<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C> <C>
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box: [ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as
permitted by Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c)
or sec. 240.14a-12
</TABLE>
Sunquest Information Systems, Inc.
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(Name of Registrant as Specified in its Charter)
Sunquest Information Systems, Inc.
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(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (check the appropriate box):
<TABLE>
<S> <C> <C>
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11
1) Title of each class of securities to which transaction
applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing:
1) Amount Previously Paid:
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2) Form, Schedule or Registration No.:
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3) Filing Party:
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4) Date Filed:
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</TABLE>
<PAGE> 2
LOGO
Dear Fellow Shareholder:
I am pleased to invite you to attend the 1998 Annual Meeting of the
Shareholders of Sunquest Information Systems, Inc. which will be held at the
Viscount Suite Hotel, 4855 East Broadway Blvd., Tucson, Arizona, on Thursday,
April 30, 1998, at 9:00 A.M., local time. The formal Notice of Annual Meeting,
the Proxy Statement, a proxy card and a copy of the Company's Annual Report for
1997 accompany this letter. The Annual Meeting is open to all shareholders or
their authorized representatives. We hope that you will be able to attend.
At the meeting, we will report on the operations, progress and plans of the
Company and give you an opportunity to ask questions. Your Board of Directors
and the executive officers of the Company look forward to personally greeting
those shareholders who are able to attend.
It is important that your shares are represented at this meeting, whether
or not you attend the meeting in person, and regardless of the number of shares
you own. To be sure your shares are represented, we urge you to complete and
mail the enclosed proxy card as soon as possible.
I hope to see you on April 30th.
/s/ SIDNEY A. GOLDBLATT
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Sidney A. Goldblatt
Chairman, President and
Chief Executive Officer
Tucson, Arizona
March 30, 1998
<PAGE> 3
SUNQUEST INFORMATION SYSTEMS, INC.
4801 EAST BROADWAY BOULEVARD
TUSCON, ARIZONA 85711-3609
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 30, 1998
To: The Shareholders of Sunquest
Notice is hereby given that the Annual Meeting of the shareholders of
Sunquest Information Systems, Inc. will be held at the Viscount Suite Hotel,
4855 East Broadway Blvd., Tucson, Arizona, on Thursday, April 30, 1998, at 9:00
A.M., local time, for the following purposes:
(a) To elect a board of seven directors to serve for a term of one year and
until their respective successors are duly elected and qualified.
(b) To ratify the selection of Ernst & Young LLP to audit the books and
accounts of the Company for the year ending December 31, 1998.
(c) To approve the Stock Incentive Plan of 1996, as amended, including a
1,300,000 share increase.
(d) To transact such other business as may properly come before the meeting
and any and all adjournments and postponements thereof.
The Board of Directors has fixed the close of business on March 20, 1998 as
the record date for the determination of shareholders entitled to notice of and
to vote at the Annual Meeting and any adjournments or postponements thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE,
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY. YOU ARE CORDIALLY
INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. THE RETURN OF THE ENCLOSED PROXY
CARD WILL NOT AFFECT YOUR RIGHT TO REVOKE YOUR PROXY OR TO VOTE IN PERSON IF YOU
DO ATTEND THE ANNUAL MEETING.
By Order of the Board of Directors,
NINA M. DMETRUK
Secretary
Tucson, Arizona
March 30, 1998
YOUR VOTE IS IMPORTANT, NO MATTER HOW MANY SHARES
YOU OWNED ON THE RECORD DATE.
PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD, DATE IT,
SIGN IT AND RETURN IT IN THE ENVELOPE PROVIDED, WHICH IS ADDRESSED FOR YOUR
CONVENIENCE AND NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. IN ORDER TO
AVOID THE ADDITIONAL EXPENSE TO THE COMPANY OF FURTHER SOLICITATION, WE ASK YOUR
COOPERATION IN MAILING YOUR PROXY PROMPTLY.
<PAGE> 4
PROXY STATEMENT
SUNQUEST INFORMATION SYSTEMS, INC.
4801 EAST BROADWAY BOULEVARD
TUCSON, ARIZONA 85711-3609
March 30, 1998
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of Sunquest Information Systems,
Inc. (the "Company"), for use at the Company's 1998 Annual Meeting of
Shareholders (together with any adjournments thereof, the "Annual Meeting") to
be held on Thursday, April 30, 1998, at 9:00 A.M., local time, at the Viscount
Suite Hotel, 4855 East Broadway Blvd., Tucson, Arizona, for the purposes set
forth in the accompanying Notice of Annual Meeting, and at any adjournment
thereof. This Proxy Statement and the enclosed form of proxy and Annual Report
for 1997 are first being sent to shareholders on or about March 30, 1998.
The Board has fixed the close of business on March 20, 1998 as the record
date for the determination of shareholders entitled to notice of, and to vote
at, the Annual Meeting (the "Record Date"). As of the Record Date there were
15,375,962 shares of Common Stock outstanding. Each share of Common Stock of the
Company is entitled to one vote per share on each matter properly brought before
the Annual Meeting. There is no cumulative voting in the election of directors.
Shares can be voted at the Annual Meeting only if the shareholder is
present in person or represented by proxy. If the enclosed proxy is properly
executed and returned prior to voting at the Annual Meeting, the shares
represented thereby will be voted in accordance with the instructions marked
thereon. In the absence of instructions, shares represented by executed proxies
will be voted as recommended by the Board. The accompanying proxy may be revoked
by the shareholder at any time prior to its use by giving notice of such
revocation in writing to the Secretary of the Company, c/o Sunquest Information
Systems, Inc., 1407 Eisenhower Boulevard, Suite 200, Johnstown, Pennsylvania
15904, or by delivering a duly executed proxy bearing a later date, provided
such notice or proxy is actually received by the Company prior to the taking of
any vote at the Annual Meeting.
Brokers, banks and other nominee holders will be requested to obtain voting
instructions of beneficial owners of stock registered in their names, and shares
represented by a duly executed proxy submitted by such a nominee holder on
behalf of such a beneficial owner will be voted to the extent instructed by the
nominee holder on the proxy card. Rules applicable to nominee holders may
preclude them from voting shares held by them in nominee capacity on certain
kinds of proposals unless they receive voting instructions from the beneficial
owners of the shares (the failure to vote in such circumstances is referred to
as a "broker non-vote").
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The Board knows of no matters which are to be brought before the Annual
Meeting other than those set forth in the accompanying notice. If any other
matters properly come before the Annual Meeting, the persons named in the
enclosed proxy card, or their duly appointed substitutes, will be authorized to
vote or otherwise act thereon in accordance with their judgment on such matters.
A quorum for the transaction of business at the Annual Meeting will require
the presence, in person or by proxy, of shareholders entitled to cast at least a
majority of the total number of votes entitled to be cast on a particular matter
to be acted upon at the meeting. Abstentions and broker non-votes are counted as
shares present for determination of a quorum but are not counted as affirmative
or negative votes and are not counted in determining the number of votes cast on
any matter.
Proxies in the form enclosed are solicited on behalf of the Board. The cost
of preparing, assembling and mailing the Notice of Annual Meeting, Proxy
Statement and form of proxy is to be borne by the Company. In addition to the
solicitation of proxies by use of the mails, directors, officers or other
employees of the Company may solicit proxies personally or by telephone or
telegraph. Arrangements will also be made with custodians, nominees and
fiduciaries for forwarding of proxy solicitation materials to beneficial owners
of shares of record held by such custodians, nominees and fiduciaries, and the
Company will, upon request, reimburse such custodians, nominees and fiduciaries
for reasonable expenses incurred in connection therewith.
ELECTION OF DIRECTORS
A purpose of the meeting is to elect a board of seven directors to serve
for a term of one year and until their respective successors are elected and
qualified. In the election, the seven persons who receive the highest number of
votes actually cast will be elected. The proxies named in the proxy card intend
to vote for the election of the nominees listed below unless otherwise so
instructed. If a holder does not wish his or her shares to be voted for a
particular nominee, the holder must strike through the name of the nominee on
his proxy card, in which event his shares will be voted for the other listed
nominees. If any nominee becomes unable to serve, the proxies may vote for
another person designated by the Board or the Board may reduce the number of
directors. The Company has no reason to believe that any nominee will be unable
to serve.
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Information concerning the persons nominated by the Board, all of whom,
except Curtis S. Goldblatt, are currently directors of the Company, is set forth
below.
NOMINEES FOR ELECTION AS DIRECTORS
SIDNEY A. GOLDBLATT Age 63
Sidney A. Goldblatt, M.D., a co-founder of the Company, has been President of
the Company since 1986, Chief Executive Officer since December 1994 and a
director of the Company since its formation in 1979. Dr. Goldblatt also served
as Chief Operating Officer of the Company from December 1992 to August 1994. Dr.
Goldblatt has served as President and sole shareholder of S. Goldblatt Pathology
Associates, P.C. since 1971.
NINA M. DMETRUK Age 45
Nina M. Dmetruk has served as Executive Vice President-Chief Financial Officer
of the Company since September 1991 and a director of the Company since December
1991. She has served as Secretary of the Company since August 1996. Effective
May 26, 1996, Ms. Dmetruk entered into an employment agreement with the Company
under which she agreed to serve as the Executive Vice President-Chief Financial
Officer of the Company on a full-time basis. See "Executive Compensation and
Related Information--Employment Contracts and Termination of Employment." During
her earlier service as Executive Vice President-Chief Financial Officer, Ms.
Dmetruk was not an employee of the Company and devoted approximately 60% to 80%
of her time to the Company's business. Ms. Dmetruk is a CPA and a CFP and until
May 1996 was the sole proprietor of an accounting firm for more than five years.
STANLEY J. LEHMAN Age 44
Stanley J. Lehman has been a director of the Company since October 1989 and
served as Secretary of the Company from October 1989 to August 1996. He has been
a shareholder in the law firm of Klett Lieber Rooney & Schorling, a professional
corporation that has served as general counsel to the Company, for more than
five years.
RICHARD W. BARKER Age 49
Richard W. Barker, Ph.D., was elected to the Board of Directors of the Company
by the members of the Board in August 1996. Dr. Barker has been Senior Vice
President of Chiron Corporation, a biotechnology company, and President and
Chief Executive of Chiron Diagnostics, the diagnostic products division of
Chiron Corporation, since June 1996. He was employed by IBM Corporation as
General Manager, Worldwide Healthcare Solutions from June 1995 to June 1996 and
as General Manager, North American Healthcare Solutions from April 1994 to June
1995. Prior to that date, Dr. Barker was with McKinsey & Company as Partner and
Leader, European Healthcare Practice.
