<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
<TABLE>
<S> <C>
|X| Preliminary Proxy Statement |_| Confidential, for Use of the Commission Only
|_| Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11
(c) or Rule 14a-12
</TABLE>
REMEDYTEMP, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
- -------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- -------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11(set forth the amount on which
the filing fee is calculated and state how it was determined):
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
(5) Total fee paid:
- -------------------------------------------------------------------------------
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount previously paid:
- -------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- -------------------------------------------------------------------------------
(3) Filing party:
- -------------------------------------------------------------------------------
(4) Date filed:
- -------------------------------------------------------------------------------
<PAGE> 2
PRELIMINARY COPY
REMEDYTEMP, INC.
32122 CAMINO CAPISTRANO
SAN JUAN CAPISTRANO, CALIFORNIA 92675
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 18, 1998
To the Shareholders of REMEDYTEMP, INC.
The Annual Meeting of Shareholders of RemedyTemp, Inc. (the "Meeting"),
a California corporation (the "Company"), will be held at the Company's Southern
California Regional Office located at 18500 Von Karman, Suite 720, Irvine,
California, on February 18, 1998, at 9:00 a.m. for the following purposes:
1. To amend the Company's Amended and Restated Bylaws to provide for a
flexible Board of Directors (the "Board") with the authorized number of
directors on the Board to be as few as five and no more than nine, to set the
number of authorized directors at seven, and to eliminate the classification of
the Board;
2. To elect a Board of seven directors to serve until the next annual
meeting of shareholders of the Company and until their successors are elected
and qualified if Proposal No. 1 is approved. Alternatively, if the shareholders
do not approve of Proposal No. 1, to elect a Board consisting of three classes
with three directors in each class;
3. To ratify and approve of an amendment to the Company's 1996 Stock
Incentive Plan (the "Plan") providing for a 325,000 share increase of the
aggregate number of shares of Class A Common Stock of the Company ("Common
Stock") reserved for issuance under the Plan so that the number of shares of
Common Stock that may be issued under the Plan may not exceed 1,225,000, and to
ratify and approve certain provisions of the Plan so that compensation relating
to options and other stock-based awards under the Plan are not subject to the
deduction limits of Section 162(m) of the Internal Revenue Code of 1986, as
amended ("Section 162(m)");
4. To ratify and approve of the terms and conditions of an option grant
by the Company to the Company's Chief Operating Officer to purchase up to
125,000 shares of Common Stock to ensure that compensation relating to such
options is not subject to the deduction limits of Section 162(m); and
5. To transact such other business as may properly come before the
Meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. The Board has fixed the close of business on
December 22, 1997 as the record date for the determination of shareholders
entitled to notice of and to vote at the Annual Meeting.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. YOU ARE
URGED TO SIGN, DATE AND OTHERWISE COMPLETE THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
IF YOU ATTEND THE MEETING AND WISH TO DO SO, YOU MAY VOTE YOUR SHARES IN PERSON
EVEN IF YOU HAVE SIGNED AND RETURNED YOUR PROXY CARD.
By Order of the Board of Directors
Alan M. Purdy
Chief Financial Officer and
Assistant Secretary
San Juan Capistrano, California
January 23, 1998
<PAGE> 3
PRELIMINARY COPY
REMEDYTEMP, INC.
32122 CAMINO CAPISTRANO
SAN JUAN CAPISTRANO, CALIFORNIA 92675
------------
PROXY STATEMENT
------------
1998 ANNUAL MEETING OF SHAREHOLDERS
FEBRUARY 18, 1998
This Proxy Statement and related materials are furnished in connection
with the solicitation of proxies by the Board of Directors (the "Board") of
RemedyTemp, Inc., a California corporation (the "Company"), for use at the
Company's 1998 Annual Meeting of Shareholders (the "Meeting") to be held on
February 18, 1998, at 9:00 a.m. and at any and all postponements and
adjournments of the Meeting. The Meeting will be held at the Company's Southern
California Regional Office located at 18500 Von Karman, Suite 720, Irvine,
California. This Proxy Statement and the accompanying form of proxy will be
first mailed to shareholders on or about January 26, 1998.
The cost of preparing, assembling and mailing the Notice of Annual
Meeting of Shareholders, this Proxy Statement and form of proxy and the cost of
soliciting proxies will be paid by the Company. Proxies may be solicited in
person or by telephone, telegraph or cable by personnel of the Company who will
not receive any additional compensation for such solicitation. The Company will
pay brokers or other persons holding stock in their names or the names of their
nominees for the reasonable expenses of forwarding soliciting material to their
principals.
VOTING
The Board has fixed the close of business on December 22, 1997 as the
record date for the determination of shareholders entitled to notice of and to
vote at the Meeting. On that date, there were 6,015,933 shares of the Company's
Class A Common Stock ("Common Stock") outstanding. Each share of Common Stock is
entitled to one vote on any matter that may be presented for consideration and
action by the shareholders at the Meeting. Holders of the Company's Class B
Common Stock are not entitled to any vote in the election of directors or on any
other matters submitted to a shareholder vote except as to certain amendments to
the Company's Amended and Restated Articles of Incorporation (the "Articles of
Incorporation"), certain mergers and as otherwise required by law.
The holders of a majority of the shares of Common Stock outstanding on
the record date and entitled to be voted at the Meeting, present in person or by
proxy, will constitute a quorum for the transaction of business at the Meeting
and any adjournments and postponements thereof. Abstentions and broker non-votes
are counted for the purpose of determining the presence or absence of a quorum
for the transaction of business, but have no legal effect on Proposal No. 2,
Election of Directors, which is determined by plurality. With respect to
Proposal No. 1, both abstentions and broker non-votes will have the same effect
as a negative vote because approval requires the affirmative vote of sixty-six
and two-thirds percent (66 2/3%) of the outstanding shares entitled to vote.
With respect to Proposals No. 3 and No. 4, abstentions and broker non-votes will
not be considered as having voted for purposes of determining the Proposals'
outcome because approval requires the affirmative vote of a majority of those
shares present and voting.
Each shareholder entitled to vote may vote by proxy by using the
enclosed proxy card with this Proxy Statement. You can specify how you want your
shares voted on each proposal by marking the appropriate boxes on the proxy
card. The proposals are identified by number and an identifying title on the
proxy card. Each proxy submitted by a shareholder will, unless otherwise
directed by the shareholder in the proxy, be voted according to the
recommendation of the Board on that proposal, set forth later in this Proxy
Statement. If a shareholder has submitted a proxy appropriately directing how
the shares represented thereby are to be voted, such shares will be voted
according to the shareholder's direction. Any
<PAGE> 4
shareholder has the power to revoke his or her proxy at any time before it is
voted at the Meeting by submitting a written notice of revocation to the
Secretary or Assistant Secretary of the Company or by filing a duly executed
proxy bearing a later date. A proxy will not be voted if the shareholder who
executed it is present at the Meeting and elects to vote the shares represented
thereby in person.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of the Company's
Class A and Class B Common Stock beneficially owned as of December 22, 1997 by
those known by the Company to be beneficial owners of more than five percent
(5%) of the outstanding shares of the Company's Class A or Class B Common Stock,
by each of the present directors, by each of the executive officers named in the
Summary Compensation Table on page 11 of this Proxy Statement, and by all
directors and executive officers of the Company as a group. On December 22,
1997, there were 6,015,933 shares of Class A Common Stock outstanding and
2,930,733 shares of Class B Common Stock outstanding. Unless otherwise stated,
and except for voting powers held jointly with a person's spouse, the persons
and entities named in the table have sole voting and investment power with
respect to all shares shown as beneficially owned by them. All information with
respect to beneficial ownership is based on filings made by the respective
beneficial owners with the Securities and Exchange Commission (the "Commission")
or information provided to the Company by such beneficial owners.
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK: COMMON STOCK:
AMOUNT AND NATURE OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF BENEFICIAL OWNERSHIP PERCENT OF
(1) CLASS (%) (1)(2) CLASS (%)
- --------------------------------- --------------------- ---------- --------------------- -----------
<S> <C> <C> <C> <C>
William D. Cvengros (3) 15,000 * -- --
James L. Doti (3) 16,000 * -- --
Jeffrey A. Elias (4) 2,774 * -- --
Robert A. Elliott (5) 5,000 * -- --
Robert E. McDonough, Sr. (6) 2,007,974 33.4 469,185 16.0
32122 Camino Capistrano
San Juan Capistrano, CA 92675
R. Emmett McDonough (6)(7) 99,460 1.7 959,778 32.8
32122 Camino Capistrano
San Juan Capistrano, CA 92675
Paul W. Mikos (6)(7)(8) 41,014 * 1,501,770 51.2
32122 Camino Capistrano
San Juan Capistrano, CA 92675
Alan M. Purdy (8) 5,380 * -- --
Alice M. Bowers (8) 4,774 * -- --
Susan M. Mikos (6)(7) 36,240 * 1,501,770 51.2
32122 Camino Capistrano
San Juan Capistrano, CA 92675
John B. Zaepfel (3) 15,000 * -- --
All directors and executive officers as
a group (18 persons) 2,112,916 34.7 1,970,955 67.2
</TABLE>
- ---------------------------
* Less than 1%
(1) The information contained in this table reflects "beneficial ownership"
as defined in Rule 13d-3 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Shares not outstanding that
are subject to vested options, or options that vest and become
exercisable by the holder thereof within sixty days of December 22,
1997 are deemed outstanding for the purposes of calculating the number
and percentage owned by
2
<PAGE> 5
such shareholder, but not deemed outstanding for the purpose of
calculating the percentage owned by each other shareholder listed.
Unless otherwise noted, all shares listed as beneficially owned by a
shareholder are actually outstanding.
(2) Holders of Class B Common Stock are not entitled to any vote on matters
submitted to a shareholder vote except as to certain amendments to the
Articles of Incorporation, certain mergers and as otherwise required by
law. The Class B Common Stock automatically converts into Class A
Common Stock on a share-for-share basis upon the earliest to occur of
(i) a transfer to a non-affiliate of the holder thereof in a public
offering pursuant to an effective registration statement or Rule 144
promulgated under the Securities Act of 1933, as amended, (ii) the
death or legal incapacity of Robert E. McDonough, Sr., or (iii) the
tenth anniversary of the closing of the Company's initial public
offering.
(3) Includes 10,000 shares of Class A Common Stock that are issuable upon
exercise of vested non-employee director stock options and 5,000 shares
of Class A Common Stock that are issuable upon exercise of non-employee
director stock options that vest on the date of the Meeting if the
director remains a director until then.
(4) Includes 2,774 shares of Class A Common Stock that are issuable upon
exercise of vested stock options.
(5) All shares are issuable upon exercise of vested non-employee director
stock options.
(6) Includes shares held by certain trusts established for the benefit of
the shareholder and/or the shareholder's family.
(7) Includes shares held in community property.
(8) Includes 4,774 shares of Class A Common Stock that are issuable upon
exercise of vested stock options.
PROPOSAL NO. 1
AMENDMENT OF BYLAWS TO PROVIDE FOR A FLEXIBLE BOARD AND
TO ELIMINATE CLASSIFICATION OF THE BOARD
The Company's shareholders are being asked to amend the Company's
Amended and Restated Bylaws (the "Bylaws") to provide for a flexible Board with
the authorized number of directors on the Board to be as few as five and no more
than nine, to set the initial number of authorized directors at seven1, and to
eliminate the classification of the Board (the "Bylaw Amendment"). As required
under the Articles of Incorporation, the affirmative vote of sixty-six and
two-thirds percent (66 2/3%) of the outstanding shares entitled to vote at the
Meeting is required to amend the Bylaws and thereby approve of Proposal No. 1.
In April 1996, the Board and shareholders of the Company amended the
Bylaws to provide that when the Company becomes a "listed corporation" within
the meaning of the California Corporations Code (i.e., has at least 800 holders
of its equity securities as of the record date of the Company's most recent
annual meeting of shareholders), cumulative voting rights will be eliminated and
the Board will be divided into three classes. The Company had more than 800
shareholders on February 19, 1997, its most recent annual meeting of
shareholders. Accordingly, the power to cumulate votes was eliminated and the
Board was classified on February 19, 1997.
The Board believes that it is in the best interests of the Company and
its shareholders to amend the Bylaws to provide for a flexible Board with the
authorized number of directors to be as few as five and no more than nine, to
set initially the number of authorized directors of the Board at seven, and to
eliminate cumulative voting. If Proposal No. 1 is adopted, the Bylaw Amendment
will become effective immediately, thus eliminating the classification of the
Board and permitting the shareholders to elect a Board of seven directors. The
classification of the Board was implemented by the Board and the Company's
shareholders as an anti-takeover device in connection with the Company's initial
public offering. The Board believes that the classification of the Board is no
longer necessary because the Company maintains adequate and sufficient
anti-takeover devices such as the power to issue preferred stock with rights
senior to those of the Common Stock, the elimination of cumulative voting and
the requirement that the shareholders can amend the Bylaws only upon the
- -----------------------
1 The exact number of directors of the Board shall be set from time to time,
within the limits under the Bylaws, by resolution of the Board or the
shareholders of the Company.
3
<PAGE> 6
vote of holders of at least sixty-six and two-thirds percent (66 2/3%) of the
shares outstanding and entitled to vote (collectively, "Anti-Takeover Devices").
The Anti-Takeover Devices are intended to make it more difficult for
shareholders to effect certain corporate actions and delay or prevent a change
in control of the Company.
RECOMMENDATION OF THE BOARD
The Board recommends that the shareholders vote FOR approval of
Proposal No. 1.
PROPOSAL NO. 2
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION
In general, the Company's directors are elected at each annual meeting
of shareholders. Currently, the number of authorized directors of the Company is
seven. At the Meeting, the Company's shareholders are being asked to elect seven
directors to serve until the next annual meeting of shareholders and until their
successors are elected and qualified.2 The nominees receiving the greatest
number of votes at the Meeting up to the number of authorized directors will be
elected.
The seven nominees for election as directors at the Meeting set forth
in the table below are all incumbent directors. Messrs. Cvengros, Doti,
McDonough, Mikos, Zaepfel and Ms. Mikos were elected at the Company's 1997
Annual Meeting of Shareholders. Mr. Elliott was elected by the Board on December
8, 1997 to fill a vacancy. Each of the nominees has consented to serve as a
director if elected. Except to the extent that authority to vote for any
directors is withheld in a proxy, shares represented by proxies will be voted
FOR such nominees. In the event that any of the nominees for director should
before the Meeting become unable to serve if elected, shares represented by
proxies will be voted for such substitute nominees as may be recommended by the
Company's existing Board, unless other directions are given in the proxies. To
the best of the Company's knowledge, all the nominees will be available to
serve.
The biographical information set forth on the following page is
furnished with respect to the seven nominees for election at the Meeting as of
December 22, 1997:
- --------------------
2 Alternatively, if the shareholders do not approve of Proposal No. 1, the
shareholders will elect a Board consisting of three classes with three
directors in each class. In such an event, the nominees for the three
classes of the Board shall be as follows: (1) for Class I, initially to
serve a term of one year and thereafter being elected every three years to
serve for terms of three years, Susan M. Mikos; (2) for Class II, initially
to serve for a term of two years and thereafter being elected every three
years to serve for terms of three years, Robert A. Elliott, Paul W. Mikos,
Robert E. McDonough; and (3) for Class III, initially to serve for a term
of three years and thereafter being elected every three years to serve for
terms of three years, William D. Cvengros, James L. Doti, John B. Zaepfel.
Board vacancies that occur during the year may be filled by the Board to
serve for the remainder of the term for the applicable class if the Board
is classified.
4
<PAGE> 7
<TABLE>
<CAPTION>
NOMINEE AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
- ------- --- -------------------- --------------
<S> <C> <C> <C>
William D. Cvengros 49 Chief Executive Officer and President of PIMCO 1996
Advisors Holdings L.P.
James L. Doti 51 President, Chapman University 1996
Robert A. Elliott 58 Chairman, Elliott Investment Company 1997
Robert E. McDonough, Sr. 75 Chairman of the Board of the Company 1978
Paul W. Mikos 53 Chief Executive Officer and President of the 1993
Company
Susan McDonough Mikos 50 Corporate Secretary of the Company 1992
John B. Zaepfel 61 Private Investor 1995
</TABLE>
William D. Cvengros has served as a director of the Company since July
1996. Mr. Cvengros has been the Chief Executive Officer and President of PIMCO
Advisors Holdings L.P. and a member of its Equity and Operating Boards since
November 1994. From February 1986 until November 1994, Mr. Cvengros served as
Chairman of the Board of Pacific Investment Management Company (PIMCO). From
January 1990 until November 1994, Mr. Cvengros was Vice Chairman of the Board of
Directors and Chief Investment Officer of Pacific Life Insurance Company,
formerly Pacific Mutual Life Insurance Company. Mr. Cvengros is also a director
of Furon Corporation.
James L. Doti, Ph.D. has served as a director of the Company since July
1996. Since July 1991, Dr. Doti has served as the President of Chapman
University. Dr. Doti has been a member of the Chapman University faculty since
1974 and is also a member of the Board of Directors of Fleetwood Enterprises,
Standard Pacific Corp. and First American Financial Corporation.
Robert A. Elliott has served as a director of the Company since
December 1997. Since 1988, Mr. Elliott has served as Chairman of Elliott
Investment Company. Prior to founding Elliott Investment Company, Mr. Elliott
served as the Chairman and Chief Executive Officer of VLI Corporation ("VLI"), a
publicly-traded company specializing in the manufacturing and marketing of
personal care products from 1982 until 1987. Prior to joining VLI, Mr. Elliott
was a Vice President of Howmedica, Inc., a subsidiary of Pfizer, Inc. Mr.
Elliott is a member of the Board of Trustees of Chapman University and a member
of the Visiting Committee, School of Business Administration, University of
Southern California.
Robert E. McDonough, Sr. has served as Chairman of the Board since
August 1978. Mr. McDonough founded the Company in 1965 and has been continuously
involved in the management and long-term operation and planning of the Company
since that time. For 29 years, until May 1994, he served as the Company's Chief
Executive Officer. Mr. McDonough is the father of Susan McDonough Mikos and the
father-in-law of Paul W. Mikos.
Paul W. Mikos has served in various positions in the Company since
1977, including as President since 1985. Mr. Mikos has served as Chief Executive
Officer of the Company since January 1996 and as a Director of the Company since
May 1993. From May 1994 until January 1996, he served as co-Chief Executive
Officer of the Company. Prior to joining the Company, Mr. Mikos worked for ARA
as a Regional Sales Director from August 1976 until October 1977. From July 1968
until August 1976, Mr. Mikos worked for IBM in sales management. Mr. Mikos is
the husband of Susan McDonough Mikos, the brother of Alice Bowers and the
son-in-law of Robert E. McDonough, Sr.
Susan McDonough Mikos has served as the Company's Corporate Secretary
since January 1996 and has been a Director of the Company since November 1992.
For the past five years, Ms. Mikos has been a homemaker. Ms. Mikos is the
daughter of Robert E. McDonough, Sr., and the wife of Paul W. Mikos.
John B. Zaepfel has been a director of the Company since June 1995.
