares for investment and not with any
present intention of selling or otherwise disposing of such shares; and (b)
agrees to have a legend placed upon the face and reverse of any certificates
evidencing such shares (or, if applicable, an appropriate data entry made in the
ownership records of the Company) setting forth (i) any representations and
undertakings which such Participant has given to the Company or a reference
thereto, and (ii) that, prior to effecting any sale or other disposition of any
such shares, the Participant must furnish to the Company an opinion of counsel,
satisfactory to the Company and its counsel, to the effect that such sale or
disposition will not violate the applicable requirements of state and federal
laws and regulatory agencies; provided, however, that any such legend or data
entry shall be removed when no longer applicable. The Company, during the term
of the Plan, will at all times reserve and keep available, and will use its
reasonable efforts to obtain from any regulatory body having jurisdiction any
A1-3
<PAGE> 29
requisite authority in order to issue and sell such number of shares of Common
Stock as shall be sufficient to satisfy the requirements of the Plan. Inability
of the Company to obtain, from any regulatory body having jurisdiction,
authority reasonably deemed by the Company's counsel to be necessary for the
lawful issuance and sale of any shares hereunder shall relieve the Company of
any liability in respect of the non-issuance or sale of such shares as to which
such requisite authority shall not have been obtained.
Section 11. Non-transferability.
(a) Except as provided in Section 11(b), an Option may not be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner other
than by will or by the laws of descent or distribution.
(b) The Committee may, in its discretion, authorize all or a portion of
the Nonqualified Stock Options to be granted to a Participant to be on terms
which permit transfer by such Participant to (a) the spouse, children or
grandchildren of the optionee ("Immediate Family Members"), (b) a trust or
trusts for the exclusive benefit of such Immediate Family Members, or (c) a
partnership in which such Immediate Family Members are the only partners,
provided that (i) there may be no consideration for any such transfer, (ii) the
Option Agreement (defined below) pursuant to which such Options are granted must
be approved by the Committee, and must expressly provide for transferability in
a manner consistent with this Section 11, and (iii) subsequent transfers of
transferred Options shall be prohibited except those in accordance with Section
11(a). Following transfer, any such Options shall continue to be subject to the
same terms and conditions as were applicable immediately prior to transfer,
provided that for purposes of Sections 9 and 10 hereof the term "Participants"
shall be deemed to refer to the transferee. The events of termination of
employment of Section 25 hereof shall continue to be applied with respect to the
original Participant, following which the Options shall be exercisable by the
transferee only to the extent, and for the periods specified in the Option
Agreement. Any permitted transferee shall be required prior to any transfer of
an Option or shares of Common Stock acquired pursuant to the exercise of an
Option to execute a written undertaking to be bound by the provisions of the
applicable Option Agreement.
Section 12. Adjustments Upon Capitalization and Corporate Changes;
Substitute Options. Subject to Section 15(b) hereof, if the outstanding shares
of the Common Stock of the Company are changed into, or exchanged for, a
different number or kind of shares or securities of the Company through
reorganization, merger, recapitalization or reclassification, or if the number
of outstanding shares is changed through a stock split, stock dividend, stock
consolidation or like capital adjustment, or if the Company makes a distribution
in partial liquidation or any other comparable extraordinary distribution with
respect to its Common Stock, an appropriate adjustment shall be made by the
Committee in the number, kind or Option Price of shares as to which Options may
be granted. A corresponding adjustment shall likewise be made in the number,
kind or Option Price of shares with respect to which unexercised Options have
theretofore been granted. Any such adjustment in an outstanding Option, however,
shall be made without change in the total price applicable to the unexercised
portion of the Option but with a corresponding adjustment in the price for each
share covered by the Option. In making such adjustments, or in determining that
no such adjustments are necessary, the Committee may rely upon the advice of
counsel and accountants to the Company, and the good faith determination of the
Committee shall be final, conclusive and binding. No fractional shares of stock
shall be issued under the Plan on account of any such adjustment.