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<PAGE> 7
LARRY R. FERGUSON Age 48
Larry R. Ferguson was elected to the Board of Directors of the Company by the
members of the Board in December 1997. Mr. Ferguson has been President of The
Ferguson Group, a management consulting company, since January 1996. He was
employed by First Data Health Systems Corporation, a provider of information
systems and related services to health care providers, from May 1980 to June
1995, serving as its President from August 1986 to June 1995.
PETER P. GOMBRICH Age 60
Peter P. Gombrich was elected to the Board of Directors of the Company by the
members of the Board in March 1998. Mr. Gombrich founded Inpath, LLC, an In-vivo
diagnostic company, in March 1998. Since March 1998, Mr. Gombrich has served as
Chairman and Chief Executive Officer of Inpath, LLC. Mr. Gombrich has been Vice
Chairman and a director of AccuMed International, Inc., a provider of health
care instrumentation, since January 1998. From December 1995 until January 1998,
Mr. Gombrich served as Chairman of the Board of Directors, Chief Executive
Officer and President of AccuMed International, Inc. From April 1995 until
December 1995, Mr. Gombrich served as Acting Chief Executive Officer and a
director of AccuMed International, Inc. Mr. Gombrich founded AccuMed, Inc. in
February 1994. From February 1994 until December 1995, Mr. Gombrich served as
Chairman, President and Chief Executive Officer of AccuMed, Inc. From August
1990 until founding AccuMed, Inc., Mr. Gombrich was a consultant in the cytology
and microbiology industries, serving companies including Accuron Corporation, a
designer of automated Pap smear screening systems. From July 1985 until
September 1989, Mr. Gombrich was the President and Chief Executive Officer, and
from July 1985 until November 1990 was Chairman of the Board, of CliniCom
Incorporated, a bedside clinical information systems company which he founded.
CURTIS S. GOLDBLATT Age 32
Curtis S. Goldblatt, M.D., has been an Associate Pathologist of S. Goldblatt
Pathology Associates, P.C. and Medical Advisor/Medical Director of the
Histologic Technician-Certificate Program at Conemaugh Health System since July
1997. He was employed as Chief Resident of S. Goldblatt Pathology Associates,
P.C. from July 1996 to June 1997. Prior to July 1996, Curtis S. Goldblatt was a
Pathology Resident at the University of Pittsburgh Medical Center from July 1993
to June 1996. Curtis S. Goldblatt is the son of Dr. Goldblatt.
REQUIRED VOTE
There is no cumulative voting in the election of directors. The seven
nominees for election as directors who receive the highest number of votes
actually cast will be elected. Broker non-votes will be treated as shares that
neither are capable of being voted nor have been voted and, accordingly, will
have no effect on the outcome of the election of directors.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE NOMINEES LISTED
ABOVE.
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BOARD OF DIRECTORS AND COMMITTEES
The Board held sixteen meetings during the year 1997. The Board also took
action by unanimous written consent on three (3) occasions during the year.
The Board has a Compensation Committee and an Audit Committee. The Company
has no nominating committee. The Compensation Committee, which currently
comprises all members of the Board, is responsible for determining the
compensation of the executive officers of the Company and for administering the
Company's Stock Incentive Plan of 1996 and Employee Stock Purchase Plan. Dr.
Goldblatt, Ms. Dmetruk and Bradley L. Goldblatt are executive officers of the
Company; none of these individuals, however, participated in deliberations
concerning his or her own compensation during the year 1997. The Compensation
Committee is also responsible for such related matters as may be delegated to it
by the Board. The Compensation Committee held ten meetings during the year 1997.
Nina M. Dmetruk, Stanley J. Lehman and Dr. Richard W. Barker serve as the
Audit Committee of the Board. The Audit Committee discusses with the Company's
independent auditors and approves in advance the scope of the annual audit,
reviews with the independent auditors the annual financial statements and the
audit report, consults with the Company's internal compliance staff, reviews
management's administration of the internal accounting controls and reviews the
Company's procedures relating to business ethics and compliance with the
securities laws and the rules of the Nasdaq Stock Market. The Audit Committee
also recommends to the Board the appointment of the independent auditors. During
the year 1997, the Audit Committee held two meetings.
No director attended fewer than 75% of the total number of meetings of the
Board and the meetings of any committee of the Board on which he or she served
during the year ended December 31, 1997.
DIRECTOR COMPENSATION
Non-employee directors of the Company are reimbursed, upon request, for
expenses incurred in attending meetings of the Board, but there are no standard
arrangements for compensating them for their service as directors. Dr. Barker
has been granted options to purchase 18,000 shares of Common Stock under the
Company's Stock Incentive Plan of 1996. Of these options, 15,000 were granted
upon his nomination as director and 3,000 upon his election by the shareholders.
Mr. Ferguson and Mr. Gombrich have each been granted an option to purchase
15,000 shares of Common Stock under the Company's Stock Incentive Plan of 1996.
Mr. Lehman's law firm receives fees at his regular professional hourly rate for
time devoted to Board meetings. Dr. Barker and Mr. Ferguson are also to be
granted options for 3,000 shares of Common Stock on each occasion that they are
reelected as directors. Mr. Gombrich is to be granted an option for 3,000 shares
of Common Stock on each occasion that he is reelected as director commencing
with the election of directors in 1999. Directors who are employees of the
Company are not paid any separate fees for serving as directors.
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<PAGE> 9
CERTAIN TRANSACTIONS AND BUSINESS RELATIONSHIPS
Ms. Dmetruk, a director and executive officer of the Company, Bradley L.
Goldblatt, a director and executive officer of the Company, and Jodi Beth
Gottlieb are directors and executive officers of Any Travel, Inc., a travel
agency located in Tucson, Arizona ("Any Travel"). The outstanding shares of Any
Travel are held one-third by Bradley L. Goldblatt, Dr. Goldblatt and Ms. Dmetruk
as trustees for the benefit of Bradley L. Goldblatt (the "BLG Trust"); one-third
by Bradley L. Goldblatt, Dr. Goldblatt and Ms. Dmetruk as trustees for the
benefit of Curtis S. Goldblatt (the "CSG Trust"), a nominee for director at the
Annual Meeting; and one-third by Jodi Beth Gottlieb, Dr. Goldblatt and Ms.
Dmetruk as trustees for the benefit of Jodi Beth Gottlieb (the "JBG Trust"). The
BLG Trust, the CSG Trust and the JBG Trust are collectively referred to herein
as the "Trusts." Dr. Goldblatt is the father of Bradley L. Goldblatt, Curtis S.
Goldblatt and Jodi Beth Gottlieb.
The Company's principal administrative, sales and marketing, customer
service and product development facilities are located in two buildings in
Tucson, Arizona which are owned by Any Travel (the "Broadway Property" and the
"El Dorado Property"). The Company leases the Broadway Property from Any Travel
under a lease which provides for a triple-net annual rent of $1,020,760, subject
to adjustment based on the consumer price index. Such annual rental was
determined in accordance with an independent appraisal of the fair rental value
of the property. The lease expires in September 2001. During 1997, the Company
paid Any Travel rent of $1,141,756. In connection with a refinancing of the
Broadway Property in June 1992, Any Travel borrowed $3,450,000 from a bank, the
repayment of which was secured by a mortgage on the property, a mortgage note in
the principal amount of $3,450,000 and a guaranty by the Company of all payments
required under the mortgage note. The mortgage note was paid in full in June
1997.
The Company leases the El Dorado Property from Any Travel under a ten-year,
triple net lease. The existing tenant leases were assigned to the Company.
During 1997, the Company paid Any Travel rent of $867,120 under the lease. The
monthly rentals were determined in accordance with an independent appraisal of
the fair rental value of the property and are subject to future adjustment in
accordance with a formula based on the consumer price index.
The Company uses Any Travel as its travel agent on an on-going basis. Any
Travel has advised the Company that in 1997 it received gross commissions of
$244,412 from hotels, airlines and car rental agencies with respect to its
travel services for the Company.
In April 1996, Dr. Goldblatt and the Trusts entered into a Tax
Indemnification Agreement with the Company whereby they agreed, among other
things, to indemnify the Company for any federal or state income taxes
(including interest) incurred by the Company if for any reason the Company is
deemed to have been a C corporation during any period for which it reported its
taxable income as an S corporation. The Tax Indemnification Agreement also
provides for cross-indemnification for any losses or liabilities with respect to
certain additional taxes (including interest and, in the case of Dr. Goldblatt
and the Trusts, penalties) resulting from the Company's operations during the
period in which it reported its taxable
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<PAGE> 10
income as an S corporation. The Company changed from an S corporation to a C
corporation in May 1996 in connection with its initial public offering of Common
Stock (the "IPO").
Stanley J. Lehman, a director of the Company, is a shareholder in the law
firm of Klett Lieber Rooney & Schorling, a professional corporation, that serves
as the Company's general counsel.
RATIFICATION OF SELECTION OF AUDITORS
The Board has selected Ernst & Young LLP to serve as the Company's auditors
for the year ending December 31, 1998. A representative of Ernst & Young LLP
will be present at the Annual Meeting and will have the opportunity to make a
statement if such person desires to do so and to respond to appropriate
questions.
REQUIRED VOTE
The proposal to ratify the selection of Ernst & Young LLP will be approved
by the shareholders if it receives the affirmative vote of a majority of the
votes cast by all shareholders entitled to vote thereon. Abstentions and broker
non-votes are not counted as affirmative or negative votes and are not counted
in determining the number of votes cast on the proposal. Accordingly,
abstentions and broker non-votes will have no effect on the outcome of voting on
the proposal.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE SELECTION
OF ERNST & YOUNG LLP AS INDEPENDENT ACCOUNTANTS.
APPROVAL OF THE STOCK INCENTIVE PLAN OF 1996, AS AMENDED
On March 12, 1998, the Board adopted certain amendments to the Stock
Incentive Plan of 1996 (the "Incentive Plan") and determined to submit the
Incentive Plan, as amended, to the shareholders for approval at the Annual
Meeting. The amendments to the Incentive Plan will (i) increase the number of
shares with respect to which awards may be granted from 2,500,000 to 3,800,000
and (ii) limit the maximum number of shares as to which options and stock
appreciation rights may be granted to any employee of the Company during any one
calendar year period. The shareholders are being asked to approve the Incentive
Plan, as amended, in the form attached hereto as Appendix A.