From 1974 until 1985, Mr. Zaepfel was President and Chief Executive Officer of
Chartpak-Picket Industries, Inc., a wholly-owned subsidiary of The Times Mirror
Company. In 1985, Mr. Zaepfel founded CPG International, Inc., a graphics art
and engineering firm, and served as its President and Chief Executive Officer
from 1985 until its sale in 1989. Since 1989, Mr. Zaepfel has been a private
5
<PAGE> 8
investor and a self-employed consultant. Mr. Zaepfel is Chairman of the Board of
Directors of Acordia of Southern California, Inc. and is also a director of
American Security Distribution, Inc. and Pro-Dex, Inc.
CLASSIFIED BOARD AND ELIMINATION OF CUMULATIVE VOTING
The Bylaws provide that when the Company becomes a "listed corporation"
within the meaning of the California Corporations Code (i.e., has at least 800
holders of its equity securities as of the record date of the Company's most
recent annual meeting of shareholders), cumulative voting rights will be
eliminated and the Board will be divided into three classes. The Company had
more than 800 shareholders on February 19, 1997, its most recent annual meeting
of shareholders. Accordingly, the power to cumulate votes was eliminated and the
Board was classified on February 19, 1997. However, as discussed previously in
this Proxy Statement, Proposal No. 1, if approved by the shareholders, will
provide for the authorized number of directors to be as few as five and no more
than nine, set the current number of authorized directors at seven, and
eliminate the classification of the Board.
BOARD COMMITTEES AND MEETINGS
The Audit Committee of the Board ("Audit Committee") currently consists
of Messrs. Cvengros, Elliott and Mr. Zaepfel (Chairman). The Audit Committee
meets with the Company's independent accountants, makes recommendations to the
Board concerning the acceptance of the reports of such accountants and the
accounting policies and procedures of the Company, and reviews financial plans
and operating results of the Company.
The Leadership Development and Compensation Committee ("Compensation
Committee") of the Board currently consists of Mr. Cvengros, Dr. Doti (Chairman)
and Mr. Zaepfel. The Compensation Committee advises the Board with respect to
the annual salary and incentive compensation of the Company's executive officers
and its key employees. Additionally, the Compensation Committee administers the
Company's 1996 Stock Incentive Plan and 1996 Employee Stock Purchase Plan.
The Executive Committee of the Board ("Executive Committee") currently
consists of Dr. Doti, Mr. McDonough (Chairman) and Mr. Zaepfel. The Executive
Committee reviews and evaluates the performance of the Company's Chief Executive
Officer. The Executive Committee also advises the Board regarding strategic
recommendations.
The Nominating Committee of the Board ("Nominating") currently consists
of Mr. Cvengros (Chairman), Dr. Doti and Mr. Zaepfel. The Nominating Committee
identifies, interviews and recommends to the Board potential new board members
and makes recommendations to the Board regarding corporate governance.
The Board acts as a committee of the whole with respect to nominations
for membership on the Board. The Nominating Committee will consider nominees
recommended by shareholders. A shareholder desiring to make such a
recommendation should submit the name, address, telephone number, and
qualifications of the proposed nominee in writing to the Company's Secretary and
must comply with the procedures set forth in Section 201(c) of the Bylaws.
During the Company's fiscal year ended September 28, 1997, there were
five meetings of the Board, two meetings of the Audit Committee, three meetings
of the Compensation Committee, two meetings of the Nominating Committee, and one
meeting of the Executive Committee. While a director, each current Board member
attended one hundred percent (100%) of the meetings of the Board, except for Mr.
Cvengros and Dr. Doti, who each missed one Board meeting.
DIRECTORS' COMPENSATION
Directors who are also employees of the Company receive no extra
compensation for their service on the Board. Non-employee directors receive an
annual retainer of $18,000, fees of $2,000 per Board meeting attended and $750
for each meeting of a committee of the Board. Additionally, non-employee
directors receive reimbursement for out-of-pocket expenses relating to Company
business.
6
<PAGE> 9
Pursuant to the Company's 1996 Stock Incentive Plan (the "Incentive
Plan"), each non-employee director of the Company automatically receives, upon
becoming a director, a one-time grant of an option to purchase up to 10,000
shares of Common stock at an exercise price equal to the fair market value of
the Common Stock on the date of the option's grant. These non-employee director
options have a term of ten years and become exercisable with respect to fifty
percent (50%) of the underlying shares on the grant date and with respect to an
additional fifty percent (50%) of the underlying shares on the date of the next
annual meeting of shareholders of the Company following the grant date (or, if
an annual meeting of shareholders occurs within six months after the grant date,
then on the date of the second annual shareholders' meeting after the grant
date), provided that the recipient has remained a director since the grant date.
In addition to an initial grant, each non-employee director will also receive,
upon each re-election to the Board (or immediately following an annual meeting
at which the director is continuing without being re-elected due to the
classification of the Board), an automatic grant of an option to purchase up to
5,000 additional shares of Common Stock. These additional options will vest and
become exercisable upon the earlier to occur of (i) the first anniversary of the
grant date, or (ii) immediately prior to the annual meeting of shareholders of
the Company next following the grant date, if the director has served as a
director from the grant date to such earlier date. All non-employee director
options will have a term of ten years and an exercise price equal to the fair
market value of a share of Common Stock on the date of grant. Vesting of
non-employee director options accelerates if the recipient of the option ceases
to be a director of the Company or its successor in connection with a change in
control.
Grants of non-employee directors' options under the Incentive Plan
count against the plan's current limit of 900,000 shares of Common Stock.3
Shares underlying non-employee directors' options that expire or are terminated
or canceled will again become available for further awards under the plan. In
the event that a recipient of non-employee directors' options ceases to be a
director of the Company, all such options granted to him will be exercisable, to
the extent they were exercisable at the date directorship ceased, for a period
of 365 days or, if earlier, the expiration of the option according to its terms.
Vesting accelerates upon certain transactions including dissolution, merger and
change in control. The Incentive Plan provides that the exercise price may be
paid by Company loan or withholding of underlying stock, or deferred until
completion of broker-assisted exercise and sale transactions.
At the completion of the Company's initial public offering of Common
Stock, Mr. Zaepfel was awarded a one-time grant of non-employee directors'
options to purchase 10,000 shares of Common Stock, pursuant to the Incentive
Plan. Upon their election to the Board, Mr. Cvengros, Dr. Doti and Mr. Elliott
were each awarded non-employee directors' options to purchase 10,000 shares of
Common Stock pursuant to the Incentive Plan. Additionally, on February 19, 1997,
Messrs. Cvengros, Doti and Zaepfel were re-elected to the Board at the 1997
Annual Meeting of Shareholders and therefore each received an automatic grant of
an option to purchase up to 5,000 shares of Common Stock.
RECOMMENDATION OF THE BOARD
The Board recommends that the shareholders vote FOR the seven nominees
listed above. Proxies received will be so voted unless shareholders specify
otherwise in the proxy.
PROPOSAL NO. 3
RATIFICATION AND APPROVAL OF AMENDMENT
TO THE STOCK INCENTIVE PLAN
The Company's shareholders are being asked to ratify and approve an
amendment to the Incentive Plan that will increase the maximum number of shares
of Common Stock authorized for issuance over the term of the Incentive Plan by
an additional 325,000 shares, bringing the total amount reserved under the
Incentive Plan to 1,225,000 shares of Common Stock (the "Incentive Amendment"),
and to ratify and approve certain provisions of the Incentive Plan so that
compensation relating to options and other stock-based awards under the
Incentive Plan are not subject to the deduction
- --------------------
3 Shareholder approval of Proposal No. 3 will increase this limit to 1,225,000
shares of Common Stock.
7
<PAGE> 10
limits of Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") ("162(m) Approval"). The affirmative vote of the majority of those
shares present and voting at the Meeting is required to approve of Proposal No.
3.4
The primary purpose of the Incentive Amendment is to ensure that the
Company will have a sufficient reserve of Common Stock available under the
Incentive Plan. The Incentive Plan allows the Company to provide eligible
employees of the Company and its participating affiliates with the continuing
opportunity to acquire an equity interest in the Company and provides an
incentive to certain key employees of the Company to remain at the Company by
aligning their interests with the interests of the Company and its shareholders.
Additionally, 162(m) Approval is also being sought to ensure that the
compensation relating to options and other stock-based awards under the
Incentive Plan continue not to be subject to the $1,000,000 annual deduction
limitation of Section 162(m), which places a limit of $1,000,000 on the amount
of compensation that may be deducted by the Company in any tax year with respect
to the Company's Chief Executive Officer and its four most highly compensated
executives.
The Incentive Plan was originally adopted by the Board and shareholders
in April 1996. The following is a summary of the principal features of the
Incentive Plan:
1996 STOCK INCENTIVE PLAN
In connection with the Company's initial public offering, the Company
implemented its Incentive Plan for officers (approximately 15), directors
(approximately four), key employees (approximately 20) and consultants
(approximately two) of the Company. Under the Plan, a total of 900,000 shares of
Common Stock are currently reserved for issuance.5 As of January 9, 1998,
options to purchase an aggregate of up to 842,246 shares of Common Stock have
been granted to employees and non-employee directors of the Company at exercise
prices equal to the fair market value of the Common Stock on the applicable
grant dates. It is anticipated that further grants under the Incentive Plan will
be made from time to time in the future. The Incentive Plan is intended to
satisfy the conditions of Section 16 of the Exchange Act, pursuant to Rule 16b-3
promulgated thereunder ("Rule 16b-3").
Employee Awards. The Incentive Plan enables the Company to grant a
variety of stock-based incentive awards, including incentive and nonstatutory
stock options, restricted stock, stock payments, performance shares, stock
appreciation rights, dividend equivalents and other stock-based benefits. An
award may consist of one such arrangement or benefit or two or more of them in
tandem or in the alternative. The Incentive Plan permits the Committee (as
defined below) to select eligible persons to receive awards and generally to
determine the terms and conditions of awards (except that awards of stock
options to the Company's non-employee directors are automatic and
nondiscretionary). Under the Incentive Plan, options to purchase shares of
Common Stock (other than non-employee director options) may be granted with an
exercise price below the market value of such stock on the grant date. Vesting
of awards accelerates if the recipient's employment with the Company terminates
in connection with a change in control, and the Committee may accelerate or
extend the vesting or exercise period of any awards in its discretion.
Section 162(m). For purposes of ensuring the Company's ability to
deduct compensation relating to awards under the Incentive Plan, the Incentive
Plan enables the Company to subject the grant, award, vesting or exercisability
of an award on the attainment of a pre-established, objective performance goal
("Performance Based Compensation"). For this purpose, a pre-established,
objective performance goal may include one or more of the following performance
criteria: (i) cash flow; (ii) earnings per share (including earnings before
interest, taxes and amortization), (iii) return on equity;
- ----------------------
4 For information regarding options granted to directors and executive
officers of the Company under the Incentive Plan, please see the material
under the headings "Directors' Compensation" and "Executive Compensation
and Other Information" contained in this Proxy Statement.
5 Shareholder approval of Proposal No. 3 will increase this limit to
1,225,000 shares of Common Stock.
8
<PAGE> 11
(iv) total shareholder return; (v) return on capital;(vi) return on assets or
net assets; (vii) income or net income; (viii) operating margin; (ix) return on
operating revenue; and (x) any other similar performance criteria contemplated
by the regulations under Section 162(m). If it is intended that an award
constitute Performance Based Compensation under the Incentive Plan, an annual
limitation will apply so that not more than 100,000 shares of Common Stock in
any one calendar year can be granted to an eligible person.
Non-Employee Director Awards. Non-employee directors of the Company
automatically receive an initial one-time grant of an option to purchase up to
10,000 shares of Common Stock. These initial options will vest and become
exercisable with respect to fifty percent (50%) of the underlying shares on the
grant date and with respect to an additional fifty percent (50%) of the
underlying shares on the date of the next annual shareholders' meeting following
the grant date (or, if an annual meeting of shareholders occurs within six
months after the grant date, then on the date of the second annual shareholders'
meeting after the grant date), if the recipient has remained a director since
the grant date and is then continuing as a director for the ensuing year. In
addition to an initial grant, each non-employee director will also receive, upon
each re-election to the Board (or immediately following an annual meeting at
which the director is continuing without being re-elected due to the
classification of the board), an automatic grant of an option to purchase up to
5,000 additional shares of Common Stock. These additional options will vest and
become exercisable upon the earlier to occur of (i) the first anniversary of the
grant date, or (ii) immediately prior to the annual meeting of shareholders of
the Company next following the grant date, if the director has served as a
director from the grant date to such earlier date. All non-employee director
options will have a term of ten years and an exercise price equal to the fair
market value of a share of Common Stock on the date of grant. Vesting of
non-employee director options accelerates if the recipient of the option ceases
to be a director of the Company or its successor in connection with a change in
control.
Administration. The Incentive Plan provides that the exercise price of
options may be paid by Company loan or withholding of underlying stock, or
deferred until completion of broker-assisted exercise and sale transactions. The
Incentive Plan is administered by the Compensation Committee, which consists of
Mr. Cvengros, Dr. Doti (chairman) and Mr. Zaepfel. The Compensation Committee
members are disinterested directors within the meaning of Rule 16b-3 and who
will be eligible to receive only automatic, nondiscretionary stock option awards
thereunder. The Board or the Committee may amend, suspend or terminate the
Incentive Plan at any time. However, only the Committee may take actions
affecting selection of award recipients or the timing, pricing and amounts of
any awards (other than non-employee director options, which are fixed, automatic
and non-discretionary), and the provisions of the Plan regarding grants of stock
options to non-employee directors generally are not subject to amendment. The
maximum number of shares that may be sold or issued under the Incentive Plan may
be increased and the class of persons eligible to participate in the Incentive
Plan may be altered only with the approval of the holders of the Common Stock.
With respect to any other amendments to the Incentive Plan, the Board may, in
its discretion, determine that such amendment shall only become effective upon
approval by the holders of the Common Stock if the Board determines that such
shareholder approval may be advisable, such as for the purpose of obtaining or
retaining any statutory or regulatory benefits under federal or state securities
laws, federal or state tax laws, or for the purpose of satisfying applicable
stock exchange listing requirements.
Federal Income Tax Consequences. The following summary of certain
federal income tax consequences of the receipt and exercise of awards granted by
the Company is based on the laws and regulations in effect as of the date of
this Proxy Statement and does not purport to be a complete statement of the law
in this area. Furthermore, the discussion below does not address the tax
consequences of the receipt and exercise of awards under state and/or local tax
laws, and such tax laws may not correspond to the federal tax treatment
described herein. Stock options granted under the Incentive Plan are not subject
to the provisions of the Employee Retirement Income Security Act of 1974, as
amended, and are not qualified under Section 401(a) of the Code.
Non-Statutory Stock Options. In general, there are no tax consequences
to the optionee or to the Company on the grant of options that do not qualify as
incentive stock options within the meaning of Section 422 of the Code
("Non-Statutory Stock Option"). On exercise, however, the optionee generally
will recognize ordinary income equal to the excess of the fair market value of
the shares as of the exercise date over the exercise price paid for such shares,
and the Company will be entitled to a deduction equal to the amount of ordinary
income recognized by the optionee. Upon a subsequent disposition of the shares
received under a Non-Statutory Stock Option, the difference between the amount
realized on such disposition and the fair market value of the shares on the date
of exercise generally will be treated as capital gain or loss.
9
<PAGE> 12
Incentive Stock Options. Stock options granted under the Plan may
qualify as incentive stock options within the meaning of Section 422 of the Code
("Incentive Stock Options"). There are no tax consequences to the optionee or to
the Company on the grant of an Incentive Stock Option. Also, if an optionee
exercises an Incentive Stock Option in accordance with its terms and does not
dispose of the shares acquired within two years from the date of the grant of
the Incentive Stock Option nor within one year from the date of exercise (the
"Required Holding Periods"), an optionee will not be subject to regular federal
income tax, and the Company will not be entitled to any deduction, on the
exercise of an Incentive Stock Option. An optionee's basis in the shares
acquired upon exercise will be the amount paid upon exercise. Provided an
optionee holds the shares as a capital asset at the time of sale or other
disposition of the shares, an optionee's gain or loss, if any, recognized on the
sale or other disposition will be capital gain or loss. The amount of an
optionee's gain or loss will be the difference between the amount realized on
the disposition of the shares and the optionee's basis in the shares. If,
however, an optionee disposes of the acquired shares at any time prior to the
expiration of the Required Holding Periods, then (subject to certain
exceptions), the optionee will recognize ordinary income at the time of such
disposition which will equal the excess, if any, of the lesser of (a) the amount
realized on such disposition or (b) the fair market value of the shares on the
date of exercise, over the optionee's basis in the shares. The Company generally
will be entitled to a deduction in an amount equal to the amount of ordinary
income recognized by an optionee. Any gain in excess of such ordinary income
amount will be a short-term, mid-term or long-term capital gain, depending on
the optionee's holding period. If an optionee disposes of such shares for less
than the optionee's basis in the shares, the difference between the amount
realized and the optionee's basis will be short-term or long-term capital loss,
depending upon the holding period of the shares.
The excess of the fair market value of the shares acquired on the
exercise date of an Incentive Stock Option over the exercise price of such
option generally is required to be included in the optionee's alternative
minimum taxable income for the year in which the option is exercised and,
accordingly, may subject an optionee to the alternative minimum tax.
RECOMMENDATION OF THE BOARD
The Board believes that the Incentive Amendment is necessary to provide
employees of the Company with an opportunity to acquire an equity interest in
the Company and as an incentive for them to remain in the Company's service.
Additionally, the Board believes that it is the best interests of the Company
and 162 (m) Approval is necessary to ensure that compensation relating to
options and other stock-based awards under the Incentive Plan are not subject to
Section 162(m)'s limitation. For these reasons, the Board recommends
shareholders vote FOR Proposal No. 3.
PROPOSAL NO. 4
RATIFICATION AND APPROVAL OF
OPTION GRANT TO CHIEF OPERATING OFFICER
The Company's shareholders are being asked to ratify and approve of an
option grant by the Company to its Chief Operating Officer ("COO"), Greg Palmer,
to purchase up to 125,000 shares of Common Stock (the "COO Option Grant") to
ensure that compensation relating to such options is not subject to the
deduction limits of Section 162(m). Section 162(m) places a limit of $1,000,000
on the amount of compensation that may be deducted by the Company in any tax
year with respect to the Company's Chief Executive Officer and its four most
highly compensated executives. The affirmative vote of the majority of those
shares present and voting at the Meeting is required to approve of Proposal No.
4.
On December 16, 1997, the Company entered into an employment agreement
with Mr. Palmer (the "COO Agreement") pursuant to which the Company will employ
Mr. Palmer as Chief Operating Officer ("COO") commencing on or about January 5,
1998. On December 16, 1997 (the "Grant Date") and pursuant to the COO Agreement,
the Company granted to Mr. Palmer, subject to shareholder approval, an option
grant of Non-Qualified Stock Options to purchase up to 125,000 shares of Common
Stock of the Company (the "COO Option Grant"). The exercise price of the shares
under the COO Option Grant was at $20.72, the fair market value of the shares on
the Grant Date. The COO Option Grant will vest and become exercisable at a rate
of twenty percent (20%) per year over a five-year period with the first twenty
percent (20%) becoming exercisable on December 16, 1998. The COO Option Grant,
once vested, will become exercisable until December 16, 2007. If the Company
terminates Mr. Palmer's employment "for cause" (as
10
<PAGE> 13
defined in the COO Agreement), then all of the unexercised options, whether or
not vested shall expire and become unexercisable as of the date of such for
cause termination. If the Company terminates Mr. Palmer's employment without
cause, the options will vest automatically and will remain exercisable for the
balance of their term. In the event that there are certain changes in control of
the Company and Mr. Palmer is terminated by the Company within one year of such
change in control event for any reason except for cause, all options granted
shall become fully vested and exercisable for the balance of their term. (See
the material under the heading "Federal Tax Consequences - Non-Qualified Stock
Options" located under Proposal No. 3 of this Proxy Statement for a discussion
regarding the federal tax consequences of the issuance and exercise of the COO
Option Grant to Mr. Palmer and the Company under current federal law)
The selection of Mr. Palmer as COO was the result of a long and
extensive search by the Board to select the most qualified applicant available.