If the Company at any time should succeed to the business of another
corporation through a merger or consolidation, or through the acquisition of
stock or assets of such corporation or its subsidiaries, Options may be granted
under the Plan to option holders of such corporation or its subsidiaries, in
substitution for options to purchase stock of such corporation held by them at
the time of succession. The Committee, in its sole and absolute discretion,
shall determine the extent to which such substitute Options shall be granted (if
at all), the person or persons to receive such substitute Options (who need not
be all option holders of such corporation), the number of Options to be received
by each such person, the Option Price of such Option (which may be determined
without regard to Section 6 hereof) and the terms and conditions of such
substitute Options; provided, however, that the Option Price of each such
substituted Option which is an Incentive Stock Option shall be an amount such
that, in the sole and absolute judgment of the Committee (and in compliance with
Section 424(a) of the Code in the case of an Incentive Stock Option), the
economic benefit provided by such Option is not greater
A1-4
<PAGE> 30
than the economic benefit represented by the option in the acquired corporation
as of the date of the Company's acquisition of such corporation. Notwithstanding
anything to the contrary herein, no Option shall be granted, nor any action
taken, permitted or omitted, which would cause the Plan, or any Options granted
hereunder as to which Rule 16b-3 under the Exchange Act may apply, not to comply
with such Rule 16b-3.
Section 13. Option Agreement. Each Option granted under the Plan shall
be evidenced by a written stock option agreement ("Option Agreement") executed
by the Company and the Participant which (a) shall contain each of the
provisions and agreements herein specifically required to be contained therein;
(b) shall indicate whether such Option is to be an Incentive Stock Option or a
Nonqualified Stock Option, and if an Incentive Stock Option, shall contain terms
and conditions permitting such Option to qualify for treatment as an incentive
stock option under Section 422 of the Code; and (c) may contain such other terms
and conditions as the Committee deems desirable and which are not inconsistent
with the Plan.
Section 14. Rights as a Stockholder. A Participant or permitted
transferee of a Participant shall have no rights as a stockholder with respect
to any shares covered by an Option until the date of an entry evidencing such
ownership is made in the stock transfer books of the Company (the "Exercise
Date"). No adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other rights
for which the record date is prior to the Exercise Date.
Section 15. Termination of Options, Acceleration of Options.
(a) Each Option shall terminate and expire, and shall no longer be
subject to exercise, as the Committee may determine in granting such Option, and
each Option granted under the Plan shall set forth a termination date thereof,
which, subject to earlier termination as set forth in Section 7 or this Section
15 hereof, or as otherwise set forth in each particular Option Agreement, with
respect to Nonqualified Stock Options, shall be no later than ten years from the
date such Option is granted, and with respect to Incentive Stock Options, shall
also be no later than ten years from the date such Option is granted, unless the
Participant is a ten percent (10%) stockholder of the Company (as described in
Section 422(b)(6) of the Code, and determined after taking into account the
constructive ownership rules of Section 424(d) of the Code) at the time such
Option is granted, in which case the Option shall terminate and expire no later
than five years from the date of the grant thereof. An Incentive Stock Option
shall contain any additional termination events required by Section 422 of the
Code.
(b) Subject to Section 15(c) hereof, unless the Committee shall, in its
sole discretion, determine otherwise, upon (i) the dissolution, liquidation or
sale of all or substantially all of the business, properties and assets of the
Company, (ii) upon any reorganization, merger or consolidation in which the
Company does not survive, (iii) upon any reorganization, merger, consolidation
or exchange of securities in which the Company does survive and any of the
Company's stockholders have the opportunity to receive cash, securities of
another corporation and/or other property in exchange for their capital stock of
the Company, or (iv) upon any acquisition by any person or group (as defined in
Section 13(d) of the Securities Act of 1934) of beneficial ownership of more
than fifty percent (50%) of the Company's then outstanding shares of Common
Stock (each of the events described in clauses (i), (ii), (iii) or (iv) is
referred to herein individually as an "Extraordinary Event"), the Plan and each
outstanding Option shall terminate. In such event each Participant shall have
the right until 10 days before the effective date of the Extraordinary Event to
exercise, in whole or in part, any unexpired Option or Options issued to the
Participant, to the extent that said Option is then vested and exercisable
pursuant to the provisions of said Option or Options and of Section 7 hereof.