The Incentive Plan was originally adopted by the Board and approved by the
Shareholders in March 1996 and was subsequently amended by the Board on November
8, 1996 and April 3, 1997. The Board believes that the approval of the Incentive
Plan, as amended, is necessary in order (i) to provide the Company with a
sufficient reserve of Common Stock for future awards needed to attract and
retain the services of key individuals essential to the Company's long-term
success and (ii) to qualify options or stock appreciation rights hereafter
granted under the Incentive Plan, as amended, as "performance based"
compensation that is not subject to the $1 million limitation on deductible
compensation for certain executive officers in any fiscal year under Section
162(m) of Internal Revenue Code of 1986, as amended (the "Code"). See "--Report
of the Compensation Committee on Executive Compensation."
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The following is a summary of the principal features of the Incentive Plan,
as amended. The summary, however, does not purport to be a complete description
of all of the provisions of the Incentive Plan. The summary is qualified in its
entirety by reference to the full text of the Incentive Plan, as amended, a copy
of which is attached hereto as Appendix A.
SECURITIES SUBJECT TO THE INCENTIVE PLAN
Up to 3,800,000 shares of Common Stock may be issued under the Incentive
Plan, including the additional 1,300,000 shares for which shareholder approval
is sought under this proposal. Shares issued under the Incentive Plan are
subject to adjustment for any changes in the capital structure of the Company.
Shares of Common Stock subject to a stock option ("Option") which for any reason
is canceled or terminated without having been exercised in full are again
available for awards under the Incentive Plan. The maximum number of shares of
Common Stock for which stock options and stock appreciation rights may be made
to an employee under the Incentive Plan shall not exceed 1,500,000 shares of
Common Stock during any one calendar year period. The net proceeds to the
Company from the sale of Common Stock under the Incentive Plan will be used for
general corporate purposes.
ADMINISTRATION
The Incentive Plan is administered by the Board or by a committee of two or
more members of the Board who are appointed by and serve at the pleasure of the
Board (the "Administrators").
TYPES OF AWARDS AND ELIGIBILITY
Non-qualified stock options ("NSOs"), incentive stock options ("ISOs"), as
defined in Section 422 of the Code, stock appreciation rights ("SARs") and
restricted stock may be awarded under the Incentive Plan ("Awards"). Awards may
be granted alone or in addition to or in tandem with other Awards.
NSOs, SARs and restricted stock may be awarded to employees of the Company
and its subsidiaries, non-employee directors of the Company, and independent
contractors who provide consulting services or management advice to the Company
or a subsidiary of the Company on a regular basis. ISOs may be awarded only to
employees of the Company and its subsidiaries. No Award may be granted to a
person within six months of their expected retirement date or expected date of
termination of employment or service.
Stock Options
The two different types of Options that can be awarded are NSOs and ISOs.
The terms and conditions of each Option awarded are determined by the
Administrators and set forth in a written agreement (the "Option Agreement")
between the Company and the recipient of the Option (the "Optionee"). The terms
and conditions of each Option need not be identical to those of any other Option
awarded.
No Option may be exercisable for a period of six months from the date of
the Award unless otherwise determined by the Administrators at or after the date
of the Award. In addition, the Option price per share of Common Stock will not
be less than the fair market value per share on the date of grant (unless
reduced by the Administrators after the date of grant). The Options will have an
expiration date which shall not be
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later than the tenth anniversary of the date that the Option is granted, except
for certain ISOs described below.
Any Option intended to be an ISO must be designated as such in the
applicable Option Agreement. If an Optionee owns more than 10% of the total
combined voting power of all classes of stock of the Company (as determined
under Section 424(e) of the Code) or its subsidiaries at the time their ISO is
granted, the following conditions apply: (i) the Option price must be at least
110% of the fair market value of the Common Stock subject to the ISO on the date
of grant and (ii) the Option may not be exercisable after the expiration of five
years from the date of grant. The aggregate fair market value (determined on the
date of grant) of the Common Stock with respect to which ISOs become exercisable
for the first time in any single calendar year cannot exceed $100,000.
Upon termination of an Optionee's employment or service with the Company
for reasons other than termination at or after age 65, disability or death, the
Optionee's Option shall, unless expressly provided otherwise in the Option
Agreement, expire on the date of such termination.
If an Optionee's employment or service with the Company terminates at or
after age 65, the Optionee may, unless expressly provided otherwise in the
Option Agreement, exercise the Option to the extent exercisable at the date of
such termination until the earlier of (i) the expiration date of the option, or
(ii) the one hundred eightieth day following such termination or, if the option
is an ISO, the ninetieth day following such termination.
In the event of the death of the Optionee while in the employment or
service of the Company, the Option may be exercised, unless expressly provided
otherwise in the Option Agreement, to the extent the Optionee was entitled to do
so on the date of the Optionee's death, by the person or persons to whom the
Optionee's rights under the Option pass by will or by applicable law or by the
Optionee's executors or administrators, until the earlier of (i) the expiration
date of the Option, or (ii) one year after the Optionee's death.
If an Optionee's employment or service with the Company terminates by
reason of disability, the Optionee may exercise the Option to the extent
exercisable at the date of such termination, unless expressly provided otherwise
in the Option Agreement, until the earlier of (i) the expiration date of the
Option, or (ii) one year after the date of such termination.
The Option price may be paid (i) in cash or by check (payable to the order
of the Company), or (ii) in shares of Common Stock already owned by the Optionee
and having a total fair market value equal to the Option price, or (iii) with
the proceeds of the sale of shares of Common Stock acquired upon the exercise of
an Option (to the extent such cashless exercise is permitted by the
Administrators and under Section 16 of the Securities Exchange Act of 1934, as
amended, and the regulations promulgated thereunder by the Securities and
Exchange Commission) or (iv) any combination thereof approved by the
Administrators. If payment of the exercise price of an Option is made in whole
or part in shares of Common Stock already owned by the Optionee, the
Administrators may require that the stock be owned for a period of at least six
months.
9
<PAGE> 13
Upon exercise of the Option and payment of the total Option price for the
shares of Common Stock to be purchased, the Company will issue a certificate in
the Optionee's name for the number of shares purchased adjusted for any shares
of Common Stock sold or withheld to satisfy the tax withholding requirements for
the exercise of the Option.
The Administrators may, in their sole discretion, elect to cash out all or
part of the Common Stock under an Option by paying the Optionee an amount, in
cash, equal to the excess of the fair market value of the Common Stock over the
Option price on the effective date of such cash-out. If this cash-out right is
exercised, an Optionee will forfeit all other rights associated with the Option.
Stock Appreciation Rights
The Administrators may grant SARs separate and apart from ("Non-Tandem
SARs"), or in tandem ("Tandem SARs") with, any Option granted under the
Incentive Plan. Tandem SARs may be granted with respect to all or part of the
Common Stock under a particular Option, and may be granted coincident with or
after the date of grant of the related Option.
SARs may be exercised by written notice from the person to whom the SAR has
been awarded ("SAR Holder") to the Company of the SAR Holder's intent to
exercise the SARs with respect to a specified number of shares. SARs entitle the
SAR Holder, upon exercise, in whole or part, to receive payment in the amount
and form determined. Tandem SARs may be exercised only to the extent that the
related Option has not been exercised. The exercise of a Tandem SAR will result
in a pro rata surrender of the related Option to the extent that the Tandem SAR
has been exercised. Similarly, the exercise of a related Option shall result in
a pro rata surrender of the Tandem SAR to the extent that the Option has been
exercised.
When the SAR is exercised, the SAR Holder will receive an amount equal to
the excess of the fair market value per share of Common Stock on the day
preceding the exercise date over the price per share stated in the SAR agreement
for a Non-Tandem SAR. For a Tandem SAR, the SAR Holder will receive the Option
price per share of any related Option multiplied by the number of shares in
respect of which the SARs have been exercised. Such amount will be paid, as
determined by the Administrators, in the form of (i) cash, (ii) shares of Common
Stock with a fair market value on the day preceding the exercise date equal to
such amount, or (iii) a combination of cash and Common Stock. A SAR cannot be
exercised when the fair market value per share of Common Stock is less than the
price per share stated in the SAR agreement for a Non-Tandem SAR or the Option
price per share of any related Option for a Tandem SAR awarded with an Option.
Restricted Stock
Awards of restricted stock will be evidenced by a restricted stock
agreement. The restricted stock agreement will include such terms and conditions
with respect to the restricted period, restrictions on sale, transfer,
assignment, pledge, or other encumbrance, forfeiture and vesting, as are
consistent with the purposes of the Incentive Plan. The Administrators may, in
their discretion, remove, modify or accelerate the release of restrictions on
any restricted stock.
10
<PAGE> 14
A recipient of restricted stock ("Restricted Stock Holder") will have the
rights of a shareholder with respect to the restricted stock, subject to such
restrictions as are set forth in the restricted stock agreement. The
certificate(s) of the restricted stock will be inscribed with a legend as to the
restrictions placed on such stock by the Administrators.
NONTRANSFERABILITY
No Awards under the Incentive Plan are transferable by the grantee other
than by will or the laws of descent and distribution. During the grantee's
lifetime, Options and SARs are exercisable only by the grantee. Restricted stock
shall pass by bequest or the laws of descent and distribution in the event of
the grantee's death following the delivery of restricted stock and shall be
subject to the same terms, conditions and restrictions in effect at the time of
the grantee's death, to the extent applicable.
TERMINATION AND AMENDMENT
The Board may amend or terminate the Incentive Plan at any time, but no
amendment or termination shall be made which would impair a recipient's rights
under an Award without such recipient's consent.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the income tax consequences of various
Awards under the Incentive Plan for individuals who are subject to United States
income tax. The summary is not intended to be comprehensive and, among other
things, does not describe state, local or foreign tax consequences.
The award of a NSO will have no immediate tax consequences to the Company
or the Optionee. Upon exercise of a NSO, an Optionee will recognize ordinary
income in an amount equal to the difference between the exercise price of the
NSO and the fair market value of the stock on the date of exercise. Upon a
subsequent sale or exchange of shares acquired pursuant to the exercise of a
NSO, the Optionee will realize a capital gain or loss at a rate depending on the
period of time between the acquisition and disposition of the shares, measured
by the difference between the amount realized on the sale or exchange and the
tax basis of the shares (generally equal to the amount paid for the shares plus
the amount realized as ordinary income at the time the NSO was exercised) and
other factors. The Company will be entitled to a deduction in the same amount as
the Optionee recognized as ordinary income as a result of the exercise of a NSO.