Before accepting the position of COO, Mr. Palmer was Senior Vice President in
charge of managing operations in the Western United States for Olsten
Corporation ("Olsten"), a provider of staffing and health care services. Mr.
Palmer brings extensive operational, sales and marketing experience gained
during his thirteen years of service at Olsten, where Mr. Palmer also served in
senior level management positions in the Southeast and Northeast Divisions.
On December 8, 1997 the Board approved of the COO Option Grant and on
December 16, 1997 the Compensation Committee approved of and granted to Mr.
Palmer the COO Option Grant. Both the Board and Compensation Committee
conditioned the COO Option Grant subject to shareholder approval to ensure that
the compensation relating to the COO Option Grant is not subject to the
deduction limits of Section 162(m).
RECOMMENDATION OF THE BOARD
The Board believes that the COO Option Grant is in the best interests
of the Company and its shareholders because of the expected contributions by Mr.
Palmer to the Company. The COO Option Grant was necessary to provide Mr. Palmer
with an opportunity to acquire an equity interest in the Company and as an
incentive for him to accept the position of COO and to remain in the Company's
service. Additionally, ratification and approval of the COO Option Grant is
necessary so that compensation relating to such options is not subject to the
deduction limits of Section 162(m). For these reasons, the Board recommends
shareholders vote FOR Proposal No. 4.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The table on the following page sets forth the compensation earned for
the last three fiscal years by (i) each person who served as the Company's Chief
Executive Officer ("CEO") during the fiscal year ended September 28, 1997 and
(ii) the Company's four most highly compensated executive officers other than
the CEO who were serving as executive officers at the end of the fiscal year
ended September 28, 1997 (the "Named Executive Officers").
11
<PAGE> 14
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------- ------------
Securities
Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($) Options (#) Compensation ($)
- --------------------------- ---- ---------- --------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Paul W. Mikos (1) 1997 390,000 390,000 40,000 108,449
President and 1996 390,000 390,000 23,872 108,449
Chief Executive Officer 1995 300,700 175,000 -- 92,462
Robert E. McDonough, Sr. (2) 1997 390,000 390,000 40,000 87,404
Chairman of the 1996 390,000 390,000 23,872 80,879
Board of Directors 1995 527,887 1,250,000 -- 70,127
Alan M. Purdy 1997 200,902 110,000 20,000
Senior Vice President and Chief 1996 162,966 100,000 23,872 *
Financial Officer 1995 163,302 60,000 -- *
Jeffrey A. Elias 1997 191,983 110,000 20,000
Senior Vice President, Human 1996 149,439 105,000 23,872 *
Resources and Risk Management 1995 123,344 60,000 -- *
Alice M. Bowers 1997 146,316 120,000 20,000
Vice President, Operations 1996 119,385 95,000 23,872 *
-Southwest Region 1995 58,000 -- -- *
</TABLE>
* Less than 10% of salary plus bonus.
(1) 1997 and 1996 other annual compensation represents $71,431 in life
insurance premiums paid by the Company and $37,018 in use of
Company-owned vehicles, for each year. 1995 other annual compensation
represents $68,631 in life insurance premiums paid by the Company and
$23,831 in use of Company-owned vehicles. Insurance premiums cover life
insurance policies with cash surrender values owned by Mr. Mikos and
death benefits payable to Mr.
Mikos' beneficiaries.
(2) 1997 other annual compensation represents $64,979 in life insurance
premiums paid by the Company and $22,425 in use of Company-owned
vehicles. 1996 other annual compensation represents $58,454 in life
insurance premiums paid by the Company and $22,425 in use of
Company-owned vehicles. 1995 bonus represents a one-time special bonus
following Robert E. McDonough, Sr.'s retirement as CEO in consideration
for approximately 30 years of service during which he was deemed by the
Board to have been undercompensated. 1995 other annual compensation
represents $55,535 in life insurance premiums paid by the Company and
$14,592 in use of Company-owned vehicles. Insurance premiums cover life
insurance policies with cash surrender values owned by Mr. McDonough
and death benefits payable to Mr. McDonough's beneficiaries. Upon
termination of certain of the policies, a portion of the premiums paid
is refundable to the Company.
12
<PAGE> 15
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options
granted to the Named Executive Officers during the fiscal year ended September
28, 1997:
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------- Potential Realizable Value at
Assumed Annual Rates of Stock
Number % of Total Price Appreciation for
of Securities Options Option Term ($)(4)
Underlying Granted to Exercise -----------------------------
Options Employees in Price Expiration
Name Granted (#)(1) Fiscal Year ($/share) (2) Date (3) 5% ($) 10% ($)
- -------------- -------------- ------------ ------------- -------------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Paul W. Mikos 40,000 15.4 $15.31 April 23, 2007 997,600 1,600,000
Robert E.
McDonough, Sr. 40,000 15.4 $15.31 April 23, 2007 997,600 1,600,000
Alan M. Purdy 20,000 7.7 $15.31 April 23, 2007 498,800 800,000
Jeffrey A. Elias 20,000 7.7 $15.31 April 23, 2007 498,800 800,000
Alice M. Bowers 20,000 7.7 $15.31 April 23, 2007 498,800 800,000
</TABLE>
- -----------------
(1) All options were granted under the Company's Incentive Plan and are
generally exercisable with respect to 33 1/3% of the shares covered
thereby starting on the first anniversary of the grant date of April
23, 1997, and thereafter with respect to an additional 33 1/3% of the
shares covered thereby on each successive anniversary date. The
Incentive Plan is administered by the Compensation Committee, which has
broad discretion and authority to construe and interpret the Incentive
Plan and to modify outstanding options.
(2) The exercise price and tax withholding obligations related to the
exercise may be paid by delivery of already owned shares or by offset
of the underlying shares, subject to certain conditions. The Incentive
Plan permits the Company to amend outstanding options, including to
lower their exercise price.
(3) All of the options were granted for a term of ten years, subject to
earlier termination upon certain events related to termination of
employment or a change in control of the Company.
(4) The potential realizable values listed are based on an assumption that
the market price of the Common Stock appreciates at the stated rate,
compounded annually, from the date of grant to the expiration date. The
five percent (5%) and ten percent (10%) assumed rates of appreciation
are determined by the rules of the Commission and do not represent the
Company's estimate of the future market value of the Common Stock.
Actual gains, if any, are dependent on the future market price of the
Common Stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth the number of shares acquired on
exercise of stock options and the aggregate gains realized on exercise during
the fiscal year ended September 28, 1997 by the Named Executive Officers. The
table also sets forth the number of shares covered by exercisable and
unexercisable options held by such executives on September 28, 1997, and the
aggregate gains that would have been realized had these options been exercised
on September 28, 1997, even though these options were not exercised, and the
unexercisable options could not have been exercised, on that date.
13
<PAGE> 16
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Unexercised Value of Unexercised
Acquired Options at Fiscal In-the-Money Options
on Value Year End (#) At Fiscal Year End ($)(1)
Name Exercise (#) Realized ($) ----------------------------- -------------------------------
- ------------------- ------------ ------------ Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul W. Mikos -- -- 4,774 59,098 44,756 554,044
Robert E.
McDonough, Sr. -- -- 4,774 59,098 44,756 554,044
Alan M. Purdy -- -- 4,774 39,098 44,756 366,544
Jeffrey A. Elias 2,000 42,250 2,774 39,098 26,006 366,544
Alice M. Bowers -- -- 4,774 39,098 44,756 366,544
</TABLE>
- ---------------------------
(1) These amounts represent the difference between the exercise
price of the in-the-money options and the market price of the Company's Common
Stock on September 28, 1997 (the last trading day of fiscal 1997). The closing
price of the Company's Common Stock on that day on The Nasdaq National Market
was $22.38. Options are in-the-money if the market value of the shares covered
thereby is greater than the option exercise price.
EMPLOYMENT AND CONSULTING CONTRACTS
The Company entered into the COO Agreement with Greg Palmer on December
16, 1997, pursuant to which the Company will employ Mr. Palmer as COO commencing
on or about January 5, 1998. The COO Agreement expires on January 5, 2003. The
COO Agreement provides for a base salary of $325,000 per year and an annual
performance bonus of up to $325,000 based upon satisfaction of annual
performance goals set by the Compensation Committee. Additionally, under the COO
Agreement, the Company granted to Mr. Palmer on December 16, 1997 the COO Option
Grant. See "Proposal No. 4." The COO Option Grant, once vested, will become
exercisable until December 16, 2007. Under the COO Agreement, Mr. Palmer shall
also receive an annual grant from the Company of an option to purchase 50,000
shares of Common Stock under a vesting schedule and such other terms as to be
determined by the Compensation Committee at the time of such annual grants.
Pursuant to the COO Agreement, if the Company terminates Mr. Palmer's employment
as COO without cause (as defined in the COO Agreement), he shall be entitled to
receive from the Company a lump-sum severance payment of Mr. Palmer's annual
base salary then in effect plus maximum annual bonus equal to 10% of Mr.
Palmer's then annual salary and the COO Options Grant options will vest
automatically and will remain exercisable for the balance of their term. If the
Company terminates Mr. Palmer's employment "for cause" (as defined in the COO
Agreement), then all of the unexercised options, whether or not vested shall
expire and become unexercisable as of the date of such for cause termination. In
the event that there are certain changes in control of the Company and Mr.
Palmer is terminated by the Company within one year of such change in control
event for any reason except for cause, all options granted shall become fully
vested and exercisable for the balance of their term.
The Company has an employment agreement with Paul W. Mikos that expires
in April 1999, pursuant to which the Company employs Mr. Mikos as its CEO and
President. The agreement provides for a base salary of $390,000 per year and an
annual performance bonus of up to $390,000 based upon satisfaction of certain
performance goals set annually by the Compensation Committee. Pursuant to the
employment agreement, if the Company terminates Mr. Mikos' employment as the
Company's CEO and President without cause (as defined in the employment
agreement), he shall be entitled to receive from the Company severance payments
consisting of $390,000 per year for two years, payable on a semi-monthly basis.
The Company has an amended and restated employment agreement with
Robert E. McDonough, Sr. that expires in December 4, 2001, pursuant to which the
Company employs Mr. Robert McDonough as Chairman of the Board. The agreement
provides for a base salary of $390,000 per year and such annual bonuses, not
less than $160,000 or more than $390,000 per year, based upon his performance
and the Company's satisfaction of certain performance goals set annually by the
Compensation Committee. Additionally, pursuant to the terms of the amended and
restated employment agreement, Mr. McDonough is entitled to annual demand
registration rights and certain "piggyback" registration rights in future
registrations by the Company of its securities.
The Company entered into a consulting agreement with R. Emmett
McDonough effective February 6, 1996. Under the terms of the agreement, Mr.
Emmett McDonough will serve as a consultant to the Company until August 1999 and
will receive annual compensation of $350,000. During his tenure as a consultant
to the Company,
14
<PAGE> 17
Mr. Emmett McDonough shall be entitled to receive the same employee benefits
package that he received as Co-CEO of the Company prior to his resignation.
The Company has employment agreements with Alan M. Purdy and Jeffrey A.
Elias providing for a severance payment of at least 12 months' salary and bonus
if employment with the Company is terminated within 24 months of certain changes
in ownership or management.
CERTAIN TRANSACTIONS
Prior to July 1997, the Company leased its national headquarters
corporate facility from the principal shareholder and Chairman of the Company,
Robert E. McDonough, Sr. The lease provided for the payment of property taxes,
insurance and certain other operating expenses applicable to the leased property
by the lessee. In September 1996, the lease expired and the lease term became
month-to-month through July 1997. Commencing July 15, 1997, the Company entered
into a lease agreement with Mitchell Land and Improvement Company to lease its
national headquarters corporate facility for a term of two years.
In May 1995, the Company loaned $500,000 to Paul W. Mikos, the
Company's CEO and a member of the Company's Board at an interest rate of 6.62%
per annum. As of December 31, 1997, the total amount of indebtedness outstanding
on this loan was $250,000. The remaining amount of indebtedness is due and
payable by Mr. Mikos to the Company upon the earlier of (i) May 1, 1998 and (ii)
a transfer of shares of Common Stock in which Mr. Mikos receives cash
consideration of at least $200,000.
From April 1996 to December 1997, the Company, in various installments,
completed distributions of the following aggregate amounts to the following
persons and trusts: (i) $2,259,625 to Robert E. McDonough, Sr. and the various
family trusts in which he is a trustee and beneficiary; (ii) $1,042,412 to Paul
and Susan Mikos and the two trusts for the benefit of their two children in
which Ms. Mikos is trustee; and (iii) $1,136,024 to R. Emmett McDonough and the
three trusts for the benefit of his three children in which R. Emmett McDonough
is trustee (collectively, the "Distributions"). The Distributions were related
to their income tax obligations in connection with the Company's undistributed S
corporation earnings from October 2, 1995 through July 9, 1996, the date
immediately preceding the date of termination of the Company's S corporation
status in connection with the consummation of the Company's initial public
offering.
In August 1993, the Company advanced an interest-free $60,000
management education scholarship to Meghan Mikos, an employee of the Company
from June 1992 to July 1995 and the daughter of Paul W. and Susan McDonough
Mikos. The entire amount of the scholarship remains outstanding and will be
forgiven if Ms. Mikos works for the Company for at least three years after
receipt of an M.B.A. degree. Ms. Mikos has been working for the Company since
November 1997.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee is composed of three non-employee directors
and is responsible for setting and administering the policies governing annual
compensation of the executive officers of the Company. The Compensation
Committee set the salary and stock option grant for fiscal 1997 of the Company's
Chief Executive Officer, Mr. Mikos, with reference to market standards and
reflected the Compensation Committee's favorable evaluation of his overall
leadership of the Company through its significant recent growth. The
Compensation Committee considered, among other qualitative factors, Mr. Mikos'
contributions to the strategic management of the Company-owned and
independently-managed offices. Mr. Mikos' fiscal 1997 cash bonus was based
primarily on quantitative factors such as the Company's financial performance
and the price of the Company's Common Stock, as well as his continued leadership
role.
In general, the Compensation Committee designed the Company's executive
compensation program to provide levels of base compensation that are competitive
with compensation paid to executives of similarly situated temporary staffing
companies to attract, retain and motivate high-quality employees, tie individual
total compensation to individual performance and the success of the Company, and
align the interests of the Company's executive officers with those of its
15
<PAGE> 18
shareholders. The Compensation Committee strives to set a fair and competitive
base salary for each of its executive officers coupled with an incentive cash
bonus tied to annual performance-based personal and Company goals. In December
1997, the Compensation Committee granted bonuses to certain executive officers
based upon the executive's achievement of such individual performance goals and
Company goals. To ensure that the Compensation Committee achieves its goal of
setting competitive compensation levels, the Compensation Committee commissioned
a comprehensive compensation analysis by an independent consultant, which
concluded that the Company's executive base salaries were competitive with other
temporary services companies and industrial service organizations, and that
executive bonuses were competitive on a percentage basis to the levels
identified by surveys for other temporary services companies and industrial
service organizations.
Regarding compensation other than base salary and cash bonuses, the
Compensation Committee also administers the Company's Incentive Plan, pursuant
to which the Company may grant various stock-based awards intended to compensate
Company personnel and align the interests of recipients with those of the
Company's shareholders. To date, only stock options and performance grants have
been granted under the Incentive Plan, although the Compensation Committee may,
in the future, utilize other types of incentive awards available under the
Incentive Plan. It is the general practice of the Company to grant stock options
to executive officers when they join the Company. The Compensation Committee
believes that these initial grants give the recipients a meaningful stake in the
Company's long-term performance, with any ultimate realization of significant
value from those options being commensurate with returns available on
investments in the Company's Common Stock. In addition to initial grants, the
Compensation Committee has adopted a policy of providing additional long-term
incentives to the Company's executive officers primarily through periodic stock
option grants. The Compensation Committee believes that these incentives are
essential to the long-term success of the Company and align the interest of the
Company's officers with that of its shareholders. In awarding stock options to
executive officers, the Compensation Committee considers individual performance,
overall contribution to the Company and retention. Options are exercisable in
the future at the fair market value at the time of grant, so that an executive
officer granted an option is rewarded only by the appreciation in price of the
Company's stock. Such grants, if any, are generally determined by the
Compensation Committee in the latter part of each fiscal year with the input and
recommendation of the Company's CEO. In fiscal 1997, the Compensation Committee
awarded each executive officer stock options based upon each officer's
respective work performance, level of responsibility and initiative.
COMPENSATION COMMITTEE
William D. Cvengros, James L. Doti and
John B. Zaepfel
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Compensation Committee consists of Mr. Cvengros, Dr. Doti and Mr.
Zaepfel. John B. Unroe served as a director of the Company and as a member of
the Compensation Committee during fiscal 1997 until his resignation from the
Board in September 1997. No current member of the Compensation Committee is a
current or former officer or employee of the Company. There are no Compensation
Committee interlocks between the Company and other entities involving the
Company's executive officers and Board members who serve as executive officers
or Board members of such other entities.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on
the Company's Common Stock for the period from July 11, 1996 (the date on which
the Company's Common Stock was first publicly traded) and ending on December 16,
1997 with the Nasdaq Stock Market Composite Index and peer issuers in the
temporary staffing industry. The graph assumes that $100 was invested on July
11, 1996 in the Company's Common Stock and each index and that all dividends
were reinvested. No cash dividends have been declared on the Company's Common
Stock. Although the graph would normally cover a five-year period, the Company's
Common Stock has been publicly-traded since July 11, 1996, so the graph
commences as of that date. The comparisons in the graph are required by the
Commission and are not intended to forecast or be indicative of possible future
performance of the Company's Common Stock.