The termination of employment of, or the termination of a consulting
relationship with, a Participant for any reason shall not accelerate or
otherwise affect the number of shares with respect to which an Option may be
exercised; provided, however, that the Option may only be exercised with respect
to that number of shares which could have been purchased under the Option had
the Option been exercised by the Participant on the date of such termination.
(c) Notwithstanding the provisions of Section 7 or paragraphs (a) or (b)
of this Section 15, or any provision to the contrary contained in a particular
Option Agreement, the Committee, in its sole discretion, at any
A1-5
<PAGE> 31
time, or from time to time, may elect to accelerate the vesting of all or any
portion of any Option then outstanding. The decision by the Committee to
accelerate an Option or to decline to accelerate an Option shall be final,
conclusive and binding. In the event of the acceleration of the exercisability
of Options as the result of a decision by the Committee pursuant to this Section
15(c), each outstanding Option so accelerated shall be exercisable for a period
from and after the date of such acceleration and upon such other terms and
conditions as the Committee may determine in its sole discretion; provided,
however, that such terms and conditions (other than terms and conditions
relating solely to the acceleration of exercisability and the related
termination of an Option) may not adversely affect the rights of any Participant
without the consent of the Participant so adversely affected. Any outstanding
Option which has not been exercised by the holder at the end of such stated
period shall terminate automatically and become null and void.
Section 16. Withholding of Taxes. The Company, or a Subsidiary, as the
case may be, may deduct and withhold from the wages, salary, bonus and other
income paid by the Company or such Subsidiaries to the Participant the requisite
tax upon the amount of taxable income, if any, recognized by the Participant in
connection with the exercise in whole or in part of any Option, or the sale of
Common Stock issued to the Participant upon the exercise of an Option, as may be
required from time to time under any federal or state tax laws and regulations.
This withholding of tax shall be made from the Company's (or such Subsidiaries')
concurrent or next payment of wages, salary, bonus or other income to the
Participant or by payment to the Company (or such Subsidiaries) by the
Participant of the required withholding tax, as the Committee may determine. The
Company may permit the Participant to elect to surrender, or authorize the
Company to withhold, shares of Common Stock (valued at their fair market value
on the date of surrender or withholding of such shares) in satisfaction of the
Company's withholding obligation, subject to such restrictions as the Committee
deems necessary to satisfy the requirements of Rule 16b-3. However, no
fractional shares of Common Stock shall be delivered, nor shall any cash in lieu
of fractional shares be paid, by the Company. The Company shall have the right
to deduct fractional shares to be paid to the Participant as a result of such
surrender or withholding of shares.
Section 17. Effectiveness and Termination of Plan. The Plan shall be
effective on the date on which it is adopted by the Board, provided the Plan is
approved by the stockholders of the Company within twelve (12) months of
December 5, 1995 and on or prior to the date of the first annual meeting of
stockholders of the Company held subsequent to the acquisition of an equity
security by a Participant hereunder for which exemption is claimed under Rule
16b-3. Notwithstanding any provision of the Plan or in any Option Agreement, no
Option shall be exercisable prior to such stockholder approval. The Plan shall
terminate at the earliest of the time when all shares of Common Stock which may
be issued hereunder have been so issued, or at such time as set forth in Section
15(b) hereof; provided, however, that the Board may in its sole discretion
terminate the Plan at any other time. Unless earlier terminated by the Board,
the Plan shall terminate on December 5, 2005. Subject to Section 15(b) hereof,
no such termination shall in any way affect any Option then outstanding.
Section 18. Time of Granting Options. The date of grant of an Option
shall, for all purposes, be the date on which the Committee makes the
determination granting such Option. Notice of the determination shall be given
to each Participant to whom an Option is so granted within a reasonable time
after the date of such grant.