The award of an ISO will have no immediate tax consequences to the Company
or the Optionee. However, the amount by which the fair market value of the
acquired shares at the time of exercise exceeds the exercise price will be
treated as an item of adjustment and included in the computation of the
recipient's alternative minimum taxable income in the year of exercise. If an
Optionee holds the shares received upon exercise of an ISO for at least two
years after the date of the ISO award and for at least one year from the date of
exercise, gain or loss on a subsequent sale or exchange of the shares will be a
capital gain or loss in the amount of the difference between the amount realized
on the sale or exchange and the option price (or the recipient's other tax basis
in the shares) at a tax rate which will depend on the length of time the shares
were held and other factors. If an Optionee disposes of shares acquired upon
exercise of an ISO before these holding periods are satisfied, the Optionee
generally will recognize compensation income equal to the lesser of (i) the
excess of the fair market value of the shares on the exercise date over the
exercise price, or
11
<PAGE> 15
(ii) the excess of the amount realized on disposition over the exercise price.
Any additional gain will be taxable as a capital gain, and any loss will be
treated as a capital loss. Upon any such disposition by an Optionee, the Company
will be entitled to a deduction in the amount of compensation income realized by
the Optionee.
SARs. Awards of Tandem SARs or Non-Tandem SARs will have no immediate tax
consequence to the Company or the SAR Holder. The amount received by a SAR
Holder upon the exercise of a Tandem SAR or Non-Tandem SAR will constitute
compensation income to the SAR Holder at the time of exercise. The Company will
be entitled to a deduction in the amount of compensation income recognized by
the SAR Holder.
Restricted Stock. Unless the Restricted Stock Holder makes a special tax
election within 30 days after award, the Restricted Stock Holder will not
recognize income, and the Company will not be entitled to a deduction at the
time restricted stock is awarded to a Restricted Stock Holder. On the date when
the restrictions on restricted stock lapse or are otherwise removed, the
Restricted Stock Holder will recognize ordinary income equal to the excess of
the fair market value of the restricted stock on such date over the amount paid
by the Restricted Stock Holder for the restricted stock, if any. The Company
will be entitled to a deduction in the same amount the Restricted Stock Holder
recognizes as ordinary income. Upon disposition of Common Stock of the Company
after the restrictions lapse or are otherwise removed, any gain or loss realized
by the Restricted Stock Holder will be treated as capital gain or loss at a tax
rate depending upon the period of time between the disposition and the earlier
of lapse or removal of the restrictions of those shares of Common Stock.
If a Restricted Stock Holder timely files an election under Section 83(b)
of the Code, the Restricted Stock Holder will recognize compensation income on
the date of the grant, equal to the excess of the fair market value of the
shares of Common Stock of the Company on that date over the price paid for those
shares, if any. The Company will be entitled to a corresponding deduction. Any
gain or loss realized by the Restricted Stock Holder upon a disposition of
restricted stock after a special tax election under Section 83(b) of the Code
has been made will be treated as capital gain or loss at a tax rate depending
upon the period of time between the disposition and the earlier date of award
and other factors.
REQUIRED VOTE
The proposal to approve the Incentive Plan, as amended, will be approved by
the shareholders if it receives the affirmative vote of the majority of the
votes cast by all shareholders entitled to vote on the proposal. Abstentions and
broker non-votes are not counted as affirmative or negative votes and are not
counted in determining the number of votes cast on the proposal. Accordingly,
abstentions and broker non-votes will have no effect on the outcome of voting on
the proposal.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE STOCK INCENTIVE
PLAN OF 1996, AS AMENDED.
12
<PAGE> 16
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the Record Date by (i) each
director of the Company and each nominee for director, (ii) the Chief Executive
Officer of the Company and the Company's other four most highly compensated
executive officers for 1997 who were serving as executive officers at the end of
the year (the "Named Executive Officers"), (iii) each person or affiliated group
of persons known by the Company to be the beneficial owner of more than five
percent of the outstanding Common Stock, and (iv) all of the Company's directors
and executive officers as a group.
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS OF NUMBER OF SHARES
BENEFICIAL OWNER SHARES OUTSTANDING
---------------- ------ -----------
<S> <C> <C>
Sidney A. Goldblatt 11,904,000(1) 77.4%
4801 East Broadway Blvd.
Tucson, AZ 85711
Nina M. Dmetruk 4,909,140(2) 31.9
4801 East Broadway Blvd.
Tucson, AZ 85711
Bradley L. Goldblatt 3,272,760(3) 21.3
4801 East Broadway Blvd.
Tucson, AZ 85711
Stanley J. Lehman 2,000 *
Richard W. Barker 18,000(4) *
Larry R. Ferguson 15,000(4) *
Peter P. Gombrich -- --
Curtis S. Goldblatt -- --
Richard A. Wesson 36,409(5) *
Samuel A. Miller -- --
Joanna S. Broder -- --
Jodi Beth Gottlieb 1,636,380(6) 10.6
c/o Any Travel
1181 North El Dorado Place
Tucson, AZ 85715
All directors and executive officers as a
group (12 persons) 11,976,118(7) 77.9%
</TABLE>
- ------------
* Less than 1.0%.
13
<PAGE> 17
(1) Includes an aggregate of 4,909,140 shares held by the BLG Trust, the CSG
Trust and the JBG Trust. Dr. Goldblatt is a trustee of the Trusts with
shared investment power but no voting power with respect to the shares held
by the Trusts.
(2) Consists of the shares held by the BLG Trust, the CSG Trust and the JBG
Trust. Ms. Dmetruk is a trustee of the Trusts with shared investment and
voting power with respect to all of such shares.
(3) Consists of the shares held by the BLG Trust and the CSG Trust. Bradley L.
Goldblatt is a trustee of the Trusts with shared investment and voting power
with respect to all of such shares.
(4) Consists of shares that may be acquired through the exercise of presently
exerciseable stock options or shares that may be acquired through the
exercise of stock options that become exerciseable within 60 days of March
20, 1998.
(5) Includes 36,240 shares that may be acquired through the exercise of
presently exerciseable stock options.
(6) Consists of the shares held by the JBG Trust. Ms. Gottlieb is a trustee of
the Trust with shared investment and voting power with respect to all of
such shares.
(7) See Notes 1, 2 and 3 above.
14
<PAGE> 18
EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following table shows all compensation paid to each of the Named
Executive Officers for all services rendered to the Company and its subsidiaries
for each of the last three completed fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------- ------------
SECURITIES
NAME AND UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (SHS) COMPENSATION
------------------ ---- ------ ----- ------------- ------------
<S> <C> <C> <C> <C> <C>
Sidney A. Goldblatt 1997 $208,000 $ -- -- $ --
President and Chief Executive Officer 1996 208,000 135,200 -- --
1995 208,000 -- -- --
Richard A. Wesson 1997 210,159 -- 108,718(1) 4,800(2)
Chief Operating Officer 1996 195,000 84,094 108,718 7,954(3)
1995 195,000 26,000 -- 1,186(2)
Nina M. Dmetruk 1997 227,996 -- 126,050(1) 3,998(2)
Executive Vice President-Chief 1996 126,077 126,500 126,050 --
Financial Officer and Secretary 1995 -- -- -- --
Samuel A. Miller 1997 150,000 -- 35,000(5) 1,904(2)
Senior Vice President-Technology(4) 1996 29,945 -- 5,000 5,208(6)
1995 -- -- -- --
Joanna S. Broder 1997 146,460 -- 40,000(8) 26,961(6)
Senior Vice President-Client Services(7) 1996 -- -- -- --
1995 -- -- -- --
</TABLE>
- ------------
(1) Consists of shares subject to options repriced from grants made in calendar
year 1996. See "-- Report on Fiscal Year 1997 Repricing of Options."
(2) Company contributions to the Profit Sharing Plan for the account of the
Named Executive Officer.
(3) Includes Company contributions to the Profit Sharing Plan for the account of
the Named Executive Officer and also relocation expenses and tax
reimbursements paid by the Company.
(4) Mr. Miller was elected to his position as Senior Vice President-Technology
in February 1998. From January 1997 until February 1998, Mr. Miller served
as the Company's Senior Vice President-Engineering.
(5) Consists of an option granted on May 30, 1996 to acquire 5,000 shares of
Common Stock that was repriced on April 3, 1997, and an option granted on
January 14, 1997 to acquire 15,000 shares of Common Stock that was repriced
on April 3, 1997. See "-- Report on Fiscal Year 1997 Repricing of Options."
(6) Includes relocation expenses and tax reimbursements paid by the Company.
(7) Ms. Broder joined the Company as an executive officer in March 1997.
(8) Consists of an option granted on March 17, 1997 to acquire 20,000 shares of
Common Stock that was repriced on April 3, 1997. See "-- Report on Fiscal
Year 1997 Repricing of Options."
15
<PAGE> 19
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information concerning options granted to the
Named Executive Officers in 1997 under the Company's Stock Incentive Plan of
1996:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------ VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF
SECURITIES TOTAL STOCK PRICE
UNDERLYING OPTIONS APPRECIATION
OPTIONS GRANTED TO EXERCISE FOR OPTION TERM(4)
GRANTED EMPLOYEES PRICE PER EXPIRATION --------------------
NAME (SHS)(1) IN 1997 SHARE DATE 5% 10%
---- ------------ ---------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sidney A. Goldblatt.......... -- --% $ -- -- $ -- $ --
Richard A. Wesson............ 108,718(2) 7.90 10.50 5/31/06 643,146 1,591,227
Nina M. Dmetruk.............. 126,050(2) 9.16 10.50 5/31/06 745,677 1,844,903
Samuel A. Miller............. 15,000 1.09 15.625 1/14/07 147,397 373,533
5,000(2) .36 10.50 5/31/06 29,579 73,181
15,000(3) 1.09 10.50 1/14/07 96,356 242,674
Joanna S. Broder............. 20,000 1.45 12.00 3/17/07 150,935 382,498
20,000(3) 1.45 10.50 3/17/07 131,291 332,273
</TABLE>
- ------------
(1) Options granted under the Stock Incentive Plan of 1996 typically have a ten
year term and vest over a three year period in increments of 33-1/3%,
commencing two years after the date of grant. Dr. Wesson's option, however,
begins vesting one year after the date of grant. Options under the plan may
be granted as incentive stock options ("ISOs") or nonstatutory stock options
("NSOs"). Options are granted with an exercise price equal to at least the
fair market value of the Company's Common Stock on the date of grant. All
options heretofore granted are NSOs and have an exercise price equal to the
fair market value of the Common Stock on the date of grant.