16
<PAGE> 19
<TABLE>
<CAPTION>
DATE REMEDYTEMP NASDAQ COMPOSITE STAFFING COMPOSITE(a)
---- ---------- ---------------- ---------------------
<S> <C> <C> <C>
07/12/96 $100.00 $100.00 $100.00
07/19/96 113.46 99.47 100.34
07/26/96 107.69 97.82 99.41
08/02/96 109.62 101.94 107.88
08/09/96 155.77 103.06 112.35
08/16/96 144.23 102.73 109.81
08/23/96 142.31 103.59 109.01
08/30/96 144.23 103.44 108.18
09/06/96 146.15 103.25 108.76
09/13/96 147.12 107.72 110.44
09/20/96 146.15 110.53 107.03
09/27/96 151.92 111.47 109.25
10/04/96 169.23 113.06 111.51
10/11/96 161.54 113.12 108.51
10/18/96 155.77 112.60 105.98
10/25/96 161.54 110.80 106.03
11/01/96 153.85 110.72 103.57
11/08/96 150.00 113.96 103.96
11/15/96 153.85 114.35 105.55
11/22/96 128.85 115.48 94.66
11/29/96 123.08 117.14 94.89
12/06/96 113.46 116.69 91.30
12/13/96 132.69 116.44 91.74
12/20/96 125.00 116.77 91.52
12/27/96 126.92 117.03 90.69
01/03/97 134.62 118.78 93.45
01/10/97 149.04 120.71 96.18
01/17/97 148.08 122.25 96.06
01/24/97 140.38 123.59 98.80
01/31/97 141.35 125.05 97.63
02/07/97 143.27 122.81 98.96
02/14/97 148.08 123.90 99.13
02/21/97 140.38 120.92 99.91
02/28/97 132.69 118.62 97.69
03/07/97 132.69 118.88 98.38
03/14/97 121.15 117.17 95.40
03/21/97 121.15 113.64 91.21
03/28/97 121.15 113.23 89.34
04/04/97 120.19 112.08 89.23
04/11/97 118.27 109.37 88.96
04/18/97 116.35 110.79 90.87
04/25/97 125.00 109.59 92.32
05/02/97 117.31 118.29 94.98
05/09/97 120.19 120.98 96.62
05/16/97 136.54 121.50 100.07
05/23/97 135.58 125.94 105.30
05/30/97 133.65 126.90 106.97
06/06/97 130.77 127.31 107.92
06/13/97 134.62 128.95 109.52
06/20/97 130.77 131.14 108.63
06/27/97 130.77 130.32 111.54
07/04/97 134.62 133.00 112.63
07/11/97 136.54 136.17 116.54
07/18/97 145.19 140.28 116.35
07/25/97 149.04 142.23 120.58
08/01/97 148.08 144.48 120.92
08/08/97 153.85 144.86 121.46
08/15/97 155.77 141.55 119.22
08/22/97 159.62 144.87 120.95
08/29/97 164.42 143.84 124.69
09/05/97 174.04 148.23 126.97
09/12/97 158.65 149.46 125.66
09/19/97 161.06 152.28 129.38
09/26/97 172.12 152.45 131.91
10/03/97 200.96 155.49 137.33
10/10/97 211.54 157.59 138.21
10/17/97 194.23 151.05 130.36
10/24/97 191.35 149.61 128.22
10/31/97 176.92 144.42 124.90
11/07/97 186.54 145.21 124.40
11/14/97 176.92 143.50 123.52
11/21/97 197.12 146.87 127.30
11/28/97 180.77 145.04 122.06
12/05/97 186.54 148.06 127.81
12/12/97 157.69 139.24 113.89
12/16/97 159.13 140.73 114.17
</TABLE>
- -------------------
(a) Index includes the weekly closing prices (fully adjusted for splits and
reinvested dividends) for the following temporary staffing companies:
Accustaff, COREstaff, Interim Services, Kelly Service Manpower, Norrell,
Olsten, On Assignment, RemedyTemp, Robert Half International and Western
Staff.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Under the securities laws of the United States, the directors and
officers of the Company and persons who own more than ten percent of the
Company's equity securities are required to report their initial ownership of
the Company's equity securities and any subsequent changes in that ownership to
the Commission and the Nasdaq National Market. Specific due dates for these
reports have been established, and the Company is required to disclose in this
Proxy Statement any late filings during the fiscal year ended September 28,
1997. To the Company's knowledge, based solely on its review of the copies of
such reports required to be furnished to the Company during the fiscal year
ended September 28, 1997, all of these reports were timely filed.
SHAREHOLDER PROPOSALS
Shareholders who wish to include proposals for action at the Company's
1999 Annual Meeting of Shareholders in next year's proxy statement and proxy
card must cause their proposals to be received in writing by the Company at its
address set forth on the first page of this Proxy Statement no later than
September 19, 1998. Such proposals should be addressed to the Company's
Secretary, and may be included in next year's proxy statement if they comply
with certain rules and regulations promulgated by the Commission.
OTHER MATTERS
The Board does not know of any other matters that are to be presented
for action at the Meeting. Should any other matters come before the Meeting or
any adjournments and postponements thereof, the persons named in the enclosed
proxy will have the discretionary authority to vote all proxies received with
respect to such matters in accordance with their judgment.
INDEPENDENT ACCOUNTANTS
By selection of the Board, the firm of Price Waterhouse LLP has served
as the Company's independent accountants since 1989. The Board has again
selected Price Waterhouse LLP to serve as the Company's independent accountants
for the fiscal year ending September 28, 1998. One or more representatives of
Price Waterhouse LLP are expected to be present at the Meeting, will have an
opportunity to make a statement if they so desire, and will be available to
respond to appropriate questions.
17
<PAGE> 20
ANNUAL REPORT
The Company's 1997 Annual Report to Shareholders has been mailed to
shareholders concurrently with this Proxy Statement, but such report is not
incorporated herein and is not deemed to be a part of this proxy solicitation
material.
San Juan Capistrano, California
January 23, 1998
SHAREHOLDERS ARE URGED TO DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE. PROMPT RESPONSE IS HELPFUL, AND YOUR COOPERATION WILL BE
APPRECIATED.
18
<PAGE> 21
REVOCABLE PROXY
REMEDYTEMP, INC.
32122 CAMINO CAPISTRANO
SAN JUAN CAPISTRANO, CALIFORNIA 92675
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Paul W. Mikos and Alan M. Purdy, or
either of them, each with full power of substitution, as the lawful proxies of
the undersigned and hereby authorizes such persons to represent and to vote as
designated on the reverse of this proxy all shares of the Class A Common Stock
("Common Stock") of RemedyTemp, Inc. ("RemedyTemp") which the undersigned would
be entitled to vote if personally present at the Annual Meeting of Shareholders
of RemedyTemp to be held on February 18, 1998 and at any adjournments or
postponements thereof (the "1998 Annual Meeting"). The matters referred to on
this proxy are described in the Proxy Statement for the Annual Meeting of
Shareholders dated February 18, 1998.
CONTINUED ON REVERSE - SIGN, DATE AND RETURN
[BACK OF PROXY CARD]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:
1. Amend the Company's Amended and Restated Bylaws to provide for a
flexible Board of Directors (the "Board") with the authorized number of
directors on the Board to be as few as five and no more than nine, to
set the number of authorized directors at seven and to eliminate the
classification of the Board.
[ ] FOR [ ] AGAINST
[ ] ABSTAIN
2. Approval of one of the following alternative proposals. If the
shareholders approve Proposal No. 1, the shareholders will elect a
non-classified Board, as determined by Proposal 2(a) below. If the
shareholders do not approve of Proposal No. 1, the shareholders will
elect a classified Board, as determined by Proposal 2(b) below.
2(a).
ELECTION OF DIRECTORS
<TABLE>
<S> <C>
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for
(except as indicated to the contrary below) all nominees listed below
</TABLE>
NOMINEES: William D. Cvengros, James L. Doti, Robert A. Elliot, Robert E.
McDonough, Sr., Paul W. Mikos, Susan McDonough Mikos and
John B. Zaepfel
INSTRUCTIONS: To withhold authority to vote for any individual nominee, write
that nominee's name below:
- -------------------------------------------------------------------------------
2(b).
ELECTION OF DIRECTORS
<TABLE>
<S> <C>
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for
(except as indicated to the contrary below) all nominees listed below
</TABLE>
NOMINEES: Class I, initially to serve a term of one year and thereafter being
elected every three years to serve
<PAGE> 22
for terms of three years, Susan Mikos;
Class II, initially to serve for a term of two years and thereafter being
elected every three years to serve for terms of three years, Robert A. Elliott,
Paul W. Mikos, Robert E. McDonough;
Class III, initially to serve for a term of three years and thereafter being
elected every three years to serve for terms of three years, William D.
Cvengros, James L. Doti, John B. Zaepfel.
INSTRUCTIONS: To withhold authority to vote for any individual nominee, write
that nominee's name below:
- ------------------------------------------------------------------------------
3. Ratification and approval of an amendment to the Company's 1996 Stock
Incentive Plan (the "Plan) to authorize and reserve for issuance an
additional 325,000 shares of Common Stock, and certain provisions of
the Plan so that compensation relating to stock-based awards under the
Plan are not subject to Section 162(m) of the Internal Revenue Code of
1986, as Amended ("Section 162(m)").
[ ] FOR [ ] AGAINST
[ ] ABSTAIN
4. Ratification and approval of the terms and conditions of an option
grant (the "Option Grant") by the Company to its Chief Operating
Officer, to purchase up to 125,000 shares of Common Stock to ensure
that compensation relating to the Option Grant is not subject to
Section 162(m).
[ ] FOR [ ] AGAINST
[ ] ABSTAIN
5. In their discretion, the proxies are authorized to vote upon such other
matters and to transact such other business as may properly come before
the 1998 Annual Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL
BE VOTED FOR THE NOMINEES NAMED ABOVE FOR DIRECTOR.
The undersigned acknowledges receipt of the Notice of Annual Meeting
and Proxy Statement for the 1998 Annual Meeting.
Please sign, date and promptly return this proxy card using the
enclosed reply envelope. Whether or not you plan to attend the 1998 Annual
Meeting, you are urged to execute, date and return this proxy, which may be
revoked at any time prior to its use.
<TABLE>
<S> <C> <C> <C>
DATE _______, 1998 SIGNATURE _________________________ SIGNATURE ______________________ DATE _______, 1998
Signature of Shareholder If Held Jointly
</TABLE>
Please sign your name exactly as it appears hereon. When shares are held by
joint tenants both should sign. If you receive more than one proxy card, please
sign, date and return all cards received. When signed as attorney, executor,
administrators, trustee or guardian, please sign as such and give full title as
such. If a corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
2
<PAGE> 23
AMENDED AND RESTATED BYLAWS
OF
REMEDYTEMP, INC.,
A CALIFORNIA CORPORATION
(EFFECTIVE FEBRUARY 18, 1998)
<PAGE> 24
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I OFFICES.............................................................1
Section 1.01 Principal Executive Office....................................1
ARTICLE II SHAREHOLDERS.......................................................1
Section 2.01 Annual Meetings...............................................1
Section 2.02 Special Meetings..............................................3
Section 2.03 Conduct of Meetings...........................................4
Section 2.04 Elimination of Cumulative Voting..............................4
ARTICLE III DIRECTORS.........................................................4
Section 3.01 Number of Directors...........................................4
Section 3.02 Creation and Filling of Vacancies on the Board................4
Section 3.03 Fees and Compensation.........................................5
Section 3.04 Organization Meeting..........................................5
Section 3.05 Other Regular Meetings........................................5
Section 3.06 Special Meetings..............................................5
Section 3.07 Place of Meetings.............................................6
Section 3.08 Committees of the Board.......................................6
Section 3.09 Loans to Officers.............................................6
ARTICLE IV OFFICERS...........................................................6
Section 4.01 Officers......................................................6
Section 4.02 Election and Term of Office...................................7
Section 4.03 Removal and Resignation.......................................7
Section 4.04 Vacancies.....................................................7
Section 4.05 Duties and Compensation.......................................7
ARTICLE V INDEMNIFICATION OF AGENTS OF THE CORPORATION;
PURCHASE OF LIABILITY INSURANCE............................................7
Section 5.01 Indemnification of Agents.....................................7
CERTIFICATE OF SECRETARY.....................................................11
</TABLE>
i
<PAGE> 25
AMENDED AND RESTATED BYLAWS
OF
REMEDYTEMP, INC.,
A CALIFORNIA CORPORATION
ARTICLE I
OFFICES
Section 1.01 Principal Executive Office. The principal executive
office of the corporation is located at: 32122 Camino Capistrano, San Juan
Capistrano, State of California. The board of directors shall have full power
and authority to, and to authorize appropriate officers of the corporation to,
change the location of said principal executive office and to establish other
offices of the corporation.
ARTICLE II
SHAREHOLDERS
Section 2.01 Annual Meetings.
(a) The annual meeting of shareholders shall be held each year on
a date and at a time designated by the board of directors. At each annual
meeting, directors shall be elected and any other proper business may be
transacted. The date so designated shall be within five (5) months after the end
of the fiscal year of the corporation and within fifteen (15) months after the
last annual meeting.
(b) At an annual meeting of shareholders, only such business
shall be conducted, and only such proposals shall be acted upon, as shall have
been brought before the annual meeting by or at the direction of a majority of
the directors or by any shareholder of the corporation who complies with the
notice procedures set forth in this Section 2.01(b). For a proposal to be
properly brought before an annual meeting by a shareholder, the shareholder must
have given timely notice thereof in writing to the secretary of the corporation.
To be timely, a shareholder's notice must be delivered to, or mailed and
received at, the principal executive offices of the corporation not less than
sixty (60) days nor more than one hundred twenty (120) days prior to the
scheduled annual meeting, regardless of any postponements, deferrals or
adjournments of that meeting to a later date; provided, however, that if less
than seventy (70) days notice or prior public disclosure of the date of the
scheduled annual meeting is given or made, notice by the shareholder, to be
timely, must be so delivered or received not later than the close of business on
the tenth day following the earlier of the day on which such notice of the date
of the scheduled annual meeting was mailed or the day on which such public
disclosure was made. A shareholder's notice to the secretary shall set forth as
to each matter the shareholder proposes to bring before the annual meeting (i) a
brief description of the proposal desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and address, as they appear on the corporation's books, of the
shareholder proposing such business and any other shareholders known by such
<PAGE> 26
shareholder to be supporting such proposal, (iii) the class and number of shares
of the corporation's stock which are beneficially owned by the shareholder on
the date of such shareholder notice and by any other shareholders known by such
shareholder to be supporting such proposal on the date of such shareholder
notice, and (iv) any financial interest of the shareholder in such proposal. The
presiding officer of the annual meeting shall determine and declare at the
annual meeting whether the shareholder proposal was made in accordance with the
terms of this Section 2.01(b). If the presiding officer determines that a
shareholder proposal was not made in accordance with the terms of this Section
2.01(b), he or she shall so declare at the annual meeting and any such proposal
shall not be acted upon at the annual meeting. This provision shall not prevent
the consideration and approval or disapproval at the annual meeting of reports
of officers, directors and committees of the board of directors, but, in
connection with such reports, no new business shall be acted upon at such annual
meeting unless stated, filed and received as herein provided.
(c) Subject to the rights, if any, of the holders of shares of
Preferred Stock then outstanding, only persons who are nominated in accordance
with the following procedures shall be eligible for election as directors.
Nominations of persons for election to the board of directors of the corporation
may be made at a meeting of shareholders by or at the direction of the board of
directors, by any nominating committee or person appointed by the board of
directors or by any shareholder of the corporation entitled to vote for the
election of directors at the meeting who complies with the notice procedures set
forth in this Section 2.01(c). Such nominations, other than those made by or at
the direction of the board of directors, shall be made pursuant to timely notice
in writing to the secretary of the corporation. To be timely, a shareholder's
notice must be delivered to, or mailed and received at, the principal executive
offices of the corporation not less than sixty (60) days nor more than one
hundred twenty (120) days prior to the scheduled annual meeting, regardless of
any postponements, deferrals or adjournments of that meeting to a later date;
provided, however, that if less than seventy (70) days notice or prior public
disclosure of the date of the scheduled annual meeting is given or made, notice
by the shareholder, to be timely, must be so delivered or received not later
than the close of business on the tenth day following the earlier of the day on
which such notice of the date of the scheduled annual meeting was mailed or the
day on which such public disclosure was made. A shareholder's notice to the
secretary shall set forth (i) as to each person whom the shareholder proposes to
nominate for election or re-election as a director, (A) the name, age and
business address of the person, (B) the principal occupation or employment of
the person (C) the class and number of shares of capital stock of the
corporation which are beneficially owned by the person and (D) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to applicable rules
and regulations of the Securities and Exchange Commission (the "SEC")
promulgated under the Securities Exchange Act of 1934, as amended (the
"Securities Exchange Act of 1934"); and (ii) as to the shareholder giving the
notice (A) the name and address, as they appear on the corporation's books, of
the shareholder and (B) the class and number of shares of the corporation's
stock which are beneficially owned by the shareholder on the date of such
shareholder notice. The corporation may require any proposed nominee to furnish
such other information as may reasonably be required by the corporation to
determine the eligibility of such proposed nominee to serve as director of the
corporation. The presiding
2
<PAGE> 27
officer of the annual meeting shall determine and declare at the annual meeting
whether the nomination was made in accordance with the terms of this Section
2.01(c). If the presiding officer determines that a nomination was not made in
accordance with the terms of this Section 2.01(c), he or she shall so declare at
the annual meeting and any such defective nomination shall be disregarded.
Section 2.02 Special Meetings.
(a) A special meeting of the shareholders may be called at any
time by the board of directors, or by the chairman of the board, or by the
president, or by one or more shareholders holding shares in the aggregate
entitled to cast not less than twenty percent (20%) of the votes at that
meeting.
(b) For a special meeting of shareholders to be properly called
by any person or persons other than the board of directors, the request must be
in writing, specifying the date and time of such meeting and the information set
forth in Section 2.02(c) hereof, and must be delivered to, or mailed and
received by, the chairman of the board, the president or the secretary of the
corporation not less than forty (40) nor more than sixty (60) days prior to the
date requested for such meeting. The officer receiving the request shall cause
notice to be promptly given to the shareholders entitled to vote that a meeting
will be held at the time requested by the person or persons calling the meeting.
If the notice is not given within twenty (20) days after receipt of the request,
the person or persons requesting the meeting may give the notice. Nothing
contained in this Section 2.02(b) shall be construed as limiting, fixing or
affecting the time when a meeting of shareholders called by action of the board
of directors may be held.
(c) Any request for a special meting submitted pursuant to
Section 2.02(b) hereof shall set forth as to each matter the shareholder
proposes to bring before the special meeting (i) a brief description of the
proposal desired to be brought before the special meeting and the reasons for
conducting such business at the special meeting, (ii) the name and address, as
they appear on the corporation's books, of the shareholder proposing such
business and any other shareholders known by such shareholder to be supporting
such proposal, (iii) the class and number of shares of the corporation's stock
which are beneficially owned by the shareholder on the date of such shareholder
request and by any other shareholders known by such shareholder to be supporting
such proposal on the date of such shareholder request, and (iv) any financial
interest of the shareholder in such proposal. In addition to whatever other
limitations are imposed by applicable law, no person may be nominated for
election to the board of directors of the corporation by any of the person or
persons making a request for a special meeting pursuant to Section 2.02(b)
hereof unless the request sets forth as to each person whom the requesting
person or persons propose to nominate for election as a director, (A) the name,
age and business address of the person, (B) the principal occupation or
employment of the person (C) the class and number of shares of capital stock of
the corporation which are beneficially owned by the person and (D) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors
3
<PAGE> 28
pursuant to applicable rules and regulations of the SEC promulgated under the
Securities Exchange Act of 1934.
Section 2.03 Conduct of Meetings. Subject to the requirements of
applicable law, and the express provisions of the Articles of Incorporation and
these bylaws, all annual and special meetings of shareholders shall be conducted
in accordance with such rules and procedures as the board of directors may
determine and, as to matters not governed by such rules and procedures, as the
chairman of such meeting shall determine. The chairman of any annual or special
meeting of shareholders shall be designated by the board of directors and, in
the absence of any such designation, shall be the president of the corporation.
Section 2.04 Elimination of Cumulative Voting. The right of
shareholders to cumulate votes shall be eliminated when the corporation becomes
a listed corporation within the meaning of Section 301.5 of the California
Corporations Code.