Section 19. Amendment of Plan. The Board may (a) make such changes in
the terms and conditions of granted Options as it deems advisable, provided each
Participant adversely affected by such change consents thereto, and (b) make
such amendments to the Plan as it deems advisable. Such amendments and changes
shall include, but not be limited to, acceleration of the time at which an
Option may be exercised, but may not, without the written consent or approval of
the holders of a majority of that voting stock of the Company which is
represented and is entitled to vote at a duly held stockholder's meeting (i)
increase the maximum number of shares subject to Options, except pursuant to
Section 12 hereof, (ii) change the designation of the class of employees
eligible to receive Incentive Stock Options, or (iii) in any manner modify the
Plan such that it fails to meet the requirements of Rule 16b-3 of the Exchange
Act for the exemption of the acquisition, cancellation, expiration or surrender
of Options from the operation of Section 16(b) of the Exchange Act.
Section 20. Transfers and Leaves of Absence. For purposes of the Plan,
(a) a transfer of a Participant's employment or consulting relationship, without
an intervening period, between the Company and a Subsidiary
A1-6
<PAGE> 32
shall not be deemed a termination of employment or a termination of a consulting
relationship, and (b) a Participant who is granted in writing a leave of absence
shall be deemed to have remained in the employ of, or in a consulting
relationship with, the Company (or a Subsidiary, whichever is applicable) during
such leave of absence. Notwithstanding the foregoing, for purposes of
determining the exercisability of an Incentive Stock Option, a Participant who
is on a leave of absence that exceeds ninety (90) days will be considered to
have terminated his or her employment on the ninety-first (91st) day of the
leave of absence, unless the Participant's rights to reemployment are guaranteed
by statute or contract.
Section 21. No Obligation to Exercise Option. The granting of an Option
shall impose no obligation on the Participant to exercise such Option.
Section 22. Governing Law. The Plan and any Option granted pursuant to
the Plan shall be construed under and governed by the laws of the State of
Delaware without regard to conflict of law provisions thereof.
Section 23. Not an Employment or Other Agreement. Nothing contained in
the Plan or in any Option Agreement shall confer, intend to confer or imply any
rights of employment or any rights to any other relationship or rights to
continued employment by, or rights to a continued consulting relationship with,
the Company or any Subsidiaries in favor of any Participant or limit the ability
of the Company or any Subsidiaries to terminate, with or without cause, in its
sole and absolute discretion, the employment of, or relationship with, any
Participant, subject to the terms of any written employment or other agreement
to which a Participant is a party.
Section 24. Rule 16b-3. It is intended that the 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. If any provision of the Plan or any such grant
would disqualify the Plan or such grant under, or would not otherwise comply
with, Rule 16b-3, such provision or grant shall be construed or deemed amended
to conform to Rule 16b-3.
Section 25. Termination of Employment. The terms and conditions under
which an Option may be exercised after a Participant's termination of employment
shall be determined by the Committee and shall be specified in the Option
Agreement. The conditions under which such post-termination exercises shall be
permitted with respect to Incentive Stock Options shall be determined in
accordance with the provisions of Section 422 of the Code.
Section 26. Indemnification. In addition to such other rights of
indemnification as they may have as directors, the members of the Board or
Committee shall be indemnified by the Company to the fullest extent permitted by
law against the reasonable expenses, including reasonable attorneys' fees,
actually and necessarily incurred in connection with the defense of any action,
suit or proceeding, or in connection with any appeal therein, to which they or
any of them may be a party by reason of any action taken or failure to act under
or in connection with the Plan or any Option granted thereunder, and against all
amounts paid by them in satisfaction of a judgment in any such action, suit or
proceeding, except in relation to matters as to which it shall be adjudged in
such action, suit or proceeding that such Committee member is not entitled to
indemnification under applicable law; provided that within 60 days after
institution of any such action, suit or proceeding such Committee member shall
in writing offer the Company the opportunity, at the Company's expense, to
handle and defend the same.
A1-7
<PAGE> 33
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
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:
[X] PRELIMINARY PROXY STATEMENT
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14a-6(e)(2))
[ ] DEFINITIVE PROXY STATEMENT
[ ] DEFINITIVE ADDITIONAL MATERIALS
[ ] SOLICITING MATERIAL PURSUANT TO SECTION 240.14a-11(c) OR SECTION 240.14a-12
PIA MERCHANDISING SERVICES, INC.