(2) Consists of shares subject to options which were repriced from grants made
in calendar year 1996. See "--Report on Fiscal Year 1997 Repricing of
Options."
(3) Consists of shares subject to options which were repriced from grants made
in calendar year 1997. See "--Report on Fiscal Year 1997 Repricing of
Options."
(4) Potential realizable value is based on the assumption that the market price
of the Common Stock appreciates at the annual rates shown (compounded
annually) from the date of grant until the end of the ten year option term.
Potential realizable value is shown net of exercise price. These numbers are
calculated based on the regulations promulgated by the Securities and
Exchange Commission and do not reflect the Company's estimate of future
stock price growth.
16
<PAGE> 20
AGGREGATED OPTION EXERCISES AND FISCAL YEAR END OPTION VALUES
The following table sets forth information concerning the value of
unexercised options held by each of the Named Executive Officers, as of December
31, 1997. No options were exercised by such persons during 1997.
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT
OPTIONS AT FISCAL YEAR END FISCAL YEAR END
-------------------------- ---------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE(1)
---- ------------ ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Sidney A. Goldblatt -- -- $ -- $ --
Richard A. Wesson 36,240 72,478 -- --
Nina M. Dmetruk -- 126,050 -- --
Samuel A. Miller -- 20,000 -- --
Joanna S. Broder -- 20,000 -- --
</TABLE>
- ------------
(1) The exercise prices as of December 31, 1997 of all options reported were
above the market price of the Company's Common Stock as of such date. The
last sale price of a share of the Company's Common Stock on December 31,
1997 as reported by the Nasdaq National Market System was $9.75.
REPORT ON FISCAL YEAR 1997 REPRICING OF OPTIONS
Since the Company's initial public offering in May 1996, the Company has
granted stock options to employees under the Stock Incentive Plan of 1996 to
motivate such employees and to encourage them to devote their best efforts to
the business and financial success of the Company. In April 1997, the
Compensation Committee of the Board determined that, as a result of a decline in
the market price of the Company's Common Stock in the last quarter of 1996 and
the first quarter of 1997, the purposes of the Stock Incentive Plan of 1996 were
not being adequately achieved with respect to those employees holding options
that had exercise prices significantly above current market value. Upon review
of outstanding options, the Compensation Committee determined that it would be
in the best interest of the Company and its shareholders to reprice these
options to their current market value. On April 3, 1997, the Compensation
Committee of the Board modified the exercise price applicable to outstanding
options to purchase 800,282 shares of Common Stock including options held by the
Named Executive Officers to purchase a total of 274,768 shares. As a result of
such modification, the exercise prices of such options were reduced to $10.50
per share, the average of the high and low reported trading prices of the Common
Stock on April 3, 1997. The original vesting schedule of such repriced options
was not changed in connection with such repricing. The Compensation Committee
believed that the repricing of stock options would provide additional incentives
for employees and enhance shareholder value.
17
<PAGE> 21
The following table sets forth information with respect to the repricing of
those options held by any executive officer of the Company since May 31, 1996
when the Company became a reporting company pursuant to the Exchange Act.
<TABLE>
<CAPTION>
MARKET PRICE LENGTH OF
OF ORIGINAL OPTION
STOCK AT EXERCISE TERM
NUMBER OF TIME PRICE REMAINING
OPTIONS/SARS OF REPRICING AT TIME OF NEW AT DATE OF
REPRICED OR OR REPRICING OR EXERCISE REPRICING OR
NAME DATE AMENDED(#) AMENDMENT($) AMENDMENT($) PRICE($) AMENDMENT
---- ---- ------------ ------------ ------------ -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Sidney A. Goldblatt -- -- $ -- $ -- $ -- --
Richard A. Wesson 4/3/97 108,718 10.50 16.00 10.50 9 years, 58 days
Nina M. Dmetruk 4/3/97 126,050 10.50 16.00 10.50 9 years, 58 days
Samuel A. Miller 4/3/97 5,000 10.50 16.00 10.50 9 years, 58 days
4/3/97 15,000 10.50 15.625 10.50 9 years, 286 days
Joanna S. Broder 4/3/97 20,000 10.50 12.00 10.50 9 years, 348 days
James F. Garliepp 4/3/97 52,521 10.50 16.00 10.50 9 years, 58 days
T. Paul Thomas (1) 4/3/97 7,878 10.50 16.00 10.50 9 years, 58 days
4/3/97 12,122 10.50 14.875 10.50 9 years, 219 days
</TABLE>
- ------------
(1) Served as the Company's Senior Vice President-Marketing through June 1997.
The Compensation Committee of the Board of Directors,
Sidney A. Goldblatt, Chairman Nina M. Dmetruk
Stanley J. Lehman Bradley L. Goldblatt
Richard W. Barker
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
The Company has an employment agreement with Dr. Richard A. Wesson under
which he was to be paid to serve as Chief Operating Officer of the Company a
base annual salary of $195,000. Effective April 1, 1997, Dr. Wesson's base
annual salary was increased to $215,000. The agreement is terminable by either
party upon 30 days written notice and by the Company immediately for cause or
for Dr. Wesson's breach of his agreement not to compete with the Company. Dr.
Wesson is entitled to participate in any discretionary bonuses paid to officers
in general and was also entitled to a long term incentive bonus if the sum of
the net income and net loss of the Company and LabFUSION, Inc., which was a
provider of health care information systems to small hospitals, clinics and
other facilities, for 1995, 1996, 1997 or 1998 exceeded the Net Profit for 1993.
Dr. Wesson was not entitled to a long-term incentive bonus for 1995. In May 1996
the Company and Dr. Wesson entered into an agreement under which Dr. Wesson
relinquished his right to collect any long term incentive bonus under his
employment agreement upon the grant to him of
18
<PAGE> 22
an option under the Incentive Plan to purchase 108,718 shares of Common Stock at
the IPO price. On April 3, 1997, this option to purchase 108,718 shares of
Common Stock was modified to reduce the exercise price to $10.50. If the Company
terminates Dr. Wesson's employment without cause, the agreement entitles Dr.
Wesson to receive severance payments equal to four months of his salary and
benefits.
Effective May 26, 1996, the Company entered into an employment agreement
with Nina M. Dmetruk under which she was to be paid to serve as the Company's
Executive Vice President-Chief Financial Officer a base annual salary of
$220,000. Effective April 1, 1997, Ms. Dmetruk's base annual salary was
increased to $231,000. The agreement is terminable by either party upon 90 days
written notice and by the Company immediately for cause, including any breach by
Ms. Dmetruk of her agreement not to compete with the Company. Ms. Dmetruk agreed
to devote her full working time to the Company's business, except that during
the first six months of her employment she was permitted to devote a reasonable
amount of time to winding down her accounting practice, with an appropriate
reduction of her base compensation for time devoted to that activity. Ms.
Dmetruk is entitled to participate in any discretionary bonuses paid to officers
in general. Under the terms of the employment agreement, Ms. Dmetruk received on
May 30, 1996 an option under the Incentive Plan to purchase 126,050 shares of
Common Stock at the IPO price. On April 3, 1997, this option to purchase 126,050
shares of Common Stock was modified to reduce the exercise price to $10.50. Ms.
Dmetruk will be entitled to $1.2 million in severance pay in the event that the
employment agreement is terminated: (i) by the Company at any time for other
than cause; (ii) by Ms. Dmetruk within 90 days of such time as Sidney A.
Goldblatt, Bradley L. Goldblatt, Curtis S. Goldblatt and Jodi Beth Gottlieb, and
trusts created for their benefit, cease to own, directly or indirectly, fifty
percent or more of the outstanding stock of the Company; or (iii) by Ms. Dmetruk
because of a material breach of the agreement by the Company which has not been
corrected by the Company within ten days written notice of such breach or
because of certain gross negligence, willful misconduct or malfeasance by the
Company which is determined to be detrimental to Ms. Dmetruk.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Except as contemplated by employment agreements, the compensation of the
officers of the Company for the year ended December 31, 1997 was determined by
the Compensation Committee, then composed of Dr. Sidney A. Goldblatt, Nina M.
Dmetruk, Stanley J. Lehman, Bradley L. Goldblatt and Dr. Richard W. Barker. Dr.
Goldblatt, Ms. Dmetruk and Bradley L. Goldblatt are executive officers of the
Company; none of these individuals, however, participated in deliberations
concerning his or her own compensation. Dr. Goldblatt, Ms. Dmetruk and Bradley
Goldblatt are trustees of various trusts which own all of the shares of Any
Travel Inc., which leases two buildings to the Company in Tucson, Arizona, and
provides certain travel agency services to the Company on an ongoing basis.
Stanley J. Lehman is a shareholder in the law firm of Klett Lieber Rooney &
Schorling, the Company's general counsel. Ms. Dmetruk and Bradley L. Goldblatt
are directors and officers of Any Travel, Inc. See "Election of
Directors--Certain Transactions and Business Relationships."
19
<PAGE> 23
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
This report has been prepared by the Compensation Committee of the Board.
Mr. Ferguson, who became a member of the Board and the Compensation Committee in
December 1997, and Mr. Gombrich, who became a member of the Board and the
Compensation Committee in March 1998, did not participate in the preparation of
this report.
The executive officer compensation programs utilized by the Company include
cash compensation paid as salary and discretionary bonuses, stock options
granted under the Company's Incentive Plan and Company contributions to the
Profit Sharing Plan for the accounts of executive officers. Executive officers,
except those who own more than 5% of the outstanding Common Stock, are also
eligible to participate in the Stock Purchase Plan. These programs are designed
to attract, retain and reward highly qualified executive officers who are
important to the Company's success and to provide incentives relating directly
to the financial performance and long-term growth of the Company.
Except as contemplated by employment agreements, salaries, as well as the
number of shares covered by stock options, for the year 1997 were established
primarily upon an evaluation of the executive officer's, including the chief
executive officer's, position with and contributions to the Company, including
individual performance, level of responsibility, technical expertise and length
of service; Company performance; and industry compensation levels. No particular
weight was given to any single factor.
Under the Company's discretionary bonus program, annual bonuses may be paid
to the eligible officers of the Company only if the Company attains or exceeds a
predetermined percentage of its budgeted pre-tax income for the year (after
giving effect to the potential bonuses) and takes into account the officer's
base salary, the officer's level within the Company and the Company's pre-tax
income for the year. The payment of bonuses in any given year is within the
discretion of the Compensation Committee, and bonuses determined under the
formula are subject to adjustment in individual cases. No bonuses were paid for
the year 1997 since the Company did not attain the predetermined percentage of
its budgeted pre-tax income for the year.