ARTICLE III DIRECTORS
Section 3.01 Number of Directors. The authorized number of
directors of the corporation shall be not less than five (5) nor more than nine
(9), until changed in accordance with applicable law. The exact number of
directors shall be fixed from to time to time, within the limits specified above
by resolution of the board of directors or the shareholders of the corporation.
Section 3.02 Creation and Filling of Vacancies on the Board. A
vacancy or vacancies on the board of directors shall be deemed to exist in case
of the death, removal or resignation of any director, if the authorized number
of directors is increased, or if the shareholders fail, at any annual or special
meeting of shareholders at which any director or directors are to be elected, to
elect the full authorized number of directors to be elected at that meeting.
Any director may resign effective upon giving written notice to
the chairman of the board, the president, the secretary or the board of
directors of the corporation, or at any later time specified therein; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective. If the resignation is effective at a future
time, a successor may be elected to take office when the resignation becomes
effective.
Unless otherwise provided in the Articles of Incorporation,
vacancies in the board of directors, including without limitation vacancies
created by the removal of a director, may be filled by a majority of the
remaining directors, though less than a quorum, or by a sole remaining director,
and each director so elected shall hold office until occurrence of an event
specified above creating a vacancy in such director's office or until such
director's successor is elected and qualified.
Section 3.03 Fees and Compensation. By resolution of the board of
directors, one or more of the directors may be paid a retainer for their
services as directors, or a fixed fee (with or without expenses of attendance)
for attendance at each meeting, or both. Payment
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of such fees shall not preclude participation in stock option or incentive
plans. Nothing herein contained shall be construed to preclude any director from
serving the corporation in any other capacity as an officer, agent, employee, or
otherwise, and receiving compensation therefor.
Section 3.04 Organization Meeting. Immediately following each
annual meeting of shareholders, the board of directors shall hold a regular
meeting at the place of said annual meeting or at such other place as shall be
fixed by the board of directors, for the purpose of organization, election of
officers, and the transaction of other business.
Call and notice of such meeting are hereby dispensed with.
Section 3.05 Other Regular Meetings. Other regular meetings of
the board of directors may be held at the time and place of regular meetings of
the board fixed in advance by the board of directors. Call and notice of such
regular meetings of the board of directors are hereby dispensed with.
Section 3.06 Special Meetings. Special meetings of the board of
directors, for the purpose of taking any action permitted by the directors under
the General Corporation Law and the Articles of Incorporation, may be called at
any time by the chairman of the board, the president, any vice president, the
secretary or by any two directors.
Notice of a meeting need not be given to any director who signs a
waiver of notice or a consent to hold the meeting or an approval of the minutes
thereof, whether before or after the meeting, or who attends the meeting without
protesting, prior to the meeting or at its commencement, the lack of notice to
such director. All such waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting. Subject to the
preceding sentence, notice of the time and place of special meetings shall be
given to each director (a) personally or by telephone, including a voice
messaging system or other system or technology designed to record and
communicate messages, telegraph, facsimile, electronic mail, or other electronic
means, in each case forty-eight (48) hours prior to the holding of the meeting,
or (b) by mail, charges prepaid, addressed to him at his address as it is shown
upon the records of the corporation or, if it is not so shown on such records
and is not readily ascertainable, at the place at which the meetings of the
directors are regularly held, at least four (4) days prior to the holding of the
meeting. Notice by mail shall be deemed to have been given at the time a written
notice is deposited in the United States mails, postage prepaid. Any other
written notice shall be deemed to have been given at the time it is personally
delivered to the recipient or is delivered to a common carrier for transmission,
or actually transmitted by the person giving the notice by electronic means, to
the recipient. Oral notice shall be deemed to have been given at the time it is
communicated, in person or by telephone or wireless, to the recipient or to a
person at the office of the recipient who the person giving the notice has
reason to believe will promptly communicate it to the recipient.
Any notice, waiver of notice or consent to holding a meeting
shall state the time and place of the meeting but need not specify the purpose
of the meeting.
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Section 3.07 Place of Meetings. Regular and special meetings of
the board of directors may be held at any place within or without the State
which has been designated by resolution of the board. In the absence of such
designation, meetings shall be held at the principal executive office of the
corporation.
Section 3.08 Committees of the Board. By resolution adopted by a
majority of the authorized number of directors, the board of directors may
designate such committees as it shall determine, each consisting of two or more
directors, to serve at the pleasure of the board and having such authority as
prescribed by the board, subject to applicable restrictions on committee
authority imposed by the California Corporations Code. Unless, to the extent
permitted by the General Corporation Law, the board of directors shall otherwise
prescribe the manner of proceedings of any such committee, the provisions of
these bylaws with respect to notice and conduct of meetings of the board shall
govern committees of the board and action by such committees.
Section 3.09 Loans to Officers. If the corporation has
outstanding shares held of record by 100 or more persons (determined as provided
by Section 605 of the California Corporations Code) on the date of board
approval, the board may approve a loan of money or property to, or a guarantee
of the obligation of, an officer, whether or not a director, or an employee
benefit plan authorizing such a loan or guaranty to an officer, if the board
determines that such loan, guaranty or plan may reasonably be expected to
benefit the corporation in accordance with the provisions of Section 315 of the
California Corporations Code. Board approval shall require a vote sufficient
without counting the vote of any interested director or directors to approve
such loan, guaranty or benefit plan.
ARTICLE IV
OFFICERS
Section 4.01 Officers. The officers of the corporation shall be a
chairman of the board, a chief executive officer, a president, a secretary and a
chief financial officer. The corporation may also have, at the discretion of the
board of directors, such other officers, with such titles and duties as may be
determined by the board of directors. One person may hold two or more offices,
except that the offices of president and secretary shall not be held by the same
person.
Section 4.02 Election and Term of Office. The officers of the
corporation shall be chosen by the board of directors, and each shall hold
office at the pleasure of the board or until such officer shall resign, subject,
in each case, to the rights, if any, of the corporation and any such officer
under any contract of employment with the corporation.
Section 4.03 Removal and Resignation. Any officer may be removed,
either with or without cause, by a majority of the directors at the time in
office, at any regular or special meeting of the board of directors, or, except
in case of an officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors, subject, in
each case, to the rights, if any, of any such officer under any contract of
employment with the corporation.
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Any officer may resign at any time by giving written notice to
the corporation, without prejudice, however, to the rights, if any, of the
corporation under any contract to which such officer is a party. Any such
resignation shall take effect at the date of the receipt of such notice or at
any later time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 4.04 Vacancies. A vacancy in any office shall be filled
in the manner prescribed in these bylaws for regular appointments to such
office.
Section 4.05 Duties and Compensation. Officers of the corporation
shall have such powers and duties, and shall receive such compensation therefor,
as may be specified from time to time by the board of directors.
ARTICLE V
INDEMNIFICATION OF AGENTS OF THE CORPORATION;
PURCHASE OF LIABILITY INSURANCE
Section 5.01 Indemnification of Agents.
(a) For the purposes of this Section, "Agent" means any person
who is or was a director or officer of this corporation, or is or was serving at
the request of the Board of Directors of this corporation as a director,
officer, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, including any such entity
which was a predecessor of the corporation or of such other enterprise;
"proceeding" means any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (including
without limitation an action by or in the right of this corporation); and
"expenses" includes, without limitation, attorneys' fees and any expenses of
establishing a right to indemnification under paragraph (d) or subparagraph (e)
(3) of this Section.
(b) This corporation shall indemnify any person who was or is a
party, or is threatened to be made a party, to any threatened, pending or
completed proceeding (other than an action by or in the right of this
corporation to procure a judgment in its favor) by reason of the fact that such
person is or was an Agent of this corporation, against expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with such proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in the best interests of this
corporation and, in the case of a criminal proceeding, had no reasonable cause
to believe the conduct of such person was unlawful. The termination of any
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which the person reasonably
believed to be in the best interests of this corporation or that the person had
reasonable cause to believe that the person's conduct was unlawful.
(c) This corporation shall indemnify any person who was or is a
party, or is threatened to be made a party, to any threatened, pending or
completed action by or in the right of this corporation to procure a judgment in
its favor by reason of the fact that such
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person is or was an Agent of this corporation, against expenses actually and
reasonably incurred by such person in connection with the defense or settlement
of such action if such person acted in good faith, in a manner such person
believed to be in the best interests of this corporation and its shareholders.
No indemnification shall be made under this paragraph (c) for any
of the following:
(1) In respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to this corporation in
the performance of such person's duty to this corporation and its
shareholders, unless and only to the extent that the court in which such
proceeding is or was pending shall determine upon application that, in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for expenses and then only to the
extent that such court shall determine;
(2) Of amounts paid in settling or otherwise disposing of
a pending action without court approval;
(3) Of expenses incurred in defending a pending action
which is settled or otherwise disposed of without court approval; or
(4) Of amounts or expenses the corporation is otherwise
prohibited from paying under California Law.
(d) To the extent that an Agent of this corporation has been
successful on the merits in defense of any proceeding referred to in paragraph
(b) or (c) or in defense of any claim, issue or matter therein, the Agent shall
be indemnified against expenses actually and reasonably incurred by the Agent in
connection therewith.
(e) Except as provided in paragraph (d), any indemnification
under this Section shall be made by this corporation only if authorized in the
specific case, upon a determination that indemnification of the Agent is proper
in the circumstances because the Agent has met the applicable standard of
conduct set forth in paragraph (b) or (c), by any of the following:
(1) A majority vote of a quorum consisting of directors
who are not parties to such proceeding;
(2) Approval or ratification by the affirmative vote of
the holders of a majority of the shares of this corporation entitled to
vote represented at a duly held meeting at which a quorum is present or
by the written consent of holders of a majority of the outstanding
shares entitled to vote, and by the affirmative vote or written consent
of such greater proportion of the shares of any class or series as may
be provided in the Articles of Incorporation for such action. For
purposes of determining the required quorum of any meeting of
shareholders called to approve or ratify indemnification of
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an Agent and the vote or written consent required therefor, the shares
owned by the person to be indemnified shall not be considered
outstanding and shall not be entitled to vote thereon; or
(3) The court in which such proceeding is or was pending,
upon application made by this corporation or the agent or the attorney
or other person rendering services in connection with the defense,
whether or not such application by the agent, attorney or other person
is opposed by this corporation.
(f) Expenses incurred by or on behalf of an Agent in defending or
investigating any proceeding shall be advanced by this corporation prior to the
final disposition of such proceeding if such Agent undertakes in writing to
repay any such advances if it is ultimately determined that such Agent is not
entitled to be indemnified. Notwithstanding the foregoing, no advance shall be
made by this corporation if a determination is reasonably and promptly made by
the Board of Directors by a majority vote of a quorum of disinterested
directors, or (if such a quorum is not obtainable or, even if obtainable, a
quorum of disinterested directors so directs) by independent legal counsel,
that, based upon the facts known to the Board or counsel at the time such
determination is made, (a) the Agent acted in bad faith or deliberately breached
a duty to the corporation or its shareholders, and (b) as a result of such
actions by the Agent, it is more likely than not that it will ultimately be
determined that such Agent is not entitled to indemnification.
(g) This Section shall create a right of indemnification for each
person referred to in this Section, whether or not the proceeding to which the
indemnification relates arose in whole or in part prior to adoption of this
Section. The indemnification provided by this Section shall not be exclusive of
any other rights to which those seeking indemnification may be entitled under
any agreement, vote of shareholders or disinterested directors or otherwise,
both as to action in an official capacity and as to action in another capacity
while holding such office, to the extent such additional rights to
indemnification are authorized in the Articles of Incorporation. The rights to
indemnity under this Section shall continue as to a person who has ceased to be
a director, officer, employee or Agent and shall inure to the benefit of the
heirs, executors and administrators of such person. Nothing contained in this
Section shall affect any right to indemnification to which persons other than
such directors and officers may be entitled by contract, insurance policy or
otherwise.
(h) No indemnification or advance shall be made under this
Section, except as provided in paragraph (d) or subparagraph (e)(3), in any
circumstance where it appears:
(1) That it would be inconsistent with a provision of the
Articles of Incorporation, these bylaws, a resolution of the
shareholders or an agreement in effect at the time of the accrual of the
alleged cause of action asserted in the proceeding in which the expenses
were incurred or other amounts were paid, which prohibits or otherwise
limits indemnification; or
(2) That it would be inconsistent with any condition
expressly imposed by a court in approving a settlement.
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(i) Upon determination by the board of directors, this
corporation may purchase and maintain insurance on behalf of any Agent of this
corporation against any liability asserted against or incurred by the Agent in
such capacity or arising out of the Agent's status as such, whether or not this
corporation would have the power to indemnify the Agent against such liability
under the provisions of this Section.
(j) This Section does not apply to any proceeding against any
trustee, investment manager or other fiduciary of an employee benefit plan in
such person's capacity as such, even though such person may also be an Agent of
this corporation as defined in paragraph (a). This corporation shall have power
to indemnify such a trustee, investment manager or other fiduciary to the extent
permitted by Section 207(f) of the California Corporations Code.
(k) As a condition precedent to the right to indemnification
under this Section, notice shall be given to this corporation in writing as soon
as practicable of any claim for which indemnity will or could be sought under
this Section. In addition, no costs, charges or expenses for which indemnity
shall be sought hereunder shall be incurred without this corporation's consent,
which consent shall not be unreasonably withheld.
(l) If a claim under this Section is not paid by this
corporation, or on its behalf, within ninety (90) days after a written claim has
been received by this corporation, the Agent may at any time thereafter bring
suit against this corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the Agent shall be entitled to be paid also the
expense of prosecuting such claim.
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CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting assistant secretary of
RemedyTemp, Inc., a California corporation; and
2. That the foregoing bylaws, consisting of ten (10) pages,
including this page, constitute the amended and restated bylaws of said
corporation as duly adopted by the shareholders of the corporation on February
18, 1998.
IN WITNESS WHEREOF, I have executed this Certificate as secretary
of the corporation effective as of the 19th day of February, 1998.
-----------------------------------
Alan M. Purdy
Assistant Secretary
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AMENDED AND RESTATED REMEDYTEMP, INC.
1996 STOCK INCENTIVE PLAN
(EFFECTIVE AS OF FEBRUARY 18, 1998)
ARTICLE I
DEFINITIONS
1.01 DEFINITIONS. Capitalized terms used in the Plan and not
otherwise defined shall have the meanings set forth below:
(a) "AWARD" means an Incentive Award or a Non-employee Director's
Option.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended
from time to time. Where the context so requires, a reference to a particular
Code section or regulation thereunder shall also be a reference to any successor
provision of the Code to such section or regulation.
(d) "COMMISSION" means the Securities and Exchange Commission.
(e) "COMMITTEE" means the committee appointed by the Board to
administer the Plan and, to the extent required to comply with Rule 16b-3 under
the Exchange Act, consisting of two or more Board members, each of whom shall be
a "Non-Employee Director" within the meaning of Rule 16b-3 under the Exchange
Act. In addition, if Incentive Awards are to be made to persons subject to
Section 162(m) of the Code and such awards are intended to constitute
Performance-Based Compensation, then each of the Committee's members shall also
be an "outside director," as such term is defined in the regulations under
Section 162(m) of the Code.
(f) "COMMON STOCK" means the Class A Common Stock of the Company,
$0.01 par value.
(g) "DIVIDEND EQUIVALENT" means a right granted by the Company
under Section 3.07 to a holder of a Stock Option, Stock Appreciation Right, or
other Award denominated in shares of Common Stock to receive from the Company
during the Applicable Dividend Period (as defined in Section 3.07) payments
equivalent to the amount of dividends payable to holders of the number of shares
of Common Stock underlying such Stock Option, Stock Appreciation Right, or other
Award.
(h) "ELIGIBLE PERSON" shall include officers or key employees,
consultants, and advisors of the Company (as determined by the Committee) other
than Non-employee Directors.
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended. Where the context so requires, a reference to a particular section of
the Exchange Act or rule thereunder shall also refer to any successor provision
to such section or rule.
(j) "FAIR MARKET VALUE" of a share of the Company's capital stock
as of a particular date shall be: (i) if the stock is listed on an established
stock exchange or exchanges
<PAGE> 37
(including, for this purpose, The Nasdaq National Market), the mean between the
highest and lowest sale prices of the stock quoted for such date in the
Transactions Index of each such exchange as averaged with such mean price as
reported on any and all other exchanges, as published in The Wall Street Journal
and determined by the Committee, or, if no sale price was quoted in any such
Index for such date, then as of the next preceding date on which such a sale
price was quoted; or (ii) if the stock is not then listed on an exchange, the
average of the closing bid and asked prices per share for the stock in the
over-the-counter market as quoted on the NASDAQ system on such date (in the case
of (i) or (ii), subject to adjustment as and if necessary and appropriate to set
an exercise price not less than 100% of the fair market value of the stock on
the date an option is granted); or (iii) if the stock is not then listed on an
exchange or quoted in the over-the-counter market, an amount determined in good
faith by the Committee; provided, however, that when appropriate, the Committee
in determining Fair Market Value of capital stock of the Company may take into
account such other factors as it may deem appropriate under the circumstances.
Notwithstanding the foregoing, the Fair Market Value of capital stock for
purposes of grants of Incentive Stock Options shall be determined in compliance
with applicable provisions of the Code. The Fair Market Value of rights or
property other than capital stock of the Company means the fair market value
thereof as determined by the Committee on the basis of such factors as it may
deem appropriate.
(k) "INCENTIVE AWARD" means any Stock Option, Restricted Stock,
Stock Appreciation Right or Dividend Equivalent granted or sold to an Eligible
Person under the Plan, but not a Non-employee Director's Option.
(l) "INCENTIVE STOCK OPTION" means a Stock Option that qualifies
as an incentive stock option under Section 422 of the Code and the regulations
thereunder.
(m) "JUST CAUSE DISMISSAL" means a termination of a Recipient's
employment for any of the following reasons: (i) the Recipient violates any
reasonable rule or regulation of the Board or the Recipient's superiors or the
Chief Executive Officer or President of the Company that results in damage to
the Company or which the Recipient fails to correct within a reasonable time
after written notice; (ii) any willful misconduct or gross negligence by the
Recipient in the discharge of the responsibilities assigned to him or her; (iii)
any willful failure to perform his or her job as required to meet Company
objectives; (iv) any wrongful conduct of a Recipient which has an adverse impact
on the Company or which constitutes a misappropriation of Company assets; (v)
the Recipient's performing services for any other person or entity which
competes with the Company while he or she is employed by the Company, without
the written approval of the Chief Executive Officer or President of the Company;
or (vi) any other conduct that the Board or Committee determines constitutes
Just Cause for Dismissal, provided, however, that if a Recipient is party to an
employment agreement with the Company providing for just cause dismissal (or
some comparable notion) of Recipient from his or her employment with the
Company, "Just Cause Dismissal" purposes of the Plan shall have the same meaning
as ascribed thereto or to such comparable notion in such employment agreement.
(n) "NON-EMPLOYEE DIRECTOR" means a director of the Company who
qualifies as a "Non-Employee Director" under Rule 16b-3 under the Exchange Act.
(o) "NON-EMPLOYEE DIRECTOR'S OPTION" means a Stock Option granted
to a Non-employee Director pursuant to Article IV of the Plan.
(p) "NON-QUALIFIED STOCK OPTION" means a Stock Option that is not
an Incentive Stock Option.
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(q) "OPTION" or "STOCK OPTION" means a right to purchase Common
Stock granted under the Plan, and can be an Incentive Stock Option or a
Non-qualified Stock Option.