- --------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
N/A
- --------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] NO FEE REQUIRED
[ ] FEE COMPUTED ON TABLE BELOW PER EXCHANGE ACT RULES 14a-6(i)(1) AND 0-11.
1) TITLE OF EACH CLASS OF SECURITIES TO WHICH TRANSACTION APPLIES:
-----------------------------------------------------------------------------
2) AGGREGATE NUMBER OF SECURITIES TO WHICH TRANSACTION APPLIES:
-----------------------------------------------------------------------------
3) PER UNIT PRICE OR OTHER UNDERLYING VALUE OF TRANSACTION COMPUTED PURSUANT TO
EXCHANGE ACT RULE 0-11 (SET FORTH THE AMOUNT ON WHICH THE FILING FEE IS
CALCULATED AND STATE HOW IT WAS DETERMINED):
-----------------------------------------------------------------------------
4) PROPOSED MAXIMUM AGGREGATE VALUE OF TRANSACTION:
-----------------------------------------------------------------------------
5) TOTAL FEE PAID:
-----------------------------------------------------------------------------
[ ] FEE PAID PREVIOUSLY WITH PRELIMINARY MATERIALS.
[ ] CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY EXCHANGE ACT
RULE 0-11(a)(2) AND IDENTIFY THE FILING FOR WHICH THE OFFSETTING FEE WAS
PAID PREVIOUSLY. IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT
NUMBER, OR THE FORM OR SCHEDULE AND THE DATE OF ITS FILING.
1) AMOUNT PREVIOUSLY PAID:
-----------------------------------------------------------------------------
2) FORM, SCHEDULE OR REGISTRATION STATEMENT NO.:
-----------------------------------------------------------------------------
3) FILING PARTY:
-----------------------------------------------------------------------------
4) DATE FILED:
-----------------------------------------------------------------------------
A2-3
<PAGE> 34
APPENDIX-2
FORM OF PROXY
PROXY
PIA MERCHANDISING SERVICES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Terry R. Peets and Cathy L. Wood, and each of
them, proxies with full power of substitution, to vote all shares of Common
Stock of PIA Merchandising Services, Inc. (the "Company") held of record by the
undersigned as of March 13, 1998, the record date with respect to this
solicitation, at the Annual Meeting of Stockholders of the Company to be held at
The Sutton Place Hotel, 4500 MacArthur Boulevard, Newport Beach, California
92660, beginning at 10:00 a.m., Pacific Time, on Tuesday, May 12, 1998, and at
any adjournments thereof, upon the following matters:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote
(except as noted below) for all nominees listed below
(Instructions: To withhold authority to vote for any nominee, line
through or otherwise strike out the nominee's name below.)
Clinton E. Owens Joseph H. Coulombe
Terry R. Peets Patrick C. Haden
Patrick W. Collins J. Christopher Lewis
John A. Colwell
2. APPROVAL OF THE AMENDMENT OF THE COMPANY'S 1995 STOCK OPTION PLAN, AS
DESCRIBED IN THE PROXY STATEMENT.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. RATIFICATION OF THE SELECTION OF DELOITTE & TOUCHE LLP AS INDEPENDENT
AUDITORS FOR THE COMPANY FOR THE YEAR ENDING DECEMBER 31, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. OTHER MATTERS
In their discretion, Terry R. Peets and Cathy L. Wood are authorized to
vote upon such other business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR
THE NOMINEES NAMED IN PROPOSAL 1 AND FOR PROPOSALS 2 AND 3 ABOVE. IF ANY NOMINEE
DECLINES OR IS UNABLE TO SERVE AS A DIRECTOR, THEN THE PERSONS NAMED AS PROXIES
SHALL HAVE FULL DISCRETION TO VOTE FOR ANY OTHER PERSON DESIGNATED BY THE BOARD
OF DIRECTORS.
Dated _________________________________, 1998
_______________________________________
(Signature)
_______________________________________
(Signature)
Please sign exactly as your name appears
hereon. Joint owners should each sign.
When signing as attorney, executor,
administrator, trustee, guardian or
corporate officer, please give full
title as such.
The signer hereby revokes all proxies
heretofore given by the signor to vote
at said meeting or any adjournments
thereof.
A2-1