The Compensation Committee of the Board concluded that there should be no
increase in Dr. Sidney A. Goldblatt's salary for the year 1997, primarily
because Dr. Goldblatt became eligible to participate in the discretionary bonus
program for the first time in 1996. Based on the Company's performance, Dr.
Goldblatt did not receive a bonus for the year 1997.
The Compensation Committee of the Board has considered the potential impact
of Section 162(m) of the Internal Revenue Code of 1986, as amended, which
imposes a limit on tax deductions for annual compensation in excess of
$1,000,000 paid to its chief executive officer and its four most highly
compensated executive officers in any fiscal year. The Committee does not
believe that this limitation will apply in the foreseeable future. The approval
of the Stock Incentive Plan of 1996, as amended, is structured to qualify
options and stock appreciation rights granted thereunder as "performance based"
compensation that is excluded from the calculation of the $1,000,000 limitation.
The Compensation Committee of the Board of Directors,
Sidney A. Goldblatt, Chairman Nina M. Dmetruk
Stanley J. Lehman Bradley L. Goldblatt
Richard W. Barker
20
<PAGE> 24
STOCK PRICE PERFORMANCE GRAPH
The graph below provides an indicator of cumulative total shareholder
returns ("Total Return") for the Company as compared with the Center for
Research in Security Prices ("CRSP") Total Return Index for The Nasdaq Stock
Market (U.S. Companies) and the CRSP Total Return Index for the Nasdaq Computer
and Data Processing Services Stocks.
This graph covers the period May 31, 1996, when Sunquest's Common Stock
began trading on the Nasdaq National Market System, through December 31, 1997.
1997 MEASUREMENT PERIOD (1) (2)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD NASDAQ
(FISCAL YEAR COVERED) SUNQUEST NASDAQ U.S. COMPUTER
<S> <C> <C> <C>
5/31/96 $100.00 $100.00 $100.00
6/28/96 83.92 95.49 96.34
9/30/96 103.50 98.89 98.26
12/31/96 79.72 103.75 102.24
3/31/97 54.55 98.12 94.83
6/30/97 83.92 116.11 121.56
9/30/97 84.62 135.75 132.98
12/31/97 54.55 127.31 125.51
</TABLE>
<TABLE>
<CAPTION>
5/31/96 6/28/96 9/30/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97
------- ------- ------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sunquest................ $100.00 $ 83.92 $103.50 $ 79.72 $ 54.55 $ 83.92 $ 84.62 $ 54.55
Nasdaq U.S.............. $100.00 $ 95.49 $ 98.89 $103.75 $ 98.12 $116.11 $135.75 $127.31
Nasdaq Computer......... $100.00 $ 96.34 $ 98.26 $102.24 $ 94.83 $121.56 $132.98 $125.51
</TABLE>
- ------------
(1) Assumes $100 invested on May 31, 1996 in Sunquest Common Stock, The Nasdaq
Stock Market (U.S. Companies) and the Nasdaq Computer and Data Processing
Services Stocks.
(2) Total Return assumes reinvestment of dividends. Except for S corporation
distributions, no dividends have been declared or paid on the Company's
Common Stock.
21
<PAGE> 25
PROPOSALS FOR NEXT YEAR'S MEETING
Shareholder proposals intended to be presented at the 1999 Annual Meeting
must be received by the Company by November 30, 1998 to be considered for
inclusion in the Company's Proxy Statement and form of proxy for that meeting.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, as amended, the
Company's directors, officers, and persons who are directly or indirectly the
beneficial owners of more than 10% of the Common Stock of the Company are
required to file with the Commission, within specified monthly and annual due
dates, a statement of their initial beneficial ownership and all subsequent
changes in ownership of common stock. Rules of the Commission require such
persons to furnish the Company with copies of all Section 16(a) forms they file.
Based solely upon a review of such forms, the Company believes that, during the
year ended December 31, 1997, all such persons complied with all applicable
filing requirements.
22
<PAGE> 26
APPENDIX A
SUNQUEST INFORMATION SYSTEMS, INC.
STOCK INCENTIVE PLAN OF 1996, AS AMENDED
1. PURPOSE OF THE PLAN.
The purpose of the Sunquest Information Systems, Inc. Stock Incentive Plan of
1996, as amended, is to promote the interests of Sunquest Information Systems,
Inc. and its shareholders by providing an opportunity for employees of the
Company and its subsidiaries and other eligible persons to acquire Common Stock
of the Company. By promoting such stock ownership, the Company seeks to attract,
retain and motivate such employees and other persons and to encourage them to
devote their best efforts to the business and financial success of the Company.
It is the view of the Company that this purpose will be best achieved by
granting certain forms of stock-based incentives and stock options as provided
herein. Under the Plan, the Committee shall have the authority to grant
incentive stock options, nonqualified stock options, restricted stock and stock
appreciation rights on the terms set forth herein.
2. DEFINITIONS.
For purposes of the Plan, the following terms shall have the meanings set forth
below, unless a different meaning is clearly required by the context:
2.1 "Award" means an Option, SAR or Restricted Stock.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Change in Control" means the occurrence of any of the following
events:
(i) there is a report filed on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form, or report), each as adopted under the
Exchange Act, disclosing the acquisition of twenty-five percent (25%) or
more of the voting stock of the Company in a transaction or series of
transactions by any person (as the term "person" is used in Section
13(d) and Section 14(d)(2) of the Exchange Act),
(ii) during any period of twenty-four (24) consecutive calendar
months, individuals who at the beginning of such period constitute the
directors of the Company cease for any reason to constitute at least a
majority thereof unless the election of each new director of the Company
was approved or recommended by the vote of at least two-thirds of the
directors of the Company then still in office who were directors of the
Company at the beginning of any such period,
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<PAGE> 27
(iii) the Company merges with or into or consolidates with another
corporation and, after giving effect to such merger or consolidation,
less than sixty percent (60%) of the then outstanding voting securities
of the surviving or resulting corporation represent or were issued in
exchange for voting securities of the Company outstanding immediately
prior to such merger or consolidation,
(iv) there is a sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all or substantially
all the assets of the Company, or
(v) the shareholders of the Company shall approve any plan or
proposal for the liquidation or dissolution of the Company.
2.4 "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any regulations and rulings issued pursuant thereto.
2.5 "Committee" means the committee appointed by the Board to
administer the Plan as described in Section 4.1 hereof or, if no such
committee has been appointed by the Board, "Committee" means the Board.
2.6 "Common Stock" means the Common Stock of the Company.
2.7 "Company" means Sunquest Information Systems, Inc., a Pennsylvania
corporation.
2.8 "Disability" means an inability to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment that may be expected to result in death or which has lasted or
can be expected to last for a continuous period of not less than twelve
(12) months. The determination of Disability shall be made by the Committee
on the basis of medical evidence satisfactory to it.
2.9 "Eligible Independent Contractor" means an independent contractor
hired by the Company or a Subsidiary to provide consulting services or
management advice on a regular basis for the Company or Subsidiary.
2.10 "Employee" means a person who is employed by the Company or any
Subsidiary (including directors).
2.11 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and the rules promulgated thereunder by the
Securities and Exchange Commission.
2.12 "Fair Market Value" means, as of any day, the average of the
closing prices of sales of shares of Common Stock on all national
securities exchanges on which the Common Stock may at the time be listed
or, if there shall have been no sales on such day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of
such day, or if on any day the Common Stock shall not be so listed, the
average of the representative bid and asked prices quoted in the National
Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ")
System for such date or the next preceding date that Common Stock was
traded on such market. If at any time there is no
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public market for the Common Stock, the fair market value of a share of
Common Stock shall be the amount determined in good faith by the Committee.
2.13 "ISO" means an Option which, at the time granted, constitutes and
shall be treated as an "incentive stock option" as defined in Section 422
of the Code, or its successor.
2.14 "NSO" means an Option that is intended to be, and qualifies as, a
"non-qualified stock option" as described in Treasury Regulation Section
1.83-7 (and which shall not constitute nor be treated as an ISO).
2.15 "Option" means a right to purchase Common Stock granted pursuant
to the Plan either in the form of an ISO granted to an Employee or a NSO
granted to an Employee or Eligible Independent Contractor.
2.16 "Optionee" means an Employee or Eligible Independent Contractor
to whom an Option is granted under the Plan.
2.17 "Option Price" means the purchase price for Common Stock under an
Option, as determined in Section 6.1(b) of the Plan.
2.18 "Plan" means the Sunquest Information Systems, Inc. Stock
Incentive Plan of 1996, as set forth in this document, as the same may be
amended from time to time.
2.19 "Recipient" means an Employee or Eligible Independent Contractor
to whom an Award is granted under the Plan.
2.20 "Restricted Stock" means an award of shares of Common Stock that
is subject to restrictions pursuant to Section 8 of the Plan.
2.21 "Rules" means Section 16 of the Exchange Act and the regulations
promulgated thereunder by the Securities and Exchange Commission.
2.22 "Stock Appreciation Rights" or "SAR" means the rights granted
pursuant to an award under Section 7 of the Plan.
2.23 "Subsidiary" means any corporation which, on the date of
determination, qualifies as a subsidiary corporation of the Company under
Section 424 of the Code, or any successor provision.
Except where otherwise indicated by the context, any masculine terminology used
herein shall also include the feminine and vice versa, and the definition of any
term herein in the singular shall also include the plural and vice versa.
3. STOCK SUBJECT TO THE PLAN.
3.1 The maximum number of shares of Common Stock for which Awards may
be granted under the Plan shall not exceed in the aggregate three million
eight hundred thousand (3,800,000) shares of Common Stock, subject to
adjustment pursuant to Section 3.2 below. Such shares may be authorized
A-3
<PAGE> 29
but unissued shares, treasury shares, or reacquired shares. In the event
the number of shares of Common Stock for which Awards are granted under the
Plan (taking into account the share counting requirements established under
the Rules) equals the maximum number of shares of Common Stock authorized
under the Plan, no further Awards shall be made unless the Plan is amended
(in accordance with the Rules, if applicable) or additional shares of
Common Stock become available for further Awards. In the event that an
Option expires (or otherwise terminates unexercised) or is converted under
Section 6.2 of the Plan, the Common Stock subject to Option shall again be
available for subsequent Awards.