(r) "PAYMENT EVENT" means the event or events giving rise to the
right to payment of a Performance Award.
(s) "PERFORMANCE AWARD" means an award granted under Section
3.03, payable in cash, Common Stock or a combination thereof, which vests and
becomes payable over a period of time upon attainment of performance criteria
established in connection with the grant of the award.
(t) "PERFORMANCE-BASED COMPENSATION" means performance-based
compensation as described in Section 162(m) of the Code and the regulations
thereunder. If the amount of compensation a Recipient will receive under any
Incentive Award is not based solely on an increase in the value of Common Stock
after the date of grant or award, the Committee, in order to qualify an
Incentive Award as performance-based compensation under Section 162(m) of the
Code and the regulations thereunder, can condition the grant, award, vesting, or
exercisability of such an award on the attainment of a preestablished, objective
performance goal. For this purpose, a preestablished, objective performance goal
may include one or more of the following performance criteria: (i) cash flow,
(ii) earnings per share (including earnings before interest, taxes, and
amortization), (iii) return on equity, (iv) total stockholder return, (v) return
on capital, (vi) return on assets or net assets, (vii) income or net income,
(viii) operating margin, (ix) return on operating revenue, and (x) any other
similar performance criteria contemplated by the regulations under Section
162(m).
(u) "PERMANENT DISABILITY" means that the Recipient becomes
physically or mentally incapacitated or disabled so that he or she is unable to
perform substantially the same services as he or she performed prior to
incurring such incapacity or disability (the Company, at its option and expense,
being entitled to retain a physician to confirm the existence of such incapacity
or disability, and the determination of such physician to be binding upon the
Company and the Recipient), and such incapacity or disability continues for a
period of three consecutive months or six months in any 12-month period or such
other period(s) as may be determined by the Committee with respect to any
Option, provided that for purposes of determining the period during which an
Incentive Stock Option may be exercised pursuant to Section 3.02(g)(ii) hereof,
Permanent Disability shall mean "permanent and total disability" as defined in
Section 22(e) of the Code.
(v) "PURCHASE PRICE" means the purchase price (if any) to be paid
by a Recipient for Restricted Stock as determined by the Committee (which price
shall be at least equal to the minimum price required under applicable laws and
regulations for the issuance of Common Stock which is nontransferable and
subject to a substantial risk of forfeiture until specific conditions are met).
(w) "RECIPIENT" means a recipient of an Award hereunder.
(x) "RESTRICTED STOCK" means Common Stock that is the subject of
an award made under Section 3.04 and which is nontransferable and subject to a
substantial risk of forfeiture until specific conditions are met as set forth in
this Plan and in any statement evidencing the grant of such Award.
(y) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
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(z) "STOCK APPRECIATION RIGHT" or "SAR" means a right granted
under Section 3.05 to receive a payment that is measured with reference to the
amount by which the Fair Market Value of a specified number of shares of Common
Stock appreciates from a specified date, such as the date of grant of the SAR,
to the date of exercise.
(aa) "STOCK PAYMENT" means a payment in shares of the Company's
Common Stock to replace all or any portion of the compensation (other than base
salary) that would otherwise become payable to a Recipient.
ARTICLE II
GENERAL
2.01 ADOPTION. The Plan has been adopted by the Board and
approved by the shareholders of the Company and is effective immediately prior
to the closing of the initial public offering of the Company's securities.
2.02 PURPOSE. The purpose of the Plan is to promote the interests
of the Company and its shareholders by using investment interests in the Company
to attract and retain key personnel, to encourage and reward their contributions
to the performance of the Company, and to align their interests with the
interests of Company's shareholders.
2.03 ADMINISTRATION OF THE PLAN. The Plan shall be administered
by the Committee, which, subject to the express provisions of the Plan, shall
have the power to construe the Plan and any agreements or memoranda defining the
rights and obligations of the Company and Recipients thereunder, to determine
all questions arising thereunder, to adopt and amend such rules and regulations
for the administration thereof as it may deem desirable, and otherwise to carry
out the terms of the Plan and such agreements and confirming memoranda. The
interpretation and construction by the Committee of any provisions of the Plan
or of any Award granted under the Plan shall be final. Any action taken by, or
inaction of, the Committee relating to the Plan or Awards shall be within the
absolute discretion of the Committee and shall be conclusive and binding upon
all persons. No member of the Committee shall be liable for any such action or
inaction except in circumstances involving bad faith of himself or herself.
Subject only to compliance with the express provisions hereof, the Committee may
act in its absolute discretion in matters related to the Plan or Awards,
provided, however, that notwithstanding anything herein to the contrary, the
Committee shall have no authority or discretion as to the selection of persons
eligible to receive Non-employee Director's Options or the timing, exercise
price, or number of shares covered by Non-employee Director's Options, which
matters are specifically governed by the Plan. Any action of the Committee with
respect to administration of the Plan shall be taken pursuant to a majority vote
or unanimous written consent of its members. Subject to the requirements of
Section 1.01(e), the Board may from time to time increase or decrease the number
of members of the Committee, remove from membership on the Committee all or any
portion of its members, and appoint such person or persons as it desires to fill
any vacancy existing on the Committee, whether caused by removal, resignation or
otherwise.
2.04 PARTICIPATION. A person shall be eligible to receive grants
of Incentive Awards under the Plan if, at the time of the Award's grant, he or
she is an Eligible Person.
2.05 SHARES OF COMMON STOCK SUBJECT TO PLAN.
(a) Plan Limit and Counting. The shares that may be issued upon
exercise of or in the form of Awards under the Plan shall be authorized and
unissued shares of Common Stock, previously issued shares of Common Stock
reacquired by the Company, and unused
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Award shares pursuant to the final sentence of this Section 2.05(a). The
aggregate number of shares that may be issued pursuant to Awards under the Plan
shall not exceed 1,225,000 shares of Common Stock, subject to adjustment in
accordance with Article V. Shares of Common Stock subject to unexercised
portions of any Award granted under the Plan that expire, terminate or are
cancelled, and shares of Common Stock issued pursuant to an Award under the Plan
that are reacquired by the Company pursuant to the terms of the Award under
which such shares were issued, will again become available for the grant of
further Awards under this Plan.
(b) Annual Limit. Notwithstanding any other provision of this
Plan, no Eligible Person shall be granted Incentive Awards with respect to more
than 100,000 shares of Common Stock in any one calendar year; provided, however,
that this limitation shall not apply if it is not required in order for the
compensation attributable to Incentive Awards hereunder to qualify as
Performance-Based Compensation. The limitation set forth in this Section 2.05(b)
shall be subject to adjustment as provided in Article V, but only to the extent
such adjustment would not affect the status of compensation attributable to
Incentive Awards hereunder as Performance-Based Compensation.
2.06 AWARDS SUBJECT TO PLAN.
(a) Terms. Each Award shall be subject to the terms and
conditions of the Plan and such other terms and conditions (whether or not
applicable to any other award) established by the Committee as are not
inconsistent with the purpose and provisions of the Plan including, without
limitation, provisions to assist the Recipient in financing the purchase of
Common Stock through the exercise of Stock Options, provisions for the
forfeiture of or restrictions on resale or other disposition of shares of Common
Stock acquired under any Award, provisions giving the Company the right to
repurchase shares of Common Stock acquired under any Award in the event the
Recipient elects to dispose of such shares, and provisions to comply with
federal and state securities laws and federal and state income tax withholding
requirements.
(b) Award Documents. Each Award granted under the Plan shall be
evidenced by an award agreement duly executed on behalf of the Company and by
the Recipient or, in the Committee's discretion, a confirming memorandum issued
by the Company to the Recipient, setting forth such terms and conditions
applicable to the Award as the Committee may in its discretion determine. Such
option agreements or confirming memoranda may but need not be identical and
shall comply with and be subject to the terms and conditions of the Plan, a copy
of which shall be provided to each Recipient and incorporated by reference into
each option agreement or confirming memorandum. Any award agreement or
confirming memorandum may contain such other terms, provisions and conditions
not inconsistent with the Plan as may be determined by the Committee.
2.07 AMENDMENTS.
(a) Amendment and Suspension of the Plan. The Board or the
Committee may, insofar as permitted by applicable laws and regulations, from
time to time suspend or discontinue the Plan or revise or amend it in any
respect whatsoever, and the Plan as so revised or amended will govern all
options thereunder, including those granted before such revision or amendment,
except that no such amendment shall impair or diminish in any material respect
any rights or impose additional material obligations under any Award theretofore
granted under the Plan without the consent of the person to whom such Award was
granted. Amendments shall be subject to approval by the Company's shareholders
only to the extent required to comply with applicable laws or regulations.
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(b) Amendment of Incentive Awards. Subject to the requirements
set forth in the Plan for amendment of particular Incentive Awards, the
Committee may, with the consent of a Recipient, make such modifications in the
terms and conditions of an Incentive Award as it deems advisable. Without
limiting the generality of the foregoing, the Committee may, in its discretion
with the consent of the Recipient, at any time and from time to time after the
grant of any Incentive Award accelerate or extend the vesting or exercise period
of the Incentive Award in whole or part, and adjust or reduce the purchase or
exercise price of Incentive Awards held by such Recipient by cancellation of
such Incentive Awards and granting of Incentive Awards at lower purchase or
exercise prices or by modification, extension or renewal of such Incentive
Awards.
(c) Other Rights. Except as otherwise provided in this Plan or in
the applicable award agreement or confirming memorandum, no amendment,
suspension or termination of the Plan will, without the consent of the
Recipient, alter, terminate, impair or adversely affect any right or obligation
under any Award previously granted under the Plan.
2.08 TERM OF PLAN. Awards may be granted under the Plan until the
tenth anniversary of the effective date of the Plan, whereupon the Plan shall
terminate. No Awards may be granted during any suspension of the Plan or after
its termination for any reason. Notwithstanding the foregoing, each Award
properly granted under the Plan shall remain in effect until such Award has been
exercised or terminated in accordance with its terms and the terms of the Plan.
2.09 RESTRICTIONS. All Awards granted under the Plan shall be
subject to the requirement that, if at any time the Company shall determine, in
its discretion, that the listing, registration or qualification of the shares
subject to Awards granted under the Plan upon any securities exchange or under
any state or federal law, or the consent or approval of any government or
regulatory body or authority, is necessary or desirable as a condition of, or in
connection with, the granting of such an Award or the issuance, if any, or
purchase of shares in connection therewith, such Award may not be exercised in
whole or in part unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Company. Unless the shares of stock covered by an Award
granted under the Plan have been effectively registered under the Securities
Act, the Company shall be under no obligation to issue such shares unless the
Recipient shall give a written representation and undertaking to the Company
satisfactory in form and scope to counsel to the Company and upon which, in the
opinion of such counsel, the Company may reasonably rely, that he or she is
acquiring such shares for his or her own account as an investment and not with a
view to, or for sale in connection with, the distribution of any such shares of
stock, and that he or she will make no transfer of the same except in compliance
with any rules and regulations in force at the time of such transfer under the
Securities Act, or any other applicable law or regulation, and that if shares of
stock are issued without such registration, a legend to this effect may be
endorsed upon the securities so issued, and the Company may order its transfer
agent to stop transfers of such shares.
2.10 NONASSIGNABILITY. No Award granted under the Plan shall be
assignable or transferable except (a) by will or by the laws of descent and
distribution, or (b) subject to the final sentence of this Section 2.10, upon
dissolution of marriage pursuant to a qualified domestic relations order or, in
the discretion of the Committee and under circumstances that would not adversely
affect the interests of the Company, pursuant to a nominal transfer that does
not result in a change in beneficial ownership. During the lifetime of a
Recipient, an Award granted to him or her shall be exercisable only by the
Recipient (or the Recipient's permitted transferee) or his or her guardian or
legal representative. Notwithstanding the foregoing, (x) no Award owned by a
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Recipient subject to Section 16 of the Exchange Act may be assigned or
transferred in any manner inconsistent with Rule 16b-3 as interpreted and
administered by the Commission and its staff, and (y) Incentive Stock Options
(or other Awards subject to transfer restrictions under the Code) may not be
assigned or transferred in violation of Section 422(b)(5) of the Code or the
Treasury Regulations thereunder, and nothing herein is intended to allow such
assignment or transfer.
2.11 WITHHOLDING TAXES. Whenever shares of stock are to be issued
upon exercise of or in connection with an Award granted under the Plan or
subsequently transferred, the Committee shall have the right to require the
Recipient to remit to the Company an amount sufficient to satisfy any federal,
state and local withholding tax requirements prior to issuance of such shares.
The Committee may, in the exercise of its discretion, allow satisfaction of tax
withholding requirements by accepting delivery of stock of the Company or by
withholding a portion of the stock otherwise issuable in connection with an
Award.
2.12 RIGHTS OF ELIGIBLE PERSONS AND RECIPIENTS. Except as
otherwise set forth herein, a Recipient or a permitted transferee of an Award
shall have no rights as a shareholder with respect to any shares issuable or
issued in connection with the Award until the date of the receipt by the Company
of all amounts payable in connection with exercise of the Award and performance
by the Recipient of all obligations thereunder. Status as an Eligible Person
shall not be construed as a commitment that any Award will be granted under this
Plan to an Eligible Person or to Eligible Persons generally. Nothing contained
in this Plan (or in award agreements or confirming memoranda or in any other
documents related to this Plan or to Awards granted hereunder) shall confer upon
any Eligible Person or Recipient any right to continue in the employ of the
Company or any of its subsidiaries or affiliates or constitute any contract or
agreement of employment or engagement, or interfere in any way with the right of
the Company or any of its subsidiaries or affiliates to reduce such person's
compensation or other benefits or to terminate the employment of such Eligible
Person or Recipient, with or without cause. No person shall have any right,
title or interest in any fund or in any specific asset (including shares of
capital stock) of the Company or any of its subsidiaries or affiliates by reason
of any Award granted hereunder. Neither this Plan (or any documents related
hereto) nor any action taken pursuant hereto shall be construed to create a
trust of any kind or a fiduciary relationship between the Company or any of its
subsidiaries or affiliates and any person. To the extent that any person
acquires a right to receive an Award hereunder, such right shall be no greater
than the right of any unsecured general creditor of the Company.
2.13 OTHER COMPENSATION PLANS. The adoption of the Plan shall not
affect any other stock option, incentive or other compensation plans in effect
for the Company, and the Plan shall not preclude the Company from establishing
any other forms of incentive or other compensation for employees, directors, or
advisors of the Company, whether or not approved by shareholders.
2.14 PLAN BINDING ON SUCCESSORS. The Plan shall be binding upon
the successors and assigns of the Company.
2.15 PARTICIPATION BY FOREIGN EMPLOYEES. Notwithstanding anything
to the contrary herein, the Committee may, consistent with the purposes of the
Plan, modify grants of Awards to confer the intended benefits of the Plan upon
Recipients who are foreign nationals or employed outside of the United States to
recognize differences in applicable law, tax policy or local custom.
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ARTICLE III
AWARDS
3.01 GRANTS OF AWARDS. Subject to the express provisions of the
Plan, the Committee may from time to time in its discretion select the Eligible
Persons to whom, and the time or times at which, Incentive Awards shall be
granted or sold, the nature of each Incentive Award, the number of shares of
Common Stock or the number of rights that make up or underlie each Incentive
Award, the period for the exercise of each Incentive Award, the performance
criteria (which need not be identical) utilized to measure the value of
Performance Awards, and such other terms and conditions applicable to each
individual Incentive Award as the Committee shall determine. The Committee may
grant at any time new Incentive Awards to an Eligible Person who has previously
received Incentive Awards or other grants (including other stock options)
whether such prior Incentive Awards or such other grants are still outstanding,
have previously been exercised in whole or in part, or are cancelled in
connection with the issuance of new Incentive Awards. The Committee may grant
Incentive Awards singly or in combination or in tandem with other Incentive
Awards as it determines in its discretion. The purchase price or initial value
and any and all other terms and conditions of the Incentive Awards may be
established by the Committee without regard to existing Incentive Awards or
other grants. Further, the Committee may amend in a manner not inconsistent with
the Plan the terms of any existing Incentive Award previously granted to such
Eligible Person, provided that the consent of the Recipient shall be required
for amendments that impair or diminish in any material respect any rights or
impose additional material obligations under the Incentive Award to be amended.
Notwithstanding the foregoing, however, members of the Committee shall not be
eligible to receive Incentive Awards.
3.02 STOCK OPTIONS.
(a) Nature of Stock Options. Stock Options may be Incentive Stock
Options or Non-qualified Stock Options; Stock Options granted as Incentive Stock
Options that fail or cease to qualify as such shall be treated as Non-qualified
Stock Options hereunder.
(b) Setting the Exercise Price. The exercise price for each
Option shall be determined by the Committee at the date such Option is granted.
The exercise price may be less than the Fair Market Value of the Common Stock
subject to the Option, provided that in no event shall the exercise price be
less than the par value of the shares of Common Stock subject to the Option, and
provided further that the exercise price of an Incentive Stock Option shall be
not less than such amount as is necessary to enable such Option to be treated as
an "incentive stock option" within the meaning of Section 422 of the Code. The
Committee, with the consent of the Recipient, and subject to compliance with
statutory or administrative requirements applicable to Incentive Stock Options,
may amend the terms of any Option (other than a Non-employee Director's Option)
to provide that the exercise price of the shares remaining subject to the Option
shall be reestablished at a price below the existing exercise price thereof or
effect a reduction in exercise price by cancellation of an existing option and
grant of a replacement option at an exercise price below the existing exercise
price thereof. If the exercise price of an Option is reduced (or such Option is
canceled for a new Option) and such Option is Performance-Based Compensation,
the reduction of the Option's price (or the cancellation and grant of a new
Option) shall be treated as the grant of a new Option and both the old and new
Option shall be taken into account for purposes of applying the stock limit of
Section 2.05(b). No modification of any other term or provision of any Option
which is amended in accordance with the foregoing shall be required, although
the Committee may, in its discretion, make such further modifications of any
such Option (other than Non-employee Director's Options) as are not inconsistent
with the Plan.
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(c) Payment of the Exercise Price. The exercise price shall be
payable upon the exercise of an Option in legal tender of the United States or
capital stock of the Company delivered in transfer to the Company by or on
behalf of the person exercising the Option and duly endorsed in blank or
accompanied by stock powers duly endorsed in blank, with signatures guaranteed
in accordance with the Exchange Act if required by the Committee, or retained by
the Company from the Stock otherwise issuable upon exercise or surrender of
vested and/or exercisable Awards or other equity incentive awards previously
granted to the Recipient and being exercised (if applicable) (in either case
valued at Fair Market Value as of the exercise date); or such other
consideration as the Committee may from time to time in the exercise of its
discretion deem acceptable in any particular instance, provided, however, that
the Committee may, in the exercise of its discretion, (i) allow exercise of an
Option in a broker-assisted or similar transaction in which the exercise price
is not received by the Company until promptly after exercise, and/or (ii) allow
the Company to loan the exercise price to the person entitled to exercise the
Option, if the exercise will be followed by a prompt sale of some or all of the
underlying shares and a portion of the sales proceeds is dedicated to full
payment of the Exercise Price and amounts required pursuant to Section 2.11.
(d) Option Period and Vesting. Options granted hereunder (other
than Non-employee Director's Options) shall vest and may be exercised as
determined by the Committee, except that exercise of such Options after
termination of the Recipient's employment shall be subject to Section 3.02(g).