3.2 In the event of any change to the Common Stock (whether by reason
of merger, consolidation, reorganization, recapitalization, stock dividend,
stock split, combination of shares, exchange of shares or any other change
in capital structure made without receipt of consideration), then unless
such event or change results in the termination of all outstanding Awards,
the Committee shall preserve the value of Awards by appropriately adjusting
the number or classes of shares that may be subject to Awards, the number
or classes of shares theretofore subject to Awards, the Option Price for
Options or the per share price of SARs theretofore granted, and by making
any and all other adjustments deemed appropriate by the Committee.
4. ADMINISTRATION OF THE PLAN.
4.1 The Plan shall be administered by the Board or by a committee of
two (2) or more members of the Board who shall be appointed by the Board
and who shall serve at the pleasure of the Board.
4.2 The Committee shall, subject to the limitations and terms of the
Plan, have the authority:
(a) to determine the Recipients of Awards,
(b) to determine the number of shares to be covered by each Award,
(c) to determine the terms, conditions, limitations and
restrictions, not inconsistent with the terms of the Plan, of Awards
(including, without limitation, whether any Option to be granted shall
be an ISO or a NSO and the time and conditions for the exercise of
Options);
(d) to determine the form of the consideration that may be used to
purchase shares of Common Stock upon the exercise of any Option,
(e) to amend the terms of any outstanding Awards (with the consent
of the Recipient) to reflect terms not otherwise inconsistent with the
Plan, including amendments concerning vesting, acceleration, forfeiture,
or waiver regarding any Award or the extension of a Recipient's right
under an Award, as a result of termination of employment or service (or
otherwise), based on such factors as the Committee shall determine in
its sole discretion.
4.3 Notwithstanding Section 4.2(b) above, the maximum number of shares
of Common Stock for which Options and SARs may be granted to any Employee
under the Plan shall not exceed, in the
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<PAGE> 30
aggregate, one million five hundred thousand (1,500,000) shares of Common
Stock during any one calendar year period.
4.4 The Committee shall have the authority to adopt, alter and repeal
such administrative rules, guidelines and practices governing the Plan as
it shall, from time to time, deem advisable, and to interpret the terms and
provisions of the Plan and any Award (and any agreements relating thereto
and to otherwise supervise the administration of the Plan). All decisions
made by the Committee pursuant to the provisions of the Plan shall be final
and binding on all persons, including the Company, any Subsidiary, and the
Recipients. No member of the Committee shall be liable for any action taken
or decision made in good faith relating to the Plan or any Award.
4.5 It is intended that the Plan comply with Rule 16b-3 under the
Exchange Act and all interpretations of the Plan shall be consistent with
such Rule and the Exchange Act. In order to maintain compliance with such
Rule and the Exchange Act, the Committee may make such rules and impose
such limitations as it deems advisable.
5. ELIGIBILITY TO PARTICIPATE IN THE PLAN.
5.1 The Committee may grant NSOs, SARs and Restricted Stock to any
Employee or Eligible Independent Contractor. The Committee may grant ISOs
to any Employee. The Committee shall have the sole authority to select the
Recipients of Awards and the type of Award. Recipients of Awards shall be
selected by the Committee from among those Employees and Eligible
Independent Contractors who, in the opinion of the Committee, have the
capacity to contribute significantly to the long-term value-added
performance and growth of the Company or Subsidiary.
5.2 No award may be granted to an Employee or Eligible Independent
Contractor within six months of his expected retirement date (or expected
date of termination of employment or service).
6. OPTIONS.
6.1 Options may be granted alone, in addition to, or in tandem with
other Awards. Options granted under the Plan shall be in such form as the
Committee may from time to time approve. The terms and conditions of each
Option granted under the Plan shall be specified by the Committee and shall
be set forth in a written agreement between the Company and the Optionee in
such form as the Committee shall approve (the "Option Agreement"). The
terms and conditions of each Option need not be identical to those of any
other Option granted hereunder. Each Option Agreement shall contain the
following terms and conditions, and such other terms and conditions, not
inconsistent with the purpose of the Plan and the requirements of
applicable law, as the Committee shall determine:
(a) Each Option Agreement shall state the total number of shares of
Common Stock to which the Option relates.
(b) Each Option Agreement shall state the Option Price per share
for the Common Stock to which the Option relates, which shall not be
less than the Fair Market Value per share of the
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<PAGE> 31
Common Stock on the date the Option is granted, except for certain ISOs
described in Subsection 6.1(j) hereof.
(c) Each Option Agreement shall state the expiration date of the
Option to which it relates, which date shall not be later than the tenth
anniversary of the date that the Option is granted, except for certain
ISOs described in Subsection 6.1(j) hereof. No Option may be exercised
by any person after expiration of the term of the Option.
(d) Each Option Agreement shall state the time or times at which
Options shall be exercisable and the terms and conditions applicable to
such exercise, all as determined by the Committee; provided, however,
that except as provided below in Section 6.1(f), (g) and (h) and in
Section 11.1, and unless otherwise determined by the Committee at or
after the date of the grant, no Option shall be exercisable for a period
of six (6) months from the date of grant.
(e) Upon termination of an Optionee's employment or service with
the Company and Subsidiaries for reasons other than termination at or
after age 65, Disability or death, the Optionee's Option shall, unless
expressly provided otherwise in the Option Agreement, expire on the date
of such termination.
(f) If an Optionee's employment or service with the Company and
Subsidiaries terminates at or after age 65, then unless expressly
provided otherwise in the Option Agreement, the Optionee may exercise
the Option to the extent exercisable at the date of such termination
until the earlier of (i) the expiration date of the Option, or (ii) the
one hundred eightieth (180) day following such termination.
(g) In the event of the death of the Optionee while in the
employment or service of the Company or Subsidiary, then unless
expressly provided otherwise in the Option Agreement, the Option may be
exercised, to the extent the Optionee was entitled to do so on the date
of his death, by the person or persons to whom the Optionee's rights
under the Option pass by will or by applicable law, or if no such person
has such right, by his executors or administrators, until the earlier of
(i) the expiration date of the Option, or one (1) year after the
Optionee's death.
(h) If an Optionee's employment or service with the Company and
Subsidiaries terminates by reason of Disability, then unless expressly
provided otherwise in the Option Agreement, the Optionee may exercise
the Option to the extent exercisable at the date of such termination
until the earlier of (i) the expiration date of the Option, or (ii) one
(1) year after the date of such termination.
(i) The Option Price may be paid, as permitted by the Committee, in
cash or check (payable to the order of the Company), in shares of Common
Stock already owned by the Optionee having a total Fair Market Value
equal to the purchase price, by sale of shares of Common Stock acquired
in the exercise of an Option (to the extent such cashless exercise is
permitted by the Committee and under the Rules), or any combination
thereof approved by the Committee. If payment of the exercise price of
an Option is made in whole or in part in shares of Common
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Stock already owned by the Optionee, the Committee may require that the
stock be owned for a period of at least six (6) months. Following the
exercise of an Option and the payment of the full Option price, the
Company shall issue a stock certificate evidencing the Optionee's
ownership of such Common Stock. No shares shall be delivered pursuant to
any exercise of an Option until payment in full of the Option Price is
received by the Company.
(j) Any Option intended to be an ISO shall be designated as such in
the applicable Option Agreement. No ISO shall be granted to any Employee
who, at the time the Option is granted, owns more than 10% of the total
combined voting power of all classes of stock of the Company or of its
parent corporation (within the meaning of Section 424(e) of the Code) or
Subsidiary, unless the Option Price is at least 110% of the Fair Market
Value of the Common Stock subject to the ISO on the date of grant and
the Option by its terms is not exercisable after the expiration of five
years from the date the Option is granted. In addition, as determined at
the time an ISO is granted, the aggregate Fair Market Value of the
Common Stock subject to the ISO (under all plans of the Company and of
its parent corporation and Subsidiaries) first exercisable in any
calendar year shall not exceed one hundred thousand dollars ($100,000).
(k) Options by their terms shall not be transferable other than by
will or the laws of descent and distribution, and during an Optionee's
lifetime, shall be exercisable only by the Optionee.
6.2 The Committee may, in its sole discretion, elect to cash out all
or part of the Common Stock to be exercised under an Option by paying the
Optionee an amount, in cash, equal to the excess of the Fair Market Value
of the Common Stock over the Option Price on the effective date of such
exercise. If this conversion right is exercised, an Optionee shall forfeit
all other rights associated with such converted Option.
7. STOCK APPRECIATION RIGHTS.
7.1 Grant of SARs. The Committee may grant Stock Appreciation Rights
separate and apart from, or in tandem with, any Option granted under the
terms of the Plan. When granted in tandem with Options, SARs may be granted
with respect to all or part of the Common Stock under a particular Option,
and may be granted coincident with or after the date of grant of the
related Option.
7.2 Exercise of SARs. SARs may be exercised from time to time by
written notice from the holder thereof to the Company of the holder's
intent to exercise the SARs with respect to a specified number of shares.
SARs shall entitle the holder thereof, upon exercise, in whole or in part,
to receive payment in the amount and form determined pursuant to Section
7.3(c). SARs granted in tandem with Options may be exercised only to the
extent that the related Option has not been exercised. The exercise of a
tandem SAR shall result in a pro rata surrender of the related Option to
the extent that the tandem SAR has been exercised. Similarly, the exercise
of a related Option shall result in a pro rata surrender of the tandem SAR
to the extent that the Option has been exercised.
7.3 Terms and Conditions. The grant of SARs shall be evidenced by a
written SAR agreement in a form approved by the Committee. Each SAR
agreement shall be consistent with the following
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express terms and conditions, and shall include such other terms and
conditions, consistent with the purposes of the Plan and the requirements
of applicable law, as the Committee shall determine:
(a) SARs shall be exercisable at such time or times and only to the
extent specified in the SAR agreement. SARs shall in no event be
exercisable during the first six (6) months after the date of grant.
(b) SARs shall not be transferable other than by will or by the
laws of descent and distribution, and during the holder's lifetime,
shall be exercisable only by the holder.
(c) Upon exercise of SARs, the holder thereof shall be entitled to
receive an amount equal to the excess of (i) the Fair Market Value per
share of Common Stock on the day preceding the exercise date over (ii)
the price per share stated in the SAR agreement for a SAR not granted in
tandem with an Option or the Option Price per share of any related
Option for a SAR granted in tandem with an Option, multiplied by the
number of shares in respect of which the SARs shall have been exercised.
Such amount shall be paid, as determined by the Committee, in the form
of (i) cash, (ii) shares of Common Stock with a Fair Market Value on the
day preceding the exercise date equal to such amount, or (iii) a
combination of cash and such Common Stock.
(d) In no event shall a SAR be exercisable at a time when the Fair
Market Value per share of Common Stock is less than the price per share
stated in the SAR agreement for a SAR not granted in tandem with an
Option or the Option Price per share of any related Option for a SAR
granted in tandem with an Option.
(e) SARs shall terminate in accordance with the rules in Section
6.1(c), (e), (f), (g), and (h) hereof regarding termination of Options.
8. RESTRICTED STOCK.
8.1 Rights As A Stockholder. The grant of Restricted Stock shall be
evidenced by a Restricted Stock agreement issued in accordance with Section
8.2. The Committee shall direct that a certificate or certificates for
Restricted Stock be issued to the grantee, and registered in the name of
the grantee, who shall have all the rights of a shareholder with respect to
the Restricted Stock subject to such restrictions set forth in the
Restricted Stock agreement. The certificate or certificates representing
the Restricted Stock shall be inscribed with a legend as to the
restrictions on sale, transfer, assignment, pledge or other encumbrance
during the restricted period as the Committee may impose, and may, if the
Committee in its sole discretion should direct, be delivered to and held
during the restricted period by the Company, together with a stock power
endorsed in blank by the grantee.
8.2 Restrictions. Each Restricted Stock agreement shall include such
terms and conditions, including with respect to the restricted period,
restrictions on sale, transfer, assignment, pledge, or other encumbrance,
forfeiture and vesting, that are consistent with the purposes of the Plan
and the requirements of applicable law, as the Committee shall determine at
the time of granting the Restricted Stock. Any new, additional or different
shares or securities resulting from any change to the Common
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Stock under Section 3.2 shall be subject to the same terms, conditions and
restrictions contained in the Restricted Stock agreement to which the
Restricted Stock was subject immediately prior to such change. The
Committee may, in its discretion, remove, modify or accelerate the release
of restrictions on any Restricted Stock in the event of hardship or of
Disability of the grantee while employed or in the service of the Company
or Subsidiary, or for such other reasons as the Committee may deem
appropriate in the event that the grantee ceases to be in employment or
service with the Company and Subsidiaries. In the event of the grantee's
death following the delivery of Restricted Stock, the personal
representative of the grantee's estate or the person or persons to whom the
Restricted Stock shall have passed by bequest or the laws of descent and
distribution shall take such Restricted Stock subject to the same terms,
conditions and restrictions in effect at the time of the grantee's death,
to the extent applicable.
9. AMENDMENT AND TERMINATION.
The Board may amend or discontinue the Plan at any time and for any reason
(either by resolution or unanimous consent), but no amendment or
discontinuation shall be made which would impair a Recipient's rights under
an Award theretofore granted without the Recipient's consent, or which,
without approval of the Company's shareholders, would require shareholder
approval under the Rules.
The Committee may amend the terms of any Award theretofore granted
prospectively or retroactively, but no such amendment shall impair the
rights of the Recipient of the Award without the Recipient's consent. The
power to amend the terms of any Award shall include, without limitation,
the power to reduce the Option Price of any Award, provided that the
reduced Option Price shall not be less than the Fair Market Value per share
of the Common Stock on the date of the amendment of the Award.
10. UNFUNDED STATUS OF THE PLAN.
The Plan is an unfunded plan for incentive compensation. With respect to
any payments not yet made to a Recipient, the Recipient shall not have any
rights that are greater than those of a general creditor of the Company. In
its sole discretion, the Committee may authorize the creation of trusts or
other arrangements to meet the obligations created under the Plan and to
deliver Common Stock or payments in lieu thereof with respect to any
Awards.
11. GENERAL PROVISIONS.
11.1 The Committee, in its sole discretion, may provide at the time of
granting any Award that the terms of the Award, including but not limited
to, the date on which an award vests or becomes exercisable, may be
modified in the event of a Change in Control.
11.2 Each Award may provide that the recipient shall deliver to the
Committee, upon demand by the Committee, at the time of delivery of any
certificates representing shares of Common Stock a written representation
that the shares are to be acquired for investment and not for resale or
with a view to the distribution thereof. Upon such demand, delivery of such
representation prior to delivery of
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any shares shall be a condition precedent to the right of the Recipient (or
any other person) to acquire any shares.
11.3 Nothing contained in the Plan shall prevent the Board from
adopting other or additional compensation arrangements (subject to
shareholder approval, if such shareholder approval is required) of general
applicability or otherwise.
11.4 Neither the Plan nor any Award shall confer upon any Recipient
any right to continued employment or service with the Company or Subsidiary
and shall not interfere in any way with the right of the Company or
Subsidiary to terminate its relationship with any of its employees,
directors or independent contractors at any time.
11.5 No later than the date as of which an amount first becomes
includible in the gross income of a Recipient for applicable income tax
purposes with respect to any Award, the Recipient shall pay to the Company
or make arrangements satisfactory to the Committee regarding the payment of
any federal, state or local taxes of any kind required by law to be
withheld with respect to such amount. Unless otherwise determined by the
Committee, the minimum required withholding obligations may be settled with
Common Stock, including Common Stock that is subject to the Award that
gives rise to the withholding requirement. The obligations of the Company
under the Plan shall be conditioned upon such payment or arrangements and
the Company shall to the extent permitted by law have the right to deduct
any such taxes from any payment of any kind otherwise due to the Recipient.
11.6 The Committee shall establish such procedures as it deems
appropriate for a Recipient to designate a beneficiary to whom any amount
payable in the event of the Recipient's death are to be paid.
11.7 An Award shall be subject to the condition that any payment
thereunder is subject to any listing or registration of the shares of
Common Stock subject to the Award, any consent or approval of any
governmental body, or any other agreement or consent that the Committee
determines is necessary or desirable for such payment.
11.8 The actions of the Committee (including without limitation the
determination of Recipients and the terms and conditions of any Awards)
need not be uniform and may be undertaken selectively whether or not the
Recipients are similarly situated.
11.9 The existence of Awards shall not effect in any way the right or
the power of the Company or its shareholders to make or authorize any or
all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation
of the Company, or any issue of bonds, debentures, preferred or prior
preference stocks ahead of or effecting the Common Stock or the rights
thereof, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
11.10 The Plan shall be governed by and subject to all applicable laws
and to the approvals by any governmental agency as may be required.
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11.11 If any provision of the Plan shall be illegal or invalid for any
reason, such illegality or invalidity shall not affect the remaining
provisions of the Plan, but the Plan shall be construed and enforced as if
such illegal or invalid provision had never been included herein.
11.12 In addition to such other rights of indemnification as they may
have as directors or employees of the Company or Subsidiary, the members of
the Board and members of the Committee shall be indemnified by the Company
against the reasonable expense, including attorney's fees, actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal thereof, 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 Award, and against all amounts
paid by them in settlement therefor (provided such settlement is approved
by independent legal counsel selected by the Company) or 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 adjudicated in such action,
suit or proceeding, that such member is liable for negligence or misconduct
in the performance of his duties; provided that within sixty (60) days
after institution of any such action, suit or proceeding, a member shall in
writing offer the Company the opportunity, at its own expense, to handle
and defend the same.
12. EFFECTIVE DATE AND TERM OF THE PLAN.
The Plan became effective upon approval of the Plan by the Company's
shareholders on March 25, 1996. No Awards shall be granted pursuant to the Plan
on or after March 25, 2006, but Awards granted prior to such date may extend
beyond that date.
Date originally approved by the
Board of Directors and Stockholders: March 25, 1996
Dates amended by the Board of Directors:
November 8, 1996, April 3, 1997 and March 12, 1998
A-11
<PAGE> 37
PROXY
SUNQUEST INFORMATION SYSTEMS, INC.
4801 EAST BROADWAY BOULEVARD
TUCSON, ARIZONA 85711
The undersigned shareholder of Sunquest Information Systems, Inc. (the
"Company") hereby appoints Dr. Sidney A. Goldblatt and Nina M. Dmetruk, and each
of them, as the attorneys and proxies of the undersigned, with full power of
substitution, to represent and to vote, as designated on the reverse side, all
the shares of Common Stock, no par value, of the Company which the undersigned
would be entitled to vote if personally present at the Annual Meeting of
Shareholders of the Company, to be held at the Viscount Suite Hotel, 4855 East
Broadway Blvd., Tucson, Arizona, on Thursday, April 30, 1998, commencing at 9:00
a.m., local time, and at any adjournment or postponement thereof.
(PLEASE SIGN ON REVERSE SIDE AND RETURN IMMEDIATELY)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
* FOLD AND DETACH HERE *
<PAGE> 38
<TABLE>
<CAPTION>
PLEASE MARK
YOUR VOTES AS
INDICATED IN
THIS EXAMPLE [ X ]
<S> <C> <C> <C>
1. Election of Directors: (INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
FOR WITHHOLD Dr. Sidney A. Goldblatt Stanley J. Lehman
all nominees AUTHORITY Nina M. Dmetruk Dr. Richard W. Barker
listed to to vote for all Dr. Curtis S. Goldblatt Peter P. Gombrich
the right nominees listed Larry R. Ferguson
(except as marked to the right
to the contrary)
[ ] [ ]
2. Proposal to ratify the election of 3. Proposal to approve the Stock Incentive 4. In their discretion the Proxies
Ernst & Young LLP to audit the books and Plan of 1996, as amended, including a are authorized to vote upon such
accounts of the Company for the year 1,300,000 share increase. other business as may properly come
ending December 31, 1998. before the meeting and any
adjournments thereof.
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
[ ] [ ] [ ] [ ] [ ] [ ]
THIS PROXY WILL BE VOTED AS SPECIFIED. HOWEVER, IN THE
ABSENCE OF DIRECTION TO THE CONTRARY, THE ATTORNEYS
NAMED HEREIN INTEND TO VOTE THIS PROXY "FOR" THE
ELECTION AS DIRECTORS OF ALL THE NOMINEES LISTED AND
"FOR" PROPOSALS 2 AND 3, AND FOR MATTERS WHICH MAY BE
PRESENTED AT THE MEETING IN ACCORDANCE WITH
RECOMMENDATIONS OF THE BOARD OF DIRECTORS.
THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF NOTICE OF THE
AFORESAID ANNUAL MEETING OF SHAREHOLDERS.
Signature(s) Signature(s) Date
----------------------------------- --------------------------- --------------------------------
Note: Please sign exactly as name appears hereon. Joint holders should each sign. When signing as attorney, executor,
administrator, trustee or guardian, please indicate the capacity in which you are signing. If a corporation or other entity,
please sign in full corporate or entity name by authorized person.
* FOLD AND DETACH HERE *
</TABLE>