Each Option granted hereunder (other than a Non-employee Director's Option) and
all rights or obligations thereunder shall expire on such date as shall be
determined by the Committee, but not later than ten years after the date the
Option is granted, or five years after the date of grant in the case of a
Recipient of an Incentive Stock Option who at the time of grant owns more than
10% of the combined voting power of the Company (after application of the
constructive ownership rules of Section 424(d) of the Code), or any Parent or
Subsidiary (as defined in Sections 424(e) and (f) of the Code, respectively),
and shall be subject to earlier termination as herein provided.
(e) Exercise of Options. Except as otherwise provided herein, an
Option may become exercisable, in whole or in part, on the date or dates
specified by the Committee (or, in the case of Non-employee Director's Options,
the Plan) and thereafter shall remain exercisable until the expiration or
earlier termination of the Option. No Option shall be exercisable except in
respect of whole shares, and fractional share interests shall be disregarded.
Not less than 100 shares of stock (or such other amount as is set forth in the
applicable option agreement or confirming memorandum) may be purchased at one
time and Options must be exercised in multiples of 100 unless the number
purchased upon exercise is the total number at the time available for purchase
under the terms of the Option. An Option shall be deemed to be exercised when
the Secretary or other designated official of the Company receives written
notice of such exercise from the Recipient, together with payment of the
exercise price and any amounts required under Section 2.11. Notwithstanding any
other provision of the Plan, the Committee may impose, by rule and in option
agreements or confirming memoranda, such conditions upon the exercise of Options
(including, without limitation, conditions limiting the time of exercise to
specified periods) as may be required to satisfy applicable regulatory
requirements, including without limitation Rule 10b-5 or Rule 16b-3 (or any
successor rule) under the Exchange Act and any applicable section of or
regulation under the Code.
(f) Limitation on Exercise of Incentive Stock Options. The
aggregate Fair Market Value (determined as of the respective date or dates of
grant) of the stock for which one or more Options granted to any Recipient under
the Plan (or any other option plan of the Company or any of its subsidiaries or
affiliates) may for the first time become exercisable as Incentive Stock Options
under the federal tax laws during any one calendar year shall not exceed
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$100,000. Any Options granted as Incentive Stock Options pursuant to the Plan in
excess of such limitation shall be treated as Non-qualified Stock Options.
(g) Termination of Employment.
(i) Termination for Cause. Except as otherwise provided
in a written agreement between the Company and the Recipient, which may be
entered into at any time before or after termination, in the event of a Just
Cause Dismissal of a Recipient all of the Recipient's unexercised Options,
whether or not vested, shall expire and become unexercisable as of the date of
such Just Cause Dismissal.
(ii) Termination other than Just Cause Dismissal. Subject
to subsection (i) above and subsection (iii) below, and except as otherwise
provided in a written agreement between the Company and the Recipient, or a
confirming memorandum issued by the Company to the Recipient with the
Recipient's consent, which may be entered into or delivered at any time before
or after termination, in the event of a Recipient's termination of employment
for:
(A) any reason other than Just Cause Dismissal,
death, or Permanent Disability, the Recipient's unexercised Options,
whether or not vested, shall expire and become unexercisable as of the
earlier of (1) the date such Options would expire in accordance with
their terms if the Recipient remained employed or (2) three calendar
months after the date of termination in the case of Incentive Stock
Options, or six months after the date of termination in the case of
Non-qualified Stock Options.
(B) death or Permanent Disability, the Recipient's
unexercised Options, whether or not vested, shall expire and become
unexercisable as of the earlier of (1) the date such Options would
expire in accordance with their terms if the Recipient remained employed
or (2) 12 months after the date of termination.
(iii) Alteration of Vesting and Exercise Periods.
Notwithstanding anything to the contrary in subsections (i) or (ii) above, the
Committee may in its discretion pursuant to Section 2.07(b) designate shorter or
longer periods to exercise Options following a Recipient's termination of
employment. Options shall be exercisable by a Recipient (or his successor in
interest) following such Recipient's termination of employment only to the
extent that installments thereof had become exercisable on or prior to the date
of such termination unless the Company has a written agreement with the
Recipient of the Option providing otherwise or the vesting period is extended
pursuant to Section 2.07(b).
3.03 PERFORMANCE AWARDS.
(a) Grant of Performance Award. The Committee shall determine the
performance criteria (which need not be identical and may be established on an
individual or group basis) governing Performance Awards, the terms thereof, and
the form and time of payment of Performance Awards.
(b) Payment of Award; Limitation. Upon satisfaction of the
conditions applicable to a Performance Award, payment will be made to the
Recipient in cash or in shares of Common Stock valued at Fair Market Value or a
combination of Common Stock and cash, as the Committee in its discretion may
determine.
(c) Annual Limit. Notwithstanding any other provision of this
Plan, no Eligible Person shall be paid a Performance Award in excess of $250,000
in any one calendar
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year; provided, however, that this limitation shall not apply to the extent it
is not required in order for the compensation attributable to the Performance
Award hereunder to qualify as Performance-Based Compensation.
(d) Expiration of Performance Award. If any Recipient's
employment with the Company is terminated for any reason other than normal
retirement, death, or Permanent Disability prior to the time a Performance Award
or any portion thereof becomes payable, all of the Recipient's rights under the
unpaid portion of the Performance Award shall expire and terminate unless
otherwise determined by the Committee. In the event of termination of employment
by reason of death, Permanent Disability or normal retirement, the Committee, in
its discretion, may determine what portions, if any, of the Performance Award
should be paid to the Recipient.
3.04 RESTRICTED STOCK.
(a) Award of Restricted Stock. The Committee shall determine the
Purchase Price (if any) applicable to Restricted Stock, the terms of payment of
the Purchase Price, the restrictions upon the Restricted Stock, and when such
restrictions shall lapse.
(b) Requirements of Restricted Stock. All shares of Restricted
Stock granted or sold pursuant to the Plan will be subject to the following
conditions:
(i) No Transfer. The shares may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of, alienated or
encumbered until the restrictions are removed or expire;
(ii) Certificates. The Committee may require that the
certificates representing Restricted Stock granted or sold to a Recipient
pursuant to the Plan remain in the physical custody of an escrow holder or the
Company until all restrictions are removed or expire;
(iii) Restrictive Legends. Each certificate representing
Restricted Stock granted or sold to a Recipient pursuant to the Plan will bear
such legend or legends making reference to the restrictions imposed upon such
Restricted Stock as the Committee in its discretion deems necessary or
appropriate to enforce such restrictions; and
(iv) Other Restrictions. The Committee may impose such
other conditions on Restricted Stock as the Committee may deem advisable
including, without limitation, restrictions under the Securities Act, under the
Exchange Act, under the requirements of any stock exchange upon which such
Restricted Stock or shares of the same class are then listed and under any blue
sky or other securities laws applicable to such shares.
(c) Lapse of Restrictions. The restrictions imposed upon
Restricted Stock will lapse in accordance with such schedule or other conditions
as are determined by the Committee.
(d) Rights of Recipient. Subject to the provisions of Section
3.04(b) and any restrictions imposed upon the Restricted Stock, the Recipient
will have all rights of a shareholder with respect to the Restricted Stock
granted or sold to such Recipient under the Plan, including the right to vote
the shares and receive all dividends and other distributions paid or made with
respect thereto.
(e) Termination of Employment. Unless the Committee in its
discretion determines otherwise, upon a Recipient's termination of employment
for any reason, all of the
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Recipient's Restricted Stock remaining subject to restrictions imposed pursuant
to the Plan on the date of such termination of employment shall be repurchased
by the Company at the Purchase Price (if any) paid therefor by the Recipient.
3.05 STOCK APPRECIATION RIGHTS.
(a) Granting of Stock Appreciation Rights. The Committee may
approve the grant to Eligible Persons of Stock Appreciation Rights, related or
unrelated to Options, at any time.
(b) SARs Related to Options.
(i) A Stock Appreciation Right granted in connection with
an Option granted under this Plan will entitle the holder of the related Option,
upon exercise of the Stock Appreciation Right, to surrender such Option, or any
portion thereof to the extent unexercised, with respect to the number of shares
as to which such Stock Appreciation Right is exercised, and to receive payment
of an amount computed pursuant to Section 3.05(b)(iii). Such Option will, to the
extent surrendered, then cease to be exercisable.
(ii) A Stock Appreciation Right granted in connection with
an Option hereunder will be exercisable at such time or times, and only to the
extent that, the related Option is exercisable, and will not be transferable
except to the extent that such related Option may be transferable.
(iii) Upon the exercise of a Stock Appreciation Right
related to an Option, the Holder will be entitled to receive payment of an
amount determined by multiplying: (i) the difference obtained by subtracting the
Exercise Price of a share of Common Stock specified in the related Option from
the Fair Market Value of a share of Common Stock on the date of exercise of such
Stock Appreciation Right (or as of such other date or as of the occurrence of
such event as may have been specified in the instrument evidencing the grant of
the Stock Appreciation Right), by (ii) the number of shares as to which such
Stock Appreciation Right is exercised.
(c) SARs Unrelated to Options. The Committee may grant Stock
Appreciation Rights unrelated to Options to Eligible Persons. Section
3.05(b)(iii) shall be used to determine the amount payable at exercise under
such Stock Appreciation Right, except that in lieu of the Option Exercise Price
specified in the related Option the initial base amount specified in the Award
shall be used.
(d) Limits. Notwithstanding the foregoing, the Committee, in its
discretion, may place a dollar limitation on the maximum amount that will be
payable upon the exercise of a Stock Appreciation Right under the Plan.
(e) Payments. Payment of the amount determined under the
foregoing provisions may be made solely in whole shares of Common Stock valued
at their Fair Market Value on the date of exercise of the Stock Appreciation
Right or, alternatively, at the sole discretion of the Committee, in cash or in
a combination of cash and shares of Common Stock as the Committee deems
advisable. The Committee has full discretion to determine the form in which
payment of A Stock Appreciation Right will be made and to consent to or
disapprove the election of a Recipient to receive cash in full or partial
settlement of a Stock Appreciation Right. If the Committee decides to make full
payment in shares of Common Stock, and the amount payable results in a
fractional share, payment for the fractional share will be made in cash.
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(f) Rule 16b-3. The Committee may, at the time a Stock
Appreciation Right is granted, impose such conditions on the exercise of the
Stock Appreciation Right as may be required to satisfy the requirements of Rule
16b-3 under the Exchange Act (or any other comparable provisions in effect at
the time or times in question).
(g) Termination of Employment. Section 3.02(g) will govern the
treatment of Stock Appreciation Rights upon the termination of a Recipient's
employment with the Company.
3.06 STOCK PAYMENTS. The Committee may approve Stock Payments of
the Company's Common Stock to any Eligible Person for all or any portion of the
compensation (other than base salary) or other payment that would otherwise
become payable by the Company to the Eligible Person in cash.
3.07 DIVIDEND EQUIVALENTS. The Committee may grant Dividend
Equivalents to any Recipient who has received a Stock Option, SAR, or other
Award denominated in shares of Common Stock. Such Dividend Equivalents shall be
effective and shall entitle the recipients thereof to payments during the
"APPLICABLE DIVIDEND PERIOD," which shall be (i) the period between the date the
Dividend Equivalent is granted and the date the related Stock Option, SAR, or
other Award is exercised, terminates, or is converted to Common Stock, or (ii)
such other time as the Committee may specify in the written instrument
evidencing the grant of the Dividend Equivalent. Dividend Equivalents may be
paid in cash, Common Stock, or other Awards; the amount of Dividend Equivalents
paid other than in cash shall be determined by the Committee by application of
such formula as the Committee may deem appropriate to translate the cash value
of dividends paid to the alternative form of payment of the Dividend Equivalent.
Dividend Equivalents shall be computed as of each dividend record date and shall
be payable to recipients thereof at such time as the Committee may determine.
Notwithstanding the foregoing, if it is intended that an Incentive Award qualify
as Performance-Based Compensation and the amount of the compensation the
Eligible Person could receive under the award is based solely on an increase in
value of the underlying stock after the date of grant or award (i.e., the grant,
vesting, or exercisability of the award is not conditioned upon the attainment
of a preestablished, objective performance goal described in Section 1.01(t)),
then the payment of any Dividend Equivalents related to the award shall not be
made contingent on the exercise of the award.
ARTICLE IV
NON-EMPLOYEE DIRECTOR'S OPTIONS
4.01 GRANTS OF ORIGINAL AND INITIAL OPTIONS.
(a) Original Options. Persons serving as Non-employee Directors
as of the closing of the initial public offering of the Company's securities
shall, upon such closing, receive a one-time grant of an option to purchase up
to 10,000 shares (or 15,000 shares if such person has served as a director of
the Company for at least two years) of the Company's Common Stock at an exercise
price per share equal to the price to the public in such initial public
offering, subject to adjustment as set forth in Article V. Options granted under
this Section 4.01(a) are "ORIGINAL OPTIONS" for purposes hereof.
(b) Initial Options. Each Non-employee Director who joins the
Board after the consummation of the initial public offering of the Company's
securities shall, upon first becoming a Non-employee Director ("Eligible
Director"), receive a one-time grant of an option to purchase up to 10,000
shares of the Company's Common Stock at an exercise price per share equal to the
Fair Market Value of the Company's Common Stock on the date of grant, subject to
(a) vesting as
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set forth in Section 4.03, and (b) adjustment as set forth in Article V. Options
granted under this Section 4.01(b) are "INITIAL OPTIONS" for purposes hereof.
4.02 GRANTS OF ADDITIONAL OPTIONS. Immediately following the
annual meeting of shareholders of the Company next following an Eligible
Director's becoming an Eligible Director, and immediately following each
subsequent annual meeting of shareholders of the Company, in each case if the
Eligible Director has served as a director since his or her election or
appointment and has been re-elected as a director at such annual meeting or is
continuing as a director without being re-elected due to the classification of
the board, such Eligible Director shall automatically receive an option to
purchase up to 5,000 shares of the Company's Common Stock (an "ADDITIONAL
OPTION"). In addition to the Additional Options described above, an individual
who was previously an Eligible Director and received an initial grant of stock
options under the Plan or pursuant to a prior option plan for the Company's
directors, who then ceased to be a director for any reason, and who then again
becomes an Eligible Director, shall upon again becoming an Eligible Director
automatically receive an Additional Option. The exercise price per share for all
Additional Options shall be equal to the fair market value of the Company's
Common Stock on the date of grant, subject to (a) vesting as set forth in
Section 4.03, and (b) adjustment as set forth in Article V. No individual may
receive Additional Options to purchase more than an aggregate of 20,000 shares
of the Company's Common Stock, less the number of additional options received
under any other option plan for the Company's directors.
4.03 VESTING. Original Options shall vest and become exercisable
with respect to all underlying shares upon grant. Initial Options shall vest and
become exercisable with respect to 50% of the underlying shares upon the date of
grant and 50% of the underlying shares immediately prior to the next annual
shareholders' meeting following the date of grant (or, if an annual meeting of
shareholders occurs within six months after the grant date, then immediately
prior to the second annual shareholders' meeting after the date of grant), if
the Recipient has remained a director from the grant date to such vesting time.
Additional Options shall vest and become exercisable with respect to all
underlying shares upon the earlier of (y) the first anniversary the grant date
or (z) immediately prior to the annual meeting of shareholders of the Company
next following the grant date, if the optionee has served as a director from the
grant date to such earlier date. Notwithstanding the foregoing, however, Initial
Options and Additional Options that have not vested and become exercisable at
the time the optionee ceases to be a director shall terminate.
4.04 EXERCISE. The exercise price for Non-employee Directors'
Options shall be payable as set forth in Section 3.02(c). Non-employee
Directors' Options shall be exercised in the manner provided in Section 3.02(e).
4.05 TERM OF OPTIONS AND EFFECT OF TERMINATION. Notwithstanding
any other provision of the Plan, no Non-employee Director's Option granted under
the Plan shall be exercisable after the expiration of ten years from the
effective date of its grant. In the event that the recipient of any Non-employee
Directors' Options granted under the Plan shall cease to be a director of the
Company, (a) all Original Options and Initial Options granted under this plan to
such recipient shall be exercisable, to the extent already exercisable at the
date such recipient ceases to be a director and regardless of the reason the
recipient ceases to be a director, for a period of 365 days after that date (or,
if sooner, until the expiration of the option according to its terms), and shall
then terminate; and (b) all Additional Options granted under this Plan to such
recipient shall be exercisable, to the extent already exercisable at the date
such recipient ceases to be a director, for a period of 365 days after that date
(or, if sooner, until the expiration of the option according to its terms) if he
or she ceases to be a director because of death or permanent disability, or for
a period of 90 days after that date (or, if sooner, until the expiration of the
option
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<PAGE> 50
according to its terms) if he or she ceases to be a director for any other
reason, and shall then terminate. In the event of the death of an optionee while
such optionee is a director of the Company or within the period after
termination of such status during which he or she is permitted to exercise an
option, such option may be exercised by any person or persons designated by the
optionee on a beneficiary designation form adopted by the Plan administrator for
such purpose or, if there is no effective beneficiary designation form on file
with the Company, by the executors or administrators of the optionee's estate or
by any person or persons who shall have acquired the option directly from the
optionee by his or her will or the applicable laws of descent and distribution.
ARTICLE V
CORPORATE TRANSACTIONS
5.01 ANTI-DILUTION ADJUSTMENTS. The number of shares of Common
Stock available for issuance upon exercise of Awards granted under the Plan, the
number of shares for which each Award can be exercised, and the exercise price
per share of Awards shall be appropriately and proportionately adjusted for any
increase or decrease in the number of issued and outstanding shares of Common
Stock resulting from a subdivision or consolidation of shares or the payment of
a stock dividend or any other increase or decrease in the number of issued and
outstanding shares of capital stock of the Company effected without receipt of
consideration by the Company. No fractional interests will be issued under the
Plan resulting from any such adjustments. The preceding sentence shall not
result in an adjustment to the terms of an Incentive Stock Option unless such
adjustment either (a) would not cause the Option to lose its status as an
Incentive Stock Option or (b) is agreed to in writing by the Committee and the
Recipient.
5.02 REORGANIZATIONS; MERGERS; CHANGES IN CONTROL. Subject to the
other provisions of this Section 5.02, if the Company shall consummate any
reorganization or merger or consolidation in which holders of shares of the
Company's Common Stock are entitled to receive in respect of such shares any
other consideration (including, without limitation, a different number of such
shares), each Award outstanding under the Plan exercisable for Common Stock
shall thereafter be exercisable, in accordance with the Plan, only for the kind
and amount of securities, cash and/or other property receivable upon such
reorganization or merger or consolidation by a holder of the same number of
shares of Common Stock as are subject to that Award immediately prior to such
reorganization or merger or consolidation, and any appropriate adjustments will
be made to the exercise price thereof. In addition, if a Change in Control (as
defined below) occurs and in connection with such Change in Control any
Recipient's employment with the Company is terminated, then subject to the terms
of any written employment agreement between the Company and the Recipient and
the specific terms of any Award, such Recipient shall have the right to exercise
or receive the full benefit of his or her Awards granted under the Plan in whole
or in part during the applicable time period provided in Section 3.02(g) without
regard to any vesting or performance requirements or other milestones. For
purposes hereof, but without limitation, a Recipient's employment with the
Company will be deemed to have been terminated in connection with a Change of
Control if (i) the Recipient is removed from his or her employment with the
Company by or resigns his or her employment with the Company upon request of a
Person (as defined in paragraph (a) below) exercising practical voting control
over the Company following the Change in Control or a person acting upon
authority or at the instruction of such Person, or (ii) the Recipient's position
is eliminated as a result of a reduction in force within 150 days after the
consummation of the Change in Control. In addition, if a Change in Control
occurs and in connection with such Change in Control any recipient of a
Non-employee Director's Option granted under the Plan ceases to be a director of
the Company or its successor, then such recipient shall have the right to
exercise his or her Non-Employee Director's Options granted under the Plan in
whole or in part during the applicable time period provided in Section 4.05
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without regard to any vesting requirements. For purposes hereof, but without
limitation, a director will be deemed to have ceased to be a director of the
Company or its successor in connection with a Change in Control if such director
(i) is removed by or resigns upon request of a Person (as defined in paragraph
(a) below) exercising practical voting control over the Company following the
Change in Control or a person acting upon authority or at the instruction of
such Person, or (ii) is willing and able to continue as a director of the
Company or its successor but is not re-elected to or retained on the Company's
board of directors by the Company's shareholders through the shareholder vote or
consent action for election of directors that precedes and is taken in
connection with, or next follows, the Change in Control, and is not elected or
appointed to the board of directors of the successor. For purposes hereof, a
"CHANGE IN CONTROL" means the following and shall be deemed to occur if any of
the following events occur:
(a) Any person, entity or group, within the meaning of Section
13(d) or 14(d) of the Exchange Act, but excluding the Company, its subsidiaries,
any employee benefit or stock ownership plan of the Company or its subsidiaries,
and any shareholder of the Company who, together with such shareholder's
Affiliates, owned at least 25% of the Common Stock prior to the effective date
of the Plan ("affiliate" being defined for such purpose as an entity controlled
by or under common control with such shareholder), and also excluding an
underwriter or underwriting syndicate that has acquired the Company's securities
solely in connection with a public offering thereof (such person, entity or
group being referred to herein as a "Person"), becomes the beneficial owner
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or
more of either the then outstanding shares of Common Stock or the combined
voting power of the Company's then outstanding securities entitled to vote
generally in the election of directors; or
(b) Individuals who, as of the effective date hereof, constitute
the Board of Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of Directors of the
Company, provided that any individual who becomes a director after the effective
date hereof whose election, or nomination for election by the Company's
shareholders, is approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered to be a member of the
Incumbent Board; or
(c) Consummation by the Company of the sale or other disposition
by the Company of all or substantially all of the Company's assets or a
reorganization or merger or consolidation of the Company with any other person,
entity or corporation, other than
(i) a reorganization or merger or consolidation that would
result in the voting securities of the Company outstanding immediately prior
thereto (or, in the case of a reorganization or merger or consolidation that is
preceded or accomplished by an acquisition or series of related acquisitions by
any Person, by tender or exchange offer or otherwise, of voting securities
representing 5% or more of the combined voting power of all securities of the
Company, immediately prior to such acquisition or the first acquisition in such
series of acquisitions) continuing to represent, either by remaining outstanding
or by being converted into voting securities of another entity, more than 50% of
the combined voting power of the voting securities of the Company or such other
entity outstanding immediately after such reorganization or merger or
consolidation (or series of related transactions involving such a reorganization
or merger or consolidation), or
(ii) a reorganization or merger or consolidation effected
to implement a recapitalization or reincorporation of the Company (or similar
transaction) that does not result in a material change in beneficial ownership
of the voting securities of the Company or its successor; or
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(d) Approval by the shareholders of the Company or an order by a
court of competent jurisdiction of a plan of liquidation of the Company.
5.03 DETERMINATION BY THE COMMITTEE. To the extent that the foregoing
adjustments relate to stock or securities of the Company, such adjustments shall
be made by the Committee, whose determination in that respect shall be final,
binding and conclusive. The grant of an Award pursuant to the Plan shall not
affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell, or
transfer all of any part of its business or assets.
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<PAGE> 53
REMEDYTEMP, INC.
32122 CAMINO CAPISTRANO
SAN JUAN CAPISTRANO, CALIFORNIA 92675
December 16, 1997
Mr. Greg Palmer
26481 Broken Bit Lane
Laguna Hills, CA 92653
Dear Greg:
I am delighted to confirm the agreement between you and RemedyTemp, Inc.
(the "Company") as to the terms of your employment with the Company. Those terms
are as follows:
1. POSITION. You will be employed as the Chief Operating Officer of the
Company, subject to the direction, control of, and reporting to, the Chief
Executive Officer of the Company. You agree to devote your full business time
and energies to the business and affairs of the Company, to use your best
efforts, skill and abilities to promote the Company's interests and to perform
your duties in accordance with policies, standards and practices established
from time to time by the Chief Executive Officer, the Board of Directors or a
committee thereof. Your duties may also include serving as an officer and/or
director of any subsidiaries or other affiliates of the Company as reasonably
requested. While employed by the Company, you agree that you will not render
services to others or engage in any other activities that would interfere with
or prevent your fulfilling your obligations to the Company. You agree that you
will not serve on any boards of directors without the prior written approval of
the Company's Board of Directors.
2. BASE SALARY. Your base salary will be at the annual rate of $325,000
per annum. Your effective start date will be on or about January 1, 1998 but no
later than January 12, 1998 (the "Start Date"). Your salary will be payable on
the same date as salaries to other executives of the Company are paid. The
amount of your base salary may be increased annually at the discretion of the
Compensation Committee of the Board of Directors.
3. INCENTIVE COMPENSATION. In addition to your base salary, you will be
paid a cash bonus within one hundred (100) days after the end of each full
fiscal year of the Company in an amount to be determined by the Compensation
Committee of the Board of Directors; provided, however, that there will be a
maximum bonus level of 100% of your base salary with no minimum bonus level. The
exact amount of your bonus will be based upon two factors: (1) the same
objective Company financial criteria applied to determine the bonus for the
Chief Executive Officer; and (2) the MBO objectives established by the Chief
Executive Officer.
4. EQUITY PARTICIPATION.
4.1. INITIAL GRANT. Before or on the Start Date, the Board of
Directors or Compensation Committee will grant to you an initial option grant
(the "Initial Option") to
<PAGE> 54
purchase 125,000 shares of the Company's Class A Common Stock ("Common Stock")
at an exercise price equal to the fair market value of the shares on the date of
grant. The grant of the Initial Option is subject to shareholder approval. The
Initial Option will vest and become exercisable at a rate of twenty percent
(20%) per year over a five (5) year period with the first twenty percent (20%)
becoming first exercisable twelve (12) months from the grant date. The Initial
Option, once vested, will be exercisable until the tenth anniversary from the
date of grant. Unless specifically provided for herein, other terms and
conditions will be the same as those for options under the Company's stock
option plan.
4.2. ADDITIONAL GRANTS. At the first meeting of the Compensation
Committee of the Board of Directors after the end of each fiscal year, you will
receive a regular annual grant of an option to purchase 50,000 shares of Common
Stock, which shall be vested in accordance with the vesting schedule (but no
longer than five (5) years) adopted by the Compensation Committee for all
executive officers who receive options at that time, or pursuant to the
direction of the Compensation Committee if no other options are awarded. The
options, once vested, will be exercisable until the tenth anniversary from the
date of grant. Other terms and conditions will be governed by the Company's
stock option plan.
4.3. OPTIONS UPON TERMINATION. If the Company terminates your
employment without cause, your severance benefits (including vesting of options)
will be governed by Section 8 and Section 9 of this letter agreement. If the
Company terminates your employment "for cause," as defined in Section 8, then
all of your unexercised options, whether or not vested, shall expire and become
unexercisable as of the date of such "for cause" termination.
In order to permit a so called "cashless exercise" of your
option, the Company will cooperate with you to permit you to exercise the option
(to the extent it is then exercisable), immediately sell the shares and apply
the proceeds of sale to the exercise price but only to the extent the Company
can do so without violating any applicable provision of law and only if the
shares purchased are at the time registered under the Securities Act of 1933 and
can be sold by you under Rule 144 of the Securities and Exchange Commission or
any successor provision.
5. INDEMNIFICATION. The Company will enter into its customary form of
indemnification agreement applicable to directors and executive officers of the
Company and will also indemnify you for losses relating to claims against you by
your former employer in connection with your non-compete agreement with your
former employer.
6. PERQUISITES. The Company will provide you with a monthly car
allowance of $1,000 and will reimburse you for your business-related fuel
expenses while you are employed with the Company. In addition, the Company will
provide you with a membership at the Marbella Country Club and will pay the
standard dues and fees with respect to that membership while you are employed
with the Company. You will also be eligible, as of the April 1, 1998, to
participate in the health insurance, disability insurance, life insurance and
retirement programs made available from time to time by the Company to other
executive officers. The Company agrees to reimburse you for any health insurance
expenses incurred by you under COBRA until March 30, 1998. You will be entitled
to four (4) weeks paid vacation each calendar year effective as of the Start
Date. The Company will reimburse you for all reasonable out-of-pocket business
expenses incurred in
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<PAGE> 55
performing the services contemplated by this letter agreement in accordance with
then prevailing Company policies, provided that reasonable documentation of such
expenses is provided by you.
7. DEATH AND DISABILITY. If you become disabled and are unable to
perform your duties, the Company will continue to pay your salary and provide
the perquisites referred to in Section 6 for the period of such disability up to
a maximum of 90 days, and the Company will have the right to terminate this
letter agreement effective upon the expiration of said 90-day period. Thereafter
you will be entitled to receive benefits under any then-existing disability
insurance program of the Company. "Disability" means any physical or mental
condition which renders you unable to perform the essential functions of your
position, even with reasonable accommodation. In the event of your death, this
letter agreement shall automatically terminate.
8. SEVERANCE BENEFITS. In the event of termination of your employment by
the Company without cause at any time, the Company will pay you, as a lump-sum
severance benefit, the amount of your annual base salary then in effect (less
appropriate withholding amounts) plus maximum annual bonus equal to 100% of your
then annual salary, and the Company will release any and all shares of Common
Stock held for your benefit in any deferred compensation account with the
Company without penalty. Such severance payments will be made on the normal
salary and bonus payment days of the Company.
For purposes of this Section 8 and Section 4.3, termination for cause
shall mean termination for one of the following reasons: personal dishonesty;
willful misconduct; breach of fiduciary duty involving self-dealing or personal
profit; intentional material failure to perform duties or abide by Company
policies, in each case to the extent such duties or policies have been
communicated to you in writing or their existence is otherwise known to you and
you have not cured such failure within a reasonable time after written notice of
such failure is given to you; conviction, entry of a plea of guilty or nolo
contendere in connection with any alleged violation, or any actual violation, of
any law, rule, regulation (other than traffic violations or similar offenses) or
any cease-and-desist or other court order; involvement in any legal proceeding
which, in the opinion of legal counsel to the Company, would be required to be
disclosed pursuant to rules and regulations of the Securities and Exchange
Commission, other than proceedings under federal bankruptcy laws or state
insolvency laws involving entities in which you have less than a fifty percent
(50%) interest; any intentional material breach of this letter agreement;
non-prescription use of any controlled substance or the use of alcohol or any
other non-controlled substance which the Board of Directors reasonably
determines renders you unfit to serve in your capacity as an officer of the
Company; or any intentional act or omission which the Board of Directors
reasonably determines has a material adverse effect on the public image,
reputation or integrity of the Company. Termination for cause shall not include
termination on account of job performance failing to meet criteria or
expectations of the Board.
If you voluntarily resign, or your employment is terminated by the
Company for cause, or your employment terminates as a result of your death or
disability, you will not be entitled to any severance benefits pursuant to the
first paragraph of this Section 8 except as provided in Section 7 with respect
to disability pay and disability insurance and except in the case of death for
any life insurance benefits. In the event that a voluntary resignation by you is
caused by a substantial reduction in your duties and responsibilities below
those appropriate for your
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<PAGE> 56
position as provided in Section 1, an intentional material breach of this letter
agreement or material misrepresentation by the Company, or any other material
change in the circumstances of your employment made by the Company for the
purpose and with the intention and effect of causing you to resign, you will be
treated as having been terminated by the Company without cause.
Notwithstanding the above, in lieu of the severance package
described in this Section 8, you will receive a severance package equal in value
to three (3) times your average annual total compensation (subject to the
maximum parachute limitations of the Internal Revenue Code) for the years that
you have been employed by the Company if all of the following three (3)
conditions occur in connection with a Change in Control of the Company:
(a) your employment with the Company is terminated;
(b) the Board of Directors of the Company, in its sole
discretion, determines that the market value of the Company has been adversely
impacted primarily as the result of forces beyond your control; and
(c) the spread between the closing price of the Company's
Class A Common Stock and the exercise price of the Initial Option is negative or
zero or less than $8.00 as of the date of termination of your employment.
9. SPECIAL OPTION VESTING EVENTS.
9.1. CHANGE IN CONTROL. A "Change in Control" of the Company
shall be deemed to have occurred if: (i) there shall be consummated (x) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of the Company's
Common Stock are converted into cash, securities or other property, other than a
merger of the Company in which the holders of the Company's Common Stock
immediately prior to the merger have the same proportionate ownership of common
stock of the surviving corporation immediately after the merger, or (y) any
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, of the assets of the
Company, or (ii) the shareholders of the Company shall approve any plan or
proposal for the liquidation or dissolution of the Company, or (iii) any person
(as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")), shall become the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of 51% or more of the
Company's outstanding Common Stock, or (iv) during any period of two consecutive
years, individuals who at the beginning of such period constitute the entire
Board of Directors shall cease for any reason to constitute a majority thereof
unless the election, or the nomination for election by the Company's
shareholders, of each new director was approved by a vote of at least a majority
of the directors then still in office who were directors at the beginning of the
period.
In the event that there is a Change in Control of the Company and
your employment with the Company is terminated by the Company within one (1)
year of such Change in Control event for any reason, except for cause, all
options to purchase shares of the Common
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<PAGE> 57
Stock that had been granted to you as of the date of such termination shall
become fully vested and exercisable for the balance of their term; provided that
the Company has the right to cash out these options in a Change in Control
transaction.
9.2. VOLUNTARY TERMINATION OF EMPLOYMENT. If you voluntarily
terminate your employment with the Company, all options granted that are not
vested as of such voluntary termination date will expire. In such case, you will
have the right to exercise your options with respect to the number of shares
that are exercisable on the date of termination (determined without any
acceleration of the exercise dates) at any time within three (3) months after
the date of resignation.
9.3. TERMINATION OF EMPLOYMENT WITHOUT CAUSE. If your employment
is terminated by the Company without cause, your granted options will vest
automatically and will remain exercisable for the balance of their term. Options
that have not been granted as of the date of termination are void and without
legal effect.
10. TERM OF EMPLOYMENT. The term of this letter agreement shall be for
five (5) years, commencing on the Start Date, unless terminated earlier as
provided in this letter agreement.
11. NONDISCLOSURE. You agree that, for so long as you remain in the
employ of the Company and thereafter, you will not disclose to any person or
entity or otherwise use or exploit any proprietary or confidential information
of the Company, including without limitation trade secrets, processes,
proposals, reports, methods, computer software or programming or budgets or
other financial information regarding the Company, its business, properties,
customers or affairs obtained by you while you are employed by the Company,
except to the extent required by you to perform your duties pursuant to this
letter agreement. Information will not be deemed to be confidential for purposes
of this letter agreement if it is or becomes generally available to the public
other than as a result of a disclosure by you. You will have the right to use
any such confidential information to the extent necessary to assert any right or
defend against any claim arising under this letter agreement or pertaining to
confidential information or its use and to the extent necessary to comply within
the applicable provision of law. All files, records, documents, computer
recorded information, specifications and other similar items relating to the
business of the Company, whether prepared by you or otherwise coming into your
possession, shall remain the exclusive property of the Company and shall not be
removed from the premises of the Company except when (and only for the period)
necessary to carry out your duties. If removed, all such materials shall be
immediately returned to the Company upon any termination of your employment, and
no copies thereof shall be kept by you, except that you shall be entitled to
retain documents reasonably related to your rights as an optionholder,
stockholder and former employee of the Company. You acknowledge and agree that
the remedy for any breach of the provisions of this Section 10 may be inadequate
in that the Company may, in addition to all other remedies that may be available
to it at law, seek injunctive relief prohibiting any such breach.
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<PAGE> 58
12. NONINTERFERENCE WITH BUSINESS. During the period of your employment
and for any one (1) year period thereafter (regardless of the reason for
termination of employment) you agree that you will not participate with or
advise in any capacity any person or entity in any negotiation between such
person or entity and the Company or any affiliate of the Company. In addition,
during such period you agree that you will not, directly or indirectly, solicit
or induce (or assist in or encourage the solicitation of) any employee of the
Company or its affiliated entities to leave the employ of the Company for
purposes of accepting employment with any other person or entity. For purposes
of this letter agreement "affiliate" means the corporation or other entity
controlled by the Company, directly or indirectly, through stock ownership or
any other means.
13. DEFERRED COMPENSATION.
13.1. PARTICIPATION IN COMPANY PLANS. You will be eligible to
participate in any and all of the Company's deferred compensation plans that are
made available to executive officers of the Company.
13.2. SPECIAL DEFERRED COMPENSATION. In addition to participation
in any Company sponsored deferred compensation plan under Section 13.1 of this
letter agreement, you may participate in a special deferred compensation plan
designed for you providing for a one-time deferral of $100,000, which amount
shall be invested in the Common Stock on the Start Date and deferred during the
term of this letter agreement.
14. ASSIGNMENT. This letter agreement is personal to you and is not
assignable by you under any circumstances. Likewise, the Company will not have
the right to assign this letter agreement to any other person or entity except
for any corporation or entity into which the Company may be merged or
consolidated or any person or entity which may acquire all or a substantial
portion of the assets of the Company.
15. ENTIRE AGREEMENT. This letter agreement sets forth the entire
understanding of you and the Company with respect to the subject matter hereof
and supersedes all prior agreements, memoranda, discussions and understandings
of any kind. This letter agreement cannot be amended except in a writing signed
by you and the Company, and no course of dealing contrary to its terms shall
constitute an amendment. No right or obligation hereunder can be waived except
in a writing signed by the party making the waiver.
16. PARTIAL INVALIDITY. If any provision of this letter agreement is
invalid or unenforceable in any jurisdiction that provision shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any way affecting the remaining provisions of this
letter agreement.
17. GOVERNING LAW. This letter agreement shall be construed and enforced
in accordance with the substantive law of the State of California without regard
to provisions relating to choice of law or conflict of laws.
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18. REFERENCE CHECK. This letter agreement shall not become legally
effective or binding until the completion of a reference check by the Company
that is satisfactory to the Chief Executive Officer and the Board of Directors
in their discretion; provided, however, that the reference check will be
completed no later fifteen (15) days after this agreement is signed by both
parties.
If this letter correctly sets forth the terms of our agreement with
respect to your employment, please execute this letter and the enclosed copy in
the place indicated and return the copy to me, and thereupon (subject to Section
18) this letter shall become a binding and enforceable agreement between you and
the Company.
Sincerely,
/s/ Paul W. Mikos
-------------------------------------
Paul W. Mikos
Chief Executive Officer and President
AGREED:
/s/ Greg Palmer
- --------------------------------
Greg Palmer
Dated: December 16, 1997
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